Q4 2019 Earnings Call
factors and forward-looking statements section
Of our annual report on Form 10-K and as updated by our quarterly reports on Form 10-Q , the statements are valid only as of the date hereof in the company name is any obligation to update this information except as may be required by applicable law today's presentation contains non-GAAP Financial measures, the reconciliations of such measures to the most comparable gaap figures are included in our earnings press release, which is available under the investor relations tab of our website at trustcobank.com, please also Note 5 Days event is being recorded at this time. I'd like to turn the conference call over to mister Robert Jay McCormick chairman president CEO , please go ahead. Thank you. Good morning everyone. I'm Robert corner of the bank joining me today in the call Usual Suspects might go to make our CFO and Scott Salvador Chief lending officer. Andrew Maguire is also in the room a lot of you probably know to keep us in life.
I'll give a summary of the quarter then turn it over to Mike for the tail and the numbers then Scott will talk about the loan portfolio leaving time for questions and answers we
a good 2019 at the bank loans deposits total assets and shareholders Equity were all greater than me RN 2018
2019 net income was down compared to a record 2018 during by increased cost of deposits are total assets top five point two billion driven by good loan growth. Our total loans were over $4 off our residential portfolio has grown to over 3.5 billion and Commercial loans showed modest growth in 2019. We lost ground in a home equity area for the year. We do believe in a lot of that run off as being captured in the residential portfolio as a part of refinances. We're also testing a couple of ideas to reverse the home equity Trends. It's important to note to that all she has participated in the growth.
Interest-bearing deposit reached almost four billion dollars a year end the growth was in the money market in time deposit categories on the non-interest-bearing site depending deposits also posted good solid growth took $455 million our net interest margin remained over 3% as previously discussed on these calls were starting seat deposits repriced downward might go we'll have a lot of faith in this area. We continue to maintain a large Investment Portfolio with relatively short maturities. All of our asset quality ratio should improve in 2019. We ended the year with a long-lost reserve or 1.09% of total loans with the coverage ratio of 212% We did not open any new office in 2019. I'll return on assets and Equity were 1.06 + 5.41% Respectively. We continue to operate a traditional Financial Services Department.
Now Mike is going to give the details.
On the numbers and Scott will cover the loan portfolio and we'll leave some time for questions at the end Mike. Thank you Robin. Good morning. Everyone. Now review trust goes Financial results for 2019 as noted in the North East Russell saw net income of 13.9 million and 57.8 million for the quarter and year ended December 31st, 2019 respectively average loans for the fourth quarter of 2019 Chef 4.4% or 167.8 million to 4 billion from the fourth quarter of 2018 as expected the growth continues to be concentrated within our primary lending focus on a real estate portfolio, the average residential portfolio increased by 187.7 million or 5.6% in the fourth quarter of 2019 over the same period in 2018.
Total average investment Securities which include the HDM portfolios increased eighty six point four million or 15.9% over the same period last year this was driven by the net purchases of approximately $57 in Securities throughout the year the provision for loan losses for the fourth quarter of 2019 was 200,000 driven primarily by the growth in loans.
This is a
decrease compared to the $500,000 recorded in the same period in 2018
The ratio of allowance for loan loss to Total loans was 1.09% as of December 31st, 2019 compared to 1.16% as of the same. In 2018 and reflects our continued Improvement and ask equality and economic conditions in our lending areas. We would expect the level of provision for loan losses in 2020 to continue to reflect the overall growth on our loan portfolio took in Long quality and economic conditions in our Geographic footprint.
As discussed in Prior calls our Focus continues to be on traditional ending in conservative conservative balance sheet management, which has continued to enable us to produce consistent high-quality recurring earnings are in fact is and always has been a source of liquidity to fund a loan growth and provide flexibility for balance sheet management as a result. We continue to hold an average of 395.3 million of overnight and back during the fourth quarter of 2019 a decrease of 21.5 million compared with the same period in 2018.
Or the fourth quarter of 2019 the bank had 70 million of Securities call or matured and approximately 21.7 million of hold Securities paid down.
On the funding side of the balance sheet total average deposits increased 218.8 million or 5.2% from the fourth quarter of 2019 over the same period a year earlier the increase in deposit box was a result of a $195 million increase in time deposits a 83.3 million increase in money, Mark deposits and fifty seven point six million dollars increase in demand deposits down by the decrease in savings an interest-bearing checking of 89.6 million and 27 point five million dollars respectively during the fourth quarter of 2019. We continue to offer competitive rates which allowed us to gain market share as well as a significant portion of our existing time deposits. This strategy will help sustain trust go strong liquidity position at a relatively low cost and continue to walk across nuclear relationships and take advantage of opportunities as they arise during the same. Our total cost of Interest Bank deposits increased to 90 basis points from sixty basis points.
deposits increased to
81 basis points from 49 basis points, however, more importantly the cost of core deposits remain relatively unchanged over the same period while time deposits average cost for the fourth quarter 2019, So 2.10% from 1.50% Over the same period last year the average cost decreased 9 basis points from 2.19% compared to the third quarter of 2019, We feel this continues to reflect the pricing discipline with respect to CDs and non maturity deposits.
In the first quarter of 2020 approximately 364 million CDs will mature at an average rate of 2.22% in total in the first half of 2020. Approximately 665 million to CDs will mature at an average rate of 2.01%
Our net interest margin decreased slightly to 3.02% in the fourth quarter of 2019 from 3.04% compared to the third quarter of 2019 are taxable equipment and interest income was $30 billion for the fourth quarter of 2019 a decrease of 401000 or 1.04% compared to the third quarter of 2019.
Interesting. Come came in at four point 1 million for the fourth quarter of 2019 down compared to last quarter due primarily through the to approximately $500,000 of recoveries for prior-year legal settlements in the third quarter of 2019 or financial services division continues to be the most significant reoccurring source of non-interest income the financial services division, and approximately 928 million of assets under management as of December 31st, 2019. Now on 2/9 interest expense total $9 for Sixpence None of our expense came in below our estimated range at 24.3 million up and $39,000 credit to the third quarter of 2019.
We recorded a net benefit of $385,000 for the fourth quarter of 2019. The lower level level of net or re expenses for the quarter was driven by gains from the sale of watery properties off given the continued level of low level of or re expenses. We are going to hold the anticipated level of expense not to exceed $450,000 per quarter all the other categories of knowledge expands more line with prior quarters and our expectations for the fourth quarter. We would expect the first quarter of 2020 is total non reoccurring
a recurring
On the interest expense Netta blurry expense to seeing the range of 24.6 to 25.1 million dollars per quarter efficiency ratio came in in the fourth quarter of 2019 at 57.1% compared to 55.17% the third quarter of 2019 as we've stated in the past. We will continue to focus on what we can control by working to identify opportunities to make the processes with with it more efficient. One thing we are proud of is is expense control of Trustco Bank has been discontinued through 2020.
On the Cecil front the company continues to its implementation efforts testing of various loss estimation estimation methods and completion of relevant internal controls and processes likely the effect of increasing the allowance for loan losses and reducing shareholders Equity dependent upon the balance of the companies won't portfolio economic conditions and forecasts on the adoption date the company expects. Mm. Well capitalized under the current regulatory calculations and finally the capital ratios continue to improve consolidate Equity to assets ratio was 10.31% the end of June quarter 43 basis points from 9.8% compared to the same period in 2018 is also very proud of its ability to grow shareholder value tangible book value per share at December 1st. 2019 was $5.55 up 9.68% compared to $5.06 a year earlier now Scott will review the loan portfolio and non-performing Loans dead.
Thank you my king. Good morning.
It's Robin might have stayed at the bank posted strong loan growth in the fourth quarter of 2019 overall loans increased by $77 million on the quarter in actual numbers. This was divided between several million in the residential portfolio and a seven million dollar increase in commercial loans the car so long total did include some temporary your online advances, but the majority was composed of new term facilities year loans have increased 188 million or just under 5% growth and residential portfolio was steady over the last several months and the final total of 70 million top 3 results of the final quarter over the last several years. This is a charitable to both a good starting backlog and a continuation of solid demand. We're pleased to report the bank achieved a milestone on the quarter as our Florida region surpassed 1 billion in total. Oh now sneeze when was in Florida now constitute approximately 25% of our total loan books the vast majority of which is comprised of residential first mortgages.
As most of you know, we have purchased no loans in Florida with everything have been originated for our own portfolio through our Branch Network. We're proud of this achievement. Look forward to continued growth.
On activity slowed late in 2019 and through the holidays as is normal for this point in the year the backlog as of twelve-thirty one ninety-nine has dropped from the third quarter but remains more than 15% above where we stood at the end of 2018 for the first quarter of 2019. We recorded a small decrease in net loans this year given the increased backlog and continued demand. We're hopeful of having positive net loss for the first quarter. Although it remains a slower part of the loan cycle our current 30 year fixed rate stands at 3 5/8 percent.
overall
As far as delinquencies are not performers are considering the news remains good non-performing assets decreased by approximately 1 million dollars on the quarter with non-performing loans decreasing slightly year-over-year non-formal drop from 25 million to 20.9 or five 1% of total loans non-performing assets decrease from 26.7 million to 22.4 year-over-year.
Early-stage delinquencies remained very low and net charge-offs total $212,000 for the quarter and only $608,000 for all of 200 2019.
the coverage
Raise your allowance for loan losses to non-performing loans now stands at 212% as of your end up from $179 last year. Thanks Scott for happy to respond to any questions. You might have bought a ladies and gentlemen at this time will begin the question-and-answer session to ask a question. You may press star and then one on your telephone keypads. If you are using a speakerphone, we do ask that you please pick up your handset before pressing the keys to answer all your questions. You may press star into once again that is stalling and one to ask a question at this time. We will pause momentarily to assemble the roster.
You know first question today comes from Alex squared away from Piper Sandler, please go ahead with your question. Hey, good morning guys morning Alex off to touch on Capital which I think is a question. I asked us about a recorder but now tce a 10.3% seems to be well above what you guys do need to run with and I know you get the buy back in place. Thursday is Lee haven't used that much if any did the share price. I'm just kind of wondering if you how do you thinking about Capital? You know, what the sort of Comfort Range is and you know, whether or not we're going to see that money that level go down anytime in the next year or so as we said in the call on the past Alex. Obviously, everything is on table with regard to that to share price has been strong faith that the approved buyback program really hasn't been well, it hasn't been executed. So we're looking at other options and then seeing that but like you said we're we're overly confident in the capital level.
We have let's put it that way.
Things like m&a back on the table. It's been a long time since you guys have done any Acquisitions. Yeah, you know how we've always felt like that. We work for our shareholders doing work for the shareholders of the company. So would have to be a creative in the right deal. I can tell you nobody would like to do an an acquisition more than the people sitting at this table, but it would have to be right for our shareholders. Not the shareholders of another company.
Okay. Yeah, I mean some of the deals that have been announced in Upstate New York and not all of them are in your geography but would any of those have been interesting interesting to you guys? Yeah, I think the the one in Columbia County probably would have been a nice idea for us because it would have been a nice extension of our current Marketplace. Also as you point out we haven't done an acquisition in a while. So it might be nice to do a small 1000 dip your toe in the water.
Got it. And then just wanted to to go talk about the margin a little bit. You know, we saw a pretty decent in five basis point decline in the yield on Residential Mortgage is obviously you mentioned Scott the new productions coming out at 3 5/8, which is kind of I guess well below the the book yield right now. But as you kind of look out the trajectory of our new production the pipeline Etc. How do you envision that overall yield coming down over the next couple of quarters? Assuming no real change in the right environment?
I mean
It's a big portfolio. So, you know, it does move like a dinosaur but it does continue to take down if we're you can do the math. We're putting the volume that we're putting on on a monthly and a quarterly basis that will start to come down. So you're also also a holding commercial loan portfolio helps. And as I said in the in my part of the presentation, we're also looking into a couple of different Avenues with home equity credit lines to see if we can stem the runoff on that which also helps with the return on that. But it's Mike said that's a large portfolio Alex and even if you know two hundred or two hundred twenty five thousand dollars and new volume. It's not going to move that quickly and we're also bringing deposits down.
You know, we brought the CD portfolio down by 9 basis points. We're not offering anything with it two in the front of it. So I would imagine you're going to continue to see that CD portfolio reprise downward and they'll be benefit from that as well. Yeah. So, I mean, I guess just thinking we saw five basis points of mortgage yield compression in the fourth quarter.
My assumption is a new production in the first quarter is going to be much less is Reef was refi activity outsized in the fourth quarter that kind of cause that to come down more than more than it typically would have and and and so kind of over the rest of the you know, I guess as we looking to 20 20, I mean we're not going to are we going to see any more quarters where we have five basis points that compression or is it going to be more like kind of like two three basis points per quarter, you know, if rates they were they are a new production stays where it is. I think it was a combination of things in the fourth quarter as you say Alex I mean production was strong overall. So we put you know, thankfully we put quite a few of loans on the books and that good net growth and there was you know, second half of the year, the refinance activity was significantly higher than it than a year ago. So that came into play. But as you say, the first quarter is a slower part of the year just in terms of loan cycle Loan Production. So you're going to see less dollars going on in the first quarter. So, you know corresponding. Well, you're just going off.
Have an effect.
Okay, and then when you talk about the HELOC in a different Avenues, I mean that would be pretty small potatoes relative to the size of the residential production, correct?
Yeah, but when you look at a prime rate where it is right now could have an impact on the return. I don't I don't know exactly what
So I haven't run those numbers exactly, but you haven't you have an outside prime rate right now so that I think in most of those he locks are based on the prime. So I think it could have more of an impact.
Okay, overall. I understood also looking our portfolio that set some run off so that if you're able to stem the runoff and post a little bit of growth it wouldn't be the worst thing in the world.
That makes sense. And then just going back to talking about the CDs, you know over the quarter. I think you had something like three hundred and fifty million of CDs that were scheduled to reprice pretty meaningful like up to fifty basis points lower as of the last conference call. Is that is that what you saw did you see all that that repricing activity come through as expected or did you wind up having to offer a bit higher rates on some of the new or some of the those CDs as they rolled over in order to keep them in the bank?
Well, you saw I think you saw a combination in the portfolio. You you saw you saw some of it moved to a to a money market account some of the prices in the CD portfolio off and then some of it shopped and went some places that are still offering it to, you know, a to 2% CD. So we did have some run off in that portfolio and some changes with regard that as a result of the pricing.
Okay, so the 364 the schedule through price on the first quarter from 222. How much is that? Would you anticipate staying at the bank and how much of that what what sort of a a new birth rate would you have to offer to kind of keep what you ought to stay in the bank? So I mean to your right and we have three hundred sixty four million dollars of CDs with a $222 over, you know call back first quarter of this year. I mean the rates that we offer right now are are 150 to 175. You know, obviously we try to push, you know, this is going to be dependent on the customer's Choice whether they go with Thursday if they go, you know, whether on the lower end of the range or the higher end of that range, so, you know, we've been we've had decent luck on retaining most of that portfolio as evidenced by what happened in the fourth quarter.
Okay.
All right. My question for the range to look at.
Yeah, I I appreciate all the colors of the additional color on the guidance. That's all my questions for now. Have a great day. Thanks Alex.
And once again, if you would like to ask a question, please press star and then one to remove yourself from the question queue. You may press * + 2.
And ladies and gentlemen and showing no additional questions. I'd like to turn the conference call back over to Robert McCormick for any closing remarks. Thank you for your interest in our company and have a great day.
Ladies and gentlemen, the conference has now concluded we do thank you for attending today's presentation. You may now disconnect your lines.