TrustCo (TRST) Q2 2025 Earnings Transcript

DATE

Tuesday, July 22, 2025 at 9 a.m. ET

CALL PARTICIPANTS

• President — Robert Joseph McCormick
• Chief Financial Officer — Michael M. Ozimek
• Chief Banking Officer — Kevin M. Curley

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TAKEAWAYS

• Net Income -- $15 million, up 19.8% year over year, with nearly $30 million reported year-to-date.
• Net Interest Income -- $41.7 million, rising $4 million or 10.5% compared to the prior year quarter.
• Net Interest Margin -- 2.71%, an increase of 18 basis points from the prior year quarter.
• Return on Average Assets and Equity -- 0.96% and 8.73%, respectively, both increasing by double digits year over year.
• Book Value Per Share -- $36.75 at quarter end, up 6.6% compared to $34.46 a year earlier.
• Equity to Assets Ratio -- 10.91%, increasing from 10.73% in the prior year quarter.
• Loan Portfolio Growth -- Average loans increased 2.3% or $115.6 million to $5.1 billion, marking an all-time high.
• Home Equity Portfolio -- Grew by $64.7 million or 17.8% year over year, leading all categories.
• Commercial Loan Growth -- Portfolio rose $25.8 million or 9.2% year over year.
• Residential Real Estate Loans -- Increased by $27.9 million or 0.6% year over year.
• Total Deposits -- Ended at $5.5 billion, up $213 million from the previous year quarter.
• Wealth Management Assets -- Approximately $1.2 billion in assets under management as of quarter end.
• Wealth Management Noninterest Income -- Increased 13% to $1.8 million; now represents 37.5% of noninterest income.
• Share Repurchase -- 169,000 shares repurchased during the quarter under the existing program.
• Noninterest Expense -- $25.7 million, down $600,000 year over year (excluding ORE expense); ORE expense was $522,000, up from $16,000 in the prior year quarter.
• Provision for Credit Losses -- $650,000 for the quarter.
• Asset Quality -- Net loan charge-offs were a net recovery of $9,000 in the quarter, after a net recovery of $258,000 in the previous quarter.
• Nonperforming Loans -- $17.9 million (0.35% of total loans), down from $19.2 million (0.38%) a year earlier.
• Allowance for Credit Losses -- $51.3 million, with a coverage ratio of 286%, elevated from 259% a year earlier.
• CD Renewal Rates -- Maturing CDs carry an average rate of 3.91%, while the highest new three-month CD is at 4%.
• Commercial Loan Collateral -- Over 90% of commercial loans are real estate secured, mainly in smaller multifamily and small office properties, both owner-occupied and investment.

SUMMARY

TrustCo Bank Corp NY (TRST +0.30%) delivered record loan balances alongside double-digit growth in both net income and net interest income for the quarter. Margin expansion, increased home equity lending, and new highs in wealth management fee income all contributed directly to enhanced profitability. Deposit growth and disciplined cost management further supported a rising equity base and funded new loan origination. The bank executed on its share repurchase program, aligning with its capital optimization strategy and confirming confidence in continued shareholder value return.

• CFO Michael M. Ozimek stated the organization remains well positioned "even as the Federal Reserve signals a potential easing cycle in the months ahead."
• President Robert Joseph McCormick confirmed "The best demand -- the better of the 2 categories has been Florida, Ian, but we've had very strong demand locally as well," but noted strength remains across all TrustCo markets.
• Net interest margin improvement was supported by both higher earning asset yields and a decline in the cost of interest-bearing liabilities.
• Management highlighted growing recurring wealth management fees, comprising more than one-third of noninterest income.

INDUSTRY GLOSSARY

• ORE: Other Real Estate; property acquired by the bank through foreclosure, held until sale or disposition.

Full Conference Call Transcript

Robert Joseph McCormick: Thanks, Sammy. Good morning, everyone, and thank you for joining the call. I'm Rob McCormick, the President of the 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 are very pleased to announce the outstanding year-to-date and year-over-year performance results. Mike will provide the details, but the net income of $15 million for the quarter and nearly $30 million year-to-date is nothing short of stellar. This is and the numbers supported our time to shine.

The strategy we developed and deployed over the past several years has been to amass capital for the purpose, at least in part, of having low-cost funds available to lend out exactly at this moment. When the interest rate environment is favorable, loan demand is up, and our competition is scraping to borrow funds to lend out, it is a fundamental principle of TrustCo Bank that we take in deposits and lend those funds right back out into the communities where we are -- where they were gathered. Average deposits are up over the year, and meaningful margin expansion is contributing to our success. Compared to this time last year, margin increased by a solid 7%.

Our increased income is, of course, affected by increased loan volume over the period. On the residential side, home equity products led the way because of the flexibility offered to customers looking to preserve favorable first-lien rates, an increase by 18% year-over-year. In fact, our team got so good at originating equity loans that we were able to offer a product that promises and delivers a closing within 7 days of application. We also successfully executed the strategy of growth in our commercial loan portfolio. That program grew by 11% over the past year. And in trademark TrustCo fashion, all of this was accomplished while preserving credit quality.

We saw net recoveries for the second quarter -- second consecutive quarter in '25. These successes have served our own as well. All return metrics are up significantly. Return on assets, return on equity, earnings per share and efficiency ratio all saw double-digit improvement from this time last year. The beauty of our deployed capital strategy is that we can support the lending in the way we have, while preserving our ability to execute on authorized share buyback program, which we have done and likely will continue. I will conclude where I started, performance has been stellar. The results in the first half of 2025 established positive momentum that we believe may extend into 2026.

Now Mike will go into the details. Mike?

Michael M. Ozimek: Thank you, Rob, and good morning, everyone. I will now review TrustCo's financial results for the second quarter of 2025. As we noted in the press release, the company saw a standout results for the second quarter of 2025 marked by increases in both net income and net interest income of TrustCo Bank during the second quarter of 2025 compared to the second quarter of 2024. This performance is underscored by rising net interest income, continued margin expansion and loan growth across key portfolios results in the second quarter net income of $15 million, an increase of 19.8% over the prior year quarter, which yielded a return on average assets and average equity of 0.96% and 8.73%, respectively.

Capital remains strong. Consolidated equity to assets ratio was 10.91% for the second quarter of 2025 compared to 10.73% in the second quarter of 2024. Book value per share at June 30, '25, was $36.75, up 6.6% compared to $34.46 a year earlier. During the second quarter of '25, TrustCo repurchased 169,000 shares of common stock under the previously announced stock repurchase program. And as always, 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.

Average loans for the second quarter of '25 grew 2.3% or $115.6 million to $5.1 billion from the second quarter of '24, an all-time high. Consequently, overall loan growth has continued to increase, and leading the charge was home equity lines of credit portfolio, which increased by $64.7 million or 17.8% in the second quarter of '25 over the same period in '24. The residential real estate portfolio increased $27.9 million or 0.6%. The average commercial loans increased $25.8 million or 9.2%, and installment loans decreased $2.9 million over the same period in '24. This uptick continues to reflect a strong local economy and increased demand for credit.

For the second quarter of '25, the provision for credit losses was $655,000 -- $650,000. Retaining deposits has been a key focus as we navigate through 2025. Total deposits ended the quarter at $5.5 billion and was up $213 million compared to the prior year quarter. We believe the increase in these deposits compared to the same period in '24 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 be a stable deposit base that continues to support ongoing loan growth and expansion.

Net interest income was $41.7 million for the second quarter of '25, an increase of $4 million or 10.5% compared to the prior year quarter. The net interest margin for the second quarter of '25 was 2.71%, up 18 basis points from the prior year quarter. Yield on interest-earning assets increased to 4.19%, up 13 basis points from the prior year quarter. The cost of interest-bearing liabilities decreased to 1.91% in the second quarter of '25 from 1.97% in the second quarter of '24. The bank is well positioned to continue delivering strong net interest income performance, even as the Federal Reserve signals a potential easing cycle in the months ahead.

The bank remains committed to maintaining a 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 add approximately $1.2 billion of assets under management as of June 30, '25. Noninterest income attributable to wealth management and financial services fees increased 13% to $1.8 million, driven by strong client demand and higher assets under management. These revenues now represent 37.5% of noninterest income. The majority of this fee income is recurring, supported by long-term advisory relationships and growing -- and a growing base of managed assets. Now on to noninterest expense.

Total noninterest expense net of ORE expense came in at $25.7 million, down $600,000 from the prior year quarter. ORE expense net came in at an expense of $522,000 for the quarter as compared to $16,000 in the prior year quarter. We're going to continue to hold the anticipated level of expense not to exceed $250,000 per quarter for ORE expense. All of the other categories of noninterest expense were in line with the expectations for the second quarter. Now Kevin will review the loan portfolio and nonperforming loans.

Kevin M. Curley: Thanks, Mike, and good morning to everyone. Our loans grew by $115.6 million or 2.3% year-over-year. The growth was centered on our home equity loans, which increased by $64.7 million or 17.8% over last year and residential mortgages, which increased by $27.9 million. In addition, our commercial loans grew by $25.8 million or 9.2% over last year. For the second quarter, actual loans increased by $40.6 million as total residential loans grew by $29.4 million, and commercial loans were also higher, increasing by $11.5 million for the quarter. Overall, residential activity trends remain similar to those discussed in recent quarters.

Our home equity credit lines continue to see consistent demand as customers continue to use their equity in their home for home improvements, education purposes or paying off higher cost loans such as credit cards. For purchase and refinance activity, we are well situated in the market and are ready to capture more growth as these segments pick up. Also, as a portfolio lender, we are uniquely positioned to manage pricing and implement promotions to increase lending volume. In all our markets, rates continue to be moving at approximately 50 basis point range, and our current rate is 6.5% for our base 30-year fixed rate loan.

In addition, our home equity products remain very attractive option for customers with rates starting below 7%. Commercial loan activity remained strong this quarter and continues to contribute to our portfolio growth. Overall, we are encouraged about our loan growth this quarter and are committed to driving stronger results moving forward. Now moving to asset quality. Asset quality at the bank remains very strong. Our early-stage delinquencies for our portfolio continue to be steady. Charge-offs for the quarter amounted to a net recovery of $9,000, which follows a net recovery of $258,000 in the first quarter. Nonperforming loans were $17.9 million at this quarter end, $18.8 million last quarter and $19.2 million a year ago.

Nonperforming loans to total loans decreased to 0.35% at this quarter end compared to 0.37% last quarter and 0.38% a year ago. And nonperforming assets also decreased to $19 million at quarter end versus $29 million -- $20.9 million last quarter and $21.5 million a year ago. At quarter end, our allowance for credit losses remained very solid at $51.3 million with a coverage ratio of 286% compared to $50.6 million with a coverage ratio of 270% in the first quarter and $49.8 million and a coverage ratio of 259% a year ago. Rob?

Robert Joseph McCormick: That's our story. We're happy to answer any questions anyone might have.

Operator: [Operator Instructions] Our first question comes from Ian Lapey from Gabelli Funds.

John Dundee Lapey: Congratulations. Great, great quarter. Just a couple of...

Robert Joseph McCormick: Thank you, Ian.

John Dundee Lapey: Rob, you talked about strong local demand. Is that in Florida as well or as well in Northeast?

Robert Joseph McCormick: I missed the first part of the question, Ian. I'm sorry, there is something -- you must have came faded in and out.

John Dundee Lapey: Sure. Is the strong local demand that you referred to, is that in Florida as well as in the Northeast?

Robert Joseph McCormick: It's across the markets, yes. The best demand -- the better of the 2 categories has been Florida, Ian, but we've had very strong demand locally as well.

John Dundee Lapey: Okay. Great. And then what is the -- in terms of the CDs that will be maturing in the next quarter, what is the rate for maturing CDs as opposed to the ones you're currently issuing?

Robert Joseph McCormick: We're still gaining ground, but not as much ground as we were gaining, Ian. Do you have the number for that?

Michael M. Ozimek: Yes, sure. We have -- what's coming due is about -- the average rate is 3.91%.

John Dundee Lapey: Okay. And what are you paying now?

Robert Joseph McCormick: The highest is 4%, but that's for 3 months.

John Dundee Lapey: Okay. And then last one...

Robert Joseph McCormick: And Ian, one thing is, as we go -- Ian, I'll just add to that. I mean, that's over the next quarter. But as you look out, we gained some ground. In future quarters and what's coming due in Q4, in Q1 of next year are lower. They're in the [ 3 60 ] range. So we're going to make some more ground up as we go forward.

John Dundee Lapey: Okay. Great. And last one, in terms of the strong commercial loan growth, what types of borrowers are you lending? And what's the rough mix between secured and unsecured?

Robert Joseph McCormick: The vast majority, Ian, probably in the 90% -- over 90% range is real estate related in commercial loans. And we're doing smaller multifamily projects and very small office offerings, some owner-occupied and some investment. But the vast majority of the commercial loan portfolio is secured by real estate.

Operator: [Operator Instructions] We currently have no further questions, so I would like to turn the conference call back to Robert J. McCormick for any closing remarks.

Robert Joseph McCormick: Thank you for your interest in our company, and we appreciate you spending a couple of minutes with us this morning. Have a great day.

Operator: The conference call has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.