Loans and Allowance for Loan Losses

9 Months Ended

Sep. 30, 2016

Loans and Allowance for Loan Losses [Abstract]

Loans and Allowance for Loan Losses

(5) Loans and Allowance for Loan Losses

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

	September 30, 2016
(dollars in thousands)	New York and other states*		Florida		Total
Commercial:
Commercial real estate	$	154,747		12,505		167,252
Other		22,543		-		22,543
Real estate mortgage - 1 to 4 family:
First mortgages		2,138,783		636,753		2,775,536
Home equity loans		59,512		10,828		70,340
Home equity lines of credit		293,459		49,986		343,445
Installment		6,849		1,666		8,515
Total loans, net	$	2,675,893		711,738		3,387,631
Less: Allowance for loan losses						43,950
Net loans					$	3,343,681

	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 September 30, 2016 and December 31, 2015, the Company had approximately $23.5 million and $26.6 million of real estate construction loans, respectively.  Of the $23.5 million in real estate construction loans at September 30, 2016, approximately $14.0 million are secured by second mortgages to residential borrowers while approximately $9.5 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 second 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:

	September 30, 2016
(dollars in thousands)	New York and other states		Florida		Total
Loans in non-accrual status:
Commercial:
Commercial real estate	$	2,366		-		2,366
Real estate mortgage - 1 to 4 family:
First mortgages		18,361		1,503		19,864
Home equity loans		94		45		139
Home equity lines of credit		3,223		296		3,519
Installment		70		-		70
Total non-accrual loans		24,114		1,844		25,958
Restructured real estate mortgages - 1 to 4 family		44		-		44
Total nonperforming loans	$	24,158		1,844		26,002

	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 September 30, 2016 and December 31, 2015, other estate owned included $4.1 million and $5.4 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 $12.8 million and $13.2 million as of September 30, 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 September 30, 2016 and December 31, 2015:

New York and other states:

	September 30, 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	$	301		-		2,323		2,624		152,123		154,747
Other		-		-		-		-		22,543		22,543
Real estate mortgage - 1 to 4 family:
First mortgages		3,415		2,243		10,629		16,287		2,122,496		2,138,783
Home equity loans		71		30		42		143		59,369		59,512
Home equity lines of credit		672		182		1,476		2,330		291,129		293,459
Installment		18		10		48		76		6,773		6,849
Total	$	4,477		2,465		14,518		21,460		2,654,433		2,675,893

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	$	-		-		-		-		12,505		12,505
Other		-		-		-		-		-		-
Real estate mortgage - 1 to 4 family:
First mortgages		608		-		1,085		1,693		635,060		636,753
Home equity loans		-		-		-		-		10,828		10,828
Home equity lines of credit		50		-		180		230		49,756		49,986
Installment		25		1		-		26		1,640		1,666
Total	$	683		1		1,265		1,949		709,789		711,738

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	$	301		-		2,323		2,624		164,628		167,252
Other		-		-		-		-		22,543		22,543
Real estate mortgage - 1 to 4 family:
First mortgages		4,023		2,243		11,714		17,980		2,757,556		2,775,536
Home equity loans		71		30		42		143		70,197		70,340
Home equity lines of credit		722		182		1,656		2,560		340,885		343,445
Installment		43		11		48		102		8,413		8,515
Total	$	5,160		2,466		15,783		23,409		3,364,222		3,387,631

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 September 30, 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 September 30, 2016
	Commercial		Real Estate Mortgage- 1 to 4 Family			Installment		Total
Balance at beginning of period	$	5,046		38,589			429		44,064
Loans charged off:
New York and other states*		356		549			57		962
Florida		-		2			3		5
Total loan chargeoffs		356		551			60		967
Recoveries of loans previously charged off:
New York and other states*		3		78			20		101
Florida		-		2			-		2
Total recoveries		3		80			20		103
Net loans charged off		353		471			40		864
Provision for loan losses		505		(51	)		296		750
Balance at end of period	$	5,198		38,067			685		43,950

(dollars in thousands)	For the three months ended September 30, 2015
	Commercial		Real Estate Mortgage- 1 to 4 Family		Installment		Total
Balance at beginning of period	$	4,022		41,087		462		45,571
Loans charged off:
New York and other states*		3		1,300		50		1,353
Florida		-		35		4		39
Total loan chargeoffs		3		1,335		54		1,392
Recoveries of loans previously charged off:
New York and other states*		-		141		24		165
Florida		3		2		-		5
Total recoveries		3		143		24		170
Net loans charged off		-		1,192		30		1,222
Provision (credit) for loan losses		34		752		14		800
Balance at end of period	$	4,056		40,647		446		45,149

(dollars in thousands)	For the nine months ended September 30, 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*		688		2,528		230		3,446
Florida		-		103		20		123
Total loan chargeoffs		688		2,631		250		3,569
Recoveries of loans previously charged off:
New York and other states*		44		313		46		403
Florida		-		4		-		4
Total recoveries		44		317		46		407
Net loans charged off		644		2,314		204		3,162
Provision for loan losses		1,351		628		371		2,350
Balance at end of period	$	5,198		38,067		685		43,950

(dollars in thousands)	For the nine months ended September 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*		103		3,480		126		3,709
Florida		-		313		4		317
Total loan chargeoffs		103		3,793		130		4,026
Recoveries of loans previously charged off:
New York and other states*		16		384		39		439
Florida		5		4		-		9
Total recoveries		21		388		39		448
Net loans charged off		82		3,405		91		3,578
Provision for loan losses		67		1,964		369		2,400
Balance at end of period	$	4,056		40,647		446		45,149

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 September 30, 2016 and December 31, 2015:

	September 30, 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		5,198		38,067		685		43,950
Total ending allowance balance	$	5,198		38,067		685		43,950
Loans:
Individually evaluated for impairment	$	2,638		22,190		-		24,828
Collectively evaluated for impairment		187,157		3,167,131		8,515		3,362,803
Total ending loans balance	$	189,795		3,189,321		8,515		3,387,631

	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 September 30, 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 September 30, 2016 and December 31, 2015:

New York and other states:

	September 30, 2016
(dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment
Commercial:
Commercial real estate	$	2,638		4,016		-		2,764
Other		-		-		-		-
Real estate mortgage - 1 to 4 family:
First mortgages		17,391		18,135		-		16,641
Home equity loans		276		312		-		248
Home equity lines of credit		1,945		2,108		-		1,800
Total	$	22,250		24,571		-		21,453

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		1,913		2,004		-		1,742
Home equity loans		96		96		-		76
Home equity lines of credit		569		641		-		600
Total	$	2,578		2,741		-		2,418

Total:

(dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment
Commercial:
Commercial real estate	$	2,638		4,016		-		2,764
Other		-		-		-		-
Real estate mortgage - 1 to 4 family:
First mortgages		19,304		20,139		-		18,383
Home equity loans		372		408		-		324
Home equity lines of credit		2,514		2,749		-		2,400
Total	$	24,828		27,312		-		23,871

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 and nine months ended September 30, 2016 and 2015.

As of September 30, 2016 and December 31, 2015 impaired loans included approximately $11.4 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, respectively.

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 September 30, 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 9/30/2016						Three months ended 9/30/2015
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)
Real estate mortgage - 1 to 4 family:
First mortgages		7	$	655	$	655		8	$	1,055	$	1,055
Home equity loans		1		44		44		-		-		-
Home equity lines of credit		2		183		183		3		115		115
Total		10	$	882	$	882		11	$	1,170	$	1,170

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
Real estate mortgage - 1 to 4 family:
First mortgages		-	$	-	$	-		4	$	524	$	524
Home equity lines of credit		-		-		-		2		57		57
Total		-	$	-	$	-		6	$	581	$	581

	Nine months ended 9/30/2016						Nine months ended 9/30/2015
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)
Real estate mortgage - 1 to 4 family:
First mortgages		27	$	2,383		2,383		28	$	4,042		4,042
Home equity loans		1		44		44		1		139		139
Home equity lines of credit		10		316		316		5		159		159
Total		38	$	2,743	$	2,743		34	$	4,340	$	4,340

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
Real estate mortgage - 1 to 4 family:
First mortgages		2	$	408	$	408		5	$	681	$	681
Home equity loans		1		45		45		-		-		-
Home equity lines of credit		1		6		6		4		107		107
Total		4	$	459	$	459		9	$	788	$	788

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 months and nine months ended September 30, 2016 and 2015 which had been modified within the last twelve months:

	Three months ended 9/30/2016				Three months ended 9/30/2015
New York and other states*: (dollars in thousands)	Number of Contracts		Recorded Investment		Number of Contracts		Recorded Investment
Real estate mortgage - 1 to 4 family:
First mortgages		-	$	-		1	$	121
Total		-	$	-		1	$	121

Florida:

(dollars in thousands)	Number of Contracts		Recorded Investment		Number of Contracts		Recorded Investment
Real estate mortgage - 1 to 4 family:
First mortgages		-	$	-		-	$	-
Total		-	$	-		-	$	-

	Nine months ended 9/30/2016				Nine months ended 9/30/2015
New York and other states*: (dollars in thousands)	Number of Contracts		Recorded Investment		Number of Contracts		Recorded Investment
Real estate mortgage - 1 to 4 family:
First mortgages		1	$	107		1	$	121
Total		1	$	107		1	$	121

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	$	46		1	$	50
Total		1	$	46		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 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.

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, 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:

	September 30, 2016
New York and other states:
(dollars in thousands)
	Pass		Classified		Total
Commercial:
Commercial real estate	$	143,529		11,218		154,747
Other		21,372		1,171		22,543
	$	164,901		12,389		177,290

Florida:

(dollars in thousands)
	Pass		Classified		Total
Commercial:
Commercial real estate	$	12,505		-		12,505
Other		-		-		-
	$	12,505		-		12,505

Total:

(dollars in thousands)
	Pass		Classified		Total
Commercial:
Commercial real estate	$	156,034		11,218		167,252
Other		21,372		1,171		22,543
	$	177,406		12,389		189,795

	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 $2.4 million and $3.0 million at September 30, 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 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 September 30, 2016 and December 31, 2015 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, 2016 and December 31, 2015 is presented in the non-accrual loans table.