TrustCo Bank Corp NY (TRST) Q3 2026 earnings review
TrustCo lending profit rises, but buybacks trim its capital cushion
TrustCo Bank Corp NY, the parent of upstate New York and Florida lender Trustco Bank, widened its lending spread while its share buybacks reduced its capital cushion. Net interest income rose 9% from a year ago to $47 million as older mortgages rolled into higher rates, lifting its net interest margin to 2.95%. Chief executive Robert J. McCormick kept the bank on pace to buy back two million shares this year.
| Net interest income | $47.0M +9.1% from a year ago |
|---|---|
| Net interest margin | 2.95% +0.16 percentage points from a year ago |
| Diluted profit per share | $1.02 +18.6% from a year ago |
| 2026 share buyback plan | Unchanged 500K shares left for Q4 by our math |
⚖️ Verdict: 🟢 Bullish
The story got better because loan repricing and faster loan growth expanded the lending margin by 0.08 percentage points from last quarter even though deposit costs stopped falling. One caution: operating expenses topped management's raised ceiling again, and nonperforming loans in Florida rose 39% from a year ago while buybacks pushed the equity-to-assets ratio down to 9.72%.
The question now is whether loan turnover can keep expanding the margin if deposit costs start rising and credit or overhead costs take a bigger bite. Either higher mortgage yields carry the margin past 3%, or sticky deposit rates and rising expenses cap profit growth once the current buyback finishes in December. Fourth-quarter deposit rates and the 2027 capital plan will tell.
🐂 Bull Case
Older Mortgages Rolling Into Higher Rates Lifted the Margin
TrustCo makes most of its money from the spread between what it earns on home mortgages and what it pays on customer deposits. Chief executive Robert J. McCormick said "favorable repricing of the Bank’s nearly $5.5 billion loan portfolio" drove the quarter, as older loans with low interest rates paid off and the bank lent the cash out at higher rates.
- Net interest margin (the profit spread on lending): 2.95%, up 0.08 percentage points from last quarter and 0.16 points from a year ago
- Average interest rate earned on residential mortgages: 4.21%, up from 4.12% last quarter and 4.00% a year ago
- Average rate paid on interest-bearing liabilities (mostly customer deposits): 1.79%, unchanged from last quarter and down from 1.90% a year ago
- Net interest income: $47.0 million, up 9.1% from a year ago and 3.2% from last quarter
The jump of 0.08 percentage points in the lending spread was the largest quarterly gain in a year. That matters because the bank achieved it without any new help from lower deposit costs, which stayed at 1.79% for a third straight quarter. Loan rates alone carried the improvement.
What to watch: the average interest rate on residential mortgages and the cost of time deposits (certificates of deposit, or CDs) in the fourth-quarter report. Further gains in mortgage yields while deposit costs stay near 1.79% would show the margin can reach 3% on loan turnover alone.
Loan Growth Kept Its Pace Even After Refinancing Slowed
A growing loan book gives TrustCo more balances that earn current interest rates. After a strong second quarter that benefited from an early wave of mortgage refinancing, the question was whether lending would slow down. Instead, the bank added $77.1 million to its period-end loan balances in the third quarter, more than double the $35.1 million it added in the same quarter last year, by our math.
Total loans ended September at $5.45 billion, up 5.1% from a year ago. Average home equity credit lines (loans backed by a borrower's home equity) grew 11.4% from a year ago to $490.3 million, and average residential mortgages rose 4.0% to $4.59 billion. Because loan growth sped up for a fourth straight quarter, interest income on loans grew 8.8% from a year ago.
What to watch: period-end total loan balances in the fourth-quarter release, alongside the seasonal dip in the loan pipeline that TrustCo noted when reducing its reserve for unfunded commitments by $200 thousand. A fourth-quarter loan addition below last year's $60.7 million would show that higher mortgage rates are finally cooling demand.
🐻 Bear Case
Buybacks Cut the Share Count by 10% and Trimmed the Capital Cushion
TrustCo has made share buybacks its main tool for lifting per-share profit, while critics point out that the purchases draw down its capital ratios and cost well above book value. In the third quarter the bank bought back another 500 thousand shares, bringing its nine-month total to 1.5 million shares. That cut the average diluted share count by 9.9% from a year ago and turned a 6.5% rise in net income into an 18.6% jump in diluted earnings per share, to $1.02.
The balance sheet shows the price of that boost. By our math from the treasury stock line, TrustCo spent $29.0 million on third-quarter buybacks, or $57.91 per share — more than 1.5 times its $38.20 book value per share. Because cash left the bank at a premium to book value, shareholders' equity fell to 9.72% of total assets, down from 10.05% in June and 10.90% a year ago.
What to watch: the ratio of shareholders' equity to total assets after the remaining 500 thousand shares in the 2026 plan are bought in the fourth quarter, and whether the board authorizes a new buyback for 2027. A drop below 9.5% equity to assets would test how far management is willing to shrink its capital buffer.
Operating Costs Topped the Raised Target Again
After operating expenses ran above plan in the second quarter, management raised its quarterly target for recurring noninterest expense (operating costs excluding foreclosed real estate) to $27.3–27.8 million. In the third quarter those costs came in at $28.03 million, beating the ceiling in the wrong direction for a second straight quarter.
Total noninterest expense rose 6.8% from a year ago to $28.02 million. The biggest move came in "other" operating expenses, which rose to 4.4% of total net revenue from 3.5% a year ago (+0.9 percentage points, by our math), while outsourced services and equipment costs also climbed. Salaries and employee benefits eased slightly from the second quarter to $12.78 million, or 24.6% of revenue.
What to watch: fourth-quarter noninterest expense excluding foreclosed property against the $27.3–27.8 million range. A third straight reading above $27.8 million would show that the bank's cost base has stepped up permanently to around $112 million a year.
Bad Loans in Florida Kept Rising while Credit Reserves Added to Costs
"Asset quality metrics remain stable and well covered by reserves," TrustCo wrote in its release. The bank recorded $30 thousand of net loan recoveries across the company, and total nonperforming loans (loans no longer paying interest) dipped slightly from June to $21.1 million, or 0.39% of total loans.
Underneath that total, two numbers moved the other way. Nonperforming loans in Florida rose for a fifth straight quarter to $4.99 million, up 13.1% from June and 39.0% from a year ago by our math. In addition, the provision for credit losses jumped to $850 thousand from $250 thousand a year ago (taking 1.1 percentage points more of revenue), which TrustCo attributed to "loan growth and changes in forward looking economic assumptions". Reserve coverage of nonperforming loans stood at 261.8%, down from 280.8% a year ago.
What to watch: Florida nonperforming residential mortgages in the fourth-quarter report and the detail on loans in foreclosure in the upcoming quarterly filing. Another double-digit rise in Florida nonaccruals would show that regional housing pressure is still building.
Risks this quarter didn't answer
Two standing concerns about deposit funding and interest-rate exposure depend on tables that only appear in the quarterly Form 10-Q filing.
- Exposure to rising interest rates: overall cost of interest-bearing liabilities stayed flat at 1.79% for a third quarter, while the maturity schedule for its $2.30 billion of time deposits and the updated interest-rate shock table will arrive in the third-quarter 10-Q.
- Deposit competition by account type: time deposit costs edged down 0.02 percentage points from last quarter to 3.34%, but the rate paid on interest-bearing checking accounts rose from 0.20% to 0.23% and money market balances shrank by $9.2 million; the 10-Q will show current CD offer rates and retention.
👓 Other Themes
TrustCo Raised Its Dividend and Added One Branch
The board raised the quarterly cash dividend by 5.3% to $0.40 per share, or $1.60 a year, up from $0.38 in the prior six quarters. Because per-share profit grew faster than the payout, the dividend payout ratio stood at 38.6%, down from 43.7% a year ago. Separately, full-service banking offices ticked up by one from June to 133, though still down from 136 a year earlier.
💲 Other KPIs
Average customer deposits rose $229.6 million, or 4.2%, from a year ago, faster than the 3.8% pace in the second quarter. Time deposits (CDs) led the increase, rising $162.1 million on average to $2.29 billion, while non-interest-bearing demand deposits grew $32.6 million to $825.2 million, giving the bank cash to fund loan growth without adding borrowings.
Fee income from customer services and wealth management rose 1.6% from a year ago but fell 6.0% from the second quarter. Headline noninterest income dropped 18.5% from last quarter because the second quarter included a one-off $844 thousand gain from a Visa share exchange, compared with just $56 thousand of equity gains this quarter.
TrustCo nearly doubled its holdings of corporate bonds from $39.8 million a year ago (+94.6% by our math) while letting U.S. government-sponsored enterprise bonds run down from $51.6 million to $9.9 million. That shift lifted the average yield on its available-for-sale bond portfolio to 3.15% from 2.91% a year ago.
🔮 Guidance
Unchanged. The savings bank said it remains "On pace to complete the repurchase of a total of three million shares, or 15.8%, of TrustCo common stock by the end of 2026". Having bought 1.0 million shares in 2025 and 1.5 million in the first nine months of 2026, that leaves 500 thousand shares for the fourth quarter by our math, matching its third-quarter pace.
Unchanged. TrustCo repeated its qualitative forecast that ongoing loan repricing and deposit growth position it to "generate continued net income and net interest income growth in the coming quarters", with positive momentum into 2027. The bank does not issue dollar ranges for revenue or profit in its earnings releases.
❓ Key Questions
Why did operating costs beat the raised ceiling again?
Recurring noninterest expense excluding foreclosed property was $28.03 million, above the $27.3–27.8 million range set in July. Was the overrun driven by stock-linked incentive pay or permanent overhead?
What is driving the steady rise in Florida bad loans?
Florida nonperforming loans rose for a fifth straight quarter to $4.99 million, up 39% from a year ago. How much of that balance is already in foreclosure, and does management expect any losses?
Where is the capital floor for share buybacks?
Shareholders' equity to assets has fallen from 10.90% to 9.72% in a year as the bank bought shares at more than 1.5 times book value. At what equity-to-assets ratio will the board slow or stop buybacks?
At what interest rates are maturing CDs renewing?
The average cost of time deposits edged down just 0.02 percentage points from last quarter to 3.34%. What rate is TrustCo offering on new one-year CDs today compared with the CDs maturing in the fourth quarter?