TrustCo Bank Corp NY — 2017 Form 10-K Summary
Business context and reporting period
Annual report for the fiscal year ended December 31, 2017, filed March 1, 2018. TrustCo is a savings and loan holding company whose principal subsidiary, Trustco Bank, conducts substantially all of the Company’s banking business. The Bank serves retail and business customers through 145 banking offices and 157 ATMs across New York, Florida, Vermont, Massachusetts, and New Jersey.
Financial and operating metrics
| Metric | Reported information |
|---|---|
| Regulatory capital, December 31, 2017 | Bank: leverage 9.15%, CET1 17.46%, Tier 1 17.46%, total capital 18.72%. Company: leverage 9.45%, CET1 18.02%, Tier 1 18.02%, total capital 19.28%. Both met applicable capital requirements; the Bank was described as well capitalized. |
| Deferred tax asset | Net deferred tax asset was $7.3 million at year-end. The Tax Cuts and Jobs Act required a write-down that reduced fourth-quarter 2017 net income; the amount of the reduction is not stated in the supplied text. |
| Deposit insurance expense | $2.9 million in 2017, versus $4.7 million in 2016 and $5.0 million in 2015. |
| Loan portfolio geography | Approximately 76.9% secured by property in New York markets and 23.1% in Florida. |
| Trust assets | Approximately $890 million under trust, custody, or management at year-end. |
The supplied filing text refers readers to the incorporated Annual Report to Shareholders for the income statement, balance sheet, cash flows, margins, loan and deposit balances, and other operating statistics. It does not provide clear values for revenue, net income, cash flow, net interest margin, liquidity balances, or debt and borrowings; those figures are therefore not summarized here.
Material changes and unusual items
- The Tax Cuts and Jobs Act was enacted on December 22, 2017, reducing the federal corporate tax rate from 35% to 21%. The Company was still assessing the law’s full effects; the deferred-tax-asset remeasurement reduced fourth-quarter net income.
- FDIC deposit insurance expense declined to $2.9 million from $4.7 million in 2016. The filing notes that related FICO assessments were expected to continue until the bonds matured in 2019.
- The Bank’s capital ratios were substantially above the stated 2017 regulatory minimums, including the capital conservation buffer. The filing says the Company and Bank met capital adequacy requirements in both 2017 and 2016.
- In the fourth quarter, 94,392 shares were purchased at an average $6.50 per share; the purchases were attributed to employee incentive stock-option exercises, not a publicly announced repurchase program.
Outlook, risks, and contingencies
The filing provides no quantified earnings, revenue, or margin guidance. Management cautions that results are subject to interest-rate movements, credit losses, local economic and real-estate conditions, competition, regulation, and other risks. The Federal Reserve raised its target rate by 0.25 percentage points in December 2017; management warned that funding costs could rise faster than asset yields and compress the spread and net interest margin.
- Credit risk is concentrated in one-to-four-family residential mortgages and in New York and Florida. Allowance for loan losses is identified as a critical accounting estimate.
- The Company was evaluating the expected-credit-loss (CECL) standard, effective for it for fiscal years beginning after December 15, 2019. It anticipated a transition adjustment but could not estimate its magnitude or the overall effect.
- Key operational risks include cyberattacks, data breaches, technology disruptions, and reliance on third-party service providers. The Company reported no material cyber-related losses to date.
- Liquidity is managed through policies and monitoring; potential sources include deposits, Federal Reserve and FHLB advances, securities, repurchase agreements, and securities issuance. Specific liquidity ratios or balances are not stated in the supplied text.
- Management reported no pending legal proceedings that it believed would be material to consolidated equity or financial condition. The Bank’s last CRA rating was “satisfactory,” and Trustco Realty met stated REIT tests for 2017.
Important facts for investors to verify
- Review the incorporated 2017 Annual Report to Shareholders for complete year-over-year income, balance-sheet, cash-flow, margin, credit-quality, and liquidity metrics.
- Verify the amount and accounting treatment of the fourth-quarter tax-related deferred-tax write-down and its effect on reported earnings.
- Review the status and terms of the OCC Formal Agreement dated July 21, 2015, listed among the exhibits; the supplied filing text does not clearly state its status.
- Assess loan concentration and credit trends in New York and Florida, including allowance adequacy and nonperforming assets.
- Track interest-rate sensitivity, deposit pricing, liquidity and funding, and the potential capital and allowance effects of CECL adoption.