TrustBank NY(TRST) - 2025 Q2 - Quarterly Report

Cautionary Note Regarding Forward-Looking Statements This section provides a standard disclaimer regarding forward-looking statements, highlighting that actual results may differ materially due to various risks and uncertainties - Forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical earnings and presently anticipated or projected results[8] - Risks are currently elevated by volatility in financial markets and macroeconomic or geopolitical concerns related to ongoing inflation, elevated interest rates, and armed conflicts[9] - Key risk categories include lending activities, operations, market conditions, compliance and regulation, competition, cybersecurity, third parties, technology, and ownership of securities[10][11][13][14][16] Part I. FINANCIAL INFORMATION Item 1. Consolidated Interim Financial Statements (Unaudited) This section presents unaudited consolidated interim financial statements, detailing financial performance, position, and cash flows Consolidated Statements of Income Net income increased for both three and six months ended June 30, 2025, driven by higher net interest income | Metric | Three months ended June 30, 2025 (in thousands) | Three months ended June 30, 2024 (in thousands) | Change (2025 vs 2024) | | :-------------------------------- | :---------------------------------------------- | :---------------------------------------------- | :-------------------- | | Total interest income | $64,472 | $60,585 | +$3,887 | | Total interest expense | $22,726 | $22,797 | -$71 | | Net interest income | $41,746 | $37,788 | +$3,958 | | Provision for credit losses | $650 | $500 | +$150 | | Total noninterest income | $4,852 | $5,651 | -$799 | | Total noninterest expenses | $26,223 | $26,459 | -$236 | | Income before taxes | $19,725 | $16,480 | +$3,245 | | Income taxes | $4,686 | $3,929 | +$757 | | Net income | $15,039 | $12,551 | +$2,488 | | Basic EPS | $0.79 | $0.66 | +$0.13 | | Diluted EPS | $0.79 | $0.66 | +$0.13 | | Metric | Six months ended June 30, 2025 (in thousands) | Six months ended June 30, 2024 (in thousands) | Change (2025 vs 2024) | | :-------------------------------- | :-------------------------------------------- | :-------------------------------------------- | :-------------------- | | Total interest income | $127,289 | $120,338 | +$6,951 | | Total interest expense | $45,170 | $45,972 | -$802 | | Net interest income | $82,119 | $74,366 | +$7,753 | | Provision for credit losses | $950 | $1,100 | -$150 | | Total noninterest income | $9,826 | $10,494 | -$668 | | Total noninterest expenses | $52,552 | $51,362 | +$1,190 | | Income before taxes | $38,443 | $32,398 | +$6,045 | | Income taxes | $9,129 | $7,721 | +$1,408 | | Net income | $29,314 | $24,677 | +$4,637 | | Basic EPS | $1.54 | $1.30 | +$0.24 | | Diluted EPS | $1.54 | $1.30 | +$0.24 | Consolidated Statements of Comprehensive Income Comprehensive income significantly increased due to higher net income and positive shift in unrealized gains on securities | Metric | Three months ended June 30, 2025 (in thousands) | Three months ended June 30, 2024 (in thousands) | Change (2025 vs 2024) | | :---------------------------------------------------------------- | :---------------------------------------------- | :---------------------------------------------- | :-------------------- | | Net income | $15,039 | $12,551 | +$2,488 | | Net unrealized gain (loss) on securities available for sale, net of tax | $2,336 | $642 | +$1,694 | | Other comprehensive income (loss), net of tax | $1,795 | $495 | +$1,300 | | Comprehensive income | $16,834 | $13,046 | +$3,788 | | Metric | Six months ended June 30, 2025 (in thousands) | Six months ended June 30, 2024 (in thousands) | Change (2025 vs 2024) | | :---------------------------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | :-------------------- | | Net income | $29,314 | $24,677 | +$4,637 | | Net unrealized gain (loss) on securities available for sale, net of tax | $6,284 | $(736) | +$7,020 | | Other comprehensive income (loss), net of tax | $5,524 | $(1,031) | +$6,555 | | Comprehensive income | $34,838 | $23,646 | +$11,192 | Consolidated Statements of Financial Condition Total assets increased to $6.35 billion, driven by growth in cash and net loans, with proportional increases in liabilities and equity | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | Change | | :------------------------------------ | :----------------------------- | :----------------------------- | :------- | | Total cash and cash equivalents | $713,591 | $641,812 | +$71,779 | | Securities available for sale | $336,566 | $358,185 | -$21,619 | | Net loans | $5,105,436 | $5,047,810 | +$57,626 | | Total assets | $6,348,375 | $6,238,744 | +$109,631 | | Total deposits | $5,490,314 | $5,390,983 | +$99,331 | | Total liabilities | $5,655,570 | $5,562,401 | +$93,169 | | Total shareholders' equity | $692,805 | $676,343 | +$16,462 | Consolidated Statements of Changes in Shareholders' Equity Shareholders' equity increased to $692.8 million, primarily due to net income and other comprehensive income, offset by dividends | Metric | January 1, 2025 (in thousands) | June 30, 2025 (in thousands) | Change | | :------------------------------------------------ | :----------------------------- | :----------------------------- | :------- | | Total Shareholders' Equity (Beginning Balance) | $676,343 | N/A | N/A | | Net income | N/A | $29,314 | +$29,314 | | Other comprehensive income, net of tax | N/A | $5,524 | +$5,524 | | Stock Based Compensation Expense | N/A | $616 | +$616 | | Cash dividend declared | N/A | $(13,659) | -$13,659 | | Purchase of treasury stock | N/A | $(5,333) | -$5,333 | | Total Shareholders' Equity (Ending Balance) | N/A | $692,805 | +$16,462 | Consolidated Statements of Cash Flows Operating activities generated $28.3 million, investing used $34.4 million, and financing provided $77.9 million, increasing cash by $71.8 million | Cash Flow Activity | Six months ended June 30, 2025 (in thousands) | Six months ended June 30, 2024 (in thousands) | Change (2025 vs 2024) | | :------------------------------------ | :-------------------------------------------- | :-------------------------------------------- | :-------------------- | | Net cash provided by operating activities | $28,332 | $28,615 | -$283 | | Net cash (used in) provided by investing activities | $(34,448) | $16,645 | -$51,093 | | Net cash provided by financing activities | $77,895 | $(87,151) | +$165,046 | | Net decrease in cash and cash equivalents | $71,779 | $(41,891) | +$113,670 | | Cash and cash equivalents at end of period | $713,591 | $536,113 | +$177,478 | Notes to Consolidated Interim Financial Statements These notes provide detailed explanations and disclosures for the unaudited interim financial statements, covering key accounting areas (1) Financial Statement Presentation Unaudited interim statements include TrustCo Bank and subsidiaries, prepared under SEC rules and GAAP, not indicative of full-year results - The unaudited Consolidated Interim Financial Statements include TrustCo Bank and other subsidiaries, with reclassifications for prior periods[32] - These statements are prepared in accordance with SEC rules and GAAP but do not include all information and notes necessary for a complete annual presentation[33] - Results of operations for the three and six months ended June 30, 2025, are not necessarily indicative of the results that may be expected for the year ending December 31, 2025[33] (2) Earnings Per Share Basic and diluted EPS increased due to higher net income, with anti-dilutive stock options excluded from calculations | Metric | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Change | | :------------------------------------------------ | :------------------------------- | :------------------------------- | :----- | | Net income (in thousands) | $15,039 | $12,551 | +$2,488 | | Weighted average common shares (in thousands) | 18,965 | 19,022 | -57 | | Basic EPS | $0.79 | $0.66 | +$0.13 | | Diluted EPS | $0.79 | $0.66 | +$0.13 | | Metric | Six months ended June 30, 2025 | Six months ended June 30, 2024 | Change | | :------------------------------------------------ | :----------------------------- | :----------------------------- | :----- | | Net income (in thousands) | $29,314 | $24,677 | +$4,637 | | Weighted average common shares (in thousands) | 18,992 | 19,023 | -31 | | Basic EPS | $1.54 | $1.30 | +$0.24 | | Diluted EPS | $1.54 | $1.30 | +$0.24 | - Approximately 8 thousand weighted average anti-dilutive stock options were excluded from diluted earnings per share for both periods in 2025[35] (3) Benefit Plans Net periodic benefit gains were recognized for pension and post-retirement plans, with no contributions expected in 2025 | Benefit Type | Three months ended June 30, 2025 (in thousands) | Three months ended June 30, 2024 (in thousands) | Change (2025 vs 2024) | | :-------------------------- | :---------------------------------------------- | :---------------------------------------------- | :-------------------- | | Pension Benefits | $(1,117) | $(492) | $(625) | | Other Postretirement Benefits | $(562) | $(436) | $(126) | | Benefit Type | Six months ended June 30, 2025 (in thousands) | Six months ended June 30, 2024 (in thousands) | Change (2025 vs 2024) | | :-------------------------- | :-------------------------------------------- | :-------------------------------------------- | :-------------------- | | Pension Benefits | $(1,612) | $(984) | $(628) | | Other Postretirement Benefits | $(1,125) | $(871) | $(254) | - The Company does not expect to contribute to its pension and post-retirement benefit plans in 2025, with this decision reviewed each quarter[37] (4) Investment Securities This section details investment securities, including available-for-sale, held-to-maturity, and equity, and unrealized loss rationale (a) Debt securities available for sale Fair value of debt securities available for sale decreased to $336.6 million, with gross unrealized losses decreasing to $21.3 million | Category | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | Change | | :------------------------------------------------------- | :----------------------------- | :----------------------------- | :------- | | U.S. government sponsored enterprises | $71,241 | $85,617 | -$14,376 | | Mortgage backed securities and collateralized mortgage obligations - residential | $221,721 | $213,128 | +$8,593 | | Corporate bonds | $29,943 | $44,581 | -$14,638 | | Small Business Administration - guaranteed participation securities | $12,945 | $14,141 | -$1,196 | | Total Securities Available for Sale | $336,566 | $358,185 | -$21,619 | | Category | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | Change | | :------------------------------------------------------- | :----------------------------- | :----------------------------- | :------- | | U.S. government sponsored enterprises | $661 | $1,220 | -$559 | | Mortgage backed securities and collateralized mortgage obligations - residential | $19,671 | $26,406 | -$6,735 | | Corporate bonds | $76 | $452 | -$376 | | Small Business Administration - guaranteed participation securities | $913 | $1,330 | -$417 | | Total Gross Unrealized Losses | $21,321 | $29,408 | -$8,087 | - The decrease in net unrealized losses is primarily attributable to changes in interest rates, not credit quality, and the Company does not have the intent to sell these securities before their anticipated recovery[47][48][49][50] (b) Held to maturity securities Held-to-maturity securities decreased to $4.8 million due to paydowns; no credit losses recorded as all securities performed | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | Change | | :---------------------------------------------------------------- | :----------------------------- | :----------------------------- | :------- | | Amortized Cost | $4,836 | $5,365 | -$529 | | Fair Value | $4,844 | $5,306 | -$462 | - The held-to-maturity portfolio consists solely of residential mortgage-backed securities, and no new securities were added during the period[42][43] - No allowance for credit losses was recorded for held-to-maturity securities, and all securities were performing in accordance with contractual terms as of June 30, 2025[44] (c) Equity Securities Visa stock exchange in Q2 2024 resulted in a $1.4 million gain on Class C shares, with Class B-2 shares nominal - During Q2 2024, Visa Inc. accepted the Company's tender of 6,528 shares of Visa Class B-1 common stock in exchange for Class B-2 and Class C common stock[45] - A gain of $1.4 million was recorded on the Visa Class C common stock, marked to fair value based on its conversion privilege and the closing price of Visa Class A common stock[45] - The carrying value of the Visa Class B-2 shares is nominal as of June 30, 2025[45] (d) Securities in an unrealized loss position Unrealized losses on debt securities are due to interest rates, not credit quality; all are investment grade and performing - Unrealized losses on U.S. government sponsored enterprises, mortgage-backed securities, SBA securities, and corporate bonds are attributable to changes in interest rates, not credit quality[47][48][49][50] - The Company does not have the intent to sell these securities and is not likely to be required to sell them before their anticipated recovery[47][48][49][50] - All securities in an unrealized loss position are investment grade rated and performing[47][48][49][50] (5) Loan Portfolio and Allowance for Credit Losses This section details the loan portfolio, allowance for credit losses, and credit quality, including risk categories and modifications Loan Portfolio Segmentation Total loan portfolio increased to $5.16 billion, driven by commercial real estate and home equity lines, with New York concentration | Loan Type | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | Change | | :-------------------------------- | :----------------------------- | :----------------------------- | :------- | | Commercial real estate | $292,571 | $267,300 | +$25,271 | | Other Commercial | $21,702 | $19,557 | +$2,145 | | First mortgages | $4,336,709 | $4,331,563 | +$5,146 | | Home equity loans | $57,608 | $56,739 | +$869 | | Home equity lines of credit | $435,433 | $409,261 | +$26,172 | | Installment | $12,678 | $13,638 | -$960 | | Total loans, net | $5,156,701 | $5,098,058 | +$58,643 | - Real estate construction loans increased from $29.7 million at December 31, 2024, to $37.2 million at June 30, 2025, with the vast majority in the Company's New York market[54] Allowance for Credit Losses on Loans ACLL increased to $51.3 million, with provisions of $650 thousand (Q2) and $950 thousand (H1) primarily due to loan growth | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | Change | | :------------------------------------ | :----------------------------- | :----------------------------- | :------- | | Total ending allowance balance | $51,265 | $50,248 | +$1,017 | - The Company recorded a provision for credit losses of $650 thousand for the three months ended June 30, 2025, and $950 thousand for the six months ended June 30, 2025[56] - The increase in the ACLL during the second quarter of 2025 was primarily a result of loan growth[196] - Net loans (recoveries) charged off for the three months ended June 30, 2025, was $(9) thousand, compared to $(52) thousand for the same period in 2024[58][59] Loan Credit Quality NPLs decreased to $17.9 million, with no loans 90 days past due; foreclosed real estate also decreased, reflecting improved quality - Commercial loans are categorized into risk categories (Special Mention, Substandard, Doubtful), while homogeneous loan pools are identified by payment status[64][69] | Loan Type | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | Change | | :------------------------------------ | :----------------------------- | :----------------------------- | :------- | | Commercial real estate | $684 | $329 | +$355 | | Other Commercial | $- | $14 | -$14 | | First mortgages | $14,117 | $14,954 | -$837 | | Home equity loans | $408 | $526 | -$118 | | Home equity lines of credit | $2,655 | $2,847 | -$192 | | Installment | $46 | $130 | -$84 | | Total nonperforming loans | $17,910 | $18,800 | -$890 | - There were no loans that were 90 days past due and still accruing interest as of June 30, 2025, and December 31, 2024[75] - Other real estate owned decreased to $1.1 million at June 30, 2025, from $2.2 million at December 31, 2024[76][194] Loan Modifications Loan modifications due to financial difficulty totaled $319 thousand (Q2) and $516 thousand (H1), primarily for residential mortgages | Period | Total (in thousands) | % of Total Loans | | :-------------------------- | :----------------- | :--------------- | | Three months ended June 30, 2025 | $319 | 0.01% | | Three months ended June 30, 2024 | $361 | 0.01% | | Six months ended June 30, 2025 | $516 | 0.01% | | Six months ended June 30, 2024 | $446 | 0.01% | - The nature of modifications that resulted in them being classified as a loan modification was typically the borrower filing for bankruptcy protection (Chapter 13 or Chapter 7)[96][98] - The addition of these loan modifications did not have a significant impact on the allowance for credit losses on loans[96] (6) Fair Value of Financial Instruments Fair value of financial instruments is measured using a three-level hierarchy, with significant assets in Level 1, 2, and 3 - Fair value measurements are categorized into Level 1 (quoted prices in active markets), Level 2 (significant other observable inputs), and Level 3 (significant unobservable inputs)[100][101] - Securities available for sale are classified as Level 2, while other real estate owned and individually evaluated loans typically use Level 3 inputs based on recent real estate appraisals[103][104][105] | Financial Asset | Carrying Value (in thousands) | Level 1 (in thousands) | Level 2 (in thousands) | Level 3 (in thousands) | Total Fair Value (in thousands) | | :-------------------------- | :---------------------------- | :--------------------- | :--------------------- | :--------------------- | :------------------------------ | | Cash and cash equivalents | $713,591 | $713,591 | $- | $- | $713,591 | | Securities available for sale | $336,566 | $- | $336,566 | $- | $336,566 | | Held to maturity securities | $4,836 | $- | $4,844 | $- | $4,844 | | Net loans | $5,105,436 | $- | $- | $4,647,987 | $4,647,987 | (7) Accumulated Other Comprehensive Income (Loss) Accumulated other comprehensive income shifted from a $3.861 million loss to a $1.663 million gain, driven by unrealized gains | Metric | January 1, 2025 (in thousands) | June 30, 2025 (in thousands) | Change | | :---------------------------------------------------------------- | :----------------------------- | :----------------------------- | :----- | | Net unrealized holding gain (loss) on securities available for sale, net of tax | $(21,713) | $(15,429) | +$6,284 | | Net change in overfunded position in pension and postretirement plans, net of tax | $21,266 | $21,266 | $0 | | Net change in net actuarial gain and prior service cost on pension and postretirement benefit plans, net of tax | $(3,414) | $(4,174) | -$760 | | Total Accumulated other comprehensive income (loss), net of tax | $(3,861) | $1,663 | +$5,524 | - Reclassifications out of accumulated other comprehensive income (loss) for pension and postretirement benefit items totaled $760 thousand for the six months ended June 30, 2025[115] (8) Revenue from Contracts with Customers Non-interest income decreased to $4.9 million (Q2) and $9.8 million (H1), primarily due to the absence of a 2024 equity gain | Non-interest income | Three months ended June 30, 2025 (in thousands) | Three months ended June 30, 2024 (in thousands) | Change | | :-------------------------- | :---------------------------------------------- | :---------------------------------------------- | :----- | | Service Charges on Deposits | $1,246 | $1,174 | +$72 | | Interchange Income | $1,091 | $1,288 | -$197 | | Net gains on equity securities | $- | $1,360 | -$1,360 | | Wealth management fees | $1,818 | $1,609 | +$209 | | Other | $697 | $220 | +$477 | | Total non-interest income | $4,852 | $5,651 | -$799 | | Non-interest income | Six months ended June 30, 2025 (in thousands) | Six months ended June 30, 2024 (in thousands) | Change | | :-------------------------- | :-------------------------------------------- | :-------------------------------------------- | :----- | | Service Charges on Deposits | $2,458 | $2,348 | +$110 | | Interchange Income | $2,581 | $2,885 | -$304 | | Net gains on equity securities | $- | $1,360 | -$1,360 | | Wealth management fees | $3,938 | $3,425 | +$513 | | Other | $849 | $476 | +$373 | | Total non-interest income | $9,826 | $10,494 | -$668 | - The decrease in non-interest income is primarily due to the $1.4 million net gain on equity securities recorded in Q2 2024 from the Visa Class C Common stock exchange, which did not recur in 2025[207][208] (9) Operating Leases Operating lease ROU assets and liabilities are recognized; total lease costs were $2.56 million (Q2) and $5.20 million (H1) - Operating lease ROU assets and lease liabilities are recognized at the commencement date based on the present value of lease payments over the lease term[123] | Metric | Three months ended June 30, 2025 (in thousands) | Three months ended June 30, 2024 (in thousands) | Six months ended June 30, 2025 (in thousands) | Six months ended June 30, 2024 (in thousands) | | :---------------- | :---------------------------------------------- | :---------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Operating lease cost | $2,045 | $2,036 | $4,051 | $4,133 | | Variable lease cost | $519 | $588 | $1,151 | $1,194 | | Total Lease costs | $2,564 | $2,624 | $5,202 | $5,327 | - As of June 30, 2025, the weighted average remaining lease term is 8.3 years, and the weighted average discount rate is 3.32%[125] (10) Regulatory Capital Requirements TrustCo and Trustco Bank met all 'well capitalized' regulatory capital requirements, exceeding minimum standards - As of June 30, 2025, the Company and Bank meet all capital adequacy requirements and are categorized as 'well capitalized' under regulatory frameworks[128][129] | Capital Ratio | Consolidated Amount (in thousands) | Consolidated Ratio | Minimum for Capital Adequacy plus Capital Conservation Buffer | | :-------------------------- | :------------------------------- | :----------------- | :------------------------------------------------------------ | | Tier 1 leverage ratio | $690,589 | 10.950% | 4.000% | | Common equity tier 1 capital | $690,589 | 19.334% | 7.000% | | Tier 1 risk-based capital | $690,589 | 19.334% | 8.500% | | Total risk-based capital | $735,346 | 20.587% | 10.500% | - The consolidated equity to total assets ratio was 10.91% at June 30, 2025, compared to 10.85% at December 31, 2024[216] (11) Segment Reporting The company operates as a single reportable banking segment, with performance monitored company-wide due to similar operations - The Company's Chief Executive Officer, as the chief operating decision maker (CODM), determines the reportable segment based on information provided about the Company's products and services offered, primarily banking operations[131] - All of the Company's operations are considered by management to be aggregated in one reportable operating segment due to company-wide performance monitoring and similar economic characteristics across regions[132] (12) New Accounting Pronouncements New FASB ASUs 2023-09 (Income Taxes) and 2024-03 (Expense Disaggregation) are being evaluated for impact - ASU 2023-09, 'Income Taxes (Topic 740): Improvements to Income Tax Disclosures,' effective for fiscal years after December 15, 2024, is not expected to have a material impact on the Company's consolidated financial statements[133] - ASU 2024-03, 'Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses,' effective for annual periods beginning January 1, 2027, is currently being evaluated for its disclosure impact[134] Report of Independent Registered Public Accounting Firm Crowe LLP reviewed interim financial statements, finding no material modifications needed for GAAP conformity, and affirmed 2024 financial condition - Crowe LLP reviewed the consolidated interim financial statements and found no material modifications that should be made for them to be in conformity with accounting principles generally accepted in the United States of America[137] - The information in the accompanying consolidated statement of financial condition as of December 31, 2024, is fairly stated, in all material respects[138] - A review of interim financial information is substantially less in scope than an audit, and therefore, an audit opinion is not expressed[140] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses TrustCo's financial condition and results for Q2 and H1 2025, covering economic overview, performance, and policies Introduction This introduction outlines the scope of MD&A, focusing on TrustCo's financial condition and results for Q2 and H1 2025 - The review focuses on factors affecting TrustCo's financial condition and results of operations for the three and six months ended June 30, 2025, with comparisons to the corresponding period in 2024[142] - This section should be read in conjunction with the consolidated interim financial statements and the Annual Report on Form 10-K for the year ended December 31, 2024[142] Economic Overview Financial markets rebounded in Q2 2025, with a steepening yield curve and stable Federal Funds rate, despite economic uncertainty - Financial markets rebounded in Q2 2025: S&P 500 up 10.57%, Nasdaq up 17.75%, and Dow Jones Industrial Average up 4.98%[144] - The 10-year Treasury bond averaged 4.36% in Q2 2025 (down 9 bps from Q1 2025), and the 2-year Treasury bond decreased 29 bps to 3.86%, steepening the yield curve[144] - The Federal Funds target rate remained flat at a range of 4.25%-4.50% through June 30, 2025[144] - The country has entered a period of heightened economic uncertainty due to rapidly evolving changes in tariff policies and potential inflation impacts[144] Financial Overview Net income and diluted EPS increased for Q2 and H1 2025, driven by higher net interest income and lower noninterest expenses | Metric | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Change | | :-------------------------- | :------------------------------- | :------------------------------- | :----- | | Net income (in millions) | $15.0 | $12.6 | +$2.4 | | Diluted EPS | $0.79 | $0.66 | +$0.13 | | Return on average assets | 0.96% | 0.82% | +0.14% | | Return on average equity | 8.73% | 7.76% | +0.97% | | Metric | Six months ended June 30, 2025 | Six months ended June 30, 2024 | Change | | :-------------------------- | :----------------------------- | :----------------------------- | :----- | | Net income (in millions) | $29.3 | $24.7 | +$4.6 | | Diluted EPS | $1.54 | $1.30 | +$0.24 | | Return on average assets | 0.94% | 0.81% | +0.13% | | Return on average equity | 8.61% | 7.65% | +0.96% | - Primary factors for Q2 2025 net income change include a $4.0 million (10.5%) increase in net interest income, a $236 thousand decrease in noninterest expense, and a $799 thousand decrease in noninterest income[149] - Primary factors for H1 2025 net income change include a $7.8 million (10.4%) increase in net interest income, a $1.2 million increase in noninterest expense, and a $668 thousand decrease in noninterest income[154] Asset/Liability Management TrustCo's strategy focuses on earnings from core deposits, maintaining liquidity, and reducing interest rate sensitivity through conservative banking - TrustCo strives to generate earnings through a mix of core deposits funding a prudent mix of earning assets, while maintaining adequate liquidity and reducing interest rate sensitivity[151] - The Company's conservative approach to banking, traditional underwriting process, and retention of originated loans provide a strong incentive for conservative credit decisions[158] - TrustCo maintains a significant level of liquidity on the asset side of the balance sheet, providing increased flexibility and stability during periods of market disruption and interest rate volatility[158] Net Interest Margin Net interest margin expanded to 2.71% (Q2) and 2.68% (H1), driven by higher asset yields and lower liability rates | Metric | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :---------------- | :------ | :------ | :------ | :------ | | Net interest margin | 2.71% | 2.53% | 2.68% | 2.48% | | Net interest spread | 2.28% | 2.09% | 2.24% | 2.05% | - For Q2 2025, the net interest margin increased due to a 21 bps increase in average loan yield (to 4.25%), a 23 bps increase in average securities yield (to 2.81%), and a 6 bps decrease in average rate paid on interest-bearing liabilities (to 1.91%)[161] - For H1 2025, the net interest margin increased due to a 21 bps increase in average loan yield (to 4.22%), a 19 bps increase in average securities yield (to 2.72%), and a 7 bps decrease in average rate paid on interest-bearing liabilities (to 1.92%)[161] Earning Assets Average interest-earning assets increased to $6.15 billion with a 4.19% yield, driven by loan growth and Federal Funds sold Loans Average loan portfolio grew to $5.14 billion with a 4.25% yield, driven by residential mortgages, home equity, and commercial loans - The average balance of loans was $5.14 billion in Q2 2025, up $115.6 million from the comparable period in 2024, with the yield on loans increasing by 21 basis points to 4.25%[161][164] - The average balance of residential mortgage loans increased by 0.6% to $4.39 billion, with the average yield increasing by 19 basis points to 3.94% in Q2 2025[166] - The average balance of home equity credit lines increased 17.8% to $428.9 million in Q2 2025, while the average yield decreased 3 basis points to 6.39%[169] - Commercial loans increased $25.8 million to an average balance of $306.4 million in Q2 2025, with the average yield up 19 basis points to 5.56%[168] Securities Available for Sale Available-for-sale securities decreased to $358.6 million, with yield increasing to 2.81%; net unrealized loss decreased to $20.8 million - The average balance of the securities available for sale portfolio for Q2 2025 was $358.6 million, a decrease of $79.0 million from the comparable period in 2024[161][170] - The average yield on securities available for sale increased to 2.81% for Q2 2025, up 23 basis points from 2.58% in Q2 2024[161][170] - The net unrealized loss in the available for sale securities portfolio was $20.8 million as of June 30, 2025, a decrease from $29.3 million as of December 31, 2024, due to the current interest rate environment[171] Held to Maturity Securities Held-to-maturity securities decreased to $5.0 million due to paydowns, with average yield increasing to 4.37% and a net unrecognized gain - The average balance of held-to-maturity securities was $5.0 million for Q2 2025, down from $6.1 million in Q2 2024, reflecting routine paydowns[172] - The average yield on held-to-maturity securities was 4.37% for Q2 2025, up from 4.28% for the year earlier period[172] - The net unrecognized gain in the held-to-maturity securities portfolio was $8 thousand as of June 30, 2025, compared to a net unrecognized loss of $59 thousand as of December 31, 2024[173] Federal Funds Sold and Other Short-term Investments Federal Funds sold and short-term investments increased to $648.5 million, generating $7.2 million in interest income despite lower yield - The Q2 2025 average balance of Federal Funds sold and other short-term investments was $648.5 million, a $142.0 million increase from the same period in 2024[175] - The yield was 4.46% for Q2 2025 (down from 5.48% in Q2 2024), but interest income increased $318 thousand to $7.2 million due to the higher average balance[175] - This portfolio is utilized to generate additional interest income and liquidity as funds are waiting to be deployed into the loan and securities portfolios[176] Funding Opportunities Average interest-bearing deposits increased to $4.68 billion, with a lower average rate paid, reflecting competitive deposit strategies - Total average interest-bearing deposits increased $130.7 million to $4.68 billion for Q2 2025, with the average rate paid decreasing from 2.00% to 1.93%[178] - Certificates of deposit average balances were up 11.3%, and non-interest demand average balances were up 5.8% from a year ago[178] - Approximately $1.13 billion of the deposit portfolio was uninsured as of June 30, 2025[180] - The Company has contingent funding alternatives, including $955.7 million borrowing capacity with the Federal Home Loan Bank of New York, and does not utilize brokered deposits as a primary funding strategy[182] Net Interest Income Net interest income increased to $41.7 million (Q2) and $82.1 million (H1), driven by loan growth and federal funds income - Net interest income increased by $4.0 million to $41.7 million in Q2 2025 compared to the same period in 2024[183] - Net interest income increased by $7.8 million to $82.1 million in H1 2025 compared to the same period in 2024[184] - The increase was driven by loan growth at higher interest rates and an increase in interest on federal funds sold, partially offset by lower investment interest income[183] - The Company expects to lower the rates offered on time deposits, which should help margin in future quarters[183] Nonperforming Assets Nonperforming assets, including NPLs and foreclosed real estate, decreased, while ACLL increased and coverage ratio improved Nonperforming Loans and Foreclosed Real Estate NPLs decreased to $17.9 million, primarily residential real estate, and foreclosed real estate also declined - Total NPLs were $17.9 million at June 30, 2025, compared to $18.8 million at December 31, 2024[185] - At June 30, 2025, nonperforming loans primarily included $17.2 million in residential real estate loans, $684 thousand in commercial loans and mortgages, and $46 thousand in installment loans[186] - As of June 30, 2025, there was $1.1 million of foreclosed real estate, compared to $2.2 million at December 31, 2024[194] - The Company's gross loan portfolio balances were 64.4% in New York and surrounding areas and 35.6% in Florida at June 30, 2025[189] Allowance for Credit Losses on Loans ACLL was $51.3 million (0.99% of loans), with coverage ratio improving to 286.2%; provision increased due to loan growth - The allowance for credit losses on loans was $51.3 million at June 30, 2025, representing 0.99% of the loan portfolio[198] - The coverage ratio (allowance for credit losses on loans to NPLs) was 286.2% as of June 30, 2025, compared to 267.3% as of December 31, 2024[198] - In Q2 2025, the Company recorded a provision for credit losses of $650 thousand, primarily related to loan growth[196] - Net recoveries for the three-month period ended June 30, 2025, were $9 thousand, compared to $52 thousand for the prior year period[199] Liquidity and Interest Rate Sensitivity TrustCo maintains strong liquidity and actively manages interest rate risk, with adequate sources to cover obligations - TrustCo seeks to maintain prudent levels of liquid assets and actively manages its liquidity through target ratios established under its liquidity policies[202] - The Company uses an industry standard external model to identify, quantify, and project changes in interest rates and their effect on loan prepayment speeds and deposit behavior[203] - The Company has adequate sources of liquidity, including a large cash and cash equivalents position, investment securities, and $955.7 million in FHLBNY borrowing capacity, to cover contractual obligations[182][202] | Interest Rate Change | Estimated Percentage of Fair Value of Capital to Fair Value of Assets | | :------------------- | :-------------------------------------------------------------------- | | +400 BP | 21.10% | | +300 BP | 21.50% | | +200 BP | 21.80% | | +100 BP | 23.40% | | Current rates | 24.10% | | -100 BP | 23.60% | | -200 BP | 22.30% | | -300 BP | 20.40% | | -400 BP | 17.00% | Noninterest Income Noninterest income decreased to $4.9 million (Q2) and $9.8 million (H1), primarily due to the absence of a 2024 equity gain - Total noninterest income decreased by $799 thousand in Q2 2025 and $668 thousand in H1 2025 compared to the prior year periods[149][154][207][208] - The primary reason for the decrease was the $1.4 million net gain on equity securities recorded in Q2 2024 from the Visa Class C Common stock exchange, which did not recur in 2025[207][208] - Wealth management fees increased by $209 thousand in Q2 2025 and $513 thousand in H1 2025[207][208] - Fees for services to customers decreased by $133 thousand in Q2 2025 and $233 thousand in H1 2025[207][208] Noninterest Expenses Noninterest expenses decreased to $26.2 million (Q2) but increased to $52.6 million (H1), with varied changes in components - Total noninterest expenses were $26.2 million for Q2 2025, a decrease of $236 thousand compared to Q2 2024[149][209] - Total noninterest expenses were $52.6 million for H1 2025, an increase of $1.2 million compared to H1 2024[154][210] - Q2 2025 saw a $644 thousand decrease in salaries and employee benefits, a $295 thousand decrease in outsourced services, and a $367 thousand decrease in other expenses[209] - These Q2 decreases were partially offset by increases of $316 thousand in professional services, $339 thousand in FDIC and other insurance, and $506 thousand in other real estate expense, net[209] Income Taxes Income tax expense increased to $4.7 million (Q2) and $9.1 million (H1) due to higher income, with stable effective tax rates | Period | Income Tax Expense (in millions) | Effective Tax Rate | | :-------------------------- | :----------------------------- | :----------------- | | Three months ended June 30, 2025 | $4.7 | 23.8% | | Three months ended June 30, 2024 | $3.9 | 23.8% | | Six months ended June 30, 2025 | $9.1 | 23.7% | | Six months ended June 30, 2024 | $7.7 | 23.7% | - The recently signed 'H.R. 1: One Big Beautiful Bill Act' (OBBBA) is not expected to significantly impact 2025 income tax expense[145][211] Capital Resources Shareholders' equity increased to $692.8 million; a $0.36 dividend was declared, and a new share repurchase program was authorized - Total shareholders' equity at June 30, 2025, was $692.8 million, compared to $655.2 million at June 30, 2024[213] - A dividend of $0.36 per share was declared in Q2 2025, resulting in a dividend payout ratio of 45.27% (down from 54.57% in Q2 2024)[213][217] - On March 18, 2025, the Board of Directors authorized a new share repurchase program of up to 1,000,000 shares[219][239] - During Q2 2025, the Company repurchased 168,735 shares at an average price of $31.56 for a total of $5.3 million[219][239] Critical Accounting Policies and Estimates Allowance for credit losses is a critical accounting policy due to measurement uncertainty; no significant changes occurred in Q2 2025 - The accounting policy relating to the allowance for credit losses is considered a critical accounting policy due to measurement uncertainty and subjective judgment[222] - There were no significant changes to critical accounting policies and estimates during Q2 2025, other than what is explicitly set forth[221] STATISTICAL DISCLOSURE: DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY: INTEREST RATES AND INTEREST DIFFERENTIAL This disclosure provides detailed tables on average balance sheet, interest rates, and interest differential, highlighting net interest income drivers | Metric | Q2 2025 Avg Balance (in thousands) | Q2 2025 Avg Rate | Q2 2024 Avg Balance (in thousands) | Q2 2024 Avg Rate | Change in Interest Income/Expense (in thousands) | | :------------------------------------ | :--------------------------------- | :--------------- | :--------------------------------- | :--------------- | :----------------------------------------------- | | Total interest earning assets | $6,153,629 | 4.19% | $5,975,865 | 4.06% | +$3,887 | | Total interest bearing liabilities | $4,763,917 | 1.91% | $4,645,880 | 1.97% | -$71 | | Net interest income | N/A | N/A | N/A | N/A | +$3,958 | | Net interest spread | N/A | 2.28% | N/A | 2.09% | +0.19% | | Net interest margin | N/A | 2.71% | N/A | 2.53% | +0.18% | | Metric | H1 2025 Avg Balance (in thousands) | H1 2025 Avg Rate | H1 2024 Avg Balance (in thousands) | H1 2024 Avg Rate | Change in Interest Income/Expense (in thousands) | | :------------------------------------ | :--------------------------------- | :--------------- | :--------------------------------- | :--------------- | :----------------------------------------------- | | Total interest earning assets | $6,129,864 | 4.16% | $5,984,594 | 4.03% | +$6,951 | | Total interest bearing liabilities | $4,749,216 | 1.92% | $4,661,253 | 1.98% | -$802 | | Net interest income | N/A | N/A | N/A | N/A | +$7,753 | | Net interest spread | N/A | 2.24% | N/A | 2.05% | +0.19% | | Net interest margin | N/A | 2.68% | N/A | 2.48% | +0.20% | Item 3. Quantitative and Qualitative Disclosures About Market Risk The principal market risk is interest rate risk, actively managed without derivatives, maintaining significant short-term investments for liquidity - The Company's principal market risk is interest rate risk[232] - TrustCo actively manages interest rate risk to meet short-term earning goals and respond to future changes in interest rates[232] - The Company does not engage in activities involving interest rate swaps, forward placement contracts, or any other instruments commonly referred to as 'derivatives'[232] - An average balance of $648.5 million in Federal Funds sold and other short-term investments was maintained in Q2 2025, utilized for liquidity and future investment opportunities[232] Item 4. Controls and Procedures This section confirms the effectiveness of disclosure controls and procedures, with no material changes in internal control over financial reporting Disclosure Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2025, ensuring timely and accurate reporting - Disclosure controls and procedures are designed to ensure that information required to be disclosed in reports is recorded, processed, summarized, and reported within specified time periods[233] - The Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of June 30, 2025[233] - Management recognizes that controls provide only reasonable assurance and require judgment in evaluating the cost-benefit relationship[234] Changes in Internal Control over Financial Reporting No material changes in internal control over financial reporting occurred during the quarter ended June 30, 2025 - There have been no changes in internal control over financial reporting during the quarter ended June 30, 2025, that have materially affected or are reasonably likely to materially affect the Company's internal control over financial reporting[235] Part II. Other Information Item 1. Legal Proceedings The company is involved in ordinary course litigation, but management believes no pending proceedings are material to financial condition - The nature of TrustCo's business generates a certain amount of litigation against TrustCo and its subsidiaries[236] - Management believes there are no proceedings pending that, if determined adversely, would be material in relation to TrustCo's consolidated shareholders' equity and financial condition[236] Item 1A. Risk Factors Risk factors from the 2024 Form 10-K remain largely unchanged, with added emphasis on fraud and financial crimes - The risk factors discussed in the Company's 2024 Form 10-K have not materially changed, except as set forth below[237] - An added risk factor highlights that the business may be adversely affected by the prevalence of fraud and other financial crimes, which can result in financial losses, data misuse, privacy breaches, litigation, or damage to reputation[238] - Such fraudulent activity, including electronic fraud, has increased, and certain losses may not be avoidable regardless of preventative and detection systems[238] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 168,735 shares for $5.3 million in Q2 2025 under a Board-authorized share repurchase program - On March 18, 2025, the Company's Board of Directors authorized a share repurchase program of up to 1,000,000 shares, or approximately 5% of its currently outstanding common stock[219][239] | Period | Total number of shares purchased | Average price paid per share | Total number of shares purchased as part of publicly announced plans or programs | Maximum number of shares that may yet be purchased under the plans or programs | | :--------------------------------- | :----------------------------- | :--------------------------- | :----------------------------------------------------------------------------- | :----------------------------------------------------------------------------- | | April 1, 2025 through April 30, 2025 | - | $- | - | 1,000,000 | | May 1, 2025 through May 31, 2025 | 61,721 | $31.50 | 61,721 | 938,279 | | June 1, 2025 through June 30, 2025 | 107,014 | $31.60 | 107,014 | 831,265 | | Total | 168,735 | $31.56 | 168,735 | 831,265 | - During the three months ended June 30, 2025, the Company repurchased a total of 168,735 shares for $5.3 million under its Board authorized share repurchase program[219][239] Item 3. Defaults Upon Senior Securities No defaults upon senior securities were reported during the period - None[240] Item 4. Mine Safety Disclosures No mine safety disclosures were reported during the period - None[241] Item 5. Other Information No other material information or Rule 10b5-1 trading arrangements were reported by directors or executive officers - No other material information was reported under sub-items (a) and (b)[242] - None of the Company's directors or executive officers adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement during the period[242] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including organizational documents and certifications - Exhibits include the Amended and Restated Certificate of Incorporation, Bylaws, Crowe LLP Letter, Rule 13a-15(e)/15d-15(e) Certifications, Section 1350 Certifications, and Inline XBRL (eXtensible Business Reporting Language) files[243] Signatures The report is signed by the Chairman, President, CEO, and EVP, CFO of TrustCo Bank Corp NY on August 8, 2025 - The report is signed by Robert J. McCormick, Chairman, President and Chief Executive Officer, and Michael M. Ozimek, Executive Vice President and Chief Financial Officer[245] - The signing date of the report is August 8, 2025[245]