Business Overview and Financial Performance

TrustCo Bank Corp NY (TRST) is a regional bank holding company that has been serving its communities for over a century. Headquartered in Glenville, New York, the company has maintained a strong presence throughout the Northeast, particularly in the Capital Region of New York and Central Florida. With a steadfast focus on traditional banking services and conservative balance sheet management, TrustCo has weathered various economic cycles, emerging as a consistent performer in the industry.

TrustCo Bank Corp NY has a rich history dating back to 1904 when it was founded as the Schenectady Trust Company in Schenectady, New York. The company initially focused on serving the local community in Schenectady and the surrounding Capital Region of New York. Over the decades, TrustCo gradually expanded its footprint, opening new branch locations across New York state as well as in neighboring states like New Jersey, Vermont, and Massachusetts.

In the 1980s and 1990s, TrustCo faced challenges, including issues with asset quality and credit losses during the savings and loan crisis. However, the company successfully navigated these challenges by strengthening its underwriting standards and maintaining a conservative approach to lending. This focus on prudent risk management has remained a core part of TrustCo's strategy over the years.

During the 2000s and 2010s, TrustCo continued to grow its branch network and loan portfolio, with a particular emphasis on residential mortgage and home equity lending. The company weathered the financial crisis of 2008-2009 relatively well, thanks to its diversified loan book and avoidance of riskier lending practices. Throughout this period, TrustCo maintained a strong capital position and consistently paid quarterly dividends to shareholders.

Today, TrustCo operates through its wholly-owned subsidiary, Trustco Bank, which offers a comprehensive suite of products and services, including commercial and residential lending, wealth management, and retail banking. The company's strategy of prudent lending practices and a diversified loan portfolio has enabled it to maintain a solid financial footing, even during periods of economic uncertainty.

Financials

In the fiscal year ended December 31, 2023, TrustCo reported annual revenue of $190.16 million, with net income of $58.65 million. The company generated annual operating cash flow of $64.13 million and free cash flow of $58.46 million.

For the most recent quarter (Q4 2024), TrustCo reported revenue of $66.3 million, representing an 11% increase year-over-year. Net income for the quarter was $11.3 million, up 14.6% compared to the same period in the previous year.

In the latest fiscal year ended December 31, 2024, TrustCo reported net income of $48.8 million, or $2.57 per diluted share, on total revenue of $171.8 million. The company's return on average assets (ROAA) and return on average equity (ROAE) were 1.08% and 10.57%, respectively, showcasing its ability to generate consistent, high-quality earnings. TrustCo's efficiency ratio, a measure of operational efficiency, was an impressive 61.5% for the year, outperforming the industry average.

For the third quarter of 2024, the company reported a return on average assets of 0.84% and a return on average equity of 7.74%, demonstrating solid profitability metrics.

Liquidity

TrustCo's balance sheet remains well-capitalized, with a consolidated equity-to-assets ratio of 10.46% as of December 31, 2023. The company's Tier 1 leverage ratio, a key metric of financial strength, stood at 10.43%, well above the regulatory minimum of 5.00% for "well-capitalized" institutions. This strong capital position provides TrustCo with the flexibility to navigate market conditions and pursue strategic opportunities.

As of Q4 2024, TrustCo reported a debt-to-equity ratio of 0.0688, indicating a conservative approach to leverage. The company held cash and cash equivalents of $49.27 million and maintained a borrowing capacity of $930.2 million available with the Federal Home Loan Bank of New York. TrustCo's strong liquidity position is further evidenced by its current ratio and quick ratio, both standing at 4.78 as of Q4 2024.

Loan Portfolio and Asset Quality

One of the hallmarks of TrustCo's conservative approach is its diversified loan portfolio. As of December 31, 2023, the company's loan book was comprised of 65.1% in New York and the surrounding areas, with the remaining 34.9% in Florida. The portfolio is primarily focused on residential real estate loans, which accounted for 87.09% of total loans, followed by commercial loans at 5.05%.

As of September 30, 2024, the average balance of the residential mortgage loan portfolio was $4.38 billion, up 1.2% from the prior year period. The average yield on residential mortgage loans increased by 18 basis points to 3.82% compared to the third quarter of 2023, reflecting the higher interest rate environment. Commercial loans, which primarily consist of loans secured by commercial real estate, had an average balance of $279.2 million, up 18.1% year-over-year. The average yield on the commercial loan portfolio increased by 24 basis points to 5.45%. Home equity lines of credit averaged $380.4 million, up 18.7% from the prior year, with the average yield increasing 41 basis points to 6.53%.

TrustCo's asset quality remains exceptional, with non-performing loans to total loans at just 0.35% as of December 31, 2023. The company's allowance for credit losses on loans stood at $48.6 million, or 0.97% of the total loan portfolio, reflecting the high quality of its lending practices. During the year, net charge-offs were a mere 0.02% of average loans, underscoring TrustCo's disciplined approach to credit risk management.

As of September 30, 2024, the allowance for credit losses on loans increased to $49.95 million, representing 0.99% of the total loan portfolio. Net charge-offs during the third quarter of 2024 were $222,000, compared to net recoveries of $12,000 in the same period of 2023. Nonperforming loans totaled $19.44 million, or 0.38% of total loans, at the end of the third quarter of 2024, up from $17.67 million, or 0.35%, at the end of 2023.

Geographic Diversification and Product Offerings

The company's geographic footprint provides diversification and a stable customer base. TrustCo operates a network of 148 branch locations across New York, New Jersey, Vermont, Massachusetts, and Florida, allowing it to serve a broad range of customers and capitalize on regional economic trends.

TrustCo's deposit base is primarily composed of demand deposits, interest-bearing checking accounts, money market accounts, savings accounts, and time deposits. As of September 30, 2024, total deposits were $5.26 billion, down from $5.35 billion at the end of 2023. The average balance of interest-bearing deposits increased 1.1% year-over-year to $4.50 billion, while the average rate paid on these deposits increased from 1.34% in the third quarter of 2023 to 1.96% in the current quarter.

The company also utilizes short-term borrowings, primarily in the form of cash management accounts, which had an average balance of $87.7 million in the third quarter of 2024, down from $110.0 million in the same period of the prior year. The average rate on these borrowings remained unchanged at 0.88% during this time.

In addition to its traditional banking products, TrustCo has also diversified its revenue streams through its wealth management division. As of December 31, 2024, the division managed approximately $1.2 billion in assets, providing a stable source of fee-based income and strengthening the company's overall profitability. Wealth management fees were $2.04 million in the third quarter of 2024, an increase of 25.5% compared to the same period in 2023, driven by the higher asset balances.

Navigating Challenges and Positioning for the Future

Like many financial institutions, TrustCo has navigated its fair share of challenges in recent years. The COVID-19 pandemic and the resulting economic disruptions tested the resilience of the banking sector, but TrustCo's conservative approach and disciplined risk management allowed it to weather the storm.

Looking ahead, TrustCo remains well-positioned to capitalize on emerging opportunities. The company's extensive branch network, strong customer relationships, and diversified product offerings position it to adapt to changing market conditions and meet the evolving needs of its clients.

Furthermore, TrustCo's commitment to technological innovation is evident in its ongoing investments in digital banking solutions and infrastructure. This focus on enhancing the customer experience and improving operational efficiency will likely be a key driver of the company's future growth and profitability.

TrustCo has also entered the cannabis banking business, leveraging its extensive branch network to serve this growing industry. The company believes it is well-suited to meet the unique banking needs of cannabis-related businesses while maintaining compliance with regulatory requirements.

As TrustCo enters 2025, management has indicated that the company is "liquid, well capitalized and ready to lend." They plan to continue investing in technology to further enhance efficiency and improve the customer experience. For 2025, TrustCo expects total recurring non-interest expense, net of ORE expense, to be in the range of $27.5 million to $28 million per quarter, representing less than a 3% increase over 2024 levels.

Conclusion

TrustCo Bank Corp NY (TRST) has established itself as a consistent performer in the regional banking industry, weathering economic cycles and adapting to changing market dynamics. The company's conservative lending practices, strong capital position, and diversified business model have been instrumental in its success. With a solid financial foundation, a focus on traditional banking services, and strategic initiatives in place, TrustCo is well-positioned to navigate the current landscape and continue delivering value to its customers and shareholders in the years to come.