TrustCo Bank Corp NY Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
July 25, 2023

There are 6 speakers on the call.

Operator

Good day, and welcome to the TrustCo Bancorp Earnings Call and Webcast. All participants will be in a listen only mode. After today's presentation, there will be an opportunity to ask Before proceeding, we would like to mention that this presentation may contain forward looking information about TrustCo Bancorp, 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. 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 this and other Risk factors can be found in our press release that preceded this call and in the Risk Factors and Forward Looking Statements session of our annual report on Form 10 ks and as updated by our quarterly reports on Form 10 Q.

Operator

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 derived from our financial statements that are not determined in accordance with U. S. GAAP. The reconciliation 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 of our website at trustcobank.com.

Operator

Please also 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 1 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.

Operator

Please go ahead.

Speaker 1

Good morning, everyone, and thanks for joining the call. I'm Rob Aquaric, the President of TrustCo Bank. With me as usual are Mike Ozimek and Scott Salvador. We'll follow our regular format for the call. I will provide highlights, Mike our CFO will provide a detailed review of the numbers and Scott will cover the loan portfolio leaving time for questions Our industry as a whole and specifically the regional banking sector has faced many challenges so far this year.

Speaker 1

The numbers we are reporting today, however, are very strong, building on the results from the Q1 and reinforcing our long term profitability. Net income was roughly $16,400,000 for the quarter. This is slightly down, but still a very solid number. It's also worth mentioning that it follows several record quarters. Our loan growth was 7.5% during the quarter compared to the same time last year, With our residential, commercial and home equity credit lines all steadily increasing to set a new record high in the loan portfolio of $4,900,000,000 We continue to demonstrate stability with our deposit portfolio, which is up $66,000,000 or about 1.25 percent From the beginning of the year and up $46,000,000 since the Q1 of 2023.

Speaker 1

Reflecting the current interest rate environment, our time deposits are up 100 $2,700,000 almost 13 percent for the quarter. We recognize this current shift toward 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 maintaining a very healthy and liquid balance sheet during the historically aggressive rising interest rate environment is bearing 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 growth deposits has helped keep our net interest income steady, Which was $44,000,000 for the 2nd quarter, a 2.3% increase over the Q2 in 2022. Our net interest margin was 2.98%, which is up from the same quarter last year.

Speaker 1

Asset quality remains strong and our loan loss reserves are consistent over last year. Our allowance for credit loss on loans to total loans was 0.96%, essentially flat from 1% this time last year. We saw another quarter of net recoveries marking the 6th consecutive quarter for this. Our ROE and ROE were 1.09% and 10.61%, respectively, for the Q2 of 2023. We are pleased to report our book value has increased to $32.66 a share, Up a solid 5.2 percent from the Q2 of 2022.

Speaker 1

Capital levels continue to remain strong standing at 10.23% in the 2nd quarter, Up over 7% from the 9.54% this time last year. Now Mike will give us a lot of detail on the numbers, Scott will give color on the loan portfolio, Then we can take your questions. Mike?

Speaker 2

Thank you, Rob, and good morning, everyone. I will now review TrustCo's financial results for the Q2 of 2023. As we noted in the press release, the company saw a 2nd quarter net income of $16,400,000 which yielded a return on average assets and average equity of 1.09 percent and 10.61 percent respectively. Capital remains strong. Consolidated equity to assets ratio was 10.23% for the Q2 of 2023 compared to 9.55 percent in the Q2 of 2022.

Speaker 2

Book value per share at June 30, 2023 was $32.66 up 5.2 percent compared to $3,106 a year earlier. Average loans for the quarter grew 7.5 percent or $336,000,000 to $4,800,000,000 from the Q2 of 2022. Loan growth was exceptional and occurred in all of our loan categories and leading the charge was the residential real estate portfolio, which increased $220,000,000 or 5.4 percent in the Q2 of 2023 over the same period in 2022. Average commercial loans increased $50,100,000 or 25.2 percent. Home equity lines of credit increased $59,500,000 or 24.4 percent Installment loans increased $6,400,000 or 6.8 percent over the same period in 2022.

Speaker 2

For the Q2 of 2023, the provision for credit losses was a benefit of $500,000 We have now been actively retaining deposits now for 2 quarters in a row. Total deposits as of June 30, 23 increased $46,000,000 to $5,260,000,000 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 temporary. It is not that's why we did not invest that liquidity into our securities or loans, but retained that liquidity on the balance sheet for when our depositors would start to absorb the funds.

Speaker 2

This gave us flexibility to strategically price deposits while retaining core customers. Net interest income was $44,100,000 for the Q2 of 2023, an increase of $992,000,000 or 2.3% compared to the same period in 2022, driven by solid liquidity, loan growth and the recent increases in the Fed funds target rate. The net interest margin for the Q2 of 2023 was 2.98%, up 15 basis points from the Q2 of 20 22. Yield on interest earning assets increased to 3.8%, up 90 basis points from 2.9% in the Q2 of 2022. The cost of interest bearing liabilities increased to 1.06% in the Q2 of 2023 from 10 basis points in the Q2 of 20 22.

Speaker 2

Our Financial Services division continues to be a significant recurring source of non interest income. They have approximately $940,000,000 of assets under management as of June 30, 23. Now on to non interest expense. Total non interest expense, net of ORE expense, came in at $27,200,000 which is consistent with the prior quarter. ORE expense came in at an expense of $148,000 for the quarter as compared to an expense of $225,000 in the prior quarter.

Speaker 2

Given the continued low level of ORE expenses, we're going to continue to hold anticipated level of expense not to exceed $250,000 We would expect the 2023's total recurring non interest expense, net of ORE expense, to remain in the range of $26,900,000 $27,400,000 per quarter. Now Scott will review the loan portfolio and non performing loans.

Speaker 3

Thanks Mike and good morning to everyone. The bank continues to enjoy strong loan growth for the Q2. Overall loans increased by a combined $87,000,000,000 actual numbers. This equates to an increase of 1.8% on the quarter. Year over year, the increase was $346,000,000 or 7.6%.

Speaker 3

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 loan categories And we've achieved in a time of fast changing interest rates and economic conditions. On the quarter, residential loans increased by 80 1,000,000 with both 1st mortgages and home equity products posting increases. Commercial loans increased by 5,000,000 This continues a trend of solid growth in all these categories. We continue to benefit on the quarter from the large amount of home construction loans we had in our backlog, which are now being completed and booked.

Speaker 3

More recent market activity on the purchase side has been a bit slower due to increased rates and the shortage of existing home inventories in 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 We currently stand at 6.5% on our base 30 year fixed rate. Our loan backlog is solid, although down somewhat from the Q1, reflecting both our recent loan closings and The overall market conditions. Asset quality at the bank remains strong.

Speaker 3

Nonperforming assets totaled $20,800,000 as of June versus $19,400,000 a year And non performing loans totaled $19,400,000 versus $18,700,000 last year. Non performing loans now stand at 0.40 percent of total loans versus 0.41 percent a year ago. Early stage delinquencies also continue to be solid and charge offs for the quarter amounted to a net recovery of 229,000 The coverage ratio or allowance for credit losses to non performing loans stood at 2 42% in June, unchanged from a year ago. Rob?

Speaker 1

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

Operator

Thank you. We will now begin the question and answer session. We have our first question comes from Ian Lapides from Gabriel Funds. Ian, your line is now open.

Speaker 4

Hi, good morning. Congratulations on a solid quarter.

Speaker 2

Good morning.

Speaker 4

A couple of questions. On the residential Mortgage loan portfolio, what is the average maturity? I know the K shows that 3,600,000,000 It's more than 15 years. But do you have a number for sort of the whole thing?

Speaker 2

Yes. I mean, our average life is somewhere in that 8 to 9 year range. We primarily do 30 year mortgages. So they're going to be they're going to attend the final state of maturity is going to be go further out. So that's going to be closer to that, At this point, probably 25 year away.

Speaker 2

Okay.

Speaker 4

So what are you seeing now in terms I think you've said both this quarter and last quarter that Obviously, prepayments are really low. I mean, what based on what you're seeing now, How much is that average life? How much is that your sort of expectation for the average life extended?

Speaker 2

I mean, if you come through from the pandemic when we prior pre pandemic when we A lot of refinances. That used to be in maybe that 7 year average life and that's probably extended into that 8 to 9 year average life. So it's extended a little bit in the recent years.

Speaker 4

Okay. And then what percent of the Your mortgage holder or customers use another TrustCo product, whether it's deposit or financial services or commercial loan?

Speaker 1

I don't we don't have a specific percent on that, but it's a we have pretty good core customers, Ian. 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 and no checking account or a Checking account and no mortgage on the opposite side.

Speaker 3

Okay.

Speaker 4

So for some of the really 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 risk the mortgage? And just in terms of duration and interest rate risk in case rates take another big leg up from here?

Speaker 1

We've certainly evaluated that in the past, Ian, and would certainly consider it 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 to contemplate that.

Speaker 4

Yes. Okay. And then on the last quarter, Rob, you mentioned

Speaker 1

If I could just add a little color to that. A side benefit of There is a side benefit to lower mortgage rates has been the increased home equity credit activity, which

Speaker 4

Right. Yes. No, I saw that Right.

Speaker 2

People are sticking and Streaming.

Speaker 1

So that's if there is a side benefit to it, that's been it. Okay.

Speaker 4

And Rob, you mentioned last quarter, one of the 2 big issues was 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?

Speaker 1

Yes. As we enter August, Ian, it's kind of funny because if you'd asked me that question a week and a half ago or a week ago, I probably would have said, yes, it's greatly improved, but we seem to have a lot of resignations 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 openings close, that helps us out significantly with compensation.

Speaker 4

Okay. And then lastly on the financial services, I know you mentioned $940,000,000 in 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?

Speaker 1

I guess that's the pitfall of a traditional trust department, Ian, and you guys can chime in here But which we've historically run a very traditional trust department, so that if you do have customers Can I pass and change? Plus, in the Q1, we do take our tax preparation payments. So that drives the income down in the Q2.

Speaker 2

Okay.

Speaker 1

Well, trying to capitalize on our branch network, especially branches in the state of Florida and opportunities within the state of Florida.

Speaker 4

Okay, good. Okay, that's it for me. Thanks. And again, tough environment and solid performance.

Speaker 2

Thank

Operator

you. Thank you, Our next question comes from Nick Reposseller from NR Management. Nick,

Speaker 1

Your line is now open.

Speaker 5

Good morning, fellas. Good job in a tough environment. On the last call, you alluded to potential share repurchase. And I'm just wondering from where you stand now, Is that something you'd still be interested in? And just if you can comment on the dividend, What you can see going forward here and that's it.

Speaker 5

Thank you so much.

Speaker 1

I mean, timing is everything, Nick, as you can imagine. In the community bank sector, capital preservation and liquidity preservation have been, 1st and foremost on people's minds for 2023. And that's why we haven't activated our share repurchase program Even though the book value was very attractive for to consider something like that. As 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 can't make a forward looking statement about what we'll do with the dividend, but We always have that under review.

Speaker 1

And we're completely committed to a large cash dividend for our shareholders. We realize it's a large part of their return and we're constantly evaluating and looking at that position.

Speaker 5

Okay. Thank you so much.

Speaker 2

Thank you.

Operator

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

Speaker 1

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

Operator

Thank you. The conference call has now concluded. Thank you for attending today's presentation. You may now disconnect.

Powered by Quartr

Key Takeaways

  • TrustCo reported a Q2 net income of $16.4 million, yielding a return on average assets of 1.09% and return on average equity of 10.61%, following several record quarters.
  • The loan portfolio reached a record high of $4.9 billion, up 7.5% year-over-year, with growth across residential real estate, commercial loans, and home equity credit lines.
  • Deposits remained stable at $5.26 billion, up $66 million since the start of the year, while time deposits surged by $102.7 million (nearly 13%) as customers shifted toward bank products.
  • Net interest income held steady at $44.1 million (a 2.3% increase over Q2 2022) and the net interest margin rose to 2.98%, driven by loan growth and higher Fed rates.
  • Asset quality remains strong, with an allowance for credit losses at 0.96% of loans, six consecutive quarters of net recoveries, nonperforming loans at 0.40% of total loans, and a consolidated equity-to-assets ratio of 10.23%.
AI Generated. May Contain Errors.
Earnings Conference Call
TrustCo Bank Corp NY Q2 2023
00:00 / 00:00