TrustCo Announces Fourth Quarter and Full Year 2018 Results; Net Income Up 42.4% Over Prior Year to $61.4 Million

Executive Snapshot:

• Continued solid financial results:
  – Key metrics for fourth quarter 2018:
  — Net income of $16.0 million in the fourth quarter 2018 up 118% compared to $7.4 million in the fourth quarter 2017
  — Return on average assets (ROAA) of 1.30% compared to 0.60% in the fourth quarter of 2017
  — Return on average equity (ROAE) of 13.18% compared to 6.38% in the fourth quarter of 2017
  — Efficiency ratio of 55.06% compared to 53.13% in the fourth quarter of 2017 (Non-GAAP measure)
   
• Asset quality remains strong:
  – Nonperforming assets (NPAs) fell by $962 thousand compared to December 31, 2017
  – NPAs to total assets improved to 0.54% at December 31, 2018
  – Quarterly net chargeoffs were $470 thousand in the fourth quarter 2018, compared to $212 thousand in the fourth quarter 2017

• Loan portfolio reaches all-time high:
  – Average loans were up $244 million for the fourth quarter 2018 compared to fourth quarter of 2017
  – At $3.9 billion as of December 31, 2018, loans continue to set new all-time highs
   
• Year over year deposit growth:
  – Average Deposits balances reached $4.2 billion in fourth quarter 2018 up $77.1 million or 1.9% from fourth quarter 2017
  – Time deposits increased $153.1 million or 14.3% compared to the fourth quarter 2017
  – Average interest bearing checking and demand deposits are up $42.8 million or 3.4% in the fourth quarter 2018 compared to fourth quarter 2017

GLENVILLE, N.Y., Jan. 22, 2019 (GLOBE NEWSWIRE) — TrustCo Bank Corp NY (TrustCo, Nasdaq: TRST) today announced fourth quarter 2018 net income of $16.0 million compared to $7.4 million for the fourth quarter 2017, an increase of 118%.  For the full year 2018, net income rose from $43.1 million to $61.4 million or 42.4% driven by strong performance and the lower tax rate from the Tax Cuts and Jobs Act during 2018.  Income before taxes increased $2.9 million over prior year or 3.8%.

Summary

Robert J. McCormick, Chairman, President and Chief Executive Officer, noted, “We are pleased to be reporting strong 2018 performance, with an increase of over 40% in net income as compared to 2017.  Our focus on traditional lending criteria and conservative balance sheet management has enabled us to produce consistent earnings, maintain solid liquidity and grow capital.  Our strong financial condition is evidenced by our continued recognition as a BauerFinancial, Inc. 5-Star Superior Bank rating.  These strategies have allowed us to continue to grow our business and take advantage of changes in market and competitive conditions.  We continue to achieve new records in residential loan balances through our customer relationships, driving our growth.  Our Board’s decision to increase our quarterly cash dividend by 3.8% to $0.2725 per share reinforces our financial strength.  A meaningful and growing dividend is part of our commitment to provide consistent and favorable long-term shareholder return.  We will continue to take advantage of opportunities as they are presented during the coming year and beyond.”

TrustCo continued to see solid loan growth throughout 2018 compared to the prior year, led by an increase in residential mortgages.  Loan portfolio expansion was funded by a combination of utilizing portions of our strong cash balances and cash flow from our loan and investment portfolios.  The continued shift toward loans helped expand the margin despite higher deposit rates.  We note that current mortgage rates exceed the yield on our existing portfolio of mortgages, which, if sustained, will be a positive factor for net interest margin going forward.  The Federal Reserve decision to raise the target Federal Funds rate throughout the course of the year has contributed to our results as our cash position immediately repriced upward. 

Total average deposits were up $77.1 million in the fourth quarter 2018 versus the fourth quarter 2017.  Interest bearing checking accounts and demand deposits increased $42.8 million in the fourth quarter 2018 versus 2017.  The overall cost of funds increased 23 basis points to 0.61% from the fourth quarter 2017 to the fourth quarter 2018.  The shift towards loans in the asset mix, coupled with a 93 basis-point increase in the yield on Federal Funds more than offset the higher cost of funds, resulting in a 9 basis-point gain in net interest margin to 3.38%.

Details

Average loans were up $244 million or 6.8% in the fourth quarter 2018 over the same period in 2017.  Average residential loans, our primary lending focus, were up $256 million or 8.2% in the fourth quarter 2018, over the same period in 2017.  Total loan growth was offset by a $19.2 million decline in average outstanding home equity lines of credit over the same period.  Mr. McCormick noted, “The growth of our loans and our focus to strengthen the core deposit base reflect the long term strategic focus of our Company.”

Average deposits were up $77.1 million or 1.9% for the fourth quarter 2018 over the same period a year earlier.  Average Core deposits excluding money market deposit accounts declined by $16 million or 0.6%, in fourth quarter 2018 verses 2017.  Money market deposits, our highest costing core deposit declined $59.7 million.  The cost of total deposits increased to 0.60% in the fourth quarter 2018 from 0.36% in the fourth quarter 2017. 

For the fourth quarter 2018, return on average assets and return on average equity were 1.30% and 13.18%, respectively, compared to 0.60% and 6.38% for the fourth quarter 2017.  Diluted earnings per share were $0.166 for the fourth quarter 2018, compared to $0.076 for the fourth quarter 2017.  Total operating expenses increased by $1.4 million in the fourth quarter 2018 as compared to the fourth quarter 2017, with the most significant increases coming in infrastructure investment and professional services.  The increase in expenses was offset with a $1.7 million increase in revenue (net interest income plus non-interest income).  The effective tax rate was 18.9% in the fourth quarter of 2018, compared to 62.6% in the same period a year ago.  This was partially driven by implementation of a tax planning strategy that reduced taxes on a one time basis of $880 thousand.

For 2018, return on average assets and return on average equity were 1.25% and 13.05%, respectively, compared to 0.88% and 9.64% for the year ended 2017.  Diluted earnings per share were $0.636 through December of 2018, compared to $0.448 for the same time period in 2017.

“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.”

Nonperforming loans (NPLs) were $25.0 million at December 31, 2018, compared to $24.4 million at December 31, 2017.  NPLs were equal to 0.64% of total loans at December 31, 2018, compared to 0.67% at December 31, 2017.  The coverage ratio, or allowance for loan losses to NPLs, was 179.2% at December 31, 2018, compared to 181.2% at December 31, 2017.  Nonperforming assets (NPAs) were $26.7 million at December 31, 2018 compared to $27.6 million at December 31, 2017.  The ratio of allowance for loan losses to total loans was 1.16% as of December 31, 2018, compared to 1.21% at December 31, 2017 and reflects both the continued improvement in asset quality and the economic conditions in our primary markets.  The allowance for loan losses was $44.8 million at December 31, 2018 compared to $44.2 million at December 31, 2017.  The provision for loan losses was $1.4 million for 2018, compared to $2.0 million in 2017.  Net chargeoffs decreased to $803 thousand for 2018 from $1.7 million for 2017.  The annualized net chargeoff ratio was 0.05% for 2018, compared to 0.02% in 2017. 

The net interest margin for the fourth quarter 2018 was 3.38%, up 9 basis points versus the fourth quarter 2017, as increases in short term interest rates led to significantly higher earnings on Federal Funds, while slightly better returns were also achieved in the loan and investment portfolios.  Higher loan volumes also increased interest income.  During the same period, the cost of interest bearing liabilities increased 23 basis points.

At December 31, 2018 the equity to asset ratio was 9.88%, compared to 9.34% at December 31, 2017.  Book value per share at December 31, 2018 was $5.06 compared to $4.75 a year earlier.

TrustCo Bank Corp NY is a $5.0 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 December 31, 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 fourth quarter 2018 results will be held at 9:00 a.m. Eastern Time on January 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 10127907.  The call will also be audio webcast at https://services.choruscall.com/links/trst190123.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.