THIS DOCUMENT IS A COPY
OF THE FORM 10-Q FILED ON
AUGUST 15, 2001 PURSUANT
TO A RULE 201 TEMPORARY
HARDSHIP EXEMPTION
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended Commission File Number 0-10592
June 30, 2001
TRUSTCO BANK CORP NY
(Exact name of registrant as specified in its charter)
NEW YORK 14-1630287
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)
5 SARNOWSKI DRIVE, GLENVILLE, NEW YORK 12302
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (518) 377-3311
Securities registered pursuant to Section 12(b) of the Act:
Name of exchange on
Title of each class which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
(Title of class)
Common
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes.(x) No.( )
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
<Table>
<Caption>
Number of Shares Outstanding
Class of Common Stock as of July 31, 2001
- --------------------- ----------------------------
$1 Par Value 61,866,878
</Table>
TrustCo Bank Corp NY
INDEX
Part I. FINANCIAL INFORMATION PAGE NO.
_______________________________________________________________________________
Item 1. Interim Financial Statements (Unaudited): Consolidated
Statements of Income for the Three Months and Six Months Ended 1
June 30, 2001 and 2000
Consolidated Statements of Financial Condition as of June 30,
2001 and December 31, 2000 2
Consolidated Statements of Cash Flows for the Six Months Ended
June 30, 2001 and 2000 3 - 4
Notes to Consolidated Interim Financial Statements 5 - 8
Independent Accountants' Review Report 10
Item 2. Management's Discussion and Analysis 11 - 22
Item 3. Quantitative and Qualitative Disclosures About Market Risk 23
Part II. OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 2. Changes in Securities and use of Proceeds - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submissions of Matters to Vote of Security Holders - Annual
Meeting 34
Item 5. Other Information - None
i
Item 6.Exhibits and Reports on Form 8-K
(a) Exhibits
Reg S-K (Item 601)
Exhibit No. Description
Page No.
________________________________________________________________________________
10(a) Amendment No. 6 to Employment agreement between
Trustco Bank, National Association and TrustCo Bank
Corp NY and Robert A. McCormick 26
10(b) Amendment No. 2 to Second Restatement of Trustco
Bank Supplemental Retirement Plan 28
10(c) Amendment No. 3 to Restatement of Trustco Bank
Executive Officer Incentive Plan 30
10(d) Amendment No. 4 to Restated Agreement for
Supplemental Retirement Benefits for
Robert A. McCormick 32
22 Submission of Matters to Vote of Security
Holders - Annual Meeting 34
(b) Reports on Form 8-K
Filing of Form 8-K on May 16, 2001, regarding May 15, 2001, letter to
shareholders which contained discussion of May 14, 2001, annual meeting of
shareholders, and a press release dated May 15, 2001, declaring a cash
dividend of $0.15 per share payable on July 2, 2001, to shareholders of
record June 8, 2001, is incorporated herein by reference.
Filing of Form 8-K on July 17, 2001, regarding two press releases dated
July 17, 2001, detailing second quarter financial results, is incorporated
herein by reference.
ii
TRUSTCO BANK CORP NY
Consolidated Statements of Income
(dollars in thousands, except per share data)
(Unaudited)
<Table>
<Caption>
3 Months Ended 6 Months Ended
June 30 June 30
--------------------- -------------------
2001 2000 2001 2000
-------- ------ ------ ------
Interest and dividend income:
Interest and fees on loans ................. $ 29,747 27,779 59,789 55,211
Interest on U. S. Treasuries and agencies .. 2,706 3,947 5,900 7,871
Interest on states and political
subdivisions .............................. 2,664 1,966 5,032 3,836
Interest on mortgage-backed securities ..... 2,884 3,850 6,478 7,603
Interest and dividends on other securities . 1,205 1,610 2,063 3,288
Interest on federal funds sold ............. 3,251 3,880 7,024 7,467
-------- ------ ------ ------
Total interest income ................... 42,457 43,032 86,286 85,276
-------- ------ ------ ------
Interest expense:
Interest on deposits:
Interest-bearing checking ............... 742 728 1,459 1,443
Savings ................................. 4,092 4,268 8,032 8,562
Money market deposit accounts ........... 418 380 817 781
Time deposits ........................... 11,606 10,814 24,094 21,459
Interest on short-term borrowings .......... 1,893 2,035 4,265 3,781
Interest on long-term debt ................. 11 -- 24 --
-------- ------ ------ ------
Total interest expense ................... 18,762 18,225 38,691 36,026
-------- ------ ------ ------
Net interest income ...................... 23,695 24,807 47,595 49,250
Provision for loan losses ................... 1,120 800 2,615 1,650
-------- ------ ------ ------
Net interest income after provision
for loan losses ......................... 22,575 24,007 44,980 47,600
-------- ------ ------ ------
Noninterest income:
Trust department income .................... 1,967 2,184 4,030 4,270
Fees for other services to customers ....... 2,655 2,303 4,963 4,362
Net gain / (loss) on securities transactions 2,067 (2,320) 3,209 (3,369)
Other ...................................... 792 888 1,605 1,594
-------- ------ ------ ------
Total noninterest income .................. 7,481 3,055 13,807 6,857
-------- ------ ------ ------
Noninterest expenses:
Salaries and employee benefits ............. 6,600 5,736 13,223 12,108
Net occupancy expense ...................... 1,471 1,187 2,800 2,372
Equipment expense .......................... 972 1,078 2,320 2,293
FDIC insurance expense ..................... 94 102 188 206
Professional services ...................... 726 897 1,317 1,562
Other real estate expenses / (income) ...... (28) (258) (188) (302)
Other ...................................... 3,105 2,690 5,541 5,115
-------- ------ ------ ------
Total noninterest expenses ................ 12,940 11,432 25,201 23,354
-------- ------ ------ ------
Income before taxes ...................... 17,116 15,630 33,586 31,103
Applicable income taxes ..................... 5,444 5,133 10,616 10,336
-------- ------ ------ ------
Net income .............................. $ 11,672 10,497 22,970 20,767
======== ====== ====== ======
Net income per Common Share:
- Basic ................................. $ 0.189 0.171 0.372 0.338
======== ====== ====== ======
- Diluted ............................... $ 0.182 0.166 0.359 0.327
======== ====== ====== ======
</Table>
Per share data is adjusted for the effect of the 15% stock split declared
August, 2000.
See accompanying notes to consolidated interim financial statements.
1
TRUSTCO BANK CORP NY
Consolidated Statements of Financial Condition
(dollars in thousands, except share data)
<Table>
<Caption>
6/30/01 12/31/00
----------- ----------
ASSETS:
(Unaudited)
Cash and due from banks .................................. $ 44,370 45,956
Federal funds sold ....................................... 277,292 299,490
----------- ----------
Total cash and cash equivalents ........................ 321,662 345,446
Securities available for sale:
U. S. Treasuries and agencies 147,857 ................... 189,562
States and political subdivisions ....................... 223,924 173,195
Mortgage-backed securities .............................. 109,740 188,602
Other ................................................... 122,936 53,925
----------- ----------
Total securities available for sale .................... 604,457 605,284
----------- ----------
Loans:
Commercial .............................................. 202,444 199,728
Residential mortgage loans .............................. 1,164,153 1,119,437
Home equity line of credit .............................. 124,998 130,739
Installment loans ....................................... 22,543 26,134
----------- ----------
Total loans ............................................ 1,514,138 1,476,038
----------- ----------
Less:
Allowance for loan losses ............................... 56,944 56,298
Unearned income ......................................... 913 990
----------- ----------
Net loans ............................................... 1,456,281 1,418,750
Bank premises and equipment .............................. 19,135 17,416
Real estate owned ........................................ 1,659 1,911
Other assets ............................................. 68,607 67,391
----------- ----------
Total assets .......................................... $ 2,471,801 2,456,198
=========== ==========
LIABILITIES:
Deposits:
Demand .................................................. $ 188,223 191,260
Interest-bearing checking ............................... 276,909 277,543
Savings accounts ........................................ 614,371 588,595
Money market deposit accounts ........................... 62,558 56,917
Certificates of deposit (in denominations of
$100,000 or more) ...................................... 131,209 123,211
Time deposits ........................................... 737,425 773,465
----------- ----------
Total deposits ......................................... 2,010,695 2,010,991
Short-term borrowings .................................... 204,522 192,898
Long-term debt ........................................... 770 911
Accrued expenses and other liabilities ................... 54,780 55,555
----------- ----------
Total liabilities ...................................... 2,270,767 2,260,355
----------- ----------
SHAREHOLDERS' EQUITY:
Capital stock par value $1; 100,000,000 shares authorized,
and 65,798,563 and 65,172,317 shares issued June 30, 2001
and December 31, 2000, respectively .................... 65,799 65,172
Surplus .................................................. 79,838 78,407
Undivided profits ........................................ 61,395 56,923
Accumulated other comprehensive income:
Net unrealized gain on securities available for sale ... 22,777 20,539
Treasury stock at cost - 4,093,038 and 3,801,267 shares at
June 30, 2001 and December 31, 2000, respectively ...... (28,775) (25,198)
----------- ----------
Total shareholders' equity ............................. 201,034 195,843
----------- ----------
Total liabilities and shareholders' equity ............. $ 2,471,801 2,456,198
=========== ==========
</Table>
See accompanying notes to consolidated interim financial statements.
2
TRUSTCO BANK CORP NY
Consolidated Statements of Cash Flows (Unaudited)
(dollars in thousands)
<Table>
<Caption>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
SIX MONTHS ENDED June 30, 2001 2000
--------- --------
Cash flows from operating activities:
Net income ............................................. $ 22,970 20,767
--------- --------
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization ........................ 1,070 976
Gain on sales of fixed assets ........................ -- (52)
Provision for loan losses ............................ 2,615 1,650
Loss on sale of securities available for sale ........ 355 3,817
Gain on sale of securities available for sale ........ (3,540) (361)
Provision for deferred tax expense/(benefit) ......... (1,297) 98
Decrease in taxes receivable ......................... 3,844 1,218
Increase in interest receivable ...................... (34) (729)
Increase/(decrease) in interest payable .............. (605) 168
Increase in other assets ............................. (5,446) (5,521)
Decrease in accrued expenses ......................... (228) (407)
--------- --------
Total adjustments .................................. (3,266) 857
--------- --------
Net cash provided by operating activities .............. 19,704 21,624
--------- --------
Cash flows from investing activities:
Proceeds from sales and calls of securities
available for sale .................................. 188,108 93,739
Purchase of securities available for sale ............ (182,016) (148,643)
Proceeds from maturities and calls
of securities available for sale .................... 1,771 40,534
Net increase in loans ................................ (41,137) (27,821)
Proceeds from dispositions of real estate owned ...... 1,176 1,302
Proceeds from sales of fixed assets .................. 61 120
Capital expenditures ................................. (2,678) (939)
--------- --------
Net cash used in investing activities .............. (34,715) (41,708)
--------- --------
Cash flows from financing activities:
Net decrease in deposits ............................. (296) (15,765)
Increase in short-term borrowings .................... 11,624 9,327
Repayment of long-term debt .......................... (141) --
Proceeds from exercise of stock options .............. 2,057 1,017
Proceeds from sale of treasury stock ................. 3,349 3,045
Purchase of treasury stock ........................... (6,926) (4,781)
Dividends paid ....................................... (18,440) (16,044)
--------- --------
Net cash used in financing activities .............. (8,773) (23,201)
--------- --------
Net decrease in cash and cash equivalents .............. (23,784) (43,285)
Cash and cash equivalents at beginning of period ....... 345,446 330,512
--------- --------
Cash and cash equivalents at end of period ............. $ 321,662 287,227
========= ========
</Table>
See accompanying notes to consolidated interim financial statements.
(Continued)
3
TRUSTCO BANK CORP NY
Consolidated Statements of Cash Flows Continued (Unaudited)
(dollars in thousands)
<Table>
<Caption>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
SIX MONTHS ENDED June 30, 2001 2000
-------- -------
Interest paid ..................................... $ 39,296 35,858
Income taxes paid ................................. 8,114 9,020
Transfer of loans to real estate owned ............ 991 480
Increase/(decrease) in dividends payable .......... 58 (14)
Change in unrealized gain on securities
available for sale-gross of deferred taxes ....... (3,851) (9,734)
Change in deferred tax effect on unrealized gain
on securities available for sale ................. 1,612 3,976
</Table>
See accompanying notes to consolidated interim financial statements.
4
<Page>
TRUSTCO BANK CORP NY
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Unaudited)
1. FINANCIAL STATEMENT PRESENTATION
In the opinion of the management of TrustCo Bank Corp NY (the Company), the
accompanying unaudited Consolidated Interim Financial Statements contain all
adjustments necessary to present fairly the financial position as of June 30,
2001, the results of operations for the three months and six months ended June
30, 2001 and 2000, and the cash flows for the six months ended June 30, 2001 and
2000. The accompanying Consolidated Interim Financial Statements should be read
in conjunction with the TrustCo Bank Corp NY year-end Consolidated Financial
Statements, including notes thereto, which are included in TrustCo Bank Corp
NY's 2000 Annual Report to Shareholders on Form 10-K.
2. EARNINGS PER SHARE
A reconciliation of the component parts of earnings per share for the three
month and six month periods ended June 30, 2001 and 2000 follows:
<Table>
<Caption>
Weighted Outstanding
(In thousands, Net Average Per Share
except per share data) Income Shares Amounts
- -----------------------------------------------------------------------------------
For the quarter ended
June 30, 2001:
Basic EPS:
Net income available to
common shareholders ............... $11,672 61,910 $0.189
Effect of Dilutive Securities:
Stock options ..................... -- 2,086 --
------- ------ ------
Diluted EPS .......................... $11,672 63,996 $0.182
======= ====== ======
For six months ended
June 30, 2001:
Basic EPS:
Net income available to
common shareholders ............... $22,970 61,752 $0.372
Effect of Dilutive Securities:
Stock options ..................... -- 2,187 --
------- ------ ------
Diluted EPS .......................... $22,970 63,939 $0.359
======= ====== ======
</Table>
There were no antidilutive stock options as of June 30, 2001.
5
<Page>
<Table>
<Caption>
Weighted Outstanding
(In thousands, Net Average Per Share
except per share data) Income Shares Amounts
- -----------------------------------------------------------------------------------
For the quarter ended
June 30, 2000:
Basic EPS:
Net income available to
common shareholders .............. $10,497 61,487 $0.171
Effect of Dilutive Securities:
Stock options .................... -- 1,931 --
------- ------ ------
Diluted EPS ......................... $10,497 63,418 $0.166
======= ====== ======
For six months ended
June 30, 2000:
Basic EPS:
Net income available to
common shareholders .............. $20,767 61,474 $0.338
Effect of Dilutive Securities:
Stock options .................... -- 1,969 --
------- ------ ------
Diluted EPS ......................... $20,767 63,443 $0.327
======= ====== ======
</Table>
Per share data have been adjusted for the 15 per cent stock split declared
in August 2000.
6
<Page>
3. COMPREHENSIVE INCOME
Comprehensive income for the three month periods ended June 30, 2001 and 2000
was $12,583,000 and $13,529,000 respectively, and $25,208,000 and $26,525,000
for the six month periods ended June 30, 2001 and 2000, respectively. The
following summarizes the components of other comprehensive income:
<Table>
<Caption>
(dollars in thousands)
Three months ended June 30
--------------------------
2001 2000
Unrealized holding gains arising during period, net of tax
(pre-tax gain of $3,658 for 2001 and pre-tax gain of $2,684 for
2000) $2,134 1,586
Reclassification adjustment for net gain/(loss) realized in net
income during the period, net of tax (pre-tax gain of $2,067 for
2001 and pre-tax loss of $2,445 for 2000) .................... 1,223 (1,446)
------ -----
Other comprehensive income ................................... $ 911 3,032
====== =====
</Table>
<Table>
<Caption>
(dollars in thousands)
Six months ended June 30
------------------------
2001 2000
------ -----
Unrealized holding gains arising during period, net of tax
(pre-tax gain of $7,036 for 2001 and pre-tax gain of $6,278 for
2000) $4,122 3,714
Reclassification adjustment for net gain/(loss) realized in net
income during period, net of tax (pre-tax gain of $3,185 for 2001
and pre-tax loss of $3,456 for 2000) .......................... 1,884 (2,044)
------ -----
Other comprehensive income .................................... $2,238 5,758
====== =====
</Table>
7
<Page>
4. IMPACT OF CHANGES IN ACCOUNTING STANDARDS
The Company adopted the provisions of the Financial Accounting Standards Board's
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (Statement 133), effective January 1, 2001.
This statement establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of condition and
measure those instruments at fair value. Changes in the fair value of the
derivative financial instruments are reported in either earnings or
comprehensive income, depending on the use of the derivative and whether or not
it qualifies for hedge accounting.
Special hedge accounting treatment is permitted only if specific criteria are
met, including a requirement that the hedging relationship be highly effective
both at inception and on an ongoing basis. Accounting for hedges varies based on
the type of hedge - fair value or cash flow. Results of effective hedges are
recognized in current earnings for fair value hedges and in other comprehensive
income for cash flow hedges. Ineffective portions of hedges are recognized
immediately in earnings and are not deferred.
The adoption of Statement 133 as of January 1, 2001 did not have a material
effect on the Company's consolidated financial statements, as the Company had no
derivitive instruments or embedded derivitives at adoption or at any time during
the first quarter of 2001. If the Company were to invest in derivative
investments, there may be increased volatility in net income and shareholders'
equity on an ongoing basis as a result of accounting for derivative instruments
in accordance with Statement 133.
In September 2000, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 140, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities" (Statement 140).
Statement 140 provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities. Under
Statement 140, after a transfer of financial assets, an entity recognizes the
financial and servicing assets it controls and the liabilities it has incurred,
derecognizes financial assets when control has been surrendered, and
derecognizes liabilities when extinguished. Statement 140 also provides
standards for distinguishing transfers of financial assets that are sales from
transfers that are secured borrowings. Statement 140 is effective for certain
disclosures in the fiscal year ended December 31, 2000, and for certain
transactions occurring after March 31, 2001. The adoption of Statement 140 did
not have, and is not expected to have, a material effect on the Company's
consolidated financial statements.
In July 2001, the FASB issued Statement No. 141, Business Combinations, and
Statement No. 142, Goodwill and Other Intangible Assets. Statement 141 requires
that the purchase method of accounting be used for all business combinations
initiated after June 30, 2001 as well as all purchase method business
8
<Page>
combinations completed after June 30, 2001. Statement 141 also specifies
criteria that intangible assets acquired in a purchase method business
combination must meet to be recognized and reported apart from goodwill.
Statement 142 will require that goodwill and intangible assets with indefinite
useful lives no longer be amortized, but instead be tested for impairment at
least annually in accordance with the provisions of Statement 142. Statement 142
will also require that intangible assets with definite useful lives be amortized
over their respective estimated useful lives to their estimated residual values,
and reviewed for impairment in accordance with Statement No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.
The Company is required to adopt the provisions of Statement 141 immediately and
Statement 142 effective January 1, 2002. Furthermore, any goodwill and any
intangible asset determined to have an indefinite useful life that are acquired
in a purchase business combination completed after June 30, 2001 will not be
amortized, but will continue to be evaluated for impairment in accordance with
the appropriate pre-Statement 142 accounting literature. Goodwill and intangible
assets acquired in business combinations completed before July 1, 2001 will
continue to be amortized prior to the adoption of Statement 142.
As of June 30, 2001 the Company had $1.1 million of unamortized goodwill which
will be subject to the transition provisions of Statements 141 and 142.
Amortization expense related to goodwill was $172 thousand for the six months
ended June 30, 2001. Because of the extensive effort needed to comply with
adopting Statements 141 and 142, it is not practicable to reasonably estimate
the full impact of adopting these Statements on the Company's financial
statements at the date of this report, including whether any transitional
impairment losses will be required to be recognized as the cumulative effect of
a change in accounting principle.
9
<Page>
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
The Board of Directors and Shareholders
TrustCo Bank Corp NY:
We have reviewed the consolidated statement of financial condition of TrustCo
Bank Corp NY and subsidiaries (the Company) as of June 30, 2001, and the related
consolidated statements of income for the three month and six month periods
ended June 30, 2001 and 2000, and the consolidated statements of cash flows for
the six month periods ended June 30, 2001 and 2000. These consolidated financial
statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the consolidated financial statements referred to above for them to
be in conformity with accounting principles generally accepted in the United
States of America.
We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, the consolidated statement of
financial condition of TrustCo Bank Corp NY and subsidiaries as of December 31,
2000 and the related consolidated statements of income, changes in shareholders'
equity, and cash flows for the year then ended (not presented herein); and in
our report dated January 19, 2001, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set forth in
the accompanying consolidated statement of financial condition as of December
31, 2000 is fairly stated, in all material respects, in relation to the
consolidated statement of financial condition from which it has been derived.
/s/ KPMG LLP
- -----------------------------------
KPMG LLP
Albany, New York
July 13, 2001
10
<Page>
TrustCo Bank Corp NY
Management's Discussion and Analysis
June 30, 2001
The review that follows focuses on the factors affecting the financial condition
and results of operations of TrustCo Bank Corp NY ("TrustCo" or "Company")
during the three month and six month periods ended June 30, 2001, with
comparisons to 2000 as applicable. Net interest income and net interest margin
are presented on a fully taxable equivalent basis in this discussion. The
consolidated interim financial statements and related notes, as well as the 2000
Annual Report to Shareholders should be read in conjunction with this review.
Amounts in prior period consolidated interim financial statements are
reclassified whenever necessary to conform to the current period's presentation.
Per share results have been adjusted for the 15% stock split declared in August
2000.
FORWARD-LOOKING STATEMENTS
Statements included in this review and in future filings by TrustCo with the
Securities and Exchange Commission, in TrustCo's press releases, and in oral
statements made with the approval of an authorized executive officer, which are
not historical or current facts, are "forward-looking statements" made pursuant
to the safe harbor provisions of the Private Securities Litigation Reform Act of
1995, and are subject to certain risks and uncertainties that could cause actual
results to differ materially from historical earnings and those presently
anticipated or projected. TrustCo wishes to caution readers not to place undue
reliance on any such forward-looking statements, which speak only as of the date
made. The following important factors, among others, in some cases have affected
and in the future could affect TrustCo's actual results, and could cause
TrustCo's actual financial performance to differ materially from that expressed
in any forward-looking statement: (1) credit risk, (2) interest rate risk, (3)
competition, (4) changes in the regulatory environment, and (5) changes in
general business and economic trends. The foregoing list should not be construed
as exhaustive, and the Company disclaims any obligation to subsequently revise
any forward-looking statements to reflect events or circumstances after the date
of such statements, or to reflect the occurrence of anticipated or unanticipated
events.
Following this discussion is the table "Distribution of Assets, Liabilities and
Shareholders' Equity: Interest Rates and Interest Differential" which gives a
detailed breakdown of TrustCo's average interest earning assets and interest
bearing liabilities for the three months and six months ended June 30, 2001 and
2000.
ACQUISITION
During the third quarter 2000 TrustCo acquired Landmark Financial Corporation
and its wholly owned subsidiary, Landmark Community Bank, in a purchase business
combination. The fair value of Landmark's assets was $26.2 million and the fair
value of Landmark's liabilities was $24.3 million at the time of the
acquisition. As a result of the relative immateriality of the balances acquired
in the Landmark acquisition, the following discussion does not separately
identify the change in balances due to the acquisition.
11
<Page>
OVERVIEW
TrustCo recorded net income of $11.7 million, or $0.182 of diluted earnings per
share for the three months ended June 30, 2001, as compared to net income of
$10.5 million or $0.166 of diluted earnings per share in the same period in
2000. For the six month period ended June 30, 2001, TrustCo recorded net income
of $23.0 million, or $0.359 of diluted earnings per share, as compared to $20.8
million, or $0.327 of diluted earnings per share for the comparable period in
2000.
The primary factors accounting for the year to date increases are:
o A, $68.3 million increase in the average balance of interest earning
assets from $2.28 billion for 2000 to $2.35 billion for the six
month period ended June 30, 2001, and
o An increase in total non-interest income from $6.9 million in 2000
to $13.8 million in 2001. Within this category net securities
transactions were $3.2 million of gains in 2001 compared to $3.4
million of net security losses in 2000.
Partially offsetting these year to date increases in net income were the
following:
o A decrease in net interest margin from 4.50% in 2000 to 4.28% in
2001,
o An increase in the provision for loan losses by approximately $1
million, and,
o An increase in non-interest expense from $23.4 million for the first
six months of 2000 to $25.2 million for the first six months of
2001.
ASSET/LIABILITY MANAGEMENT
The Company strives to generate superior earnings capabilities through a mix of
core deposits, funding a prudent mix of earning assets. This is, in its most
fundamental form, the essence of asset/liability management. Additionally,
TrustCo attempts to maintain adequate liquidity and reduce the sensitivity of
net interest income to changes in interest rates to an acceptable level while
enhancing profitability both on a short-term and long-term basis.
EARNING ASSETS
Total average interest earning assets increased from $2.28 billion for the
second quarter of 2000 to $2.36 billion in 2001 with an average yield of 7.74%
in 2000 and 7.46% in 2001. Income on earning assets decreased slightly during
this same time-period from $44.1 million in 2000 to $44.0 million in 2001.
For the six month period ended June 30, 2001, the average balance of interest
earning assets was $2.35 billion, a increase of $68.3 million or 3% from the
balance for the comparable period in 2000 of $2.28 billion. The average yield on
interest earning assets was 7.68% for 2000, compared to 7.60% in 2001. The
12
<Page>
increase in the average balance of earning assets completely offset the decrease
in the yield earned on these assets, thereby resulting in an increase in
interest income of $1.7 million to $89.1 million for the six months of 2001,
compared to $87.4 million for the six months of 2000.
LOANS
The average balance of loans for the second quarter was $1.50 billion in 2001
and $1.36 billion in 2000. The yield on loans decreased from 8.18% in 2000 to
7.94% in 2001. The combination of the higher average balances offset by the
lower rates resulted in an increase in the interest income on loans by $2.0
million.
For the six-month period ended June 30, 2001, the average balance in the loan
portfolio was $1.49 billion compared to $1.36 billion for the comparable period
in 2000. The average yield decreased from 8.15% in 2000 to 8.03% in 2001. The
increase in the average balance of loans outstanding and the impact of the
decrease in the yield resulted in total interest income of $59.9 million in 2001
compared to $55.3 million in 2000.
During the first six months of 2001 the balance of the loan portfolio increased
primarily as a result of the increase in the residential mortgages. The average
balance of residential mortgage loans was $ 1.14 billion in 2001 compared to
$1.01 billion in 2000, an increase of 13.1%. TrustCo actively markets the
residential loan products within its market territory. Mortgage loan rates are
affected by a number of factors including, the prime rate, the federal funds
rate, rates set by competitors and secondary market participants. For 2001 the
prime rate and the federal funds rate decreased significantly as a result of the
275 bp reduction in the target federal funds rate set by the Federal Reserve
Board. Though interest rates on the residential mortgage loan products decreased
during this time period they did not decrease as much as the reduction in the
target federal funds rate. Also during this time TrustCo aggressively marketed
the unique features of its loan products thereby differentiating itself from
other lenders. These differences include extremely low closing cost, quick
turnaround on credit decisions, no required escrow payments or private mortgage
insurance and the fact that the loans are held in portfolio. The combination of
competitive interest rates and the product differentiation noted above are the
principal reasons for the increase in the balance of residential loans
outstanding.
The impact of the decrease in the benchmark interest rate indexes (prime rate,
federal funds rate, etc.) is apparent in the decrease in the yield earned in the
commercial, home equity and installment loan portfolios. The rates earned in
2001 were 17 bp, 85 bp and 68 bp less than in the six month period for 2000.
SECURITIES AVAILABLE FOR SALE
During the second quarter of 2001, the average balance of securities available
for sale was $559.7 million with a yield of 7.85%, compared to $667.6 million
13
<Page>
for the second quarter of 2000 with a yield of 7.37%. The combination of the
decrease in average balance offset by the increase in the yields caused a
decrease in interest income on securities available for sale of approximately
$1.3 million between the second quarter of 2001 and 2000.
The six-month results reflect the same principal trends noted for the second
quarter. The total average balance of securities available for sale during the
six months of 2001 was $570.9 million with an average yield of 7.78% compared to
an average balance for 2000 of $667.7 million with a yield of 7.33%.
The securities available for sale portfolio balance decreased because this
portfolio is used to help fund the loan portfolio growth. Funding for loan
growth either comes from new sources of deposits/borrowings or through the
reallocation of existing assets. For the loan growth experienced in 2001 the
primary source of funding was through the liquidation of securities available
for sale.
The yield on this portfolio increased between the comparable periods in 2000 and
2001 because the Company sold off during 2001 lower yielding investments into a
strong market due to the 275 bp reduction in the target federal funds rate. The
bond market tends to move in relation or reaction to the actions taken by the
Federal Reserve Board, therefore the reduction in rates offered an opportunity
to sell securities into a very positive bond market. Proceeds from these sales
were used to fund the increase in average balances of the loan portfolio.
Throughout 2000 the Federal Reserve Board was increasing interest rates which
tended to increase the interest rates offered in the bond market. During this
time period the target federal funds rate increased by 100 bp. This was an
opportunity for TrustCo to add bonds to the portfolio at relatively attractive
interest rates. The combination of adding higher yielding bonds in the second
half of 2000 and selling lower yielding bonds in the first half of 2001 resulted
in the increase in the yield on the securities available for sale portfolio
between 2000 and 2001.
FEDERAL FUNDS SOLD
During the second quarter of 2001, the average balance of federal funds sold was
$299.1 million with a yield of 4.36%, compared to the average balance for the
three month period ended June 30, 2000 of $246.4 million with an average yield
of 6.33%. The $52.7 million increase in the average balance, combined with the
197 basis points decrease in the average yield, resulted in total interest
income on federal funds sold of $3.3 million for 2001 compared to $3.9 million
for 2000.
During the six-month period ended June 30, 2001, the average balance of federal
funds was $283.7 million with a yield of 4.99% compared to an average balance of
$248.5 million in 2000 with an average yield of 6.04%.
The federal funds portfolio is utilized to generate additional interest income
and liquidity as funds are waiting to be deployed into the loan and securities
portfolios.
14
<Page>
FUNDING OPPORTUNITIES
TrustCo utilizes various funding sources to support its earning asset portfolio.
The vast majority of the Company's funding comes from traditional deposit
vehicles such as savings, interest bearing checking and time deposit accounts.
During the quarter, total interest bearing liabilities were $2.04 billion for
2001 and $1.98 billion for 2000. The rate paid on total interest bearing
liabilities was 3.71% for the second quarter of 2000 and 3.69% for 2001. Total
interest expense for the second quarter increased approximately $537 thousand to
$18.8 million for 2001 compared to $18.2 million for 2000.
Similar changes in interest bearing liabilities were noted for the six-month
period as was discussed for the quarter except the average yield increased from
3.66% in 2000 to 3.85% in 2001. Total interest bearing liabilities were $2.03
billion for the six-month periods ended June 30, 2001 and $1.98 billion for
2000.
Demand deposit balances increased $17.3 million during the second quarter of
2001 compared to the second quarter of 2000. Demand deposits averaged $181.6
million in 2001 and $164.3 million in 2000. On a year to date basis, demand
deposits were $178.9 million compared to $162.2 million in 2000.
The balance of deposits has remained relatively flat between the three month and
six month periods of 2001 compared to the same periods of 2000. The market
territory within which the Company operates is not a growing, dynamic area and
therefore opportunities to grow deposits are somewhat limited. Rates paid on
deposits are based upon local market competition and funds availability. The
largest component of the deposit portfolio are time deposits which had an
average balance of $ 883.3 million for the six months of 2001 compared to $857.5
million for the comparable period in 2000. The average yield on these deposits
was 5.50% for 2001 and 5.03% for 2000. The increase in the yield is a result of
the rate increases in the second half of 2000 and the reduction in rates in
2001. Customers tended to take relatively longer maturity time deposits when
rates were higher at the end of 2000 and have altered that pattern in 2001 as
they move money into shorter-term deposits.
Short-term borrowings for the quarter were $214.2 million in 2001 compared to
$156.7 million in 2000. The average yield decreased during this time period from
5.22% to 3.55% for the second quarter of 2001. The largest component of short-
term borrowing is the Trustco Short Term Investments which is only available to
Trustco Trust Department customers. The increased balances in this account are a
result of trust customers temporarily investing their funds in money market type
instruments while waiting for some stability in the equity and bond markets.
NET INTEREST INCOME
Taxable equivalent net interest income decreased to $25.3 million for the second
quarter of 2001. The net interest spread also decreased 26 basis points between
2000 and 2001 and the net interest margin decreased by 25 basis points.
Similar changes were noted in taxable equivalent net interest income, net
15
<Page>
interest spread and net interest margin for the six-month period ended June 30,
2001, compared to the same period in 2000. Net interest income for the first six
months of 2001 was $50.4 million, a decrease of approximately $1.0 million over
the $51.4 million for the first six months of 2000. Net interest spread
decreased 27 basis points to 3.75% and net interest margin decreased 22 basis
points to 4.28% for the six-month period ended June 30, 2001, compared to the
six-month period ended June 30, 2000.
The impact that changes in market interest rates have on the results of the
Company are significant, however, management can and does make changes to the
balance sheet structure during these opportunities. The target federal funds
rate began 2000 at 5.50%, increased by the second quarter of 2000 to 6.50% and
stayed at that level until year end 2000. Beginning in the first quarter of 2001
the rates decreased significantly, ending the second quarter at 3.75%. Therefore
from the high to the low during this 18 month cycle the target federal funds
rate decreased 275 bp. The impact that had on the net interest margin of TrustCo
was a decrease in net interest margin for the six month period of 2001 compared
to 2000 by 22 bp and by 25 bp for the second quarter of 2001 versus 2000. During
periods of rising interest rate opportunities for investments and loans TrustCo
sells lower yielding assets and replaces them with the higher rates being
offered. On the funding side, the Company looks to generate deposits that are
short term in nature with the expectation that if rates fall they could be
re-priced at lower rates. Therefore the strategy followed during rising rates is
for the Company to invest in longer term/higher yielding assets funded with core
deposit relationships. As market interest rates fall the Company strives to
gather longer term funding sources at the lower cost. Investment opportunities
in a falling market rate environment tend to be centered in the loan portfolio.
NONPERFORMING ASSETS
Nonperforming assets include nonperforming loans, which are
those loans in a nonaccrual status, loans that have been restructured, and loans
past due three payments or more, and still accruing interest. Also included in
the total of nonperforming assets are foreclosed real estate properties, which
are categorized as real estate owned.
Impaired loans are considered to be those commercial and commercial real estate
loans in a nonaccrual status, and loans restructured since January 1, 1995, when
the accounting standards required the identification, measurement and reporting
of impaired loans. The following will describe the nonperforming assets of
TrustCo as of June 30, 2001.
NONPERFORMING LOANS: Total nonperforming loans were $9.3 million at June 30,
2001, a decrease from the $11.8 million of nonperforming loans at June 30, 2000.
Nonaccrual loans were $3.7 million at June 30, 2001 down from the $5.0 million
at June 30, 2000. Restructured loans were $6.5 million at June 30, 2000 compared
to $5.0 million at June 30, 2001. Loans past due three payments or more and
still accruing interest were $692 thousand at June 30, 2001 and $256 thousand at
June 30, 2000.
16
<Page>
Of the $9.3 million of nonperforming loans at June 30, 2001, all but
approximately $458 thousand are residential real estate or retail consumer
loans. In prior years the vast majority of nonperforming loans were concentrated
in the commercial and commercial real estate portfolios. There has been a
dramatic shifting of nonperforming loans to the residential real estate and
retail consumer loan portfolio for several factors, including:
o The overall emphasis within TrustCo for residential real estate
originations,
o The relatively weak economic environment in the upstate New York
territory, and The reduction in real estate values in TrustCo's
market area that has occurred since the middle of the 1990's,
thereby causing a reduction in the collateral that supports the real
estate loans.
Consumer defaults and bankruptcies have increased dramatically over the last
several years and this has lead to an increase in defaults on loans. TrustCo
strives to identify borrowers that are experiencing financial difficulties and
to work aggressively with them to minimize losses or exposures.
Total impaired loans at June 30, 2001 of $5.3 million, consisted of restructured
retail loans. During the first six months of 2001, there have been $789 thousand
of commercial loan charge offs, $468 thousand of consumer loan charge offs and
$1.85 million of mortgage loan charge offs as compared with $1.2 million of
commercial loan charge offs, $254 thousand of consumer loan charge offs and $1.6
million of mortgage loan charge offs in the first six months of 2000. Recoveries
during the first six-month periods have been $1.14 million in 2001 and $876
thousand in 2000.
REAL ESTATE OWNED: Total real estate owned of $1.7 million at June 30, 2001
increased by $317 thousand since June 30, 2000.
ALLOWANCE FOR LOAN LOSSES: The balance of the allowance for loan losses is
maintained at a level that is, in management's judgment, representative of the
amount of the risk inherent in the loan portfolio.
At June 30, 2001, the allowance for loan losses was $56.9 million, which
represents a slight increase from the $56.3 million in the allowance at December
31, 2000. The allowance represents 4.03% of the loan portfolio as of June 30,
2000 compared to 3.76% at June 30, 2001. The provision charged to expense was
$800 thousand compared to $1.1 million for the second quarter of 2000 compared
to 2001. For the six-month periods, the provision charged to expense was $1.7
million for 2000 and $2.6 million for 2001.
In deciding on the adequacy of the allowance for loan losses, management reviews
the current nonperforming loan portfolio as well as loans that are past due and
not yet categorized as nonperforming for reporting purposes. Also, there are a
number of other factors that are taken into consideration, including:
o The magnitude and nature of the recent loan charge offs and the
movement of charge offs to the residential real estate loan
portfolio,
17
<Page>
o The growth in the loan portfolio and the implication that has in
relation to the economic climate in the bank's business territory,
o Changes in underwriting standards in the competitive environment in
which TrustCo operates,
o Significant growth in the level of losses associated with
bankruptcies and the time period needed to foreclose, secure and
dispose of collateral, and
o The relatively weak economic environment in the upstate New York
territory combined with declining real estate prices.
Consumer bankruptcies and defaults in general have risen significantly during
the 1990's. This trend appears to be continuing as a result of economic strife
and the relative ease of access by consumers to additional credit. Job growth in
the upstate New York area has been modest to declining and there continues to be
a shifting of higher paying jobs in manufacturing and government to lower paying
service jobs.
In light of these trends, management believes the allowance for loan losses is
reasonable in relation to the risk that is present in its current loan
portfolio.
LIQUIDITY AND INTEREST RATE SENSITIVITY
TrustCo seeks to obtain favorable sources of funding and to maintain prudent
levels of liquid assets in order to satisfy varied liquidity demands. TrustCo's
earnings performance and strong capital position enable the Company to raise
funds easily in the marketplace and to secure new sources of funding. The
Company actively manages its liquidity through target ratios established under
its liquidity policies. Continual monitoring of both historical and prospective
ratios allows TrustCo to employ strategies necessary to maintain adequate
liquidity. Management has also defined various degrees of adverse liquidity
situations, which could potentially occur, and has prepared appropriate
contingency plans should such a situation arise.
NONINTEREST INCOME
Total noninterest income for the three months ended June 30, 2001 was $7.5
million, an increase of $4.4 million from the comparable period in 2000. During
the 2001 period, the Company recorded net securities gains of $2.1 million
compared to $2.3 million of net losses for the comparable period in 2000.
Excluding these securities transactions, noninterest income remained constant at
$5.4 million in the second quarter of 2001 and 2000.
Similar results were also recognized for the six months of 2001 compared to
2000. Total noninterest income was $13.8 million for 2001 compared to $6.9
million for 2000. Excluding net securities transactions, the balances for 2001
and 2000 would have been $10.6 million and $10.2 million respectively.
18
<Page>
NONINTEREST EXPENSES
Total noninterest expense for the second quarter of 2001 and 2000 was $12.9
million and $11.4 million respectively. For the six-months ended June 30, 2001
and 2000, total noninterest expense was $25.2 million and $23.4 million
respectively.
Salaries and employee benefits cost increased from $5.7 million for the second
quarter of 2000 to $6.6 million for the comparable period in 2001. The increase
is primarily attributable to an increase in the cost associated with the benefit
plans for employees and officers. The six month results reflect the same
conditions.
Net occupancy expense increased by approximately $284 thousand between the
second quarter of 2000 compared to the second quarter of 2001. The increase is a
result of increased utility expense and additional lease expense of new
branches. Net occupancy expense for the six months of 2001 were $2.8 million
compared to $2.4 million for the comparable period in 2000.
INCOME TAXES
In the second quarter of 2001 and 2000, TrustCo recognized income tax expense of
$5.4 million and $5.1 million respectively. This resulted in an effective tax
rate of 31.8% for 2001 and 32.8% for 2000. For the six-months of 2001, total
income tax expense was $10.6 million compared to $10.3 million for 2000.
CAPITAL RESOURCES
Consistent with its long-term goal of operating a sound and profitable financial
organization, TrustCo strives to maintain strong capital ratios. New issues of
equity securities have not been required since traditionally, most of its
capital requirements are met through the capital retained in the Company (after
the dividends on the common stock).
Total shareholders' equity at June 30, 2001 was $201.0 million, an increase of
$5.2 million from the year-end of 2000 balance of $195.8 million. The change in
the shareholders' equity between year-end 2000 and June 30, 2001 primarily
reflects the net income retained by TrustCo, the proceeds from shares issued
upon the exercise of stock options, a $2.2 million increase in the net
unrealized gain on securities available for sale, less approximately $3.6
million thousand increase in the amount of Treasury stock.
TrustCo declared dividends of $0.300 per share during the first six-months of
2001 compared to $0.261 in 2000. These resulted in a dividend payout ratio of
77.2% in 2000 and 80.5% in 2001. The Company achieved the following capital
ratios as of June 30, 2001 and 2000:
19
<Page>
<Table>
<Caption>
June 30,
-------------------- Minimum Regulatory
2001 2000 Guidelines
---- ---- ----------
Tier 1 risk adjusted
capital ................. 13.43% 13.86 4.00
Total risk adjusted
capital ................. 14.72 15.15 8.00
</Table>
In addition, at June 30, 2001 and 2000, the consolidated equity to total assets
ratio (excluding the mark to market effect of securities available for sale) was
7.28% and 7.31%, respectively.
20
<Page>
TrustCo Bank Corp NY
Management's Discussion and Analysis
STATISTICAL DISCLOSURE
I. DISTRIBUTION OF ASSETS,
LIABILITIES AND SHAREHOLDERS' EQUITY;
INTEREST RATES AND INTEREST DIFFERENTIAL
The following table summarizes the component distribution of average balance
sheet, related interest income and expense and the average annualized yields on
interest earning assets and annualized rates on interest bearing libilities of
TrustCo (adjusted for tax equivalency) for each of the reported periods. Non-
accrual loans are included in loans for this analysis. The average balances of
sec- urities available for sale is calculated using amortized costs for these
securities. Included in the balance of shareholders' equity is unrealized
appreciation ,net of tax, in the available for sale portfolio of $21.4 million
and $1.2 Million in the second quarter of 2001 and 2000, respectively. The
subtotals contained in the following table are the arithmetic totals of the
items in that category.
<Table>
<Caption>
Second Quarter Second Quarter
2001 2000
-------------------------------- ---------------------------
Average Average Average Average Change in Variance Variance
(dollars in thousands) Balance Interest Rate Balance Interest Rate Interest Balance Rate
Income/ Change Change
Expense
- ---------------------- ------- -------- ---- ------- -------- ---- -------- ------- -------
Assets
Commercial loans ...................... $ 203,709 $ 4,366 8.58% $ 192,827 $ 4,283 8.90% 83 802 (719)
Residential mortgage loans ............ 1,148,496 22,395 7.80% 1,013,041 19,784 7.81% 2,611 2,817 (206)
Home equity lines of credit ........... 126,626 2,336 7.40% 135,888 3,104 9.16% (768) (201) (567)
Installment loans ..................... 22,270 688 12.38% 20,064 652 13.04% 36 205 (169)
---------- ---------- ---- ----------- ------- ------ ------ ------ ------
Loans, net of unearned income ......... 1,501,101 29,785 7.94% 1,361,820 27,823 8.18% 1,962 3,623 (1,661)
Securities available for sale:
U.S. Treasuries and agencies ......... 141,928 2,716 7.65% 211,562 3,957 7.48% (1,241) (1,847) 606
Mortgage-backed securities ........... 144,895 2,884 7.96% 214,168 3,850 7.19% (966) (3,211) 2,245
States and political subdivisions .... 194,542 3,888 7.99% 144,755 2,912 8.05% 976 1,105 (129)
Other ................................ 78,340 1,494 7.63% 97,080 1,583 6.53% (89) (1,190) 1,101
---------- ---------- ---- ----------- ------- ------ ------ ------ ------
Total securities available for sale 559,705 10,982 7.85% 667,565 12,302 7.37% (1,320) (5,143) 3,823
Federal funds sold .................... 299,114 3,252 4.36% 246,440 3,880 6.33% (628) 3,701 (4,329)
Other short-term investments .......... -- -- -- 7,844 119 6.09% (119) (119) --
---------- ---------- ---- ----------- ------- ------ ------ ------ ------
Total Interest earning assets ....... 2,359,920 44,019 7.46% 2,283,669 44,124 7.74% (105) 2,062 (2,167)
Allowance for loan losses ............. (57,095) (56,297)
Cash and noninterest earning assets ... 166,042 129,689
---------- ----------
Total assets ........................ $2,468,867 $2,357,061
========== ==========
Liabilities and shareholders' equity
Deposits:
Interest bearing checking .......... $ 279,755 742 1.06% $ 274,703 728 1.07% 14 35 (21)
Money market accounts .............. 61,218 418 2.74% 56,025 380 2.73% 38 37 1
Savings ............................ 608,071 4,092 2.70% 635,721 4,268 2.70% (176) (176) --
Time deposits ...................... 873,199 11,606 5.33% 853,244 10,814 5.10% 792 268 524
---------- ---------- ---- ----------- ------- ------ ------ ------ ------
Total time deposits ................. 1,822,243 16,858 3.71% 1,819,693 16,190 3.58% 668 164 504
Short-term borrowings ................. 214,153 1,893 3.55% 156,691 2,035 5.22% (142) 2,728 (2,870)
Long-term debt ........................ 794 11 5.91% -- -- -- 11 11 --
---------- ---------- ---- ----------- ------- ------ ------ ------ ------
Total interest bearing liabilities .. 2,037,190 18,762 3.69% 1,976,384 18,225 3.71% 537 2,903 (2,366)
Demand deposits ....................... 181,614 164,339
Other liabilities ..................... 49,526 44,265
Shareholders' equity .................. 200,537 172,073
Total liab. & shareholders' equity .. $2,468,867 $2,357,061
========== ==========
Net interest income ................... 25,257 25,899 (642) (841) 199
---------- ---------- ------ ------ ------
Net interest spread ................... 3.77% 4.03%
Net interest margin (net interest
income to total interest earning
assets) ............................ 4.28% 4.53%
Tax equivalent adjustment ............. 1,562 1,092
---------- ----------
Net interest income per book ....... $ 23,695 $ 24,807
========== ==========
</Table>
21
<Page>
TrustCo Bank Corp NY
Management's Discussion and Analysis
STATISTICAL DISCLOSURE
I. DISTRIBUTION OF
ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY;
INTEREST RATES AND INTEREST DIFFERENTIAL
The following table summarizes the component distribution of average balance
sheet, related interest income and expense and the average annualized yields on
interest earning assets and annualized rates on interest bearing libilities of
TrustCo (adjusted for tax equivalency) for each of the reported periods.
Non-accrual loans are included in loans for this analysis. The average balances
of securities available for sale is calculated using amortized costs for these
securities. Included in the balance of shareholders' equity is unrealized
appreciation net of tax, in the available for sale portfolio of $21.4 million
and $3.1 million for the six months ended June 30, 2001 and 2000,respectively.
The subtotals contained in the following table are the arithmetic totals of the
items in that category.
<Table>
<Caption>
Six Months Six Months
2001 2000
-------------------------------- ---------------------------
Change in
Average Average Average Average Interest Variance Variance
(dollars in thousands) Balance Interest Rate Balance Interest Rate Income/ Balance Rate
Expense Change Change
- ---------------------- ------- -------- ---- ------- -------- ---- -------- ------- -------
Assets
Commercial loans ...................... $ 203,353 $ 8,826 8.70% $ 193,122 $ 8,555 8.87% 271 688 (417)
Residential mortgage loans ............ 1,138,488 44,508 7.82% 1,006,854 39,319 7.81% 5,189 5,146 43
Home equity lines of credit ........... 127,975 5,097 8.03% 136,798 6,057 8.88% (960) (387) (573)
Installment loans ..................... 23,020 1,436 12.58% 20,722 1,370 13.26% 66 237 (171)
------ ----------- -------- ------ ------ ------ ------
Loans, net of unearned income ......... 1,492,836 59,867 8.03% 1,357,496 55,301 8.15% 4,566 5,684 (1,118)
Securities available for sale:
U.S. Treasuries and agencies ......... 154,083 5,900 7.66% 212,298 7,891 7.43% (1,991) (2,651) 660
Mortgage-backed securities ........... 169,041 6,478 7.66% 213,354 7,603 7.13% (1,125) (2,509) 1,384
States and political subdivisions .... 184,475 7,405 8.03% 141,516 5,681 8.03% 1,724 1,724 --
Other ................................ 63,319 2,412 7.63% 100,516 3,298 6.57% (886) (2,103) 1,217
------ ----------- -------- ------ ------ ------ ------
Total securities available for sale 570,918 22,195 7.78% 667,684 24,473 7.33% (2,278) (5,539) 3,261
Federal funds sold .................... 283,723 7,024 4.99% 248,549 7,467 6.04% (443) 2,143 (2,586)
Other short-term investments .......... -- -- -- 5,435 164 6.05% (164) (164) --
------ ----------- -------- ------ ------ ------ ------
Total Interest earning assets ....... 2,347,477 89,086 7.60% 2,279,164 87,405 7.68% 1,681 2,124 (443)
Allowance for loan losses ............. (57,060) (56,388)
Cash and noninterest earning assets ... 164,855 129,358
---------- -----------
Total assets ........................ $2,455,272 $ 2,352,134
========== ===========
Liabilities and shareholders' equity
Deposits:
Interest bearing checking.......... $ 276,739 1,459 1.06% $ 272,339 1,443 1.07% 16 25 (9)
Money market accounts .............. 60,269 817 2.73% 57,538 781 2.73% 36 36 --
Savings .............................. 599,854 8,032 2.70% 637,295 8,562 2.70% (530) (530) --
Time deposits ........................ 883,256 24,094 5.50% 857,473 21,459 5.03% 2,635 644 1,991
------ ----------- -------- ------ ------ ------ ------
Total time deposits ................. 1,820,118 34,402 3.81% 1,824,645 32,245 3.55% 2,157 175 1,982
Short-term borrowings ................. 206,928 4,265 4.16% 152,866 3,781 4.97% 484 2,037 (1,553)
Lond-term debt ........................ 833 24 5.91% -- -- -- 24 24 --
------ ----------- -------- ------ ------ ------ ------
Total interest bearing liabilities .. 2,027,879 38,691 3.85% 1,977,511 36,026 3.66% 2,665 2,236 429
Demand deposits ....................... 178,887 162,195
Other liabilities ..................... 49,096 43,653
Shareholders' equity .................. 199,410 168,775
---------- -----------
Total liab. & shareholders' equity .. $2,455,272 $ 2,352,134
========== ===========
Net interest income ................... 50,395 51,379 (984) (112) (872)
----------- -------- ------ ------ ------
Net interest spread ................... 3.75% 4.02%
Net interest margin (net interest
income to total interest earning
assets) ............................ 4.28% 4.50%
Tax equivalent adjustment ............. 2,800 2,129
----------- -------
Net interest income per book ....... $ 47,595 $ 49,250
=========== ===========
</Table>
22
<Page>
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in the Company's interest rate risk position
since December 31, 2000. Other types of market risk, such as foreign exchange
rate risk and commodity price risk do not arise in the normal course of the
Company's business activities.
23
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
TrustCo Bank Corp NY
Date: August 14, 2001 By:/S/ Robert A. McCormick
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Robert A. McCormick
President and
Chief Executive Officer
Date: August 14, 2001 By:/S/ Robert T. Cushing
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Robert T. Cushing
Vice President and Chief
Financial Officer
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Exhibits Index
Reg S-K
Exhibit No. Description Page No.
________________________________________________________________________________
10(a) Amendment No. 6 to Employment agreement between
Trustco Bank, National Association and TrustCo Bank
Corp NY and Robert A. McCormick 26
10(b) Amendment No. 2 to Second Restatement of Trustco
Bank Supplemental Retirement Plan 28
10(c) Amendment No. 3 to Restatement of Trustco Bank 30
Executive Officer Incentive Plan
10(d) Amendment No. 4 to Restated Agreement for
Supplemental Retirement Benefits for
Robert A. McCormick 32
22 Submission of Matters to Vote of Security
Holders - Annual Meeting 34
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