Q3 2019 Earnings Call

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Before proceeding we would like to mention that this presentation may contain forward looking information about Trustco Bank Corp. New York.

That is intended to be covered by the safe Harbor for forward looking statements provided by the private Securities Litigation Reform Act of 1995.

Actual results and trends could differ materially from those set forth in such statements due to various risks uncertainties and other factors.

More detailed information about these and other risk factors can be found in our press release that has proceeded this call.

The risk factors and forward looking statement sections of our annual report on Form 10-K as updated buyer quarterly reports on Form 10-Q .

The statements are valid only as of the date hereof.

The company disclaims any obligation.

To update this information, except as may be required by acceptable.

Today's presentation contains non-GAAP financial measures.

Reconciliations of such measures to most comparable GAAP features.

Included in our earnings press release, which is available under the Investor Relations tab of our website Trustco Bank dotcom.

Please also note that's about as being recorded I.

I'd now like to turn the conference over to Mr., Robert J., Mccormick, President Chairman and CEO . Please go ahead.

You know solid quarter here Trustco bank. Good morning, everyone and thank you for taking time out of your day to hear more about our company joining me on the call today are Michaels and make our CFO and Scot Salvador, Chief lending officer, as we usually do I'll provide a summary of the quarterly reports internal turn it over to Mike. Some detailed that Scott can talk about the loan portfolio, leaving time for questions and answers.

Answers or net income for the third quarter 2019 was 14.7 million up from the second quarter linking that down from our record 2018.

Total assets ended the quarter at over $5.2 billion return on average assets of 1.1 too.

Shareholders' equity rose four or $526 million up overall comparable periods are healthy dividends, almost 45% payout ratio or capital ratio top 10% and I'll return on equity was 11.19% corridor or asset quality ratio showed improvement over prior periods with nonperforming assets to total assets.

<unk> 0.45, our allowance amounts to over 1.1% of total loans the coverage ratio of 2.1 times.

I won't show nice growth overall periods, driven mostly by residential mortgages, we expect to have a decent growth year.

And the backlog, especially strong this time of year, Scott will give more detail in his presentation.

Deposits continues a nice trend nice growth, mostly in interest bearing categories. We arent during a period of heavy CD maturities, we expect renewal rates to be significantly lower than was previously discussed on these calls the lower rate renewal should add support to our margin.

Mike has more detail is part of the cool.

Based on current activities car market activities or margin ended the quarter, 3.4%.

We did not opening new offices this quarter, our efficiency ratio was just over 55%. We continue to operate a solid trust apart with assets under management about $890 million.

We continue to manage significant investment portfolio, keeping the final maturity right around five years.

We are proud of our results during some challenging times, we're looking for to continued solid performance at the bank now Mike is gonna give us lots as detailed in the numbers that Scott will cover the portfolio Mike. Thank you, Rob and good morning, everyone. I will now review Trust goes financial results for the third quarter of 2019.

As we noted in the press release this the company's swaying come up $14.7 million, which yielded a return on average asset return on average assets, an average equity of 1.12% and 11.19% respectively average loans for the quarter of 2019 grew 4.2% or 158.4 billion to 3.9 billion from the third call.

I have 2018.

As expected the growth continues to be concentrated within our primary lending focus residential real estate portfolio.

That average portfolio increased by 175.6 billion EUR, 5.3% the third quarter of 2900 over the same period and 22.

Total average investment securities, which include a if that's an ATM portfolios increased 107.3 billion or 19.2% or the same period last year. This was driven by purchase of 82.9 billion security throughout the quarter average yield of approximately 2.5%.

[noise] provision for loan losses was zero third quarter of 2019 compared to 300000 or the same period in 2018.

Ratio of allowance for loan loss to total loans rose, 1.11% as of September 32019, compared to 1.17% as are the same period in 2018.

Thanks to continued improvement in asset quality in economic conditions in our lending areas Scott will get into the details whoever is in the past we would expect a level what the provision for loan losses in 2019 will continue to reflect the overall growth in our loan portfolio trends in long quality, an economic conditions in our geographic footprint.

As discussed in prior calls our focus continues to be on traditional lending a conservative balance sheet management, which has continued to enable us to produce consistent high quality recurring earnings.

Investment portfolio isn't always has been a sources of liquidity to fund loan growth and provides flexibility to for the balance sheet management.

As a result, we continue to hold at average of 465.3 million up overnight investments during the third quarter of 2019, a decrease of 21.3 billion compared to receive your 2018, and a decrease of 80.4 billion or 14.7% compared to second quarter of 29.

In addition, we expect the cash flow from a loan portfolio to generate between 500 600 million over the next 12 months along with approximately 150 to 170 million of investment securities cash flow in the same time period.

He just give a significant opportunity and flexibility as we continue to move through 29 2019.

During the third quarter of 2019, the bank had 40 million your securities called or matured and approximately 17.8 million pools securities pay downs.

The funding side of the balance sheet total average deposits increased 236.4 billion EUR, 5.6% for the third quarter of 2019 over same period, a year earlier, increasing <unk> Oster was the result of 301.1 billion or 26% increase and a 58 million or 11.5% increase average.

Time deposits and money market deposits, respectively, offset by the decrease in CV can interest bearing checking 118 million and 39 million respectively.

The third quarter 2019, we continue to offer competitive short term rates, which allowed the bank to gain market share as well as routine our existing time deposits strategy drove growth at a relatively low cost that will sustain transcos strong liquidity position continue to allow us to cross sell new core relationships and take advantage of opportunities as they arise.

During the same period, our total cost of interest bearing deposits increased to 95 basis points from 51 basis points.

The market deposits increased 83 basis points were 42 basis points more importantly, the cost of our core deposits remained relatively unchanged over the same period, we continue to be proud of our ability to control the cost of interest bearing deposits during a period, which saw multiple rate hikes.

Time deposits.

Average cost for the third quarter of 29 increased the 2090 to 2% to 2.19% from 1.133% or the seep. Your last year. We feel this continues to reflect a pricing discipline with respect to Cds non maturity deposits.

We would expect margins begin to stabilize over the next two quarters.

Fourth quarter of 2019 $348.4 million of our term deposits.

Reprice from yield of 2.28% to current market rates, ranging from 1.4 or 5% to 1.7%.

Additional 366.4 million of Cds will reprice or the first quarter of 2020 at an average yield of 2.21%.

In total over the next 12 months, approximately 1.1 billion to Cds or mature at an average rate of 2.2%.

Our net interest margin decreased to 3.04% third quarter plan.

From 3.35% compared to the third quarter of 2018.

This compression and the net interest margin comes from a liability side of the balance sheet. As a result of the increase in funding costs over the past four quarters, driven primarily by the increase in rates requires routine and grow our CD portfolio.

These costs were also over the last 12 months by the continued growth along portfolio.

Our taxable equivalent net interest income was 38.6 billion for the third were for 19, a decrease of 1.9 billion or 4.6% compared to the same period 28.

Non interest income came in at 4.99 for the third quarter for 920, 19 up slightly compared to last quarter. Our financial services Division continues to be the most significant recurring sorts of noninterest income.

Financial Services Division had approximately 896 million of assets under management as of September 30.9.

On to noninterest expenses total noninterest expense net of Oreo expense came at the low end of our estimated range at 24 million down 655000 compared to the second quarter 49.

A couple of items to note salaries and benefit benefits expense held steady for the third quarter of 2019, while during the third quarter. We recorded approximately $70000 of additional expenses for various benefit plans due to the true up of future estimated benefit liabilities, primarily due to the increase of the stock price at quarter end.

FDIC another shirts insurance expense down $316000 due to the FDIC assessment credit received during the quarter as the FDIC reserve ratio was met for the third quarter of 2019.

Level of expense for this category, where we review quarterly his future assessment credits from the FDIC is dependent upon the FDIC reserve ratio exceeding is required threshold.

Where we expense came in at 33000 for the quarter as compared to the third quarter 2018.

Expense of 528000.

Below the level of net already expenses for the quarter was driven by gains on sale or re properties.

Given the continued low level of Oreo expenses, we're not going we are going to all the anticipated level of expenses not exceeding $450000 per quarter.

All the other categories of non interest expense were in line with prior quarters and our expectations for the third quarter.

We do expect to third quarter.

20, Nineteens total recurring non interest expense.

The fourth quarter of 29 total non recurring interest expense net of worry expense sustain the range of 24.6 to 25.1 billion per quarter.

Efficiency ratio in the third quarter of 2019 came in at 55.17% compared to 55.98% in the second quarter of 2019.

As we've stated in the past will continue to focus on what we can control working to identify opportunities to make the processes within the bank more efficient.

One thing we are proud of is expense control trials going on we expected to continue through 2019.

Cecil front the company continues its implementation efforts.

In development of rough relevant internal controls and processes. This will likely have an effect of increasing the allowance for loan losses, and reducing shareholders' equity dependent upon the balance of the company's won't portfolio economic conditions in fourq assets at the adoption.

We expect to remit remain well capitalized financial institution on a current regulatory calculations.

And finally, the capital ratios continue to.

Consolidated equity the assets ratio was 10.07% at the end of the third quarter up 30 basis points from the 9.77% compared to the same period in 2018.

He is also very proud of its ability to grow shareholder value.

Book value per share at September Thirtyth, 2019 was $5 at 42 cents up 9.94% compared to $4.93 a year earlier now Scott will review the loan portfolio and nonperforming loans.

Thank you, Mike and good morning.

The loan portfolio in the third quarter saw a continuation of the positive momentum evidenced in the prior several months overall total loans increased by 79 million on the quarter, an actual numbers. This equates the growth of just over 2%.

Year over year loans have grown by 159 million.

Residential loans increased by 76 million on the quarter with commercial and installment loans, increasing by 1.9 1.2 million respectively.

We were especially pleased with the quarter as the real estate growth was spread throughout all of our regions.

Mortgage rates have stabilized after the recent decreases were currently originated three to five 8% for a 30 year mortgage.

Well the drop in rates from year end fueled an increase in refinance activity that has also benefited the buying side and overall purchase money activity remains solid and all our regions.

We expect this to continue although overall mortgage activity does typically begin to slow a bit as the fourth quarter progresses.

Our backlog reflects the positive momentum from the last six months and stands above where we ended the second quarter and more than 10% over the same point last year.

While the current backlog does contain more refinances versus purchases than it did a year ago. We're nonetheless pleased with our position and expects to post a continuation of solid net growth in the fourth quarter.

Asset quality measurements remains strong overall, non performing assets and nonperforming loans each improved both on the quarter and for the year.

Nonperforming assets dropped from 26.1 23.4 million year over year, well nonperforming loans decreased by 2.8 million.

Nonperforming loans now stand at 0.53% of total loans or 21 million.

Early stage delinquencies continue at very low levels and net charge offs totaled only 36000 for the quarter.

The coverage ratio or allowance for loan losses to nonperforming loans continues to strengthen and now stands at 210%.

Rob.

Thanks, Scott will happen to answer any questions any when it might have.

We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone if you're using of speakerphone. Please pick up your handset before pressing the keys if at any time. Your question has been addressing you would like to withdraw your question. Please press Star then to at this time.

And we'll pause momentarily to assemble are off day.

Our first question comes from Alex.

Well at all with Sandler O'neill.

Please go ahead.

Morning, guys.

Morning.

Thanks.

This is first off wanted to drill into the NIM and just a little bit more appreciate the commentary on the Cds that are set to reprice over the next six months or so or in a year and obviously you guys you get some pretty good benefit from that.

But just given that we had they tightened in September looking for another cut I guess next week now.

And the amount of liquidity et cetera, you guys have your balance sheet is it conceivable that margin could get below 3% before starting to rebound or you have a pretty good level confidence that kind of were right now its or where the lows.

Yes, Alex when you look at if we get another cut and depending on what we have to what we have to pay to keep some of the money market deposits and also the Cds definitely good continue to go down.

We expect some stabilization, but it could dip.

Okay.

And then that kind of was my next question is that Cds are clearly going to be repricing, lower but money market accounts I'm just kind of curious what you're seeing in your market. If you think that there's some room for those to start to just lower as well or theres still lot of competition and for those for that product.

We have let's call it about a $150 million, where the money market deposits. There so into users that are going to roll down from the higher levels. We have another teaser out there for 125 for about four months. It may roll into that the rest of the portfolio really is in your board rates dependent on what tiers are in so.

Good I come down, but not all going to go down to the board rate so it depends where they go.

Okay, and then to bring in new money to Cdis do you still need to have some promotions that are a bit above.

But in the market.

I don't know, if that's true or not Alex what our testing on water right. Now we grew deposits earlier in the year and we're kind of working on the renewal working on the renewals were all looking to bring a ton of new money into our liquidity position is pretty good right now.

Right. Okay. So I may I, just see that average Cds went up sequentially from the second quarter third quarter by that kind of the end of all the promotion activity and then from here hopefully stability, but but really the name. They game is trying to get some costs out of there.

Correct.

Bob.

Okay.

Just shifting gears.

All right.

Shifting gears, just talking about capital a little bit.

Like asked his question just about every quarter, but now you're tcs north of 10%.

And it seems like it's going to continue checking in higher.

You know in the absence of growth you know just do buybacks make more sense now than they then they used to or is there a level that you know that thinking starts to change.

You know we have yet to be executed buyback program. That's in place and we're watching the market and trying to time it appropriately and do the right thing with regard to the buyback, but yes answer your questions yes.

But it's really independent more on the.

Price.

Grown that I need to use capital.

Correct. We're also buying our shares back to the dividend reinvestment plan in the open market now too.

Okay.

All right and it's all my questions for now I. Appreciate all the guidance you guys give at a time and thanks for taking my questions. Thank you X out say Alex.

This now concludes the question and answer session.

I'd like to turn conference back over to Robert J. Mccormick for any closing remarks.

Thanks for taking dining youre about to recover more about our company have a great day.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

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