Good day, and welcome to the TrustCo Bank Corp Earnings Call and Webcast. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing star followed by 0 on your telephone keypads. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star followed by 1. To withdraw your question, you may press star followed by 2. 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 on forward-looking statements provided by the Private Securities Litigation Reform Act of 1995. Actual results and trends could differ materially from those set forth in 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 precedes this call and in the Risk Factors and Forward-Looking Statements section of our annual report on Form 10-K as updated by our quarterly reports on Form 10-Q. The statements are valid only as of the date hereof, and the company disclaims any obligation to update this information except as may be required by applicable law. Today's presentation contains non-GAAP financial measures. Reconciliations of such measures to the most comparable GAAP figures are included in our earnings press release, which is available under the Investor Relations tab of our website, trustcobank.com. Please also note today's event is being recorded. At this time, I would like to turn the conference call over to Mr. Robert J. McCormick, Chairman, President, CEO. Please go ahead.
Thanks, Juan. Thank you for joining us this morning to hear more about our company. We are very pleased with our results. As usual, Michael Ozimek and Scot Salvador are on the call. Mike, as most of you know, is our CFO. He's gonna give us a lot of detail on the numbers. Scot will give some color on our loan portfolio, especially credit quality. Let me hit a few of the highlights before we move on. How could we not be pleased with the net income number this quarter? We are pretty sure it's an all-time record, up from last quarter and the same quarter last year. The $17.1 million net income in the first quarter gives us a solid foundation for the rest of the year.
Total assets are almost $6.3 billion, up just under 4% from the same quarter in 2021. Growth was driven mostly by our loan portfolio, which is up about 4.6% year-over-year. This growth is mostly in our residential mortgage portfolio. We have had some large payoffs in PPP activity in our commercial loan portfolio, but we are encouraged by the flattening or slow growth in the home equity portfolio. Our deposit growth has been great, up over all periods reported. We also continued the trend of shedding off higher price time deposits and replacing them with core. Shareholders' equity is up year-over-year, down quarter-over-quarter as our investment portfolio reprices contemplating current rates. All of our performance ratios are positive. ROA was 1.12%. ROE was 11.6%.
Our efficiency ratio was just under 51.5, 51% for the quarter. We did see continued erosion in the net interest margin, but at a much slower pace. We are also encouraged by monthly trends. Loan portfolio is very strong. Non-performing loans to total loans is 0.43%. Non-performing assets to total assets is 0.31%. Our allowance is over 1% compared to total loans with a coverage ratio of 2.4 times. We have implemented CECL, and Mike has a lot more detail on that. We are maintaining a large cash position in the securities portfolio with relatively short maturities. We feel this puts us in good position for a changing rate environment. We are optimistic about the rest of the year. Now Mike will detail the numbers. Scot will talk loans, leaving time for questions. Michael?
Thank you, Rob, and good morning, everyone. I will now review TrustCo's Financial results for the first quarter of 2022. As we noted in the press release, the company saw net income of $17.1 million in the first quarter of 2022, an increase of 21.3% over the prior year quarter, which yielded a return on average assets and average equity of 1.12% and 11.6%, respectively. Average loans for the first quarter of 2022 grew 4.6% or $195.2 million to $4.4 billion from the first quarter of 2021.
As expected, the growth continues to be concentrated within our primary lending focus, the residential real estate portfolio, which increased by $218.6 million or 5.8% in the first quarter of 2022 over the same period in 2021. The average commercial loan portfolio decreased $17.8 million or 8.4% over the same period in 2021. The bank continues to receive SBA PPP loan payoffs and currently has approximately $3 million outstanding at March 31, 2022. Additionally, there were no COVID-related deferments as of March 31, 2022. Total average investment securities, which include the AFS and HTM portfolios, decreased $12.3 million or 2.9% during the first quarter of 2022 over the fourth quarter of 2021.
During the same period, the bank had approximately $18.6 million of pooled securities paid down, one maturity of $5 million, and purchased approximately $44.1 million of securities. As mentioned last quarter, the bank adopted CECL on January 1, 2022. The opening adjustment was a $2.4 million increase in the allowance for credit losses on loans, an increase in unfunded commitments of $2.3 million, and a corresponding decrease in deferred tax assets of $1.2 million, resulting in a net decrease to shareholders' equity of $3.5 million. The first quarter of 2022, total provision for credit losses was a credit of $200,000.
This includes a credit to the provision for credit losses on loans of $500 thousand as a result of improving unemployment and housing price forecasts, and is offset by a provision for credit losses on unfunded commitments of $300 thousand as a result of increases in unfunded loans as our loan pipeline builds. The ratio of the allowance for loan losses to total loans was 1.03% as of March 31, 2022, compared to 1.17% as of the same period in 2021. As discussed on prior calls, our focus continues to be on traditional 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 $1.2 billion in overnight investments during the first quarter of 2022, an increase of $157.6 million compared to the same period in 2021. Given the elevated level of cash and the changing interest rate environment, the bank will continue to evaluate and invest excess liquidity into the market. On the funding side of the balance sheet, total average deposits increased $223.4 million or 4.4% for the first quarter of 2022 over the same period a year earlier.
The increase in deposits was a result of $66.1 million, or a 9.1% increase in average money market accounts, a $212.9 million or 16.2% increase in average savings deposits, a $106.9 million or 9.9% increase in interest-bearing checking account averages, and a $135.3 million or a 20.1% increase in average non-interest-bearing checking balances. These were partially offset by the decrease in average time deposits of $297.8 million or 23.6% over the same period last year. During the same period, our total cost of interest-bearing deposits decreased nine basis points from twenty basis points.
This was primarily driven by a decrease in money market deposits to 11 basis points from 16 basis points, and time deposits to 23 basis points from 54 basis points over the same period last year. As we navigate through 2022, the bank has approximately $264 million in CDs that will mature at an average rate of 21 basis points in the second quarter of 2022. In the third quarter of 2022, approximately $165 million in CDs will mature at an average rate of 13 basis points. In the second half of 2022, $415 million of CDs will mature at an average rate of 18 basis points. Our average financial services division continues to be a significant recurring source of non-interest income.
We had approximately $1 billion of assets under management as of March 31, 2022. Now on to non-interest expense. Total non-interest expense, net of ORE expense came in at $22.8 million, down $3.5 million compared to the fourth quarter of 2021 and below our estimated range of $24.9 million-$25.5 million. The decrease from the prior quarter is primarily a result of the decrease in salaries, employee benefits expense as a result of a true-up to the incentive compensation control accrual upon payout in the first quarter of 2022, as well as decreases in various other employee benefit plan expenses. ORE expense net came in at an expense of $11,000 for the quarter as compared to income of $28,000 in the prior quarter.
Given the continued low level of ORE expenses, we're going to continue to hold the anticipated level of expense to not exceed $250,000 per quarter. All the other categories of non-interest expense were in line with our expectations for the fourth quarter. We would expect 2022's total recurring non-interest expense, net of ORE expense, to be in the range of $24.9 million-$25.5 million per quarter. The efficiency ratio in the first quarter of 2022 came in at 50.6%, compared to 56.4% in the first quarter of 2021. Finally, the capital ratios. Consolidated equity to assets ratio was flat at 9.44% for both the first quarter of 2022 and 2021.
The bank continues to be proud of its ability to maintain shareholder value during these challenging economic times. Book value per share at March 31 was $30.85, up 4.2% compared to $29.60 a year earlier. These amounts are adjusted for the reverse stock split which occurred in the second quarter of 2021. Now Scot Salvador will review the loan portfolio and non-performing loans.
Okay, thanks, Mike, and good morning. Total loans continued on a positive growth trajectory for the first quarter. Overall loans increased by approximately $26 million or 0.6% in actual numbers. Year-over-year, the increase totaled $195 million or 4.6%. Real estate loans increased by $33 million in the quarter or 0.8%. This was offset by an $8 million decrease in commercial loans, which included ongoing SBA PPP paydowns. We are pleased with the quarter's real estate increase of $33 million in what is traditionally the year's slowest net growth period. Recent activity trends have continued, with refis now constituting only a small portion of the applications versus a year ago. The purchase side of the equation remains strong, however, and our recent purchase volume was actually up a bit from where it was last year.
While it's true interest rates have risen, pent-up demand, combined with a strong job market and borrower liquidity, have seen a continued strong demand for homes across all of our market regions. Our home equity credit line portfolio is also experiencing a positive trend. Loan balances have stabilized and even increased a bit after several years of decline. In the quarter, home equity lines increased by approximately $5 million to $236 million. A number of factors have contributed to this, including a slowing new refinance market, whereby many existing lines were being paid down as part of the existing first mortgage refinance. The stabilization of home equity portfolio should be a positive factor for overall net loan growth going forward. All of our regions experienced good overall activity in a strong purchase market this quarter.
Florida continues to be particularly active, however, with no signs of decreasing volumes as of this date. After many months of stagnation, interest rates increased significantly on the quarter. Currently, our 30-year base rate stands at 5.18%. This is a full 2% higher than where it stood not too long ago. As a portfolio lender, we have a degree of flexibility with our rates. This puts us in an advantageous position in a rising rate environment, as we can sometimes lag the market just a bit as rates rise in order to grab a greater market share. We will continue to be opportunistic in this regard as we move forward, while still benefiting from the rising rates. Our backlog at quarter end was good.
It is up significantly from year-end, and we expect it will continue to grow as we enter the heart of the spring market. We're optimistic that the backlog, combined with ongoing activity levels, should provide for increased net growth in the second quarter. Asset quality measurements continue to be strong. Non-performing loans stood at $19.4 million at quarter end, up approximately $650 thousand on the quarter and down from $21.6 million a year ago. Such chop is as expected given the ongoing low levels. Non-performing assets are $19.7 million versus $22.1 million a year ago. Early stage delinquencies also continue to be low. Charge-offs posted a net recovery of $58 thousand, the second consecutive quarter of negative net charge-offs.
The coverage ratio allowance for loan losses to non-performing loans now stands at 238% versus 231% a year ago. Rob? Thanks, Scot. We're happy to answer any questions anybody has.
We will now begin the question and answer session. To ask a question, you may press star followed by number one on your telephone keypad. If you are using a speaker phone, please pick up your handset before pressing the keys. If at any time your question has been addressed, and you would like to withdraw your question, please press star followed by number two. At this time, we will pause momentarily to assemble our roster. Our first question comes from Alex Twerdahl from Piper Sandler. Please, Alex, your line is now open.
Hey, good morning, guys.
Morning, Alex. How you doing?
Good, thanks. I first off wanted to ask, or maybe kind of go back to some of your comments, Scot, you made about being able to lag the market on the way up to try to get a little bit more volume on the loans. Can you talk a little bit about, you know, like, is there enough volume that you can have, you can kind open the sort of the tap, you know, to use that metaphor, you know, as much as you'd like to pull in the volume? If that's the case, you know, sort of what would your targets be, you know, if you're, you know, if you're putting on loans maybe just a little bit below the market today, you know, which maybe could be, you know, around 5%?
Yeah, well, you know, it's a balancing act, Alex. You know, the good news is there is a lot of volume out there and activity out there in the market. As I said, we're seeing across all our regions continued strong demand. You know, it's a competitive thing. We're always looking at where the competitors are. You know, it's amazing what an eighth of a % or, you know, sometimes even a quarter can do for just over a couple of days. You know, borrowers, when they're looking for a home, they look at rates, they're very active. You know, you don't have to lag by much or for very long to draw some attention, you know?
It's not a dramatic thing, but again, an eighth here, a quarter there for over a couple day period can really spike up a little bit of volume. As I said, the good news is the activity out there continues to be strong.
Right. If the activity is there and, you know, you have a little bit of control over it, I mean, would you kinda suggest the loan growth sorta looks in that mid-single digit pace that it's been growing over the last couple of years? Or do you think that, you know, given the amount of cash on the balance sheet and sorta some of the dynamics that have happened in the rate environment, that maybe that can accelerate, maybe, you know, approach high single digits or even more than that over the next couple of quarters?
Yeah, no, I think a continuation is, you know, makes sense because, you know, there's a lot of factors at play and, you know, rates are rising. You know, on the flip side, we don't have the refinances we had before, Alex. You know, last year, as you're well aware, we had a tremendous amount of refinance activity, some of which was coming to us, but some of which was going away from us, you know. Now when you're looking at the backlog, the refinances are way down, which is a positive thing when you're talking net growth. You know, I think continuation of what we've been doing is probably not a bad idea, and hopefully we'll be able to continue that.
Got it. Then, you know, when I just think about the overall yield on that portfolio, the resi mortgage portfolio, it's obviously been declining over the last couple of years. Now at 3.42%, just given the rates that are on loans that are in the backlog going in the second quarter and the complexion of that overall book, do you think that that 3.42% represents a bottom of where the yield on that portfolio is, will be?
It's not. If it's not the bottom, it's darn close to the bottom, Alex. The difficulty is it can take 60 days or 30-60 days to close a lot of the new production. If the 342 isn't rock bottom, we're pretty close to rock bottom.
Right. Talk to me a little bit about maybe the strategy to take advantage of putting some more of the cash to work in the securities portfolio. Obviously, you had a nice run up since we last spoke in the 10-year and presumably also securities yields. Is there more of an appetite with the 10-year approaching 3% to actually deploy some cash, you know, into some securities?
Yes, Alex. I mean, you could see we did some in the first quarter. We're continuing to look at it in the second quarter. You know, the strategy there is, you know, we're staying short, kind of a mix of pooled securities and corporates. We're staying, you know, on some of those mortgage-backed securities. You know, we're going in, call it a 4-year to 5-year average life. We're, you know, around 3% depending on with, you know, how much duration we're putting on. You know, maybe a little bit below 3, a little bit above 3. We're putting stuff on in securities portfolio that we're, you know, potentially above what we were doing loans not that long ago, you know, a year ago type of thing.
It's definitely very attractive, and we're definitely looking at that space. You know, I think probably more of what we've done so far in the first quarter is probably likely, you know, going forward in the quarters going out given where our cash position is.
Okay. More than what you've been doing.
Yeah, more than, you know, more than last year. Absolutely. More of the same first quarter.
I mean, the first quarter was just I think you said $44 million in security purchases. So that's kind of the pace that you would be suggesting is reasonable for the second quarter?
We'll look at it. I mean, I think, if you looked at it, I'd say that's probably a good baseline. If the opportunity is there, we could be higher.
Okay. In your commentary about the CD repricing, I think you said $264 million at 24 basis points in the second quarter. Are those to the point where they'll start repricing higher or is there still are you seeing the competition for, you know, CDs in your markets to still be pretty reasonable?
The pricing control has been pretty good, Alex, and we're not repricing higher now. Our, you know, we're losing a little ground in that portfolio, but that's almost by design because our retention has been so high with existing customers. I think we're handling the CDs very well, CD maturities very well.
Okay. You also mentioned the monthly trends in the NIM and showing some encouragement relative to what we saw for the whole quarter. Do you have those, the monthly NIM numbers, handy?
Well, I mean, I can give you a kind of like an overview. I mean, if you're looking at, you know, margin and really NII, we, you know, the way we look at it is, I mean, you know the balance of our overall cash portfolio. We'll see what the Fed's gonna do here in a few weeks. You know, that's gonna be very accretive to margin going forward. As you know, as you already asked, you know, that tail of the loan pipeline is, you know, we're closing anything that was below that 3.42, and we're into the higher numbers, right?
That's gonna be also very beneficial going forward in our quarter. I think you know that this first quarter was I think the bottom for NII and margin. I think you know good things to come in you know the remaining quarters of this year. You know it's gonna I think going to start to move forward you know move up going forward.
Can you just give me a little bit more color on the expense, the true up to the comp that you referred to that impacted comp expenses in the first quarter? Do you have an exact amount of what that was and kind of what's the normalized level of expenses for the quarter?
Absolutely. You know, if you take a look at the overall down for the quarter, we were off $3.5 million. About two thirds of that, about $2 million out of that was that true up that we're talking about. That'll come back in the second quarter. You know, if you look at expenses going out, right, our FTEs, we were at a low level at the end of the first quarter. We're still actively hiring. Overall salary expense will trend upwards slightly. The other components of that, of that down $3.5 million, as our stock price is down, our liability based equity awards true up on a quarterly basis to where the stock price is, right? That was a positive benefit in the first quarter.
If our stock price goes up, that'll obviously gonna have a negative impact or additional expense in the quarter. That's two pieces of it. $2 million, a few hundred thousand dollars on the stock-based, you know, $400,000 call it on stock-based comp. Another few hundred thousand dollars on the downside, which will carry us for the rest of the year in the quarters. As you know, we have the post-retirement benefit plan and the pension plan that we have. With rates where they are, that's an additional positive benefit of a few hundred thousand dollars a quarter each quarter going out that we're now able to record. I mean, that's kind of a positive pickup in the quarters going forward.
You know, when you take a look at it based on our guidance, you add back $2 million and you hire a few more people, that kind of gets us to the bottom of the range, the guided range that I have, $24.9 million.
Got it. That's very helpful. Last question. Just on the buyback, 18,000 shares. Seems like you guys are really toeing into the buyback. You know, is there just given how the CECL in the rear view mirror and, you know, your commentary on credit was pretty positive and certainly you have plenty of capital. Does the buyback get a little bit more consideration in the next couple quarters?
Yeah. I think you'll see us much more active with the buyback, Alex. We're in a closed window right now, but when the window opens, it wouldn't surprise me if we got back in it very actively.
Okay. Thank you for taking my questions.
Thank you.
Thanks, Alex.
Take care, Alex.
Thank you. This concludes our question and answer session. I would like to turn the call back to Robert J. McCormick for any closing remarks.
Thank you for your interest in our company, and have a great day.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.