TRUSTCO BANK CORP N Y - Quarter Report: 2019 September (Form 10-Q)

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, 2019

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

For the transition period from __________ to _________

Commission File Number 0-10592

TRUSTCO BANK CORP NY

(Exact name of registrant as specified in its charter)

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

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

Registrant’s telephone number, including area code:

(518) 377-3311

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

Title of each class	Trading Symbol (s)	Name of each exchange on which registered
Common Stock, $1.00 par value	TRST	Nasdaq 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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit 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, 2019
$1 Par Value	96,916,807

TrustCo Bank Corp NY

INDEX

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

	Consolidated Statements of Income for the three-month and nine-month periods ended September 30, 2019 and 2018	3

	Consolidated Statements of Comprehensive Income for the three-month and nine-month periods ended September 30, 2019 and 2018	4

	Consolidated Statements of Financial Condition as of September 30, 2019 and December 31, 2018	5

	Consolidated Statements of Changes in Shareholders’ Equity for the nine-month periods ended September 30, 2019 and 2018	6

	Consolidated Statements of Cash Flows for the nine-month periods ended September 30, 2019 and 2018	7

	Notes to Consolidated Interim Financial Statements	8-40

	Report of Independent Registered Public Accounting Firm	41

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	42-62

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	63

Item 4.	Controls and Procedures	63

Part II.	OTHER INFORMATION

Item 1.	Legal Proceedings	64

Item 1A.	Risk Factors	64

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	64

Item 3.	Defaults Upon Senior Securities	64

Item 4.	Mine Safety	64

Item 5.	Other Information	64

Item 6.	Exhibits	64

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,
	2019		2018		2019			2018

Interest and dividend income:
Interest and fees on loans	$	41,923		40,073		124,608			117,120
Interest and dividends on securities available for sale:
U. S. government sponsored enterprises		996		787		2,600			2,324
State and political subdivisions		2		7		6			20
Mortgage-backed securities and collateralized mortgage obligations		2,178		1,601		5,885			5,039
Corporate bonds		321		202		801			485
Small Business Administration-guaranteed participation securities		282		325		868			1,010
Mortgage-backed securities and collateralized mortgage obligations-commercial		-		-		-			37
Other securities		6		4		16			13
Total interest and dividends on securities available for sale		3,785		2,926		10,176			8,928

Interest on held to maturity securities:
Mortgage-backed securities and collateralized mortgage obligations-residential		187		232		613			736
Total interest on held to maturity securities		187		232		613			736

Federal Reserve Bank and Federal Home Loan Bank stock		81		82		365			357
Interest on federal funds sold and other short-term investments		2,552		2,425		8,843			6,909
Total interest income		48,528		45,738		144,605			134,050

Interest expense:
Interest on deposits:
Interest-bearing checking		52		113		267			331
Savings accounts		323		417		1,067			1,256
Money market deposit accounts		1,177		544		3,122			1,435
Time deposits		7,974		3,864		21,462			10,163
Interest on short-term borrowings		359		277		1,121			918
Total interest expense		9,885		5,215		27,039			14,103

Net interest income		38,643		40,523		117,566			119,947
Provision (Credit) for loan losses		-		300		(41	)		900
Net interest income after provision for loan losses		38,643		40,223		117,607			119,047

Noninterest income:
Trustco financial services income		1,517		1,516		4,933			4,927
Fees for services to customers		2,602		2,693		7,733			8,015
Other		806		246		1,810			687
Total noninterest income		4,925		4,455		14,476			13,629

Noninterest expenses:
Salaries and employee benefits		11,725		10,761		34,887			31,924
Net occupancy expense		4,094		3,997		12,267			12,413
Equipment expense		1,689		1,783		5,300			5,327
Professional services		1,507		1,578		4,725			4,822
Outsourced services		1,875		1,875		5,675			5,625
Advertising expense		494		844		2,057			2,144
FDIC and other insurance		282		682		1,528			2,219
Other real estate expense, net		33		528		219			1,194
Other		2,371		2,496		7,181			7,126
Total noninterest expenses		24,070		24,544		73,839			72,794

Income before taxes		19,498		20,134		58,244			59,882
Income taxes		4,790		4,935		14,311			14,470

Net income	$	14,708		15,199		43,933			45,412

Net income per share:
- Basic	$	0.152		0.157		0.454			0.471

- Diluted	$	0.152		0.157		0.453			0.470

See accompanying notes to unaudited consolidated interim financial statements.

Index

TRUSTCO BANK CORP NY

Consolidated Statements of Comprehensive Income (Unaudited)

(dollars in thousands)

	Three months ended September 30,						Nine months ended September 30,
	2019			2018			2019			2018

Net income	$	14,708			15,199			43,933			45,412

Net unrealized holding gain (loss) on securities available for sale		2,418			(4,079	)		14,185			(12,908	)
Tax effect		(628	)		1,069			(3,686	)		3,352

Net unrealized gain (loss) on securities available for sale, net of tax		1,790			(3,010	)		10,499			(9,556	)

Amortization of net actuarial gain		(35	)		(189	)		(103	)		(367	)
Amortization of prior service (credit) cost		(83	)		(73	)		(250	)		(28	)
Tax effect		31			68			92			103
Amortization of net actuarial gain and prior service credit on pension and postretirement plans, net of tax		(87	)		(194	)		(261	)		(292	)

Other comprehensive income (loss), net of tax		1,703			(3,204	)		10,238			(9,848	)
Comprehensive income	$	16,411			11,995			54,171			35,564

See accompanying notes to unaudited consolidated interim financial statements.

Index

TRUSTCO BANK CORP NY

Consolidated Statements of Financial Condition (Unaudited)

(dollars in thousands, except per share data)

	September 30, 2019			December 31, 2018
ASSETS:

Cash and due from banks	$	49,526			49,260

Federal funds sold and other short term investments		401,151			454,449
Total cash and cash equivalents		450,677			503,709

Securities available for sale		662,759			501,463

Held to maturity securities (fair value 2019 $20,836; 2018 $22,924)		19,705			22,501

Federal Reserve Bank and Federal Home Loan Bank stock		9,183			8,953

Loans, net of deferred net costs		3,985,319			3,874,096
Less:
Allowance for loan losses		44,329			44,766
Net loans		3,940,990			3,829,330

Bank premises and equipment, net		34,168			34,694
Operating lease right-of-use assets		49,618			-
Other assets		55,369			58,263

Total assets	$	5,222,469			4,958,913

LIABILITIES:
Deposits:
Demand	$	453,439			405,069
Interest-bearing checking		869,101			904,678
Savings accounts		1,110,947			1,182,683
Money market deposit accounts		570,457			507,311
Time deposits		1,457,223			1,274,506
Total deposits		4,461,167			4,274,247

Short-term borrowings		151,095			161,893
Operating lease liabilities		54,731			-
Accrued expenses and other liabilities		29,313			32,902

Total liabilities		4,696,306			4,469,042

SHAREHOLDERS’ EQUITY:
Capital stock par value $1; 150,000,000 shares authorized; 100,199,982 and 100,175,032 shares issued at September 30, 2019 and December 31, 2018, respectively		100,200			100,175
Surplus		176,395			176,710
Undivided profits		280,542			256,397
Accumulated other comprehensive loss, net of tax		(71	)		(10,309	)
Treasury stock at cost - 3,283,175 and 3,516,440 shares at September 30, 2019 and December 31, 2018, respectively		(30,903	)		(33,102	)

Total shareholders’ equity		526,163			489,871

Total liabilities and shareholders’ equity	$	5,222,469			4,958,913

See accompanying notes to unaudited consolidated interim financial statements.

Index

TRUSTCO BANK CORP NY

Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)

(dollars in thousands, except per share data)

	Capital Stock		Surplus			Undivided Profits			Accumulated Other Comprehensive (Loss) Income			Treasury Stock			Total

Beginning balance, January 1, 2018	$	99,998		175,651			219,436			(1,806	)		(34,971	)		458,308
Net income		-		-			14,808			-			-			14,808
Tax Cuts and Jobs Act of 2017, Reclassification from AOCI to Retained Earnings, Tax Effect		-		-			1,346			(1,346	)		-			-
Other comprehensive loss, net of tax		-		-			-			(5,338	)		-			(5,338	)
Cash dividend declared, $0.0656 per share		-		-			(6,323	)		-			-			(6,323	)
Stock options exercised (4,000 shares)		4		16			-			-			-			20
Sale of treasury stock (65,289 shares)		-		(21	)		-			-			615			594
Stock based compensation expense		-		28			-			-			-			28

Ending balance, March 31, 2018	$	100,002		175,674			229,267			(8,490	)		(34,356	)		462,097
Net income		-		-			15,405			-			-			15,405
Other comprehensive loss, net of tax		-		-			-			(1,306	)		-			(1,306	)
Cash dividend declared, $0.0656 per share		-		-			(6,330	)		-			-			(6,330	)
Stock options exercised (91,200 shares)		91		592			-			-			-			683
Purchase of treasury stock (45,509 shares)		-		-			-			-			(379	)		(379	)
Sale of treasury stock (70,792 shares)		-		(72	)		-			-			668			596
Stock based compensation expense		-		49			-			-			-			49

Ending balance, June 30, 2018	$	100,093		176,243			238,342			(9,796	)		(34,067	)		470,815
Net income		-		-			15,199			-			-			15,199
Other comprehensive loss, net of tax		-		-			-			(3,204	)		-			(3,204	)
Cash dividend declared, $0.068125 per share		-		-			(6,576	)		-			-			(6,576	)
Stock options exercised (81,350 shares)		82		474			-			-			-			556
Purchase of treasury stock (36,431 shares)		-		-			-			-			(339	)		(339	)
Sale of treasury stock (65,928 shares)		-		(28	)		-			-			620			592
Stock based compensation expense		-		75			-			-			-			75

Ending balance, September 30, 2018	$	100,175		176,764			246,965			(13,000	)		(33,786	)		477,118

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

Ending balance, March 31, 2019	$	100,180		176,510			264,364			(7,011	)		(32,325	)		501,718
Net income		-		-			14,667			-			-			14,667
Other comprehensive income, net of tax		-		-			-			5,237			-			5,237
Cash dividend declared, $0.068125 per share		-		-			(6,598	)		-			-			(6,598	)
Sale of treasury stock (76,443 shares)		-		(120	)		-			-			720			600
Stock based compensation expense		-		6			-			-			-			6

Ending balance, June 30, 2019	$	100,180		176,396			272,433			(1,774	)		(31,605	)		515,630
Net income		-		-			14,708			-			-			14,708
Other comprehensive income, net of tax		-		-			-			1,703			-			1,703
Cash dividend declared, $0.068125 per share		-		-			(6,599	)		-			-			(6,599	)
Stock options exercised (19,850 shares)		20		98			-			-			-			118
Sale of treasury stock (74,656 shares)		-		(105	)		-			-			702			597
Stock based compensation expense		-		6			-			-			-			6

Ending balance, September 30, 2019	$	100,200		176,395			280,542			(71	)		(30,903	)		526,163

See accompanying notes to unaudited consolidated interim financial statements.

Index

TRUSTCO BANK CORP NY

Consolidated Statements of Cash Flows (Unaudited)

(dollars in thousands)

	Nine months ended September 30,
	2019			2018

Cash flows from operating activities:
Net income	$	43,933			45,412

Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		2,958			2,671
Amortization of right-of-use asset		4,420			-
Net gain on sale of other real estate owned		(686	)		(249	)
Writedown of other real estate owned		294			674
(Credit) provision for loan losses		(41	)		900
Deferred tax expense		844			671
Net amortization of securities		2,128			2,459
Stock based compensation expense		-			152
Net gain on sale of bank premises and equipment		(3	)		(1	)
Decrease in taxes receivable		1,903			721
Increase in interest receivable		(397	)		(111	)
Increase in interest payable		510			241
Increase in other assets		(2,669	)		(2,760	)
Decrease in operating lease liabilities		(4,489	)		-
Increase (decrease) in accrued expenses and other liabilities		1,066			(1,947	)
Total adjustments		5,838			3,421
Net cash provided by operating activities		49,771			48,833

Cash flows from investing activities:
Proceeds from calls of securities available for sale		101,306			64,925
Proceeds from calls and maturities of held to maturity securities		2,665			4,089
Purchases of securities available for sale		(260,466	)		(61,207	)
Proceeds from maturities of securities available for sale		10,052			45,000
Purchases of Federal Reserve Bank and Federal Home Loan Bank stock		(230	)		(174	)
Net increase in loans		(115,120	)		(192,222	)
Proceeds from dispositions of other real estate owned		3,159			2,894
Proceeds from dispositions of bank premises and equipment		3			1
Purchases of bank premises and equipment		(2,432	)		(2,727	)
Net cash used in investing activities		(261,063	)		(139,421	)

Cash flows from financing activities:
Net increase in deposits		186,920			26,598
Net decrease in short-term borrowings		(10,798	)		(66,614	)
Proceeds from exercise of stock options		153			1,259
Stock based award tax withholding payments		-			(37	)
Proceeds from sale of treasury stock		1,791			1,782
Purchases of treasury stock		(35	)		(718	)
Dividends paid		(19,771	)		(18,973	)
Net cash provided by (used in) financing activities		158,260			(56,703	)
Net decrease in cash and cash equivalents		(53,032	)		(147,291	)
Cash and cash equivalents at beginning of period		503,709			612,740
Cash and cash equivalents at end of period	$	450,677			465,449

Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for:
Interest paid	$	26,529			13,863
Income taxes paid		12,263			13,778
Other non cash items:
Transfer of loans to other real estate owned		3,501			2,379
Increase in dividends payable		17			256
Change in unrealized gain (loss) on securities available for sale-gross of deferred taxes		14,185			(12,908	)
Change in deferred tax effect on unrealized (gain) loss on securities available for sale		(3,686	)		3,352
Amortization of net actuarial gain and prior service cost on pension and postretirement plans		(353	)		(395	)
Change in deferred tax effect of amortization of net actuarial gain postretirement benefit plans		92			103

See accompanying notes to unaudited consolidated interim financial statements.

Index

(1) Financial Statement Presentation

The unaudited Consolidated Interim Financial Statements of TrustCo Bank Corp NY (the “Company” or “TrustCo”) include the accounts of the Company’s principal subsidiary, Trustco Bank (also referred to as the “Bank”) and other subsidiaries after elimination of all significant intercompany accounts and transactions. Prior period amounts are reclassified when necessary to conform to the current period presentation. The net income reported for the three and nine months ended September 30, 2019 is not necessarily indicative of the results that may be expected for the year ending December 31, 2019, 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, 2019, the results of operations and cash flows for the three and nine months ended September 30, 2019 and 2018. The accompanying Consolidated Interim Financial Statements should be read in conjunction with the Company’s year-end Consolidated Financial Statements, including notes thereto, which are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. The accompanying consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not include all information and notes necessary for a complete presentation of financial position, results of operations and cash flow activity required in accordance with accounting principles generally accepted in the United States.

(2) Earnings Per Share

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

A reconciliation of the component parts of earnings per share for the three and nine months ended September 30, 2019 and 2018 is as follows:

(in thousands, except per share data)	For the three months ended September 30,				For the nine months ended September 30,
	2019		2018		2019		2018
Net income	$	14,708		15,199	$	43,933		45,412
Weighted average common shares		96,907		96,555		96,825		96,453
Stock Options		70		134		72		134
Weighted average common shares including potential dilutive shares		96,977		96,689		96,897		96,587

Basic EPS	$	0.152		0.157	$	0.454		0.471

Diluted EPS	$	0.152		0.157	$	0.453		0.470

For the three and nine months ended September 30, 2019 and 2018, there were no antidilutive stock options excluded from diluted earnings per share.

Index

(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, 2019 and 2018 for its pension and other postretirement benefit plans:

	Three months ended September 30,
	Pension Benefits						Other Postretirement Benefits
(dollars in thousands)	2019			2018			2019			2018

Service cost	$	10			8			17			-
Interest cost		311			299			60			47
Expected return on plan assets		(702	)		(753	)		(248	)		(323	)
Amortization of net (gain) loss		14			-			(49	)		(189	)
Amortization of prior service cost		-			-			(83	)		(73	)
Net periodic benefit	$	(367	)		(446	)		(303	)		(538	)

	Nine months ended September 30,
	Pension Benefits						Other Postretirement Benefits
(dollars in thousands)	2019			2018			2019			2018

Service cost	$	31			25			49			52
Interest cost		933			898			180			156
Expected return on plan assets		(2,108	)		(2,259	)		(743	)		(704	)
Amortization of net loss (gain)		44			-			(147	)		(367	)
Amortization of prior service cost		-			-			(250	)		(28	)
Net periodic benefit	$	(1,100	)		(1,336	)		(911	)		(891	)

The Company does not expect to make contributions to its pension and postretirement benefit plans in 2019. As of September 30, 2019, no contributions have been made, however, this decision is reviewed each quarter and is subject to change based upon market conditions.

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

Index

(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, 2019
(dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value

U.S. government sponsored enterprises	$	164,889		58		457		164,490
State and political subdivisions		166		3		-		169
Mortgage backed securities and collateralized mortgage obligations - residential		405,677		2,701		2,212		406,166
Corporate bonds		40,209		349		277		40,281
Small Business Administration - guaranteed participation securities		51,016		88		134		50,970
Other		685		-		2		683

Total Securities Available for Sale	$	662,642		3,199		3,082		662,759

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

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

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

The schedule of maturities of debt securities available for sale is presented below. Actual maturities may differ because of securities prepayments and the right of certain issuers to call or prepay their obligations without penalty. Securities not due at a single maturity date are presented separately.

(dollars in thousands)	Amortized Cost		Fair Value

Due in one year or less	$	5,049	$	5,060
Due in one year through five years		150,845		150,454
Due after five years through ten years		50,055		50,109
Mortgage backed securities and collateralized mortgage obligations		405,677		406,166
Small Business Administration - guaranteed participation securities		51,016		50,970
	$	662,642	$	662,759

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

U.S. government sponsored enterprises	$	39,915		85		74,522		372		114,437		457
Mortgage backed securities and collateralized mortgage obligations - residential		53,449		360		192,733		1,852		246,182		2,212
Corporate bonds		14,723		277		-		-		14,723		277
Small Business Administration - guaranteed participation securities		27,832		134		-		-		27,832		134
Other		598		2		-		-		598		2

Total	$	136,517		858		267,255		2,224		403,772		3,082

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

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

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

The proceeds from sales and calls of securities available for sale, gross realized gains and gross realized losses from sales and calls during the three and nine months ended September 30, 2019 and 2018 are as follows:

	Three months ended September 30,
(dollars in thousands)	2019		2018

Proceeds from sales	$	-		-
Proceeds from calls/paydowns		56,856		15,444
Proceeds from maturities		-		-
Gross realized gains		-		-
Gross realized losses		-		-

	Nine months ended September 30,
(dollars in thousands)	2019		2018

Proceeds from sales	$	-		-
Proceeds from calls/paydowns		101,306		64,925
Proceeds from maturities		10,052		45,000
Gross realized gains		-		-
Gross realized losses		-		-

There were no gross realized gains or losses from calls of available for sale securities during the three and nine months ended September 30, 2019 and 2018.

There were no sales or transfers of securities available for sale during the three and nine months ended September 30, 2019 and 2018.

Index

(b) Held to maturity securities

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

	September 30, 2019
(dollars in thousands)	Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses		Fair Value

Mortgage backed securities and collateralized mortgage obligations - residential	$	19,705		1,131		-		20,836

Total held to maturity	$	19,705		1,131		-		20,836

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

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

Total held to maturity	$	22,501		577		154		22,924

The following table distributes the debt securities included in the held to maturity portfolio as of September 30, 2019, based on the securities’ final maturity. Actual maturities may differ because of securities prepayments and the right of certain issuers to call or prepay their obligations without penalty. Securities not due at a single maturity date are presented separately:

(dollars in thousands)	Amortized Cost		Fair Value
Mortgage backed securities and collateralized mortgage obligations - residential	$	19,705		20,836
	$	19,705		20,836

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

September 30, 2019

(dollars in thousands)

Less than

12 months

or more

Total

Fair

Value

Gross

Unrec.

Loss

Fair

Value

Gross

Unrec.

Loss

Fair

Value

Gross

Unrec.

Loss

Mortgage backed securities and collateralized mortgage obligations - residential

Total

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

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

Index

There were no sales or transfers of held to maturity securities during the three and nine months ended September 30, 2019 and 2018.

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

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

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

As of September 30, 2019, the Company’s security portfolio included certain securities which were in an unrealized loss position, and are discussed below.

U.S. government sponsored enterprises: In the case of unrealized losses on U.S. government sponsored enterprises, because the decline in fair value is attributable to changes in interest rates, and not credit quality, and because the Company does not have the intent to sell these securities and it is likely that it will not be required to sell the securities before their anticipated recovery, the Company does not consider these securities to be other-than-temporarily impaired at September 30, 2019.

Mortgage backed securities and collateralized mortgage obligations – residential: At September 30, 2019, all mortgage backed securities and collateralized mortgage obligations held by the Company were issued by U.S. government sponsored entities and agencies, primarily Ginnie Mae, Fannie Mae and Freddie Mac, institutions which the government has affirmed its commitment to support. Because the decline in fair value is attributable to changes in interest rates, and not credit quality, and because the Company does not have the intent to sell these securities and it is likely that it will not be required to sell the securities before their anticipated recovery, the Company does not consider these securities to be other-than-temporarily impaired at September 30, 2019.

Index

Corporate Bonds: At September 30, 2019, corporate bonds held by the Company are investment grade quality. Because the decline in fair value is attributable to changes in interest rates, and not credit quality, and because the Company does not have the intent to sell these securities and it is likely that it will not be required to sell the securities before their anticipated recovery, the Company does not consider these securities to be other-than-temporarily impaired at September 30, 2019.

Small Business Administration (SBA) - guaranteed participation securities: At September 30, 2019, all of the SBA securities held by the Company were issued and guaranteed by U.S. Small Business Administration. Because the decline in fair value is attributable to changes in interest rates, and not credit quality, and because the Company does not have the intent to sell these securities and it is likely that it will not be required to sell the securities before their anticipated recovery, the Company does not consider these securities to be other-than-temporarily impaired at September 30, 2019.

(5) Loans and Allowance for Loan Losses

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

	September 30, 2019
(dollars in thousands)	New York and other states*		Florida		Total
Commercial:
Commercial real estate	$	158,766		14,501		173,267
Other		18,912		264		19,176
Real estate mortgage - 1 to 4 family:
First mortgages		2,505,524		913,383		3,418,907
Home equity loans		71,260		18,480		89,740
Home equity lines of credit		228,176		45,350		273,526
Installment		8,557		2,146		10,703
Total loans, net	$	2,991,195	$	994,124		3,985,319
Less: Allowance for loan losses						44,329
Net loans					$	3,940,990

	December 31, 2018
(dollars in thousands)	New York and other states*		Florida		Total
Commercial:
Commercial real estate	$	156,278		15,275		171,553
Other		24,330		263		24,593
Real estate mortgage - 1 to 4 family:
First mortgages		2,442,711		845,166		3,287,877
Home equity loans		71,523		17,308		88,831
Home equity lines of credit		243,765		45,775		289,540
Installment		9,462		2,240		11,702
Total loans, net	$	2,948,069		926,027		3,874,096
Less: Allowance for loan losses						44,766
Net loans					$	3,829,330

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

At September 30, 2019 and December 31, 2018, the Company had approximately $27.4 million and $26.7 million of real estate construction loans, respectively. Of the $27.4 million in real estate construction loans at September 30, 2019, approximately $11.2 million are secured by first mortgages to residential borrowers while approximately $16.2 million were to commercial borrowers for residential construction projects. Of the $26.7 million in real estate construction loans at December 31, 2018, approximately $14.2 million are secured by first mortgages to residential borrowers while approximately $12.5 million were to commercial borrowers for residential construction projects. The vast majority of construction loans are in the Company’s New York market.

Index

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

	September 30, 2019
(dollars in thousands)	New York and other states*		Florida		Total
Loans in non-accrual status:
Commercial:
Commercial real estate	$	852		-		852
Other		36		-		36
Real estate mortgage - 1 to 4 family:
First mortgages		14,815		1,680		16,495
Home equity loans		337		-		337
Home equity lines of credit		3,123		129		3,252
Installment		13		-		13
Total non-accrual loans		19,176		1,809		20,985
Restructured real estate mortgages - 1 to 4 family		30		-		30
Total nonperforming loans	$	19,206		1,809		21,015

	December 31, 2018
(dollars in thousands)	New York and other states*		Florida		Total
Loans in non-accrual status:
Commercial:
Commercial real estate	$	639		-		639
Other		6		-		6
Real estate mortgage - 1 to 4 family:
First mortgages		18,202		1,812		20,014
Home equity loans		247		-		247
Home equity lines of credit		3,924		103		4,027
Installment		4		15		19
Total non-accrual loans		23,022		1,930		24,952
Restructured real estate mortgages - 1 to 4 family		34		-		34
Total nonperforming loans	$	23,056		1,930		24,986

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

The Company transfers loans to other real estate owned, at fair value less cost to sell, in the period the Company obtains physical possession of the property (through legal title or through a deed in lieu). As of September 30, 2019 and December 31, 2018, other real estate owned included $1.8 million and $1.1 million of residential foreclosed properties, respectively. In addition, non-accrual residential mortgage loans that are in the process of foreclosure had a recorded investment of $9.2 million and $12.4 million as of September 30, 2019 and December 31, 2018, respectively.

Index

The following tables present the aging of the recorded investment in past due loans by loan class and by region as of September 30, 2019 and December 31, 2018:

	September 30, 2019
New York and other states*:
(dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		90 + Days Past Due		Total 30+ days Past Due		Current		Total Loans

Commercial:
Commercial real estate	$	203		-		731		934		157,832		158,766
Other		-		-		33		33		18,879		18,912
Real estate mortgage - 1 to 4 family:
First mortgages		2,750		1,027		10,144		13,921		2,491,603		2,505,524
Home equity loans		175		-		250		425		70,835		71,260
Home equity lines of credit		459		203		1,686		2,348		225,828		228,176
Installment		3		59		10		72		8,485		8,557

Total	$	3,590		1,289		12,854		17,733		2,973,462		2,991,195

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	$	-		-		-		-		14,501		14,501
Other		-		-		-		-		264		264
Real estate mortgage - 1 to 4 family:
First mortgages		842		201		1,292		2,335		911,048		913,383
Home equity loans		-		49		-		49		18,431		18,480
Home equity lines of credit		133		-		80		213		45,137		45,350
Installment		-		1		-		1		2,145		2,146

Total	$	975		251		1,372		2,598		991,526		994,124

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	$	203		-		731		934		172,333		173,267
Other		-		-		33		33		19,143		19,176
Real estate mortgage - 1 to 4 family:
First mortgages		3,592		1,228		11,436		16,256		3,402,651		3,418,907
Home equity loans		175		49		250		474		89,266		89,740
Home equity lines of credit		592		203		1,766		2,561		270,965		273,526
Installment		3		60		10		73		10,630		10,703

Total	$	4,565		1,540		14,226		20,331		3,964,988		3,985,319

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

Index

	December 31, 2018
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	$	198		-		370		568		155,710		156,278
Other		-		-		-		-		24,330		24,330
Real estate mortgage - 1 to 4 family:
First mortgages		3,276		898		13,267		17,441		2,425,270		2,442,711
Home equity loans		158		94		212		464		71,059		71,523
Home equity lines of credit		963		348		1,691		3,002		240,763		243,765
Installment		44		29		2		75		9,387		9,462

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

Florida:
(dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		90 + Days Past Due		Total 30+ days Past Due		Current		Total Loans

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

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

Total:
(dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		90 + Days Past Due		Total 30+ days Past Due		Current		Total Loans

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

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

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

At September 30, 2019 and December 31, 2018, there were no loans that were 90 days past due and still accruing interest. As a result, non-accrual loans include all loans 90 days or more past due as well as certain loans less than 90 days past due that were placed on non-accrual status for reasons other than delinquent status. There are no commitments to extend further credit on non-accrual or restructured loans.

Index

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

	For the three months ended September 30, 2019
(dollars in thousands)	Commercial			Real Estate Mortgage- 1 to 4 Family			Installment		Total
Balance at beginning of period	$	3,913			39,963			489		44,365
Loans charged off:
New York and other states*		13			147			16		176
Florida		-			-			16		16
Total loan chargeoffs		13			147			32		192

Recoveries of loans previously charged off:
New York and other states*		41			108			7		156
Florida		-			-			-		-
Total recoveries		41			108			7		156
Net loans (recoveries) charged off		(28	)		39			25		36
(Credit) provision for loan losses		(70	)		(18	)		88		-
Balance at end of period	$	3,871			39,906			552		44,329

	For the three months ended September 30, 2018
(dollars in thousands)	Commercial			Real Estate Mortgage- 1 to 4 Family			Installment		Total
Balance at beginning of period	$	4,195			39,471			837		44,503
Loans charged off:
New York and other states*		-			94			69		163
Florida		-			-			9		9
Total loan chargeoffs		-			94			78		172

Recoveries of loans previously charged off:
New York and other states*		2			97			5		104
Florida		-			-			1		1
Total recoveries		2			97			6		105
Net loans (recoveries) charged off		(2	)		(3	)		72		67
Provision for loan losses		(65	)		227			138		300
Balance at end of period	$	4,132			39,701			903		44,736

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

Index

	Nine months ended September 30, 2019
	Commercial			Real Estate Mortgage- 1 to 4 Family		Installment			Total
Balance at beginning of period	$	4,048			39,772		946			44,766
Loans charged off:
New York and other states*		20			744		94			858
Florida		-			29		47			76
Total loan chargeoffs		20			773		141			934

Recoveries of loans previously charged off:
New York and other states*		45			441		17			503
Florida		-			35		-			35
Total recoveries		45			476		17			538
Net loans charged off		(25	)		297		124			396
(Credit) provision for loan losses		(202	)		431		(270	)		(41	)
Balance at end of period	$	3,871			39,906		552			44,329

	Nine months ended September 30, 2018
	Commercial			Real Estate Mortgage- 1 to 4 Family		Installment		Total
Balance at beginning of period	$	4,324			39,077		769		44,170
Loans charged off:
New York and other states*		-			464		181		645
Florida		-			-		15		15
Total loan chargeoffs		-			464		196		660

Recoveries of loans previously charged off:
New York and other states*		9			289		24		322
Florida		-			-		4		4
Total recoveries		9			289		28		326
Net loans charged off (recoveries)		(9	)		175		168		334
Provision (recoveries) for loan losses		(201	)		799		302		900
Balance at end of period	$	4,132			39,701		903		44,736

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

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

Index

The following tables present the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of September 30, 2019 and December 31, 2018:

	September 30, 2019
(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	$	-		-		-		-
Collectively evaluated for impairment		3,871		39,906		552		44,329

Total ending allowance balance	$	3,871		39,906		552		44,329

Loans:
Individually evaluated for impairment	$	1,521		19,406		-		20,927
Collectively evaluated for impairment		190,922		3,762,767		10,703		3,964,392

Total ending loans balance	$	192,443		3,782,173		10,703		3,985,319

	December 31, 2018
(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	$	-		-		-		-
Collectively evaluated for impairment		4,048		39,772		946		44,766

Total ending allowance balance	$	4,048		39,772		946		44,766

Loans:
Individually evaluated for impairment	$	1,424		20,864		-		22,288
Collectively evaluated for impairment		194,722		3,645,384		11,702		3,851,808

Total ending loans balance	$	196,146		3,666,248		11,702		3,874,096

A loan for which the terms have been modified, and for which the borrower is experiencing financial difficulties, is considered a TDR and is classified as impaired. TDR’s at September 30, 2019 and December 31, 2018 are measured at the present value of estimated future cash flows using the loan’s effective rate at inception or the fair value of the underlying collateral if the loan is considered collateral dependent.

Index

The following tables present impaired loans by loan class as of September 30, 2019 and December 31, 2018:

	September 30, 2019
New York and other states*:
(dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment

Commercial:
Commercial real estate	$	1,346		1,488		-		1,373
Other		68		68		-		45
Real estate mortgage - 1 to 4 family:
First mortgages		13,995		14,283		-		14,556
Home equity loans		238		259		-		245
Home equity lines of credit		2,380		2,520		-		2,427

Total	$	18,027		18,618		-		18,646

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

Commercial:
Commercial real estate	$	107		107		-		110
Other		-		-		-		-
Real estate mortgage - 1 to 4 family:
First mortgages		2,505		2,505		-		2,211
Home equity loans		40		40		-		72
Home equity lines of credit		248		248		-		251

Total	$	2,900		2,900		-		2,644

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

Commercial:
Commercial real estate	$	1,453		1,595		-		1,483
Other		68		68		-		45
Real estate mortgage - 1 to 4 family:
First mortgages		16,500		16,788		-		16,767
Home equity loans		278		299		-		317
Home equity lines of credit		2,628		2,768		-		2,678

Total	$	20,927		21,518		-		21,290

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

Index

	December 31, 2018
New York and other states*:
(dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment

Commercial:
Commercial real estate	$	1,274		1,444		-		1,503
Other		38		88		-		123
Real estate mortgage - 1 to 4 family:
First mortgages		15,210		15,661		-		15,577
Home equity loans		252		272		-		262
Home equity lines of credit		2,772		2,996		-		2,772

Total	$	19,546		20,461		-		20,237

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

Commercial:
Commercial real estate	$	112		112		-		57
Other		-		-		-		-
Real estate mortgage - 1 to 4 family:
First mortgages		2,293		2,399		-		2,455
Home equity loans		84		84		-		86
Home equity lines of credit		253		253		-		326

Total	$	2,742		2,848		-		2,924

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

Commercial:
Commercial real estate	$	1,386		1,556		-		1,560
Other		38		88		-		123
Real estate mortgage - 1 to 4 family:
First mortgages		17,503		18,060		-		18,032
Home equity loans		336		356		-		348
Home equity lines of credit		3,025		3,249		-		3,098

Total	$	22,288		23,309		-		23,161

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

The Company has not committed to lend additional amounts to customers with outstanding loans that are classified as impaired. Interest income recognized on impaired loans was not material during the three and nine months ended September 30, 2019 and 2018.

Index

As of September 30, 2019 and December 31, 2018 impaired loans included approximately $11.5 million and $11.1 million of loans in accruing status that were identified as TDR’s in accordance with regulatory guidance related to Chapter 7 bankruptcy loans, respectively.

Management evaluates impairment on impaired loans on a quarterly basis. If, during this evaluation, impairment of the loan is identified, a chargeoff is taken at that time. As a result, as of September 30, 2019 and December 31, 2018, based upon management’s evaluation and due to the sufficiency of chargeoffs taken, none of the allowance for loan losses has been allocated to a specific impaired loan(s).

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

	Three months ended 9/30/2019						Three months ended 9/30/2018

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		Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment

Commercial:
Commercial real estate		-	$	-		-		-	$	-		-
Real estate mortgage - 1 to 4 family:
First mortgages		4		537		537		6		791		791
Home equity loans		-		-		-		1		6		6
Home equity lines of credit		-		-		-		1		7		7

Total		4	$	537		537		8	$	804		804

Florida: (dollars in thousands)	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment

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

Total		5	$	509		509		-	$	-		-

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

Index

	Nine months ended 9/30/2019						Nine months ended 9/30/2018

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		Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment

Commercial:
Commercial real estate		1	$	127		127		-	$	-		-
Real estate mortgage - 1 to 4 family:
First mortgages		12		1,768		1,768		10		1,386		1,386
Home equity loans		-		-		-		1		6		6
Home equity lines of credit		2		235		235		3		216		216

Total		15	$	2,130		2,130		14	$	1,608		1,608

Florida: (dollars in thousands)	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment

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

Total		5	$	509		509		-	$	-		-

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

Index

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

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

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

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

During the three months ended September 30, 2019 and 2018 there were no TDR’s that defaulted which had been modified during the last twelve months. The following table presents, by class, TDR’s that defaulted during the nine months ended September 30, 2019 and 2018 which had been modified within the last twelve months:

	Three months ended 9/30/2019				Three months ended 9/30/2018
New York and other states*:	Number of Contracts		Recorded Investment		Number of Contracts		Recorded Investment
(dollars in thousands)	Number of Contracts		Recorded Investment		Number of Contracts		Recorded Investment

Commercial:
Commercial real estate		-	$	-		-	$	-
Real estate mortgage - 1 to 4 family:
First mortgages		-		-		1		101
Home equity lines of credit		-		-		-		-

Total		-	$	-		1	$	101

Florida:

(dollars in thousands)

Number of

Contracts

Recorded

Investment

Number of

Contracts

Recorded

Investment

Commercial:

Commercial real estate

Real estate mortgage - 1 to 4 family:

First mortgages

Home equity loans

Home equity lines of credit

Total

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

Index

	Nine months ended 9/30/2019				Nine months ended 9/30/2018
New York and other states*:	Number of Contracts		Recorded Investment		Number of Contracts		Recorded Investment
(dollars in thousands)	Number of Contracts		Recorded Investment		Number of Contracts		Recorded Investment

Commercial:
Commercial real estate		-	$	-		-	$	-
Real estate mortgage - 1 to 4 family:
First mortgages		-		-		1		101
Home equity loans		-		-		-		-
Home equity lines of credit		-		-		1		3

Total		-	$	-		2	$	104

Florida: (dollars in thousands)	Number of Contracts		Recorded Investment		Number of Contracts		Recorded Investment

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

Total		-	$	-		1	$	72

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

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

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

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.

Index

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

As of September 30, 2019 and December 31, 2018, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

	September 30, 2019

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

Commercial:
Commercial real estate	$	154,608		4,158		158,766
Other		17,919		993		18,912

	$	172,527		5,151		177,678

Florida:
(dollars in thousands)	Pass		Classified		Total

Commercial:
Commercial real estate	$	14,501		-		14,501
Other		264		-		264

	$	14,765		-		14,765

Total:
(dollars in thousands)	Pass		Classified		Total

Commercial:
Commercial real estate	$	169,109		4,158		173,267
Other		18,183		993		19,176

	$	187,292		5,151		192,443

* Includes New York, New Jersey and Massachusetts.

Index

	December 31, 2018

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

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

	$	175,376		5,232		180,608

Florida:
(dollars in thousands)	Pass		Classified		Total

Commercial:
Commercial real estate	$	15,163		112		15,275
Other		263		-		263

	$	15,426		112		15,538

Total:
(dollars in thousands)	Pass		Classified		Total

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

	$	190,802		5,344		196,146

* Includes New York, New Jersey and Massachusetts.

Included in classified loans in the above tables are impaired loans of $1.5 million and $1.4 million at September 30, 2019 and December 31, 2018, respectively.

For homogeneous loan pools, such as residential mortgages, home equity lines of credit, and installment loans, the Company uses payment status to identify the credit risk in these loan portfolios. Payment status is reviewed on a daily basis by the Company’s collection department 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, 2019 and December 31, 2018 is included in the aging of the recorded investment of the past due loans table. In addition, the total nonperforming portion of these homogeneous loan pools as of September 30, 2019 and December 31, 2018 is presented in the non-accrual loans table.

Index

(6) Fair Value of Financial Instruments

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

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

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

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

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

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

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

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

Index

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

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

	Fair Value Measurements at
	September 30, 2019 Using:
(dollars in thousands)	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)

Securities available for sale:
U.S. government sponsored enterprises	$	164,490	$	-	$	164,490	$	-
State and political subdivisions		169		-		169		-
Mortgage backed securities and collateralized mortgage obligations - residential		406,166		-		406,166		-
Corporate bonds		40,281		-		40,281		-
Small Business Administration- guaranteed participation securities		50,970		-		50,970		-
Other securities		683		-		683		-

Total securities available for sale	$	662,759	$	-	$	662,759	$	-

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

Securities available for sale:
U.S. government sponsored enterprises	$	152,160	$	-	$	152,160	$	-
State and political subdivisions		173		-		173		-
Mortgage backed securities and collateralized mortgage obligations - residential		262,032		-		262,032		-
Corporate bonds		29,938		-		29,938		-
Small Business Administration- guaranteed participation securities		56,475		-		56,475		-
Other securities		685		-		685		-

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

There were no transfers between Level 1 and Level 2 during the three and nine months ended September 30, 2019 and 2018.

Index

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

	Fair Value Measurements at
	September 30, 2019 Using:
(dollars in thousands)	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Valuation technique	Unobservable inputs	Range (Weighted Average)

Other real estate owned	$	2,409	$	-	$	-	$	2,409	Sales comparison approach	Adjustments for differences between comparable sales		1% - 9% (2	%)

Impaired loans:
Real estate mortgage -1 to 4 family		-		-		-		-	Sales comparison approach	Adjustments for differences between comparable sales		N/A

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

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

Impaired loans:
Real estate mortgage -1 to 4 family		459		-		-		459	Sales comparison approach	Adjustments for differences between comparable sales		5% - 14% (10	%)

Other real estate owned, that is carried at fair value less costs to sell was approximately $2.4 million at September 30, 2019 and consisted of $560 thousand of commercial real estate and $1.8 million of residential real estate properties. Valuation charges of $18 thousand and $294 thousand are included in earnings for the three months and nine months ended September 30, 2019, respectively.

Of the total impaired loans of $20.9 million at September 30, 2019, none are collateral dependent and carried at fair value measured on a non-recurring basis.

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

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

In accordance with FASB Topic 825, Financial Instruments (“ASC 825”), the carrying amounts and estimated fair values (represents exit price) of financial instruments, at September 30, 2019 and December 31, 2018 are as follows:

Index

(dollars in thousands)			Fair Value Measurements at
	Carrying		September 30, 2019 Using:
	Value		Level 1		Level 2		Level 3		Total
Financial assets:
Cash and cash equivalents	$	450,677		450,677		-		-		450,677
Securities available for sale		662,759		-		662,759		-		662,759
Held to maturity securities		19,705		-		20,836		-		20,836
Federal Reserve Bank and Federal
Home Loan Bank stock		9,183		N/A		N/A		N/A		N/A
Net loans		3,940,990		-		-		3,990,429		3,990,429
Accrued interest receivable		11,738		96		2,770		8,872		11,738
Financial liabilities:
Demand deposits		453,439		453,439		-		-		453,439
Interest bearing deposits		4,007,728		2,550,505		1,456,107		-		4,006,612
Short-term borrowings		151,095		-		151,095		-		151,095
Accrued interest payable		1,534		163		1,371		-		1,534

(dollars in thousands)			Fair Value Measurements at
	Carrying		December 31, 2018 Using:
	Value		Level 1		Level 2		Level 3		Total
Financial assets:
Cash and cash equivalents	$	503,709		503,709		-		-		503,709
Securities available for sale		501,463		-		501,463		-		501,463
Held to maturity securities		22,501		-		22,924		-		22,924
Federal Reserve Bank and Federal
Home Loan Bank stock		8,953		N/A		N/A		N/A		N/A
Net loans		3,829,330		-		-		3,753,966		3,753,966
Accrued interest receivable		11,341		353		2,371		8,617		11,341
Financial liabilities:
Demand deposits		405,069		405,069		-		-		405,069
Interest bearing deposits		3,869,178		2,594,672		1,264,772		-		3,859,444
Short-term borrowings		161,893		-		161,893		-		161,893
Accrued interest payable		1,024		104		920		-		1,024

Index

(7) Accumulated Other Comprehensive Income (Loss)

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

	Three months ended 9/30/2019
(dollars in thousands)	Balance at 7/1/2019			Other Comprehensive Income (loss)- Before Reclassifications		Amount reclassified from Accumulated Other Comprehensive Income			Other Comprehensive Income (loss)- Three months ended 9/30/2019			Balance at 9/30/2019

Net unrealized holding loss on securities available for sale, net of tax	$	(1,707	)		1,790		-			1,790			83
Net change in overfunded position in pension and postretirement plans arising during the year, net of tax		423			-		-			-			423
Net change in net actuarial loss and prior service credit on pension and postretirement benefit plans, net of tax		(490	)		-		(87	)		(87	)		(577	)

Accumulated other comprehensive loss, net of tax	$	(1,774	)		1,790		(87	)		1,703			(71	)

	Three months ended 9/30/2018
(dollars in thousands)	Balance at 7/1/2018			Other Comprehensive Income (loss)- Before Reclassifications			Amount reclassified from Accumulated Other Comprehensive Income			Other Comprehensive Income (loss)- Three months ended 9/30/2018			Balance at 9/30/2018

Net unrealized holding (gain) loss on securities available for sale, net of tax	$	(11,576	)		(3,010	)		-			(3,010	)		(14,586	)
Net change in net actuarial (gain) loss and prior service cost on pension and postretirement benefit plans, net of tax		3,126			-			(194	)		(194	)		2,932
Tax Cuts and Jobs Act of 2017, Reclassification from AOCI to Retained Earnings, Tax Effect		(1,346	)		-			-			-			(1,346	)

Accumulated other comprehensive income (loss), net of tax	$	(9,796	)		(3,010	)		(194	)		(3,204	)		(13,000	)

	Nine months ended 9/30/2019
(dollars in thousands)	Balance at 1/1/2019			Other Comprehensive Income (loss)- Before Reclassifications		Amount reclassified from Accumulated Other Comprehensive Income			Other Comprehensive Income (loss)- Three months ended 9/30/2019			Balance at 9/30/2019

Net unrealized holding loss on securities available for sale, net of tax	$	(10,416	)		10,499		-			10,499			83
Net change in overfunded position in pension and postretirement plans arising during the year, net of tax		423			-		-			-			423
Net change in net actuarial loss and prior service credit on pension and postretirement benefit plans, net of tax		(316	)		–		(261	)		(261	)		(577	)

Accumulated other comprehensive loss, net of tax	$	(10,309	)		10,499		(261	)		10,238			(71	)

	Nine months ended 9/30/2018
(dollars in thousands)	Balance at 1/1/2018			Other Comprehensive Income (loss)- Before Reclassifications			Amount reclassified from Accumulated Other Comprehensive Income			Other Comprehensive Income (loss)- Three months ended 9/30/2018			Balance at 9/30/2018

Net unrealized holding (gain) loss on securities available for sale, net of tax	$	(5,030	)		(9,556	)		-			(9,556	)		(14,586	)
Net change in net actuarial (gain) loss and prior service cost on pension and postretirement benefit plans, net of tax		3,224			-			(292	)		(292	)		2,932
Tax Cuts and Jobs Act of 2017, Reclassification from AOCI to Retained Earnings, Tax Effect		-			-			(1,346	)		-			(1,346	)

Accumulated other comprehensive income (loss), net of tax	$	(1,806	)		(9,556	)		(1,638	)		(9,848	)		(13,000	)

Index

The following represents the reclassifications out of accumulated other comprehensive income (loss) for the three and nine months ended September 30, 2019 and 2018:

(dollars in thousands)	Three months ended						Nine months ended
	September 30,						September 30,
	2019			2018			2019			2018			Affected Line Item in Financial Statements
Amortization of pension and postretirement benefit items:
Amortization of net actuarial gain (loss)	$	35			189		$	103			367		Salaries and employee benefits
Amortization of prior service cost		83			73			250			28		Salaries and employee benefits
Income tax benefit		(31	)		(68	)		(92	)		(103	)	Income taxes
Net of tax		87			194			261			292

Total reclassifications, net of tax	$	87			194		$	261			292

(8) Revenue from Contracts with Customers

All of the Company’s revenue from contracts with customers in the scope of ASC 606 is recognized within Non-Interest Income. The following table presents the Company’s sources of Non-Interest Income for the three months and nine months ended September 30, 2019 and 2018. Items outside the scope of ASC 606 are noted as such.

(dollars in thousands)	Three months ended				Nine months ended
	September 30,				September 30,
	2019		2018		2019		2018
Non-interest income
Service Charges on Deposits
Overdraft fees	$	931		935	$	2,630		2,586
Other		124		125		343		335
Interchange Income		970		1,003		3,785		3,478
Wealth management fees		1,517		1,516		4,933		4,927
Other (a)		1,383		876		2,785		2,303

Total non-interest income	$	4,925		4,455	$	14,476		13,629

(a) Not within the scope of ASC 606.

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

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

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

Index

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

Gains/Losses on Sales of Other Real Estate Owned “OREO”: The Company records a gain or loss from the sale of OREO when control of the property transfers to the buyer, which generally occurs at the time of an executed deed. When the Company finances the sale of OREO to the buyer, the Company assesses whether the buyer is committed to perform their obligations under the contract and whether collectability of the transaction price is probable. Once these criteria are met, the OREO asset is derecognized and the gain or loss on sale is recorded upon the transfer of control of the property to the buyer. In determining the gain or loss on the sale, the Company adjusts the transaction price and related gain/(loss) on sale if a significant financing component is present.

(9) Operating Leases

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

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

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

As of September 30, 2019 the Company does not have leases that have not yet commenced. At September 30, 2019 lease expiration dates ranged from two months to 25.0 years and have a weighted average remaining lease term of 9.4 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.

Index

Other information related to leases was as follows:

(dollars in thousands)	Three months ended September 30,
	2019		2018
Operating lease cost	$	2,007		1,954
Variable lease cost		497		492

Total Lease costs	$	2,504		2,446

(dollars in thousands)	Nine months ended September 30,
	2019		2018
Operating lease cost	$	5,828		5,794
Variable lease cost		1,472		1,546

Total Lease costs	$	7,300		7,340

(dollars in thousands)	Nine months ended September 30,
	2019
Supplemental cash flows information:

Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	5,824

Right-of-use assets obtained in exchange for lease obligations:		54,038

Weighted average remaining lease term	9.4 years
Weighted average discount rate		3.30	%

Future minimum lease payments under non-cancellable leases as of September 30, 2019 were as follows:

(dollars in thousands)

Year ending December 31,
2019^(a)	$	1,967
2020		7,820
2021		7,818
2022		7,300
2023		6,978
Thereafter		32,600
Total lease payments	$	64,483
Less: Interest		9,752

Present value of lease liabilities	$	54,731

^(a)Excluding the nine months ended September 30, 2019.

Index

Future minimum lease payments under non-cancellable leases as of September 30, 2018 were as follows:

(dollars in thousands)

Year ending December 31,
2018^(b)	$	1,940
2019		7,799
2020		7,622
2021		7,555
2022		7,048
Thereafter		39,395

Total lease payments	$	71,359

^(b)Excluding the nine months ended September 30, 2018.

(10) Regulatory Capital Requirements

Banks and bank holding companies are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy regulations and, additionally for banks, the prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can result in regulatory action. The final rules implementing Basel Committee on Banking Supervision’s capital guidelines for U.S. banks (Basel III rules) became effective for the Company on January 1, 2015 with full compliance with all of the requirements being phased in over a multi-year schedule, and became fully phased in on January 1, 2019. The capital rules include a capital conservation buffer that is designed to absorb losses during periods of economic stress and to require increased capital levels before capital distributions and certain other payments can be made. Failure to meet the full amount of the buffer will result in restrictions on the Company’s ability to make capital distributions, including dividend payments and stock repurchases, and to pay discretionary bonuses to executive officers. The buffer was fully implemented at 2.5% as of January 1, 2019. Management believes, as of September 30, 2019, the Company and Bank meet all capital adequacy requirements to which they are subject.

Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If a bank is not classified as well capitalized, regulatory approval is required to accept brokered deposits. If a bank is undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. The federal banking agencies are required to take certain supervisory actions (and may take additional discretionary actions) with respect to an undercapitalized institution or its holding company. Such actions could have a direct material effect on an institution’s or its holding company’s financial statements. As of September 30, 2019 and December 31, 2018, 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.

Index

The Bank and the Company reported the following capital ratios as of September 30, 2019 and December 31, 2018:

(Bank Only)

	As of September 30, 2019					Well Capitalized⁽¹⁾			Adequately Capitalized⁽¹⁾⁽²⁾
(dollars in thousands)	Amount		Ratio			Well Capitalized⁽¹⁾			Adequately Capitalized⁽¹⁾⁽²⁾

Tier 1 leverage capital	$	509,531		9.751	%		5.000	%		4.000	%
Common equity tier 1 capital		509,531		18.202			6.500			7.000
Tier 1 risk-based capital		509,531		18.202			8.000			8.500
Total risk-based capital		544,641		19.456			10.000			10.500

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

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

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

	As of September 30, 2019
(dollars in thousands)	Amount		Ratio

Tier 1 leverage capital	$	525,680		10.057	%		4.000	%
Common equity tier 1 capital		525,680		18.767			7.000
Tier 1 risk-based capital		525,680		18.767			8.500
Total risk-based capital		560,811		20.021			10.500

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

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

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

(2)	The September 30, 2019 common equity tier 1, tier 1 risk-based, and total risk-based capital ratios include a capital conservation buffer of 2.50 percent

(3)	The December 31, 2018 common equity tier 1, tier 1 risk-based, and total risk-based capital ratios include a transition capital conservation buffer of 1.88 percent

(11) New Accounting Pronouncements

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

Index

In June 2016, the FASB released ASU 2016-13, “Financial Instruments – Credit Losses” which amended existing guidance to replace current generally accepted accounting principles used to measure a reporting entity’s credit losses. The main objective of this update is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. To achieve this objective, the amendments in this update replace the incurred loss impairment methodology in current GAAP with a methodology that reflects the current expected credit losses (“CECL”) and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. These amendments are effective for public business entities for annual periods and interim periods within those annual periods beginning after December 15, 2019.

The ASU represents a significant change from current GAAP and the Company continues to evaluate the impact of the ASU on its consolidated financial statements. The Company’s committee continues to meet regularly to evaluate the provisions of the ASU, reviewing the results of trial runs, enhancements to and development of policies as well as internal controls and processes being put in place related to the adoption of ASU 2016-13. We have made our decision on loan segmentation and currently are in the process of testing and validating methodologies for calculating the quantitative component of our CECL allowance. The Company has performed and will continue to perform multiple trial runs of CECL models, as well as model sensitivity analysis and determination of qualitative adjustments.

The Company plans to finalize its Topic 326 compliant methodology, accounting policies and internal controls in the fourth quarter of 2019. Upon adoption, any change to the Allowance for Credit losses will be recorded with a corresponding one-time cumulative-effect adjustment to retained earnings. The magnitude of any such one-time adjustment or the overall impact of the new guidance on the consolidated financial statements cannot yet be reasonably estimated. We continue to evaluate the impact the adoption of the guidance will have on our Consolidated Financial Statements. The impact will be contingent upon the underlying characteristics of the affected portfolio and macroeconomic and internal forecasts at adoption date. In December 2018, the OCC, the Board of Governors of the Federal Reserve System, and the FDIC approved a final rule to address changes to credit loss accounting under GAAP, including banking organizations’ implementation of CECL. The final rule provides banking organizations the option to phase in over a three-year period the day-one adverse effects on regulatory capital that may result from the adoption of the new accounting standard. The Company is evaluating adopting the capital transition relief over the permissible three-year period.

In April 2019, Accounting Standards Update No. 2019-04, “Codification Improvements to Topic 326 Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments” (“ASU 2019-04”) was issued to provide additional clarification on the scope and disclosure requirements of Topic 326. ASU 2019-04 includes provisions related to accounting policy elections that can be made by the entity related to accrued interest receivable and expected prepayments on financial assets, the inclusion of recoveries in estimating the allowance for credit losses (“ACL”) and consideration of contract extension and renewals when determining the contractual term. This ASU also provides clarification on the tabular vintage disclosures related to line-of-credit arrangements that convert term loans. In May 2019, Accounting Standards Update No. 2019-05, “Financial Instruments - Credit Losses (Topic 326); Targeted Transition Relief” (“ASU 2019-05”) was issued to allow an entity to make an irrevocable fair value option election on instruments within the scope of Topic 326 that are measured at amortized cost, except for held-to-maturity debt securities. This election can be applied on an instrument-by-instrument basis upon the adoption of Topic 326. The Company currently writes off the uncollectible accrued interest receivable balance upon nonaccrual status by reversing interest income. The Company currently includes recoveries in estimating the allowance for credit losses and is evaluating all other components of ASU 2019-04 and their impacts to the Company.

For available for sale investments with unrealized losses, credit losses will be recognized as an allowance on an individual security basis rather than a reduction in the amortized cost of the securities. As a result, improvements to estimated credit losses will be recognized immediately in earnings rather than as interest income over time. The Company has also evaluated the impacts of ASU 2019-05 to our held to maturity investments that are measured at amortized cost. Based on the credit quality of our existing available for sale and held to maturity debt investment portfolio, the Company does not expect the Allowance for Credit Losses for the adoption of the standard, as it relates to the investment portfolio to be significant. The effective dates of ASU 2019-04 and ASU 2019-05 are the same as the effective date of ASU 2016-13.

Index

Crowe LLP

Independent Member Crowe Global

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Shareholders and the Board of Directors of TrustCo Bank Corp NY

Glenville, New York

Results of Review of Interim Financial Information

We have reviewed the consolidated statement of financial condition of TrustCo Bank Corp NY (the "Company") as of September 30, 2019, and the related consolidated statements of income and comprehensive income for the three-month and nine-month periods ended September 30, 2019 and September 30, 2018 and the related changes in shareholders’ equity and cash flows for the nine-month periods ended September 30, 2019 and September 30, 2018, and the related notes (collectively referred to as the "interim financial information or statements"). Based on our reviews, we are not aware of any material modifications that should be made to the consolidated financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) ("PCAOB"), the consolidated statement of financial condition of the Company as of December 31, 2018, and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for the year then ended (not presented herein); and in our report dated March 1, 2019, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated statement of financial condition as of December 31, 2018, is fairly stated, in all material respects, in relation to the consolidated statement of condition from which it has been derived.

Basis for Review Results

These financial statements are the responsibility of the Company's management. We conducted our review in accordance with the standards of the PCAOB. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the company in accordance with the U.S federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

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

/s/ Crowe LLP

Livingston, New Jersey

November 7, 2019

Index

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

Forward-looking Statements

Statements included in this report and in future filings by TrustCo with the Securities and Exchange Commission, in TrustCo’s press releases, and in oral statements made with the approval of an authorized executive officer, 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. All statements in this news release that are not historical are forward-looking statements within the meaning of the Securities Exchange Act of 1934, as amended. Forward-looking statements can be identified by words such as "anticipate," "intend," "plan," "goal," "seek," "believe," "project," "estimate," "expect," "strategy," "future," "likely," "may," "should," "will" and similar references to future periods. Examples of forward-looking statements include, among others, statements we make regarding our expectations for our performance during 2019, the impact of Federal Reserve actions regarding interest rates and the growth of loans and deposits throughout our branch network, our expectations for changes in interest income, interest expense and interest rate margin, our ability to capitalize on economic changes in the areas in which we operate and the extent to which higher expenses to fulfill operating and regulatory requirements recur or diminish over time. Such forward-looking statements are subject to factors that could cause actual results to differ materially for TrustCo from those discussed. TrustCo wishes to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made.

In addition to factors described under Part II, Item 1A, Risk Factors, if any, and under the Risk Factor discussion in TrustCo’s Annual Report on Form 10-K for the year ended December 31, 2018, the following important factors, among others, in some cases have affected and in the future could affect TrustCo’s actual results and could cause TrustCo’s actual financial performance to differ materially from that expressed in any forward-looking statement:

•

TrustCo’s ability to continue to originate a significant volume of one- to- four family mortgage loans in its market areas and to otherwise maintain or increase its market share in the areas in which it operates;

•

TrustCo’s ability to continue to maintain noninterest expense and other overhead costs at reasonable levels relative to income;

•

TrustCo’s ability to make accurate assumptions and judgments regarding the credit risks associated with its lending and investing activities, including changes in the level and direction of loan delinquencies and charge-offs, changes in property values, and changes in estimates of the adequacy of the allowance for loan and lease losses;

•

the effects of and changes in, trade, tariffs, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System, inflation, interest rates, market and monetary fluctuations;

•

restrictions or conditions imposed by TrustCo’s and Trustco Bank’s regulators on their operations that may make it more difficult to achieve TrustCo’s and Trustco Bank’s goals;

Index

•

the future earnings and capital levels of TrustCo and Trustco Bank and the continued receipt of approvals 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;

•

unanticipated effects from the Tax Cuts & Jobs Act of 2017 that may limit its benefits or adversely impact our business, which could include decreased demand for borrowing by our customers or increased price competition that offsets the benefits of decreased federal income tax expense;

•

the perceived overall value of TrustCo’s products and services by users, including the features, pricing and quality compared to competitors’ products and services and the willingness of current and prospective customers to substitute competitors’ products and services for TrustCo’s products and services;

•

changes in consumer spending, borrowing and savings habits;

•

the effect of changes in financial services laws and regulations (including laws concerning taxation, banking and securities) and the impact of other governmental initiatives affecting the financial services industry, including regulatory capital requirements;

•

changes in management personnel;

•

real estate and collateral values;

•

changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, Financial Accounting Standards Board (“FASB”) or the Public Company Accounting Oversight Board;

•

disruptions, security breaches, or other adverse events affecting the third-party vendors who perform several of our critical processing functions;

•

technological changes and electronic, cyber and physical security breaches;

•

changes in local market areas and general business and economic trends;

•

TrustCo’s success at managing the risks involved in the foregoing and managing its business; and

•

other risks and uncertainties included under “Risk Factors” in our Form 10-K for the year ended December 31, 2018.

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

Index

Following this discussion are the tables "Distribution of Assets, Liabilities and Shareholders' Equity: Interest Rates and Interest Differential" which gives a detailed breakdown of TrustCo's average interest earning assets and interest bearing liabilities for the three-month and nine-month periods ended September 30, 2019 and 2018.

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 periods ended September 30, 2019, with comparisons to the corresponding period in 2018, as applicable. Net interest margin is presented on a fully taxable equivalent basis in this discussion. The consolidated interim financial statements and related notes, as well as the 2018 Annual Report to Shareholders on Form 10-K, which was filed with the SEC on March 1, 2019, should also be read in conjunction with this review. Amounts in prior period consolidated interim financial statements are reclassified whenever necessary to conform to the current period's presentation.

During the third quarter of 2019 financial markets were influenced by both underlying economic conditions and by political developments. Ongoing trade negotiations among many of the leading nations signaled a desire to resolve trade issues and to remove the uncertainty that the current tariffs have created. US equity markets were generally favorable and showed increased volatility during the quarter. For the third quarter, the S&P 500 index was up 1.7% and the Dow Jones industrial average was up 1.2% indicating strength across most equity market participants, which generally signals investor confidence in economic activity. Credit markets continue to be driven by worldwide economic and political news and demand shifts between segments of the bond market as investors seek to capture yield and prepare for a potential rate change by the Federal Reserve Board. The shape of the yield curve remained flat during the quarter. The 10-year Treasury bond averaged 1.80% during the third quarter compared to 2.34% in the second quarter of 2019 a decrease of 54 basis points. The 2-year Treasury bond average rate decreased 44 basis points to 1.69% resulting in continued flattening of the curve. The spread between the 10-year and the 2-year Treasury bonds contracted from 0.21% on average in the second quarter to 0.11% in the third quarter of 2019. This spread had been depressed in recent years and compares to 2.42% during its most recent peak in the fourth quarter of 2013. Steeper yield curves are generally favorable for portfolio mortgage lenders like TrustCo. The table below illustrates the range of rate movements for both short term and longer term rates. The target Federal Funds rate ranged from 1.75% to 2.25% for the quarter. Spreads for most asset classes, including agency securities, corporates, municipals and mortgage-backed securities, were down by the end of the quarter as compared to the levels of a year earlier. Rate changes and spreads during the current quarter were due to a number of factors; however, uncertainty about the timing of additional actions that the Federal Reserve Board would take in regard to the uncertainty regarding the economy and related issues are key factors. Low risk free rates in major nations have caused investors to shift into alternative fixed income instruments, contributing to the compression of spreads over the risk free rates. The Federal Reserve’s decision as to the direction and timing of a rate change is widely anticipated by the markets and has been considered in establishing longer term market rates. The Federal Reserve Board decreased the target federal funds rate by 50 basis points during the third quarter of 2019 reflecting data sets that they are receiving and in response to the economic slowdown that is occurring partially as a result of the trade and tariff issues. Many of the other developed nations are experiencing negative interest rates on their comparable government debt issues as a way of driving economic activity in those countries. The rate cuts in the third quarter may also be a reflection of relative economic activities between the Unites States and these other developed nations and the recognition that even though economic activity is slowing in the United States, it is not at the level where these other nations are at. Another indicator of the demand for longer term risk free bonds is the spread between the three month yields and the ten year yields. On average for the third quarter of 2019 that spread was a negative 23 basis points meaning that the average yield on the three months instruments was higher by 23 basis points than the interest rate on the ten year instrument. This is sometimes referred to as an inversion in the interest rate curve since longer term rates are less than short term rates.

Index

		3 Month	2 Year	5 Year	10 Year	10 - 2 Year
		Yield (%)	Yield (%)	Yield (%)	Yield (%)	Spread (%)

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

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

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

Q2/19	Beg of Q2	2.43	2.33	2.31	2.49	0.16
	Peak	2.47	2.41	2.41	2.60	0.19
	Trough	2.11	1.71	1.73	2.00	0.29
	End of Q2	2.12	1.75	1.76	2.00	0.25
	Average in Q2	2.35	2.13	2.12	2.34	0.21

Q3/19	Beg of Q3	2.21	1.78	1.79	2.03	0.25
	Peak	2.26	1.92	1.88	2.13	0.21
	Trough	1.80	1.43	1.32	1.47	0.04
	End of Q3	1.88	1.63	1.55	1.68	0.05
	Average in Q3	2.03	1.69	1.63	1.80	0.11

The United States economy continues to show improvements in selected geographic areas. Economic conditions vary significantly over geographic areas with strength concentrated in and around major population centers on the coasts and in certain areas where economic activity has been driven by specific regional factors. The unprecedented intervention by governments in markets and attempts to stimulate the economy including the significant easing of monetary policy and the debt purchase program in the recent past is gradually being unwound based on the guidance released by the Federal Reserve. Economic activity in Europe, China and elsewhere remains mixed. This has added to the uncertainty of global growth and the general direction of interest rates. Political changes in Europe, the United Kingdom and in South America has also added to this situation and this has in turn increased demand for risk free assets. Current tensions regarding trade and tariffs have significantly heightened uncertainty. Finally regulatory changes that have been enacted are expected to continue to impact the banking industry going forward. These regulatory changes have added significant operating expense and operational burdens and have fundamentally changed the way banks conduct business. The current administration has set policy initiatives that include attempts to reduce the regulatory burden. The timing, extent and impact of these new actions are not yet finalized and the actual impact on day to day banking operations is uncertain.

Index

TrustCo believes that its long-term focus on traditional banking services and practices has enabled the Company to avoid significant impact from asset quality problems and that the Company’s strong liquidity and solid capital positions have allowed the Company to continue to conduct business in a manner consistent with its past practice. TrustCo has not engaged in the types of high risk loans and investments that have led to the widely reported problems in the industry. Nevertheless, the Company may experience increases in nonperforming loans (“NPLs”) relative to historical levels from time to time. While the Company does not expect to see a significant change in the inherent risk of loss in its loan portfolio at September 30, 2019, should general housing prices and other economic measures, such as unemployment in the Company’s market areas, deteriorate, the Company may experience an increase in the level of credit risk and in the amount of its classified and nonperforming loans.

Overview

TrustCo recorded net income of $14.7 million, or $0.152 of diluted earnings per share, for the three-months ended September 30, 2019, compared to net income of $15.2 million, or $0.157 of diluted earnings per share, in the same period in 2018. Return on average assets was 1.12% and 1.24%, respectively, for the three-months ended September 30, 2019 and 2018. Return on average equity was 11.19% and 12.84%, respectively, for the three-months ended September 30, 2019 and 2018.

The primary factors accounting for the change in net income for the three-months ended September 30, 2019 compared to the same period of the prior year were:

•

An increase in the average balance of interest earning assets of $244.7 million to $5.08 billion for the third quarter of 2019 compared to the same period in 2018.

•

A decrease in taxable equivalent net interest margin for the third quarter of 2019 to 3.04% from 3.35% in the prior year period. The decrease in the margin, coupled with the increase in interest bearing deposits, resulted in a decrease of $1.9 million in taxable equivalent net interest income in the third quarter of 2019 compared to the third quarter of 2018.

•

An increase of $964 thousand in salaries and employee benefits for the third quarter of 2019 compared to the third quarter of 2018.

•

A decrease of $400 thousand in FDIC and other insurance for the third quarter of 2019 compared to the third quarter of 2018.

•

A decrease of $350 thousand in advertising expense for the third quarter of 2019 compared to the third quarter of 2018.

•

A decrease of $495 thousand in other real estate expense, net for the third quarter of 2019 compared to the third quarter of 2018.

Index

TrustCo recorded net income of $43.9 million, or $0.453 of diluted earnings per share, year to date, compared to net income of $45.4 million, or $0.470 of diluted earnings per share, in the same period in 2018. Return on average assets was 1.14% and 1.24%, respectively, for the nine-months ended September 30, 2019 and 2018. Return on average equity was 11.56% and 13.00%, respectively, for the nine-months ended September 30, 2019 and 2018.

Asset/Liability Management

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

TrustCo’s results are affected by a variety of factors including competitive and economic conditions in the specific markets in which the Company operates and, more generally, by the national economy, financial market conditions and the regulatory environment. Each of these factors is dynamic, and changes in any area can have an impact on TrustCo’s results. Included in the Annual Report to Shareholders on Form 10-K for the year ended December 31, 2018 is a description of the effect interest rates had on the results for the year 2018 compared to 2017. Many of the same market factors discussed in the 2018 Annual Report continued to have a significant impact on results through the third quarter of 2019.

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

Interest rates have a significant impact on the operations and financial results of all financial services companies. One of the most important interest rates used to 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. As noted previously, during 2007-2008 the FRB aggressively reduced the Federal Funds rate, including a decrease from 4.25% at the beginning of 2008 to a target range of 0.00% to 0.25% by the end of 2008. The target range remained at that level until December 2016 when the range was increased from 0.25% to 0.50%. Subsequent increases and decreases have resulted in the current range of 1.75% to 2.00%.

Index

The yield on the 10-year Treasury bond decreased by 101 basis points from 2.69% at the beginning of 2019 to the September 30, 2019 level of 1.68%, far greater than the 50 basis points decreases in short term rates. The rate on the ten year Treasury bond and other long-term interest rates have a significant influence on the rates offered for new residential real estate loans. These changes in interest rates have an effect on the Company relative to the interest income on loans, securities, and Federal Funds sold and on other short-term instruments as well as the interest expense on deposits and borrowings. Residential real estate loans and longer-term investments are most affected by the changes in longer term market interest rates such as the 10-year Treasury. The 10-year Treasury yield was down 54 basis points, on average, during the third quarter of 2019 compared to the second quarter of 2019 and was down 112 basis points, on average, as compared to the third quarter of 2018. The Federal Funds sold and other short-term investments portfolio is affected primarily by changes in the Federal Funds target rate. Deposit interest rates are most affected by short term market interest rates and rates offered by competitors. 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 decrease, the fair value of the securities will increase 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 generally increase the value of retail deposits. The net effect of market changes in interest rates during 2019 was that yields earned on both the investment portfolios and loans remained quite low in 2019 relative to historic levels, while deposit costs began to increase driven by the competitiveness of the market to drive liquidity to fund lending.

As a portfolio lender, TrustCo does not sell loans into the secondary market in the normal course of business and is able to establish rates that management determines are appropriate in light of the long-term nature of residential real estate loans while remaining competitive with secondary market rates. Financial market volatility and the problems faced by the financial services industry have lessened the influence of the secondary market; however, various programs initiated by arms of the federal government have had an impact on rate levels for certain products. Most importantly, a government goal of keeping mortgage rates low has been supported by targeted buying of certain securities, thus supporting prices and constraining yields, although that effort is now being gradually unwound. Very low interest rates in many markets around the world have also increased demand for US fixed income assets and contributed to the decline in yields on these assets.

Interest rates generally remained below historic norms on both short term and longer term investments during the third quarter of 2019. 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.

Index

A fundamental component of TrustCo’s strategy has been to grow customer relationships and the deposits and loans that are part of those relationships. The Company has significant capacity to grow its balance sheet given its existing infrastructure. The Company expects that growth to be profitable. The current interest rate environment, however, has narrowed the margin on incremental balance sheet expansion. While the Company has not changed its fundamental long term strategy in regard to utilizing its excess capacity, management continually evaluates changing conditions and may seek to limit growth or reduce the size of the balance sheet if its analysis indicates that doing so would be beneficial.

For the third quarter of 2019, the net interest margin was 3.04%, down 31 basis points versus the prior year’s quarter. The quarterly results reflect the following significant factors:

•

The average balance of Federal Funds sold and other short-term investments decreased by $21.3 million while the average yield increased 21 basis points in the third quarter of 2019 compared to the same period in 2018. The decrease in the average balance helped to fund increases in loans and securities available for sale.

•

The average balance of securities available for sale increased by $111.2 million while the average yield increased 16 basis points to 2.34%. The average balance of held to maturity securities decreased by $3.9 million and the average yield decreased 16 basis points to 3.70% for the third quarter of 2019 compared to the same period in 2018.

•

The average loan portfolio grew by $158.4 million to $3.94 billion and the average yield increased three basis points to 4.26% in the third quarter of 2019 compared to the same period in 2018.

•

The average balance of interest bearing liabilities (primarily deposit accounts) increased $179.3 million and the average rate paid increased 42 basis points to 0.94% in the third quarter of 2019 compared to the same period in 2018.

During the third quarter of 2019, the Company continued to focus on its strategy to expand the loan portfolio by offering competitive interest rates. Management believes the TrustCo residential real estate loan product is very competitive compared to local and national competitors. Competition remains strong in the Company’s market areas.

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

Earning Assets

Total average interest earning assets increased from $4.84 billion in the third quarter of 2018 to $5.08 billion in the same period of 2019 with an average yield of 3.82% in the third quarter of 2019 and 3.78% in the third quarter of 2018. The shift in the mix of assets towards a higher proportion of loans and the increase in yield on cash and securities available for sale drove the overall yield increase. Interest income on average earning assets increased from $45.7 million in the third quarter of 2018 to $48.5 million in the third quarter of 2019, on a tax equivalent basis. The increase was the result of higher volume and yield.

Loans

The average balance of loans was $3.94 billion in the third quarter of 2019 and $3.78 billion in the comparable period in 2018. The yield on loans was up three basis points to 4.26%. The higher average balances led to an increase in interest income on loans from $40.1 million in the third quarter of 2018 to $41.9 million in the third quarter of 2019.

Index

Compared to the third quarter of 2018, the average balance of residential mortgage loans, commercial loans and installment loans increased while home equity lines of credit decreased. The average balance of residential mortgage loans was $3.47 billion in 2019 compared to $3.29 billion in 2018, an increase of 5.34%. The average yield on residential mortgage was flat at 4.13% in the third quarter of 2019 and 2018.

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

Commercial loans, which consist primarily of loans secured by commercial real estate, increased $1.8 million to an average balance of $190.5 million in the third quarter of 2019 compared to the same period in the prior year. The average yield on this portfolio was up 20 basis points to 5.45% compared to the prior year period. The Company has been selective in underwriting commercial loans in recent periods as the apparent risk/reward balance has been less favorable in many cases.

The average yield on home equity credit lines increased 35 basis points to 4.95% during the third quarter of 2019 compared to the same period in 2018. The increase in yield is the result of prime rate increases during 2018 which occurred prior to the third quarter of 2019, partially offset by the decrease which occurred during the latter part of the third quarter of 2019, which impacted some loans as well as a smaller percentage of lower yielding initial rate balances. The average balances of home equity lines decreased 6.6% to $275.0 million in the third quarter of 2019 as compared to the prior year. With the tax deductibility changes of home equity line interest, some customers have refinanced their balances into fixed rate mortgage loans.

Securities Available for Sale

The average balance of the securities available for sale portfolio for the third quarter of 2019 was $647.5 million compared to $536.2 million for the comparable period in 2018. The balance reflects new investment purchases of $260.5 million, partially offset by routine paydowns, calls and maturities of $111.4 million. The average yield was 2.34% for the third quarter of 2019 compared to 2.18% for the third quarter of 2018. This portfolio is primarily comprised of agency issued residential mortgage backed securities and collateralized mortgage obligations, 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, net of tax.

Index

The net unrealized gain in the available for sale securities portfolio was $117 thousand as of September 30, 2019 compared to a net unrealized loss of $14.1 million as of December 31, 2018. The unrealized gain in the portfolio is primarily the result of changes in market interest rate levels.

Held to Maturity Securities

The average balance of held to maturity securities was $20.2 million for the third quarter of 2019 compared to $24.1 million in the third quarter of 2018. The decrease in balance reflects routine paydowns. No new securities were added to this portfolio during the period. The average yield was 3.70% for the third quarter of 2019 compared to 3.86% for the same period in 2018. Since the same period last year, the lower yield reflects the prepayments of the higher yielding mortgage backed securities in this portfolio. TrustCo expects to hold the securities in this portfolio until they mature or are called.

As of September 30, 2019, this portfolio consisted solely of agency issued residential mortgage-backed securities. The balances for these securities are recorded at amortized cost.

Federal Funds Sold and Other Short-term Investments

The 2019 third quarter average balance of Federal Funds sold and other short-term investments were $465.3 million, a $21.3 million decrease from the $486.6 million average for the same period in 2018. The yield was 2.19% for the third quarter of 2019 and 1.98% for the comparable period in 2018. Interest income from this portfolio increased $127 thousand from $2.4 million in 2018 to $2.6 million in 2019, reflecting the target rate increases during 2018, partly offset by the rate decreases during 2019.

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 accounts (which includes interest bearing checking, money market accounts, savings and time deposits) increased $202.9 million to $4.03 billion for the third quarter of 2019 versus the third quarter in the prior year, and the average rate paid increased from 0.51% for 2018 to 0.95% for 2019. Total interest expense on these deposits increased $4.6 million to $9.5 million in the third quarter of 2019 compared to the same period in 2018. From the third quarter of 2018 to the third quarter of 2019, interest bearing demand account average balances were down 4.3%, certificates of deposit average balances were up 26.0%, non-interest demand average balances were up 8.3%, average savings balances decreased 9.5% and money market balances were up 11.5%. Because Trustco offered competitive shorter term rates, the Company would expect margin to stabilize in the fourth quarter of 2019 as the shorter term time deposits could reprice lower and provide opportunity for increased margin expansion.

Index

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

At September 30, 2019, the maturity of total time deposits is as follows:

(dollars in thousands)

Under 1 year	$	1,134,946
1 to 2 years		305,620
2 to 3 years		7,945
3 to 4 years		5,879
4 to 5 years		2,622
Over 5 years		211
	$	1,457,223

Average short-term borrowings for the quarter were $160.2 million in 2019 compared to $183.8 million in 2018. The average rate increased during this time period from 0.60% in 2018 to 0.90% in 2019. The short-term borrowings of the Company are cash management accounts, which represent retail accounts with customers for which the Bank has pledged certain assets as collateral.

Net Interest Income

Taxable equivalent net interest income decreased by $1.9 million to $38.6 million in the third quarter of 2019 compared to the same period in 2018. The net interest spread was down 38 basis points to 2.88% in the third quarter of 2019 compared to the same period in 2018. As previously noted, the net interest margin was down 31 basis points to 3.04% for the third quarter of 2019 compared to the same period in 2018.

Taxable equivalent net interest income decreased by $2.4 million to $117.6 million in the first nine-months of 2019 compared to the same period in 2018. The net interest spread was down 26 basis points to 2.98% in the first nine-months of 2019 compared to the same period in 2018. The net interest margin was down 19 basis points to 3.13% for the first nine-months of 2019 compared to the same period in 2018.

Nonperforming Assets

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

The following describes the nonperforming assets of TrustCo as of September 30, 2019:

Index

Nonperforming loans and foreclosed real estate: Total NPLs were $21.0 million at September 30, 2019, compared to $25.0 million at December 31, 2018 and $23.8 million at September 30, 2018. There were $21.0 million of non-accrual loans at September 30, 2019 compared to $25.0 million at December 31, 2018 and $23.8 million at September 30, 2018. There were no loans at September 30, 2019 and 2018 and December 31, 2018 that were past due 90 days or more and still accruing interest.

At September 30, 2019, nonperforming loans primarily include a mix of commercial and residential loans. Of total nonperforming loans of $21.0 million at September 30, 2019, $20.1 million were residential real estate loans, $888 thousand were commercial loans and mortgages and $13 thousand were installment loans, compared to $24.3 million, $645 thousand and $19 thousand, respectively, at December 31, 2018.

A significant percentage of nonperforming loans are residential real estate loans, which are historically lower-risk than most other types of loans. Net chargeoffs were $39 thousand on residential real estate loans (including home equity lines of credit) for the third quarter of 2019 compared to net recoveries of $3 thousand for the third quarter of 2018. Management believes that these loans have been appropriately written down where required.

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

The Company originates loans throughout its deposit franchise area. At September 30, 2019, 75.1% of its gross loan portfolio balances were in New York State and the immediately surrounding areas (including New Jersey, Vermont and Massachusetts), and 24.9% were in Florida. Those figures compare to 76.1% and 23.9%, respectively at December 31, 2018.

Economic conditions vary widely by geographic location. Florida experienced a more significant downturn than New York during the recession, however conditions in Florida have improved more than in New York in recent periods. As a percentage of the total nonperforming loans as of September 30, 2019, 8.6% were to Florida borrowers, compared to 91.4% to borrowers in New York and surrounding areas. For the three-months ended September 30, 2019, New York and surrounding areas experienced net chargeoffs of approximately $20 thousand, compared to $16 thousand of net chargeoffs in Florida.

Index

Other than loans currently identified as nonperforming, management is aware of no other loans in the Bank’s portfolio that pose material risk of the eventual non-collection of principal and interest. Also as of September 30, 2019, there were no other loans classified for regulatory purposes that management reasonably expects will materially impact future operating results, liquidity, or capital resources.

TrustCo has identified nonaccrual commercial and commercial real estate loans, as well as all loans restructured under a troubled debt restructuring (TDR), as impaired loans. There were $1.5 million of commercial mortgages and commercial loans classified as impaired as of September 30, 2019 compared to $1.4 million at December 31, 2018. There were $19.4 million of impaired residential loans at September 30, 2019 and $20.9 million at December 31, 2018. The average balances of all impaired loans were $21.3 million for the nine months of 2019 and $23.2 million for the full year 2018.

As of September 30, 2019 and December 31, 2018, the Company’s loan portfolio did not include any subprime mortgages or loans acquired with deteriorated credit quality.

The Company transfers loans to other real estate owned, at fair value less cost to sell, in the period the Company obtains physical possession of the property (through legal title or deed in lieu). As of September 30, 2019 other real estate owned included $2.4 million of foreclosed real estate compared to $1.7 million at December 31, 2018.

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

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

(dollars in thousands)	As of September 30, 2019					As of December 31, 2018
	Amount		Percent of Loans to Total Loans			Amount		Percent of Loans to Total Loans
Commercial	$	3,692		4.42	%	$	3,903		4.74	%
Real estate construction - commercial		179		0.41	%		145		0.32	%
Real estate construction - residential		126		0.28	%		165		0.37	%
Real estate mortgage - 1 to 4 family		35,636		87.76	%		34,918		86.80	%
Home equity lines of credit		4,144		6.86	%		4,689		7.47	%
Installment Loans		552		0.27	%		946		0.30	%
	$	44,329		100.00	%	$	44,766		100.00	%

At September 30, 2019, the allowance for loan losses was $44.3 million, compared to $44.7 million at September 30, 2018 and $44.8 million at December 31, 2018. The allowance represents 1.11% of the loan portfolio as of September 30, 2019 compared to 1.17% at September 30, 2018 and 1.16% at December 31, 2018.

There was no provision for loan losses for the quarter ended September 30, 2019 and $300 thousand for the quarter ended September 30, 2018. Net chargeoffs for the three-month period ended September 30, 2019 were $36 thousand and were $67 thousand for the prior year period. Net chargeoffs for the nine-month period ended September 30, 2019 were $396 thousand and were $334 thousand for the prior year period.

Index

During the third quarter of 2019, there were commercial loan net recoveries of $28 thousand and $64 thousand of residential mortgage and consumer loan net chargeoffs compared with commercial loan net recoveries of $2 thousand and $69 thousand of net residential mortgage and consumer loan chargeoffs in the third quarter of 2018.

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

•

The magnitude and nature of recent loan chargeoffs and recoveries;

•

The growth in the loan portfolio and the implication that it has in relation to the economic climate in the Bank’s market territories, and;

•

The economic environment in the Upstate New York and Florida territories over the last several years, as well as in the Company’s other market areas.

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

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.

Index

Using this model, the fair value of capital projections as of September 30, 2019 are referenced below. The base case (current rates) scenario shows the present estimate of the fair value of capital assuming no change in the operating environment or operating strategies and no change in interest rates from those existing in the marketplace as of September 30, 2019. The table indicates the impact on the fair value of capital assuming interest rates were to instantaneously increase by 100 bp, 200 bp, 300 bp and 400 bp or to decrease by 100 bp.

As of September 30, 2019	Estimated Percentage of Fair value of Capital to Fair value of Assets
+400 BP		18.30	%
+300 BP		18.90
+200 BP		19.40
+100 BP		19.80
Current rates		19.70
-100 BP		17.40

Noninterest Income

Total noninterest income for the third quarter of 2019 was $4.9 million versus $4.5 million for the previous year. Financial services income was flat at $1.5 million in the third quarter of 2019 as compared to the prior year period. Other income was $806 thousand, up $560 thousand in the third quarter of 2019 as compared to the year ago period primarily as a result of a $350 recovery from a prior year legal judgement. The fair value of assets under management was $896 million at September 30, 2019 and $803 million as of December 31, 2018 and $886 million at September 30, 2018.

For the nine months through September 30, 2019 total noninterest income was $14.5 million, up $847 thousand compared to the prior year period. The increase was primarily a result of the sale of the Company’s credit card portfolio which resulted in a gain of approximately $176 thousand, a gain of approximately $349 thousand from the sale of non-performing loans, and a $350 recovery from a prior year legal judgement.

Noninterest Expenses

Total noninterest expenses were $24.1 million for the three-months ended September 30, 2019, compared to $24.5 million for the three-months ended September 30, 2018. Significant changes included a $400 thousand decrease in FDIC and other insurance, a $350 decrease in advertising expense, a $495 decrease in other real estate expense, partially offset by an increase of $964 thousand in salaries and employee benefits. Full time equivalent headcount increased from 807 as of September 30, 2018 to 823 as of September 30, 2019.

Total noninterest expenses were $73.8 million for the nine-months ended September 30, 2019, compared to $72.8 million for the nine-months ended September 30, 2018. Significant changes included an increase of $3.0 million in salaries and employee benefits, partly offset by decreases of $691 thousand in FDIC and other insurance and a decrease of $975 thousand in other real estate expense.

Index

Income Taxes

In the third quarter of 2019, TrustCo recognized income tax expense of $4.8 million compared to $4.9 million for the third quarter of 2018. The effective tax rates were 24.6% and 24.5% for the third quarters of 2019 and 2018, respectively. For the first nine-months, income taxes were $14.3 million in 2019, as compared to $14.5 million in 2018. The effective tax rates were 24.6% and 24.2% for 2019 and 2018, respectively.

Capital Resources

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

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

Total shareholders’ equity at September 30, 2019 was $526.2 million compared to $477.1 million at September 30, 2018. TrustCo declared a dividend of $0.068125 per share in the third quarter of 2019. This results in a dividend payout ratio of 44.85% based on third quarter 2019 earnings of $14.7 million.

Index

The Bank and the Company reported the following capital ratios as of September 30, 2019 and December 31, 2018:

(Bank Only)

	As of September 30, 2019					Well			Adequately
(dollars in thousands)	Amount		Ratio			Capitalized⁽¹⁾			Capitalized⁽¹⁾⁽²⁾

Tier 1 leverage capital	$	509,531		9.751	%		5.000	%		4.000	%
Common equity tier 1 capital		509,531		18.202			6.500			7.000
Tier 1 risk-based capital		509,531		18.202			8.000			8.500
Total risk-based capital		544,641		19.456			10.000			10.500

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

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

(Consolidated)

						Minimum for
						Capital Adequacy plus
	As of September 30, 2019					Capital Conservation
(dollars in thousands)	Amount		Ratio			Buffer⁽¹⁾⁽²⁾

Tier 1 leverage capital	$	525,680		10.057	%		4.000	%
Common equity tier 1 capital		525,680		18.767			7.000
Tier 1 risk-based capital		525,680		18.767			8.500
Total risk-based capital		560,811		20.021			10.500

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

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

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

(2) The September 30, 2019 common equity tier 1, tier 1 risk-based, and total risk-based capital ratios include a capital conservation buffer of 2.50 percent

(3) The December 31, 2018 common equity tier 1, tier 1 risk-based, and total risk-based capital ratios include a transition capital conservation buffer of 1.88 percent

In addition, at September 30, 2019, the consolidated equity to total assets ratio was 10.07%, compared to 9.88% at December 31, 2018 and 9.77% at September 30, 2018.

Both TrustCo and Trustco Bank are subject to regulatory capital requirements. On January 1, 2015, a new capital rule took effect that revised the federal bank regulatory agencies’ risk-based 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 is fully in effect in 2019.

Index

As of September 30, 2019, the capital levels of both TrustCo and the Bank exceeded the minimum standards, including with the current and also fully phased-in capital conservation buffer is taken into account.

Under the Office of the Comptroller of the Currency’s (“OCC”) “prompt corrective action” regulations, a bank is deemed to be “well-capitalized” when its CET1, Tier 1, total risk-based, and leverage capital ratios are at least 6.5%, 8%, 10%, and 5%, respectively. A bank is deemed to be “adequately capitalized” or better if its capital ratios meet or exceed the minimum federal regulatory capital requirements, and “undercapitalized” if it fails to meet these minimal capital requirements. A bank is “significantly undercapitalized” if its CET1, Tier 1, total risk-based and leverage capital ratios fall below 3%, 4%, 6%, and 3%, respectively and “critically undercapitalized” if the institution has a ratio of tangible equity to total assets that is equal to or less than 2%. At September 30, 2019 and 2018, Trustco Bank met the definition of “well-capitalized.”

On October 29, 2019, the federal bank regulatory agencies announced that they had finalized a rule that simplifies capital requirements for qualifying banks and bank or thrift holding companies (referred to collectively in the new rule as “banking organizations”) by allowing them to adopt a simple leverage ratio to measure capital adequacy. The new “community bank leverage ratio framework” removes requirements for calculating and reporting risk-based capital ratios for a qualifying banking organization that opts into the framework.

To qualify for the framework, a banking organization must have less than $10 billion in total consolidated assets, total off-balance-sheet exposures (as defined in the new rule and excluding derivatives other than sold credit derivatives and unconditionally cancellable commitments) of 25% or less of total consolidated assets, total trading assets plus trading liabilities of 5% or less of total consolidated assets and a leverage ratio greater than 9%.

A qualifying banking organization that elects to use the community bank leverage ratio framework and that maintains a leverage ratio of greater than 9% will be considered to have satisfied their risk-based and leverage capital requirements, and a qualifying bank will be considered to have met the well-capitalized ratio requirements for purposes of its primary federal regulator’s prompt corrective action rules.

The new rule will contain a two-quarter grace period to either meet the qualifying criteria again or to comply with the generally applicable capital rule. The grace period will begin as of the end of the calendar quarter in which a banking organization ceases to satisfy any of the qualifying criteria and when the qualifying banking organization’s leverage ratio is 9% or less but greater than 8%. A banking organization that fails to maintain a leverage ratio greater than 8% would not be permitted to use the grace period and must comply with the generally applicable capital rule and file the appropriate regulatory reports.

The final rule will be effective as of January 1, 2020, and a qualifying banking organization can utilize the community bank leverage ratio framework for purposes of filing its regulatory reports for the first quarter for 2020 (that is, as of March 31, 2020).

Index

TrustCo is evaluating the new community bank leverage ratio framework and has not yet decided whether it will opt-in to the framework.

As noted, the Company’s dividend payout ratio was 44.85% of net income for the third quarter of 2019 and 43.29% of net income for the third quarter of 2018. The per-share dividend paid in the third quarters of 2019 and 2018 was $0.068125. The Company’s ability to pay dividends to its shareholders is dependent upon the ability of the Bank to pay dividends to the Company. The payment of dividends by the Bank to the Company is subject to continued compliance with minimum regulatory capital requirements. The OCC may disapprove a dividend if: the Bank would be undercapitalized following the distribution; the proposed capital distribution raises safety and soundness concerns; or the capital distribution would violate a prohibition contained in any statue, regulation or agreement.

TrustCo maintains a dividend reinvestment plan (“DRP”) with approximately 11,400 participants. The DRP allows participants to reinvest dividends in shares of the Company. The DRP also allows for additional purchases by participants and has a discount feature (up to a 5% for safe harbor provisions) that can be activated by management as a tool to raise capital. To date, the discount feature has not been utilized.

Critical Accounting Policies

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

Management considers the accounting policy relating to the allowance for loan losses to be a critical accounting policy given the inherent uncertainty in evaluating the levels of the allowance required to cover the inherent risk of losses in the loan portfolio and the material effect that such judgments can have on the results of operations. Included in Note 1 to the Consolidated Financial Statements contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 is a description of the significant accounting policies that are utilized by the Company in the preparation of the Consolidated Financial Statements.

Index

TrustCo Bank Corp NY

Management's Discussion and Analysis

STATISTICAL DISCLOSURE

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

INTEREST RATES AND INTEREST DIFFERENTIAL

The following table summarizes the component distribution of the average balance sheet, related interest income and expense and the average annualized yields on interest earning assets and annualized rates on interest bearing liabilities of TrustCo (adjusted for tax equivalency) for each of the reported periods. Nonaccrual loans are included in loans for this analysis. The average balances of securities available for sale and held to maturity are calculated using amortized costs for these securities. Included in the average balance of shareholders' equity is the unrealized gain (loss), net of tax, in the available for sale portfolio of ($432) thousand in 2019 and ($15.0) million in 2018. The subtotals contained in the following table are the arithmetic totals of the items contained in that category. Increases and decreases in interest income and expense due to both rate and volume have been allocated to the categories of variances (volume and rate) based on the percentage relationship of such variances to each other.

(dollars in thousands)	Three months ended September 30, 2019									Three months ended September 30, 2018
Assets	Average Balance			Interest			Average Rate			Average Balance			Interest			Average Rate			Change in Interest Income/ Expense			Variance Balance Change			Variance Rate Change

Securities available for sale:
U. S. government sponsored enterprises	$	183,580			996			2.17	%	$	154,865			787			2.03	%	$	209			152			57
Mortgage backed securities and collateralized mortgage obligations-residential		370,808			2,178			2.35	%		287,760			1,601			2.23	%		577			486			91
State and political subdivisions		166			3			7.23	%		453			10			8.88	%		(7	)		(5	)		(2	)
Corporate bonds		40,231			321			3.19	%		30,110			202			2.68	%		119			76			43
Small Business Administration-guaranteed
participation securities		51,988			282			2.17	%		62,368			325			2.09	%		(43	)		(116	)		73
Mortgage backed securities and collateralized mortgage obligations-commercial		-			-			-	%		-			-			-	%		-			-			-
Other		685			6			3.50	%		685			4			2.34	%		2			-			2

Total securities available for sale		647,458			3,786			2.34	%		536,241			2,929			2.18	%		857			593			264

Federal funds sold and other short-term Investments		465,251			2,552			2.19	%		486,552			2,425			1.98	%		127			(560	)		687

Held to maturity securities:
Mortgage backed securities and collateralized mortgage obligations-residential		20,197			187			3.70	%		24,080			232			3.86	%		(45	)		(36	)		(9	)

Total held to maturity securities		20,197			187			3.70	%		24,080			232			3.86	%		(45	)		(36	)		(9	)

Federal Reserve Bank and Federal Home Loan Bank stock		9,183			81			3.53	%		8,953			82			3.66	%		(1	)		9			(10	)

Commercial loans		190,538			2,596			5.45	%		188,757			2,480			5.25	%		116			23			93
Residential mortgage loans		3,465,102			35,743			4.13	%		3,289,534			33,949			4.13	%		1,794			1,794			-
Home equity lines of credit		275,047			3,401			4.95	%		294,518			3,418			4.60	%		(17	)		(966	)		949
Installment loans		9,967			183			7.34	%		9,447			226			9.51	%		(43	)		71			(114	)

Loans, net of unearned income		3,940,654			41,923			4.26	%		3,782,256			40,073			4.23	%		1,850			922			928

Total interest earning assets		5,082,743			48,529			3.82	%		4,838,082			45,741			3.78	%		2,788			928			1,860

Allowance for loan losses		(44,448	)								(44,770	)
Cash & non-interest earning assets		188,528									120,474


Total assets	$	5,226,823								$	4,913,786


Liabilities and shareholders' equity

Deposits:
Interest bearing checking accounts	$	874,179			52			0.02	%	$	913,150			113			0.05	%		(61	)		(4	)		(57	)
Money market accounts		567,554			1,177			0.83	%		508,795			544			0.42	%		633			67			566
Savings		1,126,935			323			0.11	%		1,244,889			417			0.13	%		(94	)		(36	)		(58	)
Time deposits		1,457,510			7,974			2.19	%		1,156,422			3,864			1.33	%		4,110			1,180			2,930

Total interest bearing deposits		4,026,178			9,526			0.95	%		3,823,256			4,938			0.51	%		4,588			1,207			3,381
Short-term borrowings		160,162			359			0.90	%		183,796			277			0.60	%		82			(209	)		291

Total interest bearing liabilities		4,186,340			9,885			0.94	%		4,007,052			5,215			0.52	%		4,670			998			3,672

Demand deposits		438,789									405,311
Other liabilities		80,188									26,429
Shareholders' equity		521,506									474,994

Total liabilities and shareholders' equity	$	5,226,823								$	4,913,786

Net interest income , tax equivalent					38,644									40,526					$	(1,882	)		(70	)		(1,812	)

Net interest spread								2.88	%								3.26	%

Net interest margin (net interest income to total interest earning assets)								3.04	%								3.35	%

Tax equivalent adjustment					(1	)								(3	)

Net interest income					38,643									40,523

Index

TrustCo Bank Corp NY

Management's Discussion and Analysis

STATISTICAL DISCLOSURE

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

INTEREST RATES AND INTEREST DIFFERENTIAL

The following table summarizes the component distribution of the average balance sheet, related interest income and expense and the average annualized yields on interest earning assets and annualized rates on interest bearing liabilities of TrustCo (adjusted for tax equivalency) for each of the reported periods. Nonaccrual loans are included in loans for this analysis. The average balances of securities available for sale and held to maturity are calculated using amortized costs for these securities. Included in the average balance of shareholders' equity is the unrealized gain (loss), net of tax, in the available for sale portfolio of ($4.9) million in 2019 and ($13.6) million in 2018. The subtotals contained in the following table are the arithmetic totals of the items contained in that category. Increases and decreases in interest income and expense due to both rate and volume have been allocated to the categories of variances (volume and rate) based on the percentage relationship

of such variances to each other.

(dollars in thousands)	Nine months ened September 30, 2019									Nine months ened September 30, 2018
Assets	Average Balance			Interest			Average Rate			Average Balance			Interest			Average Rate			Change in Interest Income/ Expense			Variance Balance Change			Variance Rate Change

Securities available for sale:
U. S. government sponsored enterprises	$	166,119			2,600			2.09	%	$	155,434			2,324			1.99	%	$	276			159			117
Mortgage backed securities and collateralized mortgage obligations-residential		329,188			5,885			2.38	%		300,645			5,039			2.23	%		846			495			351
State and political subdivisions		167			9			7.19	%		494			30			8.14	%		(21	)		(18	)		(3	)
Corporate bonds		33,678			801			3.17	%		30,384			485			2.13	%		316			57			259
Small Business Administration-guaranteed participation securities		54,414			868			2.13	%		64,769			1,010			2.08	%		(142	)		(180	)		38
Mortgage backed securities and collateralized mortgage obligations commercial		-			-			-	%		3,651			37			1.34	%		(37	)		(19	)		(18	)
Other		685			16			3.11	%		685			13			2.53	%		3			-			3

Total securities available for sale		584,251			10,179			2.32	%		556,062			8,938			2.14	%		1,241			494			747


Federal funds sold and other short-term Investments		504,512			8,843			2.34	%		521,470			6,909			1.77	%		1,934			(368	)		2,302

Held to maturity securities:
Mortgage backed securities and collateralized mortgage obligations-residential		21,123			613			3.87	%		25,410			736			3.86	%		(123	)		(126	)		3

Total held to maturity securities		21,123			613			3.87	%		25,410			736			3.86	%		(123	)		(126	)		3

Federal Reserve Bank and Federal Home Loan Bank stock		9,104			365			5.35	%		8,893			357			5.35	%		8			8			-

Commercial loans		191,370			7,725			5.38	%		187,198			7,336			5.23	%		389			170			219
Residential mortgage loans		3,412,411			105,786			4.13	%		3,214,950			99,122			4.11	%		6,665			6,175			489
Home equity lines of credit		280,248			10,441			4.97	%		299,723			10,018			4.47	%		423			(946	)		1,369
Installment loans		10,718			656			8.16	%		8,831			644			9.75	%		12			166			(154	)

Loans, net of unearned income		3,894,747			124,608			4.27	%		3,710,702			117,120			4.21	%		7,488			5,566			1,923

Total interest earning assets		5,013,737			144,608			3.85	%		4,822,537			134,060			3.71	%		10,548			5,574			4,975

Allowance for loan losses		(44,744	)								(44,573	)
Cash & non-interest earning assets		180,568									123,134


Total assets	$	5,149,561								$	4,901,098


Liabilities and shareholders' equity

Deposits:
Interest bearing checking accounts	$	878,106			267			0.04	%	$	899,319			331			0.05	%		(64	)		(7	)		(57	)
Money market accounts		546,601			3,122			0.76	%		528,310			1,435			0.36	%		1,687			52			1,635
Savings		1,141,607			1,067			0.12	%		1,255,245			1,256			0.13	%		(189	)		(88	)		(101	)
Time deposits		1,416,306			21,462			2.02	%		1,124,592			10,163			1.21	%		11,299			3,147			8,152

Total interest bearing deposits		3,982,620			25,918			0.87	%		3,807,466			13,185			0.46	%		12,733			3,104			9,629
Short-term borrowings		160,647			1,121			0.93	%		202,412			918			0.61	%		203			(309	)		512

Total interest bearing liabilities		4,143,267			27,039			0.87	%		4,009,878			14,103			0.47	%		12,936			2,795			10,141

Demand deposits		418,327									396,288
Other liabilities		79,937									28,062
Shareholders' equity		508,030									466,870

Total liabilities and shareholders' equity	$	5,149,561								$	4,901,098

Net interest income , tax equivalent					117,569									119,957					$	(2,388	)		2,779			(5,166	)

Net interest spread								2.98	%								3.24	%

Net interest margin (net interest income to total interest earning assets)								3.13	%								3.32	%

Tax equivalent adjustment					(3	)								(10	)


Net interest income					117,566									119,947

Index

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

As detailed in the Annual Report to Shareholders as of December 31, 2018, the Company is subject to interest rate risk as its principal market risk. As noted in the Management’s Discussion and Analysis for the three-month and nine-month periods ended September 30, 2019 and 2018, the Company continues to respond to changes in interest rates in such a way that positions the Company to meet short term earning goals and also allows the Company to respond to changes in interest rates in the future. Consequently, for the third quarter of 2019, the Company had an average balance of Federal Funds sold and other short-term investments of $465.3 million compared to $486.6 million in the third quarter of 2018. As investment opportunities present themselves, management plans to invest funds from the Federal Funds sold and other short-term investment portfolio into the securities available for sale, securities held to maturity and loan portfolios. Additional disclosure of interest rate risk can be found under “Liquidity and Interest Rate Sensitivity” and “Asset/Liability Management” in the Management’s Discussion and Analysis section of this document.

Item 4.

Controls and Procedures

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

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

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

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

Index

PART II

OTHER INFORMATION

Item 1.

Legal Proceedings

None.

Item 1A.

Risk Factors

There were no material changes to the risk factors previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3.

Defaults Upon Senior Securities

None.

Item 4.

Mine Safety

None.

Item 5.

Other Information

None.

Item 6.

Exhibits

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.PRE	XBRLTaxonomy Extension Presentation Linkbase Document

Index

SIGNATURES

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

	TrustCo Bank Corp NY

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

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

Date: November 7, 2019