TRUSTCO BANK CORP N Y annual report, FY2015

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TrustCo Bank Corp NY — 2015 Form 10-K Summary

Reporting period: Fiscal year ended December 31, 2015; filed March 4, 2016. TrustCo is a savings and loan holding company whose principal subsidiary, Trustco Bank, conducts substantially all consolidated banking operations. This summary is based on the supplied filing text, which incorporates its detailed financial statements and MD&A by reference rather than reproducing them.

Business context and financial information

  • The Bank provides retail and business banking, with 146 offices and 156 ATMs at year-end, principally in New York and Florida, and in several neighboring states. Its core activities are deposits, loans and investments; residential first mortgages are a primary lending focus.
  • The filing text does not provide clear values for 2015 revenue, net income, net interest income or margin, cash flow, loan balances, asset quality, total debt, or liquidity. Those details are incorporated from the 2015 Annual Report to Shareholders (Exhibit 13).
  • At December 31, 2015, the Bank’s regulatory capital ratios were: Tier 1 leverage 8.6%, CET1 17.2%, Tier 1 risk-based 17.2%, and total risk-based 18.5%. TrustCo’s corresponding ratios were 8.9%, 17.7%, 17.7%, and 19.0%. Both entities were reported as well-capitalized and compliant with applicable capital requirements.
  • FDIC deposit insurance expense was $5.0 million in 2015, compared with $2.6 million in 2014 and $2.7 million in 2013. OCC assessments were approximately $1.0 million in 2015.
  • Trustco Financial Services had approximately $842 million of assets under trust, custody, or management at year-end. The Bank’s loan portfolio was approximately 80.5% secured by property in New York markets and 19.5% in Florida.

Material changes and notable disclosures

  • On July 21, 2015, the Bank entered into a formal agreement with the OCC. Required actions include governance, compliance, internal audit and loan-review improvements, as well as strategic and capital plans. Management said it had submitted all documentation then due; OCC determines compliance.
  • New Basel III-related capital rules became effective for TrustCo and the Bank on January 1, 2015, with some requirements phased in over time. The capital conservation buffer begins phasing in in 2016 and reaches 2.5% in 2019.
  • The filing reports that TrustCo’s disclosure controls were effective and that no material change in internal control over financial reporting occurred during the fourth quarter. The auditor’s report and financial statements are incorporated by reference, not included in the supplied text.
  • TrustCo common stock closed at $6.14 on December 31, 2015. The filing reports 95,368,575 shares outstanding as of March 1, 2016.

Outlook, risks and contingencies

  • No specific earnings, revenue, margin, loan-growth, or capital guidance is provided in the supplied text. Management cautions that forward-looking statements are subject to risks and may differ materially from actual results.
  • Management identifies interest-rate risk: further rate increases could cause funding costs to rise faster than asset yields, compressing spreads and net interest margin. The Federal Reserve raised its target range to 0.25%–0.50% in December 2015.
  • Key risks include residential real-estate and borrower credit deterioration, concentration in New York and Florida, competitive pressure on loan and deposit pricing, regulatory and compliance costs, cybersecurity and third-party service-provider disruptions, and uncertainty in the allowance for loan losses.
  • Dividends from the Bank to TrustCo are subject to the OCC agreement, the approved capital plan, regulatory requirements and approval or non-objection. These restrictions may also affect TrustCo’s ability to pay shareholder dividends or repurchase shares.
  • Management said there were no pending legal proceedings it believed would be material to consolidated shareholders’ equity or financial condition. Trustco Realty met its stated REIT asset, income and distribution tests for 2015.

Investor verification priorities

  1. Review Exhibit 13 for the complete income statement, balance sheet, cash-flow statement, margins, liquidity, loan quality, allowance, and year-over-year results; these figures are not clear in the supplied text.
  2. Check subsequent disclosures on OCC-agreement milestones, compliance status, remediation costs, and any further supervisory action.
  3. Verify the Bank’s capital-plan status, phased-in capital-buffer headroom, and any resulting limits on dividends or capital distributions.
  4. Assess loan concentrations and credit trends in the New York and Florida markets, including delinquencies, nonperforming assets, charge-offs, and allowance adequacy.
  5. Track net interest margin and funding costs as interest rates change, alongside FDIC and other regulatory expense trends.