Q4 2022 TrustCo Bank Corp N Y Earnings Call

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[noise] [noise] 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 for forward looking statements provided by the private Securities Litigation Reform Act of 1995.

Yes.

Actual results performance or achievements could differ materially from those expressed in or implied by 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 in the risk factors and forward looking statements section of the annual report on Form 10-K.

As stated by our quarterly reports on Form 10-Q.

The forward looking statements made on this call are valid only as the date hereof and the company disclaims any obligation to update this information to reflect events or developments. After the date of this call except as may be required by applicable law.

During today's call, we will discuss certain financial measures derived from our financial statements that are not determined in accordance with the U S. G. A a P.

The reconciliations of such non chief financial.

Financial 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 Dot com.

Please note that today's event is being recorded a replay of the call will be available for 30 days and now do a webcast will be available for one year.

As described in our earnings press release.

At this time I would like to turn the conference call over to Mr. Robert J Mccormick Chairman President CEO . Please go ahead.

Thank you and good morning, everyone I'm, Rob Mccormick President of Trustco Bank as usual Michaels American Scot Salvador, joining me on the call today, we will follow our regular format for the call I will briefly hit the highlights then Mike our CFO .

Give great detail the numbers Scot will cover the loan portfolio, leaving time for questions at the end we.

We had a great year and trust at Trustful and 2022, our net income was $75 $2 million up over 22% from 2021 and clearly a record.

We also completely executed our stock buyback increase our cash dividend for the second year in a row and grew our loan portfolio and a record levels and celebrated our 120th anniversary.

Stop there.

Our loans are up about five 7% year over year as you would expect most of this growth was in our residential mortgage area. We were very encouraged to see all areas performed positively commercial loans and home equity lending, where Volvo even installment loans, a very small part of our business was positive.

We did see some deposit run off especially in the money market category, while we're not happy about it we are not surprised incredible deposit growth of stimulus money, we're much stickier than most of US thought they would be we're taking a cautious approach with regards to deposit pricing now.

We continue to stay very liquid and anticipation of.

And ever changing rate environment.

All of our performance ratios were very solid margin was $2 99 up over 2021 nonperforming loans totaled $3 seven down from 2021 nonperforming assets to total assets was <unk> three three.

Our reserve for loan losses was just under 1% of total loans, resulting in a coverage ratio.

Two six times, our our away in a row, we were one point to two and 12, 6% respectively.

Up from 21, and finally, our efficiency ratio was just over 50%.

Continuing to pay a very healthy dividend, resulting in a payout ratio of about 36%.

We certainly had a pretty good 2022, we're approaching 23 with a strong backlog of loans, leaving us optimistic.

We're taking a cautious approach required direct deposit offerings and closely watching rates now Mike will give us a lot of detail on the numbers Scot will give color on the loan portfolio and we can take your questions Mike.

You, Rob and good morning, everyone I will now review Trustco as financial results for the fourth quarter of 2022.

As we noted in the press release the company saw year to date net income of $75 2 million and $20 9 million in the fourth quarter of 2022, an increase of 28, 7% over the prior year quarter, which yielded a return at a return on average assets and average equity of 138% and $13 nine.

And 1%, respectively average loans for the fourth quarter of 2022 grew five 7% or $253 2 million to $4 7 billion from the fourth quarter of 2021.

As expected the growth continues to be concentrated within our primary lending focus the residential real estate portfolio, which increased by $181 8 billion or four 6% in the fourth quarter of 2022 over the same period in 2021.

The average commercial loan portfolio increased $21 1 million or 10, 4% over the same period in 'twenty one.

Total average investment securities, which include the NFS and HTM portfolios remained stable increasing $2 3 million during the fourth quarter of 'twenty two over the third quarter of 'twenty two.

The same period the bank had approximately $11 6 billion of full securities pay down and purchased approximately $19 $1 million of securities.

For the fourth quarter of 'twenty to the provision for credit losses was $50000. This includes a provision for credit losses on loans of $500000 and a benefit for credit losses on unfunded commitments of 450000 as a result of decreases in unfunded loans.

The ratio of allowance for loan losses to total loans was <unk>, 97% as of December 31, 22, compared to 1% as of the same period in 'twenty one.

Our focus continues to be on traditional residential 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 an average of $669 million of overnight investments during the fourth quarter of 'twenty, two a decrease of $454 million compared to the same period in 2021.

Given the current 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 decreased $25 4 million or 5% for the fourth quarter of 'twenty two over the same period a year earlier.

The decrease in deposits was a result of $994 $5 million decrease in average money market deposits and a decrease in average time deposits of $72 2 million. These are offset by a $78 6 million dollar increase in average savings deposits, a $12 $5 million increase in interest bearing checking account averages and 50.

$2 million increase in average noninterest bearing checking golf or the.

Same period, our total cost of interest bearing deposits increased to 25 basis points from 11 basis points. This.

This was primarily driven by an increase in time deposits to 74 basis points from 32 basis points over the same period last year.

As we move into 2023, the bank has approximately $211 million of Cds that will mature at an average rate of 22 basis points in the first quarter of 'twenty three the second quarter of 'twenty three approximately 274 million of Cds will mature at an average rate of 1.15% and in the second half of 'twenty three approximately 360 <unk>.

7 million of Cds will mature at an average rate of one seven.

Our financial services Division continues to be a significant recurring source of noninterest income.

Approximately $954 million of assets under management as of December 31, 22.

Now onto noninterest expense total noninterest expense net of ore expense came in at $26 3 million up 284000 compared to the third quarter of 'twenty, two and slightly over estimated range of $24 nine to $25 5 million.

The increase from prior quarter is primarily a result of an increase in seasonal Q4 salaries and employee benefit expense and equipment expense, partially offset by decreases in our net occupancy expenses professional services and outsource services.

Or do you expect net came in at an expense of 101000 for the quarter as compared to an expense of 124000 in the prior quarter.

Given the continued low level of ore expenses, we are going to continue to hold the anticipated level of expense not to exceed $250000 per quarter.

All the other categories of noninterest expense were in line with our expectations for the third quarter.

And for.

We would expect 2023 total recurring non interest expense net of ore expense to be in the range of $26 two to $26 $7 million per quarter.

Cincy ratio in the fourth quarter of 'twenty two came in at 48, 8% compared to 58, 5% in the fourth quarter of 'twenty one.

And finally, the capital ratios consolidated equity to assets ratio was 10% for the fourth quarter of 'twenty, two compared to nine 7% in the fourth quarter of 'twenty One bank.

Our bank continues to be proud of its ability to maintain shareholder value. During these challenging economic times book value per share at December 31, 2020, due was $31 54.

One 8% compared to $31 28.

A year earlier.

Now Scot will review the loan portfolio and nonperforming loans.

Thanks, Mike and good morning, everyone. The bank enjoyed strong loan growth for the fourth quarter overall loans grew a combined $104 million or two 2% in actual numbers year over year loans grew $294 million or six 6%.

The loan growth in the fourth quarter was spread across all of our lending categories and market areas.

<unk> increased by $88 million on a quarter by $261 million year over year.

First mortgages showed the largest quarterly growth of $72 million, while home equity loans continued the recent upward trajectory and increased by $16 million a quarter.

Commercial loans also continued their recent growth path and increased by $14 million in the quarter and by $31 million year over year.

We are very pleased to see the ongoing loan growth given the changes in market conditions over recent months.

Purchase activity has slowed with the season and increased interest rates, but we continue to benefit from our strong strong market position and the solid loan backlog, we carried into the fall season.

Interest rates have eased a bit recently and our current 30 year base rate stands at $5, 99%.

Moving forward, we plan to keep our rates are very competitive and be opportunistic as conditions warrant in terms of grabbing additional market share.

Our loan backlog was strong at year end it is down from the third quarter, which is normal, but well above that of last year.

Significant portion of the backlog contains new money to the bank given the very low levels of refinance activity.

As mentioned previously in addition to our existing branch network personnel, we're moving to add some additional loan originators in the residential area.

In conjunction with this we will in the first quarter begin originating some secondary market products. In addition to our normal portfolio loans will be originated Fannie Mae Freddie Mac and VA loans initially with additional product offerings is likely to be added over time.

While our portfolio of product is still our primary focus having the ability to access the secondary market will give us additional flexibility and opportunity for fee income.

Although our initial steps will be modest we are excited about this initiative and feel that holds a lot of potential for the bank.

Asset quality measurements continue to be good in the fourth quarter nonperforming.

Nonperforming loans dropped from $18 7 million to $17 five in the quarter, while nonperforming assets increased slightly to stand at $19 6 million.

As a percent of total loans nonperforming loans now stand at three 7% versus four 2% a year ago.

Charge offs slowed showed a slight net recovery on the quarter and a $312000 net recovery on the year.

The allowance ratio of our allowance for credit losses to nonperforming loans climbed 263% at year end.

Versus $2 36, a year ago.

Bob.

Thanks, Scott we are happy to answer any questions you might have.

Okay.

Okay.

Yeah.

Okay. Thank you everyone. We will we will now.

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

Yeah.

Our first question comes from Alex <unk> from Piper Sandler Alex. Your line is now open. Please go ahead.

Hey, good morning, guys.

Good morning Al.

Yes.

First off you know talking about deposits, which is certainly the biggest focus for any bank right now I think Rob in your prepared remarks, you said that you were taking a more cautious approach to deposit pricing now I'm. Just curious if you can elaborate on that a little bit.

We're trying to do what we have to do to retain we have Alex.

We're much more in a hold pattern than a growth pattern with regard to deposits keep.

Keeping what we need and not really going out there.

For US you are not seeing a 4%.

Right and our offerings right now.

Okay, So a quarter or two ago, you were more willing to hold the rate and sort of let some excess run off and now the target is to keep deposits at least flat and maybe grow them a little bit.

Yeah.

A little more runoff wouldn't bother us probably either Alex it depends on what we have to pay for those deposits.

Okay, and then as you kind of balance that against the excess cash that you guys still have a pretty elevated excess cash position relative to many other banks out there and I know, it's a big part of your interest rate management strategy I'm, just curious how low we can see that cash and equivalents get down to as a percentage of assets.

I'm reluctant to give a specific percentage but.

As you said, there's a lot of room there.

So we're pretty comfortable with where we're at.

Again as I said in the presentation, we're pretty optimistic about 23.

Okay.

Hum.

In terms of what Youre seeing on the residential loan portfolio.

Clearly a normal pace of pay downs, you get kind of in any interest rate environment as people move and pass away and upgrade and everything like that I'm. Just curious if youre seeing any change or you know maybe it's a little bit early to kind of draw any sort of trends after a quarter or two but any sort of change in what.

Maybe normally would have expected from sort of normalized paydown activity in the AR and the residential loan portfolio. There has been no change in average life Alex.

No change in average life okay.

And then just a final question for me you know.

When I think about expenses and you gave the expense guidance you talked about looking to add some additional originators. That's all incorporated in the expense guidance for 2023 correct.

Correct.

Great well, thanks for taking my questions. Thank you Alex.

Thank you Alex.

Just a reminder, if you would like to ask a question. Please press star one.

Our next question is from Ian <unk> from Gabelli funds. Ian Your line is now open. Please go ahead.

Good morning, Rob can congratulations on a great year.

Just a couple.

<unk>.

Obviously, the credit quality looks really good.

In terms of what you've disclosed any any increase in delinquencies, you're seeing in either Florida, or New York and the residential.

Mortgages.

Early stage delinquencies still look very very good and there is no change.

Across the board in delinquencies.

Okay great.

And then I noticed there was a 314000 increase in commercial loan Npls in Florida is that.

One.

Loan and is it collateralize and any color you can provide on that.

It's a residential mortgage on a.

Multifamily.

Okay.

And then sort of bigger picture I guess.

Big competitor announced it there.

Reducing exposure to residential mortgages.

And that's not a that's not.

Our residential mortgage and.

Commercial loan secured by a UCC with very strong guarantees.

Sorry.

Okay.

Okay, and then last one for me just can you talk about the competitive environment in our residential mortgage underwriting are obviously, a big competitor announced they're pulling back and then also any.

Color.

I'm not sure the history have you.

Done secondary market originations in the past, what just a little more color on sort of what's driving that.

Decision targets have not changed.

And I think you know our profile, we're pretty conservative underwriter always so we don't really change from change our callers with regard to that we try and stay conservative all the time that maintains consistency, which the market certainly appreciates we have never originated secondary market.

Whether it's Fannie Mae Freddie Mac, FHA or VA, we do have a small.

Small relationship with a local mortgage banker that we buy.

Loans on an individual basis from.

But this is a new venture to us we have hired very experienced and qualified people.

A long history of working in the mortgage banking industry.

To assist us with this.

So far so good it's been it's been a we've originated our first V. A.

Residential mortgage and these ships things seem to be going.

Well.

Okay, and what about the competitive environment.

Of.

Other banks or Fintech.

Yes.

Residents language seems to leverage each Juliet everybody comes in and out of the mortgage business.

One firm is hot and heavy for a period of time and then they pay back down and maybe lose a little market share, but there's always someone coming up to fill those shoes.

That's again, why we try and stay consistent we're not really looking to be a market leader with regard to residential mortgage lending. We just wanted to be a consistent performance and be able to fill our coffers and not worry about what the rest of the world is doing and as long as we're able to do that.

We welcome the competition.

Okay, great and congrats again, great great year.

Thank you.

Perfect. Thank you Ian.

Yeah.

This concludes our question and answer session I would like to turn the conference back to Robert J Mccormick for any closing remarks Robert.

Thank you for your interest in our company and have a great day.

The conference is now concluded. Thank you for attending today's presentation you may now disconnect.

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