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spk00: Hey, and welcome to the TrustCo Bank Corp earnings call and webcast. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one. To withdraw your question, you may press star, then two. 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 and forward-looking statements provided by the Private Securities Litigation Reform Act of 1995. Actual results and trends could differ materially from those set forth in 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 statement section of our annual report on Form 10-K and is updated by our quarterly reports on Form 10-Q. The statements are valid only as of the date hereof, and the company disclaims any obligation to update this information except as may be required by applicable law. Today's presentation contains non-GAAP financial measures. The reconciliations of such measures to the most comparable gap figures are included in our earnings press release, which is available under the Investor Relations tab of our website at TrustCoBank.com. Please also note, today's event is being recorded. At this time, I would like to turn the conference over to Mr. Robert J. McCormick, Chairman, President, CEO. Please go ahead.
spk02: Thank you. Good morning, everyone. As the host said, I'm Rob McCormick, President of the bank. Joined today by Mike Ozemek, our CFO, and Scott Salvador, our Chief Lending Officer. As we usually do, I will start with a brief summary, hitting highlights. Then Mike will detail the numbers. Scott will talk about loans. Then we can wrap up with any questions you may have. There have been several positive events that have occurred at our company recently. We've crossed over the $6 billion total asset mark. Our Florida deposits now exceed $1 billion. Our Florida loan portfolio now exceeds $1 billion. and our financial services area now has more than a billion dollars under management. These are all positive events for our company and contributed to a very solid first quarter 2021. Our net income was over $14 million, greater than year-end 2020 and the first quarter of 2020. Our net interest income was $40.1 million for the first quarter of 2021, also greater than year-end and first quarter 2020. Our net interest margin for the first quarter of 21 was 278, essentially flat since year end 20 and down from first quarter 20. Our total deposits were almost 5.2 billion. This is up significantly over the same quarter of 20 when they were roughly 4.5 billion. This growth has been in all core categories. Higher cost time deposits are actually down about $130 million year over year. We have certainly received deposits from stimulus payments. These deposits seem stickier than most, including us, originally thought they would be. We could see this reverse and draw down as our country reopens. Our loan portfolio has grown to almost $4.3 billion, another all-time high. The vast majority of this growth is in residential mortgage loans. We also had some activity in the commercial loan portfolio driven mostly by the PPP loan program. Home equity loans continue to run off, albeit at a slower pace. We also think most of that runoff is being captured as part of the residential refinances. Installment loans have never been a big part of our business. We have a significant cash position in the relatively large investment portfolio with shorter maturities. We closely monitor this position and look for good opportunities to put these funds to work at higher yields. Our asset quality remains strong. Non-performing loans to total loans is basically flat at 0.51% and non-performing assets to total assets are down to 0.36%. Our allowance to total loans is 1.17% with a coverage ratio of 2.3 times. Pretty much flat over the prior periods. Our capital ratios are still strong and shareholders' equity continues to climb. We continue to operate 148 full-service offices We are looking for new opportunities that may end up opening a couple of new locations. We are also looking for better opportunities to relocate existing offices. Our return on average assets was 0.96 at quarter end, and our return on average equity was just over 10%. Our efficiency ratio is 56.4%. Our dividend payout ratio is 46.7. We continue to operate a full-service financial services department. We are pleased with our first quarter results and optimistic about the rest of 2021. Now, Mike and Scott will give more detail on our results.
spk04: Mike? Thank you, Rob. Good morning, everyone. I'll now review Trustco's financial results for the first quarter of 2021. As we noted in the press release, the company's ordained income of $14.1 million in the first quarter of 2021 was yielded a return on average assets and an average equity of 0.96% and 10.01% respectively. Average loans for the first quarter of 2021... grew 4.3% or $173.3 million to $4.2 billion from the first quarter of 2020. As expected, the growth continues to be concentrated within our primary lending focus, the residential real estate portfolio, which increased by $187.5 million or 5.2% in the first quarter of 2021 over the same period in 2020. Average commercial loan portfolio increased $14.7 million or 7.4% over the same period in 2020. This included 17.1 million of new PPP loans originated in the first quarter. The bank currently has approximately 37 million remaining of SBA PPP loans. Total average investment securities, which include the AFS and HDM portfolios, increased 35.1 million, or 7.6% during the first quarter. During the same period, the bank purchased approximately 132 million of securities and approximately 37.9 million of pooled securities paid down. There are no securities called in the first quarter of 21. Revision for loan loss for the first quarter was $350,000, a decrease compared to the $2 million in the same period in 2020. The ratio for allowance for loan losses to total loans was 1.17% as of March 31, 2021, compared to 1.13% as of the same period in 2020. In the first quarter of 21, the decreased level of provision was driven by improving economic indicators and the outlook resulting from the COVID-19 pandemic. We would expect the level of provision for loan losses in 2021 will continue to reflect the overall growth in our loan portfolio and economic conditions in our geographic footprint. As mentioned in prior quarters, to support our borrowers experiencing economic hardships, the bank launched a COVID-19 financial relief program and included loan modifications such as deferments on residential and commercial loans by request. As mentioned in the press release, as of March 31, 2021, the bank saw most of these loan deferments return to making regular loan payments. The bank continues to closely monitor the level of deferrals. However, we are very pleased with the current levels and limited impact they may have on the overall credit quality of their loan portfolio. As mentioned in the prior quarter, the bank did not adopt CECL as originally provided by the CARES Act and as part of the COVID-19 relief bill signed in December 2020. The bank will adopt CECL on January 1, 2022. The company expects to remain well capitalized under current regulatory calculations. As discussed in prior calls, our focus continues to be on traditional lending and conservative balance sheet management, which has continued to enable us to produce consistent, high-quality recurring earnings. Our investment portfolio is and always has been a source of liquidity to fund loan growth and provide flexibility for balance sheet management. As a result, we held an average of $1 billion of overnight investments during the first quarter of 2021, an increase of $617 million compared to the same period in 2020. Given the elevated level of cash in 2021, the bank has begun to invest excess liquidity into the market at current levels. On the funding side of the balance sheet, total average deposits increased $630 million, or 14.2% for the first quarter of 21 over the same period a year earlier. The increase in deposits was a result of $111 million, or 18.1% increase in average money market deposits, $198 million, or 17.8% increase in average savings deposits, $213 million, or 24.5% increase in interest-bearing check account averages, and a 215 million or 46.9% increase in average non-interest bearing checking balances. These are partially offset by the decrease in average time deposits of 108 million or 7.9% over the same period. During this time period, our total cost of interest bearing deposits decreased to 20 basis points from 78 basis points. This is primarily driven by a decrease in money market deposits to 16 basis points from 72 basis points and time deposits to 54 basis points from 1.88% over the same period last year. As we move through 21, CDs will continue to reprice down to current market rates. In the second quarter of 21, approximately 226 million of CDs will mature at an average rate of 40 basis points. And in the second half of 21, approximately 645 million of CDs will mature at an average rate of 44 basis points. Non-interest income came in at $4.4 million for the first quarter of 21, up compared to last quarter, primarily as a result of increased financial services income related to the fees earned by our financial services division for tax preparation services and an increased fee income on larger balances under management. Our financial services division continues to be the most significant reoccurring source of non-interest income and had approximately $1 billion of assets under management as of March 31, 21. Now on to non-interest expense. Total non-interest expense net of ORE expense came in at 25.1, up 311,000 compared to the fourth quarter of 2020, and slightly overestimated range of 24.5 to 25 million. Salary and benefits expense increased 698,000 as a result of a couple items. The primary item was an increase in benefit liability, increased share price, and the second The first quarter of the year always bears the cost of increased employer payroll taxes, and the bank also saw the impact of increased health care costs as a new contract of rates for 2021 took effect. ORE expense came in at $239,000 for the quarter as compared to an expense of $45,000 for the first quarter. Given the continued low level of ORE expenses, we are going to continue to hold anticipated level of expense not to exceed $450,000 per quarter. All the other categories of non-interest expense were in line with our expectations for the first quarter. We would expect the 2021's total reoccurring non-interest expense net of already expense to be in the range of 24.9 to 25.4 million per quarter. The efficiency ratio for the first quarter of 21 came in at 56.35 compared to 56.34 in the first quarter of 2020. One thing we are always proud of is expense control at Trusco Bank, and we expect this to continue throughout 21. And finally, the capital ratios. Consolidated equity, the asset ratio is 9.44% at the end of the first quarter, down 19 basis points from 9.63 from the fourth quarter of 2020 due to the growth in assets. The bank continues to be proud of its ability to increase shareholder value during these challenging times. Book value per share at March 31, 2021, was $5.92, up 4.2% compared to $5.68 a year earlier. Now, Scott will review the loan portfolio and non-performing loans.
spk03: Okay, Mike. Thank you. Good morning. In the first quarter, total loans grew by $25 million in actual numbers, or 0.6%. Year-over-year loans have increased by 4.1%, or $170 million. Loan growth on the quarter consisted of $21 million of residential growth and $4.5 million on the commercial side. Commercial loan figures include the bank's ongoing activity with regards to SBA PPP lending programs. Our first mortgage product increased by $32 million on the quarter, with an $11 million decrease in our home equity loans netting to the $21 million residential growth number. The first quarter is typically the bank's slowest with regard to loan growth. Activity levels have increased steadily and are currently strong in all of our lending regions. Purchase money lending has been particularly active in all areas. Refinances remain elevated, although below the peak periods of last year. Properties are selling quickly in most all areas, and a lack of inventory in the more modest price ranges is a common occurrence. Interest rates have continued to hover in the lower 3% range over recent weeks. Currently, our 30-year rate stands at 2.99%. Our loan backlog at quarter end was strong. It reflects both the active purchase money market and the overall level of mortgage activity. It is well above the totals for both year end and the same point last year. We are optimistic regarding increased net loan growth for this quarter, given both the ongoing strong activity levels and our current backlog. This potential growth will continue to be impacted to some degree by the elevated refinance levels, at least in the short term. Overall asset quality measurements remain strong. Non-performing loans totaled $21.6 million on the quarter. This compares to $21.1 million in December and $20.7 million a year ago. Such choppiness is to be expected as we continue with these very low levels. Non-performing assets totaled $22.1 million compared to $22 million in March of 2020. Charge-offs actually netted to a $46,000 recovery on the quarter. The allowance for loan losses is now 1.17% of total loans. with the coverage ratio or the allowance to non-performing loans standing at 231%. Rob?
spk02: Just before we turn to questions, I did want to mention we were named the best bank by our newspaper in a reader poll. And I tell you this only because on prior calls I've told you how our employees have performed, especially during a pandemic year. So I think that's a very nice tribute to them. It shows how well they performed. So we're now happy to answer any questions you might have.
spk00: We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. Our first question comes from Alex from Piper Sandler. Please go ahead.
spk01: Hey, good morning, guys.
spk02: Morning, Alex.
spk01: Hey, first off, just wanted to start with some of the most recent comments you were making, Scott, on the loan pipeline and your optimism, et cetera. If you had to kind of boil it all down to sort of a growth rate for expected loan growth for the residential portfolio for 2021, I mean, would you say that sort of mid-single digits is right, high single digits, lower than that? You know, how can you maybe just help us frame it a little bit better?
spk03: Well, you know, it's difficult to forecast, Alex. As you know, there's a lot of variables that come into play, not just on the volume side, but when you're talking about the refinance angle and everything else, there is a lot of variables. So it's difficult to forecast. But that being said, as I said in my remarks, our first quarters is typically our slowest quarter of the year, given coming off the holidays, our backlog is very strong and the activity in the marketplace is strong. So, you know, I would hope that we're going to post good net growth for the next, certainly the next quarter and hopefully remainder of the year and pick up significantly from where we are now. But, you know, I can't put any specific numbers on it.
spk01: Okay. And you mentioned the advertised rate was $299. Is that roughly where most of these loans are coming on or are they coming out a little bit higher than that?
spk03: Oh, they are as of now, Alex. We have been higher than that. As of most recently, we were at three and a quarter. So we, you know, in recent weeks, we've been more in that range. But just within the last day or so, we've come down to where we are at 2.99. Okay.
spk01: and then uh mike when you're talking about um the cash balances and you know being a little bit elevated i think you said you've begun to invest excess liquidity at current levels is that in reference just 100 to the 132 million of purchases that you did in the first quarter or have you done additional in the second quarter or maybe just help us um get a little bit more understanding on how you're thinking about sort of laddering that cash in over the next couple quarters
spk04: Yeah, sure. I mean, so far we haven't done anything in the second quarter. So, you know, the initial comments were what we did in the first. You see where we're at now, a little over a billion dollars, you know, pushing a billion, 1.1 billion. You know, we're going to look at that, you know, and it is a metering of, you know, how much money is going out into our loan portfolio. So, and, you know, there's another round of stimulus comes in. What happens with our overall deposit balances? You know, there's been a lot of talk in the market that, you know, we feel our deposits are sticky. They are hanging around. But as this country opens up and if we start to see some of those funds run out, people actually go out and start to spend a little bit of money, that's all going to come into play. So, I guess what I would say is our cash balance is where they are now. I would not expect them to get a lot larger, you know, if that kind of helps out a little bit.
spk01: Okay. So around a billion is sort of the, you know, is plenty, and if more cash comes in in the second quarter, then the expectation would be to ladder that, and it's not used in long growth. The expectation would be to go out and purchase some securities. Right.
spk05: Okay.
spk01: Okay. And then on the liability side, we're pretty much at the bottom in terms of – I mean, we talked about the CD repricings from 40 and 44 basis points later this year. Where are new CDs coming on, and how much more room do you think there is to lower cost of deposits?
spk02: I think the highest rate we're offering right now is 15 basis points. Okay. So I think there's still room for repricing, Alex. I agree with you where – Bouncing along the bottom, is that a good way of saying it or a popular way of saying it? But I think there is still a little bit more room, but I don't know how much.
spk01: Understood. And then as you think about capital deployment and how you reauthorized the $2 million shares of repurchase activity or repurchase authorization during the quarter, talk a little bit about how you plan to use that authorization. Did you do any in the first quarter and sort of what Is it based on price? Is it based on, what's it based on, that, you know, getting through that $2 million?
spk02: Yeah, we didn't make a buy in the first quarter. On a buyback program, you know the first quarter is problematic because you're preparing the proxy and the annual report. So there are quite a few closed window periods during that time. We are certainly looking at buybacks, and it's based on all of the above, you know, the capital position of the company, the price of the stock, and what the activity has been in recent times.
spk01: Okay. That's all my questions for now. Thanks for taking my questions.
spk02: Thanks, Alan. Thanks, Alex.
spk00: This concludes our question and answer session. I would like to turn the conference back over to Robert J. McCormick for any closing remarks.
spk02: Thank you for your interest in our company and have a great day.
spk00: The conference is now concluded. Thank you for attending today's presentation. You may now
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