Loans

6 Months Ended

Jun. 30, 2024

Loans and Leases Receivable Disclosure [Abstract]

(4.) 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
June 30, 2024
Commercial business	$	713,192	$	755		$	713,947
Commercial mortgage		2,089,018		(3,148	)		2,085,870
Residential real estate loans		635,717		11,958			647,675
Residential real estate lines		72,182		3,328			75,510
Consumer indirect		865,066		29,530			894,596
Other consumer		43,939		(69	)		43,870
Total	$	4,419,114	$	42,354			4,461,468
Allowance for credit losses – loans							(43,952	)
Total loans, net						$	4,417,516
December 31, 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

Loans held for sale (not included above) were comprised entirely of residential real estate mortgages and totaled $2.1 million and $1.4 million as of June 30, 2024 and December 31, 2023, respectively.

The Company sells certain qualifying newly originated or refinanced residential real estate loans on the secondary market. Residential real estate loans serviced for others, which are not included in the consolidated statements of financial condition, amounted to $273.5 million and $269.4 million as of June 30, 2024 and December 31, 2023, respectively.

The Company elected to exclude AIR from the amortized cost basis of loans disclosed throughout this footnote. As of both June 30, 2024, and December 31, 2023, AIR for loans totaled $21.8 million and is included in other assets on the Company’s consolidated statements of financial condition.

(4.) 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
June 30, 2024
Commercial business	$	135	$	213	$	—	$	348	$	5,680	$	707,164	$	713,192	$	277
Commercial mortgage		2,371		—		—		2,371		10,452		2,076,195		2,089,018		10,028
Residential real estate loans		1,370		117		—		1,487		5,961		628,269		635,717		5,961
Residential real estate lines		127		—		—		127		183		71,872		72,182		183
Consumer indirect		9,817		1,710		—		11,527		2,897		850,642		865,066		2,897
Other consumer		132		16		36		184		—		43,755		43,939		—
Total loans, gross	$	13,952	$	2,056	$	36	$	16,044	$	25,173	$	4,377,897	$	4,419,114	$	19,346
December 31, 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

There were $36 thousand and $21 thousand in consumer overdrafts which were past due greater than 90 days as of June 30, 2024 and December 31, 2023. 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 six months ended June 30, 2024 and 2023. Estimated interest income of $132 thousand and $122 thousand for the six months ended June 30, 2024 and 2023, 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 June 30, 2024 (in thousands):


	Term Extension
	Amortized Cost Basis		% of Total Loans
Loan Type
Commercial business	$	—		0.0	%
Commercial mortgage		—		0.0	%
Residential real estate loans		1,393		0.2	%
Residential real estate lines		—		0.0	%
Consumer indirect		—		0.0	%
Other consumer		—		0.0	%
Total	$	1,393		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 loan, which reduced the monthly payment amount for the borrower.

(4.) LOANS (Continued)

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 six months ended June 30, 2024 (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		841		165		387
Residential real estate lines		-		-		-
Consumer indirect		-		-		-
Other consumer		-		-		-
Total	$	841	$	165	$	387

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 June 30, 2024 and December 31, 2023 (in thousands):


	Collateral type
	Business assets		Real property		Total		Specific Reserve
June 30, 2024
Commercial business	$	6,922	$	5,000	$	11,922	$	2,332
Commercial mortgage		13		20,392		20,405		41
Total	$	6,935	$	25,392	$	32,327	$	2,373

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

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.

(4.) 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
	2024		2023		2022		2021		2020		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
June 30, 2024
Commercial Business:
Uncriticized	$	36,367	$	99,066	$	83,504	$	69,204	$	36,590	$	57,679	$	297,229	$	—	$	679,639
Special mention		—		5,502		339		2,262		30		1,809		8,345		—		18,287
Substandard		57		1,127		23		95		34		271		8,836		—		10,443
Doubtful		—		—		5,038		—		—		321		219		—		5,578
Total Commercial Business loans	$	36,424	$	105,695	$	88,904	$	71,561	$	36,654	$	60,080	$	314,629	$	—	$	713,947
Current period gross write-offs	$	—	$	—	$	—	$	20	$	—	$	50	$	—	$	—	$	70

Commercial Mortgage:
Uncriticized	$	101,529	$	375,714	$	635,528	$	297,368	$	198,355	$	411,771	$	—	$	—	$	2,020,265
Special mention		—		—		5,122		17,824		6,825		14,413		—		—		44,184
Substandard		—		—		—		—		874		10,095		—		—		10,969
Doubtful		—		1,042		326		4,098		13		4,973		—		—		10,452
Total Commercial Mortgage loans	$	101,529	$	376,756	$	640,976	$	319,290	$	206,067	$	441,252	$	—	$	—	$	2,085,870
Current period gross write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—


	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

(4.) 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
	2024		2023		2022		2021		2020		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
June 30, 2024
Residential Real Estate Loans
Performing	$	20,993	$	114,734	$	77,866	$	77,781	$	105,113	$	245,227	$	—	$	—	$	641,714
Non-performing		—		297		498		963		1,346		2,857		—		—		5,961
Total Residential Real Estate Loans	$	20,993	$	115,031	$	78,364	$	78,744	$	106,459	$	248,084	$	—	$	—	$	647,675
Current period gross write-offs	$	—	$	—	$	—	$	—	$	—	$	107	$	—	$	—	$	107

Residential Real Estate Lines
Performing	$	—	$	—	$	—	$	—	$	—	$	—	$	70,679	$	4,648	$	75,327
Non-performing		—		—		—		—		—		—		53		130		183
Total Residential Real Estate Lines	$	—	$	—	$	—	$	—	$	—	$	—	$	70,732	$	4,778	$	75,510
Current period gross write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Consumer Indirect
Performing	$	110,666	$	217,625	$	285,114	$	189,766	$	59,330	$	29,198	$	—	$	—	$	891,699
Non-performing		85		715		781		877		281		158		—		—		2,897
Total Consumer Indirect Loans	$	110,751	$	218,340	$	285,895	$	190,643	$	59,611	$	29,356	$	—	$	—	$	894,596
Current period gross write-offs	$	15	$	2,352	$	3,296	$	2,407	$	885	$	1,008	$	—	$	—	$	9,963

Other Consumer
Performing	$	4,059	$	32,445	$	3,035	$	1,023	$	559	$	306	$	2,407	$	—	$	43,834
Non-performing		—		—		—		—		—		—		36		—		36
Total Other Consumer Loans	$	4,059	$	32,445	$	3,035	$	1,023	$	559	$	306	$	2,443	$	—	$	43,870
Current period gross write-offs	$	312	$	57	$	105	$	25	$	22	$	4	$	55	$	—	$	580

(4.) LOANS (Continued)


	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
Residential Real Estate Loans
Performing	$	112,704	$	80,117	$	80,323	$	109,601	$	70,325	$	190,388	$	—	$	—	$	643,458
Non-performing		—		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
Non-performing		—		—		—		—		—		—		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
Non-performing		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
Non-performing		13		—		—		—		—		—		21		—		34
Total	$	35,496	$	3,990	$	1,424	$	949	$	217	$	256	$	2,768	$	—	$	45,100

(4.) LOANS (Continued)

Allowance for Credit Losses – Loans

The following table sets forth the changes in the allowance for credit losses – loans for the three and six months ended June 30, 2024 and 2023 (in thousands):


	Commercial Business			Commercial Mortgage			Residential Real Estate Loans			Residential Real Estate Lines			Consumer Indirect			Other Consumer			Total
Three months ended June 30, 2024
Allowance for credit losses – loans:
Beginning balance	$	12,991		$	14,113		$	4,630		$	794		$	9,854		$	693		$	43,075
Charge-offs		(53	)		—			(99	)		—			(3,746	)		(311	)		(4,209	)
Recoveries		46			3			3			—			2,902			133			3,087
(Benefit) provision		(738	)		1,249			(323	)		(25	)		1,832			4			1,999
Ending balance	$	12,246		$	15,365		$	4,211		$	769		$	10,842		$	519		$	43,952
Six months ended June 30, 2024
Beginning balance	$	13,102		$	15,858		$	5,286		$	764		$	14,099		$	1,973		$	51,082
Charge-offs		(70	)		—			(107	)		—			(9,963	)		(580	)		(10,720	)
Recoveries		100			4			7			—			6,146			220			6,477
Provision (benefit)		(886	)		(497	)		(975	)		5			560			(1,094	)		(2,887	)
Ending balance	$	12,246		$	15,365		$	4,211		$	769		$	10,842		$	519		$	43,952

	Commercial Business			Commercial Mortgage			Residential Real Estate Loans			Residential Real Estate Lines			Consumer Indirect			Other Consumer			Total
Three months ended June 30, 2023
Allowance for credit losses – loans:
Beginning balance	$	12,911		$	15,195		$	4,213		$	651		$	14,117		$	441		$	47,528
Charge-offs		(90	)		(18	)		(39	)		(25	)		(3,009	)		(338	)		(3,519	)
Recoveries		57			2			26			—			2,709			89			2,883
Provision		540			1,647			446			84			(511	)		738			2,944
Ending balance	$	13,418		$	16,826		$	4,646		$	710		$	13,306		$	930		$	49,836
Six months ended June 30, 2023
Beginning balance		12,585			14,412			3,301			608			14,238			269			45,413
Charge-offs		(117	)		(18	)		(102	)		(41	)		(7,629	)		(720	)		(8,627	)
Recoveries		208			4			31			—			5,491			168			5,902
Provision (benefit)		742			2,428			1,416			143			1,206			1,213			7,148
Ending balance	$	13,418		$	16,826		$	4,646		$	710		$	13,306		$	930		$	49,836

(4.) 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, including 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 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 primarily unsecured or, in the case of some BaaS loans, secured by depreciable assets such as solar panels, and 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.