TrustCo Bank Corp NY Q1 2024 Earnings Call Transcript

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April 23, 2024

There are 4 speakers on the call.

Operator

Thank you for your patience, everyone. The TrustCo Bancorp Earnings Call and Webcast will begin shortly. Good day, and welcome to the Tresco Bancorp Earnings Call and Webcast. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions.

Operator

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 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 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 ks and as updated by our quarterly report and Form 10 Q. The forward looking statements made this call are valid only as of the date hereof, and the company disclaims any obligations 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 delivered from our financial statements that are not determined in accordance with U. S.

Operator

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 or on our website at tradcobank.com. 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 conference over to Mr.

Operator

Robert J. McCormick, Chairman, President and CEO. Please go ahead.

Speaker 1

Thank you. Good morning, everyone, and thank you for joining the call. I'm Rob McCormack, the President of Trustful Bank. I'm joined today, as I usually am, by Scott Salvador and Mike Ozimek. Scott will provide color on lending and credit quality and Mike will follow my comments with detail in the numbers.

Speaker 1

We ended 2023 in good shape. Our loan portfolio surpassed the $5,000,000,000 mark, reaching another all time high. Our team worked together to retain and grow our customer base, allowing us to lag on some of the deposit rates. We improved our efficiencies by consolidating a few branch locations and we maintained our rock solid credit quality during that year that challenged our industry. 2024 is off to a good start.

Speaker 1

Positive trend on total loans continue to reach yet another all time high. Income was also positive with net income of $12,000,000 and non interest income up. Net interest margin was slightly down at 2.44 dollars but generally held steady throughout the quarter. We saw solid improvement in our return metrics with return on average assets and return on average equity both up from the previous quarter. Earnings per share increased significantly from the end of 2023 and our book value per share also improved.

Speaker 1

Efficiency ratio trended favorably down at quarterend. Exceptional credit quality remains a hallmark of TrustCo lending. As those who follow us know, we are a portfolio lender and the quality of loans we originate supports the stability of the company over the life of the loans. Both residential and commercial underwriting standards are rigorous and yield favorable outcomes. Non performing loans and non performing assets remain essentially flat and charge offs again resulted in a net recovery.

Speaker 2

We are pleased to report that

Speaker 1

our stock repurchase program has been reauthorized. And anticipate taking advantage of strategic purchase opportunities as they present themselves. Now Mike will give us the tail of the numbers, Scott will give color on the loan portfolio and then we'll take your questions. Mike?

Speaker 2

Thank you, Rob, and good morning, everyone. I will now review TrustCo's financial results for the Q1 of 2024. As we noted in the press release, the company saw 1st quarter net income of $12,100,000 an increase of 23.13% over the prior quarter, which yielded a return on average assets and average equity of 0.80% and 7.54% respectively. Capital remains strong. Consolidated equity to assets ratio was 10.51% for the Q1 of 2024 compared to 10.17% in the Q1 of 'twenty three.

Speaker 2

Book value per share at March 31, 'twenty four was $34.12 up 5.6% compared to $32.31 a year earlier. Average loans for the Q1 of 2024 grew 5 point 2% or $249,400,000 to $5,000,000,000 from the Q1 of 2023, an all time high. Loan growth has continued to increase and occurred in all of our loan categories and leading the charge was the residential real estate portfolio as usual, which increased $146,600,000 or 3.5 percent in the Q1 of 2024 over the same period in 2023. Average commercial loans increased $38,300,000 or 16%. Home equity lines of credit increased 61,700,000 or 21.2 percent and installment loans increased $2,800,000 or 21.1 percent over the same period in 2023.

Speaker 2

For the Q1 of 2024, the provision for credit losses was $600,000 Retaining deposits has been a key focus during 2023 and into 2024. Although core deposits were down compared to the prior quarter, total deposits as of March 31, 2024 increased $4,400,000 from the end of 2023 and remain at $5,400,000,000 As we move forward, our objective is to continue to offer competitive product of the bank through aggressive marketing and product differentiation. Net interest income was $36,600,000 for the Q1 of 'twenty four, a decrease of $10,400,000 compared to the same period in 'twenty three. Net interest margin for the Q1 of 2024 was 2.44%, down 77 basis points for the Q1 of 'twenty three. Yield and interest earning assets increased to 3.99%, up 30 basis points from 3.69 percent in the Q1 of 2023.

Speaker 2

The cost of interest rent at liabilities increased to 1.99% in the Q1 of 2024 from 0.63% in the Q1 of 2023. During the Q1 of 2024, we have been able to lower the rates offered on time deposits while continuing to retain and grow that product. This should bring down the cost of time deposits over time. Bank has seen the erosion of margin begin to slow when comparing the decrease to prior quarters and we are optimistic that we are nearing the bottom of this rate cycle. Our Wealth Management division continues to be a significant recurring source of non interest income.

Speaker 2

They had approximately $1,000,000,000 of assets under management as of March 31, 2024. Now on to non interest expense. Total non interest expense net of ORE expense came in at $24,800,000 down $4,000,000 from the prior quarter. As mentioned in the earnings release, the decrease is primarily a result of lower salaries and employee benefit costs in the 1st in the current quarter and a litigation settlement in the prior quarter. ORE expense net came in at 74,000 dollars for the Q1 as compared to $12,000 in the prior quarter.

Speaker 2

Given the continued low level of ORE expenses, we're going to continue to hold anticipated level of expenses not to exceed $250,000 for the quarter. All of the other categories of non interest expense were aligned with our expectations for the quarter. We expect 2024's total recurring non interest expense, net of royalty expense to be in the range of $26,900,000 to $27,400,000 per quarter. Now Scott will review the loan portfolio and non performing loans. Good morning, everyone.

Speaker 2

Thanks Mike. Total loans grew 206,000,000 or 4.3 percent year over year in actual numbers, ending the Q1 just over 5,000,000,000 The growth was centered on residential mortgages, which increased by $172,000,000 with an additional increase of $33,000,000 coming from commercial. On the quarter, loans grew by approximately $2,500,000 as residential loans decreased slightly and commercial loans increased by $5,500,000 dollars We're pleased to have grown the loan portfolio by over $200,000,000 over the past year in what has been a challenging environment. 1st quarter's activity reflects recent trends with home equity products continuing to overall growth. Purchased money market continues with nationwide themes as interest rates and other market conditions restrain volume versus prior years.

Speaker 2

However, we remain well positioned in the market and seek to not only capitalize on the increased market activity develops, but are also looking to take increased market share from our competitors. Our advantageous portfolio product combined with our ability to trade varied promotions, control our own pricing versus the market puts us in a unique position to do so. Rates in the market have moved back up in recent weeks and we currently stand at 6.99% for our base 30 year fixed rate. As stated, we have been keeping our rates sharp for the goal of increasing market share and driving more volume as we enter the main selling season. Our committed loan backlog stands roughly equivalent to the end of last quarter.

Speaker 2

More recent activity has picked up forever and we have a good amount of loans in the earlier stages of the processing cycle. This should translate to increased committed backlog numbers and net portfolio growth as we move forward. Asset quality measurements remain good. Non performing loans were $18,300,000 as of quarter end versus $19,200,000 at threethirty onetwenty 3. Non performing assets totaled $20,600,000 versus $21,000,000 a year ago.

Speaker 2

Net charge offs in the quarter amounted to a $42,000 net recover. This follows upon 3 consecutive years stretching back to 2021 when net charge offs for the year when a cumulative recovery position. Our allowance for credit losses to total loans remains essentially flat on the quarter at 0.98%. The coverage ratio or allowance for credit losses to non performing loans stands at 2 69% as of March, up from 2 44% a year ago. Bob?

Speaker 1

That's our story and we're happy to take any questions anyone might have.

Operator

Our first question is from Alex Twerdahl from Piper Sandler.

Speaker 3

Hey, good morning guys.

Speaker 2

Morning, Alex. Good morning,

Speaker 3

Alex. First, Scott, you mentioned the backlog at the end of the quarter was similar to the end of the year. However, it seems that the Q2 is usually the strongest quarter for loan growth. We've seen that the last couple of years. Obviously, the spring home buying season is a real thing.

Speaker 3

I mean, based on what you're seeing in the market, despite the backlog being kind of similar, would you expect the second quarter to again show similar growth trends to what we've seen in the last couple of years?

Speaker 2

Yes. I mean, the second quarter, as you said, normally builds upon the Q1. 1st quarter is normally our slowest quarter of the year for net growth. And it's all relative obviously to what's going on overall, but we have seen some activity pickup recently, which will translate to increased backlog. And there's always a delay obviously when the applications come in and when they hit the bottom line.

Speaker 2

But we have seen the activity start to pick up, which is positive. And we should see the benefit of that as we start to move forward.

Speaker 3

Okay, great. And then can you do have handy just the amount of normal amortization that you would see in the mortgage portfolio in a given quarter?

Speaker 2

It depends with roughly $15,000,000 to $20,000,000 probably $17,000,000 $18,000,000 if you want to throw out a number that's probably not a bad number to throw at Alex. Right Alex, that's about per month, about 18 $1,000,000 per month. Yes, per month, I'm sorry, it's per quarter and then per month. Yes.

Speaker 3

$18,000,000 per month. Okay, that's great. And then if we do see loan growth pick up a little bit in the Q2 a couple percent, would the expectation be to fund that with deposit promotions or would you fund it with cash on hand? Obviously, you guys have a lot of liquidity to deploy it whenever you decide to.

Speaker 1

Yes, that would be a good problem to have, Alex. A good decision that we've got to make. But we could certainly step up and do more promotions and grow deposits that way or chop up the excess cash we have on the balance sheet now.

Speaker 2

Okay. Then can you

Speaker 3

just give us a little more color? You mentioned that you're lowering the rate on time deposits. Is that I mean just would that be time deposits as they mature, you're able to actually lower the rate on them? Or is it a lower rate is necessary to maintain that deposit as it goes into time deposits? I guess, is another way of saying it that we're close to the peak on time deposit rates?

Speaker 3

Or is there still a little bit more sort of push up there as rates obviously remain potentially higher for longer?

Speaker 1

And not being as smart, Alex, but yes, the answer to the question is yes, because we're attempting to price to retain those accounts and maturity have them roll over and we're actively working those accounts and working with our customers to hopefully retain them. And I would say based on current rate environment, we probably are close to the peak of time deposits. And people are even Okay. Even longer terms, Alex.

Speaker 3

Say that one more time.

Speaker 1

People are actually throwing out longer terms on CDs and customers are beginning to look at them for

Speaker 2

probably the

Speaker 1

past 6 to 9 months or maybe even a year, even look at anything more than 5 months, 5, 6 months. But now customers are asking about longer rates.

Speaker 3

And so is that something that you have been willing to offer the longer term stuff? I know that in the past you've kind of highlighted the short nature of that portfolio as being something that potentially could really benefit when rates get cut?

Speaker 1

Yes. Priced appropriately, we do offer a longer term rate.

Speaker 2

Okay. And then can you just give us

Speaker 3

a little bit more color, maybe I missed in the prepared remarks, but salaries and benefits dropped pretty dramatically, caused you to beat that expense guide pretty meaningfully in the Q1. Can you just talk about sort of how you found that additional savings and what really drove that?

Speaker 2

Yes, sure. So we had about $1,000,000 there and about $600,000 of it was related to being able to take down some of the incentive comp accruals that we had because some of the lower production from the prior year. Then also, some of the liability based awards get revalued at the end of every quarter and that was about $300,000 or $400,000 right? So that was also another downward adjustment. So we picked up about $1,000,000 in the Q1 there.

Speaker 2

That could turn around if the stock price goes up, but that's what I hope that answers.

Speaker 3

Okay. So those are kind of things that you would expect not to recur into that 26.9 to 27.4 that's where you expect to be in the second, 3rd Q4?

Speaker 2

Right. That's a conservative number. I mean, that could be a little high, but correct. I mean, that $1,000,000 will load back into the second quarter, correct.

Speaker 3

Okay. That's all my questions for now. Thanks for taking them.

Speaker 2

Correct. Yes, I mean, right. I mean, you mentioned the liability based warrants can go wherever and then also the performance does drive the improvement.

Speaker 3

Yes, got it. All right. Appreciate you taking my questions.

Speaker 2

Thank you. Thanks, Alex.

Operator

We currently have no further questions. This concludes our question and answer session. I would like now to turn the conference back over to Robert J. McCormick for any final remarks.

Speaker 1

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

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Earnings Conference Call
TrustCo Bank Corp NY Q1 2024
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