The following table presents the aging of the amortized cost basis of the Company’s past due loans by segment as of March 31, 2023:

The following table presents the aging of the amortized cost basis of the Company’s past due loans by segment as of December 31, 2022:

No interest income on nonaccrual loans was recognized during the three months ended March 31, 2023 and 2022. An immaterial amount of accrued interest was written off on nonaccrual loans by reversing interest income.

The Company uses several credit quality indicators to assess credit risk in an ongoing manner. The Company’s primary credit quality indicator for its business lending portfolio is an internal credit risk rating system that categorizes loans as “pass”, “special mention”, “classified”, or “doubtful”. Credit risk ratings are applied to loans individually based on a case-by-case evaluation. In general, the following are the definitions of the Company’s credit quality indicators:

The following tables show the amount of business lending loans by credit quality category at March 31, 2023 and December 31, 2022:

All other loans are underwritten and structured using standardized criteria and characteristics, primarily payment performance, and are monitored collectively on a monthly basis. These are typically loans to individuals in the consumer categories and are delineated as either performing or nonperforming. Performing loans include loans classified as current as well as those classified as 30 - 89 days past due. Nonperforming loans include 90+ days past due and still accruing and nonaccrual loans.

The following table details the balances in all other loan categories at March 31, 2023:

(1)

FICO AB refers to higher tiered loans with FICO scores greater than or equal to 720 at origination.

(2)

FICO CDE refers to loans with FICO scores less than 720 at origination and potentially higher risk.

The following table details the balances in all other loan categories at December 31, 2022:


													Revolving		Revolving
													Loans		Loans
(000’s omitted)	Term Loans Amortized Cost Basis by Origination Year												Amortized		Converted
December 31, 2022	2022		2021		2020		2019		2018		Prior		Cost Basis		to Term		Total
Consumer mortgage:
FICO AB⁽¹⁾
Performing	$	379,171	$	492,731	$	217,889	$	173,942	$	100,161	$	604,258	$	954	$	58,639	$	2,027,745
Nonperforming		0		75		573		184		399		4,347		0		449		6,027
Total FICO AB		379,171		492,806		218,462		174,126		100,560		608,605		954		59,088		2,033,772
FICO CDE⁽²⁾
Performing		160,388		178,262		112,640		79,357		54,861		323,189		27,884		22,056		958,637
Nonperforming		120		974		1,250		1,606		2,127		13,177		151		661		20,066
Total FICO CDE		160,508		179,236		113,890		80,963		56,988		336,366		28,035		22,717		978,703
Total consumer mortgage	$	539,679	$	672,042	$	332,352	$	255,089	$	157,548	$	944,971	$	28,989	$	81,805	$	3,012,475

Consumer indirect:
Performing	$	777,513	$	422,594	$	129,449	$	99,593	$	52,298	$	58,028	$	0	$	0	$	1,539,475
Nonperforming		18		1		53		67		15		24		0		0		178
Total consumer indirect	$	777,531	$	422,595	$	129,502	$	99,660	$	52,313	$	58,052	$	0	$	0	$	1,539,653

Consumer direct:
Performing	$	84,111	$	46,381	$	17,066	$	12,729	$	5,573	$	5,020	$	6,563	$	2	$	177,445
Nonperforming		6		51		1		1		29		50		22		0		160
Total consumer direct	$	84,117	$	46,432	$	17,067	$	12,730	$	5,602	$	5,070	$	6,585	$	2	$	177,605

Home equity:
Performing	$	69,575	$	72,270	$	37,964	$	31,506	$	16,068	$	41,097	$	132,703	$	30,569	$	431,752
Nonperforming		0		10		114		169		105		606		563		677		2,244
Total home equity	$	69,575	$	72,280	$	38,078	$	31,675	$	16,173	$	41,703	$	133,266	$	31,246	$	433,996

(1)

FICO AB refers to higher tiered loans with FICO scores greater than or equal to 720 at origination.

(2)

FICO CDE refers to loans with FICO scores less than 720 at origination and potentially higher risk.

Business lending loans greater than $0.5 million that are on nonaccrual are individually assessed and, if necessary, a specific allocation of the allowance for credit losses is provided. A summary of individually assessed business loans as of March 31, 2023 and December 31, 2022 follows:


	March 31,		December 31,
(000’s omitted)	2023		2022
Loans with allowance allocation	$	0	$	0
Loans without allowance allocation		3,093		3,163
Carrying balance		3,093		3,163
Contractual balance		4,201		4,201
Specifically allocated allowance		0		0

The average carrying balance of individually assessed loans was $3.1 million and $12.3 million for the three months ended March 31, 2023 and 2022, respectively. No interest income was recognized on individually assessed loans for the three months ended March 31, 2023 and 2022.

Occasionally, the Company modifies loans to borrowers experiencing financial difficulty by providing principal forgiveness, term extension, payment delay, or interest rate reduction. When principal forgiveness is provided, the amount of forgiveness is charged-off against the allowance for credit losses.

In some cases, the Company provides multiple types of modifications on one loan. Typically, one type of modification, such as a term extension, is granted initially. If the borrower continues to experience financial difficulty, another modification, such as principal forgiveness, may be granted. Upon the Company’s determination that a modified loan (or portion of a loan) has subsequently been deemed uncollectible, the loan (or a portion of the loan) is charged off. Therefore, the amortized cost basis of the loan is reduced by the uncollectible amount and the allowance for credit losses is adjusted by the same amount. During the three months ended March 31, 2023, the amount of loans that were modified to borrowers experiencing financial difficulty was immaterial.

Prior to the adoption of ASU 2022-02 on January 1, 2023, modified loans were reviewed by the Company to identify if a troubled debt restructuring (“TDR”) had occurred, which is when, for economic or legal reasons related to a borrower’s financial difficulties, the Company grants a concession to the borrower that it would not otherwise consider. Terms may be modified to fit the ability of the borrower to repay in line with its current financial standing and the restructuring of the loan may include the transfer of assets from the borrower to satisfy the debt, a modification of loan terms, or a combination of the two. The amount of TDRs as of December 31, 2022 and the amount of loans modified in a TDR during the three months ended March 31, 2022 were immaterial.

Allowance for Credit Losses

The following presents by loan segment the activity in the allowance for credit losses during the three months ended March 31, 2023 and 2022:


	Three Months Ended March 31, 2023
	Beginning		Charge-						Ending
(000’s omitted)	balance		offs		Recoveries		Provision		balance
Business lending	$	23,297	$	(175)	$	172	$	1,933	$	25,227
Consumer mortgage		14,343		(19)		7		(53)		14,278
Consumer indirect		17,852		(2,531)		1,347		1,379		18,047
Consumer direct		2,973		(505)		187		375		3,030
Home equity		1,594		0		6		(12)		1,588
Unallocated		1,000		0		0		0		1,000
Allowance for credit losses – loans		61,059		(3,230)		1,719		3,622		63,170
Liabilities for off-balance-sheet credit exposures		1,123		0		0		(122)		1,001
Total allowance for credit losses	$	62,182	$	(3,230)	$	1,719	$	3,500	$	64,171


	Three Months Ended March 31, 2022
	Beginning		Charge-						Ending
(000’s omitted)	balance		offs		Recoveries		Provision		balance
Business lending	$	22,995	$	(116)	$	339	$	(1,454)	$	21,764
Consumer mortgage		10,017		(40)		9		338		10,324
Consumer indirect		11,737		(1,688)		1,000		1,817		12,866
Consumer direct		2,306		(301)		176		544		2,725
Home equity		1,814		(11)		93		(428)		1,468
Unallocated		1,000		0		0		0		1,000
Allowance for credit losses – loans		49,869		(2,156)		1,617		817		50,147
Liabilities for off-balance-sheet credit exposures		803		0		0		89		892
Total allowance for credit losses	$	50,672	$	(2,156)	$	1,617	$	906	$	51,039

The allowance for credit losses increased to $63.2 million at March 31, 2023 compared to $61.1 million at December 31, 2022 and $50.1 million at March 31, 2022, reflective of a weaker economic forecast and an increase in loans outstanding.

Accrued interest receivable on loans, included in accrued interest and fees receivable on the consolidated statements of condition, totaled $23.8 million at March 31, 2023, and is excluded from the estimate of credit losses and amortized cost basis of loans.

Under ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326), also referred to as “CECL”, the Company utilizes the historical loss rate on its loan portfolio as the initial basis for the estimate of credit losses using the cumulative loss, vintage loss and line loss methods, which is derived from the Company’s historical loss experience. Adjustments to historical loss experience were made for differences in current loan-specific risk characteristics and to address current period delinquencies, charge-off rates, risk ratings, lack of loan level data through an entire economic cycle, changes in loan sizes and underwriting standards, as well as the addition of acquired loans which were not underwritten by the Company. The Company considered historical losses immediately prior, through and following the Great Recession of 2008 compared to the historical period used for modeling to adjust the historical information to account for longer-term expectations for loan credit performance. Under CECL, the Company is required to consider future economic conditions to determine current expected credit losses. Management selected an eight-quarter reasonable and supportable forecast period using a two-quarter lag adjustment for economic factors that are not dependent on collateral values, and no lag for factors that do utilize collateral values, with a four-quarter reversion to the historical mean, to use as part of the economic forecast. Management determined that these qualitative adjustments were needed to adjust historical information for expected losses and to reflect changes as a result of current conditions.

For qualitative macroeconomic adjustments, the Company uses third party forecasted economic data scenarios utilizing a base scenario and two alternative scenarios that are weighted, with forecasts available as of March 31, 2023. These forecasts were factored into the qualitative portion of the calculation of the estimated credit losses and include the impact of a decline in residential real estate and vehicle prices as well as inflation. The scenarios utilized forecast stable unemployment levels offset by modest GDP and household income growth and continued deterioration in residential real estate, commercial real estate and used auto prices.

Management developed expected loss estimates considering factors for segments as outlined below:

●

Business lending – non real estate: The Company selected projected unemployment and GDP as indicators of forecasted losses related to business lending and utilize both factors in an even weight for the calculation. The Company also considered delinquencies, risk rating changes, recent charge-off history and acquired loans as part of the review of estimated losses.

●

Business lending – real estate: The Company selected projected unemployment and commercial real estate values as indicators of forecasted losses related to commercial real estate loans and utilize both factors in an even weight for the calculation. The Company also considered the factors noted in business lending – non real estate.

●

Consumer mortgages and home equity: The Company selected projected unemployment and residential real estate values as indicators of forecasted losses related to mortgage lending and utilize both factors in an even weight for the calculation. In addition, current delinquencies, charge-offs and acquired loans were considered.

●

Consumer indirect: The Company selected projected unemployment and vehicle valuation indices as indicators of forecasted losses related to indirect lending and utilize both factors in an even weight for the calculation. In addition, current delinquencies, charge-offs and acquired loans were considered.

●

Consumer direct: The Company selected projected unemployment and inflation-adjusted household income as indicators of forecasted losses related to consumer direct lending and utilize both factors in an even weight for the calculation. In addition, current delinquencies, charge-offs and acquired loans were considered.

During the three months ended March 31, 2023, the Company did not purchase any loans, while the Company sold $0.5 million of secondary market eligible residential consumer mortgage loans during the period.