# TRUSTCO BANK CORP N Y (TRST) FY 2021 MD&A

Verbatim Item 7 Management's Discussion and Analysis from TRUSTCO BANK CORP N Y's 10-K for fiscal year 2021.

SEC filing source: https://www.sec.gov/Archives/edgar/data/357301/000114036122006784/brhc10034326_10k.htm
Accession: 0001140361-22-006784
Filing date: 2022-02-25
Report date: 2021-12-31
Extracted from a later financial-section MD&A body after the formal Item 7 span was a short reference. Source document followed from filing index: brhc10034326_ex13.htm.
Confidence: high

Company profile: /company/TRST/
All MD&A years: /company/TRST/mda/
Next year: /company/TRST/mda/fy2022/ (FY 2022)

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 2021 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 non-GAAP, 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 2021 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.

COVID-19 Impact

Beginning in March 2020, we experienced negative impacts to our business in the form of requests for loan deferrals of principal and interest due to the business disruption caused by the COVID-19
pandemic.  The Company evaluated the impact of the effects of COVID-19 and determined that there were no material or systematic adverse impacts on the Company’s balance sheets and results of operations as of and for the years ended December 31,
2021 and 2020, except for adjustments in the provision for loan losses.  At this time, it is difficult to quantify the impact COVID-19 will have on future periods due to various uncertainties, including the duration, severity, spread, variants and
resurgences of COVID-19.

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

Loan modifications

We have always been committed to working with our customers or borrowers to allow time to work through the challenges of the pandemic. At this time, it is uncertain what future impact, if any,
further loan modifications related to COVID-19 difficulties will have on our financial condition, results of operations and provision for loan losses. We began receiving requests from our borrowers for loan deferrals in March 2020 and agreed with
many borrowers to modify their loans. Modifications included the deferral of principal and/or interest payments for terms generally up to 90 days. Requests were evaluated individually and approved modifications were based on the unique
circumstances of each borrower.  Loan modifications and payment deferrals as a result of the COVID-19 pandemic that meet the criteria established under Section 4013 of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) or under
applicable interagency guidance of the federal banking regulators have been and will be excluded from evaluation of troubled debt restructuring (“TDR”) classification and will continue to be reported as current during the payment deferral period. 
Although there are no loan deferrals outstanding as of December 31, 2021, the Company’s policy is to continue to accrue interest during the deferral period if additional deferrals arise.  Loans not meeting the CARES Act or regulatory guidance will
be evaluated for TDR and non-accrual treatment under the Company’s existing policies and procedures.

Paycheck Protection Program (“PPP”) and Liquidity

As part of the CARES Act, the Small Business Administration (SBA) was authorized to guarantee loans under the PPP for small businesses
that meet the necessary eligibility requirements in order to keep their workers on the payroll. The Company began accepting applications on April 3, 2020 and granted 663 PPP loans totaling $46 million during 2020, and in 2021 the Company granted
an additional 344 PPP loans totaling approximately $23 million.  As of December 31, 2021 190 PPP loans totaling approximately $10 million remain outstanding.  The Company has received loan origination fees from the SBA which are being recognized
over the life of the loan using the effective yield method.

Asset impairment

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

Provision for loan losses

See “Allowance for Loan Losses” for more information.

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Financial Review

TrustCo made significant progress in 2021 despite a challenging operating environment and mixed economic conditions as a result of the pandemic.  Among the key results for 2021, in management’s
view:

[[GREPCENT_TABLE]]
[["\u2022","Net income after taxes was up 17.3% or $9.1 million to $61.5 million as compared to the prior year;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["\u2022","Period-end loans were up $194 million for 2021 compared to the prior year;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["\u2022","Period-end deposits were up $231 million for 2021 compared to the prior year;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["\u2022","Nonperforming assets declined $2.5 million or 11.6% to $19.1 million from year-end 2020 to year-end 2021;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["\u2022","At 56.90%, the efficiency ratio remained consistent with our peer-group levels (see Non-GAAP Financial Measures Reconciliation), and;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["\u2022","The regulatory capital levels of both the Company and the Bank continued to remain very strong at December 31, 2021, and the Bank continues to meet the definition of \u201cwell capitalized\u201d for regulatory purposes."]]
[[/GREPCENT_TABLE]]

Management believes that the Company was able to achieve these accomplishments, despite the ongoing pandemic 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 10.61% in 2021 compared to 9.47% in 2020, while return on average assets was 1.01% in 2021 as compared to 0.94% in 2020.

During 2021 the U.S. saw continued economic recovery highlighted by job growth and lower unemployment claims.  Despite the ongoing pandemic, labor shortages, and supply-chain bottlenecks, the
stock market thrived with each of the major indexes posting double-digit gains.  Contributing to these gains were additional stimulus measures, more job opportunities, increased availability of coronavirus vaccines, and low interest rates.  For the
year ending 2021, the Dow Jones Industrial Average ended with growth of 18.7%, as compared to growth of 7.25% in 2020.  The S&P 500 Index also showed growth of 26.89% for the year, compared to growth of 16.26% in 2020.  United States Three
Month Treasury Bills experienced a slight decline in rates ending the year at 0.06%, 146 basis points behind the ten-year Treasury yield at year-end of 1.52%.  These yields compare to 2020 year-end yields of 0.09% for the three month Treasury and
0.93% for the ten-year Treasury yields.  These rates are important to the banking industry because deposit rates tend to track the changes in the shorter term treasury markets and the mortgage loans products tend to track with the ten-year Treasury
yields.  Beginning in 2021 the yield on the two year Treasury bond was 0.13% and increased 60 basis points during the year to close 2021 at 0.73% and the ten-year Treasury bond began 2021 at 0.93% and closed the year up 59 basis points to 1.52% at
year-end.  These rate changes have a significant implication to the broader economic cycle and reflect the Federal Reserve Board’s desire for lower shorter term rates to help economic expansion and provide for target levels of employment as a
result of the pandemic.  However, during 2021 the United States experienced a significant increase in inflation which could trigger the Federal Reserve to increase interest rates.

The outlook for the United States economy is anticipated to bring continued economic recovery.  Growth in business operations and expansion of corporate activities will be necessary for broad
range increases in revenues and profits.

Generally, a steady increase in economic activities is viewed as a positive for the banking and finance industries as economic growth creates additional demand for goods and services, which in
turn result in increased revenues and profits.  TrustCo like most other banking organizations prices many of its liabilities (deposits and short term debt) off of the shorter end of the Treasury maturity curve.  The average for the three month
Treasury was 32 basis points lower in 2021 than in 2020, with the median yield of 0.05% in 2021 down 7 basis points over the median yield in 2020.  These trends generally reflect a decrease in the cost for deposit products that price off of the
short term treasury market yields.  At the same time the average yield of the ten-year Treasury has increased to 1.45% in 2021, up 56 basis points from 2020 when the average was 0.89%.  Generally longer term loans are priced consistent with the
changes in the ten-year treasury markets.  These two trends – lower shorter term rates coupled with an increase in longer term rates – result in the spread of these yields widening, which is a positive trend to the banking industry, but did not
mitigate historical low rates putting pressure on banking net interest margins.

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 practices even in these uncertain times.  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 markets in the areas we serve.

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Overview

2021 results were marked by continued growth in the Company’s loan portfolio.  The loan portfolio grew to a total of $4.44 billion, an increase of $194 million or 4.6% over the 2020 year-end
balance.  Deposits ended 2021 at $5.27 billion, up from $5.04 billion the prior year-end.  The year-over-year increases in loans and deposits reflect the success the Company has had in attracting customers to the Bank, as well as the belief that in
the current pandemic environment there is a desire of customers to have additional funds in the safety and security offered by TrustCo’s long history of conservative banking.  Also contributing to the increase in retail deposits was additional
federal stimulus payments sent to eligible customers from the Internal Revenue Service.  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.

TrustCo recorded net income of $61.5 million or $3.194 of diluted earnings per share for the year ended December 31, 2021, compared to $52.5 million or $2.717 of diluted earnings per share for the
year ended December 31, 2020.  Net income before taxes was $82.1 million in 2021 compared to $69.4 million in 2020.

During 2021, the following had a significant effect on net income:

[[GREPCENT_TABLE]]
[["\u2022","An increase of $6.8 million in net interest income from 2020 to 2021 primarily as a result of lower deposit rates;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["\u2022","a decrease of $11.1 million in the provision for loan losses to a credit of $5.5 million in 2021;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["\u2022","an increase in non-interest income of $767 thousand, and;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["\u2022","an increase in non-interest expense of $6.0 million."]]
[[/GREPCENT_TABLE]]

TrustCo performed well in comparison to its peers with respect to a number of key performance ratios during 2021 and 2020, including:

[[GREPCENT_TABLE]]
[["\u2022","Tier 1 risk-based capital ratio of 19.54% for 2021 and 19.19% for 2020, compared to medians of 12.79% in 2021 and 12.90% in 2020 for a peer group comprised of all publicly traded banks and thrifts tracked by S&P Global Market Intelligence with assets of $2 billion to $10 billion, and"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["\u2022","an efficiency ratio, as calculated by S&P Global Market Intelligence, of 56.90% for 2021 and 56.38% for 2020, compared to the peer group medians of 56.70% in 2021 and 57.45% in 2020."]]
[[/GREPCENT_TABLE]]

During 2021, TrustCo’s results were affected by the growth of deposits, strong loan growth and a shift in asset mix.  Despite the low interest rate environment and the
ongoing effects from the pandemic during 2021, the Company was able to continue to attract and retain deposits.  On average for 2021, non-maturity deposits were 77.5% of total deposits, up from 71.5% in 2020.  Overall, the cost of interest bearing
liabilities decreased 41 basis points to 0.16% in 2021 as compared to 2020.  Average loan balances increased 4.2% from 2020 to 2021, while the total of federal funds sold and other short-term investments, available for sale securities and held to
maturity securities increased 28.7%, average net loans decreased to 73.2% of average earning assets in 2021 from 77.2% in 2020.  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 low rate environment in 2021 as well as the current pandemic resulted in maturing and called securities being reinvested in loans and bonds, with any remaining funds continuing to
be held in Federal funds sold and other short-term investments.

As discussed previously, market interest rates moved during the course of 2021, with shorter term three month Treasury rates being consistent year over year, and longer term
rates increasing versus year‑end 2020.  Overall, trends in market rates caused a steepening of the yield curve, on average, during the year.  The average daily spread between the ten-year Treasury and the two-year Treasury was 118 basis points in
2021, up from an average of 50 basis points in 2020 and 17 basis points in 2019.  The spread between the ten-year Treasury and the two-year Treasury changed throughout the year but ended 2021 at 79 basis points, which was relatively flat year over
year.  Generally, a more positive slope in the yield curve is beneficial for the Company’s earnings derived from its core mix of loans and deposits.

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The tables below illustrate the range of key Treasury bond interest rates during 2021 and 2020.

[[GREPCENT_TABLE]]
[["","","3 Month T Bill (BEY) Yield(%)","","","2 Year T Note Yield(%)","","","5 Year T Note Yield(%)","","","10 Year T Note Yield(%)","","","10 Year \u2013 2 Year Spread(%)"],["2021"],["Beginning of Year","","","0.09","","","","0.13","","","","0.36","","","","0.93","","","","0.80"],["Peak","","","0.09","","","","0.76","","","","1.34","","","","1.74","","","","1.59"],["Trough","","","0.01","","","","0.09","","","","0.36","","","","0.93","","","","0.72"],["End of Year","","","0.06","","","","0.73","","","","1.26","","","","1.52","","","","0.79"],["Average","","","0.04","","","","0.27","","","","0.86","","","","1.45","","","","1.18"],["Median","","","0.05","","","","0.20","","","","0.83","","","","1.48","","","","1.14"],["2020"],["Beginning of Year","","","1.55","","","","1.58","","","","1.69","","","","1.92","","","","0.34"],["Peak","","","1.59","","","","1.58","","","","1.67","","","","1.88","","","","0.83"],["Trough","","","-","","","","0.11","","","","0.19","","","","0.52","","","","0.12"],["End of Year","","","0.09","","","","0.13","","","","0.36","","","","0.93","","","","0.80"],["Average","","","0.36","","","","0.39","","","","0.53","","","","0.89","","","","0.50"],["Median","","","0.12","","","","0.17","","","","0.36","","","","0.74","","","","0.52"]]
[[/GREPCENT_TABLE]]

Source: www.treasury.gov

During 2020, management increased certain allowance qualitative factors based on its assessment of the impact of the pandemic on local, national, and global economic conditions as well as the
perceived risks inherent in specific industries and credit characteristics.  In light of an improving economic environment in 2021 and based on the approach utilized in the prior year the company adjusted the pandemic specific provision during the
second half of 2021.  Changes to the pandemic specific provision, as well as sustained improvement in asset quality trends and changes in economic conditions, has resulted in a decrease in the provision for loan losses from an expense of $5.6
million in 2020 to a credit of $5.5 million in 2021, which favorably affected net income.  Net charge‑offs decreased from $322 thousand in 2020 to net recoveries of $122 thousand in 2021.  Total nonperforming loans decreased $2.3 million from
2020.  Details on nonperforming loans and net charge-offs are included in the notes to the financial statements.  The decrease in the provision for loan losses is primarily driven by improvements in asset quality trends and economic conditions, as
well as adjustments to the pandemic specific provision.

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.

The Company remains focused on building its customer relationships, deposits and loans throughout its branch network, with a particular emphasis on the newest branches added to our “network.”

The Company continually looks for opportunities to open new offices each year by filling in or extending existing markets and in  2021 the Company expanded its Florida
market by opening a branch in Palm Coast.  The Company has experienced continued growth in all markets as measured by the growth in deposit and loan balances.  All branches have the same products and features found at other Trustco Bank locations. 
Additionally, the Company has made significant investments in the online and mobile banking platforms, including new automated tools.  With a combination of competitive rates, excellent service, technology, and convenient locations, management
believes that as branches mature, they will continue to attract deposit and loan customers.  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.

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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 97.6% and 97.3% of average total assets for 2021 and
2020, respectively.

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.  From December 2015 through December 2018, the U.S. Federal Reserve Board
increased its federal funds target rate from a range of 0.00% - 0.25% to a range of 2.25% - 2.50%. Beginning in the second half of 2019, the Federal Reserve Board began lowering the rate in response to a slowing economy.  During the first quarter
of 2020 the rate was significantly decreased again as a result of the global pandemic related to COVID-19, and returned the range of 0.00% to 0.25% where it currently remains.

The yield on the ten-year Treasury bond increased by 59 basis points from 0.93% at the beginning of 2021 to the year‑end level of 1.52%.  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 decrease, the fair value of the securities will increase 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.

The decrease in the Federal Funds target range in 2020 continues to have a negative impact on earnings on the Company’s cash position.  The net effect of market changes in interest rates during
2020 was that yields earned on both the investment portfolios and loans remained quite low in 2020 and 2021 relative to historic levels, which also has driven down deposit costs.  However, as previously discussed, it is believed that the Federal
Reserve will begin to increase the Federal Funds target rate in the first part of 2022.

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Earning Assets

Average earning assets during 2021 were $5.9 billion, which was an increase of $525.1 million from 2020.  This increase was primarily the result of growth in the average balance of net loans of
$173.4 million and in Federal Funds sold and other short‑term investments of $363.2 million, offset by decreases of $5.1 million in securities available for sale and $4.6 million in held-to-maturity securities between 2020 and 2021.  The increase
in the loan portfolio is the result of a significant increase in residential mortgage loans, which more than offset net decreases in the other loan categories.  The increase in residential 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.

Total average assets were $6.1 billion for 2021 and $5.6 billion for 2020.

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

[[GREPCENT_TABLE]]
[["(dollars in thousands)","","2021","","","2020","","","2019","","","2021 vs. 2020","","","2020 vs. 2019","","","Components of Total Earning Assets"],["2021","","","2020","","","2019"],["Loans, net","","$","4,336,834","","","","4,163,399","","","","3,926,199","","","","173,435","","","","237,200","","","","73.2","%","","","77.2","%","","","78.1"],["Securities available for sale (1):"],["U.S. government sponsored enterprises","","","63,743","","","","38,508","","","","156,292","","","","25,235","","","","(117,784",")","","","1.1","","","","0.7","","","","3.1"],["State and political subdivisions","","","48","","","","111","","","","167","","","","(63",")","","","(56",")","","","-","","","","-","","","","-"],["Mortgage-backed securities and collateralized mortgage obligations-residential","","","308,777","","","","333,093","","","","345,718","","","","(24,316",")","","","(12,625",")","","","5.2","","","","6.2","","","","6.9"],["Corporate bonds","","","53,699","","","","50,982","","","","34,637","","","","2,717","","","","16,345","","","","0.9","","","","0.9","","","","0.7"],["Small Business Administration-guaranteed participation securities","","","35,723","","","","44,379","","","","53,269","","","","(8,656",")","","","(8,890",")","","","0.6","","","","0.8","","","","1.1"],["Other","","","685","","","","686","","","","685","","","","(1",")","","","1","","","","-","","","","-","","","","-"],["Total securities available for sale","","","462,675","","","","467,759","","","","590,768","","","","(5,084",")","","","(123,009",")","","","7.8","","","","8.6","","","","11.8"],["Held-to-maturity securities:"],["Mortgage-backed securities and collateralized mortgage obligations-residential","","","11,733","","","","16,376","","","","20,643","","","","(4,643",")","","","(4,267",")","","","0.2","","","","0.3","","","","0.4"],["Total held-to-maturity securities","","","11,733","","","","16,376","","","","20,643","","","","(4,643",")","","","(4,267",")","","","0.2","","","","0.3","","","","0.4"],["Federal Reserve Bank and Federal Home Loan Bank stock","","","5,578","","","","7,381","","","","9,123","","","","(1,803",")","","","(1,742",")","","","0.1","","","","0.1","","","","0.2"],["Federal funds sold and other short-term investments","","","1,111,257","","","","748,085","","","","477,181","","","","363,172","","","","270,904","","","","18.7","","","","13.8","","","","9.5"],["Total earning assets","","$","5,928,077","","","","5,403,000","","","","5,023,914","","","","525,077","","","","379,086","","","","100.0","%","","","100.0","%","","","100.0"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(1)","The average balances of securities available for sale are presented using amortized cost for these securities."]]
[[/GREPCENT_TABLE]]

As mentioned, average net loans decreased to 73.2% of average earning assets in 2021 from 77.2% in 2020.  The low rate environment resulted in maturing and called securities, as well as increases in deposits, being
reinvested in federal funds sold and other short-term investments, which has always been a source of liquidity to fund loan growth and provide flexibility for balance sheet management.

Loans

In 2021, the Company experienced another year of solid loan growth despite the challenges of the ongoing pandemic.  The $194.3 million increase or 4.6% in the Company’s gross loan portfolio from
December 31, 2020 to December 31, 2021 was due to higher residential balances, which offset lower balances in other loan categories.  Average loans increased $173.4 million during 2021 to $4.34 billion.  Interest income on the loan portfolio
decreased to $159.2 million in 2021 from $166.0 million in 2020.  The average yield decreased 32 basis points to 3.67% in 2021 compared to 3.99% in 2020.

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LOAN PORTFOLIO

[[GREPCENT_TABLE]]
[["(dollars in thousands)","","As of December 31,"],["","","2021","","","2020","","","2019"],["","","Amount","","","Percent","","","Amount","","","Percent","","","Amount","","","Percent"],["Commercial","","$","180,814","","","","4.1","%","","$","198,328","","","","4.7","%","","$","181,635","","","","4.5","%"],["Real estate - construction","","","37,279","","","","0.8","","","","24,749","","","","0.6","","","","28,532","","","","0.7"],["Real estate - mortgage","","","3,980,294","","","","89.7","","","","3,769,582","","","","88.8","","","","3,573,106","","","","87.9"],["Home equity lines of credit","","","230,976","","","","5.2","","","","242,194","","","","5.7","","","","267,922","","","","6.6"],["Installment loans","","","9,416","","","","0.2","","","","9,617","","","","0.2","","","","11,001","","","","0.3"],["Total loans","","","4,438,779","","","","100.0","%","","","4,244,470","","","","100.0","%","","","4,062,196","","","","100.0","%"],["Less: Allowance for loan losses","","","44,267","","","","","","","","49,595","","","","","","","","44,317"],["Net loans (1)","","$","4,394,512","","","","","","","$","4,194,875","","","","","","","$","4,017,879"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","","Average Balances"],["","","2021","","","2020","","","2019","","","2018","","","2017"],["","","Amount","","","Percent","","","Amount","","","Percent","","","Amount","","","Percent","","","Amount","","","Percent","","","Amount","","","Percent"],["Commercial","","$","193,370","","","","4.5","%","","$","203,314","","","","4.9","%","","$","176,165","","","","4.5","%","","$","175,814","","","","4.7","%","","$","175,596","","","","5.0","%"],["Real estate - construction","","","31,014","","","","0.7","","","","26,641","","","","0.6","","","","27,728","","","","0.7","","","","26,717","","","","0.7","","","","26,616","","","","0.8"],["Real estate - mortgage","","","3,870,097","","","","89.2","","","","3,667,909","","","","88.2","","","","3,433,683","","","","87.4","","","","3,236,631","","","","86.5","","","","2,985,870","","","","84.9"],["Home equity lines of credit","","","233,628","","","","5.4","","","","255,583","","","","6.1","","","","277,905","","","","7.1","","","","297,678","","","","7.9","","","","318,660","","","","9.1"],["Installment loans","","","8,725","","","","0.2","","","","9,952","","","","0.2","","","","10,718","","","","0.3","","","","9,242","","","","0.2","","","","8,158","","","","0.2"],["Total loans","","","4,336,834","","","","100.0","%","","","4,163,399","","","","100.0","%","","","3,926,199","","","","100.0","%","","","3,746,082","","","","100.0","%","","","3,514,900","","","","100.0","%"],["Less: Allowance for loan losses","","","49,421","","","","","","","","47,330","","","","","","","","44,639","","","","","","","","44,651","","","","","","","","44,319"],["Net loans (1)","","$","4,287,413","","","","","","","$","4,116,069","","","","","","","$","3,881,560","","","","","","","$","3,701,431","","","","","","","$","3,470,581"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","(1)","Presented net of deferred direct loan origination fees and costs."]]
[[/GREPCENT_TABLE]]

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 to customers.  The average balance of residential real estate mortgage loans was approximately $3.88 billion in 2021 and approximately $3.68 billion in 2020.  Income on real estate loans decreased to $138.8 million in 2021 from
$144.2 million in 2020.  The yield on the portfolio decreased from 3.92% in 2020 to 3.57% in 2021.  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.  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 $210.1 million in 2021 decreased by $9.2 million from $219.3 million in 2020, primarily because of PPP loan payoffs.  Average commercial loans included $19.4 million and
$14.2 million of commercial real estate construction loans in 2021 and 2020, respectively.  The average yield on the commercial loan portfolio increased to 5.19% for 2021 from 4.92% in 2020, primarily as a result of PPP loans being forgiven during
2021.  Interest income on commercial loans was $10.9 million in 2021 compared to $10.8 million in 2020, up slightly primarily as a result of income recognized on the forgiveness of the PPP loans.

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 areas. 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 in the Bank’s market regions.

TrustCo has a strong position in the home equity credit line product in its market area.  During 2021, the average balance of home equity credit lines was $233.6 million, a decrease from $255.6
million in 2020.  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 tax law and consumer behavior have resulted in this product being
somewhat less popular in recent years.  TrustCo’s average yield on this portfolio was 3.77% for 2021 and 4.01% for 2020.  Interest income on home equity credit lines decreased from $10.3 million in 2020 to $8.8 million in 2021.

Page 10 of 102

Index

MATURITIES AND SENSITIVITIES OF LOANS TO CHANGE IN INTEREST RATES

[[GREPCENT_TABLE]]
[["(dollars in thousands)","","December 31, 2021"],["","","In 1 Year or Less","","","After 1 Year But Within 5 Years","","","After 5 Years","","","Total"],["Commercial","","$","29,709","","","","65,198","","","","85,907","","","","180,814"],["Real estate construction","","","37,279","","","","-","","","","-","","","","37,279"],["Total","","","66,988","","","","65,198","","","","85,907","","","","218,093"],["Predetermined rates","","","34,144","","","","65,198","","","","85,907","","","","185,249"],["Floating rates","","","32,844","","","","-","","","","-","","","","32,844"],["Total","","$","66,988","","","","65,198","","","","85,907","","","","218,093"]]
[[/GREPCENT_TABLE]]

At December 31, 2021 and 2020, the Company had approximately $37.3 million and $24.7 million of real estate construction loans, respectively.  Of the $37.3 million in real estate construction loans
at December 31, 2021, approximately $17.9 million were secured by first mortgages to residential borrowers with the remaining $19.4 million were loans to commercial borrowers for residential construction projects.  Of the $24.7 million in real
estate construction loans at December 31, 2020, approximately $10.5 million were secured by first mortgages to residential borrowers with the remaining $14.2 million were loans 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

[[GREPCENT_TABLE]]
[["(dollars in thousands)","","As of December 31,"],["","","2021","","","2020","","","2019"],["","","Amortized Cost","","","Fair Value","","","Amortized Cost","","","Fair Value","","","Amortized Cost","","","Fair Value"],["Securities available for sale:"],["U. S. government sponsored enterprises","","$","59,976","","","","59,179","","","","20,000","","","","19,968","","","","104,895","","","","104,512"],["State and political subdivisions","","","41","","","","41","","","","103","","","","103","","","","160","","","","162"],["Mortgage backed securities and collateralized mortgage obligations-residential","","","269,907","","","","270,798","","","","308,432","","","","316,158","","","","388,537","","","","389,517"],["Corporate bonds","","","45,805","","","","45,337","","","","59,185","","","","59,939","","","","30,164","","","","30,436"],["Small Business Adminstration-guaranteed participation securities","","","31,303","","","","31,674","","","","40,955","","","","42,217","","","","48,991","","","","48,511"],["Other","","","685","","","","684","","","","685","","","","686","","","","685","","","","685"],["Total securities available for sale","","","407,717","","","","407,713","","","","429,360","","","","439,071","","","","573,432","","","","573,823"],["Held to maturity securities:"],["Mortgage backed securities and collateralized mortgage obligations-residential","","","9,923","","","","10,695","","","","13,824","","","","14,988","","","","18,618","","","","19,680"],["Total held to maturity securities","","","9,923","","","","10,695","","","","13,824","","","","14,988","","","","18,618","","","","19,680"],["Total investment securities","","$","417,640","","","","418,408","","","","443,184","","","","454,059","","","","592,050","","","","593,503"]]
[[/GREPCENT_TABLE]]

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 11 of 102

Index

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 calls,
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 typically 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, 2021, 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, 2021, 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, 2021 the Company did not consider any of the unrealized losses to be other than temporary.

At December 31, 2021, the carrying value of securities available for sale amounted to $407.7 million, compared to $439.1 million at year-end 2020.  For 2021, the average
balance of securities available for sale was $462.7 million with an average yield of 1.44%, compared to an average balance in 2020 of 467.8 million with an average yield of 2.00%.  The taxable equivalent income earned on the securities available
for sale portfolio in 2021 was $6.7 million, compared to $9.4 million earned in 2020.

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, 2021, the fair value of TrustCo’s portfolio of securities available for sale carried gross unrealized gains of approximately $3.9 million and gross unrealized
losses also of approximately $3.9 million.  At December 31, 2020, the fair value of TrustCo’s portfolio of securities available for sale carried gross unrealized gains of approximately $9.9 million and gross unrealized losses of approximately $217
thousand.   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, 2021, the Company held $9.9 million of held to maturity securities, compared to $13.8 million at December 31, 2020.  For 2021,
the average balance of held to maturity securities was $11.7 million, compared to $16.4 million in 2020.  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 slightly from 3.69% in 2020 to 3.71% in 2021 as the
mix within the portfolio changed due primarily to normal pay downs and prepayments on the mortgage-backed securities held in the portfolio.  Interest income on held to maturity securities declined from $604 thousand in 2020 to $435 thousand in
2021, 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, 2021 was $10.7 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, 2021 there was $1 thousand of unrecognized losses on securities in this portfolio.

Securities Gains: During 2021, and 2019, TrustCo did not recognize any net gains from securities transactions. During 2020, TrustCo recognized approximately $1.2 million
from net gains from securities transactions.   There were no sales or transfers of held to maturity securities in 2021, 2020 and 2019.

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 12 of 102

Index

SECURITIES PORTFOLIO MATURITY DISTRIBUTION AND YIELD

[[GREPCENT_TABLE]]
[["(dollars in thousands)","","As of December 31, 2021"],["","","Maturing:"],["Debt securities available for sale:","","Within 1 Year","","","After 1 But Within 5 Years","","","After 5 But Within 10 Years","","","After 10 Years","","","Total"],["U. S. government sponsored enterprises"],["Amortized cost","","$","-","","","","59,976","","","","-","","","","-","","","","59,976"],["Fair Value","","","-","","","","59,179","","","","-","","","","-","","","","59,179"],["Weighted average yield","","","-","%","","","0.61","","","","-","","","","-","","","","0.61"],["State and political subdivisions"],["Amortized cost","","$","7","","","","34","","","","-","","","","-","","","","41"],["Fair Value","","","7","","","","34","","","","-","","","","-","","","","41"],["Weighted average yield","","","5.23","%","","","5.27","","","","-","","","","-","","","","5.26"],["Mortgage backed securities and collateralized mortgage obligations-residential"],["Amortized cost","","$","1,672","","","","162,905","","","","101,273","","","","4,057","","","","269,907"],["Fair Value","","","1,689","","","","165,913","","","","99,217","","","","3,979","","","","270,798"],["Weighted average yield","","","3.83","%","","","2.27","","","","1.77","","","","1.98","","","","2.09"],["Corporate bonds"],["Amortized cost","","$","14,965","","","","30,840","","","","-","","","","-","","","","45,805"],["Fair Value","","","15,121","","","","30,216","","","","-","","","","-","","","","45,337"],["Weighted average yield","","","3.44","%","","","1.01","","","","-","","","","-","","","","1.82"],["Small Business Administration-guaranteed participation securities"],["Amortized cost","","$","6,807","","","","24,496","","","","-","","","","-","","","","31,303"],["Fair Value","","","6,893","","","","24,781","","","","-","","","","-","","","","31,674"],["Weighted average yield","","","1.99","%","","","2.11","","","","-","","","","-","","","","2.08"],["Other"],["Amortized cost","","$","85","","","","600","","","","-","","","","-","","","","685"],["Fair Value","","","86","","","","598","","","","-","","","","-","","","","684"],["Weighted average yield","","","2.81","%","","","1.23","","","","-","","","","-","","","","1.43"],["Total securities available for sale"],["Amortized cost","","$","23,536","","","","278,851","","","","101,273","","","","4,057","","","","407,717"],["Fair Value","","","23,796","","","","280,721","","","","99,217","","","","3,979","","","","407,713"],["Weighted average yield","","","3.05","%","","","1.76","","","","1.77","","","","1.98","","","","1.85"],["Held to maturity securities:"],["Mortgage backed securities and collateralized mortgage obligations-residential"],["Amortized cost","","$","-","","","","339","","","","1,319","","","","8,265","","","","9,923"],["Fair Value","","","-","","","","351","","","","1,375","","","","8,969","","","","10,695"],["Weighted average yield","","","-","%","","","4.83","","","","2.87","","","","5.28","","","","4.96","%"],["Total held to maturity securities"],["Amortized cost","","$","-","","","","339","","","","1,319","","","","8,265","","","","9,923"],["Fair Value","","","-","","","","351","","","","1,375","","","","8,969","","","","10,695"],["Weighted average yield","","","-","%","","","4.83","","","","2.87","","","","5.28","","","","4.96","%"]]
[[/GREPCENT_TABLE]]

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

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 2020 was higher than the 2021 level due to the reduction in interest rates in early 2020 as a result of the pandemic.  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, 2021.  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, 2021 on each type/maturity grouping.

Page 13 of 102

Index

SECURITIES PORTFOLIO MATURITY AND CALL DATE DISTRIBUTION

Debt securities available for sale:

[[GREPCENT_TABLE]]
[["(dollars in thousands)","","As of December 31, 2021"],["","","Based on Final Maturity","","","Based on Call Date"],["","","Amortized Cost","","","Fair Value","","","Amortized Cost","","","Fair Value"],["Within 1 year","","$","15,057","","","","15,215","","","","78,512","","","","78,046"],["1 to 5 years","","","91,462","","","","90,040","","","","223,875","","","","226,471"],["5 to 10 years","","","17,725","","","","18,079","","","","101,273","","","","99,217"],["After 10 years","","","283,473","","","","284,379","","","","4,057","","","","3,979"],["Total debt securities available for sale","","$","407,717","","","","407,713","","","","407,717","","","","407,713"]]
[[/GREPCENT_TABLE]]

Held to maturity securities:

[[GREPCENT_TABLE]]
[["(dollars in thousands)","","As of December 31, 2021"],["","","Based on Final Maturity","","","Based on Call Date"],["","","Amortized Cost","","","Fair Value","","","Amortized Cost","","","Fair Value"],["Within 1 year","","$","-","","","","-","","","","53","","","","54"],["1 to 5 years","","","339","","","","351","","","","8,639","","","","9,261"],["5 to 10 years","","","1,319","","","","1,375","","","","1,231","","","","1,380"],["After 10 years","","","8,265","","","","8,969","","","","-","","","","-"],["Total held to maturity securities","","$","9,923","","","","10,695","","","","9,923","","","","10,695"]]
[[/GREPCENT_TABLE]]

Federal Funds Sold and Other Short-term Investments

During 2021, the average balance of Federal Funds sold and other short-term investments was $1.1 billion, an increase from $748.1 million in 2020.  The average rate earned on
these assets was 0.13% in 2021 and 0.26% in 2020.  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 approximately $1.2 billion for 2021, compared to $1.1 billion at year-end 2020.  While yields on investment
securities with acceptable risk characteristics were insufficient to justify shifting overnight liquidity into other investment types during 2021, some funds were shifted into higher yielding loans.  Management will continue to evaluate the overall
level of Federal Funds sold and other short-term investments in 2022 and will make appropriate adjustments based upon market opportunities and interest rates.

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 approximately $5.2 billion in 2021, compared to approximately $4.7 billion in 2020, an increase of $445.9 million.  Changes in deposit categories (average
balances 2021 versus 2020) included: demand deposits up $182.8 million, interest-bearing checking deposits up $163.3 million, savings up $205.9 million, money market up $77.0 million and time deposits down $183.2 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 retail deposits reflects the focus on growing funding
sources by providing core banking services better, faster and at competitive rates.  Additionally, we also believe the increase in retail deposits continues to reflect of the desire of customers to have additional funds in the safety and security
offered by TrustCo’s long history of conservative banking.  Also contributing to the increase in retail deposits was federal stimulus payments sent to eligible customers from the Internal Revenue Service.  The balance 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.

Page 14 of 102

Index

MIX OF AVERAGE SOURCES OF FUNDING

[[GREPCENT_TABLE]]
[["(dollars in thousands)","","2021","","","2020","","","2019","","","2021 vs. 2020","","","2020 vs. 2019","","","Components of Total Funding"],["2021","","","2020","","","2019"],["Retail deposits"],["Demand deposits","","$","750,111","","","","567,265","","","","427,276","","","","182,846","","","","139,989","","","","13.8","%","","","9.4","","","","9.0"],["Savings","","","1,397,432","","","","1,191,532","","","","1,134,050","","","","205,900","","","","57,482","","","","25.8","","","","24.8","","","","28.2"],["Time deposits under $250 thousand","","","964,541","","","","1,126,636","","","","1,189,901","","","","(162,095",")","","","(63,265",")","","","17.8","","","","26.0","","","","22.0"],["Interest bearing checking accounts","","","1,134,702","","","","971,385","","","","874,700","","","","163,317","","","","96,685","","","","20.9","","","","19.1","","","","20.4"],["Money market deposits","","","739,139","","","","662,107","","","","555,547","","","","77,032","","","","106,560","","","","13.6","","","","12.2","","","","11.8"],["Total retail deposits","","","4,985,925","","","","4,518,925","","","","4,181,474","","","","467,000","","","","337,451","","","","91.9","","","","91.5","","","","91.4"],["Time deposits over $250 thousand","","","202,422","","","","223,527","","","","227,586","","","","(21,105",")","","","(4,059",")","","","3.7","","","","5.0","","","","4.1"],["Short-term borrowings","","","232,815","","","","180,065","","","","159,220","","","","52,750","","","","20,845","","","","4.4","","","","3.5","","","","4.4"],["Total purchased liabilities","","","435,237","","","","403,592","","","","386,806","","","","31,645","","","","16,786","","","","8.1","","","","8.5","","","","8.6"],["Total sources of funding","","$","5,421,162","","","","4,922,517","","","","4,568,280","","","","498,645","","","","354,237","","","","100.0","%","","","100.0","","","","100.0"]]
[[/GREPCENT_TABLE]]

Page 15 of 102

Index

AVERAGE BALANCES, YIELDS AND NET INTEREST MARGINS

[[GREPCENT_TABLE]]
[["(dollars in thousands)","","2021","","","2020","","","2019"],["","","Average Balance","","","Interest Income/ Expense","","","Average Rate","","","Average Balance","","","Interest Income/ Expense","","","Average Rate","","","Average Balance","","","Interest Income/ Expense","","","Average Rate"],["Assets"],["Loans, net","","$","4,336,834","","","","159,168","","","","3.67","%","","$","4,163,399","","","","165,964","","","","3.99","%","","$","3,926,199","","","","166,610","","","","4.24","%"],["Securities available for sale:"],["U.S. government sponsored enterprises","","","63,743","","","","314","","","","0.49","","","","38,508","","","","568","","","","1.48","","","","156,292","","","","3,209","","","","2.05"],["State and political subdivisions","","","48","","","","3","","","","6.56","","","","111","","","","9","","","","7.82","","","","167","","","","13","","","","7.78"],["Mortgage backed securities and collateralized mortgage obligations-residential","","","308,777","","","","4,515","","","","1.46","","","","333,093","","","","6,131","","","","1.84","","","","345,718","","","","8,219","","","","2.38"],["Corporate bonds","","","53,699","","","","1,065","","","","1.98","","","","50,982","","","","1,721","","","","3.38","","","","34,637","","","","1,096","","","","3.16"],["Small Business Administration-guaranteed participation securities","","","35,723","","","","745","","","","2.09","","","","44,379","","","","902","","","","2.03","","","","53,269","","","","1,121","","","","2.10"],["Other","","","685","","","","20","","","","2.92","","","","686","","","","23","","","","3.35","","","","685","","","","22","","","","3.21"],["Total securities available for sale","","","462,675","","","","6,662","","","","1.44","","","","467,759","","","","9,354","","","","2.00","","","","590,768","","","","13,680","","","","2.32"],["Held to maturity securities:"],["Mortgage backed securities and collateralized mortgage obligations-residential","","","11,733","","","","435","","","","3.71","","","","16,376","","","","604","","","","3.69","","","","20,643","","","","797","","","","3.86"],["Total held to maturity securities","","","11,733","","","","435","","","","3.71","","","","16,376","","","","604","","","","3.69","","","","20,643","","","","797","","","","3.86"],["Federal Reserve Bank and Federal Home Loan Bank stock","","","5,578","","","","260","","","","4.66","","","","7,381","","","","421","","","","5.70","","","","9,123","","","","568","","","","6.23"],["Federal funds sold and other short-term investments","","","1,111,257","","","","1,458","","","","0.13","","","","748,085","","","","1,948","","","","0.26","","","","477,181","","","","10,478","","","","2.20"],["Total interest earning assets","","","5,928,077","","","","167,983","","","","2.83","%","","","5,403,000","","","","178,291","","","","3.30","%","","","5,023,914","","","","192,133","","","","3.82","%"],["Allowance for loan losses","","","(49,421",")","","","","","","","","","","","(47,330",")","","","","","","","","","","","(44,639",")"],["Cash and noninterest earning assets","","","196,825","","","","","","","","","","","","197,966","","","","","","","","","","","","182,545"],["Total assets","","$","6,075,481","","","","","","","","","","","$","5,553,636","","","","","","","","","","","$","5,161,820"],["Liabilities and shareholders\u2019 equity Interest bearing deposits:"],["Interest bearing checking accounts","","$","1,134,702","","","","178","","","","0.02","%","","$","971,385","","","","148","","","","0.02","%","","$","874,700","","","","288","","","","0.03","%"],["Savings","","","1,397,432","","","","624","","","","0.04","","","","1,191,532","","","","716","","","","0.06","","","","1,134,050","","","","1,338","","","","0.12"],["Time deposits and money markets","","","1,906,102","","","","5,863","","","","0.31","","","","2,012,270","","","","22,834","","","","1.13","","","","1,973,034","","","","33,227","","","","1.68"],["Total interest bearing deposits","","","4,438,236","","","","6,665","","","","0.15","","","","4,175,187","","","","23,698","","","","0.57","","","","3,981,784","","","","34,853","","","","0.88"],["Short-term borrowings","","","232,815","","","","909","","","","0.39","","","","180,065","","","","1,010","","","","0.56","","","","159,220","","","","1,468","","","","0.92"],["Total interest bearing liabilities","","","4,671,051","","","","7,574","","","","0.16","%","","","4,355,252","","","","24,708","","","","0.57","%","","","4,141,004","","","","36,321","","","","0.88","%"],["Demand deposits","","","750,111","","","","","","","","","","","","567,265","","","","","","","","","","","","427,276"],["Other liabilities","","","74,396","","","","","","","","","","","","77,487","","","","","","","","","","","","80,051"],["Shareholders\u2019 equity","","","579,923","","","","","","","","","","","","553,632","","","","","","","","","","","","513,489"],["Total liabilities and shareholders\u2019 equity","","$","6,075,481","","","","","","","","","","","$","5,553,636","","","","","","","","","","","$","5,161,820"],["Net interest income","","","","","","","160,409","","","","","","","","","","","","153,583","","","","","","","","","","","","155,812"],["Taxable equivalent adjustment","","","","","","","(1",")","","","","","","","","","","","(3",")","","","","","","","","","","","(5",")"],["Net interest income","","","","","","","160,408","","","","","","","","","","","","153,580","","","","","","","","","","","","155,807"],["Net interest spread","","","","","","","","","","","2.67","%","","","","","","","","","","","2.73","%","","","","","","","","","","","2.94","%"],["Net interest margin (net interest income to total interest earnings assets)","","","","","","","","","","","2.71","","","","","","","","","","","","2.84","","","","","","","","","","","","3.10"]]
[[/GREPCENT_TABLE]]

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 tax on a tax equivalent basis were
21% and 6%, respectively, for 2021, 2020 and 2019.  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 $3.3 million, $7.1
million, and $(3.6) million in 2021, 2020, and 2019, respectively, of net unrealized gain (loss), net of tax, in the available for sale securities portfolio.  The gross amounts of the net unrealized income (loss) has been included in cash and
noninterest earning assets.  Nonaccrual loans are included in average loans.

Page 16 of 102

Index

The overall cost of interest bearing deposits decreased primarily as a result of the lower interest rate environment resulting from the pandemic.

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 $232.8 million of average short‑term borrowings outstanding during 2021, compared to $180.1 million in 2020.  The increase over the prior year is
consistent with the overall increase in core deposits and is not attributed with efforts to grow this product type.  These borrowings represent customer repurchase accounts, which behave more like deposit accounts than traditional borrowings.  The
average cost of short-term borrowings was 0.39% in 2021 and 0.56% in 2020.  This resulted in interest expense of approximately $909 thousand in 2021, compared to $1.0 million in 2020.

AVERAGE DEPOSITS BY TYPE OF DEPOSITOR

[[GREPCENT_TABLE]]
[["(dollars in thousands)","","Years ended December 31,"],["","","2021","","","2020","","","2019","","","2018","","","2017"],["Individuals, partnerships and corporations","","$","5,144,071","","","","4,700,635","","","","4,380,866","","","","4,184,850","","","","4,149,832"],["U.S. Government","","","-","","","","-","","","","-","","","","-","","","","-"],["States and political subdivisions","","","15,761","","","","15,709","","","","8,663","","","","3,007","","","","2,765"],["Other (certified and official checks, etc.)","","","28,515","","","","26,108","","","","19,531","","","","18,720","","","","18,799"],["Total average deposits by type of depositor","","$","5,188,347","","","","4,742,452","","","","4,409,060","","","","4,206,577","","","","4,171,396"]]
[[/GREPCENT_TABLE]]

MATURITY OF TIME DEPOSITS OVER $250 THOUSAND

(dollars in thousands)

[[GREPCENT_TABLE]]
[["","","As of December 31, 2021"],["Under 3 months","","$","44,980"],["3 to 6 months","","","27,880"],["6 to 12 months","","","69,424"],["Over 12 months","","","19,230"],["Total","","$","161,514"]]
[[/GREPCENT_TABLE]]

VOLUME AND YIELD ANALYSIS

[[GREPCENT_TABLE]]
[["(dollars in thousands)","","2021 vs. 2020","","","2020 vs. 2019"],["","","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","","$","(490",")","","","714","","","","(1,204",")","","","(8,530",")","","","3,909","","","","(12,439",")"],["Securities available for sale:"],["Taxable","","","(2,686",")","","","(266",")","","","(2,420",")","","","(4,322",")","","","(1,853",")","","","(2,469",")"],["Tax-exempt","","","(6",")","","","(5",")","","","(1",")","","","(4",")","","","(4",")","","","-"],["Total securities available for sale","","","(2,692",")","","","(271",")","","","(2,421",")","","","(4,326",")","","","(1,857",")","","","(2,469",")"],["Held to maturity securities (taxable)","","","(169",")","","","(172",")","","","3","","","","(193",")","","","(159",")","","","(34",")"],["Federal Reserve Bank and Federal Home Loan Bank stock","","","(161",")","","","(92",")","","","(69",")","","","(147",")","","","(102",")","","","(45",")"],["Loans, net","","","(6,796",")","","","6,391","","","","(13,187",")","","","(646",")","","","9,646","","","","(10,292",")"],["Total interest income","","","(10,308",")","","","6,570","","","","(16,878",")","","","(13,842",")","","","11,437","","","","(25,279",")"],["Interest expense:"],["Interest bearing checking accounts","","","30","","","","26","","","","4","","","","(140",")","","","22","","","","(162",")"],["Savings","","","(92",")","","","111","","","","(203",")","","","(622",")","","","68","","","","(690",")"],["Time deposits and money markets","","","(16,971",")","","","(2,061",")","","","(14,910",")","","","(10,393",")","","","(611",")","","","(9,782",")"],["Short-term borrowings","","","(101",")","","","251","","","","(352",")","","","(458",")","","","172","","","","(630",")"],["Total interest expense","","","(17,134",")","","","(1,673",")","","","(15,461",")","","","(11,613",")","","","(349",")","","","(11,264",")"],["Net interest income (TE)","","$","6,826","","","","8,243","","","","(1,417",")","","$","(2,229",")","","","11,786","","","","(14,015",")"]]
[[/GREPCENT_TABLE]]

Page 17 of 102

Index

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.

Both TrustCo and Trustco Bank are subject to regulatory capital requirements.  The regulatory capital rules contain a Tier 1 leverage ratio of 4.0% of consolidated assets, a common equity Tier 1
minimum capital requirement of 4.5% of risk-weighted assets, a minimum Tier 1 capital to risk-based assets requirement of 6.0% of risk-weighted assets, and a total risk-based capital ratio or 8.0% of risk-weighted assets.  In addition, the Company
and the Bank are required to maintain additional levels of Tier 1 common equity (known as the capital conservation buffer) above the minimum risk-based capital levels in order to avoid restrictions on dividends, repurchase shares, or payment of
discretionary bonuses.

As of December 31, 2021, the capital levels of both TrustCo and the Bank exceeded the minimum standards, including with the capital conservation buffer 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, 2021 and 2020, Trustco Bank met the definition of “well-capitalized.”

The federal bank regulatory agencies have adopted rules creating a “community bank leverage ratio” framework designed to simplify capital requirements for qualifying banks
and bank or thrift holding companies. The new rule was effective as of January 1, 2020.  Although TrustCo would qualify to take advantage of the community bank leverage ratio framework, it has decided it would not opt-in to the framework.

The Company’s dividend payout ratio was 42.95% of net income in 2021 and 50.12% of net income in 2020. The Company executed a 1 for 5 reverse stock split on May 28, 2021.  The per-share dividend
paid was $1.372 in 2021 and $1.363 in 2020, adjusted for the reverse split.  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.

TrustCo’s consolidated Tier 1 risk-based capital was 19.54% of risk-adjusted assets at December 31, 2021, and 19.19% of risk‑adjusted assets at December 31, 2020.  Consolidated Tier 1 capital to
assets (leverage ratio) at December 31, 2021 was 9.61%, as compared to 9.65% at year-end 2020.  Note 14 to the financial statements includes information on all regulatory capital ratios.

TrustCo maintains a dividend reinvestment plan (DRP) with approximately 7,156 participants.  During 2021, $2.2 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 5%) that can be activated by management as a tool to raise capital. To date, the discount feature has not been utilized.

On June 7, 2019 the Company’s Board of Directors authorized a share repurchase program of up to 1,000,000 shares.  During the three months ended March 31, 2020, the Company repurchased a total
of 489 thousand shares at an average price per share of $7.11 for a total of $3.5 million under its Board authorized share repurchase program.  The shares purchased as of March 31, 2020 represented 0.51% of our common shares outstanding.  On April
16, 2020 the Company announced that it has suspended its share repurchase program.  On February 18, 2021 the Company’s Board of Directors authorized another share repurchase program of up to 2,000,000 shares and was adjusted to 400,000 shares as a
result of the approval of the Reverse Stock Split, and represents approximately 2% of its currently outstanding common stock.  During the twelve months ended December 31, 2021, the Company repurchased a total of 70 thousand shares at an average
price per share of $32.82 for a total of $2.3 million under its Board authorized share repurchase program.

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.

Page 18 of 102

Index

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.

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, 2021, virtually all of the Federal Funds sold and other short-term investments were funds on deposit at the Federal Reserve
Bank of New York (“FRBNY”) and the Federal Home Loan Bank of New York (“FHLBNY”).  The Company also monitors the credit ratings on its investment securities and performs initial and periodic reviews of financial information for the issuers of
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 2021 and 2020 totaled $19.1 million and $21.6 million, respectively.  Nonperforming loans as a percentage of the total loan portfolio were 0.42% in
2021 and 0.50% in 2020.  As of December 31, 2021 and 2020, there were $6.5 million and $7.1 million, respectively, of loans in non-accruing status that were less than 90 days past due.

At December 31, 2021, nonperforming loans include a mix of commercial and residential loans.  Of the total nonaccrual loans of $18.7 million, $18.6 were residential real estate loans and $112
thousand were commercial loans.  It is the Company’s policy to classify loans as nonperforming if three monthly payments have been missed.  Economic conditions generally improved as compared to the prior year.  The majority of the Company’s loan
portfolio continues to come from its historical market area in Upstate New York.  As of December 31, 2021, 70.6% of loans are in New York, including both the Upstate and Downstate areas, as well as nominal loan balances in adjoining states.  The
remaining 29.4% of the loan portfolio are Florida loans.  At December 31, 2021, 10.7% of nonperforming loans were in Florida and 89.3% were in the Company’s New York area markets.  At December 31, 2021 nonperforming Florida loans amounted to $2.0
million compared to $1.2 million at December 31, 2020.

[[GREPCENT_TABLE]]
[["(dollars in thousands)","","As of December 31,"],["","","2021","","","2020","","","2019","","","2018","","","2017"],["Loans in nonaccrual status","","$","18,739","","","","21,061","","","","20,840","","","","24,952","","","","24,339"],["Restructured retail loans","","","17","","","","23","","","","29","","","","34","","","","38"],["Total nonperforming loans","","","18,756","","","","21,084","","","","20,869","","","","24,986","","","","24,377"],["Foreclosed real estate","","","362","","","","541","","","","1,579","","","","1,676","","","","3,246"],["Total nonperforming assets","","$","19,118","","","","21,625","","","","22,448","","","","26,662","","","","27,623"],["Allowance for loan losses","","$","44,267","","","","49,595","","","","44,317","","","","44,766","","","","44,170"],["Allowance coverage of nonperforming loans","","","2.36","x","","","2.35","","","","2.12","","","","1.79","","","","1.81"],["Nonperforming loans as a % of total loans","","","0.42","%","","","0.50","","","","0.51","","","","0.64","","","","0.67"],["Nonperforming assets as a % of total assets","","","0.31","%","","","0.37","","","","0.43","","","","0.54","","","","0.56"]]
[[/GREPCENT_TABLE]]

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

There were $232 thousand and $1.0 million of commercial loans classified as impaired as of December 31, 2021 and 2020, respectively.  In addition, there were $18.3 million
and $20.6 million of residential TDRs classified as impaired at December 31, 2021 and 2020, respectively.  Generally, residential TDRs involve the borrower filing for bankruptcy protection.  The average balances of all impaired loans were $20.8
million during both 2021 and 2020, and $21.0 million in 2019.

As noted above, Loan modifications and payment deferrals as a result of COVID-19 that meet the criteria established under Section 4013 of the CARES Act or under applicable
federal banking agency guidance are excluded from evaluation of TDR classification and will continue to be reported as current during the payment deferral period. Loans not meeting the CARES Act or regulatory guidance are evaluated for TDR and
non-accrual treatment under the Company’s existing policies and procedures.

Page 19 of 102

Index

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, 2021, there were no other loans classified for regulatory purposes that
management reasonably expects will materially impact future operating results, liquidity, or capital resources.  TrustCo has 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 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.  None of these loans involve more
than normal risk of collectability or present other unfavorable features.

At year-end 2021 and 2020 there were $362 thousand and $541 thousand 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.

The allowance for loan losses represents management’s estimate of probable and reasonably estimable credit losses inherent in the held for investment loan portfolio.  In determining the allowance, we estimate losses
on specific loans, or groups of loans, where the probable loss can be identified and reasonably estimated.  On a quarterly basis, we assess the risk inherent in our loan portfolio based on qualitative and quantitative trends in the portfolio,
including the internal risk classification of loans, historical loss rates, changes in the nature of the portfolio, industry concentrations, delinquency trends, detailed reviews of significant loans with identified weaknesses, and the impacts of
local, regional and national economic factors on the quality of the loan portfolio.  Based on this analysis, we record a provision for loan losses in order to maintain the allowance at appropriate levels.

Determining the amount of the allowance is considered a critical accounting estimate, as it requires significant judgment and the use of subjective measurements, including management’s assessment of overall
portfolio quality.  The allowance is maintained at an amount we believe is sufficient to provide for estimated losses inherent in our loan portfolio at each balance sheet date, and fluctuations in the provision for loan losses may result from
management’s assessment of the adequacy of the allowance.  Changes in these estimates and assumptions are possible and may have a material impact on our allowance, and therefore our financial position, liquidity or results of operations.

 The table, “Summary of Loan Loss Experience”, includes an analysis of the changes to the allowance for the past five years.  Net loans recovered in 2021 were $122 thousand
and net loans charged off were $322 thousand in 2020.  The decrease in net charge-offs was primarily the result of lower gross charge offs in both the New York and Florida residential, commercial and installment segments of the portfolio, and
increased recoveries in the New York residential, commercial and installment segments of the portfolio.   New York commercial gross recoveries were up $22 thousand from 2020 to 2021, residential gross recoveries were up $150 thousand in 2021
relative to 2020, and installment recoveries were up $42 thousand from 2020 to 2021.  Total gross charge-offs in 2021 were $430 thousand versus $661 thousand in 2020.  There were no Florida commercial charge-offs in either 2021 or 2020, and New
York commercial charge-offs decreased $6 thousand from 2020 to 2021.   Residential gross charge-offs were down $64 thousand from 2020 to 2021 and gross installment charge‑offs decreased $161 thousand from 2020 to 2021.  The changes in gross and net
charge-offs in these categories reflected economic and market changes.  The provision for loan losses was a credit in 2021 of $5.5 million compared to an expense of $5.6 million in 2020.  The decrease in the provision for loan losses in 2021 was
primarily driven by improvements in asset quality trends and economic conditions, as well as adjustments to the pandemic specific provision.  The allowance for loan losses decreased from $49.6 million at December 31, 2020, or 1.17% of total loans
at that date, to $44.3 million at December 31, 2021, or 1.00% of total loans at that date.

Conditions in most of the Bank’s market areas are stabilizing or improving as compared to 2020 however, 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. Additionally, the foreclosure moratorium has expired and the Company could experience an increase in other real estate owned.

Page 20 of 102

Index

As noted in Note 18, In September 2016, the FASB released ASU 2016-13, “Financial Instruments - Credit Losses” (referred to as “CECL”) 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 form credit loss estimates. As previously disclosed, the Company formed a
cross-functional team to work through its implementation of CECL. The Company has selected the Discounted Cash Flow modeling method and has run parallel processes and is in final review stages of completing its documentation including third party
model validations.  The Company had previously elected to delay its adoption of CECL, as provided by the CARES Act until the date on which the National Emergency concerning COVID-19 was terminated or December 31, 2020, whichever occurred first.
The December 31, 2020 adoption date under the CARES Act was extended to January 1, 2022 as a part of the COVID-19 Relief Bill, which became law in December 2020, and therefore the Company has adopted CECL on January 1, 2022.  The Company does not
expect the adoption to have a material impact to the statement of financial position or results of operations.

SUMMARY OF LOAN LOSS EXPERIENCE

(dollars in thousands)

[[GREPCENT_TABLE]]
[["","","2021","","","2020","","","2019","","","2018","","","2017"],["Amount of loans outstanding at end of year (less unearned income)","","$","4,438,779","","","","4,244,470","","","","4,062,196","","","","3,874,096","","","","3,636,407"],["Average loans outstanding during year (less average unearned income)","","","4,336,834","","","","4,163,399","","","","3,926,199","","","","3,746,082","","","","3,514,900"],["Balance of allowance at beginning of year","","","49,595","","","","44,317","","","","44,766","","","","44,170","","","","43,890"],["Loans charged off:"],["Commercial and commercial real estate","","","30","","","","36","","","","20","","","","100","","","","72"],["Real estate mortgage - 1 to 4 family","","","340","","","","404","","","","974","","","","846","","","","2,220"],["Installment","","","60","","","","221","","","","213","","","","257","","","","219"],["Total","","","430","","","","661","","","","1,207","","","","1,203","","","","2,511"],["Recoveries of loans previously charged off:"],["Commercial and commercial real estate","","","32","","","","10","","","","46","","","","10","","","","96"],["Real estate mortgage - 1 to 4 family","","","466","","","","317","","","","532","","","","351","","","","669"],["Installment","","","54","","","","12","","","","21","","","","38","","","","26"],["Total","","","552","","","","339","","","","599","","","","399","","","","791"],["Net loans charged off","","","(122",")","","","322","","","","608","","","","804","","","","1,720"],["Provision for loan losses","","","(5,450",")","","","5,600","","","","159","","","","1,400","","","","2,000"],["Balance of allowance at end of year","","$","44,267","","","","49,595","","","","44,317","","","","44,766","","","","44,170"],["Net charge offs as a percent of average loans outstanding during year (less average unearned income)","","","0.00","%","","","0.01","","","","0.02","","","","0.02","","","","0.05"],["Allowance as a percent of loans outstanding at end of year","","","1.00","","","","1.17","","","","1.09","","","","1.16","","","","1.21"]]
[[/GREPCENT_TABLE]]

Page 21 of 102

Index

Allocation of the Allowance for Loan Losses

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

[[GREPCENT_TABLE]]
[["(dollars in thousands)","","As of December 31, 2021","","","As of December 31, 2020"],["","","Amount","","","Percent of Loans to Total Loans","","","Amount","","","Percent of Loans to Total Loans"],["Commercial","","$","2,942","","","","4.08","%","","$","3,975","","","","4.67","%"],["Real estate - construction","","","375","","","","0.84","%","","","290","","","","0.58","%"],["Real estate mortgage - 1 to 4 family","","","37,650","","","","89.67","%","","","41,228","","","","88.81","%"],["Home equity lines of credit","","","2,857","","","","5.20","%","","","3,597","","","","5.71","%"],["Installment Loans","","","443","","","","0.21","%","","","505","","","","0.23","%"],["","","$","44,267","","","","100.00","%","","$","49,595","","","","100.00","%"]]
[[/GREPCENT_TABLE]]

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.