Q1 2021 TrustCo Bank Corp N Y Earnings Call
Good day and welcome to the Trustco Bank Corp earnings call and webcast.
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Before proceeding we would like to mention that this presentation may contain forward looking information about Trustco Bank Corp, and New York that is intended to be covered by the safe Harbor and forward looking statements provided by the private Securities Litigation Reform Act of 1995.
Actual results and trends could differ materially from those set forth and 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 on the risk 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 and the company disclaims any obligation to update this information except as may be required by applicable law todays presentation contains non-GAAP financial measures. The reconciliations of such measures to the most comparable GAAP figures are included in our earnings per.
The release, which is available under the Investor Relations tab of our website at Trustco Bank Dot Com. Please also note today's event is being recorded.
At this time I would like to turn the conference over to Mr. Robert J Mccormick Chairman President and CEO. Please go ahead.
Thank you good morning, everyone as the whole said I'm, Rob Mccormick President of the bank joined today by Michael and make our CFO and Scot Salvador, our chief lending officer as we usually do I will start with a brief summary, hitting the highlights and Mike will detail the numbers Scot will talk about loans and stomach and wrap up with any questions you may have.
There've been several positive events that have occurred at our company recently, we've crossed over the $6 billion total asset Mark our Florida deposits now exceed $1 billion or Florida, the loan portfolio now exceeds $1 billion and our financial services area and now has more than $1 billion under management.
These are all positive events for our company and contributed to a very solid first quarter 2021.
Our net income was over $14 million greater than the year end 2020.
And the first quarter of 2020.
Our net interest income was $40 1 million for the first quarter of 'twenty, one also greater than year end and first quarter 'twenty.
Our net interest margin for the first quarter of 'twenty, one was $2 78, essentially flat since year end 'twenty and down from first quarter 'twenty.
Our total deposits for almost 5.2 billion. This is up significantly over the same quarter of 'twenty.
And when they were roughly $4 5 billion.
This growth has been and all core categories higher cost time deposits are actually down about $130 million year over year.
And we've certainly received deposits from stimulus payments.
These deposit seems stickier than most including US originally thought they would be.
We could see this reverse and draw down as our country reopens.
Our loan portfolio has grown to almost $4 3 billion. Another all time high.
Vast majority of this growth is on residential mortgage loans.
We also had some activity and the commercial loan portfolio drift from driven mostly by the P. P. P loan program.
Home equity loans continue to run off of theater the slower pace.
We also think most of that run off is being captured in the part of the residential refinances.
And so on the ones I've never been a big part of our business we.
We are of significant cash position and the relatively large investment portfolio.
And with shorter maturities and we closely monitor the disposition and look for good opportunities to put these funds to work.
At higher yields.
Our asset quality remains strong nonperforming loans to total loans was basically flat at point of five 1% and nonperforming assets to total assets are down to the 0.36 per cent our allowance to total loans of 1.1 and 7% for the coverage ratio of 2.3 times and pretty much flat over the prior periods.
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Our capital ratios are still strong and shareholders' equity continues to climb we continue to operate 148 full service offices, we are looking for new opportunities the may end up.
Opening a couple of new locations and we're also looking for better opportunities to relocate existing offices.
Our return on average assets was point 96 at quarter end and our return on average equity was just over the 10% of.
Our efficiency ratio of 56, 4% our dividend payout ratio was $46 seven.
We continue to operate of full service financial services Department.
We are pleased with our first quarter results and optimistic about the rest of 2021.
Now, Mike and Scott will give more detail on our results Mike.
Mike.
You, Rob and good morning, everyone I'll now review and Trustco of financial results for the first quarter of 2021 and.
We know what are the and the press release, the Companys on income of $14 1 million and the first quarter of 2021, which yielded a return on average assets and an average equity of the point 96, and 10 point of 1% respectively.
Average loans for the first per quarter of 'twenty 'twenty. One grew four 3% of $173 3 million the $4 2 billion from the first quarter 2020.
And as expected the growth continues to be concentrated within our primary lending focus the residential real estate portfolio, which increased by $187 5 million or five 2% and the first quarter 2020 one over the same period and 2020 average commercial loan portfolio of increased $14 7 million.
For seven 4% over the same period of 2020 of this included $17 1 million of New P. P. P loans originated and the first quarter. It's been currently has approximately $37 million remaining of SBA P maybe losses.
Total average investment securities, which include the HFF and east and portfolios increase of $35 1 million or seven 6% during the first quarter for them.
And the same period the bank purchased approximately 132 million of securities and approximately $37 9 million of pull the securities paid down there no securities called and the first quarter of 21.
Or is there for loan loss for the first quarter was 350000, and a decrease compared to the 2 million and the same period and 2020 the ratio of for <unk>.
Allowance for loan losses to total loans was 1.1 and 7% as of March 31, 2021 compared to 1.13% as of the same period of 2020.
And the first quarter 'twenty, one of the decreased level of provision was driven by improving economic indicators and the outlook, resulting from the COVID-19 pandemic, we would expect the level of provision for loan losses in 2020, one and will continue to reflect the overall growth of our loan portfolio and economic conditions of our geographic footprint.
As mentioned in prior quarters to support our borrowers experiencing economic hardships the bank launched the COVID-19 financial relief program and included loan modifications such as the affirm its on residential and commercial loans by request and as mentioned in the the press release as of March 31, 21, and the bank. So on most of these loan deferments returned and making regular loan payments.
And he continues to closely monitor the level of deferrals. However, we are very pleased with the current levels and the limited impact they may have on the overall credit quality of the loan portfolio.
As mentioned in the prior quarter and the bank did not adopt Cecil is the I was arrear.
Originally provided by the cares act and as part of the COVID-19 relief Bill signed in December 2020 The bank little adoption and so on January one 2020, two and the company expects to remain well capitalized.
Under current regulatory calculations.
Yeah.
And 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 of isn't always has been a source of liquidity to fund loan growth and provide flexibility for balance sheet management. As a result, we held an average of 1 billion of overnight.
During the first quarter of 'twenty, and 'twenty, one and increase of $617 million compared to the same period in 2020 given the elevated level of cash and 21 of the bank has begun and to invest excess liquidity into the market at current levels.
On the funding side of the balance sheet total average deposits increased 630 million of 14, 2% for the first quarter 'twenty one over the same period a year earlier the increase in deposits was the result of $111 million of 18, 1% increase and average money market deposits of 900 and 198 million of <unk>.
$17 eight increase and average savings deposits of $213 million of 24, five per cent increase and interest bearing checking account of averages and a $215 million of 46, 9% increase and average noninterest bearing checking the balances. These are partially offset by the decrease in average time deposits of $108 million or set of.
And 9% over the same period. During this time period of our total cost of interest bearing deposits decreased to 20 basis points from 78 basis points.
This was primarily driven by decrease and money market deposits to 16 basis points from 72 basis points and time deposits of 54 basis points from 188% over the same period last year.
As we move through 'twenty, one and Cds will continue to reprice down the current market rates and the second quarter of 'twenty, one approximately 226 million of Cds and ensure the average rate of 40 basis.
And in the second half of 'twenty, one of approximately $645 million of Cds will mature and an average rate of 44 basis points.
Non interest income came in at $4 4 million for the first quarter 'twenty, one up compared to last quarter, primarily as a result of increased financial services income related to the fees earned by our financial services Division for tax preparation services and the increased fee income and larger balances under management, our financial services Division.
Continues to be the most significant reoccurring source of noninterest income and add approximately $1 billion of assets under management as of March 31, 'twenty one.
Now on to noninterest expense total noninterest expense net of ore expense came in at $25 one.
311000, compared to the fourth quarter of 'twenty, and 'twenty and slightly over estimate a range of $24 $5 million to $25 million.
Salary and benefits of expense increased 698000, as a result of a couple of items. The primary item was an increase and benefit liabilities and the increased share price and the second.
The first quarter of the year always bears the cost of increase employee and employer payroll taxes and the bank also saw the impact of increased health care costs as the new contracted range for 2020 one it took effect.
Oreo expense.
Came in at 239000 and for the quarter as compared to the expense of 45000 and for the first quarter. Given the continued low level of Oreo expenses were going to continue to hold the anticipated level of expense not to exceed $450000 per quarter and all the other categories of noninterest expense were in line for their expectations for the first quarter.
And we'd expect the 2021's total reoccurring non interest expense net of already expense to be in the range of $24 nine to 25 point for millions per quarter.
The efficiency ratio for the first quarter 'twenty one came in at $56 three five compared to 50 and 56 by three for the first quarter of 2020.
Well the one thing we're always proud of is the expense control of the Trustco Bank and we expect this to continue throughout 'twenty one.
And finally, the capital ratios consolidated equity to asset ratio was nine point for 4% at the end of the first quarter down 19 basis points from 963 for the fourth quarter of 2020 due to the growth of assets.
The bank continues to be proud of its ability to increase shareholder value. During these challenging times book value per share at March 31, 'twenty, one was $5.92 up for 2% compared to $5.68 a year earlier now Scot will review the loan portfolio and nonperforming losses.
Okay, Mike Thank you and good morning.
And the first quarter total loans grew by 25 million and actual numbers of <unk>, 6%.
Year over year of loans have increased by $4 one per cent of $170 million.
Loan growth on the quarter consisted of 21 of millions of residential growth and $4 5 million on the commercial side.
Commercial loan figures include the bank's ongoing activity with regards to SBA PPP lending programs.
Our first mortgage product increased by 32 million on the quarter within the hour.
Decrease in our home equity loans, netting to the $21 million residential growth number.
The first quarter is typically the bank slowest with regard to loan growth.
The activity levels have increased steadily and are currently strong and all of our lending regions.
Purchase money and lending has been particularly active in all areas.
Refinances remain elevated although below the peak periods of last year.
The properties are selling quickly and most all areas and a lack of inventory and the more modest price range is a common occurrence.
Interest rates of continue to hover and the lower three per cent range over recent weeks.
Currently our 30 year rate stands at $2, 99%.
Our loan backlog at quarter end was strong and reflects both the active purchase money market and the overall level of mortgage activity.
It is well above the totals for both year end and the same point last year.
We are optimistic regarding the increased net loan growth for this quarter given both the ongoing strong activity levels and our current backlog.
This potential growth wherever we will continue to be impacted to some degree by the elevated refinance levels at least and the short term.
Overall asset quality measurements remain strong and non performing loans totaled $21 6 million on the quarter. This compares to the $21 1 million in December and $20 7 million a year ago, such choppiness as to be expected as we continue with these very low levels.
Non performing assets totaled $22 1 million compared to 22 million in March of 2020.
Charge offs actually netted to a $46000 recovery on the quarter.
The allowance for loan losses, and down 1.1, and 7% of total loans with the coverage ratio of the allowance to nonperforming loans standing at 231 per cent.
Robert.
Just before we turn to questions I did want to switch and we were named the best.
And on paper and a reader poll and I tell you that's the only because and on prior calls I told you how our employees have performed especially during a pandemic ear. So I think that's a very nice tribute to them shows on while they performed so.
So we're now happy to answer any questions you might have.
We will now begin the question and answer session to ask the question you May Press Star then one on your Touchtone phone if youre using a speakerphone. Please pick up the handset before pressing the keys if at any time. Your question has been addressed and you would like to withdraw. Your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.
Sure.
Our first question comes from Alex Tour at all from Piper Sandler. Please go ahead.
Hey, good morning, guys good.
Morning, Alex for now.
The first off just wanted to start you know with some of the most recent comments you were making Scot on the on the loan pipeline and and you know your optimism et cetera. If you had the kind of boil it all down to sort of a growth rate for expected loan growth for for the residential portfolio for 2021, I mean would you say that.
Sort of mid single digits as rate high single digits lower than that you know how can can you maybe just help us frame it a little bit better.
Well you know it's difficult to forecast.
Alex as you know, there's always there's a lot of variables that come into play.
And not just on the volume side, but when you're talking about the refinance of angle and everything else. There is a lot of variables. So it's difficult to forecast, but that being said as I said on my remarks, our first quarters is typically our slowest.
The quarter of the year, given coming off the holidays, our backlog is very strong and the activity and the marketplace of strong. So you know I would I would hope that we're going to post good net growth for.
For the next certainly the next quarter and hopefully remainder of the year.
And and pick up significantly from where we are now, but I can't put any specific numbers on it.
Okay, and you mentioned the advertise rate was 299 is that roughly where most of these loans are coming on are they coming out of a little bit higher than that.
They are as of now and so we had been higher that as of the most recently we were at three of the quarter.
So we you know in recent weeks, we've been more and that range, but.
But just within the last day or so we've come down to where we are attuned to point of 99.
Okay.
And then Mike when you were talking about the cash balances and you know being a little bit elevated I think you said he began to invest the excess liquidity of current levels is that and reference just the hunting for the 132 million of purchases that you did and the first quarter or have you done additional on the second quarter and maybe just help us and you get a little bit more understood.
And how are you thinking about sort of ladder and that cash and over the next couple of quarters.
Yeah sure so.
So far we haven't done anything and the second quarter. So you know the the initial comments were what we did and the first and see where we're at and out of 100 and or you know of little over $1 billion of pushing 1 billion. One point of 1 billion. You know we're going to look at that you know and and it is a it.
As of metering of you know how.
How much money is going out and into our loan portfolio, So and and there's another round of stimulus comes in and what happens with our overall deposit balances and.
There's been a lot of talk and the market.
We feel our deposits are sticky and they are hanging around but as of this country opens up and if we start to see some of those those funds run out people actually go out starting to spend a little bit of money on that that's all going to come into play and so.
And I guess on what I would say is as our cash balances where they are now I would not expect them to get a lot larger now so that if that kind of helps out of it.
Okay. So around 1 billion and sort of the you know it is plenty and if more cash comes in and the second quarter.
And then the expectation would be the ladder that and not use and long ago with the expectation of would be the to go out and purchase from securities right.
Okay, and then on the liability side and we've pretty much of the bottom in terms of and I know you talked about the CD repricing from the 40 and 44 basis points, there this year, and where and new Cds coming on and you know.
How much more room do you think there is the lower cost of deposits.
I think the highest rate we're offering right now is 15 basis points.
Okay. So I think there's still room for repricing, Alex and I agree with you. We're bouncing along the bottom of that that way and because of the way Hussain are popular way of saying it but.
I think there is still a little bit more room.
But I don't know how much.
Understood and then as you think about and <unk>.
Capital deployment, and how you reauthorized, the 2 million shares of repurchase activity of repurchase authorization during the quarter talk a little bit about you know how you plan to use that that authorization did you do any of the first quarter and sort of what is it based on prices and based on what the based on the you know getting to that $2 million.
And we didn't we didn't make a buy and the first quarter on a on a buyback program. You know the first quarter is problematic because you're preparing the proxy and the annual report. So there are quite of few close window periods. During that time, we were certainly looking at buybacks and it and it's based on all of the above you know the.
The capital position of the company of the price of the stock and what the activity has been and recent times.
Yeah.
Okay. That's all my questions for now thanks for taking my questions and thanks Alex.
This concludes our question and answer session I would like to turn the conference back over to Robert J Mccormick for any closing remarks.
Thank you for your interest and our company and have a great day.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Yeah.
Okay.