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.

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.