Q2 2020 TrustCo Bank Corp N Y Earnings Call
Welcome to Trustco Bank Corp. earnings call and work can be.
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Let's see we would like to match and this presentation may contain forward looking information about Trustco Bank Cool New York, but is intended to be covered by the safe Harbor and forward looking statements provided by the private Securities Litigation Reform Act was 1995 actually so sometimes.
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Comparable comparable GAAP figures are included in our earnings press release, which is available under the investors relations tab.
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This time I would like to turn the call since.
Oh vote to Mr. Robert J. My.
Chairman President CEO. Please go ahead.
Thank you and good morning, everyone. We had a pretty solid second quarter at the bank, especially in light of the events that are happening around us.
First and foremost being a central very seriously, which went towards being there for customers when they need us.
Much of the burden for this film stuff branches.
But amazing.
Yes.
Back office stuff, especially long form it's been great too.
Very proud of how the vast majority stuff.
During these times.
Hi calls American Scot Salvador on the call today.
Let me hit the highlights I can give a lot of the tail and we can answer any questions you might.
Our net income our net income was roughly 11.3 million for the quarter.
Is down but putting into perspective, it is a very solid.
Our net interest expense was down to about 6.9 million for the quarter are interesting comment.
Essentially flat, where we lost the ground was the interesting we're on the investment portfolio, especially interest on fed funds.
Tied to our deposit growth, which has been fantastic. We have posted nice growth in all categories, except time accounts stimulus funds have also been a lot stickier than we would have expected probably driven by the nature of our service there.
On the loan side growth has been driven mostly by residential loans. We were active with P.P.P. loans. We also had our share of payments deferral requests.
Eventually in commercial side.
We put extra funds into the allowance for the past two quarters, resulting an allowance over $40 million, which is 1.15%.
Total loans.
Average ratio of 2.2 times, we are beginning to see customers come off deferral, and we're working with customers on repayment or forgiveness of their PPP long.
Details will follow on the call for both of these programs.
Our financial services Department has done pretty well through this and continue some about 875 million under management.
Our capital ratio was 93 quarter percent at quarter end, we have suspended our buyback program what are fully committed to resuming it and even increasing it at the right time.
Overall, we had a good quarter and look forward to what the future holes now Mike will detail the numbers Scott will deal with longer than we can respond to questions.
Thank you Robert Good morning, everyone I will now review Tricycles financial results for the second quarter of 2020.
As we noted in the press release the company saw net income of 1.3 million, which yielded a return on average assets an average of.
22%, an 8.2% respectively.
As loans for the second quarter of 2020 grew 7% or 270.5 million 4.1 billion from the second quarter of 2019.
As expected the growth continues to be concentrated within our primary lending focus residential real estate portfolio.
Average residential portfolio increased 257.2 million or 7.6% in the second quarter 2020 over the same here in 2019.
Commercial loan portfolio increased 33.1 billion or 17.4% over the same period in 2019, which included the funding a 46 million in ESB.
The average investment Securities would include NFS, and HCM portfolios decreased $141.8 million, 23.1% over the same period last year.
Second quarter of 2020, the bank at 54.9 billion Securities colder mature and approximately 31.6 million securities pay down.
Provision for loan losses for the second quarter was 2 million an increase compared to the credit of 341000 in the same period.
She was driven by the sale of a credit card portfolio last year.
The ratio of the allowance for loan losses totals, 1.15% as of June 32020, compared to 1.14% as in the same period in 2019.
Accretion that provision was driven by the growth in loans and the continued uncertainty around their current economic environment, resulting from call. It 90.
We would expect the level of the provision for losses in 2000, Tony will continue to reflect the overall growth our loan portfolio.
Could increase as the pandemic continues to influence economic conditions in our geographic footprint.
As mentioned last quarter to support our borrowers experiencing economic hardships bank was covered 19 financial release program, which includes loan modification such as the firms and residential commercial is by request.
As of June 32020 demand had 145 residential loan difference on 660 loans ranging from one to three months.
On the commercial side the bank has 45 million to commercial loan performance on 90 loans.
The bank continues closely monitor the level of deferrals for both residential and commercial customers.
Some residential and commercial loan customers have reached the end of the deferral period and have begun making regular payments at quarter end.
They did not adopt seasonal during the first or second quarter as we continued to be in an environment of regulatory change.
As mentioned last quarter, our decision to delay seasonal was engaged in the current regulatory changes and understand how that would shape our current landscape before implementing new standard.
Bank was obviously, so as required by the cares and earlier the termination and national emergency.
Turning over 19 or December 30, Onest 2020, so likely have you factored increasing allowance for loan losses and reducing shareholders.
The company expects remain well capitalized.
Under current regulatory calculations.
As discussed in prior calls our focus continues ground traditional lending a conservative balance sheet management, which has continued to enable us to produce consistent high quality recurring earnings our investment portfolio isn't always has been a source of liquidity to fund the loan growth and provide flexibility for the balance sheet management.
As a result, we continue to hold an average of 727 million of overnight funds during the second quarter of 2000.
An increase of 181.3 billion compared the same period in 2019, then increase or $314.9 million, 76.4% during the first quarter 2020.
The funding side of the balance sheet total average deposits increased 146.2 million or 3.6% for the second quarter of 2020 or the same purity earlier, increasing deposits was a result.
7.99, or 15.9% increase in average money market deposits are 20, 29.7, our 2.6% increase in average savings deposits 73.6, or 8.4% increase in interest bearing checking account averages offset private decrease in average time deposits 45 million.
The same period, our total cost of interest bearing deposits decreased four basis points from 91 basis points.
This is driven by a decrease in money market deposits to 54 basis points from 81 basis points in time deposits from 161.62% from 2.9% over the same period last year.
As we move in the third quarter 2020 additional opportunities continue to exist.
Place to lower market rates.
That said the bank has approximately $338 million in Cds that will return at an average rate of 1.4%.
Fourth quarter of 2020, approximately 562 million in Cds or rich mature at an average rate of 1.7%.
In total.
In the second half of 2020, approximately 900 million of Cds mature at an average rate of 1.75%.
Noninterest income net of security gains came at 3.4 million for the second quarter 2020 down compared to last quarter, primarily as a result, overdraft fees decreasing approximately $500000 and financial services fees were down 200000 from the first quarter of 2020.
Financial services Division continues to be the most significant recurring source or noninterest income.
Financial services Division had approximately.
$880 million Securities on remain at management as of June 32020.
Now onto non interest expense total non interest expense net of Oreo expense came in at slightly below our estimated range of 24 million down 110000 compared to first correspondents line.
Oreo expense came in at a credit of 32000 for the corn, which is over than the first quarter of 2020 expense 194000.
Lower level of net R&D expenses for the quarter was driven by a low level four properties and gains on sale of existing or re properties.
Given the continued low level of Oreo expenses, we're going to decrease the anticipated level of expenses do not exceed $250000 per quarter to quarter going forward.
All the other categories in non interest expense were in line with our expectations for the second quarter.
We will continue to expect to 22000 total recurring noninterest expense that already expenses to stay in the low end is a range of 24.6 to 25.1 million per quarter.
This is ratio in the second quarter 2020 came in at 15.3% compared to 56.34% first quarter 20 Twond.
Season pass we will continue to focus on what we can control working to identify opportunities to make the processes within within the bank partners.
One thing we are always product is expense control Trustco bank.
Practice to continue through 2020.
Finally, the capital ratios consolidated equity to asses ratio was 9.75%. The ended the second quarter down slightly from the 9006 compared to the same period in 2019.
I think is also very proud of its ability to grow shareholder value tangible book value per share on June 32020 was $5.73.
1.7% compared to five point 32 cents a year earlier now Scott will review the loan portfolio and nonperforming loans.
Good morning, everyone. Thank you Mike.
Well production continued at a steady pace during the second quarter, we are able to post solid net growth overall loans increased by 78 million at 1.9% on the quarter, an actual numbers. This tolling sort of SP HPP loads of approximately 46 million.
Year over year loans have increased 271 million, including the FDA triple.
Excluding SBS loan growth totaled 225 million of 5.8% year over year.
The quarters 32 million of non SPX loan growth was centered our residential first mortgages, which increased by 68 million.
On equity loans decreased by combined $15 million as low fixed interest rates and other factors continue to push activity towards the first mortgage product.
Commercial loans decreased by approximately 11 million in the quarter, excluding the SB eight loans.
We're pleased with the quarters 43 million in combined residential loan growth as our production in closing staffs continue to deal effectively with the challenges presented by the corporate situations.
Restrictions have listened in on Europe marketplace with your company reduction Coburn numbers, and we expect that to purchase mortgage market will benefit.
Florida restrictions have stepped up somewhat and we'll continue to closely monitor the situation.
Despite this however, the quarter real estate market remains quite active.
Interest rates as everyone is aware of decrease to historic lows refinancing activity has picked up accordingly.
Our current 30 year fixed rate stands at 3.25%.
As a portfolio lenders such market conditions present challenges, although we've been successful and consumed our net growth managing overall interest rates very carefully.
Our backlog at quarter end to solid stand above both the first quarter in the same point last year.
Refinances do comprise a greater portion of the current backlogs, which can skew the numbers for purposes comparison.
However, we are pleased with the backlog remain hopeful of posting continued solid net growth over the coming months.
Continue to closely monitor loan was probably put on deferment relative to coding.
The situation is obviously fluid and their does exist a lot of uncertainty about the future. However, we do not have an existing excessive amount of loans on deferment relative to our overall portfolio and the bars on the commercial side are primarily well established customers.
Relatively modest size, our average residential mortgages and other mitigating factors as far as begin to move off to firm.
Overall asset quality measurements of bank continued to be good nonperforming loans increased by approximately 1.2 million quarter are down by approximately 200000 year over year.
Given the overall low levels nonperforming loans, some degree of Choppiness as expected.
Performing assets increased by 700000 in the quarter and decreased by 2 million year over year from 24.8 to 22.8 million.
Net charge offs were essentially zero in the quarter.
Our loan loss reserve is solid and at quarter end the coverage ratio our allowance for loan losses nonperforming loans stood at 220% versus 200, a year ago.
Yep.
Thanks, Scott, we'd be happy to answer any questions you have.
We will now begin good question and answer session to ask a question you May Press Star then one on your Touchtone phone.
If you use in the speakerphone, please pick up your handset before pressing that Keith.
At any time. Your question has been addressed then you would like to withdraw your question. Please press Star then to at this time, we will pause momentarily to assemble a roster.
Our first question is from.
Next to Abad from Piper Sandler Brad.
Hey, good morning, guys morning warehouse.
First off Scott I was wondering if you could give us a little bit more color on the loan pipeline and refi activity and maybe try to put the too.
Related to a little bit more maybe talk about the refi activity that you saw in the second quarter, how much of that trust goes able to retain and just kind of maybe help us get a little bit better sense for.
One the trajectory the loan portfolio in terms of balances from here as well as the trajectory the yield on that portfolio from here.
Right well, you say, Alex I mean refinance is a big part of the story right now.
In the real estate market, let me just to give you a feel I think this is pretty consistent.
Where you're looking around the country.
Right.
Last quarter about 60% of the loans, we we approved we're refinances. If you go back a year was less than 30% year over year.
[music].
Let's split.
It's probably running right now about 60, 40, 60% trustco refiled versus 40% non trustco.
The trust to revise obviously drops our yield, but we're keeping alone which is a good thing obviously and havent, 40% of the were revised roughly be noninterest or re Fi that's new money to us so.
Bars net growth it does impact net growth purchase money activity.
Although as Rob said, it's it's good considering everything thats bone going on it is down year over year.
But it's not bad considering everything that's been going on especially in our Florida market.
The amount of non trustco refiners that we're picking up.
In the backlog gives us confidence that we we can continue to post some some decent that growth over the coming months.
Great. Thanks for that and then just you know obviously you guys are kind of swimming in liquidity right now.
And I know, there's a number of factors that caused that obviously stimulus customer behavior deferrals et cetera, but how do you. How do you kind of plan for that liquidity level to normalize where do you see it normalizing in this environment.
And does it mean that you can get more aggressive on lowering CD and other deposit rates or are there other sort of levers do you have just sort of bring that liquidity level down.
Yes, definitely Alex we agree that I mean, youre kind with swimming, probably with liquidity, there's a lot of money on the balance sheet.
We are lowering rates.
Virtually every every week at least one we have our rig committee and the trajectory on all deposit rates is down. There's no question I think the nature and I said I said, it and the introduction that the nature of our customers, probably a little bit more conservative the areas, we serve as on the conservative side, especially upstate New York and people.
I haven't had any please to really spend the money. So thats stimulus was much stickier than we thought and again I think because of the nature of our customer and our court our core deposits, which is a great benefit.
That money has stayed with us a lot longer than any of us would have expected.
It's a good problem no Alex I'd, rather have that problem than on the other side.
Totally agree with that but as you think about the 900 million of Cds that are going to reprice over the next six months say 175, where do you envision.
If those are going to go into other CD products, what would the what would that rate be on those today 25 basis points maybe less.
Great and then you know in terms of the deferrals that are that are going to be coming due I guess in the next month or so do you have any sense for the percentage of those that could it be extended to the 180 days versus ones that would roll off in July.
If I could just take a step back on that and pay a complement and you know this we're conservative underwriter and we're very cautious about lending our shareholders' money and the company's money and I think it's proven because if you compare us to our peer group our deferrals.
Well under 5%, which is pretty high.
A pretty high bar to set and we also I don't I don't think we have a delinquent commercial loan on our balance sheet right now so that speaks to the ground work that our team has done for the past three years. So if I could give them a little out in the back Laura.
A complement that's it and that that starts with very standard strong underwriting, which is a hallmark of this company Alex So we're very comfortable with that.
As far as the deferrals go I'm amazed how many people have quiet, we've just begun repaying.
And only about 15% of the people that are coming up.
The first 60 day deferral.
Our.
Even requesting additional deferrals and we're doing that 30 days at the time, so as comfortable as you can be with the deferral process and people not paying you I think worth that position I also have to say about commercial loans and you don't.
We're pretty conservative people with regard to commercial lending.
I don't think we have a commercial loan this on total deferral.
I think they're paying escrow, they're paying principal they're paying interest one of those items most are paying interest only with escrow.
So it's not like we're on total deferral with regard to commercial lending either so I guess no bankers comfortable with people not paying him, but I think we're as comfortable as anybody could be in that position.
Sorry for the long winded answer.
No. It's helpful and just remind us the average if you have at the average mortgage payment for for your customers.
Where's that writer right now.
Well, Scott Alex I mean, if you look at the average origination size, we're a little above.
200000 in terms of after about 220000, if you want to your rent on it Fars Thats new originations laws in the books are obviously, our smaller not so if you want to back into your average payment off the 220000.
Figure.
With interest rates at three in a quarter percent.
You can come in where the payment is designed a modest side and the way as far as of residential mortgage.
Yes.
And then I'm just final question for me just looking at the customer service fees.
In the second quarter down for fairly obvious reasons I would say have you seen any that start to rebound in the third quarter.
We had the one thing that we saw was interchange fees Reg interchange fees also kind of took a dip but that really it was a short term get a month or two wouldn't really covert started to hit so that did come back in and that was a positive overdrafts I mean being down that's a function of the balances that we have in the bank every category.
Talking about but the good size is people are spending the money we are seeing it on interchange.
Our loan fees have been phenomenal Alex just so you know.
Obviously that doesn't make up for overdraft fees, because it's spread out over we amortize it over a period of time, but our loan fees. We've certainly built up a nice backlog it will be taking in over the next several years.
Great. Thanks for taking my questions.
Thank you.
This concludes our question and answer session I would now like to turn the conference back over to Mr. Mccormick for closing remarks.
Thanks for joining in today to hear more about our company and have a great day.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.