As of and prior to December 31, 2022, loans receivable was accounted for under the incurred loss model. As of January 1, 2023, portfolio loans are accounted for under the expected loss model. Accordingly, some of the information presented is not comparable from period to period.

⁽¹⁾	Includes $478 and $537 in U.S. Small Business Administration (“SBA”), paycheck protection program (“PPP”) loans at March 31, 2023 and December 31, 2022, respectively.

At March 31, 2023 and December 31, 2022, the unpaid principal balances of loans held for sale included in the residential real estate category above were $688 and $247, respectively.

The following tables present the classes of the loan portfolio summarized by the aging categories of performing loans and non-accrual loans:


	March 31, 2023
							Greater Than
			30-59 Days		60-89 Days		90 Days Past		Total Loans
	Current		Past Due		Past Due		Due		Receivable		Non-accrual
Commercial real estate:
Construction	$	26,243	$	—	$	—	$	—	$	26,243	$	—
Non-residential		294,711		1,826		715		1,348		298,600		1,817
Multifamily		70,791		729		—		—		71,520		—
Residential real estate		55,798		95		290		765		56,948		1,946
Commercial and industrial		83,957		271		—		175		84,403		1,150
Consumer:
Indirect automobile		435,207		7,344		1,031		380		443,962		434
Home equity		11,188		167		—		176		11,531		176
Other consumer		9,130		92		15		48		9,285		48
Total	$	987,025	$	10,524	$	2,051	$	2,892	$	1,002,492	$	5,571


	December 31, 2022
							Greater Than
			30-59 Days		60-89 Days		90 Days Past		Total Loans
	Current		Past Due		Past Due		Due		Receivable		Non-accrual
Commercial real estate:
Construction	$	20,329	$	—	$	—	$	—	$	20,329	$	—
Non-residential		275,860		4,701		479		1,382		282,422		1,382
Multifamily		67,413		364		—		—		67,777		—
Residential real estate		51,476		1,417		246		581		53,720		1,794
Commercial and industrial		87,742		57		—		183		87,982		183
Consumer:
Indirect automobile		444,418		10,714		1,389		702		457,223		797
Home equity		11,279		51		58		119		11,507		217
Other consumer		9,208		149		71		51		9,479		51
Total	$	967,725	$	17,453	$	2,243	$	3,018	$	990,439	$	4,424

Effective January 1, 2023, the Company has modified its accounting policy for the ACL on loans as described below.

The ACL on loans is management’s estimate of expected credit losses over the expected life of the loans at the reporting date. The ACL on loans is increased through a provision for credit losses recognized in the Consolidated Statements of Income and by recoveries of amounts previously charged off. The ACL on loans is reduced by charge-offs on loans. Loan charge-offs are recognized when management believes the collectability of the principal balance outstanding is unlikely. Full or partial charge-offs on individually analyzed loans are generally recognized when the collateral or future cash flows are deemed to be insufficient to support the carrying value of the loan.

The level of the ACL on loans is based on management’s ongoing review of all relevant information, from internal and external sources, relating to past events, current conditions and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the calculation of loss given default and the estimation of expected credit losses. As discussed further below, adjustments to historical information are made for differences in specific risk characteristics, such as differences in underwriting standards, portfolio mix, delinquency levels, or terms, as well as for changes in environmental conditions, that may not be reflected in historical loss rates.

Management employs a process and methodology to estimate the ACL on loans that evaluate both quantitative and qualitative factors. The methodology for evaluating quantitative factors consists of two basic components. The first component involves pooling loans into portfolio segments for loans that share similar risk characteristics. Pooled loan portfolio segments include commercial construction, commercial real estate, commercial and industrial, residential real estate (including homeowner construction), home equity, indirect automobile and other consumer loans. The second component involves individually analyzed loans that do not share similar risk characteristics with loans that are pooled into portfolio segments or are determined for foreclosure.

For loans that are individually analyzed, the ACL is measured using a discounted cash flow (“DCF”) methodology based upon the loan’s contractual effective interest rate, or at the loan’s observable market price, or, if the loan is collateral-dependent, at the fair value of the collateral. Factors management considers when measuring the extent of expected credit loss include payment status, collateral value, borrower financial condition, guarantor support and the probability of collecting scheduled principal and interest payments when due. For collateral-dependent loans for which repayment is to be provided substantially through the sale of the collateral, management adjusts the fair value for estimated costs to sell. Management may also adjust appraised values to reflect estimated market value declines or apply other discounts to appraised values for unobservable factors resulting from its knowledge of circumstances associated with the collateral.

For pooled loans, the Company utilizes a DCF methodology to estimate credit losses over the expected life of the loans. The life of the loan excludes expected extensions, renewals and modifications. Management utilizes the national unemployment rate as an econometric factor with a one-year forecast period and one-year straight-line reversion period to the historical mean of its macroeconomic assumption in order to estimate the probability of default for each loan portfolio segment. The DCF methodology combines the probability of default, the loss given default, maturity date and prepayment speeds to estimate a reserve for each loan. The sum of all the loan level reserves are aggregated for each portfolio segment and a loss rate factor is derived.

Because the methodology is based upon historical experience and trends, current economic data, reasonable and supportable forecasts, as well as management’s judgment, factors may arise that result in different estimations. Deteriorating conditions or assumptions could lead to further increases in the ACL on loans. In addition, various regulatory agencies periodically review the ACL on loans. Such agencies may require additions to the allowance based on their judgments about information available to them at the time of their examination. The ACL on loans is an estimate, and ultimate losses may vary from management’s estimate.

The following table presents the Company’s amortized cost basis of individually analyzed loans and related ACL at March 31, 2023:


	March 31, 2023
	Individually analyzed loans		Related ACL
Commercial real estate:
Non-residential	$	1,817	$	—
Residential real estate		1,946		—
Commercial and industrial		1,150		710
Consumer:
Indirect automobile		434		39
Home equity		274		—
Other consumer		48		—
Total	$	5,669	$	749

The Company has one individually analyzed home equity loan of $98 that was accruing interest at March 31, 2023.

The following table presents the Company’s amortized cost basis of only those individually analyzed loans with a related ACL at March 31, 2023:


	March 31, 2023
	Individually analyzed loans		Related ACL
Commercial and industrial	$	975	$	710
Consumer:
Indirect automobile		201		39
Total	$	1,176	$	749

Impaired loans disclosures presented below as of December 31, 2022 represent requirements prior to the adoption of CECL on January 1, 2023. The following table summarizes information regarding impaired loans by loan portfolio class:


	December 31, 2022
	Recorded		Unpaid Principal		Related		Average Recorded
	Investment		Balance		Allowance		Investment
With no related allowance recorded:
Commercial real estate:
Non-residential	$	1,382	$	2,472	$	—	$	1,967
Residential real estate		1,794		2,445		—		1,890
Commercial and industrial		183		242		—		309
Consumer:
Indirect automobile		371		439		—		336
Home equity		217		219		—		146
Other consumer		49		53		—		38
Total	$	3,996	$	5,870	$	—	$	4,686
With an allowance recorded:
Commercial real estate:
Commercial and industrial	$	—	$	—	$	—	$	114
Consumer:
Indirect automobile		426		435		107		293
Other consumer		2		2		2		11
Total	$	428	$	437	$	109	$	418
Total:
Commercial real estate:
Non-residential	$	1,382	$	2,472	$	—	$	1,967
Residential real estate		1,794		2,445		—		1,890
Commercial and industrial		183		242		—		423
Consumer:
Indirect automobile		797		874		107		629
Home equity		217		219		—		146
Other consumer		51		55		2		49
Total	$	4,424	$	6,307	$	109	$	5,104

The Company has transferred a portion of its originated commercial real estate loans to participating lenders. The amounts transferred have been accounted for as sales and are therefore not included in the Company’s accompanying statements of financial condition. The Company and participating lenders share ratably in any gains or losses that may result from a loan’s performance under its contractual terms. The Company continues to service the loans on behalf of the participating lenders and, as such, collects cash payments from the borrowers, remits payments to participating lenders and disburses required escrow funds to relevant parties. At March 31, 2023 and December 31, 2022, the Company was servicing loans for participants aggregating $32,513 and $8,466, respectively.

Residential mortgage and consumer loans secured by residential real estate properties for which formal foreclosure proceedings are in process totaled $612 and $625 at March 31, 2023 and December 31, 2022, respectively, and are all individually analyzed.

As a result of the adoption of ASU 2022-02, “Financial Instruments – Credit Losses (Topic 326), Troubled Debt Restructurings and Vintage Disclosures” on January 1, 2023, the Company had no reportable balances related to TDRs as of and for the three months ended March 31, 2023.

The Company services certain loans that it has sold to third parties. The aggregate balances of loans serviced for others were $295,977 and $301,235 as of March 31, 2023 and December 31, 2022, respectively. Included in these loans serviced for others are loans serviced for the Federal Home Loan Mortgage Corporation with a recourse provision whereby the Company is obligated to bear all cost when a default, including foreclosure occurs. At March 31, 2023 and December 31, 2022, the maximum contingent liability associated with loans sold with recourse was $726 and $276, respectively, which is not recorded in the consolidated financial statements. Losses are borne in priority order by the borrower, private mortgage insurance and the Company. The Company has never repurchased any loans or incurred any losses under these recourse provisions.

The balances of capitalized servicing rights, included in other assets at March 31, 2023 and December 31, 2022, were $2,292 and $2,409, respectively. Fair value exceeds carrying value, and thus, no impairment charges related to servicing rights were recognized during the period ended March 31, 2023 or the year ended December 31, 2022.

Activity in the Company’s ACL for loans for the three months ended March 31, 2023 is summarized in the table below. The Adoption of the CECL Standard row presents adjustments recorded on January 1, 2023 through retained earnings.


	Commercial		Residential		Commercial
	Real Estate		Real Estate		and Industrial		Indirect		Consumer		Totals

	Three months ended March 31, 2023

Allowance for credit losses:
Beginning balance	$	3,031	$	103	$	881	$	3,868	$	60	$	7,943
Adoption of CECL standard		(860)		54		(383)		1,710		59		580
Provision for credit losses		170		13		703		104		4		994
Loans charged-off		—		—		—		(989)		(22)		(1,011)
Recoveries		—		—		—		585		12		597
Ending balance	$	2,341	$	170	$	1,201	$	5,278	$	113	$	9,103
Ending balance:
Loans individually analyzed	$	—	$	—	$	710	$	39	$	—	$	749
Loans collectively analyzed	$	2,341	$	170	$	491	$	5,239	$	113	$	8,354
Loan receivables:
Ending balance	$	396,363	$	56,948	$	84,403	$	443,962	$	20,816	$	1,002,492
Ending balance:
Loans individually analyzed	$	1,817	$	1,946	$	1,150	$	434	$	322	$	5,669
Loans collectively analyzed	$	394,546	$	55,002	$	83,253	$	443,528	$	20,494	$	996,823

Activity in the Company’s allowance for loan losses for the three months ended March 31, 2022 and December 31, 2022 is summarized in the tables below.


	Commercial		Residential		Commercial
	Real Estate		Real Estate		and Industrial			Indirect	Consumer		Totals

	Three months ended March 31, 2022
Allowance for loan losses:
Beginning balance	$	3,317	$	54	$	725	$	3,416	$	47	$	7,559
(Credit to) provision for loan losses		(3)		(109)		18		295		20		221
Loans charged-off		—		(44)		—		(647)		(23)		(714)
Recoveries		—		154		—		471		9		634
Ending balance	$	3,314	$	55	$	743	$	3,535	$	53	$	7,700


	Commercial		Residential		Commercial
	Real Estate		Real Estate		and Industrial		Indirect		Consumer		Totals

	December 31, 2022
Allowance for loan losses:
Ending balance:
Loans deemed impaired	$	—	$	—	$	—	$	107	$	2	$	109
Loans not deemed impaired	$	3,031	$	103	$	881	$	3,761	$	58	$	7,834
Loan receivables:
Ending balance	$	370,528	$	53,720	$	87,982	$	457,223	$	20,986	$	990,439
Ending balance:
Loans deemed impaired	$	1,382	$	1,794	$	183	$	797	$	268	$	4,424
Loans not deemed impaired	$	369,146	$	51,926	$	87,799	$	456,426	$	20,718	$	986,015

The Company has also recorded an ACL for unfunded commitments, which was recorded in other liabilities; see Note 10 to the consolidated financial statements. The provision is recorded within the provision for credit losses on the Company’s income statement.

The following table summarizes the provision for credit losses for the three months ended March 31, 2023 and 2022:


	Three Months Ended March 31,
	2023		2022
Provision for credit losses - loans	$	994	$	221
Provision for credit losses - unfunded commitments		20		—
Provision for credit losses	$	1,014	$	221

In the normal course of business, the Company grants loans to officers, directors and other related parties. Balances and activity of such loans during the periods presented were not material.

On an annual basis, or more often if needed, the Company formally reviews the ratings on all commercial real estate, multifamily, construction and commercial loans. To assist in the review process, the Company engages an independent third-party to review a significant portion of loans within these segments. Consumer loans are rated as performing or non-performing based on payment status in accordance with regulatory retail credit guidance. Management uses the results of these reviews as part of its annual review process. In addition, management utilizes delinquency reports, the watch list and other loan reports to monitor credit quality of other loan segments.

Credit Quality Indicators. The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis is performed on all loans at origination, and is updated on a quarterly basis for loans risk rated Watch, Special Mention, Substandard, or Doubtful.

The Company uses the following definitions for risk ratings:

Watch – Loans classified as watch exhibit weaknesses that require more than usual monitoring. Issues may include deteriorating financial condition, payments made after due date but within 30 days, adverse industry conditions or management problems.

Special Mention – Loans classified as special mention exhibit signs of further deterioration but still generally make payments within 30 days. This is a transitional rating and loans should typically not be rated Special Mention for more than 12 months.

Substandard – Loans classified as substandard possess weaknesses that jeopardize the ultimate collection of the principal and interest outstanding. These loans exhibit continued financial losses, ongoing delinquency, overall poor financial condition, and/or insufficient collateral. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful – Loans classified as non-performing have all the weaknesses of substandard loans, and have deteriorated to the level that there is a high probability of substantial loss.

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

The following table presents the credit risk profile of the Company’s loan portfolio (excluding loans in process and deferred loan fees) based on rating category, as well as gross write-offs, by fiscal year of origination as of March 31, 2023.


													Revolving
	Loans by Origination Year												Loans
	2023		2022		2021		2020		2019		Prior		Amortized Cost		Total
Commercial construction
Pass	$	-	$	3,118	$	-	$	-	$	-	$	-	$	-	$	3,118
Watch		-		11,649		11,476		-		-		-		-		23,125
Total commercial construction		-		14,767		11,476		-		-		-		-		26,243

Commercial non-residential
Pass	$	22,338	$	44,753	$	27,328	$	18,121	$	41,308	$	51,378	$	-	$	205,226
Watch		2,372		9,489		8,043		12,943		8,699		41,064		-		82,610
Special mention		-		-		-		-		5,994		1,494		-		7,488
Substandard		-		-		-		-		485		2,791		-		3,276
Total commercial non-residential		24,710		54,242		35,371		31,064		56,486		96,727		-		298,600

Multifamily
Pass	$	824	$	19,017	$	30,923	$	2,152	$	1,576	$	5,222	$	-	$	59,714
Watch		-		-		755		-		1,302		9,749		-		11,806
Total multifamily		824		19,017		31,678		2,152		2,878		14,971		-		71,520

Residential
Performing	$	4,801	$	26,667	$	2,619	$	2,787	$	2,670	$	15,458	$	-	$	55,002
Non-performing		-		-		-		-		-		1,946		-		1,946
Total residential		4,801		26,667		2,619		2,787		2,670		17,404		-		56,948

Commercial and industrial
Pass	$	3,579	$	23,853	$	14,104	$	2,141	$	1,753	$	5,301	$	17,273	$	68,004
Watch		492		2,705		319		765		802		2,644		6,780		14,507
Special mention		-		-		377		13		59		64		-		513
Substandard		-		-		975		-		153		203		48		1,379
Total commercial and industrial		4,071		26,558		15,775		2,919		2,767		8,212		24,101		84,403

Indirect automobile
Performing	$	33,383	$	206,728	$	100,427	$	52,928	$	34,117	$	15,945	$	-	$	443,528
Non-performing		-		162		106		21		110		35		-		434
Total indirect automobile		33,383		206,890		100,533		52,949		34,227		15,980		-		443,962
Current-period gross write-offs		-		359		303		158		94		75		-		989

Home equity
Performing	$	-	$	-	$	-	$	-	$	35	$	238	$	11,082	$	11,355
Non-performing		-		-		-		-		-		-		176		176
Total home equity		-		-		-		-		35		238		11,258		11,531

Other consumer
Performing	$	829	$	5,023	$	1,520	$	961	$	256	$	414	$	234	$	9,237
Non-performing		-		-		-		23		-		25		-		48
Total other consumer		829		5,023		1,520		984		256		439		234		9,285
Current-period gross write-offs		-		11		-		11		-		-		-		22

Total Loans
Pass/performing	$	65,754	$	329,159	$	176,921	$	79,090	$	81,715	$	93,956	$	28,589	$	855,184
Watch		2,864		23,843		20,593		13,708		10,803		53,457		6,780		132,048
Special mention		0		0		377		13		6,053		1,558		0		8,001
Substandard		0		0		975		0		638		2,994		48		4,655
Non-performing		0		162		106		44		110		2,006		176		2,604
Total Loans	$	68,618	$	353,164	$	198,972	$	92,855	$	99,319	$	153,971	$	35,593	$	1,002,492
Total Current-period gross write-offs	$	0	$	370	$	303	$	169	$	94	$	75	$	-	$	1,011

The following table presents the classes of the loan portfolio summarized by the pass category and the criticized categories of special mention and substandard within the internal risk system:


	December 31, 2022
	Pass		Special Mention		Substandard		Total
Commercial real estate:
Construction	$	20,329	$	—	$	—	$	20,329
Non-residential		271,491		7,904		3,027		282,422
Multifamily		67,777		—		—		67,777
Residential real estate		52,265		—		1,455		53,720
Commercial and industrial		83,680		3,825		477		87,982
Consumer:
Indirect automobile		456,112		—		1,111		457,223
Home equity		11,290		—		217		11,507
Other consumer		9,428		—		51		9,479
Total	$	972,372	$	11,729	$	6,338	$	990,439