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Loans

12 Months Ended

Dec. 31, 2022

The following table shows the composition of the Company's loan portfolio as of December 31, 2022 and 2021:


	December 31, 2022				December 31, 2021
Commercial
Real estate	$	699,340,000	36.5	%	$	576,198,000	35.0	%
Construction	93,907,000		4.9	%	79,365,000		4.8	%
Other	319,359,000		16.7	%	264,570,000		16.1	%
Municipal	40,619,000		2.1	%	48,362,000		2.9	%
Residential
Term	613,919,000		32.1	%	550,783,000		33.4	%
Construction	49,907,000		2.6	%	31,763,000		1.9	%
Home equity line of credit	76,560,000		4.0	%	73,632,000		4.5	%
Consumer	21,063,000		1.1	%	22,976,000		1.4	%
Total loans	$	1,914,674,000	100.0	%	$	1,647,649,000	100.0	%

Loan balances include net deferred loan costs of $10,132,000 in 2022 and $7,890,000 in 2021. Net deferred loan costs have increased from a year ago a due to loan origination unit volume over the period. Unearned fees and deferred costs associated with SBA 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, which totaled $475,233,000 and $364,968,000 at December 31, 2022 and 2021, respectively, were used to collateralize borrowings from the Federal Home Loan Bank of Boston. In addition, commercial, residential construction and home equity loans totaling $338,636,000 at December 31, 2022 and $295,090,000 at December 31, 2021 were used to collateralize a standby line of credit at the Federal Reserve Bank of Boston. 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 TDR loans.

The Bank is a designated SBA preferred lender and participated in both the 2020 (PPP1) and 2021 (PPP2) rounds of the Payroll Protection Program. Under PPP1, 1,718 loans were granted totaling $97,755,000 in funds disbursed to qualified small businesses and under PPP2, 1,263 loans were granted totaling $52,053,000. The Bank worked actively with these borrowers to process applications for forgiveness per PPP guidelines. As of December 31, 2022, remaining PPP balances totaled $12,000.

At December 31, 2022 and 2021, non-accrual loans were $1,755,000 and $5,602,000, respectively. For the years ended December 31, 2022 and 2021, interest income which would have been recognized on these loans, if interest had been accrued, was

$223,000 and $345,000. Loans more than 90 days past due accruing interest totaled $241,000 at December 31, 2022 and $32,000 at December 31, 2021. The Company continues to accrue interest on these loans because management believes collection of principal and interest is reasonably assured.

Loans to directors, officers and employees totaled $48,001,000 at December 31, 2022 and $42,784,000 at December 31, 2021. A summary of loans to directors and executive officers is as follows:


For the years ended December 31,	2022		2021
Balance at beginning of year	$	26,307,000	$	21,214,000
New loans	5,159,000		10,074,000
Repayments	(1,976,000)		(2,498,000)
Retired executive officers	—		(2,483,000)
Balance at end of year	$	29,490,000	$	26,307,000

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 December 31, 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	$	—	$	3,000	$	190,000	$	193,000	$	699,147,000	$	699,340,000	$	—
Construction	—		—		—		—		93,907,000		93,907,000		—
Other	118,000		23,000		85,000		226,000		319,133,000		319,359,000		34,000
Municipal	—		—		—		—		40,619,000		40,619,000		—
Residential
Term	135,000		33,000		284,000		452,000		613,467,000		613,919,000		118,000
Construction	—		—		—		—		49,907,000		49,907,000		—
Home equity line of credit	241,000		29,000		151,000		421,000		76,139,000		76,560,000		86,000
Consumer	131,000		33,000		3,000		167,000		20,896,000		21,063,000		3,000
Total	$	625,000	$	121,000	$	713,000	$	1,459,000	$	1,913,215,000	$	1,914,674,000	$	241,000

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 December 31, 2021, 18 loans totaling $2.9 million remained in their original modification or had had a subsequent modification, representing 0.17% of the overall portfolio. As of December 31, 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

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


As of December 31,	2022		2021
Commercial
Real estate	$	193,000	$	242,000
Construction	23,000		27,000
Other	663,000		1,068,000
Municipal	—		—
Residential
Term	572,000		3,808,000
Construction	—		—
Home equity line of credit	304,000		457,000
Consumer	—		—
Total	$	1,755,000	$	5,602,000

Information regarding impaired loans is as follows:


For the years ended December 31,	2022		2021		2020
Average investment in impaired loans	$	9,536,000	$	13,121,000	$	21,088,000
Interest income recognized on impaired loans, all on cash basis	204,000		242,000		478,000


As of December 31,	2022		2021
Balance of impaired loans	$	6,160,000	$	12,052,000
Less portion for which no allowance for loan losses is allocated	(4,359,000)		(8,968,000)
Portion of impaired loan balance for which an allowance for loan losses is allocated	$	1,801,000	$	3,084,000
Portion of allowance for loan losses allocated to the impaired loan balance	$	398,000	$	576,000

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 December 31, 2022, 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	$	1,236,000	$	1,532,000	$	—	$	1,440,000	$	50,000
Construction	685,000		687,000		—		81,000		35,000
Other	301,000		348,000		—		408,000		13,000
Municipal	—		—		—		—		—
Residential
Term	1,833,000		2,035,000		—		4,507,000		56,000
Construction	—		—		—		—		—
Home equity line of credit	304,000		340,000		—		295,000		—
Consumer	—		—		—		1,000		—
	$	4,359,000	$	4,942,000	$	—	$	6,732,000	$	154,000
With an Allowance Recorded
Commercial
Real estate	$	—	$	—	$	—	$	11,000	$	—
Construction	—		—		—		606,000		—
Other	545,000		647,000		298,000		693,000		—
Municipal	—		—		—		—		—
Residential
Term	1,256,000		1,259,000		100,000		1,486,000		50,000
Construction	—		—		—		—		—
Home equity line of credit	—		—		—		8,000		—
Consumer	—		—		—		—		—
	$	1,801,000	$	1,906,000	$	398,000	$	2,804,000	$	50,000
Total
Commercial
Real estate	$	1,236,000	$	1,532,000	$	—	$	1,451,000	$	50,000
Construction	685,000		687,000		—		687,000		35,000
Other	846,000		995,000		298,000		1,101,000		13,000
Municipal	—		—		—		—		—
Residential
Term	3,089,000		3,294,000		100,000		5,993,000		106,000
Construction	—		—		—		—		—
Home equity line of credit	304,000		340,000		—		303,000		—
Consumer	—		—		—		1,000		—
	$	6,160,000	$	6,848,000	$	398,000	$	9,536,000	$	204,000

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 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 category as of December 31, 2020, 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	$	2,060,000	$	2,368,000	$	—	$	4,123,000	$	127,000
Construction	89,000		89,000		—		358,000		—
Other	1,591,000		1,623,000		—		999,000		15,000
Municipal	—		—		—		—		—
Residential
Term	7,335,000		8,629,000		—		8,773,000		193,000
Construction	—		—		—		—		—
Home equity line of credit	1,015,000		1,089,000		—		1,219,000		—
Consumer	8,000		8,000		—		1,000		1,000
	$	12,098,000	$	13,806,000	$	—	$	15,473,000	$	336,000
With an Allowance Recorded
Commercial
Real estate	$	969,000	$	995,000	$	112,000	$	1,018,000	$	43,000
Construction	681,000		681,000		18,000		579,000		30,000
Other	188,000		202,000		169,000		1,193,000		3,000
Municipal	—		—		—		—		—
Residential
Term	2,079,000		2,134,000		163,000		2,073,000		65,000
Construction	—		—		—		—		—
Home equity line of credit	24,000		24,000		—		744,000		1,000
Consumer	—		—		—		8,000		—
	$	3,941,000	$	4,036,000	$	462,000	$	5,615,000	$	142,000
Total
Commercial
Real estate	$	3,029,000	$	3,363,000	$	112,000	$	5,141,000	$	170,000
Construction	770,000		770,000		18,000		937,000		30,000
Other	1,779,000		1,825,000		169,000		2,192,000		18,000
Municipal	—		—		—		—		—
Residential
Term	9,414,000		10,763,000		163,000		10,846,000		258,000
Construction	—		—		—		—		—
Home equity line of credit	1,039,000		1,113,000		—		1,963,000		1,000
Consumer	8,000		8,000		—		9,000		1,000
	$	16,039,000	$	17,842,000	$	462,000	$	21,088,000	$	478,000

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 December 31, 2022, the Company had 29 loans with a value of $4,744,000 that have been classified as TDRs. This compares to 60 loans with a value of $8,341,000 classified as TDRs as of December 31, 2021. The impairment carried as a specific reserve in the allowance for loan losses for TDRs is calculated by present valuing the cash flow modification on the loan, 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 December 31, 2022:


	Number of Loans	Balance		Specific Reserves
Commercial
Real estate	5	$	1,044,000	$	—
Construction	1	661,000		—
Other	3	361,000		81,000
Municipal	—	—		—
Residential
Term	20	2,678,000		100,000
Construction	—	—		—
Home equity line of credit	—	—		—
Consumer	—	—		—
	29	$	4,744,000	$	181,000

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

As of December 31, 2022, one of the loans classified as TDR with a total balance of $97,000 was more than 30 days past due and was not placed on TDR status in the previous 12 months. The following table shows past-due TDRs by class and the associated specific reserves included in the allowance for loan losses as of December 31, 2022:


	Number of Loans	Balance		Specific Reserves
Commercial
Real estate	—	$	—	—
Construction	—	—		—
Other	1	97,000		—
Municipal	—	—		—
Residential
Term	—	—		—
Construction	—	—		—
Home equity line of credit	—	—		—
Consumer	—	—		—
	1	$	97,000	—

As of December 31, 2021, five of the loans classified as TDRs with a total balance of $349,000 were more than 30 days past due. One of these loans had been placed on TDR status in the previous 12 months. The following table shows past-due TDRs by class and the associated specific reserves included in the allowance for loan losses as of December 31, 2021:


	Number of Loans	Balance		Specific Reserves
Commercial
Real estate	—	$	—	—
Construction	—	—		—
Other	1	83,000		—
Municipal	—	—		—
Residential
Term	4	266,000		—
Construction	—	—		—
Home equity line of credit	—	—		—
Consumer	—	—		—
	5	$	349,000	—

For the year ended December 31, 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 December 31, 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 year ended December 31, 2021, four loans were placed in TDR status. The following table shows these TDRs by class and the associated specific reserves included in the allowance for loan losses as for December 31, 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	251,000		247,000		247,000
Municipal	—	—		—		—
Residential
Term	2	142,000		124,000		—
Construction	—	—		—		—
Home equity line of credit	—	—		—		—
Consumer	—	—		—		—
	4	$	473,000	$	451,000	$	247,000

As of December 31, 2022, Management is aware of four loans classified as TDRs that are involved in bankruptcy with an outstanding balance of $550,000. As of December 31, 2022, there were five loans with an outstanding balance of $339,000 that were classified as TDRs and were on non-accrual status, of which none were in the process of foreclosure.

Residential Mortgage Loans in Process of Foreclosure

As of December 31, 2022, there were two mortgage loans collateralized by residential real estate in the process of foreclosure with a balance of $166,000; this compares to four mortgage loans collateralized by residential real estate in the process of foreclosure with a total balance of $367,000 as of December 31, 2021.