TrustCo Announces Second Quarter 2018 Net Income of $15.4 Million

Executive Snapshot:

• Continued solid financial results:
  • Key metrics for second quarter 2018:
    • Income before taxes of $20.2 million in the second quarter 2018, up 3.2% compared to $19.6 million in the second quarter of 2017
    • Net income of $15.4 million, up 25.9% compared to $12.2 million in the second quarter of 2017
    • Return on average assets (ROAA) of 1.26% compared to 1.00% in the second quarter of 2017
    • Return on average equity (ROAE) of 13.26% compared to 11.05% in the second quarter of 2017
    • Efficiency ratio of 53.35% compared to 53.33% in the second quarter of 2017 (Non-GAAP measure; see P. 14 for definition)
       
• Asset quality remains solid:
  • Nonperforming assets (NPAs) fell by $1.4 million compared to June 30, 2017
  • NPAs to total assets improved to 0.54%, compared to 0.57% at June 30, 2017
  • Quarterly net chargeoffs were equal to 0.02% of average loans on an annualized basis, compared to 0.05% for the second quarter of 2017
     
• Continued expansion of customer base:
  • Focus on capitalizing on opportunities presented by expanded branch network
  • Core (non-maturity) deposits averaged $20.9 million per branch at June 30, 2018
  • Average core deposits were down $821 thousand in the second quarter 2018 compared to the second quarter 2017, however that was driven by a decrease in relatively high cost money market deposits
    • Excluding money market deposits, core deposits were up $47.2 million or 1.9%
    • The cost of core deposits declined both including and excluding money market balances
       
• Loan portfolio reaches all-time high:
  • Average loans were up $228 million for the second quarter 2018 compared to second quarter of 2017
  • At $3.74 billion as of June 30, 2018, loans reached an all-time high

GLENVILLE, N.Y., July 23, 2018 (GLOBE NEWSWIRE) -- TrustCo Bank Corp NY (TrustCo) (Nasdaq:TRST) today announced second quarter 2018 net income of $15.4 million compared to $12.2 million for the second quarter 2017, an increase of 25.9%.  Second quarter 2018 results include the impact of a lower tax rate resulting from the Tax Cuts and Jobs Act.  On a pre-tax basis, earnings rose from $19.6 million in the second quarter 2017 to $20.2 million in the second quarter 2018. 

Summary

Robert J. McCormick, President and Chief Executive Officer noted, “We are pleased to report a strong second quarter performance, with an increase of 25.9% in net income as compared to the second quarter of 2017.  Solid revenue growth and expense control combined with the lower tax rate to produce these results.  Our focus on traditional lending criteria and conservative balance sheet management has enabled us to produce consistent earnings, maintain strong liquidity and capital and allowed us to continue to grow our business and take advantage of changes in market and competitive conditions.  In terms of our core business, we continue to add customer relationships, which ultimately drive future growth.  We will continue to take advantage of opportunities as they are presented during the coming year and beyond.”  

TrustCo saw continued solid loan growth in the second quarter 2018 compared to the prior year, led by an increase in residential mortgages.  Loan portfolio expansion was funded by a combination of utilizing a portion of our strong cash balances and cash flow from investments, as well as expansion of shareholders equity.  The continued shift toward loans helped sustain the margin despite a decline in mortgage loan yields and higher CD rates.  We note that current mortgage rates exceed the yield on our existing portfolio of mortgages, which, if sustained, will be a positive going forward.  In addition, the cost of our non-maturity deposits remained stable in the second quarter.  The Federal Reserve decision to raise the target Federal Funds rate has contributed to our results as our cash position immediately repriced upward.  Only a portion of the impact of the 25 basis point increase announced on June 13, 2018 is reflected in second quarter results.  Total average deposits were up $32.0 million in the second quarter 2018 versus the prior year.  Core deposits were down a nominal $821 thousand over that time frame, however that was essentially due to a decline of $48.0 million in money market balances.  Because money market balances are by far the highest costing core deposit type, that shift actually resulted in a small decline in the cost of core deposits.  The overall cost of funds increased 12 basis points to 0.47% from the second quarter 2017 to the second quarter 2018.   The shift towards loans in the asset mix, coupled with a 41 basis point increase in the yield on cash and securities more than offset the higher cost of funds, resulting in an 11 basis point gain in net interest margin to 3.32%.   TrustCo’s strong liquidity position continues to allow it to take advantage of opportunities as they arise.

Details

Average loans were up $228.1 million or 6.6% in the second quarter 2018 over the same period in 2017. Average residential loans, our primary lending focus, were up $246.0 million or 8.3% in the second quarter 2018, over the same period in 2017.  Overall loan growth was constrained by a $22.4 million decline in average outstandings on home equity lines of credit. Average deposits were up $32.0 million or 0.8% for the second quarter 2018 over the same period a year earlier.  The growth in deposits was the result of a $56.7 million increase in average interest bearing checking balances, $16.2 million in average demand balances and $32.9 million in time deposits, partly offset by decreases of $48.0 million in money market balances and $25.6 million in savings balances.  Core deposits typically represent longer term customer relationships and are generally lower cost than time deposits.  The cost of total deposits increased to 0.42% in the second quarter 2018 from 0.31% in the second quarter 2017.  The cost of core deposits, including demand, declined by slightly less than 1 basis point to 0.13% over this same time frame.  Mr. McCormick noted that, “The year-over-year growth of our loans and our continued strong core deposit base reflect the long term strategic focus of the Company.”

For the second quarter 2018, return on average assets and return on average equity were 1.26% and 13.26%, respectively, compared to 1.00% and 11.05% for the second quarter 2017.  Diluted earnings per share were $0.160 for the second quarter 2018, compared to $0.127 for the second quarter 2017.  Overall expense control remains a key area of focus.  Total operating expenses increased by $1.2 million in the second quarter 2018 as compared to the second quarter 2017, with the most significant increase coming in salaries and benefits.  The increase in expenses was more than offset by a $1.6 million increase in revenue (net interest income plus non-interest income).  The effective tax rate was 23.8% in the second quarter of 2018, compared to 37.5% in the year ago period, reflecting the Tax Cuts and Jobs Act.

For the first half of 2018, return on average assets and return on average equity were 1.24% and 13.17%, respectively, compared to 0.96% and 10.62% for the second quarter 2017.  Diluted earnings per share were $0.313 for the first half of 2018, compared to $0.241 for the first half of 2017.

“While some banks have backed away from branches, a customer-friendly branch franchise continues to be the key to our long term plans.  We continue to make good progress expanding loans and deposits throughout our entire branch network.  We expect that trend to continue as the newer branches continue to mature.”

“At June 30, 2018, our average deposits per branch were $28.8 million, compared to $29.2 million at June 30, 2017.  The decline was due to the opening of 3 branches in the second quarter of 2018; excluding those openings, the average would have been up $325 thousand per branch.  While total deposit growth is important, TrustCo strives to maximize customer relationships through attracting and increasing core deposit balances.  We have always designed our branches to be smaller and more cost effective than those built by many of our competitors.  We use open floor plans that help maximize the value of our branches.  We remain mindful that fully achieving our goals for newer branches will take time and continued work.  We believe success in growing customer relationships provides basic building blocks that will help drive profit growth for the coming years.”

Asset quality and loan loss reserve measures continued to improve.  Nonperforming loans (NPLs) were $24.2 million at June 30, 2018, compared to $24.5 million at June 30, 2017.  NPLs were equal to 0.65% of total loans at June 30, 2018, compared to 0.70% at June 30, 2017.  The coverage ratio, or allowance for loan losses to NPLs, was 184.2% at June 30, 2018, compared to 180.0% at June 30, 2017.  Nonperforming assets (NPAs) were $26.7 million at June 30, 2018 compared to $28.1 million at June 30, 2017.  The ratio of loan loss allowance to total loans was 1.19% as of June 30, 2018, compared to 1.26% at June 30, 2017 and reflects both the improvement in asset quality and economic conditions in our lending areas.  The allowance for loan losses was $44.5 million at June 30, 2018 compared to $44.2 million at June 30, 2017.  The provision for loan losses was $300 thousand for the second quarter 2018, compared to $550 thousand in the second quarter 2017.  Net chargeoffs for the second quarter 2018 decreased versus the second quarter 2017, falling to $176 thousand from $436 thousand in the year earlier period.  The annualized net chargeoff ratio was 0.02% for the second quarter 2018, compared to 0.05% in the second quarter 2017. 

The net interest margin for the second quarter 2018 was 3.32%, up 11 basis points versus the second quarter 2017, as increases in short term interest rates led to significantly higher earnings on cash, while slightly better returns were also achieved in the investment portfolio.  Loan yields declined slightly, but higher volumes increased interest income.  During the same period, the cost of interest bearing liabilities increased 12 basis points.

At June 30, 2018 the equity to asset ratio was 9.53%, compared to 9.09% at June 30, 2017.  Book value per share at June 30, 2018 was $4.87 compared to $4.66 a year earlier.

TrustCo Bank Corp NY is a $4.9 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, 2018.

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 2018 results will be held at 9:00 a.m. Eastern Time on July 24, 2018.  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 10122231. The call will also be audio webcast at: http://services.choruscall.com/links/trst180724.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 comply with the supervisory agreement entered into with Trustco Bank’s regulator and potential regulatory actions if we fail to comply; 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 Trustco Bank and the continued ability of Trustco Bank under regulatory rules and the supervisory agreement 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; our ability to make accurate assumptions and judgments regarding the credit risks associated with lending and investing activities; the effect of changes in financial services laws and regulations and the impact of other governmental initiatives affecting the financial services industry; 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; adverse conditions on the securities markets that lead to impairment in the value of securities in our investment portfolio; changes in law and policy accompanying the new presidential administration and uncertainty or speculation pending the enactment of such changes; 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; technological changes and electronic, cyber, and physical security breaches; real estate and collateral values; changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the FASB or PCAOB; 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.

Non-GAAP Financial Measures Reconciliation

Tangible equity as a percentage of tangible assets at period end is a non-GAAP financial measure derived from GAAP-based amounts. We calculate tangible equity and tangible assets by excluding the balance of intangible assets from shareholders’ equity and total assets, respectively. We calculate tangible equity as a percentage of tangible assets at period end by dividing tangible equity by tangible assets at period end. We believe that this is consistent with the treatment by bank regulatory agencies, which exclude intangible assets from the calculation of risk-based capital ratios. 

The efficiency ratio is a non-GAAP measure of expense control relative to revenue from net interest income and fee income.  We calculate the efficiency ratio by dividing total noninterest expenses as determined under GAAP, but excluding other real estate expense, net, by net interest income (fully taxable equivalent) and total noninterest income as determined under GAAP, but excluding net gains on the sale of nonperforming loans and securities and other non-routine items from this calculation.  We believe that this provides a reasonable measure of primary banking expenses relative to primary banking revenue. 

We believe that these non-GAAP financial measures provide information that is important to investors and that is useful in understanding our financial results. Our management internally assesses our performance based, in part, on these measures.  However, these non-GAAP financial measures are supplemental and not a substitute for an analysis based on GAAP measures. As other companies may use different calculations for these measures, this presentation may not be comparable to other similarly titled measures reported by other companies. A reconciliation of the non-GAAP measures of tangible common equity, tangible book value per share, efficiency ratio, net income and net income per share to the underlying GAAP numbers is set forth below.

Contact:
Kevin T. Timmons
Vice President/Treasurer
(518) 381-3607