TrustCo Bank Corp NY

Good day and welcome to the TrustCo Bancorp earnings call-in 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 on your keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star and then one. To withdraw your question, you may press star and then two. Before proceeding, we would like to mention that this presentation may contain forward-looking information about Trust Co. Bank Corp. New York that is intended to be covered by the safe, harbour 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 Statements section of our annual report on Form 10-K and as updated by our quarterly report 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 GAAP figures are included in our earnings press release, which is available under the Investor Relations tab of our website at trustcobanks.com. Please also note, today's event is being recorded. At this time, I would like to turn the conference call over to Mr. Robert J. McCormick, Chairman, President, CEO. Please go ahead.

Thank you, Nadia, and good morning, everyone. As the host said, I am Rob McCormick, president of the bank. As usual, I'm joined by Mike Elzemek and Scott Salvador. Mike is our CFO and Scott is our senior lending officer. As we have done in the past, I'll provide a summary, hitting the highlights, then turn it over to Mike for a lot of detail on the numbers, then Scott will go over the loan portfolio. We will respond to any questions you have, then we can wrap it up. We had a very solid third quarter at the bank. Our $16.8 million net income is a record for us and is over 19% greater than the same quarter last year. Assets at the end of the quarter were $6,135,000,000 greater than last quarter and the same quarter last year. The increase in assets is driven by our loan growth and our residential portfolio. Commercial loans are down as a result of the PPP forgiveness. Home equity loans are down. much less than prior periods. As we have discussed on this call before, we believe the runoff is being captured in our residential portfolio, and we are also working this product a little bit harder with some new programs to encourage new and additional borrowings. Installment loans have never been material at the bank. We have a large cash position and a substantial investment portfolio with pretty short maturities. We maintain both an anticipation of and preparation for a changing rate environment. We, like a lot of companies, have had tremendous deposit growth. This has afforded us the opportunity to shake off some of the higher cost time deposits with nice growth in the traditional core accounts and money market. We were able to increase our equity to over $586 million. Our loan portfolio is performing very well. Non-performing loans to total loans is at 0.46%, and non-performing assets to total assets are at 0.34%. Both have improved over prior periods. Our allowance for loan losses to total loans is 1.08% with a coverage ratio of 2.3 times, and that is after recovering $2.8 million from the reserve. We are prepared for CECL implementation next year. Return on average assets, equity and our efficiency ratio all showed improvement over the period. We continue to pay our healthy dividend. We are operating 147 full service offices after closing one and opening Palm Coast in Florida. We are having the same labor difficulties as most. We are exploring loan production offices and plan to open one in Naples, Florida. This is much a longer-term strategy. We also have worked to expand our lending area to neighboring counties in a few areas. We continue to operate a full-service financial services department. Now I'll turn it over to Mike and Scott, who have a lot more detail.

Mike? Thank you, Rob, and good morning, everyone. I will now review TrustCo's financial results for the third quarter of 2021. As we noted in the press release, the company saw a net income of $16.8 million in the third quarter of 2021. an increase of 19.1% over the prior year quarter, which yielded a return on average assets and average equity of 1.08 and 11.40, respectively. Average loans for the third quarter of 21 grew 4.2%, 176.4 million to 4.4 billion from the third quarter of 2020. As expected, the growth continues to be concentrated within our primary lending focus. the residential real estate portfolio, which increased by 218.2 million, or 5.9% in the third quarter of 21, over the same period in 2020. The average commercial loan portfolio decreased 20.7 million, or 8.9% over the same period in 2020. This included approximately 23 million of new PPP loans originated in 21. The bank currently has approximately 21 million of remaining SBA PPP loans. Total average investment securities, which include the AFS and HTM portfolios, increased 19.2 million, or 4.3%, during the third quarter of 21, over the same period in 2020. During the same period, the bank had three securities called at a total par value of 20 million, one security matured at a par value of 3.5 million, and approximately 28 million of pooled securities were paid down. During the same period, the bank also purchased approximately $4.1 million of securities. Provision for loan loss for the third quarter was a credit of $2.8 million, a decrease compared to the $1 million provision for loan loss in the same period in 2020. As you may remember, during 2020, management increased certain allowance-related qualitative factors based on its assessment of the impact of the current pandemic on economic conditions as well as the perceived risks inherent to specific industries as they relate to the bank's loan portfolio. The decrease during the third quarter of 21 was primarily the result of an adjustment made to pandemic-specific provision. The ratio of the allowance for loan losses to total loans was 1.08% as of September 30th, 21, compared to 1.17% as of the same period in 2020. The level of the provision for loan losses in the remainder of 21 will continue to reflect the overall growth of 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 the COVID-19 Financial Relief Program and included loan modifications such as deferments on residential and commercial loans by request. As of September 30, 2021, the bank saw most of these loan deferments return to making regular loan payments. As mentioned in prior quarters, the bank did not adopt CECL, as was 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 a well-capitalized financial institution 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, reoccurring earnings. Our investment portfolio is and has always been a source of liquidity to fund loan growth and provide flexibility for balance sheet management. As a result, we held an average of $1.2 billion of overnight investments during the third quarter of 21, an increase of $228.6 million compared to the same period in 2020. Given the elevated level of cash in 21, the bank did invest some excess liquidity into the market during the beginning of the year. On the funding side of the balance sheet, total average deposits increased 348.2 million or 7.1% for the third quarter of 21 over the same period a year earlier. The increase in deposits was a result of 56.3 million or 8.3% increase in average money market deposits, a 207.6 million or 17% increase in average savings deposits, a $129.4 million or 12.6% increase in interest-bearing checking account averages, and a $157.9 million or 25.4% increase in average non-interest-bearing checking balances. These are partially offset by the decrease in average time deposits of $202.9 million or 15% over the same period last year. During the same period, our cost of total of interest-bearing deposits decreased 14 basis points from 52 basis points. This is primarily driven by a decrease in money market deposits to 11 basis points from 37 basis points, and time deposits to 40 basis points from 139 basis points over the same period last year. As we move into the fourth quarter of 21, additional opportunities continue to exist as CDs reprice to lower market rates. With that said, the bank has approximately 524 million NCDs that will mature at an average rate of 42 basis points. In the first quarter of 2022, approximately 254 million NCDs will mature at an average rate of 40 basis points. In the first half of 2022, approximately 418 million NCDs will mature at an average rate of 36 basis points. Our financial services division continues to be a significant recurring source of non-interest income. They had approximately $1.1 billion of assets under management as of September 30, 2021. Now on to non-interest expense. Total non-interest expense, net of already expense, came in at $24.7 million, down $835,000 compared to the second quarter of 2021, and slightly below our estimated range of $24.9 to $25.4 million. Salary and benefit expenses down $494,000 due to the overall decrease in FTEs and effect of the lower stock price on benefit accruals. RE expense net came in at an expense of $32,000 for the quarter as compared to an income of $60,000 in the prior quarter. Given the continued low level of RE expenses, we're going to continue to hold the anticipated level of expenses to not exceed $350,000 per quarter. All the other categories in non-interest expense were in line with our expectations for the third quarter. We would expect the 2021's total reoccurring non-interest expense, net of already expense, to remain in the range of $24.9 to $25.4 million per quarter. Deficiency ratio in the third quarter of 21 came in at 55.82%, compared to 53.61% in the third quarter of 2020. We have always been proud of expense control at Trusco Bank, and we expect this to continue throughout 2021 and beyond. And finally, the capital ratios. Consolidated equity to assets ratio increased slightly. It was 9.56% at the end of the third quarter, up 11 basis points from 9.45% from the second quarter of 21. The bank continues to be proud of its ability to increase shareholder value during these challenging economic times. Book value per share at September 30, 21 was $30.50, up 5.1% compared to 29.03 a year earlier. These amounts are adjusted for the reverse stock split, which occurred in the second quarter of 2021. Now, Scott will review the loan portfolio and non-performing loans.