UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2020March 31, 2021
OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to _________

Commission File Number 0-10592

TRUSTCO BANK CORP NY
(Exact name of registrant as specified in its charter)

New York 14-1630287
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)

5 SARNOWSKI DRIVE,
GLENVILLE, NEW YORK
 12302
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code:
(518) 377-3311

Securities registered pursuant to Section 12(b) of the Act:

Title of each classTrading Symbol (s)Name of each exchange on which registered
Common Stock, $1.00 par valueTRSTNasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  ☒ Yes  ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
☒ Yes  ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.  (Check one):

Large accelerated filer ☒
Accelerated filer ☐
Non-accelerated filer ☐
Smaller reporting company ☐
Emerging growth company ☐
 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes  ☒ No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Common Stock
Number of Shares Outstanding
as of October 31, 2020April 30, 2021
$1 Par Value96,432,65796,439,602





TrustCo Bank Corp NY

INDEXINDEX

Part I.FINANCIAL INFORMATIONPAGE NO.
Item 1.Consolidated Interim Financial Statements (Unaudited): 
   
 
Consolidated Statements of Income for the three-month and nine-monththree month periods ended September 30,March 31, 2021 and 2020 and 2019
3
   
 
Consolidated Statements of Comprehensive Income for the three-month and nine-monththree month periods ended September 30,March 31, 2021 and 2020 and 2019
4
   
 
Consolidated Statements of Financial Condition as of September 30, 2020March 31, 2021 and December 31, 20192020
5
   
 
Consolidated Statements of Changes in Shareholders’ Equity for the three and nine-monthmonth periods ended September 30,March 31, 2021 and 2020 and 2019
6
   
 
Consolidated Statements of Cash Flows for the nine-monththree month periods ended September 30,March 31, 2021 and 2020 and 2019
7
   
 
Notes to Consolidated Interim Financial Statements
8–3936
   
 
Report of Independent Registered Public Accounting Firm
4037
   
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
41–6538–58
   
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
6659
   
Item 4.
Controls and Procedures
6659
   
Part II.OTHER INFORMATION 
   
Item 1.
Legal Proceedings
6760
   
Item 1A.
Risk Factors
6760
   
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
6760
   
Item 3.
Defaults Upon Senior Securities
6760
   
Item 4.
Mine Safety
6760
   
Item 5.
Other Information
6761
   
Item 6.
Exhibits
6861



2
Index
TRUSTCO BANK CORP NY
Consolidated Statements of Income (Unaudited)
(dollars in thousands, except per share data)

 
Three months ended
September 30,
  
Nine months ended
September 30,
  
Three months ended
March 31,
 
 2020  2019  2020  2019  2021  2020 
                  
Interest and dividend income:                  
Interest and fees on loans $41,330   41,923   125,058   124,608  $40,217   42,063 
Interest and dividends on securities available for sale:                        
U. S. government sponsored enterprises  14   996   541   2,600   50   421 
State and political subdivisions  1   2   4   6   1   1 
Mortgage-backed securities and collateralized mortgage obligations - residential  1,319   2,178   4,959   5,885 
Mortgage-backed securities and collateralized mortgage obligations-residential  1,237   2,113 
Corporate bonds  646   321   1,372   801   316   238 
Small Business Administration-guaranteed participation securities  216   282   690   868   206   245 
Other securities  5   6   16   16   6   6 
Total interest and dividends on securities available for sale  2,201   3,785   7,582   10,176   1,816   3,024 
                        
Interest on held to maturity securities:                        
Mortgage-backed securities and collateralized mortgage obligations-residential  138   187   475   613   123   175 
Total interest on held to maturity securities  138   187   475   613   123   175 
                        
Federal Reserve Bank and Federal Home Loan Bank stock  77   81   351   365   69   82 
Interest on federal funds sold and other short-term investments  242   2,552   1,702   8,843   270   1,267 
Total interest income  43,988   48,528   135,168   144,605   42,495   46,611 
                        
Interest expense:                        
Interest on deposits:                        
Interest-bearing checking  55   52   97   267   52   16 
Savings accounts  161   323   560   1,067   159   233 
Money market deposit accounts  637   1,177   2,595   3,122   283   1,096 
Time deposits  4,749   7,974   16,739   21,462   1,666   6,391 
Interest on short-term borrowings  221   359   778   1,121   228   322 
Total interest expense  5,823   9,885   20,769   27,039   2,388   8,058 
                        
Net interest income  38,165   38,643   114,399   117,566   40,107   38,553 
Provision (Credit) for loan losses  1,000   0   5,000   (41)
Provision for loan losses  350   2,000 
Net interest income after provision for loan losses  37,165   38,643   109,399   117,607   39,757   36,553 
                        
Noninterest income:                        
Trustco financial services income  1,784   1,517   4,752   4,933   2,035   1,600 
Fees for services to customers  2,292   2,602   6,414   7,733   2,204   2,315 
Net gain on securities transactions  0   0   1,155   0   0   1,155 
Other  265   806   780   1,810   189   264 
Total noninterest income  4,341   4,925   13,101   14,476   4,428   5,334 
                        
Noninterest expenses:                        
Salaries and employee benefits  10,899   11,725   33,920   34,887   12,425   11,373 
Net occupancy expense  4,277   4,094   12,968   12,267   4,586   4,306 
Equipment expense  1,607   1,689   5,015   5,300   1,631   1,802 
Professional services  1,311   1,507   3,974   4,725   1,432   1,481 
Outsourced services  1,875   1,875   5,825   5,675   2,250   2,075 
Advertising expense  305   494   1,394   2,057   354   488 
FDIC and other insurance  660   282   1,563   1,528   707   294 
Other real estate (income) expense, net  (115)  33   47   219 
Other real estate expense, net  239   194 
Other  1,855   2,371   6,168   7,181   1,711   2,255 
Total noninterest expenses  22,674   24,070   70,874   73,839   25,335   24,268 
                        
Income before taxes  18,832   19,498   51,626   58,244   18,850   17,619 
Income taxes  4,761   4,790   12,988   14,311   4,767   4,306 
                        
Net income $14,071   14,708  $38,638   43,933  $14,083   13,313 
                        
Net income per share:                        
- Basic $0.146   0.152  $0.400   0.454  $0.146   0.138 
                        
- Diluted $0.146   0.152  $0.400   0.453  $0.146   0.138 

See accompanying notes to unaudited consolidated interim financial statements.

3
Index

TRUSTCO BANK CORP NY
Consolidated Statements of Comprehensive Income (Unaudited)
(dollars in thousands)

 
Three months ended
September 30,
  
Nine months ended
September 30,
  
Three months ended
March 31,
 
 2020  2019  2020  2019  2021  2020 
                  
Net income $14,071   14,708   38,638   43,933  $14,083   13,313 
                        
Net unrealized holding (loss) gain on securities available for sale  (267)  2,418   11,392   14,185   (6,018)  10,732 
Reclassification adjustments for net gain recognized in income  0   0   (1,155)  0   0   (1,155)
Tax effect  69   (628)  (2,660)  (3,686)  1,557   (2,487)
                        
Net unrealized (loss) gain on securities available for sale, net of tax  (198)  1,790   7,577   10,499   (4,461)  7,090 
                        
                
Amortization of net actuarial gain  (222)  (35)  (531)  (103)  (228)  (166)
Amortization of prior service credit  (49)  (83)  (147)  (250)  (52)  (49)
Tax effect  70   31   177   92   73   56 
Amortization of net actuarial gain and prior service credit
on pension and postretirement plans, net of tax
  (201)  (87)  (501)  (261)  (207)  (159)
                        
Other comprehensive (loss) income, net of tax  (399)  1,703   7,076   10,238   (4,668)  6,931 
Comprehensive income $13,672   16,411   45,714   54,171  $9,415   20,244 

See accompanying notes to unaudited consolidated interim financial statements.

4
Index
TRUSTCO BANK CORP NY
Consolidated Statements of Financial Condition (Unaudited)
(dollars in thousands, except per share data)

 September 30, 2020  December 31, 2019  March 31, 2021  December 31, 2020 
ASSETS:            
            
Cash and due from banks $47,703   48,198  $45,493   47,196 
        
Federal funds sold and other short term investments  908,616   408,648   1,094,880   1,059,903 
Total cash and cash equivalents  956,319   456,846   1,140,373   1,107,099 
                
Securities available for sale  454,743   573,823   527,587   439,071 
                
Held to maturity securities (fair value 2020 $16,343; 2019 $19,680)  15,094   18,618 
Held to maturity securities ($13,891 and $14,988 fair value at March 31, 2021 and Decmber 31, 2020, respectively)
  12,729   13,824 
                
Federal Reserve Bank and Federal Home Loan Bank stock  5,506   9,183   5,506   5,506 
                
Loans, net of deferred net costs  4,214,555   4,062,196   4,269,172   4,244,470 
Less:                
Allowance for loan losses  49,123   44,317   49,991   49,595 
Net loans  4,165,432   4,017,879   4,219,181   4,194,875 
                
Bank premises and equipment, net  34,417   34,622   34,012   34,412 
Operating lease right-of-use assets  47,174   51,475   46,614   47,885 
Other assets  57,244   58,876   60,455   59,124 
                
Total assets $5,735,929   5,221,322  $6,046,457   5,901,796 
                
LIABILITIES:                
Deposits:                
Demand $635,345   463,858  $718,343   652,756 
Interest-bearing checking  1,024,290   875,672   1,141,595   1,086,558 
Savings accounts  1,235,259   1,113,146   1,362,141   1,285,501 
Money market deposit accounts  699,132   599,163   719,580   716,005 
Time deposits  1,305,024   1,398,177   1,231,263   1,296,373 
Total deposits  4,899,050   4,450,016   5,172,922   5,037,193 
                
Short-term borrowings  193,455   148,666   229,950   214,755 
Operating lease liabilities  52,125   56,553   51,449   52,784 
Accrued expenses and other liabilities  30,771   27,830   21,105   28,903 
                
Total liabilities  5,175,401   4,683,065   5,475,426   5,333,635 
                
SHAREHOLDERS' EQUITY:                
Capital stock par value $1; 150,000,000 shares authorized; 100,204,832 and 100,204,832 shares issued at September 30, 2020 and December 31, 2019, respectively  100,205   100,205 
Capital stock par value $1; 150,000,000 shares authorized; 100,218,082 and 100,204,832 shares issued at March 31, 2021 and December 31, 2020, respectively
  100,218   100,205 
Surplus  176,441   176,427   176,500   176,442 
Undivided profits  306,741   288,067   321,486   313,974 
Accumulated other comprehensive income, net of tax  11,537   4,461   7,268   11,936 
Treasury stock at cost - 3,772,175 and 3,283,175 shares at September 30, 2020 and December 31, 2019, respectively  (34,396)  (30,903)
Treasury stock at cost - 3,778,480 and 3,772,175 shares at March 31, 2021 and December 31, 2020, respectively
  (34,441)  (34,396)
                
Total shareholders' equity  560,528   538,257   571,031   568,161 
                
Total liabilities and shareholders' equity $5,735,929   5,221,322  $6,046,457   5,901,796 

See accompanying notes to unaudited consolidated interim financial statements.

5
Index

TRUSTCO BANK CORP NY
Consolidated Statements of Changes in Shareholders’Shareholders' Equity (Unaudited)
(dollars in thousands, except per share data)

 
Capital
Stock
  Surplus  
Undivided
Profits
  
Accumulated
Other
Comprehensive
(Loss) Income
  
Treasury
Stock
  Total  
Capital
Stock
  Surplus  
Undivided
Profits
  
Accumulated
Other
Comprehensive
Income
  
Treasury
Stock
  Total 
                  
Beginning balance, January 1, 2019 $100,175   176,710   256,397   (10,309)  (33,102)  489,871 
Net income  0   0   14,558   0   0   14,558 
Other comprehensive income, net of tax  0   0   0   3,298   0   3,298 
Stock options exercised (5,100 shares)  5   30   0   0   0   35 
Cash dividend declared, $0.068125 per share  0   0   (6,591)  0   0   (6,591)
Purchase of treasury stock (4,131 shares)  0   0   0   0   (35)  (35)
Sale of treasury stock (86,297 shares)  0   (218)  0   0   812   594 
Stock based compensation expense  0   (12)  0   0   0   (12)
                        
Ending balance, March 31, 2019
 $100,180   176,510   264,364   (7,011)  (32,325)  501,718 
Net income  0   0   14,667   0   0   14,667 
Other comprehensive income, net of tax  0   0   0   5,237   0   5,237 
Cash dividend declared, $0.068125 per share  0   0   (6,598)  0   0   (6,598)
Sale of treasury stock (76,443 shares)  0   (120)  0   0   720   600 
Stock based compensation expense  0   6   0   0   0   6 
                        
Ending balance, June 30, 2019
 $100,180   176,396   272,433   (1,774)  (31,605)  515,630 
Net income  0   0   14,708   0   0   14,708 
Other comprehensive income, net of tax  0   0   0   1,703   0   1,703 
Cash dividend declared, $0.068125 per share  0   0   (6,599)  0   0   (6,599)
Stock options exercised (19,850 shares)  20   98   0   0   0   118 
Sale of treasury stock (74,656 shares)  0   (105)  0   0   702   597 
Stock based compensation expense  0   6   0   0   0   6 
                        
Ending balance, September 30, 2019
 $100,200   176,395   280,542   (71)  (30,903)  526,163 
                                          
Beginning balance, January 1, 2020 $100,205   176,427   288,067   4,461   (30,903)  538,257  $100,205   176,427   288,067   4,461   (30,903)  538,257 
Net income  0   0   13,313   0   0   13,313   0   0   13,313   0   0   13,313 
Other comprehensive income, net of tax  0   0   0   6,931   0   6,931   0   0   0   6,931   0   6,931 
Cash dividend declared, $0.068125 per share  0   0   (6,827)  0   0   (6,827)
Purchase of treasury stock (489,000 shares)  0   0   0   0   (3,493)  (3,493)
Cash dividend declared, $0.068125 per share
  0   0   (6,827)  0   0   (6,827)
Purchase of treasury stock (489,000 shares)
  0   0   0   0   (3,493)  (3,493)
Stock based compensation expense  0   4   0   0   0   4   0   4   0   0   0   4 
                                                
Ending balance, March 31, 2020
 $100,205   176,431   294,553   11,392   (34,396)  548,185  $100,205   176,431   294,553   11,392   (34,396)  548,185 
                        
Beginning balance, January 1, 2021 $100,205   176,442   313,974   11,936   (34,396)  568,161 
Net income  0   0   11,254   0   0   11,254   0   0   14,083   0   0   14,083 
Other comprehensive income, net of tax  0   0   0   544   0   544 
Cash dividend declared, $0.068125 per share  0   0   (6,568)  0   0   (6,568)
Stock based compensation expense  0   6   0   0   0   6 
Other comprehensive loss, net of tax  0   0   0   (4,668)  0   (4,668)
Stock options exercised (13,250 shares)
  13   58   0   0   0   71 
Cash dividend declared, $0.068125 per share
  0   0   (6,571)  0   0   (6,571)
Purchase of treasury stock (6,305 Shares)
  0   0   0   0   (45)  (45)
                                                
Ending balance, June 30, 2020 $100,205   176,437   299,239   11,936   (34,396)  553,421 
Net income  0   0   14,071   0   0   14,071 
Other comprehensive income, net of tax  0   0   0   (399)  0   (399)
Cash dividend declared, $0.068125 per share  0   0   (6,569)  0   0   (6,569)
Stock based compensation expense  0   4   0   0   0   4 
                        
Ending balance, September 30, 2020 $100,205   176,441   306,741   11,537   (34,396)  560,528 
Ending balance, March 31, 2021
 $100,218   176,500   321,486   7,268   (34,441)  571,031 

See accompanying notes to unaudited consolidated interim financial statements.

6
Index

TRUSTCO BANK CORP NY
Consolidated Statements of Cash Flows (Unaudited)
(dollars in thousands)

 Nine months ended September 30,  Three months ended March 31, 
 2020  2019  2021  2020 
            
Cash flows from operating activities:            
Net income $38,638   43,933  $14,083   13,313 
                
Adjustments to reconcile net income to net cash provided by operating activities:                
Depreciation  3,003   2,958   1,063   999 
Amortization of right-of-use asset  4,588   4,420   1,573   1,520 
Net gain on sale of other real estate owned  (332)  (686)  0   (82)
Writedown of other real estate owned  120   294   121   80 
Provision (credit) for loan losses  5,000   (41)
Deferred tax (benefit) expense  (1,199)  844 
Provision for loan losses  350   2,000 
Deferred tax expense  1,152   846 
Net amortization of securities  2,703   2,128   1,081   858 
Stock based compensation expense  14   0   0   4 
Net gain on sale of bank premises and equipment  0   (3)  (4)  0 
Net gain on sales of securities  (1,155)  0   0   (1,155)
Decrease in taxes receivable  570   1,903   101   3,682 
Increase in interest receivable  (180)  (397)
(Decrease) increase in interest payable  (682)  510 
Decrease in interest receivable  392   673 
Decrease in interest payable  (164)  (200)
Increase in other assets  (1,201)  (2,669)  (3,160)  (2,171)
Decrease in operating lease liabilities  (4,715)  (4,489)  (1,637)  (1,555)
Increase in accrued expenses and other liabilities  2,734   1,066 
Decrease in accrued expenses and other liabilities  (6,221)  (4,307)
Total adjustments  9,268   5,838   (5,353)  1,192 
Net cash provided by operating activities  47,906   49,771   8,730   14,505 
                
Cash flows from investing activities:                
Proceeds from sales and calls of securities available for sale  226,886   101,306   36,820   98,363 
Proceeds from calls and maturities of held to maturity securities  3,398   2,665   1,061   859 
Purchases of securities available for sale  (103,991)  (260,466)  (132,456)  (22,793)
Proceeds from maturities of securities available for sale  5,000   10,052   55   5,000 
Purchases of Federal Reserve Bank and Federal Home Loan Bank stock  (380)  (230)
Proceeds from redemption of Federal Reserve Bank stock  4,057   0 
Net increase in loans  (152,987)  (115,120)  (24,656)  (37,792)
Proceeds from dispositions of other real estate owned  1,802   3,159   0   731 
Proceeds from dispositions of bank premises and equipment  0   3   4   0 
Purchases of bank premises and equipment  (2,798)  (2,432)  (663)  (805)
Net cash used in investing activities  (19,013)  (261,063)
Net cash (used in) provided by investing activities  (119,835)  43,563 
                
Cash flows from financing activities:                
Net increase in deposits  449,034   186,920   135,729   31,812 
Net increase (decrease) in short-term borrowings  44,789   (10,798)  15,195   (576)
Proceeds from exercise of stock options  0   153   71   0 
Proceeds from sale of treasury stock  0   1,791 
Purchases of treasury stock  (3,493)  (35)  (45)  (3,493)
Dividends paid  (19,750)  (19,771)  (6,571)  (6,604)
Net cash provided by financing activities  470,580   158,260   144,379   21,139 
Net increase (decrease) in cash and cash equivalents  499,473   (53,032)
Net increase in cash and cash equivalents  33,274   79,207 
Cash and cash equivalents at beginning of period  456,846   503,709   1,107,099   456,846 
Cash and cash equivalents at end of period $956,319   450,677  $1,140,373   536,053 
                
Supplemental Disclosure of Cash Flow Information:                
Cash paid during the year for:                
Interest paid $21,451   26,529  $2,552   8,258 
Income taxes paid  12,274   12,263   4,661   626 
Other non cash items:                
Transfer of loans to other real estate owned  434   3,501   0   434 
Increase in dividends payable  214   17   0   223 
Change in unrealized gain on securities available for sale-gross of deferred taxes  10,237   14,185 
Change in deferred tax effect on unrealized gain on securities available for sale  (2,660)  (3,686)
Change in unrealized (loss) gain on securities available for sale-gross of deferred taxes  (6,018)  9,577 
Change in deferred tax effect on unrealized loss (gain) on securities available for sale  1,557   (2,487)
Amortization of net actuarial gain and prior service credit on pension and postretirement plans  (678)  (353)  (280)  (215)
Change in deferred tax effect of amortization of net actuarial gain postretirement benefit plans  177   92   73   56 

See accompanying notes to unaudited consolidated interim financial statements.

7
Index

(1) Financial Statement Presentation

The unaudited Consolidated Interim Financial Statements of TrustCo Bank Corp NY (the “Company” or “TrustCo”) include the accounts of the Company’s principal subsidiary, Trustco Bank (also referred to as the “Bank”) and other subsidiaries after elimination of all significant intercompany accounts and transactions.  Prior period amounts are reclassified when necessary to conform to the current period presentation.  The net income reported for the three and nine months ended September 30, 2020March 31, 2021 is not necessarily indicative of the results that may be expected for the year ending December 31, 2020,2021, or any interim periods.  These financial statements consider events that occurred through the date of filing.

In the opinion of the management of the Company, the accompanying unaudited Consolidated Interim Financial Statements contain all recurring adjustments necessary to present fairly the financial position as of September 30, 2020,March 31, 2021, the results of operations for the three and nine months ended September 30, 2020 and 2019, and the cash flows for the ninethree months ended September 30, 2020March 31, 2021 and 2019.2020.  The accompanying unaudited Consolidated Interim Financial Statements should be read in conjunction with the Company’s year-endyear‑end Consolidated Financial Statements, including notes thereto, which are included in the Company's Annual Report on Form 10-K10‑K for the year ended December 31, 2019.2020.  The accompanying consolidated financial statementsunaudited Consolidated Interim Financial Statements have been prepared in accordance with the instructions to Form 10-Q10‑Q and, therefore, do not include all information and notes necessary for a complete presentation of financial position, results of operations and cash flow activity required in accordance with accounting principles generally accepted in the United States.

(2) Earnings Per Share

The Company computes earnings per share in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 260, Earnings Per Share (“ASC 260”).

A reconciliation of the component parts of earnings per share for the three and nine months ended September 30,March 31, 2021 and 2020 and 2019 is as follows:

(in thousands, except per share data) 
For the three months ended
September 30,
  
For the nine months ended
September 30,
  
For the three months ended
March 31,
 
 2020  2019  2020  2019 
             2021  2020 
Net income $14,071   14,708  $38,638   43,933  $14,083  $13,313 
Weighted average common shares  96,433   96,907   96,531   96,825   96,435   96,727 
Stock Options  4   70   14   72   31   22 
Weighted average common shares including potential dilutive shares  96,437   96,977   96,545   96,897   96,466   96,749 
                        
Basic EPS $0.146   0.152  $0.400   0.454  $0.146  $0.138 
                        
Diluted EPS $0.146   0.152  $0.400   0.453  $0.146  $0.138 

For the three and nine months, ended September 30,March 31, 2021 and 2020 and 2019 the weighted average antidilutiveanti-dilutive stock options excluded from dilutivediluted earnings per share were approximately 302 thousand and 452 thousand, and -0-, respectively.  The stock options are antidilutive because the strike price is greater than the average fair value of the Company’s common stock for the periods presented.

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Index

(3) Benefit Plans

The table below outlines the components of the Company's net periodic benefit recognized during the three and nine months ended September 30,March 31, 2021 and 2020 and 2019 for its pension and other postretirement benefit plans:

 Three months ended September 30, 
 Pension Benefits  Other Postretirement Benefits 
(dollars in thousands) 2020  2019  2020  2019 
             
Service cost $9   10   15   17 
Interest cost  269   311   40   60 
Expected return on plan assets  (755)  (702)  (296)  (248)
Amortization of net loss (gain)  (5)  14   (217)  (49)
Amortization of prior service credit  0   0   (49)  (83)
Net periodic benefit $(482)  (367)  (507)  (303)

 Nine months ended September 30,  
Three months ended March 31,
 
 Pension Benefits  Other Postretirement Benefits  Pension Benefits  Other Postretirement Benefits 
(dollars in thousands) 2020  2019  2020  2019  2021  2020  2021  2020 
                        
Service cost $28   31   55   49  $11   12   22   19 
Interest cost  807   933   152   180   216   266   44   54 
Expected return on plan assets  (2,265)  (2,108)  (887)  (743)  (761)  (819)  (327)  (296)
Amortization of net loss (gain)  0   44   (531)  (147)
Amortization of net gain  0   0   (228)  (166)
Amortization of prior service credit  0   0   (147)  (250)  0   0   (52)  (49)
Net periodic benefit $(1,430)  (1,100)  (1,358)  (911) $(534)  (541)  (541)  (438)

The Company does not expect to make contributionscontribute to its pension and postretirement benefit plans in 2020.2021.  As of September 30, 2020,March 31, 2021, 0 contributions have been made,made; however, this decision is reviewed each quarter and is subject to change based upon market conditions.

Since 2003, the Company has not subsidized retiree medical insurance premiums.  However, it continues to provide medical benefits and postretirement medical benefits to a limited number of current and retired executives in accordance with the terms of their employment contracts.

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Index

(4) Investment Securities

(a) Securities available for sale

The amortized cost and fair value of the securities available for sale are as follows:

 September 30, 2020  
March 31, 2021
 
(dollars in thousands) 
Amortized
Cost
  
Gross
Unrealized
Gains
  
Gross
Unrealized
Losses
  
Fair
Value
  
Amortized
Cost
  
Gross
Unrealized
Gains
  
Gross
Unrealized
Losses
  
Fair
Value
 
                        
U.S. government sponsored enterprises $30,000   3   7   29,996  $74,970   0   505   74,465 
State and political subdivisions  110   1   0   111   48   0   0   48 
Mortgage backed securities and collateralized mortgage obligations - residential  301,490   8,369   91   309,768   344,892   5,953   2,528   348,317 
Corporate bonds  69,231   1,048   166   70,113   64,562   661   384   64,839 
Small Business Administration - guaranteed participation securities  42,599   1,471   0   44,070   38,737   495   0   39,232 
Other  685   0   0   685   685   1   0   686 
                
Total Securities Available for Sale $444,115   10,892   264   454,743  $523,894   7,110   3,417   527,587 

 December 31, 2019  
December 31, 2020
 
(dollars in thousands) 
Amortized
Cost
  
Gross
Unrealized
Gains
  
Gross
Unrealized
Losses
  
Fair
Value
  
Amortized
Cost
  
Gross
Unrealized
Gains
  
Gross
Unrealized
Losses
  
Fair
Value
 
                        
U.S. government sponsored enterprises $104,895   36   419   104,512  $20,000   0   32   19,968 
State and political subdivisions  160   2   0   162   103   0   0   103 
Mortgage backed securities and collateralized mortgage obligations - residential  388,537   2,406   1,426   389,517   308,432   7,749   23   316,158 
Corporate bonds  30,164   367   95   30,436   59,185   916   162   59,939 
Small Business Administration - guaranteed participation securities  48,991   0   480   48,511   40,955   1,262   0   42,217 
Other  685   0   0   685   685   1   0   686 
                                
Total securities available for sale $573,432   2,811   2,420   573,823  $429,360   9,928   217   439,071 

The following table distributes the debt securities included in the available for sale portfolio as of September 30, 2020,March 31, 2021, based on the securities’ final maturity. Actual maturities may differ because of securities prepayments and the right of certain issuers to call or prepay their obligations without penalty.  Securities not due at a single maturity date are presented separately:separately.

(dollars in thousands) 
Amortized
Cost
  
Fair
Value
  
Amortized
Cost
  
Fair
Value
 
            
Due in one year or less $18,563   18,747  $14,219   14,390 
Due in one year through five years  81,445   82,140   121,037   120,669 
Due after five years through ten years  18   18   5,009   4,979 
Mortgage backed securities and collateralized mortgage obligations - residential  301,490   309,768   344,892   348,317 
Small Business Administration - guaranteed participation securities  42,599   44,070   38,737   39,232 
 $444,115   454,743  $523,894   527,587 

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Index
Gross unrealized losses on securities available for sale and the related fair values aggregated by the length of time that individual securities have been in an unrealized loss position, were as follows:

 September 30, 2020  
March 31, 2021
 
 
Less than
12 months
  
12 months
or more
  Total  
Less than
12 months
  
12 months
or more
  Total 
(dollars in thousands) 
Fair
Value
  
Gross
Unreal.
Loss
  
Fair
Value
  
Gross
Unreal.
Loss
  
Fair
Value
  
Gross
Unreal.
Loss
  
Fair
Value
  
Gross
Unrealized
Loss
  
Fair
Value
  
Gross
Unrealized
Loss
  
Fair
Value
  
Gross
Unrealized
Loss
 
                                    
U.S. government sponsored enterprises $9,993   7   0   0   9,993   7  $74,465   505   0   0   74,465   505 
Mortgage backed securities and collateralized mortgage obligations - residential  20,096   91   0   0   20,096   91   125,788   2,528   0   0   125,788   2,528 
Corporate bonds  15,723   103   4,937   63   20,660   166   20,112   321   4,937   63   25,049   384 
                                                
Total $45,812   201   4,937   63   50,749   264  $220,365   3,354   4,937   63   225,302   3,417 

 December 31, 2019  
December 31, 2020
 
 
Less than
12 months
  
12 months
or more
  Total  
Less than
12 months
  
12 months
or more
  Total 
(dollars in thousands) 
Fair
Value
  
Gross
Unreal.
Loss
  
Fair
Value
  
Gross
Unreal.
Loss
  
Fair
Value
  
Gross
Unreal.
Loss
  
Fair
Value
  
Gross
Unrealized
Loss
  
Fair
Value
  
Gross
Unrealized
Loss
  
Fair
Value
  
Gross
Unrealized
Loss
 
                                    
U.S. government sponsored enterprises $19,820   180   74,656   239   94,476   419  $19,968   32   0   0   19,968   32 
Mortgage backed securities and collateralized mortgage obligations - residential  67,322   446   169,169   980   236,491   1,426   19,471   23   0   0   19,471   23 
Corporate bonds  4,905   95   0   0   4,905   95   14,901   99   4,937   63   19,838   162 
Small Business Administration - guaranteed participation securities  48,510   480   0   0   48,510   480 
                                                
Total $140,557   1,201   243,825   1,219   384,382   2,420  $54,340   154   4,937   63   59,277   217 

The proceeds from sales and calls and maturities of securities available for sale, gross realized gains and gross realized losses from sales and calls during the three and nine months ended September 30,March 31, 2021 and 2020 and 2019 are as follows:

 Three months ended September 30, 
(dollars in thousands) 2020  2019 
       
Proceeds from sales $0  $0 
Proceeds from calls/paydowns  43,052   56,856 
Proceeds from maturities  0   0 
Gross realized losses  0   0 

 Nine months ended September 30, 
(dollars in thousands) 2020  2019 
       
Proceeds from sales $29,219  $0 
Proceeds from calls/paydowns  197,667   101,306 
Proceeds from maturities  5,000   10,052 
Gross realized gains  1,155   0 

The current interest rate environment has significantly contributed to more bonds being called. There were no transfers of securities available for sale during the three and nine months ended September 30, 2020 and 2019.
 
Three months ended March 31,
 
(dollars in thousands) 2021  2020 
       
Proceeds from sales $0  $29,219 
Proceeds from calls/paydowns  36,820   69,144 
Proceeds from maturities  55   5,000 
Gross realized gains  0   1,155 
Gross realized losses  0   0 

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Index
(b) Held to maturity securities

The amortized cost and fair value of the held to maturity securities are as follows:

 September 30, 2020  
March 31, 2021
 
(dollars in thousands) 
Amortized
Cost
  
Gross
Unrecognized
Gains
  
Gross
Unrecognized
Losses
  
Fair
Value
  
Amortized
Cost
  
Gross
Unrecognized
Gains
  
Gross
Unrecognized
Losses
  
Fair
Value
 
                        
Mortgage backed securities and collateralized mortgage obligations - residential $15,094   1,249   0   16,343  $12,729   1,162   0   13,891 
                
Total held to maturity $15,094   1,249   0   16,343  $12,729   1,162   0   13,891 

 December 31, 2019  
December 31, 2020
 
(dollars in thousands) 
Amortized
Cost
  
Gross
Unrecognized
Gains
  
Gross
Unrecognized
Losses
  
Fair
Value
  
Amortized
Cost
  
Gross
Unrecognized
Gains
  
Gross
Unrecognized
Losses
  
Fair
Value
 
                        
Mortgage backed securities and collateralized mortgage obligations - residential $18,618   1,062   0   19,680  $13,824   1,164   0   14,988 
                
Total held to maturity $18,618   1,062   0   19,680  $13,824   1,164   0   14,988 

The following table distributes the debt securities included in the held to maturity portfolio as of September 30, 2020,March 31, 2021, based on the securities’ final maturity.  Actual maturities may differ because of securities prepayments and the right of certain issuers to call or prepay their obligations without penalty.  Securities not due at a single maturity date are presented separately:

(dollars in thousands) 
Amortized
Cost
  
Fair
Value
  
Amortized
Cost
  
Fair
Value
 
Mortgage backed securities and collateralized mortgage obligations - residential $15,094   16,343  $12,729   13,891 
 $15,094   16,343  $12,729   13,891 

All held to maturity securities are held at cost on the financial statements. There were 0 gross unrecognizedunrealized losses on held to maturity securities as of September 30, 2020March 31, 2021 and December 31, 2019.2020.

There were 0 sales or transfers of held to maturity securities during the three and nine months ended September 30, 2020March 31, 2021 and 2019.2020.

(c) Other-Than-Temporary Impairment

Management evaluates securities for other-than-temporary impairment (“OTTI”) at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation.  The investment securities portfolio is evaluated for OTTI by segregating the portfolio by type and applying the appropriate OTTI model.

In determining OTTI for debt securities, management considers many factors, including: (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, (3) whether the market decline was affected by macroeconomic conditions, and (4) whether the Company has the intent to sell the debt security or more likely than not will be required to sell the debt security before its anticipated recovery.  The assessment of whether any other-than-temporary decline exists involves a high degree of subjectivity and judgment and is based on the information available to management at a point in time.

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Index
When OTTI occurs, the amount of the OTTI recognized in earnings depends on whether management intends to sell the security or it is more likely than not it will be required to sell the security before recovery of its amortized cost basis.  If management intends to sell or it is more likely than not it will be required to sell the security before recovery of its amortized cost basis, the OTTI shall be recognized in earnings equal to the entire difference between the investment’s amortized cost basis and its fair value at the balance sheet date.  If management does not intend to sell the security and it is not more likely than not that the entity will be required to sell the security before recovery of its amortized cost basis, the OTTI on debt securities shall be separated into the amount representing the credit loss and the amount related to all other factors.  The amount of the total OTTI related to the credit loss is determined based on the present value of cash flows expected to be collected and is recognized in earnings.  The amount of the total OTTI related to other factors is recognized in other comprehensive income, net of applicable taxes.  The previous amortized cost basis less the OTTI recognized in earnings becomes the new amortized cost basis of the investment.

As of September 30, 2020,March 31, 2021, the Company’s securitysecurities portfolio included certain securities, which were in an unrealized loss position, and are discussed below.

U.S. government sponsored enterprises:  In the case of unrealized losses on U.S. government sponsored enterprises, because the decline in fair value is attributable to changes in interest rates, and not credit quality, and because the Company does not have the intent to sell these securities and it is likely that it will not be required to sell the securities before their anticipated recovery, the Company does not consider these securities to be other-than-temporarily impaired at September 30, 2020.March 31, 2021.

Mortgage backed securities and collateralized mortgage obligations – residential:  At September 30, 2020,March 31, 2021, all mortgage backed securities and collateralized mortgage obligations held by the Company were issued by U.S. government sponsored entities and agencies, primarily Ginnie Mae, Fannie Mae and Freddie Mac, institutions which the government has affirmed its commitment to support.  Because the decline in fair value is attributable to changes in interest rates, and not credit quality, and because the Company does not have the intent to sell these securities and it is likely that it will not be required to sell the securities before their anticipated recovery, the Company does not consider these securities to be other‑than‑temporarilyother-than-temporarily impaired at September 30, 2020.March 31, 2021.

Corporate Bonds:  At September 30, 2020,March 31, 2021, corporate bonds held by the Company are investment grade quality.  Because the decline in fair value is attributable to changes in interest rates, and not credit quality, and because the Company does not have the intent to sell these securities and it is likely that it will not be required to sell the securities before their anticipated recovery, the Company does not consider these securities to be other-than-temporarily impaired at September 30, 2020.March 31, 2021.

13
Index

(5) Loans and Allowance for Loan Losses

The following table presents the recorded investment in loans by loan class:
  March 31, 2021 
(dollars in thousands) 
New York and
other states*
  Florida  Total 
Commercial:         
Commercial real estate $146,994   17,989   164,983 
Other  51,673   365   52,038 
Real estate mortgage - 1 to 4 family:            
First mortgages  2,615,578   1,122,469   3,738,047 
Home equity loans  55,469   14,321   69,790 
Home equity lines of credit  185,237   50,407   235,644 
Installment  7,072   1,598   8,670 
Total loans, net $3,062,023   1,207,149   4,269,172 
Less: Allowance for loan losses          49,991 
Net loans         $4,219,181 

  September 30, 2020 
(dollars in thousands) 
New York and
other states*
  Florida  Total 
Commercial:         
Commercial real estate $152,994   18,579   171,573 
Other  59,886   204   60,090 
Real estate mortgage - 1 to 4 family:            
First mortgages  2,580,577   1,065,903   3,646,480 
Home equity loans  62,595   15,671   78,266 
Home equity lines of credit  200,605   47,715   248,320 
Installment  7,997   1,829   9,826 
Total loans, net $3,064,654  $1,149,901   4,214,555 
Less: Allowance for loan losses          49,123 
Net loans         $4,165,432 

 December 31, 2019  December 31, 2020 
(dollars in thousands) 
New York and
other states*
  Florida  Total  
New York and
other states*
  Florida  Total 
Commercial:                  
Commercial real estate $162,186   17,752   179,938  $148,775   18,666   167,441 
Other  19,326   235   19,561   44,932   119   45,051 
Real estate mortgage - 1 to 4 family:                        
First mortgages  2,541,440   953,995   3,495,435   2,606,781   1,098,915   3,705,696 
Home equity loans  69,791   18,548   88,339   59,400   15,071   74,471 
Home equity lines of credit  221,487   46,435   267,922   193,654   48,540   242,194 
Installment  8,706   2,295   11,001   7,810   1,807   9,617 
Total loans, net $3,022,936   1,039,260   4,062,196  $3,061,352   1,183,118   4,244,470 
Less: Allowance for loan losses          44,317           49,595 
Net loans         $4,017,879          $4,194,875 

* Includes New York, New Jersey, Vermont and Massachusetts.

At September 30, 2020Included in commercial loans above are Paycheck Protection Program (“PPP”) loans totaling $36.6 million and $28.9 million as of March 31, 2021 and December 31, 2019,2020, respectively.

At March 31, 2021 and December 31, 2020, the Company had approximately $26.8$28.5 million and $28.5$24.7 million of real estate construction loans, respectively.  Of the $26.8$28.5 million in real estate construction loans at September 30, 2020,March 31, 2021, approximately $11.0$14.4 million are secured by first mortgages to residential borrowers while approximately $15.8$14.1 million were to commercial borrowers for residential construction projects.  Of the $28.5$24.7 million in real estate construction loans at December 31, 2019,2020, approximately $10.7$10.5 million arewere secured by first mortgages to residential borrowers while approximately $17.8$14.2 million were to commercial borrowers for residential construction projects.  The vast majority of construction loans are in the Company’s New York market.

TrustCoThe Company 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.

14
Index
The following tables present the recorded investment in non-accrual loans by loan class:

 September 30, 2020 
(dollars in thousands) 
New York and
other states*
  Florida  Total 
Loans in non-accrual status:         
Commercial:         
Commercial real estate $378   0   378 
Other  113   0   113 
Real estate mortgage - 1 to 4 family:            
First mortgages  17,193   1,075   18,268 
Home equity loans  90   47   137 
Home equity lines of credit  2,694   132   2,826 
Installment  49   0   49 
Total non-accrual loans  20,517   1,254   21,771 
Restructured real estate mortgages - 1 to 4 family  25   0   25 
Total nonperforming loans $20,542   1,254   21,796 

 December 31, 2019 
(dollars in thousands) 
New York and
other states*
  Florida  Total 
Loans in non-accrual status:         
Commercial:         
Commercial real estate $733   0   733 
Other  83   0   83 
Real estate mortgage - 1 to 4 family:            
First mortgages  15,385   1,468   16,853 
Home equity loans  218   48   266 
Home equity lines of credit  2,804   98   2,902 
Installment  3   0   3 
Total non-accrual loans  19,226   1,614   20,840 
Restructured real estate mortgages - 1 to 4 family  29   0   29 
Total nonperforming loans $19,255   1,614   20,869 

* Includes New York, New Jersey, Vermont and Massachusetts.

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).  Other real estate owned is included in Other assets on the Balance Sheet.  As of September 30, 2020March 31, 2021 and December 31, 2019,2020, other real estate owned included $423$420 thousand and $1.6 million$541 thousand of residential foreclosed properties, respectively.  In addition, non-accrual residential mortgage loans that are in the process of foreclosure had a recorded investment of $11.5$12.3 million and $8.7$11.6 million, respectively, as of September 30, 2020March 31, 2021 and December 31, 2019 respectively.2020.

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

 
March 31, 2021
 
(dollars in thousands) 
New York and
other states*
  Florida  Total 
Loans in non-accrual status:         
Commercial:         
Commercial real estate $45   0   45 
Other  80   0   80 
Real estate mortgage - 1 to 4 family:            
First mortgages  16,645   1,451   18,096 
Home equity loans  78   46   124 
Home equity lines of credit  3,103   129   3,232 
Installment  32   0   32 
Total non-accrual loans  19,983   1,626   21,609 
Restructured real estate mortgages - 1 to 4 family  22   0   22 
Total nonperforming loans $20,005   1,626   21,631 

 
December 31, 2020
 
(dollars in thousands) 
New York and
other states*
  Florida  Total 
Loans in non-accrual status:         
Commercial:         
Commercial real estate $372   0   372 
Other  80   0   80 
Real estate mortgage - 1 to 4 family:            
First mortgages  16,637   1,010   17,647 
Home equity loans  80   47   127 
Home equity lines of credit  2,662   130   2,792 
Installment  43   0   43 
Total non-accrual loans  19,874   1,187   21,061 
Restructured real estate mortgages - 1 to 4 family  23   0   23 
Total nonperforming loans $19,897   1,187   21,084 

* Includes New York, New Jersey, Vermont and Massachusetts.

15
Index
The following tables present the aging of the recorded investment in past due loans by loan class and by region as of September 30, 2020March 31, 2021 and December 31, 2019:2020:

 September 30, 2020  
March 31, 2021
 
New York and other states*:                                    
(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
  
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 $0   0   279   279   152,715   152,994  $324   0   0   324   146,670   146,994 
Other  0   0   113   113   59,773   59,886   0   0   80   80   51,593   51,673 
Real estate mortgage - 1 to 4 family:                                                
First mortgages  3,842   738   12,183   16,763   2,563,814   2,580,577   1,439   281   11,133   12,853   2,602,725   2,615,578 
Home equity loans  147   4   49   200   62,395   62,595   147   0   50   197   55,272   55,469 
Home equity lines of credit  722   33   1,236   1,991   198,614   200,605   413   140   1,484   2,037   183,200   185,237 
Installment  46   15   49   110   7,887   7,997   6   0   0   6   7,066   7,072 
                                                
Total $4,757   790   13,909   19,456   3,045,198   3,064,654  $2,329   421   12,747   15,497   3,046,526   3,062,023 

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
  
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 $0   0   0   0   18,579   18,579  $0   0   0   0   17,989   17,989 
Other  0   0   0   0   204   204   0   0   0   0   365   365 
Real estate mortgage - 1 to 4 family:                                                
First mortgages  636   0   718   1,354   1,064,549   1,065,903   1,052   163   914   2,129   1,120,340   1,122,469 
Home equity loans  0   47   0   47   15,624   15,671   0   1   46   47   14,274   14,321 
Home equity lines of credit  0   0   0   0   47,715   47,715   0   221   0   221   50,186   50,407 
Installment  16   8   0   24   1,805   1,829   19   0   0   19   1,579   1,598 
                                                
Total $652   55   718   1,425   1,148,476   1,149,901  $1,071   385   960   2,416   1,204,733   1,207,149 

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
  
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 $0   0   279   279   171,294   171,573  $324   0   0   324   164,659   164,983 
Other  0   0   113   113   59,977   60,090   0   0   80   80   51,958   52,038 
Real estate mortgage - 1 to 4 family:                                                
First mortgages  4,478   738   12,901   18,117   3,628,363   3,646,480   2,491   444   12,047   14,982   3,723,065   3,738,047 
Home equity loans  147   51   49   247   78,019   78,266   147   1   96   244   69,546   69,790 
Home equity lines of credit  722   33   1,236   1,991   246,329   248,320   413   361   1,484   2,258   233,386   235,644 
Installment  62   23   49   134   9,692   9,826   25   0   0   25   8,645   8,670 
                                                
Total $5,409   845   14,627   20,881   4,193,674   4,214,555  $3,400   806   13,707   17,913   4,251,259   4,269,172 

* Includes New York, New Jersey, Vermont and Massachusetts.

16
Index

 December 31, 2019  
December 31, 2020
 
New York and other states*:                                    
(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
  
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 $141   0   617   758   161,428   162,186  $125   77   279   481   148,294   148,775 
Other  80   0   33   113   19,213   19,326   0   0   80   80   44,852   44,932 
Real estate mortgage - 1 to 4 family:                                                
First mortgages  3,444   292   11,328   15,064   2,526,376   2,541,440   1,220   982   10,927   13,129   2,593,652   2,606,781 
Home equity loans  183   7   133   323   69,468   69,791   120   1   48   169   59,231   59,400 
Home equity lines of credit  232   149   1,141   1,522   219,965   221,487   401   344   1,273   2,018   191,636   193,654 
Installment  37   8   3   48   8,658   8,706   3   0   43   46   7,764   7,810 
                                                
Total $4,117   456   13,255   17,828   3,005,108   3,022,936  $1,869   1,404   12,650   15,923   3,045,429   3,061,352 

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
  
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 $0   0   0   0   17,752   17,752  $0   -   0   0   18,666   18,666 
Other  0   0   0   0   235   235   0   0   0   0   119   119 
Real estate mortgage - 1 to 4 family:                                                
First mortgages  542   0   617   1,159   952,836   953,995   365   517   655   1,537   1,097,378   1,098,915 
Home equity loans  63   0   0   63   18,485   18,548   0   0   47   47   15,024   15,071 
Home equity lines of credit  80   0   50   130   46,305   46,435   0   0   0   0   48,540   48,540 
Installment  0   0   0   0   2,295   2,295   7   10   0   17   1,790   1,807 
                                                
Total $685   0   667   1,352   1,037,908   1,039,260  $372   527   702   1,601   1,181,517   1,183,118 

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
  
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 $141   0   617   758   179,180   179,938  $125   77   279   481   166,960   167,441 
Other  80   0   33   113   19,448   19,561   0   0   80   80   44,971   45,051 
Real estate mortgage - 1 to 4 family:                                                
First mortgages  3,986   292   11,945   16,223   3,479,212   3,495,435   1,585   1,499   11,582   14,666   3,691,030   3,705,696 
Home equity loans  246   7   133   386   87,953   88,339   120   1   95   216   74,255   74,471 
Home equity lines of credit  312   149   1,191   1,652  ��266,270   267,922   401   344   1,273   2,018   240,176   242,194 
Installment  37   8   3   48   10,953   11,001   10   10   43   63   9,554   9,617 
                                                
Total $4,802   456   13,922   19,180   4,043,016   4,062,196  $2,241   1,931   13,352   17,524   4,226,946   4,244,470 

* Includes New York, New Jersey, Vermont and Massachusetts.

At September 30, 2020March 31, 2021 and December 31, 2019,2020, 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 0 commitments to extend further credit on non-accrual or restructured loans.

17
Index
Activity in the allowance for loan losses by portfolio segment is summarized as follows:

 For the three months ended September 30, 2020  
For the three months ended March 31, 2021
 
(dollars in thousands)
 Commercial  
Real Estate
Mortgage-
1 to 4 Family
  Installment  Total 
(dollars in thousands) Commercial  
Real Estate
Mortgage-
1 to 4 Family
  Installment  Total 
Balance at beginning of period $4,366   43,274   504   48,144  $4,140   44,950   505   49,595 
Loans charged off:                                
New York and other states*  0   64   21   85   0   86   7   93 
Florida  0   0   0   0   0   0   2   2 
Total loan chargeoffs  0   64   21   85   0   86   9   95 
                                
Recoveries of loans previously charged off:                                
New York and other states*  1   60   3   64   32   88   21   141 
Florida  0   0   0   0   0   0   0   0 
Total recoveries  1   60   3   64   32   88   21   141 
Net loans (recoveries) charged off  (1)  4   18   21   (32)  (2)  (12)  (46)
(Credit) provision for loan losses  (100)  1,053   47   1,000   (120)  555   (85)  350 
Balance at end of period $4,267   44,323   533   49,123  $4,052   45,507   432   49,991 

 For the three months ended September 30, 2019 
(dollars in thousands)
 Commercial  
Real Estate
Mortgage-
1 to 4 Family
  Installment  Total 
Balance at beginning of period $3,913   39,963   489   44,365 
Loans charged off:                
New York and other states*  13   147   16   176 
Florida  0   0   16   16 
Total loan chargeoffs  13   147   32   192 
                 
Recoveries of loans previously charged off:                
New York and other states*  41   108   7   156 
Florida  0   0   0   0 
Total recoveries  41   108   7   156 
Net loans (recoveries) charged off
  (28)  39   25   36 
(Credit) provision for loan losses  (70)  (18)  88   0 
Balance at end of period $3,871   39,906   552   44,329 

* Includes New York, New Jersey, Vermont and Massachusetts.
18
Index

 Nine months ended September 30, 2020 
  Commercial  
Real Estate
Mortgage-
1 to 4 Family
  Installment  Total 
Balance at beginning of period $3,999   39,748   570   44,317 
Loans charged off:                
New York and other states*  3   277   77   357 
Florida  0   0   19   19 
Total loan chargeoffs  3   277   96   376 
                 
Recoveries of loans previously charged off:                
New York and other states*  9   160   11   180 
Florida  0   2   0   2 
Total recoveries  9   162   11   182 
Net loans charged off (recoveries)  (6)  115   85   194 
Provision for loan losses  262   4,690   48   5,000 
Balance at end of period $4,267   44,323   533   49,123 

 Nine months ended September 30, 2019  
For the three months ended March 31, 2020
 
 Commercial  
Real Estate
Mortgage-
1 to 4 Family
  Installment  Total 
(dollars in thousands) Commercial  
Real Estate
Mortgage-
1 to 4 Family
  Installment  Total 
Balance at beginning of period $4,048   39,772   946   44,766  $3,999   39,748   570   44,317 
Loans charged off:                                
New York and other states*  20   744   94   858   3   191   7   201 
Florida  0   29   47   76   0   0   19   19 
Total loan chargeoffs  20   773   141   934   3   191   26   220 
                                
Recoveries of loans previously charged off:                                
New York and other states*  45   441   17   503   2   51   3   56 
Florida  0   35   0   35   0   2   0   2 
Total recoveries  45   476   17   538   2   53   3   58 
Net loans charged off  (25)  297   124   396 
Net loans (recoveries) charged off  1   138   23   162 
(Credit) provision for loan losses  (202)  431   (270)  (41)  (38)  2,033   5   2,000 
Balance at end of period $3,871  $39,906   552   44,329  $3,960   41,643   552   46,155 

* 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.

1918
Index
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, 2020March 31, 2021 and December 31, 2019:2020:

 September 30, 2020  
March 31, 2021
 
(dollars in thousands) 
Commercial
Loans
  
1-to-4 Family
Residential
Real Estate
  
Installment
Loans
  Total  
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 $0   0   0   0  $0   0   0   0 
Collectively evaluated for impairment  4,267   44,323   533   49,123   4,052   45,507   432   49,991 
                                
Total ending allowance balance $4,267   44,323   533   49,123  $4,052   45,507   432   49,991 
                                
Loans:                                
Individually evaluated for impairment $1,084   20,648   0   21,732  $699   19,646   0   20,345 
Collectively evaluated for impairment  230,579   3,952,418   9,826   4,192,823   216,322   4,023,835   8,670   4,248,827 
                                
Total ending loans balance $231,663   3,973,066   9,826   4,214,555  $217,021   4,043,481   8,670   4,269,172 

 December 31, 2019  
December 31, 2020
 
(dollars in thousands) 
Commercial
Loans
  
1-to-4 Family
Residential
Real Estate
  
Installment
Loans
  Total  
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 $0   0   0   0  $0   0   0   0 
Collectively evaluated for impairment  3,999   39,748   570   44,317   4,140   44,950   505   49,595 
                                
Total ending allowance balance $3,999   39,748   570   44,317  $4,140   44,950   505   49,595 
                                
Loans:                                
Individually evaluated for impairment $1,437   19,539   0   20,976  $1,028   20,553   0   21,581 
Collectively evaluated for impairment  198,062   3,832,157   11,001   4,041,220   211,464   4,001,808   9,617   4,222,889 
                                
Total ending loans balance $199,499   3,851,696   11,001   4,062,196  $212,492   4,022,361   9,617   4,244,470 

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, 2020March 31, 2021 and December 31, 20192020 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.

2019
Index
The following tables present impaired loans by loan class as of September 30, 2020March 31, 2021 and December 31, 2019:2020:

 September 30, 2020  
March 31, 2021
 
New York and other states*:                        
(dollars in thousands) 
Recorded
Investment
  
Unpaid
Principal
Balance
  
Related
Allowance
  
Average
Recorded
Investment
  
Recorded
Investment
  
Unpaid
Principal
Balance
  
Related
Allowance
  
Average
Recorded
Investment
 
                        
Commercial:                        
Commercial real estate $839   1,062   0   1,121  $523   616   0   1,152 
Other  145   145   0   112   80   80   0   106 
Real estate mortgage - 1 to 4 family:                                
First mortgages  14,895   15,282   0   14,062   14,425   14,812   0   14,059 
Home equity loans  223   243   0   235   214   214   0   235 
Home equity lines of credit  2,268   2,408   0   2,249   2,005   2,145   0   2,260 
                                
Total $18,370   19,140   0   17,779  $17,247   17,867   0   17,812 

Florida:                        
(dollars in thousands) 
Recorded
Investment
  
Unpaid
Principal
Balance
  
Related
Allowance
  
Average
Recorded
Investment
  
Recorded
Investment
  
Unpaid
Principal
Balance
  
Related
Allowance
  
Average
Recorded
Investment
 
                        
Commercial:                        
Commercial real estate $100      0   105  $96   96   0   106 
Other  0      0   0   0   0   0   0 
Real estate mortgage - 1 to 4 family:                               
First mortgages  3,018   3,018   0   2,567   2,758   2,758   0   2,547 
Home equity loans  0   0   0   13   0   0   0   17 
Home equity lines of credit  244   244   0   245   244   244   0   246 
                                
Total $3,362   3,262   0   2,930  $3,098   3,098   0   2,916 

Total:                        
(dollars in thousands) 
Recorded
Investment
  
Unpaid
Principal
Balance
  
Related
Allowance
  
Average
Recorded
Investment
  
Recorded
Investment
  
Unpaid
Principal
Balance
  
Related
Allowance
  
Average
Recorded
Investment
 
                        
Commercial:                        
Commercial real estate $939   1,062   0   1,226  $619   712   0   1,258 
Other  145   145   0   112   80   80   0   106 
Real estate mortgage - 1 to 4 family:                                
First mortgages  17,913   18,300   0   16,629   17,183   17,570   0   16,606 
Home equity loans  223   243   0   248   214   214   0   252 
Home equity lines of credit  2,512   2,652   0   2,494   2,249   2,389   0   2,506 
                                
Total $21,732   22,402   0   20,709  $20,345   20,965   0   20,728 

* Includes New York, New Jersey, Vermont and Massachusetts.

2120
Index

 December 31, 2019  
December 31, 2020
 
New York and other states*:                        
(dollars in thousands) 
Recorded
Investment
  
Unpaid
Principal
Balance
  
Related
Allowance
  
Average
Recorded
Investment
  
Recorded
Investment
  
Unpaid
Principal
Balance
  
Related
Allowance
  
Average
Recorded
Investment
 
                        
Commercial:                        
Commercial real estate $1,217   1,359   0   1,385  $819   943   0   1,186 
Other  115   115   0   38   111   111   0   103 
Real estate mortgage - 1 to 4 family:                                
First mortgages  14,414   14,714   0   14,358   15,024   15,411   0   14,110 
Home equity loans  235   255   0   241   219   240   0   235 
Home equity lines of credit  2,160   2,300   0   2,274   2,158   2,298   0   2,258 
                                
Total $18,141   18,743   0   18,296  $18,331   19,003   0   17,892 

Florida:                        
(dollars in thousands) 
Recorded
Investment
  
Unpaid
Principal
Balance
  
Related
Allowance
  
Average
Recorded
Investment
  
Recorded
Investment
  
Unpaid
Principal
Balance
  
Related
Allowance
  
Average
Recorded
Investment
 
                        
Commercial:                        
Commercial real estate $105   105   0   82  $98   98   0   105 
Other  0   0   0   26   0   0   0   0 
Real estate mortgage - 1 to 4 family:                                
First mortgages  2,486   2,486   0   2,259   2,908   2,908   0   2,555 
Home equity loans  0   0   0   51   0   0   0   16 
Home equity lines of credit  244   244   0   249   244   244   0   246 
                                
Total $2,835   2,835   0   2,667  $3,250   3,250   0   2,922 

Total:                        
(dollars in thousands) 
Recorded
Investment
  
Unpaid
Principal
Balance
  
Related
Allowance
  
Average
Recorded
Investment
  
Recorded
Investment
  
Unpaid
Principal
Balance
  
Related
Allowance
  
Average
Recorded
Investment
 
                        
Commercial:                        
Commercial real estate $1,322   1,464   0   1,467  $917   1,041   0   1,291 
Other  115   115   0   64   111   111   0   103 
Real estate mortgage - 1 to 4 family:                                
First mortgages  16,900   17,200   0   16,617   17,932   18,319   0   16,665 
Home equity loans  235   255   0   292   219   240   0   251 
Home equity lines of credit  2,404   2,544   0   2,523   2,402   2,542   0   2,504 
                                
Total $20,976   21,578   0   20,963  $21,581   22,253   0   20,814 

* Includes New York, New Jersey, Vermont and Massachusetts.

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, 2020March 31, 2021 and 2019.2020.

2221
Index
As of September 30, 2020March 31, 2021 and December 31, 20192020 impaired loans included approximately $11.8$11.1 million and $11.1$11.7 million of loans in accruing status that were identified as TDR’s in accordance with regulatory guidance related to Chapter 7 bankruptcy loans, respectively.loans.

Management evaluates impairment on impaired loans on a quarterly basis. If, during this evaluation, impairment of the loan is identified, a chargeoff is taken at that time.  As a result, as of September 30, 2020March 31, 2021 and December 31, 2019,2020, 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 tables present,table presents, by class, loans that were modified as TDR’s:

 Three months ended 9/30/2020  Three months ended 9/30/2019 
                   
Three months ended March 31, 2021
  
Three months ended March 31, 2020
 
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) 
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  1  $126   126   0  $0   0   0  $0   0   0  $0   0 
Real estate mortgage - 1 to 4 family:                                                
First mortgages  6   1,533   1,533   4   537   537   0   0   0   1   167   167 
Home equity loans  0   0   0   0   0   0   0   0   0   0   0   0 
Home equity lines of credit  1   50   50   0   0   0   0   0   0   1   70   70 
                                                
Total  8  $1,709   1,709   4  $537   537   0  $0   0   2  $237   237 

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  0  $0   0   0  $0   0 
Real estate mortgage - 1 to 4 family:                        
First mortgages  0   0   0   5   509   509 
Home equity loans  0   0   0   0   0   0 
Home equity lines of credit  0   0   0   0   0   0 
                         
Total  0  $0   0   5  $509   509 

* Includes New York, New Jersey, Vermont and Massachusetts.
23
Index

 Nine months ended 9/30/2020  Nine months ended 9/30/2019 
                   
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)
                   
Commercial:                  
Commercial real estate  1  $126   126   1  $127   127 
Real estate mortgage - 1 to 4 family:                        
First mortgages  9   1,982   1,982   12   1,768   1,768 
Home equity loans  0   0   0   0   0   0 
Home equity lines of credit  3   169   169   2   235   235 
                         
Total  13  $2,277   2,277   15  $2,130   2,130 

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
 
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  0  $0   0   0  $0   0   0  $0   0   0  $0   0 
Real estate mortgage - 1 to 4 family:                                                
First mortgages  4   589   589   5   509   509   0   0   0   0   0   0 
Home equity loans  0   0   0   0   0   0   0   0   0   0   0   0 
Home equity lines of credit�� 0   0   0   0   0   0   0   0   0   0   0   0 
                                                
Total  4  $589   589   5  $509   509   0  $0   0   0  $0   0 

* Includes New York, New Jersey, Vermont and Massachusetts.

24
Index
The addition of these TDR’s did not have a significant impact on the allowance for loan losses.

In situations where the CompanyBank 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.

22
Index
The following tables present, by class,There were 0 TDR’s that defaulted during the three and nine months ended September 30, 2020March 31, 2021 and 20192020 which had been modified within the last twelve months:

 
Three months ended 9/30/2020
  
Three months ended 9/30/2019
 
New York and other states*: 
Number of
Contracts
  
Recorded
Investment
  
Number of
Contracts
  
Recorded
Investment
 
(dollars in thousands)
             
Commercial:            
Commercial real estate  0  $0   0  $0 
Real estate mortgage - 1 to 4 family:                
First mortgages  3   264   0   0 
Home equity lines of credit  1   19   0   0 
                 
Total  4  $283   0  $0 

Florida:
(dollars in thousands)
 
Number of
Contracts
  
Recorded
Investment
  
Number of
Contracts
  
Recorded
Investment
 
             
Commercial:            
Commercial real estate  0  $0   0  $0 
Real estate mortgage - 1 to 4 family:                
First mortgages  0   0   0   0 
Home equity loans  0   0   0   0 
Home equity lines of credit  0   0   0   0 
                 
Total  0  $0   0  $0 

* Includes New York, New Jersey, Vermont and Massachusetts.
25
Index

 Nine months ended 9/30/2020  Nine months ended 9/30/2019 
New York and other states*: 
Number of
Contracts
  
Recorded
Investment
  
Number of
Contracts
  
Recorded
Investment
 
(dollars in thousands)
             
Commercial:            
Commercial real estate  0  $0   0  $0 
Real estate mortgage - 1 to 4 family:                
First mortgages  4   459   0   0 
Home equity loans  0   0   0   0 
Home equity lines of credit  1   19   0   0 
                 
Total  5  $478   0  $0 

(dollars in thousands)
 
Number of
Contracts
  
Recorded
Investment
  
Number of
Contracts
  
Recorded
Investment
 
             
Commercial:            
Commercial real estate  0  $0   0  $0 
Real estate mortgage - 1 to 4 family:                
First mortgages  0   0   0   0 
Home equity lines of credit  0   0   0   0 
                 
Total  0  $0   0  $0 

* Includes New York, New Jersey, Vermont and Massachusetts. months.

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

Loan modifications and payment deferrals as a result of COVID-19 that meet the criteria established under Section 4013 of the Coronavirus Aid, Relief, and Economic Security Act (“CARES ActAct”) or under applicable interagency guidance of the federal banking regulators are excluded from evaluation of TDR classification and will continue to be reported as current during the payment deferral period. The Company’s policy is to continue to accrue interest during the deferral period. Loans not meeting the CARES ACT or regulatory guidance are evaluated for TDR and non-accrual treatment under the Company’s existing policies and procedures.  Loan modifications and payment deferrals made pursuant to COVID 19 as of September 30, 2020 totaled approximately $7 million, which included $2 million of commercial loans and $5 million of residential loans. As of June 30, 2020 these amounts totaled approximately $190 million, which included $45 million of commercial loans and $145 million of residential loans. The reductionthe CARES ACT that were in loan deferrals represents loans that are now paying in accordance with their terms.  As of September 30, 2020, there was no material impact to delinquencies and non-accruals regarding the loans that came out of deferment.payment deferral at March 31, 2021 were not material.

The Company categorizes non-homogenouscommercial 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.

26
Index
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.

23
Index
As of September 30, 2020March 31, 2021 and December 31, 2019,2020, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

 September 30, 2020  
March 31, 2021
 
                  
New York and other states*:                  
(dollars in thousands) Pass  Classified  Total  Pass  Classified  Total 
                  
Commercial:                  
Commercial real estate $149,866   3,128   152,994  $144,433   2,561   146,994 
Other  59,404   482   59,886   51,444   229   51,673 
             $195,877   2,790   198,667 
 $209,270   3,610   212,880 

Florida:                  
(dollars in thousands) Pass  Classified  Total  Pass  Classified  Total 
                  
Commercial:                  
Commercial real estate $18,005   574   18,579  $17,419   570   17,989 
Other  204   0   204   365   0   365 
             $17,784   570   18,354 
 $18,209   574   18,783 

Total:                  
(dollars in thousands) Pass  Classified  Total  Pass  Classified  Total 
                  
Commercial:                  
Commercial real estate $167,871   3,702   171,573  $161,852   3,131   164,983 
Other  59,608   482   60,090   51,809   229   52,038 
             $213,661   3,360   217,021 
 $227,479   4,184   231,663 

* Includes New York, New Jersey and Massachusetts.

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Index

 December 31, 2019  
December 31, 2020
 
                  
New York and other states:                  
(dollars in thousands) Pass  Classified  Total  Pass  Classified  Total 
                  
Commercial:                  
Commercial real estate $157,280   4,906   162,186  $145,741   3,034   148,775 
Other  18,384   942   19,326   44,522   410   44,932 
             $190,263   3,444   193,707 
 $175,664   5,848   181,512 

Florida:                  
(dollars in thousands) Pass  Classified  Total  Pass  Classified  Total 
                  
Commercial:                  
Commercial real estate $17,752   0   17,752  $18,092   574   18,666 
Other  235   0   235   119   0   119 
             $18,211   574   18,785 
 $17,987   0   17,987 

Total:                  
(dollars in thousands) Pass  Classified  Total  Pass  Classified  Total 
                  
Commercial:                  
Commercial real estate $175,032   4,906   179,938  $163,833   3,608   167,441 
Other  18,619   942   19,561   44,641   410   45,051 
             $208,474   4,018   212,492 
 $193,651   5,848   199,499 

* Includes New York, New Jersey and Massachusetts.

Included in classified loans in the above tables are impaired loans of $849$471 thousand and $816$796 thousand at September 30, 2020March 31, 2021 and December 31, 2019,2020, 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’sBank’s collection departmentarea 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, 2020March 31, 2021 and December 31, 20192020 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, 2020March 31, 2021 and December 31, 20192020 is presented in the non-accrual loans table.

28
Index

(6) Fair Value of Financial Instruments

FASB Topic 820,Fair Value Measurements (“ASC 820”)value measurements (ASC 820) defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair values:

Level 1 – Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity can access as of the measurement date.

25
Index
Level 2 – Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3 – Significant unobservable inputs that reflect a company’s own assumptions about the value that market participants would use in pricing an asset or liability.

The Company used the following methods and significant assumptions to estimate the fair value of assets and liabilities:

Securities Available for Sale: The fair value of securities available for sale is determined utilizing an independent pricing service for identical assets or significantly similar securities. The pricing service uses a variety of techniques to arrive at fair value including market maker bids, quotes and pricing models. Inputs to the pricing models include recent trades, benchmark interest rates, spreads and actual and projected cash flows. This results in a Level 1 or Level 2 classification of the inputs for determining fair value. Interest and dividend income is recorded on the accrual method and is included in the Consolidated Statements of Income in the respective investment class under total interest and dividend income. The Company does not have any securities that would be designated as Level 3.

Other Real Estate Owned: Assets acquired through loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell. Fair value is commonly based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process to adjust for differences between the comparable sales and income data available. This results in a Level 3 classification of the inputs for determining fair value.

Impaired Loans: At the time a loan is considered impaired, it is valued at the lower of cost or fair value. Impaired loans carried at fair value generally have had a chargeoff through the allowance for loan losses. For collateral dependent loans, fair value is commonly based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process to adjust for differences between the comparable sales and income data available. Such adjustments may be significant and typically result in a Level 3 classification of the inputs for determining fair value. When obtained, non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business, resulting in a Level 3 fair value classification. Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly.

29
Index
Indications of value for both collateral-dependent impaired loans and other real estate owned are obtained from third party providers or the Company’s internal Appraisal Department. All indications of value are reviewed for reasonableness by a member of the Appraisal Department for the assumptions and approaches utilized in the appraisal as well as the overall resulting fair value via comparison with independent data sources such as recent market data or industry-wide statistics.

26
Index
Assets and liabilities measured at fair value under ASC 820 on a recurring basis are summarized below:

 Fair Value Measurements at  Fair Value Measurements at 
 September 30, 2020 Using:  
March 31, 2021 Using:
 
(dollars in thousands) 
Carrying
Value
  
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
  
Significant
Other
Observable
Inputs
(Level 2)
  
Significant
Unobservable
Inputs
(Level 3)
  
Carrying
Value
  
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
  
Significant
Other
Observable
Inputs
(Level 2)
  
Significant
Unobservable
Inputs
(Level 3)
 
                        
U.S. government sponsored enterprises $29,996  $0  $29,996  $0  $74,465  $0  $74,465  $0 
State and political subdivisions  111   0   111   0   48   0   48   0 
Mortgage backed securities and collateralized mortgage obligations - residential  309,768   0   309,768   0   348,317   0   348,317   0 
Corporate bonds  70,113   0   70,113   0   64,839   0   64,839   0 
Small Business Administration- guaranteed participation securities  44,070   0   44,070   0   39,232   0   39,232   0 
Other securities  685   0   685   0   686   0   686   0 
                                
Total securities available for sale $454,743  $0  $454,743  $0  $527,587  $0  $527,587  $0 

 Fair Value Measurements at  Fair Value Measurements at 
 December 31, 2019 Using:  
December 31, 2020 Using:
 
(dollars in thousands) 
Carrying
Value
  
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
  
Significant
Other
Observable
Inputs
(Level 2)
  
Significant
Unobservable
Inputs
(Level 3)
  
Carrying
Value
  
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
  
Significant
Other
Observable
Inputs
(Level 2)
  
Significant
Unobservable
Inputs
(Level 3)
 
                        
Securities available for sale:                        
U.S. government sponsored enterprises $104,512  $0  $104,512  $0  $19,968  $0  $19,968  $0 
State and political subdivisions  162   0   162   0   103   0   103   0 
Mortgage backed securities and collateralized mortgage obligations - residential  389,517   0   389,517   0   316,158   0   316,158   0 
Corporate bonds  30,436   0   30,436   0   59,939   0   59,939   0 
Small Business Administration- guaranteed participation securities  48,511   0   48,511   0   42,217   0   42,217   0 
Other securities  685   0   685   0   686   0   686   0 
                                
Total securities available for sale $573,823  $0  $573,823  $0  $439,071  $0  $439,071  $0 

There were 0 transfers between Level 1 and Level 2 during the three and nine months ended September 30, 2020March 31, 2021 and 2019.2020.

3027
Index
Assets measured at fair value on a non-recurring basis are summarized below:

 Fair Value Measurements at       Fair Value Measurements at      
 September 30, 2020 Using:      March 31, 2021 Using:     
(dollars in thousands)
 
Carrying
Value
  
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
  
Significant
Other
Observable
Inputs
(Level 2)
  
Significant
Unobservable
Inputs
(Level 3)
 
Valuation
 technique
Unobservable
 inputs
 Range (Weighted Average)  
Carrying
Value
  
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
  
Significant
Other
Observable
Inputs
(Level 2)
  
Significant
Unobservable
Inputs
(Level 3)
 
Valuation
 technique
Unobservable
 inputs
 Range (Weighted Average) 
                                
Other real estate owned $423  $0  $0  $423 Sales comparison approachAdjustments for differences between comparable sales  1% - 9% (3%) $420  $0  $0  $420 Sales comparison approachAdjustments for differences between comparable sales  1% - 7% (2%)
                                          
Impaired loans:                                          
Real estate mortgage -1 to 4 family  509   0   0   509 Sales comparison approachAdjustments for differences between comparable sales  1% - 11% (11%)  0   0   0   0 Sales comparisonAdjustments for differences between comparable sales  N/A 

 Fair Value Measurements at      Fair Value Measurements at     
 
December 31, 2019 Using:
      
December 31, 2020 Using:
     
(dollars in thousands)
 
Carrying
Value
  
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
  
Significant
Other
Observable
Inputs
(Level 2)
  
Significant
Unobservable
Inputs
(Level 3)
 
Valuation
 technique
Unobservable
 inputs
 Range (Weighted Average)  
Carrying
Value
  
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
  
Significant
Other
Observable
Inputs
(Level 2)
  
Significant
Unobservable
Inputs
(Level 3)
 Valuation technique
Unobservable
inputs
 Range (Weighted Average) 
                                  
Other real estate owned $1,579  $0  $0  $1,579 Sales comparison approachAdjustments for differences between comparable sales  1% - 21% (2%) $541  $0  $0  $541 Sales comparison approachAdjustments for differences between comparable sales  1% - 7% (2%)
                                          
Impaired loans:                                          
Real estate mortgage -1 to 4 family  120   0   0   120 Sales comparison approachAdjustments for differences between comparable sales  1% - 17% (9%)  211   0   0   211 Sales comparisonAdjustments for differences between comparable sales  11% - 12% (12%)

Other real estate owned, that is carried at fair value less costs to sell was approximately $423420 thousand at September 30, 2020March 31, 2021 and consisted of only residential real estate properties.  Valuation charges of $62 thousand and $120121 thousand are included in earnings for the three months and nine months ended September 30, 2020, respectivelyMarch 31, 2021.

Of the total impaired loans of $21.720.3 million at September 30, 2020,March 31, 2021, NaN are collateral dependent and carried at fair value measured on a non‑recurringnon-recurring basis.

Other real estate owned, that is carried at fair value less costs to sell, was approximately $1.6 million$541 thousand at December 31, 20192020 and consisted of $358 thousand of commercial real estate and $1.2 million ofonly residential real estate properties.  A valuation charge of $366$120 thousand is included in earnings for the year ended December 31, 2019.2020.

Of the total impaired loans of $21.0$21.6 million at December 31, 2019, $1202020, $211 thousand are collateral dependent and are carried at fair value measured on a non-recurring basis.  Due to the sufficiency of charge offschargeoffs taken on these loans and the adequacy of the underlying collateral, there were no specific valuation allowances for these loans at December 31, 2019.2020.  Gross charge offschargeoffs related to residential impaired loans included in the table above amounted to $22 thousand.$10 thousand at December 31, 2020.

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Index
In accordance with FASB Topic 825, Financial Instruments (“ASC 825”), tThe carrying amounts and estimated fair values (represents exit price) of financial instruments, at September 30, 2020March 31, 2021 and December 31, 20192020 are as follows:

(dollars in thousands)    Fair Value Measurements at     Fair Value Measurements at 
 Carrying  September 30, 2020 Using:  Carrying  
March 31, 2021 Using:
 
 Value  Level 1  Level 2  Level 3  Total  Value  Level 1  Level 2  Level 3  Total 
Financial assets:                              
Cash and cash equivalents $956,319   956,319   0   0   956,319  $1,140,373   1,140,373   0   0   1,140,373 
Securities available for sale  454,743   0   454,743   0   454,743   527,587   0   527,587   0   527,587 
Held to maturity securities  15,094   0   16,343   0   16,343   12,729   0   13,891   0   13,891 
Federal Home Loan Bank stock  5,506   N/A   N/A   N/A   N/A   5,506   N/A   N/A   N/A   N/A 
Net loans  4,165,432   0   0   4,258,258   4,258,258   4,219,181   0   0   4,301,999   4,301,999 
Accrued interest receivable  11,095   16   1,471   9,608   11,095   9,639   21   1,368   8,250   9,639 
Financial liabilities:                                        
Demand deposits  635,345   635,345   0   0   635,345   718,343   718,343   0   0   718,343 
Interest bearing deposits  4,263,705   2,958,681   1,308,158   0   4,266,839   4,454,579   3,223,316   1,232,604   0   4,455,920 
Short-term borrowings  193,455   0   193,455   0   193,455   229,950   0   229,950   0   229,950 
Accrued interest payable  777   85   692   0   777   310   45   265   0   310 

(dollars in thousands)    Fair Value Measurements at 
  Carrying  December 31, 2019 Using: 
  Value  Level 1  Level 2  Level 3  Total 
Financial assets:               
Cash and cash equivalents $456,846   456,846   0   0   456,846 
Securities available for sale  573,823   0   573,823   0   573,823 
Held to maturity securities  18,618   0   19,680   0   19,680 
Federal Reserve Bank and Federal                    
Home Loan Bank stock  9,183   N/A   N/A   N/A   N/A 
Net loans  4,017,879   0   0   4,078,210   4,078,210 
Accrued interest receivable  10,915   216   2,221   8,478   10,915 
Financial liabilities:                    
Demand deposits  463,858   463,858   0   0   463,858 
Interest bearing deposits  3,986,158   2,587,981   1,397,271   0   3,985,252 
Short-term borrowings  148,666   0   148,666   0   148,666 
Accrued interest payable  1,459   174   1,285   0   1,459 

(dollars in thousands)    Fair Value Measurements at 
  Carrying  
December 31, 2020 Using:
 
  Value  Level 1  Level 2  Level 3  Total 
Financial assets:               
Cash and cash equivalents $1,107,099   1,107,099   0   0   1,107,099 
Securities available for sale  439,071   0   439,071   0   439,071 
Held to maturity securities  13,824   0   14,988   0   14,988 
Federal Reserve Bank and Federal                    
Home Loan Bank stock  5,506   N/A   N/A   N/A   N/A 
Net loans  4,194,875   0   0   4,287,585   4,287,585 
Accrued interest receivable  10,031   39   1,458   8,534   10,031 
Financial liabilities:                    
Demand deposits  652,756   652,756   0   0   652,756 
Interest bearing deposits  4,384,437   3,088,064   1,298,375   0   4,386,439 
Short-term borrowings  214,755   0   214,755   0   214,755 
Accrued interest payable  474   68   406   0   474 

3229
Index


(7) Accumulated Other Comprehensive Income (Loss)

The following is a summary of the accumulated other comprehensive income (loss) income balances, net of tax:

 Three months ended 9/30/2020  Three months ended 3/31/2021 
(dollars in thousands) 
Balance at
7/1/2020
  
Other
Comprehensive
Income (loss)-
Before
Reclassifications
  
Amount
reclassified
from Accumulated
Other Comprehensive
Income
  
Other
Comprehensive
Income (loss)-
Three months ended
9/30/2020
  
Balance at
9/30/2020
  
Balance at
12/31/2020
  
Other
Comprehensive
Income (loss)-
Before
Reclassifications
  
Amount
reclassified
from Accumulated
Other Comprehensive
Income
  
Other
Comprehensive
Income (loss)-
Three months ended
3/31/2021
  
Balance at
3/31/2021
 
                              
Net unrealized holding loss on securities available for sale, net of tax $8,061   (198)  0   (198)  7,863  $7,186   (4,461)  0   (4,461)  2,725 
Net change in overfunded position in pension and postretirement plans arising during the year, net of tax  4,840   0   0   0   4,840   6,084   0   0   0   6,084 
Net change in net actuarial gain and prior service credit on pension and postretirement benefit plans, net of tax  (965)  0   (201)  (201)  (1,166)  (1,334)  0   (207)  (207)  (1,541)
                                        
Accumulated other comprehensive loss, net of tax $11,936   (198)  (201)  (399)  11,537  $11,936   (4,461)  (207)  (4,668)  7,268 

 Three months ended 9/30/2019  
Three months ended 3/31/2020
 
(dollars in thousands) 
Balance at
7/1/2019
  
Other
Comprehensive
Income (loss)-
Before
Reclassifications
  
Amount
reclassified
from Accumulated
Other Comprehensive
Income
  
Other
Comprehensive
Income (loss)-
Three months ended
9/30/2019
  
Balance at
9/30/2019
  
Balance at
12/31/2019
  
Other
Comprehensive
Income (loss)-
Before
Reclassifications
  
Amount
reclassified
from Accumulated
Other Comprehensive
Income
  
Other
Comprehensive
Income (loss)-
Three months ended
3/31/2020
  
Balance at
3/31/2020
 
                              
Net unrealized holding gain on securities available for sale, net of tax $(1,707)  1,790   0   1,790   83  $286   7,945   (855)  7,090   7,376 
Net change in overfunded position in pension and postretirement plans arising during the year, net of tax  423   0   0   0   423   4,840   0   0   0   4,840 
Net change in net actuarial gain and prior service credit on pension and postretirement benefit plans, net of tax  (490)  0   (87)  (87)  (577)  (665)  0   (159)  (159)  (824)
                                        
Accumulated other comprehensive income (loss), net of tax $(1,774)  1,790   (87)  1,703   (71) $4,461   7,945   (1,014)  6,931   11,392 

  Nine months ended 9/30/2020 
(dollars in thousands) 
Balance at
1/1/2020
  
Other
Comprehensive
Income (loss)-
Before
Reclassifications
  
Amount
reclassified
from Accumulated
Other Comprehensive
Income
  
Other
Comprehensive
Income (loss)-
Three months ended
9/30/2020
  
Balance at
9/30/2020
 
                
Net unrealized holding gain on securities available for sale, net of tax $286   8,432   (855)  7,577   7,863 
Net change in overfunded position in pension and postretirement plans arising during the year, net of tax  4,840   0   0   0   4,840 
Net change in net actuarial gain and prior service credit on pension and postretirement benefit plans, net of tax  (665)  0   (501)  (501)  (1,166)
                     
Accumulated other comprehensive loss, net of tax $4,461   8,432   (1,356)  7,076   11,537 

 Nine months ended 9/30/2019 
(dollars in thousands) 
Balance at
1/1/2019
  
Other
Comprehensive
Income (loss)-
Before
Reclassifications
  
Amount
reclassified
from Accumulated
Other Comprehensive
Income
  
Other
Comprehensive
Income (loss)-
Three months ended
9/30/2019
  
Balance at
9/30/2019
 
                
Net unrealized holding gain on securities available for sale, net of tax $(10,416)  10,499   0   10,499   83 
Net change in overfunded position in pension and postretirement plans arising during the year, net of tax  423   0   0   0   423 
Net change in net actuarial gain and prior service credit on pension and postretirement benefit plans, net of tax  (316)  0   (261)  (261)  (577)
                     
Accumulated other comprehensive income (loss), net of tax $(10,309)  10,499   (261)  10,238   (71)

33
Index
The following represents the reclassifications out of accumulated other comprehensive income (loss) for the three and nine months ended September 30, 2020March 31, 2021 and 2019:2020:

(dollars in thousands) Three months ended  Nine months ended  
 
Three months ended
March 31,
  
 September 30,  September 30,   2021  2020 Affected Line Item in Financial Statements
 2020  2019  2020  2019 Affected Line Item in Financial Statements          
Net unrealized holding gain on securities available for sale                          
Realized gain on securities transactions $0   0  $1,155   0 Net gain on securities transactions $0   1,155 Net gain on securities transactions
Income tax effect  0   0   (300)  0 Income taxes  0   (300)Income taxes
Net of tax  0   0   855   0    0   855  
                                  
Amortization of pension and postretirement benefit items:                                
Amortization of net actuarial gain (loss) $222   35  $531   103 Salaries and employee benefits
Amortization of prior service credit (cost)  49   83   147   250 Salaries and employee benefits
Amortization of net actuarial gain $228   166 Salaries and employee benefits
Amortization of prior service credit  52   49 Salaries and employee benefits
Income tax benefit  (70)  (31)  (177)  (92)Income taxes  (73)  (56)Income taxes
Net of tax  201   87   501   261    207   159  
                                  
Total reclassifications, net of tax $201   87  $1,356   261   $207   159  

30
Index


(8) Revenue from Contracts with Customers

All of the Company’s revenue from contracts with customers in the scope of ASC 606 is recognized within Non-Interest Income.  The following table presents the Company’s sources of Non-Interest Income for the three months ended March 31, 2021 and nine months ended September 30, 2020 and 2019.2020. Items outside the scope of ASC 606 are noted as such.

(dollars in thousands) Three months ended  Nine months ended  Three months ended 
 
March 31,
 
 September 30,  September 30,  2021  2020 
 2020  2019  2020  2019       
Non-interest income             ��    
Service Charges on Deposits                  
Overdraft fees $595  $931  $1,920  $2,630  $617  $873 
Other  348   124   1,159   343   469   429 
Interchange Income  1,195   970   3,072   3,785   1,153   946 
Net gain on securities transactions (a)  0   0   1,155   0   0   1,155 
Wealth management fees  1,784   1,517   4,752   4,933   2,035   1,600 
Other (a)  419   1,383   1,043   2,785   154   331 
                        
Total non-interest income $4,341  $4,925  $13,101  $14,476  $4,428  $5,334 

(a) Not within the scope of ASC 606.

A description of the Company’s revenue streams accounted in accordance withfor ASC 606 as follows:

Service charges on Deposit Accounts:    The Company earns fees from its deposit customers for transaction-based, account maintenance and overdraft services.  Transaction-based fees, which include services such as stop payment charges, statement rendering and ACH fees, are recognized at the time the transaction is executed as that is the point in time the Company fulfills the customer’s request.  Account maintenance fees, which relate primarily to monthly maintenance, are earned over the course of a month, representing the period over which the Company satisfies the performance obligation.  Overdraft fees are recognized at the point in time that the overdraft occurs.  Service charges on deposits are withdrawn from the customer’s account balance.

34
Index
Interchange Income:     Interchange revenue primarily consists of interchange fees, volume-related incentives and ATM charges. As the card-issuing bank, interchange fees represent our portion of discount fees paid by merchants for credit / debit card transactions processed through the interchange network.  The levels and structure of interchange rates are set by the card processing companies and are based on cardholder purchase volumes.  The Company earns interchange income as cardholder transactions occur and interchange fees are settled on a daily basis concurrent with the transaction processing services provided to the cardholder.

Wealth Management fees:     Trustco Financial Services provides a comprehensive suite of trust and wealth management products and services, including financial and estate planning, trustee and custodial services, investment management, corporate retirement plan recordkeeping and administration of which fees area fee is charged to manage assets for investment or transact on accounts.  These fees are earned over time as the Company provides the contracted monthly or quarterly services and are generally assessed over the period in which services are performed based on a percentage of the fair value of assets under management or administration.  Other services are based on a fixed fee for certain account types, or based on transaction activity and are recognized when services are rendered.  Fees are withdrawn from the customer’s account balance.

Gains/Losses on Sales of Other Real Estate Owned “OREO”:  The Company records a gain or loss from the sale of OREO when control of the property transfers to the buyer, which generally occurs at the time of an executed deed.  When the Company finances the sale of OREO to the buyer, the Company assesses whether the buyer is committed to perform their obligations under the contract and whether collectability of the transaction price is probable.  Once these criteria are met, the OREO asset is derecognized and the gain or loss on sale is recorded upon the transfer of control of the property to the buyer.  In determining the gain or loss on the sale, the Company adjusts the transaction price and related gain/(loss) on sale if a significant financing component is present.
31
Index


(9) Operating Leases

The Company adopted Topic 842 “Leases” effective January 1, 2019 and has applied the guidance to all operating leases within the scope of Topic 842 at that date.  The company elected to adopt practical expedients, which among other things, does not require reassessment of lease classification.

The Company has committed to rent premises used in business operations under non-cancelable operating leases and determines if an arrangement meets the definition of a lease upon inception.  Operating leases are included in operating lease right-of-use (“ROU”) assets and operating lease liabilities on the Company’s balance sheets.

Operating lease ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease.  Operating lease ROU assets and lease liabilities are recognized at the commencement date based on the present value of lease payments over the lease term.  The Company’s leases do not provide an implicit rate, therefore the Company used its incremental collateralized borrowing rates commensurate with the underlying lease terms to determine present value of operating lease liabilities.  Additionally, the Company does allocate the consideration between lease and non-lease components.  The Company’s lease terms may include options to extend when it is reasonably certain that the Company will exercise that option.  Lease expense for lease payments is recognized on a straight-line basis over the lease term.  Variable lease components, such as fair market value adjustments, are expensed as incurred and not included in ROU assets and operating lease liabilities.  Leases with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term. As of September 30, 2020March 31, 2021,  the Company did not have any leases with terms of twelve months or less.

35
Index
As of September 30, 2020March 31, 2021, the Company doeshas 1 lease that the construction has not have leases that have not yet commenced.started yet. At September 30, 2020March 31, 2021, lease expiration dates ranged from threesix months to 24.023.5 years and have a weighted average remaining lease term of 8.9 years.  Certain leases provide for increases in future minimum annual rental payments as defined in the lease agreements. As mentioned above the leases generally also include variable lease components which include real estate taxes, insurance, and common area maintenance (“CAM”) charges in the annual rental payments.

32
Index
Other information related to leases was as follows:

(dollars in thousands) 
Three months ended
September 30,
  
Three months ended
March 31,
 
 2020  2019  2021  2020 
Operating lease cost $1,966  $2,007  $2,016  $1,995 
Variable lease cost  369   497   502   480 
                
Total Lease costs $2,335  $2,504  $2,518  $2,475 

(dollars in thousands) 
Nine months ended
September 30,
 
  2020  2019 
Operating lease cost $5,893  $5,828 
Variable lease cost  1,524   1,472 
         
Total Lease costs $7,417  $7,300 

(dollars in thousands) 
Nine months ended
September 30,
 
  2020  2019 
Supplemental cash flows information:      
Cash paid for amounts included in the measurement of lease liabilities:      
Operating cash flows from operating leases $6,022  $5,824 
         
Right-of-use assets obtained in exchange for lease obligations: $287  $54,038 
         
Weighted average remaining lease term 8.9 years  9.4 years 
Weighted average discount rate  3.25%  3.30%

36
Index
Future minimum lease payments under non-cancellable leases as of September 30, 2020 were as follows:

(dollars in thousands) 
  
Year ending
December 31,
   
2020(a)
 $2,020 
2021  8,062 
2022  7,561 
2023  7,256 
2024  7,128 
Thereafter  28,551 
Total lease payments $60,578 
Less: Interest  8,453 
     
Present value of lease liabilities $52,125 

(a) Excluding the nine months ended September 30, 2020.

During the quarter ended September 30, 2020, the Board of Directors elected a new director that owns 6 commercial properties in which the Company leases branches from.  Total lease payments, which is included in the table above, owed at September 30, 2020 was $4.7 million, which includes $699 thousand of interest.
(dollars in thousands) 
Three months ended
March 31,
 
  2021  2020 
Supplemental cash flows information:      
Cash paid for amounts included in the measurement of lease liabilities:      
Operating cash flows from operating leases $2,038  $1,995 
         
Right-of-use assets obtained in exchange for lease obligations:  302   0 
         
Weighted average remaining lease term 
8.9 years
  
9.2 years
 
Weighted average discount rate  3.16%  3.25%

Future minimum lease payments under non-cancellable leases as of September 30, 2019March 31, 2021 were as follows:

(dollars in thousands)(dollars in thousands)    
    
Year ending
December 31,
   
2019(a)
 $1,967 
2020  7,820 
2021  7,818 
Year ending December 31,
   
2021(a)
 $6,155 
2022  7,300   7,780 
2023  6,978   7,475 
2024  7,350 
2025  6,976 
Thereafter  32,600   23,660 
Total lease payments $64,483  $59,396 
Less: Interest  9,752   7,947 
        
Present value of lease liabilities $54,731  $51,449 

(a) Excluding the ninethree months ended September 30, 2019.March 31, 2021.

A member of the Board of Directors has an ownership interest in 6 entities that own commercial real estate leased by the Company for use as branch locations.  Total lease payments from the Company to those entities, which are included in the table above, owed at March 31, 2021, were $4.4 million, which includes interest in the amount of $620 thousand.

33
Index

(10) Regulatory Capital Requirements

Banks and bank holding companies are subject to regulatory capital requirements administered by federal banking agencies.  Capital adequacy regulations and, additionally for banks, the prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices.  Capital amounts and classifications are also subject to qualitative judgments by regulators.  Failure to meet capital requirements can result in regulatory action. The final rules implementing Basel Committee on Banking Supervision’s capital guidelines for U.S. banks (Basel III rules) became effective for the Company on January 1, 2015 with full compliance with all of the requirements being phased in over a multi-year schedule, and became fully phased in on January 1, 2019.  The capital rules include a capital conservation buffer that is designed to absorb losses during periods of economic stress and to require increased capital levels before capital distributions and certain other payments can be made.  Failure to meet the full amount of the buffer will result in restrictions on the Company’s ability to make capital distributions, including dividend payments and stock repurchases, and to pay discretionary bonuses to executive officers.  The buffer was fully implemented at 2.5% as of January 1, 2019. As of September 30, 2020,March 31,2021, the Company and Bank meet all capital adequacy requirements to which they are subject.

37
Index
Prompt corrective action regulations provide 5 classifications:  well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized.undercapitalized, although these terms are not used to represent overall financial condition. If a bank is not classified as well capitalized, regulatory approval is required to accept brokered deposits.  If a bank is undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required.  The federal banking agencies are required to take certain supervisory actions (and may take additional discretionary actions) with respect to an undercapitalized institution or its holding company.  Such actions could have a direct material effect on an institution’s or its holding company’s financial statements.  As of September 30, 2020March 31, 2021 and December 31, 2019,2020, the most recent regulatory notifications categorized the Bank as well capitalized under the regulatory framework for prompt corrective action.  There are no conditions or events since that notification that management believes have changed the Bank’s category.


34
Index
The Bank and the Company reported the following capital ratios as of September 30, 2020March 31, 2021 and December 31, 20192020:

(Bank Only)                        
       
Minimum for
Capital Adequacy plus
Capital Conservation
        
Minimum for
Capital Adequacy plus
Capital Conservation
 
 As of September 30, 2020  Well  As of March 31, 2021  Well 
(dollars in thousands) Amount  Ratio  
Capitalized(1)
  
Buffer (1)(2)
  Amount  Ratio  
Capitalized(1)
  
Buffer (1)(2)
 
                        
Tier 1 leverage ratio $533,874   9.329%  5.000%  4.000% $546,391   9.235%  5.000%  4.000%
Common equity tier 1 capital  533,874   18.491   6.500   7.000   546,391   18.654   6.500   7.000 
Tier 1 risk-based capital  533,874   18.491   8.000   8.500   546,391   18.654   8.000   8.500 
Total risk-based capital  570,127   19.747   10.000   10.500   283,171   19.910   10.000   10.500 

 As of December 31, 2019  Well  
Minimum for
Capital Adequacy plus
Capital Conservation
  As of December 31, 2020  Well  
Minimum for
Capital Adequacy plus
Capital Conservation
 
(dollars in thousands) Amount  Ratio  
Capitalized(1)
  
Buffer (1)(2)
  Amount  Ratio  
Capitalized(1)
  
Buffer (1)(2)
 
                        
Tier 1 leverage ratio $516,775   9.940%  5.000%  4.000% $539,897   9.378%  5.000%  4.000%
Common equity tier 1 capital  516,775   18.412   6.500   7.000   539,897   18.646   6.500   7.000 
Tier 1 risk-based capital  516,775   18.412   8.000   8.500   539,897   18.646   8.000   8.500 
Total risk-based capital  551,975   19.666   10.000   10.500   576,257   19.902   10.000   10.500 

(Consolidated) As of September 30, 2020  
Minimum for
Capital Adequacy plus
Capital Conservation
       
 As of March 31, 2021  
Minimum for
Capital Adequacy plus
Capital Conservation
 
(dollars in thousands) Amount  Ratio  
Buffer (1)(2)
  Amount  Ratio  
Buffer (1)(2)
 
                  
Tier 1 leverage ratio $548,437   9.582%  4.000% $563,210   9.515%  4.000%
Common equity tier 1 capital  548,437   18.994   7.000   563,210   19.223   7.000 
Tier 1 risk-based capital  548,437   18.994   8.500   563,210   19.223   8.500 
Total risk-based capital  584,692   20.250   10.500   599,999   20.479   10.500 

 As of December 31, 2019  
Minimum for
Capital Adequacy plus
Capital Conservation
  As of December 31, 2020  
Minimum for
Capital Adequacy plus
Capital Conservation
 
(dollars in thousands) Amount  Ratio  
Buffer (1)(2)
  Amount  Ratio  
Buffer (1)(2)
 
                  
Tier 1 leverage ratio $533,243   10.254%  4.000% $555,672   9.650%  4.000%
Common equity Tier 1 capital  533,243   18.988   7.000   555,672   19.187   7.000 
Tier 1 risk-based capital  533,243   18.988   8.500   555,672   19.187   8.500 
Total risk-based capital  568,463   20.242   10.500   592,040   20.443   10.500 

(1)Federal regulatory minimum requirements to be considered to be Well Capitalized and Adequately Capitalized
(2)
The September 30, 2020March 31, 2021 and December 31, 20192020 common equity tier 1, tier 1 risk-based, and total risk-based capital ratios include a capital conservation buffer of 2.50 percent

3835
Index

(11) New Accounting Pronouncements

In September 2016, the FASB released ASU 2016-13, “Financial"Financial Instruments - Credit Losses”Losses" (referred to as “CECL”) which amended existing guidance to replace current generally accepted accounting principles used to measure a reporting entity’sentity's credit losses.  The main objective of this update is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date.  To achieve this objective, the amendments in this update replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.

As previously disclosed, the Company formed a cross-functional team to work through its implementation of the plan.CECL. The Company has selected the Discounted Cash Flow modeling method and is running parallel processes and is working to finalize assessment and documentation of processes, data and model validation testing, qualitative factors and forecast periods. The company has selected a third party software solution to assist in the application of the new standard. The Company hashad previously elected to delay its adoption of ASU 2016-13,CECL, as provided by the Coronavirus Aid, Relief, and Economic SecurityCARES Act (“CARES Act) until the date on which the National Emergency concerning COVID-19 iswas terminated or December 31, 2020, whichever occursoccurred first.  UponThe December 31, 2020 adoption date under the CARES Act was extended to January 1, 2022 as a part of ASU 2016-13,the COVID-19 Relief Bill, which became law in December 2020, and therefore the Company will recognize a one-time cumulative effect adjustment through retained earningsintends to increase its allowance for credit loss and to increase its unfunded loan commitment liability as ofadopt CECL on January 1, 2020.2022.

(12) Risks and Uncertainties

Beginning in March 2020, the Company experienced negative impacts to its business in the form of requests for loan deferrals of principal and interest due to the business disruption caused by COVID-19.  In March 2020, the World Health Organization categorized COVID-19 as a pandemic, and the President of the United States declared the COVID-19 outbreak a national emergency.  At this time, it is difficult to quantify the impact COVID-19 will have on future periods. The Company has evaluated the impact of the effects of COVID-19 and determined that there were no material or systematic adverse impacts on the Company’s September 30, 2020 balance sheet and results of operations except for an increase in provision for loan losses and related allowance for loan losses.

On March 3, 2020, the Federal Reserve reduced the target federal funds rate by 50 basis points, followed by an additional reduction of 100 basis points on March 16, 2020. These reductions in interest rates and otherThe Company has evaluated the impact of the effects of the COVID-19 pandemic may adversely affectand determined that there have been no lasting material or systematic adverse impacts on the Company’s March 31, 2021 financial condition and results of operations. Asstatements, except for the increase in the allowance for loan losses as a result of the spreadpotential for future credit losses due to the uncertainty of COVID-19, economic uncertainties have arisen which are likelyborrowers ability to continue to negatively impact net interest income, provision for loan losses, and noninterest income. Other financial impact could occur though such potential impact is unknown at this time.

repay during the pandemic.  As of September 30, 2020,March 31, 2021, the Company and Bank capital ratios were in excess of all regulatory requirements. While management believes that we have sufficient capital to withstand an extended economic recession brought about by the COVID-19 pandemic, our reported and regulatory capital ratios, as well as the ability of the Company and the Bank to pay dividends or make other distributions, could be adversely impacted by furtherunanticipated credit losses. At this time, we do not believe there exists any impairment to our goodwill, long-lived assets, right of use assets, held to maturity investment securities, or available-for-sale investment securities due to the COVID-19 pandemic. It is uncertain whether prolonged effects of the COVID-19 pandemic will result in future impairment charges related to any of the aforementioned assets and continue to negatively impact net interest income, provision for loan losses, and noninterest income.

Loan modifications and payment deferrals as a result of COVID-19 that meet the criteria established under Section 4013 of the CARES Act or under applicable interagency guidance of the federal banking regulators are excluded from evaluation of TDR classification and will continue to be reported as current during the payment deferral period. The Company’s policy is to continue to accrue interest during the deferral period. Loans not meeting the CARES ACT or regulatory guidance are evaluated for TDR and non-accrual treatment under the Company’s existing policies and procedures.  Loan Modifications and payment deferrals made pursuant to COVID 19 as of September 30, 2020 totaled approximately $7 million, which included $2 million of commercial loans and $5 million of residential loans.  As of June 30, 2020 these amounts totaled approximately $190 million, which included $45 million of commercialMarch 31, 2021, loans and $145 million of residential loans. The reduction in loan deferrals represents loans that are now paying in accordance with their terms. As of September 30, 2020, there was no material impact to delinquencies and non-accruals regarding the loans that came out of deferment.

At this time, we dodeferral were not believe there exists any impairment to our goodwill, long-lived assets, right of use assets, held to maturity investment securities, or available-for-sale investment securities due to the COVID-19 pandemic. It is uncertain whether prolonged effects of the COVID-19 pandemic will result in future impairment charges related to any of the aforementioned assets.material.

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graphic
 
Crowe LLP
Independent Member Crowe Global

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Shareholders and the Board of Directors of TrustCo Bank Corp NY
Glenville, New York

Results of Review of Interim Financial Information

We have reviewed the consolidated statement of financial condition of TrustCo Bank Corp NY (the "Company") as of September 30, 2020,March 31, 2021, and the related consolidated statements of income and comprehensive income, for the three and nine-month periods ended September 30, 2020 and September 30, 2019 and the related changes in shareholders’ equity and cash flows for the nine-monththree month periods ended September 30,March 31, 2021 and March 31, 2020, and September 30, 2019, and the related notes (collectively referred to as the "interim financial information or statements"). Based on our reviews, we are not aware of any material modifications that should be made to the consolidated financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) ("PCAOB"), the consolidated statement of financial condition of the Company as of December 31, 2019,2020, and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for the year then ended (not presented herein); and in our report dated February 28, 2020,26, 2021, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated statement of financial condition as of December 31, 2019,2020, is fairly stated, in all material respects, in relation to the consolidated statement of condition from which it has been derived.

Basis for Review Results

These financial statements are the responsibility of the Company's management.  We conducted our review in accordance with the standards of the PCAOB. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the company in accordance with the U.S federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

 /s/ Crowe LLP
  
New York, New York 
November 6, 2020May 7, 2021 

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Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations

Forward‑lookingForward-looking Statements
Statements included in this report and in future filings by TrustCo with the Securities and Exchange Commission, in TrustCo’s press releases, and in oral statements made with the approval of an authorized executive officer, including statements regarding the effect of the novel coronavirus disease (“COVID-19”)  pandemic on our business financial condition and results of operations and our continuing response to the COVID-19 pandemic, that are not historical or current facts, are “forward-looking statements” made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and are subject to certain risks and uncertainties that could cause actual results to differ materially from historical earnings and those presently anticipated or projected.  Forward-looking statements can be identified by the use of such words as may, will, should, could, would, estimate, project, believe, intend, anticipate, plan, seek, expect and similar expressions.  TrustCo wishes to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made.

In addition to factors described under Part II, Item 1A, Risk Factors, if any, and under the Risk Factor discussion in TrustCo’s Annual Report on Form 10-K for the year ended December 31, 2019,2020, the factors listed below, among others, in some cases have affected and in the future could affect TrustCo’s actual results and could cause TrustCo’s actual financial performance to differ materially from that expressed in any forward-looking statement.  Additionally, many of these risks and uncertainties are currently elevated by and may or will continue to be elevated by the COVID-19 pandemic.  Such factors include:

The current COVID-19 pandemic, relatedthe effects of which could, and in some instances has, caused us to COVID-19, causing TrustCoexperience a decline in the demand for products and services; an increase in loan delinquencies; problem assets and foreclosures; a decline in collateral value; a work stoppage, forced quarantine, or other interruption or the unavailability of key employees; an increase in the allowance for loan losses; a reduction in wealth management revenues; an increase in Federal Deposit Insurance Corporation premiums; a reduction in the value of the securities portfolio; or a decline in the net worth and liquidity of loan guarantors;

TrustCo’s ability to continue to originate a significant volume of one- to- four family mortgage loans in its market areas and to otherwise maintain or increase its market share in the areas in which it operates;
TrustCo’s ability to continue to maintain noninterest expense and other overhead costs at reasonable levels relative to income;
TrustCo’s ability to make accurate assumptions and judgments regarding the credit risks associated with its lending and investing activities, including changes in the level and direction of loan delinquencies and charge-offs, changes in property values, and changes in estimates of the adequacy of the allowance for loan and lease losses;
the effects of and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System, inflation, interest rates, market and monetary fluctuations;
restrictions or conditions imposed by TrustCo’s and Trustco Bank’s regulators on their operations that may make it more difficult to achieve TrustCo’s and Trustco Bank’s goals;

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the future earnings and capital levels of TrustCo and Trustco Bank and the continued non objection from TrustCo’s and Trustco Bank’s primary federal banking regulators under regulatory rules to distribute capital from Trustco Bank to TrustCo, which could affect the ability of TrustCo to pay dividends;

the results of supervisory monitoring or examinations of Trustco Bank and the Company by their respective primary federal banking regulators, including the possibility that the regulators may, among other things, require us to increase our loss allowances or to take other actions that reduce capital or income;
adverse conditions in the securities markets that lead to impairment in the value of securities in TrustCo’s investment portfolio;
the perceived overall value of TrustCo’s products and services by users, including the features, pricing and quality, compared to competitors’ products and services and the willingness of current and prospective customers to substitute competitors’ products and services for TrustCo’s products and services;
changes in consumer spending, borrowing and savings habits;
the effect of changes in financial services laws and regulations (including laws concerning taxation, banking and securities) and the impact of other governmental initiatives affecting the financial services industry, including regulatory capital requirements;
changes in management personnel;
real estate and collateral values;
changes in accounting policies and practices, as may be adopted by the bank regulatory agencies Financial Accounting Standards Board (“FASB”) or the Public Company Accounting Oversight Board;
disruptions, security breaches, or other adverse events affecting the third-party vendors who perform several of our critical processing functions;
technological changes and electronic, cyber and physical security breaches;
changes in local market areas and general business and economic trends;
TrustCo’s success at managing the risks involved in the foregoing and managing its business; and
other risks and uncertainties included under “Risk Factors” in our Form 10-K for the year ended December 31, 2019 and in our Form 10-Q for the quarter ended March 31, 2020.

You should not rely upon forward-looking statements as predictions of future events.  Although TrustCo believes that the expectations reflected in the forward-lookingforward‑looking statements are reasonable, it cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur.  The foregoing list should not be construed as exhaustive, and the Company disclaims any obligation to subsequently revise any forward-looking statements to reflect events or circumstances after the date of such statements, or to reflect the occurrence of anticipated or unanticipated events.

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Following this discussion are the tables "Distribution of Assets, Liabilities and Shareholders' Equity: Interest Rates and Interest Differential" which gives a detailed breakdown of TrustCo's average interest earning assets and interest bearing liabilities for the three-month and nine‑three month periods ended September 30, 2020March 31, 2021 and 2019.2020.

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Introduction
The review that follows focuses on the factors affecting the financial condition and results of operations of TrustCo during the three‑three month and nine‑month periodsperiod ended September 30, 2020,March 31, 2021, with comparisons to the corresponding period in 2019,2020, as applicable.  Net interest margin is presented on a fully taxable equivalent basis in this discussion.  The consolidated interim financial statements and related notes, as well as the 20192020 Annual Report to Shareholders on Form 10‑K,10-K, which was filed with the SEC on February 28, 2020,26, 2021, should also be read in conjunction with this review.  Amounts in prior period consolidated interim financial statements are reclassified whenever necessary to conform to the current period's presentation.

COVID-19 Impact
Beginning in March 2020, we experienced negative impacts to our business in the form of requests for loan deferrals of principal and interest due to the business disruption caused by COVID-19.  In March 2020, the World Health Organization categorized COVID-19 as a pandemic, and the President of the United States declared the COVID-19 outbreak a national emergency.  At this time, it is difficult to quantify the impact COVID-19 will have on future periods.  The Company has evaluated the impact of the effects of COVID-19 and determined that there were no material or systematic adverse impacts on the Company’s balance sheets and results of operations as of and for the first nine month of 2020, except for an increase inquarter ended March 31, 2021.  At this time, it is difficult to quantify the provision for loan losses as a result of the increased risk inherent in the loan portfolio resulting from the pandemic.impact COVID-19 will have on future periods.

The following is a description of the impact the COVID-19 global pandemic is having on certain elements of our business:

Loan modifications

We began receiving requests from our borrowers for loan deferrals in March 2020 and agreed with many borrowers to modify their loans. Modifications included the deferral of principal and/or interest payments for terms generally up to 90 days. Requests arewere evaluated individually and approved modifications arewere based on the unique circumstances of each borrower. We are committed to working with our clients to allow time to work through the challenges of this pandemic. At this time, it is uncertain what futureThe Company has evaluated the impact loan modifications related toof the effects of COVID-19 difficulties willand determined that there have been no lasting material or systematic adverse impacts on ourthe Company’s March 31, 2021 financial condition, results of operations and provisionstatements, except for the increase in the allowance for loan losses.losses as a result of the potential for future credit losses due to the uncertainty of borrowers ability to repay during the pandemic.  Loan modifications and payment deferrals as a result of COVID-19 that meet the criteria established under Section 4013 of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) or under applicable interagency guidance of the federal banking regulators are excluded from evaluation of troubled debt restructuring (“TDR”) classification and will continue to be reported as current during the payment deferral period. The Company’s policy is to continue to accrue interest during the deferral period.  Loans not meeting the CARES Act or regulatory guidance are evaluated for TDR and non-accrual treatment under the Company’s existing policies and procedures.  As of March 31, 2021, loans in deferral were not material.

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The following table shows the number of loans and the outstanding loan balances at the time the principal and interest deferrals were approved as of September 30, 2020 and June 30, 2020:

  September 30, 2020  June 30, 2020 
(Dollars In Thousands)            
New York and Other states*: 
Number
of loans
  
Outstanding
loan balance
  
Number
of loans
  
Outstanding
loan balance
 
Commercial  5  $1,351   79  $39,630 
Residential mortgage loans  13   2,780   441   94,028 
Home equity line of credit  -   -   13   641 
Installment loans  1   88   5   150 
Total  19  $4,219   538  $134,449 
                 
                 
Florida: 
Number
of loans
  
Outstanding
loan balance
  
Number
of loans
  
Outstanding
loan balance
 
Commercial  1  $574   5  $5,392 
Residential mortgage loans  10   2,387   205   49,745 
Home equity line of credit  -   -   1   9 
Installment loans  -   -   3   86 
Total  11  $2,961   214  $55,232 
                 
                 
Total: 
Number
of loans
  
Outstanding
loan balance
  
Number
of loans
  
Outstanding
loan balance
 
Commercial  6  $1,925   84  $45,022 
Residential mortgage loans  23   5,167   646   143,773 
Home equity line of credit  -   -   14   650 
Installment loans  1   88   8   236 
Total  30  $7,180   752  $189,681 

* Includes New York, New Jersey, Vermont and Massachusetts.

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The commercial loans that were deferred included various types of businesses.  The following table shows the remaining commercial loans and the outstanding loan balances, by industry, at the time the principal and interest deferrals were approved as of September 30, 2020 and June 30, 2020:

  September 30, 2020  June 30, 2020 
(Dollars In Thousands)            
New York and Other states* 
Number
of loans
  
Outstanding
loan balance
  
Number
of loans
  
Outstanding
loan balance
 
Fitness and Recreational Sports Centers  -  $-   7  $11,534 
Lessors and Property Managers of Nonresidential Buildings  -   -   7   6,551 
Lessors and Property Managers of Residential Buildings  -   -   31   9,818 
Other various businesses  -   -   14   2,558 
Lessors of Nonresidential Buildings - Self Storage Units  -   -   2   2,238 
New Single-Family Housing Construction  -   -   3   1,921 
Food Service  5   1,351   5   1,351 
Retail  -   -   4   1,349 
New Single-Family Housing Construction - Land Development  -   -   3   1,260 
Commercial Construction  -   -   3   1,050 
   5  $1,351   79  $39,630 
                 
                 
Florida: 
Number
of loans
  
Outstanding
loan balance
  
Number
of loans
  
Outstanding
loan balance
 
Fitness and Recreational Sports Centers  -  $-   -  $- 
Lessors and Property Managers of Nonresidential Buildings  -   -   2   4,533 
Lessors and Property Managers of Residential Buildings  -   -   1   46 
Other various businesses  -   -   1   319 
Lessors of Nonresidential Buildings - Self Storage Units  -   -   1   494 
New Single-Family Housing Construction  -   -   -   - 
Food Service  1   574   -   - 
Retail  -   -   -   - 
New Single-Family Housing Construction - Land Development  -   -   -   - 
Commercial Construction  -   -   -   - 
   1  $574   5  $5,392 
                 
                 
Total: 
Number
of loans
  
Outstanding
loan balance
  
Number
of loans
  
Outstanding
loan balance
 
Fitness and Recreational Sports Centers  -  $-   7  $11,534 
Lessors and Property Managers of Nonresidential Buildings  -   -   9   11,084 
Lessors and Property Managers of Residential Buildings  -   -   32   9,864 
Other various businesses  -   -   15   2,877 
Lessors of Nonresidential Buildings - Self Storage Units  -   -   3   2,732 
New Single-Family Housing Construction  -   -   3   1,921 
Food Service  6   1,925   5   1,351 
Retail  -   -   4   1,349 
New Single-Family Housing Construction - Land Development  -   -   3   1,260 
Commercial Construction  -   -   3   1,050 
   6  $1,925   84  $45,022 

* Includes New York, New Jersey, Vermont and Massachusetts.

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Paycheck Protection Program (PPP) and Liquidity

As part of the CARES Act, approved by the President on March 27, 2020, the Small Business Administration (SBA) washas been authorized to guarantee loans under the PPP through August 8, 2020 for small businesses that metwho meet the necessary eligibility requirements in order to keep their workers on the payroll. The Company began accepting applications on April 3, 2020.  The Bank had originally funded 663 Paycheck Protection Program (“PPP”) loans totaling $46 million in 2020, and an additional $17 million in the first quarter of 2021.  As of September 30, 2020, 663March 31, 2021, 531 PPP loans totaling $45.7$37 million have been processed.remain outstanding.  The Company receivedreceives loan origination fees which are being recognized over the life of the loan usingand apply the effective yield method. 

On April 9, 2020, the FDIC, Federal Reserve and OCC created the Paycheck Protection Program Liquidity Facility (PPPLF) to bolster the effectiveness of the PPP by providing liquidity to and neutralizing the regulatory capital effects on participating financial institutions. We do not intend to utilize the liquidity relief offered by the PPPLF as we do not expect our participation in the PPP to have a negative impact on our liquidity position, capital resources, financial condition or results of operations.

Asset impairment

At this time, we do not believe there exists any impairment to our goodwill, long-lived assets, right of use assets, held to maturity investment securities, or available-for-sale investment securities due to the COVID-19 pandemic. It is uncertain whether prolonged effects of the COVID-19 pandemic will result in future impairment charges related to any of the aforementioned assets.

Provision for loan losses

See “Allowance for Loan Losses” for more information.

Preventative measures

The Company has instituted preventative measures at branch and back office locations to protect the health of both theour customers and our employees, including regular deep cleaning of facilities, adhering to CDC guidelines, and practicing “social distancing.”  These additional expenses did not have a material impact on the Company for the nine monthsquarter ended September 30, 2020.March 31, 2021.

Federal Reserve Actions

The Federal Reserve Board has taken several actions to support the flow of credit to households and businesses.  Some of these pertinent actions include:
 
The establishment of the Commercial Paper Funding Facility, the Money Market Mutual Fund Liquidity Facility, and the Primary Dealer Credit Facility;
The expansion of central bank liquidity swap lines;

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Steps to enhance the availability and ease terms for borrowing at the discount window;
The elimination of reserve requirements;
Guidance encouraging banks to be flexible with customers experiencing financial challenges related to the COVID-19coronavirus and to utilize their liquidity and capital buffers in doing so;
expandingexpand access to its Paycheck Protection Program Liquidity Facility (PPPLF) for additional SBA-qualified lenders;
Statements encouraging the use of daylight credit at the Federal Reserve.

Economic Overview
During the thirdfirst quarter of 2021, financial markets kept the momentum gained during the fourth quarter of 2020 financial markets continuedpushing indexes further into record territory.  New stimulus funds along with accelerated COVID-19 vaccinations contributed to be influenced by the economic conditions that resulted from the COVID-19 pandemic. After a reboundincreased confidence in the secondeconomy.  For the first quarter stocks continued to show strong gains in the third quarter, pushingof 2021, the S&P 500 indexIndex was up 5.8% and the Nasdaq Composite index to record highs in late August.Dow Jones Industrial Average was up 7.8%.  Credit markets continue to be driven by worldwide economic news, effects of COVID-19, and demand shifts.  The shape of the yield curve remained consistentsteepened during the quarter as compared to prior quarters.  The 10-year10‑year Treasury bond averaged .65%1.34% during the third quarterQ1 2021 compared to .69%0.86% in the second quarterQ4 2020, an increase of 2020, a decrease of 448 basis points, and the 2-yearpoints.  The 2‑year Treasury bond average rate decreased 52 basis points to .14%.0.13%, resulting in a steepening of the yield curve.  The spread between the 10-year10‑year and the 2-year Treasury bonds expanded slightly from 0.49%0.71% on average in the second quarterQ4 to 0.51%1.20% in the third quarter of 2020.Q1.  This spread had been depressed in recent years, and compares to 2.42% during its most recent peak in the fourth quarterQ4 of 2013.  Steeper yield curves are generally favorable for portfolio mortgage lenders like TrustCo.  The table below illustrates the range of rate movements for both short term and longer term rates.  The target Federal Funds rate remained flat at 0.00% to 0.25% for the quarter.  Spreads forof most asset classes to the comparative treasury yield, including agency securities, corporates, municipals and mortgage‑backedmortgage-backed securities, werecontinue to be down by the end of the quarter as compared to the levels of a year earlier.  Changesseen before the pandemic.  Accordingly, changes in rates and spreads during the current quarter continue to be fromeffected by the effects of the COVID-19 pandemic.

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  3 Month2 Year5 Year10 Year 10 - 2 Year   3 Month2 Year5 Year10 Year 10 - 2 Year
  Yield (%)Yield (%)Yield (%)Yield (%) Spread (%)   Yield (%) Spread (%)
       
Q3/19 Beg of Q32.121.751.762.000.25
Peak2.261.921.882.130.28
Trough1.801.431.321.47-0.04
End of Q31.881.631.551.680.05
Average in Q32.031.691.631.800.11
       
Q4/19 Beg of Q41.881.631.551.680.05
Peak1.821.681.751.940.34
Trough1.521.391.341.520.09
End of Q41.551.581.691.920.34
Average in Q41.611.591.611.790.20
           
Q1/20 Beg of Q11.551.581.691.920.34 Beg of Q11.551.581.691.920.34
Peak1.591.581.671.880.68 Peak1.591.581.671.880.68
Trough0.000.230.370.540.12 Trough0.000.230.370.540.12
End of Q10.110.230.370.700.47 End of Q10.110.230.370.700.47
Average in Q11.101.081.141.370.28 Average in Q11.101.081.141.370.28
           
Q2/20 Beg of Q20.110.230.370.700.47 Beg of Q20.110.230.370.700.47
Peak0.260.280.480.910.69 Peak0.260.280.480.910.69
Trough0.090.130.280.580.38 Trough0.090.130.280.580.38
End of Q20.160.160.290.660.50 End of Q20.160.290.660.50
Average in Q20.140.190.360.690.49 Average in Q20.140.190.360.690.49
           
Q3/20 Beg of Q30.160.160.290.660.50 Beg of Q30.160.290.660.50
Peak0.160.170.320.740.60 Peak0.160.170.320.740.60
Trough0.090.110.190.520.41 Trough0.090.110.190.520.41
End of Q30.100.130.280.690.56 End of Q30.100.130.280.690.56
Average in Q30.140.140.270.650.51 Average in Q30.140.270.650.51
    
Q4/20 Beg of Q40.100.130.280.690.56
Peak0.120.190.460.980.83
Trough0.070.110.270.680.54
End of Q40.090.130.360.930.80
Average in Q40.090.150.370.860.71
    
Q1/21 Beg of Q10.090.130.360.930.80
Peak0.090.170.921.741.59
Trough0.010.090.360.930.82
End of Q10.030.160.921.741.58
Average in Q10.050.130.621.341.20

The United States economy showed some modestcontinued to show improvements in various areas heading into 2020 until the COVID-19 uncertainty began to gain momentum throughout the year.2021 as mentioned above.  Economic conditions vary significantly over geographic areas, with strength concentrated in and around major population centers on the coasts and in certain areas where economic activity has been driven by specific regional factors.

TrustCo believes that its long-term focus on traditional banking services and practices historically has enabled the Company to avoid significant impact from asset quality problems, and that the Company’s strong liquidity and well capitalizedsolid capital positions have allowed the Company to continue to conduct business in a manner consistent with its past practice.  TrustCo has not engaged in the types of high risk loans and investments that have led to the widely reported problems in the industry, particularly those arising during the 2008-2010 financial crisis.  Nevertheless, the Company may experience increases in nonperforming loans (“NPLs”) relative to historical levels from time to time.  Should general housing prices and other economic measures, such as unemployment in the Company’s market areas, deteriorate as a result of the COVID-19 pandemic or other reasons, the Company may experience an increase in the level of credit risk and in the amount of its classified and nonperforming loans.

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In a direct response to the COVID-19 pandemic, on March 27, 2020 Congress passed the CARES Act. IncludedAs previously noted, included in the CARES Act is support for small businesses, direct payments to lower and middle income families, expanded unemployment insurance, additional funding for health care providers, as well as support for other industries.  The Federal Reserve Board, in an attempt to increase liquidity and promote the normal functioning of financial markets, also provided support by increasing purchases of Treasury securities and agency mortgage-backed securities.

Financial Overview
TrustCo recorded net income of $14.1 million, or $0.146 of diluted earnings per share, for the three‑three months ended September 30, 2020,March 31, 2021, compared to net income of $14.7$13.3 million, or $0.152$0.138 of diluted earnings per share, in the same period in 2019.2020.  Return on average assets was .98%0.96% and 1.12%1.03%, respectively, for the three‑three months ended September 30, 2020March 31, 2021 and 2019.2020.  Return on average equity was 10.04%10.01% and 11.19%9.87%, respectively, for the three‑three months ended September 30, 2020March 31, 2021 and 2019.2020.

The primary factors accounting for the slight change in net income for the three‑three months ended September 30, 2020March 31, 2021 compared to the same period of the prior year were:

•
An increase in the average balance of interest earning assets of $501.2 million to $5.58 billion for the third quarter of 2020 compared to the same period in 2019.
A decrease in the cost of interest bearing liabilities of $5.7 million, partially offset by a decrease in income from interest earning assets of $4.1 million, resulted in an increase in taxable equivalent net interest margin forincome in the thirdfirst quarter of 2021 compared to the first quarter of 2020 to 2.73% from 3.04% in the prior year period.of $1.6 million.
An overall decrease in noninterest expense of $1.4 million for the third quarter of 2020 compared to the third quarter of 2019.

A decrease of $1.7 million in provision for loan losses of $1 million for the thirdfirst quarter of 2020 as2021 compared with no provision for loan losses into the thirdfirst quarter of 2019.2020.

A decrease of $584$906 thousand in noninterest income for the thirdfirst quarter of 2021 compared to the first quarter of 2020, primarily driven by a $1.2 million gain on securities transactions in the prior period.

An increase of $1.1 million in noninterest expense for the first quarter 2021 compared to the thirdfirst quarter of 2019.
A decrease of $478 thousand in net interest income for the third quarter of 2020 compared to the third quarter of 2019.

TrustCo recorded net income of $38.6 million, or $0.400 of diluted earnings per share, for the nine-months ended September 30, 2020, compared to net income of $43.9 million, or $0.453 of diluted earnings per share, in the same period in 2019.  Return on average assets was .94% and 1.14%, respectively, for the nine‑months ended September 30, 2020 and 2019.  Return on average equity was 9.38% and 11.56%, respectively, for the nine‑months ended September 30, 2020 and 2019.2020.

Asset/Liability Management
The Company strives to generate its earnings capabilities through a mix of core deposits funding a prudent mix of interest earning assets.  Additionally, TrustCo attempts to maintain adequate liquidity and reduce the sensitivity of net interest income to changes in interest rates to an acceptable level while enhancing profitability both on a short‑term and long‑term basis.

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TrustCo’s results are affected by a variety of factors including competitive and economic conditions in the specific markets in which the Company operates and, more generally, byin the national economy, financial market conditions and the regulatory environment.  Each of these factors is dynamic, and changes in any area can have an impact on TrustCo’s results.  Included in the Annual Report to Shareholders on Form 10‑K10-K for the year ended December 31, 20192020 is a description of the effect interest rates had on the results for the year 20192020 compared to 2018.2019.  Many of the same market factors discussed in the 20192020 Annual Report continued to have a significant impact on results through the thirdfirst quarter of 2020,2021, as well as the economic effect of COVID-19.

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TrustCo competes with other financial service providers based upon many factors including quality of service, convenience of operations and rates paid on deposits and charged on loans.  In the experience of management, the absolute level of interest rates, changes in interest rates and customers’ expectations with respect to the direction of interest rates have a significant impact on the volume of loan and deposit originations in any particular period.

Interest rates have a significant impact on the operations and financial results of all financial services companies.  One of the most important interest rates used to control national economic policy is the “Federal Funds” rate.  This is the interest rate utilized within the banking system for overnight borrowings for institutions with the highest credit rating.  During 2007‑2008From December 2015 through December 2018, the FRB aggressively reduced theU.S. Federal FundsReserve Board increased its federal funds target rate includingfrom a decrease from 4.25% at the beginning of 2008 to a target range of 0.00% to- 0.25% by the end of 2008.  The target range remained at that level until December 2015 when the range was increased to 0.25% to 0.50%.  Subsequent increases resulted a range of 2.25% to- 2.50% until. Beginning in the second half of 2019, whenthe Federal Reserve Board began lowering the rate was cut several times before the end of 2019.in response to a slowing economy.  During the first quarter of 2020 the rate was significantly decreased again as a result of the global pandemic related to COVID-19, and has returned the range of 0.00% to 0.25%.

Traditionally, interest rates on bank deposit accounts are heavily influenced by the Federal Funds rate.  The average rate on interest bearing deposits was 58 basis points lower in the first quarter of 2021 relative to the prior year period.  Rates were lower on all interest bearing deposit accounts as a result of repricing over the last year due to the pandemic.  Please refer to the statistical disclosures in the table below entitled “Distribution of Assets, Liabilities and Shareholders’ Equity: Interest Rates and Interest Differential.”

The interest rate on the 10-year Treasury bond and other long-term interest rates have significant influence on the rates for new residential real estate loans.  These changes in interest rates have an effect on the Company relative to the interest income on loans, securities, and Federal Funds sold and other short-term instruments as well as the interest expense on deposits and borrowings.  Residential real estate loans and longer‑term investments are most affected by the changes in longer term market interest rates such as the 10‑year Treasury.  The Federal Funds sold portfolio and other short‑term investments are affected primarily by changes in the Federal Funds target rate.  Deposit interest rates are most affected by short term market interest rates.  Also, changes in interest rates have an effect on the recorded balance of the securities available for sale portfolio, which are recorded at fair value.  Generally, as market interest rates increase, the fair value of the securities will decrease and the reverse is also generally applicable.  Interest rates on new residential real estate loan originations are also influenced by the rates established by secondary market participants such as Freddie Mac and Fannie Mae.  Because TrustCo is a portfolio lender and does not sell loans into the secondary market, the Company establishes rates that management determines are appropriate in light of the long-term nature of residential real estate loans while remaining competitive with the secondary market rates.  Higher market interest rates also generally increase the value of retail deposits.

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TrustCo’s principal loan products are residential real estate loans.  As noted above, residential real estate loans and longer‑term investments are most affected by the changes in longer term market interest rates such as the 10-yearten-year Treasury.  The 10‑year Treasury yield was down 114up 48 basis points, on average, during the thirdfirst quarter of 20202021 compared to the fourth quarter of 20192020 and was down 1153 basis points as compared to the thirdfirst quarter of 2019.2020.

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While TrustCo has been affected by changes in financial markets over time, the impacts have been mitigated by the Company’s generally conservative approach to banking.  The Company utilizes a traditional underwriting process in evaluating loan applications, and since originated loans are retained in the portfolio, there is a strong incentive to be conservative in making credit decisions.  For additional information concerning TrustCo’s loan portfolio and nonperforming loans, please refer to the discussions under “Loans” and “Nonperforming Assets,” respectively.  Further, the Company does not rely on borrowed funds to support its assets and maintains a significant level of liquidity on the asset side of the balance sheet.  These characteristics provide the Company with increased flexibility and stability during periods of market disruption and interest rate volatility.

A fundamental component of TrustCo’s strategy has been to grow customer relationships and the deposits and loans that are part of those relationships.  The Company has significant capacity to grow its balance sheet given its extensive branch network.  The Company expects that growth to be profitable.  The current interest rate environment, however, has narrowed the margin on incremental balance sheet expansion.  While the Company has not changed its fundamental long term strategy in regard to utilizing its excess capacity, management continually evaluates changing conditions and may seek to limit growth or reduce the size of the balance sheet if its analysis indicates that doing so would be beneficial.

For the thirdfirst quarter of 2020,2021, the net interest margin was 2.73%2.78%, down 3127 basis points versus the prior year’s quarter.  The quarterly results reflect the following significant factors:

The average balance of Federal Funds sold and other short‑termshort-term investments increased by $472.8$617.5 million while the average yield decreased 209113 basis points in the thirdfirst quarter of 20202021 compared to the same period in 2019.2020.

The average balance of securities available for sale decreased by $218.1$57.8 million andwhile the average yield decreased 2976 basis points to 2.05%1.50%.  The average balance of held to maturity securities decreased by $4.4$4.9 million and the average yield decreased 1816 basis points to 3.52%3.70% for the thirdfirst quarter of 20202021 compared to the same period in 2019.2020.

The average loan portfolio grew by $254.6$173.3 million to $4.20$4.25 billion whileand the average yield decreased 3233 basis points to 3.94%3.80% in the thirdfirst quarter of 20202021 compared to the same period in 2019.2020.

The average balance of interest bearing liabilities (primarily deposit accounts) increased $292.4$485.5 million whileand the average rate paid decreased 4258 basis points to 0.52%0.21% in the thirdfirst quarter of 20202021 compared to the same period in 2019.2020.

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During the thirdfirst quarter of 2020,2021, the Company continued to focus on its strategy to expand the loan portfolio by offering competitive interest rates.  Management believes the TrustCo residential real estate loan product is very competitive compared to local and national competitors.  Competition remains strong in the Company’s market areas.

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The strategy on the funding side of the balance sheet wasis to offer competitive shorter term rates which allowed the Bank to gain market share as well as retain our existing time deposits.  This strategy drove growth at a relatively low cost that will sustain TrustCo’s strong liquidity position and continue to allow us to cross sell new and existing relationships and take advantage of opportunities as they arise.

Earning Assets
Total average interest earning assets increased from $5.08$5.06 billion in the thirdfirst quarter of 20192020 to $5.58$5.78 billion in the same period of 20202021 with an average yield of 3.15%2.95% in the thirdfirst quarter of 20202021 and 3.82%3.69% in the thirdfirst quarter of 2019.2020.  There was a shift in the mix of assets towards a higher proportion of federal funds sold and other short-term investments from securities available for sale.sale, as well as from increases in deposits.  The sharp decrease in the federal funds rate during March of 2020 significantly decreased the average yield on the federal funds sold and other short-term investments from 2.19%1.24% in the thirdfirst quarter of 20192020 to 0.10%0.11% in the thirdfirst quarter of 2020,2021, which drove down the overall yield on interest earning assets.     Interest income on average earning assets decreased from $48.5$4.1 million in the thirdfirst quarter of 2019 to $44.0 million in2021 from the third quarter of 2020,prior year period, on a tax equivalent basis, and was primarily driven by the mix of assets shift and the lower federal funds ratemarket rates as mentioned above.

Loans
The average balance of loans was $4.20$4.25 billion in the thirdfirst quarter of 20202021 and $3.94$4.08 billion in the comparable period in 2019.2020.  The yield on loans was down 32decreased 33 basis points to 3.94%3.80%.  Interest income on loans was $41.3 million in the third quarter of 2020 down $593 thousand from the same period in 2019.  The higher average balances did not offset the decrease in yield.

Compared to the thirdfirst quarter of 2019,2020, the average balance of residential mortgage loans and commercial loans increased while home equity lines of credit and installment loans decreased.  The average balance of residential mortgage loans was $3.70$3.79 billion in 2021 compared to $3.60 billion in 2020, compared to $3.47 billion in 2019, an increase of 6.9%5.2%.  The average yield on residential mortgage loanloans decreased by 2436 basis points to 3.89%3.69% in the thirdfirst quarter of 20202021 compared to 2019.2020.

TrustCo actively markets the residential loan products within its market territories.  Mortgage loan rates are affected by a number of factors including rates on Treasury securities, the Federal Funds rate and rates set by competitors and secondary market participants.  TrustCo aggressively markets the unique aspects of its loan products thereby attempting to create a differentiation from other lenders.  These unique aspects include low closing costs, fast turn-around time on loan approvals, no escrow or mortgage insurance requirements for qualified borrowers and the fact that the Company typically holds these loans in portfolio and does not sell them into the secondary markets.  Assuming an eventual a rise in long-term interest rates, the Company would anticipate that the unique features of its loan products will continue to attract customers in the residential mortgage loan area.

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Commercial loans, which consist primarily of loans secured by commercial real estate, increased $41.0$14.7 million to an average balance of $231.5$212.8 million in the thirdfirst quarter of 20202021 compared to the same period in the prior year, primarily as a result of the issuance of theremaining PPP loans.  The average yield on this portfolio was down 91up 41 basis points to 4.54%5.54% compared to the prior year period, primarily as a result of the 1% interest rateorigination fees recognized on theforgiven PPP Loans.loans.  The Company remainedremains selective in underwriting non-PPP commercial loans in recent periods as the apparent risk/reward balance has been less favorable in many cases.

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The average yield on home equity credit lines decreased 9751 basis points to 3.98%3.84% during the thirdfirst quarter of 20202021 compared to the same period in 2019.prior year period.  The decrease in yield is the result of prime rate decreases which impacted some loans as well as a smaller percentage of lower yielding initial rate balances.  The average balances of home equity lines decreased 8.6%10.2% to $251.5$238.4 million in the thirdfirst quarter of 20202021 as compared to the prior year.  Consistent with prior periods, customersCustomers with home equity lines continue to refinance their balances into fixed rate mortgage loans given the current rate environment and have been less likely to draw on home equity lines due to reduced tax benefits.

Securities Available for Sale
The average balance of the securities available for sale portfolio for the thirdfirst quarter of 20202021 was $429.3$482.9 million compared to $647.5$540.7 million for the comparable period in 2019.2020.  The decliningdecrease in the balance reflects routine sales, paydowns, calls and maturities, partially offset by new investment purchases.  The current interest rate environment has significantly contributed to more bonds being called. The average yield was 2.05%1.50% for the thirdfirst quarter of 20202021 compared to 2.34%2.26% for the thirdfirst quarter of 2019.2020.  This portfolio is primarily comprised of agency issued residential mortgage backed securities, and collateralized mortgage obligations, bonds issued by government sponsored enterprises (such as Fannie Mae, the Federal Home Loan Bank, and Freddie Mac), Small Business Administration participation certificates, corporate bonds and municipal bonds.  These securities are recorded at fair value with any adjustment in fair value included in accumulated other comprehensive income (loss), net of tax.

The net unrealized gain in the available for sale securities portfolio was $10.6$3.7 million as of September 30, 2020March 31, 2021 compared to a net unrealized gain of $391 thousand$9.7million as of December 31, 2019.2020.  The decrease in the net unrealized gaingains in the portfolio is primarily the result of changes in market interest rate levels.

Held to Maturity Securities
The average balance of held to maturity securities was $15.8$13.3 million for the thirdfirst quarter of 20202021 compared to $20.2$18.1 million in the thirdfirst quarter of 2019.2020.  The decrease in balancebalances reflects routine paydowns.paydowns and calls.  No new securities were added to this portfolio during the period.  The average yield was 3.52% for the third quarter of 2020 compared to 3.70% for the same period in 2019.first quarter of 2021 compared to 3.86% for the year earlier period.  TrustCo expects to hold the securities in this portfolio until they mature or are called.

As of September 30, 2020,March 31, 2021, this portfolio consisted solely of agency issued residential mortgage-backed securities.  The balances for these securities are recorded at amortized cost.

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Federal Funds Sold and Other Short‑termShort-term Investments
The 2020 third2021 first quarter average balance of Federal Funds sold and other short‑termshort-term investments were $938.1 million,was $1.03 billion, a $472.8$617.5 million increase from the $465.3$412.1 million average for the same period in 2019.2020.  The yield was 0.10%0.11% for the thirdfirst quarter of 20202021 and 2.19%1.24% for the comparable period in 2019.2020.  Interest income from this portfolio decreased $2.3$1.0 million from $2.6$1.3 million in 20192020 to $242approximately $300 thousand in 2020.2021.  The higher average balances did not offset severalthe target rate decreases.decreases from early 2020.

The Federal Funds sold and other short‑termshort-term investments portfolio is utilized to generate additional interest income and liquidity as funds are waiting to be deployed into the loan and securities portfolios.

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Funding Opportunities
TrustCo utilizes various funding sources to support its earning asset portfolio.  The vast majority of the Company’s funding comes from traditional deposit vehicles such as savings, demand deposits, interest‑bearinginterest-bearing checking, money market and time deposit accounts.

Total average interest bearing accountsdeposits (which includes interest bearing checking, money market accounts, savings and time deposits) increased $258.8$415.3 million to $4.28$4.4 billion for the thirdfirst quarter of 20202021 versus the thirdfirst quarter in the prior year, and the average rate paid decreased from 0.95%0.78% for 20192020 to 0.52%0.20% for 2020.2021.  Total interest expense on these deposits decreased $3.9$5.6 million to $5.6$2.2 million in the thirdfirst quarter of 2021 compared to the year earlier period.  From the first quarter of 2020 compared to the same period in 2019.  From the thirdfirst quarter of 2019 to the third quarter of 2020,2021, interest bearing demandchecking account average balances were up  17.2%24.5%, certificates of deposit average balances were down 7.0%7.9%, non‑interest demand average balances were up 41.8%46.9%, average savings balances increased 8.5%17.8% and money market balances were up 20.2%18.1%.  Our growth in deposits came at relatively low cost and continues to be offset by higher earnings on loan yields and returns in the investment portfolio.  Because we offered competitive shorter term CD rates in the past, we expect cost of interest bearing liabilities to continue to decrease as these reprice at lower rates.

At September 30, 2020,March 31, 2021, the maturity of total time deposits is as follows:

(dollars in thousands)      
      
Under 1 year $1,184,740  $1,060,965 
1 to 2 years  106,072   156,531 
2 to 3 years  9,774   9,873 
3 to 4 years  3,015   2,852 
4 to 5 years  1,223   842 
Over 5 years  200   200 
 $1,305,024  $1,231,263 

Average short‑termshort-term borrowings for the first quarter of 2021 were $193.8$223.8 million compared to $153.7 million in 2020 compared to $160.2 millionthe same period in 2019.2020.  The average rate decreased during this time period from 0.90%0.84% in 20192020 to 0.45%0.41% in 2020.2021.  The short‑termshort-term borrowings of the Company are cash management accounts, which represent retail accounts with customers for which the Bank has pledged certain assets as collateral.

The Company has a number of contingent funding alternatives available in addition to the large cash and cash equivalents position and the investment securities positions it maintains on its balance sheet.  The Bank is a member of the Federal Home Loan Bank of New York (“FHLBNY”) and is an eligible borrower at the Federal Reserve Bank of New York (“FRBNY”) and has the ability to borrow utilizing securities and/or loans as collateral at either.  The Bank does not utilize brokered deposits as a part of its funding strategy, but does incorporate them as a contingent funding source within its Asset/Liability Management Policy.  Like other contingent funding sources, brokered CDs may be tested from time to time to ensure operational and market readiness.

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Net Interest Income
Taxable equivalent net interest income decreasedincreased by $478 thousand$1.6 million to $38.2$40.1 million in the thirdfirst quarter of 20202021 compared to the same period in 2019.2020.  The net interest spread was down 2517 basis points to 2.63%2.74% in the thirdfirst quarter of 20202021 compared to the same period in 2019.2020.  As previously noted, the net interest margin was down 3127 basis points to 2.73%2.78 for the thirdfirst quarter of 20202021 compared to the same period in 2019.

Taxable equivalent net interest income decreased by $3.2 million to $114.4 million in the first nine‑months of 2020 compared to the same period in 2019.  The net interest spread was down 24 basis points to 2.74% in the first nine‑months of 2020 compared to the same period in 2019. The net interest margin was down 27 basis points to 2.86% for the first nine‑months of 2020 compared to the same period in 2019.2020.

Nonperforming Assets
Nonperforming assets include nonperforming loans (“NPLs”), which are those loans in a non‑accrual status and loans past due three payments or more and still accruing interest.  Also included in the total of nonperforming assets are foreclosed real estate properties, which are included in other assets and categorized as other real estate owned.  As of September 30, 2020, there were no pandemic related deferrals that have been recorded as NPLs or TDRs.

The following describes the nonperforming assets of TrustCo as of September 30, 2020:March 31, 2021:

Nonperforming loans and foreclosed real estateestate:: Total NPLs and non-accrual loans were $21.8$21.6 million at September 30, 2020,March 31, 2021, compared to $20.9$21.1 million at December 31, 20192020 and $21.0$20.7 million at September 30, 2019.  There were $21.8 million of non‑accrual loans at September 30, 2020 compared to $20.8 million at DecemberMarch 31, 2019 and $21.0 million at September 30, 2019.2020.  There were no loans at September 30,March 31, 2021 and 2020 and 2019 and December 31, 20192020 that were past due 90 days or more and still accruing interest.

At September 30, 2020,March 31, 2021, nonperforming loans primarily include a mix of commercial and residential loans.  Of total nonperforming loans of $21.8$21.6 million at September 30, 2020, $21.2March 31, 2021, $21.5 million were residential real estate loans, $491$125 thousand were commercial loans and mortgages and $49$32 thousand were installment loans, compared to $20.0$20.6 million, $816$452 thousand and $3$43 thousand, respectively at December 31, 2019.2020.

A significant percentage of nonperforming loans are residential real estate loans, which are historically lower‑risklower-risk than most other types of loans.  Net chargeoffsrecoveries were $4$2 thousand on residential real estate loans (including home equity lines of credit) for the thirdfirst quarter of 20202021 compared to net chargeoffs of $39$138 thousand for the thirdfirst quarter of 2019.2020.  Management believes that these loans have been appropriately written down where required.

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Ongoing portfolio management is intended to result in early identification and disengagement from deteriorating credits.  TrustCo has a diversified loan portfolio that includes a significant balance of residential mortgage loans to borrowers in the Capital Region of New York and avoids concentrations to any one borrower or any single industry.  TrustCo has no advances to borrowers or projects located outside the United States.  TrustCo continues to identify delinquent loans as quickly as possible and to move promptly to resolve problem loans.  Efforts to resolve delinquencies begin immediately after the payment grace period expires, with repeated, automatically generated notices, as well as personalized phone calls and letters.  Loans are placed in nonaccrual status once they are 90 days past due, or earlier if management has determined that such classification is appropriate.  Once in nonaccrual status, loans are either brought current and maintained current, at which point they may be returned to accrual status, or they proceed through the foreclosure process.  Due to the recent COVID-19 pandemic, the Bank is monitoring recent state regulatory mandates in regards to a moratorium on foreclosures.  The collateral on nonaccrual loans is evaluated periodically, and the loan value is written down if the collateral value is insufficient.  Additionally, due to the recent COVID-19 pandemic, the Bank is monitoring recent regulatory mandates by state in regards to a moratorium on foreclosures.

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The Company originates loans throughout its deposit franchise area.  At September 30, 2020, 72.7%March 31, 2021, 71.7% of its gross loan portfolio balances were in New York State and the immediately surrounding areas (including New Jersey, Vermont and Massachusetts), and 27.3%28.3% were in Florida.  Those figures compare to 74.4%72.1% and 25.6%27.9%, respectively at December 31, 2019.2020.

Economic conditions vary widely by geographic location.   As a percentage of the total nonperforming loans as of September 30, 2020, 5.8%March 31, 2021, 7.5% were to Florida borrowers, compared to 94.2%92.5% to borrowers in New York and surrounding areas.  For the three‑three months ended September 30, 2020,March 31, 2021, New York and surrounding areas experienced net chargeoffsrecoveries of approximately $21$48 thousand, compared to nonenet chargeoffs of $2 thousand in Florida.

Other than loans currently identified as nonperforming and loan deferrals as a result of COVID-19, management is aware of no other loans in the Bank’s portfolio that pose material risk of the eventual non‑collectionnon-collection of principal and interest.  Also as of September 30, 2020,March 31, 2021, there were no other loans classified for regulatory purposes that management reasonably expects will materially impact future operating results, liquidity, or capital resources.

TrustCo has identified nonaccrual commercial and commercial real estate loans, as well as all loans restructured under a troubled debt restructuring (TDR), as impaired loans.  There were $1.1 million$699 thousand of commercial mortgages and commercial loans classified as impaired as of September 30, 2020March 31, 2021 compared to $1.4$1.0 million at December 31, 2019.2020.  There were $20.6$19.6 million of impaired residential loans at September 30, 2020March 31, 2021 and $19.5$20.6 million at December 31, 20192020.  The average balances of all impaired loans were $20.7 million for the ninethree months of 20202021 and $21.0$20.8 million for the full year 2019.2020.

As of September 30, 2020March 31, 2021 and December 31, 2019,2020, the Company’s loan portfolio did not include any subprime mortgages or loans acquired with deteriorated credit quality.

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 deed in lieu).  As of September 30, 2020 other real estate owned included $423At March 31, 2021 there was $420 thousand of foreclosed real estate compared to $1.6 million$541 thousand at December 31, 2019.2020.

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Allowance for loan losses: The balance of the allowance for loan losses is maintained at a level that is, in management’s judgment, representative of the amount of probable incurred losses in the loan portfolio.

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The allocation of the allowance for loans losses is as follows:

(dollars in thousands) 
As of
September 30, 2020
  
As of
December 31, 2019
  March 31, 2021  December 31, 2020 
    Percent of     Percent of 
    Loans to     Loans to 
 Amount  Total Loans  Amount  Total Loans  Amount  
Percent of
Loans to
Total Loans
  Amount  
Percent of
Loans to
Total Loans
 
Commercial $4,083   5.12% $3,805   4.47% $3,886   4.75% $3,975   4.67%
Real estate - construction  315   0.64%  311   0.70%  338   0.67%  290   0.58%
Real estate mortgage - 1 to 4 family  40,458   88.12%  35,632   87.96%  41,892   88.86%  41,228   88.81%
Home equity lines of credit  3,734   5.89%  3,999   6.60%  3,443   5.52%  3,597   5.71%
Installment Loans  533   0.23%  570   0.27%  432   0.20%  505   0.23%
 $49,123   100.00% $44,317   100.00% $49,991   100.00% $49,595   100.00%

At September 30, 2020,March 31, 2021, the allowance for loan losses was $49.1$50.0 million, compared to $44.3$46.2 million at September 30, 2019March 31, 2020 and $49.6 million at December 31, 2019.2020.  The allowance represents 1.17% of the loan portfolio as of September 30, 2020March 31, 2021 compared to 1.11%1.13% at September 30, 2019March 31, 2020 and 1.09%1.17% at December 31, 2019.2020.

The provision for loan losses was $1$350 thousand for the quarter ended March 31, 2021 and $2 million for the quarter ended September 30, 2020 compared to noMarch 31, 2020.  The decrease in the provision for loan losses for the quarter ended September 30, 2019.  The increase is primarily driven by the beginning of the uncertainty in the current economic environment resulting from COVID-19.the COVID-19 pandemic in the same period in the prior year. Net chargeoffsrecoveries for the three‑monththree-month period ended September 30, 2020March 31, 2021 were $21$46 thousand and were $36 thousand for the prior year period.  Netnet chargeoffs for the nine‑month period ended September 30, 2020 were $194 thousand and were $396of $162 thousand for the prior year period.

During the thirdfirst quarter of 2020,2021, there were no commercial loan net recoverieschargeoffs and $95 thousand of $1 thousand and $22 thousand ofgross residential mortgage and consumer loan net chargeoffs compared with $3 thousand of commercial loan net recoveries of $28 thousandchargeoffs and $64$217 thousand of netgross residential mortgage and consumer loan chargeoffs in the thirdfirst quarter of 2019.2020.  Gross recoveries during the first quarter of 2021 were $32 thousand for commercial loans and $109 thousand for residential mortgage and consumer loans, compared to $2 thousand for commercial loans and $56 thousand for residential mortgage and consumer loans in the first quarter of 2020.

In determining the adequacy of the allowance for loan losses, management reviews the current nonperforming loan portfolio as well as loans that are past due and not yet categorized as nonperforming for reporting purposes.  Also, there are a number of other factors that are taken into consideration, including:

The magnitude and nature of recent loan chargeoffs and recoveries;
The growth in the loan portfolio and the implication that it has in relation to the economic climate in the Bank’s market territories;
The economic environment in the Upstate New York and Florida territories over the last several years, as well as in the Company’s other market areas; and

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areas, and;
The economic environment as a result of the global pandemic.

Management continues to monitor these factors in determining the provision for loan losses in relation to loan chargeoffs, recoveries, the level and trends of nonperforming loans and overall economic conditions in the Company’s market territories.

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Liquidity and Interest Rate Sensitivity
TrustCo seeks to obtain favorable sources of funding and to maintain prudent levels of liquid assets in order to satisfy varied liquidity demands. Management believes that TrustCo’s earnings performance and strong capital position enable the Company to easily secure new sources of liquidity.  The Company actively manages its liquidity through target ratios established under its liquidity policies.  Continual monitoring of both historical and prospective ratios allows TrustCo to employ strategies necessary to maintain adequate liquidity.  Management has also defined various degrees of adverse liquidity situations which could potentially occur and has prepared appropriate contingency plans should such a situation arise.  As noted, the Company has a number of contingent funding alternatives available in addition to the large cash and cash equivalents position and the investment securities positions it maintains on its balance sheet.  TheAs previously stated, the Bank is a member of the Federal Home Loan Bank of New York (“FHLBNY”)FHLBNY and is an eligible borrower at the Federal Reserve Bank of New York (“FRBNY”)FRBNY and has the ability to borrow utilizing securities and/or loans as collateral at either institution.  The Bank does not utilize brokered deposits as a part of its funding strategy, but does incorporate them as a contingent funding source within its Asset/Liability Management Policy.  Like other contingent funding sources, brokered depositsCDs may be tested from time to time to ensure operational and market readiness.

The Company uses an industry standard external model as the primary tool to identify, quantify and project changes in interest rates and prepayment speeds taken both from industry sources and internally generated data based upon historical trends in the Bank’s balance sheet.  Assumptions based on the historical behavior of deposit rates and balances in relation to changes in market interest rates are also incorporated into the model.  This model calculates an economic or fair value amount with respect to non‑timenon-time deposit categories since these deposits are part of the core deposit products of the Company.  The assumptions used are inherently uncertain and, as a result, the model cannot precisely measure the fair value of capital or precisely predict the impact of fluctuations in interest rates on the fair value of capital.

Using this model, the fair value of capital projections as of September 30, 2020March 31, 2021 are referenced below.  The base case (current rates) scenario shows the present estimate of the fair value of capital assuming no change in the operating environment or operating strategies and no change in interest rates from those existing in the marketplace as of September 30, 2020.March 31, 2021.  The following table indicates the impact on the fair value of capital assuming interest rates were to instantaneously increase by 100 bp, 200 bp, 300 bp and 400 bp or to decrease by 100 bp.

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As of September 30, 2020March 31, 2021 
Estimated Percentage of
Fair value of Capital to
Fair value of Assets
 
+400 BP  18.5021.60%
+300 BP  18.6021.70 
+200 BP  18.6021.60 
+100 BP  18.7022.00 
Current rates  17.9021.40 
-100 BP  13.8018.40 

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Noninterest Income
Total noninterest income for the thirdfirst quarter of 2021 and 2020 was $4.3$4.4 million versus $4.9and $5.3 million, for the previous year.  Financial services income was $1.8 million in the third quarter of 2020 as compared to $1.5 million in the prior year period primarily as a result of fluctuations in asset market values under management and fees associated with estate settlements.  Other income was $265 thousand, down $541 thousand in the third quarter of 2020 as compared to the year ago period. Fees for services to customers were down $310 thousandrespectively.  The decrease over the same period in the prior year.year was primarily related to net gains on securities transactions in the prior year period, partially offset by an increase in financial services income in the current year period.  The fair value of assets under management was $899 million$1.04 billion at September 30, 2020March 31, 2021 and $928$997 million as of December 31, 20192020 and $896$786 million at September 30, 2019.

For the nine months through September 30, 2020 total noninterest income was $13.1 million, down $1.4 million compared to the prior year period.  The decrease is the result of less financial services income as a result of lower asset market values under management throughout 2020, less fees for services to customers which is driven by lower overdraft fees due to higher deposit balances, and a decrease in other income which also included a gain on the sale of the credit card portfolio in 2019, partially offset by a net gain on securities transactions.March 31, 2020.

Noninterest Expenses
Total noninterest expenses were $22.7$25.3 million for the three‑three months ended September 30, 2020,March 31, 2021, compared to $24.1$24.3 million for the three‑three months ended September 30, 2019.March 31, 2020.  Significant changes included a decrease of $826 thousandan increase in salaries and employee benefits which is primarily as a result of lower stock-based compensation expense due to a decreasethe increase in the Company’s stock price which increased benefit liabilities.  FDIC and other insurance expense also increased primarily as a $196 thousand decreaseresult of credits in professional services, a $189 decrease in advertising expense, a $148 decrease in other real estate expense, a $516 thousand decrease in other expense,the prior period due to the FDIC reaching the Deposit Reserve Fund reserve ratio.  These increases were partially offset by an increase of $183 thousanddecreases in occupancyequipment expense, and a $378 thousand increase in FDIC and other insurance.expense.  Full time equivalent headcount decreasedincreased from 823813 as of September 30, 2019March 31, 2020 to 771820 as of September 30, 2020.  The decrease in FTE’s in the period presented was not due to the effects of the pandemic.  The Company constantly hires qualified candidates and from time-to-time experiences fluctuations in head count.March 31, 2021.

Total noninterest expenses were $70.9 million for the nine‑months ended September 30, 2020, compared to $73.8 million for the nine‑months ended September 30, 2019.  Significant changes included a decrease of $967 thousand in salaries and employee benefits, a $285 thousand decrease in equipment expense, a $751 thousand decrease in professional services, a $663 decrease in advertising expense, a $172 decrease in other real estate expense, a $1.0 million decrease in other expense, partially offset by an increase of $701 thousand in occupancy expense and a $150 thousand increase in outsourced services.  The overall decrease in expenses for the three and nine months ended September 30, 2020 is primarily a result of the Company’s continued efforts to control costs.

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Income Taxes
In the thirdfirst quarter of 2020,2021, TrustCo recognized income tax expense of $4.8 million compared to the same$4.3 million for the thirdfirst quarter of 2019.2020.  The effective tax rates were 25.3% and 24.6%24.4%, respectively, for the thirdfirst quarters of 20202021 and 2019, respectively.  For the first nine‑months, income taxes were $13.0 million in 2020, as compared to $14.3 million in 2019.  The effective tax rates were 25.2% and 24.6% for 2020 and 2019, respectively.2020.

Capital Resources
Consistent with its long‑termlong-term goal of operating a sound and profitable financial organization, TrustCo strives to maintain strong capital ratios.

Banking regulators have moved towards higher required capital requirements due to the standards included in the Basel III reform measures and the Dodd‑FrankDodd-Frank Act, as well as a general trend towards reducing risk in the banking system by providing a greater capital margin.

Total shareholders’ equity at September 30, 2020March 31, 2021 was $560.5$571.0 million compared to $526.2$548.2 million at September 30, 2019.March 31, 2020.  TrustCo declared a dividend of $0.068125 per share in the thirdfirst quarter of 2020.2021.  This results in a dividend payout ratio of 46.68%46.65% based on thirdfirst quarter 20202021 earnings of $14.1 million.

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The Bank and the Company reported the following capital ratios as of September 30, 2020March 31, 2021 and December 31, 2019:2020:

(Bank Only) As of September 30, 2020  Well  
Minimum for
Capital Adequacy plus
Capital Conservation
        
Minimum for
Capital Adequacy plus
 
 As of March 31, 2021  Well  Capital Conservation 
(dollars in thousands) Amount  Ratio  
Capitalized(1)
  
Buffer (1)(2)
  Amount  Ratio  
Capitalized(1)
  
Buffer (1)(2)
 
                        
Tier 1 leverage ratio  533,874   9.329%  5.000%  4.000% $546,391   9.235%  5.000%  4.000%
Common equity tier 1 capital  533,874   18.491   6.500   7.000   546,391   18.654   6.500   7.000 
Tier 1 risk-based capital  533,874   18.491   8.000   8.500   546,391   18.654   8.000   8.500 
Total risk-based capital  570,127   19.747   10.000   10.500   283,171   19.910   10.000   10.500 

       
Minimum for
Capital Adequacy plus
 
 As of December 31, 2019  Well  
Minimum for
Capital Adequacy plus
Capital Conservation
  As of December 31, 2020  Well  Capital Conservation 
(dollars in thousands) Amount  Ratio  
Capitalized(1)
  
Buffer (1)(2)
  Amount  Ratio  
Capitalized(1)
  
Buffer (1)(2)
 
                        
Tier 1 leverage ratio $516,775   9.940%  5.000%  4.000% $539,897   9.378%  5.000%  4.000%
Common equity tier 1 capital  516,775   18.412   6.500   7.000   539,897   18.646   6.500   7.000 
Tier 1 risk-based capital  516,775   18.412   8.000   8.500   539,897   18.646   8.000   8.500 
Total risk-based capital  551,975   19.666   10.000   10.500   576,257   19.902   10.000   10.500 

(Consolidated) As of September 30, 2020  
Minimum for
Capital Adequacy plus
Capital Conservation
 
(dollars in thousands) Amount  Ratio  
Buffer (1)(2)
 
          
Tier 1 leverage ratio $548,437   9.582%  4.000%
Common equity tier 1 capital  548,437   18.994   7.000 
Tier 1 risk-based capital  548,437   18.994   8.500 
Total risk-based capital  584,692   20.250   10.500 
(Consolidated)

    
Minimum for
Capital Adequacy plus
 
 As of December 31, 2019  
Minimum for
Capital Adequacy plus
Capital Conservation
  As of March 31, 2021  Capital Conservation 
(dollars in thousands) Amount  Ratio  
Buffer (1)(2)
  Amount  Ratio  
Buffer (1)(2)
 
                  
Tier 1 leverage ratio $533,243   10.254%  4.000% $563,210   9.515%  4.000%
Common equity Tier 1 capital  533,243   18.988   7.000 
Common equity tier 1 capital  563,210   19.223   7.000 
Tier 1 risk-based capital  533,243   18.988   8.500   563,210   19.223   8.500 
Total risk-based capital  568,463   20.242   10.500   599,999   20.479   10.500 

    
Minimum for
Capital Adequacy plus
 
  As of December 31, 2020  Capital Conservation 
(dollars in thousands) Amount  Ratio  
Buffer (1)(2)
 
          
Tier 1 leverage ratio $555,672   9.650%  4.000%
Common equity Tier 1 capital  555,672   19.187   7.000 
Tier 1 risk-based capital  555,672   19.187   8.500 
Total risk-based capital  592,040   20.443   10.500 

(1)Federal regulatory minimum requirements to be considered to be Well Capitalized and Adequately Capitalized
(2)The September 30, 2020March 31, 2021 and December 31, 20192020 common equity tier 1, tier 1 risk-based, and total risk-based capital ratios include a capital conservation buffer of 2.50 percent

In addition, at September 30, 2020, theMarch 31, 2021, Trustco’s consolidated equity to total assets ratio was 9.77%,9.44% compared to 10.31%9.63% at December 31, 20192020 and 10.07%10.43% at September 30, 2019.March 31, 2020.

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Both TrustCo and Trustco Bank are subject to regulatory capital requirements. The capital rules require the Company’s and the Bank’s capital to exceed the regulatory standards plus a capital conservation buffer in order to avoid constraints on dividends, equity repurchases and certain compensation.  On January 1, 2015, a new capital rule took effect that revised the federal bank regulatory agencies’ risk-based capital requirements and, for the first time, subjected the Company to consolidated regulatory capital requirements. Among other matters, the rule also established a new common equity Tier 1 minimum capital requirement of 4.5% of risk-weighted assets, increased the minimum Tier 1 capital to risk-based assets requirement from 4.0% to 6.0% of risk-weighted assets, changed the risk-weightings of certain assets, and changed what qualifies as capital for purposes of meeting the various capital requirements. In addition, the Company and the Bank are required to maintain additional levels of Tier 1 common equity (the capital conservation buffer) over the minimum risk-based capital levels before they may pay dividends, repurchase shares, or pay discretionary bonuses. The new rule was phased-in over several years and ishas been fully in effect insince 2020.

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As of September 30, 2020,March 31, 2021, the capital levels of both TrustCo and the Bank exceeded the minimum standards, including with the current, and also fully phased‑in capital conservation buffer is taken into account.

Under the Office of the Comptroller of the Currency’s (“OCC”) “prompt corrective action” regulations, a bank is deemed to be “well‑“well capitalized” when its CET1, Tier 1, total risk‑based,risk-based and leverage capital ratios are at least 6.5%7%, 8%8.5%, 10%,10.5% and 5%, respectively.  A bank is deemed to be “adequately capitalized” or better if its capital ratios meet or exceed the minimum federal regulatory capital requirements, and “undercapitalized” if it fails to meet these minimal capital requirements.  A bank is “significantly undercapitalized” if its CET1, Tier 1, total risk‑basedrisk-based and leverage capital ratios fall below 3%, 4%, 6%, and 3%, respectively and “critically undercapitalized” if the institution has a ratio of tangible equity to total assets that is equal to or less than 2%.  At September 30,March 31, 2021 and 2020, and 2019, Trustco Bank met the definition of “well‑“well capitalized.”

As noted, the Company’s dividend payout ratio was 46.68%46.65% of net income for the thirdfirst quarter of 20202021 and 44.85%49.41% of net income for the thirdfirst quarter of 2019.2020.  The per‑shareper-share dividend paid in both the third quartersfirst quarter of 2021, the fourth quarter of 2020, and 2019the first quarter of 2020 was $0.068125. The Company’s ability to pay dividends to its shareholders is dependent upon the ability of the Bank to pay dividends to the Company.  The payment of dividends by the Bank to the Company is subject to continued compliance with minimum regulatory capital requirements.  The OCC may disapprove a dividend if: the Bank would be undercapitalized following the distribution; the proposed capital distribution raises safety and soundness concerns; or the capital distribution would violate a prohibition contained in any statue, regulation or agreement.

TrustCo maintains a dividend reinvestment plan (“DRP”)(DRP) with approximately 11,0778,936 participants.  The DRP allows participants to reinvest dividends in shares of the Company.  The DRP also allows for additional purchases by participants and has a discount feature (up to a 5% for safe harbor provisions) that can be activated by management as a tool to raise capital.  To date, the discount feature has not been utilized.

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Reverse Stock Split Proposal

On February 16, 2021, the Company announced that the Board of Directors plans to seek approval at the Company’s annual shareholder meeting on May 20, 2021 for a reverse stock split of the Company’s common stock at a ratio of 1 for 5, and, effective at the same time of the reverse stock split, to reduce the number of authorized shares of the Company’s common stock from 150,000,000 to 30,000,000 shares.  The Board of Directors reserves its right to elect not to proceed with the reverse stock split if it determines that implementing a reverse split is no longer in the best interests of TrustCo and its shareholders.

Share Repurchase Program

On June 7, 2019 the Company’s Board of Directors authorized a share repurchase program of up to 1,000,000 shares.  During the three months ended March 31, 2020, the Company repurchased a total of 489 thousand shares at an average price per share of $7.11 for a total of $3.5 million under its Board authorized share repurchase program.  The shares purchased as of March 31, 2020 represent 0.51% of our common shares outstanding.  On April 16, 2020, the Company announced that it had suspended its share repurchase program. On February 18, 2021 the Company’s Board of Directors authorized another share repurchase program of up to 2,000,000 shares, or approximately 2% of its currently outstanding common stock. The Company did not repurchasemake any of its shares of common stockrepurchases under this authorization during the three months ended September 30, 2020.March 31, 2021.  If TrustCo’s reverse stock split is consummated, the shares subject to the repurchase program would be proportionately adjusted.

Critical Accounting Policies and Estimates
Pursuant to Securities and Exchange Commission (“SEC”) guidance, management of the Company is encouraged to evaluate and disclose those accounting policies judged to be critical policies ‑ those most important to the portrayal of the Company’s financial condition and results, and that require management’s most difficult subjective or complex judgments.

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Management considers the accounting policy relating to the allowance for loan losses to be a critical accounting policy given the inherent uncertainty in evaluating the levels of the allowance required to cover the inherent risk of losses in the loan portfolio and the material effect that such judgments can have on the results of operations.  Included in Note 1 to the Consolidated Financial Statements contained in the Company’s Annual Report on Form 10‑K for the year ended December 31, 20192020 is a description of the significant accounting policies that are utilized by the Company in the preparation of the Consolidated Financial Statements.

Recent Accounting Pronouncements
Please refer to Note 11 to the consolidated financial statements for a detailed discussion of new accounting pronouncements and their impact on the Company.  As indicated in Note 11, as allowed by the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) the Bank elected to delay the adoption of ASU 2016-13, “Financial Instruments – Credit Losses,” until the earlier of the termination of the national emergency concerning COVID-19 or December 31, 2020.  The December 31, 2020 adoption date under the CARES Act was extended to January 1, 2022 as a part of the COVID-19 Relief Bill, which became law in December 2020, and therefore the Company intends to adopt CECL on January 1, 2022.

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TrustCo Bank Corp NY
Management's Discussion and Analysis
STATISTICAL DISCLOSURE

I. DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY:
INTEREST RATES AND INTEREST DIFFERENTIAL

The following table summarizes the component distribution of the average balance sheet, related interest income and expense and the average annualized yields on interest earning assets and annualized rates on interest bearing liabilities of TrustCo (adjusted for tax equivalency) for each of the reported periods. Nonaccrual loans are included in loans for this analysis. The average balances of securities available for sale and held to maturity are calculated using amortized costs for these securities.  Included in the average balance of shareholders' equity is the unrealized gain, (loss), net of tax, in the available for sale portfolio of $8.3$4.6 million in 20202021 and ($0.4)$4.9 million in 2019.2020.  The subtotals contained in the following table are the arithmetic totals of the items contained in that category.  Increases and decreases in interest income and expense due to both rate and volume have been allocated to the categories of variances (volume and rate) based on the percentage relationship of such variances to each other.

(dollars in thousands) 
Three months ended
September 30, 2020
  
Three months ended
September 30, 2019
     
Three months ended
March 31, 2021
  
Three months ended
March 31, 2020
          
                                                      
Assets 
Average
Balance
  Interest  
Average
Rate
  
Average
Balance
  Interest  
Average
Rate
  
Change in
Interest
Income/
Expense
  
Variance
Balance
Change
  
Variance
Rate
Change
  
Average
Balance
  Interest  
Average
Rate
  
Average
Balance
  
Interest
  
Average
Rate
  
Change in
Interest
Income/
Expense
  
Variance
Balance
Change
  
Variance
Rate
Change
 
                                                      
Securities available for sale:                                                      
U. S. government sponsored enterprises $12,391   14   0.45% $183,580  $996   2.17% $(982)  (530)  (452) $51,649  $50   0.38% $92,369  $421   1.82% $(371)  (133)  (238)
Mortgage backed securities and collateralized mortgage obligations-residential  313,296   1,319   1.68%  370,808   2,178   2.35%  (859)  (304)  (555)  327,614   1,237   1.51%  371,768   2,113   2.27%  (876)  (229)  (647)
State and political subdivisions  110   2   7.90%  166   3   7.23%  (1)  (1)  -   50   1   6.47%  114   2   7.59%  (1)  (1)  - 
Corporate bonds  59,555   646   4.33%  40,231   321   3.19%  325   186   139   63,334   316   1.99%  28,332   238   3.36%  78   641   (563)
Small Business Administration-guaranteed participation securities  43,282   216   1.99%  51,988   282   2.17%  (66)  (44)  (22)  39,582   206   2.09%  47,418   245   2.06%  (39)  (56)  17 
Other  685   5   2.92%  685   6   3.50%  (1)  -   (1)  686   6   3.50%  685   6   3.50%  -   -   - 
                                                                        
Total securities available for sale  429,319   2,202   2.05%  647,458   3,786   2.34%  (1,584)  (693)  (891)  482,915   1,816   1.50%  540,686   3,025   2.26%  (1,209)  222   (1,431)
                                                                        
Federal funds sold and other short-term Investments  938,087   242   0.10%  465,251   2,552   2.19%  (2,310)  8,831   (11,141)  1,029,570   270   0.11%  412,076   1,267   1.24%  (997)  5,166   (6,163)
                                                                        
Held to maturity securities:                                                                        
Mortgage backed securities and collateralized mortgage obligations-residential  15,759   138   3.52%  20,197   187   3.70%  (49)  (40)  (9)  13,273   123   3.70%  18,144   175   3.86%  (52)  (45)  (7)
                                                                        
Total held to maturity securities  15,759   138   3.52%  20,197   187   3.70%  (49)  (40)  (9)  13,273   123   3.70%  18,144   175   3.86%  (52)  (45)  (7)
                                                                        
Federal Reserve Bank and Federal Home Loan Bank stock  5,506   77   5.59%  9,183   81   3.53%  (4)  (156)  152   5,506   69   5.01%  9,183   82   3.57%  (13)  (138)  125 
                                                                        
Commercial loans  231,517   2,625   4.54%  190,538   2,596   5.45%  29   1,972   (1,943)  212,781   2,945   5.54%  198,047   2,542   5.13%  403   196   207 
Residential mortgage loans  3,702,680   36,020   3.89%  3,465,102   35,743   4.13%  277   9,129   (8,852)  3,789,256   34,852   3.69%  3,601,728   36,461   4.05%  (1,609)  9,054   (10,663)
Home equity lines of credit  251,459   2,515   3.98%  275,047   3,401   4.95%  (886)  (269)  (617)  238,379   2,259   3.84%  265,461   2,868   4.35%  (609)  (285)  (324)
Installment loans  9,632   170   7.02%  9,967   183   7.34%  (13)  (6)  (7)  8,795   161   7.41%  10,717   192   7.20%  (31)  (65)  34 
                                                                        
Loans, net of unearned income  4,195,288   41,330   3.94%  3,940,654   41,923   4.26%  (593)  10,826   (11,419)  4,249,211   40,217   3.80%  4,075,953   42,063   4.13%  (1,846)  8,900   (10,746)
                                                                        
Total interest earning assets  5,583,959   43,989   3.15%  5,082,743   48,529   3.82%  (4,540)  18,768   (23,308)  5,780,475   42,495   2.95%  5,056,042   46,612   3.69%  (4,117)  14,105   (18,222)
                                                                        
Allowance for loan losses  (48,483)          (44,448)                      (49,945)          (44,520)                    
Cash & non-interest earning assets  201,018           188,528                       199,769           193,619                     
                                                                        
Total assets $5,736,494           5,226,823                      $5,930,299           5,205,141                     
                                                                        
                                    
Liabilities and shareholders' equity                                                                        
                                                                        
Deposits:                                                                        
Interest bearing checking accounts $1,024,455   55   0.02% $874,179  $52   0.02%  3   3   -  $1,084,572   52   0.02% $871,153  $16   0.01%  36   6   30 
Money market accounts  682,319   637   0.37%  567,554   1,177   0.83%  (540)  1,250   (1,790)  725,570   283   0.16%  614,201   1,096   0.72%  (813)  1,144   (1,957)
Savings  1,222,956   161   0.05%  1,126,935   323   0.11%  (162)  159   (321)  1,315,049   159   0.05%  1,116,558   233   0.08%  (74)  212   (286)
Time deposits  1,355,244   4,749   1.39%  1,457,510   7,974   2.19%  (3,225)  (522)  (2,703)  1,261,963   1,666   0.54%  1,369,914   6,391   1.88%  (4,725)  (469)  (4,256)
                                                                        
Total interest bearing deposits  4,284,974   5,602   0.52%  4,026,178   9,526   0.95%  (3,924)  890   (4,814)  4,387,154   2,160   0.20%  3,971,826   7,736   0.78%  (5,576)  893   (6,469)
Short-term borrowings  193,765   221   0.45%  160,162   359   0.90%  (138)  384   (522)  223,807   228   0.41%  153,668   322   0.84%  (94)  580   (674)
                                                                        
Total interest bearing liabilities  4,478,739   5,823   0.52%  4,186,340   9,885   0.94%  (4,062)  1,274   (5,336)  4,610,961   2,388   0.21%  4,125,494   8,058   0.79%  (5,670)  1,473   (7,143)
                                                                        
Demand deposits  622,313           438,789                       673,428           458,476                     
Other liabilities  78,093           80,188                       75,143           79,003                     
Shareholders' equity  557,349           521,506                       570,767           542,168                     
                                                                        
Total liabilities and shareholders' equity $5,736,494          $5,226,823                      $5,930,299          $5,205,141                     
                                                                        
Net interest income , tax equivalent      38,166           38,644      $(478)  17,494   (17,972)      40,107           38,554      $1,553   12,632   (11,079)
                                                                        
Net interest spread          2.63%          2.88%                      2.74%          2.91%            
                                                                        
Net interest margin (net interest income to total interest earning assets)          2.73%          3.04%                      2.78%          3.05%            
                                                                        
Tax equivalent adjustment      (1)          (1)                      -           (1)                
                                                                        
Net interest income      38,165           38,643                       40,107           38,553                 

64
Index
TrustCo Bank Corp NY
Management's Discussion and Analysis
STATISTICAL DISCLOSURE

I. DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY:
INTEREST RATES AND INTEREST DIFFERENTIAL

The following table summarizes the component distribution of the average balance sheet, related interest income and expense and the average annualized yields on interest earning assets and annualized rates on interest bearing liabilities of TrustCo (adjusted for tax equivalency) for each of the reported periods. Nonaccrual loans are included in loans for this analysis. The average balances of securities available for sale and held to maturity are calculated using amortized costs for these securities.  Included in the average balance of shareholders' equity is the unrealized gain (loss), net of tax, in the available for sale portfolio of $7.2 million in 2020 and ($4.9) million in 2019.  The subtotals contained in the following table are the arithmetic totals of the items contained in that category.  Increases and decreases in interest income and expense due to both rate and volume have been allocated to the categories of variances (volume and rate) based on the percentage relationship of such variances to each other.

(dollars in thousands) 
Nine months ended
September 30, 2020
  
Nine months ended
September 30, 2019
    
                            
Assets 
Average
Balance
  Interest  
Average
Rate
  
Average
Balance
  Interest  
Average
Rate
  
Change in
Interest
Income/
Expense
  
Variance
Balance
Change
  
Variance
Rate
Change
 
                            
Securities available for sale:                           
U. S. government sponsored enterprises $42,573   541   1.69% $166,119   2,600   2.09% $(2,059)  (1,641)  (418)
Mortgage backed securities and collateralized mortgage obligations-residential  339,300   4,959   1.95%  329,188   5,885   2.38%  (926)  277   (1,203)
State and political subdivisions  111   6   7.79%  167   9   7.19%  (3)  (4)  1 
Corporate bonds  46,508   1,372   3.93%  33,678   801   3.17%  571   350   221 
Small Business Administration-guaranteed participation securities  45,313   690   2.03%  54,414   868   2.13%  (178)  (139)  (39)
Other  685   16   3.11%  685   16   3.11%  -   -   - 
                                     
Total securities available for sale  474,490   7,584   2.13%  584,251   10,179   2.32%  (2,595)  (1,157)  (1,438)
                                     
Federal funds sold and other short-term Investments  693,286   1,702   0.33%  504,512   8,843   2.34%  (7,141)  3,991   (11,132)
                                     
Held to maturity securities:                                    
Mortgage backed securities and collateralized mortgage obligations-residential  17,029   475   3.72%  21,123   613   3.87%  (138)  (115)  (23)
                                     
Total held to maturity securities  17,029   475   3.72%  21,123   613   3.87%  (138)  (115)  (23)
                                     
Federal Reserve Bank and Federal Home Loan Bank stock  7,998   351   5.85%  9,104   365   5.35%  (14)  (59)  45 
                                     
Commercial loans  217,573   7,778   4.77%  191,370   7,725   5.38%  53   1,310   (1,257)
Residential mortgage loans  3,652,766   108,845   3.97%  3,412,411   105,786   4.13%  3,059   8,916   (5,857)
Home equity lines of credit  258,956   7,898   4.07%  280,248   10,441   4.97%  (2,543)  (754)  (1,789)
Installment loans  10,129   537   7.08%  10,718   656   8.16%  (119)  (35)  (84)
                                     
Loans, net of unearned income  4,139,424   125,058   4.03%  3,894,747   124,608   4.27%  450   9,437   (8,987)
                                     
Total interest earning assets  5,332,227   135,170   3.38%  5,013,737   144,608   3.85%  (9,438)  12,097   (21,535)
                                     
Allowance for loan losses  (46,618)          (44,744)                    
Cash & non-interest earning assets  196,835           180,568                     
                                     
Total assets $5,482,444          $5,149,561                     
                                     
Liabilities and shareholders' equity                                    
                                     
Deposits:                                    
Interest bearing checking accounts $949,909   97   0.01% $878,106   267   0.04%  (170)  32   (202)
Money market accounts  646,170   2,595   0.54%  546,601   3,122   0.76%  (527)  733   (1,260)
Savings  1,169,316   560   0.06%  1,141,607   1,067   0.12%  (507)  28   (535)
Time deposits  1,372,369   16,739   1.63%  1,416,306   21,462   2.02%  (4,723)  (653)  (4,070)
                                     
Total interest bearing deposits  4,137,764   19,991   0.65%  3,982,620   25,918   0.87%  (5,927)  140   (6,067)
Short-term borrowings  173,497   778   0.60%  160,647   1,121   0.93%  (343)  132   (475)
                                     
Total interest bearing liabilities  4,311,261   20,769   0.64%  4,143,267   27,039   0.87%  (6,270)  272   (6,542)
                                     
Demand deposits  543,279           418,327                     
Other liabilities  77,568           79,937                     
Shareholders' equity  550,336           508,030                     
                                     
Total liabilities and shareholders' equity $5,482,444          $5,149,561                     
                                     
Net interest income , tax equivalent      114,401           117,569      $(3,168)  11,825   (14,993)
                                     
Net interest spread          2.74%          2.98%            
                                     
Net interest margin (net interest income to total interest earning assets)          2.86%          3.13%            
                                     
Tax equivalent adjustment      (2)          (3)                
                                     
Net interest income      114,399           117,566                 

6558
Index
Item 3.Quantitative and Qualitative Disclosures about Market Risk

As detailed in the Annual Report to Shareholderson Form 10-K as of December 31, 2019,2020, the Company is subject to interest rate risk as its principal market risk.  As noted in the Management’s Discussion and Analysis for the three‑month and nine‑three month periods ended September 30,March 31, 2021 and 2020, and 2019, the Company continues to respond to changes in interest rates in such a way that positions the Company to meet short term earning goals and also allows the Company to respond to changes in interest rates in the future.  Consequently, for the thirdfirst quarter of 2020,2021, the Company had an average balance of Federal Funds sold and other short‑termshort-term investments of $938.1 million$1.0 billion compared to $465.3$412.1 million in the thirdfirst quarter of 2019.2020.  As investment opportunities present themselves, management plans to invest funds from the Federal Funds sold and other short‑termshort-term investment portfolio into the securities available for sale, securities held to maturity and loan portfolios.  Additional disclosure of interest rate risk can be found under “Liquidity and Interest Rate Sensitivity” and “Asset/Liability Management” in the Management’s Discussion and Analysis section of this document.

Market disruptions brought about by the COVID-19 pandemic may adversely affect our sensitivity to market interest rates.  We could experience an increase in the cost of funding on our balance sheet.  We could also experience increased pricing competition for our existing loans or future borrower prospects, which could decrease rates earned on our earning assets.

Item 4.Controls and Procedures

An evaluation was carried out under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report.

The Company maintains disclosure controls and procedures (as that term is defined in Rules 13a‑15(e) and 15d‑15(e)15d-15(e) of the Securities Exchange Act of 1934 (“Exchange Act”)) designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission.  Based upon this evaluation of those disclosure controls and procedures, the Chief Executive Officer and Chief Financial Officer of the Company concluded, as of the end of the period covered by this report, that the Company’s disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports the Company files and submits under the Exchange Act is recorded, processed, summarized and reported as and when required.

In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost‑benefitcost-benefit relationship of possible controls and procedures.  Further, no evaluation of a cost‑effectivecost-effective system of controls can provide absolute assurance that all control issues and instances of fraud, if any, will be detected.

6659
Index
There have been no changes in internal control over financial reporting (as defined in Rule 13a‑15(f) and 15d‑15(f)15d-15(f) of the Exchange Act) during the quarter to which this report relates that have materially affected or are reasonably likely to materially affect, the internal control over financial reporting.

PART IIOTHER INFORMATION

Item 1.Legal Proceedings

None.

Item 1A.Risk Factors

There were no material changes to the risk factors as previously disclosed in response to Item 1A to Part I of the Company’s Annual Report on Form 10-K10‑K for the fiscal year ended December 31, 2019, or in response to Item 1A to Part II of the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2020.

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds

Share Repurchase Program

On June 7, 2019,The following table provides certain information with respect to the Company announced that its board of directors approved a stock repurchase program under which the Company was authorized to repurchase over the following twelve months up to 1,000,000 shares of Company common stock, or approximately 1%Company’s purchases of its outstanding shares.  The Company commenced repurchases under the programcommon shares during the quarterthree months ended March 31, 2020.  On April 16, 2020, the Company announced that it had chosen to suspend the repurchase program and on June 6, 2020 the program expired.2021:

Issuer Purchases of Common Shares
Period
Total
Numbers
of shares
purchased
Average price paid per
share
Total number of
shares purchased as
part of publicly
announced plans or
programs
Maximum number of
shares that may yet
be purchased under
the plans or
programs (1)
January 1, 2021 through January 31, 2021             - N/A                              -                              -
February 1, 2021 through February 28, 2021             - N/A                              -                              -
March 1, 2021 through March 31, 2021             - N/A                              -                              -
Total             - N/A                              -                              -

(1)On February 18, 2021 the Company’s Board of Directors authorized another share repurchase program of up to 2,000,000 shares, or approximately 2% of its currently outstanding common stock. If TrustCo’s previous announced reverse stock split is consummated, the then remaining number of shares subject to the repurchase program would be proportionately adjusted.  The Company did not make any repurchases under this authorization during the three months ended March 31, 2021.

Item 3.Defaults Upon Senior Securities

None.

Item 4.Mine Safety

None.

Item 5.Other Information

None.

6760
Index
Item 5.Other Information

None.

Item 6.Exhibits

Reg S‑K
Reg S-K (Item 601)
Exhibit No.
Description
  
15
Crowe LLP Letter Regarding Unaudited Interim Financial Information
  
31(a)
Rule 13a‑15(e)13a-15(e)/15d‑15(e)15d-15(e) Certification of Robert J. McCormick, principal executive officer.
  
31(b)
Rule 13a‑15(e)13a-15(e)/15d‑15(e)15d-15(e) Certification of Michael M. Ozimek, principal financial officer.
  
32
Section 1350 Certifications of Robert J. McCormick, principal executive officer and Michael M. Ozimek, principal financial officer.
  
101.INSInstance Document
  
101.SCHXBRL Taxonomy Extension Schema Document
  
101.CALXBRL Taxonomy Extension Calculation Linkbase Document
  
101.DEFXBRL Taxonomy Extension Definition Linkbase Document
  
101.LABXBRL Taxonomy Extension Label Linkbase Document
  
101.PREXBRLTaxonomy Extension Presentation Linkbase Document

6861
SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 TrustCo Bank Corp NY
  
 
By: /s/
/s/ Robert J. McCormick 
 Robert J. McCormick
 Chairman, President and Chief Executive Officer
  
 
By: /s/
/s/ Michael M. Ozimek 
 Michael M. Ozimek
 Executive Vice President and Chief Financial Officer
  
Date:  November 6, 2020May 7, 2021 


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