TrustCo Bank Corp NY Q2 FY2026 earnings call

• Capital Allocation Strategy • Management continues to prioritize share repurchases as its primary capital deployment strategy, which management views as the highest-value use of capital to generate shareholder value. • As of Q2 2026, over 2.3 million shares have been repurchased since the program launched in 2020; 10.5% of outstanding common stock has been repurchased under the 2025–2026 program, with 1 million shares repurchased in 2025 and over 1 million shares repurchased in 2026 to date. If the current phase is completed, nearly 16% of outstanding shares will be repurchased by the end of 2026. • Capital levels remain strong, with a consolidated equity-to-assets ratio of 10.5% as of Q2 2026, and book value per share up 4.8% YoY to $38.53.

• Business Model & Balance Sheet Dynamics • The firm's traditional relationship banking model delivered strong results, as lower-yielding assets matured and were replaced with higher-yielding new loans and investments, fueled by growth in lower-cost deposits. • Net interest margin expanded 16 basis points YoY to 2.87% in Q2 2026: yield on interest-earning assets rose 8 basis points to 4.27%, while cost of interest-bearing liabilities fell 12 basis points to 1.79%. • The firm opened a newly repurposed regional headquarters building in Longwood, Florida, to support growth in the Florida market and increase brand visibility.

• Credit Quality • Non-performing loans increased modestly to $21.8 million from $17.9 million YoY, representing 0.4% of total loans (up from 0.35% YoY), which remains a very low level. • The firm has recorded six straight quarters of net loan recoveries, with a net recovery of $88,000 in Q2 2026 and $317,000 in total net recoveries over the past 12 months. • Allowance for credit losses totaled $54.1 million as of Q2 2026, representing a 249% coverage ratio for non-performing loans, maintaining solid credit protection.

• Lending Activity • Mortgage origination saw solid momentum in Q2 2026: purchase volume remained steady throughout the quarter, while refinance activity was strong early in the quarter as rates dipped, then moderated when rates rose later in the quarter. • Home equity loans saw consistent demand across all markets, positioned as a low-cost alternative to unsecured personal loans and credit cards.

1. Core Lending Segments: Total average loans reached $5.3 billion as of Q2 2026, up 3.8% ($197.5 million) year-over-year, reaching an all-time high. First mortgages grew $142 million (3.2% YoY), home equity loans grew $44.8 million (10.4% YoY), and commercial loans grew $13.4 million (4.4% YoY). These three segments contribute 100% of the company's loan portfolio. 2. Deposits: Total deposits ended Q2 2026 at $5.7 billion, up $191 million (3.46%) year-over-year. 3. Wealth Management: Held $1.39 billion in assets under management as of Q2 2026, generating recurring non-interest income for the firm. 4. Overall Financials: Q2 2026 net income was $17 million, up 12.8% YoY. Net interest income was $45.6 million, up $3.8 million (9.2%) YoY. Non-interest expense (net of OREA) was $28.2 million, up $1.3 million from the prior quarter.

• Recurring non-interest expense (net of OREA expense) is guided to a range of $27.3 million to $27.8 million per quarter for full year 2026, representing an approximate 3% increase from prior guidance, driven by permanent salary increases. This upward revision adjusts for one-time non-recurring expense bumps in Q2 2026, which management expects to return to normalized levels next quarter.
• Quarterly OREA expense is expected to remain below $250,000 per quarter, consistent with prior guidance.

• Potential future increases in short-term interest rates could create pressure on net interest margins, similar to the earnings declines experienced after the 2022 Fed rate increases. • Modest growth in non-performing loans year-over-year presents a small incremental credit risk, though current levels remain very low and well covered by loss allowances.

Q: The analyst asked for clarification on the higher-than-guided non-interest expense in Q2 2026, asking what drove the unexpected increase. / A: The CFO explained the increase came from two main categories. Half of the salary and benefit increase stems from permanent salary raises, while the other half comes from mark-to-market adjustments to incentive compensation plans that increase when the stock price rises, which will normalize if the stock price stabilizes. Higher consulting, legal, and accounting professional fees also contributed, and these increases are non-recurring.

Q: The analyst confirmed that the new 27.3-27.8 million quarterly non-interest expense guidance reflects the permanent salary increase component of the Q2 bump. / A: The CFO confirmed this, noting the new guidance represents a steady 3% annual increase in expenses, which is in line with expectations, and one-off quarterly blips are expected to occur periodically from non-recurring items.

Q: The analyst asked how the bank is positioning for potential future short-term rate increases, following the material earnings declines the bank saw after the 2022 Fed rate hikes. / A: The Chairman said the bank is extending CD maturities by offering more attractive longer-term CD products to reduce frequent short-term repricing. It is also growing mortgage and home equity lines; home equity is mostly floating-rate, which benefits from higher rates, and the bank keeps investment portfolio maturities relatively short to allow regular repricing of securities as they amortize and mature.