Trustco Bank Q3 2026 Earnings Call Transcript

Trustco Bank (NASDAQ:TRST) reported third-quarter financial results on Thursday. The transcript from the company’s third-quarter earnings call has been provided below.

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Summary

Trustco Bank reported strong financial results for Q3 2026, with net income rising by 6.5% to $17.3 million, and net interest income increasing by 9.1% year-over-year.

The company experienced growth in deposits and loans, with total deposits reaching $5.7 billion and average loans growing by 4.6% to $5.4 billion.

Trustco Bank maintained a strong capital position with an equity-to-asset ratio of 9.72% and increased its quarterly dividend by 5.3%, continuing its long tradition of dividend payments.

Nonperforming loans increased slightly, but credit quality remains stable with consistent underwriting standards; the allowance for loan losses stood at 1.01%.

The company is optimistic about maintaining positive momentum into 2027, driven by strategic customer engagement and enhancements in service delivery, along with upcoming announcements in lending operations.

In response to rising interest rates, the bank has focused on equity loans and maintained a conservative underwriting approach, ensuring stability in customer behavior.

Full Transcript

OPERATOR

Good day and welcome to the Trustco Bank 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 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 question, you may press star one again. Before proceeding, we would like to mention that this presentation may contain forward-looking information about Trustco Bank 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 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 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 conference over to Mr. Robert J. McCormick, Chairman, President and CEO. Please go ahead.

Robert J. McCormick (Chairman, President and Chief Executive Officer)

Good morning everyone and thank you for joining the call. As Chase said, I’m Rob McCormick, President of Trustco Bank. I’m joined today as usual by Mike Ozimek, our CFO, who will go through the numbers, and Kevin Curley, our Chief Banking Officer, who will talk about lending. We think it’s best to describe the results this quarter as a result of positive financial momentum. Looking at year-over-year results, deposits have grown each quarter, average loans have grown each quarter, and net income has grown each quarter for the same period. Return on average assets has improved each quarter, return on average equity has improved each quarter, and net interest margin has improved each quarter. This is not happening by accident.

Our team has worked diligently in all areas to solidify customer relationships. We have reached out to customers with deposits and no loans to encourage equity borrowing and refinancing. We have provided incentives to loan customers to utilize our deposit products and become real customers of Trustco Bank. And we’ve taken a fresh look at our loan and deposit offerings and the systems that deliver them. We’ve made enhancements to improve customer service experience as well.

With all those factors coming together and trending favorably, we are optimistic about the company’s ability to maintain positive momentum into 2027. Investors and customers can be on the lookout for exciting announcement about our lending operation in the coming months. We are also very pleased to have two new directors on board. Patty Fusco is likely known to many people in the New York market and provides expertise in human resources, and Brian Gunther is a highly experienced real estate professional from the west coast of Florida.

His addition to the board expands our geographic diversity. Now Mike’s going to talk about the numbers, Kevin will touch on the loan portfolio, and then we can take questions.

Michael Ozimek (Executive Vice President & Chief Financial Officer)

Thank you, Rob, and good morning everyone. I will now review Trustco’s financial results for the third quarter 2026. As we noted in the press release, the company continued to see strong financial results for the third quarter of 2026, marked by increases in both net income and net interest income during the third quarter of 2026 compared to the third 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 third quarter net income of $17.3 million, an increase of 6.5% over the prior-year quarter, which yielded a return on average assets and average equity of 1.05% and 10.57% respectively. Capital remains strong. Consolidated equity-to-asset ratio was 9.72% for the third quarter of 2026 compared to 10.9% in the third quarter of 2025. Book value per share at 9-30-26 was $38.20, up 2.4% compared to $37.30 a year earlier. Driving these changes, Trustco repurchased 13.2% of outstanding common stock under the 2025 and 2026 stock repurchase programs through the acquisition of over 1.5 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 our franchise and the focus on capital optimization. Additionally, during the third quarter the bank declared an increased quarterly cash dividend of $0.40 per share, or $1.60 per share on an annualized basis. The declared dividend represents an increase of 5.3% over the prior dividend amount, which continues the bank’s commitment in paying dividends for over a century.

Credit quality continues to be stable as we saw nonperforming loans modestly increase to $21.1 million in 3Q26 from $18.5 million in 3Q25. Our 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 3Q26 grew 4.6%, or $238 million, to $5.4 billion from 3Q25. This loan growth continues to reflect the strength of our local markets and ongoing demand for credit.

For 3Q26, the provision for credit losses was $850,000. The increase in the overall provision expense is being driven by loan growth and changes in economic forecasts rather than a softening in the underlying credit performance. The ratio for the allowance for loan losses to total loans was 1.01% as of 9-30-26 and 1.00% as of September 2025. 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.

Retaining and growing deposits has been a key focus as we finish up 2026. Total deposits ended the quarter at $5.7 billion, up $203 million compared to the prior-year quarter. We believe the increase in these deposits compared to the same period in ’25 continues to indicate strong customer confidence in the bank’s competitive deposit offerings. The bank’s continued emphasis on relationship banking, combined with competitive product offerings and digital capabilities, has contributed to a stable deposit base that supports ongoing loan growth and expansion.

Net interest income was $47 million for 3Q26, an increase of $3.9 million, or 9.1%, compared to the prior-year quarter. The net interest margin for the third quarter of ’26 was 2.95%, up 16 basis points from the prior-year quarter. Yield on interest-earning assets increased to 4.35%, up 10 basis points from the prior-year quarter. The cost of interest-bearing liabilities decreased to 1.79% in the third quarter ’26 from 1.90% in the third quarter ’25.

The bank is well positioned to continue delivering strong net interest income performance even as the Federal Reserve contemplates further rate changes in the months ahead. The bank remains committed to maintaining competitive deposit offerings while ensuring financial stability and continued support for our communities’ banking needs. Our wealth management division continues to be a significant recurring source of noninterest income. They had approximately $1.37 billion of assets under management as of September 30, ’26. The majority of this fee income is recurring, supported by long-term advisory relationships and a growing base of managed assets.

Now onto noninterest expense. Total noninterest expense, net of ORE income, came in at $20.28 million, down $300,000 from the prior quarter. ORE income, net, came in at a credit of $12,000 for the quarter as compared to an expense of $8,000 in the prior-year quarter. We’re going to continue to guide the anticipated level of expense not to exceed $200,000 per quarter. All the other categories in noninterest expense were in line with our expectations for the third quarter.

We would expect 2026 total recurring noninterest expense, net of ORE expense, to be in the range of $27.8 to $28.2 million per quarter. Now Kevin will review the loan portfolio and nonperforming loans.

Kevin Curley (Chief Banking Officer)

Thanks, Mike, and good morning to everyone. Our average loans grew by $238.1 million, or 4.6% year over year. This is an improvement over last quarter’s report of year-over-year growth of $197.5 million. The growth was centered in our residential loan portfolio, with our first mortgage segment growing by $177.3 million, or 4%, and our home equity loans growing $50 million, or 11.4%, over last year. In addition, our commercial loans grew by $13.5 million, or 4.3%, over last year.

For the third quarter, actual loans increased $77.1 million compared to the second quarter. Purchase mortgage loans, including refinances, grew by $53.6 million. Home equity loans grew by $13.9 million, and commercial loans were higher by $10 million for the quarter. During the third quarter, mortgage rates were below 6.5% in the beginning of the quarter and then increased to over 7% by the end of the quarter. As noted previously, we have the flexibility to strategically manage pricing and introduce targeted promotions to drive lending volume.

Our mortgage origination activity, as well as our purchase loan volume, were steady throughout the quarter. In addition, our home equity products continue to produce consistent demand as customers are able to use their equity to meet their borrowing needs. Overall, we are pleased with the loan growth during the quarter and remain committed to delivering strong results moving forward. Moving to asset quality, as a portfolio lender, we originate loans, hopefully 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 $30,000, which follows a net recovery of $88,000 in the second quarter and a total of $171,000 in recoveries over the past year.

Overall, we have had seven straight quarters of net recoveries. Nonperforming loans were $21.1 million at this quarter end, $21.8 million last quarter, and $18.5 million a year ago. Nonperforming loans to total loans was 0.39% at quarter end compared to 0.40% last quarter and 0.36% a year ago. Nonperforming assets were $22.3 million at quarter end, $23 million last quarter, and $19.7 million a year ago. At quarter end, our allowance for credit losses remained solid at $55.2 million with a coverage ratio of 262%, compared to $54.1 million with a coverage ratio of 249% at the end of the second quarter and $51.9 million and a coverage ratio of 281% a year ago.

Robert J. McCormick (Chairman, President and Chief Executive Officer)

Thanks, Kevin. That’s our story. We’re happy to answer any questions anybody might have.

OPERATOR

We will now begin the question and answer session. To ask a question, you may press star then one on your touchtone 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 one again. At this time, we will pause momentarily to assemble our roster. Your first question comes from the line of Ian Leppy from Gabelli Funds.

Your line is open. Please go ahead.

Ian Leppy (Analyst)

Good morning, Rob and team. Congratulations on another strong quarter. Can you just talk about—obviously during the quarter there was a sharp increase in interest rates, particularly the 10-year, mortgage rates. Can you just talk about the impact on both the loan and deposit business?

Robert J. McCormick (Chairman, President and Chief Executive Officer)

Morning. Thank you. Certainly the change affected us in some ways, Ian, but, you know, we’ve always maintained a pretty liquid position and stayed well capitalized. So we kind of let some of it run off a little bit and work our way to higher-priced stuff and work our way back into it. So I think it’s been a very effective thing for us. Some people go in a little bit longer on CDs and some of the loan volumes are down. But as I said in my introduction, we’re trying to pick up more equity loans and do more business that way, and we’ve been successful at it so far.

Ian Leppy (Analyst)

Did you see, in terms of customer behavior, any type of, like, freezing in terms of plans to either refi or purchase a new home?

Robert J. McCormick (Chairman, President and Chief Executive Officer)

No. You’re talking about encouraging people to refi or—

Ian Leppy (Analyst)

No, I just talked about what you’re seeing in terms of customer behavior, given the sharp increase in rates.

Robert J. McCormick (Chairman, President and Chief Executive Officer)

You know, we operate in pretty conservative areas, especially in upstate New York, so we have not seen a real change in customer behavior.

Ian Leppy (Analyst)

And then next, on credit—first, congratulations on another quarter of net recoveries, very impressive. You mentioned the allowance—the increase in the allowance was driven mostly by sort of a deteriorating economic outlook. Can you just talk about how you’re positioning the loan portfolio for a more challenging environment, and what you’re most focused on in terms of potential risk there?

Robert J. McCormick (Chairman, President and Chief Executive Officer)

Our underwriting is always conservative, Ian. So we’re staying the course and trying not to get crazy with regard to any of the loans being made. We’re watching everybody around us kind of change their stripes and kind of do different things. We’re trying to stay the course. And part of that allowance increase is driven by loan growth, so we’re backfunding that through the CECL model. So, between a combination of the Q factors and—Mike can tell you 100 times more than I can tell you about it—but between a combination of the Q factors and the loan growth, that’s how we ended up.

But our customers have come to know us and come to know what to expect of us, and we’re pretty comfortable with where we’re at.

Ian Leppy (Analyst)

Okay, great. That’s all for me. Congrats again.

Robert J. McCormick (Chairman, President and Chief Executive Officer)

All right, thank you.

OPERATOR

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

Robert J. McCormick (Chairman, President and Chief Executive Officer)

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

OPERATOR

This concludes today’s call. Thank you for attending today’s presentation. You may now disconnect.

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company’s SEC filings and official press releases. Corporate participants’ and analysts’ statements reflect their views as of the date of this call and are subject to change without notice.