(5) Loans and Allowance for Loan Losses

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

	June 30, 2015
(dollars in thousands)	New York and other states*		Florida		Total
Commercial:
Commercial real estate	$	169,957		15,922		185,879
Other		23,414		106		23,520
Real estate mortgage - 1 to 4 family:
First mortgages		2,075,448		535,210		2,610,658
Home equity loans		51,857		7,414		59,271
Home equity lines of credit		307,519		47,427		354,946
Installment		7,663		1,011		8,674
Total loans, net	$	2,635,858		607,090		3,242,948
Less: Allowance for loan losses						45,571
Net loans					$	3,197,377

	December 31, 2014
(dollars in thousands)	New York and other states*		Florida		Total
Commercial:
Commercial real estate	$	174,788		19,336		194,124
Other		29,200		58		29,258
Real estate mortgage - 1 to 4 family:
First mortgages		2,041,140		476,427		2,517,567
Home equity loans		51,713		5,942		57,655
Home equity lines of credit		308,764		43,370		352,134
Installment		6,774		820		7,594
Total loans, net	$	2,612,379		545,953		3,158,332
Less: Allowance for loan losses						46,327
Net loans					$	3,112,005

*Includes New York, New Jersey, Vermont and Massachusetts

At June 30, 2015 and December 31, 2014, the Company had approximately $26.8 million and $38.5 million of real estate construction loans, respectively. Of the $26.8 million in real estate construction loans at June 30, 2015, approximately $12.4 million are secured by first mortgages to residential borrowers while approximately $14.4 million were to commercial borrowers for residential construction projects. Of the $38.5 million in real estate construction loans at December 31, 2014, approximately $17.6 million are secured by first mortgages to residential borrowers while approximately $20.9 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 table presents the recorded investment in non-accrual loans by loan class:

	June 30, 2015
(dollars in thousands)	New York and other states		Florida		Total
Loans in non-accrual status:
Commercial:
Commercial real estate	$	3,260		-		3,260
Other		3		-		3
Real estate mortgage - 1 to 4 family:
First mortgages		24,179		1,407		25,586
Home equity loans		284		-		284
Home equity lines of credit		2,903		271		3,174
Installment		79		10		89
Total non-accrual loans		30,708		1,688		32,396
Restructured real estate mortgages - 1 to 4 family		74		-		74
Total nonperforming loans	$	30,782		1,688		32,470

	December 31, 2014
(dollars in thousands)	New York and other states		Florida		Total
Loans in non-accrual status:
Commercial:
Commercial real estate	$	3,835		-		3,835
Other		-		-		-
Real estate mortgage - 1 to 4 family:
First mortgages		23,643		2,488		26,131
Home equity loans		349		-		349
Home equity lines of credit		3,229		252		3,481
Installment		77		13		90
Total non-accrual loans		31,133		2,753		33,886
Restructured real estate mortgages - 1 to 4 family		125		-		125
Total nonperforming loans	$	31,258		2,753		34,011

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 June 30, 2015 and December 31, 2014, other estate owned included $3.6 million and $4.2 million, respectively, of residential foreclosed properties. In addition, non-accrual residential mortgage loans that are in the process of foreclosure had a recorded investment of $17.1 million and $17.5 million as of June 30, 2015 and December 31, 2014, respectively.

The following tables present the aging of the recorded investment in past due loans by loan class and by region as of June 30, 2015 and December 31, 2014:

New York and other states:
	June 30, 2015
(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	$	-		272		2,348		2,620		167,337		169,957
Other		-		-		3		3		23,411		23,414
Real estate mortgage - 1 to 4 family:
First mortgages		2,781		937		16,742		20,460		2,054,988		2,075,448
Home equity loans		53		7		264		324		51,533		51,857
Home equity lines of credit		943		177		1,286		2,406		305,113		307,519
Installment		36		26		37		99		7,564		7,663

Total	$	3,813		1,419		20,680		25,912		2,609,946		2,635,858

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	$	33		-		-		33		15,889		15,922
Other		-		-		-		-		106		106
Real estate mortgage - 1 to 4 family:
First mortgages		673		89		1,014		1,776		533,434		535,210
Home equity loans		-		-		-		-		7,414		7,414
Home equity lines of credit		-		-		99		99		47,328		47,427
Installment		-		3		-		3		1,008		1,011

Total	$	706		92		1,113		1,911		605,179		607,090

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	$	33		272		2,348		2,653		183,226		185,879
Other		-		-		3		3		23,517		23,520
Real estate mortgage - 1 to 4 family:
First mortgages		3,454		1,026		17,756		22,236		2,588,422		2,610,658
Home equity loans		53		7		264		324		58,947		59,271
Home equity lines of credit		943		177		1,385		2,505		352,441		354,946
Installment		36		29		37		102		8,572		8,674

Total	$	4,519		1,511		21,793		27,823		3,215,125		3,242,948

New York and other states:
	December 31, 2014
(dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		90+ Days Past Due		Total 30+ days Past Due		Current		Loans

Commercial:
Commercial real estate	$	618		52		2,627		3,297		171,491		174,788
Other		-		-		-		-		29,200		29,200
Real estate mortgage - 1 to 4 family:
First mortgages		3,340		3,874		16,782		23,996		2,017,144		2,041,140
Home equity loans		141		59		337		537		51,176		51,713
Home equity lines of credit		568		342		1,198		2,108		306,656		308,764
Installment		79		10		58		147		6,627		6,774

Total	$	4,746		4,337		21,002		30,085		2,582,294		2,612,379

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	$	-		-		-		-		19,336		19,336
Other		-		-		-		-		58		58
Real estate mortgage - 1 to 4 family:
First mortgages		801		283		1,225		2,309		474,118		476,427
Home equity loans		-		-		-		-		5,942		5,942
Home equity lines of credit		173		-		116		289		43,081		43,370
Installment		17		-		-		17		803		820

Total	$	991		283		1,341		2,615		543,338		545,953

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	$	618		52		2,627		3,297		190,827		194,124
Other		-		-		-		-		29,258		29,258
Real estate mortgage - 1 to 4 family:
First mortgages		4,141		4,157		18,007		26,305		2,491,262		2,517,567
Home equity loans		141		59		337		537		57,118		57,655
Home equity lines of credit		741		342		1,314		2,397		349,737		352,134
Installment		96		10		58		164		7,430		7,594

Total	$	5,737		4,620		22,343		32,700		3,125,632		3,158,332

At June 30, 2015 and December 31, 2014, there were no loans that were 90 days past due and still accruing interest. As a result, non-accrual loans includes all loans 90 days past due and greater 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.

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

(dollars in thousands)	For the three months ended June 30, 2015
	Commercial		Real Estate Mortgage- 1 to 4 Family		Installment		Total
Balance at beginning of period	$	4,024		41,529		391		45,944
Loans charged off:
New York and other states*		50		1,066		33		1,149
Florida		-		169		-		169
Total loan chargeoffs		50		1,235		33		1,318

Recoveries of loans previously charged off:
New York and other states*		-		133		9		142
Florida		1		2		-		3
Total recoveries		1		135		9		145
Net loans charged off		49		1,100		24		1,173
Provision for loan losses		47		658		95		800
Balance at end of period	$	4,022		41,087		462		45,571

(dollars in thousands)	For the three months ended June 30, 2014
	Commercial		Real Estate Mortgage- 1 to 4 Family		Installment		Total
Balance at beginning of period	$	3,840		43,091		104		47,035
Loans charged off:
New York and other states*		13		1,691		32		1,736
Florida		-		75		10		85
Total loan chargeoffs		13		1,766		42		1,821

Recoveries of loans previously charged off:
New York and other states*		-		195		8		203
Florida		2		16		-		18
Total recoveries		2		211		8		221
Net loans charged off		11		1,555		34		1,600
Provision for loan losses		244		1,216		40		1,500
Balance at end of period	$	4,073		42,752		110		46,935

(dollars in thousands)	For the six months ended June 30, 2015
	Commercial		Real Estate Mortgage- 1 to 4 Family		Installment		Total
Balance at beginning of period	$	4,071		42,088		168		46,327
Loans charged off:
New York and other states*		100		2,180		76		2,356
Florida		-		278		-		278
Total loan chargeoffs		100		2,458		76		2,634

Recoveries of loans previously charged off:
New York and other states*		16		243		15		274
Florida		2		2		-		4
Total recoveries		18		245		15		278
Net loans charged off		82		2,213		61		2,356
Provision for loan losses		33		1,212		355		1,600
Balance at end of period	$	4,022		41,087		462		45,571

(dollars in thousands)	For the six months ended June 30, 2014
	Commercial		Real Estate Mortgage- 1 to 4 Family		Installment		Total
Balance at beginning of period	$	4,019		43,597		98		47,714
Loans charged off:
New York and other states*		273		2,617		81		2,971
Florida		613		542		12		1,167
Total loan chargeoffs		886		3,159		93		4,138

Recoveries of loans previously charged off:
New York and other states*		18		270		13		301
Florida		3		55		-		58
Total recoveries		21		325		13		359
Net loans charged off		865		2,834		80		3,779
Provision for loan losses		919		1,989		92		3,000
Balance at end of period	$	4,073		42,752		110		46,935

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 June 30, 2015 and December 31, 2014:

	June 30, 2015
(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		4,022		41,087		462		45,571

Total ending allowance balance	$	4,022		41,087		462		45,571


Loans:
Individually evaluated for impairment	$	3,551		23,070		-		26,621
Collectively evaluated for impairment		205,848		3,001,805		8,674		3,216,327

Total ending loans balance	$	209,399		3,024,875		8,674		3,242,948

	December 31, 2014
(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		4,071		42,088		168		46,327

Total ending allowance balance	$	4,071		42,088		168		46,327


Loans:
Individually evaluated for impairment	$	4,129		22,406		-		26,535
Collectively evaluated for impairment		219,253		2,904,950		7,594		3,131,797

Total ending loans balance	$	223,382		2,927,356		7,594		3,158,332

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.

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 June 30, 2015 and December 31, 2014 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 as of June 30, 2015 and December 31, 2014:

New York and other states:
	June 30, 2015

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

Commercial:
Commercial real estate	$	3,548		3,726		-		3,527
Other		3		3		-		-
Real estate mortgage - 1 to 4 family:
First mortgages		18,614		19,642		-		18,372
Home equity loans		467		510		-		362
Home equity lines of credit		2,029		2,217		-		2,294

Total	$	24,661		26,098		-		24,555

Florida:

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

Commercial:
Commercial real estate	$	-		-		-		-
Other		-		-		-		-
Real estate mortgage - 1 to 4 family:
First mortgages		1,255		1,347		-		1,339
Home equity loans		54		54		-		55
Home equity lines of credit		651		735		-		660

Total	$	1,960		2,136		-		2,054

Total:

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

Commercial:
Commercial real estate	$	3,548		3,726		-		3,527
Other		3		3		-		-
Real estate mortgage - 1 to 4 family:
First mortgages		19,869		20,989		-		19,711
Home equity loans		521		564		-		417
Home equity lines of credit		2,680		2,952		-		2,954

Total	$	26,621		28,234		-		26,609

New York and other states:
	December 31, 2014
(dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment

Commercial:
Commercial real estate	$	4,129		5,499		-		4,798
Other		-		-		-		61
Real estate mortgage - 1 to 4 family:
First mortgages		17,579		18,689		-		17,261
Home equity loans		366		410		-		454
Home equity lines of credit		2,492		2,778		-		2,578

Total	$	24,566		27,376		-		25,152

Florida:

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

Commercial:
Commercial real estate	$	-		-		-		577
Other		-		-		-		-
Real estate mortgage - 1 to 4 family:
First mortgages		1,289		1,380		-		1,422
Home equity loans		56		56		-		5
Home equity lines of credit		624		773		-		581

Total	$	1,969		2,209		-		2,585

Total:

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

Commercial:
Commercial real estate	$	4,129		5,499		-		5,375
Other		-		-		-		61
Real estate mortgage - 1 to 4 family:
First mortgages		18,868		20,069		-		18,683
Home equity loans		422		466		-		459
Home equity lines of credit		3,116		3,551		-		3,159

Total	$	26,535		29,585		-		27,737

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 six months ended June 30, 2015 and 2014.

As of June 30, 2015 and December 31, 2014 impaired loans included approximately $11.0 million and $9.9 million of 1 to 4 family residential real estate loans in accruing status that were identified as TDR’s in accordance with regulatory guidance related to Chapter 7 bankruptcy loans.

Management evaluates impairment on impaired loans on a quarterly basis. If, during this evaluation, impairment of the loan is identified, a charge off is taken at that time. As a result, as of June 30, 2015 and December 31, 2014, based upon management’s evaluation and due to the sufficiency of chargeoffs taken, none of the allowance for loan losses has been allocated to a specific impaired loan(s).

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

	Three months ended 6/30/2015						Three months ended 6/30/2014
New York and other states*:
(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	$	300	$	300
Real estate mortgage - 1 to 4 family:
First mortgages		13		1,542		1,542		12		1,611		1,611
Home equity loans		1		139		139		1		47		47
Home equity lines of credit		2		44		44		2		443		443

Total		16	$	1,725	$	1,725		16	$	2,401	$	2,401

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

Real estate mortgage - 1 to 4 family:
First mortgages		-	$	-	$	-		2	$	192	$	192
Home equity lines of credit		-		-		-		-		-		-

Total		-	$	-	$	-		2	$	192	$	192

	Six months ended 6/30/2015						Six months ended 6/30/2014
New York and other states*:	Number of		Pre-Modification Outstanding Recorded		Post-Modification Outstanding Recorded		Number of		Pre-Modification Outstanding Recorded		Post-Modification Outstanding Recorded
(dollars in thousands)	Contracts		Investment		Investment		Contracts		Investment		Investment

Commercial:
Commercial real estate		-	$	-	$	-		1	$	300	$	300
Real estate mortgage - 1 to 4 family:
First mortgages		20		2,987		2,987		20		2,985		2,985
Home equity loans		1		139		139		2		51		51
Home equity lines of credit		2		44		44		3		565		565

Total		23	$	3,170	$	3,170		26	$	3,901	$	3,901

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

Real estate mortgage - 1 to 4 family:
First mortgages		1	$	157	$	157		4	$	364	$	364
Home equity lines of credit		2		50		50		2		354		354

Total		3	$	207	$	207		6	$	718	$	718

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

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

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

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

The following table presents, by class, TDR’s that defaulted during the three and six months ended June 30, 2015 and 2014 which had been modified within the last twelve months:

	Three months ended 6/30/2015				Three months ended 6/30/2014
New York and other states*:	Number of		Recorded		Number of		Recorded
(dollars in thousands)	Contracts		Investment		Contracts		Investment

Real estate mortgage - 1 to 4 family:
First mortgages		-	$	-		2	$	161

Total		-	$	-		2	$	161

Florida:

(dollars in thousands)

Number of

Contracts

Recorded

Investment

Number of

Contracts

Recorded

Investment

Real estate mortgage - 1 to 4 family:

Home equity lines of credit

Total

	Six months ended 6/30/2015				Six months ended 6/30/2014
New York and other states*:	Number of		Recorded		Number of		Recorded
(dollars in thousands)	Contracts		Investment		Contracts		Investment

Real estate mortgage - 1 to 4 family:
First mortgages		-	$	-		4	$	308

Total		-	$	-		4	$	308

Florida:

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

Real estate mortgage - 1 to 4 family:
Home equity lines of credit		1	$	50		1	$	279

Total		1	$	50		1	$	279

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 non-accrual 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 grading 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. In addition, the Company’s internal loan review department reviews non-homogeneous loans over $250 thousand by testing the loan grades assigned through the Company’s grading process.

The Company uses the following definitions for classified loans:

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

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

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

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

As of June 30, 2015 and December 31, 2014, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

	June 30, 2015
New York and other states:

(dollars in thousands)
	Pass		Classified		Total
Commercial:
Commercial real estate	$	158,761		11,196		169,957
Other		22,557		857		23,414

	$	181,318		12,053		193,371

Florida:

(dollars in thousands)
	Pass		Classified		Total
Commercial:
Commercial real estate	$	15,922		-		15,922
Other		106		-		106

	$	16,028		-		16,028

Total:

(dollars in thousands)
	Pass		Classified		Total
Commercial:
Commercial real estate	$	174,683		11,196		185,879
Other		22,663		857		23,520

	$	197,346		12,053		209,399

	December 31, 2014
New York and other states:

(dollars in thousands)
	Pass		Classified		Total
Commercial:
Commercial real estate	$	162,589		12,199		174,788
Other		28,677		523		29,200

	$	191,266		12,722		203,988

Florida:

(dollars in thousands)
	Pass		Classified		Total
Commercial:
Commercial real estate	$	19,336		-		19,336
Other		58		-		58

	$	19,394		-		19,394

Total:

(dollars in thousands)
	Pass		Classified		Total
Commercial:
Commercial real estate	$	181,925		12,199		194,124
Other		28,735		523		29,258

	$	210,660		12,722		223,382

Included in classified loans in the above tables are impaired loans of $3.6 million and $4.1 million at June 30, 2015 and December 31, 2014, respectively.

For homogeneous loan pools, such as residential mortgages, home equity lines of credit, and installment loans, the Company uses payment status to identify the credit risk in these loan portfolios. Payment status is reviewed on a daily basis by the Bank’s collection area and on a monthly basis with respect to determining the adequacy of the allowance for loan losses. The payment status of these homogeneous pools as of June 30, 2015 and December 31, 2014 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 as of June 30, 2015 and December 31, 2014 is presented in the non-accrual loans table.