(4) Investment Securities

(a) Securities available for sale

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

									March 31, 2019
(dollars in thousands)	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	$	154,861		-		3,534		151,327	$	149,870		26		1,604		148,292
State and political subdivisions		515		10		-		525		168		4		-		172
Mortgage backed securities and collateralized mortgage obligations - residential										318,864		198		6,116		312,946
Corporate bonds		35,347		-		120		35,227		30,299		89		130		30,258
Mortgage backed securities and collateralized mortgage obligations - residential		307,679		75		10,121		297,633
Small Business Administration- guaranteed participation securities		66,153		-		2,040		64,113
Mortgage backed securities and collateralized mortgage obligations - commercial		9,743		-		170		9,573
Small Business Administration - guaranteed participation securities										56,060		-		1,947		54,113
Other		685		-		-		685		685		-		-		685

Total Securities Available for Sale	$	574,983		85		15,985		559,083	$	555,946		317		9,797		546,466

	December 31, 2018
(dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value

U.S. government sponsored enterprises	$	154,868		-		2,708		152,160
State and political subdivisions		168		5		-		173
Mortgage backed securities and collateralized mortgage obligations - residential		271,386		53		9,407		262,032
Corporate bonds		30,048		-		110		29,938
Small Business Administration - guaranteed participation securities		58,376		-		1,901		56,475
Other		685		-		-		685

Total securities available for sale	$	515,531		58		14,126		501,463

The schedule of maturities of securities available for sale is presented below. Mortgage-backed securities are included based on weighted average maturities, adjusted for anticipated prepayments. All other securities are included based on contractual maturities. Actual maturities may differ from amounts presented because certain issuers have the right to call or prepay obligations with or without call or prepayment penalties.

(dollars in thousands)	Amortized Cost		Fair Value

Due in one year or less	$	5,165		5,166
Due in one year through five years		175,796		174,180
Due after five years through ten years		61		61
Mortgage backed securities and collateralized mortgage obligations		318,864		312,946
Small Business Administration - guaranteed participation securities		56,060		54,113
	$	555,946		546,466

910

Index

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:

	March 31, 2019
	Less than 12 months				12 months or more				Total
(dollars in thousands)	Fair Value		Gross Unreal. Loss		Fair Value		Gross Unreal. Loss		Fair Value		Gross Unreal. Loss

U.S. government sponsored enterprises	$	-		-		123,289		1,604		123,289		1,604
Mortgage backed securities and collateralized mortgage obligations - residential		27,597		215		251,395		5,901		278,992		6,116
Corporate bonds		4,870		130		-		-		4,870		130
Small Business Administration - guaranteed participation securities		-		-		54,113		1,947		54,113		1,947

Total	$	32,467		345		428,797		9,452		461,264		9,797

	December 31, 2018
	Less than 12 months				12 months or more				Total
(dollars in thousands)	Fair Value		Gross Unreal. Loss		Fair Value		Gross Unreal. Loss		Fair Value		Gross Unreal. Loss

U.S. government sponsored enterprises	$	29,870		106		112,291		2,602		142,161		2,708
Mortgage backed securities and collateralized mortgage obligations - residential		1,102		11		259,729		9,396		260,831		9,407
Corporate bonds		14,943		98		9,995		12		24,938		110
Small Business Administration - guaranteed participation securities		-		-		56,475		1,901		56,475		1,901

Total	$	45,915		215		438,490		13,911		484,405		14,126

The proceeds from sales and calls of securities available for sale, gross realized gains and gross realized losses from sales and calls during the three months ended March 31, 2019 and 2018 are as follows:

(dollars in thousands)	Three months ended March 31,
	2019		2018

Proceeds from sales	$	-		-
Proceeds from calls/paydowns		16,041		25,028
Proceeds from maturities		10,000		25,000

There were no gross realized gains or losses from calls of available for sale securities during the three months ended March 31, 2019 and 2018.

There were no sales or transfers of securities available for sale during the three months ended March 31, 2019 and 2018.

Index

(b) Held to maturity securities

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

	March 31, 2019
(dollars in thousands)	Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses		Fair Value

Mortgage backed securities and collateralized mortgage obligations - residential	$	21,609		710		36		22,283
Total held to maturity	$	21,609		710		36		22,283

	December 31, 2018
(dollars in thousands)	Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses		Fair Value

Mortgage backed securities and collateralized mortgage obligations - residential	$	22,501		577		154		22,924
Total held to maturity	$	22,501		577		154		22,924

The following table distributes the ~~available for sale security~~held to maturity portfolio as of March 31, ~~2018,~~2019, 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

Due in one year or less $ 30,717 30,617
Due in one year through five years 150,597 147,053
Due after five years through ten years 10,094 10,094
Mortgage backed securities and collateralized mortgage obligations - residential 307,679 297,633
Small Business Administration- guaranteed participation securities 66,153 64,113
Mortgage backed securities and collateralized mortgage obligations - commercial 9,743 9,573
$ 574,983 559,083

(dollars in thousands)	Amortized Cost		Fair Value
Mortgage backed securities and collateralized mortgage obligations - residential	$	21,609		22,283
	$	21,609		22,283

~~Index~~

(dollars in thousands) March 31, 2018

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 $ 59,076 895 82,251 2,639 141,327 3,534
Mortgage backed securities and collateralized mortgage obligations - residential 45,441 1,221 250,721 8,900 296,162 10,121
Corporate bonds 5,218 19 30,008 101 35,227 120
Small Business Administration- guaranteed participation securities - - 64,113 2,040 64,113 2,040
Mortgage backed securities and collateralized mortgage obligations - commercial - - 9,573 170 9,573 170
Total $ 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

~~There were no gross realized gains or losses from calls of available for sale securities during the three months ended March 31, 2018 and 2017.~~

There were no sales of securities available for sale during the three months ended March 31, 2018 and 2017. There was $25.0 million and $20.7 million in proceeds from calls of securities available for sale during the three months ended March 31, 2018 and 2017, respectively.

~~Index~~

~~(b) Held to maturity securities~~

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

(dollars in thousands) March 31, 2018

Amortized
Cost

Gross
Unrecognized
Gains

Gross
Unrecognized
Losses

Fair
Value

Mortgage backed securities and collateralized mortgage obligations - residential $ 26,174 882 62 26,994
Total held to maturity $ 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

The following table distributes the held to maturity portfolio as of 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


Mortgage backed securities and collateralized mortgage obligations - residential 26,174 26,994
Total held to maturity $ 26,174 26,994

~~Index~~

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:

	March 31, 2019
(dollars in thousands)	Less than 12 months				12 months or more				Total
	Fair Value		Gross Unrec. Loss		Fair Value		Gross Unrec. Loss		Fair Value		Gross Unrec. Loss
Mortgage backed securities and collateralized mortgage obligations - residential	$	-		-		6,501		36		6,501		36

Total	$	-		-		6,501		36		6,501		36

													December 31, 2018
(dollars in thousands)	March 31, 2018												Less than 12 months				12 months or more				Total
	Less than 12 months				12 months or more				Total				Fair Value		Gross Unrec. Loss		Fair Value		Gross Unrec. Loss		Fair Value		Gross Unrec. Loss
Mortgage backed securities and collateralized mortgage obligations - residential													$	10,958		154		-		-		10,958		154
	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	$	10,958		154		-		-		10,958		154

~~There were no unrecognized losses on~~

Index

All held to maturity ~~investments as of December 31, 2017.~~securities are held at cost on the financial statements.

There were no sales or transfers of held to maturity securities during the three months ended March 31, ~~2018~~2019 and ~~2017~~.2018.

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 ASC 320 “Investments – Debt and Equity Securities.”~~

In determining OTTI ~~under the FASB ASC 320 model,~~for debt securities, 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~~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.

~~Index~~

As of March 31, ~~2018,~~2019, the Company’s security portfolio included certain securities which were in an unrealized loss ~~position. All such securities with the exception of corporate bonds were issuances from~~ position, and are discussed below.

U.S. government sponsored ~~entities. As it relates to corporate bonds,~~enterprises: In the ~~company monitors~~case of unrealized losses on U.S. government sponsored enterprises, because the ~~credit rating of the issuers and all were investment grade. The declines~~decline in fair value ~~are~~is 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 March 31, ~~2018~~.2019.

Mortgage backed securities and collateralized mortgage obligations – residential: At March 31, 2019, all mortgage backed securities and collateralized mortgage obligations held by the Company were issued by U.S. government sponsored entities and agencies, primarily Ginnie Mae, Fannie Mae and Freddie Mac, institutions which the government has affirmed its commitment to support. Because the decline in fair value is 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 March 31, 2019.

Corporate Bonds: March 31, 2019, corporate bonds held by the Company are investment grade quality. Because the decline in fair value is 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 March 31, 2019.

Small Business Administration (SBA) - guaranteed participation securities: March 31, 2019, all of the SBA securities held by the Company were issued and guaranteed by U.S. Small Business Administration. Because the decline in fair value is 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 March 31, 2019.

Index

(5) Loans and Allowance for Loan Losses

	March 31, 2018						March 31, 2019
(dollars in thousands)	New York and other states*		Florida		Total		New York and other states*		Florida		Total
Commercial:
Commercial real estate	$	149,357		11,709		161,066	$	152,731		15,386		168,117
Other		23,459		604		24,063		21,983		247		22,230
Real estate mortgage - 1 to 4 family:
First mortgages		2,305,510		784,004		3,089,514		2,438,732		847,444		3,286,176
Home equity loans		67,841		14,193		82,034		71,753		18,264		90,017
Home equity lines of credit		257,714		44,171		301,885		237,874		44,160		282,034
Installment		7,405		1,008		8,413		10,043		2,536		12,579
Total loans, net	$	2,811,286		855,689		3,666,975	$	2,933,116	$	928,037		3,861,153
Less: Allowance for loan losses						44,379						44,671
Net loans					$	3,622,596					$	3,816,482

	December 31, 2017						December 31, 2018
(dollars in thousands)	New York and other states*		Florida		Total		New York and other states*		Florida		Total
Commercial:
Commercial real estate	$	149,368		12,524		161,892	$	156,278		15,275		171,553
Other		23,606		709		24,315		24,330		263		24,593
Real estate mortgage - 1 to 4 family:
First mortgages		2,286,148		765,929		3,052,077		2,442,711		845,166		3,287,877
Home equity loans		66,455		13,989		80,444		71,523		17,308		88,831
Home equity lines of credit		263,275		45,641		308,916		243,765		45,775		289,540
Installment		7,141		1,622		8,763		9,462		2,240		11,702
Total loans, net	$	2,795,993		840,414		3,636,407	$	2,948,069		926,027		3,874,096
Less: Allowance for loan losses						44,170						44,766
Net loans					$	3,592,237					$	3,829,330

*Includes New York, New Jersey, Vermont and ~~Massachusetts~~Massachusetts.

At March 31, ~~2018~~2019 and December 31, ~~2017,~~2018, the Company had approximately ~~$28.4~~$27.2 million and ~~$30.9~~$26.7 million of real estate construction loans, respectively. Of the ~~$28.4~~$27.2 million in real estate construction loans at March 31, ~~2018,~~2019, approximately ~~$20.4~~$13.8 million are secured by first mortgages to residential borrowers while approximately ~~$8.0~~$13.4 million were to commercial borrowers for residential construction projects. Of the ~~$30.9~~$26.7 million in real estate construction loans at December 31, ~~2017,~~2018, approximately ~~$21.1~~$14.2 million are secured by first mortgages to residential borrowers while approximately ~~$9.8~~$12.5 million were to commercial borrowers for residential construction projects. The vast majority of construction loans are in the Company’s New York market.

~~Index~~

~~TrustCo~~The Company 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.

Index

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

	March 31, 2018						March 31, 2019
(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	$	1,100		-		1,100	$	696		-		696
Other		113		-		113		5		-		5
Real estate mortgage - 1 to 4 family:
First mortgages		17,687		2,025		19,712		18,282		1,542		19,824
Home equity loans		200		-		200		363		-		363
Home equity lines of credit		3,538		128		3,666		3,698		102		3,800
Installment		19		4		23		26		-		26
Total non-accrual loans		22,657		2,157		24,814		23,070		1,644		24,714
Restructured real estate mortgages - 1 to 4 family		38		-		38		33		-		33
Total nonperforming loans	$	22,695		2,157		24,852	$	23,103		1,644		24,747

	December 31, 2017						December 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	$	1,443		-		1,443	$	639		-		639
Other		100		-		100		6		-		6
Real estate mortgage - 1 to 4 family:
First mortgages		16,654		2,259		18,913		18,202		1,812		20,014
Home equity loans		93		-		93		247		-		247
Home equity lines of credit		3,603		130		3,733		3,924		103		4,027
Installment		57		-		57		4		15		19
Total non-accrual loans		21,950		2,389		24,339		23,022		1,930		24,952
Restructured real estate mortgages - 1 to 4 family		38		-		38		34		-		34
Total nonperforming loans	$	21,988		2,389		24,377	$	23,056		1,930		24,986

* Includes New York, New Jersey, Vermont and Massachusetts.

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 March 31, ~~2018~~2019 and December 31, ~~2017,~~2018, other real estate owned included ~~$2.2 million~~$703 thousand and ~~$2.7~~$1.1 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 ~~$12.7 million and $12~~.6$12.4 million as of March 31, ~~2018~~2019 and December 31, ~~2017, respectively.~~2018.

Index

The following tables present the aging of the recorded investment in past due loans by loan class and by region as of March 31, ~~2018~~2019 and December 31, ~~2017:~~2018:

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

Florida:
													March 31, 2019

New York and other states*:													30-59 Days Past Due		60-89 Days Past Due		90 + Days Past Due		Total 30+ days Past Due		Current		Total Loans
(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	$	-		-		-		-		11,709		11,709	$	96		-		565		661		152,070		152,731
Other		-		-		-		-		604		604		-		-		-		-		21,983		21,983
Real estate mortgage - 1 to 4 family:
First mortgages		243		103		940		1,286		782,718		784,004		2,798		780		13,471		17,049		2,421,683		2,438,732
Home equity loans		-		-		-		-		14,193		14,193		16		27		209		252		71,501		71,753
Home equity lines of credit		16		-		50		66		44,105		44,171		913		341		1,999		3,253		234,621		237,874
Installment		13		5		4		22		986		1,008		70		47		26		143		9,900		10,043

Total	$	272		108		994		1,374		854,315		855,689	$	3,893		1,195		16,270		21,358		2,911,758		2,933,116

Total:
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		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		159,909		161,066	$	-		-		-		-		15,386		15,386
Other		-		-		113		113		23,950		24,063		-		-		-		-		247		247
Real estate mortgage - 1 to 4 family:
First mortgages		5,074		862		10,573		16,509		3,073,005		3,089,514		603		158		571		1,332		846,112		847,444
Home equity loans		-		-		162		162		81,872		82,034		-		50		-		50		18,214		18,264
Home equity lines of credit		617		10		2,116		2,743		299,142		301,885		120		-		50		170		43,990		44,160
Installment		36		18		17		71		8,342		8,413		5		19		-		24		2,512		2,536

Total	$	5,727		1,026		14,002		20,755		3,646,220		3,666,975	$	728		227		621		1,576		926,461		928,037

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	$	96		-		565		661		167,456		168,117
Other		-		-		-		-		22,230		22,230
Real estate mortgage - 1 to 4 family:
First mortgages		3,401		938		14,042		18,381		3,267,795		3,286,176
Home equity loans		16		77		209		302		89,715		90,017
Home equity lines of credit		1,033		341		2,049		3,423		278,611		282,034
Installment		75		66		26		167		12,412		12,579

Total	$	4,621		1,422		16,891		22,934		3,838,219		3,861,153

* Includes New York, New Jersey, Vermont and Massachusetts.

Index

	December 31, 2018

New York and other states*:	30-59 Days Past Due		60-89 Days Past Due		90 + Days Past Due		Total 30+ days Past Due		Current		Total Loans
(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	$	198		-		370		568		155,710		156,278
Other		-		-		-		-		24,330		24,330
Real estate mortgage - 1 to 4 family:
First mortgages		3,276		898		13,267		17,441		2,425,270		2,442,711
Home equity loans		158		94		212		464		71,059		71,523
Home equity lines of credit		963		348		1,691		3,002		240,763		243,765
Installment		44		29		2		75		9,387		9,462

Total	$	4,639		1,369		15,542		21,550		2,926,519		2,948,069

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	$	-		-		-		-		15,275		15,275
Other		-		-		-		-		263		263
Real estate mortgage - 1 to 4 family:
First mortgages		417		407		721		1,545		843,621		845,166
Home equity loans		50		-		-		50		17,258		17,308
Home equity lines of credit		40		-		50		90		45,685		45,775
Installment		12		7		15		34		2,206		2,240

Total	$	519		414		786		1,719		924,308		926,027

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	$	198		-		370		568		170,985		171,553
Other		-		-		-		-		24,593		24,593
Real estate mortgage - 1 to 4 family:
First mortgages		3,693		1,305		13,988		18,986		3,268,891		3,287,877
Home equity loans		208		94		212		514		88,317		88,831
Home equity lines of credit		1,003		348		1,741		3,092		286,448		289,540
Installment		56		36		17		109		11,593		11,702

Total	$	5,158		1,783		16,328		23,269		3,850,827		3,874,096

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

Commercial:
Commercial real estate $ 183 174 1,332 1,689 147,679 149,368
Other - - 100 100 23,506 23,606
Real estate mortgage - 1 to 4 family:
First mortgages 5,669 1,300 9,014 15,983 2,270,165 2,286,148
Home equity loans 6 - 45 51 66,404 66,455
Home equity lines of credit 489 18 2,139 2,646 260,629 263,275
Installment 46 17 25 88 7,053 7,141

Total $ 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

* Includes New York, New Jersey, Vermont and Massachusetts.

~~Index~~

At March 31, ~~2018~~2019 and December 31, ~~2017,~~2018, 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~~non-accrual or restructured loans.

Index

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

										For the three months ended March 31, 2019
(dollars in thousands)	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	$	4,324			39,077		769		44,170	$	4,048			39,772		946		44,766
Loans charged off:
New York and other states*		-			131		71		202		7			392		29		428
Florida		-			-		3		3		-			29		31		60
Total loan chargeoffs		-			131		74		205
Total loan chargeoffss											7			421		60		488

Recoveries of loans previously charged off:
New York and other states*		6			103		6		115		3			74		6		83
Florida		-			-		-		-		-			10		-		10
Total recoveries		6			103		6		115		3			84		6		93
Net loans charged off (recoveries)		(6	)		28		68		90
Net loans charged off											4			337		54		395
Provision for loan losses		(75	)		310		64		300		(310	)		550		60		300
Balance at end of period	$	4,255			39,359		765		44,379	$	3,734			39,985		952		44,671

											For the three months ended March 31, 2018
(dollars in thousands)	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	$	4,929			38,231		730			43,890	$	4,324			39,077		769		44,170
Loans charged off:
New York and other states*		72			430		41			543		-			131		71		202
Florida		-			84		2			86		-			-		3		3
Total loan chargeoffs		72			514		43			629		-			131		74		205

Recoveries of loans previously charged off:
New York and other states*		8			169		10			187		6			103		6		115
Florida		-			-		-			-		-			-		-		-
Total recoveries		8			169		10			187		6			103		6		115
Net loans charged off		64			345		33			442
Net loans charged off (recoveries)												(6	)		28		68		90
Provision for loan losses		(55	)		695		(40	)		600		(75	)		310		64		300
Balance at end of period	$	4,810			38,581		657			44,048	$	4,255			39,359		765		44,379

*Includes New York, New Jersey, Vermont and ~~Massachusetts~~Massachusetts.

The Company has identified ~~non~~-~~accrual~~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.

Index

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 March 31, ~~2018~~2019 and December 31, ~~2017:~~2018:

	March 31, 2018								March 31, 2019
(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		4,255		39,359		765		44,379		3,734		39,985		952		44,671

Total ending allowance balance	$	4,255		39,359		765		44,379	$	3,734		39,985		952		44,671

Loans:
Individually evaluated for impairment	$	1,923		22,510		-		24,433	$	1,467		19,694		-		21,161
Collectively evaluated for impairment		183,206		3,450,923		8,413		3,642,542		188,880		3,638,533		12,579		3,839,992

Total ending loans balance	$	185,129		3,473,433		8,413		3,666,975	$	190,347		3,658,227		12,579		3,861,153

	December 31, 2017								December 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		4,324		39,077		769		44,170		4,048		39,772		946		44,766

Total ending allowance balance	$	4,324		39,077		769		44,170	$	4,048		39,772		946		44,766

Loans:
Individually evaluated for impairment	$	2,248		22,032		-		24,280	$	1,424		20,864		-		22,288
Collectively evaluated for impairment		183,959		3,419,405		8,763		3,612,127		194,722		3,645,384		11,702		3,851,808

Total ending loans balance	$	186,207		3,441,437		8,763		3,636,407	$	196,146		3,666,248		11,702		3,874,096

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 March 31, ~~2018~~2019 and December 31, ~~2017~~2018 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.

Index

The following tables present impaired loans by loan class as of March 31, ~~2018~~2019 and December 31, ~~2017:~~2018:

New York and other states:
	March 31, 2018								March 31, 2019

New York and other states*:									Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment
(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	$	1,710		2,680		-		2,264	$	1,319	$	1,490		-		1,281
Other		213		213		-		107		37		87		-		132
Real estate mortgage - 1 to 4 family:
First mortgages		16,177		16,940		-		16,075		14,922		15,233		-		14,944
Home equity loans		265		285		-		267		247		267		-		252
Home equity lines of credit		2,751		2,992		-		2,692		2,161		2,301		-		2,585

Total	$	21,116		23,110		-		21,405	$	18,686		19,378		-		19,194

Florida:

(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	$	-		-		-		-	$	111		111		-		84
Other		-		-		-		-		-		-		-		-
Real estate mortgage - 1 to 4 family:
First mortgages		2,687		2,793		-		2,694		2,030		2,030		-		2,291
Home equity loans		88		88		-		88		82		82		-		85
Home equity lines of credit		542		542		-		521		252		252		-		253

Total	$	3,317		3,423		-		3,303	$	2,475		2,475		-		2,713

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	$	1,710		2,680		-		2,264	$	1,430		1,601		-		1,365
Other		213		213		-		107		37		87		-		132
Real estate mortgage - 1 to 4 family:
First mortgages		18,864		19,733		-		18,769		16,952		17,263		-		17,235
Home equity loans		353		373		-		355		329		349		-		337
Home equity lines of credit		3,293		3,534		-		3,213		2,413		2,553		-		2,838

Total	$	24,433		26,533		-		24,708	$	21,161		21,853		-		21,907

* Includes New York, New Jersey, Vermont and Massachusetts.

Index

New York and other states:
	December 31, 2017								December 31, 2018

New York and other states*:									Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment
(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	$	2,148		3,120		-		2,711	$	1,274		1,444		-		1,503
Other		100		100		-		87		38		88		-		123
Real estate mortgage - 1 to 4 family:
First mortgages		15,850		16,540		-		16,508		15,210		15,661		-		15,577
Home equity loans		270		291		-		263		252		272		-		262
Home equity lines of credit		2,606		2,847		-		2,193		2,772		2,996		-		2,772

Total	$	20,974		22,898		-		21,762	$	19,546		20,461		-		20,237

Florida:

(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	$	-		-		-		-	$	112		112		-		57
Other		-		-		-		-		-		-		-		-
Real estate mortgage - 1 to 4 family:
First mortgages		2,707		2,813		-		2,335		2,293		2,399		-		2,455
Home equity loans		89		89		-		92		84		84		-		86
Home equity lines of credit		510		510		-		561		253		253		-		326

Total	$	3,306		3,412		-		2,988	$	2,742		2,848		-		2,924

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	$	2,148		3,120		-		2,711	$	1,386		1,556		-		1,560
Other		100		100		-		87		38		88		-		123
Real estate mortgage - 1 to 4 family:
First mortgages		18,557		19,353		-		18,843		17,503		18,060		-		18,032
Home equity loans		359		380		-		355		336		356		-		348
Home equity lines of credit		3,116		3,357		-		2,754		3,025		3,249		-		3,098

Total	$	24,280		26,310		-		24,750	$	22,288		23,309		-		23,161

* Includes New York, New Jersey, Vermont and Massachusetts.

Index

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 months ended March 31, ~~2018~~2019 and ~~2017~~.2018.

As of March 31, ~~2018~~2019 and December 31, ~~2017~~2018 impaired loans included approximately ~~$11.1~~$10.9 million and ~~$11.8~~$11.1 million of loans in accruing status that were identified as TDR’s in accordance with regulatory guidance related to Chapter 7 bankruptcy ~~loans~~.loans.

Management evaluates impairment on impaired loans on a quarterly basis. If, during this evaluation, impairment of the loan is identified, a ~~charge off~~chargeoff is taken at that time. As a result, as of March 31, ~~2018~~2019 and December 31, ~~2017,~~2018, 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 3/31/2019						Three months ended 3/31/2018
	Three months ended 3/31/2018						Three months ended 3/31/2017
New York and other states*:			Pre-Modification		Post-Modification				Pre-Modification		Post-Modification		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
(dollars in thousands)	Number of Contracts		Outstanding Recorded Investment		Outstanding Recorded Investment		Number of Contracts		Outstanding Recorded Investment		Outstanding Recorded Investment		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	$	642	$	642		11	$	1,947	$	1,947		4	$	656		656		4	$	642		642
Home equity loans		-		-		-		1		13		13		-		-		-		-		-		-
Home equity lines of credit		3		240		240		4		158		158		-		-		-		3		240		240

Total		7	$	882	$	882		16	$	2,118	$	2,118		4	$	656	$	656		7	$	882	$	882

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

Florida:

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

(dollars in thousands)

Commercial:

Commercial real estate

Real estate mortgage - 1 to 4 family:

First mortgages

Home equity loans

Home equity lines of credit

Total

* Includes New York, New Jersey, Vermont and Massachusetts.

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

In situations where the Bank 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.

Index

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.

The following table presents, by class, TDR’s that defaulted during the three months ended March 31, ~~2018~~2019 and ~~2017~~2018 which had been modified within the last twelve months:

~~Index~~

	Three months ended 3/31/2018				Three months ended 3/31/2017				Three months ended 3/31/2019				Three months ended 3/31/2018
New York and other states*:	Number of		Recorded		Number of		Recorded		Number of Contracts		Recorded Investment		Number of Contracts		Recorded Investment
(dollars in thousands)	Contracts		Investment		Contracts		Investment		Number of Contracts		Recorded Investment		Number of Contracts		Recorded Investment

Commercial:
Commercial real estate										-	$	-		-	$	-
Real estate mortgage - 1 to 4 family:
First mortgages		-	$	-		-	$	-		-	$	-		-	$	-
Home equity lines of credit		1		3		-		-		-		-		1		3

Total		1	$	3		-	$	-		-	$	-		1	$	3

Florida:
(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

Commercial:
Commercial real estate										-	$	-		-	$	-
Real estate mortgage - 1 to 4 family:
First mortgages		1	$	72		1	$	80		-	$	-		1	$	72
Home equity lines of credit		-		-		1		70		-		-		-		-

Total		1	$	72		2	$	150		-	$	-		1	$	72

* Includes New York, New Jersey, Vermont and Massachusetts.

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

The Company categorizes commercial 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.

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.

Index

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.

~~Index~~

As of March 31, ~~2018~~2019 and December 31, ~~2017,~~2018, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

	March 31, 2018						March 31, 2019
New York and other states:

New York and other states*:
(dollars in thousands)							Pass		Classified		Total
	Pass		Classified		Total
Commercial:
Commercial real estate	$	142,463		6,894		149,357	$	148,784		3,947		152,731
Other		21,842		1,617		23,459		20,985		998		21,983

	$	164,305		8,511		172,816	$	169,769		4,945		174,714

Florida:
(dollars in thousands)	Pass		Classified		Total

Commercial:
Commercial real estate	$	15,386		-		15,386
Other		247		-		247

	$	15,633		-		15,633

Total:
(dollars in thousands)	Pass		Classified		Total

Commercial:
Commercial real estate	$	164,170		3,947		168,117
Other		21,232		998		22,230

	$	185,402		4,945		190,347

~~Florida:~~* Includes New York, New Jersey and Massachusetts.

~~(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

Index

	December 31, 2018

New York and other states:
(dollars in thousands)	Pass		Classified		Total

Commercial:
Commercial real estate	$	152,045		4,233		156,278
Other		23,331		999		24,330

	$	175,376		5,232		180,608

	December 31, 2017
New York and other states:

Florida:
(dollars in thousands)							Pass		Classified		Total
	Pass		Classified		Total
Commercial:
Commercial real estate	$	140,806		8,562		149,368	$	15,163		112		15,275
Other		21,936		1,670		23,606		263		-		263

	$	162,742		10,232		172,974	$	15,426		112		15,538

Total:
(dollars in thousands)	Pass		Classified		Total

Commercial:
Commercial real estate	$	167,208		4,345		171,553
Other		23,594		999		24,593

	$	190,802		5,344		196,146

~~Florida:~~* Includes New York, New Jersey and Massachusetts.

~~(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 impaired loans of ~~$1.9~~$1.5 million and ~~$2.2~~$1.4 million at March 31, ~~2018~~2019 and December 31, ~~2017,~~2018, 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 Bank’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 March 31, ~~2018~~2019 and December 31, ~~2017~~2018 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 March 31, ~~2018~~2019 and December 31, ~~2017~~2018 is presented in the non-accrual loans table.

Index

(6) Fair Value of Financial Instruments

Fair 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:

~~Index~~

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. 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.

Index

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.

~~Index~~

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:
	Fair Value Measurements at March 31, 2018 Using:
													Fair Value Measurements at
	Carrying Value			Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)			March 31, 2019 Using:
(dollars in thousands)													Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)

Securities available for sale:
U.S. government sponsored enterprises		$	151,327		$	-		$	151,327		$	-	$	148,292	$	-	$	148,292	$	-
State and political subdivisions			525			-			525			-		172		-		172		-
Mortgage backed securities and collateralized mortgage obligations - residential			297,633			-			297,633			-		312,946		-		312,946		-
Corporate bonds			35,227			-			35,227			-		30,258		-		30,258		-
Small Business Administration- guaranteed participation securities			64,113			-			64,113			-		54,113		-		54,113		-
Mortgage backed securities and collateralized mortgage obligations - commercial			9,573			-			9,573			-
Other securities			685			-			685			-		685		-		685		-

Total securities available for sale		$	559,083			-			559,083			-	$	546,466	$	-	$	546,466	$	-

	Fair Value Measurements at December 31, 2017 Using:
	Fair Value Measurements at December 31, 2017 Using:
													Fair Value Measurements at
	Carrying Value			Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)			December 31, 2018 Using:
(dollars in thousands)													Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)

Securities available for sale:
U.S. government sponsored enterprises		$	137,851		$	-		$	137,851		$	-	$	152,160	$	-	$	152,160	$	-
State and political subdivisions			525			-			525			-		173		-		173		-
Mortgage backed securities and collateralized mortgage obligations - residential			315,983			-			315,983			-		262,032		-		262,032		-
Corporate bonds			40,162			-			40,162			-		29,938		-		29,938		-
Small Business Administration- guaranteed participation securities			67,059			-			67,059			-		56,475		-		56,475		-
Mortgage backed securities and collateralized mortgage obligations - commercial			9,700			-			9,700			-
Other securities			685			-			685			-		685		-		685		-

Total securities available for sale		$	571,965			-			571,965			-	$	501,463	$	-	$	501,463	$	-

~~Index~~

There were no transfers between Level 1 and Level 2 during the three months ended March 31, ~~2018~~2019 and ~~2017~~2018.

.27

Index

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

	Fair Value Measurements at March 31, 2018 Using:
														Fair Value Measurements at
	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)			March 31, 2019 Using:
(dollars in thousands)														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)

Other real estate owned	$	2,190	$	-	$	-	$	2,190	Sales comparison approach	Adjustments for differences between comparable sales		1% - 14% (7	%)	$	1,261	$	-	$	-	$	1,261	Sales comparison approach	Adjustments for differences between comparable sales		1% - 14% (7	%)

Impaired loans:

Real estate mortgage - 1 to 4 family		750		-		-		750	Sales comparison approach	Adjustments for differences between comparable sales		5% - 14% (10	%)		439		-		-		439	Sales comparison approach	Adjustments for differences between comparable sales		5% - 14% (10	%)

	Fair Value Measurements at December 31, 2017 Using:
														Fair Value Measurements at
	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)			December 31, 2018 Using:
(dollars in thousands)														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)

Other real estate owned	$	3,246	$	-	$	-	$	3,246	Sales comparison approach	Adjustments for differences between comparable sales		1% - 14% (7	%)	$	1,675	$	-	$	-	$	1,675	Sales comparison approach	Adjustments for differences between comparable sales		1% - 14% (7	%)

Impaired loans:

Real estate mortgage - 1 to 4 family		844		-		-		844	Sales comparison approach	Adjustments for differences between comparable sales		5% - 14% (10	%)		459		-		-		459	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 ~~$2.2~~$1.3 million at March 31, ~~2018~~2019 and consisted of ~~$358~~$560 thousand of commercial real estate and ~~$1.8 million~~$703 thousand of residential real estate properties. Valuation charges of ~~$199~~$140 thousand are included in earnings for the three months ended March 31, ~~2018.~~2019.

Of the total impaired loans of ~~$24.8~~$21.2 million at March 31, ~~2018, $750~~2019, $439 thousand of residential mortgages are collateral dependent and are carried at fair value measured on a non-recurring basis. Due to the sufficiency of ~~charge offs~~chargeoffs taken on these loans and the adequacy of the underlying collateral, there were no specific valuation allowances for these loans at March 31, ~~2018.~~2019. Gross ~~charge offs~~chargeoffs related to residential impaired loans included in the table above were ~~$36~~$19 thousand for the three months ended March 31, ~~2018~~.2019.

Other real estate owned, that is carried at fair value less costs to sell, was approximately ~~$3.2~~$1.7 million at December 31, ~~2017~~2018 and consisted of ~~$541~~$560 thousand of commercial real estate and ~~$2.7~~$1.1 million of residential real estate properties. A valuation charge of ~~$1.1 million~~$769 thousand is included in earnings for the year ended December 31, ~~2017~~.2018.

Of the total impaired loans of ~~$24~~.1$22.3 million at December 31, ~~2017, $844~~2018, $459 thousand are collateral dependent and are carried at fair value measured on a non-recurring basis. Due to the sufficiency of ~~charge offs~~chargeoffs taken on these loans and the adequacy of the underlying collateral, there were no specific valuation allowances for these loans at December 31, ~~2017.~~2018. Gross ~~charge offs~~chargeoffs related to residential impaired loans included in the table above amounted to ~~$151~~$67 thousand at December 31, ~~2017~~.2018.

Index

The carrying amounts and estimated fair values (represents exit price) of financial instruments, at March 31, ~~2018~~2019 and December 31, ~~2017~~2018 are as follows:

(dollars in thousands)			Fair Value Measurements at										Fair Value Measurements at
	Carrying		March 31, 2018 Using:								Carrying		March 31, 2019 Using:
	Value		Level 1		Level 2		Level 3		Total		Value		Level 1		Level 2		Level 3		Total
Financial assets:
Cash and cash equivalents	$	617,170		617,170		-		-		617,170	$	619,187		619,187		-		-		619,187
Securities available for sale		559,083		35		559,048		-		559,083		546,466		-		546,466		-		546,466
Held to maturity securities		26,174		-		26,994		-		26,994		21,609		-		22,283		-		22,283
Federal Reserve Bank and Federal
Home Loan Bank stock		8,779		N/A		N/A		N/A		N/A		8,953		N/A		N/A		N/A		N/A
Net loans		3,622,596		-		-		3,598,673		3,598,673		3,861,153		-		-		3,781,951		3,781,951
Accrued interest receivable		10,579		85		2,611		7,883		10,579		11,354		149		2,214		8,991		11,354
Financial liabilities:
Demand deposits		403,782		403,782		-		-		403,782		408,417		408,417		-		-		408,417
Interest bearing deposits		3,831,298		2,721,854		1,122,106		-		3,843,960		4,004,652		2,583,471		1,415,390		-		3,998,861
Short-term borrowings		203,910		-		203,910		-		203,910		159,778		-		159,778		-		159,778
Accrued interest payable		665		75		590		-		665		1,472		176		1,296		-		1,472

(dollars in thousands)			Fair Value Measurements at										Fair Value Measurements at
	Carrying		December 31, 2017 Using:								Carrying		December 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	$	612,740		612,740		-		-		612,740	$	503,709		503,709		-		-		503,709
Securities available for sale		571,965		35		571,930		-		571,965		501,463		-		501,463		-		501,463
Held to maturity securities		27,551		-		28,701		-		28,701		22,501		-		22,924		-		22,924
Federal Reserve Bank and Federal
Home Loan Bank stock		8,779		N/A		N/A		N/A		N/A		8,953		N/A		N/A		N/A		N/A
Net loans		3,692,237		-		-		3,598,213		3,598,213		3,829,330		-		-		3,753,966		3,753,966
Accrued interest receivable		11,441		243		2,440		8,758		11,441		11,341		353		2,371		8,617		11,341
Financial liabilities:
Demand deposits		398,399		398,399		-		-		398,399		405,069		405,069		-		-		405,069
Interest bearing deposits		3,774,927		2,707,961		1,076,213		-		3,784,174		3,869,178		2,594,672		1,264,772		-		3,859,444
Short-term borrowings		242,991		-		242,991		-		242,991		161,893		-		161,893		-		161,893
Accrued interest payable		537		77		460		-		537		1,024		104		920		-		1,024

Index

(7) Accumulated Other Comprehensive Income (Loss)

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

Three months ended 3/31/18
(dollars in thousands)
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 $ (5,030 ) (5,302 ) - (5,302 ) (10,332 )
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 $ (1,806 ) (5,302 ) (1,382 ) (5,338 ) (8,490 )

	Three months ended 3/31/2019
(dollars in thousands)	Balance at 12/31/2018			Other Comprehensive Income (loss)- Before Reclassifications		Amount reclassified from Accumulated Other Comprehensive Income			Other Comprehensive Income (loss)- Three months ended 3/31/2019			Balance at 3/31/2019

Net unrealized holding loss on securities available for sale, net of tax	$	(10,416	)		3,396		-			3,396			(7,020	)
Net change in overfunded position in pension and postretirement plans arising during the year, net of tax		423			-		-			-			423
Net change in net actuarial loss and prior service credit on pension and postretirement benefit plans, net of tax		(316	)		-		(98	)		(98	)		(414	)

Accumulated other comprehensive loss, net of tax	$	(10,309	)		3,396		(98	)		3,298			(7,011	)

															Three months ended 3/31/2018
(dollars in thousands)	Three months ended 3/31/2017														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
	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	$	(6,762	)		707		-			707			(6,055	)

Net unrealized holding (gain) loss on securities available for sale, net of tax															$	(5,030	)		(5,302	)		-			(5,302	)		(10,332	)
Net change in overfunded position in pension and postretirement plans arising during the year, net of tax																3,054			-			-			-			3,054
Net change in net actuarial (gain) loss and prior service cost on pension and postretirement benefit plans, net of tax		511			-		(24	)		(24	)		487			170			-			(36	)		(36	)		134
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	$	(6,251	)		707		(24	)		683			(5,568	)	$	(1,806	)		(5,302	)		(1,382	)		(5,338	)		(8,490	)

The following represents the reclassifications out of accumulated other comprehensive income (loss) for the three months ended March 31, ~~2018~~2019 and ~~2017:~~2018:

								Three months ended
								March 31,
(dollars in thousands)	Three months ended March 31,							2019			2018			Affected Line Item in Financial Statements
	2018			2017			Affected Line Item in Statements

Amortization of pension and postretirement benefit items

Amortization of net actuarial (gain) loss	$	(72	)	$	(63	)	Salaries and employee benefits
Amortization of pension and postretirement benefit items:
Amortization of net actuarial gain (loss)								$	48			(72	)	Salaries and employee benefits
Amortization of prior service cost		23			23		Salaries and employee benefits		85			23		Salaries and employee benefits
Income tax benefit		13			16		Income taxes		(35	)		13		Income taxes
Net of tax		(36	)		(24	)			98			(36	)

Total reclassifications, net of tax	$	(36	)	$	(24	)		$	98			(36	)

Index

(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~~2019 and ~~2017.~~2018. Items outside the scope of ASC 606 are noted as such.

~~Index~~

(dollars in thousands)	Three months ended
	March 31,				Three months ended
	2018		2017		March 31,
(dollars in thousands)					2019		2018

Non-interest income
Service Charges on Deposits
Overdraft fees	$	827	$	859	$	850	$	827
Other		114		79		110		114
Interchange Income		1,306		1,266		1,531		1,306
Wealth management fees		1,815		1,858		1,733		1,815
Other (a)		617		665		413		617

Total non-interest income	$	4,679	$	4,727	$	4,637	$	4,679

(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~~Accounts:: The Company earns fees from its deposit customers for ~~transaction-based,~~transaction‑based, account maintenance and overdraft services. ~~Transaction-based~~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~~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 transaction processing services provided to the ~~cardholder~~.cardholder.

Wealth Management fees: ~~Trustco~~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 fair 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~~real Estate Owned “OREO”:The Company records a gain or loss from the sale of OREO when control of the property transfers to the buyer, 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 transaction price is probable. Once these criteria are met, the OREO asset is derecognized and the gain or loss on sale is recorded upon the transfer of control of the property to the buyer. In determining the gain or loss on the sale, the Company adjusts the transaction price and related gain/(loss) on sale if a significant financing component is present.

Index

(9) ~~New Accounting Pronouncements~~Operating Leases

~~In May 2014,~~The Company adopted Topic 842 “Leases” effective January 1, 2019 and has applied the ~~FASB issued Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers (Topic 606)”~~guidance to all operating leases within the scope of Topic 842 at that date. The company elected to adopt practical expedients, which ~~implements a common revenue standard that clarifies the principles for recognizing revenue. The core principle~~among other things, does not require reassessment 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.lease classification.

The Company has ~~adopted this ASU~~committed to rent premises used in business operations under non-cancelable operating leases and determines if an arrangement meets the definition of a lease upon inception. Operating leases are included in operating lease right-of-use (“ROU”) assets and operating lease liabilities on the Company’s balance sheets.

Operating lease ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and lease liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. The Company’s leases do not provide an implicit rate, therefore the Company used its incremental collateralized borrowing rates commensurate with the underlying lease terms to determine present value of operating lease liabilities. Additionally, the Company does allocate the consideration between lease and non-lease components. The Company’s lease terms may include options to extend when it is reasonably certain that the Company will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term. Variable lease components, such as fair market value adjustments, are expensed as incurred and not included in ROU assets and operating lease liabilities. Leases with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term. As of January 1, 2019 the Company did not have any leases with terms of twelve months or less.

As of March 31, 2019 the Company does not have leases that have not yet commenced. At March 31, 2019 lease expiration dates ranged from two months to 25.5 years and have a weighted average remaining lease term of 9.8 years. Certain leases provide for increases in future minimum annual rental payments as defined in the lease agreements. As mentioned above the leases generally also include variable lease components which include real estate taxes, insurance, and common area maintenance (“CAM”) charges in the annual rental payments.

Other information related to leases was as follows:

(dollars in thousands)	Three months ended March 31,
	2019		2018
Operating lease cost	$	1,891	$	1,912
Variable lease cost		466		586

Total Lease costs	$	2,357	$	2,498

(dollars in thousands)	Three months ended March 31,
	2019
Supplemental cash flows information:
Cash paid for amounts included in the measurement of
lease liabilities:
Operating cash flows from operating leases	$	1,949

Right-of-use assets obtained in exchange for lease obligations:		53,029

Weighted average remaining lease term	9.8 years
Weighted average discount rate		3.30	%

Index

Future minimum lease payments under non-cancellable leases as of March 31, 2019 were as follows:

(dollars in thousands)

Year ending December 31,
2019^(a)	$	5,799
2020		7,675
2021		7,613
2022		7,139
2023		6,812
Thereafter		32,254
Total lease payments	$	67,292
Less: Interest		10,569

Present value of lease liabilities	$	56,723

^(a)Excluding three months ended March 31, 2019.

The company has not recognized any options to extend as part of its ROU assets or lease liabilities.

The following table presents the minimum annual lease payments under the terms of these leases, exclusive of renewal provisions at December 31, 2018:

(dollars in thousands)

2019	$	7,799
2020		7,622
2021		7,555
2022		7,048
2023		6,673
2024 and after		32,722
	$	69,419

At December 31, 2018, lease expiration dates ranged from five months to 25.8 years.

(10) Regulatory Capital Requirements

Banks and bank holding companies are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy regulations and, additionally for banks, the prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can result in regulatory action. The final rules implementing Basel Committee on Banking Supervision’s capital guidelines for U.S. banks (Basel III rules) became effective for the Company on January 1, ~~2018. Upon adoption~~2015 with full compliance with all of the ~~Company determined that there were no accumulated adjustments needed~~requirements being phased in over a multi-year schedule, and ~~no changes to the patterns on how the company recognized revenue. The Company did add disclosures for the items in-scope as described~~became fully phased 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. The ASU was adopted on January 1, ~~2018,~~2019. The capital rules include a capital conservation buffer that is designed to absorb losses during periods of economic stress and ~~does not significantly impact~~to require increased capital levels before capital distributions and certain other payments can be made. Failure to meet the full amount of the buffer will result in restrictions on the Company’s ~~consolidated~~ability to make capital distributions, including dividend payments and stock repurchases, and to pay discretionary bonuses to executive officers. The buffer was fully implemented at 2.5% as of January 1, 2019. Management believes, as of March 31, 2019, the Company and Bank meet all capital adequacy requirements to which they are subject.

Index

Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If a bank is not classified as well capitalized, regulatory approval is required to accept brokered deposits. If a bank is undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. The federal banking agencies are required to take certain supervisory actions (and may take additional discretionary actions) with respect to an undercapitalized institution or its holding company. Such actions could have a direct material effect on an institution’s or its holding company’s financial statements. ~~The Company has amended disclosures to comply with~~As of March 31, 2019 and December 31, 2018, the ~~exit price notion~~most recent regulatory notifications categorized the Bank as ~~required~~well capitalized under the ~~ASU~~regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the ~~period ended~~Bank’s category.

The Bank and the Company reported the following capital ratios as of March 31, ~~2018.~~2019 and December 31, 2018:

(Bank Only)

	As of March 31, 2019					Well Capitalized⁽¹⁾			Adequately Capitalized⁽¹⁾⁽²⁾
(dollars in thousands)	Amount		Ratio			Well Capitalized⁽¹⁾			Adequately Capitalized⁽¹⁾⁽²⁾

Tier 1 leverage capital	$	492,918		9.760	%		5.000	%		4.000	%
Common equity tier 1 capital		492,918		18.299			6.500			7.000
Tier 1 risk-based capital		492,918		18.299			8.000			8.500
Total risk-based capital		526,727		19.555			10.000			10.500

	As of December 31, 2018					Well			Adequately
(dollars in thousands)	Amount		Ratio			Capitalized⁽¹⁾			Capitalized⁽¹⁾⁽³⁾

Tier 1 (core) capital	$	484,581		9.767	%		5.000	%		4.000	%
Common equity tier 1 capital		484,581		18.233			6.500			6.380
Tier 1 risk-based capital		484,581		18.233			8.000			7.880
Total risk-based capital		517,948		19.489			10.000			9.880

(Consolidated)
						Minimum for Capital Adequacy plus Capital Conservation Buffer⁽¹⁾⁽²⁾

	As of March 31, 2019
(dollars in thousands)	Amount		Ratio

Tier 1 leverage capital	$	508,176		10.057	%		4.000	%
Common equity tier 1 capital		508,176		18.856			7.000
Tier 1 risk-based capital		508,176		18.856			8.500
Total risk-based capital		542,003		20.111			10.500

(dollars in thousands)						Minimum for Capital Adequacy plus Capital Conservation Buffer⁽¹⁾⁽²⁾
	As of December 31, 2018
	Amount		Ratio

Tier 1 leverage ratio	$	499,626		10.129	%		4.000	%
Common equity Tier 1 capital		499,626		18.790			6.380
Tier 1 risk-based capital		499,626		18.790			7.880
Total risk-based capital		533,009		20.046			9.880

(1)	Federal regulatory minimum requirements to be considered to be Well Capitalized and Adequately Capitalized

(2)	The March 31, 2019 common equity tier 1, tier 1 risk-based, and total risk-based capital ratios include a capital conservation buffer of 2.50 percent

(3)	The December 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

In 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.

Index

(11) New Accounting Pronouncements

In February 2016, the FASB issued ASU No. ~~2016-02, “Leases” which amended existing guidance~~2016 02, Leases (Topic 842) (“ASU 2016 02”). ASU 2016 02 is intended to ~~increase transparency and comparability among~~improve financial reporting of leasing transactions by requiring organizations ~~by recognizing~~that lease assets to recognize assets and ~~lease~~ liabilities for the rights and obligations created by leases that extend more than twelve months on the balance ~~sheet~~sheet. This accounting update also requires additional disclosures surrounding the amount, timing, and ~~disclosing key information about leasing arrangements. These amendments are~~uncertainty of cash flows arising from leases. ASU 2016 02 is effective for ~~public business entities~~financial statements issued for annual ~~periods~~ and interim ~~periods within those annual~~ periods beginning after December 15, ~~2018.~~2018 for public business entities. Early adoption is permitted. The Company ~~is evaluating~~elected to adopt ASU 2016 02 as of January 1, 2019. The Company has elected the package of practical expedients permitted in ASC Topic 842. Accordingly, the Company accounted for its existing operating leases as operating leases under the new guidance, without reassessing (a) whether the contracts contain a lease under ASC Topic 842, (b) whether classification of the operating leases would be different in accordance with ASC Topic 842, or (c) whether the unamortized initial direct costs before transition adjustments (as of December 31, 2018) would have met the definition of initial direct costs in ASC Topic 842 at lease commencement. The company has also elected the practical expedient to use hindsight in determining the lease term. As a result of the adoption of the new lease accounting guidance, the Company recognized on January 1, 2019 (a) a lease liability of approximately $58.2 million, which represents the present value of the remaining lease payments of approximately $69.4 million, discounted using the Company’s incremental borrowing rate, and (b) a ROU asset of approximately $53.0 million which represents the lease liability of $58.2 million adjusted for accrued rent of approximately $5.2 million. This standard did not have a material impact on the Company’s balance sheets or cash flows from operations and had no impact on the Company’s operating results. The most significant impact was the recognition of ~~ASU No. 2016-02 on its consolidated financial statements.~~ROU assets and lease liabilities for operating leases.

~~Index~~

In June 2016, the FASB released ASU 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, which includes developing a roadmap for implementation of the new standard.The Company’s committee meets regularly to evaluate the provisions of the ASU, to address the additional data requirements necessary, to determine the approach for implementation and to identify new internal controls over enhanced processes that will be put into place for estimating the allowance under ASU 2016-13. This has included assessing the adequacy of existing loan loss data, as well as developing models for default and loss estimates. The Company expects to continue the validation of models, the development of accounting policies and internal controls and the execution of “trial” or “parallel” runs of its ASU 2016-13 compliant methodology throughout 2019.

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	Crowe ~~Horwath~~ LLP
	Independent Member Crowe ~~Horwath International~~Global

~~Report of Independent Registered Public Accounting Firm~~

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Shareholders and the Board of Directors of ~~Trustco~~TrustCo Bank Corp NY

Glenville, New York

Results of Review of Interim Financial Information

We have reviewed the consolidated statement of financial condition of ~~Trustco~~TrustCo Bank Corp NY (the “Company”) as of March 31, ~~2018,~~2019, and the related consolidated statements of income and comprehensive income for the three-month periods ended March 31, 2019 and March 31, 2018 and the related changes in shareholders’ equity and cash flows for the three month periods ended March 31, ~~2018~~2019 and ~~2017,~~March 31, 2018, and the 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 referred to above for them to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated statement of financial condition of the Company as of December 31, ~~2017,~~2018, 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,~~2019, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated statement of financial condition as of December 31, ~~2017,~~2018, 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. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the company in accordance with the U.S federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and 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 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.

/s/ Crowe ~~Horwath~~ LLP

New York, New York

May ~~4, 2018~~3, 2019

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Item 2.

Management’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~~that 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, 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, ~~2017,~~2018, 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 continue to maintain noninterest expense and other overhead costs at reasonable levels relative to 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 charge-offs, changes in property values, and changes in estimates of the adequacy of the allowance for loan and 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 non objection from TrustCo’s and Trustco Bank’s primary federal banking regulators under regulatory rules 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 allowances or to take other actions that reduce capital or income;

adverse conditions in the securities markets that lead to impairment in the value of securities in TrustCo’s investment portfolio;

~~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;~~

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Index

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 regulatory capital requirements;

~~adverse conditions in the securities markets that lead to impairment in the value of securities in TrustCo’s investment portfolio;~~

changes in management personnel;

real estate and collateral values;

Unanticipated effects from the Tax & Jobs Act that may limit its benefits or adversely impact our business, which could include decreased demand for borrowing by our customers or increased price competition that offsets the benefits of decreased federal income tax expense;

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;

~~changes in consumer spending, borrowing and savings habits;~~

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, 2018.

~~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;~~

~~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, 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.

~~Index~~

Following this discussion are the tables “Distribution of Assets, Liabilities and Shareholders’ Equity: Interest Rates and Interest Differential” which gives a detailed breakdown of TrustCo’s average interest earning assets and interest bearing liabilities for the three month periods ended March 31, ~~2018~~2019 and ~~2017.~~2018.

Introduction

The review that follows focuses on the factors affecting the financial condition and results of operations of TrustCo during the three month periods ended March 31, ~~2018,~~2019, with comparisons to the corresponding period in ~~2017,~~2018, 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 ~~2017~~2018 Annual Report ~~to Shareholders~~ on Form 10-K, which was filed with the SEC on March 1, ~~2018,~~2019, 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’s presentation.

Index

During the first quarter of ~~2018~~2019 financial markets were influenced by both underlying economic conditions and by political developments. ~~US equity markets were very strong and ended the first quarter up significantly despite some weakness late in the quarter.~~ For the full first quarter, the S&P 500 Index was up ~~18.0%~~13.07% and the Dow Jones Industrial Average was up ~~22.0%~~11.15%. Credit markets continue to be driven by worldwide economic news and demand shifts between segments of the bond market as investors seek to capture yield. The shape of the yield curve continued to flatten during the quarter. The ~~10-year~~10‑year Treasury bond averaged ~~2.75%~~2.65% during Q1 ~~2018~~2019 compared to ~~2.37%~~3.04% in Q4 ~~2017, an increase~~2018, a decrease of 3839 basis points. The ~~2-year~~2‑year Treasury bond average rate ~~increased 45~~decreased 31 basis points to ~~2.15%~~2.49%, resulting in flattening of the curve. The spread between the ~~10-year~~10‑year and the 2-year Treasury bonds contracted from ~~0.68%~~0.24% on average in Q4 to ~~0.60%~~0.16% in 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 March 22, 2018 to~~remained flat in the first quarter, remaining at a range of ~~1.50%~~2.25% to ~~1.75%~~2.50%. Spreads of most asset classes to the comparative treasury yield, 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. Changes in rates and spreads during the current quarter were due to a number of factors; however, uncertainty about the timing of additional 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 (%)


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

Q2/18	Beg of Q2	1.73	2.27	2.56	2.74	0.47
	Peak	1.95	2.59	2.94	3.11	0.54
	Trough	1.71	2.25	2.55	2.73	0.31
	End of Q2	1.93	2.52	2.73	2.85	0.33
	Average in Q2	1.87	2.47	2.76	2.92	0.44

Q3/18	Beg of Q3	1.93	2.52	2.73	2.85	0.33
	Peak	2.22	2.83	2.99	3.10	0.27
	Trough	1.96	2.53	2.70	2.82	0.29
	End of Q3	2.19	2.81	2.94	3.05	0.24
	Average in Q3	2.07	2.67	2.81	2.92	0.25

Q4/18	Beg of Q4	2.19	2.81	2.94	3.05	0.24
	Peak	2.45	2.98	3.09	3.24	0.26
	Trough	2.19	2.48	2.51	2.69	0.21
	End of Q4	2.45	2.48	2.51	2.69	0.21
	Average in Q4	2.35	2.80	2.88	3.04	0.24

Q1/19	Beg of Q1	2.45	2.48	2.51	2.69	0.21
	Peak	2.49	2.62	2.62	2.79	0.17
	Trough	2.37	2.22	2.18	2.39	0.17
	End of Q1	2.40	2.27	2.23	2.41	0.14
	Average in Q1	2.44	2.49	2.46	2.65	0.16

3 Month
Yield (%)

2 Year
Yield (%)

5 Year
Yield (%)

10 Year
Yield (%)

10 - 2 Year
Spread (%)

Q1/17 Beg of Q1 0.16 1.06 1.76 2.27 1.21
Peak 0.79 1.40 2.14 2.62 1.30
Trough 0.50 1.12 1.80 2.31 1.11
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

Q2/17 Beg of Q2 0.76 1.27 1.93 2.40 1.13
Peak 1.04 1.38 1.94 2.42 1.11
Trough 0.79 1.18 1.71 2.14 0.78
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

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. 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, is beginning to be unwound based on general guidance released by the Fed in late 2017. Economic activity in Europe, China and elsewhere has also improved in some aspects, but remains mixed. Finally, regulatoryRegulatory 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 current 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. ~~The tax rate reductions in late 2017 contributed to the net income increase in the first quarter of 2018.~~

3840

Index

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 March 31, ~~2018,~~2019, 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 ~~$14.8~~$14.6 million, or ~~$0.153~~$0.150 of diluted earnings per share, for the three months ended March 31, ~~2018,~~2019, compared to net income of ~~$10.9~~$14.8 million, or ~~$0.114~~$0.153 of diluted earnings per share, in the same period in ~~2017.~~2018. Return on average assets was ~~1.23%~~1.17% and ~~0.91%~~1.23%, respectively, for the three months ended March 31, ~~2018~~2019 and ~~2017.~~2018. Return on average equity was ~~13.07%~~11.93% and ~~10.17%~~13.07%, respectively, for the three months ended March 31, ~~2018~~2019 and ~~2017.~~2018.

The primary factors accounting for the change in net income for the three months ended March 31, ~~2018~~2019 compared to the same period of the prior year were:

~~An increase in the average balance of interest earning assets of $19.9 million to $4.80~~

An increase in the average balance of interest earning assets of $117.5 million to $4.91 billion for the first quarter of 2019 compared to the same period in 2018 ~~compared to the same period in 2017~~.

An increase in taxable equivalent net interest margin for the first quarter of 2018 to 3.29% from 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 $1.9 million in taxable equivalent net interest income in the first quarter of 2018 compared to the first quarter of 2017.

A decrease in taxable equivalent net interest margin for the first quarter of 2019 to 3.24% from 3.29% in the prior year period. The decrease in the margin, coupled with the increase in average earning assets, resulted in an increase of $414 thousand in taxable equivalent net interest income in the first quarter of 2019 compared to the first quarter of 2018.

~~A decrease of $498 thousand in professional services expense for the first quarter of 2018 compared to the first quarter of 2017.~~

An increase of $1.0 million in salaries and benefits expense for the first quarter of 2019 compared to the first quarter 2018.

~~An increase of $425 thousand in outsourced services expense for the first quarter of 2018 compared to the first quarter of 2017.~~

An increase of $375 thousand in professional services and advertising expense for the first quarter of 2019 compared to the first quarter of 2018.

~~A decrease of $1.8 million in income taxes in the first quarter of 2018 compared to the prior year due primarily to the change in the statutory federal tax rate enacted in December 2017.~~

A decrease of $375 thousand in FDIC assessments for the first quarter 2019 compared to the first quarter 2018.

~~Termination~~

A decrease of ~~Regulatory Agreement~~$396 thousand in Other real estate expense, net for the first quarter 2019 compared to the first quarter 2018.

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.

~~Index~~

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~~short‑term and ~~long-term~~long‑term basis.

Index

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, ~~2017~~2018 is a description of the effect interest rates had on the results for the year ~~2017~~2018 compared to ~~2016.~~2017. Many of the same market factors discussed in the ~~2017~~2018 Annual Report continued to have a significant impact on results through the first quarter of ~~2018.~~2019.

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.

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~~control national economic policy is the ~~Federal Funds~~“Federal Funds” rate. This is the interest rate utilized within the banking system for overnight borrowings for institutions with the highest credit rating. ~~The~~During 2007‑2008 the FRB aggressively reduced the Federal Funds ~~target~~ rate, ~~decreased~~including a decrease from 4.25% at the beginning of 2008 to a target range of 0.00% to 0.25% by the end of 2008. ~~That~~The target range remained at that level until December 2016 when the range was increased from 0.25% to 0.50%. Subsequent increases have resulted in ~~place throughout most of 2015. The FRB increased~~ the target range several times beginning in December of 2015, with the target range now at 1.50% to 1.75%. Additional increases in 2018 and beyond will largely be dependent on the strength of economic conditions. In the March 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 widecurrent 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 relative2.25% 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.”

402.50%.

~~Index~~

Traditionally, interest rates on bank deposit accounts are heavily influenced by the Federal Funds rate. The average rate on interest bearing deposits was 635 basis points higher in the first quarter of ~~2018~~2019 relative to the prior year period. Rates were flat or ~~lower~~slightly higher on 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~~ten-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. The FRB has stated its intent to unwind these positions, which could 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 on other ~~short term~~short-term instruments as well as onthe interest expense on deposits and borrowings. ~~The FRB plan to reduce its holdings began in October 2017 and will occur gradually.~~

~~TrustCo’s principal loan products are residential real estate loans. As noted above, residential~~Residential real estate loans and ~~longer-term~~longer‑term investments are most affected by the changes in longer term market interest rates such as the ~~10-year~~ten‑year Treasury. The ~~10-year Treasury yield was up 28 basis points,~~Federal Funds sold portfolio and other short‑term investments are affected primarily by changes in the Federal Funds target rate. Deposit interest rates are most affected by short term market interest rates. Also, changes in interest rates have an effect on ~~average, during~~ the ~~first quarter~~recorded balance of ~~2018 compared to~~ the ~~fourth quarter~~securities available for sale portfolio, which are recorded at fair value. Generally, as market interest rates increase, the fair value of ~~2017~~the securities will decrease and ~~was up 30 basis points as compared to~~ the ~~first quarter of 2017.~~

reverse is also generally applicable. 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. AsBecause TrustCo is a portfolio lender ~~TrustCo~~and does not sell loans into the secondary market, in the ~~normal course of business and is able to establish~~Company establishes 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~~Higher market ~~volatility~~interest rates also generally increase the value of retail deposits.

Index

TrustCo’s principal loan products are residential real estate loans. As noted above, residential real estate loans and ~~the problems faced~~longer‑term investments are most affected 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, although that effort is now being gradually unwound. Very lowchanges in longer term market interest rates ~~in many markets around~~such as the ~~world have also increased demand for US fixed income assets and contributed~~ten-year Treasury. The 10‑year Treasury yield was down 39 basis points, on average, during the first quarter of 2019 compared to the ~~decline~~fourth quarter of ~~yields on these assets in recent years until~~2018 and was down 10 basis points as compared to the ~~Fed’s program to raise the Federal Funds target rate finally began to boost market yields over the last year.~~first quarter of 2018.

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.

~~Index~~

~~Interest rates generally remained below historic norms on both short term and longer term investments during the first quarter of 2018 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~~impacts have been 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.~~extensive branch network. 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.

For the first quarter of ~~2018,~~2019, the net interest margin was ~~3.29%~~3.24%, ~~up 15~~down 5 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 ~~$112.2~~$26.0 million while the average yield increased 7735 basis points in the first quarter of ~~2018~~2019 compared to the same period in ~~2017.~~2018. The decrease in the average balance helped to fund ~~increases~~the $217.8 million increase in loans.

The average balance of securities available for sale decreased by ~~$60.5~~$69.7 million while the average yield increased 1511 basis points to ~~2.12%~~2.23%. The average balance of held to maturity securities decreased by ~~$17.5~~$4.8 million and the average yield ~~decreased 36~~increased 6 basis points to ~~3.88%~~3.94% for the first quarter of ~~2018~~2019 compared to the same period in ~~2017,~~2018, with the decrease due to the maturity of a corporate bond.

Index

The average loan portfolio grew by ~~$210.9~~$217.8 million to ~~$3.65~~$3.87 billion and the average yield ~~was flat at 4.19%~~increased 9 basis points to 4.28% in the first quarter of ~~2018~~2019 compared to the same period in ~~2017. The yield on residential mortgages continued to decline, however the other loan categories each saw yield increases.~~2018.

The average balance of interest bearing liabilities (primarily deposit accounts) ~~decreased $26.9~~increased $70.3 million and the average rate paid increased 635 basis points to ~~0.42%~~0.77% in the first quarter of ~~2018~~2019 compared to the same period in ~~2017.~~2018.

~~Index~~

During the first quarter of ~~2018,~~2019, 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~~is to beoffer competitive shorter term rates which allowed the Bank to ~~attract~~gain market share as well as retain our existing time deposits. This strategy drove growth at a relatively low cost that will sustain TrustCo’s strong liquidity position and ~~retain deposit customers~~continue to ~~the Company based upon a combination~~allow us to cross sell new relationships and take advantage of ~~service, convenience and interest rate.~~opportunities as they arise.

Earning Assets

Total average interest earning assets increased from ~~$4.78~~$4.80 billion in the first quarter of ~~2017~~2018 to ~~$4.80~~$4.91 billion in the same period of ~~2018~~2019 with an average yield of 3.87% in the first quarter of 2019 and 3.64% in the first quarter of ~~2018 and 3.44% in the first quarter of 2017.~~2018. The shift in the mix of assets towards a higher proportion of loans and the increase in yield on cash drove the overall yield increase. Interest income on average earning assets increased from ~~$41.1 million in the first quarter of 2017 to~~ $43.5 million in the first quarter of 2018 to $47.4 million in the first quarter of 2019, on a tax equivalent basis. The increase was the result of higher volume and yield.

Loans

The average balance of loans was ~~$3.65~~$3.87 billion in the first quarter of ~~2018~~2019 and ~~$3.44~~$3.65 billion in the comparable period in ~~2017.~~2018. The yield on loans ~~was flat at 4.19%~~increased 9 basis points to 4.28%. The higher average balances led to an increase in interest income on loans from ~~$36.1 million in the first quarter of 2017 to~~ $38.1 million in the first quarter of ~~2018.~~2018 to $41.3 million in the first quarter of 2019.

Compared to the first quarter of ~~2017,~~2018, the average balance of residential mortgage loans, commercial and installment loans increased while ~~other loan categories~~home equity lines of credit decreased. The average balance of residential mortgage loans was $3.38 billion in 2019 compared to $3.15 billion in 2018, ~~compared to $2.91 billion in 2017,~~ an increase of ~~8.1%~~7.2%. The average yield on residential mortgage loans ~~decreased~~increased by 63 basis points to ~~4.11%~~4.14% in the first quarter of ~~2018~~2019 compared to ~~2017.~~2018.

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.

Index

Commercial loans, which consist primarily of loans secured by commercial real estate, ~~decreased $1.9~~increased $8.1 million to an average balance of ~~$185.6~~$193.7 million in the first quarter of ~~2018~~2019 compared to the same period in the prior year. The average yield on this portfolio was up 312 basis points to ~~5.21%~~5.33% 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.

~~Index~~

The average yield on home equity credit lines increased 5176 basis points to ~~4.25%~~5.01% during the first quarter of ~~2018~~2019 compared to the year earlier period. The increase in yield is the result of prime rate increases which impacted some loans as well as a smaller percentage of lower yielding initial rate balances. The average balances of home equity lines decreased ~~7.3%~~6.6% to ~~$306.3~~$286.2 million in the first quarter of ~~2018~~2019 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 first quarter of ~~2018~~2019 was ~~$581.7~~$512.0 million compared to ~~$642.3~~$581.7 million for the comparable period in ~~2017.~~2018. The balance reflects routine paydowns, calls and maturities, offset by new investment purchases. The average yield was 2.23% for the first quarter of 2019 compared to 2.12% for the first quarter of ~~2018 compared to 1.97% for the first quarter of 2017.~~2018. 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 ~~$15.9~~$9.5 million as of March 31, ~~2018~~2019 compared to a net unrealized loss of ~~$8.7~~$14.1 million as of December 31, ~~2017.~~2018. The unrealized loss in the portfolio is ~~primarily~~ the result of changes in market interest rate levels.

Held to Maturity Securities

The average balance of held to maturity securities was ~~$26.8~~$22.0 million for the first quarter of ~~2018~~2019 compared to ~~$44.3~~$26.8 million in the first quarter of ~~2017.~~2018. The decrease in balances reflects routine paydowns and calls. No new securities were added to this portfolio during the period. The average yield was ~~3.88%~~3.94% for the first quarter of ~~2018~~2019 compared to ~~4.24%~~3.88% for the year earlier period. ~~The lower yield reflects the maturity of a corporate bond.~~ TrustCo expects to hold the securities in this portfolio until they mature or are called.

As of March 31, ~~2018,~~2019, this portfolio consisted solely of residential mortgage-backed securities. The balances for these securities are recorded at amortized cost.

Index

Federal Funds Sold and Other Short-term Investments

The ~~2018~~2019 first quarter average balance of Federal Funds sold and other short-term investments was ~~$528.9~~$503.0 million, a ~~$112.2~~$26.0 million decrease from the ~~$641.1~~$528.9 million average for the same period in ~~2017.~~2018. The yield was ~~1.55%~~2.43% for the first quarter of ~~2018~~2019 and ~~0.78%~~1.55% for the comparable period in ~~2017.~~2018. Interest income from this portfolio increased ~~$771~~$992 thousand from ~~$1.2 million in 2017 to~~ $2.0 million in 2018 to $3.0 million in 2019, reflecting the target rate increases, partly offset by the decrease 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.

~~Index~~

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 time deposits) ~~decreased $31.6~~increased $145.6 million to ~~$3.77~~$3.9 billion for the first quarter of ~~2018~~2019 versus the first quarter in the prior year, and the average rate paid increased from ~~0.35% for 2017 to~~ 0.41% for ~~2018.~~2018 to 0.76% for 2019. Total interest expense on these deposits increased ~~$521 thousand~~$3.5 million to ~~$3.8~~$7.3 million in the first quarter of ~~2018~~2019 compared to the year earlier period. From the first quarter of ~~2017~~2018 to the first quarter of ~~2018,~~2019, interest bearing ~~demand~~ account average balances were up ~~8.5%~~3.9%, certificates of deposit average balances were ~~down 4.7%~~up 25.2%, ~~non-interest~~non‑interest demand average balances were up ~~4.3%~~2.8%, average savings balances decreased ~~1.1%~~8.0% and money market balances were down ~~5.7%~~5.3%. Our growth in deposits came at a comparably low cost and continues to be offset by higher earnings on cash reserves, increased loan yields and returns in the investment portfolio. Because we offered competitive shorter term rates, we would expect margin to begin to stabilize in the later part of 2019 particularly in third and fourth quarter as our shorter term time deposits could reprice lower and provide opportunity for increased margin expansion.

At March 31, 2019, the maturity of total time deposits is as follows:

(dollars in thousands)

Under 1 year	$	1,038,795
1 to 2 years		362,146
2 to 3 years		11,768
3 to 4 years		5,628
4 to 5 years		2,567
Over 5 years		277
	$	1,421,181

Average short-term borrowings for the first quarter of 2019 were $159.1 million compared to $234.4 million in the same period in 2018. The average rate increased during this time period from 0.62% in 2018 to 0.97% in 2019. 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.

Index

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.

~~At 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

Average short-term borrowings for the quarter were $234.4 million in 2018 compared to $229.7 million in 2017. The average rate increased during this time period from 0.61% in 2017 to 0.62% in 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 ~~$1.9 million~~$414 thousand to ~~$39.3~~$39.7 million in the first quarter of ~~2018~~2019 compared to the same period in ~~2017.~~2018. The net interest spread was ~~up 14~~down 11 basis points to ~~3.22%~~3.11% in the first quarter of ~~2018~~2019 compared to the same period in ~~2017.~~2018. As previously noted, the net interest margin was ~~up 15~~down 5 basis points to ~~3.29%~~3.24 for the first quarter of ~~2018~~2019 compared to the same period in ~~2017.~~2018.

~~Index~~

Nonperforming Assets

Nonperforming assets include nonperforming loans (“NPLs”), which are those loans in a ~~non-accrual~~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 March 31, ~~2018:~~2019:

Nonperforming loans and foreclosed real ~~estate~~estate:: Total NPLs were $24.7 million at March 31, 2019, compared to $25.0 million at December 31, 2018 and $24.9 million at March 31, ~~2018, compared to $24.4 million at December 31, 2017 and $26.4 million at March 31, 2017.~~2018. There were ~~$24.8~~$24.7 million of non-accrual loans at March 31, ~~2018~~2019 compared to ~~$24.3~~$25.0 million at December 31, ~~2017~~2018 and ~~$26.4~~$24.8 million at March 31, ~~2017.~~2018. There were no loans at March 31, ~~2018~~2019 and ~~2017~~2018 and December 31, ~~2017~~2018 that were past due 90 days or more and still accruing interest.

At March 31, ~~2018,~~2019, nonperforming loans primarily include a mix of commercial and residential loans. Of total nonperforming loans of ~~$24.9~~$24.7 million at March 31, ~~2018, $23.6~~2019, $24.0 million were residential real estate loans, ~~$1.2 million~~$701 thousand were commercial loans and mortgages and ~~$23~~$26 thousand were installment loans, compared to ~~$22.7~~$24.3 million, ~~$1.5 million~~$645 thousand and ~~$57~~$19 thousand, respectively at December 31, ~~2017.~~2018.

A significant percentage of nonperforming loans are residential real estate loans, which are historically lower-risk than most other types of loans. Net chargeoffs were ~~just $28~~$337 thousand on residential real estate loans (including home equity lines of credit) for the first quarter of ~~2018~~2019 compared to ~~$345~~$28 thousand for the first quarter of ~~2017.~~2018. Management believes that these loans have been appropriately written down where required.

Index

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 March 31, ~~2018, 76.7%~~2019, 76.0% of its gross loan portfolio balances were in New York State and the immediately surrounding areas (including New Jersey, Vermont and Massachusetts), and ~~23.3%~~24.0% were in Florida. Those figures compare to ~~76.9%~~76.1% and ~~23.1%~~23.9%, respectively at December 31, ~~2017.~~2018.

~~Index~~

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 March 31, ~~2018, 8.7%~~2019, 6.7% were to Florida borrowers, compared to ~~91.3%~~93.3% to borrowers in New York and surrounding areas. For the three months ended March 31, ~~2018,~~2019, New York and surrounding areas experienced net chargeoffs of approximately ~~$88~~$345 thousand, compared to net chargeoffs of $2$50 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 March 31, ~~2018,~~2019, there were no other loans classified for regulatory purposes that management reasonably expects will materially impact future operating results, liquidity, or capital resources.

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 ~~$1.9~~$1.5 million of commercial mortgages and commercial loans classified as impaired as of March 31, ~~2018~~2019 compared to ~~$2.2~~$1.4 million at December 31, ~~2017.~~2018. There were ~~$22.5~~$19.7 million of impaired residential loans at March 31, ~~2018~~2019 and ~~$22.0~~$20.9 million at December 31, ~~2017~~2018. The average balances of all impaired loans were ~~$24.7~~$21.9 million for the three months of ~~2018~~2019 and ~~$24.8~~$23.2 million for the full year ~~2017.~~2018.

As of March 31, ~~2018~~2019 and December 31, ~~2017,~~2018, the Company’s loan portfolio did not include any subprime mortgages or loans acquired with deteriorated credit quality.

At March 31, ~~2018~~2019 there was ~~$2.2~~$1.3 million of foreclosed real estate compared to ~~$3.2~~$1.7 million at December 31, ~~2017.~~2018.

Index

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.

~~Index~~

~~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 March 31, 2018					As of December 31, 2017					As of March 31, 2019					As of December 31, 2018
	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	$	4,146		4.81	%	$	4,205		4.85	%	$	3,579		4.58	%	$	3,903		4.74	%
Real estate - construction		357		0.80	%		379		0.85	%		318		0.71	%		310		0.69	%
Real estate mortgage - 1 to 4 family		34,084		85.93	%		33,622		85.56	%		35,301		87.08	%		34,918		86.80	%
Home equity lines of credit		5,027		8.23	%		5,195		8.50	%		4,521		7.30	%		4,689		7.47	%
Installment Loans		765		0.23	%		769		0.24	%		952		0.33	%		946		0.30	%
	$	44,379		100.00	%	$	44,170		100.00	%	$	44,671		100.00	%	$	44,766		100.00	%

At March 31, ~~2018,~~2019, the allowance for loan losses was ~~$44.4~~$44.7 million, compared to ~~$44.0~~$44.4 million at March 31, ~~2017~~2018 and ~~$44.2~~$44.8 million at December 31, ~~2017.~~2018. The allowance represents ~~1.21%~~1.16% of the loan portfolio as of March 31, ~~2018~~2019 compared to ~~1.28%~~1.21% at March 31, ~~2017~~2018 and ~~1.21%~~1.16% at December 31, ~~2017.~~2018.

The provision for loan losses was $300 thousand for the quarter ended March 31, ~~2018~~2019 and ~~$600 thousand~~ for the quarter ended March 31, ~~2017.~~2018. Net chargeoffs for the three-month period ended March 31, ~~2018~~2019 were ~~$90~~$395 thousand primarily driven by a loan sale in the current quarter and were ~~$442~~$90 thousand for the prior year period.

During the first quarter of ~~2018,~~2019, there were no$7 thousand commercial loan chargeoffs and ~~$205~~$481 thousand of gross residential mortgage and consumer loan chargeoffs compared with ~~$72 thousand of~~no gross commercial loan chargeoffs and ~~$557~~$205 thousand of residential mortgage and consumer loan chargeoffs in the first quarter of ~~2017.~~2018. Gross recoveries during the first quarter of ~~2018~~2019 were $3 thousand for commercial loans and $90 thousand for residential mortgage and consumer loans, compared to $6 thousand for commercial loans and $109 thousand for residential ~~mortgage and consumer loans, compared to $8 thousand for commercial loans and $179 thousand for residential~~ and consumer in the first quarter of ~~2017.~~2018.

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 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 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.

Index

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.

~~Index~~

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.

Using this model, the fair value of capital projections as of March 31, ~~2018~~2019 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 March 31, ~~2018.~~2019. 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 and 200 bp.

As of March 31, ~~2018~~2019	Estimated Percentage of Fair value of Capital to Fair value of Assets
+400 BP		~~20.12~~18.12	%
+300 BP		~~21.31~~19.04
+200 BP		~~22.47~~19.91
+100 BP		~~23.57~~20.69
Current rates		~~24.36~~21.24
-100 BP		~~23.13~~19.97
-200 BP		16.90

Index

Noninterest Income

Total noninterest income for both the first quarter of 2019 and 2018 was $4.6 million and ~~2017 was~~ $4.7 ~~million.~~million, respectively. There were no significant changes in the components of noninterest income. The fair value of assets under management was $867 million at March 31, 2019 and $803 million as of December 31, 2018 and $876 million at March 31, ~~2018 and $890 million as of December 31, 2017 and $846 million at March 31, 2017.~~2018.

~~Index~~

Noninterest Expenses

Total noninterest expenses were ~~$24.2~~$24.9 million for the three months ended March 31, ~~2018,~~2019, compared to ~~$24.0~~$24.2 million for the three months ended March 31, ~~2017~~2018. Significant changes included a ~~$425 thousand~~$1.0 million increase in ~~outsourced services,~~Salaries and benefits, offset by a ~~$498~~$771 thousand decrease in ~~professional services.~~ORE expense, net and FDIC and other insurance costs. Full time equivalent headcount increased from ~~802 as of March 31, 2017 to~~ 827 as of March 31, ~~2018.~~2018 to 899 as of March 31, 2019. Salaries and benefits expense increased for the first quarter as the Bank successfully executed a targeted effort to hire and expand certain functions which has now been largely completed.

Income Taxes

In the first quarter of ~~2018,~~2019, TrustCo recognized income tax expense of ~~$4.7~~$4.6 million compared to ~~$6.6~~$4.7 million for the first quarter of ~~2017.~~2018. The effective tax rates were 24.2% ~~and 37.5%~~ for the first quarters of ~~2018~~2019 and 2017, respectively. The decline in the percentage of income tax expense was the result of enactment of the Tax Cuts and Jobs Act on December 22, 2017, as more fully described in the 2017 Form 10-K. The new law lowered the federal corporate income tax rate to 21 percent beginning in 2018 from a maximum rate of 35 percent in 2017.2018.

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.

Total shareholders’ equity at March 31, ~~2018~~2019 was ~~$462.1~~$501.7 million compared to ~~$438.7~~$462.1 million at March 31, ~~2017.~~2018. TrustCo declared a dividend of ~~$0.065625~~$0.068125 per share in the first quarter of ~~2018.~~2019. This results in a dividend payout ratio of ~~42.70%~~45.23% based on first quarter ~~2018~~2019 earnings of ~~$14.8~~$14.6 million.

5051

Index

The Bank and the Company reported the following capital ratios as of March 31, ~~2018~~2019 and December 31, ~~2017:~~2018:

~~(Bank Only)~~

(Bank Only)

													As of March 31, 2019					Well Capitalized⁽¹⁾			Adequately Capitalized⁽¹⁾⁽²⁾
(dollars in thousands)	As of March 31, 2018						Well			Adequately			Amount		Ratio			Well Capitalized⁽¹⁾			Adequately Capitalized⁽¹⁾⁽²⁾
	Amount			Ratio			Capitalized(1)			Capitalized(1)(2)

Tier 1 leverage capital		$	455,335		9.333	%		5.000	%		4.000	%	$	492,918		9.760	%		5.000	%		4.000	%
Common equity tier 1 capital			455,335		17.750			6.500			6.380			492,918		18.299			6.500			7.000
Tier 1 risk-based capital			455,335		17.750			8.000			7.880			492,918		18.299			8.000			8.500
Total risk-based capital			487,547		19.010			10.000			9.880			526,727		19.555			10.000			10.500

(dollars in thousands)	As of December 31, 2017					Well			Adequately			As of December 31, 2018							Well Capitalized⁽¹⁾				Adequately Capitalized⁽¹⁾⁽³⁾
	Amount		Ratio			Capitalized(1)			Capitalized(1)(3)										Well Capitalized⁽¹⁾				Adequately Capitalized⁽¹⁾⁽³⁾
(dollars in thousands)												Amount			Ratio				Well Capitalized⁽¹⁾				Adequately Capitalized⁽¹⁾⁽³⁾
(dollars in thousands)																			Well Capitalized⁽¹⁾				Adequately Capitalized⁽¹⁾⁽³⁾
Tier 1 (core) capital	$	444,931		9.152	%		5.000	%		4.000	%		$	484,581			9.767	%			5.000	%			4.000	%
Common equity tier 1 capital		444,931		17.460			6.500			5.750			484,581			18.233				6.500				6.380
Tier 1 risk-based capital		444,931		17.460			8.000			7.250			484,581			18.233				8.000				7.880
Total risk-based capital		476,942		18.720			10.000			9.250			517,948			19.489				10.000				9.880

(Consolidated)
						Minimum for Capital Adequacy plus Capital Conservation Buffer⁽¹⁾⁽²⁾

	As of March 31, 2019
(dollars in thousands)	Amount		Ratio

Tier 1 leverage capital	$	508,176		10.057	%		4.000	%
Common equity tier 1 capital		508,176		18.856			7.000
Tier 1 risk-based capital		508,176		18.856			8.500
Total risk-based capital		542,003		20.111			10.500

						Minimum for
						Capital Adequacy plus
	As of December 31, 2018					Capital Conservation
(dollars in thousands)	Amount		Ratio			Buffer⁽¹⁾⁽²⁾

Tier 1 leverage ratio	$	499,626		10.129	%		4.000	%
Common equity Tier 1 capital		499,626		18.790			6.380
Tier 1 risk-based capital		499,626		18.790			7.880
Total risk-based capital		533,009		20.046			9.880

(1)	Federal regulatory minimum requirements to be considered to be Well Capitalized and Adequately Capitalized

(2)	The March 31, ~~2018~~2019 common equity tier 1, tier 1 risk-based, and total risk-based capital ratios include a ~~transition~~ capital conservation buffer of ~~1.88~~2.50 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

~~(1)~~

~~Federal regulatory minimum requirements to be considered to be Well Capitalized and Adequately Capitalized~~

~~(2)~~

~~The 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~~

In addition, at March 31, ~~2018, the~~2019, Trustco’s consolidated equity to total assets ratio was ~~9.37%,~~9.73% compared to ~~9.34%~~9.88% at December 31, ~~2017~~2018 and ~~8.98%~~9.37% at March 31, ~~2017.~~2018.

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~~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~~was phased-in over several years and ~~will be fully~~took in full effect infor 2019. ~~Calendar year 2017 was the third year of implementation of the new capital rules.~~

As of March 31, ~~2018,~~2019, the capital levels of both TrustCo and the Bank exceeded the minimum standards, including with the current, ~~and also~~ fully phased-in capital conservation buffer is taken into account.

5152

Index

Under the OCC’s “prompt corrective action” regulations, a bank is deemed to be ~~“well-capitalized”~~“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 March 31, ~~2018~~2019 and ~~2017,~~2018, Trustco Bank met the definition of ~~“well-capitalized.~~“well capitalized.”

As noted, the Company’s dividend payout ratio was 45.23% of net income for the first quarter of 2019 and 42.70% of net income for the first quarter of ~~2018 and 57.47% of net income for the first quarter of 2017.~~2018. The per-share dividend paid in both the first ~~quarters~~quarter of ~~2017~~2019 and the fourth quarter of 2018 was ~~$0.065625.~~$0.068125, and $0.065625 in the first quarter of 2018. 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. 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.

TrustCo maintains a dividend reinvestment plan (DRP) with approximately ~~11,800~~11,500 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 and Estimates

Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon the Company’s consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. Note 1 to the Company’s 2018 consolidated financial statements contains a summary of the Company’s significant accounting policies.

Management believes that the Company’s policy with respect to the methodology for the determination of the allowance for loan losses involves a higher degree of complexity and requires management to make difficult and subjective judgments, which often require assumptions or estimates about highly uncertain matters. Changes in these judgments, assumptions or estimates could materially impact results of operations. This critical policy and its application are periodically reviewed with the Audit Committee and the Board of Directors.

Index

The provision for loan losses is based upon Management’s evaluation of the adequacy of the allowance, including an assessment of known and inherent risks in the portfolio, giving consideration to the size and composition of the loan portfolio, actual loan loss experience, level of delinquencies, detailed analysis of individual loans for which full collectability may not be assured, the existence and estimated fair value of any underlying collateral and guarantees securing the loans, and current economic and market conditions. Although Management uses current and relevant information available in relation to their loan portfolio, the adequacy of the allowance for loan losses remains an estimate, which is subject to significant judgment and short-term change. Various regulatory agencies, as an integral part of their examination process, periodically review the adequacy of the Company’s allowance for loan losses. Such agencies may require the Company to make additional provisions for loan losses based upon information available to them at the time of their examination. Furthermore, the majority of the Company’s loans are secured by real estate in primarily New York, and Florida. Accordingly, the collectability of a substantial portion of the carrying value of the Company’s loan portfolio is susceptible to changes in local market conditions and may experience adverse economic conditions. Future adjustments to the provision for loan losses and allowance for loan losses may be necessary due to economic, operating, regulatory and other conditions beyond the Company’s control.

Pursuant to recent Securities and Exchange Commission ~~(SEC)~~(“SEC”) guidance, management of the Company is encouraged to evaluate and disclose those accounting policies that are 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~~credit 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 2018 Annual Report on Form ~~10-K for the year ended December 31, 2017~~10‑K is a description of the significant accounting policies that are utilized by the Company in the preparation of the Consolidated Financial Statements.

Recent Accounting Pronouncements

Please refer to Note 11 to the consolidated financial statements for a detailed discussion of new accounting pronouncements and their impact on the Company.

5254

Index

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 gain (loss), net of tax, in the available for sale portfolio of ($($9.2) million in 2019 and ($12.2) million in ~~2018 and ($5.8) million in 2017.~~2018. 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

	Average			Interest			Average			Average			Interest			Average			Change in			Variance			Variance			Three months ended									Three months ended
(dollars in thousands)	Balance						Rate			Balance						Rate			Interest			Balance			Rate			March 31, 2019									March 31, 2018
																			Income/			Change			Change
Assets																			Expense									Average Balance			Interest			Average Rate			Average Balance			Interest			AverageRate			Change in Interest Income/ Expense			Variance Balance Change			Variance Rate Change

Securities available for sale:
U. S. government sponsored enterprises	$	156,593			750			1.92	%	$	142,495			595			1.67	%	$	155			62			93		$	154,258			783			2.03	%	$	156,593			750			1.92	%	$	33			(65	)		98
Mortgage backed securities and collateralized mortgage obligations-residential		313,753			1,763			2.25	%		367,956			1,958			2.13	%		(195	)		(312	)		117			273,004			1,555			2.28	%		313,753			1,763			2.25	%		(208	)		(359	)		151
State and political subdivisions		515			10			7.81	%		873			19			8.71	%		(9	)		9			(18	)		168			2			7.85	%		515			10			7.81	%		(8	)		(8	)		-
Corporate bonds		33,297			133			1.60	%		41,580			151			1.45	%		(18	)		(93	)		75			26,862			208			3.09	%		33,297			133			1.60	%		75			(158	)		233
Small Business Administration-guaranteed participation securities		67,106			352			2.10	%		78,591			415			2.11	%		(63	)		(61	)		(2	)		57,057			297			2.08	%		67,106			352			2.10	%		(55	)		(52	)		(3	)
Mortgage backed securities and collateralized mortgage obligations-commercial		9,775			42			1.71	%		10,089			23			0.91	%		19			(5	)		24			-			-			-	%		9,775			42			1.71	%		(42	)		(21	)		(21	)
Other		685			5			2.52	%		685			4			2.34	%		1			-			1			685			5			2.92	%		685			5			2.52	%		-			-			-

Total securities available for sale		581,724			3,055			2.12	%		642,269			3,165			1.97	%		(110	)		(400	)		290			512,034			2,850			2.23	%		581,724			3,055			2.12	%		(205	)		(663	)		458

Federal funds sold and other short-term Investments		528,947			2,017			1.55	%		641,126			1,246			0.78	%		771			(167	)		938			502,976			3,009			2.43	%		528,947			2,017			1.55	%		992			(662	)		1,654

Held to maturity securities:
Corporate bonds		-			-			0.00	%		9,992			154			6.16	%		(154	)		(77	)		(77	)

Mortgage backed securities and collateralized mortgage obligations-residential		26,799			260			3.88	%		34,303			316			3.68	%		(56	)		(154	)		98			22,037			217			3.94	%		26,799			260			3.88	%		(43	)		(69	)		26

Total held to maturity securities		26,799			260			3.88	%		44,295			470			4.24	%		(210	)		(231	)		21			22,037			217			3.94	%		26,799			260			3.88	%		(43	)		(69	)		26

Federal Reserve Bank and Federal Home Loan Bank stock		8,779			77			6.00	%		9,579			134			5.60	%		(57	)		(72	)		15			8,953			85			3.80	%		8,779			77			3.51	%		8			2			6

Commercial loans		185,646			2,420			5.21	%		187,590			2,429			5.18	%		(9	)		(85	)		76			193,738			2,583			5.33	%		185,646			2,420			5.21	%		163			107			56
Residential mortgage loans		3,148,735			32,257			4.11	%		2,911,987			30,367			4.17	%		1,890			4,651			(2,761	)		3,374,990			34,864			4.14	%		3,148,735			32,257			4.11	%		2,607			2,367			240
Home equity lines of credit		306,290			3,210			4.25	%		330,338			3,085			3.74	%		125			(1,129	)		1,254			286,199			3,537			5.01	%		306,290			3,210			4.25	%		327			(1,162	)		1,489
Installment loans		8,365			205			9.90	%		8,228			169			8.22	%		36			21			15			11,897			269			9.17	%		8,365			205			9.90	%		64			158			(94	)

Loans, net of unearned income		3,649,036			38,092			4.19	%		3,438,143			36,050			4.19	%		2,042			3,459			(1,417	)		3,866,824			41,253			4.28	%		3,649,036			38,092			4.19	%		3,161			1,470			1,691

Total interest earning assets		4,795,285			43,501			3.64	%		4,775,412			41,065			3.44	%		2,436			2,589			(153	)		4,912,824			47,414			3.87	%		4,795,285			43,501			3.64	%		3,913			78			3,835

Allowance for loan losses		(44,393	)								(44,236	)																	(44,947	)								(44,393	)
Cash & non-interest earning assets		124,867									130,186																		176,009									124,867


Total assets	$	4,875,759								$	4,861,362																	$	5,043,886								$	4,875,759


Liabilities and shareholders’ equity

Deposits:
Interest bearing checking accounts	$	877,776			106			0.05	%	$	809,039			124			0.06	%		(18	)		16			(33	)	$	880,474			121			0.06	%	$	877,776			106			0.05	%		15			-			15
Money market accounts		547,136			439			0.33	%		580,006			466			0.32	%		(27	)		(38	)		11			517,995			826			0.65	%		547,136			439			0.33	%		387			(162	)		549
Savings		1,260,360			419			0.13	%		1,274,757			430			0.13	%		(11	)		(31	)		20			1,160,142			377			0.13	%		1,260,360			419			0.13	%		(42	)		(42	)		-
Time deposits		1,080,893			2,860			1.07	%		1,133,942			2,283			0.81	%		577			(97	)		674			1,353,160			5,976			1.79	%		1,080,893			2,860			1.07	%		3,116			849			2,267

Total interest bearing deposits		3,766,165			3,824			0.41	%		3,797,744			3,303			0.35	%		521			(151	)		671			3,911,771			7,300			0.76	%		3,766,165			3,824			0.41	%		3,476			645			2,831
Short-term borrowings		234,384			358			0.62	%		229,719			349			0.61	%		9			5			4			159,076			381			0.97	%		234,384			358			0.62	%		23			(587	)		610

Total interest bearing liabilities		4,000,549			4,182			0.42	%		4,027,463			3,652			0.36	%		530			(146	)		676			4,070,847			7,681			0.77	%		4,000,549			4,182			0.42	%		3,499			58			3,441

Demand deposits		386,563									370,552																		397,522									386,563
Other liabilities		29,129									26,781																		80,579									29,129
Shareholders’ equity		459,519									436,566																		494,938									459,519

Total liabilities and shareholders’ equity	$	4,875,760								$	4,861,362																	$	5,043,886								$	4,875,760

Net interest income , tax equivalent					39,319									37,413					$	1,906			2,734			(829	)					39,733									39,319					$	414			20			394

Net interest spread								3.22	%								3.08	%																	3.11	%								3.22	%

Net interest margin (net interest income to total interest earning assets)								3.29	%								3.14	%																	3.24	%								3.29	%

Tax equivalent adjustment					(4	)								(13	)																	(1	)								(4	)


Net interest income					39,315									37,400																		39,732									39,315

5355

Index

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

As detailed in the Annual Report ~~to Shareholders~~on Form 10-K as of December 31, ~~2017,~~2018, 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 month periods ended March 31, ~~2018~~2019 and ~~2017,~~2018, 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 first quarter of ~~2018,~~2019, the Company had an average balance of Federal Funds sold and other short-term investments of ~~$528.9~~$503.0 million compared to ~~$641.1~~$528.9 million in the first quarter of ~~2017.~~2018. 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)~~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)~~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.

5456

Index

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, ~~2017.~~2018.

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

Index

Reg S-K (Item 601)

Exhibit No.	Description

15	Crowe ~~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~~officer.

32	Section 1350 Certifications of Robert J. McCormick, principal executive officer and Michael M. Ozimek, principal financial officer.

101.INS	Instance Document

101.SCH	XBRL Taxonomy Extension Schema Document


101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF	XBRL Taxonomy Extension Definition Linkbase Document

101.LAB	XBRL Taxonomy Extension Label Linkbase Document

101.PRE	XBRLTaxonomy Extension Presentation Linkbase Document

5558

Index

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/~~
	/s/ Robert J. McCormick
	Robert J. McCormick
	Chairman, President and Chief Executive Officer

	By: ~~/s/~~
	/s/ Michael M. Ozimek
	Michael M. Ozimek
	~~Senior~~Executive Vice President and Chief Financial Officer

~~Date: May 4, 2018~~

Date: May 3, 2019

5659

Index

Exhibits Index

Reg S-K

Exhibit No.	Description

15	Crowe ~~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.

32	Section 1350 Certifications of Robert J. McCormick, principal executive officer and Michael M. Ozimek, principal financial officer.

101.INS	Instance Document

101.SCH	XBRL Taxonomy Extension Schema Document

101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF	XBRL Taxonomy Extension Definition Linkbase Document

101.LAB	XBRL Taxonomy Extension Label Linkbase Document

101.PRE	XBRLTaxonomy Extension Presentation Linkbase Document

5760

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)

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

Title of each class	Trading Symbol (s)	Name of each exchange on which registered
Common Stock, $1.00 par value	TRST	Nasdaq Global Select Market

Common Stock		Number of Shares Outstanding as of April 30, ~~2018~~ 2019
$11.00 Par Value		~~96,429,393~~96,822,301

Part II.	FINANCIAL INFORMATION	PAGE NONO.
Item 1.	Consolidated Interim Financial Statements (Unaudited):

	Consolidated Statements of Income for the three month periods ended March 31, ~~2018~~2019 and ~~2017~~2018	3

	Consolidated Statements of Comprehensive Income for the three month periods ended March 31, ~~2018~~2019 and ~~2017~~2018	4

	Consolidated Statements of Financial Condition as of March 31, ~~2018~~2019 and December 31, ~~2017~~2018	5

	Consolidated Statements of Changes in Shareholders’ Equity for the three month periods ended March 31, ~~2018~~2019 and ~~2017~~2018	6

	Consolidated Statements of Cash Flows for the three month periods ended March 31, ~~2018~~2019 and ~~2017~~2018	7

	Notes to Consolidated Interim Financial Statements	~~8 – 33~~8– 35

	Report of Independent Registered Public Accounting Firm	3436

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	~~35-53~~37-55

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	5456

Item 4.	Controls and Procedures	5456

Part II.	OTHER INFORMATION

Item 1.	Legal Proceedings	55 57

Item 1A.	Risk Factors	5557

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5557

Item 3.	Defaults Upon Senior Securities	5557

Item 4.	Mine Safety	5557

Item 5.	Other Information	5557

Item 6.	Exhibits	5557

	March 31, 2019			December 31, 2018
ASSETS:

Cash and due from banks	$	43,064			49,260

Federal funds sold and other short term investments		576,123			454,449
Total cash and cash equivalents		619,187			503,709

Securities available for sale		546,466			501,463

Held to maturity securities (fair value 2019 $22,283; 2018 $22,924)		21,609			22,501

Federal Reserve Bank and Federal Home Loan Bank stock		8,953			8,953

Loans, net of deferred net costs		3,861,153			3,874,096
Less:
Allowance for loan losses		44,671			44,766
Net loans		3,816,482			3,829,330

Bank premises and equipment, net		34,428			34,694
Operating lease right-of-use assets		51,559			-
Other assets		57,637			58,263

Total assets	$	5,156,321			4,958,913

LIABILITIES:
Deposits:
Demand	$	408,417			405,069
Interest-bearing checking		895,099			904,678
Savings accounts		1,150,329			1,182,683
Money market deposit accounts		538,043			507,311
Time deposits		1,421,181			1,274,506
Total deposits		4,413,069			4,274,247

Short-term borrowings		159,778			161,893
Operating lease liabilities		56,723			-
Accrued expenses and other liabilities		25,033			32,902

Total liabilities		4,654,603			4,469,042

SHAREHOLDERS’ EQUITY:
Capital stock par value $1; 150,000,000 shares authorized; 100,180,132 and 100,175,032 shares issued at March 31, 2019 and December 31, 2018, respectively		100,180			100,175
Surplus		176,510			176,710
Undivided profits		264,364			256,397
Accumulated other comprehensive loss, net of tax		(7,011	)		(10,309	)
Treasury stock at cost - 3,434,274 and 3,516,440 shares at March 31, 2019 and December 31, 2018, respectively		(32,325	)		(33,102	)

Total shareholders’ equity		501,718			489,871

Total liabilities and shareholders’ equity	$	5,156,321			4,958,913

	Capital Stock		Surplus			Undivided Profits			Accumulated Other Comprehensive Loss			Treasury Stock			Total

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, $0.0656 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

Beginning balance, January 1, 2019	$	100,175	$	176,710		$	256,397		$	(10,309	)	$	(33,102	)	$	489,871
Net income		-		-			14,558			-			-			14,558
Other comprehensive income, net of tax		-		-			-			3,298			-			3,298
Stock options exercised (5,100 shares)		5		30			-			-			-			35
Cash dividend declared, $0.068125 per share		-		-			(6,591	)		-			-			(6,591	)
Purchase of treasury stock (4,131 shares)		-		-			-			-			(35	)		(35	)
Sale of treasury stock (86,297 shares)		-		(218	)		-			-			812			594
Stock based compensation expense		-		(12	)		-			-			-			(12	)

Ending balance, March 31, 2019	$	100,180		176,510			264,364			(7,011	)		(32,325	)		501,718

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

(in thousands, except per share data)	For the three months ended March 31:				For the three months ended March 31,
	2018		2017		2019		2018
Net income	$	14,808		10,947	$	14,558		14,808
Weighted average common shares		96,353		95,879		96,744		96,353
Stock Options		131		108		78		131
Weighted average common shares including potential dilutive shares		96,484		95,987		96,822		96,484

Basic EPS	$	0.154		0.114	$	0.150		0.154

Diluted EPS	$	0.153		0.114	$	0.150		0.153

	For the three months ended March 31,												For the three months ended March 31,
	Pension Benefits						Other Postretirement Benefits						Pension Benefits						Other Postretirement Benefits
(dollars in thousands)	2018			2017			2018			2017			2019			2018			2019			2018

Service cost	$	11			11			26			28		$	8			11			18			26
Interest cost		326			329			54			56			315			326			60			54
Expected return on plan assets		(687	)		(686	)		(190	)		(191	)		(752	)		(687	)		(248	)		(190	)
Amortization of net loss (gain)		17			23			(89	)		(86	)		-			17			(48	)		(89	)
Amortization of prior service cost		-			-			23			23
Amortization of prior service (credit) cost														-			-			(85	)		23
Net periodic benefit	$	(333	)		(323	)		(176	)		(170	)	$	(429	)		(333	)		(303	)		(176	)

	Three months ended 3/31/18
(dollars in thousands)	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
	Balance at 12/31/2017			Other Comprehensive Income (loss)- Before Reclassifications									Balance at 3/31/2018


Net unrealized holding gain (loss) on securities available for sale, net of tax	$	(5,030	)		(5,302	)		-			(5,302	)		(10,332	)
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	$	(1,806	)		(5,302	)		(1,382	)		(5,338	)		(8,490	)

(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)	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