-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RQWXZbfZyLoiKXZKYcYm/GwIMSkOAdNCuwlUBfmI/RBKPTqaPoVYBf+ovbenIHC1 oiS14iKqUWFQafcqmJ74kw== 0000906197-05-000084.txt : 20051107 0000906197-05-000084.hdr.sgml : 20051107 20051107111037 ACCESSION NUMBER: 0000906197-05-000084 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20050930 FILED AS OF DATE: 20051107 DATE AS OF CHANGE: 20051107 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRUSTCO BANK CORP N Y CENTRAL INDEX KEY: 0000357301 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 141630287 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-10592 FILM NUMBER: 051182445 BUSINESS ADDRESS: STREET 1: 5 SARNOWSKI DRIVE CITY: GLENVILLE STATE: NY ZIP: 12302 BUSINESS PHONE: 5183773311 MAIL ADDRESS: STREET 1: 5 SARNOWSKI DRIVE CITY: GLENVILLE STATE: NY ZIP: 12302 10-Q 1 trst-10q.txt FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended Commission File Number 0-10592 September 30, 2005 TRUSTCO BANK CORP NY (Exact name of registrant as specified in its charter) NEW YORK 14-1630287 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 5 SARNOWSKI DRIVE, GLENVILLE, NEW YORK 12302 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (518) 377-3311 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 whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes (x) No ( ). Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ( ) No (x). Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Number of Shares Outstanding Class of Common Stock as of October 31, 2005 --------------------------- ---------------------- $1 Par Value 74,898,885 TrustCo Bank Corp NY INDEX
PAGE NO. -------- Part I. FINANCIAL INFORMATION Item 1. Interim Financial Statements (Unaudited): Consolidated 1 Statements of Income for the Three Months and Nine Months Ended September 30, 2005 and 2004 Consolidated Statements of Financial Condition as of September 2 30, 2005 and December 31, 2004 Consolidated Statements of Cash Flows for the Nine Months Ended 3 - 4 September 30, 2005 and 2004 Notes to Consolidated Interim Financial Statements 5 - 11 Report of Independent Registered Public Accounting Firm 12 Item 2. Management's Discussion and Analysis of Financial Condition and 13 - 30 Results of Operations Item 3. Quantitative and Qualitative Disclosures About Market Risk 31 Item 4. Controls and Procedures 31 - 32 Part II. OTHER INFORMATION Item 1. Legal Proceedings 33 Item 2. Unregistered Sales of Equity Securities and Use 33 of Proceeds Item 3. Defaults Upon Senior Securities 33 Item 4. Submissions of Matters to a Vote of Security Holders 33 Item 5. Other Information 33 Item 6. Exhibits and Reports on Form 8-K 34
TRUSTCO BANK CORP NY Consolidated Statements of Income (Unaudited) (dollars in thousands, except per share data)
3 Months Ended 9 Months Ended September 30, September 30, 2005 2004 2005 2004 ------- ------- -------- -------- Interest and dividend income: Interest and fees on loans $22,225 18,644 63,195 55,854 Interest on U. S. Treasuries and agencies 9,440 9,926 24,779 30,653 Interest on states and political subdivisions 1,422 2,071 4,911 6,582 Interest on mortgage-backed securities and collateralized mortgage obligations 2,571 2,066 7,272 4,916 Interest and dividends on other securities 256 446 658 1,262 Interest on federal funds sold and other short term investments 2,519 1,798 9,519 4,198 ------- ------- -------- -------- Total interest income 38,433 34,951 110,334 103,465 ------- ------- -------- -------- Interest expense: Interest on deposits: Interest-bearing checking 311 408 1,078 1,193 Savings 1,545 2,042 4,752 5,947 Money market deposit accounts 1,002 326 2,013 1,154 Time deposits 8,105 6,765 22,637 19,648 Interest on short-term borrowings 537 254 1,350 633 Interest on long-term debt 1 2 4 7 ------- ------- -------- -------- Total interest expense 11,501 9,797 31,834 28,582 ------- ------- -------- -------- Net interest income 26,932 25,154 78,500 74,883 Provision (credit) for loan losses (1,680) 150 (4,760) 450 ------- ------- -------- -------- Net interest income after provision for loan losses 28,612 25,004 83,260 74,433 ------- ------- -------- -------- Noninterest income: Trust department income 1,520 1,406 4,476 4,405 Fees for other services to customers 2,787 2,510 7,878 7,805 Net gain on securities transactions 776 4,620 5,683 12,394 Other 2,019 454 4,103 1,482 ------- ------- -------- -------- Total noninterest income 7,102 8,990 22,140 26,086 ------- ------- -------- -------- Noninterest expenses: Salaries and employee benefits 5,126 4,975 15,420 15,437 Net occupancy expense 1,787 1,464 5,542 4,968 Equipment expense 638 382 2,029 1,322 Professional services 628 900 2,404 2,657 Outsourced Services 1,015 1,121 3,043 3,298 Other real estate expenses / (income) (237) (111) (631) (332) Other 2,524 2,752 7,627 8,340 ------- ------- -------- -------- Total noninterest expenses 11,481 11,483 35,434 35,690 ------- ------- -------- -------- Income before taxes 24,233 22,511 69,966 64,829 Income taxes 8,514 7,298 24,355 21,112 ------- ------- -------- -------- Net income $15,719 15,213 45,611 43,717 ======= ======= ======== ======== Net income per Common Share: - Basic $ 0.210 0.205 0.608 0.589 ======= ======= ======== ======== - Diluted $ 0.208 0.203 0.605 0.582 ======= ======= ======== ========
See accompanying notes to unaudited consolidated interim financial statements. 1 TRUSTCO BANK CORP NY Consolidated Statements of Financial Condition (Unaudited) (dollars in thousands, except per share data)
09/30/05 12/31/04 ---------- --------- ASSETS: Cash and due from banks $ 51,410 54,222 Federal funds sold and other short term investments 242,898 642,208 ---------- --------- Total cash and cash equivalents 294,308 696,430 Securities available for sale: U. S. Treasuries and agencies 744,633 517,561 States and political subdivisions 118,915 154,939 Mortgage-backed securities and collateralized mortgage obligations 217,908 201,623 Other 17,812 21,866 ---------- --------- Total securities available for sale 1,099,268 895,989 ---------- --------- Loans: Commercial 207,971 201,742 Residential mortgage loans 991,706 833,697 Home equity line of credit 192,916 191,242 Installment loans 6,199 13,749 ---------- --------- Total loans 1,398,792 1,240,430 ---------- --------- Less: Allowance for loan losses 46,665 49,384 Unearned income 437 365 ---------- --------- Net loans 1,351,690 1,190,681 Bank premises and equipment 21,056 22,479 Other assets 62,493 58,255 ---------- --------- Total assets $2,828,815 2,863,834 ========== ========= LIABILITIES: Deposits: Demand $ 247,664 237,423 Interest-bearing checking 308,136 336,538 Savings accounts 743,233 820,593 Money market deposit accounts 160,097 155,299 Certificates of deposit (in denominations of $100,000 or more) 203,645 178,021 Time deposits 821,598 799,228 ---------- --------- Total deposits 2,484,373 2,527,102 Short-term borrowings 81,266 77,979 Long-term debt 94 114 Accrued expenses and other liabilities 33,421 32,807 ---------- --------- Total liabilities 2,599,154 2,638,002 ---------- --------- SHAREHOLDERS' EQUITY: Capital stock par value $1; 100,000,000 shares authorized, and 82,119,360 and 81,727,754 shares issued September 30, 2005 and December 31, 2004, respectively 82,120 81,728 Surplus 115,679 114,218 Undivided profits 101,894 90,018 Accumulated other comprehensive income: Net unrealized (loss) gain on securities available for sale (1,712) 4,459 Treasury stock at cost - 7,380,350 and 7,187,784 shares at September 30, 2005 and December 31, 2004, respectively (68,320) (64,591) ---------- --------- Total shareholders' equity 229,661 225,832 ---------- --------- Total liabilities and shareholders' equity $2,828,815 2,863,834 ========== =========
See accompanying notes to unaudited consolidated interim financial statements. 2 TRUSTCO BANK CORP NY Consolidated Statements of Cash Flows (Unaudited) (dollars in thousands)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS NINE MONTHS ENDED September 30, 2005 2004 --------- --------- Cash flows from operating activities: Net income $ 45,611 43,717 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,015 1,296 Gain on sale of other real estate owned (690) (461) (Credit) provision for loan losses (4,760) 450 Deferred tax expense 1,994 2,485 (Gain) loss on sale of premises and equipment (595) 55 Net gain on sale of securities available for sale (5,683) (12,394) Decrease/(increase) in taxes receivable 5,616 (7,340) (Increase)/decrease in interest receivable (3,185) 360 Increase/(decrease) in interest payable 322 (8) (Increase)/decrease in other assets (4,512) 12,364 Increase/(decrease) in accrued expenses and other liabilities 235 (7,496) --------- --------- Total adjustments (9,243) (10,689) --------- --------- Net cash provided by operating activities 36,368 33,028 --------- --------- Cash flows from investing activities: Proceeds from sales and calls of securities available for sale 250,312 932,618 Purchase of securities available for sale (459,810) (819,296) Proceeds from maturities of securities available for sale 1,636 668 Net increase in loans (156,305) (26,941) Proceeds from dispositions of real estate owned 690 461 Proceeds from dispositions of bank premises and equipment 2,226 23 Purchases of bank premises and equipment (2,223) (1,882) --------- --------- Net cash (used in)/provided by investing activities (363,474) 85,651 --------- --------- Cash flows from financing activities: Net (decrease)/increase in deposits (42,729) 72,993 Increase/(decrease) in short-term borrowings 3,287 (3,575) Repayment of long-term debt (20) (119) Proceeds from exercise of stock options 2,324 5,270 Proceeds from sale of treasury stock 8,929 5,883 Purchase of treasury stock (13,129) (12,978) Dividends paid (33,678) (33,369) --------- --------- Net cash (used in)/provided by financing activities (75,016) 34,105 --------- --------- Net (decrease)/increase in cash and cash equivalents (402,122) 152,784 Cash and cash equivalents at beginning of period 696,430 411,682 --------- --------- Cash and cash equivalents at end of period $ 294,308 564,466 ========= =========
See accompanying notes to unaudited consolidated interim financial statements. (Continued) 3 TRUSTCO BANK CORP NY Consolidated Statements of Cash Flows Continued (Unaudited) (dollars in thousands)
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: NINE MONTHS ENDED September 30, 2005 2004 --------- --------- Interest paid 31,512 28,590 Income taxes paid 17,224 3,384 Transfer of loans to real estate owned 56 -- Increase in dividends payable 57 10 Change in unrealized gain on securities available for sale-gross of deferred taxes (10,265) (18,482) Change in deferred tax effect on unrealized gain on securities available for sale 4,095 7,370
See accompanying notes to unaudited consolidated interim financial statements. 4 TrustCo Bank Corp NY Notes to Consolidated Interim Financial Statements (Unaudited) 1. Financial Statement Presentation The unaudited Consolidated Interim Financial Statements of TrustCo Bank Corp NY ("TrustCo" or the "Company") include the accounts of the subsidiaries after elimination of all significant intercompany accounts and transactions. In the opinion of the management of the Company, the accompanying unaudited Consolidated Interim Financial Statements contain all adjustments necessary to present fairly the financial position as of September 30, 2005, the results of operations for the three months and nine months ended September 30, 2005 and 2004, and cash flows for the nine months ended September 30, 2005 and 2004. The accompanying Consolidated Interim Financial Statements should be read in conjunction with the TrustCo Bank Corp NY year-end Consolidated Financial Statements, including notes thereto, which are included in TrustCo Bank Corp NY's 2004 Annual Report to Shareholders on Form 10K. 2. Earnings Per Share A reconciliation of the component parts of earnings per share for the three and nine month periods ended September 30, 2005 and 2004 follows:
(In thousands, Net Weighted Average Shares Per Share except per share data) Income Outstanding Amounts ------- ----------------------- ------- For the quarter ended September 30, 2005: Basic EPS: Net income available to Common shareholders $15,719 74,931 $0.210 Effect of Dilutive Securities: Stock options -- 509 (.002) ------- ------ ------ Diluted EPS $15,719 75,440 $0.208 ======= ====== ====== For nine months ended September 30, 2005: Basic EPS: Net income available to Common shareholders $45,611 74,958 $0.608 Effect of Dilutive Securities: Stock options -- 475 (.003) ------- ------ ------ Diluted EPS $45,611 75,433 $0.605 ======= ====== ======
There were 517,720 stock options which, if included, would have been antidilutive in the calculation of average shares outstanding as of September 30, 2005 and were therefore excluded from the earnings per share calculations. 5 TrustCo Bank Corp NY Notes to Consolidated Interim Financial Statements (unaudited) continued
(In thousands, Net Weighted Average Shares Per Share except per share data) Income Outstanding Amounts ------- ----------------------- ------- For the quarter ended September 30, 2004: Basic EPS: Net income available to Common shareholders $15,213 74,244 $0.205 Effect of Dilutive Securities: Stock options -- 736 (0.002) ------- ------ ------- Diluted EPS $15,213 74,980 $0.203 ======= ====== ======= For nine months ended September 30, 2004: Basic EPS: Net income available to Common shareholders $43,717 74,242 $0.589 Effect of Dilutive Securities: Stock options -- 817 (0.007) ------- ------ ------- Diluted EPS $43,717 75,059 $0.582 ======= ====== =======
There were no antidilutive stock options as of September 30, 2004. 3. Stock Option Plans The Company has stock option plans for officers and directors and has adopted the disclosure only provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (Statement 123) and Statement of Financial Accounting Standards No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure" (Statement 148). The Company's stock option plans are accounted for in accordance with the provisions of 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 because the exercise price is equal to the fair market value on the date of grant. Had compensation expense for the Company's stock option plans been determined consistent with Statement 123, the Company's net income and earnings per share for the periods ended September 30, 2005 and 2004 would have been as follows: 6 TrustCo Bank Corp NY Notes to Consolidated Interim Financial Statements (unaudited) continued
(dollars in thousands except per share data) Three Months Ended Nine Months Ended September 30, September 30, 2005 2004 2005 2004 ------- ------- ------- ------- Net income: As reported $15,719 15,213 45,611 43,717 Deduct: total stock-based compensation expense determined under fair value based method for all awards, net of related tax effects (191) (165) (573) (496) ------- ------- ------- ------- Pro forma net income $15,528 15,048 45,038 43,221 ======= ======= ======= ======= Earnings per share: Basic - as reported $ .210 .205 .608 .589 Basic - pro forma .207 .203 .601 .582 Diluted - as reported .208 .203 .605 .582 Diluted - pro forma .206 .201 .597 .576
The weighted average fair value of each option as of the grant date was estimated using the Black-Scholes pricing model, and calculated in accordance with Statement 123. 7 TrustCo Bank Corp NY Notes to Consolidated Interim Financial Statements (unaudited) continued 4. Comprehensive Income Comprehensive income includes the reported net income of a company adjusted for items that are accounted for as direct entries to equity, such as the mark to market adjustment on securities available for sale, foreign currency items, minimum pension liability adjustments, and certain derivative gains and losses. At the Company, comprehensive income represents the sum of net income and items of other comprehensive income or loss, which are reported directly in shareholders' equity, net of tax, such as the change in net unrealized gain or loss on securities available for sale. Accumulated other comprehensive income or loss, which is a component of shareholders' equity, represents the net unrealized gain or loss on securities available for sale, net of tax. Comprehensive income for the three month periods ended September 30, 2005 and 2004 was $9,680,000 and $21,219,000, respectively, and $39,440,000 and $32,605,000 for the nine month periods ended September 30, 2005 and 2004, respectively The following summarizes the components of other comprehensive income (loss):
(dollars in thousands) Three months ended September 30 2005 2004 ------- ------ Unrealized holding gains (losses) arising during period, net of tax (pre-tax loss of $9,260 for 2005 and pre-tax gain of $14,588 for 2004) $(5,572) 8,785 Reclassification adjustment for net gain realized in net income during the period, net of tax (pre-tax gains of $776 for 2005 and $4,620 for 2004) (467) (2,779) ------- ------ Other comprehensive (loss) income $(6,039) 6,006 ======= ======
(dollars in thousands) Nine months ended September 30 2005 2004 ------- ------- Unrealized holding losses arising during period, net of tax (pre-tax loss of $4,582 for 2005 and pre-tax loss of $6,088 for 2004) $(2,753) (3,657) Reclassification adjustment for net gain realized in net income during the period, net of tax (pre-tax gains of $5,683 for 2005 and $12,394 for 2004) (3,418) (7,455) ------- ------- Other comprehensive loss $(6,171) (11,112) ======= =======
8 TrustCo Bank Corp NY Notes to Consolidated Interim Financial Statements (unaudited) continued 5. Benefit Plans The table below outlines the component's of the Company's net periodic expense (benefit) recognized during the three and nine month periods ended September 30, 2005 and 2004 for its pension and other postretirement benefit plans: Components of Net Periodic Expense/(Benefit) for the three months ended September 30,
Pension Benefits Other Postretirement Benefits 2005 2004 2005 2004 ------ ---- ---- ---- Service cost $ 201 216 13 1 Interest cost 380 410 23 8 Expected return on plan assets (473) (348) (101) (58) Amortization of prior service cost 26 38 (136) (114) ------ ---- ---- ---- Net periodic expense/(benefit) $ 134 316 (201) (163) ====== ==== ==== ====
Components of Net Periodic Expense/(Benefit) for the nine months ended September 30,
Pension Benefits Other Postretirement Benefits 2005 2004 2005 2004 ------ ------ ---- ---- Service cost $ 603 648 32 3 Interest cost 1,139 1,230 59 24 Expected return on plan assets (1,376) (1,207) (303) (305) Amortization of prior service cost 79 114 (395) (342) ------ ------ ---- ---- Net periodic expense/(benefit) $ 445 785 (607) (620) ====== ====== ==== ====
Contributions The Company previously disclosed in its consolidated financial statements for the year ended December 31, 2004, that it did not expect to make any contributions to its pension and postretirement benefit plans in 2005. As of September 30, 2005, no contributions have been made. The Company presently anticipates that it will not make any contributions in 2005. 9 TrustCo Bank Corp NY Notes to Consolidated Interim Financial Statements (unaudited) continued 6. Impact of Changes in Accounting Standards In December 2003, the Accounting Standards Executive Committee ("AcSEC") issued Statement of Position ("SOP") 03-3, "Accounting for Certain Loans or Debt Securities Acquired in a Transfer." The SOP is effective for loans acquired in fiscal years beginning after December 15, 2004. The SOP addresses accounting for differences between contractual cash flows and cash flows expected to be collected from an investor's initial investment in loans or debt securities (loans) acquired in a transfer if those differences are attributable, at least in part, to credit quality. The SOP applies to loans acquired in business combinations but does not apply to originated loans. During the first quarter of 2005, the Company implemented the provisions of this SOP. This implementation did not have a material impact on the Company's financial condition or results of operations. In December 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the "Act") became law in the United States. The Act introduced a prescription drug benefit under Medicare as well as a federal subsidy to sponsors of retiree health care benefit plans that provide a benefit that is at least actuarially equivalent to Medicare Part D under the Act. In accordance with FASB Staff Position FAS 106-2, "Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003," the Company has elected to defer recognition of the effects of the Act in any measures of the benefit obligation or cost. The Company is still analyzing the specific authoritative guidance on the accounting for the federal subsidy, which was issued in January 2005, but the Company anticipates that, in order to make the plan actuarially equivalent, it will make minor changes to its non-pension postretirement plan. Accordingly, the measures of the accumulated non-pension postretirement benefit obligation and net periodic non-pension postretirement benefit cost do not reflect any amount associated with the subsidy. In December 2004, the FASB issued revised statement No. 123 ("FAS 123R"), "Share-Based Payment," which requires companies to expense the estimated grant-date fair value of employee stock options and similar awards. In April 2005, the effective date of the accounting provisions of FAS 123R were delayed from July 1, 2005 to January 2006 for public companies like TrustCo. The Company will adopt the provisions of FAS 123R using a modified prospective application. Under modified prospective application, FAS 123R will apply to new awards and to awards that are outstanding on the effective date and are subsequently modified or cancelled. Compensation expense for outstanding awards for which the requisite service had not been rendered as of the effective date will be recognized over the remaining service period using the compensation cost calculated for pro forma disclosure purposes under FAS 123. The Company will incur additional expense beginning in the first quarter of 2006 related to new awards granted and the unvested portions of earlier awards. The Company is in the process of determining the impact the recognition of compensation expense related to stock awards will have on its consolidated financial statements. 10 TrustCo Bank Corp NY Notes to Consolidated Interim Financial Statements (unaudited) continued 7. Guarantees The Company does not issue any guarantees that would require liability-recognition or disclosure, other than its standby letters of credit. Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Standby letters of credit generally arise in connection with lending relationships. The credit risk involved in issuing these instruments is essentially the same as that involved in extending loans to customers. Contingent obligations under standby letters of credit totaled approximately $3.6 million at September 30, 2005 and represent the maximum potential future payments the Company could be required to make. Typically, these instruments have terms of twelve months or less and expire unused; therefore, the total amounts do not necessarily represent future cash requirements. Each customer is evaluated individually for creditworthiness under the same underwriting standards used for commitments to extend credit and on-balance sheet instruments. Company policies governing loan collateral apply to standby letters of credit at the time of credit extension. Loan-to-value ratios are generally consistent with loan-to-value requirements for other commercial loans secured by similar types of collateral. The fair value of the Company's standby letters of credit at September 30, 2005 was insignificant. 11 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors and Shareholders TrustCo Bank Corp NY: We have reviewed the consolidated statement of financial condition of TrustCo Bank Corp NY and subsidiaries (the Company) as of September 30, 2005, the related consolidated statements of income for the three and nine month periods ended September 30, 2005 and 2004 and the related consolidated statements of cash flows for the nine month periods ended September 30, 2005 and 2004. These consolidated financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the consolidated financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States of America. We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated statement of financial condition of TrustCo Bank Corp NY and subsidiaries as of December 31, 2004, and the related consolidated statements of income, changes in shareholders' equity, and cash flows for the year then ended (not presented herein); and in our report dated March 8, 2005, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated statement of financial condition as of December 31, 2004 is fairly stated, in all material respects, in relation to the consolidated statement of financial condition from which it has been derived. /s/ KPMG LLP - ------------ KPMG LLP Albany, New York November 7, 2005 12 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The review that follows focuses on the factors affecting the financial condition and results of operations of TrustCo Bank Corp NY ("TrustCo" or "Company") during the three month and nine month periods ended September 30, 2005, with comparisons to 2004 as applicable. Net interest income and net interest margin are presented on a fully taxable equivalent basis in this discussion. The consolidated interim financial statements and related notes, as well as the 2004 Annual Report to Shareholders should be read in conjunction with this review. Amounts in prior period consolidated interim financial statements are reclassified whenever necessary to conform to the current period's presentation. Forward-looking Statements Statements included in this review and in future filings by TrustCo with the Securities and Exchange Commission, in TrustCo's press releases, and in oral statements made with the approval of an authorized executive officer, which are not historical or current facts, are "forward-looking statements" made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, and are subject to certain risks and uncertainties that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. TrustCo wishes to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. The following important factors, among others, in some cases have affected and in the future could affect TrustCo's actual results, and could cause TrustCo's actual financial performance to differ materially from that expressed in any forward-looking statement: (1) credit risk, (2) interest rate risk, (3) competition, (4) changes in the regulatory environment, and (5) changes in general business and economic trends. The foregoing list should not be construed as exhaustive, and the Company disclaims any obligation to subsequently revise any forward-looking statements to reflect events or circumstances after the date of such statements, or to reflect the occurrence of anticipated or unanticipated events. Following this discussion is the table "Distribution of Assets, Liabilities and Shareholders' Equity: Interest Rates and Interest Differential" which gives a detailed breakdown of TrustCo's average interest earning assets and interest bearing liabilities for the three months and nine months ended September 30, 2005 and 2004. Overview TrustCo recorded net income of $15.7 million, or $0.208 of diluted earnings per share for the three months ended September 30, 2005, as compared to net income of $15.2 million or $0.203 of diluted earnings per share in the same period in 2004. For the nine month period ended September 30, 2005, TrustCo recorded net income of $45.6 million, or $0.605 of diluted earnings per share, as compared to $43.7 million, or $0.582 of diluted earnings per share for the comparable period in 2004. 13 TrustCo Bank Corp NY Management's Discussion and Analysis - continued September 30, 2005 The primary factors accounting for the year to date increases are: - A $36.7 million increase in the average balance of interest earning assets between 2004 and 2005, - An increase in the net interest margin from 3.85% for 2004 to 3.92% for 2005, and, - A reduction in the provision for loan losses from $450 thousand expense in 2004 to $4.8 million credit in 2005. Offsetting these positive factors affecting the year to date net income for 2005 was a reduction of $3.9 million in noninterest income from $26.1 million for the nine months of 2004 to $22.1 million for the comparable period in 2005. Also the Company's effective tax rate increased to 34.8% for 2005 compared to 32.6% for 2004. Asset/Liability Management The Company strives to generate superior earnings capabilities through a mix of core deposits, funding a prudent mix of earning assets. This is, in its most fundamental form, the essence of asset/liability management. Additionally, TrustCo attempts to maintain adequate liquidity and reduce the sensitivity of net interest income to changes in interest rates to an acceptable level while enhancing profitability both on a short-term and long- term basis. The following Management's Discussion and Analysis for the third quarter and first nine months of 2005 compared to the comparable periods in 2004 is affected by the change in interest rates in the marketplace in which TrustCo competes. Included in the 2004 Annual Report to Shareholders is a description of the effect interest rates had on the results for the year 2004 compared to 2003. Most of the same market factors discussed in the 2004 Annual Report also had a significant impact on 2005 results. TrustCo competes with other financial service providers based upon many factors including quality of service, convenience of operations, and rates paid on deposits and charged on loans. The absolute level of interest rates, changes in rates and customers' expectations with respect to the direction of interest rates have a significant impact on the volume of loan and deposit originations in any particular period. One of the most important interest rates used to control national economic policy is the "federal funds" rate. This is the interest rate utilized for institutions with the highest credit quality rating. The federal funds rate increased by 150 basis points during the first nine months of 2005 from 2.25% at the beginning of the year to 3.75% by September 30, 2005. For 2004 the federal funds rates was 1.00% at the beginning of that year and increased to 1.75% by September 30, 2004. During the first nine months of 2005 the 10 year treasury bond did not change consistently with the increase in the federal funds rate. The 10 year treasury was 4.22% as of year end 2004 and increased 14 TrustCo Bank Corp NY Management's Discussion and Analysis - continued September 30, 2005 slightly to 4.32% by the end of the third quarter of 2005. For comparison purposes the 10 year treasury was 4.25% at the beginning of 2004 and ended the third quarter down 13 basis points to 4.12%. The Federal Reserve has indicated its intention to continue to monitor economic expansion in the United States economy which may require additional increases in the federal funds rate subsequent to September 30, 2005. These changes in interest rates have an effect on the Company relative to the interest income on loans, securities and federal funds sold as well as on interest expense on deposits and borrowings. Residential real estate loans and longer-term investments are most affected by the changes in longer term market interest rates such as the 10 year treasury. The federal funds sold portfolio and other short term investments are affected primarily by changes in the federal funds target rate. Deposit interest rates are most affected by the short term market interest rates. Also, changes in interest rates have an effect on the recorded balance of the securities available for sale portfolio, which is recorded at market value. Generally, as interest rates increase, the market value of the securities available for sale portfolio will decrease. The principal loan product for TrustCo is residential real estate loans. Interest rates on new residential real estate loan originations are influenced by the rates established by secondary market participants such as Freddie Mac and Fannie Mae. Because TrustCo is a portfolio lender and does not sell loans into the secondary market, the Company establishes rates that management determines are appropriate in relation to the long-term nature of a residential real estate loan, while remaining competitive with the secondary market rates. For the third quarter of 2005, the net interest margin increased to 4.03% from 3.83% for the third quarter of 2004. The quarterly results reflect the following significant factors: - The average balance of securities available for sale increased by $15.9 million and the average yield decreased to 5.27%. - The average balance of federal funds sold and other short term investments decreased by $204.0 million and the average yield increased 195 basis points to 3.38%. The increase in yield on federal funds sold and other short-term investments is attributable to the increase in the target federal funds rate during these time periods. - The loan portfolio grew by $188.6 million to $1.36 billion and the average yield increased 16 basis points to 6.51%. - The average balance of interest bearing liabilities (primarily deposit accounts) decreased $48.0 million and the average yield increased 31 basis points to 1.95%. These changes resulted in a net interest margin increase of 20 basis points from 3.83% for the third quarter of 2004 to 4.03% for the comparable period in 2005. 15 TrustCo Bank Corp NY Management's Discussion and Analysis - continued September 30, 2005 During the third quarter of 2005 the Company's strategy was to expand the loan portfolio by offering competitive interest rates as the rate environment began to increase. The TrustCo residential real estate loan product is very competitive compared to local and national competitors. The strategy on the funding side of the balance sheet continues to be to attract customers to the Company based upon a combination of service, convenience and interest rate. The Company offered attractive long-term deposit rates as part of a strategy to lengthen deposit lives. This strategy has been successful but has also resulted in part of the increase in the deposit costs. The decrease in balances of total interest bearing liabilities is also reflected in the short term borrowing category which decreased by $25.0 million between the third quarter of 2004 and 2005. Earning Assets Total average interest earning assets was $2.76 billion for the third quarter of 2005 and 2004 with an average yield of 5.25% in 2004 and 5.68% in 2005. Income on earning assets increased by $3.0 million during this same time-period from $36.2 million in 2004 to $39.2 million in 2005. The increase in interest income on earning assets was attributable to the increase in yield on these assets. For the nine month period ended September 30, 2005, the average balance of interest earning assets was $2.76 billion, an increase of $36.7 million from the average balance for the comparable period in 2004 of $2.72 billion. The average yield on interest earning assets was 5.25% for 2004, compared to 5.46% in 2005. The increase in the average balance of earning assets and the increase in the yield earned on these assets, resulted in interest income of $113.0 million for the nine months of 2005, compared to $107.3 million for the nine months of 2004. Loans The average balance of loans for the third quarter was $1.36 billion in 2005 and $1.17 billion in 2004. The yield on loans increased from 6.35% in 2004 to 6.51% in 2005. The combination of the increase in average balances coupled with higher rates resulted in an increase of $3.6 million in interest income on loans. For the nine month period ended September 30, 2005, the average balance in the loan portfolio was $1.31 billion compared to $1.17 billion for the comparable period in 2004. The average yield increased from 6.39% in 2004 to 6.46% in 2005. The increase in the average balance of loans outstanding and the increase in the yield resulted in total interest income of $55.9 million in 2004 compared to $63.2 million in 2005. 16 TrustCo Bank Corp NY Management's Discussion and Analysis - continued September 30, 2005 TrustCo actively markets residential mortgage loan products (which include the residential real estate mortgages and home equity credit lines) within its market territory. Mortgage loan rates are affected by a number of factors including the prime rate, the federal funds rate, rates set by competitors and secondary market participants. As noted previously, mortgage interest rates have changed significantly as a result of national economic policy in the United States. During this period of changing interest rates, TrustCo aggressively marketed the unique aspects of its loan products thereby attempting to create a differentiation from other lenders. These unique aspects include extremely low closing costs, fast turnaround time on loan approvals, no escrow or mortgage insurance requirements and the fact that the Company holds these loans in portfolio and does not sell them into secondary markets. Though there is debate among nationally recognized economists, the general tenor of the national economy is for improvement and increases in long-term interest rates. Consequently the significant amount of refinancing that occurred during 2003 and 2004 has been completed with only residual effects into the remainder of 2005. Assuming a rise in long-term interest rates, the Company would anticipate that the unique features of its loan product will once again attract customers in the residential mortgage loan area. The impact of the increase in the benchmark interest rate indexes (prime rate, federal funds rate, etc.) is apparent in the change in the yield earned in the commercial and home equity loan portfolios. The average yields earned on these loan types for 2005 were 36 basis points and 183 basis points, respectively, greater than the average yields earned during the first nine months of 2004. The average balance of home equity lines of credit increased to $193.0 million during the third quarter of 2005 compared to $183.9 million for the comparable period in 2004. The average yield increased from 4.25% in the third quarter of 2004 to 6.35% in 2005. The nine month results also reflect growth with an average balance in 2005 of $192.8 million compared to $179.2 million in 2004. The average yield for these periods was 5.84% in 2005 and 4.01% in 2004. The increase in the average balance of home equity lines of credit reflects the consumers desire to obtain the lowest cost financing vehicles available. TrustCo's home equity line of credit is priced at a discount to the prime rate during an introductory period and then floats with prime over the life of the line. Closing costs are waived for these loans as long as the line remains active for a set period of time. The average balance of commercial loans increased by $7.5 million for the third quarter of 2005 compared to 2004. The yield earned on the commerical loans was 7.37% in 2005 and 6.80% in the third quarter of 2004. The increase in the yields is the result of changes in the underlying loan indices. 17 TrustCo Bank Corp NY Management's Discussion and Analysis - continued September 30, 2005 Similar to the changes in the quarter, the year to date results for commercial loans reflects an increase in the average balance to $200.9 million for the nine months of 2005 compared to $193.7 million for the comparable period in 2004. The yield earned during these periods was 7.20% in 2005 and 6.84% in 2004. Securities Available for Sale During the third quarter of 2005, the average balance of securities available for sale was $1.10 billion with a yield of 5.27%, compared to $1.08 billion for the third quarter of 2004 with a yield of 5.82%. The combination of the increase in average balance and the decrease in the yields caused a decrease in interest income on securities available for sale of $1.3 million between the third quarter of 2004 and 2005. The decrease in average balance combined with the decrease in yield caused a $7.0 million decrease in interest income on securities available for sale during the first nine months of 2005 versus the first nine months of 2004. The total average balance of securities available for sale during the nine months of 2004 was $1.07 billion with an average yield of 5.90% compared to an average balance for 2005 of $1.00 billion with a yield of 5.37%. Within the portfolio of securities available for sale, there was a $18.9 million increase in the average balance of US Treasury and agency obligations from $719.7 million in the third quarter of 2004 to $738.6 million for the comparable period in 2005. The yield on this category of securities decreased from 5.52% in 2004 to 5.11% in 2005. The nine month balance for US Treasury and agency obligations decreased from $730.2 million in 2004 to $641.0 million in 2005. The yield was 5.60% in 2004 as compared to 5.15% in 2005. The average balance of mortgage backed securities and collateralized mortgage obligations increased by $48.7 million during the third quarter of 2005 compared to 2004 with a yield of 4.69% in 2004 and 4.57% in 2005. The average balance of mortgage backed securities and collateralized mortgage obligations during the first nine months of 2005 was $211.4 million as compared to $138.6 million in 2004. The increase in the average balance reflects management's decision to invest additional funds in securities that provide cash flow and repayment of principal over the life of the instrument. The average yield for the nine months of 2005 was 4.59% as compared to 4.73% in 2004. The changes in the balance of securities available for sale were in response to the historical low yields available in the federal funds marketplace, fluctuations in cash flow as a result of loan refinancing, repayments and new loan originations and deposit inflows/outflows. Though the investment yields on 2005 purchases are lower overall than the yield earned on the existing securities portfolio, the new investments provide 18 TrustCo Bank Corp NY Management's Discussion and Analysis - continued September 30, 2005 additional interest income and help to offset the loss of interest income from other areas. Virtually all of the new purchases were US Treasury and agency callable bonds and mortgage related securities. These bonds have call features that allow the issuer to redeem the bonds at predetermined times. The average balance of investments in the State, County and Municipal portfolio decreased during the third quarter from $161.9 million in 2004 to $116.3 million in 2005. The average yield was 7.81% in the third quarter of 2004 compared to 7.51% in 2005. For the nine months of 2005 the average balance was $131.2 million with a yield of 7.65% compared to $170.5 million in 2004 with an average yield of 7.90%. The decrease in the balances of State, County and Municipal investments during the quarter and year to date reflect sales and maturities from this portoflio during these time periods. With interest rates at historical lows, the determination was made to sell a portion of this portfolio to capture the gain and to reinvest the proceeds in shorter term tax advantaged obligations. This also explains the decrease in the yields during this time period. Federal Funds Sold and Other Short-Term Investments During the third quarter of 2005, the average balance of federal funds sold and other short term investments was $296.2 million with an average yield of 3.38%, compared to the average balance for the three month period ended September 30, 2004 of $500.2 million with an average yield of 1.43%. The decrease in the average balance and the increase in the average yield, resulted in total interest income on federal funds sold and other short-term investments of $1.8 million for 2004 compared to $2.5 million for 2005. During the nine month period ended September 30, 2005, the average balance of federal funds sold and other short-term investments was $456.1 million with a yield of 2.79% compared to an average balance of $490.9 million in 2004 with an average yield of 1.14%. The federal funds portfolio is utilized to generate additional interest income and liquidity as funds are waiting to be deployed into the loan and securities portfolios. The growth in the loan portfolio was funded primarily through reductions in federal funds sold and other short-term investments. Changes in the yield on the federal funds and other short-term investment portfolios resulted primarily from changes in the target rate set by the Federal Reserve Board for federal funds sold. 19 TrustCo Bank Corp NY Management's Discussion and Analysis - continued September 30, 2005 Funding Opportunities TrustCo utilizes various funding sources to support its earning asset portfolio. The vast majority of the Company's funding comes from traditional deposit vehicles such as savings, interest bearing checking and time deposit accounts. During the third quarter, total average interest bearing liabilities were $2.38 billion for 2004 and $2.33 billion for 2005. The rate paid on total interest bearing liabilities was 1.64% for 2004 and 1.95% for 2005. Total interest expense for the third quarter increased approximately $1.7 million to $11.5 million for 2005 compared to $9.8 million for 2004. Similar changes in interest bearing liabilities were noted for the nine-month period as was discussed for the quarter except the average yield increased from 1.61% in 2004 to 1.81% in 2005. The increase in yield for the nine months of 2005 versus 2004 of 20 basis points is due primarily to the increase in interest rates on certificates of deposit and money market accounts. These deposit yields increased due to general trends in market rate indices during this time period. Total average interest bearing liabilities were $2.36 billion for the nine-month period ended September 30, 2004 and $2.35 billion for 2005. Average demand deposit balances increased during the third quarter of 2005 compared to the third quarter of 2004. Demand deposits averaged $218.4 million in 2004 and $240.3 million in 2005. On a year to date basis, average demand deposits were $207.4 million in 2004 compared to $233.3 million in 2005. Average interest bearing deposit balances have decreased from $2.28 billion for the third quarter of 2004 to $2.25 billion for the same period in 2005. Each of the deposit categories changed as follows: increases were noted in money market accounts of $9.9 million, and certificates of deposit of $34.4 million offset by decreases in interest bearing checking accounts of $16.6 million and savings accounts of $50.7 million. In contrast, the average balance of interest bearing deposit accounts for the nine-month periods has increased. For the nine months of 2005 the average balance of interest bearing deposits was $2.27 billion compared to $2.26 billion in 2004. For both the third quarter and year to date, the Company has experienced a flow of deposits out of the savings category and into certificates of deposit. On a year to date basis, overall deposits have increased between the nine months of 2004 and 2005, however for the third quarter, total deposits have decreased by $23.0 million. The changes in deposit classification between savings and certificates of deposit reflect the desire by depositors to maximize the interest they are earning on deposit balances. Overall, the yield on certificates of deposit has increased during the quarter to 3.19% 20 TrustCo Bank Corp NY Management's Discussion and Analysis - continued September 30, 2005 whereas the savings yield was 0.79%. These changes increase the funding cost for Trustco as customers move funds from low rate savings accounts into the higher costing certificates of deposit. Average short-term borrowings for the quarter were $82.5 million in 2005 compared to $107.5 million in 2004. The average rate increased during this time period from 0.94% to 2.59% for the third quarter of 2005, reflecting recent increases in the federal funds rate. For the nine months ended September 30, 2005 the average balance of short term borrowings was $82.1 million as compared to $106.4 million in 2004. The average yield was 0.79% in 2004 and 2.20% in 2005. Net Interest Income Taxable equivalent net interest income increased to $27.7 million for the third quarter of 2005. The net interest spread increased 12 basis points between 2004 and 2005 and the net interest margin increased by 20 basis points. Similar changes were noted in taxable equivalent net interest income, net interest spread and net interest margin for the nine-month period ended September 30, 2005, compared to the same period in 2004. Net interest income for the first nine months of 2005 was $81.2 million, an increase of $2.4 million from the $78.7 million for the first nine months of 2004. Net interest spread was 3.64% for 2004 and 3.65% for 2005, while net interest margin increased 7 basis points to 3.92% for the nine month period ended September 30, 2005, compared to the nine month period ended September 30, 2004. Nonperforming Assets Nonperforming assets include nonperforming loans which are those loans in a nonaccrual status, loans that have been restructured, and loans past due three payments or more and still accruing interest. Also included in the total of nonperforming assets are foreclosed real estate properties, which are categorized as real estate owned. Impaired loans are considered to be those commercial and commercial real estate loans in a nonaccrual status and loans restructured since January 1, 1995, when the accounting standards required the identification, measurement and reporting of impaired loans. The following will describe the nonperforming assets of TrustCo as of September 30, 2005. Nonperforming loans: Total nonperforming loans were $2.9 million at September 30, 2005, a decrease from the $3.1 million of nonperforming loans at September 30, 2004. 21 TrustCo Bank Corp NY Management's Discussion and Analysis - continued September 30, 2005 Nonaccrual loans were $1.3 million at September 30, 2005 and $340 thousand at September 30, 2004. Loans past due 3 payments or more and still accruing interest were $27 thousand at September 30, 2005 and $8 thousand at September 30, 2004. Restructured loans were $1.6 million at September 30, 2005 compared to $2.8 million at September 30, 2004. All of the nonperforming loans at September 30, 2005 and 2004 are residential real estate or retail consumer loans. Since 2000, there has been a continued shifting in the components of TrustCo's problem loans and chargeoffs from commercial and commercial real estate to the residential real estate and retail consumer loan portfolios. Contributing factors to this shift include: - The overall emphasis within TrustCo for residential real estate originations, - The relatively weak economic environment in the upstate New York territory, and - The relative slow growth in real estate values in many of TrustCo's market areas that has occurred since the middle of the 1990's, thereby limiting the collateral value that supports the real estate loans. Consumer loan defaults and bankruptcies have increased 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 with them so as to minimize losses or exposures. However, beginning in 2004 the number of new bankruptcy filings in the Capital District area decreased from the prior year. Also the demand for housing in the Capital District area has increased which has resulted in increased real estate prices in selected sectors of the marketplace. These trends may be indicators of future economic stability for this region and a continued lessening of loan charge offs. Total impaired loans at September 30, 2005 of $1.6 million, consisted of restructured retail loans. During the first nine months of 2005, there were $431.1 thousand of commercial loan charge offs, $175.5 thousand of consumer loan charge offs and $1.2 million of residential mortgage loan charge offs as compared with $335 thousand of commercial loan charge offs, $295 thousand of consumer loan charge offs and $4.8 million of residential mortgage loan charge offs in the first nine months of 2004. Recoveries during the first nine months were $3.8 million in 2005 and $4.9 million in 2004. The significant reduction in the loan charge offs from the residential real estate portfolio, along with ancillary information previously noted of the increased real estate prices and reduction in financial stress as demonstrated by bankruptcy filings resulted in a negative provision for loan losses of $1.7 million during the third quarter of 2005 compared to 22 TrustCo Bank Corp NY Management's Discussion and Analysis - continued September 30, 2005 $150 thousand expense for the comparable period in 2004. The negative provision was $4.8 for the first nine months of 2005 compared to a provision for loan losses of $450 thousand for the comparable period in 2004. The Company continues to monitor these trends and believes they will continue into the last quarter of 2005. Real estate owned: Total real estate owned was $56 thousand at September 30, 2005 and zero at September 30, 2004. Allowance for loan losses: The balance of the allowance for loan losses is maintained at a level that is, in management's judgment, representative of the amount of the risk inherent in the loan portfolio. At September 30, 2005, the allowance for loan losses was $46.7 million, which represents a decrease from the $49.4 million in the allowance at December 31, 2004. The allowance represents 3.34% of the loan portfolio as of September 30, 2005 compared to 4.10% at September 30, 2004. In deciding on the adequacy of the allowance for loan losses, management reviews the current nonperforming loan portfolio as well as loans that are past due and not yet categorized as nonperforming for reporting purposes. Also, there are a number of other factors that are taken into consideration, including: - The magnitude and nature of loan charge offs, - The change in the loan portfolio and the implication that it has in relation to the economic climate in the bank's business territory, - Significant growth in the level of losses associated with bankruptcies in New York State over the last several years and the time period needed to foreclose, secure and dispose of collateral, and - The relatively weak economic environment in the upstate New York territory over the last several years. Though the economic climate in the Upstate New York area has suffered over the last several years, resulting in higher bankruptcies and relatively flat real estate prices, overall economic trends in the last 2 years have been improving. As noted previously, bankruptcies in the Capital District area have recently decreased on a year over year basis, and general housing prices have continued to increase. These positive trends have helped marginal credits better manage their debt load. Because of continued improvement in nearly all of the indicators of the Company's credit quality and management's assessment of economic conditions and risk, a negative provision of 23 TrustCo Bank Corp NY Management's Discussion and Analysis - continued September 30, 2005 $1.7 million for the third quarter was recognized. Management continues to monitor these in determining future provisions for loan losses in relation to loan charge offs, recoveries and the level and trends of nonperforming loans. Liquidity and Interest Rate Sensitivity TrustCo seeks to obtain favorable sources of funding and to maintain prudent levels of liquid assets in order to satisfy varied liquidity demands. TrustCo's earnings performance and strong capital position enable the Company to raise funds easily in the marketplace and to secure new sources of funding. The Company actively manages its liquidity through target ratios established under its liquidity policies. Continual monitoring of both historical and prospective ratios allows TrustCo to employ strategies necessary to maintain adequate liquidity. Management has also defined various degrees of adverse liquidity situations, which could potentially occur, and has prepared appropriate contingency plans should such a situation arise. Noninterest Income Total noninterest income for the three months ended September 30, 2005 was $7.1 million, as compared to $9.0 million for the comparable period in 2004. During these periods, the Company recorded net securities gains of $776 thousand for 2005 and $4.6 million for 2004. Excluding these securities transactions, noninterest income increased from $4.4 million in the third quarter of 2004 to $6.3 million in 2005. Similar results were also recognized for the nine months of 2005 compared to 2004. Total noninterest income was $22.1 million for 2005 compared to $26.1 million for 2004. Excluding net securities transactions, noninterest income was $13.7 million for 2004 and $16.5 million for 2005. Trust department income increased slightly to $1.5 million for the third quarter of 2005. Service fees and other income are also up slightly between 2004 and 2005 due primarily to loan volume and deposit activity. The increase in other noninterest income for the third quarter of 2005 as compared to 2004 is primarily attributable to the gain on sale of credit cards of $1.4 million. During the third quarter the Company sold approximately $7.4 million of credit card receivables and entered into a marketing arrangement with a third party credit card servicer. As a result of this sale the Company recognized this gain and will have continuing income from credit cards for new card originations. The anticipated income for future years is not expected to be material to the Company's operations. Similarly, for the nine months of 2005 compared to 2004, the increase is primarily the result of the credit card sale in the third quarter and the gain recognized on the sale of the former operations center in 24 TrustCo Bank Corp NY Management's Discussion and Analysis - continued September 30, 2005 Schenectady. The Company recognized approximately a $600 thousand gain as a result of this property sale. Noninterest Expenses Total noninterest expense for the third quarter of 2005 and 2004 was $11.5 million. For the nine months ended September 30, 2005 total noninterest expense was $35.4 million compared to $35.7 million in 2004. Salaries and employee benefits expense increased from $5.0 million for the third quarter of 2004 to $5.1 million for the comparable period in 2005. Total salaries and employee benefits were $15.4 million for the nine months of 2005 and 2004. Net occupancy expense increased during the quarter from $1..5 million in 2004 to $1.8 million in 2005 due primarily to the new branch operations and the cost of utilities. Similar increases were also noted during the nine month period with net occupancy expense of $5.0 million for 2004 compared to $5.5 million in 2005. Equipment expense increased approximately $256 thousand for the third quarter of 2005 compared to 2004 as a result of new items purchased for the branch expansion program and upgrades to the ATM equipment. On a year to date basis, equipment expense increased by $707 thousand to $2.0 million due to the same factors that affected the third quarter. Income Taxes In the third quarter of 2005 and 2004, TrustCo recognized income tax expense of $8.5 million and $7.3 million, respectively. This resulted in an effective tax rate of 35.1% for 2005 and 32.4% for 2004. For the nine months of 2005, total income tax expense was $24.4 million compared to $21.1 million for 2004. This resulted in an effective tax rate of 34.8% for 2005 and 32.6% for 2004. This increase was primarily the result of a reduction in the amount of securities invested in tax advantaged states and political subdivisions during these time periods. Capital Resources Consistent with its long-term goal of operating a sound and profitable financial organization, TrustCo strives to maintain strong capital ratios. New issues of equity securities have not been required since traditionally, most of its capital requirements are met through the capital retained in the Company (after the dividends on the common stock). Total shareholders' equity at September 30, 2005 was $229.7 million, an increase of $3.8 million from the year-end 2004 balance of $225.8 million. The change in total shareholders' equity between year-end 2004 and September 30, 2005 reflects net 25 TrustCo Bank Corp NY Management's Discussion and Analysis - continued September 30, 2005 income of $11.9 million retained by TrustCo (net income of $45.6 million less dividends to shareholders of $33.7 million) and a $2.3 million increase as a result of stock option exercises partially offset by an $6.2 million reduction in the net unrealized gain on securities available for sale, net of tax, and $4.2 million net increase in treasury stock. TrustCo declared dividends of $0.450 per share during the first nine months of 2005 and 2004. These resulted in a dividend payout ratio of 74.0% in 2005 and 76.4% in 2004. The Company achieved the following capital ratios as of September 30, 2005 and 2004: September 30, Minimum Regulatory 2005 2004 Guidelines ----- ----- ------------------ Tier 1 risk adjusted capital 16.92% 16.80% 4.00 Total risk adjusted capital 18.19% 18.08% 8.00 In addition, at September 30, 2005 and 2004, the consolidated equity to total assets ratio (excluding the mark to market effect of securities available for sale) was 8.17% and 7.58%, respectively. Pending Transaction: On April 13, 2005 Trustco Bank and Patriot Federal Bank (Proposed) announced that they had entered into an agreement for the sale of a branch location from Trustco Bank to Patriot Federal subject to certain contingencies, such as regulatory approval. Trustco Bank had acquired the branch location as part of its acquisition of Landmark Community Bank in 2000. In addition to the real estate, the branch sale will include approximately $10 million of deposits. The transaction is expected to be completed by year end. Critical Accounting Policies: Pursuant to recent SEC guidance, management of the Company is encouraged to evaluate and disclose those accounting policies that are judged to be critical policies - those most important to the portrayal of the Company's financial condition and results, and that require management's most difficult subjective or complex judgments. Management considers the accounting policy relating to the allowance for loan losses to be a critical accounting policy given the inherent uncertainty in evaluating the levels of the allowance required to cover credit losses in the portfolio and the material effect that such judgments can have on the results of operations. Included in Note 1 to the Consolidated Financial Statements contained in the Company's 2004 Annual Report on 26 TrustCo Bank Corp NY Management's Discussion and Analysis - Continued September 30, 2005 Form 10-K is a description of the significant accounting policies that are utilized by the Company in the preparation of the Consolidated Financial Statements. Proposed Accounting Standards: In December 2003, the Accounting Standards Executive Committee ("AcSEC") issued Statement of Position ("SOP") 03-3, Accounting for Certain Loans or Debt Securities Acquired in a Transfer." The SOP is effective for loans acquired in fiscal years beginning after December 15, 2004. The SOP addresses accounting for differences between contractual cash flows and cash flows expected to be collected from an investor's initial investment in loans or debt securities (loans) acquired in a transfer if those differences are attributable, at least in part, to credit quality. The SOP applies to loans acquired in business combinations but does not apply to originated loans. During the first quarter of 2005, the Company implemented the provision of this SOP. This implementation did not have a material impact on the Company's financial condition or results of operations. In December 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the "Act") became law in the United States. The Act introduced a prescription drug benefit under Medicare as well as a federal subsidy to sponsors of retiree health care benefit plans that provide a benefit that is at least actuarially equivalent to Medicare Part D under the Act. In accordance with FASB Staff Position FAS 106-2, "Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003," the Company has elected to defer recognition of the effects of the Act in any measures of the benefit obligation or cost. The Company is still analyzing the specific authoritative guidance on the accounting for the federal subsidy, which was issued in January 2005, but the Company anticipates that, in order to make the plan actuarially equivalent, it will make minor changes to its non-pension postretirement plan. Accordingly, the measures of the accumulated non-pension postretirement benefit obligation and net periodic non-pension postretirement benefit cost do not reflect any amount associated with the subsidy. In December 2004, the FASB issued revised Statement No. 123 ("FAS 123R"), "Share-Based Payment," which requires companies to expense the estimated grant-date fair value of employee stock options and similar awards. In April 2005, the effective date of the accounting provisions of FAS 123R were delayed from July 1, 2005 to January 2006 for public companies like TrustCo. The Company will adopt the provisions of FAS 123R 27 TrustCo Bank Corp NY Management's Discussion and Analysis - continued September 30, 2005 using a modified prospective application. Under modified prospective application, FAS 123R will apply to new awards and to awards that are outstanding on the effective date and are subsequently modified or cancelled. Compensation expense for outstanding awards for which the requisite service had not been rendered as of the effective date will be recognized over the remaining service period using the compensation cost calculated for pro forma disclosure purposes under FAS 123. The Company will incur additional expense beginning in first quarter of 2006 related to new awards granted and the unvested portions of earlier awards. The Company is in the process of determining the impact the recognition of compensation expense related to stock awards will have on its consolidated financial statements. 28 TrustCo Bank Corp NY Management's Discussion and Analysis STATISTICAL DISCLOSURE I. DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY; INTEREST RATES AND INTEREST DIFFERENTIAL The following table summarizes the component distribution of average balance sheet, related interest income and expense and the average annualized yields on interest earning assets and annualized rates on interest bearing liabilities of TrustCo (adjusted for tax equivalency) for each of the reported periods. Nonaccrual loans are included in loans for this analysis. The average balances of securities available for sale is calculated using amortized costs for these securities. Included in the balance of shareholders' equity is unrealized appreciation, net of tax, in the available for sale portfolio of $2.0 million in 2005 and $7.4 million in 2004. The subtotals contained in the following table are the arithmetic totals of the items contained in that category.
Three Months 2005 Three Months 2004 Average Interest Average Average Interest Average Change in Variance Variance (dollars in thousands) Balance Rate Balance Rate Interest Balance Rate Income/ Change Change Expense ---------- ------- ------- ---------- ------- ------- -------- -------- -------- Assets Securities available for sale: U.S. Treasuries and agencies $ 738,623 $ 9,440 5.11% $ 719,707 $ 9,927 5.52% (487) 267 (754) Mortgage-backed securities and collateralized mortgage obligations 224,940 2,571 4.57% 176,255 2,066 4.69% 505 557 (52) States and political subdivisions 116,302 2,183 7.51% 161,884 3,161 7.81% (978) (861) (117) Other 17,405 264 6.07% 23,561 577 9.80% (313) (127) (186) ---------- ------- ------- ---------- ------- ------- -------- -------- -------- Total securities available for sale 1,097,270 14,458 5.27% 1,081,407 15,731 5.82% (1,273) (165) (1,108) Federal funds sold and other short-term Investments 296,222 2,519 3.38% 500,249 1,798 1.43% 721 (308) 1,029 Commercial Loans 203,184 3,749 7.37% 195,705 3,330 6.80% 419 131 288 Residential mortgage loans 957,335 15,081 6.30% 782,855 12,993 6.64% 2,088 2,711 (623) Home equity lines of credit 193,016 3,091 6.35% 183,941 1,967 4.25% 1,124 102 1,022 Installment loans 9,966 313 12.47% 12,443 364 11.63% (51) (80) 29 ---------- ------- ------- ---------- ------- ------- -------- -------- -------- Loans, net of unearned income 1,363,501 22,234 6.51% 1,174,944 18,654 6.35% 3,580 2,864 716 Total interest earning assets 2,756,993 39,211 5.68% 2,756,600 36,183 5.25% 3,028 2,392 636 ------- ------- ------- ------- -------- -------- -------- Allowance for loan losses (47,630) (49,445) Cash & non-interest earning assets 124,191 141,112 ---------- ---------- Total assets $2,833,554 $2,848,267 ========== ========== Liabilities and shareholders' equity Deposits: Interest Bearing Checking Accounts $ 318,185 311 0.39% $ 334,792 408 0.48% (97) (20) (77) Money market accounts 152,007 1,002 2.61% 142,061 326 0.91% 676 24 652 Savings 775,151 1,545 0.79% 825,879 2,042 0.98% (497) (120) (377) Time deposits 1,006,731 8,105 3.19% 972,350 6,765 2.77% 1,340 253 1,087 ---------- ------- ------- ---------- ------- ------- -------- -------- -------- Total interest bearing deposits 2,252,074 10,963 1.93% 2,275,082 9,541 1.67% 1,422 138 1,284 Short-term borrowings 82,482 537 2.59% 107,495 254 0.94% 283 (43) 326 Long-term debt 96 1 5.18% 122 2 5.19% (1) (1) (0) ---------- ------- ------- ---------- ------- ------- -------- -------- -------- Total Interest Bearing Liabilities 2,334,652 11,501 1.95% 2,382,699 9,797 1.64% 1,704 94 1,610 ------- ------- -------- -------- -------- Demand deposits 240,253 218,372 Other liabilities 28,891 28,853 Shareholders' equity 229,758 218,343 Total liab. & shareholders' equity $2,833,554 $2,848,267 ========== ========== Net Interest Income 27,710 26,386 1,324 2,298 (974) ------- ------- -------- -------- -------- Net Interest Spread 3.73% 3.61% Net Interest margin (net interest income to total interest earning assets) 4.03% 3.83% Tax equivalent adjustment (778) (1,232) ------- ------ Net Interest Income per book 26,932 25,154
29 TrustCo Bank Corp NY Management's Discussion and Analysis STATISTICAL DISCLOSURE I. DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY; INTEREST RATES AND INTEREST DIFFERENTIAL The following table summarizes the component distribution of average balance sheet, related interest income and expense and the average annualized yields on interest earning assets and annualized rates on interest bearing liabilities of TrustCo (adjusted for tax equivalency) for each of the reported periods. Nonaccrual loans are included in loans for this analysis. The average balances of securities available for sale is calculated using amortized costs for these securities. Included in the balance of shareholders' equity is unrealized appreciation, net of tax, in the available for sale portfolio of $2.2 million in 2005 and $12.7 million in 2004. The subtotals contained in the following table are the arithmetic totals of the items contained in that category.
Nine Months 2005 Nine Months 2004 Average Interest Average Average Interest Average Change in Variance Variance (dollars in thousands) Balance Rate Balance Rate Interest Balance Rate Income/ Change Change Expense ---------- -------- ----- ---------- -------- ----- --------- -------- -------- Securities available for sale: U.S. Treasuries and agencies $ 641,002 $ 24,779 5.15% $ 730,167 $ 30,653 5.60% (5,874) (3,543) (2,331) Mortgage-backed securities and collateralized mortgage obligations 211,382 7,271 4.59% 138,648 4,916 4.73% 2,355 2,496 (141) States and political subdivisions 131,163 7,528 7.65% 170,471 10,104 7.90% (2,576) (2,265) (311) Other 15,969 677 5.66% 27,634 1,571 7.58% (894) (559) (335) ---------- -------- ----- ---------- -------- ----- --------- -------- -------- Total securities available for sale 999,516 40,255 5.37% 1,066,920 47,244 5.90% (6,989) (3,871) (3,118) Federal funds sold and other short-term Investments 456,100 9,519 2.79% 490,874 4,198 1.14% 5,321 (274) 5,595 Commercial Loans 200,900 10,846 7.20% 193,745 9,938 6.84% 908 374 534 Residential mortgage loans 900,115 42,934 6.36% 780,841 39,474 6.74% 3,460 5,484 (2,024) Home equity lines of credit 192,760 8,419 5.84% 179,225 5,379 4.01% 3,040 432 2,608 Installment loans 11,414 1,021 11.95% 12,528 1,092 11.65% (71) (100) 29 ---------- -------- ----- ---------- -------- ----- --------- -------- -------- Loans, net of unearned income 1,305,189 63,220 6.46% 1,166,339 55,883 6.39% 7,337 6,190 1,147 Total interest earning assets 2,760,805 112,994 5.46% 2,724,133 107,325 5.25% 5,669 2,046 3,623 Allowance for loan losses (48,202) (49,321) Cash & non-interest earning assets 127,466 148,867 ---------- ---------- Total assets 2,840,069 $2,823,679 ========== ========== Liabilities and shareholders' equity Deposits: Interest Bearing Checking Accounts $ 322,664 1,078 0.45% $ 330,664 1,193 0.48% (115) (32) (83) Money market accounts 147,480 2,013 1.82% 157,260 1,154 0.98% 859 (67) 926 Savings 801,265 4,752 0.79% 807,514 5,947 0.98% (1,195) (46) (1,149) Time deposits 996,629 22,637 3.04% 962,082 19,648 2.73% 2,989 718 2,271 ---------- -------- ----- ---------- -------- ----- --------- -------- -------- Total interest bearing deposits 2,268,038 30,480 1.80% 2,257,520 27,942 1.65% 2,538 573 1,965 Short-term borrowings 82,148 1,350 2.20% 106,425 633 0.79% 717 (105) 822 Long-term debt 103 4 5.24% 162 7 5.46% (3) (3) (0) ---------- -------- ----- ---------- -------- ----- --------- -------- -------- Total Interest Bearing Liabilities 2,350,289 31,834 1.81% 2,364,107 28,582 1.61% 3,252 465 2,787 -------- -------- --------- -------- -------- Demand deposits 233,316 207,387 Other liabilities 27,651 31,442 Shareholders' equity 228,813 220,743 Total liab. & shareholders' equity $2,840,069 $2,823,679 ========== ========== Net Interest Income 81,160 78,743 2,417 1,580 837 -------- -------- Net Interest Spread 3.65% 3.64% Net Interest margin (net interest income to total interest earning assets) 3.92% 3.85% Tax equivalent adjustment (2,660) (3,860) -------- -------- Net Interest Income per book 78,500 74,883 ======== ========
30 Item 3. Quantitative and Qualitative Disclosures about Market Risk As detailed in the Annual Report to Shareholders as of December 31, 2004 the Company is subject to interest rate risk as its principal market risk. As noted in detail throughout this Management's Discussion and Analysis for the nine months ended September 30, 2005, the Company continues to respond to changes in interest rates not only to position the Company to meet short term earnings goals but also to allow the Company to respond to changes in interest rates in the future. Consequently the average balance of federal funds sold and other short-term investments has decreased from $490.9 million in 2004 to $456.1 million in 2005. As investment opportunities have presented themselves, management has, and continues to invest funds from the federal funds sold and other short-term investment portfolio into the securities available for sale and loan portfolios. This trend is expected to continue into the fourth quarter. The Company believes there was no significant change to its interest rate risk during the third quarter of 2005. Item 4. Controls and Procedures An evaluation was carried out under the supervision and with the participation of the Company's management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company's disclosure controls and procedures as of the end of the period covered by this report. The Company maintains disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 ("Exchange Act") designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. Based upon this evaluation of those disclosure controls and procedures, the Chief Executive and Chief Financial Officer of the Company concluded, as of the end of the period covered by this report, that the Company's disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports the Company files and submits under the Exchange Act is recorded, processed, summarized and reported as and when required. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Further, no evaluation of a cost-effective system of controls can provide absolute assurance that all control issues and instances of fraud, if any, will be detected. 31 There have been no changes in internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act) during the quarter to which this report relates that have materially affected or are reasonably likely to materially affect, the internal control over financial reporting. 32 PART II OTHER INFORMATION Item 1. Legal Proceedings None. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds ISSUER PURCHASES OF EQUITY SECURITIES
- -------------------------- --------- --------------- ------------ ----------------- Total Number of Shares Maximum Number Purchased as of Shares that Total Part of May Yet Be Number of Average Price Publicly Purchases Under Shares Paid per Share Announced the Period Purchased Plans or Plans or Programs Programs - -------------------------- --------- --------------- ------------ ----------------- July 1 - July 31 - $ - 0 N/A - -------------------------- --------- --------------- ------------ ----------------- August 1 - August 31 340,737 $ 13.18 0 N/A - -------------------------- --------- --------------- ------------ ----------------- September 1 - September 30 100,000 $ 13.17 0 N/A - -------------------------- --------- --------------- ------------ ----------------- Total 440,737 $ 13.18 0 N/A - -------------------------- --------- --------------- ------------ -----------------
All 440,737 shares were purchased by other than through a publicly announced plan or program. All purchases were made in open-market transactions in satisfaction of the Company's obligations upon exercise of outstanding stock options issued by the Company and for quarterly sales to the dividend reinvestment plan. Item 3. Defaults Upon Senior Securities None. Item 4. Submissions of Matters to Vote of Security Holders None. Item 5. Other Information None. 33 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Reg S-K (Item 601) Exhibit No. Description - ----------- -------------------------------------------------------------- 31(i) Rule 13a-15(e)/15d-15(e) Certification of Robert J. McCormick, principal executive officer. 31(i) Rule 13a-15(e)/15d-15(e) Certification of Robert T. Cushing, principal financial officer. 32 Section 1350 Certifications of Robert J. McCormick, principal executive officer and Robert T. Cushing, principal financial officer. (b) Reports on Form 8-K During the quarter ended September 30, 2005, TrustCo filed the following reports on Form 8-K: July 19, 2005, regarding two press releases dated July 19, 2005, detailing second quarter and year to date 2005 financial results and the appointment of Thomas O. Maggs as a director. August 16, 2005, regarding a press release dated August 16, 2005, declaring a cash dividend of $0.15 per share payable on October 3, 2005, to shareholders of record at the close of business on September 9, 2005 and announcing the Board's intention to increase the quarterly cash dividend to 16 cents per share beginning in the fourth quarter of 2005 and the extension of Chairman Robert A. McCormick's consulting agreement. 34 SIGNATURES Pursuant to the requirements 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 J. McCormick -------------------------- Robert J. McCormick President and Chief Executive Officer By: /s/Robert T. Cushing ------------------------ Robert T. Cushing Executive Vice President and Chief Financial Officer Date: November 7, 2005 35 Exhibits Index Reg S-K Exhibit No. Description - ----------- -------------------------------------------------------------- 31(i) Rule 13a-15(e)/15d-15(e) Certification of Robert J. McCormick, principal executive officer. 31(i) Rule 13a-15(e)/15d-15(e) Certification of Robert T. Cushing, principal financial officer. 32 Section 1350 Certifications of Robert J. McCormick, principal executive officer and Robert T. Cushing, principal financial officer. 36 EX-31 2 ex31-1.txt SECTION 302 CERTIFICATION Exhibit 31(i) Certification I, Robert J. McCormick, the principal executive officer and of TrustCo Bank Corp NY, ("registrant") certify that: 1. I have reviewed this report on Form 10-Q of TrustCo Bank Corp NY; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) for the registrant and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statement for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 7, 2005 /s/ Robert J. McCormick - ----------------------- Robert J. McCormick President and Chief Executive Officer EX-31 3 ex31-2.txt SECTION 302 CERTIFICATION Exhibit 31(i) Certification I, Robert T. Cushing, the principal financial officer of TrustCo Bank Corp NY, ("registrant") certify that: 1. I have reviewed this report on Form 10-Q of TrustCo Bank Corp NY; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I, are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 7, 2005 /s/ Robert T. Cushing - --------------------- Robert T. Cushing Executive Vice President and Chief Financial Officer EX-32 4 ex32.txt SECTION 906 CERTIFICATION Exhibit 32 Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 Of The Sarbanes-Oxley Act of 2002 In connection with the Quarterly Report of TrustCo Bank Corp NY (the "Company") on Form 10-Q for the period ending September 30, 2005 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1. The Report fully complies with the requirements of section 13(a) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ Robert J. McCormick ----------------------- Robert J. McCormick President and Chief Executive Officer /s/ Robert T. Cushing --------------------- Robert T. Cushing Executive Vice President and Chief Financial Officer November 7, 2005 -----END PRIVACY-ENHANCED MESSAGE-----