Q3 2020 TrustCo Bank Corp N Y Earnings Call
Good day and welcome to the trust.
Core earnings call and webcast.
Participants will be in listen only mode.
If you need assistance. Please signal conference specialist by pressing the star key followed by zero.
After todays presentation, Tony last question.
Good question you May Press Star then one.
Through all your question.
You May press star into.
Before proceeding we'd like to make in this presentation may contain forward looking information about Trustco Bank Corp, New York.
Be covered by the Safe Harbor and forward looking statements about it.
Private Securities Litigation Reform Act of 1995.
Actual results could 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 preceded this call and.
And is the risk factors and forward looking statements sections of our annual report on form 10-K.
Yeah, the as updated by our quarterly reports on form 10-Q.
[music].
This date hereof, the company disclaims any obligations to update this information.
Except as may be required by applicable law.
Today's presentation contains non-GAAP financial measures.
What conciliation of such measures to the most comparable GAAP figures are included in our earnings press release, which is available under the bus or relation tab on our web site at Trustco Bank Dot com.
Please also note todays event is being recorded.
At this time I'd now like to the conference over to Mr., Robert J., Mccormick, Chairman President and CEO. Please go ahead.
Thanks, Nick Good morning, and thank you for joining us on the call. This morning, I, usually am as usual I'm joined by our CFO My goals are met and Scot Salvador Senior lending officer like most places the pandemic has certainly set the agenda. This year, we were dealing with a pretty well and we are proud of our hard working staff were conducting themselves professionally throughout the term.
Our thoughts and concerns go out to those most affected not only at the bank, but also on the communities we serve.
We are pleased with our results the bank our third quarter income.
14.1 million, we are down year over year for the same quarter, but up over a year in 19 in the first two quarters of 20.
Net interest income had a bit of a rebound in the third quarter to almost 37.2 million driven mostly by a drop in interest rates. It's expense our cost of deposits is down and we believe there is additional room for cost to drop further.
Mike will have more detail in his presentation.
Interest income is also down but not did not keep pace with the cost of funds we have.
We've had decent loan growth with a strong backlog Scott will have more detail on this.
The latest wave of refinances appears to be slowing so we are optimistic with regard to growth.
Performance within the loan portfolio was great with nonperforming loans to total loans at <unk> 0.521, nonperforming assets to total assets at <unk> 0.39.
The vast majority of majority of loans, which were on deferral are now back on repayment and we're starting to see resolution on some of the P.P.P. launch.
Deposit growth has been great with the drop in high cost time categories.
And strong performance in the core categories.
Our total assets top 5.7 billion at the end of the quarter. Our return on average assets was <unk> 0.94 and return on equity was 9.38 are.
Our margin was to 74.
We are committed to resuming the stock buyback program at the right time.
We are also exploring whether it would be beneficial for the company do reverse stock split looking at our peers. The average number of shares outstanding is 38 point Threemillion, whereas trustco has 95 million shares outstanding that acts.
That actually places is the highest number in the group of key.
Of course, the split would increase the share price, making the company more attractive to a broader range of institution one other shareholders.
Well, our net income is down year over year, considering the circumstances, we are very pleased with our results now.
Now Mike will detail the results Scott will talk loans, leaving time for questions. Mike. Thank you, Rob and good morning, everyone. I will now review Trustco its financial results for the third quarter of 2020.
As we noted in the press release the company saw net income of 14.1 million, which yielded a return on average assets and average equity of <unk>, 0.98% and 10.04% respectively.
Average loans for the third quarter of 2020 grew 6.5% or 254.6 million to 4.2 billion for the third quarter of 2019 as expected the growth continues to be concentrated within our primary lending focus the residential real estate portfolio.
That average residential portfolio increased by 237.6 million were 6.9% in the third quarter of 2020 over the same period in 2019.
Average commercial loan portfolio increased to $41 million or 21.5% over the same period in 2019, which included the funding of 46 million ESB loans.
Total average investment securities, which include a if that's an ATM portfolios decreased 222.6 million or 33.3% over the same period last year during the.
During the third quarter of 2020, the bank had 10 billion of securities called are matured at approximately $34.5 million of pooled securities pay down. We also purchased a $65 million mix of shorter duration mortgage backed security corporate bond in agency Securities.
The provision for loan loss for the third quarter was 1 billion a decrease compared to the 2 million provision in the second quarter of 2023.
The ratio of the allowance for loan losses to total loans was 1.17% as of September 32020, compared to 1.15% as of June 32020.
The level of provision has been driven by the growth in loans and the continued uncertainty around the current economic environment, resulting from COVID-19, we would expect expect the level of provision for loan losses in 2020, well continue to reflect the overall growth in our loan portfolio.
And while cautiously optimistic we will continue to monitor how the pit pandemic continues to influence economic conditions in our geographic footprint.
As mentioned in prior quarters to support our borrowers experiencing economic hardships the bank wants to COVID-19 financial worries relief program includes loan modifications such as deferments on residential and commercial loan was my request as of September 32020. The bank has 5 million it residential loan deferments on 24 lines a decrease.
The 145 million on 668 loans as of June 32020.
On the commercial side the bank has a total of six loans and deferment totaling $2 million. There were no request the reader for loans by our commercial clients Bank continues to closely monitor the level of deferrals for both residential and commercial customers.
They did not adopt Cecil during the third quarter as we continue to be an environment of regulatory change.
As mentioned in prior quarters, our decision to delay seat to delay season was to engage in the current regulatory changes and understand how that would shape or current landscape before implementing the new standard the bank will adopt seasonal as required on December 30, Onest 2020. This will likely have the effect of increasing the allowance for loan losses, and reducing shareholders' equity.
The company expects to remain a well capitalized financial institution under current regulatory calculations.
As discussed in prior calls our focus continues to be our traditional lending and conservative balance sheet management, which is continue to enable us to produce consistent high quality recurring earnings.
Our investment portfolio is and always has been a source of liquidity to fund loan growth and provide flexibility for the buyout for balance sheet management.
As a result, we continue to hold an average of $938 million of overnight investments during the third quarter 2020, an increase of 472.8 million compared to the same period in 2019.
On the funding side of the balance sheet total average deposits increased 442.3 million or 9.9% for the third quarter of 2020 over the same period a year earlier the increase in deposits was the result of 114.8 million or 20.2% increase in average money market deposits and $96 million or eight point.
5% increase in average savings deposits and a 150.3 or 17.2% increase in interest bearing checking account.
Average is offset by the decrease in average time deposits of 102.3 million.
During the same period, we were able to decrease the total cost of interest bearing deposits to 52 basis points from 92 basis points. This was driven by a decrease in money market deposits to 37 basis points from 83 basis points in time deposits, a 1.39% from 2.19% over the same period last year.
As we move into the fourth quarter of 2020 additional opportunities continue to exist as Cds reprice to lower market rates with that said the bank has approximately 566.5 million Cds that will mature at an average rate of 1.68% and.
The first quarter of 2021, approximately $342.1 million in Cds mature at an average rate of 1.15%.
Non interest income came in at 4.3 million for the third quarter of 2020 up compared to last quarter, primarily as a result of increased fees for services to customers for overdraft and ATM fees and increased financial services income in the third quarter of 21 2020, driven by the increase in the market and the state fees are front.
Digital services Division continues to be the most significant recurring source of noninterest income financial services Division had approximately 800 899 billion of assets under management as of September Thirtyth 2020.
No not now on to noninterest expense total noninterest expense net of ore expense came in at 22.8 million down 1.8 million CAD 1.2 million compared to the second quarter of 2020 and below our estimated range of 24.6 to 25.1 million. This is primary primarily driven by a decrease in salaries.
Expense due to lower fees and lower expenses related to the liability based equity awards that valued at a lower stock price at the end of Q3.
Ore expense came in at a benefit of 115000 for the quarter, which was higher than the prior quarter benefit of 35000, the low level of net Oreo expenses for the quarter was again driven by gains on sale of Hillary properties.
Given the continued low level of Oreo expenses were going to continue to lower the anticipated level of expenses not to exceed 400000 per quarter.
All the other categories noninterest expense were in line with our expectations for the third quarter based on continued lower cost we would expect the fourth quarter of 2020 total recurring non interest expense net of Oreo expense to decrease to the range of 24.2 to 24.7 million the efficiency ratio in the third quarter of 2022 minutes.
53.61% compared to 58.3% in the second quarter of 2020.
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 within the bank more efficient we continue to be proud of expense control Trustco bank and fine.
And finally, the capital ratios.
Saudi the equity to assets ratio was 9.77% at the end of the third quarter up two basis points from the 9.75% from the second quarter Bank is also very proud of its ability to grow shareholder value tangible book value per share at September 32020 was $5.81 up 7.2% compared to.
$5 to 42 cents a year earlier now Scot will review the review the loan portfolio nonperforming loans.
Thank you, Mike and good morning, as discussed our loan portfolio posted continued growth for the third quarter overall loans increase in actual numbers by $37 million or <unk>, 0.9%.
Year over year loans have increased by $229 million or 5.75%.
All of the growth was centered on our revenue.
Residential mortgages on the quarter with a 48 million dollar increase in our first mortgage products offsetting an $11 million decrease in home equity loans commercial loans were essentially flat on the quarter.
Refinance activity was very heavy this quarter has been seen across the industry. We're isps.
We were especially pleased to be able to post solid net growth. Despite the ongoing re fi activity.
Most recently, we have seen a significant decrease in new refinanced requests as the rush begins to burn itself out a bit.
The slowdown of refi activity will undoubtedly play out on a widespread basis and should eventually benefit us both in terms of net growth and overall margin pressure.
Our loan backlog was strong at quarter end, although the total numbers are somewhat inflated due to the amount of penny refineries. We do also have a good amount of new money in the pipeline.
We're now entering the fourth quarter, which is typically a slower period. However, given the strong backlog, we hope to post continued growth on the quarter.
Our current rates were 30 year mortgages are currently 308% to 2.99% depending on region.
The news regarding loan delinquencies and deferrals has been good as Mike touched on earlier, the vast majority of our residential mortgages have come off deferral with only a very limited commercial exposure remaining.
All commercial loans, which were previously on deferral are currently paying as agreed.
Nonperforming loans were essentially flat in the quarter and totaled 21.8 million versus 21 million a year ago.
This equates to 0.52% of total loans.
Nonperforming assets totaled 22.2 million at quarter end down from 22.8 million last quarter, and 23.4 million a year ago.
Charge offs remain very low and on a net basis totaled only 21000 in the quarter.
Our loan loss reserve is strong at 1.1% of total loans and the coverage ratio or allowance for loan and nonperforming loans stands at.
Stands at 225%.
Rob.
Thanks, Scott we are happy to answer any questions you have.
Well now begin the question answer session. That's good question. You May proceed Star then one on your Touchtone phone for using a speakerphone. Please pick up your handset before pressing the keys.
Withdraw your question. Please press Star then too.
This time, we'll pause momentarily to assemble the roster.
First question is from Alex Broadwell Piper Sandler. Please go ahead.
Hey, good morning, guys.
Hi, Alex how are you good morning, Alex.
Well. Thanks, Okay couple questions from me first off you mentioned the buyback early in your prepared remarks, Rob.
Wondering if I think you said that you're monitoring it and you'll reinstated when you feel its prudent what kinds of things you waiting for to see it would seem that you bank started reinstate buybacks and then you know once reinstated is there would you consider it as a percentage of earnings or how would you think about actually utilizing the buyback.
I'm, an all the above Alex you know we were looking at it on a pretty standard basis like thing and certainly regulatory issues play into that so we want.
We wanted to see how the how the deferrals returning to repayment came out and how Cecil might be implemented so I would imagine you'd see us sometime in early 2001.
Instead or something like that.
Okay.
And then you know <unk> in the in the moving parts the loan pipeline and sort of getting loans, either attracting loans, but also turning them into actual loan growth is it do you think that there is a level of where the sort of the 10 year Treasury a national mortgage rates have to go for loan demand at trustco to pick up more meaningfully.
Or at least stop refinance activities and what would that level be and then maybe just kind of.
I think you alluded to a little bit Scott in your prepared remarks about.
How about revised coming down is that is that something that will actually allow a loan growth to pick up a little bit more meaningfully in the coming quarters.
Yeah, absolutely I mean as a portfolio lender.
As you know we are it's a net growth that matters. So the refineries do have an impact on us and I you know I don't think its an absolute rate that makes the difference in terms of activity. Although the rate matters. Obviously I think it's really the degree of change when rates drop significantly core.
Significantly quarter have point type thing.
You know the word goes out of the community so to speak in people rush to refinance.
And you know you've seen that happen pretty consistently over the last 20 years of rates have come come slowly down. So I really think it's a degree of change that matters.
But at this point you know rates are very low.
As you as you well know in a you know, although we could always go lower.
You know you have a hard time seeing that happening and you know the refinance slowdown it.
It takes time to work through the system you know the requests you know it you know call. It 60 days whatever you want to know.
Number you want to hang on it before those actually turned into closings, but theres no doubt that the slow down a refund requests you know will eventually work its way through the system and should benefit us in terms of net growth. Our overall demand has been strong I mean other than refines. Our purchase demand has been strong. Our you know we have a good pipeline. So as those refineries start to slow down it should definitely benefit us.
Okay, and then moving on to the margin you know given the dynamics of the Cds repricing in Fourq you in one Q.
Mike and kind of given liquidity levels, I mean, maybe even taking out the liquidity levels I think there's a little bit harder to predict <unk>. I mean, do you think that the the movement down in the liabilities and repricing of Cds will be enough to offset the continued yield compression on assets.
Yeah, but I think we have a decent amount of room to go I mean, we're what we're seeing as you know in the CD portfolio people are staying shorter so they are going with lower rates in the CD portfolio and then some of them onset of extending back out on the CD portfolio, we have seen some migration from Cds into other.
Interest bearing checking or savings accounts that type thing so that helps out and then on the liquidity. We have started to purchase some securities obviously seeing very short we're not going to put you know hundreds of millions of dollars into the investment portfolio. At this stage of the game. We have started to move some some money into the market and I think and we will continue to do that.
Got to help offset what you're talking about.
[noise] Okay, great. Thank you for taking my questions. Thank you Alex.
[noise]. This concludes our question and answer session.
Now I'd like to turn the conference back over to Mr. Mccormick for closing remarks. Please go. Thank you for your thank you for your interest in our company and have a great day.
[noise] Conference is now concluded thank you for penny per use and thanks.
You may now disconnect.