(5) Loans and Allowance for Loan Losses

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

	September 30, 2013
(dollars in thousands)	New York and
	other states*		Florida		Total
Commercial:
Commercial real estate	$	166,117		21,353		187,470
Other		25,319		44		25,363
Real estate mortgage - 1 to 4 family:
First mortgages		1,872,434		358,066		2,230,500
Home equity loans		45,417		3,147		48,564
Home equity lines of credit		302,362		34,816		337,178
Installment		5,208		686		5,894
Total loans, net	$	2,416,857		418,112		2,834,969
Less: Allowance for loan losses						47,722
Net loans					$	2,787,247

	December 31, 2012
(dollars in thousands)	New York and
	other states*		Florida		Total
Commercial:
Commercial real estate	$	167,249		18,882		186,131
Other		33,381		65		33,446
Real estate mortgage - 1 to 4 family:
First mortgages		1,814,214		275,764		2,089,978
Home equity loans		35,601		1,089		36,690
Home equity lines of credit		301,338		32,571		333,909
Installment		4,183		396		4,579
Total loans, net	$	2,355,966		328,767		2,684,733
Less: Allowance for loan losses						47,927
Net loans					$	2,636,806

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

At September 30, 2013 and December 31, 2012, the Company had approximately $31.4 million and $37.2 million of real estate construction loans, respectively. As of September 30, 2013, approximately $11.7 million are secured by first mortgages to residential borrowers while approximately $19.7 million were to commercial borrowers for residential construction projects. Of the $37.2 million in real estate construction loans at December 31, 2012, approximately $16.4 million were secured by first mortgages to residential borrowers and the remaining $20.8 million were to commercial borrowers for residential construction projects. The vast majority of construction loans are in the Company's New York market.

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 nonaccrual loans by loan class:

	September 30, 2013
(dollars in thousands)	New York and
	other states*		Florida		Total
Loans in nonaccrual status:
Commercial:
Commercial real estate	$	5,313		-		5,313
Other		123		-		123
Real estate mortgage - 1 to 4 family:
First mortgages		26,270		5,075		31,345
Home equity loans		499		-		499
Home equity lines of credit		3,874		331		4,205
Installment		71		-		71
Total non-accrual loans		36,150		5,406		41,556
Restructured real estate mortgages - 1 to 4 family		170		-		170
Total nonperforming loans	$	36,320		5,406		41,726

	December 31, 2012
(dollars in thousands)	New York and
	other states*		Florida		Total
Loans in nonaccrual status:
Commercial:
Commercial real estate	$	6,511		2,698		9,209
Other		124		-		124
Real estate mortgage - 1 to 4 family:
First mortgages		30,329		7,319		37,648
Home equity loans		694		-		694
Home equity lines of credit		4,263		501		4,764
Installment		6		1		7
Total non-accrual loans		41,927		10,519		52,446
Restructured real estate mortgages - 1 to 4 family		231		-		231
Total nonperforming loans	$	42,158		10,519		52,677

As of September 30, 2013 and December 31, 2012, the Company's loan portfolio did not include any subprime mortgages or loans acquired with deteriorated credit quality.

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

New York and other states:

	September 30, 2013
(dollars in thousands)	30-59		60-89		90 +		Total
	Days		Days		Days		30+ days				Total
	Past Due		Past Due		Past Due		Past Due		Current		Loans

Commercial:
Commercial real estate	$	-		185		3,939		4,124		161,993		166,117
Other		-		-		123		123		25,196		25,319
Real estate mortgage - 1 to 4 family:
First mortgages		6,607		2,009		18,636		27,252		1,845,182		1,872,434
Home equity loans		347		68		349		764		44,653		45,417
Home equity lines of credit		387		363		2,404		3,154		299,208		302,362
Installment		50		27		53		130		5,078		5,208

Total	$	7,391		2,652		25,504		35,547		2,381,310		2,416,857

Florida:

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

Commercial:
Commercial real estate	$	-		-		-		-		21,353		21,353
Other		-		-		-		-		44		44
Real estate mortgage - 1 to 4 family:
First mortgages		1,692		78		3,580		5,350		352,716		358,066
Home equity loans		-		-		-		-		3,147		3,147
Home equity lines of credit		125		25		242		392		34,424		34,816
Installment		9		-		-		9		677		686

Total	$	1,826		103		3,822		5,751		412,361		418,112

Total:

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

Commercial:
Commercial real estate	$	-		185		3,939		4,124		183,346		187,470
Other		-		-		123		123		25,240		25,363
Real estate mortgage - 1 to 4 family:
First mortgages		8,299		2,087		22,216		32,602		2,197,898		2,230,500
Home equity loans		347		68		349		764		47,800		48,564
Home equity lines of credit		512		388		2,646		3,546		333,632		337,178
Installment		59		27		53		139		5,755		5,894

Total	$	9,217		2,755		29,326		41,298		2,793,671		2,834,969

New York and other states:

	December 31, 2012
(dollars in thousands)	30-59		60-89		90 +		Total
	Days		Days		Days		30+ days				Total
	Past Due		Past Due		Past Due		Past Due		Current		Loans

Commercial:
Commercial real estate	$	-		-		3,225		3,225		164,024		167,249
Other		-		-		4		4		33,377		33,381
Real estate mortgage - 1 to 4 family:
First mortgages		6,364		2,248		21,341		29,953		1,784,261		1,814,214
Home equity loans		177		216		464		857		34,744		35,601
Home equity lines of credit		604		350		3,044		3,998		297,340		301,338
Installment		40		27		-		67		4,116		4,183

Total	$	7,185		2,841		28,078		38,104		2,317,862		2,355,966

Florida:

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

Commercial:
Commercial real estate	$	-		-		2,698		2,698		16,184		18,882
Other		-		-		-		-		65		65
Real estate mortgage - 1 to 4 family:
First mortgages		862		452		5,390		6,704		269,060		275,764
Home equity loans		-		-		-		-		1,089		1,089
Home equity lines of credit		59		29		442		530		32,041		32,571
Installment		9		-		1		10		386		396

Total	$	930		481		8,531		9,942		318,825		328,767

Total:

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

Commercial:
Commercial real estate	$	-		-		5,923		5,923		180,208		186,131
Other		-		-		4		4		33,442		33,446
Real estate mortgage - 1 to 4 family:
First mortgages		7,226		2,700		26,731		36,657		2,053,321		2,089,978
Home equity loans		177		216		464		857		35,833		36,690
Home equity lines of credit		663		379		3,486		4,528		329,381		333,909
Installment		49		27		1		77		4,502		4,579

Total	$	8,115		3,322		36,609		48,046		2,636,687		2,684,733

At September 30, 2013 and December 31, 2012, there were no loans that are 90 days past due and still accruing interest. As a result, nonaccrual loans includes all loans 90 days past due and greater as well as certain loans less than 90 days past due that were placed in non-accruing status for reasons other than delinquent status. There are no commitments to extend further credit on nonaccrual or restructured loans.

Transactions in the allowance for loan losses are summarized as follows:

(dollars in thousands)	For the three months ended September 30, 2013
			Real Estate
			Mortgage-
	Commercial		1 to 4 Family		Installment		Total
Balance at beginning of period	$	3,719		43,766		104		47,589
Loans charged off:
New York and other states*		585		1,638		30		2,253
Florida		-		234		3		237
Total loan chargeoffs		585		1,872		33		2,490

Recoveries of loans previously charged off:
New York and other states*		-		423		5		428
Florida		502		193		-		695
Total recoveries		502		616		5		1,123
Net loans charged off		83		1,256		28		1,367
Provision for loan losses		228		1,240		32		1,500
Balance at end of period	$	3,864		43,750		108		47,722

(dollars in thousands)	For the three months ended September 30, 2012
			Real Estate
			Mortgage-
	Commercial		1 to 4 Family		Installment		Total
Balance at beginning of period	$	3,792		44,147		79		48,018
Loans charged off:
New York and other states*		34		2,197		17		2,248
Florida		736		747		1		1,484
Total loan chargeoffs		770		2,944		18		3,732

Recoveries of loans previously charged off:
New York and other states*		25		40		10		75
Florida		-		103		-		103
Total recoveries		25		143		10		178
Net loans charged off		745		2,801		8		3,554
Provision for loan losses		813		2,080		7		2,900
Balance at end of period	$	3,860		43,426		78		47,364

(dollars in thousands)	For the nine months ended September 30, 2013
			Real Estate
			Mortgage-
	Commercial		1 to 4 Family		Installment		Total
Balance at beginning of period	$	3,771		44,069		87		47,927
Loans charged off:
New York and other states*		884		5,283		65		6,232
Florida		100		801		3		904
Total loan chargeoffs		984		6,084		68		7,136

Recoveries of loans previously charged off:
New York and other states*		2		620		12		634
Florida		504		293		-		797
Total recoveries		506		913		12		1,431
Net loans charged off		478		5,171		56		5,705
Provision for loan losses		571		4,852		77		5,500
Balance at end of period	$	3,864		43,750		108		47,722

(dollars in thousands)	For the nine months ended September 30, 2012
			Real Estate
			Mortgage-
	Commercial		1 to 4 Family		Installment			Total
Balance at beginning of period	$	4,140		44,479		98			48,717
Loans charged off:
New York and other states*		1,073		5,410		47			6,530
Florida		1,192		3,096		1			4,289
Total loan chargeoffs		2,265		8,506		48			10,819

Recoveries of loans previously charged off:
New York and other states*		30		273		41			344
Florida		8		114		-			122
Total recoveries		38		387		41			466
Net loans charged off		2,227		8,119		7			10,353
Provision for loan losses		1,947		7,066		(13	)		9,000
Balance at end of period	$	3,860		43,426		78			47,364

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:

	September 30, 2013
			1-to-4 Family
	Commercial Loans		Residential Real Estate		Installment Loans		Total
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	-		-		-		-
Collectively evaluated for impairment		3,864		43,750		108		47,722

Total ending allowance balance	$	3,864		43,750		108		47,722


Loans:
Individually evaluated for impairment	$	5,436		20,613		-		26,049
Collectively evaluated for impairment		207,397		2,595,629		5,894		2,808,920

Total ending loans balance	$	212,833		2,616,242		5,894		2,834,969

	December 31, 2012
			1-to-4 Family
	Commercial Loans		Residential Real Estate		Installment Loans		Total
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	-		-		-		-
Collectively evaluated for impairment		3,771		44,069		87		47,927

Total ending allowance balance	$	3,771		44,069		87		47,927


Loans:
Individually evaluated for impairment	$	9,333		16,740		-		26,073
Collectively evaluated for impairment		210,244		2,443,837		4,579		2,658,660

Total ending loans balance	$	219,577		2,460,577		4,579		2,684,733

The Company has identified nonaccrual 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 in a TDR.

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, 2013 and December 31, 2012 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.

The following tables present impaired loans by loan class:

New York and other states:

	September 30, 2013
(dollars in thousands)			Unpaid				Average
	Recorded		Principal		Related		Recorded
	Investment		Balance		Allowance		Investment

Commercial:
Commercial real estate	$	5,313		6,825		-		5,756
Other		123		123		-		123
Real estate mortgage - 1 to 4 family:
First mortgages		15,548		16,779		-		13,455
Home equity loans		634		753		-		539
Home equity lines of credit		2,520		2,828		-		1,861

Total	$	24,138		27,308		-		21,734

Florida:

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

Commercial:
Commercial real estate	$	-		-		-		-
Other		-		-		-		-
Real estate mortgage - 1 to 4 family:
First mortgages		1,818		2,320		-		1,205
Home equity loans		-		-		-		-
Home equity lines of credit		93		183		-		39

Total	$	1,911		2,503		-		1,244

Total:

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

Commercial:
Commercial real estate	$	5,313		6,825		-		5,756
Other		123		123		-		123
Real estate mortgage - 1 to 4 family:
First mortgages		17,366		19,099		-		14,660
Home equity loans		634		753		-		539
Home equity lines of credit		2,613		3,011		-		1,900

Total	$	26,049		29,811		-		22,978

New York and other states:

	December 31, 2012
(dollars in thousands)			Unpaid				Average
	Recorded		Principal		Related		Recorded
	Investment		Balance		Allowance		Investment

Commercial:
Commercial real estate	$	6,511		7,169		-		5,615
Other		124		124		-		107
Real estate mortgage - 1 to 4 family:
First mortgages		12,964		14,143		-		6,075
Home equity loans		623		664		-		260
Home equity lines of credit		1,633		1,735		-		458

Total	$	21,855		23,835		-		12,515

Florida:

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

Commercial:
Commercial real estate	$	2,698		3,890		-		5,871
Other		-		-		-		-
Real estate mortgage - 1 to 4 family:
First mortgages		1,472		2,665		-		948
Home equity lines of credit		48		176		-		24

Total	$	4,218		6,731		-		6,843

Total:

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

Commercial:
Commercial real estate	$	9,209		11,059		-		11,486
Other		124		124		-		107
Real estate mortgage - 1 to 4 family:
First mortgages		14,436		16,808		-		7,023
Home equity loans		623		664		-		260
Home equity lines of credit		1,681		1,911		-		482

Total	$	26,073		30,566		-		19,358

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 for both the three months and nine months ended September 30, 2013 and 2012.

Management evaluates impairment on commercial and commercial real estate loans that are on nonaccrual status as well as in situations where circumstances dictate that an evaluation is prudent. If, during this evaluation, impairment of the loan is identified, a charge-off is taken at that time. As a result, as of September 30, 2013 and December 31, 2012, based upon management's evaluation of the adequacy of the underlying collateral, if any, and due to the sufficiency of chargeoffs taken, none of the allowance for loan losses has been allocated to impaired loan(s), including TDR’s.

During the three months ended September 30, 2013 and 2012, there were $258 thousand and $1.1 million of chargeoffs on loans identified as TDR's. For the nine months ended September 30, 2013 and 2012, there were $499 thousand and $1.4 million of chargeoffs on loans identified as TDR's.

The following table presents modified loans by class that were determined to be TDR’s that occurred during the three months and twelve months ended September 30, 2013 and 2012:

	During the three months ended 9/30/2013						During the three months ended 9/30/2012
New York and other states*:			Pre-Modification		Post-Modification				Pre-Modification		Post-Modification
			Outstanding		Outstanding				Outstanding		Outstanding
	Number of		Recorded		Recorded		Number of		Recorded		Recorded
(dollars in thousands)	Contracts		Investment		Investment		Contracts		Investment		Investment

Commercial:
Commercial real estate		-	$	-		-		2	$	166		166
Real estate mortgage - 1 to 4 family:
First mortgages		14		1,461		1,461		73		8,807		8,807
Home equity loans		1		9		9		14		485		485
Home equity lines of credit		7		787		787		27		1,475		1,475

Total		22	$	2,257		2,257		116	$	10,933		10,933

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

Commercial:
Commercial real estate		-	$	-		-		-	$	-		-
Real estate mortgage - 1 to 4 family:
First mortgages		4		536		536		8		878		878
Home equity lines of credit		1		63		63		2		50		50

Total		5	$	599		599		10	$	928		928

	During the twelve months ended 9/30/2013							During the twelve months ended 9/30/2012
New York and other states*:			Pre-Modification			Post-Modification				Pre-Modification			Post-Modification
			Outstanding			Outstanding				Outstanding			Outstanding
	Number of		Recorded			Recorded		Number of		Recorded			Recorded
(dollars in thousands)	Contracts		Investment			Investment		Contracts		Investment			Investment

Commercial:
Commercial real estate		-		$	-		-		2		$	166		166
Real estate mortgage - 1 to 4 family:
First mortgages		47			5,579		5,579		94			11,845		11,845
Home equity loans		9			166		166		17			605		605
Home equity lines of credit		15			1,062		1,062		28			1,581		1,581

Total		71		$	6,807		6,807		141		$	14,197		14,197

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

Commercial:
Commercial real estate		-		$	-		-		-		$	-		-
Real estate mortgage - 1 to 4 family:
First mortgages		7			1,121		1,121		12			1,306		1,306
Home equity lines of credit		2			93		93		2			50		50
Total
		9		$	1,214		1,214		14		$	1,356		1,356

The following table presents loans by class modified as TDR’s that occurred during the twelve months ended September 30, 2013 and 2012 for which there was a payment default during the same period:

	Twelve months ended 9/30/2013				Twelve months ended 9/30/2012
New York and other states*:	Number of		Recorded		Number of		Recorded
(dollars in thousands)	Contracts		Investment		Contracts		Investment

Commercial:
Commercial real estate		-	$	-		-	$	-
Real estate mortgage - 1 to 4 family:
First mortgages		6		589		24		3,042
Home equity loans		1		44		3		96
Home equity lines of credit		3		94		2		136

Total		10	$	727		29	$	3,274

Florida:

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

Commercial:
Commercial real estate		-		$	-		-		$	-
Real estate mortgage - 1 to 4 family:
First mortgages		1			138		7			719
Home equity lines of credit		-			-		1			47

Total		1		$	138		8		$	766

In situations where the Bank considers a loan modification, management determines whether the borrower is experiencing financial difficulty by performing an evaluation of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is performed under the Company's underwriting policy. Generally, the modification of the terms of loans was the result of the borrower filing for bankruptcy protection. Chapter 13 bankruptcies generally include the deferral of all past due amounts for a period of generally 60 months in accordance with the bankruptcy court order. In the case of Chapter 7 bankruptcies, even though there is no modification of terms, the borrowers’ debt to the Company was discharged and they did not reaffirm the debt.

The TDR's that subsequently defaulted described above did not have a material impact on the allowance for loan losses as the underlying collateral was evaluated at the time these loans were identified as TDR’s, and a charge-off was taken at that time, if necessary. Collateral values on these loans, as well as all other nonaccrual loans, are reviewed for collateral sufficiency on a quarterly basis.

The Company categorizes 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 review process analyzes non-homogeneous loans over $150 thousand, such as commercial and commercial real estate loans, individually by grading the loans based on credit risk. 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 so classified 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. All substandard loans are considered impaired.

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

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

As of September 30, 2013 and December 31, 2012, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

	September 30, 2013
New York and other states:

(dollars in thousands)
	Pass		Classified		Total
Commercial:
Commercial real estate	$	157,353		8,764		166,117
Other		25,006		313		25,319

	$	182,359		9,077		191,436

Florida:

(dollars in thousands)
	Pass		Classified		Total
Commercial:
Commercial real estate	$	20,223		1,130		21,353
Other		44		-		44

	$	20,267		1,130		21,397

	December 31, 2012
New York and other states:

(dollars in thousands)
	Pass			Classified		Total
Commercial:
Commercial real estate		$	155,981		11,268		167,249
Other			33,067		314		33,381

		$	189,048		11,582		200,630

Florida:

(dollars in thousands)
	Pass		Classified		Total
Commercial:
Commercial real estate	$	12,454		6,428		18,882
Other		65		-		65

	$	12,519		6,428		18,947

For homogeneous loan pools, such as residential mortgages, home equity lines of credit, and installment loans, the Company uses payment status to identify the credit risk in these loan portfolios. Payment status is reviewed on a daily basis by the Bank's collection area and on a monthly basis with respect to determining the adequacy of the allowance for loan losses. The payment status of these homogeneous pools at September 30, 2013 and December 31, 2012 is included in the aging of the recorded investment of past due loans table. In addition, the total nonperforming portion of these homogeneous loan pools at September 30, 2013 and December 31, 2012 is presented in the recorded investment in nonaccrual loans table.