Q1 2022 TrustCo Bank Corp N Y Earnings Call
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This time I would like to turn the conference call over to Mr. Robert J Mccormick, Chairman President and CEO . Please go ahead.
Thanks, Juan Thank you for joining us this morning to hear more about our company. We are very pleased with our results as usual Michaels American Scot Salvador are on the call Mike as most of you know as our CFO . He is going to give us a lot of detail on the numbers Scot will give some color on our loan portfolio, especially credit quality. So let me hit a few of the highlights before we.
We move on.
How quickly and how could we not be pleased with the net income number this quarter, we are pretty sure. Its an all time record up from last quarter in the same quarter last year.
$17 1 million net income in the first quarter gives us a solid foundation for the rest of the year.
Total assets are almost $6 3 billion up just under 4% from the same quarter in 2021 growth was driven mostly by our loan portfolio, which is up about four 6% year over year.
This growth is mostly in our residential mortgage portfolio. We have had some large payoffs in PPP activity in our commercial loan portfolio, but we are encouraged by the flattening or slow growth in the home equity portfolio.
Our deposit growth has been great up over all periods reported. We also continued the trend of shedding high shedding off higher priced time deposits and replacing them with core.
Shareholders' equity is up year over year down quarter over quarter as our investment portfolio re prices contemplating current rates.
All of our performance ratios are positive ROA was one 2% ROE was 11, 6% our efficiency ratio was just under $51, 551% for the quarter.
We did see continued erosion in our net interest margin, but a much slower pace. We are also encouraged by monthly trends.
Loan portfolio is very strong nonperforming loans to total loans was <unk>, 43% nonperforming assets to total assets is <unk> three 1% our allowances over 1% compared to total loans with a coverage ratio of two four times, we have implemented seasonal and Mike has a lot more detail on that we are maintaining a large cash positions.
Securities portfolio with relatively short maturities, we feel this puts in good position for a changing rate environment.
We are optimistic about the rest of the year now Mike will detail the numbers Scot will talk loans, leaving time for questions Mike.
Thank you Rob and good morning, everyone I will now review <unk> financial results for the first quarter of 2022 as.
As we noted in the press release the company saw net income of $17 1 million in the first quarter of 2022, an increase of 21, 3% over the prior year quarter, which yielded a return on average assets and average equity of one 2% and 11, 6% respectively.
Average loans for the first quarter of 2022 grew four 6% a $195 2 million to $4 4 billion from the first quarter of 'twenty one as expected the growth continues to be concentrated within our primary lending focus the residential real estate portfolio, which increased by $218 6 million or five eight.
<unk> in the first quarter of 'twenty two over the same period in 'twenty one the average commercial loan portfolio decreased $17 8 million or eight 4% over the same period in 'twenty. One the bank continues to receive SBA PPP loan payoffs and currently has approximately $3 million outstanding at March 31, 'twenty two.
Additionally, there were no COVID-19 related deferments as of March 31, 2002.
Total average investment securities, which include the NFS and HTM portfolios decreased $12 3 million or two 9% during the first quarter two over the fourth quarter of 'twenty. One during the same period. The bank had approximately $18 6 million of pooled securities paid down one maturity of $5 million.
Purchased approximately $44 1 billion of securities.
As mentioned last quarter, the bank adopted <unk> on January one 2022.
The opening adjustment was a $2 4 million, increasing the allowance for credit losses on loans and.
An increase in unfunded commitments of $2 three.
$3 million and a corresponding decrease in deferred tax assets of $1 2 million, resulting in a net decrease to shareholders' equity of $3 5 million for the first quarter of 2022 total provision for credit losses was a credit of 200000. This includes a credit to the provision for credit losses on loans.
500000, as a result of improving unemployment and housing price forecast and is offset by a provision for credit losses on unfunded commitments of 300000.
As a result of increases in unfunded loans as our loan pipeline builds.
Ratio of the allowance for loan losses to total loans was one 3% as of March $31 22, compared to $1 one 7% as of the same period in 'twenty one.
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 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 $2 billion of overnight investments during the first quarter of 'twenty, two an increase of $157 6 million compared to the same period in 'twenty one.
Given the elevated level of cash and the changing interest rate environment. The bank will continue to evaluate and invest excess liquidity into the market.
On the funding side of the balance sheet total average deposits increased 223.
$4 million or four 4% for the first quarter of 'twenty two over the same period a year earlier the increase in deposits was a result of $66 1 million or nine 1% increase in average money market deposits.
$212 9 million or 16, 2% increase in average savings deposits, a $106 9 million or nine 9% increase in interest bearing checking account averages and $135 3 million or 21% increase in average noninterest bearing checking balances.
These were partially offset by the decrease in average time deposits of $297 8 million or 23, 6% over the same period last year.
During this same period, our total cost of interest bearing deposits decreased nine basis points from 20 basis points.
This was primarily driven by a decrease in money market deposits to 11 basis points from 16 basis points in time deposits of 23 basis points from 54 basis points over the same period last year.
As we navigate through 2022, the bank has approximately $264 million in Cds that were maturing at an average rate of 21 basis points in the second quarter of 2002.
In the third quarter of 2000 to approximately $165 million in Cds will mature at an average rate of 13 basis points and in the second half of 2000 $20 million to $415 million of Cds will mature at an average rate of 18 basis points.
Our average financial services Division continues to be a significant recurring source of noninterest income you had approximately $1 billion of assets under management as of March 31, 'twenty two.
Now onto noninterest expense total noninterest expense net of already expense came in at $22 8 million down $3 5 million compared to the fourth quarter of 'twenty, one and below our estimated range of $24 nine to $25 $5 million a decrease from the prior quarter is primarily a result of the decrease.
In salaries employee benefits and employee benefits expense as a result of a true up to the incentive compensation control accrual.
Accrual upon payout in the first quarter of 2022 as well as decreases in various other employee benefit plan expenses.
<unk> expense came in and net came in at an expense of $11000 for the quarter as compared to income of <unk>.
28000 in the prior quarter.
Given the continued low level of already expenses, we're going to continue to hold the anticipated level of expense to not exceed $250000 per quarter.
All the other categories of noninterest expense were in line with our expectations for the fourth quarter.
We would expect 2020 twos total reoccurring non interest expense net of <unk> expense to be in the range of $24 nine to $25 $5 million per quarter.
The efficiency ratio in the first quarter of 2022 came in at 56% compared to 56, 4% in the first quarter of 'twenty one.
And finally, the capital ratios.
Solidago equity to assets ratio was flat at 944% for both the first quarter of 'twenty, two and 'twenty one.
<unk> continues to be proud of its ability to maintain shareholder value during these challenging economic times.
Book value per share at March 31 was $30 85.
Up four 2% compared to $29 60, a year earlier.
These amounts are adjusted for the reverse stock split which occurred in the second quarter of 'twenty one.
Now Scot will review the loan portfolio and nonperforming loans.
Okay, Thanks, Mike and good morning.
Total loans continued on a positive growth trajectory for the first quarter overall loans increased by approximately $26 million or 6% in actual numbers.
Year over year, the increase totaled 195 million or four 6%.
Real estate loans increased by $33 million in the quarter, a <unk>, 8%. This was offset by an $8 million decrease in commercial loans, which included ongoing SBA PPP paydowns.
We are pleased with the quarter's real estate increase of $33 million and is what in what is traditionally the year slowest net growth period.
Essent activity trends have continued with Refis now constitute and only a small portion of the applications versus a year ago.
The purchase side of the equation remains strong however in a recent purchase volume is actually up a bit from where it was last year.
While it is true interest rates have risen pent up demand combined with a strong job market and borrow liquidity have seen a continued strong demand for homes across all of our market regions.
Our home equity credit line portfolio is also experiencing a positive trend.
Loan balances have stabilized and even increased a bit after several years of decline.
On the quarter home equity lines increased by approximately $5 million to $236 million.
A number of factors have contributed to this including a slowing of the refinance market whereby many existing lines were being paid down as part of the existing <unk>.
Mortgage refinance.
The stabilization of home equity portfolio it should be a positive factor for overall net loan growth going forward.
All of our regions experienced good overall activity and a strong purchase market this quarter.
Florida continues to be particularly active however, with no signs of decrease in volumes as of this date.
After many months of stagnation interest rates increase significantly on the quarter.
Currently our 30 year base rates stand at five and one 8%.
This is a full 2% higher than where it stood not too long ago.
As a portfolio lender, we have a degree of flexibility with our rates. This puts us in an advantageous position in a variety of rate environment as we can sometimes lag the market just a bit as rates rise in order to grab a greater market share.
We will continue to be opportunistic in this regard as we move forward, while still benefiting from the rising rates.
Our backlog at quarter end was good it is up significantly from year end and we expect to continue to grow as we enter the heart of the spring market.
We are optimistic that the backlog combined with ongoing activity levels should provide for increased net growth in the second quarter.
Asset quality measurements continue to be strong nonperforming loans stood at $19 4 million at quarter end up approximately 650000 in the quarter and down from $21 6 million a year ago.
Such choppiness as expected given the ongoing low levels.
Nonperforming assets were $19 7 million versus $22 1 million a year ago.
Early stage delinquencies also continued to be low.
Charge offs posted a net recovery of $58.
The second consecutive quarter of negative net charge offs.
The coverage ratio or allowance for loan losses to nonperforming loans now stands at 238% versus $2 31, a year ago.
Rob.
Scott, we're happy to answer any questions anybody has.
We will now begin the question announced what it says.
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Has been up until.
Until we like to withdraw your question. Please.
Followed by number two at this time, we will pause momentarily to assemble our roster.
Our first question comes from anecdotally the feedback on that please <unk>. Your line is now open.
Hey, good morning, guys.
Good morning, Alex.
<unk>.
Hey, thanks.
First of all I wanted to ask.
Maybe you can kind of go back to some of your comments Scott you made about being able to lag the market on the way up to try to get a little bit more volume on the loans.
Can you talk a little bit about.
Is there enough volume that you can have.
You can kind of open that sort of a tap to.
To use that metaphor as much as you'd like to pull in the volume and if thats the case.
Okay.
What would your target be.
If you're if you're putting on loans, maybe just a little bit below the market today.
Maybe it could be around 5%.
Yes.
A balancing act.
The good news is there is a lot of volume out there and activity out there in the market as I said, we're seeing across all our regions continued strong demand.
No.
It's a competitive thing we're always looking at where the competitors are.
It's amazing what an eighth of a.
Percent or sometimes even a quarter can do for just over a couple of days borrowers when they are looking for a home that they look at rates, they're very active.
You don't have to lag by much or for very long.
To draw some attention.
It's not a dramatic thing, but again it <unk> here a quarter there for over a couple of day period can really spike up a little bit of volume.
And as I said the good news is that the activity out there continues to be strong.
Right.
Activity is there and you have a little bit of control over it I mean would you would you kind of suggest that loan growth sort of looks in that mid single digit.
The pace that it's been growing over the last couple of years or do you think that given the amount of cash on the balance sheet and sort of some of the dynamics that have happened in the rate environment.
Maybe that can accelerate and maybe approach high single digits or even more than that over the next couple of quarters.
Yes.
A continuation.
It makes sense, because there's a lot of factors at play in there as well.
Rates are rising but.
On the flip side, we don't have the refinances, we had before Alex that last year as Youre well aware, we had a tremendous amount of refinance activity some of which was coming to us, but some of which was going away from us.
And now when Youre looking at the backlog the refinances are way down which is.
As a positive thing when you're talking net growth so I think.
Continuation of what we've been doing is <unk>.
Not a bad idea and hopefully we'll be able to continue that.
Got it and then when I just think about the overall yield on that portfolio of the resi mortgage portfolio I mean, they've been declining over the last couple of years now with $3 42, just given the rates that are on loans that are in the backlog going into the second quarter and the complexion of that overall book do you think that that $3 42.
And at the bottom of where the yield on that portfolio is.
We'll be it's not if it's not if it's not the bottom's, let's darn close to the bottom Alex and.
The difficulty is it can take 60 days or 30 to 60 days to close a lot of the new production. So.
If we get to $3 42 isn't rock bottom, we are pretty close to rock bottom.
Right.
And then talk to me a little bit about maybe the strategy to take advantage of putting some more of that cash to work in the securities portfolio, obviously, a bit and that had a nice run up since we last spoke in the 10 year and presumably also security yields.
Is there more of an appetite with the 10 year approaching 3% to actually deploy some cash into.
Interestingly some securities.
Yes, Alex.
You can see we did some in the first quarter, we're continuing to look at it.
The second quarter and the strategy. There is we're seeing short kind of a mix of pooled securities and corporates, we're seeing on some of those mortgage backed securities and where we're going in on a four year to five year average life.
Around 3%, depending on how much duration.
Maybe a little bit below three a little bit above three we're putting stuff on in securities portfolio that were potentially above what we were doing loans not that long ago, a year ago type of thing. So it's definitely very attractive and we're definitely looking at that space and.
I think probably more of what we've done so far in the fourth quarter is probably likely going forward in the quarters going out given where our cash position is.
Okay, some more than what you've been doing.
On the more than more than last year, absolutely more of the same of first quarter.
And in the first quarter was just I think you said $44 million in security purchases. So thats kind of the pace that you had.
Suggesting is reasonable and second quarter.
We will look at it I mean, I think if you looked at it I'd say, that's probably a good baseline if the opportunities are we could be higher.
Okay.
And your commentary about the CD repricing I think you said $264 million at 24 basis points in the second quarter.
Are those are the point, where those start repricing higher or is there still.
Are you seeing the competition for Cds in your markets, because they'll be pretty it's pretty reasonable.
No its been pretty the pricing control has been pretty good Alex and we're not repricing higher now.
We're losing a little ground in our portfolio, but thats almost by design because our retention has been so high with existing customers.
So.
I think we're handling the cd's very well.
CD maturities very well.
Okay.
You also mentioned the monthly trends in the NIM in chunks of encouragement relative to what we saw for the whole quarter do you have those monthly NIM numbers handy.
Well I mean I can give you.
Kind of like an overview, if youre looking at margin in <unk>.
And really NII the way we look at it is I mean, you know the balance of our overall cash portfolio, we will see what the fed is going to do here.
In a few weeks.
That's going to be a very accretive.
Our margin going forward.
As you already asked.
That tail off.
The loan pipeline is we're closing anything that was below that $3 42, and we're into the higher into the higher numbers right. So that's going to be also very.
Official going forward in our corner. So I think this first quarter was I think the bottom for NII and margin I think continues to come in the remaining quarters of this year, it's going to I think start to move forward move up going forward.
Got it and then can you just give me a little bit more color on the expense the true up to the.
So the compound that you referred to that.
<unk> comp expenses in the first quarter do you have an exact amount of what that was and kind of what's the normalized level of expenses for the quarter.
Absolutely so.
If you take a look at the overall down for the quarter. We were off $3 5 billion about two thirds of that about $2 million that was that true up that we're talking about so that will come back in the second quarter and then.
And then if you look at expenses going outright or Ftes, we were at a low level at the end of the first quarter.
Still actively hiring to overall salary expense will trend upward slightly.
Other components of that all of that down $3 $5 million as our stock prices down are liability based.
Equity awards true up on a quarterly basis to where the stock price is right. So that was a positive benefit in the first quarter of our stock price goes up that will obviously be a.
Negative impact or additional expense in the quarter and in.
So thats two pieces of a $2 million at $200000 on the stock based on a foreign Tyler calling on stock based comp and then another few hundred thousand dollars of the down which will carry us for the rest of the year and the quarters as you know we have the.
The post retirement benefit plan and the pension plan that we have and.
So with rates where they are.
Additional positive benefit of a few hundred thousand dollars a quarter each quarter going out and we're now we were able to record. So that's kind of a positive pickup in the quarters going forward would you take a look at it based on our guidance the add back a couple of million dollars.
The higher a few more people that kind of gets us to the bottom of the range and I kind of the guided range that I have at $24 9 million.
Got it Thats very helpful.
And then.
<unk>.
Last question just on the buyback 18000 shares. It seems like you guys are really tolling into the buyback is there just given how the T cells in the rearview mirror and you know your commentary on credit was pretty positive and certainly you have plenty of capital.
Does the buyback and get a little bit more consideration.
And the next couple of quarters.
I think youll see us much more active with the buyback Alex we're in a closed window right now but.
When the window opens it wouldn't surprise me if we got back into it very actively.
Okay. Thank you for taking my questions.
Thank you pickup take care out.
Thank you. This concludes our question and answer session I would like to turn the call back to Robert J Mccormick for any closing remarks.
Thank you for your interest in our company and have a great day.
Yes.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.
Okay.
Yeah.