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spk00: Good day and welcome to the Trusco Bank Corp earning 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 on your telephone 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 two. Before proceeding, we would like to mention that the presentation may contain forward-looking information about Trosco Bank Corp New York. That is intended to be covered by the safe harbour and forward-looking statements provided by the private securities litigation reformat of 1995. Actual results and trends could differ materially from those set forth in such statements due to the variation 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 10k and as an update by our quarterly reports on form 10q the statements are valid only as a date hereof and the company's disclaimer any obligations to update this information except as may be required by applicable law. Today's presentation contains non-GAAP financial measures, the reconciliation of which measures to the most comparable GAAP figures are included in our earnings press release, which is available under Investor regulations 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 call over to Mr. Robert J. McCormick, Chairman, President, and CEO. Please go ahead.
spk02: Thank you. Good morning, everyone. As the host said, I'm Robert McCormick, President of the bank. Thank you for joining us this morning to hear a little more about our results. We had a very good year at the bank in 2021. Our net income was $61.5 million, up over 17% from the prior year, and an all-time record for our company. Loans were up just under $200 million to $4.4 billion, which is also an all-time high. Our performance ratios all showed improvement over prior periods. Non-performing loans to total loans and total assets were 0.42%. and a loan loss reserve amounting to 1% of loans. We are now operating under CECL, and Mike Ozemek will have detail on that in his presentation. about $231 million to about $5.3 billion. Interest expense continued to drop in keeping with the market and growth in core accounts with less dependence on time deposits. We continue to have a large investment portfolio with a tremendous cash position. We have done this in anticipation of a changing rate environment. Our financial services area continues their good performance with over $1 billion under management. ROA and ROE both showed improvement year over year. We increased our cash dividend, executed on a reverse stock split, and stayed active in our buyback program. We also increased our capital ratios and shareholders' equity. We continue to take a full-service, essential approach while operating under varying COVID protocols. We closed one branch and opened one in Palm Coast, Florida. As I think you all know, Florida has become a large part of our business. We are taking operation for us to give a brief update. After Eric, he will turn it over to Michael Ozemak for details on the numbers, and then Scott Salvador will break down loans, leaving us time for some questions. As we begin 2022, our 120th year, by the way, we do so with optimism. We are pleased with 2021, but look forward to unaware of 2022. Eric? Thanks, Rob.
spk01: As this is my first time on the call, I thought I would briefly recap some Florida facts and milestones. Trusco's Florida branch network of 53 offices encompasses 15 counties. 37 of the offices are within Central Florida. The remainder are split between the East Coast, north of South Florida, and the West Coast around the Sarasota area. All 53 locations were opened de novo. As of 12-31-19, Florida loans outstanding, exceeded $1 billion for the first time. As of 12-31-20, deposits followed suit, ending the year over $1 billion as well. Poll deposits in Florida ended 2021 up for the year, despite significant seeding maturities, which rolled over into core savings and money market accounts. Taking advantage of more favorable Florida labor market, Trusco moved its Deposit Operations Department to Florida in 2021. Operations joins our call center, which relocated from New York to Florida a few years earlier. Deposit Operations is located at our Florida headquarters in Longwood, Florida. Among our 53 offices in Florida is our newest office, which opened in late September. Palm Coast is our first office in Flagler County on the East Coast and is adjacent to existing offices in Volusia County. Finally, we recently signed a lease to open a loan office in Naples, Florida. Next is Mike Ozemek to discuss the numbers.
spk03: Thank you, Eric, and good morning, everyone. I will now review Trusco's financial results for the fourth quarter of 2021. As we noted in the press release, the company saw a net income of $16.2 million in the fourth quarter of 2021, an increase of 17.6% over the prior year, which yielded a return on average assets and average equity of $1.0. 2021 grew 4.4% or $185.3 billion to $4.4 billion from the fourth quarter of 2020. As expected, the growth continues to be concentrated within our primary lending focus, the residential real estate portfolio, which increased $223.3 million or 5.9% in the fourth quarter of 2021 over the same period in 2020. The average commercial loan portfolio decreased 22.7 million or 10.1% over the same period in 2020. This included approximately $23 million of new PPP loans originated in 21. The bank currently has approximately 10 million in remaining of SBA PPP loans. Total average investment securities, which include the AFS and HDM portfolios, decreased 32.8 million or 7.1% during the fourth quarter of 21. in 2020. During the same period, the bank had approximately $25.8 million of pooled securities that paid down. During the same period, the bank also purchased approximately $3.4 million of securities. Provision for loan loss for the fourth quarter was a credit of $3 million, a decrease compared to the $600,000 provision for loan loss in the same period of 2020. As mentioned last quarter, 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 risk inherent to specific industries as they relate to the bank's portfolios. The decrease in provision during the fourth quarter of 2021 was a result of sustained improvement in asset quality trends and economic conditions. The ratio of the allowance for loan losses to total loans was 1% as of December 31, 2020, compared to 1.17% as of the same period in 2020. As mentioned in prior quarters, the bank did not early adopt CECL as originally provided by the CARES Act, and as part of the COVID-19 relief bill signed in December 2020, the bank adopted 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 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 $1.1 billion of overnight investments during the fourth quarter of 2021, an increase of $207 million compared to the same period in 2020. Given the elevated level of cash as we head into 2022, the bank will continue to evaluate investing excess liquidity into the market. On the funding side of the balance sheet, total average deposits increased 297.5 million or 6% for the fourth quarter of 2021 over the same period a year earlier. The increase in deposits was a result of 52.9 million or a 7.5% increase in average money market deposits, a 203 million or 16.1% increase in average savings deposits, 115 or 11.1% increase in interest-bearing checking accounts, and average non-interest-bearing checking balances. These are partially offset by the decrease in average time deposits of $228 million, or 17.8%, over the same period last year. During the same period, our total cost of interest-bearing deposits increased 11 basis points from 34 basis points. over time deposits to 32 basis points from 95 basis points over the same period last year. As we move into 2022, additional opportunities continue to exist as CDs reprice to lower market rates. With that said, the bank has approximately 277 million CDs that will mature at an average rate of 37 basis points in the first quarter of 2022. In the second quarter of 2022, approximately 224 million CDs will mature at an average rate of 24 basis points. And in the second half of 2022, approximately 372 million of CDs will mature at an average rate of 20 basis points. Our financial services division continues to be a significant recurring source of non-interest income, and they had approximately $1.1 billion of assets under management as of December 31, 2021. Now on to non-interest expense. Total non-interest expense net of ORE expense came in at $26.2 million, up $1.6 million compared to the third quarter of 2021, and slightly above our estimated range of $24.9 to $25.4 million. Increase from prior quarter is primarily a result of increases in seasonal net occupancy expenses and increased advertising expenses. Horary expense came in net at an income of $28,000 for the quarter as compared to an expense of $32,000 in the prior quarter. Given the continued low level of horary expenses, we are going to decrease the anticipated level expenses not to exceed $250,000 per quarter. all the other categories and non-interest expense were in line with our expectations for the fourth quarter we would expect the 2022 total recurring non-interest expense net of already expense to be in the range of 24.9 to 25.5 million dollars compared to 57.31% in the fourth quarter of 2020. Finally, the capital ratios. Consolidated equity to asset ratio increased slightly. It was 9.7% at the end of the fourth quarter, up 14 basis points from 956%. an increased shareholder value during these challenging economic times. Book value per share at December 31, 2021 was $31.28, up 6.2% compared to $29.46 a year earlier. These amounts are adjusted for the reverse stocks, which occurred in the second quarter of 21. Now Scott will review the loan portfolio and non-performing loans.
spk04: Good morning. Thank you, Mike. In the fourth quarter, total loans increased $42 million, and actual numbers are 0.96%. Year-over-year loans increased by $194 million, or 4.6%. This marks another quarter of steady loan growth, which has continued unabated over the last couple of years, despite the pandemic and the sort of challenges which have been presented. We're very grateful to our employees for their combined efforts in achieving these results. Residential real estate grew $47 million on the quarter, or 1.1%. Year-over-year, the increase was $207 million. Commercial loans decreased by $4.5 million on the quarter, which includes ongoing PPP forgiveness. The growth in the residential portfolio was spread fairly evenly between our New York and Florida markets on the quarter. Activity in both areas remains good, though a slowdown during the holiday and midwinter periods is typical. Our expectations are that due to pent-up demand and interest rates remaining relatively low, we should see good levels of activity as we exit the midwinter period. Our loan backlog at year end remains solid. It is down from September, which is normal given the time of year. However, we are pleased with where we stand. Purchase money has remained active in all our regions, and refinances have continued to drop. This is reflected in the makeup of our current backlog. Interest rates have edged up a bit recently, and our current base 30-year fixed rate stands at 3.38%. Non-performing and delinquency numbers continue to be good. Non-performing loans dropped from $21.2 million to $18.7 on the quarter, while non-performing assets decreased from $20.7 million to $19.1. Improvements were also shown year-over-year in both categories. Net charge-offs totaled $83,000 on the quarter. coverage ratio or allowance to non-proliferated loans is at 236% as of December, up slightly from the prior year.
spk02: Rob? Thank you, Scott. We're happy to answer any questions you have. Candace, you there?
spk00: I'm here. Are you ready for question and answer?
spk02: Whenever everyone else is.
spk00: Wonderful. We will now begin the question and answer session. To ask a question, you may press star followed by one on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the key. If at any time your question has been addressed and you would like to withdraw your question, please press star, then two. At this time, we will pause momentarily to assemble our roster. Our first question comes from Alex Twirdle, Piper Sadler. Alex, your line is unmuted. Please go ahead.
spk05: Good morning, guys.
spk02: Good morning, Alex. Good morning, Alex.
spk05: The first question for me, just as I think about the book yield on the residential portfolio, 348 during the quarter, your new loan yield is only just a little bit below that. Can you talk a little bit about sort of the distribution of rate in the book and sort of what's, you know, like if the bulk of the book is now in that 350-ish range and sort of, I guess what I'm getting at is how much more overall residential loan yield compression is possible to see if rates stay steady, kind of hovering just below 350-ish.
spk03: Sure. So Alex, I mean, there is, I mean, so let's start, I mean, to give you a little bit of, like you said, a background on the book yield. There are definitely loans that we have in the portfolio that are at higher rates that have not refinanced down, at rates that would traditionally have been refinanced. So we're talking some that are in the fours and north of four range. You know, if we continue to, you know, put on mortgages in that three three and a three and a quarter range and what we've seen true book yield start to compress is about a couple one to two basis points per month what we've also seen that's also kind of I guess increasing that on a quarter to quarter basis because of the I guess I guess the The robust housing market that we've seen, we have seen some loans that have been in non-accrual for a period of time pay off. So we've been able to recapture some of that non-accrual interest and record that in the period in which they've paid off. So that's also kind of helped out that yield. But if you take all that out and go net-net, and if loan rates continue to stay down, you'll see a couple of basis points per month kind of compression, I would say.
spk02: But just generally speaking, Alex, the... the refinance wave has really dramatically slowed. And I'm not sure we'll continue to see the rates drop off like we have in the past. And the vast majority of those loans are in the ranges that you're talking about right now. And we certainly have people, I think we probably have loans that are folks as high as 8% and 9%, and we send them a personal card every year. But for the most part, if people haven't refinanced by now, I think that tremendously
spk05: Got it. And then second question for me, just you talked about the your cash position and sort of waiting to be opportunistic around higher rates and rates of about 50 basis points on the 10 year, depending on, I guess, which minute we're talking about. versus where we were about a quarter ago. So I'm just wondering, you know, what are you looking for in order to put cash to work? And, you know, where do you feel comfortable with that cash position going over time? You know, how are you going to ladder it out? Because certainly rates have been certainly moving higher.
spk02: We don't have a specific rate in mind that we're going to ring the bell and invest, Alex. We're managing the balance sheet the way we feel is appropriate, and we'll invest that as we feel is appropriate. We're comfortable with the rates and can move forward. Term is also a big issue, too. You know, where do the rates fit in at the right time and where do the maturities fit into our plans going forward? So there are a number of things and a number of factors that are involved there and what opportunities there are at the time, what opportunities elsewhere there are at the time, what's happening with the deposits, all of those factors weigh in.
spk05: Have you done any security purchases so far in the first quarter?
spk02: Yes, just a modest amount.
spk05: Okay. And then as I think about the CECL adjustment and where we are today versus kind of where your reserve is, where we are today in the economy versus where your reserve is, I would expect any adjustment for CECL, which I guess was adopted 24 days ago, to be pretty modest. Is there anything that I'm missing there? I mean, is there going to be any sort of real change to the reserve?
spk03: No, Alex. As you know, we haven't released the adjustment yet type of thing as far as disclosing it. But no, I would not expect a material adjustment up or down from where we're at today or at the end of the year.
spk05: And then as I think about the expense guide, which hasn't really changed much for 2022 or 2021, it suggests that it's even possible that expenses could be close to flat. You know, I know that wage inflation has been a pressure at a number of other banks that we've been talking to so far this month. I'm just wondering if, you know, if there is some of that in sort of normal terms. salary increase is fully reflected in that 24.9 to 25.5 per quarter expense guide.
spk02: No question. We've seen our share of that, Alex. I think that's not just even an industry, but a nationwide epidemic with regard to weight.
spk05: No, I was going to ask if you're seeing a number of open spots today that need to be filled as the year progresses.
spk02: No question. We are encouraged by the progress of bringing a number down, but there are still a significant number of open positions.
spk05: Okay. And then, final question.
spk02: Moving operations to Florida has certainly helped in that category. We hire very good people in Florida, and they seem to stay with us a long time.
spk05: Is that just because there's more people down there that are qualified for the positions, or are you able to get less money?
spk02: Probably. It's a service-based economy, and there are a number of employers that we can draw from, not only competitors but other industries, and they're very well-trained people, typically, and do very well with our company.
spk05: Okay. And then just a final question for me on capital and the dividend increase, the modest dividend increase in the fourth quarter. Is that just to kind of normalize the dividend with the stock split, or is it indicative of maybe a new strategy to try to increase the dividend more regularly?
spk02: Well, it certainly normalized the dividend, and I think everybody likes dividend increases. I can't give you a forward look on it.
spk05: Amen. All right. Well, thank you for taking my questions.
spk02: Thanks, Alex. Thanks, Alex.
spk00: Thank you, Alex. This now 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 time this morning and have a great day.
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