Business context and reporting period
TrustCo Bank Corp NY is a bank holding company. This unaudited Form 10-Q covers the three months ended March 31, 2024, with results compared with the first quarter of 2023 and balance-sheet figures generally compared with December 31, 2023. Amounts below are in U.S. dollars; financial statement amounts are shown in millions unless otherwise stated.
Crowe LLP performed an interim review, not an audit, and reported that it was not aware of material modifications needed for the interim financial statements to conform with U.S. GAAP.
Financial results and position
| Metric | Q1 2024 | Comparable period / change |
|---|---|---|
| Interest and dividend income | $59.8 million | $53.9 million in Q1 2023 |
| Interest expense | $23.2 million | $7.0 million in Q1 2023 |
| Net interest income | $36.6 million | $47.0 million; down 22.1% |
| Net interest margin | 2.44% | 3.21%; down 77 basis points |
| Provision for credit losses | $0.6 million | $0.3 million in Q1 2023 |
| Noninterest income / expense | $4.8 million / $24.9 million | $4.7 million / $27.7 million in Q1 2023 |
| Net income; diluted EPS | $12.1 million; $0.64 | $17.7 million; $0.93 |
| Return on average assets / equity | 0.80% / 7.54% | 1.20% / 11.84% in Q1 2023 |
- Management attributed weaker earnings mainly to higher deposit costs in the elevated-rate environment: the average rate paid on interest-bearing liabilities rose to 1.99% from 0.63%, while total earning-asset yield increased to 3.99% from 3.69%.
- Average loans grew $249.4 million year over year to $5.01 billion; average interest-bearing liabilities increased $193.3 million. The average yield on loans was 3.98%, up 25 basis points.
- Noninterest expense fell $2.8 million, chiefly due to a favorable incentive-compensation accrual true-up and lower employee benefit costs. Noninterest income increased $0.2 million, with interchange income and wealth-management fees contributing.
Balance sheet, liquidity, credit, and capital
- Total assets were $6.18 billion at March 31, 2024, versus $6.17 billion at year-end. Net loans were $4.96 billion; total deposits were $5.36 billion; short-term borrowings were $94.4 million; shareholders’ equity was $649.2 million.
- Cash and cash equivalents were $609.7 million, up from $578.0 million at year-end. Q1 operating cash flow was $9.9 million, investing cash flow was positive $18.9 million, and financing cash flow was positive $2.9 million. Cash increased $31.7 million during the quarter.
- Approximately $1.04 billion of deposits were estimated to be uninsured. Management said liquidity was sufficient and cited additional secured borrowing capacity through the Federal Home Loan Bank and Federal Reserve. The Bank does not rely on brokered deposits in its funding strategy, though they are a contingent source.
- The allowance for credit losses on loans was $49.2 million, or 0.98% of loans, compared with $48.6 million and 0.97% at year-end. Allowance coverage of nonperforming loans was 269.3%, versus 275.0% at year-end. Q1 net recoveries were $42,000.
- Nonperforming loans were $18.3 million, up from $17.7 million at year-end; none were 90 days past due and still accruing. Foreclosed real estate rose to $2.3 million from $194,000, including $2.2 million of commercial foreclosed properties. The filing reports a $2.2 million transfer of loans to foreclosed property in Q1.
- Available-for-sale securities had a $34.1 million net unrealized loss at March 31, versus $32.2 million at year-end. Management attributed losses primarily to interest rates, said it did not intend to sell and did not expect to be required to sell before recovery, and recorded no securities credit-loss allowance.
- The Bank remained well capitalized. At March 31, its CET1 and Tier 1 risk-based capital ratios were 18.505%, total risk-based capital was 19.758%, and Tier 1 leverage was 10.427%. Consolidated ratios were 19.168%, 20.421%, and 10.798%, respectively, for CET1, total risk-based capital, and leverage.
- The company declared a $0.36 per-share dividend; its reported Q1 payout ratio was 56.48%. On March 29, the Board authorized a repurchase program for up to 200,000 shares; no shares were repurchased during the quarter.
Outlook, commentary, risks, and unusual items
- No quantitative earnings or financial guidance is provided. Management said margin erosion was slowing and it believed the company was nearing the bottom of the rate cycle; future margin performance depends in part on Federal Reserve decisions and the pace of deposit-cost reductions. It reported lowering rates offered on time deposits while retaining and growing that product.
- Management intends to continue traditional banking and loan-growth strategies but may limit growth or shrink the balance sheet if conditions warrant. It described commercial underwriting as selective because the risk/reward balance has been less favorable in some cases.
- Key disclosed risks include sustained high interest rates and deposit repricing, inflation, economic or market deterioration, credit losses, liquidity and uninsured-deposit dynamics, securities valuation losses, and regional banking-sector instability. The company also identifies cybersecurity, regulatory, litigation, and operational risks.
- The allowance model used a stagflation forecast, including expectations of a slight economic decline and a slight increase in unemployment over the next two years. Management noted that actual credit losses may differ from estimates.
- The FDIC’s special assessment related to certain bank failures was discussed; TrustCo stated it expected no additional cost because its uninsured deposits were below $5 billion.
- Management reported no material pending legal proceedings and no material change in the risk factors from its 2023 Form 10-K. Disclosure controls were concluded to be effective; no material change in internal control over financial reporting was reported.
Important facts for investors to verify
- Whether deposit pricing and time-deposit maturities allow net interest margin to stabilize or recover, given the sharp year-over-year increase in funding costs.
- Trends in uninsured deposits, cash levels, and available secured borrowing capacity, particularly under renewed banking-market stress.
- Whether nonperforming loans, foreclosed property, commercial real-estate exposure, and the allowance remain consistent with management’s credit-loss assumptions.
- How interest-rate changes affect the $34.1 million unrealized loss in available-for-sale securities and whether the company can continue to hold securities through recovery.
- Whether the 200,000-share repurchase authorization is used and how dividends and repurchases affect capital and liquidity.