JamesBrey
TrustCo Bank Corp NY (NASDAQ:TRST) is still one of our favorite regional banks to trade and invest in. The market has gone through a corrective period, and some stocks have gone on sale. With regional banking, the higher for longer narrative has weighed on some quality regional banks. TrustCo Bank is a great name for income, but also is one that can be traded. Here toward the lows of the recent trading channel and with the yield about to hit 5.5%, we see TRST as a Buy following its just-reported Q1 earnings.
TrustCo Bank’s Q1 earnings mixed
We have a higher for longer rate situation and concerns over mortgage demand, as well as other business and commercial loans, are prevalent. However, TrustCo in Q1 once again had respectable loan activity and still had pretty solid returns on assets that resulted in revenue growth. The revenue surpassed consensus. Revenues were up 19.1% from last year, to $61.48 million, exceeding consensus by $18.3 million. The return on average assets and return on average equity came in at 0.80% and 7.54%, respectively. These were both improvements from the sequential quarter. Margins, we believe, are at or near a trough as well.
That said, there was still some pressure for TrustCo on this key metric that we follow. Net interest margins slipped 16 basis points from a year ago to 2.44%. Combined with operating expenses, TrustCo reported earnings per share of $0.64. This was a nice $0.04 beat against expectations.
In terms of valuation, TRST is attractive here at $26.78 per share. We say this because you are collecting income and are buying below book value. Book value was $34.12 at the end of Q1. That book value was up 5.6% from $32.21 in Q1 2023. Moreover, there was solid loan growth, and deposits were up.
TrustCo Bank loans and deposits
TrustCo’s average loans were up from last year as the loan book continues to grow. On average, total loans were up $249.4 million or 5.2% from last year. Average residential loans, which is the main focus of the banks, were up $146.6 million, or 3.5% from Q1 2023. Average commercial loans and home equity lines of credit also increased $38.3 million, or 16.0%, and $61.7 million, or 21.2%, respectively, from Q1 2023. Further, deposits rose, providing ample liquidity for more lending. Total average deposits were up $141.6 million or 2.74% from Q1 2023.
Despite this tough macro environment, TrustCo is growing. Asset quality also remains high.
Asset quality at TrustCo Bank is strong
TrustCo maintained strong asset quality metrics as well in Q1. Over the last 6 quarters, that asset base has improved in quality, though there is quarter-to-quarter variability. We saw some of that here from Q4 2023 into Q1 2024. Still, the figures have improved from a year ago. Non-performing assets as a percentage of total assets were 0.33%, dipping 4 basis points from the sequential quarter’s 0.29%, but improving from 0.37% last year. The allowance for credit losses on loans to total loans was pretty stable at 0.98% from 0.97% a year ago and from 0.97% in the sequential fourth quarter. This is positive. Further, as you can imagine with the improved return metrics, the efficiency ratio improved, coming in at 59.96%, up from 60.16% in Q4. This is a strong and respectable efficiency ratio for a regional bank. Not the top tier, but certainly a strong average.
Great dividend and a buyback
Shares have sold off for weeks, and now the dividend yield is 5.5% again. The bank is also buying back stock now. The performance in Q1 was strong. Cash flow covers the dividend, and the payout ratio is just 56.5%, quite safe in our opinion. Barring a strong recession, we just do not see the bank softening dramatically from here. There may be another tough quarter or two before rate cuts are really in sight, but TrustCo is effectively marketing, is growing loans and deposits, has stellar asset quality, and trades below book value. With the yield, this is a great income name, and one you should be able to trade for gains back over $30 per share. We rate TrustCo Bank Corp NY shares a Buy.
