TRUSTCO BANK CORP N Y (TRST)

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

Introduction

The review that follows focuses on the factors affecting the financial condition and results of operations of TrustCo during the three-month and six-month periods ended June 30, 2026, with comparisons to the
corresponding period in 2025, as applicable.  The consolidated interim financial statements and related notes, as well as the Annual Report on Form 10-K for the year ended December 31, 2025, which was filed with the SEC on March 16, 2026
(the “2025 Form 10-K”), should also be read in conjunction with this review.  Amounts in the prior period consolidated interim financial statements are reclassified whenever necessary to conform to the current period's presentation.  These
reclassifications have no effect on prior period net income or shareholders’ equity.  See “Cautionary Note Regarding Forward-Looking Statements” on page 5 of this report for a description of important factors that could cause actual results
to differ from expected results.

Following this Management’s Discussion and Analysis is the table "Distribution of Assets, Liabilities and Shareholders' Equity: Interest Rates and Interest Differential" which gives a detailed breakdown of
TrustCo's average interest earning assets and interest-bearing liabilities for the three and six month periods ended June 30, 2026 and 2025.

Economic Overview

During the second quarter of 2026, financial markets enjoyed solid growth in all major financial market indexes.  The S&P 500 Index was up 14.87%, Nasdaq was up 21.41%, and the Dow
Jones Industrial Average was up 12.90% compared to the end of the first quarter of 2026.  The 10‑year Treasury bond averaged 4.42% during Q2 2026 compared to 4.20% in Q1 2026, an increase of 22 basis points.  The 2‑year Treasury bond
average rate increased 39 basis points to 3.97% during Q2 2026, which flattened the yield curve as compared to the prior quarter.  The spread between the 10‑year and the 2-year Treasury bonds decreased from 0.62% on average in Q1 2026 to
0.46% in Q2 2026.  Generally, steeper yield curves are favorable for portfolio mortgage lenders like TrustCo, and the table below illustrates the range of rate movements for both short term and longer-term rates.  During the first half of
2026, the Federal Funds rate remained flat at a range of 3.50% to 3.75%.

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The country has been experiencing economic uncertainty as markets continue to adjust to changes in tariff policies, Middle East tensions, increased oil prices and a volatile labor market. The Federal Open Market Committee (“FOMC”) lowered the Federal Funds target rate range to 3.50-3.75% in December 2025 and there was no change in the first half of 2026.  At its meeting in July 2026, the FOMC
majority voted to leave rates unchanged although three members voted to increase the Federal Funds target rate.

The Company expects to see continued volatility in the economic markets resulting from governmental responses to inflation and recessionary signs in the economy, as well as uncertainty about the impacts of
the conflict in Iran and tariffs.  These changing conditions could have impacts on the balance sheet and income statement of the Company for the remainder of the year.

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Management believes that TrustCo’s long-term focus on traditional banking services and practices historically has enabled the Company to avoid significant impact from asset quality problems, and that the
Company’s strong liquidity and solid capital positions have allowed the Company to continue to conduct business in a manner consistent with its past practice.  While we continue to adhere to prudent underwriting standards, should general
housing prices and other economic measures, such as unemployment in the Company’s market areas, deteriorate as a result of changes in interest rates, general economic instability, a potential or actual default on the federal debt or other
reasons, the Company may experience an increase in the level of credit risk and in the amount of its classified and nonperforming loans.

Financial Overview

TrustCo recorded net income of $17.0 million, or $0.98 of diluted earnings per share, for the three-months ended June 30, 2026, compared to net income of $15.0 million, or $0.79 of diluted earnings per share,
in the same period in 2025.  Return on average assets was 1.04% and 0.96%, respectively, for the three months ended June 30, 2026 and 2025.  Return on average equity was 10.22% and 8.73%, respectively, for the three-months ended June 30,
2026 and 2025.

The primary factors accounting for the change in net income for the three-months ended June 30, 2026 compared to the same period of the prior year were:

TrustCo recorded net income of $33.3 million, or $1.89 of diluted earnings per share, for the six-months ended June 30, 2026, compared to net income of $29.3 million, or $1.54 of diluted earnings per share,
in the same period in 2025.  Return on average assets was 1.03% and 0.94%, for the six-months ended June 30, 2026 and 2025, respectively.  Return on average equity was 9.94% and 8.61% for the six-months ended June 30, 2026 and 2025,
respectively.

The primary factors accounting for the change in net income for the six-months ended June 30, 2026 compared to the same period of the prior year were:

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Visa Exchange Offer

During the second quarter of 2026, TrustCo recognized an $844 thousand unrealized gain on equity securities resulting from the conversion of Visa Class B-2 shares into a combination of Visa Class B‑3 and Visa
Class C shares and the fair-value recognition of the Class C shares received. The Company had not sold the resulting Class C shares as of June 30, 2026. The Company originally obtained the Visa Class B shares in 2008. The strategic decision
to retain the Class C shares and not sell them sooner, allowed the Company to avoid commissions and other expenses thus recognizing the full market value.

Asset/Liability Management

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

TrustCo’s results are affected by a variety of factors including competitive and economic conditions in the specific markets in which the
Company operates and, more generally, in the national economy, financial market conditions and the regulatory environment.  Each of these factors is dynamic, and changes in any area can have an impact on TrustCo’s results.  Included in the 2025 Form 10-K is a description of the effect that changes in interest rates had on the results for the year 2025 compared to 2024.  Many of the same market factors discussed in the 2025 Form
10-K continued to have an impact on results through the second quarter of 2026.

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

Interest rates have a significant impact on the operations and financial results of all financial services companies.  One of the most important interest rates used to control national economic policy is the
“Federal Funds” rate.  This is the interest rate utilized within the banking system for overnight borrowings for institutions with the highest credit rating.  During the second quarter of 2026 Federal Funds target rate remained flat at a
range of 3.50% to 3.75% through June 30, 2026.

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The interest rate on the 10-year Treasury bond and other long-term interest rates have significant influence on the rates for new residential real estate loans and longer term investments.  These changes in
interest rates have an effect on the Company relative to the interest income on loans, securities, and Federal Funds Sold and other short-term instruments as well as the interest expense on deposits and borrowings.  Residential real estate
loans and longer‑term investments are most affected by the changes in longer term market interest rates such as the 10‑year Treasury.  The Federal Funds Sold portfolio and other short‑term investments are affected primarily by changes in
the Federal Funds target rate.  Deposit interest rates are most affected by short-term market interest rates.  Also, changes in interest rates have an effect on the recorded balance of the securities avail

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

The following discussion and analysis provides information that we believe is relevant to an assessment and understanding of our results of
operations and financial condition for 2025, 2024 and 2023.  This discussion should be read in conjunction with our audited financial statements included in “Consolidated Financial Statements and Notes” herein and Part I, Item 1, “Business”
set forth in our Annual Report on Form 10-K for the year ended December 31, 2025 (“2025 Form 10-K”).  The following analysis contains forward-looking statements about our future revenues, operating results and expectations.  See “Cautionary
Note Regarding Forward-Looking Statements” herein for a discussion of the risks, assumptions and uncertainties affecting these statements, as well as Part I, Item 1A. “Risk Factors” set forth in our 2025 Form 10-K.

To review our financial condition and results of operations for 2023 and a comparison between the 2023 and 2024 results, see Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of Operations of our 2024 Form 10-K filed with the SEC on March 14, 2025.  Balances discussed are daily averages unless otherwise described.

Financial Review

In 2025, a year that was extraordinary for the economy and the markets, TrustCo continued to make great progress.  In management’s view, the key results for 2025 are:

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

Return on average equity was 8.88% in 2025 compared to 7.43% in 2024, while return on average assets was 0.97% in 2025 as compared to 0.80% in 2024.

The U.S. economy continued to demonstrate resilience during 2025, supported by continued consumer spending and generally stable economic growth. In 2024, the Federal Reserve began easing
monetary policy, including a 50 basis point cut in September 2024 and additional 25 basis point cuts in November 2024 and December 2024, which resulted in a federal funds target rate range of 4.25 percent to 4.50 percent at year-end 2024.
The Federal Reserve continued to reduce short-term interest rates over the course of 2025, and, at its Federal Open Market Committee (“FOMC”) meeting in December 2025, it lowered the target range for the federal funds rate to a range of
3.50 percent to 3.75 percent.

For the year ended 2025, equity markets produced positive returns. The Dow Jones Industrial Average increased approximately 13% during 2025, and the S&P 500 Index generated a total
return of approximately 18%. United States three-month Treasury bills experienced a decrease in rates ending the year at 3.67%, 20 basis points above the two-year Treasury yield at year-end of 3.47%, and 51 basis points behind the ten-year
Treasury yield at year-end of 4.18%. These yields compare to 2024 year-end yields of 4.37% for the three-month Treasury bills, 4.25% for the two-year Treasury bond and 4.58% for the ten-year Treasury bond.   These rates are important to the banking industry because deposit rates tend to track the changes in the shorter-term Treasury markets and the mortgage loan products tend to track with the ten-year Treasury yields.  Beginning

in 2025, the yield on the two-year Treasury bond was 4.25% and decreased 78 basis points during the year to close 2025 at 3.47%, and the ten-year Treasury bond began 2025 at 4.58% and closed the year down 40 basis points to 4.18% at
year-end.   These rate changes have a significant implication to the broader economic cycle.

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While the FOMC continued its rate easing cycle during 2025, the range of potential rate paths over the coming year remains wide and will ultimately be driven by the path of inflation,
labor market performance and economic growth. In its January 2026 “Beige Book,” the Federal Reserve reported that overall economic activity increased at a slight to modest pace in eight of the twelve Federal Reserve Districts, with three
Districts reporting no change and one reporting a modest decline. In the Second District (including New York), economic activity continued to decline modestly, with small-to-medium sized banks in the region reporting that loan demand
declined since the previous period, especially for consumer loans and residential mortgages. In the Sixth District (including Florida), the Beige Book reported slight growth in economic activity, with financial institutions reporting modest
loan growth, with the largest increases in credit cards.

The U.S. government announced changes to its trade policies in 2025 and significantly increased tariffs on certain imports under emergency authorities, including the
International Emergency Economic Powers Act (“IEEPA”). In February 2026, the Supreme Court ruled that IEEPA does not authorize the President to impose tariffs. The current tariff environment remains dynamic and uncertain, including
regarding potential refunds of tariffs paid under IEEPA, and the U.S. government could respond with replacement measures under other legal authorities. We continue to closely monitor both the impact and potential impact of such measures on
our business, our customers and on overall economic conditions in the United States.

Trustco, like most other banking organizations, prices its liabilities (deposits and short-term borrowings) in relation to the shorter end of the Treasury maturity
curve.  The average for the three-month treasury was 97 basis points lower in 2025 than in 2024, with the median yield of 4.33% in 2025 down 110 basis points over the median yield in 2024.  These trends generally reflect a decrease in the
cost for deposit products that price in relation to the short-term treasury market yields.  At the same time the average yield of the ten-year Treasury has increased to 4.29% in 2025, up 8 basis points from 2024 when the average was 4.21%.
Generally longer-term loans are priced consistent with the changes in the ten-year Treasury markets.  These two trends – lower shorter-term rates and an increase in longer-term rates – could result in an increase of new loan yields and a
decrease in deposit yields.

In November 2023, the FDIC issued a final rule to implement a special assessment to recoup losses to the Deposit Insurance Fund associated with bank
failures in the first half of 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 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. In December 2025, the FDIC adopted an interim final rule modifying the special assessment collection to reflect updated estimated losses and providing for mechanisms to
address potential over- or under-collection relative to actual losses.  There continues to be no additional cost to TrustCo as a result of its uninsured deposits being under $5 billion.

Management believes that TrustCo’s long-term focus on traditional banking services has enabled the Company to avoid significant impact from asset
quality problems, and the Company’s strong liquidity and solid capital positions have allowed the Company to continue to conduct business in a manner consistent with past practices.  While we continue to aim to adhere to prudent
underwriting standards, should general housing prices and other economic measures, such as unemployment in the Company’s market areas, deteriorate as a result of unexpected changes, financial
sector instability, a potential or actual default on the federal debt or other reasons, the Company may experience an increase in the level of credit risk and in the amount of its classified and nonperforming loans.

Overview

2025 results were marked by growth in the Company’s loan portfolio despite a challenging year for loan rates and housing prices.  The loan portfolio grew to a total of
$5.25 billion, an increase of $154.4 million or 3.0% over the 2024 year-end balance.  Deposits ended 2025 at $5.56 billion, up from $5.39 billion the prior year-end.  The year-over-year increase in loans reflects the success the Company has
had in attracting customers to the Bank given its array of loan products.  Management believes that the increase in deposits was driven by the Bank’s effective market and pricing strategy.    Moreover, management believes that TrustCo’s
success is predicated on providing core banking services to a wider number of customers and continuing to provide added services to existing customers where possible.  Growing the customer base should contribute to continued growth of loans
and a renewed growth of deposits, as well as growth in net interest income and non-interest income.

TrustCo earned $61.1 million in net income or $3.25 of diluted earnings per share for the year ended December 31, 2025, compared to $48.8 million in net income or $2.57
of diluted earnings per share for the year ended December 31, 2024.

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During 2025, the following items had a significant effect on net income:

Management believes that TrustCo performed well in comparison to its peers with respect to a number of key performance ratios during 2025 and 2024, including:

During 2

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