Allowance for Credit Losses and Credit Quality of Loans

3 Months Ended

Mar. 31, 2024

Allowance for Credit Losses and Credit Quality of Loans [Abstract]

Allowance for Credit Losses and Credit Quality of Loans

6.	Allowance for Credit Losses and Credit Quality of Loans

The allowance for credit losses totaled $115.3 million at March 31, 2024, compared to $114.4 million at December 31, 2023. The allowance for credit losses as a percentage of loans was 1.19% at March 31, 2024 and December 31, 2023.

The Company’s January 1, 2023 adoption of ASU 2022-02, Financial Instruments - CECL Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures resulted in an insignificant change to its methodology for estimating the allowance for credit losses on TDRs. The ASU eliminated the guidance on TDRs and requires an evaluation on all loan modifications to determine if they result in a new loan or a continuation of the existing loan. The decrease in allowance for credit loss on TDR loans relating to adoption of ASU 2022-02 was $0.6 million.

The allowance for credit losses calculation incorporated a 6-quarter forecast period to account for forecast economic conditions under each scenario utilized in the measurement. For periods beyond the 6-quarter forecast, the model reverts to long-term economic conditions over a 4-quarter reversion period on a straight-line basis. The Company considers a baseline, upside and downside economic forecast in measuring the allowance.

The quantitative model as of March 31, 2024 incorporated a baseline economic outlook along with an alternative downside scenario sourced from a reputable third-party to accommodate other potential economic conditions in the model. At March 31, 2024, the weightings were 70% and 30% for the baseline and downside economic forecasts, respectively. The baseline outlook reflects an economic environment where the unemployment rate increases slightly from 3.8% to 4.1% during the forecast period. Northeast GDP’s annualized growth (on a quarterly basis) is expected to start the second quarter of 2024 at approximately 3.3% and decrease to 2.8% before increasing to 3.4% by the end of the forecast period. Key assumptions in the baseline economic outlook included the Federal Reserve cutting rates with three 25 basis point cuts at the June, September, and December meetings, the economy remaining at full employment, and continued tapering of the Federal Reserve balance sheet. The alternative downside scenario assumed deteriorated economic conditions from the baseline outlook. Under this scenario, national unemployment rises from 3.8% in the first quarter of 2024 to a peak of 7.7% in the second quarter of 2025. These scenarios and their respective weightings are evaluated at each measurement date and reflect management’s expectations as of March 31, 2024. Additional adjustments were made for factors not incorporated in the forecasts or the model, such as loss rate expectations for certain loan pools, considerations for inflation, and recent trends in asset value indices. Additional monitoring for industry concentrations, loan growth, and policy exceptions was also conducted.

The quantitative model as of December 31, 2023 incorporated a baseline economic outlook along with an alternative downside scenario sourced from a reputable third-party to accommodate other potential economic conditions in the model. At December 31, 2023, the weightings were 70% and 30% for the baseline and downside economic forecasts, respectively. The baseline outlook reflected an unemployment rate environment starting at 3.8% and increasing slightly during the forecast period to 4.1%. Northeast GDP’s annualized growth (on a quarterly basis) was expected to start the first quarter of 2024 at approximately 3.7% before decreasing to a low of 2.9% in the third quarter of 2024 and then increasing to 3.8% by the end of the forecast period. Other utilized economic variable forecasts are mixed compared to the prior year, with retail sales improving, business output mixed and housing starts down. Key assumptions in the baseline economic outlook included currently being in a full employment economy, continued tapering of the Federal Reserve balance sheet and the FOMC beginning to cut rates in the second quarter of 2024. The alternative downside scenario assumed deteriorated economic conditions from the baseline outlook. Under this scenario, northeast unemployment increases to a peak of 7.0% in the first quarter of 2025. These scenarios and their respective weightings are evaluated at each measurement date and reflect management’s expectations as of December 31, 2023. Additional qualitative adjustments were made for factors not incorporated in the forecasts or the model, such as loss rate expectations for certain loan pools, considerations for inflation and recent trends in asset value indices. Additional monitoring for industry concentrations, loan growth and policy exceptions was also conducted.

There were no loans purchased with credit deterioration during the three months ended March 31, 2024. There were $219.5 million of PCD loans acquired from Salisbury during the year ended December 31, 2023, which resulted in an allowance for credit losses at acquisition of $5.8 million. During the three months ended March 31, 2024, the Company purchased $0.4 million of residential loans at a 7.0% premium with a $4 thousand allowance for credit losses recorded for these loans. During 2023, the Company purchased $3.8 million of residential loans at a 7.0% premium with a $31 thousand allowance for credit losses recorded for these loans.

The Company made a policy election to report AIR in the other assets line item on the consolidated balance sheets. AIR on loans totaled $34.4 million at March 31, 2024 and $34.1 million at December 31, 2023 and there was no estimated allowance for credit losses related to AIR as of March 31, 2024 and December 31, 2023 as it is excluded from amortized cost.

The following tables present the activity in the allowance for credit losses by our portfolio segments:

(In thousands)	Commercial Loans			Consumer Loans			Residential			Total
Balance as of December 31, 2023	$	45,903		$	46,427		$	22,070		$	114,400
Charge-offs		(985	)		(5,581	)		(114	)		(6,680	)
Recoveries		198			1,651			152			2,001
Provision		(644	)		4,922			1,301			5,579
Ending balance as of March 31, 2024	$	44,472		$	47,419		$	23,409		$	115,300

Balance as of January 1, 2023 (after adoption of ASC 2022-02)	$	34,662		$	50,951		$	14,539		$	100,152
Charge-offs		(169	)		(5,342	)		(339	)		(5,850	)
Recoveries		541			1,377			121			2,039
Provision		1,006			1,834			1,069			3,909
Ending balance as of March 31, 2023	$	36,040		$	48,820		$	15,390		$	100,250

The allowance for credit losses as of March 31, 2024 increased compared to the allowance estimates as of December 31, 2023 primarily due to the slowing of prepayment speed assumptions partly offset by the decline in consumer loans with higher allowance levels and a decline in the PCD allowance as purchased loan balances decreased. The increase in the allowance for credit losses from March 31, 2023 to March 31, 2024 was primarily due to the recording of $14.5 million of allowance for acquired Salisbury loans as of the acquisition date, which included both the $8.8 million of non-PCD allowance recognized through the provision for loan losses and the $5.8 million of PCD allowance reclassified from loans.

Individually Evaluated Loans

The threshold for evaluating classified, commercial and commercial real estate loans risk graded substandard or doubtful, and nonperforming loans specifically evaluated for individual credit loss is $1.0 million. As of March 31, 2024, there were two relationships identified to be evaluated for loss on an individual basis which had an amortized cost basis of $17.1 million, with no allowance for credit loss. As of December 31, 2023, the same two relationships were identified to be evaluated for loss on an individual basis which had an amortized cost basis of $17.3 million, with no allowance for credit loss. The decrease in the amortized cost basis on an individual basis from December 31, 2023 to March 31, 2024 was primarily due to principal payments received during the first quarter of 2024. As of March 31, 2024 and December 31, 2023, there were $17.1 million and $17.3 million, respectively, of loans in nonaccrual that were specifically evaluated for individual expected credit loss without an allowance for credit losses.

The following table sets forth information with regard to past due and nonperforming loans by loan segment:

(In thousands)	31-60 Days Past Due Accruing		61-90 Days Past Due Accruing		Greater Than 90 Days Past Due Accruing		Total Past Due Accruing		Nonaccrual		Current		Recorded Total Loans
As of March 31, 2024
Commercial loans:
C&I	$	1,711	$	750	$	-	$	2,461	$	3,079	$	1,398,831	$	1,404,371
CRE		1,929		64		-		1,993		18,743		3,424,810		3,445,546
Total commercial loans	$	3,640	$	814	$	-	$	4,454	$	21,822	$	4,823,641	$	4,849,917
Consumer loans:
Auto	$	10,376	$	1,676	$	1,045	$	13,097	$	2,274	$	1,142,702	$	1,158,073
Residential solar		3,940		1,362		446		5,748		125		890,274		896,147
Other consumer		2,054		1,158		882		4,094		299		146,372		150,765
Total consumer loans	$	16,370	$	4,196	$	2,373	$	22,939	$	2,698	$	2,179,348	$	2,204,985
Residential	$	3,799	$	858	$	227	$	4,884	$	10,669	$	2,617,622	$	2,633,175
Total loans	$	23,809	$	5,868	$	2,600	$	32,277	$	35,189	$	9,620,611	$	9,688,077

(In thousands)	31-60 Days Past Due Accruing		61-90 Days Past Due Accruing		Greater Than 90 Days Past Due Accruing		Total Past Due Accruing		Nonaccrual		Current		Recorded Total Loans
As of December 31, 2023
Commercial loans:
C&I	$	414	$	33	$	1	$	448	$	3,441	$	1,393,616	$	1,397,505
CRE		803		835		-		1,638		18,126		3,413,984		3,433,748
Total commercial loans	$	1,217	$	868	$	1	$	2,086	$	21,567	$	4,807,600	$	4,831,253
Consumer loans:
Auto	$	10,115	$	2,011	$	1,067	$	13,193	$	2,106	$	1,084,143	$	1,099,442
Residential solar		3,074		1,301		915		5,290		245		912,220		917,755
Other consumer		2,343		1,811		1,124		5,278		215		164,867		170,360
Total consumer loans	$	15,532	$	5,123	$	3,106	$	23,761	$	2,566	$	2,161,230	$	2,187,557
Residential	$	3,836	$	399	$	554	$	4,789	$	10,080	$	2,617,034	$	2,631,903
Total loans	$	20,585	$	6,390	$	3,661	$	30,636	$	34,213	$	9,585,864	$	9,650,713

Credit Quality Indicators

The Company has developed an internal loan grading system to evaluate and quantify the Company’s loan portfolio with respect to quality and risk. The system focuses on, among other things, financial strength of borrowers, experience and depth of borrower’s management, primary and secondary sources of repayment, payment history, nature of the business and outlook on particular industries. The internal grading system enables the Company to monitor the quality of the entire loan portfolio on a consistent basis and provide management with an early warning system, which facilitates recognition and response to problem loans and potential problem loans.

Commercial Grading System

For C&I and CRE loans, the Company uses a grading system that relies on quantifiable and measurable characteristics when available. This includes comparison of financial strength to available industry averages, comparison of transaction factors (loan terms and conditions) to loan policy and comparison of credit history to stated repayment terms and industry averages. Some grading factors are necessarily more subjective such as economic and industry factors, regulatory environment and management. C&I and CRE loans are graded Doubtful, Substandard, Special Mention and Pass.

Doubtful

A Doubtful loan has a high probability of total or substantial loss, but because of specific pending events that may strengthen the asset, its classification as a loss is deferred. Doubtful borrowers are usually in default, lack adequate liquidity or capital and lack the resources necessary to remain an operating entity. Pending events can include mergers, acquisitions, liquidations, capital injections, the perfection of liens on additional collateral, the valuation of collateral and refinancing. Generally, pending events should be resolved within a relatively short period and the ratings will be adjusted based on the new information. Nonaccrual treatment is required for Doubtful assets because of the high probability of loss.

Substandard

Substandard loans have a high probability of payment default or they have other well-defined weaknesses. They require more intensive supervision by bank management. Substandard loans are generally characterized by current or expected unprofitable operations, inadequate debt service coverage, inadequate liquidity or marginal capitalization. Repayment may depend on collateral or other credit risk mitigants. For some Substandard loans, the likelihood of full collection of interest and principal may be in doubt and those loans should be placed on nonaccrual. Although Substandard assets in the aggregate will have a distinct potential for loss, an individual asset’s loss potential does not have to be distinct for the asset to be rated Substandard.

Special Mention

Special Mention loans have potential weaknesses that may, if not checked or corrected, weaken the asset or inadequately protect the Company’s position at some future date. These loans pose elevated risk, but their weakness does not yet justify a Substandard classification. Borrowers may be experiencing adverse operating trends (i.e., declining revenues or margins) or may be struggling with an ill-proportioned balance sheet (i.e., increasing inventory without an increase in sales, high leverage and/or tight liquidity). Adverse economic or market conditions, such as interest rate increases or the entry of a new competitor, may also support a Special Mention rating. Although a Special Mention loan has a higher probability of default than a Pass asset, its default is not imminent.

Pass

Loans graded as Pass encompass all loans not graded as Doubtful, Substandard or Special Mention. Pass loans are in compliance with loan covenants and payments are generally made as agreed. Pass loans range from superior quality to fair quality. Pass loans also include any portion of a government guaranteed loan, including Paycheck Protection Program loans.

Consumer and Residential Grading System

Consumer and Residential loans are graded as either Nonperforming or Performing.

Nonperforming

Nonperforming loans are loans that are (1) over 90 days past due and interest is still accruing or (2) on nonaccrual status.

Performing

All loans not meeting any of the above criteria are considered Performing.

The following tables illustrate the Company’s credit quality by loan class by vintage and includes gross charge-offs by loan class by vintage. Included in other consumer gross charge-offs for the three months ended March 31, 2024, the Company recorded $0.2 million in overdrawn deposit accounts reported as 2023 originations. Included in other consumer gross charge-offs for the year ended December 31, 2023, the Company recorded $0.2 million in overdrawn deposit accounts reported as 2022 originations and $0.8 million in overdrawn deposit accounts reported as 2023 originations.

(In thousands)	2024		2023			2022			2021			2020			Prior			Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
As of March 31, 2024
C&I
By internally assigned grade:
Pass	$	60,820	$	214,985		$	243,619		$	231,577		$	146,409		$	129,310		$	318,078	$	2,585	$	1,347,383
Special mention		-		1,795			2,802			378			3,845			1,812			15,946		251		26,829
Substandard		-		2,934			3,154			1,885			289			6,845			14,880		127		30,114
Doubtful		-		21			1			19			-			4			-		-		45
Total C&I	$	60,820	$	219,735		$	249,576		$	233,859		$	150,543		$	137,971		$	348,904	$	2,963	$	1,404,371
Current-period gross charge-offs	$	-	$	(9	)	$	(900	)	$	-		$	-		$	(76	)	$	-	$	-	$	(985	)
CRE
By internally assigned grade:
Pass	$	81,048	$	362,660		$	492,661		$	546,787		$	449,533		$	1,013,118		$	308,977	$	37,243	$	3,292,027
Special mention		-		3,602			5,971			7,842			3,875			28,841			3,547		-		53,678
Substandard		-		-			726			17,961			1,132			61,499			1,542		16,981		99,841
Total CRE	$	81,048	$	366,262		$	499,358		$	572,590		$	454,540		$	1,103,458		$	314,066	$	54,224	$	3,445,546
Current-period gross charge-offs	$	-	$	-		$	-		$	-		$	-		$	-		$	-	$	-	$	-
Auto
By payment activity:
Performing	$	175,451	$	430,001		$	331,202		$	138,915		$	36,140		$	43,045		$	-	$	-	$	1,154,754
Nonperforming		29		1,014			1,171			724			94			287			-		-		3,319
Total auto	$	175,480	$	431,015		$	332,373		$	139,639		$	36,234		$	43,332		$	-	$	-	$	1,158,073
Current-period gross charge-offs	$	-	$	(274	)	$	(493	)	$	(226	)	$	(12	)	$	(122	)	$	-	$	-	$	(1,127	)
Residential solar
By payment activity:
Performing	$	1,365	$	149,789		$	422,422		$	176,158		$	63,222		$	82,620		$	-	$	-	$	895,576
Nonperforming		-		-			432			76			-			63			-		-		571
Total residential solar	$	1,365	$	149,789		$	422,854		$	176,234		$	63,222		$	82,683		$	-	$	-	$	896,147
Current-period gross charge-offs	$	-	$	(53	)	$	(910	)	$	(136	)	$	-		$	(196	)	$	-	$	-	$	(1,295	)
Other consumer
By payment activity:
Performing	$	5,600	$	10,559		$	22,720		$	47,947		$	18,029		$	25,681		$	19,015	$	33	$	149,584
Nonperforming		-		5			184			650			39			295			1		7		1,181
Total other consumer	$	5,600	$	10,564		$	22,904		$	48,597		$	18,068		$	25,976		$	19,016	$	40	$	150,765
Current-period gross charge-offs	$	-	$	(250	)	$	(811	)	$	(1,453	)	$	(364	)	$	(281	)	$	-	$	-	$	(3,159	)
Residential
By payment activity:
Performing	$	39,693	$	258,154		$	336,357		$	438,007		$	273,451		$	1,006,816		$	255,582	$	14,219	$	2,622,279
Nonperforming		-		626			825			1,605			272			7,568			-		-		10,896
Total residential	$	39,693	$	258,780		$	337,182		$	439,612		$	273,723		$	1,014,384		$	255,582	$	14,219	$	2,633,175
Current-period gross charge-offs	$	-	$	-		$	-		$	-		$	-		$	(114	)	$	-	$	-	$	(114	)
Total loans	$	364,006	$	1,436,145		$	1,864,247		$	1,610,531		$	996,330		$	2,407,804		$	937,568	$	71,446	$	9,688,077
Current-period gross charge-offs	$	-	$	(586	)	$	(3,114	)	$	(1,815	)	$	(376	)	$	(789	)	$	-	$	-	$	(6,680	)

(In thousands)	2023			2022			2021			2020			2019			Prior			Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
As of December 31, 2023
C&I
By internally assigned grade:
Pass	$	229,249		$	270,796		$	241,993		$	158,051		$	74,469		$	63,826		$	299,248	$	2,923	$	1,340,555
Special mention		420			1,672			277			3,524			87			1,854			19,489		-		27,323
Substandard		1,496			2,461			1,609			282			2,266			5,632			14,266		1,607		29,619
Doubtful		-			1			2			-			4			1			-		-		8
Total C&I	$	231,165		$	274,930		$	243,881		$	161,857		$	76,826		$	71,313		$	333,003	$	4,530	$	1,397,505
Current-period gross charge-offs	$	(24	)	$	(3,021	)	$	(5	)	$	(86	)	$	-		$	(600	)	$	-	$	-	$	(3,736	)
CRE
By internally assigned grade:
Pass	$	353,161		$	518,201		$	561,897		$	452,110		$	327,804		$	739,189		$	294,039	$	33,705	$	3,280,106
Special mention		3,577			4,472			10,711			7,055			9,967			39,460			2,970		-		78,212
Substandard		370			731			21,807			1,146			2,996			37,418			10,962		-		75,430
Total CRE	$	357,108		$	523,404		$	594,415		$	460,311		$	340,767		$	816,067		$	307,971	$	33,705	$	3,433,748
Current-period gross charge-offs	$	-		$	-		$	-		$	-		$	(114	)	$	(304	)	$	-	$	-	$	(418	)
Auto
By payment activity:
Performing	$	474,369		$	363,516		$	157,251		$	42,644		$	45,406		$	13,071		$	12	$	-	$	1,096,269
Nonperforming		532			1,241			830			190			306			74			-		-		3,173
Total auto	$	474,901		$	364,757		$	158,081		$	42,834		$	45,712		$	13,145		$	12	$	-	$	1,099,442
Current-period gross charge-offs	$	(102	)	$	(1,183	)	$	(1,066	)	$	(340	)	$	(301	)	$	(295	)	$	-	$	-	$	(3,287	)
Residential solar
By payment activity:
Performing	$	155,425		$	430,855		$	178,839		$	65,382		$	46,554		$	39,540		$	-	$	-	$	916,595
Nonperforming		-			837			205			18			47			53			-		-		1,160
Total residential solar	$	155,425		$	431,692		$	179,044		$	65,400		$	46,601		$	39,593		$	-	$	-	$	917,755
Current-period gross charge-offs	$	(150	)	$	(1,930	)	$	(923	)	$	(45	)	$	(558	)	$	(345	)	$	-	$	-	$	(3,951	)
Other consumer
By payment activity:
Performing	$	13,089		$	27,394		$	57,876		$	21,087		$	14,548		$	15,964		$	19,042	$	21	$	169,021
Nonperforming		-			244			685			144			56			161			4		45		1,339
Total other consumer	$	13,089		$	27,638		$	58,561		$	21,231		$	14,604		$	16,125		$	19,046	$	66	$	170,360
Current-period gross charge-offs	$	(885	)	$	(3,744	)	$	(7,511	)	$	(1,329	)	$	(832	)	$	(568	)	$	-	$	-	$	(14,869	)
Residential
By payment activity:
Performing	$	212,799		$	366,860		$	453,206		$	267,845		$	167,860		$	876,563		$	260,836	$	15,300	$	2,621,269
Nonperforming		134			430			1,121			385			591			7,460			-		513		10,634
Total residential	$	212,933		$	367,290		$	454,327		$	268,230		$	168,451		$	884,023		$	260,836	$	15,813	$	2,631,903
Current-period gross charge-offs	$	-		$	-		$	(81	)	$	(30	)	$	-		$	(406	)	$	-	$	-	$	(517	)
Total loans	$	1,444,621		$	1,989,711		$	1,688,309		$	1,019,863		$	692,961		$	1,840,266		$	920,868	$	54,114	$	9,650,713
Current-period gross charge-offs	$	(1,161	)	$	(9,878	)	$	(9,586	)	$	(1,830	)	$	(1,805	)	$	(2,518	)	$	-	$	-	$	(26,778	)

Allowance for Credit Losses on Off-Balance Sheet Credit Exposures

The allowance for losses on unfunded commitments totaled $4.7 million as March 31, 2024, compared to $5.1 million as of December 31, 2023.

Loan Modifications to Borrowers Experiencing Financial Difficulties

When the Company modifies a loan with financial difficulty, such modifications generally include one or a combination of the following: an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; a change in scheduled payment amount; or principal forgiveness.

The following table shows the amortized cost basis at the end of the reporting period of the loans modified to borrowers experiencing financial difficulty, disaggregated by class of financing receivable and type of concession granted:

	Three Months Ended March 31, 2024
	Term Extension
(Dollars in thousands)	Amortized Cost		% of Total Class of Financing Receivables
Residential	$	294		0.011	%
Total	$	294

	Three Months Ended March 31, 2023
	Term Extension
(Dollars in thousands)	Amortized Cost		% of Total Class of Financing Receivables
Residential	$	43		0.002	%
Total	$	43

The following table describes the financial effect of the modifications made to borrowers experiencing financial difficulties:

	Three Months Ended March 31, 2024
Loan Type	Term Extension
Residential	Added a weighted-average 7.4 years to the life of loans, which reduced monthly payment amounts for the borrowers.

	Three Months Ended March 31, 2023
Loan Type	Term Extension
Residential	Added a weighted-average 18 years to the life of loans, which reduced monthly payment amounts for the borrowers.

There were no financing receivables that had a payment default during the three months ended March 31, 2024 and 2023, that were modified to borrowers experiencing financial difficulty that were modified in the twelve months prior to that default.

The following table depicts the performance of loans that have been modified to borrowers experiencing financial difficulty that were modified in the prior twelve months:

	Payment Status (Amortized Cost Basis)
(In thousands)	Current		31-60 Days Past Due		61-90 Days Past Due		Greater than 90 Days Past Due
As of March 31, 2024
Loan Type
Residential	$	863	$	-	$	-	$	29
Total	$	863	$	-	$	-	$	29