Loans

3 Months Ended

Mar. 31, 2023

Note 6: Loans

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


	March 31,			December 31,
(In thousands)	2023			2022
Residential mortgage loans:
1-4 family first-lien residential mortgages	$	260,199		$	257,656
Construction		2,933			5,085
Loans held-for-sale		-			19
Total residential mortgage loans		263,132			262,760

Commercial loans:
Real estate		350,175			345,330
Lines of credit		81,704			82,050
Other commercial and industrial		84,553			77,273
Paycheck Protection Program loans		192			203
Tax exempt loans		4,200			4,280
Total commercial loans		520,824			509,136

Consumer loans:
Home equity and junior liens		34,096			34,007
Other consumer		93,197			92,851
Total consumer loans		127,293			126,858

Total loans		911,249			898,754
Net deferred loan fees		(1,095	)		(1,000	)
Less allowance for credit losses		17,869			15,319
Loans receivable, net	$	892,285		$	882,435

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 March 31, 2023 and December 31, 2022 (the month/year of the earliest acquisition date is depicted in parentheses):


(In thousands, except number of loans)	March 31, 2023
	Original Balance		Current Balance		Unamortized Premium/ (Discount)			Number of Loans		Maturity Range	Cumulative net charge-offs
Automobile loans (1/2017)	$	50,400	$	3,400	$	11			467	0-4 years	$	266
Commercial and industrial loans (6/2019)		6,800		2,000		-			21	3-7 years		-
Home equity lines of credit (8/2019)		21,900		5,700		178			144	1-27 years		-
Unsecured consumer loan pool 2 (11/2019)		26,600		1,200		8			229	0-2 years		-
Residential real estate loans (12/2019)		4,300		3,700		236			49	16-22 years		-
Unsecured consumer loan pool 1 (12/2019)		5,400		1,400		-			48	1-4 years		-
Unsecured consumer installment loans pool 3 (12/2019)		10,300		770		32			329	0-9 years		63
Secured consumer installment loans pool 4 (12/2020)		14,500		11,200		(1,418	)		516	23-24 years		-
Unsecured consumer loans pool 5 (1/2021)		24,400		17,100		(463	)		675	8-23 years		-
Commercial Line of Credit 1 (3/2021)		11,600		11,300		11			1	0-1 year		-
Secured consumer installment loans (11/2021)		21,300		19,200		(3,159	)		839	18-25 years		50
Commercial Line of Credit 2 (11/2021)		10,500		15,000		20			1	0-1 year		-
Unsecured consumer loans pool 6 (11/2021)		22,200		19,700		(2,364	)		537	8-24 years		-
Total	$	230,200	$	111,670	$	(6,908	)		3,856		$	379

(In thousands, except number of loans)	December 31, 2022
	Original Balance		Current Balance		Unamortized Premium/ (Discount)			Number of Loans		Maturity Range	Cumulative net charge-offs
Automobile loans (1/2017)	$	50,400	$	4,200	$	128			537	0-4 years	$	247
Commercial and industrial loans (6/2019)		6,800		2,100		-			22	3-7 years		-
Home equity lines of credit (8/2019)		21,900		6,000		189			143	1-27 years		-
Unsecured consumer loan pool 2 (11/2019)		26,600		1,500		11			320	0-2 years		-
Residential real estate loans (12/2019)		4,300		3,900		240			49	16-22 years		-
Unsecured consumer loan pool 1 (12/2019)		5,400		1,600		-			50	1-4 years		-
Unsecured consumer installment loans pool 3 (12/2019)		10,300		1,000		38			354	0-9 years		63
Secured consumer installment loans pool 4 (12/2020)		14,500		11,300		(1,484	)		518	23-24 years		-
Unsecured consumer loans pool 5 (1/2021)		24,400		17,300		(485	)		678	8-24 years		-
Revolving commercial line of credit 1 (3/2021)		11,600		11,400		14			1	0-1 year		-
Secured consumer installment loans (11/2021)		21,300		19,700		(3,237	)		850	18-25 years		-
Revolving commercial line of credit 2 (11/2021)		10,500		15,000		23			1	0-1 year		-
Unsecured consumer loans pool 6 (11/2021)		22,200		20,200		(2,441	)		540	8-24 years		-
Total	$	230,200	$	115,200	$	(7,004	)		4,063		$	310

At March 31, 2023 the ACL related to these pools was $2.1 million. As of March 31, 2023 and December 31, 2022, residential mortgage loans with a carrying value of $130.0 million and $110.3 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 2022 Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 31, 2023 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 credit 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 credit 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, 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:



	Term Loans By Origination Year														Loans converted
(In thousands)	2023		2022		2021		2020		2019		Prior		Loans		to term loans		Total
Commercial Real Estate:
Pass	$	11,883	$	85,601	$	59,801	$	30,138	$	52,830	$	92,276	$	-	$	-	$	332,529
Special Mention		-		6,852		454		-		-		1,019		-		-		8,325
Substandard		-		500		1,682		739		396		5,646		-		-		8,963
Doubtful		-		-		-		-		-		358		-		-		358
Total Commercial Real Estate		11,883		92,953		61,937		30,877		53,226		99,299		-		-		350,175
Commercial Lines of Credit:
Pass		-		-		-		-		-		-		42,726		34,475		77,201
Special Mention		-		-		-		-		-		-		1,328		555		1,883
Substandard		-		-		-		-		-		-		1,235		1,355		2,590
Doubtful		-		-		-		-		-		-		-		30		30
Total Commercial Lines of Credit		-		-		-		-		-		-		45,289		36,415		81,704
Other Commercial and Industrial:
Pass		10,190		21,029		9,163		6,714		9,845		14,291		2,513		-		73,745
Special Mention		973		135		1,651		212		1,243		76		-		-		4,290
Substandard		746		1,701		513		644		304		2,347		-		-		6,255
Doubtful								263						-		-		263
Total Other Commercial and Industrial		11,909		22,865		11,327		7,833		11,392		16,714		2,513		-		84,553
Paycheck Protection Program Loans
Pass		-		-		-		192		-		-		-		-		192
Special Mention		-		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		-		-		-
Doubtful		-		-		-		-		-		-		-		-		-
Total Paycheck Protection Program Loans		-		-		-		192		-		-		-		-		192
Tax Exempt Loans
Pass		-		-		-		196		6		3,998		-		-		4,200
Special Mention		-		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		-		-		-
Doubtful		-		-		-		-		-		-		-		-		-
Total Tax Exempt Loans		-		-		-		196		6		3,998		-		-		4,200


	Term Loans By Origination Year															Loans converted
(In thousands)	2023			2022		2021		2020		2019		Prior		Loans		to term loans		Total
1-4 family first-lien residential mortgages:
Pass	$	2,838		$	33,954	$	54,992	$	43,171	$	19,320	$	102,825	$	-	$	-	$	257,100
Special Mention							74		281		61		621		-		-		1,037
Substandard									172		223		993		-		-		1,388
Doubtful		-			-		-		154		-		520		-		-		674
Total 1-4 family first-lien residential mortgages		2,838			33,954		55,066		43,778		19,604		104,959		-		-		260,199
Construction:
Pass		938			1,995		-		-		-		-		-		-		2,933
Special Mention		-			-		-		-		-		-		-		-		-
Substandard		-			-		-		-		-		-		-		-		-
Doubtful		-			-		-		-		-		-		-		-		-
Total Construction		938			1,995		-		-		-		-		-		-		2,933
Home Equity and Junior Liens:
Pass	$	6,607		$	2,247	$	1,643	$	1,034	$	714	$	2,585	$	17,598	$	827	$	33,255
Special Mention		-			-		-		-		-		102		5		-		107
Substandard		-			-		71		-		-		32		624		7		734
Doubtful		-			-		-		-		-		-		-		-		-
Total Home Equity and Junior Liens		6,607			2,247		1,714		1,034		714		2,719		18,227		834		34,096
Other Consumer:
Pass		78,540			4,975		3,645		1,767		2,294		1,509		335		-		93,065
Special Mention		-			6		-		-		-		4		-		-		10
Substandard		-			48		34		-		5		35		-		-		122
Doubtful		-			-		-		-		-		-		-		-		-
Total Other Consumer		78,540			5,029		3,679		1,767		2,299		1,548		335		-		93,197
Net Deferred Loan Fees		(2,758	)		256		317		182		160		748						(1,095	)
Total loans	$	109,957		$	159,299	$	134,040	$	85,859	$	87,401	$	229,985	$	66,364	$	37,249	$	910,154

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 aging analysis of past due loans, not including net deferred loan costs, segregated by portfolio segment and class of loans, as of March 31, 2023 and December 31, 2022, are detailed in the following tables:


	As of March 31, 2023

	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	$	1,522	$	790	$	1,196	$	3,508	$	256,691	$	260,199
Construction		-		-		-		-	$	2,933		2,933
Loans held-for-sale		-		-		-		-	$	-		-
Total residential mortgage loans		1,522		790		1,196		3,508		259,624		263,132
Commercial loans:
Real estate		916		839		6,946		8,701		341,474		350,175
Lines of credit		462		354		2,663		3,479		78,225		81,704
Other commercial and industrial		982		159		6,062		7,203		77,350		84,553
Paycheck Protection Program loans		-		-		-		-		192		192
Tax exempt loans		-		-		-		-		4,200		4,200
Total commercial loans		2,360		1,352		15,671		19,383		501,441		520,824
Consumer loans:
Home equity and junior liens		105		23		161		289		33,807		34,096
Other consumer		508		373		1,861		2,742		90,455		93,197
Total consumer loans		613		396		2,022		3,031		124,262		127,293
Total loans	$	4,495	$	2,538	$	18,889	$	25,922	$	885,327	$	911,249

	As of December 31, 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	$	1,627	$	620	$	932	$	3,179	$	254,477	$	257,656
Construction		-		-		-		-		5,085		5,085
Loans held-for-sale		-		-		-		-		19		19
Total residential mortgage loans		1,627		620		932		3,179		259,581		262,760
Commercial loans:
Real estate		4,974		854		3,499		9,327		336,003		345,330
Lines of credit		1,280		1,584		298		3,162		78,888		82,050
Other commercial and industrial		4,721		999		1,738		7,458		69,815		77,273
Paycheck Protection Program loans		-		-		-		-		203		203
Tax exempt loans		-		-		-		-		4,280		4,280
Total commercial loans		10,975		3,437		5,535		19,947		489,189		509,136
Consumer loans:
Home equity and junior liens		23		17		279		319		33,688		34,007
Other consumer		391		239		1,904		2,534		90,317		92,851
Total consumer loans		414		256		2,183		2,853		124,005		126,858
Total loans	$	13,016	$	4,313	$	8,650	$	25,979	$	872,775	$	898,754

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


	March 31,		December 31,
(In thousands)	2023		2022
Residential mortgage loans:
1-4 family first-lien residential mortgages	$	1,372	$	1,112
		1,372		1,112
Commercial loans:
Real estate		6,946		3,504
Lines of credit		6,062		332
Other commercial and industrial		2,693		1,884
		15,701		5,720
Consumer loans:
Home equity and junior liens		161		279
Other consumer		1,868		1,904
Total consumer loans		2,029		2,183
Total nonaccrual loans	$	19,102	$	9,015

At March 31, 2023, the Bank's 65 nonperforming loans represented 2.1% of total loans, with an aggregate outstanding balance of $19.1 million, as compared to 56 loans with an aggregate outstanding balance of $9.0 million at December 31, 2022. This increase of $10.1 million was the result of the downgrade of two significant loan relationships. The balance of nonaccrual loans related to these two relationships increased to 24 loans, with an aggregate outstanding balance of $13.0 million at March 31, 2023, as compared to five loans with an aggregate outstanding balance of $1.7 million at December 31, 2022. Management is closely monitoring all nonaccrual loans and has incorporated its current estimate of the ultimate collectability of these loans into the reported allowance for credit losses at March 31, 2023.

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 credit losses, an associated increase to the allowance for credit losses or as a charge-off to the allowance for credit losses in the current period.

Impaired Loans

The following table summarizes impaired loan information by portfolio class at December 31, 2022:


	December 31, 2022
			Unpaid
	Recorded		Principal		Related
(In thousands)	Investment		Balance		Allowance
With no related allowance recorded:
1-4 family first-lien residential mortgages	$	1,048	$	1,048	$	-
Commercial real estate		5,283		5,386		-
Commercial lines of credit		2,218		2,218		-
Other commercial and industrial		2,780		2,829		-
Home equity and junior liens		182		182		-

With an allowance recorded:
1-4 family first-lien residential mortgages		450		450		91
Commercial real estate		2,625		2,625		346
Commercial lines of credit		3,059		3,066		2,957
Other commercial and industrial		1,998		1,998		1,285
Home equity and junior liens		536		536		114

Total:
1-4 family first-lien residential mortgages		1,498		1,498		91
Commercial real estate		7,908		8,011		346
Commercial lines of credit		5,277		5,284		2,957
Other commercial and industrial		4,778		4,827		1,285
Home equity and junior liens		718		718		114
Totals	$	20,179	$	20,338	$	4,793

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


	For the three months ended
	March 31,
(In thousands)	2023		2022
1-4 family first-lien residential mortgages	$	1,494	$	1,197
Commercial real estate		9,192		7,135
Commercial lines of credit		3,886		151
Other commercial and industrial		6,516		2,198
Home equity and junior liens		717		631
Total	$	21,805	$	11,312

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


	For the three months ended
	March 31,
(In thousands)	2023		2022
1-4 family first-lien residential mortgages	$	15	$	16
Commercial real estate		59		63
Commercial lines of credit		3		2
Other commercial and industrial		31		20
Home equity and junior liens		13		6
Total	$	121	$	107