TRUSTCO BANK CORP N Y Q3 FY2024 earnings call

Management Statement and Operational Highlights:

• The bank's people and facilities withstood Hurricane Milton well, with all locations open.
• Net interest margin increased in the quarter due to holding the line on deposit costs, originating new loans at better rates, and growth in home equity products (6% increase over the quarter, 18% over the year).
• Total loans reached an all-time high of nearly $5.1 billion, highlighting symmetry between deposit and loan portfolios.
• Credit quality remained stellar with non-performing loans to total loans steady at 0.38%.
• Net interest income was $38.7 million for Q3 2024, up $883,000 or 2.3% from prior quarter. Net interest margin was 2.61%, up 8 basis points from second quarter.
• Total noninterest expense, net of ORE expense, was $26 million, down $447,000 from prior quarter, with decreases in costs, salaries, benefits, etc., partially offset by increases in professional services and insurance. ORE expense net was $204,000 for the quarter.

Segment Performance:

• Loans: Average loans for Q3 2024 grew 2.6% or $127 million to $5 billion, an all-time high. Residential real estate portfolio increased by $50.4 million (1.2%), home equity lines of credit increased $60 million (18.7%), average commercial loans increased $18.1 million (6.9%), and installment loans decreased $1.5 million (9.5). Revenue contribution from loans is significant as the bank gathers deposits and lends back to communities.
• Wealth Management: Had approximately $1.3 billion of assets under management as of September 30, 2024, contributing to noninterest income.

Guidance:

• Continue to offer competitive product offerings through aggressive marketing and product differentiation.
• Anticipate total recurring noninterest expense, net of ORE expense, to be in the range of $26.9 million to $27.4 million for 2024.
• Consider share buyback program and possible new branch expansion as NIM improves and capital position remains strong.

Risks:

• Potential credit issues from hurricane damage to homes with mortgages, but no significant such issues reported so far as the bank has handled previous storms without major credit problems.

Q: Hi. Good morning, Rob and team. Congrats on good quarter. Yeah, a few questions. 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...

A: 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.

Q: 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?

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

Q: 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?

A: 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.

Q: 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?

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