(5) Loans and Allowance for Loan Losses

	March 31, 2018
(dollars in thousands)	New York and other states*		Florida		Total
Commercial:
Commercial real estate	$	149,357		11,709		161,066
Other		23,459		604		24,063
Real estate mortgage - 1 to 4 family:
First mortgages		2,305,510		784,004		3,089,514
Home equity loans		67,841		14,193		82,034
Home equity lines of credit		257,714		44,171		301,885
Installment		7,405		1,008		8,413
Total loans, net	$	2,811,286		855,689		3,666,975
Less: Allowance for loan losses						44,379
Net loans					$	3,622,596

	December 31, 2017
(dollars in thousands)	New York and other states*		Florida		Total
Commercial:
Commercial real estate	$	149,368		12,524		161,892
Other		23,606		709		24,315
Real estate mortgage - 1 to 4 family:
First mortgages		2,286,148		765,929		3,052,077
Home equity loans		66,455		13,989		80,444
Home equity lines of credit		263,275		45,641		308,916
Installment		7,141		1,622		8,763
Total loans, net	$	2,795,993		840,414		3,636,407
Less: Allowance for loan losses						44,170
Net loans					$	3,592,237

*Includes New York, New Jersey, Vermont and Massachusetts

At March 31, 2018 and December 31, 2017, the Company had approximately $28.4 million and $30.9 million of real estate construction loans, respectively. Of the $28.4 million in real estate construction loans at March 31, 2018, approximately $20.4 million are secured by first mortgages to residential borrowers while approximately $8.0 million were to commercial borrowers for residential construction projects. Of the $30.9 million in real estate construction loans at December 31, 2017, approximately $21.1 million are secured by first mortgages to residential borrowers while approximately $9.8 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, 2018
(dollars in thousands)	New York and other states		Florida		Total
Loans in non-accrual status:
Commercial:
Commercial real estate	$	1,100		-		1,100
Other		113		-		113
Real estate mortgage - 1 to 4 family:
First mortgages		17,687		2,025		19,712
Home equity loans		200		-		200
Home equity lines of credit		3,538		128		3,666
Installment		19		4		23
Total non-accrual loans		22,657		2,157		24,814
Restructured real estate mortgages - 1 to 4 family		38		-		38
Total nonperforming loans	$	22,695		2,157		24,852

	December 31, 2017
(dollars in thousands)	New York and other states		Florida		Total
Loans in non-accrual status:
Commercial:
Commercial real estate	$	1,443		-		1,443
Other		100		-		100
Real estate mortgage - 1 to 4 family:
First mortgages		16,654		2,259		18,913
Home equity loans		93		-		93
Home equity lines of credit		3,603		130		3,733
Installment		57		-		57
Total non-accrual loans		21,950		2,389		24,339
Restructured real estate mortgages - 1 to 4 family		38		-		38
Total nonperforming loans	$	21,988		2,389		24,377

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, 2018 and December 31, 2017, other real estate owned included $2.2 million and $2.7 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 $12.7 million and $12.6 million as of March 31, 2018 and December 31, 2017, 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, 2018 and December 31, 2017:

New York and other states:
	March 31, 2018
(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	$	-		136		1,021		1,157		148,200		149,357
Other		-		-		113		113		23,346		23,459
Real estate mortgage - 1 to 4 family:
First mortgages		4,831		759		9,633		15,223		2,290,287		2,305,510
Home equity loans		-		-		162		162		67,679		67,841
Home equity lines of credit		601		10		2,066		2,677		255,037		257,714
Installment		23		13		13		49		7,356		7,405

Total	$	5,455		918		13,008		19,381		2,791,905		2,811,286

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	$	-		-		-		-		11,709		11,709
Other		-		-		-		-		604		604
Real estate mortgage - 1 to 4 family:
First mortgages		243		103		940		1,286		782,718		784,004
Home equity loans		-		-		-		-		14,193		14,193
Home equity lines of credit		16		-		50		66		44,105		44,171
Installment		13		5		4		22		986		1,008

Total	$	272		108		994		1,374		854,315		855,689

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	$	-		136		1,021		1,157		159,909		161,066
Other		-		-		113		113		23,950		24,063
Real estate mortgage - 1 to 4 family:
First mortgages		5,074		862		10,573		16,509		3,073,005		3,089,514
Home equity loans		-		-		162		162		81,872		82,034
Home equity lines of credit		617		10		2,116		2,743		299,142		301,885
Installment		36		18		17		71		8,342		8,413

Total	$	5,727		1,026		14,002		20,755		3,646,220		3,666,975

New York and other states:
	December 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	$	183		174		1,332		1,689		147,679		149,368
Other		-		-		100		100		23,506		23,606
Real estate mortgage - 1 to 4 family:
First mortgages		5,669		1,300		9,014		15,983		2,270,165		2,286,148
Home equity loans		6		-		45		51		66,404		66,455
Home equity lines of credit		489		18		2,139		2,646		260,629		263,275
Installment		46		17		25		88		7,053		7,141

Total	$	6,393		1,509		12,655		20,557		2,775,436		2,795,993

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	$	-		-		-		-		12,524		12,524
Other		-		-		-		-		709		709
Real estate mortgage - 1 to 4 family:
First mortgages		277		-		1,404		1,681		764,248		765,929
Home equity loans		-		-		-		-		13,989		13,989
Home equity lines of credit		-		-		-		-		45,641		45,641
Installment		3		5		26		34		1,588		1,622

Total	$	280		5		1,430		1,715		838,699		840,414

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	$	183		174		1,332		1,689		160,203		161,892
Other		-		-		100		100		24,215		24,315
Real estate mortgage - 1 to 4 family:
First mortgages		5,946		1,300		10,418		17,664		3,034,413		3,052,077
Home equity loans		6		-		45		51		80,393		80,444
Home equity lines of credit		489		18		2,139		2,646		306,270		308,916
Installment		49		22		51		122		8,641		8,763

Total	$	6,673		1,514		14,085		22,272		3,614,135		3,636,407

At March 31, 2018 and December 31, 2017, 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, 2018
	Commercial			Real Estate Mortgage- 1 to 4 Family		Installment		Total
Balance at beginning of period	$	4,324			39,077		769		44,170
Loans charged off:
New York and other states*		-			131		71		202
Florida		-			-		3		3
Total loan chargeoffs		-			131		74		205

Recoveries of loans previously charged off:
New York and other states*		6			103		6		115
Florida		-			-		-		-
Total recoveries		6			103		6		115
Net loans charged off (recoveries)		(6	)		28		68		90
Provision for loan losses		(75	)		310		64		300
Balance at end of period	$	4,255			39,359		765		44,379

(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

*Includes New York, New Jersey, Vermont and Massachusetts

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, 2018 and December 31, 2017:

	March 31, 2018
(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		4,255		39,359		765		44,379

Total ending allowance balance	$	4,255		39,359		765		44,379

Loans:
Individually evaluated for impairment	$	1,923		22,510		-		24,433
Collectively evaluated for impairment		183,206		3,450,923		8,413		3,642,542

Total ending loans balance	$	185,129		3,473,433		8,413		3,666,975

	December 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		4,324		39,077		769		44,170

Total ending allowance balance	$	4,324		39,077		769		44,170

Loans:
Individually evaluated for impairment	$	2,248		22,032		-		24,280
Collectively evaluated for impairment		183,959		3,419,405		8,763		3,612,127

Total ending loans balance	$	186,207		3,441,437		8,763		3,636,407

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, 2018 and December 31, 2017 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, 2018 and December 31, 2017:

New York and other states:
	March 31, 2018
(dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment

Commercial:
Commercial real estate	$	1,710		2,680		-		2,264
Other		213		213		-		107
Real estate mortgage - 1 to 4 family:
First mortgages		16,177		16,940		-		16,075
Home equity loans		265		285		-		267
Home equity lines of credit		2,751		2,992		-		2,692

Total	$	21,116		23,110		-		21,405

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		2,687		2,793		-		2,694
Home equity loans		88		88		-		88
Home equity lines of credit		542		542		-		521

Total	$	3,317		3,423		-		3,303

Total:

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

Commercial:
Commercial real estate	$	1,710		2,680		-		2,264
Other		213		213		-		107
Real estate mortgage - 1 to 4 family:
First mortgages		18,864		19,733		-		18,769
Home equity loans		353		373		-		355
Home equity lines of credit		3,293		3,534		-		3,213

Total	$	24,433		26,533		-		24,708

New York and other states:
	December 31, 2017
(dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment

Commercial:
Commercial real estate	$	2,148		3,120		-		2,711
Other		100		100		-		87
Real estate mortgage - 1 to 4 family:
First mortgages		15,850		16,540		-		16,508
Home equity loans		270		291		-		263
Home equity lines of credit		2,606		2,847		-		2,193

Total	$	20,974		22,898		-		21,762

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		2,707		2,813		-		2,335
Home equity loans		89		89		-		92
Home equity lines of credit		510		510		-		561

Total	$	3,306		3,412		-		2,988

Total:

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

Commercial:
Commercial real estate	$	2,148		3,120		-		2,711
Other		100		100		-		87
Real estate mortgage - 1 to 4 family:
First mortgages		18,557		19,353		-		18,843
Home equity loans		359		380		-		355
Home equity lines of credit		3,116		3,357		-		2,754

Total	$	24,280		26,310		-		24,750

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, 2018 and 2017.

As of March 31, 2018 and December 31, 2017 impaired loans included approximately $11.1 million and $11.8 million of loans in accruing status that were identified as TDR’s in accordance with regulatory guidance related to Chapter 7 bankruptcy loans.

Management evaluates impairment on impaired loans on a quarterly basis. If, during this evaluation, impairment of the loan is identified, a charge off is taken at that time. As a result, as of March 31, 2018 and December 31, 2017, 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 3/31/2018						Three months ended 3/31/2017
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		4	$	642	$	642		11	$	1,947	$	1,947
Home equity loans		-		-		-		1		13		13
Home equity lines of credit		3		240		240		4		158		158

Total		7	$	882	$	882		16	$	2,118	$	2,118

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

Total		-	$	-	$	-		2	$	150	$	150

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 ended March 31, 2018 and 2017 which had been modified within the last twelve months:

	Three months ended 3/31/2018				Three months ended 3/31/2017
New York and other states*:	Number of		Recorded		Number of		Recorded
(dollars in thousands)	Contracts		Investment		Contracts		Investment

Real estate mortgage - 1 to 4 family:
First mortgages		-	$	-		-	$	-
Home equity lines of credit		1		3		-		-

Total		1	$	3		-	$	-

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

Real estate mortgage - 1 to 4 family:
First mortgages		1	$	72		1	$	80
Home equity lines of credit		-		-		1		70

Total		1	$	72		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 commercial 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, 2018 and December 31, 2017, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

	March 31, 2018
New York and other states:

(dollars in thousands)
	Pass		Classified		Total
Commercial:
Commercial real estate	$	142,463		6,894		149,357
Other		21,842		1,617		23,459

	$	164,305		8,511		172,816

Florida:

(dollars in thousands)

		Pass	Classified	Total
Commercial:
Commercial real estate	$	11,709	-	11,709
Other		604	-	604

	$	12,313	-	12,313

Total:

(dollars in thousands)

		Pass	Classified	Total
Commercial:
Commercial real estate	$	154,172	6,894	161,066
Other		22,446	1,617	24,063

	$	176,618	8,511	185,129

	December 31, 2017
New York and other states:

(dollars in thousands)
	Pass		Classified		Total
Commercial:
Commercial real estate	$	140,806		8,562		149,368
Other		21,936		1,670		23,606

	$	162,742		10,232		172,974

Florida:

(dollars in thousands)

		Pass	Classified	Total
Commercial:
Commercial real estate	$	12,406	118	12,524
Other		709	-	709

	$	13,115	118	13,233

Total:

(dollars in thousands)

		Pass	Classified	Total
Commercial:
Commercial real estate	$	153,212	8,680	161,892
Other		22,645	1,670	24,315

	$	175,857	10,350	186,207

Included in classified loans in the above tables are impaired loans of $1.9 million and $2.2 million at March 31, 2018 and December 31, 2017, 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 March 31, 2018 and December 31, 2017 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, 2018 and December 31, 2017 is presented in the non-accrual loans table.