TrustCo Bank Corp NY
Q2 2021 Earnings Call Transcript

Published: 22 Jul 2021

[Operator:]

Good day, and welcome to the TrustCo Bancorp Earnings Call and Webcast. Before proceeding, we would like to mention that this presentation may contain forward-looking information about TrustCo Bancorp 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 statements section of our annual report on Form 10-K and as 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.

[Robert McCormick:]

Good morning, everyone. I'm Rob McCormick, President of the bank. Joining me on this call are Mike Ozimek, our Chief Financial Officer; Scot Salvador, our Senior Lending Officer. We are pleased to report a very solid second quarter results here at the bank. Our net income was $14.4 million, greater than the prior quarter and well above the same quarter in 2020. Our net interest income at about $40.1 million was essentially flat over the first quarter '21 and was about 6.5% greater than the same quarter in 2020. This is driven mostly by our ability to reduce deposit cost of the bank. We still maintain a 2% margin. This is down from prior quarters. We are managing a very healthy level of liquidity on our balance sheet in anticipation of a changing rate environment. We also continue a healthy capital level. We continue to pay a solid dividend over $0.34 per share, which amounts to about a 45.5% dividend payout ratio. Our return on average assets was 0.95% for the quarter, flat for the first quarter of '21 and greater than the same quarter in 2020. Our return on average equity was over 10% for the quarter, again, flat compared to the first quarter of '21 and greater than the same quarter in 2020. We did not make a provision for loan losses during the quarter. Our nonperforming ratios are very strong at 0.48% for loans and 0.34% for total assets. Also, our loan loss to total loans was 1.15% with a coverage ratio of 2.4x. The level of our loan loss reserve is constantly under review, and we were looking at a 1/1/22 implementation of CECL. Assets topped $6.1 billion at the end of the quarter, up significantly over last year. This is being driven by growth in the loan portfolio, mostly residential mortgage. Commercial loans is down as PPP loans are being forgiven and repaid. We are down to less than a handful of loans on any kind of deferral. Home equity lines of credit continued a downward trend but at a much slower rate. And installment loans are not a big part of our business. As stated earlier, we are holding a large cash position to prepare for a possible changing rate environment. Growth has been very strong quarter-over-quarter and the same period last year. Shareholders' equity is also up quarter-over-quarter and the same period last year.

[Mike Ozimek:]

Thank you, Rob, and good morning, everyone. I will now review TrustCo's financial results for the second quarter of 2021. As we noted in the press release, the company saw a net income of $14.4 million in the second quarter of 2021, which yielded a return on average assets and average equity of 0.95% and 10.05%, respectively. Average loans for the second quarter of 2021 grew 3.8% or $158.6 million to $4.3 billion from the second quarter of 2020. As expected, the growth continues to be concentrated within our primary lending focus, the residential real estate portfolio, which increased by $193.9 million or 5.3% in the second quarter of 2021 over the same period in 2020. The average commercial loan portfolio decreased $8.1 million or 3.6% over the same period in 2020. This included approximately $23 million of new PPP loans originated in 2021. The bank currently has approximately $32 million remaining of SBA PPP loans. Total average investment securities, which include the AFS and HTM portfolios, increased $13.3 million or 2.6% during the second quarter of '21. During the same period, the bank had one security call at a par of $5 million. One security also matured at a par value of $5 million and approximately $35.7 million of pooled securities were paid down. There were no purchases of securities in the second quarter of '21. The result provision for loan loss for the second quarter, a decrease compared to the $2 million in the same period in 2020. The ratio of allowance for loan losses to total loans was 1.15% as of both June 30, '21 and 2022. In the second quarter of '21, the decreased level of provision was driven by the improved asset quality trends and economic conditions. We would expect the level of provision for the loan losses in '21 will continue to reflect the overall growth in our loan portfolio and economic conditions in our geographic footprint.

[Scot Salvador:]

Thanks, Mike, and good morning, everyone. The bank posted strong loan growth for the second quarter. Overall, loans grew by $80 million in actual numbers. This equates to growth of 1.9%. Year-over-year loans have increased by $172 million or 4.1%. Our first mortgage increased by $90 million in the quarter with home equity products decreasing by a combined $6.9 million. Commercial loans decreased by $2.9 million, which includes the activities around the SBA PPP programs.

[Robert McCormick:]

Thanks, Scot. That's our story, and we're happy to answer any questions you may have.

[Operator:]

And the first question will be from Alex Twerdahl with Piper Sandler.

[Alex Twerdahl:]

First off, Scot, can you just repeat what you said about the loan pipeline? I think you said down 10% from the first quarter. I just want to make sure I heard you correctly.

[Scot Salvador:]

Yes, you're right, Alex. We're down about 10% from the first quarter and, as I said, well above where we stood last year at this point.

[Alex Twerdahl:]

Okay. And when you talk about the rates, you talk about your advertiser rate at 2.99%. Is that typically where these loans come on? Or did a lot of them come on a little bit higher than that?

[Scot Salvador:]

The majority have come on at that rate, Alex. Maybe -- these are rough numbers, but maybe 30% of them, 35% of them come in a little higher than that. And the remainder come in at the base rate.

[Alex Twerdahl:]

Okay. And then when I look at deposit costs, obviously, you've done a great job reducing the cost of deposits and cost of funds over the last year. Are we pretty much close to the bottom at this point? I know you -- Mike, you went through $692 million of CDs at 41 basis points. But certainly, it seems like most of the big reductions have happened. Is that the right thinking?

[Robert McCormick:]

Yes. As we continue to chase more CDs out, Alex, there could be some movement. And I think you're wringing the last water out of the chamois, but I still think there is some water to be wrung out.

[Alex Twerdahl:]

Okay. And then can you talk a little bit about -- you're sitting on a huge liquidity position. Rates have certainly not been anyone's friend over the last couple of weeks. But what are you looking for in terms of opportunities to actually deploy some of that liquidity into securities or other opportunities?

[Robert McCormick:]

I mean we'd like to see them move a little bit higher than they are right now. We try -- and generally speaking, we try and keep maturities as short as we possibly can. And we're not thrilled with the cash position we're at right now. But we just think it would be foolish at this point to jump into the pool right now.

[Alex Twerdahl:]

Okay. So if the 10-year stays downward as it is right now, we'll probably just continue to see liquidity stay at roughly the same levels?

[Robert McCormick:]

As long as we can stand it, yes.

[Alex Twerdahl:]

Got it. And then maybe you can talk a little bit about just the capital. And I know you got the buyback in place. You did a little bit this quarter -- or in the second quarter. How are you thinking about the buyback? Do you think you can get a little bit more aggressive with that, just sort of given the capital is continuing to build and liquidity is obviously very healthy? And are there other opportunities, perhaps M&A, that haven't really been part of the equation at TrustCo for the last decade or so but maybe could make some more sense just in a challenging rate environment?

[Robert McCormick:]

Yes. We’re . I mean I think you know our position . And we work for our shareholders, not shareholders of other companies. So if the right opportunity came along, we would be more than happy to talk to . I would like to merge more of the management team here. I mean we’re very well equipped to do it. But it would have to be accretive to our shareholders. And as to the other items you mentioned, I mean dividend buyback, you name it, it is all on the table for review at different times and different periods.

[Operator:]

Ladies and gentlemen, this concludes our question-and-answer session. I would like to turn the conference back over to Robert J. McCormick for any closing remarks.

[Robert McCormick:]

Thank you for your interest in our company. We hope you have a great day.

[Operator:]

Thank you, sir. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.