UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒ Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 2024
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)
5 SARNOWSKI DRIVE, GLENVILLE, NEW YORK 12302
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (518) 377-3311
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s) Name of exchange on which registered
Common Stock, $1.00 par value TRST The Nasdaq Global Select Market
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☐No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes ☐No☒
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.
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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over
financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing
reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those errors corrections are restatements that required a recovery analysis of incentive-based compensation received by
any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes. ☐ No. ☒
The aggregate market value of the common stock held by non-affiliates as of June 30, 2024, the
last business day of the Company’s second quarter, was $529.8 million (based upon the closing price of $28.77 on June 28, 2024 as
reported on the Nasdaq Global Select Market).
The number of shares outstanding of the registrant’s common stock as of March 7, 2025 was19,019,749.
Documents Incorporated by Reference
Documents Incorporated by Reference: Portions of the registrant’s Annual Report to Shareholders for the year ended December 31, 2024 are incorporated by reference into
Parts I and II of this report, and portions of the registrant’s Proxy Statement filed for its 2025 Annual Meeting of Shareholders to be filed within 120 days of the registrant’s fiscal year end are incorporated into Part III of this report to the extent described herein.
INDEX
Description Page
PART I
Item 1 Business 3
Item 1A Risk Factors 22
Item 1B Unresolved Staff Comments 37
Item 1C Cybersecurity 38
Item 2 Properties 39
Item 3 Legal Proceedings 39
Item 4 Mine Safety Disclosures 39
PART II
Item 6 [Reserved] 41
Item 7A Quantitative and Qualitative Disclosures about Market Risk 42
Item 8 Financial Statements and Supplementary Data 42
Item 9A Controls and Procedures 42
Item 9B Other Information 43
Item 9C Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 43
PART III
Item 10 Directors, Executive Officers and Corporate Governance 43
Item 11 Executive Compensation 43
Item 14 Principal Accountant Fees and Services 44
PART IV
Item 15 Exhibits, and Financial Statement Schedules 44
EXHIBITS INDEX 45
Signatures 50
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Statements included in this Annual Report on Form 10-K for the year ended December 31, 2024 (“2024 Form 10-K”) and in future filings by TrustCo with the Securities and Exchange Commission (“SEC”), in TrustCo’s press releases, and in oral
statements made with the approval of an authorized executive officer that are not historical or current facts, are “forward-looking statements” made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995
and are subject to certain risks and uncertainties that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. Forward-looking statements can be identified by the use of such words
such as may, will, should, could, would, estimate, project, believe, intend, anticipate, plan, seek, expect and similar expressions. TrustCo wishes to caution readers not to place undue reliance on any such forward-looking statements, which
speak only as of the date made.
The risk factors listed in Item 1A, Risk Factors of this 2024 Form 10-K and TrustCo’s Annual Report to Shareholders for the year ended December 31, 2024 Annual Report to Shareholders, which is included as Exhibit 13 hereto, and in TrustCo’s
other filings with the SEC, 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 heightened by volatility in financial markets and macroeconomic or geopolitical concerns related to
continued elevated interest rates, global political hostilities (including China-Taiwan and U.S.-China relations), global military conflicts (including the conflicts in the Ukraine and the Middle East), and U.S. and foreign tariff policies.
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 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.
PART I
Item 1. Business
General
TrustCo Bank Corp NY (“TrustCo” or the “Company”) is a savings and loan holding company
having its principal place of business at 5 Sarnowski Drive, Glenville, New York 12302. TrustCo was incorporated under the laws of New York in 1981 to be the parent holding company of The Schenectady Trust Company, which subsequently was
renamed Trustco Bank New York and, later, Trustco Bank, National Association. The Company’s principal subsidiary, Trustco Bank (also referred to as the “Bank”), is the successor by merger to Trustco Bank, National Association.
Through policy and practice, TrustCo continues to emphasize that it is an equal opportunity employer. There were 737 full-time equivalent employees of TrustCo at year-end. TrustCo had 6,961 shareholders of record as of December 31, 2024 and
the closing price of the TrustCo common stock on December 31 (the last trading day of 2024) was $33.31.
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Subsidiaries
Trustco Bank
Trustco Bank is a federal savings bank engaged in providing general banking services to individuals and business.
The Bank provides a wide range of both personal and business banking services, including a full array of deposit products for both individuals and businesses. Trustco Bank also offers trust
and investment services through its Financial Services Department. The Bank is supervised and regulated by the federal Office of the Comptroller of the Currency (“OCC”).
Its deposits are insured by the Federal Deposit Insurance Corporation (“FDIC”) to the extent permitted by law. The Bank’s subsidiary,
Trustco Realty Corp., is a real estate investment trust (or “REIT”) that was formed to acquire, hold and manage real estate mortgage assets, including residential
mortgage loans and mortgage backed securities. The income earned on these assets, net of expenses, is distributed in the form of dividends. Under current New York State tax law, 60% of the dividends received by the Bank from Trustco Realty
Corp. are excluded from total taxable income for New York State income tax purposes. The Bank accounted for substantially all of TrustCo’s 2024 consolidated net income and average assets. The Bank’s other active subsidiaries, Trustco Insurance Agency, Inc. and ORE Property, Inc., did not engage in any significant business activities during 2024 and 2023.
Trustco Financial Services, the name under which Trustco Bank’s trust department operates, serves as executor of estates and trustee of personal trusts,
provides asset and wealth management services, provides estate planning and related advice, provides custodial services, and acts as trustee for various types of employee benefit plans and corporate pension and profit sharing trusts. The
aggregate market value of the assets under trust, custody, or management of the trust department of the Bank was approximately $1.15 billion as of December 31, 2024.
The daily operations of the Bank remain the responsibility of its officers, subject to the oversight of its Board of Directors and overall supervision by TrustCo. The activities of the Bank
are included in TrustCo’s consolidated financial statements.
ORE Subsidiary Corp.
In 1993, TrustCo created ORE Subsidiary Corp., a New York corporation, to hold and manage certain foreclosed properties acquired by the Bank. The accounts of this subsidiary are included in
TrustCo’s consolidated financial statements.
Our Market Area
At year-end 2024, the Bank operated 154 automatic teller machines and 136 banking offices in Albany, Columbia, Dutchess, Greene, Montgomery, Orange, Putnam, Rensselaer, Rockland, Saratoga,
Schenectady, Schoharie, Ulster, Warren, Washington, and Westchester counties of New York, Brevard, Charlotte, Flagler, Hillsborough, Indian River, Lake, Manatee, Martin, Orange, Osceola, Palm Beach, Polk, Sarasota, Seminole, and Volusia
counties in Florida, Bennington County in Vermont, Berkshire County in Massachusetts and Bergen County in New Jersey. The largest part of such business consists of accepting deposits and making loans and investments. Trustco Bank also lends
in Essex and Fulton counties of New York, Essex, Hudson, Morris, and Passaic counties of New Jersey, Collier, Lee, Marion, Pasco, Pinellas, St. Johns, St. Lucie, and Sumter counties of Florida, where it has no branch locations. The Bank’s
locations are selected to be easily accessible and provide convenient services to businesses and individuals throughout our market area.
Our market area has a high level of retail and commercial business activity. Businesses are concentrated in the service sector and retail trade areas. Major employers in our market area
include certain medical centers, municipalities, and school districts.
Competition
TrustCo faces strong competition in its market areas, both in attracting deposits and making loans. The Company’s most direct competition for deposits, historically, has come from commercial banks,
savings associations, and credit unions that are located or have branches in the Bank’s market areas. The competition ranges from other locally based commercial banks, savings banks, and credit unions to
branch offices of the largest financial institutions in the United States. In its principal market areas, the Capital District area of New York State and central Florida, TrustCo’s principal competitors are
local branch operations of super-regional banks, branch offices of money center banks, and locally based commercial banks and savings institutions. The Bank is the largest depository institution headquartered in the Capital District area of New
York State. The Company also faces competition for deposits from national brokerage houses, short-term money market funds, and other corporate and government securities mutual funds.
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Factors affecting the acquisition of deposits include pricing, office locations and hours of operation, the variety of deposit accounts offered, and the quality of customer service provided. Competition for loans has increased as interest
rates have remained elevated and housing inventory has tightened in many of the Bank’s market areas. Commercial banks, savings institutions, traditional mortgage brokers affiliated with local offices, and nationally franchised real estate
brokers are all active and aggressive competitors. The Company competes in this environment by providing a full range of financial services based on a tradition of financial strength and integrity dating from its inception. The Company also
expects competition to increase in the future as a result of legislative, regulatory and technological changes and the continuing trend of consolidation in the financial services industry. Technological advances, for example, have lowered
barriers to entry, allowed banks and other financial services companies to expand their geographic reach by providing services over the internet, and made it possible for non-depository institutions to offer products and services that
traditionally have been provided by banks. The Company competes for loans principally through the interest rates and loan fees it charges and the efficiency and quality of services it provides to borrowers. Furthermore, management believes
that a community-based financial organization is better positioned to establish personalized financial relationships with both commercial customers and individual households. The Company’s community commitment and involvement in its primary
market areas, as well as its commitment to quality and personalized financial services, are factors that contribute to the Company’s competitiveness.
Lending Activities
One of our core goals is to support the communities in which we operate. We seek loans from within our primary market area, which generally is defined as the counties in which our banking offices are located. Approval of all loans is subject
to our policies and standards described in more detail below. We have adopted comprehensive lending policies, underwriting standards and loan review procedures. Management and our Board of Directors reviews and approves these policies and
procedures on a regular basis. Management has also implemented reporting systems designed to monitor loan originations, loan quality, concentrations of credit, loan delinquencies, nonperforming loans, and potential problem loans. Our
management and various committees periodically review our lines of business to monitor asset quality trends and the appropriateness of credit policies. In addition, we establish total borrower exposure limits and monitor concentration risk. As
part of this process, the overall composition of the portfolio is reviewed to gauge diversification of risk, client concentrations, industry group, loan type, geographic area, or other relevant classifications of loans. Specific segments of the
portfolio are monitored and reported to our Board on a quarterly basis. We recognize that exceptions to the below-listed policy guidelines may occur and have established procedures for approving exceptions to these policy guidelines.
Residential Real Estate Loans
We originate 1-4 family, owner-occupied residential real estate loans. Historically, vast majority of residential loan originations are fixed-rate loans which are held in portfolio. Residential real estate loans also include home equity
lines of credit, or HELOCs, and home equity loans. Our home equity portfolio includes revolving open-ended equity loans with interest-only or minimal monthly principal payments and closed-end amortizing loans. Open-ended equity loans typically
have an interest-only draw period followed by a repayment period.
Commercial Loans
Commercial loans are primarily made based on identified cash flows of the borrower with consideration given to underlying collateral and personal or other guarantees. Our policy sets forth guidelines for debt service coverage ratios,
loan-to-value (“LTV”) ratios and documentation standards. Specifically, we have established debt service coverage ratio limits that require a borrower’s cash flow to be sufficient to cover principal and interest payments on all new and existing
debt. The majority of our commercial loans are secured by the assets being financed or other business assets such as accounts receivable or inventory.
Commercial Real Estate Loans
Commercial real estate loans are primarily made based on identified cash flows of the borrower with consideration given to underlying real estate collateral and personal guarantees. We have adopted guidelines for debt service coverage
ratios, LTV ratios and documentation standards for commercial real estate loans. Specifically, our policy establishes a maximum LTV specific to property type and minimum debt service coverage ratio limits that require a borrower’s cash flow to
be sufficient to cover principal and interest payments on all new and existing debt. Commercial real estate loans may be fixed or variable-rate loans with interest rates tied to indexes. Generally, we require appraisals for loans that are
secured by real property.
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Consumer Loans
Our consumer loan portfolio includes personal installment loans, automobile financing, and overdraft lines of credit. The majority of our consumer loans are short-term and have fixed rates of interest that are priced based on current market
interest rates and the financial strength of the borrower.
Investment Activities
The goals of our investment policy are to provide and maintain liquidity to meet deposit withdrawal and loan funding needs, to help mitigate interest rate and market risk, to diversify our assets, and to generate a reasonable rate of return
on funds within the context of our interest rate and credit risk objectives. The Board reviews and approves our investment policy annually. Authority to make investments under the approved investment policy guidelines is delegated to our
selected senior management. Investment activity is summarized and reported to the Board. We classify the majority of our securities as available-for-sale. The breakdown of investment portfolio is described in detail in the 2024 Annual Report to
Shareholders for the year ended December 31, 2024.
Sources of Funds
General. Deposits, borrowings and loan repayments are the major sources of our funds for lending and other investment purposes. Scheduled loan repayments are a relatively stable
source of funds, while deposit inflows and outflows and loan prepayments are significantly influenced by general interest rates and money market conditions.
Deposit Accounts. Deposits are attracted from within our market area by the sales efforts of our branch network, commercial loan officers, advertising and through our website. We
offer a broad selection of deposit instruments, including noninterest-bearing demand deposits (such as checking accounts), interest-bearing demand accounts (such as NOW and money market accounts), savings accounts and term certificates of
deposit. We also offer a variety of deposit accounts designed for businesses operating in our market area. Our business banking deposit products include a commercial checking account, sweep accounts, money market accounts and checking accounts
specifically designed for businesses. We also offer remote deposit capture products for customers to meet their online banking needs.
Deposit account terms vary according to the minimum balance required, the time periods the funds must remain on deposit, and the interest rate, among other factors. In determining the terms of our deposit accounts, we consider the rates
offered by our competition, our liquidity needs, profitability to us, and customer preferences and concerns. We generally review our deposit mix and pricing on a weekly basis. Our deposit pricing strategy has generally been to offer competitive
rates and to periodically offer special rates in order to attract deposits of a specific type or term.
Supervision and Regulation
Banking is a highly regulated industry, with numerous federal and state laws and regulations governing the organization and operation of banks and their affiliates. As a savings and loan
holding company, TrustCo and its non-bank subsidiaries are supervised and regulated by the Board of Governors of the Federal Reserve System (“Federal Reserve Board”). The
OCC is the Bank’s primary federal regulator and supervises and examines the Bank. Under the Home Owners’ Loan Act of 1934 and OCC regulations, Trustco Bank must obtain
prior OCC approval for acquisitions, and its business operations and activities are restricted. Because the FDIC provides deposit insurance to the Bank, the Bank also is subject to its supervision and regulation even though the FDIC is not the
Bank’s primary federal regulator.
It is anticipated that the Trump administration and the current U.S. Congress likely will not increase the regulatory burden on community banking organizations and may seek to
reduce and streamline certain prudential and regulatory requirements applicable to community banking organizations at a federal level based on statements made by relevant congressional leaders and the acting leaders of certain banking agencies.
At this time, however, it is not possible to predict with any certainty the actual impact the Trump administration may have on the banking industry or our operations.
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The following summary of laws and regulations applicable to the Company and those applicable to the Bank is not intended to be a complete description of those laws and regulations or their
effects on the Company and the Bank. The summary is qualified in its entirety by reference to the particular statutory and regulatory provisions described. Changes in applicable law or regulation, and in their
interpretation and application by regulatory agencies and other governmental authorities, cannot be predicted, but may have a material effect on our business, financial condition or results of operations.
Dividends
Most of TrustCo’s revenues consist of cash dividends paid to TrustCo by the Bank, payment of which is subject to various regulatory limitations, including
continued compliance with minimum regulatory capital requirements, and the receipt of regulatory approval (or non-objection) from the Bank’s and the Company’s regulators.
OCC regulations impose limitations upon all capital distributions by the Bank, including cash dividends. Under the regulations, an application to and the approval of the OCC is required prior
to any capital distribution if the institution does not meet the criteria for “expedited treatment” of applications under OCC regulations (generally, examination ratings
in the two top categories), the total capital distributions for the calendar year exceed net income for that year plus the amount of retained net income for the preceding two years, the institution would be undercapitalized following the
distribution, or the distribution would otherwise be contrary to a statute, regulation, or agreement with the OCC. If an application is not required, the institution must still provide prior notice of the capital distribution to the OCC and the
Federal Reserve Board if, like the Bank, the institution is a subsidiary of a savings and loan holding company. The OCC may not approve a dividend if the institution 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 between the bank and a regulator or a condition imposed in a previously approved
application or notice.
As noted above, a savings institution, such as the Bank, that is a subsidiary of a savings and loan holding company and that proposes to make a capital distribution must also submit written
notice to the Federal Reserve Board prior to such distribution, and Federal Reserve Board may object to the distribution based on safety and soundness or other concerns. The Federal Reserve Board may deny a dividend notice if following the
dividend, the savings association will be less than adequately capitalized, the proposed dividend raises safety and soundness concerns, or the proposed dividend violates a prohibition contained in any statute, regulation, enforcement action,
or agreement between the association or holding company and an appropriate federal banking agency, a condition imposed on the association or holding company in an application or notice approved by an appropriate federal banking agency, or any
formal or informal enforcement action involving the association or holding company.
Compliance with regulatory standards regarding capital distributions could also limit the amount of dividends that TrustCo may pay to its shareholders.
See Note 14 to the consolidated financial statements contained in TrustCo’s Annual Report to Shareholders for the year ended December 31, 2024 for
information concerning the Bank’s regulatory capital requirements.
Regulatory Capital Requirements and Prompt Corrective Action.
Regulatory Capital Rules. The Company and the Bank are subject to regulatory capital requirements contained in rules published by the Federal
Reserve Board, OCC, and FDIC that establish a comprehensive capital framework for all U.S. banking organizations, including the Company and the Bank.
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The capital rules, among other things, provide a “Common Equity Tier 1” (“CET1”) capital measure, Tier 1 capital and total capital to risk-weighted assets ratios and a Tier 1 capital to average consolidated assets (or “leverage”) ratio. CET1 capital is generally defined as common stock
instruments that meet eligibility criteria in the final capital rule (principally, instruments representing the most subordinated claim upon liquidation, having no maturity date and being redeemable via discretionary purchases only with
regulatory approval, not being subject to any expectations that the stock will be repurchased, redeemed, or cancelled, and not being secured by the banking organization or any related entity), retained earnings, accumulated other comprehensive
income, and common equity Tier 1 minority interests, subject to certain limitations. Tier 1 capital for the Company and the Bank consists of CET1 capital plus “additional Tier 1 capital,” which generally includes certain noncumulative perpetual preferred stock and related surplus and minority interests in equity accounts of consolidated subsidiaries. Total capital includes Tier 1 capital and Tier 2 capital.
Tier 2 capital is comprised of capital instruments and related surplus meeting specified requirements, and may include cumulative preferred stock and long-term perpetual preferred stock, mandatory convertible securities, intermediate preferred
stock, and subordinated debt. Also included in Tier 2 capital is the allowance for loan and lease losses limited to a maximum of 1.25% of risk-weighted assets and, for institutions that have exercised an opt-out election regarding the treatment
of accumulated other comprehensive income (“AOCI”), up to 45% of net unrealized gains on available-for-sale equity securities with readily determinable fair market
values. Institutions that have not exercised the AOCI opt-out have AOCI incorporated into common equity Tier 1 capital (including unrealized gains and losses on available-for-sale-securities). The Company has made this opt-out election.
Calculation of all types of regulatory capital is subject to deductions and adjustments specified in the regulations.
Under the capital rules, the minimum capital ratios are:
• 4.5% CET1 to risk-weighted assets;
• 6.0% Tier 1 capital to risk-weighted assets;
• 8.0% Total capital to risk-weighted assets; and
At December 31, 2024, the Bank had a Tier 1 leverage ratio (Tier 1 capital to total average consolidated assets) of 10.62%, CET1 capital ratio (CET1 capital to risk-weighted assets) of a 18.54%, Tier 1 capital ratio (Tier 1 capital to
risk-weighted assets) of 18.54%, and a total capital ratio (total capital to risk-weighted assets) of 19.80%. Also at December 31, 2024, the Company had a Tier 1 leverage ratio (Tier 1 capital to total average consolidated assets) of 11.05%,
CET1 capital ratio (CET1 capital to risk-weighted assets) of 19.30%, a Tier 1 capital ratio (Tier 1 capital to risk-weighted assets) of 19.30% and a total capital ratio (total capital to risk-weighted assets) of 20.56%.
In order to avoid constraints on dividends, equity repurchases and certain compensation, the capital rules require the Company’s and the Bank’s capital to exceed the regulatory standards plus a capital conservation buffer. To meet the requirement, the organization must maintain an amount of CET1 capital that exceeds the buffer level of 2.5% above
each of the minimum risk-weighted asset ratios, (i) CET1 to risk-weighted assets of more than 7.0%, (ii) Tier 1 capital to risk-weighted assets of more than 8.5%, and (iii) total capital (Tier 1 plus Tier 2) to risk-weighted assets of more than
10.5%.
The OCC has the ability to establish an individual minimum capital requirement for a particular institution, which would vary from the capital levels that would otherwise be required under the capital
regulations, based on such factors as concentrations of credit risk, levels of interest rate risk, and the risks of non-traditional activities, as well as others. The OCC has not imposed any such requirement on the Bank.
The capital rules contain standards for the calculation of risk-weighted assets. The exposure amount for on-balance sheet assets is generally the carrying value of the exposure as determined
under GAAP. A bank may assign a 50% risk weight to a first-lien residential mortgage exposure that:
• is secured by property that is owner-occupied or rented,
• is not 90 days or more past due or in nonaccrual status, and
• is not restructured or modified.
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Other first-lien residential exposures, as well as junior-lien exposures if the bank does not hold the first lien, are assigned a 100% risk weight.
If a banking organization has elected to opt out of the AOCI provisions discussed above, the exposure amount for available for sale or held-to-maturity debt securities is the carrying value
(including accrued but unpaid interest and fees) of the exposure, less any net unrealized gains plus any unrealized losses. Exposures to debt directly and unconditionally guaranteed by the U.S. federal government and its agencies receive a 0%
risk weight. Exposures conditionally guaranteed by the federal government, Federal Reserve Board, or a federal government agency would receive a 20% risk weight. Further, the capital rules assign a 20% risk weight to non-equity exposures to
government-sponsored entities (“GSEs”) and a 100% risk weight to preferred stock issued by a GSE. A GSE is defined as an entity established or chartered by the federal
government to serve public purposes but whose debt obligations are not “explicitly guaranteed” by the full faith and credit of the federal government. Banking
organizations must assign a 20% risk weight to general obligations of a public sector entity (for example, a state, local authority or other governmental subdivision below the sovereign level) that is organized under U.S. law and a 50% risk
weight for a revenue obligation of such an entity.
In December 2017, the Basel Committee published standards that it described as the finalization of the Basel III post-crisis regulatory reforms. Among other things, these
standards revise the Basel Committee’s standardized approach for credit risk (including recalibrating risk weights and introducing new capital requirements for certain “unconditionally cancellable commitments,” such as unused credit card and
home equity lines of credit) and provide a new standardized approach for operational risk capital. Under the Basel framework, these standards generally became effective on January 1, 2023, with an aggregate output floor phasing in through
January 1, 2028.
Prompt Corrective Action. Federal banking regulations also establish a “prompt corrective action” capital framework for the classification of insured depository institutions, such as Trustco Bank, into five categories: well capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized, and critically undercapitalized. Under the prompt corrective action rules currently in effect, an institution is deemed to be (a) ”well-capitalized” if
it has total risk-based capital of 10.0% or more, has a Tier 1 risk-based capital ratio of 8.0% or more, has a CET1 risk based capital ratio of 6.5% or more, and has leverage capital ratio of 5.0% or more and is not subject to any order or
final capital directive to meet and maintain a specific capital level for any capital measure; (b) ”adequately capitalized” if it has a total risk-based capital ratio of
8.0% or more, a Tier 1 risk-based capital ratio of 6.0% or more, a CET1 risk based capital ratio of 4.5% or more and has a leverage capital ratio of 4.0% or more (3.0% under certain circumstances) and does not meet the definition of
well-capitalized; (c) ”undercapitalized” if it has a total risk-based capital ratio that is less than 8.0%, a Tier 1 risk-based capital ratio that is less than 6.0%, a
CET1 capital ratio less than 4.5% or a Tier 1 leverage capital ratio that is less than 4.0%; (d) ”significantly undercapitalized” if it has a total risk-based capital
ratio that is less than 6.0%, a Tier 1 risk-based capital ratio that is less than 4.0%, a CET1 capital ratio less than 3% or a Tier 1 leverage capital ratio that is less than 3.0%; and (e) ”critically
undercapitalized” if it has a ratio of tangible equity to total assets that is equal to or less than 2.0%. 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 condition and activities. In certain situations, a federal banking agency may reclassify a well-capitalized institution as adequately capitalized and may require an adequately capitalized or
undercapitalized institution to comply with supervisory actions as if the institution were in the next lower category.
A depository institution is generally prohibited from making any capital distributions (including payment of a dividend) or paying any management fee to its parent holding company if the
depository institution would thereafter be undercapitalized. Undercapitalized institutions also are subject to growth limitations and are required to submit a capital restoration plan to the regulatory agencies. The agencies may not accept such
a plan without determining, among other things, that the plan is based on realistic assumptions and is likely to succeed in restoring the depository institution’s capital. In addition, for a capital
restoration plan to be acceptable, the depository institution’s parent holding company must guarantee that the institution will comply with such capital restoration plan. The aggregate liability of the
parent holding company is limited to the lesser of (i) an amount equal to 5.0% of the depository institution’s total assets at the time it became undercapitalized and (ii) the amount which is necessary (or
would have been necessary) to bring the institution into compliance with all capital standards applicable with respect to such institution as of the time it fails to comply with the plan. If a depository institution fails to submit an
acceptable plan, it is treated as if it is “significantly undercapitalized.”
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“Significantly undercapitalized” depository institutions may be subject to a number of requirements and restrictions,
including orders to sell sufficient voting stock to become “adequately capitalized,” requirements to reduce total assets, and cessation of receipt of deposits from
correspondent banks. “Critically undercapitalized” institutions are subject to the appointment of a receiver or conservator.
At December 31, 2024 and 2023, each of TrustCo and Trustco Bank met all capital adequacy requirements to which it was subject under the OCC and Federal Reserve Board regulations. As of
December 31, 2024, the most recent notification from the OCC categorized the Bank as “well capitalized” under the regulatory framework for prompt corrective action.
Economic Growth, Regulatory Relief and Consumer Protection Act. In May 2018, the Economic Growth, Regulatory Relief and Consumer Protection Act (the "Regulatory Relief Act"), was enacted to modify or remove
certain financial reform rules and regulations. The Regulatory Relief Act amends certain aspects of the regulatory framework for small depository institutions with assets of less than $10 billion and for large banks with assets of more than
$50 billion. Many of these changes resulted in meaningful regulatory changes for community banks such as the Bank, and their holding companies.
The Regulatory Relief Act also expanded the definition of qualified mortgages that may be held by a financial institution and simplified the regulatory capital rules for
financial institutions and their holding companies with total consolidated assets of less than $10 billion by instructing the federal banking regulators to establish a single "Community Bank Leverage Ratio" of 9 percent. Any qualifying
depository institution or its holding company that exceeds the "community bank leverage ratio" will be considered to have met generally applicable leverage and risk-based regulatory capital requirements and any qualifying depository institution
that exceeds the ratio will be considered to be "well capitalized" under the prompt corrective action rules. In addition, the Regulatory Relief Act included regulatory relief for community banks regarding regulatory examination cycles, call
reports, the Volcker Rule (proprietary trading prohibitions), mortgage disclosures and risk weights for certain high-risk commercial real estate loans. The new rule was effective as of January 1, 2020. Although TrustCo would qualify to take
advantage of the community bank leverage ratio framework, it has decided it would not opt-in to the framework.
Holding Company Activities
The activities of savings and loan holding companies are governed, and limited, by the Home Owners’ Loan Act and the Federal Reserve Board’s regulations. In general, TrustCo’s activities are limited to those permissible for “multiple”
savings and loan holding companies (that is, savings and loan holding companies owning more than one savings association subsidiary) as of March 5, 1987, activities permitted for bank holding companies as of November 12, 1999, and activities
permissible for “financial holding companies” (which are described below). Activities permitted to multiple savings and loan holding companies include certain real
estate investment activities, and other activities permitted to bank holding companies under the Bank Holding Company Act. Activities permissible for a financial holding company are those considered financial in nature (including securities and
insurance activities) or those incidental or complementary to financial activities.
A savings and loan holding company is prohibited from, directly or indirectly, acquiring more than 5% of the voting stock of another financial institution or savings and loan holding company
without the prior written approval of the Federal Reserve Board. In evaluating applications by holding companies to acquire savings institutions, the Federal Reserve Board considers the financial and managerial resources and future prospects of
the company and institution involved, the effect of the acquisition on the risk to the deposit insurance fund, the convenience and needs of the community and competitive factors.
The financial impact of a holding company on its subsidiary institution is a matter that is evaluated by the Federal Reserve Board, and the Federal Reserve Board has authority to order
cessation of activities or divestiture of subsidiaries deemed to pose a threat to the safety and soundness of the institution. The Federal Reserve’s long-standing “source
of strength” doctrine requires that bank or thrift holding companies serve as a source of financial strength for their depository institution subsidiaries. The phrase “source
of financial strength” is defined as “the ability of a company that directly or indirectly owns or controls an insured depository institution to provide financial
assistance to such insured depository institution in the event of the financial distress of the insured depository institution.” The federal banking agencies are authorized to adopt regulations with respect
to this requirement.
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Securities Regulation and Corporate Governance
The Company’s common stock is registered with the SEC under Section 12(b) of the Exchange Act, and the Company is subject to restrictions, reporting
requirements and review procedures under federal securities laws and regulations. The Company is also subject to the rules and reporting requirements of The Nasdaq Stock Market LLC, on which its common stock is traded.
The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) significantly changed the regulation of financial institutions, such as community banks,
thrifts, and small bank and thrift holding companies, and the financial services industry. Among other things, the Dodd-Frank Act abolished the Office of Thrift Supervision and transferred its functions to the other federal banking agencies,
relaxed rules regarding interstate branching, allowed financial institutions to pay interest on business checking accounts, and imposed new capital requirements on bank and thrift holding companies. The Dodd-Frank Act has affected our business
in substantial ways, including by causing us to incur higher operating costs to comply with the Dodd-Frank Act. Certain provisions of the Dodd-Frank Act have yet to be fully implemented and may be impacted by future legislation, rulemaking or
executive orders. Our management continues to monitor the ongoing implementation of the Dodd-Frank Act and as new regulations are issued, will assess their effect on our business, financial condition and results of operations.
The Sarbanes-Oxley Act of 2002 is intended to improve corporate responsibility, to provide for enhanced penalties for accounting and auditing improprieties at publicly traded companies and to
protect investors by improving the accuracy and reliability of corporate disclosures pursuant to the securities laws. The Company has policies, procedures and systems designed to comply with these regulations, and it reviews and documents such
policies, procedures and systems to ensure continued compliance with these regulations.
Although the Company has and will continue to incur additional expense in complying with the corporate governance provisions of federal law and the resulting regulations, management does not
expect that such compliance will have a material impact on the Company’s financial condition or results of operations.
Federal Savings Institution Regulation
Business Activities. Federal law and regulations govern the activities of federal savings banks such as the Bank. These laws and regulations
delineate the nature and extent of the activities in which federal savings banks may engage. In particular, certain lending authority for federal savings banks, e.g., commercial,
non-residential real property loans and consumer loans, is limited to a specified percentage of the institution’s capital or assets.
Insurance of Deposit Accounts. Deposits of Trustco Bank are insured by the Deposit Insurance Fund (“DIF”) of the FDIC, and the Bank is subject to deposit insurance assessments to maintain the DIF. The FDIC determines insurance premiums based on a number of factors, primarily the risk of loss that insured
institutions pose to the DIF. Deposit insurance assessments are based on average consolidated total assets minus average tangible equity. Under the FDIC’s risk-based assessment system, insured institutions
with less than $10 billion in assets, such as the Bank, are assigned to one of three categories based on their composite examination ratings, with higher-rated, less risky institutions paying lower assessments. A range of initial base
assessment rates applies to each category, adjusted downward based on unsecured debt issued by the institution to produce total base assessment rates. Total base assessment rates currently range from 2.5 to 18 basis points for banks in the
least risky category to 13 to 32 basis points for banks in the most risky category, all subject to further adjustment upward if the institution holds more than a limited amount of unsecured debt issued by another FDIC-insured institution.
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The FDIC has the authority to raise or lower assessment rates, subject to limits, and to impose special additional assessments. The Dodd-Frank Act set the minimum reserve ratio to not less than 1.35% of estimated insured deposits or the
comparable percentage of the FDIC’s assessment base. The act also required the FDIC to take the steps necessary to attain the 1.35 percent ratio by September 30, 2020, subject to an offsetting requirement
for certain institutions. In September 2020, the FDIC announced that the ratio declined to 1.30% due largely to consequences of the COVID-19 pandemic and adopted a plan to restore the fund to the 1.35% ratio (the “Restoration Plan”) within
eight years but did not change its assessment rate schedule. The Restoration Plan requires the FDIC to update its analysis and projections for the fund balance and reserve ratio at least semiannually and, if necessary, recommend any
modifications, such as increasing assessment rates. In the semiannual update for the Restoration Plan in June 2022, the FDIC projected that the reserve ratio was at risk of not reaching the statutory minimum of 1.35 percent by September 30,
2028, the statutory deadline to restore the reserve ratio. Based on this update, the FDIC Board approved an amended Restoration Plan, and concurrently proposed an increase in initial base deposit insurance assessment rate schedules uniformly by
2 basis points, applicable to all insured depository institutions. In October 2022, the FDIC Board finalized the increase with an effective date of January 1, 2023, applicable to the first quarterly assessment period of 2023 (i.e., January 1
through March 31, 2023).
FDIC deposit insurance expense totaled $2.6 million in 2024, $2.9 million in 2023 and $1.8 million in 2022. FDIC deposit insurance expense includes deposit insurance assessments and, until
2019, Financing Corporation (“FICO”) assessments related to outstanding bonds issued by FICO in the late 1980s to recapitalize the now defunct Federal Savings & Loan
Insurance Corporation. The final FICO assessment was collected in 2019. Future changes in insurance premiums could have an adverse effect on the operating expenses and results of operations of Trustco Bank, and the Bank cannot predict what
insurance assessment rates will be in the future.
On November 16, 2023, the FDIC approved a final rule to implement a special assessment on certain banking organizations with financial institution subsidiaries with more than $5 billion in assets, in order to recover the costs associated
with protecting uninsured depositors following the closures of Silicon Valley Bank and Signature Bank in March 2023. Under the rule, the assessment base for the special assessment is equal to an insured depository institution’s estimated
uninsured deposits reported as of December 31, 2022, adjusted to exclude the first $5 billion of uninsured deposits. The total amount of the special assessment is to be paid in ten equal quarterly installments that began with the invoice for
the first quarter of 2024 (received in June 2024) and ends with the invoice for the second quarter of 2026. Because the Bank's uninsured deposits at the measurement date were below $5 billion, the Company will not be subject to this special
assessment.
Insurance of deposits may be terminated by the FDIC upon a finding that the institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation,
rule, order or condition imposed by the FDIC or the OCC. The Bank does not know of any practice, condition or violation that might lead to termination of its deposit insurance.
Pause on Major Federal Reserve Board Rulemakings
The Federal Reserve Board’s Vice Chair of Supervision, Michael Barr, stepped down from the position, effective February 28, 2025. The Federal Reserve Board stated that it will not issue any major rulemakings from the time of the announcement
until a new vice chair for supervision is confirmed by the U.S. Senate.
Other Regulation
Assessments. The Bank is required to pay assessments to the OCC to fund the agency’s operations. The general
assessments, paid on a semi-annual basis, is computed upon the Bank’s total assets, including consolidated subsidiaries, as reported in the Bank’s latest quarterly
financial report. The OCC’s assessment schedule includes a surcharge for institutions that require increased supervisory resources. The assessments paid by the Bank for the year ended December 31, 2024
totaled approximately 657 thousand.
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Community Reinvestment Act. The Community Reinvestment Act (“CRA”) requires each savings institution, as well as commercial banks and certain other lenders, to identify the communities served by the institution’s offices and to
identify the types of credit the institution is prepared to extend within those communities. The CRA also requires the OCC to assess an institution’s performance in meeting the credit needs of its identified communities as part of its
examination of the institution, and to take such assessments into consideration in reviewing applications with respect to branches, mergers and other business combinations, including acquisitions by savings and loan holding companies. An
unsatisfactory CRA rating may be the basis for denying such an application and community groups have successfully protested applications on CRA grounds. In connection with its assessment of CRA performance, the OCC assigns CRA ratings of
“outstanding,” “satisfactory,” “needs to improve” or “substantial noncompliance.” The Bank was rated “satisfactory” in its last CRA examination. Institutions are evaluated based on (i) its record of helping to meet the credit needs of its
assessment area through lending activities; (ii) its qualified investments; and (iii) the availability and effectiveness of the institution’s system for delivering retail banking services. An institution that is found to be deficient in its
performance in meeting its community’s credit needs may be subject to enforcement actions, including cease and desist orders and civil money penalties. In December 2021, the OCC issued a final rule rescinding its June 2020 Community
Reinvestment Act Rule and replacing it with the rules that were jointly adopted by the federal bank regulatory agencies. This action is intended to facilitate the ongoing interagency work to modernize the CRA regulatory framework and promote
consistency for all insured depository institutions. The final rule became effective on January 1, 2022. On October 24, 2023, the federal banking agencies, including the OCC, issued a final rule designed to strengthen and modernize the
regulations implementing the CRA. The changes are designed to encourage banks to expand access to credit, investment and banking services in low- and moderate-income communities, adapt to changes in the banking industry, including mobile and
internet banking, provide greater clarity and consistency in the application of the CRA regulations and tailor CRA evaluations and data collection to bank size and type. Under the revised framework, banks with assets of at least $2 billion are
considered large banks and will have their retail lending, retail services and products, community development financing, and community development services subject to periodic evaluation. Depending on a large bank's geographic concentrations
of lending, the evaluation of retail lending may include assessment areas in which the bank extends loans but does not operate any deposit-taking facilities, in addition to assessment areas in which the bank has deposit-taking facilities. The
rule became effective on April 24, 2024. Most provisions of the final rule are expected to apply beginning January 1, 2026, and the remaining provisions are expected to apply beginning January 1, 2027. In March of 2024, a preliminary injunction
was granted that provides a day-for-day extension for each day the injunction remains in place. The court's decision granting a preliminary injunction is on appeal to the U.S. Court of Appeals for the Fifth Circuit. Uncertainty consequently
remains around the actual implementation date, as well as around which elements of the final rule may be implemented. The Company continues to monitor the outcome of this rule.
Commercial Real Estate Lending Concentrations. The federal banking agencies have issued guidance on sound risk management practices for concentrations in commercial real estate lending.
The particular focus is on exposure to commercial real estate loans that are dependent on the cash flow from the real estate held as collateral and that are likely to be sensitive to conditions in the commercial real estate market (as opposed
to real estate collateral held as a secondary source of repayment or as an abundance of caution). The purpose of the guidance is not to limit a bank’s commercial real estate lending but to guide banks in developing risk management practices and
capital levels commensurate with the level and nature of real estate concentrations. The guidance directs the FDIC and other federal bank regulatory agencies to focus their supervisory resources on institutions that may have significant
commercial real estate loan concentration risk. A bank that has experienced rapid growth in commercial real estate lending, has notable exposure to a specific type of commercial real estate loan, or is approaching or exceeding the following
supervisory criteria may be identified for further supervisory analysis with respect to real estate concentration risk:
In addition, on June 29, 2023, in response to the increased risk relating to commercial real estate loans, the federal banking agencies issued a final Interagency Policy Statement on prudent Commercial Real Estate Loan Accommodations and
Workouts. The new policy statement updates, expands on and supersedes existing guidance from 2009. Most notably, it (i) adds a new discussion of short-term loan accommodations, (ii) expands guidance regarding the evaluation and assessment of
guarantors to also encompass loan sponsors, (iii) incorporates information about changes to accounting principles since 2009, and (iv) updates and expands the illustrative examples of commercial real estate loan workouts. Furthermore, on
December 18, 2023, the FDIC issued an advisory on Managing Commercial Real Estate Concentrations in a Challenging Economic Environment, which conveys certain key risk management practices for FDIC-supervised institutions to consider in managing
commercial real estate loan concentrations in the current economic environment.
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Although the Bank has a material amount of commercial real estate loans, it remains significantly below these thresholds. The guidance provides that the strength of an institution’s lending and risk management practices with respect to such
concentrations will be taken into account in supervisory guidance on evaluation of capital adequacy.
Qualified Thrift Lender Test. As a savings institution regulated by the OCC, the Bank must be a “qualified
thrift lender” under either the Qualified Thrift Lender (“QTL”) test under the Home Owners’ Loan
Act or the Internal Revenue Code’s Domestic Building and Loan Association (“DBLA”) test to avoid certain restrictions on its and the
Company’s operations and activities. A savings institution may use either test to qualify and may switch from one test to the other; however, the institution must meet the time requirements of the respective
test, that is, nine out of the preceding 12 months for the QTL test and at the close of the taxable year for the DBLA test.
Under the QTL test, the savings institution must hold qualified thrift investments equal to at least 65% of the institution’s portfolio assets. The savings
institution’s actual thrift investment percentage is the ratio of its qualified thrift investments divided by its portfolio assets. Portfolio assets are total assets minus goodwill and other intangible
assets, office property, and liquid assets not exceeding 20% of total assets. An institution ceases to meet the QTL test when its actual thrift investment percentage falls below 65% of portfolio assets for four months within any 12-month
period. To be a qualified thrift lender under the DBLA test, a savings association must meet a “business operations test” and a “60%
of assets test.” The business operations test requires the business of a DBLA to consist primarily of acquiring the savings of the public and investing in loans. An institution meets the public savings
requirement when it meets one of two conditions: (i) the institution acquires its savings accounts in conformity with OCC rules and regulations and (ii) the general public holds more than 75% of its deposits, withdrawable shares, and other
obligations. An institution meets the investing in loans requirement when more than 75% of its gross income consists of interest on loans and government obligations, and various other specified types of operating income that financial
institutions ordinarily earn. The 60% of assets test requires that at least 60% of a DBLA’s assets must consist of assets that thrifts normally hold, except for consumer loans that are not educational loans.
These are significant consequences for failing the QTL Test, including activities limitations and branching restrictions. In addition, an institution that fails the QTL test would be
prohibited from paying dividends, except under circumstances that are permissible for a national bank, that are necessary to meet the obligations of the institution’s holding company, and that are
specifically approved by both the OCC and Federal Reserve Bank after a written request submitted by the thrift at least 30 days in advance of the proposed payment. Finally, failure of the QTL Test will subject the institution to enforcement
action. If the Bank fails the qualified thrift lender test, within one year of such failure the Company must register as, and will become subject to, the activities restrictions applicable to bank holding companies, unless the Bank requalifies
within the year. The activities authorized for a bank holding company are generally more limited than are the activities authorized for a savings and loan holding company. If the Bank fails the test a second time, the Company must immediately
register as, and become subject to, the restrictions applicable to a bank holding company. The Bank is currently, and expects to remain, in compliance with the qualified thrift lender test.
Transactions with Affiliates and Other Related Parties. The Bank’s transactions with “affiliates” (generally, any company that controls or is under common control with the Bank, including TrustCo) is limited by Sections 23A and 23B of the Federal Reserve Act and the
Federal Reserve Board’s implementing Regulation W. Under these laws, the aggregate amount of “covered transactions” between the Bank
and any one affiliate is limited to 10% of the Bank’s capital stock and surplus, and the aggregate amount of covered transactions by the Bank with all of its affiliates is limited to 20% of capital stock and
surplus. Certain covered transactions (primarily credit-related transactions) are required to be secured by collateral in an amount and of a type described in Section 23A and Regulation W. Transactions by the Bank with its affiliates must be on
terms and under circumstances that are at least as favorable to the Bank as those prevailing at the time for comparable transactions with non-affiliates. In addition, savings institutions are prohibited from lending to any affiliate that is
engaged in activities that are not permissible for bank holding companies, and no savings institution may purchase the securities of any affiliate other than a subsidiary.
The definition of “covered transactions” as used in Section 23A includes credit exposure on derivatives transactions
and securities lending and borrowing transactions, as well as the acceptance of affiliate-issued debt obligations as collateral for a loan or an extension of credit.
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The Bank also is restricted in its ability to extend credit to its directors, executive officers and 10% shareholders, as well as to entities controlled by such persons. Extensions of credit
to those insiders must be made on terms that are substantially the same as, and follow credit underwriting procedures that are not less stringent than, those prevailing for comparable transactions with unaffiliated persons; may not involve more
than the normal risk of repayment or present other unfavorable features and may not exceed certain limitations on the amount of credit extended to such persons, individually and in the aggregate. In addition, extensions of credit in excess of
certain limits must be approved by the Bank’s board of directors.
Certain non-credit transactions between an insured depository institution and its insiders, such as asset purchase and sales, are prohibited unless the transaction is on market terms and, if
the transaction represents more than 10% of the capital stock and surplus of the institution, has been approved in advance by a majority of the disinterested members of the board of directors of the institution.
Safety and Soundness Regulations. The federal banking agencies (including the OCC) have
adopted certain safety and soundness standards for all insured depository institutions. These standards relate to, among other things, internal controls, information systems and internal audit systems; loan documentation; credit underwriting;
interest rate risk exposure; asset growth; asset quality; earnings and compensation, fees, and benefits, as well as other operational and managerial standards as the agency deems appropriate. Interagency Guidelines Establishing Standards for
Safety and Soundness set forth the safety and soundness standards that the federal banking agencies use to identify and address problems at insured depository institutions before capital becomes impaired. If the appropriate federal banking
agency (the OCC in the case of the Bank) determines that an institution fails to meet any standard prescribed by the guidelines, the agency may require the institution to submit to the agency an acceptable plan to achieve compliance with the
standard. The Bank is subject to periodic examinations by the OCC regarding these and related matters. During these examinations, the examiners may require the Bank to increase its allowance for loan losses, change the classification of loans,
and/or recognize additional charge-offs based on their judgments, which can impact our capital and earnings.
Enforcement. The Federal Reserve Board and the OCC have extensive enforcement authority over savings institutions and their holding companies,
including the Bank and TrustCo. This includes enforcement authority with respect to the actions of the Bank’s and TrustCo’s directors, officers and other “institution-affiliated parties,” including attorneys and auditors. This enforcement authority also includes, among other things, the ability to assess civil money penalties,
issue cease-and-desist or removal orders and initiate injunctive actions. In general, these enforcement actions may be initiated for violations of laws and regulations and unsafe or unsound practices. Public disclosure of final enforcement
actions by the OCC and the Federal Reserve is required.
Institutions in Troubled Condition. Certain events, including entering into a formal written agreement with a bank’s regulator or being informed by
the regulator that the bank is in troubled condition, will require that a bank give prior notice to their primary regulator before adding or replacing any member of the board of directors, employing any person as a senior executive officer, or
changing the responsibilities of any senior executive officer so that the person would assume a different senior executive position. Troubled condition banks are prohibited from making, or agreeing to make, certain “golden parachute payments” to institution-affiliated parties, subject to certain exceptions.
Consumer Laws and Regulations. In addition to the other laws and regulations discussed above, the Bank is subject to consumer laws and regulations
designed to protect consumers in transactions with financial institutions. These laws and regulations include, among others, the Truth in Lending Act, the Truth in Savings Act, the Electronic Funds Transfer Act, the Expedited Funds Availability
Act, the Equal Credit Opportunity Act, the Fair Housing Act, the Fair Credit Reporting Act and the Real Estate Settlement Procedures Act. These laws and regulations mandate certain disclosure requirements and regulate the manner in which
financial institutions must deal with customers when taking deposits from, making loans to, or engaging in other types of transactions with, such customers.
The federal Consumer Financial Protection Bureau (“CFPB”) has adopted rules related to mortgage loan origination and mortgage loan servicing. In particular, the CFPB has issued a rule
implementing the ability-to-repay and qualified mortgage (“QM”) provisions of the Truth in Lending Act, as amended by the Dodd-Frank Act (the “QM Rule”). The ability-to-repay provision requires creditors to make reasonable, good faith determinations that borrowers are able to repay their mortgages before extending the credit
based on a number of factors and consideration of financial information about the borrower from reasonably reliable third-party documents. Under the Dodd-Frank Act and the QM Rule, loans meeting the definition of “qualified
mortgage” are entitled to a presumption that the lender satisfied the ability-to-repay requirements. The presumption is a conclusive presumption/safe harbor for prime loans meeting the QM requirements, and a
rebuttable presumption for higher-priced/subprime loans meeting the QM requirements.
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In February 2025, President Trump took significant actions affecting the CFPB. He dismissed Director Rohit Chopra and appointed Treasury Secretary Scott Bessent as Acting Director. Subsequently, the Office of Management and Budget Director,
Russell Vought, was named Acting Director, during which time the CFPB’s operations were halted, its headquarters closed, and its employees instructed to cease work. These moves have been met with legal challenges and public debate regarding the
future of the agency.
Unclaimed Property Laws. Unclaimed property (escheatment) laws vary by state but generally require holders of customer property (including money) to turn over such property to the
applicable state after holding the property for the statutorily prescribed period of time. These laws are not uniform and impose varying requirements on entities, like the Bank, which may hold funds that are required to be escheated to the
applicable states.
Volcker Rule. The Dodd-Frank Act required the federal financial regulatory agencies to adopt rules that prohibit certain banks and their affiliates from engaging in
proprietary trading and investing in certain covered funds. The statutory provision is commonly called the “Volcker Rule,” and is not applicable to depository institutions and their holding companies whose total assets do not exceed $10
billion. As of December 31, 2024, the Company’s total assets on a consolidated basis did not exceed $10 billion.
Office of Foreign Assets and Control Regulation. The U.S. Treasury Department’s Office of Foreign Assets Control, or OFAC, administers and enforces
economic and trade sanctions against targeted foreign countries and regimes, under authority of various laws, including designated foreign countries, nationals and others. OFAC publishes lists of specially designated targets and countries.
The Company is responsible for, among other things, blocking accounts of, and transactions with, such targets and countries, prohibiting unlicensed trade and financial transactions with them and reporting blocked transactions after their
occurrence. Failure to comply with these sanctions could have serious legal and reputational consequences, including causing applicable bank regulatory authorities not to approve merger or acquisition transactions when regulatory approval is
required or to prohibit such transactions even if approval is not required.
Bank Secrecy Act/Anti-Money Laundering and Customer Identification. Anti-money laundering (“AML”) and financial transparency laws and regulations, including the Bank Secrecy Act, impose
strict standards for gathering and verifying customer information in order to ensure funds or other assets are not being placed in U.S. financial institutions to facilitate terrorist financing and laundering of funds. Applicable laws require
financial institutions to have AML programs in place and require the federal banking agencies to consider a holding company’s effectiveness in combating money laundering when ruling on certain merger or acquisition applications. In addition,
failure to comply with these requirements could lead to significant fines and penalties or the imposition of corrective orders. In July 2024, the federal banking agencies, including the FRB and OCC, proposed amendments to update the
requirements for supervised institutions to establish, implement and maintain effective, risk-based and reasonably designed AML and countering the financing of terrorism (“CFT”) programs. The proposed amendments would require supervised
institutions to identify, evaluate and document the regulated institution’s money laundering, terrorist financing and other illicit finance activity risks, as well as consider, as appropriate, the U.S. Department of the Treasury’s Financial
Crimes Enforcement Network’s (“FinCEN”) published national AML/CFT priorities.
Guidance for Third-Party Relationships. On June 9, 2023, the OCC, Federal Reserve, and FDIC issued final interagency guidance on risk management of third-party relationships, including third-party lending relationships. The
interagency guidance is based, in part, on the OCC’s previously existing third-party risk management guidance from 2013 and seeks to, among other things, promote consistency in third-party risk management and provide sound risk management
guidance for third-party relationships commensurate with a bank’s risk profile and complexity as well as the criticality of the activity. The final interagency guidance replaces each agency’s existing guidance on this topic (including the OCC's
2020 Frequently Asked Questions on Third-Party Relationships) and is directed to all banking organizations supervised by the OCC, Federal Reserve, and FDIC. Additionally, third party relationship risk management and banking as a service
arrangements (including with respect to deposit products and services) have been topics of focus for federal bank regulators in 2024 and further rulemaking activity or guidance may be forthcoming.
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Consumer Privacy and Cybersecurity. Federal regulations generally require that the Company disclose its privacy policy and practices concerning its
sharing of “non-public personal information,” to individual customers at the time of establishing the customer relationship and annually thereafter. In addition, the Company is required to provide its customers with the ability to “opt-out” of
having their personal information shared with unaffiliated third parties in certain circumstances.
State privacy laws currently in effect and laws taking effect in the near future impact how companies can process other categories of personal information. These laws require substantial
disclosures to consumers about personal information collection, use and sharing practices, while also allowing consumers the right to access, delete, correct, or move their data.
In addition, federal banking agencies, through the Federal Financial Institutions Examination Council, have adopted guidelines to encourage financial institutions to address cybersecurity
risks and identify, assess and mitigate these risks, both internally and at critical third-party service providers. For example, federal banking regulators have highlighted that financial institutions should establish several lines of defense
and design their risk management processes to address the risk posed by compromised customer credentials. Further, financial institutions are expected to maintain sufficient business continuity planning processes designed to facilitate a
recovery, resumption and maintenance of the institution’s operations after a cyber-attack.
In November 2021, the federal banking agencies adopted new rules requiring banking organizations to notify their primary regulator within 36 hours of becoming aware of a “computer-security incident” that rises to the level of a “notification
incident.” A notification incident is a “computer-security incident” that has materially disrupted or degraded, or is reasonably likely to materially disrupt or degrade, the banking organization’s ability to deliver services to a material
portion of its customer base, jeopardize the viability of key operations of the banking organization, or impact the stability of the financial sector. Bank service providers are also required to notify any affected bank to or on behalf of which
the service provider provides services “as soon as possible” after determining that it has experienced an incident that materially disrupts or degrades, or is reasonably likely to materially disrupt or degrade, covered services provided to such
bank for four or more hours. Compliance with the new rules was required by May 1, 2022.
Further, on July 26, 2023, the SEC adopted final rules that require public companies to promptly disclose material cybersecurity incidents on Form 8-K and detailed information regarding their cybersecurity risk management and governance on
an annual basis on Form 10-K. Companies are required to report on Form 8-K any cybersecurity incident they determine to be material within four business days of making that determination. The Form 8-K must describe the incident’s material
impact or reasonably likely material impact on the company, including its financial condition and results of operations. If any required information about the incident or its impact is not yet determined or is unavailable at the required time
of the filing, the company must include a statement to this effect in the Form 8- K and file an amendment to the Form 8-K when that information becomes available. A company must make its materiality determination after it has discovered a
cybersecurity incident “without unreasonable delay.” In addition to incident reporting, the rules will require companies to describe their cybersecurity processes and governance.
Personal Data Financial Rights. On October 22, 2024, the CFPB issued a final rule to implement Section 1033 of the Dodd-Frank Act, which gives individuals the right to obtain data regarding consumer financial products and services
they have obtained. The final rule requires certain entities, including TrustCo and Trustco Bank, to comply with an established framework to govern consumer access to electronic financial data. Compliance with the rule will be phased in over
several years with TrustCo required to be in compliance by April 1, 2028. Following the issuance of this rule, two trade associations and a national bank headquartered in Kentucky filed a lawsuit challenging the rule in the United States
District Court for the Eastern District of Kentucky. In this lawsuit, the plaintiffs alleged that the CFPB exceeded its statutory authority in adopting the rule. In February 2025, the court granted a joint motion to temporarily stay the
litigation proceedings and tolled the compliance deadlines under Section 1033 of the Dodd-Frank Act by 30 days. TrustCo is monitoring developments in this case.
Identity Theft Protection. The Fair Credit Reporting Act’s Red Flags Rule requires financial institutions with covered accounts (e.g., consumer bank accounts and loans) to develop,
implement and administer an identity theft prevention program. This program must include reasonable policies and procedures to detect suspicious patterns or practices that indicate the possibility of identity theft, such as inconsistencies in
personal information or changes in account activity.
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Federal Home Loan Bank of New York. The Bank is a member of Federal Home Loan Bank (“FHLB”) of New York, which is one of 11 regional FHLBs that serve as reserve or central banks for their members. The FHLBs are funded primarily from proceeds derived from the sale of consolidated obligations of the FHLB system and
makes loans or advances to members. The FHLBs also provide access to a line of credit and letters of credit in accordance with policies and procedures established by the Board of Directors of FHLB. The loans, lines of credit and letters of
credit are subject to the oversight of the Federal Housing Finance Agency. At December 31, 2024, the Bank hadno FHLB advances and an available borrowing capacity with the FHLB which approximates the
balance of securities and/or loans pledged against such borrowings. The Bank is also required to purchase and maintain stock in the FHLB of New York at or above levels specified in the FHLB of New York capital plan. As of December 31, 2024 and
2023, the Bank owned $6.5million and $6.2 million, respectively, in FHLB of New York stock, which was in compliance with its obligations.
Mergers and Acquisitions. The Bank Holding Company Act of 1956, the Bank Merger Act, the Change in Bank Control Act and other federal and state statutes regulate
acquisitions of interests in commercial banks. The BHC Act requires the prior approval of the FRB for the direct or indirect acquisition by a bank holding company of more than 5.0% of the voting shares of a commercial bank or its parent holding
company and for a person, other than a bank holding company, to acquire 25% or more of any class of voting securities of a bank or bank holding company. Under the Bank Merger Act, the prior approval of the appropriate bank regulatory agencies
is required for a member bank to merge with another bank or purchase the assets or assume the deposits of another bank. In reviewing applications seeking approval of merger and acquisition transactions, the bank regulatory authorities will
consider, among other things, the competitive effect and public benefits of the transactions, the capital position of the combined organization, the risks to the stability of the U.S. banking or financial system, the applicant’s performance
record under the CRA and fair housing laws and the effectiveness of the subject organizations in combating money laundering activities.
Late in the preceding presidential administration, the standards by which bank and financial institution acquisitions would be evaluated were undergoing review and change by the OCC, FDIC and
DOJ, but not by the Federal Reserve. These reviews and changes were incorporated into non-binding guidance. The DOJ withdrew its 1995 Bank Merger Guidelines and issued the 2024 Banking Addendum to its 2023 Merger Guidelines. The DOJ clarified
that it will assess competition considerations in connection with bank and BHC mergers using its 2023 Merger Guidelines, which is the general merger review framework the DOJ now uses to evaluate transactions in all segments of the economy, and
the 2024 Banking Addendum. The 2024 Banking Addendum provides guidance on how the DOJ will assess competition in the context of bank and bank holding company mergers. An analysis under the 2023 Merger Guidelines and 2024 Banking Addendum may
include consideration of theories of harm and relevant markets not considered under the 1995 Bank Merger Guidelines, which focused primarily on concentrations of deposits and branches. In March 2025, the FDIC proposed rescinding its 2024
Statement of Policy on Bank Merger Transactions and indicated that it will conduct a broader review of its bank merger process. Whether and how the guidance might be further changed or interpreted by the new presidential administration is
uncertain.
Cannabis Banking. The Marijuana Regulation and Taxation Act was signed into law in New York on March 31, 2021, legalizing the possession and sale of recreational
marijuana in New York State for adults aged 21 or older and the state has issued adult-use cannabis cultivation, processing and retail dispensary licenses. We have implemented a program to provide financial products and services to legal
cannabis-related businesses and partner with other financial institutions who provide such services.
Offering financial products and services to the cannabis industry presents a unique set of regulatory risks due to the conflict between state and federal laws, as marijuana
remains illegal at the federal level. In January 2018, the U.S. DOJ rescinded the “Cole Memo” and related memoranda which characterized the enforcement of the Controlled Substances Act against persons and entities complying with state
regulatory systems permitting the use, manufacture and sale of medical marijuana as an inefficient use of their prosecutorial resources and discretion. The impact of the DOJ’s rescission of the Cole Memo and related memoranda is unclear, but in
the future may result in increased enforcement actions against the regulated cannabis industry generally. The former United States Attorney General previously indicated that the DOJ, under his leadership, would not pursue cases against parties
who comply with the laws in states which have legalized and are effectively regulating marijuana. However, enforcement policies and practices may be more restrictive under the current presidential administration. In addition, federal
prosecutors have significant discretion and there can be no assurance that the federal prosecutor for any district in which we operate will not choose to strictly enforce the federal laws governing cannabis. In the future, enforcement actions
may be taken against cannabis-related businesses or financial services providers that are viewed as aiding and abetting such activities.
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Finally, FinCEN published guidelines in 2014 for financial institutions servicing state-legal cannabis businesses. These guidelines clarify how financial institutions can
provide services to marijuana-related businesses “in a manner consistent with their obligations to know their customers and to report possible criminal activity.” The Bank has and will continue to follow this and other FinCEN guidance in the
areas of cannabis banking.
Compensation Practices. Our compensation practices are subject to oversight by the FRB and the OCC. Applicable regulatory guidance on incentive compensation seek to
ensure that the incentive compensation practices of banking organizations do not encourage excessive risk-taking and undermine the safety and soundness of those organizations. The guidance provides that supervisory findings with respect to
incentive compensation will be incorporated, as appropriate, into the organization’s supervisory ratings. To be consistent with safety and soundness, incentive compensation arrangements at a banking organization should comply with the following
principles:
• Provide employees incentives that appropriately balance risk and reward;
• Be compatible with effective controls and risk management; and
The Board maintains a Compensation Committee made up of independent directors which exercises full oversight over the Company’s executive compensation program. The Compensation Committee annually
reviews a comprehensive risk assessment which addresses all aspects of the program and the controls that exist to mitigate any associated risk. Detailed disclosure of our compensation practices is set forth in the annual Proxy Statement.
In addition, on October 2022, the SEC adopted a final rule implementing the incentive-based compensation recovery (“clawback”) provisions of the Dodd-Frank Act. The final rule directs national securities exchanges and
associations, including Nasdaq, to require listed companies to develop and implement clawback policies to recover erroneously awarded incentive-based compensation from current or former executive officers in the event of a required accounting
restatement due to material noncompliance with any financial reporting requirement under the securities laws, and to disclose their clawback policies and any actions taken under these policies. On June 9, 2023, the SEC approved the Nasdaq
proposed clawback listing standards, including the amendments that delay the effective date of the rules to October 2, 2023. The Board approved the adoption of an Executive Compensation Clawback Policy in October 2023 pursuant to the Nasdaq
listing standards and SEC rules. A copy of the Company’s clawback policy is included as an exhibit to this 2024 Form 10-K.
The U.S. financial regulators, including the FRB, the OCC, and the SEC, jointly proposed regulations in 2011 and again in 2016 to implement the incentive compensation
requirements of Section 956 of the Dodd-Frank Act. These regulations have not been finalized.
Climate-Related Risk Management and Regulation. Climate change may be associated with
rising sea levels as well as extreme weather conditions such as more intense hurricanes, thunderstorms, tornadoes, drought and snow or ice storms. Extreme weather conditions may increase our costs or cause damage to our facilities, and any
damage resulting from extreme weather may not be fully insured. Many of our facilities are located near coastal areas or waterways where rising sea levels or flooding could disrupt our operations or adversely impact our facilities. Furthermore,
periods of extended inclement weather or associated flooding may inhibit construction activity adversely affecting the use of some of our lending products. Any such events could have a material adverse effect on our costs or results of
operations. These same issues also could impact the value of mortgage collateral and the security for residential and commercial loans.
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As a mortgage lender, Trustco Bank has identified credit, market, liquidity, and operational factors as climate-related risks. Adverse climate factors could impact the ability of loan customers to timely repay
their loans. Adverse climate impacts also could adversely impact the stock and bond markets which could adversely affect TrustCo’s non-interest income earning potential. Severe physical impacts from climate change, such as rising sea levels,
could reduce the value of residential and/or commercial portfolio. These two factors, given sufficiently severe impacts, could affect liquidity. Additionally, severe weather and other climate events could impact hiring and retention of
employees, facilities management, retail services, and technology infrastructure, thus creating operational risk.
Furthermore, climate change and the risks it may pose to financial institutions is an area of increased focus by the federal and state legislative bodies and regulators, including the federal banking agencies. In
the future, new regulations or guidance may be issued, or other regulatory or supervisory actions may be taken, in this area by the federal banking agencies or other regulatory agencies, or new statutory requirements may be adopted. For
example, the federal banking agencies have issued principles for climate-related financial risk management, which are designed to support the identification and management of climate-related financial risks at regulated institutions with more
than $100 billion in total consolidated assets. As the Bank has less than $10 billion in total assets as of December 31, 2024, these principles do not apply to the Company. In March 2024, the SEC adopted final rules for "The Enhancement and
Standardization of Climate-Related Disclosures for Investors,” which would have required issuers to provide climate-related disclosures. In April 2024, the SEC stayed the effectiveness of the final rules pending the outcome of certain legal
challenges. In addition, many states have adopted, or are considering, laws that address climate and social issues. If the states in which we do business adopt such laws, it may increase our compliance costs. Such laws may also include
provisions that conflict with other state and federal regulations or limit our ability to conduct business in certain jurisdictions.
Other Governmental Initiatives. From time to time, various legislative and regulatory initiatives are introduced in Congress, as well as by regulatory authorities. These initiatives may
include proposals to expand or contract the powers of bank holding companies and depository institutions, proposals to change the financial institution regulatory environment, or proposals that affect public companies generally. Such
legislation could change banking laws and the operating environment of the Company in substantial, but unpredictable ways. The Company cannot predict whether any such legislation will be enacted, and, if enacted, the effect that it, or any
implementing regulations would have on its financial condition or results of operations.
Human Capital Resources
Our Human Capital Strategic Plan guides us on our journey to foster a work environment that promotes the exchange of different ideas, philosophies, and perspectives.
Headcount
As of December 31, 2024, we had 791 employees (which collectively amount to 737 full-time equivalents), all based in the United States, with 551 employees (69.5%) at bank branches, 220 (28%) located in corporate offices and 20 (2.5%) in call
centers.
Hiring & Promotion Practices
At TrustCo and Trustco Bank we are continuously educating our hiring managers about recruitment and selection processes, and we strive to build our workforce from within when possible. All employees are eligible to apply for open department
and branch positions following their introductory period, and during 2024, 153 (roughly 19%) of our employees were promoted within the Bank. If the best candidate for an available position is not identified from within our existing talent pool,
we will look externally for the best talent, and our recruitment strategy focuses on searching for candidates directly through our participation in job fairs and social media advertising, and through our professional networks and other
associations that represent diverse groups. Additionally, we have an active recruitment incentive program which awards existing employees for referring new employees to the Bank, which in turn helps us diversify our workforce.
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Talent Development
We believe in investing for the future which includes the future of our workforce, and we actively encourage and support the growth of our employees throughout their educational and career development, ensuring employees are given
opportunities to develop and refine their skills to be successful within the Bank’s competitive environment. We aim to accomplish this through a multitude of training and development programs, which include opportunities to engage in
interdepartmental experiential learning, voluntary training seminars, ongoing training through our Cornerstone platform (a learning management system), tuition reimbursement program, BSA-AML certificate program with SUNY Schenectady County
Community College and certification reimbursement for certain levels of employment. The Company conducts a comprehensive new employee orientation for all new hires. All employees are required to complete a minimum number of hours of Compliance,
BSA/Anti-Money Laundering, Enterprise Risk, Information Security/Cyber Security and technical training annually via the Cornerstone Platform. Employees are also periodically assigned Professional Skills training via Cornerstone. Members of the