UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2017March 31, 2018
Commission File Number 0-10592

TRUSTCO BANK CORP NY
(Exact name of registrant as specified in its charter)

NEW YORK 14‑1630287
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)

5 SARNOWSKI DRIVE, GLENVILLE, NEW YORK 12302
(Address of principal executive offices) (Zip Code)

Registrant'sRegistrant’s telephone number, including area code:
(518) 377‑3311

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  ☒Yes    ☐ No

Indicate by check mark whether the registrant has submitted electronically and posted  on  its  corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
☒Yes    ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.  (Check one):

Large accelerated filer Accelerated filer Non-accelerated filer ☐
Smaller reporting company ☐Emerging growth company ☐ 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).          ☐Yes   ☒ No

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.          ☐

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
 
Common Stock 
Number of Shares Outstanding
as of July 31, 2017April 30, 2018
$1 Par Value 96,101,97896,429,393
 


TrustCo Bank Corp NY

INDEX
 
Part I.IFINANCIAL INFORMATIONPAGE NO.NO
Item 1.Consolidated Interim Financial Statements (Unaudited): 
   
 3
   
 4
   
 5
   
 6
   
 7
   
 8 – 3733
   
 3834
   
Item 2.39-6035-53
   
Item 3.6154
   
Item 4.6154
   
Part II. 
   
Item 1.6255
   
Item 1A.6255
   
Item 2.6255
   
Item 3.6255
   
Item 4.6255
   
Item 5.6255
   
Item 6.6255
 
2

TRUSTCO BANK CORP NY
Consolidated Statements of Income (Unaudited)
(dollars in thousands, except per share data)

 
Three Months Ended
June 30,
  
Six Months Ended
June 30,
  
Three Months Ended
March 31,
 
 2017  2016  2017  2016  
2018
2017
 
                  
Interest and dividend income:                  
Interest and fees on loans $36,662   35,652   72,706   71,257  $38,091   36,044 
Interest and dividends on securities available for sale:                        
U. S. government sponsored enterprises  607   404   1,202   659   750   595 
State and political subdivisions  11   13   23   27   7   12 
Mortgage-backed securities and collateralized mortgage obligations-residential  1,944   2,169   3,902   4,285   1,763   1,958 
Corporate bonds  154   -   305   -   133   151 
Small Business Administration-guaranteed participation securities  394   450   809   926   352   415 
Mortgage-backed securities and collateralized mortgage obligations-commercial  21   38   44   74   42   23 
Other securities  4   4   8   8   5   4 
Total interest and dividends on securities available for sale  3,135   3,078   6,293   5,979   3,052   3,158 
                        
Interest on held to maturity securities:                        
Mortgage-backed securities and collateralized mortgage obligations-residential  296   374   612   775   260   316 
Corporate bonds  154   154   308   308   -   154 
Total interest on held to maturity securities  450   528   920   1,083   260   470 
                        
Federal Reserve Bank and Federal Home Loan Bank stock  134   118   268   238   77   134 
Interest on federal funds sold and other short-term investments  1,727   832   2,973   1,677   2,017   1,246 
Total interest income  42,108   40,208   83,160   80,234   43,497   41,052 
                        
Interest expense:                        
Interest on deposits:                        
Interest-bearing checking  134   116   258   230   106   124 
Savings  435   604   865   1,208   419   430 
Money market deposit accounts  468   467   934   962   439   466 
Time deposits  2,181   2,460   4,464   4,833   2,860   2,283 
Interest on short-term borrowings  349   262   698   519   358   349 
Total interest expense  3,567   3,909   7,219   7,752   4,182   3,652 
                       
Net interest income  38,541   36,299   75,941   72,482   39,315   37,400 
Provision for loan losses  550   800   1,150   1,600   300   600 
Net interest income after provision for loan losses  37,991   35,499   74,791   70,882   39,015   36,800 
                       
Noninterest income:                       
Trustco financial services income  1,425   1,512   3,283   3,117   1,815   1,858 
Fees for services to customers  2,797   2,737   5,434   5,398   2,645   2,637 
Net gain on securities transactions  -   668   -   668 
Other  282   282   514   588   219   232 
Total noninterest income  4,504   5,199   9,231   9,771   4,679   4,727 
                       
Noninterest expenses:                       
Salaries and employee benefits  9,559   8,934   19,769   17,937   10,422   10,210 
Net occupancy expense  4,267   3,918   8,376   8,006   4,315   4,109 
Equipment expense  1,428   1,840   2,984   3,354   1,751   1,556 
Professional services  1,963   2,098   3,891   4,244   1,430   1,928 
Outsourced services  1,500   1,425   3,000   2,976   1,925   1,500 
Advertising expense  607   570   1,320   1,299   630   713 
FDIC and other insurance  1,012   1,949   2,059   3,939   1,023   1,047 
Other real estate (income) expense, net  (4)  423   495   942 
Other real estate expense, net  372   499 
Other  2,581   2,817   5,038   4,715   2,287   2,457 
Total noninterest expenses  22,913   23,974   46,932   47,412   24,155   24,019 
                       
Income before taxes  19,582   16,724   37,090   33,241   19,539   17,508 
Income taxes  7,342   6,260   13,903   12,366   4,731   6,561 
                       
Net income $12,240   10,464   23,187   20,875  $14,808   10,947 
                       
Net income per share:                       
- Basic $0.127   0.110   0.242   0.219  $0.154   0.114 
                       
- Diluted $0.127   0.109   0.241   0.219  $0.153   0.114 

See accompanying notes to unaudited consolidated interim financial statements.
 
3

TRUSTCO BANK CORP NY
Consolidated Statements of Comprehensive Income (Unaudited)
(dollars in thousands)

 
Three Months Ended
June 30
  
Six Months Ended
June 30
   
Three Months Ended
March 31,
  
 2017  2016  2017  2016  
2018
  
2017
 
                  
Net income $12,240   10,464   23,187   20,875  $14,808   10,947 
                        
Net unrealized holding gain on securities available for sale  3,343   4,565   4,522   12,600 
Reclassification adjustments for net gain recognized in income  -   (668)  -   (668)
Net unrealized holding (loss) gain on securities available for sale  (7,160)  1,179 
Tax effect  (1,337)  (1,559)  (1,809)  (4,773)  1,858   (472)
                        
Net unrealized gain on securities available for sale, net of tax  2,006   2,338   2,713   7,159 
Net unrealized (loss) gain on securities available for sale, net of tax  (5,302)  707 
                        
                        
Amortization of net actuarial gain  (73)  (50)  (136)  (17)  (72)  (63)
Amortization of prior service cost  22   22   45   45   23   23 
Tax effect  20   12   36   (11)  13   16 
Amortization of net actuarial gain and prior service cost on pension and postretirement plans, net of tax  (31)  (16)  (55)  17   (36)  (24)
                        
Other comprehensive income, net of tax  1,975   2,322   2,658   7,176 
Other comprehensive (loss) income, net of tax  (5,338)  683 
Comprehensive income $14,215   12,786   25,845   28,051  $9,470   11,630 

See accompanying notes to unaudited consolidated interim financial statements.
 
4

TRUSTCO BANK CORP NY
Consolidated Statements of Financial Condition
(dollars in thousands, except per share data)

(Unaudited)
  June, 2017  December 31, 2016 
ASSETS: (Unaudited)  (Audited) 
       
Cash and due from banks $43,783   48,719 
         
Federal funds sold and other short term investments  663,360   658,555 
Total cash and cash equivalents  707,143   707,274 
         
Securities available for sale  605,457   620,360 
         
Held to maturity securities (fair value 2017 $42,803; 2016 $47,526)  41,208   45,490 
         
Federal Reserve Bank and Federal Home Loan Bank stock  9,723   9,579 
         
Loans, net of deferred net costs  3,507,473   3,430,586 
Less:        
Allowance for loan losses  44,162   43,890 
Net loans  3,463,311   3,386,696 
         
Bank premises and equipment, net  35,174   35,466 
Other assets  58,466   63,941 
         
Total assets $4,920,482   4,868,806 
         
LIABILITIES:        
Deposits:        
Demand $390,120   377,755 
Interest-bearing checking  871,004   815,534 
Savings accounts  1,285,886   1,271,449 
Money market deposit accounts  572,580   571,962 
Time deposits  1,088,824   1,159,463 
Total deposits  4,208,414   4,196,163 
         
Short-term borrowings  233,621   209,406 
Accrued expenses and other liabilities  31,081   30,551 
         
Total liabilities $4,473,116   4,436,120 
         
SHAREHOLDERS' EQUITY:        
Capital stock par value $1; 150,000,000 shares authorized; 99,510,682 and 99,214,382 shares issued at June 30, 2017 and December 31, 2016, respectively  99,511   99,214 
Surplus  172,603   171,425 
Undivided profits  212,112   201,517 
Accumulated other comprehensive loss, net of tax  (3,593)  (6,251)
Treasury stock at cost - 3,495,799 and 3,434,205 shares at        
June 30, 2017 and December 31, 2016, respectively  (33,267)  (33,219)
         
Total shareholders' equity  447,366   432,686 
         
Total liabilities and shareholders' equity $4,920,482   4,868,806 
 
March 31, 2018
  
December 31, 2017
 
ASSETS:      
       
Cash and due from banks $39,373   44,125 
         
Federal funds sold and other short term investments  577,797   568,615 
Total cash and cash equivalents  617,170   612,740 
         
Securities available for sale  559,083   571,965 
         
Held to maturity securities (fair value 2018 $26,994; 2017 $28,701)  26,174   27,551 
         
Federal Reserve Bank and Federal Home Loan Bank stock  8,779   8,779 
         
Loans, net of deferred net costs  3,666,975   3,636,407 
Less:        
Allowance for loan losses  44,379   44,170 
Net loans  3,622,596   3,592,237 
         
Bank premises and equipment, net  35,240   35,157 
Other assets  62,522   59,579 
         
Total assets $4,931,564   4,908,008 
         
LIABILITIES:        
Deposits:        
Demand $403,782   398,399 
Interest-bearing checking  915,163   891,052 
Savings accounts  1,266,852   1,260,447 
Money market deposit accounts  539,839   556,462 
Time deposits  1,109,444   1,066,966 
Total deposits  4,235,080   4,173,326 
         
Short-term borrowings  203,910   242,991 
Accrued expenses and other liabilities  30,477   33,383 
         
Total liabilities $4,469,467   4,449,700 
         
SHAREHOLDERS’ EQUITY:        
         
Capital stock par value $1; 150,000,000 shares authorized; 100,002,482 and 99,998,482 shares issued at March 31, 2018 and December 31, 2017, respectively  100,002   99,998 
Surplus  175,674   175,651 
Undivided profits  229,267   219,436 
Accumulated other comprehensive loss, net of tax  (8,490)  (1,806)
Treasury stock at cost - 3,643,882 and  3,709,171 shares at March 31, 2018 and December 31, 2017, respectively  (34,356)  (34,971)
         
Total shareholders’ equity  462,097   458,308 
         
Total liabilities and shareholders’ equity $4,931,564   4,908,008 

See accompanying notes to unaudited consolidated interim financial statements.
 
5

TRUSTCO BANK CORP NY
Consolidated Statements of Changes in Shareholders'Shareholders’ Equity (Unaudited)
(dollars in thousands, except per share data)

  
Capital
Stock
  Surplus  
Undivided
Profits
  
Accumulated
Other
Comprehensive
(Loss) Income
  
Treasury
Stock
  Total 
                   
                   
Beginning balance, January 1, 2016 $98,973   171,443   184,009   (4,781)  (36,334)  413,310 
Net income  -   -   20,875   -   -   20,875 
Other comprehensive income, net of tax  -   -   -   7,176   -   7,176 
Cash dividend declared, $.1312 per share  -   -   (12,528)  -   -   (12,528)
Stock options exercised (97,600 shares)  98   404   -   -   -   502 
Purchase of treasury stock (80,769 shares)  -   -   -   -   (489)  (489)
Sale of treasury stock (213,748 shares)  -   (785)  -   -   2,092   1,307 
Stock based compensation expense  -   112   -   -   -   112 
                         
Ending balance,June 30, 2016 $99,071   171,174   192,356   2,395   (34,731)  430,265 
                         
Beginning balance, January 1, 2017 $99,214   171,425   201,517   (6,251)  (33,219)  432,686 
Net income  -   -   23,187   -   -   23,187 
Other comprehensive income, net of tax  -   -   -   2,658   -   2,658 
Cash dividend declared, $.1312 per share  -   -   (12,592)  -   -   (12,592)
Stock options exercised (296,300 shares)  297   1,298   -   -   -   1,595 
Purchase of treasury stock (213,356 shares)  -   -   -   -   (1,503)  (1,503)
Sale of treasury stock (151,762 shares)  -   (199)  -   -   1,455   1,256 
Stock based compensation expense  -   79   -   -   -   79 
                         
Ending balance, June 30, 2017 $99,511   172,603   212,112   (3,593)  (33,267)  447,366 
   
Capital
Stock
  Surplus  
Undivided
Profits
  
Accumulated
Other
Comprehensive
(Loss) Income
  
Treasury
Stock
  Total 
                   
Beginning balance, January 1, 2017 $99,214   171,425   201,517   (6,251)  (33,219)  432,686 
Net income  -   -   10,947   -   -   10,947 
Other comprehensive income, net of tax  -   -   -   683   -   683 
Stock options exercised (279,000 shares)  279   1,224   -   -   -   1,503 
Cash dividend declared, $.0656 per share  -   -   (6,291)  -   -   (6,291)
Purchase of treasury stock (213,356 shares)  -   -   -   -   (1,503)  (1,503)
Sale of treasury stock (71,925 shares)  -   (63)  -   -   696   633 
Stock based compensation expense  -   42   -   -   -   42 
                        
Ending balance, March 31, 2017 $99,493   172,628   206,173   (5,568)  (34,026)  438,700 
                         
Beginning balance, January 1, 2018 $99,998  $175,651  $219,436  $(1,806) $(34,971) $458,308 
Net income  -   -   14,808   -   -   14,808 
Tax Cuts and Jobs Act of 2017,                        
Reclassification from AOCI to Retained                        
Earnings, Tax Effect  -   -   1,346   (1,346)  -   - 
Other comprehensive income, net of tax  -   -   -   (5,338)  -   (5,338)
Stock options exercised (4,000 shares)  4   16   -   -   -   20 
Cash dividend declared, $.0656 per share  -   -   (6,323)  -   -   (6,323)
Sale of treasury stock (65,289 shares)  -   (21)  -   -   615   594 
Stock based compensation expense  -   28   -   -   -   28 
                         
Ending balance, March 31, 2018 $100,002   175,674   229,267   (8,490)  (34,356)  462,097 

See accompanying notes to unaudited consolidated interim financial statements.
 
6

TRUSTCO BANK CORP NY
Consolidated Statements of Cash Flows (Unaudited)
(dollars in thousands)

 Six months ended June 30,  Three months ended March 31, 
 2017  2016  2018  2017 
            
Cash flows from operating activities:            
Net income $23,187   20,875  $14,808   10,947 
                
Adjustments to reconcile net income to net cash provided by operating activities:                
Depreciation and amortization  1,898   2,071   942   946 
Net gain on sale of other real estate owned  (507)  (363)  (137)  (191)
Writedown of other real estate owned  362   606   199   188 
Provision for loan losses  1,150   1,600   300   600 
Deferred tax expense  693   1,211 
Deferred tax (benefit) expense  (305)  368 
Net amortization of securities  2,244   2,453   915   1,114 
Stock based compensation expense  79   112   28   42 
Net loss on sale of bank premises and equipment  -   (62)
Net gain on sales of securities  -   (668)
Decrease in taxes receivable  4,087   1,996 
(Increase) decrease in taxes receivable  (1,787)  (411)
Decrease in interest receivable  (213)  (442)  862   328 
(Decrease) increase in interest payable  (64)  17 
Increase (decrease) in interest payable  128   (16)
Increase in other assets  (1,639)  (1,530)  (946)  (997)
Increase (decrease) in accrued expenses and other liabilities  910   (599)
Decrease in accrued expenses and other liabilities  (3,039)  (1,602)
Total adjustments  9,000   6,402   (2,840)  369 
Net cash provided by operating activities  32,187   27,277   11,968   11,316 
                
Cash flows from investing activities:                
                
Proceeds from sales and calls of securities available for sale  73,569   134,550 
Proceeds from calls of securities available for sale  25,028   20,770 
Proceeds from maturities of securities available for sale  25,000   - 
Proceeds from calls and maturities of held to maturity securities  4,282   5,781   1,377   2,220 
Purchases of securities available for sale  (56,388)  (144,422)  (45,224)  (47,905)
Proceeds from maturities of securities available for sale  -   550 
Purchases of Federal Reserve Bank and Federal Home Loan Bank stock  (144)  (99)
Net increase in loans  (80,030)  (54,636)  (31,151)  (19,579)
Proceeds from dispositions of other real estate owned  3,093   4,058   1,486   1,867 
Proceeds from dispositions of bank premises and equipment  -   58 
Purchases of bank premises and equipment  (1,606)  (1,217)  (1,025)  (655)
Net cash (used in) provided by investing activities  (57,224)  (55,377)  (24,509)  (43,282)
                
                
Cash flows from financing activities:                
                
Net increase in deposits  12,251   80,249   61,754   2,306 
Net increase (decrease) in short-term borrowings  24,215   (684)
Net (decrease) increase in short-term borrowings  (39,081)  11,540 
Proceeds from exercise of stock options  1,595   502   20   1,503 
Stock based award tax withholding payments  (333)  (32)  -   (312)
Proceeds from sale of treasury stock  1,256   1,307   594   633 
Purchases of treasury stock  (1,503)  (489)  -   (1,503)
Dividends paid  (12,575)  (12,513)  (6,316)  (6,284)
Net cash provided by financing activities  24,906   68,340   16,971   7,883 
Net (decrease) increase in cash and cash equivalents  (131)  40,240 
Net increase (decrease) in cash and cash equivalents  4,430   (24,083)
Cash and cash equivalents at beginning of period  707,274   718,156   612,740   707,274 
Cash and cash equivalents at end of period $707,143   758,396  $617,170   683,191 
        
Supplemental Disclosure of Cash Flow Information:        
Cash paid during the year for:        
Interest paid $7,283   7,735 
Income taxes paid  9,808   10,485 
Other non cash items:        
Transfer of loans to other real estate owned  2,265   2,448 
Increase in dividends payable  17   15 
Change in unrealized gain on securities available for sale-gross of deferred taxes  4,522   11,932 
Change in deferred tax effect on unrealized gain on securities available for sale  (1,809)  (4,773)
Amortization of net actuarial (gain) loss and prior service cost on pension and postretirement plans  (91)  28 
Change in deferred tax effect of amortization of net actuarial (gain) loss and prior service cost on pension and postretirement plans  36   (11)

Supplemental Disclosure of Cash Flow Information:      
Cash paid during the year for:      
Interest paid  4,054   3,668 
Income taxes paid  6,524   6,150 
Other non cash items:        
Transfer of loans to other real estate owned  492   787 
Increase in dividends payable  7   7 
Change in unrealized (loss) gain on securities available for sale-gross of deferred taxes  (7,160)  1,179 
Change in deferred tax effect on unrealized (loss) gain on securities available for sale  1,858   (472)
Amortization of net actuarial (gain) loss and prior service cost on pension and postretirement plans  (49)  (40)
Change in deferred tax effect of amortization of net actuarial (gain) loss and prior service cost on pension and postretirement plans  13   16 
See accompanying notes to unaudited consolidated interim financial statements.
 
7

(1) Financial Statement Presentation

The unaudited Consolidated Interim Financial Statements of TrustCo Bank Corp NY (the “Company” or “TrustCo”) include the accounts of the subsidiaries after elimination of all significant intercompany accounts and transactions.  Prior period amounts are reclassified when necessary to conform to the current period presentation.  The net income reported for the three and six months ended June 30, 2017March 31, 2018 is not necessarily indicative of the results that may be expected for the year ending December 31, 2017,2018, or any interim periods.  These financial statements consider events that occurred through the date of filing.

In the opinion of the management of the Company, the accompanying unaudited Consolidated Interim Financial Statements contain all recurring adjustments necessary to present fairly the financial position as of March 31, 2018, the results of operations and cash flows for fair presentation.the three months ended March 31, 2018 and 2017.  The accompanying Consolidated Interim Financial Statements should be read in conjunction with the Company’s year-end Consolidated Financial Statements, including notes thereto, which are included in the Company'sCompany’s Annual Report on Form 10-K for the year ended December 31, 2016.2017.  The accompanying consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not include all information and notes necessary for a complete presentation of financial position, results of operations and cash flow activity required in accordance with accounting principles generally accepted in the United States.

Effective January 1, 2017, the Company adopted FASB issued ASU No. 2016-09, “Improvement to Employee Share-Based Payment Accounting” which amended existing guidance to simplify aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. These amendments are effective for public business entities for annual periods and interim periods within those annual periods beginning after December 15, 2016. The adoption of these amendments did not have a material impact on the Consolidated Interim Financial Statements.

(2) Earnings Per Share

The Company computes earnings per share in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 260, Earnings Per Share (“ASC 260”).   A reconciliation of the component parts of earnings per share for the three and six months ended June 30,March 31, 2018 and 2017 and 2016 is as follows:

(in thousands, except per share data)  
For the three months ended
June 30:
    
For the six months ended
June 30:
 
 
For the three months ended
March 31:
 
 2017  2016  2017  2016  2018  2017 
Net income $12,240   10,464  $23,187   20,875  $14,808   10,947 
Weighted average common shares  96,003   95,487   95,944   95,426   96,353   95,879 
Stock Options  70   93   90   70   131   108 
Weighted average common shares including potential dilutive shares  96,073   95,580   96,034   95,496   96,484   95,987 
                
Basic EPS $0.127   0.110  $0.242   0.219  $0.154   0.114 
                
Diluted EPS $0.127   0.109  $0.241   0.219  $0.153   0.114 
8


For the three and six months ended June 30,March 31, 2018, there were no antidilutive stock options excluded from diluted earnings.  For the three months ended March 31, 2017 the weighted average number of antidilutive stock options excluded from diluted earnings per share was approximately 412553 thousand.  For the three and six months ended June 30, 2016 the weighted average number of antidilutive stock options excluded from diluted earnings per share was approximately 1.6 million.  The stock options are antidilutive because the strike price is greater than the average fair value of the Company’s common stock for the periods presented.

8

(3) Benefit Plans

The table below outlines the components of the Company'sCompany’s net periodic benefit recognized during the three and six months ended June 30,March 31, 2018 and 2017 and 2016 for its pension and other postretirement benefit plans:

  For the three months ended June 30, 
  Pension Benefits  Other Postretirement Benefits 
(dollars in thousands) 2017  2016  2017  2016 
             
Service cost $11   16   23   32 
Interest cost  322   349   54   61 
Expected return on plan assets  (686)  (681)  (190)  (180)
Amortization of net loss (gain)  10   5   (83)  (55)
Amortization of prior service cost  -   -   22   22 
Net periodic benefit $(343)  (311)  (174)  (120)
 For the six months ended June 30,  For the three months ended March 31, 
 Pension Benefits  Other Postretirement Benefits  Pension Benefits  Other Postretirement Benefits 
(dollars in thousands)  2017   2016   2017   2016  2018  2017  2018  2017 
                            
Service cost $22   31   51   64  $11   11   26   28 
Interest cost  651   686   110   123   326   329   54   56 
Expected return on plan assets  (1,372)  (1,325)  (381)  (360)  (687)  (686)  (190)  (191)
Amortization of net loss (gain)  33   92   (169)  (109)  17   23   (89)  (86)
Amortization of prior service cost  -   -   45   45   -   -   23   23 
Net periodic benefit $(666)  (516)  (344)  (237) $(333)  (323)  (176)  (170)

The Company does not expect to make contributions to its pension and postretirement benefit plans in 2017.2018.  As of June 30, 2017,March 31, 2018, no contributions have been made, however, this decision is reviewed each quarter and is subject to change based upon market conditions.

Since 2003, the Company has not subsidized retiree medical insurance premiums.  However, it continues to provide medical benefits and postretirement medical benefits to a limited number of current and retired executives in accordance with the terms of their employment contracts.
9


(4) Investment Securities

(a) Securities available for sale

The amortized cost and fair value of the securities available for sale are as follows:

(dollars in thousands) June 30, 2017 
  
Amortized
Cost
  
Gross
Unrealized
Gains
  
Gross
Unrealized
Losses
  
Fair
Value
 
             
U.S. government sponsored enterprises $129,939   71   1,624   128,386 
State and political subdivisions  523   13   -   536 
Corporate bonds  40,613   -   115   40,498 
Mortgage backed securities and collateralized mortgage obligations - residential  355,966   177   3,552   352,591 
Small Business Administration- guaranteed participation securities  74,514   -   1,656   72,858 
Mortgage backed securities and collateralized mortgage obligations - commercial  9,960   -   57   9,903 
Other  650   -   -   650 
Total debt securities  612,165   261   7,004   605,422 
Equity securities  35   -   -   35 
Total securities available for sale $612,200   261   7,004   605,457 

(dollars in thousands) December 31, 2016  March 31, 2018 
 
Amortized
Cost
  
Gross
Unrealized
Gains
  
Gross
Unrealized
Losses
  
Fair
Value
     
Amortized
Cost
      
Gross
Unrealized
Gains
      
Gross
Unrealized
Losses
       
Fair
Value
   
                        
U.S. government sponsored enterprises $119,887   -   2,621   117,266  $154,861   -   3,534   151,327 
State and political subdivisions  873   13   -   886   515   10   -   525 
Corporate bonds  35,347   -   120   35,227 
Mortgage backed securities and collateralized mortgage obligations - residential  378,068   123   5,883   372,308   307,679   75   10,121   297,633 
Corporate bonds  40,956   -   251   40,705 
Small Business Administration- guaranteed participation securities  81,026   -   2,527   78,499   66,153   -   2,040   64,113 
Mortgage backed securities and collateralized mortgage obligations - commercial  10,130   -   119   10,011   9,743   -   170   9,573 
Other  650   -   -   650   685   -   -   685 
Total debt securities  631,590   136   11,401   620,325 
Equity securities  35   -   -   35 
Total securities available for sale $631,625   136   11,401   620,360 
Total Securities Available for Sale $574,983   85   15,985   559,083 
 
109

(dollars in thousands) December 31, 2017 
       
Amortized
Cost
      
Gross
Unrealized
Gains
      
Gross
Unrealized
Losses
       
Fair
Value
   
             
             
U.S. government  sponsored enterprises $139,890   27   2,066   137,851 
State and political  subdivisions  515   10   -   525 
Mortgage backed securities and collateralized mortgage obligations - residential  320,614   84   4,715   315,983 
Corporate bonds  40,270   -   108   40,162 
Small Business Administration- guaranteed participation securities  68,921   -   1,862   67,059 
Mortgage backed securities and collateralized mortgage obligations - commercial  9,810   -   110   9,700 
Other  685   -   -   685 
Total Securities Available for Sale $580,705   121   8,861   571,965 
The following table distributes the debt securities included in the available for sale security portfolio as of June 30, 2017,March 31, 2018, based on the securities’ final maturity.   Actual maturities may differ because of securities prepayments and the right of certain issuers to call or prepay their obligations without penalty.  Securities not due at a single maturity date are presented separately:

(dollars in thousands) 
Amortized
Cost
  
Fair
Value
   
Amortized
Cost
    
Fair
Value
  
Due in one year or less $50,482   50,397  $30,717   30,617 
Due in one year through five years  111,183   109,607   150,597   147,053 
Due after five years through ten years  10,060   10,066   10,094   10,094 
Due after ten years  -   - 
Mortgage backed securities and collateralized mortgage obligations - residential  355,966   352,591   307,679   297,633 
Small Business Administration- guaranteed participation securities  74,514   72,858   66,153   64,113 
Mortgage backed securities and collateralized mortgage obligations - commercial  9,960   9,903   9,743   9,573 
 $612,165   605,422  $574,983   559,083 

Gross unrealized losses on securities available for sale and the related fair values aggregated by the length of time that individual securities have been in an unrealized loss position, were as follows:

(dollars in thousands) June 30, 2017 
  
Less than
12 months
  
12 months
or more
  Total 
   
Fair
Value
  
Gross
Unreal.
Loss
  
Fair
Value
  
Gross
Unreal.
Loss
  
Fair
Value
  
Gross
Unreal.
Loss
 
U.S. government sponsored enterprises $88,286   1,602   14,978   22   103,264   1,624 
Mortgage backed securities and collateralized mortgage obligations - residential  320,377   3,361   11,024   191   331,401   3,552 
Corporate bonds  40,498   115   -   -   40,498   115 
Small Business Administration- guaranteed participation securities  60,095   1,200   12,763   456   72,858   1,656 
Mortgage backed securities and collateralized mortgage obligations - commercial  9,903   57   -   -   9,903   57 
                         
Total $519,159   6,335   38,765   669   557,924   7,004 
 
1110

(dollars in thousands) December 31, 2016  March 31, 2018 
  
Less than
12 months
    
12 months
or more
        Total  
 
Less than
12 months
  
12 months
or more
  Total     
Fair
Value
      
Gross
Unreal.
Loss
       
Fair
Value
      
Gross
Unreal.
Loss
       
Fair
Value
Gross
Unreal.
Loss
   
 
Fair
Value
  
Gross
Unreal.
Loss
  
Fair
Value
  
Gross
Unreal.
Loss
  
Fair
Value
  
Gross
Unreal.
Loss
                   
U.S. government sponsored enterprises $102,266   2,621   -   -   102,266   2,621  $59,076   895   82,251   2,639   141,327   3,534 
Mortgage backed securities and collateralized mortgage obligations - residential  359,622   5,766   4,713   117   364,335   5,883   45,441   1,221   250,721   8,900   296,162   10,121 
Corporate bonds  40,705   251   -   -   40,705   251   5,218   19   30,008   101   35,227   120 
Small Business Administration- guaranteed participation securities  64,560   1,960   13,940   567   78,500   2,527   -   -   64,113   2,040   64,113   2,040 
Mortgage backed securities and collateralized mortgage obligations - commercial  10,011   119   -   -   10,011   119   -   -   9,573   170   9,573   170 
                        
Total $577,164   10,717   18,653   684   595,817   11,401  $109,735   2,135   436,666   13,850   546,401   15,985 
(dollars in thousands) December 31, 2017 
    
Less than
12 months
    
12 months
or more
        Total  
    
Fair
Value
      
Gross
Unreal.
Loss
       
Fair
Value
      
Gross
Unreal.
Loss
       
Fair
Value
      
Gross
Unreal.
Loss
   
                  
U.S. government sponsored enterprises $29,734   266   98,090   1,800   127,824   2,066 
Mortgage backed securities and collateralized mortgage obligations - residential  48,080   371   266,394   4,344   314,474   4,715 
Corporate bonds  -   -   40,162   108   40,162   108 
Small Business Administration- guaranteed participation securities  -   -   67,059   1,862   67,059   1,862 
Mortgage backed securities and collateralized mortgage obligations - commercial  -   -   9,700   110   9,700   110 
Total $77,814   637   481,405   8,224   559,219   8,861 

The proceedsThere were no gross realized gains or losses from sales and calls of securities available for sale gross realized gains and gross realized losses from sales and callssecurities during the three and six months ended June 30, 2017March 31, 2018 and 2016 are as follows:2017.

(dollars in thousands) Three months ended June 30, 
  2017  2016 
       
Proceeds from sales $-   44,829 
Proceeds from calls  52,799   40,808 
Gross realized gains  -   668 
Gross realized losses  -   - 
(dollars in thousands) Six months ended June 30, 
  2017  2016 
       
Proceeds from sales $-   44,829 
Proceeds from calls  73,569   89,721 
Gross realized gains  -   668 
Gross realized losses  -   - 

There were no sales of securities available for sale during the three and six months ended June 30,March 31, 2018 and 2017. For the threeThere was $25.0 million and six months ended June 30, 2016, income tax expense recognized on net gains on sales$20.7 million in proceeds from calls of securities available for sale was approximately $267 thousand.during the three months ended March 31, 2018 and 2017, respectively.
 
1211

(b) Held to maturity securities

The amortized cost and fair value of the held to maturity securities are as follows:

(dollars in thousands) June 30, 2017  March 31, 2018 
 
Amortized
Cost
  
Gross
Unrecognized
Gains
  
Gross
Unrecognized
Losses
  
Fair
Value
  
Amortized
Cost
  
Gross
Unrecognized
Gains
  
Gross
Unrecognized
Losses
  
Fair
Value
 
                        
Mortgage backed securities and collateralized mortgage obligations - residential $31,211   1,520   -   32,731  $26,174   882   62   26,994 
Corporate bonds  9,997   75   -   10,072 
Total held to maturity $41,208   1,595   -   42,803  $26,174   882   62   26,994 

(dollars in thousands) December 31, 2017 
   
Amortized
Cost
  
Gross
Unrecognized
Gains
  
Gross
Unrecognized
Losses
  
Fair
Value
 
             
Mortgage backed securities and collateralized mortgage obligations - residential $27,551   1,150   -   28,701 
Total held to maturity $27,551   1,150   -   28,701 
 
(dollars in thousands) December 31, 2016 
  
Amortized
Cost
  
Gross
Unrecognized
Gains
  
Gross
Unrecognized
Losses
  
Fair
Value
 
                 
Mortgage backed securities and collateralized mortgage obligations - residential $35,500   1,736   -   37,236 
Corporate bonds  9,990   300   -   10,290 
Total held to maturity $45,490   2,036   -   47,526 

The following table distributes the debt securities included in the held to maturity portfolio as of June 30, 2017,March 31, 2018, based on the securities’ final maturity.   Actual maturities may differ because of securities prepayments and the right of certain issuers to call or prepay their obligations without penalty.  Securities not due at a single maturity date are presented separately:

(dollars in thousands) 
Amortized
Cost
  
Fair
Value
   
Amortized
Cost
    
Fair
Value
  
Due in one year or less $9,997   10,072 
      
Mortgage backed securities and collateralized mortgage obligations - residential  31,211   32,731   26,174   26,994 
 $41,208   42,803 
Total held to maturity $26,174   26,994 
12

Gross unrecognized losses on securities held to maturity and the related fair values aggregated by the length of time that individual securities have been in an unrecognized loss position, were as follows:

(dollars in thousands) March 31, 2018 
    
Less than
12 months
    
12 months
or more
    Total  
       
Fair
Value
      
Gross
Unrecog.
Loss
       
Fair
Value
      
Gross
Unrecog.
Loss
       
Fair
Value
      
Gross
Unrecog.
Loss
   
                   
Mortgage backed securities and collateralized mortgage obligations - residential  9,539   62   -   -   9,539   62 
Total $9,539   62   -   -   9,539   62 

There were no unrecognized losses on held to maturity securities in an unrecognized loss positioninvestments as of June 30, 2017 or December 31, 2016.2017.

There were no sales or transfers of held to maturity securities during the three and six months ended June 30,March 31, 2018 and 2017 and 2016.
13


(c) Other-Than-Temporary Impairment

Management evaluates securities for other-than-temporary impairment (“OTTI”) at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. The investment securities portfolio is evaluated for OTTI by segregating the portfolio by type and applying the appropriate OTTI model. Investment securities classified as available for sale or held to maturity are evaluated for OTTI under FASB ASC Topic 320,Investments “Investments – Debt and Equity Securities (“ASC 320”).Securities.”

In determining OTTI under the FASB ASC 320 model, management considers many factors, including: (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, (3) whether the market decline was affected by macroeconomic conditions, and (4) whether the Company has the intent to sell the debt security or more likely than not will be required to sell the debt security before its anticipated recovery. The assessment of whether any other-than-temporary decline exists involves a high degree of subjectivity and judgment and is based on the information available to management at a point in time.

When OTTI occurs, the amount of the OTTI recognized in earnings depends on whether management intends to sell the security or it is more likely than not it will be required to sell the security before recovery of its amortized cost basis. If management intends to sell or it is more likely than not it will be required to sell the security before recovery of its amortized cost basis, the OTTI shall be recognized in earnings equal to the entire difference between the investment’s amortized cost basis and its fair value at the balance sheet date. If management does not intend to sell the security and it is not more likely than not that the entity will be required to sell the security before recovery of its amortized cost basis, the OTTI on debt securities shall be separated into the amount representing the credit loss and the amount related to all other factors. The amount of the total OTTI related to the credit loss is determined based on the present value of cash flows expected to be collected and is recognized in earnings. The amount of the total OTTI related to other factors is recognized in other comprehensive income, net of applicable taxes. The previous amortized cost basis less the OTTI recognized in earnings becomes the new amortized cost basis of the investment.

13

As of June 30, 2017,March 31, 2018, the Company’s security portfoliosportfolio included certain securities which were in an unrealized loss position.  All such securities with the exception of corporate bonds were issuances from U.S. government sponsored entities. As it relates to corporate bonds, the company monitors the credit rating of the issuers and all were investment grade. The declines in fair value are attributable to changes in interest rates, and not credit quality, and because the Company does not have the intent to sell these securities and it is likely that it will not be required to sell the securities before their anticipated recovery, the Company does not consider these securities to be other-than-temporarily impaired at June 30, 2017March 31, 2018.
14


(5) Loans and Allowance for Loan Losses

The following table presents the recorded investment in loans by loan class:
  March 31, 2018 
(dollars in thousands)   
New York and
other states*
     Florida     Total  
Commercial:         
Commercial real estate $149,357   11,709   161,066 
Other  23,459   604   24,063 
Real estate mortgage - 1 to 4 family:            
First mortgages  2,305,510   784,004   3,089,514 
Home equity loans  67,841   14,193   82,034 
Home equity lines of credit  257,714   44,171   301,885 
Installment  7,405   1,008   8,413 
Total loans, net $2,811,286   855,689   3,666,975 
Less: Allowance for loan losses          44,379 
Net loans         $3,622,596 

  June 30, 2017 
(dollars in thousands) 
New York and
other states*
  Florida  Total 
Commercial:         
Commercial real estate $149,245   11,099   160,344 
Other  22,342   349   22,691 
Real estate mortgage - 1 to 4 family:            
First mortgages  2,208,078   714,360   2,922,438 
Home equity loans  64,387   12,481   76,868 
Home equity lines of credit  271,480   45,194   316,674 
Installment  7,061   1,397   8,458 
Total loans, net $2,722,593   784,880   3,507,473 
Less: Allowance for loan losses          44,162 
Net loans         $3,463,311 
 December 31, 2016  December 31, 2017 
(dollars in thousands) 
New York and
other states*
  Florida  Total   
New York and
other states*
     Florida     Total  
Commercial:                  
Commercial real estate $151,366   12,243   163,609  $149,368   12,524   161,892 
Other  27,539   46   27,585   23,606   709   24,315 
Real estate mortgage - 1 to 4 family:                        
First mortgages  2,158,904   665,183   2,824,087   2,286,148   765,929   3,052,077 
Home equity loans  60,892   10,754   71,646   66,455   13,989   80,444 
Home equity lines of credit  286,586   48,255   334,841   263,275   45,641   308,916 
Installment  7,048   1,770   8,818   7,141   1,622   8,763 
Total loans, net $2,692,335   738,251   3,430,586  $2,795,993   840,414   3,636,407 
Less: Allowance for loan losses          43,890           44,170 
Net loans         $3,386,696          $3,592,237 

*Includes New York, New Jersey, Vermont and Massachusetts

At June 30, 2017March 31, 2018 and December 31, 2016,2017, the Company had approximately $23.8$28.4 million and $24.8$30.9 million of real estate construction loans, respectively.  Of the $23.8$28.4 million in real estate construction loans at June 30, 2017,March 31, 2018, approximately $14.6$20.4 million are secured by first mortgages to residential borrowers while approximately $9.2$8.0 million were to commercial borrowers for residential construction projects. Of the $24.8$30.9 million in real estate construction loans at December 31, 2016,2017, approximately $16.3$21.1 million are secured by first mortgages to residential borrowers while approximately $8.5$9.8 million were to commercial borrowers for residential construction projects. The vast majority of construction loans are in the Company’s New York market.

14

TrustCo lends in the geographic territory of its branch locations in New York, Florida, Massachusetts, New Jersey and Vermont. Although the loan portfolio is diversified, a portion of its debtors’ ability to repay depends significantly on the economic conditions prevailing in the respective geographic territory.
15


The following tables present the recorded investment in non-accrual loans by loan class:

 June 30, 2017  March 31, 2018 
(dollars in thousands) 
New York and
other states
  Florida  Total   
New York and
other states
     Florida     Total  
Loans in non-accrual status:                  
Commercial:                  
Commercial real estate $1,611   -   1,611  $1,100   -   1,100 
Other  100   -   100   113   -   113 
Real estate mortgage - 1 to 4 family:                        
First mortgages  17,178   1,870   19,048   17,687   2,025   19,712 
Home equity loans  48   -   48   200   -   200 
Home equity lines of credit  3,413   242   3,655   3,538   128   3,666 
Installment  25   -   25   19   4   23 
Total non-accrual loans  22,375   2,112   24,487   22,657   2,157   24,814 
Restructured real estate mortgages - 1 to 4 family  41   -   41   38   -   38 
Total nonperforming loans $22,416   2,112   24,528  $22,695   2,157   24,852 

 December 31, 2016  December 31, 2017 
(dollars in thousands) 
New York and
other states
  Florida  Total   
New York and
other states
     Florida     Total  
Loans in non-accrual status:                     
Commercial:                     
Commercial real estate $1,843   -   1,843  $1,443   -   1,443 
Other  -   -   -   100   -   100 
Real estate mortgage - 1 to 4 family:                        
First mortgages  17,727   1,659   19,386   16,654   2,259   18,913 
Home equity loans  95   -   95   93   -   93 
Home equity lines of credit  3,376   270   3,646   3,603   130   3,733 
Installment  48   -   48   57   -   57 
Total non-accrual loans  23,089   1,929   25,018   21,950   2,389   24,339 
Restructured real estate mortgages - 1 to 4 family  42   -   42   38   -   38 
Total nonperforming loans $23,131   1,929   25,060  $21,988   2,389   24,377 

The Company transfers loans to other real estate owned, at fair value less cost to sell, in the period the Company obtains physical possession of the property (through legal title or through a deed in lieu). As of June 30, 2017March 31, 2018 and December 31, 2016,2017, other real estate owned included $2.9$2.2 million and $3.5$2.7 million of residential foreclosed properties, respectively. In addition, non-accrual residential mortgage loans that are in the process of foreclosure had a recorded investment of $11.1$12.7 million and $12.56 million as of June 30, 2017March 31, 2018 and December 31, 2016,2017, respectively.
 
1615

The following tables present the aging of the recorded investment in past due loans by loan class and by region as of June 30, 2017March 31, 2018 and December 31, 2016:2017:
 
New York and other states: 
  March 31, 2018 
(dollars in thousands)   
30-59
Days
Past Due
      
60-89
Days
Past Due
      
90+
Days
Past Due
      
Total
30+ days
Past Due
        Current       
Total
Loans
   
        ��             
Commercial:                     
Commercial real estate $-   136   1,021   1,157   148,200   149,357 
Other  -   -   113   113   23,346   23,459 
Real estate mortgage - 1 to 4 family:                        
First mortgages  4,831   759   9,633   15,223   2,290,287   2,305,510 
Home equity loans  -   -   162   162   67,679   67,841 
Home equity lines of credit  601   10   2,066   2,677   255,037   257,714 
Installment  23   13   13   49   7,356   7,405 
                         
Total $5,455   918   13,008   19,381   2,791,905   2,811,286 
New York and other states:
Florida:                  
 
(dollars in thousands)
    
30-59
Days
Past Due
        
60-89
Days
Past Due
        
90+
Days
Past Due
        
Total
30+ days
Past Due
        Current        
Total
Loans
    
                      
Commercial:                     
Commercial real estate $-   -   -   -   11,709   11,709 
Other  -   -   -   -   604   604 
Real estate mortgage - 1 to 4 family:                        
First mortgages  243   103   940   1,286   782,718   784,004 
Home equity loans  -   -   -   -   14,193   14,193 
Home equity lines of credit  16   -   50   66   44,105   44,171 
Installment  13   5   4   22   986   1,008 
                         
Total $272   108   994   1,374   854,315   855,689 

 June 30, 2017 
Total:                  
(dollars in thousands) 
30-59
Days
Past Due
  
60-89
Days
Past Due
  
90 +
Days
Past Due
  
Total
30+ days
Past Due
  Current  
Total
Loans
     
30-59
Days
Past Due
      
60-89
Days
Past Due
      
90+
Days
Past Due
      
Total
30+ days
Past Due
        Current       
Total
Loans
   
                                       
Commercial:                                       
Commercial real estate $133   -   1,523   1,656   147,589   149,245  $-   136   1,021   1,157   159,909   161,066 
Other  -   -   100   100   22,242   22,342   -   -   113   113   23,950   24,063 
Real estate mortgage - 1 to 4 family:                                                
First mortgages  3,997   2,101   9,106   15,204   2,192,874   2,208,078   5,074   862   10,573   16,509   3,073,005   3,089,514 
Home equity loans  107   40   18   165   64,222   64,387   -   -   162   162   81,872   82,034 
Home equity lines of credit  554   600   2,076   3,230   268,250   271,480   617   10   2,116   2,743   299,142   301,885 
Installment  45   13   22   80   6,981   7,061   36   18   17   71   8,342   8,413 
                                                
Total $4,836   2,754   12,845   20,435   2,702,158   2,722,593  $5,727   1,026   14,002   20,755   3,646,220   3,666,975 
 
Florida:16

(dollars in thousands) 
30-59
Days
Past Due
  
60-89
Days
Past Due
  
90 +
Days
Past Due
  
Total
30+ days
Past Due
  Current  
Total
Loans
 
                   
Commercial:                  
Commercial real estate $-   -   -   -   11,099   11,099 
Other  -   -   -   -   349   349 
Real estate mortgage - 1 to 4 family:                        
First mortgages  793   72   928   1,793   712,567   714,360 
Home equity loans  -   53   -   53   12,428   12,481 
Home equity lines of credit  50   -   -   50   45,144   45,194 
Installment  7   5   -   12   1,385   1,397 
                         
Total $850   130   928   1,908   782,972   784,880 
Total:
New York and other states:  
 December 31, 2017 
(dollars in thousands) 
30-59
Days
Past Due
  
60-89
Days
Past Due
  
90 +
Days
Past Due
  
Total
30+ days
Past Due
  Current  
Total
Loans
  30-59
Days
Past Due
60-89
Days
Past Due
 90 +
Days
Past Due
Total
30+ days
Past Due
  Current
Total
Loans
                                             
Commercial:                                             
Commercial real estate $133   -   1,523   1,656   158,688   160,344  $183   174   1,332   1,689   147,679   149,368 
Other  -   -   100   100   22,591   22,691   -   -   100   100   23,506   23,606 
Real estate mortgage - 1 to 4 family:                                                
First mortgages  4,790   2,173   10,034   16,997   2,905,441   2,922,438   5,669   1,300   9,014   15,983   2,270,165   2,286,148 
Home equity loans  107   93   18   218   76,650   76,868   6   -   45   51   66,404   66,455 
Home equity lines of credit  604   600   2,076   3,280   313,394   316,674   489   18   2,139   2,646   260,629   263,275 
Installment  52   18   22   92   8,366   8,458   46   17   25   88   7,053   7,141 
                                                
Total $5,686   2,884   13,773   22,343   3,485,130   3,507,473  $6,393   1,509   12,655   20,557   2,775,436   2,795,993 
                    ��   
Florida:                        
                        
(dollars in thousands)   30-59
Days
Past Due
    60-89
Days
Past Due
    90 +
Days
Past Due
    
Total
30+ days
Past Due
        Current      
Total
Loans
  
                        
Commercial:                        
Commercial real estate $-   -   -   -   12,524   12,524 
Other  -   -   -   -   709   709 
Real estate mortgage - 1 to 4 family:                        
First mortgages  277   -   1,404   1,681   764,248   765,929 
Home equity loans  -   -   -   -   13,989   13,989 
Home equity lines of credit  -   -   -   -   45,641   45,641 
Installment  3   5   26   34   1,588   1,622 
                        
Total $280   5   1,430   1,715   838,699   840,414 
                        
Total:                        
   
(dollars in thousands)   30-59
Days
Past Due
      60-89
Days
Past Due
      90 +
Days
Past Due
     
Total
30+ days
Past Due
          Current        
Total
Loans
 
                        
Commercial:                        
Commercial real estate $183   174   1,332   1,689   160,203   161,892 
Other  -   -   100   100   24,215   24,315 
Real estate mortgage - 1 to 4 family:                        
First mortgages  5,946   1,300   10,418   17,664   3,034,413   3,052,077 
Home equity loans  6   -   45   51   80,393   80,444 
Home equity lines of credit  489   18   2,139   2,646   306,270   308,916 
Installment  49   22   51   122   8,641   8,763 
                        
Total $6,673   1,514   14,085   22,272   3,614,135   3,636,407 
 
17

New York and other states:
  December 31, 2016 
(dollars in thousands) 
30-59
Days
Past Due
  
60-89
Days
Past Due
  
90 +
Days
Past Due
  
Total
30+ days
Past Due
  Current  
Total
Loans
 
                   
Commercial:                  
Commercial real estate $50   43   1,706   1,799   149,567   151,366 
Other  -   -   -   -   27,539   27,539 
Real estate mortgage - 1 to 4 family:                        
First mortgages  6,379   2,924   9,643   18,946   2,139,958   2,158,904 
Home equity loans  50   3   74   127   60,765   60,892 
Home equity lines of credit  685   111   1,839   2,635   283,951   286,586 
Installment  34   32   15   81   6,967   7,048 
                         
Total $7,198   3,113   13,277   23,588   2,668,747   2,692,335 
Florida:
(dollars in thousands) 
30-59
Days
Past Due
  
60-89
Days
Past Due
  
90 +
Days
Past Due
  
Total
30+ days
Past Due
  Current  
Total
Loans
 
                   
Commercial:                  
Commercial real estate $-   -   -   -   12,243   12,243 
Other  -   -   -   -   46   46 
Real estate mortgage - 1 to 4 family:                        
First mortgages  1,942   69   1,255   3,266   661,917   665,183 
Home equity loans  19   -   -   19   10,735   10,754 
Home equity lines of credit  -   -   156   156   48,099   48,255 
Installment  30   6   -   36   1,734   1,770 
                         
Total $1,991   75   1,411   3,477   734,774   738,251 
Total:
(dollars in thousands) 
30-59
Days
Past Due
  
60-89
Days
Past Due
  
90 +
Days
Past Due
  
Total
30+ days
Past Due
  Current  
Total
Loans
 
                   
Commercial:                  
Commercial real estate $50   43   1,706   1,799   161,810   163,609 
Other  -   -   -   -   27,585   27,585 
Real estate mortgage - 1 to 4 family:                        
First mortgages  8,321   2,993   10,898   22,212   2,801,875   2,824,087 
Home equity loans  69   3   74   146   71,500   71,646 
Home equity lines of credit  685   111   1,995   2,791   332,050   334,841 
Installment  64   38   15   117   8,701   8,818 
                         
Total $9,189   3,188   14,688   27,065   3,403,521   3,430,586 
18

At June 30, 2017March 31, 2018 and December 31, 2016,2017, there were no loans that were 90 days past due and still accruing interest. As a result, non-accrual loans include all loans 90 days or more past due as well as certain loans less than 90 days past due that were placed on non-accrual status for reasons other than delinquent status. There are no commitments to extend further credit on non-accrual or restructured loans.

Activity in the allowance for loan losses by portfolio segment is summarized as follows:

(dollars in thousands) For the three months ended June 30, 2017  For the three months ended March 31, 2018 
 Commercial  
Real Estate
Mortgage-
1 to 4 Family
  Installment  Total  Commercial  
Real Estate
Mortgage-
1 to 4 Family
  Installment  Total 
Balance at beginning of period $4,810   38,581   657   44,048  $4,324   39,077   769   44,170 
Loans charged off:                                
New York and other states*  -   522   40   562   -   131   71   202 
Florida  -   52   13   65   -   -   3   3 
Total loan chargeoffs  -   574   53   627   -   131   74   205 
                                
Recoveries of loans previously charged off:                                
New York and other states*  -   188   3   191   6   103   6   115 
Florida  -   -   -   -   -   -   -   - 
Total recoveries  -   188   3   191   6   103   6   115 
Net loans charged off  -   386   50   436 
Net loans charged off (recoveries)  (6)  28   68   90 
Provision for loan losses  (214)  676   88   550   (75)  310   64   300 
Balance at end of period $4,596   38,871   695   44,162  $4,255   39,359   765   44,379 

(dollars in thousands) For the three months ended June 30, 2016  For the three months ended March 31, 2017 
 Commercial  
Real Estate
Mortgage-
1 to 4 Family
  Installment  Total  Commercial  
Real Estate
Mortgage-
1 to 4 Family
  Installment  Total 
Balance at beginning of period $4,919   39,017   462   44,398  $4,929   38,231   730   43,890 
Loans charged off:                                
New York and other states*  68   1,090   92   1,250   72   430   41   543 
Florida  -   17   1   18   -   84   2   86 
Total loan chargeoffs  68   1,107   93   1,268   72   514   43   629 
                                
Recoveries of loans previously charged off:                                
New York and other states*  1   117   15   133   8   169   10   187 
Florida  -   1   -   1   -   -   -   - 
Total recoveries  1   118   15   134   8   169   10   187 
Net loans charged off  67   989   78   1,134   64   345   33   442 
Provision (credit) for loan losses  194   561   45   800 
Provision for loan losses  (55)  695   (40)  600 
Balance at end of period $5,046   38,589   429   44,064  $4,810   38,581   657   44,048 
 
19*Includes New York, New Jersey, Vermont and Massachusetts

(dollars in thousands) For the six months ended June 30, 2017 
  Commercial  
Real Estate
Mortgage-
1 to 4 Family
  Installment  Total 
Balance at beginning of period $4,929   38,231   730   43,890 
Loans charged off:                
New York and other states*  72   952   81   1,105 
Florida  -   136   15   151 
Total loan chargeoffs  72   1,088   96   1,256 
                 
Recoveries of loans previously charged off:                
New York and other states*  8   357   13   378 
Florida  -   -   -   - 
Total recoveries  8   357   13   378 
Net loans charged off  64   731   83   878 
Provision for loan losses  (269)  1,371   48   1,150 
Balance at end of period $4,596   38,871   695   44,162 
(dollars in thousands) For the six months ended June 30, 2016 
  Commercial  
Real Estate
Mortgage-
1 to 4 Family
  Installment  Total 
Balance at beginning of period $4,491   39,753   518   44,762 
Loans charged off:                
New York and other states*  332   1,979   173   2,484 
Florida  -   101   17   118 
Total loan chargeoffs  332   2,080   190   2,602 
                 
Recoveries of loans previously charged off:                
New York and other states*  41   235   26   302 
Florida  -   2   -   2 
Total recoveries  41   237   26   304 
Net loans charged off  291   1,843   164   2,298 
Provision for loan losses  846   679   75   1,600 
Balance at end of period $5,046   38,589   429   44,064 

The Company has identified non-accrual commercial and commercial real estate loans, as well as all loans restructured under a troubled debt restructuring (“TDR”), as impaired loans. A loan is considered impaired when it is probable that the borrower will be unable to repay the loan according to the original contractual terms of the loan agreement or the loan is restructured as a TDR.

18

The following tables present the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of June 30, 2017March 31, 2018 and December 31, 2016:2017:

 June 30, 2017  March 31, 2018 
(dollars in thousands) Commercial Loans  
1-to-4 Family
Residential Real Estate
  Installment Loans  Total    Commercial Loans    
1-to-4 Family
Residential Real Estate
     Installment Loans     Total  
Allowance for loan losses:                        
Ending allowance balance attributable to loans:                        
Individually evaluated for impairment $-   -   -   -  $-   -   -   - 
Collectively evaluated for impairment  4,596   38,871   695   44,162   4,255   39,359   765   44,379 
                                
Total ending allowance balance $4,596   38,871   695   44,162  $4,255   39,359   765   44,379 
                                
Loans:                                
Individually evaluated for impairment $4,008   21,782   -   25,790  $1,923   22,510   -   24,433 
Collectively evaluated for impairment  179,027   3,294,198   8,458   3,481,683   183,206   3,450,923   8,413   3,642,542 
                                
Total ending loans balance $183,035   3,315,980   8,458   3,507,473  $185,129   3,473,433   8,413   3,666,975 

20

 December 31, 2016  December 31, 2017 
(dollars in thousands) Commercial Loans  
1-to-4 Family
Residential Real Estate
  Installment Loans  Total  Commercial Loans  
1-to-4 Family
Residential Real Estate
  Installment Loans  Total 
Allowance for loan losses:                        
Ending allowance balance attributable to loans:                        
Individually evaluated for impairment $-   -   -   -  $-   -   -   - 
Collectively evaluated for impairment  4,929   38,231   730   43,890   4,324   39,077   769   44,170 
                                
Total ending allowance balance $4,929   38,231   730   43,890  $4,324   39,077   769   44,170 
                                
Loans:                                
Individually evaluated for impairment $2,418   21,607   -   24,025  $2,248   22,032   -   24,280 
Collectively evaluated for impairment  188,776   3,208,967   8,818   3,406,561   183,959   3,419,405   8,763   3,612,127 
                                
Total ending loans balance $191,194   3,230,574   8,818   3,430,586  $186,207   3,441,437   8,763   3,636,407 

A loan for which the terms have been modified, and for which the borrower is experiencing financial difficulties, is considered a TDR and is classified as impaired. TDR’s at June 30, 2017March 31, 2018 and December 31, 20162017 are measured at the present value of estimated future cash flows using the loan’s effective rate at inception or the fair value of the underlying collateral if the loan is considered collateral dependent.
 
2119

The following tables present impaired loans by loan class as of June 30, 2017March 31, 2018 and December 31, 2016:2017:

New York and other states:            
  March 31, 2018 
(dollars in thousands)    
Recorded
Investment
  
Unpaid
Principal
Balance
   
Related
Allowance
  
Average
Recorded
Investment
 
             
Commercial:            
Commercial real estate $1,710   2,680   -   2,264 
Other  213   213   -   107 
Real estate mortgage - 1 to 4 family:                
First mortgages  16,177   16,940   -   16,075 
Home equity loans  265   285   -   267 
Home equity lines of credit  2,751   2,992   -   2,692 
                 
Total $21,116   23,110   -   21,405 

Florida:            
             
(dollars in thousands)      
Recorded
Investment
      
Unpaid
Principal
Balance
       
Related
Allowance
      
Average
Recorded
Investment
   
             
Commercial:            
Commercial real estate $-   -   -   - 
Other  -   -   -   - 
Real estate mortgage - 1 to 4 family:                
First mortgages  2,687   2,793   -   2,694 
Home equity loans  88   88   -   88 
Home equity lines of credit  542   542   -   521 
                 
Total $3,317   3,423   -   3,303 
New York and other states:
  June 30, 2017 
(dollars in thousands) 
Recorded
Investment
  
Unpaid
Principal
Balance
  
Related
Allowance
  
Average
Recorded
Investment
 
             
Commercial:            
Commercial real estate $3,908   4,955   -   2,883 
Other  100   100   -   100 
Real estate mortgage - 1 to 4 family:                
First mortgages  16,350   17,019   -   16,939 
Home equity loans  265   301   -   270 
Home equity lines of credit  2,042   2,226   -   2,060 
                 
Total $22,665   24,601   -   22,251 
Florida:
(dollars in thousands) 
Recorded
Investment
  
Unpaid
Principal
Balance
  
Related
Allowance
  
Average
Recorded
Investment
 
             
Commercial:            
Commercial real estate $-   -   -   - 
Other  -   -   -   - 
Real estate mortgage - 1 to 4 family:                
First mortgages  2,446   2,538   -   2,177 
Home equity loans  92   92   -   93 
Home equity lines of credit  587   659   -   579 
                 
Total $3,125   3,289   -   2,849 
Total:
Total:            
   
(dollars in thousands) 
Recorded
Investment
  
Unpaid
Principal
Balance
  
Related
Allowance
  
Average
Recorded
Investment
   
Recorded
Investment
  
Unpaid
Principal
Balance
   
Related
Allowance
  
Average
Recorded
Investment
 
                        
Commercial:                        
Commercial real estate $3,908   4,955   -   2,883  $1,710   2,680   -   2,264 
Other  100   100   -   100   213   213   -   107 
Real estate mortgage - 1 to 4 family:                              
First mortgages  18,796   19,557   -   19,116   18,864   19,733   -   18,769 
Home equity loans  357   393   -   363   353   373   -   355 
Home equity lines of credit  2,629   2,885   -   2,639   3,293   3,534   -   3,213 
                                
Total $25,790   27,890   -   25,100  $24,433   26,533   -   24,708 
 
2220

New York and other states:            
  December 31, 2017 
(dollars in thousands)  
Recorded
Investment
  
Unpaid
Principal
Balance
   
Related
Allowance
  
Average
Recorded
Investment
 
             
Commercial:            
Commercial real estate $2,148   3,120   -   2,711 
Other  100   100   -   87 
Real estate mortgage - 1 to 4 family:                
First mortgages  15,850   16,540   -   16,508 
Home equity loans  270   291   -   263 
Home equity lines of credit  2,606   2,847   -   2,193 
                 
Total $20,974   22,898   -   21,762 
New York and other states:
Florida:            
             
(dollars in thousands)  
Recorded
Investment
  
Unpaid
Principal
Balance
   
Related
Allowance
  
Average
Recorded
Investment
 
             
Commercial:            
Commercial real estate $-   -   -   - 
Other  -   -   -   - 
Real estate mortgage - 1 to 4 family:                
First mortgages  2,707   2,813   -   2,335 
Home equity loans  89   89   -   92 
Home equity lines of credit  510   510   -   561 
                 
Total $3,306   3,412   -   2,988 

  December 31, 2016 
(dollars in thousands) 
Recorded
Investment
  
Unpaid
Principal
Balance
  
Related
Allowance
  
Average
Recorded
Investment
 
             
Commercial:            
Commercial real estate $2,418   3,470   -   2,214 
Other  -   -   -   - 
Real estate mortgage - 1 to 4 family:                
First mortgages  16,675   17,439   -   15,665 
Home equity loans  269   305   -   251 
Home equity lines of credit  1,999   2,160   -   1,806 
                 
Total $21,361   23,374   -   19,936 
Florida:
(dollars in thousands) 
Recorded
Investment
  
Unpaid
Principal
Balance
  
Related
Allowance
  
Average
Recorded
Investment
 
             
Commercial:            
Commercial real estate $-   -   -   - 
Other  -   -   -   - 
Real estate mortgage - 1 to 4 family:                
First mortgages  2,009   2,100   -   1,800 
Home equity loans  94   94   -   81 
Home equity lines of credit  561   633   -   591 
                 
Total $2,664   2,827   -   2,472 
Total:
Total:            
   
(dollars in thousands) 
Recorded
Investment
  
Unpaid
Principal
Balance
  
Related
Allowance
  
Average
Recorded
Investment
   
Recorded
Investment
  
Unpaid
Principal
Balance
   
Related
Allowance
  
Average
Recorded
Investment
 
                        
Commercial:                        
Commercial real estate $2,418   3,470   -   2,214  $2,148   3,120   -   2,711 
Other  -   -   -   -   100   100   -   87 
Real estate mortgage - 1 to 4 family:                              
First mortgages  18,684   19,539   -   17,465   18,557   19,353   -   18,843 
Home equity loans  363   399   -   332   359   380   -   355 
Home equity lines of credit  2,560   2,793   -   2,397   3,116   3,357   -   2,754 
                                
Total $24,025   26,201   -   22,408  $24,280   26,310   -   24,750 
 
2321

The Company has not committed to lend additional amounts to customers with outstanding loans that are classified as impaired. Interest income recognized on impaired loans was not material during the three and six months ended June 30,March 31, 2018 and 2017 and 2016.

As of June 30, 2017March 31, 2018 and December 31, 20162017 impaired loans included approximately $14.0$11.1 million and $11.5$11.8 million of loans in accruing status that were identified as TDR’s in accordance with regulatory guidance related to Chapter 7 bankruptcy loans respectively.

Management evaluates impairment on impaired loans on a quarterly basis. If, during this evaluation, impairment of the loan is identified, a charge off is taken at that time. As a result, as of June 30, 2017March 31, 2018 and December 31, 2016,2017, based upon management’s evaluation and due to the sufficiency of chargeoffs taken, none of the allowance for loan losses has been allocated to a specific impaired loan(s).

The following table presents, by class, loans that were modified as TDR’s:

  Three months ended 6/30/2017  Three months ended 6/30/2016 
New York and other states*:
 
 
(dollars in thousands)
 
Number of
Contracts
  
Pre-Modification
Outstanding
Recorded
Investment
  
Post-Modification
Outstanding
Recorded
Investment
  
Number of
Contracts
  
Pre-Modification
Outstanding
Recorded
Investment
  
Post-Modification
Outstanding
Recorded
Investment
 
                   
Commercial:                  
Commercial real estate  3  $747   747   -  $-   - 
Real estate mortgage - 1 to 4 family:                        
First mortgages  7  $1,098  $1,098   10  $753  $753 
Home equity loans  -   -   -   -   -   - 
Home equity lines of credit  1   3   3   5   66   66 
                         
Total  11  $1,848  $1,848   15  $819  $819 
Florida:
 
 
(dollars in thousands)
 
Number of
Contracts
  
Pre-Modification
Outstanding
Recorded
Investment
  
Post-Modification
Outstanding
Recorded
Investment
  
Number of
Contracts
  
Pre-Modification
Outstanding
Recorded
Investment
  
Post-Modification
Outstanding
Recorded
Investment
 
                   
Commercial:                  
Commercial real estate  -  $-   -   -  $-   - 
Real estate mortgage - 1 to 4 family:                        
First mortgages  4  $387  $387   1  $298  $298 
Home equity loans  -   -   -   1   46   46 
Home equity lines of credit  -   -   -   1   6   6 
                         
Total  4  $387  $387   3  $350  $350 
24

  Six months ended 6/30/2017  Six months ended 6/30/2016 
New York and other states*:
 
 
(dollars in thousands)
 
Number of
Contracts
  
Pre-Modification
Outstanding
Recorded
Investment
  
Post-Modification
Outstanding
Recorded
Investment
  
Number of
Contracts
  
Pre-Modification
Outstanding
Recorded
Investment
  
Post-Modification
Outstanding
Recorded
Investment
 
                   
Commercial:                  
Commercial real estate  3  $747  $747   -  $-  $- 
Real estate mortgage - 1 to 4 family:                        
First mortgages  18  $3,045   3,045   22  $1,807   1,807 
Home equity loans  1   13   13   -   -   - 
Home equity lines of credit  5   161   161   9   157   157 
                         
Total  27  $3,966  $3,966   31  $1,964  $1,964 
Florida:
(dollars in thousands)
 
Number of
Contracts
  
Pre-Modification
Outstanding
Recorded
Investment
  
Post-Modification
Outstanding
Recorded
Investment
  
Number of
Contracts
  
Pre-Modification
Outstanding
Recorded
Investment
  
Post-Modification
Outstanding
Recorded
Investment
 
                   Three months ended 3/31/2018  Three months ended 3/31/2017 
Commercial:                  
Commercial real estate  -  $-   -   -  $-   - 
New York and other states*:    Pre-Modification  Post-Modification     Pre-Modification  Post-Modification 
(dollars in thousands)  
Number of
Contracts
  
Outstanding
Recorded
Investment
  
Outstanding
Recorded
Investment
   
Number of
Contracts
  
Outstanding
Recorded
Investment
  
Outstanding
Recorded
Investment
 
                  
Real estate mortgage - 1 to 4 family:                                          
First mortgages  5  $467  $467   3  $525  $525   4  $642  $642   11  $1,947  $1,947 
Home equity loans  -   -   -   1   46   46   -   -   -   1   13   13 
Home equity lines of credit  1   70   70   1   6   6   3   240   240   4   158   158 
                                                
Total  6  $537  $537   5  $577  $577   7  $882  $882   16  $2,118  $2,118 
                        
Florida:   Pre-Modification  Post-Modification    Pre-Modification  Post-Modification 
(dollars in thousands)   
Number of
Contracts
  
Outstanding
Recorded
Investment
  
Outstanding
Recorded
Investment
    
Number of
Contracts
  
Outstanding
Recorded
Investment
  
Outstanding
Recorded
Investment
 
                        
Real estate mortgage - 1 to 4 family:                        
First mortgages  -   -   -   1  $80  $80 
Home equity lines of credit  -   -   -   1   70   70 
                        
Total  -  $-  $-   2  $150  $150 

The addition of these TDR’s did not have a significant impact on the allowance for loan losses.

In situations where the CompanyBank considers a loan modification, management determines whether the borrower is experiencing financial difficulty by performing an evaluation of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is performed under the Company’s underwriting policy.

Generally, the modification of the terms of loans was the result of the borrower filing for bankruptcy protection. Chapter 13 bankruptcies generally include the deferral of all past due amounts for a period of generally 60 months in accordance with the bankruptcy court order. In the case of Chapter 7 bankruptcies, as previously noted, even though there is no modification of terms, the borrowers’ debt to the Company was discharged and they did not reaffirm the debt.

A loan is considered to be in payment default once it is 90 days contractually past due under the modified terms. In situations involving a borrower filing for Chapter 13 bankruptcy protection, however, a loan is considered to be in payment default once it is 30 days contractually past due, consistent with the treatment by the bankruptcy court.
25


The following table presents, by class, TDR’s that defaulted during the three and six months ended June 30,March 31, 2018 and 2017 and 2016 which had been modified within the last twelve months:
22

  Three months ended 3/31/2018  Three months ended 3/31/2017 
New York and other states*: Number of  Recorded  Number of  Recorded 
(dollars in thousands) Contracts  Investment  Contracts  Investment 
             
Real estate mortgage - 1 to 4 family:            
First mortgages  -  $-   -  $- 
Home equity lines of credit  1   3   -   - 
                 
Total  1  $3   -  $- 

 Three months ended 6/30/2017  Three months ended 6/30/2016 
New York and other states*:
(dollars in thousands)
 
Number of
Contracts
  
Recorded
Investment
  
Number of
Contracts
  
Recorded
Investment
 
Florida:            
(dollars in thousands) 
Number of
Contracts
 
Recorded
Investment
  
Number of
Contracts
  
Recorded
Investment
 
                        
Real estate mortgage - 1 to 4 family:                        
First mortgages  -  $-   1  $107   1  $72   1  $80 
Home equity lines of credit  1   3   -   -   -   -   1   70 
                                
Total  1  $3   1  $107   1  $72   2  $150 
Florida:
(dollars in thousands) 
Number of
Contracts
  
Recorded
Investment
  
Number of
Contracts
  
Recorded
Investment
 
             
Real estate mortgage - 1 to 4 family:            
First mortgages  -  $-   1  $46 
 
                
Total  -  $-   1  $46 
  Six months ended 6/30/2017  Six months ended 6/30/2016 
New York and other states*:
(dollars in thousands)
 
Number of
Contracts
  
Recorded
Investment
  
Number of
Contracts
  
Recorded
Investment
 
             
Real estate mortgage - 1 to 4 family:            
First mortgages  -  $-   3  $268 
Home equity loans  -   -   1   48 
Home equity lines of credit  1   3   -   - 
                 
Total  1  $3   4  $316 
Florida:            
(dollars in thousands) 
Number of
Contracts
  
Recorded
Investment
  
Number of
Contracts
  
Recorded
Investment
 
             
Real estate mortgage - 1 to 4 family:            
First mortgages  1  $77   -  $- 
Home equity lines of credit  1  $70   1  $46 
                 
Total  2  $147   1  $46 

The TDR’s that subsequently defaulted described above did not have a material impact on the allowance for loan losses.

The Company categorizes non-homogenouscommercial loans into risk categories based on relevant information about the ability of borrowers to service their debt, such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. On at least an annual basis, the Company’s loan grading process analyzes non-homogeneous loans, such as commercial and commercial real estate loans, individually by grading the loans based on credit risk.  The loan grades assigned to all loan types are tested by the Company’s internal loan review department in accordance with the Company’s internal loan review policy.
26


The Company uses the following definitions for classified loans:

Special Mention: Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the Company’s credit position at some future date.

Substandard: Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified as such have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

Doubtful: Loans classified as doubtful have all the weaknesses inherent in those loans classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. All doubtful loans are considered impaired.

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be “pass” rated loans.

23

As of June 30, 2017March 31, 2018 and December 31, 2016,2017, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

 June 30, 2017  March 31, 2018 
New York and other states:                  
                  
(dollars in thousands)                  
  Pass   Classified  Total Pass  Classified  Total 
Commercial:                  
Commercial real estate $139,103   10,142   149,245  $142,463   6,894   149,357 
Other  20,623   1,719   22,342   21,842   1,617   23,459 
                        
 $159,726   11,861   171,587  $164,305   8,511   172,816 
 
Florida:         
          
(dollars in thousands)         
  Pass  Classified  Total 
Commercial:         
Commercial real estate $11,099   -   11,099 
Other  349   -   349 
             
  $11,448   -   11,448 
Florida:
 
Total:         
          
(dollars in thousands)         
  Pass  Classified  Total 
Commercial:         
Commercial real estate $150,202   10,142   160,344 
Other  20,972   1,719   22,691 
             
  $171,174   11,861   183,035 
(dollars in thousands)
 Pass  Classified  Total 
Commercial:            
Commercial real estate $11,709   -   11,709 
Other  604   -   604 
            
 $12,313   -   12,313 
Total:
(dollars in thousands)
 Pass  Classified  Total 
Commercial:            
Commercial real estate $154,172   6,894   161,066 
Other  22,446   1,617   24,063 
            
 $176,618   8,511   185,129 
 
2724

 December 31, 2016 December 31, 2017 
New York and other states:                
                
(dollars in thousands)               
 Pass  Classified  Total Pass Classified  Total 
Commercial:             
Commercial real estate $136,676   14,690   151,366  $140,806   8,562   149,368 
Other  25,442   2,097   27,539   21,936   1,670   23,606 
                        
 $162,118   16,787   178,905  $162,742   10,232   172,974 
            
Florida:            
            
(dollars in thousands)            
 Pass  Classified  Total 
Commercial:            
Commercial real estate $12,243   -   12,243 
Other  46   -   46 
            
 $12,289   -   12,289 
            
Total:            
            
(dollars in thousands)            
 Pass  Classified  Total 
Commercial:            
Commercial real estate $148,919   14,690   163,609 
Other  25,488   2,097   27,585 
            
 $174,407   16,787   191,194 

Florida:
(dollars in thousands)
  Pass  Classified  Total 
Commercial:            
Commercial real estate $12,406   118   12,524 
Other  709   -   709 
             
  $13,115   118   13,233 
Total:
(dollars in thousands)
  Pass  Classified  Total 
Commercial:            
Commercial real estate $153,212   8,680   161,892 
Other  22,645   1,670   24,315 
             
  $175,857   10,350   186,207 
Included in classified loans in the above tables are non-accrualimpaired loans of $1.7$1.9 million and $1.8$2.2 million at June 30, 2017March 31, 2018 and December 31, 2016, respectively.2017, respectively.

For homogeneous loan pools, such as residential mortgages, home equity lines of credit, and installment loans, the Company uses payment status to identify the credit risk in these loan portfolios. Payment status is reviewed on a daily basis by the Company’sBank’s collection area and on a monthly basis with respect to determining the adequacy of the allowance for loan losses. The payment status of these homogeneous pools as of June 30, 2017March 31, 2018 and December 31, 20162017 is included in the aging of the recorded investment of the past due loans table. In addition, the total nonperforming portion of these homogeneous loan pools as of June 30, 2017March 31, 2018 and December 31, 20162017 is presented in the non-accrual loans table.

(6) Fair Value of Financial Instruments

FASB Topic 820, Fair Value Measurement (“ASC 820”)value measurements (ASC 820) defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair values:
 
2825

Level 1 – Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity can access as of the measurement date.

Level 2 – Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3 – Significant unobservable inputs that reflect a company’s own assumptions about the value that market participants would use in pricing an asset or liability.

The Company used the following methods and significant assumptions to estimate the fair value of assets and liabilities:

Securities Available for Sale: The fair value of securities available for sale is determined utilizing an independent pricing service for identical assets or significantly similar securities. The pricing service uses a variety of techniques to arrive at fair value including market maker bids, quotes and pricing models. Inputs to the pricing models include recent trades, benchmark interest rates, spreads and actual and projected cash flows. This results in a Level 2 classification of the inputs for determining fair value. Interest and dividend income is recorded on the accrual method and is included in the Consolidated Statements of Income in the respective investment class under total interest and dividend income. Also classified as available for sale securities, the fair value of equity securities is determined by quoted market prices and these are designated as Level 1. The Company does not have any securities that would be designated as Level 3.

Other Real Estate Owned: Assets acquired through loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell. Fair value is commonly based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process to adjust for differences between the comparable sales and income data available. This results in a Level 3 classification of the inputs for determining fair value.

Impaired Loans: At the time a loan is considered impaired, it is valued at the lower of cost or fair value. Impaired loans carried at fair value generally have had a chargeoff through the allowance for loan losses. For collateral dependent loans, fair value is commonly based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process to adjust for differences between the comparable sales and income data available. Such adjustments may be significant and typically result in a Level 3 classification of the inputs for determining fair value. When obtained, non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business, resulting in a Level 3 fair value classification. Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly.

Indications of value for both collateral-dependent impaired loans and other real estate owned are obtained from third party providers or the Company’s internal Appraisal Department. All indications of value are reviewed for reasonableness by a member of the Appraisal Department for the assumptions and approaches utilized in the appraisal as well as the overall resulting fair value via comparison with independent data sources such as recent market data or industry-wide statistics.
 
2926

Assets and liabilities measured at fair value under ASC 820 on a recurring basis are summarized below:
Fair Value Measurements at
March 31, 2018 Using:
 
 
         
 
Carrying
Value
 
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
(dollars in thousands)        
Securities available for sale:        
U.S. government sponsored enterprises $151,327  $-  $151,327  $- 
State and political subdivisions  525   -   525   - 
Mortgage backed securities and collateralized mortgage obligations - residential  297,633   -   297,633   - 
Corporate bonds  35,227   -   35,227   - 
Small Business Administration- guaranteed participation securities  64,113   -   64,113   - 
Mortgage backed securities and collateralized mortgage obligations - commercial  9,573   -   9,573   - 
Other securities  685   -   685   - 
Total securities available for sale $559,083   -   559,083   - 

Fair Value Measurements at
December 31, 2017 Using:
 
 
Fair Value Measurements at
June 30, 2017 Using:
 
                    
 
Carrying
Value
  
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
  
Significant
Other
Observable
Inputs
(Level 2)
  
Significant
Unobservable
Inputs
(Level 3)
 
Carrying
Value
 
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
(dollars in thousands)                    
Securities available for sale:                    
U.S. government sponsored enterprises $128,386  $-  $128,386  $-  $137,851  $-  $137,851  $- 
State and political subdivisions  536   -   536   -   525   -   525   - 
Mortgage backed securities and collateralized mortgage obligations - residential  315,983   -   315,983   - 
Corporate bonds  40,498   -   40,498   -   40,162   -   40,162   - 
Mortgage backed securities and collateralized mortgage obligations - residential  352,591   -   352,591   - 
Small Business Administration- guaranteed participation securities  72,858   -   72,858   -   67,059   -   67,059   - 
Mortgage backed securities and collateralized mortgage obligations - commercial  9,903   -   9,903   -   9,700   -   9,700   - 
Other securities  685   35   650   -   685   -   685   - 
Total securities available for sale $605,457  $35  $605,422  $-  $571,965   -   571,965   - 
 
  
Fair Value Measurements at
December 31, 2016 Using:
 
                 
  
Carrying
Value
  
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
   
Significant
Other
Observable
Inputs
(Level 2)
   
Significant
Unobservable
Inputs
(Level 3)
 
(dollars in thousands)                
Securities available for sale:                
U.S. government sponsored enterprises $117,266  $-  $117,266  $- 
State and political subdivisions  886   -   886   - 
Mortgage backed securities and collateralized mortgage obligations - residential  372,308   -   372,308   - 
Corporate bonds  40,705   -   40,705   - 
Small Business Administration- guaranteed participation securities  78,499   -   78,499   - 
Mortgage backed securities and collateralized mortgage obligations - commercial  10,011   -   10,011   - 
Other securities  685   35   650   - 
Total securities available for sale $620,360  $35  $620,325  $- 
3027

There were no transfers between Level 1 and Level 2 during the three and six months ended June 30,March 31, 2018 and 2017 and 2016.

Assets measured at fair value on a non-recurring basis are summarized below:

 
Fair Value Measurements at
June 30, 2017 Using:
        
Fair Value Measurements at
March 31, 2018 Using:
       
                                    
 
Carrying
Value
  
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
  
Significant
Other
Observable
Inputs
(Level 2)
  
Significant
Unobservable
Inputs
(Level 3)
 Valuation technique Unobservable inputs Range (Weighted Average)  
Carrying
Value
  
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
  
Significant
Other
Observable
Inputs
(Level 2)
  
Significant
Unobservable
Inputs
(Level 3)
 Valuation technique Unobservable inputs Range (Weighted Average) 
(dollars in thousands)                                    
                                    
Other real estate owned $3,585  $-  $-  $3,585 Sales comparison approach Adjustments for differences between comparable sales  2% - 10% (4%) $2,190  $-  $-  $2,190 Sales comparison approach Adjustments for differences between comparable sales  1% - 14% (7%)
Impaired loans:                                              
                                              
Real estate mortgage - 1 to 4 family  466   -   -   466 Sales comparison approach Adjustments for differences between comparable sales  2% - 5% (4%)  750   -   -   750 Sales comparison approach Adjustments for differences between comparable sales  5% - 14% (10%)

 
Fair Value Measurements at
December 31, 2016 Using:
        
Fair Value Measurements at
December 31, 2017 Using:
       
                                    
 
Carrying
Value
  
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
  
Significant
Other
Observable
Inputs
(Level 2)
  
Significant
Unobservable
Inputs
(Level 3)
 Valuation technique Unobservable inputs Range (Weighted Average)  
Carrying
Value
  
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
  
Significant
Other
Observable
Inputs
(Level 2)
  
Significant
Unobservable
Inputs
(Level 3)
 Valuation technique Unobservable inputs Range (Weighted Average) 
(dollars in thousands)                                    
                                    
Other real estate owned $4,268  $-  $-  $4,268 Sales comparison approach Adjustments for differences between comparable sales  1% - 14% (7%)  $3,246  $-  $-  $3,246 Sales comparison approach Adjustments for differences between comparable sales  1% - 14% (7%)
Impaired loans:                                              
Commercial real estate  1,250   -   -   1,250 Sales comparison approach Adjustments for differences between comparable sales  7% - 35% (23%) 
                                              
Real estate mortgage - 1 to 4 family  458   -   -   458 Sales comparison approach Adjustments for differences between comparable sales  5% - 14% (10%)   844   -   -   844 Sales comparison approach Adjustments for differences between comparable sales  5% - 14% (10%)

Other real estate owned, that is carried at fair value less costs to sell was approximately $3.6$2.2 million at June 30, 2017March 31, 2018 and consisted of $707$358 thousand of commercial real estate and $2.9$1.8 million of residential real estate properties. Valuation charges of $174 thousand and $362$199 thousand are included in earnings for the three and six months ended June 30, 2017, respectively.March 31, 2018.

Of the total impaired loans of $25.8$24.8 million at June 30, 2017, $466March 31, 2018, $750 thousand are collateral dependent and are carried at fair value measured on a non-recurring basis. Due to the sufficiency of charge offs taken on these loans and the adequacy of the underlying collateral, there were no specific valuation allowances for these loans at June 30, 2017.March 31, 2018.  Gross charge offs related to residential impaired loans included in the table above were $10 thousand and $26$36 thousand for the three and six months ended June 30, 2017, respectivelyMarch 31, 2018.

Other real estate owned, that is carried at fair value less costs to sell, was approximately $4.3$3.2 million at December 31, 20162017 and consisted of $756$541 thousand of commercial real estate and $3.5$2.7 million of residential real estate properties. A valuation charge of $1.2$1.1 million is included in earnings for the year ended December 31, 20162017.

Of the total impaired loans of $25$24.8.1 million at December 31, 2016, $1.7 million2017, $844 thousand are collateral dependent and are carried at fair value measured on a non-recurring basis. Due to the sufficiency of charge offs taken on these loans and the adequacy of the underlying collateral, there were no specific valuation allowances for these loans at December 31, 2016.2017. Gross charge offs related to commercial impaired loans included in the table above were $482 thousand for the year ended December 31, 2016, while gross charge offs related to residential impaired loans included in the table above amounted to $226 thousand.$151 thousand at December 31, 2017.
 
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In accordance with FASB Topic 825, Financial Instruments (“ASC 825”), theThe carrying amounts and estimated fair values (represents exit price) of financial instruments, at June 30, 2017March 31, 2018 and December 31, 20162017 are as follows:

(dollars in thousands)   Fair Value Measurements at 
  Carrying  June 30, 2017 Using: 
 Value  Level 1  Level 2  Level 3  Total 
Financial assets:               
Cash and cash equivalents $707,143   707,143   -   -   707,143 
Securities available for sale  605,457   35   605,422   -   605,457 
Held to maturity securities  41,208   -   42,803   -   42,803 
Federal Reserve Bank and Federal                    
Home Loan Bank stock  9,723   N/A   N/A   N/A   N/A 
Net loans  3,463,311   -   -   3,471,697   3,471,697 
Accrued interest receivable  11,283   238   2,811   8,234   11,283 
Financial liabilities:                    
Demand deposits  390,120   390,120   -   -   390,120 
Interest bearing deposits  3,818,294   2,729,470   1,082,006   -   3,811,476 
Short-term borrowings  233,621   -   233,621   -   233,621 
Accrued interest payable  462   76   385   -   462 
(dollars in thousands)   Fair Value Measurements at Fair Value Measurements at
 Carrying  December 31, 2016 Using:  Carrying  March 31, 2018 Using: 
 Value  Level 1  Level 2  Level 3  Total  Value  Level 1  Level 2  Level 3  Total 
Financial assets:                              
Cash and cash equivalents $707,274   707,274   -   -   707,274  $617,170   617,170   -   -   617,170 
Securities available for sale  620,360   35   620,325   -   620,360   559,083   35   559,048   -   559,083 
Held to maturity securities  45,490   -   47,526   -   47,526   26,174   -   26,994   -   26,994 
Federal Reserve Bank and Federal                                        
Home Loan Bank stock  9,579   N/A   N/A   N/A   N/A   8,779   N/A   N/A   N/A   N/A 
Net loans  3,386,696   -   -   3,370,976   3,370,976   3,622,596   -   -   3,598,673   3,598,673 
Accrued interest receivable  11,070   145   2,654   8,271   11,070   10,579   85   2,611   7,883   10,579 
Financial liabilities:                                        
Demand deposits  377,755   377,755   -   -   377,755   403,782   403,782   -   -   403,782 
Interest bearing deposits  3,818,408   2,658,945   1,156,025   -   3,814,970   3,831,298   2,721,854   1,122,106   -   3,843,960 
Short-term borrowings  209,406   -   209,406   -   209,406   203,910   -   203,910   -   203,910 
Accrued interest payable  526   82   444   -   526   665   75   590   -   665 

The specific estimation methods and assumptions used can have a substantial impact on the resulting fair values of financial instruments. The following is a brief summary of the significant methods and assumptions used in estimating fair values:

Cash and Cash Equivalents

The carrying values of these financial instruments approximate fair values and are classified as Level 1.

Federal Reserve Bank and Federal Home Loan Bank stock

It is not practical to determine the fair value of Federal Reserve Bank and Federal Home Loan Bank stock due to their restrictive nature.
(dollars in thousands)Fair Value Measurements at
  Carrying  December 31, 2017 Using: 
  Value  Level 1  Level 2  Level 3  Total 
Financial assets:               
Cash and cash equivalents $612,740   612,740   -   -   612,740 
Securities available for sale  571,965   35   571,930   -   571,965 
Held to maturity securities  27,551   -   28,701   -   28,701 
Federal Reserve Bank and Federal                    
Home Loan Bank stock  8,779   N/A   N/A   N/A   N/A 
Net loans  3,692,237   -   -   3,598,213   3,598,213 
Accrued interest receivable  11,441   243   2,440   8,758   11,441 
Financial liabilities:                    
Demand deposits  398,399   398,399   -   -   398,399 
Interest bearing deposits  3,774,927   2,707,961   1,076,213   -   3,784,174 
Short-term borrowings  242,991   -   242,991   -   242,991 
Accrued interest payable  537   77   460   -   537 
 
Securities Held to Maturity

Similar to securities available for sale described previously, the fair value of securities held to maturity are determined utilizing an independent pricing service for identical assets or significantly similar securities. The pricing service uses a variety of techniques to arrive at fair value including market maker bids, quotes and pricing models. Inputs to the pricing models include recent trades, benchmark interest rates, spreads and actual and projected cash flows. This results in a Level 2 classification of the inputs for determining fair value. Interest and dividend income is recorded on the accrual method and included in the Consolidated Statements of Income in the respective investment class under total interest and dividend income. The Company does not have any securities that would be designated as Level 3.

Loans

The fair values of all loans are estimated using discounted cash flow analyses with discount rates equal to the interest rates currently being offered for loans with similar terms to borrowers of similar credit quality resulting in a Level 3 classification. Impaired loans are valued at the lower of cost or fair value as described previously. The methods utilized to estimate the fair value of loans do not necessarily represent an exit price.

Deposit Liabilities

The fair values disclosed for noninterest bearing demand deposits, interest bearing checking accounts, savings accounts, and money market accounts are, by definition, equal to the amount payable on demand at the balance sheet date resulting in a Level 1 classification. The carrying value of all variable rate certificates of deposit approximates fair value resulting in a Level 2 classification. The fair value of fixed rate certificates of deposit is estimated using discounted cash flow analyses with discount rates equal to the interest rates currently being offered on certificates of similar size and remaining maturity resulting in a Level 2 classification.

Accrued Interest Receivable/Payable

The carrying amounts of accrued interest approximate fair value resulting in a Level 1, Level 2 or Level 3 classification consistent with the asset or liability that they are associated with.

Short-Term Borrowings and Other Financial Instruments

The fair value of all short-term borrowings, and other financial instruments approximates the carrying value resulting in a Level 2 classification.

Financial Instruments with Off-Balance Sheet Risk

The Company is a party to financial instruments with off-balance sheet risk. Such financial instruments consist of commitments to extend financing and standby letters of credit. If the commitments are exercised by the prospective borrowers, these financial instruments will become interest earning assets of the Company. If the commitments expire, the Company retains any fees paid by the prospective borrower. The fair value of commitments is estimated based upon fees currently charged to enter into similar agreements, taking into consideration the remaining terms of the agreements and the present creditworthiness of the borrower. For fixed rate commitments, the fair value estimation takes into consideration an interest rate risk factor. The fair value of these off-balance sheet items approximates the recorded amounts of the related fees, which are considered to be immaterial.

The Company does not engage in activities involving interest rate swaps, forward placement contracts, or any other instruments commonly referred to as derivatives.
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(7) Accumulated Other Comprehensive Income (Loss)

The following is a summary of the accumulated other comprehensive (loss) income (loss) balances, net of tax:

  Three months ended 6/30/17  
(dollars in thousands) 
Balance at
4/1/2017
  
Other
Comprehensive
Income (loss)-
Before
Reclassifications
  
Amount
reclassified
from Accumulated
Other Comprehensive
Income
  
Other
Comprehensive
Income (loss)-
Three months
ended 6/30/2017
  
Balance at
6/30/2017
 
                
Net unrealized holding gain (loss) on securities available for sale, net of tax $(6,055)  2,006   -   2,006   (4,049)
Net change in net actuarial gain and prior service cost on pension and postretirement benefit plans, net of tax  487   -   (31)  (31)  456 
                     
Accumulated other comprehensive income (loss), net of tax  (5,568)  2,006   (31)  1,975   (3,593)
 Three months ended 6/30/2016   Three months ended 3/31/18 
(dollars in thousands) 
Balance at
4/1/2016
  
Other
Comprehensive
Income (loss)-
Before
Reclassifications
  
Amount
reclassified
from Accumulated
Other Comprehensive
Income
  
Other
Comprehensive
Income (loss)-
Three months
ended 6/30/2016
  
Balance at
6/30/2016
  
Balance at
12/31/2017
  
Other
Comprehensive
Income (loss)-
Before
Reclassifications
  
Amount
reclassified
from Accumulated
Other Comprehensive
Income
  
Other
Comprehensive
Income (loss)-
Three months
ended 3/31/2018
  
Balance at
3/31/2018
 
               
               
               
Net unrealized holding gain (loss) on securities available for sale, net of tax $329   2,739   (401)  2,338   2,667  $(5,030)  (5,302)  -   (5,302)  (10,332)
Net change in net actuarial gain and prior service cost on pension and postretirement benefit plans, net of tax  (256)  -   (16)  (16)  (272)
Net change in net actuarial (gain) loss and prior service cost on pension and Adjustment postretirement benefit plans, net of tax  3,224   -   (36)  (36)  3,188 
Tax Cuts and Jobs Act of 2017, Reclassification from AOCI to Retained Earnings, Tax Effect  -   -   (1,346)  -   (1,346)
                                        
Accumulated other comprehensive income (loss), net of tax  73   2,739   (417)  2,322   2,395  $(1,806)  (5,302)  (1,382)  (5,338)  (8,490)

  Six months ended 6/30/17  
(dollars in thousands) 
Balance at
1/1/2017
  
Other
Comprehensive
Income (loss)-
Before
Reclassifications
  
Amount
reclassified
from Accumulated
Other Comprehensive
Loss
  
Other
Comprehensive
Income (loss)-
Six months
ended 6/30/2017
  
Balance at
6/30/2017
 
                
                
Net unrealized holding gain (loss) on securities available for sale, net of tax $(6,762)  2,713   -   2,713   (4,049)
Net change in net actuarial gain and prior service cost on pension and postretirement benefit plans, net of tax  511   -   (55)  (55)  456 
                     
Accumulated other comprehensive income (loss), net of tax  (6,251)  2,713   (55)  2,658   (3,593)
 Six months ended 6/30/16 
(dollars in thousands) 
Balance at
1/1/2016
  
Other
Comprehensive
Income (loss)-
Before
Reclassifications
  
Amount
reclassified
from Accumulated
Other Comprehensive
Income
  
Other
Comprehensive
Income (loss)-
Six months
ended 6/30/2016
  
Balance at
6/30/2016
  Three months ended 3/31/2017 
                
Balance at
12/31/2016
  
Other
Comprehensive
Income (loss)-
Before
Reclassifications
  
Amount
reclassified
from Accumulated
Other Comprehensive
Income
  
Other
Comprehensive
Income (loss)-
Three months
ended 3/31/2016
  
Balance at
3/31/2017
 
                              
               
Net unrealized holding gain (loss) on securities available for sale, net of tax $(4,492)  7,560   (401)  7,159   2,667  $(6,762)  707   -   707   (6,055)
Net change in net actuarial gain and prior service cost on pension and postretirement benefit plans, net of tax  (289)  -   17   17   (272)
                    
Net change in net actuarial (gain) loss and prior service cost on pension and postretirement benefit plans, net of tax  511   -   (24)  (24)  487 
                                        
Accumulated other comprehensive income (loss), net of tax  (4,781)  7,560   (384)  7,176   2,395  $(6,251)  707   (24)  683   (5,568)

The following represents the reclassifications out of accumulated other comprehensive income (loss) for the three and six months ended June 30, 2017March 31, 2018 and 2016:2017:

(dollars in thousands) 
Three months ended
June 30,
  
Six months ended
June 30,
   
Three months ended
March 31,
  
 2017  2016  2017  2016 Affected Line Item in Statements 2018  2017 Affected Line Item in Statements
Net unrealized holding gain on securities available for sale                 
                  
Realized gain on securities transactions $-   668  $-   668 Net gain on securities transactions
Income tax effect  -   (267)  -   (267)Income taxes
Net of tax  -   401   -   401  
                                
Amortization of pension and postretirement benefit items                              
                                
Amortization of net actuarial gain  73   50   136   17 Salaries and employee benefits
Amortization of net actuarial (gain) loss $(72) $(63)Salaries and employee benefits
Amortization of prior service cost  (22)  (22)  (45)  (45)Salaries and employee benefits  23   23 Salaries and employee benefits
Income tax effect  (20)  (12)  (36)  11 Income taxes
Income tax benefit  13   16 Income taxes
Net of tax  31   16   55   (17)   (36)  (24) 
                                  
Total reclassifications, net of tax $31   417  $55   384   $(36) $(24) 

(8) Revenue from Contracts with Customers

All of the Company’s revenue from contracts with customers in the scope of ASC 606 is recognized within Non-Interest Income. The following table presents the Company’s sources of Non-Interest Income for the three months ended March 31, 2018 and 2017. Items outside the scope of ASC 606 are noted as such.
 
3430

(dollars in thousands) Three months ended 
  March 31, 
  2018  2017 
       
Non-interest income      
Service Charges on Deposits      
Overdraft fees $827  $859 
Other  114   79 
Interchange Income  1,306   1,266 
Wealth management fees  1,815   1,858 
Other (a)
  617   665 
Total non-interest income $4,679  $4,727 

(8) Agreement(a) Not within the scope of ASC 606.

A description of the Company’s revenue streams accounted for ASC 606 follows:

Service charges on Deposit Accounts:  The Company earns fees from its deposit customers for transaction-based, account maintenance and overdraft services. Transaction-based fees, which include services such as stop payment charges, statement rendering and ACH fees, are recognized at the time the transaction is executed as that is the point in time the Company fulfills the customer’s request. Account maintenance fees, which relate primarily to monthly maintenance, are earned over the course of a month, representing the period over which the Company satisfies the performance obligation. Overdraft fees are recognized at the point in time that the overdraft occurs. Service charges on deposits are withdrawn from the customer’s account balance.

Interchange Income: Interchange revenue primarily consists of interchange fees, volume-related incentives and ATM charges. As the card-issuing bank, interchange fees represent our portion of discount fees paid by merchants for credit / debit card transactions processed through the interchange network. The levels and structure of interchange rates are set by the card processing companies and are based on cardholder purchase volumes. The Company earns interchange income as cardholder transactions occur and interchange fees are settled on a daily basis concurrent with the Officetransaction processing services provided to the cardholder.

Wealth Management fees: Trustco Financial Services provides a comprehensive suite of trust and wealth management products and services, including financial and estate planning, trustee and custodial services, investment management, corporate retirement plan recordkeeping and administration of which a fee is charged to manage assets for investment or transact on accounts.  These fees are earned over time as the Company provides the contracted monthly or quarterly services and are generally assessed over the period in which services are performed based on a percentage of the Comptrollerfair value of assets under management or administration.  Other services are based on a fixed fee for certain account types, or based on transaction activity and are recognized when services are rendered. Fees are withdrawn from the customer’s account balance.

Gains/Losses on Sales of Other Real Estate Owned “OREO”: The Company records a gain or loss from the sale of OREO when control of the Currency

On July 21, 2015 Trustco Bank (the “Bank”),property transfers to the wholly owned subsidiarybuyer, which generally occurs at the time of an executed deed. When the company finances the sale of OREO to the buyer, the Company assesses whether the buyer is committed to perform their obligations under the contract and whether collectability of the Company, entered into a formal agreement (the “Agreement”) withtransaction price is probable. Once these criteria are met, the ComptrollerOREO asset is derecognized and the gain or loss on sale is recorded upon the transfer of control of the Currency of the United States (the “OCC”).

The Agreement relatesproperty to the findings ofbuyer. In determining the OCC following an examination ofgain or loss on the Bank. Sincesale, the completion ofCompany adjusts the examinationtransaction price and entry into the Agreement, the Bank believes it has been working diligently to address the findings of the examination and to develop and implement appropriate formal action plans.related gain/(loss) on sale if a significant financing component is present.

The Agreement requires the Bank to take various actions, within prescribed time frames, with respect to certain areas of the Bank. These include, among others, (i) establishment of a committee of at least three Directors to monitor and coordinate the Bank’s response to the Agreement; (ii) adoption of compliance plans to respond to the Agreement with the assistance of an independent qualified consultant; (iii) evaluation and implementation of improvements in corporate governance with the assistance of an independent qualified consultant; (iv) evaluation and implementation of improvements in internal audit; (v) development of a strategic plan; (vi) development of a revised capital plan consistent with the strategic plan; (vii) development and implementation of improvements to the Bank’s loan review system; and (viii) such other necessary steps to address the issues and questions noted by the OCC in the Agreement.
31


(9) New Accounting Pronouncements

In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” which implements a common revenue standard that clarifies the principles for recognizing revenue. The core principle of ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract and (v) recognize revenue when (or as) the entity satisfies a performance obligation. In July 2015, FASB deferred the effective date of the

The Company has adopted this ASU by one year which means ASU 2014-09 will be effective for the Company on January 1, 2018. In addition,Upon adoption the FASB has begunCompany determined that there were no accumulated adjustments needed and no changes to issue targeted updates to clarify specific implementation issues of ASU 2014-09. These updates include ASU No. 2016-08 - Principal versus Agent Considerations (Reporting Revenue Gross versus Net), ASU No. 2016-10 - Identifying Performance Obligations and Licensing and ASU No. 2016-12 - Narrow-Scope Improvements and Practical Expedients.the patterns on how the company recognized revenue. The ASU is not expected to significantly impactCompany did add disclosures for the Company’s financial position or the results of operations.items in-scope as described in note 8.

In January 2016, the FASB issued ASU No. 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities” which amended existing guidance to improve accounting standards for financial instruments including clarification and simplification of accounting and disclosure requirements and the requirement for public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes. These amendments are effective for public business entities for annual periods and interim periods within those annual periods beginning after December 15, 2017. The ASU iswas adopted on January 1, 2018, and does not expected to significantly impact the Company’s consolidated financial statements. The Company has amended disclosures to comply with the exit price notion as required under the ASU for the period ended March 31, 2018.

35In February 2018, the FASB issued ASU 2018-02,  “Income statement – Reporting Comprehensive Income (Topic 220) Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income” which will allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act.  These amendments are effective for all entities for fiscal years beginning after December 15, 2018.  For Interim periods within those fiscal years, early adoption of the amendment is permitted including public business entities for reporting periods for which financial statements have not yet been issued. The Company did adopt the ASU in the first quarter of 2018 and reclassified the stranded tax effect in accumulated other comprehensive income to retained earnings in the period ended March 31, 2018.


In February 2016, the FASB issued ASU No. 2016-02, “Leases” which amended existing guidance to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. These amendments are effective for public business entities for annual periods and interim periods within those annual periods beginning after December 15, 2018. It is expected that assets and liabilities will increase based on the present value of remaining lease payments for leases in place at the adoption date which will impact the financial position and capital ratios of the Company.  As of December 31, 2016, the Company has approximately $69.7 million in minimum lease payments for existing operating leases of branch locations with varying expiration dates from 2017 and after. The Company does not expectis evaluating the impact of ASU to have a material impactNo. 2016-02 on the Company’s results of operations.its consolidated financial statements.

In June 2016, the FASB released ASU No. 2016-13, “Financial Instruments – Credit Losses” which amended existing guidance to replace current generally accepted accounting principles used to measure a reporting entity’s credit losses.  The main objective of this update is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. To achieve this objective, the amendments in this update replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. These amendments are effective for public business entities for annual periods and interim periods within those annual periods beginning after December 15, 2019. The ASU represents a significant departure from current GAAP and the Company is evaluating the impact of the ASU on its consolidated financial statements.  The Company has establishedstatements, which includes developing a roadmap for implementation and is currently evaluating vendor solutions that will assist in implementing required changes to loan loss estimation model.

In January 2017, the FASB issued ASU No. 2017-04, “Intangibles-Goodwill and Other (Topic 350)” which simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. In computing the implied fair value of goodwill under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. Instead, under the amendments in this ASU, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. The Board also eliminated the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. Therefore, the same impairment assessment applies to all reporting units. An entity is required to disclose the amount of goodwill allocated to each reporting unit with a zero or negative carrying amount of net assets.  An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary.  A public business entity that is a U.S. Securities and Exchange Commission (SEC) filer should adopt the amendments in this ASU for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019.  The ASU is not expected to significantly impact the Company’s consolidated financial statements.new standard.
 
3633

In March 2017, the FASB issued ASU No. 2017-07, “Compensation-Retirement Benefits (Topic 715)”.  The amendments in this ASU require that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost as defined in paragraphs 715-30-35-4 and 715-60-35-9 are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. If a separate line item or items are used to present the other components of net benefit cost, that line item or items must be appropriately described. If a separate line item or items are not used, the line item or items used in the income statement to present the other components of net benefit cost must be disclosed.  The amendments in this ASU are effective for public business entities for annual periods beginning after December 15, 2017, including interim periods within those annual periods.  The ASU is not expected to significantly impact the Company’s consolidated financial statements.

In March 2017, the FASB issued ASU No. 2017-08, “Receivables-Nonrefundable Fees and Other Costs (Subtopic 310-20)”.  The amendments in this ASU shorten the amortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity.  The amendments in this ASU are effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018.  The Company is evaluating the impact of ASU No. 2017-08 on its consolidated financial statements.

In May 2017, the FASB issued ASU No. 2017-09, “Compensation - Stock Compensation – Scope of Modification Accounting (Topic 718)”.  The amendments in this ASU clarifies the application of the guidance in Topic 718, Compensation – Stock Compensation, by providing guidance about which changes in terms or conditions of a share-based payment award require and entity to apply modification accounting.  An entity should account for the effects of a modification unless all the following are met: 1) The fair value (or calculated value or intrinsic value, if such an alternative measurement method is used) of the modified award is the same as the fair value (or calculated value or intrinsic value, if such an alternative measurement method is used) of the original award immediately before the original award is modified. If the modification does not affect any of the inputs to the valuation technique that the entity uses to value the award, the entity is not required to estimate the value immediately before and after the modification; 2) The vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified; 3) The classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the original award is modified. The current disclosure requirements in Topic 718 apply regardless of whether an entity is required to apply modification accounting under the amendments in this ASU.  The amendments in this Update are effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017.  The ASU is not expected to significantly impact the Company’s consolidated financial statements.
 
Crowe Horwath LLP
Independent Member Crowe Horwath International

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMReport of Independent Registered Public Accounting Firm

TheShareholders and the Board of Directors and Shareholders
TrustCoof Trustco Bank Corp NY
Glenville, New York

Results of Review of Interim Financial Information

We have reviewed the accompanying consolidated statementsstatement of financial condition of TrustCoTrustco Bank Corp NY (the “Company”) as of June 30, 2017,March 31, 2018, and the related consolidated statements of income, and comprehensive income, for the three-month and six-month periods ended June 30, 2017 and 2016 and the related changes in shareholders’ equity and cash flows for the six-monththree month periods ended June 30,March 31, 2018 and 2017, and 2016. These interimthe related notes (collectively referred to as the “interim financial information or statements”). Based on our reviews, we are not aware of any material modifications that should be made to the consolidated financial statements arereferred to above for them to be in conformity with accounting principles generally accepted in the responsibilityUnited States of the Company's management.America.

We conducted our reviewshave previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States). (“PCAOB”), the consolidated statement of condition of the Company as of December 31, 2017, and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for the year then ended (not presented herein); and in our report dated March 1, 2018, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated statement of condition as of December 31, 2017, is fairly stated, in all material respects, in relation to the consolidated statement of condition from which it has been derived.

Basis for Review Results

These financial statements are the responsibility of the Company’s management.  We conducted our review in accordance with the standards of the PCAOB. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board,PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to the accompanying interim financial statements for them to be in conformity with U.S. generally accepted accounting principles.

/s/ Crowe Horwath LLP

New York, New York
AugustMay 4, 20172018
 
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Item 2.
Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-looking Statements
Statements included in this report and in future filings by TrustCo Bank Corp NY (“TrustCo” or the “Company”) with the Securities and Exchange Commission, in TrustCo’s press releases, and in oral statements made with the approval of an authorized executive officer, which are not historical or current facts, are “forward-looking statements” made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and are subject to certain risks and uncertainties that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. Forward-looking statements can be identified by the use of such words as may, will, should, could, would, estimate, project, believe, intend, anticipate, plan, seek, expect and similar expressions.  Examples of forward-looking statements include, among others, statements TrustCo makes regarding its expectations for complying with the new regulatory capital rules, costs associated with the Formal Agreement that the Company’s subsidiary, Trustco Bank (or the “Bank”) has entered into with the Office of the Comptroller of the Currency (“OCC”), the Company’s ability to grow its balance sheet and the profitability of such growth, the ability of its loan products to continue to attract customers if long-term rates rise and the ability to secure new sources of liquidity should the need arise.  TrustCo wishes to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made.

In addition to factors described under Part II, Item 1A, Risk Factors, if any, and under the Risk Factor discussion in TrustCo’s Annual Report on Form 10-K for the year ended December 31, 2016,2017, the following important factors, among others, in some cases have affected and in the future could affect TrustCo’s actual results and could cause TrustCo’s actual financial performance to differ materially from that expressed in any forward-looking statement:

·TrustCo’s ability to continue to originate a significant volume of one- to- four family mortgage loans in its market areas and to otherwise maintain or increase its market share in the areas in which it operates;
·TrustCo’s ability to continue to maintain noninterest expense and other overhead costs at reasonable levels relative to income;
·TrustCo’s ability to complymake accurate assumptions and judgments regarding the credit risks associated with its lending and investing activities, including changes in the Formal Agreement entered into with Trustco Bank’s regulator,level and direction of loan delinquencies and charge-offs, changes in property values, and changes in estimates of the OCC,adequacy of the allowance for loan and potential regulatory actions if TrustCo or Trustco Bank fails to comply;lease losses;
·the effects of and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System, inflation, interest rates, market and monetary fluctuations;
·restrictions or conditions imposed by TrustCo’s and Trustco Bank’s regulators on their operations that may make it more difficult to achieve TrustCo’s and Trustco Bank’s goals;
·the future earnings and capital levels of TrustCo and Trustco Bank and the continued receipt of approvalsnon objection from TrustCo’s and Trustco Bank’s primary federal banking regulators under regulatory rules and the Formal Agreement to distribute capital from Trustco Bank to TrustCo, which could affect the ability of TrustCo to pay dividends;
·the results of supervisory monitoring or examinations of Trustco Bank and the Company by their respective primary federal banking regulators, including the possibility that the regulators may, among other things, require us to increase our loss allowanceallowances or to take other actions that reduce capital or income;
 
·TrustCo’s ability to make accurate assumptions and judgments regarding the credit risks associated with its lending and investing activities, including changes in the level and direction of loan delinquencies and chargeoffs, changes in property values, and changes in estimates of the adequacy of the allowance for loan losses;
·the effects of and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System, inflation, interest rates, market and monetary fluctuations;
·adverse conditions in the securities markets that lead to impairment in the value of securities in TrustCo’s investment portfolio;
·changes in law and policy accompanyingUnanticipated effects from the new presidential administration and uncertaintyTax & Jobs Act that may limit its benefits or speculation pendingadversely impact our business, which could include decreased demand for borrowing by our customers or increased price competition that offsets the enactmentbenefits of such changes;decreased federal income tax expense;
·the perceived overall value of TrustCo’s products and services by users, including the features, pricing and quality compared to competitors’ products and services and the willingness of current and prospective customers to substitute competitors’ products and services for TrustCo’s products and services;
·changes in consumer spending, borrowing and savings habits;
·the effect of changes in financial services laws and regulations (including laws concerning taxation, banking and securities) and the impact of other governmental initiatives affecting the financial services industry, including new regulatory capital requirements that took effect beginning in 2016;requirements;
·changes in management personnel;
·real estate and collateral values;
·changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, Financial Accounting Standards Board (“FASB”) or the Public Company Accounting Oversight Board;
·disruptions, security breaches, or other adverse events affecting the third-party vendors who perform several of our critical processing functions;
·technological changes and electronic, cyber and physical security breaches;
·changes in local market areas and general business and economic trends, as well as changes in consumer spending and saving habits;trends;
·TrustCo’s success at managing the risks involved in the foregoing and managing its business; and
·other risks and uncertainties included under “Risk Factors” in our Form 10-K for the year ended December 31, 2016.2017.

You should not rely upon forward-looking statements as predictions of future events. Although TrustCo believes that the expectations reflected in the forward-looking statements are reasonable, it cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. The foregoing list should not be construed as exhaustive, and the Company disclaims any obligation to subsequently revise any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

Following this discussion are the tables "Distribution“Distribution of Assets, Liabilities and Shareholders'Shareholders’ Equity: Interest Rates and Interest Differential"Differential” which gives a detailed breakdown of TrustCo'sTrustCo’s average interest earning assets and interest bearing liabilities for the three and six month periods ended June 30, 2017March 31, 2018 and 2016.2017.
Introduction
The review that follows focuses on the factors affecting the financial condition and results of operations of TrustCo during the three and six month periods ended June 30, 2017,March 31, 2018, with comparisons to the corresponding period in 2016,2017, as applicable.  Net interest margin is presented on a fully taxable equivalent basis in this discussion.  The consolidated interim financial statements and related notes, as well as the 20162017 Annual Report to Shareholders on Form 10-K, which was filed with the SEC on March 3, 2017,1, 2018, should also be read in conjunction with this review.  Amounts in prior period consolidated interim financial statements are reclassified whenever necessary to conform to the current period'speriod’s presentation.

During the secondfirst quarter of 20172018 financial markets were influenced by both underlying economic conditions and by political developments, in particular expectations arising from initiatives expected to be pursued by the Trump administration.  Equitydevelopments.  US equity markets were very strong and ended the secondfirst quarter up with most of the gain coming earlysignificantly despite some weakness late in the quarter.  For the full secondfirst quarter, the S&P 500 Index was up 2.6%18.0% and the Dow Jones Industrial Average was up 3.3%22.0%.  Credit markets continue to be driven by worldwide economic news and decreasing liquidity in somedemand shifts between segments of the bond market.market as investors seek to capture yield.  The shape of the yield curve continued to flatten during the quarter, with average yields declining for the second quarter as compared to the first quarter.  The 10-year Treasury bond averaged 2.26%2.75% during Q2Q1 2018 compared to 2.45%2.37% in Q1, a decreaseQ4 2017, an increase of 1938 basis points.  The 2-year Treasury bond average rate increased 645 basis points to 1.30%2.15%, resulting in flattening of the curve.  The spread between the 10-year and the 2-year Treasury bonds contracted from 1.20%0.68% on average in Q1Q4 to 0.96%0.60% in Q2.Q1.  This spread had been depressed in recent years, and compares to 2.42% during its most recent peak in Q4 of 2013.  Steeper yield curves are favorable for portfolio mortgage lenders like TrustCo.  The table below illustrates the range of rate movements for both short term and longer term rates.  The target Fed Funds range was increased by 25 basis points on June 14, 2017March 22, 2018 to a range of 1.00%1.50% to 1.25%1.75%.  This increase follows a similar 25 basis point increases announced in December of 2016 and March of 2017.  Spreads of most asset classes, including agency securities, corporates, municipals and mortgage-backed securities, were down by the end of the quarter as compared to the levels seen a year earlier, but generally roughly flat with levels seen at the end of the first quarter of 2017.earlier.  Changes in rates and spreads during the current quarter were due to a number of factors; however, uncertainty about the timing of anyadditional actions that the Federal Reserve Board (“FRB”) would take in regard to the extraordinary accommodations that have influenced markets in recent years and further uncertainty regarding the economy and related issues were key factors.  Low risk free rates in major nations have also caused investors to shift into alternative fixed income instruments, contributing to the compression of spreads over the risk free rate.
 
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3 Month
Yield (%)
  
2 Year
Yield (%)
  
5 Year
Yield (%)
  
10 Year
Yield (%)
  
10 - 2 Year
Spread (%)
         
3 Month
Yield (%)
    
2 Year
Yield (%)
    
5 Year
Yield (%)
    
10 Year
Yield (%)
    
10 - 2 Year
Spread (%)
 
                 
Q2/16 Beg of Q2  0.23   0.76   1.24   1.78   1.03 
Peak  0.35   0.92   1.41   1.94   1.08 
Trough  0.19   0.58   1.00   1.46   0.85 
End of Q2  0.26   0.58   1.01   1.49   0.91 
Average in Q2  0.26   0.77   1.24   1.75   0.98 
                      
Q3/16 Beg of Q3  0.28   0.59   1.00   1.46   0.87 
Peak  0.37   0.84   1.26   1.73   0.97 
Trough  0.18   0.56   0.94   1.37   0.76 
End of Q3  0.29   0.77   1.14   1.60   0.83 
Average in Q3  0.30   0.73   1.13   1.56   0.84 
                      
Q4/16 Beg of Q4  0.32   0.80   0.91   1.63   0.83 
Peak  0.55   1.29   1.61   2.60   1.34 
Trough  0.30   0.80   0.91   1.63   0.83 
End of Q4  0.51   1.20   1.47   2.45   1.25 
Average in Q4  0.43   1.01   1.24   2.14   1.13 
                                       
Q1/17 Beg of Q1  0.16   1.06   1.76   2.27   1.21  Beg of Q1  0.16   1.06   1.76   2.27   1.21 
Peak  0.79   1.40   2.14   2.62   1.30 Peak  0.79   1.40   2.14   2.62   1.30 
Trough  0.50   1.12   1.80   2.31   1.11 Trough  0.50   1.12   1.80   2.31   1.11 
End of Q1  0.76   1.27   1.93   2.40   1.13 End of Q1  0.76   1.27   1.93   2.40   1.13 
Average in Q1  0.60   1.24   1.95   2.45   1.20 Average in Q1  0.60   1.24   1.95   2.45   1.20 
                                            
Q2/17 Beg of Q2  0.76   1.27   1.93   2.40   1.13  Beg of Q2  0.76   1.27   1.93   2.40   1.13 
Peak  1.04   1.38   1.94   2.42   1.11 Peak  1.04   1.38   1.94   2.42   1.11 
Trough  0.79   1.18   1.71   2.14   0.78 Trough  0.79   1.18   1.71   2.14   0.78 
End of Q2  1.03   1.38   1.89   2.31   0.93 End of Q2  1.03   1.38   1.89   2.31   0.93 
Average in Q2  0.91   1.30   1.81   2.26   0.96 Average in Q2  0.91   1.30   1.81   2.26   0.96 
                      
Q3/17 Beg of Q3  1.03   1.38   1.89   2.31   0.93 
Peak  1.18   1.47   1.95   2.39   1.00 
Trough  0.98   1.27   1.63   2.05   0.77 
End of Q3  1.06   1.47   1.92   2.33   0.86 
Average in Q3  1.05   1.36   1.81   2.24   0.88 
                      
Q4/17 Beg of Q4  1.06   1.47   1.92   2.33   0.86 
Peak  1.47   1.92   2.26   2.49   0.86 
Trough  1.01   1.47   1.91   2.28   0.51 
End of Q4  1.39   1.89   2.20   2.40   0.51 
Average in Q4  1.23   1.70   2.07   2.37   0.68 
                      
Q1/18 Beg of Q1  1.39   1.89   2.20   2.40   0.51 
Peak  1.81   2.34   2.69   2.94   0.78 
Trough  1.39   1.89   2.20   2.40   0.47 
End of Q1  1.73   2.27   2.56   2.74   0.47 
Average in Q1  1.58   2.15   2.53   2.75   0.60 
 
The United States economy continues to show some modest improvements in some areas, but continues to face challenges. Employment metrics have generally improved, but remain inconsistent and not particularly robust.areas. Economic conditions vary significantly over geographic areas, with strength concentrated in and around major population centers on the coasts and in certain areas where economic activity has been driven by specific regional factors.  The unprecedented intervention by governments in markets and attempts to stimulate the economy, including the sharp easing of monetary policy during 2007-2008, will eventuallyis beginning to be reversed. How and whenunwound based on general guidance released by the Federal Reserve resolves its own balance sheet expansion has been an area of significant focus of economists and market participants.  During the second quarter, the FRB provided some insight on plans for shrinking its balance sheet but the start of that program remains uncertain.Fed in late 2017.  Economic activity in Europe, China and elsewhere has also improved in some aspects, but remains mixed.  Finally, regulatory changes that have been enacted are expected to continue to impact the banking industry going forward. These regulatory changes have added significant operating expense and operational burden and have fundamentally changed the way banks conduct business.  The newcurrent presidential administration has set policy initiatives that include attempts to reduce the regulatory burden; the timing and extent of any success on that front is yet to be determined.  Fiscal policy initiatives, particularly a planThe tax rate reductions in late 2017 contributed to significantly reduce corporate tax rates could have a major impact on the economy and on TrustCo, but there is no certainty that those initiatives will take effect at all or will resultnet income increase in any timely and/or significant change.the first quarter of 2018.
 
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TrustCo believes that its long-term focus on traditional banking services and practices has enabled the Company to avoid significant impact from asset quality problems and that the Company’s strong liquidity and solid capital positions have allowed the Company to continue to conduct business in a manner consistent with its past practice.  TrustCo has not engaged in the types of high risk loans and investments that have led to the widely reported problems in the industry.  Nevertheless, the Company may experience increases in nonperforming loans (“NPLs”) relative to historical levels from time to time.   While the Company does not expect to see a significant change in the inherent risk of loss in its loan portfolio at June 30, 2017,March 31, 2018, should general housing prices and other economic measures, such as unemployment in the Company’s market areas, deteriorate, the Company may experience an increase in the level of credit risk and in the amount of its classified and nonperforming loans.

Overview
TrustCo recorded net income of $12.2$14.8 million, or $0.127$0.153 of diluted earnings per share, for the three months ended June 30, 2017,March 31, 2018, compared to net income of $10.5$10.9 million, or $0.109$0.114 of diluted earnings per share, in the same period in 2016.2017.  Return on average assets was 1.00%1.23% and 0.88%0.91%, respectively, for the three months ended June 30, 2017March 31, 2018 and 2016.2017.  Return on average equity was 11.05%13.07% and 9.88%10.17%, respectively, for the three months ended June 30, 2017March 31, 2018 and 2016.

For the six months ended June 30, 2017, net income was $23.2 million or $0.241 of diluted earnings per share, compared to $20.9 million and $0.219 per share, respectively, in the same period in 2016.  Return on average assets was 0.96% and 0.88%, respectively, for the six months ended June 30, 2017 and 2016.  Return on average equity was 10.62% and 9.93%, respectively, for the six months ended June 30, 2017 and 2016.2017.

The primary factors accounting for the change in net income for the three months ended June 30, 2017March 31, 2018 compared to the same period of the prior year were:

·
An increase in the average balance of interest earning assets of $105.7$19.9 million to $4.81$4.80 billion for the secondfirst quarter of 20172018 compared to the same period in 20162017.

·An increase in taxable equivalent net interest margin for the secondfirst quarter of 20172018 to 3.21%3.29% from 3.09%3.14% in the prior year period.  The increase in the margin, coupled with the increase in average earning assets, resulted in an increase of $2.2$1.9 million in taxable equivalent net interest income in the secondfirst quarter of 20172018 compared to the secondfirst quarter of 2016.2017.

·A decrease of $668$498 thousand in securities gainsprofessional services expense for the secondfirst quarter of 2017 as2018 compared to the prior year period.first quarter of 2017.
43


·An increase of $625$425 thousand in salaries and benefitsoutsourced services expense for the secondfirst quarter of 20172018 compared to the secondfirst quarter of 2016, primarily due to higher staffing levels.2017.

·A decrease of $937 thousand in Federal Deposit Insurance Corporation (FDIC) and other insurance expense for the second quarter of 2017 compared to the second quarter of 2016 due to a change in premiums charged by the FDIC.

·A decrease of $412 thousand in Equipment expense for the second quarter of 2017 compared to the second quarter of 2016 due to decreased equipment maintenance and depreciation expense.

·A decrease of $427 thousand in Other Real Estate expense for the second quarter of 2017 compared to the second quarter of 2016.

·An increase of $1.1$1.8 million in income taxes in the secondfirst quarter of 20172018 compared to the prior year due primarily to higher pre-tax earnings.
The primary factors accounting for the change in net income for the six months ended June 30, 2017 compared to the same periods of the prior year were:

·
An increase in the average balance of interest earning assets of $127.6 million to $4.79 billion for the first six months of 2017 compared to the same periodstatutory federal tax rate enacted in 2016.
December 2017.

·An increase in taxable equivalent net interest margin for the first six months of 2017 to 3.17% from 3.11% in the prior year period.  The increase in the margin coupled with the increase in average earning assets, resulted in an increase of $3.5 million in taxable equivalent net interest income in the first six months of 2017 compared to the same period in 2016.
Termination of Regulatory Agreement

·A decrease of $668 thousand in securities gains for the first six months of 2017 as compared to the prior year period.

·
An increase of $1.8 million in salaries and benefits for the first six months of 2017 as compared to the prior year period.

·A decrease of $1.9 million in FDIC and other insurance expense and a decrease of $447 thousand in net other real estate (“ORE”) expense, for the first six months of 2017 compared to the same period in 2016.

·An increase of $1.5 million in income taxes, in the first six months of 2017 compared to the same period in 2016.
On February 14, 2018, the Office of the Comptroller of the Currency (OCC) notified Trustco Bank that it had terminated the July 21, 2015 agreement between the OCC and the Bank effective February 7, 2018. The agreement had required the Bank to take various actions in areas such as compliance, corporate governance, audit, capital planning including dividends, and strategic planning, among others.
 
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Regulatory Agreement
On July 21, 2015 Trustco Bank, the wholly owned subsidiary of the Company, entered into a formal agreement with the OCC (the “Agreement”).

The Agreement relates to the findings of the OCC following its regularly scheduled examination of the Bank in January 2015.  Since the completion of the examination and entry into the Agreement, the Bank believes it has been working diligently to address the findings of the examination and to develop and implement appropriate formal action plans.

The Agreement requires the Bank to take various actions, within prescribed time frames, with respect to certain activities of the Bank.  These include, among others, (i) establishment of a committee of at least three Directors to monitor and coordinate the Bank’s response to the Formal Agreement; (ii) adoption of compliance plans to respond to the Formal Agreement with the assistance of an independent qualified consultant; (iii) evaluation and implementation of improvements in corporate governance with the assistance of an independent qualified consultant; (iv) evaluation and implementation of improvements in internal audit; (v) development of a strategic plan; (vi) development of a revised capital plan, including dividends, consistent with the strategic plan; (vii) development and implementation of improvements to the Bank’s loan review system; and (viii) such other necessary steps to address the issues and questions noted by the OCC in the Agreement.  The costs to implement the recommendations in the agreement are expected to remain elevated, reflecting the Company’s investment in additional personnel and systems within the retail loan, deposit and regulatory compliance areas.

Asset/Liability Management
The Company strives to generate its earnings capabilities through a mix of core deposits funding a prudent mix of earning assets.  Additionally, TrustCo attempts to maintain adequate liquidity and reduce the sensitivity of net interest income to changes in interest rates to an acceptable level while enhancing profitability both on a short-term and long-term basis.

TrustCo’s results are affected by a variety of factors including competitive and economic conditions in the specific markets in which the Company operates and, more generally, in the national economy, financial market conditions and the regulatory environment.  Each of these factors is dynamic, and changes in any area can have an impact on TrustCo’s results.  Included in the Annual Report to Shareholders on Form 10-K for the year ended December 31, 20162017 is a description of the effect interest rates had on the results for the year 20162017 compared to 2015.2016.  Many of the same market factors discussed in the 20162017 Annual Report continued to have a significant impact on results through the secondfirst quarter of 2017.2018.

TrustCo competes with other financial service providers based upon many factors including quality of service, convenience of operations and rates paid on deposits and charged on loans.  In the experience of management, the absolute level of interest rates, changes in interest rates and customers’ expectations with respect to the direction of interest rates have a significant impact on the volume of loan and deposit originations in any particular period.
45


Interest rates have a significant impact on the operations and financial results of all financial services companies. One of the most important interest rates used to implement national economic policy is the Federal Funds rate. This is the interest rate utilized within the banking system for overnight borrowings for institutions with the highest credit rating. The Federal Funds target rate decreased from 4.25% at the beginning of 2008 to a target range of 0.00% to 0.25% by the end of 2008. In December 2015, theThat target increased to a range was in place throughout most of 0.25% to 0.50%, and  25 basis point increases in2015. The FRB increased the target range were also announcedseveral times beginning in December of 2016 and March and June of 2017, producing2015, with the currenttarget range of 1.00%now at 1.50% to 1.25%1.75%.  Additional increases in 20172018 and beyond will largely be dependent on the strength of economic conditions.  In the JulyMarch statement from the Federal Open Market Committee, it was noted that, “In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. The Committee will carefully monitor actual and expected inflation developments relative to its symmetric inflation goal. The Committee expects that economic conditions will evolve in a manner that will warrant further gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.”

40

Traditionally, interest rates on bank deposit accounts are heavily influenced by the Federal Funds rate.  The average rate on interest bearing deposits was 46 basis points lowerhigher in the secondfirst quarter of 20172018 relative to the prior year period.  Rates were flat or lower on all deposit categories as compared to the same period in 2016.interest bearing checking accounts and savings accounts but higher on money market accounts and certificates.  Please refer to the statistical disclosures in the table below entitled “Distribution of Assets, Liabilities and Shareholders’ Equity: Interest Rates and Interest Differential.”

The interest rate on the 10-year Treasury bond and other long-term interest rates have significant influence on the rates for new residential real estate loans. The FRB has attempted to influence rates on mortgage loans by means other than targeting a lower Federal Funds rate, including direct intervention in the mortgage-backed securities market through purchasing these securities in an attempt to raise prices and reduce yields.  In recent periods this includes the reinvestment of principal payments received on its holdings of agency securities, agency mortgage-backed securities and Treasury securities. While no longer increasing its holdings of these securities, the reinvestment of principal means that the existing holdings are not being unwound.  The FRB has stated its intent to unwind these positions, which would likelycould put upward pressure on rates, although other factors may mitigate this pressure.  These changes in interest rates can have an effect on the Company relative to the interest income on loans, securities and Federal Funds sold and other short term instruments, as well as on interest expense on deposits and borrowings. The timing of the FRB plan to reduce its holdings has not been set, but is generally expected to beginbegan in the fall of 2017.October 2017 and will occur gradually.

TrustCo’s principal loan products are residential real estate loans.  As noted above, residential real estate loans and longer-term investments are most affected by the changes in longer term market interest rates such as the 10-year Treasury.  The 10-year Treasury yield was down 19up 28 basis points, on average, during the secondfirst quarter of 2018 compared to the fourth quarter of 2017 and was up 30 basis points as compared to the first quarter of 2017 but was up 51 basis points as compared to the second quarter of 2016.2017.
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Interest rates on new residential real estate loan originations are also influenced by the rates established by secondary market participants such as Freddie Mac and Fannie Mae.  As a portfolio lender, TrustCo does not sell loans into the secondary market in the normal course of business and is able to establish rates that management determines are appropriate in light of the long-term nature of residential real estate loans while remaining competitive with the secondary market rates.  Financial market volatility and the problems faced by the financial services industry have lessened the influence of the secondary market; however, various programs initiated by arms of the federal government have had an impact on rate levels for certain products.  Most importantly, a government goal of keeping mortgage rates low has been supported by targeted buying of certain securities, thus supporting prices and constraining yields, as noted above.above, although that effort is now being gradually unwound.  Very low interest rates in many markets around the world have also increased demand for US fixed income assets which has alsoand contributed to the decline of yields on these assets.assets in recent years until the Fed’s program to raise the Federal Funds target rate finally began to boost market yields over the last year.

The Federal Funds sold and other short term investments portfolios are affected primarily by changes in the Federal Funds target rate. Also, changes in interest rates have an effect on the recorded balance of the securities available for sale portfolio, which is recorded at fair value. Generally, as interest rates increase the fair value of these securities will decrease.

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Interest rates generally remained below historic norms on both short term and longer term investments during the secondfirst quarter of 20172018 despite the increases seen during the quarter.

While TrustCo has been affected by changes in financial markets over time, the impact of the financial crisis that began in 2007 was mitigated by the Company’s generally conservative approach to banking.  The Company utilizes a traditional underwriting process in evaluating loan applications, and since originated loans are retained in the portfolio, there is a strong incentive to be conservative in making credit decisions.  For additional information concerning TrustCo’s loan portfolio and nonperforming loans, please refer to the discussions under “Loans” and “Nonperforming Assets,” respectively.  Further, the Company does not rely on borrowed funds to support its assets and maintains a significant level of liquidity on the asset side of the balance sheet.  These characteristics provide the Company with increased flexibility and stability during periods of market disruption and interest rate volatility.

A fundamental component of TrustCo’s strategy has been to grow customer relationships and the deposits and loans that are part of those relationships.  The Company has significant capacity to grow its balance sheet given its existing infrastructure.  The Company expects that growth to be profitable.  The current interest rate environment, however, has narrowed the margin on incremental balance sheet expansion.  While the Company has not changed its fundamental long term strategy in regard to utilizing its excess capacity, management continually evaluates changing conditions and may seek to limit growth or reduce the size of the balance sheet if its analysis indicates that doing so would be beneficial.
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For the secondfirst quarter of 2017,2018, the net interest margin was 3.21%3.29%, up 1215 basis points versus the prior year’s quarter.  The quarterly results reflect the following significant factors:

The average balance of Federal Funds sold and other short-term investments decreased by $24.8$112.2 million while the average yield increased 5777 basis points in the secondfirst quarter of 20172018 compared to the same period in 2016.2017.  The decrease in the average balance helped to fund increases in loans.

The average balance of securities available for sale decreased by $9.7$60.5 million while the average yield increased 715 basis points to 1.96%2.12%.  The average balance of held to maturity securities decreased by $10.0$17.5 million and the average yield increased 22decreased 36 basis points to 4.27%3.88% for the secondfirst quarter of 20172018 compared to the same period in 2016,2017, with the increasedecrease due to a combinationthe maturity of slower prepayment speeds on mortgage-backed securities and the fact that corporate securities, which have higher yields, comprised a larger component of the portfolio in the 2017 period than in the 2016 period.bond.

The average loan portfolio grew by $150.1$210.9 million to $3.47$3.65 billion and the average yield decreased 6 basis points to 4.23%was flat at 4.19% in the secondfirst quarter of 20172018 compared to the same period in 2016.2017.  The yield on residential mortgages continued to decline, inhowever the averageother loan categories each saw yield primarily reflects the decline in market interest rates on new loan originations as older, higher rate loans pay down or are paid off, as well as declines in higher yielding commercial and installment loans.increases.

The average balance of interest bearing liabilities (primarily deposit accounts) increased $71.4decreased $26.9 million and the average rate paid decreased 4increased 6 basis points to 0.35%0.42% in the secondfirst quarter of 20172018 compared to the same period in 2016.2017.

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During the secondfirst quarter of 2017,2018, the Company continued to focus on its strategy to expand the loan portfolio by offering competitive interest rates.  Management believes the TrustCo residential real estate loan product is very competitive compared to local and national competitors.  Competition remains strong in the Company’s market areas.

The strategy on the funding side of the balance sheet continues to be to attract and retain deposit customers to the Company based upon a combination of service, convenience and interest rate.

Earning Assets
Total average interest earning assets increased from $4.70$4.78 billion in the secondfirst quarter of 20162017 to $4.81$4.80 billion in the same period of 20172018 with an average yield of 3.50%3.64% in the secondfirst quarter of 20172018 and 3.42%3.44% in the secondfirst quarter of 2016.2017.  The shift in the mix of assets towards a higher proportion of loans along withand the increase in yield on cash partly offsetdrove the declining yields on loans.overall yield increase.  Interest income on average earning assets increased from $40.2$41.1 million in the secondfirst quarter of 20162017 to $42.1$43.5 million in the secondfirst quarter of 2017,2018, on a tax equivalent basis. The increase was the result of higher volume and yield.

Loans
The average balance of loans was $3.47$3.65 billion in the secondfirst quarter of 20172018 and $3.32$3.44 billion in the comparable period in 2016.2017.  The yield on loans decreased 6 basis points to 4.23%was flat at 4.19%.  The higher average balances more than offset the lower yield, leadingled to an increase in interest income on loans from $35.7$36.1 million in the secondfirst quarter of 20162017 to $36.7$38.1 million in the secondfirst quarter of 2017.2018.
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Compared to the secondfirst quarter of 2016,2017, the average balance of residential mortgage loans and installment loans increased howeverwhile other loan categories decreased.  The average balance of residential mortgage loans was $2.96$3.15 billion in 2018 compared to $2.91 billion in 2017, compared to $2.76 billion in 2016, an increase of 7.2%8.1%.  The average yield on residential mortgage loans decreased by 136 basis points to 4.18%4.11% in the secondfirst quarter of 20172018 compared to 2016.2017.

TrustCo actively markets the residential loan products within its market territories.  Mortgage loan rates are affected by a number of factors including rates on Treasury securities, the Federal Funds rate and rates set by competitors and secondary market participants.  TrustCo aggressively markets the unique aspects of its loan products thereby attempting to create a differentiation from other lenders.  These unique aspects include low closing costs, fast turn-around time on loan approvals, no escrow or mortgage insurance requirements for qualified borrowers and the fact that the Company typically holds these loans in portfolio and does not sell them into the secondary markets.  Assuming a rise in long-term interest rates, the Company would anticipate that the unique features of its loan products will continue to attract customers in the residential mortgage loan area.

Commercial loans, which consist primarily of loans secured by commercial real estate, decreased $15.6$1.9 million to an average balance of $183.4$185.6 million in the secondfirst quarter of 20172018 compared to the same period in the prior year.  The average yield on this portfolio was up 93 basis points to 5.24%5.21% compared to the prior year period, primarily reflecting the increase in the prime rate.  The Company has been selective in underwriting commercial loans in recent periods as the apparent risk/reward balance has been less favorable in many cases.

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The average yield on home equity credit lines increased 3251 basis points to 3.90%4.25% during the secondfirst quarter of 20172018 compared to the year earlier period.  The increase in yield is the result of prime rate increases which impacted some loans andas well as a smaller proportionpercentage of lower yielding initial rate balances.  The average balances of home equity lines decreased 9.6%7.3% to $320.9$306.3 million in the secondfirst quarter of 20172018 as compared to the prior year.  Some customers with home equity lines have refinanced their balances into fixed rate mortgage loans.

Securities Available for Sale
The average balance of the securities available for sale portfolio for the secondfirst quarter of 20172018 was $642.4$581.7 million compared to $652.1$642.3 million for the comparable period in 2016.2017.  The balance reflects routine paydowns, calls and maturities, offset by new investment purchases.  The average yield was 1.96%2.12% for the secondfirst quarter of 20172018 compared to 1.89%1.97% for the secondfirst quarter of 2016.2017.  This portfolio is primarily comprised of agency issued residential mortgage backed securities, bonds issued by government sponsored enterprises (such as Fannie Mae, the Federal Home Loan Bank, and Freddie Mac), agency-issued commercial mortgage backed securities, Small Business Administration participation certificates, corporate bonds and municipal bonds.  These securities are recorded at fair value with any adjustment in fair value included in other comprehensive income (loss), net of tax.

The net unrealized loss in the available for sale securities portfolio was $6.7$15.9 million as of June 30, 2017March 31, 2018 compared to a net unrealized loss of $11.3$8.7 million as of December 31, 2016.2017.  The unrealized loss in the portfolio is primarily the result of changes in market interest rate levels.
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Held to Maturity Securities
The average balance of held to maturity securities was $42.2$26.8 million for the secondfirst quarter of 20172018 compared to $52.2$44.3 million in the secondfirst quarter of 2016.2017.  The decrease in balances reflects routine paydowns and calls.  No new securities were added to this portfolio during the period.  The average yield was 4.27%3.88% for the secondfirst quarter of 20172018 compared to 4.05%4.24% for the year earlier period.  The higherlower yield reflects the maturity of a change in mix and slower prepayments on mortgage-backed securities (MBS), which reduced premium amortization.corporate bond.  TrustCo expects to hold the securities in this portfolio until they mature or are called.

As of June 30, 2017, the securities inMarch 31, 2018, this portfolio includeconsisted solely of residential mortgage-backed securities and corporate bonds.securities.  The balances for these securities are recorded at amortized cost.

Federal Funds Sold and Other Short-term Investments
The 2017 second2018 first quarter average balance of Federal Funds sold and other short-term investments was $643.6$528.9 million, a $24.8$112.2 million decrease from the $668.4$641.1 million average for the same period in 2016.2017.  The yield was 1.07%1.55% for the secondfirst quarter of 20172018 and 0.50%0.78% for the comparable period in 2016.2017.  Interest income from this portfolio increased $895$771 thousand from $832 thousand in 2016 to $1.7$1.2 million in 2017 to $2.0 million in 2018, reflecting the target rate increases, that took effect in December of 2016 and March of 2017, as well as the partial impact of the June 2017 target rate increase, partly offset by the decreaseddecrease in balances.

The Federal Funds sold and other short-term investments portfolio is utilized to generate additional interest income and liquidity as funds are waiting to be deployed into the loan and securities portfolios.

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Funding Opportunities
TrustCo utilizes various funding sources to support its earning asset portfolio.  The vast majority of the Company’s funding comes from traditional deposit vehicles such as savings, demand deposits, interest-bearing checking, money market and time deposit accounts.

Total average interest bearing deposits (which includes interest bearing checking, money market accounts, savings and certificates of deposit) increased $26.2time deposits) decreased $31.6 million to $3.82$3.77 billion for the secondfirst quarter of 20172018 versus the secondfirst quarter in the prior year, and the average rate paid decreasedincreased from 0.38%0.35% for 20162017 to 0.34%0.41% for 2017.2018.  Total interest expense on these deposits decreased $429increased $521 thousand to $3.2$3.8 million in the secondfirst quarter of 20172018 compared to the year earlier period.  From the secondfirst quarter of 20162017 to the secondfirst quarter of 2017,2018, interest bearing demand account average balances were up 11.9%8.5%, certificates of deposit average balances were down 6.3%4.7%, non-interest demand average balances were up 2.7%4.3%, average savings balances increased 1.0%decreased 1.1% and money market balances were down 0.5%5.7%.

The Company has a number of contingent funding alternatives available in addition to the large cash and cash equivalents position and the investment securities positions it maintains on its balance sheet.  The Bank is a member of the Federal Home Loan Bank of New York (FHLBNY) and is an eligible borrower at the Federal Reserve Bank of New York (FRBNY) and has the ability to borrow utilizing securities and/or loans as collateral at either.  The Bank does not utilize brokered deposits as a part of its funding strategy, but does incorporate them as a contingent funding source within its Asset/Liability Management Policy.  Like other contingent funding sources, brokered CDs may be tested from time to time to ensure operational and market readiness.
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At June 30, 2017,March 31, 2018, the maturity of total time deposits is as follows:

(dollars in thousands)   
    
Under 1 year $685,655 
1 to 2 years  371,771 
2 to 3 years  44,460 
3 to 4 years  1,579 
4 to 5 years  5,731 
Over 5 years  248 
  $1,109,444 
(dollars in thousands)   
    
Under 1 year $801,777 
1 to 2 years  241,916 
2 to 3 years  40,857 
3 to 4 years  2,508 
4 to 5 years  1,547 
Over 5 years  219 
  $1,088,824 

Average short-term borrowings for the quarter were $226.5$234.4 million in 20172018 compared to $181.2$229.7 million in 2016.2017.  The average rate increased during this time period from 0.58%0.61% in 20162017 to 0.62% in 2017.2018.  The short-term borrowings of the Company are cash management accounts, which represent retail accounts with customers for which the Bank has pledged certain assets as collateral.

Net Interest Income
Taxable equivalent net interest income increased by $2.2$1.9 million to $38.6$39.3 million in the secondfirst quarter of 20172018 compared to the same period in 2016.2017.  The net interest spread was up 1214 basis points to 3.15%3.22% in the secondfirst quarter of 20172018 compared to the same period in 2016.2017. As previously noted, the net interest margin was up 1215 basis points to 3.213.29% for the secondfirst quarter of 20172018 compared to the same period in 2016.2017.

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Nonperforming Assets
Nonperforming assets include nonperforming loans (“NPLs”), which are those loans in a non-accrual status and loans past due three payments or more and still accruing interest.  Also included in the total of nonperforming assets are foreclosed real estate properties, which are included in other assets and categorized as other real estate owned.

The following describes the nonperforming assets of TrustCo as of June 30, 2017:March 31, 2018:

Nonperforming loans and foreclosed real estate: Total NPLs were $24.5$24.9 million at June 30, 2017,March 31, 2018, compared to $25.1$24.4 million at December 31, 20162017 and $28.2$26.4 million at June 30, 2016.March 31, 2017.  There were $24.5$24.8 million of non-accrual loans at June 30, 2017March 31, 2018 compared to $25.0$24.3 million at December 31, 20162017 and $28.2$26.4 million at June 30, 2016.March 31, 2017.  There were no loans at June 30,March 31, 2018 and 2017 and 2016 and December 31, 20162017 that were past due 90 days or more and still accruing interest.
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At June 30, 2017,March 31, 2018, nonperforming loans primarily include a mix of commercial and residential loans.  Of total nonperforming loans of $24.5$24.9 million at June 30, 2017, $22.8March 31, 2018, $23.6 million were residential real estate loans, $1.7$1.2 million were commercial loans and mortgages and $25$23 thousand were installment loans, compared to $23.1$22.7 million, $1.8$1.5 million and $48$57 thousand, respectively at December 31, 2016.2017.

A significant percentage of nonperforming loans are residential real estate loans, which are historically lower-risk than most other types of loans.  Annualized netNet chargeoffs were 0.05% of averagejust $28 thousand on residential real estate loans (including home equity lines of credit) for the secondfirst quarter of 20172018 compared to 0.13%$345 thousand for the secondfirst quarter of 2016.2017.  Management believes that these loans have been appropriately written down where required.

Ongoing portfolio management is intended to result in early identification and disengagement from deteriorating credits. TrustCo has a diversified loan portfolio that includes a significant balance of residential mortgage loans to borrowers in the Capital Region of New York and avoids concentrations to any one borrower or any single industry.  TrustCo has no advances to borrowers or projects located outside the United States.  TrustCo continues to identify delinquent loans as quickly as possible and to move promptly to resolve problem loans.  Efforts to resolve delinquencies begin immediately after the payment grace period expires, with repeated, automatically generated notices, as well as personalized phone calls and letters.  Loans are placed in nonaccrual status once they are 90 days past due, or earlier if management has determined that such classification is appropriate.  Once in nonaccrual status, loans are either brought current and maintained current, at which point they may be returned to accrual status, or they proceed through the foreclosure process.  The collateral on nonaccrual loans is evaluated periodically, and the loan value is written down if the collateral value is insufficient.

The Company originates loans throughout its deposit franchise area.  At June 30, 2017, 77.6%March 31, 2018, 76.7% of its gross loan portfolio balances were in New York State and the immediately surrounding areas (including New Jersey, Vermont and Massachusetts), and 22.4%23.3% were in Florida.  Those figures compare to 78.5%76.9% and 21.5%23.1%, respectively at December 31, 2016.  Within these two geographic regions, commercial loans constitute a larger component of the local outstandings in New York than in Florida, at 6.3% and 1.5%, respectively, as of June 30, 2017.

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Economic conditions vary widely by geographic location.  Florida experienced a more significant downturn than New York during the recession, however conditions in Florida have improved more than in New York in recent periods.  As a percentage of the total nonperforming loans as of June 30, 2017, 8.6%March 31, 2018, 8.7% were to Florida borrowers, compared to 91.4%91.3% to borrowers in New York and surrounding areas.  For the three months ended June 30, 2017,March 31, 2018, New York and surrounding areas experienced net chargeoffs of approximately $371$88 thousand, compared to $65net chargeoffs of $2 thousand in Florida.

Other than loans currently identified as nonperforming, management is aware of no other loans in the Bank’s portfolio that pose material risk of the eventual non-collection of principal and interest.  Also as of June 30, 2017,March 31, 2018, there were no other loans classified for regulatory purposes that management reasonably expects will materially impact future operating results, liquidity, or capital resources.
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TrustCo has identified nonaccrual commercial and commercial real estate loans, as well as all loans restructured under a troubled debt restructuring (TDR), as impaired loans.  There were $4.0$1.9 million of commercial mortgages and commercial loans classified as impaired as of June 30, 2017March 31, 2018 compared to $2.4$2.2 million at December 31, 2016.2017.  There were $21.8$22.5 million of impaired residential loans at June 30, 2017March 31, 2018 and $21.6$22.0 million at December 31, 20162017.  The average balances of all impaired loans were $25.1$24.7 million for the sixthree months of 20172018 and $22.4$24.8 million for the full year 2016.2017.

As of June 30, 2017March 31, 2018 and December 31, 2016,2017, the Company’s loan portfolio did not include any subprime mortgages or loans acquired with deteriorated credit quality.

At June 30, 2017March 31, 2018 there was $3.6$2.2 million of foreclosed real estate compared to $4.3$3.2 million at December 31, 2016.2017.

Allowance for loan losses: The balance of the allowance for loan losses is maintained at a level that is, in management’s judgment, representative of the amount of probable incurred losses in the loan portfolio.

Management's
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Management’s Discussion and Analysis

Allocation of the Allowance for Loan Losses

The allocation of the allowance for loans losses is as follows:

(dollars in thousands) 
As of
June 30, 2017
  
As of
December 31, 2016
  
As of
March 31, 2018
  
As of
December 31, 2017
 
 Amount  
Percent of
Loans to
Total Loans
  Amount  
Percent of
Loans to
Total Loans
  Amount  
Percent of
Loans to
Total Loans
  Amount  
Percent of
Loans to
Total Loans
 
Commercial $4,480   4.96% $4,820   5.32% $4,146   4.81% $4,205   4.85%
Real estate - construction $300   0.68%  318   0.72%  357   0.80%  379   0.85%
Real estate mortgage - 1 to 4 family $33,204   85.09%  32,452   83.94%  34,084   85.93%  33,622   85.56%
Home equity lines of credit $5,483   9.03%  5,570   9.76%  5,027   8.23%  5,195   8.50%
Installment Loans $695   0.24%  730   0.26%  765   0.23%  769   0.24%
 $44,162   100.00% $43,890   100.00% $44,379   100.00% $44,170   100.00%

At June 30, 2017,March 31, 2018, the allowance for loan losses was $44.2$44.4 million, compared to $44.1$44.0 million at June 30, 2016March 31, 2017 and $43.9$44.2 million at December 31, 2016.2017.  The allowance represents 1.26%1.21% of the loan portfolio as of June 30, 2017March 31, 2018 compared to 1.32%1.28% at June 30, 2016March 31, 2017 and 1.28%1.21% at December 31, 2016.2017.

The provision for loan losses was $550$300 thousand for the quarter ended June 30, 2017March 31, 2018 and $800$600 thousand for the quarter ended June 30, 2016.March 31, 2017.  Net chargeoffs for the three-month period ended June 30, 2017March 31, 2018 were $436$90 thousand and were $1.1 million in$442 thousand for the prior year period.

During the secondfirst quarter of 2017,2018, there were no commercial loan chargeoffs and $627$205 thousand of gross residential mortgage and consumer loan chargeoffs compared with $68$72 thousand of gross commercial loan chargeoffs and $1.2 million$557 thousand of residential mortgage and consumer loan chargeoffs in the secondfirst quarter of 2016.2017.  Gross recoveries during the secondfirst quarter of 20172018 were zero$6 thousand for commercial loans and $191$109 thousand for residential mortgage and consumer loans, compared to $1$8 thousand for commercial loans and $133$179 thousand for residential and consumer in the secondfirst quarter of 2016.2017.
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In determining the adequacy of the allowance for loan losses, management reviews the current nonperforming loan portfolio as well as loans that are past due and not yet categorized as nonperforming for reporting purposes.  Also, there are a number of other factors that are taken into consideration, including:

·The magnitude and nature of recent loan chargeoffs and recoveries;
·The growth in the loan portfolio and the implication that it has in relation to the economic climate in the Bank’s market territories, and;
·The economic environment in the Upstate New York and Florida territories over the last several years, as well as in the Company’s other market areas.

Management continues to monitor these factors in determining the provision for loan losses in relation to loan chargeoffs, recoveries, the level and trends of nonperforming loans and overall economic conditions in the Company’s market territories.

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Liquidity and Interest Rate Sensitivity
TrustCo seeks to obtain favorable sources of funding and to maintain prudent levels of liquid assets in order to satisfy varied liquidity demands.  Management believes that TrustCo’s earnings performance and strong capital position enable the Company to easily secure new sources of liquidity.  The Company actively manages its liquidity through target ratios established under its liquidity policies.  Continual monitoring of both historical and prospective ratios allows TrustCo to employ strategies necessary to maintain adequate liquidity.  Management has also defined various degrees of adverse liquidity situations which could potentially occur and has prepared appropriate contingency plans should such a situation arise.  As noted, the Company has a number of contingent funding alternatives available in addition to the large cash and cash equivalents position and the investment securities positions it maintains on its balance sheet.  As previously stated, the Bank is a member of the FHLBNY and is an eligible borrower at the FRBNY and has the ability to borrow utilizing securities and/or loans as collateral at either institution.  The Bank does not utilize brokered deposits as a part of its funding strategy, but does incorporate them as a contingent funding source within its Asset/Liability Management Policy.  Like other contingent funding sources, brokered CDs may be tested from time to time to ensure operational and market readiness.

The Company uses an industry standard external model as the primary tool to identify, quantify and project changes in interest rates and prepayment speeds taken both from industry sources and internally generated data based upon historical trends in the Bank’s balance sheet. Assumptions based on the historical behavior of deposit rates and balances in relation to changes in market interest rates are also incorporated into the model. This model calculates an economic or fair value amount with respect to non-time deposit categories since these deposits are part of the core deposit products of the Company. The assumptions used are inherently uncertain and, as a result, the model cannot precisely measure the fair value of capital or precisely predict the impact of fluctuations in interest rates on the fair value of capital.
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Using this model, the fair value of capital projections as of June 30, 2017March 31, 2018 are referenced below. The base case (current rates) scenario shows the present estimate of the fair value of capital assuming no change in the operating environment or operating strategies and no change in interest rates from those existing in the marketplace as of June 30, 2017.March 31, 2018. The table indicates the impact on the fair value of capital assuming interest rates were to instantaneously increase by 100 bp, 200 bp, 300 bp and 400 bp or to decrease by 100 bp.

As of June 30, 2017March 31, 2018 
Estimated Percentage of
Fair value of Capital to
Fair value of Assets
 
+400 BP  20.3120.12%
+300 BP  21.4721.31 
+200 BP  22.5822.47 
+100 BP  23.5323.57 
Current rates  23.6624.36 
-100 BP  22.0923.13 

Noninterest Income
Total noninterest income for both the secondfirst quarter of 2018 and 2017 was $4.5 million, compared to $5.2 million in the prior year period.  The decrease of $695 thousand was due to a decrease in gains on net gains on securities transactions.$4.7 million.  There were no securities gainssignificant changes in the second quartercomponents of 2017, compared to gains of $668 thousand in the prior year period.  A nominal decrease in Trustco Financial Services income was approximately offset by an increase in fees for services to customers.noninterest income.   The fair value of assets under management was $845$876 million at June 30, 2017March 31, 2018 and $846$890 million as of December 31, 20162017 and $851$846 million at June 30, 2016.March 31, 2017.

For the six months through June 30, 2017 total noninterest income was $9.2 million, compared to $9.8 million for the prior year period.  The decline was due to the same decrease in net gains on securities transactions noted above.  Excluding gains, noninterest income was up $128 thousand due to a $166 thousand in Financial Services revenue increase.
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Noninterest Expenses
Total noninterest expenses were $22.9$24.2 million for the three months ended June 30, 2017,March 31, 2018, compared to $24.0 million for the three months ended June 30, 2016March 31, 2017The largest cause of the decreaseSignificant changes included a $425 thousand increase in expenses wasoutsourced services, offset by a $937$498 thousand decrease in FDIC and other insurance expenses.  This change was due to a change in the premium charged by the FDIC beginning in the third quarter of 2016.  Going forward we expect that the quarterly FDIC expense will approximate the level recorded in the second quarter of 2017, excluding the impact of balance sheet growth.  Other significant decreases were other real estate expense and equipment expense, down $427 thousand and $412 thousand, respectively. The only expense categories to see meaningful increases were salaries and benefits, up $625 thousand in the second quarter of 2017 compared to the year-ago period and net occupancy expense, up $349 thousand over the same periods.professional services.  Full time equivalent headcount increased from 801802 as of June 30, 2016March 31, 2017 to 813827 as of June 30, 2017, which was the primary cause of the increase.
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For the six months through June 30, 2017 total noninterest expense was $46.9 million, compared to $47.4 million for the prior year period.  The largest cause of the decrease in expenses was a $1.9 million decrease in FDIC and other insurance expenses, as described above.  Decreases in other real estate expense, equipment expense and professional services expense also contributed.  These were mostly offset by an increase of $1.8 million in salaries and benefits, as well as smaller increases in net occupancy expense and other expense.March 31, 2018.

Income Taxes
In the secondfirst quarter of 2017,2018, TrustCo recognized income tax expense of $7.3$4.7 million compared to $6.3$6.6 million for the secondfirst quarter of 2016.2017.  The effective tax rates were 37.5%24.2% and 37.4%37.5% for the secondfirst quarters of 2018 and 2017, respectively. The decline in the percentage of income tax expense was the result of enactment of the Tax Cuts and 2016, respectively.  ForJobs Act on December 22, 2017, as more fully described in the six month periods through June 30,2017 Form 10-K. The new law lowered the federal corporate income taxes increased $1.5 million, with effective tax ratesrate to 21 percent beginning in 2018 from a maximum rate of 37.5% and 37.2%, respectively, for the six months ended June 30, 2017 and 2016.35 percent in 2017.

Capital Resources
Consistent with its long-term goal of operating a sound and profitable financial organization, TrustCo strives to maintain strong capital ratios.

Banking regulators have moved towards higher required capital requirements due to the standards included in the Basel III reform measures and the Dodd-Frank Act, as well as a general trend towards reducing risk in the banking system by providing a greater capital margin.

Trustco Bank’s Agreement with the OCC requires the Bank to develop and comply with a capital plan, and the Bank may declare or pay a dividend or make a capital distribution only (a) when the Bank is in compliance with its approved written capital plan, and would remain in compliance with such capital plan immediately following the declaration or payment of any dividend or capital distribution and (b) following OCC approval under OCC capital distribution rules.

Total shareholders’ equity at June 30, 2017March 31, 2018 was $447.4$462.1 million compared to $430.3$438.7 million at June 30, 2016.March 31, 2017. TrustCo declared a dividend of $0.065625 per share in the secondfirst quarter of 2017.2018.  This results in a dividend payout ratio of 51.48%42.70% based on secondfirst quarter 20172018 earnings of $12.2$14.8 million.
 
5650

The Bank and the Company reported the following capital ratios as of June 30, 2017March 31, 2018 and December 31, 2016:

(Bank Only)         
          
(dollars in thousands) As of June 30, 2017  Well  Adequately 
  Amount  Ratio  Capitalized(1)  Capitalized(1)(2) 
             
Tier 1 leverage capital $436,264   8.911%  5.000%  4.000%
Common equity tier 1 capital  436,264   17.363   6.500   5.750 
Tier 1 risk-based capital  436,264   17.363   8.000   7.250 
Total risk-based capital  467,832   18.620   10.000   9.250 
2017:
 
(dollars in thousands) As of December 31, 2016  Well  Adequately 
  Amount  Ratio  Capitalized(1)  Capitalized(1)(3) 
             
Tier 1 (core) capital $424,802   8.829%  5.000%  4.000%
Common equity tier 1 capital  424,802   17.238   6.500   5.125 
Tier 1 risk-based capital  424,802   17.238   8.000   6.625 
Total risk-based capital  455,772   18.492   10.000   8.625 
(Bank Only)

(dollars in thousands)As of March 31, 2018 Well Adequately 
Amount Ratio Capitalized(1) Capitalized(1)(2) 
        
Tier 1 leverage capital $455,335  9.333% 5.000% 4.000 %
Common equity tier 1 capital 455,335  17.750  6.500  6.380 
Tier 1 risk-based capital 455,335  17.750  8.000  7.880 
Total risk-based capital 487,547  19.010  10.000  9.880 
 
(dollars in thousands) As of December 31, 2017  Well  Adequately 
Amount  Ratio  Capitalized(1)  Capitalized(1)(3) 
            
Tier 1 (core) capital $444,931   9.152%  5.000%  4.000 %
Common equity tier 1 capital  444,931   17.460   6.500   5.750 
Tier 1 risk-based capital  444,931   17.460   8.000   7.250 
Total risk-based capital  476,942   18.720   10.000   9.250 

(1)Federal regulatory minimum requirements to be considered to be Well Capitalized and Adequately Capitalized
(2)The June 30,March 31, 2018 common equity tier 1, tier 1 risk-based, and total risk-based capital ratios include a transition capital conservation buffer of 1.88 percent
(3)The December 31, 2017 common equity tier 1, tier 1 risk-based, and total risk-based capital ratios include a transition capital conservation buffer of 1.25 percent
(Consolidated)
(dollars in thousands) As of March 31, 2018  Minimum for Capital Adequacy plus Capital Conservation 
  Amount  Ratio  Buffer(1)(2) 
          
Tier 1 leverage capital $470,033   9.629%  4.000%
Common equity tier 1 capital  470,033   18.320   6.380 
Tier 1 risk-based capital  470,033   18.320   7.880 
Total risk-based capital  502,268   19.570   9.880 
(dollars in thousands) As of December 31, 2017  Minimum for Capital Adequacy plus Capital Conservation 
  Amount  Ratio  Buffer(1)(3) 
          
Tier 1 leverage ratio $459,561   9.449%  4.000%
Common equity Tier 1 capital  459,561   18.020   5.750 
Tier 1 risk-based capital  459,561   18.020   7.250 
Total risk-based capital  491,590   19.280   9.250 
(3)(1)Federal regulatory minimum requirements to be considered to be Well Capitalized and Adequately Capitalized
(2)The DecemberMarch 31, 20162018 common equity tier 1, tier 1 risk-based, and total risk-based capital ratios include a transition capital conservation buffer of 0.6251.88 percent

(3)The December 31, 2017 common equity tier 1, tier 1 risk-based, and total risk-based capital ratios include a transition capital conservation buffer of 1.25 percent
(Consolidated)

(dollars in thousands) As of June 30, 2017 
  Amount  Ratio 
       
Tier 1 leverage capital $450,406   9.194%
Common equity tier 1 capital  450,406   17.921 
Tier 1 risk-based capital  450,406   17.921 
Total risk-based capital  481,984   19.178 
 
(dollars in thousands) As of December 31, 2016 
  Amount  Ratio 
       
Leverage capital $438,426   9.110%
Common equity tier 1 capital  438,426   17.782 
Tier 1 risk-based capital  438,426   17.782 
Total risk-based capital  469,411   19.038 

In addition, at June 30, 2017,March 31, 2018, the consolidated equity to total assets ratio was 9.09%9.37%, compared to 8.89%9.34% at December 31, 20162017 and 8.91%8.98% at June 30, 2016.March 31, 2017.

Both TrustCo and Trustco Bank are subject to regulatory capital requirements. On January 1, 2015, a new capital rule took effect that revised the federal bank regulatory agencies’ risk-based capital requirements and, for the first time, subjected the Company to consolidated regulatory capital requirements. Among other matters, the rule also established a new common equity Tier 1 minimum capital requirement of 4.5% of risk-weighted assets, increased the minimum Tier 1 capital to risk-based assets requirement from 4.0% to 6.0% of risk-weighted assets, changed the risk-weightings of certain assets, and changed what qualifies as capital for purposes of meeting the various capital requirements. In addition, the Company and the Bank are required to maintain additional levels of Tier 1 common equity (the capital conservation buffer) over the minimum risk-based capital levels before they may pay dividends, repurchase shares, or pay discretionary bonuses. The new rule will be phased-in over several years and will be fully in effect in 2019.  Calendar year 20162017 was the secondthird year of implementation of the new capital rules. Prior to January 2015, the Company had not been subject to consolidated regulatory capital requirements.

As of June 30, 2017,March 31, 2018, the capital levels of both TrustCo and the Bank exceeded the minimum standards, including ifwith the current (andand also if the fully phased-in)phased-in capital conservation buffer is taken into account.
 
5751

Under the OCC’s “prompt corrective action” regulations, a bank is deemed to be “well-capitalized” when its CET1, Tier 1, total risk-based, and leverage capital ratios are at least 6.5%, 8%, 10%, and 5%, respectively. A bank is deemed to be “adequately capitalized” or better if its capital ratios meet or exceed the minimum federal regulatory capital requirements, and “undercapitalized” if it fails to meet these minimal capital requirements. A bank is “significantly undercapitalized” if its CET1, Tier 1, total risk-based and leverage capital ratios fall below 3%, 4%, 6%, and 3%, respectively and “critically undercapitalized” if the institution has a ratio of tangible equity to total assets that is equal to or less than 2%. At June 30,March 31, 2018 and 2017, and 2016, Trustco Bank met the definition of “well-capitalized.”

As noted, the Company’s dividend payout ratio was 51.48%42.70% of net income for the secondfirst quarter of 20172018 and 59.89%57.47% of net income for the secondfirst quarter of 2016.2017. The per-share dividend paid in both the secondfirst quarters of 20162017 and 20172018 was $0.065625. The Company’s ability to pay dividends to its shareholders is dependent upon the ability of the Bank to pay dividends to the Company. The payment of dividends by the Bank to the Company is subject to continued compliance with minimum regulatory capital requirements and the Bank’s compliance with the capital plan required under the terms of the Agreement. Under the OCC agreement, the Bank may declare or pay a dividend or make a capital distribution only (a) when the Bank is in compliance with its approved written capital plan, and would remain in compliance with such capital plan immediately following the declaration or payment of any dividend or capital distribution, and (b) following OCC approval under OCC capital distribution rules.requirements. The OCC may disapprove a dividend if: the Bank would be undercapitalized following the distribution; the proposed capital distribution raises safety and soundness concerns; or the capital distribution would violate a prohibition contained in any statue, regulation or agreement. In addition, under the Agreement, the payment of dividends by the Bank are subject to prior approval.

TrustCo maintains a dividend reinvestment plan (DRP) with approximately 12,00011,800 participants. The DRP allows participants to reinvest dividends in shares of the Company. The DRP also allows for additional purchases by participants and has a discount feature (up to a 5% for safe harbor provisions) that can be activated by management as a tool to raise capital. To date, the discount feature has not been utilized.

Critical Accounting Policies
Pursuant to Securities and Exchange Commission (SEC) guidance, management of the Company is encouraged to evaluate and disclose those accounting policies judged to be critical policies - those most important to the portrayal of the Company’s financial condition and results, and that require management’s most difficult subjective or complex judgments.

Management considers the accounting policy relating to the allowance for loan losses to be a critical accounting policy given the inherent uncertainty in evaluating the levels of the allowance required to cover the inherent risk of losses in the loan portfolio and the material effect that such judgments can have on the results of operations. Included in Note 1 to the Consolidated Financial Statements contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 20162017 is a description of the significant accounting policies that are utilized by the Company in the preparation of the Consolidated Financial Statements.
 
5852

TrustCo Bank Corp NY
Management'sManagement’s Discussion and Analysis
STATISTICAL DISCLOSURE

I. DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS'SHAREHOLDERS’ EQUITY:
INTEREST RATES AND INTEREST DIFFERENTIAL

The following table summarizes the component distribution of the average balance sheet, related interest income and expense and the average annualized yields on interest earning assets and annualized rates on interest bearing liabilities of TrustCo (adjusted for tax equivalency) for each of the reported periods. Nonaccrual loans are included in loans for this analysis. The average balances of securities available for sale and held to maturity are calculated using amortized costs for these securities.  Included in the average balance of shareholders'shareholders’ equity is the unrealized gain (loss) gain,, net of tax, in the available for sale portfolio of ($3.6)12.2) million in 20172018 and $0.7($5.8) million in 2016.2017.  The subtotals contained in the following table are the arithmetic totals of the items contained in that category.  Increases and decreases in interest income and expense  due to both rate and volume have been allocated to the categories of variances (volume and rate) based on the percentage relationship of such variances to each other.

 Three months ended  Three months ended          
 March 31, 2018  March 31, 2017          
                           
 
Three months ended
June 30, 2017
  
Three months ended
June 30, 2016
     Average  Interest  Average  Average  Interest  Average  Change in  Variance  Variance 
(dollars in thousands)
 
Average
Balance
  Interest  
Average
Rate
  
Average
Balance
  Interest  
Average
Rate
  
Change in
Interest
Income/
Expense
  
Variance
Balance
Change
  
Variance
Rate
Change
  Balance     Rate  Balance     Rate  Interest  Balance  Rate 
                   Income/  Change  Change 
Assets                                              Expense       
                                                      
Securities available for sale:                                                      
U. S. government sponsored enterprises $153,552   607   1.58% $107,190   404   1.51% $203   56   147  $156,593   750   1.92% $142,495   595   1.67% $155   62   93 
Mortgage backed securities and collateralized mortgage obligations-residential  359,085   1,944   2.17%  445,162   2,169   1.95%  (225)  (1,364)  1,139   313,753   1,763   2.25%  367,956   1,958   2.13%  (195)  (312)  117 
State and political subdivisions  816   16   7.84%  955   19   7.96%  (3)  (1)  (2)  515   10   7.81%  873   19   8.71%  (9)  9   (18)
Corporate bonds  42,699   154   1.44%  -   -   -%  154   -   -   33,297   133   1.60%  41,580   151   1.45%  (18)  (93)  75 
Small Business Administration-guaranteed participation securities  75,561   394   2.09%  87,801   450   2.05%  (56)  (106)  50   67,106   352   2.10%  78,591   415   2.11%  (63)  (61)  (2)
Mortgage backed securities and collateralized mortgage obligations-commercial  10,003   21   0.84   10,321   38   1.47   (17)  (9)  (8)  9,775   42   1.71%  10,089   23   0.91%  19   (5)  24 
Other  685   4   2.34%  677   4   2.36%  -   -   -   685   5   2.52%  685   4   2.34%  1   -   1 
                                                                        
Total securities available for sale  642,401   3,140   1.96%  652,106   3,084   1.89%  56   (1,423)  1,325   581,724   3,055   2.12%  642,269   3,165   1.97%  (110)  (400)  290 
                                                                        
Federal funds sold and other short-term Investments  643,557   1,727   1.07%  668,395   832   0.50%  895   (30)  925   528,947   2,017   1.55%  641,126   1,246   0.78%  771   (167)  938 
                                                                        
Held to maturity securities:                                                                        
Corporate bonds  9,996   154   6.16%  9,981   154   6.17%  -   -   -   -   -   0.00%  9,992   154   6.16%  (154)  (77)  (77)
                                    
Mortgage backed securities and collateralized mortgage obligations-residential  32,188   296   3.68%  42,188   374   3.55%  (78)  (162)  84   26,799   260   3.88%  34,303   316   3.68%  (56)  (154)  98 
                                                                        
Total held to maturity securities  42,184   450   4.27%  52,169   528   4.05%  (78)  (162)  84   26,799   260   3.88%  44,295   470   4.24%  (210)  (231)  21 
                                                                        
Federal Reserve Bank and Federal Home Loan Bank stock  9,709   134   5.52%  9,576   118   4.93%  16   2   14   8,779   77   6.00%  9,579   134   5.60%  (57)  (72)  15 
                                                                        
Commercial loans  183,382   2,401   5.24%  198,938   2,563   5.15%  (162)  (418)  256   185,646   2,420   5.21%  187,590   2,429   5.18%  (9)  (85)  76 
Residential mortgage loans  2,958,994   30,943   4.18%  2,759,024   29,725   4.31%  1,218   5,850   (4,632)  3,148,735   32,257   4.11%  2,911,987   30,367   4.17%  1,890   4,651   (2,761)
Home equity lines of credit  320,872   3,131   3.90%  354,897   3,179   3.58%  (48)  (819)  771   306,290   3,210   4.25%  330,338   3,085   3.74%  125   (1,129)  1,254 
Installment loans  8,029   194   9.66%  8,316   191   9.19%  3   (30)  33   8,365   205   9.90%  8,228   169   8.22%  36   21   15 
                                                                        
Loans, net of unearned income  3,471,277   36,669   4.23%  3,321,175   35,658   4.29%  1,011   4,582   (3,571)  3,649,036   38,092   4.19%  3,438,143   36,050   4.19%  2,042   3,459   (1,417)
                                                                        
Total interest earning assets  4,809,128   42,120   3.50%  4,703,421   40,220   3.42%  1,900   2,970   (1,224)  4,795,285   43,501   3.64%  4,775,412   41,065   3.44%  2,436   2,589   (153)
                                                                        
Allowance for loan losses  (44,429)          (44,754)                      (44,393)          (44,236)                    
Cash & non-interest earning assets  130,998           136,724                       124,867           130,186                     
                                                                        
Total assets $4,895,697          $4,795,391                      $4,875,759          $4,861,362                     
                                                                        
Liabilities and shareholders' equity                                    
Liabilities and shareholders’ equity                                    
                                                                        
Deposits:                             ��                                          
Interest bearing checking accounts $849,965   134   0.06% $759,546   116   0.06%  18   13   5  $877,776   106   0.05% $809,039   124   0.06%  (18)  16   (33)
Money market accounts  577,464   468   0.32%  580,100   467   0.32%  1   (1)  2   547,136   439   0.33%  580,006   466   0.32%  (27)  (38)  11 
Savings  1,286,282   435   0.14%  1,273,575   604   0.19%  (169)  41   (210)  1,260,360   419   0.13%  1,274,757   430   0.13%  (11)  (31)  20 
Time deposits  1,102,777   2,181   0.79%  1,177,084   2,460   0.84%  (279)  11,224   (11,503)  1,080,893   2,860   1.07%  1,133,942   2,283   0.81%  577   (97)  674 
                                                                        
Total interest bearing deposits  3,816,488   3,218   0.34%  3,790,305   3,647   0.38%  (429)  11,277   (11,706)  3,766,165   3,824   0.41%  3,797,744   3,303   0.35%  521   (151)  671 
Short-term borrowings  226,455   349   0.62%  181,247   262   0.58%  87   69   18   234,384   358   0.62%  229,719   349   0.61%  9   5   4 
                                                                        
Total interest bearing liabilities  4,042,943   3,567   0.35%  3,971,552   3,909   0.39%  (342)  11,347   (11,689)  4,000,549   4,182   0.42%  4,027,463   3,652   0.36%  530   (146)  676 
                                                                        
Demand deposits  380,611           370,781                       386,563           370,552                     
Other liabilities  28,026           27,121                       29,129           26,781                     
Shareholders' equity  444,117           425,937                     
Shareholders’ equity  459,519           436,566                     
                                                                        
Total liabilities and shareholders' equity $4,895,697          $4,795,391                     
Total liabilities and shareholders’ equity $4,875,760          $4,861,362                     
                                                                        
Net interest income , tax equivalent      38,553           36,311      $2,242   (8,377)  10,465       39,319           37,413      $1,906   2,734   (829)
                                                                        
Net interest spread          3.15%          3.03%                      3.22%          3.08%            
                                                                        
Net interest margin (net interest income to total interest earning assets)          3.21%          3.09%                      3.29%          3.14%            
                                                                        
Tax equivalent adjustment      (12)          (12)                      (4)          (13)                
                                                                        
Net interest income      38,541           36,299                       39,315           37,400                 
 
TrustCo Bank Corp NY
Management's Discussion and Analysis
STATISTICAL DISCLOSURE

I. DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY:
INTEREST RATES AND INTEREST DIFFERENTIAL

The following table summarizes the component distribution of the average balance sheet, related interest income and expense and the average annualized yields on interest earning assets and annualized rates on interest bearing liabilities of TrustCo (adjusted for tax equivalency) for each of the reported periods. Nonaccrual loans are included in loans for this analysis. The average balances of securities available for sale and held to maturity are calculated using amortized costs for these securities.  Included in the average balance of shareholders' equity is the unrealized loss, net of tax, in the available for sale portfolio of ($4.8) million in 2017 and  ($0.5) million in 2016.  The subtotals contained in the following table are the arithmetic totals of the items contained in that category.  Increases and decreases in interest income and expense  due to both rate and volume have been allocated to the categories of variances (volume and rate) based on the percentage relationship of such variances to each other.
  
Six months ended
June 30, 2017
  
Six months ended
June 30, 2016
    
(dollars in thousands) 
Average
Balance
  Interest  
Average
Rate
  
Average
Balance
  Interest  
Average
Rate
  
Change in
Interest
Income/
Expense
  
Variance
Balance
Change
  
Variance
Rate
Change
 
Assets                           
                            
Securities available for sale:                           
U. S. government sponsored enterprises $148,054   1,202   1.62% $91,111   659   1.45% $543   280   263 
Mortgage backed securities and collateralized mortgage obligations-residential  363,496   3,902   2.15%  428,831   4,285   2.00%  (383)  (740)  357 
State and political subdivisions  844   35   8.29%  1,034   41   7.93%  (6)  (11)  5 
Corporate bonds  42,143   305   1.45%  -   -   -%  305   -   - 
Small Business Administration-guaranteed participation securities  77,068   809   2.10%  89,206   926   2.08%  (117)  (142)  25 
Mortgage backed securities and collateralized mortgage obligations-commercial  10,046   44   0.88%  10,357   74   1.43%  (30)  (7)  (23)
Other  685   8   2.34%  682   8   2.35%  -   -   - 
                                     
Total securities available for sale  642,336   6,305   1.96%  621,221   5,993   1.93%  312   (619)  626 
                                     
Federal funds sold and other short-term Investments  642,348   2,973   0.93%  671,990   1,677   0.50%  1,296   (70)  1,366 
                                     
Held to maturity securities:                                    
Corporate bonds  9,994   308   6.16%  9,979   308   6.17%  -   1   (1)
Mortgage backed securities and collateralized mortgage obligations-residential  33,240   612   3.68%  43,650   775   3.55%  (163)  (240)  77 
                                     
Total held to maturity securities  43,234   920   4.26%  53,629   1,083   4.04%  (163)  (239)  76 
                                     
Federal Reserve Bank and Federal Home Loan Bank stock  9,645   268   5.56%  9,527   238   5.00%  30   3   27 
                                     
Commercial loans  185,474   4,830   5.21%  200,152   5,180   5.18%  (350)  (431)  81 
Residential mortgage loans  2,935,620   61,310   4.18%  2,742,918   59,348   4.33%  1,962   6,891   (4,929)
Home equity lines of credit  325,579   6,216   3.82%  356,857   6,358   3.56%  (142)  (1,087)  945 
Installment loans  8,128   363   8.93%  8,488   383   9.02%  (20)  (7)  (13)
                                     
Loans, net of unearned income  3,454,801   72,719   4.21%  3,308,415   71,269   4.31%  1,450   5,366   (3,916)
                                     
Total interest earning assets  4,792,364   83,185   3.47%  4,664,782   80,260   3.44%  2,925   4,441   (1,821)
                                     
Allowance for loan losses  (44,333)          (45,013)                    
Cash & non-interest earning assets  130,575           136,138                     
                                     
Total assets $4,878,606          $4,755,907                     
                                     
Liabilities and shareholders' equity                                    
                                     
Deposits:                                    
Interest bearing checking accounts $829,615   258   0.06% $747,322   230   0.06%  28   21   7 
Money market accounts  578,728   934   0.32%  591,937   962   0.33%  (28)  (14)  (14)
Savings  1,280,552   865   0.14%  1,268,021   1,208   0.19%  (343)  35   (378)
Time deposits  1,118,274   4,464   0.80%  1,155,773   4,833   0.84%  (369)  (146)  (223)
                                     
Total interest bearing deposits  3,807,169   6,521   0.34%  3,763,053   7,233   0.38%  (712)  (104)  (608)
Short-term borrowings  228,078   698   0.61%  178,683   519   0.58%  179   152   27 
                                     
Total interest bearing liabilities  4,035,247   7,219   0.36%  3,941,736   7,752   0.39%  (533)  47   (580)
                                     
Demand deposits  375,610           364,503                     
Other liabilities  27,408           27,019                     
Shareholders' equity  440,341           422,649                     
                                     
Total liabilities and shareholders' equity $4,878,606          $4,755,907                     
                                     
Net interest income , tax equivalent      75,966           72,508      $3,458   4,394   (1,241)
                                     
Net interest spread          3.11%          3.05%            
                                     
Net interest margin (net interest income to total interest earning assets)          3.17%          3.11%            
                                     
Tax equivalent adjustment      (25)          (26)                
                                     
Net interest income      75,941           72,482                 
6053

Item 3.
Quantitative and Qualitative Disclosures about Market Risk

As detailed in the Annual Report to Shareholders as of December 31, 2016,2017, the Company is subject to interest rate risk as its principal market risk.  As noted in the Management’s Discussion and Analysis for the three and six month periods ended June 30,March 31, 2018 and 2017, and 2016, the Company continues to respond to changes in interest rates in such a way that positions the Company to meet short term earning goals and also allows the Company to respond to changes in interest rates in the future.  Consequently, for the secondfirst quarter of 2017,2018, the Company had an average balance of Federal Funds sold and other short-term investments of $643.6$528.9 million compared to $668.4$641.1 million in the secondfirst quarter of 2016.2017.  As investment opportunities present themselves, management plans to invest funds from the Federal Funds sold and other short-term investment portfolio into the securities available for sale, securities held to maturity and loan portfolios.  Additional disclosure of interest rate risk can be found under “Liquidity and Interest Rate Sensitivity” and “Asset/Liability Management” in the Management’s Discussion and Analysis section of this document.

Item 4.
Controls and Procedures

An evaluation was carried out under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report.

The Company maintains disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (“Exchange Act”)) designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission.  Based upon this evaluation of those disclosure controls and procedures, the Chief Executive Officer and Chief Financial Officer of the Company concluded, as of the end of the period covered by this report, that the Company’s disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports the Company files and submits under the Exchange Act is recorded, processed, summarized and reported as and when required.

In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.  Further, no evaluation of a cost-effective system of controls can provide absolute assurance that all control issues and instances of fraud, if any, will be detected.

There have been no changes in internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act) during the quarter to which this report relates that have materially affected or are reasonably likely to materially affect, the internal control over financial reporting.
 
6154

PART II
OTHER INFORMATION
Item 1.
Legal Proceedings

None.

Item 1A.
Risk Factors

There were no material changes to the risk factors previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.2017.

Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3.
Defaults Upon Senior Securities

None.

Item 4.
Mine Safety

None.

Item 5.
Other Information

None.

Item 6.
Exhibits

Reg S-K (Item 601)
Reg S-K
Exhibit No.
Description
  
15Crowe Horwath LLP Letter Regarding Unaudited Interim Financial Information
  
31(a)Rule 13a-15(e)/15d-15(e) Certification of Robert J. McCormick, principal executive officer.
  
31(b)Rule 13a-15(e)/15d-15(e) Certification of Michael M. Ozimek, principal financial officer
32Section 1350 Certifications of Robert J. McCormick, principal executive officer and Michael M. Ozimek, principal financial officer.
  
101.INSInstance Document
101.SCHXBRL Taxonomy Extension Schema Document
101.CALXBRL Taxonomy Extension Calculation Linkbase Document
101.DEFXBRL Taxonomy Extension Definition Linkbase Document
101.LABXBRL Taxonomy Extension Label Linkbase Document
101.PREXBRLTaxonomy Extension Presentation Linkbase Document
SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
TrustCo Bank Corp NY
By: /s/ Robert J. McCormick
Robert J. McCormick
President and Chief Executive Officer
By: /s/ Michael M. Ozimek
Michael M. Ozimek
Senior Vice President
and Chief Financial Officer
Date:  May 4, 2018
Exhibits Index
Reg S-K
Exhibit No.Description
Crowe Horwath LLP Letter Regarding Unaudited Interim Financial Information
Rule 13a-15(e)/15d-15(e) Certification of Robert J. McCormick, principal executive officer.
Rule 13a-15(e)/15d-15(e) Certification of Michael M. Ozimek, principal financial officer.
Section 1350 Certifications of Robert J. McCormick, principal executive officer and Michael M. Ozimek,  principal financial officer.
  
101.INSInstance Document
  
101.SCHXBRL Taxonomy Extension Schema Document
  
101.CALXBRL Taxonomy Extension Calculation Linkbase Document
  
101.DEFXBRL Taxonomy Extension Definition Linkbase Document
  
101.LABXBRL Taxonomy Extension Label Linkbase Document
  
101.PREXBRLTaxonomy Extension Presentation Linkbase Document
SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

TrustCo Bank Corp NY
By: /s/ Robert J. McCormick
Robert J. McCormick
President and Chief Executive Officer
By: /s/ Michael M. Ozimek
Michael M. Ozimek
Senior Vice President and Chief Financial Officer

Date:  August 4, 2017
Exhibits Index

Reg S-K
Exhibit No.Description
Crowe Horwath LLP Letter Regarding Unaudited Interim Financial Information
Rule 13a-15(e)/15d-15(e) Certification of Robert J. McCormick, principal executive officer.
Rule 13a-15(e)/15d-15(e) Certification of Michael M. Ozimek, principal financial officer.
Section 1350 Certifications of Robert J. McCormick, principal executive officer and Michael M. Ozimek,  principal financial officer.
101.INSInstance Document
101.SCHXBRL Taxonomy Extension Schema Document
101.CALXBRL Taxonomy Extension Calculation Linkbase Document
101.DEFXBRL Taxonomy Extension Definition Linkbase Document
101.LABXBRL Taxonomy Extension Label Linkbase Document
101.PREXBRL Taxonomy Extension Presentation Linkbase Document
 
 
6457