Exhibit 13

 

TrustCo Bank Corp NY (the “Company,” or “TrustCo”) is a savings and loan holding company headquartered in Glenville, New York. The Company is the largest financial services company headquartered in the Capital Region of New York State, and its principal subsidiary, Trustco Bank (the “Bank” or “Trustco”), operates 145 community banking offices and 157 Automatic Teller Machines throughout the Bank’s market areas. The Company serves 5 states and 32 counties with a broad range of community banking services.

Financial Highlights

(dollars in thousands, except per share data)	Years ended December 31,
	2017			2016			Percent Change
Income:
Net interest income	$	154,368		$	146,055			5.69	%
Net Income		43,145			42,601			1.28
Per Share:
Basic earnings		0.449			0.446			0.65
Diluted earnings		0.448			0.445			0.76
Book value at period end		4.76			4.52			5.30
Average Balances:
Assets		4,875,668			4,790,701			1.77
Loans, net		3,514,900			3,348,324			4.97
Deposits		4,171,396			4,149,201			0.53
Shareholders' equity		447,680			428,389			4.50
Financial Ratios:
Return on average assets		0.88	%		0.89	%		(1.12	)
Return on average equity		9.64			9.94			(3.02	)
Consolidated tier 1 capital to:
Total assets (leverage)		9.45			9.11			3.72
Risk-adjusted assets		18.02			17.78			1.34
Common equity tier 1 capital ratio		18.02			17.78			1.34
Total capital to risk-adjusted assets		19.28			19.04			1.27
Net loans charged off to average loans		0.05			0.11			(57.13	)
Allowance for loan losses to nonperforming loans		1.81	x		1.75	x		3.54
Efficiency ratio*		53.75	%		55.67	%		3.45
Dividend Payout ratio		58.44			58.88			(0.75	)

* Non-GAAP figure; refer to Non-gaap financial measures reconciliation section for definition

Per Share information of common stock

	Basic Earnings		Diluted Earnings		Cash Dividend		Book Value		Range of Stock Price
									High		Low
2017
First quarter	$	0.114	$	0.114	$	0.0656	$	4.57	$	8.00	$	7.80
Second quarter		0.127		0.127		0.0656		4.66		7.75		7.58
Third quarter		0.131		0.131		0.0656		4.73		9.10		8.85
Fourth quarter		0.077		0.076		0.0656		4.76		9.30		9.15
2016
First quarter	$	0.109	$	0.109	$	0.0656	$	4.44	$	6.63	$	5.60
Second quarter		0.110		0.109		0.0656		4.51		6.37		5.17
Third quarter		0.114		0.114		0.0656		4.56		7.25		6.13
Fourth quarter		0.113		0.113		0.0656		4.52		8.85		6.60

*Certain of the financial measures used in this report, such as Tax-Equivalent Net Interest Income and Tax-Equivalent Net Interest Margin, Tangible Book Value Per Share and the Efficiency Ratio, are determined by methods other than in accordance with generally accepted accounting principles (“GAAP”). A reconciliation of these measures to the closest comparable GAAP financial measures is presented herein.

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Financial Highlights	1
President’s Message	3-4
Management’s Discussion and Analysis of Financial Condition and Results of Operations	5
Glossary of Terms	34
Management’s Report on Internal Control Over Financial Reporting	37
Report of Independent Registered Public Accounting Firm	38
Consolidated Financial Statements and Notes	39-94
Branch Locations	95-100
Officers and Board of Directors	101-102
General Information	103-107
Share Price Information	105

TrustCo Bank Corp NY Mission

The Mission of TrustCo Bank Corp NY is to provide an above-average return to our owners in a manner consistent with our commitment to all stakeholders of the Company and its primary subsidiary, Trustco Bank, including customers, employees, community, regulators and shareholders.

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President’s Message

Dear fellow shareholders:

Thank you for being part of the continued success of TrustCo.  The Company made significant progress in key areas during 2017.  Average residential loans, our primary lending focus, were up more than 8% in 2017 and reached an all-time high.  Our deposit base and liquid balance sheet continued to provide funding for the expansion of our loan portfolio.  Over 74% of our deposit base is comprised of core accounts, which contributes to both strong financial stability and a low cost of funds.  These elements, along with our continued focus on managing costs, combined to help generate a 12.4% increase in pretax earnings.  As you will see in the report, our return on average equity, efficiency ratio and other key metrics remain strong. We were pleased to share this success by giving every single employee of the company a bonus.  TrustCo continues to provide its owners with a solid cash dividend, building on a record that reaches back well over one hundred years.

We have taken significant steps to enhance our ability to deliver banking services over a variety of technological platforms, but we remain strongly committed to our branch network as a key differentiator.  Our branches are the preferred venue for many of our customers to conduct business and we view each branch as a hub to acquire an additional share of existing customers’ financial business, as well as a key tool to attract new customers.  To that end, we have continued to invest in the relocation and refurbishment of branches throughout our network, and will continue to selectively open new offices in attractive locations in or near our existing markets.  Our branch system has significant capacity to add customers to fuel the continued expansion of our balance sheet and profits going forward.  We continually work toward maximizing the value of TrustCo, and our efforts in growing our customer base are a key element in achieving that goal.

We are pleased to report that the bank's primary regulator, the Comptroller of the Currency, has released Trustco from the formal agreement it entered in 2015. We are very proud of each and every member of our team who heard the guidance that our regulators were giving and spared no effort in doing what needed to be done. A lesser team might have faltered under the burden, but our team, and our company, flourished.  I believe that TrustCo emerges as a fundamentally stronger institution, well positioned to face the challenges that lie ahead and, importantly, to take advantage of the opportunities we develop.

Investors are taking an increasingly broad view when they choose where and how to deploy their assets. We value all of our shareholders and engage with our owners on key issues.  We believe our investors know that TrustCo is a good corporate citizen, with a demonstrated record of offering branch services and lending in all areas of our footprint, not just cherry picking elite sections. We do this because it is both the right thing to do and it is the right thing for our business. The diversity of the TrustCo workforce, our extensive charitable giving, and numerous initiatives in environmental responsibility and good corporate governance further demonstrate TrustCo’s commitment the principles of "ESG" - environmental, social and governance.  I believe all of these elements will contribute to the sustainable growth of the value of our Company.

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President’s Message (continued)

This year saw the retirement of two of our stalwarts - former Chief Operating Officer Bob Cushing and Director William Purdy. Sadly, Bill passed shortly after his retirement. He is missed. Upon Bob's retirement, we wish him Godspeed as he enters the adventure of a new chapter in his life. Additionally, it has been my privilege to promote several key people who have, for years, brought professional competence and diversity of perspective to our management team. Carly Batista and Michelle Simmonds were named Administrative Vice Presidents. Ann Gough was promoted to Vice President and Andrea McGuire joined us as Accounting Vice President. I am also very pleased that we were able to add Lisa Reutter to our Board of Directors. We look forward to sharing in Lisa's experience and insight. Please join me in celebrating the achievements of these exceptional women.

In the strong and deep tradition of TrustCo, however, we will not rest based on our success in 2017. Changes in the tax laws will provide a welcome boost going forward, but at the same time there are always new challenges to be met and new opportunities to capitalize on.  We fully intend to meet those challenges and leverage these opportunities into growth in the balance sheet. We look forward to great things in the coming years and enthusiastically embrace the promise of a bright future.

Sincerely,

 

Robert J. McCormick

President and Chief Executive Officer

TrustCo Bank Corp NY

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The financial review which follows will focus on the factors affecting the financial condition and results of operations of TrustCo during 2017 and, in summary form, the two preceding years. Unless otherwise indicated, net interest income and net interest margin are presented in this discussion on a taxable equivalent basis. Balances discussed are daily averages unless otherwise described. The consolidated financial statements and related notes and the quarterly reports to shareholders for 2017 should be read in conjunction with this review. Reclassifications of prior year data are made where necessary to conform to the current year’s presentation.

TrustCo made significant progress in 2017 despite a challenging operating environment and mixed economic conditions. Among the key results for 2017, in management’s view:

· Net income before taxes increased 12.4% in 2017 versus 2016;

· Net income increased in 2017 versus 2016 despite a $5.1 million cost related to the implementation of the Tax Cuts and Jobs Act (the "Tax Act") that was signed into law on December 22, 2017 (see details under “Tax Cuts and Jobs Act”);

· Period-end loans were up $206 million for 2017 compared to the prior year;

· Period-end core (non-maturity) deposits were up $70 million for 2017 compared to the prior year;

· Nonperforming assets declined $1.7 million or 5.8% to $27.6 million from year-end 2016 to year-end 2017;

· Net interest margin improved 11 basis points to 3.22% in 2017 versus 2016;

· At 53.7%, the efficiency ratio remained substantially better than peer-group  levels (see Non-GAAP Financial Measures Reconciliation), and;

· The regulatory capital levels of both the Company and the Bank improved at December 31, 2017 relative to the prior year, and the Bank continues to meet the definition of “well capitalized” for regulatory purposes.

Management believes that the Company was able to achieve these accomplishments, despite a continued mixed economy and increased regulatory expectations, by executing its long term plan focused on traditional lending criteria and balance sheet management. Achievement of specific business goals such as the continued expansion of loans and deposits, along with tight control of operating expenses and manageable levels of nonperforming assets, is fundamental to the long term success of the Company as a whole.

Return on average equity was 9.64% in 2017 compared to 9.94% in 2016, while return on average assets was 0.88% in 2017 as compared to 0.89% in 2016.  Both return on average equity and return on average assets were affected by the noted $5.1 million item related to the Tax Cuts and Jobs Act.

The economic and business environment generally improved during 2017 but remains mixed. Real gross domestic product (“GDP”) increased 2.3% in 2017 and 1.5% in 2016, based on the advance estimate published on January 26, 2018, with stronger growth during the middle of the year than in the first and fourth quarters. This annual rate of growth remains well below the range exhibited during more robust periods of economic activity, such as the 4% to 6% range experienced during the 1990s. Equity markets were very strong in 2017 with the Dow Jones Industrial Average up 25.1%, the S&P 500 up 19.4% and the Russell 2000 index up 13.1%. The bulk of the gains came later in the year, particularly in the fourth quarter.  United States Treasuries saw significant price changes over the course of 2017, with the slope of the yield curve shifting considerably. Yields were generally stable for the first two months of the year for most maturities, but began to diverge thereafter with that divergence accelerating late in the year.  Short term yields responded to the increases in the target Federal funds range by rising relatively sharply; however, mid-term yields rose to a lesser degree, and yields from 10 years and out were flat or down.  The net result was that the steepness of the yield curve, as measured by the spread between longer term (10 year) and shorter term (2 year) yields declined during the year, from 125 basis points going into 2017 to 51 basis points at the end of the year.  On average, the spread declined from 102 basis points to 93 basis points.  Most overseas markets experienced better conditions in 2017 than in recent years, but generally remain in low growth modes with less than full employment and a lack of demand for much of the year, however conditions generally improved over the course of the year resulting in a more optimistic outlook for 2018.  The outlook for the United States economy in 2017 is complicated by political factors; however, many observers expect slightly better GDP growth in 2018 than was reported for 2017, and the Tax Act should result in stronger corporate profits even without consideration for economic improvement.  Proposed spending on infrastructure could contribute to improved conditions while other initiatives, such as potentially adding barriers to trade, could do the opposite and may have unintended effects on American consumers.  Employment increased and the unemployment rate declined, although labor force participation remains an ongoing issue. Wage growth also remains mixed, with some progress but with real wages remaining below expectations in an economy with a low unemployment level. The recently weakened dollar provides some significant benefits in terms of making US products more competitive overseas, but also makes imported goods and services more expensive. Regulatory changes put in place in response to the 2007-2008 financial crisis have added significant cost to the banking industry.  The new administration has made some progress in reducing that regulatory burden but has yet to achieve wholesale changes.  More significant changes could benefit the banking industry both in terms of cost structure and in terms of operational efficiency.

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Management believes that TrustCo’s long-term focus on traditional banking services has enabled the Company to avoid significant impact from asset quality problems, and the Company’s strong liquidity and solid capital positions have allowed the Company to continue to conduct business in a manner consistent with past practice. TrustCo has not engaged in the types of high risk loans and investments that often led to industry problems in prior years. While we continue to adhere to prudent underwriting standards, as a lender, we may be adversely impacted by general economic weaknesses and by a downturn in the housing market in the areas we serve.

Regulatory Agreement

Trustco Bank entered into an agreement with its primary regulator, the Office of the Comptroller of the Currency (OCC), on July 21, 2015. The agreement calls for the Bank to take various actions in areas such as compliance, corporate governance, audit, capital planning including dividends, and strategic planning, among others. The agreement followed the completion of the OCC’s regularly scheduled exam of the Bank. Since the completion of the examination, the Bank has been working to address the issues raised. The Bank’s Board of Directors and management remain committed to fully addressing all provisions of the agreement.

Termination of Regulatory Agreement

On February 14, 2018, the Office of the Comptroller of the Currency (OCC) notified Trustco Bank that it had terminated the July 21, 2015 agreement between the OCC and the Bank effective February 7, 2018. The agreement had required the Bank to take various actions in areas such as compliance, corporate governance, audit, capital planning including dividends, and strategic planning, among others.

Tax Cuts and Jobs Act

On December 22, 2017 the Tax Cuts and Jobs Act (the "Tax Act") was signed into law.  The Tax Act makes broad and complex changes to the U.S. tax code that affected our 2017 results and that will affect future periods. Among the Tax Act’s changes is a reduction of the statutory corporate tax rate from 35% to 21%.  The lower tax rate will have a significant beneficial impact on the Company’s results going forward, but also resulted in the revaluation of net deferred tax assets on our balance sheet as of December 31, 2017, based on the lower tax rate. Deferred income taxes result from temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements. Deferred tax assets and liabilities are measured using enacted rates expected to apply to taxable income in years in which those temporary differences are expected to be recovered or settled. Deferred tax assets and liabilities are adjusted through income tax expense as changes in tax laws are enacted.  The rate reduction is effective January 1, 2018. Included in results for the fourth quarter and full year 2017 is a reduction in the value of net deferred tax assets of $5.1 million, which was recorded as additional income tax expense for the quarter ended December 31, 2017. This charge had a negative impact on reported net income, earnings per share, return on average equity and return on average assets for the quarter and year ended December 31, 2017.  Given the short time frame since enactment, we cannot predict whether, or to what extent, the Tax Act will affect any of our product and service offerings.

Overview

2017 results were marked by continued growth in the Company’s loan portfolio. The loan portfolio grew to a total of $3.64 billion, an increase of $205.8 million or 6.0% over the 2016 year-end balance. Deposits ended 2017 at $4.17 billion, down slightly from $4.20 billion the prior year-end, however core (non-maturity) deposits rose $69.7 million over the period as the company focused efforts on these lower cost funding sources. The year-over-year increases in loans and core deposits reflect the success the Company has had in attracting customers to the Bank, both in newer branch locations as well as in its established offices. Management believes that TrustCo’s success is predicated on providing core banking services to a wider number of customers and continuing to provide added services to existing customers where possible. Growing the customer base should contribute to continued growth of loans and deposits, as well as net interest income and non-interest income.

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TrustCo recorded net income of $43.1 million or $0.448 of diluted earnings per share for the year ended December 31, 2017, compared to $42.6 million or $0.445 of diluted earnings per share for the year ended December 31, 2016.   Net income before taxes was $76.7 million in 2017 compared to $68.3 million in 2016.

During 2017, the following had a significant effect on net income:

· an increase of $8.3 million in net interest income from 2016 to 2017 as a result of a combination of 2.0% growth in average interest earning assets and an 11 basis point increase in the net interest margin to 3.22%;

· a decrease of $950 thousand in the provision for loan losses to $2.0 million in 2017;

· the recognition of zero net gains on securities transactions in 2017 compared to net securities gains of $668 thousand recorded in 2016;

· an increase of just $167 thousand in total non-interest expense, as compared to 2016, and;

· an increase of $7.9 million in income tax expense from $25.7 million in 2016 to $33.6 million in 2017.

TrustCo performed well in comparison to its peers with respect to a number of key performance ratios during 2017 and 2016, including:

· return on average equity of 9.64% for 2017 and 9.94% for 2016, compared to medians of 8.37% in 2017 and 9.21% in 2016 for a peer group comprised of all publicly traded banks and thrifts tracked by S&P Global Market Intelligence Financial with assets of $2 billion to $10 billion, and

· an efficiency ratio, as calculated by S&P Global Market Intelligence, of 53.72% for 2017 and 55.66% for 2016, compared to the peer group medians of 58.62% in 2017 and 60.08% in 2016.  Note that the S&P calculation differs slightly from our calculation.

During 2017, TrustCo’s results were positively affected by the growth of low-cost core deposits, strong loan growth and a shift in asset mix. Despite the changes in the interest rate environment during 2017, the Company was able to continue to attract deposits at relatively low yields. On average for 2017, non-maturity deposits were 73.7% of total deposits, up from 72.0% in 2016. Overall, the cost of interest bearing liabilities decreased 3 basis points to 0.36% in 2017 as compared to 2016. Average loan balances increased 5.0% from 2016 to 2017, while the total of short-term investments, available for sale securities and held to maturity securities decreased 11.1%, resulting in average loans growing to 73.4% of average earning assets in 2017 from 71.3% in 2016. Given that loan yields were approximately 200 basis points above the yield on the total of short-term investments and securities, this shift, combined with the growth of average earning assets, the increase in the Federal funds target rate and the decline in funding cost, contributed to the $8.3 million increase in net interest income from 2016 to 2017. The Company has traditionally maintained a high liquidity position, and taken a conservative stance in its investment portfolio through the use of relatively short-term securities. The changing rate environment in 2017 resulted in maturing and called securities being reinvested, as noted, in loans as well as into a combination of Federal funds and bonds. The Federal Reserve Board’s (“FRB”) continued accommodative monetary policy, despite the increases in the target Federal funds range, along with modest economic growth domestically and low rates in other nations, were key drivers of the rate environment during 2017. The 2007-2008 easing of monetary policy by the FRB included a particularly sharp reduction in the Federal Funds rate in 2008, from the 4.25% rate at the beginning of the year to a target range of between 0.00% to 0.25% by year-end. That target range was in place throughout most of 2015. The FRB increased the target range several times beginning in December of 2015, with the target range now at 1.25% to 1.50%. The FRB Federal Open Market Committee (“FOMC” or “Committee”) affirmed in its January 31, 2018 press release that it would maintain “the target range for the federal funds rate at 1.25% to 1.50%. The stance of monetary policy remains accommodative, thereby supporting strong labor market conditions and a sustained return to 2 percent inflation.  In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. The Committee will carefully monitor actual and expected inflation developments relative to its symmetric inflation goal. The Committee expects that economic conditions will evolve in a manner that will warrant further gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.”  Most economists currently believe that there will likely be two or three increases in the target rate in 2018, very much subject to what new data indicates about the strength of the economy.”

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As discussed previously, some market interest rates moved significantly during the course of 2017, with shorter term rates rising sharply but longer term rates remaining roughly flat versus year-end 2016.  Overall, trends in market rates caused a flattening of the yield curve, on average, during the year.   The average daily spread between the ten year Treasury and the two year Treasury was 93 basis points in 2017, down from an average of 102 basis points in 2016 and 145 basis points in 2015. The spread narrowed more significantly later in the year, ending 2017 at 51 basis points. A more positive slope in the yield curve is generally beneficial for the Company’s earnings derived from its core mix of loans and deposits. The tables below illustrate the range of key Treasury bond interest rates during 2016 and 2017.

	3 Month T Bill (BEY) Yield(%)		2 Year T Note Yield(%)		5 Year T Note Yield(%)		10 Year T Note Yield(%)		10 Year - 2 Year Spread(%)
2017
Beginning of Year		0.51		1.20		1.93		2.45		1.25
Peak		1.47		1.92		2.26		2.62		1.30
Trough		0.50		1.12		1.63		2.05		0.51
End of Year		1.39		1.89		2.20		2.40		0.51
Average		0.95		1.40		1.91		2.33		0.93
Median		1.01		1.34		1.90		2.34		0.91
2016
Beginning of Year		0.16		1.06		1.76		2.27		1.21
Peak		0.55		1.29		2.10		2.60		1.34
Trough		0.16		0.56		0.94		1.37		0.76
End of Year		0.51		1.20		1.93		2.45		1.25
Average		0.31		0.84		1.35		1.86		1.02
Median		0.30		0.81		1.26		1.79		1.00

Source: S&P Global Market Intelligence

In addition to changes in interest rates, economic conditions have a significant impact on the allowance for loan losses. The decrease in the provision for loan losses from $3.0 million in 2016 to $2.0 million in 2017 positively affected net income. Net charge-offs decreased from $3.8 million in 2016 to $1.7 million in 2017. Nonperforming loans decreased from $25.1 million to $24.4 million, and the nature of these loans remained relatively consistent in terms of both geographic location and loan type from year-to-year. Details on nonperforming loans and net charge-offs are included in the notes to the financial statements. The decline in the provision for loan losses is primarily a reflection of the improvement in the performance of the loan portfolio and economic conditions, with reductions in both nonperforming loans (“NPLs”) and charge-offs.

TrustCo focuses on providing high quality service to the communities served by its branch-banking network. The financial results for the Company are influenced by economic events that affect those communities, as well as national economic trends, primarily interest rates, affecting the entire banking industry.

TrustCo’s branch network remained at 145 during 2017, with one branch opening and one closing. The Company remains focused on building its customer relationships, deposits and loans throughout its branch network, with a particular emphasis on the branches added during the major branch expansion that was completed in 2010.

Although that specific expansion program is complete, the Company typically opens new offices each year, filling in or extending existing markets. The expansion program was established to expand the franchise to areas experiencing economic growth, specifically in central Florida and the downstate New York region. The Company has experienced significant growth in both markets as measured by deposit balances, and to a lesser extent, by loan balances. All new branches have the same products and features found at other Trustco Bank locations. With a combination of competitive rates, excellent service and convenient locations, management believes that the new branches will continue to attract deposit and loan customers and be a welcome addition to these communities. The branches opened since the expansion program began have continued to add to the Company’s customer base. As expected, some branches have grown more rapidly than others. Generally, new bank branches continue to grow for years after being opened, although there is no specific time frame that could be characterized as typical. The expansion program has contributed significantly to the growth of both deposits and loans, as well as to non-interest income and non-interest expense. The higher costs are offset by net interest income earned on core loans and deposits generated by these branches, as well as associated non-interest income. Revenue growth is expected to continue, as these branches typically continue to add new customers and increase penetration with existing customers over time.

Asset/Liability Management

In managing its balance sheet, TrustCo utilizes funding and capital sources within sound credit, investment, interest rate, and liquidity risk guidelines established by management and approved by the Board of Directors. Loans and securities (including Federal Funds sold and other short-term investments) are the Company’s primary earning assets. Average interest earning assets were 98.3% and 98.1% of average total assets for 2017 and for 2016 respectively.

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TrustCo, through its management of liabilities, attempts to provide stable and flexible sources of funding within established liquidity and interest rate risk guidelines. This is accomplished through core deposit banking products offered within the markets served by the Company. TrustCo does not actively seek to attract out-of-area deposits or so-called “hot money,” but rather focuses on core relationships with both depositors and borrowers.

TrustCo’s objectives in managing its balance sheet are to limit the sensitivity of net interest income to actual or potential changes in interest rates and to enhance profitability through strategies that should provide sufficient reward for predicted and controlled risk. The Company is deliberate in its efforts to maintain adequate liquidity under prevailing and projected economic conditions and to maintain an efficient and appropriate mix of core deposit relationships. The Company relies on traditional banking investment instruments and its large base of core deposits to help in asset/liability management. Predicting the impact of changing rates on the Company’s net interest income and net fair value of its balance sheet is complex and subject to uncertainty for a number of reasons. For example, in making a general assumption that rates will rise, a myriad of other assumptions regarding whether the slope of the yield curve remains the same or changes, whether the spreads of various loans, deposits and investments remain unchanged, widen or narrow and what changes occur in customer behavior all need to be made. The Company routinely models various rate changes and monitors basis changes that may be incorporated into that modeling.

Interest Rates

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. The absolute level of interest rates, changes in 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 year.

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. As noted previously, during 2007-2008 the FRB aggressively reduced the Federal Funds rate, including a decrease from 4.25% at the beginning of 2008 to a target range of 0.00% to 0.25% by the end of 2008. The target range remained at that level until December 2015 when the range was increased to 0.25% to 0.50%.  Subsequent increases have resulted in the current range of 1.25% to 1.50%.

The yield on the ten-year Treasury bond decreased by 5 basis points from 2.45% at the beginning of 2017 to the year-end level of 2.40%, despite the increases in short term rates. The rate on the ten year Treasury bond and other long-term interest rates have a significant influence on the rates offered 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 on other short-term instruments as well as the interest expense on deposits and borrowings. Residential real estate loans and longer-term investments are most affected by the changes in longer term market interest rates such as the ten-year Treasury. The Federal Funds sold portfolio and other short-term investments are affected primarily by changes in the Federal Funds target rate. Deposit interest rates are most affected by short term market interest rates. Also, changes in interest rates have an effect on the recorded balance of the securities available for sale portfolio, which are recorded at fair value. Generally, as market interest rates increase, the fair value of the securities will decrease and the reverse is also generally applicable. Interest rates on new residential real estate loan originations are also influenced by the rates established by secondary market participants such as Freddie Mac and Fannie Mae. Because TrustCo is a portfolio lender and does not sell loans into the secondary market, the Company establishes rates that management determines are appropriate in light of the long-term nature of residential real estate loans while remaining competitive with the secondary market rates. Higher market interest rates also generally increase the value of retail deposits.

While the increase in the Federal Funds target range had a beneficial impact on earnings on the Company’s cash position, the net effect of market changes in interest rates during 2017 was that yields earned on both the investment portfolios and loans remained quite low in 2017 relative to historic levels, while deposit costs were roughly stable.

Earning Assets

Average earning assets during 2017 were $4.79 billion, which was an increase of $92.3 million from 2016. This increase was the result of growth in the average balance of net loans of $166.6 million, offset by decreases of $50.9 million in Federal Funds sold and other short-term investments, $13.0 million in held-to-maturity securities and $10.2 million in securities available for sale between 2016 and 2017. The increase in the loan portfolio is the result of a significant increase in residential mortgage loans, which more than offset decreases in each of the other loan categories. The increase in real estate loans is a result of a strategic focus on growth of this product throughout the Trustco Bank branch network through an effective marketing campaign and competitive rates and closing costs.

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Total average assets were $4.88 billion for 2017 and $4.79 billion for 2016.

The table “Mix of Average Earning Assets” shows how the mix of the earning assets has changed over the last three years. While the growth in earning assets is critical to improved profitability, changes in the mix also have a significant impact on income levels, as discussed below.

MIX OF AVERAGE EARNING ASSETS

(dollars in thousands)							2017 vs.			2016 vs.			Components of Total Earning Assets
	2017		2016		2015		2016			2015			2017			2016		2015
Loans, net	$	3,514,900	$	3,348,324		3,234,806		166,576			113,518			73.4	%		71.3		69.9
Securities available for sale (1):
U.S. government sponsored enterprises		139,652		101,242		107,436		38,410			(6,194	)		2.9			2.2		2.3
State and political subdivisions		682		991		1,812		(309	)		(821	)		0.0			0.0		0.0
Mortgage-backed securities and collateralized mortgage obligations-residential		350,256		410,646		439,343		(60,390	)		(28,697	)		7.3			8.7		9.5
Corporate bonds		41,946		17,088		613		24,858			16,475			0.9			0.4		0.0
Small Business Administration-guaranteed participation securities		73,996		86,407		97,496		(12,411	)		(11,089	)		1.5			1.8		2.1
Mortgage-backed securities and collateralized mortgage obligations-commercial		9,963		10,284		10,566		(321	)		(282	)		0.2			0.2		0.2
Other		685		683		685		2			(2	)		0.0			0.0		0.0
Total securities available for sale		617,180		627,341		657,951		(10,161	)		(30,610	)		12.9			13.4		14.2
Held-to-maturity securities:
Mortgage-backed securities and collateralized mortgage obligations		31,266		40,830		53,763		(9,564	)		(12,933	)		0.7			0.9		1.2
Corporate bonds		6,663		10,145		9,967		(3,482	)		178			0.1			0.2		0.2
Total held-to-maturity securities		37,929		50,975		63,730		(13,046	)		(12,755	)		0.8			1.1		1.4
Federal Reserve Bank and Federal Home
Loan Bank stock		9,295		9,554		9,414		(259	)		140			0.2			0.2		0.2
Federal funds sold and other short-term investments		611,586		662,436		664,516		(50,850	)		(2,080	)		12.8			14.1		14.4
Total earning assets	$	4,790,890	$	4,698,630	$	4,630,417		92,260			68,213			100.0	%		100.0		100.0

(1) The average balances of securities available for sale are presented using amortized cost for these securities.

Loans

In 2017, the Company experienced another year of significant loan growth. The $205.8 million increase in the Company’s gross loan portfolio from December 31, 2016 to December 31, 2017 was due to higher residential mortgage balances, which offset lower balances in other loan categories. Average loans increased $166.6 million during 2017 to $3.51 billion. Interest income on the loan portfolio increased to $148.2 million in 2017 from $143.7 million in 2016. The average yield declined 7 basis points to 4.22% in 2017 compared to 2016.

Page 10 of 106

LOAN PORTFOLIO

(dollars in thousands)	As of December 31,
	2017					2016					2015
	Amount		Percent			Amount		Percent			Amount		Percent
Commercial	$	176,385		4.9	%	$	182,653		5.3	%	$	192,789		5.9	%
Real estate - construction		30,946		0.9			24,826		0.7			26,594		0.8
Real estate - mortgage		3,111,397		85.6			2,879,448		83.9			2,705,205		82.1
Home equity lines of credit		308,916		8.5			334,841		9.8			359,325		10.9
Installment loans		8,763		0.2			8,818		0.3			9,391		0.3
Total loans		3,636,407		100.0	%		3,430,586		100.0	%		3,293,304		100.0	%
Less: Allowance for loan losses		44,170					43,890					44,762
Net loans (1)	$	3,592,237				$	3,386,696				$	3,248,542

	Average Balances
	2017					2016					2015					2014					2013
	Amount		Percent			Amount		Percent			Amount		Percent			Amount		Percent			Amount		Percent
Commercial	$	175,596		5.0	%	$	186,800		5.6	%	$	195,265		6.0	%	$	201,317		6.7	%	$	193,065		7.0	%
Real estate - construction		26,616		0.8			23,645		0.7			29,101		0.9			35,109		1.2			36,689		1.3
Real estate - mortgage		2,985,870		84.9			2,779,451		83.0			2,647,265		81.8			2,428,383		80.6			2,201,348		79.4
Home equity lines of credit		318,660		9.1			350,004		10.5			354,718		11.0			343,264		11.4			335,409		12.1
Installment loans		8,158		0.2			8,424		0.3			8,457		0.3			6,083		0.2			5,152		0.2
Total loans		3,514,900		100.0	%		3,348,324		100.0	%		3,234,806		100.0	%		3,014,156		100.0	%		2,771,663		100.0	%
Less: Allowance for loan losses		44,319					44,718					46,023					47,409					48,452
Net loans (1)	$	3,470,581				$	3,303,606				$	3,188,783				$	2,966,747				$	2,723,211

(1) Presented net of deferred direct loan origination fees and costs.

Through marketing, pricing and a customer-friendly service delivery network, TrustCo has attempted to distinguish itself from other mortgage lenders by highlighting the uniqueness of its loan products. Specifically, low closing costs, no escrow or private mortgage insurance, quick loan decisions and fast closings were identified and marketed. The fact that the Company holds mortgages in its loan portfolio rather than selling them into secondary markets was also highlighted. The average balance of residential real estate mortgage loans was $3.00 billion in 2017 and $2.79 billion in 2016. Income on real estate loans increased to $125.0 million in 2017 from $119.8 million in 2016. The yield on the portfolio decreased from 4.29% in 2016 to 4.16% in 2017 due to changes in retail rates in the marketplace. The vast majority of TrustCo’s real estate loans are secured by properties within the Bank’s market area.

TrustCo does not make subprime loans or purchase investments collateralized by subprime loans. A loan may be considered subprime for a number of reasons, but effectively subprime loans are loans where the certainty of repayment of principal and interest is lower than for a traditional prime loan due to the structure of the loan itself, the credit worthiness of the borrower, the underwriting standards of the lender or some combination of these. For instance, adjustable loans underwritten at initial low “teaser” rates instead of the fully indexed rate and loans to borrowers with poor payment history would generally be classified as subprime. Other than for it’s small credit card portfolio, TrustCo underwrites its loan originations in a traditional manner, focusing on key factors that have proven to result in good credit decisions, rather than relying on automated systems or basing decisions primarily on one factor, such as a borrower’s credit score.

Average commercial loans of $185.4 million in 2017 decreased by $10.7 million from $196.1 million in 2016.  Average commercial loans included $9.8 million and $9.3 million of commercial real estate construction loans in 2017 and 2016, respectively.   The average yield on the commercial loan portfolio decreased to 5.25% for 2017 from 5.27% in 2016, which, coupled with the lower average balance resulted in interest income on commercial loans of $9.7 million in 2017 and $10.3 million in 2016.

TrustCo’s commercial lending activities are focused on balancing the Company’s commitment to meeting the credit needs of businesses in its market areas with the necessity of managing its credit risk. In accordance with these goals, the Company has consistently emphasized the origination of loans within its market area. TrustCo’s commercial loan portfolio contains no foreign loans, nor does it contain any significant concentrations of credit to any single borrower or industry. The Capital Region commercial loan portfolio reflects the diversity of businesses found in the market area, including light manufacturing, retail, service, and real estate-related businesses. Commercial loans made in the downstate New York market area and in the central Florida market area also reflect the businesses in those areas, with a focus on real estate.

TrustCo strives to maintain strong asset quality in all segments of its loan portfolio, especially commercial loans. There is significant competition for commercial loans continues to be intense in the Bank’s market regions.

Page 11 of 106

TrustCo has a strong position in the home equity credit line product in its market area. During 2017, the average balance of home equity credit lines was $318.7 million, a decrease from $350.0 million in 2016. Trustco Bank competes with both regional and national concerns for these lines of credit and faces stiff competition with respect to interest rates, closing costs, and customer service for these loans. TrustCo continuously reviews changes made by competitors with respect to the home equity credit line product and adjusts its offerings to remain competitive while meeting evolving needs. Changes in consumer behavior have resulted in this product being somewhat less popular in recent years.  TrustCo’s average yield on this portfolio was 3.98% for 2017 and 3.65% in 2016. This resulted in interest income on home equity credit lines of $12.7 million in 2017, compared to $12.8 million in 2016.

MATURITIES AND SENSITIVITIES OF LOANS TO CHANGE IN INTEREST RATES

(dollars in thousands)	December 31, 2017
	In 1 Year or Less		After 1 Year But Within 5 Years		After 5 Years		Total
Commercial	$	46,094		44,367		85,924		176,385
Real estate construction		30,946		-		-		30,946
Total		77,040		44,367		85,924		207,331
Predetermined rates		38,256		44,367		85,924		168,547
Floating rates		38,784		-		-		38,784
Total	$	77,040		44,367		85,924		207,331

At December 31, 2017 and 2016, the Company had approximately $30.9 million and $24.8 million of real estate construction loans, respectively. Of the $30.9 million in real estate construction loans at December 31, 2017, approximately $21.1 million were secured by first mortgages to residential borrowers with the remaining $9.8 million were loans to commercial borrowers for residential construction projects.  Of the $24.8 million in real estate construction loans at December 31, 2016, approximately $16.3 million were secured by first mortgages to residential borrowers while approximately $8.5 million were to commercial borrowers for residential construction projects.  The vast majority of the Company’s construction loans are in the Company’s New York market.

INVESTMENT SECURITIES

(dollars in thousands)	As of December 31,
	2017				2016				2015
	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
Securities available for sale:
U. S. government sponsored enterprises	$	139,890		137,851		119,887		117,266		86,899		86,737
State and political subdivisions		515		525		873		886		1,270		1,290
Mortgage backed securities and collateralized mortgage obligations-residential		320,614		315,983		378,068		372,308		416,625		411,729
Corporate bonds		40,270		40,162		40,956		40,705		-		-
Small Business Adminstration-guaranteed participation securities		68,921		67,059		81,026		78,499		92,620		90,416
Mortgage backed securities and collateralized mortgage obligations-commercial		9,810		9,700		10,130		10,011		10,422		10,180
Other		650		650		650		650		650		650
Total debt securities available for sale		580,670		571,930		631,590		620,325		608,486		601,002
Equity securities		35		35		35		35		35		35
Total securities available for sale		580,705		571,965		631,625		620,360		608,521		601,037
Held to maturity securities:
Mortgage backed securities and collateralized mortgage obligations-residential		27,551		28,701		35,500		37,236		46,490		48,798
Corporate bonds		-		-		9,990		10,290		9,975		10,641
Total held to maturity securities		27,551		28,701		45,490		47,526		56,465		59,439
Total investment securities	$	608,256		600,666		677,115		667,886		664,986		660,476

Securities available for sale: The portfolio of securities available for sale is designed to provide a stable source of interest income and liquidity. The portfolio is also managed by the Company to take advantage of changes in interest rates and is particularly important in providing greater flexibility in the current low interest rate environment. The securities available for sale portfolio is managed under a policy detailing the types and characteristics acceptable in the portfolio. Mortgage backed securities and collateralized mortgage obligations held in the portfolio include only pass-throughs issued by United States government agencies or sponsored enterprises.

Page 12 of 106

Holdings of various types of securities may vary from year-to-year depending on management’s assessment of relative risk and reward, and also due to timing issues of call, maturities, prepayments and purchases.  Holdings of both municipal and corporate securities are subject to additional monitoring requirements under current regulations, adding to the costs of owning those securities.

Proceeds from sales, calls and maturities of securities available for sale have been invested in higher yielding assets, such as loans, or temporarily held in Federal Funds sold and other short term investments until deployed to fund future loan growth or future investment opportunities.

The designation of securities as “available for sale” is made at the time of purchase, based upon management’s intent and ability to hold the securities for an indefinite period of time. These securities are available for sale in response to changes in market interest rates, related changes in prepayment risk, needs for liquidity, or changes in the availability of and yield on alternative investments. At December 31, 2017 some securities in this portfolio had fair values that were less than the amortized cost due to changes in interest rates and market conditions and not related to the credit condition of the issuers. At December 31, 2017, the Company did not intend to sell, and it is not likely that the Company will be required to sell these securities before market recovery. Accordingly, at December 31, 2017 the Company did not consider any of the unrealized losses to be other than temporary.

At December 31, 2017, the carrying value of securities available for sale amounted to $572.0 million, compared to $620.4 million at year end 2016. For 2017, the average balance of securities available for sale was $617.2 million with an average yield of 1.95%, compared to an average balance in 2016 of $627.3 million with an average yield of 1.87%. The taxable equivalent income earned on the securities available for sale portfolio in 2016 was $11.7 million, compared to $12.1 million earned in 2017.

Securities available for sale are recorded at their fair value, with any unrealized gains or losses, net of taxes, recognized as a component of shareholders’ equity. Average balances of securities available for sale are stated at amortized cost. At December 31, 2017, the fair value of TrustCo’s portfolio of securities available for sale carried gross unrealized gains of approximately $120 thousand and gross unrealized losses of approximately $8.9 million. At December 31, 2016, the fair value of the company’s portfolio of securities available for sale carried gross unrealized gains of approximately $136 thousand and gross unrealized losses of approximately $11.4 million. As previously noted, in both periods, unrealized losses were related to market interest rate levels and were not credit related.

Held to Maturity Securities: At December 31, 2017 the Company held $27.6 million of held to maturity securities, compared to $45.5 million at December 31, 2016. For 2017, the average balance of held to maturity securities was $37.9 million, compared to $51.0 million in 2016. Similar to securities available for sale, cash flow from these securities has been reinvested in higher yielding assets, such as loans, or temporarily held in Federal Funds sold and other short term investments to fund future loan growth or future investment opportunities. The average yield on held to maturity securities increased from 4.06% in 2016 to 4.11% in 2017 as the mix within the portfolio changed due primarily to paydowns and prepayments on the mortgage-backed securities held in the portfolio. The maturity of a corporate bond with a relatively high yield will impact the overall yield on this portfolio in 2018.  Interest income on held to maturity securities declined from $2.1 million in 2016 to $1.6 million in 2017, reflecting the decline in average balances. Held to maturity securities are recorded at amortized cost. The fair value of these securities as of December 31, 2017 was $28.7 million.

The designation of securities as “held to maturity” is made at the time of purchase, based upon management’s intent and ability to hold the securities until final maturity. At December 31, 2017 none of the securities in this portfolio had fair values that were less than the amortized cost.

Securities Gains: During 2017, TrustCo did not recognize any net gains from securities transactions, compared to net gains of $668 thousand in 2016 and $251 thousand in 2015. There were no sales or transfers of held to maturity securities in 2017, 2016 and 2015.

TrustCo has not invested in any exotic investment products such as interest rate swaps, forward placement contracts, or other instruments commonly referred to as derivatives. In addition, the Company has not invested in securities backed by subprime mortgages or in collateralized debt obligations (CDOs). By actively managing a portfolio of high quality securities, TrustCo believes it can meet the objectives of asset/liability management and liquidity, while at the same time producing a reasonably predictable earnings stream.

Page 13 of 106

SECURITIES PORTFOLIO MATURITY DISTRIBUTION AND YIELD

(dollars in thousands)	As of December 31, 2017
	Maturing:
	Within 1 Year			After 1 But Within 5 Years		After 5 But Within 10 Years		After 10 Years		Total
Debt securities available for sale:
U. S. government sponsored enterprises
Amortized cost	$	15,000			124,890		-		-		139,890
Fair Value		14,990			122,861		-		-		137,851
Weighted average yield		1.03	%		1.87		-		-		1.78
State and political subdivisions
Amortized cost	$	8			448		59		-		515
Fair Value		8			458		59		-		525
Weighted average yield		5.43	%		5.09		4.90		-		5.07
Mortgage backed securities and collateralized mortgage obligations-residential
Amortized cost	$	1,541			177,994		141,079		-		320,614
Fair Value		1,533			175,407		139,043		-		315,983
Weighted average yield		1.83	%		2.28		2.34		-		2.30
Corporate bonds
Amortized cost	$	30,175			10,095		-		-		40,270
Fair Value		30,143			10,019		-		-		40,162
Weighted average yield		1.47	%		1.46		-		-		1.46
Small Business Administration-
guaranteed participation securities
Amortized cost	$	-			14,957		53,964		-		68,921
Fair Value		-			14,463		52,596		-		67,059
Weighted average yield		-	%		1.90		2.10		-		2.06
Mortgage backed securities and  collateralized mortgage obligations-commercial
Amortized cost	$	-			9,810		-		-		9,810
Fair Value		-			9,700		-		-		9,700
Weighted average yield		-	%		1.68		-		-		1.68
Other
Amortized cost	$	600			50		-		-		650
Fair Value		600			50		-		-		650
Weighted average yield		2.57	%		1.92		-		-		2.52
Total securities available for sale
Amortized cost	$	47,324			338,244		195,102		-		580,670
Fair Value		47,274			332,958		191,698		-		571,930
Weighted average yield		1.34	%		2.07		2.28		-		2.08
Held to maturity securities:
Mortgage backed securities and collateralized mortgage obligations-residential
Amortized cost	$	-			25,631		1,920		-		27,551
Fair Value		-			26,638		2,063		-		28,701
Weighted average yield		-	%		3.80		5.14		-		3.89
Corporate bonds
Amortized cost	$	-			-		-		-		-
Fair Value		-			-		-		-		-
Weighted average yield		-	%		-		-		-		-
Total held to maturity securities
Amortized cost		-			25,631		1,920		-		27,551
Fair Value		-			26,638		2,063		-		28,701
Weighted average yield		-	%		3.80		5.14				3.89

Weighted average yields have not been adjusted for any tax-equivalent factor.

Page 14 of 106

Maturity and call dates of securities: Many of the securities in the Company’s portfolios have a call date in addition to the stated maturity date. Call dates allow the issuer to redeem the bonds prior to maturity at specified dates and at predetermined prices. Normally, securities are redeemed at the call date when the issuer can reissue the security at a lower interest rate. Therefore, for cash flow, liquidity and interest rate management purposes, it is important to monitor both maturity dates and call dates. The level of calls in 2017 was lower than the 2016 level, as rising interest rates reduce the probability of calls. The probability of future calls will change depending on market interest rate levels. The tables labeled “Securities Portfolio Maturity and Call Date Distribution,” show the distribution, based on both final maturity and call date of each security, broken out by the available for sale and held to maturity portfolios as of December 31, 2017. Mortgage backed securities, collateralized mortgage obligations and Small Business Administration securities are reported using an estimate of average life. Actual maturities may differ from contractual maturities because of securities’ prepayments and the right of certain issuers to call or prepay their obligations without penalty. The table, “Securities Portfolio Maturity Distribution and Yield,” shows the distribution of maturities for each of the securities portfolios, based on final maturity, as well as the average yields at December 31, 2017 on each type/maturity grouping.

SECURITIES PORTFOLIO MATURITY AND CALL DATE DISTRIBUTION

Debt securities available for sale:

(dollars in thousands)	As of December 31, 2017
	Based on Final Maturity				Based on Call Date
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Within 1 year	$	45,783		45,740		107,538		106,688
1 to 5 years		145,355		143,151		278,054		273,569
5 to 10 years		10,355		10,139		195,078		191,673
After 10 years		379,177		372,900		-		-
Total debt securities available for sale	$	580,670		571,930		580,670		571,930

Held to maturity securities:

(dollars in thousands)	As of December 31, 2017
	Based on Final Maturity				Based on Call Date
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
1 to 5 years		-		-		25,631		26,638
5 to 10 years		1,682		1,713		1,920		2,063
After 10 years		25,869		26,988		-		-
Total held to maturity securities	$	27,551		28,701		27,551		28,701

Federal Funds Sold and Other Short-term Investments

During 2017, the average balance of Federal Funds sold and other short-term investments was $611.6 million, a decrease from $662.4 million in 2016. The average rate earned on these assets was 0.50% in 2016 and 1.09% in 2017. The increase in the average rate in 2017 was due to the increases in the Federal Funds target range that were implemented.  The full impact of the increases in the Federal Funds target range that occurred in 2017 will be realized in 2018. TrustCo utilizes this category of earning assets as a means of maintaining strong liquidity. The Federal Funds sold and other short-term investments portfolio is significantly affected by changes in the target Federal Funds rate, as are virtually all short term interest-sensitive instruments.

The year-end balance of Federal Funds sold and other short term investments was $568.6 million for 2017, compared to $658.6 million at year end 2016. While yields on investment securities with acceptable risk characteristics were insufficient to justify shifting overnight liquidity into other investment types during 2017, some funds were shifted into higher yielding loans. Management will continue to evaluate the overall level of the Federal Funds sold and other short-term investments in 2018 and will make appropriate adjustments based upon market opportunities and interest rates.

Page 15 of 106

Funding Sources

TrustCo utilizes various traditional sources of funds to support its earning asset portfolio. The table, “Mix of Average Sources of Funding,” presents the various categories of funds used and the corresponding average balances for each of the last three years.

Deposits: Average total deposits were $4.17 billion in 2017, compared to $4.15 billion in 2016, an increase of $22.2 million. Changes in deposit categories (average balances 2017 versus 2016) included: demand deposits up $12.8 million, interest-bearing checking deposits up $79.6 million, savings up $3.3 million, money market down $7.9 million and time deposits down $65.7 million. While many customers remain in one product type for many years, others may move funds between product types to maximize the yield earned or as a result of increased or decreased liquidity needs.  The increase in core deposits reflects the focus on growing these lower costing funding sources by providing core banking services better, faster and cheaper than competitors.  The increase in time deposits over $250 thousand is not the result of any incentive pricing as TrustCo does not offer premium rates on large certificates of deposit.

MIX OF AVERAGE SOURCES OF FUNDING

(dollars in thousand)

							2017 vs.			2016 vs.			Components of Total Funding
	2017		2016		2015		2016			2015			2017			2016		2015
Retail deposits
Demand deposits	$	382,658		369,820		348,552		12,838			21,268			8.7	%		8.5		8.1
Savings		1,275,268		1,272,015		1,245,100		3,253			26,915			29.0			29.3		29.0
Time deposits under $250 thousand		960,408		1,018,571		1,075,880		(58,163	)		(57,309	)		21.8			23.5		25.1
Interest bearing checking accounts		844,010		764,399		708,331		79,611			56,068			19.2			17.6		16.5
Money market deposits		572,270		580,125		628,096		(7,855	)		(47,971	)		13.0			13.4		14.6
Total retail deposits		4,034,614		4,004,930		4,005,959		29,684			(1,029	)		91.7			92.4		93.4
Time deposits over $250 thousand		136,782		144,271		97,546		(7,489	)		46,725			3.1			3.3		2.3
Short-term borrowings		228,086		185,672		184,725		42,414			947			5.2			4.3		4.3
Total purchased liabilities		364,868		329,943		282,271		34,925			47,672			8.3			7.6		6.6
Total sources of funding	$	4,399,482	$	4,334,873		4,288,230		64,609			46,643			100.0	%		100.0		100.0

Page 16 of 106

AVERAGE BALANCES, YIELDS AND NET INTEREST MARGINS

(dollars in thousands)	2017									2016									2015
	Average Balance			Interest Income/ Expense			Average Rate			Average Balance			Interest Income/ Expense			Average Rate			Average Balance			Interest Income/ Expense			Average Rate
Assets
Loans, net	$	3,514,900			148,162			4.22	%	$	3,348,324			143,705			4.29	%	$	3,234,806			141,915			4.39	%
Securities available for sale:
U.S. government sponsored enterprises		139,652			2,281			1.63			101,242			1,489			1.47			107,436			1,418			1.32
State and political subdivisions		682			55			8.06			991			80			8.07			1,812			133			7.40
Mortgage backed securities and collateralized mortgage obligations-residential		350,256			7,447			2.13			410,646			7,963			1.94			439,343			9,132			2.08
Corporate bonds		41,946			606			1.44			17,088			246			1.44			613			1			0.16
Small Business Administration-guaranteed participation securities		73,996			1,547			2.09			86,407			1,801			2.08			97,496			2,004			2.06
Mortgage backed securities and collateralized mortgage obligations-commercial		9,963			109			1.09			10,284			133			1.29			10,566			149			1.41
Other		685			16			2.34			683			16			2.34			685			16			2.34
Total securities available for sale		617,180			12,061			1.95			627,341			11,728			1.87			657,951			12,853			1.95
Held to maturity securities:
Mortgage backed securities and collateralized mortgage obligations-residential		31,266			1,149			3.67			40,830			1,454			3.56			53,763			1,844			3.43
Corporate bonds		6,663			410			6.15			10,145			617			6.08			9,967			615			6.17
Total held to maturity securities		37,929			1,559			4.11			50,975			2,071			4.06			63,730			2,459			3.86
Federal Reserve Bank and Federal Home
Loan Bank stock		9,295			544			5.85			9,554			502			5.25			9,414			467			4.96
Federal funds sold and other short-term investments		611,586			6,679			1.09			662,436			3,407			0.50			664,516			1,725			0.26
Total interest earning assets		4,790,890			169,005			3.53	%		4,698,630			161,413			3.44	%		4,630,417			159,419			3.44	%
Allowance for loan losses		(44,319	)								(44,718	)								(46,023	)
Cash and noninterest earning assets		129,097									136,789									136,752
Total assets	$	4,875,668								$	4,790,701								$	4,721,146
Liabilities and shareholders' equity
Interest bearing deposits:
Interest bearing checking accounts	$	844,010			478			0.06	%	$	764,399			473			0.06	%	$	708,331			448			0.06	%
Savings		1,275,268			1,729			0.14			1,272,015			2,148			0.17			1,245,100			2,468			0.20
Time deposits and money markets		1,669,460			10,983			0.66			1,742,967			11,592			0.67			1,801,522			12,067			0.67
Total interest bearing deposits		3,788,738			13,190			0.35			3,779,381			14,213			0.38			3,754,953			14,983			0.40
Short-term borrowings		228,086			1,402			0.61			185,672			1,091			0.59			184,725			1,214			0.66
Total interest bearing liabilities		4,016,824			14,592			0.36	%		3,965,053			15,304			0.39	%		3,939,678			16,197			0.41	%
Demand deposits		382,658									369,820									348,552
Other liabilities		28,506									27,439									27,155
Shareholders' equity		447,680									428,389									405,761
Total liabilities and shareholders' equity	$	4,875,668								$	4,790,701								$	4,721,146
Net interest income					154,413									146,109									143,222
Taxable equivalent adjustment					(45	)								(54	)								(74	)
Net interest income					154,368									146,055									143,148
Net interest spread								3.16	%								3.05	%								3.03	%
Net interest margin (net interest income to total interest earnings assets)								3.22									3.11									3.09

Portions of income earned on certain commercial loans, obligations of states and political subdivisions, and equity securities are exempt from federal and/or state taxation. Appropriate adjustments have been made to reflect the equivalent amount of taxable income that would have been necessary to generate an equal amount of after tax income. Federal and state tax rates used to calculate income on a tax equivalent basis were 35.0% and 7.5%, respectively, for 2017, 2016, and 2015. [The average balances of securities available for sale and held to maturity were calculated using amortized costs. Included in the average balance of shareholders’ equity is $754 thousand, $849 thousand, and $3.1 million in 2017, 2016, and 2015, respectively, of net unrealized loss, net of tax, in the available for sale securities portfolio.] The gross amounts of the net unrealized loss has been included in cash and noninterest earning assets. Nonaccrual loans are included in average loans.

The overall cost of interest bearing deposits was 0.35% in 2017, down three basis points from 2016. The decrease in the cost of deposits more than offset the impact of the increase in the average balance of interest bearing deposits, resulting in a decrease of approximately $1.0 million in interest expense on deposits to $13.2 million in 2017.

The Company strives to maintain competitive rates on deposit accounts and to attract customers through a combination of competitive interest rates, quality customer service, and convenient banking locations. In this fashion, management believes, TrustCo is able to attract deposit customers looking for a long-term banking relationship and to cross-sell banking services utilizing the deposit account relationship as the starting point.

Other funding sources: The Company had $228.1 million of average short-term borrowings outstanding during 2017, compared to $185.7 million in 2016. These borrowings represent customer repurchase accounts, which behave more like deposit accounts than traditional borrowings. The average cost of short-term borrowings was 0.61% in 2017 and 0.59% in 2016. This resulted in interest expense of approximately $1.4 million in 2017, compared to $1.1 million in 2016.

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AVERAGE DEPOSITS BY TYPE OF DEPOSITOR

(dollars in thousands)	Years Ended December 31,
	2017		2016		2015		2014		2013
Individuals, partnerships and corporations	$	4,149,832		4,127,587		4,085,491		3,965,716		3,847,392
U.S. Government		-		-		-		2		-
States and political subdivisions		2,765		3,085		2,654		2,141		1,826
Other (certified and official checks, etc.)		18,799		18,529		15,360		11,109		14,202
Total average deposits by type of depositor	$	4,171,396		4,149,201		4,103,505		3,978,968		3,863,420

MATURITY OF TIME DEPOSITS OVER $250 THOUSAND

(dollars in thousands)
	As of December 31, 2017
Under 3 months	$	42,785
3 to 6 months		15,374
6 to 12 months		24,225
Over 12 months		54,398
Total	$	136,782

VOLUME AND YIELD ANALYSIS

(dollars in thousands)	2017 vs. 2016									2016 vs. 2015
	Increase (Decrease)			Due to Volume			Due to Rate			Increase (Decrease)			Due to Volume			Due to Rate
Interest income (TE):
Federal funds sold and other short-term investments	$	3,272		$	(231	)	$	3,503		$	1,682			(6	)		1,688
Securities available for sale:
Taxable		358			(751	)		1,109			(1,072	)		(701	)		(371	)
Tax-exempt		(25	)		(25	)		(0	)		(53	)		(64	)		11
Total securities available for sale		333			(776	)		1,109			(1,125	)		(765	)		(360	)
Held to maturity securities (taxable)		(512	)		(564	)		52			(388	)		(447	)		59
Federal Reserve Bank and Federal Home Loan Bank stock		42			(13	)		55			35			7			28
Loans, net		4,457			6,985			(2,528	)		1,790			4,898			(3,108	)
Total interest income		7,592			5,401			2,191			1,994			3,687			(1,693	)
Interest expense:
Interest bearing checking accounts		5			27			(22	)		25			18			7
Savings		(419	)		5			(424	)		(320	)		56			(376	)
Time deposits and money markets		(609	)		(571	)		(38	)		(475	)		(256	)		(219	)
Short-term borrowings		311			259			52			(123	)		6			(129	)
Total interest expense		(712	)		(280	)		(432	)		(893	)		(176	)		(717	)
Net interest income (TE)	$	8,304			5,681			2,623		$	2,887			3,863			(976	)

Capital Resources

Consistent with its long-term goal of operating a sound and profitable financial organization, TrustCo strives to maintain strong capital ratios and to qualify Trustco Bank as a well-capitalized institution in accordance with federal regulatory requirements. Historically, most of the Company’s capital requirements have been provided through retained earnings generated.

Both TrustCo and Trustco Bank are subject to regulatory capital requirements. On January 1, 2015, a new capital rule took effect that revised the federal bank regulatory agencies’ risk-based capital requirements and, for the first time, subjected the Company to consolidated regulatory capital requirements. Among other matters, the rule also established a new common equity Tier 1 minimum capital requirement of 4.5% of risk-weighted assets, increased the minimum Tier 1 capital to risk-based assets requirement from 4.0% to 6.0% of risk-weighted assets, changed the risk-weightings of certain assets, and changed what qualifies as capital for purposes of meeting the various capital requirements. In addition, the Company and the Bank are required to maintain additional levels of Tier 1 common equity (the capital conservation buffer) over the minimum risk-based capital levels before they may pay dividends, repurchase shares, or pay discretionary bonuses. The new rule will be phased-in over several years and will be fully in effect in 2019.  Calendar year 2017 was the third year of implementation of the new capital rules.

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As of December 31, 2017, the capital levels of both TrustCo and the Bank exceeded the minimum standards, including with the current and also fully phased-in capital conservation buffer is taken into account.

Under the OCC’s “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 6.5%, 8%, 10%, 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 December 31, 2017 and 2016, Trustco Bank met the definition of “well-capitalized.”

The Company’s dividend payout ratio was 58.4% of net income in 2017 and 58.9% of net income in 2016. The per-share dividend paid in both 2016 and 2017 was $0.2625. 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 and, during 2017 and 2016, the Bank’s compliance with the capital plan required under the terms of the Bank’s July 21, 2015 formal agreement with the OCC. Under the OCC agreement, the Bank could declare or pay a dividend or make a capital distribution only (a) if the Bank was in compliance with its approved written capital plan, and would remain in compliance with such Capital Plan immediately following the declaration or payment of any dividend or capital distribution, and (b) following OCC approval under OCC capital distribution rules. The OCC could disapprove a dividend if: the Bank would be undercapitalized following the distribution; the proposed capital distribution raises safety and soundness concerns; or the capital distribution would violate a prohibition contained in any statue, regulation or agreement. In addition, under the agreement signed with the OCC in 2015, the payment of dividends by the Bank are subject to prior approval. During 2017, the Bank could declare, with regulatory approval, dividends of approximately $68.2 million plus any 2018 net profits retained to the date of the dividend declaration.  As noted above, the OCC has terminated the formal agreement with the Bank effective February 7, 2018. As a result of the termination of the agreement, the Bank will not be required to obtain prior OCC approval of proposed dividend payments to the Company, although the Bank will be required to provide prior notice of intended dividends to the Federal Reserve Board and the OCC.

TrustCo’s consolidated Tier 1 risk-based capital was 18.02% of risk-adjusted assets at December 31, 2017, and 17.78% of risk-adjusted assets at December 31, 2016. Consolidated Tier 1 capital to assets (leverage ratio) at December 31, 2017 was 9.45%, as compared to 9.11% at year-end 2016.  Note 14 to the financial statements includes information on all regulatory capital ratios.

TrustCo maintains a dividend reinvestment plan (DRP) with approximately 11,900 participants. During 2017, $2.5 million of dividends paid on the shares held in this plan were reinvested 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.

Risk Management

The responsibility for balance sheet risk management oversight is the function of the Company’s Asset Allocation Committee. The Committee meets monthly and includes the executive officers of the Company as well as other department managers as appropriate. The meetings include a review of balance sheet structure, formulation of strategy in light of anticipated economic conditions, and comparison to Board-established guidelines to control exposures to various types of risk.

Credit Risk

Credit risk is managed through a network of loan officer authorities, review committees, loan policies, and oversight from the senior executives of the Company. In addition, the Company utilizes an independent loan review function to evaluate management’s loan grading of non-homogeneous loans. Management follows a policy of continually identifying, analyzing, and evaluating the credit risk inherent in the loan portfolio. As a result of management’s ongoing reviews of the loan portfolio, loans are placed in nonaccrual status, either due to the delinquent status of the principal and/or interest payments, or based on a judgment by management that, although payment of principal and/or interest is current, such action is prudent. Thereafter, no interest is taken into income unless received in cash or until such time as the borrower demonstrates a sustained ability to make scheduled payments of interest and principal.

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Management has also developed policies and procedures to monitor the credit risk in relation to the Federal Funds sold portfolio. TrustCo maintains an approved list of third party banks to which Trustco can sell Federal Funds and monitors the credit rating and capital levels of those institutions. At December 31, 2017 virtually all of the Federal Funds sold and other short term investments were funds on deposit at the Federal Reserve Bank of New York and the Federal Home Loan Bank of New York. The Company also monitors the credit ratings on its investment securities and performs initial and periodic reviews of financial information for corporate and municipal bonds.

Nonperforming Assets

Nonperforming assets include loans in nonaccrual status, restructured loans, loans past due by three payments or more and still accruing interest, and foreclosed real estate properties.

Nonperforming assets at year-end 2017 and 2016 totaled $27.6 million and $29.3 million, respectively. Nonperforming loans as a percentage of the total loan portfolio were 0.67% in 2017 and 0.73% in 2016. As of December 31, 2017 and 2016, there were $10.3 million of loans in non-accruing status that were less than 90 days past due. During 2017, a sale of approximately $4.4 million of nonperforming assets was completed at a gain of $925 thousand.

NONPERFORMING ASSETS

(dollars in thousands)	As of December 31,
	2017			2016			2015		2014		2013
Loans in nonaccrual status	$	24,339		$	25,018			28,212		33,886		43,227
Loans contractually past due 3 payments or more and still accruing interest		-			-			-		-		-
Restructured retail loans		38			42			48		125		166
Total nonperforming loans (1)		24,377			25,060			28,260		34,011		43,393
Foreclosed real estate		3,246			4,268			6,455		6,441		8,729
Total nonperforming assets	$	27,623		$	29,328			34,715		40,452		52,122
Allowance for loan losses	$	44,170		$	43,890			44,762		46,327		47,714
Allowance coverage of nonperforming loans		1.81	x		1.75	x		1.58		1.36		1.10
Nonperforming loans as a % of total loans		0.67	%		0.73	%		0.86		1.08		1.49
Nonperforming assets as a % of total assets		0.56			0.60			0.73		0.87		1.15

(1) As of December 31, 2017, 2016 and 2015, the Company also had $11.8 million, $11.5 million and $10.6 million, respectively, of performing retail loans for which the borrower has filed for chapter 7 bankruptcy protection and not reaffirmed their debt to Trustco Bank. Under guidance issued by the OCC in the third quarter of 2015,  these loans are deemed to be troubled debt restructurings (“TDRs”), and as such have been included in the impaired loan disclosures. For the periods prior to the OCC guidance, these loans were not considered to be TDRs.

At December 31, 2017, nonperforming loans include a mix of commercial and residential loans. Of the total nonaccrual loans of $24.3 million, $22.7 million were residential real estate loans and $1.5 million were commercial loans. It is the Company’s policy to classify loans as nonperforming if three monthly payments have been missed. Economic conditions improved over the last year, but remain challenging in some respects. The majority of the Company’s loan portfolio continues to come from its historical market area in Upstate New York. As of December 31, 2017, 76.9% of loans are in New York, including both the Upstate and Downstate areas, as well as nominal loan balances in adjoining states. The Upstate New York region has been affected by the economic downturn to a much lesser degree than markets that previously enjoyed more robust growth and more rapid escalation in housing prices. The remaining 23.1% of the loan portfolio are Florida loans. The Company’s Downstate New York and Florida market areas experienced more of an impact from the economic downturn, but conditions have improved significantly over the recent years. At December 31, 2017, 9.8% of nonperforming loans were in Florida and 90.2% were in the Company’s New York area markets. In management’s view, the Company’s traditionally strong underwriting standards and avoidance of exotic loan types has helped it avoid further deterioration in its Florida loan portfolio. At December 31, 2017 nonperforming Florida loans amounted to $2.4 million compared to $1.9 million at December 31, 2016.

TrustCo has identified nonaccrual commercial and commercial real estate loans, as well as all loans restructured under a TDR, as impaired loans.

There were $2.1 million and $2.4 million of commercial loans classified as impaired as of December 31, 2017 and 2016, respectively. In addition, there were $22.0 million and $21.6 million of residential TDRs classified as impaired at December 31, 2017 and 2016, respectively. Generally, residential TDRs involve the borrower filing for bankruptcy protection. The average balances of all impaired loans were $24.8 million during 2017, $22.4 million in 2016 and $26.6 million in 2015.

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 Ongoing portfolio management is intended to result in early identification and disengagement from deteriorating credits. TrustCo has a diversified loan portfolio that includes a significant balance of residential mortgage loans to borrowers in the Capital Region of New York and avoids concentrations to any one borrower or any single industry.

There are inherent risks associated with lending, however based on its review of the loan portfolio, including loans classified as nonperforming loans, TDRs and impaired loans, management is aware of no other loans in the portfolio that pose significant risk of the eventual non-collection of principal and interest. As of December 31, 2017, 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 no advances to borrowers or projects located outside the United States. The Bank makes loans to executive officers, directors and to associates of such persons. These loans are made in the ordinary course of business on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions. These loans do not involve more than normal risk of collectability or present other unfavorable features.

At year-end 2017 and 2016 there were $3.2 million and $4.3 million of foreclosed real estate, respectively. Although the length of time to complete a foreclosure has remained elevated in recent years, TrustCo, as a portfolio lender, has not encountered issues such as lost notes and other documents, which have been a problem in the foreclosure process for many other mortgagees.

Allowance for Loan Losses

 The Company maintains an allowance for loan losses that is available to absorb losses on loans that management determines are uncollectible. The balance of the allowance is maintained at a level that is, in management’s judgment, representative of probable incurred losses related to the loan portfolio at the end of the reporting period.

In determining the appropriate level of the allowance for loan losses, management reviews loan growth trends, historical charge-off and recovery data, and past due and nonperforming loan activity. Also, there are a number of other factors that are taken into consideration, including:

· the magnitude, nature and trends of recent loan charge-offs and recoveries;

· the growth in the loan portfolio and the implication that it has in relation to the economic climate in the Bank’s market territories, and;

· the economic environment in the Upstate New York and Florida territories over the last several years, as well as in the Company’s other market areas.

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

The table, “Summary of Loan Loss Experience”, includes an analysis of the changes to the allowance for the past five years. Net loans charged off in 2017 and 2016 were $1.7 million and $3.8 million, respectively. The decrease in net charge-offs was primarily the result of lower gross charge-offs in both the New York and Florida residential segments of the portfolio and lower commercial gross charge-offs in the New York segment. New York commercial gross charge-offs were down $723 thousand from 2016 to 2017, while residential gross charge-offs were down $1.4 million in 2017 relative to 2016. There were no Florida commercial charge-offs in either 2016 or 2017, while residential gross charge-offs were up $41 thousand from 2016 to 2017. Total gross installment charge-offs declined $123 from 2016 to 2017.  The changes in gross and net charge-offs in these categories reflected economic and market changes. During 2017, 90.2% of net charge-offs were on residential real estate loans, 11.2% were on installment loans and commercial loans actually experienced net recoveries, compared to an average loan mix of 5.3% commercial, 94.5% real estate (including home equity products) and 0.2% installment. Included in the net numbers cited above were recoveries of $791 thousand in 2017 and $888 thousand in 2016. The Company recorded a $2.0 million provision for loan losses in 2017 compared to $3.0 million in 2016. The decrease in the provision for loan losses in 2017 was primarily related to positive asset quality trends and improving economic conditions.

The allowance for loan losses increased from $43.9 million at December 31, 2016, or 1.28% of total loans at that date, to $44.2 million at December 31, 2017, or 1.21% of total loans at that date.

Management believes that the allowance for loan losses is a reasonable estimate for probable incurred losses in the portfolio as of  December 31, 2017.

While conditions in most of the Bank’s market areas are stable or improving, should general economic conditions weaken and/or real estate values begin to decline again, the level of problem loans may increase, as would the level of the provision for loan losses.

Page 21 of 106

SUMMARY OF LOAN LOSS EXPERIENCE

(dollars in thousands)	2017			2016		2015		2014		2013
Amount of loans outstanding at end of year (less unearned income)	$	3,636,407			3,430,586		3,293,304		3,158,332		2,908,809
Average loans outstanding during year (less average unearned income)		3,514,900			3,348,324		3,234,806		3,014,156		2,771,663
Balance of allowance at beginning of year		43,890			44,762		46,327		47,714		47,927
Loans charged off:
Commercial and commercial real estate		72			795		779		1,010		1,172
Real estate mortgage - 1 to 4 family		2,220			3,573		4,951		6,320		7,592
Installment		219			342		185		214		74
Total		2,511			4,710		5,915		7,544		8,838
Recoveries of loans previously charged off:
Commercial and commercial real estate		96			207		27		514		519
Real estate mortgage - 1 to 4 family		669			617		577		511		1,089
Installment		26			64		46		32		17
Total		791			888		650		1,057		1,625
Net loans charged off		1,720			3,822		5,265		6,487		7,213
Provision for loan losses		2,000			2,950		3,700		5,100		7,000
Balance of allowance at end of year	$	44,170			43,890		44,762		46,327		47,714
Net charge offs as a percent of average loans outstanding during year (less average unearned income)		0.05	%		0.11		0.16		0.22		0.26
Allowance as a percent of loans outstanding at end of year		1.21			1.28		1.36		1.47		1.64

Allocation of the Allowance for Loan Losses

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

(dollars in thousands)	As of					As of
	December 31, 2017					December 31, 2016
	Amount		Percent of Loans to Total Loans			Amount		Percent of Loans to Total Loans
Commercial	$	4,205		4.85	%	$	4,820		5.32	%
Real estate - construction		379		0.85	%		318		0.72	%
Real estate mortgage - 1 to 4 family		33,622		85.56	%		32,452		83.93	%
Home equity lines of credit		5,195		8.50	%		5,570		9.76	%
Installment Loans		769		0.24	%		730		0.26	%
	$	44,170		100.00	%	$	43,890		100.00	%

Market Risk

The Company’s principal exposure to market risk is with respect to interest rate risk. Interest rate risk is the potential for economic loss due to future interest rate changes. These economic losses can be reflected as a loss of future net interest income and/or a loss of current market value.

Quantitative and Qualitative Disclosure about Market Risk

TrustCo realizes income principally from the difference or spread between the interest earned on loans, investments and other interest-earning assets and the interest paid on deposits and borrowings. Loan volume and yield, as well as the volume of and rates on investments, deposits and borrowings are affected by market interest rates. Additionally, because of the terms and conditions of many of the loan documents and deposit accounts, a change in interest rates could also affect the projected maturities of the loan portfolio and/or the deposit base.

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In monitoring interest rate risk, management focuses on evaluating the levels of net interest income and the fair value of capital in varying interest rate cycles within Board-approved policy limits. Interest rate risk management also must take into consideration, among other factors, the Company’s overall credit, operating income, operating cost, and capital profile. The Asset Allocation Committee, which includes all members of executive management and reports quarterly to the Board of Directors, monitors and manages interest rate risk to maintain an acceptable level of potential change in the fair value of capital as a result of changes in market interest rates.

The Company uses an industry standard simulation model as the primary tool to identify, quantify and project changes in interest rates and the impact on the balance sheet and forecasted net interest income. The model utilizes assumptions with respect to cash flows 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 a 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 values of capital projections as of December 31, 2017 are referenced below. The base case 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 December 31, 2017. The table indicates the impact on the fair value of capital assuming interest rates were to instantaneously increase by 100, 200, 300 and 400 basis points (BP) or to decrease by 100 basis points.

As of December 31, 2017	Estimated Percentage of Fair value of Capital to Fair value of Assets
+400 BP		20.11	%
+300 BP		21.37
+200 BP		22.63
+100 BP		23.68
Current rates		24.20
-100 BP		22.05

At December 31, 2017, the Company’s consolidated Tier 1 capital to assets ratio (leverage capital ratio) was 9.45%.

The fair value of capital is calculated as the fair value of assets less the fair value of liabilities in the interest rate scenario presented. The fair value of capital in the current rate environment is 24.20% of the fair value of assets, whereas the current Tier 1 capital to assets ratio was 9.45% at December 31, 2017, as noted. The significant difference between these two capital ratios reflects the impact that a fair value calculation can have on the capital ratios of a company. The fair value of capital calculations take into consideration the fair value of deposits, including those deposits considered core deposits, along with the fair value of assets such as the loan portfolio.

A secondary method to identify and manage the interest rate risk profile is the static gap analysis. Interest sensitivity gap analysis measures the difference between the assets and liabilities repricing or maturing within specific time periods. An asset-sensitive position indicates that there are more rate-sensitive assets than rate-sensitive liabilities repricing or maturing within specific time periods, which would generally imply a favorable impact on net interest income in periods of rising interest rates and a negative impact in periods of falling rates. A liability-sensitive position would generally imply a negative impact on net interest income in periods of rising rates and a positive impact in periods of falling rates.

Static gap analysis has limitations because it cannot measure precisely the effect of interest rate movements and competitive pressures on the repricing and maturity characteristics of interest-earning assets and interest-bearing liabilities. In addition, a significant portion of the interest sensitive assets are fixed rate securities with relatively long lives whereas the interest-bearing liabilities are not subject to these same limitations. As a result, certain assets and liabilities may in fact reprice at different times and at different volumes than the static gap analysis would indicate. The Company deemphasized the use of gap analysis in favor of the more advanced methods provided by the previously noted model, including the sensitivity of the economic value of equity and net interest income.

The Company recognizes the relatively long-term nature of the fixed rate residential loan portfolio. To fund those long-term assets, the Company cultivates long-term deposit relationships (often called core deposits). These core deposit relationships tend to be longer-term in nature and not as susceptible to changes in interest rates. Core deposit balances, along with substantial levels of short-term liquid assets allows the Company to take on certain interest rate risk with respect to the fixed rate loans on its balance sheet.

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The table, “Interest Rate Sensitivity,” presents an analysis of the interest-sensitivity gap position at December 31, 2017. All interest-earning assets and interest-bearing liabilities are shown based upon their contractual maturity or repricing date adjusted for forecasted prepayment rates. Asset prepayment and liability repricing periods are selected after considering the current rate environment, industry prepayment and data specific to the Company. The interest rate sensitivity table indicates that TrustCo is nominally asset sensitive on a cumulative basis when measured at any of the three time buckets. The effect of being asset sensitive is that rising interest rates should result in assets repricing to higher levels faster than liabilities repricing to higher levels, thus increasing net interest income. Conversely, should interest rates decline, the Company’s interest bearing assets would reprice down faster than liabilities, resulting in lower net interest income.

INTEREST RATE SENSITIVITY

(dollars in thousands)	At December 31, 2017
	Repricing in:
	Less than 1 year			1-5 years			Over 5 years			Rate Insensitive		Total
Total assets	$	1,430,671			1,587,212			1,786,611			103,514		4,908,008
Cumulative total assets	$	1,430,671			3,017,883			4,804,494			4,908,008
Total liabilities and shareholders' equity	$	1,173,248			1,547,924			1,692,867			493,969		4,908,008
Cumulative total liabilities and shareholders' equity	$	1,173,248			2,721,172			4,414,039			4,908,008
Cumulative interest sensitivity gap	$	257,423			296,711			390,455
Cumulative gap as a % of interest earning assets for the period		18.0	%		9.8	%		8.1	%
Cumulative interest sensitive assets to liabilities		121.9	%		110.9	%		108.8	%

In practice, the optionality imbedded in many of the Company’s assets and liabilities, along with other limitations such as differing timing between changes in rates on varying assets and liabilities limits the effectiveness of gap analysis.  Thus, the table should be viewed as a rough framework in the evaluation of interest rate risk. Management takes these factors, and others, into consideration when reviewing the Bank’s gap position and establishing its asset/liability strategy. As noted, the simulation model is better able to consider these aspects of the Bank’s exposure to potential rate changes and thus is viewed as the more important of the two methodologies.

Liquidity Risk

TrustCo seeks to obtain favorable funding sources and to maintain prudent levels of liquid assets in order to satisfy various liquidity demands. In addition to serving as a funding source for maturing obligations, liquidity provides flexibility in responding to customer-initiated needs. Many factors affect the ability to meet liquidity needs, including changes in the markets served by the Bank’s network of branches, the mix of assets and liabilities, and general economic conditions.

The Company actively manages its liquidity position through target ratios established under its asset/liability management policies. Continual monitoring of these ratios, both historically and through forecasts under multiple interest rate scenarios, allows TrustCo to employ strategies necessary to maintain adequate liquidity levelsas provided in its asset/liability management policies. Management has also developed various liquidity alternatives, such as borrowings from the Federal Home Loan Bank of New York (“FHLBNY”) and the Federal Reserve Bank of New York (“FRBNY”), and through the utilization of brokered CDs, should the need develop.

The Company achieves its liability-based liquidity objectives in a variety of ways. Liabilities can be classified into three categories for the purposes of managing liability-based liquidity: retail deposits, purchased money, and capital market funds. TrustCo seeks deposits that are dependable and predictable and that are based as much on the level and quality of service as they are on interest rate. Average retail deposits (total deposits less time deposits greater than $250 thousand) amounted to $4.03 billion in 2017 and $4.00 billion in 2016. Average balances of core deposits are detailed in the table “Mix of Average Sources of Funding.”

In addition to core deposits, another source of liability-based funding available to TrustCo is purchased money, which consists of long-term and short-term borrowings, Federal Funds purchased, securities sold under repurchase agreements, and time deposits greater than $250 thousand. The average balances of these purchased liabilities are detailed in the table “Mix of Average Sources of Funding.” During 2017, the average balance of purchased liabilities was $364.9 million, compared with $329.9 million in 2016. Although classified as purchased liabilities for the purposes of this analysis the Company does not offer premium rates on large time deposits and thus views its time deposits as relatively stable funds.  The increase in borrowed funds is wholly the result of customer’s behavioral preferences in regard to managing their funds and does not reflect any decision by management to increase this category of funding.  The classification of time deposits over $250 thousand as purchased liabilities is typical industry practice, partly reflecting that some banks pay premium rates for larger balance time deposits.

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The Bank also has a line of credit available with the FHLBNY. The amount of that line is determined by the Bank’s total assets and the amount and types of collateral pledged. Assets that are eligible for pledging include most loans and securities. The Bank can borrow up to 30% of its total assets from the FHLBNY without special approval and may apply to borrow up to 50% of its total assets. Securities and loans pledged as collateral against any borrowings must cover certain margin requirements. Eligible securities have a maximum lendable value of 67% to 97%, depending on the security type, with the securities in the Bank’s investment portfolio generally having maximum lendable values of 80% to 95%. The maximum lendable value against loans is 90% for 1-4 family residential mortgages, 80% for multifamily mortgages and 75% for commercial mortgages. For both securities and loans, the maximum lendable limits are applied to the market value of the asset pledged. At December 31, 2017 there were no outstanding balances associated with this line of credit.  In addition, the Bank has access to borrowings from the FRBNY.  Borrowings from the FRBNY are subject to collateralization by securities or loans acceptable to the FRBNY and at collateral margins set by the FRBNY.

The Company’s overall liquidity position is favorable compared to its peers. A simple liquidity proxy often used in the industry is the ratio of loans to deposits, with a lower number representing a more liquid institution. At December 31, 2017, TrustCo’s loan to deposit ratio was 87.1% compared to 81.8% at December 31, 2016, while the median peer group of all publically traded banks and thrifts tracked by S&P Global Market Intelligence financial with assets between $2 billion and $10 billion had ratios of 94.8% and 92.0%, respectively. In addition, at December 31, 2017 and 2016, the Company had cash and cash equivalents totaling $612.7 million and $707.3 million, respectively, as well as unpledged securities available for sale with a fair value of $220.2 million and $355.5 million, respectively.

Off-Balance Sheet Risk

Commitments to extend credit: The Bank makes contractual commitments to extend credit, and extends lines of credit which are subject to the Bank’s credit approval and monitoring procedures. At December 31, 2017 and 2016, commitments to extend credit in the form of loans, including unused lines of credit, amounted to $462.5 million and $432.1 million, respectively. In management’s opinion, there are no material commitments to extend credit that represent unusual risk.

The Company has issued conditional commitments in the form of standby letters of credit to guarantee payment on behalf of a customer and guarantee the performance of a customer to a third party. Standby letters of credit generally arise in connection with lending relationships. The credit risk involved in issuing these instruments is essentially the same as that involved in extending loans to customers. Contingent obligations under standby letters of credit totaled approximately $3.8 million and $4.6 million at December 31, 2017 and 2016, respectively, and represent the maximum potential future payments the Company could be required to make. Typically, these instruments have terms of 12 months or less and expire unused; therefore, the total amounts do not necessarily represent future cash requirements. Each customer is evaluated individually for creditworthiness under the same underwriting standards used for commitments to extend credit and on-balance sheet instruments. Company policies governing loan collateral apply to standby letters of credit at the time of credit extension. Loan-to-value ratios are generally consistent with loan-to-value requirements for other commercial loans secured by similar types of collateral. The fair value of the Company’s standby letters of credit at December 31, 2017 and 2016 was insignificant.

Other off-balance sheet risk: TrustCo does not engage in activities involving interest rate swaps, forward placement contracts, or any other instruments commonly referred to as “derivatives.” Management believes these instruments pose a high degree of risk, and that investing in them is unnecessary. TrustCo has no off-balance sheet partnerships, joint ventures, or other risk sharing entities.

Noninterest Income and Expense

Noninterest income: Noninterest income is an important source of revenue for the Company and a factor in overall results. Total noninterest income was $18.4 million in 2017, $19.0 million in 2016 and $17.9 million in 2015. There were no net securities gains recorded in 2017 while 2016 results included $668 thousand of net gains and 2015 results included net gains of $251 thousand. Excluding securities gains and losses, noninterest income was $18.4 million in 2017, $18.3 million in 2016 and $17.6 million in 2015.

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Trustco Financial Services contributes a large recurring portion of noninterest income through fees generated by providing fiduciary and investment management services. Income from these fiduciary activities totaled $6.6 million in 2017, $5.9 million in 2016 and $6.0 million in 2015. Trust fees are generally calculated as a percentage of the assets under management by Trustco Financial Services. In addition, trust fees include fees for estate settlements, tax preparation, and other services. Assets under management by Trustco Financial Services are not included on the Company’s Consolidated Financial Statements because Trustco Financial Services holds these assets in a fiduciary capacity. At December 31, 2017, 2016 and 2015, fair value of assets under management by the Trustco Financial Services were approximately $890.2 million, $845.7 million and $841.8 million, respectively. The changes in levels of assets under management reflects a combination of changing market valuations and the net impact of new customer asset additions, losses of accounts and the settlement of estates.

The Company routinely reviews its service charge policies and levels relative to its competitors. Reflecting those reviews, the Company makes changes in fees for services to customers in terms of both the levels of fees as well as types of fees where appropriate. The changes in reported noninterest income also reflect the volume of services customers utilized and regulatory changes governing overdrafts. During 2017, 2016 and 2015 sales of nonperforming loans resulted in gains of $85 thousand, $24 thousand and $60 thousand, respectively, and are included in other noninterest income. Also included in other noninterest income in 2016 is a gain of $469 thousand on the sale of a building.

NONINTEREST INCOME

(dollars in thousands)	For the year ended December 31,						2017 vs. 2016
	2017		2016		2015		Amount			Percent
Trustco Financial Services income	$	6,584		5,886		5,971		698			11.9	%
Fees for services to customers		10,798		10,857		10,689		(59	)		(0.5	)
Net gain on securities transactions		-		668		251		(668	)		(100.0	)
Other		991		1,601		961		(610	)		(38.1	)
Total noninterest income	$	18,373		19,012		17,872		(639	)		(3.4	)%

Noninterest expense: Noninterest expense was $94.0 million in 2017, compared with $93.8 million in 2016 and $90.6 million in 2015. TrustCo’s operating philosophy stresses the importance of monitoring and controlling the level of noninterest expense. The efficiency ratio is a strong indicator of how well controlled and monitored these expenses are for a banking enterprise. A low ratio indicates highly efficient performance. The median efficiency ratio for a peer group composed of banking institutions with assets of $2 to $10 billion was 58.6% for 2017. TrustCo’s efficiency ratio was 53.7% in 2017, 55.7% in 2016 and 55.1% in 2015. Excluded from the efficiency ratio calculation were $668 thousand of securities gains in 2016 as well as $251 thousand of securities gains in 2015. In addition in 2016 the ratio excludes the gain on the sale of a branch building, and for 2017, 2016 and 2015 gains on the sale of NPL’s previously mentioned were also excluded. Other real estate owned expense or income is also excluded from this calculation for all periods presented.

NONINTEREST EXPENSE

(dollars in thousands)	For the year ended December 31,						2017 vs. 2016
	2017		2016		2015		Amount			Percent
Salaries and employee benefits	$	40,665		36,508		32,521		4,157			11.4	%
Net occupancy expense		16,543		16,078		15,799		465			2.9
Equipment expense		6,118		6,320		6,871		(202	)		(3.2	)
Professional services		6,895		8,200		7,878		(1,305	)		(15.9	)
Outsourced services		6,410		6,216		5,860		194			3.1
Advertising expense		2,578		2,515		2,593		63			2.5
FDIC and other insurance		4,179		5,967		6,339		(1,788	)		(30.0	)
Other real estate expense, net		1,171		2,558		2,001		(1,387	)		(54.2	)
Other		9,435		9,465		10,698		(30	)		(0.3	)
Total noninterest expense	$	93,994		93,827		90,560		167			0.2	%

Salaries and employee benefits are the most significant component of noninterest expense. For 2017, these expenses amounted to $40.7 million, compared with $36.5 million in 2016 and $32.5 million in 2015. The change in salaries and benefits in 2017 was primarily due to increases in employees related to fulfilling the agreement with the OCC. Full time equivalent headcount increased from 808 as of December 31, 2016 to 846 as of December 31, 2017.

Professional services expense was $6.9 million in 2017, compared to $8.2 million in 2016 and $7.9 million in 2015. The significant decrease in these costs in 2017 was driven by the reduced use of various consultants and experts utilized to assist with meeting the requirements of the agreement with the OCC during the prior two years.

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FDIC and other insurance expense was $4.2 million in 2017, $6.0 million in 2016 and $6.3 million in 2015. The decline in 2017 reflects the full year impact of changes in the FDIC premium structure that occurred during 2016.

Other real estate expense decreased to $1.2 million in 2017, as compared to $2.6 million in 2016 and $2.0 million in 2015. Included in ORE expense during 2017, 2016 and 2015 were write downs of properties included in ORE totaling $1.1 million, $1.2 million and $1.1 million, respectively.

Changes in other noninterest expense are the results of normal banking activities.  The decrease in 2016 versus 2015 was partly the result of the one-time costs in 2015 to roll out chip card technology for TrustCo’s debit cards.

Income Tax

As discussed, the Act had a significant impact on the Company’s recognized tax expense in 2017.  In 2017, TrustCo recognized income tax expense of $33.6 million, which included the $5.1 million associated with the Tax Act, as compared to $25.7 million in 2016 and $24.5 million in 2015. The effective tax rates were 43.8%, 37.6% and 36.7% in 2017, 2016, and 2015, respectively. The tax expense on the Company’s income was different from the tax expense at the federal statutory rate of 35% (prior to the Act), due primarily to the effect of state income taxes and to a lesser extent to the effect of tax exempt income. For 2018 the Company is expecting its combined effective tax rate to be approximately 23.5%, based on currently known information.  The actual effective tax rate could be impacted by currently unknown aspects of how the tax law changes will be implemented and/or by management decisions to adapt to the new law.

Contractual Obligations

The Company is contractually obligated to make the following payments on leases as of December 31, 2017:

(dollars in thousands)	Payments Due by Period:
	Less Than			1-3		3-5 More than
	1 Year		Years		Years		5 Years		Total
Operating leases	$	7,267		14,094		12,634		31,803		65,797

In addition, the Company is contractually obligated to pay data processing vendors approximately $6 million to $7 million per year through 2021.

Also, the Company is obligated under its various employee benefit plans to make certain payments of approximately $1.8 to $1.9 million per year through 2025. Additionally, the Company is obligated to pay the accumulated benefits under the Company’s supplementary pension plan which amounted to $5.6 million and $5.1 million, respectively, as of December 31, 2017 and 2016. Actual payments under the plan are made in accordance with the plan provisions.

Impact of Inflation and Changing Prices

The Consolidated Financial Statements for the years ended 2017, 2016 and 2015 have been prepared in accordance with U.S. generally accepted accounting principles which require the measurement of financial position and operating results in terms of historical dollars without considering the changes in the relative purchasing power of money over time due to inflation. The impact of inflation is reflected in the increasing cost of operations.

Unlike most industrial companies, nearly all assets and liabilities of the Company are monetary. As a result, changes in interest rates have a greater impact on the Company’s performance than do the effects of general levels of inflation, because interest rates do not necessarily move in the same direction or to the same extent as the price of goods and services.

Critical Accounting Policies

Pursuant to recent Securities and Exchange Commission (“SEC”) guidance, management of the Company is encouraged to evaluate and disclose those accounting policies that are judged to be critical policies – those most important to the portrayal of the Company’s financial condition and results, and that require management’s most difficult subjective or complex judgments. Management considers the accounting policy relating to the allowance for loan losses to be a critical accounting policy, given the inherent uncertainty in evaluating the levels of the allowance required to cover credit losses in the portfolio and the material effect that such judgments can have on the results of operations. Included in Note 1 to the Consolidated Financial Statements contained in the Company’s 2017 Annual Report on Form 10-K is a description of the significant accounting policies that are utilized by the Company in the preparation of the Consolidated Financial Statements.

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Recent Accounting Pronouncements

Please refer to Note 18 to the consolidated financial statements for a detailed discussion of new accounting pronouncements and their impact on the Company.

Forward-Looking Statements

Statements included in this report and in future filings by TrustCo with the SEC, 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.

The following important factors, 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:

· TrustCo’s ability to continue to originate a significant volume of one- to- four family mortgage loans in its market areas and to otherwise maintain or increase its market share in the areas in which it operates;

· TrustCo’s ability to continue to maintain noninterest expense and other overhead costs at reasonable levels relative to income;

· TrustCo’s ability to make accurate assumptions and judgments regarding the credit risks associated with its lending and investing activities, including changes in the level and direction of loan delinquencies and charge-offs, changes in property values, and changes in estimates of the adequacy of the allowance for loan and lease losses;

· the effects of and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System, inflation, interest rates, market and monetary fluctuations;

· Restrictions or conditions imposed by TrustCo’s and Trustco Bank’s regulators on their operations that may make it more difficult to achieve TrustCo’s and Trustco Bank’s goals;

· the future earnings and capital levels of TrustCo and Trustco Bank and the continued receipt of approvals 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;

· Unanticipated effects from the Tax Act that may limit its benefits or adversely impact our business[, which could include decreased demand for borrowing by our customers or increased price competition that offsets the benefits of decreased federal income tax expense;

· the perceived overall value of TrustCo’s products and services by users, including the features, pricing and quality compared to competitors’ products and services and the willingness of current and prospective customers to substitute competitors’ products and services for TrustCo’s products and services;

· changes in consumer spending, borrowing and savings habits;

· the effect of changes in financial services laws and regulations (including laws concerning taxation, banking and securities) and the impact of other governmental initiatives affecting the financial services industry, including regulatory capital requirements;

· changes in management personnel;

· real estate and collateral values;

· changes in accounting policies and practices, as may be adopted by the bank regulatory agencies Financial Accounting Standards Board (“FASB”) or the Public Company Accounting Oversight Board;

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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;

· changes in local market areas and general business and economic trends, as well as changes in consumer spending and saving habits;

· TrustCo’s success at managing the risks involved in the foregoing and managing its business; and

· other risks and uncertainties included under “Risk Factors” in our Form 10-K for the year ended December 31, 2017.

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.

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SUMMARY OF UNAUDITED QUARTERLY FINANCIAL INFORMATION

(dollars in thousands, except per share data)

	2017							2016
		Q1	Q2	Q3	Q4	Year			Q1	Q2	Q3	Q4	Year
Income statement:
Interest and dividend income	$	41,052	42,108	42,788	43,012		168,960	$	40,026	40,208	40,503	40,622		161,359
Interest expense		3,652	3,567	3,609	3,764		14,592		3,844	3,909	3,836	3,715		15,304
Net interest income		37,400	38,541	39,179	39,248		154,368		36,182	36,299	36,667	36,907		146,055
Provision for loan losses		600	550	550	300		2,000		800	800	750	600		2,950
Net interest income after provison for loan losses		36,800	37,991	38,629	38,948		152,368		35,382	35,499	35,917	36,307		143,105
Noninterest income		4,727	4,504	4,854	4,288		18,373		4,572	5,199	4,729	4,512		19,012
Noninterest expense		24,019	22,913	23,526	23,536		93,994		23,439	23,974	23,049	23,365		93,827
Income before income taxes		17,508	19,582	19,957	19,700		76,747		16,515	16,724	17,597	17,454		68,290
Income tax expense		6,561	7,342	7,361	12,338		33,602		6,106	6,260	6,667	6,656		25,689
Net income	$	10,947	12,240	12,596	7,362		43,145	$	10,409	10,464	10,930	10,798		42,601
Per share data:
Basic earnings	$	0.114	0.127	0.131	0.077		0.449	$	0.109	0.110	0.114	0.113		0.446
Diluted earnings		0.114	0.127	0.131	0.076		0.448		0.109	0.109	0.114	0.113		0.445
Cash dividends declared		0.0656	0.0656	0.0656	0.0656		0.2625		0.0656	0.0656	0.0656	0.0656		0.2625

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FIVE YEAR SUMMARY OF FINANCIAL DATA

(dollars in thousands, except per share data)	Years Ended December 31,
	2017			2016			2015			2014			2013
Statement of income data:
Interest and dividend income	$	168,960		$	161,359			159,345			156,941			151,047
Interest expense		14,592			15,304			16,197			15,488			15,283
Net interest income		154,368			146,055			143,148			141,453			135,764
Provision for loan losses		2,000			2,950			3,700			5,100			7,000
Net interest income after provision for loan losses		152,368			143,105			139,448			136,353			128,764
Noninterest income		18,373			18,344			17,621			19,189			18,148
Net gain on securities transactions		0			668			251			717			1,622
Noninterest expense		93,994			93,827			90,560			84,670			85,005
Income before income taxes		76,747			68,290			66,760			71,589			63,529
Income taxes		33,602			25,689			24,522			27,396			23,717
Net income	$	43,145			42,601			42,238			44,193			39,812
Share data:
Average equivalent diluted shares (in thousands)		96,222			95,648			95,213			94,753			94,206
Book value	$	4.75		$	4.52			4.34			4.15			3.83
Cash dividends		0.263			0.263			0.263			0.263			0.263
Basic earnings		0.449			0.446			0.444			0.467			0.422
Diluted earnings		0.448			0.445			0.444			0.466			0.422
Financial:
Return on average assets		0.88	%		0.89			0.89			0.97			0.90
Return on average shareholders' equity		9.64			9.94			10.41			11.54			11.15
Cash dividend payout ratio		58.44			58.88			59.13			56.30			62.19
Tier 1 capital to assets (leverage ratio)		9.45			9.11			8.85			8.55			8.27
Tier 1 capital as a % of total risk adjusted assets		18.02			17.78			17.71			17.04			16.74
Common equity tier 1 capital ratio		18.02			17.78			17.71			N/A			N/A
Total capital as a % of total risk adjusted assets		19.28			19.04			18.97			18.30			18.00
Efficiency ratio*		53.75			55.67			55.08			52.60			52.78
Net interest margin		3.22			3.11			3.09			3.16			3.14
Average balances:
Total assets	$	4,875,668			4,790,701			4,721,146			4,574,941			4,422,393
Earning assets		4,790,890			4,698,630			4,630,417			4,487,133			4,334,803
Loans, net		3,514,900			3,348,324			3,234,806			3,014,156			2,771,663
Allowance for loan losses		(44,319	)		(44,718	)		(46,023	)		(47,409	)		(48,452	)
Securities available for sale		617,180			627,341			657,951			794,613			946,367
Held to maturity securities		37,929			50,975			63,730			78,356			104,371
Federal Reserve Bank and Federal Home Loan Bank stock		9,295			9,554			9,414			10,135			10,266
Deposits		4,171,396			4,149,201			4,103,505			3,978,968			3,863,420
Short-term borrowings		228,086			185,672			184,725			189,430			180,275
Shareholders' equity		447,680			428,389			405,761			382,810			356,979

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Non-GAAP Financial Measures Reconciliation

Certain of the financial measures used in this report, such as taxable equivalent net interest income and net interest margin, and efficiency ratio, are determined by methods other than in accordance with generally accepted accounting principles (“GAAP”).

Taxable Equivalent Net Interest Income and Taxable Equivalent Net Interest Margin: Net interest income is commonly presented on a taxable equivalent basis. That is, to the extent that some component of the institution’s net interest income will be exempt from taxation (e.g., was received by the institution as a result of its holdings of state or municipal obligations), an amount equal to the tax benefit derived from that component is added back to the net interest income total. Management considers this adjustment helpful to investors in comparing one financial institution’s net interest income (pre-tax) to that of another institution, as each will have a different proportion of tax-exempt items in their portfolios. Moreover, net interest income is itself a component of a second financial measure commonly used by financial institutions, net interest margin, which is the ratio of net interest income to average earning assets. For purposes of this measure as well, taxable equivalent net interest income is generally used by financial institutions, again to provide investors with a better basis of comparison from institution to institution. We calculate the taxable equivalent net interest margin by dividing GAAP net interest income, adjusted to include the benefit of non-taxable interest income, by average interest earnings assets.

The Efficiency Ratio: Financial institutions often use an “efficiency ratio” as a measure of expense control. The efficiency ratio typically is defined as noninterest expense divided by the sum of taxable equivalent net interest income and noninterest income. As in the case of net interest income, generally, net interest income as utilized in calculating the efficiency ratio is typically expressed on a taxable equivalent basis. Moreover, many financial institutions, in calculating the efficiency ratio, also adjust both noninterest expense and noninterest income to exclude from these items (as calculated under GAAP) certain component elements, such as other real estate expense (deducted from noninterest expense) and securities transactions (excluded from noninterest income). We calculate the efficiency ratio by dividing total noninterest expenses as determined under GAAP, as adjusted, by net interest income (fully taxable equivalent) and total noninterest income as determined under GAAP, as adjusted, as stated in the table below.

We believe that these non-GAAP financial measures provide information that is important to investors and that is useful in understanding the Company’s financial position, results and ratios. Management internally assesses our performance based, in part, on these measures. However, these non-GAAP financial measures are supplemental and are not a substitute for an analysis based on GAAP measures. As other companies may use different calculations for these measures, this presentation may not be comparable to other similarly titled measures reported by other companies. A reconciliation of the non-GAAP measures of tangible book value per share, efficiency ratio, and taxable equivalent net interest income and net interest margin to the underlying GAAP financial measures is set forth below.

Page 32 of 106

Non-GAAP Financial Measures Reconciliation

(dollars in thousands, except per share amounts)

(Unaudited)

	Years Ended
Taxable Equivalent Net Interest Margin	12/31/17			12/31/16			12/31/15			12/31/14			12/31/13
Net interest income		154,368			146,055			143,148			141,453			135,764
Taxable Equivalent Adjustment		45			54			74			130			330
Net interest income (Taxable Equivalent)		154,413			146,109			143,222			141,583			136,094
Total Interest Earning Assets		4,790,890			4,698,630			4,630,417			4,487,133			4,334,803
Net Interest Margin		3.22	%		3.11	%		3.09	%		3.15	%		3.13	%
Taxable Equivalent Net Interest Margin		3.22	%		3.11	%		3.09	%		3.16	%		3.14	%

	Years Ended
Efficiency Ratio	12/31/17			12/31/16			12/31/15			12/31/14			12/31/13
Net interest income (fully taxable equivalent)		154,413			146,109			143,222			141,583			136,094
Non-interest income		18,373			19,012			17,872			19,906			19,770
Less:  Net gain on securities		-			668			251			717			1,622
Less:  Net gain on sale of building and net gain on sale of nonperforming loans		84			493			60			1,719			-
Revenue used for efficiency ratio		172,702			163,960			160,783			159,053			154,242
Total Noninterest expense		93,994			93,827			90,560			84,670			85,005
Less:  Other real estate expense, net		1,171			2,558			2,001			1,009			3,598
Expenses used for efficiency ratio		92,823			91,269			88,559			83,661			81,407
Efficiency Ratio		53.75	%		55.67	%		55.08	%		52.60	%		52.78	%

Page 33 of 106

Glossary of Terms

Allowance for Loan Losses:

A balance sheet account which represents management’s estimate of probable credit losses in the loan portfolio. The provision for loan losses is added to the allowance account, charge offs of loans decrease the allowance balance and recoveries on previously charged off loans serve to increase the balance.

Basic Earnings Per Share:

Net income divided by the weighted average number of common shares outstanding (including participating securities) during the period.

Cash Dividends Per Share:

Total cash dividends for each share outstanding on the record dates.

Common equity tier 1 capital ratio

Common equity Tier 1 capital to risk weighted assets

Comprehensive Income:

Net income plus the change in selected items recorded directly to capital such as the net change in unrealized market gains and losses on securities available for sale and the overfunded/underfunded positions in the retirement plans.

Core Deposits:

Deposits that are traditionally stable, including all deposits other than time deposits of $250,000 or more.

Derivative Investments:

Investments in futures contracts, forwards, swaps, or other investments with similar characteristics.

Diluted Earnings Per Share:

Net income divided by the weighted average number of common shares outstanding during the period, taking into consideration the effect of any dilutive stock options.

Earning Assets:

The sum of interest-bearing deposits with banks, securities available for sale, securities held to maturity, trading securities, loans, net of unearned income, and Federal Funds sold and other short-term investments.

Efficiency Ratio:

Noninterest expense (excluding other real estate expense) divided by taxable equivalent net interest income plus noninterest income (excluding securities transactions and other component income items). This is an indicator of the total cost of operating the Company in relation to the total income generated.

Federal Funds Sold:

A short-term (generally one business day) investment of excess cash reserves from one bank to another.

Page 34 of 106

Government Sponsored Enterprises (“GSE”):

Corporations sponsored by the United States government and include the Federal Home Loan Bank (FHLB), the Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac), the Federal National Mortgage Association (FNMA or Fannie Mae) and the Small Business Administration (SBA).

Impaired Loans:

Loans, principally commercial, where it is probable that the borrower will be unable to make the principal and interest payments according to the contractual terms of the loan, and all loans considered TDRs.

Interest Bearing Liabilities:

The sum of interest bearing deposits, Federal Funds purchased, securities sold under agreements to repurchase, short-term borrowings, and long-term debt.

Interest Rate Spread:

The difference between the taxable equivalent yield on earning assets and the rate paid on interest bearing liabilities.

Liquidity:

The ability to meet loan commitments, deposit withdrawals, and maturing borrowings as they come due.

Net Interest Income:

The difference between income on earning assets and interest expense on interest bearing liabilities.

Net Interest Margin:

Fully taxable equivalent net interest income as a percentage of average earning assets.

Net Loans Charged Off:

Reductions to the allowance for loan losses written off as losses, net of the recovery of loans previously charged off.

Nonaccrual Loans:

Loans for which no periodic accrual of interest income is recognized.

Nonperforming Assets:

The sum of nonperforming loans plus foreclosed real estate properties.

Nonperforming Loans:

The sum of loans in a nonaccrual status (for purposes of interest recognition), plus accruing loans three payments or more past due as to principal or interest payments.

Parent Company:

A company that owns or controls a subsidiary through the ownership of voting stock.

Real Estate Owned:

Real estate acquired through foreclosure proceedings.

Page 35 of 106

Return on Average Assets:

Net income as a percentage of average total assets.

Return on Average Equity:

Net income as a percentage of average equity.

Risk-Adjusted Assets:

A regulatory calculation that assigns risk factors to various assets on the balance sheet.

Risk-Based Capital:

The amount of capital required by federal regulatory standards, based on a risk-weighting of assets.

Subprime Loans:

Loans, including mortgages, that are underwritten based on non-traditional guidelines or structured in non-traditional ways, typically with the goal of facilitating the approval of loans that more conservative lenders would likely decline.

Tangible Book Value Per Share:

Total shareholders’ equity (less goodwill) divided by shares outstanding on the same date. This provides an indication of the tangible book value of a share of stock.

Taxable Equivalent (“TE”):

Tax exempt income that has been adjusted to an amount that would yield the same after tax income had the income been subject to taxation at the statutory federal and/or state income tax rates.

Tier 1 Capital:

Total shareholders’ equity excluding accumulated other comprehensive income.

Troubled Debt Restructurings (TDRs):

A refinanced loan in which the bank allows the borrower certain concessions that would normally not be considered. The concessions are made in light of the borrower’s financial difficulties and the bank’s objective to maximize recovery on the loan. TDRs are considered impaired loans.

Page 36 of 106

Management’s Report on Internal Control over Financial Reporting

The management of TrustCo Bank Corp NY is responsible for establishing and maintaining adequate internal control over financial reporting. TrustCo’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management has completed an assessment of TrustCo Bank Corp NY’s internal control over financial reporting as of December 31, 2017. In making this assessment, we used the criteria set forth by the 2013 Internal Control - Integrated Framework promulgated by the Committee of Sponsoring Organizations of the Treadway Commission, commonly referred to as the “COSO” criteria. Based on our assessment, we believe that, as of December 31, 2017, the Company maintained effective internal control over financial reporting.

The Company’s internal control over financial reporting as of December 31, 2017 has been audited by Crowe Horwath LLP, the Company’s independent registered public accounting firm, as stated in their report which is included herein.

 

Robert J. McCormick President and Chief Executive Officer

 

Michael M. Ozimek Senior Vice President and Chief Financial Officer

March 1, 2018

Page 37 of 106

	Crowe Horwath LLP Independent Member Crowe Horwath International

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Shareholders and the Board of Directors of Trustco Bank Corp NY

Glenville, New York

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated statements of condition of Trustco Bank Corp NY (the "Company") as of December 31, 2017 and 2016, the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2017, and the related notes  (collectively referred to as the "financial statements")¹. We also have audited the Company’s internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control – Integrated Framework: (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2017 in conformity with accounting principles generally accepted in the United States of America.  Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control – Integrated Framework: (2013) issued by COSO.

Basis for Opinions

The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting.  Our responsibility is to express an opinion on the Company’s financial statements and an opinion on the Company’s internal control over financial reporting based on our audits.  We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("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.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.  Our audits also included performing such other procedures as we considered necessary in the circumstances.  We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.  A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 /s/ Crowe Horwath LLP

We have served as the Company's auditor since 2009.

New York, New York

March 1, 2018

Page 38 of 106

TRUSTCO BANK CORP NY

Consolidated Statements of Income

(dollars in thousands, except per share data)

	Years Ended December 31,
	2017		2016		2015
Interest and dividend income:
Interest and fees on loans	$	148,133		143,679		141,887
Interest and dividends on securities available for sale:
U. S. government sponsored enterprises		2,281		1,489		1,418
State and political subdivisions		39		52		87
Mortgage-backed securities and collateralized mortgage obligations-residential		7,447		7,963		9,132
Corporate bonds		606		246		1
Small Business Administration-guaranteed participation securities		1,547		1,801		2,004
Mortgage-backed securities and collateralized mortgage obligations-commercial		109		133		149
Other		16		16		16
Total interest and dividends on securities available for sale		12,045		11,700		12,807
Interest on held to maturity securities:
Mortgage-backed securities and collateralized mortgage obligations-residential		1,149		1,454		1,844
Corporate bonds		410		617		615
Total interest on held to maturity securities		1,559		2,071		2,459
Federal Reserve Bank and Federal Home Loan Bank stock		544		502		467
Interest on federal funds sold and other short-term investments		6,679		3,407		1,725
Total interest and dividend income		168,960		161,359		159,345
Interest expense:
Interest on deposits		13,190		14,213		14,983
Interest on short-term borrowings		1,402		1,091		1,214
Total interest expense		14,592		15,304		16,197
Net interest income		154,368		146,055		143,148
Provision for loan losses		2,000		2,950		3,700
Net interest income after provision for loan losses		152,368		143,105		139,448
Noninterest income:
Trustco Financial Services income		6,584		5,886		5,971
Fees for services to customers		10,798		10,857		10,689
Net gain on securities transactions		-		668		251
Other		991		1,601		961
Total noninterest income		18,373		19,012		17,872
Noninterest expense:
Salaries and employee benefits		40,665		36,508		32,521
Net occupancy expense		16,543		16,078		15,799
Equipment expense		6,118		6,320		6,871
Professional services		6,895		8,200		7,878
Outsourced services		6,410		6,216		5,860
Advertising expense		2,578		2,515		2,593
FDIC and other insurance expense		4,179		5,967		6,339
Other real estate expense, net		1,171		2,558		2,001
Other		9,435		9,465		10,698
Total noninterest expense		93,994		93,827		90,560
Income before income taxes		76,747		68,290		66,760
Income taxes		33,602		25,689		24,522
Net income	$	43,145		42,601		42,238
Earnings per share:
Basic	$	0.449		0.446		0.444
Diluted		0.448		0.445		0.444

See accompanying notes to consolidated financial statements.

Page 39 of 106

TRUSTCO BANK CORP NY

Consolidated Statements of Comprehensive Income

(dollars in thousands, except per share data)

	Years Ended December 31,
	2017			2016			2015
Net income	$	43,145			42,601			42,238
Net unrealized holding gain (loss) on securities available for sale		2,524			(3,096	)		(1,079	)
Reclassification adjustments for net gain recognized in income		-			(688	)		(251	)
Tax effect		(792	)		1,514			531
Net unrealized gain (loss) on securities available for sale, net of tax		1,732			(2,270	)		(799	)
Change in overfunded position in pension and postretirement plans arising during the year		3,824			1,333			711
Tax effect		(812	)		(533	)		(281	)
Change in overfunded position in pension and postretirement plans arising during the year, net of tax		3,012			800			430
Amortization of net actuarial (gain) loss		(289	)		(90	)		70
Amortization of prior service cost		90			90			90
Tax effect		(100	)		-			(63	)
Amortization of net actuarial loss (gain) and prior service cost (credit) on pension and postretirement plans, net of tax		(299	)		-			97
Other comprehensive income (loss), net of tax		4,445			(1,470	)		(272	)
Comprehensive income	$	47,590			41,131			41,966

See accompanying notes to consolidated financial statements.

Page 40 of 106

TRUSTCO BANK CORP NY

Consolidated Statements of Condition

(dollars in thousands, except per share data)

	As of December 31,
	2017			2016
ASSETS
Cash and due from banks	$	44,125			48,719
Federal funds sold and other short term investments		568,615			658,555
Total cash and cash equivalents		612,740			707,274
Securities available for sale		571,965			620,360
Held to maturity securities ($28,701 and $47,526 fair value at December 31, 2017 and 2016, respectively)		27,551			45,490
Federal Reserve Bank and Federal Home Loan Bank stock		8,779			9,579
Loans, net of deferred net costs		3,636,407			3,430,586
Less: Allowance for loan losses		44,170			43,890
Net loans		3,592,237			3,386,696
Bank premises and equipment, net		35,157			35,466
Other assets		59,579			63,941
Total assets	$	4,908,008			4,868,806
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand	$	398,399			377,755
Savings accounts		1,260,447			1,271,449
Interest-bearing checking		891,052			815,534
Money market deposit accounts		556,462			571,962
Time accounts		1,066,966			1,159,463
Total deposits		4,173,326			4,196,163
Short-term borrowings		242,991			209,406
Accrued expenses and other liabilities		33,383			30,551
Total liabilities		4,449,700			4,436,120
Commitments and contingent liabilities
SHAREHOLDERS' EQUITY:
Capital stock: $1 par value; 150,000,000 shares authorized, 99,998,482 and 99,214,382 shares issued at December 31, 2017 and 2016, respectively		99,998			99,214
Surplus		175,651			171,425
Undivided profits		219,436			201,517
Accumulated other comprehensive loss, net of tax		(1,806	)		(6,251	)
Treasury stock: 3,709,171 and 3,434,205 shares, at cost, at December 31, 2017 and 2016, respectively		(34,971	)		(33,219	)
Total shareholders' equity		458,308			432,686
Total liabilities and shareholders' equity	$	4,908,008			4,868,806

See accompanying notes to consolidated financial statements.

Page 41 of 106

(dollars in thousands, except per share data)
	Capital Stock		Surplus			Undivided Profits			Accumulated Other Comprehensive Loss			Treasury Stock			Total
Beginning balance, January 1, 2015		98,945		172,353			166,745			(4,509	)		(40,090	)		393,444
Net Income		-		-			42,238			-			-			42,238
Change in other comprehensive income, net of tax		-		-			-			(272	)		-			(272	)
Stock option exercises		28		119			-			-			-			147
Cash dividend declared, $.2625 per share		-		-			(24,974	)		-			-			(24,974	)
Purchase of treasury stock (38,390 shares)		-		-			-			-			(147	)		(147	)
Sale of treasury stock (414,881 shares)		-		(1,233	)		-			-			3,903			2,670
Stock based compensation expense		-		204			-			-			-			204
Ending balance, December 31, 2015	$	98,973		171,443			184,009			(4,781	)		(36,334	)		413,310
Net Income		-		-			42,601			-			-			42,601
Change in other comprehensive loss, net of tax		-		-			-			(1,470	)		-			(1,470	)
Stock option exercises		241		1,127			-			-			-			1,368
Cash dividend declared, $.2625 per share		-		-			(25,093	)		-			-			(25,093	)
Purchase of treasury stock (22,364 shares)		-		-			-			-			(701	)		(701	)
Sale of treasury stock (398,431 shares)		-		(1,369	)		-			-			3,816			2,447
Stock based compensation expense		-		224			-			-			-			224
Ending balance, December 31, 2016	$	99,214		171,425			201,517			(6,251	)		(33,219	)		432,686
Net Income		-		-			43,145			-						43,145
Change in other comprehensive income (loss), net of tax		-		-			-			4,445						4,445
Stock option exercises		784		4,452			-			-						5,236
Cash dividend declared, $.2625 per share		-		-			(25,226	)		-						(25,226	)
Purchase of treasury stock (574,256 shares)		-		-			-			-			(4,608	)		(4,608	)
Sale of treasury stock (299,290 shares)		-		(376	)		-			-			2,856			2,480
Stock based compensation expense		-		150			-			-						150
Ending balance, December 31, 2017	$	99,998		175,651			219,436			(1,806	)		(34,971	)		458,308

See accompanying notes to consolidated financial statements.

Page 42 of 106

TRUSTCO BANK CORP NY

Consolidated Statements of Cash Flows

(dollars in thousands, except per share data)

	Years Ended December 31,
	2017			2016			2015
Cash flows from operating activities:
Net income	$	43,145			42,601			42,238
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		3,816			4,038			4,554
Net gain on sale of other real estate owned		(924	)		(298	)		(373	)
Writedown of other real estate owned		1,071			1,242			1,143
Provision for loan losses		2,000			2,950			3,700
Deferred tax (benefit) expense		(183	)		3,261			3,011
Net amortization of securities		4,326			4,986			5,486
Stock based compensation expense		150			224			204
Net loss (gain) on sale of bank premises and equipment		43			(480	)		-
Net gain on securities transactions		-			(668	)		(251	)
Decrease (increase) in taxes receivable		6,124			(921	)		3,510
(Increase) decrease in interest receivable		(371	)		(808	)		538
Increase (decrease) in interest payable		11			25			(47	)
Decrease in other assets		(310	)		(1,677	)		(4,168	)
Increase in accrued expenses and other liabilities		2,792			419			463
Total adjustments		18,545			12,293			17,770
Net cash provided by operating activities		61,690			54,894			60,008
Cash flows from investing activities:
Proceeds from sales and calls of securities available for sale		124,624			245,929			254,955
Purchases of securities available for sale		(83,031	)		(275,303	)		(189,823	)
Proceeds from maturities of securities available for sale		5,000			1,949			4,025
Proceeds from calls and maturities of held to maturity securities		17,939			10,975			14,481
Purchases of Federal Reserve Bank and Federal Home Loan Bank stock		(143	)		(99	)		(252	)
Proceeds from redemptions of Federal Reserve Bank and Federal Home Loan Bank stock		943			-			-
Net increase in loans		(212,028	)		(146,629	)		(148,532	)
Net proceeds from sale of building held for sale		-			-			-
Proceeds from dispositions of other real estate owned		5,362			6,768			7,511
Proceeds from dispositions of bank premises and equipment		63			674			112
Purchases of bank premises and equipment		(3,613	)		(2,055	)		(3,744	)
Net cash used in investing activities		(144,884	)		(157,791	)		(61,267	)
Cash flows from financing activities:
Net (decrease) increase in deposits		(22,837	)		95,785			68,137
Net increase in short-term borrowings		33,585			18,180			2,110
Proceeds from exercise of stock options		5,237			1,368			147
Proceeds from sales of treasury stock		2,480			2,447			2,670
Purchases of treasury stock		(4,608	)		(701	)		(147	)
Dividends paid		(25,197	)		(25,064	)		(24,950	)
Net cash (used in) provided by financing activities		(11,340	)		92,015			47,967
Net (decrease) increase in cash and cash equivalents		(94,534	)		(10,882	)		46,708
Cash and cash equivalents at beginning of period		707,274			718,156			671,448
Cash and cash equivalents at end of period	$	612,740			707,274			718,156

Page 43 of 106

Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for:
Interest paid	$	14,581		15,279		16,244
Income taxes paid		26,127		23,494		21,005
Non cash investing and financing activites:
Transfer of loans to real estate owned		4,487		5,525		8,295
Transfer of other real estate owned to fixed assets		-		-		-
Increase in dividends payable		29		29		24
Change in unrealized gain (loss) on securities available for sale - gross of deferred taxes		2,524		(3,784	)	(1,330	)
Change in deferred tax effect on unrealized (loss) gain on securities available for sale, net of reclassification adjustment		(792	)	1,514		531
Amortization of net actuarial loss and prior service credit on pension and post retirement plans, gross of deferred taxes		(199	)	-		160
Change in deferred tax effect of amortization of net actuarial loss and prior service credit on pension and post retirement plans		(100	)	-		(63	)
Change in overfunded portion of pension and post retirement benefit plans (ASC 715) - gross of deferred taxes		3,824		1,333		711
Deferred tax effect of change in overfunded portion of pension and post retirement benefit plans (ASC 715)		(812	)	(533	)	(281	)

See accompanying notes to consolidated financial statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) Basis of Presentation

The accounting and financial reporting policies of TrustCo Bank Corp NY (the Company or TrustCo), ORE Subsidiary Corp., Trustco Bank (referred to as Trustco Bank or the Bank), and its wholly owned subsidiaries, Trustco Realty Corporation, Trustco Insurance Agency, Inc., ORE Property, Inc. and its subsidiaries ORE Property One, Inc. and ORE Property Two, Inc. conform to general practices within the banking industry and are in conformity with U.S. generally accepted accounting principles. A description of the more significant policies follows.

Consolidation

The consolidated financial statements of the Company include the accounts of the subsidiaries after elimination of all significant intercompany accounts and transactions.

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Securities Available for Sale and Held to Maturity

Securities available for sale are carried at fair value with any unrealized appreciation or depreciation of value, net of tax, included as an element of accumulated other comprehensive income or loss in shareholders’ equity. Management maintains an available for sale portfolio in order to provide maximum flexibility in balance sheet management. The designation of available for sale is made at the time of purchase based upon management’s intent to hold the securities for an indefinite period of time. These securities, however, are available for sale in response to changes in market interest rates, related changes in liquidity needs, or changes in the availability of and yield on alternative investments. Unrealized losses on securities that reflect a decline in value which is other-than-temporary, if any, are charged to earnings and/or accumulated other comprehensive income (loss).

Debt securities that management has the positive intent and ability to hold until maturity are classified as held to maturity and are carried at their remaining unpaid principal balance, net of unamortized premiums or unaccreted discounts.

The cost of debt securities is adjusted for amortization of premium and accretion of discount using the interest method. Premiums and discounts on securities are amortized on the interest method over the estimated remaining term of the underlying security without anticipating prepayments, except for mortgage backed securities where prepayments are anticipated.

Gains and losses on the sale of securities available for sale are recorded at trade date and determined using the specific identification method.

Other-Than-Temporary-Impairment (“OTTI”)

A decline in the fair value of any available for sale or held to maturity security below cost that is deemed to be other than temporary is charged to earnings and/or accumulated other comprehensive income (loss), resulting in the establishment of a new cost basis of the security. Management evaluates these types of securities for OTTI at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. Additional discussion of OTTI is included in Note 3 of the consolidated financial statements.

Federal Reserve Bank (FRB) and Federal Home Loan Bank (FHLB) stock

The Bank is a member of the FHLB system. Members are required to own a certain amount of stock based on the level of borrowings and other factors, and may invest in additional amounts. FHLB stock is carried at cost, classified as a restricted security, and periodically evaluated for impairment based on ultimate recovery of par value. Dividends are reported as income. The Bank is also a member of its regional Federal Reserve Bank. FRB stock is carried at cost, classified as a restricted security, and periodically evaluated for impairment based on ultimate recovery of par value. Any dividends received are reported as income.

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Loans

Loans are carried at the principal amount outstanding net of unearned income and unamortized loan fees and costs, which are recognized as adjustments to interest income over the applicable loan term. Interest income on loans is accrued based on the principal amount outstanding.

Nonperforming loans include non-accrual loans and loans which are three payments or more past due and still accruing interest. Generally, loans are placed in non-accrual status either due to the delinquent status of principal and/or interest payments, or a judgment by management that, although payments of principal and/or interest are current, such action is prudent based upon specific facts and circumstances surrounding the borrower. Typically, a loan is moved to non-accrual status after 90 days of non-payment in accordance with the Company’s policy. Past due status is based on the contractual terms of the loan. All interest accrued but not received for loans placed on non-accrual status is reversed against interest income. Future payments received on nonperforming loans are recorded as interest income or principal reductions based upon management’s ultimate expectation for collection. Loans may be removed from non-accrual status when they become current as to principal and interest and have demonstrated a sustained ability to make loan payments in accordance with the contractual terms of the loan. Loans may also be removed from non-accrual status when, in the opinion of management, the loan is expected to be fully collectable as to principal and interest. When, in the opinion of management, the collection of principal appears unlikely, the loan balance is evaluated in light of its sources of repayment, and a charge-off is recorded when appropriate.

Loan origination fees, net of certain direct origination costs, are deferred and recognized using the level yield method without anticipating prepayments.

Allowance for Loan Losses

The allowance for loan losses is maintained at a level considered adequate by management to provide for probable incurred loan losses. The allowance is increased by provisions charged against income, while loan losses are charged against the allowance when management deems a loan balance to be uncollectible. Subsequent recoveries, if any, are credited to the allowance.

The Company performs an analysis of the adequacy of the allowance on at least a quarterly basis. Management estimates the allowance balance required using past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations, current economic conditions, past due and charge-off trends and other factors. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for loan losses. Such agencies may require the Company to change the allowance based on their judgments of information available to them at the time of their examination. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management’s judgment, should be charged off. The allowance methodology consists of specific and general components. The specific component relates to loans that are individually classified as impaired.

A loan is impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. Additionally, loans for which the terms have been modified resulting in a concession, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings (TDR’s) and classified as impaired.

Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.

TDR’s are measured at the present value of estimated future cash flows using the loan’s effective rate at inception. If a TDR is considered to be a collateral dependent loan, the loan is reported at the fair value of the collateral with any charge-off recognized at that time. For TDR’s that subsequently default, the Company determines the amount of additional charge-off, if any, in accordance with the accounting policy for the allowance for loan losses with respect to impaired loans described previously.

Commercial and commercial real estate loans in non-accrual status are defined as impaired loans and are individually evaluated for impairment. In addition, any restructured loans that meet the definition of a TDR are defined as impaired. If a loan is impaired, a charge-off is taken so that the loan is reported at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral, if repayment is expected solely from the collateral. Residential real estate loans and consumer loans are collectively evaluated for impairment.

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The general component of the allowance covers non-impaired loans and is based on historical loss experience adjusted for current factors. The historical loss experience is determined by geography for each portfolio segment and is based on the actual net loss history experienced by the Company over the most recent four years. This actual loss experience is supplemented with other qualitative factors based on the risks present in each geography and portfolio segment. These factors include consideration of the following: changes in national, regional and local economic trends and conditions; effects of any changes in interest rates; changes in the volume and severity of net charge-offs, delinquencies, and nonperforming loans; changes in the experience, ability, and depth of lending management and other relevant staff; changes in the quality of the Company’s loan review system; effects of any changes in credit concentrations; effects of any changes in underwriting standards, lending policies, procedures, and practices; and changes in the nature, volume and terms of loans.  Changes in the volume and severity of net charge-offs, delinquencies, and nonperforming loans includes consideration of levels and trends of loan delinquencies and net charge-offs by portfolio segment.

The Company’s allowance methodology also includes additional allocation percentages for residential and installment loans in non-accrual status and residential and installment loans three payments past due and still accruing interest, and residential loans with loan-to-value ratios in excess of 90% at the time of origination. Additional allocation percentages are applied to commercial loans classified as special mention and substandard by the Company’s loan review grading process that are not considered as impaired to recognize the added risk associated with these loans.    The reserve percentages are determined based upon a review of recent charge-offs and take into consideration the type of loan, the fixed or variable nature of the loan, and the type and geography of the underlying collateral, if any, specifically for loans that are in these categories.

The following portfolio segments have been identified: commercial loans, residential real estate loans, and installment loans:

Commercial:

Commercial real estate loans and other commercial loans are made based primarily on the identified cash flow of the borrower and secondarily on the underlying collateral provided by the borrower. Commercial real estate collateral is generally located within the Bank’s geographic territories; while collateral for non-real estate secured commercial loans is typically accounts receivable, inventory, and/or equipment. Repayment is primarily dependent upon the borrower’s ability to service the debt based upon cash flows generated from the underlying business. Additional support involves liquidation of the pledged collateral and enforcement of a personal guarantee, if a guarantee is obtained.

Residential real estate:

Residential real estate loans, including first mortgages, home equity loans and home equity lines of credit, are collateralized by first or second liens on one-to-four family residences generally located within the Bank’s market areas. Proof of ownership title, clear mortgage title, and hazard insurance coverage are normally required.

Installment:

The Company’s installment loans are primarily made up of installment loans, personal lines of credit, as well as secured and unsecured credit cards. The installment loans represent a relatively small portion of the loan portfolio and are primarily used for personal expenses and are secured by automobiles, equipment and other forms of collateral, while personal lines of credit are unsecured as are most credit card loans.

Bank Premises and Equipment

Premises and equipment are stated at cost less accumulated depreciation. Depreciation is computed on either the straight-line or accelerated methods over the remaining useful lives of the assets; generally 20 to 40 years for buildings, 3 to 7 years for furniture and equipment, and the shorter of the estimated life of the asset or the lease term for leasehold improvements.

Other Real Estate Owned

Assets that are acquired through or instead of foreclosure are initially recorded at fair value less costs to sell.  These assets are subsequently accounted for at the lower of cost or fair value less costs to sell.  Subsequent write downs and gains and losses on sale are included in noninterest expense. Operating costs after acquisition are also included in noninterest expense.   At December 31, 2017 and 2016, there were $3.2 million and $4.3 million, respectively, of other real estate owned included in the category of Other Assets in the accompanying Consolidated Statements of Condition.

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Income Taxes

Deferred taxes are recorded for the future tax consequences of events that have been recognized in the financial statements or tax returns based upon enacted tax laws and rates. Deferred tax assets are recognized subject to management’s judgment that realization is more likely than not.  The amount recognized is the largest amount of tax benefit that has a greater than 50% likelihood of being realized on examination.  For tax positions not meeting the “more likely than not” test, no benefit is recorded.

Dividend Restrictions

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 and the filing of notices or applications with the Bank’s and the Company’s regulators. The Bank’s primary regulator may disapprove a dividend if: the Bank would be undercapitalized following the distribution; the proposed capital distribution raises safety and soundness concerns; or the capital distribution would violate a prohibition contained in any statue, regulation or agreement between the Bank and a regulator or a condition imposed in a previously approved application or notice. Currently the Bank meets the regulatory definition of a well-capitalized institution. During 2018, the Bank could declare dividends of approximately $68.2 million plus any 2018 net profits retained to the date of the dividend declaration.

Benefit Plans

The Company has a defined benefit pension plan covering substantially all of its employees. The benefits are based on years of service and the employee’s compensation. This plan was frozen as of December 31, 2006.

The Company has a postretirement benefit plan that permits retirees under age 65 to participate in the Company’s medical plan by which retirees pay all of their premiums.

Under certain employment contracts with selected executive officers, the Company is obligated to provide postretirement benefits to these individuals once they attain certain vesting requirements.

The Company recognized in the Consolidated Statement of Condition the funded status of the pension plan and postretirement benefit plan with an offset, net of tax, recorded in accumulated other comprehensive loss.

Stock-Based Compensation Plans

The Company has stock-based compensation plans for employees and directors. Compensation cost is recognized for stock options and restricted stock awards issued to employees and directors based on the fair value of these awards at the date of grant. A Black-Scholes model is utilized to estimate the fair value of stock options while, for restricted stock awards, the fair value of the Company’s common stock at the date of grant is used.

Compensation cost for stock options and restricted stock awards to be settled in stock are recognized over the required service period generally defined as the vesting period. The expense is recognized over the shorter of each award’s vesting period or the retirement date for any awards that vest immediately upon eligible retirement.

Awards to be settled in cash based on the fair value of the Company’s stock at vesting are treated as liability based awards.

Compensation costs for liability based awards are re-measured at each reporting date and recognized over the vesting period. For awards with performance based conditions, compensation cost is recognized over the performance period based on the Company’s expectation of the likelihood of meeting the specific performance criteria.

Earnings Per Share

Basic earnings per common share is net income divided by the weighted average number of common shares outstanding during the period. All outstanding unvested share-based payment awards that contain rights to non-forfeitable dividends are considered participating securities for this calculation. Diluted earnings per common share includes the dilutive effect of additional potential common shares issuable under stock options.  At December 31, 2017, 2016, and 2015, the Company did not have any unvested awards that would be considered participating securities.

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Reclassification of Prior Year Statements

It is the Company’s policy to reclassify prior year consolidated financial statements to conform to the current year presentation.

Segment Reporting

The Company’s operations are exclusively in the financial services industry and include the provision of traditional banking services. Management evaluates the performance of the Company based on only one business segment, that of community banking. The Company operates primarily in the geographical region of Upstate New York with branches also in Florida and the mid-Hudson valley region of New York. In the opinion of management, the Company does not have any other reportable segments as defined by “Accounting Standards Codification” (ASC) Topic 280, “Disclosure about Segments of an Enterprise and Related Information”.

Cash and Cash Equivalents

The Company classifies cash on hand, cash due from banks, Federal Funds sold, and other short-term investments as cash and cash equivalents for disclosure purposes.

Trust Assets

Assets under management with the Trustco Financial Services Department are not included in the Company’s consolidated financial statements because Trustco Financial Services holds these assets in a fiduciary capacity.

Comprehensive Income (Loss)

Comprehensive income (loss) represents the sum of net income and items of other comprehensive income or loss, which are reported directly in shareholders’ equity, net of tax, such as the change in net unrealized gain or loss on securities available for sale and changes in the funded position of the pension and postretirement benefit plans. Accumulated other comprehensive income or loss, which is a component of shareholders’ equity, represents the net unrealized gain or loss on securities available for sale, net of tax and the funded position in the Company’s pension plan and postretirement benefit plans, net of tax.

Fair Value of Financial Instruments

Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in Note 13. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect these estimates.

(2) Balances at Other Banks

The Company is required to maintain certain reserves of vault cash and/or deposits with the Federal Reserve Bank. The amount of this reserve requirement, included in cash and due from banks and federal funds sold and other short-term investments, was approximately $ 34.5 million and $32.3 million at December 31, 2017 and 2016, respectively.

(3) Investment Securities

(a) Securities available for sale

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

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(dollars in thousands)	December 31, 2017
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
U.S. government sponsored enterprises	$	139,890		27		2,066		137,851
State and political subdivisions		515		10		-		525
Mortgage backed securities and collateralized mortgage obligations - residential		320,614		84		4,715		315,983
Corporate bonds		40,270		-		108		40,162
Small Business Administration-guaranteed participation securities		68,921		-		1,862		67,059
Mortgage backed securities and collateralized mortgage obligations - commercial		9,810		-		110		9,700
Other		650		-		-		650
Total debt securities		580,670		121		8,861		571,930
Equities		35						35
Total securities available for sale	$	580,705		121		8,861		571,965

(dollars in thousands)	December 31, 2016
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
U.S. government sponsored enterprises	$	119,887		-		2,621		117,266
State and political subdivisions		873		13		-		886
Mortgage backed securities and collateralized mortgage obligations - residential		378,068		123		5,883		372,308
Corporate bonds		40,956		-		251		40,705
Small Business Administration- guaranteed participation securities		81,026		-		2,527		78,499
Mortgage backed securities and collateralized mortgage obligations - commercial		10,130		-		119		10,011
Other		650		-		-		650
Total securities		631,590		136		11,401		620,325
Equities		35						35
Total securities available for sale	$	631,625		136		11,401		620,360

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The following table distributes the amortized cost and fair value of debt securities included in the available for sale portfolio as of December 31, 2017, 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 are shown separately:

(dollars in thousands)	Amortized Cost		Fair Value
Due in one year or less	$	45,783		45,739
Due in one year through five years		135,483		133,390
Due after five years through ten years		59		59
Due after ten years		-		-
Mortgage backed securities and collateralized mortgage obligations - residential		320,614		315,983
Small Business Administration- guaranteed participation securities		68,921		67,059
Mortgage backed securities and collateralized mortgage obligations - commercial		9,810		9,700
	$	580,670		571,930

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:

(dollars in thousands)	December 31, 2017
	Less than 12 months				12 months or more				Total
	Fair Value		Gross Unreal. Loss		Fair Value		Gross Unreal. Loss		Fair Value		Gross Unreal. Loss
U.S. government sponsored enterprises	$	29,734		266		98,090		1,800		127,824		2,066
Mortgage backed securities and collateralized mortgage obligations - residential		48,080		371		266,394		4,344		314,474		4,715
Corporate bonds		-		-		40,162		108		40,162		108
Small Business Administration- guaranteed participation securities		-		-		67,059		1,862		67,059		1,862
Mortgage backed securities and collateralized mortgage obligations - commercial		-				9,700		110		9,700		110
Total	$	77,814		637		481,405		8,224		559,219		8,861

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(dollars in thousands)	December 31, 2016
	Less than 12 months				12 months or more				Total
	Fair Value		Gross Unreal. Loss		Fair Value		Gross Unreal. Loss		Fair Value		Gross Unreal. Loss
U.S. government sponsored enterprises	$	102,266		2,621		-		-		102,266		2,621
Mortgage backed securities and collateralized mortgage obligations - residential		359,622		5,766		4,713		117		364,335		5,883
Small Business Administration- guaranteed participation securities		40,705		251		-		-		40,705		251
Mortgage backed securities and collateralized mortgage obligations - commercial		64,560		1,960		13,940		567		78,500		2,527
		10,011		119		-		-		10,011		119
Total	$	577,164		10,717		18,653		684		595,817		11,401

The proceeds from sales and calls of securities available for sale, gross realized gains and gross realized losses from sales and calls during 2017, 2016 and 2015 are as follows:

(dollars in thousands)	Year ended December 31,
	2017		2016		2015
Proceeds from sales	$	-		44,829		22,945
Proceeds from calls		124,624		201,100		232,010
Gross realized gains		-		668		251
Gross realized losses		-		-		-

Tax expense recognized on net gains on sales of securities available for sale were approximately $267 thousand, and $100 thousand for the years ended December 31, 2016, and 2015, respectively.

The amount of securities that have been pledged to secure short-term borrowings and for other purposes amounted to $326.5 million and $264.8 million at December 31, 2017 and 2016, respectively.

(b) Held to maturity securities

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

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(dollars in thousands)	December 31, 2017
	Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses		Fair Value
Mortgage backed securities and collateralized mortgage obligations - residential	$	27,551		1,150		-		28,701
Corporate bonds		-		-		-		-
Total held to maturity	$	27,551		1,150		-		28,701

(dollars in thousands)	December 31, 2016
	Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses		Fair Value
Mortgage backed securities and collateralized mortgage obligations - residential	$	35,500		1,736		-		37,236
Corporate bonds		9,990		300		-		10,290
Total held to maturity	$	45,490		2,036		-		47,526

The following table distributes the debt securities included in the held to maturity portfolio as of December 31, 2017, 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 shown separately.

(dollars in thousands)	Amortized Cost		Fair Value
Mortgage backed securities and collateralized mortgage obligations - residential	$	27,551		28,701
	$	27,551		28,701

There were no held to maturity securities with gross unrecognized losses as of December 31, 2017 and 2016.  There were no sales or transfers of held to maturity securities during 2017 and 2016.

(c) Concentrations

The Company has the following balances of securities held in the available for sale and held to maturity portfolios as of December 31, 2017 that represent greater than 10% of shareholders’ equity:

(dollars in thousands)	Amortized Cost		Fair Value
Federal Home Loan Mortgage Corporation	$	112,564		111,183
Federal National Mortgage Association		260,882		257,386
Government National Mortgage Association		68,921		67,059
Small Business Administration		50,000		49,414

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(d) Other-Than-Temporary-Impairment

Management evaluates securities for other-than-temporary impairment (“OTTI”) at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. The investment securities portfolio is evaluated for OTTI by segregating the portfolio by type and applying the appropriate OTTI model. Investment securities classified as available for sale or held-to-maturity are generally evaluated for OTTI under ASC 320 “Investments – Debt and Equity Securities.”

In determining OTTI under the FASB ASC 320 model, management considers many factors, including: (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, (3) whether the market decline was affected by macroeconomic conditions, and (4) whether the Company has the intent to sell the debt security or more likely than not will be required to sell the debt security before its anticipated recovery. The assessment of whether any other-than-temporary decline exists involves a high degree of subjectivity and judgment and is based on the information available to management at a point in time.

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

As of December 31, 2017, 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 December 31, 2017.

Mortgage backed securities and collateralized mortgage obligations - residential

At December 31, 2017, 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 December 31, 2017.

Corporate Bonds

At December 31, 2017, 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 December 31, 2017.

Small Business Administration (SBA) - guaranteed participation securities

At December 31, 2017, 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 December 31, 2017.

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Mortgage backed securities and collateralized mortgage obligations - commercial

As of December 31, 2017, all of the mortgage backed securities and collateralized mortgage obligations held by the Company were issued by U.S. government sponsored entities and agencies, are current as to the payment of interest and principal and the Company expects to collect the full amount of the principal and interest payments. 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 December 31, 2017.

As a result of the above analysis, for the year ended December 31, 2017, the Company did not recognize any other-than-temporary impairment losses for credit or any other reason.

(4) Loans and Allowance for Loan Losses

The following tables present the recorded investment in loans by loan class:

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

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

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

Page 55 of 106

At December 31, 2017 and 2016, the Company had approximately $30.9 million and $24.8 million of real estate construction loans, respectively. Of the $30.9 million in real estate construction loans at December 31, 2017, approximately $21.1 million were secured by first mortgages to residential borrowers with the remaining $9.8 million were to commercial borrowers for residential construction projects.  Of the $24.8 million in real estate construction loans at December 31, 2016, approximately $16.3 million are secured by first mortgages to residential borrowers while approximately $8.5 million were to commercial borrowers for residential construction projects.  The vast majority of construction loans are in the Company’s New York market.

At December 31, 2017 and 2016, loans to executive officers, directors, and to associates of such persons aggregated $6.9 million and $7.6 million, respectively. During 2017, approximately $3.6 million of new loans were made and repayments of loans totaled approximately $4.3 million.  The composition of related parties changed during the year resulting in a reduction of approximately $100 thousand to outstanding loans to related parties at December 31, 2017.   All loans are current according to their terms.

TrustCo lends in the geographic territory of its branch locations in New York, Florida, Massachusetts, New Jersey and Vermont. Although the loan portfolio is diversified, a portion of its debtors’ ability to repay depends significantly on the economic conditions prevailing in the respective geographic territory.

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

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

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

The Company transfers loans to other real estate owned, at fair value less cost to sell, in the period the Company obtains physical possession of the property (through legal title or through a deed in lieu).  As of December 31, 2017 and December 31, 2016, other real estate owned included $2.7 million and $3.5 million, respectively, of residential foreclosed properties. In addition, non-accrual residential mortgage loans that are in the process of foreclosure had a recorded investment of $12.6 million and $12.5 million as of December 31, 2017 and December 31, 2016, respectively.

Page 56 of 106

The following tables present the aging of the recorded investment in past due loans by loan class and by region as of December 31, 2017 and 2016:

New York and other states:
	December 31, 2017
(dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		90+ Days Past Due		Total 30+ days Past Due		Current		Total Loans
Commercial:
Commercial real estate	$	183		174		1,332		1,689		147,679		149,368
Other		-		-		100		100		23,506		23,606
Real estate mortgage - 1 to 4 family:
First mortgages		5,669		1,300		9,014		15,983		2,270,165		2,286,148
Home equity loans		6		-		45		51		66,404		66,455
Home equity lines of credit		489		18		2,139		2,646		260,629		263,275
Installment		46		17		25		88		7,053		7,141
Total	$	6,393		1,509		12,655		20,557		2,775,436		2,795,993

Florida:

(dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		90+ Days Past Due		Total 30+ days Past Due		Current		Total Loans
Commercial:
Commercial real estate	$	-		-		-		-		12,524		12,524
Other		-		-		-		-		709		709
Real estate mortgage - 1 to 4 family:
First mortgages		277		-		1,404		1,681		764,248		765,929
Home equity loans		-		-		-		-		13,989		13,989
Home equity lines of credit		-		-		-		-		45,641		45,641
Installment		3		5		26		34		1,588		1,622
Total	$	280		5		1,430		1,715		838,699		840,414

Total:

(dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		90 + Days Past Due		Total 30+ days Past Due		Current		Total Loans
Commercial:
Commercial real estate	$	183		174		1,332		1,689		160,203		161,892
Other		-		-		100		100		24,215		24,315
Real estate mortgage - 1 to 4 family:
First mortgages		5,946		1,300		10,418		17,664		3,034,413		3,052,077
Home equity loans		6		-		45		51		80,393		80,444
Home equity lines of credit		489		18		2,139		2,646		306,270		308,916
Installment		49		22		51		122		8,641		8,763
Total	$	6,673		1,514		14,085		22,272		3,614,135		3,636,407

Page 57 of 106

New York and other states:
	December 31, 2016
(dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		90 + Days Past Due		Total 30+ days Past Due		Current		Total Loans
Commercial:
Commercial real estate	$	50		43		1,706		1,799		149,567		151,366
Other		-		-		-		-		27,539		27,539
Real estate mortgage - 1 to 4 family:
First mortgages		6,379		2,924		9,643		18,946		2,139,958		2,158,904
Home equity loans		50		3		74		127		60,765		60,892
Home equity lines of credit		685		111		1,839		2,635		283,951		286,586
Installment		34		32		15		81		6,967		7,048
Total	$	7,198		3,113		13,277		23,588		2,668,747		2,692,335

Florida:

(dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		90 + Days Past Due		Total 30+ days Past Due		Current		Total Loans
Commercial:
Commercial real estate	$	-		-		-		-		12,243		12,243
Other		-		-		-		-		46		46
Real estate mortgage - 1 to 4 family:
First mortgages		1,942		69		1,255		3,266		661,917		665,183
Home equity loans		19		-		-		19		10,735		10,754
Home equity lines of credit		-		-		156		156		48,099		48,255
Installment		30		6		-		36		1,734		1,770
Total	$	1,991		75		1,411		3,477		734,774		738,251

Total:

(dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		90 + Days Past Due		Total 30+ days Past Due		Current		Total Loans
Commercial:
Commercial real estate	$	50		43		1,706		1,799		161,810		163,609
Other		-		-		-		-		27,585		27,585
Real estate mortgage - 1 to 4 family:
First mortgages		8,321		2,993		10,898		22,212		2,801,875		2,824,087
Home equity loans		69		3		74		146		71,500		71,646
Home equity lines of credit		685		111		1,995		2,791		332,050		334,841
Installment		64		38		15		117		8,701		8,818
Total	$	9,189		3,188		14,688		27,065		3,403,521		3,430,586

At December 31, 2017 and 2016, there were no loans that are 90 days past due and still accruing interest. As a result, non-accrual loans includes all loans 90 days past due and greater as well as certain loans less than 90 days past due that were placed in non-accruing status for reasons other than delinquent status. There are no commitments to extend further credit on nonaccrual or restructured loans.

Page 58 of 106

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

(dollars in thousands)	For the year ended December 31, 2017
	Commercial			Real Estate Mortgage- 1 to 4 Family		Installment		Total
Balance at beginning of period	$	4,929			38,231		730		43,890
Loans charged off:
New York and other states*		72			2,053		200		2,325
Florida		-			167		19		186
Total loan chargeoffs		72			2,220		219		2,511
Recoveries of loans previously charged off:
New York and other states*		96			596		26		718
Florida		-			73		-		73
Total recoveries		96			669		26		791
Net loans charged off		(24	)		1,551		193		1,720
Provision for loan losses		(629	)		2,397		232		2,000
Balance at end of period	$	4,324			39,077		769		44,170

(dollars in thousands)	For the year ended December 31, 2016
	Commercial		Real Estate Mortgage- 1 to 4 Family		Installment		Total
Balance at beginning of period	$	4,491		39,753		518		44,762
Loans charged off:
New York and other states*		795		3,447		303		4,545
Florida		-		126		39		165
Total loan chargeoffs		795		3,573		342		4,710
Recoveries of loans previously charged off:
New York and other states*		207		613		64		884
Florida		-		4		-		4
Total recoveries		207		617		64		888
Net loans charged off		588		2,956		278		3,822
Provision for loan losses		1,026		1,434		490		2,950
Balance at end of period	$	4,929		38,231		730		43,890

(dollars in thousands)	For the year ended December 31, 2015
	Commercial		Real Estate Mortgage- 1 to 4 Family		Installment		Total
Balance at beginning of period	$	4,071		42,088		168		46,327
Loans charged off:
New York and other states*		779		4,631		168		5,578
Florida		-		320		17		337
Total loan chargeoffs		779		4,951		185		5,915
Recoveries of loans previously charged off:
New York and other states*		20		572		46		638
Florida		7		5		-		12
Total recoveries		27		577		46		650
Net loans charged off		752		4,374		139		5,265
Provision for loan losses		1,172		2,039		489		3,700
Balance at end of period	$	4,491		39,753		518		44,762

The following tables present the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of December 31, 2017 and 2016:

Page 59 of 106

	December 31, 2017
(dollars in thousands)	Commercial Loans		1-to-4 Family Residential Real Estate		Installment Loans		Total
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	-		-		-		-
Collectively evaluated for impairment		4,324		39,077		769		44,170
Total ending allowance balance	$	4,324		39,077		769		44,170
Loans:
Individually evaluated for impairment	$	2,248		22,032		-		24,280
Collectively evaluated for impairment		183,959		3,419,405		8,763		3,612,127
Total ending loans balance	$	186,207		3,441,437		8,763		3,636,407

	December 31, 2016
(dollars in thousands)	Commercial Loans		1-to-4 Family Residential Real Estate		Installment Loans		Total
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	-		-		-		-
Collectively evaluated for impairment		4,929		38,231		730		43,890
Total ending allowance balance	$	4,929		38,231		730		43,890
Loans:
Individually evaluated for impairment	$	2,418		21,607		-		24,025
Collectively evaluated for impairment		188,776		3,208,967		8,818		3,406,561
Total ending loans balance	$	191,194		3,230,574		8,818		3,430,586

The Company has identified nonaccrual commercial and commercial real estate loans, as well as all loans restructured under a troubled debt restructuring (TDR), as impaired loans. A loan is considered impaired when it is probable that the borrower will be unable to repay the loan according to the original contractual terms of the loan agreement or the loan is restructured in a TDR.

A loan for which the terms have been modified, and for which the borrower is experiencing financial difficulties, is considered a TDR and is classified as impaired. TDR’s at December 31, 2017 and 2016 are measured at the present value of estimated future cash flows using the loan’s effective rate at inception or the fair value of the underlying collateral if the loan is considered collateral dependent.

Page 60 of 106

The following tables present impaired loans by loan class as of December 31, 2017 and 2016:

New York and other states:

	December 31, 2017
(dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		YTD Avg Recorded Investment
Commercial:
Commercial real estate	$	2,148		3,120		-		2,711
Other		100		100		-		87
Real estate mortgage - 1 to 4 family:
First mortgages		15,850		16,540		-		16,508
Home equity loans		270		291		-		263
Home equity lines of credit		2,606		2,847		-		2,193
Total	$	20,974		22,898		-		21,762

Florida:
(dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		YTD Avg Recorded Investment
Commercial:
Commercial real estate	$	-		-		-		-
Other		-		-		-		-
Real estate mortgage - 1 to 4 family:
First mortgages		2,707		2,813		-		2,335
Home equity loans		89		89		-		92
Home equity lines of credit		510		510		-		561
Total	$	3,306		3,412		-		2,988

Total:
(dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		YTD Avg Recorded Investment
Commercial:
Commercial real estate	$	2,148		3,120		-		2,711
Other		100		100		-		87
Real estate mortgage - 1 to 4 family:
First mortgages		18,557		19,353		-		18,843
Home equity loans		359		380		-		355
Home equity lines of credit		3,116		3,357		-		2,754
Total	$	24,280		26,310		-		24,750

Page 61 of 106

New York and other states:
	December 31, 2016
(dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		YTD Avg Recorded Investment
Commercial:
Commercial real estate	$	2,418		3,470		-		2,214
Other		-		-		-		-
Real estate mortgage - 1 to 4 family:
First mortgages		16,675		17,439		-		15,665
Home equity loans		269		305		-		251
Home equity lines of credit		1,999		2,160		-		1,806
Total	$	21,361		23,374		-		19,936

Florida:
(dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		YTD Avg Recorded Investment
Commercial:
Commercial real estate	$	-		-		-		-
Other		-		-		-		-
Real estate mortgage - 1 to 4 family:
First mortgages		2,009		2,100		-		1,800
Home equity loans		94		94		-		81
Home equity lines of credit		561		633		-		591
Total	$	2,664		2,827		-		2,472

Total:
(dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		YTD Avg Recorded Investment
Commercial:
Commercial real estate	$	2,418		3,470		-		2,214
Other		-		-		-		-
Real estate mortgage - 1 to 4 family:
First mortgages		18,684		19,539		-		17,465
Home equity loans		363		399		-		332
Home equity lines of credit		2,560		2,793		-		2,397
Total	$	24,025		26,201		-		22,408

The Company has not committed to lend additional amounts to customers with outstanding loans that are classified as impaired. Interest income recognized on impaired loans was not material in 2017, 2016, and 2015.

Included in impaired loans as of December 31, 2017 and 2016 are approximately $11.8 million and $11.5 million, respectively, of loans in accruing status that were identified as TDR’s.

Management evaluates impairment on impaired loans on a quarterly basis. If, during this evaluation, impairment of the loan is identified, a charge-off is taken at that time if necessary. As a result, as of December 31, 2017 and 2016, based upon management’s evaluation and due to the sufficiency of charge-offs taken, none of the allowance for loan losses has been allocated to a specific impaired loan(s).

Page 62 of 106

The following table presents modified loans by class that were determined to be TDR’s that occurred during the years ended December 31, 2017, 2016 and 2015:

The following table presents modified loans by class that were determined to be TDR's that occurred:

	Year ended 12/31/2017						Year ended 12/31/2016						Year ended 12/31/2015
New York and other states*:			Pre- Modification		Post- Modification				Pre- Modification		Post-Modification				Pre- Modification		Post- Modification
(dollars in thousands)	Number of Contracts		Outstanding Recorded Investment		Outstanding Recorded Investment		Number of Contracts		Outstanding Recorded Investment		Outstanding Recorded Investment		Number of Contracts		Outstanding Recorded Investment		Outstanding Recorded Investment
Commercial:
Commercial real estate		4	$	426		426		2	$	401		401		-	$	-		-
Real estate mortgage - 1 to 4 family:
First mortgages		44		5,653		5,653		30		2,871		2,871		35		4,797		4,797
Home equity loans		3		56		56		1		44		44		1		137		137
Home equity lines of credit		18		868		868		10		402		402		7		506		506
Total		69	$	7,003		7,003		43	$	3,718		3,718		43	$	5,440		5,440

Florida:			Pre- Modification		Post-Modification				Pre- Modification		Post- Modification				Pre- Modification		Post- Modification
(dollars in thousands)	Number of Contracts		Outstanding Recorded Investment		Outstanding Recorded Investment		Number of Contracts		Outstanding Recorded Investment		Outstanding Recorded Investment		Number of Contracts		Outstanding Recorded Investment		Outstanding Recorded Investment
Real estate mortgage - 1 to 4 family:
First mortgages		10		1,076		1,076		4		504		504		6		780		780
Home equity loans		-		-		-		1		45		45		-		-		-
Home equity lines of credit		2		95		95		1		6		6		4		107		107
Total		12	$	1,171		1,171		6	$	555		555		10	$	887		887

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

The following table presents loans by class modified as TDR’s that occurred during the years ended December 31, 2017, 2016 and 2015 for which there was a payment default within 12 months of modification:

	Year ended 12/31/2017				Year ended 12/31/2016				Year ended 12/31/2015
New York and other states*:	Number of Contracts		Recorded Investment		Number of Contracts		Recorded Investment		Number of Contracts		Recorded Investment
(dollars in thousands)
Real estate mortgage - 1 to 4 family:
First mortgages		1		72		3		291		2		148
Home equity lines of credit		1		3		1		141		2		24
Total		2	$	75		4	$	432		4	$	172

Florida:

Number of Contracts

Recorded Investment

Number of Contracts

Recorded Investment

Number of Contracts

Recorded Investment

(dollars in thousands)

Real estate mortgage - 1 to 4 family:

First mortgages

-

$

-

-

$

-

-

$

-

Home equity lines of credit

-

-

-

-

-

-

Total

-

$

-

-

$

-

-

$

-

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 may not reaffirm the debt.

A loan is considered to be in payment default once it is 90 days contractually past due under the modified terms. In situations involving a borrower filing for Chapter 13 bankruptcy protection, however, a loan is considered to be in payment default once it is 30 days contractually past due, consistent with the treatment by the bankruptcy court.

The TDR’s that subsequently defaulted described above did not have a material impact on the allowance for loan losses as the underlying collateral was evaluated at the time these loans were identified as TDR’s, 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.

Page 63 of 106

The Company categorizes non-homogenous loans such as commercial and commercial real estate 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, in accordance with the Company’s Loan Policy, the Company analyzes non-homogeneous loans, individually by grading the loans based on credit risk. The loan grades assigned to all loan types are tested by the Company’s loan review department in accordance with the Company’s loan review policy.

The Company uses the following definitions for classified loans:

Special Mention: Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the Company’s credit position at some future date.

Substandard: Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

Doubtful: Loans classified as doubtful have all the weaknesses inherent in those loans classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. All doubtful loans are considered impaired.

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

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

Page 64 of 106

	December 31, 2017
New York and other states:
(dollars in thousands)
	Pass		Classified		Total
Commercial:
Commercial real estate	$	140,806		8,562		149,368
Other		21,936		1,670		23,606
	$	162,742		10,232		172,974

Florida:
(dollars in thousands)
	Pass		Classified		Total
Commercial:
Commercial real estate	$	12,406		118		12,524
Other		709		-		709
	$	13,115		118		13,233

Total:
(dollars in thousands)
	Pass		Classified		Total
Commercial:
Commercial real estate	$	153,212		8,680		161,892
Other		22,645		1,670		24,315
	$	175,857		10,350		186,207

Page 65 of 106

	December 31, 2016
New York and other states:
(dollars in thousands)
	Pass		Classified		Total
Commercial:
Commercial real estate	$	136,676		14,690		151,366
Other		25,442		2,097		27,539
	$	162,118		16,787		178,905

Florida:
(dollars in thousands)
	Pass		Classified		Total
Commercial:
Commercial real estate	$	12,243		-		12,243
Other		46		-		46
	$	12,289		-		12,289

Total:
(dollars in thousands)
	Pass		Classified		Total
Commercial:
Commercial real estate	$	148,919		14,690		163,609
Other		25,488		2,097		27,585
	$	174,407		16,787		191,194

Included in classified loans in the above tables are impaired loans of $1.5 million and $1.8 million at December 31, 2017 and 2016, respectively.

For homogeneous loan pools, such as residential mortgages, home equity lines of credit, and installment loans, the Company uses payment status to identify the credit risk in these loan portfolios. Payment status is reviewed on a daily basis by the Bank’s collection area and on a monthly basis with respect to determining the adequacy of the allowance for loan losses. The payment status of these homogeneous pools at December 31, 2017 and 2016 is included in the aging of the recorded investment of past due loans table. In addition, the total nonperforming portion of these homogeneous loan pools at December 31, 2017 and 2016 is presented in the recorded investment in non-accrual loans table.

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(5) Bank Premises and Equipment

A summary of premises and equipment at December 31, 2017 and 2016 follows:

(dollars in thousands)
	2017			2016
Land	$	2,308		$	2,308
Buildings		34,599			33,617
Furniture, fixtures and equipment		50,832			49,503
Leasehold improvements		30,275			29,695
Total bank premises and equipment		118,014			115,123
Accumulated depreciation and amortization		(82,857	)		(79,657	)
Total	$	35,157		$	35,466

Depreciation and amortization expense was approximately $3.8 million, $4.0 million, and $4.6 million for the years 2017, 2016, and 2015, respectively. Occupancy expense of the Bank’s premises included rental expense of $7.8 million in 2017, $7.6 million in 2016, and $7.5 million in 2015.

(6) Deposits

Interest expense on deposits was as follows:

(dollars in thousands)	For the year ended December 31,
	2017		2016		2015
Interest bearing checking accounts	$	478	$	473		448
Savings accounts		1,729		2,148		2,468
Time deposits and money market accounts		10,983		11,592		12,067
Total	$	13,190	$	14,213		14,983

At December 31, 2017, the maturity of total time deposits is as follows:

(dollars in thousands)
Under 1 year	$	652,270
1 to 2 years		392,618
2 to 3 years		15,849
3 to 4 years		1,585
4 to 5 years		4,474
Over 5 years		170
	$	1,066,966

Included in total time deposits as of December 31, 2017 and 2016 is $ 136.8 million and $144.2 million in time deposits with balances in excess of $250,000.

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(7) Short-Term Borrowings

Short-term borrowings of the Company were cash management accounts as follows:

(dollars in thousands)	2017			2016			2015
Amount outstanding at December 31,	$	242,991			209,406			191,226
Maximum amount outstanding at any month end		252,996			209,406			194,738
Average amount outstanding		228,086			185,672			184,725
Weighted average interest rate:
For the year		0.61	%		0.59	%		0.66
As of year end		0.62			0.59			0.60

Cash management accounts represent retail accounts with customers for which the Bank has pledged certain assets as collateral.

Trustco Bank also has an available line of credit with the Federal Home Loan Bank of New York which approximates the balance of securities and/or loans pledged against such borrowings. The line of credit requires securities and/or loans to be pledged as collateral for the amount borrowed. As of December 31, 2017 and 2016, the Company had no outstanding borrowings with the Federal Home Loan Bank of New York.

Trustco Bank is approved to borrow on a short-term basis from the Federal Reserve Bank of New York. The Bank can pledge certain securities to the Federal Reserve Bank to support this arrangement. As of December 31, 2017 and 2016, the Bank had no outstanding borrowings and loans with the Federal Reserve Bank of New York.

(8) Income Taxes

A summary of income tax expense included in the Consolidated Statements of Income follows:

(dollars in thousands)	For the year ended December 31,
	2017			2016		2015
Current tax expense:
Federal	$	26,510		$	20,904		19,864
State		2,221			1,524		1,647
Total current tax expense		28,731			22,428		21,511
Enactment of Federal Tax Reform		5,054			-		-
Deferred tax  (benefit) expense		(183	)		3,261		3,011
Total income tax expense	$	33,602		$	25,689		24,522

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The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2017 and 2016, are as follows:

	December 31,
(dollars in thousands)	2017			2016
	Deductible temporary differences			Deductible temporary differences
Benefits and deferred remuneration	$	(4,087	)	$	(5,474	)
Difference in reporting the allowance for loan losses, net		12,002			18,117
Other income or expense not yet reported for tax purposes		(327	)		129
Depreciable assets		(325	)		(638	)
Net deferred tax asset at end of year		7,263			12,134
Net deferred tax asset at beginning of year		12,134			15,395
Enactment of Federal Tax Reform		5,054			-
Deferred tax expense	$	(183	)	$	3,261

Deferred tax assets are recognized subject to management’s judgment that realization is more likely than not. Based primarily on the sufficiency of historical and expected future taxable income, management believes it is more likely than not that the remaining deferred tax asset of $7.3 million and $12.1 million at December 31, 2017 and 2016, respectively, will be realized.

In addition to the deferred tax items described in the preceding table, the Company has deferred tax assets of $2.3 million and $4.4 million at December 31, 2017 and 2016, respectively, relating to the net unrealized losses on securities available for sale and deferred tax (liabilities) assets of ($1.2) million and ($339) thousand at December 31, 2017 and 2016, respectively, as a result of changes in the unrecognized overfunded position in the Company’s pension and postretirement benefit plans recorded, net of tax, as an adjustment to accumulated other comprehensive loss.

The effective tax rates differ from the statutory federal income tax rate. The reasons for these differences are as follows:

	For the years ended December 31,
	2017			2016			2015
Statutory federal income tax rate		35.0	%		35.0	%		35.0
Increase/(decrease) in taxes resulting from:
Tax exempt income		(0.1	)		(0.1	)		(0.1	)
State income tax (including alternative minimum tax), net of federal tax benefit		1.6			1.8			1.8
Enactment of Tax Reform		6.6
Other items		0.7			0.9			-
Effective income tax rate		43.8	%		37.6			36.7

On a periodic basis, the Company evaluates its income tax positions based on tax laws and regulations and financial reporting considerations, and records adjustments as appropriate. This evaluation takes into consideration the status of taxing authorities’ current examinations of the Company’s tax returns, recent positions taken by the taxing authorities on similar transactions, if any, and the overall tax environment in relation to uncertain tax positions.

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The Company does not anticipate a material charge to the amount of unrecognized tax benefits in the next twelve months.

The Company recognizes interest and/or penalties related to income tax matters in noninterest expense. For the years 2017, 2016, and 2015, these amounts were not material. The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction as well as in various states. In the normal course of business, the Company is subject to U.S. federal, state, and local income tax examinations by tax authorities.  The Company's federal and state income tax returns for the years 2014 through 2017 remain open to examination.

On December 22, 2017 H.R.1, commonly known as the Tax Cuts and Jobs Act (the “Act”), was signed into law. The Act includes many provisions that will affect our income tax expense, including reducing our federal tax rate from 35% to 21%, effective January 1, 2018. As a result of this rate reduction, we are required to re-measure, through income tax expense in the period of enactment, our deferred tax assets and liabilities using the enacted rate at which we expect them to be recovered or settled. The re-measurement of our net deferred tax asset resulted in additional 2017 income tax expense of $5.1 million.

Also on December 22, 2017, the U.S. Securities and Exchange Commission (“SEC”) released Staff Accounting Bulletin No. 118 (“SAB 118”) to address any uncertainty or diversity of views in practice in accounting for the income tax effect of the Act in situations where a registrant does not have the necessary information available, prepared, or analyzed in reasonable detail to complete this accounting in the reporting period that includes the enactment date. SAB 118 allows for a measurement period, not to extend beyond one year of the Act’s enactment date, to complete the necessary accounting.

The Company recorded provisional amounts of deferred income taxes using reasonable estimates in two areas where the information necessary to determine the final deferred tax asset or liability was either not available, not prepared, or, not sufficiently analyzed as of the report filing date: 1) The Company’s deferred tax liability for temporary differences between the tax and financial reporting bases of fixed assets is awaiting completion and implementation of software updates to process the calculations associated with the Act’s provisions allowing for 100% bonus depreciation on fixed assets placed in service after September 27, 2017. 2) Our deferred tax asset for temporary difference associated with accrued compensation is awaiting final determinations of amounts that will be paid on or before March 15, 2018 and deducted on the 2017 income tax returns.

In a third area, The Company made no adjustments to deferred tax assets representing future deductions for accrued compensation that may be subject to new limitations under Internal Revenue Code Section 162(m) which, generally, limits, the annual deduction for certain compensation paid to certain employees to $1 million. As of the report filing date, there is uncertainty regarding how the newly-enacted rules in this area apply to existing contracts. Consequently, The Company is seeking further clarification of these matters before completing the analysis.

The Company will complete and record the income tax effects of these provisional items during the period necessary information becomes available. This measurement period will not extend beyond December 22, 2018.

(9) Benefit Plans

(a) Retirement Plan

The Company maintains a trusteed non-contributory pension plan covering employees that have completed one year of employment and 1,000 hours of service. The benefits are based on the sum of (a) a benefit equal to a prior service benefit plus the average of the employees’ highest five consecutive years’ compensation in the ten years preceding retirement multiplied by a percentage of service after a specified date plus (b) a benefit based upon career average compensation. The amounts contributed to the plan are determined annually on the basis of (a) the maximum amount that can be deducted for federal income tax purposes or (b) the amount certified by a consulting actuary as necessary to avoid an accumulated funding deficiency as defined by the Employee Retirement Income Security Act of 1974. Contributions are intended to provide for benefits attributed to service to date. Assets of the plan are administered by Trustco Bank’s Financial Services Department. This plan was frozen as of December 31, 2006.

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The following tables set forth the plan’s funded status and amounts recognized in the Company’s consolidated statements of condition at December 31, 2017 and 2016:

Change in Projected Benefit Obligation:	December 31,
(dollars in thousands)	2017			2016
Projected benefit obligation at beginning of year	$	30,730			30,889
Service cost		42			61
Interest cost		1,303			1,371
Benefit payments and expected expenses		(2,050	)		(1,782	)
Net actuarial loss		1,194			191
Projected benefit obligation at end of year	$	31,219			30,730

Change in Plan Assets and Reconciliation of Funded Status:	December 31,
(dollars in thousands)	2017			2016
Fair Value of plan assets at beginning of year	$	43,100			41,677
Actual gain on plan assets		6,169			3,187
Benefit payments and actual expenses		(2,042	)		(1,764	)
Fair value of plan assets at end of year		47,227			43,100
Funded status at end of year	$	16,008			12,370

Amounts recognized in accumulated other comprehensive loss consist of the following as of:

	December 31,
	2017		2016
Net actuarial  loss	$	2,972		5,279

The accumulated benefit obligation was $31.2 million and $30.7 million at December 31, 2017 and 2016, respectively.

 Components of Net Periodic Pension Income and Other Amounts Recognized in Other Comprehensive (Loss) Income:

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Components of Net Periodic Pension (Credit) Expense and Other Amounts

Recognized in Other Comprehensive Income:

(dollars in thousands)	For the years ended December 31,
	2017			2016			2015
Service cost	$	42			61			60
Interest cost		1,303			1,371			1,329
Expected return on plan assets		(2,742	)		(2,648	)		(2,735	)
Amortization of net loss		67			184			210
Net periodic pension credit		(1,330	)		(1,032	)		(1,136	)
Amortization of net loss		(67	)		(184	)		(210	)
Net actuarial (gain) loss included in other comprehensive (loss) income		(2,240	)		(367	)		(109	)
Total recognized in other comprehensive loss		(2,307	)		(551	)		(319	)
Total recognized in net periodic benefit (credit) cost and other comprehensive (loss) income	$	(3,637	)		(1,583	)		(1,455	)

The estimated net loss for the plan that will be amortized from accumulated other comprehensive loss into net periodic benefit income over the next fiscal year is $67 thousand.

Estimated Future Benefit Payments

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid:

(dollars in thousands)
Year	Pension Benefits
2018	$	1,773
2019		1,802
2020		1,839
2021		1,894
2022		1,875
2023 - 2027		9,327

The assumptions used to determine benefit obligations at December 31 are as follows:

	2017			2016		2015
Discount rate		3.93	%		4.41		4.55

The assumptions used to determine net periodic pension expense (benefit) for the years ended December 31 are as follows:

	2017			2016		2015
Discount rate		4.41	%		4.55		4.03
Expected long-term rate of return on assets		6.50			6.50		6.50

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The annual rate assumption used for purposes of computing the service and interest costs components is determined based upon factors including the yields on high quality corporate bonds and other appropriate yield curves along with analysis prepared by the Company’s actuaries.

(b) Supplemental Retirement Plan

The Company also has a supplementary pension plan under which additional retirement benefits are accrued for eligible executive officers. This plan supplements the defined benefit retirement plan for eligible employees that exceed the Internal Revenue Service limit on the amount of pension payments that are allowed from a retirement plan. The supplemental plan provides eligible employees with total benefit payments as calculated by the retirement plan without regard to this limitation. Benefits under this plan are calculated using the same actuarial assumptions and interest rates as used for the retirement plan calculations. The accumulated benefits under this supplementary pension plan was approximately $5.6 million as of December 31, 2017 and 2016. Effective as of December 31, 2008, this plan has been frozen and no additional benefits will accrue. Instead, the amount of the Company’s annual contribution to the plan plus interest is paid directly to each eligible employee. The expense recorded for this plan was $1.1 million, $1.0 million, and $1.0 million, in 2017, 2016, and 2015, respectively.

Rabbi trusts have been established for this plan. These trust accounts are administered by the Trustco Financial Services Department and invest primarily in bonds issued by government-sponsored enterprises and money market instruments. These assets are recorded at their fair value and are included in short-term investments in the Consolidated Statements of Condition. As of December 31, 2017 and 2016, the trusts had assets totaling $5.6 million.

(c) Postretirement Benefits

The Company permits retirees under age 65 to participate in the Company’s medical plan by making certain payments.  In addition, the plan provides a death benefit to certain eligible employees and retirees.

In 2003, the Company amended the medical plan to reflect changes to the retiree medical insurance coverage portion. The Company’s subsidy of the retiree medical insurance premiums was eliminated at that time. The Company continues to provide postretirement medical benefits for a limited number of executives in accordance with their employment contracts.

The following tables show the plan’s funded status and amounts recognized in the Company’s Consolidated Statements of Condition at December 31, 2017 and 2016:

Page 73 of 106

Change in Accumulated Benefit Obligation:	December 31,
(dollars in thousands)	2017			2016
Accumulated benefit obligation at beginning of year	$	5,120			5,434
Service cost		103			116
Interest cost		218			221
Benefits paid		(93	)		(70	)
Net actuarial loss (gain)		265			(581	)
Accumulated benefit obligation at end of year	$	5,613			5,120

Change in Plan Assets and Reconciliation of Funded Status:	December 31,
(dollars in thousands)	2017			2016
Fair value of plan assets at beginning of year	$	20,338			19,238
Actual gain on plan assets		2,611			1,104
Company contributions		66			66
Benefits paid		(93	)		(70	)
Fair value of plan assets at end of year		22,922			20,338
Funded status at end of year	$	17,309			15,218

	December 31,
Amounts recognized in accumulated other comprehensive loss consist of the following as of:	2017			2016
Net actuarial gain	$	(5,810	)		(4,581	)
Prior service credit		(1,636	)		(1,547	)
Total	$	(7,446	)		(6,128	)

The accumulated benefit obligation was $5.6 million and $5.1 million at December 31, 2017 and 2016, respectively.

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Components of Net Periodic Benefit Income and Other Amounts Recognized in Other Comprehensive (Loss) Income:

	For the years ended December 31,
(dollars in thousands)	2017			2016			2015
Service cost	$	103		$	116			165
Interest cost		218			221			268
Expected return on plan assets		(761	)		(720	)		(722	)
Amortization of net actuarial gain		(356	)		(274	)		(140	)
Amortization of prior service cost		90			90			90
Net periodic benefit credit		(706	)		(567	)		(339	)
Net (gain) loss		(1,584	)		(966	)		(602	)
Amortization of prior service cost		(90	)		(90	)		(90	)
Amortization of net gain		356			274			140
Total amount recognized in other comprehensive (loss) income		(1,318	)		(782	)		(552	)
Total amount recognized in net periodic benefit cost and other comprehensive (loss) income	$	(2,024	)	$	(1,349	)		(891	)

The estimated amount of net gain that will be amortized from accumulated other comprehensive loss into net periodic benefit income over the next fiscal year is approximately $355 thousand while the estimated amount of prior service cost that will be amortized from accumulated other comprehensive loss into net periodic benefit income over the next fiscal year is approximately $90 thousand.

Expected Future Benefit Payments

The following benefit payments are expected to be paid:

(dollars in thousands)
Year	Postretirement Benefits
2018		98
2019		112
2020		117
2021		146
2022		158
2023 - 2027		1,040

The discount rate assumption used to determine benefit obligations at December 31 is as follows:

	2017			2016			2015
Discount rate		3.93	%		4.41	%		4.55

The assumptions used to determine net periodic pension expense (benefit) for the years ended December 31 are as follows:

	2016			2015			2014
Discount rate		4.41	%		4.55	%		4.03
Expected long-term rate of return on assets, net of tax		3.75			3.75			3.75

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The annual rate assumption used for purposes of computing the service and interest costs components is determined based upon factors including the yields on high quality corporate bonds and other appropriate yield curves along with analysis prepared by the Company’s actuaries.

For measurement purposes, a graded annual rate of increase in the per capita cost of covered benefits (i.e., health care cost trend rate) was assumed for 2017 and thereafter. A one percentage point increase in the assumed health care cost in each year would have an approximate $1.2 million impact on the accumulated postretirement benefit obligation as of December 31, 2017, while a 1% decrease would have an approximate ($907) thousand impact. The impact on the interest and service components of net periodic postretirement benefit credit for the year ended December 31, 2017 would be $68 thousand for a one percentage point increase and ($53) thousand for a one percentage point decrease.

(d) Components of Accumulated Other Comprehensive Loss Related to Retirement and Postretirement Benefit Plans

The following table details the change in the components of other comprehensive (loss) income related to the retirement plan and the postretirement benefit plan, at December 31, 2017 and 2016, respectively:

(dollars in thousands)
	December 31, 2017
	Retirement Plan			Post- Retirement Benefit Plan			Total
Change in overfunded position of pension and postretirement benefits	$	(2,240	)		(1,584	)		(3,824	)
Amortization of net actuarial (loss) gain		(67	)		356			289
Amortization of prior service cost		-			(90	)		(90	)
Total	$	(2,307	)		(1,318	)		(3,625	)

	December 31, 2016
	Retirement Plan			Post- Retirement Benefit Plan			Total
Change in overfunded position of pension and postretirement benefits	$	(367	)		(966	)		(1,333	)
Amortization of net actuarial gain (loss)		(184	)		274			90
Amortization of prior service credit		-			(90	)		(90	)
Total	$	(551	)		(782	)		(1,333	)

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(e) Major Categories of Pension and Postretirement Benefit Plan Assets:

The asset allocations of the Company’s pension and postretirement benefit plans at December 31, were as follows:

	Pension Benefit Plan Assets					Postretirement Benefit Plan Assets
	2017			2016		2017		2016
Debt Securities		29	%		31		34		33
Equity Securities		69			64		64		62
Other		2			5		2		6
Total		100	%		100		100		100

The expected long-term rate-of-return on plan assets, noted in sections (a) and (b) above, reflects long-term earnings expectations on existing plan assets. In estimating that rate, appropriate consideration was given to historical returns earned by plan assets and the rates of return expected to be available for reinvestment. Rates of return were adjusted to reflect current capital market assumptions and changes in investment allocations.

The Company’s investment policies and strategies for the pension benefit and postretirement benefit plans prescribe a target allocation of 50% to 70% equity securities, 25% to 40% debt securities, and 0% to 10% for other securities for the asset categories. The Company’s investment goals are to maximize returns subject to specific risk management policies. Its risk management policies permit direct investments in equity and debt securities and mutual funds while prohibiting direct investment in derivative financial instruments. The Company addresses diversification by the use of mutual fund investments whose underlying investments are in domestic and international debt and equity securities. These mutual funds are readily marketable and can be sold to fund benefit payment obligations as they become payable.

Fair Value of Plan Assets:

Fair value is the exchange price that would be received for an asset in the principal or most advantageous market for the asset in an orderly transaction between market participants on the measurement date.

The Company used the following methods and significant assumptions to estimate the fair value of each type of financial instrument:

Equity mutual funds, Fixed Income mutual funds and Debt Securities: The fair values for investment securities are determined by quoted market prices, if available (Level 1). For securities where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2).

The fair value of the plan assets at December 31, 2017and 2016, by asset category, is as follows:

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Retirement Plan

			Fair Value Measurements at December 31, 2017 Using:
	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
(dollars in thousands)
Plan Assets
Cash and cash equivalents	$	1,034		1,034		-		-
Equity mutual funds		32,509		32,509		-		-
U.S. government sponsored enterprises		6,920		-		6,920		-
Corporate bonds		6,163		-		6,163		-
Fixed income mutual funds		601		601		-		-
Total Plan Assets	$	47,227		34,144		13,083		-

Postretirement Benefits

			Fair Value Measurements at December 31, 2017 Using:
	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
(dollars in thousands)
Plan Assets
Cash and cash equivalents	$	409		406		-		-
Equity mutual funds		14,703		14,703		-		-
U.S. government sponsored enterprises		3,512		-		3,512		-
Corporate bonds		3,610		-		3,610		-
State and political subdivisions		688		-		688		-
Total Plan Assets	$	22,922		15,112		7,810		-

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Retirement Plan

			Fair Value Measurements at December 31, 2016 Using:
	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
(dollars in thousands)
Plan Assets
Cash and cash equivalents	$	2,027		2,027		-		-
Equity mutual funds		27,706		27,706		-		-
U.S. government sponsored enterprises		4,233		-		4,233		-
Corporate bonds		8,535		-		8,535		-
Fixed income mutual funds		599		599		-		-
Total Plan Assets	$	43,100		30,332		12,768		-

Postretirement Benefits

			Fair Value Measurements at December 31, 2016 Using:
	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
(dollars in thousands)
Plan Assets
Cash and cash equivalents	$	1,172		1,172		-		-
Equity mutual funds		12,540		12,540		-		-
U.S. government sponsored enterprises		2,049		-		2,049		-
Corporate bonds		3,127		-		3,127		-
State and political subdivisions		1,450		-		1,450		-
Total Plan Assets	$	20,338		13,712		6,626		-

At December 31, 2017 and 2016, the majority of the equity mutual funds included in the plan assets of the retirement plan and postretirement benefit plan consist of large-cap index funds, while the remainder of the equity mutual funds consists of mid-cap, small-cap and international funds.

There were no transfers between Level 1 and Level 2 in 2017 and 2016.

The Company made no contributions to its pension and postretirement benefit plans in 2017 or 2016. The Company does not expect to make any contributions to its pension and postretirement benefit plans in 2018.

(f) Incentive and Bonus Plans

During 2006, the Company amended its profit sharing plan to include a 401(k) feature. Under the 401(k) feature, the Company matches 100% of the aggregate salary contribution up to the first 3% of compensation and 50% of the aggregate contribution of the next 3%. No profit sharing contributions were made in 2017, 2016 or 2015 but were replaced with Company contributions to the 401(k) feature of the plan. Expenses related to the plan aggregated $1.0 million for 2017, $986 thousand in 2016 and $944 thousand in 2015.

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The Company also has an officers and executive incentive plan. The expense of these plans generally are based on the Company’s performance and estimated distributions to participants are accrued during the year and generally paid in the following year. The expense recorded for this plan was $1.9 million, $1.7 million and $715 thousand in 2017, 2016 and 2015, respectively.

The Company has also awarded 1.5 million performance bonus units to the executive officers and directors. These units become vested and exercisable only under a change of control as defined in the plan. The units were awarded based upon the stock price at the time of grant and, if exercised under a change of control, allow the holder to receive the increase in value offered in the exchange over the stock price at the date of grant for each unit, if any. As of December 31, 2017, the weighted average strike price of each unit was $8.81.

(g) Stock-Based Compensation Plans-Equity Awards

Equity awards are types of stock-based compensation that are to be settled in shares. As such, the amount of compensation expense to be paid at the time of settlement is included in surplus in the Consolidated Statement of Condition.

Under the Amended and Restated TrustCo Bank Corp NY 2010 Equity Incentive Plan (Equity Incentive Plan), the Company may grant stock options and restricted stock to its eligible employees for up to approximately 2.3 million shares of common stock, and may make certain other equity based, cash-settled awards (description in section (h) below) for up to the equivalent of approximately 1.4 million shares of common stock.

Under the Amended and Restated TrustCo Bank Corp NY 2010 Directors Equity Incentive Plan (Directors Plan), the Company may grant stock options and restricted stock to its directors for up to approximately 250 thousand shares of common stock, and may make certain other equity based, cash-settled awards (description in section (h) below) for up to the equivalent of approximately 250 thousand shares of common stock.

Under each of these plans, the exercise price of each option equals the fair value of the Company’s stock on the date of grant, and an option’s maximum term is ten years. Options vest over five years from the date the options are granted for the employees plans and they are immediately vested under the directors’ plans. A summary of the status of TrustCo’s stock option awards as of December 31, 2017 and changes during the year then ended, are as follows:

	Outstanding Options
	Number of Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life
Balance, January 1, 2017		2,084,041		$	7.57
New options awarded - 2017		-			-
Expired options - 2017		(553,000	)		-
Options forfeited-2017		(4,000	)		-
Exercised options - 2017		(784,100	)		6.68
Balance, December 31, 2017		742,941		$	6.78	5.8 years

	Exercisable Options
Balance, December 31, 2017		531,641	$	6.77	5.2 years

At December 31, 2017, the intrinsic value of outstanding stock options and vested stock options was approximately $1.6 million and $1.2 million, respectively. The Company expects all unvested options to vest according to plan provisions.

During 2017, 2016 and 2015, options for 784 thousand, 241 thousand and 28 thousand shares of stock were exercised, respectively. The intrinsic value and related tax benefits of stock options exercised in these years was not material.  It is the Company’s policy to generally issue stock for stock option exercises from previously unissued shares of common stock or treasury shares.

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Unrecognized stock-based compensation expense related to non-vested stock options totaled $184 thousand at December 31, 2017. At such date, the weighted-average period over which this unrecognized expense was expected to be recognized was 2.17 years. Income tax benefits recognized in the accompanying Consolidated Statements of Income related to stock-based compensation was approximately $788 thousand.

Valuation of Stock-Based Compensation: The fair value of the Company’s employee and director stock options granted is estimated on the measurement date, which, for the Company, is the date of grant.  The Company did not grant new stock option awards in 2017.

During 2017, 2016 and 2015, the Company recognized $150 thousand, $224 thousand and $204 thousand in stock-based compensation expense related to the equity awards, respectively.

(h) Stock-Based Compensation Plans-Liability Awards

Liability awards are types of stock-based compensation that can be settled in cash (not shares). As such, the amount of compensation expense to be paid at the time of settlement is included in accrued expenses and other liabilities in the Consolidated Statement of Condition. The Company granted both service-based and performance based liability awards in 2017, 2016 and 2015.

The activity for service-based awards during 2017 was as follows:

Restricted share units

	Outstanding Units
Balance, December 31, 2016		215,050
New awards granted		70,650
Forfeited awards		(9,200	)
Awards settled		(63,400	)
Balance, December 31, 2017		213,100

Service-Based Awards: officers During 2017, 2016 and 2015, the Company issued restricted share units to certain eligible officers, executives and its board of directors. The restricted share units do not hold voting powers, are not eligible for common stock dividends. The awards vest in whole units in equal installments from the first through the third year following the award date, beginning November 21, 2018. The 2016 and 2015 awards become 100% vested after three years based upon a cliff-vesting schedule. Upon issuance, the fair value of these awards is the fair value of the Company’s common stock on the grant date. Thereafter, the amount of compensation expense recognized is based on the fair value of the Company’s stock.

During 2017, 2016 and 2015, the Company recognized $633 thousand, $610 thousand and $324 thousand, respectively, in stock-based compensation expense related to these awards. Unrecognized stock-based compensation expense related to the outstanding restricted share units totaled $1.2 million at December 31, 2017.  During 2017, awards granted in 2014 became fully vested and settled.  Awards granted after 2014 were unvested at December 31, 2017.  The weighted average period over which the unrecognized expense is expected to be recognized was approximately 26 months as of December 31, 2017.

The liability related to service-based liability awards totaled $749 thousand and $687 thousand at December 31, 2017 and 2016, respectively.

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The activity for performance-based awards during 2017 was as follows:

Performance share units

	Outstanding Units
Balance, December 31, 2016		357,000
New awards granted		94,600
Awards settled		(81,500	)
Balance, December 31, 2017		370,100

Performance Based Awards: During 2017, 2016 and 2015, the Company issued performance share units to certain eligible officers and executives. These units do not hold voting powers, are not eligible for common stock dividends, and become 100% vested after three years based upon a cliff-vesting schedule. Upon issuance, fair value of these units was the fair value of the Company’s common stock on the grant date. Thereafter, the amount of compensation expense recognized is based upon the Company’s achievement of certain performance criteria in accordance with Plan provisions as well as the fair value of the Company’s stock.

For units granted in 2014, those have been fully vested and unpaid. For units granted subsequent to 2014, all of the units are unvested as of December 31, 2017 and the company expects to meet the required performance criteria of the awards.

During 2017, 2016 and 2015, the Company recognized approximately $1.2 million, $23 thousand and ($48) thousand, respectively, in stock based compensation expense (benefit) related to these units. Unrecognized stock-based compensation expense related to the outstanding performance share units totaled $1.9 million at December 31, 2017.  At December 31, 2017, the units awarded in 2014 were fully vested and unpaid. The weighted average period over which the unrecognized expense is expected to be recognized was approximately 24 months as of December 31, 2017.

The liability related to performance based liability awards totaled $1.5 million and $323 thousand at December 31, 2017 and 2016, respectively.

(i) Stock and Liability Based Compensation Expense

Total compensation expense totaled $1.9 million, $857 thousand and $480 thousand in 2017, 2016 and 2015, respectively, related to awards under the Company’s equity-based compensation plans.

Of the $1.9 million of stock based compensation expense recognized in 2017, $1.8 million related to liability awards as they may be settled in cash instead of shares, while the remaining $151 thousand related to equity awards

Of the $857 thousand of stock based compensation expense recognized in 2016, $633 thousand related to liability awards as they may be settled in cash instead of shares, while the remaining $224 thousand related to equity awards.

Of the $480 thousand of stock based compensation expense recognized in 2015, $276 thousand related to liability awards as they may be settled in cash instead of shares, while the remaining $204 thousand related to equity awards.

Stock-based compensation expense is recognized ratably over the vesting period for all awards. Income tax benefits recognized in the accompanying Consolidated Statements of Income related to stock-based compensation in 2016 and 2015 was approximately $343 thousand and $192 thousand, respectively.

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(10) Commitments and Contingent Liabilities

(a) Leases

The Bank leases certain banking premises. These leases are accounted for as operating leases with minimum rental commitments in the amounts presented below. The majority of these leases contain options to renew.

(dollars in thousands)
2018	$	7,267
2019		7,178
2020		6,916
2021		6,720
2022		5,913
2023 and after		31,803
	$	65,797

(b) Litigation

Existing litigation arising in the normal course of business is not expected to result in any material loss to the Company.

(c) Outsourced Services

The Company contracted with third-party service providers to perform certain banking functions. The outsourced services include data and item processing for the Bank and trust operations. The service expense can vary based upon the volume and nature of transactions processed. Outsourced service expense was $6.4 million for 2017, $6.2 million for 2016 and $5.9 million in 2015. The Company is contractually obligated to pay these third-party service providers approximately $6 to $7 million per year through 2025.

(11) 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”). TrustCo adopted FASB Staff Position on Emerging Issues Task Force 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities, as codified in FASB ASC 260-10 (“ASC 260-10”), which clarified that unvested share-based payment awards that contain nonforfeitable rights to receive dividends or divided equivalents (whether paid or unpaid) are participating securities, and thus, should be included in the two-class method of computing earnings per share (“EPS”). Participating securities under this statement include the unvested employees’ and directors’ restricted stock awards with time-based vesting, which receive nonforfeitable dividend payments. At December 31, 2017, 2016 and 2015, the Company no longer has any unvested awards that would be considered participating securities.

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A reconciliation of the component parts of earnings per share for 2017, 2016 and 2015 follows:

(dollars in thousands, except per share data)
	2017		2016		2015
For the years ended
December 31:
Net income	$	43,145		42,601		42,238
Less: Net income allocated to participating securities		-		-		-
Net income allocated to common shareholders	$	43,145		42,601		42,238
Weighted average common shares outstanding including participating securities		96,111		95,548		95,103
Less: Participating securities		-		-		-
Weighted average common shares		96,111		95,548		95,103
Effect of Dilutive Securities:
Stock Options		111		100		110
Weighted average common shares including potential dilutive shares		96,222		95,648		95,213
Basic EPS	$	0.449		0.446		0.444
Diluted EPS	$	0.448		0.445		0.444

For the year ended December 31, 2017, there were no antidilutive stock options excluded from diluted earnings per share. For the year ended December 31, 2016 and 2015, the weighted average number of antidilutive stock options excluded from diluted earnings per share were approximately 1.4 million. 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.

(12) Off-Balance Sheet Financial Instruments

Loan commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require a fee. Commitments sometimes expire without being drawn upon. Therefore, the total commitment amounts do not necessarily represent future cash requirements. These arrangements have credit risk essentially the same as that involved in extending loans to customers and are subject to the Bank’s normal credit policies, including obtaining collateral. The Bank’s maximum exposure to credit loss for loan commitments, including unused lines of credit, at December 31, 2017 and 2016, was $414.3 million and $462.5 million, respectively. Approximately 80% of these commitments were for variable rate products at the end of 2017 and 2016.

The Company does not issue any guarantees that require liability-recognition or disclosure, other than its standby letters of credit. The Company has issued conditional commitments in the form of standby letters of credit to guarantee payment on behalf of a customer and guarantee the performance of a customer to a third party. Standby letters of credit generally arise in connection with lending relationships. The credit risk involved in issuing these instruments is essentially the same as that involved in extending loans to customers. Contingent obligations under standby letters of credit totaled approximately $3.8 million and $4.6 million at December 31, 2017 and 2016, respectively, and represent the maximum potential future payments the Company could be required to make. Typically, these instruments have terms of 12 months or less and expire unused; therefore, the total amounts do not necessarily represent future cash requirements. Each customer is evaluated individually for creditworthiness under the same underwriting standards used for commitments to extend credit and on-balance sheet instruments. Company policies governing loan collateral apply to standby letters of credit at the time of credit extension. Loan-to-value ratios are generally consistent with loan-to-value requirements for other commercial loans secured by similar types of collateral. The fair value of the Company’s standby letters of credit at December 31, 2017 and 2016 was insignificant.

No losses are anticipated as a result of loan commitments or standby letters of credit.

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(13) Fair Value of Financial Instruments

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

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

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

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

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

Securities Available for Sale: The fair value of securities available for sale are 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 2 classification of the inputs for determining fair value. Interest and dividend income is recorded on the accrual method and included in the income statement in the respective investment class under total interest income. Also classified as available for sale securities are equity securities where fair value is determined by quoted market prices and these are designated as Level 1. The Company does not have any securities that would be designated as level 3.

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

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

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

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

	Fair Value Measurements at December 31, 2017 Using:
	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
(dollars in thousands)
Securities available for sale:
U.S. government sponsored enterprises	$	137,851		-	$	137,851		-
State and political subdivisions		525		-		525		-
Mortgage backed securities and collateralized mortgage obligations - residential		315,983		-		315,983		-
Corporate bonds		40,162		-		40,162		-
Small Business Administration- guaranteed participation securities		67,059		-		67,059		-
Mortgage backed securities and collateralized mortgage obligations - commercial		9,700		-		9,700		-
Other		685		35		650		-
Total securities available for sale	$	571,965	$	35	$	571,930	$	-

	Fair Value Measurements at December 31, 2016 Using:
	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
(dollars in thousands)
Securities available for sale:
U.S. government sponsored enterprises	$	117,266	$	-	$	117,266	$	-
State and political subdivisions		886		-		886		-
Mortgage backed securities and collateralized mortgage obligations - residential		372,308		-		372,308		-
Corporate bonds		40,705				40,705
Small Business Administration- guaranteed participation securities		78,499		-		78,499		-
Mortgage backed securities and collateralized mortgage obligations - commercial		10,011		-		10,011		-
Other		685		35		650		-
Total securities available for sale	$	620,360	$	35	$	620,325	$	-

There were no transfers between Level 1 and Level 2 in 2017 and 2016.

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

	Fair Value Measurements at December 31, 2017 Using:
	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Valuation technique	Unobservable inputs	Range (Weighted Average)
(dollars in thousands)
Other real estate owned	$	3,246	$	-	$	-	$	3,246	Sales comparison approach	Adjustments for differences between comparable sales		1% - 14% (7	%)
Impaired loans:
Commercial real estate				-		-		-	Sales comparison approach	Adjustments for differences between comparable sales
Real estate mortgage - 1 to 4 family		844		-		-		844	Sales comparison approach	Adjustments for differences between comparable sales		5% - 14% (10	%)

	Fair Value Measurements at December 31, 2016 Using:
	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Valuation technique	Unobservable inputs	Range (Weighted Average)
(dollars in thousands)
Other real estate owned	$	4,268	$	-	$	-	$	4,268	Sales comparison approach	Adjustments for differences between comparable sales		1% - 14% (7	%)
Impaired loans:
Commercial real estate		1,250		-		-		1,250	Sales comparison approach	Adjustments for differences between comparable sales		7% - 35% (23	%)
Real estate mortgage - 1 to 4 family		458		-		-		458	Sales comparison approach	Adjustments for differences between comparable sales		5% - 14% (10	%)

Other real estate owned, which is carried at fair value less costs to sell, was approximately $3.2 million at December 31, 2017, and consisted of $541 thousand of commercial real estate and $2.7 million of residential real estate properties. A valuation charge of $1.1 million is included in earnings for the year ended December 31, 2017.

Of the total impaired loans of $24.1 million at December 31, 2017, $844 thousand 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, 2017. Gross charge-offs related to residential impaired loans included in the table above amounted to $151 thousand.

Other real estate owned, which is carried at fair value less costs to sell, was approximately $4.3 million at December 31, 2016, and consisted of $756 thousand of commercial real estate and $3.5 million of residential real estate properties. A valuation charge of $1.2 million is included in earnings for the year ended December 31, 2016.

Of the total impaired loans of $24.0 million at December 31, 2016, $1.7 million 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, 2016. Gross charge-offs related to commercial impaired loans included in the table above were $482 thousand for the year ended December 31, 2016, while gross charge-offs related to residential impaired loans included in the table above amounted to $226 thousand.

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In accordance with ASC 825, the carrying amounts and estimated fair values of financial instruments at December 31, 2017 and 2016 are as follows:

(dollars in thousands)	Carrying		Fair Value Measurements at December 31, 2017 Using:
	Value		Level 1		Level 2		Level 3		Total
Financial assets:
Cash and cash equivalents	$	612,740		612,740		-		-		612,740
Securities available for sale		571,965		35		571,930		-		571,965
Held to maturity securities		27,551		-		28,701		-		28,701
Federal Reserve Bank and Federal Home Loan Bank stock		8,779		N/A		N/A		N/A		N/A
Net loans		3,592,237		-		-		3,598,213		3,598,213
Accrued interest receivable		11,441		243		2,440		8,758		11,441
Financial liabilities:
Demand deposits		398,399		398,399		-		-		398,399
Interest bearing deposits		3,774,927		2,707,961		1,076,213		-		3,784,174
Short-term borrowings		242,991		-		242,991		-		242,991
Accrued interest payable		537		77		460		-		537

(dollars in thousands)	Carrying		Fair Value Measurements at December 31, 2016 Using:
	Value		Level 1		Level 2		Level 3		Total
Financial assets:
Cash and cash equivalents	$	707,274		707,274		-		-		707,274
Securities available for sale		620,360		35		620,325		-		620,360
Held to maturity securities		45,490		-		47,526		-		47,526
Federal Reserve Bank and Federal Home Loan Bank stock		9,579		N/A		N/A		N/A		N/A
Net loans		3,386,696		-		-		3,370,976		3,370,976
Accrued interest receivable		11,070		145		2,654		8,271		11,070
Financial liabilities:
Demand deposits		377,755		377,755		-		-		377,755
Interest bearing deposits		3,818,408		2,658,945		1,156,025		-		3,814,970
Short-term borrowings		209,406		-		209,406		-		209,406
Accrued interest payable		526		82		444		-		526

The specific estimation methods and assumptions used can have a substantial impact on the resulting fair values of financial instruments. Following is a brief summary of the significant methods and assumptions used in estimating fair values:

Cash and Cash Equivalents

The carrying values of these financial instruments approximate fair values and are classified as level 1.

Federal Reserve Bank and Federal Home Loan Bank stock

It is not practical to determine the fair value of Federal Reserve Bank and Federal Home Loan Bank stock due to their restrictive nature.

Securities Held to Maturity

Similar to securities available for sale described previously, the fair value of securities held to maturity are 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 2 classification of the inputs for determining fair value. Interest and dividend income is recorded on the accrual method and included in the income statement in the respective investment class under total interest income. The Company does not have any securities that would be designated as level 3.

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Loans

The fair values of all loans are estimated using discounted cash flow analyses with discount rates equal to the interest rates currently being offered for loans with similar terms to borrowers of similar credit quality resulting in a level 3 classification. Impaired loans are valued at the lower of cost or fair value as described previously. The methods utilized to estimate the fair value of loans do not necessarily represent an exit price.

Deposit Liabilities

The fair values disclosed for noninterest bearing demand deposits, interest bearing checking accounts, savings accounts, and money market accounts are, by definition, equal to the amount payable on demand at the balance sheet date resulting in a level 1 classification. The carrying value of all variable rate certificates of deposit approximates fair value resulting in a level 2 classification. The fair value of fixed rate certificates of deposit is estimated using discounted cash flow analyses with discount rates equal to the interest rates currently being offered on certificates of similar size and remaining maturity resulting in a level 2 classification.

Accrued Interest Receivable/Payable

The carrying amounts of accrued interest approximate fair value resulting in a level 1, level 2 or level 3 classification consistent with the asset or liability that they are associated with.

Short-Term Borrowings and Other Financial Instruments

The fair value of all short-term borrowings, and other financial instruments approximates the carrying value resulting in a level 2 classification.

Financial Instruments with Off-Balance Sheet Risk

The Company is a party to financial instruments with off-balance sheet risk. Such financial instruments consist of commitments to extend financing and standby letters of credit. If the commitments are exercised by the prospective borrowers, these financial instruments will become interest earning assets of the Company. If the commitments expire, the Company retains any fees paid by the prospective borrower. The fair value of commitments is estimated based upon fees currently charged to enter into similar agreements, taking into consideration the remaining terms of the agreements and the present creditworthiness of the borrower. For fixed rate commitments, the fair value estimation takes into consideration an interest rate risk factor. The fair value of these off-balance sheet items approximates the recorded amounts of the related fees, which are considered to be immaterial.

The Company does not engage in activities involving interest rate swaps, forward placement contracts, or any other instruments commonly referred to as derivatives.

(14) Regulatory Capital Requirements

Banks and bank holding companies are subject to regulatory capital requirements administered by federal banking agencies.  Capital adequacy regulations and, additionally for banks, the prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices.  Capital amounts and classifications are also subject to qualitative judgments by regulators.  Failure to meet capital requirements can result in regulatory action.  The final rules implementing Basel Committee on Banking Supervision’s capital guidelines for U.S. banks (Basel III rules) became effective for the Company on January 1, 2015 with full compliance with all of the requirements being phased in over a multi-year schedule, and fully phased in by January 1, 2019.    The capital rules include a capital conservation buffer that is designed to absorb losses during periods of economic stress and to require increased capital levels before capital distributions and certain other payments can be made. Failure to meet the full amount of the buffer will result in restrictions on the Company’s ability to make capital distributions, including dividend payments and stock repurchases, and to pay discretionary bonuses to executive officers. Implementation of the buffer began in January 2016 at the 0.625% level, and the buffer increases 0.625% each year thereafter until it reaches 2.5% on January 1, 2019.  Management believes, as of December 31, 2017, the Company and Bank meet all capital adequacy requirements to which they are subject.

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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 adequately 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 December 31, 2017 and December 31, 2016, 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.

The following is a summary of actual capital amounts and ratios as of December 31, 2017 and 2016, for Trustco Bank:

(dollars in thousands)	As of December 31, 2017					Well			Adequately
	Amount		Ratio			Capitalized(1)			Capitalized(1)(2)
Tier 1 leverage ratio	$	444,931		9.152	%		5.000	%		4.000	%
Common equity Tier 1 capital		444,931		17.460			6.500			5.750
Tier 1 risk-based capital		444,931		17.460			8.000			7.250
Total risk-based capital		476,942		18.720			10.000			9.250

(dollars in thousands)	As of December 31, 2016					Well			Adequately
	Amount		Ratio			Capitalized(1)			Capitalized(1)
Tier 1 leverage ratio	$	424,802		8.829	%		5.000	%		4.000	%
Common equity Tier 1 capital		424,802		17.238			6.500			5.125
Tier 1 risk-based capital		424,802		17.238			8.000			6.625
Total risk-based capital		455,772		18.492			10.000			8.625

(1) Federal regulatory minimum requirements to be considered to be Well Capitalized and Adequately Capitalized

(2) The December 31, 2016 common equity tier 1, tier 1 risk-based, and total risk-based capital ratios include a transition capital conservation buffer of 1.25 percent

The following is a summary of actual capital amounts and ratios as of December 31, 2017 and 2016 for TrustCo on a consolidated basis.

(dollars in thousands)	As of December 31, 2017					Minimum for
	Amount		Ratio			Capital Adequacy plus Capital Conservation Buffer(1)(2)
Tier 1 leverage ratio	$	459,561		9.449	%		4.000	%
Common equity Tier 1 capital		459,561		18.020			5.750
Tier 1 risk-based capital		459,561		18.020			7.250
Total risk-based capital		491,590		19.280			9.250

(dollars in thousands)	As of December 31, 2016					Minimum for
	Amount		Ratio			Capital Adequacy plus Capital Conservation Buffer(1)(2)
Tier 1 leverage ratio	$	438,426		9.110	%		4.000	%
Common equity Tier 1 capital		438,426		17.782			5.125
Tier 1 risk-based capital		438,426		17.782			6.625
Total risk-based capital		469,411		19.038			8.625

(1) Federal regulatory minimum requirements to be considered to be Well Capitalized and Adequately Capitalized

(2) The December 31, 2017 and 2016 common equity tier 1, tier 1 risk-based, and total risk-based capital ratios include a transition capital conservation buffer of 1.25 percent, and 0.625 percent respectively.

Page 90 of 106

(15) Accumulated Other Comprehensive Loss

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

 The following represents the reclassifications out of accumulated other comprehensive loss for the years ended December 31, 2017,2016 and 2015:

	For the year ended 12/31/17
(dollars in thousands)	Balance at 12/31/2016			Other comprehensive income (loss) - before reclassifications		Amount reclassified from accumulated other comprehensive loss			Other comprehensive income (loss) - year ended 12/31/2017			Balance at 12/31/2017
Net unrealized holding loss on securities available for sale, net of tax	$	(6,762	)		1,732					1,732			(5,030	)
Net change in overfunded position in pension and postretirement plans arising during the year, net of tax		42			3,012		-			3,012			3,054
Net change in net actuarial loss and prior service cost on pension and postretirement benefit plans, net of tax		469			-		(299	)		(299	)		170
Accumulated other comprehensive loss, net of tax		(6,251	)		4,744		(299	)		4,445			(1,806	)

	For the year ended 12/31/16
(dollars in thousands)	Balance at 12/31/2014			Other comprehensive (loss) income - before reclassifications			Amount reclassified from accumulated other comprehensive loss			Other comprehensive (loss) income - year ended 12/31/2016			Balance at 12/31/2016
Net unrealized holding gain (loss) on securities available for sale, net of tax	$	(4,492	)		(1,869	)		(401	)		(2,270	)		(6,762	)
Net change in overfunded position in pension and postretirement plans arising during the year, net of tax		(758	)		800			-			800			42
Net change in net actuarial loss and prior service credit on pension and postretirement benefit plans, net of tax		469			-			-			-			469
Accumulated other comprehensive loss, net of tax		(4,781	)		(1,069	)		(401	)		(1,470	)		(6,251	)

	For the year ended 12/31/15
(dollars in thousands)	Balance at 12/31/2014			Other comprehensive (loss) income - before reclassifications			Amount reclassified from accumulated other comprehensive loss			Other comprehensive (loss) Income- year ended 12/31/2015			Balance at 12/31/2015
Net unrealized holding gain (loss) on securities available for sale, net of tax	$	(3,693	)		(648	)		(151	)		(799	)		(4,492	)
Net change in overfunded position in pension and postretirement plans arising during the year, net of tax		(1,188	)		430			-			430			(758	)
Net change in net actuarial loss and prior service credit on pension and postretirement benefit plans, net of tax		372			-			97			97			469
Accumulated other comprehensive loss, net of tax	$	(4,509	)		(218	)		(54	)		(272	)		(4,781	)

Page 91 of 106

(dollars in thousands)	Years Ended December 31,									Affected Line Item
	2017			2016			2015			in Financial Statements
Unrealized gains on securities available for sale
Realized gain on securities transactions	$	-			668			251		Net gain on securities transactions
Income tax expense		-			(267	)		(100	)	Income taxes
Net of tax		-			401			151
Amortization of pension and postretirement benefit items
Amortization of net actuarial gain (loss)		289			90			(70	)	Salaries and employee benefits
Amortization of prior service cost		(90	)		(90	)		(90	)	Salaries and employee benefits
Income tax benefit		100			-			63		Income taxes
Net of tax		299			-			(97	)
Total reclassifications, net of tax	$	299			401			54

(16) Agreement with the Office of the Comptroller of the Currency

On July 21, 2015 Trustco Bank (the “Bank”), the wholly owned subsidiary of TrustCo Bank Corp NY, entered into a formal agreement (the “Agreement”) with the Comptroller of the Currency of the United States (the “OCC”). The Agreement relates to the findings of the OCC following an examination of the Bank. The Agreement requires the Bank to take various actions, within prescribed time frames, with respect to certain areas of the Bank. These include, among others, (i) establishment of a committee of at least three Directors to monitor and coordinate the Bank’s response to the Agreement; (ii) adoption of compliance plans to respond to the Agreement with the assistance of an independent qualified consultant; (iii) evaluation and implementation of improvements in corporate governance with the assistance of an independent qualified consultant; (iv) evaluation and implementation of improvements in internal audit; (v) development of a strategic plan; (vi) development of a revised capital plan consistent with the strategic plan; (vii) development, and implementation of improvements to the Bank’s loan review system; and (viii) such other necessary steps to address the issues and questions noted by the OCC in the Agreement. As noted above, the OCC has terminated the formal agreement with the Bank effective February 7, 2018. As a result of the termination of the agreement, the Bank will not be required to obtain prior OCC approval of proposed dividend payments to the Company, although the Bank will be required to provide prior notice of intended dividends to the Federal Reserve Board and the OCC.

 (17) Recent Accounting Pronouncements

In May 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers (Topic 606)” which implements a common revenue standard that clarifies the principles for recognizing revenue. The core principle of ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract and (v) recognize revenue when (or as) the entity satisfies a performance obligation. In July 2015, FASB deferred the effective date of the ASU by one year which means ASU 2014-09 will be effective for the Company on January 1, 2018.  In addition, the FASB issued targeted updates to clarify specific implementation issues of ASU 2014-09. These updates include ASU No. 2016-08 - Principal versus Agent Considerations (Reporting Revenue Gross versus Net), ASU No. 2016-10 - Identifying Performance Obligations and Licensing and ASU No. 2016-12 - Narrow-Scope Improvements and Practical Expedients. The company has completed the evaluation of the ASU and discovered that a majority of the revenue contracts are not applicable and those that were determined applicable are not material to the financial statements.

The company has completed the evaluation of the ASU and determined that a majority of the revenue line items are not applicable for the ASU.

Wealth Management products and services were evaluated and determined within scope of the ASU requiring the Company to treat services within wealth management contracts as a single performance obligation. The effects of this requirement would not lead to significantly different recognition and measurement outcomes when compared to current accounting practices.

Page 92 of 106

Service charges on deposit accounts and gains on sales of Other Real Estate Owned were evaluated and determined within scope of the ASU, however, would not lead to significantly different recognition and measurement outcomes when compared to current accounting practices.

For those revenue items that were determined within scope, the Company has determined the ASU will not have a significant impact to revenue recognition policies and will not have a material impact on the financial statements upon adoption.

In January 2016, the FASB issued ASU No. 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities” which amended existing guidance to improve accounting standards for financial instruments including clarification and simplification of accounting and disclosure requirements and the requirement for public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes. These amendments are effective for public business entities for annual periods and interim periods within those annual periods beginning after December 15, 2017. The ASU is not expected to significantly impact the Company’s consolidated financial statements and the Company will be making enhanced disclosures for fair value of financial instruments (primarily loans) to comply with the exit price notion as required under the ASU beginning March 31, 2018.

In February 2016, the FASB issued ASU No. 2016-02, “Leases” which amended existing guidance to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. These amendments are effective for public business entities for annual periods and interim periods within those annual periods beginning after December 15, 2018. The Company is evaluating the impact of ASU No. 2016-02 on its consolidated financial statements.

In June 2016, the FASB released ASU 2016-13, “Financial Instruments – Credit Losses” 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 more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. To achieve this objective, the amendments in this update replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. These amendments are effective for public business entities for annual periods and interim periods within those annual periods beginning after December 15, 2019. The ASU represents a significant departure from current GAAP and the Company is evaluating the impact of the ASU on its consolidated financial statements, which includes developing a roadmap for implementation of the new standard.

In February 2018, the FASB issued ASU 2018-02,  “Income statement – Reporting Comprehensive Income (Topic 220) Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income” which will allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act.  These amendments are effective for all entities for fiscal years beginning after December 15, 2018.  For Interim periods within those fiscal years, early adoption of the amendment is permitted including public business entities for reporting periods for which financial statements have not yet been issued. The Company intends to early adopt the ASU in the first quarter of 2018 and will reclassify the stranded tax effect in accumulated other comprehensive income to retained earnings in the period ended March 31, 2018.

Page 93 of 106

(18) Parent Company Only

The following statements pertain to TrustCo Bank Corp NY (Parent Company):

Statements of Comprehensive Income
(dollars in thousands)				Years Ended December 31,
Income:	2017			2016			2015
Dividends and interest from subsidiaries	$	24,510			24,498			24,501
Net gain on securities transactions		-			-			-
Miscellaneous income		-			-			-
Total income		24,510			24,498			24,501
Expense:
Operating supplies		26			21			33
Professional services		122			461			577
Miscellaneous expense		2,573			1,258			664
Total expense		2,721			1,740			1,274
Income before income taxes and subsidiaries' undistributed earnings		21,789			22,758			23,227
Income tax benefit		(1,171	)		(578	)		(405	)
Income before subsidiaries' undistributed earnings		22,960			23,336			23,632
Equity in undistributed earnings of subsidiaries		20,185			19,265			18,606
Net income	$	43,145			42,601			42,238
Change in other comprehensive income (loss)		4,445			(1,470	)		(272	)
Comprehensive income	$	47,590			41,131			41,966

Statements of Condition
(dollars in thousands)	December 31,
Assets:	2017		2016
Cash in subsidiary bank	$	21,773		19,886
Investments in subsidiaries		443,692		419,075
Securities available for sale		35		35
Other assets		771		824
Total assets		466,271		439,820
Liabilities and shareholders' equity:
Accrued expenses and other liabilities		7,964		7,134
Total liabilities		7,964		7,134
Shareholders' equity		458,307		432,686
Total liabilities and shareholders' equity	$	466,271		439,820

Page 94 of 106

Statements of Cash Flows
(dollars in thousands)	Years Ended December 31,
	2017			2016			2015
Increase/(decrease) in cash and cash equivalents:
Cash flows from operating activities:
Net income	$	43,145			42,601			42,238
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in undistributed earnings of subsidiaries		(20,185	)		(19,265	)		(18,606	)
Stock based compensation expense		150			224			204
Net change in other assets and accrued expenses		853			(196	)		(140	)
Total adjustments		(19,182	)		(19,237	)		(18,542	)
Net cash provided by operating activities		23,963			23,364			23,696
Cash flows from financing activities:
Proceeds from exercise of stock options		5,236			1,368			147
Dividends paid		(25,184	)		(25,055	)		(24,937	)
Payments to acquire treasury stock		(4,608	)		(701	)		(147	)
Proceeds from sales of treasury stock		2,480			2,447			2,670
Net cash used in financing activities		(22,076	)		(21,941	)		(22,267	)
Net increase in cash and cash equivalents		1,887			1,423			1,429
Cash and cash equivalents at beginning of year		19,886			18,463			17,034
Cash and cash equivalents at end of year	$	21,773			19,886			18,463

Page 95 of 106

Branch Locations

New York
Airmont Office	Brunswick Office	East Greenbush Office
327 Route 59 East	740 Hoosick Rd.	501 Columbia Tpk.
Airmont, NY	Troy, NY	Rensselaer, NY
Telephone: (845) 357-2435	Telephone: (518) 272-0213	Telephone: (518) 479-7233
Altamont Ave. Office	Campbell West Plaza Office	Elmsford Office
1400 Altamont Ave.	141 West Campbell Rd.	100 Clearbrook Rd.
Schenectady, NY	Rotterdam, NY	Elmsford, NY
Telephone: (518) 356-1317	Telephone: (518) 377-2393	Telephone: (914) 345-1808
Altamont Ave. West Office	Central Ave. Office	Exit 8/Crescent Rd. Office
1900 Altamont Ave.	40 Central Ave.	1532 Crescent Rd.
Rotterdam, NY	Albany, NY	Clifton Park, NY
Telephone: (518) 355-1900	Telephone: (518) 426-7291	Telephone: (518) 383-0039
Amsterdam Office	Chatham Office	Exit 11 Office
4931 Route 30	193 Hudson Ave.	43 Round Lake Rd.
Amsterdam, NY	Chatham, NY	Ballston Lake, NY
Telephone: (518) 842-5459	Telephone: (518) 392-0031	Telephone: (518) 899-1558
Ardsley Office	Clifton Country Road Office	Fishkill Office
33-35 Center St.	7 Clifton Country Rd.	1545 Route 52
Ardsley, NY	Clifton Park, NY	Fishkill, NY
Telephone: (914) 693-3254	Telephone: (518) 371-5002	Telephone: (845) 896-8260
Ballston Spa Office	Clifton Park Office	Freemans Bridge Rd. Office
235 Church Ave.	1026 Route 146	1 Sarnowski Dr.
Ballston Spa, NY	Clifton Park, NY	Glenville, NY
Telephone: (518) 885-1561	Telephone: (518) 371-8451	Telephone: (518) 344-7510
Balltown Road Office	Cobleskill Office	Glenmont Office
1475 Balltown Rd.	104 Merchant Pl.	380 Route 9W
Niskayuna, NY	Cobleskill, NY	Glenmont, NY
Telephone: (518) 377-2460	Telephone: (518) 254-0290	Telephone: (518) 449-2128
Brandywine Office	Colonie Office	Glens Falls Office
1048 State St.	1818 Central Ave.	100 Glen St.
Schenectady, NY	Albany, NY	Glens Falls, NY
Telephone: (518) 346-4295	Telephone: (518) 456-0041	Telephone: (518) 798-8131
Briarcliff Manor Office	Crestwood Plaza Office	Greenwich Office
75 North State Rd.	415 Whitehall Rd.	131 Main St.
Briarcliff Manor, NY	Albany, NY	Greenwich, NY
Telephone: (914) 762-7133	Telephone: (518) 482-0693	Telephone: (518) 692-2233
Bronxville Office	Delmar Office	Guilderland Office
5-7 Park Place	167 Delaware Ave.	3900 Carman Rd.
Bronxville, NY	Delmar, NY	Schenectady, NY
Telephone: (914) 771-4180	Telephone: (518) 439-9941	Telephone: (518) 355-4890

Page 96 of 106

Branch Locations (continued)

Halfmoon Office	Loudon Plaza Office	Mt. Kisco Office
215 Guideboard Rd.	372 Northern Blvd.	222 East Main St.
Country Dollar Plaza	Albany, NY	Mt. Kisco, NY
Halfmoon, NY	Telephone: (518) 462-6668	Telephone: (914) 666-2362
Telephone: (518) 371-0593
	Madison Ave. Office	New City Office
Hartsdale Office	1084 Madison Ave.	20 Squadron Blvd.
220 East Hartsdale Ave.	Albany, NY	New City, NY
Hartsdale, NY	Telephone: (518) 489-4711	Telephone: (845) 634-4571
Telephone: (914) 722-2640
	Mahopac Office	New Scotland Office
Highland Office	945 South Lake Blvd	301 New Scotland Ave.
3580 Route 9W	Mahopac, NY	Albany, NY
Highland, NY	Telephone: (845) 803-8066	Telephone: (518) 438-7838
Telephone: (845) 691-7023
	Malta 4 Corners Office	Newton Plaza Office
Hoosick Falls Office	2471 Route 9	602 New Loudon Rd.
47 Main St.	Malta, NY	Latham, NY
Hoosick Falls, NY	Telephone: (518) 899-1056	Telephone: (518) 786-3687
Telephone: (518) 686-5352
	Mamaroneck Office	Niskayuna-Woodlawn Office
Hudson Office	180-190 East Boston Post Rd.	3461 State St.
507 Warren St.	Mamaroneck, NY	Schenectady, NY
Hudson, NY	Telephone: (914) 777-3023	Telephone: (518) 377-2264
Telephone: (518) 828-9434
	Mayfair Office	Northern Pines Road Office
Hudson Falls Office	286 Saratoga Rd.	649 Maple Ave.
3750 Burgoyne Ave.	Glenville, NY	Saratoga Springs, NY
Hudson Falls, NY	Telephone: (518) 399-9121	Telephone: (518) 583-2634
Telephone: (518) 747-0886
	Mechanicville Office	Peekskill Office
Katonah Office	9 Price Chopper Plaza	20 Welcher Ave.
18 Woods Bridge Road	Mechanicville, NY	Peekskill, NY
Katonah, NY	Telephone: (518) 664-1059	Telephone: (914) 739-1839
Telephone: (914) 666-6230
	Milton Office	Pelham Office
Kingston Office	2 Trieble Ave.	132 Fifth Ave.
1220 Ulster Ave.	Ballston Spa, NY	Pelham, NY
Kingston, NY	Telephone: (518) 885-0498	Telephone: (914) 632-1983
Telephone: (845) 336-5372
	Monroe Office	Pomona Office
Lake George Office	791 Route 17M	1581 Route 202
2160 Route 9L	Monroe, NY	Pomona, NY
Lake George, NY	Telephone: (845) 782-1100	Telephone: (845) 354-0176
Telephone: (518) 668-2352
	Mont Pleasant Office	Poughkeepsie Office
Latham Office	959 Crane St.	2656 South Rd.
1 Johnson Rd.	Schenectady, NY	Poughkeepsie, NY
Latham, NY	Telephone: (518) 346-1267	Telephone: (845) 485-6419
Telephone: (518) 785-0761

Page 97 of 106

Branch Locations (continued)

Queensbury Office	Slingerlands Office	Upper Union Street Office
118 Quaker Rd.	1569 New Scotland Rd.	1620 Union St.
Suite 1	Slingerlands, NY	Schenectady, NY
Queensbury, NY	Telephone: (518) 439-9352	Telephone: (518) 374-4056
Telephone: (518) 798-7226
	South Glens Falls Office	Ushers Road Office
Red Hook Office	133 Saratoga Rd.	308 Ushers Rd.
4 Morgans Way	Suite 1	Ballston Lake, NY
Red Hook, NY	South Glens Falls, NY	Telephone: (518) 877-8069
Telephone: (845) 752-2224	Telephone: (518) 793-7668
		Valatie Office
Rotterdam Office	State Farm Road Office	2929 Route 9
1416 Curry Rd.	2050 Western Ave.	Valatie, NY
Schenectady, NY	Guilderland, NY	Telephone: (518) 758-2265
Telephone: (518) 355-8330	Telephone: (518) 452-6913
		Wappingers Falls Office
Route 2 Office	State St. Albany Office	1490 Route 9
201 Troy-Schenectady Rd.	112 State St.	Wappingers Falls, NY
Latham, NY	Albany, NY	Telephone: (845) 298-9315
Telephone: (518) 785-7155	Telephone: (518) 436-9043
		Warrensburg Office
Route 7 Office	State St. Schenectady - Main Office	9 Lake George Plaza Rd.
1156 Troy-Schenectady Rd.	320 State St.	Lake George, NY
Latham, NY	Schenectady, NY	Telephone: (518) 623-3707
Telephone: (518) 785-4744	Telephone: (518) 381-3831
		West Sand Lake Office
Saratoga Springs Office	Stuyvesant Plaza Office	3690 NY Route 43
34 Congress St.	Western Ave. at Fuller Rd.	West Sand Lake, NY
Saratoga Springs, NY	Albany, NY	Telephone: (518) 674-3327
Telephone: (518) 587-3520	Telephone: (518) 489-2616
		Wilton Mall Office
Schaghticoke Office	Tanners Main Office	Route 50
2 Main St.	345 Main St.	Saratoga Springs, NY
Schaghticoke, NY	Catskill, NY	Telephone: (518) 583-1716
Telephone: (518) 753-6509	Telephone: (518) 943-2500
		Wolf Road Office
Scotia Office	Tanners West Office	34 Wolf Rd.
123 Mohawk Ave.	238 West Bridge St.	Albany, NY
Scotia, NY	Catskill, NY	Telephone: (518) 458-7761
Telephone: (518) 372-9416	Telephone: (518) 943-5090
		Wynantskill Office
Sheridan Plaza Office	Troy Office	134-136 Main St.
1350 Gerling St.	5th Ave. and State St.	Wynantskill, NY
Schenectady, NY	Troy, NY	Telephone: (518) 286-2674
Telephone: (518) 377-8517	Telephone: (518) 274-5420

Page 98 of 106

Branch Locations (continued)

Florida
Alafaya Woods Office	Curry Ford Road Office	Lady Lake Office
1500 Alafaya Trl.	3020 Lamberton Blvd., Suite 116	873 North US Highway 27/441
Oviedo, FL	Orlando, FL	Lady Lake, FL
Telephone: (407) 359-5991	Telephone: (407) 277-9663	Telephone: (352) 205-8893
Aloma Office	Curry Ford West Office	Lake Brantley Office
4070 Aloma Ave.	2838 Curry Ford Rd.	909 North SR 434
Winter Park, FL	Orlando, FL	Altamonte Springs, FL
Telephone: (407) 677-1969	Telephone: (407) 893-9878	Telephone: (407) 339-3396
Apollo Beach Office	Davenport Office	Lake Mary Office
205 Apollo Beach Blvd.	2300 Deer Creek Commons Ln.	350 West Lake Mary Blvd.
Apollo Beach, FL	Suite 600	Sanford, FL
Telephone: (813) 649-0460	Davenport, FL	Telephone: (407) 330-7106
	Telephone: (863) 424-9493
Apopka Office		Lake Nona Office
1134 North Rock Springs Rd.	Dean Road Office	9360 Narcoossee Rd.
Apopka, FL	3920 Dean Rd.	Orlando, FL
Telephone: (407) 464-7373	Orlando, FL	(407) 801-7330
	Telephone: (407) 657-8001
Avalon Park Office		Lake Square Office
3662 Avalon Park East Blvd.	Downtown Orlando Office	10105 Route 441
Orlando, FL	415 East Pine St.	Leesburg, FL
Telephone: (407) 380-2264	Orlando, FL	Telephone: (352) 323-8147
	Telephone: (407) 422-7129
Bay Hill Office		Lee Road Office
6084 Apopka Vineland Road	East Colonial Office	1084 Lee Rd., Suite 11
Orlando, FL	12901 East Colonial Dr.	Orlando, FL
Telephone: (321) 251-1859	Orlando, FL	Telephone: (407) 532-5211
	Telephone: (407) 275-3075
BeeLine Center Office		Lee Vista Office
10249 South John Young Pkwy.	Englewood Office	8288 Lee Vista Blvd., Suite E
Suite 101	2930 South McCall Rd.	Orlando, FL
Orlando, FL	Englewood, FL	Telephone: (321) 235-5583
Telephone: (407) 240-0945	Telephone: (941) 460-0601
		Leesburg Office
Beneva Village Office	Gateway Commons Office	1330 Citizens Blvd., Suite 101
5950 South Beneva Road	1525 East Osceola Pkwy., Suite 120	Leesburg, FL
Sarasota, FL	Kissimmee, FL	Telephone: (352) 365-1305
Telephone: (941) 923-8269	Telephone: (407) 932-0398
		Maitland Office
Bradenton Office	Goldenrod Office	9400 US Route 17/92, Suite 101
5858 Cortez Rd. West	7803 East Colonial Rd., Suite 107	Maitland, FL
Bradenton, FL	Orlando, FL	Telephone: (407) 332-6071
Telephone: (941) 792-2604	Telephone: (407) 207-3773
		Melbourne Office
Colonial Drive Office	Juno Beach Office	2481 Croton Rd.
4301 East Colonial Dr.	14051 US Highway 1	Melbourne, FL
Orlando, FL	Juno Beach, FL	Telephone: (321) 752 0446
Telephone: (407) 895-6393	Telephone: (561) 630-4521

Page 99 of 106

Branch Locations (continued)

Metro West Office	Port Orange Office	Tuskawilla Road Office
2619 S. Hiawasee Rd.	3751 Clyde Morris Blvd.	1295 Tuskawilla Rd., Suite 10
Orlando, FL	Port Orange, FL	Winter Springs, FL
Telephone: (407) 293-1580	Telephone: (386) 322-3730	Telephone: (407) 695-5558
North Clermont Office	Rinehart Road Office	Venice Office
12302 Roper Blvd.	1185 Rinehart Rd.	2057 South Tamiami Trl.
Clermont, FL	Sanford, FL	Venice, FL
Telephone: (352) 243-2563	Telephone: (407) 268-3720	Telephone: (941) 496-9100
Orange City Office	Sarasota Office	Westwood Plaza Office
902 Saxon Blvd., Suite 101	2704 Bee Ridge Rd.	4942 West State Route 46
Orange City, FL	Sarasota, FL	Suite 1050
Telephone: (386) 775-1392	Telephone: (941) 929-9451	Sanford, FL
		Telephone: (407) 321-4925
Ormond Beach Office	South Clermont Office
115 North Nova Rd.	16908 High Grove Blvd.	Windermere Office
Ormond Beach, FL	Clermont, FL	2899 Maguire Rd.
Telephone: (386) 256-3813	Telephone: (352) 243-9511	Windermere, FL
		Telephone: (407) 654-0498
Osprey Office	Stuart Office
1300 South Tamiami Trl.	951 SE Federal Highway	Winter Garden Office
Osprey, FL	Stuart, FL	16118 Marsh Rd.
Telephone: (941) 918-9380	Telephone: (772) 286-4757	Winter Garden, FL
		Telephone: (407) 654-4609
Oviedo Office	Sun City Center
1875 West County Rd. 419	4441 Sun City Center	Winter Haven Office
Suite 600	Sun City Center, FL	7476 Cypress Gardens Blvd. Southeast
Oviedo, FL	Telephone: (813) 633-1468	Winter Haven, FL
Telephone: (407) 365-1145		Telephone: (863) 326-1918
	Sweetwater Office
Pleasant Hill Commons Office	671 North Hunt Club Rd.	Winter Springs Office
3307 South Orange Blossom Trl.	Longwood, FL	851 East State Route 434
Kissimmee, FL	Telephone: (407) 774-1347	Winter Springs, FL
Telephone: (407) 846-8866		Telephone: (407) 327-6064

Page 100 of 106

Branch Locations (continued)

Massachusetts	New Jersey	Vermont
Allendale Office	Northvale Office	Bennington Office
5 Cheshire Rd.	220 Livingston St.	215 North St.
Suite 18	Northvale, NJ	Bennington, VT
Pittsfield, MA	Telephone: (201) 750-1501	Telephone: (802) 447-4952
Telephone: (413) 236-8400
	Ramsey Office
Great Barrington Office	385 North Franklin Tpk.
326 Stockbridge Rd.	Ramsey, NJ
Great Barrington, MA	Telephone: (201) 934-1429
Telephone: (413) 644-0054
Lee Office
43 Park St.
Lee, MA
Telephone: (413) 243-4300
Pittsfield Office
1 Dan Fox Dr.
Pittsfield, MA
Telephone: (413) 442-1330

Page 101 of 106

OFFICERS	BOARD OF DIRECTORS
PRESIDENT AND CHIEF	Dennis A. De Gennaro, President
EXECUTIVE OFFICER	Camelot Associates Corporation
Robert J. McCormick	Commercial and Residential Construction
	Chairman, TrustCo Bank Corp NY
SENIOR VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER	Brian C. Flynn, CPA
Michael M. Ozimek	KPMG LLP
	Retired Partner
EXECUTIVE VICE PRESIDENT
AND CHIEF BANKING OFFICER	Thomas O. Maggs, President
Scot R. Salvador	Maggs & Associates
	Insurance Agency
EXECUTIVE VICE PRESIDENT
AND CHIEF RISK OFFICER	Anthony J. Marinello, M.D., Ph.D.
Robert M. Leonard	Physician
SENIOR VICE PRESIDENT AND	Robert J. McCormick,
TREASURER	President and Chief Executive Officer
Eric W. Schreck	TrustCo Bank Corp NY
SENIOR VICE PRESIDENT AND	William D. Powers,
CHIEF OPERATIONS OFFICER	Powers & Co., LLC
Kevin M. Curley	Retired Partner
VICE PRESIDENT, COUNSEL AND	Lisa M. Reutter, Owner
SECRETARY	LMKD Properties, LLC
Michael J. Hall	Property Management
Directors of TrustCo Bank Corp NY
are also Directors of Trustco Bank

HONORARY DIRECTORS
Lionel O. Barthold	John S. Morris, Ph.D.	Edwin O. Salisbury
Robert A. McCormick	James H. Murphy, D.D.S.	William F. Terry
Nancy A. McNamara	Richard J. Murray, Jr.

Page 102 of 106

Trustco Bank Officers
PRESIDENT AND CHIEF
EXECUTIVE OFFICER
Robert J. McCormick
EXECUTIVE VICE PRESIDENT	COLLECTIONS/ OPERATIONS/	GENERAL SERVICES
AND CHIEF RISK OFFICER	CREDIT	Officer
Robert M. Leonard	Senior Vice President and	Joseph N. Marley
	Chief Operations Officer
EXECUTIVE VICE PRESIDENT	Kevin M. Curley	INFORMATION TECHNOLOGY/
AND CHIEF BANKING OFFICER	Assistant Vice President	PLANNING AND SYSTEMS
Scot R. Salvador	Stacy L. Marble	Administrative Vice President
	Officer	John R. George
ACCOUNTING/FINANCE	Elizabeth A. Bennett	Vice President and
Senior Vice President and	Aislinn E. Melia	Chief Technology Officer
Chief Financial Officer		Volney R. LaRowe
Michael M. Ozimek	COMPLIANCE/ RISK/ BSA/
Vice Presidents	CREDIT ADMINISTRATION	LENDING
Andrea A. McGuire	Administrative Vice President and	Administrative Vice President
Michael V. Pitnell	Chief Compliance Officer and	Michael J. Lofrumento
Interest Rate Risk Vice President	Information Security Officer	Vice Presidents
Kevin T. Timmons	Michael J. Ewell	Patrick M. Canavan
Officers	Administrative Vice President	Officers
Lynn M. Hallenbeck	Michelle L. Simmonds	Amy E. Anderson
Michael F. McMahon	Vice President, Counsel	Suzanne E. Breen
	Michael J. Hall	Rebecca L. O'Hare
AUDIT	Vice President	James M. Poole
Director of Internal Audit	Lara Ann Gough	Joseph M. Rice
Daniel R. Saullo	Assistant Vice President
Officer	Jennifer L. Meadows	MARKETING
Kenneth E. Hughes Jr.	Officer	Assistant Vice President
Jasmine K. Silver	James A.P. McCarthy, Esq.	Adam E. Roselan
	Jason T. Goodell
BRANCH ADMINISTRATION		PERSONNEL/
Senior Vice President and	FINANCIAL SERVICES	QUALITY CONTROL/
Florida Regional President	Administrative Vice President and	TRAINING
Eric W. Schreck	Chief Trust Officer	Vice President and
Administrative Vice President	Patrick J. LaPorta, Esq.	Director of Human Resources
Carly K. Batista	Vice President	Mary-Jean Riley
Assistant Vice President	Thomas M. Poitras	Officer
Mark J. Cooper	Officers	Takla A. Awad
Gloryvel Morales	Michael D. Bates	Jessica M. DeVoe
Jocelyn E. Vizcara	John W. Bresonis
Officers	William J. Heslin
Jonathan R. Goodell	Clint M. Mallard
William B. Jansz	Lauren A. Maxwell
Lesly Jean-Louis
Seeranie Ramjeet
Pratik A. Shah
Berkley K. Young

Page 103 of 106

 General Information

ANNUAL MEETING

Thursday, May 17, 2018

10:00 AM

Mallozzi’s Restaurant

1930 Curry Road

Schenectady, NY 12303

CORPORATE HEADQUARTERS

5 Sarnowski Drive

Glenville, NY 12302

(518) 377-3311

DIVIDEND REINVESTMENT PLAN

A Dividend Reinvestment Plan is available to shareholders of TrustCo Bank Corp NY. It provides for the reinvestment of cash dividends and optional cash payments to purchase additional shares of TrustCo stock. The Dividend Reinvestment Plan has certain administrative charges and provides a convenient method of acquiring additional shares. Computershare acts as administrator for this service and is the agent for shareholders in these transactions. Shareholders who want additional information may contact Computershare at 1-800-368-5948.

DIRECT DEPOSIT OF DIVIDENDS

Electronic deposit of dividends, which offers safety and convenience, is available to TrustCo shareholders who wish to have dividends deposited directly to personal checking, savings or other accounts. If you would like to arrange direct deposit, please write to Computershare listed as transfer agent at the bottom of this page.

FORM 10-K

TrustCo Bank Corp NY will provide, without charge, a copy of its Form 10-K for the year ended December 31, 2017 upon written request. Requests and related inquiries should be directed to Kevin T. Timmons, Vice President, TrustCo Bank Corp NY, P.O. Box 380, Schenectady, New York 12301-0380.

CODE OF CONDUCT

TrustCo Bank Corp NY will provide, without charge, a copy of its Code of Conduct upon written request. Requests and related inquiries should be directed to Robert M. Leonard, Executive Vice President-Personnel, TrustCo Bank Corp NY, P.O. Box 1082, Schenectady, New York 12301-1082.

NASDAQ SYMBOL: TRST

The Corporation’s common stock trades on The Nasdaq Stock Market under the symbol TRST. There were approximately 11,900 shareholders of record of TrustCo common stock as of January 29, 2017.

SUBSIDIARIES:

Trustco Bank

Glenville, New York

Member FDIC

(and its wholly owned subsidiaries)

Trustco Realty Corp

Glenville, New York

Trustco Insurance Agency, Inc.

Glenville, New York

ORE Property, Inc.

Glenville, New York

(and its wholly owned subsidiaries)

ORE Property One, Inc.

Orlando, Florida

ORE Property Two, Inc.

Orlando, Florida

ORE Subsidiary Corporation

Glenville, New York

Page 104 of 106

TRANSFER AGENT

Computershare

Regular Mail

PO BOX 505000

Louisville, KY 40233-5000

UNITED STATES

Overnight Delivery

462 South 4th Street

Suite 1600 Louisville, KY 40202

UNITED STATES

Toll Free: 1-800-368-5948 or 1-781-575-4223

Trustco Bank^® is a registered service mark with the U.S. Patent & Trademark Office.

Page 105 of 106

 

Share Price Information

The following graph shows changes over a five-year period in the value of $100 invested in: (1) TrustCo’s common stock; (2) Russell 2000 and (3) the SNL Bank and Thrift Index, an industry group compiled by S&P Global Market Intelligence, that includes all major exchange (NYSE, NYSE MKT, NASDAQ) banks and thrifts in S&P’s coverage universe. The index included 395 companies as of February 9, 2018. A list of the component companies can be obtained by contacting TrustCo.

	Period Ending
Index	12/31/12		12/31/13		12/31/14		12/31/15		12/31/16		12/31/17
TrustCo Bank Corp NY		100.00		142.17		149.42		131.65		194.94		211.61
Russell 2000 Index		100.00		138.82		145.62		139.19		168.85		193.58
SNL Bank and Thrift Index		100.00		136.92		152.85		155.94		196.86		231.49

Page 106 of 106