(5) Loans and Allowance for Loan Losses

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

	September 30, 2017
(dollars in thousands)	New York and other states*		Florida		Total
Commercial:
Commercial real estate	$	152,228		12,980		165,208
Other		21,754		319		22,073
Real estate mortgage - 1 to 4 family:
First mortgages		2,251,152		742,697		2,993,849
Home equity loans		64,556		12,565		77,121
Home equity lines of credit		267,143		44,610		311,753
Installment		6,796		1,482		8,278
Total loans, net	$	2,763,629		814,653		3,578,282
Less: Allowance for loan losses						44,082
Net loans					$	3,534,200

	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 September 30, 2017 and December 31, 2016, the Company had approximately $27.6 million and $24.8 million of real estate construction loans, respectively. Of the $27.6 million in real estate construction loans at September 30, 2017, approximately $17.2 million are secured by first mortgages to residential borrowers while approximately $10.4 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 first 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:

	September 30, 2017
(dollars in thousands)	New York and other states		Florida		Total
Loans in non-accrual status:
Commercial:
Commercial real estate	$	1,596		-		1,596
Other		100		-		100
Real estate mortgage - 1 to 4 family:
First mortgages		17,048		1,764		18,812
Home equity loans		35		-		35
Home equity lines of credit		3,843		131		3,974
Installment		30		-		30
Total non-accrual loans		22,652		1,895		24,547
Restructured real estate mortgages - 1 to 4 family		40		-		40
Total nonperforming loans	$	22,692		1,895		24,587

	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 September 30, 2017 and December 31, 2016, other estate owned included $2.5 million and $3.5 million of residential foreclosed properties, respectively. Non-accrual residential mortgage loans that are in the process of foreclosure had a recorded investment of $13.3 million and $12.5 million as of September 30, 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 September 30, 2017 and December 31, 2016:

New York and other states:
	September 30, 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	$	-		-		1,481		1,481		150,747		152,228
Other		-		-		100		100		21,654		21,754
Real estate mortgage - 1 to 4 family:
First mortgages		4,972		1,973		9,560		16,505		2,234,647		2,251,152
Home equity loans		70		-		3		73		64,483		64,556
Home equity lines of credit		337		167		2,235		2,739		264,404		267,143
Installment		39		29		10		78		6,718		6,796

Total	$	5,418		2,169		13,389		20,976		2,742,653		2,763,629

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	$	-		-		-		-		12,980		12,980
Other		-		-		-		-		319		319
Real estate mortgage - 1 to 4 family:
First mortgages		845		291		1,323		2,459		740,238		742,697
Home equity loans		-		-		-		-		12,565		12,565
Home equity lines of credit		-		-		-		-		44,610		44,610
Installment		-		-		-		-		1,482		1,482

Total	$	845		291		1,323		2,459		812,194		814,653

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	$	-		-		1,481		1,481		163,727		165,208
Other		-		-		100		100		21,973		22,073
Real estate mortgage - 1 to 4 family:
First mortgages		5,817		2,264		10,883		18,964		2,974,885		2,993,849
Home equity loans		70		-		3		73		77,048		77,121
Home equity lines of credit		337		167		2,235		2,739		309,014		311,753
Installment		39		29		10		78		8,200		8,278

Total	$	6,263		2,460		14,712		23,435		3,554,847		3,578,282

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 September 30, 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 September 30, 2017
	Commercial		Real Estate Mortgage- 1 to 4 Family		Installment		Total
Balance at beginning of period	$	4,596		38,871		695		44,162
Loans charged off:
New York and other states*		-		747		65		812
Florida		-		31		4		35
Total loan chargeoffs		-		778		69		847

Recoveries of loans previously charged off:
New York and other states*		-		137		8		145
Florida		-		72		-		72
Total recoveries		-		209		8		217
Net loans charged off		-		569		61		630
Provision for loan losses		24		434		92		550
Balance at end of period	$	4,620		38,736		726		44,082

(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 (credit) for loan losses		505		(51	)		296		750
Balance at end of period	$	5,198		38,067			685		43,950

(dollars in thousands)	For the nine months ended September 30, 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			1,699		146		1,917
Florida		-			167		19		186
Total loan chargeoffs		72			1,866		165		2,103

Recoveries of loans previously charged off:
New York and other states*		8			494		21		523
Florida		-			72		-		72
Total recoveries		8			566		21		595
Net loans charged off		64			1,300		144		1,508
Provision for loan losses		(245	)		1,805		140		1,700
Balance at end of period	$	4,620			38,736		726		44,082

(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

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, 2017 and December 31, 2016:

	September 30, 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		4,620		38,736		726		44,082

Total ending allowance balance	$	4,620		38,736		726		44,082

Loans:
Individually evaluated for impairment	$	2,969		21,585		-		24,554
Collectively evaluated for impairment		184,312		3,361,138		8,278		3,553,728

Total ending loans balance	$	187,281		3,382,723		8,278		3,578,282

	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 September 30, 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 September 30, 2017 and December 31, 2016:

The following table presents impaired loans by loan class:

New York and other states:

	September 30, 2017
(dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment

Commercial:
Commercial real estate	$	2,869		3,916		-		2,879
Other		100		100		-		100
Real estate mortgage - 1 to 4 family:
First mortgages		16,043		16,351		-		16,715
Home equity loans		252		272		-		265
Home equity lines of credit		2,330		2,524		-		2,128

Total	$	21,594		23,163		-		22,087

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		2,335		2,441		-		2,217
Home equity loans		90		90		-		92
Home equity lines of credit		535		535		-		568

Total	$	2,960		3,066		-		2,877

Total:

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

Commercial:
Commercial real estate	$	2,869		3,916		-		2,879
Other		100		100		-		100
Real estate mortgage - 1 to 4 family:
First mortgages		18,378		18,792		-		18,932
Home equity loans		342		362		-		358
Home equity lines of credit		2,865		3,059		-		2,696

Total	$	24,554		26,229		-		24,964

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 and nine months ended September 30, 2017 and 2016.

As of September 30, 2017 and December 31, 2016 impaired loans included approximately $11.0 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 September 30, 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 9/30/2017						Three months ended 9/30/2016
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

Commercial:
Commercial real estate		-	$	-		-		-	$	-		-
Real estate mortgage - 1 to 4 family:
First mortgages		7	$	941	$	941		7	$	655	$	655
Home equity loans		-		-		-		1		44		44
Home equity lines of credit		3		296		296		2		183		183

Total		10	$	1,237	$	1,237		10	$	882	$	882

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

Commercial:
Commercial real estate		-	$	-		-		-	$	-		-
Real estate mortgage - 1 to 4 family:
First mortgages		2	$	251	$	251		-	$	-	$	-
Home equity loans		-		-		-		-		-		-
Home equity lines of credit		-		-		-		-		-		-

Total		2	$	251	$	251		-	$	-	$	-

	Nine months ended 9/30/2017						Nine months ended 9/30/2016
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

Commercial:
Commercial real estate		3	$	747	$	747		-	$	-	$	-
Real estate mortgage - 1 to 4 family:
First mortgages		25	$	3,986		3,986		27	$	2,383		2,383
Home equity loans		1		13		13		1		44		44
Home equity lines of credit		8		457		457		10		316		316

Total		37	$	5,203	$	5,203		38	$	2,743	$	2,743

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

Commercial:
Commercial real estate		-	$	-		-		-	$	-		-
Real estate mortgage - 1 to 4 family:
First mortgages		7	$	718	$	718		2	$	408	$	408
Home equity loans		-		-		-		1		45		45
Home equity lines of credit		1		70		70		1		6		6

Total		8	$	788	$	788		4	$	459	$	459

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 and nine months ended September 30, 2017 and 2016 which had been modified within the last twelve months:

	Three months ended 9/30/2017				Three months ended 9/30/2016
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	$	236		-	$	-
Home equity lines of credit		-		-		-		-

Total		2	$	236		-	$	-

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 9/30/2017				Nine months ended 9/30/2016
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	$	236		1	$	107
Home equity loans		-		-		-		-
Home equity lines of credit		1		3		-		-

Total		3	$	239		1	$	107

Florida:

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

Real estate mortgage - 1 to 4 family:
First mortgages		1	$	77		-	$	-
Home equity lines of credit		1	$	70		1	$	46

Total		2	$	147		1	$	46

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, 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:

	September 30, 2017
New York and other states:

(dollars in thousands)
	Pass		Classified		Total
Commercial:
Commercial real estate	$	142,390		9,838		152,228
Other		20,154		1,600		21,754

	$	162,544		11,438		173,982

Florida:

(dollars in thousands)
	Pass		Classified		Total
Commercial:
Commercial real estate	$	12,980		-		12,980
Other		319		-		319

	$	13,299		-		13,299

Total:

(dollars in thousands)
	Pass		Classified		Total
Commercial:
Commercial real estate	$	155,370		9,838		165,208
Other		20,473		1,600		22,073

	$	175,843		11,438		187,281

	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 non-accrual loans of $1.2 million and $1.8 million at September 30, 2017 and December 31, 2016, 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 September 30, 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 September 30, 2017 and December 31, 2016 is presented in the non-accrual loans table.