(5) Loans and Allowance for Loan Losses

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

	March 31, 2016
(dollars in thousands)	New York and other states*		Florida		Total
Commercial:
Commercial real estate	$	159,786		14,372		174,158
Other		24,521		86		24,607
Real estate mortgage - 1 to 4 family:
First mortgages		2,094,665		581,220		2,675,885
Home equity loans		52,299		9,600		61,899
Home equity lines of credit		305,407		50,756		356,163
Installment		7,565		1,102		8,667
Total loans, net	$	2,644,243		657,136		3,301,379
Less: Allowance for loan losses						44,398
Net loans					$	3,256,981

	December 31, 2015
(dollars in thousands)	New York and other states*		Florida		Total
Commercial:
Commercial real estate	$	160,965		14,908		175,873
Other		27,449		93		27,542
Real estate mortgage - 1 to 4 family:
First mortgages		2,093,957		566,715		2,660,672
Home equity loans		52,251		8,250		60,501
Home equity lines of credit		308,165		51,160		359,325
Installment		8,000		1,391		9,391
Total loans, net	$	2,650,787		642,517		3,293,304
Less: Allowance for loan losses						44,762
Net loans					$	3,248,542

*Includes

New York, New Jersey, Vermont and Massachusetts

At March 31, 2016 and December 31, 2015, the Company had approximately $23.4 million and $26.6 million of real estate construction loans, respectively. Of the $23.4 million in real estate construction loans at March 31, 2016, approximately $13.6 million are secured by first mortgages to residential borrowers while approximately $9.8 million were to commercial borrowers for residential construction projects. Of the $26.6 million in real estate construction loans at December 31, 2015, approximately $16.0 million are secured by first mortgages to residential borrowers while approximately $10.6 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:

	March 31, 2016
(dollars in thousands)	New York and other states		Florida		Total
Loans in non-accrual status:
Commercial:
Commercial real estate	$	2,762		-		2,762
Real estate mortgage - 1 to 4 family:
First mortgages		21,781		1,503		23,284
Home equity loans		139		-		139
Home equity lines of credit		3,749		299		4,048
Installment		74		-		74
Total non-accrual loans		28,505		1,802		30,307
Restructured real estate mortgages - 1 to 4 family		47		-		47
Total nonperforming loans	$	28,552		1,802		30,354

	December 31, 2015
(dollars in thousands)	New York and other states		Florida		Total
Loans in non-accrual status:
Commercial:
Commercial real estate	$	3,024		-		3,024
Other		-		-		-
Real estate mortgage - 1 to 4 family:
First mortgages		19,488		1,488		20,976
Home equity loans		212		-		212
Home equity lines of credit		3,573		329		3,902
Installment		90		8		98
Total non-accrual loans		26,387		1,825		28,212
Restructured real estate mortgages - 1 to 4 family		48		-		48
Total nonperforming loans	$	26,435		1,825		28,260

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 March 31, 2016 and December 31, 2015, other real estate owned included $4.9 million and $5.4 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 $14.9 million and $13.2 million as of March 31, 2016 and December 31, 2015, respectively.

The following tables present the aging of the recorded investment in past due loans by loan class and by region as of March 31, 2016 and December 31, 2015:

New York and other states:

	March 31, 2016
(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	$	-		-		2,080		2,080		157,706		159,786
Other		-		-		-		-		24,521		24,521
Real estate mortgage - 1 to 4 family:
First mortgages		2,454		1,441		13,882		17,777		2,076,888		2,094,665
Home equity loans		4		43		77		124		52,175		52,299
Home equity lines of credit		469		455		1,410		2,334		303,073		305,407
Installment		75		11		66		152		7,413		7,565

Total	$	3,002		1,950		17,515		22,467		2,621,776		2,644,243

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	$	-		8		-		8		14,364		14,372
Other		-		-		-		-		86		86
Real estate mortgage - 1 to 4 family:
First mortgages		209		432		791		1,432		579,788		581,220
Home equity loans		-		-		-		-		9,600		9,600
Home equity lines of credit		113		-		180		293		50,463		50,756
Installment		2		1		-		3		1,099		1,102

Total	$	324		441		971		1,736		655,400		657,136

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	$	-		8		2,080		2,088		172,070		174,158
Other		-		-		-		-		24,607		24,607
Real estate mortgage - 1 to 4 family:
First mortgages		2,663		1,873		14,673		19,209		2,656,676		2,675,885
Home equity loans		4		43		77		124		61,775		61,899
Home equity lines of credit		582		455		1,590		2,627		353,536		356,163
Installment		77		12		66		155		8,512		8,667

Total	$	3,326		2,391		18,486		24,203		3,277,176		3,301,379

New York and other states:

	December 31, 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	$	-		-		2,340		2,340		158,625		160,965
Other		-		-		-		-		27,449		27,449
Real estate mortgage - 1 to 4 family:
First mortgages		4,321		2,037		12,529		18,887		2,075,070		2,093,957
Home equity loans		43		-		149		192		52,059		52,251
Home equity lines of credit		572		204		1,418		2,194		305,971		308,165
Installment		34		19		88		141		7,859		8,000

Total	$	4,970		2,260		16,524		23,754		2,627,033		2,650,787

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	$	10		-		-		10		14,898		14,908
Other		-		-		-		-		93		93
Real estate mortgage - 1 to 4 family:
First mortgages		665		271		851		1,787		564,928		566,715
Home equity loans		-		-		-		-		8,250		8,250
Home equity lines of credit		159		-		240		399		50,761		51,160
Installment		1		21		-		22		1,369		1,391

Total	$	835		292		1,091		2,218		640,299		642,517

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	$	10		-		2,340		2,350		173,523		175,873
Other		-		-		-		-		27,542		27,542
Real estate mortgage - 1 to 4 family:
First mortgages		4,986		2,308		13,380		20,674		2,639,998		2,660,672
Home equity loans		43		-		149		192		60,309		60,501
Home equity lines of credit		731		204		1,658		2,593		356,732		359,325
Installment		35		40		88		163		9,228		9,391

Total	$	5,805		2,552		17,615		25,972		3,267,332		3,293,304

At March 31, 2016 and December 31, 2015, 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.

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

(dollars in thousands)	For the three months ended March 31, 2016
	Commercial		Real Estate Mortgage- 1 to 4 Family		Installment		Total
Balance at beginning of period	$	4,491		39,753		518		44,762
Loans charged off:
New York and other states*		264		889		81		1,234
Florida		-		84		16		100
Total loan chargeoffs		264		973		97		1,334

Recoveries of loans previously charged off:
New York and other states*		40		118		11		169
Florida		-		1		-		1
Total recoveries		40		119		11		170
Net loans charged off		224		854		86		1,164
Provision for loan losses		652		118		30		800
Balance at end of period	$	4,919		39,017		462		44,398

(dollars in thousands)	For the three months ended March 31, 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*		50			1,114		43		1,207
Florida		-			109		-		109
Total loan chargeoffs		50			1,223		43		1,316

Recoveries of loans previously charged off:
New York and other states*		16			110		6		132
Florida		1			-		-		1
Total recoveries		17			110		6		133
Net loans charged off		33			1,113		37		1,183
Provision (credit) for loan losses		(14	)		554		260		800
Balance at end of period	$	4,024			41,529		391		45,944

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.

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 March 31, 2016 and December 31, 2015:

	March 31, 2016
(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		4,919		39,017		462		44,398

Total ending allowance balance	$	4,919		39,017		462		44,398


Loans:
Individually evaluated for impairment	$	3,040		22,647		-		25,687
Collectively evaluated for impairment		195,725		3,071,300		8,667		3,275,692

Total ending loans balance	$	198,765		3,093,947		8,667		3,301,379

	December 31, 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		4,491		39,753		518		44,762

Total ending allowance balance	$	4,491		39,753		518		44,762

Loans:
Individually evaluated for impairment	$	3,306		22,575		-		25,881
Collectively evaluated for impairment		200,109		3,057,923		9,391		3,267,423

Total ending loans balance	$	203,415		3,080,498		9,391		3,293,304

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 March 31, 2016 and December 31, 2015 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 March 31, 2016 and December 31, 2015:

New York and other states:
	March 31, 2016
(dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment

Commercial:
Commercial real estate	$	3,040		3,993		-		4,828
Other		-		-		-		-
Real estate mortgage - 1 to 4 family:
First mortgages		17,529		18,573		-		17,553
Home equity loans		299		358		-		320
Home equity lines of credit		2,165		2,370		-		2,436

Total	$	23,033		25,294		-		25,137

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		1,993		2,105		-		1,872
Home equity loans		52		52		-		52
Home equity lines of credit		609		693		-		618

Total	$	2,654		2,850		-		2,542

Total:

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

Commercial:
Commercial real estate	$	3,040		3,993		-		4,828
Other		-		-		-		-
Real estate mortgage - 1 to 4 family:
First mortgages		19,522		20,678		-		19,425
Home equity loans		351		410		-		372
Home equity lines of credit		2,774		3,063		-		3,054

Total	$	25,687		28,144		-		27,679

New York and other states:
	December 31, 2015
(dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment

Commercial:
Commercial real estate	$	3,306		3,996		-		3,608
Other		-		-		-		-
Real estate mortgage - 1 to 4 family:
First mortgages		17,460		18,602		-		18,127
Home equity loans		359		417		-		382
Home equity lines of credit		2,306		2,569		-		2,238

Total	$	23,431		25,584		-		24,355

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		1,760		1,852		-		1,489
Home equity loans		53		53		-		54
Home equity lines of credit		637		720		-		654

Total	$	2,450		2,625		-		2,197

Total:

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

Commercial:
Commercial real estate	$	3,306		3,996		-		3,608
Other		-		-		-		-
Real estate mortgage - 1 to 4 family:
First mortgages		19,220		20,454		-		19,616
Home equity loans		412		470		-		436
Home equity lines of credit		2,943		3,289		-		2,892

Total	$	25,881		28,209		-		26,552

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 months ended March 31, 2016 and 2015.

As of March 31, 2016 and December 31, 2015 impaired loans included approximately $10.0 million and $10.6 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 chargeoff is taken at that time. As a result, as of March 31, 2016 and December 31, 2015, 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 3/31/2016						Three months ended 3/31/2015
New York and other states*:			Pre-Modification		Post-Modification				Pre-Modification		Post-Modification
(dollars in thousands)	Number of Contracts		Outstanding Recorded Investment		Outstanding Recorded Investment		Number of Contracts		Outstanding Recorded Investment		Outstanding Recorded Investment

Real estate mortgage - 1 to 4 family:
First mortgages		12	$	1,270	$	1,270		11	$	2,240	$	2,240
Home equity loans		-		-		-		1		10		10
Home equity lines of credit		4		103		103		1		50		50

Total		16	$	1,373	$	1,373		13	$	2,300	$	2,300

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

Real estate mortgage - 1 to 4 family:
First mortgages		2	$	245	$	245		1	$	157	$	157
Home equity lines of credit		-		-		-		2		50		50

Total		2	$	245	$	245		3	$	207	$	207

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.

The following table presents, by class, TDR’s that defaulted during the three months ended March 31, 2016 and 2015 which had been modified within the last twelve months:

	Three months ended 3/31/2016				Three months ended 3/31/2015
New York and other states*: (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		2	$	101		-	$	-
Home equity lines of credit		1		48		-		-

Total		3	$	149		-	$	-

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 lines of credit		-	$	-		1	$	50

Total		-	$	-		1	$	50

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

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, 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.

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 March 31, 2016 and December 31, 2015, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

	March 31, 2016
New York and other states:

(dollars in thousands)
	Pass		Classified		Total
Commercial:
Commercial real estate	$	145,254		14,532		159,786
Other		23,791		730		24,521

	$	169,045		15,262		184,307

Florida:

(dollars in thousands)
	Pass		Classified		Total
Commercial:
Commercial real estate	$	14,372		-		14,372
Other		86		-		86

	$	14,458		-		14,458

Total:

(dollars in thousands)
	Pass		Classified		Total
Commercial:
Commercial real estate	$	159,626		14,532		174,158
Other		23,877		730		24,607

	$	183,503		15,262		198,765

	December 31, 2015
New York and other states:

(dollars in thousands)
	Pass		Classified		Total
Commercial:
Commercial real estate	$	145,335		15,630		160,965
Other		26,715		734		27,449

	$	172,050		16,364		188,414

Florida:

(dollars in thousands)
	Pass		Classified		Total
Commercial:
Commercial real estate	$	14,908		-		14,908
Other		93		-		93

	$	15,001		-		15,001

Total:

(dollars in thousands)
	Pass		Classified		Total
Commercial:
Commercial real estate	$	160,243		15,630		175,873
Other		26,808		734		27,542

	$	187,051		16,364		203,415

Included in classified loans in the above tables are impaired loans of $2.8 million and $3.0 million at March 31, 2016 and December 31, 2015, 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 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 March 31, 2016 and December 31, 2015 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 March 31, 2016 and December 31, 2015 is presented in the non-accrual loans table.