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 September 30, 20202021
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 York
NEW YORK
 14-1630287
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)

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

Registrant's telephone number, including area code:
(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

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 October 31, 20202021
$1 Par Value96,432,65719,218,501





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 and nine-month periods ended September 30, 20202021 and 20192020
3
   
 
Consolidated Statements of Comprehensive Income for the three-month and nine-month periods ended September 30, 20202021 and 20192020
4
   
 
Consolidated Statements of Financial Condition as of September 30, 20202021 and December 31, 20192020
5
   
 
Consolidated Statements of Changes in Shareholders’ Equity for the threethree-month and nine-month periods ended September 30, 20202021 and 20192020
6
   
 
Consolidated Statements of Cash Flows for the nine-month periods ended September 30, 20202021 and 20192020
7
   
 
Notes to Consolidated Interim Financial Statements
8–398-41
   
 
Report of Independent Registered Public Accounting Firm
4042
   
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
41–6543-65
   
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
66
   
Item 4.
Controls and Procedures
66
   
Part II.OTHER INFORMATION 
   
Item 1.
Legal Proceedings
67
   
Item 1A.
Risk Factors
67
   
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
67
   
Item 3.
Defaults Upon Senior Securities
67
   
Item 4.
Mine Safety
67
   
Item 5.
Other Information
67
   
Item 6.
Exhibits
68




2
Index
TRUSTCO BANK CORP NY
Consolidated Statements of Income (Unaudited)
(dollars in thousands, except per share data)

 
Three months ended
September 30,
  
Nine months ended
September 30,
  
Three months ended
September 30,
  
Nine months ended
September 30,
 
 2020  2019  2020  2019  2021  2020  2021  2020 
                        
Interest and dividend income:                        
Interest and fees on loans $41,330   41,923   125,058   124,608  $39,488   41,330   119,513   125,058 
Interest and dividends on securities available for sale:                                
U. S. government sponsored enterprises  14   996   541   2,600   91   14   238   541 
State and political subdivisions  1   2   4   6   1   1   2   4 
Mortgage-backed securities and collateralized mortgage obligations - residential  1,319   2,178   4,959   5,885 
Mortgage-backed securities and collateralized mortgage obligations  1,038   1,319   3,442   4,959 
Corporate bonds  646   321   1,372   801   220   646   859   1,372 
Small Business Administration-guaranteed participation securities  216   282   690   868   181   216   580   690 
Other securities  5   6   16   16   5   5   16   16 
Total interest and dividends on securities available for sale  2,201   3,785   7,582   10,176   1,536   2,201   5,137   7,582 
                                
Interest on held to maturity securities:                                
Mortgage-backed securities and collateralized mortgage obligations-residential  138   187   475   613   104   138   338   475 
Total interest on held to maturity securities  138   187   475   613   104   138   338   475 
                                
Federal Reserve Bank and Federal Home Loan Bank stock  77   81   351   365   64   77   198   351 
Interest on federal funds sold and other short-term investments  242   2,552   1,702   8,843   470   242   1,026   1,702 
Total interest income  43,988   48,528   135,168   144,605   41,662   43,988   126,212   135,168 
                                
Interest expense:                                
Interest on deposits:                                
Interest-bearing checking  55   52   97   267   38   55   136   97 
Savings accounts  161   323   560   1,067   154   161   475   560 
Money market deposit accounts  637   1,177   2,595   3,122   202   637   721   2,595 
Time deposits  4,749   7,974   16,739   21,462   1,149   4,749   4,076   16,739 
Interest on short-term borrowings  221   359   778   1,121   232   221   688   778 
Total interest expense  5,823   9,885   20,769   27,039   1,775   5,823   6,096   20,769 
                                
Net interest income  38,165   38,643   114,399   117,566   39,887   38,165   120,116   114,399 
Provision (Credit) for loan losses  1,000   0   5,000   (41)
(Credit) Provision for loan losses  (2,800)  1,000   (2,450)  5,000 
Net interest income after provision for loan losses  37,165   38,643   109,399   117,607   42,687   37,165   122,566   109,399 
                                
Noninterest income:                                
Trustco financial services income  1,784   1,517   4,752   4,933   1,558   1,784   5,592   4,752 
Fees for services to customers  2,292   2,602   6,414   7,733   2,531   2,292   7,221   6,414 
Net gain on securities transactions  0   0   1,155   0   0   0   0   1,155 
Other  265   806   780   1,810   206   265   598   780 
Total noninterest income  4,341   4,925   13,101   14,476   4,295   4,341   13,411   13,101 
                                
Noninterest expenses:                                
Salaries and employee benefits  10,899   11,725   33,920   34,887   11,909   10,899   36,737   33,920 
Net occupancy expense  4,277   4,094   12,968   12,267   4,259   4,277   13,173   12,968 
Equipment expense  1,607   1,689   5,015   5,300   1,628   1,607   4,859   5,015 
Professional services  1,311   1,507   3,974   4,725   1,483   1,311   4,529   3,974 
Outsourced services  1,875   1,875   5,825   5,675   2,015   1,875   6,434   5,825 
Advertising expense  305   494   1,394   2,057   310   305   1,213   1,394 
FDIC and other insurance  660   282   1,563   1,528   746   660   2,230   1,563 
Other real estate (income) expense, net  (115)  33   47   219 
Other real estate expense (income), net  32   (115)  211   47 
Other  1,855   2,371   6,168   7,181   2,315   1,855   6,086   6,168 
Total noninterest expenses  22,674   24,070   70,874   73,839   24,697   22,674   75,472   70,874 
                                
Income before taxes  18,832   19,498   51,626   58,244   22,285   18,832   60,505   51,626 
Income taxes  4,761   4,790   12,988   14,311   5,523   4,761   15,227   12,988 
                                
Net income $14,071   14,708  $38,638   43,933  $16,762   14,071   45,278   38,638 
                                
Net income per share:                
Net income per share (1):                
- Basic $0.146   0.152  $0.400   0.454  $0.871   0.730   2.349   2.002 
                                
- Diluted $0.146   0.152  $0.400   0.453  $0.871   0.730   2.349   2.001 

(1)
All periods presented have been adjusted for the 1 for 5 reverse stock split which occurred on May 28, 2021.

See accompanying notes to unaudited consolidated interim financial statements.


3
Index
TRUSTCO BANK CORP NY
Consolidated Statements of Comprehensive Income (Unaudited)
(dollars in thousands)

 
Three months ended
September 30,
  
Nine months ended
September 30,
  
Three months ended
September 30,
  
Nine months ended
September 30,
 
 2020  2019  2020  2019  2021  2020  2021  2020 
                        
Net income $14,071   14,708   38,638   43,933  $16,762   14,071   45,278   38,638 
                                
Net unrealized holding (loss) gain on securities available for sale  (267)  2,418   11,392   14,185   (765)  (267)  (5,939)  11,392 
Reclassification adjustments for net gain recognized in income  0   0   (1,155)  0   0   0   0   (1,155)
Tax effect  69   (628)  (2,660)  (3,686)  199   69   1,534   (2,660)
                                
Net unrealized (loss) gain on securities available for sale, net of tax  (198)  1,790   7,577   10,499   (566)  (198)  (4,405)  7,577 
                                
                
Amortization of net actuarial gain  (222)  (35)  (531)  (103)  (137)  (222)  (534)  (531)
Amortization of prior service credit  (49)  (83)  (147)  (250)
Amortization of prior service cost (credit)  177   (49)  227   (147)
Tax effect  70   31   177   92   (10)  70   80   177 
Amortization of net actuarial gain and prior service credit
on pension and postretirement plans, net of tax
  (201)  (87)  (501)  (261)
Amortization of net actuarial gain and prior service cost (credit) on pension and postretirement plans, net of tax  30   (201)  (227)  (501)
                                
Other comprehensive (loss) income, net of tax  (399)  1,703   7,076   10,238   (536)  (399)  (4,632)  7,076 
Comprehensive income $13,672   16,411   45,714   54,171  $16,226   13,672   40,646   45,714 

See accompanying notes to unaudited consolidated interim financial statements.

4
Index
TRUSTCO BANK CORP NY
Consolidated Statements of Financial Condition (Unaudited)
(dollars in thousands, except per share data)

 September 30, 2020  December 31, 2019  September 30, 2021  December 31, 2020 
ASSETS:            
            
Cash and due from banks $47,703   48,198  $45,486   47,196 
        
Federal funds sold and other short term investments  908,616   408,648   1,147,853   1,059,903 
Total cash and cash equivalents  956,319   456,846   1,193,339   1,107,099 
                
Securities available for sale  454,743   573,823   434,552   439,071 
                
Held to maturity securities (fair value 2020 $16,343; 2019 $19,680)  15,094   18,618 
Held to maturity securities ($11,646 and $14,988 fair value at September 30, 2021 and December 31, 2020, respectively)
  10,701   13,824 
                
Federal Reserve Bank and Federal Home Loan Bank stock  5,506   9,183   5,604   5,506 
                
Loans, net of deferred net costs  4,214,555   4,062,196   4,396,729   4,244,470 
Less:                
Allowance for loan losses  49,123   44,317   47,350   49,595 
Net loans  4,165,432   4,017,879   4,349,379   4,194,875 
                
Bank premises and equipment, net  34,417   34,622   33,233   34,412 
Operating lease right-of-use assets  47,174   51,475   45,836   47,885 
Other assets  57,244   58,876   62,191   59,124 
                
Total assets $5,735,929   5,221,322  $6,134,835   5,901,796 
                
LIABILITIES:                
Deposits:                
Demand $635,345   463,858  $790,663   652,756 
Interest-bearing checking  1,024,290   875,672   1,148,593   1,086,558 
Savings accounts  1,235,259   1,113,146   1,433,130   1,285,501 
Money market deposit accounts  699,132   599,163   744,051   716,005 
Time deposits  1,305,024   1,398,177   1,124,581   1,296,373 
Total deposits  4,899,050   4,450,016   5,241,018   5,037,193 
                
Short-term borrowings  193,455   148,666   230,770   214,755 
Operating lease liabilities  52,125   56,553   50,515   52,784 
Accrued expenses and other liabilities  30,771   27,830   25,849   28,903 
                
Total liabilities  5,175,401   4,683,065   5,548,152   5,333,635 
                
SHAREHOLDERS' EQUITY:                
Capital stock par value $1; 150,000,000 shares authorized; 100,204,832 and 100,204,832 shares issued at September 30, 2020 and December 31, 2019, respectively  100,205   100,205 
Surplus  176,441   176,427 
Capital stock par value $1; 30,000,000 shares authorized; 20,041,796 and 20,040,966 shares issued and 19,216,101 and 19,286,531 shares outstanding at September 30, 2021 and December 31, 2020, respectively (1) (2)
  20,042   20,041 
Surplus (1)  256,565   256,606 
Undivided profits  306,741   288,067   339,554   313,974 
Accumulated other comprehensive income, net of tax  11,537   4,461   7,304   11,936 
Treasury stock at cost - 3,772,175 and 3,283,175 shares at September 30, 2020 and December 31, 2019, respectively  (34,396)  (30,903)
Treasury stock at cost - 825,695 and 754,435 shares at September 30, 2021 and December 31, 2020, respectively (2)
  (36,782)  (34,396)
                
Total shareholders' equity  560,528   538,257   586,683   568,161 
                
Total liabilities and shareholders' equity $5,735,929   5,221,322  $6,134,835   5,901,796 

(1)
All periods presented have been adjusted for the 1 for 5 reverse stock split which occurred on May 28, 2021.
(2)
Share amounts have been adjusted for all periods presented for the 1 for 5 reverse stock split which occurred on May 28, 2021.

See accompanying notes to unaudited consolidated interim financial statements.

5
Index

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

 
Capital
Stock
  Surplus  
Undivided
Profits
  
Accumulated
Other
Comprehensive
(Loss) Income
  
Treasury
Stock
  Total 
                   
Beginning balance, January 1, 2019 $100,175   176,710   256,397   (10,309)  (33,102)  489,871 
Net income  0   0   14,558   0   0   14,558 
Other comprehensive income, net of tax  0   0   0   3,298   0   3,298 
Stock options exercised (5,100 shares)  5   30   0   0   0   35 
Cash dividend declared, $0.068125 per share  0   0   (6,591)  0   0   (6,591)
Purchase of treasury stock (4,131 shares)  0   0   0   0   (35)  (35)
Sale of treasury stock (86,297 shares)  0   (218)  0   0   812   594 
Stock based compensation expense  0   (12)  0   0   0   (12)
                         
Ending balance, March 31, 2019
 $100,180   176,510   264,364   (7,011)  (32,325)  501,718 
Net income  0   0   14,667   0   0   14,667 
Other comprehensive income, net of tax  0   0   0   5,237   0   5,237 
Cash dividend declared, $0.068125 per share  0   0   (6,598)  0   0   (6,598)
Sale of treasury stock (76,443 shares)  0   (120)  0   0   720   600 
Stock based compensation expense  0   6   0   0   0   6 
                         
Ending balance, June 30, 2019
 $100,180   176,396   272,433   (1,774)  (31,605)  515,630 
Net income  0   0   14,708   0   0   14,708 
Other comprehensive income, net of tax  0   0   0   1,703   0   1,703 
Cash dividend declared, $0.068125 per share  0   0   (6,599)  0   0   (6,599)
Stock options exercised (19,850 shares)  20   98   0   0   0   118 
Sale of treasury stock (74,656 shares)  0   (105)  0   0   702   597 
Stock based compensation expense  0   6   0   0   0   6 
                         
Ending balance, September 30, 2019
 $100,200   176,395   280,542   (71)  (30,903)  526,163 
                         
Beginning balance, January 1, 2020 $100,205   176,427   288,067   4,461   (30,903)  538,257 
Net income  0   0   13,313   0   0   13,313 
Other comprehensive income, net of tax  0   0   0   6,931   0   6,931 
Cash dividend declared, $0.068125 per share  0   0   (6,827)  0   0   (6,827)
Purchase of treasury stock (489,000 shares)  0   0   0   0   (3,493)  (3,493)
Stock based compensation expense  0   4   0   0   0   4 
                         
Ending balance, March 31, 2020
 $100,205   176,431   294,553   11,392   (34,396)  548,185 
Net income  0   0   11,254   0   0   11,254 
Other comprehensive income, net of  tax  0   0   0   544   0   544 
Cash dividend declared, $0.068125 per share  0   0   (6,568)  0   0   (6,568)
Stock based compensation expense  0   6   0   0   0   6 
                         
Ending balance, June 30, 2020 $100,205   176,437   299,239   11,936   (34,396)  553,421 
Net income  0   0   14,071   0   0   14,071 
Other comprehensive income, net of tax  0   0   0   (399)  0   (399)
Cash dividend declared, $0.068125 per share  0   0   (6,569)  0   0   (6,569)
Stock based compensation expense  0   4   0   0   0   4 
                         
Ending balance, September 30, 2020 $100,205   176,441   306,741   11,537   (34,396)  560,528 
 
Capital
Stock (1)
  Surplus (1)
  
Undivided
Profits
  
Accumulated
Other
Comprehensive
Income
  
Treasury
Stock
  Total 
                   
Beginning balance, January 1, 2020 (1)
 $20,041   256,591   288,067   4,461   (30,903)  538,257 
Net income  0   0   13,313   0   0   13,313 
Other comprehensive income, net of tax  0   0   0   6,931   0   6,931 
Cash dividend declared, $0.340625 per share (2)
  0   0   (6,827)  0   0   (6,827)
Purchase of treasury stock (97,800 shares) (2)
  0   0   0   0   (3,493)  (3,493)
Stock based compensation expense  0   4   0   0   0   4 
                         
Ending balance, March 31, 2020 (1)
 $20,041   256,595   294,553   11,392   (34,396)  548,185 
Net income  0   0   11,254   0   0   11,254 
Other comprehensive income, net of tax  0   0   0   544   0   544 
Cash dividend declared, $0.340625 per share (2)
  0   0   (6,568)  0   0   (6,568)
Stock based compensation expense  0   6   0   0   0   6 
                         
Ending balance, June 30, 2020 (1)
 $20,041   256,601   299,239   11,936   (34,396)  553,421 
Net income  0   0   14,071   0   0   14,071 
Other comprehensive income, net of tax  0   0   0   (399)  0   (399)
Cash dividend declared, $0.340625 per share (2)
  0   0   (6,569)  0   0   (6,569)
Stock based compensation expense  0   4   0   0   0   4 
                         
Ending balance, September 30, 2020 (1)
 $20,041   256,605   306,741   11,537   (34,396)  560,528 
                         
Beginning balance, January 1, 2021 (1)
 $20,041   256,606   313,974   11,936   (34,396)  568,161 
Net income  0   0   14,083   0   0   14,083 
Other comprehensive loss, net of tax  0   0   0   (4,668)  0   (4,668)
Stock options exercised (2,650 shares) (1)
  3   68   0   0   0   71 
Cash dividend declared, $0.340625 per share (2)
  0   0   (6,571)  0   0   (6,571)
Purchase of treasury stock (1,261 shares) (2)
  0   0   0   0   (45)  (45)
                         
Ending balance, March 31, 2021 (1)
 $20,044   256,674   321,486   7,268   (34,441)  571,031 
Net income  0   0   14,433   0   0   14,433 
Other comprehensive loss, net of  tax  0   0   0   572   0   572 
Cash used to settle fractional shares in the Reverse Stock Split  (5)  (195)  0   0   0   (200)
Stock options exercised (2,225 shares) (1)
  2   57   0   0   0   59 
Cash dividend declared, $0.340625 per share (2)
  0   0   (6,569)  0   0   (6,569)
Purchase of treasury stock (20,000 shares) (2)
  0   0   0   0   (733)  (733)
                         
Ending balance, June 30, 2021 (1)
 $20,041   256,536   329,350   7,840   (35,174)  578,593 
Net income  0   0   16,762   0   0   16,762 
Other comprehensive loss, net of tax  0   0   0   (536)  0   (536)
Stock options exercised (1,160 shares)
  1   29   0   0   0   30 
 Cash dividend declared, $0.340625 per share
  0   0   (6,558)  0   0   (6,558)
 Purchase of treasury stock (50,000 shares)
  0   0   0   0   (1,608)  (1,608)
                         
Ending balance, September 30, 2021 (1)
 $20,042   256,565   339,554   7,304   (36,782)  586,683 

(1)
All periods presented have been adjusted for the 1 for 5 reverse stock split which occurred on May 28, 2021.
(2)
Share amounts and per share amounts have been adjusted for all periods presented for the 1 for 5 reverse stock split which occurred on May 28, 2021.

See accompanying notes to unaudited consolidated interim financial statements.

6
Index

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

 Nine months ended September 30,  Nine months ended September 30, 
 2020  2019  2021  2020 
            
Cash flows from operating activities:            
Net income $38,638   43,933  $45,278   38,638 
                
Adjustments to reconcile net income to net cash provided by operating activities:                
Depreciation  3,003   2,958   3,184   3,003 
Amortization of right-of-use asset  4,588   4,420   4,745   4,588 
Net gain on sale of other real estate owned  (332)  (686)  (86)  (332)
Writedown of other real estate owned  120   294   121   120 
Provision (credit) for loan losses  5,000   (41)
Deferred tax (benefit) expense  (1,199)  844 
(Credit) provision for loan losses  (2,450)  5,000 
Deferred tax benefit  (1,247)  (1,199)
Net amortization of securities  2,703   2,128   3,113   2,703 
Stock based compensation expense  14   0   0   14 
Net gain on sale of bank premises and equipment  0   (3)
Net gain on sales of securities  (1,155)  0   0   (1,155)
Decrease in taxes receivable  570   1,903 
Increase in interest receivable  (180)  (397)
(Decrease) increase in interest payable  (682)  510 
(Increase) decrease in taxes receivable  (463)  570 
Decrease (increase) in interest receivable  673   (180)
Decrease in interest payable  (249)  (682)
Increase in other assets  (1,201)  (2,669)  (1,442)  (1,201)
Decrease in operating lease liabilities  (4,715)  (4,489)  (4,965)  (4,715)
Increase in accrued expenses and other liabilities  2,734   1,066 
(Decrease) increase in accrued expenses and other liabilities  (2,106)  2,734 
Total adjustments  9,268   5,838   (1,172)  9,268 
Net cash provided by operating activities  47,906   49,771   44,106   47,906 
                
Cash flows from investing activities:                
Proceeds from sales and calls of securities available for sale  226,886   101,306 
Proceeds from sales, paydowns and calls of securities available for sale  123,550   226,886 
Proceeds from calls and maturities of held to maturity securities  3,398   2,665   3,028   3,398 
Purchases of securities available for sale  (103,991)  (260,466)  (136,543)  (103,991)
Proceeds from maturities of securities available for sale  5,000   10,052   8,555   5,000 
Purchases of Federal Reserve Bank and Federal Home Loan Bank stock  (380)  (230)  (98)  (380)
Proceeds from redemption of Federal Reserve Bank stock  4,057   0   0   4,057 
Net increase in loans  (152,987)  (115,120)  (152,314)  (152,987)
Proceeds from dispositions of other real estate owned  1,802   3,159   255   1,802 
Proceeds from dispositions of bank premises and equipment  0   3   6   0 
Purchases of bank premises and equipment  (2,798)  (2,432)  (2,011)  (2,798)
Net cash used in investing activities  (19,013)  (261,063)  (155,572)  (19,013)
                
Cash flows from financing activities:                
Net increase in deposits  449,034   186,920   203,825   449,034 
Net increase (decrease) in short-term borrowings  44,789   (10,798)
Net increase in short-term borrowings  16,015   44,789 
Proceeds from exercise of stock options  0   153   160   0 
Proceeds from sale of treasury stock  0   1,791 
Cash used to settle fractional shares in the Reverse Stock Split  (200)  0 
Purchases of treasury stock  (3,493)  (35)  (2,386)  (3,493)
Dividends paid  (19,750)  (19,771)  (19,708)  (19,750)
Net cash provided by financing activities  470,580   158,260   197,706   470,580 
Net increase (decrease) in cash and cash equivalents  499,473   (53,032)
Net increase in cash and cash equivalents  86,240   499,473 
Cash and cash equivalents at beginning of period  456,846   503,709   1,107,099   456,846 
Cash and cash equivalents at end of period $956,319   450,677  $1,193,339  $956,319 
                
Supplemental Disclosure of Cash Flow Information:                
Cash paid during the year for:                
Interest paid $21,451   26,529  $6,345   21,451 
Income taxes paid  12,274   12,263   15,430   12,274 
Other non cash items:                
Transfer of loans to other real estate owned  434   3,501   260   434 
Increase in dividends payable  214   17 
Change in unrealized gain on securities available for sale-gross of deferred taxes  10,237   14,185 
Change in deferred tax effect on unrealized gain on securities available for sale  (2,660)  (3,686)
Amortization of net actuarial gain and prior service credit on pension and postretirement plans  (678)  (353)
(Decrease) Increase in dividends payable  (10)  214 
Change in unrealized (loss) gain on securities available for sale-gross of deferred taxes  (5,939)  10,237 
Change in deferred tax effect on unrealized loss (gain) on securities available for sale  1,534   (2,660)
Amortization of net actuarial gain and prior service cost (credit) on pension and postretirement plans  (307)  (678)
Change in deferred tax effect of amortization of net actuarial gain postretirement benefit plans  177   92   80   177 

See accompanying notes to unaudited consolidated interim financial statements.

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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 principal 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 and nine months ended September 30, 20202021 is not necessarily indicative of the results that may be expected for the year ending December 31, 2020,2021, 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 September 30, 20202021, the results of operations for the three and nine months ended September 30, 20202021 and 20192020, and the cash flows for the nine months ended September 30, 20202021 and 20192020.  The accompanying unaudited Consolidated Interim Financial Statements should be read in conjunction with the Company’s year-end audited Consolidated Financial Statements, including notes thereto, which are included in the Company'sCompany’s Annual Report on Form 10-K10-K for the year ended December 31, 20192020.  The accompanying consolidated financial statementsunaudited 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.

Effective as of May 28, 2021, the Company completed a 1-for-5 reverse stock split (the “Reverse Stock Split”) of the Company’s issued and outstanding shares of common stock, par value $1.00 per share, as previously approved by our Board of Directors (the “Board of Directors”) and our shareholders. Proportional adjustments were made to the Company’s issued and outstanding common stock and to the exercise price and number of shares issuable upon exercise of the options outstanding under the Company’s equity incentive plans, and the number of shares subject to restricted stock units under the Company’s equity incentive plans. NaN fractional shares of common stock were issued in connection with the Reverse Stock Split, and shareholders received cash in lieu of any fractional shares. All references herein to common stock and per share data for all periods presented in these unaudited consolidated interim financial statements and notes thereto, have been retrospectively adjusted to reflect the Reverse Stock Split.
8
Index

(2) Earnings Per Share

The Company computes earnings per share in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 260, Earnings Per Share (“ASC 260”).

A reconciliation of the component parts of earnings per share for the three and nine months ended September 30, 20202021 and 20192020 is as follows:follows:

(in thousands, except per share data) 
For the three months ended
September 30,
  
For the nine months ended
September 30,
  
For the three months ended
September 30,
  
For the nine months ended
September 30,
 
 2020  2019  2020  2019  2021  2020  2021  2020 
                        
Net income $14,071   14,708  $38,638   43,933  $16,762   14,071  $45,278   38,638 
Weighted average common shares(1)  96,433   96,907   96,531   96,825   19,249   19,287   19,272   19,306 
Stock Options(1)  4   70   14   72   3   1   6   2 
Weighted average common shares including potential dilutive shares(1)  96,437   96,977   96,545   96,897   19,252   19,288   19,278   19,308 
                                
Basic EPS(1) $0.146   0.152  $0.400   0.454  $0.871   0.730  $2.349   2.002 
                                
Diluted EPS(1) $0.146   0.152  $0.400   0.453  $0.871   0.730  $2.349   2.001 

(1)
Share and per share amounts have been adjusted for all periods presented for the 1 for 5 reverse stock split which occurred on May 28, 2021.

For the three and nine months ended September 30, 20202021 there were 60 thousand weighted average antidilutive stock options excluded from dilutive earnings. For the three and 2019nine months ended September 30, 2020 the weighted average antidilutive stock options excluded from dilutive earnings were approximately 45290 thousand and -0-, respectively. shares. 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.presented and have been adjusted to reflect the Reverse Stock Split.
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Index

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Index
(3) Benefit Plans

The table below outlines the components of the Company'sCompany’s net periodic benefit recognized during the three and nine months ended September 30, 20202021 and 20192020 for its pension and other postretirement benefit plans:plans:

 Three months ended September 30,  
Three months ended September 30,
 
 Pension Benefits  Other Postretirement Benefits  Pension Benefits  Other Postretirement Benefits 
(dollars in thousands) 2020  2019  2020  2019  2021  2020  2021  2020 
                        
Service cost $9   10   15   17 
Service (credit) cost $0   9   9   15 
Interest cost  269   311   40   60   214   269   60   40 
Expected return on plan assets  (755)  (702)  (296)  (248)  (712)  (755)  (274)  (296)
Amortization of net loss (gain)  (5)  14   (217)  (49)  0   (5)  (137)  (217)
Amortization of prior service credit  0   0   (49)  (83)
Amortization of prior service cost (credit)  0   0   177   (49)
Net periodic benefit $(482)  (367)  (507)  (303) $(498)  (482)  (165)  (507)

 Nine months ended September 30,  
Nine months ended September 30,
 
 Pension Benefits  Other Postretirement Benefits  Pension Benefits  Other Postretirement Benefits 
(dollars in thousands) 2020  2019  2020  2019  2021  2020  2021  2020 
                        
Service cost $28   31   55   49  $0   28   57   55 
Interest cost  807   933   152   180   642   807   143   152 
Expected return on plan assets  (2,265)  (2,108)  (887)  (743)  (2,135)  (2,265)  (891)  (887)
Amortization of net loss (gain)  0   44   (531)  (147)  0   0   (534)  (531)
Amortization of prior service credit  0   0   (147)  (250)
Amortization of prior service cost (credit)  0   0   227   (147)
Net periodic benefit $(1,430)  (1,100)  (1,358)  (911) $(1,493)  (1,430)  (998)  (1,358)

The Company does not expect to make contributions to its pension and postretirement benefit plans in 2020.2021.  As of September 30, 2020,2021, 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 postretirement medical benefits to a limited number of current and retired executives in accordance with the terms of their employment contracts.

9
10

(4) Investment Securities

(a) Securities available for sale

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

 September 30, 2020  
September 30, 2021
 
(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 $30,000   3   7   29,996  $59,974   0   225   59,749 
State and political subdivisions  110   1   0   111   48   0   0   48 
Mortgage backed securities and collateralized mortgage obligations - residential  301,490   8,369   91   309,768   290,508   5,095   2,018   293,585 
Corporate bonds  69,231   1,048   166   70,113   45,914   327   326   45,915 
Small Business Administration - guaranteed participation securities  42,599   1,471   0   44,070   33,650   919   0   34,569 
Other  685   0   0   685   686   0   0   686 
                
Total Securities Available for Sale $444,115   10,892   264   454,743  $430,780   6,341   2,569   434,552 

 December 31, 2019  
December 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 $104,895   36   419   104,512  $20,000   0   32   19,968 
State and political subdivisions  160   2   0   162   103   0   0   103 
Mortgage backed securities and collateralized mortgage obligations - residential  388,537   2,406   1,426   389,517   308,432   7,749   23   316,158 
Corporate bonds  30,164   367   95   30,436   59,185   916   162   59,939 
Small Business Administration - guaranteed participation securities  48,991   0   480   48,511   40,955   1,262   0   42,217 
Other  685   0   0   685   685   1   0   686 
                                
Total securities available for sale $573,432   2,811   2,420   573,823  $429,360   9,928   217   439,071 

11

The following table distributes the debt securities included in the available for sale portfolio as of September 30, 20202021, based on the securities’ final maturity. Actual maturities may differ because of securities prepayments and the right of certain issuers to call or prepay their obligations without penalty. Securities not due at a single maturity date are presented separately:

(dollars in thousands) 
Amortized
Cost
  
Fair
Value
  
Amortized
Cost
  
Fair
Value
 
            
Due in one year or less $18,563   18,747  $15,667   15,954 
Due in one year through five years  81,445   82,140   90,946   90,435 
Due after five years through ten years  18   18   9   9 
Mortgage backed securities and collateralized mortgage obligations - residential  301,490   309,768   290,508   293,585 
Small Business Administration - guaranteed participation securities  42,599   44,070   33,650   34,569 
 $444,115   454,743  $430,780   434,552 

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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:

 September 30, 2020  
September 30, 2021
 
 
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
Unrealized
Loss
  
Fair
Value
  
Gross
Unrealized
Loss
  
Fair
Value
  
Gross
Unrealized
Loss
 
                                    
U.S. government sponsored enterprises $9,993   7   0   0   9,993   7  $49,760   214   9,989   11   59,749   225 
Mortgage backed securities and collateralized mortgage obligations - residential  20,096   91   0   0   20,096   91   94,466   1,910   6,361   108   100,827   2,018 
Corporate bonds  15,723   103   4,937   63   20,660   166   5,345   8   14,682   318   20,027   326 
                                                
Total $45,812   201   4,937   63   50,749   264  $149,571   2,132   31,032   437   180,603   2,569 

 December 31, 2019  
December 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
Unrealized
Loss
  
Fair
Value
  
Gross
Unrealized
Loss
  
Fair
Value
  
Gross
Unrealized
Loss
 
                                    
U.S. government sponsored enterprises $19,820   180   74,656   239   94,476   419  $19,968   32   0   0   19,968   32 
Mortgage backed securities and collateralized mortgage obligations - residential  67,322   446   169,169   980   236,491   1,426   19,471   22   0   0   19,471   22 
Corporate bonds  4,905   95   0   0   4,905   95   14,901   99   4,937   63   19,838   162 
Small Business Administration - guaranteed participation securities  48,510   480   0   0   48,510   480 
                                                
Total $140,557   1,201   243,825   1,219   384,382   2,420  $54,340   153   4,937   63   59,277   216 

12
The proceeds from sales and calls of securities available for sale, gross realized gains and gross realized losses from sales and calls during the three and nine months ended September 30, 20202021 and 20192020 are as follows:

 Three months ended September 30,  Three months ended September 30, 
(dollars in thousands) 2020  2019  2021  2020 
            
Proceeds from sales $0  $0  $0  $0 
Proceeds from calls/paydowns  43,052   56,856   47,100   43,052 
Proceeds from maturities  0   0   3,500   0 
Gross realized gains  0   0 
Gross realized losses  0   0   0   0 

 Nine months ended September 30,  Nine months ended September 30, 
(dollars in thousands) 2020  2019  2021  2020 
            
Proceeds from sales $29,219  $0  $0  $29,219 
Proceeds from calls/paydowns  197,667   101,306   123,550   197,667 
Proceeds from maturities  5,000   10,052   8,555   5,000 
Gross realized gains  1,155   0   0   1,155 
Gross realized losses  0   0 

The current interest rate environment has significantly contributed to more bonds being called. There were no0 transfers of securities available for sale during the three and nine months ended September 30, 20202021 and 2019.2020.

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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:

 September 30, 2020  
September 30, 2021
 
(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 $15,094   1,249   0   16,343  $10,701   945   0   11,646 
                                
Total held to maturity $15,094   1,249   0   16,343  $10,701   945   0   11,646 

 December 31, 2019  
December 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 $18,618   1,062   0   19,680  $13,824   1,164   0   14,988 
                                
Total held to maturity $18,618   1,062   0   19,680  $13,824   1,164   0   14,988 

13
The following table distributes the debt securities included in the held to maturity portfolio as of September 30, 2020,2021, 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 $15,094   16,343  $10,701   11,646 
 $15,094   16,343  $10,701   11,646 

All held to maturity securities are held at cost on the financial statements.  There were 0 gross unrecognized losses on held to maturity securities as of September 30, 20202021 and December 31, 20192020.

There were 0 sales or transfers of held to maturity securities during the three and nine months ended September 30, 20202021 and 2019.2020.

(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.

12
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.

14
As of September 30, 2020,2021, 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 unrealizedUnrealized losses on U.S. government sponsored enterprises because the decline in fair value isare attributable to changes in interest rates, and not credit quality, and becausequality. 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 September 30, 2020.2021.

Mortgage backed securities and collateralized mortgage obligations – residential:  At September 30, 2020,2021, 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 theThe decline in fair value is attributable to changes in interest rates, and not credit quality, and becausequality. 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 September 30, 2020.2021.

Corporate Bonds:  At September 30, 2020,2021, corporate bonds held by the Company are investment grade quality.  Because theThe decline in fair value is attributable to changes in interest rates, and not credit quality, and becausequality. The 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 September 30, 2020.2021.

13
15
Index
(5) Loans and Allowance for Loan Losses

The following table presents the recorded investment in loans by loan class:

 September 30, 2020  September 30, 2021 
(dollars in thousands) 
New York and
other states*
  Florida  Total  
New York and
other states*
  Florida  Total 
Commercial:                  
Commercial real estate $152,994   18,579   171,573  $147,557   20,512   168,069 
Other  59,886   204   60,090   36,078   532   36,610 
Real estate mortgage - 1 to 4 family:                        
First mortgages  2,580,577   1,065,903   3,646,480   2,698,870   1,189,086   3,887,956 
Home equity loans  62,595   15,671   78,266   49,492   13,837   63,329 
Home equity lines of credit  200,605   47,715   248,320   177,240   54,074   231,314 
Installment  7,997   1,829   9,826   7,378   2,073   9,451 
Total loans, net $3,064,654  $1,149,901   4,214,555  $3,116,615   1,280,114   4,396,729 
Less: Allowance for loan losses          49,123           47,350 
Net loans         $4,165,432          $4,349,379 

 December 31, 2019  December 31, 2020 
(dollars in thousands) 
New York and
other states*
  Florida  Total  
New York and
other states*
  Florida  Total 
Commercial:                  
Commercial real estate $162,186   17,752   179,938  $148,775   18,666   167,441 
Other  19,326   235   19,561   44,932   119   45,051 
Real estate mortgage - 1 to 4 family:                        
First mortgages  2,541,440   953,995   3,495,435   2,606,781   1,098,915   3,705,696 
Home equity loans  69,791   18,548   88,339   59,400   15,071   74,471 
Home equity lines of credit  221,487   46,435   267,922   193,654   48,540   242,194 
Installment  8,706   2,295   11,001   7,810   1,807   9,617 
Total loans, net $3,022,936   1,039,260   4,062,196  $3,061,352   1,183,118   4,244,470 
Less: Allowance for loan losses          44,317           49,595 
Net loans         $4,017,879          $4,194,875 

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

At Included in commercial loans above are Paycheck Protection Program (“PPP”) loans totaling $20.5 million and $28.9 million as of September 30, 20202021 and December 31, 2019,2020, respectively.

At September 30, 2021 and December 31, 2020, the Company had approximately $26.8 $37.7 million and $28.5$24.7 million of real estate construction loans, respectively.  Of the $26.8 $37.7 million in real estate construction loans at September 30, 2020,2021, approximately $11.0$21.9 million are secured by first mortgages to residential borrowers while approximately $15.8 million were to commercial borrowers for residential construction projects.  Of the $28.5$24.7 million in real estate construction loans at December 31, 2019,2020, approximately $10.7$10.5 million are secured by first mortgages to residential borrowers while approximately $17.8$14.2 million were to commercial borrowers for residential construction projects.  The vast majority of construction loans are in the Company’s New York market.

16
Index
TrustCo lends in the geographic territory of its branch locations in New York, Florida, Massachusetts, New Jersey and Vermont. Although the loan portfolio is diversified, a portion of its debtors’ ability to repay depends significantly on the economic conditions prevailing in the respective geographic territory.

14
Index
The following tables presenttable presents the recorded investment in non-accrual loans by loan class:

 September 30, 2020  
September 30, 2021
 
(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 $378   0   378  $136   0   136 
Other  113   0   113   40   0   40 
Real estate mortgage - 1 to 4 family:                        
First mortgages  17,193   1,075   18,268   15,000   1,894   16,894 
Home equity loans  90   47   137   211   45   256 
Home equity lines of credit  2,694   132   2,826   2,667   127   2,794 
Installment  49   0   49   32   0   32 
Total non-accrual loans  20,517   1,254   21,771   18,086   2,066   20,152 
Restructured real estate mortgages - 1 to 4 family  25   0   25   19   0   19 
Total nonperforming loans $20,542   1,254   21,796  $18,105   2,066   20,171 

 December 31, 2019  
December 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 $733   0   733  $372   0   372 
Other  83   0   83   80   0   80 
Real estate mortgage - 1 to 4 family:                        
First mortgages  15,385   1,468   16,853   16,637   1,010   17,647 
Home equity loans  218   48   266   80   47   127 
Home equity lines of credit  2,804   98   2,902   2,662   130   2,792 
Installment  3   0   3   43   0   43 
Total non-accrual loans  19,226   1,614   20,840   19,874   1,187   21,061 
Restructured real estate mortgages - 1 to 4 family  29   0   29   23   0   23 
Total nonperforming loans $19,255   1,614   20,869  $19,897   1,187   21,084 

* 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 September 30, 20202021 and December 31, 2019,2020, other real estate owned included $423$511 thousand and $1.6 million$541 thousand of residential foreclosed properties, respectively. In addition, non-accrual residential mortgage loans that are in the process of foreclosure had a recorded investment of $11.5$11.9 million and $8.7$11.6 million, respectively, as of September 30, 20202021 and December 31, 2019 respectively.2020.

15
17
Index
The following tables present the aging of the recorded investment in past due loans by loan class and by region as of September 30, 20202021 and December 31, 2019:2020:

 September 30, 2020 
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
 
                   
Commercial:                  
Commercial real estate $0   0   279   279   152,715   152,994 
Other  0   0   113   113   59,773   59,886 
Real estate mortgage - 1 to 4 family:                        
First mortgages  3,842   738   12,183   16,763   2,563,814   2,580,577 
Home equity loans  147   4   49   200   62,395   62,595 
Home equity lines of credit  722   33   1,236   1,991   198,614   200,605 
Installment  46   15   49   110   7,887   7,997 
                         
Total $4,757   790   13,909   19,456   3,045,198   3,064,654 
The following table presents the aging of the recorded investment in past due loans by loan class and by region:

Florida:                  
 
September 30, 2021
 
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 $0   0   0   0   18,579   18,579  $241   0   63   304   147,253   147,557 
Other  0   0   0   0   204   204   0   0   40   40   36,038   36,078 
Real estate mortgage - 1 to 4 family:                                                
First mortgages  636   0   718   1,354   1,064,549   1,065,903   1,802   1,160   10,447   13,409   2,685,461   2,698,870 
Home equity loans  0   47   0   47   15,624   15,671   0   0   187   187   49,305   49,492 
Home equity lines of credit  0   0   0   0   47,715   47,715   446   25   1,145   1,616   175,624   177,240 
Installment  16   8   0   24   1,805   1,829   5   30   0   35   7,343   7,378 
                                                
Total $652   55   718   1,425   1,148,476   1,149,901  $2,494   1,215   11,882   15,591   3,101,024   3,116,615 

Total:                  
Florida:                  
(dollars in thousands) 
30-59
Days
Past Due
  
60-89
Days
Past Due
  
90 +
Days
Past Due
  
Total
30+ days
Past Due
  Current  
Total
Loans
  
30-59
Days
Past Due
  
60-89
Days
Past Due
  
90 +
Days
Past Due
  
Total
30+ days
Past Due
  Current  
Total
Loans
 
                                    
Commercial:                                    
Commercial real estate $0   0   279   279   171,294   171,573  $0   0   0   0   20,512   20,512 
Other  0   0   113   113   59,977   60,090   0   0   0   0   532   532 
Real estate mortgage - 1 to 4 family:                                                
First mortgages  4,478   738   12,901   18,117   3,628,363   3,646,480   482   182   1,367   2,031   1,187,055   1,189,086 
Home equity loans  147   51   49   247   78,019   78,266   45   0   0   45   13,792   13,837 
Home equity lines of credit  722   33   1,236   1,991   246,329   248,320   186   0   0   186   53,888   54,074 
Installment  62   23   49   134   9,692   9,826   19   0   0   19   2,054   2,073 
                                                
Total $5,409   845   14,627   20,881   4,193,674   4,214,555  $732   182   1,367   2,281   1,277,833   1,280,114 

* Includes New York, New Jersey, Vermont and Massachusetts.
16
Index
 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
 
                   
Commercial:                  
Commercial real estate $141   0   617   758   161,428   162,186 
Other  80   0   33   113   19,213   19,326 
Real estate mortgage - 1 to 4 family:                        
First mortgages  3,444   292   11,328   15,064   2,526,376   2,541,440 
Home equity loans  183   7   133   323   69,468   69,791 
Home equity lines of credit  232   149   1,141   1,522   219,965   221,487 
Installment  37   8   3   48   8,658   8,706 
                         
Total $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 $0   0   0   0   17,752   17,752 
Other  0   0   0   0   235   235 
Real estate mortgage - 1 to 4 family:                        
First mortgages  542   0   617   1,159   952,836   953,995 
Home equity loans  63   0   0   63   18,485   18,548 
Home equity lines of credit  80   0   50   130   46,305   46,435 
Installment  0   0   0   0   2,295   2,295 
                         
Total $685   0   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
  
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   0   617   758   179,180   179,938  $241   0   63   304   167,765   168,069 
Other  80   0   33   113   19,448   19,561   0   0   40   40   36,570   36,610 
Real estate mortgage - 1 to 4 family:                                                
First mortgages  3,986   292   11,945   16,223   3,479,212   3,495,435   2,284   1,342   11,814   15,440   3,872,516   3,887,956 
Home equity loans  246   7   133   386   87,953   88,339   45   0   187   232   63,097   63,329 
Home equity lines of credit  312   149   1,191   1,652  ��266,270   267,922   632   25   1,145   1,802   229,512   231,314 
Installment  37   8   3   48   10,953   11,001   24   30   0   54   9,397   9,451 
                                                
Total $4,802   456   13,922   19,180   4,043,016   4,062,196  $3,226   1,397   13,249   17,872   4,378,857   4,396,729 

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

18

 
December 31, 2020
 
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
 
                   
Commercial:                  
Commercial real estate $125   77   279   481   148,294   148,775 
Other  0   0   80   80   44,852   44,932 
Real estate mortgage - 1 to 4 family:                        
First mortgages  1,220   982   10,927   13,129   2,593,652   2,606,781 
Home equity loans  120   1   48   169   59,231   59,400 
Home equity lines of credit  401   344   1,273   2,018   191,636   193,654 
Installment  3   0   43   46   7,764   7,810 
                         
Total $1,869   1,404   12,650   15,923   3,045,429   3,061,352 

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 $0   0   0   0   18,666   18,666 
Other  0   0   0   0   119   119 
Real estate mortgage - 1 to 4 family:                        
First mortgages  365   517   655   1,537   1,097,378   1,098,915 
Home equity loans  0   0   47   47   15,024   15,071 
Home equity lines of credit  0   0   0   0   48,540   48,540 
Installment  7   10   0   17   1,790   1,807 
                         
Total $372   527   702   1,601   1,181,517   1,183,118 

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 $125   77   279   481   166,960   167,441 
Other  0   0   80   80   44,971   45,051 
Real estate mortgage - 1 to 4 family:                        
First mortgages  1,585   1,499   11,582   14,666   3,691,030   3,705,696 
Home equity loans  120   1   95   216   74,255   74,471 
Home equity lines of credit  401   344   1,273   2,018   240,176   242,194 
Installment  10   10   43   63   9,554   9,617 
                         
Total $2,241   1,931   13,352   17,524   4,226,946   4,244,470 

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

At September 30, 20202021 and December 31, 2019,2020, 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 0 commitments to extend further credit on non-accrual or restructured loans.

17
19
Activity in the allowance for loan losses by portfolio segment is summarized as follows:

 For the three months ended September 30, 2020  
For the three months ended September 30, 2021
 
(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 $4,366   43,274   504   48,144  $4,106   45,617   432   50,155 
Loans charged off:                                
New York and other states*  0   64   21   85   30   72   17   119 
Florida  0   0   0   0   0   1   0   1 
Total loan chargeoffs  0   64   21   85   30   73   17   120 
                                
Recoveries of loans previously charged off:                                
New York and other states*  1   60   3   64   0   111   3   114 
Florida  0   0   0   0   0   1   0   1 
Total recoveries  1   60   3   64   0   112   3   115 
Net loans (recoveries) charged off  (1)  4   18   21 
Net loans charged off (recoveries)
  30   (39)  14   5 
(Credit) provision for loan losses  (100)  1,053   47   1,000   (823)  (2,003)  26   (2,800)
Balance at end of period $4,267   44,323   533   49,123  $3,253   43,653   444   47,350 

 For the three months ended September 30, 2019  
For the three months ended September 30, 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 $3,913   39,963   489   44,365  $4,366   43,274   504   48,144 
Loans charged off:                                
New York and other states*  13   147   16   176   0   64   21   85 
Florida  0   0   16   16   0   0   0   0 
Total loan chargeoffs  13   147   32   192   0   64   21   85 
                                
Recoveries of loans previously charged off:                                
New York and other states*  41   108   7   156   1   60   3   64 
Florida  0   0   0   0   0   0   0   0 
Total recoveries  41   108   7   156   1   60   3   64 
Net loans (recoveries) charged off
  (28)  39   25   36   (1)  4   18   21 
(Credit) provision for loan losses  (70)  (18)  88   0   (100)  1,053   47   1,000 
Balance at end of period $3,871   39,906   552   44,329  $4,267   44,323   533   49,123 

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

18
20

 
For the nine months ended September 30, 2021
 
  Commercial  
Real Estate
Mortgage-
1 to 4 Family
  Installment  Total 
Balance at beginning of period $4,140   44,950   505   49,595 
Loans charged off:                
New York and other states*  30   178   25   233 
Florida  0   1   2   3 
Total loan chargeoffs  30   179   27   236 
                 
Recoveries of loans previously charged off:                
New York and other states*  32   355   52   439 
Florida  0   2   0   2 
Total recoveries  32   357   52   441 
Net loans (recoveries) charged off  (2)  (178)  (25)  (205)
(Credit) provision for loan losses  (889)  (1,475)  (86)  (2,450)
Balance at end of period $3,253   43,653   444   47,350 

 Nine months ended September 30, 2020 
  Commercial  
Real Estate
Mortgage-
1 to 4 Family
  Installment  Total 
Balance at beginning of period $3,999   39,748   570   44,317 
Loans charged off:                
New York and other states*  3   277   77   357 
Florida  0   0   19   19 
Total loan chargeoffs  3   277   96   376 
                 
Recoveries of loans previously charged off:                
New York and other states*  9   160   11   180 
Florida  0   2   0   2 
Total recoveries  9   162   11   182 
Net loans charged off (recoveries)  (6)  115   85   194 
Provision for loan losses  262   4,690   48   5,000 
Balance at end of period $4,267   44,323   533   49,123 

 Nine months ended September 30, 2019  
For the nine months ended September 30, 2020
 
 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*  20   744   94   858   3   277   77   357 
Florida  0   29   47   76   0   0   19   19 
Total loan chargeoffs  20   773   141   934   3   277   96   376 
                                
Recoveries of loans previously charged off:                                
New York and other states*  45   441   17   503   9   160   11   180 
Florida  0   35   0   35   0   2   0   2 
Total recoveries  45   476   17   538   9   162   11   182 
Net loans charged off  (25)  297   124   396 
(Credit) provision for loan losses  (202)  431   (270)  (41)
Net loans charged off (recoveries)  (6)  115   85   194 
Provision for loan losses  262   4,690   48   5,000 
Balance at end of period $3,871  $39,906   552   44,329  $4,267   44,323   533   49,123 

* 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.

19
21
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 September 30, 20202021 and December 31, 2019:2020:

 September 30, 2020  
September 30, 2021
 
(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 $0   0   0   0  $0   0   0   0 
Collectively evaluated for impairment  4,267   44,323   533   49,123   3,253   43,653   444   47,350 
                                
Total ending allowance balance $4,267   44,323   533   49,123  $3,253   43,653   444   47,350 
                                
Loans:                                
Individually evaluated for impairment $1,084   20,648   0   21,732  $521   19,292   0   19,813 
Collectively evaluated for impairment  230,579   3,952,418   9,826   4,192,823   204,158   4,163,307   9,451   4,376,916 
                                
Total ending loans balance $231,663   3,973,066   9,826   4,214,555  $204,679   4,182,599   9,451   4,396,729 

 December 31, 2019  
December 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 $0   0   0   0  $0   0   0   0 
Collectively evaluated for impairment  3,999   39,748   570   44,317   4,140   44,950   505   49,595 
                                
Total ending allowance balance $3,999   39,748   570   44,317  $4,140   44,950   505   49,595 
                                
Loans:                                
Individually evaluated for impairment $1,437   19,539   0   20,976  $1,028   20,553   0   21,581 
Collectively evaluated for impairment  198,062   3,832,157   11,001   4,041,220   211,464   4,001,808   9,617   4,222,889 
                                
Total ending loans balance $199,499   3,851,696   11,001   4,062,196  $212,492   4,022,361   9,617   4,244,470 

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 September 30, 20202021 and December 31, 20192020 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.dependent.

20
22
The following tables present impaired loans by loan class as of September 30, 20202021 and December 31, 2019:2020:

 September 30, 2020  
September 30, 2021
 
New York and other states*:            
(dollars in thousands) 
Recorded
Investment
  
Unpaid
Principal
Balance
  
Related
Allowance
  
Average
Recorded
Investment
 

            
New York and other states*:

(dollars in thousands)
 
Recorded
Investment
  
Unpaid
Principal
Balance
  
Related
Allowance
  
Average
Recorded
Investment
 
                        
Commercial:                        
Commercial real estate $839   1,062   0   1,121  $388   480   0   1,147 
Other  145   145   0   112   40   40   0   108 
Real estate mortgage - 1 to 4 family:                                
First mortgages  14,895   15,282   0   14,062   14,261   14,567   0   14,070 
Home equity loans  223   243   0   235   199   199   0   235 
Home equity lines of credit  2,268   2,408   0   2,249   2,052   2,192   0   2,255 
                                
Total $18,370   19,140   0   17,779  $16,940   17,478   0   17,815 

Florida:            
(dollars in thousands) 
Recorded
Investment
  
Unpaid
Principal
Balance
  
Related
Allowance
  
Average
Recorded
Investment
 
Florida:

(dollars in thousands)
 
Recorded
Investment
  
Unpaid
Principal
Balance
  
Related
Allowance
  
Average
Recorded
Investment
 
                        
Commercial:                        
Commercial real estate $100      0   105  $93   93   0   105 
Other  0      0   0   0   0   0   0 
Real estate mortgage - 1 to 4 family:                               
First mortgages  3,018   3,018   0   2,567   2,597   2,597   0   2,563 
Home equity loans  0   0   0   13   0   0   0   15 
Home equity lines of credit  244   244   0   245   183   183   0   246 
                                
Total $3,362   3,262   0   2,930  $2,873   2,873   0   2,929 

Total:            
(dollars in thousands) 
Recorded
Investment
  
Unpaid
Principal
Balance
  
Related
Allowance
  
Average
Recorded
Investment
 
Total:

(dollars in thousands)
 
Recorded
Investment
  
Unpaid
Principal
Balance
  
Related
Allowance
  
Average
Recorded
Investment
 
                        
Commercial:                        
Commercial real estate $939   1,062   0   1,226  $481   573   0   1,252 
Other  145   145   0   112   40   40   0   108 
Real estate mortgage - 1 to 4 family:                                
First mortgages  17,913   18,300   0   16,629   16,858   17,164   0   16,633 
Home equity loans  223   243   0   248   199   199   0   250 
Home equity lines of credit  2,512   2,652   0   2,494   2,235   2,375   0   2,501 
                                
Total $21,732   22,402   0   20,709  $19,813   20,351   0   20,744 

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

21
23

 
December 31, 2020
 

            
New York and other states*:

(dollars in thousands)
 
Recorded
Investment
  
Unpaid
Principal
Balance
  
Related
Allowance
  
Average
Recorded
Investment
 
             
Commercial:            
Commercial real estate $819   943   0   1,186 
Other  111   111   0   103 
Real estate mortgage - 1 to 4 family:                
First mortgages  15,024   15,411   0   14,110 
Home equity loans  219   240   0   235 
Home equity lines of credit  2,158   2,298   0   2,258 
                 
Total $18,331   19,003   0   17,892 

 December 31, 2019 
New York and other states*:            
(dollars in thousands) 
Recorded
Investment
  
Unpaid
Principal
Balance
  
Related
Allowance
  
Average
Recorded
Investment
 
Florida:

(dollars in thousands)
 
Recorded
Investment
  
Unpaid
Principal
Balance
  
Related
Allowance
  
Average
Recorded
Investment
 
                        
Commercial:                        
Commercial real estate $1,217   1,359   0   1,385  $98   98   0   105 
Other  115   115   0   38   0   0   0   0 
Real estate mortgage - 1 to 4 family:                                
First mortgages  14,414   14,714   0   14,358   2,908   2,908   0   2,555 
Home equity loans  235   255   0   241   0   0   0   16 
Home equity lines of credit  2,160   2,300   0   2,274   244   244   0   246 
                                
Total $18,141   18,743   0   18,296  $3,250   3,250   0   2,922 

Florida:            
(dollars in thousands) 
Recorded
Investment
  
Unpaid
Principal
Balance
  
Related
Allowance
  
Average
Recorded
Investment
 
             
Commercial:            
Commercial real estate $105   105   0   82 
Other  0   0   0   26 
Real estate mortgage - 1 to 4 family:                
First mortgages  2,486   2,486   0   2,259 
Home equity loans  0   0   0   51 
Home equity lines of credit  244   244   0   249 
                 
Total $2,835   2,835   0   2,667 

Total:            
(dollars in thousands) 
Recorded
Investment
  
Unpaid
Principal
Balance
  
Related
Allowance
  
Average
Recorded
Investment
 
Total:

(dollars in thousands)
 
Recorded
Investment
  
Unpaid
Principal
Balance
  
Related
Allowance
  
Average
Recorded
Investment
 
                        
Commercial:                        
Commercial real estate $1,322   1,464   0   1,467  $917   1,041   0   1,291 
Other  115   115   0   64   111   111   0   103 
Real estate mortgage - 1 to 4 family:                                
First mortgages  16,900   17,200   0   16,617   17,932   18,319   0   16,665 
Home equity loans  235   255   0   292   219   240   0   251 
Home equity lines of credit  2,404   2,544   0   2,523   2,402   2,542   0   2,504 
                                
Total $20,976   21,578   0   20,963  $21,581   22,253   0   20,814 

* 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 and nine months ended September 30, 20202021 and 2019.2020.

22
24
As of September 30, 20202021 and December 31, 20192020 impaired loans included approximately $11.8 $10.9 million and $11.1$11.7 million of loans in accruing status that were identified as TDR’s in accordance with regulatory guidance related to Chapter 7 bankruptcy loans, respectively.

Management evaluates impairment on impaired loans on a quarterly basis. If, during this evaluation, impairment of the loan is identified, a chargeoffcharge off is taken at that time. As a result, as of September 30, 20202021 and December 31, 2019,2020, based upon management’s evaluation and due to the sufficiency of chargeoffscharge offs taken, none of the allowance for loan losses has been allocated to a specific impaired loan(s).

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

 Three months ended 9/30/2020  Three months ended 9/30/2019  
Three months ended 9/30/2021
  
Three months ended 9/30/2020
 
                                    
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  1  $126   126   0  $0   0   0  $0   0   1  $126   126 
Real estate mortgage - 1 to 4 family:                                                
First mortgages  6   1,533   1,533   4   537   537   2   557   557   6   1,533   1,533 
Home equity loans  0   0   0   0   0   0   0   0   0   0   0   0 
Home equity lines of credit  1   50   50   0   0   0   1   31   31   1   50   50 
                                                
Total  8  $1,709   1,709   4  $537   537   3  $588   588   8  $1,709   1,709 

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  0  $0   0   0  $0   0 
Real estate mortgage - 1 to 4 family:                        
First mortgages  0   0   0   5   509   509 
Home equity loans  0   0   0   0   0   0 
Home equity lines of credit  0   0   0   0   0   0 
                         
Total  0  $0   0   5  $509   509 

* Includes New York, New Jersey, Vermont and Massachusetts.
23

 Nine months ended 9/30/2020  Nine months ended 9/30/2019 
                   
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
 
(dollars in thousands)
                   
Commercial:                  
Commercial real estate  1  $126   126   1  $127   127 
Real estate mortgage - 1 to 4 family:                        
First mortgages  9   1,982   1,982   12   1,768   1,768 
Home equity loans  0   0   0   0   0   0 
Home equity lines of credit  3   169   169   2   235   235 
                         
Total  13  $2,277   2,277   15  $2,130   2,130 

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
  
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  0  $0   0   0  $0   0   0  $0   0   0  $0   0 
Real estate mortgage - 1 to 4 family:                                                
First mortgages  4   589   589   5   509   509   0   0   0   0   0   0 
Home equity loans  0   0   0   0   0   0   0   0   0   0   0   0 
Home equity lines of credit�� 0   0   0   0   0   0   0   0   0   0   0   0 
                                                
Total  4  $589   589   5  $509   509   0  $0   0   0  $0   0 

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

24
25

 
Nine months ended 9/30/2021
  
Nine months ended 9/30/2020
 
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
 
(dollars in thousands)
                   
Commercial:                  
Commercial real estate  0  $0  
0   1  $
126  
126 
Real estate mortgage - 1 to 4 family:                        
First mortgages  4   923   923   9   1,982   1,982 
Home equity loans  1   2   2   0   0   0 
Home equity lines of credit  3   88   88   3   169   169 
                         
Total  8  $1,013  
1,013   13  $
2,277  
2,277 

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  0  $0  
0   0  $
0  
0 
Real estate mortgage - 1 to 4 family:                        
First mortgages  1   78   78   4   589   589 
Home equity loans  0   0   0   0   0   0 
Home equity lines of credit  0   0   0   0   0   0 
                         
Total  1  $78  
78   4  $
589  
589 

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

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

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

26
The following tables present,table presents, by class, TDR’s that defaulted during the three and nine months ended September 30, 20202021 and 20192020 which had been modified within the last twelve months:

 
Three months ended 9/30/2020
  
Three months ended 9/30/2019
  
Three months ended 9/30/2021
  
Three months ended 9/30/2020
 
New York and other states*: 
Number of
Contracts
  
Recorded
Investment
  
Number of
Contracts
  
Recorded
Investment
  
Number of
Contracts
  
Recorded
Investment
  
Number of
Contracts
  
Recorded
Investment
 
(dollars in thousands)
                        
Commercial:                        
Commercial real estate  0  $0   0  $0   0  $0   0  $
0 
Real estate mortgage - 1 to 4 family:                                
First mortgages  3   264   0   0   0   0   3   264 
Home equity lines of credit  1   19   0   0   0   0   1   19 
                                
Total  4  $283   0  $0   0  $0   4  $
283 

Florida:
(dollars in thousands)
 
Number of
Contracts
  
Recorded
Investment
  
Number of
Contracts
  
Recorded
Investment
 
             
Commercial:            
Commercial real estate  0  $0   0  $
0 
Real estate mortgage - 1 to 4 family:                
First mortgages  0   0   0   0 
Home equity loans
  0
   0
   0
   0
 
Home equity lines of credit  0   0   0   0 
                 
Total  0  $0   0  $
0 

* Includes New York, New Jersey, Vermont and Massachusetts.
25

 Nine months ended 9/30/2020  Nine months ended 9/30/2019 
New York and other states*: 
Number of
Contracts
  
Recorded
Investment
  
Number of
Contracts
  
Recorded
Investment
 
(dollars in thousands)
             
Commercial:            
Commercial real estate  0  $0   0  $0 
Real estate mortgage - 1 to 4 family:                
First mortgages  4   459   0   0 
Home equity loans  0   0   0   0 
Home equity lines of credit  1   19   0   0 
                 
Total  5  $478   0  $0 


 
Nine months ended 9/30/2021
  
Nine months ended 9/30/2020
 
New York and other states*: 
Number of
Contracts
  
Recorded
Investment
  
Number of
Contracts
  
Recorded
Investment
 
(dollars in thousands)
 
Number of
Contracts
  
Recorded
Investment
  
Number of
Contracts
  
Recorded
Investment
 
                        
Commercial:                        
Commercial real estate  0  $0   0  $0   0  $0   0  $0 
Real estate mortgage - 1 to 4 family:                                
First mortgages  0   0   0   0   0   0   4   459 
Home equity loans  0   0   0   0 
Home equity lines of credit  0   0   0   0   0   0   1   19 
                                
Total  0  $0   0  $0   0  $0   5  $478 

Florida:
(dollars in thousands)
 
Number of
Contracts
  
Recorded
Investment
  
Number of
Contracts
  
Recorded
Investment
 
             
Commercial:            
Commercial real estate  0  $0   0  $0 
Real estate mortgage - 1 to 4 family:         ��      
First mortgages  0   0   0   0 
Home equity lines of credit  0   0   0   0 
   -   -   -   - 
Total  0  $0   0  $0 

* 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.

27
Loan modifications and payment deferrals as a result of COVID-19COVID-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 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 CARES ACT or regulatory guidance are evaluated for TDR and non-accrual treatment under the Company’s existing policies and procedures.  Loan modifications and payment deferrals made pursuant to COVID 19 as of September 30, 2020 totaled approximately $7 million, which included $2 million of commercial loans and $5 million of residential loans. As of June 30, 2020 these amounts2021 totaled approximately $were not material.190 million, which included $45 million of commercial loans and $145 million of residential loans. The reduction in loan deferrals represents loans that are now paying in accordance with their terms.  As of September 30, 2020, there was no material impact to delinquencies and non-accruals regarding the loans that came out of deferment.

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

26
The Company uses the following definitions for classified loans:

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

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

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

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

28
As of September 30, 20202021 and December 31, 2019,2020, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

 September 30, 2020  
September 30, 2021
 
                  
New York and other states*:                  
(dollars in thousands) Pass  Classified  Total  Pass  Classified  Total 
                  
Commercial:                  
Commercial real estate $149,866   3,128   152,994  $145,400   2,157   147,557 
Other  59,404   482   59,886   35,913   165   36,078 
             $181,313   2,322   183,635 
 $209,270   3,610   212,880 

Florida:                  
(dollars in thousands) Pass  Classified  Total  Pass  Classified  Total 
                  
Commercial:                  
Commercial real estate $18,005   574   18,579  $19,957   555   20,512 
Other  204   0   204   532   0   532 
             $20,489   555   21,044 
 $18,209   574   18,783 

Total:         
(dollars in thousands) Pass  Classified  Total 
          
Commercial:         
Commercial real estate $167,871   3,702   171,573 
Other  59,608   482   60,090 
             
  $227,479   4,184   231,663 

* Includes New York, New Jersey and Massachusetts.
27

 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   0   17,752 
Other  235   0   235 
             
  $17,987   0   17,987 

Total:                  
(dollars in thousands) Pass  Classified  Total  Pass  Classified  Total 
                  
Commercial:                  
Commercial real estate $175,032   4,906   179,938  $165,357   2,712   168,069 
Other  18,619   942   19,561   36,445   165   36,610 
             $201,802   2,877   204,679 
 $193,651   5,848   199,499 

* Includes New York, New Jersey and Massachusetts.

29

 
December 31, 2020
 
          
New York and other states:         
(dollars in thousands) Pass  Classified  Total 
          
Commercial:         
Commercial real estate $145,741   3,034   148,775 
Other  44,522   410   44,932 
  $190,263   3,444   193,707 

Florida:         
(dollars in thousands) Pass  Classified  Total 
          
Commercial:         
Commercial real estate $18,092   574   18,666 
Other  119   0   119 
  $18,211   574   18,785 

Total:         
(dollars in thousands) Pass  Classified  Total 
          
Commercial:         
Commercial real estate $163,833   3,608   167,441 
Other  44,641   410   45,051 
  $208,474   4,018   212,492 

* Includes New York, New Jersey and Massachusetts.

Included in classified loans in the above tables are impaired loans of $849$297 thousand and $816$796 thousand at September 30, 20202021 and December 31, 2019,2020, respectively.

For homogeneous loan pools, such as residential mortgages, home equity lines of credit, and installment loans, the Company uses payment status to identify the credit risk in these loan portfolios.  Payment status is reviewed on a daily basis by the Company’s collection departmentarea 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 September 30, 20202021 and December 31, 20192020 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 September 30, 20202021 and December 31, 20192020 is presented in the non-accrual loans table.
table.

28
30

(6) Fair Value of Financial Instruments

FASB Topic 820, Fair Value Measurements(“ (“ASC 820”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 1 or 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 chargeoffcharge off 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.

29
31
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 
  September 30, 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)
 
             
U.S. government sponsored enterprises $29,996  $0  $29,996  $0 
State and political subdivisions  111   0   111   0 
Mortgage backed securities and collateralized mortgage obligations - residential  309,768   0   309,768   0 
Corporate bonds  70,113   0   70,113   0 
Small Business Administration- guaranteed participation securities  44,070   0   44,070   0 
Other securities  685   0   685   0 
                 
Total securities available for sale $454,743  $0  $454,743  $0 

 Fair Value Measurements at 
  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)
 
             
Securities available for sale:            
U.S. government sponsored enterprises $104,512  $0  $104,512  $0 
State and political subdivisions  162   0   162   0 
Mortgage backed securities and collateralized mortgage obligations - residential  389,517   0   389,517   0 
Corporate bonds  30,436   0   30,436   0 
Small Business Administration- guaranteed participation securities  48,511   0   48,511   0 
Other securities  685   0   685   0 
                 
Total securities available for sale $573,823  $0  $573,823  $0 

There were 0 transfers between Level 1 and Level 2 during the three and nine months ended September 30, 20202021 and 2019.2020.

 Fair Value Measurements at 
  
September 30, 2021 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)
 
             
U.S. government sponsored enterprises $59,749  $0  $59,749  $0 
State and political subdivisions  48   0   48   0 
Mortgage backed securities and collateralized mortgage obligations - residential  293,585   0   293,585   0 
Corporate bonds  45,915   0��  45,915   0 
Small Business Administration- guaranteed participation securities  34,569   0   34,569   0 
Other securities  686   0   686   0 
                 
Total securities available for sale $434,552  $0  $434,552  $0 

 Fair Value Measurements at 
  
December 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)
 
             
Securities available for sale:            
U.S. government sponsored enterprises $19,968  $0  $19,968  $0 
State and political subdivisions  103   0   103   0 
Mortgage backed securities and collateralized mortgage obligations - residential  316,158   0   316,158   0 
Corporate bonds  59,939   0   59,939   0 
Small Business Administration- guaranteed participation securities  42,217   0   42,217   0 
Other securities  686   0   686   0 
                 
Total securities available for sale $439,071  $0  $439,071  $0 

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32
Assets measured at fair value on a non-recurring basis are summarized below:

 Fair Value Measurements at       Fair Value Measurements at       
 September 30, 2020 Using:      September 30, 2021 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 $423  $0  $0  $423 Sales comparison approachAdjustments for differences between comparable sales  1% - 9% (3%) $511  $0  $0  $511 Sales comparison approach Adjustments for differences between comparable sales  3% - 21% (10%)
                                            
Impaired loans:                                            
Real estate mortgage -1 to 4 family  509   0   0   509 Sales comparison approachAdjustments for differences between comparable sales  1% - 11% (11%)  0   0   0   0 Sales comparison Adjustments for differences between comparable sales  N/A 

 Fair Value Measurements at      Fair Value Measurements at       
 
December 31, 2019 Using:
      
December 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 $1,579  $0  $0  $1,579 Sales comparison approachAdjustments for differences between comparable sales  1% - 21% (2%) $541  $0  $0  $541 Sales comparison approach Adjustments for differences between comparable sales  1% - 7% (2%)
                                            
Impaired loans:                                            
Real estate mortgage -1 to 4 family  120   0   0   120 Sales comparison approachAdjustments for differences between comparable sales  1% - 17% (9%)  211   0   0   211 Sales comparison Adjustments for differences between comparable sales  11% - 12% (12%)

Other real estate owned, that is carried at fair value less costs to sell was approximately $423511 thousand at September 30, 20202021 and consisted of only residential real estate properties. ValuationThere were 0 commercial real estate properties. There were valuation charges of $62$-0- and $121 thousand and $120 thousand are included in earnings for the three months and nine months ended September 30, 2020, respectively.2021, respectively.

Of the total impaired loans of $21.719.8 million at September 30, 2020,2021, there are NaN0 impairments that are collateral dependent and are carried at fair value measured on a non‑recurringnon-recurring basis.Due to the sufficiency of charge offs taken on these loans and the adequacy of the underlying collateral, there were 0 specific valuation allowances for these loans at September 30, 2021. There were 0 gross charge offs related to residential impaired loans included in the table above for the three and nine months ended September 30, 2021.

Other real estate owned, that is carried at fair value less costs to sell, was approximately $1.6 million$541 thousand at December 31, 20192020 and consisted of $358 thousand of commercial real estate and $1.2 milliononly of residential real estate properties. A valuation charge of $366$120 thousand is included in earnings for the year ended December 31, 2019.2020.

Of the total impaired loans of $21.0$21.6 million at December 31, 2019, $1202020, $211 thousand are collateral dependent and are carried at fair value measured on a non-recurring basis. Due to the sufficiency of charge offs taken on these loans and the adequacy of the underlying collateral, there were no0 specific valuation allowances for these loans at December 31, 2019.2020. Gross charge offs related to residential impaired loans included in the table above amounted to $22 thousand.$10 thousand at December 31, 2020.

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33
In accordance with FASB Topic 825, Financial Instruments (“ (“ASC 825”), tthehe carrying amounts and estimated fair values (represents exit price) of financial instruments, at September 30, 20202021 and December 31, 20192020 are as follows:

(dollars in thousands)    Fair Value Measurements at     Fair Value Measurements at 
 Carrying  September 30, 2020 Using:  Carrying  
September 30, 2021 Using:
 
 Value  Level 1  Level 2  Level 3  Total  Value  Level 1  Level 2  Level 3  Total 
Financial assets:                              
Cash and cash equivalents $956,319   956,319   0   0   956,319  $1,193,339   1,193,339   0   0   1,193,339 
Securities available for sale  454,743   0   454,743   0   454,743   434,552   0   434,552   0   434,552 
Held to maturity securities  15,094   0   16,343   0   16,343   10,701   0   11,646   0   11,646 
Federal Home Loan Bank stock  5,506   N/A   N/A   N/A   N/A   5,604   N/A   N/A   N/A   N/A 
Net loans  4,165,432   0   0   4,258,258   4,258,258   4,349,379   0   0   4,419,921   4,419,921 
Accrued interest receivable  11,095   16   1,471   9,608   11,095   9,358   37   1,042   8,279   9,358 
Financial liabilities:                                        
Demand deposits  635,345   635,345   0   0   635,345   790,663   790,663   0   0   790,663 
Interest bearing deposits  4,263,705   2,958,681   1,308,158   0   4,266,839   4,450,355   3,325,774   1,123,934   0   4,449,708 
Short-term borrowings  193,455   0   193,455   0   193,455   230,770   0   230,770   0   230,770 
Accrued interest payable  777   85   692   0   777   225   30   195   0   225 

(dollars in thousands)    Fair Value Measurements at 
  Carrying  December 31, 2019 Using: 
  Value  Level 1  Level 2  Level 3  Total 
Financial assets:               
Cash and cash equivalents $456,846   456,846   0   0   456,846 
Securities available for sale  573,823   0   573,823   0   573,823 
Held to maturity securities  18,618   0   19,680   0   19,680 
Federal Reserve Bank and Federal                    
Home Loan Bank stock  9,183   N/A   N/A   N/A   N/A 
Net loans  4,017,879   0   0   4,078,210   4,078,210 
Accrued interest receivable  10,915   216   2,221   8,478   10,915 
Financial liabilities:                    
Demand deposits  463,858   463,858   0   0   463,858 
Interest bearing deposits  3,986,158   2,587,981   1,397,271   0   3,985,252 
Short-term borrowings  148,666   0   148,666   0   148,666 
Accrued interest payable  1,459   174   1,285   0   1,459 

(dollars in thousands)    Fair Value Measurements at 
  Carrying  
December 31, 2020 Using:
 
  Value  Level 1  Level 2  Level 3  Total 
Financial assets:               
Cash and cash equivalents $1,107,099   1,107,099   0   0   1,107,099 
Securities available for sale  439,071   0   439,071   0   439,071 
Held to maturity securities  13,824   0   14,988   0   14,988 
Federal Reserve Bank and Federal                    
Home Loan Bank stock  5,506   N/A   N/A   N/A   N/A 
Net loans  4,194,875   0   0   4,287,585   4,287,585 
Accrued interest receivable  10,031   39   1,458   8,534   10,031 
Financial liabilities:                    
Demand deposits  652,756   652,756   0   0   652,756 
Interest bearing deposits  4,384,437   3,088,064   1,298,375   0   4,386,439 
Short-term borrowings  214,755   0   214,755   0   214,755 
Accrued interest payable  474   68   406   0   474 

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34

(7) Accumulated Other Comprehensive Income (Loss)

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

 Three months ended 9/30/2020  Three months ended 9/30/2021 
(dollars in thousands) 
Balance at
7/1/2020
  
Other
Comprehensive
Income (loss)-
Before
Reclassifications
  
Amount
reclassified
from Accumulated
Other Comprehensive
Income
  
Other
Comprehensive
Income (loss)-
Three months ended
9/30/2020
  
Balance at
9/30/2020
  
Balance at
7/1/2021
  
Other
Comprehensive
Income (loss)-
Before
Reclassifications
  
Amount
reclassified
from Accumulated
Other Comprehensive
Income
  
Other
Comprehensive
Income (loss)-
Three months ended
9/30/2021
  
Balance at
9/30/2021
 
                              
Net unrealized holding loss on securities available for sale, net of tax $8,061   (198)  0   (198)  7,863  $3,347   (566)  0   (566)  2,781 
Net change in overfunded position in pension and postretirement plans arising during the year, net of tax  4,840   0   0   0   4,840   6,084   0   0   0   6,084 
Net change in net actuarial gain and prior service credit on pension and postretirement benefit plans, net of tax  (965)  0   (201)  (201)  (1,166)
Net change in net actuarial loss and prior service credit on pension and postretirement benefit plans, net of tax  (1,591)  0   30   30   (1,561)
                                        
Accumulated other comprehensive loss, net of tax $11,936   (198)  (201)  (399)  11,537 
Accumulated other comprehensive income (loss), net of tax $7,840   (566)  30   (536)  7,304 

 Three months ended 9/30/2019  
Three months ended 9/30/2020
 
(dollars in thousands) 
Balance at
7/1/2019
  
Other
Comprehensive
Income (loss)-
Before
Reclassifications
  
Amount
reclassified
from Accumulated
Other Comprehensive
Income
  
Other
Comprehensive
Income (loss)-
Three months ended
9/30/2019
  
Balance at
9/30/2019
  
Balance at
7/1/2020
  
Other
Comprehensive
Income (loss)-
Before
Reclassifications
  
Amount
reclassified
from Accumulated
Other Comprehensive
Income
  
Other
Comprehensive
Income (loss)-
Three months ended
9/30/2020
  
Balance at
9/30/2020
 
                              
Net unrealized holding gain on securities available for sale, net of tax $(1,707)  1,790   0   1,790   83 
Net unrealized holding (gain) loss on securities available for sale, net of tax $8,061   (198)  0   (198)  7,863 
Net change in overfunded position in pension and postretirement plans arising during the year, net of tax  423   0   0   0   423   4,840   0   0   0   4,840 
Net change in net actuarial gain and prior service credit on pension and postretirement benefit plans, net of tax  (490)  0   (87)  (87)  (577)
Net change in net actuarial (gain) loss and prior service cost on pension and postretirement benefit plans, net of tax  (965)  0   (201)  (201)  (1,166)
                                        
Accumulated other comprehensive income (loss), net of tax $(1,774)  1,790   (87)  1,703   (71) $11,936   (198)  (201)  (399)  11,537 

  Nine months ended 9/30/2020 
(dollars in thousands) 
Balance at
1/1/2020
  
Other
Comprehensive
Income (loss)-
Before
Reclassifications
  
Amount
reclassified
from Accumulated
Other Comprehensive
Income
  
Other
Comprehensive
Income (loss)-
Three months ended
9/30/2020
  
Balance at
9/30/2020
 
                
Net unrealized holding gain on securities available for sale, net of tax $286   8,432   (855)  7,577   7,863 
Net change in overfunded position in pension and postretirement plans arising during the year, net of tax  4,840   0   0   0   4,840 
Net change in net actuarial gain and prior service credit on pension and postretirement benefit plans, net of tax  (665)  0   (501)  (501)  (1,166)
                     
Accumulated other comprehensive loss, net of tax $4,461   8,432   (1,356)  7,076   11,537 
  Nine months ended 9/30/2021 
(dollars in thousands) 
Balance at
1/1/2021
  
Other
Comprehensive
Income (loss)-
Before
Reclassifications
  
Amount
reclassified
from Accumulated
Other Comprehensive
Income
  
Other
Comprehensive
Income (loss)-
Three months ended
9/30/2021
  
Balance at
9/30/2021
 
                
Net unrealized holding loss on securities available for sale, net of tax $7,186   (4,405)  0   (4,405)  2,781 
Net change in overfunded position in pension and postretirement plans arising during the year, net of tax  6,084   0   0   0   6,084 
Net change in net actuarial loss and prior service credit on pension and postretirement benefit plans, net of tax  (1,334)  0   (227)  (227)  (1,561)
                     
Accumulated other comprehensive income (loss), net of tax $11,936   (4,405)  (227)  (4,632)  7,304 

 Nine months ended 9/30/2019  
Nine months ended 9/30/2020
 
(dollars in thousands) 
Balance at
1/1/2019
  
Other
Comprehensive
Income (loss)-
Before
Reclassifications
  
Amount
reclassified
from Accumulated
Other Comprehensive
Income
  
Other
Comprehensive
Income (loss)-
Three months ended
9/30/2019
  
Balance at
9/30/2019
  
Balance at
1/1/2020
  
Other
Comprehensive
Income (loss)-
Before
Reclassifications
  
Amount
reclassified
from Accumulated
Other Comprehensive
Income
  
Other
Comprehensive
Income (loss)-
Three months ended
9/30/2020
  
Balance at
9/30/2020
 
                              
Net unrealized holding gain on securities available for sale, net of tax $(10,416)  10,499   0   10,499   83 
Net unrealized holding loss on securities available for sale, net of tax $286   8,432   (855)  7,577   7,863 
Net change in overfunded position in pension and postretirement plans arising during the year, net of tax  423   0   0   0   423   4,840   0   0   0   4,840 
Net change in net actuarial gain and prior service credit on pension and postretirement benefit plans, net of tax  (316)  0   (261)  (261)  (577)
Net change in net actuarial loss and prior service credit on pension and postretirement benefit plans, net of tax  (665)  0   (501)  (501)  (1,166)
                                        
Accumulated other comprehensive income (loss), net of tax $(10,309)  10,499   (261)  10,238   (71) $4,461   8,432   (1,356)  7,076   11,537 

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35
The following represents the reclassifications out of accumulated other comprehensive income (loss) for the three and nine months ended September 30, 20202021 and 2019:2020:

(dollars in thousands) Three months ended  Nine months ended  
  September 30,  September 30,  
  2020  2019  2020  2019 Affected Line Item in Financial Statements
Net unrealized holding gain on securities available for sale                 
Realized gain on securities transactions $0   0  $1,155   0 Net gain on securities transactions
Income tax effect  0   0   (300)  0 Income taxes
Net of tax  0   0   855   0  
                       
Amortization of pension and postretirement benefit items:                     
Amortization of net actuarial gain (loss) $222   35  $531   103 Salaries and employee benefits
Amortization of prior service credit (cost)  49   83   147   250 Salaries and employee benefits
Income tax benefit  (70)  (31)  (177)  (92)Income taxes
Net of tax  201   87   501   261  
                       
Total reclassifications, net of tax $201   87  $1,356   261  
(dollars in thousands) Three months ended  
Nine months ended
 
  
September 30,
  
September 30,
 
  2021  2020  2021  2020 
Net unrealized holding gain on securities available for sale            
Realized gain on securities transactions $0   0  $0   1,155 
Income tax effect  0   0   0   (300)
Net of tax  0   0   0   855 
                 
Amortization of pension and postretirement benefit items:                
Amortization of net actuarial gain $137   222  $534   531 
Amortization of prior service (cost) credit  (177)  49   (227)  147 
Income tax benefit  10   (70)  (80)  (177)
Net of tax  (30)  201   227   501 
                 
Total reclassifications, net of tax $(30)  201  $227   1,356 


(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 and nine months ended September 30, 20202021 and 2019.2020. Items outside the scope of ASC 606 are noted as such.

(dollars in thousands) Three months ended  Nine months ended  Three months ended  
Nine months ended
 
 September 30,  September 30,  
September 30,
  
September 30,
 
 2020  2019  2020  2019  2021  2020  2021  2020 
Non-interest income                        
Service Charges on Deposits                        
Overdraft fees $595  $931  $1,920  $2,630  $735  $595  $1,964  $1,920 
Other  348   124   1,159   343   518   348   1,479   1,159 
Interchange Income  1,195   970   3,072   3,785   1,330   1,195   3,863   3,072 
Net gain on securities transactions (a)  0   0   1,155   0   0   0   0   1,155 
Wealth management fees  1,784   1,517   4,752   4,933   1,558   1,784   5,592   4,752 
Other (a)  419   1,383   1,043   2,785   154   419   513   1,043 
                                
Total non-interest income $4,341  $4,925  $13,101  $14,476  $4,295  $4,341  $13,411  $13,101 

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

A description of the Company’s revenue streams accounted in accordance with ASC 606 as follows:

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

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Interchange Income: Interchange revenue primarily consists of interchange fees, volume-related incentives and ATM charges. As the card-issuing bank, interchange fees represent our portion of discount fees paid by merchants for credit / 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 fees area 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 Companycompany 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.


(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 September 30, 20202021 the Company did not have any leases with terms of twelve months or less.

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As of September 30, 20202021 the Company doeshas 1 lease that the construction has not have leases that have not yet commenced.started yet. At September 30, 20202021 lease expiration dates ranged from threefive months to 24.023.0 years and have a weighted average remaining lease term of 8.98.7 years. Certain leases provide for increases in future minimum annual rental payments as defined in the lease agreements. As mentioned above the leases generally also include variable lease components which include real estate taxes, insurance, and common area maintenance (“CAM”) charges in the annual rental payments.

Other information related to leases was as follows:

(dollars in thousands) 
Three months ended
September 30,
  
Three months ended
September 30,
 
 2020  2019  2021  2020 
Operating lease cost $1,966  $2,007  $2,010   1,966 
Variable lease cost  369   497   499   369 
                
Total Lease costs $2,335  $2,504  $2,509   2,335 

(dollars in thousands) 
Nine months ended
September 30,
  
Nine months ended
September 30,
 
 2020  2019  2021  2020 
Operating lease cost $5,893  $5,828  $6,029   5,893 
Variable lease cost  1,524   1,472   1,508   1,524 
                
Total Lease costs $7,417  $7,300  $7,537   7,417 

(dollars in thousands) 
Nine months ended
September 30,
 
(dollars in thousands)
 
Nine months ended
September 30,
 
 2020  2019  2021  2020 
Supplemental cash flows information:            
Cash paid for amounts included in the measurement of lease liabilities:            
Operating cash flows from operating leases $6,022  $5,824  $6,121   6,022 
                
Right-of-use assets obtained in exchange for lease obligations: $287  $54,038   2,696   287 
                
Weighted average remaining lease term 8.9 years  9.4 years  
8.7 years
  
8.9 years
 
Weighted average discount rate  3.25%  3.30%  3.07%  3.25%

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Future minimum lease payments under non-cancellable leases as of September 30, 2020 were as follows:

(dollars in thousands) 
  
Year ending
December 31,
   
2020(a)
 $2,020 
2021  8,062 
2022  7,561 
2023  7,256 
2024  7,128 
Thereafter  28,551 
Total lease payments $60,578 
Less: Interest  8,453 
     
Present value of lease liabilities $52,125 

(a) Excluding the nine months ended September 30, 2020.

During the quarter ended September 30, 2020, the Board of Directors elected a new director that owns 6 commercial properties in which the Company leases branches from.  Total lease payments, which is included in the table above, owed at September 30, 2020 was $4.7 million, which includes $699 thousand of interest.

Future minimum lease payments under non-cancellable leases as of September 30, 20192021 were as follows:

(dollars in thousands)(dollars in thousands) (dollars in thousands) 
   
Year ending
December 31,
      
2019(a)
 $1,967 
2020  7,820 
2021  7,818 
2021(a)
 $2,072 
2022  7,300   8,014 
2023  6,978   7,719 
2024  7,595 
2025  7,223 
Thereafter  32,600   25,291 
Total lease payments $64,483  $57,914 
Less: Interest  9,752   7,399 
        
Present value of lease liabilities $54,731  $50,515 

(a)Excluding the nine months ended September 30, 2021.

(a) ExcludingA member of the nine months endedBoard of Directors has an ownership interest in 5 entities that own commercial real estate leased by the Company for use as branch locations. Total lease payments from the Company to those entities, which are included in the table above, owed at September 30, 2019.
2021, were $3.7 million, which includes interest in the amount of $525 thousand.

(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. As of September 30, 2020,2021, the Company and Bank meet all capital adequacy requirements to which they are subject.

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Prompt corrective action regulations provide 5 classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized.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 September, 30, 20202021 and December 31, 2019,2020, 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. There are no conditions or events since that notification that management believes have changed the Bank’s category

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The Bank and the Company reported the following capital ratios as of September 30, 20202021 and December 31, 20192020:

(Bank Only)                        
       
Minimum for
Capital Adequacy plus
Capital Conservation
        
Minimum for
Capital Adequacy plus
Capital Conservation
 
 As of September 30, 2020  Well  As of September 30, 2021  Well 
(dollars in thousands) Amount  Ratio  
Capitalized(1)
  
Buffer (1)(2)
  Amount  Ratio  
Capitalized(1)
  
Buffer (1)(2)
 
                        
Tier 1 leverage ratio $533,874   9.329%  5.000%  4.000% $561,969   9.148%  5.000%  4.000%
Common equity tier 1 capital  533,874   18.491   6.500   7.000   561,969   18.899   6.500   7.000 
Tier 1 risk-based capital  533,874   18.491   8.000   8.500   561,969   18.899   8.000   8.500 
Total risk-based capital  570,127   19.747   10.000   10.500   599,265   20.153   10.000   10.500 

 As of December 31, 2019  Well  
Minimum for
Capital Adequacy plus
Capital Conservation
  As of December 31, 2020  Well  
Minimum for
Capital Adequacy plus
Capital Conservation
 
(dollars in thousands) Amount  Ratio  
Capitalized(1)
  
Buffer (1)(2)
  Amount  Ratio  
Capitalized(1)
  
Buffer (1)(2)
 
                        
Tier 1 leverage ratio $516,775   9.940%  5.000%  4.000% $539,897   9.378%  5.000%  4.000%
Common equity tier 1 capital  516,775   18.412   6.500   7.000   539,897   18.646   6.500   7.000 
Tier 1 risk-based capital  516,775   18.412   8.000   8.500   539,897   18.646   8.000   8.500 
Total risk-based capital  551,975   19.666   10.000   10.500   576,257   19.902   10.000   10.500 

(Consolidated) As of September 30, 2020  
Minimum for
Capital Adequacy plus
Capital Conservation
       
 As of September 30, 2021  
Minimum for
Capital Adequacy plus
Capital Conservation
 
(dollars in thousands) Amount  Ratio  
Buffer (1)(2)
  Amount  Ratio  
Buffer (1)(2)
 
                  
Tier 1 leverage ratio $548,437   9.582%  4.000% $578,825   9.420%  4.000%
Common equity tier 1 capital  548,437   18.994   7.000  
578,825   19.461   7.000 
Tier 1 risk-based capital  548,437   18.994   8.500  
578,825   19.461   8.500 
Total risk-based capital  584,692   20.250   10.500  
616,131   20.715   10.500 

 As of December 31, 2019  
Minimum for
Capital Adequacy plus
Capital Conservation
  As of December 31, 2020  
Minimum for
Capital Adequacy plus
Capital Conservation
 
(dollars in thousands) Amount  Ratio  
Buffer (1)(2)
  Amount  Ratio  
Buffer (1)(2)
 
                  
Tier 1 leverage ratio $533,243   10.254%  4.000% $555,672   9.650%  4.000%
Common equity Tier 1 capital  533,243   18.988   7.000   555,672   19.187   7.000 
Tier 1 risk-based capital  533,243   18.988   8.500   555,672   19.187   8.500 
Total risk-based capital  568,463   20.242   10.500   592,040   20.443   10.500 

(1)Federal regulatory minimum requirements to be considered to be Well Capitalized and Adequately Capitalized
(2)
The SeptemberSeptember 30, 20202021 and December 31, 20192020 common equity tier 1, tier 1 risk-based, and total risk-based capital ratios include a capital conservation buffer of 2.50 percent

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(11) New Accounting Pronouncements

In September 2016, the FASB released ASU 2016-13, “Financial Instruments - Credit Losses” (referred to as “CECL”) 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.

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As previously disclosed, the Company formed a cross-functional team to work through its implementation of the plan.CECL. 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 hashad previously elected to delay its adoption of ASU 2016-13,CECL, as provided by the Coronavirus Aid, Relief, and Economic SecurityCARES Act (“CARES Act) until the date on which the National Emergency concerning COVID-19 iswas terminated or December 31, 2020, whichever occursoccurred first. UponThe December 31, 2020 adoption date under the CARES Act was extended to January 1, 2022 as a part of ASU 2016-13,the COVID-19 Relief Bill, which became law in December 2020, and therefore the Company will recognize a one-time cumulative effect adjustment through retained earningsintends to increase its allowance for credit loss and to increase its unfunded loan commitment liability as ofadopt CECL on January 1, 2020.
2022.

(12) Risks and Uncertainties

Beginning in March 2020, the Company experienced negative impacts to its 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 future periods. 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 September 30, 2020 balance sheet and results of operations except for an increase in 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 otherThe Company has evaluated the impact of the effects of the COVID-19 pandemic may adversely affectand determined that there have been no lasting material or systematic adverse impacts on the Company’s September 30, 2021 financial condition and results of operations. As a result ofstatements, except for adjustments in the spread of COVID-19, economic uncertainties have arisen which are likely to continue to negatively impact net interest income, provisionallowance for loan losses and noninterest income. Other financial impact could occur though such potential impact is unknown at this time.

since the inception of the pandemic. As of September 30, 2020,2021, the Company and Bank capital ratios were in excess of all regulatory requirements. While management believes that we have sufficient capital to withstand an extended economic recession brought about by the COVID-19 pandemic, our reported and regulatory capital ratios, as well as the ability of the Company and the Bank to pay dividends or make other distributions, could be adversely impacted by furtherunanticipated credit losses. 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 and continue to negatively impact net interest income, provision for loan losses, and noninterest income.

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 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 CARES ACT or regulatory guidance are evaluated for TDR and non-accrual treatment under the Company’s existing policies and procedures. Loan Modifications and payment deferrals made pursuant to COVID 19 as of September 30, 2020 totaled approximately $7 million, which included $2 million of commercial loans and $5 million of residential loans.  As of June 30, 2020 these amounts totaled approximately $190 million, which included $45 million of commercial loans and $145 million of residential loans. The reduction in loan deferrals represents loans that are now paying in accordance with their terms. As of September 30, 2020, there was no material impact to delinquencies and non-accruals regarding the2021, loans that came out of deferment.in deferral were not material.

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.

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graphic graphic
Crowe LLP
Independent Member Crowe Global
graphic

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 September 30, 2020,2021, and the related consolidated statements of income and comprehensive income for the three and nine-month periods ended September 30, 20202021 and September 30, 20192020 and the related changes in shareholders’ equity and cash flows for the nine-month periods ended September 30, 20202021 and September 30, 2019,2020, 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, 2019,2020, 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 February 28, 2020,26, 2021, 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, 2019,2020, 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
New York, New York /s/ Crowe LLP
November 6, 20205, 2021

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Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations

Forward‑lookingForward-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 financial condition and results of operations 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, 2019,2020, the 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.  Additionally, many of these risks and uncertainties are currently elevated by and may or will continue to be elevated by the COVID-19 pandemic.  Such factors include:

The current COVID-19 pandemic, relatedthe effects of which could, and in some instances has, caused us to COVID-19, causing TrustCoexperience 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 unavailability 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; or 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;
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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;

41
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 and in our Form 10-Q for the quarter ended March 31, 2020.

You should not rely upon forward-looking statements as predictions of future events.  Although TrustCo believes that the expectations reflected in the forward-lookingforward‑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.

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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-monththree month and nine‑nine month periods ended September 30, 20202021 and 2019.2020.

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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‑three month and nine‑nine month periods ended September 30, 2020,2021, with comparisons to the corresponding period in 2019,2020, 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 20192020 Annual Report to Shareholders on Form 10‑K,10-K, which was filed with the SEC on February 28, 2020,26, 2021, 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
Beginning in 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 future periods.  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 balance sheets and results of operations as of and for the firstthree month and nine month of 2020,periods ended September 30, 2021, except for an increasethe adjustments in the provisionallowance for loan losses as a resultsince the inception of the increased risk inherent inpandemic.  At this time, it is difficult to quantify the loan portfolio resulting from the pandemic.impact COVID-19 will have on future periods.

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

Loan modifications

We began receiving requests from our borrowers for loan deferrals in March 2020 and agreed with many borrowers to modify their loans. Modifications included the deferral of principal and/or interest payments for terms generally up to 90 days. Requests arewere evaluated individually and approved modifications arewere 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 Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), which was enacted in March 2020, or under applicable interagency guidance of the federal banking regulators, are excluded from evaluation of troubled debt restructuring (“TDR”)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 CARES Act or regulatory guidance are evaluated for TDR and non-accrual treatment under the Company’s existing policies and procedures.  As of September 30, 2021, loans in deferral as a result of the COVID-19 pandemic were not material.

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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 September 30, 2020 and June 30, 2020:

  September 30, 2020  June 30, 2020 
(Dollars In Thousands)            
New York and Other states*: 
Number
of loans
  
Outstanding
loan balance
  
Number
of loans
  
Outstanding
loan balance
 
Commercial  5  $1,351   79  $39,630 
Residential mortgage loans  13   2,780   441   94,028 
Home equity line of credit  -   -   13   641 
Installment loans  1   88   5   150 
Total  19  $4,219   538  $134,449 
                 
                 
Florida: 
Number
of loans
  
Outstanding
loan balance
  
Number
of loans
  
Outstanding
loan balance
 
Commercial  1  $574   5  $5,392 
Residential mortgage loans  10   2,387   205   49,745 
Home equity line of credit  -   -   1   9 
Installment loans  -   -   3   86 
Total  11  $2,961   214  $55,232 
                 
                 
Total: 
Number
of loans
  
Outstanding
loan balance
  
Number
of loans
  
Outstanding
loan balance
 
Commercial  6  $1,925   84  $45,022 
Residential mortgage loans  23   5,167   646   143,773 
Home equity line of credit  -   -   14   650 
Installment loans  1   88   8   236 
Total  30  $7,180   752  $189,681 

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

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The commercial loans that were deferred included various types of businesses.  The following table shows the remaining commercial loans and the outstanding loan balances, by industry, at the time the principal and interest deferrals were approved as of September 30, 2020 and June 30, 2020:

  September 30, 2020  June 30, 2020 
(Dollars In Thousands)            
New York and Other states* 
Number
of loans
  
Outstanding
loan balance
  
Number
of loans
  
Outstanding
loan balance
 
Fitness and Recreational Sports Centers  -  $-   7  $11,534 
Lessors and Property Managers of Nonresidential Buildings  -   -   7   6,551 
Lessors and Property Managers of Residential Buildings  -   -   31   9,818 
Other various businesses  -   -   14   2,558 
Lessors of Nonresidential Buildings - Self Storage Units  -   -   2   2,238 
New Single-Family Housing Construction  -   -   3   1,921 
Food Service  5   1,351   5   1,351 
Retail  -   -   4   1,349 
New Single-Family Housing Construction - Land Development  -   -   3   1,260 
Commercial Construction  -   -   3   1,050 
   5  $1,351   79  $39,630 
                 
                 
Florida: 
Number
of loans
  
Outstanding
loan balance
  
Number
of loans
  
Outstanding
loan balance
 
Fitness and Recreational Sports Centers  -  $-   -  $- 
Lessors and Property Managers of Nonresidential Buildings  -   -   2   4,533 
Lessors and Property Managers of Residential Buildings  -   -   1   46 
Other various businesses  -   -   1   319 
Lessors of Nonresidential Buildings - Self Storage Units  -   -   1   494 
New Single-Family Housing Construction  -   -   -   - 
Food Service  1   574   -   - 
Retail  -   -   -   - 
New Single-Family Housing Construction - Land Development  -   -   -   - 
Commercial Construction  -   -   -   - 
   1  $574   5  $5,392 
                 
                 
Total: 
Number
of loans
  
Outstanding
loan balance
  
Number
of loans
  
Outstanding
loan balance
 
Fitness and Recreational Sports Centers  -  $-   7  $11,534 
Lessors and Property Managers of Nonresidential Buildings  -   -   9   11,084 
Lessors and Property Managers of Residential Buildings  -   -   32   9,864 
Other various businesses  -   -   15   2,877 
Lessors of Nonresidential Buildings - Self Storage Units  -   -   3   2,732 
New Single-Family Housing Construction  -   -   3   1,921 
Food Service  6   1,925   5   1,351 
Retail  -   -   4   1,349 
New Single-Family Housing Construction - Land Development  -   -   3   1,260 
Commercial Construction  -   -   3   1,050 
   6  $1,925   84  $45,022 

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

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Paycheck Protection Program (PPP)(“PPP”) and Liquidity

As part of the CARES Act, approved by the President on March 27, 2020, the Small Business Administration (SBA) washas been authorized to guarantee loans under the PPP through August 8, 2020 for small businesses that metwho meet the necessary eligibility requirements in order to keep their workers on the payroll. The Company began accepting PPP loan applications on April 3, 2020.  The Bank had originally funded 663 PPP loans totaling $46 million in 2020, and an additional 344 loans totaling $23 million in 2021.  As of September 30, 2020, 6632021, 349 PPP loans totaling $45.7$21 million have been processed.remain outstanding.  The Company receivedreceives loan origination fees which are being recognized over the life of the loan usingand apply the effective yield method. 

On April 9, 2020, the FDIC, Federal Reserve and OCCthe Office of the Comptroller of the Currency (“OCC”) created the Paycheck Protection Program Liquidity Facility (PPPLF)(“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 “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.”  These additional expenses did not have a material impact on the Company for the three month and nine monthsmonth periods ended September 30, 2020.2021.

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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;

 
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Steps to enhance the availability and ease terms for borrowing at the discount window;
The elimination of reserve requirements;
Guidance, issued with the other federal banking regulators, encouraging banks to be flexible with customers experiencing financial challenges related to the COVID-19coronavirus pandemic and to utilize their liquidity and capital buffers in doing so;
expanding
Expand access to its Paycheck Protection Program Liquidity Facility (PPPLF)PPPLF for additional SBA-qualified lenders; and
Statements encouraging the use of daylight credit at the Federal Reserve.

Economic Overview
During the third quarter of 20202021, financial markets continued to be influenced by the economic conditions that resulted from the COVID-19 pandemic. Afterwere a reboundbit volatile resulting in the second quarter, stocks continued to show strong gains in the third quarter, pushingDow Jones Industrial Average, Russell 2000, and Nasdaq posting quarterly losses of 1.9%, 4.6%, and 0.4%, respectively, while the S&P 500 index and the Nasdaq Composite index to record highs in late August.squeezed out a quarterly gain of 0.2%.  Credit markets continue to be driven by worldwide economic news, effects of COVID-19, supply chain issues and demand shifts.  The shape of the yield curve remained consistent duringended the quarter relatively consistent as compared to prior quarters.the second quarter.  The 10-year10‑year Treasury bond averaged .65%1.32% during the third quarterQ3 2021 compared to .69%1.59% in the second quarter of 2020,Q2 2021, a decrease of 427 basis points, and the 2-yearpoints.  The 2‑year Treasury bond average rate decreased 5increased 6 basis points to .14%0.23%.  The spread between the 10-year10‑year and the 2-year Treasury bonds expanded slightlyshortened from 0.49%1.42% on average in the second quarterQ2 to 0.51%1.10% in the third quarter of 2020.Q3.  This spread had been depressed in recent years, and compares to 2.42% during its most recent peak in the fourth quarterQ4 of 2013.  Steeper yield curves are generally 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 Federal Funds rate remained flat at 0.00% to 0.25% for the quarter.  Spreads forof most asset classes to the comparative treasury yield, including agency securities, corporates, municipals and mortgage‑backedmortgage-backed securities, werecontinue to be down by the end of the quarter as compared to the levels of a year earlier.  Changesseen before the pandemic.  Accordingly, changes in rates and spreads during the current quarter continue to be fromeffected by the effects of the COVID-19 pandemic.

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3 Month
Yield (%)
2 Year
Yield (%)
5 Year
Yield (%)
10 Year
Yield (%)
 10 - 2 Year
 Spread (%)
         
Q3/20 Beg of Q3 0.160.160.290.660.50
 Peak 0.160.170.320.740.60
 Trough 0.090.110.190.520.41
 End of Q3 0.100.130.280.690.56
 Average in Q3 0.140.140.270.650.51
         
Q4/20 Beg of Q4 0.100.130.280.690.56
 Peak 0.120.190.460.980.83
 Trough 0.070.110.270.680.54
 End of Q4 0.090.130.360.930.80
 Average in Q4 0.090.150.370.860.71
         
Q1/21 Beg of Q1 0.090.130.360.930.80
 Peak 0.090.170.921.741.59
 Trough 0.010.090.360.930.82
 End of Q1 0.030.160.921.741.58
 Average in Q1 0.050.130.621.341.20
         
Q2/21 Beg of Q2 0.030.160.921.741.58
 Peak 0.060.280.971.731.56
 Trough 0.010.130.731.451.19
 End of Q2 0.050.250.871.451.20
 Average in Q2 0.030.170.841.591.42
         
Q3/21 Beg of Q3 0.050.250.871.451.20
 Peak 0.070.311.021.551.25
 Trough 0.030.170.651.190.98
 End of Q3 0.040.280.981.521.24
 Average in Q3 0.050.230.801.321.10
   3 Month2 Year5 Year10 Year 10 - 2 Year 
   Yield (%)Yield (%)Yield (%)Yield (%) Spread (%) 
        
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
        
Q2/20 Beg of Q20.110.230.370.700.47
 Peak0.260.280.480.910.69
 Trough0.090.130.280.580.38
 End of Q20.160.160.290.660.50
 Average in Q20.140.190.360.690.49
        
Q3/20 Beg of Q30.160.160.290.660.50
 Peak0.160.170.320.740.60
 Trough0.090.110.190.520.41
 End of Q30.100.130.280.690.56
 Average in Q30.140.140.270.650.51

The United States economy showed some modestoverall has continued to show improvements in various areas heading into 2020 until the COVID-19 uncertainty began to gain momentum throughout the year.during 2021.  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.

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 well capitalizedsolid 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, 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.  Should 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 or other reasons, 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. IncludedAs previously noted, included in the CARES Act is support for small businesses, direct payments to lower and middle income families, expanded unemployment insurance and 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 $14.1$16.8 million, or $0.146$0.871 of diluted earnings per share, for the three‑three months ended September 30, 2020,2021, compared to net income of $14.7$14.1 million, or $0.152$0.730 of diluted earnings per share, in the same period in 2019.2020.  For all periods presented, share and per share information has been adjusted for the 1-for-5 reverse stock split (the “Reverse Stock Split”) of TrustCo’s common stock that was effective May 28, 2021.  Return on average assets was .98%1.08% and 1.12%0.98%, respectively, for the three‑monthsthree-months ended September 30, 20202021 and 2019.2020.  Return on average equity was 10.04%11.40% and 11.19%10.04%, respectively, for the three‑monthsthree-months ended September 30, 20202021 and 2019.2020.

The primary factors accounting for the slight change in net income for the three‑three months ended September 30, 20202021 compared to the same period of the prior year were:

•
An increase in the average balance of interest earning assets of $501.2 million to $5.58 billion for the third quarter of 2020 compared to the same period in 2019.
A decrease in the cost of interest bearing liabilities of $4.0 million, partially offset by a decrease in income from interest earning assets of $2.3 million, resulted in an increase in taxable equivalent net interest margin forincome in the third quarter of 2020 to 2.73% from 3.04% in the prior year period.
An overall decrease in noninterest expense of $1.4 million for the third quarter of 20202021 compared to the third quarter of 2019.2020 of $1.7 million.

A decrease of $3.8 million in provision for loan losses of $1 million for the third quarter of 2020 as2021 compared with no provision for loan losses into the third quarter 2020 as a result of 2019.the ongoing uncertainty surrounding the pandemic in the prior year as well as related adjustments in the current quarter due to improving economic conditions and credit risk metrics.

A decrease
An increase of $584 thousand$2.0 million in noninterest incomeexpense for the third quarter of 20202021 compared to the third quarter 2020 primarily as a result of 2019.
A decrease of $478 thousandan increase in net interest income for the third quarter of 2020 compared to the third quarter of 2019.salaries and employee benefits.

TrustCo recorded net income of $38.6$45.3 million, or $0.400$2.349 of diluted earnings per share, for the nine-monthsnine‑months ended September 30, 2020,2021, compared to net income of $43.9$38.6 million, or $0.453$2.001 of diluted earnings per share, in the same period in 2019.2020.  Return on average assets was .94%1.00% and 1.14%0.94%, respectively, for the nine‑monthsnine-months ended September 30, 20202021 and 2019.2020.  Return on average equity was 9.38%10.50% and 11.56%9.38%, respectively, for the nine‑monthsnine-months ended September 30, 20202021 and 2019.2020.

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Asset/Liability Management
The Company strives to generate its earnings capabilities through a mix of core deposits funding a prudent mix of interest 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, by the national economy, financial market conditions and the regulatory environment.  Each of these factors is dynamic, and changes in any area can have an impact on TrustCo’s results.  Included in the Annual Report to Shareholders on Form 10‑K10-K for the year ended December 31, 20192020 is a description of the effect interest rates had on the results for the year 20192020 compared to 2018.2019.  Many of the same market factors discussed in the 20192020 Annual Report continued to have a significant impact on results through the third quarter of 2020,2021, as well as the economic effect of 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 2007‑2008From December 2015 through December 2018, the FRB aggressively reduced theU.S. Federal FundsReserve Board increased its federal funds target rate includingfrom 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 2015 when the range was increased to 0.25% to 0.50%.  Subsequent increases resulted a range of 2.25% to- 2.50% until.  Beginning in the second half of 2019, whenthe Federal Reserve Board began lowering the rate was cut several times before the end of 2019.in response to a slowing economy.  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%.

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 other short-term instruments as well as the interest expense on deposits and borrowings.  Residential real estate loans and longer‑term investments are most affected by the changes in longer term market interest rates such as the 10‑year Treasury.  The Federal Funds sold portfolio and other short‑term investments are affected primarily by changes in the Federal Funds target rate.  Deposit interest rates are most affected by short term market interest rates.  Also, changes in interest rates have an effect on 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‑term investments are most affected by the changes in longer term market interest rates such as the 10-year Treasury.  The 10‑year Treasury yield was down 114increased 46 basis points, on average, during the third quarter of 20202021 compared to the fourth quarter of 20192020 and was down 115increased 67 basis points as compared to the third quarter of 2019.2020.

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 third quarter of 2020,2021, the net interest margin was 2.73%2.65%, down 318 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‑termshort-term investments increased by $472.8$228.6 million while the average yield decreased 209increased 6 basis points in the third quarter of 20202021 compared to the same period in 2019.2020.

The average balance of securities available for sale decreasedincreased by $218.1$23.8 million andwhile the average yield decreased 2969 basis points to 2.05%1.36%.  The average balance of held to maturity securities decreased by $4.4$4.6 million and the average yield decreased 18increased 20 basis points to 3.52%3.72% for the third quarter of 20202021 compared to the same period in 2019.2020.

The average loan portfolio grew by $254.6$176.4 million to $4.20$4.37 billion whileand the average yield decreased 3233 basis points to 3.94%3.61% in the third quarter of 20202021 compared to the same period in 2019.2020.

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The average balance of interest bearing liabilities (primarily deposit accounts) increased $292.4$236.8 million whileand the average rate paid decreased 4237 basis points to 0.52%0.15% in the third quarter of 20202021 compared to the same period in 2019.2020.

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During the third quarter of 2020,2021, 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 wasis 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 and existing relationships and take advantage of opportunities as they arise.

Earning Assets
Total average interest earning assets increased from $5.08$5.58 billion in the third quarter of 20192020 to $5.58$6.01 billion in the same period of 20202021 with an average yield of 2.77% in the third quarter of 2021 and 3.15% in the third quarter of 2020 and 3.82% in the third quarter of 2019.2020.  There was a shift in the mix of assets towards a higher proportion of federal funds sold and other short-term investments from securities available for sale.  Theas a result of an increase in deposits. There was a sharp decrease in the federal funds rate during March of 2020 significantly decreasedreducing the average yield on the federal funds sold and other short-term investments from 2.19% ininvestments. Since then the rate has remained consistently low, however, during the third quarter of 20192021 it increased by 6 basis points to 0.16% from 0.10% due to a slight increase in the third quarter of 2020, which drove down the overall yieldinterest rate on interest earning assets.excess reserves.  Interest income on average earning assets decreased from $48.5 million in the third quarter of 2019 to $44.0 million in the third quarter of 2020 to $41.7 million in the third quarter of 2021, on a tax equivalent basis, and was primarily driven by the mix of assets shiftlower rates on securities available for sale and the lower federal funds rate as mentioned above.loans.

Loans
The average balance of loans was $4.20$4.37 billion in the third quarter of 20202021 and $3.94$4.20 billion in the comparable period in 2019.2020.  The yield on loans was down 3233 basis points to 3.94%3.61%.  Interest income on loans was $41.3$39.5 million in the third quarter of 20202021 down $593 thousand$1.8 million from the same period in 2019.  The higher average balances did not offset the decrease in yield.2020.

Compared to the third quarter of 2019,2020, the average balance of residential mortgage loans andincreased while commercial loans, increased while home equity lines of credit, and installment loans decreased.  while  .  The average balance of residential mortgage loans was $3.92 billion in the third quarter of 2021 compared to $3.70 billion in 2020, compared to $3.47 billion in 2019, an increase of 6.9%5.9%.  The average yield on residential mortgage loanloans decreased by 2437 basis points to 3.89%3.52% in the third quarter of 20202021 compared to 2019.2020.

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

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Commercial loans, which consist primarily of loans secured by commercial real estate, increased $41.0decreased $20.7 million to an average balance of $231.5$210.8 million in the third quarter of 20202021 compared to the same period in the prior year, primarily as a result of the issuance of theforgiven PPP loans.  The average yield on this portfolio was down 91up 49 basis points to 4.54%5.03% compared to the prior year period, primarily as a result of the 1% interest rateorigination fees recognized on theforgiven PPP Loans.  loans.The Company remainedremains selective in underwriting non-PPP 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 decreased 9729 basis points to 3.98%3.69% during the third quarter of 20202021 compared to the same period in 2019.  The decrease in yield is the result of prime rate decreases which impacted some loans as well as a smaller percentage of lower yielding initial rate balances.year earlier period. The average balances of home equity credit lines decreased 8.6%8.0% to $251.5$231.3 million in the third quarter of 20202021 as compared to the prior year.  Consistent with prior periods, customersCustomers with home equity lines continue to refinance their balances into fixed rate mortgage loans given the current rate environment and have been less likely to draw on home equity lines due to receipt of COVID-19 stimulus payments and reduced tax benefits.

Securities Available for Sale
The average balance of the securities available for sale portfolio for the third quarter of 20202021 was $429.3$453.1 million compared to $647.5$429.3 million for the comparable period in 2019.2020.  The decliningincreasing balance reflects routine sales,new investment purchases offset by paydowns, calls and maturities, partially offset by new investment purchases.maturities.  The current interest rate environment has significantly contributed to more bonds being called.  The average yield was 1.36% for the third quarter of 2021 compared to 2.05% for the third quarter of 2020 compared to 2.34% for the third quarter of 2019.2020.  This portfolio is primarily comprised of agency, issued residential mortgage backed securities and collateralizedcollateral mortgage obligations,obligation bonds issued by government sponsored enterprises (such as Fannie Mae, the Federal Home Loan Bank and Freddie Mac), 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 accumulated other comprehensive income,loss, net of tax.

The net unrealized gain in the available for sale securities portfolio was $10.6$3.8 million as of September 30, 20202021 compared to a net unrealized gain of $391 thousand$9.7 million as of December 31, 2019.2020.  The decrease in the net unrealized gaingains in the portfolio is primarily the result of changes in market interest rate levels.

Held to Maturity Securities
The average balance of held to maturity securities was $15.8$11.2 million for the third quarter of 20202021 compared to $20.2$15.8 million in the third quarter of 2019.2020.  The decrease in balancebalances reflects routine paydowns.paydowns and calls.  No new securities were added to this portfolio during the period.  The average yield was 3.52%3.72% for the third quarter of 20202021 compared to 3.70%3.52% for the same period in 2019.year earlier period.  TrustCo expects to hold the securities in this portfolio until they mature or are called.

As of September 30, 2020,2021, this portfolio consisted solely of agency issued residential mortgage-backed securities.  The balances for these securities are recorded at amortized cost.

53
Federal Funds Sold and Other Short‑termShort-term Investments
The 20202021 third quarter average balance of Federal Funds sold and other short‑term investments were $938.1 million,was $1.2 billion, a $472.8$228.6 million increase from the $465.3$938.1 million average for the same period in 2019.2020.  The yield was 0.10%0.16% for the third quarter of 20202021 and 2.19%0.10% for the comparable period in 2019.2020.  As previously noted, the increase in the yield was a result of an increase in the excess reserves interest rate.  Interest income from this portfolio decreased $2.3 millionincreased $228 thousand from $2.6 million in 2019 to $242 thousand in 2020.  The higher average balances did not offset several target rate decreases.2020 to $470 thousand in 2021.

The Federal Funds sold and other short‑termshort-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‑bearinginterest-bearing checking, money market and time deposit accounts.

Total average interest bearing deposit accounts (which includes interest bearing checking, money market accounts, savings and time deposits) increased $258.8$190.4 million to $4.28$4.5 billion for the third quarter of 20202021 versus the third quarter in the prior year, and the average rate paid decreased from 0.95% for 2019 to 0.52% for 2020.2020 to 0.14% for 2021.  Total interest expense on these deposits decreased $3.9from $5.6 million to $5.6$1.5 million in the third quarter of 20202021 compared to the sameyear earlier period primarily as a result of reduced market rates and shifts in 2019.the mix of deposit balances.  From the third quarter of 20192020 to the third quarter of 2020,2021, interest bearing demand account average balances were up 17.2%12.6%, certificates of deposit average balances were down 7.0%15.0%, non‑interestnon-interest demand average balances were up 41.8%25.4%, average savings balances increased 8.5%17.0% and money market balances were up 20.2%8.3%.   Our growth in deposits came at relatively low cost and continues to be offset by higher earnings on loan yields and returns in the investment portfolio.  Because we offered competitive shorter term CD rates in the past, we expect cost of interest bearing liabilities to continue to decrease as these reprice at lower rates.portfolios.

At September 30, 2020,2021, the maturity of total time deposits is as follows:

(dollars in thousands)   
    
Under 1 year $1,184,740 
1 to 2 years  106,072 
2 to 3 years  9,774 
3 to 4 years  3,015 
4 to 5 years  1,223 
Over 5 years  200 
  $1,305,024 
(dollars in thousands)

Under 1 year $1,047,698 
1 to 2 years  65,500 
2 to 3 years  9,127 
3 to 4 years  1,419 
4 to 5 years  687 
Over 5 years  150 
  $1,124,581 

54
Average short‑termshort-term borrowings for the third quarter were $240.2 million in 2021 compared to $193.8 million in 2020 compared to $160.2 million in 2019.2020.  The average rate decreased during this time period from 0.90% in 2019 to 0.45% in 2020.2020 to 0.38% in 2021.  The short‑termshort-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.

54
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 potential 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 decreasedincreased by $478 thousand$1.7 million to $38.2$39.9 million in the third quarter of 20202021 compared to the same period in 2019.2020.  The net interest spread was down 251 basis pointspoint to 2.63%2.62% in the third quarter of 20202021 compared to the same period in 2019.2020. As previously noted, the net interest margin was down 318 basis points to 2.73%2.65% for the third quarter of 20202021 compared to the same period in 2019.2020.

Taxable equivalent net interest income decreasedincreased by $3.2$5.7 million to $114.4$120.1 million in the first nine‑monthsnine-months of 20202021 compared to the same period in 2019.2020.  The net interest spread was down 247 basis points to 2.74%2.67% in the first nine‑monthsnine-months of 20202021 compared to the same period in 2019. The net2020.  Net interest margin was down 2715 basis points to 2.86%2.71% for the first nine‑months of 20202021 compared to the same period in 2019.2020.

Nonperforming Assets
Nonperforming assets include nonperforming loans (“NPLs”), which are those loans in a non‑accrual status and loans past due three payments or more and still accruing interest.  Also included in the total of nonperforming assets are foreclosed real estate properties, which are included in other assets and categorized as other real estate owned.    As of September 30, 2020,2021, there were no$1.8 million pandemic related deferrals that have been recorded as NPLs or TDRs.NPLs.  Additionally, $1.4 million of pandemic related deferrals are classified as troubled debt restructurings (“TDRs”).

The following describes the nonperforming assets of TrustCo as of September 30, 2020:2021:

Nonperforming loans and foreclosed real estate: Total NPLs and non-accrual loans were $20.2 million at September 30, 2021, compared to $21.1 million at December 31, 2020 and $21.8 million at September 30, 2020, compared to $20.9 million at December 31, 2019 and $21.0 million at September 30, 2019.  There were $21.8 million of non‑accrual loans at September 30, 2020 compared to $20.8 million at December 31, 2019 and $21.0 million at September 30, 2019.2020.  There were no loans at September 30, 20202021 and 20192020 and December 31, 20192020 that were past due 90 days or more and still accruing interest.

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At September 30, 2020,2021, nonperforming loans primarily include a mix of commercial and residential loans.  Of total nonperforming loans of $21.8$20.2 million at September 30, 2020, $21.22021, $19.9 million were residential real estate loans, $491$176 thousand were commercial loans and mortgages and $49$32 thousand were installment loans, compared to $20.0$20.6 million, $816$452 thousand and $3$43 thousand, respectively, at December 31, 2019.2020.

A significant percentage of nonperforming loans are residential real estate loans, which are historically lower‑risklower-risk than most other types of loans.  Net chargeoffsrecoveries were $4$39 thousand on residential real estate loans (including home equity lines of credit) for the third quarter of 20202021 compared to net chargeoffs of $39$4 thousand for the third quarter of 2019.2020.  Management believes that these loans have been appropriately written down where required.

55
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 Central Florida, 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.    Due to the recent COVID-19 pandemic, the Bank is monitoring recent state regulatory mandates in regards to a moratorium on foreclosures.  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 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 depositbranch franchise area.  At September 30, 2020, 72.7%2021, 70.9% of its gross loan portfolio balances were in New York State and the immediately surrounding areas (including New Jersey, Vermont and Massachusetts), and 27.3%29.1% were in Florida.  Those figures compare to 74.4%72.1% and 25.6%27.9%, respectively, at December 31, 2019.2020.

Economic conditions vary widely by geographic location.  As a percentage of the total nonperforming loans as of September 30, 2020, 5.8%2021, 10.2% were to Florida borrowers, compared to 94.2%89.8% to borrowers in New York and surrounding areas.  For the three‑three months ended September 30, 2020,2021, New York and surrounding areas experienced net chargeoffs of approximately $21$5 thousand compared to none in Florida.and Florida experienced no net chargeoffs for the third quarter of 2021.

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‑collectionnon-collection of principal and interest.  Also as of September 30, 2020,2021, there were no other loans classified for regulatory purposes that management reasonably expects will materially impact future operating results, liquidity, or capital resources.

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TrustCo has identified nonaccrual commercial and commercial real estate loans, as well as all loans restructured under a troubled debt restructuring (TDR),TDR, as impaired loans.  There were $1.1 million$521 thousand of commercial mortgages and commercial loans classified as impaired as of September 30, 20202021 compared to $1.4$1.0 million at December 31, 2019.2020.  There were $20.6$19.3 million of impaired residential loans at September 30, 20202021 and $19.5$20.6 million at December 31, 20192020.  The average balances of all impaired loans were $20.7 million for the nine months of 20202021 and $21.0$20.8 million for the full year 2019.2020.

As of September 30, 20202021 and December 31, 2019,2020, the Company’s loan portfolio did not include any subprime mortgages or loans acquired with deteriorated credit quality.

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 deed in lieu).  As ofAt September 30, 2020 other real estate owned included $4232021 there was $511 thousand of foreclosed real estate compared to $1.6 million$541 thousand at December 31, 2019.2020.

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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.

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

(dollars in thousands) 
As of
September 30, 2020
  
As of
December 31, 2019
  
As of
September 30, 2021
 
As of
December 31, 2020
 
    Percent of     Percent of 
    Loans to     Loans to 
 Amount  Total Loans  Amount  Total Loans  Amount 
Percent of
Loans to
Total Loans
 Amount 
Percent of
Loans to
Total Loans
 
Commercial $4,083   5.12% $3,805   4.47% $3,083 4.30% 
$
3,975
 
4.67
%
Real estate - construction  315   0.64%  311   0.70% 411 0.86% 
290
 
0.58
%
Real estate mortgage - 1 to 4 family  40,458   88.12%  35,632   87.96% 40,339 89.37% 
41,228
 
88.81
%
Home equity lines of credit  3,734   5.89%  3,999   6.60% 3,073 5.26% 
3,597
 
5.71
%
Installment Loans  533   0.23%  570   0.27%  444 0.21%  
505
 
0.23
%
 $49,123   100.00% $44,317   100.00% $47,350 100.00% 
$
49,595
 
100.00
%

At September 30, 2020,2021, the allowance for loan losses was $49.1$47.4 million, compared to $44.3$49.1 million at September 30, 20192020 and $49.6 million at December 31, 2019.2020.  The allowance represents 1.17%1.08% of the loan portfolio as of September 30, 2020 compared to 1.11% at September 30, 20192021, and 1.09%1.17% at December 31, 2019.2020 and September 30, 2020.

The provision for loan losses was $1 million for the quarter ended September 30, 2020 compared to no provisionProvision for loan losses for the quarter ended September 30, 2019.2021 was a credit of $2.8 compared to a provision for loan losses of $1 million for the quarter ended September 30, 2020.  The increasedecrease is primarily driven by the uncertaintysustained improvements in the current economic environment resulting from COVID-19.and credit quality metrics.  Net chargeoffs for the three‑monththree-month period ended September 30, 20202021 were $21$5 thousand and were $36 thousand for the prior year period.  Netcompared to net chargeoffs for the nine‑month period ended September 30, 2020 were $194 thousand and were $396of $21 thousand for the prior year period.

During the third quarter of 2020,2021, there werewas $30 thousand of commercial loan net recoveries of $1 thousand and $22chargeoffs, $39 thousand of residential mortgage net recoveries, and $14 thousand of consumer loan net chargeoffs, compared with commercial loan net recoveries of $28 thousand and $64$1 thousand of net commercial loan recoveries, $4 thousand of residential mortgage net chargeoffs, and $18 thousand of consumer loan net chargeoffs for the same period in the third quarter of 2019.prior year.

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:

57
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

57

The economic environment as a result of the global pandemic.

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.

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.  TheAs previously stated, the Bank is a member of the Federal Home Loan Bank of New York (“FHLBNY”)FHLBNY and is an eligible borrower at the Federal Reserve Bank of New York (“FRBNY”)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 depositsCDs 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‑timenon-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 September 30, 20202021 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 September 30, 2020.2021. The following 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.

58

As of September 30, 20202021
Estimated Percentage of
Fair value of Capital to
Fair value of Assets
+400 BP
22.20
 18.50%
+300 BP
18.6022.20 
+200 BP
18.6022.10 
+100 BP
18.7022.30 
Current rates
17.9021.40 
-100 BP
13.8018.30 

Noninterest Income
Total noninterest income for the third quarter of both 2021 and 2020 was $4.3 million versus $4.9 million for the previous year.million.  Financial servicesServices income was $1.8down $226 thousand to $1.6 million in the third quarter of 20202021 as compared to $1.5 million in the prior yearyear-ago period, primarily as a result of fluctuations in asset market values under management and fees associated with estate settlements.  Other income was $265 thousand, down $541 thousandsettlements in the third quarter of 2020 as compared to the year ago period.prior year.  Fees for services to customers were down $310up $239 thousand over the same period in the prior year.year, primarily as a result of more overdraft fees and interchange income.   The fair value of assets under management was $1.1 billion at September 30, 2021, $996.7 million as of December 31, 2020, and $899 million at September 30, 2020 and $928 million as of December 31, 2019 and $896 million at September 30, 2019.2020.

For the nine months throughnine-months ended September 30, 20202021 total noninterest income was $13.1$13.4 million, down $1.4 millionup $310 thousand compared to the prior year period.   The decreaseincrease is primarily the result of less financial servicesmore Financial Services income as a result of lowerhigher asset market values under management, throughout 2020, less fees for services to customers which is driven by lower overdraft fees due to higher deposit balances, and a decrease in othermore interchange income, which also included a gain on the sale of the credit card portfolio in 2019, partially offset by a net gaingains on securities transactions.transactions of $1.2 million in the prior period.

Noninterest Expenses
Total noninterest expenses were $24.7 million for the three-months ended September 30, 2021, compared to $22.7 million for the three‑monthsthree-months ended September 30, 2020 compared to $24.1 million for the three‑months ended September 30, 2019..  Significant changes included a decrease of $826 thousand$1.0 million increase in salaries and employee benefits, which is primarily a result of lower stock-based compensation expense due to a decrease in the Company’s stock price, a $196$172 thousand decreaseincrease in professional services, a $189 decrease in advertising expense, a $148 decrease in other real estate expense, a $516 thousand decrease in other expense, partially offset by an increase of $183 thousand in occupancy expense and a $378$140 thousand increase in FDICoutsourced services, and a $460 thousand increase in other insurance.expenses. Full time equivalent headcount decreased from 823 as of September 30, 2019 towas 771 as of September 30, 2020.  The decrease in FTE’s in2020, 778 as of December 31, 2020, and 743 as of September 30, 2021.  Full time equivalent employees decreased and salaries and employee benefits expense on existing employees has increased from the period presented was notprior year partially due to a challenging labor market from the effectsimpact of the pandemic.  The Company constantly hires qualified candidatesIn addition, other benefits has increased primarily as a result of a higher stock price on the liability-based equity awards, and from time-to-time experiences fluctuationsthe increase in head count.costs associated with existing employee benefit plans.

Total noninterest expenses were $75.5 million for the nine-months ended September 30, 2021, compared to $70.9 million for the nine‑months ended September 30, 2020, compared to $73.8 million for the nine‑monthsnine-months ended September 30, 20192020.  Significant changes included a decreasean increase of $967 thousand$2.8 million in salaries and employee benefits for the same reasons as mentioned above, a $285$555 thousand decrease in equipment expense, a $751 thousand decreaseincrease in professional services, a $663$609 thousand increase in outsourced services, a $667 thousand increase FDIC and other insurance expense as a result of credits in the prior period due to the FDIC reaching the Deposit Reserve Fund reserve ratio, partially offset by a $181 thousand decrease in advertising expense, and a $172 decrease in other real estate expense, a $1.0 million decrease in other expense, partially offset by an increase of $701$156 thousand in occupancy expense and a $150 thousand increase in outsourced services.  The overall decrease in expenses for the three and nine months ended September 30, 2020 is primarily a result of the Company’s continued efforts to control costs.equipment expense.

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Income Taxes
In the third quarter of 2020,2021, TrustCo recognized income tax expense of $4.8$5.5 million compared to the same$4.8 million for the third quarter of 2019.2020.  The effective tax rates were 25.3%24.8% and 24.6%25.3% for the third quarters of 20202021 and 2019,2020, respectively.  For the first nine‑months,nine-months, income taxes were $15.2 million and $13.0 million in 2021 and 2020, as compared to $14.3 million in 2019.respectively. The effective tax rates wererate was 25.2% for both 2021 and 24.6% for 2020 and 2019, respectively.2020.

Capital Resources
Consistent with its long‑termlong-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‑FrankDodd-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 September 30, 20202021 was $560.5$586.7 million compared to $526.2$560.5 million at September 30, 2019.2020. TrustCo declared a dividend of $0.068125$0.340625 per share in the third quarter of 2020.2021 and is adjusted for the Reverse Stock Split which occurred on May 28, 2021.  This results in a dividend payout ratio of 46.68%39.13% based on third quarter 20202021 earnings of $14.1$16.8 million.

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The Bank and the Company reported the following capital ratios as of September 30, 20202021 and December 31, 2019:2020:

(Bank Only) As of September 30, 2020  Well  
Minimum for
Capital Adequacy plus
Capital Conservation
 
(dollars in thousands) Amount  Ratio  
Capitalized(1)
  
Buffer (1)(2)
 
             
Tier 1 leverage ratio  533,874   9.329%  5.000%  4.000%
Common equity tier 1 capital  533,874   18.491   6.500   7.000 
Tier 1 risk-based capital  533,874   18.491   8.000   8.500 
Total risk-based capital  570,127   19.747   10.000   10.500 
(Bank Only)

 As of December 31, 2019  Well  
Minimum for
Capital Adequacy plus
Capital Conservation
 
(dollars in thousands)
  
  
Well
Capitalized(1)
  
Minimum for
Capital Adequacy plus
Capital Conservation
Buffer (1)(2)
  
As of September 30, 2021
 Amount  Ratio  
Capitalized(1)
  
Buffer (1)(2)
 Amount Ratio
                     
Tier 1 leverage ratio $516,775   9.940%  5.000%  4.000% $561,969 9.148% 5.000% 4.000%
Common equity tier 1 capital  516,775   18.412   6.500   7.000  561,969 18.899 6.500 7.000 
Tier 1 risk-based capital  516,775   18.412   8.000   8.500  561,969 18.899 8.000 8.500 
Total risk-based capital  551,975   19.666   10.000   10.500  599,265 20.153 10.000 10.500 

(Consolidated) As of September 30, 2020  
Minimum for
Capital Adequacy plus
Capital Conservation
 
(dollars in thousands)
  
  
Well
Capitalized(1)
  
Minimum for
Capital Adequacy plus
Capital Conservation
Buffer (1)(2)
  
As of December 31, 2020
 Amount  Ratio  
Buffer (1)(2)
 Amount Ratio
                  
Tier 1 leverage ratio $548,437   9.582%  4.000% 
$
539,897
 
9.378
%
 
5.000
%
 
4.000
%
Common equity tier 1 capital  548,437   18.994   7.000  
539,897
 
18.646
 
6.500
 
7.000
 
Tier 1 risk-based capital  548,437   18.994   8.500  
539,897
 
18.646
 
8.000
 
8.500
 
Total risk-based capital  584,692   20.250   10.500  
576,257
 
19.902
 
10.000
 
10.500
 

 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 
(Consolidated)
(dollars in thousands)
  
    
Minimum for
Capital Adequacy plus
Capital Conservation
Buffer (1)(2)
  
 
As of September 30, 2021
Amount  Ratio
          
Tier 1 leverage ratio $578,825   9.420%  4.000%
Common equity tier 1 capital  578,825   19.461   7.000 
Tier 1 risk-based capital  578,825   19.461   8.500 
Total risk-based capital  616,131   20.715   10.500 

(dollars in thousands)
 
    
Minimum for
Capital Adequacy plus
Capital Conservation
Buffer (1)(2)
  
 
As of December 31, 2020
 Amount  Ratio
          
Tier 1 leverage ratio 
$
555,672
   
9.650
%
  
4.000
%
Common equity Tier 1 capital  
555,672
   
19.187
   
7.000
 
Tier 1 risk-based capital  
555,672
   
19.187
   
8.500
 
Total risk-based capital  
592,040
   
20.443
   
10.500
 

(1)
Federal regulatory minimum requirements to be considered to be Well Capitalized and Adequately Capitalized
(2)
The September 30, 20202021 and December 31, 20192020 common equity tier 1, tier 1 risk-based, and total risk-based capital ratios include a capital conservation buffer of 2.50 percent

In addition, at September 30, 2020,2021, the consolidated equity to total assets ratio was 9.77%9.56%, compared to 10.31%9.63% at December 31, 20192020 and 10.07%9.77% at September 30, 2019.2020.

61
Both TrustCo and Trustco Bank are subject to regulatory capital requirements. On January 1, 2015, a new capital rule took effect that revised the federal bank regulatory agencies’ risk-based capital requirements and, for the first time, subjected the Company to consolidated regulatory capital requirements. Among other matters, the rule also established a new common equity Tier 1 minimum capital requirement of 4.5% of risk-weighted assets, increased the minimum Tier 1 capital to risk-based assets requirement from 4.0% to 6.0% of risk-weighted assets, changed the risk-weightings of certain assets, and changed what qualifies as capital for purposes of meeting the various capital requirements. In addition, the Company and the Bank are required to maintain additional levels of Tier 1 common equity (the capital conservation buffer) over the minimum risk-based capital levels before they may pay dividends, repurchase shares, or pay discretionary bonuses. The new rule was phased-in over several years and iswas fully in effect in 2020.effect.

61
As of September 30, 2020,2021, the capital levels of both TrustCo and the Bank exceeded the minimum standards, including with the current and also fully phased‑inphased-in capital conservation buffer is taken into account.

Under the Office of the Comptroller of the Currency’s (“OCC”) “prompt corrective action” regulations, a bank is deemed to be “well‑capitalized”“well-capitalized” when its CET1, Tier 1, total risk‑based,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‑basedrisk-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 September 30, 20202021 and 2019,2020, Trustco Bank met the definition of “well‑capitalized.“well-capitalized.”

As noted, the Company’s dividend payout ratio was 39.13% of net income for the third quarter of 2021 and 46.68% of net income for the third quarter of 2020 and 44.85% of net income for the third quarter of 2019.2020. The per‑shareper-share dividend paid in the third quartersquarter of 2021 and 2020 was $0.340625 and 2019 was $0.068125.is adjusted for the Reverse Stock Split.  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 11,0777,198 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.

Reverse Stock Split
On February 16, 2021, the Company announced that the Board of Directors planned to seek shareholder approval for a reverse stock split of the Company’s common stock at a ratio of 1 for 5, and, effective at the same time of the reverse stock split, to reduce the number of authorized shares of the Company’s common stock from 150,000,000 to 30,000,000 shares.  On May 20, 2021 the Reverse Stock Split was approved at the annual shareholder meeting.  All references herein to common stock and per share data for all periods presented have been retrospectively adjusted to reflect the Reverse Stock Split.

62
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 represented 0.51% of our common shares outstanding.  On April 16, 2020 the Company did notannounced that it has suspended its share repurchase anyprogram.  On February 18, 2021 the Company’s Board of Directors authorized another share repurchase program of up to 2,000,000 shares and was adjusted to 400,000 shares as a result of the approval of the Reverse Stock Split, and represents approximately 2% of its shares ofcurrently outstanding common stock duringstock.  During the three months ended September 30, 2020.2021, the Company repurchased a total of 50 thousand shares at an average price per share of $32.24 for a total of $1.6 million under its Board authorized share repurchase program.

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

62
Management considers the accounting policy relating to the allowance for loan losses to be a critical accounting policy given the inherent uncertainty in evaluating the levels of the allowance required to cover the inherent risk of losses in the loan portfolio and the material effect that such judgments can have on the results of operations.  Included in Note 1 to the Consolidated Financial Statements contained in the Company’s Annual Report on Form 10‑K for the year ended December 31, 20192020 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 SecurityCARES 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.  The December 31, 2020 adoption date under the CARES Act was extended to January 1, 2022 as a part of the COVID-19 Relief Bill, which became law in December 2020, and therefore the Company intends to adopt CECL on January 1, 2022.

63
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, net of tax, in the available for sale portfolio of $3.9 million in 2021 and $8.3 million in 2020.  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
September 30, 2021
  
Three months ended
September 30, 2020
          
                            
  
Average
Balance
  Interest  
Average
Rate
  
Average
Balance
  
Interest
  
Average
Rate
  
Change in
Interest
Income/
Expense
  
Variance
Balance
Change
 		  
Variance
Rate
Change
 		 
                         
Assets                        
                            
Securities available for sale:                           
U. S. government sponsored enterprises $68,505  $91   0.53% $12,391  $14   0.45% $77   74   3 
Mortgage backed securities and collateralized mortgage obligations-residential  300,765   1,038   1.38%  313,296   1,319   1.68%  (281)  (51)  (230)
State and political subdivisions  48   2   6.66%  110   2   7.90%  -   -   - 
Corporate bonds  48,543   220   1.81%  59,555   646   4.33%  (426)  (103)  (323)
Small Business Administration-guaranteed participation securities  34,578   181   2.09%  43,282   216   1.99%  (35)  (98)  63 
Other  686   5   2.92%  685   5   2.92%  -   -   - 
                                     
Total securities available for sale  453,125   1,537   1.36%  429,319   2,202   2.05%  (665)  (178)  (487)

                                    
Federal funds sold and other short-term Investments  1,166,679   470   0.16%  938,087   242   0.10%  228   69   159 
                                     
Held to maturity securities:                                    
Mortgage backed securities and collateralized mortgage obligations-residential  11,168   104   3.72%  15,759   138   3.52%  (34)  (81)  47 
                                     
Total held to maturity securities  11,168   104   3.72%  15,759   138   3.52%  (34)  (81)  47 
                                     
Federal Reserve Bank and Federal Home Loan Bank stock  5,604   64   4.57%  5,506   77   5.59%  (13)  8   (21)
                                     
Commercial loans  210,825   2,649   5.03%  231,517   2,625   4.54%  24   (1,016)  1,040 
Residential mortgage loans  3,920,903   34,532   3.52%  3,702,680   36,020   3.89%  (1,488)  9,896   (11,384)
Home equity lines of credit  231,269   2,152   3.69%  251,459   2,515   3.98%  (363)  (191)  (172)
Installment loans  8,669   155   7.10%  9,632   170   7.02%  (15)  (28)  13 
                                     
Loans, net of unearned income  4,371,666   39,488   3.61%  4,195,288   41,330   3.94%  (1,842)  8,661   (10,503)
                                     
Total interest earning assets  6,008,242   41,663   2.77%  5,583,959   43,989   3.15%  (2,326)  8,479   (10,805)
                                     
Allowance for loan losses  (50,160)          (48,483)                    
Cash & non-interest earning assets  195,902           201,018                     
                                     
Total assets $6,153,984           5,736,494                     
                                     
Liabilities and shareholders' equity                                    
                                     
Deposits:                                    
Interest bearing checking accounts $1,153,812   38   0.01% $1,024,455  $55   0.02%  (17)  39   (56)
Money market accounts  738,662   202   0.11%  682,319   637   0.37%  (435)  329   (764)
Savings  1,430,558   154   0.04%  1,222,956   161   0.05%  (7)  108   (115)
Time deposits  1,152,298   1,149   0.40%  1,355,244   4,749   1.39%  (3,600)  (623)  (2,977)
                                     
Total interest bearing deposits  4,475,330   1,543   0.14%  4,284,974   5,602   0.52%  (4,059)  (147)  (3,912)
Short-term borrowings  240,183   232   0.38%  193,765   221   0.45%  11   173   (162)
                                     
Total interest bearing liabilities  4,715,513   1,775   0.15%  4,478,739   5,823   0.52%  (4,048)  26   (4,074)
                                     
Demand deposits  780,163           622,313                     
Other liabilities  75,116           78,093                     
Shareholders' equity  583,192           557,349                     
                                     
Total liabilities and shareholders' equity $6,153,984          $5,736,494                     
                                     
Net interest income, tax equivalent      39,888           38,166      $1,722   8,453   (6,731)
                                     
Net interest spread          2.62%          2.63%            
                                     
Net interest margin (net interest income to total interest earning assets)          2.65%          2.73%            
                                     
Tax equivalent adjustment      (1)          (1)                
                                     
Net interest income      39,887           38,165                 

64
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 $8.3$4.1 million in 20202021 and ($0.4)$7.2 million in 2019.2020.  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
September 30, 2020
  
Three months ended
September 30, 2019
     
Nine months ended
September 30, 2021
 
Nine months ended
September 30, 2020
   
                   
 
Average
Balance
 Interest 
Average
Rate
 
Average
Balance
 
Interest
 
Average
Rate
  
Change in
Interest
Income/
Expense
  
Variance
Balance
Change
 
Variance
Rate
Change
 
                                        
Assets 
Average
Balance
  Interest  
Average
Rate
  
Average
Balance
  Interest  
Average
Rate
  
Change in
Interest
Income/
Expense
  
Variance
Balance
Change
  
Variance
Rate
Change
                  
                                              
Securities available for sale:                                              
U. S. government sponsored enterprises $12,391   14   0.45% $183,580  $996   2.17% $(982)  (530)  (452) $65,103 238 0.49% $42,573 541 1.69% $(303) 308 (611)
Mortgage backed securities and collateralized mortgage obligations-residential  313,296   1,319   1.68%  370,808   2,178   2.35%  (859)  (304)  (555) 318,472 3,442 1.44% 339,300 4,959 1.95% (1,517) (289) (1,228)
State and political subdivisions  110   2   7.90%  166   3   7.23%  (1)  (1)  -  49 3 8.16% 111 6 7.79% (3) (4) 1 
Corporate bonds  59,555   646   4.33%  40,231   321   3.19%  325   186   139  56,245 859 2.04% 46,508 1,372 3.93% (513) 378 (891)
Small Business Administration-guaranteed participation securities  43,282   216   1.99%  51,988   282   2.17%  (66)  (44)  (22) 36,981 580 2.09% 45,313 690 2.03% (110) (142) 32 
Other  685   5   2.92%  685   6   3.50%  (1)  -   (1) 686 16 3.11% 685 16 3.11% - - - 
                                                          
Total securities available for sale  429,319   2,202   2.05%  647,458   3,786   2.34%  (1,584)  (693)  (891) 477,536 5,138 1.43% 474,490 7,584 2.13% (2,446) 251 (2,697)
                                                       
Federal funds sold and other short-term Investments  938,087   242   0.10%  465,251   2,552   2.19%  (2,310)  8,831   (11,141) 1,108,018 1,026 0.12% 693,286 1,702 0.33% (676) 1,071 (1,747)
                                                       
Held to maturity securities:                                                       
Mortgage backed securities and collateralized mortgage obligations-residential  15,759   138   3.52%  20,197   187   3.70%  (49)  (40)  (9) 12,199 338 3.70% 17,029 475 3.72% (137) (134) (3)
                                                          
Total held to maturity securities  15,759   138   3.52%  20,197   187   3.70%  (49)  (40)  (9) 12,199 338 3.70% 17,029 475 3.72% (137) (134) (3)
                                                       
Federal Reserve Bank and Federal Home Loan Bank stock  5,506   77   5.59%  9,183   81   3.53%  (4)  (156)  152  5,570 198 4.74% 7,998 351 5.85% (153) (94) (59)
                                                       
Commercial loans  231,517   2,625   4.54%  190,538   2,596   5.45%  29   1,972   (1,943) 212,832 8,203 5.14% 217,573 7,778 4.77% 425 (261) 686 
Residential mortgage loans  3,702,680   36,020   3.89%  3,465,102   35,743   4.13%  277   9,129   (8,852) 3,852,960 104,219 3.61% 3,652,766 108,845 3.97% (4,626) 8,226 (12,852)
Home equity lines of credit  251,459   2,515   3.98%  275,047   3,401   4.95%  (886)  (269)  (617) 234,682 6,622 3.77% 258,956 7,898 4.07% (1,276) (710) (566)
Installment loans  9,632   170   7.02%  9,967   183   7.34%  (13)  (6)  (7) 8,608 469 7.28% 10,129 537 7.08% (68) (91) 23 
                                                              
Loans, net of unearned income  4,195,288   41,330   3.94%  3,940,654   41,923   4.26%  (593)  10,826   (11,419) 4,309,082 119,513 3.70% 4,139,424 125,058 4.03% (5,545) 7,164 (12,709)
                                                       
Total interest earning assets  5,583,959   43,989   3.15%  5,082,743   48,529   3.82%  (4,540)  18,768   (23,308) 5,912,405 126,213 2.85% 5,332,227 135,170 3.38% (8,957) 8,258 (17,215)
                                                       
Allowance for loan losses  (48,483)          (44,448)                     (50,101)     (46,618)           
Cash & non-interest earning assets  201,018           188,528                       196,876      196,835           
                                                       
Total assets $5,736,494           5,226,823                      $6,059,180     $5,482,444           
                                                       
Liabilities and shareholders' equity                                                       
                                                       
Deposits:                                                       
Interest bearing checking accounts $1,024,455   55   0.02% $874,179  $52   0.02%  3   3   -  $1,129,480 136 0.02% $949,909 97 0.01% 39 11 28 
Money market accounts  682,319   637   0.37%  567,554   1,177   0.83%  (540)  1,250   (1,790) 731,171 721 0.13% 646,170 2,595 0.54% (1,874) 500 (2,374)
Savings  1,222,956   161   0.05%  1,126,935   323   0.11%  (162)  159   (321) 1,376,494 475 0.05% 1,169,316 560 0.06% (85) 108 (193)
Time deposits  1,355,244   4,749   1.39%  1,457,510   7,974   2.19%  (3,225)  (522)  (2,703) 1,203,708 4,076 0.45% 1,372,369 16,739 1.63% (12,663) (1,838) (10,825)
                                                          
Total interest bearing deposits  4,284,974   5,602   0.52%  4,026,178   9,526   0.95%  (3,924)  890   (4,814) 4,440,853 5,408 0.16% 4,137,764 19,991 0.65% (14,583) (1,219) (13,364)
Short-term borrowings  193,765   221   0.45%  160,162   359   0.90%  (138)  384   (522) 232,532 688 0.40% 173,497 778 0.60% (90) 304 (394)
                                                          
Total interest bearing liabilities  4,478,739   5,823   0.52%  4,186,340   9,885   0.94%  (4,062)  1,274   (5,336) 4,673,385 6,096 0.17% 4,311,261 20,769 0.64%  (14,673) (915) (13,758)
                                                       
Demand deposits  622,313           438,789                      735,495     543,279           
Other liabilities  78,093           80,188                      73,689     77,568           
Shareholders' equity  557,349           521,506                       576,611      550,336           
                                                       
Total liabilities and shareholders' equity $5,736,494          $5,226,823                      $6,059,180     $5,482,444           
                                                       
Net interest income , tax equivalent      38,166           38,644      $(478)  17,494   (17,972)   120,117     114,401   $5,716  9,173  (3,457)
                                                       
Net interest spread          2.63%          2.88%                 2.67%     2.74%       
                                                       
Net interest margin (net interest income to total interest earning assets)          2.73%          3.04%                 2.71%     2.86%       
                                                       
Tax equivalent adjustment      (1)          (1)                    (1)      (2)         
                                                       
Net interest income      38,165           38,643                     120,116      114,399         

64
65
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 $7.2 million in 2020 and ($4.9) million in 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) 
Nine months ended
September 30, 2020
  
Nine months ended
September 30, 2019
    
                            
Assets 
Average
Balance
  Interest  
Average
Rate
  
Average
Balance
  Interest  
Average
Rate
  
Change in
Interest
Income/
Expense
  
Variance
Balance
Change
  
Variance
Rate
Change
 
                            
Securities available for sale:                           
U. S. government sponsored enterprises $42,573   541   1.69% $166,119   2,600   2.09% $(2,059)  (1,641)  (418)
Mortgage backed securities and collateralized mortgage obligations-residential  339,300   4,959   1.95%  329,188   5,885   2.38%  (926)  277   (1,203)
State and political subdivisions  111   6   7.79%  167   9   7.19%  (3)  (4)  1 
Corporate bonds  46,508   1,372   3.93%  33,678   801   3.17%  571   350   221 
Small Business Administration-guaranteed participation securities  45,313   690   2.03%  54,414   868   2.13%  (178)  (139)  (39)
Other  685   16   3.11%  685   16   3.11%  -   -   - 
                                     
Total securities available for sale  474,490   7,584   2.13%  584,251   10,179   2.32%  (2,595)  (1,157)  (1,438)
                                     
Federal funds sold and other short-term Investments  693,286   1,702   0.33%  504,512   8,843   2.34%  (7,141)  3,991   (11,132)
                                     
Held to maturity securities:                                    
Mortgage backed securities and collateralized mortgage obligations-residential  17,029   475   3.72%  21,123   613   3.87%  (138)  (115)  (23)
                                     
Total held to maturity securities  17,029   475   3.72%  21,123   613   3.87%  (138)  (115)  (23)
                                     
Federal Reserve Bank and Federal Home Loan Bank stock  7,998   351   5.85%  9,104   365   5.35%  (14)  (59)  45 
                                     
Commercial loans  217,573   7,778   4.77%  191,370   7,725   5.38%  53   1,310   (1,257)
Residential mortgage loans  3,652,766   108,845   3.97%  3,412,411   105,786   4.13%  3,059   8,916   (5,857)
Home equity lines of credit  258,956   7,898   4.07%  280,248   10,441   4.97%  (2,543)  (754)  (1,789)
Installment loans  10,129   537   7.08%  10,718   656   8.16%  (119)  (35)  (84)
                                     
Loans, net of unearned income  4,139,424   125,058   4.03%  3,894,747   124,608   4.27%  450   9,437   (8,987)
                                     
Total interest earning assets  5,332,227   135,170   3.38%  5,013,737   144,608   3.85%  (9,438)  12,097   (21,535)
                                     
Allowance for loan losses  (46,618)          (44,744)                    
Cash & non-interest earning assets  196,835           180,568                     
                                     
Total assets $5,482,444          $5,149,561                     
                                     
Liabilities and shareholders' equity                                    
                                     
Deposits:                                    
Interest bearing checking accounts $949,909   97   0.01% $878,106   267   0.04%  (170)  32   (202)
Money market accounts  646,170   2,595   0.54%  546,601   3,122   0.76%  (527)  733   (1,260)
Savings  1,169,316   560   0.06%  1,141,607   1,067   0.12%  (507)  28   (535)
Time deposits  1,372,369   16,739   1.63%  1,416,306   21,462   2.02%  (4,723)  (653)  (4,070)
                                     
Total interest bearing deposits  4,137,764   19,991   0.65%  3,982,620   25,918   0.87%  (5,927)  140   (6,067)
Short-term borrowings  173,497   778   0.60%  160,647   1,121   0.93%  (343)  132   (475)
                                     
Total interest bearing liabilities  4,311,261   20,769   0.64%  4,143,267   27,039   0.87%  (6,270)  272   (6,542)
                                     
Demand deposits  543,279           418,327                     
Other liabilities  77,568           79,937                     
Shareholders' equity  550,336           508,030                     
                                     
Total liabilities and shareholders' equity $5,482,444          $5,149,561                     
                                     
Net interest income , tax equivalent      114,401           117,569      $(3,168)  11,825   (14,993)
                                     
Net interest spread          2.74%          2.98%            
                                     
Net interest margin (net interest income to total interest earning assets)          2.86%          3.13%            
                                     
Tax equivalent adjustment      (2)          (3)                
                                     
Net interest income      114,399           117,566                 

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Item 3.Quantitative and Qualitative Disclosures about Market Risk

As detailed in the Annual Report to Shareholders as of December 31, 2019,2020, 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‑monththree-month and nine‑nine-month month periods ended September 30, 20202021 and 2019,2020, 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 third quarter of 2020,2021, the Company had an average balance of Federal Funds sold and other short‑termshort-term investments of $938.1 million$1.2 billion compared to $465.3$938.1 million in the third quarter of 2019.2020.  As investment opportunities present themselves, management plans to invest funds from the Federal Funds sold and other short‑termshort-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.  WeFor example, 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)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‑benefitcost-benefit relationship of possible controls and procedures.  Further, no evaluation of a cost‑effectivecost-effective system of controls can provide absolute assurance that all control issues and instances of fraud, if any, will be detected.

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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)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.

PART IIOTHER INFORMATION
Item 1.Legal Proceedings

None.

Item 1A.Risk Factors

There were no material changes to the risk factors as previously disclosed in response to Item 1A to Part I of the Company’s Annual Report on Form 10-K10‑K for the fiscal year ended December 31, 2019, or in response to Item 1A to Part II of the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2020.

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

Share Repurchase Program

On June 7, 2019,The following table provides certain information with respect to the Company announced that its board of directors approved a stock repurchase program under which the Company was authorized to repurchase over the following twelve months up to 1,000,000 shares of Company common stock, or approximately 1%Company’s purchases of its outstanding shares.  The Company commenced repurchases under the programcommon shares during the quarterthree months ended March 31, 2020.  On April 16, 2020, the Company announced that it had chosen to suspend the repurchase program and on June 6, 2020 the program expired.September 30, 2021:

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)
 
July 1, 2021 through July 30, 2021  
10,000
  
$
33.82
   
10,000
   
370,000
 
August 1, 2021 through August 31, 2021  
-
   
N/A
   
-
   
370,000
 
September 1, 2021 through September 30, 2021  
40,000
  
$
31.61
   
40,000
   
330,000
 
Total  
50,000
  
$
32.24
   
50,000
   
330,000
 


(1)
On February 18, 2021 the Company’s Board of Directors authorized a share repurchase program of up to 400,000 shares as adjusted for the Reverse Stock Split, or approximately 2% of the Company’s outstanding common stock.  The Company commenced repurchases under the program during the quarter ended June 30, 2021.

Item 3.Defaults Upon Senior Securities

None.

Item 4.Mine Safety

None.

Item 5.Other Information

None.

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Item 6.Exhibits

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

68
SIGNATURES

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

 TrustCo Bank Corp NY
 
   
 
By: /s//s/ Robert J. McCormick
 
 Robert J. McCormick
 
 Chairman, President and Chief Executive Officer
 
   
 
By: /s/ Michael M. Ozimek
 
 By:/s/ Michael M. Ozimek
 Michael M. Ozimek
 Executive Vice President and Chief Financial Officer
 
   
Date:November 6, 20205, 2021  


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