Q2 2023 TrustCo Bank Corp NY Earnings Call

Good day, and welcome to address Coca bankrupt earnings call and webcast.

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After today's presentation there'll be an opportunity to ask questions to ask a question you May press Star and then one to withdraw your question you May press star and tea 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 <unk>.

Safe Harbor for forward looking statements provided by the private Securities Litigation Reform Act of 1995.

The 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 our annual report on Form 10-K, and as updated by our quarterly reports on form 10 best Q.

The forward looking statements made on this call I'll bet it only as off the page here off.

The company disclaims any obligation to update this information to reflect events or developments at the date of this call except as may be required by applicable law.

Today's call, we will discuss certain financial measures derived from our financial statements that are not determined in accordance with U S. GAAP.

The conciliation of such non-GAAP financial measures to the most comparable GAAP figures are included in our earnings press release, which is available under the investor relation perhaps of our websites at Trustco Bank Dot com.

Also note that todays event is being recorded.

We pay off the call will be available for 30 days and an audio webcast will be available for one year as described in our earnings press release.

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

Good morning, everyone and thanks for joining the call I'm, Rob Mccormick President of Trustco Bank with me as usual are Michael as American Scot Salvador will follow our regular format for the call I will provide highlights Mike our CFO will provide a detailed review of the numbers and Scot will cover the loan portfolio, leaving time for questions at the end.

Our industry as a whole and specifically the regional banking sector has faced many challenges so far this year.

Numbers, we are reporting today are very strong building on the results from the first quarter and reinforcing our long term profitability net income was roughly $16 4 million for the quarter. This is slightly down but still a very solid number.

It's also worth mentioning that followed several record quarters, our loan growth was seven 5% during the quarter compared to the same time last year with.

With our residential commercial and home equity credit lines of steadily increasing to set a new record high in a loan portfolio of $4 9 billion.

We continued to demonstrate stability within our deposit portfolio, which is up $66 million.

We're about $1 two 5% from the beginning of the year and up $46 million since the first quarter of 'twenty three.

Selected the current interest rate environment, our time deposits are up $162 7 million almost 13% for the quarter.

We recognize this current shift towards time deposits and are proud of our team for strengthening relationships across our customer base instead of fleeing to non bank investment products, we've seen our customers remain loyal and continue to enhance their relationships with us.

Our strategy of maintaining a very healthy and liquid balance sheet during the historically aggressive rising interest rate environment.

Bring fruit the ability to maintain flexibility on pricing deposits to provide the maximum benefit to our shareholders, coupled with consistent loan growth and cultivating our customer base to grow deposits.

This helps keep our net interest income steady, which was $44 million for the second quarter of two 3% increase.

Over the second quarter and 22.

Our net interest margin was 298%, which is up from the same quarter last year.

Asset quality remains strong and our loan loss reserves, our consistent over last year, our allowance for credit losses on loans to total loans was <unk>, 96% essentially flat from 1%. This time last year, we saw another quarter of net recoveries, marking the sixth consecutive quarter for this.

Our ROA and ROE were one point on item 10, six 1% respectively for the second quarter of 'twenty. Three we are pleased to report our book value has increased to $32 66 a share.

Up a solid five 2% from the second quarter of 'twenty two.

Capital levels continue to remain strong standing at 10, 3% in the second quarter.

Up over 7% from the 954% this time last year.

Now Mike will give us a lot of detail on the numbers Scot will give color on the loan portfolio. Then we can take your questions Mike. Thank.

Thank you Rob and good morning, everyone I will now review Trustco financial results for the second quarter 2023, as we noted in the press release. The company saw in second quarter net income was $16 4 million, which yielded a return on average assets and average equity of $1, 1.19% and $10 six 1%, respectively capital remained strong consolidated equity.

This ratio was 10, 3% for the second quarter of 2003 compared to $9 five 5% the second quarter of 'twenty two.

Value per share at June 32023 was $32.66 up five 2% compared to $31 six a year earlier.

Average loans for the quarter grew.

Seven 5% or $336 million to $4 8 billion from the second quarter of 2022.

Loan growth was exceptional and occurred in all of our loan categories, leading the charge was the residential real estate portfolio, which increased $220 million or five 4%. The second quarter of 23 over the same period in 'twenty two.

Average commercial loans increased $50 1 million or 25, 2% home equity lines of credit increased $59 5 million or 24, 4% and installment loans increased $6 4 million or six 8% for same period in 2022.

For the second quarter of 2023, the provision for credit losses was a benefit of $500000.

We have now been actively retaining deposits now for two quarters in a row total deposits as of June 30, 'twenty three increased $46 million 252, 6 billion from March 31 2023.

As we move forward. Our objective is to continue to offer competitive product offerings of the bank through aggressive marketing and product differentiation, we understood. The big inflows of deposits during the pandemic are temporary.

That's why we did not invest that liquidity into our securities or loans or retain that liquidity on the balance sheet for one of our depositors would start to absorb the funds. This gave us flexibility to strategically price deposits, while retaining core customers.

Net interest income was $44 1 million for the second quarter of 23, an increase of $992 million or two 3% compared to the same period in 22, driven by solid liquidity loan growth and the recent increases in the fed funds target rate.

The net interest margin for the second quarter of 'twenty, three was $2, 98% up 15 basis points from the second quarter of 'twenty two.

Yield on interest, earning assets increased to three 8% up 90 basis points from two nine in the second quarter of 'twenty two.

Cost of interest bearing liabilities increased to 106% in the second quarter of 2003 from 10 basis points in the second quarter of 2002.

Our financial services Division continues to be a significant recurring source of noninterest income approximately $940 million of assets under management as of June 30, 'twenty three now.

Now onto non interest expense total noninterest expense net of ore expense came in at $27 2 million, which is consistent with the prior quarter.

<unk> expense came in at an expense of 148000 for the quarter as compared to an expense of 225000 in the prior quarter.

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

We would expect the 2023 total recurring noninterest expense net of Oreo expense to remain in the range of $26 nine to $27 $4 million per quarter now want now Scot will review the loan portfolio and nonperforming loans.

And good morning to everyone.

And that continues to enjoy strong loan growth for the second quarter overall loans increased by a combined $87 million of actual numbers. This equates to an increase of one 8% in the quarter.

Year over year, the increase was 346 million or seven 6%.

We were very pleased with the loan growth posted for both the quarter and year over year. This growth occurred in all our regions and across all on loan categories and was achieved in a time of SaaS change in interest rates and economic conditions on.

In the quarter residential loans increased by $81 million with both first mortgages and home equity products posted increases commercial loans increased by $5 million.

This continues a trend of solid growth in all of these categories.

We continue to benefit on the quarter from a large amount of home construction loans, we have in our backlog, which are now being completed and booked.

More recent market activity on the purchase side has been a bit slower due to increased rates and a shortage of existing home inventories.

Okay.

However, overall demand for homes remains good and we continue to focus our efforts on capturing a larger piece of the current market.

Additionally, loan payoffs have dropped significantly this year due to the extremely slow refinance market.

Interest rates have stabilized a bit and we currently stand at six 5% on our base 30 year fixed rate.

Our loan backlog is solid although down somewhat from the first quarter, reflecting both our recent loan closings and the overall market conditions.

Asset quality at the bank remained strong non performing assets totaled $20 8 million as of June versus $19 formulate a year ago, and nonperforming loans totaled $19 4 million versus $18 7 million last year.

Nonperforming loans now stands at 0.40% of total loans versus 0.41% a year ago.

Early stage delinquencies also continued to be solid and charge offs for the quarter amount to a net recovery of 229000.

The coverage ratio or allowance for credit losses to non performing loans stood at 242% in June .

Unchanged from a year ago.

Thanks, Scott I'll be happy to answer any questions anybody has.

Thank you we will now begin the question and answer session to ask a question you May Press Star then one on touch tone.

Hey, So USA speakerphone, please pick up your handset before pressing the keys.

Anytime Youre question has been addressed it.

You would like to withdraw your questions. Please press star and then two at this time, we were possible with Terry or Sam full hours.

Yeah.

Thank you this concludes.

We have our first question comes from Ian <unk> from Gamco funds.

Your line is now open.

Hi, good morning, congratulations on a solid quarter.

Good morning, a couple questions on the residential.

<unk> loan portfolio, what is the average maturity.

I know the K shows that three 6 billion is more than 15 years.

But do you have a number for for sort of the whole the whole thing.

Yes, I mean, our average life is somewhere in that 8% to nine year range.

Primarily used 30 year mortgages, so theyre going to be they're going to attend the final stated maturity is going to is going to be go further out that's going to be closer to that.

At this point, probably 25 year life.

Okay.

So what are you seeing now and I think you've said both this quarter and last quarter that obviously prepayments are really low.

What <unk>.

Based on what Youre seeing now.

Much of that average life, how much is that youre sort of.

Expectation for the average life is extended.

Yeah.

I mean, if you come through from the pandemic when we prior pre pandemic. When we have a lot of refinances that used to be and maybe that seven year average life and thats, probably extended into that eight to nine year average life.

Extended a little bit in the recent years.

Okay.

And then what percent of the.

Your mortgage holder, our customers use another trustco product, whether its deposit or financial services or commercial loan.

I don't we don't have a specific percent on that.

We have pretty good core customers and so I think that's relatively high that's also a target of a lot of our sales efforts over the years, we've pulled many inquiries with regard to people over mortgage no checking account or checking account and a mortgage on the opposite side.

Okay.

So for some of the really low.

The mortgages that you underwrote.

During the pandemic when rates were really low.

Would you consider selling some of those if you didn't have an associated.

Product.

With the customer I mean is that an opportunity to sort of.

De risked that.

Mortgage.

In terms of duration and interest rate risk in case rates take another big leg up from here.

We certainly evaluated that in the past and would certainly consider in the future, but at this point probably not it just doesn't seem to make a lot of sense for us at this point.

Complete that.

Yeah.

Okay.

And then on the.

Last quarter, Rob you mentioned, just if I could just.

To add a little color to that a side benefit of if there is a side benefit to lower mortgage rates has been the increased.

Home equity credit activity.

Right.

Yes.

Predicting screaming.

So yeah.

<unk>.

If there is a side benefit to it that that's been it.

Okay.

And Rob you mentioned last quarter, one of the two big issues with staffing.

Has that improved and is there an opportunity potentially.

To improve the efficiency ratio.

At least offset some of the pressure you're facing in NIM.

Yeah as we as we enter August .

It's kind of funny, because if you had asked me that question a week and a half hour a week ago I, probably would've said, yes, it's greatly improve what we seem to have a lot of resignation as we enter August and I guess the tail end of summer people trying to take advantage of so but I think overall, yes. It has improved and I would think absolutely.

As the.

The openings close that helps us out.

Difficult Lee with <unk>.

Compensation.

Okay.

And then lastly on the.

Financial services, I know you mentioned $940 million.

AUM, but the fees.

We're down.

Both fairly significantly both sequentially and year over year and anything going on to drive that should we see a rebound.

In the second half of the year I guess, that's the pitfall of a traditional trust department of Ed and you guys can chime in here, if you want but.

Which we've historically run a very traditional trust department. So that if you do have.

Customers can Ken.

Asked and change plus in the first quarter, we do take our tax preparation payments.

So that drives the income down in the second quarter.

Okay.

Okay, that's it again to actually our rebranding.

Our wealth management and so that's.

I think that would be very positive for us as well trying to capitalize on our branch network, especially franchise in the state of Florida and opportunities within the state of Florida.

Yeah.

Okay. Good.

Okay. That's it for me, thanks, and again tough tough environment and solid performance.

Thank you.

Thank you Ian.

Okay.

As a reminder, if you have a question. Please press Star then one.

Our next question comes from Nick <unk> from <unk>.

Management, Nick Your line is now open.

Good morning, Phil.

Good job in a tough environment.

On the last call.

You alluded to potential share repurchase I'm, just wondering from where you stand now.

Is that something you still be interested in.

Just if you can comment on the dividend.

Well you can see going forward here.

That's it thank you so much.

I mean time timing is everything Nick as you can imagine in the community bank sector capital preservation and liquidity preservation had been <unk>.

First and foremost on peoples minds for 2023.

That's why we haven't activated our share repurchase program, even though the book value was very attractive for them to consider something like that.

We approach the balance of the year I think you could see us become more active in that area.

And the dividend is always under review I cant make a forward looking statement about what we'll do with the dividend, but we always have that under review.

You know we're completely committed to a large cash dividend for our shareholders. We realize it's a large part of their return.

Constantly evaluating.

Looking at that position.

Okay. Thank you so much.

Thank you.

Thank you.

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

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

Okay.

Thank you.

This call has now concluded. Thank you for attending today's presentation you may now disconnect.

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Thank you.