TrustCo Bank Corp NY Q4 2024 Earnings Call Transcript

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Operator

Good day, and welcome to Trusco Bancorp Earnings Call and Webcast. All participants will be on listen only mode. Before proceeding, we'd 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 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 or implied by such statements due to various risks, uncertainties and other factors. More detailed information about these risks and other factors can be found in our press release that precedes this call and in the Risks and Factors and Forward Looking Statements section of our Annual Report Form 10 ks and are as updated by our Quarterly Reports Form 10 Q.

Operator

The forward looking statements made in this call are only valid as of the date hereof, and the company disclaims any obligation to update the 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 U. S. GAAP. 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 on our website at trustcobank.com.

Operator

Please also note that today's event is being recorded. A replay of today's call will be available for 30 days and an audio webcast will be available for 1 year as described in our earnings press release. At this time, I'd like to hand the call over to Robert J. McCormick, Chairman, President and CEO. Please go ahead.

Robert J. McCormick
Robert J. McCormick
Chairman, President, and CEO at TrustCo Bank NY

Morning, everyone, and thank you for joining the call. I'm Rob McCormick, President of TrustCo Bank. I'm joined today as usual by Kevin Curley, who will talk about lending and Mike Ozimek, our CFO, who will go into detail on the numbers. The results that we report today reflect our organization's efforts during 2024, which were characterized by achievement of efficiency, the preservation of strength and the creation of shareholder value. These elements came together to produce an efficiency ratio of 61.5 percent, capital of 10.84 percent and return on average equity of almost 7.5%, all contributing to a net income of 48,800,000 dollars In 2024, Home Equity Lending, both lines and loans presented the greatest opportunity.

Robert J. McCormick
Robert J. McCormick
Chairman, President, and CEO at TrustCo Bank NY

Our team dug deep and leveraged our extensive branch network and sizable customer base to create loan volume where there otherwise is very little. By tailoring our offerings to new and existing customers who elected to improve their existing homes, brought them by a new one. This strengthened our customer bonds and enhanced our communities within our footprint. Home equity volume exceeded purchase mortgage volume for the year. Through the Q3 of 2024, we were more efficient both overall and in the cost of funds.

Robert J. McCormick
Robert J. McCormick
Chairman, President, and CEO at TrustCo Bank NY

Better capitalized and generated better earnings than our peers. Like our performance, our loan products are best in class and adaptable. Thus, we enter 2025 liquid, well capitalized and ready to lend. And we come to this position without the resort to borrowings or brokered deposits. Also looking ahead, we continue to invest in technology intended to further enhance efficiency and improve the customer experience across all business lines.

Robert J. McCormick
Robert J. McCormick
Chairman, President, and CEO at TrustCo Bank NY

Additionally, we have undertaken an exciting new venture by offering our products and Trusco is particularly well suited to this industry because our extensive branch network dovetails with the needs of cash intensive retail outlets. We would be remiss if we fail to highlight the extraordinary credit quality that supports our success. Non performing loans to total loans remained essentially flat year over year. Likewise, net charge offs to average loans were 0.01% this year compared to 0.02% last year. This is a testament to our underwriting and the commitment we make to our customers as a portfolio lender.

Robert J. McCormick
Robert J. McCormick
Chairman, President, and CEO at TrustCo Bank NY

Now Mike will dive into the numbers, Kevin will provide an update on the loan portfolio and then we can take your questions. Mike?

Michael Hall
Michael Hall
General Counsel & Corporate Secretary at TrustCo Bank NY

Thank you, Rob, and

Michael Hall
Michael Hall
General Counsel & Corporate Secretary at TrustCo Bank NY

good morning, everyone. I will now review TrustCo's financial results for the Q4 of 2024. As we noted in the press release, the company saw 4th quarter net income of $11,300,000 an increase of 14.6 percent over the prior year quarter, which yielded a return on average assets and average equity of 0.73% and 6.70 percent, respectively. Capital remains strong. Consolidated equity to assets ratio was 10.84 percent for the Q4 of 2024 compared to 10.46% in the Q4 of 2023.

Michael Hall
Michael Hall
General Counsel & Corporate Secretary at TrustCo Bank NY

Book value per share at December 31, 2024 was $35.56 up 4.8% compared to $33.92 a year earlier. Average loans for the Q4 of 2024 grew 2.1 percent or $104,900,000 to $5,100,000 for the Q4 of 2023, another all time high. Loan growth has continued to increase and leaving the charge was home equity lines of credit portfolio, which increased $61,000,000 or 17.9 percent in the Q4 of 0.4 percent over the same period in 2023. The residential real estate portfolio increased $34,900,000 Average commercial loans increased $11,700,000 or 4.3 percent and installment loans decreased $2,600,000 over the same period in 2023. For the Q4 of 2024, the provision for credit losses was $400,000 The provision recorded for the Q4 matched loan growth with no indications of decreasing loan credit quality.

Michael Hall
Michael Hall
General Counsel & Corporate Secretary at TrustCo Bank NY

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 $504,000,000 of overnight investments during the Q4 of 2024, an increase of $43,000,000 compared to the same period in 2023. Given the current levels of cash and the current interest rate environment, the bank will continue to evaluate investing excess liquidity into the market. Retaining and growing deposits has been a key focus throughout 2024.

Michael Hall
Michael Hall
General Counsel & Corporate Secretary at TrustCo Bank NY

Total deposits ended the quarter at $5,400,000,000 and was up $127,000,000 compared to the prior quarter. 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 $38,900,000 for the Q4 of 2024, an increase of $231,000 compared to the prior quarter. Net interest margin for the Q4 of 2024 was 2.60 percent, down 1 basis point from the prior quarter. Yield on interest earning assets increased to 4.12%, up 1 basis point from the prior quarter.

Michael Hall
Michael Hall
General Counsel & Corporate Secretary at TrustCo Bank NY

The cost of interest bearing liabilities increased to 1.97% in the Q4 of 2024 from 1.94% in the Q3 of 2024. Throughout 2024, we have been able to lower the rates offered on time deposits, while retaining and growing a significant portion of that product quarter over quarter, which continue to bring down the cost of time deposits. The bank has seen the erosion of margin to begin to flatten in the latter half of twenty twenty four. On the funding side of the balance sheet, total average deposits increased $31,700,000 or 0.6 percent for the Q4 of 2024 over the same period a year earlier. Our Wealth Management division continues to be a significant recurring source of noninterest income.

Michael Hall
Michael Hall
General Counsel & Corporate Secretary at TrustCo Bank NY

They have approximately $1,200,000,000 of assets under management as of December 31, 2024. Now on to non interest expense. Total non interest expense, net of ORE expense, came in at $27,700,000 up $1,700,000 from the prior quarter. The increase is a result of higher costs in net occupancy expense, equipment expense, outdoor services and advertising expense. ORE expense net came in at an expense of $476,000 for the quarter as compared to $204,000 in the prior quarter.

Michael Hall
Michael Hall
General Counsel & Corporate Secretary at TrustCo Bank NY

Given the one time charge offs experienced this quarter, we are not we are going to continue to hold the anticipated level of expenses to not exceed $250,000 per quarter. All the other categories of non interest expense were in line with our expectations for the Q4. We would expect 20 24's total recurring non interest expense, net of ORE expense, to be in the range of $27,500,000 $28,000,000 per quarter. This represents less than a 3% increase over the levels in 2024. Now Kevin will review the loan portfolio and nonperforming loans.

Kevin M. Curley
Executive Vice President at TrustCo Bank NY

Thanks, Mike, and good morning to everyone. Our 4th quarter average loans grew by $105,000,000 or 2.1 percent year over year. The growth centered on our residential mortgages, which increased by $35,000,000 over last year, and our home equity loans also increased by $61,000,000 or 17.9 percent. In addition, our commercial loans grew by $11,700,000 over last year. For the Q4, as compared to the Q3, actual loans increased by $27,200,000 residential loans decreased by over $21,000,000 with both first mortgages and home equity credit lines posting increases.

Kevin M. Curley
Executive Vice President at TrustCo Bank NY

Commercial loans were also higher in the quarter by increasing 6,600,000 dollars Overall, residential activity trends remain similar to those discussed in recent quarters. We remain well positioned in the market and seek to capitalize as market activity develops. As a portfolio lender, we have the flexibility to utilize our control on pricing and the ability to offer various promotions to increase application volume. Rates in the market have increased in recent weeks and our current rate is 6.875 percent for a base 30 year fixed rate loan. In addition, we have very competitive adjustable rate mortgages with rates in the 6.25% to 6.75% range.

Kevin M. Curley
Executive Vice President at TrustCo Bank NY

Our home equity products continue to see steady demand as they remain attractive to many borrowers that may have low rate mortgages, but they want to use their home's equity for various projects or large purchases. Overall, we are positive about our loan growth in the quarter and remain focused on driving stronger results in 2025. Moving to asset quality. Asset quality at the bank remains consistently strong. Non performing loans were $18,800,000 at quarter end, dollars 19,400,000 last quarter and just under $18,000,000 a year ago.

Kevin M. Curley
Executive Vice President at TrustCo Bank NY

Non performing loans now stand at 0.37 percent of total loans compared to 0.38 percent last quarter and 0.35 percent a year ago. Non performing assets totaled $21,000,000 as of December 31 versus $21,900,000 last quarter $17,900,000 a year ago. Early stage delinquencies also continue to be steady. Net charge offs for the quarter amounted to $102,000 down from the Q3's $222,000 Our year to date total net charge offs are only $230,000 as we posted net recoveries in the 1st and second quarters of 2024. At quarter end, our allowance for credit losses remained solid at $50,200,000 with a coverage ratio of 2 67% compared to $50,000,000 with a coverage ratio of 2 57% at the end of September and $48,600,000 at a coverage ratio of 275 percent at year end 2023.

Kevin M. Curley
Executive Vice President at TrustCo Bank NY

Rob?

Robert J. McCormick
Robert J. McCormick
Chairman, President, and CEO at TrustCo Bank NY

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

Operator

Thank you very much. We'd now like to open the lines for Q and A. Our first question comes from Ian Lappe of Gambele Funds. Ian, your line is now open.

Ian Lapey
Portfolio Manager at Gabelli Funds

Hi, Rob. Good morning. Congratulations on Good

Robert J. McCormick
Robert J. McCormick
Chairman, President, and CEO at TrustCo Bank NY

morning, Ian. How are you?

Ian Lapey
Portfolio Manager at Gabelli Funds

I'm doing well. Thanks.

Robert J. McCormick
Robert J. McCormick
Chairman, President, and CEO at TrustCo Bank NY

Thank you.

Ian Lapey
Portfolio Manager at Gabelli Funds

Yes, so maybe just start. So in 2024, you said the home equity provided the best opportunity in 2024 for growth and the numbers show that. How are you thinking about 2025 with the fixed rate mortgage at 6.875% that you mentioned? Is that tipping back to being more attractive? Or just talk about sort of the trade off there?

Robert J. McCormick
Robert J. McCormick
Chairman, President, and CEO at TrustCo Bank NY

I got to tell you, I think optimism is coming back into the Real Estate business. Ian, I don't know what you're seeing, but I think we're doing more pre approvals this

Robert J. McCormick
Robert J. McCormick
Chairman, President, and CEO at TrustCo Bank NY

time

Robert J. McCormick
Robert J. McCormick
Chairman, President, and CEO at TrustCo Bank NY

this year than we have in the past probably 18 months. So we're very encouraged about I'm 61 years old, I think you know that, but we used to call it the spring market and that kind of faded up when during a crazy real estate market that we've been in for a period of time. But I think we may end up with a quote spring market again. So we're actively participating in a lot of home shows and calling on a lot of real estate brokers and things like that in an effort maybe to capture some purchase money mortgages. So I guess we're optimistic about purchase money mortgages.

Robert J. McCormick
Robert J. McCormick
Chairman, President, and CEO at TrustCo Bank NY

We're also optimistic, Ian, about some of the non trust co refinances that are out there. We have a pretty good program for that and eventually people need and want some additional funds.

Ian Lapey
Portfolio Manager at Gabelli Funds

Yes. Okay.

Robert J. McCormick
Robert J. McCormick
Chairman, President, and CEO at TrustCo Bank NY

I hope that gets played.

Ian Lapey
Portfolio Manager at Gabelli Funds

Yes, yes. Thank you. On the NIM, so we had 100 basis points of cuts since September, but your NIM actually fell a little bit. What would sort of I mean, not a lot, but what would the spot NIM be now as we're in January?

Michael Hall
Michael Hall
General Counsel & Corporate Secretary at TrustCo Bank NY

I mean we're holding and we're able to we are re pricing some of our CDs down, right? So that's helping us out. And obviously, on the other side, I mean, if the Fed keeps cutting, that will bring the asset side down. But we're I think we're flattening out.

Ian Lapey
Portfolio Manager at Gabelli Funds

So what are your current rates on CDs?

Kevin M. Curley
Executive Vice President at TrustCo Bank NY

We have 6 and this is Kevin Carley. We have 6 9 months at 4 point 15% and 12 months at 4%.

Ian Lapey
Portfolio Manager at Gabelli Funds

Okay.

Ian Lapey
Portfolio Manager at Gabelli Funds

And then on the expenses, the equipment expense and outsourced services jumped fairly significantly both sequentially and year over year. Was there anything unusual in those lines that drove those increases?

Michael Hall
Michael Hall
General Counsel & Corporate Secretary at TrustCo Bank NY

Yes. Throughout the 3rd Q4, we had a couple of occasions that we kind of we just we cleaned up we closed out for the year branches that we left. We've also installed some new ATMs. We put those into service. Some existing fit ups that we are amortizing we wrote off.

Michael Hall
Michael Hall
General Counsel & Corporate Secretary at TrustCo Bank NY

So those are they are pushing the equipment expense line item up. Outdoor services are just some expenses that hit the 4th quarter. So we don't expect those to continue at that level.

Ian Lapey
Portfolio Manager at Gabelli Funds

Okay. And then maybe last one. Credit quality looks good. I think you said early delinquencies are steady. What are you worried about as you look forward to 2025 and 2026?

Ian Lapey
Portfolio Manager at Gabelli Funds

What are you watching on the credit quality side?

Robert J. McCormick
Robert J. McCormick
Chairman, President, and CEO at TrustCo Bank NY

We're not concerned about credit quality at all, Ian. We're pretty comfortable with where we're at. We keep a relatively modest commercial portfolio for a company of our size. We've always been pretty reasonable with regard to our lending standards and we're not nervous about credit quality at all.

Ian Lapey
Portfolio Manager at Gabelli Funds

Okay. Good to hear. Thanks, guys, and I'll talk to you next quarter.

Robert J. McCormick
Robert J. McCormick
Chairman, President, and CEO at TrustCo Bank NY

Thank you.

Kevin M. Curley
Executive Vice President at TrustCo Bank NY

Okay.

Kevin M. Curley
Executive Vice President at TrustCo Bank NY

Thank you.

Operator

Thank

Operator

you very much. Our next question comes from Greg Roder of Adriennecht Funds. Your line is now open, Greg.

Gregory Roeder
Principal & Co-Portfolio Manager at Adirondack Research & Management

Hi, guys. Congrats on the line on a very challenging funding quarter. You mentioned you had dry powder, you're not nervous about credit quality. You're very underweight commercial loans in your book. And I'm curious as to as other lenders are kind of pulling back from commercial real estate, whether it be non owner occupied or small unique multifamily deals or things like that, do you see the opportunity to kind of increase your exposure there?

Robert J. McCormick
Robert J. McCormick
Chairman, President, and CEO at TrustCo Bank NY

Absolutely.

Robert J. McCormick
Robert J. McCormick
Chairman, President, and CEO at TrustCo Bank NY

I don't think you'll ever see us with $1,000,000,000 commercial loan portfolio, Greg, but I certainly wouldn't mind pushing that up a significant number, dollars 300,000,000 or $325,000,000 something like that long term. But again, we're a little bit contrarian, we like slow and steady. I think you know that about us and we won't get crazy over, but if there are opportunities, we think and we think there will be, just so you know, especially in 2026 and 2027 and we'd like to seize that opportunity to grab more of that if we could.

Gregory Roeder
Principal & Co-Portfolio Manager at Adirondack Research & Management

Good to hear. And my next question my last question is on the cannabis opportunity. I'm very curious about that. Is it confined to certain states? I know New York State and Massachusetts and I don't really know much about New Jersey or Florida in terms of their laws and rules and so forth.

Gregory Roeder
Principal & Co-Portfolio Manager at Adirondack Research & Management

And I'm curious as how that works?

Robert J. McCormick
Robert J. McCormick
Chairman, President, and CEO at TrustCo Bank NY

We have it open to all states right now in our entire market. But Florida is still medical only and the most activity we've had is New York and Massachusetts so far, Greg.

Gregory Roeder
Principal & Co-Portfolio Manager at Adirondack Research & Management

So you're essentially going to bank on the deposit side, the small retail operators?

Robert J. McCormick
Robert J. McCormick
Chairman, President, and CEO at TrustCo Bank NY

Yes, sir. Yes, sir.

Gregory Roeder
Principal & Co-Portfolio Manager at Adirondack Research & Management

Okay.

Robert J. McCormick
Robert J. McCormick
Chairman, President, and CEO at TrustCo Bank NY

No, none yet. Yes, right.

Gregory Roeder
Principal & Co-Portfolio Manager at Adirondack Research & Management

Okay. That's it. Thanks a lot. Good luck in 2025.

Operator

Thank you very much.

Michael Hall
Michael Hall
General Counsel & Corporate Secretary at TrustCo Bank NY

Thank you, Greg.

Operator

We currently

Operator

have no further questions. So I'd like to hand back to Robert McCormick for any closing remarks.

Robert J. McCormick
Robert J. McCormick
Chairman, President, and CEO at TrustCo Bank NY

Thank you very much for

Robert J. McCormick
Robert J. McCormick
Chairman, President, and CEO at TrustCo Bank NY

joining our company. We hope you have a great day. See you next quarter.

Operator

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

Executives
Analysts
    • Kevin M. Curley
      Executive Vice President at TrustCo Bank NY
    • Ian Lapey
      Portfolio Manager at Gabelli Funds
    • Gregory Roeder
      Principal & Co-Portfolio Manager at Adirondack Research & Management
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