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Loans

9 Months Ended

Sep. 30, 2022

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


	September 30, 2022				December 31, 2021				September 30, 2021
Commercial
Real estate	$	638,708,000	34.5	%	$	576,198,000	35.0	%	$	550,077,000	34.0	%
Construction	129,036,000		6.9	%	79,365,000		4.8	%	73,302,000		4.6	%
Other	310,110,000		16.7	%	264,570,000		16.1	%	288,121,000		17.8	%
Municipal	48,702,000		2.6	%	48,362,000		2.9	%	40,616,000		2.5	%
Residential
Term	595,031,000		32.0	%	550,783,000		33.4	%	537,811,000		33.3	%
Construction	41,631,000		2.2	%	31,763,000		1.9	%	29,358,000		1.8	%
Home equity line of credit	73,938,000		4.0	%	73,632,000		4.5	%	74,594,000		4.6	%
Consumer	20,819,000		1.1	%	22,976,000		1.4	%	23,333,000		1.4	%
Total	$	1,857,975,000	100.0	%	$	1,647,649,000	100.0	%	$	1,617,212,000	100.0	%

Loan balances include net deferred loan costs of $9,978,000 as of September 30, 2022, $7,890,000 as of December 31, 2021, and $6,597,000 as of September 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 $464,069,000 at September 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 $356,517,000 at September 30, 2021. In addition, commercial, residential construction and home equity loans totaling $327,551,000 at September 30, 2022, $295,090,000 at December 31, 2021, and $291,188,000 at September 30, 2021, were used to collateralize a standby line of credit at the FRB. In September 2022 the Bank sold a block of 41 mixed performing residential mortgage loans. This block of loans carried general ledger balances that totaled $5.2 million and included a number of past-due, non-accrual, and Troubled Debt Restructure ("TDR") loans. The impact of the sale on the portfolio is included in the information presented herein.

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 September 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	$	—	$	4,000	$	191,000	$	195,000	$	638,513,000	$	638,708,000	$	—
Construction	—		—		—		—		129,036,000		129,036,000		—
Other	172,000		16,000		83,000		271,000		309,839,000		310,110,000		—
Municipal	—		—		—		—		48,702,000		48,702,000		—
Residential
Term	79,000		77,000		166,000		322,000		594,709,000		595,031,000		—
Construction	—		—		—		—		41,631,000		41,631,000		—
Home equity line of credit	473,000		29,000		—		502,000		73,436,000		73,938,000		—
Consumer	143,000		28,000		0		171,000		20,648,000		20,819,000		—
Total	$	867,000	$	154,000	$	440,000	$	1,461,000	$	1,856,514,000	$	1,857,975,000	—

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 TDR designation, which was extended by the Coronavirus Preparedness and Response Supplemental Appropriations Act, 2020. So long as modified terms were met, loans in an active modification were not included in past due loan totals and continued to accrue interest. As of September 30, 2022, COVID-19 related loan modifications have all been resolved.

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 September 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	$	33,000	$	—	$	226,000	$	259,000	$	549,818,000	$	550,077,000	$	36,000
Construction	13,000		15,000		—		28,000		73,274,000		73,302,000		—
Other	92,000		359,000		225,000		676,000		287,445,000		288,121,000		—
Municipal	—		—		—		—		40,616,000		40,616,000		—
Residential
Term	549,000		918,000		986,000		2,453,000		535,358,000		537,811,000		190,000
Construction	—		—		—		—		29,358,000		29,358,000		—
Home equity line of credit	251,000		25,000		131,000		407,000		74,187,000		74,594,000		—
Consumer	90,000		202,000		3,000		295,000		23,038,000		23,333,000		3,000
Total	$	1,028,000	$	1,519,000	$	1,571,000	$	4,118,000	$	1,613,094,000	$	1,617,212,000	$	229,000

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 September 30, 2022 and 2021 and at December 31, 2021 is presented in the following table:


	September 30, 2022		December 31, 2021		September 30, 2021
Commercial
Real estate	$	195,000	$	242,000	$	604,000
Construction	25,000		27,000		23,000
Other	756,000		1,068,000		1,251,000
Municipal	—		—		—
Residential
Term	637,000		3,808,000		3,785,000
Construction	—		—		—
Home equity line of credit	247,000		457,000		482,000
Consumer	—		—		—
Total	$	1,860,000	$	5,602,000	$	6,145,000

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 September 30, 2022 is presented in the following table:


							For the nine months ended September 30, 2022				For the quarter ended September 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	$	1,295,000	$	1,607,000	$	—	$	1,497,000	$	42,000	$	1,314,000	$	14,000
Construction	25,000		27,000		—		26,000		—		25,000		—
Other	399,000		459,000		—		432,000		10,000		405,000		2,000
Municipal	—		—		—		—		—		—		—
Residential
Term	1,912,000		2,139,000		—		5,381,000		40,000		4,666,000		(9,000)
Construction	—		—		—		—		—		—		—
Home equity line of credit	247,000		279,000		—		298,000		—		249,000		—
Consumer	—		—		—		1,000		—		—		—
	$	3,878,000	$	4,511,000	$	—	$	7,635,000	$	92,000	$	6,659,000	$	7,000
With an Allowance Recorded
Commercial
Real estate	$	—	$	—	$	—	$	14,000	$	—	$	—	$	—
Construction	661,000		661,000		6,000		661,000		27,000		661,000		16,000
Other	552,000		647,000		315,000		745,000		—		679,000		—
Municipal	—		—		—		—		—		—		—
Residential
Term	1,264,000		1,267,000		99,000		1,562,000		34,000		1,384,000		9,000
Construction	—		—		—		—		—		—		—
Home equity line of credit	—		—		—		11,000		—		—		—
Consumer	—		—		—		—		—		—		—
	$	2,477,000	$	2,575,000	$	420,000	$	2,993,000	$	61,000	$	2,724,000	$	25,000
Total
Commercial
Real estate	$	1,295,000	$	1,607,000	$	—	$	1,511,000	$	42,000	$	1,314,000	$	14,000
Construction	686,000		688,000		6,000		687,000		27,000		686,000		16,000
Other	951,000		1,106,000		315,000		1,177,000		10,000		1,084,000		2,000
Municipal	—		—		—		—		—		—		—
Residential
Term	3,176,000		3,406,000		99,000		6,942,000		74,000		6,050,000		—
Construction	—		—		—		—		—		—		—
Home equity line of credit	247,000		279,000		—		310,000		—		249,000		—
Consumer	—		—		—		1,000		—		—		—
	$	6,355,000	$	7,086,000	$	420,000	$	10,628,000	$	153,000	$	9,383,000	$	32,000

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 September 30, 2021 is presented in the following table:


							For the nine months ended September 30, 2021				For the quarter ended September 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	$	1,906,000	$	2,257,000	$	—	$	2,215,000	$	50,000	$	2,053,000	$	15,000
Construction	24,000		25,000		—		69,000		—		24,000		—
Other	1,353,000		1,459,000		—		1,534,000		12,000		1,372,000		4,000
Municipal	—		—		—		—		—		—		—
Residential
Term	7,021,000		8,181,000		—		7,231,000		101,000		7,180,000		33,000
Construction	—		—		—		9,000		—		—		—
Home equity line of credit	482,000		516,000		—		725,000		—		546,000		—
Consumer	4,000		4,000		—		6,000		—		4,000		—
	$	10,790,000	$	12,442,000	$	—	$	11,789,000	$	163,000	$	11,179,000	$	52,000
With an Allowance Recorded
Commercial
Real estate	$	894,000	$	923,000	$	138,000	$	940,000	$	30,000	$	910,000	$	10,000
Construction	681,000		681,000		18,000		681,000		17,000		681,000		6,000
Other	402,000		421,000		397,000		466,000		10,000		403,000		5,000
Municipal	—		—		—		—		—		—		—
Residential
Term	1,761,000		1,923,000		129,000		1,753,000		32,000		1,641,000		9,000
Construction	—		—		—		—		—		—		—
Home equity line of credit	21,000		21,000		—		15,000		—		21,000		—
Consumer	—		—		—		1,000		—		3,000		—
	$	3,759,000	$	3,969,000	$	682,000	$	3,856,000	$	89,000	$	3,659,000	$	30,000
Total
Commercial
Real estate	$	2,800,000	$	3,180,000	$	138,000	$	3,155,000	$	80,000	$	2,963,000	$	25,000
Construction	705,000		706,000		18,000		750,000		17,000		705,000		6,000
Other	1,755,000		1,880,000		397,000		2,000,000		22,000		1,775,000		9,000
Municipal	—		—		—		—		—		—		—
Residential
Term	8,782,000		10,104,000		129,000		8,984,000		133,000		8,821,000		42,000
Construction	—		—		—		9,000		—		—		—
Home equity line of credit	503,000		537,000		—		740,000		—		567,000		—
Consumer	4,000		4,000		—		7,000		—		7,000		—
	$	14,549,000	$	16,411,000	$	682,000	$	15,645,000	$	252,000	$	14,838,000	$	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 September 30, 2022, the Company had 31 loans with a balance of $4,926,000 that have been classified as TDRs. This compares to 60 loans with a balance of $8,341,000 and 64 loans with a balance of $10,051,000 classified as TDRs as of December 31, 2021 and September 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 September 30, 2022:


	Number of Loans	Balance		Specific Reserves
Commercial
Real estate	6	$	1,100,000	$	—
Construction	1	661,000		6,000
Other	4	461,000		83,000
Municipal	—	—		—
Residential
Term	20	2,704,000		100,000
Construction	—	—		—
Home equity line of credit	—	—		—
Consumer	—	—		—
	31	$	4,926,000	$	189,000

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 September 30, 2021:


	Number of Loans	Balance		Specific Reserves
Commercial
Real estate	10	$	2,238,000	$	138,000
Construction	1	681,000		18,000
Other	6	883,000		351,000
Municipal	—	—		—
Residential
Term	45	6,224,000		129,000
Construction	—	—		—
Home equity line of credit	1	21,000		—
Consumer	1	4,000		—
	64	$	10,051,000	$	636,000

As of September 30, 2022, one of the loans classified as TDR with a total balance of $83,000 was more than 30 days past due. This loan had not been placed on TDR status in the previous 12 months. The following table shows this TDR by class and the associated specific reserves included in the allowance for loan losses as of September 30, 2022:


	Number of Loans	Balance		Specific Reserves
Commercial
Real estate	—	$	—	$	—
Construction	—	—		—
Other	1	83,000		—
Municipal	—	—		—
Residential
Term	—	—		—
Construction	—	—		—
Home equity line of credit	—	—		—
Consumer	—	—		—
	1	$	83,000	$	—

As of September 30, 2021, 12 of the loans classified as TDRs with a total balance of $1,095,000 were more than 30 days past due. Of these loans, two 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 September 30, 2021:


	Number of Loans	Balance		Specific Reserves
Commercial
Real estate	—	$	—	$	—
Construction	—	—
Other	5	641,000		351,000
Municipal	—	—
Residential
Term	6	450,000		—
Construction	—	—		—
Home equity line of credit	—	—		—
Consumer	1	4,000		—
	12	$	1,095,000	$	351,000

For the nine months ended September 30, 2022, one loan was 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 September 30, 2022:


	Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Specific Reserves
Commercial
Real estate	—	$	—	$	—	$	—
Construction	—	—		—		—
Other	—	—		—		—
Municipal	—	—		—		—
Residential
Term	1	38,000		38,000		—
Construction	—	—		—		—
Home equity line of credit	—	—		—		—
Consumer	—	—		—		—
	1	$	38,000	$	38,000	$	—

For the nine months ended September 30, 2021, three loans were placed on TDR status. The following table shows these TDRs by class and associated specific reserves included in the allowance for loan losses as of September 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 September 30, 2022, one loan was placed on TDR status. The following table shows this TDR by class and the associated specific reserves included in the allowance for loan losses as of September 30, 2022:


	Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Specific Reserves
Commercial
Real estate	—	$	—	$	—	$	—
Construction	—	—		—		—
Other	—	—		—		—
Municipal	—	—		—		—
Residential
Term	1	38,000		38,000		—
Construction	—	—		—		—
Home equity line of credit	—	—		—		—
Consumer	—	—		—		—
	1	$	38,000	$	38,000	$	—

For the quarter ended September 30, 2021, no loans were placed on TDR status.

As of September 30, 2022, Management is aware of four loans classified as TDRs that are involved in bankruptcy with an outstanding balance of $558,000. There were also six loans with an outstanding balance of $430,000 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 September 30, 2022, there were two mortgage loans collateralized by residential real estate in the process of foreclosure with a total balance of $166,000. This compares to 10 mortgage loans collateralized by residential real estate in the process of foreclosure with a total balance of $839,000 as of September 30, 2021.