(5)	Loans and Allowance for Loan Losses

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

	March 31, 2017
(dollars in thousands)	New York and other states*		Florida		Total
Commercial:
Commercial real estate	$	150,683		11,375		162,058
Other		22,048		345		22,393
Real estate mortgage - 1 to 4 family:
First mortgages		2,167,971		688,426		2,856,397
Home equity loans		61,913		11,618		73,531
Home equity lines of credit		279,986		46,294		326,280
Installment		6,447		1,830		8,277
Total loans, net	$	2,689,048		759,888		3,448,936
Less: Allowance for loan losses						44,048
Net loans					$	3,404,888

	December 31, 2016
(dollars in thousands)	New York and other states*		Florida		Total
Commercial:
Commercial real estate	$	151,366		12,243		163,609
Other		27,539		46		27,585
Real estate mortgage - 1 to 4 family:
First mortgages		2,158,904		665,183		2,824,087
Home equity loans		60,892		10,754		71,646
Home equity lines of credit		286,586		48,255		334,841
Installment		7,048		1,770		8,818
Total loans, net	$	2,692,335		738,251		3,430,586
Less: Allowance for loan losses						43,890
Net loans					$	3,386,696

*Includes New York, New Jersey, Vermont and Massachusetts

At March 31, 2017 and December 31, 2016, the Company had approximately $23.9 million and $24.8 million of real estate construction loans, respectively. Of the $23.9 million in real estate construction loans at March 31, 2017, approximately $14.3 million are secured by second mortgages to residential borrowers while approximately $9.6 million were to commercial borrowers for residential construction projects. Of the $24.8 million in real estate construction loans at December 31, 2016, approximately $16.3 million are secured by second mortgages to residential borrowers while approximately $8.5 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 non-accrual loans by loan class:

	March 31, 2017
(dollars in thousands)	New York and other states		Florida		Total
Loans in non-accrual status:
Commercial:
Commercial real estate	$	1,758		-		1,758
Other		100		-		100
Real estate mortgage - 1 to 4 family:
First mortgages		19,445		1,440		20,885
Home equity loans		46		-		46
Home equity lines of credit		3,281		272		3,553
Installment		41		-		41
Total non-accrual loans		24,671		1,712		26,383
Restructured real estate mortgages - 1 to 4 family		41		-		41
Total nonperforming loans	$	24,712		1,712		26,424

	December 31, 2016
(dollars in thousands)	New York and other states		Florida		Total
Loans in non-accrual status:
Commercial:
Commercial real estate	$	1,843		-		1,843
Other		-		-		-
Real estate mortgage - 1 to 4 family:
First mortgages		17,727		1,659		19,386
Home equity loans		95		-		95
Home equity lines of credit		3,376		270		3,646
Installment		48		-		48
Total non-accrual loans		23,089		1,929		25,018
Restructured real estate mortgages - 1 to 4 family		42		-		42
Total nonperforming loans	$	23,131		1,929		25,060

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, 2017 and December 31, 2016, other estate owned included $2.5 million and $3.5 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 $12.6 million and $12.5 million as of March 31, 2017 and December 31, 2016, 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, 2017 and December 31, 2016 :

New York and other states:

	March 31, 2017
(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	$	270		-		1,626		1,896		148,787		150,683
Other		-		-		100		100		21,948		22,048
Real estate mortgage - 1 to 4 family:
First mortgages		2,614		1,185		10,573		14,372		2,153,599		2,167,971
Home equity loans		5		3		22		30		61,883		61,913
Home equity lines of credit		402		179		1,684		2,265		277,721		279,986
Installment		20		8		22		50		6,397		6,447
Total	$	3,311		1,375		14,027		18,713		2,670,335		2,689,048

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	$	-		-		-		-		11,375		11,375
Other		-		-		-		-		345		345
Real estate mortgage - 1 to 4 family:
First mortgages		1,656		393		571		2,620		685,806		688,426
Home equity loans		-		10		-		10		11,608		11,618
Home equity lines of credit		50		20		90		160		46,134		46,294
Installment		12		7		-		19		1,811		1,830
Total	$	1,718		430		661		2,809		757,079		759,888

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	$	270		-		1,626		1,896		160,162		162,058
Other		-		-		100		100		22,293		22,393
Real estate mortgage - 1 to 4 family:
First mortgages		4,270		1,578		11,144		16,992		2,839,405		2,856,397
Home equity loans		5		13		22		40		73,491		73,531
Home equity lines of credit		452		199		1,774		2,425		323,855		326,280
Installment		32		15		22		69		8,208		8,277
Total	$	5,029		1,805		14,688		21,522		3,427,414		3,448,936

New York and other states:

	December 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	$	50		43		1,706		1,799		149,567		151,366
Other		-		-		-		-		27,539		27,539
Real estate mortgage - 1 to 4 family:
First mortgages		6,379		2,924		9,643		18,946		2,139,958		2,158,904
Home equity loans		50		3		74		127		60,765		60,892
Home equity lines of credit		685		111		1,839		2,635		283,951		286,586
Installment		34		32		15		81		6,967		7,048
Total	$	7,198		3,113		13,277		23,588		2,668,747		2,692,335

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	$	-		-		-		-		12,243		12,243
Other		-		-		-		-		46		46
Real estate mortgage - 1 to 4 family:
First mortgages		1,942		69		1,255		3,266		661,917		665,183
Home equity loans		19		-		-		19		10,735		10,754
Home equity lines of credit		-		-		156		156		48,099		48,255
Installment		30		6		-		36		1,734		1,770
Total	$	1,991		75		1,411		3,477		734,774		738,251

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	$	50		43		1,706		1,799		161,810		163,609
Other		-		-		-		-		27,585		27,585
Real estate mortgage - 1 to 4 family:
First mortgages		8,321		2,993		10,898		22,212		2,801,875		2,824,087
Home equity loans		69		3		74		146		71,500		71,646
Home equity lines of credit		685		111		1,995		2,791		332,050		334,841
Installment		64		38		15		117		8,701		8,818
Total	$	9,189		3,188		14,688		27,065		3,403,521		3,430,586

At March 31, 2017 and December 31, 2016, 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, 2017
	Commercial			Real Estate Mortgage- 1 to 4 Family		Installment			Total
Balance at beginning of period	$	4,929			38,231		730			43,890
Loans charged off:
New York and other states*		72			430		41			543
Florida		-			84		2			86
Total loan chargeoffs		72			514		43			629

Recoveries of loans previously charged off:
New York and other states*		8			169		10			187
Florida		-			-		-			-
Total recoveries		8			169		10			187
Net loans charged off		64			345		33			442
Provision for loan losses		(55	)		695		(40	)		600
Balance at end of period	$	4,810			38,581		657			44,048

(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

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, 2017 and December 31, 2016:

	March 31, 2017
(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		4,810		38,581		657		44,048

Total ending allowance balance	$	4,810		38,581		657		44,048

Loans:
Individually evaluated for impairment	$	2,422		22,964		-		25,386
Collectively evaluated for impairment		182,029		3,233,244		8,277		3,423,550

Total ending loans balance	$	184,451		3,256,208		8,277		3,448,936

	December 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		4,929		38,231		730		43,890

Total ending allowance balance	$	4,929		38,231		730		43,890

Loans:
Individually evaluated for impairment	$	2,418		21,607		-		24,025
Collectively evaluated for impairment		188,776		3,208,967		8,818		3,406,561

Total ending loans balance	$	191,194		3,230,574		8,818		3,430,586

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, 2017 and December 31, 2016 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, 2017 and December 31, 2016:

New York and other states:

	March 31, 2017
(dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment

Commercial:
Commercial real estate	$	2,322		3,514		-		2,282
Other		100		100		-		100
Real estate mortgage - 1 to 4 family:
First mortgages		17,791		18,526		-		16,154
Home equity loans		275		311		-		269
Home equity lines of credit		2,139		2,301		-		2,039

Total	$	22,627		24,752		-		20,844

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		2,077		2,168		-		2,714
Home equity loans		93		93		-		94
Home equity lines of credit		589		661		-		579

Total	$	2,759		2,922		-		3,387

Total:

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

Commercial:
Commercial real estate	$	2,322		3,514		-		2,282
Other		100		100		-		100
Real estate mortgage - 1 to 4 family:
First mortgages		19,868		20,694		-		18,868
Home equity loans		368		404		-		363
Home equity lines of credit		2,728		2,962		-		2,618

Total	$	25,386		27,674		-		24,231

New York and other states:

	December 31, 2016
(dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment

Commercial:
Commercial real estate	$	2,418		3,470		-		2,214
Other		-		-		-		-
Real estate mortgage - 1 to 4 family:
First mortgages		16,675		17,439		-		15,665
Home equity loans		269		305		-		251
Home equity lines of credit		1,999		2,160		-		1,806

Total	$	21,361		23,374		-		19,936

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		2,009		2,100		-		1,800
Home equity loans		94		94		-		81
Home equity lines of credit		561		633		-		591

Total	$	2,664		2,827		-		2,472

Total:

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

Commercial:
Commercial real estate	$	2,418		3,470		-		2,214
Other		-		-		-		-
Real estate mortgage - 1 to 4 family:
First mortgages		18,684		19,539		-		17,465
Home equity loans		363		399		-		332
Home equity lines of credit		2,560		2,793		-		2,397

Total	$	24,025		26,201		-		22,408

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, 2017 and 2016.

As of March 31, 2017 and December 31, 2016 impaired loans included approximately $11.9 million and $11.5 million of loans in accruing status that were identified as TDR’s in accordance with regulatory guidance related to Chapter 7 bankruptcy loans, respectively.

Management evaluates impairment on impaired loans on a quarterly basis. If, during this evaluation, impairment of the loan is identified, a charge off is taken at that time. As a result, as of March 31, 2017 and December 31, 2016, 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 3/31/2017						Three months ended 3/31/2016
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

Real estate mortgage - 1 to 4 family:
First mortgages		11	$	1,947	$	1,947		12	$	1,270	$	1,270
Home equity loans		1		13		13		-		-		-
Home equity lines of credit		4		158		158		4		103		103

Total		16	$	2,118	$	2,118		16	$	1,373	$	1,373

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		1	$	80	$	80		2	$	245	$	245
Home equity lines of credit		1		70		70		-		-		-

Total		2	$	150	$	150		2	$	245	$	245

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, 2017 and 2016 which had been modified within the last twelve months:

	Three months ended 3/31/2017				Three months ended 3/31/2016
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		-	$	-		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

Real estate mortgage - 1 to 4 family:
First mortgages		1	$	80		-	$	-
Home equity lines of credit		1	$	70		-	$	-

Total		2	$	150		-	$	-

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 March 31, 2017 and December 31, 2016, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

	March 31, 2017
New York and other states:

(dollars in thousands)
	Pass		Classified		Total
Commercial:
Commercial real estate	$	137,482		13,201		150,683
Other		19,915		2,133		22,048

	$	157,397		15,334		172,731

Florida:

(dollars in thousands)
	Pass		Classified		Total
Commercial:
Commercial real estate	$	11,375		-		11,375
Other		345		-		345

	$	11,720		-		11,720

Total:

(dollars in thousands)
	Pass		Classified		Total
Commercial:
Commercial real estate	$	148,857		13,201		162,058
Other		20,260		2,133		22,393

	$	169,117		15,334		184,451

	December 31, 2016
New York and other states:

(dollars in thousands)	Pass		Classified		Total
Commercial:
Commercial real estate	$	136,676		14,690		151,366
Other		25,442		2,097		27,539

	$	162,118		16,787		178,905

Florida:

(dollars in thousands)
	Pass		Classified		Total
Commercial:
Commercial real estate	$	12,243		-		12,243
Other		46		-		46

	$	12,289		-		12,289

Total:

(dollars in thousands)
	Pass		Classified		Total
Commercial:
Commercial real estate	$	148,919		14,690		163,609
Other		25,488		2,097		27,585

	$	174,407		16,787		191,194

Included in classified loans in the above tables are impaired loans of $1.8 million at March 31, 2017 and December 31, 2016.

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, 2017 and December 31, 2016 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 March 31, 2017 and December 31, 2016 is presented in the non-accrual loans table.