Loans

6 Months Ended

Jun. 30, 2022

Note 6: Loans

Major classifications of loans at the indicated dates are as follows:


	June 30,			December 31,
(In thousands)	2022			2021
Residential mortgage loans:
1-4 family first-lien residential mortgages	$	240,997		$	240,434
Construction		16,241			6,329
Loans held-for-sale		-			513
Total residential mortgage loans		257,238			247,276

Commercial loans:
Real estate		320,439			288,450
Lines of credit		76,610			61,884
Other commercial and industrial		70,205			69,135
Paycheck Protection Program loans		4,877			19,338
Tax exempt loans		5,390			5,811
Total commercial loans		477,521			444,618

Consumer loans:
Home equity and junior liens		33,267			31,737
Other consumer		99,326			110,108
Total consumer loans		132,593			141,845

Total loans		867,352			833,739
Net deferred loan fees		(1,063	)		(1,280	)
Less allowance for loan losses		13,078			12,935
Loans receivable, net	$	853,211		$	819,524

Although the Bank may sometimes purchase or fund loan participation interests outside of its primary market areas, the Bank generally originates residential mortgage, commercial, and consumer loans largely to customers throughout Oswego and Onondaga counties. Although the Bank has a diversified loan portfolio, a substantial portion of its borrowers’ abilities to honor their loan contracts is dependent upon the counties’ employment and economic conditions.

From time to time, the Bank acquires diversified pools of loans, originated by unrelated third parties, as part of the Company’s overall balance sheet management strategies. These acquisitions took place with nine separate transactions that occurred between 2017 and 2019 with an additional six transactions occurring in 2021. The following tables detail the purchased loan pool positions held by the Bank at June 30, 2022 and December 31, 2021 (the month/year of the earliest acquisition date is depicted in parentheses):


(In thousands, except number of loans)	June 30, 2022
	Original Balance		Current Balance		Unamortized Premium/ (Discount)			Number of Loans		Maturity Range	Cumulative net charge-offs
Automobile loans (1/2017)	$	50,400	$	6,100	$	198			684	0-5 years	$	239
Commercial and industrial loans (6/2019)		6,800		3,700		-			26	3-7 years		-
Home equity lines of credit (8/2019)		21,900		7,100		215			163	1-27 years		-
Unsecured consumer loan pool 2 (11/2019)		26,600		3,200		19			1,073	0-3 years		-
Residential real estate loans (12/2019)		4,300		4,000		248			50	16-23 years		-
Unsecured consumer loan pool 1 (12/2019)		5,400		2,400		-			59	2-4 years		-
Unsecured consumer installment loans pool 3 (12/2019)		10,300		1,400		53			787	0-6 years		46
Secured consumer installment loans pool 4 (12/2020)		14,500		11,900		(1,624	)		539	23-24 years		-
Unsecured consumer loans pool 5 (1/2021)		24,400		18,100		(530	)		707	8-23 years		-
Commercial Line of Credit 1 (3/2021)		11,600		10,700		20			1	0-1 year		-
Secured consumer installment loans (11/2021)		21,300		20,500		(3,403	)		872	18-25 years		-
Commercial Line of Credit 2 (11/2021)		10,500		9,300		29			1	0-1 year		-
Unsecured consumer loans pool 6 (11/2021)		22,200		21,200		(2,606	)		559	9-24 years		-
Total	$	230,200	$	119,600	$	(7,381	)		5,521		$	285

(In thousands, except number of loans)	December 31, 2021
	Original Balance		Current Balance		Unamortized Premium/ (Discount)			Number of Loans		Maturity Range	Cumulative net charge-offs
Automobile loans (1/2017)	$	50,400	$	8,800	$	301			855	0-5 years	$	239
Commercial and industrial loans (6/2019)		6,800		3,900		-			33	4-8 years		-
Home equity lines of credit (8/2019)		21,900		8,400		243			187	2-28 years		-
Unsecured consumer loan pool 2 (11/2019)		26,600		6,300		30			1,438	1-3 years		-
Residential real estate loans (12/2019)		4,300		4,100		257			51	17-23 years		-
Unsecured consumer loan pool 1 (12/2019)		5,400		2,600		-			66	3-5 years		-
Unsecured consumer installment loans pool 3 (12/2019)		10,300		2,200		74			1,356	0-6 years		30
Secured consumer installment loans pool 4 (12/2020)		14,500		12,600		(1,776	)		563	23-24 years		-
Unsecured consumer loans pool 5 (1/2021)		24,400		19,700		(583	)		756	8-23 years		-
Commercial Line of Credit 1 (3/2021)		11,600		7,100		26			1	0-1 year		-
Secured consumer installment loans (11/2021)		21,300		21,400		(3,642	)		900	19-25 years		-
Commercial Line of Credit 2 (11/2021)		10,500		9,300		35			1	0-1 year		-
Unsecured consumer loans pool 6 (11/2021)		22,200		22,100		(2,785	)		564	9-24 years		-
Total	$	230,200	$	128,500	$	(7,820	)		6,771		$	269

As of June 30, 2022 and December 31, 2021, residential mortgage loans with a carrying value of $117.2 million and $123.2 million, respectively, have been pledged by the Company to the Federal Home Loan Bank of New York (“FHLBNY”) under a blanket collateral agreement to secure the Company’s line of credit and term borrowings.

Loan Origination / Risk Management

The Company’s lending policies and procedures are presented in Note 5 to the audited consolidated financial statements included in the 2021 Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 25, 2022 and have not changed. As part of the execution of the Company’s overall balance sheet management strategies, the Bank will acquire participating interests in loans originated by unrelated third parties on an occasional basis. The purchase of participations in loans that are originated by third parties only occurs after the completion of thorough pre-acquisition due diligence. Loans in which the Company acquires a participating interest are determined to meet, in all material respects, the Company’s internal underwriting policies, including credit and collateral suitability thresholds, prior to acquisition. In addition, the financial condition of the originating financial institutions, which are generally retained as the ongoing loan servicing provider for participations acquired by the Bank, are analyzed prior to the acquisition of the participating interests and monitored on a regular basis thereafter for the life of those interests.

To develop and document a systematic methodology for determining the allowance for loan losses, the Company has divided the loan portfolio into three portfolio segments, each with different risk characteristics but with similar methodologies for assessing risk. Each portfolio segment is broken down into loan classes where appropriate. Loan classes contain unique measurement attributes, risk characteristics, and methods for monitoring and assessing risk that are necessary to develop the allowance for loan losses. Unique characteristics such as borrower type, loan type, collateral type, and risk characteristics define each class.

The following table illustrates the portfolio segments and classes for the Company’s loan portfolio:


Portfolio Segment	Class

Residential Mortgage Loans	1-4 family first-lien residential mortgages
	Construction

Commercial Loans	Real estate
	Lines of credit
	Other commercial and industrial
	Tax exempt loans

Consumer Loans	Home equity and junior liens
	Other consumer

The following tables present the classes of the loan portfolio, not including net deferred loan costs, summarized by the aggregate pass rating and the classified ratings of special mention, substandard and doubtful within the Company's internal risk rating system as of the dates indicated:


	As of June 30, 2022
			Special
(In thousands)	Pass		Mention		Substandard		Doubtful		Total
Residential mortgage loans:
1-4 family first-lien residential mortgages	$	238,956	$	406	$	971	$	664	$	240,997
Construction		16,241		-		-		-		16,241
Total residential mortgage loans		255,197		406		971		664		257,238
Commercial loans:
Real estate		299,460		9,646		10,828		505		320,439
Lines of credit		69,076		4,244		3,246		44		76,610
Other commercial and industrial		58,315		4,364		7,379		147		70,205
Paycheck Protection Program loans		4,877		-		-		-		4,877
Tax exempt loans		5,390		-		-		-		5,390
Total commercial loans		437,118		18,254		21,453		696		477,521
Consumer loans:
Home equity and junior liens		32,241		172		630		224		33,267
Other consumer		99,297		14		15		-		99,326
Total consumer loans		131,538		186		645		224		132,593
Total loans	$	823,853	$	18,846	$	23,069	$	1,584	$	867,352

	As of December 31, 2021
			Special
(In thousands)	Pass		Mention		Substandard		Doubtful		Total
Residential mortgage loans:
1-4 family first-lien residential mortgages	$	238,823	$	269	$	811	$	531	$	240,434
Construction		6,329		-		-		-		6,329
Loans held-for-sale		513		-		-		-		513
Total residential mortgage loans		245,665		269		811		531		247,276
Commercial loans:
Real estate		267,388		9,879		10,604		579		288,450
Lines of credit		54,408		4,036		3,387		53		61,884
Other commercial and industrial		56,719		3,907		8,321		188		69,135
Paycheck Protection Program loans		19,338		-		-		-		19,338
Tax exempt loans		5,811		-		-		-		5,811
Total commercial loans		403,664		17,822		22,312		820		444,618
Consumer loans:
Home equity and junior liens		30,740		133		606		258		31,737
Other consumer		109,979		44		77		8		110,108
Total consumer loans		140,719		177		683		266		141,845
Total loans	$	790,048	$	18,268	$	23,806	$	1,617	$	833,739

Management has reviewed its loan portfolio and determined that, to the best of its knowledge, no material exposure exists to sub-prime or other high-risk residential mortgages. The Company is not in the practice of originating these types of loans.

Nonaccrual and Past Due Loans

Loans are placed on nonaccrual when the contractual payment of principal and interest has become 90 days past due or management has serious doubts about further collectability of principal or interest, even though the loan may be currently performing.

Loans are considered past due if the required principal and interest payments have not been received within thirty days of the payment due date.

An age analysis of past due loans, not including net deferred loan costs, segregated by portfolio segment and class of loans, as of June 30, 2022 and December 31, 2021, are detailed in the following tables:


	As of June 30, 2022

	30-59 Days		60-89 Days		90 Days		Total				Total Loans
(In thousands)	Past Due		Past Due		and Over		Past Due		Current		Receivable
Residential mortgage loans:
1-4 family first-lien residential mortgages	$	168	$	352	$	1,462	$	1,982	$	239,015	$	240,997
Construction		-		-		-		-		16,241		16,241
Loans held-for-sale		-		-		-		-		-		-
Total residential mortgage loans		168		352		1,462		1,982		255,256		257,238
Commercial loans:
Real estate		1,090		258		4,444		5,792		314,647		320,439
Lines of credit		1,127		8		1,750		2,885		73,725		76,610
Other commercial and industrial		615		649		2,073		3,337		66,868		70,205
Paycheck Protection Program loans		-		-		-		-		4,877		4,877
Tax exempt loans		-		-		-		-		5,390		5,390
Total commercial loans		2,832		915		8,267		12,014		465,507		477,521
Consumer loans:
Home equity and junior liens		69		94		379		542		32,725		33,267
Other consumer		383		233		1,228		1,844		97,482		99,326
Total consumer loans		452		327		1,607		2,386		130,207		132,593
Total loans	$	3,452	$	1,594	$	11,336	$	16,382	$	850,970	$	867,352

	As of December 31, 2021

	30-59 Days		60-89 Days		90 Days		Total				Total Loans
(In thousands)	Past Due		Past Due		and Over		Past Due		Current		Receivable
Residential mortgage loans:
1-4 family first-lien residential mortgages	$	960	$	416	$	891	$	2,268	$	238,166	$	240,434
Construction		-		-		-		-		6,329		6,329
Loans held-for-sale		-		-		-		-		513		513
Total residential mortgage loans		960		416		891		2,268		245,008		247,276
Commercial loans:
Real estate		1,735		1,029		4,379		7,143		281,307		288,450
Lines of credit		156		1,180		576		1,913		59,971		61,884
Other commercial and industrial		1,799		1,686		1,056		4,541		64,594		69,135
Paycheck Protection Program loans		-		-		-		-		19,338		19,338
Tax exempt loans		-		-		-		-		5,811		5,811
Total commercial loans		3,691		3,895		6,011		13,597		471,091		444,618
Consumer loans:
Home equity and junior liens		17		49		251		317		31,420		31,737
Other consumer		571		257		852		1,680		108,428		110,108
Total consumer loans		588		306		1,103		1,998		139,847		141,845
Total loans	$	5,239	$	4,617	$	8,006	$	17,862	$	815,877	$	833,739

Nonaccrual loans, segregated by class of loan, were as follows:


	June 30,		December 31,
(In thousands)	2022		2021
Residential mortgage loans:
1-4 family first-lien residential mortgages	$	1,584	$	891
		1,584		891
Commercial loans:
Real estate		4,461		4,407
Lines of credit		1,794		629
Other commercial and industrial		2,241		1,261
		8,496		6,297
Consumer loans:
Home equity and junior liens		379		252
Other consumer		1,228		852
Total consumer loans		1,607		1,104
Total nonaccrual loans	$	11,687	$	8,292

At December 31, 2021, the Bank's 44 nonperforming loans represented 0.99% of total loans, with an aggregate outstanding balance of $8.3 million, as compared to 53 loans with an aggregate outstanding balance of $11.7 million at June 30, 2022. This increase of $3.4 million was primarily the result of the addition of a single commercial loan relationship in the amount of $2.6 million as well as a net increase in the balances of certain other smaller balance loan categories. The $2.6 million in nonaccrual loans discussed above were returned to accrual status in July 2022.

At March 31, 2022, the Bank's 51 nonperforming loans represented 0.93% of total loans, with an aggregate outstanding balance of $7.9 million, as compared to 53 loans with an aggregate outstanding balance of $11.7 million at June 30, 2022. This increase of $3.8 million was primarily the result of the addition of a single nonaccrual commercial loan in the amount of $2.6 million as well as a net increase in the balances of certain other smaller balance loan categories. The $2.6 million nonaccrual commercial loan discussed above was returned to accrual status in July 2022. The Bank's management is actively working with each of the nonaccrual loan borrowers and believes that the ultimate resolution of these loans will not have material effect on the results of the Company's operations in future periods.

The Company is required to disclose certain activities related to Troubled Debt Restructurings (“TDR”) in accordance with accounting guidance. Certain loans have been modified as a TDR where economic concessions have been granted to a borrower who is experiencing, or expected to experience, financial difficulties. These economic concessions could include a reduction in the loan interest rate, extension of payment terms, reduction of principal amortization, or other actions that it would not otherwise consider for a new loan with similar risk characteristics.

The Company is required to disclose new TDRs for each reporting period for which an income statement is being presented. The pre-modification outstanding recorded investment is the principal loan balance less the provision for loan losses before the loan was modified as a TDR. The post-modification outstanding recorded investment is the principal balance less the provision for loan losses after the loan was modified as a TDR. Additional provision for loan losses is the change in the allowance for loan losses between the pre-modification outstanding recorded investment and post-modification outstanding recorded investment.

The Company had one loan that was modified as a TDR for the three months ended June 30, 2022.

The Company had two loans that were modified as TDRs for the six months ended June 30, 2022.

The tables below detail loans that had been modified as TDRs for the three and six months ended June 30, 2022.


	For the three months ended June 30, 2022
(In thousands, except number of loans)	Number of loans	Pre-modification outstanding recorded investment		Post-modification outstanding recorded investment		Additional provision for loan losses
Commercial real estate loans	1	$	18	$	18	$	-


	For the six months ended June 30, 2022
(In thousands, except number of loans)	Number of loans	Pre-modification outstanding recorded investment		Post-modification outstanding recorded investment		Additional provision for loan losses
Residential real estate loans	2	$	373	$	373	$	-

The loans evaluated for impairment for the three and six months ended June 30, 2022 have been classified as TDRs due to economic concessions granted, which consisted of a reduction in the stated interest rate, a significant delay in the timing of the payment or an extended maturity date that will result in a significant delay in payment from the original terms.

The Company had no loans that were modified as TDRs for the three months ended June 30, 2021.

The Company had five loans that were modified as TDRs for the six months ended June 30, 2021.

The Company is required to disclose loans that have been modified as TDRs within the previous 12 months in which there was payment default after the restructuring. The Company defines payment default as any loans 90 days past due on contractual payments.

The Company had no loans that were modified as TDRs during the twelve months prior to June 30, 2022, which had subsequently defaulted during the six months ended June 30, 2022.

The Company had no loans that were modified as TDRs during the twelve months prior to June 30, 2021, which had subsequently defaulted during the six months ended June 30, 2021.

When the Company modifies a loan within a portfolio segment that is individually evaluated for impairment, a potential impairment is analyzed either based on the present value of the expected future cash flows discounted at the interest rate of the original loan terms or the fair value of the collateral less costs to sell. If it is determined that the value of the loan is less than its recorded investment, then impairment is recognized as a component of the provision for loan losses, an associated increase to the allowance for loan losses or as a charge-off to the allowance for loan losses in the current period.

Impaired Loans

The following table summarizes impaired loan information by portfolio class at the indicated dates:


	June 30, 2022						December 31, 2021
			Unpaid						Unpaid
	Recorded		Principal		Related		Recorded		Principal		Related
(In thousands)	Investment		Balance		Allowance		Investment		Balance		Allowance
With no related allowance recorded:
1-4 family first-lien residential mortgages	$	677	$	677	$	-	$	666	$	666	$	-
Commercial real estate		4,112		4,209		-		4,708		4,801		-
Commercial lines of credit		100		100		-		100		104		-
Other commercial and industrial		276		317		-		357		396		-
Home equity and junior liens		90		90		-		93		93		-
With an allowance recorded:
1-4 family first-lien residential mortgages		465		465		95		539		539		90
Commercial real estate		2,845		2,845		359		2,450		2,450		300
Commercial lines of credit		44		50		44		53		53		53
Other commercial and industrial		1,680		1,686		1,208		1,852		1,852		1,318
Home equity and junior liens		538		538		114		539		539		114
Total:
1-4 family first-lien residential mortgages		1,141		1,141		95		1,205		1,205		90
Commercial real estate		6,956		7,054		359		7,158		7,251		300
Commercial lines of credit		144		150		44		153		157		53
Other commercial and industrial		1,957		2,003		1,208		2,209		2,248		1,318
Home equity and junior liens		628		628		114		632		632		114
Totals	$	10,826	$	10,975	$	1,820	$	11,357	$	11,493	$	1,875

The following table presents the average recorded investment in impaired loans for the periods indicated:


	For the three months ended				For the six months ended
	June 30,				June 30,
(In thousands)	2022		2021		2022		2021
1-4 family first-lien residential mortgages	$	1,166	$	1,503	$	1,178	$	1,618
Commercial real estate		7,035		10,234		7,076		11,083
Commercial lines of credit		146		982		148		963
Other commercial and industrial		2,071		6,990		2,117		6,986
Home equity and junior liens		629		578		630		458
Other consumer		-		86		-		84
Total	$	11,047	$	20,373	$	11,149	$	21,192

The following table presents the cash basis interest income recognized on impaired loans for the periods indicated:


	For the three months ended				For the six months ended
	June 30,				June 30,
(In thousands)	2022		2021		2022		2021
1-4 family first-lien residential mortgages	$	14	$	16	$	30	$	32
Commercial real estate		70		44		133		109
Commercial lines of credit		1		15		3		25
Other commercial and industrial		22		49		42		74
Home equity and junior liens		6		5		12		6
Other consumer		-		1		-		3
Total	$	113	$	130	$	220	$	249