Q4 2024 TrustCo Bank Corp NY Earnings Call
John Lapey, Gregory Roeder, John Lapey, Gregory Roeder, Scot
Thank you.
Bye.
Speaker Change: Good day and welcome to Trusco Bank Corp's earning call and webcast. All participants will be on listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by 0 on your keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1. To withdraw your question, you may press star and 2.
Speaker Change: Before proceeding, we'd like to mention that this presentation may contain forward-looking information about TrustCode Bank Corp New York that is intended to be covered by the Safe Harbor Forward-Looking Statements provided by the Private Securities Litigation Reform Act of 1995. Actual results, performance, or achievements could differ materially from those expressed or implied by such statements due to various risks, uncertainties, and other factors.
Speaker Change: More detailed information about these risks and other factors can be found in our press release that precedes this call and in the Risks and Factors and Forward Looking Statements section of our Annual Report Form 10-K and are as updated by our quarterly Reports Form 10-Q.
Speaker Change: The forward-looking statements made in this call are only valid as of the date hear of, and the company disclaims any obligation to update the information to reflect events or developments after the date of this call, except as may be required by applicable law.
Speaker Change: During today's call, we will discuss certain financial measures derived from our financial statements that are not determined in accordance with US GAAP. Reconciliations 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 Relations tab on our website at www.truscobank.com.
Speaker Change: Please also note that today's event is being recorded a replay of today's 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'd like to hand the call over to Robert J. McCormick chairman president CEO. Please go ahead
Speaker Change: which were characterized by achievement of efficiency, the preservation of strength and the creation of shareholder value.
Speaker Change: These elements came together to produce an efficiency ratio of 61.5%, capital of 10.84%, and return on average equity of almost 7.5%, all contributing to a net income of $48.8 million.
Speaker Change: In 2024 home equity lending, both lines and loans, presented the greatest opportunity. Our team dug deep and leveraged our extensive branch network and sizable customer base to create loan volume where there otherwise was very little.
Speaker Change: By tailoring our offerings to new and existing customers who are elected to improve their existing homes, we're helping them buy a new one.
Speaker Change: This strengthens our customer bonds and enhances our communities within our footprint. Home equity volume exceeded purchase mortgage volume for the year.
Speaker Change: Since the third quarter of 2024, we were more efficient both overall and in the cost of funds, better capitalized, and generated better earnings than our peers.
Speaker Change: Like our performance, our loan products are best-in-class and adaptable. Thus, we enter 2025 liquid, well-capitalized, and ready to lend.
Speaker Change: And we come to this position without the resort to borrowings or brokered deposits.
Speaker Change: Also, looking ahead, we continue to invest in technology intended to further enhance efficiency and improve the customer experience across all business lines.
Speaker Change: Additionally, we have undertaken an exciting new venture by offering our products and services to the business in the cannabis industry.
Speaker Change: Trusco is particularly well suited to this industry because our extensive branch network dovetails with the needs of cash-intensive retail outlets.
Speaker Change: We would be remiss if we failed to highlight the extraordinary credit quality that supports our success. Non-performing loans and total loans remain essentially flat year-over-year, likewise net charge-offs to average loans are 0.01% this year compared to 0.02% last year.
Speaker Change: This is a testament to our underwriting and the commitment we make to our customers as a portfolio lender.
Speaker Change: Now Mike will dive into the numbers, Kevin will provide an update on the loan portfolio, and then we can take your questions. Mike? Thank you, Robin. Good morning, everyone. I will now review Trusco's financial results for the fourth quarter of 2024.
Mike: As we noted in the press release, the company saw a fourth quarter net income of $11.3 million, an increase of 14.6% over the prior year quarter, which yielded a return on average assets and average equity of 0.73% and 6.70% respectively.
Mike: Capital remains strong. Consolidated equity to assets ratio is 10.84% for the fourth quarter of 2024 compared to 10.46 in the fourth quarter of 2023.
Mike: Book value per share at December 31, 2024 was $35.56, up 4.8% compared to $33.92 a year earlier.
Mike: Average loans for the fourth quarter of 2024 grew 2.1%, or $104.9 million to $5.1 billion for the fourth quarter of 2023, another all-time high.
Mike: Loan growth has continued to increase, and leading the charge was Home Equity lines of credit portfolio, which increased $61 million, or 17.9% in the fourth quarter of 2004, over the same period in 2023.
Mike: The residential real estate portfolio increased $34.9 million dollars. Average commercial loans increased $11.7 million or 4.3 percent. And installment loans decreased $2.6 million over the same period in 2023.
Mike: For the fourth quarter of 2024, the provision for credit losses was $400,000. The provision recorded for the fourth quarter matched loan growth with no indications of decreasing loan credit quality.
Mike: 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.
Mike: Our investment portfolio is and always has been a source of liquidity to fund loan growth and provide flexibility for balance sheet management.
Mike: As a result, we held an average of $504 million of overnight investments during the fourth quarter of 2024, an increase of $43 million compared to the same period in 2023. Given the current levels of cash and the current interest rate environment, the bank will continue to evaluate investing excess liquidity into the market.
Mike: Retaining and growing deposits has been a key focus throughout 2024. Total deposits ended the quarter at $5.4 billion. It was up $127 million compared to the prior quarter.
Mike: As we move forward, our objective is to continue to offer competitive product offerings of the bank through aggressive marketing and product differentiation.
Mike: Manager's income was $38.9 million for the fourth quarter of 2024, an increase of $231,000 compared to the prior quarter.
Mike: The net interest margin for the fourth quarter of 2024 was 2.60%, down one basis point from the prior quarter. Yield on interest-earning assets increased to 4.12%, up one basis point from the prior quarter. The cost of interest-bearing liabilities increased to 1.97% in the fourth quarter of 2024, from 1.94% in the third quarter of 2024.
Mike: Throughout 2024 we have been able to lower the rates offered on time deposits while retaining and growing a significant portion of that product quarter-over-quarter, which continues to bring down the cost of time deposits. The bank has seen the erosion of margins begin to flatten in the latter half of 2024.
Mike: On the funding side of the balance sheet, total average deposits increased $31.7 million or 0.6% for the fourth quarter of 2024 over the same period a year earlier.
Mike: Our Wealth Management Division continues to be a significant recurring source of non-interest income. They have approximately 1.2 billion of assets under management as of December 31, 2024.
Mike: Now on to non-interest expense. Total non-interest expense, net of ORE expense, came in at $27.7 million, up $1.7 million from the prior quarter. The increase is a result of higher cost in net occupancy expense, equipment expense, outsourced services, and advertising expense.
Mike: Our re-expense net came in at an expense of $476,000 for the quarter as compared to $204,000 in the prior quarter.
Mike: Given the one-time charge-offs experienced this quarter, we are going to continue to hold the anticipated level expenses to not exceed $250,000 per quarter.
Mike: All the other categories of non-interest expense were in line with our expectations for the fourth quarter.
Mike: We would expect 2024's total recurring non-interest expense, net of orderly expense, to be in the range of $27.5 million and $28 million per quarter. This represents less than a 3% increase over the levels in 2024.
Now Kevin will review the loan portfolio and non-reporting laws.
Kevin: Thanks Mike and good morning to everyone. Our fourth quarter average loans grew by 105 million or 2.1 percent year-over-year. The growth centered on our residential mortgages which increased by 35 million over last year and our home equity loans also increased by 61 million or 17.9 percent.
Kevin: In addition, our commercial loans grew by $11.7 million over last year.
Kevin: For the fourth quarter, as compared to the third quarter, actual loans increased by $27.2 million.
Kevin: Residential loans decreased by over 21 million with both first mortgages and home equity credit lines posting increases. Commercial loans were also higher in the quarter by increasing 6.6 million.
Kevin: Overall residential activity trends remain similar to those discussed in recent quarters.
Kevin: We remain well positioned in the market and seek to capitalize as market activity develops as a portfolio lender We have the flexibility to utilize our control on pricing and the ability to offer various promotions to increase application volume
Kevin: Rates in the market have increased in recent weeks, and our current rate is 6.875% for our base 30-year fixed rate loan. In addition, we have very competitive adjustable rate mortgages with rates in the 6.25% to 6.75% range.
Kevin: Our home equity products continue to see steady demand as they remain attractive to many borrowers that may have low rate mortgages, but may want to use their home's equity for various projects or large purchases.
Kevin: Overall, we are positive about our loan growth in the quarter and remain focused on driving stronger results in 2025.
Kevin: Moving to asset quality, asset quality at the bank remains consistently strong. Non-performing loans were $18.8 million at quarter end, $19.4 million last quarter, and just under $18 million a year ago.
Kevin: Non-performing loans now stand at 0.37% of total loans compared to 0.38% last quarter and 0.35% a year ago.
Kevin: Non-performing assets totaled $21 million as of December 31st versus $21.9 million last quarter and $17.9 million a year ago. Early-stage delinquencies also continue to be steady.
Kevin: Net charge-offs for the quarter amounted to $102,000, down from the third quarter's $222,000. Our year-to-date total net charge-offs are only $230,000 as we posted net recoveries in the first and second quarters of 2024.
Kevin: At quarter end, our allowance for credit losses remained solid at $50.2 million with a coverage ratio of 267%, compared to $50 million with a coverage ratio of 257% at the end of September and $48.6 million and a coverage ratio of 275% at year end 2023.
Kevin: That's our story. We're happy to answer any questions you may have.
Speaker Change: Thank you very much. We'd now like to open the lines for Q&A. If you'd like to ask a question, please press star followed by 1 on your telephone keypad now. To remove yourself from the line of questioning, it will be star followed by 2.
Kevin: As a reminder, to raise a question we'll be star followed by one, and to remove yourself on a question we'll be star followed by two. We'll allow just a moment for any questions to filter in.
Speaker Change: Our first question comes from Ian Lappy of Gambelli Funds. Ian, your line is now open.
Ian Lappy: Hi Rob, good morning. Congratulations on your achievement here. I'm doing well, thanks. Thank you. Yeah, so maybe just start, so in 24 you said the home equity... Right.
Ian Lappy: provided the best opportunity in 24 for growth, and the numbers show that. How are you thinking about 25 with the fixed rate mortgage at 6.875 that you mentioned?
Ian Lappy: You know tipping back to being more attractive or just talked about sort of
the trade-off there.
Thank you.
Speaker Change: this time this year and we have in the past probably 18 months. So we're very encouraged about, I'm 61 years old, I think you know that, but we used to call it the spring market and that kind of faded during a crazy real estate market.
Speaker Change: We've been in for a period of time, but I think we may end up with a quote spring market again So we're actively participating in a lot of home shows and calling on a lot of real estate brokers and things like that In an effort maybe to capture some purchase money mortgage
Speaker Change: So, I guess we're optimistic about purchase money mortgages. We're also optimistic, again, about some of the non-trustful refinances that are out there. We have a pretty good program for that, and eventually people need and want some additional funds.
Speaker Change: yeah okay yeah yeah thank you on on the on the NIM so we had a hundred basis points of cuts
Um...
Speaker Change: since September, but your NIM actually fell a little bit. What would sort of, I mean, not a lot, but what would the spot NIM be now as we're in January?
Speaker Change: I mean we're holding and we're able to you know we are repricing some of our CDs down right so that's helping us out and obviously on the other side I mean if the Fed keeps cutting that will bring the asset side down but we're I think we're flattening out
and the other.
So what are your current rates on CDs?
Thank you.
Okay.
Okay.
Speaker Change: And then on the expenses, the equipment expense and outsourced services.
Jumped
Fairly simple.
significantly, both sequentially and year-over-year. Was there anything unusual in...
in those lines that drove those increases.
Speaker Change: Yeah, throughout the third or fourth quarter, we had a couple of locations that we cleaned up, we closed out for the year, our branches that we left, we've also installed some new ATMs, we put those into service.
Speaker Change: Some existing fit-ups that we are amortizing, we roll it off. So those are pushing the equipment expense line item up. Outdoor services are just some expenses that hit the fourth quarter. So we don't expect those to continue at that level.
Speaker Change: Okay, and then maybe last one, credit quality looks good, I think you said earlier delinquency
Speaker Change: What are you worried about as you look forward to 2025 and 2026? What are you watching on the credit quality side?
Speaker Change: We're not concerned about credit quality at all. We're pretty comfortable with where we're at. You know, we keep a relatively modest commercial portfolio for a company of our size. We've always been pretty reasonable with regard to our lending standards and we're not nervous about credit quality at all.
Speaker Change: Okay, good to hear. Thanks guys and I'll talk to you next quarter. Thank you.
Thank you.
Speaker Change: Thank you very much. As a reminder, if you would like to raise a question, please press star followed by one on your telephone keypad now to remove yourself from the line of questioning if star followed by two. Our next question comes from Greg Roder of Adrenat Funds.
Your line is now open, Greg.
Hi guys, congrats on all the line on
very challenging funding quarter.
Speaker Change: You know, you mentioned you had dry powder, you're not nervous about credit quality. You're very underweight commercial loans in your book. And I'm curious as to, as other lenders are kind of pulling back from
Speaker Change: commercial real estate, whether it be, you know, non-owner occupied or small unique multi-family deals or, you know, things like that.
Speaker Change: Do you see the opportunity to kind of increase your exposure there?
and the other one.
Absolutely.
Speaker Change: I don't think you'll ever see us with a billion dollar commercial loan portfolio, Greg, but I certainly wouldn't mind pushing that up, you know.
Speaker Change: A significant number, $300 or $325 million, something like that, long term.
Speaker Change: But again, we're a little bit contrarian, we like slow and steady, I think you know that about us, and we won't get crazy over it, but if there are opportunities, and we think there will be, just so you know, especially in 26 and 27, and we'd like to seize that opportunity to grab more of that if we could.
Speaker Change: Good to hear. And my next question, my last question is on
Speaker Change: The cannabis opportunity. I'm very curious about that. Is it confined to certain states? I know New York State and Massachusetts and I don't really know much about New Jersey or Florida in terms of their laws and rules and so forth. And I'm curious as to how that works.
Speaker Change: We have it open to all states right now in our entire market but Florida is still medical only and the most activity we've had is New York and Massachusetts so far, Mike.
Speaker Change: So you're essentially going to bank on the deposit side, the small retail operators?
Yes, sir.
and SoCal.
Some of them are not, most of them say no.
Oh yeah. No, none yet. Yeah, right.
Okay, that's it. Thanks a lot. Good luck in 2025.
Speaker Change: Thank you very much. We currently have no further questions, so I'd like to hand back to Robert McCormick for any closing remarks.
Speaker Change: Thank you for your interest in our company. We hope you have a great day. See you next quarter.
Speaker Change: As we conclude today's call, we'd like to thank everyone for joining. You may now disconnect your lines.
Thanks for watching!