UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (Fee Required) For the Fiscal Year Ended December 31, 2000 Or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (No Fee Required) For the transition period from ____________________ to ____________________ Commission file number 0-10592 TRUSTCO BANK CORP NY (Exact name of registrant as specified in its charter) NEW YORK 14-1630287 (State or other jurisdiction of incorporation (I.R.S. Employer 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: Title of each class Name of exchange on which registered _______________________ ______________________________________ None None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $1.00 Par Value (Title of class) _______________ 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 by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K.[ ] Indicate the number of shares outstanding of each of the registrant's classes of common stock: Number of Shares Outstanding Class of Common Stock as of March 9, 2001 _____________________ ___________________________ $1 Par Value 61,554,389 The aggregate market value of registrant's common stock (based upon the closing price on March 9, 2001) held by non-affiliates was approximately $730,958,369. Documents Incorporated by Reference:(1)Portions of registrant's Annual Report to Shareholders for the fiscal year ended December 31, 2000 (Part I and Part II). (2)Portions of registrant's Proxy Statement filed for its Annual Meeting of Shareholders to be held May 14, 2001 (Part III).
INDEX Description Page ______________________________________________________________________________ PART I Item 1 Business 1 Item 2 Properties 7 Item 3 Legal Proceedings 7 Item 4 Submission of Matters to a Vote of 7 Securit Holders PART II Item 5 Market for the Registrant's Common Equity 10 and Related Stockholder Matters Item 6 Selected Financial Data 10 Item 7 Management's Discussion and Analysis of 10 Financial Condition and Results of Operations Item 7A Quantitative and Qualitative Disclosures about 10 Market Risk Item 8 Financial Statements and Supplementary Data 10 Item 9 Changes in and Disagreements with Accountants 10 On Accounting and Financial Disclosure PART III Item 10 Directors and Executive Officers of Registrant 10 Item 11 Executive Compensation 11 Item 12 Security Ownership of Certain Beneficial Owners 11 and Management Item 13 Certain Relationships and Related Transactions 11 PART IV Item 14 Exhibits, Financial Statement Schedules, and 11 Reports on Form 8-K Signatures 16 EXHIBITS INDEX 18
PART I Item 1. Business GENERAL TrustCo Bank Corp NY ("TrustCo" or the "Company") is a multi-bank holding company having its principal place of business at 5 Sarnowski Drive, Glenville, New York 12302. TrustCo was incorporated under the laws of New York in 1981 to acquire all of the outstanding stock of Trustco Bank, National Association, formerly known as Trustco Bank New York, and prior to that The Schenectady Trust Company. On July 28, 2000 TrustCo acquired Landmark Financial Corp, and its subsidiary, Landmark Community Bank, Canajoharie, New York, a federal savings bank. The cost of the transaction was approximately $3.4 million. The fair value of assets acquired was $26.2 million and the fair value of liabilities assumed was $24.3 million. Goodwill of approximately $1.5 million was recognized as a result of the acquisition. Through policy and practice, TrustCo continues to emphasize that it is an equal opportunity employer. There were 451 full-time equivalent employees of TrustCo at year-end 2000. TrustCo had 11,979 shareholders of record as of December 31, 2000 and the closing price of the TrustCo common stock at that date was $12.188. BANK SUBSIDIARIES TRUSTCO BANK, NATIONAL ASSOCIATION TrustCo's largest banking subsidiary, Trustco Bank, National Association (the "Bank"), is a national banking association engaged in a general commercial banking business serving individuals, partnerships, corporations, municipalities and governments of New York. The Bank operates 46 automatic teller machines and 54 banking offices in Albany, Columbia, Greene, Rensselaer, Saratoga, Schenectady, Schoharie, Warren, and Washington counties of New York State. The largest part of such business consists of accepting deposits and making loans and investments. The Bank provides a wide range of both personal and business banking services. The Bank is a member of the Federal Reserve System and its deposits are insured by the Federal Deposit Insurance Corporation ("DIC") to the extent permitted by law. An operating subsidiary of the Bank, Trustco Realty Corp., holds certain mortgage assets which are serviced by the Bank. The Bank accounted for substantially all of TrustCo's 2000 consolidated net income and average assets. The trust department of the Bank serves as executor of estates and trustee of personal trusts, provides estate planning and related advice, provides custodial services and acts as trustee for various types of employee benefit plans and corporate pension and profit sharing trusts. The aggregate market value of the assets under trust, custody or management of the trust department of the Bank was approximately $1.30 billion as of December 31, 2000. 1
The daily operations of the Bank remain the responsibility of its Board of Directors and officers, subject to the overall supervision by TrustCo. TrustCo derives most of its income from dividends paid to it by the Bank. The accounts of the Bank are included in TrustCo's consolidated financial statements. TRUSTCO SAVINGS BANK Trustco Savings Bank ("Savings Bank") is a federally chartered savings bank located in Canajoharie, New York, operating one branch and one ATM, serving communities located in Montgomery County, New York. It is a member of the Savings Association Insurance Fund which is administered by the FDIC and its deposits are insured by the FDIC to the extent permitted by law. As of December 31, 2000 its total assets were $22.6 million. The accounts of the Savings Bank are included in TrustCo's consolidated financial statements. ORE SUBSIDIARY During 1993, TrustCo created ORE Subsidiary Corp., a New York corporation, to hold and manage certain foreclosed properties acquired by the Bank. The accounts of this subsidiary are included in TrustCo's consolidated financial statements. COMPETITION TrustCo faces strong competition in its market areas, both in attracting deposits and making loans. The Company's most direct competition for deposits, historically, has come from other commercial banks, savings associations, and credit unions, which are located, or have branches in those areas. The Company also faces competition for deposits from national brokerage houses, short-term money market funds, and other corporate and government securities funds. Factors affecting the acquisition of deposits include pricing, office locations and hours of operation, the variety of deposit accounts offered, and the quality of customer service provided. Competition for loans has been especially keen during the last five years. Commercial banks, local thrift institutions, traditional mortgage brokers affiliated with local offices, and nationally franchised real estate brokers, are all active and aggressive competitors. The Company competes in this environment by providing a full range of financial services based on a tradition of financial strength and integrity dating from its inception. The Company competes for loans, principally through the interest rates and loan fees it charges, and the efficiency and quality of services it provides to borrowers. TrustCo operates in a number of communities where the competition ranges from other locally based commercial and savings banks, to branches of the largest financial institutions in the United States. In the Capital District area of New York State, TrustCo's principal competitors are local operations of super regional banks, branch offices of money center banks, and locally based commercial and savings banks. The Bank is the largest commercial bank headquartered in the Capital District area. SUPERVISION AND REGULATION Banking is a highly regulated industry, with numerous federal and state laws and regulations governing the organization and operation of banks and their affiliates. As a registered bank holding company under the Bank Holding Company Act of 1956 (the "Act"), TrustCo is regulated and examined by the Board of Governors of the Federal Reserve System (the "Reserve Board"). The Act requires TrustCo to obtain prior Reserve Board approval for bank and non-bank 2
acquisitions and restricts the business operations permitted to TrustCo. The Bank, as a national banking association, is subject to regulation and examination by the Office of the Comptroller of the Currency ("OCC"). Because the FDIC provides deposit insurance to the Bank, the Bank is also subject to its supervision and regulation even though the FDIC is not its primary federal regulator. Virtually all aspects of the business of TrustCo and the Bank are subject to regulation and examination by the Reserve Board, the FDIC and the OCC. The Savings Bank is subject to regulation and examination by the Office of Thrift Supervision ("OTS"). Most of TrustCo's revenues consist of cash dividends paid to TrustCo by the Bank, payment of which is subject to various regulatory limitations. (Note 1 to the consolidated financial statements contained in TrustCo's Annual Report to Shareholders for the year ended December 31, 2000, which appears on page 32 thereof and contains information concerning restrictions of TrustCo's ability to pay dividends, is hereby incorporated by reference.) In addition, the FDIC and the Reserve Board have established guidelines with respect to the maintenance of appropriate levels of capital by a bank holding company under their jurisdictions. Compliance with the standards set forth in such guidelines could also limit the amount of dividends, which a bank or a bank holding company may pay to its shareholders. The banking industry is also affected by the monetary and fiscal policies of the federal government, including the Reserve Board, which exerts considerable influence over the cost and availability of funds obtained for lending and investing. See Note 15 of the consolidated financial statements contained in TrustCo's Annual Report to Shareholders for the year ended December 31, 2000, which appears on page 42 thereof and contains information concerning regulatory capital requirements. RECENT LEGISLATION In September 1994, the Reigle-Neal Interstate Banking and Branching Efficiency Act of 1994 was enacted. As of September 29, 1995, adequately capitalized and managed bank holding companies are permitted to acquire banks in any state subject to state deposit caps and a 10% nationwide deposit cap. In addition, this law provides for full interstate branching by bank merger commencing on June 1, 1997. States were authorized to "opt-out" of this branching provision prior to the effective date, and, alternatively, states were authorized to "opt-in" earlier than June 1, 1997. New York "opted-in" prior to June 1, 1997, by allowing out-of-state banks with reciprocal branching laws to branch in New York through acquisition. The Economic Growth and Regulatory Paperwork Reduction Act of 1996 was signed into law on September 30, 1996. This law streamlined the non-banking activity application process for well-capitalized and well-managed bank holding companies. Under this law, qualified bank holding companies may commence a regulatorily approved non-banking activity without prior notice to the Reserve Board although written notice is required within ten days after commencing the activity. Also under this law, the prior notice period is reduced to twelve days in the event of any non-banking acquisition or share purchase, assuming the size 3
of the acquisition does not exceed 10% of risk-weighted assets of the acquiring bank holding company and the consideration does not exceed 15% of Tier 1 capital. This law also provides for the recapitalization of the Savings Association Insurance Fund which generally insures the deposits of thrift institutions, in order to bring it into parity with the Bank Insurance Fund. The Gramm-Leach-Bliley Act was signed into law on November 12, 1999. This major banking legislation expands the permissible activities of bank holding companies such as TrustCo by permitting them to engage in activities, or affiliate with entities that engage in activities, that are "financial in nature." Activities that this act expressly deems to be financial in nature include, among other things, securities and insurance underwriting and agency, investment management, and merchant banking. The Federal Reserve and the Treasury Department, in cooperation with one another, must determine what additional activities are "financial in nature." With certain exceptions, the Gramm-Leach-Bliley Act similarly expands the authorized activities of subsidiaries of national banks. The provisions of the Gramm-Leach-Bliley Act authorizing the expanded powers became effective March 11, 2000. Bank holding companies that intend to engage in the newly authorized activities must elect to become "financial holding companies." Financial holding company status is only available to a bank holding company if all of its affiliated depository institutions are "well capitalized" and "well managed," based on applicable banking regulations, and have a Community Reinvestment Act rating of at least "a satisfactory record of meeting community credit needs." Financial holding companies and banks may continue to engage in activities that are financial in nature only if they continue to satisfy the well capitalized and well managed requirements. Bank holding companies that do not elect to be financial holding companies or that do not qualify for financial holding company status may engage only in non-banking activities deemed "closely related to banking" prior to adoption of the Gramm-Leach-Bliley Act. This act also calls for "functional regulation" of financial services businesses in which functionally regulated subsidiaries of bank holding companies will continue to be regulated by the regulator that ordinarily has supervised their activities. As a result, state insurance regulators will continue to oversee the activities of insurance companies and agencies, and the Securities and Exchange Commission will continue to regulate the activities of broker-dealers and investment advisers, even where the companies or agencies are affiliated with a bank holding company. Federal Reserve authority to examine and adopt rules regarding functionally regulated subsidiaries is limited. This act repeals some of the exemptions enjoyed by banks under federal securities laws relating to securities offered by banks and licensing of broker-dealers and investment advisers. The Gramm-Leach-Bliley Act imposes a new, "affirmative and continuing" obligation on all financial service providers (not just banks and their affiliates) to safeguard consumer privacy and requires federal and state regulators, including the Federal Reserve and the FDIC, to establish standards to implement this privacy obligation. With certain exceptions, this act prohibits banks from disclosing to non-affiliated parties any non-public 4
personal information about customers unless the bank has provided the customer with certain information and the customer has had the opportunity to prohibit the bank from sharing the information with non-affiliates. The new privacy obligations become effective six months after the federal banking agencies adopt regulations establishing the privacy standards. The Gramm-Leach-Bliley Act prevents companies engaged in commercial activities from acquiring savings institutions, requires public disclosure of any agreements between a depository institution and community groups regarding the institution's Community Reinvestment Act record, adopts amendments designed to modernize the Federal Home Loan Bank System and requires operators of automatic teller machines to disclose any fees charged to non-customers that use the machines. Finally, the Gramm-Leach-Bliley Act will be the subject of extensive rule making by federal banking regulators and others. The effects of this legislation will only begin to be understood over the next several years and at this time cannot be predicted with any certainty. The references in this section to various aspects of supervision and regulation are brief summaries which do not purport to be complete and which are qualified in their entirety by reference to applicable laws, rules and regulations. Any change in applicable laws or regulations may have a material effect on the business and prospects of TrustCo. The operations of TrustCo may be affected by legislative changes and by the policies of various regulatory authorities. TrustCo is unable to predict the nature or the extent of the effects on its business and earnings that fiscal or monetary policies, economic controls or new federal or state legislation may have in the future. Regulation by the federal and state banking authorities is designed to protect depositors rather than shareholders. FOREIGN OPERATIONS Neither TrustCo, the Bank, nor the Savings Bank engage in any material operations in foreign countries or have any outstanding loans to foreign debtors. STATISTICAL INFORMATION ANALYSIS The "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 6 through 25 of TrustCo's Annual Report to Shareholders for the year ended December 31, 2000, contains a presentation and discussion of statistical data relating to TrustCo, is hereby incorporated by reference. This information should not be construed to imply any conclusion on the part of the management of TrustCo that the results, causes, or trends indicated therein will continue in the future. The nature and effects of governmental monetary policy, supervision and regulation, future legislation, inflation and other economic conditions and many other factors which affect interest rates, investments, loans, deposits, and other aspects of TrustCo's operations are extremely complex and could make historical operations, earnings, assets, and liabilities not indicative of what may occur in the future. FORWARD-LOOKING STATEMENTS Statements included in the "Management's Discussion and Analysis of Financial Condition and Results of Operations" of TrustCo's Annual Report to Shareholders 5
for the year ended December 31, 2000 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: (i) credit risk; (ii) interest rate risk; (iii) competition; (iv) changes in the regulatory environment; and (v) 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. 6
ITEM 2. PROPERTIES TrustCo's executive offices are located at 5 Sarnowski Drive, Glenville, New York, 12302. The Company operates 55 offices, of which 21 are owned and 34 are leased from others. The asset value of these properties, when considered in the aggregate, is not material to the operation of TrustCo. In the opinion of management, the physical properties of TrustCo, the Bank, and the Savings Bank are suitable and adequate, and are being fully utilized. ITEM 3. LEGAL PROCEEDINGS The nature of TrustCo's business generates a certain amount of litigation against TrustCo and its subsidiaries involving matters arising in the ordinary course of business. In the opinion of management of TrustCo, there are no proceedings pending to which TrustCo or any of its subsidiaries is a party, or of which its property is the subject which, if determined adversely to TrustCo or such subsidiaries, would be material in relation to TrustCo's consolidated shareholders' equity and financial condition. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 7
Executive Officers of TrustCo The following is a list of the names and ages of the executive officers of TrustCo and their business history for the past five years: YEAR FIRST NAME, AGE AND PRINCIPAL OCCUPATIONS BECAME POSITION OR EMPLOYMENT SINCE EXECUTIVE WITH TRUSTCO JANUARY 1, 1996 OF TRUSTCO _____________________ ___________________________________ ___________ ROBERT A. MCCORMICK, 64, President and Chief Executive 1981 Chairman,President, and Officer, TrustCo Bank Corp NY Chief Executive Officer since 1982. President and Chief Executive Officer, Trustco Bank, National Association since 1984. Director of TrustCo Bank Corp NY since 1981 and of Trustco Bank, National Association since 1980. Chairman of TrustCo Bank Corp NY and Trustco Bank, National Association since 2001. ROBERT T. CUSHING, 45, Vice President and Chief Financial 1994 Vice President and Officer, TrustCo Bank Corp NY since Chief Financial Officer 1994. Senior Vice President and Chief Financial Officer, Trustco Bank, National Association since 1994. Director of TrustCo Bank Corp NY and Trustco Bank, National Association since 2001. NANCY A. MCNAMARA, 51, Vice President, TrustCo Bank Corp 1992 Vice President NY since 1992. Senior Vice President, Trustco Bank, National Association since 1988. Director of TrustCo Bank Corp NY and Trustco Bank, National Association since 1991. WILLIAM F. TERRY, 58, Secretary, TrustCo Bank Corp NY and 1990 Secretary Trustco Bank, 1990 National Association since 1990. Senior Vice President, Trustco Bank, National Association since 1987. Director of TrustCo Bank Corp NY and Trustco Bank, National Association since 1991. Retired February, 2001. 8
HENRY C. COLLINS, 46, Secretary, TrustCo Bank Corp NY 1999 Secretary since January 2001. Assistant Secretary of TrustCo Bank Corp NY from 1999 to 2001. Administrative Vice President and General Counsel of Trustco Bank, National Association since 1995. ROBERT J. MCCORMICK, 37, Vice President, TrustCo Bank Corp NY 2000 Vice President since 2000. Administrative Vice President of Trustco Bank, National Association since 1997. Vice President of Trustco Bank, National Association since 1995. Robert J. McCormick is the son of Robert A. McCormick, Chairman, President, and Chief Executive officer of TrustCo and Trustco Bank, National Association. Each executive officer is elected by the Board of Directors to serve until election of his or her successor. 9
PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Page 1 and page 47 of TrustCo's Annual Report to Shareholders for the year ended December 31, 2000, are incorporated herein by reference. TrustCo had 12,085 shareholders of record as of March 9, 2001, and the closing price of TrustCo's common stock on that date was $11.875. ITEM 6. SELECTED FINANCIAL DATA Page 24 of TrustCo's Annual Report to Shareholders for the year ended December 31, 2000, is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Pages 6 through 25 of TrustCo's Annual Report to Shareholders for the year ended December 31, 2000, are incorporated herein by reference. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Pages 18 through 20 of TrustCo's Annual Report to Shareholders for the year ended December 31, 2000, are incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements, together with the report thereon of KPMG LLP on pages 27 through 43 of TrustCo's Annual Report to Shareholders for the year ended December 31, 2000, are incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT The information under the captions "Information on TrustCo Directors and Nominees" and "Information on TrustCo Executive Officers Not Listed Above" on pages 3 through 5, and Section 16(a) "Beneficial Ownership Reporting Compliance" on page 22, of TrustCo's Proxy Statement filed for its Annual Meeting of Shareholders to be held May 14, 2001, is incorporated herein by reference. The required information regarding TrustCo's executive officers is contained in PART I in the item captioned "Executive Officers of TrustCo." 10
ITEM 11. EXECUTIVE COMPENSATION The information under the captions "TrustCo and Trustco Bank Executive Officer Compensation" and "TrustCo Retirement Plans" on pages 7 through 12 of TrustCo's Proxy Statement filed for its Annual Meeting of Shareholders to be held May 14, 2001, is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information under the captions "Information on TrustCo Directors and Nominees," and "Information on TrustCo Executive Officers Not Listed Above," on pages 3 through 6 and "Ownership Of TrustCo Common Stock By Certain Beneficial Owners" on page 21 of TrustCo's Proxy Statement filed for its Annual Meeting of Shareholders to be held May 14, 2001, is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information under the caption "Transactions with TrustCo and Trustco Bank Directors, Executive Officers and Associates" on pages 21 and 22 of TrustCo's Proxy Statement filed for its Annual Meeting of Shareholders to be held May 14, 2001 is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K The following financial statements of TrustCo and its consolidated subsidiaries, and the accountants' report thereon are incorporated herein by reference in item 8. CONSOLIDATED STATEMENTS OF CONDITION -- December 31, 2000 and 1999. CONSOLIDATED STATEMENTS OF INCOME -- Years Ended December 31, 2000, 1999, and 1998. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY -- Years Ended December 31, 2000, 1999 and 1998. CONSOLIDATED STATEMENTS OF CASH FLOWS -- Years Ended December 31, 2000, 1999 and 1998. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. FINANCIAL STATEMENT SCHEDULES Not Applicable. All required schedules for TrustCo and its subsidiaries have been included in the consolidated financial statements or related notes thereto. 11
The following exhibits are incorporated herein by reference:* Reg S-K Exhibit No. Description 3(i)a Amended and Restated Certificate of Incorporation of TrustCo Bank Corp NY, dated July 27, 1993. 3(i)b Certificate of Amendment of the Certificate of Incorporation of TrustCo Bank Corp NY, dated May 28, 1996. 3(i)c Certificate of Amendment of the Certificate of Incorporation of TrustCo Bank Corp NY, dated May 19, 1997. 3(i)d Certificate of Amendment of the Certificate of Incorporation of TrustCo Bank Corp NY, dated May 18, 1999. 10(a) Employment Agreement dated January 1, 1992 and, Amendment No. 1 dated November 16, 1993, among TrustCo, the Bank and Robert A. McCormick. Amendment No. 2 dated September 1, 1994, Amendment No. 3 dated February 13, 1995, Amendment No. 4 dated December 1, 1995, including Schedule A, and Amendment No. 5, dated May 1, 1997. 10(b) Employment Agreement dated June 21, 1994, Amendment No. 1 dated February 14, 1995, including Schedule A, and Amendment No. 2, dated May 1, 1997, among TrustCo, the Bank and Robert T. Cushing. 10(c) Restated Employment Agreement dated June 21, 1994 and Amendment No. 1 dated February 14, 1995, including Schedule A, and Amendment No. 2, dated May 1, 1997, among TrustCo, the Bank and Nancy A. McNamara. 10(d) Restated Employment Agreement dated June 21, 1994, and Amendment No. 1 dated February 14, 1995, including Schedule A, and Amendment No. 2, dated May 1, 1997, among TrustCo, the Bank and William F. Terry. 10(e) Restated 1985 TrustCo Bank Corp NY Stock Option Plan. 10(f) TrustCo Bank Corp NY Directors Stock Option Plan. 10(g) Second Restatement of Trustco Bank Supplemental Retirement Plan among the Bank and each of Robert T. Cushing, Nancy A. McNamara, and William F. Terry, dated March 29, 1996, and Amendment No. 1, dated September 15, 1998. 10(h) Restated Agreement for Supplemental Retirement Benefits for Robert A. McCormick, dated June 24, 1994, Amendment No. 1 dated December 1, 1995, and Amendment No. 2 dated March 29, 1996, and Amendment No. 3, dated September 15, 1998. 12
10(i) Restatement of Trustco Bank Executive Officer Incentive Plan, dated March 29, 1996, Amendment No. 1, dated October 21, 1997, and Amendment No. 2, dated September 15, 1998. 10(j) 1995 TrustCo Bank Corp NY Stock Option Plan. 10(k) TrustCo Bank Corp NY Performance Bonus Plan, dated May 19, 1997, and Performance Unit Agreement Under TrustCo Bank Corp NY Performance Bonus Plan. 10(l) TrustCo Bank Corp NY Directors Performance Bonus Plan, dated May 19, 1997, and Performance Bonus Unit Agreement Under TrustCo Bank Corp NY Directors Performance Bonus Plan. 11 Computation of Net Income Per Common Share. ________________ *The exhibits included under Exhibit 10 constitute all management contracts, compensatory plans and arrangements required to be filed as an exhibit to this form pursuant to Item 14(c) of this report. 13
The following exhibits are filed herewith:* Reg S-K Exhibit No. Description ______________________________ 3(ii)a Amended and Restated ByLaws of TrustCo Bank Corp NY, dated February 20, 2001. 13 Portions of Annual Report to Security Holders of TrustCo for the year ended December 31, 2000. 21 List of Subsidiaries of TrustCo. 23 Consent of Independent Certified Public Accountants. 24 Power of Attorney. 14
REPORTS ON FORM 8-K: On November 10, 2000, TrustCo filed a Current Report on Form 8-K reporting that TrustCo was ranked 22nd among 10,000 U.S. based companies in annual growth rate of dividends according to the Moody's Handbook of Dividend Achievers, 2000 Edition. On November 21, 2000, TrustCo filed a Current Report on Form 8-K reporting the declaration of a cash dividend. On December 6, 2000, TrustCo filed a Current Report on Form 8-K announcing the opening of the Bank's Milton office and reporting that TrustCo was ranked 10th best for efficiency ratio among the 500 largest United States Bank Holding Companies in the November 14, 2000 issue of The American Banker. On January 16, 2001, TrustCo filed a Current Report on Form 8-K reporting the fourth quarter and year-end December 31, 2000, results. On January 17, 2001, TrustCo filed a Current Report on Form 8-K announcing the appointments of Chairman, Director, and Secretary. On February 20, 2001, TrustCo filed a Current Report on Form 8-K reporting the declaration of a cash dividend. 15
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 By: /s/Robert A. McCormick __________________________ Robert A. McCormick President and Chief Executive Officer (Principal Executive Officer) By: /s/Robert T. Cushing ________________________ Robert T. Cushing Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) Date: March 23, 2001 16
Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated. Signature Title Date _________ ______ _____ * Director February 20, 2001 __________________ Barton A. Andreoli * Director February 20, 2001 __________________ Lionel O. Barthold * Director February 20, 2001 __________________ Robert T. Cushing * Director February 20, 2001 __________________ Joseph Lucarelli * Director February 20, 2001 __________________ Dr. Anthony J. Marinello * Director February 20, 2001 __________________ Robert A. McCormick * Director February 20, 2001 __________________ Nancy A. McNamara * Director February 20, 2001 __________________ Dr. James H. Murphy * Director February 20, 2001 __________________ Richard J. Murray, Jr. * Director February 20, 2001 __________________ Kenneth C. Petersen * Director February 20, 2001 __________________ William D. Powers * Director February 20, 2001 __________________ William J. Purdy By: /s/ Henry C. Collins *Henry C. Collins, as Agent Pursuant to Power of Attorney 17
REG S-K ITEM 601 EXHIBIT NO. Page No. 3(i)a Amended and Restated Certificate of Incorporation of TrustCo BankCorp NY, dated July 27, 1993, filed as Exhibit 3(i)a to TrustCo Bank Corp NY's Quarterly Report on Form 10Q, for the quarter ended June 30, 1997, is incorporated herein by reference. 3(i)b Certificate of Amendment of the Certificate of Incorporation of TrustCo Bank Corp NY, dated May 28, 1996, filed as Exhibit 3(i)b to TrustCo Bank Corp NY's Quarterly Report on Form 10Q, for the quarter ended June 30, 1997, is incorporated herein by reference. 3(i)c Certificate of Amendment of the Certificate of Incorporation of TrustCo Bank Corp NY, dated May 19, 1997, filed as Exhibit 3(i)c to TrustCo Bank Corp NY's Quarterly Report on Form 10Q, for the quarter ended June 30, 1997, is incorporated herein by reference. 3(i)d Certificate of Amendment of the Certificate of Incorporation of TrustCo Bank Corp NY, dated May 18, 1999, filed on Exhibit 3(i)a to TrustCo Bank Corp NY's Amendment No. 2 to Form S-4, Registration No. 333-41168, on October 3, 2000, is incorporated herein by reference. 10(a) Employment Agreement dated January 1, 1992 and, Amendment No. 1 dated November 16, 1993, among TrustCo, the Bank and Robert A. McCormick, filed as Exhibit 10(a), and Amendment No. 2 dated September 1, 1994, and Amendment No. 3 dated February 13, 1995, filed as Exhibit 10(b) to TrustCo Bank Corp NY's Annual Report on Form 10-K for the fiscal year ended December 31, 1994, and Amendment No. 4 dated December 1, 1995, to the Employment Agreement dated January 1, 1992, filed as Exhibit 10(b) and Schedule A filed as Exhibit 10(c) to TrustCo Bank Corp NY's Annual Report on Form 10-K, for the fiscal year ended December 31, 1995, and Amendment No. 5, dated May 1, 1997, filed as Exhibit 10(e) to TrustCo Bank Corp NY's Quarterly Report on Form 10Q for the quarter ended June 30, 1997 are incorporated herein by reference. 18
Reg S-K Item 601 Exhibit No. Page No. 10(b) Employment Agreement dated June 21, 1994, and Amendment No. 1 dated February 14, 1995, among TrustCo, the Bank and Robert T. Cushing filed as Exhibit 10(c) to TrustCo Bank Corp NY's Annual Report on Form 10-K for the fiscal year ended December 31, 1994, and Schedule A updating the Employment Agreement dated June 21, 1994, filed as Exhibit 10(e) to TrustCo Bank Corp NY's Annual Report on Form 10-K, for the year ended December 31, 1995, and Amendment No. 2, dated May 1, 1997, filed as Exhibit 10(f) to TrustCo Bank Corp NY's Quarterly Report on Form 10Q for the quarter ended June 30, 1997, are incorporated herein by reference. 10(c) Restated Employment Agreement dated June 21, 1994 and Amendment No. 1 dated February 14, 1995, among TrustCo, the Bank and Nancy A. McNamara, filed as Exhibit 10(d) to TrustCo Bank Corp NY's Annual Report on Form 10-K for the fiscal year ended December 31, 1994, and Schedule A updating the Employment Agreement dated June 21, 1994, filed as Exhibit 10(i) to TrustCo Bank Corp NY's Annual Report on Form 10-K for the fiscal year ended December 31, 1995, and Amendment No. 2, dated May 1, 1997, filed as Exhibit 10(f) to TrustCo Bank Corp NY's Quarterly Report on Form 10Q for the quarter ended June 30, 1997, are incorporated herein by reference. 10(d) Restated Employment Agreement dated June 21, 1994, and Amendment No. 1 dated February 14, 1995, among TrustCo, the Bank and William F. Terry, filed as Exhibit 10(e) to TrustCo Bank Corp NY's Annual Report on Form 10-K for the fiscal year ended December 31, 1994, and Schedule A updating the Employment Agreement dated June 21, 1994, filed as Exhibit 10(i) to TrustCo Bank Corp NY's Annual Report on Form 10-K for the fiscal year ended December 31, 1995, and Amendment No. 2 dated May 1, 1997, filed as Exhibit 10(f) to TrustCo Bank Corp NY's Quarterly Report on Form 10Q for the quarter ended June 30, 1997, are incorporated herein by reference. 19
Reg S-K Item 601 Exhibit No. Page No. 10(e) Restated 1985 TrustCo Bank Corp NY Stock Option Plan as amended and restated effective July 1, 1994, filed as Exhibit 10(h) to TrustCo Bank Corp NY's Annual Report on Form 10-K for the fiscal year ended December 31, 1994, is incorporated herein by reference. 10(f) TrustCo Bank Corp NY Directors Stock Option Plan filed as Exhibit 10(g) to TrustCo Bank Corp NY's Annual Report on Form 10-K for the fiscal year ended December 31, 1993, is incorporated herein by reference. 10(g) Second Restatement of Trustco Bank Supplemental Retirement Plan among the Bank and each of Robert T. Cushing, Nancy A. McNamara, and William F. Terry, dated March 29, 1996, filed as Exhibit 10(m) to TrustCo Bank Corp NY's Annual Report on Form 10-K for the fiscal year ended December 31, 1996, and Amendment No. 1, dated September 15, 1998, filed as Exhibit 10(a) to TrustCo Bank Corp NY's Quarterly Report on form 10Q for the quarter ended September 30, 1998, are incorporated herein by reference. 10(h) Restated Agreement for Supplemental Retirement Benefits for Robert A. McCormick, dated June 24, 1994 and Amendment No. 1 dated December 1, 1995, filed as Exhibit 10(m) to TrustCo Bank Corp NY's Annual Report on Form 10-K for the fiscal year ended December 31, 1995, and Amendment No.2, dated March 29, 1996, filed as Exhibit 10(l) to TrustCo Bank Corp NY's Annual Report on Form 10-K for the fiscal year ended December 31, 1996, and Amendment No. 3, dated September 15, 1998, filed as Exhibit 10(c) to TrustCo Bank Corp NY's Quarterly Report on Form 10Q for the quarter ended September 30, 1998, are incorporated herein by reference. 10(i) Restatement of Trustco Bank Executive Officer Incentive Plan, dated March 29, 1996, filed as Exhibit 10(n) to TrustCo Bank Corp NY's Annual Report on Form 10-K for the fiscal year ended December 31, 1996, Amendment No. 1, to Restatement of Trustco Bank Executive Officer Incentive Plan, dated October 21, 1997, filed as Exhibit 10(n) to TrustCo Bank Corp NY's Annual Report on Form 10K for the fiscal year ended December 31, 1997, and Amendment No. 2, dated September 15, 1998, 20
Reg S-K Page No. Item 601 Exhibit No. filed as Exhibit 10(b) to TrustCo Bank Corp NY's Quarterly Report on Form 10Q, for the quarter ended September 30, 1998, are incorporated herein by reference. 10(j) 1995 TrustCo Bank Corp NY Stock Option Plan, dated June 20, 1995, filed on Form S-8 (file No. 33-60409) dated June 20, 1995, is incorporated herein by reference. 10(k) TrustCo Bank Corp NY Performance Bonus Plan, dated May 19, 1997, filed as Exhibit 10(a) and Performance Bonus Unit Agreement Under TrustCo Bank Corp NY Performance Bonus Plan, filed as Exhibit 10(b) to TrustCo Bank Corp NY's Quarterly Report on Form 10Q, for the quarter ended June 30, 1997, are incorporated herein by reference. 10(l) TrustCo Bank Corp NY Directors Performance Bonus Plan dated May 19, 1997, filed as Exhibit 10(c) and Performance Bonus Unit Agreement Under TrustCo Bank Corp NY Directors Performance Bonus Plan, filed as Exhibit 10(d) to TrustCo Bank Corp NY's Quarterly Report on Form 10Q, for the quarter ended June 30, 1997, are incorporated herein by reference. 21
Reg S-K Item 601 Exhibit No. Page No. 3(ii)a Amended and Restated ByLaws of TrustCo Bank Corp NY, dated February 20, 2001, is filed herewith. 23 11 Computation of Net Income Per Common Share. Note 12 on 75 page 40 of TrustCo's Annual Report to Shareholders for the year ended December 31, 2000, is incorporated herein by reference. 13 Portions of Annual Report to Security Holders of TrustCo for the 35 year ended December 31, 2000, are filed herewith. GRAPHICS APPENDIX CROSS REFERENCE TO PAGE OF ANNUAL OMITTED CHARTS REPORT _______________________________________________________________________________ 1 Return on Equity 6 2 Taxable Equivalent Net Interest Income 8 3 Dividends Per Share 15 4 Allowance for Loan Losses 17 5 Allowance to Loans Outstanding 17 6 Efficiency Ratio 21 The charts listed above were omitted from the EDGAR version of Exhibit 13; however, the information depicted in the charts was adequately discussed and/or displayed in the tabulation formation within Management's Discussion and Analysis section of the Annual Report. 21 List of Subsidiaries of TrustCo, filed herewith 83 23 Consent of Independent Certified Public Accountants, filed herewith. 84 24 Power of Attorney, filed herewith. 85 22
BYLAWS OF TRUSTCO BANK CORP NY PAGE ARTICLE 1. Definitions 1 ARTICLE 2. Shareholders 2 2.1 Place of Meetings 2 2.2 Annual Meeting 2 2.3 Special Meetings 2 2.4 Quorum and Voting Requirements; Adjournment 2 2.5 Inspectors At Meetings 3 2.6 Organization 3 2.7 Order of Business 3 ARTICLE 3. Directors 3 3.1 Board of Directors 3 3.2 Number; Qualification; Term of Office 3 3.3 Election 4 3.4 Newly Created Directorship and Vacancies 4 3.5 Rules and Regulations 4 3.6 Regular Meetings 4 3.7 Special Meetings 4 3.8 Waivers of Notice 4 3.9 Organization 4 3.10 Quorum and Voting 5 3.11 Written Consent of Directors Without a Meeting 5 3.12 Participation in Meeting of Board by Means of Conference Telephone or Similar Communications Equipment 5 3.13 Nominations 5 ARTICLE 4. Committees 5 4.1 Executive Committee 5 4.2 Other Committees 6 -i-
ARTICLE 5. Officers 6 5.1 Officers 6 5.2 Chief Executive Officer 6 5.3 Chairman and President 7 5.4 Other Officers 7 ARTICLE 6. Contracts, Loans, Etc. 7 6.1 Execution of Contracts 7 6.2 Loans 7 6.3 Signature Authority 7 ARTICLE 7. Shares 8 7.1 Stock Certificates 8 7.2 Transfer of Shares 8 7.3 Closing of Transfer Books 8 7.4 Transfer and Registry Agents 8 7.5 Lost, Destroyed, Stolen and Mutilated Certificates 8 ARTICLE 8. Emergencies 9 8.1 Operation During Emergency 9 8.2 Officers Pro Tempore During Emergency 9 8.3 Disaster 9 ARTICLE 9. Seal 9 ARTICLE 10. Fiscal Year 10 ARTICLE 11. Voting of Shares Held 10 ARTICLE 12. Amendments to Bylaws 10 ARTICLE 13. Indemnification of Directors and Officers 11 -ii-
Exhibit 3(ii)a BYLAWS OF TRUSTCO BANK CORP NY (a New York State Corporation) (As Amended Through February 20, 2001) ___________________________________________________ ARTICLE 1 DEFINITIONS As used in these Bylaws, unless the context otherwise requires, the term: 1.1 "Board" means the Board of Directors of the Corporation 1.2 "Business Corporation Law" means the Business Corporation Law of the State of New York, as amended from time to time. 1.3 "Bylaws" means the initial Bylaws of the Corporation, as amended from time to time. 1.4 "Certificate of Incorporation" means the initial certificate of incorporation of the Corporation, as amended, supplemented or restated from time to time. 1.5. "Corporation" means TrustCo Bank Corp NY. 1.6 "Directors" means directors of the Corporation. 1.7 "Entire Board" means the total number of directors which the Corporation would have if there were no vacancies. 1.8 "Chief Executive Officer" means the Chief Executive Officer of the corporation. 1.9 "Chairman" means chairman of the Board of the Corporation. 1.10 "President" means the President of the Corporation. 1.11 "Secretary" means the Secretary of the Corporation. 1.12 "Vice President" means the Vice President of the Corporation. -23-
ARTICLE 2 SHAREHOLDERS 2.1 PLACE OF MEETINGS. Every meeting of shareholders shall be held at such place within or without the State of New York as shall be designated by the Board of Directors in the notice of such meeting or in the waiver of notice thereof. 2.2 ANNUAL MEETING. A meeting of shareholders shall be held annually for the election of Directors and the transaction of other business at such hour and on such business day as may be determined by the Board. Written notice of such meeting, stating the place, date and hour thereof, shall be given, personally or by mail, not less than ten nor more than sixty days before the date of such meeting, to each shareholder certified to vote at such meeting. 2.3 SPECIAL MEETINGS. A special meeting of shareholders, other than those regulated by statute, may be called at any time by the Board or by the Chief Executive Officer. It shall also be the duty of the Chief Executive Officer to call such a meeting whenever requested in writing so to do by shareholders owning two thirds of the issued and outstanding share entitled to vote at such a meeting. Written notice of such meeting, stating the place, date, hour and purpose thereof, and indicating that it is being given by the person or persons calling such meeting, shall be given, personally or by mail, not less than ten nor more than sixty days before the date of such meeting, to each shareholder certified to vote at such meeting. 2.4 QUORUM AND VOTING REQUIREMENTS; ADJOURNMENT. Except with respect to a special meeting for the election of Directors as required by law, or as otherwise provided in these Bylaws, (a) the holders of at least a majority of the outstanding shares of the Corporation shall be present in person or by proxy at any meeting of the shareholders in order to constitute a quorum for the transaction of any business, and (b) the votes of the holders of at least a majority of the outstanding shares of the Corporation shall be necessary at any meeting of shareholders for the transaction of any business or specified item of business, other than the changing, amending or repealing of any provision of the Certificate of Incorporation or By- Laws which shall require the affirmative vote of two-thirds of the Corporation's voting stock; provided, however, that when a specified item of business is required to be voted on by a class or series (if the Corporation shall then have outstanding shares or more than one class or series), voting as a class, the holders of a majority of the shares of such class or series shall constitute a quorum (as to such class or series) for the transaction of such item of business. The holders of a majority of shares present in person or represented by proxy at any meeting of shareholders, including an adjourned meeting, whether or not a quorum is present, may adjourn such meeting to another time and place. -24-
2.5 INSPECTORS AT MEETINGS. Two or more inspectors shall be appointed by the Board or the Executive Committee prior to each Annual Meeting of Shareholders, to serve at the meeting or any adjournment thereof. In case any person appointed fails to appear or act, the vacancy may be filled by appointment made by the Board in advance of the meeting or at the meeting by the person presiding thereat. 2.6 ORGANIZATION. At every meeting of shareholders, the Chief Executive Officer, or in his absence, an officer of the Corporation designated by the Board or the Chief Executive Officer, shall act as Chairman of the meeting. The Secretary, or in his absence, one of the Vice Presidents not acting as Chairman of the meeting, shall act as Secretary of the meeting. In case none of the officers above designated to act as Chairman or Secretary of the meeting, respectively, shall be present, a Chairman or a Secretary of the meeting, as the case may be, shall be chosen by a majority of the votes cast at such meeting by the holders of shares present in person, or represented by proxy and entitled to vote at the meeting. 2.7 ORDER OF BUSINESS. The order of business at all meetings of shareholders shall be as determined by the Chairman of the meeting, but the order of business to be followed at any meeting at which a quorum is present may be changed by a majority of the votes cast at such meeting by the holders of shares present in person or represented by proxy and entitled to vote at the meeting. ARTICLE 3 DIRECTORS 3.1 BOARD OF DIRECTORS. Except as otherwise provided in the Certificate of Incorporation, the affairs of the Corporation shall be managed and its corporate powers exercised by its Board. In addition to the powers expressly conferred by the Bylaws, the Board may exercise all powers and perform all acts which are not required, by the Blaws or the Certificate of Incorporation or by law, to be exercised and performed by the shareholders. 3.2 NUMBER; QUALIFICATION; TERM OF OFFICE. Subject to Section 702(b) of the Business Corporation Law, the number of Directors constituting the Entire Board may be changed from time to time by action of the shareholders or the Board, provided that such number shall not be less than seven or more than twenty. The Directors shall be divided into three classes as nearly equal in number as may be, one class to be elected each year for a term of three years and until their successors are elected and qualified. A Director attaining 75 years of age shall cease to be a Director and that office shall be vacant. A Director who was an employee of the Company at the time of his election, shall vacate his office when he ceases to be a full-time employee of the Company and shall not be eligible for reelection. -25-
3.3 ELECTION. Directors shall be elected by the affirmative vote of the holders of a majority of the Company's outstanding voting stock. 3.4 NEWLY CREATED DIRECTORSHIP AND VACANCIES. Newly created directorships resulting from an increase in the number of Directors and vacancies occurring in the Board for any reason, may be filled by vote of a majority of the Directors then in office, although less than a quorum, at any meeting of the Board. Directors elected by the Board shall hold office until the next meeting of shareholders at which the election of directors is in the regular order of business, and until their successors have been elected and qualified. 3.5 RULES AND REGULATIONS. The Board of Directors may adopt such Rules and Regulations for the conduct of its meetings and the management of the affairs of the Company as it may deem proper, not inconsistent with the laws of the State of New York, or these Bylaws. 3.6 REGULAR MEETINGS. Regular meetings of the Board shall be held on the third Tuesday of February, May, August and November, unless otherwise specified by the Board, and may be held at such times and places as may be fixed from time to time by the Board, and may be held without notice. 3.7 SPECIAL MEETINGS. Special meetings of the Board shall be held whenever called by the Chief Executive Officer, and a special meeting shall be called by the Chief Executive Officer or the Secretary at the written request of any seven Directors. Notice of the time and place of each special meeting of the Board shall, if mailed, be addressed to each Director at the address designated by him for that purpose or, if none is designated, at his last known address at least three days before the date on which the meeting is to be held; or such notice shall be sent to each Director at such address by telegraph, or similar means of communication, or be delivered to him personally, not later than the day before the date on which such meeting is to be held. 3.8 WAIVERS OF NOTICE. Anything in these Bylaws or in any resolution adopted by the Board to the contrary notwithstanding, notice of any meeting of the Board need not be given to any Director who submits a signed waiver of such notice, whether before or after such meeting, or who attends such meeting without protesting, prior thereto or at its commencement, the lack of notice to him. 3.9 ORGANIZATION. At each meeting of the Board, the Chief Executive Officer of the Corporation, or in the absence of the Chief Executive Officer, a Chairman chosen by the majority of the Directors present, shall preside. The Secretary, or in the absence of the Secretary, a Vice President, shall act as Secretary at each meeting of the Board. -26-
3.10 QUORUM AND VOTING. A majority of the Entire Board shall constitute a quorum for the transaction of business or of any specified item of business at any meeting of the Board. The affirmative vote of a majority of the Entire Board shall be necessary for the transaction of any business or specified item of business at any meeting of the Board, except that the affirmative vote of two-thirds of the Entire Board shall be necessary to change, amend or repeal any provision of the Certificate of Incorporation or Bylaws. 3.11 WRITTEN CONSENT OF DIRECTORS WITHOUT A MEETING. Any action required or permitted to be taken by the Board may be taken without a meeting if all members of the Board consent in writing to the adoption of a resolution authorizing the action. The resolution and the written consents thereto by the members of the Board shall be filed with the minutes of the proceedings of the Board. 3.12 PARTICIPATION IN MEETING OF BOARD BY MEANS OF CONFERENCE TELEPHONE OR SIMILAR COMMUNICATIONS EQUIPMENT. Any one or more members of the Board may participate in a meeting of the Board by means of a conference telephone or similar communications equipment allowing all persons participating in the meeting to hear each other at the same time. Participation by such means shall constitute presence in person at a meeting. 3.13 NOMINATIONS. Nominations for Directors, other than those made by or on behalf of the existing management of the Corporation, shall be made in writing and shall be delivered or mailed to the Board not less than (14) days nor more than fifty (50) days prior to any meeting of shareholders called for the election of Directors, provided, however, that if less than twenty-one (21) days notice of the meeting is given to shareholders, such nominations shall be mailed or delivered to the Board not later than the close of business on the seventh (7th) day following the day on which the notice of meeting was mailed. ARTICLE 4 COMMITTEES 4.1 EXECUTIVE COMMITTEE. There shall be an Executive Committee consisting of not more than nine Directors, of which four shall constitute a quorum. All but six of the members of such Executive Committee shall be appointed by the Board of Directors, shall be known as permanent members and shall hold office until the organization of the Board after the annual election next succeeding their respective appointments. Six places on the Executive Committee shall be filled by the Directors, other than the permanent members of the Executive Committee, in rotation according to alphabetical order, each panel of six rotating members serving for one calendar month. In the event that any member of the Executive Committee is unable to attend -27-
a meeting, the Chief Executive Officer may invite any other Director to take his place for such meeting. The Executive Committee shall possess and exercise all of the delegable powers of the Board, except when the latter is in session. It shall keep a record of its proceedings, and the same shall be subject to examination by the Board at any time. All acts done and powers and authority conferred by the Executive Committee from time to time, within the scope of its authority, shall be and be deemed to be and may be certified as being the act and under the authority of the Board. Meetings of the Executive Committee shall be held at such times and places and upon such, if any, notice as the Executive Committee shall determine from time to time, provided that a special meeting of the Executive Committee may be called by the Chief Executive Officer, in his discretion, and shall be called by the Chief Executive Officer or Secretary on the written request of any three members, three days' notice of the time and place of which shall be given in the same manner as notices of special meetings of the Board of Directors, except that if such notice is given otherwise than by mail, it shall be sufficient if given at any time on or before the day preceding the meeting. 4.2 OTHER COMMITTEES. The Board, by resolution adopted by a majority of the Entire Board, may designate from among its members such other standing or special committees as may seem necessary or desirable from time to time. ARTICLE 5 OFFICERS 5.1 OFFICERS. The Board may elect or appoint a Chairman and shall elect or appoint a President, either of which it shall designate the Chief Executive Officer and shall elect or appoint one or more Vice Presidents and a Secretary, and such other officers as it may from time to time determine. All officers shall hold their offices, respectively, at the pleasure of the Board. The Board may require any and all officers, clerks and employees to give a bond or other security for the faithful performance of their duties, in such amount and with such sureties as the Board may determine. 5.2 CHIEF EXECUTIVE OFFICER. The Chief Executive Officer of the Corporation shall have general supervision over the business of the Corporation, subject, however, to the control of the Board and of any duly authorized committee of Directors. The Chief Executive Officer shall, if present, preside at all meetings of the shareholders, at all meetings of the Board and shall supervise the carrying out of policies adopted or approved by the Board. He may, with the Secretary or any other officer of the Corporation, sign certificates for shares of the Corporation. He may sign and execute, in the name of the Corporation, deeds, mortgages, bonds, contracts and other instruments, subject to any restrictions imposed by the Bylaws, Board or applicable laws, and, in general, he shall perform all duties incident to the office of the Chief Executive Officer and such other duties as from time to time may be assigned to him by the Board. -28-
5.3 CHAIRMAN AND PRESIDENT. Either the Chairman or the President shall be designated the Chief Executive Officer of the Corporation. The one not so designated shall perform such duties as from time to time may be assigned to him by the Board or by the Chief Executive Officer. 5.4 OTHER OFFICERS. All the other officers of the Corporation shall perform all duties incident to their respective offices, subject to the supervision and direction of the Board, the Chief Executive Officer, and the Executive Committee, and shall perform such other duties as may from time to time be assigned them by the Board or by the Chief Executive Officer. The President and any Vice President may also, with the Secretary, sign and execute, in the name of the Corporation, deeds, mortgages, bonds, contracts and other instruments, subject to any restrictions imposed by the Bylaws, Board or applicable laws. ARTICLE 6 CONTRACTS, LOANS, ETC 6.1 EXECUTION OF CONTRACTS. The Board may authorize any officer, employee or agent, in the name and on behalf of the Corporation, to enter into any contract or execute and satisfy any instrument, and any such authority may be general or confined to specific instances, or otherwise limited. 6.2 LOANS. The Chief Executive Officer or any other officer, employee or agent authorized by the Board may effect loans and advances at any time for the Corporation from any bank, trust company or other institution or from any firm, corporation or individual, and for such loans and advances may make, execute and deliver promissory notes, bonds or other certificates or evidences of indebtedness of the Corporation, and when authorized so to do may pledge and hypothecate or transfer any securities or other property of the Corporation as security for any such loans or advances. 6.3 SIGNATURE AUTHORITY. The Chief Executive Officer shall from time to time authorize the appropriate officers and employees of the Corporation who are to sign, execute, acknowledge, verify and deliver or accept all agreements, conveyances, transfers, obligations, authentications, certificates and other documents and instruments and to affix the seal of the Corporation to any such document or instrument and to cause the same to be attested by the Secretary or Assistant Secretary. -29-
ARTICLE 7 SHARES 7.1 STOCK CERTIFICATES. Certificates representing shares of the Corporation, in such form as shall be determined from time to time by the Board, shall be signed by the Chief Executive Officer, the Chairman, the President, or any Vice President and the Secretary, and may be sealed with the seal of the Corporation or a facsimile thereof. 7.2 TRANSFER OF SHARES. Transfers of shares shall be made only on the book of the Corporation by the holder thereof or by his duly authorized attorney or a transfer agent of the Corporation, and on surrender of the certificate or certificates representing such shares properly endorsed for transfer and upon payment of all necessary transfer taxes. Every certificate exchanged, returned or surrendered to the Corporation shall be marked "Canceled", with the date of cancellation, by the Secretary or the transfer agent of the Corporation. A person in whose name shares shall stand on the books of the Corporation shall be deemed the owner thereof to receive dividends, to vote as such owner and for all other purposes as respects the Corporation. No transfer of shares shall be valid as against the Corporation, its shareholders and creditors for any purpose, except to render the transferee liable for the debts of the Corporation to the extent provided by law, until such transfer shall have been entered on the books of the Corporation by an entry showing from and to whom transferred. 7.3 CLOSING OF TRANSFER BOOKS. The Board may prescribe a period prior to any shareholders' meeting or prior to the payment of any dividend, not exceeding sixty days, during which no transfer of stock on the books of the Corporation may be made and may fix a day as provided by the Business Corporation Law as of which shareholders entitled to notice and to vote at such meeting shall be determined. 7.4 TRANSFER AND REGISTRY AGENTS. The Corporation may from time to time maintain one or more transfer offices or agents and registry officer or agents at such place or places as may be determined from time to time by the Board. 7.5 LOST, DESTROYED, STOLEN AND MUTILATED CERTIFICATES. If the holder of any shares shall notify the Corporation of any loss, destruction, theft or mutilation of the certificate or certificates representing such shares, the Corporation may issue a new certificate or certificates to replace the old, upon such conditions as may be specified by the Board consistent with applicable laws. -30-
ARTICLE 8 EMERGENCIES 8.1 OPERATION DURING EMERGENCY. In the event of a state of emergency declared by the President of the United States or the person performing his functions or by the Governor of the State of New York or by the person performing his functions, the officers and employees of the Corporation shall continue to conduct the affairs of the Corporation under such guidance from the Directors as may be available except as to matters which by statute require specific approval of the Board of Directors and subject to conformance with any governmental directives during the emergency. 8.2 OFFICERS PRO TEMPORE DURING EMERGENCY. The Board of Directors shall have power, in the absence or disability of any officer, or upon the refusal of any officer to act, to delegate and prescribe such officer's powers and duties to any other officer for the time being. 8.3 DISASTER. In the event of a state of emergency resulting from disaster of sufficient severity to prevent the conduct and management of the affairs and business of the Corporation by the Directors and officers as contemplated by these Bylaws, any two or more available members of the Executive Committee shall constitute a quorum of that committee for the full conduct and management of the affairs and business of the Corporation, notwithstanding any other provision of these Bylaws, and such committee shall further be empowered to exercise all powers reserved to any and all other committees of the Board established pursuant to Article 4 of these Bylaws. In the event of the unavailability, at such time, of at least two members of the Executive Committee, any three available Directors may constitute themselves the Executive Committee pro tem for the full conduct and management of the affairs and business of the Corporation in accordance with the provisions of this Article, until such time as the incumbent Board or a reconstituted Board is capable of assuming full conduct and management of such affairs and business. ARTICLE 9 SEAL 9.1 SEAL. The Board may adopt a corporate seal which shall be in the form of a circle and shall bear the full name of the Corporation and the year and State of its incorporation. -31-
ARTICLE 10 FISCAL YEAR 10.1 FISCAL YEAR. The fiscal year of the Corporation shall be determined, and may be changed, by resolution of the Board. ARTICLE 11 VOTING OF SHARES HELD 11.1 VOTING OF SHARES HELD BY THE CORPORATION. Unless otherwise provided by resolution of the Board and excepting the shares of any subsidiary company of the Corporation which are to be voted in accordance with the resolution of the Board, the Chief Executive Officer may from time to time appoint one or more attorneys or agents of the Corporation, in the name and on behalf of the Corporation, to cast the votes which the Corporation may be entitled to cast as a shareholder or otherwise in any other corporation, any of whose shares or securities may be held by the Corporation, at meetings of the holders of the shares or other securities of such other corporation and to consent in writing to any action by any such other corporation, and may instruct the person or persons so appointed as to the manner of casting such votes or giving such consent, and may execute or cause to be executed on behalf of the Corporation and under its corporate seal, or otherwise, such written proxies, consents, waivers or other instruments as he may deem necessary or proper in the premises; or the Chief Executive Officer may himself attend any meeting of the holders of the shares or other securities of any such other corporation and thereat vote or exercise any or all other powers of the Corporation as the holder of such shares or other securities of such other corporation. ARTICLE 12 AMENDMENTS TO BYLAWS 12.1 AMENDMENTS. The Bylaws or any of them may be altered, amended, supplemented or repealed, or new Bylaws may be adopted by a vote of the holders of at least two-thirds of the shares entitled to vote at any regular or special meeting of shareholders, or by a vote of at least two- thirds of the Entire Board of Directors at any regular or special meeting thereof, provided notice of such proposed changes has been set forth in the notice of meeting of shareholders or Directors. 32
ARTICLE 13 INDEMNIFICATION OF DIRECTORS AND OFFICERS 13.1 In addition to authorization provided by law, the Directors are authorized, by resolution, to provide indemnification or to advance expenses to any Officer or Director seeking such indemnifica- tion or the advancement of such expenses. They may also, by resolution, authorize agreements providing for indemnification. 13.2 The indemnification and advancement authorized by this Article shall be subject to each of the conditions or limitations set forth in the succeeding subdivisions(s) of this Section. 13.2.1 No indemnification may be made to or on behalf of any Director or Officer if a judgment or other final adjudication adverse to the Officer or Director establishes that his acts were committed in bad faith or were the result of an act of deliberate dishonesty and were material to the cause of action so adjudicated, or that he personally gained in fact a financial profit or other advantage to which he was not entitled. 13.3 Officers and Directors of any wholly owned subsidiary serve at the request of the Corporation for the purpose of this Article. 13.4 The Directors may by resolution, authorize the Corporation's Officers and Directors to serve as a Director or Officer of any other corporation of any type or kind, domestic or foreign, of any partnership, joint venture, trust, employee benefit plan or other enterprise for the purpose of the indemnification provisions of this Article. The failure to enact such a resolution shall not, in itself, create a presumption that such service was not authorized. 33
I, Henry C. Collins, Secretary of TrustCo Bank Corp NY, Schenectady, New York, hereby certify that the foregoing is a complete, true and correct copy of the Bylaws of TrustCo Bank Corp NY, and that the same are in full force and effect at this date. /s/Henry Collins ____________________ Secretary March 13, 2001 ____________________ Date 34
Exhibit 13 TRUSTCO BANK CORP NY ANNUAL REPORT 35
TrustCo Bank Corp NY is a multi-bank holding company headquartered in Schenectady, New York. The Company is the largest bank holding company headquartered in the Capital Region of New York State. The Company's principal subsidiaries, Trustco Bank, National Association and Trustco Savings Bank, operate 55 community banking offices offering 36 drive-up windows and 47 Automatic Teller Machines throughout the Banks' market area. The Company serves 10 counties with a broad range of community banking services. FINANCIAL HIGHLIGHTS <TABLE> <CAPTION> (dollars in thousands, except per share data) Years ended December 31, ____________________________________________ Percent 2000 1999 Change ____________________________________________ Income: <S> <C> <C> <C> Net interest income (TE)........................................ $ 102,526 97,195 5.48% Net income...................................................... 41,702 38,185 9.21 Per Share (1): Basic earnings.................................................. .678 .618 9.71 Diluted earnings................................................ .657 .594 10.61 Book value...................................................... 3.19 2.71 17.71 Average Balances: Assets.......................................................... 2,372,926 2,411,195 (1.59) Loans, net...................................................... 1,395,414 1,329,458 4.96 Deposits........................................................ 1,985,803 2,043,149 (2.81) Shareholders' equity............................................ 175,973 179,484 (1.96) Financial Ratios: Return on average assets........................................ 1.76% 1.58 11.39 Return on average equity (2).................................... 24.07 22.52 6.88 Tier 1 capital to: Total average assets (leverage).............................. 7.31 7.15 2.24 Risk-adjusted assets......................................... 14.03 13.55 3.54 Total capital to risk-adjusted assets........................... 15.32 14.84 3.23 Net loans charged off to average loans.......................... 28 27 3.70 Allowance for loan losses as a coverage of nonperforming loans.. 4.8x 5.6x (14.29) Efficiency ratio................................................ 38.06 38.62 1.45 Dividend payout ratio........................................... 79.78 79.16 0.78 ____________________________________________ </TABLE> PER SHARE INFORMATION OF COMMON STOCK (1) <TABLE> <CAPTION> Range of Stock Price Basic Diluted Cash Book ___________________ Earnings Earnings Dividend Value High Low _____________________________________________________________________ 1999 <S> <C> <C> <C> <C> <C> <C> First quarter................................... $.151 .145 .120 2.99 13.04 10.84 Second quarter.................................. .153 .148 .120 2.86 12.61 10.87 Third quarter................................... .161 .155 .120 2.79 13.29 11.58 Fourth quarter.................................. .153 .147 .130 2.71 13.43 11.09 2000 First quarter................................... .167 .162 .130 2.78 11.96 8.91 Second quarter.................................. .171 .166 .130 2.87 11.09 9.08 Third quarter................................... .175 .169 .130 3.00 11.36 9.68 Fourth quarter.................................. .166 .160 .150 3.19 13.06 9.75 </TABLE> (1) Adjusted for a 15% stock split in 2000 and a 2 for 1 stock split in 1999. (2) Excludes the market adjustment on securities available for sale. 36
TABLE OF CONTENTS Financial Highlights...................................... 1 Executive and Senior Officers of Trustco Banks........................................ 3 President's Message....................................... 4 Management's Discussion and Analysis of Financial Condition and Results of Operations........ 6 Average Balances, Yields and Net Interest Margins............................... 12 Glossary of Terms........................................ 25 Management's Statement of Responsibilities............... 26 Independent Auditors' Report............................. 27 Consolidated Financial Statements and Notes.............. 28 Officers and Board of Directors.......................... 44 Officers of Trustco Banks................................ 45 Branch Locations......................................... 46 General Information...................................... 47 TRUSTCO MISSION STATEMENT: TRUSTCO WILL BE THE LOW COST PROVIDER OF HIGH QUALITY SERVICES TO OUR CUSTOMERS IN THE COMMUNITIES WE SERVE AND RETURN TO OUR OWNERS AN ABOVE AVERAGE RETURN ON THEIR INVESTMENT. 37
EXECUTIVE AND SENIOR OFFICERS OF TRUSTCO BANKS Executive Officers: Left to right: Nancy A. McNamara, Senior Vice President, Loan Division, Installment Loans/Credit Cards, Trust Department, Marketing and Community Relations; Robert A. McCormick, Chairman, President and Chief Executive Officer; Robert T. Cushing, Senior Vice President and Chief Financial Officer, Bank and Trust Operations, Accounting/Finance, Data Processing, Purchasing, Compliance. Senior Officers: Standing left to right: Deborah K. Appel, Vice President, Commercial Loans; Linda C. Christensen, Vice President, Accounting/Finance; Jeffrey S. Farbaniec, Vice President, Bank Operations; John L. Pritchard, Administrative Vice President, Corporate Development; Robert Scribner, Vice President, Trust Department; George W. Wickswat, Vice President, Premises and Expense Control; Gordon E. Coleman, Administrative Vice President; Eric W. Schreck, Vice President, Mortgage Loans; Scot R. Salvador, Vice Presi dent, Branch Administration; William M. McCartan, Administrative Vice President, Trust Department. Seated left to right: Ann M. Noble, Vice President, Bank Operations; Robert M. Leonard, Vice President, Marketing; Patrick S. LaPorta, Vice President, Tru st Department; Donald J. Csaposs, Vice President, Compliance; Henry C. Collins, Administrative Vice President, General Counsel; John C. Fay, Auditor; Robert J. McCormick, Administrative Vice President, Branch Administration, Retirement/Government Accounts, Premises and Expense Control; Cheri J. Parvis, Vice President, Human Resouces and Quality Control. 38
PRESIDENT'S MESSAGE Dear Shareholder: 2000 was another record year at TrustCo. Overall our industry had a successful year, as did TrustCo. We are grateful to our employees and Board of Directors for their support and enthusiasm, ensuring our continued strong performance. During 2000 shareholder values continued in the right direction with net income at $41.7 million, up a significant 9.2% over 1999. TrustCo's most important ratio, return on average equity (ROE), was 24.07% for 2000, up from 22.52% in 1999. We are committed to ensuring that our return on equity compares favorably in any peer group, and we are comfortable that it does. TrustCo's five-year ROE was 21.47% and we have aggressive plans to produce a 25.00% ROE in 2001. During the fourth quarter of 2000, shareholders received a 15% stock split maintaining the cash dividend level on the newly issued shares, effectively increasing dividend income for TrustCo owners by 15%. The quarterly cash dividend rate has increased at an 18.11% compound annual rate over the last 10 years, resulting in TrustCo's impressive ranking of 22nd among 10,000 U.S.-based companies in annual growth rate of dividends in Moody's Handbook of Dividend Achievers, 2000 edition. It is our intention to continue monitoring our internal generation of capital; should excess capital exist, we will recommend steps to the Board to correct that situation. These steps could include any measure that would return excess capital to TrustCo's owners. Our loan portfolio continued to grow during 2000, increasing by 5%, with a continued emphasis on the retail side of the product mix. The average balance of total assets decreased by $38.3 million to $2.4 billion. This decrease reflects our plan to reduce TrustCo's reliance on high-cost, non-core funding sources. Offsetting the lower asset balances was a significant increase in net interest margin from 4.16% in 1999 to 4.47% in 2000. This increased margin was the product of lowering the overall cost of deposits in relation to yields earned on earning assets. In 2000 two directors, John S. Morris and M. Norman Brickman, reached the mandatory retirement age for directors, and retired from the boards of the bank and the holding company after many years of faithful service. Both men have made many contributions to the success of our companies over the years. We thank them and wish them well in the future. On February 28, 2001, William F. Terry, an executive officer of both the Company and Trustco Bank, retired. Bill served the companies well for over 14 years. Most recently he was in charge of Data Processing, Legal Counsel, and several other functions. He will be missed. We note with sorrow the passing of H. Gladstone McKeon and Charles W. Carl, Jr., Honorary Directors, who served the Board with distinction for many years. The acquisition of Landmark Financial Corp. and its subsidiary, Landmark Community Bank, was completed on July 28, 2000. The bank has been renamed Trustco Savings Bank. The acquisition of its federal thrift charter brings TrustCo additional flexibility for geographic expansion and an enhanced spectrum of services. We have significant growth plans for this unit, and its prospects are excellent. TrustCo's branch expansion program continues. We opened one additional branch in Saratoga County during 2000. Our plans call for four new branch openings in 2001, filling in gaps in our market territory. 39
President's Message (continued) During 2000, we made offers to acquire both Cohoes Bancorp, Inc. and Hudson River Bancorp, Inc. Our offers were withdrawn following an announced agreement between the two targeted companies at a fully priced level. Our approach to acquisitions is quite simple - we are extremely careful to avoid damage to shareholder value in the existing TrustCo franchise. It is noteworthy, however, that through our efforts approximately $69 million in additional value was created for TrustCo and its fellow Cohoes shareholders. Our Trust Department, which currently manages assets in excess of $1.3 billion, has ambitious expectations and continues moving forward strongly with gross income up 7% in 2000. Community needs have expanded and TrustCo has responded appropriately. TrustCo employees and management participated in charitable and community organizations. TrustCo has increased its corporate charitable contributions throughout the Capital District, and our Affordable Housing Program continues to grow. We are enthusiastic about the future. It is the intention at every level in the Company to continue our past success into the future. Our products are tailored to the needs of our community, we have an unmatched employee team to deliver them, and a management style that can adapt to any change the marketplace may bring almost immediately. We expect the combination mentioned above and the enthusiastic commitment of the Board of Directors will ensure our continued success in the years ahead, whatever the banking environment. Sincerely, /s/Robert A. McCormick Robert A. McCormick, President and Chief Executive Officer 40
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The financial review which follows will focus on the factors during 2000 affecting the financial condition and results of operations of TrustCo Bank Corp NY (the "Company" or "TrustCo"), Trustco Bank, National Association and its operating subsidiary Trustco Realty Corp., and Trustco Savings Bank (acquired in 2000) and, in summary form, the two preceding years. Trustco Bank, National Association and Trustco Savings Bank are referred to as Trustco Banks in this analysis. Net interest income and net interest margin are presented in this discussion on a taxable equivalent basis. Balances discussed are daily averages unless otherwise described. The consolidated financial statements and related notes and the quarterly reports to shareholders for 2000 should be read in conjunction with this review. Certain amounts in years prior to 2000 have been reclassified to conform with the 2000 presentation. All per share information has been adjusted for the 15% stock split in 2000. OVERVIEW TrustCo recorded net income of $41.7 million or $0.657 of diluted earnings per share for the year ended December 31, 2000, compared to $38.2 million or $0.594 per share for the year 1999. This represents an increase of 9.2% in net income between 2000 and 1999. During 2000 the following had a significant effect on net income: o an increase of 31 basis points in net interest margin from 4.16% in 1999 to 4.47% in 2000, resulting in an increase in taxable equivalent net interest income of $5.3 million, o a $38.3 million decrease in the average balance of total assets between 1999 and 2000 to $2.37 billion for 2000, Return of Equity 21.47% 22.52% 24.07% 1998 1999 2000 [chart omitted] o a reduction in the provision for loan losses from $5.1 million to $4.1 million for 2000, and o a $2.1 million increase in noninterest expense between 1999 and 2000. TrustCo has performed well with respect to a number of key performance ratios during 2000 and 1999, including: o return on equity of 24.07% for 2000 and 22.52% for 1999, <TABLE> <CAPTION> MIX OF AVERAGE EARNING ASSETS (dollars in thousands) Components of 00-99 99-98 Total Earning Assets 2000 1999 1998 Change Change 2000 1999 1998 --------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> Loans, net of unearned income....... $1,395,414 1,329,458 1,311,967 65,956 17,491 60.9% 56.9 56.1 Securities available for sale: U.S. Treasuries and agencies...... 209,033 172,411 204,694 36,622 (32,283) 9.1 7.4 8.7 States and political subdivisions. 150,262 134,447 112,077 15,815 22,370 6.6 5.7 4.8 Mortgage-backed securities........ 207,453 242,217 186,239 (34,764) 55,978 9.1 10.4 8.0 Other............................. 87,706 134,715 108,947 (47,009) 25,768 3.8 5.8 4.7 -------------------------------------------------------------------------- Total securities available for sale........................ 654,454 683,790 611,957 (29,336) 71,833 28.6 29.3 26.2 -------------------------------------------------------------------------- Federal funds sold.................. 237,894 321,422 414,162 (83,528) (92,740) 10.3 13.8 17.7 Other short-term investments........ 4,332 1,012 752 3,320 260 0.2 -- -- -------------------------------------------------------------------------- Total earning assets................ $2,292,094 2,335,682 2,338,838 (43,588) (3,156) 100.0% 100.0 100.0 </TABLE> 41
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) o return on assets of 1.76% for 2000 and 1.58% for 1999, and o operating efficiency ratio of 38.06% for 2000 and 38.62% for 1999. 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. The total cost was approximately $3.4 million. Goodwill of approximately $1.5 million was recognized as a result 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. ASSET/LIABILITY MANAGEMENT In managing its balance sheet portfolios, TrustCo utilizes funding and capital sources within sound credit, investment, interest rate and liquidity risk guidelines. Loans and securities (including federal funds sold) are the Company's primary earning assets. Average interest earning assets were 96.6% and 96.9% of average total assets for 2000 and 1999, respectively. TrustCo, through its management of liabilities, attempts to provide stable and flexible sources of funding within established liquidity and interest rate risk guidelines. This is accomplished through core deposit banking products offered within the markets served by the Company. TrustCo does not actively seek to attract out-of-area deposits or so called hot money; rather the Company focuses on core relationships with both depositors and borrowers. TrustCo's objectives in managing its balance sheet are to limit the sensitivity of net interest income to actual or potential changes in interest rates, and to enhance profitability through strategies that promise sufficient reward for understood and controlled risk. The Company is deliberate in its effort to maintain adequate liquidity under prevailing and projected economic conditions, and to maintain an efficient and appropriate mix of core deposit relationships. The Company relies on traditional banking investment instruments and its large base of core deposits to help in asset/liability management. EARNING ASSETS Average earning assets during 2000 were $2.29billion, which was a decrease of $43.6 million from the prior year. The decrease in the average balance of earning assets was primarily the result of $66.0 million growth in the average balance of loans, partially offset by reductions of $29.3 million and $83.5 million in the average balance of securities and federal funds sold, respectively. Total average assets were $2.37 billion for 2000 and $2.41 billion for 1999. The table "Mix of Average Earning Assets" shows how the mix of the earning assets has changed over the last three years. While the growth in earning assets is critical to improved profitability, changes in the mix also have a significant impact on income levels. LOAN PORTFOLIO <TABLE> <CAPTION> (dollars in thousands) Average Balances __________________________________________________________________________________________ 2000 1999 1998 1997 1996 ___________ ___________ ___________ ___________ ____________ Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent __________________________________________________________________________________________ <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> Residential...................... $1,043,369 74.7% $975,803 73.3% $937,094 71.4% $848,105 67.2% $783,094 63.7% Commercial....................... 195,048 14.0 189,407 14.3 189,542 14.4 204,502 16.2 224,949 18.3 Home equity line of credit....... 134,459 9.6 141,488 10.6 158,939 12.1 178,597 14.1 187,652 15.3 Installment...................... 23,471 1.7 23,725 1.8 27,530 2.1 30,931 2.5 33,299 2.7 __________________________________________________________________________________________ Total loans...................... $1,396,347 100.0% 1,330,423 100.0% 1,313,105 100.0% 1,262,135 100.0% 1,228,994 100.0% Less: Unearned income............ 933 965 1,138 1,364 1,587 Allowance for loan losses.. 56,362 56,449 55,208 53,173 51,233 __________________________________________________________________________________________ Net loans........................ $1,339,052 1,273,009 1,256,759 1,207,598 1,176,174 __________________________________________________________________________________________ </TABLE> 42
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Taxable Equivalent Net Interest (dollars in millions) $89.1 $97.2 $102.5 1998 1999 2000 [chart omitted] LOANS: Average total loans increased $66.0 million, or 5.0%, during 2000. Interest income on the loan portfolio increased to $114.2 million in 2000 from $106.9 million in 1999. The average yield increased from 8.04% in 1999 to 8.19% in 2000. The steady growth of the loan portfolio as a component of the Company's assets contributed significantly to the superior earnings results for 2000. TrustCo has distinguished itself in the Upstate New York region as one of the principal originators of residential mortgage loans. Through aggressive marketing and pricing and a customer-friendly service delivery network, TrustCo has increased the average balance of the residential real estate loan portfolio to $1.04 billion, an increase of $67.6 million, or 6.9%. Income on residential mortgage loans increased to $81.7 million in 2000 from $76.0 million in 1999. The yield on the portfolio increased to 7.83% for 2000 from 7.79% in 1999 due to general changes in retail rates in the marketplace. The overwhelming majority of TrustCo's real estate loans are secured by properties within the Banks' market area. Management's specific knowledge of local market conditions and trends is considered a benefit for both marketing and collection purposes. During 2000, management continued its established practice of retaining all new loan originations in the Bank's portfolio rather than selling them in the secondary market. This practice positions TrustCo to respond quickly to customer and market needs by allowing TrustCo and the customers to deal on a one to one basis. This practice also allows TrustCo to respond quickly to changes in interest rates or closing costs by competitors. The overall effect is that TrustCo is able to develop long term business relationships with customers and meet their needs quickly. Average commercial loans of $195.0 million in 2000 increased slightly from the $189.4 million in 1999. The average yield on the commercial loan portfolio increased to 8.87% for 2000 compared to 8.84% for 1999. This resulted in income on commercial loans of $17.3 million in 2000 and $16.8 million in 1999. TrustCo strives to maintain strong asset quality in all segments of its loan portfolio, especially commercial loans. Competition for commercial loans continues to be very intense in the Trustco Banks' market region. Trustco Banks compete with large money center and regional banks as well as with smaller locally based banks and thrifts. Over the last several years competition for commercial loans has intensified as smaller banks and thrifts have tried to develop commercial loan portfolios. To do this, some are reducing interest rates and underwriting standards. TrustCo's commercial lending activities are focused on balancing the Company's commitment to meeting the credit needs of business in its market area with the necessity of managing its credit risk. In accordance with these goals the Company has consistently emphasized the origination of loans within its market area. The portfolio contains no foreign loans, nor does it contain any significant concentrations of credit extended to any single borrower or industry. The commercial loan portfolio reflects the diversity of business found in the Capital Region's economy. Light manufacturing, retail, service, and real estate related business are a few examples of the types of businesses located in the Company's market area. TrustCo has a long-standing leadership position in the home equity credit line product in its market area. TrustCo was one of the first financial institutions in the Capital Region to aggressively market and originate this product, and has developed significant expertise with respect to its risks and rewards. During 2000, the average balance of home equity credit lines was $134.5 million, down from $141.5 million in 1999. The home equity credit line product has developed into a significant business line for most financial services companies. Trustco Banks compete with both regional and national concerns for these lines of credit and face stiff competition with respect to interest rates, closing costs, and service for these loans. TrustCo continuously reviews changes made by competitors with respect to the home equity credit line product and adjusts its offerings to remain competitive. The average yield increased to 9.19% for 2000 from 7.95% in 1999. This resulted in interest income on home equity credit lines of $12.4 million in 2000, compared to $11.2 million in 1999. The average balance of installment loans, net of unearned income, decreased to $22.5 million in 2000 from $22.8 million in 1999. The yield on installment loans increased 1 basis point to 12.88% in 2000, resulting in interest income of $2.9 million. This portfolio continues to decrease because many consumers have 43
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) MATURITIES AND SENSITIVITIES OF LOANS TO CHANGES IN INTEREST RATES <TABLE> <CAPTION> (dollars in thousands) December 31, 2000 ______________________________________________________________ After 1 Year In 1 Year But Within After or Less 5 Years 5 Years Total ______________________________________________________________ <S> <C> <C> <C> <C> Commercial.......................... $ 89,112 73,561 36,843 199,516 Real estate construction............ 17,275 -- -- 17,275 ______________________________________________________________ Total............................... $106,387 73,561 36,843 216,791 ______________________________________________________________ Predetermined rates................. $ 53,917 73,305 36,843 164,065 Floating rates...................... 52,470 256 -- 52,726 ______________________________________________________________ Total............................... $106,387 73,561 36,843 216,791 ______________________________________________________________ </TABLE> shifted their borrowing patterns from direct installment credit to home equity loan products which may provide an income tax benefit. SECURITIES AVAILABLE FOR SALE: The portfolio of securities available for sale is managed by the Company to take full advantage of changes in interest rates. Securities available for sale are used primarily for liquidity purposes while simultaneously producing earnings, and are managed under a policy detailing the types, duration, and interest rates acceptable in the portfolio. The designation of "available for sale" is made at the time of purchase, based upon management's intent to hold the securities for an indefinite period of time. However, these securities are available for sale in response to changes in market interest rates, related changes in prepayment risk, needs for liquidity, or changes in the availability of and yield on alternative investments. At December 31, 2000, securities available for sale amounted to $605.3 million, compared to $640.8 million at year end 1999. For 2000, the average balance of securities available for sale was $654.5 million with an average yield of 7.44%, compared to an average balance in 1999 of $683.8 million with an average yield of 7.05%. The taxable equivalent income earned on the securities portfolio in 2000 was $48.7 million, compared to $48.2 million earned in 1999. The average balance of the securities portfolio decreased by $29.3 million between 1999 and 2000, while the average yield on the portfolio increased by 39 basis points during the same time period. During 2000, TrustCo recognized approximately $5.0 million of net losses from securities transactions, compared to approximately $5.4 million of net losses in 1999. Throughout 2000, TrustCo sold securities to provide liquidity for potential reinvestment at higher interest rates. This created additional liquidity and eliminated lower yielding assets from the securities portfolio. At year end 2000, TrustCo continued to have significant liquidity in the form of $299.5 million of federal funds sold. TrustCo has not invested in any exotic investment products such as interest rate swaps, forward placement contracts, or other instruments commonly referred to as derivatives. By actively managing a portfolio of high quality securities, TrustCo can meet the objectives of asset/liability management and liquidity, while at the same time producing a constant earnings stream that meets or exceeds alternative rates offered in the marketplace. Securities available for sale are recorded at their fair value, with any unrealized gains or losses, net of taxes, recognized as a component of shareholders' equity. Average balances of securities available for sale are stated at amortized cost. At December 31, 2000 and 1999, the market value of TrustCo's portfolio of securities available for sale produced net unrealized gains/(losses) of approximately $34.7million and ($4.1) million, respectively. The Company periodically invests in short-term asset-backed securities as a means of supplementing the income from other short-term investments. These bonds are all secured by underlying real estate type assets and are AAA rated credits at the time of purchase. These securities are classified as part of the other securities for the following analysis. 44
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) <TABLE> <CAPTION> SECURITIES AVAILABLE FOR SALE (dollars in thousands) As of December 31, ______________________________________________________________________________ 2000 1999 1998 ______________________ _______________________ _______________________ Amortized Market Amortized Market Amortized Market Cost Value Cost Value Cost Value ______________________________________________________________________________ <S> <C> <C> <C> <C> <C> <C> U.S. Treasuries and agencies................ $184,848 189,562 189,207 185,978 163,244 167,825 States and political subdivisions........... 167,389 173,195 136,203 132,560 124,390 129,745 Mortgage-backed securities.................. 184,944 188,602 211,450 205,558 246,531 249,489 Other....................................... 650 650 81,834 80,732 126,183 126,348 ______________________________________________________________________________ Total debt securities available for sale.. 537,831 552,009 618,694 604,828 660,348 673,407 Equity securities........................... 32,798 53,275 26,274 36,002 25,610 44,003 ______________________________________________________________________________ Total securities available for sale....... $570,629 605,284 644,968 640,830 685,958 717,410 ______________________________________________________________________________ </TABLE> The table "Securities Portfolio Maturity Distribution and Yield," distributes the securities available for sale portfolio as of December 31, 2000 based on the final maturity of the securities. Mortgage-backed, asset-backed, and collateralized mortgage obligation securities are stated using estimated average life, and equity securities are excluded. Actual maturities may differ from contractual maturities because of securities prepayments and the right of certain issuers to call or prepay their obligations without penalty. SECURITIES PORTFOLIO MATURITY DISTRIBUTION AND YIELD Debt securities available for sale: <TABLE> <CAPTION> (dollars in thousands) As of December 31, 2000 ______________________________________________________________________________ Maturing: ______________________________________________________________________________ After 1 After 5 Within But Within But Within After 1 Year 5 Years 10 Years 10 Years Total ______________________________________________________________________________ U.S. Treasuries and agencies <S> <C> <C> <C> <C> <C> Amortized cost............................ $ 4,997 26,045 148,511 5,295 184,848 Market value.............................. 5,030 27,501 151,736 5,295 189,562 Weighted average rate..................... 6.32% 7.59 7.76 7.56 7.69 States and political subdivisions Amortized cost............................ $ 5,454 2,573 7,095 152,267 167,389 Market value.............................. 5,605 2,610 7,338 157,642 173,195 Weighted average rate..................... 7.12% 7.82 8.16 8.48 8.41 Mortgage-backed securities Amortized cost............................ $ 242 22,689 159,039 2,974 184,944 Market value.............................. 242 23,117 162,138 3,105 188,602 Weighted average rate..................... 7.84% 7.58 7.42 7.04 7.43 Other Amortized cost............................ $ -- 650 -- -- 650 Market value.............................. -- 650 -- -- 650 Weighted average rate..................... -- 6.81% -- -- 6.81 ______________________________________________________________________________ Total debt securities available for sale Amortized cost............................ $10,693 51,957 314,645 160,536 537,831 Market value.............................. 10,877 53,878 321,212 166,042 552,009 Weighted average rate..................... 6.76% 7.59 7.60 8.42 7.82 </TABLE> 45
Management's Discussion and Analysis (continued) MATURITY AND CALL DATES OF SECURITIES: Many of the securities in the investment portfolio have a call date in addition to the stated maturity date. Call dates allow the issuer to redeem the bond prior to maturity at specified dates and at predetermined prices. Normally, securities are redeemed at the call date when the issuer can reissue the bond at a lower interest rate. Therefore, for cash flow, liquidity and interest rate management purposes, it is important to monitor both maturity dates and call dates. The following table details the portfolio of securities available for sale, by both maturity date and call date as of December 31, 2000. Mortgage-backed, asset-backed, and collateralized mortgage obligation securities are reported using an estimate of average life; equity securities are excluded. SECURITIES PORTFOLIO MATURITY AND CALL DATE DISTRIBUTION Debt securities available for sale: <TABLE> <CAPTION> (dollars in thousands) As of December 31, 2000 __________________________________________________________ Based on Based on Final Maturity Call Date __________________________________________________________ Amortized Market Amortized Market Cost Value Cost Value __________________________________________________________ <S> <C> <C> <C> <C> <C> Within 1 year............................... $ 10,693 10,877 28,305 28,576 1 to 5 years................................ 51,957 53,879 240,213 247,105 5 to 10 years............................... 314,646 321,211 255,649 262,007 After 10 years.............................. 160,535 166,042 13,664 14,321 __________________________________________________________ Total debt securities available for sale.. $537,831 552,009 537,831 552,009 __________________________________________________________ </TABLE> FEDERAL FUNDS SOLD: During 2000, the average balance of federal funds sold was $237.9 million, an $83.5 million decrease from $321.4 million in 1999. The average rate earned on these assets was 6.31% in 2000 and 4.99% in 1999. TrustCo utilizes this category of earning assets as a means of maintaining strong liquidity as interest rates change. During 2000, the target federal funds rate set by the Federal Open Market Committee (FOMC) increased by 100 basis points to 6.50% at year end. In early 2001 the FOMC has decreased the target federal funds rate by 100 basis points. The securities available for sale portfolio is significantly affected by changes in the target federal funds rate as are all market instruments. As rates were rising during 2000, TrustCo took advantage of that opportunity to reinvest excess liquidity in higher yielding securities. 46
Management's Discussion and Analysis (continued) <TABLE> <CAPTION> AVERAGE BALANCES, YIELDS AND NET INTEREST MARGINS (dollars in thousands 2000 1999 1998 _________________________ _________________________ __________________________ Interest Interest Interest Average Income/ Average Average Income/ Average Average Income/ Average Balance Expense Rate Balance Expense Rate Balance Expense Rate __________________________________________________________________________________ Assets <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> Loans, net of unearned income................. $1,395,414 114,243 8.19% 1,329,458 106,933 8.04% 1,311,967 110,952 8.46% _________________________________________________________________________________ Securities available for sale: U.S. Treasuries and agencies................ 209,033 15,748 7.53 172,411 12,530 7.27 204,694 15,408 7.53 States and political subdivisions........... 150,262 12,095 8.05 134,447 10,724 7.98 112,077 9,056 8.08 Mortgage-backed securities.................. 207,453 15,050 7.25 242,217 16,322 6.74 186,239 12,692 6.81 Other....................................... 87,706 5,774 6.58 134,715 8,631 6.39 108,947 6,781 6.22 _________________________________________________________________________________ Total securities available for sale......... 654,454 48,667 7.44 683,790 48,189 7.05 611,957 43,937 7.18 _________________________________________________________________________________ Federal funds sold............................ 237,894 15,003 6.31 321,422 16,031 4.99 414,162 22,536 5.44 Other short-term investments.................. 4,332 261 6.03 1,012 55 5.41 752 39 5.17 _________________________________________________________________________________ Total interest earning assets............... 2,292,094 178,174 7.77% 2,335,682 171,208 7.33% 2,338,838 177,464 7.59% _________________________________________________________________________________ Allowance for loan losses..................... (56,362) (56,449) (55,208) Cash and noninterest earning assets........... 137,194 131,962 149,608 _________________________________________________________________________________ Total assets................................ $2,372,926 2,411,195 2,433,238 _________________________________________________________________________________ Liabilities and shareholders' equity Interest bearing deposits: Interest bearing checking accounts.......... $ 271,138 2,890 1.07% 264,742 2,818 1.06% 243,888 3,585 1.47% Savings..................................... 623,892 16,859 2.70 661,888 17,887 2.70 657,793 20,382 3.10 _________________________________________________________________________________ Total interest bearing deposits............. 1,816,659 66,946 3.69 1,889,775 68,041 3.60 1,929,939 81,596 4.23 _________________________________________________________________________________ Short-term borrowings......................... 164,114 8,667 5.28 146,667 5,972 4.07 143,337 6,751 4.71 Long-term debt................................ 596 35 5.82 -- -- -- -- -- -- _________________________________________________________________________________ Total interest bearing liabilities.......... 1,981,369 75,648 3.82% 2,036,442 74,013 3.63% 2,073,276 88,347 4.26% _________________________________________________________________________________ Demand deposits............................... 169,144 153,374 138,786 Other liabilities............................. 46,440 41,895 41,073 Shareholders' equity.......................... 175,973 179,484 180,103 _________________________________________________________________________________ Total liabilities and shareholders' equity.. $2,372,926 2,411,195 2,433,238 _________________________________________________________________________________ Net interest income............................. 102,526 97,195 89,117 _________________________________________________________________________________ Net interest spread............................. 3.95% 3.70% 3.33% _________________________________________________________________________________ Net interest margin (net interest income to total interest earning assets)............. 4.47 4.16 3.81 _________________________________________________________________________________ </TABLE> Portions of income earned on certain commercial loans, U.S. Government obligations, obligations of states and political subdivisions, and equity securities are exempt from federal and/or state taxation. Appropriate adjustments have been made to reflect the equivalent amount of taxable income that would have been necessary to generate an equal amount of after tax income. Federal and New York State tax rates used to calculate income on a tax equivalent basis were 35.0% and 9.0%, respectively, for 2000, 1999, and 1998. The average balances of securities available for sale were calculated using amortized costs for these securities. Included in the balance of shareholders' equity is $2.7 million, $9.9 million, and $17.0 million in 2000, 1999, and 1998, respectively, of unrealized appreciation, net of tax, in the available for sale securities portfolio. Nonaccrual loans are included in average loans. 47
Management's Discussion and Analysis (continued) FUNDING SOURCES TrustCo utilizes various traditional sources of funds to support its asset portfolio. The following table, "Mix of Average Sources of Funding," presents the various categories of funds used and the corresponding average balances for each of the last three years. <TABLE> <CAPTION> mix of Average Sources of Funding (dollars in thousands Components of Total Funding 00-99 99-98 ______________________ 2000 1999 1998 Change Change 2000 1999 1998 ____________________________________________________________________________________ <S> <C> <C> <C> <C> <C> <C> <C> <C> Demand deposits........................ $ 169,144 153,374 138,786 15,770 14,588 7.9% 7.0 6.3 Retail deposits: Savings.............................. 623,892 661,888 657,793 (37,996) 4,095 29.0 30.7 29.7 Time deposits under $100 thousand.... 744,958 785,151 841,915 (40,193) (56,764) 34.6 35.9 38.1 Interest bearing checking accounts... 271,138 264,742 243,888 6,396 20,854 12.6 12.1 11.0 Money market deposits................ 57,946 59,953 56,754 (2,007) 3,199 2.7 2.7 2.6 ____________________________________________________________________________________ Total retail deposits................ 1,697,934 1,771,734 1,800,350 (73,800) (28,616) 78.9 80.9 81.4 ____________________________________________________________________________________ Total core deposits.................. 1,867,078 1,925,108 1,939,136 (58,030) (14,028) 86.8 87.9 87.7 ____________________________________________________________________________________ Time deposits over $100 thousand....... 118,725 118,041 129,589 684 (11,548) 5.6 5.4 5.8 Short-term borrowings.................. 164,114 146,667 143,337 17,447 3,330 7.6 6.7 6.5 Long-term debt......................... 596 -- -- 596 -- -- -- -- ___________________________________________________________________________________ Total purchased liabilities.......... 283,435 264,708 272,926 18,727 (8,218) 13.2 12.1 12.3 ____________________________________________________________________________________ Total sources of funding............. $2,150,513 2,189,816 2,212,062 (39,303) (22,246) 100.0% 100.0 100.0 ____________________________________________________________________________________ </TABLE> AVERAGE DEPOSITS BY TYPE OF DEPOSITOR <TABLE> <CAPTION> (dollars in thousands) Years Ended December 31, ______________________________________________________________________ 2000 1999 1998 1997 1996 ______________________________________________________________________ <S> <C> <C> <C> <C> <C> Individuals, partnerships and corporations....... $1,922,399 1,984,359 2,009,296 1,924,606 1,880,798 U.S. Government.................................. 79 92 100 62 45 States and political subdivisions................ 49,651 45,223 45,715 44,839 44,555 Other (certified and official checks, etc.)...... 13,674 13,475 13,614 11,716 11,047 ______________________________________________________________________ Total average deposits by type of depositor.... $1,985,803 2,043,149 2,068,725 1,981,223 1,936,445 ______________________________________________________________________ </TABLE> DEPOSITS: Average total deposits (including time deposits greater than $100 thousand) were $1.99billion in 2000, compared to $2.04 billion in 1999, a decrease of $57.3 million. Increases were noted in interest bearing checking accounts and demand deposit accounts. Average interest bearing checking accounts increased by $6.4 million between 1999 and 2000, and demand deposits increased by $15.8 million. The increase in demand deposits is noteworthy because these accounts represent the principal banking relationship for most customers. The increase in demand deposits reflects the impact of the new branch offices opened since 1995, and the continuing focus at TrustCo on providing core banking services faster, cheaper, and better than its competitors. The TrustCo demand deposit account has one of the lowest minimum balance requirements of any financial institution operating in the same banking territory. These increases were offset by a $2.0 million decrease in money market accounts, a $38.0 million decrease in savings accounts and a $39.5 million decrease in total time deposits during the same time period. The decrease in time deposits during 2000 was the result of a decision to reduce the amount of high rate time deposits that had accumulated in the Company over the last several years. To accomplish this objective, interest rates on these products were reduced significantly as the identified deposit accounts were maturing. The anticipation was that these funds would be withdrawn as interest rates were reduced. As a result of executing this strategy, the average balance of time deposits decreased to $863.7 million in 2000, compared to $903.2 million in 1999. The average yield on time deposits increased slightly to 5.28% in 2000. This resulted in interest expense on time deposits of $45.6 million for 2000. 48
Management's Discussion and Analysis (continued For 2000, TrustCo had an average of $118.7 million of time deposits with balances greater than $100 thousand. The vast majority of these accounts is retail in nature and represents traditional TrustCo customers attracted to the Banks by the same factors as other banking customers. TrustCo does not offer these depositors any differential in interest rates, services, or terms. The overall cost of interest bearing deposits was 3.69% in 2000 compared to 3.60% in 1999. The decrease in the average balance of interest bearing deposits, offset by a 9 basis point increase in the average cost, resulted in a decrease of approximately $1.1 million in interest expense to $66.9 million in 2000. The Company strives to maintain competitive rates on deposit accounts and to attract customers through a combination of competitive interest rates, quality customer service, and convenient banking locations. In this fashion, TrustCo is able to attract deposit customers looking for a long-term banking relationship, and to cross sell banking services utilizing the deposit account relationship as the starting point. MATURITY OF TIME DEPOSITS OVER $100 THOUSAND (dollars in thousands)As of December 31, 2000 Under 3 months...............$ 53,903 3 to 6 months ............... 18,110 6 to 12 months .............. 16,818 Over 12 months............... 34,380 _________ Total........................$123,211 _________ OTHER FUNDING SOURCES: The Company had $164.1 million of average short-term borrowings outstanding during 2000 compared to $146.7 million in 1999. The average cost of short-term borrowings was 5.28% in 2000 and 4.07 % in 1999. This resulted in an increase in interest expense of approximately $2.7 million. A majority of short-term borrowing consists of the Trustco Short-Term Investment Account, which was developed by the Bank to facilitate overnight deposits from the Company's Trust Department. Daily balances are transferred by the Trust Department into this account, and are collateralized by securities owned by the Bank. Volume and Yield Analysis <TABLE> <CAPTION> (dollars in thousands) 2000 vs. 1999 1999 vs. 1998 ________________________________ ________________________________ Increase Due to Due to Increase Due to ue to (Decrease) Volume Rate (Decrease) Volume Rate _________________________________________________________________________ Interest income (TE): <S> <C> <C> <C> <C> <C> <C> Federal funds sold................... $ (1,028) (4,712) 3,684 (6,505) (4,739) (1,766) Other short-term investments......... 206 199 7 16 14 2 Securities available for sale: Taxable............................ (893) (2,802) 1,909 2,584 3,055 (471) Tax-exempt......................... 1,371 1,272 99 1,668 1,785 (117) _________________________________________________________________________ Total securities available for sale......................... 478 (1,530) 2,008 4,252 4,840 (588) Loans................................ 7,310 5,180 2,130 (4,019) 1,097 (5,116) _________________________________________________________________________ Total interest income.............. 6,966 (863) 7,829 (6,256) 1,212 (7,468) Interest expense: Interest bearing checking accounts... 72 68 4 (767) 287 (1,054) Savings.............................. (1,028) (1,028) -- (2,495) 126 (2,621) Time deposits and money markets.................. (139) (2,097) 1,958 (10,293) (3,672) (6,621) Short-term borrowings................ 2,695 770 1,925 (779) 154 (933) Long-term debt....................... 35 35 -- -- -- -- _________________________________________________________________________ Total interest expense............. 1,635 (2,252) 3,887 (14,334) (3,105) (11,229) _________________________________________________________________________ Net interest income (TE)........... $ 5,331 1,389 3,942 8,078 4,317 3,761 _________________________________________________________________________ </TABLE> Increases and decreases in interest income and interest expense due to both rate and volume have been allocated to the two categories of variances (volume and rate) based on the percentage relationship of such variances to each other. 49
Management's Discussion and Analysis (continued NET INTEREST INCOME: Net interest income is the principal contributor to net income. Therefore, growth in net income is directly dependent upon the ability of the Company to increase net interest income. TrustCo's 2000 increase in net interest income was primarily the result of a redeployment of assets from low yielding overnight investments to the higher yielding loan and investment portfolios, partially offset by an increased cost of overall funding. Taxable equivalent net interest income for 2000 was $102.5 million, up $5.3 million over 1999. The average balance of interest earning assets decreased by $43.6 million in 2000. The yield on average interest earning assets increased by 44 basis points to 7.77% in 2000, compared to 7.33% in 1999, while the average cost of interest bearing liabilities increased 19 basis points during 2000 to 3.82% from 3.63% in 1999. Likewise, the average balance of interest bearing liabilities decreased from $2.04 billion in 1999 to $1.98 billion in 2000. Total interest expense for 2000 was $75.6 million, an increase of $1.6 million over the 1999 expense of $74.0 million. CAPITAL RESOURCES Consistent with its long-term goal of operating a sound and profitable financial organization, TrustCo strives to maintain strong capital ratios and to qualify as a well capitalized bank in accordance with federal regulatory requirements. Historically, most of the Company's capital requirements have been provided through retained earnings generated. New issues of equity securities have not been required to support the Company's growth. Dividends per Share $.432 $.489 $.541 1998 1999 2000 [chart omitted] A basic element of TrustCo's operating philosophy is that the Company will not retain excess capital. All capital generated by the Company that is in excess of the levels considered by management to be necessary for the safe and sound operation of the Company has been distributed to the shareholders in the form of cash dividends. Consequently, the capital ratios that are maintained are adequate but not excessive. This philosophy has led to a dividend payout ratio of 79.8% of net income for 2000, 79.2% for 1999, and 76.0% for 1998. These are significant payouts to the Company's shareholders and are considered by management to be a prudent use of excess capital. As to the likelihood of future dividends, the philosophy stated above will continue in 2001 and, where appropriate, the Board of Directors will declare dividends consistent with that operating philosophy. TrustCo's Tier 1 capital was $174.3 million or 14.03% of risk-adjusted assets at December 31, 2000, and $168.8 million or 13.55% of risk-adjusted assets at December 31, 1999. Tier 1 capital to average assets at December 31, 2000 was 7.31%, as compared to 7.15% at year end 1999. At December 31, 2000 and 1999, Trustco Banks met their respective regulatory definitions of well capitalized institutions. RISK MANAGEMENT The responsibility for balance sheet risk management oversight is the function of the Asset Allocation Committee. This committee meets monthly and includes the executive officers of the Company as well as other department managers as appropriate. The meetings include a review of balance sheet structure, formulation of strategy in light of anticipated economic conditions, and comparison to established guidelines to control exposures to various types of risk. CREDIT RISK Credit risk is managed through a network of loan officer authorities, review committees, loan policies, and oversight from the senior executives of the Company. Management follows a policy of continually identifying, analyzing, and evaluating the credit risk inherent in the loan portfolio. As a result of management's ongoing reviews of the loan portfolio, loans are placed in nonaccrual status, either due to the delinquent status of the principal and/or interest payments, or based on a judgment by management that, although payment of principal and/or interest is current, such action is prudent. Loans are generally placed in nonaccrual status when principal and/or interest is three payments past due. Thereafter, no interest is taken into income unless received in cash or until such time as the borrower demonstrates a sustained ability to make scheduled payments of interest and principal. NONPERFORMING ASSETS Nonperforming assets include loans in nonaccrual status, loans which have been treated as troubled debt restructurings, loans past due three payments or more and still accruing interest, and foreclosed real estate properties. 50
Management's Discussion and Analysis (continued Nonperforming assets at year end 2000 totalled $13.6 million, an increase of $1.9 million from the balance of $11.7 million at year end 1999. Nonperforming loans increased from $9.9 million in 1999 to $11.7 million at year end 2000. Nonperforming loans as a percentage of the total loan portfolio were 0.79% in 2000 and 0.73% in 1999. Given the trends in bankruptcies and real estate values which secure much of Trustco Banks' real estate loan portfolios, there continues to be concern about the level of nonperforming loans in the future. Included in nonperforming loans at year end 2000 are $4.4 million of loans in nonaccrual status. Loans past due three payments or more and still accruing interest amounted to $896 thousand, an increase of $387 thousand from the 1999 year end balance. Restructured loans in 1999 were $5.0 million, compared to $6.4 million in 2000. Adherence to sound underwriting standards and vigorous loan collection efforts have been cornerstones of the operating philosophy of TrustCo, and have assisted the Company in avoiding many of the pitfalls that others in the banking community have experienced. All but $34 thousand of the $11.7 million of nonperforming loans at December 31, 2000 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. Likewise, a significant portion of the charge offs for 2000 occurred in the residential real estate and retail consumer loan portfolios. During 2000, gross charge offs of these types of loans were $3.5 million (which represented 65% of total gross charge offs). In 1999, charge offs for these types of loans were $7.2 million. There has been a shift of nonperforming loans and charge offs to the residential real estate and retail consumer loan portfolios for several reasons, including: O the overall emphasis within TrustCo on residential real estate originations, O the relatively weak economic environment in the Upstate New York market, and O the reduction in real estate values that has occurred in much of TrustCo's market area since the middle of the 1990's, resulting in a reduction in the value of the collateral that supports the real estate loans. Consumer defaults and bankruptcies have increased dramatically over the last several years, and this has led to an increase in defaults on loans. TrustCo strives to identify borrowers that are experiencing financial difficulties, and to work aggressively to minimize losses. TrustCo has a diversified loan portfolio with no concentrations to any one borrower or any single industry, and which includes a significant balance of residential mortgage loans to borrowers in the Capital Region. Nonperforming assets at year end 2000 include $1.9 million of foreclosed properties, compared to $1.8 million in 1999. Once it is determined that a borrower is unable to repay the loan balance, TrustCo takes appropriate action with respect to the collateral securing the loan balance. Once properties are included in the foreclosed properties category, management takes decisive action to dispose of them quickly. Management believes that the $1.9 million balance of foreclosed properties is realizable in the normal process of liquidating these properties. Management is aware of no other loans in the Bank's portfolio that pose significant risk of the eventual non-collection of principal and interest. As of December 31, 2000, there were no other loans classified for regulatory purposes that management reasonably expects will materially impact future operating results, liquidity, or capital resources. TrustCo has no advances to borrowers or projects located outside the United States. <TABLE> <CAPTION> NONPERFORMING ASSETS (dollars in thousands) As of December 31, _____________________________________________________ 2000 1999 1998 1997 1996 _____________________________________________________ <S> <C> <C> <C> <C> <C> Loans in nonaccrual status.................. $ 4,395 4,433 7,147 6,298 10,748 Loans past due 3 payments or more........... 896 509 1,454 1,060 792 Restructured loans.......................... 6,370 4,979 3,782 3,294 2,495 _____________________________________________________ Total nonperforming loans................... 11,661 9,921 12,383 10,652 14,035 Foreclosed real estate...................... 1,911 1,771 5,174 9,309 6,518 _____________________________________________________ Total nonperforming assets.................. $13,572 1,692 17,557 19,961 20,553 _____________________________________________________ Allowance for loan losses................... $ 56,298 55,820 54,375 53,455 51,561 Allowance coverage of nonperforming loans... 4.83x 5.63 4.39 5.02 3.67 Nonperforming loans as a % of total loans... 79% 0.73 0.94 0.82 1.13 Nonperforming assets as a % of total assets. 0.55 0.49 0.71 0.84 0.91 _____________________________________________________ </TABLE> 51
Management's Discussion and Analysis (continued ALLOWANCE FOR LOAN LOSSES The balance in the allowance for loan losses has been accumulated over the years through periodic provisions, and is available to absorb losses on loans which management determines are uncollectible. The adequacy of the allowance is evaluated continuously, with emphasis on nonperforming and other loans that management believes warrant special attention. The balance of the allowance is maintained at a level that is, in management's judgment, representative of the loan portfolio's inherent risk. In determining 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 recent loan charge offs and the shifting of charge offs to the residential real estate loan portfolio, O the growth in the loan portfolio and the risks associated with the absolute balance of the loan portfolio in relation to the economic climate in the Bank's business territory, 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 turmoil and consumers' easy access to large amounts of 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. These trends continued in 2000. The table "Summary of Loan Loss Experience" includes an analysis of the changes to the allowance for the past five years. Loans charged off in 2000 and 1999 were $5.5 million and $7.8 million, respectively. As previously noted, the mix of loan types giving rise to loan charge offs has shifted to the residential real estate portfolio. Recoveries were $1.6 million in 2000 and $4.2 million in 1999. The provision recorded on the consolidated income statement in 2000 was $4.1 million compared to $5.1 million in 1999. Net charge offs as a percentage of average loans were 0.28% and 0.27% in 2000 and 1999, respectively. The allowance for loan losses as a percentage of loans outstanding was 3.82% in 2000 and 4.14% in 1999. The Company has a policy of recognizing problem Loan charge offs early and pursuing collection efforts aggressively. This policy of early intervention has proven to be a cornerstone of the strong lending performance that TrustCo has achieved. TrustCo has identified nonaccrual commercial and commercial real estate loans, as well as all loans restructured since 1995 under a troubled debt restructuring, as impaired loans. At year end 2000 and 1999, there were $6.2 and $4.7 million, respectively, of impaired loans. The average balances of impaired loans were $5.8 million during 2000 and $5.0 million during 1999.The Company recognized approximately $556 thousand of interest income on these loans in 2000 and $433 thousand in 1999. 52
Management's Discussion and Analysis (continued) <TABLE> <CAPTION> Summary of Loan Loss Experience (dollars in thousands) 2000 1999 1998 1997 1996 ___________________________________________________________________________ Amount of loans outstanding at end of year <S> <C> <C> <C> <C> <C> (less unearned income)...................... $ 1,475,048 1,349,809 1,322,703 1,298,276 1,241,882 Average loans outstanding during year (less average unearned income).............. 1,395,414 1,329,458 1,311,967 1,260,771 1,227,407 Balance of allowance at beginning of year..... 55,820 54,375 53,455 51,561 48,320 Loans charged off: Commercial.................................. 1,951 619 1,498 3,506 3,213 Real estate................................. 2,992 6,534 3,883 2,014 1,498 Installment................................. 557 635 1,180 1,059 937 ___________________________________________________________________________ Total..................................... 5,500 7,788 6,561 6,579 5,648 ___________________________________________________________________________ Recoveries of loans previously charged off: Commercial.................................. 847 2,811 2,308 2,718 1,963 Real estate................................. 612 1,140 362 169 110 Installment................................. 171 219 201 172 239 Total..................................... 1,630 4,170 2,871 3,059 2,312 ___________________________________________________________________________ Net loans charged off......................... 3,870 3,618 3,690 3,520 3,336 ___________________________________________________________________________ Additions to allowance charged to operating expense........................... 4,114 5,063 4,610 5,414 6,577 Allowance of acquired bank.................... 234 -- -- -- -- ___________________________________________________________________________ Balance of allowance at end of year........... $ 56,298 55,820 54,375 53,455 51,561 ___________________________________________________________________________ Net charge offs as a percent of average loans outstanding during year (less average unearned income).............. 28% 27 28 28 27 Allowance as a percent of loans outstanding at end of year.............................. 3.82 4.14 4.11 4.12 4.15 ___________________________________________________________________________ </TABLE> MARKET RISK The Company's principal exposure to market risk is with respect to interest rate risk. Interest rate risk is the potential for economic loss due to future interest rate changes. These economic losses can be reflected as a loss of future net interest income and/or a loss of current market value. INTEREST RATE RISK Management of interest rate risk involves continual monitoring of the relative sensitivity of asset and liability portfolios to changes in rates due to maturities or repricing. Forecasting models are utilized to quantify the impact of changes in rates on the Company's net income. Specific targets for interest rate sensitivity have been established by the Company. The objective of interest rate management is to maintain an appropriate balance between income growth and the risk associated with maximizing income through the mismatch of the timing of interest rate changes between assets and liabilities. Perfectly matching this funding can eliminate interest rate risk, but net interest income is not always enhanced by this action. One measure of interest rate risk, the so called gap, is illustrated in the table "Interest Rate Sensitivity." The table measures the incremental and cumulative gap, or the difference between assets and liabilities subject to repricing/maturity during the periods indicated. For purposes of this analysis, the maturity and repricing of loans is based on the expected cash flows or earliest repricing date. For securities available for sale, mortgage-backed securities are stated using anticipated cash flows over their average life, and debt securities are stated at final maturity. Equity securities that the Banks are required to hold are categorized in the rate insensitive column for this presentation. Other equity securities are shown in the 0 to 90 days category. All securities available for sale are presented at fair market value. Interest bearing checking, money market, demand, and savings accounts are presented with a maturity or repricing cycle over the full interest rate cycle and TrustCo's actual experience, even though they are subject to immediate withdrawal. Time deposit accounts are presented based upon their maturity dates. At December 31, 2000, the Company's gap position indicated an excess of assets repricing in the 0 to 90 day period of $52.1 million. This positive gap position is the result of management's decision to retain $299.5 million of federal funds sold at year end 2000 for potential reinvestment in 2001. The gap position turns negative (an excess of liabilities subject to repricing over assets that can reprice during that time period) in the 91 to 365 day period by $287.1 million. This situation occurs as a result of the amount of deposits that 53
Management's Discussion and Analysis (continued) <TABLE> <CAPTION> Interest Rate Sensitivity (dollars in thousands) At December 31, 2000 ________________________________________________________________________ Repricing, or able to be repriced, in: ________________________________________________________________________ 0-90 91-365 1-5 Over 5 Rate Days Days Years Years Insensitive Total ________________________________________________________________________ Assets: <S> <C> <C> Federal funds sold.............................. $ 299,490 -- -- -- -- 299,490 Securities available for sale................... 44,315 26,731 130,199 388,679 15,360 605,284 Loans, net of unearned income................... 202,101 107,899 213,872 946,781 4,395 1,475,048 Noninterest rate sensitive assets............... -- -- -- -- 76,376 76,376 ________________________________________________________________________ Total assets................................ 545,906 134,630 344,071 1,335,460 96,131 2,456,198 ________________________________________________________________________ Cumulative total assets........................... $ 545,906 680,536 1,024,607 2,360,067 2,456,198 ________________________________________________________________________ Liabilities and shareholders' equity: Deposits: Interest bearing deposits..................... $ 293,052 401,875 711,881 412,923 -- 1,819,731 Noninterest bearing deposits.................. 7,874 19,858 75,460 88,068 -- 191,260 ________________________________________________________________________ Total deposits.............................. 300,926 421,733 787,341 500,991 -- 2,010,991 Borrowings...................................... 192,897 -- 704 208 -- 193,809 Noninterest rate sensitive liabilities.......... -- -- -- -- 55,555 55,555 Shareholders' equity............................ -- -- -- -- 195,843 195,843 ________________________________________________________________________ Total liabilities and shareholders' equity.. 493,823 421,733 788,045 501,199 251,398 2,456,198 ________________________________________________________________________ Cumulative total liabilities and shareholders' equity............................ $ 493,823 915,555 1,703,601 2,204,800 2,456,198 ________________________________________________________________________ Incremental gap: Interest sensitivity gap........................ $ 52,083 (287,103) (443,974) 834,261 Gap as a % of earning assets.................... 2.19% (12.06) (18.66) 35.06 Interest sensitive assets to liabilities........ 112.34 33.50 48.28 323.25 Cumulative gap: Interest sensitivity gap........................ $ 52,083 (235,020) (678,994) 155,267 Gap as a % of earning assets.................... 2.19% (9.88) (28.53) 6.52 Interest sensitive assets to liabilities........ 112.34 76.65 64.02 117.21 ________________________________________________________________________ </TABLE> are subject to repricing during this time period. For the period from 0 days to 1 year, the Company has a cumulative negative gap position of $235.0 million. Interest rate sensitivity using gap analysis is most useful for the period of less than one year. The Company's gap position in relation to products, services, and the marketplace is under constant evaluation by the Asset Allocation Committee. There are several significant shortcomings inherent in the method of analysis presented in the "Interest Rate Sensitivity" table. For example, although certain assets and liabilities have similar periods to maturity or to repricing, they may react in different degrees to changes in market interest rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while other interest rates may lag behind changes in market interest rates. Additionally, certain assets have features which restrict changes in interest rates on a short-term basis and over the life of the asset (certain annual caps and lifetime caps). Further, in the event of significant changes in interest rates, prepayment and early withdrawal levels would be likely to deviate significantly from those assumed in the table. Some borrowers' ability to service their debt may be hampered by a significant interest rate increase. Management takes these factors into account when reviewing the Banks' gap position and establishing future asset/liability strategy. LIQUIDITY RISK TrustCo seeks to obtain favorable funding sources and to maintain prudent levels of liquid assets in order to satisfy various liquidity demands. In addition to serving as a funding source for maturing obligations, liquidity provides flexibility in responding to customer initiated needs. Many factors affect the ability to meet liquidity needs, including changes in the markets served by the Banks' network of branches, the mix of assets and liabilities, and general economic conditions. The Company actively manages its liquidity position through target ratios established under its Asset/Liability Management policies. Continual monitoring 54
Management's Discussion and Analysis (continued) of these ratios, both historically and through forecasts under multiple interest rate scenarios, allows TrustCo to employ strategies necessary to maintain adequate liquidity levels. Management has also developed various liquidity alternatives should abnormal situations develop. The Company achieves its liability-based liquidity objectives in a variety of ways. Liabilities can be classified into three categories for the purposes of managing liability-based liquidity: core deposits, purchased money, and capital market funds. TrustCo seeks deposits that are dependable and predictable, ones that are based as much on the level and quality of service as they are on interest rate. For 2000, average core deposits (total deposits less time deposits greater than $100 thousand) amounted to $1.87 billion, compared to $1.93 billion in 1999. Average balances of core deposits are detailed in the table "Mix of Average Sources of Funding." In addition to core deposits, another source of liability-based funding available to TrustCo is purchased money, which consists of long-term and short-term borrowings, federal funds purchased, securities sold under repurchase agreements, and time deposits greater than $100 thousand. The average balances of these purchased liabilities are detailed in the table "Mix of Average Sources of Funding." During 2000, the average balance of purchased liabilities was $283.4 million, compared with $264.7 million in 1999 and $272.9 million in 1998. In addition, TrustCo has approximately $250 million available under lines of credit with the Federal Home Loan Bank of New York. OFF-BALANCE SHEET RISK Commitments to extend credit: The Banks make contractual commitments to extend credit, and extends lines of credit which are subject to the Banks' credit approval and monitoring procedures. At December 31, 2000 and 1999, commitments to extend credit in the form of loans, including unused lines of credit, amounted to $224.6 million and $232.1 million, respectively. In management's opinion, there are no material commitments to extend credit that represent unusual risk. Letters of credit and standby letters of credit: The Banks guarantee the obligations or performance of customers by issuing letters of credit and standby letters of credit to third parties. These letters of credit are used to support third party debt, such as corporate debt issuances, industrial revenue bonds, and municipal securities. The credit risk involved in letters of credit is essentially the same as the risk involved in extending loan facilities to customers, and they are subject to the same standards and management procedures in effect to monitor other credit risks. At December 31, 2000 and 1999, outstanding standby letters of credit were approximately $1.4 million and $2.1 million, respectively. Other off-balance sheet risk: TrustCo does not engage in activities involving interest rate swaps, forward placement contracts, or any other instrument commonly referred to as derivatives. Management believes these instruments pose a high degree of risk, and that investing in them is unnecessary. NONINTEREST INCOME AND EXPENSE NONINTEREST INCOME: Noninterest income is a significant source of revenue for the Company and an important factor in overall results. Total noninterest income was $16.4 million in 2000, $15.4 million in 1999 and $22.1 million in 1998. Included in the 2000 results are $5.0 million of net securities losses compared with net losses of approximately $5.4 million in 1999 and net gains of $1 million in 1998. Excluding securities transactions, noninterest income was $21.4 million, $20.9 million, and $21.1 million in 2000, 1999 and 1998, respectively. The Trust Department contributes a large recurring portion of noninterest income through fees generated from the performance of fiduciary and investment management services. Income from these fiduciary activities totalled $8.7 million in 2000, $8.1 million in 1999 and $7.0 million in 1998. Trust fees are generally calculated as a percentage of the assets under management by the Trust Department. <TABLE> <CAPTION> Noninterest income (dollars in thousands) 2000 vs. 1999 ________________________ 2000 1999 1998 Amount Percent ________________________________________________________________________ <S> <C> <C> <C> <C> <C> Trust department income....................... $ 8,662 8,065 6,973 597 7.4% Fees for services to customers................ 9,037 8,695 8,799 342 3.9 Net gain/(loss) on securities transactions.... (4,985) (5,446) 998 461 (8.5) Letter of credit reserve recapture............ -- -- 2,398 -- -- Other......................................... 3,652 4,102 2,954 (450) (11.0) ________________________________________________________________________ Total noninterest income.................... $16,366 5,416 22,122 950 6.2% ________________________________________________________________________ </TABLE> 55
Management's Discussion and Analysis (continued) Noninterest Expense <TABLE> <CAPTION> (dollars in thousands) 2000 vs. 1999 ________________________ 2000 1999 1998 Amount Percent ________________________________________________________________________ <S> <C> <C> <C> <C> <C> Salaries and employee benefits................. $23,252 24,994 23,367 (1,742) (7.0)% Net occupancy expense.......................... 4,764 4,004 5,898 760 19.0 Equipment expense.............................. 4,228 5,359 5,292 (1,131) (21.1) FDIC insurance expense......................... 404 242 244 162 66.9 Professional services.......................... 2,746 2,651 2,664 95 3.6 Other real estate expenses/(income)............ (473) (700) 1,856 227 32.4 Other.......................................... 12,846 9,086 9,444 3,760 41.4 ________________________________________________________________________ Total noninterest expense.................... $47,767 45,636 48,765 2,131 4.7% ________________________________________________________________________ </TABLE> Changes in fees for services to customers reflect changes in the fee scale used for pricing the services and the volume of services customers utilized. NONINTEREST EXPENSE: Noninterest expense was $47.8 million in 2000, compared with $45.6 million in 1999 and $48.8 million in 1998. TrustCo's operating philosophy stresses the importance of monitoring and controlling the level of noninterest expense. The efficiency ratio is a strong indicator of how well controlled and monitored these expenses are for a banking enterprise. TrustCo's efficiency ratio was 38.1% in 2000, 38.6% in 1999 and 40.3% in 1998. The general industry goal is the attainment of a 60% efficiency ratio. TrustCo has consistently outperformed this industry goal by a wide margin since 1994. Salaries and employee benefits are the most significant component of noninterest expense. For 2000, these expenses amounted to $23.3 million, compared with $25.0 million in 1999. Changes in other components of noninterest expense are the results of normal banking activities and the increased activities associated with new branching facilities. Other expense increased by $3.7 million between 1999 and 2000 to $12.8 million as a result of costs associated with unsuccessful merger activities, and the amortization and write down of goodwill. These additional costs are not anticipated to reoccur. INCOME TAX In 2000, TrustCo recognized income tax expense of $20.8 million, as compared to $19.7 million in 1999 and $19.4 million in 1998. The tax expense on the Company's income was different than tax expense at the statutory rate of 35%, due primarily to tax exempt income and the effect of New York State income taxes. Deferred tax assets are recognized subject to management's judgment that realization is more likely than not. The valuation allowance of $1.2 million at December 31, 2000 and 1999 is reserved primarily for federal and state tax law restrictions on the deductibility of certain temporary differences. Based primarily on the sufficiency of historical and future taxable income, management believes it is more likely than not that the remaining net deferred tax assets of $39.9 million and $38.7 million at December 31, 2000 and 1999, respectively, will be realized. IMPACT OF INFLATION AND CHANGING PRICES The consolidated financial statements have been prepared in accordance with generally accepted accounting principles which require the measurement of financial position and operating results in terms of historical dollars without considering the changes in the relative purchasing power of money over time due to inflation. The impact of inflation is reflected in the increasing cost of operations. Unlike most industrial companies, nearly all the assets and liabilities of the Company are monetary. As a result, changes in interest rates have a greater impact on the Company's performance than do the effects of general levels of inflation, since interest rates do not necessarily move in the same direction or to the same extent as the price of goods and services. 56
Management's Discussion and Analysis (continued) IMPACT OF CHANGES IN ACCOUNTING STANDARDS DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES: 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. 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 ending December 31, 2000, and for transactions occurring after March 31, 2001. Statement 140 will not have a material impact on the Company's financial statements and related disclosures. 57
Management's Discussion and Analysis (continued) <TABLE> <CAPTION> Summary of unaudited quarterly financial information (dollars in thousands, except per share data) 2000 1999 __________________________________________________________________________________________ Q1 Q2 Q3 Q4 Year Q1 Q2 Q3 Q4 Year __________________________________________________________________________________________ Income statement: <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> Interest income............... $42,244 43,032 44,098 44,328 173,702 41,666 41,598 42,091 41,850 167,205 Interest expense.............. 17,801 18,225 19,373 20,249 75,648 19,239 18,613 18,271 17,890 74,013 __________________________________________________________________________________________ Net interest income .......... 24,443 24,807 24,725 24,079 98,054 22,427 22,985 23,820 23,960 93,192 Provision for loan losses..... 850 800 910 1,554 4,114 1,513 1,500 1,000 1,050 5,063 __________________________________________________________________________________________ Net interest income after provision for loan losses................. 23,593 24,007 23,815 22,525 93,940 20,914 21,485 22,820 22,910 88,129 Noninterest income............ 3,802 3,055 3,967 5,542 16,366 5,420 4,250 3,898 1,848 15,416 Noninterest expense........... 11,922 11,432 11,747 12,666 47,767 12,202 11,353 11,500 10,581 45,636 __________________________________________________________________________________________ Income before, income taxes................ 15,473 15,630 16,035 15,401 62,539 14,132 14,382 15,218 14,177 57,909 Income tax expense............ 5,203 5,133 5,274 5,227 20,837 4,809 4,890 5,246 4,779 19,724 __________________________________________________________________________________________ Net income.................... 10,270 10,497 10,761 10,174 41,702 9,323 9,492 9,972 9,398 38,185 __________________________________________________________________________________________ Per share data (1): Basic earnings................ 167 171 175 166 678 151 153 161 153 618 Diluted earnings.............. 162 166 169 160 657 145 148 155 147 594 Cash dividends declared....... 130 130 130 150 541 120 120 120 130 489 __________________________________________________________________________________________ (1) Per share data have been adjusted for a 15% stock split in 2000 and a 2 for 1 stock split in 1999. </TABLE> 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. 58
Management's Discussion and Analysis (continued) <TABLE> <CAPTION> Five Year Summary of Financial Data (dollars in thousands, except per share data) Years Ended December 31, ___________________________________________________________________ 2000 1999 1998 1997 1996 ___________________________________________________________________ Statement of income data: <S> <C> <C> <C> <C> <C> Interest income.............................. $ 173,702 167,205 174,050 172,005 166,647 Interest expense............................. 75,648 74,013 88,347 86,520 82,342 ___________________________________________________________________ Net interest income.......................... 98,054 93,192 85,703 85,485 84,305 Provision for loan losses.................... 4,114 5,063 4,610 5,414 6,577 ___________________________________________________________________ Net interest income after provision for loan losses............................ 93,940 88,129 81,093 80,071 77,728 Noninterest income........................... 16,366 15,416 22,122 17,222 10,313 Noninterest expense.......................... 47,767 45,636 48,765 46,226 42,015 ___________________________________________________________________ Income before income taxes................... 62,539 57,909 54,450 51,067 46,026 Income tax expense........................... 20,837 19,724 19,435 18,892 17,327 ___________________________________________________________________ Net income................................... $ 41,702 38,185 35,015 32,175 28,699 Share data (1): Average equivalent diluted shares (in thousands)............................. $ 63,516 64,296 64,293 64,226 63,476 Book value................................... 3.19 2.71 3.02 2.89 2.62 Cash dividends............................... .541 .489 .432 .375 .326 Basic earnings............................... .678 .618 .568 .517 .463 Diluted earnings............................. .657 .594 .545 .501 .452 ___________________________________________________________________ Financial: Return on average assets..................... 1.76% 1.58 1.44 1.40 1.29 Return on average shareholders' equity (2)... 24.07 22.52 21.47 20.23 19.05 Cash dividend payout ratio................... 79.78 79.16 75.97 72.34 70.38 Tier 1 capital as a % of total risk adjusted assets.................................... 14.03 13.55 12.78 13.43 12.99 Total capital as a % of total risk adjusted assets.................................... 15.32 14.84 14.06 14.72 14.28 Efficiency ratio............................. 38.06 38.62 40.26 40.61 39.51 Net interest margin.......................... 4.47% 4.16 3.81 4.02 4.07 ___________________________________________________________________ Average balances: Total assets................................. $ 2,372,926 2,411,195 2,433,238 2,302,598 2,220,535 Earning assets............................... 2,292,094 2,335,682 2,338,838 2,204,725 2,136,826 Loans, net................................... 1,395,414 1,329,458 1,311,967 1,260,771 1,227,407 Allowance for loan losses.................... (56,362) (56,449) (55,208) (53,173) (51,233) Securities available for sale................ 654,454 683,790 611,957 623,001 580,919 Deposits..................................... 1,985,803 2,043,149 2,068,725 1,981,223 1,936,445 Short-term borrowings........................ 164,114 146,667 143,337 117,184 98,324 Long-term debt............................... 596 -- -- -- -- Shareholders' equity......................... $ 175,973 179,484 180,103 167,273 155,927 (1) Share and per share data have been adjusted for a 15% stock split in 2000, a 2 for 1 stock split in 1999, and a 15% stock split in each of 1998, 1997 and 1996. (2) Average shareholders' equity excludes the market adjustment for securities available for sale. </TABLE> 59
GLOSSARY OF TERMS ALLOWANCE FOR LOAN LOSSES A balance sheet account which has been accumulated over a period of years as a reserve against the inherent risk of loss on the loan portfolio. The provision for loan losses is added to the allowance account, charge offs of loans decrease the allowance balance and recoveries on previously charged off loans serve to increase the balance. BASIC EARNINGS PER SHARE Net income divided by the weighted average number of common shares outstanding during the period. BOOK VALUE PER SHARE Total shareholders' equity divided by shares outstanding on the same date. This provides an indication of the book value of a share of stock. CASH DIVIDENDS PER SHARE Total cash dividends for each share outstanding on the record dates. COMPREHENSIVE INCOME Net income plus the change in selected items recorded directly to capital such as the net change in unrealized market gains and losses on securities available for sale. CORE DEPOSITS Deposits that are traditionally stable, including all deposits other than time deposits of $100,000 or more. DERIVATIVE INVESTMENTS Investments in futures contracts, forwards, swaps, or other investments with similar characteristics. DILUTED EARNINGS PER SHARE Net income divided by the weighted average number of common shares outstanding during the period, taking into consideration the effect of any dilutive stock options. EARNING ASSETS The sum of interest-bearing deposits with banks, securities available for sale, investment securities, loans, net of unearned income, and federal funds sold. EFFICIENCY RATIO Noninterest expense (excluding goodwill amortization expense, nonrecurring charges, and other real estate expense) divided by taxable equivalent net interest income plus noninterest income (excluding securities transactions). This is an indicator of the total cost of operating the Company in relation to recurring total income generated. FEDERAL FUNDS SOLD A one day investment of excess cash reserves from one bank to another. IMPAIRED LOANS Loans, principally commercial, where it is probable that the borrower will be unable to make the principal and interest payments according to the contractual terms of the loan, and all loans restructured subsequent to January 1, 1995. INTEREST BEARING LIABILITIES The sum of interest-bearing deposits, federal funds purchased, securities sold under agreements to repurchase, other short-term borrowings, and long-term debt. INTEREST RATE SPREAD The difference between the taxable equivalent yield on earning assets and the rate paid on interest-bearing liabilities. LIQUIDITY The ability to meet loan commitments, deposit withdrawals, and maturing borrowings as they come due. NET INTEREST INCOME The difference between income on earning assets and interest expense on interest-bearing liabilities. NET INTEREST MARGIN Fully taxable equivalent net interest income as a percentage of average earning assets. NET LOANS CHARGED OFF Reductions to the allowance for loan losses written off as losses, net of the recovery of loans previously charged off. NONACCRUAL LOANS Loans for which no periodic accrual of interest income is recognized. NONPERFORMING ASSETS The sum of nonperforming loans plus foreclosed real estate properties. NONPERFORMING LOANS The sum of loans in a nonaccrual status (for purposes of interest recognition), plus loans whose repayment criteria have been renegotiated to less than market terms due to the inability of the borrowers to repay the loan in accordance with its original terms, plus accruing loans three payments or more past due as to principal or interest payments. PARENT COMPANY A company that owns or controls a subsidiary through the ownership of voting stock. REAL ESTATE OWNED Real estate acquired through foreclosure proceedings. RESTRUCTURED LOANS A refinanced loan in which the bank allows the borrower certain concessions that would normally not be considered. The concessions are made in light of the borrower's financial difficulties and the bank's objective to maximize recovery on the loan. RETURN ON AVERAGE ASSETS Net income as a percentage of average total assets. RETURN ON AVERAGE EQUITY Net income as a percentage of average equity, excluding the impact of the mark to market adjustment for securities available for sale. RISK-BASED CAPITAL The amount of capital required by federal regulatory standards based on a risk-weighting of assets. TAXABLE EQUIVALENT (TE) Tax exempt income that has been adjusted to an amount that would yield the same after tax income had the income been subject to taxation at the statutory federal and/or state income tax rates. 60
Management's Statement of Responsibilities Responsibility for the financial information presented in the Annual Report rests with TrustCo Bank Corp NY's management. The Company believes that the consolidated financial statements reflect fairly the substance of transactions and present fairly the Company's financial position and results of operations in conformity with generally accepted accounting principles appropriate in the circumstances, applying certain estimates and judgments as required. In meeting its responsibilities for the reliability of the consolidated financial statements, the Company depends on its system of internal accounting controls. The system is designed to provide reasonable assurance that assets are safeguarded and transactions are executed in accordance with the appropriate corporate authorizations and recorded properly to permit the preparation of consolidated financial statements in accordance with generally accepted accounting principles. Although accounting control procedures are designed to achieve these objectives, it must be recognized that errors or irregularities may nevertheless occur. Also, estimates and judgments are required to assess and balance the relative cost and expected benefits of the controls. The Company believes that its accounting controls provide reasonable assurance that errors or irregularities that could be material to the consolidated financial statements are prevented or would be detected within a timely period by employees in the normal course of performing their assigned functions. An important element of the system of internal controls is a continuing and extensive internal audit program. The Board of Directors of the Company has an Audit Committee composed entirely of directors who are not officers or employees of the Company. The Committee meets periodically and privately with management, the internal auditors, and the independent public accountants to consider audit results and to discuss internal accounting controls, auditing, and financial reporting matters. KPMG LLP, independent public accountants, have been engaged to render an independent professional opinion on the Company's consolidated financial statements. Their audit is conducted in accordance with generally accepted auditing standards and forms the basis for their report as to the fair presentation, in the consolidated financial statements, of the Company's financial position, operating results and cash flows. /s/Robert A. McCormick Robert A. McCormick President and Chief Executive Officer /s/Robert T. Cushing Robert T. Cushing Vice President and Chief Financial Officer January 19, 2001 61
Independent Auditors' Report The Board of Directors and Shareholders of TrustCo Bank Corp NY: We have audited the accompanying consolidated statements of condition of TrustCo Bank Corp NY and subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of income, changes in shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 2000. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of TrustCo Bank Corp NY and subsidiaries as of December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. /s/KPMG LLP Albany, New York January 19, 2001 62
Consolidated Statements of Income <TABLE> <CAPTION> (dollars in thousands, except per share data) Years Ended December 31, ____________________________________________ 2000 1999 1998 Interest income: <S> <C> <C> <C> Interest and fees on loans..................................... $ 114,068 106,734 110,635 Interest and dividends on: U.S. Treasuries and agencies................................. 15,708 12,490 15,358 States and political subdivisions............................ 8,181 7,231 6,177 Mortgage-backed securities................................... 15,050 16,323 12,692 Other........................................................ 5,692 8,396 6,652 Interest on federal funds sold................................. 15,003 16,031 22,536 ____________________________________________ Total interest income...................................... 173,702 167,205 174,050 ____________________________________________ Interest expense: Interest on deposits........................................... 66,946 68,041 81,596 Interest on short-term borrowings.............................. 8,667 5,972 6,751 Interest on long-term debt..................................... 35 -- -- ____________________________________________ Total interest expense..................................... 75,648 74,013 88,347 ____________________________________________ Net interest income........................................ 98,054 93,192 85,703 Provision for loan losses........................................ 4,114 5,063 4,610 ____________________________________________ Net interest income after provision for loan losses........ 93,940 88,129 81,093 Noninterest income: Trust department income........................................ 8,662 8,065 6,973 Fees for services to customers................................. 9,037 8,695 8,799 Net gain/(loss) on securities transactions..................... (4,985) (5,446) 998 Letter of credit reserve recapture............................. -- -- 2,398 Other.......................................................... 3,652 4,102 2,954 ____________________________________________ Total noninterest income................................... 16,366 15,416 22,122 Noninterest expense: Salaries and employee benefits................................. 23,252 24,994 23,367 Net occupancy expense.......................................... 4,764 4,004 5,898 Equipment expense.............................................. 4,228 5,359 5,292 FDICinsurance expense.......................................... 404 242 244 Professional services.......................................... 2,746 2,651 2,664 Other real estate expenses/(income)............................ (473) (700) 1,856 Other.......................................................... 12,846 9,086 9,444 ____________________________________________ Total noninterest expense.................................. 47,767 45,636 48,765 ____________________________________________ Income before income taxes ...................................... 62,539 57,909 54,450 Income taxes..................................................... 20,837 19,724 19,435 ____________________________________________ Net income....................................................... $ 41,702 38,185 35,015 ____________________________________________ Earnings per share: Basic.......................................................... $ .678 .618 .568 Diluted........................................................ .657 .594 .545 ____________________________________________ </TABLE> Per share data has been adjusted for a 15% stock split in 2000, a 2 for 1 stock split in 1999 and a 15% stock split in 1998. See accompanying notes to consolidated financial statements. 63
<TABLE> <CAPTION> Consolidated Statements of Condition dollars in thousands, except share data) As of December 31, ____________________________________________ 2000 1999 ____________________________________________ ASSETS <S> <C> <C> Cash and due from banks............................................................. $ 45,956 54,542 Federal funds sold.................................................................. 299,490 266,000 Other short-term investments........................................................ -- 9,970 ____________________________________________ Total cash and cash equivalents............................................... 345,446 330,512 Securities available for sale....................................................... 605,284 640,830 Loans............................................................................... 1,476,038 1,350,768 Less: Unearned income............................................................. 990 959 Allowance for loan losses..................................................... 56,298 55,820 ____________________________________________ Net loans..................................................................... 1,418,750 1,293,989 Bank premises and equipment......................................................... 17,416 16,209 Real estate owned................................................................... 1,911 1,771 Other assets........................................................................ 67,391 80,711 ____________________________________________ Total assets.................................................................. $2,456,198 2,364,022 ____________________________________________ LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: Demand............................................................................ $ 191,260 155,313 Savings .......................................................................... 588,595 641,650 Interest-bearing checking accounts................................................ 277,543 272,384 Money market deposit accounts..................................................... 56,917 58,557 Certificates of deposit (in denominations of $100,000 or more).................... 123,211 115,636 Other time accounts............................................................... 773,465 751,369 ____________________________________________ Total deposits................................................................ 2,010,991 1,994,909 Short-term borrowings............................................................... 192,898 152,782 Long-term debt...................................................................... 911 -- Accrued expenses and other liabilities.............................................. 55,555 49,975 ____________________________________________ Total liabilities............................................................. 2,260,355 2,197,666 ____________________________________________ Shareholders' equity: Capital stock; $1 par value. 100,000,000 shares authorized, and 65,172,317 and 56,410,787 shares issued atDecember 31, 2000 and 1999, respectively............. 65,172 56,411 Surplus........................................................................... 78,407 85,784 Undivided profits................................................................. 56,923 48,491 Accumulated other comprehensive income/(loss): Net unrealized gain/loss on securities available for sale, net of tax........... 20,539 (2,452) Treasury stock; 3,801,267 and 3,002,378 shares, at cost, at December 31, 2000 and 1999, respectively.......................................................... (25,198) (21,878) ____________________________________________ Total shareholders' equity.................................................... 195,843 166,356 Total liabilities and shareholders' equity.................................... $2,456,198 2,364,022 </TABLE> See accompanying notes to consolidated financial statements. 64
Consolidated Statements of Changes in Shareholders' Equity <TABLE> <CAPTION> (dollars in thousands, except per share data) Three Years Ended December 31, 2000 _______________________________________________________________________ Accumulated Other Compre- Capital Undivided Comprehensive hensive Treasury Stock Surplus Profits Income/(Loss) Income Stock _______________________________________________________________________ <S> <C> <C> <C> <C> <C> <C> Beginning balance, January 1, 1998......................... $24,257 112,702 32,119 15,851 (6,104) Comprehensive income Net income - 1998........................................ -- -- 35,015 -- 35,015 -- Other comprehensive income, net of tax: Unrealized net holding gain arising during the year, net of tax (pre-tax gain $5,652)....................... -- -- -- -- 3,342 -- Reclassification adjustment for net gain realized in net income during the year (pre-tax gain $998)...... -- -- -- -- (590) -- Other comprehensive income............................... -- -- -- 2,752 2,752 -- Comprehensive income....................................... -- -- -- 37,767 -- Cash dividend declared, $.432 per share.................... -- -- (26,601) -- -- Stock options exercised.................................... 73 822 -- -- -- 15% stock split (3,646,672 shares)......................... 3,647 (3,647) -- -- -- Treasury stock purchased................................... -- -- -- -- (10,439) Sale of treasury stock..................................... -- 521 -- -- 4,874 _______________________________________________________________________ Ending balance, December 31, 1998.......................... 27,977 110,398 40,533 18,603 (11,669) Comprehensive income Net income - 1999........................................ -- -- 38,185 -- 38,185 -- Other comprehensive income/(loss), net of tax: Unrealized net holding loss arising during the year, net of tax (pre-tax loss $30,150)...................... -- -- -- -- (17,834) -- Reclassification adjustment for net loss realized in net income during the year (pre-tax loss $5,446).... -- -- -- -- 3,221 -- Other comprehensive loss................................. -- -- -- (21,055) (21,055) -- ------ Comprehensive income....................................... -- -- -- 17,130 -- Cash dividend declared, $.489 per share.................... -- -- (30,227) -- ------ -- Stock options exercised.................................... 241 2,339 -- -- -- 2 for 1 stock split (28,193,407 shares).................... 28,193 (28,193) -- -- -- Treasury stock purchased................................... -- -- -- -- (15,961) Sale of treasury stock..................................... -- 1,240 -- -- 5,752 _______________________________________________________________________ Ending balance, December 31, 1999.......................... 56,411 85,784 48,491 (2,452) (21,878) Comprehensive income Net income - 2000........................................ -- -- 41,702 -- 41,702 -- Other comprehensive income, net of tax: Unrealized net holding gain arising during the year, net of tax (pre-tax gain $33,808)...................... -- -- -- -- 20,037 -- Reclassification adjustment for net loss realized in net income during the year (pre-tax loss $4,985).... -- -- -- -- 2,954 -- Other comprehensive income............................... -- -- -- 22,991 22,991 -- Comprehensive income....................................... -- -- -- 64,693 -- Cash dividend declared, $.541 per share.................... -- -- (33,270) -- -- Stock options exercised.................................... 270 1,523 -- -- -- 15% stock split (8,491,537 shares)......................... 8,491 (8,491) -- -- -- Treasury stock purchased................................... -- -- -- -- (9,704) Sale of treasury stock..................................... -- (409) -- -- 6,384 _______________________________________________________________________ Ending balance, December 31, 2000.......................... $65,172 78,407 56,923 20,539 (25,198) Per share data has been adjusted for a 15% stock split in 2000, a 2 for 1 stock split in 1999 and a 15% stock split in 1998. </TABLE> See accompanying notes to consolidated financial statements. 65
Consolidated Statements of Cash Flows <TABLE> <CAPTION> (dollars in thousands) Years Ended December 31, ______________________________________________________ 2000 1999 1998 Increase/(decrease) in cash and cash equivalents Cash flows from operating activities: Net income.................................................................... $ 41,702 38,185 35,015 _____________________________________________________ Adjustments to reconcile net income to net cash provided by operating activities: <S> <C> <C> <C> Depreciation and amortization............................................. 2,739 2,229 2,532 Gain on sales of fixed assets............................................. (106) (1,249) (591) Provision for loan losses................................................. 4,114 5,063 4,610 Provision for deferred tax (benefit)/expense.............................. (1,297) (1,882) 1,405 Net (gain)/loss on securities transactions................................ 4,985 5,446 (998) (Increase)/decrease in taxes receivable................................... 2,181 395 (540) (Increase)/decrease in interest receivable................................ (550) 196 1,189 Increase/(decrease) in interest payable................................... 725 (358) (293) (Increase)/decrease in other assets....................................... (1,954) (11,198) 8,416 Increase/(decrease) in accrued expenses................................... 3,677 5,776 (464) ______________________________________________________ Total adjustments.................................................... 14,514 4,418 15,266 ______________________________________________________ Net cash provided by operating activities............................ 55,216 42,603 50,281 ____________________________________________________ Cash flows from investing activities: Proceeds from sales and calls of securities available for sale.............. 224,621 228,600 32,785 Proceeds from maturities of securities available for sale................... 95,353 167,830 229,362 Purchase of securities available for sale................................... (248,302) (360,891) (372,006) Net increase in loans ...................................................... (109,250) (33,583) (32,904) Proceeds from sales of real estate owned ................................... 1,987 4,797 4,220 Proceeds from sales of fixed assets......................................... 177 2,099 1,478 Purchases of bank premises and equipment.................................... (2,740) (2,266) (1,832) Payment for purchase of Landmark Financial Corp., net of cash acquired...... (2,735) -- -- ______________________________________________________ Net cash provided by/(used in) investing activities......................... (40,824) 6,586 (138,897) Cash flows from financing activities: Net increase/(decrease) in deposits......................................... (5,332) (112,505) 85,551 Net increase in short-term borrowings....................................... 39,216 4,858 20,074 Repayment of long-term debt................................................. (317) -- -- Proceeds from exercise of stock options..................................... 1,793 2,580 895 Proceeds from sale of treasury stock........................................ 5,975 6,992 5,395 Payments to acquire treasury stock.......................................... (9,704) (15,961) (10,439) Dividends paid.............................................................. (32,089) (29,570) (25,671) ______________________________________________________ Net cash (used in)/provided by financing activities......................... (458) (143,606) 75,805 ______________________________________________________ Net increase/(decrease) in cash and cash equivalents.......................... 14,934 (94,417) (12,811) Cash and cash equivalents at beginning of year................................ 330,512 424,929 437,740 ______________________________________________________ Cash and cash equivalents at end of year...................................... $ 345,446 330,512 424,929 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Interest paid................................................................. $ 74,923 74,371 88,640 Income taxes paid............................................................. 19,506 20,281 18,273 Transfer of loans to real estate owned........................................ 2,044 2,859 4,787 Increase in dividends payable................................................. 1,181 657 930 Change in unrealized (gain)/loss on securities available for sale gross....................................................................... (38,793) 35,595 (4,654) Change in deferred tax effect on unrealized gain/(loss) on securities available for sale.......................................................... 15,802 (14,540) 1,902 ______________________________________________________ SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES: Fair value of noncash assets acquired in Landmark Financial Corp.acquisition.. $25,541 -- -- Fair value of liabilities assumed in Landmark Financial Corp. acquisition..... 24,298 -- -- </TABLE> See accompanying notes to consolidated financial statements. 66
Notes to Consolidated Financial Statements (1) BASIS OF PRESENTATION The accounting and financial reporting policies of TrustCo Bank Corp NY (Company or TrustCo), ORE Subsidiary Corp., Trustco Savings Bank and Trustco Bank, National Association (Trustco Bank, National Association and Trustco Savings Bank are referred to as Trustco Banks or Banks) and its operating subsidiary Trustco Realty Corp., conform to general practices within the banking industry and are in conformity with generally accepted accounting principles. A description of the more significant policies follows. The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. CONSOLIDATION The consolidated financial statements of the Company include the accounts of the subsidiaries after elimination of all significant intercompany accounts and transactions. SECURITIES AVAILABLE FOR SALE Securities available for sale are carried at approximate market value with any unrealized appreciation or depreciation of value, net of tax, included as an element of shareholders' equity. Management maintains an available for sale portfolio in order to provide maximum flexibility in balance sheet management. The designation of available for sale is made at the time of purchase based upon management's intent to hold the securities for an indefinite period of time. These securities, however, are available for sale in response to changes in market interest rates, related changes in liquidity needs, or changes in the availability of and yield on alternative investments. Unrealized losses on securities that reflect a decline in value which is other than temporary, if any, are charged to income. Nonmarketable equity securities (principally stock of the Federal Reserve Bank and the Federal Home Loan Bank, both of which are required holdings for the Company) are included in securities available for sale at cost since there is no readily available market value. The cost of debt securities available for sale is adjusted for amortization of premium and accretion of discount on a method that equates to the level yield. Gains and losses on the sale of securities available for sale are based on the amortized cost of the specific security sold. LOANS Loans are carried at the principal amount outstanding net of unearned income and unamortized loan fees and costs, which are recognized as income over the applicable loan term. Nonperforming loans include nonaccrual loans, restructured loans, and loans which are 3 payments or more past due and still accruing interest. Generally, loans are placed in nonaccrual status either due to the delinquent status of principal and/or interest payments, or a judgment by management that, although payments of principal and/or interest are current, such action is prudent. Future payments received on nonperforming loans are recorded as interest income or principal reductions based upon management's ultimate expectation for collection. Loans may be removed from nonaccrual status when they become current as to principal and interest and have demonstrated a sustained ability to make loan payments in accordance with the contractual terms of the loan. Loans may also be removed from nonaccrual status when, in the opinion of management, the loan is expected to be fully collectable as to principal and interest. Impaired loans have been defined as commercial and commercial real estate loans in nonaccrual status and restructured loans. ALLOWANCE FOR LOAN LOSSES The allowance for loan losses is maintained at a level considered adequate by management to provide for probable loan losses based on consideration of the credit risk of the loan portfolio, including a review of past experience, current economic conditions, and underlying collateral value. The allowance is increased by provisions charged against income and reduced by net charge offs. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company's allowance for loan losses. Such agencies may require the Company to change the allowance based on their judgments of information available to them at the time of their examination. BANK PREMISES AND EQUIPMENT Premises and equipment are stated at cost less accumulated depreciation and amortization computed on either the straight-line or accelerated methods over the remaining useful lives of the assets. REAL ESTATE OWNED Real estate owned are assets acquired through foreclosures on loans. Foreclosed assets held for sale are recorded on an individual basis at the lower of (1) fair value minus estimated costs to sell or (2) "cost" (which is the fair value at initial foreclosure). When a property is acquired, the excess of the loan balance over fair value is charged to the allowance for loan losses. Subsequent write downs are included in noninterest expense. 67
Notes to Consolidated Financial Statements INCOME TAXES Deferred taxes are recorded for the future tax consequences of events that have been recognized in the financial statements or tax returns, based upon enacted tax laws and rates. Deferred tax assets are recognized subject to management's judgment that realization is more likely than not. DIVIDEND RESTRICTIONS Banking regulations restrict the amount of cash dividends which may be paid during a year by the Trustco Banks to the Parent Company without the written consent of the appropriate bank regulatory agency. Based on these restrictions, Trustco Bank, National Association could pay cash dividends to the Parent Company in an amount that is slightly less than 2001 net profits. In addition, the Parent Company has $56.1 million of assets available to pay dividends to shareholders. PENSION PLAN The Company has a defined benefit pension plan covering substantially all of its employees. The benefits are based on years of service and the employee's compensation. STOCK OPTION PLANS The Company's stock option plans are accounted for in accordance with the provisions of the Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB Opinion 25) and as such, no compensation expense has been recorded for these plans. EARNINGS PER SHARE Basic EPS is computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted EPS is computed by dividing net income by the weighted average number of common shares outstanding during the period, taking into consideration the effect of any dilutive stock options. RECLASSIFICATION OF PRIOR YEAR STATEMENTS It is the Company's policy to reclassify prior year consolidated financial statements to conform to the current year presentation. SEGMENT REPORTING During 1998, the Company adopted the Financial Accounting Standards Board Statement of Financial Accounting Standards No. 131, "Disclosure about Segments of an Enterprise and Related Information" (Statement 131). This statement requires the Company to report financial and other information about operating segments meeting certain quantitative and other requirements as defined. The Company's operations are exclusively in the financial services industry and include the provision of traditional banking services. Management evaluates the performance of the Company based on only one business segment, that of community banking. The Company operates solely in the geographical region of Upstate New York. In the opinion of management, the Company does not have any other reportable segments as defined by Statement 131. (2) ACQUISITION OF LANDMARK FINANCIAL CORPORATION During the third quarter of 2000, the Company acquired Landmark Financial Corporation of Canajoharie, New York and its wholly owned subsidiary Landmark Community Bank in a purchase business combination. The aggregate cost of the transaction was approximately $3.4 million. At the time of the acquisition, the fair value of Landmark's assets was $26.2 million and the fair value of liabilities was $24.3 million. Goodwill of approximately $1.5 million was recognized as a result of the acquisition. Subsequent to the acquisition, Landmark was renamed Trustco Savings Bank. The results of operations of Trustco Savings Bank are included in the Company's consolidated statements of income from the date of acquisition. (3) BALANCES AT OTHER BANKS The Company is required to maintain certain reserves of vault cash and/or deposits with the Federal Reserve Bank. The amount of this reserve requirement, included in cash and due from banks, was approximately $13.1 million and $11.5 million at December 31, 2000 and 1999, respectively. (4) SECURITIES AVAILABLE FOR SALE The amortized cost and approximate market value of the securities available for sale are as follows: <TABLE> <CAPTION> (dollars in thousands) December 31, 2000 _______________________________________________________ Gross Gross Approximate Amortized Unrealized Unrealized Market Cost Gains Losses Value _______________________________________________________ <S> <C> <C> <C> <C> U.S. Treasuries and agencies.......... $184,848 4,721 7 189,562 States and political subdivisions..... 167,389 6,121 315 173,195 Mortgage-backed securities............ 184,944 3,800 142 188,602 Other................................. 650 -- -- 650 _______________________________________________________ Total debt securities................. 537,831 14,642 464 552,009 Equity securities..................... 32,798 20,477 -- 53,275 _______________________________________________________ Total securities available for sale... $570,629 35,119 464 605,284 </TABLE> 68
Notes to Consolidated Financial Statements (continued) <TABLE> <CAPTION> (dollars in thousands) December 31, 1999 _______________________________________________________ Gross Gross Approximate Amortized Unrealized Unrealized Market Cost Gains Losses Value _______________________________________________________ <S> <C> <C> <C> <C> U.S. Treasuries and agencies......... $189,207 745 3,974 185,978 States and political subdivisions.... 136,203 864 4,507 132,560 Mortgage-backed securities........... 211,450 302 6,194 205,558 Other................................ 81,834 -- 1,102 80,732 _______________________________________________________ Total debt securities................ 618,694 1,911 15,777 604,828 Equity securities.................... 26,274 9,728 -- 36,002 _______________________________________________________ Total securities available for sale.. $644,968 11,639 15,777 640,830 </TABLE> Federal Home Loan Bank stock and Federal Reserve Board stock included in equity securities at December 31, 2001 and 1999 was $15.4 million and $14.9 million, respectively. The following table distributes the debt securities included in the available for sale portfolio as of December 31, 2000, based on the securities' final maturity (mortgage-backed securities are stated using an estimated average life): <TABLE> <CAPTION> (dollars in thousands) Approximate Amortized Market Cost Value ______________________________ <S> <C> <C> Due in one year or less..................... $ 10,693 10,877 Due after one year through five years....... 51,957 53,878 Due after five years through ten years...... 314,645 321,212 Due after ten years......................... 160,536 166,042 ______________________________ $537,831 552,009 ______________________________ </TABLE> Actual maturities may differ from contractual maturities because of securities prepayments and the right of certain issuers to call or prepay their obligations without penalty. The proceeds from sales and calls of securities, gross realized gains and gross realized losses from sales and calls during 2000, 1999 and 1998 are as follows: <TABLE> <CAPTION> (dollars in thousands) December 31, __________________________________ 2000 1999 1998 __________________________________ <S> <C> <C> <C> Proceeds............................... $224,621 228,600 32,785 Gross realized gains................... 2,223 1,204 1,000 Gross realized losses.................. 7,208 6,650 2 </TABLE> The amount of securities available for sale that have been pledged to secure short-term borrowings, public deposits, and for other purposes required by law amounted to $275.3 million and $274.5 million at December 31, 2000 and 1999, respectively. There are no securities of a single issuer (excluding issues of the U.S. government and its agencies) that represent 10% or more of shareholders' equity at December 31, 2000 and 1999. (5) LOANS AND ALLOWANCE FOR LOAN LOSSES A summary of loans by category is as follows: (dollars in thousands) December 31, ______________________________ 2000 1999 ______________________________ Commercial........................... $ 199,516 193,530 Construction......................... 17,275 15,867 Residential mortgage loans........... 1,102,388 980,141 Home equity line of credit........... 130,725 138,339 Installment loans.................... 26,134 22,891 ______________________________ Total loans.......................... 1,476,038 1,350,768 Less: Unearned income................ 990 959 Allowance for loan losses...... 56,298 55,820 ______________________________ Net loans............................ $1,418,750 1,293,989 At December 31, 2000 and 1999, loans to executive officers, directors, and to associates of such persons aggregated $3.6 million. During 2000, new loans of $1.4 million were made and repayments of loans totalled $1.4 million. In the opinion of management, such loans were made in the ordinary course of business on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions. These loans do not involve more than normal risk of collectibility or present other unfavorable features. TrustCo lends primarily in the Capital District region of New York State and in the geographic territory surrounding its borders. Although the loan portfolio is diversified, a portion of its debtors' ability to repay is dependent upon the economic conditions prevailing in New York State. The following table sets forth information with regard to nonperforming loans: (dollars in thousands) December 31, __________________________________ 2000 1999 1998 __________________________________ Loans in nonaccrual status.............. $ 4,395 4,433 7,147 Loans contractually past due 3 payments or more and still accruing interest.................. 896 509 1,454 __________________________________ Restructured loans...................... 6,370 4,979 3,782 __________________________________ Total nonperforming loans............ $11,661 9,921 12,383 Interest on nonaccrual and restructured loans of $1.0 million in 2000, $1.1 million in 1999, and $1.0 million in 1998 would have been earned in accordance with the original contractual terms of the loans. Approximately $631 thousand, $562 thousand, and $498 thousand of interest on nonaccrual and restructured loans was collected and recognized as income in 2000, 1999, and 1998, respectively. There are no commitments to extend further credit on nonaccrual or restructured loans. 69
Notes to Consolidated Financial Statements (continued) Transactions in the allowance for loan losses account are summarized as follows: <TABLE> <CAPTION> (dollars in thousands) For the years ended December 31, __________________________________ 2000 1999 1998 __________________________________ <S> <C> <C> <C> Balance at beginning of year......... $55,820 54,375 53,455 Provision for loan losses............ 4,114 5,063 4,610 Allowance of acquired bank........... 234 __ __ Loans charged off.................... (5,500) (7,788) (6,561) Recoveries on loans previously charged off............. 1,630 4,170 2,871 __________________________________ Balance at year end.................. $56,298 55,820 54,375 __________________________________ </TABLE> The Company identifies impaired loans and measures the impairment in accordance with Statement of Financial Accounting Standards No. 114 (Statement 114), "Accounting by Creditors for Impairment of a Loan" as amended. A loan is considered impaired when it is probable that the borrower will be unable to repay the loan according to the original contractual terms of the loan agreement or the loan is restructured in a troubled debt restructuring subsequent to January 1, 1995. These standards are applicable principally to commercial and commercial real estate loans; however, certain provisions dealing with restructured loans also apply to retail loan products. There were no nonaccrual commercial and commercial real estate loans classified as impaired loans at December 31, 2000 and 1999. Retail loans totalling $6.2 million as of December 31, 2000 and $4.7 million as of December 31, 1999 were restructured after the effective date of Statement 114 and, accordingly, are identified as impaired loans. None of the allowance for loan losses has been specifically allocated to these impaired loans because management believes that the collateral values support the loan balances. During 2000, 1999, and 1998, the average balance of impaired loans was $5.8 million, $5.0 million, and $4.0 million, respectively, and there was approximately $556 thousand, $433 thousand, and $412 thousand of interest income recorded on these loans in the accompanying consolidated statements of income. (6) BANK PREMISES AND EQUIPMENT A summary of premises and equipment at December 31, 2000 and 1999 follows: <TABLE> <CAPTION> (dollars in thousands) 2000 1999 ____________________________ <S> <C> <C> Land................................ $ 2,959 2,915 Buildings........................... 22,417 20,805 Furniture, fixtures and equipment... 18,952 17,740 Leasehold improvements.............. 4,056 3,920 ____________________________ 48,384 45,380 Accumulated depreciation and amortization...................... (30,968) ( 29,171) ____________________________ Total............................... $17,416 16,209 ____________________________ </TABLE> Depreciation and amortization expense approximated $2.0 million, $2.2 million, and $2.5 million for the years 2000, 1999, and 1998, respectively. Occupancy expense of Bank premises included rental expense of $1.5 million in both 2000 and 1999, and $1.4 million in 1998. <TABLE> <CAPTION> (7) SHORT-TERM BORROWINGS Short-term borrowings consisted of the following: 2000 ______________________________________ (dollars in thousands) Securities Trustco Sold Under Short-Term Agreements to Account Repurchase Total ______________________________________ Amount outstanding at <S> <C> <C> <C> December 31, 2000.................. $121,817 71,081 192,898 Maximum amount outstanding at any month end......................... 121,817 71,488 193,305 Average amount outstanding........... 102,597 61,517 164,114 Weighted average interest rate: For the year....................... 5.70% 4.58 5.28 As of year end..................... 5.98 4.49 5.43 1999 ______________________________________ (dollars in thousands) Securities Trustco Sold Under Short-Term Agreements to Account Repurchase Total ______________________________________ Amount outstanding at December 31, 1999.................. $87,096 65,686 152,782 Maximum amount outstanding at any month end.......................... 106,250 69,656 153,155 Average amount outstanding........... 93,450 53,217 146,667 Weighted average interest rate: For the year....................... 4.49% 3.34 4.07 As of year end..................... 4.83 3.62 4.31 </TABLE> The Trustco Short-Term Investment Account balances are immediately withdrawable. All short-term borrowings are collateralized by securities of the Bank pledged for that purpose. Trustco has approximately $250 million of available lines of credit with the Federal Home Loan Bank. (8) LONG-TERM DEBT Long-term debt at December 31, 2000 of $911 thousand consist of FHLB term loans with interest rates ranging from 5.18% to 6.29% and maturities ranging from January 2002 to October 2008. This debt was acquired as part of the Landmark Financial Corp. acquisition during 2000. The FHLB loans are collateralized with 1-4 family residential mortgages. There was no long-term debt outstanding as of December 31, 1999. 70
Notes to Consolidated Financial Statements (continued) (9) INCOME TAXES A summary of income tax expense/(benefit) included in the consolidated statements of income follows: <TABLE> <CAPTION> For the years ended December 31, ____________________________________ (dollars in thousands) 2000 1999 1998 ____________________________________ Current tax expense: <S> <C> <C> <C> Federal........................... $19,620 18,248 14,498 State............................. 2,514 3,358 3,532 ____________________________________ Total current tax expense........... 22,134 21,606 18,030 Deferred tax expense/(benefit)...... (1,297) (1,882) 1,405 ____________________________________ Total income tax expense............ $20,837 19,724 19,435 ____________________________________ </TABLE> The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2000 and 1999 are as follows: <TABLE> <CAPTION> December 31, _____________________________ (dollars in thousands) 2000 1999 _____________________________ Deductible/ Deductible/ (taxable) (taxable) temporary temporary differences differences _____________________________ <S> <C> <C> Bond accounting........................ $ (605) (380) Benefits and deferred remuneration......................... 5,560 5,013 Deferred loan fees, net................ 412 447 Difference in reporting the provision for loan losses,net........ 24,383 23,982 Other income or expense not reported for tax purposes........ 8,851 8,390 Depreciable assets..................... 1,689 1,546 Purchase accounting adjustments........ (285) __ Other items............................ 1,092 888 _____________________________ Total.................................. 41,097 39,886 Valuation allowance.................... (1,182) (1,182) _____________________________ Net deferred tax asset at end of year....................... 39,915 38,704 Net deferred tax asset at beginning of year.................... 38,704 36,822 _____________________________ Net increase in deferred tax asset..... 1,211 1,882 Deferred tax asset acquired and purchase accounting tax effect, net............. 86 __ _____________________________ Deferred tax benefit................... $ 1,297 1,882 ______________________________ </TABLE> Deferred tax assets are recognized subject to management's judgment that realization is more likely than not. The valuation allowance of $1.2 million at December 31, 2000 and 1999 is primarily reserved for federal and state tax law restrictions on the deductibility of certain temporary differences. Based primarily on the sufficiency of historical and future taxable income, management believes it is more likely than not that the remaining net deferred tax asset of $39.9 million and $38.7 million at December 31, 2000 and 1999, respectively, will be realized. In addition to the deferred tax items described in the preceding table, the Company also has a deferred tax liability of $14.1 million at December 31, 2000, and a deferred tax asset of $1.7 million at December 31, 1999, relating to the net unrealized gains/(losses) on securities available for sale at the respective dates. The effective tax rates differ from the statutory federal income tax rate. The reasons for these differences are as follows: <TABLE> <CAPTION> For the years ended December 31, ____________________________________ 2000 1999 1998 ____________________________________ <S> <C> <C> <C> Statutory federal income tax rate....... 35.0% 35.0 35.0 Increase/(decrease) in taxes resulting from: Tax exempt income.................... (4.1) (4.0) (3.7) State income tax, net of federal tax benefit................. 2.3 3.3 4.6 Reduction in the tax rates........... __ 1.5 __ Change in valuation reserve.......... __ (1.5) __ Other items.......................... 0.1 (0.2) (0.2) ____________________________________ Effective income tax rate............... 33.3% 34.1 35.7 ____________________________________ </TABLE> (10) BENEFIT PLANS (a) Retirement Plan The Company maintains a trusteed non-contributory pension plan covering employees that have completed one year of employment and 1,000 hours of service. The benefits are based on the sum of (a) a benefit equal to a prior service benefit plus the average of the employees' highest five consecutive years' compensation in the ten years preceding retirement multiplied by a percentage of service after a specified date plus (b) a benefit based upon career average compensation. The amounts contributed to the plan are determined annually on the basis of (a) the maximum amount that can be deducted for federal income tax purposes or (b) the amount certified by a consulting actuary as necessary to avoid an accumulated funding deficiency as defined by the Employee Retirement Income Security Act of 1974. Contributions are intended to provide not only for benefits attributed to service to date but also for those expected to be earned in the future. Assets of the plan are invested primarily in common stock and fixed income common funds administered by Trustco Bank, National Association's Trust Department. The following tables set forth the plan's funded status and amounts recognized in the Company's consolidated statements of condition at December 31, 2000 and 1999: 71
Notes to Consolidated Financial Statements (continued) CHANGE IN PROJECTED BENEFIT OBLIGATION: <TABLE> <CAPTION> (dollars in thousands) 2000 1999 ______________________________ Projected benefit obligation <S> <C> <C> at beginning of year...................... $21,363 21,422 Service cost................................ 825 1,012 Interest cost............................... 1,378 1,339 Benefits paid............................... (1,648) (1,212) Assumption changes and other................ (380) 1,198 ______________________________ Projected benefit obligation at end of year............................ $21,538 21,363 ______________________________ </TABLE> CHANGE IN PLAN ASSETS AND RECONCILIATION OF FUNDED STATUS: <TABLE> <CAPTION> (dollars in thousands) 2000 1999 ______________________________ Fair value of plan assets at <S> <C> <C> beginning of year........................ $37,186 33,794 Actual return/(loss) on plan assets........ (1,640) 4,604 Benefits paid.............................. (1,648) (1,212) ______________________________ Fair value of plan assets at end of year... 33,898 37,186 Funded status.............................. 12,360 15,823 Unrecognized net actuarial gain............ (9,638) (14,202) Unrecognized prior service cost............ 768 791 Unrecognized transition asset.............. __ (147) ______________________________ Prepaid benefit cost....................... $ 3,490 2,265 ______________________________ </TABLE> COMPONENTS OF NET PERIODIC PENSION BENEFIT: <TABLE> <CAPTION> For the years ended December 31, _________________________________ (dollars in thousands) 2000 1999 1998 _________________________________ <S> <C> <C> <C> Service cost............................... $ 825 1,012 798 Interest cost.............................. 1,378 1,339 1,215 Expected return on plan assets............. (2,655) (2,159) (1,902) Amortization of net gain................... (649) (368) (308) Amortization of unrecognized prior service cost/(benefit)............. 23 24 (45) Amortization of unrecognized transition asset......................... (147) (148) (148) _________________________________ Net periodic pension benefit............... $(1,225) (300) (390) </TABLE> The weighted average discount rate, the rate of increase in future compensation levels, and the expected long-term rate of return used in determining the actuarial present value of projected benefit obligations, are as follows: <TABLE> <CAPTION> 2000 1999 1998 ______________________________ <S> <C> <C> <C> Weighted average discount rate ............ 6.75% 6.75 6.00 Rate of increase in future compensation............................. 6.50 6.50 6.00 Expected long-term rate of return on assets................................ 7.25 6.50 6.50 </TABLE> The Company also has a defined contribution supplementary pension plan under which additional retirement benefits are accrued for eligible executive and senior officers. The expense recorded for this plan was $3.4 million, $4.3 million, and $3.4 million in 2000, 1999, and 1998, respectively. Rabbi trusts have been established for certain benefit plans. These rabbi trust accounts are administered by the Company's Trust Department and invest primarily in the Trustco Short-Term Investment Account. These assets are reflected as other assets in the December 31, 2000 and 1999, consolidated statements of condition. (b) Postretirement Benefits The Company permits retirees under age 65 to participate in the Company's medical plan by paying the same premium as the active employees. At age 65, the Bank provides a Medicare Supplemental program to retirees. Assets of the plan are invested primarily in common stock and fixed income common funds administered by the Company's Trust Department. The following tables show the plan's funded status and amounts recognized in the Company's consolidated statements of condition at December 31, 2000 and 1999. CHANGE IN ACCUMULATED BENEFIT OBLIGATION: <TABLE> <CAPTION> Projected Post- Retirement Benefits ________________________ (dollars in thousands) 2000 1999 ________________________ Accumulated benefit obligation <S> <C> <C> at beginning of year..................... $6,570 6,183 Service cost............................... 253 262 Retiree contributions...................... 110 87 Interest cost.............................. 368 369 Benefits paid.............................. (218) (172) Assumption changes and other............... (993) (159) ________________________ Accumulated benefit obligation at end of year........................... $6,090 6,570 ________________________ </TABLE> 72
Notes to Consolidated Financial Statements (continued) CHANGE IN PLAN ASSETS AND RECONCILIATION OF FUNDED STATUS: <TABLE> <CAPTION> (dollars in thousands) 2000 1999 ___________________ Fair value of plan assets at <S> <C> <C> beginning of year....................... $13,213 11,881 Actual return/(loss) on plan assets....... (696) 1,836 Retiree contributions..................... 110 87 Taxes..................................... (754) (419) Benefits paid............................. (218) (172) ___________________ Fair value of plan assets at end of year.. 11,655 13,213 ___________________ Funded status............................. 5,565 6,643 Unrecognized net actuarial gain........... (6,416) (7,815) ___________________ Accrued benefit cost...................... $(851) (1,172) ___________________ </TABLE> Components of Net Periodic Benefit: <TABLE> <CAPTION> For the years ended December 31, ________________________ (dollars in thousands) 2000 1999 1998 ________________________ <S> <C> <C> <C> Service cost................................... $ 253 262 203 Interest cost.................................. 368 369 336 Expected return on plan assets................. (568) (454) (398) Amortization of net gain....................... (374) (277) (260) ________________________ Net periodic benefit........................... $(321) (100) (119) ________________________ </TABLE> For measurement purposes, a 7.0% annual rate of increase in the per capita cost of covered benefits (i.e., health care cost trend rate) was assumed for 2001 and thereafter. A one percentage point increase in the assumed health care cost in each year would increase the accumulated postretirement benefit obligation, as of December 31, 2000, by approximately $1.0 million, and would increase the aggregate of the service and the interest cost components of net periodic postretirement benefit cost for the year ended December 31, 2000, by approximately $157 thousand. A one percentage point decrease in the assumed health care cost in each year would decrease the accumulated postretirement benefit obligation by approximately $762 thousand as of December 31, 2000, and would decrease the aggregate of the service and the interest cost components of net periodic postretirement benefit cost for the year ended December 31, 2000 by approximately $116 thousand. The weighted average assumptions used to determine the accumulated benefit obligation at December 31, 2000, 1999, and 1998 were: <TABLE> <CAPTION> 2000 1999 1998 ________________________ <S> <C> <C> <C> Discount rate...................... 6.75% 6.75 6.00 After tax return on plan assets.... 4.30 3.84 3.84 </TABLE> (c) Incentive and Bonus Plans The Company provides a profit-sharing plan for substantially all employees. The expense of this plan, which is based on management discretion as defined in the plan, amounted to $1.1 million in both 2000 and 1999, and $1.4 million in 1998. The Company also has an executive incentive plan. The expense of this plan is based on the Company's performance and estimated distributions to participants are accrued during the year and generally paid in the following year. The expense recorded for this plan was $3.8 million, $3.3 million, and $3.0 million in 2000, 1999, and 1998, respectively. The Company has awarded 3.3 million performance bonus units to the executive officers and directors. These units become vested and exercisable only under a change of control as defined. The units were awarded based upon the stock price at the time of grant and, if exercised under a change of control, allow the holder to receive the increase in value offered in the exchange over the stock price at the date of grant for each unit. (d) Stock Option Plans At December 31, 2000, the Company has stock option plans for officers and directors as described below. TrustCo applies APB Opinion No. 25 and related Interpretations in accounting for these plans. Accordingly, no compensation cost has been recognized for these fixed stock option plans. Had compensation cost for the Company's stock-based compensation plans been determined consistent with Statement of Financial Accounting Standards No. 123 (Statement 123), "Accounting for Stock-Based Compensation," the Company's net income and earnings per share would have been reduced to the pro forma amounts indicated as follows: <TABLE> <CAPTION> (dollars in thousands except per share data) 2000 1999 1998 __________________________________ Net income: <S> <C> <C> <C> As reported..................... $41,702 38,185 35,015 Pro forma....................... 40,566 37,143 34,239 Basic earnings per share: As reported..................... $ .678 .618 .568 Pro forma....................... .660 .602 .555 Diluted earnings per share: As reported..................... .657 .594 .545 Pro forma....................... .638 .578 .534 </TABLE> Pro forma net income and earnings per share reflect options granted since 1995. The full impact of calculating compensation cost for all stock options under Statement 123 is not reflected in the pro forma net income and earnings per share amounts presented above for 1998 because compensation cost is reflected over the options' vesting period and compensation cost for options granted prior to January 1, 1995 is not considered. Under the 1995 TrustCo Bank Corp NY Stock Option Plan, the Company may grant options to its eligible employees for up to approximately 6.9 million shares of common stock. Under the 1993 Directors Stock Option Plan, the Company may grant options to its directors for up to approximately 462 thousand shares 73
Notes to Consolidated Financial Statements (continued) of its common stock. Under both plans, the exercise price of each option equals the market price of the Company's stock on the date of grant, and an option's maximum term is ten years. Options vest over five years from the date the options are granted for the employee plan and they are immediately vested for the directors' plan. A summary of the status of TrustCo's stock option plans as of December 31, 2000, 1999 and 1998 and changes during the years ended on those dates are as follows: <TABLE> <CAPTION> Outstanding Options Exercisable Options _________________________________________ Weighted Weighted Average Average Option Option Shares Price Shares Price _________________________________________ <S> <C> <C> <C> <C> Balance, January 1, 1998........... 6,772,416 $ 4.81 4,694,375 $ 4.28 New options awarded - 1998......... 911,203 10.02 203,401 10.02 Cancelled options - 1998........... 20,942 5.90 -- -- Exercised options - 1998........... 194,718 3.64 194,718 3.64 Options became exercisable......... -- -- 824,596 5.58 _________________________________________ Balance, December 31, 1998......... 7,467,959 5.47 5,527,654 4.71 New options awarded - 1999......... 822,250 11.50 182,850 11.50 Cancelled options - 1999........... -- -- -- -- Exercised options - 1999........... 549,556 3.54 549,556 3.54 Options became exercisable......... -- -- 786,379 6.91 _________________________________________ Balance, December 31, 1999......... 7,740,653 6.25 5,947,327 5.32 New options awarded - 2000......... 723,350 10.89 164,910 10.89 Cancelled options - 2000........... 75,515 9.80 75,515 9.80 Exercised options - 2000........... 306,812 5.04 306,812 5.04 Options became exercisable......... -- -- 939,609 8.64 _________________________________________ Balance, December 31, 2000......... 8,081,676 $ 6.68 6,669,519 $ 5.89 </TABLE> There were approximately 6.7 million, 5.9 million and 5.5 million of options that were exercisable at year end 2000, 1999 and 1998, respectively. The fair value of each option as of the grant date, estimated using the Black-Scholes pricing model, and calculated in accordance with Statement 123 was as follows for options granted in the year indicated: <TABLE> <CAPTION> _____________________________ Employees' Directors' Plan Plan _____________________________ <S> <C> <C> 2000............................ $2.260 2.210 1999............................ 2.357 2.287 1998............................ 2.061 1.930 </TABLE> The following assumptions were utilized in the calculation of the fair value of the options under Statement 123: <TABLE> <CAPTION> _____________________________ Employees' Directors' Plan Plan _____________________________ Expected dividend yield: <S> <C> <C> <C> 2000......................... 4.50% 4.50 1999......................... 4.17 4.17 1998......................... 4.12 4.12 Risk-free interest rate: 2000......................... 6.68 6.63 1999......................... 5.96 5.92 1998......................... 5.43 5.44 Expected volatility rate: 2000......................... 20.85 22.18 1999......................... 20.91 21.95 1998......................... 19.41 18.87 Expected lives................... 7.5 years 6.0 years </TABLE> The following table summarizes information about the stock option plans for options outstanding at December 31, 2000: <TABLE> <CAPTION> ____________________________________________ Weighted Average Weighted Range of Remaining Average Exercise Options Contractual Exercise Price Outstanding Life Price ____________________________________________ Less than <S> <C> <C> <C> $5.00................... 2,766,930 2.8 years $ 3.83 Between $5.01 and $10.00.............. 2,933,728 6.0 years 6.04 Greater than $10.01.................. 2,381,018 8.9 years 10.77 ____________________________________________ Total...................... 8,081,676 5.8 years $ 6.68 ____________________________________________ </TABLE> The following table summarizes information about the exercisable stock options at December 31, 2000: <TABLE> <CAPTION> ____________________________________________ Average Weighted Range of Remaining Average Exercise Options Contractual Exercise Price Outstanding Life Price ____________________________________________ Less than <S> <C> <C> <C> $5.00................... 2,766,930 2.8 years $ 3.83 Between $5.01 and $10.00.............. 2,764,606 6.0 years 5.99 Greater than $10.01.................. 1,137,983 8.6 years 10.65 ____________________________________________ Total...................... 6,669,519 5.1 years $ 5.89 </TABLE> 74
(11) COMMITMENTS AND CONTINGENT LIABILITIES (a)Leases The Banks lease certain banking premises. These leases are accounted for as operating leases with minimum rental commitments in the amounts presented below. The majority of these leases contain options to renew. <TABLE> <CAPTION> (dollars in thousands) <S> <C> 2001.................$1,403 2002..................1,215 2003..................1,152 2004..................1,092 2005....................962 2006 and after....... 5,364 _______ $11,188 </TABLE> (b)Litigation Existing litigation arising in the normal course of business is not expected to result in any material loss to the Company. (c)Time Deposits At December 31, 2000, the maturity of total time deposits is as follows: <TABLE> <CAPTION> (dollars in thousands) <S> <C> Under 1 year.........$588,192 1 to 2 years..........136,574 2 to 3 years..........149,718 3 to 4 years...........15,836 4 to 5 years............5,259 Over 5 years............1,097 __________ $896,676 </TABLE> (12) EARNINGS PER SHARE A reconciliation of the component parts of earnings per share for 2000, 1999 and 1998 follows: <TABLE> <CAPTION> (dollars in thousands, Weighted except per share data) Average Shares Per share Income Outstanding Amounts _____________________________________ For the year ended December 31, 2000: Basic EPS: Income available to <S> <C> <C> <C> common shareholders............... $41,702 61,472 $.678 Effect of Dilutive Securities: Stock Options..................... -- 2,044 -- _____________________________________ Diluted EPS......................... $41,702 63,516 $.657 For the year ended December 31, 1999: Basic EPS: Income available to common shareholders............... $38,185 61,750 $.618 Effect of Dilutive Securities: Stock Options..................... -- 2,546 -- _____________________________________ Diluted EPS......................... $38,185 64,296 $.594 For the year ended December 31, 1998: Basic EPS: Income available to common shareholders............... $35,015 61,671 $.568 Effect of Dilutive Securities: Stock Options..................... -- 2,622 -- _____________________________________ Diluted EPS......................... $35,015 64,293 $.545 _____________________________________ </TABLE> The number of antidilutive stock options excluded from diluted Earnings Per Share for 2000 and 1999 was not significant. At December 31, 2000 there were no antidilutive stock options outstanding. (13) OFF-BALANCE SHEET FINANCIAL INSTRUMENTS: Loan commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require a fee. Commitments sometimes expire without being drawn upon. Therefore, the total commitment amounts do not necessarily represent future cash requirements. These arrangements have credit risk essentially the same as that involved in extending loans to customers and are subject to the Bank's normal credit policies, including obtaining collateral. The Bank's maximum exposure to credit loss for loan commitments, including unused lines of credit, at December 31, 2000 and 1999 was $224.6 million and $232.1 million, respectively. Approximately 60% of these commitments were for variable rate products at the end of 2000. Letters of credit and standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. 75
Notes to Consolidated Financial Statements (continued) These arrangements have credit risk essentially the same as that involved in extending loans to customers and are subject to the Bank's normal credit policies, including obtaining collateral. The Bank's maximum exposure to credit loss for standby letters of credit at December 31, 2000 and 1999 was $1.4 million and $2.1 million, respectively. No losses are anticipated as a result of loan commitments or standby letters of credit. (14) FAIR VALUE OF FINANCIAL INSTRUMENTS The fair values shown below represent management's estimates of values at which the various types of financial instruments could be exchanged in transactions between willing, unrelated parties. They do not necessarily represent amounts that would be received or paid in actual transactions. <TABLE> <CAPTION> (dollars in thousands) As of December 31, 2000 _________________________ Carrying Fair Value Value _________________________ Financial assets: <S> <C> <C> Cash and cash equivalents ............ $ 345,446 345,446 Securities available for sale ........ 605,284 605,284 Loans................................. 1,418,750 1,475,906 Accrued interest receivable........... 14,317 14,317 Financial liabilities: Demand deposits ...................... 191,260 191,260 Interest-bearing deposits ............ 1,819,731 1,822,667 Short-term Borrowings ................ 192,898 192,898 Long-term debt ....................... 911 911 Accrued interest payable.............. 3,206 3,206 (dollars in thousands) As of December 31, 2000 _________________________ Carrying Fair Value Value _________________________ Financial assets: Cash and cash equivalents ............ $ 330,512 330,512 Securities available for sale ........ 640,830 640,830 Loans................................. 1,293,989 1,331,776 Accrued interest receivable........... 15,704 15,704 Financial liabilities: Demand deposits ...................... 155,313 155,313 Interest-bearing deposits ............ 1,839,596 1,841,050 Short-term Borrowings ................ 152,782 152,782 Accrued interest payable.............. 3,119 3,119 </TABLE> The specific estimation methods and assumptions used can have a substantial impact on the resulting fair values of financial instruments. Following is a brief summary of the significant methods and assumptions used in the previous table: CASH AND CASH EQUIVALENTS The carrying value of these financial instruments approximates fair values. SECURITIES Fair values for all securities portfolios are based upon quoted market prices, where available. The carrying value of certain local, unrated municipal obligations was used as an approximation of fair value. LOANS The fair values of all loans are estimated using discounted cash flow analyses with discount rates equal to the interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. DEPOSIT LIABILITIES The fair values disclosed for noninterest bearing deposits, interest bearing checking accounts, savings accounts and money market accounts are, by definition, equal to the amount payable on demand at the balance sheet date. The carrying value of all variable rate certificates of deposit approximates fair value. The fair value of fixed rate certificates of deposit is estimated using discounted cash flow analyses with discount rates equal to the interest rates currently being offered on certificates of similar size and remaining maturity. SHORT-TERM BORROWINGS, LONG-TERM DEBT AND OTHER FINANCIAL INSTRUMENTS The fair value of all short-term borrowings, long-term debt and other financial instruments approximates the carrying value. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK The Company is a party to financial instruments with off-balance sheet risk. Such financial instruments consist of commitments to extend financing and standby letters of credit. If the commitments are exercised by the prospective borrowers, these financial instruments will become interest earning assets of the Company. If the commitments expire, the Company retains any fees paid by the prospective borrower. The fair value of commitments is estimated based upon fees currently charged to enter into similar agreements, taking into consideration the remaining terms of the agreements and the present credit worthiness of the borrower. For fixed rate commitments, the fair value estimation takes into consideration an interest rate risk factor. The fair value of these off-balance sheet items approximates the recorded amounts of the related fees, which are considered to be immaterial. The Company does not engage in activities involving interest rate swaps, forward placement contracts, or any other instruments commonly referred to as derivatives. 76
Notes to Consolidated Financial Statements (continued) (15) REGULATORY CAPITAL REQUIREMENTS Office of the Comptroller of the Currency (OCC) and the Office of Thrift Supervision (OTS) capital regulations require banks to maintain minimum levels of regulatory capital. Under the regulations in effect at December 31, 2000 and 1999, Trustco Bank was required to maintain a minimum leverage ratio of Tier 1 (leverage) capital to total adjusted quarterly average assets of 4.00% and minimum ratios of Tier 1 capital and total capital to risk weighted assets of 4.00% and 8.00%, respectively. The Federal Reserve Board has adopted similar requirements for the consolidated capital of bank holding companies. The regulations establish a framework for the classification of banks into five categories: well capitalized, adequately capitalized, under capitalized, significantly under capitalized and critically under capitalized. Generally, an institution is considered well capitalized if it has a Tier 1 (leverage) capital ratio of at least 5.0% (based on total adjusted quarterly average assets), a Tier 1 risk-based capital ratio of at least 6.0%, and a total risk-based capital ratio of at least 10.0%. The foregoing capital ratios are based on specific quantitative measures of assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by the regulator about capital components, risk weighting and other factors. Management believes that as of December 31, 2000 and 1999, Trustco Banks and Company met all capital adequacy requirements to which they were subject. Further, the most recent regulator notification categorized the Company as a well capitalized institution. There have been no conditions or events since that notification that management believes have changed the Company's capital classification. Under its prompt corrective action regulations, the regulators are required to take certain supervisory actions (and may take additional discretionary actions) with respect to an undercapitalized institution. Such actions could have a direct material effect on an institution's financial statements. As stated above, the Company has been classified as well capitalized for regulatory purposes, and therefore, these regulations do not apply. The following is a summary of actual capital amounts and ratios as of December 31, 2000 and 1999 for the Company and its principal subsidiary Trustco Bank, National Association: <TABLE> <CAPTION> (dollars in thousands) As of December 31, 2000 _________________________ Amount Ratio _________________________ Tier 1 (leverage) capital: <S> <C> <C> Trustco Bank, NA................... $ 145,325 6.17% TrustCo Bank Corp NY............... 174,267 7.31 Tier 1 risk-based capital: Trustco Bank, NA................... 145,325 12.04 TrustCo Bank Corp NY............... 174,267 14.03 Total risk-based capital: Trustco Bank, NA................... 160,922 13.33 TrustCo Bank Corp NY............... 190,301 15.32 </TABLE> <TABLE> <CAPTION> (dollars in thousands) As of December 31, 1999 _________________________ Amount Ratio _________________________ Tier 1 (leverage) capital: <S> <C> <C> Trustco Bank, NA................... $147,518 6.24% TrustCo Bank Corp NY............... 168,808 7.15 Tier 1 risk-based capital: Trustco Bank, NA................... 147,518 11.95 TrustCo Bank Corp NY............... 168,808 13.55 Total risk-based capital: Trustco Bank, NA................... 163,443 13.24 TrustCo Bank Corp NY............... 184,877 14.84 </TABLE> 77
Notes to Consolidated Financial Statements (continued) (16) PARENT COMPANY ONLY The following statements pertain to TrustCo Bank Corp NY (Parent Company): <TABLE> <CAPTION> STATEMENTS OF INCOME (dollars in thousands) Years Ended December 31, _______________________________ Income: 2000 1999 1998 _______________________________ Dividends and interest <S> <C> <C> <C> from subsidiaries................ $44,361 38,654 30,378 Gain on sale of securities......... 1,872 1,173 862 Income from other investments...... 932 689 453 _______________________________ Total income................... 47,165 40,516 31,693 Expense: Operating supplies................. 92 57 78 Professional services ............. 262 37 17 Miscellaneous expense.............. 2,525 312 107 _______________________________ Total expense.................. 2,879 406 202 _______________________________ Income before income taxes and undistributed net income of subsidiaries......... 44,286 40,110 31,491 Income tax expense.................. 177 523 420 _______________________________ Income before equity in undistributed net income of subsidiaries............. 44,109 39,587 31,071 (Distributions in excess of)/equity in undistributed net income of subsidiaries....................... (2,407) (1,402) 3,944 _______________________________ Net income.......................... $41,702 38,185 35,015 _______________________________ </TABLE> STATEMENTS OF CONDITION <TABLE> <CAPTION> (dollars in thousands) December 31, _______________________ Assets: 2000 1999 _______________________ <S> <C> <C> Cash in subsidiary bank................. $ 18,228 16,990 Investments in subsidiaries............. 156,740 139,316 Securities available for sale........... 37,915 21,066 Other assets............................ 220 212 _______________________ Total assets....................... $213,103 177,584 _______________________ Liabilities and shareholders' equity: Accrued expenses and other liabilities.. $ 17,260 11,228 _______________________ Total liabilities.................. 17,260 11,228 _______________________ Shareholders' equity..................... 195,843 166,356 _______________________ Total liabilities and shareholders' equity............................. $213,103 177,584 </TABLE> STATEMENTS OF CASH FLOWS <TABLE> <CAPTION> (dollars in thousands) Years Ended December 31, _______________________________ 2000 1999 1998 _______________________________ Increase/(decrease) in cash and cash equivalents: Cash flows from operating activities: <S> <C> <C> <C> Net income............................. $ 41,702 38,185 35,015 _______________________________ Adjustments to reconcile net income to net cash provided by operating activities: Distributions in excess of/(equity in undistributed net income) of subsidiaries................. 2,407 1,402 (3,944) Gain on sales of securities......... (1,872) (1,173) (862) Net change in other assets and accrued expenses.................. 1,096 (733) 183 _______________________________ Total adjustments................. 1,631 (504) (4,623) _______________________________ Net cash provided by operating activities.......................... 43,333 37,681 30,392 _______________________________ Cash flows from investing activities: Proceeds from sale of securities available for sale.................. 5,488 3,715 3,530 Purchase of securities available for sale............................ (9,716) (2,385) (1,761) Investment in subsidiary............... (400) -- -- Decrease in noninterest bearing note receivable from subsidiary...... -- -- 1,117 Purchase of Landmark Financial Corp... (3,442) -- -- _______________________________ Net cash provided by/(used in) investing activities............ (8,070) 1,330 2,886 _______________________________ Cash flows from financing activities: Proceeds from exercise of stock options.............................. 1,793 2,580 895 Dividends paid........................ (32,089) (29,570) (25,671) Payments to acquire treasury stock.... (9,704) (15,961) (10,439) Proceeds from sale of treasury stock................................ 5,975 6,992 5,395 _______________________________ Net cash used in financing activities...................... (34,025) (35,959) (29,820) _______________________________ Net increase in cash and cash equivalents...................... 1,238 3,052 3,458 Cash and cash equivalents at beginning of year.................... 16,990 13,938 10,480 _______________________________ Cash and cash equivalents at end of year.......................... $ 18,228 16,990 13,938 _______________________________ Supplemental disclosure of cash flow information: Increase in dividends payable......... $ 1,181 657 930 Change in unrealized (gain)/loss on available for sale securities - gross............................... (10,749) 8,666 (4,591) Change in deferred tax effect on unrealized (gain)/loss on securities available for sale................... 4,391 (3,540) 1,876 _______________________________ </TABLE> 78
TrustCo Bank Corp NY Officers and Board of Directors OFFICERS CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER Robert A. McCormick VICE PRESIDENT AND CHIEF FINANCIAL OFFICER Robert T. Cushing VICE PRESIDENTS Robert J. McCormickNancy A. McNamara SECRETARY Henry C. Collins ASSISTANT SECRETARY William M. McCartan Board of Directors Barton A. Andreoli President Towne Construction and Paving Corp. Robert T. Cushing Senior Vice President and Chief Financial Officer Trustco Bank Joseph Lucarelli President Bellevue Builders Supply Inc. Anthony J. Marinello, M.D., Ph.D. Physician Robert A. McCormick President and Chief Executive Officer Trustco Bank Nancy A. McNamara Senior Vice President Trustco Bank James H. Murphy, D.D.S. Orthodontist Richard J. Murray, Jr. Chief Executive Officer R.J. Murray Co., Inc. Kenneth C. Petersen Retired President Schenectady International, Inc. William D. Powers Chairman New York Republican State Committee William J. Purdy President Welbourne & Purdy Realty, Inc. Directors of TrustCo Bank Corp NY are also Directors of Trustco Banks HONORARY DIRECTORS Lionel O. Barthold John S.Morris, Ph.D. Edwin O. Salisbury M. Norman Brickman William H. Milton, III William F. Terry Caryl P. Haskins, Ph.D. Daniel J. Rourke, M.D. Harry E. Whittingham, Jr. Bernard J. King Anthony M. Salerno 79
Trustco Banks Officers PRESIDENT AND CHIEFEXECUTIVE OFFICER Robert A. McCormick SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER Robert T. Cushing SENIOR VICE PRESIDENT Nancy A. McNamara ADMINISTRATIVE VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY Henry C. Collins ADMINISTRATIVE VICE PRESIDENTS Robert J. McCormick John L. Pritchard William M. McCartan AUDITOR John C. Fay HUMAN RESOURCES ANDQUALITY CONTROL Vice President Cheri J. Parvis BANK AND TRUST OPERATIONS, ACCOUNTING/FINANCE, DATA PROCESSING,PURCHASING, COMPLIANCE Senior Vice President and Chief Financial Officer Robert T. Cushing ACCOUNTING/FINANCE Vice President Linda C. Christensen BANK/TRUST OPERATIONS Vice Presidents Jeffrey S. Farbaniec Ann M. Noble COMPLIANCE Vice President Donald J. Csaposs DATA PROCESSING Vice President Karen A. DeFeo LOAN DIVISION,INSTALLMENT LOANS/CREDIT CARDS, TRUST DEPARTMENT, MARKETING AND COMMUNITY RELATIONS Senior Vice President Nancy A. McNamara COMMERCIAL LOANS Vice President Deborah K. Appel Commercial Loan Officers Patrick M. Canavan Paul R. Steenburgh MORTGAGE LOANS Vice President Eric W. Schreck Officers Robert O. Breton Michael J. Lofrumento INSTALLMENT LOANS/CREDIT CARDS Officer Steven J. Fligg TRUST DEPARTMENT Administrative Vice President William M. McCartan Vice Presidents Patrick S. LaPorta Robert Scribner Trust Officers John P. Fulgan Richard W. Provost Senior Investment Officer Peter L. Gregory Investment Officer Michael E. Barringer MARKETING/COMMUNITY RELATIONS Vice President Robert M. Leonard BRANCH ADMINISTRATION, RETIREMENT/GOVERNMENT ACCOUNTS, PREMISES AND EXPENSE CONTROL Administrative Vice President Robert J. McCormick BRANCH ADMINISTRATION Vice President Scot R. Salvador Officer Thomas M. Poitras PREMISES AND EXPENSE CONTROL Vice President George W. Wickswat TRUSTCO SAVINGS BANK OFFICERS President Gordon E. Coleman Administrative Vice President Robert J. McCormick Vice President and Chief Financial Officer Linda C. Christensen Vice President and Chief Lending Officer Donald J. Csaposs Secretary Henry C. Collins Auditor John C. Fay 80
BRANCH LOCATIONS Altamont Ave. Office 1400 Altamont Ave. Schenectady Telephone: 356-1317 Altamont Ave. West Office 1900 Altamont Ave. Rotterdam Telephone: 355-1900 Bay Road Office 345 Bay Road Queensbury Telephone: 792-2691 Brandywine Office State St. at Brandywine Ave. Schenectady Telephone: 346-4295 * Canajoharie Office 211 Erie Blvd. Canajoharie Telephone: 673-2012 Central Avenue Office 163 Central Ave. Albany Telephone: 426-7291 Clifton Country Road Office 7 Clifton Country Road Clifton Park Telephone: 371-5002 Clifton Park Office 1018 Route 146 Clifton Park Telephone: 371-8451 Cobleskill Office RR #3, Rt. 7 Cobleskill Telephone: 254-0290 Colonie Office 1892 Central Ave. Colonie Plaza, Colonie Telephone: 456-0041 Delmar Office 167 Delaware Ave. Delmar Telephone: 439-9941 East Greenbush Office 501 Columbia Turnpike Rensselaer Telephone: 479-7233 Exit 8/Crescent Rd. Office CVS Plaza Clifton Park Telephone: 383-0039 Glens Falls Office 3 Warren Street Glens Falls Telephone: 798-8131 Greenwich Office 131 Main St. Greenwich Telephone: 692-2233 Guilderland Office 3900 Carman Road Schenectady Telephone: 355-4890 Halfmoon Office Country Dollar Plaza Halfmoon Telephone: 371-0593 Hoosick Falls Office 47 Main St. Hoosick Falls Telephone: 686-5352 Hudson Office 507 Warren St. Hudson Telephone: 828-9434 Hudson Falls Office 3376 Burgoyne Avenue Hudson Falls Telephone: 747-0886 Latham Office 1 Johnson Road Latham Telephone: 785-0761 Loudon Plaza Office 372 Northern Blvd. Albany Telephone: 462-6668 Madison Avenue Office 1084 Madison Ave. Albany Telephone: 489-4711 Main Office 320 State St. Schenectady Telephone: 377-3311 Malta 4 Corners Office 2471 Route 9 Malta Telephone: 899-1056 Malta Mall Office 43 Round Lake Road Ballston Lake Telephone: 899-1558 Mayfair Office 286 Saratoga Road Glenville Telephone: 399-9121 Mechanicville Office 9 Price Chopper Plaza Mechanicville Telephone: 664-1059 Milton Office 2 Trieble Ave. Ballston Spa Telephone: 885-0498 Mont Pleasant Office Crane St. at Main Ave. Schenectady Telephone: 346-1267 New Scotland Office 301 New Scotland Ave. Albany Telephone: 438-7838 Newton Plaza Office 588 New Loudon Road Latham Telephone: 786-3687 Niskayuna-Woodlawn Office 3461 State St. Schenectady Telephone: 377-2264 Plaza Seven Office 1208 Troy-Schenectady Road Latham Telephone: 785-4744 Queensbury Office 118 Quaker Road Suite 9, Queensbury Telephone: 798-7226 Rotterdam Office Curry Road Shopping Ctr. Rotterdam Telephone: 355-8330 Rotterdam Square Office 93 W. Campbell Road Rotterdam Telephone: 377-2393 Route 9 Office - Latham 754 New Loudon Rd. Latham Telephone: 786-8816 Sheridan Plaza Office 1350 Gerling St. Schenectady Telephone: 377-8517 Shoppers' World Office Old Rte. 146 and Plank Rd. Clifton Park Telephone: 383-6850 South Glens Falls Office Glengate Shopping Plaza 133 Saratoga Road, Suite 1 South Glens Falls Telephone: 793-7668 State Farm Road Office 2050 Western Ave. Guilderland Telephone: 452-6913 State Street Office 112 State St. Albany Telephone: 436-9043 Stuyvesant Plaza Office Western Ave. at Fuller Road Albany Telephone: 489-2616 Tanners Main Office 345 Main Street Catskill Telephone: 943-2500 Tanners West Side Office 238 West Bridge St. Catskill Telephone: 943-5090 Troy Office 5th Ave. and State St. Troy Telephone: 274-5420 Union Street East Office 1700 Union St. Schenectady Telephone: 382-7511 Upper New Scotland Office 583 New Scotland Ave. Albany Telephone: 438-6611 Upper Union Street Office 1620 Union St. Schenectady Telephone: 374-4056 Ushers Road Office 308 Ushers Road Ballston Lake Telephone: 877-8069 West Sand Lake Office 3707 NYRt. 43 West Sand Lake Telephone: 674-3327 Wilton Mall Office Route 50 Saratoga Springs Telephone: 583-1716 Wolf Road Office 34 Wolf Road Albany Telephone: 458-7761 Wynantskill Office 134-136 Main Street, Rt. 66 Wynantskill Telephone: 286-2674 *Trustco Savings Bank Branch 81
GENERAL INFORMATION ANNUAL MEETING Monday, May 14, 2001 10:00 AM TrustCo Bank Corp NY 192 Erie Boulevard Schenectady,NY 12305-1808 CORPORATE HEADQUARTERS P.O. Box 380 Schenectady, New York 12301-0380 (518-377-3311) DIVIDEND REINVESTMENT PLAN A Dividend Reinvestment Plan is available to shareholders of TrustCo Bank Corp NY. It provides for the reinvestment of cash dividends and optional cash payments to purchase additional shares of TrustCo stock. The Plan is free of administrative charges, and provides a convenient method of acquiring additional shares. Trustco Bank acts as administrator for this service, and is the agent for shareholders in these transactions. Shareholders who want additional information may contact the TrustCo Shareholder Services Department (518-381-3601). DIRECT DEPOSIT OF DIVIDENDS Electronic deposit of dividends, which offers safety and convenience, is available to TrustCo shareholders who wish to have dividends deposited directly to personal checking, savings or other accounts. Electing direct deposit will not affect the mailing of annual and quarterly reports and proxy materials. If you would like to arrange direct deposit, please write the TrustCo Shareholder Services Department at the corporate headquarters address listed on this page. DUPLICATE MAILING NOTIFICATION If you are a shareholder of record and are currently receiving multiple copies of TrustCo's annual and quarterly reports, please contact the TrustCo Shareholder Services Department at (518) 381-3601, or at the corporate headquarters address listed on this page. EQUAL OPPORTUNITY AT TRUSTCO Trustco Bank is an Affirmative Action Equal Opportunity Employer. FORM 10-K TrustCo Bank Corp NY will provide, without charge, a copy of its Form 10-K upon written request. Requests and related inquiries should be directed to Henry C. Collins, Secretary, TrustCo Bank Corp NY, P.O. Box 380, Schenectady, New York 12301-0380. NASDAQ SYMBOL: TRST The Corporation's common stock trades on The Nasdaq Stock MarketSM under the symbol TRST. SUBSIDIARIES: Trustco Bank, National Association Schenectady, New York Member FDIC Trustco Financial Corp and its Subsidiary Trustco Savings Bank. Canajoharie, NY Member FDIC ORE Subsidiary Corp. Schenectady, New York Trustco Realty Corp Schenectady, New York TRANSFER AGENT Trustco Bank Securities Department P.O. Box 380 Schenectady, New York 12301-0380 Trustco Bank is a registered service mark with the U.S. Patent & Trademark Office. 82
Exhibits Exhibit 21 LIST OF SUBSIDIARIES OF TRUSTCO Trustco Bank, National Association. Nationally chartered banking association ORE Subsidiary Corp. New York corporation Trustco Realty Corp. New York corporation (Subsidiary of Trustco Bank, National Association) Trustco Financial Corp Delaware corporation Trustco Savings Bank Federally chartered (Subsidiary of Trustco Financial Corp) banking association Each subsidiary does business under its own name. The activities of each are described in Part I, Item 1 of Form 10-K. 83
Exhibits Exhibit 23 KPMG, LLP 515 Broadway Albany, NY 12207 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS The Board of Directors TrustCo Bank Corp NY: We consent to incorporation by reference in the Registration Statements, Form S-8 (No. 33-43153), Form S-8 (No. 33-67176), Form S-8 (No. 333-78811), and Form S-3 (No. 333-75035), of TrustCo Bank Corp NY and subsidiaries, of our report dated January 19, 2001, relating to the consolidated statements of condition of TrustCo Bank Corp NY and subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of income, changes in shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 2000, which report appears in the December 31, 2000 Annual Report on Form 10-K of TrustCo Bank Corp NY. /s/ KPMG LLP March 23, 2001 84
Exhibits Exhibit 24 POWER OF ATTORNEY The undersigned persons do hereby appoint Henry C. Collins or Robert T. Cushing as a true and lawful Attorney In Fact for the sole purpose of affixing their signatures to the 2000 Annual Report (Form 10-K) of TrustCo Bank Corp NY to the Securities and Exchange Commission. /s/Barton A. Andreoli /s/Lionel O. Barthold __________________________ _____________________ Barton A. Andreoli Lionel O. Barthold /s/Robert T. Cushing /s/Joseph Lucarelli ___________________________ _____________________ Robert T. Cushing Joseph Lucarelli /s/Anthony J. Marinello /s/Robert A. McCormick __________________________ _____________________ Dr. Anthony J. Marinello Robert A. McCormick /s/Nancy A. McNamara /s/James H. Murphy __________________________ __________________________ Nancy A. McNamara Dr. James H. Murphy /s/Richard J. Murray, Jr. /s/ Kenneth C. Petersen _____________________ __________________________ Richard J. Murray, Jr. Kenneth C. Petersen /s/William D. Powers /s/William J. Purdy _____________________ __________________________ William D. Powers William J. Purdy Sworn to before me this 20th day of February 2001. /s/Joan Clark - ------------------------- Notary Public Joan Clark Notary Public, State of New York Qualified in Albany County No. 01CL4822282 Commission Expires Nov. 30, 2002 85