UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 2006
Or
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from ____________________ to ____________________
Commission file number 0-10592
TRUSTCO BANK CORP NY
(Exact name of registrant as specified in its charter)
NEW YORK 14-1630287
(State or other jurisdiction (I.R.S. Employer Identification No.)
of 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
Securities registered pursuant to Section
12(b) of the Act:
Title of each class Name of exchange on which registered)
------------------- -------------------------------------
Common Stock, $1.00 Par Value The NASDAQ Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act. Yes.(x) No.( )
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the Act. Yes.( ) No.(x)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes.(x) No.( )
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K. (x)
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, or a non-accelerated filer (as defined in Rule
12b-2 of the Exchange Act).
Large Accelerated Filer (x) Accelerated Filer ( ) Non-Accelerated Filer ( )
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act).
Yes. ( ) No. (x )
The aggregate market value of the common stock held by non-affiliates
as of June 30, 2006 was approximately $795,187,232 (based upon the closing price
of $11.02 on June 30, 2006, as reported on the Nasdaq National Market).
The number of shares outstanding of the registrant's common stock as
of February 20, 2007 was 74,931,181.
Documents Incorporated by Reference: (1) Portions of registrant's
Annual Report to Shareholders for the fiscal year ended December 31, 2006
(Part I and Part II) and (2) Portions of registrant's Proxy Statement filed
for its Annual Meeting of Shareholders to be held May 14, 2007 (Part III).
INDEX
Description Page
Use of Non-GAAP Financial Measures 3-4
PART I
Item 1 Business 5-15
Item 1A Risk Factors 15-19
Item 1B Unresolved Staff Comments 19
Item 2 Properties 19
Item 3 Legal Proceedings 19
Item 4 Submission of Matters to a Vote of Security 19
Holders
PART II
Item 5 Market for the Registrant's Common Equity, 21-22
Related Stockholder Matters and Issuer
Purchases of Equity Securities
Item 6 Selected Financial Data 22
Item 7 Management's Discussion and Analysis of 22
Financial Condition and Results of Operations
Item 7A Quantitative and Qualitative Disclosures about 22
Market Risk
Item 8 Financial Statements and Supplementary Data 22
Item 9 Changes in and Disagreements with Accountants 23
On Accounting and Financial Disclosure
Item 9A Controls and Procedures 23
Item 9B Other Information 23
PART III
Item 10 Directors and Executive Officers of Registrant 23-24
Item 11 Executive Compensation 24
Item 12 Security Ownership of Certain Beneficial Owners 24
and Management and Related Stockholder
Matters
Item 13 Certain Relationships and Related Transactions 25
Item 14 Principal Accounting Fees and Services 25
PART IV
Item 15 Exhibits, Financial Statement Schedules 25-29
Signatures 30-31
EXHIBITS INDEX 32
2
USE OF NON-GAAP FINANCIAL MEASURES
The Securities and Exchange Commission ("SEC") has adopted Regulation G,
which applies to all public disclosures, including earnings releases, made by
registered companies that contain "non-GAAP financial measures." GAAP is
generally accepted accounting principles in the United States of America.
Under Regulation G, companies making disclosures containing non-GAAP
financial measures must also disclose, along with each non-GAAP financial
measure, certain additional information, including a reconciliation of the
non-GAAP financial measure to the closest comparable GAAP financial measure
and a statement of the company's reasons for utilizing the non-GAAP financial
measure as part of its financial disclosures. At the same time that the SEC
issued Regulation G, it also made amendments to Item 10 of Regulation S-K,
requiring companies to make the same types of supplemental disclosures
whenever they include non-GAAP financial measures in their filings with the
SEC. The SEC has exempted from the definition of "non-GAAP financial
measures" certain specific types of commonly used financial measures that are
not based on GAAP. When these exempted measures are included in public
disclosures or SEC filings, supplemental information is not required. The
following measures used in this Report which have not been specifically
exempted by the SEC may nevertheless constitute "non-GAAP financial measures"
within the meaning of the SEC's new rules, although we are unable to state
with certainty that the SEC would so regard them.
Tax-Equivalent Net Interest Income and Net Interest Margin: Net
interest income, as a component of the tabular presentation by
financial institutions of Selected Financial Information regarding
their recently completed operations, is commonly presented on a
tax-equivalent basis. That is, to the extent that some component of
the institution's net interest income will be exempt from taxation
(e.g., was received by the institution as a result of its holdings
of state or municipal obligations), an amount equal to the tax
benefit derived from that component is added back to the net
interest income total. This adjustment is considered helpful in
comparing one financial institution's net interest income (pre-tax)
to that of another institution, as each will have a different
proportion of tax-exempt items in their portfolios. Moreover, net
interest income is itself a component of a second financial measure
commonly used by financial institutions, net interest margin, which
is the ratio of net interest income to average earning assets. For
purposes of this measure as well, tax-equivalent net interest income
is generally used by financial institutions, again to provide a
better basis of comparison from institution to institution. We
follow these practices.
The Efficiency Ratio: Financial institutions often use an
"efficiency ratio" as a measure of expense control. The efficiency
ratio typically is defined as noninterest expense divided by taxable
equivalent net interest income plus noninterest income. As in the
case of net interest income, generally, net interest income as
utilized in calculating the efficiency ratio is typically expressed
on a tax-equivalent basis. Moreover, most financial institutions, in
calculating the efficiency ratio, also adjust both noninterest
expense and noninterest income to
3
exclude from these items (as calculated under GAAP) certain component
elements, such as non-recurring charges, and other real estate expense
(deducted from noninterest expense) and securities transactions and
other non-recurring income items (excluded from noninterest income).
We follow these practices.
4
PART I
Item 1. Business
General
TrustCo Bank Corp NY ("TrustCo" or the "Company") is a savings and loan
holding company having its principal place of business at 5 Sarnowski Drive,
Glenville, New York 12302. TrustCo was incorporated under the laws of New
York in 1981 to acquire all of the outstanding stock of Trustco Bank,
National Association, formerly known as Trustco Bank New York, and prior to
that, The Schenectady Trust Company. On July 28, 2000 TrustCo acquired
Landmark Financial Corp. and its subsidiary Landmark Community Bank,
Canajoharie, New York, a federal savings bank with assets of approximately
$26 million. Landmark Community Bank was subsequently renamed Trustco Savings
Bank, and, on November 15, 2002, Trustco Savings Bank and Trustco Bank,
National Association merged under the charter of Trustco Savings Bank. In
that merger, the resulting bank changed its name to Trustco Bank (sometimes
referred to in this report as the "Bank").
Through policy and practice, TrustCo continues to emphasize that it is an
equal opportunity employer. There were 554 full-time equivalent employees of
TrustCo at year-end 2006. TrustCo had 14,693 shareholders of record as of
December 29, 2006 (the last business day in 2006) and the closing price of
the TrustCo common stock on that date was $11.12.
Subsidiaries
Trustco Bank
Trustco Bank is a federal savings bank engaged in providing general banking
services to individuals, partnerships, and corporations. The Bank operates 89
automatic teller machines and 90 banking offices in Albany, Columbia,
Dutchess, Greene, Rensselaer, Rockland, Saratoga, Schenectady, Schoharie,
Ulster, Warren, Washington and Westchester counties of New York, Hillsborough,
Lake, Orange, Sarasota and Seminole counties in Florida, Bennington County in
Vermont, Berkshire County in Massachusetts and Bergen County in New Jersey. The
largest part of such business consists of accepting deposits and making loans
and investments. The Bank provides a wide range of both personal and business
banking services. The Bank is supervised and regulated by the Federal Office of
Thrift Supervision ("OTS") and is a member of the Federal Reserve System. Its
deposits are insured by the Federal Deposit Insurance Corporation ("FDIC") to
the extent permitted by law. The Bank established an operating subsidiary,
Trustco Vermont Investment Company, in September 2003 for the purposes of
holding all of the shares of the capital stock of the Bank's existing
subsidiary, Trustco Realty Corp., that were held by the Bank and of acquiring
and managing other investments. Trustco Realty Corp. holds certain mortgage
assets which are serviced by the Bank. The Bank accounted for substantially all
of TrustCo's 2006 consolidated net income and average assets.
5
The trust department of the Bank serves as executor of estates and trustee of
personal trusts, provides asset and wealth management services, provides
estate planning and related advice, provides custodial services, and acts as
trustee for various types of employee benefit plans and corporate pension and
profit sharing trusts. The aggregate market value of the assets under trust,
custody, or management of the trust department of the Bank was approximately
$901 million as of December 31, 2006.
The daily operations of the Bank remain the responsibility of its officers,
subject to the oversight of its Board of Directors and overall supervision by
TrustCo. The accounts of the Bank are included in TrustCo's consolidated
financial statements.
ORE Subsidiary
In 1993, TrustCo created ORE Subsidiary Corp., a New York corporation, to hold
and manage certain foreclosed properties acquired by the Bank. The accounts of
this subsidiary are included in TrustCo's consolidated financial statements.
TrustCo Charitable Foundation, Inc.
In 2005, TrustCo founded TrustCo Charitable Foundation, Inc., a New York
corporation, for the purpose of making charitable contributions to the
communities it serves. The accounts of this Company are not included in
TrustCo's consolidated financial statements.
Competition
TrustCo faces strong competition in its market areas, both in attracting
deposits and making loans. The Company's most direct competition for
deposits, historically, has come from commercial banks, savings associations,
and credit unions that are located or have branches in the Bank's market
areas. The competition ranges from other locally based commercial banks,
savings banks and credit unions to branch offices of the largest financial
institutions in the United States. In the Capital District area of New York
State, TrustCo's principal competitors are local operations of super regional
banks, branch offices of money center banks, and locally based commercial and
savings banks. The Bank is the largest depository institution headquartered
in the Capital District area of New York State. The Company also faces
competition for deposits from national brokerage houses, short-term money
market funds, and other corporate and government securities funds.
Factors affecting the acquisition of deposits include pricing, office
locations and hours of operation, the variety of deposit accounts offered,
and the quality of customer service provided. Competition for loans has been
especially keen during the last several years. Commercial banks, thrift
institutions, traditional mortgage brokers affiliated with local offices, and
nationally franchised real estate brokers are all active and aggressive
competitors. The Company competes in this environment by providing a full
range of financial services based on a tradition of financial strength and
integrity dating from its
6
inception. The Company competes for loans, principally through the interest
rates and loan fees it charges, and the efficiency and quality of services it
provides to borrowers.
Supervision and Regulation
Banking is a highly regulated industry, with numerous federal and state laws
and regulations governing the organization and operation of banks and their
affiliates. As a savings and loan holding company registered under the Home
Owners' Loan Act (the "HOLA"), TrustCo is regulated and examined by the OTS.
The HOLA requires TrustCo to obtain prior OTS approval for acquisitions and
restricts the business operations permitted to TrustCo. Because the FDIC
provides deposit insurance to the Bank, the Bank is also subject to its
supervision and regulation even though the FDIC is not the Bank's primary
federal regulator.
Most of TrustCo's revenues consist of cash dividends paid to TrustCo by the
Bank, payment of which is subject to various regulatory limitations. (Note 1
to the consolidated financial statements contained in TrustCo's Annual Report
to Shareholders for the year ended December 31, 2006, which appears in the
footnotes theirin, contains information concerning restrictions on the Bank's
ability to pay dividends and is hereby incorporated by reference.) Compliance
with the standards set forth in the OTS rules regarding capital distribution
by savings associations and savings banks could also limit the amount of
dividends that TrustCo may pay to its shareholders. The banking industry is
also affected by the monetary and fiscal policies of the federal government,
including the Federal Reserve Board, which exerts considerable influence over
the cost and availability of funds obtained for lending and investing.
See Note 16 to the consolidated financial statements contained in TrustCo's
Annual Report to Shareholders for the year ended December 31, 2006, which
appears in the footnotes theirin and contains information concerning
regulatory capital requirements.
The following summary of laws and regulations applicable to the Company and
the Bank is not intended to be a complete description of those laws and
regulations or their effects on the Company and the Bank, and it is qualified
in its entirety by reference to the particular statutory and regulatory
provisions described.
Holding Company Activities
The activities of savings and loan holding companies are governed by the
HOLA. Since TrustCo became a savings and loan holding company in 2002, its
activities are limited to those permissible for "multiple" savings and loan
holding companies (that is, savings and loan holding companies owning more
than one savings association subsidiary) as of March 5, 1987, activities
permitted for bank holding companies as of November 12, 1999 and activities
permissible for "financial holding companies" (which are described below).
"Savings associations" include federal savings banks such as the Bank.
TrustCo must obtain approval from the appropriate bank regulatory agencies
before acquiring control of any insured depository institution.
7
A savings and loan holding company is prohibited from, directly or indirectly,
acquiring more than 5% of the voting stock of another financial institution or
savings and loan holding company, without prior written approval of the Office
of Thrift Supervision and from acquiring or retaining control of a depository
institution that is not insured by the Federal Deposit Insurance Corporation.
In evaluating applications by holding companies to acquire savings institutions,
the Office of Thrift Supervision considers the financial and managerial
resources and future prospects of the Company and institution involved, the
effect of the acquisition on the risk to the deposit insurance funds, the
convenience and needs of the community and competitive factors.
The Office of Thrift Supervision may not approve any acquisition that would
result in a multiple savings and loan holding company controlling savings
institutions in more than one state, subject to two exceptions: (i) the
approval of interstate supervisory acquisitions by savings and loan holding
companies and (ii) the acquisition of a savings institution in another state
if the laws of the state of the target savings institution specifically
permit such acquisitions. The states vary in the extent to which they permit
interstate savings and loan holding company acquisitions.
Although savings and loan holding companies are not currently subject to
specific capital requirements or specific restrictions on the payment of
dividends or other capital distributions, federal regulations do prescribe
such restrictions on subsidiary savings institutions as described below. The
Bank must notify the Office of Thrift Supervision 30 days before declaring
any dividend to the Company. In addition, the financial impact of a holding
company on its subsidiary institution is a matter that is evaluated by the
Office of Thrift Supervision and the agency has authority to order cessation
of activities or divestiture of subsidiaries deemed to pose a threat to the
safety and soundness of the institution.
Securities Regulation and Corporate Governance
The Company's common stock is registered with the Securities and Exchange
Commission under Section 12(b) of the Securities Exchange Act of 1934, and
the Company is subject to restrictions, reporting requirements and review
procedures under federal securities laws and regulations. The Company is also
subject to the rules and reporting requirements of The Nasdaq Stock Market
LLC, on which its Common Stock is traded. Like other issuers of publicly
traded securities, the Company must also comply with The Sarbanes-Oxley Act
of 2002 ("Sarbanes-Oxley"), which implemented legislative reforms intended to
address corporate and accounting fraud and contains reforms of various
business practices and numerous aspects of corporate governance. For example,
Sarbanes-Oxley addresses accounting oversight and corporate governance
matters, including the creation of a five-member oversight board appointed by
the Securities and Exchange Commission to set and enforce auditing, quality
control and independence standards for accountants and have investigative and
disciplinary powers; increased responsibilities and codified requirements
relating to audit committees of public companies and how they interact with a
company's public
8
accounting firm; the prohibition of accounting firms from providing various
types of consulting services to public clients and requiring accounting firms
to rotate partners among public client assignments every five years; expanded
disclosure of corporate operations and internal controls and certification by
chief executive officers and chief financial officers to the accuracy of
periodic reports filed with the SEC; and prohibitions on public company insiders
from trading during retirement plan "blackout" periods, restrictions on loans
to company executives and enhanced controls on and reporting of insider trading.
Although the Company has and will continue to incur additional expense in
complying with the provisions of Sarbanes-Oxley and the resulting
regulations, management does not expect that such compliance will have a
material impact on the Company's financial condition or results of
operations.
Federal Savings Institution Regulation
Business Activities. Federal law and regulations govern the activities of
federal savings banks such as the Bank. These laws and regulations delineate
the nature and extent of the activities in which federal savings banks may
engage. In particular, certain lending authority for federal savings banks,
e.g., commercial, non-residential real property loans and consumer loans, is
limited to a specified percentage of the institution's capital or assets.
Regulatory Capital Requirements. OTS capital regulations require thrifts
to satisfy three capital ratio requirements: tangible capital, Tier 1 core
(leverage) capital, and risk-based capital. In general, an association's
tangible capital, which must be at least 1.5% of adjusted total assets, is
the sum of common shareholders' equity adjusted for the effects of other
comprehensive income ("OCI"), net of the adjustment to record the previously
unrecognized overfunded position of employee benefit plans, less goodwill and
other disallowed assets. An association's ratio of Tier 1 core capital to
adjusted total assets (the "core capital" or "leverage" ratio) must be at
least 3% for the most highly rated associations and 4% for others. Higher
capital ratios may be required if warranted by the particular circumstances
or risk profile of a given association. Under the risk-based capital
requirement, a savings association must have total capital (core capital plus
supplementary capital) equal to at least 8% of risk-weighted assets. Tier 1
capital must represent at least 50% of total capital and consists of core
capital elements, which include common shareholders' equity, qualifying
noncumulative nonredeemable perpetual preferred stock, and minority interests
in the equity accounts of consolidated subsidiaries, but exclude goodwill and
certain other intangible assets. Supplementary capital mainly consists of
qualifying subordinated debt and portions of allowance for loan losses.
The above capital requirements are viewed as minimum standards by the OTS.
The OTS regulations also specify minimum requirements for a savings association
to be considered a "well-capitalized institution" as defined in the "prompt
corrective action" regulation described below. A "well-capitalized" savings
association must have a total
9
risk-based capital ratio of 10% or greater, and a leverage ratio of
5% or greater.
Additionally, to qualify as a "well-capitalized institution," a savings
association's Tier 1 risk-based capital, defined as core capital plus
supplementary capital less portions of the association's allowance for loan
losses, must be equal to at least 6% of risk-weighted assets. The Bank
currently meets all of the requirements of a "well-capitalized institution."
The OTS regulations contain prompt corrective action provisions that require
certain mandatory remedial actions and authorize certain other discretionary
actions to be taken by the OTS against a savings association that falls
within specified categories of capital deficiency. The relevant regulations
establish five categories of capital classification for this purpose, ranging
from "well-capitalized" or "adequately capitalized" through
"undercapitalized," "significantly undercapitalized" and "critically
undercapitalized." In general, the prompt corrective action regulations
prohibit an OTS-regulated institution from declaring any dividends, making
any other capital distributions, or paying a management fee to a controlling
person, such as its parent holding company, if, following the distribution or
payment, the institution would be within any of the three undercapitalized
categories.
Insurance of Deposit Accounts. Deposits of Trustco Bank are insured by the
Deposit Insurance Fund ("DIF") of the FDIC. The FDIC determines insurance
premiums based on a number of factors, primarily the risk of loss that insured
institutions pose to the DIF. Recent legislation eliminated the minimum 1.25%
reserve ratio for the insurance funds, the mandatory assessments when the ratio
falls below 1.25% and the prohibition on assessing the highest quality banks
when the ratio is above 1.25%. The FDIC has the ability to adjust the new
insurance fund's reserve ratio between 1.15% and 1.5%, depending on projected
losses, economic changes and assessment rates at the end of a calendar year.
The FDIC has adopted regulations that set assessment rates that took effect at
the beginning of 2007. The new assessment rates for most banks vary between
five cents and seven cents for every $100 of deposits. A change in insurance
premiums could have an adverse effect on the operating expenses and results of
operations of Trustco Bank. The Bank cannot predict what insurance assessment
rates will be in the future. Assessment credits have been provided to
institutions that paid high premiums in the past, and Trustco Bank will have
credits of approximately $1.3 million to offset premiums in the future.
Insurance of deposits may be terminated by the FDIC upon a finding that the
institution has engaged in unsafe or unsound practices, is in an unsafe or
unsound condition to continue operations or has violated any applicable law,
regulation, rule, order or condition imposed by the FDIC or the OTS. The Bank
does not know of any practice, condition or violation that might lead to
termination of its deposit insurance.
In addition to the assessment for deposit insurance, institutions are required
to make
10
payments on bonds issued in the late 1980s by the Financing Corporation to
recapitalize a predecessor deposit insurance fund.
Limitation on Capital Distributions. Office of Thrift Supervision regulations
impose limitations upon all capital distributions by Trustco Bank, including
cash dividends, payments to repurchase its shares and payments to stockholders
of another institution in a cash-out merger. Under the regulations, an
application to and the prior approval of the Office of Thrift Supervision is
required prior to any capital distribution if the institution does not meet the
criteria for "expedited treatment" of applications under Office of Thrift
Supervision regulations (i.e., generally, examination ratings in the two top
categories), the total capital distributions for the calendar year exceed net
income for that year plus the amount of retained net income for the preceding
two years, the institution would be undercapitalized following the distribution
or the distribution would otherwise be contrary to a statute, regulation or
agreement with Office of Thrift Supervision. If an application is not required,
the institution must still provide prior notice to Office of Thrift Supervision
of the capital distribution if, like the Bank, it is a subsidiary of a holding
company. In the event the Bank's capital fell below its regulatory requirements
or the Office of Thrift Supervision notified it that it was in need of more than
normal supervision, the Bank's ability to make capital distributions could be
restricted. In addition, the Office of Thrift Supervision could prohibit a
proposed capital distribution by any institution, which would otherwise be
permitted by the regulation, if the Office of Thrift Supervision determines
that such distribution would constitute an unsafe or unsound practice.
Assessments. The Bank is required to pay assessments to the Office of Thrift
Supervision to fund the agency's operations. The general assessments, paid on
a semi-annual basis, is computed upon the Bank's total assets, including
consolidated subsidiaries, as reported in the Bank's latest quarterly thrift
financial report. The assessments paid by the Bank for the year ended
December 31, 2006 totaled approximately $500 thousand.
Community Reinvestment Act. The Community Reinvestment Act ("CRA") requires
each savings institution, as well as commercial banks and certain other lenders,
to identify the communities served by the institution's offices and to identify
the types of credit the institution is prepared to extend within those
communities. The CRA also requires the OTS to assess an institution's
performance in meeting the credit needs of its identified communities as part
of its examination of the institution, and to take such assessments into
consideration in reviewing applications with respect to branches, mergers and
other business combinations, including acquisitions by savings and loan holding
companies. An unsatisfactory CRA rating may be the basis for denying such an
application and community groups have successfully protested applications on
CRA grounds. In connection with its assessment of CRA performance, the OTS
assigns CRA ratings of "outstanding," "satisfactory," "needs to improve" or
"substantial noncompliance." The Bank was rated "satisfactory" in its last
CRA examination. Institutions are evaluated based on (i) its record of helping
to meet the credit needs of its assessment area through lending activities;
(ii) its qualified investments; and (iii) the
11
availability and effectiveness of the institution's system for delivering
retail banking services. An institution that is found to be deficient in its
performance in meeting its community's credit needs may be subject to
enforcement actions, including cease and desist orders and civil money
penalties.
Qualified Thrift Lender Test. Like all OTS-regulated institutions, the Bank
is required to meet a Qualified Thrift Lender ("QTL") test or the Internal
Revenue Code's Domestic Building and Loan Association ("DBLA") test to avoid
certain restrictions on its operations, including restrictions on its ability
to branch interstate and the Company's mandatory registration as a savings
and loan holding company under the Act. A savings association satisfies the
QTL test if: (i) on a monthly average basis in at least nine months out of
each twelve month period, at least 65% of a specified asset base of the
savings association consists of loans to small businesses, credit card loans,
educational loans, or certain assets related to domestic residential real
estate, including residential mortgage loans and mortgage securities; or (ii)
at least 60% of the savings association's total assets consist of cash, U.S.
government or government agency debt or equity securities, fixed assets, or
loans secured by deposits, real property used for residential, educational,
church, welfare, or health purposes, or real property in certain urban
renewal areas. To be a QTL under the DBLA test, a savings association must
meet a "business operations test" and a "60 percent of assets test." The
business operations test requires the business of a DBLA to consist primarily
of acquiring the savings of the public and investing in loans. An institution
meets the public savings requirement when it meets one of two conditions: (i)
The institution acquires its savings accounts in conformity with OTS rules
and regulations and (ii) The general public holds more than 75 percent of its
deposits, withdrawable shares, and other obligations. An institution meets
the investing in loans requirement when more than 75 percent of its gross
income consists of interest on loans and government obligations, and various
other specified types of operating income that financial institutions
ordinarily earn. The 60 percent of assets test requires that at least 60
percent of a DBLA's assets must consist of assets that thrifts normally hold,
except for consumer loans that are not educational loans. The Bank is
currently, and expects to remain, in compliance with these standards.
Federal Reserve System
Federal Reserve Board regulations require savings institutions to maintain
non-interest bearing reserves against their transaction accounts. The reserve
for transaction accounts as of December 31, 2006 was as follows:
Amount of transaction accounts Reserve Requirement
$0 to $8.5 million 0 percent of amount.
Over $8.5 million and 3 percent of amount.
up to $45.8 million $1,119,000 plus 10 percent of
Over $45.8 million amount over $45.8 million.
12
The Bank is in compliance with these requirements as of December 31, 2006.
Gramm-Leach-Bliley Act Privacy Requirements
The Gramm-Leach-Bliley Act of 1999 (the "GLB Act") generally provided for
sweeping financial modernization for commercial banks, savings banks, securities
firms, insurance companies, and other financial institutions operating in the
United States. Among other matters, the GLB Act established a federal right to
the confidential treatment of nonpublic personal information about consumers.
These provisions of the GLB Act require disclosure of privacy policies to
consumers and, in some circumstances, will allow consumers to prevent disclosure
of certain personal information to a nonaffiliated third party. Compliance with
the rules was mandatory starting on July 1, 2001. These rules affect how
consumer information is transmitted through diversified financial companies
and conveyed to outside vendors. Because the Company does not sell customer
information or give customer information to outside third parties or its
affiliates except under very limited circumstances (e.g., providing customer
information to the Company's data processing provider), the rules have
not had a significant impact on the Company's results of operations or
financial condition.
Other Legislation
The USA PATRIOT Act ("Patriot Act"), which was enacted in the aftermath of
the September 11, 2001 terrorist attacks, adopted numerous provisions designed
to fight international money laundering and to block terrorist access to the
U.S. financial system. Under Title III of the Patriot Act, also known as the
International Money Laundering Abatement and Anti-Terrorism Financing Act of
2001, all financial institutions, including the Company and the Bank, are
required to take certain measures to identify their customers, prevent money
laundering, monitor certain customer transactions and report suspicious activity
to U.S. law enforcement agencies, and scrutinize or prohibit altogether certain
transactions of special concern. Financial institutions also are required to
respond to requests for information from federal banking regulatory agencies and
law enforcement agencies concerning their customers and their transactions.
Information-sharing among financial institutions concerning terrorist or money
laundering activities is encouraged by an exemption provided from the privacy
provisions of the GLB Act and other laws. Further, the effectiveness of a
financial institution in combating money laundering activities is a factor to
be considered in applications submitted by a financial institution under the
Bank Merger Act. The Company has in place a Bank Secrecy Act compliance program,
and it engages in very few transactions of any kind with foreign financial
institutions or foreign persons.
The Company operates a wholly owned real estate investment trust ("REIT")
subsidiary, which was formed to acquire, hold and manage real estate mortgage
assets, including, but not limited to residential mortgage loans and
mortgage-backed securities. The income earned on these assets, net of
expenses, is distributed in the form of dividends. Under current New York
State tax law, 60% of the dividends received from the REIT are excluded from
total taxable income.
13
The proposed 2007 New York State budget bill contains a provision that would
potentially increase the amount of state tax paid by the Company. The bill,
if enacted as proposed, would be effective for taxable years beginning on or
after January 1, 2007.
Foreign Operations
Neither TrustCo nor the Bank engage in any operations in foreign countries or
have outstanding loans to foreign debtors.
Statistical Information Analysis
The "Management's Discussion and Analysis of Financial Condition and Results
of Operations" are included in TrustCo's Annual Report to Shareholders for
the year ended December 31, 2006, which contains a presentation and discussion
of statistical data relating to TrustCo, is hereby incorporated by reference.
This information should not be construed to imply any conclusion on the part of
the management of TrustCo that the results, causes, or trends indicated therein
will continue in the future. The nature and effects of governmental monetary
policy, supervision and regulation, future legislation, inflation and other
economic conditions and many other factors which affect interest rates,
investments, loans, deposits, and other aspects of TrustCo's operations are
extremely complex and could make historical operations, earnings, assets, and
liabilities not indicative of what may occur in the future.
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, or those most important to the portrayal of the Company's financial
condition and results of operations, 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 subjectivity and uncertainty in estimating 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
TrustCo's Annual Report to Shareholders is a description of this critical policy
and the other significant accounting policies that are utilized by the Company
in the preparation of the Consolidated Financial Statements.
Availability of Reports
This annual report on Form 10-K and subsequently filed quarterly reports on
Form 10-Q, current reports on Form 8-K and all amendments to those reports
are available free of charge from our Internet site, www.trustcobank.com.
14
Forward-Looking Statements
Statements included in the "Management's Discussion and Analysis of Financial
Condition and Results of Operations" of TrustCo's Annual Report to Shareholders
for the year ended December 31, 2006 and in future filings by TrustCo with the
Securities and Exchange Commission, in TrustCo's press releases, and in oral
statements made with the approval of an authorized executive officer which are
not historical or current facts are "forward-looking statements" made pursuant
to the safe harbor provisions of the Private Securities Litigation Reform Act
of 1995 and are subject to certain risks and uncertainties that could cause
actual results to differ materially from historical earnings and those presently
anticipated or projected. TrustCo wishes to caution readers not to place undue
reliance on any such forward-looking statements, which speak only as of the date
made. The following important factors, among others, in some cases have affected
and in the future could affect TrustCo's actual results and could cause
TrustCo's actual financial performance to differ materially from that expressed
in any forward-looking statement: (i) credit risk; (ii) interest rate risk;
(iii) competition; (iv) changes in the regulatory environment; and (v) changes
in local market area and 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.
Item 1A. Risk Factors
These are general risk factors affecting the Company. They are further described
under Item 1. "Business" and in "Management's Discussion and Analysis of
Financial Condition and Results of Operations". Additional risks and
uncertainties not currently known to us or that we currently deem to be
immaterial also may materially and adversely affect our business operations.
Any of these risks could materially and adversely affect our business,
financial condition or results of operations. In such cases, you may lose all
or part of your investment.
Certain interest rate movements may hurt earnings and asset value.
Interest rates have recently been at historically low levels. However, since
June 30, 2004, the U.S. Federal Reserve has increased its target for the
federal funds rate from 1.00% to 5.25%. While these short-term market interest
rates (which are used as a guide to price the Bank's deposits) have increased,
longer-term market interest rates (which are used as a guide to price the Bank's
longer-term loans) have not. This "flattening" of the market yield curve has had
a negative impact on the Bank's interest rate spread and net interest margin to
date, and if short-term interest rates continue to rise, and if rates on the
Bank's deposits and borrowings continue to reprice upwards faster than rates on
the Bank's long-term loans and investments, the Bank would experience further
compression of its interest rate spread and net interest margin, which would
have a negative effect on the Bank's profitability.
15
Changes in interest rates also affect the value of the Bank's interest-earning
assets, and in particular the Bank's securities portfolio. Generally, the value
of fixed-rate securities fluctuates inversely with changes in interest rates.
Unrealized gains and losses on securities available for sale are reported as a
separate component of equity, net of tax. Decreases in the fair value of
securities available for sale resulting from increases in interest rates could
have an adverse effect on shareholders' equity.
Strong competition within the Bank's market areas could hurt profits and slow
growth.
The Bank faces intense competition both in making loans and attracting
deposits. This competition has made it more difficult for the Bank to make
new loans and at times has forced the Bank to offer higher deposit rates.
Price competition for loans and deposits might result in the Bank earning
less on loans and paying more on deposits, which would reduce net interest
income. Competition also makes it more difficult to grow loans and deposits
and to hire and retain experienced employees. Some of the institutions with
which the Bank competes have substantially greater resources and lending
limits than the Bank has and may offer services that the Bank does not
provide. Management expects competition to increase in the future as a result
of legislative, regulatory and technological changes and the continuing trend
of consolidation in the financial services industry. The Bank's profitability
depends upon its continued ability to compete successfully in its market area.
The Company operates in a highly regulated environment and may be adversely
affected by changes in laws, regulations and tax policies.
As described earlier, the Bank is subject to extensive regulation,
supervision and examination by the Office of Thrift Supervision, its primary
federal regulator, and by the Federal Deposit Insurance Corporation, as
insurer of our deposits. Such regulation and supervision govern the
activities in which an institution and its holding company may engage and are
intended primarily for the protection of the insurance fund and the
depositors and borrowers of the Bank rather than for holders of the Company's
common stock. Regulatory authorities have extensive discretion in their
supervisory and enforcement activities, including the imposition of
restrictions on operations, the classification of the Bank's assets and
determination of the level of allowance for loan losses. Any change in such
regulation and oversight, whether in the form of regulatory policy,
regulations, legislation or supervisory action, may have a material impact on
operations.
Likewise, the Company operates in an environment that imposes income taxes on
its operations at both the federal and state levels to varying degrees.
Strategies and operating routines have been implemented to minimize the
impact of these taxes.
16
Consequently, any change in tax legislation could significantly alter the
effectiveness of these strategies.
Negative events in certain geographic areas could adversely affect us.
Negative conditions in the real estate markets where collateral for our
mortgage loans is located could adversely affect our borrower's ability to
repay and the value of the collateral. Real estate values are affected by
various factors, including changes in general or regional economic conditions,
governmental rules or policies and natural disasters such as hurricanes.
We are dependent upon the services of our management team.
We are dependent upon the ability and experience of a number of our key
management personnel who have substantial experience with our operations, the
financial services industry and the markets in which we offer our services.
It is possible that the loss of the services of one or more of our senior
executives or key managers would have an adverse effect on our operations.
Our success also depends on our ability to continue to attract, manage and
retain other qualified middle management personnel as we grow. We cannot
assure you that we will continue to attract or retain such personnel.
Provisions in our articles of incorporation and bylaws and New York law may
discourage or prevent takeover attempts, and these provisions may have the
effect of reducing the market price of our stock.
Our articles of incorporation and bylaws include several provisions that may
have the effect of discouraging or preventing hostile takeover attempts, and
therefore, making the removal of incumbent management difficult. The provisions
include staggered terms for our board of directors and requirements of
supermajority votes to approve certain business transactions. In addition,
New York law contains several provisions that may make it more difficult for
a third party to acquire control of us without the approval of the board of
directors, and may make it more difficult or expensive for a third party to
acquire a majority of our outstanding stock. To the extent that these provisions
are effective in discouraging or preventing takeover attempts, they may tend to
reduce the market price for our stock.
Changes in accounting standards could impact reported earnings.
The accounting standard setting bodies, including the Financial Accounting
Standards Board, the Securities and Exchange Commission and other regulatory
bodies, periodically change financial accounting and reporting standards that
govern the preparation of our consolidated statements. These changes can be
hard to predict and can materially impact how the Company records and reports
its financial condition and results of operations. In some cases, we could be
required to apply a new or revised accounting standard retroactively, which
could effect beginning of period financial statement amounts.
17
The preparation of financial statements requires the use of estimates that may
vary from actual results.
Preparation of consolidated financial statements in conformity with accounting
principles accepted in the United States of America requires management to make
significant estimates that affect the financial statements. One of our most
critical estimates is the level of the allowance for loan losses. Due to the
inherent nature of this estimate, we cannot provide absolute assurance that we
will not significantly increase the allowance for loan losses higher than the
current balance.
We rely on communications, information, operating and financial control systems,
and technology from third-party service providers, and we may suffer an
interruption in those systems that may result in lost business. Further, we
may not be able to substitute providers on terms that are as favorable if our
relationships with our existing service providers are interrupted.
We rely heavily on third-party service providers for much of our communications,
information, operating and financial controls systems, and technology.
Any failure or interruption or breach in security of these systems could result
in failures or interruptions in our customer relationships management, general
ledger, deposit, servicing and/or loan origination systems. We cannot assure you
that such failures or interruptions will not occur or, if they do occur, that
they will be adequately addressed by us or the third parties on which we rely.
The occurrence of any failure or interruption could have a material adverse
effect on our business, financial condition, results of operations and cash
flows. If any of our third-party service providers experience financial,
operational or technological difficulties, or if there is any other disruption
in our relationships with them, we may be required to locate alternative sources
of such services, and we cannot assure you that we could negotiate terms that
are as favorable to us, or could obtain services with similar functionality as
found in our existing systems, without the need to expend substantial resources,
if at all. Any of these circumstances could have a material adverse effect on
our business, financial condition, results of operations and cash flows.
If the business continuity and disaster recovery plans that we have in place
are not adequate to continue our operations in the event of a disaster, the
business disruption can adversely impact our operations.
External events, including terrorist or military actions, or an outbreak of
disease, such as Asian Influenza, or "bird flu" and resulting political and
social turmoil could cause unforeseen damage to our physical facilities or
could cause delays or disruptions to operational functions, including
information processing and financial market settlement functions.
Additionally, our customers, vendors and counterparties could suffer from
such events. Should these events affect us, or our customers, or vendors or
counterparties with which we conduct business, our results of operations
could be adversely affected.
18
Decline in home values in the Company's markets could adversely impact
results from operations.
Like all financial services providers, the Company is subject to the effects
of any economic downturn, and in particular, a significant decline in home
values in the Company's markets could have a negative effect on the results
of operations. A significant decline in home values would likely lead to a
decrease in new home equity loan originations and increased delinquencies and
defaults in both the consumer home equity loan and the residential real
estate loan portfolios and result in increased losses in these portfolios.
Item 1B Unresolved Staff Comments
None.
Item 2. Properties
TrustCo's executive offices are located at 5 Sarnowski Drive, Glenville, New
York, 12302. The Company operates 90 offices, of which 23 are owned and 67 are
leased from others. The asset value of these properties, when considered in the
aggregate, is not material to the operation of TrustCo.
In the opinion of management, the physical properties of TrustCo and the Bank
are suitable and adequate and are being fully utilized.
Item 3. Legal Proceedings
The nature of TrustCo's business generates a certain amount of litigation
against TrustCo and its subsidiaries involving matters arising in the ordinary
course of business. In the opinion of management of TrustCo, there are no
proceedings pending to which TrustCo or any of its subsidiaries is a party, or
of which its property is the subject which, if determined adversely to TrustCo
or such subsidiaries, would be material in relation to TrustCo's consolidated
shareholders' equity and financial condition.
Item 4. Submission of Matters to a Vote of Security Holders
None.
19
Executive Officers of TrustCo
The following is a list of the names and ages of the executive officers of TrustCo
and their business history for the past five years:
Year First
Name, Age and Became
Position With Principal Occupations Or Employment Since Executive
Trustco January 1, 2001 of TrustCo
Robert J. McCormick, President and Chief Executive Officer of TrustCo since January 2000
Age 43, 2004, Executive Officer of TrustCo since 2001 and President
President and Chief and Chief Executive Officer of Trustco Bank since November
Executive Officer 2002. Director of TrustCo and Trustco Bank since 2005. Robert
J. McCormick is the son of Robert A. McCormick.
Robert T. Cushing, Executive Vice President and Chief Financial Officer of 1994
Age 51, TrustCo since January 2004, President and Chief Executive
Executive Vice Officer of TrustCo from November 2002 to December 2003;
President and Chief Executive Officer of TrustCo and Trustco Bank since 1994.
Financial Officer Joined Trustco Bank in 1994.
Scot R. Salvador, Executive Vice President and Chief Banking Officer of TrustCo 2004
Age 40, and Trustco Bank since January 2004. Executive Officer of
Executive Vice TrustCo and Trustco Bank since 2004. Joined Trustco Bank in
President and Chief 1995.
Banking Officer
Thomas M. Poitras, Secretary of TrustCo and Trustco Bank since 2006, 2005
Age 44, Assistant Secretary of Trustco and Trustco Bank from
Vice President and March 2005 to November 2006. Vice President of Trustco Bank
Secretary since 2001 and Executive Officer of TrustCo and Trustco Bank
since 2005. Joined Trustco Bank in 1986.
Robert M. Leonard, Assistant Secretary of TrustCo and Trustco Bank since 2003
Age 44, November 2006, Secretary of Trustco and Trustco Bank from
Administrative Vice 2003 to November 2006. Administrative Vice President of
President and TrustCo and Trustco Bank since 2004. Executive Officer of
Assistant Secretary TrustCo and Trustco Bank since 2003. Joined Trustco Bank
in 1986.
Sharon J. Parvis, Assistant Secretary of TrustCo and Trustco Bank since March 2005
Age 56, 2005. Vice President of Trustco Bank since 1996 and Executive
Vice President and Officer of TrustCo and Trustco Bank since 2005. Joined
Assistant Secretary Trustco Bank in 1987.
Each executive officer is elected by the Board of Directors to serve until
election of his successor.
20
PART II
Item 5. Market for the Registrant's Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities
TrustCo's common stock is traded on The Nasdaq Stock Market, LLC under the
symbol "TRST." Information with respect to the range of high and low sales
prices for TrustCo's common stock, and with respect to the frequency and
amount of cash dividends declared on the common stock, is set forth on page
[1] of TrustCo's Annual Report to Shareholders for the year ended December
31, 2006. TrustCo had 14,669 shareholders of record as of February 20, 2007,
and the closing price of TrustCo's common stock on that date was $10.47.
The following table provides information, as of December 31, 2006, regarding
securities authorized for issuance under TrustCo's equity compensation plans.
Number of
securities
Number of remaining
securities to be available for future
issued upon Weighted-average issuance under
exercise of exercise price equity compensation
outstanding of outstanding plans (excluding
options, warrants options, warrants securities reflected
and rights and rights in column (a))
Plan category (a) (b) (c)
Equity
compensation
plans approved
by security 4,056,666 $10.95 1,173,250
holders
Equity
compensation
plans
not approved
by security None None None
holders
Total 4,056,666 $10.95 1,173,250
The following table provides information with respect to purchases of shares
of TrustCo's common stock made by or on behalf of TrustCo in the fourth
quarter of the year ended December 31, 2006.
21
Purchases of Equity Securities
Total Maximum
Number of Number
Shares Of Shares
Purchased as That May
Part of Yet Be
Total Average Publicly Purchased
Number of Price Announced Under the
2006 Shares Paid per Plans or Plans or
Period Purchased Share Programs Programs
October 1-31 22,500 11.03 0 N/A
November 1-30 103,500 11.09 0 N/A
December 1-31 24,000 11.10 0 N/A
Total 150,000 11.08 0 N/A
TrustCo's Annual Report to Shareholders for the year ended December 31,
2006, which is filed as Exhibit 13 hereto, contains a graph comparing the
yearly percentage change in the Company's cumulative total shareholder return
on its common stock with the cumulative return of the Russell 2000 and the
SNL Superregional Banks. Such graph is incorporated herein by reference.
All 150,000 shares were purchased by other than through a publicly announced
plan or program. All purchases were made in open-market transactions to
provide shares for issuance upon exercise of outstanding stock options issued
by the Company and to provide shares for issuance under the Company's
dividend reinvestment plan.
Item 6. Selected Financial Data
TrustCo's Annual Report to Shareholders for the year ended December 31, 2006,
which is filed as Exhibit 13 hereto, is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
TrustCo's Annual Report to Shareholders for the year ended December 31, 2006,
which is filed as Exhibit 13 hereto, are incorporated herein by reference.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
TrustCo's Annual Report to Shareholders for the year ended December 31, 2006,
which is filed as Exhibit 13 hereto, are incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
The consolidated financial statements, together with the report thereon of
KPMG LLP is included in the TrustCo's Annual Report to Shareholders for the
year ended December 31, 2006, which is filed as Exhibit 13 hereto, are
incorporated herein by reference.
22
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
Item 9A. 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. Disclosure controls and procedures are procedures that are
designed with the objective of ensuring that information required to be
disclosed in the Company's reports filed under the Securities Exchange Act of
1934, such as this Form 10-K, is recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange Commission's
rules and forms. Based on that evaluation, the Chief Executive Officer and
Chief Financial Officer have concluded that the Company's disclosure controls
and procedures are effective to satisfy the objectives for which they are
designed.
Management's Report on Internal Control over Financial Reporting,
together with the report thereon of KPMG LLP is included in the TrustCo's
Annual Report to Shareholders for the year ended December 31, 2006, which is
filed as Exhibit 13 hereto, are incorporated herein by reference.
Subsequent to the date of Management's evaluation and since September 30,
2006, there were no significant changes in the Company's internal controls,
including internal controls over financial reporting, or in other factors
that could significantly affect these controls, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Item 9B. Other Information
None.
PART III
Item 10. Directors and Executive Officers of Registrant
The information in TrustCo's Proxy Statement filed for its Annual Meeting of
Shareholders to be held May 14, 2007 under the following captions is
incorporated herein by reference: "Information on TrustCo Directors and
Nominees" and "Information on TrustCo Executive Officers", and "Section 16(a)
Beneficial Ownership Reporting Compliance". TrustCo has adopted a code of
conduct that applies to all employees, including its principal executive,
financial and accounting officers. A copy of this code of conduct will be
provided without charge upon written request. Requests and inquiries should
be directed to: Sharon J. Parvis, Vice President, TrustCo Bank Corp NY, P.O.
23
Box 1082, Schenectady, New York 12301-1082. The required information
regarding TrustCo's executive officers is contained in PART I in the item
captioned "Executive Officers of TrustCo."
Under rules adopted by the SEC, TrustCo is required to disclose whether
it has an "audit committee financial expert" serving on its Audit Committee.
The Board has determined that none of the members of the Audit Committee meet
the definition of "audit committee financial expert" as defined in those
rules. The Board believes that in order to fulfill all the functions of the
Board and the Audit Committee, each member of the Board and the Audit
Committee should meet all the criteria that have been established by the
Board for Board membership and that it is not in the best interests of the
Company to nominate as a director someone who does not have all the
experience, attributes and qualifications that TrustCo seeks. Further, the
Board believes that the present members of the Audit Committee have
sufficient knowledge and experience in financial affairs to effectively
perform their duties.
TrustCo's Audit Committee consists of five non-employee directors, each
of whom has been selected for the Audit Committee by the Board based on a
determination that they are fully qualified to monitor the performance of
management, the public disclosures by the Company of its financial condition
and performance, the Company's internal accounting operations and our
independent auditors. Members of the committee include William D. Powers
(Chairman), Joseph Lucarelli, Thomas O. Maggs, Anthony J. Marinello,
M.D.,Ph.D., and William J. Purdy. The Audit Committee has the ability on its
own to retain independent accountants or other consultants whenever it deems
appropriate, and has, in fact, retained Marvin & Co., an independent
accounting firm, as a consultant to the committee. Further, the Audit
Committee receives directly or has access to extensive information from
reviews and examinations by the Company's internal auditor, independent
auditor and the various banking regulatory agencies having jurisdiction over
the Company and its subsidiaries.
Item 11. Executive Compensation
The information under the captions "TrustCo and Trustco Bank Executive
Officer Compensation" and "TrustCo Retirement Plans" included in TrustCo's
Proxy Statement filed for its Annual Meeting of Shareholders to be held May
14, 2007, is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
The information under the captions "Information on TrustCo Directors and
Nominees," and "Information on TrustCo Executive Officers," and "Ownership Of
TrustCo Common Stock By Certain Beneficial Owners" in TrustCo's Proxy
Statement filed for its Annual Meeting of Shareholders to be held May 14,
2007, is incorporated herein by reference. Additional information concerning
the Company's equity compensation plan is set forth in Item 5 hereof.
24
Item 13. Certain Relationships and Related Transactions
The information under the caption "Transactions with TrustCo and Trustco Bank
Directors, Executive Officers and Associates" included in TrustCo's Proxy
Statement filed for its Annual Meeting of Shareholders to be held May 14, 2007
is incorporated herein by reference.
Item 14. Principal Accountant Fees and Services
The following table presents fees for professional audit services rendered by
KPMG LLP ("KPMG") for the audit of TrustCo's annual consolidated financial
statements for the fiscal years ended December 31, 2006 and 2005, and fees
billed for other services provided by KPMG during 2006 and 2005.
2006 2005
Audit Fees $340,000 $308,500
Audit Related Fees(1) 12,000 79,400
Tax Fees(2) 117,600 144,700
All Other Fees(3) 87,950 86,969
Total Fees $557,550 $619,569
(1) For 2006 and 2005, audit related fees included audit and accounting
related services. For 2005 audit related fees also included $23,500 for
audits of certain employee benefits.
(2) For 2006 and 2005, tax fees include tax return preparation services and
other compliance services.
(3) For 2006 and 2005, all other fees consisted of fees for tax planning
services.
The Audit Committee preapproves all audit and nonaudit services provided by
the Company's independent auditors. As such, all of the services described
above were approved by the Audit Committee.
PART IV
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
The following financial statements of TrustCo and its consolidated
subsidiaries, and the accountants' report thereon are filed as a part of this
report.
Consolidated Statements of Condition -- December 31, 2006 and 2005.
Consolidated Statements of Income -- Years Ended December 31, 2006, 2005, and
2004.
25
Consolidated Statements of Changes in Shareholders' Equity -- Years Ended
December 31, 2006, 2005, and 2004.
Consolidated Statements of Cash Flows -- Years Ended December 31, 2006, 2005,
and 2004.
Notes to Consolidated Financial Statements.
Financial Statement Schedules
Not Applicable. All required schedules for TrustCo and its subsidiaries have
been included in the consolidated financial statements or related notes thereto.
Supplementary Financial Information
Summary of Unaudited Quarterly Financial Information for the years ended
December 31, 2006 and 2005.
The following exhibits are incorporated herein by reference:*
Exhibit Description
No.
3(i) Amended and Restated Certificate of Incorporation of TrustCo Bank
Corp NY, dated July 27, 1993, as amended.
3(ii) Amended and Restated Bylaws of TrustCo Bank Corp NY, dated
February 20, 2007
10(a) Amended and Restated Trust For Deferred Benefits Provided under
Employment Agreements of Trustco Bank, National Association and
TrustCo Bank Corp NY, dated September 18, 2001.
10(b) Amended and Restated Trust Under Non-Qualified Deferred Compensation
Plans of Trustco Bank, National Association and
TrustCo Bank Corp NY, dated September 18, 2001.
10(c) Amended and Restated Trustco Bank, National Association and
TrustCo Bank Corp NY Supplemental Retirement Plan,
dated September 18, 2001.
10(d) Amended and Restated TrustCo Bank Corp NY Performance Bonus Plan,
dated September 18, 2001.
10(e) Amended and Restated Trustco Bank, National Association Executive
Officer Incentive Plan, dated September 18, 2001.
10(f) Amended and Restated Employment Agreements Between Trustco Bank,
26
National Association, TrustCo Bank Corp NY and each of
Robert T. Cushing and Robert J. McCormick dated September
18, 2001.
10(g) Amended and Restated TrustCo Bank Corp NY 1995 Stock Option Plan,
dated September 18, 2001.
10(h) Amended and Restated TrustCo Bank Corp NY Directors Stock Option
Plan, dated September 18, 2001.
10(i) Amended and Restated TrustCo Bank Corp NY Directors Performance
Bonus Plan, dated September 18, 2001.
10(j) Amended and Restated Trustco Bank, National Association Deferred
Compensation Plan for Directors, dated September 18, 2001.
10(k) Consulting Agreement Between TrustCo Bank Corp NY and
Robert A. McCormick, dated October 11, 2002.
10(l) Amendment No.1 to Amended and Restated TrustCo Bank Corp NY
Performance Bonus Plan, dated November 25, 2003.
10(m) Amended and Restated Employment Agreement between Trustco Bank,
TrustCo Bank Corp NY and Scot R. Salvador, dated January 1, 2004.
10(n) Service Bureau Processing Agreement by and between Fidelity
Information Services, Inc. and TrustCo Bank Corp NY,
dated March 3, 2004.
10(o) Master Service Agreement by and between Sungard Wealth Management
Services, LLC and TrustCo Bank Corp NY dated April 1, 2004
(portions omitted pursuant to a request for confidential treatment).
10(p) 2004 TrustCo Directors Stock Option Plan (incorporated by reference
to Exhibit 4.1 to the Registration Statement on Form S-8
(File No. 333-115689), filed May 20, 2004).
10(q) 2004 TrustCo Stock Option Plan (incorporated by reference to
Exhibit 4.1 to the Registration Statement on Form S-8
(File No. 333-115674), filed May 20, 2004).
10(r) 2005 Amended and Restated Trustco Bank Deferred Compensation Plans
for Directors, dated December 20, 2005.
10(s) Amendment No. 1 to Amended and Restated 1995 TrustCo Bank Corp NY
Stock Option Plan, dated December 20, 2005.
27
10(t) Amendment No. 2 to Amended and Restated 1995 TrustCo Bank Corp NY
Stock Option Plan, dated December 28, 2005.
10(u) Amendment No. 1 to 2004 TrustCo Bank Corp NY Stock Option Plan,
dated December 20, 2005.
10(v) Amendment No. 2 to 2004 TrustCo Bank Corp NY Stock Option Plan,
dated December 28, 2005.
10(w) Amendment No. 1 to Amended and Restated TrustCo Bank Corp NY
Directors Stock Option Plan, dated December 28, 2005.
10(x) Amendment No. 1 to 2004 TrustCo Bank Corp NY Directors Stock Option
Plan, dated December 28, 2005.
10(y) Restatement of Trustco Bank Senior Incentive Plan dated
December 20, 2005.
10(z) Amendment No. 3 to the Amended and Restated Trustco Bank Executive
Officer Incentive Plan.
11 Computation of Net Income Per Common Share.
*The exhibits included under Exhibit 10 constitute all management contracts,
compensatory plans and arrangements required to be filed as an exhibit to this
form pursuant to Item 15 of this report.
28
The following exhibits are filed herewith:
Exhibit
No. Description
10(aa) Amendment No. 1 to the Amended and Restated Trustco Bank
Executive Officer Incentive Plan
10(bb) Amendment No. 2 to the Amended and Restated Trustco Bank
Executive Officer Incentive Plan
13 Portions of Annual Report to Security Holders of TrustCo for the
year ended December 31, 2006.
21 List of Subsidiaries of TrustCo.
23 Consent of Independent Registered Public Accounting Firm.
24 Power of Attorney.
31(i)(a) Rule 13a-14(a)/15d-14(a) Certification of Robert J. McCormick,
principal executive officer.
31(i)(b) Rule 13a-14(a)/15d-14(a) 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.
29
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
TrustCo Bank Corp NY
By: /s/ Robert T. Cushing
---------------------
Robert T. Cushing
Executive Vice President and
Chief Financial Officer
Date: February 27, 2007
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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
Name and Signature Title Date
/s/ Robert J. McCormick President and Chief Executive February 20, 2007
----------------------- Officer (principal executive
Robert J. McCormick officer)
/s/ Robert T. Cushing Executive Vice President and February 20, 2007
----------------------- Chief Financial Officer
Robert T. Cushing (principal financial and
accounting officer)
* Director February 20, 2007
-----------------------
Joseph Lucarelli
* Director February 20, 2007
-----------------------
Thomas O. Maggs
* Director February 20, 2007
-----------------------
Dr. Anthony J. Marinello
* Director February 20, 2007
-----------------------
Robert A. McCormick
* Director February 20, 2007
-----------------------
William D. Powers
* Director February 20, 2007
-----------------------
William J. Purdy
* By: /s/ Thomas Poitras
------------------
Thomas Poitras, as Agent
Pursuant to Power of Attorney
31
Exhibit Index
Exhibit
No. Description
3(i) Amended and Restated Certificate of Incorporation of
TrustCo Bank Corp NY, as amended, incorporated by reference
to, Exhibit 3(i)a to TrustCo Bank Corp NY's Quarterly
Report on Form 10-Q, for the quarter ended June 30, 2006.
3(ii) Amended and Restated Bylaws of TrustCo Bank Corp NY, dated
February 20, 2007, incorporated by reference to Exhibit
3(ii) to TrustCo Bank Corp NY's Report on Form 8-K, filed
February 20, 2007.
10(a) Amended and Restated Trust For Deferred Benefits Provided under
Employment Agreements of Trustco Bank, National Association and
TrustCo Bank Corp NY, dated September 18, 2001 incorporated by
reference to Exhibit 10(b) to TrustCo Bank Corp NY's Annual Report
on Form 10-K, for the year ended December 31, 2001.
10(b) Amended and Restated Trust Under Non-Qualified Deferred Compensation
Plans of Trustco Bank, National Association and TrustCo Bank Corp
NY, dated September 18, 2001, incorporated by reference to,
Exhibit 10(c) to TrustCo Bank Corp NY's Annual Report on Form 10-K,
for the year ended December 31, 2001.
10(c) Amended and Restated Trustco Bank, National Association and
TrustCo Bank Corp NY Supplemental Retirement Plan, dated
September 18, 2001 incorporated by reference to, Exhibit 10(f) to
TrustCo Bank Corp NY's Annual Report on Form 10-K, for the year
ended December 31, 2001.
10(d) Amended and Restated TrustCo Bank Corp NY Performance Bonus Plan,
dated September 18, 2001 incorporated by reference to, Exhibit 10(g)
to TrustCo Bank Corp NY's Annual Report on Form 10-K, for the year
ended December 31, 2001.
10(e) Amended and Restated Trustco Bank, National Association Executive
Officer Incentive Plan, dated September 18, 2001 incorporated by
reference to, Exhibit 10(h) to TrustCo Bank Corp NY's Annual Report
on Form 10-K, for the year ended December 31, 2001.
10(f) Amended and Restated Employment Agreements Between Trustco Bank,
National Association, TrustCo Bank Corp NY and each of
Robert T. Cushing and Robert J. McCormick dated September 18, 2001
incorporated by reference to, Exhibit 10(i) to TrustCo
Bank Corp NY's Annual Report on Form 10-K, for the year ended
December 31, 2001.
32
10(g) Amended and Restated TrustCo Bank Corp NY 1995 Stock Option Plan,
dated September 18, 2001 incorporated by reference to, Exhibit 10(k)
to TrustCo Bank Corp NY's Annual Report on Form 10-K, for the year
ended December 31, 2001.
10(h) Amended and Restated TrustCo Bank Corp NY Directors Stock Option
Plan, dated September 18, 2001 incorporated by reference to,
Exhibit 10(l) to TrustCo Bank Corp NY's Annual Report on Form 10-K,
for the year ended December 31, 2001.
10(i) Amended and Restated TrustCo Bank Corp NY Directors Performance
Bonus Plan, dated September 18, 2001 incorporated by reference to,
Exhibit 10(m) to TrustCo Bank Corp NY's Annual Report on Form 10-K,
for the year ended December 31, 2001.
10(j) Amended and Restated Trustco Bank Deferred Compensation Plan for
Directors, dated September 18, 2001 incorporated by reference to,
Exhibit 10(n) to TrustCo Bank Corp NY's Annual Report on Form 10-K,
for the year ended December 31, 2001.
10(k) Consulting Agreement Between TrustCo Bank Corp NY and
Robert A. McCormick, dated October 11, 2002 incorporated by
reference to, Exhibit 10(a) to TrustCo Bank Corp NY's Quarterly
Report on Form 10-Q, for the quarter ended September 30, 2002.
10(l) Amendment No. 1 to Amended and Restated TrustCo Bank Corp NY
Performance Bonus Plan, dated November 25, 2003 incorporated by
reference to, Exhibit 10(m) to TrustCo Bank Corp NY's Annual Report
on Form 10-K, for the year ended December 31, 2003.
10(m) Amended and Restated Employment Agreement between Trustco Bank,
TrustCo Bank Corp NY, and Scot R. Salvador, dated January 1, 2004
incorporated by reference to, Exhibit 10(a) to
TrustCo Bank Corp NY's Quarterly Report on Form 10-Q, for the
quarter ended March 31, 2004.
10(n) Service Bureau Processing Agreement by and between Fidelity
Information Services, Inc. and TrustCo Bank Corp NY dated
March 3, 2004 incorporated by reference to, Exhibit 10(b) to
TrustCo Bank Corp NY's Quarterly Report on Form 10-Q, for the
quarter ended March 31, 2004.
33
10(o) Master Service Agreement by and between Sungard Wealth Management
Services, LLC and TrustCo Bank Corp NY dated April 1, 2004 (portions
omitted pursuant to a request for confidential treatment)
incorporated by reference to Exhibit 10(a) to TrustCo Bank Corp NY's
Quarterly Report on Form 10-Q, for the quarter ended June 30, 2004.
10(p) 2004 TrustCo Directors Stock Option Plan (incorporated by reference
to Exhibit 4.1 to the Registration Statement on Form S-8
(File No. 333-115689), filed May 20, 2004).
10(q) 2004 TrustCo Stock Option Plan (incorporated by reference to
Exhibit 4.1 to the Registration Statement on Form S-8
(File No. 333-115674), filed May 20, 2004).
10(r) 2005 Amended and Restated Trustco Bank Deferred Compensation Plan
for Directors, dated December 20, 2005, incorporated by reference to
Exhibit 10(s) to TrustCo Bank Corp NY's Annual Report on Form 10-K,
for the year ended December 31, 2005.
10(s) Amendment No. 1 to Amended and Restated 1995 TrustCo Bank Corp NY
Stock Option Plan, dated December 20, 2005, incorporated by
reference to Exhibit 10(v) to TrustCo Bank Corp NY's Annual Report
on Form 10-K, for the year ended December 31, 2005.
10(t) Amendment No. 2 to Amended and Restated 1995 TrustCo Bank Corp NY
Stock Option Plan, dated December 28, 2005, incorporated by
reference to Exhibit 10(w) to TrustCo Bank Corp NY's Annual Report
on Form 10-K, for the year ended December 31, 2005.
10(u) Amendment No. 1 to 2004 TrustCo Bank Corp NY Stock Option Plan,
dated December 20, 2005, incorporated by reference to Exhibit 10(x)
to TrustCo Bank Corp NY's Annual Report on Form 10-K, for the year
ended December 31, 2005.
10(v) Amendment No. 2 to 2004 TrustCo Bank Corp NY Stock Option Plan,
dated December 28, 2005, incorporated by reference to Exhibit 10(y)
to TrustCo Bank Corp NY's Annual Report on Form 10-K, for the year
ended December 31, 2005.
10(w) Amendment No. 1 to Amended and Restated TrustCo Bank Corp NY
Directors Stock Option Plan, dated December 28, 2005, incorporated
by reference to Exhibit 10(z) to TrustCo Bank Corp NY's Annual
Report on Form 10-K, for the year ended December 31, 2005.
34
10(x) Amendment No. 1 to 2004 TrustCo Bank Corp NY Directors Stock Option
Plan, dated December 28, 2005, incorporated by reference to
Exhibit 10(aa) to TrustCo Bank Corp NY's Annual Report on Form 10-K,
for the year ended December 31, 2005.
10(y) Restatement of Trustco Bank Senior Incentive Plan dated
December 20, 2005, incorporated by reference to Exhibit 10(bb) to
TrustCo Bank Corp NY's Annual Report on Form 10-K, for the year
ended December 31, 2005.
10(z) Amendment No. 3 to the Amended and Restated Trustco Bank Executive
Officer Incentive Plan, incorporated by Reference to Exhibit 99 to
TrustCo Bank Corp NY's Report on Form 8-K, filed December 19, 2006.
10(aa) Amendment No. 1 to the Amended and Restated Trustco Bank
Executive Officer Incentive Plan, filed herewith.
10(bb) Amendment No. 2 to the Amended and Restated Trustco Bank
Executive Officer Incentive Plan, filed herewith.
11 Computation of Net Income Per Common Share. Note 13 of TrustCo's
Annual Report to Shareholders for the year ended December 31, 2006
is incorporated herein by reference.
13 Portions of Annual Report to Security Holders of TrustCo for the
year ended December 31, 2006, filed herewith.
21 List of Subsidiaries of TrustCo, filed herewith.
23 Consent of Independent Registered Public Accounting Firm,
filed herewith.
24 Power of Attorney, filed herewith.
31(i)(a) Rule 13a-14(a)/15d-14(a) Certification of Robert J. McCormick,
principal executive officer, filed herewith.
31(i)(b) Rule 13a-14(a)/15d-14(a) Certification of Robert T. Cushing,
principal financial officer, filed herewith.
32 Section 1350 Certifications of Robert J. McCormick,
principal executive officer and Robert T. Cushing,
principal financial officer, filed herewith.
35
GRAPHICS APPENDIX
Cross Reference to
Omitted Charts Page of Annual Report
1 Taxable Equivalent Net Interest Income 8
2 Efficiency Ratio 22
3 TrustCo 5 Year Chart 53
4 TrustCo 15 Year Chart 54
The charts listed above were omitted from the EDGAR version of Exhibit 13;
however, the information depicted in the charts was adequately discussed
and/or displayed in the tabular information within Management's Discussion
and Analysis section of the Annual Report.
36