TrustCo Bank Corp. NY :TRST-US: Earnings Analysis: Q1, 2016 By the Numbers : June 28, 2016

TrustCo Bank Corp. NY reports financial results for the quarter ended March 31, 2016.

Highlights

  • Summary numbers: Revenues of USD 40.75 million, Net Earnings of USD 10.41 million.
  • Net interest income margins widened from 88.38% to 88.78% compared to the same period last year.
  • Net loan assets changed 3.47% compared to same period last year and 0.26% from previous period, total deposits changed 0.61% compared to same period last year and 1.03% from previous period.
  • Change in operating cash flow of 5.27% compared to same period last year is about the same as change in earnings, likely no significant movement in accruals or reserves.
  • Earnings decline from worsening in operating margins as well as one-time items.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income (See complete table at the end of this report):

2015-03-31 2015-06-30 2015-09-30 2015-12-31 2016-03-31
Relevant Numbers (Quarterly)
Revenues (mil) 39.79 40.13 40.42 40.69 40.75
Revenue Growth (%YOY) 2.51 0.35 -5.88 0.67 2.43
Earnings (mil) 10.72 10.73 10.62 10.18 10.41
Earnings Growth (%YOY) -2.58 -9.05 -0.8 -4.46 -2.86
Net Margin (%) 26.93 26.73 26.27 25.02 25.54
EPS 0.11 0.11 0.11 0.11 0.11
Return on Equity (%) 10.8 10.69 10.42 9.86 9.96
Return on Assets (%) 0.91 0.91 0.9 0.86 0.88

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Market Share Versus Profits

Revenues History
Earnings History

Compared to the same period last year, TRST-US‘s change in revenue was close to the amount of its change in earnings. It remains to be seen how the rest of its peer group’s results will turn out and if TRST-US‘s performance is a sign of any major shift in the composition of market share in this sector. Also, for comparison purposes, revenues changed by 0.15% and earnings by 2.25% compared to the previous period.

Earnings Growth Analysis

The company’s year-on-year earnings decline has not come as a result of decline in net interest income margins or because of any loan loss provisions. Both net interest income margins and net interest income after provisions margins have actually improved. In fact, net interest income margins went from 88.38% to 88.78% and net interest income after provisions margins improved from 86.37% to 86.82% over this period. In addition, loan loss provisions as a percentage of net interest income were 2.21% this period , and 2.27% a year ago.

Net Interest Income Margin History
Loan Loss Provisions Margin History

Net Loans and Total Deposits

A financial institution’s core operations represented by Net Interest Income and Net Interest Income after Provisions are dependent on both the growth and quality of its deposits as well as the growth and quality of its loans. A firm could boost its interest income in the short-term by just increasing its loan assets with less concern about their quality – but this would eventually lead to greater loan loss provisions. Similarly a drive to increase deposits could result in higher interest expenses and eventually effect the firm’s equity. It is thus important to understand net interest income performance in context to loan loss provisions, loan assets and deposits.

Loan Assets Growth Rate History (Qtr YOY)
Total Deposits Growth Rate History (Qtr YOY)

TRST-US‘s improvement in net interest income margins came in spite of relative drops in the levels of net loan assets and total deposits. On an absolute basis, net loan assets changed 3.47% compared to the same period last year and 0.26% from the previous period. Total deposits changed 0.61% compared to the same period last year and 1.03% from the previous period.

Cash Versus Earnings – Sustainable Performance?

TRST-US‘s year-on-year change in operating cash flow of 5.27% is around its change in earnings. This suggests that there are likely no significant movement in accruals or reserves for managing earnings this period.

Margins

The company’s decline in earnings has been influenced by the following factors: (1) Contraction of operating margins from 43.71% to 40.52% and (2) One-time items that contributed to a decrease in pretax margins from 43.06% to 40.52%

EBIT Margin History
PreTax Margin History

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Company Profile

TrustCo Bank Corp. NY operates as a holding company for TrustCo Bank, which engages in the provision of banking and financial services to individuals, partnerships, and corporations. The company offers checking accounts, savings accounts, retirement accounts, time deposits, money market accounts, and credit cards. It also provides asset and wealth management services, estate planning and related advice, credit cards, trust and investment services, custodial services, and online banking services. The company was founded in 1981 and is headquartered in Glenville, NY.

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