Q3 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. 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.
And could differ materially from those set forth in such statements due to various risks uncertainties and other factors Moody's.
More detailed information about these and other risk factors can be found in our press release that preceded this cool.
And in the risk factors and forward looking statements section of our annual report on Form 10-K.
As updated by our quarterly reports on Form 10-Q.
Statements about it only as of the date hereof and the company disclaims any obligation to update this information.
As may be required by applicable law todays presentation contains non G. A a P financial measures.
The reconciliations of such measures to the most comparable G. A a P figures are included in our earnings press release, which is available under the Investor Relations tab of our website at Trustco Bank took home. Please.
Please also note today's event is being recorded.
At this time I would like to turn the conference call over to Mr. Robert J Mccormick Chairman.
I didn't see I. Please go ahead.
Thank you and good morning, everyone as the whole said I am Rob Mccormick President of the bank as usual I'm joined by Mike also making Scot Salvador, Mike as our CFO and Scott as our senior lending officer.
As we have done in the past I will provide a summary, hitting the highlights then.
And it probably doesn't make for a lot of detail on the numbers.
<unk> will go over the loan portfolio.
We will respond to any questions. You have then we can wrap it up.
We had a very solid third quarter at the bank are $16.8 million net income was a record for us and has over 19% greater than the same quarter last year.
Assets at the.
Turner order were $6 billion $135 million greater than last quarter and the same quarter last year.
The increase in assets was driven by our loan growth in our residential portfolio.
Commercial loans were down as a result of the PPP forgiveness.
Home equity loans are much less than prior periods.
As we have discussed on this call before we believe the runoff is being captured in our residential portfolio and we're also working this product a little bit harder with some new programs to encourage new and additional borrowings.
Installment loans have never been material at the bank.
We have a large cash position and a substantial investment.
The end of the Colo with pretty short maturities.
We maintain bolt in anticipation of and preparation for a changing rate environment.
We like a lot of companies have had tremendous deposit growth. This has afforded us the opportunity to shake off some of the higher cost time deposits with night with nice growth.
For official core accounts and money market.
We were able to increase our equity to over $586 million.
Our loan portfolio is performing very well nonperforming loans to total loans was at <unk>, 46% and nonperforming assets to total assets are up three four.
Both have improved over prior P.
And the <unk>.
Our allowance for loan losses to total.
Loans is 1.81% with a coverage ratio of two three times and that is after recovering $2.8 million from the reserve.
We are prepared for Cecil implementation next year.
Return on average assets equity and our efficiency ratio.
The improvement over the period.
We continue to pay a healthy dividend.
We are operating 147 full service offices after closing one and opening palm coast in Florida.
We are having the same labor difficulties as most we are exploring loan production offices and plan to open one in Naples.
<unk>, Florida.
This is much longer term strategy. We also have worked to expand our lending area to neighboring counties in a few areas.
We continue to operate a full service financial services Department.
Now I'll turn it over to Mike and Scott will have a lot more detail Mike. Thank you, Rob and good morning, everyone I will now review.
<unk> financial results for the third quarter of 2021 as.
As we noted in the press release the company saw a net income of $16 8 million in the third quarter of 2021, an increase of 19, 1% over the prior year quarter, which yielded a return on average assets and average equity of one point of weight and 11 four zero respectively.
Review charge of loans for the third quarter of 'twenty. One grew four 2% a $176 4 million to $4 4 billion from the third quarter of 2020 as expected the growth continues to be concentrated within our primary lending focus the residential real estate portfolio, which increased by $218 2 million or five 9%.
After a quarter of 'twenty one over the same period in 2020.
Average commercial loan portfolio decreased $20 7 million or eight 9% over the same period. In 2020. This included approximately $23 million of new PPP loans originated in 'twenty. One the bank currently has approximately $21 million of our remaining.
And the PPP loans.
Total average investment securities, which include the <unk> and HTM portfolios increased $19 2 million or four 3% during the third quarter of 'twenty one over the same period in 2020 during the same period. The bank had three securities call that a total par value of $20 million, one security matured at a par.
SB, a $3 5 million and approximately $28 million of pooled securities were paid down during the same period. The bank also purchased approximately $4 $1 million of securities.
Provision for loan loss for the third quarter was a credit of $2 8 million a decrease compared to the 1 million provision for loan loss in the same period in.
Value money.
As you May remember during 2020 management increase certain allowance related qualitative factors based on its assessment of the impact of the current pandemic on economic conditions as well as to perceive risks inherent in specific industries as they relate to the bank's loan portfolio.
The decrease during the third quarter of 'twenty, one was primarily the result of an adjustment.
The pandemic specific provision.
The ratio of the allowance for loan losses to total loans was one 8% as of September 30 of 'twenty, one compared to 107% as of the same period in 2020.
The level of the provision for loan losses in the remainder of 'twenty. One we will continue to reflect.
Made for all growth of our loan portfolio and economic conditions in our geographic footprint.
As mentioned in prior quarters to support our borrowers experiencing economic hardships the bank launched a COVID-19 financial relief program and included loan modifications, such as deferments on residential and commercial loans by request.
As of September 30.
The only one that banks are most of these loan deferments returns, making regular loan payments.
As mentioned in prior quarters, the bank did not adopt Cecil as was originally provided by the cares Act and as part of the COVID-19 relief Bill signed in December 2020 debate will adopt seasonal on January one 2022, the company expects to remain a.
<unk> financial institution under current regulatory calculations.
As discussed in 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 reoccurring earnings.
Our investment portfolio is and has always been a source of liquidity to fund.
Well clothes and provide flexibility for balance sheet management as.
As a result, we held an average of $1 2 billion of overnight investments during the third quarter of 21, an increase of $228 6 million compared to the same period in 2020, given the elevated level of cash and 21, the bank did invest some excess liquidity into the market during the.
Loan growth for the year.
On the funding side of the balance sheet total average deposits increased $348 2 million or seven 1% for the third quarter of 'twenty one over the same period a year earlier.
The increase in deposits was a result of $56 3 million or eight 3% increase.
Beginning with money market deposits of $207 6 million or 17% increase in average savings deposits.
$129 4 million or 12, 6% increase in interest bearing checking account averages.
$157 9 million or 25, 4% increase in average non interest bearing.
Checking balances ease or partially offset by the decrease in average time deposits of $202 9 million or 15% over the same period last year.
During the same period, our cost of total of interest bearing deposits decreased 14 basis points from 52 basis points.
This was primarily driven by a decrease in money.
Any market deposits to 11 basis points from 30 basis 37 basis points in time devices to 40 basis points from 139 basis points over the same period last year.
As we move into the fourth quarter of 'twenty, one additional opportunities continue to exist the Cds reprice lower market rates, but that said the bank has approximately.
$124 million in Cds that will mature at an average rate of 42 basis points in the first quarter of 2020 to approximately $254 million in Cds will mature at an average rate of 40 basis points in the first half of 'twenty two with approximately 418 million of Cds will mature at an average rate of 36 basis points.
We filed our financial services Division continues to be a significant recurring source of noninterest income had approximately $1 1 billion of assets under management as of September 30 of 'twenty one.
Now onto noninterest expense total noninterest expense net of <unk> expense came in at $24 7 million down 835000 compared to.
The second quarter of 'twenty, one and slightly below our estimated range of 24, 9% to $25 4 million salary.
Salary and benefit expenses down 494000, due to the overall decrease in Ftes and effected a lower stock price on benefit accruals.
Already expense came in <unk> <unk>.
Net came in at an expense of 32000.
Quarter as compared to an income of.
60000 in the prior quarter.
Given the continued low level of already expenses, we're going to continue to hold the anticipated level of expenses do not exceed $350000 per quarter.
All the other categories of noninterest expense were in line with our expectations for the third quarter we.
For the back the 22020 one's total reoccurring noninterest expense net of <unk> expense to remain in the range of $24 nine to $25 $4 million per quarter difficult.
The efficiency ratio in the third quarter of 21 came in at 50, 582% compared to $53 six 1% in the third quarter of 2020, we.
<unk> has been proud of expense control at Trustco Bank and we expect this to continue throughout 2021 and beyond.
And finally, the capital ratios consolidated equity to assets ratio increased slightly it was not an was 956% at the end of the third quarter up 11 basis points from 945% from the second quarter of 'twenty.
We've always.
The bank continues to be proud of its ability to increase shareholder value. During these challenging economic times.
Value per share at September 30, 21 was $30 50.
Up five 1% compared to 20 903 year earlier. These amounts are adjusted for the reverse stock split which occurred in the second quarter of 2021 now Scott.
'twenty, one review the loan portfolio and nonperforming loans.
Thanks, Mike and good morning, everybody.
The third quarter. The bank continued to record strong loan growth overall loans increased by $47 million in actual numbers of one 1%.
Year over year loans increased by $182 million or four 3%.
The residential poor.
<unk> real show growth of $56 million in the quarter.
Year over year growth totaled $210 million of residential loans of five 3%.
Commercial loans decreased by $9 million in the quarter, which includes ongoing pay downs on the bank's SBA PPP program.
Residential real estate remains active in all of our market areas.
Portfolio, a result of increased prices and lowered inventory levels has hampered from an individual borrowers and their ability to find and secure a home for purchase.
Overall, the demand for purchase money remains at satisfactory levels.
On the refined refinance side of things activity is down significantly from where it stood a year ago at this point.
Rates do remain.
However, although down from last year's frantic pace Theres still remains elevated degree of refinance activity.
Of the refinances continue to Greece decreased is still lower levels in the near term is uncertain.
And largely dependent upon where the mortgage rates begin to increase to some significant degree.
Our mortgage backlog has come down.
Main low actually 10% since the second quarter.
It remained solid overall, however, and contains a good amount of new money.
We're pleased with where we stand entering the fourth quarter and optimistic about continuing to post satisfactory net loan growth.
Interest rates, although having ticked up slightly of late continue to remain at low levels.
Currently.
On our priority of fixed rate stands at three in a quarter.
Asset quality measurements remain strong on the quarter nonperforming loans dropped from $20 8 million to $20 2 million in nonperforming assets decreased from $21 1 million to 27.
Year over year slightly larger decreases were posted in both categories.
We are early.
Early stage delinquencies remain low and our allowance for loan losses now stands at 1.08%.
Charge offs continue to be to remain very late and equated to just above zero for the quarter on a net basis.
The coverage ratio or our allowance for loan losses to nonperforming loans now stands at 230.
<unk> percent up from $2 25, a year ago.
Thanks, Scott, we're happy to answer any questions you have.
We will now begin the question and answer session to ask a question you must pass Star then one on your touch kind of thing if youre using a speakerphone please pick.
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At this time, we will pause momentarily to assemble our roster.
Yeah.
Yeah.
Our SaaS question today comes from Alex.
Oh of Piper Sandler Alex. Please go ahead. Your line is eight P M.
Hey, good morning, guys.
Good morning, Alex Good morning, Alex.
I was just first off Rob, hoping that you could talk a little bit more about.
The strategy.
Expansion strategy I think.
The new geographies kind.
Turning around the residential products or they make a lot of sense, but maybe talk a little bit more about both the expectations there as well as the thought process around an IPO in Naples.
Let's say, it's a great way to dip our toe into the water Alex It's a dollar bet instead of a much larger bet, we leased about 850 square feet and end cabinet strips.
We're paying very little for it and as long as we can get the right originators in that office. We can think we can make some hay for it.
I think as you know the west coast to Florida, especially has been particularly good to the bank.
I just think of further expansion is in order.
<unk>.
A very good idea I also think it might be a great.
Right.
<unk> to expand into full service branches down along down down the road into that area.
Okay and is that primarily going to be originating one to four family or is there other than it's going to be.
Yes.
And remember, we always far south now as angle.
Strips out familiar with Florida, which as you know in the same county, as Naples, or the next county up from Naples.
<unk>.
Okay. So its just a continuous thing.
By the way in footprint.
I'm sorry, okay that makes sense.
Makes sense and then.
The branch.
But if you go to the branch we just opened in Palm Coast is the same thing Thats and Flagler County, which is very close to.
Foreman Beach and Fort Orange.
Are you seeing a lot of success I mean are you able to give us some color around sort of the the the mortgage production out of Florida versus the upstate.
Pieces, there are they pretty equal or is there still a big tilt towards the towards upstate New York.
We're very pleased we're very pleased with the mortgage production in Florida, and it's getting very comparable to the other areas that we serve.
Okay.
Scott I missed what you said about the pipelines going into the fourth quarter can you repeat that.
Yes, so were down about 10% from where we were in the second quarter, Alex which is not uncommon for this time of year, but.
It's a good solid pipeline has got a lot of new money. So we're pretty pleased with where we stand and we think we should.
Well to continue to post some good growth this quarter.
Okay, and when you talk about the new money.
Maybe put that into context relative to where it was in the second quarter and that sort of refi versus new money proportions.
Yeah, well you know it's more if you look back a year, it's probably a better comparison last year at this point.
Be a little bit higher backlog, but the percentage of refinances in that backlog was much more significant.
As I said in my presentation. There is still an elevated level of refinance activity, but it's nothing like it was last year. So although the backlog is down a little bit percentage wise from last year.
The percentage of refi is down significantly versus a purchase.
Purchase money and that sort of thing.
Okay great.
And then with the with the 10 year kind of creeping up a little bit here and I'm, just sort of sitting on the amount of cash and seen that sort of run off in the securities portfolio.
I was hoping maybe you could talk a little bit more about the thought process around actually putting a little bit more cash to work into securities kind of in the short term and sort of what sort of opportunities you are waiting for.
Right.
No.
We definitely spent a lot of time looking at it here, Alex I mean, we get to a conscious decision of no for not investing.
My cousin, it is getting a little bit higher we are talking to some of our guys out in the field. Some of the brokers out there to take a look at it but until until it really gets to a spot where we need to invest to kind of to help ourselves along you know we're going to continue to hold I mean theres no downside right now the way we look at it for for not putting that money to work in six months or it's higher than that that's a better spot for us.
Okay. So it's it's a is there a sort of a.
Something that is a specific number you're looking for in terms of when you'll start to put money to work or how much you will start to ladder out.
No no not right now.
It's based on that.
Based on the needs that we have Alex and where the rates are going.
Where we think the trending is going.
At that point.
I guess higher would be the answer.
Yeah, Okay and then just final question for me you guys did a little bit in the buyback.
What what are you kind of thinking about for the for the share repurchase program and the stock's down down to 100% of tangible.
And we value.
Is there a specific price that it gets more attractive to you utilize that buyback more or is there a capital level.
And her earnings beyond the dividend that you would be consider allocating towards the buyback or.
What's the thought process there.
We're gonna stay active in the buyback Alex you know when.
But closed window period around around earnings time, you can't buy so that we were active I think right up until the window closed and we would anticipate being active.
Again in the future.
Okay.
Thanks for taking my questions.
Thank you.
Thank you Alex This concludes our Q&A session I would like to turn the conference back over to Robert J Mccormick for any closing remarks.
Thank you for your interest in our company and have a great day.
Okay.
The conference has now concluded.
And you have a cranky for attending today's presentation. You may now disconnect your lines.