Loans

12 Months Ended

Dec. 31, 2023

Loans and Leases Receivable Disclosure [Abstract]

(5.) 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
2023
Commercial business	$	734,947	$	753		$	735,700
Commercial mortgage		2,009,269		(3,950	)		2,005,319
Residential real estate loans		637,173		12,649			649,822
Residential real estate lines		73,972		3,395			77,367
Consumer indirect		915,723		33,108			948,831
Other consumer		45,167		(67	)		45,100
Total	$	4,416,251	$	45,888			4,462,139
Allowance for credit losses – loans							(51,082	)
Total loans, net						$	4,411,057
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

(5.) LOANS (Continued)

The Company elected to exclude AIR from the amortized cost basis of loans disclosed throughout this footnote. As of December 31, 2023 and December 31, 2022, AIR for loans totaled $21.8 million and $16.6 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 $40.0 million and $37.8 million at December 31, 2023 and 2022, respectively. During 2023, new borrowings amounted to $10.7 million (including borrowings of executive officers and directors that were outstanding at the time of their appointment), and repayments and other reductions were $8.5 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
2023
Commercial business	$	341	$	-	$	-	$	341	$	5,664	$	728,942	$	734,947	$	341
Commercial mortgage		5,900		727		-		6,627		10,563		1,992,079		2,009,269		10,563
Residential real estate loans		2,614		80		-		2,694		6,364		628,115		637,173		6,364
Residential real estate lines		163		20		-		183		221		73,568		73,972		221
Consumer indirect		16,128		3,204		-		19,332		3,814		892,577		915,723		3,814
Other consumer		122		27		21		170		13		44,984		45,167		13
Total loans, gross	$	25,268	$	4,058	$	21	$	29,347	$	26,639	$	4,360,265	$	4,416,251	$	21,316
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 was $21 thousand and $1 thousand in consumer overdrafts which were past due greater than 90 days as of December 31, 2023 and 2022, respectively. Consumer overdrafts are overdrawn deposit accounts which have been reclassified as loans but by their terms do not accrue interest.

(5.) 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, 2023, 2022 and 2021. For the years ended December 31, 2023, 2022 and 2021, estimated interest income of $589 thousand, $391 thousand, and $211 thousand, respectively, would have been recorded if all such loans had been accruing interest according to their original contractual terms.

Loans 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 December 31, 2023 (in thousands):


	Amortized Cost Basis
Loan Type	Interest Rate Reduction		Term Extension		Principal Forgiveness		Combination - Term Extension and Principal Forgiveness		Combination - Term Extension and Interest Rate Reduction		Total		% of Total Loans
Commercial business	$	-	$	-	$	-	$	-	$	-	$	-		0.0	%
Commercial mortgage		-		-		-		-		-		-		0.0	%
Residential real estate loans		-		935		-		-		-		935		0.1	%
Residential real estate lines		-		-		-		-		-		-		0.0	%
Consumer indirect		-		-		-		-		-		-		0.0	%
Other consumer		-		-		-		-		-		-		0.0	%
Total	$	-	$	935	$	-	$	-	$	-	$	935		0.0	%

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 loans, 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 during the year ended December 31, 2023 (in thousands):


	Payment Status (Amortized Cost Basis)
Loan Type	Current		30-89 Days Past Due		90+ Days Past Due
Commercial business	$	-	$	-	$	-
Commercial mortgage		-		-		-
Residential real estate loans		611		-		324
Residential real estate lines		-		-		-
Consumer indirect		-		-		-
Other consumer		-		-		-
Total	$	611	$	-	$	324

(5.) LOANS (Continued)

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 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, 2023
Commercial business	$	8,698	$	5,000	$	13,698	$	2,198
Commercial mortgage		-		26,575		26,575		559
Total	$	8,698	$	31,575	$	40,273	$	2,757

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

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.

(5.) 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
	2023		2022		2021		2020		2019		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
December 31, 2023
Commercial Business:
Uncriticized	$	111,035	$	124,572	$	77,079	$	49,531	$	21,971	$	64,648	$	257,585	$	-	$	706,421
Special mention		7,532		-		2,400		-		114		-		2,442		-		12,488
Substandard		1,609		11		81		-		-		888		8,532		-		11,121
Doubtful		-		5,097		-		-		14		397		162		-		5,670
Total	$	120,176	$	129,680	$	79,560	$	49,531	$	22,099	$	65,933	$	268,721	$	-	$	735,700
Current period gross write-offs	$	-	$	5	$	3	$	31	$	8	$	235	$	-	$	-	$	282
Commercial Mortgage:
Uncriticized	$	350,370	$	603,686	$	328,916	$	209,213	$	151,022	$	294,703	$	-	$	-	$	1,937,910
Special mention		-		494		17,136		8,982		119		11,355		-		-		38,086
Substandard		-		338		212		918		-		17,291		-		-		18,759
Doubtful		1,397		-		4,098		14		67		4,988		-		-		10,564
Total	$	351,767	$	604,518	$	350,362	$	219,127	$	151,208	$	328,337	$	-	$	-	$	2,005,319
Current period gross write-offs	$	981	$	-	$	-	$	13	$	-	$	18	$	-	$	-	$	1,012

	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 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												Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
	2023		2022		2021		2020		2019		Prior
December 31, 2023
Residential Real Estate Loans:
Performing	$	112,704	$	80,117	$	80,323	$	109,601	$	70,325	$	190,388	$	-	$	-	$	643,458
Nonperforming		-		384		1,190		1,354		1,137		2,299		-		-		6,364
Total	$	112,704	$	80,501	$	81,513	$	110,955	$	71,462	$	192,687	$	-	$	-	$	649,822
Current period gross write-offs	$	-	$	-	$	-	$	-	$	32	$	95	$	-	$	-	$	127
Residential Real Estate Lines:
Performing	$	-	$	-	$	-	$	-	$	-	$	-	$	72,128	$	5,018	$	77,146
Nonperforming		-		-		-		-		-		-		55		166		221
Total	$	-	$	-	$	-	$	-	$	-	$	-	$	72,183	$	5,184	$	77,367
Current period gross write-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	28	$	13	$	41
Consumer Indirect:
Performing	$	247,194	$	336,369	$	232,891	$	78,652	$	31,091	$	18,820	$	-	$	-	$	945,017
Nonperforming		724		1,083		1,273		380		224		130		-		-		3,814
Total	$	247,918	$	337,452	$	234,164	$	79,032	$	31,315	$	18,950	$	-	$	-	$	948,831
Current period gross write-offs	$	1,371	$	6,279	$	5,845	$	1,787	$	1,282	$	1,459	$	-	$	-	$	18,023
Other Consumer:
Performing	$	35,483	$	3,990	$	1,424	$	949	$	217	$	256	$	2,747	$	-	$	45,066
Nonperforming		13		-		-		-		-		-		21		-		34
Total	$	35,496	$	3,990	$	1,424	$	949	$	217	$	256	$	2,768	$	-	$	45,100
Current period gross write-offs	$	902	$	127	$	105	$	52	$	31	$	20	$	47	$	-	$	1,284

(5.) LOANS (Continued)


	Term Loans Amortized Cost Basis by Origination Year												Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
	2022		2021		2020		2019		2018		Prior
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 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
2023
Beginning balance		12,585			14,412			3,301			608			14,238			269		$	45,413
Charge-offs		(282	)		(1,012	)		(127	)		(41	)		(18,023	)		(1,284	)		(20,769	)
Recoveries		391			977			38			-			10,428			391			12,225
Provision		408			1,481			2,074			197			7,456			2,597			14,213
Ending balance	$	13,102		$	15,858		$	5,286		$	764		$	14,099		$	1,973		$	51,082

2022
Beginning balance		11,099			14,777			1,604			379			11,611			206		$	39,676
Charge-offs		(312	)		(1,170	)		(303	)		(38	)		(13,215	)		(1,682	)		(16,720	)
Recoveries		376			2,023			24			39			8,677			343			11,482
Provision (benefit)		1,422			(1,218	)		1,976			228			7,165			1,402			10,975
Ending balance	$	12,585		$	14,412		$	3,301		$	608		$	14,238		$	269		$	45,413

2021
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
(Benefit) provision		(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

(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 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, 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, 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, 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 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.