TRST (2024 - Q3)

Good day, and welcome to the TrustCo Bank Corp Earnings Call and Webcast. All participants will be in listen-only mode. [Operator Instructions] Before proceeding, we would like to mention that this presentation may include forward-looking information about TrustCo Bank Corp New York, that is intended to be covered by our safe harbor for looking-forward 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 these other risks and factors can be found in our press release that preceded this call and in our Risk Factors and Forward-Looking Statements section of our annual report on Form 10-K and updated on our quarterly reports on Form 10-Q. The forward-looking statements made in 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 applicable by law. During today's call, we will discuss certain financial measures derived by our financial statements that are not determined in accordance with the U.S. 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 also that today's event is being recorded and a replay of this call will be available for 30 days and 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 and CEO. Please go ahead. Robert J

Thank you, and good morning, everyone, and thank you for joining the call. As the host said, I'm Rob McCormick, the President of TrustCo Bank. I'm joined today, as usual, by Mike Ozimek, our CFO, who will give detail in the numbers, and Kevin Curley, who will give color on lending. On behalf of the entire TrustCo Bank family, I would like to express thanks for the many expressions of concern and well wishes as Hurricane Milton tore its way across our geographic footprint in Florida. We are happy to report that our people came through the storm in good shape, although a little worse for the wear. Likewise, our facilities withstood the battering, with many opening within a day or so of the storm, and all locations open now. Our results this quarter are like those of a baseball team that reliably hit singles and doubles. There's no grand slam or even a home run, but at the end of the day, we scored runs and posted a win. Solid plays that we executed consisted of holding the line on the cost of deposits, originating new loans at better interest rates and controlling expenses over the year. We grew our deposits from the third quarter of last year. This was done in part by capitalizing on our strong customer relationships that enabled us to direct some core deposit outflow that favorably priced CDs, and we mostly grew demand deposits. With that said, we're happy to report an increase in our net interest margin over the quarter. Market conditions continue to drive customers to home equity products, and we realized a 6% increase to that portfolio over the quarter, adding to growth of 18% over the year. The new volume was booked at slightly higher rates. These factors all combined to increase our margin over the quarter. We also saw total loans reach another all-time high and nearly $5.1 billion, which is a win in itself and also highlights the symmetry that we are so proud of between our deposit portfolio and our loan portfolio. We gather deposits in our areas of operation and lend those same funds right back into those communities. Credit quality is on the minds of a lot of investors and analysts, ours remains stellar. As it has been over a long period of time, non-performing loans to total loans held steady at 0.38% over the quarter. This speaks to our high underwriting standards and the diligent and effective efforts of our loan processing operations. The most important one we posted was a very respectful $12.9 million of net income. Now, Mike will dive into the numbers, Kevin will provide an update on the loan portfolio, and then we can take your questions if you have any. Mike?

Thank you, Rob, and good morning, everyone. I'll now review TrustCo's financial results for the third quarter of 2024. As we noted in the press release, the company saw third quarter net income of $12.9 million, an increase of 2.6% over the prior quarter, which yielded a return on average assets and average equity of 0.84% and 7.74%, respectively. Capital remains strong. Consolidated equity to assets ratio was 10.95% for the third quarter of 2024 compared to 10.31% in the third quarter of 2023. Book value per share at September 30, 2024, was $35.19, up 7.3% compared to $32.80 a year earlier. Average loans for the third quarter of 2024 grew 2.6% or $127 million to $5 billion from the third quarter of 2023, an all-time high. Overall, loan growth has continued to increase and leading the charge was a residential real estate portfolio as usual, which increased by $50.4 million or 1.2% in the third quarter of '24 over the same period in '23. Home equity lines of credit increased $60 million or 18.7%. Average commercial loans increased $18.1 million or 6.9%, and installment loans decreased $1.5 million or 9.5% over the same period in '23. For the third quarter of '24, the provision for credit losses was $500,000. Retaining deposits has been a key focus throughout 2024. Total deposits ended the quarter at $5.3 billion. And as we move forward, our objective is to continue to offer competitive product offerings of the bank through aggressive marketing and product differentiation. Net interest income was $38.7 million for the third quarter of '24, an increase of $883,000 or 2.3% compared to the prior quarter. The net interest margin for the third quarter of '24 was 2.61%, up 8 basis points from the second quarter of '24, resulting in two consecutive quarters of an increase in net interest margin. Yield on interest-earning assets increased to 4.11%, up 5 basis points from 4.06% in the second quarter of '24. The cost of interest-bearing liabilities decreased to 1.94% in the third quarter of '24 from 1.97% in the second quarter of '24. Throughout 2024, we have been able to lower the rates offered on time deposits while continuing to retain a significant portion of the product quarter-over-quarter, which will continue to bring down the cost of time deposits. Bank has seen erosion of margins begin to turn around last quarter, and we are optimistic going forward. Our Wealth Management division continues to be a significant recurring source of noninterest income. They had approximately $1.3 billion of assets under management as of September 30, '24. Now, on to noninterest expense. Total noninterest expense, net of ORE expense, came in at $26 million, down $447,000 from the prior quarter. The decrease is the result of lower costs and salaries and benefits, net occupancy, equipment expense, outsourced service and advertising expense, partially offset by the increase in professional services and FDIC and other insurance during the quarter. ORE expense, net, came in at an expense of $204,000 for the quarter as compared to $16,000 in the prior quarter. Given the continued low level of ORE expenses, we are going to continue to hold the anticipated level of expenses to not exceed $250,000 per quarter. All the other categories of noninterest expense were in line with our expectations for the third quarter. We'd expect '24's total recurring noninterest expense, net of ORE expense, to be in the range of $26.9 million to $27.4 million for the quarter. Now, Kevin will review the loan portfolio and nonperforming loans.

Thanks, Mike, and good morning to everyone. Average loans grew by $127 million or 2.6% year-over-year. The growth centered on residential mortgages, which increased by $40 million over last year, and our home equity loans also increased by $61 million or 18.4%. In addition, our commercial loans grew by $12 million year-over-year. For the third quarter, actual loans increased by $33 million. Residential loans increased by $35 million, with both first mortgages and home equity credit lines posting increases. Commercial loans and installment loans were slightly lower for the quarter. We remain well-positioned in the market and seek to capitalize as market activity develops. Our portfolio of products, combined with the flexibility to utilize our control on pricing and our ability to offer various promotions, put us in a great position. We have been keeping our rates very competitive with the goal of increasing volume. Rates in the market have increased in recent weeks, and our current rate is 6.25% for our base 30-year fixed rate loan. In addition, we have very competitive adjustable rate mortgages with rates below 6%. Our home equity products continue to see steady demand as they remain attractive to many borrowers that may have low rate mortgages and may also want to use their home's equity for various projects or large purchases. Overall, we are pleased with the loan growth in the quarter and remain focused on driving stronger results. Now moving to asset quality. Asset quality at the bank remains strong. Nonperforming loans were $19.4 million at quarter-end, $19.2 million last quarter, and just under $18 million a year ago. Nonperforming loans now stand at 0.38% of total loans compared to 0.38% last quarter and 0.36% a year ago. Nonperforming assets totaled $21.9 million as of September 30 versus $21.5 million last quarter and $19.1 million a year ago. Our early-stage delinquencies also continued to be steady and charge-offs for the quarter amounted to $222,000 and a year-to-date total of only $128,000. At quarter-end, our allowance for loan losses was a solid $50 million with a coverage ratio of 257% compared to $47.2 million and a coverage ratio of 264% in September of 2023. Rob?

That's our story. We're happy to answer any questions you might have.

Thank you very much. [Operator Instructions] Our first question comes from Ian Lapey of Gabelli Funds. Ian, your line is now open.

Hi. Good morning, Rob and team.

Good morning, Ian.

Congrats on good quarter. Yeah, a few questions. I guess, first on the hurricanes. Good to hear the people and your properties are okay. Any thoughts about credit issues that might result from damage to maybe some of the homes that you have mortgage...

We've been through quite a few of these storms unfortunately at this point, Ian, but -- and we've never had that -- those types of issues before. We do establish -- for people who have had losses in one way or another that we have the mortgages on their homes, we do establish reserve accounts at the bank and disperse those funds as they complete the work to restore their home, but we're not even seeing a lot of that this time around, Ian. So, it seems like it's not going to be a big impact overall.

Okay. Good. On the CDs, can you just review sort of what the pricing is for maturing CDs compared to new CDs that you are issuing now?

Most of our customers like the three months, believe it or not, right now, Ian. So, most of the customers at maturity are going into a three-month rate. We are offering a pretty attractive 12-month breakthrough, but it's about a 60-40 split right now between people taking the three-month and the 12-months.

And how much are you saving when you have one maturing and versus showing a new one?

The rate for three months is in the 4.5% range and the rate for 12-months is in the 4% range.

Okay. And then, on the Financial Services, really strong quarter, and you mentioned $1.3 billion in AUM. Was the increase in revenues from Financial Services, was that driven by higher AUM, or was there anything unusual in the quarter?

Assets under management are up year-over-year, and we are proactive with regard to our fees. So, the combination of the two have been a -- have very positive effect in Financial Services or in Trust. And I got to tell you, Ian, he has assembled -- Pat LaPorta runs that unit for us, and Pat and Kevin have assembled a very strong team in the Trust department or the Financial Services area. So, they're doing a lot of seminars and a lot of customer contact, and I hope it continues. I really do, because they're on a very good trend right now.

Okay. Great. And then last question. So, obviously, the capital position is, I think, the strongest of any bank I follow. As you sort of have maybe reached an inflection point with your NIM now starting to improve, what are you thinking about in terms of capital? How do you prioritize growth? I see your branches are down year-over-year. Is that something you want to add branches or increase dividend or share repurchases with the stock below tangible book, just sort of -- maybe you can talk about how you're thinking about those options?

As we see that light at the end of the tunnel and it gets brighter over time, we're certainly going to look at all of those things. We are an advocate and a fan of a share buyback program, and there are a couple of areas generally that we're looking at for possible new branch expansion. So, those would be probably the two biggest priorities that we would have.

Okay.

Just trying to keep our powder dry through this period of time. Okay, that's great.

Okay. Congrats.

All right, Ian.

Thank you very much, Ian. We currently have no further questions. So, I'd like to hand back to Robert J. McCormick for any closing remarks.

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

As we conclude today's call, thank you to everyone for joining. You may now disconnect your lines.