Loans

9 Months Ended

Sep. 30, 2021

Loans And Leases Receivable Disclosure [Abstract]

(6.) LOANS

The Company’s loan portfolio consisted of the following as of the dates indicated (in thousands):


	Principal Amount Outstanding		Net Deferred Loan (Fees) Costs			Loans, Net
September 30, 2021
Commercial business	$	689,819	$	(3,628	)	$	686,191
Commercial mortgage		1,350,932		(2,382	)		1,348,550
Residential real estate loans		570,435		13,656			584,091
Residential real estate lines		76,214		2,982			79,196
Consumer indirect		907,185		33,352			940,537
Other consumer		15,206		128			15,334
Total	$	3,609,791	$	44,108			3,653,899
Allowance for credit losses - loans							(45,444	)
Total loans, net						$	3,608,455
December 31, 2020
Commercial business	$	798,409	$	(4,261	)	$	794,148
Commercial mortgage		1,256,525		(2,624	)		1,253,901
Residential real estate loans		586,537		13,263			599,800
Residential real estate lines		86,708		3,097			89,805
Consumer indirect		812,816		27,605			840,421
Other consumer		16,913		150			17,063
Total	$	3,557,908	$	37,230			3,595,138
Allowance for credit losses - loans							(52,420	)
Total loans, net						$	3,542,718

Loans held for sale (not included above) were comprised entirely of residential real estate mortgages and totaled $5.9 million and $4.3 million as of September 30, 2021 and December 31, 2020, respectively.

The CARES Act was passed by Congress and signed into law on March 27, 2020. The CARES Act established the PPP, an expansion of the SBA’s 7(a) loan program and the EIDL, administered directly by the SBA. The Company had $121.4 million and $253.1 million of PPP loans (included in Commercial business above) as of September 30, 2021 and December 31, 2020, respectively. In addition, the CARES Act provides that a financial institution may elect to suspend (1) the application of GAAP for certain loan modifications related to COVID-19 that would otherwise be categorized as a TDR and (2) any determination that such loan modifications would be considered a TDR, including the related impairment for accounting purposes. Accordingly, the Company had $532.4 million of loans with modifications related to COVID-19 during 2020, with $61.4 million and $113.0 million still on deferral as of September 30, 2021 and December 31, 2020, respectively.

The Company elected to exclude AIR from the amortized cost basis of loans disclosed throughout this footnote. As of September 30, 2021 and December 31, 2020, AIR for loans totaled $12.8 million and $13.6 million, respectively, and is included in other assets on the Company’s consolidated statements of financial condition.

(6.) LOANS (Continued)

Past Due Loans Aging

The Company’s recorded investment, by loan class, in current and nonaccrual loans, as well as an analysis of accruing delinquent loans is set forth as of the dates indicated (in thousands):


	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Nonaccrual		Current		Total Loans		Nonaccrual with no allowance
September 30, 2021
Commercial business	$	11,489	$	—	$	—	$	11,489	$	1,046	$	677,284	$	689,819	$	498
Commercial mortgage		272		—		—		272		874		1,349,786		1,350,932		344
Residential real estate loans		543		80		—		623		2,457		567,355		570,435		2,457
Residential real estate lines		55		24		—		79		192		75,943		76,214		192
Consumer indirect		4,499		899		—		5,398		2,104		899,683		907,185		2,104
Other consumer		85		—		1		86		2		15,118		15,206		2
Total loans, gross	$	16,943	$	1,003	$	1	$	17,947	$	6,675	$	3,585,169	$	3,609,791	$	5,597
December 31, 2020
Commercial business	$	264	$	87	$	—	$	351	$	1,975	$	796,083	$	798,409	$	1,502
Commercial mortgage		822		26		—		848		2,906		1,252,771		1,256,525		2,709
Residential real estate loans		984		60		—		1,044		2,587		582,906		586,537		2,587
Residential real estate lines		40		15		—		55		323		86,330		86,708		323
Consumer indirect		3,966		1,348		—		5,314		1,495		806,007		812,816		1,495
Other consumer		133		18		231		382		—		16,531		16,913		—
Total loans, gross	$	6,209	$	1,554	$	231	$	7,994	$	9,286	$	3,540,628	$	3,557,908	$	8,616

The Company had $11.4 million of PPP loans 30-59 days past due (included in Commercial business above) as of September 30, 2021. Repayment of PPP loans is 100% secured by guarantees from the SBA.

There were no loans past due greater than 90 days and still accruing interest as of September 30, 2021 and December 31, 2020. There were $1 thousand and $231 thousand in consumer overdrafts which were past due greater than 90 days as of September 30, 2021 and December 31, 2020, respectively. Consumer overdrafts are overdrawn deposit accounts which have been reclassified as loans but by their terms do not accrue interest.

The Company recognized no interest income on nonaccrual loans during the nine months ended September 30, 2021 and 2020.

Troubled Debt Restructurings

A modification of a loan constitutes a TDR when a borrower is experiencing financial difficulty and the modification constitutes a concession. Commercial loans modified in a TDR may involve temporary interest-only payments, term extensions, reducing the interest rate for the remaining term of the loan, extending the maturity date at an interest rate lower than the current market rate for new debt with similar risk, collateral concessions, forgiveness of principal, forbearance agreements, or substituting or adding a new borrower or guarantor.

There were no loans modified as a TDR during the nine months ended September 30, 2021 and 2020. There were no loans modified as a TDR within the previous 12 months that defaulted during the nine months ended September 30, 2021 and 2020. For purposes of this disclosure, a loan modified as a TDR is considered to have defaulted when the borrower becomes 90 days past due.

(6.) LOANS (Continued)

Collateral Dependent Loans

Management has determined that specific commercial loans on nonaccrual status, all loans that have had their terms restructured in a troubled debt restructuring and other loans deemed appropriate by management where repayment is expected to be provided substantially through the operation or sale of the collateral to be collateral dependent loans. Collateral dependent loans at September 30, 2021 and December 31, 2020 included certain criticized COVID-19 bridge loans not otherwise classified as nonaccrual. The following table presents the amortized cost basis of collateral dependent loans by collateral type as of September 30, 2021 and December 31, 2020 (in thousands):


	Collateral type
	Business assets		Real property		Total		Specific Reserve
September 30, 2021
Commercial business	$	596	$	1,062	$	1,658	$	1,370
Commercial mortgage		—		64,216		64,216		9,950
Total	$	596	$	65,278	$	65,874	$	11,320

December 31, 2020
Commercial business	$	2,379	$	—	$	2,379	$	1,383
Commercial mortgage		—		36,625		36,625		8,187
Total	$	2,379	$	36,625	$	39,004	$	9,570

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 such as the fair value of collateral. The Company analyzes commercial business and commercial mortgage loans individually by classifying the loans as to credit risk. Risk ratings are updated any time the situation warrants. The Company uses the following definitions for risk ratings:

Special Mention: Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the Company’s credit position at some future date.

Substandard: Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

Doubtful: Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Loans that do not meet the criteria above that are analyzed individually as part of the process described above are considered “uncriticized” or pass-rated loans and are included in groups of homogeneous loans with similar risk and loss characteristics.

(6.) LOANS (Continued)

The following tables set forth the Company’s commercial loan portfolio, categorized by internally assigned asset classification, as of the dates indicated (in thousands):


	Term Loans Amortized Cost Basis by Origination Year
	2021		2020		2019		2018		2017		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
September 30, 2021
Commercial Business
Uncriticized	$	111,558	$	109,269	$	78,305	$	49,811	$	16,289	$	13,906	$	296,861	$	—	$	675,999
Special mention		164		41		153		23		360		1,034		1,745		—		3,520
Substandard		—		215		160		722		696		283		4,596		—		6,672
Doubtful		—		—		—		—		—		—		—		—		—
Total	$	111,722	$	109,525	$	78,618	$	50,556	$	17,345	$	15,223	$	303,202	$	—	$	686,191
Commercial Mortgage
Uncriticized	$	208,019	$	343,976	$	181,132	$	143,005	$	142,828	$	172,277	$	3,736	$	—	$	1,194,973
Special mention		11,742		3,041		49,691		9,622		13,624		39,755		—		—		127,475
Substandard		1,001		389		2,938		11,610		300		9,864		—		—		26,102
Doubtful		—		—		—		—		—		—		—		—		—
Total	$	220,762	$	347,406	$	233,761	$	164,237	$	156,752	$	221,896	$	3,736	$	—	$	1,348,550


	Term Loans Amortized Cost Basis by Origination Year
	2020		2019		2018		2017		2016		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
December 31, 2020
Commercial Business
Uncriticized	$	350,992	$	112,469	$	82,029	$	31,990	$	8,195	$	16,600	$	179,770	$	—	$	782,045
Special mention		—		360		21		709		41		1,025		2,995		—		5,151
Substandard		193		211		1,183		464		202		309		4,390		—		6,952
Doubtful		—		—		—		—		—		—		—		—		—
Total	$	351,185	$	113,040	$	83,233	$	33,163	$	8,438	$	17,934	$	187,155	$	—	$	794,148
Commercial Mortgage
Uncriticized	$	310,364	$	227,406	$	163,839	$	161,771	$	74,915	$	154,399	$	731	$	—	$	1,093,425
Special mention		14,299		42,305		19,505		27,530		12,256		28,744		43		—		144,682
Substandard		189		2,521		1,890		1,648		3		9,344		199		—		15,794
Doubtful		—		—		—		—		—		—		—		—		—
Total	$	324,852	$	272,232	$	185,234	$	190,949	$	87,174	$	192,487	$	973	$	—	$	1,253,901

(6.) LOANS (Continued)

The Company utilizes payment status as a means of identifying and reporting problem and potential problem retail loans. The Company considers nonaccrual loans and loans past due greater than 90 days and still accruing interest to be non-performing. The following tables set forth the Company’s retail loan portfolio, categorized by performance status, as of the dates indicated (in thousands):


	Term Loans Amortized Cost Basis by Origination Year
	2021		2020		2019		2018		2017		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
September 30, 2021
Residential Real Estate Loans
Performing	$	72,522	$	132,594	$	89,736	$	71,263	$	54,733	$	160,786	$	—	$	—	$	581,634
Nonperforming		—		305		240		600		688		624		—		—		2,457
Total	$	72,522	$	132,899	$	89,976	$	71,863	$	55,421	$	161,410	$	—	$	—	$	584,091
Residential Real Estate Lines
Performing	$	—	$	—	$	—	$	—	$	—	$	—	$	70,898	$	8,106	$	79,004
Nonperforming		—		—		—		—		—		—		61		131		192
Total	$	—	$	—	$	—	$	—	$	—	$	—	$	70,959	$	8,237	$	79,196
Consumer Indirect
Performing	$	370,536	$	230,468	$	139,884	$	106,545	$	63,216	$	27,784	$	—	$	—	$	938,433
Nonperforming		371		406		656		334		298		39		—		—		2,104
Total	$	370,907	$	230,874	$	140,540	$	106,879	$	63,514	$	27,823	$	—	$	—	$	940,537
Other Consumer
Performing	$	4,091	$	4,273	$	2,010	$	964	$	376	$	812	$	2,806	$	—	$	15,332
Nonperforming		—		—		2		—		—		—		—		—		2
Total	$	4,091	$	4,273	$	2,012	$	964	$	376	$	812	$	2,806	$	—	$	15,334


	Term Loans Amortized Cost Basis by Origination Year
	2020		2019		2018		2017		2016		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
December 31, 2020
Residential Real Estate Loans
Performing	$	137,926	$	103,923	$	87,153	$	66,446	$	67,473	$	134,292	$	—	$	—	$	597,213
Nonperforming		—		199		765		665		233		725		—		—		2,587
Total	$	137,926	$	104,122	$	87,918	$	67,111	$	67,706	$	135,017	$	—	$	—	$	599,800
Residential Real Estate Lines
Performing	$	—	$	—	$	—	$	—	$	—	$	—	$	79,257	$	10,225	$	89,482
Nonperforming		—		—		—		—		—		—		65		258		323
Total	$	—	$	—	$	—	$	—	$	—	$	—	$	79,322	$	10,483	$	89,805
Consumer Indirect
Performing	$	295,216	$	202,187	$	166,773	$	111,008	$	47,793	$	15,949	$	—	$	—	$	838,926
Nonperforming		70		652		319		287		132		35		—		—		1,495
Total	$	295,286	$	202,839	$	167,092	$	111,295	$	47,925	$	15,984	$	—	$	—	$	840,421
Other Consumer
Performing	$	6,774	$	3,177	$	1,765	$	907	$	369	$	508	$	3,563	$	—	$	17,063
Nonperforming		—		—		—		—		—		—		—		—		—
Total	$	6,774	$	3,177	$	1,765	$	907	$	369	$	508	$	3,563	$	—	$	17,063

(6.) LOANS (Continued)

Allowance for Credit Losses - Loans

On January 1, 2020, the Company adopted Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments – Credit Losses (Topic 326) – Measurement of Credit Losses on Financial Instruments. ASU 2016-13 amends guidance on reporting credit losses for financial assets held at amortized cost basis and available for sale debt securities. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected. The Company adopted ASU 2016-13 using the modified retrospective approach. Results for the periods beginning after January 1, 2020 are presented under Accounting Standards Codification (“ASC”) 326 while prior period amounts continue to be reported in accordance with previously applicable GAAP. The Company recorded a net reduction of retained earnings of $8.7 million upon adoption. The transition adjustment includes an increase in credit-related reserves of $9.6 million, $14 thousand, and $2.1 million for loans, held to maturity investment securities and unfunded commitments, respectively, net of the corresponding increase in deferred tax assets of $3.0 million.

The following table sets forth the changes in the allowance for credit losses - loans for the three- and nine-month periods ended as of the dates indicated (in thousands):


	Commercial Business			Commercial Mortgage			Residential Real Estate Loans			Residential Real Estate Lines			Consumer Indirect			Other Consumer			Total
Three months ended September 30, 2021
Beginning balance	$	11,005		$	21,662		$	2,299		$	395		$	10,748		$	256		$	46,365
Charge-offs		(218	)		—			(36	)		(60	)		(1,395	)		(250	)		(1,959	)
Recoveries		168			—			15			—			1,130			59			1,372
Provision (credit)		889			(2,210	)		(302	)		10			1,096			183			(334	)
Ending balance	$	11,844		$	19,452		$	1,976		$	345		$	11,579		$	248		$	45,444
Nine months ended September 30, 2021
Beginning balance	$	13,580		$	21,763		$	3,924		$	674		$	12,165		$	314		$	52,420
Charge-offs		(396	)		(203	)		(103	)		(130	)		(4,965	)		(755	)		(6,552	)
Recoveries		785			7			79			—			4,383			218			5,472
Provision (credit)		(2,125	)		(2,115	)		(1,924	)		(199	)		(4	)		471			(5,896	)
Ending balance	$	11,844		$	19,452		$	1,976		$	345		$	11,579		$	248		$	45,444


	Commercial Business			Commercial Mortgage			Residential Real Estate Loans			Residential Real Estate Lines			Consumer Indirect			Other Consumer			Total
Three months ended September 30, 2020
Beginning balance	$	12,399		$	15,666		$	5,769		$	939		$	11,222		$	321		$	46,316
Charge-offs		(15	)		(640	)		—			—			(1,388	)		(160	)		(2,203	)
Recoveries		103			37			7			—			1,503			65			1,715
Provision (credit)		507			1,417			(1,224	)		(121	)		2,833			155			3,567
Ending balance	$	12,994		$	16,480		$	4,552		$	818		$	14,170		$	381		$	49,395
Nine months ended September 30, 2020
Beginning balance, prior to adoption of ASC 326	$	11,358		$	5,681		$	1,059		$	118		$	11,852		$	414		$	30,482
Impact of adopting ASC 326		(246	)		7,310			3,290			607			(1,234	)		(133	)		9,594
Beginning balance, after adoption of ASC 326		11,112			12,991			4,349			725			10,618			281			40,076
Charge-offs		(8,281	)		(1,712	)		(100	)		—			(7,366	)		(499	)		(17,958	)
Recoveries		1,644			37			25			3			4,550			282			6,541
Provision		8,519			5,164			278			90			6,368			317			20,736
Ending balance	$	12,994		$	16,480		$	4,552		$	818		$	14,170		$	381		$	49,395

(6.) LOANS (Continued)

Risk Characteristics

Commercial business loans primarily consist of loans to small to mid-sized businesses in our market area in a diverse range of industries. These loans are of higher risk and typically are made on the basis of the borrower’s ability to make repayment from the cash flow of the borrower’s business. Further, the collateral securing the loans may depreciate over time, may be difficult to appraise and may fluctuate in value. The credit risk related to commercial loans is largely influenced by general economic conditions, including the impact of the COVID-19 pandemic on small to mid-sized business in our market area, and the resulting impact on a borrower’s operations or on the value of underlying collateral, if any.

Commercial mortgage loans generally have larger balances and involve a greater degree of risk than residential mortgage loans, potentially resulting in higher potential losses on an individual customer basis. Loan repayment is often dependent on the successful operation and management of the properties, as well as on the collateral securing the loan. Economic events, including the impact of the COVID-19 pandemic on the ability of the tenants to pay rent at these properties, or conditions in the real estate market could have an adverse impact on the cash flows generated by properties securing the Company’s commercial real estate loans and on the value of such properties.

Residential real estate loans (comprised of conventional mortgages and home equity loans) and residential real estate lines (comprised of home equity lines) are generally made based on the borrower’s ability to make repayment from his or her employment and other income but are secured by real property whose value tends to be more easily ascertainable. Credit risk for these types of loans is generally influenced by general economic conditions, including the impact of the COVID-19 pandemic on the employment income of these borrowers, the characteristics of individual borrowers, and the nature of the loan collateral.

Consumer indirect and other consumer loans may entail greater credit risk than residential mortgage loans and home equities, particularly in the case of other consumer loans which are unsecured or, in the case of indirect consumer loans, secured by depreciable assets, such as automobiles. In such cases, any repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment of the outstanding loan balance. In addition, consumer loan collections are dependent on the borrower’s continuing financial stability, and thus are more likely to be affected by adverse personal circumstances such as job loss, illness or personal bankruptcy, including the heightened risk that such circumstances may arise as a result of the COVID-19 pandemic. Furthermore, the application of various federal and state laws, including bankruptcy and insolvency laws, may limit the amount which can be recovered on such loans.