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Operator: Good day, and welcome to TrustCo Bank Corp Earnings Call and webcast. All participants will be in a listen-only mode. [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 in or implied by 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 forward-looking statements made on 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 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 US GAAP. The reconciliation 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 Relation tabs of our website at trustcobank.com. Please also note that today’s event is being recorded. A replay of the call will be available for 30 days, and an audio webcast will be available for one year as described in our earnings press release.

At this time, I would like to turn the call over to Mr. Robert J. McCormick, Chairman, President and CEO. Please go ahead.

Robert J. McCormick: Good morning, everyone, and thanks for joining the call. I’m Rob McCormick, the President of TrustCo Bank. With me as usual are Michael Ozimek and Scot Salvador. We’ll follow our regular format for the call. I will provide highlights. Mike, our CFO, will provide a detailed review of the numbers. And Scot will cover the loan portfolio, leaving time for questions at the end. Our industry as a whole and specifically, the regional banking sector has faced many challenges so far this year. The numbers we are reporting today, however, are very strong, building on the results from the first quarter and reinforcing our long-term profitability. Net income was roughly $16.4 million for the quarter. This is slightly down but still a very solid number.

It’s also worth mentioning that it follows several record quarters. Our loan growth was 7.5% during the quarter compared to the same time last year, with our residential, commercial and home equity credit lines, all steadily increasing to set a new record high in the loan portfolio of $4.9 billion. We continue to demonstrate stability within our deposit portfolio, which is up $66 million or about 1.25% from the beginning of the year and up $46 million since the first quarter of ’23. Reflective of the current interest rate environment, our time deposits are up $162.7 million, almost 13% for the quarter. We recognize this current shift towards time deposits and are proud of our team for strengthening relationships across our customer base. Instead of fleeing to non-bank investment products, we’ve seen our customers remain loyal and continue to enhance their relationships with us.

Our strategy maintaining a very healthy and liquid balance sheet during the historically aggressive rising interest rate environment is bearing fruit. The ability to maintain flexibility on pricing deposits to provide the maximum benefit to our shareholders, coupled with consistent loan growth and cultivating our customer base to grow deposits has helped keep our net interest income steady, which was $44.1 million for the second quarter, a 2.3% increase over the second quarter in ’22. Our net interest margin was 2.98%, which is up from the same quarter last year. Asset quality remains strong, and our loan loss reserves are consistent over last year. Our allowance for credit losses on loans to total loans was 0.96%, essentially flat from 1% this time last year.

We saw another quarter in net recoveries marking the sixth consecutive quarter for this. Our ROA and ROE were 1.09% and 10.61%, respectively, for the second quarter of ’23. We are pleased to report our book value has increased to $32.66 a share, up a solid 5.2% from the second quarter of ’22. Capital levels continue to remain strong, standing at 10.23% in the second quarter, up over 7% from the 9.54% this time last year. Now Mike will give us a lot of detail on the numbers. Scot will give color on the loan portfolio, then we can take your questions. Mike?

Michael Ozimek: Thank you, Rob, and good morning, everyone. I will now review TrustCo’s financial results for the second quarter of 2023. As we noted in the press release, the company saw a second quarter net income of $16.4 million, which yielded a return on average assets and average equity of 1.09% and 10.61% respectively. Capital remains strong. Consolidated equity to assets ratio was 10.23% for the second quarter of ’23 compared to 9.55% in the second quarter of ’22. Book value per share at June 30, 2023, was $32.66, up 5.2% compared to $31.06 a year earlier. Average loans for the quarter grew to 7.5% or $336 million to $4.8 billion from the second quarter of 2022. Loan growth was exceptional and occurred in all of our loan categories, and leading the charge was the residential real estate portfolio, which increased $220 million or 5.4% in the second quarter of ’23 over the same period in ’22.

Average commercial loans increased $50.1 million or 25.2%. Home equity lines of credit increased $59.5 million or 24.4%, and installment loans increased $6.4 million or 6.8% over the same period in 2022. For the second quarter of 2023, the provision for credit losses was a benefit of $500,000. We have now been actively retaining deposits now for two quarters in a row. Total deposits as of June 30, ’23, increased $46 million to $5.26 billion from March 31, 2023. As we move forward, our objective is to continue to offer competitive product offerings of the bank through aggressive marketing and product differentiation. We understood the big inflows of deposits during the pandemic were temporary, and it’s not — that’s why we did not invest that liquidity into our securities or loans, but retained that liquidity on the balance sheet for when our depositors would start to absorb the funds.

This gave us flexibility to strategically price deposits while retaining core customers. Net interest income was $44.1 million for the second quarter of ’23, an increase of $992 million or 2.3% compared to the same period in ’22, driven by solid liquidity, loan growth and the recent increases in the Fed funds target rate. The net interest margin for the second quarter of ’23 was 2.98%, up 15 basis points from the second quarter of ’22. The yield on interest-earning assets increased to 3.8%, up 90 basis points from 2.9% in the second quarter of ’22. The cost of interest-bearing liabilities increased to 1.06% in the second quarter of ’23 from 10 basis points in the second quarter of ’22. Our Financial Services division continues to be a significant recurring source of non-interest income.

They have approximately $940 million of assets under management as of June 30, ’23. Now on to non-interest expense. Total non-interest expense, net of ORE expense, came in at $27.2 million, which is consistent with the prior quarter. ORE expense came in at an expense of $148,000 for the quarter as compared to an expense of $225,000 in the prior quarter. Given the continued low level of ORE expenses, we’re going to continue to hold the anticipated level of expense not to exceed $250,000 per quarter. We would expect the 2023 total recurring non-interest expense, net of ORE expense, to remain in the range of $26.9 million to $27.4 million per quarter. Now Scot will review the loan portfolio and non-performing loans.

Scot Salvador: Thanks, Mike, and good morning to everyone. The bank continues to enjoy strong loan growth for the second quarter. Overall loans increased by a combined $87 million in actual numbers. This equates to an increase of 1.8% in the quarter. Year-over-year, the increase was $346 million or 7.6%. We were very pleased with the loan growth posted for both the quarter and year-over-year. This growth occurred in all our regions and across all loan categories and was achieved in a time of fast changing interest rates and economic conditions. On the quarter, residential loans increased by $81 million with both first mortgages and home equity products posting increases. Commercial loans increased by $5 million. This continues a trend of solid growth in all these categories.

We continue to benefit on the quarter from a large amount of home construction loans we had in our backlog, which are now being completed and booked. More recent market activity on the purchase side has been a bit slower due to increased rates and a shortage of existing home inventories and [Technical Difficulty]. However, overall demand for homes remains good and we continue to focus our efforts on capturing a larger piece of the current market. Additionally, loan payoffs have dropped significantly this year due to the extremely slow refinance market. Interest rates have stabilized a bit, and we currently stand at 6.5% in our base 30-year fixed rate. Our loan backlog is solid, although down somewhat from the first quarter, reflecting both, our recent loan closings and the overall market conditions.

Asset quality at the bank remained strong. Non-performing assets totaled $20.8 million as of June versus $19.4 million a year ago. And non-performing loans totaled $19.4 million versus $18.7 million last year. Non-performing loans now stand at 0.40% of total loans versus 0.41% a year ago. Early-stage delinquencies also continue to be solid, and charge-offs for the quarter amounted to a net recovery of $229,000. The coverage ratio or allowance for credit losses to non-performing loans stood at 242% in June, unchanged from a year ago. Rob?

Robert J. McCormick: Thanks, Scot. I’d be happy to answer any questions anybody has.

Operator: Thank you. We will now begin the question-and-answer session. [Operator Instructions] Thank you. This concludes our — we have — our first question comes from Ian Lapey from Gabelli Funds. Ian, your line is now open.

Ian Lapey: Hi, good morning. Congratulations on a solid quarter.

Robert J. McCormick: Good morning.

Ian Lapey: A couple of questions. On the residential mortgage loan portfolio, what is the average maturity? I know the K shows that $3.6 billion is more than 15 years. But do you have a number for sort of the whole thing?

Michael Ozimek: I mean, our average life is somewhere in that eight to nine-year range. We primarily do 30-year mortgages. So they’re going to be — they’re going to tend to — the final state of maturity is going to go further out. So that’s going to be closer to that — at this point, probably 25 year away.

Ian Lapey: Okay. So what are you seeing now in — I think you’ve said both, this quarter and last quarter, that obviously prepayments are really low. I mean what — based on what you’re seeing now, how much is that average life? How much is that your sort of expectation for the average life extended?

Michael Ozimek: I mean if you come through from the pandemic when we — prior pre-pandemic when we had a lot of refinances, that used to be in maybe that seven-year average life. And that’s probably extended into that eight to nine-year average life. So it’s extended a little bit in the recent years.

Ian Lapey: Okay. And then what percent of the — your mortgage holder or customers use another TrustCo product, whether it’s deposit or financial services or commercial loan?

Robert J. McCormick: I don’t — we don’t have a specific percent on that, but it’s a — we have pretty good core customers. And so I think that’s relatively high. That’s also a target of a lot of our sales efforts over the years. We pulled many inquiries with regard to people who have a mortgage and no checking account, or a checking account and no mortgage on the opposite side.

Ian Lapey: Okay. So for some of the really low — the mortgages that you underwrote during the pandemic when rates were really low, would you consider selling some of those, if you didn’t have an associated product with the customer? I mean, is that an opportunity to sort of de-risk the mortgage? And just in terms of duration and interest rate risk in case rates take another big leg up from here?

Robert J. McCormick: We’ve certainly evaluated that in the past, Ian, and would certainly consider it in the future. But at this point, probably not. It just doesn’t seem to make a lot of sense for us at this point to contemplate that.

Ian Lapey: Yeah. Okay. And then on the last quarter, Rob, you mentioned…

Robert J. McCormick: If I could just add a little color to that. A side benefit of — there is a side benefit to lower mortgage rates has been the increased home equity credit activity.

Ian Lapey: Right.

Robert J. McCormick: Which [indiscernible] So that’s a — if there is a side benefit to it, that’s been it.

Ian Lapey: Okay. And Rob, you mentioned last quarter, one of the two big issues with staffing, has that improved? And is there an opportunity potentially to improve the efficiency ratio, at least offset some of the pressure you’re facing in NIM?

Robert J. McCormick: Yeah. As we enter August, Ian, it’s kind of funny because if you’d asked me that question 1.5 weeks ago or a week ago, I probably would have said, yes, it’s greatly improved, but we seem to have a lot of resignations as we enter August. And I guess the tail end of summer, people trying to take advantage of — so — but I think overall, yes, it has improved. And I would think absolutely as the openings close, that helps us out significantly with compensation.

Ian Lapey: Okay. And then lastly, on the Financial Services, I know you mentioned $940 million in AUM, but the fees were down both — fairly significantly, both sequentially and year-over-year. And anything going on to drive that? Should we see a rebound in the second half of the year?

Robert J. McCormick: I guess that’s the pitfall of a traditional trust department, Ian. And you guys can chime in here if you want, but — which we’ve historically run a very traditional trust department, so that if you do have, customers can pass and change. Plus, in the first quarter, we do take our tax preparation payments. So that drives the income down in the second quarter.

Ian Lapey: Okay. Okay, that’s it…

Robert J. McCormick: We’re not actually rebranding that with more wealth management, Ian. So that’s — I think that will be very positive for us as well, trying to capitalize on our branch network, especially branches in the state of Florida and opportunities within the state of Florida.

Ian Lapey: Okay. Good. Okay. That’s it for me. Thanks. And, again, tough environment and solid performance.

Robert J. McCormick: Thank you.

Operator: Thank you, Ian. [Operator Instructions] Our next question comes from Nick Ripostella from NR Management. Nick, your line is now open.

Nick Ripostella: Good morning, fellas. Good job in a tough environment. On the last call, you alluded to potential share repurchase. And I’m just wondering from where you stand now, is that something you’d still be interested in? And just if you can comment on the dividend, what you can see going forward here. And that’s it. Thank you so much.

Robert J. McCormick: I mean, timing is everything, Nick, as you can imagine in the community bank sector, capital preservation and liquidity preservation have been first and foremost on people’s minds for 2023. And that’s why we haven’t activated our share repurchase program, even though the book value was very attractive for — to consider something like that. As we approach the balance of the year, I think you could see us become more active in that area. And the dividend is always under review. I can’t make a forward-looking statement about what we’ll do with the dividend, but we always have that under review. And we’re completely committed to a large cash dividend for our shareholders. We realize it’s a large part of their return, and we’re constantly evaluating and looking at that position.

Nick Ripostella: Okay. Thank you so much.

Robert J. McCormick: Thank you.

Operator: Thank you. This concludes our question-and-answer session. I would like to turn the conference back to Robert J. McCormick for any closing remarks.

Robert J. McCormick: Thank you for your interest on our company and I hope you have a great day.

Operator: Thank you. The conference call has now concluded. Thank you for attending today’s presentation. You may now disconnect.