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Loan and Lease Receivables, Impaired Loans and Leases and Allowance for Loan and Lease Losses
 3 Months Ended
Mar. 31, 2023
Receivables [Abstract]  
Loan and Lease Receivables, Impaired Loans and Leases and Allowance for Credit Losses Loans and Allowance for Credit Losses
Loan and lease receivables consist of the following:
March 31,
2023		December 31,
2022
 (In Thousands)
Commercial real estate:  
Commercial real estate — owner occupied
$233,725 $268,354 
Commercial real estate — non-owner occupied
675,087 687,091 
Construction212,916 218,751 
Multi-family
384,043 350,026 
1-4 family
23,404 17,728 
Total commercial real estate
1,529,175 1,541,950 
Commercial and industrial963,328 853,327 
Consumer and other46,773 47,938 
Total gross loans and leases receivable
2,539,276 2,443,215 
Less:  
   Allowance for credit losses26,140 24,230 
   Deferred loan fees(87)149 
Loans and leases receivable, net
$2,513,223 $2,418,836 
Loans transferred to third parties consist of the guaranteed portions of SBA loans which the Corporation sold in the secondary market and participation interests in other, non-SBA originated loans. The total principal amount of the guaranteed portions of SBA loans sold during the three months ended March 31, 2023, and 2022, was $5.0 million and $5.6 million, respectively. Each of the transfers of these financial assets met the qualifications for sale accounting, and therefore all of the loans transferred during the three months ended March 31, 2023, and 2022, have been derecognized in the unaudited Consolidated Financial Statements. The guaranteed portions of SBA loans were transferred at their fair value and the related gain was recognized upon the transfer as non-interest income in the unaudited Consolidated Financial Statements. The total outstanding balance of sold SBA loans at March 31, 2023, and December 31, 2022, was $88.0 million and $88.5 million, respectively.

The total principal amount of transferred participation interests in other, non-SBA originated loans during the three months ended March 31, 2023, and 2022, was $22.6 million and $22.1 million, respectively, all of which were treated as sales and derecognized under the applicable accounting guidance at the time of transfer. No gain or loss was recognized on participation interests in other, non-SBA originated loans as they were transferred at or near the date of loan origination and the payments received for servicing the portion of the loans participated represents adequate compensation. The total outstanding balance of these transferred loans at March 31, 2023, and December 31, 2022, was $236.6 million and $222.9 million, respectively. As of March 31, 2023, and December 31, 2022, the total amount of the Corporation’s partial ownership of these transferred loans on the unaudited Consolidated Balance Sheets was $353.3 million and $339.0 million, respectively. As of March 31, 2023 and December 31, 2022, the non-SBA originated participation portfolio contained no non-performing loans. The Corporation does not share in the participant’s portion of any potential charge-offs. There were no loan participations purchased on the unaudited Consolidated Balance Sheets as of March 31, 2023 and December 31, 2022.
The following table illustrates ending balances of the Corporation’s loan and lease portfolio, including non-performing loans by class of receivable, and considering certain credit quality indicators:
March 31, 2023Term Loans Amortized Cost Basis by Origination Year
(In Thousands)20232022202120202019PriorRevolving Loans Amortized Cost BasisTotal
Commercial real estate — owner occupied
Category
I$3,712 $35,695 $28,605 $47,436 $23,386 $82,799 $1,541 $223,174 
II— — 625 802 — 1,310 — 2,737 
III— — — 5,132 — 2,682 — 7,814 
IV— — — — — — — — 
Total$3,712 $35,695 $29,230 $53,370 $23,386 $86,791 $1,541 $233,725 
Commercial real estate — non-owner occupied
Category
I$8,945 $67,653 $74,530 $53,133 $64,228 $310,632 $33,571 $612,692 
II— — — 1,293 6,187 10,653 — 18,133 
III— — — — 19,708 24,554 — 44,262 
IV— — — — — — — — 
Total$8,945 $67,653 $74,530 $54,426 $90,123 $345,839 $33,571 $675,087 
Construction
Category
I$45 $62,211 $59,338 $38,867 $451 $30,566 $21,438 $212,916 
II— — — — — — — — 
III— — — — — — — — 
IV— — — — — — — — 
Total$45 $62,211 $59,338 $38,867 $451 $30,566 $21,438 $212,916 
Multi-family
Category
I$32,389 $35,629 $50,672 $114,782 $23,198 $124,160 $3,213 $384,043 
II— — — — — — — — 
III— — — — — — — — 
IV— — — — — — — — 
Total$32,389 $35,629 $50,672 $114,782 $23,198 $124,160 $3,213 $384,043 
1-4 family
Category
I$— $8,880 $2,747 $2,415 $467 $3,391 $5,378 $23,278 
II— — — — — 98 — 98 
III— — — — — — — — 
IV— — — — — 28 — 28 
Total$— $8,880 $2,747 $2,415 $467 $3,517 $5,378 $23,404 
March 31, 2023Term Loans Amortized Cost Basis by Origination Year
(In Thousands)20232022202120202019PriorRevolving Loans Amortized Cost BasisTotal
Commercial and industrial
Category
I$79,070 $190,328 $109,529 $52,885 $28,114 $39,127 $397,987 $897,040 
II223 6,174 918 2,762 946 198 10,965 22,186 
III— 2,664 5,812 10,801 6,622 5,837 8,982 40,718 
IV— 1,134 1,003 539 338 370 — 3,384 
Total$79,293 $200,300 $117,262 $66,987 $36,020 $45,532 $417,934 $963,328 
Consumer and other
Category
I$4,609 $9,563 $3,460 $13,365 $2,330 $4,414 $9,032 $46,773 
II— — — — — — — — 
III— — — — — — — — 
IV— — — — — — — — 
Total$4,609 $9,563 $3,460 $13,365 $2,330 $4,414 $9,032 $46,773 
Each credit is evaluated for proper risk rating upon origination, at the time of each subsequent renewal, upon receipt and evaluation of updated financial information from the Corporation’s borrowers, or as other circumstances dictate. The Corporation primarily uses a nine grade risk rating system to monitor the ongoing credit quality of its loans and leases. The risk rating grades follow a consistent definition and are then applied to specific loan types based on the nature of the loan. Each risk rating is subjective and, depending on the size and nature of the credit, subject to various levels of review and concurrence on the stated risk rating. In addition to its nine grade risk rating system, the Corporation groups loans into four loan and related risk categories which determine the level and nature of review by management.
Category I — Loans and leases in this category are performing in accordance with the terms of the contract and generally exhibit no immediate concerns regarding the security and viability of the underlying collateral, financial stability of the borrower, integrity or strength of the borrowers’ management team, or the industry in which the borrower operates. The Corporation monitors Category I loans and leases through payment performance, continued maintenance of its personal relationships with such borrowers, and continued review of such borrowers’ compliance with the terms of their respective agreements.
Category II — Loans and leases in this category are beginning to show signs of deterioration in one or more of the Corporation’s core underwriting criteria such as financial stability, management strength, industry trends, or collateral values. Management will place credits in this category to allow for proactive monitoring and resolution with the borrower to possibly mitigate the area of concern and prevent further deterioration or risk of loss to the Corporation. Category II loans are considered performing but are monitored frequently by the assigned business development officer and by asset quality review committees.
Category III — Loans and leases in this category are identified by management as warranting special attention. However, the balance in this category is not intended to represent the amount of adversely classified assets held by the Bank. Category III loans and leases generally exhibit undesirable characteristics, such as evidence of adverse financial trends and conditions, managerial problems, deteriorating economic conditions within the related industry, or evidence of adverse public filings and may exhibit collateral shortfall positions. Management continues to believe that it will collect all contractual principal and interest in accordance with the original terms of the contracts relating to the loans and leases in this category, and therefore Category III loans are considered performing with no specific reserves established for this category. Category III loans are monitored by management and asset quality review committees on a monthly basis.
Category IV — Loans and leases in this category are non-performing loans. Management has determined that it is unlikely that the Bank will receive the contractual principal and interest in accordance with the original terms of the agreement. Non-performing loans are individually evaluated to assess the need for the establishment of specific reserves or charge-offs. When
analyzing the adequacy of collateral, the Corporation obtains external appraisals at least annually. External appraisals are obtained from the Corporation’s approved appraiser listing and are independently reviewed to monitor the quality of such appraisals. To the extent a collateral shortfall position is present, a specific reserve or charge-off will be recorded. Loans and leases in this category are monitored by management and asset quality review committees on a monthly basis.
The delinquency aging of the loan and lease portfolio by class of receivable was as follows:
March 31, 2023
30-59
Days Past Due		60-89
Days Past Due		Greater
Than 90
Days Past Due		Total Past DueCurrentTotal Loans and Leases
 (Dollars in Thousands)
Performing loans and leases      
Commercial real estate:      
Owner occupied$— $— $— $— $233,725 $233,725 
Non-owner occupied— — — — 675,087 675,087 
Construction— — — — 212,916 212,916 
Multi-family— — — — 384,043 384,043 
1-4 family— — — — 23,376 23,376 
Commercial and industrial2,440 103 — 2,543 957,401 959,944 
Consumer and other— — — — 46,773 46,773 
Total2,440 103 — 2,543 2,533,321 2,535,864 
Non-performing loans and leases      
Commercial real estate:      
Owner occupied— — — — — — 
Non-owner occupied— — — — — — 
Construction— — — — — — 
Multi-family— — — — — — 
1-4 family— — — — 28 28 
Commercial and industrial72 478 2,068 2,618 766 3,384 
Consumer and other— — — — — — 
Total72 478 2,068 2,618 794 3,412 
Total loans and leases      
Commercial real estate:      
Owner occupied— — — — 233,725 233,725 
Non-owner occupied— — — — 675,087 675,087 
Construction— — — — 212,916 212,916 
Multi-family— — — — 384,043 384,043 
1-4 family— — — — 23,404 23,404 
Commercial and industrial2,512 581 2,068 5,161 958,167 963,328 
Consumer and other— — — — 46,773 46,773 
Total$2,512 $581 $2,068 $5,161 $2,534,115 $2,539,276 
Percent of portfolio0.10 %0.02 %0.08 %0.20 %99.80 %100.00 %
December 31, 2022
30-59
Days Past Due		60-89
Days Past Due		Greater
Than 90
Days Past Due		Total Past DueCurrentTotal Loans and Leases
 (Dollars in Thousands)
Performing loans and leases      
Commercial real estate:      
Owner occupied$— $— $— $— $268,354 $268,354 
Non-owner occupied215 — — 215 686,876 687,091 
Construction— — — — 218,751 218,751 
Multi-family— — — — 350,026 350,026 
1-4 family— — — — 17,698 17,698 
Commercial and industrial1,437 403 — 1,840 847,858 849,698 
Consumer and other— — — — 47,938 47,938 
Total1,652 403 — 2,055 2,437,501 2,439,556 
Non-performing loans and leases      
Commercial real estate:      
Owner occupied— — — — — — 
Non-owner occupied— — — — — — 
Construction— — — — — — 
Multi-family— — — — — — 
1-4 family— — — — 30 30 
Commercial and industrial439 126 2,464 3,029 600 3,629 
Other— — — — — — 
Total439 126 2,464 3,029 630 3,659 
Total loans and leases      
Commercial real estate:      
Owner occupied— — — — 268,354 268,354 
Non-owner occupied215 — — 215 686,876 687,091 
Construction— — — — 218,751 218,751 
Multi-family— — — — 350,026 350,026 
1-4 family— — — — 17,728 17,728 
Commercial and industrial1,876 529 2,464 4,869 848,458 853,327 
Consumer and other— — — — 47,938 47,938 
Total$2,091 $529 $2,464 $5,084 $2,438,131 $2,443,215 
Percent of portfolio0.09 %0.02 %0.10 %0.21 %99.79 %100.00 %
The Corporation’s total non-performing assets consisted of the following:
March 31,
2023		December 31,
2022
 (In Thousands)
Non-performing loans and leases  
Commercial real estate:  
Commercial real estate — owner occupied$— $— 
Commercial real estate — non-owner occupied— — 
Construction— — 
Multi-family— — 
1-4 family28 30 
Total non-performing commercial real estate28 30 
Commercial and industrial3,384 3,629 
Consumer and other— — 
Total non-performing loans and leases3,412 3,659 
Repossessed assets, net89 95 
Total non-performing assets$3,501 $3,754 
March 31,
2023		December 31,
2022
Total non-performing loans and leases to gross loans and leases0.13 %0.15 %
Total non-performing assets to total gross loans and leases plus repossessed assets, net0.14 0.15 
Total non-performing assets to total assets0.11 0.13 
Allowance for credit losses to gross loans and leases1.08 0.99 
Allowance for credit losses to non-performing loans and leases807.44 662.20 
Occasionally, the Corporation modifies loans to borrowers in financial distress. During the three months ended March 31, 2023 and 2022, no loans to borrowers experiencing financial distress were modified. There were no loans to borrowers experiencing financial distress that were modified during the previous 12 months and which subsequently defaulted during the three months ended March 31, 2023 and 2022. There were no unfunded commitments associated with loans modified for borrowers experiencing financial distress as of March 31, 2023.
The following represents additional information regarding the Corporation’s non-performing loans and leases, by portfolio segment:
As of and for the Three Months Ended March 31, 2023
Recorded
Investment(1)
Unpaid
Principal
Balance		Individual
Reserve
Average
Recorded
Investment(2)
Foregone
Interest
Income		Interest
Income
Recognized		Net
Foregone
Interest
Income
 (In Thousands)
With no individual reserve recorded:       
Commercial real estate:       
Owner occupied$— $— $— $— $— $— $— 
Non-owner occupied— — — — — — — 
Construction
— — — — — — — 
Multi-family— — — — — — — 
1-4 family28 33 — 29 1 4 (3)
Commercial and industrial1,009 1,009 — 1,842 23 36 (13)
Consumer and other— — — — — — — 
Total1,037 1,042 — 1,871 24 40 (16)
With individual reserve recorded:       
Commercial real estate:       
Owner occupied— — — — — — — 
Non-owner occupied— — — — — — — 
Construction— — — — — — — 
Multi-family— — — — — — — 
1-4 family— — — — — — — 
Commercial and industrial2,375 2,375 1,622 1,665 54 — 54 
Consumer and other— — — — — — — 
Total2,375 2,375 1,622 1,665 54 — 54 
Total:       
Commercial real estate:       
Owner occupied— — — — — — — 
Non-owner occupied— — — — — — — 
Construction— — — — — — — 
Multi-family— — — — — — — 
1-4 family28 33 — 29 1 4 (3)
Commercial and industrial3,384 3,384 1,622 3,507 77 36 41 
Consumer and other— — — — — — — 
Grand total$3,412 $3,417 $1,622 $3,536 $78 $40 $38 
(1)The recorded investment represents the unpaid principal balance net of any partial charge-offs.
(2)Average recorded investment is calculated primarily using daily average balances.
As of and for the Year Ended December 31, 2022
Recorded
Investment(1)
Unpaid
Principal
Balance		Individual
Reserve
Average
Recorded
Investment(2)
Foregone
Interest
Income		Interest
Income
Recognized		Net
Foregone
Interest
Income
 (In Thousands)
With no individual reserve recorded:       
Commercial real estate:       
   Owner occupied$— $— $— $180 $14 $759 $(745)
   Non-owner occupied— — — — — 1 (1)
   Construction— — — — — 47 (47)
   Multi-family— — — — — — — 
   1-4 family30 35 — 112 8 41 (33)
Commercial and industrial1,037 1,037 — 3,153 277 587 (310)
Consumer and other— — — — — — — 
      Total1,067 1,072 — 3,445 299 1,435 (1,136)
With individual reserve recorded:       
Commercial real estate:       
   Owner occupied— — — — — — — 
   Non-owner occupied— — — — — — — 
   Construction— — — — — — — 
   Multi-family— — — — — — — 
   1-4 family— — — — — — — 
Commercial and industrial2,592 2,612 1,650 1,454 101 1 100 
Consumer and other— — — — — — — 
      Total2,592 2,612 1,650 1,454 101 1 100 
Total:       
Commercial real estate:       
   Owner occupied— — — 180 14 759 (745)
   Non-owner occupied— — — — — 1 (1)
   Construction— — — — — 47 (47)
   Multi-family— — — — — — — 
   1-4 family30 35 — 112 8 41 (33)
Commercial and industrial3,629 3,649 1,650 4,607 378 588 (210)
Consumer and other— — — — — — — 
      Grand total$3,659 $3,684 $1,650 $4,899 $400 $1,436 $(1,036)
(1)The recorded investment represents the unpaid principal balance net of any partial charge-offs.
(2)Average recorded investment is calculated primarily using daily average balances.
The difference between the recorded investment of loans and leases and the unpaid principal balance of $5,000 and $26,000 as of March 31, 2023, and December 31, 2022, respectively, represents partial charge-offs of loans and leases resulting from losses due to the appraised value of the collateral securing the loans and leases being below the carrying values of the loans and leases. When a loan is placed on non-accrual, interest accrual is discontinued and previously accrued but uncollected interest is deducted from interest income. Cash payments collected on non-accrual loans are first applied to such loan’s principal. Foregone interest represents the interest that was contractually due on the loan but not received or recorded. To the extent the amount of principal on a non-accrual loan is fully collected and additional cash is received, the Corporation will recognize interest income.
Allowance for Credit Losses
The ACL is an estimate of the expected credit losses on financial assets measured at amortized cost, which is measured using relevant information about past events, including historical credit loss experience on financial assets with similar risk characteristics, current conditions, and reasonable and supportable forecasts that affect the collectability of the remaining cash flows over the contractual term of the financial assets. A provision for credit losses is charged to operations based on management’s periodic evaluation of these and other pertinent factors as discussed within Note 1 – Nature of Operations and Summary of Significant Accounting Policies included in this Form 10-Q.
During the first quarter of 2023, the Corporation adopted ASU 2016-13, including the CECL methodology for estimating the ACL. This standard was adopted using a modified retrospective approach on January 1, 2023, resulting in a $484,000 increase to the ACL and a $1.3 million increase to the unfunded credit commitments reserve. A cumulative effect adjustment resulting in an $1.4 million decrease to retained earnings and a $465,000 increase to deferred tax assets was also recorded as of the adoption of ASU 2016-13.
Quantitative Considerations
The ACL is primarily calculated utilizing a DCF model. Key inputs and assumptions used in this model are discussed below:
•Forecast model - For each portfolio segment, an LDA was performed in order to identify appropriate loss drivers and create a regression model for use in forecasting cash flows. The LDA analysis utilized peer FFIEC Call Report data for all pools. The Corporation plans to update the LDA annually.
•Probability of default – PD is the probability that an asset will be in default within a given time frame. The Corporation has defined default as when a charge-off has occurred, a loan goes to non-accrual status, or a loan is greater than 90 days past due. The forecast model is utilized to estimate PDs.
•Loss given default – LGD is the percentage of the asset not expected to be collected due to default. The LGD is derived from using a method referred to as Frye Jacobs which uses industry data.
•Prepayments and curtailments – Prepayments and curtailments are calculated based on the Corporation’s own data. This analysis is updated annually.
•Forecast and reversion – the Corporation has established a one-year reasonable and supportable forecast period with a one-year straight line reversion to the long-term historical average.
•Economic forecast – the Corporation utilizes a third party to provide economic forecasts under various scenarios, which are assessed against economic indicators and management’s observations in the market. As of January 1, 2023, the date of CECL adoption, the Corporation selected a forecast which forecasts unemployment between 3.8% and 4.15% and GDP growth change between 0.13% and 1.14% during the next four quarters. As of March 31, 2023, the Corporation selected a forecast which forecasts unemployment between 3.95% and 4.73% and GDP growth change between 0.37% and 1.85% over the next four quarters. Following the forecast period, the model reverts to long-term averages over four quarters. Management believes that the resulting quantitative reserve appropriately balances economic indicators with identified risks.

Qualitative Considerations
In addition to the quantitative model, management considers the need for qualitative adjustment for risks not considered in the DCF. Factors that are considered by management in determining loan collectability and the appropriate level of the ACL are listed below:
•The Corporation’s lending policies and procedures, including changes in lending strategies, underwriting standards and practices for collections, write-offs, and recoveries;
•Actual and expected changes in international, national, regional, and local economic and business conditions and developments in which the Corporation operates that affect the collectability of financial assets;
•The experience, ability, and depth of the Corporation’s lending, investment, collection, and other relevant management and staff;
•The volume of past due financial assets, the volume of non-performing assets, and the volume and severity of adversely classified or graded assets;
•The existence and effect of industry concentrations of credit;
•The nature and volume of the portfolio segment or class;
•The quality of the Corporation’s credit review function;
•The effect of other external factors such as the regulatory, legal and technological environments, competition, and events such as natural disasters or pandemics

ACL Activity
A summary of the activity in the allowance for credit losses by portfolio segment is as follows:
 As of and for the Three Months Ended March 31, 2023
Owner OccupiedNon-Owner OccupiedConstructionMulti-Family1-4 FamilyCommercial
and
Industrial		Consumer
and Other		Total
 (In Thousands)
Beginning balance$1,766 $5,108 $1,646 $2,634 $207 $12,403 $466 $24,230 
Impact of adopting ASC 326(204)(242)796 (386)(45)1,873 26 1,818 
Charge-offs— — — — — (166)— (166)
Recoveries— 1 — — — 95 11 107 
Net recoveries (charge-offs)— 1 — — — (71)11 (59)
Provision for credit losses94 99 (155)653 59 700 111 1,561 
Ending balance$1,656 $4,966 $2,287 $2,901 $221 $14,905 $614 $27,550 
Components:
Allowance for loan losses1,636 4,915 1,586 2,892 201 14,348 562 26,140 
Allowance for unfunded credit commitments20 51 701 9 20 557 52 1,410 
Total ACL$1,656 $4,966 $2,287 $2,901 $221 $14,905 $614 $27,550 
 As of and for the Three Months Ended March 31, 2022
Commercial Real EstateCommercial
and
Industrial		Consumer and OtherTotal
 (In Thousands)
Beginning balance$15,110 $8,413 $813 $24,336 
Charge-offs— (22)— (22)
Recoveries116 84 10 210 
Net recoveries (charge-offs)116 62 10 188 
Provision for credit losses(1,461)437 169 (855)
Ending balance$13,765 $8,912 $992 $23,669 

ACL Summary
Loans collectively evaluated for credit losses in the following tables include all performing loans at March 31, 2023 and December 31, 2022. Loans individually evaluated for credit losses include all non-performing loans.
The following tables provide information regarding the allowance for credit losses and balances by type of allowance methodology.
 As of March 31, 2023
Owner OccupiedNon-Owner OccupiedConstructionMulti-Family1-4 FamilyCommercial
and
Industrial		Consumer
and Other		Total
 (In Thousands)
Allowance for credit losses:    
Collectively evaluated for credit losses$1,636 $4,915 $1,586 $2,892 $201 $12,726 $562 $24,518 
Individually evaluated for credit loss— — — — — 1,622 — 1,622 
Total$1,636 $4,915 $1,586 $2,892 $201 $14,348 $562 $26,140 
Loans and lease receivables:    
Collectively evaluated for credit losses$233,725 $675,087 $212,916 $384,043 $23,376 $959,944 $46,773 $2,535,864 
Individually evaluated for credit loss— — — — 28 3,384 — 3,412 
Total$233,725 $675,087 $212,916 $384,043 $23,404 $963,328 $46,773 $2,539,276 
 As of December 31, 2022
Commercial Real EstateCommercial
and
Industrial		Consumer
and Other		Total
 (In Thousands)
Allowance for credit losses:    
Collectively evaluated for credit losses$11,361 $10,753 $466 $22,580 
Individually evaluated for credit loss— 1,650 — 1,650 
Total$11,361 $12,403 $466 $24,230 
Loans and lease receivables:    
Collectively evaluated for credit losses$1,541,920 $849,542 $47,938 $2,439,400 
Individually evaluated for credit loss30 3,785 — 3,815 
Total$1,541,950 $853,327 $47,938 $2,443,215