Loans and Allowance for Credit Losses

12 Months Ended

Dec. 31, 2023

Loans and Allowance for Credit Losses

Loans and Allowance for Credit Losses

3.    Loans and Allowance for credit losses

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 current expected credit loss model. In accordance with the adoption of the current expected credit loss model, December 31, 2023 loan balances are reported at their amortized cost basis, to include net deferred origination fees and unearned income. Accordingly, some of the information presented is not comparable from period to period.

A summary of the Company’s loan portfolio is as follows:

	At December 31,
	2023		2022
Commercial real estate loans:
Construction	$	20,208	$	20,329
Non-residential		324,493		282,422
Multi-family		83,376		67,777
Residential real estate loans		77,259		53,720
Commercial and industrial loans(1)		88,927		87,982
Consumer loans:
Indirect automobile		394,245		457,223
Home equity		11,990		11,507
Other consumer		8,095		9,479
Total gross loans		1,008,593		990,439
Dealer reserves(2)		8,382		11,872
Allowance for credit losses		(8,124)		(7,943)
Total net loans	$	1,008,851	$	994,368

(1) Includes $272 and $537 in SBA PPP loans at December 31, 2023 and 2022, respectively.

(2) At December 31, 2022, dealer reserves totaled $11,109 and other deferred origination fees totaled $763.

At December 31, 2023 and 2022, the unpaid principal balances of loans held for sale, included in the residential real estate category above, were $908 and $247, respectively.

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 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 for the year ended December 31, 2023, and by fiscal year of origination as of December 31, 2023.

													Revolving
	Loans by Origination Year												Loans
	2023		2022		2021		2020		2019		Prior		Amortized Cost		Total
Commercial construction
Pass	$	-	$	8,227	$	-	$	-	$	-	$	-	$	-	$	8,227
Watch		9,328		2,653		-		-		-		-		-		11,981
Total commercial construction		9,328		10,880		-		-		-		-		-		20,208
Commercial non-residential
Pass	$	34,508	$	43,534	$	26,600	$	16,673	$	39,943	$	44,412	$	-	$	205,670
Watch		16,575		19,235		14,854		12,747		7,573		38,004		-		108,988
Special mention		-		-		-		-		5,884		963		-		6,847
Substandard		-		-		-		-		465		2,523		-		2,988
Total commercial non-residential		51,083		62,769		41,454		29,420		53,865		85,902		-		324,493
Multifamily
Pass	$	807	$	18,765	$	30,374	$	2,100	$	1,540	$	4,348	$	-	$	57,934
Watch		1,000		6,754		6,925		-		1,265		9,498		-		25,442
Total multifamily		1,807		25,519		37,299		2,100		2,805		13,846		-		83,376
Residential
Performing	$	28,670	$	25,260	$	2,150	$	2,732	$	2,626	$	14,197	$	-	$	75,635
Non-performing		-		257		-		-		-		1,367		-		1,624
Total residential		28,670		25,517		2,150		2,732		2,626		15,564		-		77,259
Commercial and industrial
Pass	$	12,637	$	26,070	$	10,804	$	1,474	$	962	$	1,254	$	11,662	$	64,863
Watch		2,082		3,227		321		620		482		1,603		14,204		22,539
Special mention		224		-		301		-		33		-		-		558
Substandard		-		-		-		-		83		841		43		967
Total commercial and industrial		14,943		29,297		11,426		2,094		1,560		3,698		25,909		88,927
Current-period gross write-offs		-		-		710		-		-		126		-		836
Indirect automobile
Performing	$	101,230	$	160,439	$	72,941	$	34,196	$	19,035	$	5,773	$	-	$	393,614
Non-performing		31		259		196		69		63		13		-		631
Total indirect automobile		101,261		160,698		73,137		34,265		19,098		5,786		-		394,245
Current-period gross write-offs		198		1,492		1,034		418		309		126		-		3,577
Home equity
Performing	$	-	$	-	$	-	$	-	$	34	$	4,064	$	7,793	$	11,891
Non-performing		-		-		-		-		-		99		-		99
Total home equity		-		-		-		-		34		4,163		7,793		11,990
Other consumer
Performing	$	2,928	$	3,477	$	856	$	411	$	138	$	22	$	238	$	8,070
Non-performing		-		-		-		24		-		-		1		25
Total other consumer		2,928		3,477		856		435		138		22		239		8,095
Current-period gross write-offs		8		30		10		11		-		3		-		62
Total Loans
Pass/performing	$	180,780	$	285,772	$	143,725	$	57,586	$	64,278	$	74,070	$	19,693	$	825,904
Watch		28,985		31,869		22,100		13,367		9,320		49,105		14,204		168,950
Special mention		224		-		301		0		5,917		963		-		7,405
Substandard		-		-		-		-		548		3,364		43		3,955
Non-performing		31		516		196		93		63		1,479		1		2,379
Total Loans	$	210,020	$	318,157	$	166,322	$	71,046	$	80,126	$	128,981	$	33,941	$	1,008,593
Total Current-period gross write-offs	$	206	$	1,522	$	1,754	$	429	$	309	$	255	$	-	$	4,475

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 for the year ended December 31, 2022.

	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

Management further monitors the performance and credit quality of the loan portfolio by analyzing the age of the portfolio as determined by the length of time a recorded payment is past due. The past due status of all classes of loans is determined based on contractual due dates for loan payments.

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

	December 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	$	20,208	$	—	$	—	$	—	$	20,208	$	—
Non-residential		319,467		1,276		2,129		1,621		324,493		1,621
Multifamily		83,376		—		—		—		83,376		—
Residential real estate		75,998		888		37		336		77,259		1,624
Commercial and industrial		88,646		17		83		181		88,927		181
Consumer:
Indirect automobile		382,042		10,155		1,478		570		394,245		631
Home equity		11,843		—		48		99		11,990		99
Other consumer		7,844		202		24		25		8,095		25
Total	$	989,424	$	12,538	$	3,799	$	2,832	$	1,008,593	$	4,181

	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

All of our non-accrual loans are individually analyzed. The Company has one individually analyzed home equity loan of $98 that was accruing interest at December 31, 2023.

The following table presents the Company’s amortized cost basis of non-accrual loans for which there is no  related ACL at December 31, 2023:

	December 31, 2023
Commercial real estate:
Non-residential	$	1,152
Residential real estate		1,624
Commercial and industrial		150
Consumer:
Indirect automobile		160
Home equity		99
Other consumer		24
Total	$	3,209

For the year ended December 31, 2023, $242 in accrued interest was reversed for non-accrual loans. Total accrued interest receivable associated with loans totaled $4,014 and $3,723, at December 31, 2023 and December 31, 2022, respectively, and was reported in accrued interest receivable on the consolidated statements of financial condition.

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 borrower’s lack of compliance with contractual terms of the loan. 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 December 31, 2023 and 2022, the Company was servicing loans for participants aggregating $44,418 and $8,466, respectively.

The Company services certain loans that it has sold to third parties. The aggregate balances of loans serviced for others were $282,269 and $301,235 as of December 31, 2023 and 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 costs when a default, including foreclosure, occurs. At December 31, 2023 and 2022, the maximum contingent liability associated with loans sold with recourse was $1,873 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 balance of capitalized servicing rights, included in other assets at December 31, 2023 and 2022, were $1,977 and $2,409, respectively. Fair value exceeds carrying value. No impairment charges related to servicing rights were recognized during the years ended December 31, 2023 or 2022.

Residential mortgage and consumer loans secured by residential real estate properties for which formal foreclosure proceedings are in process totaled $152 and $625 at December 31, 2023 and 2022, respectively.

Activity in the Company’s ACL for loans for the year ended December 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
	Year ended December 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 (reversal of) credit losses		545		137		833		165		(14)		1,666
Loans charged-off		—		—		(836)		(3,577)		(62)		(4,475)
Recoveries		—		52		111		2,182		65		2,410
Ending balance	$	2,716	$	346	$	606	$	4,348	$	108	$	8,124
Ending balance:
Loans individually analyzed	$	16	$	—	$	32	$	166	$	2	$	216
Loans collectively analyzed	$	2,700	$	346	$	574	$	4,182	$	106	$	7,908
Loan receivables:
Ending balance	$	428,077	$	77,259	$	88,927	$	394,245	$	20,085	$	1,008,593
Ending balance:
Loans individually analyzed	$	1,621	$	1,624	$	181	$	631	$	222	$	4,279
Loans collectively analyzed	$	426,456	$	75,635	$	88,746	$	393,614	$	19,863	$	1,004,314

Activity in the Company’s allowance for loan losses for the year ended December 31, 2022 is summarized in the table below.

	Commercial		Residential		Commercial
	Real Estate		Real Estate		and Industrial		Indirect		Consumer		Totals
	December 31, 2022
Allowance for loan losses:
Beginning balance	$	3,317	$	54	$	725	$	3,416	$	47	$	7,559
(Credit to) provision for loan losses		(286)		(63)		493		1,205		65		1,414
Loans charged-off		—		(44)		(456)		(2,660)		(107)		(3,267)
Recoveries		—		156		119		1,907		55		2,237
Ending balance	$	3,031	$	103	$	881	$	3,868	$	60	$	7,943
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 11 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 years ended December 31, 2023 and 2022:

	Year Ended December 31,
	2023		2022
Provision for credit losses - loans	$	1,666	$	1,414
Provision for credit losses - unfunded commitments		36		—
Provision for credit losses	$	1,702	$	1,414

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 years presented were not material.