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Loans

6 Months Ended

Jun. 30, 2022

The following table shows the composition of the Company's loan portfolio by class of financing receivable as of June 30, 2022 and 2021 and at December 31, 2021:


	June 30, 2022				December 31, 2021				June 30, 2021
Commercial
Real estate	$	617,488,000	34.5	%	$	576,198,000	35.0	%	$	527,415,000	33.2	%
Construction	128,927,000		7.2	%	79,365,000		4.8	%	65,794,000		4.1	%
Other	275,714,000		15.4	%	264,570,000		16.1	%	298,747,000		18.8	%
Municipal	46,835,000		2.6	%	48,362,000		2.9	%	41,079,000		2.6	%
Residential
Term	582,313,000		32.6	%	550,783,000		33.4	%	523,344,000		33.0	%
Construction	44,011,000		2.5	%	31,763,000		1.9	%	29,818,000		1.9	%
Home equity line of credit	71,711,000		4.0	%	73,632,000		4.5	%	77,709,000		4.9	%
Consumer	21,356,000		1.2	%	22,976,000		1.4	%	24,358,000		1.5	%
Total	$	1,788,355,000	100.0	%	$	1,647,649,000	100.0	%	$	1,588,264,000	100.0	%

Loan balances include net deferred loan costs of $9,738,000 as of June 30, 2022, $7,890,000 as of December 31, 2021, and $5,447,000 as of June 30, 2021. Net deferred loan costs have increased from a year ago and year-to-date due to loan origination unit volume over the period. Unearned fees and deferred costs associated with US Small Business Administration ("SBA") Payroll Protection Program ("PPP") loans originated in 2020 and 2021 were fully recognized as of June 30, 2022. Pursuant to collateral agreements, qualifying first mortgage loans and commercial real estate loans, which totaled $461,756,000 at June 30, 2022, were used to collateralize borrowings from the FHLB. This compares to qualifying loans which totaled $364,968,000 at December 31, 2021, and $356,811,000 at June 30, 2021. In addition, commercial, residential construction and home equity loans totaling $345,798,000 at June 30, 2022, $295,090,000 at December 31, 2021, and $259,312,000 at June 30, 2021, were used to collateralize a standby line of credit at the FRB.

For all loan classes, loans over 30 days past due are considered delinquent. Information on the past-due status of loans by class of financing receivable as of June 30, 2022, is presented in the following table:


	30-59 Days Past Due		60-89 Days Past Due		90+ Days Past Due		All Past Due		Current		Total		90+ Days & Accruing
Commercial
Real estate	$	—	$	6,000	$	191,000	$	197,000	$	617,291,000	$	617,488,000	$	—
Construction	—		—		—		—		128,927,000		128,927,000		—
Other	448,000		76,000		83,000		607,000		275,107,000		275,714,000		—
Municipal	—		—		—		—		46,835,000		46,835,000		—
Residential
Term	343,000		497,000		1,195,000		2,035,000		580,278,000		582,313,000		72,000
Construction	—		—		—		—		44,011,000		44,011,000		—
Home equity line of credit	186,000		—		—		186,000		71,525,000		71,711,000		—
Consumer	54,000		64,000		4,000		122,000		21,234,000		21,356,000		4,000
Total	$	1,031,000	$	643,000	$	1,473,000	$	3,147,000	$	1,785,208,000	$	1,788,355,000	$	76,000

On March 22, 2020, banking regulators issued an Interagency Statement on Loan Modifications and Reporting in response to the onset of COVID-19; shortly thereafter, on March 30, 2020, the Coronavirus Aid, Relief, and Economic Security ("CARES") Act was passed. Both the Interagency Statement and the CARES Act provided an exemption for qualified modifications from Troubled Debt Restructure ("TDR") designation, which was extended by the Coronavirus Preparedness and Response Supplemental Appropriations Act, 2020. So long as modified terms are met, loans in an active modification are not included in past due loan totals and continue to accrue interest. As of June 30, 2022, COVID-19 related loan modifications have nearly all been resolved, with just four loans remaining in modification status at the end of the second quarter, representing less than $400,000 in total balances. Each of the four are residential mortgage loans and each is scheduled to exit modification within the next two months.

Information on the past-due status of loans by class of financing receivable as of December 31, 2021, is presented in the following table:


	30-59 Days Past Due		60-89 Days Past Due		90+ Days Past Due		All Past Due		Current		Total		90+ Days & Accruing
Commercial
Real estate	$	249,000	$	—	$	191,000	$	440,000	$	575,758,000	$	576,198,000	$	—
Construction	12,000		—		12,000		24,000		79,341,000		79,365,000		—
Other	30,000		23,000		104,000		157,000		264,413,000		264,570,000		—
Municipal	—		—		—		—		48,362,000		48,362,000		—
Residential
Term	348,000		169,000		1,780,000		2,297,000		548,486,000		550,783,000		—
Construction	—		—		—		—		31,763,000		31,763,000		—
Home equity line of credit	741,000		159,000		135,000		1,035,000		72,597,000		73,632,000		—
Consumer	168,000		192,000		32,000		392,000		22,584,000		22,976,000		32,000
Total	$	1,548,000	$	543,000	$	2,254,000	$	4,345,000	$	1,643,304,000	$	1,647,649,000	$	32,000

Information on the past-due status of loans by class of financing receivable as of June 30, 2021, is presented in the following table:


	30-59 Days Past Due		60-89 Days Past Due		90+ Days Past Due		All Past Due		Current		Total		90+ Days & Accruing
Commercial
Real estate	$	75,000	$	—	$	191,000	$	266,000	$	527,149,000	$	527,415,000	$	—
Construction	13,000		—		16,000		29,000		65,765,000		65,794,000		—
Other	62,000		—		821,000		883,000		297,864,000		298,747,000		—
Municipal	—		—		—		—		41,079,000		41,079,000		—
Residential
Term	134,000		773,000		715,000		1,622,000		521,722,000		523,344,000		—
Construction	—		—		—		—		29,818,000		29,818,000		—
Home equity line of credit	43,000		—		246,000		289,000		77,420,000		77,709,000		17,000
Consumer	140,000		104,000		87,000		331,000		24,027,000		24,358,000		87,000
Total	$	467,000	$	877,000	$	2,076,000	$	3,420,000	$	1,584,844,000	$	1,588,264,000	$	104,000

For all classes, loans are placed on non-accrual status when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement or when principal and interest is 90 days or more past due unless the loan is both well secured and in the process of collection (in which case the loan may continue to accrue interest in spite of its past due status). A loan is "well secured" if it is secured (1) by collateral in the form of liens on or pledges of real or personal property, including securities, that have a realizable value sufficient to discharge the debt (including accrued interest) in full, or (2) by the guarantee of a financially responsible party. A loan is "in the process of collection" if collection of the loan is proceeding in due course either (1) through legal action, including judgment enforcement procedures, or, (2) in appropriate circumstances, through collection efforts not involving legal action which are reasonably expected to result in repayment of the debt or in its restoration to a current status in the near future.

Cash payments received on non-accrual loans, which are included in impaired loans, are applied to reduce the loan's principal balance until the remaining principal balance is deemed collectible, after which interest is recognized when collected. As a general rule, a loan may be restored to accrual status when payments are current for a substantial period of time, generally six months, and repayment of the remaining contractual amounts is expected, or when it otherwise becomes well secured and in the process of collection. Information on nonaccrual loans as of June 30, 2022 and 2021 and at December 31, 2021 is presented in the following table:


	June 30, 2022		December 31, 2021		June 30, 2021
Commercial
Real estate	$	197,000	$	242,000	$	1,029,000
Construction	25,000		27,000		105,000
Other	953,000		1,068,000		1,452,000
Municipal	—		—		—
Residential
Term	3,383,000		3,808,000		3,820,000
Construction	—		—		—
Home equity line of credit	254,000		457,000		575,000
Consumer	—		—		—
Total	$	4,812,000	$	5,602,000	$	6,981,000

Impaired loans include TDR loans and loans placed on non-accrual. These loans are measured at the present value of expected future cash flows discounted at the loan's effective interest rate or at the fair value of the collateral if the loan is collateral dependent. If the measure of an impaired loan is lower than the recorded investment in the loan and estimated selling costs, a specific reserve is established for the difference, or, in certain situations, if the measure of an impaired loan is lower than the recorded investment in the loan and estimated selling costs, the difference is written off.

A breakdown of impaired loans by class of financing receivable as of and for the period ended June 30, 2022 is presented in the following table:


							For the six months ended June 30, 2022				For the quarter ended June 30, 2022
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Recognized Interest Income		Average Recorded Investment		Recognized Interest Income
With No Related Allowance
Commercial
Real estate	$	1,352,000	$	1,661,000	$	—	$	1,588,000	$	28,000	$	1,600,000	$	15,000
Construction	25,000		27,000		—		26,000		—		26,000		—
Other	416,000		471,000		—		446,000		8,000		435,000		4,000
Municipal	—		—		—		—		—		—		—
Residential
Term	6,053,000		7,189,000		—		5,738,000		49,000		5,682,000		26,000
Construction	—		—		—		—		—		—		—
Home equity line of credit	254,000		283,000		—		323,000		—		324,000		—
Consumer	1,000		1,000		—		1,000		—		—		—
	$	8,101,000	$	9,632,000	$	—	$	8,122,000	$	85,000	$	8,067,000	$	45,000
With an Allowance Recorded
Commercial
Real estate	$	—	$	—	$	—	$	21,000	$	—	$	—	$	—
Construction	661,000		661,000		8,000		661,000		11,000		661,000		5,000
Other	744,000		843,000		502,000		778,000		—		761,000		—
Municipal	—		—		—		—		—		—		—
Residential
Term	1,449,000		1,483,000		103,000		1,650,000		25,000		1,566,000		13,000
Construction	—		—		—		—		—		—		—
Home equity line of credit	—		—		—		17,000		—		—		—
Consumer	—		—		—		—		—		—		—
	$	2,854,000	$	2,987,000	$	613,000	$	3,127,000	$	36,000	$	2,988,000	$	18,000
Total
Commercial
Real estate	$	1,352,000	$	1,661,000	$	—	$	1,609,000	$	28,000	$	1,600,000	$	15,000
Construction	686,000		688,000		8,000		687,000		11,000		687,000		5,000
Other	1,160,000		1,314,000		502,000		1,224,000		8,000		1,196,000		4,000
Municipal	—		—		—		—		—		—		—
Residential
Term	7,502,000		8,672,000		103,000		7,388,000		74,000		7,248,000		39,000
Construction	—		—		—		—		—		—		—
Home equity line of credit	254,000		283,000		—		340,000		—		324,000		—
Consumer	1,000		1,000		—		1,000		—		—		—
	$	10,955,000	$	12,619,000	$	613,000	$	11,249,000	$	121,000	$	11,055,000	$	63,000

Substantially all interest income recognized on impaired loans for all classes of financing receivables was recognized on a cash basis as received.

A breakdown of impaired loans by class of financing receivable as of and for the year ended December 31, 2021 is presented in the following table:


	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Recognized Interest Income
With No Related Allowance
Commercial
Real estate	$	1,386,000	$	1,689,000	$	—	$	1,590,000	$	63,000
Construction	28,000		28,000		—		22,000		—
Other	917,000		1,009,000		—		1,051,000		15,000
Municipal	—		—		—		—		—
Residential
Term	6,178,000		7,238,000		—		6,429,000		87,000
Construction	—		—		—		—		—
Home equity line of credit	457,000		487,000		—		461,000		—
Consumer	2,000		2,000		—		—		1,000
	$	8,968,000	$	10,453,000	$	—	$	9,553,000	$	166,000
With an Allowance Recorded
Commercial
Real estate	$	42,000	$	71,000	$	42,000	$	614,000	—
Construction	661,000		661,000		16,000		661,000		22,000
Other	386,000		411,000		381,000		396,000		—
Municipal	—		—		—		—		—
Residential
Term	1,995,000		2,164,000		137,000		1,897,000		54,000
Construction	—		—		—		—		—
Home equity line of credit	—		—		—		—		—
Consumer	—		—		—		—		—
	$	3,084,000	$	3,307,000	$	576,000	$	3,568,000	$	76,000
Total
Commercial
Real estate	$	1,428,000	$	1,760,000	$	42,000	$	2,204,000	$	63,000
Construction	689,000		689,000		16,000		683,000		22,000
Other	1,303,000		1,420,000		381,000		1,447,000		15,000
Municipal	—		—		—		—		—
Residential
Term	8,173,000		9,402,000		137,000		8,326,000		141,000
Construction	—		—		—		—		—
Home equity line of credit	457,000		487,000		—		461,000		—
Consumer	2,000		2,000		—		—		1,000
	$	12,052,000	$	13,760,000	$	576,000	$	13,121,000	$	242,000

A breakdown of impaired loans by class of financing receivable as of and for the period ended June 30, 2021 is presented in the following table:


							For the six months ended June 30, 2021				For the quarter ended June 30, 2021
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Recognized Interest Income		Average Recorded Investment		Recognized Interest Income
With No Related Allowance
Commercial
Real estate	$	2,145,000	$	2,490,000	$	—	$	2,295,000	$	35,000	$	2,412,000	$	18,000
Construction	106,000		106,000		—		92,000		—		94,000		—
Other	1,567,000		1,638,000		—		1,615,000		8,000		1,575,000		3,000
Municipal	—		—		—		—		—		—		—
Residential
Term	7,506,000		8,770,000		—		7,256,000		68,000		7,329,000		33,000
Construction	—		—		—		—		—		—		—
Home equity line of credit	574,000		607,000		—		815,000		—		756,000		—
Consumer	6,000		6,000		—		7,000		—		—		—
	$	11,904,000	$	13,617,000	$	—	$	12,080,000	$	111,000	$	12,166,000	$	54,000
With an Allowance Recorded
Commercial
Real estate	$	929,000	$	956,000	$	167,000	$	954,000	$	20,000	$	939,000	11,000
Construction	681,000		681,000		19,000		681,000		11,000		681,000		5,000
Other	422,000		439,000		403,000		498,000		5,000		471,000		5,000
Municipal	—		—		—		—		—		—		—
Residential
Term	1,620,000		1,662,000		118,000		1,810,000		23,000		1,662,000		7,000
Construction	—		—		—		—		—		—		—
Home equity line of credit	22,000		22,000		—		11,000		—		15,000		—
Consumer	—		—		—		—		—		—		—
	$	3,674,000	$	3,760,000	$	707,000	$	3,954,000	$	59,000	$	3,768,000	$	28,000
Total
Commercial
Real estate	$	3,074,000	$	3,446,000	$	167,000	$	3,249,000	$	55,000	$	3,351,000	$	29,000
Construction	787,000		787,000		19,000		773,000		11,000		775,000		5,000
Other	1,989,000		2,077,000		403,000		2,113,000		13,000		2,046,000		8,000
Municipal	—		—		—		—		—		—		—
Residential
Term	9,126,000		10,432,000		118,000		9,066,000		91,000		8,991,000		40,000
Construction	—		—		—		—		—		—		—
Home equity line of credit	596,000		629,000		—		826,000		—		771,000		—
Consumer	6,000		6,000		—		7,000		—		—		—
	$	15,578,000	$	17,377,000	$	707,000	$	16,034,000	$	170,000	$	15,934,000	$	82,000

Troubled Debt Restructured

A "TDR" constitutes a restructuring of debt if the Company, for economic or legal reasons related to the borrower's financial difficulties, grants a concession to the borrower that it would not otherwise consider. To determine whether or not a loan should be classified as a TDR, Management evaluates a loan based upon the following criteria:

•The borrower demonstrates financial difficulty; common indicators include past due status with bank obligations, substandard credit bureau reports, or an inability to refinance with another lender; and

•The Company has granted a concession; common concession types include maturity date extension, interest rate adjustments to below market pricing, and deferment of payments.

As of June 30, 2022, the Company had 53 loans with a balance of $7,484,000 that have been classified as TDRs. This compares to 60 loans with a balance of $8,341,000 and 72 loans with a balance of $10,782,000 classified as TDRs as of December 31, 2021 and June 30, 2021, respectively. The impairment carried as a specific reserve in the allowance for loan losses is calculated by present valuing the expected cash flows on the loan at the original interest rate, or, for collateral-dependent loans, using the fair value of the collateral less costs to sell.

The following table shows TDRs by class and the specific reserve as of June 30, 2022:


	Number of Loans	Balance		Specific Reserves
Commercial
Real estate	6	$	1,155,000	$	—
Construction	1	661,000		8,000
Other	5	709,000		316,000
Municipal	—	—		—
Residential
Term	40	4,958,000		104,000
Construction	—	—		—
Home equity line of credit	—	—		—
Consumer	1	1,000		—
	53	$	7,484,000	$	428,000

The following table shows TDRs by class and the specific reserve as of December 31, 2021:


	Number of Loans	Balance		Specific Reserves
Commercial
Real estate	8	$	1,227,000	$	42,000
Construction	1	661,000		16,000
Other	5	765,000		337,000
Municipal	—	—		—
Residential
Term	45	5,686,000		137,000
Construction	—	—		—
Home equity line of credit	—	—		—
Consumer	1	2,000		—
	60	$	8,341,000	$	532,000

The following table shows TDRs by class and the specific reserve as of June 30, 2021:


	Number of Loans	Balance		Specific Reserves
Commercial
Real estate	13	$	2,490,000	$	166,000
Construction	2	762,000		19,000
Other	7	956,000		357,000
Municipal	—	—		—
Residential
Term	48	6,546,000		118,000
Construction	—	—		—
Home equity line of credit	1	22,000		—
Consumer	1	6,000		—
	72	$	10,782,000	$	660,000

As of June 30, 2022, nine of the loans classified as TDRs with a total balance of $641,000 were more than 30 days past due. Of these loans, one had been placed on TDR status in the previous 12 months. The following table shows these TDRs by class and the associated specific reserves included in the allowance for loan losses as of June 30, 2022:


	Number of Loans	Balance		Specific Reserves
Commercial
Real estate	—	$	—	$	—
Construction	—	—		—
Other	2	313,000		230,000
Municipal	—	—		—
Residential
Term	6	327,000		—
Construction	—	—		—
Home equity line of credit	—	—		—
Consumer	1	1,000		—
	9	$	641,000	$	230,000

As of June 30, 2021, 11 of the loans classified as TDRs with a total balance of $737,000 were more than 30 days past due. Of these loans, none had been placed on TDR status in the previous 12 months. The following table shows these TDRs by class and the associated specific reserves included in the allowance for loan losses as of June 30, 2021:


	Number of Loans	Balance		Specific Reserves
Commercial
Real estate	1	$	25,000	$	25,000
Construction	—	—
Other	4	419,000		92,000
Municipal	—	—
Residential
Term	5	287,000		—
Construction	—	—		—
Home equity line of credit	—	—		—
Consumer	1	6,000		—
	11	$	737,000	$	117,000

For the six months ended June 30, 2022, no loans were placed on TDR status.

For the six months ended June 30, 2021, three loans were placed on TDR status. The following table shows this TDR by class and associated specific reserves included in the allowance for loan losses as of June 30, 2021:


	Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Specific Reserves
Commercial
Real estate	—	$	—	$	—	$	—
Construction	1	80,000		80,000		—
Other	1	261,000		261,000		261,000
Municipal	—	—		—		—
Residential
Term	1	9,000		4,000		—
Construction	—	—		—		—
Home equity line of credit	—	—		—		—
Consumer	—	—		—		—
	3	$	350,000	$	345,000	$	261,000

For the quarter ended June 30, 2022, no loans were placed on TDR status.

For the quarter ended June 30, 2021, two loans were placed on TDR status. The following table shows this TDR by class and the associated specific reserve included in the allowance for loan losses as of June 30, 2021:


	Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Specific Reserves
Commercial
Real estate	—	$	—	$	—	$	—
Construction	1	80,000		80,000		—
Other	—	—		—		—
Municipal	—	—		—		—
Residential
Term	1	9,000		4,000		—
Construction	—	—		—		—
Home equity line of credit	—	—		—
Consumer	—	—		—		—
	2	$	89,000	$	84,000	$	—

As of June 30, 2022, Management is aware of six loans classified as TDRs that are involved in bankruptcy with an outstanding balance of $885,000. There were also 14 loans with an outstanding balance of $1,341,000 that were classified as TDRs and on non-accrual status, of which no loans were in the process of foreclosure.

Residential Mortgage Loans in Process of Foreclosure

As of June 30, 2022, there were five mortgage loans collateralized by residential real estate in the process of foreclosure with a total balance of $537,000. This compares to 12 mortgage loans collateralized by residential real estate in the process of foreclosure with a total balance of $912,000 as of June 30, 2021.