Loans

3 Months Ended

Mar. 31, 2023

Loans and Leases Receivable Disclosure [Abstract]

(5.) 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
March 31, 2023
Commercial business	$	694,427	$	683		$	695,110
Commercial mortgage		1,845,762		(4,281	)		1,841,481
Residential real estate loans		578,363		13,483			591,846
Residential real estate lines		72,793		3,293			76,086
Consumer indirect		984,302		37,900			1,022,202
Other consumer		16,495		112			16,607
Total	$	4,192,142	$	51,190			4,243,332
Allowance for credit losses – loans							(47,528	)
Total loans, net						$	4,195,804
December 31, 2022
Commercial business	$	663,611	$	638		$	664,249
Commercial mortgage		1,683,814		(3,974	)		1,679,840
Residential real estate loans		576,279		13,681			589,960
Residential real estate lines		74,432		3,238			77,670
Consumer indirect		985,580		38,040			1,023,620
Other consumer		15,002		108			15,110
Total	$	3,998,718	$	51,731			4,050,449
Allowance for credit losses – loans							(45,413	)
Total loans, net						$	4,005,036

Loans held for sale (not included above) were comprised entirely of residential real estate mortgages and totaled $682 thousand and $550 thousand as of March 31, 2023 and December 31, 2022, respectively.

The Company elected to exclude AIR from the amortized cost basis of loans disclosed throughout this footnote. As of March 31, 2023 and December 31, 2022, AIR for loans totaled $17.0 million and $16.6 million, respectively, and is included in other assets on the Company’s consolidated statements of financial condition.

(5.) 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
March 31, 2023
Commercial business	$	925	$	—	$	—	$	925	$	334	$	693,168	$	694,427	$	233
Commercial mortgage		—		—		—		—		2,550		1,843,212		1,845,762		520
Residential real estate loans		778		49		—		827		3,267		574,269		578,363		3,267
Residential real estate lines		219		30		—		249		159		72,385		72,793		159
Consumer indirect		5,812		1,245		—		7,057		2,487		974,758		984,302		2,487
Other consumer		104		1		4		109		—		16,386		16,495		—
Total loans, gross	$	7,838	$	1,325	$	4	$	9,167	$	8,797	$	4,174,178	$	4,192,142	$	6,666
December 31, 2022
Commercial business	$	176	$	10	$	—	$	186	$	340	$	663,085	$	663,611	$	233
Commercial mortgage		—		—		—		—		2,564		1,681,250		1,683,814		659
Residential real estate loans		1,306		28		—		1,334		4,071		570,874		576,279		4,071
Residential real estate lines		264		102		—		366		142		73,924		74,432		142
Consumer indirect		12,637		2,073		—		14,710		3,079		967,791		985,580		3,079
Other consumer		111		1		1		113		1		14,888		15,002		1
Total loans, gross	$	14,494	$	2,214	$	1	$	16,709	$	10,197	$	3,971,812	$	3,998,718	$	8,185

There were $4 thousand and $1 thousand of consumer overdrafts which were past due greater than 90 days as of March 31, 2023 and December 31, 2022, respectively. Consumer overdrafts are overdrawn deposit accounts which have been reclassified as loans but by their terms do not accrue interest.

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 three months ended March 31, 2023 and 2022. Estimated interest income of $122 thousand and $161 thousand for the three months ended March 31, 2023 and 2022, respectively, would have been recorded if all such loans had been accruing interest according to their original contractual terms.

Loan Modifications for Borrower Experiencing Financial Difficulty

Loans may be modified when it is determined that a borrower is experiencing financial difficulty. Loan modifications may include principal forgiveness, interest rate reduction, an other-than-insignificant payment delay, and term extensions, or a combination of these concessions.

The following table presents the amortized cost basis of loans modified to borrowers experiencing financial difficulty, disaggregated by loan class and type of concession granted as of March 31, 2023 (in thousands):


	Term Extension
	Amortized Cost Basis		% of Total Loans
Loan Type
Commercial business	$	-		0.00	%
Commercial mortgage		-		0.00	%
Residential real estate loans		158		0.03	%
Residential real estate lines		-		0.00	%
Consumer indirect		-		0.00	%
Other consumer		-		0.00	%
Total	$	158		0.00	%

(5.) LOANS (Continued)

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


Term Extension
Loan Type		Financial Effect
Residential real estate loans		Added a weighted average 10.0 years to the life of the loan, which reduced monthly payment amount for the borrower.

The Company closely monitors the performance of loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. The following table depicts the performance of loans that have been modified in the three months ended March 31, 2023 (in thousands):


	Payment Status (Amortized Cost Basis)
	Current		30-89 Days Past Due		90+ Days Past Due
Loan Type
Commercial business	$	-	$	-	$	-
Commercial mortgage		-		-		-
Residential real estate loans		158		-		-
Residential real estate lines		-		-		-
Consumer indirect		-		-		-
Other consumer		-		-		-
Total	$	158	$	-	$	-

Collateral Dependent Loans

Management has determined that specific commercial loans on nonaccrual status, all loans that have had their terms restructured when a borrower is experiencing financial difficulty, 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. The following table presents the amortized cost basis of collateral dependent loans by collateral type as of March 31, 2023 and December 31, 2022 (in thousands):


	Collateral type
	Business assets		Real property		Total		Specific Reserve
March 31, 2023
Commercial business	$	3,307	$	78	$	3,385	$	732
Commercial mortgage		—		18,546		18,546		1,140
Total	$	3,307	$	18,624	$	21,931	$	1,872

December 31, 2022
Commercial business	$	147	$	993	$	1,140	$	126
Commercial mortgage		—		21,592		21,592		1,152
Total	$	147	$	22,585	$	22,732	$	1,278

(5.) 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.

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
	2023		2022		2021		2020		2019		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
March 31, 2023
Commercial Business:
Uncriticized	$	28,923	$	152,049	$	94,802	$	46,348	$	26,149	$	64,882	$	252,189	$	—	$	665,342
Special mention		—		237		2,388		18,995		12		187		3,272		—		25,091
Substandard		—		41		1,002		1,295		77		1,392		870		—		4,677
Doubtful		—		—		—		—		—		—		—		—		—
Total Commercial Business loans	$	28,923	$	152,327	$	98,192	$	66,638	$	26,238	$	66,461	$	256,331	$	—	$	695,110
Current period gross write-offs	$	—	$	5	$	—	$	7	$	5	$	10	$	—	$	—	$	27

Commercial Mortgage:
Uncriticized	$	167,701	$	506,777	$	382,081	$	244,874	$	155,960	$	342,082	$	—	$	—	$	1,799,475
Special mention		—		—		—		10,118		—		12,033		—		—		22,151
Substandard		—		343		202		105		75		19,130		—		—		19,855
Doubtful		—		—		—		—		—		—		—		—		—
Total Commercial Mortgage loans	$	167,701	$	507,120	$	382,283	$	255,097	$	156,035	$	373,245	$	—	$	—	$	1,841,481
Current period gross write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

(5.) LOANS (Continued)


	Term Loans Amortized Cost Basis by Origination Year
	2022		2021		2020		2019		2018		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
December 31, 2022
Commercial Business
Uncriticized	$	146,581	$	105,001	$	61,115	$	29,644	$	39,625	$	21,467	$	244,848	$	—	$	648,281
Special mention		238		2,351		8,736		7		5		—		1,809		—		13,146
Substandard		—		72		—		42		516		1,034		1,158		—		2,822
Doubtful		—		—		—		—		—		—		—		—		—
Total	$	146,819	$	107,424	$	69,851	$	29,693	$	40,146	$	22,501	$	247,815	$	—	$	664,249
Commercial Mortgage
Uncriticized	$	464,863	$	380,138	$	260,463	$	171,918	$	116,770	$	248,771	$	—	$	—	$	1,642,923
Special mention		—		—		2,319		136		—		11,784		—		—		14,239
Substandard		2,987		202		105		78		10,104		9,202		—		—		22,678
Doubtful		—		—		—		—		—		—		—		—		—
Total	$	467,850	$	380,340	$	262,887	$	172,132	$	126,874	$	269,757	$	—	$	—	$	1,679,840

(5.) 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
	2023		2022		2021		2020		2019		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
March 31, 2023
Residential Real Estate Loans
Performing	$	14,093	$	80,513	$	84,985	$	116,787	$	75,111	$	217,090	$	—	$	—	$	588,579
Nonperforming		—		104		424		575		430		1,734		—		—		3,267
Total Residential Real Estate Loans	$	14,093	$	80,617	$	85,409	$	117,362	$	75,541	$	218,824	$	—	$	—	$	591,846
Current period gross write-offs	$	—	$	—	$	—	$	—	$	32	$	31	$	—	$	—	$	63

Residential Real Estate Lines
Performing	$	—	$	—	$	—	$	—	$	—	$	—	$	69,849	$	6,078	$	75,927
Nonperforming		—		—		—		—		—		—		41		118		159
Total Residential Real Estate Lines	$	—	$	—	$	—	$	—	$	—	$	—	$	69,890	$	6,196	$	76,086
Current period gross write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	3	$	13	$	16

Consumer Indirect
Performing	$	84,318	$	418,196	$	305,429	$	112,809	$	51,838	$	47,125	$	—	$	—	$	1,019,715
Nonperforming		—		864		903		337		228		155		—		—		2,487
Total Consumer Indirect Loans	$	84,318	$	419,060	$	306,332	$	113,146	$	52,066	$	47,280	$	—	$	—	$	1,022,202
Current period gross write-offs	$	3	$	1,322	$	1,692	$	497	$	586	$	520	$	—	$	—	$	4,620

Other Consumer
Performing	$	3,748	$	5,367	$	2,285	$	1,735	$	565	$	420	$	2,483	$	—	$	16,603
Nonperforming		—		—		—		—		—		—		4		—		4
Total Other Consumer Loans	$	3,748	$	5,367	$	2,285	$	1,735	$	565	$	420	$	2,487	$	—	$	16,607
Current period gross write-offs	$	265	$	34	$	48	$	9	$	5	$	8	$	13	$	—	$	382

(5.) LOANS (Continued)


	Term Loans Amortized Cost Basis by Origination Year
	2022		2021		2020		2019		2018		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
December 31, 2022
Residential Real Estate Loans
Performing	$	79,882	$	85,821	$	118,819	$	76,437	$	55,520	$	169,410	$	—	$	—	$	585,889
Nonperforming		—		305		510		795		677		1,784		—		—		4,071
Total	$	79,882	$	86,126	$	119,329	$	77,232	$	56,197	$	171,194	$	—	$	—	$	589,960
Residential Real Estate Lines
Performing	$	—	$	—	$	—	$	—	$	—	$	—	$	70,942	$	6,586	$	77,528
Nonperforming		—		—		—		—		—		—		34		108		142
Total	$	—	$	—	$	—	$	—	$	—	$	—	$	70,976	$	6,694	$	77,670
Consumer Indirect
Performing	$	440,332	$	331,902	$	126,664	$	59,981	$	39,352	$	22,310	$	—	$	—	$	1,020,541
Nonperforming		748		1,209		432		381		205		104		—		—		3,079
Total	$	441,080	$	333,111	$	127,096	$	60,362	$	39,557	$	22,414	$	—	$	—	$	1,023,620
Other Consumer
Performing	$	6,463	$	2,664	$	2,043	$	761	$	213	$	308	$	2,656	$	—	$	15,108
Nonperforming		—		—		—		—		—		—		2		—		2
Total	$	6,463	$	2,664	$	2,043	$	761	$	213	$	308	$	2,658	$	—	$	15,110

Allowance for Credit Losses – Loans

The following table sets forth the changes in the allowance for credit losses – loans for the three months ended March 31, 2023 and 2022 (in thousands):


	Commercial Business			Commercial Mortgage			Residential Real Estate Loans			Residential Real Estate Lines			Consumer Indirect			Other Consumer			Total
Three months ended March 31, 2023
Allowance for credit losses – loans:
Beginning balance	$	12,585		$	14,412		$	3,301		$	608		$	14,238		$	269		$	45,413
Charge-offs		(27	)		—			(63	)		(16	)		(4,620	)		(382	)		(5,108	)
Recoveries		151			2			5			—			2,782			79			3,019
Provision		202			781			970			59			1,717			475			4,204
Ending balance	$	12,911		$	15,195		$	4,213		$	651		$	14,117		$	441		$	47,528


	Commercial Business			Commercial Mortgage			Residential Real Estate Loans			Residential Real Estate Lines			Consumer Indirect			Other Consumer			Total
Three months ended March 31, 2022
Allowance for credit losses – loans:
Beginning balance	$	11,099		$	14,777		$	1,604		$	379		$	11,611		$	206		$	39,676
Charge-offs		(51	)		—			—			—			(2,486	)		(376	)		(2,913	)
Recoveries		88			1			5			5			1,936			91			2,126
Provision (benefit)		(1,015	)		(1,032	)		243			41			3,507			333			2,077
Ending balance	$	10,121		$	13,746		$	1,852		$	425		$	14,568		$	254		$	40,966

(5.) 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 typically associated with higher credit 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, 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 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 inflation influencing 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 of credit (comprised of home equity lines of credit) 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, 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 inflation and adverse personal circumstances such as job loss, illness or personal bankruptcy, including the heightened risk that such circumstances may arise as a result of 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.