Trustco Bank Corp N Y Q3 FY2023 Earnings Call

Good day, and welcome to the TrustCo Bank Corp Earnings Call and Webcast. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. 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 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 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-Q. 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. They are not determined in accordance with U.S. GAAP. The 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 Investors Relations tab of our website trustcobank.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 one year as described in our earnings 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.

Good morning, everyone, and thank you for joining the call. As the host said, I'm Rob McCormick, the President of TrustCo Bank. With me as usual are Michael Ozimek and Scot 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 Scot will cover the loan portfolio, leaving time for questions at the end. Our second quarter results here at the bank are very strong. What differentiates us from others is something we're really proud of. We have not wavered from our business model, maintaining our tried and true lending practices and careful balance sheet management. While others may be feeling pressure to keep up with competitors' rates, we will not be borrowing to fund their growth. We remain focused on our own blueprint. We do not plan for just three months, but rather we look at three years and maybe longer. We knew the tide would return and we kept our powder dry; that planning has enabled us to stay well-capitalized, debt-free, and is now supporting organic loan growth. Our portfolio reached an all-time high this quarter, hitting a milestone of $5 billion, with our industry-leading first mortgage product making up the lion's share. We strategically grew all aspects of our loan portfolio through responsible and judicious lending. We've not sacrificed quality for quantity. In Q3, we saw non-performing loans to total loans at just 0.36%, the best in at least 15 years, as well as marking our seventh consecutive quarter for net recoveries. We continue to build upon our granular and diversified deposit foundation and have seen all categories of the portfolio rebound from the beginning of the year. Our average deposit relationship was $15,000, which is proof of the success of our relationship-building focus. Our customers know that they can rely on our strength and stability through market ups and downs. Also during the quarter, we rolled out our new split-the-difference loan product, which enables us to reprice lower-interest-rate loans while retaining those critical customer relationships. In addition to the benefits of repricing, it works out great for customers who have felt trapped by their low-rate mortgage. We have received great feedback on the initiative and it is making TrustCo Bank a topic of conversation where we might not have been before. Overall, we expect that if the product takes off, we will further contribute to the upward trend of our loan portfolio yield. As always, we are very proud of our substantial dividend, which we have paid every quarter since 1904. Our shareholders have been able to count on us through all economic conditions. Whatever comes next, TrustCo Bank is ready to capitalize on the opportunities presented. Now Mike will give us detail on the numbers, Scot will give color on the loan portfolio, and then we will take your questions.

Thank you, Rob, and good morning, everyone. I will now review TrustCo's financial results for the third quarter of 2023. As we noted in the press release, the company saw a third-quarter net income of $14.7 million, which yielded a return on average assets and average equity of 0.96% and 9.32%, respectively. Capital remains strong, with a consolidated equity to assets ratio of 10.31% for the third quarter of 2023 compared to 9.65% in the third quarter of 2022. Book value per share at September 30, 2023, was $32.80, up 6.2% compared to $30.89 a year earlier. Average loans for the third quarter grew 7.4% or $337.6 million to $4.9 billion for the third quarter of 2022. Loan growth has continued to increase and occurred in all of our loan categories, with the residential real estate portfolio leading the charge. This increased by $219.4 million or 5.3% in the third quarter of 2023 over the same period in 2022. Average commercial loans increased $53.6 million, home equity lines of credit increased $58.9 million, and installment loans increased $5.7 million over the same period in 2022. For the third quarter of 2023, the provision for credit losses was $100,000. Retaining deposits has been a key focus during 2023. Although deposits were down compared to the prior quarter, total deposits as of September 30, 2023, increased $41.6 billion or $5.23 billion from the end of 2022. As we move forward, our objective is to continue to offer competitive product offerings of the bank through aggressive marketing and product differentiation. Net interest income was $42.2 million for the third quarter of 2023, a decrease of $5.6 million or 11.7% compared to the same period in 2022. The net interest margin from the third quarter of 2023 was 2.85%, down 31 basis points from the third quarter of 2022. Yield on interest-bearing assets increased to 3.88%, up 64 basis points from 3.24% in the third quarter of 2022. Our Financial Services division continues to be a significant recurring source of noninterest income. They had approximately $902 million of assets under management as of September 30, 2023. Now on to noninterest expense. Total noninterest expense, net of ORE expense, came in at $27.3 million, which is consistent with prior quarters. ORE expense net came in at an expense of $163,000 for the quarter compared to an expense of $148,000 in the prior quarter. Given the continued low level of ORE expenses, we're going to continue to hold the anticipated level of expenses not to exceed $250,000 per quarter. Salary expenses went down due to a decrease in overall salary expenses and a decrease in our liability-based equity awards due to our lower stock price. All the other categories in non-interest expense were in line with our expectations for the third quarter. We would expect 2023's total recurring noninterest expense, net of ORE expense, to be in the range of $26.9 million to $27.4 million per quarter. Now, Scot will review the loan portfolio and nonperforming loans.

Good morning, and thanks, Mike. For the third quarter, total loans increased by $73 million, and actual numbers are 1.5%. Year-over-year, the increase was $331 million or 7.2%. This quarter marked a continuation of strong loan growth for the bank, coming on the heels of an $87 million increase in the second quarter. The loan increases are spread among all loan categories. Residential loans increased by a combined $56 million with first mortgages increasing by $33 million and our home equity products climbing by $23 million. Commercial loans increased by $17 million in the quarter. As previously stated, the combination of increased interest rates and some new personnel in our commercial loan area has allowed us to be a bit more active versus prior years. Overall purchase activity in our residential markets has slowed, reflecting nationwide trends. Increased interest rates have obviously played the largest role in this. Other factors, such as the time of year, also begin to come into play. To help offset this, we are putting a lot of focus on capturing a bigger piece of the existing pie in all our regions. Our status as a portfolio lender is an advantage in this regard. One example, as Rob mentioned, is a current promotion whereby existing TrustCo mortgage customers looking to sell and purchase a new home can obtain a reduction off of current rates by maintaining their financing with TrustCo. Interest rates continue to rise, and we currently stay at 6.5% for our 30-year base rate. The higher rates have continued to drive growth in our home equity products as people prefer to stay and improve their existing home rather than purchase a new one or refinance their first mortgage. The loan backlog has decreased somewhat from last quarter and year-over-year. This reflects both the current marketplace and the time of the year. It does contain a good amount of new money, however, given almost a complete lack of refinancing activity. We expect to post continued growth this quarter. The news on asset quality remains good. Nonperforming loans stand at $17.9 million as of September, down from $19.4 million in June and also down year-over-year. Nonperforming assets declined to $19.1 million from $20.8 million last quarter. A year ago, they stood at $19.4 million. Charge-offs posted another small net recovery in the quarter, totaling a combined $294,000 net recovery year-to-date. Early-stage delinquencies remain solid. The allowance for credit losses stands at 0.95% of total loans and 264% of nonperforming loans. This is up from a coverage ratio of 244% a year ago.

That's our story and we're happy to answer any questions you might have.

Thank you. We have no questions registered. So I would like to hand back to Mr. McCormick for closing remarks.

Thank you for your interest in our company and for joining us today. Have a great day.

Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect your lines. Thank you.