Q1 2024 TrustCo Bank Corp NY Earnings Call

Participants

Robert Mccormick; Chairman of the Board, President, Chief Executive Officer of TrustCo and Trustco Bank; TrustCo Bank Corp NY

Michael Ozimek; Executive Vice President, Chief Financial Officer of TrustCo and Trustco Bank; TrustCo Bank Corp NY

Scot Salvador; Executive Vice President - Commercial Banking of TrustCo and Trustco Bank; TrustCo Bank Corp NY

Alex Twerdahl; Analyst; Piper Sandler & Co.

Presentation

Operator

Good day and welcome to the TrustCo Bank Corp. Earnings Call and Webcast. (Operator Instructions)
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 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 and uncertainties and factor and other factors. More detailed information about these and other risk factors can be found in our press release preceded this call and in for interest terms and forward-looking statements sections of our annual report on Form 10 K and as updated by our quarterly report and Form 10 Q. The forward-looking statement 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 develop 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 to review from our financial statements that are not determined we terminated in accordance with U.S. The required reconciliation are 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 attracts CoBank. Please also note that today's event is being recorded. A replay of the call will be available for 30 days 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 over to Mr. Robert J. McCormick, Chairman, President and CEO. Please go.

Robert Mccormick

Thank you. Good morning, everyone, and thank you for joining the call. I'm Rob McCormick, President of TrustCo Bank joined today as I usually am by Scot Salvador and Michael's remarks. Scott will provide color on lending and credit quality, and Mike will follow my comments with detail on the numbers.
We ended 2023 in good shape or loan portfolio surpassed the $5 billion 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 depository. 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. Positive trend on total loans continued reach, yet another all-time high income was also positive with net income of $12 billion of non interest income call. Net interest margin was slightly down at two 44, generally held steady throughout the quarter. We saw solid improvement in our return metrics with return on average assets 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 three efficiency ratio trended favorably down at quarter end. Acceptable credit quality remains a hallmark of trust 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. Nonperforming loans and nonperforming assets remain essentially flat and charge-offs again resulted in a net recovery. We are pleased to report that our stock repurchase program has been reauthorized. We anticipate taking advantages of each purchase opportunities as they present themselves Now Mike will give us detail on the numbers. Scott will give color on the loan portfolio and then we'll take your questions. Mike?

Michael Ozimek

Thank you, Rob, and good morning, everyone. I will now review TrustCo's financial results for the first quarter of 2024. As we noted in the press release, the company saw first quarter net income of $12.1 billion, 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%. Respect capital remains strong. Consolidated equity to assets ratio was 10.51% for the first quarter of 2024 compared to 10.17% in first quarter 23. Book value per share at March 31st, 2014 was $34.12, up 5.6% compared to $32.31 a year earlier. Average loans for the first quarter of 2024 grew 5.2% or $249.4 million to $5 billion from the first quarter of 23. 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 $146.6 million or 3.5% in the first quarter of 2024 over the same period in 2023. Average commercial loans increased $38.3 million or 16%. And Mike read credit, what equity lines of credit increased $61.7 million or 21.2% and its form of loans increased $2.8 million or 21.1% over the same period in 23. For the first quarter of 24, the provision for credit losses was 600,000. Retaining deposits has been a key focus during 23 and into 2024, although core deposits were down compared to the prior quarter. Total deposits as of March 31st, 2024, increased $4.4 million from the end of '23 remain at $5.1 billion. 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 $36.6 million from first quarter '24, a decrease of $10.4 million compared to the same period in 2020. Net interest margin for the first quarter of 2024 was 2.44%, down 77 basis points from the first quarter of 2020. Yields on interest-earning assets increased to 3.99%, up 30 basis points from 3.65% first quarter of 2023. Cost of interest-bearing liabilities increased to 1.99% this quarter 24% from 0.63% in first quarter 2023. During the first quarter of 2024, we have been able to lower the rates offered on time deposits while continuing to retain and grow that bar should bring down the cost of time deposits over time, Bank of Caemi Roger margin begin to slow compared to decrease to prior quarters, and we are optimistic that we are nearing the bottom of this rates on our wealth management division continues to be a significant recurring source of noninterest income at approximately $1 billion of assets under management as of March 31st, 2024.
Now on to noninterest expense, total noninterest expense net of ORE expense came in at $24.8 million, down $4 million from the prior quarter. As mentioned in the earnings release, the decrease was primarily a result of lower salaries and employee benefit costs in the first in the current quarter and a litigation settlement in the prior quarter. R&d expense net came in at $74,000 for the first quarter as compared to 12,000 in the prior quarter, given the continued low level of ORE expenses, we're going to continue to hold it just be at a level of expenses, not to exceed 200, 50,000 non-core. All of the other categories of noninterest expense were in line with our expectations for the quarter, we would expect 2024 total recurring noninterest expense net of ORE expense to be in the range of $26.9 million to $27.4 million per quarter.
Now, Scott will review the loan portfolio and nonperforming morning everyone.

Scot Salvador

Thanks, Mike. Total loans grew $206 million or 4.3% year over year and actual numbers and in the first quarter just over $5 billion. The growth was centered on residential mortgages, which increased by $172 million with an additional increase of $33 million coming from commercial on the quarter, loans grew by approximately $25 million in residential loans decreased slightly in commercial loans increased by $5.5 million. We're pleased to have grown the loan portfolio by over $200 million over the past year and what has been a challenging environment. First quarter's activity reflects recent trends with home equity products continuing to bolster overall growth. Purchased Money Market continues with Nationwide, seeing interest rates and other market conditions restrained volume versus prior years. 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 of products, combined with our ability to trade very promotions control our own pricing versus the market puts us in a new and unique position to do so.
Regional market move back up in recent weeks, 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 volumes as we enter the main selling season. Our committed loan backlogs stand roughly equivalent to the end of last quarter. More recent activity has picked up forever with a good amount of loans in the earlier stages of the processing side. This should translate to increased committed backlog numbers and net portfolio growth as we move forward as our quality measures remain good. Non-performing loans were $18.3 million as of quarter end versus $19.2 million at 3/31/23. Nonperforming assets totaled $20.6 million versus $21 million a year ago. Net charge-offs in the quarter amounted to a $43,000 net recovery this fall upon three consecutive years, stretching back to 2021 net charge-offs for the year when in Q4 recovery position, our allowance for credit losses to total in more loans remains essentially flat in the quarter, 0.98%. The coverage ratio or allowance for credit losses to nonperforming loans stands at 269% as of March, up from 244% a year ago.

Robert Mccormick

That's our story, and we're happy to take any questions anyone might have we will now begin the question-and-answer session.

Question and Answer Session

Operator

(Operator Instructions) Our first question is from Alex Twerdahl from Piper Sandler.

Alex Twerdahl

Hey, good morning, guys. Warning out there has worn out and 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 second quarter is usually the strongest quarter for loan growth we've seen that the last couple of years, obviously, spring home buying season is a real thing. And I mean, based on what you're seeing in the market, you know, 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?

Scot Salvador

I mean, the second quarter, as you said, normally builds upon the first quarter. Our first quarter is normally our slowest quarter of the year for net growth. And, you know, it's all relative actions. 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, between the applications come in and when they hit the bottom line, but we have seen activity start to pick up, which is positive, and we should see the benefits of that as we start to move forward.

Alex Twerdahl

Okay. Great. And then can you have it handy just the amount of normal amortization that you'd see in the mortgage portfolio in a given quarter?

Scot Salvador

I think it depends with roughly $15 million to $20 million, probably $17 million, $18 million.

Michael Ozimek

If you want to throw out a number, that's probably not a bad number to throw at Alex Brown that's about per month, but $18 million -- $18 million per month from I'm sorry, per quarter from last year.

Alex Twerdahl

$18 million per month. Okay. That's great. And then if we do see loan growth pick up a little bit in the second quarter, a couple of percent. Would the expectation be that fund that with no deposit promotions or would you fund it with cash on hand?

Robert Mccormick

Obviously, you guys have a lot of liquidity to deploy it whenever you decide to because that would be a good problem to have a good decision and we've got to make booking we could certainly step up and do more promotions and growth deposits that way or drop off the excess cash we have in that on about.

Alex Twerdahl

Okay. And then can you just give us a little more color. You mentioned that you're lowering the rate on time deposits. Is that? And then just in that in time deposits, as they mature, you're able to actually lower the rate on them or is it a lower rate as necessary to maintain that deposit as it goes into time?

Robert Mccormick

Deposits, I guess is another way of saying it that were close to the peak on time deposit rates or is there still a little bit more on, you know, sort of push up there as rates obviously remain a potentially higher for longer, and I'll not be this far out.
But yes, the answer to the question is yes, because we're attempting to price to retain those accounts and maturity. I've had the rollover, 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 five to five and people are even look at it differently per terms, Alex, say that one more time people are actually throwing out longer terms on CDs and customers are beginning to look at them for probably the past six to nine months or maybe even a year, you would look at anything more than five months, five, six months. But now customers are asking about a longer period.

Alex Twerdahl

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, you have priced above priced appropriately.

Robert Mccormick

We do offer a longer term rate.

Alex Twerdahl

Okay. And then can you just give us a little bit more color on what maybe I missed in the prepared remarks, but salaries and benefits dropped pretty dramatically because you did you know to beat that expense guide pretty meaningfully in the first quarter. Can you just talk about sort of how you found that additional savings and what really drove that?

Scot Salvador

Yes, sure. So we had about of about $1 million there at about $600,000 was related to just being able to take down some of the incentive comp accruals that we had and then of some of the lower sort of lower production from prior year. And then also also in a liability-based awards get revalued at the end of every quarter, and that was about three or $4,000. So that was also another downward adjustment. So we picked up about $1 million in the first quarter. Now that could turn around if the stock price goes up, but that's open.

Alex Twerdahl

Okay. So those are kind of things that you had you would expect not to recur. And so that $26.9 million to $27.4 million.

Michael Ozimek

That's where you expect to be in the second, third and fourth quarter for, I guess, generic? That's a conservative number we look at it could be a little wide but correct me yet. That million will flow back into the sector Q4.

Alex Twerdahl

Okay. That's all my questions. Regarding San Diego, Portland, which direct?

Michael Ozimek

Yes, we are aiming at making the liability-based awards can go wherever. And it also tells us that performance does drive.

Alex Twerdahl

Yes, got it. I appreciate you taking my questions.

Robert Mccormick

Thank you.

Operator

We currently have no further question. 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.

Robert Mccormick

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

Operator

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