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, 2021March 31, 2022
OR

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

Commission File Number 0-10592

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

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

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

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

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-TS‑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, 2021April 29, 2022
$1 Par Value19,218,50119,196,875



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-monththree month periods ended September 30,March 31, 2022 and 2021 and 2020
3
   
 
Consolidated Statements of Comprehensive Income for the three-month and nine-monththree month periods ended September 30,March 31, 2022 and 2021 and 2020
4
   
 
Consolidated Statements of Financial Condition as of September 30, 2021March 31, 2022 and December 31, 20202021
5
   
 
Consolidated Statements of Changes in Shareholders’ Equity for the three-month and nine-monththree month periods ended September 30,March 31, 2022 and 2021 and 2020
6
   
 
Consolidated Statements of Cash Flows for the nine-monththree month periods ended September 30,March 31, 2022 and 2021 and 2020
7
   
 
Notes to Consolidated Interim Financial Statements
8-418-42
   
 
Report of Independent Registered Public Accounting Firm
4243
   
Item 2.
Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations
43-6544-63
   
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
6664
   
Item 4.
Controls and Procedures
6664
   
Part II.OTHER INFORMATION 
   
Item 1.
Legal Proceedings
6765
  
Item 1A.
Risk Factors
6765
   
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
6765
   
Item 3.
Defaults Upon Senior Securities
6765
   
Item 4.
Mine Safety
6766
   
Item 5.
Other Information
6766
   
Item 6.
Exhibits
6866


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
March 31,
 
 2021  2020  2021  2020  2022  2021 
                  
Interest and dividend income:                  
Interest and fees on loans $39,488   41,330   119,513   125,058  $39,003   40,217 
Interest and dividends on securities available for sale:                        
U. S. government sponsored enterprises  91   14   238   541   86   50 
State and political subdivisions  1   1   2   4   1   1 
Mortgage-backed securities and collateralized mortgage obligations  1,038   1,319   3,442   4,959   1,087   1,237 
Corporate bonds  220   646   859   1,372   233   316 
Small Business Administration-guaranteed participation securities  181   216   580   690   154   206 
Other securities  5   5   16   16   2   6 
Total interest and dividends on securities available for sale  1,536   2,201   5,137   7,582   1,563   1,816 
                        
Interest on held to maturity securities:                        
Mortgage-backed securities and collateralized mortgage obligations-residential  104   138   338   475   90   123 
Total interest on held to maturity securities  104   138   338   475   90   123 
                        
Federal Reserve Bank and Federal Home Loan Bank stock  64   77   198   351   62   69 
Interest on federal funds sold and other short-term investments  470   242   1,026   1,702   572   270 
Total interest income  41,662   43,988   126,212   135,168   41,290   42,495 
                        
Interest expense:                        
Interest on deposits:                        
Interest-bearing checking  38   55   136   97   44   52 
Savings accounts  154   161   475   560   156   159 
Money market deposit accounts  202   637   721   2,595   214   283 
Time deposits  1,149   4,749   4,076   16,739   546   1,666 
Interest on short-term borrowings  232   221   688   778   234   228 
Total interest expense  1,775   5,823   6,096   20,769   1,194   2,388 
                        
Net interest income  39,887   38,165   120,116   114,399   40,096   40,107 
(Credit) Provision for loan losses  (2,800)  1,000   (2,450)  5,000 
Net interest income after provision for loan losses  42,687   37,165   122,566   109,399 
(Credit) Provision for credit losses
  (200)  350 
Net interest income after (credit) provision for credit losses
  40,296   39,757 
                        
Noninterest income:                        
Trustco financial services income  1,558   1,784   5,592   4,752   1,833   2,035 
Fees for services to customers  2,531   2,292   7,221   6,414   2,801   2,204 
Net gain on securities transactions  0   0   0   1,155 
Other  206   265   598   780   549   189 
Total noninterest income  4,295   4,341   13,411   13,101   5,183   4,428 
                        
Noninterest expenses:                        
Salaries and employee benefits  11,909   10,899   36,737   33,920   9,239   12,425 
Net occupancy expense  4,259   4,277   13,173   12,968   4,529   4,586 
Equipment expense  1,628   1,607   4,859   5,015   1,588   1,631 
Professional services  1,483   1,311   4,529   3,974   1,467   1,432 
Outsourced services  2,015   1,875   6,434   5,825   2,280   2,250 
Advertising expense  310   305   1,213   1,394   617   354 
FDIC and other insurance  746   660   2,230   1,563   812   707 
Other real estate expense (income), net  32   (115)  211   47 
Other real estate expense, net  11   239 
Other  2,315   1,855   6,086   6,168   2,222   1,711 
Total noninterest expenses  24,697   22,674   75,472   70,874   22,765   25,335 
                        
Income before taxes  22,285   18,832   60,505   51,626   22,714   18,850 
Income taxes  5,523   4,761   15,227   12,988   5,625   4,767 
                        
Net income $16,762   14,071   45,278   38,638  $17,089   14,083 
                        
Net income per share (1):                        
- Basic $0.871   0.730   2.349   2.002  $0.890   0.730 
                        
- Diluted $0.871   0.730   2.349   2.001  $0.890   0.730 

(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,
 
  2021  2020  2021  2020 
             
Net income $16,762   14,071   45,278   38,638 
                 
Net unrealized holding (loss) gain on securities available for sale  (765)  (267)  (5,939)  11,392 
Reclassification adjustments for net gain recognized in income  0   0   0   (1,155)
Tax effect  199   69   1,534   (2,660)
                 
Net unrealized (loss) gain on securities available for sale, net of tax  (566)  (198)  (4,405)  7,577 
                 
Amortization of net actuarial gain  (137)  (222)  (534)  (531)
Amortization of prior service cost (credit)  177   (49)  227   (147)
Tax effect  (10)  70   80   177 
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  (536)  (399)  (4,632)  7,076 
Comprehensive income $16,226   13,672   40,646   45,714 
 
Three months ended
March 31,
 
  2022  2021 
       
Net income $17,089   14,083 
         
Net unrealized holding loss on securities available for sale  (19,225)  (6,018)
Tax effect  4,974   1,557 
         
Net unrealized loss on securities available for sale, net of tax  (14,251)  (4,461)
         
Amortization of net actuarial gain  (78)  (228)
Amortization of prior service credit  (280)  (52)
Tax effect  93   73 
Amortization of net actuarial gain and prior service credit on pension and postretirement plans, net of tax  (265)  (207)
         
Other comprehensive loss, net of tax  (14,516)  (4,668)
Comprehensive income $2,573   9,415 

See accompanying notes to unaudited consolidated interim financial statements.

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

 September 30, 2021  December 31, 2020 
ASSETS:      
       
Cash and due from banks $45,486   47,196 
Federal funds sold and other short term investments  1,147,853   1,059,903 
Total cash and cash equivalents  1,193,339   1,107,099 
         
Securities available for sale  434,552   439,071 
         
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  5,604   5,506 
         
Loans, net of deferred net costs  4,396,729   4,244,470 
Less:        
Allowance for loan losses  47,350   49,595 
Net loans  4,349,379   4,194,875 
         
Bank premises and equipment, net  33,233   34,412 
Operating lease right-of-use assets  45,836   47,885 
Other assets  62,191   59,124 
         
Total assets $6,134,835   5,901,796 
         
LIABILITIES:        
Deposits:        
Demand $790,663   652,756 
Interest-bearing checking  1,148,593   1,086,558 
Savings accounts  1,433,130   1,285,501 
Money market deposit accounts  744,051   716,005 
Time deposits  1,124,581   1,296,373 
Total deposits  5,241,018   5,037,193 
         
Short-term borrowings  230,770   214,755 
Operating lease liabilities  50,515   52,784 
Accrued expenses and other liabilities  25,849   28,903 
         
Total liabilities  5,548,152   5,333,635 
         
SHAREHOLDERS' EQUITY:        
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  339,554   313,974 
Accumulated other comprehensive income, net of tax  7,304   11,936 
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  586,683   568,161 
         
Total liabilities and shareholders' equity $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.
 March 31, 2022  December 31, 2021 
ASSETS:      
       
Cash and due from banks $47,526   48,357 
Federal funds sold and other short term investments  1,225,022   1,171,113 
Total cash and cash equivalents  1,272,548   1,219,470 
         
Securities available for sale  408,991   407,713 
         
Held to maturity securities ($9,550 and $10,695 fair value at March 31, 2022 and December 31, 2021, respectively)
  9,183   9,923 
         
Federal Reserve Bank and Federal Home Loan Bank stock  5,604   5,604 
Loans, net of deferred net costs  4,464,354   4,438,779 
Less:        
Allowance for credit losses on loans
  46,178   44,267 
Net loans  4,418,176   4,394,512 
         
Bank premises and equipment, net  32,644   33,027 
Operating lease right-of-use assets  48,569   48,090 
Other assets  86,158   78,207 
         
Total assets $6,281,873   6,196,546 
         
LIABILITIES:        
Deposits:        
Demand $835,281   794,878 
Interest-bearing checking  1,225,093   1,191,304 
Savings accounts  1,553,152   1,504,554 
Money market deposit accounts  796,275   782,079 
Time deposits  940,215   995,314 
Total deposits  5,350,016   5,268,129 
         
Short-term borrowings  248,371   244,686 
Operating lease liabilities  53,094   52,720 
Accrued expenses and other liabilities  37,497   29,883 
         
Total liabilities  5,688,978   5,595,418 
         
SHAREHOLDERS’ EQUITY:        
Capital stock par value $1; 30,000,000 shares authorized;  20,045,684 shares issued at March 31, 2022 and December 31, 2021 and 19,201,875 and 19,219,989 shares outstanding at March 31, 2022 and December 31, 2021, respectively
  20,046   20,046 
Surplus
  256,661   256,661 
Undivided profits  355,948   349,056 
Accumulated other comprehensive (loss) income, net of tax  (2,369)  12,147 
Treasury stock at cost - 843,809 and 825,695 shares at March 31, 2022 and December 31, 2021, respectively
  (37,391)  (36,782)
         
Total shareholders’ equity  592,895   601,128 
         
Total liabilities and shareholders’ equity $6,281,873   6,196,546 

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 (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 
 
Capital
Stock (1)
  
Surplus (1)
  
Undivided
Profits
  
Accumulated
Other
Comprehensive
Income
  
Treasury
Stock
  Total 
                   
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               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 
                         
Beginning balance, January 1, 2022 $20,046   256,661   349,056   12,147   (36,782)  601,128 
Cumulative impact of adoption of ASU 2016-13          (3,470)          (3,470)
Balance, January 1, 2022 as adjusted for impact of adoption of ASU 2016-13  20,046   256,661   345,586   12,147   (36,782)  597,658 
Net income  0   0   17,089   0   0   17,089 
Other comprehensive loss, net of tax  0   0   0   (14,516)  0   (14,516)
Cash dividend declared, $0.35 per share
  0   0   (6,727)  0   0   (6,727)
Purchase of treasury stock 18,114 shares
  0   0   0   0   (609)  (609)
                         
Ending balance, March 31, 2022
 $20,046  $
256,661  $
355,948  $
(2,369) $
(37,391) $
592,895 

(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,  Three months ended March 31, 
 2021  2020  2022  2021 
            
Cash flows from operating activities:            
Net income $45,278   38,638  $17,089   14,083 
                
Adjustments to reconcile net income to net cash provided by operating activities:                
Depreciation  3,184   3,003   1,024   1,063 
Amortization of right-of-use asset  4,745   4,588   1,608   1,573 
Net gain on sale of other real estate owned  (86)  (332)  (73)  0 
Writedown of other real estate owned  121   120   0   121 
(Credit) provision for loan losses  (2,450)  5,000 
Deferred tax benefit  (1,247)  (1,199)
(Credit) provision for credit losses  (200)  350 
Deferred tax expense  744   1,152 
Net amortization of securities  3,113   2,703   697   1,081 
Stock based compensation expense  0   14 
Net gain on sales of securities  0   (1,155)
(Increase) decrease in taxes receivable  (463)  570 
Decrease (increase) in interest receivable  673   (180)
Net gain on sale of bank premises and equipment
  (314)  (4)
Decrease in taxes receivable  489   101 
Decrease in interest receivable  202   392 
Decrease in interest payable  (249)  (682)  (32)  (164)
Increase in other assets  (1,442)  (1,201)  (2,601)  (3,160)
Decrease in operating lease liabilities  (4,965)  (4,715)  (1,713)  (1,637)
(Decrease) increase in accrued expenses and other liabilities  (2,106)  2,734 
Decrease in accrued expenses and other liabilities  (5,943)  (6,221)
Total adjustments  (1,172)  9,268   (6,112)  (5,353)
Net cash provided by operating activities  44,106   47,906   10,977   8,730 
                
Cash flows from investing activities:                
Proceeds from sales, paydowns and calls of securities available for sale  123,550   226,886   17,923   36,820 
Proceeds from calls and maturities of held to maturity securities  3,028   3,398 
Proceeds from paydowns of held to maturity securities  716   1,061 
Purchases of securities available for sale  (136,543)  (103,991)  (34,097)  (132,456)
Proceeds from maturities of securities available for sale  8,555   5,000   5,000   55 
Purchases of Federal Reserve Bank and Federal Home Loan Bank stock  (98)  (380)
Proceeds from redemption of Federal Reserve Bank stock  0   4,057 
Net increase in loans  (152,314)  (152,987)  (25,516)  (24,656)
Proceeds from dispositions of other real estate owned  255   1,802   166   0 
Proceeds from dispositions of bank premises and equipment  6   0   469   4 
Purchases of bank premises and equipment  (2,011)  (2,798)  (796)  (663)
Net cash used in investing activities  (155,572)  (19,013)  (36,135)  (119,835)
                
Cash flows from financing activities:                
Net increase in deposits  203,825   449,034   81,887   135,729 
Net increase in short-term borrowings  16,015   44,789   3,685   15,195 
Proceeds from exercise of stock options  160   0   0   71 
Cash used to settle fractional shares in the Reverse Stock Split  (200)  0 
Purchases of treasury stock  (2,386)  (3,493)  (609)  (45)
Dividends paid  (19,708)  (19,750)  (6,727)  (6,571)
Net cash provided by financing activities  197,706   470,580   78,236   144,379 
Net increase in cash and cash equivalents  86,240   499,473   53,078   33,274 
Cash and cash equivalents at beginning of period  1,107,099   456,846   1,219,470   1,107,099 
Cash and cash equivalents at end of period $1,193,339  $956,319  $1,272,548   1,140,373 
                
Supplemental Disclosure of Cash Flow Information:                
Cash paid during the year for:                
Interest paid $6,345   21,451  $1,226   2,552 
Income taxes paid  15,430   12,274   5,090   4,661 
Other non cash items:                
Transfer of loans to other real estate owned  260   434 
(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   (19,225)  (6,018)
Change in deferred tax effect on unrealized loss (gain) on securities available for sale  1,534   (2,660)  4,974   1,557 
Amortization of net actuarial gain and prior service cost (credit) on pension and postretirement plans  (307)  (678)  (358)  (280)
Change in deferred tax effect of amortization of net actuarial gain postretirement benefit plans  80   177   93   73 
Security purchase settled in subsequent period
  (10,000)  0 
Impact to retained earnings from adoption of ASC 326, net of tax  (3,470)  0 

See accompanying notes to unaudited consolidated interim financial statements.

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(1) Financial Statement Presentation

The unaudited Consolidated Interim Financial Statements of TrustCo Bank Corp NY (the “Company” or “TrustCo”) include the accounts of the Company’s subsidiary, Trustco Bank (also referred to as the “Bank”) and other subsidiaries after elimination of all significant intercompany accounts and transactions.  Prior period amounts are reclassified when necessary to conform to the current period presentation.  The net income reported for the three and nine months ended September 30, 2021March 31, 2022 is not necessarily indicative of the results that may be expected for the year ending December 31, 2021,2022, 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, 2021,March 31, 2022, the results of operations for the threeandnine months ended September 30, 2021 and 2020, and the cash flows for the ninethree months ended September 30, 2021March 31, 2022 and 2020.2021.  The accompanying unaudited Consolidated Interim Financial Statements should be read in conjunction with the Company’s year-end auditedyear‑end Consolidated Financial Statements, including notes thereto, which are included in the Company’s Annual Report on Form 10-K10‑K for the year ended December 31, 2020.2021.  The accompanying unaudited Consolidated Interim Financial Statements have been prepared in accordance with the instructions to Form 10-Q10‑Q and, therefore, do not include all information and notes necessary for a complete presentation of financial position, results of operations and cash flow activity required in accordance with accounting principles generally accepted in the United States.


Effective asThe accounting policies ofMay 28, 2021, the Company, completed a 1-for-5 reverse stock split (the “Reverse Stock Split”as applied in the Consolidated Interim Financial Statements presented herein, are substantially the same as those followed on an annual basis in the Annual Report on Form 10-K for the year ended December 31, 2021 filed with the Securities and Exchange Commission (“SEC”) on February 25, 2022 except as noted below. The accounting policies 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 madeCompany effective for the comparative periods presented prior to the Company’s issuedadoption of ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326) are presented on the Form 10-K referenced above.



Recently Adopted Accounting Standards



On January 1, 2022, the Company adopted ASU 2016-13, “Financial Instruments - Credit Losses” (referred to as “CECL” and outstanding common stockas Accounting Standards Codification Topic 326 (“ASC 326”)) 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 enhanced financial disclosures for 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 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.  The allowance for credit losses on loans is a valuation account that is deducted from, or added to, the exercise price and numberloans’ amortized cost basis to present the net, lifetime amount expected to be collected on the loans. The measurement of shares issuable upon exercise of the options outstandingexpected credit losses under the Company’s equity incentive plans,CECL methodology applies to financial assets measured at amortized cost including loan receivables and held-to-maturity debt securities.   The update additionally applies to off-balance sheet exposures not accounted for as insurance (Loan commitments, standby letters of credit, financial guarantees and other similar instruments).  In addition, CECL made changes to the number of shares subjectaccounting for available for sale securities. Once such change is 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 hereinrequire credit losses to common stock and per share databe presented as an allowance rather than as a write-down on available for all periods presented in these unaudited consolidated interim financial statements and notes thereto, have been retrospectively adjustedsale debt securities that management does not intend to reflect the Reverse Stock Split.
sell or believes that it is more likely than not they will be required to sell.


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As previously disclosed, the Company assembled a cross-functional working group that met regularly to oversee the implementation plan for CECL which included the assessment and documentation of the processes and internal controls, model development and documentation, assessing existing loan and loss data, assessing models for default and loss estimates and conducting parallel runs and reviews through January 1, 2022.



The Company adopted CECL using the modified retrospective method for all financial assets measured at amortized cost and off-balance-sheet (“OBS”) credit exposures. Results for reporting periods beginning after January 1, 2022 are presented under CECL while prior period amounts continue to be reported in accordance with previous applicable GAAP. On the adoption date, the Company increased the allowance for credit losses on loans by $2.4 million and increased the allowance for credit losses for unfunded commitments by $2.3 million (included in Accrued expenses and other liabilities). The Company recorded a net decrease to undivided profits of $3.5 million, net of $1.2 million in deferred tax balances as of January 1, 2022 for the cumulative effect of adopting CECL.



The Company did 0t record an allowance for credit losses as of January 1, 2022 on its securities available for sale or held to maturity.



The impact of the January 1, 2022 adoption entry is summarized in the table below:

(in thousands)
 
December 31,
2021 Pre-CECL
Adoption
  Impact of Adoption  
January 1, 2022 Post-
CECL Adoption
 
Assets:         
Allowance for credit losses on loans $44,267   2,353  $46,620 
Allowance for credit losses on securities  0   0   0 
Liabilities and shareholders’ equity:            
Other liabilities (ACL unfunded loan commitments)  18   2,335   2,353 
Tax Effect, net  0   (1,218)  0 
Total
  44,285   3,470   48,973 
Undivided Profits  349,056   (3,470)  345,586 


Loans
 

Loans that management has the intent and ability to hold for the near future or until maturity or payoff are reported at amortized cost net of allowance for credit losses on loans. Amortized cost is the principal balance outstanding, net of deferred loan fees and costs. Interest income is accrued on unpaid principal balances.  Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income using the level-yield method without anticipating prepayments.



Interest income of mortgage and commercial loans is discontinued and placed on nonaccrual status at the time the loan is 90 days delinquent unless the loan is well secured and in process of collection. Mortgage loans are charged off at 180 days past due and commercial loans are charged off to the extent principal or interest is deemed uncollectible. In all cases, loans are placed on nonaccrual or charged off at an earlier date if collection of principal or interest is considered doubtful.



All interest accrued but not received for loans placed on nonaccrual is reversed against interest income. Interest received on such loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Under the cost-recovery method, interest income is not recognized until the loan balance is reduced to zero. Under the cash-basis method, interest income is recorded when the payment is received in cash. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought to current and future payments are reasonably assured.


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Accrued Interest Receivable



The Company has made the following elections with regards to accrued interest receivable: the Company will continue to write off accrued interest receivable by reversing interest income; the Company has made the accounting policy election not to measure an allowance for credit losses for accrued interest receivables; and the Company elected to exclude accrued interest receivable balances from tabular disclosures and will present accrued interest receivable balances in other assets.



Allowance for Credit Losses on Loans



The allowance for credit losses on loans (“ACLL”) is a valuation account that is deducted from or added to the loans’ amortized cost basis to present the net amount expected to be collected on the loans. Loan are charged off against the allowance when management believes the uncollectibility of the loan balance is confirmed. Expected recoveries are not to exceed the aggregate of amounts previously charged-off and expected to be charged-off.



The Company has elected the Discounted Cash Flow (“DCF”) methodology to determine its ACLL. Management estimates the allowance for credit loss on loans balance using relevant available information from internal and external sources related to past events, current conditions, and a reasonable and supportable forecast provided by a third party. The Company lends in the geographic territory of its branch locations in New York, Florida, Massachusetts, New Jersey and Vermont. Although the loan portfolio is diversified, a portion of its debtors’ ability to repay depends significantly on the economic conditions prevailing in the respective geographic territory. Historical credit loss experience provides the basis for the estimation of expected credit losses. Considerations are made for changes in underwriting standards, portfolio mix, delinquency levels, or economic conditions such as changes in the unemployment rates, property values, and gross metro product to make adjustments to historical loss information. Management judgment is required at each point in the measurement process.



Management utilized the historical loss rate experience on its own loan portfolio as the initial basis of the estimate using probability of default (“PD”) and loss given defaults (“LGD”) derived from September 30, 2011 to January 1, 2022.  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.



Management utilizes externally developed economic forecasts (Moody’s forecast scenarios) of unemployment rates within the key metropolitan areas in New York and Florida of which we serve to forecast probability of defaults and loss given defaults within the model.  Management has determined that a  reasonable and supportable forecast is 8 quarters after which the historical average probability defaults and loss given defaults will be used. The 2 economic scenarios evaluated by management in detail were the Baseline and Stagflation forecast scenarios. Within both scenarios, Management considered the following:


Unemployment levels in relation to inflationary pressures;
Monetary and fiscal policy assumptions and movement of the federal funds rate in 2022;
Supply chain conditions and their impacts on Consumer Price indices (“CPI”), and
Inflationary pressures on housing, and Gross Metro Product (“GMP”).


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In determining the appropriate forecast to utilize, management considered the range of forecasted unemployment as well as a number of other economic indicators. Unemployment levels in the Baseline continued to be optimistic while not providing what management determined to be a full reflection of supply chain, workforce challenges, and inflationary pressures. The rising inflation, volatility in consumer confidence, supply chain, and workforce environment challenges, as well as monetary and geopolitical environmental considerations, drove management to elect the Stagflation forecast scenario.



As of January 1, 2022, the Company has elected to utilize the Stagflation forecast scenario with 100% weighting, due to the forecast more appropriately considering inflationary pressures being observed currently and prospectively in the markets we serve. This scenario also takes into the account the relative impacts to unemployment, CPI, GMP and housing. The ACLL reserve is then complimented with qualitative factors based upon regulatory, competition, regional market conditions, legal, and technical environment. Other macroeconomic conditions such as GMP, CPI, and Housing prices and their related forecasts for the respective metropolitan regions of New York and Florida, were qualitatively factored into the calculation using the Stagflation forecast scenario over the 8 quarter forecast period.



The effective interest rate  used to discount expected cash flows considered the timing of the expected cash flows resulting from prepayments that existed as of January 1, 2022. The prepayment-adjusted effective interest rate uses the original contractual rate and prepayment assumptions as of January 1, 2022.



The Company determined a contractual term excluding expected extensions, renewals and modifications. Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments when appropriate.



The Company determined its allowance for credit losses on loans using a pool of assets with similar risk characteristics. The company evaluates its risk characteristics based on regulatory call report codes where it was determined that the loans within the call codes were homogenous in nature and could be aggregated into the main categories for the Company portfolio. There were no changes to the loan pools under CECL for January 1, 2022 compared to previously disclosed loan segments. Loans that no longer match the risk profile of the pool are individually assessed for credit losses, which are commercial nonaccrual loans and loans identified as troubled debt restructuring (“TDR”). The individual assessment for credit impairment is generally based on a discounted cash flow approach unless the asset is collateral dependent. The loan is considered collateral dependent when repayment is expected to be provided substantially through the operation or sale of the collateral and the borrower is experiencing financial difficulty. Collateral dependent loans are individually assessed and the expected credit loss is based on the fair value of the collateral.



A loan for which terms have been modified resulting in a concession, and for which the borrower is experiencing financial difficulties is considered a TDR. In situations where the Bank considers a loan modification, management determines whether the borrower is experiencing financial difficulty by performing an evaluation of the probability that the borrower will be in payment default on any of its debt in the near 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, even though there is no modification of terms, the borrowers’ debt to the Company was discharged and they may not reaffirm the debt.



The TDR that subsequently defaulted described above have the underlying collateral evaluated at the time these loans were identified as TDRs, and a charge‑off was taken at that time, if necessary.  Collateral values on these loans are reviewed for collateral sufficiency on a quarterly basis.


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Allowance for Credit Losses on Off-Balance Sheet Credit Exposures



The Company estimates credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. The allowance for credit losses on off-balance sheet credit exposures is adjusted as a provision for credit loss expense. The estimate includes consideration that funding will occur and an estimate of expected credit losses on commitments is expected to be funded over its estimated life. The Company lends in the geographic territory of its branch locations in New York, Florida, Massachusetts, New Jersey and Vermont. Although the loan portfolio is diversified, a portion of its debtors’ ability to repay depends significantly on the economic conditions prevailing in the respective geographic territory.   The following categories of off-balance sheet credit exposures have been identified: unfunded commitments to extend credit, unfunded lines of credit, residential mortgage pending closings and standby letters of credit. Each of these unfunded commitments is analyzed for a probability of funding to calculate a probable funding amount. The life of loan loss factor by related portfolio segment from the allowance for credit losses on loans calculation is then applied to the probable funding amount to calculate the estimated credit losses on off-balance sheet credit exposures recognized in other liabilities.  The post adoption balance of $2.3 million is included with Accrued expenses and other liabilities on consolidated statements of financial condition. Prospective changes in the reserve will be recorded through the provision for credit losses on the consolidated statements of income.



Debt Securities



Debt securities are classified as held to maturity and carried at amortized cost when management has the positive intent and ability to hold them to maturity. Debt securities are classified as available-for-sale when they might be sold before maturity. Securities available for sale are carried at fair value, with unrealized holding gains and losses reported in other comprehensive income, net of tax. There were 0 debt securities for which other-than-temporary impairment had been recognized prior to January 1, 2022. Interest income includes amortization of purchase premium or discount. Premiums and discounts on securities are generally amortized on the level-yield method without anticipating prepayments. Premiums on callable debt securities are amortized to their earlier call date. Discounts are amortized to maturity date. Gains and losses are recorded on the trade date and determined using the specific identification method.



A debt security is placed on nonaccrual status at the time any principal or interest payments become 90 days delinquent. Interest accrued but not received for a security placed on non-accrual is reversed against interest income. Timely principal and interest payments continue to be made on the securities. The unrealized losses in the portfolio are primarily attributable to changes in interest rates.



Allowance for Credit Losses – Held to Maturity Securities



The Company’s held to maturity securities are issued by U.S. government entities and agencies such as Ginnie Mae, Fannie Mae, and Freddie Mac. These securities are either explicitly or implicitly guaranteed by the U.S. government and are highly rated by major rating agencies and have a long history of no credit losses. Management measures expected credit losses on held to maturity debt securities on a collective basis by major security type, issuer and payment stream. The estimate of expected credit losses considers historical credit loss information adjusted for current conditions and reasonable and supportable forecasts provided by a third party servicer. Based on the nature of the securities held by the Company and the underlying guarantees, there was 0 allowance for credit losses recorded for held to maturity securities as of January 1, 2022.


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Accrued interest receivable on held to maturity securities totaled $40 thousand and is excluded from the estimate of credit losses. Historically the Company has not experienced uncollectible accrued interest receivable on held-to-maturity securities portfolio.



Allowance for Credit Losses – Available For Sale Securities



For available for sale debit securities in an unrealized loss position, the entity first assesses whether it intends to sell, or if it is more likely that not that it will be required to sell the security before recovery of its amortized cost basis. If either criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For debt securities available for sale that do not meet the aforementioned criteria, in making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency and any adverse conditions specifically related to the security and its issuer, among other factors. If the present value of the cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recorded through other comprehensive income.



Change in the allowance for credit losses is recorded as a provision for credit loss expense. Losses are charged against the allowance when management believes the uncollectibility of an available for sale security is confirmed or when either criteria regarding the intent or requirement to sell is met.



The unrealized losses reported pertaining to securities issued by the U.S. government and its sponsored entities, include agencies, and mortgage backed securities issued by Ginnie Mae, Fannie Mae, and Freddie Mac, which are currently well rated and guaranteed by the U.S. government. The Company does not intend to sell the securities, and it is not considered likely the Company will be required to sell these securities prior to recovery of the amortized cost. Timely principal and interest payments continue to be made on the securities. The unrealized losses in the portfolio are primarily attributable to changes in interest rates. Management does not believe any individual unrealized loss as of January 1, 2022 represents any credit loss and no realized losses have been recognized into provision for credit loss.

(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”).

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A reconciliation of the component parts of earnings per share for the three and nine months ended September 30,March 31, 2022 and 2021 and 2020 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
March 31,
 
 2021  2020  2021  2020 
             2022  2021 
Net income $16,762   14,071  $45,278   38,638  $17,089  
14,083 
Weighted average common shares (1)  19,249   19,287   19,272   19,306   19,209   19,287 
Stock Options (1)  3   1   6   2   1   6 
Weighted average common shares including potential dilutive shares (1)  19,252   19,288   19,278   19,308   19,210   19,293 
                        
Basic EPS (1) $0.871   0.730  $2.349   2.002  $0.890  
0.730 
                        
Diluted EPS (1) $0.871   0.730  $2.349   2.001  $0.890  
0.730 

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

For both the three and nine months, ended September 30,March 31, 2022 and 2021 there were approximately 60 thousand weighted average antidilutiveanti-dilutive stock options excluded from dilutive earnings. For the three and nine months ended September 30, 2020 the weighted average antidilutive stock options excluded from dilutivediluted earnings were approximately 90 thousand shares.per share. 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 and have been adjusted to reflect the Reverse Stock Split.
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presented.

(3) Benefit Plans

The table below outlines the components of the Company’s net periodic benefit recognized during the three and nine months ended September 30,March 31, 2022 and 2021 and 2020 for its pension and other postretirement benefit plans:
plans:

 
Three months ended September 30,
 
 Pension Benefits  Other Postretirement Benefits 
(dollars in thousands) 2021  2020  2021  2020 

            
Service (credit) cost $0   9   9   15 
Interest cost  214   269   60   40 
Expected return on plan assets  (712)  (755)  (274)  (296)
Amortization of net loss (gain)  0   (5)  (137)  (217)
Amortization of prior service cost (credit)  0   0   177   (49)
Net periodic benefit $(498)  (482)  (165)  (507)

 
Nine months ended September 30,
  
Three months ended March 31,
 
 Pension Benefits  Other Postretirement Benefits  Pension Benefits  Other Postretirement Benefits 
(dollars in thousands) 2021  2020  2021  2020  2022  2021  2022  2021 
                        
Service cost $0   28   57   55  $0   11   18   22 
Interest cost  642   807   143   152   223   216   52   44 
Expected return on plan assets  (2,135)  (2,265)  (891)  (887)  (817)  (761)  (333)  (327)
Amortization of net loss (gain)  0   0   (534)  (531)
Amortization of prior service cost (credit)  0   0   227   (147)
Amortization of net gain  0   0   (78)  (228)
Amortization of prior service credit  0   0   (280)  (52)
Net periodic benefit $(1,493)  (1,430)  (998)  (1,358) $(594)  (534)  (621)  (541)

The Company does not expect to make contributionscontribute to its pension and postretirement benefit plans in 2021.2022.  As of September 30, 2021,March 31, 2022, 0 contributions have been made,made; however, this decision is reviewed each quarter and is subject to change based upon market conditions.

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

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(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, 2021
  
March 31, 2022
 
(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 $59,974   0   225   59,749  $64,978   0   2,919   62,059 
State and political subdivisions  48   0   0   48   41   0   0   41 
Mortgage backed securities and collateralized mortgage obligations - residential  290,508   5,095   2,018   293,585   257,248   80   13,283   244,045 
Corporate bonds  45,914   327   326   45,915   76,086   49   2,046   74,089 
Small Business Administration - guaranteed participation securities  33,650   919   0   34,569   29,181   0   1,095   28,086 
Other  686   0   0   686   686   0   15   671 
Total Securities Available for Sale $430,780   6,341   2,569   434,552  $428,220   129   19,358   408,991 

 
December 31, 2020
 
(dollars in thousands) 
Amortized
Cost
  
Gross
Unrealized
Gains
  
Gross
Unrealized
Losses
  
Fair
Value
 
             
U.S. government sponsored enterprises $20,000   0   32   19,968 
State and political subdivisions  103   0   0   103 
Mortgage backed securities and collateralized mortgage obligations - residential  308,432   7,749   23   316,158 
Corporate bonds  59,185   916   162   59,939 
Small Business Administration - guaranteed participation securities  40,955   1,262   0   42,217 
Other  685   1   0   686 
                 
Total securities available for sale $429,360   9,928   217   439,071 

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December 31, 2021
 
(dollars in thousands) 
Amortized
Cost
  
Gross
Unrealized
Gains
  
Gross
Unrealized
Losses
  
Fair
Value
 
             
U.S. government sponsored enterprises $59,976   0   797   59,179 
State and political subdivisions  41   0   0   41 
Mortgage backed securities and collateralized mortgage obligations - residential  269,907   3,367   2,476   270,798 
Corporate bonds  45,805   157   625   45,337 
Small Business Administration - guaranteed participation securities  31,303   371   0   31,674 
Other  685   0   1   684 
Total securities available for sale $407,717   3,895   3,899   407,713 

The following table distributes the debt securities included in the available for sale portfolio as of September 30, 2021March 31, 2022, 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 $15,667   15,954  $10,071   10,120 
Due in one year through five years  90,946   90,435   131,720   126,740 
Due after five years through ten years  9   9   0   0 
Mortgage backed securities and collateralized mortgage obligations - residential  290,508   293,585   257,248   244,045 
Small Business Administration - guaranteed participation securities  33,650   34,569   29,181   28,086 
 $430,780   434,552  $428,220   408,991 


15
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, 2021
  
March 31, 2022
 
 
Less than
12 months
  
12 months
or more
  Total  
Less than
12 months
  
12 months
or more
  Total 
(dollars in thousands) 
Fair
Value
  
Gross
Unrealized
Loss
  
Fair
Value
  
Gross
Unrealized
Loss
  
Fair
Value
  
Gross
Unrealized
Loss
  
Fair
Value
  
Gross
Unrealized
Loss
  
Fair
Value
  
Gross
Unrealized
Loss
  
Fair
Value
  
Gross
Unreal.
Loss
 
                                    
U.S. government sponsored enterprises $49,760   214   9,989   11   59,749   225  $23,723 �� 1,264   38,336   1,655   62,059   2,919 
Mortgage backed securities and collateralized mortgage obligations - residential  94,466   1,910   6,361   108   100,827   2,018   160,318   5,999   73,797   7,284   234,115   13,283 
Corporate bonds  5,345   8   14,682   318   20,027   326   49,993   1,115   14,070   931   64,063   2,046 
Small Business Administration - guaranteed
participation securities
  28,086   1,095   0   0   28,086   1,095 
Other
  585   15   0   0   585   15 
                                                
Total $149,571   2,132   31,032   437   180,603   2,569  $262,705   9,488   126,203   9,870   388,908   19,358 

 
December 31, 2020
  
December 31, 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
Unrealized
Loss
  
Fair
Value
  
Gross
Unrealized
Loss
  
Fair
Value
  
Gross
Unrealized
Loss
  
Fair
Value
  
Gross
Unrealized
Loss
  
Fair
Value
  
Gross
Unrealized
Loss
  
Fair
Value
  
Gross
Unreal.
Loss
 
                                    
U.S. government sponsored enterprises $19,968   32   0   0   19,968   32  $49,279   697   9,900   100   59,179   797 
Mortgage backed securities and collateralized mortgage obligations - residential  19,471   22   0   0   19,471   22   93,447   1,888   22,098   588   115,545   2,476 
Corporate bonds  14,901   99   4,937   63   19,838   162   15,670   171   14,546   454   30,216   625 
Other
  648    1
   0
    0
   648
   1
 
                                                
Total $54,340   153   4,937   63   59,277   216  $159,044   2,757   46,544   1,142   205,588   3,899 

There were 0 allowance for credit losses recorded for securities available for sale during the three months ended March 31, 2022.
12
Index
The proceeds from sales and calls and maturities of securities available for sale, gross realized gains and gross realized losses from sales and calls during the three and nine months ended September 30,March 31, 2022 and 2021 and 2020 are as follows:

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

 Nine months ended September 30,  Three months ended March 31, 
(dollars in thousands) 2021  2020  2022  2021 
            
Proceeds from sales $0  $29,219  $0  
0 
Proceeds from calls/paydowns  123,550   197,667   17,923   36,820 
Proceeds from maturities  8,555   5,000   5,000   55 
Gross realized gains  0   1,155   0   0 
Gross realized losses  0   0   0   0 

There were 0 transfers of securities available for sale during the three and nine months ended September 30, 2021 and 2020.
16
Index
(b) Held to maturity securities

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

 
September 30, 2021
  
March 31, 2022
 
(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 $10,701   945   0   11,646  $9,183   383   16   9,550 
                                
Total held to maturity $10,701   945   0   11,646  $9,183   383   16   9,550 

 
December 31, 2020
  
December 31, 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 $13,824   1,164   0   14,988  $9,923   773   1   10,695 
                                
Total held to maturity $13,824   1,164   0   14,988  $9,923   773   1   10,695 

13
Index
The following table distributes the debt securities included in the held to maturity portfolio as of September 30, 2021,March 31, 2022, 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 $10,701   11,646  $9,183   9,550 
 $10,701   11,646  $9,183   9,550 

All held to maturity securities are held at cost on the financial statements.  There were 0 gross unrecognized losses onAs of March 31, 2022 and December 31, 2021 held to maturity securities aswith a fair value of September 30, 2021$2.6 million and December 31, 2020.$442 thousand had an unrecognized loss of less than 12 months of $16 thousand and 1 thousand, respectively.

There were 0 sales or transfers of held to maturity securities during the three months ended September 30, 2021March 31, 2022 and 2020.2021.

There were 0 allowance for credit losses recorded for held to maturity securities during the three months ended March 31, 2022. There were 0 securities on non-accrual status and all securities were performing in accordance with contractual terms.

(c) Other-Than-Temporary Impairment

Debt Securities
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‑other‑than‑temporary decline exists involves a high degree of subjectivity and judgment and is based on the information available to management at a point in time.

17
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.earnings through the provision for credit losses.  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.

The Company does not intend to sell nor does it anticipate that it will be required to sell any of its securities in an unrealized loss position as of March 31, 2022. The Company’s ability and intent to hold these securities until recovery is supported by the Company’s strong capital and liquidity positions as well as it’s historically low turnover in the portfolio.
14
Index
As of September 30, 2021,March 31, 2022, the Company’s securitysecurities portfolio included certain securities, which were in an unrealized loss position, and are discussed below.

U.S. government sponsored enterprises:  Unrealized In the case of unrealized losses on U.S. government sponsored enterprises, arebecause the decline in fair value is attributable to changes in interest rates, and not credit quality. Becausequality, and because the Company does not have the intent to sell these securities and it is likely that it will not be required to sell the securities before their anticipated recovery, the Company does not consider these securities to be other-than-temporarily impaired at September 30, 2021.March 31, 2022.

Mortgage backed securities and collateralized mortgage obligations – residential:  At September 30, 2021,March 31, 2022, 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.  TheBecause the decline in fair value is attributable to changes in interest rates, and not credit quality. Becausequality, and because the Company does not have the intent to sell these securities and it is likely that it will not be required to sell the securities before their anticipated recovery, the Company does not consider these securities to be other‑than‑temporarily impaired at September 30, 2021.March 31, 2022.

Corporate Bonds:Bonds & Other:  At September 30, 2021,March 31, 2022, corporate and other bonds held by the Company are investment grade quality.  TheBecause the decline in fair value is attributable to changes in interest rates, and not credit quality. Thequality, and because the Company does not have the intent to sell these securities and it is likely that it will not be required to sell the securities before their anticipated recovery, the Company does not consider these securities to be other-than-temporarily impaired at March 31, 2022.

Small Business Administration (SBA) - guaranteed participation securities:  At March 31, 2022, all of the SBA securities held by the Company were issued and guaranteed by U.S. Small Business Administration.  Because the decline in fair value is attributable to changes in interest rates, and not credit quality, and because the Company does not have the intent to sell these securities and it is likely that it will not be required to sell the securities before their anticipated recovery, the Company does not consider these securities to be other-than-temporarily impaired at September 30, 2021.March 31, 2022.

1518
Index
(5) LoansLoan Portfolio and Allowance for LoanCredit Losses

Upon adoption of CECL, management pooled loans with similar risk characteristics. The portfolio segment is defined as the level at which an entity develops and documents a systematic methodology to determine its allowance for credit losses on loans.

The followingFollowing table presents the recorded investment in loans by loan class:portfolio segment:

  September 30, 2021 
(dollars in thousands) 
New York and
other states*
  Florida  Total 
Commercial:         
Commercial real estate $147,557   20,512   168,069 
Other  36,078   532   36,610 
Real estate mortgage - 1 to 4 family:            
First mortgages  2,698,870   1,189,086   3,887,956 
Home equity loans  49,492   13,837   63,329 
Home equity lines of credit  177,240   54,074   231,314 
Installment  7,378   2,073   9,451 
Total loans, net $3,116,615   1,280,114   4,396,729 
Less: Allowance for loan losses          47,350 
Net loans         $4,349,379 

  December 31, 2020 
(dollars in thousands) 
New York and
other states*
  Florida  Total 
Commercial:         
Commercial real estate $148,775   18,666   167,441 
Other  44,932   119   45,051 
Real estate mortgage - 1 to 4 family:            
First mortgages  2,606,781   1,098,915   3,705,696 
Home equity loans  59,400   15,071   74,471 
Home equity lines of credit  193,654   48,540   242,194 
Installment  7,810   1,807   9,617 
Total loans, net $3,061,352   1,183,118   4,244,470 
Less: Allowance for loan losses          49,595 
Net loans         $4,194,875 

* Includes New York, New Jersey, Vermont and Massachusetts.
  March 31, 2022 
(dollars in thousands) 
New York and
other states*
  Florida  Total 
Commercial:         
Commercial real estate $147,295   23,935   171,230 
Other  20,198   980   21,178 
Real estate mortgage - 1 to 4 family:            
First mortgages  2,729,257   1,236,705   3,965,962 
Home equity loans  47,043   13,429   60,472 
Home equity lines of credit  172,854   63,263   236,117 
Installment  7,269   2,126   9,395 
Total loans, net $3,123,916   1,340,438   4,464,354 
Less: Allowance for credit losses on loans
          46,178 
Net loans         $4,418,176 

Included in commercial loans above are Paycheck Protection Program (“PPP”) loans totaling $20.5 million and $28.9$3.0 million as of September 30, 2021 and DecemberMarch 31, 2020, respectively.2022.

At September 30, 2021 and DecemberMarch 31, 2020,2022, the Company had approximately $37.7 million and $24.7 $30.4 million of real estate construction loans, respectively.loans. Of the $37.7 $30.4 million in real estate construction loans at September 30, 2021, approximately $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 $24.7 million in real estate construction loans at DecemberMarch 31, 2020,2022, approximately $10.5 million are secured by first mortgages to residential borrowers while approximately $14.2$19.9 million were to commercial borrowers for residential construction projects. The vast majority of construction loans are in the Company’s New York market.

Allowance for credit losses on loans

The level of the ACLL is based on factors that influence management’s current estimate of expected credit losses including past events, current conditions. There were no changes in the Company’s methodology for the allowance for credit losses on loans for the period ended March 31, 2022 compared to adoption date.  Consistent with adoption date, the Company has determined the stagflation forecast scenario to be appropriate for the March 31, 2022 ACLL calculation. The Company selected the stagflation economic forecast for credit losses as management expects that markets will experience a slight decline in economic conditions and a slight increase in the unemployment rate over the next two years.

1619
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.

The following table presents the recorded investmentimpact of the January 1, 2022 adoption entry in non-accrualthe allowance for credit losses on loans by loan class:type:

 
September 30, 2021
 
(dollars in thousands) 
New York and
other states*
  Florida  Total 
Loans in non-accrual status:         
Commercial:         
Commercial real estate $136   0   136 
Other  40   0   40 
Real estate mortgage - 1 to 4 family:            
First mortgages  15,000   1,894   16,894 
Home equity loans  211   45   256 
Home equity lines of credit  2,667   127   2,794 
Installment  32   0   32 
Total non-accrual loans  18,086   2,066   20,152 
Restructured real estate mortgages - 1 to 4 family  19   0   19 
Total nonperforming loans $18,105   2,066   20,171 

(dollars in thousands) 
December 31, 2021
     
January 1, 2022
 

 
Pre-Adoption
Balance
  Impact of Adoption  
Post CECL
Adoption
 
  Total     Total 
Commercial:         
Commercial real estate $3,121  $(1,100) $2,021 
Other  14   114   128 
Real estate mortgage - 1 to 4 family:            
First mortgages  37,249   1,703   38,952 
Home equity loans  583   262   845 
Home equity lines of credit  2,857   1,752   4,609 
Installment  443   (378)  65 
Total Allowance $44,267   2,353  $46,620 
 
December 31, 2020
 
(dollars in thousands) 
New York and
other states*
  Florida  Total 
Loans in non-accrual status:         
Commercial:         
Commercial real estate $372   0   372 
Other  80   0   80 
Real estate mortgage - 1 to 4 family:            
First mortgages  16,637   1,010   17,647 
Home equity loans  80   47   127 
Home equity lines of credit  2,662   130   2,792 
Installment  43   0   43 
Total non-accrual loans  19,874   1,187   21,061 
Restructured real estate mortgages - 1 to 4 family  23   0   23 
Total nonperforming loans $19,897   1,187   21,084 

* Includes New York, New Jersey, Vermont and Massachusetts.
Activity in the allowance for credit losses on loans by portfolio segment is summarized as follows:


 For the three months ended March 31, 2022 
(dollars in thousands) Commercial  
Real Estate
Mortgage-
1 to 4 Family
  Installment  Total 
Balance at beginning of period $3,135   40,689   443   44,267 
Impact of ASU 2016-13, Current Expected Credit Loss (CECL)  (986)  3,717   (378)  2,353 
Balance as of January 1, 2022 as adjusted for ASU 2016-13 $2,149   44,406   65   46,620 
Loans charged off:                
New York and other states*  36   0   10   46 
Florida  0   0   1   1 
Total loan chargeoffs  36   0   11   47 
                 
Recoveries of loans previously charged off:                
New York and other states*  0   97   8   105 
Florida  0   0   0   0 
Total recoveries  0   97   8   105 
Net loans charged off (recoveries)  36   (97)  3   (58)
(Credit) provision for credit losses  64   (572)  8   (500)
Balance at end of period $2,177   43,931   70   46,178 

The Company’s allowance for credit losses on unfunded commitments is recognized as a liability (accrued expenses and other liabilities) with adjustments to the reserve recognized in (credit) provision for credit losses in the consolidated income statement. The Company’s activity in the allowance for credit losses on unfunded commitments for the three months ended March 31, 2022 was as follows:

(In thousands) Total 
Balance at January 1, 2022 $18 
Impact of Adopting CECL  2,335 
Adjusted Balance at January 1, 2022  2,353 
Provision for credit losses  300 
Balance at March 31, 2022 $2,653 

20
Loan Credit Quality
The Company categorizes commercial loans into risk categories based on relevant information about the ability of borrowers to service their debt, such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. On at least an annual basis, the Company’s loan grading process analyzes non-homogeneous loans, such as commercial loans and commercial real estate loans, individually by grading the loans based on credit risk. The loan grades assigned to all loan types are tested by the Company’s internal loan review department in accordance with the Company’s internal loan review policy.

The Company uses the following definitions for classified loans:

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

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

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.

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

For homogeneous loan pools, such as residential mortgages, home equity lines of credit, and installment loans, the Company uses payment status to identify the credit risk in these loan portfolios. Payment status is reviewed on a daily basis by the Bank’s collection area and on a monthly basis with respect to determining the adequacy of the allowance for credit losses on loans. The payment status of these homogeneous pools as of March 31, 2022 is also included in the aging of the past due loans table. Nonperforming loans shown in the table below were loans on nonaccrual status and loans over 90 days past due and accruing.

21
As of March 31, 2022, and based on the most recent analysis performed, the risk category of loans by class of loans, and gross chargeoffs for each loan type by origination year was as follows:

(in thousands) 
March 31, 2022

 

 Term Loans Amortized Cost Basis by Origination Year 
  2022  2021  2020  2019  2018  Prior  
Revolving
Loans
Amortized
Cost Basis
  
Revolving
Loan
Converted to Term
  Total 
Commercial :                           
Risk rating                           
Pass $10,701  $32,756  $24,411  $26,575  $20,900  $46,493  $7,424  $0  $169,260 
Special Mention  0   0   73   0   255   0   0   0   328 
Substandard  0   0   118   0   140   1,384   0   0   1,642 
Total Commercial Loans $10,701  $32,756  $24,602  $26,575  $21,295  $47,877  $7,424  $0  $171,230 
Commercial Loans:                                    
Current-period Gross writeoffs $0  $0  $0  $0  $0  $36  $0  $0  $36 
  $0  $0  $0  $0  $0  $36  $0  $0  $36 
Commercial Other:                                    
Risk rating                                    
Pass $419  $5,931  $3,301  $786  $956  $2,634  $6,705  $0  $20,732 
Special mention  0   320   0   0   0   0   0   0   320 
Substandard  0   25   0   0   0   101   0   0   126 
Total Commercial Real Estate Loans $419  $6,276  $3,301  $786  $956  $2,735  $6,705  $0  $21,178 
                                     
Other Commercial Loans:                                    
Current-period Gross writeoffs $0  $0  $0  $0  $0  $0  $0  $0   0 
  $0  $0  $0  $0  $0  $0  $0  $0  $0 
                                     
Residential First Mortgage:                                    
Risk rating                                    
Performing $142,158  $971,838  $834,631  $392,717  $279,365  $1,328,713  $545  $0  $3,949,967 
Nonperforming  0   0   83   671   422   14,819   0   0   15,995 
Total First Mortgage: $142,158  $971,838  $834,714  $393,388  $279,787  $1,343,532  $545  $0  $3,965,962 
                                     
Residential First Mortgage Loans:                                    
Current-period Gross writeoffs $0  $0  $0  $0  $0  $0  $0  $0   0 
  $0  $0  $0  $0  $0  $0  $0  $0  $0 
                                     
Home Equity Lines:                                    
Risk rating                                    
Performing $2,414  $10,463  $7,431  $8,589  $5,943  $25,324  $0  $0  $60,164 
Nonperforming  0   0   0   0   135   173   0   0   308 
Total Home Equity Lines: $2,414  $10,463  $7,431  $8,589  $6,078  $25,497  $0  $0  $60,472 
                                     
Home Equity Lines Loans:                                    
Current-period Gross writeoffs $0  $0  $0  $0  $0  $0  $0  $0   0 
  $0  $0  $0  $0  $0  $0  $0  $0  $0 
Home Equity Credit Lines:                                    
Risk rating                                    
Performing $221  $721  $492  $100  $70  $19,850  $211,792  $0  $233,246 
Nonperforming  0   0   0   0   0   2,603   268   0   2,871 
Total Home Equity Credit Lines: $221  $721  $492  $100  $70  $22,453  $212,060  $0  $236,117 
                                     
Home Equity Credit Lines Loans:                                    
Current-period Gross writeoffs $0  $0  $0  $0  $0  $0  $0  $0   0 
  $0  $0  $0  $0  $0  $0  $0  $0  $0 
Installments:                                    
Risk rating                                    
Performing $937  $3,409  $1,326  $1,471  $686  $375  $1,150  $0  $9,354 
Nonperforming  0   12   1   27   0   0   1   0   41 
Total Installments $937  $3,421  $1,327  $1,498  $686  $375  $1,151  $0  $9,395 
                                     
Installments Loans:                                    
Current-period Gross writeoffs $0  $0  $5  $5  $0  $1  $0  $0   11 
  $0  $0  $5  $5  $0  $1  $0  $0  $11 

22
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). Other real estate owned is included in Other assets on the Balance Sheet. As of September 30, 2021 and DecemberMarch 31, 2020,2022 other real estate owned included $511 thousand and $541$270 thousand of residential foreclosed properties, respectively.properties. In addition, non-accrual residential mortgage loans that are in the process of foreclosure had a recorded investmentan amortized cost of $11.9$11.7 million and $11.6 million, respectively, as of September 30, 2021 and DecemberMarch 31, 2020.2022.

17
The following tables present the aging of the recorded investmentamortized cost in past due loans by loan class and by region as of September 30, 2021 and DecemberMarch 31, 2020:2022:

The following table presents the aging of the recorded investment in past due loans by loan class and by region:

 
March 31, 2022
 

                  
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   106   123   229   147,066   147,295 
Other  27   0   4   31   20,167   20,198 
Real estate mortgage - 1 to 4 family:                        
First mortgages  2,114   1,209   9,562   12,885   2,716,372   2,729,257 
Home equity loans  19   0   173   192   46,851   47,043 
Home equity lines of credit  727   25   1,187   1,939   170,915   172,854 
Installment  36   24   14   74   7,195   7,269 
                         
Total $2,923   1,364   11,063   15,350   3,108,566   3,123,916 

 
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
 
                   
Commercial:                  
Commercial real estate $241   0   63   304   147,253   147,557 
Other  0   0   40   40   36,038   36,078 
Real estate mortgage - 1 to 4 family:                        
First mortgages  1,802   1,160   10,447   13,409   2,685,461   2,698,870 
Home equity loans  0   0   187   187   49,305   49,492 
Home equity lines of credit  446   25   1,145   1,616   175,624   177,240 
Installment  5   30   0   35   7,343   7,378 
                         
Total $2,494   1,215   11,882   15,591   3,101,024   3,116,615 
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   23,935   23,935 
Other  0   0   0   0   980   980 
Real estate mortgage - 1 to 4 family:                        
First mortgages  623   0   1,552   2,175   1,234,530   1,236,705 
Home equity loans  0   0   44   44   13,385   13,429 
Home equity lines of credit  0   89   0   89   63,174   63,263 
Installment  0   1   0   1   2,125   2,126 
                         
Total $623   90   1,596   2,309   1,338,129   1,340,438 

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   20,512   20,512 
Other  0   0   0   0   532   532 
Real estate mortgage - 1 to 4 family:                        
First mortgages  482   182   1,367   2,031   1,187,055   1,189,086 
Home equity loans  45   0   0   45   13,792   13,837 
Home equity lines of credit  186   0   0   186   53,888   54,074 
Installment  19   0   0   19   2,054   2,073 
                         
Total $732   182   1,367   2,281   1,277,833   1,280,114 
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 $0   106   123   229   171,001   171,230 
Other  27   0   4   31   21,147   21,178 
Real estate mortgage - 1 to 4 family:                        
First mortgages  2,737   1,209   11,114   15,060   3,950,902   3,965,962 
Home equity loans  19   0   217   236   60,236   60,472 
Home equity lines of credit  727   114   1,187   2,028   234,089   236,117 
Installment  36   25   14   75   9,320   9,395 
                         
Total $3,546   1,454   12,659   17,659   4,446,695   4,464,354 

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 $241   0   63   304   167,765   168,069 
Other  0   0   40   40   36,570   36,610 
Real estate mortgage - 1 to 4 family:                        
First mortgages  2,284   1,342   11,814   15,440   3,872,516   3,887,956 
Home equity loans  45   0   187   232   63,097   63,329 
Home equity lines of credit  632   25   1,145   1,802   229,512   231,314 
Installment  24   30   0   54   9,397   9,451 
                         
Total $3,226   1,397   13,249   17,872   4,378,857   4,396,729 

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


1823

 
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, 2021 and DecemberMarch 31, 2020,2022, 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.

19
Activity in the allowanceLoans individually evaluated for loan losses by portfolio segment is summarized as follows:

 
For the three months ended September 30, 2021
 
(dollars in thousands)
 Commercial  
Real Estate
Mortgage-
1 to 4 Family
  Installment  Total 
Balance at beginning of period $4,106   45,617   432   50,155 
Loans charged off:                
New York and other states*  30   72   17   119 
Florida  0   1   0   1 
Total loan chargeoffs  30   73   17   120 
                 
Recoveries of loans previously charged off:                
New York and other states*  0   111   3   114 
Florida  0   1   0   1 
Total recoveries  0   112   3   115 
Net loans charged off (recoveries)
  30   (39)  14   5 
(Credit) provision for loan losses  (823)  (2,003)  26   (2,800)
Balance at end of period $3,253   43,653   444   47,350 

 
For the three months ended September 30, 2020
 
(dollars in thousands)
 Commercial  
Real Estate
Mortgage-
1 to 4 Family
  Installment  Total 
Balance at beginning of period $4,366   43,274   504   48,144 
Loans charged off:                
New York and other states*  0   64   21   85 
Florida  0   0   0   0 
Total loan chargeoffs  0   64   21   85 
                 
Recoveries of loans previously charged off:                
New York and other states*  1   60   3   64 
Florida  0   0   0   0 
Total recoveries  1   60   3   64 
Net loans (recoveries) charged off
  (1)  4   18   21 
(Credit) provision for loan losses  (100)  1,053   47   1,000 
Balance at end of period $4,267   44,323   533   49,123 

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

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 

 
For the 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 

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

The Company has identifiedimpairment are non-accrual commercial and commercial real estate loans, as well as all loans restructured under aclassified as troubled debt restructuring (“TDR”),restructurings. As of March 31, 2022, there was no allowance for credit losses based on the loans individually evaluated for impairment. Residential and installment non-accrual loans which are not TDRs are collectively evaluated to determine the allowance for credit loss.

The following table presents the amortized cost basis in non-accrual loans by portfolio segment:

  
March 31, 2022
 
(dollars in thousands) 
New York and
other states*
  Florida  Total 
Loans in non-accrual status:         
Commercial:         
Commercial real estate $183   0   183 
Other  4   0   4 
Real estate mortgage - 1 to 4 family:            
First mortgages  14,102   1,893   15,995 
Home equity loans  264   44   308 
Home equity lines of credit  2,699   172   2,871 
Installment  33   8   41 
Total non-accrual loans  17,285   2,117   19,402 
Restructured real estate mortgages - 1 to 4 family  16   0   16 
Total nonperforming loans $17,301   2,117   19,418 

The following table presents the amortized cost basis of loans on non-accrual status and loans past due over 89 days still accruing as impaired loans. A loan is considered impaired when it is probable thatof March 31, 2022:

  March 31, 2022 
(dollars in thousands)
 
Non-accrual With
No Allowance for
Credit Loss
  
Non-accrual
With Allowance
For Credit Loss
  
Loans Past Due
Over 89 Days
Still Accruing
 
Commercial:         
Commercial real estate $61  $123  $0 
Other  0   4   0 
Real estate mortgage - 1 to 4 family:            
First mortgages  6,762   9,233   0 
Home equity loans  37   271   0 
Home equity lines of credit  1,030   1,841   0 
Installment  0   41   0 
Total loans, net $7,890  $11,513  $0 

The non-accrual balance of $11.5 million was collectively evaluated and the borrower will be unable to repay the loan according to the original contractual termsassociated allowance for credit losses on loans was not material as of the loan agreement or the loan is restructured as a TDR.March 31, 2022.

2124
The following tables present the balance in the allowance for loancredit losses and the recorded investment inon loans by portfolio segment and based on impairment methodevaluation as of September 30, 2021 and DecemberMarch 31, 2020:2022:

 
September 30, 2021
  
March 31, 2022
 
(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:            
Allowance for credit losses:            
Ending allowance balance attributable to loans:                        
Individually evaluated for impairment $0   0   0   0  $0   0   0   0 
Collectively evaluated for impairment  3,253   43,653   444   47,350   2,177   43,931   70   46,178 
                                
Total ending allowance balance $3,253   43,653   444   47,350  $2,177   43,931   70   46,178 
                                
Loans:                                
Individually evaluated for impairment $521   19,292   0   19,813  $305   17,617   0   17,922 
Collectively evaluated for impairment  204,158   4,163,307   9,451   4,376,916   192,103   4,244,934   9,395   4,446,432 
                                
Total ending loans balance $204,679   4,182,599   9,451   4,396,729  $192,408   4,262,551   9,395   4,464,354 

 
December 31, 2020
 
(dollars in thousands) 
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 
Collectively evaluated for impairment  4,140   44,950   505   49,595 
                 
Total ending allowance balance $4,140   44,950   505   49,595 
                 
Loans:                
Individually evaluated for impairment $1,028   20,553   0   21,581 
Collectively evaluated for impairment  211,464   4,001,808   9,617   4,222,889 
                 
Total ending loans balance $212,492   4,022,361   9,617   4,244,470 

A loan for whichfinancial asset is considered collateral-dependent when the terms have been modified, and for which the borrowerdebtor is experiencing financial difficulties,difficulty and repayment is considered a TDR and is classified as impaired. TDR’s at September 30, 2021 and December 31, 2020expected to be provided substantially through the sale or operation of the collateral. Expected Credit losses for the collateral dependent loans are measured at the present value of estimated future cash flows using the loan’s effective rate at inception orbased on the fair value of the underlying collateral ifat the loan is consideredreporting date, adjusted for selling costs as appropriate. The following table presents the amortized cost basis of individually analyzed collateral dependent loans by portfolio segment as of March 31, 2022:.

22
Index
  Type of Collateral 
(dollars in thousands)    
    

 Real Estate  
Investment
Securities/Cash
  Other 
Commercial:         
Commercial real estate $301   0   0 
Other  4   0   0 
Real estate mortgage - 1 to 4 family:            
First mortgages  15,417   0   0 
Home equity loans  159   0   0 
Home equity lines of credit  2,041   0   0 
Installment  0   0   0 
Total Loans $17,922   0   0 
The following tables present impaired loans by loan class as of September 30, 2021 and December 31, 2020:

 
September 30, 2021
 

            
New York and other states*:

(dollars in thousands)
 
Recorded
Investment
  
Unpaid
Principal
Balance
  
Related
Allowance
  
Average
Recorded
Investment
 
             
Commercial:            
Commercial real estate $388   480   0   1,147 
Other  40   40   0   108 
Real estate mortgage - 1 to 4 family:                
First mortgages  14,261   14,567   0   14,070 
Home equity loans  199   199   0   235 
Home equity lines of credit  2,052   2,192   0   2,255 
                 
Total $16,940   17,478   0   17,815 

Florida:

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

Total:

(dollars in thousands)
 
Recorded
Investment
  
Unpaid
Principal
Balance
  
Related
Allowance
  
Average
Recorded
Investment
 
             
Commercial:            
Commercial real estate $481   573   0   1,252 
Other  40   40   0   108 
Real estate mortgage - 1 to 4 family:                
First mortgages  16,858   17,164   0   16,633 
Home equity loans  199   199   0   250 
Home equity lines of credit  2,235   2,375   0   2,501 
                 
Total $19,813   20,351   0   20,744 

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

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 

Florida:

(dollars in thousands)
 
Recorded
Investment
  
Unpaid
Principal
Balance
  
Related
Allowance
  
Average
Recorded
Investment
 
             
Commercial:            
Commercial real estate $98   98   0   105 
Other  0   0   0   0 
Real estate mortgage - 1 to 4 family:                
First mortgages  2,908   2,908   0   2,555 
Home equity loans  0   0   0   16 
Home equity lines of credit  244   244   0   246 
                 
Total $3,250   3,250   0   2,922 

Total:

(dollars in thousands)
 
Recorded
Investment
  
Unpaid
Principal
Balance
  
Related
Allowance
  
Average
Recorded
Investment
 
             
Commercial:            
Commercial real estate $917   1,041   0   1,291 
Other  111   111   0   103 
Real estate mortgage - 1 to 4 family:                
First mortgages  17,932   18,319   0   16,665 
Home equity loans  219   240   0   251 
Home equity lines of credit  2,402   2,542   0   2,504 
                 
Total $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.TDRs. Interest income recognized on impaired loans that are individually evaluated was not material during the three and nine months ended September 30,March 31, 2022 and 2021 and .2020.

24
As of September 30, 2021 and DecemberMarch 31, 2020 impaired2022 loans individually evaluated included approximately $10.9 million and $11.7 $9.8 million of loans in accruing status that were identified as TDR’s in accordance with regulatory guidance related to Chapter 7 bankruptcy loans, respectively.loans.

Management evaluates impairment on impaired loans on a quarterly basis. If, during this evaluation, impairment of the loan is identified, a charge off is taken at that time. As a result, as of 25September 30, 2021 and December 31, 2020, based upon management’s evaluation and due to the sufficiency of charge offs taken, none of the allowance for loan losses has been allocated to a specific impaired loan(s).
The following table presents, by class, loans that were modified as TDR’s:

 
Three months ended 9/30/2021
  
Three months ended 9/30/2020
 
                   Three months ended March 31, 2022 
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) 
Number of
Contracts
  
Pre-Modification
Outstanding
Recorded
Investment
  
Post-Modification
Outstanding
Recorded
Investment
 
                           
Commercial:                           
Commercial real estate  0  $0   0   1  $126   126   0  $0   0 
Real estate mortgage - 1 to 4 family:                                    
First mortgages  2   557   557   6   1,533   1,533   0   0   0 
Home equity loans  0   0   0   0   0   0   3   370   370 
Home equity lines of credit  1   31   31   1   50   50   0   0   0 
                                    
Total  3  $588   588   8  $1,709   1,709   3  $370   370 

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

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

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.
For the three months ended March 31, 2021 there were no loans that were modified as TDR’s.

The addition of these TDR’s did not have a significant impact on the allowance for loan losses. credit losses on loans. The nature of the modifications that resulted in them being classified as a TDR was the borrower filing for bankruptcy protection. There were no TDRs that defaulted during the three months ended March 31, 2022 and 2021 which had been modified within the last twelve months.

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

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

26
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.

Prior to the adoption of CECL on January 1, 2022, the Company calculated allowance for loan losses using the incurred losses methodology. The following tables are the disclosures related to loans in prior periods.

The Following table presents the recorded investment in loans by portfolio segment:

  December 31, 2021 
(dollars in thousands) 
New York and
other states*
  Florida  Total 
Commercial:         
Commercial real estate $147,063   21,653   168,716 
Other  30,889   595   31,484 
Real estate mortgage - 1 to 4 family:            
First mortgages  2,723,734   1,212,568   3,936,302 
Home equity loans  48,190   13,695   61,885 
Home equity lines of credit  175,134   55,842   230,976 
Installment  7,368   2,048   9,416 
Total loans, net $3,132,378   1,306,401   4,438,779 
Less: Allowance for loan losses          44,267 
Net loans         $4,394,512 


Included in commercial loans above are Paycheck Protection Program (“PPP”) loans totaling $10.0 million as of December 31, 2021.

At December 31, 2021, the Company had approximately $37.3 million of real estate construction loans. Of the $37.3 million in real estate construction loans at December 31, 2021, approximately $17.9 million were secured by first mortgages to residential borrowers while approximately $19.4 million were to commercial borrowers for residential construction projects.  The vast majority of construction loans are in the Company’s New York market.

2627
The followingFollowing table presents the summary of past due loans by class, TDR’s that defaulted during the three and nine months ended September 30, 2021 and 2020 which had been modified within the last twelve months:portfolio segment:

 
Three months ended 9/30/2021
  
Three months ended 9/30/2020
  
December 31, 2021
 
New York and other states*: 
Number of
Contracts
  
Recorded
Investment
  
Number of
Contracts
  
Recorded
Investment
 
(dollars in thousands)

                  
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   0  $
0  $0   233   45   278   146,785   147,063 
Other  0   0   0   0   30,889   30,889 
Real estate mortgage - 1 to 4 family:                                        
First mortgages  0   0   3   264   1,303   239   9,867   11,409   2,712,325   2,723,734 
Home equity loans  136   0   224   360   47,830   48,190 
Home equity lines of credit  0   0   1   19   355   458   911   1,724   173,410   175,134 
Installment  27   5   4   36   7,332   7,368 
                                        
Total  0  $0   4  $
283  $1,821   935   11,051   13,807   3,118,571   3,132,378 

Florida:
(dollars in thousands)
 
Number of
Contracts
  
Recorded
Investment
  
Number of
Contracts
  
Recorded
Investment
  
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  $0   0   0   0   21,653   21,653 
Other  0   0   0   0   595   595 
Real estate mortgage - 1 to 4 family:                                        
First mortgages  0   0   0   0   869   180   1,146   2,195   1,210,373   1,212,568 
Home equity loans
  0
   0
   0
   0
   0   45   0   45   13,650   13,695 
Home equity lines of credit  0   0   0   0   0   89   0   89   55,753   55,842 
Installment  18   0   5   23   2,025   2,048 
                                        
Total  0  $0   0  $
0  $887   314   1,151   2,352   1,304,049   1,306,401 

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 $0   233   45   278   168,438   168,716 
Other  0   0   0   0   31,484   31,484 
Real estate mortgage - 1 to 4 family:                        
First mortgages  2,172   419   11,013   13,604   3,922,698   3,936,302 
Home equity loans  136   45   224   405   61,480   61,885 
Home equity lines of credit  355   547   911   1,813   229,163   230,976 
Installment  45   5   9   59   9,357   9,416 
                         
Total $2,708   1,249   12,202   16,159   4,422,620   4,438,779 

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


 
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)
             
Commercial:            
Commercial real estate  0  $0   0  $0 
Real estate mortgage - 1 to 4 family:                
First mortgages  0   0   4   459 
Home equity loans  0   0   0   0 
Home equity lines of credit  0   0   1   19 
                 
Total  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, VermontAt  December 31, 2021, there were no loans that were 90 days past due 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 asstill accruing interest.  As a result, of COVID-19non-accrual loans include all loans 90 days or more past due as well as certain loans less than 90 days past due that meet the criteria established under Section 4013 of the CARES Actwere placed on non-accrual status for reasons other than delinquent status.  There are 0 commitments to extend further credit on non-accrual 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, 2021 were not material.restructured loans.

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 ashas identified non-accrual commercial and commercial real estate loans, individually by gradingas well as all loans restructured under a TDR, as impaired loans.  A loan is considered impaired when it is probable that the loans based on credit risk.  Theborrower will be unable to repay the loan grades assignedaccording to allthe original contractual terms of the loan types are tested byagreement or the Company’s internal loan review department in accordance with the Company’s internal loan review policy.
is restructured as a TDR.

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, 2021 and December 31, 2020, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

 
September 30, 2021
 
          
New York and other states*:         
(dollars in thousands) Pass  Classified  Total 
          
Commercial:         
Commercial real estate $145,400   2,157   147,557 
Other  35,913   165   36,078 
  $181,313   2,322   183,635 

Florida:         
(dollars in thousands) Pass  Classified  Total 
          
Commercial:         
Commercial real estate $19,957   555   20,512 
Other  532   0   532 
  $20,489   555   21,044 

Total:         
(dollars in thousands) Pass  Classified  Total 
          
Commercial:         
Commercial real estate $165,357   2,712   168,069 
Other  36,445   165   36,610 
  $201,802   2,877   204,679 

* 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 $297 thousand and $796 thousand at September 30, 2021 and December 31, 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’sBank’s collection area and on a monthly basis with respect to determining the adequacy of the allowance for loan losses. The payment status of these homogeneous pools as of September 30, 2021 and December 31, 20202021 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, 2021 and December 31, 20202021 is presented in the non-accrual loans table.
 
The Following table presents the non-accrual loans by portfolio segment:


 
December 31, 2021
 
(dollars in thousands) 
New York and
other states*
  Florida  Total 
Loans in non-accrual status:         
Commercial:         
Commercial real estate $67   0   67 
Other  45   0   45 
Real estate mortgage - 1 to 4 family:            
First mortgages  13,990   1,797   15,787 
Home equity loans  247   45   292 
Home equity lines of credit  2,337   174   2,511 
Installment  23   14   37 
Total non-accrual loans  16,709   2,030   18,739 
Restructured real estate mortgages - 1 to 4 family  17   0   17 
Total nonperforming loans $16,726   2,030   18,756 

* 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).  Other real estate owned is included in other assets on the Balance Sheet.  As of December 31, 2021, other real estate owned included $362 thousand of residential foreclosed properties.  In addition, non-accrual residential mortgage loans that are in the process of foreclosure had a recorded investment of $9.7 million as of December 31, 2021.

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 December 31, 2021:

  
December 31, 2021
 
(dollars in thousands) 
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 
Collectively evaluated for impairment  3,135   40,689   443   44,267 
                 
Total ending allowance balance $3,135   40,689   443   44,267 
                 
Loans:                
Individually evaluated for impairment $232   18,272   0   18,504 
Collectively evaluated for impairment  199,968   4,210,891   9,416   4,420,275 
                 
Total ending loans balance $200,200   4,229,163   9,416   4,438,779
 

29
The following table presents impaired loans by loan class as of December 31, 2021:

  
December 31, 2021
 

            
New York and other states*:

(dollars in thousands)
 
Recorded
Investment
  
Unpaid
Principal
Balance
  
Related
Allowance
  
YTD Avg
Recorded
Investment
 
             
Commercial:            
Commercial real estate $187   279   0   1,154 
Other  45   45   0   107 
Real estate mortgage - 1 to 4 family:                
First mortgages  13,687   13,875   0   14,072 
Home equity loans  161   161   0   235 
Home equity lines of credit  1,852   1,939   0   2,256 
                 
Total $15,932   16,299   0   17,824 

Florida:

(dollars in thousands)
 
Recorded
Investment
  
Unpaid
Principal
Balance
  
Related
Allowance
  
YTD Avg
Recorded
Investment
 
             
Commercial:            
Commercial real estate $0   0   0   105 
Other  0   0   0   0 
Real estate mortgage - 1 to 4 family:                
First mortgages  2,368   2,368   0   2,562 
Home equity loans  0   0   0   16 
Home equity lines of credit  204   204   0   246 
                 
Total $2,572   2,572   0   2,929 

Total:

(dollars in thousands)
 
Recorded
Investment
  
Unpaid
Principal
Balance
  
Related
Allowance
  
YTD Avg
Recorded
Investment
 
             
Commercial:            
Commercial real estate $187   279   0   1,259 
Other  45   45   0   107 
Real estate mortgage - 1 to 4 family:                
First mortgages  16,055   16,243   0   16,634 
Home equity loans  161   161   0   251 
Home equity lines of credit  2,056   2,143   0   2,502 
                 
Total $18,504   18,871   0   20,753 

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

30

Activity in the allowance for loan losses for the three months ended March 31, 2021 was as follows:

 
For the three months ended March 31, 2021
 
(dollars in thousands) 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*  0   86   7   93 
Florida  0   0   2   2 
Total loan chargeoffs  0   86   9   95 
                
Recoveries of loans previously charged off:                
New York and other states*  32   88   21   141 
Florida  0   0   0   0 
Total recoveries  32   88   21   141 
Net loans (recoveries) charged off  (32)  (2)  (12)  (46)
(Credit) provision for loan losses  (120)  555   (85)  350 
Balance at end of period $4,052   45,507   432   49,991 

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

As of December 31, 2021 the risk category of loans by class of loans is as follows:

December 31, 2021
New York and other states*:
(dollars in thousands)
PassClassifiedTotal
Commercial:
Commercial real estate$145,5001,563147,063
Other30,72616330,889
$176,2261,726177,952

Florida:
(dollars in thousands)PassClassifiedTotal
Commercial:
Commercial real estate$21,11354021,653
Other5950595
$21,70854022,248

Total:
(dollars in thousands)PassClassifiedTotal
Commercial:
Commercial real estate$166,6132,103168,716
Other31,32116331,484
$197,9342,266200,200

* Includes New York, New Jersey and Massachusetts.

Included in classified loans in the above tables are impaired loans of $226 thousand at December 31, 2021.

31
Index
(6) Fair Value of Financial Instruments

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

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 LoansIndividually evaluated loans: AtPeriodically the time a loan is considered impaired, it is valued atCompany records non-recurring adjustments to the lowercarrying value of cost or fair value. Impaired loans carried atbased on fair value measurements for partial charge-offs of the uncollectible portions of those loans.  Non-recurring adjustments can also include certain adjustments for collateral-dependent loans to adjust balances to fair value and generally have had a charge offchargeoff through the allowance for loanCredit 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. ImpairedThese loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly.

3132
Index
Indications of value for both collateral-dependent impaired loans and other real estate owned are obtained from third party providers or the Company’s internal Appraisal Department. All indications of value are reviewed for reasonableness by a member of the Appraisal Department for the assumptions and approaches utilized in the appraisal as well as the overall resulting fair value via comparison with independent data sources such as recent market data or industry-wide statistics.

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

 Fair Value Measurements at 
  
March 31, 2022 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 $62,059  $0  $62,059  $0 
State and political subdivisions  41   0   41   0 
Mortgage backed securities and collateralized mortgage obligations - residential  244,045   0   244,045   0 
Corporate bonds  74,089   0   74,089   0 
Small Business Administration- guaranteed participation securities  28,086   0   28,086   0 
Other securities  671   0   671   0 
                 
Total securities available for sale $408,991  $0  $408,991  $0 

 Fair Value Measurements at 
  
December 31, 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)
 
             
Securities available for sale:            
U.S. government sponsored enterprises $59,179  $0  $59,179  $0 
State and political subdivisions  41   0   41   0 
Mortgage backed securities and collateralized mortgage obligations - residential  270,798   0   270,798   0 
Corporate bonds  45,337   0   45,337   0 
Small Business Administration- guaranteed participation securities  31,674   0   31,674   0 
Other securities  684   0   684   0 
                 
Total securities available for sale $407,713  $0  $407,713  $0 

There were 0 transfers between Level 1 and Level 2 during the threemonths ended March 31, 2022 and nine months ended September 30, 2021 and 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 

3233
Assets measured at fair value on a non-recurring basis are summarized below:

 Fair Value Measurements at        Fair Value Measurements at       
 September 30, 2021 Using:        March 31, 2022 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 $511  $0  $0  $511 Sales comparison approach Adjustments for differences between comparable sales  3% - 21% (10%) $269  $0  $0  $269 Sales comparison approach Adjustments for differences between comparable sales  1% - 20% (7%)
                                              
Impaired loans:                       
Real estate mortgage -1 to 4 family  0   0   0   0 Sales comparison Adjustments for differences between comparable sales  N/A 
Loans individually evaluated  0   0   0   0 Sales comparison Adjustments for differences between comparable sales  N/A 

 Fair Value Measurements at        Fair Value Measurements at       
 
December 31, 2020 Using:
        
December 31, 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 $541  $0  $0  $541 Sales comparison approach Adjustments for differences between comparable sales  1% - 7% (2%) $362  $0  $0  $362 Sales comparison approach Adjustments for differences between comparable sales  1% - 14% (6%)
                                              
Impaired loans:                                              
Real estate mortgage -1 to 4 family  211   0   0   211 Sales comparison Adjustments for differences between comparable sales  11% - 12% (12%)  0   0   0   0 Sales comparison Adjustments for differences between comparable sales  
N/A

Other real estate owned, that is carried at fair value less costs to sell was approximately $511269 thousand at September 30, 2021March 31, 2022 and consisted of only residential real estate properties. There were 0 commercial real estate properties. There were valuation charges of $-0- and $121 thousand included in earnings for the three and nine months ended September 30, 2021, respectively.March 31, 2022.

Of the total impairedindividually evaluated loans of $19.817.9 million at September 30, 2021,March 31, 2022, there are 0 impairmentsloans that are collateral dependent and are carried at fair value measured on a non-recurring basis. Due to the sufficiency of charge offscharge-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.March 31, 2022. There were 0 gross charge offscharge-offs related to residential impaired loans included in the table above for the three and above.nine months ended September 30, 2021.

Other real estate owned, thatwhich is carried at fair value less costs to sell, was approximately $541$362 thousand at December 31, 20202021 and consisted of only of residential real estate properties. A valuation charge of $120$121 thousand is included in earnings for the year ended December 31, 2020.2021.

Of the total impaired loans of $21.6$18.5 million at December 31, 2020, $211 thousand2021, there are 0 impairments that are collateral dependent and are carried at fair value measured on a non-recurring basis. Due to the sufficiency of charge offscharge-offs taken on these loans and the adequacy of the underlying collateral, there were 0 specific valuation allowances for these loans at December 31, 2020. Gross charge offs2021. There were 0 gross charge-offs related to residential impaired loans included in the table above amounted to $10 thousand at December 31, 2020.above.

3334
In accordance with FASB Topic 825, Financial Instruments (“ASC 825”), theThe carrying amounts and estimated fair values (represents exit price) of financial instruments, at September 30, 2021March 31, 2022 and December 31, 20202021 are as follows:

(dollars in thousands)    Fair Value Measurements at     Fair Value Measurements at 
 Carrying  
September 30, 2021 Using:
  Carrying  
March 31, 2022 Using:
 
 Value  Level 1  Level 2  Level 3  Total  Value  Level 1  Level 2  Level 3  Total 
Financial assets:                              
Cash and cash equivalents $1,193,339   1,193,339   0   0   1,193,339  $1,272,548   1,272,548   0   0   1,272,548 
Securities available for sale  434,552   0   434,552   0   434,552   408,991   0   408,991   0   408,991 
Held to maturity securities  10,701   0   11,646   0   11,646   9,183   0   9,550   0   9,550 
Federal Home Loan Bank stock  5,604   N/A   N/A   N/A   N/A   5,604   N/A   N/A   N/A   N/A 
Net loans  4,349,379   0   0   4,419,921   4,419,921   4,418,176   0   0   4,443,718   4,443,718 
Accrued interest receivable  9,358   37   1,042   8,279   9,358   8,897   107   1,073   7,717   8,897 
Financial liabilities:                                        
Demand deposits  790,663   790,663   0   0   790,663   835,281   835,281   0   0   835,281 
Interest bearing deposits  4,450,355   3,325,774   1,123,934   0   4,449,708   4,514,735   3,574,520   933,385   0   4,507,905 
Short-term borrowings  230,770   0   230,770   0   230,770   248,371   0   248,371   0   248,371 
Accrued interest payable  225   30   195   0   225   131   36   95   0   131 

(dollars in thousands)    Fair Value Measurements at     Fair Value Measurements at 
 Carrying  
December 31, 2020 Using:
  Carrying  
December 31, 2021 Using:
 
 Value  Level 1  Level 2  Level 3  Total  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  $1,219,470   1,219,470   0   0   1,219,470 
Securities available for sale  439,071   0   439,071   0   439,071   407,713   0   407,713   0   407,713 
Held to maturity securities  13,824   0   14,988   0   14,988   9,923   0   10,695   0   10,695 
Federal Reserve Bank and 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  4,194,875   0   0   4,287,585   4,287,585   4,394,512   0   0   4,451,031   4,451,031 
Accrued interest receivable  10,031   39   1,458   8,534   10,031   9,099   10   1,235   7,854   9,099 
Financial liabilities:                                        
Demand deposits  652,756   652,756   0   0   652,756   794,878   794,878   0   0   794,878 
Interest bearing deposits  4,384,437   3,088,064   1,298,375   0   4,386,439   4,473,251   3,477,937   993,676   0   4,471,613 
Short-term borrowings  214,755   0   214,755   0   214,755   244,686   0   244,686   0   244,686 
Accrued interest payable  474   68   406   0   474   163   34   129   0   163 

3435


(7) Accumulated Other Comprehensive Income (Loss)

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

 Three months ended 9/30/2021  Three months ended March 31, 2022 
(dollars in thousands) 
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
  
Balance at
12/31/2021
  
Other
Comprehensive
Income (loss)-
Before
Reclassifications
  
Amount
reclassified
from Accumulated
Other Comprehensive
Income
  
Other
Comprehensive
Income (loss)-
Three months ended
3/31/2022
  
Balance at
3/31/2022
 
                              
Net unrealized holding loss on securities available for sale, net of tax $3,347   (566)  0   (566)  2,781  $(26)  (14,251)  0   (14,251)  (14,277)
Net change in overfunded position in pension and postretirement plans arising during the year, net of tax  6,084   0   0   0   6,084   13,706   0   0   0   13,706 
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)  (1,533)  0   (265)  (265)  (1,798)
                                        
Accumulated other comprehensive income (loss), net of tax $7,840   (566)  30   (536)  7,304 
Accumulated other comprehensive (loss) income, net of tax $12,147   (14,251)  (265)  (14,516)  (2,369)

 
Three months ended 9/30/2020
  
Three months ended March 31, 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
12/31/2020
  
Other
Comprehensive
Income (loss)-
Before
Reclassifications
  
Amount
reclassified
from Accumulated
Other Comprehensive
Income
  
Other
Comprehensive
Income (loss)-
Three months ended
3/31/2021
  
Balance at
3/31/2021
 
                              
Net unrealized holding (gain) loss on securities available for sale, net of tax $8,061   (198)  0   (198)  7,863 
Net unrealized holding loss on securities available for sale, net of tax $7,186   (4,461)  0   (4,461)  2,725 
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) loss and prior service cost on pension and postretirement benefit plans, net of tax  (965)  0   (201)  (201)  (1,166)
Net change in net actuarial (gain) loss and prior service credit on pension and postretirement benefit plans, net of tax  (1,334)  0   (207)  (207)  (1,541)
                                        
Accumulated other comprehensive income (loss), net of tax $11,936   (198)  (201)  (399)  11,537  $11,936   (4,461)  (207)  (4,668)  7,268 

  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 9/30/2020
 
(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 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  4,840   0   0   0   4,840 
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 $4,461   8,432   (1,356)  7,076   11,537 

35
The following represents the reclassifications out of accumulated other comprehensive income (loss) for the three and nine months ended September 30, 2021March 31, 2022 and 2020:2021:

(dollars in thousands) Three months ended  
Nine months ended
  
Three months ended
March 31,
  
 
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 
                 2022  2021 Affected Line Item in Financial Statements
Amortization of pension and postretirement benefit items:                        
Amortization of net actuarial gain $137   222  $534   531  $78   228 Salaries and employee benefits
Amortization of prior service (cost) credit  (177)  49   (227)  147   280  52 Salaries and employee benefits
Income tax benefit  10   (70)  (80)  (177)  (93)  (73)Income taxes
Net of tax  (30)  201   227   501   265   207 
                        
Total reclassifications, net of tax $(30)  201  $227   1,356  $265   207 

36

(8) Revenue from Contracts with Customers

All of the Company’s revenue from contracts with customers in the scope of ASC 606 is recognized within Non-Interest Income.  The following table presents the Company’s sources of Non-Interest Income for the three months ended March 31, 2022 and nine months ended September 30, 2021 and 2020.2021. Items outside the scope of ASC 606 are noted as such.

(dollars in thousands) Three months ended  
Nine months ended
  Three months ended 
 
September 30,
  
September 30,
  
March 31,
 
 2021  2020  2021  2020  2022  2021 
Non-interest income                  
Service Charges on Deposits                  
Overdraft fees $735  $595  $1,964  $1,920  $646  
617 
Other  518   348   1,479   1,159   790   469 
Interchange Income  1,330   1,195   3,863   3,072   1,702   1,153 
Net gain on securities transactions (a)  0   0   0   1,155 
Wealth management fees  1,558   1,784   5,592   4,752   1,833   2,035 
Other (a)  154   419   513   1,043   212   154 
                        
Total non-interest income $4,295  $4,341  $13,411  $13,101  $5,183  
4,428 

(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 withfor 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.

36
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 a fee is charged to manage assets for investment or transact on accounts.  These fees are earned over time as the Company provides the contracted monthly or quarterly services and are generally assessed over the period in which services are performed based on a percentage of the fair value of assets under management or administration.  Other services are based on a fixed fee for certain account types, or based on transaction activity and are recognized when services are rendered.  Fees are withdrawn from the customer’s account balance.

Gains/Losses on Sales of Other Real Estate Owned “OREO”:37 The Company records a gain or loss from the sale of OREO when control of the property transfers to the buyer, which generally occurs at the time of an executed deed. When the company finances the sale of OREO to the buyer, the Company assesses whether the buyer is committed to perform their obligations under the contract and whether collectability of the transaction price is probable. Once these criteria are met, the OREO asset is derecognized and the gain or loss on sale is recorded upon the transfer of control of the property to the buyer. In determining the gain or loss on the sale, the Company adjusts the transaction price and related gain/ (loss) on sale if a significant financing component is present.
(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, 2021March 31, 2022, the Company did not have any leases with terms of twelve months or less.

37
As of September 30, 2021March 31, 2022, the Company has 1 leasedoes 0t have any leases that the construction has not started yet. At September 30, 2021March 31, 2022, lease expiration dates ranged from five monthsone month to 23.022.5 years and have a weighted average remaining lease term of 8.79.3 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.

38
Other information related to leases was as follows:

(dollars in thousands) 
Three months ended
September 30,
  
Three months ended
March 31,
 
 2021  2020  2022  2021 
Operating lease cost $2,010   1,966  $2,052  
2,016 
Variable lease cost  499   369   596   502 
                
Total Lease costs $2,509   2,335  $2,648  
2,518 

(dollars in thousands) 
Nine months ended
September 30,
 
  2021  2020 
Operating lease cost $6,029   5,893 
Variable lease cost  1,508   1,524 
         
Total Lease costs $7,537   7,417 
(dollars in thousands) 
Three months ended
March 31,
 
  2022  2021 
Supplemental cash flows information:      
Cash paid for amounts included in the measurement of lease liabilities:      
Operating cash flows from operating leases $2,093  
2,038 
         
Right-of-use assets obtained in exchange for lease obligations:  2,087   302 
         
Weighted average remaining lease term 
9.3 years
  
8.9 years
 
Weighted average discount rate  2.96%  3.16%

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

38
Future minimum lease payments under non-cancellable leases as of September 30, 2021March 31, 2022 were as follows:

(dollars in thousands) 
    
Year ending
December 31,
   
2021(a)
 $2,072 
2022  8,014 
Year ending
December 31,
   
2022(a)
 $6,211 
2023  7,719   8,134 
2024  7,595   8,012 
2025  7,223   7,603 
2026  6,627 
Thereafter  25,291   24,435 
Total lease payments $57,914  $61,022 
Less: Interest  7,399   7,928 
        
Present value of lease liabilities $50,515  $53,094 

(a)
Excluding the ninethree months ended September 30, 2021.March 31, 2022.

A member of the Board 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, 2021,March 31, 2022, were $3.7$3.5 million, which includes interest in the amount of $525$473 thousand.

39
(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. As of September 30, 2021,March 31, 2022, the Company and Bank meet all capital adequacy requirements to which they are subject.

Prompt corrective action regulations provide 5 classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If a bank is not classified as well capitalized, regulatory approval is required to accept brokered deposits. If a bank is undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. The federal banking agencies are required to take certain supervisory actions (and may take additional discretionary actions) with respect to an undercapitalized institution or its holding company. Such actions could have a direct material effect on an institution’s or its holding company’s financial statements. As of September, 2021March 31, 2022 and December 31, 2020,2021, 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

3940
The Bank and the Company reported the following capital ratios as of September 30, 2021March 31, 2022 and December 31, 20202021:

(Bank Only)                        
       
Minimum for
Capital Adequacy plus
Capital Conservation
        
Minimum for
Capital Adequacy plus
Capital Conservation
 
 As of September 30, 2021  Well  As of March 31, 2022  Well 
(dollars in thousands) Amount  Ratio  
Capitalized(1)
  
Buffer (1)(2)
  Amount  Ratio  
Capitalized(1)
  
Buffer (1)(2)
 
                        
Tier 1 leverage ratio $561,969   9.148%  5.000%  4.000% $575,895   9.286%  5.000%  4.000%
Common equity tier 1 capital  561,969   18.899   6.500   7.000   575,895   18.743   6.500   7.000 
Tier 1 risk-based capital  561,969   18.899   8.000   8.500   575,895   18.743   8.000   8.500 
Total risk-based capital  599,265   20.153   10.000   10.500   614,433   19.997   10.000   10.500 

 As of December 31, 2020  Well  
Minimum for
Capital Adequacy plus
Capital Conservation
  As of December 31, 2021  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 $539,897   9.378%  5.000%  4.000% 
570,594   9.324%  5.000%  4.000%
Common equity tier 1 capital  539,897   18.646   6.500   7.000   570,594   18.954   6.500   7.000 
Tier 1 risk-based capital  539,897   18.646   8.000   8.500   570,594   18.954   8.000   8.500 
Total risk-based capital  576,257   19.902   10.000   10.500   608,308   20.206   10.000   10.500 

(Consolidated)            
 As of September 30, 2021  
Minimum for
Capital Adequacy plus
Capital Conservation
  As of March 31, 2022  
Minimum for
Capital Adequacy plus
Capital Conservation
 
(dollars in thousands) Amount  Ratio  
Buffer (1)(2)
  Amount  Ratio  
Buffer (1)(2)
 
                  
Tier 1 leverage ratio $578,825   9.420%  4.000% $594,711   9.585%  4.000%
Common equity tier 1 capital 
578,825   19.461   7.000  $
594,711   19.349   7.000 
Tier 1 risk-based capital 
578,825   19.461   8.500  $
594,711   19.349   8.500 
Total risk-based capital 
616,131   20.715   10.500  $
633,260   20.603   10.500 

 As of December 31, 2020  
Minimum for
Capital Adequacy plus
Capital Conservation
  As of December 31, 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 $555,672   9.650%  4.000% $588,427   9.614%  4.000%
Common equity Tier 1 capital  555,672   19.187   7.000   588,427   19.541   7.000 
Tier 1 risk-based capital  555,672   19.187   8.500   588,427   19.541   8.500 
Total risk-based capital  592,040   20.443   10.500   626,150   20.794   10.500 

(1)Federal regulatory minimum requirements to be considered to be Well Capitalized and Adequately Capitalized
(2)
The September 30, 2021March 31, 2022 and December 31, 20202021 common equity tier 1, tier 1 risk-based, and total risk-based capital ratios include a capital conservation buffer ofof 2.50 percent

41
(11) New Accounting Pronouncements

In September 2016, the FASB released ASU 2016-13, “Financial2022-02 - Financial Instruments - Credit Losses” (referred to as “CECL”) which amended existingLosses (Topic 326) Troubled Debt Restructurings and Vintage Disclosures: In March 2022, FASB issued ASU 2022-02 - Financial Instruments - Credit Losses (Topic 326) Troubled Debt Restructuring and Vintage Disclosures. ASU 2022-02 eliminates the accounting guidance to replace current generally accepted accounting principles used to measurefor TDRs by creditors in Subtopic 310-40, Receivables - Troubled Debt Restructurings by Creditors, while enhancing disclosure requirements for certain loan refinancing and restructurings by creditors when a reporting entity’s credit losses. The main objective of this updateborrower is to provideexperiencing 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,difficulty. Additionally, the amendments in this update replaceASU require that public business entities disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases within the incurred loss impairment methodologyscope of Subtopic 326-20, Financial Instruments - Credit Losses -Measured at Amortized Cost. For entities, like TrustCo, that have adopted the amendments in current GAAP withASU 2016-13, the amendments in this ASU are effective for fiscal years beginning after December 15, 2022, including interim periods within those years. Early adoption is permitted, including adoption in an interim period. An entity may elect to adopt the loan modification guidance and related disclosure enhancements separately from the amendments related to vintage disclosures. The amendments in this ASU should be applied prospectively, except for the amendments related to the recognition and measurement of TDRs which may be applied prospectively or using a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.

40
As previously disclosed, the Company formed a cross-functional team to work through its implementation of CECL.modified retrospective transition method. 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 had previously elected to delay its adoption of CECL, as provided byASU13 2022-02 is not expected to have a material impact on the CARES Act until the date on which the National Emergency concerning COVID-19 was terminated or December 31, 2020, whichever occurred first. 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,financial statements, but impact disclosure requirements, and therefore the Company intends to adopt CECL on January 1, 2022.reduce potentially individually evaluated loan totals.

(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. 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. The Company has evaluated the impact of the effects of COVID-19 and determined that there have beenwere no lasting material or systematic adverse impacts on the Company’s September 30, 2021March 31, 2022 financial statements, except for adjustments in the allowance for loan losses since the inception of the pandemic.statements. As of September 30, 2021,March 31, 2022 the Company and Bank capital ratios were in excess of all regulatory requirements. While management believes that we have sufficient capital to withstand an extendedany further economic recessionchallenges brought abouton 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 unanticipated 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 meetmet the criteria established under Section 4013 of the CARES Act or under applicable interagency guidance of the federal banking regulators arewere excluded from evaluation of TDR classification and will continue to bewere reported as current during the payment deferral period. The Company’s policy iswas to continue to accrue interest during the deferral period. Loans not meeting the CARES ACT or regulatory guidance arewere evaluated for TDR and non-accrual treatment under the Company’s existing policies and procedures. AsThe relief provided by the CARES ACT expired on December 31, 2021. The Company doesn’t have any loan deferrals as of September 30, 2021, loans in deferral were not material.March 31, 2022.
 

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 graphic
graphicgraphic

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"“Company”) as of September 30, 2021,March 31, 2022, and the related consolidated statements of income and comprehensive income for the three and nine-monththree-month periods ended September 30,March 31, 2022 and March 31, 2021 and September 30, 2020 and the related changes in shareholders’ equity and cash flows for the nine-monththree-month periods ended September 30,March 31, 2022 and March 31, 2021, and September 30, 2020, and the related notes (collectively referred to as the "interim“interim financial information or statements"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"(“PCAOB”), the consolidated statement of financial condition of the Company as of December 31, 2020,2021, 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 26, 2021,25, 2022, 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, 2020,2021, 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'sCompany’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.


New York, New York /s/ Crowe LLP
November 5, 2021May 6, 2022
 

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

Forward-looking Statements
Statements included in this report and in future filings by TrustCo with the Securities and Exchange Commission, in TrustCo’s press releases, and in oral statements made with the approval of an authorized executive officer, including statements regarding the effect of the novel coronavirus disease (“COVID-19”)  pandemic on our business and our continuing response to the COVID-19 pandemic, that are not historical or current facts, are “forward-looking statements” made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and are subject to certain risks and uncertainties that could cause actual results to differ materially from historical earnings and those presently anticipated or projected.  Forward-looking statements can be identified by the use of such words as may, will, should, could, would, estimate, project, believe, intend, anticipate, plan, seek, expect and similar expressions.  TrustCo wishes to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made.

In addition to factors described under Part II, Item 1A, Risk Factors, and under the Risk Factor discussion in TrustCo’s Annual Report on Form 10-K for the year ended December 31, 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.

•
In addition to factors described under Part II, Item 1A, Risk Factors, and under the Risk Factor discussion in TrustCo’s Annual Report on Form 10-K for the year ended December 31, 2021, 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 effects of the COVID-19 pandemic and macroeconomic or geopolitical concerns related to inflation, rising interest rates and the war in Ukraine.
The current COVID-19 pandemic, the effects of which could, and in some instances has, caused us to experience a decline in the demand for products and services; an increase in loan delinquencies; problem assets and foreclosures; a decline in collateral value; a work stoppage, forced quarantine, or other interruption or the unavailability of key employees; an increase in the allowance for loan losses;credit losses on loans; 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;

changes in and uncertainty related to benchmark interest rates used to price loans and deposits;
future business strategies related to the implementation of CECL;
credit risks and risks from concentrations (by geographic area and by loan product) within our loan portfolio;
changes in local market areas and general business and economic trends, as well as changes in consumer spending, borrowing and savings habits; and our ability to assess and react effectively to such changes;
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;

44
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;
43
restrictions or conditions imposed by TrustCo’s and Trustco Bank’s regulators on their operations that may make it more difficult to achieve TrustCo’s and Trustco Bank’s goals;
the future earnings and capital levels of TrustCo and Trustco Bank and the continued non objection from TrustCo’s and Trustco Bank’s primary federal banking regulators under regulatory rules to distribute capital from Trustco Bank to TrustCo, which could affect the ability of TrustCo to pay dividends;
the results of supervisory monitoring or examinations of Trustco Bank and the Company by their respective primary federal banking regulators, including the possibility that the regulators may, among other things, require us to increase our loss allowances or to take other actions that reduce capital or income;
adverse conditions in the securities markets that lead to impairment in the value of securities in TrustCo’s investment portfolio;
the 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 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, 2020.2021.

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

4445
Following this discussion are the tables "Distribution“Distribution of Assets, Liabilities and Shareholders'Shareholders’ Equity: Interest Rates and Interest Differential"Differential” which gives a detailed breakdown of TrustCo'sTrustCo’s average interest earning assets and interest bearing liabilities for the three month and nine month periods ended September 30, 2021March 31, 2022 and 2020.2021.

Introduction
The review that follows focuses on the factors affecting the financial condition and results of operations of TrustCo during the three month and nine month periodsperiod ended September 30, 2021,March 31, 2022, with comparisons to the corresponding period in 2020,2021, 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 20202021 Annual Report on Form 10-K, which was filed with the SEC on February 26, 2021,25, 2022, should also be read in conjunction with this review.  Amounts in prior period consolidated interim financial statements are reclassified whenever necessary to conform to the current period'speriod’s presentation.

COVID-19 Impact
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.  The Company has evaluated the impact of the effects of the COVID-19 pandemic 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 three monthyears December 31, 2021 and nine month periods ended September 30, 2021, except2020, as well as for the adjustments in the allowance for loan losses since the inception of the pandemic.quarters ended March 31, 2022 and 2021.  At this time, it is difficult to quantify the impact COVID-19the pandemic will have on future periods.periods due to various uncertainties, including the duration, severity, spread, variants and resurgences of COVID-19.

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

Loan modifications

We have always been committed to working with our customers or borrowers to allow time to work through the challenges of the pandemic. At this time, it is uncertain what future impact, if any, further loan modifications related to COVID-19 difficulties may have on our financial condition, results of operations and provision for credit losses. 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 were evaluated individually and approved modifications were 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. Loan modifications and payment deferrals as a result of the COVID-19 pandemic 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 arehave been and will be excluded from evaluation of TDRtroubled debt restructuring (“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 therelief provided by 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,expired on December 31, 2021. The Company doesn’t have any loans inon deferral as a result of the COVID-19 pandemic were not material.March 31, 2022.

4546
Paycheck Protection Program (“PPP”) and Liquidity

As part of the CARES Act, the Small Business Administration (SBA) has beenwas authorized to guarantee loans under the PPP for small businesses whothat 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 663As of March 31, 2022 87 PPP loans totaling $46 million in 2020, and an additional 344 loans totaling $23 million in 2021.  As of September 30, 2021, 349 PPP loans totaling $21approximately $3 million remain outstanding.  The Company receiveshas received loan origination fees from the SBA which are being recognized over the life of the loan and applyusing the effective yield method.

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

Asset impairment

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

Provision for loancredit losses

See “Allowance for Loan Losses”Credit Losses on Loans” 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 month periods ended September 30, 2021.

46
Federal Reserve Actions

The Federal Reserve Board has taken several actions to support the flow of credit to households and businesses.  Some of these pertinent actions include:
The establishment of the Commercial Paper Funding Facility, the Money Market Mutual Fund Liquidity Facility, and the Primary Dealer Credit Facility;
The expansion of central bank liquidity swap lines;
Steps to enhance the availability and ease terms for borrowing at the discount window;
The elimination of reserve requirements;
Guidance, issued with the other federal banking regulators, encouraging banks to be flexible with customers experiencing financial challenges related to the coronavirus pandemic and to utilize their liquidity and capital buffers in doing so;
Expand access to its PPPLF for additional SBA-qualified lenders; and
Statements encouraging the use of daylight credit at the Federal Reserve.
Economic Overview
During the thirdfirst quarter of 2021,2022, financial markets weredeclined as the economy felt the impact from several economic areas, as well as reacting to global concerns.  Investors evaluated inflationary worries, higher interest rates, ongoing pandemic concerns, supply-chain bottlenecks, and the war in Ukraine, while also seeing a bit volatile resultingrise in Treasury yields.   For the first quarter of 2022, the S&P 500 Index was down 5.0% and the Dow Jones Industrial Average Russell 2000, and Nasdaq posting quarterly losses of 1.9%,was down 4.6%, and 0.4%, respectively, while.  This comes after the S&P 500 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.economy saw continued improvement throughout 2021.  The shape of the yield curve endedtightened during the quarter relatively consistent as compared to the second quarter.prior quarters.  The 10‑year Treasury bond averaged 1.32%1.95% during Q3 2021Q1 2022 compared to 1.59%1.53% in Q2Q4 2021, a decreasean increase of 2742 basis points.  The 2‑year Treasury bond average rate increased 693 basis points to 0.23%.  The1.46%, resulting in a flattening of the yield curve.  Consequently, the spread between the 10‑year and the 2-year Treasury bonds shorteneddecreased from 1.42%1.00% on average in Q2Q4 to 1.10%0.49% in Q3.Q1.  This spread had been depressed in recent years, and compares to 2.42% during its most recent peak in Q4 of 2013.  Steeper yield curves are favorable for portfolio mortgage lenders like TrustCo.  The table below illustrates the range of rate movements for both short term and longer term rates.  The target Federal Funds rate remained flatincreased 25 basis points in March 2022 to end the quarter at 0.00%0.25% to 0.25% for0.50%, the quarter.first rate increase since 2018.  Spreads of most asset classes to the comparative treasury yield, including agency securities, corporates, municipals and mortgage-backed securities, continue to be down as compared to the levels seen before the pandemic.  Accordingly, changes in rates and spreads continue to be effected by the pandemic.pandemic and global economic concerns.

47
   
3 Month
Yield (%)
2 Year
Yield (%)
5 Year
Yield (%)
10 Year
Yield (%)
 10 - 2 Year
 Spread (%)
  
3 Month
Yield (%)
2 Year
Yield (%)
5 Year
Yield (%)
10 Year
Yield (%)
 10 - 2 Year
 Spread (%)
    
Q3/20 Beg of Q3 0.160.290.660.50
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 0.140.270.650.51
    
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
Beg of Q10.090.130.360.930.80
Peak 0.090.170.921.741.59Peak0.090.170.921.741.59
Trough 0.010.090.360.930.82Trough0.010.090.360.930.82
End of Q1 0.030.160.921.741.58End of Q10.030.160.921.741.58
Average in Q1 0.050.130.621.341.20Average in Q10.050.130.621.341.20
        
Q2/21 Beg of Q2 0.030.160.921.741.58
Beg of Q20.030.160.921.741.58
Peak 0.060.280.971.731.56Peak0.060.280.971.731.56
Trough 0.010.130.731.451.19Trough0.010.130.731.451.19
End of Q2 0.050.250.871.451.20End of Q20.050.250.871.451.20
Average in Q2 0.030.170.841.591.42Average in Q20.030.170.841.591.42
        
Q3/21 Beg of Q3 0.050.250.871.451.20
Beg of Q30.050.250.871.451.20
Peak 0.070.311.021.551.25Peak0.070.311.021.551.25
Trough 0.030.170.651.190.98Trough0.030.170.651.190.98
End of Q3 0.040.280.981.521.24End of Q30.040.280.981.521.24
Average in Q3 0.050.230.801.321.10Average in Q30.050.230.801.321.10
    
Q4/21
Beg of Q40.040.280.981.521.24
Peak0.080.761.341.681.29
Trough0.040.270.931.350.72
End of Q40.060.731.261.520.79
Average in Q40.050.531.181.531.00
    
Q1/22
Beg of Q10.060.731.261.520.79
Peak0.592.352.552.480.89
Trough0.080.771.371.630.04
End of Q10.522.282.422.320.04
Average in Q10.311.461.831.950.49

The United States economy overall has continued to show improvements during 2021.experienced several areas of concern as 2022 began as mentioned above.  Economic conditions can 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 solid capital positions have allowed the Company to continue to conduct business in a manner consistent with its past practice.  TrustCo has not engaged in the types of high risk loans and investments that have led to the widely reported problems in the industry, 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.

48
In a direct response to the COVID-19 pandemic, on March 27, 2020 Congress passed the CARES Act. As 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 $16.8$17.1 million, or $0.871$0.890 of diluted earnings per share, for the three months ended September 30, 2021,March 31, 2022, compared to net income of $14.1 million, or $0.730 of diluted earnings per share, in the same period in 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 1.08%1.12% and 0.98%0.96%, respectively, for the three-monthsthree months ended September 30, 2021March 31, 2022 and 2020.2021.  Return on average equity was 11.40%11.60% and 10.04%10.01%, respectively, for the three-monthsthree months ended September 30, 2021March 31, 2022 and 2020.2021.

The primary factors accounting for the change in net income for the three months ended September 30, 2021March 31, 2022 compared to the same period of the prior year were:

A decrease of $1.2 million in the cost of interest bearing liabilities of $4.0 million, partially offsetincome which was mitigated by a corresponding decrease in income from interest earning assetsexpense also of $2.3 million, resulted in an increase in taxable equivalent net interest income in the third quarter of 2021 compared to the third quarter of 2020 of $1.7$1.2 million.

A decrease of $3.8 million$550 thousand in provision for loancredit losses for the thirdfirst quarter of 2022 compared to the first quarter 2021.

A increase of $755 thousand in noninterest income for the first quarter of 2022 compared to the first quarter of 2021, comparedprimarily driven by a $597 thousand increase in fees for services to the third quarter 2020 as a result of 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.customers.

An increaseA decrease of $2.0$2.6 million in noninterest expense for the thirdfirst quarter of 20212022 compared to the thirdfirst quarter 20202021, primarily as a result of an increasea decrease in salaries and employee benefits.benefits due of a true-up to the incentive compensation accrual upon payout in the first quarter of 2022, as well as decreases in various other employee benefit plan expenses. This decrease was partially offset by an increase in other expense primarily as a result of higher mortgage origination volume.

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

49
Asset/Liability Management
The Company strives to generate its earnings capabilities through a mix of core deposits funding a prudent mix of earning assets.  Additionally, TrustCo attempts to maintain adequate liquidity and reduce the sensitivity of net interest income to changes in interest rates to an acceptable level while enhancing profitability both on a short-termshort‑term and long-termlong‑term basis.

49
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, byin the national economy, financial market conditions and the regulatory environment.  Each of these factors is dynamic, and changes in any area can have an impact on TrustCo’s results.  Included in the Annual Report to Shareholders on Form 10-K for the year ended December 31, 20202021 is a description of the effect interest rates had on the results for the year 20202021 compared to 2019.2020.  Many of the same market factors discussed in the 20202021 Annual Report continued to have a significant impact on results through the thirdfirst quarter of 2021,2022, as well as the economic effect of COVID-19.COVID-19 and heightened global concerns.

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.  From December 2015 through December 2018, the U.S. Federal Reserve Board increased its federal funds target rate from a range of 0.00% - 0.25% to a range of 2.25% - 2.50%. Beginning in the second half of 2019, the Federal Reserve Board began lowering the rate in response to a slowing economy.  During the first quarter of 2020 the rate was significantly decreased again to 0.00% to 0.25% as a result of the global pandemic relatedpandemic.  In March 2022 the Federal Reserve board increased the rate to COVID-19,0.25% to 0.50% to assist with inflationary concerns, with additional rate increases anticipated.

Traditionally, interest rates on bank deposit accounts are heavily influenced by the Federal Funds rate.  The average rate on interest bearing deposits was 11 basis points lower in the first quarter of 2022 relative to the prior year period.  Rates were lower on all interest bearing deposit accounts as a result of repricing since the Federal Reserve Board lowered the Federal Funds rate due to the pandemic.  Please refer to the statistical disclosures in the table below entitled “Distribution of Assets, Liabilities and has returned the range of 0.00% to 0.25%.Shareholders’ Equity: Interest Rates and Interest Differential.”

The interest rate on the ten-year10-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 increased 46was up 42 basis points, on average, during the thirdfirst quarter of 20212022 compared to the fourth quarter of 20202021 and increased 67was up 61 basis points as compared to the thirdfirst quarter of 2020.2021.

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 thirdfirst quarter of 2021,2022, the net interest margin was 2.65%2.66%, down 812 basis points versus the prior year’s quarter.  The quarterly results reflect the following significant factors:

The average balance of Federal Funds sold and other short-term investments increasedsecurities available for sale decreased by $228.6$76.5 million while the average yield increased 6 basis points in the third quarter of 2021 compared to the same period in 2020.

The average balance of securities available for sale increased by $23.8 million while the average yield decreased 694 basis points to 1.36%1.54%.  The average balance of held to maturity securities decreased by $4.6$3.7 million and the average yield increased 209 basis points to 3.72%3.79% for the thirdfirst quarter of 20212022 compared to the same period in 2020.2021. For both categories of investments, the slight increase in yield was not enough to offset the decrease in average balances year over year.

The average loan portfolio grew by $176.4$195.2 million to $4.37$4.44 billion and the average yield decreased 3328 basis points to 3.61%3.52% in the thirdfirst quarter of 20212022 compared to the same period in 2020.2021.  The increase in the average balance was not enough to offset the decrease in yield, which was primarily the result of less PPP income as compared to the prior year period.

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The average balance of interest bearing liabilities (primarily deposit accounts) increased $236.8$112.9 million and the average rate paid decreased 3711 basis points to 0.15%0.10% in the thirdfirst quarter of 20212022 compared to the same period in 2020.2021.

During the thirdfirst quarter of 2021,2022, 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 iswas to offer competitive shorter term rates which allowed the Bank to gain market share as well as retain our existing time deposits.  This strategy drove growth at a relatively low cost that will sustain TrustCo’s strong liquidity position and continue to allow us to cross sell new relationships and take advantage of opportunities as they arise.

Earning Assets
Total average interest earning assets increased from $5.58$5.78 billion in the thirdfirst quarter of 20202021 to $6.01$6.05 billion in the same period of 20212022 with an average yield of 2.77%2.74% in the thirdfirst quarter of 20212022 and 3.15%2.95% in the thirdfirst quarter of 2020.2021.  There was a continued shift in the mix of assets towards a higher proportion of federal funds sold and other short-term investments from securities available for sale, as a result of an increasewell as from increases in deposits. There was a sharp decrease in the federal funds rate during March of 2020 significantly reducing the average yield on the federal funds sold and other short-term investments. Since then the rate has remained consistently low, however, during the third quarter 2021 it increased by 6 basis points to 0.16% from 0.10% due to a slight increase in the interest rate on excess reserves.  Interest income on average earning assets decreased from $44.0$1.2 million in the thirdfirst quarter of 2020 to $41.7 million in2022 from the third quarter of 2021,prior year period, on a tax equivalent basis, and was primarily driven by the lower market rates on loans.  The increase in interest income from average federal funds sold and other short-term investments, as a result of higher balances and interest rate, was mostly offset by less interest income from securities available for sale and loans.held-to-maturity securities due to their lower average balances.

Loans
The average balance of loans was $4.37$4.44 billion in the thirdfirst quarter of 20212022 and $4.20$4.25 billion in the comparable period in 2020.2021.  The yield on loans was down 33decreased 28 basis points to 3.61%3.52%.  Interest income on loans was $39.5 millionThe higher average balances did not offset the decrease in the third quarter of 2021 down $1.8 million from the same period in 2020.yield.

Compared to the thirdfirst quarter of 2020,2021, the average balance of residential mortgage loans and installment loans increased while commercial loans and home equity lines of credit and installment loans decreased.  while  .  The average balance of residential mortgage loans was $3.92$4.01 billion in the third quarter of 20212022 compared to $3.70$3.79 billion in 2020,2021, an increase of 5.9%5.8%.  The average yield on residential mortgage loans decreased by 3727 basis points to 3.52%3.42% in the thirdfirst quarter of 20212022 compared to 2020.2021 primarily as a result of the low interest rate environment.

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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 eventuala continued rise in long-term interest rates, the Company anticipateswould anticipate 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, decreased $20.7$17.8 million to an average balance of $210.8$195.0 million in the thirdfirst quarter of 20212022 compared to the same period in the prior year, primarily as a result of the forgiven PPP loans.  The average yield on this portfolio was up 49down 36 basis points to 5.03%5.18% compared to the prior year period, primarily as a result of the less origination feesincome recognized on forgiven PPP loans.loans as compared to the prior year period.  The Company remainsremained selective in underwriting commercial loans in recent periods as the apparent risk/reward balance has been less favorable in many cases.

The average yield on home equity credit lines decreased 2913 basis points to 3.69%3.71% during the thirdfirst quarter of 20212022 compared to the prior year earlier period.  The average balances of home equity credit lines decreased 8.0%2.5% to $231.3$232.5 million in the thirdfirst quarter of 20212022 as compared to the prior year.  CustomersOver the last year,  customers with home equity lines continuecontinued to refinance their balances into fixed rate mortgage loans given the currentlow 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 thirdfirst quarter of 20212022 was $453.1$406.5 million compared to $429.3$482.9 million for the comparable period in 2020.2021.  The increasingdecrease in the balance reflects routine paydowns, and calls and maturities, offset by new investment purchases offset by paydowns, calls and maturities.  The current interest rate environment has significantly contributed to more bonds being called.purchases.  The average yield was 1.36%1.54% for the thirdfirst quarter of 20212022 compared to 2.05%1.50% for the thirdfirst quarter of 2020.2021.  This portfolio is primarily comprised of agency issued residential mortgage backed securities, and collateral mortgage 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 loss,income (loss), net of tax.

The net unrealized gainloss in the available for sale securities portfolio was $3.8$19.2 million as of September 30, 2021March 31, 2022 compared to a net unrealized gainloss of $9.7 million$4 thousand as of December 31, 2020.2021.  The decreaseincrease in the net unrealized gainslosses in the portfolio is the result of changes in market interest rate levels.

Held to Maturity Securities
The average balance of held to maturity securities was $11.2$9.5 million for the thirdfirst quarter of 20212022 compared to $15.8$13.3 million in the thirdfirst quarter of 2020.2021.  The decrease in balances reflects routine paydowns and calls.paydowns.  No new securities were added to this portfolio during the period.  The average yield was 3.72%3.79% for the thirdfirst quarter of 20212022 compared to 3.52%3.70% for the year earlier period.  TrustCo expects to hold the securities in this portfolio until they mature or are called.

As of September 30, 2021,March 31, 2022, this portfolio consisted solely of agency issuedresidential mortgage-backed securities.  The balances for these securities are recorded at amortized cost.

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Federal Funds Sold and Other Short-term Investments
The 2021 third2022 first quarter average balance of Federal Funds sold and other short‑termshort-term investments was $1.2$1.19 billion, a $228.6$157.6 million increase from the $938.1 million$1.03 billion average for the same period in 2020.2021.  The yield was 0.16%0.20% for the thirdfirst quarter of 20212022 and 0.10%0.11% for the comparable period in 2020.  As previously noted, the increase in the yield was a result of an increase in the excess reserves interest rate.2021.  Interest income from this portfolio increased $228$302 thousand from $242$270 thousand in 20202021 to $470$572 thousand in 2021.2022.  The higher average balances, as well as an increase in the interest rate on excess reserves in June 2021, and an increase in the federal funds rate in March 2022, resulted in an increase in interest income over the same period in the prior year.

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

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

Total average interest bearing deposit accountsdeposits (which includes interest bearing checking, money market accounts, savings and time deposits) increased $190.4$88.2 million to $4.5$4.48 billion for the thirdfirst quarter of 20212022 versus the thirdfirst quarter in the prior year, and the average rate paid decreased from 0.52%0.20% for 20202021 to 0.14%0.09% for 2021.2022.  Total interest expense on these deposits decreased from $5.6$1.2 million to $1.5 million$960 thousand in the thirdfirst quarter of 20212022 compared to the year earlier period primarily as a result of reduced market rates and shifts in the mix of deposit balances.period.  From the third quarter of 2020 to the thirdfirst quarter of 2021 to the first quarter of 2022, interest bearing demandchecking account average balances were up  12.6%9.9%, certificates of deposit average balances were down 15.0%23.6%, non-interestnon‑interest demand average balances were up 25.4%20.1%, average savings balances increased 17.0%16.2% and money market balances were up 8.3%9.1%.  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 portfolios.portfolio.

At September 30, 2021,March 31, 2022, the maturity of total time deposits is as follows:

(dollars in thousands)
(dollars in thousands)
   
    
Under 1 year
 $888,760 
1 to 2 years
  43,570 
2 to 3 years
  6,297 
3 to 4 years
  937 
4 to 5 years
  518 
Over 5 years
  133 
  $940,215 

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 

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Average short-term borrowings for the thirdfirst quarter of 2022 were $240.2$248.5 million compared to $223.8 million in 2021 compared to $193.8 millionthe same period in 2020.2021.  The average rate decreased during this time period from 0.45%0.41% in 20202021 to 0.38% in 2021.2022.  The short-term borrowings of the Company are cash management accounts, which represent retail accounts with customers for which the Bank has pledged certain assets as collateral.

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.readiness.

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Net Interest Income
Taxable equivalent net interest income increased by $1.7 million to $39.9was relatively flat at $40.1 million in both the thirdfirst quarter of 20212022 and 2021.  The net interest spread was down 11 basis points to 2.63% in the first quarter of 2022 compared to the same period in 2020.  The net interest spread was down 1 basis point to 2.62% in the third quarter of 2021 compared to the same period in 2020.2021.  As previously noted, the net interest margin was down 812 basis points to 2.65%2.66 for the thirdfirst quarter of 20212022 compared to the same period in 2020.

Taxable equivalent net interest income increased by $5.7 million to $120.1 million in the first nine-months of 2021 compared to the same period in 2020.  The net interest spread was down 7 basis points to 2.67% in the first nine-months of 2021 compared to the same period in 2020.  Net interest margin was down 15 basis points to 2.71% for the first nine‑months of 2021 compared to the same period in 2020.2021.

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, 2021, there were $1.8 million pandemic related deferrals that have been recorded as 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, 2021:March 31, 2022:

Nonperforming loans and foreclosed real estateestate:: Total NPLs and non-accrual loans were $20.2$19.4 million at September 30, 2021,March 31, 2022, compared to $21.1$21.6 million at March 31, 2021.  At December 31, 20202021 there were total NPLs of $18.8 million and $21.8 million at September 30, 2020.non-accrual loans of $18.7 million.  There were no loans at September 30,March 31, 2022 and 2021 and 2020 and December 31, 20202021 that were past due 90 days or more and still accruing interest.

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At September 30, 2021,March 31, 2022, nonperforming loans primarily include a mix of commercial and residential loans.  Of total nonperforming loans of $20.2$19.4 million at September 30, 2021, $19.9March 31, 2022, $19.2 million were residential real estate loans, $176$187 thousand were commercial loans and mortgages and $32$41 thousand were installment loans, compared to $20.6$18.6 million, $452$112 thousand and $43$37 thousand, respectively at December 31, 2020.2021.

A significant percentage of nonperforming loans are residential real estate loans, which are historically lower-risk than most other types of loans.  Net recoveries were $39$97 thousand on residential real estate loans (including home equity lines of credit) for the thirdfirst quarter of 20212022 compared to net chargeoffsrecoveries of $4$2 thousand for the thirdfirst quarter of 2020.2021.  Management believes that these loans have been appropriately written down where required.

Ongoing portfolio management is intended to result in early identification and disengagement from deteriorating credits.  TrustCo has a diversified loan portfolio that includes a significant balance of residential mortgage loans to borrowers in the Capital Region of New York and 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.  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.

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The Company originates loans throughout its branchdeposit franchise area.  At September 30, 2021, 70.9%March 31, 2022, 70.0% of its gross loan portfolio balances were in New York State and the immediately surrounding areas (including New Jersey, Vermont and Massachusetts), and 29.1%30.0% were in Florida.  Those figures compare to 72.1%70.6% and 27.9%29.4%, respectively at December 31, 2020.2021.

Economic conditions vary widely by geographic location.   As a percentage of the total nonperforming loans as of September 30, 2021, 10.2%March 31, 2022, 10.9% were to Florida borrowers, compared to 89.8%89.1% to borrowers in New York and surrounding areas.  For the three months ended September 30, 2021,March 31, 2022, New York and surrounding areas experienced net chargeoffsrecoveries of approximately $5$58 thousand and Florida experiencedthere was no net chargeoffs for the third quarter of 2021.or recoveries in Florida.

Other than loans currently identified as nonperforming, and loan deferrals as a result of COVID-19, management is aware of no other loans in the Bank’s portfolio that pose material risk of the eventual non-collection of principal and interest.  Also as of September 30, 2021,March 31, 2022, 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 TDR, as impairedindividually evaluated loans.  There were $521$178 thousand of commercial mortgages and commercial loans classified as impairedindividually evaluated as of September 30, 2021 compared to $1.0 millionMarch 31, 2022. There were $232 thousand classified as impaired at December 31, 2020.2021.  There were $19.3$17.6 million of impairedindividually evaluated residential loans at September 30, 2021 and $20.6March 31, 2021.  $18.3 million were classified as impaired at December 31, 20202021.  The average balances of all impaired loans were $20.7 million for the nine months of 2021 and $20.8 million for the full year 2020.

As of September 30, 2021March 31, 2022 and December 31, 2020,2021, the Company’s loan portfolio did not include any subprime mortgages or loans acquired with deteriorated credit quality.

At September 30, 2021March 31, 2022 there was $511$269 thousand of foreclosed real estate compared to $541$362 thousand at December 31, 2020.2021.

Allowance for credit on loan losses: The balanceCompany implemented CECL on January 1, 2022. Under this standard, allowances have been  established for loans, and commitments to lend. The allowance for credit losses on loans (“ACLL”) replaces the previous allowance for loan losses (“ALLL”). The allowance for credit losses on loans increased by $2.4 Million at period end to $46.6 million from $44.2 at December 31, 2021 under the ALLL.  The allowance for credit losses on unfunded commitments increased from $18 thousand to $2.4 million and is recorded in other liabilities. The Company recorded a net decrease to undivided profits of $3.5 million, net of $1.2 million in deferred tax balances as of January 1, 2022 for the cumulative effect of adopting CECL.

In the first quarter of 2022, the Company recorded a credit to provision for credit losses of $200 thousand, which includes a credit to provision for credit losses on loans of $500 thousand as a result of improving unemployment and housing price forecasts, offset by a provision for credit losses on unfunded commitments of $300 thousand as a result of a corresponding increase in unfunded loans.

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The Company evaluates several external forecasts in choosing the forecast element for the economic components of the allowance for loancredit losses on loans. The Company selected the stagflation forecast for both January 1, 2022 and March 31, 2022 for economic modeling. The unemployment forecast impacted the reserves due to unemployment rates declining 13% for New York and 8 % for Florida offset by increases in consumer price indices (“CPI”) of 3% for NY and 1% for Florida and increases in Gross Metro Product (“GMP”) 1% for New York and 3% for Florida from December to March respectively.

See Notes 1 and 5 of the financial statements for additional discussion related to the adoption of CECL, the process for determining the provision for credit losses is maintained at a level that is,described in management’s judgment, representativeNote 5 to the financial statements.

The allocation of the amount of probable incurredallowance for credit losses in the loan portfolio.on loans as follows:

(dollars in thousands)
 
As of
September 30, 2021
 
As of
December 31, 2020
  
As of
March 31, 2022
 
As of
January 1, 2022
 
 Amount 
Percent of
Loans to
Total Loans
 Amount 
Percent of
Loans to
Total Loans
  Amount 
Percent of
Loans to
Total Loans
 Amount 
Percent of
Loans to
Total Loans
 
Commercial
 $3,083 4.30% 
$
3,975
 
4.67
%
 $1,940 3.86% 
$
1,917
 
4.07
%
Real estate - construction
 411 0.86% 
290
 
0.58
%
 341 0.68% 
409
 
0.84
%
Real estate mortgage - 1 to 4 family
 40,339 89.37% 
41,228
 
88.81
%
 39,173 89.96% 
39,620
 
89.68
%
Home equity lines of credit
 3,073 5.26% 
3,597
 
5.71
%
 4,654 5.29% 
4,609
 
5.20
%
Installment Loans
  444 0.21%  
505
 
0.23
%
  70 0.21%  
65
 
0.21
%
 $47,350 100.00% 
$
49,595
 
100.00
%
 $46,178 100.00% 
$
46,620
 
100.00
%

At September 30, 2021,March 31, 2022, the allowance for loancredit losses on loans was $47.4$46.2 million, compared to $49.1$50.0 million at September 30, 2020March 31, 2021 and $49.6$44.3 million at December 31, 2020.2021.  The allowance represents 1.08%1.03% of the loan portfolio as of September 30,March 31, 2022 compared to 1.17% at March 31, 2021 and 1.17%1.00% at December 31, 2020 and September 30, 2020.2021.

Provision for loan losses for the quarter ended September 30, 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 decrease is primarily driven by sustained improvements in the current economic environment and credit quality metrics.  Net chargeoffsrecoveries for the three-month period ended September 30, 2021March 31, 2022 were $5$58 thousand compared to net chargeoffs of $21and $46 thousand for the prior year period.

During the thirdfirst quarter of 2021,2022, there was $30were $36 thousand of commercial loan net chargeoffs $39 thousand of residential mortgage net recoveries, and $14$11 thousand of consumer loan net chargeoffs compared with $1no commercial loan chargeoffs and $95 thousand of netgross residential mortgage and consumer loan chargeoffs in the first quarter of 2021.  During the first quarter of 2022 there were no commercial loan recoveries $4and $105 thousand offor residential mortgage net chargeoffs, and $18 thousand of consumer loan net chargeoffsrecoveries, compared to $32 thousand for the same periodcommercial loan recoveries and $109 thousand for residential mortgage and consumer loan recoveries in the prior year.

In determining the adequacyfirst quarter 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:2021.

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
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.  As previously stated, the Bank is a member of the FHLBNY and is an eligible borrower at the FRBNY and has the ability to borrow utilizing securities and/or loans as collateral at either institution.  The Bank does not utilize brokered deposits as a part of its funding strategy, but does incorporate them as a contingent funding source within its Asset/Liability Management Policy.  Like other contingent funding sources, brokered CDs may be tested from time to time to ensure operational and market readiness.

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

Using this model, the fair value of capital projections as of September 30, 2021March 31, 2022 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, 2021.March 31, 2022.  The table indicates the impact on the fair value of capital assuming interest rates were to instantaneously increase by 100 bp, 200 bp, 300 bp and 400 bp or to decrease by 100 bp.

58
As of September 30, 2021March 31, 2022
Estimated Percentage of
Fair value of Capital to
Fair value of Assets
+400 BP
22.20
 28.10%
+300 BP
22.2027.60 
+200 BP
22.1028.40 
+100 BP
22.3027.70 
Current rates
21.4026.00 
-100 BP
18.3023.00 

58
Noninterest Income
Total noninterest income for the thirdfirst quarter of both2022 and 2021 was $5.2 million and 2020 was $4.3 million.  Financial Services income was down $226 thousand to $1.6$4.4 million, in the third quarter of 2021 as compared to the year-ago period, primarily as a result of estate settlements in the prior year.  Fees for services to customers were up $239 thousandrespectively.  The increase over the same period in the prior year was primarily as a resultrelated to an increase of more overdraft$549 thousand in interchange fees and interchange income.a $268 thousand gain on the sale of a building, partially offset by a decrease in financial services income of $202 thousand.  The fair value of assets under management was $1.1$1.03 billion at September 30, 2021, $996.7 millionMarch 31, 2022, $1.10 billion as of December 31, 2020,2021 and $899 million$1.04 billion at September 30, 2020.

For the nine-months ended September 30, 2021 total noninterest income was $13.4 million, up $310 thousand compared to the prior year period.   The increase is primarily the result of more Financial Services income as a result of higher asset market values under management, and more interchange income, partially offset by net gains on securities transactions of $1.2 million in the prior period.March 31, 2021.

Noninterest Expenses
Total noninterest expenses were $24.7$22.8 million for the three-monthsthree months ended September 30, 2021,March 31, 2022, compared to $22.7$25.3 million for the three-monthsthree months ended September 30, 2020March 31, 2021.  Significant changes included a $1.0 million increasedecrease in salaries and employee benefits a $172 thousand increase in professional services, a $140 thousand increase in outsourced services, and a $460 thousand increase in other expenses. Full time equivalent headcount was 771 as of September 30, 2020, 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 prior year partially due to a challenging labor market from the impact of the pandemic.  In addition, other benefits has increased primarily as a result of a higher stock price on$2 million favorable true-up to the liability-based equity awards,incentive compensation accrual upon payout in the first quarter of 2022, as well as decreases in various other employee benefit plan expenses.  There were also decreases in net occupancy expense, equipment expense, and theother real estate expense, net.  These decreases were partially offset by an increase in costs associated with existing employee benefit plans.

Total noninterestadvertising expense due to more marketing efforts, and other expenses were $75.5 million for the nine-months ended September 30, 2021, comparedincreased primarily due to $70.9 million for the nine-months ended September 30, 2020higher mortgage origination volume.  .  Significant changes included an increase of $2.8 million inThe Company does expect salaries and employee benefits for the same reasonsbenefit expense to return to historic levels in future periods.  Full time equivalent headcount decreased from 820 as mentioned above, a $555 thousand increase in professional services, a $609 thousand increase in outsourced services, a $667 thousand increase FDIC and other insurance expenseof March 31, 2021 to 769 as of March 31, 2022 primarily as a result of credits ina strategic realignment over the prior period due topast year and the FDIC reachingongoing impact of the Deposit Reserve Fund reserve ratio, partially offset by a $181 thousand decrease in advertising expense, and a decrease of $156 thousand in equipment expense.pandemic on the labor market.

59
Income Taxes
In the thirdfirst quarter of 2021,2022, TrustCo recognized income tax expense of $5.5$5.6 million compared to $4.8 million for the thirdfirst quarter of 2020.2021.  The effective tax rates were 24.8% and 25.3%, respectively, for the thirdfirst quarters of 20212022 and 2020, respectively.  For the first nine-months, income taxes were $15.2 million and $13.0 million in 2021 and 2020, respectively. The effective tax rate was 25.2% for both 2021 and 2020.2021.

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

Banking regulators have moved towards higher required capital requirements due to the standards included in the Basel III“Basel III” banking capital reform measures and the Dodd-Frank Wall Street Reform and Consumer Protection 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, 2021March 31, 2022 was $586.7$592.9 million compared to $560.5$571.0 million at September 30, 2020.March 31, 2021.  TrustCo declared a dividend of $0.340625$0.35 per share in the thirdfirst quarter of 2021 and is adjusted for the Reverse Stock Split which occurred on May 28, 2021.2022.  This results in a dividend payout ratio of 39.13%39.36% based on thirdfirst quarter 20212022 earnings of $16.8$17.1 million.

The capital rules, which are generally applicable to both the Company and the Bank, include several measures; specifically, a Tier 1 leverage ratio, a common equity tier 1 (“CET1”) capital ratio, a tier 1 risk-based capital ratio and a total risk-based capital ratio. The rules also impose a capital conservation buffer that requires the Company and the Bank to maintain additional levels of Tier 1 common equity over the minimum risk-based capital levels before they may pay dividends, repurchase shares or pay discretionary bonuses.

6059
The Bank and the Company reported the following capital ratios as of September 30, 2021March 31, 2022 and December 31, 2020:2021:

(Bank Only)
(Bank Only)
         
(dollars in thousands)
 As of March 31, 2022  Well  
Minimum for
Capital Adequacy plus
Capital Conservation
 
 
Amount
  Ratio  
Capitalized(1)
  
Buffer (1)(2)
 
            
Tier 1 leverage ratio $575,895   9.286%  5.000%  4.000%
Common equity tier 1 capital  575,895   18.743   6.500   7.000 
Tier 1 risk-based capital  575,895   18.743   8.000   8.500 
Total risk-based capital  614,433   19.997   10.000   10.500 

(dollars in thousands)
  
  
Well
Capitalized(1)
  
Minimum for
Capital Adequacy plus
Capital Conservation
Buffer (1)(2)
  
As of September 30, 2021
 As of December 31, 2021 Well 
Minimum for
Capital Adequacy plus
Capital Conservation
 
(dollars in thousands)
  Amount Ratio  
Well
Capitalized(1)
  
Minimum for
Capital Adequacy plus
Capital Conservation
Buffer (1)(2)
   Amount Ratio 
Capitalized(1)
 
Buffer (1)(2)
 
 
$561,969 9.148 
$
570,594
 
9.324
%
 
5.000
%
 
4.000
%
 561,969 18.899 
570,594
 
18.954
 
6.500
 
7.000
 
Tier 1 risk-based capital 561,969 18.899 8.000 8.500  
570,594
 
18.954
 
8.000
 
8.500
 
Total risk-based capital 599,265 20.153 10.000 10.500  
608,308
 
20.206
 
10.000
 
10.500
 

(dollars in thousands)
  
  
Well
Capitalized(1)
  
Minimum for
Capital Adequacy plus
Capital Conservation
Buffer (1)(2)
  
As of December 31, 2020
       
 As of March 31, 2022 
Minimum for
Capital Adequacy plus
Capital Conservation
 
(dollars in thousands)
  Amount Ratio  
Well
Capitalized(1)
  
Minimum for
Capital Adequacy plus
Capital Conservation
Buffer (1)(2)
   Amount Ratio 
Buffer (1)(2)
 
 
$
539,897
 
9.378
 $594,711 9.585% 4.000%
 
539,897
 
18.646
 594,711 19.349 7.000 
Tier 1 risk-based capital 
539,897
 
18.646
 
8.000
 
8.500
  594,711 19.349 8.500 
Total risk-based capital 
576,257
 
19.902
 
10.000
 
10.500
  633,260 20.603 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
 As of December 31, 2021 
Minimum for
Capital Adequacy plus
Capital Conservation
 
(dollars in thousands)
 Amount Ratio  
Minimum for
Capital Adequacy plus
Capital Conservation
Buffer (1)(2)
   Amount Ratio 
Buffer (1)(2)
 
 
 
$
555,672
 
9.650
 
$
588,427
 
9.614
%
 
4.000
%
 
555,672
 
19.187
 
588,427
 
19.541
 
7.000
 
Tier 1 risk-based capital 
555,672
 
19.187
 
8.500
  
588,427
 
19.541
 
8.500
 
Total risk-based capital 
592,040
 
20.443
 
10.500
  
626,150
 
20.794
 
10.500
 

(1)
Federal regulatory minimum requirements to be considered to be Well Capitalized and Adequately Capitalized
(2)
The September 30, 2021March 31, 2022 and December 31, 20202021 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, 2021, theMarch 31, 2022, Trustco’s consolidated equity to total assets ratio was 9.56%,9.44% compared to 9.63%9.70% at December 31, 20202021 and 9.77%9.44% at September 30, 2020.March 31, 2021.

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 was fully in effect.

As of September 30, 2021,March 31, 2022, the capital levels of both TrustCo and the Bank exceeded the minimum standards, including with the fully phased-incurrent, capital conservation buffer is taken into account.

60
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 and leverage capital ratios are at least 6.5%7%, 8%8.5%, 10%,10.5% and 5%, respectively.  A bank is deemed to be “adequately capitalized” or better if its capital ratios meet or exceed the minimum federal regulatory capital requirements, and “undercapitalized” if it fails to meet these minimal capital requirements.  A bank is “significantly undercapitalized” if its CET1, Tier 1, total risk-based and leverage capital ratios fall below 3%, 4%, 6%, and 3%, respectively and “critically undercapitalized” if the institution has a ratio of tangible equity to total assets that is equal to or less than 2%.  At September 30,March 31, 2022 and 2021, and 2020, Trustco Bank met the definition of “well-capitalized.“well capitalized.”

As noted, the Company’s dividend payout ratio was 39.13%39.36% of net income for the thirdfirst quarter of 20212022 and 46.68%46.65% of net income for the thirdfirst quarter of 2020.2021.  The per-share dividend paid in both the thirdfirst quarter of 2022 and the fourth quarter of 2021, was $0.350 and 2020 was $0.340625 and is adjusted for$0.341 in the Reverse Stock Split.first quarter of 2021. 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: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”)(DRP) with approximately 7,1987,110 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,Effective as of May 28, 2021, the Company announced that the Board of Directors planned to seek shareholder approval forcompleted a 1-for-5 reverse stock split (the “Reverse Stock Split”) of the Company’s issued and outstanding shares of common stock, at a ratiopar value $1.00 per share, as previously approved by our shareholders. Proportional adjustments were made to the Company’s issued and outstanding common stock and to the exercise price and number of 1 for 5, and, effective at the same timeshares issuable upon exercise of the reverse stock split, to reduceoptions outstanding under the Company’s equity incentive plans, and the number of authorizedshares subject to restricted stock units under the Company’s equity incentive plans. No fractional shares of the Company’s common stock from 150,000,000 to 30,000,000 shares.  On May 20, 2021were issued in connection with the Reverse Stock Split, was approved at the annual shareholder meeting.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 the consolidated financial statements and notes thereto, have been retrospectively adjusted to reflect the Reverse Stock Split.

62
Share Repurchase Program
On June 7, 2019February 18, 2021 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 announced that it has suspended its share repurchase program.  On February 18, 2021 the Company’s Board of Directors authorized another share repurchase program of up to 2,000,000 shares, andwhich was adjusted to 400,000 shares as a result of the approval of the Reverse Stock Split, and representsrepresented approximately 2% of its then outstanding common stock. On March 9, 2022 the Company’s Board of Directors authorized, and the Company announced another share repurchase program of up to 200,000 shares, or approximately 1% of its currently outstanding common stock.  During the three months ended September 30, 2021,March 31, 2022, the Company repurchased a total of 5018 thousand shares at an average price per share of $32.24$33.57 for a total of $1.6 million$609 thousand under its Board authorized share repurchase program.

61
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.
 
Management considers the accounting policy relating to the allowance for loancredit losses to be a critical accounting policy given the inherentmeasurement uncertainty and subjective judgement necessary in evaluating the levels of the allowance required to cover the inherent risk oflife time 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, 2020 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 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.
 
6362
TrustCo Bank Corp NY
Management'sManagement’s Discussion and Analysis
STATISTICAL DISCLOSURE

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

The following table summarizes the component distribution of the average balance sheet, related interest income and expense and the average annualized yields on interest earning assets and annualized rates on interest bearing liabilities of TrustCo (adjusted for tax equivalency) for each of the reported periods. Nonaccrual loans are included in loans for this analysis. The average balances of securities available for sale and held to maturity are calculated using amortized costs for these securities.  Included in the average balance of shareholders'shareholders’ equity is the unrealized gain (loss), net of tax, in the available for sale portfolio of $($8.9) million in 2022 and $3.9 million in 2021 and $8.3 million in 2020.2021.  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
        
Three months ended
March 31, 2022
 
Three months ended
March 31, 2021
       
                                      
 
Average
Balance
 Interest 
Average
Rate
 
Average
Balance
 
Interest
 
Average
Rate
 
Change in
Interest
Income/
Expense
 
Variance
Balance
Change
 		 
Variance
Rate
Change
 		  
Average
Balance
 Interest 
Average
Rate
 
Average
Balance
 Interest 
Average
Rate
 
Change in
Interest
 
Variance
Balance
 
Variance
Rate
 
                          Income/ Change Change 
Assets                          Expense     
                                      
Securities available for sale:                                      
U. S. government sponsored enterprises $68,505 $91 0.53% $12,391 $14 0.45% $77 74 3  
$
61,755
 
$
86
 
0.55
%
 
$
51,649
 
$
50
 
0.38
%
 
$
36
 
11
 
25
 
Mortgage backed securities and collateralized mortgage obligations-residential 300,765 1,038 1.38% 313,296 1,319 1.68% (281) (51) (230) 
261,124
 
1,087
 
1.67
%
 
327,614
 
1,237
 
1.51
%
 
(150
)
 
(774
)
 
624
 
State and political subdivisions 48 2 6.66% 110 2 7.90% - - -  
41
 
1
 
6.73
%
 
50
 
1
 
6.47
%
 
-
 
-
 
-
 
Corporate bonds 48,543 220 1.81% 59,555 646 4.33% (426) (103) (323) 
52,977
 
233
 
1.76
%
 
63,334
 
316
 
1.99
%
 
(83
)
 
(49
)
 
(34
)
Small Business Administration-guaranteed participation securities 34,578 181 2.09% 43,282 216 1.99% (35) (98) 63  
29,871
 
154
 
2.06
%
 
39,582
 
206
 
2.09
%
 
(52
)
 
(50
)
 
(2
)
Other 686 5 2.92% 685 5 2.92% - - -  
686
 
2
 
1.17
%
 
686
 
6
 
3.50
%
 
(4
)
 
-
 
(4
)
                                            
Total securities available for sale 453,125 1,537 1.36% 429,319 2,202 2.05% (665) (178) (487) 
406,454
 
1,563
 
1.54
%
 
482,915
 
1,816
 
1.50
%
 
(253
)
 
(862
)
 
609
 

                                      
Federal funds sold and other short-term Investments 1,166,679 470 0.16% 938,087 242 0.10% 228 69 159  
1,187,201
 
572
 
0.20
%
 
1,029,570
 
270
 
0.11
%
 
302
 
47
 
255
 
                                      
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  
9,541
 
90
 
3.79
%
 
13,273
 
123
 
3.70
%
 
(33
)
 
(52
)
 
19
 
                                            
Total held to maturity securities 11,168 104 3.72% 15,759 138 3.52% (34) (81) 47  
9,541
 
90
 
3.79
%
 
13,273
 
123
 
3.70
%
 
(33
)
 
(52
)
 
19
 
                   
Federal Reserve Bank and Federal Home Loan Bank stock 5,604 64 4.57% 5,506 77 5.59% (13) 8 (21) 
5,604
 
62
 
4.43
%
 
5,506
 
69
 
5.01
%
 
(7
)
 
8
 
(15
)
                                      
Commercial loans 210,825 2,649 5.03% 231,517 2,625 4.54% 24 (1,016) 1,040  
194,989
 
2,525
 
5.18
%
 
212,781
 
2,945
 
5.54
%
 
(420
)
 
(238
)
 
(182
)
Residential mortgage loans 3,920,903 34,532 3.52% 3,702,680 36,020 3.89% (1,488) 9,896 (11,384) 
4,007,886
 
34,197
 
3.42
%
 
3,789,256
 
34,852
 
3.69
%
 
(655
)
 
8,684
 
(9,339
)
Home equity lines of credit 231,269 2,152 3.69% 251,459 2,515 3.98% (363) (191) (172) 
232,535
 
2,125
 
3.71
%
 
238,379
 
2,259
 
3.84
%
 
(134
)
 
(54
)
 
(80
)
Installment loans 8,669 155 7.10% 9,632 170 7.02% (15) (28) 13  
8,974
 
156
 
7.03
%
 
8,795
 
161
 
7.41
%
 
(5
)
 
17
 
(22
)
                                            
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) 
4,444,384
 
39,003
 
3.52
%
 
4,249,211
 
40,217
 
3.80
%
 
(1,214
)
 
8,409
 
(9,623
)
                                      
Total interest earning assets 6,008,242 41,663 2.77% 5,583,959 43,989 3.15% (2,326) 8,479 (10,805) 
6,053,184
 
41,290
 
2.74
%
 
5,780,475
 
42,495
 
2.95
%
 
(1,205
)
 
7,550
 
(8,755
)
                                      
Allowance for loan losses (50,160)     (48,483)           
Allowance for credit losses on loans
 
(46,759
)
     
(49,945
)
           
Cash & non-interest earning assets  195,902      201,018             
207,308
     
199,769
           
                                      
Total assets $6,153,984      5,736,494            
$
6,213,733
      
5,930,299
           
                                      
Liabilities and shareholders' equity                   
Liabilities and shareholders’ equity
                   
                                      
Deposits:                                      
Interest bearing checking accounts $1,153,812 38 0.01% $1,024,455 $55 0.02% (17) 39 (56) 
$
1,191,496
 
44
 
0.01
%
 
$
1,084,572
 
$
52
 
0.02
%
 
(8
)
 
27
 
(35
)
Money market accounts 738,662 202 0.11% 682,319 637 0.37% (435) 329 (764) 
791,689
 
214
 
0.11
%
 
725,570
 
283
 
0.16
%
 
(69
)
 
146
 
(215
)
Savings 1,430,558 154 0.04% 1,222,956 161 0.05% (7) 108 (115) 
1,527,975
 
156
 
0.04
%
 
1,315,049
 
159
 
0.05
%
 
(3
)
 
101
 
(104
)
Time deposits 1,152,298 1,149 0.40% 1,355,244 4,749 1.39% (3,600) (623) (2,977) 
964,158
 
546
 
0.23
%
 
1,261,963
 
1,666
 
0.54
%
 
(1,120
)
 
(327
)
 
(793
)
                                              
Total interest bearing deposits 4,475,330 1,543 0.14% 4,284,974 5,602 0.52% (4,059) (147) (3,912) 
4,475,318
 
960
 
0.09
%
 
4,387,154
 
2,160
 
0.20
%
 
(1,200
)
 
(53
)
 
(1,147
)
Short-term borrowings 240,183 232 0.38% 193,765 221 0.45% 11 173 (162) 
248,535
 
234
 
0.38
%
 
223,807
 
228
 
0.41
%
 
6
 
87
 
(81
)
                                            
Total interest bearing liabilities 4,715,513 1,775 0.15% 4,478,739 5,823 0.52% (4,048) 26 (4,074) 
4,723,853
 
1,194
 
0.10
%
 
4,610,961
 
2,388
 
0.21
%
 
(1,194
)
 
34
 
(1,228
)
                                      
Demand deposits 780,163     622,313            
808,695
     
673,428
           
Other liabilities 75,116     78,093            
83,633
     
75,143
           
Shareholders' equity 583,192     557,349           
Shareholders’ equity
 
597,552
     
570,767
           
                                      
Total liabilities and shareholders' equity $6,153,984     $5,736,494           
Total liabilities and shareholders’ equity
 
$
6,213,733
     
$
5,930,299
           
                                      
Net interest income, tax equivalent   39,888     38,166   $1,722  8,453  (6,731)
Net interest income , tax equivalent
   
40,096
     
40,107
   
$
(11
)
 
7,516
 
(7,527
)
                                      
Net interest spread     2.62%     2.63%            
2.63
%
     
2.74
%
       
                                      
Net interest margin (net interest income to total interest earning assets)     2.65%     2.73%            
2.66
%
     
2.78
%
       
                                      
Tax equivalent adjustment    (1)      (1)             
-
      
-
         
                                      
Net interest income    39,887      38,165             
40,096
      
40,107
         

6463
TrustCo Bank Corp NY
Management's Discussion and Analysis
STATISTICAL DISCLOSURE

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

The following table summarizes the component distribution of the average balance sheet, related interest income and expense and the average annualized yields on interest earning assets and annualized rates on interest bearing liabilities of TrustCo (adjusted for tax equivalency) for each of the reported periods. Nonaccrual loans are included in loans for this analysis. The average balances of securities available for sale and held to maturity are calculated using amortized costs for these securities.  Included in the average balance of shareholders' equity is the unrealized gain (loss), net of tax, in the available for sale portfolio of $4.1 million in 2021 and $7.2 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) 
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                        
                            
Securities available for sale:                           
U. S. government sponsored enterprises $65,103   238   0.49% $42,573   541   1.69% $(303)  308   (611)
Mortgage backed securities and collateralized mortgage obligations-residential
  318,472   3,442   1.44%  339,300   4,959   1.95%  (1,517)  (289)  (1,228)
State and political subdivisions  49   3   8.16%  111   6   7.79%  (3)  (4)  1 
Corporate bonds  56,245   859   2.04%  46,508   1,372   3.93%  (513)  378   (891)
Small Business Administration-guaranteed participation securities
  36,981   580   2.09%  45,313   690   2.03%  (110)  (142)  32 
Other  686   16   3.11%  685   16   3.11%  -   -   - 
                                     
Total securities available for sale  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
  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
  12,199   338   3.70%  17,029   475   3.72%  (137)  (134)  (3)
                                     
Total held to maturity securities  12,199   338   3.70%  17,029   475   3.72%  (137)  (134)  (3)
                                     
Federal Reserve Bank and Federal Home Loan Bank stock  5,570   198   4.74%  7,998   351   5.85%  (153)  (94)  (59)
                                     
Commercial loans  212,832   8,203   5.14%  217,573   7,778   4.77%  425   (261)  686 
Residential mortgage loans  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  234,682   6,622   3.77%  258,956   7,898   4.07%  (1,276)  (710)  (566)
Installment loans  8,608   469   7.28%  10,129   537   7.08%  (68)  (91)  23 
                                     
Loans, net of unearned income  4,309,082   119,513   3.70%  4,139,424   125,058   4.03%  (5,545)  7,164   (12,709)
                                     
Total interest earning assets  5,912,405   126,213   2.85%  5,332,227   135,170   3.38%  (8,957)  8,258   (17,215)
                                     
Allowance for loan losses  (50,101)          (46,618)                    
Cash & non-interest earning assets  196,876           196,835                     
                                     
Total assets $6,059,180          $5,482,444                     
                                     
Liabilities and shareholders' equity                                    
                                     
Deposits:                                    
Interest bearing checking accounts $1,129,480   136   0.02% $949,909   97   0.01%  39   11   28 
Money market accounts  731,171   721   0.13%  646,170   2,595   0.54%  (1,874)  500   (2,374)
Savings  1,376,494   475   0.05%  1,169,316   560   0.06%  (85)  108   (193)
Time deposits  1,203,708   4,076   0.45%  1,372,369   16,739   1.63%  (12,663)  (1,838)  (10,825)
                                     
Total interest bearing deposits  4,440,853   5,408   0.16%  4,137,764   19,991   0.65%  (14,583)  (1,219)  (13,364)
Short-term borrowings  232,532   688   0.40%  173,497   778   0.60%  (90)  304   (394)
                                     
Total interest bearing liabilities  4,673,385   6,096   0.17%  4,311,261   20,769   0.64%  (14,673)  (915)  (13,758)
                                     
Demand deposits  735,495           543,279                     
Other liabilities  73,689           77,568                     
Shareholders' equity  576,611           550,336                     
                                     
Total liabilities and shareholders' equity $6,059,180          $5,482,444                     
                                     
Net interest income , tax equivalent      120,117           114,401      $5,716   9,173   (3,457)
                                     
Net interest spread          2.67%          2.74%            
                                     
Net interest margin (net interest income to total interest earning assets)
          2.71%          2.86%            
                                     
Tax equivalent adjustment      (1)          (2)                
                                     
Net interest income      120,116           114,399                 

65
Item 3.Quantitative and Qualitative Disclosures about Market Risk

As detailed in the Annual Report to Shareholderson Form 10-K as of December 31, 2020,2021, the Company is subject to interest rate risk as its principal market risk.  As noted in the Management’s Discussion and Analysis for the three-month and nine-monththree month periods ended September 30,March 31, 2022 and 2021, and 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 thirdfirst quarter of 2021,2022, the Company had an average balance of Federal Funds sold and other short-term investments of $1.2 billion compared to $938.1 million$1.0 billion in the thirdfirst quarter of 2020.2021.  As investment opportunities present themselves, management plans to invest funds from the Federal Funds sold and other short-term investment portfolio into the securities available for sale, securities held to maturity and loan portfolios.  Additional disclosure of interest rate risk can be found under “Liquidity and Interest Rate Sensitivity” and “Asset/Liability Management” in the Management’s Discussion and Analysis section of this document.

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

Item 4.Controls and Procedures

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

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

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

66
There have been no changes in internal control over financial reporting (as defined in Rule 13a-15(f)13a‑15(f) and 15d-15(f) of the Exchange Act) during the quarter to which this report relates that have materially affected or are reasonably likely to materially affect, the internal control over financial reporting.

64
PART IIOTHER INFORMATION

Item 1.Legal Proceedings

None.

Item 1A.Risk Factors

There were no material changes to the risk factors previously disclosed in the Company’s Annual Report on Form 10‑K for the year ended December 31, 2020.2021.

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

Share Repurchase Program

The following table provides certain information with respect to the Company’s purchases of its common shares during the three months ended 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
 
March 31, 2022:

  Issuer Purchases of Common Shares 
Period 
Total
numbers of
shares purchased
  
Average price paid per
share
  
Total number of
shares purchased as
part of publicly
announced plans or
programs
  
Maximum number
of shares that may
yet be purchased
under the plans or
programs (1)
 
January 1, 2022 through January 31, 2022
  
-
   
N/A
   
-
   
330,000
 
February 1, 2022 through February 28, 2022
  
-
   
N/A
   
-
   
-
 
March 1, 2022 through March 31, 2022
  
18,114
  
$
33.57
   
18,114
   
181,886
 
Total
  
18,114
  
$
33.57
   
18,114
   
181,886
 


(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.  TheThis program expired on February 17, 2022.  On March 9, 2022 the Company’s Board of Directors authorized another share repurchase program of up to 200,000 shares, or approximately 1% of its currently outstanding common stock.  During the three months ended March 31, 2022, the Company commenced repurchasesrepurchased a total of 18 thousand shares at an average price per share of $33.57 for a total of $609 thousand under the program during the quarter ended June 30, 2021.its Board authorized share repurchase program.

Item 3.Defaults Upon Senior Securities

None.

65
Item 4.Mine Safety

None.

Item 5.Other Information

None.

67
Item 6.Exhibits

Reg S-K (Item 601)
Exhibit No.Description
  
15
Crowe LLP Letter Regarding Unaudited Interim Financial Information
  
31(a)
Rule 13a-15(e)/15d-15(e) Certification of Robert J. McCormick, principal executive officer.
  
31(b)
Rule 13a-15(e)/15d-15(e) Certification of Michael M. Ozimek, principal financial officer.
 
32
Section 1350 Certifications of Robert J. McCormick, principal executive officer and Michael M. Ozimek, principal financial officer.
  
101.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

6866
SIGNATURES

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

 
TrustCo Bank Corp NY
  
 By:
/s/ Robert J. McCormick
  
 By:/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 5, 2021  May 6, 2022 

  69
67