TRUSTCO BANK CORP N Y (TRST) stock intrinsic value fair value estimate & owner earnings analysis

TrustCo Bank Corp NY is the holding company for Trustco Bank, a plain savings-style bank with about $6.5 billion of assets and 134 branches in New York, New Jersey, Vermont, Massachusetts and Florida. Its $5.25 billion loan book is mostly home mortgages: about 64% of loans are in New York and about 36% in Florida. The bank earns the gap between what it charges on loans and securities and what it pays depositors, so its profit moves with interest rates far more than with growth in the business. Net income was $57.8 million in 2019 and $61.1 million in 2025, essentially flat for seven years, while profit per share swung with the margin. WHAT THE BUSINESS EARNS. We measure owner earnings: cash from operations, less the year-to-year swings in receivables and payables, less stock compensation, less the credit-loss provision, less the capital spending needed just to stay in business. Two recurring items are kept in as real costs: the provision for loan losses, and a steady build in other assets (about $6 million a year, every year for ten years; the balance has roughly doubled since 2020). Because that outflow never reverses, we do not treat it as timing noise; if it were treated as timing, our starting level would be roughly 8% higher. On this basis owner earnings per share ranged from $2.31 (2024) to $3.82 (2022) across 2018-2025, and were $2.77 in 2025, up 20% from the 2024 trough as the net interest margin recovered from 2.54% to 2.74%. 2025 also carried unusually heavy premises spending of $11.9 million against $3-5 million in most years; we did not isolate the reason from the filings. STARTING POINT. We start from the middle of the 2018-2025 results, a window that begins after the 2018 corporate tax cut and covers the near-zero-rate years, the 2022 peak and the 2024 margin trough. That middle is about $55.9 million a year, or $2.92 per share on the share counts of those years. Since the start of 2025 the bank has spent $86.6 million repurchasing stock; shares outstanding fell from 19.02 million at the end of 2024 to 17.03 million in mid-2026. We spread the same profit over about 17.1 million shares, after deducting about $2.6 million a year of earnings the spent cash would otherwise have produced (our estimate of roughly 3% after tax on short-term cash). That gives a starting level of $3.12 per share. For reference, first-half 2026 net income of $33.3 million, annualised to $66.5 million, is about $3.89 per share on 17.1 million shares; we sit below that because we weight the whole cycle, not the latest two quarters. RECENT TREND. First-half 2026 net income was $33.3 million against $29.3 million a year earlier (+13%), and net interest income of $90.3 million was 10% higher, as older low-rate loans and securities reprice. Growth check: owner earnings per share rose 20% in 2025 (from a trough); the base case assumes only 10% in its first year, to $3.43, because the repricing is visible in 2026 results but we do not assume it all continues. BASE CASE, $58.98 per share. Owner earnings start at $3.43 and grow 1.5% a year through year five and 1% a year through year ten, then stay flat. Growth credited: the loan book has grown every year, from $3.29 billion in 2015 to $5.25 billion in 2025 (4.8% a year, including 3.0% in 2025), and pre-tax profit grew 1.9% a year from 2016 to 2025 (though only flat since 2018), so we credit less than either. Growth needs capital, so we deduct what must be retained to support it (about $0.58 per share in year two) rather than counting all earnings as payable. Left out: further margin expansion, additional share repurchases beyond those already completed, the large surplus capital (Tier 1 capital ratio 18.39% against a peer median of 12.90%), Florida expansion and any new products. After year ten we hold earnings flat: the deposit franchise and branch network have produced $2.31 to $3.82 per share through a full rate cycle with no sign of decay, and we can name nothing that supports growth beyond that. As a bank, deposits are its raw material and interest is already a cost inside earnings, so no debt is subtracted (short-term borrowings were $108 million against $5.68 billion of deposits at June 30, 2026). BEAR CASE, $33.50 per share. Two named problems. First, the margin falls back to its 2024 trough, where owner earnings were $44.0 million, or $2.42 per share on today's share count, with no growth for ten years (consistent with the flat net income since 2019). Second, a full home-loan credit cycle in years three to six, modelled on TrustCo's own 2011-2012 experience: a provision of $18.75 million in 2011 (about 0.77% of average loans, with net charge-offs of $11.9 million) and $12.0 million in 2012 (0.47%, net charge-offs of $12.8 million), against $1.6 million (0.03%) in 2025. Applied to about $5.5 billion of loans, that is 0.8% of loans in years three and four ($44 million a year) and 0.5% in years five and six ($27.5 million a year), costing about $6.05 per share after tax in total, roughly 16% of shareholders' equity. Earnings fall to about $0.54 per share in the worst years, and capital stays well above requirements, so no share issuance is assumed. Afterwards earnings settle at $2.24, the trough level less what the lost capital would have earned, and stay flat. This case is worth less than the $38.52 per share of equity (total equity of $656.0 million on 17.03 million shares, with no goodwill). The 2009-2010 housing downturn is not in the filings we reviewed, so the credit cycle is sized from the years we could verify. BULL CASE, $74.82 per share. The margin recovers to the level behind the 2022 peak, when owner earnings were $73.2 million; on today's share count and the same adjustment for repurchased shares that is $4.13 per share. From there loans grow 3% a year (the 2025 pace) for four years and 2% for the next five, with the capital to support it retained, then earnings stay flat. No downturn is assumed. WHAT WOULD MAKE US WRONG. Interest rates are the main swing: profit per share moved 65% between 2024 and 2022. Credit is the second: the loan book is conservative, with problem loans at 0.39% of loans ($18.7 million of the $20.7 million are residential) and reserves of $52.2 million covering them 2.36 times, but 36% of loans are in Florida housing. A third is that surplus capital is spent on repurchases at poor prices. Earlier estimates published for this company were built on a different basis and are not comparable. WHY THE MARGIN-OF-SAFETY PRICE IS $27.00. We are reasonably sure of the earnings level because ten years of cash flow statements show a range of $2.31 to $3.82 per share, costs are low (efficiency ratio 56.14%) and credit has been clean; what we cannot be sure of is where interest rates settle, and that alone moved profit by 65%. The worst plausible event is a housing-led credit cycle arriving with thin margins, which the bear case prices at about $6 per share of losses over four years. The structure survives it: deposits fund the bank, borrowings are small, capital is thick and there is no goodwill to write off. An outcome no case models is a sharp fall in Florida house prices or a deposit run, but the equity cushion of $38.52 per share is large relative to the $27.00 price. If we are wrong about the two things we are most likely to be wrong about: if the margin recovery stalls and profit sits at the trough ($2.42 per share), that trough profit is about 9% of the $27.00 price; if a credit cycle arrives, it costs about $6 per share spread over four years, which the dividend (currently $0.38 a quarter, or $1.52 a year, a 5.6% yield at $27.00) would offset by about $6 over the same four years. The price assumes a three-to-five-year holding period, during which the bank pays the dividend and has retired shares ($86.6 million in 18 months). At $27.00, the starting owner earnings of $3.12 per share are an 11.5% yield, so even if the shares were only ever valued at book value (about $41 per share in five years) the implied return would be roughly 18% a year, and the base case implies more, while the bear case implies about 11% a year.