Q2 2022 TrustCo Bank Corp N Y Earnings Call
It was 1% of total loans sufficient to provide a coverage ratio of two four times.
Our ROA was one five our ROE was $12 80 volt better than all prior periods reported <unk>.
Our efficiency ratio was under 52% margin expanded to 283, we continued to pay a healthy dividend our payout ratio is just over 37%.
Capital ratios are strong and improving.
We continue to operate the same 144 full service offices.
We are very proud of our results and look forward to the rest of the year with great optimism.
Now I'll turn it over to Michael who will detail. The results Scott will cover loans Michele will talk about mortgages, then we will respond to questions Mike.
Thank you Rob and good morning, everyone I will now review Trustco financial results for the second quarter of 2002.
Yes.
As we noted in our press release the company saw a net income of $17 9 million in the second quarter of <unk> 22, an increase of 23, 8% over the prior year quarter, which yielded a return on average assets and average equity of one 5% and 12, 8% respectively.
Average loans for the second quarter of 'twenty, two grew four 6% or $196 2 million to $4 5 billion from the second quarter of 'twenty one is.
As expected the growth continues to be concentrated within our primary lending focus the residential real estate portfolio, which increased $202 million or five 3% in the second quarter of 'twenty two over the same period in 'twenty one.
Average commercial loan portfolio decreased by $15 9 million or seven 4% over the same period in 'twenty. One total average investment securities which include the <unk> and HTM portfolios increased $62 9 million or 15, 1% during the second quarter of 2022 over the first quarter 2022.
<unk> seen periods. The bank had approximately $16 million of pooled securities paid down two maturities totaling $5 million and purchased approximately $133 $7 million of securities.
For the second quarter of 2000 to the provision for credit losses was a credit of $491000. This includes a credit to the provision for credit losses on loans of 1 million $1 million as a result of improving unemployment and housing price forecasts.
And is offset by a provision for credit losses on unfunded commitments of $509000 as a result of increases in unfunded loans.
The ratio of the allowance for loan losses to total loans was 1% as of June 32022, compared to 1.15% as of the same period in 'twenty one.
As discussed in prior calls our focus continues to be on traditional lending and gets you being 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 an average of $1 1 billion of overnight investments during the second quarter of 2022, a decrease of $24 8 million compared to the same period in 2021.
Given the elevated level of cash and the changing interest rate environment. The bank will continue to evaluate investing excess liquidity into the market.
On the funding side of the balance sheet total average deposits increased $153 1 million or two 9% for the second quarter of 'twenty two over the same period a year earlier.
The increase in deposits was a result of a $48 7 million or a six 7% increase in average money market deposits, a $181 9 million or 13, 2% increase in average savings deposits, a 61, three or five 3% increase in interest bearing checking account averages.
And at $90 8 million or 12, 1% increase in average non interest bearing checking balances. These are partially offset by the decrease in average time deposits of $229 5 million or 19, 2% over the same period last year.
During the same period, our total cost of interest bearing deposits decreased eight basis points from 15 basis points.
This was primarily driven by decrease in title time deposits to 22 basis points from 42 basis points over the same period last year.
As we move into the third quarter of 2022, the banks Bank has approximately $199 million in Cds that will mature at an average rate of 12 basis points.
In the fourth quarter of 2022, approximately $286 million in Cds will mature at an average rate of 20 basis points in total during the second half of 2020 to approximately $485 million of Cds will mature at an average rate of 16 basis points.
The increase in the fed funds target rate will have an impact on the CD pricing as we move through the rest of 2022 and beyond.
Our financial services Division continues to be a significant recurring source of noninterest income.
They had approximately $909 9 million.
Assets under management as of June 32022.
Now onto noninterest expense total noninterest expense net of Oreo expense came in at $24 9 million up $2 2 million compared to the first quarter of 'twenty two and at the low end of our estimated range of 24, 9% to $25 5 million.
The increase from the prior quarter is primarily a result of a decrease in salaries.
And employee benefit expense due to a true up to the incentive compensation accrual upon payout in the first quarter of 2022.
Oreo expense net came in at the expense of $74000 for the quarter as compared to expense of just 11000 in the prior quarter.
Given the continued low level of <unk> expenses, we are 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 second quarter.
We would expect.
The 2020 twos total reoccurring noninterest expense net of ordinary expense to be in the range of 24, 9% to $25 $5 million per quarter.
The efficiency ratio in the second quarter of 2022 came in at 52% compared to 56, 9% in the second quarter of 2021.
And finally capital ratios.
Holiday an equity to assets ratio was 955% for the second quarter of 2022 compared to 945% in second quarter of 2021.
The bank continues to be a proud of its ability to maintain shareholder value. During these challenging economic times.
Book value per share at June 32022 was $31 <unk>.
Three 5% compared to $30 a year earlier.
Now Scott will review the loan portfolio of nonperforming loans.
Thanks, Mike and good morning for.
For the second quarter total loans increased by $76 million of actual numbers of one 7%.
Your loans have risen by 191 million or four 4%.
The growth continues to be centered on our residential portfolio on.
On the quarter residential loans grew by $68 million or one 6% for the year. The increase was just under 5% or $204 million.
Commercial loans grew by $7 $5 million in the quarter after decreasing by $14 million year over year, due primarily to SBA PPP paydowns.
Purchase money business and residential loans remain active on the quarter with our Florida market continue with especially strong results.
Equity credit line activity has also picked up with the rise in long term fixed rates.
While increasing interest rates in general economic conditions will undoubtedly have an effect on our marketplace as we move forward our results to date and security purchase business continued to be solid.
Michelle will provide additional details in her presentation on overall activity levels and efforts.
Interest rates continue to edge higher in the quarter and our current 30 year base rate is at 549%.
Our loan backlog at quarter end was strong and reflects the changing market dynamics. It is up both from the first quarter and the same point last year.
Refis are at very low levels in the backlog. The vast majority is made up of purchase money mortgages with a smaller amount of home equity products.
Asset quality measurements remain positive nonperforming loans decreased from $19 4 million to $18 7 million in the quarter. This is down from $20 8 million a year ago.
At that point assets also decrease that have dropped from $21 1 million to $19 4 million year over year.
Early stage delinquencies remained low and charge offs again posted a net recovery of 107000 a quarter.
The coverage ratio or allowance for loan losses to nonperforming loans now stands at 242% versus 238 last quarter.
I will now turn it over to Michelle for additional information on our loan portfolio.
Thank you Scott and thank you for the opportunity to discuss the bank's residential lending operation a refinance market had decreased considerably over the past several months, allowing for new construction are on the rise.
All regions are contributing to the backlog for allowance pending closing, but our greatest one growth in Florida. Another area, where there is an uptick in our home equity products with the option of variable or fixed rate, we continue to see that portfolio expand with new lounge.
As well as through increased utilization of existing lines not surprisingly, we are assessing increased interest in our adjustable rate products and all of our operational footprint.
To remain competitive we are always looking for fresh ideas for new products and for enhancements to existing lines. For example, we have recently implemented our hometown hero mortgage program for active duty and veteran members of the military police officers and firefighters S unique product, it's one of the ways and shell.
Nation for the vitally important segment of the communities that we serve.
Offers attractive at test and we have seen much interest in it overall being a portfolio lender with a variety of products charging no private mortgage insurance offering very competitive rates out with love closing costs positions us to do well in every market now I'll turn it back to Bob Thank.
Thank you Michelle we're happy to answer any questions you have.
We will now begin the question and answer session to ask a question you May Press Star then.
And then one on your touch timeframe.
Speakerphone, please pick up your handset before pressing the keys if anytime 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.
Okay.
Last question for today comes from Alex Potter from Piper Sandler Your line is now open.
Hey, good morning.
Good morning, Alex.
First off.
You guys historically, mostly put on the one to four family and picked up a bit this quarter, which I guess makes sense given the rates.
I kind of uncertainty around.
What's going to happen with rates and also the economy from here.
Yes.
In terms of sort of future growth I mean is it suddenly predominantly one to four family or do you think is going to be more of a kind of an equal mix shift.
With that HELOC products or the home equity product, making up a much bigger component of loan growth over the next couple of quarters.
The home equity product.
We used to be a leader in the home equity area.
Many many years ago, Alex but that kind of went out of favor for a period of time as a product.
We're seeing some some new interest in it which we're happy about it as a prime based product, we underwrite them the right way, we underwrite them to 80% loan to values. We are happy to pick it up we don't ever see and eclipsing the residential first product though.
It's a nice supplement a nice a nice.
Second source, but we never see it really taking over.
Our residential first mortgages.
Okay, and what what I think is at 549 on the on the first liens.
The current rate on auto home equity loan right now.
All right.
For a teaser rate for the first one year at 349, Alex and then it goes to a fully indexed Brian even.
Okay.
The lower rate was six months, but people like the one year either.
And then X amount of $1 $7500.
We pay the holding costs with a three year recapture some of that.
If they don't if they paid off within the three years, we get the money back to the closing costs.
Got it okay.
Can you talk a little bit about what youre seeing in terms of.
Just any pressures on deposits in any in any of your markets certainly.
Deposit betas I think were negative this quarter, which is awesome to see but with rates going higher I think.
Many investors and analysts just assuming that deposit betas have been start pickup picking up more meaningfully in the second half I'm. Just curious where you guys are seeing and if theres any differences between the Florida, New York markets.
Yeah, I mean, we're hearing the same things I have to say, we've had probably a modest amount or a slight amount of pressure on the deposits as of right now all of our retailers ratios are still very very strong.
But we're certainly seeing some customers looking for higher opportunity a higher rate opportunities I've heard the same thing that the second quarter is going to be the next fed increase is going to be for the customers I've heard that as well, but I guess based on repayments right now, we're pretty comfortable with where we're at.
We'll take that as it comes.
Got it.
I think in the press release, you mentioned something about aggressive marketing and product differentiation I think you talked a little bit about some of the product differentiation with the hometown heroes.
Program in terms of the aggressive marketing is that something that is going to be.
We're going to see more obvious in the expense line in coming quarters.
We have and Thats pretty much got it down I think at this point in time, I don't think Youll see a fixed spike and.
And the advertising we are taking advantage of different sources of advertising free or less expensive I can't say cheap right.
That's a that's a quality issue.
Looking at Russell expense of alternatives with regards to marketing, we're trying to be more and more in social media and more and more on the internet.
More and more direct contact with our customers.
So I don't see I don't think youre going to see a big spike in the.
So the advertising or marketing line.
Print advertising Nols, it's outrageously expensive.
Even some of the.
Television mediums are also very expensive so we're.
We're trying to find alternate ways to do it.
Got it and then just a final question for me just staying on the <unk>.
<unk> no doubt.
We're also began serving our customers to find out where they came from.
<unk>.
Some of those results are pretty interesting too.
Yes.
Yes.
The final question is from me on the on the reserve and sort of how to think about provisioning we've had four quarters now.
Negative provisioning.
A lot of economists are projecting recession later this year, if we're not already in one.
What are the factors that would cause that ACL to go higher I mean is it more based on unemployment or GDP or is it more based on sort of the.
I mean, obviously your current credit metrics as well as loss histories play a factor in that too, but can you help us maybe just to get a better sense for sort of the weightings around the different.
Components of calculating that ACL.
Yes.
So you hit the.
Hi, <unk>.
Unemployment is a big factor and one of the things too is when we take a look at it. We also take a look at it in the markets that we serve right. So all of that a big part of our <unk>.
Sure.
The numbers in the upstate New York markets and then also the Florida markets have taken a look at those kind of separate in the loan balances in our loan growth in those areas and then layering in what you just saw.
The hit GDP in that area unemployment in that area and then overall loan growth in that area. So that's those are the major components, but it is bifurcated I guess it is kind of when we think when we look at it when we calculate our reserves.
We follow with just as much as you and.
We'll see where unemployment some of those numbers start to go.
Over the next few quarters.
For turnaround.
Great. Thanks for taking my questions.
Thank you Alex.
Thank you. Our next question comes from Ian <unk>.
Did that meet your funds in.
Your line is now open.
Hi, good morning, and congratulations on a strong quarter.
I was just hoping could.
Could you talk about the competitive environment for underwriting mortgages sort of who who your toughest competitors are.
Whether they're traditional branch based.
Based lenders like you fintech or others and then maybe similarly to talk about the competition for deposits in the same sort of who who who the toughest competitors are.
Maybe we could start with that.
From a market share perspective in this area.
And.
The credit unions are very strong and very strong competitors in the upstate area downstate and shifts to <unk>.
Some of the Internet lenders and even wells as it is a very large presence and especially Westchester County, and then Florida is the same way, obviously you can't discount truest.
Wells Fargo and some of the Internet lenders are very very.
Formidable in the Orlando area of the Central Florida area as far as deposits go it's full scale, it's we compete against everyone, but that sounds like.
Crazy, but anybody can come into the deposit market hot and heavy in any particular time, especially with regard to.
CD CD gathering.
We're focused as I said in the presentation more on the core and our locations and our <unk>.
Some of the side things to us very very well in that area attracting customers.
Their domestic Atms, you don't have the foreign charges that go along with it there are a lot of very positive. So lots of locations a lot of a lot of personal contact so hopefully where we're doing a good job in the battle for core accounts, but CES and large deposits people can come in and out of the market at any time and I am not telling anything you don't know.
But many of the interbank Internet banks right now are doing some crazy stuff with regard to deposit pricing. So, we're certainly hearing and seeing a little bit about that.
Okay. Thanks, and then so if you look out sort of the next three years, what do you see as the biggest constraint on growth is it finding attractive mortgages to underwrite is it.
Growing our deposit base.
Or both.
While all of the above.
Both of those items, certainly hand, and I would also add the labor market hiring in finding qualified people getting to stay long enough to be trained.
Dr. <unk> members of our team.
That's another that's another big issue.
Okay.
And then on the trust profiles.
Sure.
Alright good.
Oh no.
No no no what why don't you finish and then I'll ask my next one well from a positive perspective, the balance sheet. We built it and you see this is built to withstand and prosper during off times. So we feel we're in a pretty good position that if a recession or some difficulties do come about.
We will be the will be standing strong and be able to withstand whenever it might be thrown at us.
Okay.
Great.
And then I was just going to ask on terrestrial financial services. It looked like considering the tough both stock and bond markets. There was a pretty good quarter can you just remind me sort of what.
I think you said $909 million in AUM, what what products are you offering there and have you been gaining share.
Generally in that area.
I would I would say, it's a traditional trust deformity and very much we're attempting to convert that and get more investment management accounts and some different accounts just from a diversity perspective, but it is very much a traditional trust department, while the cost of the accounts a lot of the state administration.
Those types of items.
Okay.
And then last one.
What is your sort of branch growth.
Strategy over the next three years.
Well.
We're very much in Haynesville mode. During a de Novo period, I think we opened 18 branches in one year that was our top year, we're certainly not going to that I think you'll probably see us a net even over the next three years.
There are several branches that we will probably close but have not performed up to our expectations. So at least screener will probably off to close them.
But there are a couple of other markets like the port St. Lucie, Florida, along the treasure coast and a couple of other areas in New York that we would like to infill with additional locations.
So it'll probably be a net pretty much a net zero over the next three years between closures are no branches.
Okay. That's it thank you.
Thank you Ian.
Thank you.
This concludes our question and answer session I would like to turn the conference over to Mr. Mccormick for any closing remarks.
Thank you for your interest in our company and have a great day trying to take off here in the northeast.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.