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


Form 10-Q


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

For the quarterly period ended March 31, 2020
For the quarterly period ended March 31, 2019Commission File Number 0-10592

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to _________

Commission File Number 0-10592

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


NEW YORKNew York 14‑163028714-1630287
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)


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


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


Securities registered pursuant to Section 12(b) of the Act:

Title of each classTrading Symbol (s)Name of each exchange on which registered
Common Stock, $1.00 par valueTRSTNasdaq Global Select Market

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


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


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


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


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


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

Securities registered pursuant to Section 12(b) of the Act:

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


Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.


Common Stock
Number of Shares Outstanding

as of April 30, 20192020
$1.001 Par Value96,822,30196,432,657





Index
TrustCo Bank Corp NY


INDEX


Part I.
FINANCIAL INFORMATIONPAGE NO.
Item 1.Consolidated Interim Financial Statements (Unaudited): 
   

Consolidated Statements of Income for the three month periods ended March 31, 20192020 and 20182019
3
   
 
Consolidated Statements of Comprehensive Income for the three month periods ended March 31, 20192020 and 20182019
4
   
 
Consolidated Statements of Financial Condition as of March 31, 20192020 and December 31, 20182019
5
   
 
Consolidated Statements of Changes in Shareholders’ Equity for the three month periods ended March 31, 20192020 and 20182019
6
   
 
Consolidated Statements of Cash Flows for the three month periods ended March 31, 20192020 and 20182019
7
   
 
Notes to Consolidated Interim Financial Statements
8– 358 – 36
   
 
Report of Independent Registered Public Accounting Firm
3637
   
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
37-5538-58
   
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
5659
   
Item 4.
Controls and Procedures
5659
   
Part II.OTHER INFORMATION 
   
Item 1.
Legal Proceedings
 5760
   
Item 1A.
Risk Factors
5760
   
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
5762
   
Item 3.
Defaults Upon Senior Securities
5763
   
Item 4.
Mine Safety
5763
   
Item 5.
Other Information
5763
   
Item 6.
Exhibits
5764


2

Index


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

 
Three months ended
March 31,
  
Three months ended
March 31,
 
 2019  2018  2020  2019 
            
Interest and dividend income:            
Interest and fees on loans $41,253   38,091  $42,063   41,253 
Interest and dividends on securities available for sale:                
U. S. government sponsored enterprises  783   750   421   783 
State and political subdivisions  1   7   1   1 
Mortgage-backed securities and collateralized mortgage obligations-residential  1,555   1,763   2,113   1,555 
Corporate bonds  208   133   238   208 
Small Business Administration-guaranteed participation securities  297   352   245   297 
Mortgage-backed securities and collateralized mortgage obligations-commercial  -   42 
Other securities  5   5   6   5 
Total interest and dividends on securities available for sale  2,849   3,052   3,024   2,849 
                
Interest on held to maturity securities:                
Mortgage-backed securities and collateralized mortgage obligations-residential  217   260   175   217 
Total interest on held to maturity securities  217   260   175   217 
                
Federal Reserve Bank and Federal Home Loan Bank stock  85   77   82   85 
Interest on federal funds sold and other short-term investments  3,009   2,017   1,267   3,009 
Total interest income  47,413   43,497   46,611   47,413 
                
Interest expense:                
Interest on deposits:                
Interest-bearing checking  121   106   16   121 
Savings accounts
  377   419   233   377 
Money market deposit accounts  826   439   1,096   826 
Time deposits  5,976   2,860   6,391   5,976 
Interest on short-term borrowings  381   358   322   381 
Total interest expense  7,681   4,182   8,058   7,681 
                
Net interest income  39,732   39,315   38,553   39,732 
Provision for loan losses  300   300   2,000   300 
Net interest income after provision for loan losses  39,432   39,015   36,553   39,432 
                
Noninterest income:                
Trustco financial services income  1,733   1,815   1,600   1,733 
Fees for services to customers  2,520   2,645   2,315   2,520 
Net gain on securities transactions  1,155   - 
Other  384   219   264   384 
Total noninterest income  4,637   4,679   5,334   4,637 
                
Noninterest expenses:                
Salaries and employee benefits  11,451   10,422   11,373   11,451 
Net occupancy expense  4,167   4,315   4,306   4,167 
Equipment expense  1,902   1,751   1,802   1,902 
Professional services  1,650   1,430   1,481   1,650 
Outsourced services  1,925   1,925   2,075   1,925 
Advertising expense  785   630   488   785 
FDIC and other insurance  648   1,023   294   648 
Other real estate (income) expense, net  (24)  372 
Other real estate expense (income), net  194   (24)
Other  2,363   2,287   2,255   2,363 
Total noninterest expenses  24,867   24,155   24,268   24,867 
                
Income before taxes  19,202   19,539   17,619   19,202 
Income taxes  4,644   4,731   4,306   4,644 
                
Net income $14,558   14,808  $13,313   14,558 
                
Net income per share:                
- Basic $0.150   0.154  $0.138   0.150 
                
- Diluted $0.150   0.153  $0.138   0.150 
See accompanying notes to unaudited consolidated interim financial statements.
TRUSTCO BANK CORP NY
Consolidated Statements of Comprehensive Income (Unaudited)
(dollars in thousands)

  
Three months ended
March 31,
 
  2019  2018 
       
Net income $14,558   14,808 
         
Net unrealized holding gain (loss) on securities available for sale  4,588   (7,160)
Tax effect  (1,192)  1,858 
         
Net unrealized gain (loss) on securities available for sale, net of tax  3,396   (5,302)
         
         
Amortization of net actuarial gain  (48)  (72)
Amortization of prior service (credit) cost  (85)  23 
Tax effect  35   13 
Amortization of net actuarial gain and prior service credit on pension and postretirement plans, net of tax
  (98)  (36)
         
Other comprehensive income (loss), net of tax  3,298   (5,338)
Comprehensive income $17,856   9,470 


See accompanying notes to unaudited consolidated interim financial statements.

43
Index

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



 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 
 
Three months ended
March 31,
 
  2020  2019 
       
Net income $13,313   14,558 
         
Net unrealized holding gain on securities available for sale  10,732   4,588 
Reclassification adjustments for net gain recognized in income  (1,155)  - 
Tax effect  (2,487)  (1,192)
         
Net unrealized gain on securities available for sale, net of tax  7,090   3,396 
         
         
Amortization of net actuarial gain  (166)  (48)
Amortization of prior service credit  (49)  (85)
Tax effect  56   35 
Amortization of net actuarial gain and prior service credit on pension and postretirement plans, net of tax  (159)  (98)
         
Other comprehensive income, net of tax  6,931   3,298 
Comprehensive income $20,244   17,856 


See accompanying notes to unaudited consolidated interim financial statements.

54
Index
TRUSTCO BANK CORP NY
Consolidated Statements of Changes in Shareholders’ EquityFinancial Condition (Unaudited)
(dollars in thousands, except per share data)


  
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 
 March 31, 2020  December 31, 2019 
ASSETS:      
       
Cash and due from banks $43,362   48,198 
         
Federal funds sold and other short term investments  492,691   408,648 
Total cash and cash equivalents  536,053   456,846 
         
Securities available for sale  503,166   573,823 
         
Held to maturity securities (fair value 2020 $19,035; 2019 $19,680)  17,720   18,618 
         
Federal Reserve Bank and Federal Home Loan Bank stock  9,183   9,183 
         
Loans, net of deferred net costs  4,099,392   4,062,196 
Less:        
Allowance for loan losses  46,155   44,317 
Net loans  4,053,237   4,017,879 
         
Bank premises and equipment, net  34,428   34,622 
Operating lease right-of-use assets  49,955   51,475 
Other assets  52,905   58,876 
         
Total assets $5,256,647   5,221,322 
         
LIABILITIES:        
Deposits:        
Demand $480,255   463,858 
Interest-bearing checking  895,254   875,672 
Savings accounts  1,122,116   1,113,146 
Money market deposit accounts  617,198   599,163 
Time deposits  1,367,005   1,398,177 
Total deposits  4,481,828   4,450,016 
         
Short-term borrowings  148,090   148,666 
Operating lease liabilities  54,998   56,553 
Accrued expenses and other liabilities  23,546   27,830 
         
Total liabilities  4,708,462   4,683,065 
         
SHAREHOLDERS’ EQUITY:        
Capital stock par value $1; 150,000,000 shares authorized;  100,204,832 and 100,204,832 shares issued at March 31, 2020 and December 31, 2019, respectively  100,205   100,205 
Surplus  176,431   176,427 
Undivided profits  294,553   288,067 
Accumulated other comprehensive income, net of tax  11,392   4,461 
Treasury stock at cost - 3,772,175 and 3,283,175 shares at March 31, 2020 and December 31, 2019, respectively  (34,396)  (30,903)
         
Total shareholders’ equity  548,185   538,257 
         
Total liabilities and shareholders’ equity $5,256,647  $5,221,322 


See accompanying notes to unaudited consolidated interim financial statements.

6
5
Index

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


  Three months ended March 31, 
  2019  2018 
       
Cash flows from operating activities:      
Net income $14,558   14,808 
         
Adjustments to reconcile net income to net cash provided by operating activities:        
Depreciation
  1,010   942 
Amortization of right-of-use asset  1,470   - 
Net gain on sale of other real estate owned  (306)  (137)
Writedown of other real estate owned  140   199 
Provision for loan losses  300   300 
Deferred tax expense (benefit)
  498   (305)
Net amortization of securities  688   915 
Stock based compensation expense  (12)  28 
Increase in taxes receivable  (18)  (1,787)
(Increase) decrease in interest receivable  (13)  862 
Increase in interest payable  448   128 
Increase in other assets  (1,545)  (946)
Decrease in operating lease liabilities  (1,488)  - 
Decrease in accrued expenses and other liabilities  (3,141)  (3,039)
Total adjustments  (1,969)  (2,840)
Net cash provided by operating activities  12,589   11,968 
         
Cash flows from investing activities:        
Proceeds from calls of securities available for sale  16,041   25,028 
Proceeds from calls and maturities of held to maturity securities  851   1,377 
Proceeds from maturities of securities available for sale  
10,000
  
  25,000 
Purchases of securities available for sale  
(67,103
)  (45,224)
Net decrease (increase) in loans  11,863   (31,151)
Proceeds from dispositions of other real estate owned  1,265   1,486 
Purchases of bank premises and equipment  (744)  (1,025)
Net cash used in investing activities  (27,827)  (24,509)
         
Cash flows from financing activities:        
Net increase in deposits  138,822   61,754 
Net decrease in short-term borrowings  (2,115)  (39,081)
Proceeds from exercise of stock options  35   20 
Proceeds from sale of treasury stock  594   594 
Purchases of treasury stock  (35)  - 
Dividends paid  (6,585)  (6,316)
Net cash provided by financing activities  130,716   16,971 
Net increase in cash and cash equivalents  115,478   4,430 
Cash and cash equivalents at beginning of period  503,709   612,740 
Cash and cash equivalents at end of period $619,187   617,170 
         
Supplemental Disclosure of Cash Flow Information:        
Cash paid during the year for:        
Interest paid $7,233   4,054 
Income taxes paid
  4,662   6,524 
Other non cash items:        
Transfer of loans to other real estate owned  685   492 
Increase in dividends payable  6   7 
Change in unrealized gain (loss) on securities available for sale-gross of deferred taxes  4,588   (7,160)
Change in deferred tax effect on unrealized (loss) gain on securities available for sale  (1,192)  1,858 
Amortization of net actuarial gain and prior service cost on pension and postretirement plans  (133)  (49)
Change in deferred tax effect of amortization of net actuarial gain postretirement benefit plans  35   13 
In conjunction with the adoption of ASU 2016-02 as detailed in Note 9 to the Unaudited Consolidated Financial Statements, the following assets were recorded and liabilities were assumed:
        
Operating lease right-of-use assets  53,029   - 
Operating lease liabilities  58,211   - 
 
Capital
Stock
  Surplus  
Undivided
Profits
  
Accumulated
Other
Comprehensive
Income (Loss)
  
Treasury
Stock
  Total 
                   
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 
                         
Beginning balance, January 1, 2020 $100,205   176,427   288,067   4,461   (30,903)  538,257 
Net income  -   -   13,313   -   -   13,313 
Other comprehensive income, net of tax  -   -   -   6,931   -   6,931 
Cash dividend declared, $0.068125 per share  -   -   (6,827)  -   -   (6,827)
Purchase of treasury stock (489,000 shares)  -   -   -   -   (3,493)  (3,493)
Stock based compensation expense  -   4   -   -   -   4 
                         
Ending balance, March 31, 2020
 $100,205   176,431   294,553   11,392   (34,396)  548,185 


See accompanying notes to unaudited consolidated interim financial statements.

7
6
Index


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

 Three months ended March 31, 
  2020  2019 
       
Cash flows from operating activities:      
Net income $13,313   14,558 
         
Adjustments to reconcile net income to net cash provided by operating activities:        
Depreciation  999   1,010 
Amortization of right-of-use asset  1,520   1,470 
Net gain on sale of other real estate owned  (82)  (306)
Writedown of other real estate owned  80   140 
Provision for loan losses  2,000   300 
Deferred tax expense  846   498 
Net amortization of securities  858   688 
Stock based compensation expense  4   (12)
Net gain on sales of securities  (1,155)  - 
Decrease (increase) in taxes receivable  3,682   (18)
Decrease  (increase) in interest receivable  673   (13)
(Decrease) increase in interest payable  (200)  448 
Increase in other assets  (2,171)  (1,545)
Decrease in operating lease liabilities  (1,555)  (1,488)
Decrease in accrued expenses and other liabilities  (4,307)  (3,141)
Total adjustments  1,192   (1,969)
Net cash provided by operating activities  14,505   12,589 
         
Cash flows from investing activities:        
Proceeds from sales and calls of securities available for sale  98,363   16,041 
Proceeds from calls and maturities of held to maturity securities  859   851 
Proceeds from maturities of securities available for sale  5,000   10,000 
Purchases of securities available for sale  (22,793)  (67,103)
Net decrease (increase) in loans  (37,792)  11,863 
Proceeds from dispositions of other real estate owned  731   1,265 
Purchases of bank premises and equipment  (805)  (744)
Net cash provided by (used in) investing activities  43,563   (27,827)
         
Cash flows from financing activities:        
Net increase in deposits  31,812   138,822 
Net decrease in short-term borrowings  (576)  (2,115)
Proceeds from exercise of stock options  -   35 
Proceeds from sale of treasury stock  -   594 
Purchases of treasury stock  (3,493)  (35)
Dividends paid  (6,604)  (6,585)
Net cash provided by financing activities  21,139   130,716 
Net increase in cash and cash equivalents  79,207   115,478 
Cash and cash equivalents at beginning of period  456,846   503,709 
Cash and cash equivalents at end of period $536,053   619,187 
         
Supplemental Disclosure of Cash Flow Information:        
Cash paid during the year for:        
Interest paid $8,258   7,233 
Income taxes paid  626   4,662 
Other non cash items:        
Transfer of loans to other real estate owned  434   685 
Increase in dividends payable  223   6 
Change in unrealized gain on securities available for sale-gross of deferred taxes  9,577   4,588 
Change in deferred tax effect on unrealized gain on securities available for sale  (2,487)  (1,192)
Amortization of net actuarial gain and prior service credit on pension and postretirement plans  (215)  (133)
Change in deferred tax effect of amortization of net actuarial gain and prior service credit on pension and postretirement benefit plans  56   35 

See accompanying notes to unaudited consolidated interim financial statements.
7
Index

(1) Financial Statement Presentation


The unaudited Consolidated Interim Financial Statements of TrustCo Bank Corp NY (the “Company” or “TrustCo”) include the accounts of the Company’s subsidiary, Trustco Bank (also referred to as the “Bank”) and other subsidiaries after elimination of all significant intercompany accounts and transactions.  Prior period amounts are reclassified when necessary to conform to the current period presentation.  The net income reported for the three months ended March 31, 20192020 is not necessarily indicative of the results that may be expected for the year ending December 31, 2019,2020, or any interim periods.  These financial statements consider events that occurred through the date of filing.


In the opinion of the management of the Company, the accompanying unaudited Consolidated Interim Financial Statements contain all recurring adjustments necessary to present fairly the financial position as of March 31, 2019,2020, the results of operations and cash flows for the three months ended March 31, 20192020 and 2018.2019.  The accompanying unaudited Consolidated Interim Financial Statements should be read in conjunction with the Company’s year‑endyear-end Consolidated Financial Statements, including notes thereto, which are included in the Company’s Annual Report on Form 10‑K10-K for the year ended December 31, 2018.2019.  The accompanying unaudited Consolidated Interim Financial Statements have been prepared in accordance with the instructions to Form 10‑Q10-Q and, therefore, do not include all information and notes necessary for a complete presentation of financial position, results of operations and cash flow activity required in accordance with accounting principles generally accepted in the United States.


(2) Earnings Per Share


The Company computes earnings per share in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 260, Earnings Per Share (“ASC 260”).   A reconciliation of the component parts of earnings per share for the three months ended March 31, 20192020 and 20182019 is as follows:


(in thousands, except per share data)
 
For the three months ended
March 31,
  
For the three months ended
March 31,
 
 2019  2018  2020  2019 
Net income $14,558   14,808  $13,313   14,558 
Weighted average common shares  96,744   96,353   96,727   96,744 
Stock Options  78   131   22   78 
Weighted average common shares including potential dilutive shares
  96,822   96,484   96,749   96,822 
                
Basic EPS $0.150   0.154  $0.138   0.150 
                
Diluted EPS $0.150   0.153  $0.138   0.150 


For the three months ended March 31, 2020 and 2019 and 2018, there were nothe weighted average antidilutive stock options excluded from diluted earnings.earnings per share were approximately 452 thousand and -0-, respectively.  The stock options are antidilutive because the strike price is greater than the average fair value of the Company’s common stock for the periods presented.

8
Index


(3) Benefit Plans


The table below outlines the components of the Company’s net periodic benefit recognized during the three months ended March 31, 20192020 and 20182019 for its pension and other postretirement benefit plans:


 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) 2019  2018  2019  2018  2020  2019  2020  2019 
                        
Service cost $8   11   18   26  $12   8   19   18 
Interest cost  315   326   60   54   266   315   54   60 
Expected return on plan assets  (752)  (687)  (248)  (190)  (819)  (752)  (296)  (248)
Amortization of net loss (gain)  -   17   (48)  (89)
Amortization of prior service (credit) cost  -   -   (85)  23 
Amortization of net gain  -   -   (166)  (48)
Amortization of prior service credit  -   -   (49)  (85)
Net periodic benefit $(429)  (333)  (303)  (176) $(541)  (429)  (438)  (303)


The Company does not expect to make contributions to its pension and postretirement benefit plans in 2019.2020.  As of March 31, 2019, no2020, 0 contributions have been made, however, this decision is reviewed each quarter and is subject to change based upon market conditions.


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


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Index

(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  March 31, 2020 
(dollars in thousands) 
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 $149,870   26   1,604   148,292  $54,900   70   -   54,970 
State and political subdivisions  168   4   -   172   110   2   -   112 
Mortgage backed securities and collateralized mortgage obligations - residential
  318,864   198   6,116   312,946   343,168   8,906   7   352,067 
Corporate bonds  30,299   89   130   30,258   47,943   779   158   48,564 
Small Business Administration - guaranteed participation securities
  56,060   -   1,947   54,113   46,392   376   -   46,768 
Other  685   -   -   685   685   -   -   685 
                                
Total Securities Available for Sale $555,946   317   9,797   546,466 
Total securities available for sale $493,198   10,133   165   503,166 


 December 31, 2018  December 31, 2019 
(dollars in thousands) 
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 $154,868   -   2,708   152,160  $104,895   36   419   104,512 
State and political subdivisions  168   5   -   173   160   2   -   162 
Mortgage backed securities and collateralized mortgage obligations - residential
  271,386   53   9,407   262,032   388,537   2,406   1,426   389,517 
Corporate bonds  30,048   -   110   29,938   30,164   367   95   30,436 
Small Business Administration - guaranteed participation securities
  58,376   -   1,901   56,475   48,991   -   480   48,511 
Other  685   -   -   685   685   -   -   685 
                                
Total securities available for sale $515,531   58   14,126   501,463  $573,432   2,811   2,420   573,823 


The schedule of maturities of debt 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 of securities prepayments and the right of certain issuers have the right to call or prepay their obligations with or without call or prepayment penalties.penalty.  Securities not due at a single maturity date are presented separately.


(dollars in thousands) 
Amortized
Cost
 
Fair
Value
  
Amortized
Cost
  
Fair
Value
 
           
Due in one year or less $5,165 
5,166  $10,062   10,104 
Due in one year through five years 175,796  174,180   83,558   84,189 
Due after five years through ten years 61  61   10,018   10,038 
Mortgage backed securities and collateralized mortgage obligations 318,864  312,946   343,168   352,067 
Small Business Administration - guaranteed participation securities  56,060  54,113   46,392   46,768 
 $555,946 
546,466  $493,198   503,166 
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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  March 31, 2020 
 
Less than
12 months
  
12 months
or more
  
Total
  
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
  
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  $-   -   4,390   7   4,390   7 
Corporate bonds  4,870   130   -   -   4,870   130   -   -   4,843   158   4,843   158 
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  $-   -   9,233   165   9,233   165 


 December 31, 2018  December 31, 2019 
 
Less than
12 months
  
12 months
or more
  
Total
  
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
  
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  $19,820   180   74,656   239   94,476   419 
Mortgage backed securities and collateralized mortgage obligations - residential
  1,102   11   259,729   9,396   260,831   9,407   67,322   446   169,169   980   236,491   1,426 
Corporate bonds  14,943   98   9,995   12   24,938   110   4,905   95   -   -   4,905   95 
Small Business Administration - guaranteed participation securities
  -   -   56,475   1,901   56,475   1,901   48,510   480   -   -   48,510   480 
                                                
Total $45,915   215   438,490   13,911   484,405   14,126  $140,557   1,201   243,825   1,219   384,382   2,420 


The proceeds from sales and calls and maturities of securities available for sale, gross realized gains and gross realized losses from sales and calls during the three months ended March 31, 20192020 and 20182019 are as follows:


(dollars in thousands) Three months ended March 31,  Three months ended March 31, 
 2019  2018  2020  2019 
            
Proceeds from sales
 $
-   -  $29,219   - 
Proceeds from calls/paydowns  
16,041
   25,028   69,144   16,041 
Proceeds from maturities
  10,000   25,000   5,000   10,000 
Gross realized gains  1,155   - 
Gross realized losses  -   - 


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, 20192020 and 2018.2019.

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Index

(b) Held to maturity securities


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


 March 31, 2019  March 31, 2020 
(dollars in thousands) 
Amortized
Cost
  
Gross
Unrecognized
Gains
  
Gross
Unrecognized
Losses
  
Fair
Value
  
Amortized
Cost
  
Gross
Unrecognized
Gains
  
Gross
Unrecognized
Losses
  
Fair
Value
 
                        
Mortgage backed securities and collateralized mortgage obligations - residential
 $21,609   710   36   22,283  $17,720   1,315   -   19,035 
Total held to maturity $21,609   710   36   22,283  $17,720   1,315   -   19,035 


 December 31, 2018  December 31, 2019 
(dollars in thousands) 
Amortized
Cost
  
Gross
Unrecognized
Gains
  
Gross
Unrecognized
Losses
  
Fair
Value
  
Amortized
Cost
  
Gross
Unrecognized
Gains
  
Gross
Unrecognized
Losses
  
Fair
Value
 
                        
Mortgage backed securities and collateralized mortgage obligations - residential
 $22,501   577   154   22,924  $18,618   1,062   -   19,680 
Total held to maturity $22,501   577   154   22,924  $18,618   1,062   -   19,680 


The following table distributes the held to maturity portfolio as of March 31, 2019,2020, based on the securities’ final maturity.  Actual maturities may differ because of securities prepayments and the right of certain issuers to call or prepay their obligations without penalty.  Securities not due at a single maturity date are presented separately:


(dollars in thousands) 
Amortized
Cost
  
Fair
Value
  
Amortized
Cost
  
Fair
Value
 
Mortgage backed securities and collateralized mortgage obligations - residential
 $21,609   22,283  $17,720   19,035 
 $21,609   22,283  $17,720   19,035 


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) 
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 
                         
Total $10,958   154   -   -   10,958   154 

All held to maturity securities are held at cost on the financial statements. There were 0 gross unrealized losses on held to maturity securities as of March 31, 2020 and December 31, 2019.


There were no0 sales or transfers of held to maturity securities during the three months ended March 31, 20192020 and 2018.2019.


(c) Other-Than-Temporary Impairment


Management evaluates securities for other-than-temporary impairment (“OTTI”) at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation.  The investment securities portfolio is evaluated for OTTI by segregating the portfolio by type and applying the appropriate OTTI model.


In determining OTTI 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‑temporaryother-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.

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Index

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.


As of March 31, 2019,2020, the Company’s security portfolio included certain securities which were in an unrealized loss position, and are discussed below.


U.S. government sponsored enterprises:  In the case of unrealized losses on U.S. government sponsored enterprises, 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.

Mortgage backed securities and collateralized mortgage obligations – residential:  At March 31, 2019,2020, 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‑temporarilyother-than-temporarily impaired at March 31, 2019.2020.


Corporate Bonds:  At March 31, 2019,2020, 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, 2019.2020.


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.

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Index

(5) Loans and Allowance for Loan Losses


  March 31, 2019 
(dollars in thousands) 
New York and
other states*
  Florida  Total 
Commercial:         
Commercial real estate $152,731   15,386   168,117 
Other  21,983   247   22,230 
Real estate mortgage - 1 to 4 family:            
First mortgages  2,438,732   847,444   3,286,176 
Home equity loans  71,753   18,264   90,017 
Home equity lines of credit  237,874   44,160   282,034 
Installment  10,043   2,536   12,579 
Total loans, net $2,933,116  $928,037   3,861,153 
Less: Allowance for loan losses          44,671 
Net loans         $3,816,482 


 December 31, 2018  March 31, 2020 
(dollars in thousands) 
New York and
other states*
  Florida  Total  
New York and
other states*
  Florida  Total 
Commercial:                  
Commercial real estate $156,278   15,275   171,553  $158,630   17,579   176,209 
Other  24,330   263   24,593   19,221   375   19,596 
Real estate mortgage - 1 to 4 family:                        
First mortgages  2,442,711   845,166   3,287,877   2,558,048   982,078   3,540,126 
Home equity loans  71,523   17,308   88,831   68,628   18,367   86,995 
Home equity lines of credit  243,765   45,775   289,540   217,101   48,652   265,753 
Installment  9,462   2,240   11,702   8,386   2,327   10,713 
Total loans, net $2,948,069   926,027   3,874,096  $3,030,014   1,069,378   4,099,392 
Less: Allowance for loan losses          44,766           46,155 
Net loans         $3,829,330          $4,053,237 


  December 31, 2019 
(dollars in thousands) 
New York and
other states*
  Florida  Total 
Commercial:         
Commercial real estate $162,186   17,752   179,938 
Other  19,326   235   19,561 
Real estate mortgage - 1 to 4 family:            
First mortgages  2,541,440   953,995   3,495,435 
Home equity loans  69,791   18,548   88,339 
Home equity lines of credit  221,487   46,435   267,922 
Installment  8,706   2,295   11,001 
Total loans, net $3,022,936   1,039,260   4,062,196 
Less: Allowance for loan losses          44,317 
Net loans         $4,017,879 

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


At March 31, 20192020 and December 31, 2018,2019, the Company had approximately $27.2$27.6 million and $26.7$28.5 million of real estate construction loans, respectively.  Of the $27.2$27.6 million in real estate construction loans at March 31, 2019,2020, approximately $13.8$9.5 million are secured by first mortgages to residential borrowers while approximately $13.4$18.1 million were to commercial borrowers for residential construction projects.  Of the $26.7$28.5 million in real estate construction loans at December 31, 2018,2019, approximately $14.2$10.7 million are secured by first mortgages to residential borrowers while approximately $12.5$17.8 million were to commercial borrowers for residential construction projects.  The vast majority of construction loans are in the Company’s New York market.


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.

14
Index

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


 March 31, 2019  March 31, 2020 
(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 $696   -   696  $517   -   517 
Other  5   -   5   113   -   113 
Real estate mortgage - 1 to 4 family:                        
First mortgages  18,282   1,542   19,824   15,741   1,258   16,999 
Home equity loans  363   -   363   139   48   187 
Home equity lines of credit  3,698   102   3,800   2,690   186   2,876 
Installment  26   -   26   24   -   24 
Total non-accrual loans  23,070   1,644   24,714   19,224   1,492   20,716 
Restructured real estate mortgages - 1 to 4 family  33   -   33   27   -   27 
Total nonperforming loans $23,103   1,644   24,747  $19,251   1,492   20,743 


 December 31, 2018  December 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 $639   -   639  $733   -   733 
Other  6   -   6   83   -   83 
Real estate mortgage - 1 to 4 family:                        
First mortgages  18,202   1,812   20,014   15,385   1,468   16,853 
Home equity loans  247   -   247   218   48��  266 
Home equity lines of credit  3,924   103   4,027   2,804   98   2,902 
Installment  4   15   19   3   -   3 
Total non-accrual loans  23,022   1,930   24,952   19,226   1,614   20,840 
Restructured real estate mortgages - 1 to 4 family  34   -   34   29   -   29 
Total nonperforming loans $23,056   1,930   24,986  $19,255   1,614   20,869 


* 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, 20192020 and December 31, 2018,2019, other real estate owned included $703$877  thousand and $1.1$1.2 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 $12.4$9.2 million and $8.7 million, respectively, as of March 31, 20192020 and December 31, 2018.2019.

15
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, 20192020 and December 31, 2018:2019:


 March 31, 2019 
                   March 31, 2020 
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 $96   -   565   661   152,070   152,731  $211   -   332   543   158,087   158,630 
Other  -   -   -   -   21,983   21,983   -   -   113   113   19,108   19,221 
Real estate mortgage - 1 to 4 family:                                                
First mortgages  2,798   780   13,471   17,049   2,421,683   2,438,732   3,410   2,129   11,114   16,653   2,541,395   2,558,048 
Home equity loans  16   27   209   252   71,501   71,753   205   122   80   407   68,221   68,628 
Home equity lines of credit  913   341   1,999   3,253   234,621   237,874   729   85   871   1,685   215,416   217,101 
Installment  70   47   26   143   9,900   10,043   17   9   24   50   8,336   8,386 
                                                
Total $3,893   1,195   16,270   21,358   2,911,758   2,933,116  $4,572   2,345   12,534   19,451   3,010,563   3,030,014 


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 $-   -   -   -   15,386   15,386  $-   -   -   -   17,579   17,579 
Other  -   -   -   -   247   247   -   -   -   -   375   375 
Real estate mortgage - 1 to 4 family:                                                
First mortgages  603   158   571   1,332   846,112   847,444   629   385   500   1,514   980,564   982,078 
Home equity loans  -   50   -   50   18,214   18,264   62   -   -   62   18,305   18,367 
Home equity lines of credit  120   -   50   170   43,990   44,160   99   -   140   239   48,413   48,652 
Installment  5   19   -   24   2,512   2,536   16   -   -   16   2,311   2,327 
                                                
Total $728   227   621   1,576   926,461   928,037  $806   385   640   1,831   1,067,547   1,069,378 


Total: 
              
                   
(dollars in thousands) 
30-59
Days
Past Due
  
60-89
Days
Past Due
  
90 +
Days
Past Due
  
Total
30+ days
Past Due
  Current  
Total
Loans
  
30-59
Days
Past Due
  
60-89
Days
Past Due
  
90 +
Days
Past Due
  
Total
30+ days
Past Due
  Current  
Total
Loans
 
                                    
Commercial:                                    
Commercial real estate $96   -   565   661   167,456   168,117  $211   -   332   543   175,666   176,209 
Other  -   -   -   -   22,230   22,230   -   -   113   113   19,483   19,596 
Real estate mortgage - 1 to 4 family:                                                
First mortgages  3,401   938   14,042   18,381   3,267,795   3,286,176   4,039   2,514   11,614   18,167   3,521,959   3,540,126 
Home equity loans  16   77   209   302   89,715   90,017   267   122   80   469   86,526   86,995 
Home equity lines of credit  1,033   341   2,049   3,423   278,611   282,034   828   85   1,011   1,924   263,829   265,753 
Installment  75   66   26   167   12,412   12,579   33   9   24   66   10,647   10,713 
                                                
Total $4,621   1,422   16,891   22,934   3,838,219   3,861,153  $5,378   2,730   13,174   21,282   4,078,110   4,099,392 


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

16
  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)
                   
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: 
              
 
 December 31, 2019 
New York and other states*:                  
(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 $198   -   370   568   170,985   171,553  $141   -   617   758   161,428   162,186 
Other  -   -   -   -   24,593   24,593   80   -   33   113   19,213   19,326 
Real estate mortgage - 1 to 4 family:                                                
First mortgages  3,693   1,305   13,988   18,986   3,268,891   3,287,877   3,444   292   11,328   15,064   2,526,376   2,541,440 
Home equity loans  208   94   212   514   88,317   88,831   183   7   133   323   69,468   69,791 
Home equity lines of credit  1,003   348   1,741   3,092   286,448   289,540   232   149   1,141   1,522   219,965   221,487 
Installment  56   36   17   109   11,593   11,702   37   8   3   48   8,658   8,706 
                                                
Total $5,158   1,783   16,328   23,269   3,850,827   3,874,096  $4,117   456   13,255   17,828   3,005,108   3,022,936 


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 $-   -   -   -   17,752   17,752 
Other  -   -   -   -   235   235 
Real estate mortgage - 1 to 4 family:                        
First mortgages  542   -   617   1,159   952,836   953,995 
Home equity loans  63   -   -   63   18,485   18,548 
Home equity lines of credit  80   -   50   130   46,305   46,435 
Installment  -   -   -   -   2,295   2,295 
                         
Total $685   -   667   1,352   1,037,908   1,039,260 

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 $141   -   617   758   179,180   179,938 
Other  80   -   33   113   19,448   19,561 
Real estate mortgage - 1 to 4 family:                        
First mortgages  3,986   292   11,945   16,223   3,479,212   3,495,435 
Home equity loans  246   7   133   386   87,953   88,339 
Home equity lines of credit  312   149   1,191   1,652   266,270   267,922 
Installment  37   8   3   48   10,953   11,001 
                         
Total $4,802   456   13,922   19,180   4,043,016   4,062,196 

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

17

At March 31, 20192020 and December 31, 2018,2019, 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 no0 commitments to extend further credit on non-accrual or restructured loans.

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


 For the three months ended March 31, 2019  For the three months ended March 31, 2020 
(dollars in thousands) 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 $4,048   39,772   946   44,766  $3,999   39,748   570   44,317 
Loans charged off:                                
New York and other states*  7   392   29   428   3   191   7   201 
Florida  -   29   31   60   -   -   19   19 
Total loan chargeoffss  7   421   60   488 
Total loan chargeoffs  3   191   26   220 
                                
Recoveries of loans previously charged off:                                
New York and other states*  3   74   6   83   2   51   3   56 
Florida  -   10   -   10   -   2   -   2 
Total recoveries  3   84   6   93   2   53   3   58 
Net loans charged off
  4   337   54   395   1   138   23   162 
Provision for loan losses  (310)  550   60   300 
Provision (credit) for loan losses  (38)  2,033   5   2,000 
Balance at end of period $3,734   39,985   952   44,671  $3,960   41,643   552   46,155 


 For the three months ended March 31, 2018  For the three months ended March 31, 2019 
(dollars in thousands) 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   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 
Provision for loan losses  (75)  310   64   300 
Net loans charged off  4   337   54   395 
Provision (credit) for loan losses  (310)  550   60   300 
Balance at end of period $4,255   39,359   765   44,379  $3,734   39,985   952   44,671 


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



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

18

The following tables present the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of March 31, 20192020 and December 31, 2018:2019:


 March 31, 2019  March 31, 2020 
(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  3,734   39,985   952   44,671   3,960   41,643   552   46,155 
                                
Total ending allowance balance $3,734   39,985   952   44,671  $3,960   41,643   552   46,155 
                                
Loans:                                
Individually evaluated for impairment $1,467   19,694   -   21,161  $1,115   19,172   -   20,287 
Collectively evaluated for impairment  188,880   3,638,533   12,579   3,839,992   194,690   3,873,702   10,713   4,079,105 
                                
Total ending loans balance $190,347   3,658,227   12,579   3,861,153  $195,805   3,892,874   10,713   4,099,392 


 December 31, 2018  December 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  4,048   39,772   946   44,766   3,999   39,748   570   44,317 
                                
Total ending allowance balance $4,048   39,772   946   44,766  $3,999   39,748   570   44,317 
                                
Loans:                                
Individually evaluated for impairment $1,424   20,864   -   22,288  $1,437   19,539   -   20,976 
Collectively evaluated for impairment  194,722   3,645,384   11,702   3,851,808   198,062   3,832,157   11,001   4,041,220 
                                
Total ending loans balance $196,146   3,666,248   11,702   3,874,096  $199,499   3,851,696   11,001   4,062,196 


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, 20192020 and December 31, 20182019 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.

19

The following tables present impaired loans by loan class as of March 31, 20192020 and December 31, 2018:2019:


 March 31, 2019 
             March 31, 2020 
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
 
                        
Commercial:                        
Commercial real estate $1,319  $1,490   -   1,281  $866  $1,006   -   1,245 
Other  37   87   -   132   145   145   -   91 
Real estate mortgage - 1 to 4 family:                                
First mortgages  14,922   15,233   -   14,944   13,872   14,249   -   14,095 
Home equity loans  247   267   -   252   232   252   -   237 
Home equity lines of credit  2,161   2,301   -   2,585   2,209   2,349   -   2,286 
                                
Total $18,686   19,378   -   19,194  $17,324   18,001   -   17,954 


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  $104   104   -   106 
Other  -   -   -   -   -   -   -   - 
Real estate mortgage - 1 to 4 family:                                
First mortgages  2,030   2,030   -   2,291   2,615   2,615   -   2,405 
Home equity loans  82   82   -   85   -   -   -   30 
Home equity lines of credit  252   252   -   253   244   244   -   247 
                                
Total $2,475   2,475   -   2,713  $2,963   2,963   -   2,788 


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 $1,430   1,601   -   1,365  $970   1,110   -   1,352 
Other  37   87   -   132   145   145   -   91 
Real estate mortgage - 1 to 4 family:                                
First mortgages  16,952   17,263   -   17,235   16,487   16,864   -   16,500 
Home equity loans  329   349   -   337   232   252   -   267 
Home equity lines of credit  2,413   2,553   -   2,838   2,453   2,593   -   2,533 
                                
Total $21,161   21,853   -   21,907  $20,287   20,964   -   20,743 


* Includes New York, New Jersey, Vermont and Massachusetts.
20


 December 31, 2019 
New York and other states*:            
(dollars in thousands) 
Recorded
Investment
  
Unpaid
Principal
Balance
  
Related
Allowance
  
Average
Recorded
Investment
 
             
Commercial:            
Commercial real estate $1,217   1,359   -   1,385 
Other  115   115   -   38 
Real estate mortgage - 1 to 4 family:                
First mortgages  14,414   14,714   -   14,358 
Home equity loans  235   255   -   241 
Home equity lines of credit  2,160   2,300   -   2,274 
                 
Total $18,141   18,743   -   18,296 

Florida:            
(dollars in thousands) 
Recorded
Investment
  
Unpaid
Principal
Balance
  
Related
Allowance
  
Average
Recorded
Investment
 
             
Commercial:            
Commercial real estate $105   105   -   82 
Other  -   -   -   26 
Real estate mortgage - 1 to 4 family:                
First mortgages  2,486   2,486   -   2,259 
Home equity loans  -   -   -   51 
Home equity lines of credit  244   244   -   249 
                 
Total $2,835   2,835   -   2,667 

Total:            
(dollars in thousands) 
Recorded
Investment
  
Unpaid
Principal
Balance
  
Related
Allowance
  
Average
Recorded
Investment
 
             
Commercial:            
Commercial real estate $1,322   1,464   -   1,467 
Other  115   115   -   64 
Real estate mortgage - 1 to 4 family:                
First mortgages  16,900   17,200   -   16,617 
Home equity loans  235   255   -   292 
Home equity lines of credit  2,404   2,544   -   2,523 
                 
Total $20,976   21,578   -   20,963 

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


20
21
  December 31, 2018 
             
New York and other states*: 
Recorded
Investment
  
Unpaid
Principal
Balance
  
Related
Allowance
  
Average
Recorded
Investment
 
(dollars in thousands)
             
Commercial:            
Commercial real estate $1,274   1,444   -   1,503 
Other  38   88   -   123 
Real estate mortgage - 1 to 4 family:                
First mortgages  15,210   15,661   -   15,577 
Home equity loans  252   272   -   262 
Home equity lines of credit  2,772   2,996   -   2,772 
                 
Total $19,546   20,461   -   20,237 

Florida: 
        
 
(dollars in thousands) 
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  2,293   2,399   -   2,455 
Home equity loans  84   84   -   86 
Home equity lines of credit  253   253   -   326 
                 
Total $2,742   2,848   -   2,924 

Total: 
        
 
(dollars in thousands) 
Recorded
Investment
  
Unpaid
Principal
Balance
  
Related
Allowance
  
Average
Recorded
Investment
 
             
Commercial:            
Commercial real estate $1,386   1,556   -   1,560 
Other  38   88   -   123 
Real estate mortgage - 1 to 4 family:                
First mortgages  17,503   18,060   -   18,032 
Home equity loans  336   356   -   348 
Home equity lines of credit  3,025   3,249   -   3,098 
                 
Total $22,288   23,309   -   23,161 

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

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, 20192020 and 2018.2019.


As of March 31, 20192020 and December 31, 20182019 impaired loans included approximately $10.9$10.7 million and $11.1$10.9 million of loans in accruing status that were identified as TDR’s in accordance with regulatory guidance related to Chapter 7 bankruptcy loans.


Management evaluates impairment on impaired loans on a quarterly basis. If, during this evaluation, impairment of the loan is identified, a chargeoff is taken at that time.  As a result, as of  March 31, 20192020 and December 31, 2018,2019, 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 3/31/2020  Three months ended 3/31/2019 
                                    
New York and other states*: 
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
  
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  4  $656   656   4  $642   642   1  $167   167   4  $656   656 
Home equity loans  -   -   -   -   -   -   -   -   -   -   -   - 
Home equity lines of credit  -   -   -   3   240   240   1   70   70   -   -   - 
                                                
Total  4  $656  $656   7  $882  $882   2  $237  $237   4  $656  $656 


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-$---$--
Florida:
 
(dollars in thousands)
 
Number of
Contracts
  
Pre-Modification
Outstanding
Recorded
Investment
  
Post-Modification
Outstanding
Recorded
Investment
  
Number of
Contracts
  
Pre-Modification
Outstanding
Recorded
Investment
  
Post-Modification
Outstanding
Recorded
Investment
 
                   
Commercial:                  
Commercial real estate  -  $-   -   -  $-   - 
Real estate mortgage - 1 to 4 family:                        
First mortgages  1  $147   147   -  $-   - 
Home equity loans  -   -   -   -   -   - 
Home equity lines of credit  -   -   -   -   -   - 
                         
Total  1  $147   147   -  $-   - 


* 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.


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.

22

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,There were 0 TDR’s that defaulted during the three months ended March 31, 20192020 and 20182019 which had been modified within the last twelve months:

  Three months ended 3/31/2019  Three months ended 3/31/2018 
New York and other states*: 
Number of
Contracts
  
Recorded
Investment
  
Number of
Contracts
  
Recorded
Investment
 
(dollars in thousands)
             
Commercial:            
Commercial real estate  -  $-   -  $- 
Real estate mortgage - 1 to 4 family:                
First mortgages  -  $-   -  $- 
Home equity lines of credit  -   -   1   3 
                 
Total  -  $-   1  $3 

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 
Home equity lines of credit  -   -   -   - 
                 
Total  -  $-   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.


23
Doubtful: Loans classified as doubtful have all the weaknesses inherent in those loans classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. All doubtful loans are considered impaired.


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

23

As of  March 31, 20192020 and December 31, 2018,2019, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:


 March 31, 2019  March 31, 2020 
                  
New York and other states*:                  
(dollars in thousands) Pass  Classified  Total  Pass  Classified  Total 
                  
Commercial:                  
Commercial real estate $148,784   3,947   152,731  $153,910   4,720   158,630 
Other  20,985   998   21,983   18,721   500   19,221 
                        
 $169,769   4,945   174,714  $172,631   5,220   177,851 


Florida:                  
(dollars in thousands) Pass  Classified  Total  Pass  Classified  Total 
                  
Commercial:                  
Commercial real estate $15,386   -   15,386  $17,579   -   17,579 
Other  247   -   247   375   -   375 
                        
 $15,633   -   15,633  $17,954   -   17,954 


Total:                  
(dollars in thousands) Pass  Classified  Total  Pass  Classified  Total 
                  
Commercial:                  
Commercial real estate $164,170   3,947   168,117  $171,489   4,720   176,209 
Other  21,232   998   22,230   19,096   500   19,596 
                        
 $185,402   4,945   190,347  $190,585   5,220   195,805 


* Includes New York, New Jersey and Massachusetts.
24


 December 31, 2019 
          
New York and other states*:         
(dollars in thousands) Pass  Classified  Total 
          
Commercial:         
Commercial real estate $157,280   4,906   162,186 
Other  18,384   942   19,326 
             
  $175,664   5,848   181,512 

Florida:         
(dollars in thousands) Pass  Classified  Total 
          
Commercial:         
Commercial real estate $17,752   -   17,752 
Other  235   -   235 
             
  $17,987   -   17,987 

Total:         
(dollars in thousands) Pass  Classified  Total 
          
Commercial:         
Commercial real estate $175,032   4,906   179,938 
Other  18,619   942   19,561 
             
  $193,651   5,848   199,499 

* Includes New York, New Jersey and Massachusetts.

  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 

Florida:         
(dollars in thousands) Pass  Classified  Total 
          
Commercial:         
Commercial real estate $15,163   112   15,275 
Other  263   -   263 
             
  $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 

* Includes New York, New Jersey and Massachusetts.


Included in classified loans in the above tables are impaired loans of $1.5 million$874 thousand and $1.4 million$816  thousand at March 31, 20192020 and December 31, 2018,2019, 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, 20192020 and December 31, 20182019 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, 20192020 and December 31, 20182019 is presented in the non-accrual loans table.


As more fully discussed in Note 12 – Risks and Uncertainties, the Company experienced requests for loan deferrals of principal and interest due to the business disruption caused by Coronavirus Disease 2019 (“COVID-19”), which are excluded from evaluation of TDR classification and will continue to be reported as current during the payment deferral period.


25

(6) Fair Value of Financial Instruments


Fair value measurements (ASC(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:


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.

26

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.


Assets and liabilities measured at fair value under ASC 820 on a recurring basis are summarized below:


 Fair Value Measurements at  Fair Value Measurements at 
 March 31, 2019 Using:  March 31, 2020 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)
  
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 $148,292  $-  $148,292  $-  $54,970  $-  $54,970  $- 
State and political subdivisions  172   -   172   -   112   -   112   - 
Mortgage backed securities and collateralized mortgage obligations - residential
  312,946   -   312,946   -   352,067   -   352,067   - 
Corporate bonds  30,258   -   30,258   -   48,564   -   48,564   - 
Small Business Administration- guaranteed participation securities
  54,113   -   54,113   -   46,768   -   46,768   - 
Other securities  685   -   685   -   685   -   685   - 
                                
Total securities available for sale $546,466  $-  $546,466  $-  $503,166  $-  $503,166  $- 


 Fair Value Measurements at  Fair Value Measurements at 
 December 31, 2018 Using:  December 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)
  
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 $152,160  $-  $152,160  $-  $104,512  $-  $104,512  $- 
State and political subdivisions  173   -   173   -   162   -   162   - 
Mortgage backed securities and collateralized mortgage obligations - residential
  262,032   -   262,032   -   389,517   -   389,517   - 
Corporate bonds  29,938   -   29,938   -   30,436   -   30,436   - 
Small Business Administration- guaranteed participation securities
  56,475   -   56,475   -   48,511   -   48,511   - 
Other securities  685   -   685   -   685   -   685   - 
                                
Total securities available for sale $501,463  $-  $501,463  $-  $573,823  $-  $573,823  $- 


There were no0 transfers between Level 1 and Level 2 during the three months ended March 31, 20192020 and 2018.2019.

27

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


 Fair Value Measurements at        Fair Value Measurements at      
 March 31, 2019 Using:        March 31, 2020 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)  
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 $1,261  $-  $-  $1,261 
Sales comparison
approach
 
Adjustments for
differences between
comparable sales
  1% - 14% (7%) $1,284  $-  $-  $1,284 Sales comparison approachAdjustments for differences between comparable sales  1% - 5% (3%)
                                            
Impaired loans:                                            
Real estate mortgage - 1 to 4 family  439   -   -   439 
Sales comparison
approach
 
Adjustments for
differences between
comparable sales
  5% - 14% (10%)
Real estate mortgage -1 to 4 family  417   -   -   417 Sales comparison approachAdjustments for differences between comparable sales  11% - 13% (12%)


 Fair Value Measurements at        Fair Value Measurements at     
 December 31, 2018 Using:        
December 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)  
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 $1,675  $-  $-  $1,675 
Sales comparison
approach
 
Adjustments for
differences between
comparable sales
  1% - 14% (7%) $1,579  $-  $-  $1,579 Sales comparison approachAdjustments for differences between comparable sales  1% - 21% (7%)
                                            
Impaired loans:                                            
Real estate mortgage - 1 to 4 family  459   -   -   459 
Sales comparison
approach
 
Adjustments for
differences between
comparable sales
  5% - 14% (10%)
Real estate mortgage -1 to 4 family  120   -   -   120 Sales comparison approachAdjustments for differences between comparable sales  1% - 17% (9%)
Home equity lines of credit                     


Other real estate owned, that is carried at fair value less costs to sell was approximately $1.3 million at March 31, 20192020 and consisted of $560$407 thousand of commercial real estate and $703$877 thousand of residential real estate properties.  Valuation charges of $140$80 thousand are included in earnings for the three months ended March 31, 2019.2020.


Of the total impaired loans of $21.2$20.3 million at March 31, 2019, $4392020, $417 thousand of residential mortgages are collateral dependent and are carried at fair value measured on a non-recurring basis.  Due to the sufficiency of chargeoffs taken on these loans and the adequacy of the underlying collateral, there were no specific valuation allowances for these loans at March 31, 2019.2020.  Gross chargeoffs related to residential impaired loans included in the table above were $19$77 thousand for the three months ended March 31, 2019.2020. 


Other real estate owned, that is carried at fair value less costs to sell, was approximately $1.7$1.6 million at December 31, 20182019 and consisted of $560$358 thousand of commercial real estate and $1.1$1.2 million of residential real estate properties.  A valuation charge of $769$366 thousand is included in earnings for the year ended December 31, 2018.2019.


Of the total impaired loans of $22.3$21.0 million at December 31, 2018, $4592019, $120 thousand are collateral dependent and are carried at fair value measured on a non-recurring basis.  Due to the sufficiency of chargeoffs taken on these loans and the adequacy of the underlying collateral, there were no specific valuation allowances for these loans at December 31, 2018.2019.  Gross chargeoffs related to residential impaired loans included in the table above amounted to $67$22 thousand at December 31, 2018.2019.

28

The carrying amounts and estimated fair values (represents exit price) of financial instruments, at March 31, 20192020 and December 31, 20182019 are as follows:follows:


(dollars in thousands)    Fair Value Measurements at     Fair Value Measurements at 
 Carrying  March 31, 2019 Using:  Carrying  March 31, 2020 Using: 
 Value  Level 1  Level 2  Level 3  Total  Value  Level 1  Level 2  Level 3  Total 
Financial assets:                              
Cash and cash equivalents $619,187   619,187   -   -   619,187  $536,053   536,053   -   -   536,053 
Securities available for sale  546,466   -   546,466   -   546,466   503,166   -   503,166   -   503,166 
Held to maturity securities  21,609   -   22,283   -   22,283   17,720   -   19,035   -   19,035 
Federal Reserve Bank and Federal                                        
Home Loan Bank stock  8,953   N/A   N/A   N/A   N/A   9,183   N/A   N/A   N/A   N/A 
Net loans  3,861,153   -   -   
3,781,951
   3,781,951   4,099,392   -   -   4,131,365   4,131,365 
Accrued interest receivable  11,354   149   2,214   8,991   11,354   10,242   8   1,841   8,393   10,242 
Financial liabilities:                                        
Demand deposits  408,417   408,417   -   -   408,417   480,255   480,255   -   -   480,255 
Interest bearing deposits  4,004,652   2,583,471   1,415,390   -   3,998,861   4,001,573   2,634,568   1,375,391   -   4,009,959 
Short-term borrowings  159,778   -   159,778   -   159,778   148,090   -   148,090   -   148,090 
Accrued interest payable  1,472   176   1,296   -   1,472   1,259   145   1,114   -   1,259 


(dollars in thousands)    Fair Value Measurements at     Fair Value Measurements at 
 Carrying  December 31, 2018 Using:  Carrying  December 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 $503,709   503,709   -   -   503,709  $456,846   456,846   -   -   456,846 
Securities available for sale  501,463   -   501,463   -   501,463   573,823   -   573,823   -   573,823 
Held to maturity securities  22,501   -   22,924   -   22,924   18,618   -   19,680   -   19,680 
Federal Reserve Bank and Federal                                        
Home Loan Bank stock  8,953   N/A   N/A   N/A   N/A   9,183   N/A   N/A   N/A   N/A 
Net loans  3,829,330   -   -   3,753,966   3,753,966   4,017,879   -   -   4,078,210   4,078,210 
Accrued interest receivable  11,341   353   2,371   8,617   11,341   10,915   216   2,221   8,478   10,915 
Financial liabilities:                                        
Demand deposits  405,069   405,069   -   -   405,069   463,858   463,858   -   -   463,858 
Interest bearing deposits  3,869,178   2,594,672   1,264,772   -   3,859,444   3,986,158   2,587,981   1,397,271   -   3,985,252 
Short-term borrowings  161,893   -   161,893   -   161,893   148,666   -   148,666   -   148,666 
Accrued interest payable  1,024   104   920   -   1,024   1,459   174   1,285   -   1,459 


29

(7) Accumulated Other Comprehensive Income (Loss)


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


 Three months ended 3/31/2019  Three months ended 3/31/2020 
(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
  
Balance at
12/31/2019
  
Other
Comprehensive
Income (loss)-
Before
Reclassifications
  
Amount
reclassified
from Accumulated
Other Comprehensive
Income
  
Other
Comprehensive
Income (loss)-
Three months ended
3/31/2020
  
Balance at
3/31/2020
 
                              
Net unrealized holding loss on securities available for sale, net of tax $(10,416)  3,396   -   3,396   (7,020)
Net unrealized holding gain on securities available for sale, net of tax $286   7,945   (855)  7,090   7,376 
Net change in overfunded position in pension and postretirement plans arising during the year, net of tax(a)
  423   -   -   -   423   4,840   -   -   -   4,840 
Net change in net actuarial loss and prior service credit on pension and postretirement benefit plans, net of tax
  (316)  -   (98)  (98)  (414)
Net change in net actuarial gain and prior service credit on pension and postretirement benefit plans, net of tax  (665)  -   (159)  (159)  (824)
                                        
Accumulated other comprehensive loss, net of tax $(10,309)  3,396   (98)  3,298   (7,011) $4,461   7,945   (1,014)  6,931   11,392 


 Three months ended 3/31/2018  Three months ended 3/31/2019 
(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
12/31/2018
  
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 (gain) loss on securities available for sale, net of tax $(5,030)  (5,302)  -   (5,302)  (10,332)
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(a)
  3,054   -   -   -   3,054   423   -   -   -   423 
Net change in net actuarial (gain) loss and prior service cost on pension and postretirement benefit plans, net of tax
  170   -   (36)  (36)  134 
Tax Cuts and Jobs Act of 2017, Reclassification from AOCI to Retained Earnings, Tax Effect
  -   -   (1,346)  -   (1,346)
Net change in net actuarial gain and prior service credit on pension and postretirement benefit plans, net of tax  (316)  -   (98)  (98)  (414)
                                        
Accumulated other comprehensive income (loss), net of tax $(1,806)  (5,302)  (1,382)  (5,338)  (8,490) $(10,309)  3,396   (98)  3,298   (7,011)


(a) Measured annually. 

The following represents the reclassifications out of accumulated other comprehensive income (loss) for the three months ended March 31, 20192020 and 2018:2019:


 Three months ended  
 March 31,   
Three months ended
March 31,
  
(dollars in thousands) 2019  2018 Affected Line Item in Financial Statements 2020  2019 Affected Line Item in Financial Statements
                    
Unrealized gains on securities available for sale         
Realized gain on securities transactions $1,155   - Net gain on securities transactions
Income tax expense  (300)  - Income taxes
Net of tax  855   -  
            
Amortization of pension and postretirement benefit items:                    
Amortization of net actuarial gain (loss) $48   (72)Salaries and employee benefits
Amortization of prior service cost  85   23 Salaries and employee benefits
Amortization of net actuarial gain $166   48 Salaries and employee benefits
Amortization of prior service credit  49   85 Salaries and employee benefits
Income tax benefit  (35)  13 Income taxes  (56)  (35)Income taxes
Net of tax  98   (36)   159   98  
                        
Total reclassifications, net of tax $98   (36)  $159   98  


30

(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, 20192020 and 2018.2019. Items outside the scope of ASC 606 are noted as such.


 Three months ended  Three months ended 
 March 31,  March 31, 
(dollars in thousands) 2019  2018  2020  2019 
            
Non-interest income            
Service Charges on Deposits            
Overdraft fees $850  $827  $873  $850 
Other  110   114   108   110 
Interchange Income  1,531   1,306   277   1,531 
Wealth management fees  1,733   1,815   1,600   1,733 
Net gain on securities transactions (a)  1,155   - 
Other (a)
  413   617   1,321   413 
                
Total non-interest income $4,637  $4,679  $5,334  $4,637 


(a) Not within the scope of ASC 606.


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


Service charges on Deposit Accounts:The Company earns fees from its deposit customers for transaction‑based,transaction-based, account maintenance and overdraft services.  Transaction‑basedTransaction-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‑relatedvolume-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.


Wealth Management fees:TrustCo Financial Services provides a comprehensive suite of trust and wealth management products and services, including financial and estate planning, trustee and custodial services, investment management, corporate retirement plan recordkeeping and administration of which a fee is charged to manage assets for investment or transact on accounts.  These fees are earned over time as the Company provides the contracted monthly or quarterly services and are generally assessed over the period in which services are performed based on a percentage of the 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 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.


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(9) Operating Leases


The Company adopted Topic 842 “Leases” effective January 1, 2019 and has applied the guidance to all operating leases within the scope of Topic 842 at that date.  The company elected to adopt practical expedients, which among other things, does not require reassessment of lease classification.


The Company has 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, 2019March 31, 2020  the Company did not have any leases with terms of twelve months or less.


As of March 31, 20192020 the Company does not have leases that have not yet commenced. At March 31, 20192020 lease expiration dates ranged from twoeight months to 25.524.5 years and have a weighted average remaining lease term of 9.89.2 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.

32

Other information related to leases was as follows:


(dollars in thousands) 
Three months ended
March 31,
  
Three months ended
March 31,
 
 2019  2018  2020  2019 
Operating lease cost $1,891  $1,912  $1,995  $1,891 
Variable lease cost  466   586   480   466 
                
Total Lease costs $2,357  $2,498  $2,475  $2,357 


(dollars in thousands) 
Three months ended
March 31,
  
Three months ended
March 31,
 
 2019  2020  2019 
Supplemental cash flows information:         
Cash paid for amounts included in the measurement of   
lease liabilities:   
Cash paid for amounts included in the measurement of lease liabilities:      
Operating cash flows from operating leases $1,949  $1,995   1,949 
            
Right-of-use assets obtained in exchange for lease obligations:  53,029   -   53,029 
            
Weighted average remaining lease term 9.8 years  9.2 years  9.8 years 
Weighted average discount rate  3.30%  3.25%  3.30%

Future minimum lease payments under non-cancellable leases as of March 31, 20192020 were as follows:


(dollars in thousands)(dollars in thousands) (dollars in thousands) 
      
Year ending
December 31,
      
2019(a)
 $5,799 
2020  7,675 
2020(a)
 $6,039 
2021  7,613   8,033 
2022  7,139   7,533 
2023  6,812   7,227 
2024  7,100 
Thereafter  32,254   28,361 
Total lease payments $67,292  $64,293 
Less: Interest  10,569   9,295 
        
Present value of lease liabilities $56,723  $54,998 


(a) Excluding three months ended March 31, 2019.2020.


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

33

The following table presents the minimum annual lease payments under the terms of these leases, exclusive of renewal provisions at December 31, 2018:
2019:


(dollars in thousands)(dollars in thousands)    
      
2019 $7,799 
Year ending
December 31,
   
2020  7,622  $8,039 
2021  7,555   8,033 
2022  7,048   7,533 
2023  6,673   7,227 
2024 and after  32,722 
2024  7,100 
Thereafter  28,361 
Total lease payments $66,293 
Less: Interest  9,740 

 $
69,419
     
Present value of lease liabilities $56,553 


At March 31, 2020 and December 31, 2018,2019 the operating lease expiration dates ranged from five months to 25.8 years.
right-of-use asset was $50.0 million and $51.5 million, respectively.


(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, 2015 with full compliance with all of the requirements being phased in over a multi-year schedule, and became fully phased in on January 1, 2019.  The capital rules include a capital conservation buffer that is designed to absorb losses during periods of economic stress and 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 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, asAs of March 31, 2019,2020, the Company and Bank meet all capital adequacy requirements to which they are subject.

Prompt corrective action regulations provide five5 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.  As of March 31, 20192020 and December 31, 2018,2019, the most recent regulatory notifications categorized the Bank as well capitalized under the regulatory framework for prompt corrective action.  There are no conditions or events since that notification that management believes have changed the Bank’s category.

34

The Bank and the Company reported the following capital ratios as of March 31, 20192020 and December 31, 2018:2019:


(Bank Only)            
             
  As of March 31, 2019  
Well
Capitalized(1)
  
Adequately
Capitalized(1)(2)
 
(dollars in thousands) Amount  Ratio 
             
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 
(Bank Only)            
           
Minimum
for
Capital
Adequacy
plus
Capital
Conservation
 
  As of March 31, 2020  Well 
 
(dollars in thousands) Amount  Ratio  
Capitalized(1)
  
Buffer (1)(2)
 
             
Tier 1 leverage ratio $522,527   10.058%  5.000%  4.000%
Common equity tier 1 capital  522,527   18.470   6.500   7.000 
Tier 1 risk-based capital  522,527   18.470   8.000   8.500 
Total risk-based capital  558,027   19.724   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 
  As of December 31, 2019  Well  Adequately 
(dollars in thousands) Amount  Ratio  
Capitalized(1)
  
Capitalized(1)(2)
 
             
Tier 1 leverage ratio $516,775   9.940%  5.000%  4.000%
Common equity tier 1 capital  516,775   18.412   6.500   7.000 
Tier 1 risk-based capital  516,775   18.412   8.000   8.500 
Total risk-based capital  551,975   19.666   10.000   10.500 


(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
 
(Consolidated)      
     
Minimum for
Capital Adequacy plus
Capital Conservation
Buffer (1)(2)
 
       
  As of March 31, 2020 
(dollars in thousands) Amount  Ratio 
          
Tier 1 leverage ratio $536,239   10.316%  4.000%
Common equity tier 1 capital  536,239   18.943   7.000 
Tier 1 risk-based capital  536,239   18.943   8.500 
Total risk-based capital  571,760   20.198   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 
  As of December 31, 2019  
Minimum for
Capital Adequacy plus
Capital Conservation
 
(dollars in thousands) Amount  Ratio  
Buffer (1)(2)
 
          
Tier 1 leverage ratio $533,243   10.254%  4.000%
Common equity Tier 1 capital  533,243   18.988   7.000 
Tier 1 risk-based capital  533,243   18.988   8.500 
Total risk-based capital  568,463   20.242   10.500 


(1)Federal regulatory minimum requirements to be considered to be Well Capitalized and Adequately Capitalized
(2)
The March 31, 2020 and December 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


34
35

(11) New Accounting Pronouncements


In February 2016, the FASB issued ASU No. 2016 02, Leases (Topic 842) (“ASU 2016 02”).  ASU 2016 02 is intended to improve financial reporting of leasing transactions by requiring organizations that lease assets to recognize assets and liabilities for the rights and obligations created by leases that extend more than twelve months on the balance sheet.  This accounting update also requires additional disclosures surrounding the amount, timing, and uncertainty of cash flows arising from leases.  ASU 2016 02 is effective for financial statements issued for annual and interim periods beginning after December 15, 2018 for public business entities.  Early adoption is permitted.  The Company 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 ROU assets and lease liabilities for operating leases.

In JuneSeptember 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

As previously disclosed, the Company formed a cross-functional team to work through its implementation of the plan. The Company has selected the Discounted Cash Flow modeling method and is running parallel processes and is working to finalize assessment and documentation of processes, data and model validation testing, qualitative factors and forecast periods. The company has selected a third party software solution to assist in the application of the new standard. The Company has elected to delay its adoption of ASU 2016-13, as provided by the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act) until the date on which the National Emergency concerning COVID-19 is terminated or December 31, 2020, whichever occurs first. Upon adoption of ASU 2016-13, the Company will recognize a one-time cumulative effect adjustment through retained earnings to increase its allowance for publiccredit loss and to increase its unfunded loan commitment liability as of January 1, 2020.


(12) Risks and Uncertainties

During March 2020, the Company experienced negative impacts to our business entitiesin the form of requests for annual periodsloan deferrals of principal and interim periods within those annual periods beginning after December 15, 2019.  The ASU representsinterest due to the business disruption caused by COVID-19. In March 2020, the World Health Organization categorized COVID-19 as a significant departure from current GAAPpandemic, and the President of the United States declared the COVID-19 outbreak a national emergency.  At this time, it is difficult to quantify the impact COVID-19 will have on the rest of 2020, but the Company is evaluatingcurrently expects it to negatively impact us more in the remaining portion of 2020 than experienced in the first quarter.  The Company has evaluated the impact of the ASUeffects of COVID-19 and determined that there were no material or systematic adverse impacts on its consolidated financial statements, which includes developing a roadmapthe Company’s first quarter 2020 balance sheet and results of operations except for implementationan increase provision for loan losses and related allowance for loan losses.

On March 3, 2020, the Federal Reserve reduced the target federal funds rate by 50 basis points, followed by an additional reduction of 100 basis points on March 16, 2020. These reductions in interest rates and other effects of the new standard.  TheCOVID-19 pandemic may adversely affect the Company’s committee meets regularly to evaluate the provisionsfinancial condition and results of operations. As a result of the ASU,spread of COVID-19, economic uncertainties have arisen which are likely to addressnegatively impact net interest income, provision for loan losses, and noninterest income. Other financial impact could occur though such potential impact is unknown at this time.

As of March 31, 2020, the additional data requirements necessary,Company and Bank capital ratios were in excess of all regulatory requirements. While management believes that we have sufficient capital to determinewithstand an extended economic recession brought about by the approach for implementationCOVID-19 pandemic, our reported 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,regulatory capital ratios, as well as developing models for defaultthe ability of the Company and loss estimates.the Bank to pay dividends or make other distributions, could be adversely impacted by further credit losses.

Loan modifications and payment deferrals as a result of COVID-19 that meet the criteria established under Section 4013 of the CARES Act or under applicable interagency guidance of the federal banking regulators are excluded from evaluation of troubled debt restructurings (“TDR”) classification and will continue to be reported as current during the payment deferral period. The Company expectsCompany’s policy is to continue to accrue interest during the validation of models,deferral period. Loans not meeting the development of accountingCARES ACT or regulatory guidance are evaluated for TDR and non-accrual treatment under the Company’s existing policies and internal controlsprocedures.  Loan Modifications and payment deferrals made pursuant to COVID 19 through March 31, 2020 totaled approximately $4.9 million, which included $4.1 million of commercial loans and $808 thousand of residential loans.

At this time, we do not believe there exists any impairment to our goodwill, long-lived assets, right of use assets, held to maturity investment securities, or available-for-sale investment securities due to the execution of “trial” or “parallel” runs of its ASU 2016-13 compliant methodology throughout 2019.

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 taxCOVID-19 pandemic. It is uncertain whether prolonged 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 adoptCOVID-19 pandemic will result in future impairment charges related to any of 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.aforementioned assets.



35
36



graphic

 
Crowe LLP
 Independent Member Crowe Global



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


Shareholders and the Board of Directors of 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 Bank Corp NY (the “Company”) as of March 31, 2019,2020, and the related consolidated statements of income and comprehensive income for the three-month periods ended March 31, 20192020 and March 31, 20182019 and the related changes in shareholders’ equity and cash flows for the three month periods ended March 31, 20192020 and March 31, 2018,2019, 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, 2018,2019, 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, 2019,February 28, 2020, 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, 2018,2019, 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 LLP


/s/ Crowe LLP

New York, New York
May 3, 2019

8, 2020
36
37

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 with the Securities and Exchange Commission, in TrustCo’s press releases, and in oral statements made with the approval of an authorized executive officer, including statements regarding the effect of the novel coronavirus disease (“COVID-19”)  pandemic on our business and our continuing response to the COVID-19 pandemic, 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.  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, 2018,2019, the following important factors listed below, 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 tostatement.  Additionally, many of these risks and uncertainties are currently elevated by and may or will 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 inbe elevated by the areas in which it operates;COVID-19 pandemic.

●As a result of the current pandemic related to COVID-19, TrustCo may experience a decline in the demand for products and services; an increase in loan delinquencies; problem assets and foreclosures; a decline in collateral value; a work stoppage, forced quarantine, or other interruption or the unavailablilty of key employees; an increase in the allowance for loan losses; a reduction in wealth management revenues; an increase in Federal Deposit Insurance Corporation premiums; a reduction in the value of the securities portfolio; and a decline in the net worth and liquidity of loan guarantors;
●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 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;
TrustCo’s ability to continue to maintain noninterest expense and other overhead costs at reasonable levels relative to income;38
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;

●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;
●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;
●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, 2019.
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;
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, 2018.


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


Following this discussion are the tables “Distribution 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, 20192020 and 2018.2019.

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Introduction
The review that follows focuses on the factors affecting the financial condition and results of operations of TrustCo during the three month periodsperiod ended March 31, 2019,2020, with comparisons to the corresponding period in 2018,2019, 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 20182019 Annual Report on Form 10-K, which was filed with the SEC on March 1, 2019,February 28, 2020, 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.


COVID-19 Impact
During March 2020, we experienced negative impacts to our business in the form of requests for loan deferrals of principal and interest due to the business disruption caused by COVID-19.  In March 2020, the World Health Organization categorized COVID-19 as a pandemic, and the President of the United States declared the COVID-19 outbreak a national emergency.  At this time, it is difficult to quantify the impact COVID-19 will have on the rest of 2020, but we currently expect it to negatively impact us more in the remaining portion of 2020 than we experienced in the first quarter.  The Company has evaluated the impact of the effects of COVID-19 and determined that there were no material or systematic adverse impacts on the Company’s first quarter 2020 balance sheet and results of operations except for an increase in the provision for loan losses as a result of the increased risk inherent in the loan portfolio resulting from the pandemic.

The following is a description of the impact the COVID-19 global pandemic is having our business:

Loan modifications

We began receiving requests from our borrowers for loan deferrals in March 2020. Modifications include the deferral of principal and interest payments for terms generally up to 90 days. Requests are evaluated individually and approved modifications are based on the unique circumstances of each borrower. We are committed to working with our clients to allow time to work through the challenges of this pandemic. At this time, it is uncertain what future impact loan modifications related to COVID-19 difficulties will have on our financial condition, results of operations and provision for loan losses. Loan modifications and payment deferrals as a result of COVID-19 that meet the criteria established under Section 4013 of the CARES Act or under applicable interagency guidance of the federal banking regulators are excluded from evaluation of troubled debt restructurings (“TDR”) classification and will continue to be reported as current during the payment deferral period. The Company’s policy is to continue to accrue interest during the deferral period. Loans not meeting the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) or regulatory guidance are evaluated for TDR and non-accrual treatment under the Company’s existing policies and procedures.
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The following table shows the number of loans and the outstanding loan balances at the time the principal and interest deferrals were approved as of April 28, 2020:

New York and Other states*: Number of loans  
Outstanding loan
balance (in thousands)
 
Commercial  67  $35,910 
Residential mortgage loans  344   74,534 
Home equity line of credit  28   2,050 
Installment loans  3   113 
Total  442  $112,607 

Florida: Number of loans  
Outstanding loan
balance (in thousands)
 
Commercial  3  $4,579 
Residential mortgage loans  150   35,896 
Home equity line of credit  6   383 
Installment loans  2   84 
Total  161  $40,942 

Total: Number of loans  
Outstanding loan
balance (in thousands)
 
Commercial  70  $40,489 
Residential mortgage loans  494   110,430 
Home equity line of credit  34   2,433 
Installment loans  5   197 
Total  603  $153,549 

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

The commercial loans that are deferred include loans from various types of businesses.  These loans include borrowers from fitness and recreational sports centers, lessors and property managers of non-residential and residential buildings, general automotive repair, new single family construction, commercial construction, retail, and food service.
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Paycheck Protection Program (PPP) and Liquidity

As part of the CARES Act, approved by the President on March 27, 2020, the Small Business Administration (SBA) has been authorized to guarantee loans under the PPP through June 30, 2020 for small businesses who meet the necessary eligibility requirements in order to keep their workers on the payroll. The Company began accepting applications on April 3, 2020.  As of April 28, 2020, 405 PPP loans totaling $33.8 million have been processed.  The Company will receive loan origination fees which will be recognized over the life of the loan and apply the effective yield method.

On April 9, 2020, the FDIC, Federal Reserve and OCC created the Paycheck Protection Program Liquidity Facility (PPPLF) to bolster the effectiveness of the PPP by providing liquidity to and neutralizing the regulatory capital effects on participating financial institutions. We do not intend to utilize the liquidity relief offered by the PPPLF as we do not expect our participation in the PPP to have a negative impact on our liquidity position, capital resources, financial condition or results of operations.

Asset impairment

At this time, we do not believe there exists any impairment to our goodwill, long-lived assets, right of use assets, held to maturity investment securities, or available-for-sale investment securities due to the COVID-19 pandemic. It is uncertain whether prolonged effects of the COVID-19 pandemic will result in future impairment charges related to any of the aforementioned assets.

Provision for loan losses

See Part I Financial Information, Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations under the heading “Allowance for Loan Losses” for more information.

Preventative measures

The Company has instituted preventative measures at branch and back office locations to protect the health of both the customers and our employees, including regular deep cleaning of facilities, adhering to CDC guidelines, and practicing “social distancing.”

Federal Reserve Actions

The Federal Reserve Board has taken several actions to support the flow of credit to households and businesses.  Some of these pertinent actions include:
●The establishment of the Commercial Paper Funding Facility, the Money Market Mutual Fund Liquidity Facility, and the Primary Dealer Credit Facility;
●The expansion of central bank liquidity swap lines;
●Steps to enhance the availability and ease terms for borrowing at the discount window;
●The elimination of reserve requirements;
●Guidance encouraging banks to be flexible with customers experiencing financial challenges related to the coronavirus and to utilize their liquidity and capital buffers in doing so;
●expand access to its Paycheck Protection Program Liquidity Facility (PPPLF) for additional SBA-qualified lenders;
●Statements encouraging the use of daylight credit at the Federal Reserve.

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Economic Overview
During the first quarter of 20192020 financial markets were drastically influenced by both underlyingthe economic conditions and by political developments.that resulted from the COVID-19 pandemic.  Stocks suffered their worst quarterly declines since the financial crisis in late 2008 as the pandemic led to shutdowns of significant portions of the global economy.  For the full first quarter, the S&P 500 Index was up 13.07%down 19.6% and the Dow Jones Industrial Average was updown 11.15%.  Credit markets continue to be driven by worldwide economic news, effects of COVID-19, and demand shifts between segments of the bond market as investors seek to capture yield.shifts.  The shape of the yield curve continued to flattenremained consistent during the quarter.quarter as compared to prior quarters.  The 10‑year10-year Treasury bond averaged 2.65%1.37% during Q1 20192020 compared to 3.04%1.79% in Q4 2018,2019, a decrease of 3942 basis points.  The 2‑year2-year Treasury bond average rate decreased 3151 basis points to 2.49%1.08%, resulting in flattening of the yield curve.  The spread between the 10‑year10-year and the 2-year Treasury bonds contractedexpanded slightly from 0.24%0.20% on average in Q4 to 0.16%0.28% 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 remained flatended the fourth quarter 2019 at a range of 1.50% to 1.75%, and in response to the current economic downturn, decreased drastically in the first quarter remaining atto a range of 2.25%0.00% to 2.50%0.25%.  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 primarily due to a numberthe effects 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.COVID-19 pandemic.


  
3 Month
Yield (%)
2 Year
Yield (%)
5 Year
Yield (%)
10 Year
Yield (%)
10 - 2 Year
Spread (%)
        
Q1/19 Beg of Q12.452.482.512.690.21
 Peak2.492.622.622.790.21
 Trough2.372.222.182.390.13
 End of Q12.402.272.232.410.14
 Average in Q12.442.492.462.650.17
        
Q2/19 Beg of Q22.402.272.232.410.14
 Peak2.472.412.412.600.30
 Trough2.111.711.732.000.14
 End of Q22.121.751.762.000.25
 Average in Q22.352.132.122.340.21
        
Q3/19 Beg of Q32.121.751.762.000.25
 Peak2.261.921.882.130.28
 Trough1.801.431.321.47-0.04
 End of Q31.881.631.551.680.05
 Average in Q32.031.691.631.800.11
        
Q4/19 Beg of Q41.881.631.551.680.05
 Peak1.821.681.751.940.34
 Trough1.521.391.341.520.09
 End of Q41.551.581.691.920.34
 Average in Q41.611.591.611.790.20
        
Q1/20 Beg of Q11.551.581.691.920.34
 Peak1.591.581.671.880.68
 Trough0.000.230.370.540.12
 End of Q10.110.230.370.700.47
 Average in Q11.101.081.141.370.28
   
3 Month
Yield (%)
2 Year
Yield (%)
5 Year
Yield (%)
10 Year
Yield (%)
10 - 2 Year
Spread (%)
        
        
Q1/18 Beg of Q11.391.892.202.400.51
 Peak1.812.342.692.940.78
 Trough1.391.892.202.400.47
 End of Q11.732.272.562.740.47
 Average in Q11.582.152.532.750.60
        
Q2/18 Beg of Q21.732.272.562.740.47
 Peak1.952.592.943.110.54
 Trough1.712.252.552.730.31
 End of Q21.932.522.732.850.33
 Average in Q21.872.472.762.920.44
        
Q3/18 Beg of Q31.932.522.732.850.33
 Peak2.222.832.993.100.27
 Trough1.962.532.702.820.29
 End of Q32.192.812.943.050.24
 Average in Q32.072.672.812.920.25
        
Q4/18 Beg of Q42.192.812.943.050.24
 Peak2.452.983.093.240.26
 Trough2.192.482.512.690.21
 End of Q42.452.482.512.690.21
 Average in Q42.352.802.883.040.24
        
Q1/19 Beg of Q12.452.482.512.690.21
 Peak2.492.622.622.790.17
 Trough2.372.222.182.390.17
 End of Q12.402.272.232.410.14
 Average in Q12.442.492.462.650.16


The United States economy continuescontinued to show some modest improvements in some areas.various areas heading into 2020 until the COVID-19 uncertainty began to gain momentum.  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.  Regulatory changes that have been enacted are expected to continue to impact the banking industry going forward.  These regulatory changes have added significant operating expense and operational burden and have fundamentally changed the way banks conduct business.  The 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.

TrustCo believes that its long-term focus on traditional banking services and practices historically 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.industry, particularly those arising during the 2008-2010 financial crisis.  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, 2019, shouldShould general housing prices and other economic measures, such as unemployment in the Company’s market areas, deteriorate as a result of the COVID-19 pandemic, the Company may experience an increase in the level of credit risk and in the amount of its classified and nonperforming loans.

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In a direct response to the COVID-19 pandemic, on March 27, 2020 Congress passed the CARES Act. Included in the CARES Act is support for small businesses, direct payments to lower and middle income families, expanded unemployment insurance, additional funding for health care providers, as well as support for other industries.  The Federal Reserve Board, in an attempt to increase liquidity and promote the normal functioning of financial markets, also provided support by increasing purchases of Treasury securities and agency mortgage-backed securities.

Financial Overview
TrustCo recorded net income of $13.3 million, or $0.138 of diluted earnings per share, for the three months ended March 31, 2020, compared to net income of $14.6 million, or $0.150 of diluted earnings per share, for the three months ended March 31, 2019, compared to net income of $14.8 million, or $0.153 of diluted earnings per share, in the same period in 2018.2019.  Return on average assets was 1.17%1.03% and 1.23%1.17%, respectively, for the three months ended March 31, 20192020 and 2018.2019.  Return on average equity was 11.93%9.87% and 13.07%11.93%, respectively, for the three months ended March 31, 20192020 and 2018.2019.


The primary factors accounting for the change in net income for the three months ended March 31, 20192020 compared to the same period of the prior year were:


●
An increase in the average balance of interest earning assets of $143.2 million to $5.1 billion for the first quarter of 2020 compared to the same period in 2019.

●A decrease in taxable equivalent net interest margin for the first quarter of 2020 to 3.05% from 3.24% in the prior year period.  The decrease in the margin, coupled with the increase in average earning assets, resulted in a decrease of $1.2 million in taxable equivalent net interest income in the first quarter of 2020 compared to the first quarter of 2019.

●An increase of $1.7 million in provision for loan losses for the first quarter of 2020 compared to the first quarter 2019.

●An increase of $697 thousand in noninterest income for the first quarter of 2020 compared to the first quarter of 2019, primarily driven by a $1.2 million gain on securities transactions.

●A decrease of $599 thousand in noninterest expense for the first quarter 2020 compared to the first quarter 2019.
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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.Index

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.

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

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

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

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‑termshort-term and long‑termlong-term basis.


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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 on Form 10-K for the year ended December 31, 20182019 is a description of the effect interest rates had on the results for the year 20182019 compared to 2017.2018.  Many of the same market factors discussed in the 20182019 Annual Report continued to have a significant impact on results through the first quarter of 2019.2020, as well as the impacts form COVID-19.


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 control national economic policy is the “Federal Funds” rate.  This is the interest rate utilized within the banking system for overnight borrowings for institutions with the highest credit rating.  During 2007‑2007‑2008 the FRB aggressively reduced the Federal Funds rate, 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.  The target range remained at that level until December 20162015 when the range was increased fromto 0.25% to 0.50%.  Subsequent increases have resulted in the current range of 2.25% to 2.50% until the second half of 2019 when the rate was cut several times before the end of 2019.  During the first quarter of 2020 the rate was significantly decreased again as a result of the global pandemic related to COVID-19, and has returned the range of 0.00% to 0.25%.


Traditionally, interest rates on bank deposit accounts are heavily influenced by the Federal Funds rate.  The average rate on interest bearing deposits was 352 basis points higher in the first quarter of 20192020 relative to the prior year period.  Rates were flat or slightly higherlower on interest bearing checking accounts and savings accounts but higher on money market accounts and certificates.time deposits.  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 ten-year Treasury bond and other long-term interest rates have significant influence on the rates for new residential real estate loans.  These changes in interest rates have an effect on the Company relative to the interest income on loans, securities, and Federal Funds sold and on other short-term instruments as well as the interest expense on deposits and borrowings.  Residential real estate loans and longer‑longer‑term investments are most affected by the changes in longer term market interest rates such as the ten‑10‑year Treasury.  The Federal Funds sold portfolio and other short‑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 the recorded balance of the securities available for sale portfolio, which are recorded at fair value.  Generally, as market interest rates increase, the fair value of the securities will decrease and the 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.  Because TrustCo is a portfolio lender and does not sell loans into the secondary market, the 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.  Higher market interest rates also generally increase the value of retail deposits.

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TrustCo’s principal loan products are residential real estate loans.  As noted above, residential real estate loans and longer‑termlonger-term investments are most affected by the changes in longer term market interest rates such as the ten-year Treasury.  The 10‑year10-year Treasury yield was down 3942 basis points, on average, during the first quarter of 20192020 compared to the fourth quarter of 20182019 and was down 10128 basis points as compared to the first quarter of 2018.2019.

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.


While TrustCo has been affected by changes in financial markets over time, the 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 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 2019,2020, the net interest margin was 3.24%3.05%, down 519 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 $90.9 million while the average yield decreased 119 basis points in the first quarter of 2020 compared to the same period in 2019.  The decrease in the average balance helped to fund the $209.1 million increase in loans.

●The average balance of securities available for sale increased by $28.7 million while the average yield increased 3 basis points to 2.26%.  The average balance of held to maturity securities decreased by $3.9 million and the average yield decreased 8 basis points to 3.86% for the first quarter of 2020 compared to the same period in 2019.

●The average loan portfolio grew by $209.1 million to $4.08 billion and the average yield decreased 15 basis points to 4.13% in the first quarter of 2020 compared to the same period in 2019.

●The average balance of interest bearing liabilities (primarily deposit accounts) increased $54.6 million and the average rate paid increased 2 basis points to 0.79% in the first quarter of 2020 compared to the same period in 2019.
The average balance of Federal Funds sold and other short-term investments decreased by $26.0 million while the average yield increased 35 basis points in the first quarter of 2019 compared to the same period in 2018.  The decrease in the average balance helped to fund the $217.8 million increase in loans.46

The average balance of securities available for sale decreased by $69.7 million while the average yield increased 11 basis points to 2.23%.  The average balance of held to maturity securities decreased by $4.8 million and the average yield increased 6 basis points to 3.94% for the first quarter of 2019 compared to the same period in 2018, with the decrease due to the maturity of a corporate bond.

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The average loan portfolio grew by $217.8 million to $3.87 billion and the average yield increased 9 basis points to 4.28% in the first quarter of 2019 compared to the same period in 2018.

The average balance of interest bearing liabilities (primarily deposit accounts) increased $70.3 million and the average rate paid increased 35 basis points to 0.77% in the first quarter of 2019 compared to the same period in 2018.


During the first quarter of 2019,2020, 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 is to offer competitive shorter term rates which allowed the Bank to 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 continue to allow us to cross sell new relationships and take advantage of opportunities as they arise.


Earning Assets
Total average interest earning assets increased from $4.80$4.91 billion in the first quarter of 20182019 to $4.91$5.06 billion in the same period of 20192020 with an average yield of 3.69% in the first quarter of 2020 and 3.87% in the first quarter of 2019 and 3.64% in the first quarter of 2018.  The2019.  There was a slight shift in the mix of assets towards a higher proportionproportions of loans and securities available for sale from federal funds sold and other short-term investments. However, the increasesharp decrease in the federal funds rate during the last month of the quarter significantly decreased the average yield on cashthe federal funds sold and other short-term investments from 2.43% in the first quarter of 2019 to 1.24% in the first quarter of 2020, which drove down the overall yield increase.on interest earning assets.  Interest income on average earning assets increased from $43.5 milliondecreased $802 thousand in the first quarter of 2018 to $47.4 million in2020 from the first quarter of 2019,prior year period, on a tax equivalent basis.  The increasebasis, and was primarily driven by the result of higher volume and yield.lower federal funds rate as mentioned above.


Loans
The average balance of loans was $3.87$4.08 billion in the first quarter of 20192020 and $3.65$3.87 billion in the comparable period in 2018.2019.  The yield on loans increased 9decreased 15 basis points to 4.28%4.13%.  The higher average balances led to an increase in interest income on loans from $38.1 million in the first quarter of 2018 to $41.3 million in the first quarter of 2019.2019 to $42.1 million in the first quarter of 2020.


Compared to the first quarter of 2018,2019, the average balance of residential mortgage loans commercial and installmentcommercial loans increased while home equity lines of credit and installment loans decreased.  The average balance of residential mortgage loans was $3.38$3.60 billion in 2020 compared to $3.37 billion in 2019, compared to $3.15 billion in 2018, an increase of 7.2%6.7%.  The average yield on residential mortgage loans increaseddecreased by 39 basis points to 4.14%4.05% in the first quarter of 20192020 compared to 2018.2019.


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 Companytypically holds these loans in portfolio and does not sell them into the secondary markets.  Assuming an eventual 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.

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47
Commercial loans, which consist primarily of loans secured by commercial real estate, increased $8.1$4.3 million to an average balance of $193.7$198.0 million in the first quarter of 20192020 compared to the same period in the prior year.  The average yield on this portfolio was up 12down 20 basis points to 5.33%5.13% compared to the prior year period, primarily reflecting the increasedecrease in the prime rate.  The Company has beenremains selective in underwriting commercial loans in recent periods as the apparent risk/reward balance has been less favorable in many cases.


The average yield on home equity credit lines increased 76decreased 66 basis points to 5.01%4.35% during the first quarter of 20192020 compared to the year earlier period.  The increasedecrease in yield is the result of prime rate increasesdecreases which impacted some loans as well as a smaller percentage of lower yielding initial rate balances.  The average balances of home equity lines decreased 6.6%7.2% to $286.2$265.5 million in the first quarter of 20192020 as compared to the prior year.  Some customersCustomers with home equity lines have refinancedcontinue to refinance 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 20192020 was $512.0$540.7 million compared to $581.7$512.0 million for the comparable period in 2018.2019.  The increase in the balance reflects new investment purchases partially offset by routine paydowns, sales, calls and maturities, offset by new investment purchases.maturities.  The average yield was 2.26% for the first quarter of 2020 compared to 2.23% for the first quarter of 2019 compared to 2.12% for the first quarter of 2018.2019.  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 lossgain in the available for sale securities portfolio was $9.5$10.0 million as of March 31, 20192020 compared to a net unrealized lossgain of $14.1 million$391 thousand as of December 31, 2018.2019.  The unrealized loss in the portfolio is the result of changes in market interest rate levels.


Held to Maturity Securities
The average balance of held to maturity securities was $22.0$18.1 million for the first quarter of 20192020 compared to $26.8$22.0 million in the first quarter of 2018.2019.  The decrease in balances reflects routine paydowns and calls.  No new securities were added to this portfolio during the period.  The average yield was 3.94%3.86% for the first quarter of 20192020 compared to 3.88%3.94% for the year earlier period.  TrustCo expects to hold the securities in this portfolio until they mature or are called.


As of March 31, 2019,2020, this portfolio consisted solely of residential mortgage-backed securities.  The balances for these securities are recorded at amortized cost.

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Federal Funds Sold and Other Short-term Investments
The 20192020 first quarter average balance of Federal Funds sold and other short-term investments was $503.0$412.1 million, a $26.0$90.9 million decrease from the $528.9$503.0 million average for the same period in 2018.2019.  The yield was 2.43%1.24% for the first quarter of 20192020 and 1.55%2.43% for the comparable period in 2018.2019.  Interest income from this portfolio increased $992 thousanddecreased $1.7 million from $2.0 million in 2018 to $3.0 million in 2019 to $1.3 million in 2020, reflecting theseveral target rate increases, partly offset bydecreases as previously mentioned, as well as 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.


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) increased $145.6$60.1 million to $3.9$4.0 billion for the first quarter of 20192020 versus the first quarter in the prior year, and the average rate paid increased from 0.41% for 2018 to 0.76% for 2019.2019 to 0.78% for 2020.  Total interest expense on these deposits increased $3.5 million$436 thousand to $7.3$7.7 million in the first quarter of 20192020 compared to the year earlier period.  From the first quarter of 20182019 to the first quarter of 2019,2020, interest bearing checking account average balances were up 3.9%down 1.1%, certificates of deposit average balances were up 25.2%1.2%, non‑interestnon-interest demand average balances were up 2.8%15.3%, average savings balances decreased 8.0%3.8% and money market balances were down 5.3%up 18.6%.  Our growth in deposits came at a comparably lowrelatively the same 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 partpast, we expect cost of 2019 particularly in third and fourth quarterinterest bearing liabilities to continue to decrease as our shorter term time deposits couldthese reprice at lower and provide opportunity for increased margin expansion.rates.


At March 31, 2019,2020, the maturity of total time deposits is as follows:


(dollars in thousands)   
    
Under 1 year $1,274,928 
1 to 2 years  75,461 
2 to 3 years  10,461 
3 to 4 years  3,161 
4 to 5 years  2,798 
Over 5 years  196 
  $1,367,005 
(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 20192020 were $159.1$153.7 million compared to $234.4$159.1  million in the same period in 2018.2019.  The average rate increaseddecreased during this time period from 0.62% in 2018 to 0.97% in 2019.2019 to 0.84% in 2020.  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.

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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.


Net Interest Income
Taxable equivalent net interest income increaseddecreased by $414 thousand$1.2 million to $39.7$38.6 million in the first quarter of 20192020 compared to the same period in 2018.2019.  The net interest spread was down 1120 basis points to 3.11%2.91% in the first quarter of 20192020 compared to the same period in 2018.2019.  As previously noted, the net interest margin was down 519 basis points to 3.243.05 for the first quarter of 20192020 compared to the same period in 2018.2019.


Nonperforming Assets
Nonperforming assets include nonperforming loans (“NPLs”), which are those loans in a non‑accrualnon-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, 2019:2020:


Nonperforming loans and foreclosed real estate: Total NPLs were $20.7 million at March 31, 2020, compared to $20.9 million at December 31, 2019 and $24.7 million at March 31, 2019, compared to $25.0 million at December 31, 2018 and $24.9 million at March 31, 2018.2019.  There were $24.7$20.7 million of non-accrual loans at March 31, 20192020 compared to $25.0$20.8 million at December 31, 20182019 and $24.8$24.7 million at March 31, 2018.2019.  There were no loans at March 31, 20192020 and 20182019 and December 31, 20182019 that were past due 90 days or more and still accruing interest.


At March 31, 2019,2020, nonperforming loans primarily include a mix of commercial and residential loans.  Of total nonperforming loans of $24.7$20.7 million at March 31, 2019, $24.02020, $20.1 million were residential real estate loans, $701$630 thousand were commercial loans and mortgages and $26$24 thousand were installment loans, compared to $24.3$20.0 million, $645$816 thousand and $19$3 thousand, respectively at December 31, 2018.2019.


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 $337$138 thousand on residential real estate loans (including home equity lines of credit) for the first quarter of 20192020 compared to $28$337 thousand for the first quarter of 2018.2019.  Management believes that these loans have been appropriately written down where required.

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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.  Additionally, due to the recent COVID-19 pandemic, the Bank is monitoring recent regulatory mandates by state in regards to a moratorium on foreclosures.


The Company originates loans throughout its deposit franchise area.  At March 31, 2019, 76.0%2020, 73.9% of its gross loan portfolio balances were in New York State and the immediately surrounding areas (including New Jersey, Vermont and Massachusetts), and 24.0%26.1% were in Florida.  Those figures compare to 76.1%74.4% and 23.9%25.6%, respectively at December 31, 2018.2019.


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, 2019, 6.7%2020, 7.2% were to Florida borrowers, compared to 93.3%92.8% to borrowers in New York and surrounding areas.  For the three months ended March 31, 2019,2020, New York and surrounding areas experienced net chargeoffs of approximately $345$145 thousand, compared to net chargeoffs of $50$17 thousand in Florida.


Other than loans currently identified as nonperforming and loan deferrals as a result of COVID-19, 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, 2019,2020, 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 $1.5$1.1 million of commercial mortgages and commercial loans classified as impaired as of March 31, 20192020 compared to $1.4 million at December 31, 2018.2019.  There were $19.7$19.2 million of impaired residential loans at March 31, 20192020 and $20.9$19.5 million at December 31, 20182019.  The average balances of all impaired loans were $21.9$20.7 million for the three months of 20192020 and $23.2$21.0 million for the full year 2018.2019.


As of March 31, 20192020 and December 31, 2018,2019, the Company’s loan portfolio did not include any subprime mortgages or loans acquired with deteriorated credit quality.


At March 31, 20192020 there was $1.3 million of foreclosed real estate compared to $1.7$1.6 million at December 31, 2018.2019.


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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.

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


(dollars in thousands) 
As of
March 31, 2019
  
As of
December 31, 2018
  
As of
March 31, 2020
 
As of
December 31, 2019
 
 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 $3,579   4.58% $3,903   4.74% $3,756  4.34% $3,805  4.47%
Real estate - construction  318   0.71%  310   0.69%  312  0.67%  311  0.70%
Real estate mortgage - 1 to 4 family  35,301   87.08%  34,918   86.80%  37,625  88.25%  35,632  87.96%
Home equity lines of credit  4,521   7.30%  4,689   7.47%  3,910  6.48%  3,999  6.60%
Installment Loans  952   0.33%  946   0.30%  552  0.26%  570  0.27%
 $44,671   100.00% $44,766   100.00% $46,155  100.00% $44,317  100.00%


At March 31, 2019,2020, the allowance for loan losses was $44.7$46.2 million, compared to $44.4$44.7 million at March 31, 20182019 and $44.8$44.3 million at December 31, 2018.2019.  The allowance represents 1.16%1.13% of the loan portfolio as of March 31, 20192020 compared to 1.21%1.16% at March 31, 20182019 and 1.16%1.09% at December 31, 2018.2019.


The provision for loan losses was $2 million for the quarter ended March 31, 2020 and $300 thousand for the quarter ended March 31, 2019 and for2019.  The increase is primarily driven by the quarter ended March 31, 2018.uncertainty in the current economic environment resulting from COVID-19.  Net chargeoffs for the three-month period ended March 31, 20192020 were $395$162 thousand primarily driven by a loan sale in the current quarter and were $90$395 thousand for the prior year period.


During the first quarter of 2019,2020, there were $7$3 thousand commercial loan chargeoffs and $481$217 thousand of gross residential mortgage and consumer loan chargeoffs compared with no$7 thousand gross commercial loan chargeoffs and $205$481 thousand of residential mortgage and consumer loan chargeoffs in the first quarter of 2018.2019.  Gross recoveries during the first quarter of 20192020 were $2 thousand for commercial loans and $56 thousand for residential mortgage and consumer loans, compared to $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 and consumer in the first quarter of 2018.2019.


In determining the adequacy of the allowance for loan losses, management reviews the current nonperforming loan portfolio as well as loans that are past due and not yet categorized as nonperforming for reporting purposes.  Also, there are a number of other factors that are taken into consideration, including:


●The magnitude and nature of recent loan chargeoffs and recoveries;
●The growth in the loan portfolio and the implication that it has in relation to the economic climate in the Bank’s market territories;
●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, and;
●The economic environment as a result of COVID-19 and resultant business shutdowns and unemployment spikes.
The magnitude and nature of recent loan chargeoffs and recoveries;
The growth in the loan portfolio and the implication that it has in relation to the economic climate in the Bank’s market territories, and;
The economic environment in the Upstate New York and Florida territories over the last several years, as well as in the Company’s other market areas.

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

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


The Company uses an industry standard external model as the primary tool to identify, quantify and project changes in interest rates and prepayment speeds taken both from industry sources and internally generated data based upon historical trends in the Bank’s balance sheet.  Assumptions based on the historical behavior of deposit rates and balances in relation to changes in market interest rates are also incorporated into the model.  This model calculates an economic or fair value amount with respect to non-time deposit categories since these deposits are part of the core deposit products of the Company.  The assumptions used are inherently uncertain and, as a result, the model cannot precisely measure the fair value of capital or precisely predict the impact of fluctuations in interest rates on the fair value of capital.


Using this model, the fair value of capital projections as of March 31, 20192020 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, 2019.2020.  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, 20192020 
Estimated Percentage of
Fair value of Capital to
Fair value of Assets
+400 BP   18.12%19.80%
+300 BP 19.0420.20
+200 BP 19.9120.50
+100 BP 20.6920.60
Current rates 21.2420.00
-100 BP 19.97
-200 BP16.9016.30

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Noninterest Income
Total noninterest income for both the first quarter of 2020 and 2019 was $5.3 million and 2018 was $4.6 million, and $4.7 million, respectively.  There were no significant changesThe increase over the same period in the components of noninterest income.prior year was primarily related to net gains on securities transactions.  The fair value of assets under management was $786 million at March 31, 2020 and $928 million as of December 31, 2019 and $867 million at March 31, 2019 and $803 million as of December 31, 2018 and $876 million at March 31, 2018.2019.


Noninterest Expenses
Total noninterest expenses were $24.9$24.3 million for the three months ended March 31, 2019,2020, compared to $24.2$24.9 million for the three months ended March 31, 20182019.  Significant changes included a $1.0 million increasedeclines in Salaries and benefits, offset by a $771 thousand decrease in OREprofessional services, advertising expense, net and FDIC and other insurance costs.Insurance, partially offset by increases in outsourced services and ORE expenses, net.    Full time equivalent headcount increaseddecreased from 827 as of March 31, 2018 to 899 as of March 31, 2019.  Salaries and benefits expense increased for the first quarter2019 to 813 as the Bank successfully executed a targeted effort to hire and expand certain functions which has now been largely completed.of March 31, 2020.


Income Taxes
In the first quarter of 2019,2020, TrustCo recognized income tax expense of $4.6$4.3 million compared to $4.7$4.6 million for the first quarter of 2018.2019.  The effective tax rates were 24.4% and 24.2%, respectively, for the first quarters of 20192020 and 2018.2019.


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, 20192020 was $501.7$548.2 million compared to $462.1$501.7 million at March 31, 2018.2019.  TrustCo declared a dividend of $0.068125 per share in the first quarter of 2019.2020.  This results in a dividend payout ratio of 45.23%49.41% based on first quarter 20192020 earnings of $14.6$13.3 million.

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The Bank and the Company reported the following capital ratios as of March 31, 20192020 and December 31, 2018:2019:


(Bank Only)                   Minimum for 
                   Capital Adequacy plus 
 As of March 31, 2019  
Well
Capitalized(1)
  
Adequately
Capitalized(1)(2)
  As of March 31, 2020 Well Capital Conservation 
(dollars in thousands) Amount  Ratio  Amount Ratio 
Capitalized(1)
 
Buffer (1)(2)
 
             ��       
Tier 1 leverage capital $492,918   9.760%  5.000%  4.000%
Tier 1 leverage ratio $522,527 10.058%  5.000% 4.000%
Common equity tier 1 capital  492,918   18.299   6.500   7.000  522,527 18.470  6.500 7.000 
Tier 1 risk-based capital  492,918   18.299   8.000   8.500  522,527 18.470  8.000 8.500 
Total risk-based capital  526,727   19.555   10.000   10.500  558,027 19.724  10.000 10.500 
          
          
 As of December 31, 2019 Well Adequately 
(dollars in thousands) Amount Ratio 
Capitalized(1)
 
Capitalized(1)(2)
 
           
Tier 1 leverage ratio $516,775 9.940%  5.000% 4.000%
Common equity tier 1 capital 516,775 18.412  6.500 7.000 
Tier 1 risk-based capital 516,775 18.412  8.000 8.500 
Total risk-based capital 551,975 19.666  10.000 10.500 
          
          
(Consolidated)          
     Minimum for   
     Capital Adequacy plus   
 As of March 31, 2020 Capital Conservation   
(dollars in thousands) Amount Ratio 
Buffer (1)(2)
   
           
Tier 1 leverage ratio $536,239 10.316%  4.000%   
Common equity tier 1 capital 536,239 18.943  7.000   
Tier 1 risk-based capital 536,239 18.943  8.500    
Total risk-based capital 571,760 20.198  10.500   
          
          
     Minimum for   
     Capital Adequacy plus   
 As of December 31, 2019 Capital Conservation   
(dollars in thousands) Amount Ratio 
Buffer (1)(2)
   
           
Tier 1 leverage ratio $533,243 10.254%  4.000%   
Common equity Tier 1 capital 533,243 18.988  7.000   
Tier 1 risk-based capital 533,243 18.988  8.500    
Total risk-based capital 568,463 20.242  10.500   


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

          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, 2020 and December 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 addition, at March 31, 2019,2020, Trustco’s consolidated equity to total assets ratio was 9.73%10.43% compared to 9.88%10.31% at December 31, 20182019 and 9.37%9.73% at March 31, 2018.2019.


Both TrustCo and Trustco Bank are subject to regulatory capital requirements.  On January 1, 2015,requirements contained in rules published by the Federal Reserve Board, FDIC and OCC. The rules establish a newcomprehensive capital rule took effect that revisedframework for all U.S. banking organizations designed to implement the federal bank regulatory agencies’ risk‑based capital requirements and, for the first time, subjected the Company to consolidated“Basel III” regulatory capital requirements.  Among other matters,reforms and changes required by 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 capitalDodd-Frank Act. The rules were effective for purposes of meeting the various capital requirements.  In addition, the Company and the Bank are requiredon January 1, 2015, with full compliance with all of the final rule’s requirements being phased in over a multi-year schedule. Calendar year 2018 was the final year of implementation of the capital rules and the capital rules were fully phased in effective January 1, 2019.
55
The capital rules require the Company’s and the Bank’s capital to exceed the regulatory standards plus a capital conservation buffer in order to avoid constraints on dividends, equity repurchases and certain compensation. To meet the requirement, a banking organization must maintain additional levelsan amount of common equity Tier 1 common equity (the(“CET1”) capital that exceeds the buffer level of 2.5% above each of the minimum risk-weighted asset ratios. To avoid capital conservation buffer) overbuffer constraints, the minimum risk-basedorganization must maintain the following capital levels before they may pay dividends, repurchase shares or pay discretionary bonuses.  The new rule was phased-in over several yearsratios: (1) CET1 to risk-weighted assets of more than 7.0%, (ii) Tier 1 capital to risk-weighted assets of more than 8.5%, and took in full effect for 2019.(iii) total capital (Tier 1 plus Tier 2) to risk-weighted assets of more than 10.5%.


As of March 31, 2019,2020, the capital levels of both TrustCo and the Bank exceeded the minimum standards, including with the current, fully phased-in capital conservation buffer taken into account.

Under the OCC’sOffice of the Comptroller of the Currency’s (“OCC”) “prompt corrective action” regulations, a bank is deemed to be “well capitalized” when its CET1, Tier 1, total risk-based and leverage capital ratios are at least 6.5%, 8%, 10% and 5%, respectively.  A bank is deemed to be “adequately capitalized” or better if its capital ratios meet or exceed the minimum federal regulatory capital requirements, and “undercapitalized” if it fails to meet these minimal capital requirements.  A bank is “significantly undercapitalized” if its CET1, Tier 1, total risk-based and leverage capital ratios fall below 3%, 4%, 6% and 3%, respectively and “critically undercapitalized” if the institution has a ratio of tangible equity to total assets that is equal to or less than 2%.  At March 31, 20192020 and 2018,2019, Trustco Bank met the definition of “well capitalized.”


As noted, the Company’s dividend payout ratio was 49.41% of net income for the first quarter of 2020 and 45.23% of net income for the first quarter of 2019 and 42.70% of net income for the first quarter of 2018.2019.  The per-share dividend paid in both the first quarter of 2019 and2020, the fourth quarter of 2018 was $0.068125,2019, and $0.065625 in the first quarter of 2018.2018 was $0.068125. 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 11,50011,206 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.


Share Repurchase Program

On June 7, 2019 the Company’s Board of Directors authorized a share repurchase program of up to 1,000,000 shares.  During the three months ended March 31, 2020, the Company repurchased a total of 489 thousand shares at an average price per share of $7.11 for a total of $3.5 million under its Board authorized share repurchase program.  The shares purchased as of March 31, 2020 represent .51% of our common shares outstanding.  On April 16, 2020 the Company announced that it has suspended its share repurchase program.
56
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.

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”) 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 creditthe inherent risk of losses in the loan portfolio and the material effect that such judgments can have on the results of operations.  Included in Note 1 to the Consolidated Financial Statements contained in the Company’s 2018 Annual Report on Form 10‑K10-K for the year ended December 31, 2019 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.

  As indicated in Note 11, as allowed by the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) the Bank elected to delay the adoption of ASU 2016-13, “Financial Instruments – Credit Losses,” until the earlier of the termination of the national emergency concerning COVID-19 or December 31, 2020.
54
57
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 $4.9 million in 2020 and ($9.2) million in 2019 and ($12.2) million in 2018.2019.  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.
               
(dollars in thousands) 
Three months ended
March 31, 2020
  
Three months ended
March 31, 2019
           
                            
  Average  Interest  Average  Average  Interest  Average  Change in  Variance  Variance 
  Balance     Rate  Balance     Rate  Interest  Balance  Rate 
                    Income/  Change  Change 
Assets                   Expense       
                            
Securities available for sale:                           
U. S. government sponsored enterprises $92,369   421   1.82% $154,258   783   2.03% $(362)  (289)  (73)
Mortgage backed securities and collateralized mortgage obligations-residential  371,768   2,113   2.27%  273,004   1,555   2.28%  558   590   (32)
State and political subdivisions  114   2   7.59%  168   2   7.85%  -   -   - 
Corporate bonds  28,332   238   3.36%  26,862   208   3.09%  30   12   18 
Small Business Administration-guaranteed participation securities  47,418   245   2.06%  57,057   297   2.08%  (52)  (50)  (2)
Other  685   6   3.50%  685   5   2.92%  1   -   1 
                                     
Total securities available for sale  540,686   3,025   2.26%  512,034   2,850   2.23%  175   263   (88)
                                     
Federal funds sold and other short-term Investments  412,076   1,267   1.24%  502,976   3,009   2.43%  (1,742)  (469)  (1,273)
                                     
Held to maturity securities:                                    
Mortgage backed securities and collateralized mortgage obligations-residential  18,144   175   3.86%  22,037   217   3.94%  (42)  (9)  (33)
                                     
Total held to maturity securities  18,144   175   3.86%  22,037   217   3.94%  (42)  (9)  (33)
                                     
Federal Reserve Bank and Federal Home Loan Bank stock  9,183   82   3.57%  8,953   85   3.80%  (3)  2   (5)
                                     
Commercial loans  198,047   2,542   5.13%  193,738   2,583   5.33%  (41)  62   (103)
Residential mortgage loans  3,601,728   36,461   4.05%  3,374,990   34,864   4.14%  1,597   2,326   (729)
Home equity lines of credit  265,461   2,868   4.35%  286,199   3,537   5.01%  (669)  (236)  (433)
Installment loans  10,717   192   7.20%  11,897   269   9.17%  (77)  (24)  (53)
                                     
Loans, net of unearned income  4,075,953   42,063   4.13%  3,866,824   41,253   4.28%  810   2,128   (1,318)
                                     
Total interest earning assets  5,056,042   46,612   3.69%  4,912,824   47,414   3.87%  (802)  1,915   (2,717)
                                     
Allowance for loan losses  (44,520)          (44,947)                    
Cash & non-interest earning assets  193,619           176,009                     
                                     
                                     
Total assets $5,205,141          $5,043,886                     
                                     
                                     
Liabilities and shareholders’ equity                                    
                                     
Deposits:                                    
Interest bearing checking accounts $871,153   16   0.01% $880,474   121   0.06%  (105)  (1)  (104)
Money market accounts  614,201   1,096   0.72%  517,995   826   0.65%  270   173   97 
Savings  1,116,558   233   0.08%  1,160,142   377   0.13%  (144)  (14)  (130)
Time deposits  1,369,914   6,391   1.88%  1,353,160   5,976   1.79%  415   85   330 
                                     
Total interest bearing deposits  3,971,826   7,736   0.78%  3,911,771   7,300   0.76%  436   243   193 
Short-term borrowings  153,668   322   0.84%  159,076   381   0.97%  (59)  (12)  (47)
                                     
Total interest bearing liabilities  4,125,494   8,058   0.79%  4,070,847   7,681   0.77%  377   231   146 
                                     
Demand deposits  458,476           397,522                     
Other liabilities  79,003           80,579                     
Shareholders’ equity  542,168           494,938                     
                                     
Total liabilities and shareholders’ equity $5,205,141          $5,043,886                     
                                     
Net interest income , tax equivalent      38,554           39,733      $(1,179)  1,684   (2,863)
                                     
Net interest spread          2.91%          3.11%            
                                     
Net interest margin (net interest income to total interest earning assets)          3.05%          3.24%            
                                     
Tax equivalent adjustment      (1)          (1)                
                                     
                                     
Net interest income      38,553           39,732                 

  Three months ended  Three months ended          
(dollars in thousands) March 31, 2019  March 31, 2018  
 
                            
Assets 
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 $154,258   783   2.03% $156,593   750   1.92% $33   (65)  98 
Mortgage backed securities and collateralized mortgage obligations-residential  273,004   1,555   2.28%  313,753   1,763   2.25%  (208)  (359)  151 
State and political subdivisions  168   2   7.85%  515   10   7.81%  (8)  (8)  - 
Corporate bonds  26,862   208   3.09%  33,297   133   1.60%  75   (158)  233 
Small Business Administration-guaranteed participation securities  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%  (42)  (21)  (21)
Other  685   5   2.92%  685   5   2.52%  -   -   - 
                                     
Total securities available for sale  512,034   2,850   2.23%  581,724   3,055   2.12%  (205)  (663)  458 

                                    
Federal funds sold and other short-term Investments  502,976   3,009   2.43%  528,947   2,017   1.55%  992   (662)  1,654 
                                     
Held to maturity securities:                                    

                                    
Mortgage backed securities and collateralized mortgage obligations-residential  22,037   217   3.94%  26,799   260   3.88%  (43)  (69)  26 
                                     
Total held to maturity securities  22,037   217   3.94%  26,799   260   3.88%  (43)  (69)  26 
                                     
Federal Reserve Bank and Federal Home Loan Bank stock  8,953   85   3.80%  8,779   77   3.51%  8   2   6 
                                     
Commercial loans  193,738   2,583   5.33%  185,646   2,420   5.21%  163   107   56 
Residential mortgage loans  3,374,990   34,864   4.14%  3,148,735   32,257   4.11%  2,607   2,367   240 
Home equity lines of credit  286,199   3,537   5.01%  306,290   3,210   4.25%  327   (1,162)  1,489 
Installment loans  11,897   269   9.17%  8,365   205   9.90%  64   158   (94)
                                     
Loans, net of unearned income  3,866,824   41,253   4.28%  3,649,036   38,092   4.19%  3,161   1,470   1,691 
                                     
Total interest earning assets  4,912,824   47,414   3.87%  4,795,285   43,501   3.64%  3,913   78   3,835 
                                     
Allowance for loan losses  (44,947)          (44,393)                    
Cash & non-interest earning assets  176,009           124,867                     
                                     
                                     
Total assets $5,043,886          $4,875,759                     
                                     
                                     
Liabilities and shareholders’ equity                                    
                                     
Deposits:                                    
Interest bearing checking accounts $880,474   121   0.06% $877,776   106   0.05%  15   -   15 
Money market accounts  517,995   826   0.65%  547,136   439   0.33%  387   (162)  549 
Savings  1,160,142   377   0.13%  1,260,360   419   0.13%  (42)  (42)  - 
Time deposits  1,353,160   5,976   1.79%  1,080,893   2,860   1.07%  3,116   849   2,267 
                                     
Total interest bearing deposits  3,911,771   7,300   0.76%  3,766,165   3,824   0.41%  3,476   645   2,831 
Short-term borrowings  159,076   381   0.97%  234,384   358   0.62%  23   (587)  610 
                                     
Total interest bearing liabilities  4,070,847   7,681   0.77%  4,000,549   4,182   0.42%  3,499   58   3,441 
                                     
Demand deposits  397,522           386,563                     
Other liabilities  80,579           29,129                     
Shareholders’ equity  494,938           459,519                     
                                     
Total liabilities and shareholders’ equity $5,043,886          $4,875,760                     
                                     
Net interest income , tax equivalent      39,733           39,319      $414   20   394 
                                     
Net interest spread          3.11%          3.22%            
                                     
Net interest margin (net interest income to total interest earning assets)          3.24%          3.29%            
                                     
Tax equivalent adjustment      (1)          (4)                
                                     
                                     
Net interest income      39,732           39,315                 


55
58
Item 3.
Quantitative and Qualitative Disclosures about Market Risk


As detailed in the Annual Report on Form 10-K as of December 31, 2018,2019, 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, 20192020 and 2018,2019, 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 2019,2020, the Company had an average balance of Federal Funds sold and other short-term investments of $503.0$412.1 million compared to $528.9$503.0 million in the first quarter of 2018.2019.  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.


Market disruptions brought about by the COVID-19 pandemic may adversely affect our sensitivity to market interest rates.  We could experience an increase in the cost of funding on our balance sheet.  We could also experience increased pricing competition for our existing loans or future borrower prospects, which could decrease rates earned on our earning assets.

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.

5659
PART II
OTHER INFORMATION


Item 1.
Legal Proceedings


None.


Item 1A.
Risk Factors


There were no material changes toIn light of the rapidly evolving COVID-19 pandemic, TrustCo (and collectively with the Bank, “we,” “us,” and “our”) have updated a number of the risk factors previously disclosedaffecting our business since those presented in our Annual Report on Form 10-K, Part I, Item 1A, for the fiscal year ended December 31, 2019 (the “Annual Report”) filed with the Securities and Exchange Commission on February 28, 2020. The following risk factors should be read in conjunction with the risk factors set forth in the Company’sAnnual Report.

The COVID-19 outbreak could adversely affect our business activities, financial condition and results of operations.

Our banking business, and the business of our industry generally, is dependent upon the willingness and ability of customers to conduct banking and other financial transactions. The spread of COVID-19 has caused, and we expect it to continue to cause, severe disruptions in the U.S. economy, including in the geographic areas in which we operate. Such economic disruptions could result in increased risk of delinquencies, defaults, foreclosures, and losses on our loans, negatively impact national and regional economic conditions, result in declines in loan demand and originations, the value of loan collateral (particularly in our home mortgage loan portfolio), and deposit availability, and negatively impact the implementation of our growth strategy. The spread of COVID-19 may result in a significant decrease in business and/or cause customers to be unable to meet existing payment or other obligations. The effects of the economic disruptions created by the COVID-19 pandemic, depending on their extent, could heighten many of our known risks described in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2018.2019 and could materially and adversely affect our liquidity and financial condition, and the results of our operations could be materially and adversely affected.


While the spread of COVID-19 has minimally affected our operations as of March 31, 2020, we may experience temporary closures of offices and/or suspension of certain services. Although we maintain contingency plans for a pandemic, the spread of COVID-19 could negatively affect key employees, including operational management personnel and those charged with preparing, monitoring, and evaluating our financial reporting and internal controls.  Such a spread or outbreak could also negatively impact the business and operations of third-party service providers who perform critical services for us. If COVID-19, or another highly infectious or contagious disease, spreads or the response to contain COVID-19 is unsuccessful, we could experience a material adverse effect to our business, financial condition, and results of operations.
60
Additionally, the COVID-19 pandemic has significantly affected the financial markets and has resulted in a number of Federal Reserve actions. Market interest rates have declined significantly. Yields on the 30-year Treasury notes and 10-year Treasury notes, which significantly influence home mortgage interest rates, are at historic lows. On March 3, 2020, the Federal Reserve reduced the target federal funds rate by 50 basis points to 1.00% to 1.25%, and on March 15, 2020, it further reduced the target federal funds rate by 100 basis points to 0.00% to 0.25% and announced a quantitative easing program in response to the expected economic downturn caused by the COVID-19 pandemic. The Federal Reserve reduced the interest that it pays on excess reserves from 1.60% to 1.10% on March 3, 2020, and then to 0.10% on March 15, 2020. We expect that these reductions in interest rates, especially if prolonged, could adversely affect net interest income and margins and profitability.

The extent to which the COVID-19 pandemic affects our business, results of operations and financial condition will depend on future developments, which are highly uncertain and are difficult to predict, including, but not limited to, the duration and spread of the outbreak, its severity, the actions to contain the virus or treat its impact, and how quickly and to what extent normal economic and operating conditions can resume. Even after the COVID-19 pandemic has subsided, we may continue to experience materially adverse impacts to our business as a result of the virus’s global economic impact, including the availability of credit, adverse impacts on our liquidity and any recession that has occurred or may occur in the future.

As a participating lender in the SBA’s Paycheck Protection Program, the Company and the Bank are subject to additional risks of litigation from the Bank’s customers or other parties regarding the Bank’s processing of loans for the Payment Protection Program and risks that the SBA may not fund some or all Payment Protection Program loan guaranties.

On March 27, 2020, President Trump signed the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), which included a $349 billion loan program administered through the SBA referred to as the Payment Protection Program (“PPP”), and Congress has recently approved additional funding for the program.  Under the program, small businesses and other entities and individuals can apply for loans from existing SBA lenders and other approved regulated lenders that enroll in the program, subject to numerous limitations and eligibility criteria.

We have experienced increased volume of loan originations, particularly SBA loans pursuant to the PPP. Certain of these SBA loans have mandated interest rates that are lower than our usual rates and may not be purchased by the SBA or other third parties within expected timeframes.  In addition, borrowers may draw on existing lines of credit or seek additional loans to finance their businesses. These factors may result in reduced levels of capital and liquidity being available to originate more profitable loans, which will negatively impact our ability to serve our existing customers and our ability to attract new customers.

Since the opening of the PPP on April 3, 2020, several larger banks have been subject to litigation regarding the process and procedures that such banks used in processing applications. We may be exposed to the risk of similar litigation, from both customers and non-customers that approached us regarding PPP loans, regarding our process and procedures used in processing applications. If any such litigation is filed against us and is not resolved in a manner favorable to us, it may result in significant financial liability or adversely affect our reputation. In addition, litigation can be costly, regardless of outcome. Any financial liability, litigation costs or reputational damage caused by related litigation could have a material adverse impact on our business, financial condition and results of operations.
61
We also have credit risk on PPP loans if a determination is made by the SBA that there is a deficiency in the manner in which the loan was originated, funded, or serviced by us, such as an issue with the eligibility of a borrower to receive a PPP loan, which may or may not be related to the ambiguity in the laws, rules, and guidance regarding the operation of the PPP. In the event of a loss resulting from a default on a PPP loan and a determination by the SBA that there was a deficiency in the manner in which the PPP loan was originated, funded, or serviced by us, the SBA may deny its liability under the guaranty, reduce the amount of the guaranty, or, if it has already paid under the guaranty, seek recovery of any loss related to the deficiency from us.

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


Share Repurchase Program
None.

The following table provides certain information with respect to the Company’s purchases of its common shares during the three months ended March 31, 2020:

Period 
Total
numbers of
shares
purchased
  
Average
price paid
per share
  
Total number
of shares
purchased as
part of publicly
announced
plans or
programs
  
Maximum number of
shares that may yet
be purchased under
the plans or
programs (1)
 
January 1, 2020 through January 31, 2020  75,000  $8.04   75,000   925,000 
February 1, 2020 through February 29, 2020  225,000  $7.50   225,000   700,000 
March 1, 2020 through March 31, 2020  189,000  $6.28   189,000   511,000 
Total  489,000  $7.11   489,000   511,000 

(1)On June 7, 2019, the Company announced that its board of directors approved a stock repurchase program under which the Company may repurchase over the following twelve months up to 1,000,000 shares of Company common stock, or approximately 1% of its current outstanding shares. Repurchases would be made in open market or private transactions, through block trades, or pursuant to any trading plan that may be adopted in accordance with Securities and Exchange Commission rules and at prices management considered to be attractive and in the best interests of both the Company and its stockholders, subject to the availability of stock, general market conditions, the trading price of the stock, alternative uses for capital, and the Company’s financial performance. The repurchase program was subject to suspension, termination or modification at any time for any reason, including market conditions, the cost of repurchasing shares, the availability of alternative investment opportunities, liquidity, and other factors deemed appropriate. The Company commenced repurchases under the program during the quarter ended March 31, 2020.  On April 16, 2020, the Company announced that it had chosen to suspend the repurchase program.
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Item 3.
Defaults Upon Senior Securities


None.


Item 4.
Mine Safety


None.


Item 5.
Other Information


None.

63
Item 6.
Exhibits


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

SIGNATURES

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

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

Date:  May 3, 2019

Exhibits Index

Reg S-K
Exhibit No.
Description
  
15
Crowe 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.INSInstance Document
  
101.SCHXBRL Taxonomy Extension Schema Document
  
101.CALXBRL Taxonomy Extension Calculation Linkbase Document
  
101.DEFXBRL Taxonomy Extension Definition Linkbase Document
  
101.LABXBRL Taxonomy Extension Label Linkbase Document
  
101.PREXBRLTaxonomy Extension Presentation Linkbase Document

64

60
SIGNATURES

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

TrustCo Bank Corp NY
By: /s/Robert J. McCormick
Robert J. McCormick
Chairman, President and Chief Executive Officer


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

Date:  May 8, 2020



65