This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk00: Good day and welcome to the Trusco Bancorp 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 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 the question, you may press star and then two. Before proceeding, I would like to mention that this presentation may contain forward-looking information about Trust Code Bancorp 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 due to various risks, 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 factor and forward-looking statements section of our annual report on Form 10-K and as updated by our QWERTY reports on Form 10-Q. The forward-looking statements made on this call are valid only as of 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 most comparable GAAP figures are included in our earnings press release. which is available under the Investor Relations tab of our website at truscobank.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 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.
spk06: Thank you, and good morning, everyone. As the host said, I'm Rob McCormick, president of the bank. Joining me on the call today are Mike Ozemek, our CFO, and Scott Salvador. We appreciate you taking time to hear more about our company. At a time of many changes in the banking industry, we have had a very solid first quarter of 2023. Our numbers are strong and demonstrate great stability in the face of some difficult conditions. Our net income is 17.7 million and 7% loan growth. We're both up year over year. Deposits were also up almost $20 million to about $5.2 billion from year end. No surprise, we have seen a lot of shift to time deposits as rates have risen. These accounts are up over $250 million since year end. Our loan portfolio was up about $312 million year over year. We also set another all-time high for loans. Asset quality remains strong with a drop in non-performing loans to 0.4% of total loans. compared to 0.43 last year. We remain in a net recovery position regarding charge-offs. Our investment portfolio remains in decent shape with relatively short maturities. Net income of 17.7 million was up under just 4% from last year. Our net interest income was up significantly to 47 million for the quarter. Our ROA and ROE were 1.2 and 11.84% for the first quarter of 23, both up from 22. We also had an increase in book value from $32.31 to $30.85 last year. We continued a strong capital position at 10.17% up from 9.44% last year. Overall, a solid quarter, and we approached the balance of the year with cautious optimism. Now, Mike will detail the numbers. Scott will talk loans, leaving time for questions. Mike?
spk04: Thank you, Rob, and good morning, everyone. I will now review Trustco's financial results for the first quarter of 2023. As you noted in the press release, the company saw first quarter net income of $17.7 million, an increase of 3.8% over the prior year quarter, which yielded a return on average assets and average equity of 1.2% and 11.84% respectively. Capital remained strong. Consolidated equity to assets ratio was 10.17% for the first quarter of 2023 compared to 9.44% the first quarter of 2022. Book value per share at March 31, 23 was $32.31, up 4.7% compared to $30.85 a year earlier. Average loans for the first quarter of 23 grew 7%, or $312 million to $4.8 billion for the first quarter of 2022. As expected, the growth continues to be concentrated within our primary lending focus. the residential real estate portfolio, which increased $205 million, or 5.1%, in the first quarter of 2023 over the same period in 2022. Average commercial loans and home equity lines of credit also increased $43.9 million, or 22.5%, and $58.8 million, or 25.3%, respectively, over the same period in 2022. For the first quarter of 2023, provision for credit losses was $300,000. We are now actively retaining deposits, which is evident in the quarter-over-quarter results. Total deposits as of March 31-23 increased $19.6 million to $5.2 billion from December 31-22. As we move forward, our objective is to continue to encourage customers to retain these funds in the expanded product offerings of the bank through aggressive marketing and product differentiation. We understood the big inflows of deposits during the pandemic were temporary, and that is why we did not invest the liquidity into securities or loans, but retain that liquidity on balance sheet for when the depositors would start to absorb the funds. This gave us flexibility to strategically price deposits while retaining core customers. That interest income was $47 million for the first quarter of 23, an increase of $6.9 million for 17.1% compared to the same period in 22. driven by solid liquidity, loan growth, and the recent increases in the Fed Fund's target rate. The net interest larger for the first quarter of 23 was 3.21%, up 55 basis points from 2.66% in the first quarter of 22. The yield on interest earnings assets increased to 3.69%, up 95 basis points from 2.74% in the first quarter of 22. At the same time, the cost of interest-bearing liabilities only increased to 63 basis points in the first quarter of 23 from 10 basis points in the first quarter of 22. The increase in net interest income of $6.9 million is primarily a result of our ability to maintain a $576.9 million average cash balance at the Federal Reserve Bank during the first quarter of 23 and being able to retain low-cost deposit balances at competitive market rates. Our financial services division continues to be a significant recurring source of non-interest income. They had approximately $922 million of assets under management as of March 31, 23. Now on to non-interest expense. Total non-interest expense, net of ORE expense, came in at $27.4 million. The increase from the prior quarter is primarily a result of an increase in salaries and employee benefit expense, which is typical in Q1-Q2. annually as some of the payroll tax and benefit expenses reset and adjust. Orrery expense came in at an expense of $225,000 for the quarter as compared to $101,000 in the prior quarter. Given the continued low level of orrery expenses, we're going to continue to hold and anticipate a level of expense to not exceed $250,000 per quarter. All the other categories of non-interest expense were in line with our expectations for the first quarter. We would expect 23's total recurring non-interest expense, net of orary expense, to be in the range of $26.9 to $27.3 million per quarter. Now Scott will review the loan portfolio and non-performing loans.
spk05: Thanks, Mike, and good morning. For the first quarter, total loans increased by a combined $66 million in actual number. Year over year, the increase totaled $335 million. The first quarter's growth equated to 1.4%. while the annual increase was 7.5%. We were pleased to post continued growth in the quarter and especially gratified with an annual net increase of well over $300 million. The growth on both the quarter and for the year was spread across all our lending categories. Residential loans increased by $48 million on the quarter and by $275 million year over year. Commercial loans showed a similar pattern, increasing by $15 million on the quarter and by $54 million year over year. Home equity loans also continue on a growth trajectory as discussed in prior quarters, increasing by 10 million on the quarter and by 57 million year over year. General market activity in the residential arena continues on a similar pattern to that discussed last quarter. Overall purchase volume is down versus a year ago due to increased interest rates and market conditions. As we enter the spring and early summer selling season, however, we expect that overall activity will increase, and have already seen some early signs in this regard with recent application volumes. Our backlog was solid as of quarter end. Some of the heavy constructional volume we captured last year has been completed and closed onto our books. The end result is that our current outstanding backlog stands roughly equivalent to where it was at the same point last year. Interest rates have moved quite a bit over the last several months, as everyone is well aware. Currently, our 30-year fixed rate stands at 6.25%. Asset quality measurements remain strong. Non-performing loans are down to $19.1 million versus $19.4 million a year ago and up slightly on the quarter. Non-performing assets also continue to bounce at low levels, totaling 0.35% of assets versus 0.31% at the start of the year. Early-stage delinquencies remain low, and charge-offs total a slight net recovery on the quarter. The coverage ratio or allowance for loan loss in non-performing loans now stands at 243% versus 238 a year ago. Rob? Thanks, Scott. Any questions?
spk00: Ladies and gentlemen, if you would like to ask a question, please press star followed by 1 on your telephone keypad. That's star followed by 1 on your telephone keypad. We have our first question from Ian LePay from Gabelli Funds. Ian, your line's now open. Please go ahead.
spk03: Hi, Rob and team. Congratulations. Really good earnings considering the banking crisis. Can you talk a little bit, obviously the deposit performance was impressive. Can you talk about how that trended during the quarter and so far in April? And just generally what the impact of sort of the bank failures, what did you see as that was going on in your business?
spk06: Well, you know, as Mike said in his presentation, we stayed liquid and had the ability to kind of make decisions appropriately. And if we had to let some higher-priced stuff run off, we did. That liquidity position allowed us or afforded the position to do that. Our deposit trends have been very good. What we've been trying to do is retain customers and not let them walk out the door. We've been selectively offering programs. We have a 7 to 11 month special that seems to be very effective. Our core group of customers seems to be sticking with us and we're doing pretty well with them in actually bringing some money back, Ian, that maybe they were offered crazy specials for a three-month period and that's now expiring, so they're coming back to more stability. So we're pretty pleased with our deposit trends right now.
spk03: Okay. And then in a period of crisis, sometimes there's opportunity, and I think the benefits of your branch network certainly
spk06: came through this quarter any thoughts about utilizing that to sort of expand your core offerings whether it's other loan products or financial services maybe as some opportunities no question about it Ian we use the phrase come home to Trusco it's something that our branding polling and things like that have said is very strong with regard to that and I think people there's a flight to safety And our customers seem very, very comfortable with where we're at and how we run the company. And also, the Bauer rating is a big thing in certain parts, especially in Florida. And our product offerings are constantly under evaluation. And certainly, we're doing a lot more polling and a lot more contact with our customers. And I think it's welcomed.
spk03: Okay. And then on the expenses, I guess most of the increase was in salaries. And if I compare it to a year, I understand you said there's some seasonality. But if I compare it to a year ago, it looks like salary and employee benefits are up 44%. And the headcount is only up by 1%. So is there anything unusual in that year-over-year comparison? I'm assuming maybe incentive comp is playing a role given the strong results, but maybe if you could just talk about the big increase.
spk06: Mike can give you a lot more detail, but I mean, we're having some of the, generally we're having some of the same issues that every industry is having with the labor market where we are having to pay people more money to retain them. And we have a lot of companies that are poaching us. Mike can go into a little bit more detail. There was a true up of our pension funds. and a couple of other adjustments that impacted that as well. You want to touch on that, Mike?
spk04: Yeah, the only thing I would add is everything you said, Rob, but in the first quarter of 2022, we had a downward adjustment of about $2 million that kind of rolled through from a 21. And so when you're on really apples to apples, that number would really be closer to $11.2 million compared to
spk03: Okay, good. Sorry, I missed that. So that's more reasonable. And then last question. So on the share repurchase, I noticed you announced it sort of in mid-March, in the middle of the crisis. Is there any change in thoughts on that? I know it's not a big amount, about 1% of the shares, but how do you feel about that versus retaining capital in the current environment, and how do you generally feel about your capital position?
spk06: I would say that we're committed to the share repurchase, Ian. I don't know about the timing. If we move forward with that or when we move forward with that, it would probably be later in the year.
spk03: Okay. Okay. Again, congrats on good results and a tough time.
spk04: Thank you. Thank you. Thanks.
spk00: Our next question comes from Alex from Piper Sandler. Alex, your line's now open. Please go ahead.
spk01: Hey, good morning, guys.
spk04: Good morning.
spk01: Good morning, Alex. First question, just curious, any updated thoughts on sort of the overall complexion of the balance sheet? Obviously, you sit on a lot of cash still. You guys have always sat on a pretty fair amount of cash, but I'm just curious, you know, a lot of that cash is there to absorb or I guess dampen the impact of higher rates. And it's been, it's done its job. I'm just curious if that 10.5% has to stay there or, you know, just given with all the pressure on deposits, you know, if you can use some of that position to manage loan growth or, you know, deposit liquidity or anything like that that And maybe we can see that number come down a little bit over the next couple quarters.
spk06: Well, there's no plan to bring it down, Alex, but that certainly would be an opportunity if we felt there was reason to do that. As you said, the liquidity position has certainly helped us and continues to help us through what could be some challenging times. So we're pretty comfortable with where we're at right now. And that can fluctuate, obviously, a little bit. T. Based on market conditions if somebody's doing something crazy with deposits and and things like that. But overall, we're pretty comfortable with with the position we're in. T. And we feel it buys a lot of credibility in the markets and with regulators and things like that. So we're pretty comfortable with where we're at.
spk01: Okay. And then as we think about the residential mortgage portfolio and you know appreciate Scott your comments on the pipelines being healthy going into the spring buying season I'm just curious what you're seeing on the other side in terms of payoffs. You know, presumably that's slow just given what's happened with rates, but just as we think about new loans coming on versus what's on the on the books I'm just trying to figure out how quickly
spk05: that overall book yields um could rise from here um you know just given what you're seeing uh on both the new originations plus uh what's coming off the books yeah i mean the payoffs alex as you might imagine are very well i mean the refines are probably as low as i've ever seen them since i've been here uh now you do have some selling going on i mean with the increase in pricing uh you know you have some people that are motivated to sell their house uh So, you know, you do have some payoffs that roll through because of that, people selling. But in general, the payoff side of the balance sheet is pretty low. And, you know, purchases, volume is down, as I said in my remarks, because of market conditions. But, you know, we're coming into the season, as you just said. So over the next couple months, we should see a pickup on that as we move forward.
spk06: We've also been doing a lot of home equity, prime-based home equity lending, which certainly improves the return, Alex. And I think that this change in credit score with interest rates could also be a very positive impact on our portfolio.
spk01: Yeah. Okay. Just as we think about the residential piece, which is the biggest chunk of the portfolio and just the yields moving high over the next couple of quarters, they've been kind of moving higher by call three basis points per quarter over the last few quarters. Do you think that that could pick up with new volume in early, I guess, mid 2023?
spk06: Yeah, I mean, we're not going to forecast that number, but I think we're pretty happy with where that's going. Is that a good way of saying it?
spk04: Yeah, absolutely. So those lower rate ones that are close to the pipeline are kind of pushed through, and the higher ones are close? Correct, yeah.
spk01: Okay. And then just final question, you know, anything, you know, we haven't seen a lot of issues with credit across really any of the banks that have reported so far. I'm just curious in your markets if there's anything that's concerning you today. You don't have a lot of office, just anything that we should be thinking about.
spk06: The residential portfolio, it's small chunks and it's diversified by its nature. That's part of the reason we like residential lending because just by the nature of the portfolio, it is diversified with many different borrowers, many different properties located in a lot of different places. So that's a good part of why it appeals to us.
spk01: Okay. Thanks for taking my questions.
spk06: Thank you. Thank you.
spk00: Our next question comes from Nick Ripostella from NR Management. Nick, your line is now open. Please go ahead. Okay.
spk02: Good morning. I'm new to the TrustCo situation here. And so far, I like what I see. I'm right here, not far from your Leesburg branch. And I was just wondering if you could, in the big picture, give me your top two or three kind of challenges you see over the next 12 to 24 months. And then the share repurchase, I know you answered that question, but let's say all things being equal, isn't it price sensitive to some degree? In other words, if
spk06: With book value north of 32... Nick, I'm having a tough time hearing the second question.
spk02: Okay. Is this better? Yeah, in other words, is it not? With the book value north of 32, you know, all things being equal, if the stock were at 25 or something like that in this environment, would it not be something that would be more advantageous than kind of waiting until later in the year. And then the final thing is, with regard to the dividend, is there any hope for you actually might increase the dividend this year? Thank you so much.
spk06: Well, the first question, I think you have to put interest rates and staffing as the two number one priorities, if you will. And I'm not sure where I would rate either one of them, Nick. But even though we're pretty comfortable with our position and how we can deal with interest rates, a changing interest rate environment certainly puts us on a high alert. And staffing, I mean, as I said earlier in the call, we have issues constantly with staffing, like every industry does now. I know you see the help wanted signs. And I'm sure even in your own business, you see changes like that. I think you have to include that in concerns going forward. And also something Ian brought up, the cost of staffing as well. And then with regard to the share repurchase, you notice I hedged a little bit when I answered that question earlier. As I said, we are fully committed to a share repurchase program. It's just the timing of it. And certainly the lower the share price moves when compared to book value certainly makes it more appealing to us. We are cognizant of the fact that we work for our shareholders, and we want to make the best deal for them possible. So there's a balance between retaining the capital and the liquidity and getting a great deal on the share repurchase. And then number three, the dividend. You know we are a dividend play very much. A lot of our shareholders are in it for the dividend. Our dividend return right now is astronomical, and our payout is much higher than our peer group. But there's only one way I would like to see that dividend go, and that's up. Now, we never make forward-looking statements or make any promises with regard to the dividend, but I think our shareholders like dividend increases and like the cash dividend returns.
spk02: Okay, thank you so much.
spk06: You're charged for the fourth question, too, Nick, just so you know.
spk02: Okay, well, nice meeting you.
spk06: Nice meeting you.
spk02: All right. Thank you.
spk00: We currently have no further questions. I would like to hand the floor back to the management team.
spk06: Thank you for your interest in our company and have a great day, everyone.
spk00: Ladies and gentlemen, this concludes today's call. You cannot disconnect your lines. Thank you.
Disclaimer