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TrustCo Announces Second Quarter 2019 Results; Net Income of $14.7 Million and 6.0% Average Residential Loan Growth Year over Year

GLENVILLE, N.Y., July 22, 2019 (GLOBE NEWSWIRE) -- TrustCo Bank Corp NY (TrustCo, NASDAQ: TRST) · TrustCo Bank Corp NY today announced second quarter 2019 net income of $14.7 million or $0.151 diluted earnings per share compared to $15.4 million or $0.160 diluted earnings per share in the second quarter of 2018 despite an increase of $4.8 million in interest expense during the same time period. Similar results were noted during the six month period wherein net income was $29.2 million for the six months ended June 30, 2019 versus $30.2 million for the same period in 2018 while total interest expense increased by $8.3 million.

Summary

Robert J. McCormick, Chairman, President and Chief Executive Officer noted, “Balanced growth of loans and deposits during the second quarter helped preserve our strong liquidity position while at the same time mitigated the impact of margin compression.” Average loans grew by 4.8% and average deposits increased 4.7% for the second quarter of 2019 compared to the second quarter 2018.  Commenting on this growth Mr. McCormick noted “Flexible balance sheet management and our strong liquidity position allows us to invest in our traditional market leading real estate products while retaining our core deposit centered base.  I am pleased with these results and I believe this positions us well for the remainder of this year and beyond.”

The quarter also reflected the sale of the Company’s remaining credit card portfolio which resulted in a gain of approximately $176 thousand and reduced the required loan loss reserve allocated to this portfolio by approximately $540 thousand. The negative second quarter 2019 provision for loan losses of $341 thousand includes a reduction in the allocated reserve and the normal quarterly provision for loan losses of approximately $200 thousand.

Details

Average loans were up $176.6 million or 4.8% in the second quarter 2019 over the same period in 2018.  Average residential loans, our primary lending focus, were up $191.1 million or 6.0% in the second quarter 2019, over the same period in 2018.  Average deposits are up $197.7 million or 4.7% for the second quarter 2019 over the same period a year earlier.  The increase in deposits was the result of a $301.5 million or 26.5% increase in average time deposits versus the same period last year.  Excluding time deposits, total average core deposit accounts, which consist of checking, savings and money market deposits, were down $103.7 million or 3.4% for the second quarter 2019 compared to the second quarter 2018. 

The Federal Open Market Committee (FOMC) increased short term rates 100 basis points from June 2018 to June 2019 while the cost of our interest bearing liabilities increased only 44 basis points over the same period.  The cost of interest bearing liabilities increased to 0.91% in the second quarter 2019 from 0.47% in the second quarter 2018.  The cost of savings and interest bearing checking remained relatively flat over the same time frame.  Money market deposits increased 46 basis points to 0.81% versus 0.35% from the second quarter 2018. A significant portion of our CD portfolio is expected to reprice during the third and fourth quarter at which point current market rates may be lower. The net interest spread for the second quarter 2019 was 2.95%, down 29 basis points from 3.24% in the second quarter of 2018.  Net interest income (TE) decreased by 2.3% or $927 thousand versus the same period last year.  Because we offered competitive shorter term rates, we would expect margin to begin to stabilize in the latter part of 2019 particularly in third and fourth quarter as our shorter term time deposits could reprice lower and provide opportunity for increased margin expansion.

The Bank continued to demonstrate its ability to grow shareholders’ equity as average equity was up $41.4 million or 8.9% in the second quarter of 2019 compared to the same period in 2018.  On this expanded equity, return on average assets and return on average equity for the second quarter 2019 were 1.14% and 11.60%, respectively, compared to 1.26% and 13.26% for the second quarter 2018.  Improving efficiencies to reduce costs continues to remain a key area of focus.  Total operating expenses increased by $807 thousand or 3.3% in the second quarter 2019 as compared to the second quarter 2018, driven by an increase in salaries and employee benefits, partially offset by a 13.6% decline in professional services costs.  The growth in salaries and benefit expense was the result of our targeted effort to hire and retain talent.

Asset quality and loan loss reserve measures continued to improve.  Nonperforming loans (NPLs) were $22.1 million at June 30, 2019, compared to $24.2 million at June 30, 2018.  NPLs were 0.57% of total loans at June 30, 2019, compared to 0.65% at June 30, 2018.  The coverage ratio, or allowance for loan losses to NPLs, was 200.4% at June 30, 2019, compared to 184.2% at June 30, 2018.  Nonperforming assets (NPAs) were $24.8 million at June 30, 2019 compared to $26.7 million at June 30, 2018.  The ratio of allowance for loan losses to total loans was 1.14% as of June 30, 2019, compared to 1.19% at June 30, 2018 which reflects both the improvement in asset quality and economic conditions in our lending areas.  The allowance for loan losses was $44.4 million at June 30, 2019 compared to $44.5 million at June 30, 2018.  The provision for loan losses decreased reflecting continued strong credit performance within the loan portfolio and the sale of the credit card portfolio which yielded $541 thousand or 1.2% decrease in the reserve.  Net recoveries for the second quarter 2019 were $35 thousand versus a net chargeoffs in the second quarter 2018 of $176 thousand driven by the settlement of the non performing loan sale.  The annualized net chargeoffs ratio was 0.00% for the second quarter 2019, compared to 0.02% in the second quarter 2018. 

At June 30, 2019 the tangible equity to tangible asset ratio was 9.85%, compared to 9.52% at June 30, 2018.  As mentioned earlier, the Bank is proud of its ability to grow shareholder equity.  Book value per share at June 30, 2019 was $5.32, up 9.24% compared to $4.87 a year earlier.

TrustCo Bank Corp NY is a $5.2 billion savings and loan holding company and through its subsidiary, Trustco Bank, operated 148 offices in New York, New Jersey, Vermont, Massachusetts, and Florida at June 30, 2019.

In addition, the Bank’s Financial Services Department offers a full range of investment services, retirement planning and trust and estate administration services.  The common shares of TrustCo are traded on the NASDAQ Global Select Market under the symbol TRST.

A conference call to discuss second quarter 2019 results will be held at 9:00 a.m. Eastern Time on July 23, 2019.  Those wishing to participate in the call may dial toll-free 1-888-339-0764.  International callers must dial 1-412-902-4195.  Please ask to be joined into the TrustCo Bank Corp NY / TRST call.  A replay of the call will be available for thirty days by dialing 1-877-344-7529 (1-412-317-0088 for international callers), Conference Number 10133313.  The call will also be audio webcast at: https://services.choruscall.com/links/trst190723.html, and will be available for one year. 

Safe Harbor Statement 
All statements in this news release that are not historical are forward-looking statements within the meaning of the Securities Exchange Act of 1934, as amended.  Forward-looking statements can be identified by words such as "anticipate," "intend," "plan," "goal," "seek," "believe," "project," "estimate," "expect," "strategy," "future," "likely," "may," "should," "will" and similar references to future periods. Examples of forward-looking statements include, among others, statements we make regarding our expectations for our performance during 2018, the impact of Federal Reserve actions regarding interest rates and the growth of loans and deposits throughout our branch network, our ability to capitalize on economic changes in the areas in which we operate and the extent to which higher expenses to fulfill operating and regulatory requirements recur or diminish over time.  Such forward-looking statements are subject to factors that could cause actual results to differ materially for TrustCo from those discussed. 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:  our ability to continue to originate a significant volume of one-to-four family mortgage loans in our market areas; our ability to continue to maintain noninterest expense and other overhead costs at reasonable levels relative to income; our ability to make accurate assumptions and judgments regarding the credit risks associated with lending and investing activities; the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Federal Reserve Board, inflation, interest rates, market and monetary fluctuations; restrictions or conditions imposed by our regulators on our operations that may make it more difficult for us to achieve our goals; the future earnings and capital levels of us and Trustco Bank and the continued receipt of approvals from our primary federal banking regulators under regulatory rules to distribute capital to TrustCo, which could affect our ability to pay dividends; results of supervisory monitoring or examinations of Trustco Bank and TrustCo by our respective regulators; adverse conditions in the securities markets that lead to impairment in the value of securities in our investment portfolio; unanticipated effects from the Tax Cut and Jobs Act that may limit its benefits or adversely impact our business;  the perceived overall value of our products and services by users, including in comparison to competitors’ products and services and the willingness of current and prospective customers to substitute competitors’ products and services for our products and services; changes in consumer spending, borrowing and saving habits; the effect of changes in financial services laws and regulations and the impact of other governmental initiatives affecting the financial services industry; changes in management personnel; real estate and collateral values; changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the FASB or PCAOB; disruptions, security breaches, or other adverse events affecting the third-party vendors who perform several of our critical processing functions; technological changes and electronic, cyber and physical security breaches; changes in local market areas and general business and economic trends, as well as changes in consumer spending and saving habits; our success at managing the risks involved in the foregoing and managing our business; and other risks and uncertainties under the heading “Risk Factors” in our most recent annual report on Form 10-K and, if any, in our subsequent quarterly reports on Form 10-Q or other securities filings.

...
         
TRUSTCO BANK CORP NY        
GLENVILLE, NY        
         
FINANCIAL HIGHLIGHTS        
         
(dollars in thousands, except per share data)        
(Unaudited)        
    Three months ended        
    6/30/2019   3/31/2019   6/30/2018        
Summary of operations                    
Net interest income (TE) $ 39,192     39,733     40,119          
(Credit) Provision for loan losses   (341 )   300     300          
Noninterest income   4,914     4,637     4,495          
Noninterest expense   24,902     24,867     24,095          
Net income   14,667     14,558     15,405          
                     
Per common share                    
Net income per share:                    
- Basic $ 0.152     0.150     0.160          
- Diluted   0.151     0.150     0.160          
Cash dividends   0.068     0.068     0.066          
Book value at period end   5.32     5.18     4.87          
Market price at period end   7.92     7.76     8.90          
                     
At period end                    
Full time equivalent employees   858     899     829          
Full service banking offices   148     148     148          
                     
Performance ratios                    
Return on average assets   1.14   % 1.17     1.26          
Return on average equity   11.60     11.93     13.26          
Efficiency (1)   55.98     56.10     53.35          
Net interest spread (TE)   2.95     3.11     3.24          
Net interest margin (TE)   3.11     3.24     3.32          
Dividend payout ratio   44.94     45.23     41.08          
                     
Capital ratios at period end                    
Consolidated tangible equity to tangible assets (2)   9.85   % 9.72     9.52          
Consolidated equity to assets   9.86   % 9.73     9.53          
                     
Asset quality analysis at period end                    
Nonperforming loans to total loans   0.57     0.64     0.65          
Nonperforming assets to total assets   0.47     0.50     0.54          
Allowance for loan losses to total loans   1.14     1.16     1.19          
Coverage ratio (3)   2.0x   1.8x   1.8x        
                     
(1)  Non-GAAP measure; calculated as noninterest expense (excluding ORE income/expense) divided by taxable equivalent net interest income plus noninterest income. 
(2)  Non-GAAP measure; calculated as total equity less $553 of intangible assets divided by total assets less $553 of intangible assets. 
(3)  Calculated as allowance for loan losses divided by total nonperforming loans. 
       
TE = Taxable equivalent      
                     
                     
                     
FINANCIAL HIGHLIGHTS, Continued      
       
(dollars in thousands, except per share data)      
(Unaudited)      
    Six months ended            
    06/30/19   06/30/18            
Summary of operations                    
Net interest income (TE) $ 78,925     79,431              
(Credit) Provision for loan losses   (41 )   600              
Noninterest income   9,551     9,174              
Noninterest expense   49,769     48,250              
Net income   29,225     30,213              
                     
Per common share                    
Net income per share:                    
- Basic $ 0.302     0.313              
- Diluted   0.302     0.313              
Cash dividends   0.136     0.131              
Tangible Book value at period end   5.32     4.87              
Market price at period end   7.92     8.90              
                     
Performance ratios                    
Return on average assets   1.15     1.24              
Return on average equity   11.76     13.17              
Efficiency (1)   56.04     53.70              
Net interest spread (TE)   3.03     3.23              
Net interest margin (TE)   3.17     3.30              
Dividend payout ratio   45.08     41.87              
                     
(1)  Calculated as noninterest expense (excluding ORE income/expense) divided by taxable equivalent net interest income plus noninterest income (excluding net securities transactions and gain on sale of building and nonperforming loans). 
                     
TE = Taxable equivalent.        
                     
                     
CONSOLIDATED STATEMENTS OF INCOME
                     
(dollars in thousands, except per share data)                    
(Unaudited)                    
    Three months ended
    6/30/2019   3/31/2019   12/31/2018   9/30/2018   6/30/2018
Interest and dividend income:                    
Interest and fees on loans $ 41,432     41,253     41,184     40,073     38,956  
Interest and dividends on securities available for sale:                  
U. S. government sponsored enterprises   821     783     788     787     787  
State and political subdivisions   3     1     2     7     6  
Mortgage-backed securities and collateralized mortgage                    
obligations - residential   2,152     1,555     1,554     1,601     1,675  
Corporate bonds   272     208     202     202     150  
Small Business Administration - guaranteed                    
participation securities   289     297     329     325     333  
Mortgage-backed securities and collateralized mortgage                    
obligations - commercial   -     -     -     -     (5 )
Other securities   5     5     5     4     4  
Total interest and dividends on securities available for sale   3,542     2,849     2,880     2,926     2,950  
                     
Interest on held to maturity securities:                    
Mortgage-backed securities and collateralized mortgage                    
obligations - residential   209     217     226     232     244  
Total interest on held to maturity securities   209     217     226     232     244  
                     
Federal Reserve Bank and Federal Home Loan Bank stock   199     85     207     82     198  
                     
Interest on federal funds sold and other short-term investments   3,282     3,009     2,367     2,425     2,467  
Total interest income   48,664     47,413     46,864     45,738     44,815  
                     
Interest expense:                    
Interest on deposits:                    
Interest-bearing checking   94     121     111     113     112  
Savings   367     377     401     417     420  
Money market deposit accounts   1,119     826     618     544     452  
Time deposits   7,512     5,976     4,643     3,864     3,439  
Interest on short-term borrowings   381     381     352     277     283  
Total interest expense   9,473     7,681     6,125     5,215     4,706  
                     
Net interest income   39,191     39,732     40,739     40,523     40,109  
                     
Less: (Credit) Provision for loan losses   (341 )   300     500     300     300  
Net interest income after provision for loan losses   39,532     39,432     40,239     40,223     39,809  
                     
Noninterest income:                    
Trustco Financial Services income   1,683     1,733     1,356     1,516     1,596  
Fees for services to customers   2,611     2,520     2,897     2,693     2,677  
Other   620     384     199     246     222  
Total noninterest income   4,914     4,637     4,452     4,455     4,495  
                     
Noninterest expenses:                    
Salaries and employee benefits   11,711     11,451     10,183     10,761     10,741  
Net occupancy expense   4,006     4,167     4,800     3,997     4,101  
Equipment expense   1,709     1,902     1,741     1,783     1,793  
Professional services   1,568     1,650     1,733     1,578     1,814  
Outsourced services   1,875     1,925     1,875     1,875     1,825  
Advertising expense   778     785     876     844     670  
FDIC and other insurance   598     648     522     682     514  
Other real estate (income) expense, net   210     (24 )   37     528     294  
Other   2,447     2,363     3,152     2,496     2,343  
Total noninterest expenses   24,902     24,867     24,919     24,544     24,095  
                     
Income before taxes   19,544     19,202     19,772     20,134     20,209  
Income taxes   4,877     4,644     3,739     4,935     4,804  
                     
Net income $ 14,667     14,558     16,033     15,199     15,405  
                     
Net income per common share:                    
- Basic $ 0.152     0.150     0.166     0.157     0.160  
                     
- Diluted   0.151     0.150     0.166     0.157     0.160  
                     
Average basic shares (in thousands)   96,822     96,744     96,555     96,555     96,449  
Average diluted shares (in thousands)   96,891     96,822     96,689     96,689     96,580  
                     
Note:  Taxable equivalent net interest income $ 39,192     39,733     40,740     40,526     40,119  
                     
                     
CONSOLIDATED STATEMENTS OF INCOME, Continued          
           
(dollars in thousands, except per share data)          
(Unaudited)          
    Six months ended            
    06/30/19   06/30/18            
Interest and dividend income:                    
Interest and fees on loans $ 82,685     77,047                
Interest and dividends on securities available for sale:                  
U. S. government sponsored enterprises   1,604     1,537                
State and political subdivisions   4     13                
Mortgage-backed securities and collateralized mortgage                    
obligations - residential   3,707     3,438                
Corporate bonds   480     283                
Small Business Administration - guaranteed                    
participation securities   586     685                
Mortgage-backed securities and collateralized mortgage                    
obligations - commercial   -     37                
Other securities   10     9                
Total interest and dividends on securities available for sale   6,391     6,002                
                     
Interest on held to maturity securities:                    
Mortgage-backed securities-residential   426     504                
Total interest on held to maturity securities   426     504                
                     
Federal Reserve Bank and Federal Home Loan Bank stock   284     275                
                     
Interest on federal funds sold and other short-term investments   6,291     4,484                
Total interest income   96,077     88,312                
                     
Interest expense:                    
Interest on deposits:                    
Interest-bearing checking   215     218                
Savings   744     839                
Money market deposit accounts   1,945     891                
Time deposits   13,488     6,299                
Interest on short-term borrowings   762     641                
Total interest expense   17,154     8,888                
                     
Net interest income   78,923     79,424                
                     
Less: (Credit) Provision for loan losses   (41 )   600                
Net interest income after provision for loan losses   78,964     78,824                
                     
Noninterest income:                    
Trustco Financial Services income   3,416     3,411                
Fees for services to customers   5,131     5,322                
Other   1,004     441                
Total noninterest income   9,551     9,174                
                     
Noninterest expenses:                    
Salaries and employee benefits   23,162     21,163                
Net occupancy expense   8,173     8,416                
Equipment expense   3,611     3,544                
Professional services   3,218     3,244                
Outsourced services   3,800     3,750                
Advertising expense   1,563     1,300                
FDIC and other insurance   1,246     1,537                
Other real estate expense, net   186     666                
Other   4,810     4,630                
Total noninterest expenses   49,769     48,250                
                     
Income before taxes   38,746     39,748                
Income taxes   9,521     9,535                
                     
Net income $ 29,225     30,213                
                     
Net income per common share:                    
- Basic $ 0.302     0.313              
                     
- Diluted   0.302     0.313              
                     
Average basic shares (in thousands)   96,784     96,401              
Average diluted shares (in thousands)   96,857     96,535              
                     
Note:  Taxable equivalent net interest income $ 78,925     79,431              
                     
                     
                     
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
 
(dollars in thousands)
(Unaudited)
    6/30/2019   3/31/2019   12/31/2018   9/30/2018   6/30/2018
ASSETS:                    
                     
Cash and due from banks $ 42,471     43,064     49,260     42,195     40,567  
Federal funds sold and other short term investments   517,684     576,123     454,449     423,254     546,049  
Total cash and cash equivalents   560,155     619,187     503,709     465,449     586,616  
                     
Securities available for sale:                    
U. S. government sponsored enterprises   184,448     148,292     152,160     150,053     150,704  
States and political subdivisions   170     172     173     180     524  
Mortgage-backed securities and collateralized mortgage                    
obligations - residential   354,679     312,946     262,032     269,093     283,252  
Small Business Administration - guaranteed                    
participation securities   53,091     54,113     56,475     57,894     61,876  
Corporate bonds   40,467     30,258     29,938     29,977     29,977  
Other securities   685     685     685     685     685  
Total securities available for sale   633,540     546,466     501,463     507,882     527,018  
                     
Held to maturity securities:                    
Mortgage-backed securities and collateralized mortgage                    
obligations-residential   20,667     21,609     22,501     23,462     24,730  
Total held to maturity securities   20,667     21,609     22,501     23,462     24,730  
                     
Federal Reserve Bank and Federal Home Loan Bank stock   9,183     8,953     8,953     8,953     8,953  
                     
Loans:                    
Commercial   190,507     190,347     196,146     190,987     190,904  
Residential mortgage loans   3,428,829     3,376,193     3,376,708     3,331,212     3,245,151  
Home equity line of credit   277,559     282,034     289,540     293,750     295,791  
Installment loans   9,514     12,579     11,702     9,967     9,309  
Loans, net of deferred net costs   3,906,409     3,861,153     3,874,096     3,825,916     3,741,155  
                     
Less: Allowance for loan losses   44,365     44,671     44,766     44,736     44,503  
Net loans   3,862,044     3,816,482     3,829,330     3,781,180     3,696,652  
                     
Bank premises and equipment, net   34,058     34,428     34,694     35,214     35,521  
Operating lease right-of-use assets   51,097     51,559     -     -     -  
Other assets   56,926     57,637     58,263     63,211     61,069  
                     
Total assets $ 5,227,670     5,156,321     4,958,913     4,885,351     4,940,559  
                     
LIABILITIES:                    
Deposits:                    
Demand $ 432,780     408,417     405,069     403,047     404,564  
Interest-bearing checking   888,433     895,099     904,678     918,486     925,295  
Savings accounts   1,132,308     1,150,329     1,182,683     1,221,127     1,257,744  
Money market deposit accounts   562,318     538,043     507,311     501,270     512,453  
Time deposits   1,446,428     1,421,181     1,274,506     1,155,994     1,155,214  
Total deposits   4,462,267     4,413,069     4,274,247     4,199,924     4,255,270  
                     
Short-term borrowings   166,746     159,778     161,893     176,377     182,705  
Operating lease liabilities   56,237     56,723     -     -     -  
Accrued expenses and other liabilities   26,790     25,033     32,902     31,932     31,769  
                     
Total liabilities   4,712,040     4,654,603     4,469,042     4,408,233     4,469,744  
                     
SHAREHOLDERS' EQUITY:                    
Capital stock   100,180     100,180     100,175     100,175     100,093  
Surplus   176,396     176,510     176,710     176,764     176,243  
Undivided profits   272,433     264,364     256,397     246,965     238,342  
Accumulated other comprehensive loss, net of tax   (1,774 )   (7,011 )   (10,309 )   (13,000 )   (9,796 )
Treasury stock at cost   (31,605 )   (32,325 )   (33,102 )   (33,786 )   (34,067 )
                     
Total shareholders' equity   515,630     501,718     489,871     477,118     470,815  
                     
Total liabilities and shareholders' equity $ 5,227,670     5,156,321     4,958,913     4,885,351     4,940,559  
                     
Outstanding shares (in thousands)   96,822     96,746     96,659     96,586     96,475