Q1 2020 Earnings Call

More detail than Scott will talk loans, then we will have time for questions Mike. Thank you Robin. Good morning. Everyone else goes Financial results for the first quarter of 2020 as we noted in the press release companies on their income of 13.3 million dollars, which yielded return an average Assets in average Equity of 1.03% and 9.87% respectively average loans for the first quarter of 20/20 grew by 5.4% or 209 million to 4.1 billion for the first quarter of 2019 as expected the growth continues to be concentrated within our primary Landing Focus the residential real estate portfolio an average residential real estate portfolio increased by 226.7 million or 6.7% The first quarter of 2020 over the same. Twenty nineteen, I'm almost for the first quarter was two million dollars in increased compared to the three hundred thousand in the same. In 2019. The ratio of allowance for loan loss to Total loans was 1.13% off.

Michael now

Of March 31st 2020 the increase in the provision was driven by the growth in the loans and the uncertainty around that current economic environment resulting from covid-19 off the level of provision for loan losses and twenty20 to continue to reflect the overall growth our loan portfolio and could incrementally increase as more clarity becomes available regarding Trends in our loan portfolio wage economic conditions in our Geographic footprint as mentioned in our press release to support our hours experiencing economic hardships, the bank launched the covid-19 financial relief program. This package includes will modifications such as the firm. It's on the residential and Commercial loans By Request early the bank forty 1 million in residential loan deferment on Thursday from 1 to 3 months in addition 35.9 billion or a hundred eighty-six loans have been approved for deferment and deferment Agreements are being sent to borrowers wage.

Also have 76.4 million or $396. The bank is in the process of reviewing for potential defer lastly. The bank has additional seventy nine point four million or 483 customer and have requested an application to further along the bank. The bank does not have an estimate of how many of these customers that have requested an allegation may actually apply for deferment commercial side of the bank is has processed through in the process of the furthering $49 of loans to approximately 25 borrowers make is actively monitoring the level of deferral request from home on the commercial customers and it's worth noting that we have seen a dramatic decrease in defer requests for the last 5 days.

Bank did not adopt seasonal during the first quarter. We are in an environment of regulatory change. Our decision to delay season was to engage in the current regulatory changes and understand how that would shape off landscape before implementing the new standard. The bank is required by the fact that the earlier the termination of the National Emergency concerning covid-19 or December 31st. This will likely get the effect of increasing the allows for losses and reducing shareholders Equity the company expects to remain a well-capitalized financial institution under current regulatory calculations.

It's disgusting.

Lending conservative management which is continued to enabled us to produce consistent high-quality recurring earnings. Our Investment Portfolio is and always has been a source of them to follow along to provide flexibility for the mileage as a result. We continue to hold an average of 412.1 million of overnight Investments during the first quarter of 2020 decrease of 90.1 billion. Twenty nineteen an increase of 16.8 billion or 4.2% compared to the fourth quarter of 2019.

Oh average investment Securities which include the HDM portfolios increased 24% or 4.6% for the same period last year for the first quarter of 2020 the bank also took the opportunity to sell $29 Securities resulting in a game or approximately 1.2 million dollars portfolios also had $55 in Securities called amateur and approximate twenty-minute approved is a big town is also purchased 23.5 million to Securities at the very end of q1 the funding side of the balance sheet total average interest bearing deposits increased 60.1 million months or 1.5% for the first quarter of 2020 over to C. A year earlier the increasing these deposits was the result of 16.8 million and 96.2 million of an increase in average time down to money market deposits.

Partially offset by the decrease in an interest-bearing checking a 40.3 million and 9.6 billion or they seem. Demand deposits. Increase $61.58.

An interest margin increased to 3.05% in the first quarter of 2020 from 3.02 compared to the fourth quarter of 2019 at actual equipment net interest income also increased to thirty eight point six million for the first quarter of 2020 an increase of 311000 compared to Q4 of 2019 or the first quarter our total cost of interest bearing deposits decreased twelve basis month basis points compared to the fourth quarter of 2019.

Time deposits decreased 41.87 we feel this continues to reflect our pricing discipline with respect to CDs in our maturity deposits as we move into the second quarter of 2020 additional opportunity exists to reprice higher-cost CDs for the lower current market wage bank is approximately $330 and an average rate of 1.76% in addition during the third and fourth quarter of 2028 approximately 777 million of CDs more mature at an average rate of 1.89%

Not interesting. Come came in at five point three million for the first quarter of 2020 compared to last quarter. The Lion's Share of the increase included 1.2 million of gains in the sales of Securities. Our financial services division continues to be the most significant reoccurring source of non-interest income. This division had approximately 786 million of assets under management as of March 31st, 2020. Now on to 9 a.m. For lunch is expense expense came in slightly blower estimated range of twenty Point twenty four point 1 million down two hundred thousand compared to the fourth quarter of 2019, The expense came in at $194,000 for the quarter up from the fourth quarter of 2019 given the continued to low-level over the expenses. We're going to hold dentist me to level expenses not to exceed $450,000 per quart.

the other categories

Do not interest expense. We're in line with prior quarters and our expectations for the first quarter would expect total 2020s reoccurring non-interest income expense net already expense. Say the range of 25.1 million dollars per quart efficiency rate on the first quarter of 2020 came in at 56.34% compared to 57.31% in the first fourth quarter of 2018 as we see it in the past will continue to focus on what we can control I work in to identify opportunities to make the processes within the bank more efficient. We are proud of expense control Trustco Bank, and we expect us to continue wage 2020 and finally calibrations continue to improve Consolidated Equity to assets ratio is 10.43% in the first quarter up 70 basis points from the 9.3% compared to the same period 2019.

I think it's also very proud of its ability to grow shareholder value book value per share twenty-twenty was $5.68 up 9.7% compared to $5.86 a year earlier now Scott will review the loan portfolio and non-performing Loans. Thanks, Mike. Good morning, everyone despite the events, which have transpired in the marketplace. We're still able to post Malone growth first quarter loans grew by a combined thirty seven million or 92% in actual numbers year-over-year loans climbed 238 million or 6.1% off as a reminder for last year's first quarter. We saw a decrease in that loans.

We were pleased with the quarter's results and proud of our employees ability to successfully adapt and deal with the cold the chances placed before these adaptations have taken a variety of forms, including the ability to conduct loan closing a video conference.

A 37 million of lung growth. This quarter was centered on a residential First Mortgage product with HoMedic credit lines and Commercial loans decreasing by 2.2 and 3.7 million respectively wage growth occurred in all regions, although a Florida operations exhibited a particularly strong quarter.

Refinance activity has risen significantly of last several weeks with the drop in interest rates interest rates are current 30 year fixed rate is 3.49%

He's refinances will lead to some increase payoff activity in the portfolio. Although we have been quite successful in attracting non-trust of refinances, which represents new money to the bank versus volume has something with the recent events and the accompanying restrictions on Realtors and Builders have been put in place despite this however, a reduced level person's activity does continue and we expected the vine will increase quickly once restrictions begin to age.

A long backlog at the end of March was strong. It was above both year-end and last year's totals join. Any comparisons is difficult. However to be ongoing disruptions in the marketplace forecast near turn demand is filled with a lot of uncertainty are strong backlog. However should hold us in good stead and we optimistic about continued growth throughout the quarter might touch on the loan deferments early in the presentation. I stayed at the amount of new such requests that floats slowed dramatically many of the involved commercial borrowers are established long-standing customers, and we're hopeful that the vast majority of all borrowers will return to normal payment status was the current situation has passed delinquency an asset quality measures remain strong as of 331 non-performing assets and non-performing Loans, both decreased slightly on the quarter off your over here or not foreign assets drop from 26 million to 22. Well non-performing loans decrease from 24.7 to 20.7 million.

early-stage delinquencies

And they charged us with both very low in the quarter and the coverage ratio were allowed some losses for loan loss to non-performing loans increased at 222% at quarter-end. Thanks Scott. I'm not respond to any questions. We will now begin the question-and-answer session. If you would like to ask a question, please press * then 1 month touch-tone phone. If you're using a speaker phone, please pick up your handset before pressing the keys.

If you would like to withdraw your question, please press * then two at this time. We will pause momentarily to assemble our roster.

Our first question today will come from Alex portal of Piper Sandler, please go ahead with your question.

Hey, good morning, guys. Hi Alex. How are you doing? Okay, thanks Mike. You went through the the the number of loans that have requested payment deferrals. I missed a lot of life you go. Would you just mind going through it again? Just running through all the different categories one of my friends. So we have 40.1 million. So forty million forty four am a residential departments that have been deferred so far in a range from one to three months. We have an additional thirty five point nine million dollars worth of loans.

That Agreements are being sent to Borrowers.

Then we have an additional seventy six point four million dollars that we're in the process of reviewing for potential deferment.

And the last piece is an additional $79 million point four seventy nine point four million have asked for an application.

He's not got any back.

Okay, thank you for going through that again. And then can you just remind us some of the characteristics of the loan portfolio just in terms of the average size average LTV Etc. I know you've been through it before but I think maybe it's worth reminding us some of those characteristics.

Oh, yeah Alex, this is Scott. I mean as far as on the real estate side, you know when the approvals are average at around two hundred million now when you look across the bank off, but that's not the point of approval, you know, so for loans that are in the in the you know Season loans, it's it's significantly below two hundred million in terms of average and loan-to-value off its portfolio wide 75% on average is higher than add on approval. I think it's an excess 80% on approvals when you look at the whole portfolio, which of course, you know Season loans and everything else. It's in the mid seventy percent as far as loan-to-value is concerned and and it's primarily all ones for family individual owner-occupied properties spread throughout our geographic region really wanted to families.

Yeah one or two families.

Some duplexes what not, but that that's a much smaller piece.

Great. And then do you have any exposure in your in your commercial portfolio? I know it's a small piece of the overall pie but in the commercial portfolio any exposure to some of the sort of more at risk categories Wednesday Restaurant Hospitality Transportation energy, et cetera. Very limited very limited Hospitality. We've said in in Rob I think is highlighted in Prior quarters the last couple of years that we've really been cautious at the commercial Side based on what was going on in the marketplace that we thought was a little too aggressive, especially with hotel motels and that type of lending. So we really steered away from that. I mean, we have some seasoned ones in our portfolio, but not many at all. We do have some limited amount of hospitality restaurant that type stuff. But again, most of what we have our season bars have been around for quite a while and we we don't have any real concentrations in it.

Okay, and then Mike, you know in terms of sea so I know you guys chose to not, you know, not adopted as of January 1st you any sense range for what the adjustment would have been should you have adopted it?

You know, we really haven't released a range as far as you know, how much we have. You know, how much the opening adjustment would be but it wouldn't it's not a. Know. It's in the it's not in the it's not a material increase would say that as far as overall increase to the to the allowance off. Okay. And then just as you think about Capital you got TCS and over 10.4% you did buy back about almost half a million shares or in the quarter before suspending the program. Can you talk a little bit about how you thinking about Capital today? You know what has a relation to Dividend as it relates to maybe potentially reopening that your buyback. You know why you suspended as Etc when you have so much excess capital

I think just preserving capital in these times. Alex is a was a good idea for for a lot of reasons. We are fully committed to a buyback our plan would be to renew and roll up or increase the buy back program to its initial start. I think it comes up in June again, but we are fully committed to a buy back long-term and I've told you before just about every month on the table dividend buy back your name it and it's just I don't think it's an appropriate time to extend cap. Like this is a time to keep capital of, Georgia.

Okay understood and then just as you talk about the margin or Switching gears to the March and the disclosure and the 10K suggest that I should drop around 10% in the down 100 scenario. If I if I read it correctly. We're now down a hundred fifty on the short end 130 in the long end. Can you talk a little bit about some of the differences in the assumptions that are that are contemplated in that scenario versus what you're actually seeing play out following the the drops in in rates recently.

right

I mean, I guess I'll answer it in reverse first. I mean, I think you know when you take a look at what's really playing out right now, I think you're going to see that the margin is going to come under some near-term pressure. I mean, obviously the way down to ten basis points on the bed right now, but I mean, I really like our ability to reprice 770 million dollars worth of CDs in in the near-term, you know, that's that's really going to help us out as off of lead and it's as far as as a function that we have at our model, you know, one of these you know, we've always said that we have is we have very sticky or deposits and as as rates sarja, we're already at a lower level of rates on deposits. So there's just so far that they can come down and then we have short-term money off its kind of on the opposite side that's going to reprice down. So obviously you see that impact right away, but on the flipside the good part is is that are capable that we have we've always talked about in the past how much cash flow that our loan portfolio has been dead.

Investment Portfolio spends all and then you're seeing that that we can we can read price those, you know deposit portfolio as as the way to come down. So I mean we can continue to make life a pipeline on a real estate portfolio still a solid. We're still closing loans and as we start to come out of this I think will continue tomorrow.

Right, and then you did mention that you guys are participating in the PPP program. Do you have just sort of initial size of that program or loans you're able to fund that's far.

Yeah, I think in in as far as total applications received it was a little under fifty million Alex and his rocks said we're only able to get it about half of that through the system the other still pending. So roughly half of that that's fifty million has been approved and the other half is Penny that will proceed once you know that now the programs getting back geared up.

Great, that's I think that's all my questions for now. Thanks for thanks for the time and I'll get back to you. Thank you.

This concludes our question-and-answer session. I would like to turn the conference back over to Robert McCormick for any closing remarks. Thank you for taking time out of your day and stay healthy. Stay safe and not

The conference is now concluded. Thank you very much for attending today's presentation. You may now disconnect.

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