Equibles

10-Q

TRUSTCO BANK CORP N Y (TRST)

10-Q 2023-05-09 For: 2023-03-31
View Original
Added on April 09, 2026

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2023

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to _________

Commission File Number 000-10592

TRUSTCO BANK CORP NY

(Exact name of registrant as specified in its charter)

NEW YORK 14-1630287
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
5 SARNOWSKI DRIVE, GLENVILLE, NEW YORK 12302
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(Address of principal executive offices) (Zip Code)
(518) 377-3311
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Registrant’s telephone number, including area code:

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

Title of each class Trading Symbol (s) Name of each exchange on which registered
Common Stock, $1.00 par value TRST Nasdaq Global Select Market

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S‑T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

☒ Yes  ☐ No

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

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

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

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

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

Common Stock Number of Shares Outstanding<br><br> as of April 28, 2023
$1 Par Value 19,024,433

TrustCo Bank Corp NY

INDEX

DESCRIPTION PAGE NO.
Forward-Looking Statements 3
Part I. FINANCIAL INFORMATION
Item 1. Consolidated Interim Financial Statements (Unaudited):
Consolidated Statements of Income for the three month periods ended March 31, 2023 and 2022 4
Consolidated Statements of Comprehensive Income for the three month periods ended March 31, 2023 and 2022 5
Consolidated Statements of Financial Condition as of March 31, 2023 and December 31, 2022 6
Consolidated Statements of Changes in Shareholders’ Equity for the three month periods ended March 31, 2023 and 2022 7
Consolidated Statements of Cash Flows for the three month periods ended March 31, 2023 and 2022 8
Notes to Consolidated Interim Financial Statements 9-40
Report of Independent Registered Public Accounting Firm 41
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 42-57
Item 3. Quantitative and Qualitative Disclosures About Market Risk 58
Item 4. Controls and Procedures 58
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 59
Item 1A. Risk Factors 59
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 61
Item 3. Defaults Upon Senior Securities 62
Item 4. Mine Safety Disclosures 62
Item 5. Other Information 62
Item 6. Exhibits 62

2

Index

Forward-looking Statements

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

In addition to factors described under Part II, Item 1A, Risk Factors, and under the Risk Factor discussion in TrustCo’s Annual Report on Form 10-K for the year ended December 31, 2022, the factors listed below, among others, in some cases have affected and in the future could affect TrustCo’s actual results and could cause TrustCo’s actual financial performance to differ materially from that expressed in any forward-looking statement.  Additionally, many of these risks and uncertainties are currently elevated by and may or will continue to be elevated by the effects of adverse developments in the financial services industry, such as the recent bank failures and any related impact on depositor behavior, macroeconomic or geopolitical concerns related to inflation, rising interest rates and the war in Ukraine.

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

3

Index

TRUSTCO BANK CORP NY

Consolidated Statements of Income (Unaudited)

(dollars in thousands, except per share data)

Three months ended
March 31,
2023 2022
Interest and dividend income:
Interest and fees on loans $ 44,272 $ 39,003
Interest and dividends on securities available for sale:
U. S. government sponsored enterprises 692 86
State and political subdivisions - 1
Mortgage-backed securities and collateralized mortgage obligations - residential 1,585 1,087
Corporate bonds 521 233
Small Business Administration-guaranteed participation securities 117 154
Other securities 2 2
Total interest and dividends on securities available for sale 2,917 1,563
Interest on held to maturity securities:
Mortgage-backed securities and collateralized mortgage obligations-residential 78 90
Total interest on held to maturity securities 78 90
Federal Home Loan Bank stock 110 62
Interest on federal funds sold and other short-term investments 6,555 572
Total interest income 53,932 41,290
Interest expense:
Interest on deposits:
Interest-bearing checking 66 44
Savings accounts 530 156
Money market deposit accounts 814 214
Time deposits 5,272 546
Interest on short-term borrowings 285 234
Total interest expense 6,967 1,194
Net interest income 46,965 40,096
Provision (Credit) for credit losses 300 (200 )
Net interest income after provision (credit) for credit losses 46,665 40,296
Noninterest income:
Trustco financial services income 1,774 1,833
Fees for services to customers 2,648 2,801
Other 247 549
Total noninterest income 4,669 5,183
Noninterest expenses:
Salaries and employee benefits 13,283 9,239
Net occupancy expense 4,598 4,529
Equipment expense 1,962 1,588
Professional services 1,607 1,467
Outsourced services 2,296 2,280
Advertising expense 390 617
FDIC and other insurance 1,052 812
Other real estate expense, net 225 11
Other 2,266 2,222
Total noninterest expenses 27,679 22,765
Income before taxes 23,655 22,714
Income taxes 5,909 5,625
Net income $ 17,746 $ 17,089
Net income per share:
- Basic $ 0.93 $ 0.89
- Diluted $ 0.93 $ 0.89

See accompanying notes to unaudited consolidated interim financial statements.

4

Index

TRUSTCO BANK CORP NY

Consolidated Statements of Comprehensive Income (Unaudited)

(dollars in thousands)

Three months ended
March 31,
2023 2022
Net income $ 17,746 $ 17,089
Net unrealized holding gain (loss) on securities available for sale 5,251 (19,225 )
Tax effect (1,350 ) 4,974
Net unrealized gain (loss) on securities<br> available for sale, net of tax 3,901 (14,251 )
Amortization of net actuarial gain (114 ) (78 )
Amortization of prior service cost (credit) 3 (280 )
Tax effect 29 93
Amortization of net actuarial gain and prior service cost (credit) on pension and postretirement plans, net of tax (82 ) (265 )
Other comprehensive income (loss), net of tax 3,819 (14,516 )
Comprehensive income $ 21,565 $ 2,573

See accompanying notes to unaudited consolidated interim financial statements.

5

Index

TRUSTCO BANK CORP NY

Consolidated Statements of Financial Condition (Unaudited)

(dollars in thousands, except share and per share data)

December 31, 2022
ASSETS:
Cash and due from banks 47,595 $ 43,429
Federal funds sold and other short term investments 589,389 607,170
Total cash and cash equivalents 636,984 650,599
Securities available for sale 476,659 481,513
Held to maturity securities (7,298<br> and 7,580 fair value at March 31, 2023 and December 31, 2022, respectively) 7,382 7,707
Federal Home Loan Bank stock 5,797 5,797
Loans, net of deferred net costs 4,799,582 4,733,201
Less:
Allowance for credit losses on loans 46,685 46,032
Net loans 4,752,897 4,687,169
Bank premises and equipment, net 32,305 32,556
Operating lease right-of-use assets 43,478 44,727
Other assets 90,306 89,984
Total assets 6,045,808 $ 6,000,052
LIABILITIES:
Deposits:
Demand 806,075 $ 838,147
Interest-bearing checking 1,124,785 1,183,321
Savings accounts 1,400,887 1,521,473
Money market deposit accounts 600,410 621,106
Time deposits 1,280,301 1,028,763
Total deposits 5,212,458 5,192,810
Short-term borrowings 134,293 122,700
Operating lease liabilities 47,643 48,980
Accrued expenses and other liabilities 36,711 35,575
Total liabilities 5,431,105 5,400,065
SHAREHOLDERS’ EQUITY:
Capital stock par value 1.00;<br> 30,000,000 shares authorized;  20,058,142 shares issued at March 31, 2023 and December 31, 2022,<br> and 19,024,433 shares outstanding at March 31, 2023 and December 31, 2022 20,058 20,058
Surplus 257,078 257,078
Undivided profits 404,728 393,831
Accumulated other comprehensive loss, net of tax (23,375 ) (27,194 )
Treasury stock at cost - 1,033,709 shares at March 31, 2023 and December 31, 2022, respectively (43,786 ) (43,786 )
Total shareholders’ equity 614,703 599,987
Total liabilities and shareholders’ equity 6,045,808 $ 6,000,052

All values are in US Dollars.

See accompanying notes to unaudited consolidated interim financial statements.

6

Index

TRUSTCO BANK CORP NY

Consolidated Statements of Changes in Shareholders’

  Equity \(Unaudited\)

(dollars in thousands, except per share data)

Accumulated
Other
Undivided Comprehensive Treasury
Surplus Profits Income Stock Total
Beginning balance, January 1, 2022 20,046 $ 256,661 $ 349,056 $ 12,147 $ (36,782 ) $ 601,128
Cumulative impact of adoption of ASU 2016-13 - - (3,470 ) - - (3,470 )
Balance, January 1, 2022 as adjusted<br> for impact of adoption of ASU 2016-13 20,046 256,661 345,586 12,147 (36,782 ) 597,658
Net income - - 17,089 - - 17,089
Other comprehensive loss, net of tax - - - (14,516 ) - (14,516 )
Cash dividend declared, 0.35 per share - - (6,727 ) - - (6,727 )
Purchase of treasury stock 18,114 shares - - - - (609 ) (609 )
Ending balance, March 31, 2022 20,046 $ 256,661 $ 355,948 $ (2,369 ) $ (37,391 ) $ 592,895
Beginning balance, January 1, 2023 20,058 $ 257,078 $ 393,831 $ (27,194 ) $ (43,786 ) $ 599,987
Net income - - 17,746 - - 17,746
Other comprehensive income, net of tax - - - 3,819 - 3,819
Cash dividend declared, 0.36 per share - - (6,849 ) - - (6,849 )
Ending balance, March 31, 2023 20,058 $ 257,078 $ 404,728 $ (23,375 ) $ (43,786 ) $ 614,703

All values are in US Dollars.

See accompanying notes to unaudited consolidated interim financial statements.

7

Index

TRUSTCO BANK CORP NY

Consolidated Statements of Cash Flows (Unaudited)

(dollars in thousands)

Three months ended March 31,
2023 2022
Cash flows from operating activities:
Net income $ 17,746 $ 17,089
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 1,008 1,024
Amortization of right-of-use asset 1,634 1,608
Net gain on sale of other real estate owned (148 ) (73 )
Provision (credit) for credit losses 300 (200 )
Deferred tax expense 1,816 744
Net amortization of securities 460 697
Net gain on sale of bank premises and equipment - (314 )
Decrease in taxes receivable 5,456 489
(Increase) decrease in interest receivable (198 ) 202
Increase (decrease) in interest payable 842 (32 )
Increase in other assets (3,583 ) (2,601 )
Decrease in operating lease liabilities (1,722 ) (1,713 )
Decrease in accrued expenses and other liabilities (4,831 ) (5,943 )
Total adjustments 1,034 (6,112 )
Net cash provided by operating activities 18,780 10,977
Cash flows from investing activities:
Proceeds from sales, paydowns and calls of securities available for sale 14,659 17,923
Proceeds from paydowns of held to maturity securities 311 716
Purchases of securities available for sale (5,000 ) (34,097 )
Proceeds from maturities of securities available for sale - 5,000
Net increase in loans (66,328 ) (25,516 )
Proceeds from dispositions of other real estate owned 340 166
Proceeds from dispositions of bank premises and equipment - 469
Purchases of bank premises and equipment (757 ) (796 )
Net cash used in investing activities (56,775 ) (36,135 )
Cash flows from financing activities:
Net increase in deposits 19,648 81,887
Net change in short-term borrowings 11,593 3,685
Purchases of treasury stock - (609 )
Dividends paid (6,861 ) (6,727 )
Net cash provided by financing activities 24,380 78,236
Net (decrease) increase in cash and cash equivalents (13,615 ) 53,078
Cash and cash equivalents at beginning of period 650,599 1,219,470
Cash and cash equivalents at end of period $ 636,984 $ 1,272,548
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for:
Interest paid $ 6,125 $ 1,226
Income taxes paid 471 5,090
Other non cash items:
Decrease in dividends payable (12 ) -
Change in unrealized (loss) gain on securities available for sale-gross 5,251 (19,225 )
Change in deferred tax effect on unrealized loss (gain) on securities available for sale (1,350 ) 4,974
Amortization of net actuarial gain and prior service cost (credit) on pension and postretirement plans (111 ) (358 )
Change in deferred tax effect of amortization of net actuarial gain postretirement benefit plans 29 93
Impact to retained earnings from adoption of ASC 326, net of tax - (3,470 )

See accompanying notes to unaudited consolidated interim financial statements.

8

Index

TRUSTCO BANK CORP N Y

Notes to Consolidated Interim Financial Statements

(Unaudited)

(1) Financial Statement Presentation

The unaudited Consolidated Interim Financial Statements of TrustCo Bank Corp NY (the “Company” or “TrustCo”) include the accounts of the Company’s subsidiary, Trustco Bank (also referred to as the “Bank”) and other subsidiaries after elimination of all significant intercompany accounts and transactions.  Prior period amounts are reclassified when necessary to conform to the current period presentation.  The net income reported for the three months ended March 31, 2023 is not necessarily indicative of the results that may be expected for the year ending December 31, 2023, or any interim periods.  These financial statements consider events that occurred through the date of filing.

In the opinion of the management of the Company, the accompanying unaudited Consolidated Interim Financial Statements contain all recurring adjustments necessary to present fairly the financial position as of March 31, 2023, the results of operations and cash flows for the three months ended March 31, 2023 and 2022.  The accompanying unaudited Consolidated Interim Financial Statements should be read in conjunction with the Company’s year‑end Consolidated Financial Statements, including notes thereto, which are included in the Company’s Annual Report on Form 10‑K for the year ended December 31, 2022.  The accompanying unaudited Consolidated Interim Financial Statements have been prepared in accordance with the applicable rules of the Securities and Exchange Commission (the “SEC”) and, therefore, do not include all information and notes necessary for a complete presentation of financial position, results of operations and cash flow activity required in accordance with accounting principles generally accepted in the United States.  Results of operations for the three months ended March 31, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023.

The accounting policies of the Company, as applied in the Consolidated Interim Financial Statements presented herein, are substantially the same as those followed on an annual basis in the Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on March 1, 2023.

Risks and Uncertainties:  Over the past few months certain banks were placed into receivership by the FDIC and one bank began to voluntarily dissolve.  While the U.S. government intervened to cover depositors, even those with balances exceeding FDIC insurance coverage, there can be no guarantee that the same coverage will be applied if there are future bank failures.  Management believes that the conditions impacting these banks do not present a significant risk to the Company, and the Company has not been directly impacted by the bank failures.  Present economic conditions have caused disruption to the banking system and any additional implications are uncertain.  The Company believes that it has sufficient liquid assets and borrowing sources should there be a liquidity need.

(2) Earnings Per Share

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

9

Index

A reconciliation of the component parts of earnings per share for the three months ended March 31, 2023 and 2022 is as follows:

(in thousands, except per share data) For the three months ended
March 31,
2023 2022
Net income $ 17,746 $ 17,089
Weighted average common shares 19,024 19,209
Stock Options 3 1
Weighted average common shares including potential dilutive shares 19,027 19,210
Basic EPS $ 0.93 $ 0.89
Diluted EPS $ 0.93 $ 0.89

For the three months, ended March 31, 2023 and 2022 there were approximately 2 thousand and 60 thousand weighted average anti-dilutive stock options excluded from diluted earnings per share. The stock options are antidilutive because the strike price is greater than the average fair value of the Company’s common stock for the periods presented.

(3) Benefit Plans

The table below outlines the components of the Company’s net periodic benefit recognized during the three months ended March 31, 2023 and 2022 for its pension and other postretirement benefit plans:

Three months ended March 31,
Pension Benefits Other Postretirement Benefits
(dollars in thousands) 2023 2022 2023 2022
Service cost $ - $ - $ 2 $ 18
Interest cost 302 223 66 52
Expected return on plan assets (680 ) (817 ) (289 ) (333 )
Amortization of net gain - - (114 ) (78 )
Amortization of prior service cost (credit) - - 3 (280 )
Net periodic benefit $ (378 ) $ (594 ) $ (332 ) $ (621 )

The Company does not expect to contribute to its pension and postretirement benefit plans in 2023.  As of March 31, 2023, no contributions have been made; however, this decision is reviewed each quarter and is subject to change based upon market conditions.

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

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Index

(4) Investment Securities

(a) Securities available for sale

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

March 31, 2023
Gross Gross
Amortized Unrealized Unrealized Fair
(dollars in thousands) Cost Gains Losses Value
U.S. government sponsored enterprises $ 124,149 2 5,019 119,132
State and political subdivisions 34 - - 34
Mortgage backed securities and collateralized mortgage obligations - residential 282,927 58 27,429 255,556
Corporate bonds 85,517 - 4,053 81,464
Small Business Administration - guaranteed participation securities 21,612 - 1,791 19,821
Other 686 - 34 652
Total Securities Available for Sale $ 514,925 60 38,326 476,659
December 31, 2022
--- --- --- --- --- --- --- --- ---
Gross Gross
Amortized Unrealized Unrealized Fair
(dollars in thousands) Cost Gains Losses Value
U.S. government sponsored enterprises $ 124,123 $ 1 $ 5,937 $ 118,187
State and political subdivisions 34 - - 34
Mortgage backed securities and collateralized mortgage obligations - residential 291,431 34 31,149 260,316
Corporate bonds 85,641 - 4,295 81,346
Small Business Administration - guaranteed participation securities 23,115 - 2,138 20,977
Other 686 - 33 653
Total Securities Available for Sale $ 525,030 $ 35 $ 43,552 $ 481,513

The following table categorizes the debt securities included in the available for sale portfolio as of March 31, 2023, based on the securities’ final maturity. Actual maturities may differ because of securities prepayments and the right of certain issuers to call or prepay their obligations without penalty.

Securities not due at a single maturity date are presented separately:

Amortized Fair
(dollars in thousands) Cost Value
Due in one year or less $ 40,384 38,887
Due after one year through five years 165,002 157,393
Due after five years through ten years 5,000 5,002
Mortgage backed securities and collateralized mortgage obligations - residential 282,927 255,556
Small Business Administration - guaranteed participation securities 21,612 19,821
$ 514,925 476,659

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Index

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

March 31, 2023
Less than 12 months
12 months or more Total
Gross Gross Gross
Fair Unrealized Fair Unrealized Fair Unreal.
(dollars in thousands) Value Loss Value Loss Value Loss
U.S. government sponsored enterprises $ 53,231 $ 932 $ 60,899 $ 4,087 $ 114,130 $ 5,019
Mortgage backed securities and collateralized mortgage obligations - residential 59,807 2,760 193,110 24,669 252,917 27,429
Corporate bonds 19,360 573 62,104 3,480 81,464 4,053
Small Business Administration - guaranteed<br><br> <br>participation securities - - 19,821 1,791 19,821 1,791
Other 48 2 567 32 615 34
Total $ 132,446 $ 4,267 $ 336,501 $ 34,059 $ 468,947 $ 38,326
December 31, 2022
--- --- --- --- --- --- --- --- --- --- --- --- ---
Less than 12 months
12 months or more Total
Gross Gross Gross
Fair Unrealized Fair Unrealized Fair Unreal.
(dollars in thousands) Value Loss Value Loss Value Loss
U.S. government sponsored enterprises $ 57,849 $ 1,290 $ 55,337 $ 4,647 $ 113,186 $ 5,937
Mortgage backed securities and collateralized mortgage obligations - residential 164,772 13,010 93,009 18,139 257,781 31,149
Corporate bonds 52,805 2,395 28,542 1,900 81,347 4,295
Small Business Administration - guaranteed participation securities 802 71 20,175 2,067 20,977 2,138
Other 49 1 568 32 617 33
Total $ 276,277 $ 16,767 $ 197,631 $ 26,785 $ 473,908 $ 43,552

There were no allowance for credit losses recorded for securities available for sale during the three months ended March 31, 2023.

The proceeds from sales and calls and maturities of securities available for sale, gross realized gains and gross realized losses from sales and calls during the three months ended March 31, 2023 and 2022 are as follows:

Three months ended March 31,
(dollars in thousands) 2023 2022
Proceeds from sales $ - -
Proceeds from calls/paydowns 14,659 17,923
Proceeds from maturities - 5,000
Gross realized gains - -
Gross realized losses - -

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Index

(b) Held to maturity securities

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

March 31, 2023
Gross Gross
Amortized Unrecognized Unrecognized Fair
(dollars in thousands) Cost Gains Losses Value
Mortgage backed securities and collateralized mortgage obligations - residential $ 7,382 $ 95 $ 179 $ 7,298
Total held to maturity $ 7,382 $ 95 $ 179 $ 7,298
December 31, 2022
--- --- --- --- --- --- --- --- ---
Gross Gross
Amortized Unrecognized Unrecognized Fair
(dollars in thousands) Cost Gains Losses Value
Mortgage backed securities and collateralized mortgage obligations - residential $ 7,707 $ 90 $ 217 $ 7,580
Total held to maturity $ 7,707 $ 90 $ 217 $ 7,580

The following table categorizes the debt securities included in the held to maturity portfolio as of March 31, 2023, based on the securities’ final maturity.  Actual maturities may differ because of securities prepayments and the right of certain issuers to call or prepay their obligations without penalty.

(dollars in thousands) Amortized Fair
Cost Value
Mortgage backed securities and collateralized mortgage obligations - residential $ 7,382 7,298
$ 7,382 7,298

All held to maturity securities are held at cost on the financial statements.

Gross unrecognized losses on held to maturity securities and the related fair values aggregated by the length of time that individual securities have been in an unrecognized loss position, were as follows:

March 31, 2023
Less than 12 months
(dollars in thousands) 12 months or more Total
Gross Gross Gross
Fair Unrecognized Fair Unrecognized Fair Unrecognized
Value Loss Value Loss Value Loss
Mortgage backed securities and collateralized mortgage obligations - residential $ 431 9 2,826 170 3,257 179
Total $ 431 9 2,826 170 3,257 179
December 31, 2022
--- --- --- --- --- --- --- --- --- --- --- --- ---
Less than 12 months
(dollars in thousands) 12 months or more Total
Gross Gross Gross
Fair Unrecognized Fair Unrecognized Fair Unrecognized
Value Loss Value Loss Value Loss
Mortgage backed securities and collateralized mortgage obligations - residential $ 3,327 206 258 11 3,585 217
Total $ 3,327 206 258 11 3,585 217

13

Index

There were no sales or transfers of held to maturity securities during the three months ended March 31, 2023 and 2022.

There were no allowance for credit losses recorded for held to maturity securities during the three months ended March 31, 2023. There were no securities on non-accrual status and all securities were performing in accordance with contractual terms.

Debt Securities

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

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

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

The Company does not intend to sell nor does it anticipate that it will be required to sell any of its securities in an unrealized loss position as of March 31, 2023. The Company’s ability and intent to hold these securities until recovery is supported by the Company’s strong capital and liquidity positions as well as its historically low turnover in the portfolio.

As of March 31, 2023, the Company’s securities portfolio included certain securities, which were in an unrealized loss position, and are discussed below.

14

Index

U.S. government sponsored enterprises: In the case of unrealized losses on U.S. government sponsored enterprises, because the decline in fair value is attributable to changes in interest rates, and not credit quality, and because the Company does not have the intent to sell these securities and it is likely that it will not be required to sell the securities before their anticipated recovery, the Company does not consider these securities to be other-than-temporarily impaired as of March 31, 2023.

Mortgage backed securities and collateralized mortgage obligations – residential:  As of March 31, 2023, all mortgage backed securities and collateralized mortgage obligations held by the Company were issued by U.S. government sponsored entities and agencies, primarily Ginnie Mae, Fannie Mae and Freddie Mac, institutions which the government has affirmed its commitment to support.  Because the decline in fair value is attributable to changes in interest rates, and not credit quality, and because the Company does not have the intent to sell these securities and it is likely that it will not be required to sell the securities before their anticipated recovery, the Company does not consider these securities to be other‑than‑temporarily impaired as of March 31, 2023.

Corporate Bonds & Other:  As of March 31, 2023, corporate and other bonds held by the Company were investment grade quality.  Because the decline in fair value is attributable to changes in interest rates, and not credit quality, and because the Company does not have the intent to sell these securities and it is likely that it will not be required to sell the securities before their anticipated recovery, the Company does not consider these securities to be other-than-temporarily impaired as of March 31, 2023.

Small Business Administration (SBA) - guaranteed participation securities:  As of March 31, 2023, all of the SBA securities held by the Company were issued and guaranteed by U.S. Small Business Administration.  Because the decline in fair value is attributable to changes in interest rates, and not credit quality, and because the Company does not have the intent to sell these securities and it is likely that it will not be required to sell the securities before their anticipated recovery, the Company does not consider these securities to be other-than-temporarily impaired as of March 31, 2023.

15

Index

(5) Loan Portfolio and Allowance for

    Credit Losses

The following tables presents loans by portfolio segment:

March 31, 2023
(dollars in thousands) New York and
other states* Florida Total
Commercial:
Commercial real estate $ 182,287 $ 40,844 $ 223,131
Other 22,365 811 23,176
Real estate mortgage - 1 to 4 family:
First mortgages 2,760,159 1,424,592 4,184,751
Home equity loans 44,112 12,596 56,708
Home equity lines of credit 193,645 102,845 296,490
Installment 11,484 3,842 15,326
Total loans, net $ 3,214,052 $ 1,585,530 4,799,582
Less: Allowance for credit losses 46,685
Net loans $ 4,752,897

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

December 31, 2022
(dollars in thousands) New York and
other states* Florida Total
Commercial:
Commercial real estate $ 177,371 $ 32,551 $ 209,922
Other 20,221 868 21,089
Real estate mortgage - 1 to 4 family:
First mortgages 2,776,989 1,369,913 4,146,902
Home equity loans 43,999 12,550 56,549
Home equity lines of credit 191,926 94,506 286,432
Installment 9,408 2,899 12,307
Total loans, net $ 3,219,914 $ 1,513,287 4,733,201
Less: Allowance for credit losses 46,032
Net loans $ 4,687,169

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

Included in commercial loans above are Paycheck Protection Program (“PPP”) loans totaling $854 thousand and $3.0 million as of March 31, 2023 and 2022, respectively.

As of March 31, 2023, the Company had approximately $30.7 million of real estate construction loans. Of the $30.7 million in real estate construction loans as of March 31, 2023, approximately $8.3 million are secured by first mortgages to residential borrowers while approximately $22.4 million were to commercial borrowers for residential construction projects. The vast majority of construction loans are in the Company’s New York market.

16

Index

At December 31, 2022, the Company had approximately $36.4 million of real estate construction loans.  Of the $36.4 million in real estate construction loans at December 31, 2022, approximately $14.1 million are secured by first mortgages to residential borrowers while approximately $22.3 million were to commercial borrowers for residential construction projects. The vast majority of construction loans were in the Company’s New York market.

Allowance for credit losses on loans

The level of the ACLL is based on factors that influence management’s current estimate of expected credit losses including past events and current conditions. Consistent with previous periods, the Company has determined the Stagflation forecast scenario to be appropriate for the March 31, 2023 ACLL calculation.  The Company selected the stagflation economic forecast for credit losses as management expects that markets will experience a slight decline in economic conditions and a slight increase in the unemployment rate over the next two years.

Activity in the allowance for credit losses on loans by portfolio segment is summarized as follows:

For the three months ended March 31, 2023
(dollars in thousands) Real Estate
Mortgage-
Commercial 1 to 4 Family Installment Total
Balance at beginning of period $ 2,596 43,271 165 46,032
Loans charged off:
New York and other states* - - 17 17
Florida - - 31 31
Total loan chargeoffs - - 48 48
Recoveries of loans previously charged off:
New York and other states* - 53 23 76
Florida - 25 - 25
Total recoveries - 78 23 101
Net loans (recoveries) charged off - (78 ) 25 (53 )
Provision for credit losses 112 417 71 600
Balance at end of period $ 2,708 43,766 211 46,685

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

17

Index

For the three months ended March 31, 2022
(dollars in thousands) Real Estate
Mortgage-
Commercial 1 to 4 Family Installment Total
Balance at beginning of period $ 3,135 40,689 443 44,267
Impact of ASU 2016-13, Current Expected Credit Loss (CECL) (986 ) 3,717 (378 ) 2,353
Balance as of January 1, 2022 as adjusted for ASU 2016-13 $ 2,149 44,406 65 46,620
Loans charged off:
New York and other states* 36 - 10 46
Florida - - 1 1
Total loan chargeoffs 36 - 11 47
Recoveries of loans previously charged off:
New York and other states* - 97 8 105
Florida - - - -
Total recoveries - 97 8 105
Net loan recoveries 36 (97 ) 3 (58 )
(Credit) provision for loan losses 64 (572 ) 8 (500 )
Balance at end of period $ 2,177 43,931 70 46,178

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

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

(In thousands) For the three months<br><br> <br>ended March 31, 2023
Balance at January 1, 2023 $ 2,912
Credit provision  for credit losses (300 )
Balance at March 31, 2023 $ 2,612
(In thousands) For the three months<br><br> <br>ended March 31, 2022
--- --- ---
Balance at January 1, 2022 $ 18
Impact of Adopting CECL 2,335
Adjusted Balance at January 1, 2022 2,353
Provision for credit losses 300
Balance at March 31, 2022 $ 2,653

Loan Credit Quality

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

18

Index

The Company uses the following definitions for classified loans:

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

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

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

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

For homogeneous loan pools, such as residential mortgages, home equity lines of credit, and installment loans, the Company uses payment status to identify the credit risk in these loan portfolios. Payment status is reviewed on a daily basis by the Bank’s collection area and on a monthly basis with respect to determining the adequacy of the allowance for credit losses on loans. The payment status of these homogeneous pools as of March 31, 2023 is also included in the aging of the past due loans table. Nonperforming loans shown in the table below were loans on nonaccrual status and loans over 90 days past due and accruing.

19

Index

As of March 31, 2023 and December 31, 2022, based on the most recent analysis performed, the risk category of loans by class of loans, and gross charge-offs for each loan type by origination year was as follows:

(in thousands) As of March 31, 2023
Term Loans Amortized Cost Basis by Origination Year
Commercial : 2023 2022 2021 2020 2019 Prior Revolving<br><br> <br>Loans<br><br> <br>Amortized<br><br> <br>Cost Basis Revolving<br><br> <br>Loan<br><br> <br>Converted to Term Total
Risk rating
Pass $ 14,677 $ 82,642 $ 29,717 $ 18,227 $ 21,718 $ 45,613 $ 8,516 $ - $ 221,110
Special Mention - - - 58 - 238 - - 296
Substandard - - - 112 - 1,613 - - 1,725
Total Commercial<br> Loans $ 14,677 $ 82,642 $ 29,717 $ 18,397 $ 21,718 $ 47,464 $ 8,516 $ - $ 223,131
Commercial Loans:
Current-period<br> Gross writeoffs $ - $ - $ - $ - $ - $ - $ - $ - $ -
$ - $ - $ - $ - $ - $ - $ - $ - $ -
Commercial Other:
Risk rating
Pass $ 1,619 $ 3,300 $ 2,617 $ 2,007 $ 573 $ 2,847 $ 9,739 $ - $ 22,702
Special mention - - - - - - 38 - 38
Substandard - - 338 - - 98 - - 436
Total Commercial<br> Real Estate Loans $ 1,619 $ 3,300 $ 2,955 $ 2,007 $ 573 $ 2,945 $ 9,777 $ - $ 23,176
Other Commercial<br> Loans:
Current-period<br> Gross writeoffs $ - $ - $ - $ - $ - $ - $ - $ - $ -
$ - $ - $ - $ - $ - $ - $ - $ - $ -
Residential First<br> Mortgage:
Risk rating
Performing $ 87,414 $ 576,805 $ 921,308 $ 771,897 $ 360,905 $ 1,449,519 $ 1,360 $ - $ 4,169,208
Nonperforming - - 567 322 1,296 13,358 - - 15,543
Total First<br> Mortgage: $ 87,414 $ 576,805 $ 921,875 $ 772,219 $ 362,201 $ 1,462,877 $ 1,360 $ - $ 4,184,751
Residential First<br> Mortgage Loans:
Current-period<br> Gross writeoffs $ - $ - $ - $ - $ - $ - $ - $ - $ -
$ - - - - - - - - $ -
Home Equity Lines:
Risk rating
Performing $ 2,103 $ 6,750 $ 8,828 $ 6,205 $ 7,313 $ 25,310 $ - $ - $ 56,509
Nonperforming - - - - - 199 - - 199
Total Home Equity<br> Lines: $ 2,103 $ 6,750 $ 8,828 $ 6,205 $ 7,313 $ 25,509 $ - $ - $ 56,708
Home Equity Loans:
Current-period<br> Gross writeoffs $ - $ - $ - $ - $ - $ - $ - $ - -
$ - $ - $ - $ - $ - $ - $ - $ - $ -
Home Equity Lines<br> of  Credit:
Risk rating
Performing $ 52 $ 509 $ 434 $ 101 $ 39 $ 16,510 $ 276,428 $ - $ 294,073
Nonperforming - - 7 - - 2,143 267 - 2,417
Total Home Equity<br> Credit Lines: $ 52 $ 509 $ 441 $ 101 $ 39 $ 18,653 $ 276,695 $ - $ 296,490
Home Equity Lines<br> of Credit:
Current-period<br> Gross writeoffs $ - $ - $ - $ - $ - $ - $ - $ - $ -
$ - $ - $ - $ - $ - $ - $ - $ - $ -
Installments:
Risk rating
Performing $ 3,780 $ 6,300 $ 2,190 $ 671 $ 528 $ 636 $ 1,100 $ - $ 15,205
Nonperforming - - 53 - 64 - 4 - 121
Total Installments $ 3,780 $ 6,300 $ 2,243 $ 671 $ 592 $ 636 $ 1,104 $ - $ 15,326
Installments Loans:
Current-period<br> Gross writeoffs $ - $ 24 $ 7 $ 5 $ - $ 12 $ - $ - $ 48
$ - $ 24 $ 7 $ 5 $ - $ 12 $ - $ - $ 48

20

Index

(in thousands) As of December 31, 2022
Term Loans Amortized Cost Basis by Origination Year
Commercial : 2022 2021 2020 2019 2018 Prior Revolving Loans Amortized Cost Basis Revolving Loan Converted to Term Total
Risk rating
Pass $ 79,430 $ 29,991 $ 18,708 $ 22,790 $ 16,598 $ 32,666 $ 8,022 $ - $ 208,205
Special Mention - - 62 - 243 - - - 305
Substandard - - 113 - 128 1,171 - - 1,412
Total Commercial Loans $ 79,430 $ 29,991 $ 18,883 $ 22,790 $ 16,969 $ 33,837 $ 8,022 $ - $ 209,922
Commercial Loans:
Current-period Gross writeoffs $ - $ - $ - $ - $ - $ 40 $ - $ - $ 40
$ - $ - $ - $ - $ - $ 40 $ - $ - $ 40
Commercial Other:
Risk rating
Pass $ 2,972 $ 2,848 $ 2,273 $ 590 $ 674 $ 2,348 $ 8,908 $ - $ 20,613
Special mention - - - - - - 39 - 39
Substandard - 339 - - - 98 - - 437
Total Commercial Real Estate Loans $ 2,972 $ 3,187 $ 2,273 $ 590 $ 674 $ 2,446 $ 8,947 $ - $ 21,089
Other Commercial Loans:
Current-period Gross writeoffs $ - $ - $ - $ - $ - $ - $ - $ - -
$ - $ - $ - $ - $ - $ - $ - $ - $ -
Residential First Mortgage:
Risk rating
Performing $ 557,981 $ 933,754 $ 784,511 $ 368,137 $ 257,926 $ 1,228,776 $ 1,472 $ - $ 4,132,557
Nonperforming - 496 81 844 351 12,573 - - 14,345
Total First Mortgage: $ 557,981 $ 934,250 $ 784,592 $ 368,981 $ 258,277 $ 1,241,349 $ 1,472 $ - $ 4,146,902
Residential First Mortgage Loans:
Current-period Gross writeoffs $ - $ - $ - $ - $ - $ 5 $ - $ - 5
$ - $ - $ - $ - $ - $ 5 $ - $ - $ 5
Home Equity Lines:
Risk rating
Performing $ 6,863 $ 9,124 $ 6,322 $ 7,588 $ 5,240 $ 21,217 $ - $ - $ 56,354
Nonperforming - - - - 66 129 - - 195
Total Home Equity Lines: $ 6,863 $ 9,124 $ 6,322 $ 7,588 $ 5,306 $ 21,346 $ - $ - $ 56,549
Home Equity Lines Loans:
Current-period Gross writeoffs $ - $ - $ - $ - $ - $ - $ - $ - -
$ - $ - $ - $ - $ - $ - $ - $ - $ -
Home Equity Credit Lines:
Risk rating
Performing $ 1,369 $ 1,246 $ 740 $ 52 $ 100 $ 18,377 $ 262,244 $ - $ 284,128
Nonperforming - 7 - - - 2,111 186 - 2,304
Total Home Equity Credit Lines: $ 1,369 $ 1,253 $ 740 $ 52 $ 100 $ 20,488 $ 262,430 $ - $ 286,432
Home Equity Credit Lines Loans:
Current-period Gross writeoffs $ - $ - $ - $ - $ - $ 19 $ - $ - 19
$ - $ - $ - $ - $ - $ 19 $ - $ - $ 19
Installments:
Risk rating
Performing $ 6,385 $ 2,495 $ 805 $ 709 $ 374 $ 308 $ 1,125 $ - $ 12,201
Nonperforming 20 17 - 65 - 1 3 - 106
Total Installments $ 6,405 $ 2,512 $ 805 $ 774 $ 374 $ 309 $ 1,128 $ - $ 12,307
Installments Loans:
Current-period Gross writeoffs $ 1 $ 47 $ 22 $ 7 $ 2 $ 9 $ - $ - 88
$ 1 $ 47 $ 22 $ 7 $ 2 $ 9 $ - $ - $ 88

The Company transfers loans to other real estate owned, at fair value less cost to sell, in the period the Company obtains physical possession of the property (through foreclosure or through a deed in lieu).  Other real estate owned is included in other assets on the Balance Sheet. As of March 31, 2023 other real estate owned included $1.9 million of residential foreclosed properties. In addition, non-accrual residential mortgage loans that are in the process of foreclosure had an amortized cost of $8.7 million as of March 31, 2023.

21

Index

The following tables present the aging of the amortized cost in past due loans by loan class and by region as of March 31, 2023 and December 31, 2022:

As of March 31,<br> 2023
New York and other states*: 30-59 60-89 90 + Total
Days Days Days 30+ days Total
(dollars in thousands) Past Due Past Due Past Due Past Due Current Loans
Commercial:
Commercial real estate $ - - 525 525 181,762 182,287
Other 39 - 5 44 22,321 22,365
Real estate mortgage - 1 to 4 family:
First mortgages 2,412 1,017 8,041 11,470 2,748,689 2,760,159
Home equity loans 245 68 67 380 43,732 44,112
Home equity lines of credit 298 - 848 1,146 192,499 193,645
Installment 10 34 58 102 11,382 11,484
Total $ 3,004 1,119 9,544 13,667 3,200,385 3,214,052
Florida: 30-59 60-89 90 + Total
--- --- --- --- --- --- --- --- --- --- --- --- ---
Days Days Days 30+ days Total
(dollars in thousands) Past Due Past Due Past Due Past Due Current Loans
Commercial:
Commercial real estate $ - - - - 40,844 40,844
Other - - 314 314 497 811
Real estate mortgage - 1 to 4 family:
First mortgages 289 80 1,651 2,020 1,422,572 1,424,592
Home equity loans - 7 - 7 12,589 12,596
Home equity lines of credit - - - - 102,845 102,845
Installment 52 - 62 114 3,728 3,842
Total $ 341 87 2,027 2,455 1,583,075 1,585,530
Total: 30-59 60-89 90 + Total
--- --- --- --- --- --- --- --- --- --- --- --- ---
Days Days Days 30+ days Total
(dollars in thousands) Past Due Past Due Past Due Past Due Current Loans
Commercial:
Commercial real estate $ - - 525 525 222,606 223,131
Other 39 - 319 358 22,818 23,176
Real estate mortgage - 1 to 4 family:
First mortgages 2,701 1,097 9,692 13,490 4,171,261 4,184,751
Home equity loans 245 75 67 387 56,321 56,708
Home equity lines of credit 298 - 848 1,146 295,344 296,490
Installment 62 34 120 216 15,110 15,326
Total $ 3,345 1,206 11,571 16,122 4,783,460 4,799,582

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

22

Index

As of December 31, 2022
New York and other states*: 30-59 60-89 90 + Total
Days Days Days 30+ days Total
(dollars in thousands) Past Due Past Due Past Due Past Due Current Loans
Commercial:
Commercial real estate $ - - 161 161 177,210 177,371
Other 18 - 20 38 20,183 20,221
Real estate mortgage - 1 to 4 family:
First mortgages 4,262 921 7,203 12,386 2,764,603 2,776,989
Home equity loans 283 - 67 350 43,649 43,999
Home equity lines of credit 978 - 591 1,569 190,357 191,926
Installment 78 4 23 105 9,303 9,408
Total $ 5,619 925 8,065 14,609 3,205,305 3,219,914
Florida: 30-59 60-89 90 + Total
--- --- --- --- --- --- --- --- --- --- --- --- ---
Days Days Days 30+ days Total
(dollars in thousands) Past Due Past Due Past Due Past Due Current Loans
Commercial:
Commercial real estate $ - - - - 32,551 32,551
Other - - 314 314 554 868
Real estate mortgage - 1 to 4 family:
First mortgages 1,183 243 1,404 2,830 1,367,083 1,369,913
Home equity loans 51 - - 51 12,499 12,550
Home equity lines of credit 224 - - 224 94,282 94,506
Installment 6 - 83 89 2,810 2,899
Total $ 1,464 243 1,801 3,508 1,509,779 1,513,287
Total: 30-59 60-89 90 + Total
--- --- --- --- --- --- --- --- --- --- --- --- ---
Days Days Days 30+ days Total
(dollars in thousands) Past Due Past Due Past Due Past Due Current Loans
Commercial:
Commercial real estate $ - - 161 161 209,761 209,922
Other 18 - 334 352 20,737 21,089
Real estate mortgage - 1 to 4 family:
First mortgages 5,445 1,164 8,607 15,216 4,131,686 4,146,902
Home equity loans 334 - 67 401 56,148 56,549
Home equity lines of credit 1,202 - 591 1,793 284,639 286,432
Installment 84 4 106 194 12,113 12,307
Total $ 7,083 1,168 9,866 18,117 4,715,084 4,733,201

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

As of March 31, 2023, there were no loans that were 90 days past due and still accruing interest.  As a result, non-accrual loans include all loans 90 days or more past due as well as certain loans less than 90 days past due that were placed on non-accrual status for reasons other than delinquent status.  There are no commitments to extend further credit on non-accrual or restructured loans.

Loans individually evaluated for impairment include non-accrual commercial loans, as well as all loan modifications. As of March 31, 2023, there was no allowance for credit losses based on the loans individually evaluated for impairment.

Residential and installment non-accrual loans which are not loan modifications are collectively evaluated to determine the allowance for credit loss.

23

Index

The following tables present the amortized cost basis in non-accrual loans by portfolio segment:

As of March 31,<br> 2023
(dollars in thousands) New York and
other states* Florida Total
Loans in non-accrual status:
Commercial:
Commercial real estate $ 555 $ - $ 555
Other 5 314 319
Real estate mortgage - 1 to 4 family:
First mortgages 13,333 2,210 15,543
Home equity loans 151 48 199
Home equity lines of credit 2,238 179 2,417
Installment 59 62 121
Total non-accrual loans 16,341 2,813 19,154
Restructured real estate mortgages - 1 to 4 family 8 - 8
Total nonperforming loans $ 16,349 $ 2,813 $ 19,162

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

As of December 31, 2022
(dollars in thousands) New York and
other states* Florida Total
Loans in non-accrual status:
Commercial:
Commercial real estate $ 199 $ - $ 199
Other 20 314 334
Real estate mortgage - 1 to 4 family:
First mortgages 12,609 1,736 14,345
Home equity loans 153 42 195
Home equity lines of credit 2,187 117 2,304
Installment 23 83 106
Total non-accrual loans 15,191 2,292 17,483
Restructured real estate mortgages - 1 to 4 family 10 - 10
Total nonperforming loans $ 15,201 $ 2,292 $ 17,493

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

24

Index

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

As of March 31, 2023
(dollars in thousands) Non-accrual With Non-accrual With Loans Past Due
No Allowance for Allowance for Over 89 Days
Credit Loss Credit Loss Still Accruing
Commercial:
Commercial real estate $ 153 $ 402 -
Other 5 314 -
Real estate mortgage - 1 to 4 family:
First mortgages 12,894 2,649 -
Home equity loans 126 73 -
Home equity lines of credit 2,216 201 -
Installment 81 40 -
Total loans, net $ 15,475 $ 3,679 -
As of December 31, 2022
--- --- --- --- --- --- ---
(dollars in thousands) Non-accrual With Non-accrual With Loans Past Due
No Allowance for Allowance for Over 89 Days
Credit Loss Credit Loss Still Accruing
Commercial:
Commercial real estate $ 160 $ 39 -
Other 20 314 -
Real estate mortgage - 1<br> to 4 family:
First mortgages 13,502 843 -
Home equity loans 129 66 -
Home equity lines of credit 2,257 47 -
Installment 82 24 -
Total loans, net $ 16,150 $ 1,333 -

The non-accrual balance of $3.7 million and $1.3 million was collectively evaluated and the associated allowance for credit losses on loans was not material as of March 31, 2023 and December 31, 2022, respectively.

25

Index

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

As of March 31,<br> 2023
(dollars in thousands) 1-to-4 Family
Commercial Residential Installment
Loans Real Estate Loans Total
Allowance for credit losses on loans:
Ending allowance balance attributable to loans:
Individually evaluated for impairment $ - - - -
Collectively evaluated for impairment 2,708 43,766 211 46,685
Total ending allowance balance $ 2,708 43,766 211 46,685
Loans:
Individually evaluated for impairment $ 986 23,934 81 25,001
Collectively evaluated for impairment 245,321 4,514,015 15,245 4,774,581
Total ending loans balance $ 246,307 4,537,949 15,326 4,799,582
As of December 31, 2022
--- --- --- --- --- --- --- --- ---
(dollars in thousands) 1-to-4 Family
Commercial Residential Installment
Loans Real Estate Loans Total
Allowance for credit losses on loans:
Ending allowance balance attributable to loans:
Individually evaluated for impairment $ - - - -
Collectively evaluated for impairment 2,596 43,271 165 46,032
Total ending allowance balance $ 2,596 43,271 165 46,032
Loans:
Individually evaluated for impairment $ 646 24,967 82 25,695
Collectively evaluated for impairment 230,365 4,464,916 12,225 4,707,506
Total ending loans balance $ 231,011 4,489,883 12,307 4,733,201

26

Index

A financial asset is considered collateral-dependent when the debtor is experiencing financial difficulty and repayment is expected to be provided substantially through the sale or operation of the collateral. Expected Credit losses for the collateral dependent loans are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate. The

      following tables present the amortized cost basis of individually analyzed collateral dependent loans by portfolio segment as of March 31, 2023 and December 31, 2022:
As of March 31, 2023
Type of Collateral
(dollars in thousands)
Real Estate Investment<br><br> <br>Securities/Cash Other
Commercial:
Commercial real estate $ 667 - -
Other 319 - -
Real estate mortgage - 1 to 4 family:
First mortgages 20,512 - -
Home equity loans 231 - -
Home equity lines of credit 3,191 - -
Installment 81 - -
Total $ 25,001 - -
As of December 31, 2022
--- --- --- --- --- --- ---
Type of Collateral
(dollars in thousands)
Real Estate Investment Securities/Cash Other
Commercial:
Commercial real estate $ 312 - -
Other 334 - -
Real estate mortgage - 1<br> to 4 family:
First mortgages 21,467 - -
Home equity loans 236 - -
Home equity lines of credit 3,264 - -
Installment 82 - -
Total $ 25,695 - -

The Company has not committed to lend additional amounts to customers with outstanding loans that are modified. Interest income recognized on loans that are individually evaluated was not material during the three months ended March 31, 2023 and 2022.

As of March 31, 2023 and 2022 loans individually evaluated included approximately $8.8 million and $9.8 million, respectively, of loans in accruing status that were identified as loan modifications in accordance with regulatory guidance related to Chapter 7 bankruptcy loans.

27

Index

Pursuant to the adoption of ASU 2022-02 - Financial Instruments - Credit Losses (Topic 326) Troubled Debt Restructuring and Vintage Disclosures (“ASU 2022-02”) a borrower that is experiencing financial difficulty and receives a modification in the form of principal forgiveness, interest rate reduction, an other-than-insignificant payment delay or a term extension in the current period needs to be disclosed.  For the three months ended March 31, 2023, there were no loan modifications provided to borrowers experiencing financial difficulty.

Prior to the adoption of ASU 2022-02, the company accounted for loan modifications as Troubled Debt Restructurings (TDRs) and the following table presents, by class, loans that were modified as TDR’s for the three months ended March 31, 2022:

Three months ended March 31, 2022
New York and other states*: Pre-Modification Post-Modification
Outstanding Outstanding
Number of Recorded Recorded
(dollars in thousands) Contracts Investment Investment
Commercial:
Commercial real estate - $ - -
Real estate mortgage - 1 to 4 family:
First mortgages - - -
Home equity loans 3 370 370
Home equity lines of credit - - -
Total 3 $ 370 370
Florida: Pre-Modification Post-Modification
--- --- --- --- --- --- ---
Outstanding Outstanding
Number of Recorded Recorded
(dollars in thousands) Contracts Investment Investment
Commercial:
Commercial real estate - $ - -
Real estate mortgage - 1 to 4 family:
First mortgages - - -
Home equity loans - - -
Home equity lines of credit - - -
Total - $ - -

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

The addition of these TDR’s did not have a significant impact on the allowance for credit losses on loans. The nature of the modifications that resulted in them being classified as a TDR was the borrower filing for bankruptcy protection. There were no loans that defaulted during the three months ended March 31, 2023 and 2022 which had been classified as a loan modification within the prior twelve months.

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

28

Index

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

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

(6) Fair Value of Financial Instruments

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

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

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

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

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

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

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

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Index

Individually evaluated loans: Periodically the Company records non-recurring adjustments to the carrying value of loans based on fair value measurements for partial charge-offs of the uncollectible portions of those loans.  Non-recurring adjustments can also include certain adjustments for collateral-dependent loans to adjust balances to fair value and generally have had a charge-off through the allowance for credit losses. For collateral dependent loans, fair value is commonly based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process to adjust for differences between the comparable sales and income data available. Such adjustments may be significant and typically result in a Level 3 classification of the inputs for determining fair value. When obtained, non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business, resulting in a Level 3 fair value classification. These loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly.

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

30

Index

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

Fair Value Measurements at
March 31, 2023 Using:
Significant
Quoted Prices in Other Significant
Active Markets for Observable Unobservable
Carrying Identical Assets Inputs Inputs
(dollars in thousands) Value (Level 1) (Level 2) (Level 3)
U.S. government sponsored enterprises $ 119,132 $ - $ 119,132 $ -
State and political subdivisions 34 - 34 -
Mortgage backed securities and collateralized mortgage obligations - residential 255,556 - 255,556 -
Corporate bonds 81,464 - 81,464 -
Small Business Administration- guaranteed participation securities 19,821 - 19,821 -
Other securities 652 - 652 -
Total securities available for sale $ 476,659 $ - $ 476,659 $ -
Fair Value Measurements at
--- --- --- --- --- --- --- --- ---
December 31, 2022 Using:
Significant
Quoted Prices in Other Significant
Active Markets for Observable Unobservable
Carrying Identical Assets Inputs Inputs
(dollars in thousands) Value (Level 1) (Level 2) (Level 3)
Securities available for sale:
U.S. government sponsored enterprises $ 118,187 $ - $ 118,187 $ -
State and political subdivisions 34 - 34 -
Mortgage backed securities and collateralized mortgage obligations - residential 260,316 - 260,316 -
Corporate bonds 81,346 - 81,346 -
Small Business Administration- guaranteed participation securities 20,977 - 20,977 -
Other securities 653 - 653 -
Total securities available for sale $ 481,513 $ - $ 481,513 $ -

There were no transfers between Level 1 and Level 2 during the three months ended March 31, 2023 and 2022.

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Index

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

Fair Value Measurements at
March 31, 2023 Using:
Significant
Quoted Prices in Other Significant
Active Markets for Observable Unobservable
Carrying Identical Assets Inputs Inputs
(dollars in thousands) Value (Level 1) (Level 2) (Level 3) Valuation technique Unobservable inputs Range (Weighted Average)
Other real estate owned $ 1,869 $ - $ - $ 1,869 Sales comparison approach Adjustments for differences between comparable sales 3% - 94% (49 %)
Fair Value Measurements at
--- --- --- --- --- --- --- --- --- --- --- --- --- ---
December 31, 2022 Using:
Significant
Quoted Prices in Other Significant
Active Markets for Observable Unobservable
Carrying Identical Assets Inputs Inputs
(dollars in thousands) Value (Level 1) (Level 2) (Level 3) Valuation technique Unobservable inputs Range (Weighted Average)
Other real estate owned $ 2,061 $ - $ - $ 2,061 Sales comparison approach Adjustments for differences between comparable sales 2% - 47% (18 %)

Other real estate owned, that is carried at fair value less costs to sell was approximately $1.9 million as of March 31, 2023 and consisted of only residential real estate properties. There were no valuation charges included in earnings for the three months ended March 31, 2023.

Of the total individually evaluated loans of $25.0 million as of March 31, 2023, there are no loans that are collateral dependent and are carried at fair value measured on a non-recurring basis. Due to the sufficiency of charge-offs taken on these loans and the adequacy of the underlying collateral, there were no specific valuation allowances for these loans as of March 31, 2023. There were no gross charge-offs related to residential impaired loans included in the table above.

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

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

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Index

The carrying amounts and estimated fair values (represents exit price) of financial instruments, as of March 31, 2023 and December 31, 2022 are as follows:

(dollars in thousands) Fair Value Measurements at
Carrying March 31, 2023 Using:
Value Level 1 Level 2 Level 3 Total
Financial assets:
Cash and cash equivalents $ 636,984 636,984 - - 636,984
Securities available for sale 476,659 - 476,659 - 476,659
Held to maturity securities 7,382 - 7,298 - 7,298
Federal Home Loan Bank stock 5,797 N/A N/A N/A N/A
Net loans 4,752,897 - - 4,374,988 4,374,988
Accrued interest receivable 11,690 651 1,811 9,228 11,690
Financial liabilities:
Demand deposits 806,075 806,075 - - 806,075
Interest bearing deposits 4,406,383 3,126,082 1,266,871 - 4,392,953
Short-term borrowings 134,293 - 134,293 - 134,293
Accrued interest payable 1,444 144 1,300 - 1,444
(dollars in thousands) Fair Value Measurements at
--- --- --- --- --- --- --- --- --- --- ---
Carrying December 31, 2022 Using:
Value Level 1 Level 2 Level 3 Total
Financial assets:
Cash and cash equivalents $ 650,599 650,599 - - 650,599
Securities available for sale 481,513 - 481,513 - 481,513
Held to maturity securities 7,707 - 7,580 - 7,580
Federal Reserve Bank and Federal
Home Loan Bank stock 5,797 N/A N/A N/A N/A
Net loans 4,687,169 - - 4,328,508 4,328,508
Accrued interest receivable 11,492 189 1,866 9,437 11,492
Financial liabilities:
Demand deposits 838,147 838,147 - - 838,147
Interest bearing deposits 4,354,663 3,325,900 1,012,528 - 4,338,428
Short-term borrowings 122,700 - 122,700 - 122,700
Accrued interest payable 602 60 542 - 602

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Index

(7) Accumulated Other Comprehensive Loss

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

Three months ended March 31, 2023
Amount
Other reclassified Other
Comprehensive from Accumulated Comprehensive loss-
Balance at loss-Before Other Comprehensive Three months ended Balance at
(dollars in thousands) 12/31/2022 Reclassifications Loss 3/31/2023 3/31/2023
Net unrealized holding gain on securities available for sale, net of tax $ (32,271 ) $ 3,901 $ - $ 3,901 $ (28,370 )
Net change in overfunded position in pension and postretirement plans arising during the year, net of tax 7,588 - - - 7,588
Net change in net actuarial gain and prior service cost on pension and postretirement benefit plans, net of tax (2,511 ) - (82 ) (82 ) (2,593 )
Accumulated other comprehensive loss, net of tax $ (27,194 ) $ 3,901 $ (82 ) $ 3,819 $ (23,375 )
Three months ended March 31, 2022
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Amount
Other reclassified Other
Comprehensive from Accumulated Comprehensive loss-
Balance at loss-Before Other Comprehensive Three months ended Balance at
(dollars in thousands) 12/31/2021 Reclassifications Loss 3/31/2022 3/31/2022
Net unrealized holding loss on securities available for sale, net of tax $ (26 ) $ (14,251 ) $ - $ (14,251 ) $ (14,277 )
Net change in overfunded position in pension and postretirement plans arising during the year, net of tax 13,706 - - - 13,706
Net change in net actuarial gain and prior service credit on pension and postretirement benefit plans, net of tax (1,533 ) - (265 ) (265 ) (1,798 )
Accumulated other comprehensive loss, net of tax $ 12,147 $ (14,251 ) $ (265 ) $ (14,516 ) $ (2,369 )

The following represents the reclassifications out of accumulated other comprehensive loss for the three months ended March 31, 2023 and 2022:

(dollars in thousands) Three months ended
March 31,
2023 2022 Affected Line Item in Financial Statements
Amortization of pension and postretirement benefit items:
Amortization of net actuarial gain $ 114 $ 78 Salaries and employee benefits
Amortization of prior service (cost) credit (3 ) 280 Salaries and employee benefits
Income tax (benefit) expense (29 ) (93 ) Income taxes
Net of tax 82 265
Total reclassifications, net of tax $ 82 $ 265

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Index

(8) Revenue from Contracts with Customers

All of the Company’s revenue from contracts with customers in the scope of ASC 606 is recognized within Non-Interest Income.  The following table presents the Company’s sources of Non-Interest Income for the three months ended March 31, 2023 and 2022. Items outside the scope of ASC 606 are noted as such.

(dollars in thousands) Three months ended
March 31,
2023 2022
Non-interest income
Service Charges on Deposits
Overdraft fees $ 680 $ 646
Other 532 790
Interchange Income 1,479 1,702
Wealth management fees 1,774 1,833
Other (a) 204 212
Total non-interest income $ 4,669 $ 5,183

(a) Not within the scope of ASC 606.

A description of how the Company’s revenue streams accounted for ASC 606 is set forth below:

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

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

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

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Index

(9) Operating Leases

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

Operating lease ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease.  Operating lease ROU assets and lease liabilities are recognized at the commencement date based on the present value of lease payments over the lease term.  The Company’s leases do not provide an implicit rate, therefore the Company used its incremental collateralized borrowing rates commensurate with the underlying lease terms to determine present value of operating lease liabilities.  Additionally, the Company does allocate the consideration between lease and non-lease components.  The Company’s lease terms may include options to extend when it is reasonably certain that the Company will exercise that option.  Lease expense for lease payments is recognized on a straight-line basis over the lease term.  Variable lease components, such as fair market value adjustments, are expensed as incurred and not included in ROU assets and operating lease liabilities.  Leases with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term. As of March 31, 2023, the Company did not have any leases with terms of twelve months or less.

As of March 31, 2023, the Company did not have any leases for which the construction had not yet started. As of March 31, 2023, lease expiration dates ranged from one month to 21.5 years and have a weighted average remaining lease term of 8.7 years. Certain leases provide for increases in future minimum annual rental payments as defined in the lease agreements. As mentioned above the leases generally also include variable lease components, which include real estate taxes, insurance, and common area maintenance (“CAM”) charges in the annual rental payments.

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Index

Other information related to leases was as follows:

(dollars in thousands) Three months ended
March 31,
2023 2022
Operating lease cost $ 2,050 $ 2,052
Variable lease cost 585 596
Total Lease costs $ 2,635 $ 2,648
(dollars in thousands) Three months ended
--- --- --- --- --- --- ---
March 31,
2023 2022
Supplemental cash flows information:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases $ 2,072 $ 2,093
Right-of-use assets obtained in exchange for lease obligations: 385 2,087
Weighted average remaining lease term 8.7 years 9.3 years
Weighted average discount rate 3.00 % 2.96 %

Future minimum lease payments under non-cancellable leases as of March 31, 2023 were as follows:

(dollars in thousands)
Year ending
December 31,
2023^(a)^ $ 6,254
2024 8,287
2025 7,885
2026 6,910
2027 5,631
Thereafter 19,334
Total lease payments $ 54,301
Less: Interest 6,658
Present value of lease liabilities $ 47,643
^(a)^ Excluding the three months ended March 31, 2023.
--- ---

A member of the Board of Directors has an ownership interest in five entities that own commercial real estate leased by the Company for use as branch locations.  Total lease payments from the Company to those entities, which are included in the table above, owed as of March 31, 2023, were $3.1 million, which includes interest in the amount of $377 thousand.

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Index

(10) Regulatory Capital Requirements

Banks and bank holding companies are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy regulations and, additionally for banks, the prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can result in regulatory action. As of March 31, 2023, the Company and Bank meet all capital adequacy requirements to which they are subject.

Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition.  If a bank is not classified as well capitalized, regulatory approval is required to accept brokered deposits.  If a bank is undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required.  The federal banking agencies are required to take certain supervisory actions (and may take additional discretionary actions) with respect to an undercapitalized institution or its holding company.  Such actions could have a direct material effect on an institution’s or its holding company’s financial statements.  As of March 31, 2023 and December 31, 2022, the most recent regulatory notifications categorized the Bank as well capitalized under the regulatory framework for prompt corrective action.  There are no conditions or events since that notification that management believes have changed the Bank’s category.

38

Index

The Bank and the Company reported the following capital ratios as of March 31, 2023 and December 31, 2022:

(Bank Only)
Minimum for
As of March 31, 2023 Well Capital Adequacy plus
Capital Conservation
(dollars in thousands) Amount Ratio Capitalized^(1)^ Buffer^(1)(2)^
Tier 1 leverage ratio 619,731 10.305 % 5.000 % 4.000 %
Common equity tier 1 capital 619,731 18.470 6.500 7.000
Tier 1 risk-based capital 619,731 18.470 8.000 8.500
Total risk-based capital 661,764 19.723 10.000 10.500
As of December 31, 2022 Well Minimum for
--- --- --- --- --- --- --- --- --- --- --- ---
Capital Adequacy plus
Capital Conservation
(dollars in thousands) Amount Ratio Capitalized^(1)^ Buffer ^(1)(2)^
Tier 1 leverage ratio 609,998 10.116 % 5.000 % 4.000 %
Common equity tier 1 capital 609,998 18.431 6.500 7.000
Tier 1 risk-based capital 609,998 18.431 8.000 8.500
Total risk-based capital 651,462 19.684 10.000 10.500
(Consolidated)
--- --- --- --- --- --- --- --- ---
As of March 31, 2023 Minimum for
Capital Adequacy plus
Capital Conservation
(dollars in thousands) Amount Ratio Buffer^(1)(2)^
Tier 1 leverage ratio 637,524 10.594 % 4.000 %
Common equity tier 1 capital 637,524 18.995 7.000
Tier 1 risk-based capital 637,524 18.995 8.500
Total risk-based capital 679,570 20.248 10.500
As of December 31, 2022 Minimum for
--- --- --- --- --- --- --- --- ---
Capital Adequacy plus
Capital Conservation
(dollars in thousands) Amount Ratio Buffer^(1)(2)^
Tier 1 leverage ratio 626,628 10.390 % 4.000 %
Common equity Tier 1 capital 626,628 18.929 7.000
Tier 1 risk-based capital 626,628 18.929 8.500
Total risk-based capital 668,102 20.182 10.500
(1) Federal regulatory minimum requirements to be considered to be Well<br> Capitalized and Adequately Capitalized
--- ---
(2) The March 31, 2023 and December 31, 2022 common equity tier 1, tier 1<br> risk-based, and total risk-based capital ratios include a capital conservation buffer of 2.50 percent
--- ---

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Index

(11) New Accounting Pronouncements

Staff Accounting Bulletin (“SAB”) No. 121 - In March 2022, the SEC issued SAB No. 121. This SAB adds interpretive guidance for entities to consider when they have obligations to safeguard crypto-assets held for their platform users.  Specifically, this SAB provides interpretive guidance on the accounting and disclosure of obligations to safeguard crypto-assets held for platform users. This guidance was applicable no later than the financial statement covering the first interim or annual period ending after June 15, 2022. The Company reviewed its business activities as of the date of adoption, June 30, 2022, and determined that SAB 121 is not materially impactful to the financial statements. Management has continued to monitor it on a quarterly basis and has determined that SAB 121 is not materially impactful to the financial statements as of March 31, 2023.

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

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REPORT OF INDEPENDENT

    REGISTERED PUBLIC ACCOUNTING FIRM

Shareholders and the Board of Directors of TrustCo Bank Corp NY

Glenville, New York

Results of Review of Interim Financial Information

We have reviewed the consolidated statement of financial condition of TrustCo Bank Corp NY (the "Company") as of March 31, 2023, and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity and cash flows for the three-month periods ended March 31, 2023 and March 31, 2022, and the related notes (collectively referred to as the "interim financial information or statements"). Based on our reviews, we are not aware of any material modifications that should be made to the consolidated financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) ("PCAOB"), the consolidated statement of financial condition of the Company as of December 31, 2022, and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for the year then ended (not presented herein); and in our report dated March 1, 2023, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated statement of financial condition as of December 31, 2022, is fairly stated, in all material respects, in relation to the consolidated statement of condition from which it has been derived.

Basis for Review Results

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

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

/s/ Crowe LLP

New York, New York

May 9, 2023

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

Introduction

The review that follows focuses on the factors affecting the financial condition and results of operations of TrustCo during the three month period ended March 31, 2023, with comparisons to the corresponding period in 2022, as applicable.  Net interest margin is presented on a fully taxable equivalent basis in this discussion.  The consolidated interim financial statements and related notes, as well as the Annual Report on Form 10-K for the year ended December 31, 2022, which was filed with the SEC on March 1, 2023 (the “2022 Form 10-K”), should also be read in conjunction with this review.  Amounts in prior period consolidated interim financial statements are reclassified whenever necessary to conform to the current period’s presentation.

Following this management discussion and analysis are the tables “Distribution of Assets, Liabilities and Shareholders’ Equity: Interest Rates and Interest Differential” which gives a detailed breakdown of TrustCo’s average interest earning assets and interest bearing liabilities for the three month periods ended March 31, 2023 and 2022.

Economic Overview

During the first quarter of 2023, financial markets rebounded despite inflationary worries, higher interest rates, supply-chain bottlenecks, the war in Ukraine, and banking sector concerns.  For the first quarter of 2023, the S&P 500 Index was up 7.0%, Nasdaq was up 16.8%, and the Dow Jones Industrial Average was up 0.4% compared to the fourth quarter of 2022.  The 10‑year Treasury bond averaged 3.65% during Q1 2023 compared to 3.83% in Q4 2022, a decrease of 18 basis points.  The 2‑year Treasury bond average rate decreased 4 basis points to 4.35%, which further inverted the yield curve over the prior quarter.  Consequently, the spread between the 10‑year and the 2-year Treasury bonds decreased from a -0.56% on average in Q4 to -0.70% in Q1.  Generally, steeper yield curves are favorable for portfolio mortgage lenders like TrustCo, and the table below illustrates the range of rate movements for both short term and longer term rates.  Commencing in March 2022, the Federal Open Market Committee (“FOMC”) increased the target range for the federal funds rate seven times in 2022 and twice in 2023 by a total of 475 basis points, to a range of 4.75% to 5.00% as of March 31, 2023. In May 2023, the FOMC increased the target range again by 25 basis points. All of these increases were expressly made in response to inflationary pressures, which are currently expected to continue.  Spreads of most asset classes to the comparative treasury yield, including agency securities, corporates, municipals and mortgage-backed securities, continue to be down as compared to the levels seen before the pandemic.  Accordingly, changes in rates and spreads continue to be effected by global economic concerns.

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3 Month 2 Year 5 Year 10 Year 10 - 2 Year
Yield (%) Yield (%) Yield (%) Yield (%) Spread (%)
Q1/22 Beg of Q1 0.06 0.73 1.26 1.52 0.79
Peak 0.59 2.35 2.55 2.48 0.89
Trough 0.08 0.77 1.37 1.63 0.04
End of Q1 0.52 2.28 2.42 2.32 0.04
Average in Q1 0.31 1.46 1.83 1.95 0.49
Q2/22 Beg of Q2 0.52 2.28 2.42 2.32 0.04
Peak 1.83 3.45 3.61 3.49 0.44
Trough 0.53 2.37 2.55 2.39 -0.05
End of Q2 1.72 2.92 3.01 2.98 0.06
Average in Q2 1.10 2.72 2.95 2.93 0.21
Q3/22 Beg of Q3 1.72 2.92 3.01 2.98 0.06
Peak 3.40 4.30 4.21 3.97 0.04
Trough 1.73 2.82 2.66 2.60 -0.51
End of Q3 3.33 4.22 4.06 3.83 -0.39
Average in Q3 2.75 3.38 3.23 3.10 -0.28
Q4/22 Beg of Q4 3.33 4.22 4.06 3.83 -0.39
Peak 4.46 4.72 4.45 4.25 -0.25
Trough 3.45 4.10 3.61 3.42 -0.84
End of Q4 4.42 4.41 3.99 3.88 -0.53
Average in Q4 4.19 4.39 4.00 3.83 -0.56
Q1/23 Beg of Q1 4.42 4.41 3.99 3.88 -0.53
Peak 5.06 5.05 4.34 4.08 -0.38
Trough 4.52 3.76 3.39 3.37 -1.07
End of Q1 4.97 4.10 3.66 3.55 -0.55
Average in Q1 4.78 4.35 3.80 3.65 -0.70

The United States economy experienced several areas of concern throughout 2022 continuing into 2023.  Economic conditions can vary significantly over geographic areas, with strength concentrated in and around major population centers on the coasts and in certain areas where economic activity has been driven by specific regional factors.

On March 10 and March 12, 2023, Silicon Valley Bank and Signature Bank, respectively, were closed by regulators with the FDIC appointed as receiver. The closures of those banks and adverse developments affecting other banks over the past two months have resulted in heightened levels of market activity and volatility. The impact of market volatility from the adverse developments in the banking industry along with continued high inflation and rising interest rates on our business and related financial results will depend on future developments, which are highly uncertain and difficult to predict. Our businesses and financial results may be impacted by a variety of other factors as well, such as a failure by the federal government to raise the federal debt ceiling and an economic slowdown or recession.

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TrustCo believes that its long-term focus on traditional banking services and practices historically has enabled the Company to avoid significant impact from asset quality problems, and that the Company’s strong liquidity and solid capital positions have allowed the Company to continue to conduct business in a manner consistent with its past practice.  Management believes that TrustCo has not engaged in the types of high risk loans and investments that led to the widely reported problems in the industry during the 2007-2009 financial crisis.  Nevertheless, the Company may experience increases in nonperforming loans (“NPLs”) relative to historical levels from time to time.

Should general housing prices and other economic measures, such as unemployment in the Company’s market areas, deteriorate as a result of higher interest rates, financial sector instability, a potential or actual default on the federal debt or other reasons, the Company may experience an increase in the level of credit risk and in the amount of its classified and nonperforming loans.

Financial Overview

TrustCo recorded net income of $17.7 million, or $0.93 of diluted earnings per share, for the three months ended March 31, 2023, compared to net income of $17.1 million, or $0.89 of diluted earnings per share, in the same period in 2022.  Return on average assets was 1.20% and 1.12%, respectively, for the three months ended March 31, 2023 and 2022.  Return on average equity was 11.84% and 11.60%, respectively, for the three months ended March 31, 2023 and 2022.

The primary factors accounting for the change in net income for the three months ended March 31, 2023 compared to the same period of the prior year were:

• An increase of $6.9 million, or 17.1%, in net interest income compared to the first quarter of 2022.
• An increase of $500 thousand in provision for credit losses for the first quarter of 2023 compared to the first quarter 2022.
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• A decrease of $514 thousand in noninterest income for the first quarter of 2023 compared to the first quarter of 2022.
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• An increase of $4.9 million in noninterest expense for the first quarter 2023 compared to the first quarter 2022, primarily as a result of a decrease in salaries and employee benefits in the first quarter of<br> 2022 due to a true-up to the incentive compensation accrual upon payout, as well as increases in various other employee benefit plan expenses.
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Asset/Liability Management

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

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TrustCo’s results are affected by a variety of factors including competitive and economic conditions in the specific markets in which the Company operates and, more generally, in the national economy, financial market conditions and the regulatory environment.  Each of these factors is dynamic, and changes in any area can have an impact on TrustCo’s results.  Included in the Annual Report on Form 10-K for the year ended December 31, 2022 is a description of the effect interest rates had on the results for the year 2022 compared to 2021.  Many of the same market factors discussed in the 2022 Annual Report, including instability in the financial services sector and heightened global economic concerns, continued to have a significant impact on results through the first quarter of 2023.

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

Interest rates have a significant impact on the operations and financial results of all financial services companies.  One of the most important interest rates used to control national economic policy is the “Federal Funds” rate.  This is the interest rate utilized within the banking system for overnight borrowings for institutions with the highest credit rating.  Beginning in the second half of 2019, the Federal Reserve Board began lowering the rate in response to a slowing economy.  During the first quarter of 2020, the target range for the Federal Funds rate was significantly decreased to 0.00% to 0.25% as a result of the COVID-19 pandemic.  However, as discussed above, the FOMC increased the target range for the federal funds rate seven times in 2022 and twice in 2023 by a total of 475 basis points, to a range of 4.75% to 5.00% as of March 31, 2023. In May 2023, the FOMC increased the target range again by 25 basis points.

The interest rate on the 10-year Treasury bond and other long-term interest rates have significant influence on the rates for new residential real estate loans.  These changes in interest rates have an effect on the Company relative to the interest income on loans, securities, and Federal Funds sold and other short-term instruments as well as the interest expense on deposits and borrowings.  Residential real estate loans and longer‑term investments are most affected by the changes in longer term market interest rates such as the 10‑year Treasury.  The Federal Funds sold portfolio and other short‑term investments are affected primarily by changes in the Federal Funds target rate.  Deposit interest rates are most affected by short term market interest rates.  Also, changes in interest rates have an effect on the recorded balance of the securities available for sale portfolio, which are recorded at fair value.  Generally, as market interest rates increase, the fair value of the securities will decrease and the reverse is also generally applicable.  Interest rates on new residential real estate loan originations are also influenced by the rates established by secondary market participants such as Freddie Mac and Fannie Mae.  The Company establishes rates that management determines are appropriate in light of the long-term nature of residential real estate loans while remaining competitive.  Higher market interest rates also generally increase the value of retail deposits.

TrustCo’s principal loan products are residential real estate loans.  As noted above, residential real estate loans and longer‑term investments are most affected by the changes in longer term market interest rates such as the 10-year Treasury.  The 10‑year Treasury yield was down 18 basis points, on average, during the first quarter of 2023 compared to the fourth quarter of 2022, however, it was up 170 basis points as compared to the first quarter of 2022.

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

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

For the first quarter of 2023, the net interest margin is 3.21%, up 55 basis points versus the prior year’s quarter.  The quarterly results reflect the following significant factors:

• The average balance of securities available for sale increased by $109.7 million and the average yield increased 72 basis points to 2.26%.
• The average balance of Federal funds sold and other short-term investments decreased $610.3 million; however the average yield increased 441 basis points to 4.61% which was enough to offset the decrease in the average balance.
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• The average loan portfolio grew by $312.0 million to $4.76 billion and the average yield increased 21 basis points to 3.73% in the first quarter of 2023 compared to the same period in 2022.
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• The average balance of interest bearing liabilities (primarily deposit accounts) decreased $240.5 million and the average rate paid increased 53 basis points to 0.63% in the first quarter of 2023 compared to the same period in 2022.
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During the first quarter of 2023, the Company continued to focus on its strategy to expand its loan portfolio by offering competitive interest rates.  Management believes the TrustCo residential real estate loan product is very competitive compared to local and national competitors.  Competition remains strong in the Company’s market areas.

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

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Earning Assets

Total average interest earning assets decreased from $6.05 billion in the first quarter of 2022 to $5.86 billion in the same period of 2023 with an average yield of 3.69% in the first quarter of 2023 and 2.74% in the first quarter of 2022.  There was a continued shift in the mix of assets towards a lower proportion of Federal Funds sold and other short-term investments to securities available for sale and loans.  Interest income on average earning assets increased $12.6 million in the first quarter of 2023 from the prior year period, on a tax equivalent basis. This increase was primarily driven by the higher interest rates on Federal Funds sold and other short-term investments and securities available for sale, which resulted from the increases in the Federal Funds target rate throughout 2022, and also from interest income on loans due to an increased volume of originations year over year at higher interest rates.

Loans

The average balance of loans was $4.76 billion in the first quarter of 2023 up from $4.44 billion in the comparable period in 2022.  The yield on loans also increased 21 basis points to 3.73%.

Compared to the first quarter of 2022, the average balance of residential mortgage loans, commercial loans, installment loans, and home equity loans all increased.  The average balance of residential mortgage loans was $4.21 billion in 2023 compared to $4.01 billion in 2022, an increase of 5.1%.  The average yield on residential mortgage loans increased by 8 basis points to 3.50% in the first quarter of 2023 compared to 2022, primarily as a result of the higher interest rate environment.

TrustCo actively markets the residential loan products within its market territories.  Mortgage loan rates are affected by a number of factors including rates on Treasury securities, the Federal Funds target rate and rates set by competitors and secondary market participants.  TrustCo aggressively markets the unique aspects of its loan products thereby attempting to create a differentiation from other lenders.  These unique aspects include low closing costs, fast turn-around time on loan approvals, and no escrow or mortgage insurance requirements for qualified borrowers.  Assuming a continued rise in long-term interest rates, the Company would anticipate that the unique features of its loan products will continue to attract customers in the residential mortgage loan area.

Commercial loans, which consist primarily of loans secured by commercial real estate, increased $43.9 million to an average balance of $238.9 million in the first quarter of 2023 compared to the same period in the prior year.  The average yield on this portfolio was down 12 basis points to 5.06% compared to the prior year period, primarily as a result of the less origination income recognized on forgiven PPP loans as compared to the prior year period.  The Company remained selective in underwriting commercial loans in recent periods as the apparent risk/reward balance has been less favorable in many cases.

The average yield on home equity credit lines increased 202 basis points to 5.73% during the first quarter of 2023 compared to the prior year period.  The average balances of home equity lines increased 25.3% to $291.3 million in the first quarter of 2023 as compared to the prior year.

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Securities Available for Sale

The average balance of the securities available for sale portfolio for the first quarter of 2023 was $516.2 million compared to $406.5 million for the comparable period in 2022.  The increase in the balance reflects new investment purchases partially offset by routine paydowns, and calls and maturities.  The average yield was 2.26% for the first quarter of 2023 compared to 1.54% for the first quarter of 2022.  The increase in average yield is a result of higher yields on bonds purchased in 2022 as a result of the current interest rate environment. This portfolio is primarily comprised of agency issued residential mortgage backed securities, bonds issued by government sponsored enterprises (such as Fannie Mae, the Federal Home Loan Bank, and Freddie Mac), Small Business Administration participation certificates, corporate bonds and municipal bonds.  These securities are recorded at fair value with any adjustment in fair value included in other comprehensive income, net of tax.

The net unrealized loss in the available for sale securities portfolio was $38.3 million as of March 31, 2023 compared to a net unrealized loss of $43.5 million as of December 31, 2022.  The decrease in the net unrealized losses in the portfolio is the result of changes in market interest rate levels.

Held to Maturity Securities

The average balance of held to maturity securities was $7.5 million for the first quarter of 2023 compared to $9.5 million in the first quarter of 2022.  The decrease in balances reflects routine paydowns.  No new securities were added to this portfolio during the period.  The average yield was 4.14% for the first quarter of 2023 compared to 3.79% for the year earlier period.  TrustCo expects to hold the securities in this portfolio until they mature or are called.

The net unrealized loss in the held to maturity securities portfolio was $179 thousand as of March 31, 2023 compared to a net unrealized loss of $217 thousand as of December 31, 2022.  The decrease in the net unrealized losses in the portfolio is the result of changes in market interest rate levels.

As of March 31, 2023, this portfolio consisted solely of residential mortgage-backed securities.  The balances for these securities are recorded at amortized cost.

Federal Funds Sold and Other Short-term Investments

The 2023 first quarter average balance of Federal Funds sold and other short-term investments was $576.9 million, a $610.3 million decrease from the $1.19 billion average for the same period in 2022.  The yield was 4.61% for the first quarter of 2023 and 0.20% for the comparable period in 2022.  Interest income from this portfolio increased $6.0 million from $572 thousand in 2022 to $6.6 million in 2023.  While the average balances decreased year over year, the increase in the Federal Funds target rate throughout 2022 and into 2023 resulted in an increase in interest income over the same period in the prior year.

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

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Funding Opportunities

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

Total average interest bearing deposits (which includes interest bearing checking, money market accounts, savings and time deposits) decreased $123.9 million to $4.35 billion for the first quarter of 2023 versus the first quarter in the prior year, and the average rate paid increased from 0.09% for 2022 to 0.62% for 2023.  Total interest expense on these deposits increased $5.7 million to $6.7 million in the first quarter of 2023 compared to the year earlier period.  From the first quarter of 2022 to the first quarter of 2023, interest bearing checking account average balances were down  4.9%, certificates of deposit average balances were up 20.4%, non‑interest demand average balances were up 1.0%, average savings balances decreased 4.7% and money market balances were down 24.1%.  While average balances are down from a year ago, we have begun retaining more deposits compared to the last quarter, and continue to encourage customers to retain these funds in the expanded product offerings of the Bank through aggressive marketing and product differentiation.

As of March 31, 2023, the maturity of total time deposits was as follows:

(dollars in thousands)

Under 1 year $ 1,109,775
1 to 2 years 75,997
2 to 3 years 3,096
3 to 4 years 612
4 to 5 years 90,728
Over 5 years 93
$ 1,280,301

As of March 31, 2023 and December 31, 2022, approximately $924.1 million and $968.6 million, respectively, of our deposit portfolio was uninsured. The uninsured amounts are estimates based on the methodologies and assumptions used for the Bank’s regulatory reporting requirements.

Average short-term borrowings for the first quarter of 2023 were $131.9 million compared to $248.5 million in the same period in 2022.  The decrease in the average balance from the prior year period is primarily a result of a shift of funds into time deposits.  The average rate increased during this period from 0.38% in 2022 to 0.88% in 2023.  The short-term borrowings of the Company are cash management accounts, which represent retail accounts with customers for which the Bank has pledged certain assets as collateral.

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

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Net Interest Income

Taxable equivalent net interest income was up $6.9 million from $40.1 million in the first quarter of 2022 to $47.0 million in the first quarter of 2023.  The net interest spread was up 43 basis points to 3.06% in the first quarter of 2023 compared to the same period in 2022.  As previously noted, the net interest margin was up 55 basis points to 3.21% for the first quarter of 2023 compared to the same period in 2022.

Nonperforming Assets

Nonperforming assets include nonperforming loans (“NPLs”), which are those loans in a non‑accrual status and loans past due three payments or more and still accruing interest.  Also included in the total of nonperforming assets are foreclosed real estate properties, which are included in other assets and categorized as other real estate owned.

The following describes the nonperforming assets of TrustCo as of March 31, 2023:

Nonperforming loans and foreclosed real estate: Total NPLs and non-accrual loans were $19.2 million as of March 31, 2023, compared to $17.5 million at December 31, 2022, and $19.4 million as of March 31, 2022.  There were no loans as of March 31, 2023 and 2022 and December 31, 2022 that were past due 90 days or more and still accruing interest.

As of March 31, 2023, nonperforming loans primarily include a mix of commercial and residential loans.  Of total nonperforming loans of $19.2 million as of March 31, 2023, $18.2 million were residential real estate loans, $874 thousand were commercial loans and mortgages and $121 thousand were installment loans, compared to $16.8 million, $533 thousand and $106 thousand, respectively at December 31, 2022.

A significant percentage of nonperforming loans are residential real estate loans, which are historically lower-risk than most other types of loans.  Net recoveries were $78 thousand on residential real estate loans (including home equity lines of credit) for the first quarter of 2023 compared to net recoveries of $97 thousand for the first quarter of 2022.  Management believes that these loans have been appropriately written down where required.

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

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The Company originates loans throughout its deposit franchise area.  As of March 31, 2023, 67.0% of its gross loan portfolio balances were in New York State and the immediately surrounding areas (including New Jersey, Vermont and Massachusetts), and 33.0% were in Florida.  Those figures compare to 68.0% and 32.0%, respectively at December 31, 2022.

Economic conditions vary widely by geographic location.   As a percentage of the total nonperforming loans as of March 31, 2023, 14.7% were to Florida borrowers, compared to 85.3% to borrowers in New York and surrounding areas.  For the three months ended March 31, 2023, New York and surrounding areas experienced net recoveries of approximately $59 thousand and there was net charge-offs of $6 thousand in Florida.

Other than loans currently identified as nonperforming, management is aware of no other loans in the Bank’s portfolio that pose material risk of the eventual non-collection of principal and interest.  Also as of March 31, 2023, there were no other loans classified for regulatory purposes that management reasonably expects will materially impact future operating results, liquidity, or capital resources.

TrustCo has identified nonaccrual commercial and commercial real estate loans, as well as all loan modifications, as individually evaluated loans.  There were $986 thousand of commercial mortgages and commercial loans classified as individually evaluated as of March 31, 2023 compared to $646 thousand at December 31, 2022.  There were $23.9 million of individually evaluated residential loans as of March 31, 2023  compared to $25.0 million at December 31, 2022.

As of March 31, 2023 and December 31, 2022 the Company’s loan portfolio did not include any subprime mortgages or loans acquired with deteriorated credit quality.

As of March 31, 2023 there was $1.9 million of foreclosed real estate compared to $2.1 million at December 31, 2022.

Allowance for credit losses on loans: The Company implemented CECL on January 1, 2022. Under this standard, allowances have been  established for loans and commitments to lend. The allowance for credit losses on loans (“ACLL”) replaced the previous allowance for loan losses (“ALLL”). The Company recorded a net decrease to undivided profits of $3.5 million, net of $1.2 million in deferred tax balances as of January 1, 2022 for the cumulative effect of adopting CECL.

In the first quarter of 2023, the Company recorded a provision for credit losses of $300 thousand, which includes a provision for credit losses on loans of $600 thousand as a result of continued growth in the loan portfolio, offset by a benefit for credit losses on unfunded commitments of $300 thousand as a result of a corresponding decrease in unfunded loans.

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

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From December 31, 2022 to March 31, 2023, the actual performance was in line with the forecasted performance pertaining to key variables such as unemployment rates, consumer price indices, and Gross Metro Product.  The increase in the ACLL during the first quarter of 2023 was primarily a result of loan growth and an increase in the expected life of loans.

See Note 5 of the financial statements for additional discussion related the process for determining the provision for credit losses.

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

(dollars in thousands) As of<br><br> <br>March 31, 2023 As of<br><br> <br>December 31, 2022
Amount Percent of<br><br> <br>Loans to<br><br> <br>Total Loans Amount Percent of<br><br> <br>Loans to<br><br> <br>Total Loans
Commercial $ 2,459 4,67 % $ 2,343 4.41 %
Real Estate - construction 326 0.64 % 385 0.77 %
Real Estate mortgage - 1 to 4 family 39,412 88.19 % 38,859 88.51 %
Home equity lines of credit 4,277 6.18 % 4,280 6.05 %
Installment Loans 211 0.32 % 165 0.26 %
$ 46,658 100.00 % $ 46,032 100.00 %

As of March 31, 2023, the allowance for credit losses on loans was $46.7 million, compared to $46.2 million as of March 31, 2022 and $46.0 million at December 31, 2022.  The allowance represents 0.97% of the loan portfolio as of March 31, 2023 compared to 1.03% as of March 31, 2022 and 0.97% at December 31, 2022.

Net recoveries for the three-month period ended March 31, 2023 were $53 thousand and $58 thousand for the prior year period.

During the first quarter of 2023, there were no commercial or residential loan charge-offs and $48 thousand of consumer loan charge-offs compared with $36 thousand of commercial loan charge-offs and $11 thousand of consumer loan charge-offs in the first quarter of 2022.  During the first quarter of 2023 were no commercial loan recoveries and $101 thousand for residential mortgage and consumer loan recoveries, compared to no commercial loan recoveries and $105 thousand for residential mortgage and consumer loan recoveries in the first quarter of 2022.

Liquidity and Interest Rate Sensitivity

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

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

Using this model, the fair value of capital projections as of March 31, 2023 are referenced below.  The base case (current rates) scenario shows the present estimate of the fair value of capital assuming no change in the operating environment or operating strategies and no change in interest rates from those existing in the marketplace as of March 31, 2023.  The table indicates the impact on the fair value of capital assuming interest rates were to instantaneously increase by 100 bp, 200 bp, 300 bp and 400 bp or to decrease by 100 bp, 200bp, 300bp, and 400bp.

Estimated Percentage of
Fair value of Capital to
As of March 31, 2023 Fair value of Assets
+400 BP 25.40 %
+300 BP 25.50
+200 BP 26.60
+100 BP 27.30
Current rates 26.80
-100 BP 25.70
-200 BP 23.20
-300 BP 20.00
-400 BP 15.10

Noninterest Income

Total noninterest income for the first quarter of 2023 and 2022 was $4.7 million and $5.2 million, respectively.  The decrease over the same period in the prior year was primarily related to a decrease of $223 thousand in interchange fees and a $268 thousand gain on the sale of a building in the prior year.  Financial Services income was down $59 thousand to $1.8 million in the first quarter of 2023 as compared to the year-ago period, primarily as a result of lower market values of assets under management.  The fair value of assets under management was $922 million as of March 31, 2023, $918 million as of December 31, 2022 and $1.03 billion as of March 31, 2022.

53

Index

Noninterest Expenses

Total noninterest expenses were $27.7 million for the three months ended March 31, 2023, compared to $22.8 million for the three months ended March 31, 2022.  Significant changes included an increase in salaries and employee benefits primarily as a result of a $2 million favorable true-up to the incentive compensation accrual upon payout in the first quarter of 2022, as well as increases in various other employee benefit plan expenses.  Other significant changes were increases in equipment expense, professional services, FDIC and other insurance and other real estate expense, net.  These increases were offset by a decrease in advertising expense.  Full time equivalent headcount increased from 769 as of March 31, 2022 to 776 as of March 31, 2023 and represents a normal fluctuation of headcount.

Income Taxes

In the first quarter of 2023, TrustCo recognized income tax expense of $5.9 million compared to $5.6 million for the first quarter of 2022.  The effective tax rates were 25.0% and 24.8%, respectively, for the first quarters of 2023 and 2022.

Capital Resources

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

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

Total shareholders’ equity as of March 31, 2023 was $614.7 million compared to $592.9 million as of March 31, 2022.  TrustCo declared a dividend of $0.36 per share in the first quarter of 2023.  This results in a dividend payout ratio of 38.59% based on first quarter 2023 earnings of $17.7 million.

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

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Index

The Bank and the Company reported the following capital ratios as of March 31, 2023 and December 31, 2022:

(Bank Only) Minimum for
Capital Adequacy plus
As of March 31, 2023 Well Capital Conservation
(dollars in thousands) Amount Ratio Capitalized^(1)^ Buffer^(1)(2)^
Tier 1 leverage ratio $ 619,731 10.305 % 5.000 % 4.000 %
Common equity tier 1 capital 619,731 18.470 6.500 7.000
Tier 1 risk-based capital 619,731 18.470 8.000 8.500
Total risk-based capital 661,764 19.723 10.000 10.500
Minimum for
--- --- --- --- --- --- --- --- --- --- --- ---
Capital Adequacy plus
As of December 31, 2022 Well Capital Conservation
(dollars in thousands) Amount Ratio Capitalized^(1)^ Buffer^(1)(2)^
Tier 1 leverage ratio $ 609,998 10.116 % 5.000 % 4.000 %
Common equity tier 1 capital 609,998 18.431 6.500 7.000
Tier 1 risk-based capital 609,998 18.431 8.000 8.500
Total risk-based capital 651,462 19.684 10.000 10.500

(Consolidated)

Minimum for
Capital Adequacy plus
As of March 31, 2023 Capital Conservation
(dollars in thousands) Amount Ratio Buffer^(1)(2)^
Tier 1 leverage ratio $ 637,524 10.594 % 4.000 %
Common equity tier 1 capital 637,524 18.995 7.000
Tier 1 risk-based capital 637,524 18.995 8.500
Total risk-based capital 679,570 20.248 10.500
Minimum for
--- --- --- --- --- --- --- --- ---
Capital Adequacy plus
As of December 31, 2022 Capital Conservation
(dollars in thousands) Amount Ratio Buffer^(1)(2)^
Tier 1 leverage ratio $ 626,628 10.390 % 4.000 %
Common equity Tier 1 capital 626,628 18.929 7.000
Tier 1 risk-based capital 626,628 18.929 8.500
Total risk-based capital 668,102 20.182 10.500
(1) Federal regulatory minimum requirements to be considered to be Well Capitalized and Adequately Capitalized
--- ---
(2) The March 31, 2023 and December 31, 2022 common equity tier 1, tier 1 risk-based, and total risk-based capital ratios include a capital conservation buffer of 2.50 percent
--- ---

In addition, as of March 31, 2023, Trustco’s consolidated equity to total assets ratio was 10.17% compared to 10.00% at December 31, 2022 and 9.44% as of March 31, 2022.

As of March 31, 2023, the capital levels of both TrustCo and the Bank exceeded the minimum standards, including with the current capital conservation buffer taken into account.

Under the Office of the Comptroller of the Currency’s (“OCC”) “prompt corrective action” regulations, a bank is deemed to be “well capitalized” when its CET1, Tier 1, total risk-based and leverage capital ratios are at least 7%, 8.5%, 10.5% and 5%, respectively.  A bank is deemed to be “adequately capitalized” or better if its capital ratios meet or exceed the minimum federal regulatory capital requirements, and “undercapitalized” if it fails to meet these minimal capital requirements.  A bank is “significantly undercapitalized” if its CET1, Tier 1, total risk-based and leverage capital ratios fall below 3%, 4%, 6% and 3%, respectively and “critically undercapitalized” if the institution has a ratio of tangible equity to total assets that is equal to or less than 2%.  As of March 31, 2023 and 2022, Trustco Bank met the definition of “well capitalized.”

55

Index

As noted, the Company’s dividend payout ratio was 38.59% of net income for the first quarter of 2023 and 39.36% of net income for the first quarter of 2022.  The per-share dividend paid in both the first quarter of 2023 and the fourth quarter of 2022, was $0.36, and it was $0.35 in the first quarter of 2022. The Company’s ability to pay dividends to its shareholders is dependent upon the ability of the Bank to pay dividends to the Company.  The payment of dividends by the Bank to the Company is subject to continued compliance with minimum regulatory capital requirements.  The OCC may disapprove a dividend if the Bank would be undercapitalized following the distribution; the proposed capital distribution raises safety and soundness concerns; or the capital distribution would violate a prohibition contained in any statute, regulation or agreement.

TrustCo maintains a dividend reinvestment plan (DRP) with approximately 6,922 participants.  The DRP allows participants to reinvest dividends in shares of the Company.  The DRP also allows for additional purchases by participants and has a discount feature (up to a 5% for safe harbor provisions) that can be activated by management as a tool to raise capital.  To date, the discount feature has not been utilized.

Share Repurchase Program

On March 17, 2023 the Company’s Board of Directors authorized, and the Company announced, another share repurchase program of up to 200,000 shares, or approximately 1% of its currently outstanding common stock.  There were no repurchases during the three months ended March 31, 2023.

Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, income taxes and related disclosures. On an ongoing basis, we evaluate our estimates and assumptions. Our actual results may differ from these estimates under different assumptions or conditions.

During the three months ended March 31, 2023, there were no significant changes to our critical accounting policies and estimates as described in the financial statements contained in the 2022 Form 10-K other than what is set forth immediately below.

Management considers the accounting policy relating to the allowance for credit losses to be a critical accounting policy given the measurement uncertainty and subjective judgement necessary in evaluating the levels of the allowance required to cover the life-time losses in the loan portfolio and the material effect that such judgments can have on the results of operations.

56

Index

TrustCo Bank Corp NY

Management’s Discussion and Analysis

STATISTICAL DISCLOSURE

I. DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS’ EQUITY:

INTEREST RATES AND INTEREST DIFFERENTIAL

The following table summarizes the component distribution of the average balance sheet, related interest income and expense and the average annualized yields on interest earning assets and annualized rates on interest bearing liabilities of TrustCo (adjusted for tax equivalency) for each of the reported periods. Nonaccrual loans are included in loans for this analysis. The average balances of securities available for sale and held to maturity are calculated using amortized costs for these securities.  Included in the average balance of shareholders’ equity is the unrealized loss, net of tax, in the available for sale portfolio of $29.5 million in 2023 and $8.9 million in 2022.  The subtotals contained in the following table are the arithmetic totals of the items contained in that category.  Increases and decreases in interest income and expense due to both rate and volume have been allocated to the categories of variances (volume and rate) based on the percentage relationship

of such variances to each other.

Three months ended Three months ended
(dollars in thousands) March 31, 2023 March 31, 2022
Average Interest Average Average Interest Average Change in Variance Variance
Balance Rate Balance Rate Interest Balance Rate
Income/ Change Change
Assets Expense
Securities available for sale:
U. S. government sponsored enterprises $ 120,692 $ 692 2.29 % $ 61,755 $ 86 0.55 % $ 606 141 465
Mortgage backed securities and collateralized mortgage obligations-residential 287,046 1,585 2.20 % 261,124 1,087 1.67 % 498 118 380
State and political subdivisions 34 - 6.74 % 41 1 6.73 % (1 ) (1 ) -
Corporate bonds 85,578 521 2.43 % 52,977 233 1.76 % 288 178 110
Small Business Administration-guaranteed participation securities 22,129 117 2.12 % 29,871 154 2.06 % (37 ) (61 ) 24
Other 686 2 1.17 % 686 2 1.17 % - - -
Total securities available for sale 516,165 2,917 2.26 % 406,454 1,563 1.54 % 1,354 375 979
Federal funds sold and other short-term Investments 576,931 6,555 4.61 % 1,187,201 572 0.20 % 5,983 (2,199 ) 8,182
Held to maturity securities:
Mortgage backed securities and collateralized mortgage obligations-residential 7,542 78 4.14 % 9,541 90 3.79 % (12 ) (55 ) 43
Total held to maturity securities 7,542 78 4.14 % 9,541 90 3.79 % (12 ) (55 ) 43
Federal Reserve Bank and Federal Home Loan Bank stock 5,797 110 7.59 % 5,604 62 4.43 % 48 2 46
Commercial loans 238,870 3,024 5.06 % 194,989 2,525 5.18 % 499 871 (372 )
Residential mortgage loans 4,212,878 36,913 3.50 % 4,007,886 34,197 3.42 % 2,716 1,827 889
Home equity lines of credit 291,326 4,119 5.73 % 232,535 2,125 3.71 % 1,994 630 1,364
Installment loans 13,323 216 6.56 % 8,974 156 7.03 % 60 127 (67 )
Loans, net of unearned income 4,756,397 44,272 3.73 % 4,444,384 39,003 3.52 % 5,269 3,455 1,814
Total interest earning assets 5,862,832 53,932 3.69 % 6,053,184 41,290 2.74 % 12,642 1,578 11,064
Allowance for credit losses on loans (46,290 ) (46,759 )
Cash & non-interest earning assets 175,097 207,308
Total assets $ 5,991,639 6,213,733
Liabilities and shareholders’ equity
Deposits:
Interest bearing checking accounts 1,133,383 66 0.02 % $ 1,191,496 $ 44 0.01 % 22 (14 ) 36
Money market accounts 600,855 814 0.55 % 791,689 214 0.11 % 600 (360 ) 960
Savings 1,456,242 530 0.15 % 1,527,975 156 0.04 % 374 (52 ) 426
Time deposits 1,160,969 5,272 1.84 % 964,158 546 0.23 % 4,726 133 4,593
Total interest bearing deposits 4,351,449 6,682 0.62 % 4,475,318 960 0.09 % 5,722 (293 ) 6,015
Short-term borrowings 131,867 285 0.88 % 248,535 234 0.38 % 51 (640 ) 691
Total interest bearing liabilities 4,483,316 6,967 0.63 % 4,723,853 1,194 0.10 % 5,773 (933 ) 6,706
Demand deposits 816,565 808,695
Other liabilities 84,092 83,633
Shareholders’ equity 607,666 597,552
Total liabilities and shareholders’ equity $ 5,991,639 $ 6,213,733
Net interest income, tax equivalent 46,965 40,096 $ 6,869 2,511 4,358
Net interest spread 3.06 % 2.63 %
Net interest margin (net interest income to total interest earning assets) 3.21 % 2.66 %
Tax equivalent adjustment - -
Net interest income 46,965 40,096

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Index

Item 3. Quantitative and Qualitative Disclosures about Market Risk

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

As detailed in the Annual Report on Form 10-K as of December 31, 2022, the Company is subject to interest rate risk as its principal market risk.  As noted in the Management’s Discussion and Analysis for the three month periods ended March 31, 2023 and 2022 the Company continues to respond to changes in interest rates in such a way that positions the Company to meet short term earning goals and also allows the Company to respond to changes in interest rates in the future.  Consequently, for the first quarter of 2023, the Company had an average balance of Federal Funds sold and other short-term investments of $576.9 million compared to $1.2 billion in the first quarter of 2022.  As investment opportunities present themselves, management plans to invest funds from the Federal Funds sold and other short-term investment portfolio into the securities available for sale, securities held to maturity and loan portfolios.  TrustCo does not engage in activities involving interest rate swaps, forward placement contracts, or any other instruments commonly referred to as “derivatives.”  Additional disclosure of interest rate risk can be found under “Liquidity and Interest Rate Sensitivity” and “Asset/Liability Management” in the Management’s Discussion and Analysis section of this document.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

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

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

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Index

Changes in Internal Control over Financial Reporting

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

PART II OTHER INFORMATION
Item 1. Legal Proceedings
--- ---

None.

Item 1A. Risk Factors

An investment in the Company involves risks, including the risks discussed in Item 1A. “Risk Factors” of the Company’s 2022 Form 10-K, which risk factors have not materially changed except as set forth below. The risk factors below supersede the similarly captioned risk factors set forth in the 2022 Form 10-K and supplement the other risk factors in the 2022 Form 10-K. The risk factors below reflect modifications to the nature of the risks that have developed since the date on which the 2022 Form 10-K was filed.

The soundness of other financial institutions could adversely affect us.

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

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Index

Any failure by the U.S. federal government to increase the debt ceiling or any government shutdown could adversely affect the U.S. and global economy and our liquidity, financial condition and earnings.

U.S. debt ceiling and budget deficit concerns have increased the possibility of credit-rating downgrades and economic slowdowns, or a recession in the United States or globally. The U.S. federal government hit its borrowing limit, or debt ceiling, on January 19, 2023. If the government fails to increase the debt limit, the U.S. government’s sovereign credit rating may be downgraded and the U.S. government could default on its debts, which could adversely affect the U.S. and global financial markets, banking systems, and economic conditions. Absent intervention by the Federal Reserve, these developments could cause interest rates and borrowing costs to further increase, which may negatively impact our ability to access the debt markets, including the corporate bond markets, on favorable terms. In addition, disagreement over the federal budget has previously caused the U.S. federal government to shut down for periods of time. An extended period of shutdown of portions of the U.S. federal government could negatively impact the financial performance of certain customers and could negatively impact customers’ future access to certain loan and guaranty programs. Continued adverse political and economic conditions could have a material adverse effect on our business, financial condition and results of operations.

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

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

Over any specific period of time, our interest-earning assets may be more sensitive to changes in market interest rates than our interest-bearing liabilities, or vice-versa. In addition, the individual market interest rates underlying our loan and deposit products may not change to the same degree over a given time period. In any event, if market interest rates should move contrary to our position, earnings may be negatively affected.  Commencing in March 2022, the FOMC increased the target range for the Federal Funds rate seven times in 2022 and twice in 2023 by a total of 475 basis points, to a range of 4.75% to 5.00% as of March 31, 2023. In May 2023, the FOMC increased the target range again by 25 basis points. All of these increases were expressly made in response to inflationary pressures, which are currently expected to continue. In its April 2023 “Beige Book”, the FRB noted that overall economic activity was little changed in recent weeks, while conditions varied across industries and districts. Regional banks continued to report widespread declines in loan demand, ongoing credit tightening, and modestly rising mortgage delinquency rates. More locally, in the New York district, the district in which the Company’s primary operations are located, the FRB stated that regional economic activity was little changed, though goods production picked up noticeably. In addition, inflationary pressures moderated somewhat but remained widespread while conditions in the broad finance sector deteriorated sharply coinciding with recent stress in the banking sector.

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Index

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

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

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

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

Inflation rose sharply at the end of 2021 and has continued rising in 2022 and 2023 at levels not seen for over 40 years. Inflationary pressures are currently expected to remain elevated throughout 2023. Small to medium-sized businesses may be impacted more during periods of high inflation as they are not able to leverage economics of scale to mitigate cost pressures compared to larger businesses. Consequently, the ability of our business customers to repay their loans may deteriorate, and in some cases this deterioration may occur quickly, which would adversely impact our results of operations and financial condition. Furthermore, a prolonged period of inflation could cause wages and other costs to the Company to increase, which could adversely affect our results of operations and financial condition.

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

Share Repurchase Program

The following table provides certain information with respect to the Company’s purchases of its common shares during the three months ended March 31, 2023:

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Issuer Purchases of Common Shares
Period Total<br><br> <br>numbers<br><br> <br>of shares<br><br> <br>purchased Average price<br><br> <br>paid per share Total number of shares<br><br> <br>purchased as part of<br><br> <br>publicly announced<br><br> <br>plans or programs Maximum number of<br><br> <br>shares that may yet be<br><br> <br>purchased under the<br><br> plans or programs (1)
January 1, 2023 through January 31, 2023 - $ - - -
February 1, 2023 through February 28, 2023 - - - -
March 1, 2023 through March 31, 2023 - - - 200,000
Total - $ - - 200,000
(1) On March 17, 2023 the Company’s Board of Directors authorized, and the Company announced, another share repurchase program of up to 200,000 shares, or approximately 1% of its currently outstanding common<br> stock.  There were no repurchases during the three months ended March 31, 2023.
--- ---
Item 3. Defaults Upon Senior Securities
--- ---

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

None.

Item 6. Exhibits
Exhibit No. Description
--- ---
3(a) Amended and Restated Certificate of Incorporation of TrustCo Bank Corp NY, as amended, incorporated by reference to Exhibit 3.1 to TrustCo Bank Corp NY’s Quarterly Report on Form 10-Q, filed August 5, 2021.
3(b) Amended and Restated Bylaws of TrustCo Bank Corp NY, dated May 23, 2019, incorporated by reference to Exhibit 3.2 to TrustCo Bank Corp NY’s Quarterly Report on Form 10-Q, filed August 8, 2019.
15 Crowe LLP Letter Regarding Unaudited Interim Financial Information
31(a) Rule 13a-15(e)/15d-15(e) Certification of Robert J. McCormick, principal executive officer.
31(b) Rule 13a-15(e)/15d-15(e) Certification of Michael M. Ozimek, principal financial officer.
32 Section 1350 Certifications of Robert J. McCormick, principal executive officer and Michael M. Ozimek, principal financial officer.
101 Sections of the Quarterly Report on Form 10-Q for the quarter ended March 31, 2023, formatted in Inline XBRL (eXtensible Business Reporting Language), submitted in the following files:
101.INS Instance Document
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

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SIGNATURES

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

TrustCo Bank Corp NY
By: /s/ Robert J. McCormick
---
Robert J. McCormick
Chairman, President and Chief Executive Officer
By: /s/ Michael M. Ozimek
--- ---
Michael M. Ozimek
Executive Vice President and Chief Financial Officer
Date:  May 9, 2023

Exhibit 15

May 9, 2023

Securities and Exchange Commission

450 Fifth Street, NW

Washington, DC 20549

RE: FILING OF THE MARCH 31, 2023 FORM 10-Q FOR TRUSTCO BANK CORP NY

Commissioners:

We are aware that our report dated May 9, 2023, on our reviews of the interim financial information of TrustCo Bank Corp NY as of March 31, 2023 and for the three-month periods ended March 31, 2023 and 2022, included in the Company’s quarterly report on Form 10-Q for the quarter ended March 31, 2023, is incorporated by reference in its Registration Statements, Form S-8 (No. 333-175868), Form S-8 (No. 333-233122), Form S-8 (No. 333-175867), Form S-8 (No. 333-206685), and Form S-3 (No. 333-238208).

Yours very truly,

/s/ Crowe LLP

Exhibit 31(a)

Certification by the Chief Executive Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Robert J. McCormick, certify that:

1. I have reviewed this Form 10-Q of TrustCo Bank Corp NY;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not<br> misleading with respect to the period covered by this report;
--- ---
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and<br> for, the periods presented in this report;
--- ---
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial<br> reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
--- ---
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated<br> subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
--- ---
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and<br> the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
--- ---
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by<br> this report based on such evaluation; and
--- ---
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report)<br> that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
--- ---
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of<br> directors (or persons performing the equivalent functions):
--- ---
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and<br> report financial information; and
--- ---
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
--- ---
Date:  May 9, 2023
---
/s/ Robert J. McCormick
Robert J. McCormick
Chairman, President and
Chief Executive Officer

Exhibit 31(b)

Certification by the Chief Financial Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Michael M. Ozimek, certify that:

1. I have reviewed this Form 10-Q of TrustCo Bank Corp NY;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not<br> misleading with respect to the period covered by this report;
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3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and<br> for, the periods presented in this report;
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4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial<br> reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
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a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated<br> subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
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b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and<br> the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
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c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by<br> this report based on such evaluation; and
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d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report)<br> that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
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5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of<br> directors (or persons performing the equivalent functions):
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a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and<br> report financial information; and
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b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
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Date:  May 9, 2023
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/s/ Michael M. Ozimek
Michael M. Ozimek
Executive Vice President and
Chief Financial Officer

Exhibit 32

Certification

Pursuant to 18 U.S.C. Section 1350,

As Adopted Pursuant to

Section 906 of The Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report of TrustCo Bank Corp NY (the “Company”) on Form 10-Q for the period ending March 31, 2023 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company for the periods described therein.
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/s/ Robert J. McCormick
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Robert J. McCormick
Chairman, President and
Chief Executive Officer
/s/ Michael M. Ozimek
Michael M. Ozimek
Executive Vice President and
Chief Financial Officer
Date:  May 9, 2023

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