Loans

12 Months Ended

Dec. 31, 2021

Loans and Leases Receivable Disclosure [Abstract]

(6.) LOANS

The Company’s loan portfolio consisted of the following at December 31 (in thousands):


	Principal Amount Outstanding		Net Deferred Loan (Fees) Costs			Loans, Net
2021
Commercial business	$	639,368	$	(1,075	)	$	638,293
Commercial mortgage		1,415,486		(2,698	)		1,412,788
Residential real estate loans		563,579		13,720			577,299
Residential real estate lines		75,515		3,016			78,531
Consumer indirect		923,052		34,996			958,048
Other consumer		14,355		122			14,477
Total	$	3,631,355	$	48,081			3,679,436
Allowance for credit losses - loans							(39,676	)
Total loans, net						$	3,639,760

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

(6.) LOANS (Continued)

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 $57.5 million and $253.1 million of PPP loans, principal amount outstanding (included in Commercial business above) as of December 31, 2021 and 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 $46.2 million and $113.0 million still on deferral as of December 31, 2021 and 2020, respectively.

The Company elected to exclude AIR from the amortized cost basis of loans disclosed throughout this footnote. As of December 31, 2021 and December 31, 2020, AIR for loans totaled $12.7 million and $13.6 million, respectively, and is included in other assets on the Company’s consolidated statements of financial condition.

The Company’s significant concentrations of credit risk in the loan portfolio relate to a geographic concentration in the communities that the Company serves.

Certain executive officers, directors and their business interests are customers of the Company. Transactions with these parties are based on the same terms as similar transactions with unrelated third parties and do not carry more than normal credit risk. Borrowings by these related parties amounted to $44.7 million and $32.8 million at December 31, 2021 and 2020, respectively. During 2021, new borrowings amounted to $19.0 million (including borrowings of executive officers and directors that were outstanding at the time of their appointment), and repayments and other reductions were $7.1 million.

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 December 31 (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
2021
Commercial business	$	659	$	34	$	797	$	1,490	$	602	$	637,276	$	639,368	$	477
Commercial mortgage		69		-		-		69		6,414		1,409,003		1,415,486		781
Residential real estate loans		1,148		141		-		1,289		2,373		559,917		563,579		2,373
Residential real estate lines		18		3		-		21		200		75,294		75,515		200
Consumer indirect		5,706		770		-		6,476		1,780		914,796		923,052		1,780
Other consumer		121		1		-		122		-		14,233		14,355		-
Total loans, gross	$	7,721	$	949	$	797	$	9,467	$	11,369	$	3,610,519	$	3,631,355	$	5,611

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 $797 thousand of PPP loans greater than 90 days past due and still accruing interest (included in Commercial business above) as of December 31, 2021. Repayment of PPP loans is guaranteed by the SBA.

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

(6.) LOANS (Continued)

Interest income on nonaccrual loans, if recognized, is recorded using the cash basis method of accounting. There was no interest income recognized on nonaccrual loans during the years ended December 31, 2021, 2020 and 2019. For the years ended December 31, 2021, 2020 and 2019, estimated interest income of $211 thousand, $430 thousand, and $508 thousand, respectively, would have been recorded if all such loans had been accruing interest according to their original contractual terms.

Troubled Debt Restructurings

A modification of a loan constitutes a troubled debt restructuring (“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 years ended December 31, 2021 and 2020. There were no loans modified as a TDR during the years ended December 31, 2021 and 2020 that defaulted during the year ended December 31, 2021. For purposes of this disclosure, a loan modified as a TDR is considered to have defaulted when the borrower becomes 90 days past due.

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 December 31, 2021 and 2020 included certain criticized COVID-19 bridge loans not otherwise classified as nonaccrual. The amortized cost basis of collateral dependent loans categorized by collateral type are set forth as of the dates indicated (in thousands):


	Collateral Type
	Business Assets		Real Property		Total		Specific Reserve
December 31, 2021
Commercial business	$	326	$	993	$	1,319	$	1,055
Commercial mortgage		-		37,936		37,936		4,716
Total	$	326	$	38,929	$	39,255	$	5,771

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

(6.) LOANS (Continued)

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 sets 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
December 31, 2021
Commercial Business
Uncriticized	$	141,925	$	91,338	$	68,433	$	42,631	$	24,847	$	12,033	$	248,338	$	-	$	629,545
Special mention		-		132		166		44		180		1,344		1,993		-		3,859
Substandard		45		256		169		745		415		49		3,210		-		4,889
Doubtful		-		-		-		-		-		-		-		-		-
Total	$	141,970	$	91,726	$	68,768	$	43,420	$	25,442	$	13,426	$	253,541	$	-	$	638,293
Commercial Mortgage
Uncriticized	$	342,483	$	339,988	$	176,753	$	147,247	$	128,381	$	167,739	$	3,712	$	-	$	1,306,303
Special mention		11,184		2,450		29,759		2,344		8,269		27,635		-		-		81,641
Substandard		1,001		77		2,950		11,607		3,209		6,000		-		-		24,844
Doubtful		-		-		-		-		-		-		-		-		-
Total	$	354,668	$	342,515	$	209,462	$	161,198	$	139,859	$	201,374	$	3,712	$	-	$	1,412,788

	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 sets forth the Company’s retail loan portfolio, categorized by payment 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
December 31, 2021
Residential Real Estate Loans
Performing	$	92,620	$	129,240	$	85,876	$	65,866	$	50,932	$	150,392	$	-	$	-	$	574,926
Nonperforming		79		55		225		557		899		558		-		-		2,373
Total	$	92,699	$	129,295	$	86,101	$	66,423	$	51,831	$	150,950	$	-	$	-	$	577,299
Residential Real Estate Lines
Performing	$	-	$	-	$	-	$	-	$	-	$	-	$	70,521	$	7,810	$	78,331
Nonperforming		-		-		-		-		-		-		39		161		200
Total	$	-	$	-	$	-	$	-	$	-	$	-	$	70,560	$	7,971	$	78,531
Consumer Indirect
Performing	$	452,601	$	206,472	$	122,849	$	90,998	$	51,598	$	31,750	$	-	$	-	$	956,268
Nonperforming		417		515		436		230		136		46		-		-		1,780
Total	$	453,018	$	206,987	$	123,285	$	91,228	$	51,734	$	31,796	$	-	$	-	$	958,048
Other Consumer
Performing	$	4,422	$	3,738	$	1,681	$	763	$	280	$	1,044	$	2,549	$	-	$	14,477
Nonperforming		-		-		-		-		-		-		-		-		-
Total	$	4,422	$	3,738	$	1,681	$	763	$	280	$	1,044	$	2,549	$	-	$	14,477

	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

The following tables set forth the changes in the allowance for credit losses - loans for the years ended December 31 (in thousands):


	Commercial Business			Commercial Mortgage			Residential Real Estate Loans			Residential Real Estate Lines			Consumer Indirect			Other Consumer			Total
2021
Allowance for credit losses - loans:
Beginning balance		13,580			21,763			3,924			674			12,165			314		$	52,420
Charge-offs		(669	)		(3,999	)		(148	)		(141	)		(7,236	)		(1,026	)		(13,219	)
Recoveries		881			185			92			-			5,980			321			7,459
Provision (benefit)		(2,693	)		(3,172	)		(2,264	)		(154	)		702			597			(6,984	)
Ending balance	$	11,099		$	14,777		$	1,604		$	379		$	11,611		$	206		$	39,676

2020
Allowance for credit losses - loans:
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		(9,093	)		(1,792	)		(100	)		-			(9,959	)		(681	)		(21,625	)
Recoveries		1,709			37			28			3			5,681			352			7,810
Provision (benefit)		9,852			10,527			(353	)		(54	)		5,825			362			26,159
Ending balance	$	13,580		$	21,763		$	3,924		$	674		$	12,165		$	314		$	52,420

(6.) LOANS (Continued)


	Commercial Business			Commercial Mortgage			Residential Real Estate Loans			Residential Real Estate Lines			Consumer Indirect			Other Consumer			Total
2019
Allowance for loan losses:
Beginning balance	$	14,312		$	5,219		$	1,112		$	210		$	12,572		$	489			33,914
Charge-offs		(2,481	)		(2,997	)		(340	)		(13	)		(10,810	)		(1,170	)		(17,811	)
Recoveries		492			17			43			6			5,390			387			6,335
Provision (benefit)		(965	)		3,442			244			(85	)		4,700			708			8,044
Ending balance	$	11,358		$	5,681		$	1,059		$	118		$	11,852		$	414		$	30,482
Evaluated for impairment:
Individually	$	214		$	479		$	-		$	-		$	-		$	-		$	693
Collectively	$	11,144		$	5,202		$	1,059		$	118		$	11,852		$	414		$	29,789

Loans:
Ending balance	$	571,222		$	1,108,315		$	560,717		$	101,048		$	822,179		$	15,984		$	3,179,465
Evaluated for impairment:
Individually	$	1,177		$	3,146		$	-		$	-		$	-		$	-		$	4,323
Collectively	$	570,045		$	1,105,169		$	560,717		$	101,048		$	822,179		$	15,984		$	3,175,142

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, inflation 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, inflation 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, inflation, 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 including inflation. 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.