TrustCo Bank Corp NY Q1 2023 Earnings Call
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Before proceeding we would like to mention that this presentation may contain forward looking information about trustco Bancorp in 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 $19 95.
Actual results performance or achievements could differ materially from those expressed in or.
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 our annual report on Form 10-K, and updated quarterly reports on Form 10-Q.
The forward looking statements made on this call are valid only as of 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 drives from our financial statements that are not determined in accordance with the U S. G AAP.
The reconciliations of such non GAA financial measures to most comparable GAAP's 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 an audio webcast will be available for one year as described in our 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 as a whole said I'm, Rob Mccormick President of the bank joining me on the call today are Michael <unk>, our CFO and Scot Salvador.
Appreciate you taking time to hear more about our company.
At the time of any changes in the banking industry. We have had a very solid first quarter of 2023.
Our numbers are strong and demonstrate great stability in the face of some difficult conditions.
Our net income was $17 7 million a 7% loan growth were both up year over year deposits were also up almost $20 million to about $5 2 billion from year end.
No surprise, we've seen we have seen a lot of shift to time deposits as rates have risen. These accounts are up over $250 million since year end.
Our loan portfolio was up about $312 million year over year. We also set another all time high for loans.
Asset quality remained strong with a drop in nonperforming loans to 4% of total loans compared to <unk> 43 last year, we remain in a net recovery position regarding charge offs.
Our investment portfolio remains in decent shape with relatively short maturities.
Net income of $17 7 million was up under just.
4% from last year.
Our net interest income was up significantly to $47 million for the quarter, our ROA and ROE were one two and 11, 84% for the first quarter of 'twenty three.
Up from 22.
We also had an increase in book value from $32 31 to $30 85 last year.
We continued our strong capital position at 10, 7% up from 944% last year.
Overall, a solid quarter and we approach the balance of the year with cautious optimism.
Now Mike will detail the numbers Scot will talk owns leaving time for questions. Mike. Thank you, Rob and good morning, everyone. I'll now review Trustco financial results for the first quarter of 2023.
As we noted in the press release the company saw first quarter net income of $17 7 million, an increase of three 8% over the prior year quarter, which shows that our return on average assets and average equity of one 2% and 11, 84% respectively.
Capital remained strong consolidated equity to assets ratio was $10 one 7% for the first quarter of 2023 compared to 944% the first quarter of 2022.
Value per share at March 3100, 23 was $32 31.
Up four 7% compared to $30 85, a year earlier.
Average loans for the first quarter of 'twenty, three grew 7% or $312 million to $4 8 billion for the first quarter of 2022 as expected the growth continues to be concentrated within our primary lending focus the residential real estate portfolio, which increased $205 million or five 1% the first quarter of 'twenty three.
The same period in 2002.
Average commercial loans and home equity lines of credit also increased $43 9 million or 22, 5% and $58 8 million or 25, 3% respectively over the same period in 2022.
For the first quarter of 'twenty three provision for credit losses was 300.
We are now actively retaining deposits, which is evident in the quarter over quarter results total deposits as of March 3100, 23 increased $19 6 million to $5 2 billion from December 31 22.
As we move forward. Our objective is to continue to encourage customers to retain these funds and the expanded product offerings of the bank through aggressive marketing and product differentiation.
We understood the big inflows of deposits during the pandemic were temporary and that is why we did not and vessels liquidity into securities or loans or retain that liquidity on balance sheet for when the depositors, which start to absorb the funds. This gave us flexibility to strategically priced deposits, while retaining core customers.
Net interest income was $47 million for.
For the first quarter of 'twenty, three an increase of $6 9 million or 17, 1% compared to the same period in 2002, driven by solid liquidity for loan growth and the recent increases in the fed funds target rate.
Net interest larger for the first quarter of 2003 was $3 two 1% up 55 basis points from 266% in the first quarter of 'twenty two.
The yield on interest earnings assets increased to $3, 69% up 95 basis points from 274% in the first quarter of 'twenty two.
At the same time the cost of interest bearing liabilities only increased to 63 basis points for the first quarter of 2003 from 10 basis points in the first quarter of 'twenty two.
The increase in net interest income of $6 9 million is primarily a result of our ability to maintain a $576 9 million average cash balance at the Federal Reserve bank during the first quarter of 'twenty, three and being able to retain low cost deposit balances at competitive market rates.
Our financial services Division continues to be a significant recurring source of noninterest income they add approximately $922 million of assets under management as of March 31 23.
Now onto noninterest expense total noninterest expense net of <unk> expense came in at $27 4 million increase from the prior quarter is primarily a result of an increase in salaries and employee benefit expense, which is typical in Q1 annually as some of the payroll tax and benefit expenses reset and adjust.
<unk> expense came in at an expense of 225000 for the quarter as compared to 101000 and.
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 first quarter.
Would expect 23 total recurring noninterest expense.
Net of ore expense to be in the range of $26 nine to $27 $3 million per quarter.
Now Scot will review the loan portfolio and nonperforming loans.
Thanks, Mike and good morning.
For the first quarter total loans increased by a combined $66 million in actual number.
Year over year, the increase totaled $335 million.
First quarter's growth equated to one 4% while the annual increase was seven 5%.
We're pleased to post continued growth in the quarter, and especially gratified with an annual net increase of well over $300 million.
The growth on both the quarter and for the year was spread across all of our lending categories residential loans increased by $48 million in the quarter by $275 million year over year.
Commercial loans showed a similar pattern, increasing by $15 million in the quarter and by $54 million year over year.
Home equity loans also continued on a growth trajectory as discussed in prior quarters, increasing by $10 million in the quarter and by $57 million year over year.
General market activity in the residential arena continues on a similar pattern to that discussed last quarter.
Overall purchase volume is down versus a year ago to the increased interest rates and market conditions.
As we enter the spring and early summer selling season. However, we expect that overall activity will increase and have already seen some early signs in this regard with recent application volumes.
Our backlog was solid as of quarter end.
Some of the heavy construction loan volume, we captured last year has been completed and closed onto our books.
The end result is that our current outstanding backlog stands roughly equivalent to where it was at the same point last year.
Interest rates have moved quite a bit over the last several months as everyone is well aware currently our 30 year fixed rate stands at 6.25%.
Asset quality measurements remain strong nonperforming loans were down to $19 1 million versus $19 4 million a year ago and up slightly on the quarter.
Nonperforming assets also continued to bounce at low levels totaling 0.35% of assets versus <unk> three one at the start of the year.
Early stage delinquencies remained low and charge offs totaled a slight net recovery on the quarter.
The coverage ratio or allowance for loan loss nonperforming loans now stands at 243% versus $2 38, a year ago.
Thanks, Scott any questions.
Yeah.
Ladies and gentlemen, if you would like to ask a question. Please press star followed by one on your telephone keypad.
Star followed by one on your telephone keypad.
We have our first question from Ian <unk> from Gabelli funds.
Your line is now open. Please go ahead.
Hi, Rob and team congratulations.
Really good earnings considering the <unk>.
Banking crisis.
Yes. So just a few can you talk a little bit obviously the deposit performance was impressive can you talk about how that trended.
During the quarter and so far in April .
And just generally what the impact of sort of the bank failures.
What did you see is that what's going on in your business.
Okay.
We are as Mike said in his presentation. We've stayed liquid and has the ability to kind of make decisions appropriately and if we had to let some higher price stuff run off we did.
That liquidity position allowed us that are afforded the position to do that so we are deposit trends have been very good what we've been trying to do is retain customers and not let them walk out the door. So we have been selectively offering programs, we have a 7% to <unk>.
11 months special.
<unk> seems to be very effective.
Our core group of customers seem to be sticking with us and we're doing pretty well with them and actually bringing some money back and the baby.
They were offered crazy specials for three months period, and Thats now expiring to the coming back to more stability. So we're pretty pleased with our deposit trends.
Right now.
Okay.
And then.
Ed.
In a period of crisis, sometimes theres opportunity and I think you are.
The benefits of your branch network certainly came through this quarter.
Any thoughts about Utah.
Utilizing that to sort of expand your core offerings, whether it's other loan products are financial services, maybe had some.
Opportunities no question about it and we use the phrase come home to trustco.
It's something that our branding polling and things like that have said is very strong.
With regard to that and I think people is there's a flight to safety and our customers seem very very comfortable with where we're at and how we run the company and also the validating is a big thing in certain parts, especially in Florida.
Our product offerings are constantly under evaluation.
So.
And certainly we're doing a lot more falling in a lot more.
Contact with our customers and I think it's welcomed.
Okay.
And then on the expenses.
I guess most of the increase was in salaries and if I compare to a year I understand you said there is some seasonality, but if I compare to a year ago, it looks like salary and employee benefits were up 44%.
And the head count is only up by 1% so.
Is there anything unusual.
In that year over year comparison, and I'm, assuming maybe incentive comp.
Is playing a role given the strong results, but maybe if you could just talk about.
The big increase I could give you a lot more detail, but I mean, we're having some generally we're having some of the same issues that every industry is having with the labor market, where we are having to pay people more money to retain them and we have a lot of companies that are approaching us Mike can go into a little bit more detail. There was a true up of our pension funds.
And a couple of other adjustments that impacted that as well you want to touch on that line.
The only thing I would add is everything you said, Rob but in the first quarter of 2022, we had a downward adjustment of about $2 million, they kind of roll through from a 21.
And so when you really apples to apples. It was fit number would really be closer to $11 2 million compared to where we are now so that that first quarter of 'twenty two as was pushed out.
Okay, sorry, I missed that so that that's more reasonable.
And then last question so on the share repurchase I noticed you announced its sort of been mid mid March in the middle of the crisis.
Is there any change in thoughts on that I know, it's not a big amount of about 1% of the shares but how do you feel about that versus retaining capital in the current environment and how do you generally feel about your capital position.
I would say I would say.
That we're committed to the share repurchase.
I don't know about the timing if we move forward with that or when we move forward with that it would probably be later in the year.
Okay.
Okay.
Again, congrats on good results in a tough time.
Thank you. Thank you thanks.
Our next question comes from Alex <unk> from Piper Sandler Alex. Your line is now open. Please go ahead.
Hey, good morning, guys.
Good morning.
Florida.
First question just curious.
Any updated thoughts on the overall complexion of the balance sheet, obviously, you sit on a lot of cash still.
You guys have always said on a pretty fair amount of cash, but I'm just curious.
A lot of that cash is there to absorb.
And I guess dampen the impact of higher rates and it has been.
It's done its job I'm, just curious if that 10, 5% has to stay there or.
Just given with all the pressure on deposits.
Can use some of that position to manage.
Loan growth or deposit liquidity or anything like that that.
And when maybe we can see that number come down a little bit over the over the next couple of quarters.
Well there is no plans to bring it down Alex but it certainly it certainly would be an opportunity. If we felt there was reason to do that as you said the liquidity position has certainly helped us and continues to help us.
Through what could be some challenging times.
So we're pretty comfortable with where we're at right now and that can fluctuate obviously, a little bit based on market conditions. If somebody is doing something crazy with deposits.
And things like that but overall, we're pretty comfortable with the position we're in and we feel it buys us a lot of credibility in the market with.
With regulators and things like that so we're pretty comfortable with where we're at.
Okay, and then as we think about the residential mortgage portfolio and I. Appreciate it Scott your comments on the pipelines being healthy going into the spring buying season I'm, just curious what youre seeing on the other side in terms of payoffs.
Presumably that slow just given what's happened with rates, but just as we think about new loans coming on versus whats on the books I'm just trying to figure out how quickly that overall book yields.
Could rise from here.
Just given what youre seeing.
The new originations plus what's coming off the books.
Yes, I mean, the payoffs Alex as you might imagine a very logging the refis are probably as low as ive ever seen it since I've been here.
Now you do have some selling going on with the increase in pricing.
You have some people that are motivated to sell their house.
So you do have some payoffs that roll through because of that people selling but in general that payoff side of the balance sheet is pretty low and.
Purchases volume is down as I said in my remarks, because of market conditions, but.
We're coming into.
The season as you just said so over the last couple of months.
We should see a pickup on that as we move forward.
We've also been doing a lot of home equity brief prime based home equity lending, which certainly improves the return Alex and I think that there is this change in credit score with interest rates could also be a very positive impact on our <unk>.
Portfolio.
Yes, okay.
As you think about the residential piece, which is the biggest chunk of the portfolio and just the yields moving high over the next couple of quarters have been kind of moving higher by call. It three basis points per quarter over the last few quarters do you think that that could pick up with new volume.
In early I guess mid 2023.
Yes, I mean, we're not going to forecast that number but I think we're pretty happy with where that's going in a good way of saying, yes, absolutely.
So those Laurie homes that are closing through the pipeline or kind of push through in the higher ones or Kohl's correct Yep.
Okay.
Then just final question anything.
We haven't seen a lot of issues with credit across really any of the banks that have reported so far.
I'm just curious in your markets if there is anything.
That's concerning you today, you don't have a lot of office.
Just anything that we should be thinking about.
Although the residential portfolio, it's small chunks and it's diversified by its nature.
So we like that's part of the reason, we like residential lending because it just by the nature of the portfolio. It is diversified with many different borrowers many different properties located in a lot of different places. So that's.
A good part of why it appeals to us.
Okay. Thanks for taking my questions.
Thank you. Thank you.
Our next question comes from Nick <unk> from and our management. Nick Your line is now open. Please go ahead.
Okay. Good.
Good morning.
Moving to the trustco.
Situation here.
I like what I'm seeing I'm right here not far from Ladenburg.
Please go ahead Brad.
And I was just wondering if you could in the Big picture give me your top two or three.
Challenges you see over the next 12 to 24 months.
And then the share repurchase.
I know you answered that question, but.
Let's say all things being equal isn't a price sensitive to some degree in other words if.
With book value.
The second question, Nick I'm, having a tough time hearing and the second question.
Thanks, Brian .
Yes, the share repurchase.
Yes.
Yes.
Book value or north of 32.
If all things all things being equal if the stock were at 25.
Or something like that in this environment would it not.
Be something that would be.
More advantageous.
Thanks.
Waiting until later in the year.
And then the final thing is.
With regard to the dividend is there any hope for are you actually might increase the dividend. This year. Thank you so much.
The first question I think you'd have to book interest rates and staffing as the two.
Number one priority is if you will and im not sure where I would rate either one of them Nick but.
Even though we're pretty comfortable with our position and how we can deal with interest rates, a changing interest rate environment, certainly puts us on a high alert.
And staffing I mean, as I said earlier on the call.
We have issues constantly with staffing like every industry does now I know youll see the help wanted signs and I am sure even in your own business.
Changes like that so.
I think you have to include that in our <unk>.
Concerns going forward and also something even brought up the cost of staffing as well and then with regard to the share repurchase you know in order to stay hedged a little bit when I asked answered that question earlier.
As I said, we are fully committed to a share repurchase program.
It's just the timing of it and certainly the lower the share price moves when compared to book value is certainly makes it more appealing to US we are cognizant of the fact that we work for our shareholders and we want to make the best deal for them possible. So there is a balance between retaining the capital and liquidity.
And getting a great deal on the share repurchase.
And then number three the dividend.
We are a dividend play very much a lot of our shareholders are in it for the dividend our dividend return right now is astronomical and our payout is much higher than our peer group.
But.
There's only one way I would like to see that dividend going Thats up now we never we never make forward looking statements or make any promises with regard to the dividend but.
I think our shareholders like dividend increases unlike the cash dividend returns.
Okay. Thank you so much.
Charge for the fourth question to <unk>.
Yeah.
So I hope you guys as well.
Hi, Shlomo.
Meeting them.
Alright.
Thank you.
We currently have no further questions I would like to hand, the floor back to the management team.
Thank you for your interest in our company and have a great day everyone.
Ladies and gentlemen. This concludes today's call you may now disconnect your lines. Thank you.