TrustCo Bank Corp NY Third Quarter 2025 Earnings Call - NII and loan growth drive 26% rise in net income while credit quality remains strong

Conference Operator: Good day and welcome to a TrustCo Bank Corp NY earnings call and webcast. All participants will be on a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero on your telephone keypad. After today’s presentation, there’ll be an opportunity to ask questions. To ask a question, please press star and then one on your telephone keypad. To withdraw your question, you may press star followed by two. Before proceeding, we’d like to mention that this presentation may contain forward-looking information about TrustCo Bank Corp NY that is intended to be covered by the safe harbor of forward-looking statements provided by the Private Securities Litigation Reform Act of 1995. Actual results, performance, or achievements could differ materially from those expressed or implied by such statements due to various risks, uncertainties, and other factors.

More detailed information about these 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 this date hereof, and the company disclaims any obligation to update the information to reflect the 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 with 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’d like to turn the conference call over to Mr. Robert J. McCormick, Chairman, President, and CEO. Please go ahead.

Robert J. McCormick, Chairman, President and CEO, TrustCo Bank Corp NY: Good morning, everyone, and thank you for joining the call. I’m Robert J. McCormick, President of TrustCo Bank Corp NY. I’m joined today, as usual, by Michael Ozimek, our CFO, who will go through the numbers, and Kevin M. Curley, our Chief Banking Officer, who will talk about lending. It is often said that actions speak louder than words. TrustCo’s performance this quarter and year to date speaks volumes about the tactical, effective application of our corporate strategic vision. TrustCo Bank Corp NY’s mission is to deliver the best possible loan and deposit products, making the dream of home ownership come true for customers who we treat with respect. It is a fundamental principle of our company that loans are underwritten with professionalism and care to ensure fair lending outcomes and solid credit quality. This is true both in our residential and commercial lending areas.

Looking back just five years, we have never exceeded annualized net charge-offs of more than 0.02% compared to our average loan portfolio. Throughout this year, our strong customer relations have enabled us to grow deposits and loans while holding a line on cost of funds as the loan portfolio repriced. All of these elements have combined to generate these stellar financial results that we proudly announce today. Both our profitability and efficiencies improved greatly over the quarter compared to this time last year. Our return on average assets increased 21.4%, return on average equity grew 20%, and our efficiency ratio decreased by almost 9%. This was all done while staying focused on high-quality underwriting standards and loan processing functions, sticking to our lending philosophy by never sacrificing credit quality.

We improved our non-performing loans’ total loans by 5% over the quarter, and our coverage ratio increased to over 280%, up 9% from the third quarter last year. Also, part of our long-standing TrustCo tradition is that we do not rest upon our successes. Throughout this year, our management team has demonstrated that we are not satisfied with simply delivering outstanding corporate performance in the present term. We always have an eye on building long-term shareholder value. Toward that end, we sought and received approval to repurchase a million shares of our company’s stock. So far, we have repurchased nearly half of that number. Further, we anticipate that the company will complete the currently authorized buyback and expect to seek approval for further substantial repurchase.

It is our view that the stock is significantly undervalued and presents an outstanding investment opportunity without exposing us to the risks inherent with other investments. We could not be more pleased with the driving corporate value in a safe, sound, and strategically purposeful manner. Now, Mike will go over the details with the numbers and some impressive numbers. Mike?

Michael Ozimek, CFO, TrustCo Bank Corp NY: Thank you, Rob, and good morning, everyone. I will now review TrustCo Bank Corp NY’s financial results for the third quarter of 2025. As we noted in the press release, once again, the company saw strong financial results for the third quarter of 2025, marked by increases in both net income and net interest income of TrustCo Bank Corp NY during the third quarter of 2025 compared to the third quarter of 2024. This performance is underscored by rising net interest income, continued margin expansion, and sustained loan and deposit growth across key portfolios. This resulted in third-quarter net income of $16.3 million, an increase of 26.3% over the prior year quarter, which yielded a return on average assets and average equity of 1.02% and 9.29%, respectively. Capital remains strong. Consolidated equity-to-assets ratio was 10.90% for the third quarter of 2025 compared to 10.95% in the third quarter of 2024.

Book value per share at September 30, 2025, was $37.30, up 6% compared to $35.19 a year earlier. During the third quarter of 2025, TrustCo Bank Corp NY repurchased 298,000 shares of common stock under the previously announced share repurchase program, resulting in 467,000 shares repurchased year to date, and we have the ability to repurchase another 533,000 shares under the repurchase program. 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 improve as we saw non-performing loans decline to $18.5 million in the third quarter of 2025 from $19.4 million in the third quarter of 2024. Additionally, non-performing loans to total loans also decreased to 0.36% in the third quarter of 2025 from 0.38% in the third quarter of 2024.

Non-performing assets to total assets also reduced to 0.31% in the third quarter of 2025 compared to 0.36% in the third quarter of 2024. 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 the third quarter of 2025 grew 2.5% or $125.9 million to $5.2 billion from the third quarter of 2024, an all-time high. Consequently, overall loan growth has continued to increase, and the lending leading the charge was home equity loans portfolio, which increased by $59.9 million or 15.7% in the third quarter of 2025 over the same period in 2024. The residential real estate portfolio increased $34 million or 0.8%. Average commercial loans also increased $34.6 million or 12.4% over the same period in 2024.

This uptick continues to reflect a strong local economy and increased demand for credit. For the third quarter of 2025, the provision for credit losses was $250,000. Retaining deposits has been a key focus as we navigate through 2025. Total deposits ended the quarter at $5.5 billion and was up $217 million compared to the prior year quarter. We believe the increase in these deposits compared to the same period in 2024 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 continued to a stable deposit base that supports ongoing loan growth and expansion. Net interest income was $43.1 million for the third quarter of 2025, an increase of $4.4 million or 11.5% compared to the prior year quarter.

Net interest margin for the third quarter of 2025 was 2.79%, up 18 basis points from the prior year quarter. The yield on interest-earning assets increased to 4.25%, up 14 basis points from the prior year quarter, and the cost of interest-bearing liabilities decreased to 1.9% in the third quarter of 2025 from 1.94% in the third quarter of 2024. The bank is well-positioned to continue delivering strong net interest income performance even as the Federal Reserve signals a continued potential easing cycle 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 a significant recurring source of non-interest income. They had approximately $1.25 billion of assets under management as of September 30, 2025.

Non-interest income attributable to wealth management and financial services fees represent 41.9% of non-interest income. The majority of this fee income is recurring, supported by long-term advisory relationships and a growing base of managed assets. Now on to non-interest expense. Total non-interest expense net of ORE expense came in at $26.2 million, down $42,000 from the prior year quarter. ORE expense net came in at an expense of $8,000 for the quarter as compared to $204,000 in the prior year quarter. We’re going to continue to hold the anticipated level of ORE expense to not exceed $250,000 per quarter. All of the other categories of non-interest expense were in line with our expectations for the third quarter. Now, Kevin will review the loan portfolio and non-performing loans.

Kevin M. Curley, Chief Banking Officer, TrustCo Bank Corp NY: Thanks, Mike, and good morning to everyone. Our loans grew by $125.9 million or 2.5% year over year. The growth was centered on our home equity loans, which increased by $59.9 million or 15.7% over last year, and residential mortgages, which increased by $34 million. In addition, our commercial loans grew by $34.6 million or 12.4% over last year. For the second quarter, actual loans increased by $35.1 million as total residential loans grew by $38.5 million, and commercial loans were slightly lower for the quarter. Overall, residential activity is picking up, and we are seeing additional refinance volume as mortgage rates remain in the 6% range. Our home equity lending also continues to grow steadily as customers continue to use their equity for home improvements, education expenses, or paying off higher-cost loans such as credit cards.

In all our markets, rates have fluctuated within a 25 basis point range, with our current 30-year fixed-rate mortgage at 6.125%. In addition, our home equity products are very competitive, with rates starting below 6.75%. Our products are well situated across our markets as we are ready to capture more growth as activity picks up. As a portfolio lender, we have the flexibility to manage pricing and implement targeted promotions to increase loan volume. Overall, we are encouraged by the loan growth in the quarter and remain focused on driving stronger results moving forward. Moving to asset quality, asset quality at the bank remains very strong. At TrustCo, we work hard to maintain strong credit quality throughout our loan portfolio. As a portfolio lender, we have consistently used prudent underwriting standards to build our loan portfolio.

Our residential loans originated in-house, focusing on key underwriting factors that have proven to lead to sound credit decisions. These loans originated with the intent to be held in our portfolio for the full term rather than originated for sale. In addition, we have no foreign or subprime loans in our residential portfolio. In our commercial loan portfolio, which makes up just about 6% of our total loans, we focus on relationship-based loans secured mostly by real estate within our primary market areas. We also avoid concentrations of credit to any single borrower or business and continue to require personal guarantees on all our loans. Overall, our disciplined underwriting approach has produced strong credit quality across our entire loan portfolio. Here are the key metrics. Our early-stage delinquencies for our portfolio continue to be steady.

Charge-offs for the quarter amount to a net recovery of $176,000, which follows a net recovery of $9,000 in the second quarter and $258,000 in the recovery in the first quarter, totaling a year-to-date net recovery of $443,000. Non-performing loans were $18.5 million at this quarter end, $17.9 million last quarter, and $19.4 million a year ago. Non-performing loans to total loans was 0.36% at this quarter end compared to 0.35% last quarter and 0.38% a year ago. Non-performing assets were $19.7 million at quarter end versus $19 million last quarter and $21.9 million a year ago. At quarter end, allowance for credit losses remains solid at $51.9 million with a coverage ratio of 281% compared to $51.3 million with a coverage ratio of 286% at year end and $49.95 million with a coverage ratio of 257% a year ago.

Robert J. McCormick, Chairman, President and CEO, TrustCo Bank Corp NY: Bob, that’s our story. We’re happy to answer any questions you might have.

Conference Operator: Thank you very much. We will now begin the question and answer session. To ask a question, you may press star and then one on your telephone keypad. If you’re using a speakerphone, please pick up your headset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star and then two. Our first question comes from Ian Lapey from Gabelli Funds. Your line is open, Ian. Please go ahead.

Ian Lapey, Analyst, Gabelli Funds: Good morning, Rob and team. Congratulations.

Robert J. McCormick, Chairman, President and CEO, TrustCo Bank Corp NY: Morning, Ian.

Ian Lapey, Analyst, Gabelli Funds: Great financial results.

Robert J. McCormick, Chairman, President and CEO, TrustCo Bank Corp NY: Thank you.

Ian Lapey, Analyst, Gabelli Funds: Great financial results. I was hoping maybe you could quantify a little bit. The release mentions that you expect meaningful net interest income upside for quarters to come. You mentioned the rates on the fixed rate and home equity. What about the CDs that are going to be maturing over the next quarter? What’s sort of the average rate for that compared to what you’re paying on new CDs that you’re issuing?

Robert J. McCormick, Chairman, President and CEO, TrustCo Bank Corp NY: The highest rate we’re offering right now, Ian, is 4%, and that’s a three-month rate. There’s about $1 billion in certificates of deposit that are coming due over the next six months, four to six months. We expect, based on what happens with the Fed and some competition, there should be opportunity in that certificates of deposit portfolio to reprice.

Ian Lapey, Analyst, Gabelli Funds: What’s roughly the average? For the billion coming due, what is the average roughly rate on those?

Robert J. McCormick, Chairman, President and CEO, TrustCo Bank Corp NY: The average rate on the $1 billion coming due is about 3.75%.

Ian Lapey, Analyst, Gabelli Funds: Okay. Okay. On the recoveries, obviously, very impressive. I was just hoping you could unpack that a little bit. For example, for the quarter in New York, you had $194,000 in recoveries. Just curious, how many homes typically would that relate to? Is this just a function of borrowers defaulting with significant equity still in the home? Maybe you can just explain a little bit using the.

Robert J. McCormick, Chairman, President and CEO, TrustCo Bank Corp NY: A lot of that, as you can imagine, Ian, the real estate market upstate is still very, very strong, and there’s still great demand with relatively limited inventory. A lot of the transactions happen before we even end up taking the property back, which is the best possible scenario. The $194,000 is probably around five properties that we’ve taken back, and I think there was one commercial property in there and four residentials.

Ian Lapey, Analyst, Gabelli Funds: Okay. Great. I guess my only follow-up, my only remaining question, it looked like branches were flat at 136 sequentially. What are you thinking about in terms of expansion, if at all? Would Florida still be sort of your targeted range for growth?

Robert J. McCormick, Chairman, President and CEO, TrustCo Bank Corp NY: Kim, we’re looking at Pasco County, which is something that we’re very interested in, Ian. I’m sure you’re tracking this, but on the West Coast of Florida, because of development and prices and things like that, people are being pushed further and further out from Tampa. We’re seeing opportunity in loan demand in Pasco County. There are a couple of other infill locations that we would like to find something in, Florida. You know we are pretty cheap people, so we want the right transaction if we can in the right location. There’s always opportunity throughout downstate New York as things open up there as well. Those would be the two opportunities we’re seeing right now.

Ian Lapey, Analyst, Gabelli Funds: Okay. Terrific. Thank you.

Robert J. McCormick, Chairman, President and CEO, TrustCo Bank Corp NY: Thank you.

Conference Operator: As a reminder, to ask a question, please press star followed by one. We currently have no further questions at this time. I would like to turn the conference back to Robert J. McCormick for any closing remarks.

Robert J. McCormick, Chairman, President and CEO, TrustCo Bank Corp NY: Thank you for your interest in our company, and we hope you have a great day. Thank you.

Conference Operator: The conference call has now concluded. Thank you very much for attending. You may now disconnect your lines.