Q4 2020 TrustCo Bank Corp N Y Earnings Call
Good day, everyone and welcome to the Trustco Bank Corp earnings call on webcast.
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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 and forward looking statements provided by the private Securities Litigation Reform Act from 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 preceded this call and the risk factors and forward looking statements section of our annual report on form 10-K, and as updated by our quarterly reports in form 10-Q.
The statements are valid only as of the day hereof and the company disclaims 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 is available under the investors Investor Relations tab of our website at Trustco Bank Dot com.
Please also note today's event is being recorded.
At this time I'd like to turn the conference call over to Mr. Robert J Mccormick Chairman President CEO, Sir. Please go ahead.
Thank you good morning, everyone. Thank you for joining us on the call. This morning to hear more about our company as usual Mike goes on Mike and Scot Salvador are on the call with me today. After a brief summary, and our introduction Michael will give detail on the numbers.
Scott will discuss the loan portfolio, then we can wrap up on questions.
We're sorry, we're sure you're sick of hearing what a crazy year 2020 was our good wishes go out to those impacted by Covid on the pandemic our employees performed like champions during this period.
We were able to keep most of our branches open and the department has tried to perform in a business as usual manner. We've provided lots of sanitizer on P. P. P. P. P E.
We also separated departments and move some staff on site. It all seems to have worked pretty well or I guess as well as can be expected as an essential business. We felt it was necessary to be there for our customers who seem to appreciate it.
Our net income for 2020 was $52 $5 million, a very solid year.
The loan portfolio was up about $183 million total driven by growth on our residential mortgage outstandings of just under 200 million in commercial loan growth as a result of P. C P loans.
The home equity loans continued to drop at a slower pace, though we do believe this is driven by refinance activity and a lot of it is being captured on our residential portfolio, we've talked about that in the past our.
Our deposit growth like most has been over the top several years growth in nine months, the stimulus and enhanced unemployment payments seem to be much stickier than most of us thought they would be.
Our net interest income is up year over year on margin is down year over year, but up over the third quarter of 2020.
Our away was <unk> 94 per cent for 'twenty 'twenty on our Aro. He was 9.47, our efficiency ratio was $56 four for 2020.
We'll have more detail on this presentation.
Our loan portfolio continues a strong performance nonperforming loans to total loans and non performing assets to total assets were both down year over year to <unk>, 5% and 0.3, 75% respectively.
We did not open any offices in 'twenty 'twenty continuing to operate 148 full service branches. We also operate a financial services department on over $1 billion under management, we are evaluating a reverse stock split share buyback program and putting our liquidity to work.
We are pleased with our results, especially in light of the current circumstances and we are optimistic as we look forward to 'twenty and 'twenty one.
Now, Mike and Scott will present, then we will have time for questions Mike. Thank.
Thank you Rob and good morning, everyone I'll now review Trustco its financial results for the fourth quarter of 2020.
As we noted in the press release the company saw income of $13 $8 million in the fourth quarter of 2020 would yield a return on average assets and average equity of <unk> 95, and 975% respectively.
Average loans for the quarter group of 'twenty 'twenty four for 'twenty 'twenty by five 3% $214 9 million to $4 2 billion.
From the fourth quarter of 2019.
As expected growth continues to be concentrated within our primary lending focus the residential real estate portfolio, which increased $209 1 million or five 9% in the fourth quarter of 2020 over the same period in 2019.
The average commercial loan portfolio increased $32 4 million or 16, 8% over the same period in 2018 to 2019.
Total average investment securities, which include a fascinating and portfolios decreased $117 2 million or 27% over the same period last year for the fourth quarter of 2020. The bank had 20 million of securities called or matured and approximately $36 $2 million from old Securities paid down.
The provision for loan loss for the fourth quarter was 600000, an increase compared to the 200000 in the same period in 2019.
The ratio of the allowance for loan losses to total loans was 1.17% as of December 31, 2020, compared to one point on 9%.
Compared to the same period in 2019.
The increase in the provision was driven by the growth in our loans and as mentioned in prior quarters. The continued uncertainty around the current economic environment, resulting from COVID-19.
We would expect the level of provision for loan losses in 'twenty or 'twenty, one to continue to reflect the overall growth of our loan portfolio and could increase as the pandemic continues to influence economic conditions, especially in.
Graphic footprint.
As mentioned in prior quarters to support our borrowers experiencing economic hardships the bank launched the COVID-19 financial relief program and includes all modifications such as deferments on residential and commercial loans by request.
As of December 31, 2020 to bank CAD 2 million in residential loan deferments on eight loans ranging from one to two months.
In addition, 599000 or four loans have been approved for deferment and deferment agreements are being sent to borrowers.
We also have $1 4 million or 10 loans to bank is in the process of reviewing for potential deferment.
Lastly, the bank as an additional 189000 or four customers that have requested an application that they're further along the bank does not have any way of estimating how many of these customers that have requested an application may actually apply for deferment.
On the commercial side the bank had originated a total of $57 million on commercial loan deferments.
Of which all have gone back into repayment as of December.
There were no requested reader for loans by our commercial on clients, but at the end of the year.
The bank continues to closely monitor the level of these deferrals have or wherever we are very pleased with the current levels and the limited impact. They may have on the overall credit quality of our loan portfolio.
As mentioned in the press release, the bank did not adopt Cecil during the fourth quarter as was originally provided by the cares Act.
And we continue to be in an environment of regulatory change.
As mentioned in our prior quarters, our decision to delay Cecil we're still engaged the current regulatory to engage in the current regulatory changes and understand how that would shape. Our current landscape before implementing the new standard. Furthermore, as part of the COVID-19 relief Bill signed in December 2020 Day Bank will now adopt Cecil on January one 2022.
This will likely have the effect of increasing the allowance for loan losses on reducing shareholders' equity the company expects to remain a well capitalized financial institution under the current regulatory calculations.
As discussed on prior calls our focus continues to be on traditional lending and conservative balance sheet management, which has continued 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 balance sheet management. As a result, we continue to hold on average of 916 point too.
Dollars of overnight investments during the fourth quarter of 2020, an increase of 520 million compared to the same period in 2019, an increase of 504 million or Y 122% compared to the first quarter of 2020.
Given the elevated level of cash at the end of the year in 2021. The bank had has already began to invest excess liquidity into the market at current levels.
On the funding side of the balance sheet total average deposits increased $494 1 million or 11, 1% from the fourth quarter of 2020 over the same period a year earlier the increase in deposits was a result of $127 1 million or a 21, 8% increase in the average money market deposits of 104.
$7 4 million or 13, 3% increase in average savings deposits and a $172 million on 19, 9% increase in interest bearing checking account averages and $185 $8 million or a 48% increase and an average interest earning.
Bearing checking accounts.
You were partially offset by decrease in average time deposits of $138 million or nine 7% over the same period of last year.
During the same period, our total cost of interest bearing deposits decreased to 34 basis points from 90 basis points. This was driven by a decrease in money market deposits to 25 basis points from 81 basis points and time deposits to 95 basis points from $2 one zero percent.
Same period last year this.
This was primarily a result of a federal rate cuts in the first quarter compared paired with higher deposits.
As well as the time deposit repricing at lower rates as they were expected.
As we move into 'twenty and 'twenty, one additional opportunities continue to exist as the Cds reprice to lower market rates, but that said in the first quarter of 2021, approximately $339 million on Cds will mature at an average rate of 1.12%.
The second quarter of 2020 on approximately $226 million of Cds will mature on average rate of 40 basis points.
The first half of 'twenty or 'twenty, one approximately 556 million of Cds will mature at an average rate of 83 basis much.
On the second half of 'twenty and 'twenty, one $466 million of Cds will mature at an average rate of 53 basis points.
Non interest income came in at $4 1 million for the fourth quarter of 2020 down compared to last quarter, primarily as a result of of less financial services income in the fourth quarter of 2020, our financial services Division continues to be the most significant recurring source of noninterest income.
The financial services Division had approximately 997 million of assets under management at 12 31 day.
Don't want to noninterest expense total non interest expense net of already expense came in at $24 $8 million up 2 million compared to the third quarter of 2020 and slightly over estimate a range of 24 million to $24 7 million.
Oreo expense net of.
It came in at a net extra at anixter.
A 45000 for the quarter as compared to a benefit on a 115000 in the prior quarter.
Low level of net Oreo expenses for the quarter was driven by gains on sales of Oreo properties.
The continued low level of Oreo expenses were going to continue to hold the anticipated level of expenses not to exceed $450000 per quarter.
Well the other categories of noninterest expense were in line with our expectations for the fourth quarter.
We would expect the 'twenty 'twenty one's total reoccurring non interest expense net of already expenses to be in the range of $24 $5 million to $25 million per quarter.
<unk> ratio remained consistent with the for the fourth quarter of 2020 as compared to the fourth quarter of 2019 coming in at 50, 731% for both quarters.
As we have stated in the past, we'll continue to focus on what we can control by working to identify opportunities to make the processes within the bank more efficiency.
One thing you are proud of is expense control at Trustco Bank and we and we expect this to continue through 2021.
And finally, the capital ratio is consolidated equity to assets ratio was 9.63% at the end of the fourth quarter down 14 basis points from 977% for the third quarter due to growth in assets.
Bank continues to be proud of its ability to increase shareholder value. During these challenging economic times book value per share on December 30, 31st 2020 was $5 eight nine.
Six 1% compared to 555, a year earlier now Scot will review the loan portfolio and nonperforming loans.
Okay. Thank you, Mike and good morning, everyone from.
For the fourth quarter total loans in actual numbers increased by $30 million of 0.71% year over year loans have increased by 182 million on approximately four and a half per se.
Quarter's results showed a solid increase on our residential mortgages offset somewhat by a decrease in the commercial loan category.
Residential mortgages increased by 49 million on the quarter with commercial loans decreased by $19 million.
The majority of the commercial one day decrease is attributable to the S. P. A P. P. P loans dropping as a loan forgiveness process commenced with a smaller amount also tied to some property sales by our existing customers.
We are pleased with the quarter's 49 million of residential loan growth, which represents an approximate 1.2 week, one 2% increase in the residential portfolio.
First mortgages increased strongly by approximately 59 million on the quarter as we continue to see solid purchase money demand across all our market areas.
This increase was offset by an approximate $10 million decrease in the home equity loan category.
Our backlog has decreased from September which is normal for this time of year, but remains solid it is above the backup log of last December and contains a good amount of new money.
Refinancing remain elevated which is always a challenge with regard to forecasting net growth. However, refinances have decreased somewhat from levels seen in prior months and we are hopeful that this moderation will continue as the quarter progresses.
Our most recent 30 year rates is centered on three.
Yeah.
As you were where a new round of S. P. A P. P. P landing has commenced.
Demand is obviously hard to forecast, although our best guess is that overall it may end up being a bit less on what we experienced in the early around the SBA program.
As mentioned almost all of the customers, who previously had payments deferred during the pandemic have returned to normal payment status.
Additionally, the bank's overall asset quality measurements remain good.
Non performing loans decreased from $21 8 million to 21.1 on the quarter with non performing assets dropped from $22 2 million to 21 six.
Year over year non point assets have dropped from 22.42, the current $21 6 million.
Net charge offs remained very low at 128000 for the quarter.
The coverage ratio or allowance for loan loss to nonperforming loans now stands at 235% versus approximately 210 a year ago.
Robert Thanks, Scott any questions.
Yeah.
Ladies and gentlemen at this time, we'll begin the question and answer session.
To ask a question you May press Star and then one using a touchtone telephone if you are using a speaker phone would you ask you. Please pick up your handset before pressing the keys.
If at any time. Your question has been addressed you would like to withdraw your question you May Press Star two.
Once again that is star and then one day joined the question queue.
We will pause momentarily to assemble the roster.
Okay.
Yeah.
Our first question today comes from Alex <unk> from Piper Sandler. Please go ahead with your question.
Hey, good morning, guys Hi al.
Alex how are worn out.
Well thanks.
First of all Mike in your prepared remarks, you talked about some uses of liquidity early in 2021 I was just wondering if you could clarify.
What the strategy is for ladder rang that liquidity into securities how much of that do per quarter and what the current rate is that you're able to with debt on it.
Sure. So I'll give you a feel what we've done so far we did about $60 million, so far kind of spread around agencies in a pooled securities a very limited corporates are and we put that in a you know, let's say on average rate of about 60, a little north of 60 62 basis points. So that's what we've done so far I think where we're at.
We're.
What we are doing is we're watching what the 10 years doing on watching where rates are going so I think what we're gonna do is we're gonna kind of every few weeks kind of take a look at it kind of take another chunk and bring that liquidity balance down we've always kind of sat around at $908 million to $900 million range is where we liked us to sit at so I don't.
We would see as bringing liquidity down to $500 million level.
But we will bring it down from where we're at having said that you don't.
There's a there's a strong likelihood of additional stimulus funds that may that may come out if that happens you know that that will increase our how much we put to work we don't want to let that cash balance get get too high you know you can see where the average balance was for the quarter, but you can see where are we at an actual cash at the end of the year on that that's that triggered us to kind of you know we got.
On a move a little bit put a lot of it's going to put a little bit into the market.
Right and can you remind us how much on the securities portfolio comes due per quarter or matures.
Yeah, I mean, we were in the neighborhood of I you know so on the pooled securities right now prepayments or are pushing somewhere in the neighborhood of $30 million. So that's on a quarterly basis. So right. There you know you look at it they had to have.
Elevated prepayment levels $120 million to $150 million worth of cash flow from from that portfolio. Then calls really could have anywhere between another $50 million to $100 million on that side. So that's.
That spins off a lot. So you gotta do a decent amount just to kind of keep keep flat.
Okay. So the 60 million so far on the first quarter, you'll you'll at least reinvest what what roles are what Prepays and then you take a some additional stabs at putting that money to work you know average.
Every couple of weeks.
Yeah, that's right way to think about it yeah, yeah. Okay.
So looking forward Alex from our bank, our loan backlog building up as spring approaches and there's more activity with regard to that and hopefully having a great year with regard to mortgage lending.
Right.
And what would be sort of the I don't know restraining factor and how much you could grow loans, because clearly that is the best use of.
Of the additional liquidity excess liquidity.
With this the only restraining factor would be the growth of the company itself, you know that with regard to capital, but what what kind of hurt us with regards to refinancing and Scot alluded to it in his presentation is sometimes people are shopping for the lowest possible 15 year rate and because we are a portfolio lender, we tend not to do that.
So that's where that's the only way we really lose loans is very short term refinances.
Yeah.
Okay.
And then N in terms of the yield compression on the mortgage portfolio. Scot you said, what the new rate was on mortgages, but I. The line broke up a little but I missed it I was hoping you could repeat that and then Jim.
How you guys think about sort of the progression for yields coming that you know if there's an end in sight to the compression on the residential mortgages as you kind of look forward today.
Yeah, Alex the rate is its.
Wherever it's been right around 3%, Alex we've been slightly below at slightly above it but we've been hovering right around that 3% for 30 year rate.
And.
You know, it's hard to say, what's going to happen with the rates are.
We've seen it obviously, it's competitively driven you know that and we've seen it both ways to be honest with you. We've seen as the tenure has gone down a we've seen competitors.
Kind of sticking a little bit higher on their 30 year rate than we would've thought which was encouraging.
But on the flip side is as the tenure has kicked up a little bit there's been some real reluctance of lenders are to raise the rate. So.
I think everyone's kind of looking at each other to see what's going to happen as we move forward.
So you know, we're not expecting the rates to shoot up anytime soon that's for sure, but hopefully we're not going to see much more compression either.
Got it and then just you know finally on capital and you know you're sitting with the.
With 996% tangible common equity at the end of the year. You know you could probably argue that that's up probably weighed down by at least 100 basis points due to the excess liquidity.
So you know you.
I have a lot of excess capital the way we look at it you know what the potential growth coming.
So why not get a little bit more aggressive with the buyback you know what sort of holding you back from.
From from doing that at this point.
I, just I think buybacks went out of favor Alex and we're looking to get back into that I.
I I alluded it to them I alluded to it in my comments, but there's a on approval process that goes along with that and I think you will see us back on the buyback program and more aggressively than we were before.
That summarizes my do you want.
Great well, thank you for taking my questions.
Thank you ex out.
And ladies and gentlemen, I'm showing no additional questions I'd like to turn the floor back over to Robert J Mccormick for any closing remarks.
Thank you for interest and I. Thank you for your interest in our company stay safe and have a great day.
Yeah.
And ladies and gentlemen, with that we'll conclude today's conference call. We do thank you for attending today's presentation. You may now disconnect your lines.
Yeah.
Okay.