TrustCo Bank Corp NY — Q1 2021 Form 10-Q
Period: Three months ended March 31, 2021; balance-sheet comparisons are to December 31, 2020. Amounts below are in U.S. dollars unless stated otherwise. The interim financial statements are unaudited and were reviewed by Crowe LLP, not audited.
Business context and financial results
TrustCo is a regional bank holding company whose lending is concentrated in residential real estate, with operations in New York and surrounding states and Florida.
| Metric | Q1 2021 | Q1 2020 / comparison |
|---|---|---|
| Interest income | $42.5 million | $46.6 million |
| Interest expense | $2.4 million | $8.1 million |
| Net interest income | $40.1 million | $38.6 million |
| Provision for loan losses | $0.35 million | $2.0 million |
| Noninterest income | $4.4 million | $5.3 million |
| Noninterest expense | $25.3 million | $24.3 million |
| Net income | $14.1 million | $13.3 million |
| Diluted earnings per share | $0.146 | $0.138 |
| Net interest margin, fully taxable equivalent | 2.78% | 3.05% |
| Return on average assets / equity | 0.96% / 10.01% | 1.03% / 9.87% |
Net income rose about 6% year over year. Lower deposit and borrowing costs more than offset reduced interest income, and the smaller loan-loss provision also supported earnings. The margin nevertheless narrowed by 27 basis points. Noninterest income declined mainly because Q1 2020 included a $1.2 million securities-sale gain; Q1 2021 had no securities transaction gain.
Financial position, liquidity and credit
- Assets: $6.05 billion at March 31, up from $5.90 billion at year-end. Cash and cash equivalents were $1.14 billion; available-for-sale securities were $527.6 million.
- Loans and deposits: Gross loans were $4.27 billion, up from $4.24 billion at year-end; deposits were $5.17 billion, up from $5.04 billion. PPP loans outstanding were $36.6 million.
- Borrowings and equity: Short-term borrowings were $230.0 million, versus $214.8 million at year-end. Shareholders’ equity was $571.0 million, versus $568.2 million. The filing reports no long-term borrowings in the presented balance sheet.
- Cash flow: Operating cash flow was $8.7 million, down from $14.5 million in Q1 2020. Investing activities used $119.8 million, largely reflecting $132.5 million of securities purchases; financing provided $144.4 million, primarily from deposit growth. Cash increased $33.3 million during the quarter.
- Credit quality: Nonperforming loans were $21.6 million, compared with $21.1 million at year-end. The allowance for loan losses was $50.0 million, or 1.17% of loans; net recoveries were $46,000 for the quarter. Loans in COVID-related deferral were described as immaterial.
- Capital and dividends: The Bank was categorized as well capitalized. The company declared a quarterly dividend of $0.068125 per share; its stated payout ratio was 46.65%.
Material changes and management commentary
- Average interest-earning assets increased to $5.78 billion from $5.06 billion year over year, with a substantial shift into short-term investments. Their average yield fell to 0.11% from 1.24%, weighing on overall asset yield and margin.
- Average loans grew to $4.25 billion from $4.08 billion, while average loan yield declined to 3.80% from 4.13%. Average interest-bearing deposit costs fell to 0.20% from 0.78%.
- Available-for-sale securities increased to $527.6 million from $439.1 million at year-end. The portfolio’s net unrealized gain declined to about $3.7 million from $9.7 million, primarily due to market interest-rate changes; management said it did not consider the securities other-than-temporarily impaired.
- Management cited the steepening yield curve as potentially favorable to a portfolio mortgage lender, but noted the low-rate environment constrains margins on incremental balance-sheet growth. It may limit or reduce growth if conditions warrant; no earnings guidance was provided.
- Management said COVID-19 had not caused material or systematic adverse effects on Q1 results, while warning that prolonged disruption could affect credit losses, income, asset values and capital. The company intends to adopt CECL on January 1, 2022.
- The Board planned to seek shareholder approval on May 20, 2021 for a 1-for-5 reverse stock split and a corresponding reduction in authorized shares. A new authorization to repurchase up to 2 million shares was approved in February; no shares were repurchased in Q1.
- There were no reported legal proceedings or material changes to previously disclosed risk factors. Management reported effective disclosure controls and no material change in internal control over financial reporting.
Key investor verification points
- Verify the Bank’s total risk-based capital amount in the original filing: the supplied text shows $283.171 million alongside a 19.910% ratio, an apparent inconsistency with the other capital figures.
- Assess whether deposit growth can be deployed into loans or securities at yields sufficient to offset the lower returns on substantial short-term investment balances and sustain net interest margin.
- Track nonperforming loans, delinquencies, allowance adequacy and any changes in COVID-related borrower stress as economic conditions evolve.
- Confirm shareholder action and implementation details for the proposed reverse split, and monitor any actual repurchases under the new authorization.
- Review the company’s CECL implementation and the potential effect of adoption on reserves, earnings and capital beginning January 1, 2022.