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 SeptemberJune 30, 20222023
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 0-10592000-10592

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
 Registrant’s telephone number, including area code:

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-212b‑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 OctoberJuly 31, 2022
2023
$1.001 Par Value19,051,77519,024,433

TrustCo Bank Corp NY

INDEX

DESCRIPTIONPAGE NO.
Forward-Looking Statements
3
Part I.FINANCIAL INFORMATIONPAGE NO.
Item 1.Consolidated Interim Financial Statements (Unaudited):
 
 

Consolidated Statements of Income for the three-month and nine-monthsix-month periods ended SeptemberJune 30, 20222023 and 20212022
34
   
 
Consolidated Statements of Comprehensive Income for the three-month and nine-monthsix-month periods ended SeptemberJune 30, 20222023 and 20212022
45
   
 
Consolidated Statements of Financial Condition as of SeptemberJune 30, 20222023 and December 31, 20212022
56
   
 
Consolidated Statements of Changes in Shareholders’ Equity for the three-month and nine-monthsix-month periods ended SeptemberJune 30, 20222023 and 20212022
67
   
 
Consolidated Statements of Cash Flows for the nine-monthsix-month periods ended SeptemberJune 30, 20222023 and 20212022
78
   
 
Notes to Consolidated Interim Financial Statements
8-469-47
   
 
Report of Independent Registered Public Accounting Firm
4748
   
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
48-6949-67
   
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
7068
   
Item 4.
Controls and Procedures
7068
   
Part II.
OTHER INFORMATION

   
Item 1.
Legal Proceedings
7169
   
Item 1A.
Risk Factors
7169
   
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
7172
   
Item 3.
Defaults Upon Senior Securities
 7172
   
Item 4.
Mine Safety Disclosures
7172
   
Item 5.
Other Information
72
   
Item 6.
Exhibits
7274


2
Index
Forward-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 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, and under the Risk Factor discussion in TrustCo’s Annual Report on Form 10-K for the year ended December 31, 2022, 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 effects of adverse developments in the financial services industry, such as the recent bank failures and any related impact on depositor behavior, macroeconomic or geopolitical concerns related to inflation, rising interest rates and the war in Ukraine.

changes in interest rates, including recent and possible future increases fueled by inflation, may significantly impact our financial condition and results of operations;
inflationary pressures and rising prices may affect our results of operations and financial condition;
exposure to credit risk in our lending activities;
Any downgrade in the credit rating of the U.S. government or default by the U.S. government as a result of political conflicts over legislation to raise the U.S. government’s debt limit may have a material adverse effect on us;
the soundness of other financial institutions could adversely affect us;
Any  government shutdown could adversely affect the U.S. and global economy and our liquidity, financial condition and earnings;
the allowance for credit losses on loans (“ACLL”) is not sufficient to cover expected loan losses, resulting in a decrease in earnings;
our inability to meet the cash flow requirements of our depositors or borrowers or meet our operating cash needs to fund corporate expansion and other activities;
we are subject to claims and litigation pertaining to fiduciary responsibility and lender liability;
our dependency upon the services of the management team;
our disclosure controls and procedures may not prevent or detect all errors or acts of fraud;
if the business continuity and disaster recovery plans that we have in place are not adequate to continue our operations in the event of a disaster, the business disruption can adversely impact its operations;
our risk management framework may not be effective in mitigating risk and loss;
a prolonged economic downturn, especially one affecting our geographic market area, will adversely affect our operations and financial results;
instability in global economic conditions and geopolitical matters, as well as volatility in financial markets, could have a material adverse effect on our results of operations and financial condition;
the trust wealth management fees we receive may decrease as a result of poor investment performance, in either relative or absolute terms, which could decrease our revenues and net earnings;
regulatory capital rules could slow our growth, cause us to seek to raise additional capital, or both;
changes in laws and regulations and the cost of regulatory compliance with new laws and regulations may adversely affect our operations and our income;
non-compliance with the USA PATRIOT Act, Bank Secrecy Act, or other laws and regulations could result in fines or sanctions;
changes in tax laws may adversely affect us, and the Internal Revenue Service or a court may disagree with our tax positions, which may result in adverse effects on our business, financial condition, results of operations or cash flows;
our ability to pay dividends is subject to regulatory limitations and other limitations that may affect our ability to pay dividends to our stockholders or to repurchase our common stock;
we may be subject to a higher effective tax rate if Trustco Realty Corp. (“Trustco Realty”) fails to qualify as a real estate investment trust (“REIT”);
changes in accounting standards could impact reported earnings;
strong competition within the Bank’s market areas could hurt profits and slow growth;
consumers and businesses are increasingly using non-banks to complete their financial transactions, which could adversely affect our business and results of operations;
our business could be adversely affected by third-party service providers, data breaches, and cyber-attacks;
a failure in or breach of our operational or security systems or infrastructure, or those of third parties, could disrupt our businesses, and adversely impact our results of operations, liquidity and financial condition, as well as cause reputational harm;
unauthorized disclosure of sensitive or confidential client or customer information, whether through a breach of our computer systems or otherwise, could severely harm our business;
we could suffer a material adverse impact from interruptions in the effective operation of, or security breaches affecting, our computer systems;
new lines of business or new products and services may subject us to additional risks;
provisions in our articles of incorporation and bylaws and New York law may discourage or prevent takeover attempts, and these provisions may have the effect of reducing the market price of our stock;
we cannot guarantee that the allocation of capital to various alternatives, including stock repurchase plans, will enhance long-term stockholder value;
we are exposed to climate risk;
societal responses to climate change could adversely affect our business and performance, including indirectly through impacts on our customers; and,
other risks and uncertainties included under “Risk Factors” in our Form 10-K for the year ended December 31, 2022, as well as risks and uncertainties, if any, discussed elsewhere in this Form 10-Q and in our other filings made from time to time with the SEC, or in materials incorporated therein by reference.
You should not rely upon forward-looking statements as predictions of future events.  Although TrustCo believes that the expectations reflected in the forward‑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, except to the extent required by law.

23
Index
TRUSTCO BANK CORP NY
Consolidated Consolidated Statements of Income (Unaudited)
(dollars in thousands, except per share data)

 Three months ended  Nine months ended  Three months ended  Six months ended 

 September 30,  September 30,  June 30,  June 30, 
 2022  2021  2022  2021  2023  2022  2023  2022 
                        
Interest and dividend income:                        
Interest and fees on loans $40,896   39,488   119,503   119,513  $46,062  $39,604  $90,334  $78,607 
Interest and dividends on securities available for sale:                                
U. S. government sponsored enterprises  479   91   712   238   691   147   1,383   233 
State and political subdivisions  1   1   2   2   1   -   1   1 
Mortgage-backed securities and collateralized mortgage obligations - residential
  1,617   1,038   4,071   3,442   1,543   1,367   3,128   2,454 
Corporate bonds  526   220   1,281   859   516   522   1,037   755 
Small Business Administration-guaranteed participation securities  133   181   427   580   111   140   228   294 
Other securities  3   5   7   16   3   2   5   4 
Total interest and dividends on securities available for sale  2,759   1,536   6,500   5,137   2,865   2,178   5,782   3,741 
                                
Interest on held to maturity securities:                                
Mortgage-backed securities and collateralized mortgage obligations-residential  85   104   262   338   75   87   153   177 
Total interest on held to maturity securities  85   104   262   338   75   87   153   177 
                                
Federal Home Loan Bank stock  80   64   207   198 
Federal Reserve Bank and Federal Home Loan Bank stock  110   65   220   127 
Interest on federal funds sold and other short-term investments  5,221   470   8,046   1,026   6,970   2,253   13,525   2,825 
Total interest income  49,041   41,662   134,518   126,212   56,082   44,187   110,014   85,477 
                                
Interest expense:                                
Interest on deposits:                                
Interest-bearing checking  43   38   129   136   49   42   115   86 
Savings accounts  200   154   519   475   655   163   1,185   319 
Money market deposit accounts  237   202   661   721   1,756   210   2,570   424 
Time deposits  646   1,149   1,728   4,076   9,291   536   14,563   1,082 
Interest on short-term borrowings  122   232   532   688   279   176   564   410 
Total interest expense  1,248   1,775   3,569   6,096   12,030   1,127   18,997   2,321 
                                
Net interest income  47,793   39,887   130,949   120,116   44,052   43,060   91,017   83,156 
Provision (Credt) for credit losses   300   (2,800)  (391)  (2,450)
Net interest income after (credit) provision for credit losses  47,493   42,687   131,340   122,566 
Credit provision for credit losses   (500)  (491)  (200)  (691)
Net interest income after credit provision for credit losses  44,552   43,551   91,217   83,847 
                                
Noninterest income:                                
Trustco financial services income  1,435   1,558   5,264   5,592   1,412   1,996   3,186   3,829 
Fees for services to customers  2,705   2,531   8,164   7,221   2,847   2,658   5,495   5,459 
Other  246   206   1,057   598   339   262   586   811 
Total noninterest income  4,386   4,295   14,485   13,411   4,598   4,916   9,267   10,099 
                                
Noninterest expenses:                                
Salaries and employee benefits  12,134   11,909   32,837   36,737   13,122   11,464   26,405   20,703 
Net occupancy expense  4,483   4,259   13,266   13,173   4,262   4,254   8,860   8,783 
Equipment expense  1,532   1,628   4,787   4,859   1,873   1,667   3,835   3,255 
Professional services  1,375   1,483   4,326   4,529   1,360   1,484   2,967   2,951 
Outsourced services  2,328   2,015   7,108   6,434   2,491   2,500   4,787   4,780 
Advertising expense  508   310   1,514   1,213   518   389   908   1,006 
FDIC and other insurance  773   746   2,389   2,230   1,085   804   2,137   1,616 
Other real estate expense, net  124   32   209   211   148   74   373   85 
Other  2,887   2,315   7,478   6,086   2,468   2,369   4,734   4,591 
Total noninterest expenses  26,144   24,697   73,914   75,472   27,327   25,005   55,006   47,770 
                                
Income before taxes  25,735   22,285   71,911   60,505   21,823   23,462   45,478   46,176 
Income taxes  6,371   5,523   17,587   15,227   5,451   5,591   11,360   11,216 
                                
Net income $19,364   16,762   54,324   45,278  $16,372  $
17,871  $
34,118  $
34,960 
                                
Net income per share:                                
- Basic $1.013   0.871   2.835   2.349  $0.86  $
0.93  $
1.79  $
1.82 
                                
- Diluted $1.013   0.871   2.835   2.349  $0.86  $
0.93  $
1.79  $
1.82 

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  Nine months ended 
 
September 30,
  
September 30,
 
  2022  2021  2022  2021 
             
Net income $19,364   16,762   54,324   45,278 
                 
Net unrealized holding loss on securities available for sale  (20,943)  (765)  (49,379)  (5,939)
Tax effect  5,421   199   12,777   1,534 
                 
Net unrealized loss on securities available for sale, net of tax
  (15,522)  (566)  (36,602)  (4,405)
                 
Amortization of net actuarial gain  (280)  (137)  (784)  (534)
Amortization of prior service (credit) cost  (78)  177   (235)  227 
Tax effect  93   (10)  265   80 
Amortization of net actuarial gain and prior service (credit) cost on pension and postretirement plans, net of tax  (265)  30   (754)  (227)
                 
Other comprehensive loss, net of tax  (15,787)  (536)  (37,356)  (4,632)
Comprehensive income $3,577   16,226   16,968   40,646 

See accompanying notes to unaudited consolidated interim financial statements.

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

 September 30, 2022  December 31, 2021 
ASSETS:      
       
Cash and due from banks $46,236   48,357 
Federal funds sold and other short term investments  795,028   1,171,113 
Total cash and cash equivalents  841,264   1,219,470 
         
Securities available for sale  468,219   407,713 
Held to maturity securities ($7,938 and $10,695 fair value at September 30, 2022 and December 31, 2021, respectively)
  8,091   9,923 
         
Federal Home Loan Bank stock  5,797   5,604 
Loans, net of deferred net costs  4,629,491   4,438,779 
Less:        
Allowance for credit losses on loans
  45,517   44,267 
Net loans  4,583,974   4,394,512 
         
Bank premises and equipment, net  31,931   33,027 
Operating lease right-of-use assets  45,733   48,090 
Other assets  94,485   78,207 
         
Total assets $6,079,494   6,196,546 
         
LIABILITIES:        
Deposits:        
Demand $859,829   794,878 
Interest-bearing checking  1,188,790   1,191,304 
Savings accounts  1,562,564   1,504,554 
Money market deposit accounts  716,319   782,079 
Time deposits  954,352   995,314 
Total deposits  5,281,854   5,268,129 
         
Short-term borrowings  124,932   244,686 
Operating lease liabilities  50,077   52,720 
Accrued expenses and other liabilities  33,625   29,883 
         
Total liabilities  5,490,488   5,595,418 
         
SHAREHOLDERS’ EQUITY:        
Capital stock par value $1.00; 30,000,000 shares authorized;  20,045,684 shares issued at September 30, 2022 and December 31, 2021, and 19,051,775 and 19,219,989 shares outstanding at September 30, 2022 and December 31, 2021, respectively
  20,046   20,046 
Surplus
  256,661   256,661 
Undivided profits  379,769   349,056 
Accumulated other comprehensive (loss) income, net of tax  (25,209)  12,147 
Treasury stock at cost - 993,909 and 825,695 shares at September 30, 2022 and December 31, 2021, respectively
  (42,261)  (36,782)
         
Total shareholders’ equity  589,006   601,128 
         
Total liabilities and shareholders’ equity $6,079,494   6,196,546 
  Three months ended  Six months ended 
 
June 30,
  
June 30,
 
  2023  2022  2023  2022 
             
Net income $16,372  $
17,871  $
34,118  $
34,960 
                 
Net unrealized holding (loss) gain on securities available for sale  (3,718)  (9,211)  1,533   (28,436)
Tax effect  963   2,382   (387)  7,356 
                 
Net unrealized (loss) gain on securities available for sale, net of tax
  (2,755)  (6,829)  1,146   (21,080)
                 
Amortization of net actuarial gain  (114)  (426)  (228)  (504)
Amortization of prior service cost (credit)
  3   123   6   (157)
Tax effect  29   79   58   172 
Amortization of net actuarial gain and prior service cost (credit) on pension and postretirement plans, net of tax  (82)  (224)  (164)  (489)
                 
Other comprehensive (loss) gain, net of tax  (2,837)  (7,053)  982   (21,569)
Comprehensive income $13,535  $
10,818  $
35,100  $
13,391 

See accompanying notes to unaudited consolidated interim financial statements.

5
Index
TRUSTCO BANK CORP NY
Consolidated Statements of Changes in Shareholders’ EquityFinancial Condition (Unaudited)
(dollars in thousands, except per share data)

           Accumulated       
           Other       
  Capital     Undivided  Comprehensive  Treasury    

 Stock (1)  Surplus (1)  Profits  Income  Stock  Total 
                   
Beginning balance, January 1, 2021 (1)
 $20,041   256,606   313,974   11,936   (34,396)  568,161 
Net income  -   -   14,083   -   -   14,083 
Other comprehensive loss, net of tax  -   -   -   (4,668)  -   (4,668)
Stock options exercised (2,650 shares) (1)
  3   68               71 
Cash dividend declared, $0.340625 per share (2)
  -   -   (6,571)  -   -   (6,571)
Purchase of treasury stock (1,261 shares) (2)
  -   -   -   -   (45)  (45)
                         
Ending balance, March 31, 2021 (1)
 $20,044   256,674   321,486   7,268   (34,441)  571,031 
Net income  -   -   14,433   -   -   14,433 
Other comprehensive loss, net of tax  -   -   -   572   -   572 
Cash used to settle fractional shares in the Reverse Stock Split  (5)  (195)  -
   -   -   (200)
Stock options exercised (2,225 shares)   2   57   -   -   -   59 
Cash dividend declared, $0.340625 per share
  -   -   (6,569)  -   -   (6,569)
Purchase of treasury stock (20,000 shares)  -   -   -   -   (733)  (733)
                         
Ending balance, June 30, 2021
 $20,041   256,536   329,350   7,840   (35,174)  578,593 
Net income  -   -   16,762   -   -   16,762 
Other comprehensive loss, net of tax  -   -   -   (536)  -   (536)
                         
Stock options exercised (1,160 shares)
  1   29   -   -   -   30 
Cash dividend declared, $0.340625 per share
  -   -   (6,558)  -   -   (6,558)
Purchase of treasury stock (50,000 shares)
  -   -   -   -   (1,608)  (1,608)

                        
Ending balance, September 30, 2021 (1)
 $20,042   256,565   339,554   7,304   (36,782)  586,683 
                         
Beginning balance, January 1, 2022
 $20,046   256,661   349,056   12,147   (36,782)  601,128 
Cumulative impact of adoption of ASU 2016-13  -
   -
   (3,470)  -
   -
   (3,470)
Balance, January 1, 2022 as adjusted For impact of adoption of ASU 2016-13  20,046   256,661   345,586   12,147   (36,782)  597,658 
                         
Net income  -   -   17,089   -   -   17,089 
Other comprehensive loss, net of tax  -   -   -   (14,516)  -   (14,516)
Cash dividend declared, $0.35 per share
  -   -   (6,727)  -   -   (6,727)
Purchase of treasury stock 18,114 shares
  -   -   -   -   (609)  (609)

                        
Ending balance, March 31, 2022
 $20,046   256,661   355,948   (2,369)  (37,391)  592,895 
                         
Net income  -   -   17,871   -   -   17,871 
Other comprehensive loss, net of  tax  -   -   -   (7,053)  -   (7,053)
Cash dividend declared, $0.35 per share
  -   -   (6,719)  -   -   (6,719)
Purchase of treasury stock 75,000 shares
  -   -   -   -   (2,362)  (2,362)
                         
Ending balance, June 30, 2022
 $20,046   256,661   367,100   (9,422)  (39,753)  594,632 
                         
Net income  -   -   19,364   -   -   19,364 
Other comprehensive loss, net of tax  -   -   -   (15,787)  -   (15,787)
 Cash dividend declared, $0.35 per share
  -   -   (6,695)  -   -   (6,695)
 Purchase of treasury stock 75,100 shares
  -   -   -   -   (2,508)  (2,508)
                         
Ending balance, September 30, 2022
 $20,046   256,661   379,769   (25,209)  (42,261)  589,006 

(1)
All periods presented have been adjusted for the 1 for 5 reverse stock split which occurred on May 28, 2021.
(2)
Share amounts and per share amounts have been adjusted for all periods presented for the 1 for 5 reverse stock split which occurred on May 28, 2021.
 June 30, 2023  December 31, 2022 
ASSETS:      
       
Cash and due from banks $55,662  $43,429 
Federal funds sold and other short term investments  547,695   607,170 
Total cash and cash equivalents  603,357   650,599 
         
Securities available for sale  452,704   481,513 
Held to maturity securities ($6,926 and $7,580 fair value at June 30, 2023 and December 31, 2022, respectively)
  7,043   7,707 
         
Federal Reserve Bank and Federal Home Loan Bank stock  6,203   5,797 
Loans, net of deferred net costs  4,886,811   4,733,201 
Less:        
Allowance for credit losses on loans
  46,914   46,032 
Net loans  4,839,897   4,687,169 
         
Bank premises and equipment, net  32,351   32,556 
Operating lease right-of-use assets  43,113   44,727 
Other assets  90,957   89,984 
         
Total assets $6,075,625  $6,000,052 
         
LIABILITIES:        
Deposits:        
Demand $791,353  $838,147 
Interest-bearing checking  1,082,989   1,183,321 
Savings accounts  1,315,893   1,521,473 
Money market deposit accounts  625,253   621,106 
Time deposits  1,442,959   1,028,763 
Total deposits  5,258,447   5,192,810 
         
Short-term borrowings  113,765   122,700 
Operating lease liabilities  47,172   48,980 
Accrued expenses and other liabilities  34,852   35,575 
         
Total liabilities  5,454,236   5,400,065 
         
SHAREHOLDERS’ EQUITY:        
Capital stock par value $1.00; 30,000,000 shares authorized;  20,058,142 shares issued at June 30, 2023 and December 31, 2022, and 19,024,433 shares outstanding at June 30, 2023 and December 31, 2022
  20,058   20,058 
Surplus
  257,078   257,078 
Undivided profits  414,251   393,831 
Accumulated other comprehensive loss, net of tax  (26,212)  (27,194)
Treasury stock at cost - 1,033,709 shares at June 30, 2023 and December 31, 2022, respectively
  (43,786)  (43,786)
         
Total shareholders’ equity  621,389   599,987 
         
Total liabilities and shareholders’ equity $6,075,625  $6,000,052 

See accompanying notes to unaudited consolidated interim financial statements.

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

 Nine months ended September 30, 
  2022  2021 
       
Cash flows from operating activities:      
Net income $54,324   45,278 
         
Adjustments to reconcile net income to net cash provided by operating activities:        
Depreciation  3,091   3,184 
Amortization of right-of-use asset  4,841   4,745 
Net gain on sale of other real estate owned  (99)  (86)
Writedown of other real estate owned  -   121 
(Credit) provision for credit losses  (391)  (2,450)
Deferred tax expense (benefit)
  1,523   (1,247)
Net amortization of securities  1,802   3,113 
Net gain on sale of bank premises and equipment
  (314)  - 
Decrease (increase) in taxes receivable  4,062   (463)
(Increase) decrease in interest receivable  (1,837)  673 
Decrease in interest payable  (1)  (249)
Increase in other assets  (4,406)  (1,442)
Decrease in operating lease liabilities  (5,127)  (4,965)
Decrease in accrued expenses and other liabilities  (1,652)  (2,106)
Total adjustments  1,492   (1,172)
Net cash provided by operating activities  55,816   44,106 
         
Cash flows from investing activities:        
Proceeds from sales, paydowns and calls of securities available for sale  57,714   123,550 
Proceeds from paydowns of held to maturity securities  1,772   3,028 
Purchases of securities available for sale  (184,391)  (136,543)
Proceeds from maturities of securities available for sale  15,050   8,555 
Purchases of Federal Home Loan Bank stock  (193)  (98)
Net increase in loans  (191,052)  (152,314)
Proceeds from dispositions of other real estate owned  416   255 
Proceeds from dispositions of bank premises and equipment  469   6 
Purchases of bank premises and equipment  (2,150)  (2,011)
Net cash used in investing activities  (302,365)  (155,572)
         
Cash flows from financing activities:        
Net increase in deposits  13,725   203,825 
Net change in short-term borrowings  (119,754)  16,015 
Proceeds from exercise of stock options  -   160 
Cash used to settle fractional shares in the Reverse Stock Split
  -   (200)
Purchases of treasury stock  (5,479)  (2,386)
Dividends paid  (20,149)  (19,708)
Net cash (used in) provided by financing activities  (131,657)  197,706 
Net increase in cash and cash equivalents  (378,206)  86,240 
Cash and cash equivalents at beginning of period  1,219,470   1,107,099 
Cash and cash equivalents at end of period $841,264   1,193,339 
         
Supplemental Disclosure of Cash Flow Information:        
Cash paid during the year for:        
Interest paid $3,570   6,345 
Income taxes paid  13,687   15,430 
Other non cash items:        
Transfer of loans to other real estate owned  637   260 
Decrease in dividends payable  (8)  (10)
Change in unrealized (loss) gain on securities available for sale-gross of deferred taxes  (49,379)  (5,939)
Change in deferred tax effect on unrealized loss (gain) on securities available for sale  12,777   1,534 
Amortization of net actuarial gain and prior service cost (credit) on pension and postretirement plans  (1,019)  (307)
Change in deferred tax effect of amortization of net actuarial gain postretirement benefit plans  265   80 
Impact to retained earnings from adoption of ASC 326, net of tax  (3,470)  - 
           Accumulated       
           Other       
  Capital     Undivided  Comprehensive  Treasury    

 Stock
  Surplus
  Profits  Loss  Stock  Total 
                   
Beginning balance, January 1, 2022
 $20,046  $
256,661  $
349,056  $
12,147  $
(36,782) $
601,128 
Cumulative impact of adoption of ASU 2016-13
  -   -   (3,470)  -   -   (3,470)
Balance, January 1, 2022 as adjusted
                        
For impact of adoption of ASU 2016-13
  20,046   256,661   345,586   12,147   (36,782)  597,658 
Net income  -   -   17,089   -   -   17,089 
Other comprehensive loss, net of tax  -   -   -   (14,516)  -   (14,516)
Cash dividend declared, $0.35 per share
  -   -   (6,727)  -   -   (6,727)
Purchase of treasury stock 18,114 shares
  -   -   -   -   (609)  (609)
                         
Ending balance, March 31, 2022
 $20,046  $
256,661  $
355,948  $
(2,369) $
(37,391) $
592,895 
                         
Net income
  -   -   17,871   -   -   17,871 
Other comprehensive loss, net of tax
  -   -   -   (7,053)  -   (7,053)
Cash dividend declared, $0.35 per share
  -   -   (6,719)  -   -   (6,719)
Purchase of treasury stock 75,000 shares
  -   -   -   -   (2,362)  (2,362)
                         
Ending balance, June 30, 2022
 $
20,046  $
256,661  $
367,100  $
(9,422) $
(39,753) $
594,632 
                         
Beginning balance, January 1, 2023 $
20,058  $
257,078  $
393,831  $
(27,194) $
(43,786) $
599,987 
Net income  -   -   17,746   -   -   17,746 
Other comprehensive (loss) income, net of tax  -   -   -   3,819   -   3,819 
Cash dividend declared, $0.36 per share
  -   -   (6,849)  -   -   (6,849)
                         
Ending balance, March 31, 2023 $20,058  $
257,078  $
404,728  $
(23,375) $
(43,786) $
614,703 
                         
Net income
  -   -   16,372   -   -   16,372 
Other comprehensive (loss) income, net of tax
  -   -   -   (2,837)  -   (2,837)
Cash dividend declared, $0.36 per share
  -   -   (6,849)  -   -   (6,849)
                         
Ending balance, June 30, 2023 $
20,058  $
257,078  $
414,251  $
(26,212) $
(43,786) $
621,389 

See accompanying notes to unaudited consolidated interim financial statements.


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


 Six months ended June 30, 
  2023  2022 
       
Cash flows from operating activities:      
Net income $34,118   34,960 
         
Adjustments to reconcile net income to net cash provided by operating activities:        
Depreciation  2,021   2,057 
Amortization of right-of-use asset  3,267   3,231 
Net gain on sale of other real estate owned  (175)  (73)
Writedown of other real estate owned
  107   - 
(Credit) provision for credit losses  (200)  (691)
Deferred tax expense (benefit)
  1,965   1,281 
Net amortization of securities  900   1,289 
Net gain on sale of bank premises and equipment
  -   (314)
Decrease in taxes receivable  1,394   3,077 
Increase in interest receivable  (270)  (1,627)
Increase (decrease) in interest payable
  1,444   (21)
Increase in other assets  (3,884)  (3,378)
Decrease in operating lease liabilities  (3,461)  (3,427)
Decrease in accrued expenses and other liabilities  (2,779)  (3,371)
Total adjustments  329   (1,967)
Net cash provided by operating activities  34,447   32,993 
         
Cash flows from investing activities:        
Proceeds from sales, paydowns and calls of securities available for sale  29,469   43,338 
Proceeds from paydowns of held to maturity securities  637   1,335 
Purchases of securities available for sale  (5,000)  (172,771)
Proceeds from maturities of securities available for sale  5,000   10,050 
Purchases of Federal Home Loan Bank stock
  (406)  (193)
Net increase in loans  (153,328)  (101,990)
Proceeds from dispositions of other real estate owned  718   166 
Proceeds from dispositions of bank premises and equipment  -   469 
Purchases of bank premises and equipment  (1,816)  (1,566)
Net cash used in investing activities  (124,726)  (221,162)
         
Cash flows from financing activities:        
Net increase in deposits  65,637   128,712 
Net increase in short-term borrowings  (8,935)  (97,404)
Purchases of treasury stock  -   (2,971)
Dividends paid  (13,665)  (13,454)
Net cash provided by financing activities  43,037   14,883 
Net decrease in cash and cash equivalents  (47,242)  (173,286)
Cash and cash equivalents at beginning of period  650,599   1,219,470 
Cash and cash equivalents at end of period $603,357   1,046,184 
         
Supplemental Disclosure of Cash Flow Information:        
Cash paid during the year for:        
Interest paid $10,586   2,342 
Income taxes paid  9,981   8,303 
Other non cash items:        
Transfer of loans to other real estate owned
  -   375 
Increase (Decrease) in dividends payable  33   (8)
Change in unrealized gain (loss) on securities available for sale-gross of deferred taxes  1,533   (28,436)
Change in deferred tax effect on unrealized (gain) loss on securities available for sale  (387)  7,356
 
Amortization of net actuarial gain and prior service cost (credit) on pension and postretirement plans  (222)  (661)
Change in deferred tax effect of amortization of net actuarial gain postretirement benefit plans  58   172 
Security purchase settled in subsequent period
  -   (5,000)
Impact to retained earnings from adoption of ASC 326, net of tax  -   (3,470)

See accompanying notes to unaudited consolidated interim financial statements.

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TRUSTCO BANK CORP NY
Notes to Consolidated Interim Financial Statements
(Unaudited)

(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 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 ninesix months ended SeptemberJune 30, 20222023 is not necessarily indicative of the results that may be expected for the year ending December 31, 2022,2023, 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 SeptemberJune 30, 2022,2023, the results of operations for the three and ninesix months ended SeptemberJune 30, 20222023 and 2021,2022, and the cash flows for the ninesix months ended SeptemberJune 30, 20222023 and 2021.2022.  The accompanying unaudited Consolidated Interim Financial Statements should be read in conjunction with the Company’s year‑endyear-end audited 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, 2021.2022.  The accompanying unaudited Consolidated Interim Financial Statements have been prepared in accordance with the applicable rules of the Securities and Exchange Commission (“SEC”(the “SEC”) 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.  Results of operations for the ninethree and six months ended SeptemberJune 30, 20222023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.2023.


The accounting policies of the Company, as applied in the Consolidated Interim Financial Statements presented herein, are substantially the same as those followed on an annual basis in the Annual Report on Form 10-K for the year ended December 31, 20212022 filed with the SEC on February 25, 2022 except as noted below. The accounting policies of the Company effective for the comparative periods presented prior to the adoption of ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326) are presented in the Form 10-K referenced above.
 

Recently Adopted Accounting Standards

On JanuaryMarch 1, 2022, the Company adopted ASU 2016-13, “Financial Instruments - Credit Losses” (referred to as “CECL” and as Accounting Standards Codification Topic 326 (“ASC 326”)) which amended existing guidance to replace current generally accepted accounting principles used to measure a reporting entity’s credit losses.  The main objective of this update is to provide financial statement users with enhanced financial disclosures for 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 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.  The allowance for credit losses on loans is a valuation account that is deducted from, or added to, the loans’ amortized cost basis to present the net, lifetime amount expected to be collected on the loans. The measurement of expected credit losses under the CECL methodology applies to financial assets measured at amortized cost including loan receivables and held-to-maturity debt securities.   The update also applies to off-balance sheet exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees and other similar instruments). 


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In addition, CECL made changes to the accounting for available for sale securities. One such change is to require credit losses to be presented as an allowance rather than as a write-down on available for sale debt securities that management does not intend to sell or believes that it is more likely than not they will be required to sell.

As previously disclosed, the Company assembled a cross-functional working group that met regularly to oversee the implementation plan for CECL, which included the assessment and documentation of the processes and internal controls, model development and documentation, assessing existing loan and loss data, assessing models for default and loss estimates and conducting parallel runs and reviews through January 1, 2022.2023.



The Company adopted CECL usingRisks and Uncertainties:  During the modified retrospective method for all financial assets measured at amortized cost and off-balance-sheet credit exposures. Results for reporting periods beginning after January 1, 2022 are presented under CECL while prior period amounts continue to be reported in accordance with previous applicable GAAP. On the adoption date, the Company increased the allowance for credit losses on loans by $2.4 million and increased the allowance for credit losses for unfunded commitments by $2.3 million (included in Accrued expenses and other liabilities). The Company recorded a net decrease to undivided profitsfirst quarter of $3.5 million, net of $1.2 million in deferred tax balances as of January 1, 2022 for the cumulative effect of adopting CECL.

The Company did not record an allowance for credit losses as of January 1, 2022 on its securities available for sale or held to maturity.

The impact of the January 1, 2022 adoption entry is summarized in the table below:

(in thousands)
 
December 31,
2021 Pre-CECL
Adoption
  Impact of Adoption  
January 1, 2022
Post-CECL
Adoption
 
Assets:         
Allowance for credit losses on loans $44,267  $
2,353  $46,620 
Allowance for credit losses on securities  -   -   - 
Liabilities and shareholders’ equity:            
Other liabilities (ACL unfunded loan commitments)  18   2,335   2,353 
Tax Effect, net  -   (1,218)  - 
Total
  44,285   3,470   48,973 
             
Undivided Profits $
349,056  $
(3,470) $
345,586 

Loans


Loans that management has the intent and ability to hold for the near future or until maturity or payoff are reported at amortized cost net of allowance for credit losses on loans. Amortized cost is the principal balance outstanding, net of deferred loan fees and costs. Interest income is accrued on unpaid principal balances.  Loan origination fees, net of2023 certain direct origination costs, are deferred and recognized in interest income using the level-yield method without anticipating prepayments.
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Interest income of mortgage and commercial loans is discontinued andbanks were placed on non-accrual status at the time the loan is 90 days delinquent. Non-accrual loans are individually reviewed and charged off at 180 days past due. Commercial loans are charged off to the extent principal or interest is deemed uncollectible. In all cases, loans are placed on non-accrual or charged off at an earlier date if collection of principal or interest is considered doubtful.

All interest accrued but not received for loans placed on non-accrual is reversed against interest income. Interest received on such loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Under the cost-recovery method, interest income is not recognized until the loan balance is reduced to zero. Under the cash-basis method, interest income is recorded when the payment is received in cash. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought to current and future payments are reasonably assured.


Accrued Interest Receivable    



The Company has made the following elections with regards to accrued interest receivable: the Company will continue to write off accrued interest receivable by reversing interest income; the Company has made the accounting policy election not to measure an allowance for credit losses for accrued interest receivables; and the Company elected to exclude accrued interest receivable balances from tabular disclosures and will present accrued interest receivable balances in other assets.

Allowance for Credit Losses on Loans

The allowance for credit losses on loans (“ACLL”) is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans. Loan are charged off against the allowance when management believes the uncollectibility of the loan balance is confirmed. Expected recoveries are not to exceed the aggregate of amounts previously charged-off and expected to be charged-off.

The Company has elected the Discounted Cash Flow methodology to determine its ACLL. Management estimates the allowance for credit loss on loans balance using relevant available information from internal and external sources related to past events, current conditions, and a reasonable and supportable forecast provided by a third party. The 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, historical credit loss experience in Florida and New York provides the quantitative basis for the estimation of expected credit losses. Complementary to that, a portion of its debtors’ ability to repay depends significantly on the economic employment conditions prevailing in the respective geographic territory. The ACLL reserve is overlaid with qualitative considerations for changes in underwriting standards, portfolio mix, delinquency levels, or economic conditions such as changes in the unemployment rates, property values, and gross metro product to make adjustments to historical loss information. Management judgment is required at each point in the measurement process.


The allowance for unfunded commitments is maintained at a levelinto receivership by the Company determinedFDIC and one bank began to be sufficient to absorb expected lifetime losses related to unfunded credit facilities (including unfunded loan commitments and letters of credit).

Management utilized the historical loss rate experience on the Company’s loan portfolio as the initial basis of the estimate using probability of default and loss given defaults derived from September 30, 2011 to January 1, 2022.  A defaulted loan is a loan payment default once it is 90 days contractually past due.

Management utilizes externally developed economic forecasts (Moody’s forecast scenarios) of unemployment rates within the key metropolitan areas in New York and Florida of which we serve to forecast probability of defaults and loss given defaults within the model.  Management has determined that a  reasonable and supportable forecast is 8 quarters after which the historical average probability defaults and loss given defaults will be used. The two economic scenarios evaluated by management in detail were the Baseline and Stagflation forecast scenarios. Within both scenarios, Management considered the following:

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•
Unemployment levels in relation to inflationary pressures;
Monetary and fiscal policy assumptions and movement of the federal funds rate in 2022;
Supply chain conditions and their impacts on Consumer Price indices (“CPI”), and
Inflationary pressures on housing, and Gross Metro Product (“GMP”).

In determining the appropriate forecast to utilize, management considered the range of forecasted unemployment as well as a number of other economic indicators. Unemployment levels in the Baseline continued to be optimistic while not providing what management determined to be a full reflection of supply chain, workforce challenges, and inflationary pressures. The rising inflation, volatility in consumer confidence, supply chain, and workforce environment challenges, as well as monetary and geopolitical environmental considerations, drove management to elect the Stagflation forecast scenario.
 

As of January 1, 2022, the Company has elected to fully utilize the Stagflation forecast scenario. The Company determined the forecast more appropriately considers inflationary pressures, and monetary policies observed currently and prospectively in the markets served. The ACLL reserve is then complemented with qualitative factors based upon GMP, CPI, and housing forecasts using the same scenario, and their related forecasts for the respective metropolitan regions of New York and Florida, and were factored into the calculation.

The effective interest rate  used to discount expected cash flows considered the timing of the expected cash flows resulting from prepayments that existed as of January 1, 2022. The prepayment-adjusted effective interest rate uses the original contractual rate and prepayment assumptions as of January 1, 2022.
 
There were no changes in the Company’s methodology for the allowance for credit losses on loans for the period ended September 30, 2022 compared to the adoption date.


The Company determined a contractual term excluding expected extensions, renewals and modifications. Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments when appropriate.

The Company determined its allowance for credit losses on loans using a pool of assets with similar risk characteristics. The Company evaluates its risk characteristics based on regulatory call report codes where it was determined that the loans within the call codes were homogenous in nature and could be aggregated into the main categories for the Company portfolio. There were no changes to the loan pools under CECL for January 1, 2022 compared to previously disclosed loan segments. Loans that no longer match the risk profile of the pool are individually assessed for credit losses. Non-accrual loans that have been delinquent 180 days or greater, commercial non-accrual loans and loans identified as troubled debt restructuring (“TDR”) are individually assessed. The individual assessment for credit impairment is generally based on a discounted cash flow approach unless the asset is collateral dependent. The loan is considered collateral dependent when repayment is expected to be provided substantially through the operation or sale of the collateral and the borrower is experiencing financial difficulty. Collateral dependent loans are individually assessed and the expected credit loss is based on the fair value of the collateral.
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A loan for which terms have been modified resulting in a concession, and for which the borrower is experiencing financial difficulties is considered a TDR. In situations where the Bank considers a loan modification, management determines whether the borrower is experiencing financial difficulty by performing an evaluation of the probability that the borrower will be in payment default on any of its debt in the near 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, even though there was no modification of terms, the borrowers’ debt to the Company was discharged and they may not reaffirm the debt.
 

The TDR that have subsequently defaulted have the underlying collateral evaluated at the time these loans were identified as TDRs, and a charge‑off was taken at that time, if necessary.  Collateral values on these loans are reviewed for collateral sufficiency on a quarterly basis.

Allowance for Credit Losses on Off-Balance Sheet Credit Exposures

The Company estimates credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. The allowance for credit losses on off-balance sheet credit exposures is adjusted as a provision for credit loss expense. The estimate includes consideration that funding will occur and an estimate of expected credit losses on commitments is expected to be funded over its estimated life. The 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.   The following categories of off-balance sheet credit exposures have been identified: unfunded commitments to extend credit, unfunded lines of credit, residential mortgage pending closings and standby letters of credit. Each of these unfunded commitments is analyzed for a probability of funding to calculate a probable funding amount. The life of loan loss factor by related portfolio segment from the allowance for credit losses on loans calculation is then applied to the probable funding amount to calculate the estimated credit losses on off-balance sheet credit exposures recognized in other liabilities.  The post adoption balance is included with Accrued expenses and other liabilities on consolidated statements of financial condition. Prospective changes in the reserve will be recorded through the provision for credit losses on the consolidated statements of income.

Debt Securities

Debt securities are classified as held to maturity and carried at amortized cost when management has the positive intent and ability to hold them to maturity. Debt securities are classified as available for sale when they might be sold before maturity. Securities available for sale are carried at fair value, with unrealized holding gains and losses reported in other comprehensive income, net of tax. There were no debt securities for which other-than-temporary impairment had been recognized prior to January 1, 2022. Interest income includes amortization of purchase premium or discount. Premiums and discounts on securities are generally amortized on the level-yield method without anticipating prepayments. Premiums on callable debt securities are amortized to their earlier call date. Discounts are amortized to maturity date. Gains and losses are recorded on the trade date and determined using the specific identification method.

A debt security is placed on non-accrual status at the time any principal or interest payments become 90 days delinquent. Interest accrued but not received for a security placed on non-accrual is reversed against interest income. Timely principal and interest payments continue to be made on the securities. The unrealized losses in the portfolio are primarily attributable to changes in interest rates.
 
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Allowance for Credit Losses – Held to Maturity Securities
 

The Company’s held to maturity securities are issued by U.S. government entities and agencies such as Ginnie Mae, Fannie Mae, and Freddie Mac. These securities are either explicitly or implicitly guaranteed byvoluntarily dissolve.  While the U.S. government andintervened to cover depositors, even those with balances exceeding FDIC insurance coverage, there can be no guarantee that the same coverage will be applied if there are highly rated by major rating agencies and havefuture bank failures.  Management believes that the conditions impacting these banks do not present a long history of no credit losses. Management measures expected credit losses on heldsignificant risk to maturity debt securities on a collective basis by major security type, issuer and payment stream. The estimate of expected credit losses considers historical credit loss information adjusted for current conditions and reasonable and supportable forecasts provided by a third party servicer. Based on the nature of the securities held by the Company, and the underlying guarantees, there was no allowance for credit losses recorded for held to maturity securities as of January 1, 2022.
 

Accrued interest receivable on held to maturity securities totaled $33 thousand and is excluded from the estimate of credit losses. Historically the Company has not experienced uncollectible accrued interest receivable on its held-to-maturity securities portfolio.

Allowance for Credit Losses – Available For Sale Securities
 

For available for sale debit securities in an unrealized loss position,been directly impacted by the entity first assesses whether it intendsbank failures.  Present economic conditions have caused disruption to sell, or if it is more likely that notthe banking system and any additional implications are uncertain.  The Company believes that it willhas sufficient liquid assets and borrowing sources should there be required to sell the security before recovery of its amortized cost basis. If either criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For debt securities available for sale that do not meet the aforementioned criteria, in making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency and any adverse conditions specifically related to the security and its issuer, among other factors. If the present value of the cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recorded through other comprehensive income.

Change in the allowance for credit losses is recorded as a provision for credit loss expense. Losses are charged against the allowance when management believes the uncollectibility of an available for sale security is confirmed or when either criteria regarding the intent or requirement to sell is met.

The unrealized losses reported pertained to securities issued by the U.S. government and its sponsored entities, include agencies, and mortgage backed securities issued by Ginnie Mae, Fannie Mae, and Freddie Mac, which are currently well rated and guaranteed by the U.S. government. The Company does not intend to sell the securities, and it is not considered likely the Company will be required to sell these securities prior to recovery of the amortized cost. Timely principal and interest payments continue to be made on the securities. The unrealized losses in the portfolio are primarily attributable to changes in interest rates. Management does not believe any individual unrealized loss as of January 1, 2022 represents any credit loss and no realized losses have been recognized into provision for credit loss.liquidity need.

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(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 ninesix months ended SeptemberJune 30, 20222023 and 20212022 is as follows:

(in thousands, except per share data) For the three months ended  For the nine months ended  For the three months ended  For the six months ended 
 
September 30,
  
September 30,
  
June 30,
  
June 30,
 
 2022  2021  2022  2021  2023  2022  2023  2022 
                        
Net income $19,364   16,762  $54,324   45,278  $16,372  $
17,871  $34,118  $
34,960 
Weighted average common shares
  19,111   19,249   19,159   19,272   19,024   19,153   19,024   19,185 
Stock Options
  1   3   1   6   -   -   1   - 
Weighted average common shares including potential dilutive shares
  19,112   19,252   19,160   19,278   19,024   19,153   19,025   19,185 
                                
Basic EPS
 $1.013   0.871  $2.835   2.349  $0.86  $0.93  $1.79  $1.82 
                                
Diluted EPS
 $1.013   0.871  $2.835   2.349  $0.86  $0.93  $1.79  $1.82 

For both the three and ninesix months ended SeptemberJune 30, 20222023 there were one 77 thousand shares and approximately  52 thousand shares, respectively, of weighted average antidilutive stock options excluded from dilutive earnings.  For the three and ninesix months ended SeptemberJune 30, 2021 the2022 there were approximately 89 thousand shares and 60 thousand shares, respectively, of weighted average antidilutive stock options excluded from dilutive earnings was approximately 60 thousand shares.. 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.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 ninesix months ended  SeptemberJune 30, 20222023 and 20212022 for its pension and other postretirement benefit plans:

 
Three months ended September 30,
 
Three months ended June 30,
 
 Pension Benefits  Other Postretirement Benefits Pension Benefits Other Postretirement Benefits 
(dollars in thousands) 2022  2021  2022  2021 2023 2022 2023 2022 

                    
Service cost $-   -   4   9  $-  $-  $3  $(9)
Interest cost  222   214   52   60   304   221   66   51 
Expected return on plan assets  (807)  (712)  (333)  (274)  (661)  (796)  (290)  (333)
Amortization of net gain  -   -   (280)  (137)  -   -   (114)  (426)
Amortization of prior service (credit) cost
  -   -   (78)  177 
Amortization of prior service cost
  -   -   3   123 
Net periodic benefit $(585)  (498)  (635)  (165) $(357) $(575) $(332) $(594)

 
Nine months ended September 30,
 
Six months ended June 30,
 
 Pension Benefits  Other Postretirement Benefits Pension Benefits Other Postretirement Benefits 
(dollars in thousands) 2022  2021  2022  2021 2023 2022 2023 2022 
                    
Service cost $-   -   13   57  $-  $-  $5  $9 
Interest cost  666   642   155   143   606   444   132   103 
Expected return on plan assets  (2,420)  (2,135)  (999)  (891)  (1,341)  (1,613)  (579)  (666)
Amortization of net gain  -   -   (784)  (534)  -   -   (228)  (504)
Amortization of prior service cost (credit)  -   -   (235)  227   -   -   6   (157)
Net periodic benefit $(1,754)  (1,493)  (1,850)  (998) $(735) $(1,169) $(664) $(1,215)

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The Company does not expect to make contributionscontribute to its pension and postretirement benefit plans in 2022.2023. As of SeptemberJune 30, 20222023, no contributions have been 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, 2022
  
June 30, 2023
 
    Gross  Gross        Gross  Gross    
 Amortized  Unrealized  Unrealized  Fair  Amortized  Unrealized  Unrealized  Fair 
(dollars in thousands) Cost  Gains  Losses  Value  Cost  Gains  Losses  Value 
                        
U.S. government sponsored enterprises $109,097   15   6,333   102,779  $119,175   -   5,605   113,570 
State and political subdivisions  41   -   -   41   34   -   -   34 
Mortgage backed securities and collateralized mortgage obligations - residential  297,131   -   35,889   261,242   273,955   13   30,524   243,444 
Corporate bonds  85,764   -   4,762   81,002   80,394   -   3,776   76,618 
Small Business Administration - guaranteed participation securities  24,883   -   2,385   22,498   20,444   -   2,062   18,382 
Other  686   -   29   657   686   -   30   656 
Total Securities Available for Sale $517,602   15   49,398   468,219  $494,688   13   41,997   452,704 

 
December 31, 2021
  
December 31, 2022
 
    Gross  Gross        Gross  Gross    
 Amortized  Unrealized  Unrealized  Fair  Amortized  Unrealized  Unrealized  Fair 
(dollars in thousands) Cost  Gains  Losses  Value  Cost  Gains  Losses  Value 
                        
U.S. government sponsored enterprises $59,976   -   797   59,179  $124,123   1   5,937   118,187 
State and political subdivisions  41   -   -   41   34   -   -   34 
Mortgage backed securities and collateralized mortgage obligations - residential  269,907   3,367   2,476   270,798   291,431   34   31,149   260,316 
Corporate bonds  45,805   157   625   45,337   85,641   -   4,295   81,346 
Small Business Administration - guaranteed participation securities  31,303   371   -   31,674   23,115   -   2,138   20,977 
Other  685   -   1   684   686   -   33   653 
Total Securities Available for Sale $407,717   3,895   3,899   407,713  $525,030   35   43,552   481,513 

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Index
The following table categorizecategorizes the debt securities included in the available for sale portfolio as of SeptemberJune 30, 20222023, 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:

 Amortized  Fair  Amortized  Fair 
(dollars in thousands) Cost  Value  Cost  Value 
            
Due in one year or less $5,043   5,018  $55,284   53,461 
Due after one year through five years  186,045   174,946   145,005   137,417 
Due after five years through ten years  4,500   4,515 
Mortgage backed securities and collateralized mortgage obligations - residential  297,131   261,242   273,955   243,444 
Small Business Administration - guaranteed participation securities  24,883   22,498   20,444   18,382 
 $517,602   468,219  $494,688   452,704 

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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, 2022
  
June 30, 2023
 
 Less than  12 months  
  Less than  12 months  
 
 12 months  or more  Total  12 months  or more  Total 
    Gross  
  Gross  
  Gross     Gross  
  Gross  
  Gross 
 Fair  Unrealized  Fair  Unrealized  Fair  Unreal.  Fair  Unrealized  Fair  Unrealized  Fair  Unreal. 
(dollars in thousands) Value  Loss  Value  Loss  Value  Loss  Value  Loss  Value  Loss  Value  Loss 
                                    
U.S. government sponsored enterprises $43,300   1,315   54,964   5,018   98,264   6,333  $52,728  $
1,459  $
60,841  $
4,146  $
113,569  $
5,605 
Mortgage backed securities and collateralized mortgage obligations - residential  175,486   17,560   85,755   18,329   261,241   35,889   40,282   2,477   200,666   28,047   240,948   30,524 
Corporate bonds  62,343   3,226   18,659   1,536   81,002   4,762   9,721   293   66,897   3,483   76,618   3,776 
Small Business Administration - guaranteed participation securities  22,497   2,385   -   -   22,497   2,385   -   -   18,382   2,062   18,382   2,062 
Other  621   29   -   -   621   29   -   -   619   30   619   30 
                                                
Total $304,247   24,515   159,378   24,883   463,625   49,398  $102,731  $
4,229  $
347,405  $
37,768  $
450,136  $
41,997 

 
December 31, 2021
  
December 31, 2022
 
 Less than  12 months     Less than  12 months    
 12 months  or more  Total  12 months  or more  Total 
    Gross     Gross     Gross     Gross     Gross     Gross 
 Fair  Unrealized  Fair  Unrealized  Fair  Unreal.  Fair  Unrealized  Fair  Unrealized  Fair  Unreal. 
(dollars in thousands) Value  Loss  Value  Loss  Value  Loss  Value  Loss  Value  Loss  Value  Loss 
                                    
U.S. government sponsored enterprises $49,279   697   9,900   100   59,179   797  $57,849   1,290   55,337   4,647   113,186   5,937 
Mortgage backed securities and collateralized mortgage obligations - residential  93,447   1,888   22,098   588   115,545   2,476   164,772   13,010   93,009   18,139   257,781   31,149 
Corporate bonds  15,670   171   14,546   454   30,216   625   52,805   2,395   28,542   1,900   81,347   4,295 
Small Business Administration - guaranteed participation securities  802   71   20,175   2,067   20,977   2,138 
Other  648   1   -
   -
   648
   1
   49   1   568
   32
   617
   33
 
                                                
Total $159,044   2,757   46,544   1,142   205,588   3,899  $276,277  $16,767  $197,631  $26,785  $473,908  $43,552 

There were no allowance for credit losses recorded for securities available for sale during the three or nineand six months ended SeptemberJune 30, 2022.2023.

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Index
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 ninesix months ended SeptemberJune 30, 20222023 and 20212022 are as follows:

 Three months ended September 30,  Three months ended June 30, 
(dollars in thousands) 2022  2021  2023  2022 
            
Proceeds from sales $-  
-  $-  
- 
Proceeds from calls/paydowns  14,376   47,100   14,811   25,415 
Proceeds from maturities  5,000   3,500   5,000   5,050 
Gross realized gains  -   -   -   - 
Gross realized losses  -   -   -   - 

 Nine months ended September 30,  Six months ended June 30, 
(dollars in thousands) 2022  2021  2023  2022 
            
Proceeds from sales $-  
-  $-  
- 
Proceeds from calls/paydowns  57,714   123,550   29,469   43,338 
Proceeds from maturities  15,050   8,555   5,000   10,050 
Gross realized gains  -   -   -   - 
Gross realized losses  -   -   -   - 

There were no transfers of securities available for sale during the three and ninesix months ended SeptemberJune 30, 20222023 and 2021.2022.

(b) Held to maturity securities

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

 
September 30, 2022
  
June 30, 2023
 
    Gross  Gross  
     Gross  Gross  
 
 Amortized  Unrecognized  Unrecognized  Fair  Amortized  Unrecognized  Unrecognized  Fair 
(dollars in thousands) Cost  Gains  Losses  Value  Cost  Gains  Losses  Value 
            
Mortgage backed securities and collateralized mortgage obligations - residential $8,091   122   275   7,938  $7,043   57   174   6,926 
Total held to maturity $8,091   122   275   7,938  $7,043   57   174   6,926 

 
December 31, 2021
  
December 31, 2022
 
    Gross  Gross  
     Gross  Gross  
 
 Amortized  Unrecognized  Unrecognized  Fair  Amortized  Unrecognized  Unrecognized  Fair 
(dollars in thousands) Cost  Gains  Losses  Value  Cost  Gains  Losses  Value 
                        
Mortgage backed securities and collateralized mortgage obligations - residential $9,923   773   1   10,695  $7,707   90   217   7,580 
Total held to maturity $9,923   773   1   10,695  $7,707   90   217   7,580 

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Index
The following table categorizes the debt securities included in the held to maturity portfolio as of SeptemberJune 30, 2022,2023, 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  Fair  Amortized  Fair 
 Cost  Value  Cost  Value 
Mortgage backed securities and collateralized mortgage obligations - residential $8,091   7,938  $7,043   6,926 
 $8,091   7,938  $7,043   6,926 

AllGross unrecognized losses on held to maturity securities are held at cost onand the financial statements.  Asrelated fair values aggregated by the length of September 30, 2022 and December 31, 2021 held to maturitytime that individual securities with a fair value of $3.7 million and $442 thousand hadhave been in an unrecognizedunrealized loss of less than 12 months of $275 thousand and one thousand, respectively.position, were as follows:

  June 30, 2023 
  Less than  12 months       
(dollars in thousands) 12 months  or more  Total 
     Gross     Gross     Gross 
  Fair  Unrec.  Fair  Unrec.  Fair  Unrec. 
  Value  Loss  Value  Loss  Value  Loss 
Mortgage backed securities and collateralized mortgage obligations - residential $349   8   2,900   166   3,249   174 
                         
Total $349   8   2,900   166   3,249   174 

  December 31, 2022 
  Less than  12 months       
(dollars in thousands) 12 months  or more  Total 
     Gross     Gross     Gross 
  Fair  Unrec.  Fair  Unrec.  Fair  Unrec. 
  Value  Loss  Value  Loss  Value  Loss 
Mortgage backed securities and collateralized mortgage obligations - residential 
$
3,327
   
206
   
258
   
11
   
3,585
   
217
 
                         
Total 
$
3,327
   
206
   
258
   
11
   
3,585
   
217
 

There were no sales or transfers of held to maturity securities during the three and six months ended SeptemberJune 30, 20222023 and 2021.2022.

There were no allowance for credit losses recorded for held to maturity securities during the three and ninesix months ended SeptemberJune 30, 2022.  As of September 30, 2022, there2023.  There were no securities on non-accrual status and all securities were performing in accordance with contractual terms.

(c) Other-Than-Temporary Impairment

Debt Securities
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.

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Index
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 it is more likely than not it 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.

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 the security 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 isshall 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.earnings through the provision for credit losses.  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.

19The Company does not intend to sell nor does it anticipate that it will be required to sell any of its securities in an unrealized loss position as of June 30, 2023. The Company’s ability and intent to hold these securities until recovery is supported by the Company’s strong capital and liquidity positions as well as its historically low turnover in the portfolio.
Index
As of SeptemberJune 30, 2022,2023, the Company’s security 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 Septemberas of June 30, 2022.2023.

Mortgage backed securities and collateralized mortgage obligations – residential:  At SeptemberAs of June 30, 2022,2023, 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‑temporarily impaired at Septemberas of June 30, 2022.2023.

Small Business Administration (SBA) - guaranteed participation securities:  At SeptemberAs of June 30, 2022,2023, all of the SBA securities held by the Company were issued and guaranteed by U.S. Small Business Administration.  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 Septemberas of June 30, 2022.2023.

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Index
Corporate Bonds & Other:  At SeptemberAs of June 30, 2022,2023, 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 Septemberas of June 30, 2022.2023.

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Index
(5) Loan Portfolio and Allowance for Credit Losses

Upon adoption of CECL, management pooled loans with similar risk characteristics. The portfolio segment is defined as the level at which an entity develops and documents a systematic methodology to determine its allowance for credit losses on loans.

The following table presents loans by portfolio segment:

 September 30, 2022  June 30, 2023 
(dollars in thousands) New York and        New York and       

 other states*  Florida  Total  other states*  Florida  Total 
Commercial:                  
Commercial real estate $165,888   31,270   197,158  $190,361  $
39,187  $
229,548 
Other  19,089   873   19,962   21,566   320  $
21,886 
Real estate mortgage - 1 to 4 family:                        
First mortgages  2,762,616   1,312,097   4,074,713   2,755,040   1,497,104  $
4,252,144 
Home equity loans  45,115   12,537   57,652   44,841   13,020  $
57,861 
Home equity lines of credit  186,146   83,195   269,341   198,067   110,909  $
308,976 
Installment  8,183   2,482   10,665   12,035   4,361  $
16,396 
Total loans, net $3,187,037   1,442,454   4,629,491  $3,221,910  $
1,664,901   4,886,811 
Less: Allowance for credit losses          45,517           46,914 
Net loans         $4,583,974          $4,839,897 

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

Prior to the adoption of CECL on January 1, 2022, the Company calculated allowance for loan losses using the incurred losses methodology.

 December 31, 2021  December 31, 2022 
(dollars in thousands) New York and        New York and       

 other states*  Florida  Total  other states*  Florida  Total 
Commercial:                  
Commercial real estate $147,063   21,653   168,716  $177,371  $
32,551  $
209,922 
Other  30,889   595   31,484   20,221   868   21,089 
Real estate mortgage - 1 to 4 family:                        
First mortgages  2,723,734   1,212,568   3,936,302   2,776,989   1,369,913   4,146,902 
Home equity loans  48,190   13,695   61,885   43,999   12,550   56,549 
Home equity lines of credit  175,134   55,842   230,976   191,926   94,506   286,432 
Installment  7,368   2,048   9,416   9,408   2,899   12,307 
Total loans, net $3,132,378   1,306,401   4,438,779  $3,219,914  $
1,513,287   4,733,201 
Less: Allowance for loan losses          44,267 
Less: Allowance for credit losses          46,032 
Net loans         $4,394,512          $4,687,169 

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

Included in commercial loans above are Paycheck Protection Program (“PPP”) loans totaling $1.4760 millionthousand and $10.01.0 millionMillion as of SeptemberJune 30, 20222023 and December 31, 20212022, respectively.

2116
Index
At SeptemberJune 30, 20222023 and December 31, 20212022, the Company had approximately $36.6$27.0 million and $37.3$36.4 million respectively, of real estate construction loans.loans, respectively.  Of the $36.6$27.0 million in real estate construction loans at SeptemberJune 30, 20222023, approximately $14.16.3 million are secured by first mortgages to residential borrowers while approximately $22.5$20.7 million were to commercial borrowers for residential construction projects.  Of the $37.3$36.4 million in real estate construction loans at December 31, 2021,2022, approximately $17.9$14.1 million wereare secured by first mortgages to residential borrowers while approximately $19.4$22.3 million were to commercial borrowers for residential construction projects.  The vast majority of construction loans arewere in the Company’s New York market.

Allowance for credit losses on loans

The level of the ACLL is based on factors that influence management’s current estimate of expected credit losses including past events, and current conditions. There were no changes in the Company’s methodology for the allowance for credit losses on loans for the period ended September 30, 2022 compared to the adoption date.  Consistent with the adoption date, the Company has determined the Stagflationstagflation forecast scenario to be appropriate for the SeptemberJune 30, 20222023 ACLL calculation.  The Company selected the Stagflationstagflation economic forecast for credit losses as management expects that markets will experience a slight decline in economic conditions and a slight increase in the unemployment rate over the next two years.

The following table presentsThe Company recorded a benefit for credit losses of $500 thousand for the impactthree months ended June 30, 2023, which is the result of the January 1, 2022 adoption entry in the allowancea benefit for credit losses on unfunded commitments of $500 thousand.  There was no provision for credit losses on loans by loan type:

  
December 31, 2021
     
January 1, 2022
 
(dollars in thousands) 
Pre-Adoption
Balance
  Impact of Adoption  
Post CECL
Adoption
 
  Total     Total 
Commercial:         
Commercial real estate $3,121  
(1,100) 
2,021 
Other  14   114   128 
Real estate mortgage - 1 to 4 family:            
First mortgages  37,249   1,703   38,952 
Home equity loans  583   262   845 
Home equity lines of credit  2,857   1,752   4,609 
Installment  443   (378)  65 
Total Allowance $44,267   2,353  
46,620 
during the three months ended June 30, 2023.  The Company recorded a benefit for credit losses of $200 thousand for the six months ended June 30, 2023, which is the result of a benefit for credit losses on unfunded commitments of $800 thousand, and a provision for credit losses on loans of $600 thousand.

22The Company recorded a benefit for credit losses of $491 thousand for the three months ended June 30, 2022, which includes a credit to provision for credit losses on loans of $1.0 million, offset by a provision for credit losses on unfunded commitments of $509 thousand.  The Company recorded a benefit for credit losses of $691 thousand for the six months ended June 30, 2022, which includes a credit to provision for credit losses on loans of $1.5 million, offset by a provision for credit losses on unfunded commitments of $809 thousand.
Index
Activity in the allowance for credit losses on loans by portfolio segment for the three months ended SeptemberJune 30, 2023 and 2022 is summarized as follows:


 
For the three months ended September 30, 2022
  
For the three months ended June 30, 2023
 
(dollars in thousands)    Real Estate           Real Estate       
    Mortgage-           Mortgage-       

 Commercial  1 to 4 Family  Installment  Total  Commercial  1 to 4 Family  Installment  Total 
Balance at beginning of period $2,274   42,880   131   45,285  $2,708  $43,766  $211  $46,685 
Loans charged off:                                
New York and other states*  -   13   34   47   -   22   29   51 
Florida  -   -   -   -   -   -   40   40 
Total loan chargeoffs  -   13   34   47   -   22   69   91 
                                
Recoveries of loans previously charged off:                                
New York and other states*  -   177   -  177   129   183   8   320 
Florida  -   -   2   2   -   -   -   - 
Total recoveries  -   177   2  179   129   183   8   320 
Net loans (recoveries) charged off  -   (164)  32   (132)  (129)  (161)  61   (229)
(Credit) provision for credit losses  155   (100)  45   100   (227)  140   87   - 
Balance at end of period $2,429   42,944   144   45,517  $2,610  $44,067  $237  $46,914 

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

17
Index
  
For the three months ended June 30, 2022
 
(dollars in thousands)    Real Estate       
     Mortgage-       

 Commercial  1 to 4 Family  Installment  Total 
Balance at beginning of period $2,177   43,931   70   46,178 
Loans charged off:                
New York and other states*  4   12   14   30 
Florida  -   -   -   - 
Total loan chargeoffs  4   12   14   30 
                 
Recoveries of loans previously charged off:                
New York and other states*  4   131   2   137 
Florida  -   -   -   - 
Total recoveries  4   131   2   137 
Net loan recoveries
  -   (119)  12   (107)
(Credit) provision for credit losses  97   (1,170)  73   (1,000)
Balance at end of period $2,274   42,880   131   45,285 

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

Activity in the allowance for loan losses by portfolio segment for the three months ended September 30, 2021 is summarized as follows:

  
For the three months ended September 30, 2021
 
(dollars in thousands)    Real Estate       
     Mortgage-       

 Commercial  1 to 4 Family  Installment  Total 
Balance at beginning of period $4,106   45,617   432   50,155 
Loans charged off:                
New York and other states*  30   72   17   119 
Florida  -   1   -   1 
Total loan chargeoffs  30   73   17   120 
                 
Recoveries of loans previously charged off:                
New York and other states*  -   111   3   114 
Florida  -   1   -   1 
Total recoveries  -   112   3   115 
Net loan recoveries
  30   (39)  14   5 
(Credit) provision for loan losses  (823)  (2,003)  26   (2,800)
Balance at end of period $3,253   43,653   444   47,350 

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

23
Index
Activity in the allowance for credit losses on loans by portfolio segment for the ninesix months ended SeptemberJune 30, 2023 and 2022 is summarized as follows:

 
For the nine months ended September 30, 2022
  
For the six months ended June 30, 2023
 
(dollars in thousands)    Real Estate           Real Estate       
    Mortgage-           Mortgage-       
 Commercial  1 to 4 Family  Installment  Total  Commercial  1 to 4 Family  Installment  Total 
Balance at beginning of period $3,135   
40,689   
443   
44,267  $2,596  $
43,271  $
165  $
46,032 
Impact of ASU 2016-13, Current Expected Credit Loss (CECL)
  (986)  3,717   (378)  2,353 
Balance as of January 1, 2022 as adjusted for ASU 2016-13
  2,149   44,406   65   46,620 
Loans charged off:                                
New York and other states*  40   25   53   118   -   22   46   68 
Florida  -   -   -   -   -   -   71   71 
Total loan chargeoffs $
40  $
25  $
53  $
118  
-  
22  
117  
139 
                                
Recoveries of loans previously charged off:                                
New York and other states*  4   405   4   414   129   236   31   396 
Florida  -   -   2   2   -   25   -   25 
Total recoveries  4   405   6   416   129   261   31   421 
Net loans charged off  36   (380)  47   (297)
Credit for loan losses  316   (1,842)  126   (1,400)
Net loans (recoveries) charged off  (129)  (239)  86   (282)
(Credit) provision for credit losses  (115)  557   158   600 
Balance at end of period $2,429   42,944   144   45,517  $2,610  $
44,067  $
237  $
46,914 

Activity in the allowance for loan losses by portfolio segment for the nine months ended September 30, 2021 is summarized as follows:* Includes New York, New Jersey, Vermont and Massachusetts.

  
For the nine months ended September 30, 2021
 
(dollars in thousands)    Real Estate       
     Mortgage-       
  Commercial  1 to 4 Family  Installment  Total 
Balance at beginning of period $4,140   44,950   505   49,595 
Loans charged off:                
New York and other states*  30   178   25   233 
Florida  -   1   2   3 
Total loan chargeoffs  30   179   27   236 
                 
Recoveries of loans previously charged off:                
New York and other states*  32   355   52   439 
Florida  -   2   -   2 
Total recoveries  32   357   52   441 
Net loan recoveries  (2)  (178)  (25)  (205)
(Credit) provision for loan losses  (889)  (1,475)  (86)  (2,450)
Balance at end of period $3,253   43,653   444   47,350 
18
Index
  
For the six months ended June 30, 2022
 
(dollars in thousands)    Real Estate       
     Mortgage-       
  Commercial  1 to 4 Family  Installment  Total 
Balance at beginning of period $3,135   40,689   443   44,267 
Impact of ASU 2016-13, Current Expected Credit Loss (CECL)
 $(986)  3,717   (378)  2,353 
Balance as of January 1, 2022 as adjuste dfor ASU 2016-13
 $2,149   44,406   65   46,620 
Loans charged off:                
New York and other states*  40   12   25   77 
Florida  -   -   -   - 
Total loan chargeoffs  40   12   25   77 
                 
Recoveries of loans previously charged off:                
New York and other states*  4   228   10   242 
Florida  -   -   -   - 
Total recoveries  4   228   10   242 
Net loan recoveries  36   (216)  15   (165)
(Credit) provision for loan losses  161   (1,742)  81   (1,500)
Balance at end of period $2,274   42,880   131   45,285 

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

The following tables present the balance in the allowance for credit losses on loans by portfolio segment and based on impairment evaluation as of SeptemberJune 30, 2023 and December 31, 2022:

 
September 30, 2022
  
As of June 30, 2023
 
(dollars in thousands)    1-to-4 Family           1-to-4 Family       
 Commercial   Residential   Installment     Commercial   Residential   Installment    

 Loans  Real Estate  Loans  Total  Loans  Real Estate  Loans  Total 
Allowance for loan losses:            
Allowance for credit losses on loans:            
Ending allowance balance attributable to loans:                        
Individually evaluated for impairment $-   -   -   -  $-  $
-  $
-  $
- 
Collectively evaluated for impairment  2,429   42,944   144   45,517   2,610   44,067   237   46,914 
                                
Total ending allowance balance $2,429   42,944   144   45,517  $2,610  $
44,067  $
237  $
46,914 
                                
Loans:                                
Individually evaluated for impairment $294   26,157   16   26,467  $970  $
25,546  $
112  $
26,628 
Collectively evaluated for impairment  216,826   4,375,549   10,649   4,603,024   250,464   4,593,435   16,284   4,860,183 
                                
Total ending loans balance $217,120   4,401,706   10,665   4,629,491  $251,434  $
4,618,981  $
16,396  $
4,886,811 

  
December 31, 2022
 
(dollars in thousands)    1-to-4 Family       
   Commercial   Residential   Installment    

 Loans  Real Estate  Loans  Total 
Allowance for credit losses on loans:            
Ending allowance balance attributable to loans:            
Individually evaluated for impairment $-   -   -   - 
Collectively evaluated for impairment  2,596   43,271   165   46,032 
                 
Total ending allowance balance $
2,596   43,271   165   46,032 
                 
Loans:                
Individually evaluated for impairment $646   24,967   82   25,695 
Collectively evaluated for impairment  230,365   4,464,916   12,225   4,707,506 
                 
Total ending loans balance $231,011   4,489,883   12,307   4,733,201 

24
19
Index
Prior to the adoption of CECL on January 1, 2022, the Company calculated allowance for loan losses using the incurred losses methodology. The balance in the allowance for loan losses by portfolio segment is summarized as follows:

  
December 31, 2021
 
(dollars in thousands)    1-to-4 Family       
   Commercial   Residential   Installment    

 Loans  Real Estate  Loans  Total 
Allowance for loan losses:            
Ending allowance balance attributable to loans:            
Individually evaluated for impairment $-   -   -   - 
Collectively evaluated for impairment  3,135   40,689   443   44,267 
                 
Total ending allowance balance 
3,135   40,689   443   44,267 
                 
Loans:                
Individually evaluated for impairment $232   18,272   -   18,504 
Collectively evaluated for impairment  199,968   4,210,891   9,416   4,420,275 
                 
Total ending loans balance $200,200   4,229,163   9,416   4,438,779 

The Company’s allowance for credit losses on unfunded commitments is recognized as a liability (accrued expenses and other liabilities) with adjustments to the reserve recognized in (credit) provision for credit losses in the consolidated income statement.

The Company’s activity in the allowance for credit losses on unfunded commitments for the three and six months ended June 30, 2023 and 2022 were as follows:

(In thousands)
 
For the three
months ended
September 30, 2022
 
Balance at June 30, 2022
 $3,162 
Provision for credit losses
  200 
Balance at September 30, 2022
 $3,362 
(In thousands) 
For the three
months ended
June 30, 2023
 
Balance at March 31, 2023 $2,612 
Credit provision for credit losses  (500)
Balance at June 30, 2023 $2,112 

(In thousands) 
For the six
months ended
June 30, 2023
 
Balance at January 1, 2023 $2,912 
Credit provision for credit losses  (800)
Balance at June 30, 2023 $2,112 

(In thousands) 
For the three
months ended
June 30, 2022
 
Balance at March 31, 2022 $2,653 
Provision for credit losses  509 
Balance at June 30, 2022 $3,162 

 
  
 
(In thousands) 
For the nine
months ended
September 30, 2022
  
For the six
months ended
June 30, 2022
 
Balance at January 1, 2022 $18  $18 
Impact of Adopting CECL  2,335   2,335 
Adjusted Balance at January 1, 2022  2,353  $
2,353 
Provision for credit losses  1,009   809 
Balance at September 30, 2022 $3,362 
Balance at June 30, 2022 $3,162 

20
Index
Loan Credit Quality

The Company categorizes commercial loans into risk categories based on relevant information about the ability of borrowers to service their debt, such as current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. On at least an annual basis, the Company’s loan grading process analyzes non-homogeneous loans, such as commercial loans 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 tests the loan grades assigned to all loan types.policy.

25
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.

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be “pass” rated loans.

For homogeneous loan pools, such as residential mortgages, home equity lines of credit, and installment loans, the Company uses payment status to identify the credit risk in these loan portfolios. Payment status is reviewed on a daily basis by the Bank’s collection area and on a monthly basis with respect to determining the adequacy of the allowance for credit losses on loans. The payment status of these homogeneous pools as of SeptemberJune 30, 20222023 and December 31, 20212022 is also included in the aging of the past due loans table. Nonperforming loans shown in the table below were loans on non-accrualnonaccrual status and loans over 90 days past due and accruing.

2621
Index
As of SeptemberJune 30, 2023, and December 31, 2022 and based on the most recent analysis performed, the risk category of loans by class of loans, and gross chargeoffscharge-offs year to date for each loan type by origination year was as follows:

(in thousands) As of June 30, 2023 

 Term Loans Amortized Cost Basis by Origination Year 
  2023  2022  2021  2020  2019  Prior  
Revolving
Loans
Amortized
Cost Basis
  
Revolving
Loan
Converted to Term
  Total 
Commercial :                           
Risk rating                           
Pass $30,169  $
82,912  $
25,662  $
17,642  $
20,990  $
43,174  $
7,171  $
-  $227,720 
Special Mention  -   -   -   53   -   234   -   -   287 
Substandard  -   -   -   110   -   1,431   -   -   1,541 
Total Commercial Loans $30,169  $
82,912  $
25,662  $
17,805  $
20,990  $
44,839  $
7,171  $
-  $229,548 
Commercial Loans:                                    
Current-period Gross writeoffs $-  $
-  $
-  $
-  $
-  $
-  $
-  $
-  $- 
  $-  $
-  $
-  $
-  $
-  $
-  $
-  $
-  $- 
Commercial Other:                                    
Risk rating                                    
Pass $3,062  $
4,085  $
2,394  $
1,783  $
510  $
2,692  $
6,931  $
-  $21,457 
Special mention  -   -   -   -   -   -   -   -   - 
Substandard  -   -   331   -   -   98   -   -   429 
Total Commercial Real Estate Loans $3,062  $
4,085  $
2,725  $
1,783  $
510  $
2,790  $
6,931  $
-  $21,886 
                                     
Other Commercial Loans:                                    
Current-period Gross writeoffs $-  $
-  $
-  $
-  $
-  $
-  $
-  $
-  $- 
  $-  $
-  $
-  $
-  $
-  $
-  $
-  $
-  $- 
                                     
Residential First Mortgage:                                    
Risk rating                                    
Performing $229,280  $
574,375  $
905,759  $
757,908  $
354,492  $
1,412,169  $
2,446  $
-  $4,236,429 
Nonperforming  -   -   391   603   1,294   13,427   -   -   15,715 
Total First Mortgage: $229,280  $
574,375  $
906,150  $
758,511  $
355,786  $
1,425,596  $
2,446  $
-  $4,252,144 
                                     
Residential First Mortgage Loans:                                    
Current-period Gross writeoffs $-  $
-  $
-  $
-  $
-  $
22  $
-  $
-  $22 
  $-  
-  
-  
-  
-  
22  
-  
-  $22 
                                     
Home Equity Lines:                                    
Risk rating                                    
Performing $5,673  $
6,384  $
8,452  $
6,028  $
7,059  $
23,979  $
-  $
-  $57,575 
Nonperforming  -   -   -   -   -   286   -   -   286 
Total Home Equity Lines: $5,673  $
6,384  $
8,452  $
6,028  $
7,059  $
24,265  $
-  $
-  $57,861 
                                     
Home Equity Loans:                                    
Current-period Gross writeoffs $-  $
-  $
-  $
-  $
-  $
-  $
-  $
-  $
- 
  $-  $
-  $
-  $
-  $
-  $
-  $
-  $
-  $- 
Home Equity Lines of Credit:                                    
Risk rating                                    
Performing $781  $
770  $
409  $
529  $
42  $
16,861  $
287,155  $
-  $306,547 
Nonperforming  -   -   -   -   -   2,121   308   -   2,429 
Total Home Equity Credit Lines: $781  $
770  $
409  $
529  $
42  $
18,982  $
287,463  $
-  $308,976 
                                     
Home Equity Lines of Credit:                                    
Current-period Gross writeoffs $-  $
-  $
-  $
-  $
-  $
-  $
-  $
-  $- 
  $-  $
-  $
-  $
-  $
-  $
-  $
-  $
-  $- 
Installments:                                    
Risk rating                                    
Performing $5,970  $
5,683  $
1,888  $
550  $
404  $
745  $
1,032  $
-  $16,272 
Nonperforming  1   -   48   -   73   2   -   -   124 
Total Installments $5,971  $
5,683  $
1,936  $
550  $
477  $
747  $
1,032  $
-  $16,396 
                                     
Installments Loans:                                    
Current-period Gross writeoffs $-  $
57  $
37  $
6  $
-  $
17  $
-  $
-  $117 
  $-  $
57  $
37  $
6  $
-  $
17  $
-  $
-  $117 

Loan Credit Quality22

(in thousands)   September 30, 2022  As of December 31, 2022 

 Term Loans Amortized Cost Basis by Origination Year 
 2022  2021  2020  2019  2018  Prior  
Revolving Loans
Amortized Cost
Basis
  
Revolving
Loan
Converted to Term
  Total  Term Loans Amortized Cost Basis by Origination Year 
Commercial :                            2022  2021  2020  2019  2018  Prior  Revolving Loans Amortized Cost Basis  Revolving Loan Converted to Term  Total 
Risk rating                                                      
Pass $58,331  
30,325  
18,803  
23,713  
17,058  
38,102  
9,089  
-  $195,421  $79,430  $29,991  $18,708  $22,790  $16,598  $32,666  $8,022  $-  $208,205 
Special Mention  -   -   65   -   247   -   -   -   312   -   -   62   -   243   -   -   -   305 
Substandard  -   -   115   -   132   1,178   -   -   1,425   -   -   113   -   128   1,171   -   -   1,412 
Total Commercial Loans $58,331  
30,325  
18,983  
23,713  
17,437  
39,280  
9,089  
-  $197,158  $79,430  $29,991  $18,883  $22,790  $16,969  $33,837  $8,022  $-  $209,922 

                                    
Commercial Loans:                                                                        
Current-period Gross writeoffs $-  
-  
-  
-  
-  
40  
-  
-  $40  $-  $-  $-  $-  $-  $40  $-  $-  $40 

 $-  $-  $-  $-  $-  $40  $-  $-  $40 
 $-  
-  
-  
-  
-  
40  
-  
-  $40                                     
Commercial Other:                                                                        
Risk rating                                                                        
Pass $2,302  
3,313  
2,757  
706  
752  
2,472  
7,182  
-  $19,484  $2,972  $2,848  $2,273  $590  $674  $2,348  $8,908  
-  $20,613 
Special mention  -   124   -   -   -   -   40   -   164   -   -   -   -   -   -   39   -   39 
Substandard  -   216   -   -   -   -   98   -   314   -   339   -   -   -   98   -   -   437 
Total Commercial Real Estate Loans $2,302  
3,653  
2,757  
706  
752  
2,472  
7,320  
-  $19,962  $2,972  $3,187  $2,273  $590  $674  $2,446  $8,947  $-  $21,089 
                                                                        
Other Commercial Loans:                                                                        
Current-period Gross writeoffs $-  
-  
-  
-  
-  
-  
-  
-   -  $-  $-  $-  $-  $-  $-  $-  $-   - 
 $-  
-  
-  
-  
-  
-  
-  
-  $-  $-  $-  $-  $-  $-  $-  $-  $-  $- 
                                                                        
Residential First Mortgage:                                                                        
Risk rating                                                                        
Performing $417,902  
950,363  
799,953  
374,430  
262,084  
1,252,690  
1,479  
-  $4,058,901  $557,981  $933,754  $784,511  $368,137  $257,926  $1,228,776  $1,472  $-  $4,132,557 
Nonperforming  -   700   83   846   773   13,410   -   -   15,812   -   496   81   844   351   12,573   -   -   14,345 
Total First Mortgage: $417,902  
951,063  
800,036  
375,276  
262,857  
1,266,100  
1,479  
-  $4,074,713  $557,981  $934,250  $784,592  $368,981  $258,277  $1,241,349  $1,472  $-  $4,146,902 
                                                                        
Residential First Mortgage Loans:                                                                        
Current-period Gross writeoffs $-  
-  
-  
-  
-  
5  
-  
-  $5  $-  $-  $-  $-  $-  $5  $-  $-   5 
 $-  
-  
-  
-  
-  
5  
-  
-  $5  $-  $-  $-  $-  $-  $5  $-  $-  $5 
                                                                        
Home Equity Lines:                                                                        
Risk rating                                                                        
Performing $5,222  
9,748  
6,535  
7,782  
5,468  
22,729  
-  
-  $57,484  $6,863  $9,124  $6,322  $7,588  $5,240  $21,217  $-  $-  $56,354 
Nonperforming  -   -   -   -   -   168   -   -   168   -   -   -   -   66   129   -   -   195 
Total Home Equity Lines: $5,222  
9,748  
6,535  
7,782  
5,468  
22,897  
-  
-  $57,652  $6,863  $9,124  $6,322  $7,588  $5,306  $21,346  $-  $-  $56,549 
                                                                        
Home Equity Loans:                                    
Home Equity Lines Loans:                                    
Current-period Gross writeoffs $-  
-  
-  
-  
-  
-  
-  
-  $
-  $-  $-  $-  $-  $-  $-  $-  $-   - 
 $-  
-  
-  
-  
-  
-  
-  
-  $-  $-  $-  $-  $-  $-  $-  $-  $-  $- 
Home Equity Lines of Credit:                                    
                                    
Home Equity Credit Lines:                                    
Risk rating                                                                        
Performing $698  
859  
335  
56  
101  
18,826  
246,047  
-  $266,922  $1,369  $1,246  $740  $52  $100  $18,377  $262,244  $-  $284,128 
Nonperforming  -   7   -   -   -   2,207   205   -   2,419   -   7   -   -   -   2,111   186   -   2,304 
Total Home Equity Credit Lines: $698  
866  
335  
56  
101  
21,033  
246,252  
-  $269,341  $1,369  $1,253  $740  $52  $100  $20,488  $262,430  $-  $286,432 
                                                                        
Home Equity Lines of Credit:                                    
Home Equity Credit Lines Loans:                                    
Current-period Gross writeoffs $-  
-  
-  
-  
-  
20  
-  
-   20  $-  $-  $-  $-  $-  $19  $-  $-   19 

 $-  $-  $-  $-  $-  $19  $-  $-  $19 
 $-  
-  
-  
-  
-  
20  
-  
-  $20                                     
Installments:                                                                        
Risk rating                                                                        
Performing $4,068  
2,758  
943  
918  
469  
293  
1,122  
-  $10,571  $6,385  $2,495  $805  $709  $374  $308  $1,125  $-  $12,201 
Nonperforming  -   25   -   67   -   -   2   -   94   20   17   -   65   -   1   3   -   106 
Total Installments $4,068  
2,783  
943  
985  
469  
293  
1,124  
-  $10,665  $6,405  $2,512  $805  $774  $374  $309  $1,128  $-  $12,307 
                                                                        
Installments Loans:                                                                        
Current-period Gross writeoffs $-  
36  
6  
6  
2  
3  
-  
-   53  $1  $47  $22  $7  $2  $9  $-  $-   88 
 $-  
36  
6  
6  
2  
3  
-  
-  $53  $1  $47  $22  $7  $2  $9  $-  $-  $88 
 
2723
The following tables present the aging of the amortized cost in past due loans by loan class and by region as of September 30,2022:June 30,2023:

 
September 30, 2022
  
As of June 30, 2023
 
New York and other states*:                                    
 30-59  60-89  90 +   Total        30-59  60-89  90 +   Total       
  Days   Days   Days  30+ days      Total   Days   Days   Days  30+ days      Total 
(dollars in thousands) Past Due  Past Due  Past Due  Past Due  Current  Loans  Past Due  Past Due  Past Due  Past Due  Current  Loans 
                                    
Commercial:                                    
Commercial real estate $39   -   123   162   165,726   165,888  $-   -   525   525   189,836   190,361 
Other  -   -   6   6   19,083   19,089   33   8   -   41   21,525   21,566 
Real estate mortgage - 1 to 4 family:                                                
First mortgages  1,994   2,469   8,128   12,591   2,750,025   2,762,616   2,681   227   8,352   11,260   2,743,780   2,755,040 
Home equity loans  46   66   55   167   44,948   45,115   65   96   158   319   44,522   44,841 
Home equity lines of credit  359   150   730   1,239   184,907   186,146   574   25   656   1,255   196,812   198,067 
Installment  3   25   16   44   8,139   8,183   37   45   66   148   11,887   12,035 
                                                
Total $2,441   2,710   9,058   14,209   3,172,828   3,187,037  $3,390   401   9,757   13,548   3,208,362   3,221,910 

Florida:                                    
 30-59  60-89  90 +   Total        30-59  60-89  90 +   Total       
 Days  Days  Days  30+ days     Total  Days  Days  Days  30+ days     Total 
(dollars in thousands) Past Due  Past Due  Past Due  Past Due  Current  Loans  Past Due  Past Due  Past Due  Past Due  Current  Loans 
                                    
Commercial:                                    
Commercial real estate $-   -   -   -   31,270   31,270  $-   -   -   -   39,187   39,187 
Other  124   -   -   124   749   873   -   -   314   314   6   320 
Real estate mortgage - 1 to 4 family:                                                
First mortgages  81   245   1,608   1,934   1,310,163   1,312,097   506   35   1,307   1,848   1,495,256   1,497,104 
Home equity loans  7   -   -   7   12,530   12,537   -   -   -   -   13,020   13,020 
Home equity lines of credit  31   -   -   31   83,164   83,195   95   19   -   114   110,795   110,909 
Installment  -   -   62   62   2,420   2,482   15   -   46   61   4,300   4,361 
                                                
Total $243   245   1,670   2,158   1,440,296   1,442,454  $616   54   1,667   2,337   1,662,564   1,664,901 

Total:                                    
 30-59  60-89  90 +   Total        30-59  60-89  90 +   Total       
 Days  Days  Days  30+ days     Total  Days  Days  Days  30+ days     Total 
(dollars in thousands) Past Due  Past Due  Past Due  Past Due  Current  Loans  Past Due  Past Due  Past Due  Past Due  Current  Loans 
                                    
Commercial:                                    
Commercial real estate $39   -   123   162   196,996   197,158  $-   -   525   525   229,023   229,548 
Other  124   -   6   130   19,832   19,962   33   8   314   355   21,531   21,886 
Real estate mortgage - 1 to 4 family:                                                
First mortgages  2,075   2,714   9,736   14,525   4,060,188   4,074,713   3,187   262   9,659   13,108   4,239,036   4,252,144 
Home equity loans  53   66   55   174   57,478   57,652   65   96   158   319   57,542   57,861 
Home equity lines of credit  390   150   730   1,270   268,071   269,341   669   44   656   1,369   307,607   308,976 
Installment  3   25   78   106   10,559   10,665   52   45   112   209   16,187   16,396 
                                                
Total $2,684   2,955   10,728   16,367   4,613,124   4,629,491  $4,006   455   11,424   15,885   4,870,926   4,886,811 

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

2824
The following tables present the aging of the recorded investment in past due loans by loan class and by region as of December 31, 2021:2022:

 
December 31, 2021
  
As of December 31, 2022
 
New York and other states*:                                    
 30-59  60-89  90 +   Total        30-59  60-89  90 +   Total       
 Days  Days  Days  30+ days     Total  Days  Days  Days  30+ days     Total 
(dollars in thousands) Past Due  Past Due  Past Due  Past Due  Current  Loans  Past Due  Past Due  Past Due  Past Due  Current  Loans 
                                    
Commercial:                                    
Commercial real estate $-   233   45   278   146,785   147,063  $-   -   161   161   177,210   177,371 
Other  -   -   -   -   30,889   30,889   18   -   20   38   20,183   20,221 
Real estate mortgage - 1 to 4 family:                                                
First mortgages  1,303   239   9,867   11,409   2,712,325   2,723,734   4,262   921   7,203   12,386   2,764,603   2,776,989 
Home equity loans  136   -   224   360   47,830   48,190   283   -   67   350   43,649   43,999 
Home equity lines of credit  355   458   911   1,724   173,410   175,134   978   -   591   1,569   190,357   191,926 
Installment  27   5   4   36   7,332   7,368   78   4   23   105   9,303   9,408 
                                                
Total $1,821   935   11,051   13,807   3,118,571   3,132,378  $5,619   925   8,065   14,609   3,205,305   3,219,914 

Florida:                                    
 30-59  60-89  90 +   Total        30-59  60-89  90 +   Total       
 Days  Days  Days  30+ days      Total  Days  Days  Days  30+ days      Total 
(dollars in thousands) Past Due  Past Due  Past Due  Past Due  Current  Loans  Past Due  Past Due  Past Due  Past Due  Current  Loans 
                                    
Commercial:                                    
Commercial real estate $-   -   -   -   21,653   21,653  $-   -   -   -   32,551   32,551 
Other  -   -   -   -   595   595   -   -   314   314   554   868 
Real estate mortgage - 1 to 4 family:                                                
First mortgages  869   180   1,146   2,195   1,210,373   1,212,568   1,183   243   1,404   2,830   1,367,083   1,369,913 
Home equity loans  -   45   -   45   13,650   13,695   51   -   -   51   12,499   12,550 
Home equity lines of credit  -   89   -   89   55,753   55,842   224   -   -   224   94,282   94,506 
Installment  18   -   5   23   2,025   2,048   6   -   83   89   2,810   2,899 
                                                
Total $887   314   1,151   2,352   1,304,049   1,306,401  $1,464   243   1,801   3,508   1,509,779   1,513,287 

Total:                                    
 30-59  60-89  90 +   Total        30-59  60-89  90 +   Total       
 Days  Days  Days  30+ days     Total  Days  Days  Days  30+ days     Total 
(dollars in thousands) Past Due  Past Due  Past Due  Past Due  Current  Loans  Past Due  Past Due  Past Due  Past Due  Current  Loans 
                                    
Commercial:                                    
Commercial real estate $-   233   45   278   168,438   168,716  $-   -   161   161   209,761   209,922 
Other  -   -   -   -   31,484   31,484   18   -   334   352   20,737   21,089 
Real estate mortgage - 1 to 4 family:                                                
First mortgages  2,172   419   11,013   13,604   3,922,698   3,936,302   5,445   1,164   8,607   15,216   4,131,686   4,146,902 
Home equity loans  136   45   224   405   61,480   61,885   334   -   67   401   56,148   56,549 
Home equity lines of credit  355   547   911   1,813   229,163   230,976   1,202   -   591   1,793   284,639   286,432 
Installment  45   5   9   59   9,357   9,416   84   4   106   194   12,113   12,307 
                                                
Total $2,708   1,249   12,202   16,159   4,422,620   4,438,779  $7,083   1,168   9,866   18,117   4,715,084   4,733,201 

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

At SeptemberJune 30, 20222023 and December 31, 2021,2022, there were no loans that were 90 days past due and still accruing interest.  As a result, non-accrual loans include all loans 90 days or more past due as well as certain loans less than 90 days past due that were placed on non-accrual status for reasons other than delinquent status.  There are no commitments to extend further credit on non-accrual or restructured loans.

2925
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 titleforeclosure or through a deed in lieu).  Other real estate owned is included in Otherother assets on the Balance Sheet.  As of September 30,2022June 30,2023 other real estate owned included $6821.4 thousandmillion of residential foreclosed properties.  In addition, non-accrual residential mortgage loans that are in the process of foreclosure had an amortized cost of $9.6$6.9 million as of SeptemberJune 30, 20222023 . As of December 31, 2021,2022, other real estate owned included $362 thousand$2.1 million of residential foreclosed properties.  In addition, non-accrual residential mortgage loans that wereare in the process of foreclosure had a recorded investment of $9.7$7.4 million as of December 31, 20212022.

Loans individually evaluated for impairment are non-accrual loans delinquent greater than 180 days,include non-accrual commercial loans, as well as loans classified as troubled debt restructurings.all loan modifications. As of SeptemberJune 30, 20222023 , there was no allowance for credit losses based on loansthe loan individually evaluated for impairment.

Residential and installment non-accrual loans which are not TDRs or greater than 180 days delinquentloan modifications are collectively evaluated to determine the allowance for credit loss.

The following table presents the amortized cost basis in non-accrual loans by portfolio segment:

 
September 30, 2022
  
As of June 30, 2023
 
(dollars in thousands) New York and        New York and       

 other states*  Florida  Total  other states*  Florida  Total 
Loans in non-accrual status:                  
Commercial:                  
Commercial real estate $168   -   168  $545  $
-  $
545 
Other  
11   -   11   
-   314   314 
Real estate mortgage - 1 to 4 family:                        
First mortgages  13,869   1,943   15,812   13,680   2,035   15,715 
Home equity loans  126   42   168   240   46   286 
Home equity lines of credit  2,301   118   2,419   2,252   177   2,429 
Installment  29   65   94   124   -   124 
Total non-accrual loans  16,504   2,168   18,672   16,841   2,572   19,413 
Restructured real estate mortgages - 1 to 4 family  12   -   12   7   -   7 
Total nonperforming loans $16,516  $
2,168  $
18,684  $16,848  $
2,572  $
19,420 

For homogeneous loan pools, such as residential mortgages, home equity lines of credit,* Includes New York, New Jersey, Vermont and installment loans, the Company uses payment status to identify the credit risk in these loan portfolios. Payment status is reviewed on a daily basis by the Bank’s collection area and on a monthly basis with respect to determining the adequacy of the allowance for loan losses. The total nonperforming portion of these homogeneous loan pools as of December 31, 2021 is presented in the non-accrual loans table below.Massachusetts.

30
 
December 31, 2021
  
As of December 31, 2022
 
(dollars in thousands) New York and        New York and       

 other states*  Florida  Total  other states*  Florida  Total 
Loans in non-accrual status:                  
Commercial:                  
Commercial real estate $67   -   67  $199  $
-  $
199 
Other  45   -   45   20   314   334 
Real estate mortgage - 1 to 4 family:                        
First mortgages  13,990   1,797   15,787   12,609   1,736   14,345 
Home equity loans  247   45   292   153   42   195 
Home equity lines of credit  2,337   174   2,511   2,187   117   2,304 
Installment  23   14   37   23   83   106 
Total non-accrual loans  16,709   2,030   18,739   15,191   2,292   17,483 
Restructured real estate mortgages - 1 to 4 family  17   -   17   10   -   10 
Total nonperforming loans $16,726   2,030   18,756  $15,201  $
2,292  $
17,493 

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

26
The following table presentstables present the amortized cost basis of loans on non-accrual status and loans past due over 89 days still accruing:accruing as of June 30, 2023 and December 31,2022:

 September 30, 2022  As of June 30, 2023 
(dollars in thousands) 
Non-accrual With
   Non-accrual With   Loans Past Due  
Non-accrual With
   Non-accrual With   Loans Past Due 
 No Allowance for  Allowance for  Over 89 Days  No Allowance for  Allowance for  Over 89 Days 

 Credit Loss  Credit Loss  Still Accruing  Credit Loss  Credit Loss  Still Accruing 
Commercial:                  
Commercial real estate $168  
-  
-  $545  $
-  
- 
Other  11   -   -   314   -   - 
Real estate mortgage - 1 to 4 family:                        
First mortgages  14,640   1,171   -   14,406   1,309   - 
Home equity loans  168   -   -   195   91   - 
Home equity lines of credit  2,133   287   -   2,349   80   - 
Installment  16   78   -   112   12   - 
Total loans, net $17,136  
1,536  
-  $17,921  $
1,492  
- 

  
As of December 31, 2022
 
(dollars in thousands)
 Non-accrual With  Non-accrual With  Loans Past Due 
  No Allowance for  Allowance for  
Over 89 Days
 
  Credit Loss  Credit Loss  Still Accruing 
Commercial:         
Commercial real estate $160  $39   
- 
Other  20   314   - 
Real estate mortgage - 1 to 4 family:
            
First mortgages
  13,502   843   - 
Home equity loans  129   66   - 
Home equity lines of credit  2,257   47   - 
Installment  82   24   - 
Total loans, net $16,150  $1,333   
- 

The non-accrual balance of $1.5 million disclosed aboveand $1.3 million was collectively evaluated and the associated allowance for credit losses on loans was not material as of SeptemberJune 30, 2023 and December 31, 2022, .respectively.

27
A financial asset is considered collateral-dependent when the debtor is experiencing financial difficulty and repayment is expected to be provided substantially through the sale or operation of the collateral. Expected Creditcredit losses for the collateral dependent loans are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate. The following table presents the amortized cost basis of individually analyzed collateral dependent loans by portfolio segment as of SeptemberJune 30, 2023 and December 31, 2022:

31
Index
  As of June 30, 2023 
  Type of Collateral 
(dollars in thousands)    
    

 Real Estate  
Investment
Securities/Cash
  Other 
Commercial:         
Commercial real estate $656   -   - 
Other  314   -   - 
Real estate mortgage - 1 to 4 family:       
    
 
First mortgages  21,934   -   - 
Home equity loans  299   -   - 
Home equity lines of credit  3,313   -   - 
Installment  112   -   - 
Total
 $26,628   -   - 

  
As of December 31, 2022
 
  Type of Collateral 
(dollars in thousands)
         
  Real Estate  Investment Securities/Cash  Other 
Commercial:         
Commercial real estate $312   -   - 
Other  334   -   - 
Real estate mortgage - 1 to 4 family:
  
   
   
 
First mortgages
  21,467   -   - 
Home equity loans  236   -   - 
Home equity lines of credit  3,264   -   - 
Installment  82   -   - 
Total $25,695   -   - 
  Type of Collateral 
(dollars in thousands)    
    

 Real Estate  
Investment
Securities/Cash
  Other 
Commercial:         
Commercial real estate $283   -   - 
Other  11   -   - 
Real estate mortgage - 1 to 4 family:       
    
 
First mortgages  22,720   -   - 
Home equity loans  286   -   - 
Home equity lines of credit  3,151   -   - 
Installment  16   -   - 
Total Allowance
 $26,467   -   - 

Troubled Debt Restructuring Loans

The Company has not committed to lend additional amounts to customers with outstanding loans that are classified as TDRs.modified. Interest income recognized on loans that are individually evaluated was not material during the three orand ninesix months ended SeptemberJune 30, 20222023 and 2021.

A loan for which the terms have been modified, and for which a borrower is experiencing financial difficulties, is considered a TDR and is classified as individually evaluated. TDRs at September 30, 2022 are measured at the amortized cost using the loan’s effective rate at inception or fair value of the underlying collateral if the loan is considered collateral dependent.
2022.

As of SeptemberJune 30, 2023 and 2022  loans individually evaluated included approximately $9.3$8.7 million and $9.5 million, respectively, of loans in accruing status that were identified as TDRs.loan modifications in accordance with regulatory guidance related to Chapter 7 bankruptcy loans.

28
Index
Pursuant to the adoption of ASU 2022-02 - Financial Instruments - Credit Losses (Topic 326) Troubled Debt Restructuring and Vintage Disclosures (“ASU 2022-02”), a borrower that is experiencing financial difficulty and receives a modification in the form of principal forgiveness, an interest rate reduction, an other-than-insignificant payment delay or a term extension in the current period needs to be disclosed.

The following table presents the amortized cost basis of loans at June 30, 2023 that were both experiencing financial difficulty and modified during the three and six months ended June 30, 2023, by class and by type of modification. The percentage of the amortized cost basis of loans that were modified to borrowers in financial distress as compared to the amortized cost basis of each class of financing receivable is also presented below:

For the three months ended June 30, 2023
 
New York and other states*:      
  Payment  % of Total Class 
(dollars in thousands) Delay  of Loans
 
       
Commercial:      
Commercial real estate $-  - 
Other  -  - 
Real estate mortgage - 1 to 4 family:  -  - 
First mortgages  238   0.01%
Home equity loans  -   - 
Home equity lines of credit  50   0.03%
Installment  -   - 
         
Total $288   0.01%

Florida:      
  Payment  % of Total Class 
(dollars in thousands) Delay  of Loans 
       
Commercial:      
Commercial real estate $-   - 
Other  -   - 
Real estate mortgage - 1 to 4 family:      -
 
First mortgages  342   0.02%
Home equity loans  -   - 
Home equity lines of credit  -   - 
Installment  -   - 
         
Total $342   0.02%

       
  Payment  % of Total Class 
(dollars in thousands) Delay  of Loans 
       
Commercial:      
Commercial real estate $-   - 
Other  -   - 
Real estate mortgage - 1 to 4 family:        
First mortgages  580   0.01%
Home equity loans  -   - 
Home equity lines of credit  50   0.02%
Installment  -   - 
         
Total $630   0.01%

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

29
For the six months ended June 30, 2023
 
New York and other states*:    
 Payment % of Total Class 
(dollars in thousands)Delay of Loans
 
     
Commercial:    
Commercial real estate $-   - 
Other  -   - 
Real estate mortgage - 1 to 4 family:  -   - 
First mortgages  238   0.01%
Home equity loans  -   - 
Home equity lines of credit  50   0.03%
Installment  -   - 
         
Total $288   0.01%

Florida:      
  Payment  % of Total Class 
(dollars in thousands) Delay  of Loans 
       
Commercial:      
Commercial real estate $-   - 
Other  -   - 
Real estate mortgage - 1 to 4 family:        
First mortgages  342   0.02%
Home equity loans  -   - 
Home equity lines of credit  -   - 
Installment  -   - 
         
Total $342   0.02%

       
  Payment  % of Total Class 
(dollars in thousands) Delay  of Loans 
       
Commercial:      
Commercial real estate $-   - 
Other  -   - 
Real estate mortgage - 1 to 4 family:        
First mortgages  580   0.01%
Home equity loans  -   - 
Home equity lines of credit  50   0.02%
Installment  -   - 
         
Total $630   0.01%

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

30
Index
The Bank monitors the performance of loans modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. The following table describes the performance of loans that have been modified during the six months ended June 30, 2023:

  As of June 30, 2023 
New York and other states*:     30-59
   60-89
   90+    
      Days
   Days
   Days
    
(dollars in thousands)  Current   Past Due
   Past Due
   Past Due
   Total 
Commercial:                  
Commercial real estate $-  $-  $-  $-  $- 
Other  -   -   -   -   - 
Real estate mortgage - 1 to 4 family:                    
First mortgages  238   -   -   -   238 
Home equity loans  -   -   -   -   - 
Home equity lines of credit  50   -   -   -   50 
Installment  -   -   -   -   - 
                     
Total $288  $-  $-  $-  $288 

Florida:     30-59
   60-89
   90+    
      Days
   Days
   Days
    
(dollars in thousands)  Current   Past Due
   Past Due
   Past Due
   Total 
Commercial:                  
Commercial real estate $-  $-  $-  $-  $- 
Other  -   -   -   -   - 
Real estate mortgage - 1 to 4 family:                    
First mortgages  342   -   -   -   342 
Home equity loans  -   -   -   -   - 
Home equity lines of credit  -   -   -   -   - 
Installment  -   -   -   -   - 
                     
Total $342  $-  $-  $-  $342 

Total     30-59
   60-89
   90+    
      Days
   Days
   Days
    
(dollars in thousands)  Current   Past Due
   Past Due
   Past Due
   Total 
Commercial:                  
Commercial real estate $-  $-  $-  $-  $- 
Other  -   -   -   -   - 
Real estate mortgage - 1 to 4 family:                    
First mortgages  580   -   -   -   580 
Home equity loans  -   -   -   -   - 
Home equity lines of credit  50   -   -   -   50 
Installment  -   -   -   -   - 
                     
Total $630  $-  $-  $-  $630 

*
Includes New York, New Jersey, Vermont and Massachusetts.
31
The following tables describes the financial effect of the modifications made to borrowers experiencing financial difficulty:

For the three months ended June 30, 2023 
  Weighted 
New York and other states*: Average 
  Payment 
(dollars in thousands) Delay (Months) 
    
Commercial:   
Commercial real estate $- 
Other  - 
Real estate mortgage - 1 to 4 family:  
 
First mortgages  22 
Home equity loans  - 
Home equity lines of credit  18 
Installment  - 
     
Total $40 

  Weighted
 
Florida: Average
 
  Payment 
(dollars in thousands) Delay (Months)
 
    
Commercial:   
Commercial real estate $- 
Other  - 
Real estate mortgage - 1 to 4 family:    
First mortgages  24 
Home equity loans  - 
Home equity lines of credit  - 
Installment  - 
     
Total $24 

  Weighted
 
  Average
 
  Payment 
(dollars in thousands) Delay (Months)
 
    
Commercial:   
Commercial real estate $- 
Other  - 
Real estate mortgage - 1 to 4 family:    
First mortgages  46 
Home equity loans  - 
Home equity lines of credit  18 
Installment  - 
     
Total $64 

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

32
Index
For the six months ended June 30, 2023 
  Weighted 
New York and other states*: Average 
  Payment 
(dollars in thousands) Delay (Months) 
    
Commercial:   
Commercial real estate $- 
Other  - 
Real estate mortgage - 1 to 4 family:  
 
First mortgages  22 
Home equity loans  - 
Home equity lines of credit  18 
Installment  - 
     
Total $40 
  Weghted
 
Florida: Average
 
  Payment 
(dollars in thousands) Delay (Months)
 
    
Commercial:   
Commercial real estate $- 
Other  - 
Real estate mortgage - 1 to 4 family:    
First mortgages  24 
Home equity loans  - 
Home equity lines of credit  - 
Installment  - 
     
Total $24 

  Weighted
 
  Average
 
  Payment 
(dollars in thousands) Delay (Months)
 
    
Commercial:   
Commercial real estate $- 
Other  - 
Real estate mortgage - 1 to 4 family:    
First mortgages  46 
Home equity loans  - 
Home equity lines of credit  18 
Installment  - 
     
Total $64 

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

33
Index
As of June 30, 2023, all loans both experiencing financial difficulty and modified during the six months ended June 30, 2023 were current under the terms of the agreements. There were no commitments to lend additional funds to the borrowers and there were no charge-offs recorded against the loans. The Company had no allowance for credit losses recorded against these loans as of June 30, 2023. The Company did not have any loan modifications that had a payment default during the six months ended June 30, 2023.

ThePrior to the adoption of ASU 2022-02, the company accounted for loan modifications as Troubled Debt Restructurings (TDRs) and the following table presents, by class, loans that were modified as TDRs:TDR’s for the three and six months ended June 30, 2022:

 
Three months ended September 30, 2022
  
Three months ended September 30, 2021
  
Three months ended June 30, 2022
 

                           
New York and other states*:    Pre-Modification  Post-Modification     Pre-Modification  Post-Modification     Pre-Modification  Post-Modification 
     Outstanding   Outstanding      Outstanding   Outstanding      Outstanding   Outstanding 
 Number of  Recorded  Recorded  Number of   Recorded   Recorded  Number of   Recorded   Recorded 
(dollars in thousands) Contracts  Investment  Investment  Contracts  Investment  Investment  Contracts  Investment  Investment 
                           
Commercial:                           
Commercial real estate  -  $-   -   -  $-   -   -  $-   - 
Real estate mortgage - 1 to 4 family:                                    
First mortgages  3   282   282   2   557   557   1   73   73 
Home equity loans  -   -   -   -   -   -   -   -   - 
Home equity lines of credit  -   -   -   1   31   31   -   -   - 
                                    
Total  3  $282   282   3  $588   588   1  $73   73 

Florida:Pre-ModificationPost-Modification    Pre-Modification  Post-Modification 
    �� Outstanding Outstanding  Outstanding   Outstanding 
Number ofRecordedRecorded  Number of   Recorded   Recorded 
(dollars in thousands) Contracts  Investment  Investment ContractsInvestmentInvestment
          
Commercial:         
Commercial real estate-$--  -  $-   - 
Real estate mortgage - 1 to 4 family:            
First mortgages---  -   -   - 
Home equity loans---  -   -   - 
Home equity lines of credit  -   -   - ---
             
Total  -  $-   - 

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

34
Index
 
Six months ended June 30, 2022
 
New York and other states*:    Pre-Modification  Post-Modification 
      Outstanding   Outstanding 
  Number of   Recorded   Recorded 
(dollars in thousands) Contracts  Investment  Investment 
          
Commercial:         
Commercial real estate  -  $
-  
- 
Real estate mortgage - 1 to 4 family:            
First mortgages  4   443   443 
Home equity loans  -   -   - 
Home equity lines of credit  -   -   - 
             
Total  4  $
443  
443 

Florida:Pre-ModificationPost-Modification
 Outstanding Outstanding
Number of Recorded Recorded
(dollars in thousands)ContractsInvestmentInvestment
Commercial:
Commercial real estate  -  $
-
-
Real estate mortgage - 1 to 4 family:
First mortgages--   - 
Home equity loans---
Home equity lines of credit---
Total-$
-
-

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

32
Index
 
Nine months ended September 30, 2022
  
Nine months ended September 30, 2021
 
New York and other states*:    Pre-Modification  Post-Modification     Pre-Modification  Post-Modification 
      Outstanding   Outstanding      Outstanding   Outstanding 
  Number of  Recorded  Recorded  Number of   Recorded   Recorded 
(dollars in thousands) Contracts  Investment  Investment  Contracts  Investment  Investment 
                   
Commercial:                  
Commercial real estate  -  $-  
-   -  $
-  
- 
Real estate mortgage - 1 to 4 family:                        
First mortgages  7   719   719   4   923   923 
Home equity loans  -   -   -   1   2   2 
Home equity lines of credit  -   -   -   3   88   88 
                         
Total  7  $719  
719   8  $
1,013  
1,013 

Florida:    Pre-Modification  Post-Modification     Pre-Modification  Post-Modification 
     Outstanding   Outstanding      Outstanding   Outstanding 
  Number of  Recorded  Recorded  Number of   Recorded   Recorded 
(dollars in thousands) Contracts  Investment  Investment  Contracts  Investment  Investment 
                   
Commercial:                  
Commercial real estate  -  $-  
-   -  $
-  
- 
Real estate mortgage - 1 to 4 family:                        
First mortgages  -   -   -   1   78   78 
Home equity loans  -   -   -   -   -   - 
Home equity lines of credit  -   -   -   -   -   - 
                         
Total  -  $-  
-   1  $
78  
78 

The addition of these TDRsTDR’s did not have a significant impact on the allowance for credit losses on loans. The nature of the modifications that resulted in them being classified as a TDR was the borrower filing for bankruptcy protection. There were no loans that defaulted during the three and six months ended June 30,2023 and 2022 which had been classified as a loan modification within the priortwelve months.

In situations where the Bank considers a loan modification, management determines whether the borrower is experiencing financial difficulty by performing an evaluation of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification.  This evaluation is performed under the Company’s underwriting policy.

Generally, the modification of the terms of loans was the result of the borrower filing for bankruptcy protection. Chapter 13 bankruptcies generally include the deferral of all past due amounts for a period of generally 60 months in accordance with the bankruptcy court order. In the case of Chapter 7 bankruptcies, even though there is no modification of terms, the borrowers’ debt to the Company was discharged and they did not reaffirm the debt.

35
Index
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.

Prior to the adoption of CECL on January 1, 2022, the Company calculated allowance for loan losses using the incurred losses methodology. The following tables are the disclosures related to loans in prior periods.

33
Index
The following table presents impaired loans by loan class as of December 31, 2021:

  
December 31, 2021
 

            
New York and other states*:    Unpaid     YTD Avg 
   Recorded   Principal   Related   Recorded 
(dollars in thousands) Investment  Balance  Allowance  Investment 
             
Commercial:            
Commercial real estate $187   279   -   1,154 
Other  45   45   -   107 
Real estate mortgage - 1 to 4 family:                
First mortgages  13,687   13,875   -   14,072 
Home equity loans  161   161   -   235 
Home equity lines of credit  1,852   1,939   -   2,256 
                 
Total $15,932   16,299   -   17,824 

Florida:    Unpaid     YTD Avg 
   Recorded   Principal   Related   Recorded 
(dollars in thousands) Investment  Balance  Allowance  Investment 
             
Commercial:            
Commercial real estate $-   -   -   105 
Other  -   -   -   - 
Real estate mortgage - 1 to 4 family:                
First mortgages  2,368   2,368   -   2,562 
Home equity loans  -   -   -   16 
Home equity lines of credit  204   204   -   246 
                 
Total $2,572   2,572   -   2,929 

Total:    Unpaid     YTD Avg 
   Recorded   Principal   Related   Recorded 
(dollars in thousands) Investment  Balance  Allowance  Investment 
             
Commercial:            
Commercial real estate $187   279   -   1,259 
Other  45   45   -   107 
Real estate mortgage - 1 to 4 family:                
First mortgages  16,055   16,243   -   16,634 
Home equity loans  161   161   -   251 
Home equity lines of credit  2,056   2,143   -   2,502 
                 
Total $18,504   18,871   -   20,753 

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

34
Index
As of December 31, 2021 the risk category of loans by class of loans is as follows:

  
December 31, 2021
 
New York and other states:         
(dollars in thousands) Pass  Classified  Total 
          
Commercial:         
Commercial real estate $145,500   1,563   147,063 
Other  30,726   163   30,889 
  $176,226   1,726   177,952 

Florida:         
(dollars in thousands) Pass  Classified  Total 
Commercial:         
Commercial real estate $21,113   540   21,653 
Other  595   -   595 
  $21,708   540   22,248 

Total:         
(dollars in thousands) Pass  Classified  Total 
Commercial:         
Commercial real estate $166,613   2,103   168,716 
Other  31,321   163   31,484 
  $197,934   2,266   200,200 

* Includes New York, New Jersey and Massachusetts.

Included in classified loans in the above tables are impaired loans of $226 thousand at December 31, 2021.


(6) Fair Value of Financial Instruments

FASB Topic 820, Fair Value Measurements (“ASC 820”820”) definesdefines 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.

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.

35
Index
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.

36
Index
Individually evaluated loans: Periodically the Company records non-recurring adjustments to the carrying value of loans based on fair value measurements for partial charge-offs of the uncollectible portions of those loans.  Non-recurring adjustments can also include certain adjustments for collateral-dependent loans to adjust balances to fair value and generally have had a chargeoffcharge-off through the allowance for Creditcredit 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. These loansLoans individually evaluated are evaluated on a quarterly basis for additional impairment and adjusted accordingly.

Indications of value for both collateral-dependent 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.

There were no transfers between Level 1 and Level 2 during the three and ninesix months ended SeptemberJune 30, 20222023 and 2021.
2022.

36
37
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, 2022 Using:
  
June 30, 2023 Using:
 
        Significant            Significant    
     Quoted Prices in   Other   Significant      Quoted Prices in   Other   Significant 
     Active Markets for   Observable   Unobservable      Active Markets for   Observable   Unobservable 
  Carrying   Identical Assets   Inputs   Inputs   Carrying   Identical Assets   Inputs   Inputs 
(dollars in thousands) Value  (Level 1)  (Level 2)  (Level 3)  Value  (Level 1)  (Level 2)  (Level 3) 
                        
U.S. government sponsored enterprises $102,779  $-  $102,779  $-  $113,570  $-  $113,570  $- 
State and political subdivisions  41   -   41   -   34   -   34   - 
Mortgage backed securities and collateralized mortgage obligations - residential  261,242   -   261,242   -   243,444   -   243,444   - 
Corporate bonds  81,002   -   81,002   -   76,618   -   76,618   - 
Small Business Administration- guaranteed participation securities  22,498   -   22,498   -   18,382   -   18,382   - 
Other securities  657   -   657   -   656   25   631   - 
                                
Total securities available for sale $468,219  $-  $468,219  $-  $452,704  $25  $452,679  $- 

 Fair Value Measurements at  Fair Value Measurements at 
 
December 31, 2021 Using:
  
December 31, 2022 Using:
 
        Significant            Significant    
     Quoted Prices in   Other   Significant      Quoted Prices in   Other   Significant 
     Active Markets for   Observable   Unobservable      Active Markets for   Observable   Unobservable 
  Carrying   Identical Assets   Inputs   Inputs   Carrying   Identical Assets   Inputs   Inputs 
(dollars in thousands) Value  (Level 1)  (Level 2)  (Level 3)  Value  (Level 1)  (Level 2)  (Level 3) 
                        
Securities available for sale:                        
U.S. government sponsored enterprises $59,179  $-  $59,179  $-  $118,187  $-  $118,187  $- 
State and political subdivisions  41   -   41   -   34   -   34   - 
Mortgage backed securities and collateralized mortgage obligations - residential  270,798   -   270,798   -   260,316   -   260,316   - 
Corporate bonds  45,337   -   45,337   -   81,346   -   81,346   - 
Small Business Administration- guaranteed participation securities  31,674   -   31,674   -   20,977   -   20,977   - 
Other securities  684   -   684   -   653   -   653   - 
                                
Total securities available for sale $407,713  $-  $407,713  $-  $481,513  $-  $481,513  $- 

37
38
Assets measured at fair value on a non-recurring basis are summarized below:

 Fair Value Measurements at        Fair Value Measurements at       
 September 30, 2022 Using:        June 30, 2023 Using:       
        Significant                  Significant          
     Quoted Prices in   Other   Significant            Quoted Prices in   Other   Significant       
     Active Markets for   Observable   Unobservable            Active Markets for   Observable   Unobservable       
  Carrying   Identical Assets   Inputs   Inputs         Carrying   Identical Assets   Inputs   Inputs       
(dollars in thousands) Value  (Level 1)  (Level 2)  (Level 3) Valuation technique Unobservable inputs Range (Weighted Average)  Value  (Level 1)  (Level 2)  (Level 3) Valuation technique Unobservable inputs Range (Weighted Average) 
                                    
Other real estate owned $682  $-  $-  $682 Sales comparison approach Adjustments for differences between comparable sales  3% - 58% (31%) $1,412  $-  $-  $1,412 Sales comparison approach Adjustments for differences between comparable sales  1% - 80% (28%)
                       
Loans individually evaluated  -   -   -   - Sales comparison Adjustments for differences between comparable sales  N/A
 

  Fair Value Measurements at       
  
December 31, 2021 Using:
       
         Significant          
      Quoted Prices in   Other   Significant       
      Active Markets for   Observable   Unobservable       
   Carrying   Identical Assets   Inputs   Inputs       
(dollars in thousands) Value  (Level 1)  (Level 2)  (Level 3) Valuation technique Unobservable inputs Range (Weighted Average) 
                   
Other real estate owned $362  $-  $-  $362 Sales comparison approach Adjustments for differences between comparable sales  1% - 14% (6%)
                        
Impaired loans:                       
Real estate mortgage -1 to 4 family  -   -   -   - Sales comparison Adjustments for differences between comparable sales  
N/A

Other real estate owned, that is carried at fair value less costs to sell was approximately $682 thousand at September 30, 2022 and consisted of residential real estate properties. There were no commercial real estate properties. There were no valuation charges included in earnings for the nine months ended September 30, 2022.

Of the total individually evaluated loans of $26.5 million at September 30, 2022, there are no loans that are collateral dependent and are carried at fair value measured on a non-recurring basis. Due to the sufficiency of charge offs taken on these loans and the adequacy of the underlying collateral, there were no specific valuation allowances for these loans at September 30, 2022. There were no gross charge offs related to residential individually evaluated loans included in the table above for the three and nine months ended September 30, 2022.
  Fair Value Measurements at       
  
December 31, 2022 Using:
       
         Significant          
      Quoted Prices in   Other   Significant       
      Active Markets for   Observable   Unobservable       
   Carrying   Identical Assets   Inputs   Inputs       
(dollars in thousands) Value  (Level 1)  (Level 2)  (Level 3) Valuation technique Unobservable inputs Range (Weighted Average) 
                   
Other real estate owned $2,061  $-  $-  $2,061 Sales comparison approach Adjustments for differences between comparable sales  2% - 47% (18%)

Other real estate owned, that is carried at fair value less costs to sell was approximately $362 thousand$1.4 million at December 31, 2021June 30, 2023 and consisted onlyof residential real estate properties. There were no commercial real estate properties.  A valuation charge of $121$107 thousand is included in earnings for the yearsix months ended December 31, 2021.June 30, 2023.

Of the total impairedindividually evaluated loans of $18.5$23.8 million at December 31, 2021,June 30, 2023, there wereare no impairmentsloans that are collateral dependent and are carried at fair value measured on a non-recurring basis.  Due to the sufficiency of charge-offs taken on these loans and the adequacy of the underlying collateral, there were no specific valuation allowances for these loans at December 31, 2021.June 30, 2023. There were no gross charge-offs related to residential impairedindividually evaluated loans included in the table above.above for the three and six months ended June 30, 2023.

Other real estate owned, which is carried at fair value less costs to sell, was approximately $2.1 million at December 31, 2022, and consisted of only residential real estate properties. A valuation charge of $68 thousand is included in earnings for the year ended December 31, 2022.

Of the total individually evaluated loans of $25.7 million at December 31, 2022, there are no loans that were collateral dependent and are carried at fair value measured on a non-recurring basis. Due to the sufficiency of charge-offs taken on these loans and the adequacy of the underlying collateral, there were no specific valuation allowances for these loans at December 31, 2022.

38
39
Index
In accordance with FASB Topic 825, Financial Instruments (“ASC 825”), the carrying amounts and estimated fair values of financial instruments, at SeptemberJune 30, 20222023 and December 31, 20212022 are as follows:follows:

(dollars in thousands)    Fair Value Measurements at     Fair Value Measurements at 
 Carrying  
September 30, 2022 Using:
  Carrying  
June 30, 2023 Using:
 
 Value  Level 1  Level 2  Level 3  Total  Value  Level 1  Level 2  Level 3  Total 
Financial assets:                              
Cash and cash equivalents $841,264   841,264   -   -   841,264  $603,357   603,357   -   -   603,357 
Securities available for sale  468,219   -   468,219   -   468,219   452,704   25   452,679   -   452,704 
Held to maturity securities  8,091   -   7,938   -   7,938   7,043   -   6,926   -   6,926 
Federal Home Loan Bank stock  5,797   N/A   N/A   N/A   N/A   6,203   N/A   N/A   N/A   N/A 
Net loans  4,583,974   -   -   4,304,560   4,304,560   4,839,897   -   -   4,428,975   4,428,975 
Accrued interest receivable  10,936   616   1,648   8,672   10,936   11,762   100   1,734   9,928   11,762 
Financial liabilities:                                        
Demand deposits  859,829   859,829   -   -   859,829   791,353   791,353   -   -   791,353 
Interest bearing deposits  4,422,025   3,467,673   925,461   -   4,393,134   4,467,094   3,024,135   1,418,561   -   4,442,696 
Short-term borrowings  124,932   -   124,932   -   124,932   113,765   -   113,765   -   113,765 
Accrued interest payable  162   38   124   -   162   2,046   208   1,838   -   2,046 

(dollars in thousands)    Fair Value Measurements at     Fair Value Measurements at 
 Carrying  
December 31, 2021 Using:
  Carrying  
December 31, 2022 Using:
 
 Value  Level 1  Level 2  Level 3  Total  Value  Level 1  Level 2  Level 3  Total 
Financial assets:                              
Cash and cash equivalents $1,219,470   1,219,470   -   -   1,219,470  $650,599   650,599   -   -   650,599 
Securities available for sale  407,713   -   407,713   -   407,713   481,513   -   481,513   -   481,513 
Held to maturity securities  9,923   -   10,695   -   10,695   7,707   -   7,580   -   7,580 
Federal Reserve Bank and Federal                                        
Home Loan Bank stock  5,604   N/A   N/A   N/A   N/A   5,797   N/A   N/A   N/A   N/A 
Net loans  4,394,512   -   -   4,451,031   4,451,031   4,687,169   -   -   4,328,508   4,328,508 
Accrued interest receivable  9,099   10   1,235   7,854   9,099   11,492   189   1,866   9,437   11,492 
Financial liabilities:                                        
Demand deposits  794,878   794,878   -   -   794,878   838,147   838,147   -   -   838,147 
Interest bearing deposits  4,473,251   3,477,937   993,676   -   4,471,613   4,354,663   3,325,900   1,012,528   -   4,338,428 
Short-term borrowings  244,686   -   244,686   -   244,686   122,700   -   122,700   -   122,700 
Accrued interest payable  163   34   129   -   163   602   60   542   -   602 

39
40
Index
(7) Accumulated Other Comprehensive Income (Loss)

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

 Three months ended September 30, 2022  Three months ended June 30, 2023 
        Amount           Other
  Amount  Other    
     Other   reclassified   Other        Comprehensive  reclassified  Comprehensive    
     Comprehensive   from Accumulated   Comprehensive loss-        Loss-  from Accumulated  Loss-    
 Balance at   loss-Before   Other Comprehensive   Three months ended   Balance at  Balance at  Before  Other Comprehensive  Three months ended  Balance at 
(dollars in thousands) 7/1/2022  Reclassifications  Income  9/30/2022  9/30/2022  4/1/2023  Reclassifications  Loss  6/30/2023  6/30/2023 
                              
Net unrealized holding loss on securities available for sale, net of tax $(21,106)  (15,522)  -   (15,522)  (36,628) $(28,370) $
(2,755) $
-  $
(2,755) $
(31,125)
Net change in overfunded position in pension and postretirement plans arising during the year, net of tax  13,706   -   -   -   13,706   7,588   -   -   -   7,588 
Net change in net actuarial gain and prior service credit on pension and postretirement benefit plans, net of tax  (2,022)  -   (265)  (265)  (2,287)
Net change in net actuarial gain and prior service cost on pension and postretirement benefit plans, net of tax  (2,593)  -   (82)  (82)  (2,675)
                                        
Accumulated other comprehensive loss, net of tax $(9,422)  (15,522)  (265)  (15,787)  (25,209) $(23,375) $
(2,755) $
(82) $
(2,837) $
(26,212)

 
Three months ended September 30, 2021
  
Three months ended June 30, 2022
 
        Amount           Other  Amount  Other
    
     Other   reclassified   Other        Comprehensive  reclassified  Comprehensive    
     Comprehensive   from Accumulated  Comprehensive loss-        Loss-  from Accumulated  Loss-    
 Balance at   loss-Before   Other Comprehensive   Three months ended   Balance at  Balance at  Before  Other Comprehensive  Three months ended  Balance at 
(dollars in thousands) 7/1/2021  Reclassifications  Income  9/30/2021  9/30/2021  4/1/2022  Reclassifications  Loss  6/30/2022  6/30/2022 
                              
Net unrealized holding gain on securities available for sale, net of tax $3,347   (566)  -   (566)  2,781 
Net unrealized holding loss on securities available for sale, net of tax $(14,277) $
(6,829) $
-  $
(6,829) $
(21,106)
Net change in overfunded position in pension and postretirement plans arising during the year, net of tax  6,084   -   -   -   6,084   13,706   -   -   -   13,706 
Net change in net actuarial gain and prior service cost on pension and postretirement benefit plans, net of tax  (1,591)  -   30  30  (1,561)  (1,798)  -   (224)  (224)  (2,022)
                                        
Accumulated other comprehensive income, net of tax $7,840   (566)  30  (536)  7,304 
Accumulated other comprehensive loss, net of tax $(2,369) $
(6,829) $
(224) $
(7,053) $
(9,422)

 Nine months ended September 30, 2022  Six months ended June 30, 2023 
       Amount            Other  Amount  Other
    
     Other  reclassified   Other        Comprehensive  reclassified  Comprehensive    
    Comprehensive  from Accumulated  Comprehensive loss-        Income-  from Accumulated   Income-    
 Balance at   loss-Before  Other Comprehensive
  Nine months ended   Balance at  Balance at  Before  Other Comprehensive
  Six months ended  Balance at 
(dollars in thousands) 1/1/2022  Reclassifications  Income  9/30/2022  9/30/2022  1/1/2023  Reclassifications  Income  6/30/2023  6/30/2023 
                              
Net unrealized holding loss on securities available for sale, net of tax $(26)  (36,602)  -   (36,602)  (36,628)
Net unrealized holding gain on securities available for sale, net of tax
 $(32,271) $
1,146  $
-  $1,146  $
(31,125)
Net change in overfunded position in pension and postretirement plans arising during the year, net of tax  13,706   -   -   -   13,706   7,588   -   -   -   7,588 
Net change in net actuarial gain and prior service credit on pension and postretirement benefit plans, net of tax  (1,533)  -   (754)  (754)  (2,287)  (2,511)  -   (164)  (164)  (2,675)
                                        
Accumulated other comprehensive income (loss), net of tax $12,147   (36,602)  (754)  (37,356)  (25,209) $(27,194) $
1,146  $
(164) $
982  $
(26,212)

 
Nine months ended September 30, 2021
  
Six months ended June 30, 2022
 
        Amount           Other
  Amount  Other
    
     Other   reclassified   Other        Comprehensive  reclassified  Comprehensive    
     Comprehensive   from Accumulated   Comprehensive loss-        Loss-  from Accumulated  Loss-    
 Balance at  loss-Before   Other Comprehensive   Nine months ended   Balance at  Balance at  Before  Other Comprehensive  Six months ended  Balance at 
(dollars in thousands) 1/1/2021  Reclassifications  Income  9/30/2021  9/30/2021  1/1/2022  Reclassifications  Loss  6/30/2022  6/30/2022 
                              
Net unrealized holding gain on securities available for sale, net of tax $7,186   (4,405)  -   (4,405)  2,781 
Net unrealized holding loss on securities available for sale, net of tax
 $(26) $
(21,080) $
-  $
(21,080) $
(21,106)
Net change in overfunded position in pension and postretirement plans arising during the year, net of tax  6,084   -   -   -   6,084   13,706   -   -   -   13,706 
Net change in net actuarial gain and prior service credit on pension and postretirement benefit plans, net of tax  (1,334)  -   (227)  (227)  (1,561)
Net change in net actuarial gain and prior service cost on pension and postretirement benefit plans, net of tax
  (1,533)  -   (489)  (489)  (2,022)
                                        
Accumulated other comprehensive income (loss), net of tax $11,936   (4,405)  (227)  (4,632)  7,304  $12,147  $
(21,080) $
(489) $
(21,569) $
(9,422)

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Index
The following represents the reclassifications out of accumulated other comprehensive income (loss) for the three and ninesix months ended SeptemberJune 30, 20222023 and 2021:2022:

(dollars in thousands) Three months ended  
Nine months ended
   Three months ended  
Six months ended
 
 
September 30,
  
September 30,
   
June 30,
  
June 30,
 
 2022  2021  2022  2021 Affected Line Item in Financial Statements 2023  2022  2023  2022 Affected Line Item in Financial Statements
Amortization of pension and postretirement benefit items:                                  
Amortization of net actuarial gain $280   137  $784   534 Salaries and employee benefits
 $114  $
426  $228  $
504 Salaries and employee benefits
Amortization of prior service credit (cost)
  78   (177)  235   (227)Salaries and employee benefits
Income tax (benefit) expense
  (93)  10   (265)  (80)Income taxes
Amortization of prior service (cost) credit
  (3)  (123)  (6)  157 Salaries and employee benefits
Income tax benefit
  (29)  (79)  (58)  (172)Income taxes
Net of tax  265   (30)  754   227    82   224   164   489  
                                                
Total reclassifications, net of tax $265   (30) $754   227   $82  $
224  $164  $
489  

(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-InterestNon-Interest Income. The following table presents the Company’s sources of non-InterestNon-Interest Income for the three months and ninesix months ended SeptemberJune 30, 20222023 and 2021.2022. Items outside the scope of ASC 606 are noted as such.

(dollars in thousands) Three months ended  
Nine months ended
  Three months ended  
Six months ended
 
 
September 30,
  
September 30,
  
June 30,
  
June 30,
 
 2022  2021  2022  2021  2023  2022  2023  2022 
Non-interest income                        
Service Charges on Deposits                        
Overdraft fees $714  
735  $2,007  
1,964  $723  
647  $1,403  
1,293 
Other  494   518   1,466   1,479   554   495   1,086   972 
Interchange Income  1,546   1,330   4,792   3,863   1,628   1,544   3,107   3,246 
Wealth management fees  1,435   1,558   5,264   5,592   1,412   1,996   3,186   3,829 
Other (a)  197   154   956   513   281   234   485   759 
                                
Total non-interest income $4,386  
4,295  $14,485  
13,411  $4,598  
4,916  $9,267  
10,099 

(a)Not within the scope of ASC 606.

A description of how the Company’s revenue streams accounted in accordance withfor ASC 606 as follows:is set forth below:

Service charges on Deposit Accounts: The Company earns fees from its deposit customers for transaction-based,transaction‑based, account maintenance and overdraft services. Transaction-basedTransaction‑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.

Interchange Income: Interchange revenue primarily consists of interchange fees, volume-relatedvolume‑related incentives and ATM charges. As the card-issuingcard‑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.

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Index
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 a 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.

(9) Operating Leases

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 SeptemberJune 30, 20222023 the Company did not have any leases with terms of twelve months or less.

As of September June 30,2022 2023, the Company did not have any leases for which any relatedthe construction hashad not yet started. At September June 30,2022 2023 lease expiration dates ranged from fivefour months to 22.021.3 years and have a weighted average remaining lease term of 9.08.7 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.

4243
Other information related to leases was as follows:

(dollars in thousands)
 Three months ended  Three months ended 

 
September 30,
  
June 30,
 
 2022  2021  2023  2022 
Operating lease cost $2,062   2,010  $2,037   2,071 
Variable lease cost  565   499   619   545 
                
Total Lease costs $2,627   2,509  $2,656   2,616 

(dollars in thousands)
 Nine months ended  Six months ended 

 
September 30,
  
June 30,
 
 2022  2021  2023  2022 
Operating lease cost $6,185   6,029  $4,087   4,123 
Variable lease cost  1,706   1,508   1,204   1,141 
                
Total Lease costs $7,891   7,537  $5,291   5,264 

(dollars in thousands)
 Nine months ended  Six months ended 

 September 30,  June 30, 
 2022  2021  2023  2022 
Supplemental cash flows information:            
Cash paid for amounts included in the measurement of lease liabilities:            
Operating cash flows from operating leases $6,262   6,121  $4,165   4,186 
                
Right-of-use assets obtained in exchange for lease obligations:  2,484   2,696   1,653   2,484 
                
Weighted average remaining lease term 
9.0 years
  
8.7 years
  
8.7 years
  
9.2 years
 
Weighted average discount rate  2.96%  3.07%  3.05%  2.97%

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Index
Future minimum lease payments under non-cancellable leases as of SeptemberJune 30, 20222023 were as follows:

(dollars in thousands)(dollars in thousands) (dollars in thousands) 
Year ending      
December 31,      
2022(a)
 $2,065 
2023  8,234 
2023(a)
 $4,212 
2024  8,082   8,379 
2025  7,675   7,978 
2026  6,700   7,004 
2027  5,767 
Thereafter  24,529   20,522 
Total lease payments $57,285  $53,862 
Less: Interest  7,208   6,690 
        
Present value of lease liabilities $50,077  $47,172 

(a)Excluding the ninesix months ended SeptemberJune 30, 2022.2023.

A member of the Board of Directors has an ownership interest in five 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 SeptemberJune 30, 2022,2023, were $3.33.0 million, which includes interest in the amount of $424354 thousand.

(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. As of SeptemberJune 30, 2022,2023, the Company and the Bank metmeet all capital adequacy requirements to which they are subject.

Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically 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, 2022June, 2023 and December 31, 2021,2022, 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.

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45
Index
The Bank and the Company reported the following capital ratios as of June 30September 30, 2022, 2023 and December 31, 20212022:

(Bank Only)                   Minimum for 
       Minimum for 
 As of September 30, 2022  Well Capital Adequacy plus As of June 30, 2023  Well Capital Adequacy plus
Capital Conservation Capital Conservation  
(dollars in thousands) Amount  Ratio  
Capitalized(1)
  
Buffer (1)(2)
  Amount  Ratio  
Capitalized(1)
  
Buffer (1)(2)
                       
Tier 1 leverage ratio $
597,092   9.648%  5.000%  4.000% 
$
627,958   10.370%  5.000%  4.000%
Common equity tier 1 capital  597,092   18.333   6.500   7.000   627,958   18.477   6.500   7.000 
Tier 1 risk-based capital  597,092   18.333   8.000   8.500   627,958   18.477   8.000   8.500 
Total risk-based capital  637,906   19.586   10.000   10.500   670,522   19.730   10.000   10.500 

 As of December 31, 2021  Well  Minimum for  As of December 31, 2022  Well  Minimum for 
Capital Adequacy plusCapital Conservation
(dollars in thousands) Amount  Ratio  
Capitalized(1)
  
Buffer (1)(2)
  Amount  Ratio  
Capitalized(1)
  
Buffer (1)(2)
 
                        
Tier 1 leverage ratio $
570,594   9.324%  5.000%  4.000% 
$
609,998   10.116%  5.000%  4.000%
Common equity tier 1 capital  570,594   18.954   6.500   7.000   609,998   18.431   6.500   7.000 
Tier 1 risk-based capital  570,594   18.954   8.000   8.500   609,998   18.431   8.000   8.500 
Total risk-based capital  608,308   20.206   10.000   10.500   651,462   19.684   10.000   10.500 

(Consolidated)            
 As of September 30, 2022  Minimum for  As of June 30, 2023  Minimum for 
Capital Adequacy plusCapital Conservation
(dollars in thousands) Amount  Ratio  
Buffer (1)(2)
  Amount  Ratio  
Buffer (1)(2)
 
                  
Tier 1 leverage ratio $
613,661   9.913%  4.000%
$
647,048   10.682%  4.000%
Common equity tier 1 capital 
613,661   18.837   7.000  
647,048   19.034   7.000 
Tier 1 risk-based capital 
613,661   18.837   8.500  
647,048   19.034   8.500 
Total risk-based capital 
654,486   20.090   10.500  
689,629   20.286   10.500 

 As of December 31, 2021  Minimum for  As of December 31, 2022  Minimum for 
Capital Adequacy plusCapital Conservation
(dollars in thousands) Amount  Ratio  
Buffer (1)(2)
  Amount  Ratio  
Buffer (1)(2)
 
                  
Tier 1 leverage ratio $
588,427   9.614%  4.000% 
$626,628   10.390%  4.000%
Common equity Tier 1 capital  588,427   19.541   7.000   626,628   18.929   7.000 
Tier 1 risk-based capital  588,427   19.541   8.500   626,628   18.929   8.500 
Total risk-based capital  626,150   20.794   10.500   668,102   20.182   10.500 

(1)Federal regulatory minimum requirements to be considered to be Well Capitalized and Adequately Capitalized
(2)The SeptemberJune 30, 20222023 and December 31, 20212022 common equity tier 1, tier 1 risk-based, and total risk-based capital ratios include a capital conservation buffer of 2.50 percent

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Index
(11) New Accounting Pronouncements

Staff Accounting Bulletin (“SAB”) No. 121 - In March 2022, the SEC issued SAB No. 121. This SAB adds interpretive guidance for entities to consider when they have obligations to safeguard crypto-assets held for their platform users.  Specifically, this SAB provides interpretive guidance on the accounting and disclosure of obligations to safeguard crypto-assets held for platform users. This guidance was applicable no later than the financial statement covering the first interim or annual period ending after June 15, 2022. The Company reviewed its business activities as of the date of adoption, June 30, 2022, and determined that SAB 121 is not materially impactful to the financial statements. Management has continued to monitor it on a quarterly basis and has determined that SAB 121 is not materially impactful to the financial statements as of SeptemberJune 30, 2022.2023.

ASU 2022-02 - Financial Instruments - Credit Losses (Topic 326) Troubled Debt Restructurings and Vintage Disclosures: In March 2022, FASB issued ASU 2022-02 - Financial Instruments - Credit Losses (Topic 326) Troubled Debt Restructuring and Vintage Disclosures. ASU 2022-02 eliminates the accounting guidance for TDRs by creditors in Subtopic 310-40, Receivables - Troubled Debt Restructurings by Creditors, while enhancing disclosure requirements for certain loan refinancing and restructurings by creditors when a borrower is experiencing financial difficulty. Additionally, the amendments in this ASU require that public business entities disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of Subtopic 326-20, Financial Instruments - Credit Losses -Measured at Amortized Cost. For entities, like TrustCo, that have adopted the amendments in ASU 2016-13, the amendments in this ASU are effective for fiscal years beginning after December 15, 2022, including interim periods within those years. Early adoption iswas permitted, including adoption in an interim period. An entity may electhave elected to adopt the loan modification guidance and related disclosure enhancements separately from the amendments related to vintage disclosures. The amendments in this ASU should be applied prospectively, except for the amendments related to the recognition and measurement of TDRs which may be applied prospectively or using a modified retrospective transition method. The Company will adoptadopted the ASU on January 1, 2023 using the prospective approach and the adoption isdid not expect to have a material impact to the Company, however, disclosures were modified for the new disclosures will be added.

(12) Risks and Uncertaintiesguidance.

While management believes that we have sufficient capital to withstand any further economic challenges brought on 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 unanticipated 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 credit losses, and noninterest income.

Loan modifications and payment deferrals as a result of COVID-19 that met the criteria established under Section 4013 of the CARES Act or under applicable interagency guidance of the federal banking regulators were excluded from evaluation of TDR classification and were reported as current during the payment deferral period. The Company’s policy was to continue to accrue interest during the deferral period. Loans not meeting the CARES ACT or regulatory guidance were evaluated for TDR and non-accrual treatment under the Company’s existing policies and procedures. The relief provided by the CARES ACT expired on December 31, 2021. The Company doesn’t have any loan deferrals as of September 30, 2022.
 
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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 SeptemberJune 30, 2022,2023, and the related consolidated statements of income and comprehensive income for the three and nine-monthsix-month periods ended SeptemberJune 30, 20222023 and SeptemberJune 30, 20212022 and the related changes in shareholders’ equity and cash flows for the nine-monthsix-month periods ended SeptemberJune 30, 20222023 and SeptemberJune 30, 2021,2022, 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, 2021,2022, 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 25, 2022,March 1, 2023, 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, 2021,2022, 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.

New York, New York /s//s/ Crowe LLP
November 7, 2022

New York, New York
August 8, 2023

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

Forward-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 COVID-19  pandemic on our business and macroeconomic or geopolitical concerns related to inflation and rising interest rates, 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 such 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 any factors described under Part II, Item 1A, Risk Factors, and under the Risk Factor discussion in TrustCo’s Annual Report on Form 10-K for the year ended December 31, 2021, 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 effects of the COVID-19 pandemic and macroeconomic or geopolitical concerns related to inflation, rising interest rates and the war in Ukraine.

changes in local market areas and general business and economic trends, as well as changes in consumer spending, borrowing and savings habits; and our ability to assess and react effectively to such changes;

the effects of the COVID-19 pandemic, which could cause, and in some instances has, caused us to experience a decline in the demand for products and services; an increase in loan delinquencies; problem assets and foreclosures; a decline in collateral value; work force shortages, or other interruption or the unavailability of key employees; an increase in the allowance for credit losses on loans; 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;

the impact of hurricanes, including Hurricane Ian, and other severe weather events on the communities we serve, which could have an adverse impact on our business and results of operation;

changes in and uncertainty related to benchmark interest rates used to price loans and deposits;

credit risks and risks from concentrations (by geographic area and by loan product) within our loan portfolio;

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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 credit 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;
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;
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 or the Public Company Accounting Oversight Board;
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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;
TrustCo’s success at managing the risks involved in the foregoing and managing its business;
Risks related to climate change; and
other risks and uncertainties included under “Risk Factors” in our Form 10-K for the year ended December 31, 2021, as well as risks and uncertainties, if any, discussed elsewhere in this Form 10-Q and in our other filings made from time to time with the SEC, or in materials incorporated therein by reference.

You should not rely upon forward-looking statements as predictions of future events.  Although TrustCo believes that the expectations reflected in the forward‑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.

Following this management discussion and analysis 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 month periods ended September 30, 2022 and 2021.

Introduction
The review that follows focuses on the factors affecting the financial condition and results of operations of TrustCo during the three month and ninesix month periods ended SeptemberJune 30, 2022,2023, with comparisons to the corresponding period in 2021,2022, 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 2022 Annual Report on Form 10-K, for the year ended December 31, 2021, which was filed with the SEC on February 25, 2022 (the “2021 Form 10-K”),March 1, 2023, 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'speriod’s presentation.

COVID-19 Impact
The Company evaluated the impact of the effects of the COVID-19 pandemic 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 years ended December 31, 2021 and 2020, as well as for the three month and nine month periods ended September 30, 2022 and 2021.  At this time, it is difficult to quantify the impact the pandemic will have on future periods due to various uncertainties, including the duration, severity, spread, variants and resurgences of COVID-19.

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

Paycheck Protection Program (“PPP”) and Liquidity

As part of the CARES Act, the Small Business Administration (SBA) was authorized to guarantee loans under the PPP for small businesses that meet the necessary eligibility requirements in order to keep their workers on the payroll. The Company has received loan origination fees from the SBA which are being recognized over the life of the loan using the effective yield method.  As of September 30, 2022, TrustCo’s PPP loans outstanding totaled $1.4 million.

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 credit losses
See “Allowance for Credit Losses on Loans” for more information.
Economic Overview
During the thirdsecond quarter of 2022,2023, financial markets declined for the third consecutive quarter as the economy continued to feel the impact from several economic areas, as well as reacting to globaldemonstrated resilience despite rising inflation, interest rate hikes, and debt ceiling concerns.  Ongoing inflationary pressures, higher interest rates, pandemic concerns, supply-chain bottlenecks, the war in Ukraine and higher Treasury yields, continued to place worries on investors.  For the thirdsecond quarter of 2022,2023, the S&P 500 Index was down 5.28%up 8.3%, Nasdaq was up 12.8%, and the Dow Jones Industrial Average was down 6.66%.  This consecutive quarter decline in 2022 comes afterup 3.4% compared to the economy saw continued improvement throughout 2021.prior quarter.  The 10‑year Treasury bond averaged 3.10%3.60% during Q3 2022Q2 2023 compared to 2.93%3.65% in Q2 2022, an increaseQ1 2023, a decrease of 175 basis points.  The 2‑year Treasury bond average rate increased 66decreased 9 basis points to 3.38%.4.26%, which slightly eased the inverted yield curve over the prior quarter.  Consequently, the spread between the 10‑year and the 2-year Treasury bonds decreasedincreased from 0.21%-0.70% on average in Q2Q1 to -0.28%-0.67% in Q3 resulting in an inverted yield curve.Q2.  Generally, steeper yield curves are favorable for portfolio mortgage lenders like TrustCo, and the table below illustrates the range of rate movements for both short term and longer term rates.  TheCommencing in March 2022, the Federal Open Market Committee (“FOMC”) increased the target range for the Federal Funds rate seven times in 2022 and three times in the first half of 2023 by a total of 500 basis points, to a range of 5.00% to 5.25% as of June 30, 2023.  In July 2023, the FOMC increased the target range again by 25 basis points, to a range of 5.25% to 5.50%.  All of these increases were expressly made in March 2022, 50 basis points in May 2022, 75 basis points in June 2022, 75 basis points in July 2022, 75 basis points in September 2022, and another 75 basis points in November 2022response to arrive at 3.75%inflationary pressures, which are currently expected to 4.00%, the highest rate since 2007, with additional rate increases anticipated.  Changes in interest rates could have an effect on interest-earning assets such as loans, investment securities, and cash balances, and also have an effect on interest-bearing liabilities primarily deposits and short-term borrowings.  Additionally, unrealized gains and losses on available for sale securities, demand for products, borrowers ability to repay loans, and the number of delinquencies could also be effected.continue.  Spreads of most asset classes to the comparative treasury yield, including agency securities, corporates, municipals and mortgage-backed securities, have widenedcontinue to be down as compared to the levels seen in recent years.before the pandemic.  Accordingly, changes in rates and spreads continue to be affectedeffected by the pandemic and global economic concerns.

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49
   
3 Month
Yield (%)
2 Year
Yield (%)
5 Year
Yield (%)
10 Year
Yield (%)
 10 - 2 Year
 Spread (%)
        
Q3/21 Beg of Q30.050.250.871.451.20
 Peak0.070.311.021.551.25
 Trough0.030.170.651.190.98
 End of Q30.040.280.981.521.24
 Average in Q30.050.230.801.321.10
        
Q4/21 Beg of Q40.040.280.981.521.24
 Peak0.080.761.341.681.29
 Trough0.040.270.931.350.72
 End of Q40.060.731.261.520.79
 Average in Q40.050.531.181.531.00
        
Q1/22 Beg of Q10.060.731.261.520.79
 Peak0.592.352.552.480.89
 Trough0.080.771.371.630.04
 End of Q10.522.282.422.320.04
 Average in Q10.311.461.831.950.49
        
Q2/22 Beg of Q20.522.282.422.320.04
 Peak1.833.453.613.490.44
 Trough0.532.372.552.39-0.05
 End of Q21.722.923.012.980.06
 Average in Q21.102.722.952.930.21
        
Q3/22 Beg of Q31.722.923.012.980.06
 Peak3.404.304.213.970.04
 Trough1.732.822.662.60-0.51
 End of Q33.334.224.063.83-0.39
 Average in Q32.753.383.233.10-0.28
     
3 Month
Yield (%)
  
2 Year
Yield (%)
  
5 Year
Yield (%)
  
10 Year
Yield (%)
  
10 - 2 Year
Spread (%)
 
                  
Q2/22 Beg of Q2  0.52   2.28   2.42   2.32   0.04 
 Peak  1.83   3.45   3.61   3.49   0.44 
 Trough  0.53   2.37   2.55   2.39   -0.05 
 End of Q2  1.72   2.92   3.01   2.98   0.06 
 Average in Q2  1.10   2.72   2.95   2.93   0.21 
                       
Q3/22 Beg of Q3  1.72   2.92   3.01   2.98   0.06 
 Peak  3.40   4.30   4.21   3.97   0.04 
 Trough  1.73   2.82   2.66   2.60   -0.51 
 End of Q3  3.33   4.22   4.06   3.83   -0.39 
 Average in Q3  2.75   3.38   3.23   3.10   -0.28 
                       
Q4/22 Beg of Q4  3.33   4.22   4.06   3.83   -0.39 
 Peak  4.46   4.72   4.45   4.25   -0.25 
 Trough  3.45   4.10   3.61   3.42   -0.84 
 End of Q4  4.42   4.41   3.99   3.88   -0.53 
 Average in Q4  4.19   4.39   4.00   3.83   -0.56 
                       
Q1/23 Beg of Q1  4.42   4.41   3.99   3.88   -0.53 
 Peak  5.06   5.05   4.34   4.08   -0.38 
 Trough  4.52   3.76   3.39   3.37   -1.07 
 End of Q1  4.97   4.10   3.66   3.55   -0.55 
 Average in Q1  4.78   4.35   3.80   3.65   -0.70 
                       
Q2/23 Beg of Q2  4.97   4.10   3.66   3.55   -0.55 
 Peak  5.55   4.87   4.14   3.85   -0.38 
 Trough  4.86   3.75   3.29   3.30   -1.06 
 End of Q2  5.43   4.87   4.13   3.81   -1.06 
 Average in Q2  5.27   4.26   3.69   3.60   -0.67 

The United States economy experienced several areas of concern asthroughout 2022 began after experiencing significant progress throughout 2021.continuing into 2023.  Economic conditions can 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.

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Recently, on March 10, 2023, Silicon Valley Bank (“SVB”) was closed by the California Department of Financial Protection and Innovation, which appointed the Federal Deposit Insurance Corporation (“FDIC”) as receiver. Similarly, on March 12, 2023, Signature Bank and Silvergate Capital Corp. were each placed into receivership.  Additionally, following the rapid withdrawal of deposits and large losses reported by Credit Suisse in Switzerland, Swiss bank UBS Group AG acquired Credit Suisse in an emergency arrangement brokered by the Swiss government.  Additionally, due to the destabilization of First Republic, the FDIC assisted in arranging a sale of First Republic to JPMorgan Chase on May 1, 2023. In response to the U.S. bank failures in the spring of 2023, the Federal Reserve established a Bank Term Funding Program (“BTFP”) to offer emergency loans of up to one year to eligible depository institutions pledging qualifying assets as collateral.  Nevertheless, the closures of those banks and adverse developments affecting other banks over recent months have resulted in heightened levels of market activity and volatility. For instance, the share price of a number of regional banks continues to be adversely affected given continuing concerns regarding the liquidity of these banks and the stability of the banking system in general.  The impact of market volatility from the adverse developments in the banking industry along with continued high inflation and rising interest rates on our business and related financial results, will depend on future developments, which are highly uncertain and difficult to predict. Our businesses and financial results may be impacted by a variety of other factors as well, such as a failure by the federal government to raise the federal debt ceiling and an economic slowdown or recession.

Additionally, in May 2023, the FDIC issued a Notice of Proposed Rulemaking which would implement a special assessment on banks with total assets greater than $5.0 billion to recover the cost associated with protecting uninsured depositors following the closures of Silicon Valley Bank and Signature Bank. The FDIC is proposing to collect the special assessment for an estimated eight consecutive quarters beginning with the first quarter 2024.  A final rule is not expected until later in 2023 after a public comment period and the FDIC’s final deliberations have concluded.

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 solid capital positions have allowed the Company to continue to conduct business in a manner consistent with its past practice.  Management believes that TrustCo has not engaged in the types of high risk loans and investments that led to the widely reported problems in the industry during the 2007-2009 financial crisis.  Nevertheless, the Company may experience increases in nonperforming loans (“NPLs”) relative to historical levels from time to time.

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Should general housing prices and other economic measures, such as unemployment in the Company’s market areas, deteriorate as a result of higher interest rates, financial sector instability, a potential or actual default on the COVID-19 pandemicfederal debt 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.

Financial Overview
TrustCo recorded net income of $19.4$16.4 million, or $1.013$0.86 of diluted earnings per share, for the three months ended SeptemberJune 30, 2022,2023, compared to net income of $16.8$17.9 million, or $0.871$0.93 of diluted earnings per share, in the same period in 2021.2022.  Return on average assets was 1.24%1.09% and 1.08%1.15%, respectively, for the three-months ended SeptemberJune 30, 20222023 and 2021.2022.  Return on average equity was 12.78%10.61% and 11.40%12.08%, respectively, for the three-months ended SeptemberJune 30, 20222023 and 2021.2022.

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The primary factors accounting for the change in net income for the three months ended SeptemberJune 30, 20222023 compared to the same period of the prior year were:

An increase in income of $7.4 million from interest earning assets and a decreaseof $11.9 million, partially offset by an increase in interest expense of $527 thousand from interest bearing liabilities resultingof $10.9 million, resulted in an increase in taxable equivalent net interest income in the thirdsecond quarter of 2023 compared to the second quarter of 2022 of $1.0 million.

A decrease of $318 thousand in noninterest income for the second quarter of 2023 compared to the thirdsecond quarter 2022.  The decrease is primarily driven by a decrease of 2021 of $7.9 million.$584 thousand in financial services income, partially offset by increases in fees for services to customers.

An increase of $2.9 million in provision for credit losses on loans primarily as a result of the ongoing uncertainty surrounding economic conditions and credit risk metrics. An increase of $200 thousand in unfunded commitments for the third quarter of 2022 compared to the third quarter 2021 primarily as a result of an increase in unfunded loan commitments.

An increase of $1.4$2.3 million in noninterest expense for the thirdsecond quarter of 20222023 compared to the thirdsecond quarter 2021,2022 primarily as a result of an increase in salaries and employee benefits, net occupancy expense, outsourced services, advertising expense and other expenses.benefits.

TrustCo recorded net income of $54.3$34.1 million, or $2.835$1.79 of diluted earnings per share, for the nine‑six‑months ended SeptemberJune 30, 2022,2023, compared to net income of $45.3$35.0 million, or $2.349$1.82 of diluted earnings per share, in the same period in 2021.2022.  Return on average assets was 1.17%1.14% and 1.00%1.13%, respectively, for the nine-monthssix-months ended SeptemberJune 30, 20222023 and 2021.2022.  Return on average equity was 12.16%11.22% and 10.50%11.84%, respectively, for the nine-monthssix-months ended SeptemberJune 30, 20222023 and 2021.2022.

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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.

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, in the national economy, financial market conditionsmarkets 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 2021Annual Report on Form 10-K for the year ended December 31, 2022 is a description of the effect interest rates had on the results for the year 20212022 compared to 2020.2021.  Many of the same market factors discussed in the 2021 Form 10-K2022 Annual Report, including instability in the financial services sector and heightened global economic concerns, continued to have a significant impact on results through the thirdsecond quarter of 2022, as well as the economic effect of COVID-19 and heightened global concerns.2023.

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.  Beginning in the second half of 2019, the Federal Reserve Board began lowering the rate in response to a slowing economy.  During the first quarter of 2020, the target range for the Federal Funds rate was significantly decreased again to 0.00% to 0.25% as a result of the COVID-19 pandemic.  The Federal Reserve BoardHowever, as discussed above, the FOMC increased the target range for the federal funds rate seven times in March 2022, May 2022, June 2022, July 2022 and againfour times in September 20222023 by a total of 525 basis points, to end the third quarter at 3.00%a range of 5.25% to 3.25% in order to address inflationary concerns, with additional rate increases anticipated.5.50% as of July 2023.

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The interest rate on the 10-year Treasury bond and other long-term interest rates have significant impactinfluence 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 investmentsinstruments as well as the interest expense on deposits and borrowings.  Residential real estate loans and longer-termlonger‑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 termshort-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, theThe 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.competitive.  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-year Treasury.  The 10‑year Treasury yield increased 0.17decreased only 5 basis points, on average, during the thirdsecond quarter of 20222023 compared to the first quarter of 2023 and increased 67 basis points as compared to the second quarter of 2022 and increased 1.78 basis points as compared to the third quarter of 2021.2022.

While TrustCo has been affected by changes in financial markets over time, management believes that 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.  Management believes that 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.  Additionally, theThe current interest rate environment, however, has improvednarrowed 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.

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For the thirdsecond quarter of 2022,2023, the net interest margin was 3.16%2.98%, up 5115 basis points versus the prior year’s second quarter.  The quarterly results reflect the following significant factors:

The average balance of Federal Funds sold and other short-term investments decreased by $247.8 million while the average yield increased 209425 basis points in the thirdsecond quarter of 20222023 compared to the same period in 2021.2022 and the average balance decreased $550.4 million over the same period.  The increase in the average yield was a result of increases in the Federal Funds target rate during 2022 and was more than enough to offset the decrease in the average balance of Federal Funds sold.balance.

The average balance of securities available for sale increased by $67.6$35.8 million andwhile the average yield also increased 7642 basis points to 2.12%2.27%.  The increase in the average yield was primarily a result of higher bond yields on purchases throughout the year due to the changing interest rate environment.investments purchased during 2022.

The average loan portfolio grew by $213.5$336.0 million to $4.59$4.84 billion and the average yield decreased 4increased 29 basis points to 3.57%3.81% in the thirdsecond quarter of 20222023 compared to the same period in 2021.  The average yield decreased primarily as a result of lower loan origination rates while rates remained low before the recent increases by the Federal Reserve Board, as well as the timing of PPP loan origination fees.2022.

55
The average balance of interest bearing liabilities decreased $76.0$173.2 million and the average rate paid decreased 4increased 96 basis points to 0.11%1.06% in the thirdsecond quarter of 20222023 compared to the same period in 2021.  Prior to the recent interest rate increases, time deposits were repricing at lower rates which drove down the rate paid on interest bearing liabilities.  As time deposits reprice to current market rates we expect an increase in the average paid on interest bearing liabilities.2022.

During the thirdsecond quarter of 2022,2023, the Company continued to focus on its strategy to expand theits 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.  We continue to face significant competitionCompetition remains strong in the Company’s market areas.

The strategy on the funding side of the balance sheet was to offer competitive shorter term rates which allowed the Bank to remain competitive in the markets we serve.maintain our existing deposits.  This strategy drove deposit growth at a relatively low cost that management believes should sustain TrustCo’s strong liquidity position and continue to allow us to cross sell to these new relationships and take advantage of opportunities as they arise.  A significant portion of the Bank’s time deposits repriced during the last year while interest rates remained low. However, the Bank continues to monitor the recent Federal Funds target rate increases and the effects it is having on deposit rates.  Continued increases in rates by the Federal Reserve Board will more than likely cause an increase in rates on interest bearing liabilities.

Earning Assets
Total average interest earning assets increaseddecreased from $6.01$6.09 billion in the thirdsecond quarter of 20212022 to $6.04$5.91 billion in the same period of 20222023 with an average yield of 3.24%3.80% in the thirdsecond quarter of 20222023 and 2.77%2.90% in the thirdsecond quarter of 2021.  The2022.  There was a continued shift in the mix of assets invested intowards a lower proportion of Federal Funds sold and other short-term investments decreased while loans andto securities available for sale increased over the prior year period.and loans.  Interest income on average earning assets increased from $41.7$44.2 million in the thirdsecond quarter of 20212022 to $49.0$56.1 million in the thirdsecond quarter of 2022,2023, on a tax equivalent basis.  This increase was primarily driven by the higher interest rates on Federal Funds sold and other short-term investments and securities available for sale, which resulted from the increases in the Federal Funds target rate throughout 2022 and 2023, and also from interest income on loans due to an increased volume of originations year over year.year at higher interest rates.

54
Loans
The average balance of loans was $4.59$4.84 billion in the thirdsecond quarter of 20222023 and $4.37$4.50 billion in the comparable period in 2021, and the2022.  The yield on loans was down 4up 29 basis points to 3.57%3.81%.  Interest income on loans was $40.9$46.1 million in the thirdsecond quarter of 20222023 up $1.4$6.5 million from the same period in 2021.  As mentioned above, the average yield decreased primarily as a result of lower loan origination rates while interest rates remained low before the recent increases by the Federal Reserve Board, as well as the timing of PPP loan origination fees.2022.

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Compared to the thirdsecond quarter of 2021,2022, the average balance of residential mortgage loans, home equity lines of credit, commercial loans, and installment loans increased while commercial loans decreased.all increased.  The average balance of residential mortgage loans was $4.11$4.27 billion in the thirdsecond quarter of 20222023 compared to $3.92$4.05 billion in 2021,2022, an increase of 4.7%5.4%.  The average yield on residential mortgage loans decreasedincreased by 813 basis points to 3.44%3.56% in the thirdsecond quarter of 20222023 compared to 2021.2022.

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 target 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, and no escrow or mortgage insurance requirements for qualified borrowers and the fact that the Companytypically holds these loans in portfolio and does not sell them into the secondary markets.borrowers.  Assuming a continued 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.

Commercial loans, which consist primarily of loans secured by commercial real estate, decreased $3.3increased $50.1 million to an average balance of $207.5$249.0 million in the thirdsecond quarter of 20222023 compared to the same period in the prior year, primarily as a result of the forgiveness of PPP loans.year.  The average yield on this portfolio was down 24up 46 basis points to 4.79%5.29% compared to the prior year period primarily as a result of less origination fees recognized on the forgiven PPP loans.period. The Company remains selective in underwriting commercial loans in recent periods as the apparentseeking a favorable risk/reward balance has been less favorable in many cases.balance.

The average yield on home equity credit lines increased 70226 basis points to 4.39%6.00% during the thirdsecond quarter of 20222023 compared to the year earlier period. The average balances of home equity credit lines increased 13.1%24.4% to $261.6$303.1 million in the thirdsecond quarter of 20222023 as compared to the prior year.

Securities Available for Sale
The average balance of the securities available for sale portfolio for the thirdsecond quarter of 20222023 was $520.7$505.8 million compared to $453.1$470.0 million for the comparable period in 2021.2022.  The increasingincrease in the balance reflects new investment purchases partially offset by routine paydowns, calls and maturities.   The average yield was 2.12%2.27% for the thirdsecond quarter of 20222023 compared to 1.36%1.85% for the thirdsecond quarter of 2021.2022.  The increase in average yield is a result of higher yields on bonds purchased in 2022 as a result of the current interest rate environment.  This portfolio is primarily comprised of agency issued residential mortgage backed securities, and collateral mortgage obligation 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.

55
The net unrealized loss in the available for sale securities portfolio was $49.4$42.0 million as of SeptemberJune 30, 20222023 compared to a net unrealized loss of $4$43.5 million as of December 31, 2022.  The net unrealized losses in the portfolio is the result of changes in market interest rate levels.

Held to Maturity Securities
The average balance of held to maturity securities was $7.2 million for the second quarter of 2023 compared to $8.9 million in the second quarter of 2022.  The decrease in balances reflects routine paydowns.  No new securities were added to this portfolio during the period.  The average yield was 4.17% for the second quarter of 2023 compared to 3.93% for the year earlier period.  TrustCo expects to hold the securities in this portfolio until they mature or are called.

The net unrecognized loss in the held to maturity securities portfolio was $174 thousand as of June 30, 2023 compared to a net unrealized loss of $217 thousand as of December 31, 2021.2022.  The increasedecrease in the net unrealized losses in the portfolio is the result of changes in market interest rate levels.

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Held to Maturity Securities
The average balance of held to maturity securities was $8.3 million for the third quarter of 2022 compared to $11.2 million in the third quarter of 2021.  The decrease in balances reflects routine paydowns and calls.  No new securities were added to this portfolio during the period.  The average yield was 4.08% for the third quarter of 2022 up from 3.72% for the year earlier period.  The increase in the yield is primarily a result of an increase in average lives as well as the timing of mortgage-backed payments.  TrustCo expects to hold the securities in this portfolio until they mature or are called.

As of SeptemberJune 30, 2022,2023, this portfolio consisted solely of agency issued mortgage-backed securities and collateralized mortgage obligations.  The balances for these securities are recorded at amortized cost.

Federal Funds Sold and Other Short-term Investments
The 2023 second quarter average balance of Federal Funds sold and other short‑termshort-term investments was $918.9$551.1 million, a $550.4 million decrease from the $1.10 billion average for the third quarter of 2022 compared to $1.2 billionsame period in the third quarter of 2022.    The yield was 2.25%5.07% for the thirdsecond quarter of 20222023 and 0.16%0.82% for the comparable period in 2021.2022.  Interest income from this portfolio increased $4.8$4.7 million from $470 thousand in 2021 to $5.2$2.3 million in 2022.2022 to $7.0 million in 2023.  While the average balances decreased year over year, the increase in the federal fundsFederal Funds target rate throughout 2022 and into 2023 resulted in an increase in interest income over the same period in the prior year.

The Federal Funds sold and other short-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.

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-bearing checking, money market and time deposit accounts.

Total average interest bearing deposit accounts (which includes interest bearing checking, money market accounts, savings and time deposits) increased $26.1decreased $100.0 million to $4.50$4.42 billion for the thirdsecond quarter of 20222023 versus the thirdsecond quarter in the prior year, and the average rate paid decreasedincreased from 0.14%0.08% for 20212022 to 0.10%1.07% for 2022.2023.  Total interest expense on these deposits decreasedincreased from $1.5 million$951 thousand to $1.1$11.8 million in the thirdsecond quarter of 20222023 compared to the year earlier period.  From the thirdsecond quarter of 20212022 to the thirdsecond quarter of 2022,2023, interest bearing demand account average balances were up 3.6%down 10.5%, certificates of deposit average balances were down 14.8%up 41.7%, non-interest demand average balances were up 10.1%down 6.4%, average savings balances increased 10.4%decreased 13.6% and money market balances were up 0.8%down 21.2%.   Our growth inWhile average balances are down from a year ago, we have grown more deposits came at relatively low costas compared to December 2022, and continuescontinue to be offset by higher earnings on loan yields and returnsencourage customers to retain these funds in the investment portfolios.expanded product offerings of the Bank through aggressive marketing and product differentiation.

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At SeptemberJune 30, 2022,2023, the maturity of total time deposits is as follows:

(dollars in thousands)      
      
Under 1 year $786,544  $1,296,358 
1 to 2 years 71,291  51,733 
2 to 3 years 5,618  2,475 
3 to 4 years 936  90,704 
4 to 5 years 89,833  1,084 
Over 5 years  130   605 
 $954,352  $1,442,959 

As of June 30, 2023 and December 31, 2022, approximately $953.0 million and $968.6 million, respectively, of our deposit portfolio were uninsured. The uninsured amounts are estimates based on the methodologies and assumptions used for the Bank’s regulatory reporting requirements.

Average short-term borrowings for the thirdsecond quarter 2022 were $138.1$124.1 million in 20222023 compared to $240.2$197.3 million in 2021.  The decrease in the average balance from the prior year period is primarily a result of a shift of funds into time deposits.2022.  The average rate decreasedincreased during this time period from 0.38%0.36% in 20212022 to 0.35%0.90% in 2022.2023.  The short-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 potential contingent funding source within its Asset/Liability Management Policy.  Like other contingent funding sources, brokered deposits may be tested from time to time to ensure operational and market readiness.

Net Interest Income
Tax equivalent net interest income increased by $992 thousand to $44.1 million in the second quarter of 2023 compared to the same period in 2022.  The net interest spread was down 6 basis points to 2.74% in the second quarter of 2023 compared to the same period in 2022. As previously noted, the net interest margin was up 15 basis points to 2.98% for the second quarter of 2023 compared to the same period in 2022.

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Taxable equivalent net interest income increased by $7.9 million to $47.8$91.0 million in the third quarterfirst six-months of 20222023 compared to the same period in 2021.2022.  The net interest spread was up 5118 basis pointpoints to 3.13%2.90% in the third quarterfirst six-months of 20222023 compared to the same period in 2021. As previously noted, the net2022.  Net interest margin was also up 51increased 36 basis points to 3.16%3.10% for the third quarterfirst six‑months of 20222023 compared to the same period in 2021.

Taxable equivalent net interest income increased by $10.8 million to $130.9 million in the first nine-months of 2022 compared to the same period in 2021.  The net interest spread was up 19 basis points to 2.86% in the first nine-months of 2022 compared to the same period in 2021.  Net interest margin was up 17 basis points to 2.88% for the first nine‑months of 2022 compared to the same period in 2021.2022.

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.

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The following describes the nonperforming assets of TrustCo as of SeptemberJune 30, 2022:2023:

Nonperforming loans and foreclosed real estate: Total NPLs and non-accrual loans were $18.7$19.4 million at SeptemberJune 30, 2022,2023, compared to $18.8$17.5 million at December 31, 20212022 and $20.2$18.7 million at SeptemberJune 30, 2021.2022.  There were no loans at Septemberas of June 30, 20222023 and 20212022 and December 31, 20212022 that were past due 90 days or more and still accruing interest.The coverage ratio, or allowance for credit losses on loans to NPLs, was 241.6% as of June 30, 2023, compared to 263.1% as of December 31, 2022. 

At SeptemberJune 30, 2022,2023, nonperforming loans primarily include a mix of commercial and residential loans.  Of total nonperforming loans of $18.7$19.4 million at SeptemberJune 30, 2022,2023, $18.4 million were residential real estate loans, $179$859 thousand were commercial loans and mortgages and $94$124 thousand were installment loans, compared to $18.6$16.8 million, $112$533 thousand and $37$106 thousand, respectively, at December 31, 2021.2022.

A significant percentage of nonperforming loans are residential real estate loans, which are historically lower-risk than most other types of loans.  Net recoveries were $164$161 thousand on residential real estate loans (including home equity lines of credit) for the thirdsecond quarter of 20222023 compared to net recoveries of $39$119 thousand for the thirdsecond quarter of 2021.2022.  Management believes that these loans have been appropriately written down where required.

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 Central Florida, 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 non-accrualnonaccrual status once they are 90 days past due, or earlier if management has determined that such classification is appropriate.  Once in non-accrualnonaccrual 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.  The collateral on non-accrualnonaccrual loans is evaluated periodically, and the loan value is written down if the collateral value is insufficient.

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The Company originates loans throughout its branch franchise area.  At SeptemberJune 30, 2022, 68.8%2023, 65.9% of its gross loan portfolio balances were in New York State and the immediately surrounding areas (including New Jersey, Vermont and Massachusetts), and 31.2%34.1% were in Florida.  Those figures compare to 70.6%68.0% and 29.4%32.0%, respectively at December 31, 2021.2022.

Economic conditions vary widely by geographic location.  As a percentage of the total nonperforming loans as of SeptemberJune 30, 2022, 11.6%2023, 13.2% were to Florida borrowers, compared to 88.4%86.8% to borrowers in New York and surrounding areas.  For the three months ended SeptemberJune 30, 2022,2023, New York and surrounding areas experienced net recoveries of approximately $130$269 thousand  and Florida experiencedthere were net recoveriescharge-offs of $2$40 thousand in Florida for the thirdsecond quarter of 2022.2023.

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Other than loans currently identified as nonperforming, management is aware of no other loans in the Bank’s portfolio that pose material risk of the eventual non-collection of principal and interest.  Also as of SeptemberJune 30, 2022,2023, 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 non-accrualnonaccrual commercial and commercial real estate loans, as well as all loans restructured under a TDR, and residential non-accrual loans over 180 daysloan modifications, as individually evaluated loans.   There were $294$970 thousand of commercial mortgages and commercial loans classified as individually evaluated as of SeptemberJune 30, 20222023 compared to $232$646 thousand classified as impairedindividually evaluated at December 31, 2021.2022.  There were $26.2$25.5 million of individually evaluated residential loans at SeptemberJune 30, 20222023 compared to $18.3$25.0 million classified as impairedindividually evaluated at December 31, 20212022.

As of SeptemberJune 30, 20222023 and December 31, 2021,2022, the Company’s loan portfolio did not include any subprime mortgages or loans acquired with deteriorated credit quality.

At SeptemberJune 30, 20222023 there was $682 thousand$1.4 million of foreclosed real estate compared to $362 thousand$2.1 million at December 31, 2021.

In response to Hurricane Ian, the Bank continues to assess the impact to the counties in Florida in which we do business.  We are currently monitoring all customer contact in the affected counties and to date have not identified circumstances that would have a material adverse impact on the performance of our loan portfolio.2022.

Allowance for credit losses on loans: The Company adopted CECL on January 1, 2022. Under this standard, allowances have been  established for loans and commitments to lend. The allowance for credit losses on loans (“ACLL”) replacesreplaced the previous allowance for loan losses (“ALL”). Upon adoption, the allowance for credit losses on loans increased by $2.4 million to $46.6 million from $44.2 at December 31, 2021 under the ALLL.  The allowance for credit losses on unfunded commitments increased from $18 thousand to $2.4 million and is recorded in accrued expenses and other liabilities. The Company recorded a net decrease to undivided profits of $3.5 million, net of $1.2 million in deferred tax balances as of January 1, 2022 for the cumulative effect of adopting CECL.

In the thirdsecond quarter of 2023, the Company recorded a credit to provision for credit losses of $500 thousand, which was a result of a decrease in unfunded commitments as a result of a corresponding decrease in unfunded loans.  There was no provision for credit losses on loans in the second quarter of 2023 due to the continued low levels of non-performing loans and lack of charge-offs experienced within the loan portfolio.  In the second quarter of 2022, the Company recorded a credit to provision for credit losses of $300$491 thousand, which includes a credit to provision for credit losses on loans of $100 thousand$1.0 million as a result of continued growth growth in the loan portfolio partiallyimproving unemployment and housing price forecasts, offset by a sustained low level of NPL’s and chargeoffs, and a provision for credit losses on unfunded commitments of $200$509 thousand as a result of a corresponding increase in unfunded loans.

During the most recent quarter, the Federal Reserve Bank increased the target federal funds rate on two occasions by 75 basis points each, and then another 75 basis points in November 2022, resulting in six interest rate hikes this year totaling 375 basis points. Rising inflation weighs on consumers’ purchasing power by slowing spending and driving monetary tightening. Inflation has reached a forty-year high, and labor and supply chain challenges have been heightened by the global impacts of the Russian invasion of Ukraine. Management has taken into consideration the possible effects of these changes qualitatively within the reserves.

6159
The Company evaluatesevaluated several external forecasts in choosing the forecast element for the economic components of the allowance for credit losses on loans. The Company selected the stagflation forecast for bothand there have been no changes in the economic forecast modeling since its adoption on January 1, 2022 and September 30, 2022 for economic modeling.
2022.

The following changesFrom March 31, 2023 to June 30, 2023 the actual performance was in forecasts from Juneline with the forecasted performance pertaining to September impacted the reserves:

key variables such as unemployment rates, declining 2% for both New York and Florida,
an increase in consumer price indices, (“CPI”) of 0.2% for New York and 3% for Florida,
an increase in Gross Metro Product (“GMP”) of 2% for New York,
an increase in Gross Metro Product (“GMP”)  of 4% for Florida.
Product.

See Notes 1 andNote 5 of the consolidated interim financial statements for additional discussion related to the adoption of CECL, and the process for determining the provision for credit losses.

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

 As of  As of 
(dollars in thousands) September 30, 2022  December 31, 2021  
As of
June 30, 2023
  
As of
December 31, 2022
 
    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 $2,169  4.20% 
$
2,942
  
4.08
%
 $2,393   4.72% $2,343   4.41%
Real estate - construction 393  0.79% 
375
  
0.84
%
  277
   0.55%  
385
   0.77%
Real estate mortgage - 1 to 4 family 38,649  88.96% 
37,650
  
89.67
%
  39,694
   88.07%  
38,859
   88.51%
Home equity lines of credit 4,162  5.82% 
2,857
  
5.20
%
  4,313
   6.32%  
4,280
   6.05%
Installment Loans  144   0.23%  
443
   
0.21
%
  237
   0.34%  
165
   0.26%
 $45,517  100.00% 
$
44,267
  
100.00
%
 $46,914   100.00% $46,032   100.00%

At SeptemberJune 30, 2022,2023, the allowance for loancredit losses on loans was $45.5$46.9 million, compared to $47.4$45.3 million at SeptemberJune 30, 20212022 and $44.3$46.0 million at December 31, 2021.2022.  The allowance represents 0.98%0.96% of the loan portfolio as of Septemberat both June 30, 2022, 1.00%2023, 0.97% at December 31, 2021,2022, and 1.08%1.00% at SeptemberJune 30, 2021.2022.

During the thirdsecond quarter of 2022,2023, there were no commercial loan chargeoffs, $13charge-offs, $22 thousand of residential loan chargeoffs,charge-offs, and $34$69 thousand of consumer loan chargeoffs,charge-offs, compared to $30with $4 thousand of commercial loan chargeoffs, $73charge-offs, $12 thousand of gross residential mortgage chargeoffs,charge-offs, and $17$14 thousand of consumer loan chargeoffscharge-offs in the thirdsecond quarter of 2021.2022.  During the thirdsecond quarter of 20222023 there were no$129 thousand of commercial loan recoveries, $177$183 thousand of residential mortgage recoveries, and $8 thousand for consumer loan recoveries, compared to $4 thousand of commercial loan recoveries, $131 thousand of residential mortgage recoveries, and $2 thousand for consumer loan recoveries, compared to no commercial loan recoveries, $112 thousand of residential mortgage recoveries, and $3 thousand of consumer loan recoveries in the thirdsecond quarter of 2021.2022.

62
60
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.  As previously stated, the Bank is a member of the FHLBNY and is an eligible borrower at the 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 certificates of deposits may be tested from time to time to ensure operational and market readiness.  Management believes that the Company has adequate sources of liquidity to cover its contractual obligations and commitments over the next twelve months and beyond.

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-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 SeptemberJune 30, 20222023 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 SeptemberJune 30, 2022. 2023.

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, 200bp, 300bp, and 300bp.400bp.

As of SeptemberJune 30, 20222023 
Estimated Percentage of
Fair value of Capital to
Fair value of Assets
 
+400 BP
        30.90  %24.20%
+300 BP
  30.6024.50 
+200 BP
  31.5025.80 
+100 BP
  31.6026.50 
Current rates
  30.6026.30 
-100 BP
  28.5025.20 
-200 BP
  25.3022.90 
-300 BP
  21.6020.00
-400 BP
16.30 

61
Noninterest Income
Total noninterest income for the thirdsecond quarter of 20222023 was $4.4$4.6 million compared to $4.3$4.9 million for the same period in the third quarter of 2021.prior year.  Financial Servicesservices income was down $123$584 thousand to $1.4 million in the thirdsecond quarter of 2022 as2023 compared to the year-ago period, primarily as a result of lower market values of assets under management.  The fair value of assets under management was $864.8 million at September 30, 2022, $1.10 billion as of December 31, 2021, and $1.05 billion at September 30, 2021.  Fees for services to customers were up $174 thousand over the same period in the prior year, primarily as a result of more interchange income.a lower average market value of assets under management in the prior year quarter versus the current year quarter. This was partially offset by fees for services to customers increasing $189 thousand over the same period in the prior year.   The fair value of assets under management was $940 million at June 30, 2023, $918 million at December 31, 2022, and $910 million at June 30, 2022.

63
For the nine-monthssix months ended SeptemberJune 30, 20222023 total noninterest income was $14.5$9.3 million, up $1.1 milliondown $832 thousand compared to the prior year period.   The increasedecrease is primarily the result of more interchangea decrease in financial services income, also as a result of a lower average market value of assets under management in the prior year versus the current year, and a gain on the sale of fixed assets, partially offset by less financial servicesdecrease in other income.

Noninterest Expenses
Total noninterest expenses were $26.1$27.3 million for the three-months ended SeptemberJune 30, 2022,2023, compared to $24.7$25.0 million for the three-months ended SeptemberJune 30, 20212022.  Significant changes included a $225 thousand$1.7 million increase in salaries and employee benefits primarily as a $224result of increases in salaries in order to remain competitive, and a decrease in the benefit from returns on plan assets from the pension and post retirement plan.  Additionally, we had a $206 thousand increase in net occupancyequipment expense, a $313$129 thousand increase in outsourced services, a $198 increase in advertising expense, and a $572$281 thousand increase in FDIC and other expenses,insurance, partially offset by a $96decrease of $124 thousand decrease in equipment expense, and a $108 thousand decrease in professional services. Full time equivalent headcount was 743793 as of SeptemberJune 30, 2021, 7592022, 750 as of December 31, 2021,2022, and 753791 as of SeptemberJune 30, 2022.2023.  Changes in headcount represent normal fluctuations.

Total noninterest expenses were $73.9$55.0 million for the nine-monthssix-months ended SeptemberJune 30, 2022,2023, compared to $75.5$47.8 million for the nine-monthssix-months ended SeptemberJune 30, 20212022.  Significant changes included a decreasean increase of $3.9$5.7 million in salaries and employee benefits primarily as a result of a $2 million favorable true-up to the incentive compensation accrual upon payout in the first quarter of 2022, and as well as decreasesdescribed above, increases in various other employee benefit plan expenses.  This was partially offset by a $674 thousand increasesalaries in outsourced services, a $301 thousand increase in advertising expenseorder to remain competitive, and a $1.4 million increasedecrease in the benefit from returns on plan assets from the pension and post retirement plan.  Other significant changes were increases in equipment expense, FDIC and other expense.insurance, other real estate expense, net, and other expenses.

Income Taxes
In the thirdsecond quarter of 2022,2023, TrustCo recognized income tax expense of $6.4$5.5 million compared to $5.5$5.6 million for the thirdsecond quarter of 2021.2022.  The effective tax rates were 24.8%25.0% and 23.8% for both the thirdsecond quarters of 2023 and 2022, and 2021.respectively.  For the first nine-months,six-months, income taxes were $17.6$11.4 million and $15.2$11.2 million in 20222023 and 2021,2022, respectively. The effective tax rate was 24.5%rates were 25.0% and 25.2% for24.3% in 2023 and 2022, and 2021, respectively.

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

62
Banking regulators have moved towards higher required capital requirements due to the standards included in the “Basel III” banking capital reform measures and the Dodd-Frank Wall Street Reform and Consumer Protection Act, as well as a general trend towards reducing risk in the banking system by providing a greater capital margin.

Total shareholders’ equity at SeptemberJune 30, 20222023 was $589.0$621.4 million compared to $586.7$594.6 million at SeptemberJune 30, 2021.2022. TrustCo declared a dividend of $0.35$0.36 per share in the thirdsecond quarter of 2022.2023.  This results in a dividend payout ratio of 34.57%41.83% based on thirdsecond quarter 20222023 earnings of $19.4$16.4 million.

The  capital rules, which are generally applicable to both the Company and the Bank, include several measures; specifically, a Tier 1 leverage ratio, a common equity tier 1 (“CET1”) capital ratio, a tier 1 risk-based capital ratio and a total risk-based capital ratio. The rules also impose a capital conservation buffer that requires the Company and the Bank to maintain additional levels of Tier 1 common equity over the minimum risk-based capital levels before they may pay dividends, repurchase shares or pay discretionary bonuses.
64
63
The Bank and the Company reported the following capital ratios as of SeptemberJune 30, 20222023 and December 31, 2021:2022:

(Bank Only)
 As of September 30, 2022  Well  
Minimum for
Capital Adequacy plus
Capital Conservation
 
(dollars in thousands)
 
Amount
  
Ratio
  
Capitalized(1)
  
Buffer (1)(2)
 
             
Tier 1 leverage ratio $597,092   9.648%  5.000%  4.000%
Common equity tier 1 capital  597,092   18.333   6.500   7.000 
Tier 1 risk-based capital  597,092   18.333   8.000   8.500 
Total risk-based capital  637,906   19.586   10.000   10.500 

  
As of December 31, 2021
  
Well
  
Minimum for
Capital Adequacy plus
Capital Conservation
 
(dollars in thousands)
 
Amount
  
Ratio
  
Capitalized(1)
  
Buffer (1)(2)
 
             
Tier 1 leverage ratio
 
$
570,594
   
9.324
%
  
5.000
%
  
4.000
%
Common equity tier 1 capital
  
570,594
   
18.954
   
6.500
   
7.000
 
Tier 1 risk-based capital
  
570,594
   
18.954
   
8.000
   
8.500
 
Total risk-based capital
  
608,308
   
20.206
   
10.000
   
10.500
 

(Consolidated)
(Bank Only)


(dollars in thousands)
  


As of June 30, 2023
    
Well
Capitalized(1)

Minimum for
Capital Adequacy plus
Capital Conservation
Buffer (1)(2)
  
Amount  Ratio
             
Tier 1 leverage ratio $627,958   10.370%  5.000%  4.000
%
Common equity tier 1 capital  627,958   18.477   6.500   7.000 
Tier 1 risk-based capital  627,958   18.477   8.000   8.500 
Total risk-based capital  670,522   19.730   10.000   10.500 

 As of September 30, 2022 
Minimum for
Capital Adequacy plus
Capital Conservation
 
(dollars in thousands)
  


As of December 31, 2022
  
Well
Capitalized(1)

Minimum for
Capital Adequacy plus
Capital Conservation
Buffer (1)(2)
  
 
Amount
  
Ratio
 
Buffer (1)(2)
 Amount Ratio
                
Tier 1 leverage ratio
 $613,661 9.913% 4.000% 
$
609,998
   
10.116
%
  
5.000
%
  
4.000
%
Common equity tier 1 capital
 613,661 18.837 7.000   
609,998
   
18.431
   
6.500
   
7.000
 
Tier 1 risk-based capital
 613,661 18.837 8.500   
609,998
   
18.431
   
8.000
   
8.500
 
Total risk-based capital
 654,486 20.090 10.500   
651,462
   
19.684
   
10.000
   
10.500
 

(Consolidated)
(Consolidated)
 
As of December 31, 2021
 
Minimum for
Capital Adequacy plus
Capital Conservation
  


As of June 30, 2023
  
Minimum for
Capital Adequacy plus
Capital Conservation
Buffer (1)(2)
 
(dollars in thousands)
 
Amount
  
Ratio
 
Buffer (1)(2)
  Amount Ratio 
              
Tier 1 leverage ratio
 
$
588,427
 
9.614
%
 
4.000
%
 $647,048 10.682% 4.000%
Common equity Tier 1 capital
 
588,427
 
19.541
 
7.000
 
Common equity tier 1 capital
 647,048 19.034 7.000 
Tier 1 risk-based capital
 
588,427
 
19.541
 
8.500
  647,048 19.034 8.500 
Total risk-based capital
 
626,150
 
20.794
 
10.500
  689,629 20.286 10.500 
       

  


As of December 31, 2022

Minimum for
Capital Adequacy plus
Capital Conservation
Buffer (1)(2)
  
(dollars in thousands)
 Amount  Ratio
          
Tier 1 leverage ratio
 
$
626,628
   
10.390
%
  
4.000
%
Common equity Tier 1 capital
  
626,628
   
18.929
   
7.000
 
Tier 1 risk-based capital
  
626,628
   
18.929
   
8.500
 
Total risk-based capital
  
668,102
   
20.182
   
10.500
 

(1)
Federal regulatory minimum requirements to be considered to be Well Capitalized and Adequately Capitalized
(2)
The SeptemberJune 30, 20222023 and December 31, 20212022 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 SeptemberJune 30, 2022,2023, the consolidated equity to total assets ratio was 9.69%10.23%, compared to 9.70%10.00% at December 31, 20212022 and 9.56%9.55% at SeptemberJune 30, 2021.2022.

65
As of SeptemberJune 30, 2022,2023, the capital levels of both TrustCo and the Bank exceeded the minimum standards, including with the fully phased-in capital conservation buffer is taken into account.

64
Under the Office of the Comptroller of the Currency’s (“OCC”) “prompt corrective action” regulations, a bank is deemed to be “well capitalized” when its CET1, Tier 1, total risk-based and leverage capital ratios are at least 7%, 8.5%, 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-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 SeptemberJune 30, 20222023 and 2021,2022, Trustco Bank met the definition of “well-capitalized.“well capitalized.”

As noted, the Company’s dividend payout ratio was 34.57%41.83% of net income for the thirdsecond quarter of 20222023 and 39.13%37.46% of net income for the thirdsecond quarter of 2021.2022. The per-share dividend paid in the thirdsecond quarter of 2023 and 2022 was $0.36 and 2021 was $0.35, and $0.340625, respectively.  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 ifif: 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 statute, regulation or agreement.

TrustCo maintains a dividend reinvestment plan (“DRP”) with approximately 7,0476,872 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.

Reverse Stock Split
Effective as of May 28, 2021, the Company completed a 1-for-5 reverse stock split (the “Reverse Stock Split”) of the Company’s issued and outstanding shares of common stock, par value $1.00 per share. Proportional adjustments were made to the Company’s issued and outstanding common stock and to the exercise price and number of shares issuable upon exercise of the options outstanding under the Company’s equity incentive plans and the number of shares subject to restricted stock units under the Company’s equity incentive plans. No fractional shares of common stock were issued in connection with the Reverse Stock Split, and shareholders received cash in lieu of any fractional shares. All references herein to common stock and per share data for all periods presented in the consolidated financial statements and notes thereto have been retrospectively adjusted to reflect the Reverse Stock Split.

Share Repurchase Program
On March 9, 202217, 2023 the Company’s Board of Directors authorized, and the Company announced, another share repurchase program of up to 200,000 shares, or approximately 1% of its currently outstanding common stock.  DuringThere were no repurchases during the three and six months ended SeptemberJune 30, 2022, the Company repurchased a total of 75,100 thousand shares at an average price per share of $33.37, for a total of $2.5 million, under its Board authorized share repurchase program.2023.

66
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, income taxes and related disclosures. On an ongoing basis, we evaluate our estimates and assumptions. Our actual results may differ from these estimates under different assumptions or conditions.
 
During the ninethree months ended September30, 2022,June 30, 2023, there were no significant changes to our critical accounting policies and estimates as described in the financial statements contained in the 20212022 Form 10-K other than what is set forth immediately below.
 
Management considers the accounting policy relating to the allowance for credit losses to be a critical accounting policy given the measurement uncertainty and subjective judgement necessary in evaluating the levels of the allowance required to cover the life timelife-time losses in the loan portfolio and the material effect that such judgments can have on the results of operations.

67
65
TrustCo Bank Corp NY
Management'sManagement’s Discussion and Analysis
STATISTICAL DISCLOSURE

I. DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS'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'shareholders’ equity is the unrealized gain (loss),loss, net of tax, in the available for sale portfolio of $($25.4)$30.0 million in 20222023 and $3.9$19.5 million in 2021.2022.  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, 2022
 
Three months ended
September 30, 2021
        
Three months ended
June 30, 2023
  
Three months ended
June 30, 2022
          
                   
 
Average
Balance
  
Interest
  
Average
Rate
  
Average
Balance
  
Interest
  
Average
Rate
  
Change in
Interest
Income/
Expense
  
Variance
Balance
Change
  
Variance
Rate
Change
                            
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 
$
104,633
  
$
479
   
1.83
%
 
$
68,505
  
$
91
   
0.53
%
 
$
388
   
68
   
320
  $120,646  $691   2.29% $71,409  $147   0.83% $544   152   392 
Mortgage backed securities and collateralized mortgage obligations-residential  
302,886
   
1,617
   
2.13
%
  
300,765
   
1,038
   
1.38
%
  
579
   
7
   
572
   278,367   1,543   2.20%  282,800   1,367   1.92%  176   (137)  313 
State and political subdivisions  
41
   
1
   
8.12
%
  
48
   
2
   
6.66
%
  
(1
)
  
(1
)
  
-
   34   1   6.74%  41   -   -%  1   -   1 
Corporate bonds  
86,965
   
526
   
2.42
%
  
48,543
   
220
   
1.81
%
  
306
   
215
   
91
   85,344   516   2.42%  87,556   522   2.38%  (6)  (44)  38 
Small Business Administration-guaranteed participation securities  
25,533
   
133
   
2.08
%
  
34,578
   
181
   
2.09
%
  
(48
)
  
(47
)
  
(1
)
Small Business Administration-guaranteed                                    
participation securities  20,724   111   2.15%  27,512   140   2.04%  (29)  (75)  46 
Other  
686
   
3
   
1.75
%
  
686
   
5
   
2.92
%
  
(2
)
  
-
   
(2
)
  686   3   1.75%  686   2   1.17%  1   -   1 
                                    
Total securities available for sale  
520,744
   
2,759
   
2.12
%
  
453,125
   
1,537
   
1.36
%
  
1,222
   
242
   
980
   505,801   2,865   2.27%  470,004   2,178   1.85%  687   (104)  791 
                                                                        
Federal funds sold and other short-term Investments  
918,909
   
5,221
   
2.25
%
  
1,166,679
   
470
   
0.16
%
  
4,751
   
(704
)
  
5,455
   551,087   6,970   5.07%  1,101,489   2,253   0.82%  4,717   (503)  5,220 
                                                                        
Held to maturity securities:                                                                        
Mortgage backed securities and collateralized mortgage obligations-residential  
8,306
   
85
   
4.08
%
  
11,168
   
104
   
3.72
%
  
(19
)
  
(72
)
  
53
   7,204   75   4.17%  8,859   87   3.93%  (12)  (41)  29 
                                    
Total held to maturity securities  
8,306
   
85
   
4.08
%
  
11,168
   
104
   
3.72
%
  
(19
)
  
(72
)
  
53
   7,204   75   4.17%  8,859   87   3.93%  (12)  (41)  29 
                                                                        
Federal Reserve Bank and Federal Home Loan Bank stock  
5,797
   
80
   
5.52
%
  
5,604
   
64
   
4.57
%
  
16
   
2
   
14
   5,868   110   7.50%  5,797   65   4.49%  45   1   44 
                                                                        
Commercial loans  
207,477
   
2,484
   
4.79
%
  
210,825
   
2,649
   
5.03
%
  
(165
)
  
(42
)
  
(123
)
  249,040   3,295   5.29%  198,972   2,402   4.83%  893   647   246 
Residential mortgage loans  
4,105,859
   
35,342
   
3.44
%
  
3,920,903
   
34,532
   
3.52
%
  
810
   
4,773
   
(3,963
)
  4,269,295   37,992   3.56%  4,049,271   34,771   3.43%  3,221   1,931   1,290 
Home equity lines of credit  
261,575
   
2,896
   
4.39
%
  
231,269
   
2,152
   
3.69
%
  
744
   
304
   
440
   303,134   4,533   6.00%  243,648   2,269   3.74%  2,264   650   1,614 
Installment loans  
10,213
   
174
   
6.75
%
  
8,669
   
155
   
7.10
%
  
19
   
63
   
(44
)
  15,734   242   6.16%  9,321   162   6.98%  80   198   (118)
                                    
Loans, net of unearned income  
4,585,124
   
40,896
   
3.57
%
  
4,371,666
   
39,488
   
3.61
%
  
1,408
   
5,098
   
(3,690
)
  4,837,203   46,062   3.81%  4,501,212   39,604   3.52%  6,458   3,426   3,032 
                                                                        
Total interest earning assets  
6,038,880
   
49,041
   
3.24
%
  
6,008,242
   
41,663
   
2.77
%
  
7,378
   
4,566
   
2,812
   5,907,163   56,082   3.80%  6,087,361   44,187   2.90%  11,895   2,779   9,116 
                                                                        
Allowance for credit losses on loans  
(45,519
)
          
(50,160
)
                      (47,060)          (46,411)                    
Cash & non-interest earning assets  
188,672
           
195,902
                       172,821           193,099                     
Total assets $6,032,924           6,234,049                     
                                                                        
Total assets 
$
6,182,033
          $
6,153,984
                     
                                                                        
Liabilities and shareholders' equity                                                                        
                                                                        
Deposits:                            ��                                           
Interest bearing checking accounts  
1,195,370
   
43
   
0.01
%
 
$
1,153,812
  
$
38
   
0.01
%
  
5
   
1
   
4
  $1,083,795   49   0.02% $1,210,554  $42   0.01%  7   (24)  31 
Money market accounts  
744,868
   
237
   
0.13
%
  
738,662
   
202
   
0.11
%
  
35
   
2
   
33
   613,204   1,756   1.15%  777,860   210   0.11%  1,546   (316)  1,862 
Savings  
1,579,513
   
200
   
0.05
%
  
1,430,558
   
154
   
0.04
%
  
46
   
17
   
29
   1,352,181   655   0.19%  1,564,454   163   0.04%  492   (154)  646 
Time deposits  
981,704
   
646
   
0.26
%
  
1,152,298
   
1,149
   
0.40
%
  
(503
)
  
(152
)
  
(351
)
  1,372,248   9,291   2.72%  968,560   536   0.22%  8,755   314   8,441 
                                    
Total interest bearing deposits  
4,501,455
   
1,126
   
0.10
%
  
4,475,330
   
1,543
   
0.14
%
  
(417
)
  
(132
)
  
(285
)
  4,421,428   11,751   1.07%  4,521,428   951   0.08%  10,800   (180)  10,980 
Short-term borrowings  
138,105
   
122
   
0.35
%
  
240,183
   
232
   
0.38
%
  
(110
)
  
(90
)
  
(20
)
  124,089   279   0.90%  197,259   176   0.36%  103   (402)  505 
                                    
Total interest bearing liabilities  
4,639,560
   
1,248
   
0.11
%
  
4,715,513
   
1,775
   
0.15
%
  
(527
)
  
(222
)
  
(305
)
  4,545,517   12,030   1.06%  4,718,687   1,127   0.10%  10,903   (582)  11,485 
                                                                        
Demand deposits  
859,122
           
780,163
                       788,654           842,487                     
Other liabilities  
82,290
           
75,116
                       79,839           79,431                     
Shareholders' equity  
601,061
           
583,192
                       618,914           593,444                     
                                                                        
Total liabilities and shareholders' equity 
$
6,182,033
          
$
6,153,984
                      $6,032,924          $6,234,049                     
                                                                        
Net interest income, tax equivalent      
47,793
           
39,888
      
$
7,905
   
4,788
   
3,117
       44,052           43,060      $992   3,361   (2,369)
                                                                        
Net interest spread          
3.13
%
          2.62
%
                      2.74%          2.80%            
                                                                        
Net interest margin (net interest income to total interest earning assets)          
3.16
%
          
2.65
%
            
Net interest margin (net interest income                                    
to total interest earning assets)          2.98%          2.83%            
                                                                        
Tax equivalent adjustment      
-
           
(1
)
                      -           -                 
                                    
Net interest income     $
47,793
          $
39,887
                       44,052           43,060                 

68
66
TrustCo Bank Corp NY
Management'sManagement’s Discussion and Analysis
STATISTICAL DISCLOSURE

I. DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS'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'shareholders’ equity is the unrealized gain (loss),loss, net of tax, in the available for sale portfolio of $(17.9)$29.8 million in 20222023 and $4.1$14.2 million in 2021.2022.  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, 2022
 
Nine months ended
September 30, 2021
        
Six months ended
June 30, 2023
 
Six months ended
June 30, 2022
       
Assets 
Average
Balance
  Interest  
Average
Rate
  
Average
Balance
  Interest  
Average
Rate
  
Change in
Interest
Income
Expense/
  
Variance
Balance
Change
  
Variance
Rate
Change
 
                                
     
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 
$
79,423
 $
712
 
1.19
%
 
$
65,103
 $
238
 
0.49
 
$
474
 
63
 
411
  
$
120,669
 
1,383
 
2.29
%
 
$
66,609
 
233
 
0.70
%
 
$
1,150
 
303
 
847
 
Mortgage backed securities and collateralized mortgage obligations-residential 
282,423
 
4,071
 
1.92
%
 
318,472
 
3,442
 
1.44
 
629
 
(615
)
 
1,244
  
282,683
 
3,128
 
2.21
%
 
272,022
 
2,454
 
1.80
%
 
674
 
99
 
575
 
State and political subdivisions 
41
 
2
 
6.73
%
 
49
 
3
 
8.16
 
(1
)
 
-
 
(1
)
 
34
 
1
 
6.74
%
 
41
 
1
 
6.73
%
 
-
 
-
 
-
 
Corporate bonds 
75,957
 
1,281
 
2.25
%
 
56,245
 
859
 
2.04
 
422
 
325
 
97
  
85,460
 
1,037
 
2.43
%
 
70,362
 
755
 
2.15
%
 
282
 
175
 
107
 
Small Business Administration-guaranteed participation securities 
27,623
 
427
 
2.06
%
 
36,981
 
580
 
2.09
 
(153
)
 
(145
)
 
(8
)
 
21,423
 
228
 
2.13
%
 
28,685
 
294
 
2.05
%
 
(66
)
 
(97
)
 
31
 
Other 
686
 
7
 
2.04
%
 
686
 
16
 
3.11
 
(9
)
 
-
 
(9
)
  
686
 
5
 
0.73
%
  
686
 
4
 
1.17
%
  
1
 
-
 
1
 
                     
Total securities available for sale 
466,153
 
6,500
 
2.79
%
 
477,536
 
5,138
 
1.43
 
1,362
 
(372
)
 
1,734
  
510,955
 
5,782
 
1.13
%
 
438,405
 
3,741
 
1.71
%
 
2,041
 
480
 
1,561
 
                                      
Federal funds sold and other short-term Investments 
1,068,217
 
8,046
 
1.01
%
 
1,108,018
 
1,026
 
0.12
 
7,020
 
(63
)
 
7,083
  
563,938
 
13,525
 
4.84
%
 
1,144,108
 
2,825
 
0.50
%
 
10,700
 
(4,891
)
 
15,591
 
                                      
Held to maturity securities:                                      
Mortgage backed securities and collateralized mortgage obligations-residential 
8,897
 
262
 
3.93
%
 
12,199
 
338
 
3.70
 
(76
)
 
(108
)
 
32
   
7,372
 
153
 
4.16
%
  
9,198
 
177
 
3.86
%
  
(24
)
 
(57
)
 
33
 
                     
Total held to maturity securities 
8,897
 
262
 
3.93
%
 
12,199
 
338
 
3.70
 
(76
)
 
(108
)
 
32
  
7,372
 
153
 
4.16
%
 
9,198
 
177
 
3.86
%
 
(24
)
 
(57
)
 
33
 
                                      
Federal Reserve Bank and Federal Home Loan Bank stock 
5,734
 
207
 
7.22
%
 
5,570
 
198
 
4.74
 
9
 
-
 
9
  
5,833
 
220
 
3.77
%
 
5,701
 
127
 
4.46
%
 
93
 
22
 
71
 
                                      
Commercial loans 
200,525
 
7,412
 
4.93
%
 
212,832
 
8,203
 
5.14
 
(791
)
 
(465
)
 
(326
)
 
243,983
 
6,319
 
5.18
%
 
196,991
 
4,928
 
5.00
%
 
1,391
 
1,209
 
182
 
Residential mortgage loans 
4,054,657
 
104,310
 
3.43
%
 
3,852,960
 
104,219
 
3.61
 
91
 
7,109
 
(7,018
)
 
4,241,207
 
74,906
 
3.54
%
 
4,028,667
 
68,968
 
3.43
%
 
5,938
 
3,693
 
2,245
 
Home equity lines of credit 
246,026
 
7,289
 
3.96
%
 
234,682
 
6,622
 
3.77
 
667
 
329
 
338
  
297,262
 
8,652
 
5.87
%
 
238,122
 
4,393
 
3.72
%
 
4,259
 
1,280
 
2,979
 
Installment loans 
9,507
 
492
 
6.91
%
 
8,608
 
469
 
7.28
 
23
 
58
 
(35
)
  
14,535
 
457
 
6.35
%
  
9,148
 
318
 
7.00
%
  
139
 
223
 
(84
)
                     
Loans, net of unearned income 
4,510,715
 
119,503
 
3.53
%
 
4,309,082
 
119,513
 
3.70
 
(10
)
 
7,031
 
(7,041
)
 
4,796,987
 
90,334
 
3.77
%
 
4,472,928
 
78,607
 
3.52
%
 
11,727
 
6,405
 
5,322
 
                                      
Total interest earning assets 
6,059,716
  
134,518
 
2.96
%
 
5,912,405
  
126,213
 
2.85
 
8,305
 
6,488
 
1,817
   
5,885,085
  
110,014
  
3.75
%
  
6,070,340
  
85,477
  
2.82
%
  
24,537
  
1,959
  
22,578
 
                   
Allowance for credit losses on loans 
(46,225
)
     
(50,101
)
            
(46,677
)
     
(46,584
)
           
Cash & non-interest earning assets  
196,333
      
196,876
             
173,990
      
200,193
           
                   
Total assets 
$
6,209,824
     
$
6,059,180
            
$
6,012,398
     
$
6,223,949
           
                                      
Liabilities and shareholders' equity                   
                   
Liabilities and shareholders’ equity                   
                                      
Deposits:                                      
Interest bearing checking accounts 
$
1,199,154
 
129
 
0.01
%
 
$
1,129,480
 
136
 
0.02
 
(7
)
 
18
 
(25
)
 
$
1,108,452
 
115
 
0.02
%
 
$
1,201,078
 
86
 
0.01
%
 
29
 
(15
)
 
44
 
Money market accounts 
771,301
 
661
 
0.11
%
 
731,171
 
721
 
0.13
 
(60
)
 
65
 
(125
)
 
607,064
 
2,570
 
0.85
%
 
784,737
 
424
 
0.11
%
 
2,146
 
(308
)
 
2,454
 
Savings 
1,557,503
 
519
 
0.04
%
 
1,376,494
 
475
 
0.05
 
44
 
106
 
(62
)
 
1,403,924
 
1,185
 
0.17
%
 
1,546,316
 
319
 
0.04
%
 
866
 
(87
)
 
953
 
Time deposits 
971,539
 
1,728
 
0.24
%
 
1,203,708
 
4,076
 
0.45
 
(2,348
)
 
(683
)
 
(1,665
)
  
1,267,193
  
14,563
  
2.32
%
  
966,372
  
1,082
  
0.23
%
  
13,481
  
447
  
13,034
 
                     
Total interest bearing deposits 
4,499,497
 
3,037
 
0.09
%
 
4,440,853
 
5,408
 
0.16
 
(2,371
)
 
(494
)
 
(1,877
)
 
4,386,633
 
18,433
 
0.85
%
 
4,498,503
 
1,911
 
0.09
%
 
16,522
 
37
 
16,485
 
Short-term borrowings 
194,228
 
532
 
0.37
%
 
232,532
 
688
 
0.40
 
(156
)
 
(112
)
 
(44
)
  
127,957
  
564
  
0.89
%
  
222,755
  
410
  
0.37
%
  
154
  
(503
)
  
657
 
                     
Total interest bearing liabilities 
4,693,725
 
3,569
 
0.10
%
 
4,673,385
 
6,096
 
0.17
 
(2,527
)
 
(606
)
 
(1,921
)
 
4,514,590
 
18,997
 
0.85
%
 
4,721,258
 
2,321
 
0.10
%
 
16,676
 
(466
)
 
17,142
 
                                      
Demand deposits 
836,953
     
735,495
            
802,533
     
825,685
           
Other liabilities 
81,780
     
73,689
            
81,954
     
81,520
           
Shareholders' equity  
597,366
      
576,611
           
Shareholders’ equity  
613,321
      
595,486
           
Total liabilities and shareholders’ equity 
$
6,012,398
     
$
6,223,949
           
                                      
Total liabilities and shareholders' equity 
$
6,209,824
     
$
6,059,180
           
                   
Net interest income , tax equivalent    
130,949
      
120,117
   
$
10,832
 
7,094
 
3,738
 
Net interest income, tax equivalent    
91,017
      
83,156
   
$
7,861
  
2,425
  
5,436
 
                                      
Net interest spread     
2.86
%
     
2.67
            
2.90
%
     
2.72
%
       
                                      
Net interest margin (net interest income to total interest earning assets)     
2.88
%
     
2.71
            
3.10
%
     
2.74
%
       
                                      
Tax equivalent adjustment    
-
      
(1
)
             
-
      
-
         
                   
Net interest income   $
130,949
     $
120,116
             
91,017
      
83,156
         

69
67
Item 3.Quantitative and Qualitative Disclosures about Market Risk

The information presented in the "Liquidity“Liquidity and Interest Rate Sensitivity"Sensitivity” section of Part I, Item 2 of this Quarterly Report on Form 10-Q is incorporated herein by reference.

As detailed in the Annual Report to Shareholders as of December 31, 2021,2022, 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-monthsix-month month periods ended SeptemberJune 30, 20222023 and 2021,2022, 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 thirdsecond quarter of 2023 and 2022, the Company had an average balance of Federal Funds sold and other short-term investments of $918.9$551 million compared to $1.2and $1.1 billion, in the third quarter of 2021.respectively.  As investment opportunities present themselves, management plans to invest funds from the Federal Funds sold and other short-term investment portfolio into the securities available for sale, securities held to maturity and loan portfolios.  TrustCo does not engage in activities involving interest rate swaps, forward placement contracts, or any other instruments commonly referred to as “derivatives.” 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.

Item 4.Controls and Procedures

An evaluation was carried out under the supervisionDisclosure Controls 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.Procedures

The Company maintains disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) of the 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.  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.  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 Company’s 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-benefit relationship of possible controls and procedures.  Further, no evaluation of a cost-effective system of controls can provide absolute assurance that all control issues and instances of fraud, if any, will be detected.

70
68
Changes in Internal Control over Financial Reporting

There have been no changes in internal control over financial reporting (as defined in Rule 13a-15(f) and 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 Company’s internal control over financial reporting.

PART IIOTHER INFORMATION
PART II    OTHER INFORMATION

Item 1.Legal Proceedings

None.

Item 1A.Risk Factors

There were no material changesAn investment in the Company involves risks, including the risks discussed in Item 1A. “Risk Factors” of the Company’s 2022 Form 10-K, which risk factors have not materially changed except as set forth below. The risk factors below supersede the similarly captioned risk factors set forth in the 2022 Form 10-K and supplement the other risk factors in the 2022 Form 10-K. The risk factors below reflect modifications to the risk factors previously disclosednature of the risks that have developed since the date on which the 2022 Form 10-K was filed.

Any downgrade in the Company’s Annual Reportcredit rating of the U.S. government or default by the U.S. government as a result of political conflicts over legislation to raise the U.S. government’s debt limit may have a material adverse effect on Form 10-Kus.

Recent federal budget deficit concerns and political conflict over legislation to raise the U.S. government’s debt limit have increased the possibility of a default by the U.S. government on its debt obligations, related credit-rating downgrades, or an economic recession in the United States. Many of our investment securities are issued by the U.S. government, including certain government agencies and sponsored entities. As a result of uncertain domestic political conditions, including the possibility of the federal government defaulting on its obligations for a period of time due to debt ceiling limitations or other unresolved political issues, investments in financial instruments issued or guaranteed by the federal government may pose liquidity risks. In connection with prior political disputes over U.S. fiscal and budgetary issues leading to the U.S. government shutdown in 2011, Standard & Poor’s lowered its long-term sovereign credit rating on the U.S. from AAA to AA+. On August 1, 2023, Fitch Ratings also downgraded its U.S. long-term sovereign credit rating from AAA to AA+. A downgrade, or a similar action by other rating agencies, in response to current political dynamics, as well as sovereign debt issues facing the governments of other countries, could generally have a material adverse impact on financial markets and economic conditions in the U.S. and worldwide and, therefore, materially adversely affect our business, financial condition and results of operations.

69
The soundness of other financial institutions could adversely affect us.

Recent events relating to the failures of certain banking entities in March and April 2023, including Silicon Valley Bank, Signature Bank, Silvergate Capital Corp., First Republic Bank, and Credit Suisse, has caused general uncertainty and concern regarding the liquidity adequacy of the banking sector as a whole. Our ability to engage in routine funding transactions could be adversely affected by the actions and commercial soundness of other financial institutions. Financial services institutions are interrelated as a result of trading, clearing, counterparty, or other relationships. We have exposure to many different counterparties, and we routinely execute transactions with counterparties in the financial services industry, including brokers and dealers, banks, investment banks, mutual funds, and other institutional entities. As a result, defaults by, or even rumors or questions about, one or more financial services institutions, or the financial services industry generally, have led to market-wide liquidity problems and could lead to losses or defaults by us or by other institutions. Many of these transactions expose us to credit risk in the event of default of our counterparty or client. Any such losses could be material and could materially and adversely affect our business, financial condition and results of operations.  In addition, in May 2023, the FDIC issued a Notice of Proposed Rulemaking which would implement a special assessment on banks with total assets greater than $5.0 billion to recover the cost associated with protecting uninsured depositors following the closures of Silicon Valley Bank and Signature Bank.  We anticipate increased regulatory scrutiny and new regulations directed towards regional banks similar in size to us, designed to address the recent negative developments in the banking industry, all of which may increase our costs of doing business and reduce our profitability.

Any government shutdown could adversely affect the U.S. and global economy and our liquidity, financial condition and earnings.

Disagreement over the federal budget has previously caused the U.S. federal government to shut down for periods of time. An extended period of shutdown of portions of the U.S. federal government could negatively impact the financial performance of certain customers and could negatively impact customers’ future access to certain loan and guaranty programs. Continued adverse political and economic conditions could have a material adverse effect on our business, financial condition and results of operations.

Changes in interest rates, including recent and possible future increases fueled by inflation, may significantly impact our financial condition and results of operations

Like other financial institutions, we are subject to interest rate risk. Our primary source of income is net interest income, which is the difference between interest earned on loans and investments, and interest paid on deposits and borrowings. The level of net interest income is primarily a function of the average balance of our interest-earning assets, the average balance of our interest-bearing liabilities, and the spread between the yield on such assets and the cost of such liabilities. These factors are influenced by both the pricing and mix of our interest-earning assets and our interest-bearing liabilities which, in turn, are impacted by such external factors as the local economy, competition for loans and deposits, the monetary policy of the Federal Open Market Committee of the FRB (the “FOMC”), and market interest rates.

70
Over any specific period of time, our interest-earning assets may be more sensitive to changes in market interest rates than our interest-bearing liabilities, or vice-versa. In addition, the individual market interest rates underlying our loan and deposit products may not change to the same degree over a given time period. In any event, if market interest rates should move contrary to our position, earnings may be negatively affected.  Commencing in March 2022, the FOMC increased the target range for the year ended December 31,Federal Funds rate seven times in 2022 and three times in 2023 by a total of 500 basis points, to a range of 5.00% to 5.25% as of June 30, 2023.  In July 2023, the FOMC increased the target range again by 25 basis points, to a range of 5.25% to 5.50%.  All of these increases were expressly made in response to inflationary pressures, which are currently expected to continue. In its July 2023 “Beige Book”, the FRB noted that overall economic activity increased slightly since May. Regional banks continued to report ongoing declines in loan demand, tighter credit conditions, and narrowing loan spreads.  In addition, inflationary pressures moderated somewhat but remained widespread while conditions in the broad finance sector deteriorated sharply coinciding with recent stress in the banking sector.

There can be no assurances as to any future FOMC conduct. If the FOMC further increases the targeted Federal Funds rates, overall interest rates likely will rise, which will positively impact our interest income but may further negatively impact the entire national economy, including the housing industry in the markets we serve, by reducing refinancing activity and new home purchases. In addition, deflationary pressures, while possibly lowering our operational costs, could have a significant negative effect on our borrowers and the values of collateral securing loans, which could negatively affect our financial performance. A significant portion of our loans have fixed interest rates (or, if adjustable, are initially fixed for periods of five to 10 years) and longer terms than our deposits and borrowings. Our net interest income could be adversely affected if the rates we pay on deposits and borrowings increase more rapidly than the rates we earn on loans.

We also are subject to reinvestment risk associated with changes in interest rates. Changes in interest rates may affect the average life of loans and mortgage-related securities. Increases in interest rates may decrease loan demand and/or may make it more difficult for borrowers to repay adjustable rate loans. Decreases in interest rates often result in increased prepayments of loans and mortgage-related securities, as borrowers refinance their loans to reduce borrowing costs. Under these circumstances, we are subject to reinvestment risk to the extent that we are unable to reinvest the cash received from such prepayments in loans or other investments that have interest rates that are comparable to the interest rates on existing loans and securities. Conversely, increases in interest rates often result in slowed prepayments of loans and mortgage-related securities, reducing cash flows and reinvestment opportunities.

Changes in interest rates also affect the value of the Bank’s interest-earning assets, and in particular the Bank’s securities portfolio. Generally, the value of fixed-rate securities fluctuates inversely with changes in interest rates. Unrealized gains and losses on securities available for sale are reported as a separate component of equity, net of tax. Decreases in the fair value of securities available for sale resulting from increases in interest rates could have an adverse effect on shareholders’ equity.

Inflationary pressures and rising prices may affect our results of operations and financial condition.

71
Inflation rose sharply at the end of 2021 and has continued rising in 2022 and 2023 at levels not seen for over 40 years. Inflationary pressures are currently expected to remain elevated throughout 2023. Small to medium-sized businesses may be impacted more during periods of high inflation as they are not able to leverage economics of scale to mitigate cost pressures compared to larger businesses. Consequently, the risk factors contained in “Risk Factors” within Item 1A of Part IIability of our Quarterly Report on Form 10-Q forbusiness customers to repay their loans may deteriorate, and in some cases this deterioration may occur quickly, which would adversely impact our results of operations and financial condition. Furthermore, a prolonged period of inflation could cause wages and other costs to the quarter ended June 30, 2022,Company to increase, which are incorporated herein by reference.could adversely affect our results of operations and financial condition.

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

Share Repurchase Program

The following table provides certain information with respect to the Company’s purchases of its common shares during the three months ended SeptemberJune 30, 2022:2023:

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)
 
July 1, 2022 through July 31, 2022  
-
  
$
-
   
-
   
106,886
 
August 1, 2022 through August 31, 2022  
-
   
-
   
-
   
106,886
 
September 1, 2022 through September 30, 2022  
75,100
   
33.37
   
75,100
   
32,786
 
Total  
75,100
  
$
33.37
   
75,100
   
32,786
 
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)
April 1, 2023 through April 30, 2023
-
$
-
-
200,000
May 1, 2023 through May 31, 2023
-
-
-
200,000
June 1, 2023 through June 30, 2023
-
-
-
200,000
Total
-
$
-
-
200,000


(1)
On March 9, 202217, 2023 the Company’s Board of Directors authorized, and the Company announced, another share repurchase program of up to 200,000 shares, or approximately 1% of its currently outstanding common stock.  DuringThere were no repurchases during the three months ended SeptemberJune 30, 2022, the Company repurchased a total of 75,100 shares at an average price per share of $33.37, for a total of $2.5 million under its Board authorized share repurchase program.2023.

Item 3.Defaults Upon Senior Securities

None.

Item 4.Mine Safety Disclosures

None.

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Item 5.Other Information

(a)           As previously disclosed, the Board of Directors (the “Board”) of TrustCo Bank Corp NY (the “Company”) approved an amendment and restatement of the TrustCo Bank Corp NY 2019 Equity Incentive Plan (as amended and restated, the “Amended and Restated Plan”) on February 21, 2023, and submitted the Amended and Restated Plan for shareholder approval at the 2023 Annual Meeting of Shareholders of the Company on May 18, 2023 (the “2023 Annual Meeting”).  The Company’s shareholders approved the Amended and Restated Plan at the 2023 Annual Meeting.  Among other things, the Amended and Restated Plan increased the number of shares of the Company’s common stock available for issuance under the 2019 Equity Incentive Plan by 300,000 shares.

72
Index
A description of the terms of the Amended and Restated Plan can be found under the heading “Proposal 2 – Approval of the Amended and Restated 2019 Equity Incentive Plan” in the Company’s Definitive Proxy Statement on Schedule 14A filed with the Securities and Exchange Commission (the “Commission”) on April 3, 2023, which description is incorporated by reference herein.  Such description is only a summary and does not purport to be complete and is qualified in its entirety by reference to the Amended and Restated Plan, which is set forth in the additional definitive proxy soliciting material filed with the Commission on April 26, 2023 and incorporated by reference herein.

(b)          None.

(c)          During the period covered by this report, none of the Company’s directors or executive officers adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement (each as defined in Item 408 of Regulation S-K under the Securities Exchange Act of 1934, as amended).

73
Index
Item 6.Exhibits

Reg S-K (Item 601)
Exhibit No.Description
  
3(a)
Amended and Restated Certificate of Incorporation of TrustCo Bank Corp NY, (incorporatedas amended, incorporated by reference to Exhibit 3.1 to TrustCo Bank Corp NY'sNY’s Quarterly Report on Form 10-Q, filed August 5, 2021).2021.
  
3(b)
Amended and Restated Bylaws of TrustCo Bank Corp NY, dated May 23, 2019, (incorporatedincorporated by reference to Exhibit 3.2 to TrustCo Bank Corp NY'sNY’s Quarterly Report on Form 10-Q, filed August 8, 2019).2019.
10*
TrustCo Bank Corp NY Amended and Restated 2019 Equity Incentive Plan, incorporated by reference to additional definitive proxy soliciting material on Schedule 14A filed by TrustCo Bank Corp NY on April 26, 2023.
  
15
Crowe LLP Letter Regarding Unaudited Interim Financial Information
  
31(a)
Rule 13a-14(a)13a-15(e)/15d-14(a)15d-15(e) Certification of Robert J. McCormick, principal executive officer.
  
31(b)
Rule 13a-14(a)13a-15(e)/15d-14(a)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.
  
101Sections of the Quarterly Report on Form 10-Q for the quarter ended SeptemberJune 30, 2022,2023, formatted in Inline XBRL (eXtensible Business Reporting Language), submitted in the following files:
  
101.INS
Instance Document
  
101.SCH
XBRL Taxonomy Extension Schema Document
  
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
  
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
  
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
  
101.PREXBRLTaxonomy Extension Presentation Linkbase Document
  
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

*Management contract or compensatory plan or arrangement.
72
74
Index
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/ Robert J. McCormick
 
Robert J. McCormick
 
Chairman, President and Chief Executive Officer
  
 
By:/s/ Michael M. Ozimek
/s/Michael M. Ozimek
 
Michael M. Ozimek
Executive Vice President and Chief Financial Officer
  
Date:  November 7, 2022
August 8, 2023		 


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