TRST - NASDAQ

Good day, and welcome to TrustCo Bank Corp Earnings Call and Webcast. All participant will be on listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] 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 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, in the Risks and Forward-looking Statements section of our annual Report Form 10-K and as updated by our quarterly reports 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 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. Please also note that today's event is being recorded. A replay of the call will be made available for 30 days and audio webcast will be made available for one year as described in our earnings press release. At this time, I'd like to turn the conference call over to Mr. Robert J. McCormick, Chairman, President and CEO. Please go ahead.

Good 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 be talking about lending; and Mike Ozimek, our CFO, who will go through the numbers. We are very pleased to report that 2025 is off to a strong start. Every category deposits is up with low cost core and business accounts, including cannabis accounts making significant contributions. Time deposits are also up year-over-year. We are realizing the impact of a renewed focus on digital channels for account openings, these improvements are a result of hard work over the long haul. Our people are focused on building and maintaining strong customer relationships and offering top-tier products to permit effective management of the cost of funds. Increases in deposits are especially good for us because we lend those funds right back out. Our lending is funded organically by deposits gathered through our own network, not borrowed funds or brokered CDs. Significantly, commercial lending is up 8%, with the total now topping $300 million. On the residential side, home equity products are leading the way. Total loans were up over $100 million from the first quarter of last year. Success in these areas have resulted in meaningful margin improvement of more than 8% year-over-year. Net interest margin now sits at 2.64%, all return metrics are up significantly with earnings per share, return on average assets, and return on average equity, all up 27%, coming in at $0.75 per share, 0.93% and 8.49%, respectively. Consolidated equity to assets remains exemplary at 10.85%, up 3% year-over-year. Shareholders' equity is also strong, up 6% year-over-year this excellent capital position will support our authorized a million share repurchase and allow us to operate from a position of strength and afforded flexibility in a dynamic environment. All of this success was accomplished while maintaining our exceptional asset quality, non-performing loans total loans remained flat at a negligible 0.37% and we realized a net recovery during the quarter. Results announced today illustrate the success that can be had through staying consistent with our mission, our meet -- and meeting our customers where they are, be that holding onto great mortgage rate they got two years ago, trying to anticipate where CD rates may go in the next year or seeking enhanced digital experience. We did this by offering them great home equity products, flexible and competitive CD options, and better online and mobile banking. I look forward to seeing how our team elevates the relationships we have with our customers in order to navigate the remainder of 2025 and beyond. Now, Mike will give us detail on the numbers and Kevin will give color on the loan portfolio. Mike?

Thank you, Rob, and good morning, everyone. I will now review TrustCo's financial results for the first quarter of 2025. As we noted in the press release, the company saw a robust start to 2025. Marked by growth in both the loan and deposit portfolios of Trustco Bank during the first quarter of 2025 compared to the first quarter of 2024. This performance underscores the Bank's commitment to serving its community through increased residential and commercial lending and adapting effectively to the evolving financial landscape. This resulted in the first quarter net income of $14.3 million, an increase of 17.7% over the prior year quarter, which yielded a return on average assets and average equity of 0.93% and 8.49%, respectively. Capital remains strong. Consolidated equity to assets ratio was 10.85% for the first quarter of 2025, compared to 10.51% for the first quarter of 2024. Book value per share at March 31, 2025 was $36.16, up 6% compared to $34.12 a year earlier. During the first quarter of 2025, Trustco also announced a stock repurchase program of up to 1 million shares or approximately 5% of Trustco's current outstanding shares of common stock. This repurchase initiative is part of the bank's broader capital management strategy and it is intended to enhance shareholder value, while maintaining flexibility to support future growth. Average loans for the first quarter of 2025 grew 2.1% or $104.7 million to $5.1 billion from the first quarter of 2024, an all-time high. Consequently, overall, loan growth has continued to increase, leading the charge was home equity lines of credit portfolio, which increased by $61 million or 17.3% in the first quarter of 2025 over the same period in 2024. The residential real estate portfolio increased $26.2 million and an average commercial loans increased $20.7 million or 7.5% over the same period in 2024. This uptick continues to reflect a strong local economy and increased demand for credit. For the first quarter of 2025, the provision for credit losses was $300,000. Retaining deposits has been a key focus as we move into 2025. Total deposits ended the quarter at $5.5 billion, and was up $142 million compared to the prior year quarter. We believe the increase in these time deposits compared to the same period in 2024 continues to indicate strong customer confidence in the bank's competitive deposit offerings. As we move forward, despite a complex economic environment, we believe that our strategic focus on relationship banking and solid financial practices has positioned us for continued success. Net interest income was $40.4 million for the first quarter of 2025, an increase of $3.8 million or 10.4% compared to the prior year quarter. Net interest margin for the first quarter of 2025 was 2.64%, up 20 basis points from the prior quarter. During the same time period, the yield on interest earning assets increased to 4.13%, up 14 basis points and the cost of interest bearing liabilities decreased to 1.92% for the first quarter of 2025 from 1.99%. As the Federal Reserve signals potential interest rate reductions in 2025, the bank is proactively preparing to navigate the evolving rate environment. In this context, the bank anticipates that a lower interest rate environment will provide opportunities to manage deposit costs more effectively, thereby supporting net interest margin. The bank remains committed to maintaining competitive deposit offerings while ensuring financial stability and continued support for our communities' banking needs. Our Wealth Management division continues to be a significant recurring source of non-interest income. They had approximately $1.1 billion of assets under management as of March 31, 2025. Non-interest income attributable to wealth management and financial services fees increased by 16.7% or $2.1 million, driven by strong client demand and higher assets under management. These revenues now represent 42.6% of non-recurring income. The majority of this fee income is recurring and supported by long-term advisory relationships and a growing base of managed assets. Now on to non-interest expense. Total non-interest expense, net of ORE expense came in at $26.3 million, up $1.4 million from the prior year quarter. The increase is primarily the result of higher costs in salary and employee benefits, equipment expense, professional services, outsourced services and some other expenses. ORE expense net came in at an expense of $28,000 for the quarter as compared to $74,000 in the prior year quarter. We're going to continue to hold anticipated level of expense not to exceed $250,000 per quarter. All of the other categories and non-interest expense were in line with our expectations for the first quarter, and we would expect 2025's total recurring non-interest expense, net of ORE expense to be consistent with prior year's guidance. Now Kevin will review the loan portfolio and non-performing loans.

Thanks, Mike, and good morning to everyone. Our loans grew by $104.7 million or 2.1% year-over-year, the growth was centered on residential mortgages, which increased by $26.2 million over last year, and our home equity loans increased by $61 million or 17.3%. In addition, our commercial loans grew by $20.7 million or 7.5% over last year. For the first quarter, actual loans increased by $18.1 million as total residential loans grew by $2.8 million and commercial loans were also higher in the quarter, increasing by $15.9 million. Overall, residential activity trends remain similar to those discussed in recent quarters. Our home equity products continue to see steady demand as they remain attractive to borrowers that have low rate mortgages, but may want to use their homes equity for various projects or large purchases. For purchase activity, we are well positioned in the market and look to capitalize as this mortgage segment picks up. Also, as a portfolio lender, we have the flexibility to use our control on pricing and the ability to offer various promotions to increase application volume. Rates in the market have been moving in at 50 basis point range, and our current rate is 6.5% for our base 30 year fixed rate loan. We have been keeping our rates very competitive with the goal of increasing market share. Overall, we are positive about our loan growth in the quarter and remain focused on driving stronger results moving forward. Moving to asset quality. Asset quality of the bank remains very strong. Non-performing loans were $18.76 million at this quarter end, $18.8 million last quarter, and $18.28 million a year-ago. Non-performing loans to total loans remained very low at 0.37% at this quarter end compared to 0.37% last quarter and also 0.37% a year ago. Non-performing assets totaled $20.9 million at quarter-end versus $21 million last quarter and $20.6 million a year ago. Our early stage delinquencies also continue to be steady, and charge-offs for the quarter amounted to a net recovery of $258,000 compared to the fourth quarter's $102,000 charge. At quarter end, our allowance for credit losses remained solid at $50.6 million, with the coverage ratio of 270% compared to $50.2 million, with the coverage ratio of 267% at year end and $49.2 million and a coverage ratio of 269% a year ago. Rob?

We are happy to answer any questions you might have.

Thanks very much. We'd now like to open the lines for Q&A. [Operator Instructions] Our first question comes from Ian Lapey of Gabelli Funds. Ian, your line is now open.

Hi. Good morning. Congratulations on a good start to the year. A couple of questions.

Thanks, Ian. Good morning to you.

Thank you. The press release references a strong local economy. I'm just curious, is that the capital region or is that all of your markets? Maybe you can just expand a little bit on that because, the market is telling us maybe not so strong economy.

I would say -- yeah, I would say we're located Ian. We're very stable in strong markets. In the Capital District, we don't have the highs and lows that a lot of other economies and a lot of other markets have because of the employment base here and the service based economy. But even the locations where we are in Florida, we're not really in South Florida, the Naples area, and Bonita Springs, and some of the places we've heard other difficulties, we're more concentrated in the Central Florida area, and that still remains pretty strong.

Okay. Good. And what are you seeing as sort of a follow-on in terms of home price -- residential home price trends? Are they stable? Have they been increasing over the year in most of your markets?

Stable and not increasing. You're not seeing values drop, but the expectation of 10% and 15% annual returns on real estate are not happening.

Right. Okay. And then my other topic is the share repurchase announcement. Just curious a couple of things because at around the same time a year ago, you announced a plan for about 1%, but didn't repurchase any shares. Now you're doing up to 5%, so significantly bigger, maybe what changed in terms of the size and do you have more of an intention to execute as compared to a year ago?

Yeah. I think the 5% kind of contemplated the fact that we didn't execute on the 1%. And I think the tone and tenor towards share repurchases is more favorable this year and now than it was in prior periods. So with -- our intent would be to fully execute on the 5% this year.

Okay. And then maybe as a follow-up, in terms of capital, obviously very strong 10.84 TCE. Even if you did all the 5% right away, that would still only drop to about 10.4. What sort of target capital ratio is -- are you contemplating?

Well, I don't know if we want to tell the target capital ratio that we have, but we would certainly have room to make another repurchase and still maintain a very strong capital position comfortably. That's a good way of answering that Ian.

Okay. Great. Congratulations.

Thank you.

Thanks very much. [Operator Instructions] At this time, we have no further questions. I'd like to hand back to Rob McCormick for any closing remarks.

It is always nice seeing Troy Heidenberg on the call roster and I can't believe I'm seeing Eric Schreck as a private investor instead of a co-worker. I hope you all guys all have a nice day, and thank you for your interest in our company.