Good day, welcome to TrustCo Bankcorp Earnings Call and Webcast. All participants will be in a listen-only mode. Should you need assistance, please signal our conference specialist by pressing the star key followed by zero on your keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star and then one. To withdraw your questions, you may press star and two. Before proceeding, we would like to mention that this presentation may contain forward-looking information about TrustCo Bankcorp, 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 this 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, 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. 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 U.S. GAAP.
The consolidation 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 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.
Good morning, everyone, and thanks for joining the call. I'm Rob McCormick, the President of Trustco Bank. With me, as usual, are Mike Ozimek and Scot Salvador. We'll follow our regular format for the call. I will provide highlights, Mike Ozimek 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 Q1 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 with 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 Q1 of 2023. Reflecting the current interest rate environment, our time deposits are up $162.7 million, almost 13% for the quarter. We recognize this current shift toward 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 of 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 million for the Q2 , a 2.3% increase over the Q2 in 2022. 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 Q2 of 2023. We are pleased to report our book value has increased to $32.66 a share, up a solid 5.2% from the Q2 of 2022. Capital levels continue to remain strong, standing at 10.23% in the Q2 , up over 7% from the 9.54% this time last year. Mike Ozimek will give us a lot of detail on the numbers. Scot Salvador will give color on the loan portfolio, we can take your questions. Mike Ozimek?
Thank you, Rob, and good morning, everyone. I will now review TrustCo's financial results for the Q2 of 2023. As we noted in the press release, the company saw a Q2 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 is 10.23% for the Q2 of 2923, compared to 9.55% in the Q2 of 2022. Book value per share on June 30, 2023 was $32.66, up 5.2% from $31.06 a year earlier.
Average loans for the quarter grew to 7.5% or $336 million- $4.8 billion from the Q2 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 Q2 of 2023 over the same period in 2022. Average commercial loans increased to $50.1 million or 25.2%. Home equity lines of credit increased to $59.5 million or 24.4%, and installment loans increased $6.4 million or 6.8% over the same period in 2022. For the Q2 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, 2023, 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 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 Q2 of 2023, an increase of $992 million or 2.3% compared to the same period in 2022, driven by solid liquidity, loan growth, and the recent increases in the Fed funds target rate. The net interest margin for the Q2 of 2023 was 2.98%, up 15 basis points from the Q2 of 2022. The yield on interest-earning assets increased to 3.8%, up 90 basis points from 2.9% in the Q2 of 2022. The cost of interest-bearing liabilities increased to 1.06% in the Q2 of 2023 from 10 basis points in the Q2 of 2022. 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, 2023. 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. Giving 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's total recurring non-interest expense, net of ORE expense, to remain in the range of $26.9 million-$27.4 million per quarter. On...
Now, Scot will review the loan portfolio and non-performing loans.
Thanks, Mike. Good morning to everyone. The bank continued to enjoy strong loan growth for the Q2. Overall, loans increased by a combined $87 million in actual numbers. This equates to an increase of 1.8% on 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 continued to benefit on the quarter from the large amount of home construction loans we have 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 in many areas. 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% on our base 30-year fixed rate. Our loan backlog is solid, although down somewhat from the Q1 , reflecting both our recent loan closings and the overall market conditions. Asset quality at the bank remains strong.
Non-performing assets totaled $20.8 million as of June versus $19.4 million a year ago. 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. 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?
Thanks, Scot. I'd be happy to answer any questions anybody has.
Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on a touch tone phone. If you're using speakerphone, please pick up your headset before pressing the keys. If at any time your questions has been addressed, you would like to withdraw your questions, please press star and then two. At this time, we will pause momentarily to assemble our roster. Thank you. This concludes our... We have our first question comes from Ian Lapey from Gabelli Funds. Ian, your line is now open.
Hi, good morning. Congratulations on a solid quarter.
Morning.
A couple 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, do you have a number for sort of the whole thing?
Yeah, I mean, our average life is somewhere in that eight year-nine-year range. We primarily do 30-year mortgages, so they're gonna attend that. The final state of maturity is gonna be go further out. That's gonna be closer to that, you know, at this point, probably 25-year life.
Okay. What are you seeing now in term, 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 has that average life, how much has that, your sort of expectation for the average life increase extended?
I mean, you know, if you come through from the pandemic, when we, you know, 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-year-nine-year average life. It's extended a little bit in the recent years.
Okay. Then what % of your mortgage holder or customers use another TrustCo product, whether it's deposit, or financial services, or commercial loan?
We don't have a specific percent on that, but we have pretty good core customers, Ian, so I think that's relatively high. That's also a target of a lot of our sales efforts over the years. We pull 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.
Okay. For some of the really low, you know, the mortgages that you underwrote during the pandemic when rates were really low, would you consider, you know, 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? Just in terms of duration and interest rate risk and in case rates, you know, take another big leg up from here?
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.
Yeah. Okay, then on the last quarter, Rob, you mentioned.
Just, Ian, if I could just add a little color to that.
Yeah.
If there is a side benefit to lower mortgage rates, has been the increased, home equity credit activity.
Right.
Which-
Yeah, no, I saw that.
Kicking and screaming.
Yeah.
That's if there is a side benefit to it, that's been it.
Okay. Rob, you mentioned last quarter, one of the two big issues was staffing. Has that improved and is there an opportunity, you know, potentially, you know, to improve the efficiency ratio, at least, you know, offset some of the pressure you're facing in NIM?
As we enter August, Ian, it's kind of funny because if you'd asked me that question a week and a 1/2 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. I guess the tail end of summer, people trying to take advantage of. I think overall, yes, it has improved, and I would think absolutely as the openings close, that helps us out significantly with compensation.
Okay. Lastly, on the financial services, I know you mentioned $940 million in AUM, but the fees, were down, both, you know, fairly significantly, both sequentially and year-over-year. Anything going on to drive that? Should we see a rebound in the H2 of the year?
That's I guess that's the pitfall of a traditional trust department, Ian, and you guys can chime in here if you want. Which we've historically run a very traditional trust department, so that if you do have customers can pass and change. Plus, in the Q1 , we do take our tax preparation payments, so that drives the income down in the Q2.
Okay. okay, that's it.
We're actually rebranding that as well, more wealth management, Ian. That's I think that will be very positive for us as well, trying to capitalize on our branch network, especially branches in the, in the state of Florida and opportunities.
Mm-hmm
... within the state of Florida.
Okay, good. Okay, that's it for me. Thanks. Again, tough environment and solid performance.
Thank you.
Thank you, Ian. As a reminder, if you have a question, please press Star, then One. Our next question comes from Nick Ripostella from NR Management. Nick, your line is now open.
Good morning, fellas. Good job in a tough environment. On the last call, you alluded to a potential share repurchase, and I'm just wondering, from where you stand now, is that something you'd still be interested in? Just if you can comment on the dividend, what you can see going forward here. That's it. Thank you so much.
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, that's why we haven't activated our share repurchase program, even though the book value was very attractive 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, the dividend is always under review. I can't make a forward-looking statement about what we'll do with the dividend, we always have that under review. You know, we're completely committed to a large cash dividend for our shareholders. We realize it's a large part of their return, we're constantly evaluating and looking at that position.
Okay. Thank you so much.
Thank you.
Thank you. This concludes our question and answer session. I would like to turn the conference back to Rob McCormick for on any closing remarks.
Thank you for your interest in our company and I hope you have a great day.
Thank you. The conference call has now concluded. Thank you for attending today's presentation. You may now disconnect.