Q2 2021 TrustCo Bank Corp N Y Earnings Call

Okay.

Good day and welcome to the Trustco Bank Corp earnings call and webcast.

Participants will be in a listen only mode.

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After todays presentation, there will be and opportunity to ask questions to ask a question you May Press Star then 1 to withdraw your question you May Press Star then 2.

Before proceeding we would like to mention that this presentation may contain forward looking information about Trustco Bank Corp, New York and 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 and 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 and 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.

Statements are valid only as as of the date hereof and the company disclaims any obligation to update this information, except as maybe required by applicable law today.

Today's presentation contains non-GAAP financial measures.

Reconciliations of such measures to the most comparable GAAP figures are included in our earnings press 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 Robert J, Mccormick, Chairman President and CEO. Please go ahead.

Good morning, everyone I'm, Rob Mccormick President of the Bank joining me on this call are Michaels and make our Chief Financial Officer, Scot Salvador, our senior lending officer.

We're pleased to report a very solid second quarter results here at the bank. Our net income was $14.4 million greater than the prior quarter and well above the same quarter on 2020, our net interest income and about $40.1 million was essentially flat over the first quarter 'twenty 1.

And it was about 6.5% greater than the same quarter in 2020.

This was driven mostly by our ability to reduce deposit costs at the bank.

We still maintain a 2% margin. This is down from prior quarters, we are managing very healthy level of liquidity on our balance sheet and anticipation of a changing rate environment. We also continue a healthy capital level, we continue to pay a solid dividend over 34 cents per share, which amounts to about a 45, 5% dividend payout ratio.

Our return on average assets was <unk>, 95% for the quarter flat for the first quarter of 'twenty, 1 and greater than the same quarter in 2020 and a return on average equity was over 10% for the quarter again and flat compared to the first quarter of 'twenty, 1 and greater than the same quarter on 2020.

We did not make a provision for loan losses during the quarter or.

Our non performing ratios are very strong at 44, 8% for loans and 43, 4% for total assets also on loan loss to total loans was 1.15 with a coverage ratio of 2.4 times the level of our loan loss reserve is constantly under review and and we were looking at a 1.122 and implementation of Cecil.

Assets top $6.1 billion at the end of the quarter up significantly over last year. This is being driven by growth and the loan portfolio.

Mostly residential mortgage and commercial loans was down as P. P. P loans are being forgiven and repaid.

We are down to less than a handful of loans on any kind of deferral.

Well on equity lines of credit continued a downward trend, but at a much slower rate and installment loans are not a big part of our business.

As stated earlier, we are holding a large cash position to prepare for possible changing rate environment girls and it's been very strong quarter over quarter and the same period last year shareholders equity was also up quarter over quarter and the same period last year we.

We did close 1 office this quarter Pittsfield, who's not performing up to standard and so he calls that we did not open any new offices. We are looking at 2 possible new sites, 1 in Florida and 1 in the northeast.

We're having the same difficulty most saar with staffing hiring and retention and had been a challenge.

We did complete the 1 for 5 stock split at the end of May and have been active under our stock buyback program we.

We are happy with our results and look toward the rest of the year with optimism.

And Michael will give a lot more detail on the numbers Scot will give some color on the loan portfolio and then we'll have time for questions. Mike. Thank you, Rob and good morning, everyone. I'll now review Trustco financial results for the second quarter of 2021 as we noted in the press release. The company saw on net income of 14.4 million and the second quarter of 2021, which yielded a return.

On average assets and average equity on.

95% and 10.05%, respectively average loans for the second quarter of 2021 and grew 3.8% or $158.6 million to $4.3 billion from the second quarter of 2020 as expected the growth continues to be concentrated within our primary lending focus the residential real estate portfolio, which increased.

And by $193.9 million or 5.3% and the second quarter of 2021 over the same period and 2020 day average commercial loan portfolio decreased $8.1 million or $3, 136% over the same period and 2020.

This included approximately 43 million of new P. P. P loans originated in 2020..1 the bank currently has approximately 32 million remaining and if SBA PPP loans.

Total average investment securities, which include the FF and HTM portfolios increased $13.3 million or 2.6% during the second quarter of 'twenty..1 during the same period the bank and 1 security calls at a par 5 million..1 security also matured at a par value of $5 million and approximately $35.7 million and pull securities were paid down the line.

Purchases of Securities and the second quarter of 'twenty 1.

And there's no provision for loan loss for the second quarter, a decrease compared to the 2 million and the same period in 2020 the ratio of allowance for loan losses to total loans, but on 1.15% as at both June 30, and 'twenty, 1 and 2020.2 and.

The second quarter of 'twenty, 1 the decrease level of provision was driven by the improved asset quality trends and economic conditions, we would expect the level of provision for loan losses in 'twenty..1 will continue to reflect the overall growth and our loan portfolio and economic conditions and our geographic footprint.

As mentioned in prior quarters to support our borrowers experiencing economic hardships bank wants to COVID-19 financial relief program and include a loan modifications such as the firms on our residential and commercial loans by request.

And in the press release as of June 30, and 21, the banks on most of these loans firm its returns and making regular payments.

The bank continues to closely monitor the level of deferrals. However, we are very pleased with the low current levels and limited impact. They may have on the overall credit quality of the loan portfolio as mentioned in prior quarters. The bank did not adopt <unk> originally provided by the cares Act and as part of the COVID-19 relief Bill Society December 2020.

We will adopt <unk> on January 1 'twenty 2.

And he expects to remain a well capitalized financial institution under 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 held and average.

And for $1.1 billion of overnight investments during the second quarter of 'twenty, 1 and increase of $399.3 million compared to the same period and 2020.

On the funding side of the balance sheet total average deposits increased $508 million or 10, 8% for the second quarter of 'twenty 1 over the same period a year earlier the increase in deposits was a result of $88 million or 13, 3% increase and average money market deposits of 215 or 18, 4% increase on average.

Moving to deposits, a $196 million or 26% increase and interest bearing checking account averages and $204 million or 37, 1% increase and average noninterest bearing checking deposits.

Partially offset by the decrease in average time deposits of 194 million or 13, 9% over the same period last year.

During the same period, our total cost of interest bearing deposits decreased to 15 basis points from 64 basis points. This was primarily driven by a decrease and the money market deposits of 13 basis points about 54 basis points and time deposits to 42 basis points from 162 over the same period last year.

As we move into the third quarter of 21 additional opportunities continue to exist and Cds reprice to lower market rates.

That said the bank has approximately $179 million and Cds mature and an average rate of 36 basis points and the fourth quarter of 'twenty, 1 approximately 512 million and Cds will mature and an average rate of 43 basis points.

And total during the second half of 'twenty, 1 approximately 692 million of Cds will mature and average rate of 41 basis and Washington.

Non interest income came in at $4.7 million for the second quarter of 'twenty, 1 compared to last quarter, primarily as a result of increased fees.

And for services to customers as we have seen overdraft and interchange fees start to pick up.

Our financial services Division continues to be mostly the most significant reoccurring source of noninterest income they add approximately $1.1 billion of assets under management as of June 30, and 21.

Now onto noninterest expenses total noninterest expense net of ore re expense came in at $25.5 up 404000 compared to the first quarter of 'twenty 1.

Salary and benefit expense was relatively flat as compared to last quarter and professional services were up 182000, and advertising expenses, what where it was up 195000 and other expenses was up 349000 as compared to last quarter. These increases were partially offset by a decrease in net occupancy expense.

258000, and as compared to last quarter.

Or are your expenses came in and an income of 60000 and for the quarter as compared to net expense of 239000 and the prior quarter.

Given the continued low level of Oreo expenses were going to decrease the anticipated level of expense not to exceed 350000 per quarter.

All the other categories of noninterest expenses were in line with our expectations for the FERC for the second quarter.

We don't expect the 2020 one's total reoccurring non interest expense net of already expenses to remain in the range of $24.9 to $25.4 million per quarter.

Cincy ratio on the second quarter of 'twenty, 1 came in at $56.9 1% compared to 58, 3% and the second quarter of 2020.

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 have always been proud of expense control and Trustco Bank and we expect this to continue throughout 2021.

And finally, the capital ratios consolidated equity to asset ratio remained flat. It was 9.45% at the end of the second quarter up 1 basis point from 944 from the first quarter. A 21 day bank continues to be proud of is the ability to increase shareholder value. During these challenging times.

Book value per share at June 30 day, 1 was $30 up 4 point.

7% compared to $28.67, a year earlier. These amounts are adjusted for the reverse stock split now Scot will review the loan portfolio and nonperforming loans.

And good morning, everyone.

The bank posted strong loan growth for the second quarter overall loans grew by $80 million and actual numbers. This equates to growth of 1.9% year over year loans have increased by 172 million or 4.1%.

First mortgages and increased by $90 million on a quarter with home equity products decreasing by a combined $6.9 million.

Commercial loans decreased by $2.9 million, which includes your activity surround the S. P. A P. P P programs.

We are very pleased with the net loan growth for the quarter activity was strong throughout all regions.

Although refinances do remain elevated and they are down from their peak periods.

The purchase money market remains very active and we have seen increased instances where potential homebuyers are unable to proceed due to either the inability to find a suitable home or pricing pressures pushing beyond the budgetary means.

This upward pressure does seem as it begin to flatten out somewhat however.

And as homebuilders restock their inventories things will likely begin to ease more noticeably.

Our loan backlog is good it is down approximately 10% from the first quarter and well above where we stood last year.

The summer months are typically a little slower than the spring market. Although we expect that overall market activity will remain solid due to pent up demand and continuing low interest rates.

Our current 30 year rates stands at $2, 99%.

The news regarding natural quality measurements remains good and virtually all on deferrals previously granted have returned to normal payment status.

Nonperforming loans decreased to $20.8 million from $21.6 on the quarter and are down approximately $1 million year over year nonperforming assets decreased to $21.2 million from 22 point and 1 on a quarter and are down approximately 500000 year over year.

Early stage delinquencies remained very low and charge offs for the quarter equated to a net recovery of 164000.

The coverage ratio of allowance to non performing loans now stands at 240% up from $2.20 last quarter, Bob. Thanks, Scot, That's our story and we're happy to answer any questions you may have.

Thank you we will now begin the question and answer session to ask a question you May Press Star then 1 on you touched on so if youre using a speakerphone. Please pick up your handset before pressing the keys.

To withdraw your question. Please press Star then 2.

At this time, we will pause momentarily to assemble our roster.

Okay.

And the first question will be from Alex toward all with Piper Sandler. Please go ahead.

Hey, good morning, guys.

And we went out.

And first off Scot can you just repeat what you said about the the loan pipelines I think you said down 10% from the first quarter I want to make sure you hurt and I heard you correctly.

Yeah Youre right.

And from there.

And you know as I said, well above where we stood last year at this point.

Okay, and then when you're talking with the rates and you're talking about you advertise right. At 299 is that typically where these loans come on and are there a lot of them come on and a little bit higher than that.

The majority would come on at that rate is.

Okay.

Well maybe.

These are rough numbers, but maybe 30% of them 35 percentage of them coming on a little higher than that and the remainder come in at the base rate.

Okay.

And then.

And when I look at deposit costs, obviously, I've done a great job of reducing the cost of deposits and cost of funds over the last year and we pretty much close to the bottom at this point I know you. Mike you went through and $692 million of C. D and had 41 basis points, but certainly it seems like most of the.

The big reductions have happened is that the right thinking.

And as we continue to chase more C. DS out Alex there could be some movement and I think you're bringing the last water out of the xiaomi, but I still think there is some water to be wrung out.

Okay, and then can you talk a little bit about you know you're sitting on a huge liquidity position.

Rates have certainly not been anyone's friend over the last couple of weeks, but what are you looking for in terms of opportunities to actually deploy some of that liquidity into securities or other opportunities.

I mean, we'd like to see.

A little bit higher than they are right now you know, we try and generally speaking, we try and keep maturities as short as we possibly can and we're not thrilled with the cash position right now, but we just think it would be foolish at this point to jump into the pool.

All right now.

Okay.

So if the 10 year stays down where it is right now and probably just contingency liquidity stay at roughly the same levels.

And as long as it can stand it yes.

Got it and then maybe you can talk a little bit about just the capital and you know I know you got the buyback in place you did a little bit this quarter and the second quarter and how you're thinking about the buyback you think you can get a little bit more aggressive with that just sort of given the capital is continuing to build and liquidity is obviously very healthy and.

And you know are there other opportunities, perhaps M&A that.

And you haven't really been part of the equation and trustco for the last decade, or so but you know maybe you could make some more sense, just and a challenging rate environment.

Yeah.

Okay.

Yeah.

I mean, I think you know on physician.

Yeah.

And we work for our shareholders not share holders of all the company and so if the right opportunity came along.

We'd be more than happy to talk to talk about.

And all I would like to emerge.

And my team here.

Well equipped to do it but it would have to be accretive to our shareholders and us as the other items you mentioned I mean dividend a.

Buyback you name. It is all is all on the table for review with different times and different periods.

Great. Thanks for taking my questions.

Thank you.

Ladies and gentlemen, 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 on our company. We hope you have a great day.

Okay.

Thank you Sir the conference has now concluded. Thank you for attending today's presentation you may now disconnect.

Yeah.

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