Loans

6 Months Ended

Jun. 30, 2023

Receivables [Abstract]

Loans

Loans

Upon adoption of ASU 2016-13/ASC 326, the CECL standard, as described in Notes 4 and 16 of these financial statements, the Company updated the segmentation of its loan portfolio. The updates primarily consist of reporting what had been a single class, commercial real estate loans, as three classes - commercial real estate owner occupied, commercial real estate non-owner occupied, and commercial multi-family. In addition home equity installment loans which had previously been included in the residential term class are now included in the home equity revolving and term class. Loan data as of June 30, 2023 is reported herein with the new class structure while certain prior period data retains the prior class structure.

Loan Portfolio by Class: The following table shows the composition of the Company's loan portfolio by class of financing receivable as of June 30, 2023 and 2022 and at December 31, 2022:

	June 30, 2023				December 31, 2022				June 30, 2022
Commercial
Real estate owner occupied	$	301,320,000	14.6	%	$	256,623,000	13.4	%	$	242,161,000	13.5	%
Real estate non-owner occupied	396,388,000		19.2	%	363,660,000		19.0	%	306,471,000		17.2	%
Construction	64,094,000		3.1	%	93,907,000		4.9	%	128,927,000		7.2	%
C&I	351,854,000		17.1	%	319,359,000		16.7	%	275,714,000		15.4	%
Multifamily	93,124,000		4.5	%	79,057,000		4.1	%	68,856,000		3.9	%
Municipal	58,252,000		2.8	%	40,619,000		2.1	%	46,835,000		2.6	%
Residential
Term	645,127,000		31.4	%	597,404,000		31.2	%	571,111,000		31.9	%
Construction	30,812,000		1.5	%	49,907,000		2.6	%	44,011,000		2.5	%
Home Equity
Revolving and term	99,666,000		4.8	%	93,075,000		4.9	%	82,913,000		4.6	%
Consumer	20,316,000		1.0	%	21,063,000		1.1	%	21,356,000		1.2	%
Total	$	2,060,953,000	100.0	%	$	1,914,674,000	100.0	%	$	1,788,355,000	100.0	%

Loan balances include net deferred loan costs of $10,824,000 as of June 30, 2023, $10,132,000 as of December 31, 2022, and $9,738,000 as of June 30, 2022. Net deferred loan costs have increased from a year ago and year-to-date due to loan origination unit volume over the period. Pursuant to collateral agreements, qualifying first mortgage loans and commercial real estate loans, which totaled $541,345,000 at June 30, 2023, were used to collateralize borrowings from the FHLB. This compares to qualifying loans which totaled $475,233,000 at December 31, 2022, and $461,756,000 at June 30, 2022. In addition, commercial, residential construction and home equity loans totaling $331,836,000 at June 30, 2023, $338,636,000 at December 31, 2022, and $345,798,000 at June 30, 2022, were used to collateralize a standby line of credit at the FRB.

Past Due Loans: 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, 2023, 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 owner occupied	$	37,000	$	—	$	—	$	37,000	$	301,283,000	$	301,320,000	$	—
Real estate non-owner occupied	—		—		—		—		396,388,000		396,388,000		—
Construction	—		—		8,000		8,000		64,086,000		64,094,000		—
C&I	346,000		43,000		147,000		536,000		351,318,000		351,854,000		—
Multifamily	—		—		—		—		93,124,000		93,124,000		—
Municipal	—		—		—		—		58,252,000		58,252,000		—
Residential
Term	58,000		1,205,000		376,000		1,639,000		643,488,000		645,127,000		298,000
Construction	—		—		—		—		30,812,000		30,812,000		—
Home equity
Revolving and term	177,000		—		193,000		370,000		99,296,000		99,666,000		7,000
Consumer	202,000		36,000		14,000		252,000		20,064,000		20,316,000		13,000
Total	$	820,000	$	1,284,000	$	738,000	$	2,842,000	$	2,058,111,000	$	2,060,953,000	$	318,000

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		596,952,000		597,404,000		118,000
Construction	—		—		—		—		49,907,000		49,907,000		—
Home equity line of credit	241,000		29,000		151,000		421,000		92,654,000		93,075,000		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

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		569,076,000		571,111,000		72,000
Construction	—		—		—		—		44,011,000		44,011,000		—
Home equity line of credit	186,000		—		—		186,000		82,727,000		82,913,000		—
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

Non-Accrual Loans: 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 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.

The following table presents the amortized costs basis of loans on nonaccrual status as of June 30, 2023, December 31, 2022 and June 30, 2022:

	June 30, 2023						December 31, 2022		June 30, 2022
	Nonaccrual with Allowance for Credit Loss		Nonaccrual with no Allowance for Credit Loss		Total Nonaccrual		Total Nonaccrual		Total Nonaccrual
Commercial
Real estate owner occupied	$	—	$	—	$	—	$	193,000	$	197,000
Real estate non-owner occupied	—		—		—		—		—
Construction	—		30,000		30,000		23,000		25,000
C&I	372,000		283,000		655,000		663,000		953,000
Multifamily	—		—		—		—		—
Municipal	—		—		—		—		—
Residential
Term	—		533,000		533,000		572,000		3,383,000
Construction	—		—		—		—		—
Home equity
Revolving and term	—		458,000		458,000		304,000		254,000
Consumer	—		—		—		—		—
Total	$	372,000	$	1,304,000	$	1,676,000	$	1,755,000	$	4,812,000

Individually Analyzed Loans: Individually analyzed loans include loans placed on non-accrual and loans reported as TDR prior to adoption of ASU 2022-02 Troubled Debt Restructurings and Vintage Disclosures, with balances of $250,000 or more. 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 individually analyzed 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 individually analyzed loan is lower than the recorded investment in the loan and estimated selling costs, the difference is written off.

The following table presents the amortized cost basis of collateral-dependent loans as of June 30, 2023 by collateral type:

	Collateral Type
	Commercial Real Estate		Residential Real Estate		Total
Commercial
Real estate owner occupied	$	—	$	—	$	—
Real estate non-owner occupied	725,000		—		725,000
Construction	—		—		—
C&I	—		—		—
Residential
Term	—		385,000		385,000
Home Equity
Revolving and term	—		—		—
Total	$	725,000	$	385,000	$	1,110,000

Collateral-dependent loans are loans for which the repayment is expected to be provided substantially by the underlying collateral and there are no other available and reliable sources of repayment.

A breakdown of individually analyzed loans by class of financing receivable as of and for the period ended June 30, 2023 is presented in the following table:

							For the six months ended June 30, 2023				For the quarter ended June 30, 2023
	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 owner occupied	$	—	$	—	$	—	$	214,000	$	—	$	61,000	$	—
Real estate non-owner occupied	725,000		841,000		—		805,000		12,000		764,000		5,000
Construction	—		—		—		235,000		—		8,000		—
C&I	—		—		—		108,000		—		39,000		—
Multifamily	—		—		—		—		—		—		—
Municipal	—		—		—		—		—		—		—
Residential
Term	385,000		412,000		—		1,273,000		7,000		853,000		5,000
Construction	—		—		—		—		—		—		—
Home Equity
Revolving and term	—		—		—		357,000		—		179,000		—
Consumer	—		—		—		—		—		—		—
	$	1,110,000	$	1,253,000	$	—	$	2,992,000	$	19,000	$	1,904,000	$	10,000
With an Allowance Recorded
Commercial
Real estate owner occupied	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Real estate non-owner occupied	—		—		—		—		—		—		—
Construction	—		—		—		—		—		—		—
C&I	372,000		458,000		157,000		571,000		—		483,000		—
Multifamily	—		—		—		—		—		—		—
Municipal	—		—		—		—		—		—		—
Residential
Term	514,000		514,000		29,000		991,000		12,000		751,000		6,000
Construction	—		—		—		—		—		—		—
Home Equity
Revolving and term	—		—		—		14,000		—		7,000		—
Consumer	—		—		—		—		—		—		—
	$	886,000	$	972,000	$	186,000	$	1,576,000	$	12,000	$	1,241,000	$	6,000
Total
Commercial
Real estate owner occupied	$	—	$	—	$	—	$	214,000	$	—	$	61,000	$	—
Real estate non-owner occupied	725,000		841,000		—		805,000		12,000		764,000		5,000
Construction	—		—		—		235,000		—		8,000		—
C&I	372,000		458,000		157,000		679,000		—		522,000		—
Multifamily	—		—		—		—		—		—		—
Municipal	—		—		—		—		—		—		—
Residential
Term	899,000		926,000		29,000		2,264,000		19,000		1,604,000		11,000
Construction	—		—		—		—		—		—		—
Home Equity
Revolving and term	—		—		—		371,000		—		186,000		—
Consumer	—		—		—		—		—		—		—
	$	1,996,000	$	2,225,000	$	186,000	$	4,568,000	$	31,000	$	3,145,000	$	16,000

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

A breakdown of individually analyzed loans by class of financing receivable as of and for the year ended 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

A breakdown of individually analyzed 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

Loan Modifications: ASU 2022-02 amends ASC 326 for entities that have adopted ASU 2016-13, the CECL standard, such as the Company. ASU 2022-02 eliminates the accounting guidance for TDRs and introduces new guidance for enhanced reporting of certain loan modifications to borrowers experiencing financial difficulty. Loan modifications may include interest rate reduction, term extension, payment deferral, principle forgiveness or a combination thereof. It is the intent to minimize future losses while providing borrowers with financial relief.

The following table represents loan modifications made to borrowers experiencing financial difficulty by modification type and class of financing receivable, during the three months ended June 30, 2023:

	Term Extension
	Amortized Cost Basis at June 30, 2023	% of Total Class of Financing Receivable
C&I	$4,000	0.001%
Total	$4,000

The following table describes the financial effect of the modifications made to borrowers experiencing financial difficulty for the three months ended June 30, 2023:

Term Extension
	Financial Effect
C&I	Extended Term 90 days

The Company monitors the performance of the loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. The following table depicts the performance of loans that have been modified during the six months ended June 30, 2023:

	Payment Status (Amortized Cost Basis)
	Current	30-59 Days Past Due		60-89 Days Past Due		90+ Days Past Due
C&I	$253,000	$	—	$	—	$	—
Total	$253,000	$	—	$	—	$	—

Troubled Debt Restructured: Prior to adoption of ASU 2022-02, the Company evaluated loan modifications and other transactions to determine if classification as a TDR was necessary. 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 was to be classified as a TDR, Management evaluated 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 balance of $4,744,000 that were classified as TDRs. 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 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

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	$	—

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	$	—

As of December 31, 2022, Management was 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 June 30, 2023, there were no mortgage loans collateralized by residential real estate in the process of foreclosure. This compares to two mortgage loans collateralized by residential real estate in the process of foreclosure with a total balance of $166,000 as of December 31, 2022, and five mortgage loans collateralized by residential real estate in the process of foreclosure with a total balance of $537,000 as of June 30, 2022.