When I last covered TrustCo Bank (NASDAQ:TRST), I argued you could still trust in this regional bank and that I wasn't backing away. I said that if you could get shares under $6 it would be a huge bargain, and thanks to the broader market weakness this happened, and happened again. The stock sits just above a 52 week low and is yielding 5%. A safe 5%. This is not a name to be ignored here. But now the stock is rising again. Why consider this name? Well it's an income name. It's a dividend play here folks. I have always been drawn to its yield even when it was 3.5%. Based on the current share price of $5.40, we are getting paid 5% to hold and wait.
But is the reason that I liked the name still valid? I liked the name and predicted that loans and deposits were likely to continue growing. Given where the stock has traded over the last two years, it has been a somewhat stable source of income, though with the recent lows on paper your principal may have been hit. Savvy investors should be buying on the big dips and trimming positions when the stock runs up; so-called trading around the core position. That said, unless the metrics get so poor we need to abandon ship, we have a cushy dividend payer that is slowly growing and trades generally with low volatility. So how are the numbers doing?
Well, according to its just announced Q4 2015 results, the company reported a top line beat and an in line bottom line. This follows a strong Q3 2015. TrustCo's Q3 2015 core net income was actually down to $10.2 million from $10.7 million compared to Q3 2014. I am okay with this and the numbers show earnings per share of $0.10, which matched consensus estimates by $0.01. Further this is easily covering the dividend. The revenues came in at $40.7 million, which surpassed estimates by about $0.5 million. Despite added operating costs during the second half of 2015 in response to recent regulatory concerns which I have discussed, core net income for the full year 2015 increased to $42.2 million from $41.5 million in 2014.
Now, although earnings per share and revenues are important, and they were solid, what you need to be aware of is why there wasn't growth in the second half. I alluded to this a moment ago; in Q3 the company anticipated higher expenses to fulfill operating and regulatory requirements moving forward and the company took strong action to meet these requirements, resulting in added costs in the third and fourth quarter, weighing on earnings despite higher revenues. While some of these costs will be recurring, others will diminish over time. Robert J McCormick, President and CEO said:
We took aggressive action to meet these requirements during the second half of 2015. In terms of our core business, we continue to make solid progress, adding customer relationships which ultimately position our business well for the future. Our highly liquid balance sheet continues to allow us to fund our loan growth without having to overpay for deposits.
That sounds like a rather efficient operation. But is it delivering? Well lets start with the all-important efficiency ratio. As you may be aware now, this ratio measures the costs expended to generate a dollar of revenue, and net interest yield measures the basis points the company earns over the cost of funds. The strongest banks have an efficiency ratio under 60%, with the ideal being around 50%. Well, TrustCo's efficiency ratio is among the strongest of all regional banks, and it came in at 55.4%, an improvement from Q3's 56%. It is still not as strong as the 54.2% in Q2 2015, but overall, I am incredibly pleased. At 55.4% the company is clearly spending money wisely and generating a return at a healthy and effective pace. I am pleased with this outcome.
What about loans and deposits? These are critical. Well, average loans were up $163 million, or 5.2% year over year. Total loans have once again reached an all-time high of $3.29 billion. At the same time, deposits were up $109 million or 3% year-over-year. Most of the gains in deposits came from core deposit accounts. Average core deposits were up $108.7 million versus Q4 2014, or 3%. These deposits reflect longer-term customer accounts, and so are more stable. On top of that, deposits per branch were up an average $452,000 versus last year. Overall I am very pleased. This is a name you should consider.
The earnings news is pretty bullish, as it exceeded my expectations for an in line quarter. I was happy with all aspects of this report, even though the earnings number was flat thanks to the regulatory expenditures. We knew this would happen because of the regulatory issues I discussed in my July article. This is certainly not a bad report. The most bullish piece of this report is the fact that nearly every single measure of asset quality improved during Q4. The bank's loan portfolio is at an all-time high. As interest rates are set to rise, the bank should see solid gains and real earnings growth. For now, it continues to be a trustworthy dividend payer that is biding its time and paying you to wait. A 5% safe yield is something to consider here.
Note from the author: Christopher F. Davis has been a leading contributor with Seeking Alpha since early 2012. If you like his material and want to see more, scroll to the top of the article and hit "follow." He also writes a lot of "breaking" articles that are time sensitive. If you would like to be among the first to be updated, be sure to check the box for "Real-time alerts on this author" under "Follow."
Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in TRST over the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.