Loans and the Allowance for Credit Losses

9 Months Ended

Sep. 30, 2023

Receivables [Abstract]

Loans and the Allowance for Credit Losses

7. LOANS AND THE ALLOWANCE FOR CREDIT LOSSES

Loans outstanding are detailed by category as follows:

	September 30, 2023		December 31, 2022
	(dollars in thousands)
Residential mortgage
Mortgages - fixed rate	$	802,631	$	902,968
Mortgages - adjustable rate		766,104		703,958
Construction		52,048		35,299
Deferred costs, net of unearned fees		6,677		6,613
Total residential mortgages		1,627,460		1,648,838
Commercial mortgage
Mortgages - non-owner occupied		1,641,197		1,592,732
Mortgages - owner occupied		168,725		183,591
Construction		110,301		135,782
Deferred costs, net of unearned fees		2,232		2,318
Total commercial mortgages		1,922,455		1,914,423
Home equity
Home equity - lines of credit		90,230		108,961
Home equity - term loans		2,886		2,098
Deferred costs, net of unearned fees		248		292
Total home equity		93,364		111,351
Commercial and industrial
Commercial and industrial		354,368		349,026
Paycheck Protection Program loans		841		1,384
Unearned fees, net of deferred costs		587		240
Total commercial and industrial		355,796		350,650
Consumer
Secured		27,312		35,679
Unsecured		1,565		1,897
Deferred costs, net of unearned fees		15		18
Total consumer		28,892		37,594
Total loans	$	4,027,967	$	4,062,856

The balance of accrued interest receivable excluded from amortized cost and the calculation of the allowance for credit losses amounted to $13.0 million and $11.6 million as of September 30, 2023 and December 31, 2022, respectively, and is included within accrued interest receivable on the Consolidated Balance Sheets.

Directors and officers of the Company and their associates are clients of, and have other transactions with the Company in the normal course of business. All loans and commitments included in such transactions were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons and do not involve more than normal risk of collection or present other unfavorable features.

Asset Quality

The Company’s philosophy toward managing its loan portfolios is predicated upon careful monitoring, which stresses early detection and response to delinquent and default situations. The Company seeks to make arrangements to resolve any delinquent or default

situation over the shortest possible time frame. As a general rule, loans more than 90 days past due with respect to principal or interest are classified as non-accrual loans. The Company may use discretion regarding other loans over 90 days past due if the loan is well secured and/or in process of collection.

The following tables set forth information regarding non-performing loans disaggregated by loan category:

	September 30, 2023
	Residential Mortgage		Commercial Mortgage		Home Equity		Commercial and Industrial		Total
	(dollars in thousands)
Non-performing loans:
Non-accrual loans	$	6,742	$	583	$	384	$	69	$	7,778
Total	$	6,742	$	583	$	384	$	69	$	7,778

	December 31, 2022
	Residential Mortgage		Commercial Mortgage		Home Equity		Commercial and Industrial		Total
	(dollars in thousands)
Non-performing loans:
Non-accrual loans	$	4,733	$	311	$	722	$	73	$	5,839
Troubled debt restructurings		622		—		—		81	$	703
Total	$	5,355	$	311	$	722	$	154	$	6,542

It is the Company’s policy to reverse any accrued interest when a loan is put on non-accrual status. The Company did not record any interest income on non-accrual loans during the years ended September 30, 2023 and December 31, 2022.

There were no significant commitments to lend additional funds to borrowers whose loans were on non-accrual status at September 30, 2023 and December 31, 2022.

Loan Modifications and Restructurings

The Company adopted ASU 2022-02, which eliminates the recognition and measurement of TDRs. Due to the removal of the TDR designation, the Company evaluates all loan restructurings according to the accounting guidance for loan modifications to determine if the restructuring results in a new loan or a continuation of the existing loan. Loan modifications to borrowers experiencing financial difficulty that result in a change in the timing or amount of contractual cash flows include situations where there is principal forgiveness, interest rate reductions, other-than-insignificant payment delays, term extensions, and combinations of the listed modifications. Therefore, the disclosures related to loan restructurings are only for modifications that directly affect cash flows.

The allowance for credit losses incorporates an estimate of lifetime expected credit losses and is recorded on each asset upon origination. The starting point for the estimate of the allowance for credit losses is historical loss information, which includes losses from modifications of receivables to borrowers experiencing financial difficulty. The Company uses a discounted cash flow model to determine the allowance for credit losses. An assessment of whether a borrower is experiencing financial difficulty is made at the time of a modification. Because the effect of most modifications made to borrowers experiencing financial difficulty is already included in the allowance for credit losses, a change to the allowance for credit losses is generally not recorded upon modification.

At September 30, 2023, the Company had no loan modifications or restructurings due to borrower financial difficulty.

Foreclosure proceedings

As of September 30, 2023, there were four loans in process of foreclosure with a carrying value of approximately $1.7 million. All of these loans are secured by one to four family residential property. As of December 31, 2022, there were no loans in process of foreclosure.

Loans by Credit Quality Indicator

With respect to residential real estate mortgages, home equity, and consumer loans, the Company utilizes the following categories as indicators of credit quality:

•Performing – These loans are accruing and are considered having low to moderate risk.

•Non-performing – These loans are on non-accrual, are more than 90 days past due but are still accruing, or are restructured. These loans may contain greater than average risk.

With respect to commercial real estate mortgages and commercial loans, the Company utilizes a 10-grade internal loan rating system as an indicator of credit quality. The grades are as follows:

•Loans rated 1-6 (Pass) – These loans are considered “pass” rated with low to moderate risk.

•Loans rated 7 (Special Mention) – These loans have potential weaknesses warranting close attention, which, if left uncorrected, may result in deterioration of the credit at some future date.

•Loans rated 8 (Substandard) – These loans have well-defined weaknesses that jeopardize the orderly liquidation of the debt under the original loan terms. Loss potential exists but is not identifiable in any one client.

•Loans rated 9 (Doubtful) – These loans have pronounced weaknesses that make full collection highly questionable and improbable.

•Loans rated 10 (Loss) – These loans are considered uncollectible and continuance as a bankable asset is not warranted.

The following tables contain period-end balances of loans receivable disaggregated by credit quality indicator:

	Credit Quality Indicator - by Origination Year as of September 30, 2023
	2023		2022		2021		2020		2019		Prior		Revolving loans amortized cost basis		Total
	(dollars in thousands)
Residential Mortgage:
Current	$	69,513	$	334,679	$	509,090	$	281,397	$	112,467	$	313,572	$	—	$	1,620,718
Non-performing		—		—		—		197		1,741		4,804		—		6,742
Total	$	69,513	$	334,679	$	509,090	$	281,594	$	114,208	$	318,376	$	—	$	1,627,460
Current-period gross write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Home equity:
Current	$	4,904	$	4,335	$	2,590	$	1,554	$	3,037	$	14,635	$	61,925	$	92,980
Non-performing		—		—		—		—		—		384		—		384
Total	$	4,904	$	4,335	$	2,590	$	1,554	$	3,037	$	15,019	$	61,925	$	93,364
Current-period gross write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Consumer:
Current	$	9,346	$	8,080	$	3,765	$	2,713	$	693	$	3,733	$	562	$	28,892
Non-performing		—		—		—		—		—		—		—		—
Total	$	9,346	$	8,080	$	3,765	$	2,713	$	693	$	3,733	$	562	$	28,892
Current-period gross write-offs	$	—	$	—	$	—	$	—	$	—	$	61	$	—	$	61

	Credit Quality Indicator - by Origination Year as of September 30, 2023
	2023		2022		2021		2020		2019		Prior		Revolving loans amortized cost basis		Total
	(dollars in thousands)
Commercial Mortgage:
Credit risk profile by internally    assigned grade:
1-6 (Pass)	$	39,862	$	460,104	$	369,863	$	228,365	$	265,300	$	475,177	$	—	$	1,838,671
7 (Special Mention)		1,836		—		—		2,059		43,905		26,138		—		73,938
8 (Substandard)		—		—		—		—		—		9,846		—		9,846
9 (Doubtful)		—		—		—		—		—		—		—		—
10 (Loss)		—		—		—		—		—		—		—		—
Total	$	41,698	$	460,104	$	369,863	$	230,424	$	309,205	$	511,161	$	—	$	1,922,455
Current-period gross write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial and Industrial:
Credit risk profile by internally    assigned grade:
1-6 (Pass)	$	46,078	$	127,841	$	52,592	$	53,802	$	22,634	$	41,426	$	405	$	344,778
7 (Special Mention)		572		5,118		121		2,795		183		121		10		8,920
8 (Substandard)		—		—		—		264		1,701		133		—		2,098
9 (Doubtful)		—		—		—		—		—		—		—		—
10 (Loss)		—		—		—		—		—		—		—		—
Total	$	46,650	$	132,959	$	52,713	$	56,861	$	24,518	$	41,680	$	415	$	355,796
Current-period gross write-offs	$	—	$	—	$	—	$	—	$	—	$	62	$	—	$	62

	Credit Quality Indicator - by Origination Year as of December 31, 2022
	2022		2021		2020		2019		2018		Prior		Revolving loans amortized cost basis		Total
	(dollars in thousands)
Residential Mortgage:
Current	$	314,599	$	511,217	$	276,698	$	113,251	$	77,620	$	350,098	$	—	$	1,643,483
Non-performing		—		—		206		315		684		4,150		—		5,355
Total	$	314,599	$	511,217	$	276,904	$	113,566	$	78,304	$	354,248	$	—	$	1,648,838
Home equity:
Current	$	3,611	$	—	$	—	$	58	$	360	$	481	$	106,119	$	110,629
Non-performing		—		—		—		—		—		—		722		722
Total	$	3,611	$	—	$	—	$	58	$	360	$	481	$	106,841	$	111,351
Consumer:
Current	$	13,214	$	8,482	$	5,353	$	444	$	2,078	$	7,424	$	599	$	37,594
Non-performing		—		—		—		—		—		—		—		—
Total	$	13,214	$	8,482	$	5,353	$	444	$	2,078	$	7,424	$	599	$	37,594

	Credit Quality Indicator - by Origination Year as of December 31, 2022
	2022		2021		2020		2019		2018		Prior		Revolving loans amortized cost basis		Total
	(dollars in thousands)
Commercial Mortgage:
Credit risk profile by internally    assigned grade:
1-6 (Pass)	$	411,927	$	330,593	$	222,073	$	260,588	$	125,398	$	489,564	$	—	$	1,840,143
7 (Special Mention)		—		—		4,562		41,578		21,697		6,132		—		73,969
8 (Substandard)		—		—		—		—		—		311		—		311
9 (Doubtful)		—		—		—		—		—		—		—		—
10 (Loss)		—		—		—		—		—		—		—		—
Total	$	411,927	$	330,593	$	226,635	$	302,166	$	147,095	$	496,007	$	—	$	1,914,423
Commercial and Industrial:
Credit risk profile by internally    assigned grade:
1-6 (Pass)	$	128,301	$	67,727	$	62,025	$	28,557	$	18,794	$	36,836	$	475	$	342,715
7 (Special Mention)		—		4,211		130		161		407		121		10		5,040
8 (Substandard)		—		—		628		2,102		81		84		—		2,895
9 (Doubtful)		—		—		—		—		—		—		—		—
10 (Loss)		—		—		—		—		—		—		—		—
Total	$	128,301	$	71,938	$	62,783	$	30,820	$	19,282	$	37,041	$	485	$	350,650

Delinquencies

The past due status of a loan is determined in accordance with its contractual repayment terms. All loan types are reported past due when one scheduled payment is due and unpaid for 30 days or more. Loan delinquencies can be attributed to many factors, such as but not limited to, a continuing weakness in, or deteriorating, economic conditions in the region in which the collateral is located, the loss of a tenant or lower lease rates for commercial borrowers, or the loss of income for consumers and the resulting liquidity impacts on the borrowers.

The following tables contain period-end balances of loans receivable disaggregated by past due status:

	September 30, 2023
	30-59 Days		60-89 Days		90 Days or Greater		Total Past Due		Current Loans		Total
	(dollars in thousands)
Residential mortgage	$	20,158	$	1,064	$	2,964	$	24,186	$	1,603,274	$	1,627,460
Commercial mortgage		667		—		—		667		1,921,788		1,922,455
Home equity		1,202		28		282		1,512		91,852		93,364
Commercial and industrial		21		363		9		393		355,403		355,796
Consumer		7		—		—		7		28,885		28,892
Total	$	22,055	$	1,455	$	3,255	$	26,765	$	4,001,202	$	4,027,967

	December 31, 2022
	30-59 Days		60-89 Days		90 Days or Greater		Total Past Due		Current Loans		Total
	(dollars in thousands)
Residential mortgage	$	11,359	$	1,454	$	1,809	$	14,622	$	1,634,216	$	1,648,838
Commercial mortgage		—		—		—		—		1,914,423		1,914,423
Home equity		962		393		214		1,569		109,782		111,351
Commercial and industrial		65		269		—		334		350,316		350,650
Consumer		81		—		—		81		37,513		37,594
Total	$	12,467	$	2,116	$	2,023	$	16,606	$	4,046,250	$	4,062,856

There were no loans 90 days or more past due and still accruing at September 30, 2023 or December 31, 2022.

There were no significant commitments to lend additional funds to borrowers whose loans were on non-accrual status at September 30, 2023 and December 31, 2022.

Allowance for Credit Losses

The following tables contain changes in the allowance for credit losses disaggregated by loan category:

	Three Months Ended September 30, 2023
	Residential Mortgage			Commercial Mortgage		Home Equity		Commercial & Industrial			Consumer			Unfunded Commitments		Total
	(dollars in thousands)
Allowance for credit loss:
Allowance for credit losses - loan    portfolio:
Balance at June 30, 2023	$	13,597		$	19,299	$	468	$	4,252		$	457		$	—	$	38,073
Charge-offs		—			—		—		(51	)		(36	)		—		(87	)
Recoveries		—			—		—		9			4			—		13
Provision for (release of) credit    losses - loan portfolio		(4,676	)		3,665		150		843			213			—		195
Allowance for credit losses -    loan portfolio at September 30, 2023	$	8,921		$	22,964	$	618	$	5,053		$	638		$	—	$	38,194
Allowance for credit losses -    unfunded commitments:
Balance at June 30, 2023	$	—		$	—	$	—	$	—		$	—		$	1,931	$	1,931
Provision for (release of) credit    losses - unfunded commitments		—			—		—		—			—			—		—
Allowance for credit losses-    unfunded commitments at September 30, 2023	$	—		$	—	$	—	$	—		$	—		$	1,931	$	1,931
Total allowance for credit loss	$	8,921		$	22,964	$	618	$	5,053		$	638		$	1,931	$	40,125

	Nine Months Ended September 30, 2023
	Residential Mortgage			Commercial Mortgage		Home Equity		Commercial & Industrial			Consumer			Unfunded Commitments			Total
	(dollars in thousands)
Allowance for credit loss:
Allowance for credit losses - loan    portfolio:
Balance at December 31, 2022	$	13,321		$	19,086	$	573	$	4,153		$	641		$	—		$	37,774
Charge-offs		—			—		—		(62	)		(61	)		—			(123	)
Recoveries		—			—		—		28			15			—			43
Provision for (release of) credit    losses - loan portfolio		(4,400	)		3,878		45		934			43			—			500
Allowance for credit losses -    loan portfolio at September 30, 2023	$	8,921		$	22,964	$	618	$	5,053		$	638		$	—		$	38,194
Allowance for credit losses -    unfunded commitments:
Balance at December 31, 2022	$	—		$	—	$	—	$	—		$	—		$	2,096		$	2,096
Provision for (release of) credit    losses - unfunded commitments		—			—		—		—			—			(165	)		(165	)
Allowance for credit losses-    unfunded commitments at September 30, 2023	$	—		$	—	$	—	$	—		$	—		$	1,931		$	1,931
Total allowance for credit loss	$	8,921		$	22,964	$	618	$	5,053		$	638		$	1,931		$	40,125

	Three Months Ended September 30, 2022
	Residential Mortgages		Commercial Mortgages			Home Equity		Commercial & Industrial		Consumer			Unfunded Commitments			Total
	(dollars in thousands)
Allowance for credit loss:
Allowance for credit losses - loan    portfolio:
Balance at June 30, 2022	$	12,639	$	17,767		$	400	$	2,852	$	466		$	—		$	34,124
Charge-offs		—		—			—		—		—			—			—
Recoveries		—		—			—		10		—			—			10
Provision for (release of) credit    losses - loan portfolio		604		(538	)		48		549		(49	)		—			614
Allowance for credit losses - loan portfolio at September 30, 2022	$	13,243	$	17,229		$	448	$	3,411	$	417		$	—		$	34,748
Allowance for credit losses -    unfunded commitments:
Balance at June 30, 2022	$	—	$	—		$	—	$	—	$	—		$	1,371		$	1,371
Release of credit losses - unfunded commitments		—		—			—		—		—			(2	)		(2	)
Allowance for credit losses-    unfunded commitments at September 30, 2022		—		—			—		—		—			1,369			1,369
Total allowance for credit loss	$	13,243	$	17,229		$	448	$	3,411	$	417		$	1,369		$	36,117

	Nine Months Ended September 30, 2022
	Residential Mortgages			Commercial Mortgages		Home Equity		Commercial & Industrial			Consumer			Unfunded Commitments			Total
	(dollars in thousands)
Allowance for credit loss:
Allowance for credit losses - loan    portfolio:
Balance at December 31, 2021	$	13,383		$	17,133	$	406	$	2,989		$	585		$	—		$	34,496
Charge-offs		—			—		—		(3	)		(28	)		—			(31	)
Recoveries		—			—		—		56			12			—			68
Provision for (release of) credit    losses - loan portfolio		(140	)		96		42		369			(152	)		—			215
Allowance for credit losses - loan portfolio at September 30, 2022	$	13,243		$	17,229	$	448	$	3,411		$	417		$	—		$	34,748
Allowance for credit losses -    unfunded commitments:
Balance at December 31, 2021	$	—		$	—	$	—	$	—		$	—		$	1,384		$	1,384
Release of credit    losses - unfunded commitments		—			—		—		—			—			(15	)		(15	)
Allowance for credit losses-    unfunded commitments at September 30, 2022		—			—		—		—			—			1,369			1,369
Total allowance for credit loss	$	13,243		$	17,229	$	448	$	3,411		$	417		$	1,369		$	36,117