TrustCo Bank Corp NY (TRST) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to the TrustCo Bank Corp. Annual Meeting. [Operator Instructions] I would now like to hand the conference over to Robert J. McCormick, Chairman, President and CEO of TrustCo Bank Corp New York.

Thank you. Good morning, ladies and gentlemen. I'm Rob McCormick, Chairman and President and CEO of TrustCo Bank Corp New York. And in accordance with TrustCo's Bylaws, Chairman of this meeting. The meeting will now come to order. Welcome to the Annual Meeting of Shareholders of TrustCo Bank Corp New York. As is now fully apparent, the format of our meeting is different this year than it ever has been, due mostly to COVID-19 pandemic. It's our intention, however, to address the business at hand with our trademark efficiency. Before proceeding to the business of this meeting, I'd like to make certain introductions. I'll introduce the directors with us on the call. This year, we have 1 director standing for reelection, on the ballot is Anthony Marinello, M.D., Ph.D. Also with us for the last time as a Director is Bill Powers. Bill has served our great company with distinction for 1/4 of a century. He has officially retired as of today, and we extend our sincere gratitude upon his departure and we wish him all the best in retirement. Also with us on the call are our Lead Independent Director, Dennis DeGennaro; Audit Committee Chair and Board Financial Expert, Brian Flynn; Governance Committee Chair, Lisa Lucarelli; and Thomas Maggs, our Compensation Committee Chair. Our executive offices are on the call as well. They are: Executive Vice President and Chief Lending Officer, Scot Salvador; Executive Vice President and Chief Risk Officer, Bob Leonard; Executive Vice President and Chief Financial Officer, Mike Ozimek; and Executive Vice President and Chief Operations Officer, Kevin Curley; Senior Vice President and Florida Regional President, Eric Schreck; and Michael Hall, our General Counsel and Corporate Secretary. We are fortunate to have great depth in our leadership group. A number of our senior leaders are on with us as well. They are Carly Batista, Michael Ewell, JR George, Patrick LaPorta, Michael Lofrumento, Daniel Saullo and Michelle Simmons. Ashish Ahlowalia from Crowe LLP, the company's independent auditor, is on the call as well and may be called upon to answer questions, if needed. Our proxy committee members are Judge. Barry Kramer and Bill Terry. We have retained the services of CT Hagberg LLC to act as our independent inspectors of election. Gary Wozniak associate has taken the oath of inspector. Despite the modified format of this meeting, we will follow our customary order of events and conduct our annual meeting first, and upon adjournment, immediately conduct our shareholder forum. The modified format of the meeting provides from its submission of questions through the online portal. At that time, we'll report on the operating results and outlook for our company, we will then entertain submitted questions. This format allows us to complete our formal business expeditiously and move on to matters of general interest. Now I call on Michael Hall, our Corporate Secretary, Mike will establish that the meeting has been duly called and a quorum is present for the annual meeting. Michael?

Thank you, Mr. Chairman. The Board fixed March 23, 2020, as the record date for determining shareholders entitled to vote at this meeting. An affidavit has been reviewed by the inspectors of election attesting to the fact that the notice of meeting, the 2020 proxy statement and the 2019 Annual Report to Shareholders were mailed to all shareholders of record beginning on April 3, 2020. As stated in the notice, the purposes of this meeting are to consider and vote upon the following matters: first, election of a director; second, approval of a nonbinding advisory resolution on the compensation of TrustCo's named executive officers; and third, ratification of the appointment of Crowe LLP as TrustCo's independent auditors for 2020. The inspectors of election have submitted the following report. There were outstanding on the record date, a total of 96,432,658 shares of common stock, the holders have not fewer than 82,594,332 shares of common stock are present by proxy. Approximately 85.6% of the voting power of the outstanding shares is present at the meeting. Accordingly, Mr. Chairman, a quorum is present.

Thanks, Mike. On the basis of the Secretary's report, the meeting is duly convened. The polls for each matter to be voted upon at this meeting have been open for some time, are open now and will be open for a few more minutes. Now we will conduct the formal business as set forth in the notice of the meeting. In order to conduct an orderly meeting and give all of the shareholders an opportunity to participate, we will follow the rules of conduct posted on the online portal. Mike, please present the nomination for director?

Mr. Chairman, upon behalf of the Board of Directors, I move that Dr. Anthony Marinello, as named in the proxy statement, be elected as a director to hold office for a term to expire at the 2021 Annual Meeting of Shareholders or until his successor has been elected and qualified. [Voting]

Is there a second?

I'll second it, Mr. Chairman.

The nominations are closed. The meeting will now proceed to the second item on the agenda concerning the approval of a nonbinding advisory resolution on the compensation of TrustCo's named executive officers. Mike, please present this matter.

Mr. Chairman, on behalf of the Board of Directors, I make a motion to approve a nonbinding advisory resolution on the compensation of TrustCo's named executive officers. [Voting]

Is there a second?

I'll second that motion.

The meeting will now proceed to the third and final item on the agenda concerning the ratification of Crowe LLP as TrustCo's independent auditors for 2020. Mike, please present this matter.

Mr. Chairman, on behalf of the Board of Directors, I make a motion to ratify the appointment of Crowe LLP as TrustCo's independent auditors for 2020. [Voting]

Is there a second?

I second the motion.

If any shareholder would like to make a comment regarding any of these proposals, please submit your comment through the web portal.

Mr. Chairman, there are no comments in the portal.

Any stockholder who hasn't voted or hasn't yet voted or wishes to change their vote may do so by clicking on the voting button on the web portal and following the instructions there. Stockholders who have sent in proxies are voted by mail or via the Internet and do not want to change their vote, do not need to take any further action. Now that everyone has had the opportunity to vote, I declare the polls for the annual meeting closed. The next item on the agenda is the preliminary report of the inspectors. Any ballots cast before the polls closed, but not reflected in the preliminary report, will be reflected in the final report of the inspectors. I now call upon the Secretary to present the preliminary report of the inspectors.

Mr. Chairman, the inspectors of election have presented their preliminary report. They have determined that the director nominated by the Board for election received the affirmative vote of the majority of votes cast. Additionally, Mr. Chairman, the inspectors of election have determined that shares representing a majority of the votes cast support the advisory vote on the compensation of TrustCo's named executive Officers. Finally, Mr. Chairman, the inspector's report that well in excess of a majority of the shares voted were cast in favor of the ratification of the appointment of Crowe LLP as TrustCo's independent auditors for 2020.

Thank you, Mike. Based upon the preliminary report of the inspectors of election, I declare that Anthony Marinello, MD, PhD is elected director and further declare that the nonbinding advisory resolution on the compensation of TrustCo's named executive officers is adopted, and the appointment of Crowe LLP as TrustCo's independent auditors for 2020 is ratified. There being no further business to come before the meeting and all ballots having been received, the formal meeting is now concluded and is adjourned. We will now begin the shareholder forum. Please note, we will attempt to answer as many questions as time allows, but only questions that are germane to the meeting will be addressed. As we mentioned in the formal part of the gathering today, we are attempting to comply with new standards or meetings. We, as most companies have opted for electronic meetings this year. Some may not like it, but it is safer and more appropriate for the times. We at some point hope to conduct a more traditional meeting, but in the meantime we will proceed this way, a new normal, if you will. We welcome you and we'll try to supply the information that is important to all shareholders. We had a very good 2019 here at the bank. Our net income of $57 million was solid, coming off a record 2018 net income. The drop in year-over-year net income was driven by the cost of deposits. The increase has caused a reduction in net interest income. The good news is we did have an increase in net interest income for the first quarter of 2020 as deposits repriced at lower current rates, a bit of a rebound with but what we think has more room for improvement. Our expenses were very stable year-over-year. We are usually very careful with regard to expenses. We continue to have a strong balance sheet. Total assets exceeded $5.2 billion, with an increase of over $45 million of shareholders' equity to over $535 million. By far, our largest single asset is our loan portfolio. Broken down even further, owner-occupied 1- and 2-family first mortgages totaled almost $3.5 billion. We are well-known for this and pretty good at it. We also have home equity products which become a smaller portfolio over the years. The runoff, we believe, is being caught up in the first mortgage refinances. We have never been a big installment lender. We have a strong commercial loan capability but a relatively small portfolio for the company of our size. Commercial lending is very competitive with reduced credit standards and lower rates. For these and other reasons, we have been happy to take a cautious approach, working with our customers and seeking to be part of transactions that are the right fit for us. Any way you slice it, our loan portfolio is world-class. We have efficiently built a diversified, very strong book of business. Evidence of this are asset quality ratios, nonperforming loans to total loans at year-end were 0.51% and nonperforming assets to total assets was 0.43%, both down from year-end 2018 levels. Backing up this loan portfolio is our allowance for loan losses that was 1.09% of total loans at year-end, providing a coverage ratio of 2.1x. We also maintain a very healthy cash position and a relatively large investment portfolio with short maturities. This provides us with flexibility and the ability to wait out a problem or go after an opportunity. We have no debt on our balance sheet. We are somewhat traditional, funding our operations using customer deposits. Please remember, all of our business is generated through our branch network, no brokered loans or deposits. We posted nice growth in total deposits in 2019. Our results provided a return on assets of 1.12% and a return on equity of 11.26%. Our capital ratio at year-end was 10.42% after paying out almost $26 million in dividends. We are very proud of the dividends we pay out. Since 2000, we have paid out almost $650 million, a huge number. Last year, our payout ratio was just under 46% compared to our peer group of 35%. Also, our dividend to average book value was 5.13% compared to a peer number of 3.16%. We understand dividends come in and out of favor at times. We do believe it is best to provide this type of stable return to our owners. These numbers are great. We are committed to a stock buyback program, which have been paused based on current conditions. It is our intent to renew and reload this program and restart it at the right time. Prior to the pause, we were able to buy back almost 500,000 shares. We will also evaluate other possible uses of capital as opportunities present themselves. Let's spend some time on our operation. We continue to operate 148 full-service offices in 5 states. We did not open any new offices in 2019. We did some relocation and renovation, also spent some time on upgrading visibility, especially through our signage. The refinement of our network has been positive. Our average branch size is over $30 million. This has been a pretty steady increase over the years. We stack up pretty well against our peer group. We are better when it comes to return on equity, return on average risk-weighted assets, tangible equity to assets, Tier 1 capital ratio, total capital ratio and efficiency ratio. For update purposes, based on current events, we had a solid first quarter in 2020. We were able to -- we were active in the SBA PPP program. We have many requests for payment forbearance. We did delay CECL implementation and solid first quarter numbers included a larger allocation to the loan loss reserve. If you've attended this meeting in the past, you know we like to end on a positive note, something to be proud of. We have had a very good response to the pandemic. We established a COVID fund and made donations to mostly hospitals and food banks across our markets. We have also provided volunteer service where possible and appropriate. We've attempted to maintain some normalcy in our operation. Our customers rely on us and we want to be there for them. This year, the meeting should be dedicated to the hard-working staff here at the bank. We have provided masks, gloves, plexiglass partitions, bleach bottles, hand sanitizers and many lunches. But they have provided the heart and soul, taking care of customers in some tough times and difficult conditions. They have shouldered the responsibility of being essential with class and grace. The great philosopher, John Wayne said, "Courage is being scared to death and saddling up anyway." Well, the employees of our company have certainly saddled up. So on behalf of the Board and shareholders, we thank them for a job well done. Now we can attempt to respond to any questions you may have.

Mr. Chairman, a shareholder asks, with earnings per share is stagnant, are there any thoughts of achieving growth through acquisitions?

Well, as I've said in the past at this meeting, no one would like to make an acquisition more than the management team here. But we're well aware of our responsibility and we work for our existing shareholders. It's not our job to enrich the shareholders of other companies. So if the right opportunity came that was accretive to our shareholders and beneficial to our shareholders, we would certainly be the first to jump behind.

Mr. Chairman, a shareholder asks, does the company anticipate a dividend increase?

We don't anticipate a dividend increase. We think the dividend return is fantastic right now. And I'm not sure how much of an increase would support additional support for the share price.

Mr. Chairman, there are no further questions in the queue.

Well, thank you for taking time out of your day today to hear more about our company. Please stay safe and healthy.