TrustBank NY(TRST) - 2020 Q1 - Quarterly Report

Part I. FINANCIAL INFORMATION Item 1. Consolidated Interim Financial Statements (Unaudited) The unaudited Q1 2020 financial statements show decreased net income and initial COVID-19 impacts, including higher loan loss provisions Consolidated Statements of Income Net income for Q1 2020 decreased to $13.3 million, primarily due to a higher provision for loan losses and lower net interest income Consolidated Statements of Income Highlights (in thousands, except per share data) | Metric | Three months ended March 31, 2020 | Three months ended March 31, 2019 | | :--- | :--- | :--- | | Net Interest Income | $38,553 | $39,732 | | Provision for loan losses | $2,000 | $300 | | Noninterest Income | $5,334 | $4,637 | | Noninterest Expenses | $24,268 | $24,867 | | Net Income | $13,313 | $14,558 | | Diluted EPS | $0.138 | $0.150 | - The provision for loan losses significantly increased to $2.0 million in Q1 2020 from $300 thousand in Q1 2019, reflecting anticipated economic impacts from the COVID-19 pandemic[7] - Noninterest income increased, largely due to a $1.155 million net gain on securities transactions in Q1 2020, which was absent in the prior-year period[7] Consolidated Statements of Financial Condition As of March 31, 2020, total assets increased to $5.26 billion, primarily driven by a rise in net loans Consolidated Balance Sheet Highlights (in thousands) | Metric | March 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Total Assets | $5,256,647 | $5,221,322 | | Net Loans | $4,053,237 | $4,017,879 | | Securities Available for Sale | $503,166 | $573,823 | | Total Deposits | $4,481,828 | $4,450,016 | | Total Shareholders' Equity | $548,185 | $538,257 | Notes to Consolidated Interim Financial Statements The notes detail accounting policies, investment and loan portfolios, and the significant impact of COVID-19, including loan deferrals and CECL adoption delay - The loan portfolio totaled $4.1 billion, with the vast majority ($3.54 billion) in 1-to-4 family first mortgages[40] - The allowance for loan losses increased to $46.2 million at March 31, 2020, from $44.3 million at year-end 2019, with a provision of $2.0 million taken during the quarter[48] - Due to the COVID-19 pandemic, the company has provided loan modifications and payment deferrals totaling approximately $4.9 million through March 31, 2020[102] - The Company elected to delay its adoption of the new credit loss standard (ASU 2016-13 / CECL) as permitted by the CARES Act, until the national emergency concerning COVID-19 is terminated or December 31, 2020, whichever is first[98] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes Q1 2020 net income decline to lower net interest margin and increased loan loss provisions due to COVID-19, while maintaining strong capital COVID-19 Impact The company responded to COVID-19 by providing loan deferrals and participating in the PPP, while increasing loan loss provisions COVID-19 Loan Deferrals as of April 28, 2020 | Loan Type | Number of Loans | Outstanding Balance (in thousands) | | :--- | :--- | :--- | | Commercial | 70 | $40,489 | | Residential mortgage loans | 494 | $110,430 | | Home equity line of credit | 34 | $2,433 | | Installment loans | 5 | $197 | | Total | 603 | $153,549 | - The company is participating in the Paycheck Protection Program (PPP) and had processed 405 loans totaling $33.8 million as of April 28, 2020[120] Financial Overview Q1 2020 net income decreased to $13.3 million due to lower net interest income and a higher provision for loan losses Key Performance Metrics | Metric | Q1 2020 | Q1 2019 | | :--- | :--- | :--- | | Net Income | $13.3 million | $14.6 million | | Diluted EPS | $0.138 | $0.150 | | Return on Average Assets | 1.03% | 1.17% | | Return on Average Equity | 9.87% | 11.93% | Nonperforming Assets and Allowance for Loan Losses Nonperforming loans remained stable, while the allowance for loan losses increased significantly due to COVID-19 uncertainty - Total NPLs were $20.7 million at March 31, 2020, a slight decrease from $20.9 million at December 31, 2019[160] - The allowance for loan losses was $46.2 million, or 1.13% of total loans, as of March 31, 2020[170] - The provision for loan losses increased to $2.0 million for Q1 2020, primarily driven by uncertainty from the COVID-19 pandemic, compared to $300 thousand in Q1 2019[171] Capital Resources The company maintained strong capital ratios well above regulatory minimums, while suspending its share repurchase program Consolidated Capital Ratios (as of March 31, 2020) | Ratio | Actual | Minimum for Capital Adequacy + Buffer | | :--- | :--- | :--- | | Tier 1 leverage ratio | 10.316% | 4.000% | | Common equity tier 1 capital | 18.943% | 7.000% | | Tier 1 risk-based capital | 18.943% | 8.500% | | Total risk-based capital | 20.198% | 10.500% | - The company repurchased 489,000 shares at an average price of $7.11 per share during Q1 2020 but suspended the program on April 16, 2020[189][212] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate risk, with sensitivity analysis showing potential impacts on capital fair value from rate fluctuations Interest Rate Sensitivity Analysis (as of March 31, 2020) | Rate Shock Scenario | Estimated Percentage of Fair Value of Capital to Fair Value of Assets | | :--- | :--- | | +400 BP | 19.80% | | +300 BP | 20.20% | | +200 BP | 20.50% | | +100 BP | 20.60% | | Current rates | 20.00% | | -100 BP | 16.30% | Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2020, with no material changes to internal controls during the quarter - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of March 31, 2020[199] - No material changes to internal control over financial reporting occurred during the first quarter of 2020[201] Part II. OTHER INFORMATION Item 1A. Risk Factors Updated risk factors highlight significant uncertainties from COVID-19, including increased loan delinquencies, collateral value declines, and PPP participation risks - The COVID-19 outbreak is identified as a significant risk that could adversely affect business activities, financial condition, and results of operations through increased loan delinquencies, defaults, and declines in collateral value[204] - Participation in the SBA's Paycheck Protection Program (PPP) introduces new risks, including potential litigation over application processing and the possibility of the SBA denying its guaranty on certain loans[208][210][211] - Significant reductions in the federal funds rate and other market interest rates are expected to adversely affect the company's net interest income and margins[206] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 489,000 shares for $3.5 million in Q1 2020 under an existing program, which was subsequently suspended Share Repurchases for Q1 2020 | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | January 2020 | 75,000 | $8.04 | | February 2020 | 225,000 | $7.50 | | March 2020 | 189,000 | $6.28 | | Total | 489,000 | $7.11 |