TrustCo Bank Corp NY

Good day and welcome to the TrustCo Bank Corp earnings call and webcast. All participants will be in a listen-only mode. Should you need any 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 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 uncertainties and other factors. More detailed information about this 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 Forum 10-K and as updated by our quarterly reports on Forum 10-Q. The forward-looking statements made on this call are valid only as 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 that are not determined in accordance with the US 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 investor relations tab of our website at trustcobank.com. Please 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.

Thank you, and good morning, everyone. I'm Rob McCormick, the President of Trusco Bank. As usual, Mike Ozemek and Scott Salvador join me on the call today. We'll follow a regular format for the call. I will briefly hit the highlights, then Mike, our CFO, will give great detail on the numbers. Scott will cover the loan portfolio, leaving time for questions at the end. We had a great year at Trusco in 2022. Our net income was $75.2 million. up over 22% from 2021, and clearly a record. We also completely executed our stock buyback, increased our cash dividend for the second year in a row, and grow our loan portfolio to record levels, and celebrated our 120th anniversary. Should probably stop there. Our loans were up about 5.7% year over year. As you would expect, most of this growth was in our residential mortgage area. We were very encouraged to see all areas perform positively. Commercial loans and home equity lending were both up. Even installment loans, a very small part of our business, was positive. We did see some deposit runoff, especially in the money market category. While we're not happy about it, we are not surprised. Incredible deposit growth and stimulus money were much stickier than most of us thought they would be. We're taking a cautious approach with regard to deposit pricing now. We continue to stay very liquid in anticipation of an ever-changing rate environment. All of our performance ratios were very solid. Margin was 2.99 up over 2021. Non-performing loans total was 0.37 down from 2021. Non-performing assets to total assets was 0.33. Our reserve for loan losses was just under 1% of total loans resulting in a coverage ratio of 2.6 times. Our ROA and ROE were 1.22 and 12.6% respectively, both up from 21. And finally, our efficiency ratio was just over 50%. We continue to pay a very healthy dividend, resulting in a payout ratio of about 36%. We certainly had a pretty good 2022. We're approaching 23 with a strong backlog of loans, leaving us optimistic. We're taking a cautious approach with regard to our deposit offerings. and closely watching rates. Now, Mike will give us a lot of detail on the numbers. Scott will give color on the loan portfolio. Then we can take your questions. Mike?

Thank you, Rob, and good morning, everyone. I will now review Trusco's financial results for the fourth quarter of 2022. As we noted in the press release, the company saw a year-to-date net income of $75.2 million and $20.9 million in the fourth quarter of 2022, an increase of 28.7% over the prior year quarter, which yielded return on average assets and average equity of 1.38% and 13.91% respectively. Average loans for the fourth quarter of 2022 grew 5.7% or $253.2 million to $4.7 billion from the fourth quarter of 2021. As expected, the growth continues to be concentrated within our primary lending focus, the residential real estate portfolio, which increased by $181.8 billion or 4.6% in the fourth quarter of 2022 over the same period in 2021. The average commercial loan portfolio increased 21.1 million, or 10.4% over the same period in 21. Total average investment securities, which include the AFS and HCM portfolios, remained stable, increasing 2.3 million during the fourth quarter of 22 over the third quarter of 22. During the same period, the bank had approximately 11.6 million of full securities paid down and purchased approximately $19.1 million of securities. For the fourth quarter of 22, the provision for credit losses was $50,000. This includes a provision for credit losses on loans of $500,000 and a benefit for credit losses on unfunded commitments of $450,000 as a result of decreases in unfunded loans. The ratio of allowance to loan losses to total loans was 0.97% as of December 31, 22, compared to 1% as of the same period in 21. Our focus continues to be on traditional residential 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 $669 million of overnight investments during the fourth quarter of 2022, a decrease of $454 million compared to the same period in 2021. Given the current level of cash and the changing interest rate environment, the bank will continue to evaluate investing excess liquidity into the market. On the funding side of the balance sheet, total average deposits decreased $25.4 million, or 0.5% for the fourth quarter of 2022 over the same period a year earlier. The decrease in deposits was the result of $994.5 million decrease in average money market deposits, and a decrease in average time deposits to $72.2 million. These are offset by a $78.6 million increase in average savings deposits, a $12.5 million increase in interest-bearing checking account averages, and a $50.2 million increase in average non-interest-bearing checking balances. During this same period, our total cost of interest-bearing deposits increased to 25 basis points from 11 basis points. This is primarily driven by an increase in time deposits to 74 basis points from 32 basis points over the same period last year. As we move into 2023, the bank has approximately $211 million of CDs that will mature at an average rate of 22 basis points in the first quarter of 23. The second quarter of 23, approximately 274 million of CDs will mature at an average rate of 1.15%. And in the second half of 23, approximately $367 million in CDs will mature at an average rate of 1.87. Our financial services division continues to be a significant recurring source of non-interest income. They had approximately $954 million of assets under management as of December 31, 22. Now on to non-interest expense. Total non-interest expense, net of ORE expense, came in at $26.3 million, up $284,000 compared to the third quarter of 22. and slightly over an estimated range of $24.9 to $25.5 million. The increase from prior quarter is primarily a result of an increase in seasonal Q4 salaries and employee benefit expense and equipment expense, partially offset by decreases in the net occupancy expenses, professional services, and outsourced services. ORE expense net came in at an expense of $101,000 for the quarter as compared to an expense of $124,000 in the prior quarter. Given the continued low level of orderly expenses, we're going to continue to hold the anticipated level of expense not to exceed $250,000 per quarter. All the other categories of non-interest expense were in line with our expectations for the third quarter and fourth. We would expect 2023's total recurring non-interest expense net of orderly expense to be in the range of $26.2 to $26.7 million per quarter. Deficiency ratio in the fourth quarter of 22 came in at 48.8% compared to 58.5% in the fourth quarter of 21. And finally, the capital ratios. Consolidated equity to assets ratio was 10% for the fourth quarter of 22, compared to 9.7% in the fourth quarter of 21. The bank continues to be proud of its ability to maintain shareholder value during these challenging economic times. Book value per share at December 31, 2022 was $31.54, up 0.8% compared to $31.28 a year earlier. Now, Scott will review the loan portfolio and non-performing loans.