TrustCo Bank Corp NY (TRST) Q2 2026 Earnings Report, Transcript and Summary

Good day and welcome to the TrustCo Bank Corp earnings call and webcast. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by 0 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 1. To withdraw your question, you may press star 1 again. Before proceeding, we would like to mention that this presentation may contain forward looking information about TrustCoBank 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 2 thousand. 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 U.S. GAAP. The reconciliations 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 trustcobankcorp.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 1 year. As described in our earnings press release. At this time, I would like to turn the conference call over to Mr. Robert J. McCormick. Please go ahead.

Good morning, everyone, and thank you for joining the call. I am Robert McCormick, chairman of TrustCo Bank. I am joined today as usual by Michael Ozimek, our CFO, who will go through the numbers and Kevin Curley, our chief banking officer, who will talk about lending. Like a well-oiled and efficiently operating machine, all of the elements of the time tested TrustCoBank business model work together in a favorable market environment to produce another quarter of stellar financial results. Our loan and investment portfolios continue to reprice favorably as lower yielding assets matured and were replaced by higher loan originations with better and better yielding investments. The machine was fueled by growth and lower cost deposits, increased loan origination provided the outlet for the machine's production, In combination, these elements resulted in increased net interest margin year over year And, of course, this was done without compromising credit quality. While all of that good work was being done, we continue to execute on our capital deployment strategy, primarily through share buybacks. Our buyback program began in 2020 and to date, has seen the reacquisition of more than 2.3 million shares of company stock The current phase of the program is expected to continue on pace and if completed, we will have repurchased nearly 16% of TrustCo's outstanding shares during 2025 and 2026. It is plain to see that we remain committed to the generation of meaningful and sustainable shareholder value. It is also plain to see that we remain convinced that the best acquisition we can make is TrustCo Bank. We are also very pleased to have moved into the building in Longwood that we repurposed into our new regional headquarters for our operation in the Sunshine State. The great state of Florida is a key part of our success, this new building enhances our visibility there. And provides a foundation on which more great things can be grown. Now Mike is going to go into details on the numbers, and then Kevin will take care of loans, and then we can answer any questions you have.

Thank you, Robert, and good morning, everyone. I will now review TrustCo's financial results for the second quarter of 2026. As we noted in the press release, the company continued to see strong financial results for the second quarter of 36, marked by increases in both net income and net interest income of TrustCo during the second quarter of 2026 compared to the second quarter of 2025. This performance is underscored by rising net interest income and sustained loan and deposit growth across core lending and deposit categories. This resulted in second quarter net income of $17 million an increase of 12.8% over the prior year quarter which yielded a return on average assets and average equity of 1.04%, 10.22%, respectively. Capital remained strong. Consolidated equity-to-assets ratio was 10.5%. For the second quarter of 2026 compared to 10.91% the second quarter of 2025. Book value per share at June 30, 2026 was $38.53, up 4.8% compared to $36.75 a year earlier. TrustCo has also repurchased 10.5% of TrustCo outstanding common stock under the 2025 and 2026 stock repurchase programs. Through the acquisition of over 1 million shares in 2026 following the purchase of 1 million shares in 2025. Reinforcing a disciplined long term capital allocation strategy. We remain committed to returning value to shareholders through a disciplined share repurchase program which reflects our confidence in the long term strength of the franchise and our focus on capital optimization. Credit quality continues to be consistent. As we saw nonperforming loans modestly increase to $21.8 million in the second quarter of 2020 from $17.9 million in the second quarter of 2025. Continued focus on solid underwriting within our loan portfolio and conservative lending standards, positions us to manage credit risk effectively in the current environment. Average loans for the second quarter of 2026 grew 3.8% $197.5 million to $5.3 billion from the second quarter of 2020, another all time high. This uptick continues to reflect a strong local economy and increased demand for credit. For the second quarter of 2026, the provision for credit losses was $650 thousand. The ratio of the allowance for loan losses to total loans was 1.01% as of June 2026 and 0.9% for June 2025. Our focus continues to be on traditional lending, which has enabled us to produce consistent high quality recurring earnings. Retaining and growing deposits has been a key focus as we navigated through 2026. Total deposits ended the quarter at $5.7 billion. It was up $191 million compared to the prior year quarter. We believe the increase in these deposits compared to the same period in 2025 continues to indicate strong customer confidence in the bank's competitive deposit offerings. The bank's continued emphasis on relationship banking compare combined with the competitive product offerings and digital capabilities has contributed to a stable deposit base that supports ongoing loan growth and expansion Net interest income was $45.6 million for the second quarter of 2026. An increase of $3.8 million, or 9.2% compared to the prior year quarter. Net interest margin for the second quarter of 2026 was 2.87% up 16 basis points from the prior year quarter. Yield on interest earning assets increased to 4.27% up 8 basis points from the prior quarter. And then the cost of interest bearing liabilities decreased to 1.79% in the second quarter of 2026 from 1.91% in the second quarter of 2025. The bank is well positioned to continue delivering strong net interest income performance even as the Federal Reserve contemplates rate changes in the months ahead. The bank remains committed to maintaining competitive deposit offerings while ensuring financial stability, and continued support for our community's banking needs. Our wealth management division continues to be significant recurring source of noninterest income. We have approximately $1.39 billion of under management as of June 30, 2026. The majority of this fee income is recurring, supported by long term advisory relationships that growing managed assets. Additionally, as mentioned in the press release, the company marked its Visa Class C common stock to fair value and recorded a gain of $844 thousand based on the conversion privilege of the Visa class c common stock. Now on to noninterest expense. Total noninterest expense net of OREA expense came in at $28.2 million up $1.3 million from the prior quarter. The increase is primarily the result of higher employee benefit costs, and professional fees in the current quarter. These expense categories are expected to return to normalized levels next quarter consistent with historical quarterly trends. ORE expense net came in at an expense of 112 thousand for the quarter as compared to $28 thousand in the prior quarter. We are going to continue to hold the anticipated level of expense to not exceed $250 thousand per quarter. All the other categories of noninterest expense were in line with our expectations for the second quarter. We would expect 2026 total recurring non interest expense net of ORE expense to be in the range of $27.3 million to $27.8 million per quarter. Now Kevin will review the loan portfolio and nonperforming loans.

Thanks, Mike, and good morning to everyone. Our average loans grew by $197.5 million, or 3.8% year over year. This is an improvement over last quarter's report of year over year growth of $158.9 million The growth was centered in our residential loan portfolio with our first mortgage segment growing by $142 million, or 3.2%, our home equity loans growing by $44.8 million, or 10.4% over last year. In addition, our commercial loans grew by $13.4 million, or 4.4% over last year. For the second quarter, actual loans increased by $87.1 million compared to the first quarter. Purchase mortgage loans including refinances grew by $62.8 million; home equity loans grew by $19.3 million; commercial loans were higher by $5.7 million for the quarter. During the second quarter, mortgage rates were lower in the beginning of the quarter. They increased slightly and have leveled off to a 6.25% to a 6.5% range over the past few weeks. Our mortgage origination activity showed solid momentum during the quarter. Purchase loan volume was steady throughout the quarter, Refinance activity was strongest earlier in the period as customers moved to lock in lower rates before market rates increased. As rates moved higher later in the quarter, refinance activity moderated. Our home equity loan products produced consistent demand in all our markets throughout the quarter. We continue to offer highly competitive mortgage products with our 30 year fixed rate loans and various ARM options. In addition, our home equity products continue to offer customers low cost alternatives to other forms of credit such as personal loans and credit cards. Overall, we are pleased with the loan growth during the quarter and remain committed to delivering strong results moving forward. Now moving to asset quality, As a portfolio lender, we originate loans to hold through maturity. This reinforces our disciplined approach to underwriting and risk management. Asset quality at the bank remains very strong. Our early stage delinquencies in our portfolio continue to remain within their normal range. Charge offs for the quarter amounted to a net recovery of $88 thousand which follows a net recovery of $39 thousand in the first quarter and a total of $317 thousand in recoveries over the past year Overall, we have had 63 quarters of net recovery. Non performing loans are $21.8 million at this quarter end, $21.5 million last quarter, and $17.9 million a year ago, Non performing loans to total loans was 0.4% for the quarter end. Compared to 0.41% last quarter and 0.35% a year ago. Nonperforming assets were $23 million at quarter end, versus $22.8 million last quarter and $19 million a year ago. At quarter end, our allowance for credit losses remained solid at $54.1 million with a coverage ratio of 249% compared to $53 million with a coverage ratio of 240% at the end of the first quarter $51.3 million and a covered ratio of 286% a year ago. Robert?

Sorry. I am hacking a little bit, but that is our story, and we are happy to take any questions you might have.

We will now begin the question and-answer session. To ask a question, you may press star then 1 on your touch-tone phone. If you are using a speakerphone, 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 1 again. At this time, we will pause momentarily to assemble our roster. Your first question comes from the line of Ian Lapey. With Gabelli Funds. Your line is open. Please go ahead.

Can we start with the Can I just want to make sure, Robert, that I under understood what you said? So the increase last quarter, you had guided to 26.7 to 27.3, and it came in at 28.2. And you said that was, mostly nonrecurring things. Could you just go in again to what the extra expense was this quarter?

Yeah, absolutely. So, I mean, 2 big lines, salary employee benefits. About half of that was some salary increases that we pushed through. That will be recurring. About half of that increase in salary and benefits are related to incentive comp. Programs that, as 1 in a large the large piece of that as our stock price continues to go up, we revalue those plants. Some of that expense flushes through that first quarter. So if stock price keeps going up, we would see that, but if it remains steady, line item will go down to a more normalized level. Same thing with professional fees that popped a little bit in the quarter. For some consulting, legal, and accounting fees. That will not continue to recur.

Okay. Thank you. And then you said now the guidance is 27.3 to 27.8. Right. And so is that increase is that basically what you said about the salary increases?

Yeah. Absolutely. Now when you compare that really to the end of the year, that is about a 3%, you know, guided increase compared to where we were. So that is that is kind of where we think is a steady kind of growth in the expenses up and to out of line. We will have blips from here and there, but that is what we are seeing.

Okay. And then pulling back maybe big picture question, I guess with potential indications that rates may start moving up. Short term rates. Could you just talk about sort of how you are positioning the company now as compared to maybe before we had the last big set of fed rate increases in 2022, Obviously, in 2023 and 2024, you had pretty significant declines in earnings. Is that is there anything different now that you are doing to sort of protect against that type of impact?

We are offering a little longer CD product and making it a little bit more attractive trying to push the maturities out a little bit further.

Get away from the 3-month repricings, and moving on from there. We are attempting to be somewhat aggressive or reasonably aggressive in our mortgage portfolio to gain some ground there. And our home equity loans we are very proud of the activity we have had there. The closed loans are much higher than the outstandings would show. Which is pretty common in the industry. But that is a prime based or a lot of times a floating product, which is very attractive for us as well. So we have been incentivizing people in a variety of ways to use the home equity credit lines more and to grow that product line. And then on the investment side, you know, we always stay relatively short on our investment. Maturities. We have a tremendous amortization and opportunities to reprice the reprice our securities as they come due. So that is the other side of the balance sheet, if you will. Okay.

Great. that is it for me. Again, congratulations.

Thank you very much.

Thank you. Thank you.

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

Thank you for your interest in our company. We hope you have a great day.

This concludes today's call. You may now disconnect.