TRUSTCO BANK CORP N Y annual report, FY2018

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TrustCo Bank Corp NY — 2018 Form 10-K

Reporting period: Fiscal year ended December 31, 2018; filed March 1, 2019. TrustCo is a savings and loan holding company whose principal subsidiary, Trustco Bank, accounts for substantially all consolidated net income and average assets. The Bank provides retail and business banking across New York, Florida, Vermont, Massachusetts, and New Jersey.

Business and financial position

  • The Bank operated 148 offices and 161 ATMs at year-end and had 854 full-time-equivalent employees. Trustco Financial Services reported approximately $802.6 million in assets under trust, custody, or management.
  • At December 31, 2018, the Bank’s capital ratios were 9.77% Tier 1 leverage, 18.23% CET1, 18.23% Tier 1 risk-based, and 19.49% total capital. TrustCo’s corresponding ratios were 10.13%, 18.79%, 18.79%, and 20.04%. Both met applicable capital requirements; the Bank was described as well-capitalized.
  • FDIC deposit-insurance expense was $1.5 million in 2018, versus $2.9 million in 2017 and $4.7 million in 2016. The Bank’s OCC assessments were approximately $1.1 million in 2018.
  • The 10-K’s Item 6–8 financial data and management discussion are incorporated from the 2018 Annual Report to Shareholders, which is not included in the supplied filing text. Consequently, this text does not provide clear figures for revenue, net income, EPS, net interest income or margin, loan-loss provision, operating cash flow, liquidity, total assets, deposits, loans, or debt.

Changes and notable items

  • The federal corporate tax rate reduction to 21% took effect in 2018. The Company recorded a one-time $880,000 benefit from an adjustment to fixed-asset tax/book basis differences. Separately, the 2017 remeasurement of deferred tax balances had produced $5.1 million of additional fourth-quarter 2017 tax expense.
  • Deposit-insurance expense decreased year over year. The filing says the final FICO assessment was projected to be collected in 2019.
  • No shares were reported as repurchased in the fourth quarter of 2018. The Company reported a December 31 share price of $6.86; the filing gives a June 29, 2018 price of $8.90.
  • The Bank’s loan portfolio was concentrated in property in New York (76.1%) and Florida (23.9%).

Outlook, risks, and contingencies

  • No specific earnings or operating guidance is provided in the supplied text. Management cautions that forward-looking statements are uncertain and disclaims an obligation to update them.
  • Management identified interest-rate risk: rising funding costs could outpace asset yields and compress spreads and net interest margin. Credit quality and collateral values are exposed to economic and housing-market downturns, particularly in the Bank’s principal New York and Florida markets.
  • CECL was scheduled to become effective for the Company in fiscal 2020. Management was evaluating implementation and said the effect, including any opening allowance adjustment, could not yet be determined and could be material.
  • Other cited risks include competition for deposits and loans, regulatory and capital requirements, dividend restrictions, cybersecurity and third-party system disruptions, liquidity access, and the possibility that Trustco Realty could lose REIT tax status. Trustco Realty met its stated asset, income, and distribution tests for 2018.
  • Management reported no pending legal proceeding expected to be material to consolidated equity or financial condition. Disclosure controls were concluded effective; no material change in internal control over financial reporting during the fourth quarter was reported.

Investor verification priorities

  • Review the incorporated 2018 Annual Report to confirm year-over-year revenue, earnings, margins, credit-quality measures, cash flows, balance-sheet totals, and liquidity.
  • Check the full allowance-for-credit-loss and loan delinquency disclosures, especially given the portfolio’s geographic concentration and upcoming CECL adoption.
  • Assess sensitivity to interest-rate changes and the effect of changing deposit costs and securities valuations.
  • Verify the tax benefit, dividend capacity, and regulatory capital figures against the financial statements and applicable regulatory disclosures.