Loans

3 Months Ended

Mar. 31, 2024

Loans and Leases Receivable Disclosure [Abstract]

(4.) LOANS

The Company’s loan portfolio consisted of the following as of the dates indicated (in thousands):


	Principal Amount Outstanding		Net Deferred Loan (Fees) Costs			Loans, Net
March 31, 2024
Commercial business	$	706,756	$	808		$	707,564
Commercial mortgage		2,048,580		(3,524	)		2,045,056
Residential real estate loans		635,849		12,311			648,160
Residential real estate lines		72,307		3,361			75,668
Consumer indirect		889,129		31,299			920,428
Other consumer		45,243		(73	)		45,170
Total	$	4,397,864	$	44,182			4,442,046
Allowance for credit losses – loans							(43,075	)
Total loans, net						$	4,398,971
December 31, 2023
Commercial business	$	734,947	$	753		$	735,700
Commercial mortgage		2,009,269		(3,950	)		2,005,319
Residential real estate loans		637,173		12,649			649,822
Residential real estate lines		73,972		3,395			77,367
Consumer indirect		915,723		33,108			948,831
Other consumer		45,167		(67	)		45,100
Total	$	4,416,251	$	45,888			4,462,139
Allowance for credit losses – loans							(51,082	)
Total loans, net						$	4,411,057

Loans held for sale (not included above) were comprised entirely of residential real estate mortgages and totaled $504 thousand and $1.4 million as of March 31, 2024 and December 31, 2023, respectively.

The Company sells certain qualifying newly originated or refinanced residential real estate loans on the secondary market. Residential real estate loans serviced for others, which are not included in the consolidated statements of financial condition, amounted to $268.7 million and $269.4 million as of March 31, 2024 and December 31, 2023, respectively.

The Company elected to exclude AIR from the amortized cost basis of loans disclosed throughout this footnote. As of March 31, 2024, and December 31, 2023, AIR for loans totaled $22.0 million and $21.8 million, respectively, and is included in other assets on the Company’s consolidated statements of financial condition.

(4.) LOANS (Continued)

Past Due Loans Aging

The Company’s recorded investment, by loan class, in current and nonaccrual loans, as well as an analysis of accruing delinquent loans is set forth as of the dates indicated (in thousands):


	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Nonaccrual		Current		Total Loans		Nonaccrual with no allowance
March 31, 2024
Commercial business	$	2,950	$	—	$	—	$	2,950	$	5,956	$	697,850	$	706,756	$	315
Commercial mortgage		—		36		—		36		10,826		2,037,718		2,048,580		10,826
Residential real estate loans		1,481		—		—		1,481		6,797		627,571		635,849		6,797
Residential real estate lines		68		119		—		187		235		71,885		72,307		235
Consumer indirect		6,578		1,546		—		8,124		2,880		878,125		889,129		2,880
Other consumer		86		6		36		128		—		45,115		45,243		—
Total loans, gross	$	11,163	$	1,707	$	36	$	12,906	$	26,694	$	4,358,264	$	4,397,864	$	21,053
December 31, 2023
Commercial business	$	341	$	—	$	—	$	341	$	5,664	$	728,942	$	734,947	$	341
Commercial mortgage		5,900		727		—		6,627		10,563		1,992,079		2,009,269		10,563
Residential real estate loans		2,614		80		—		2,694		6,364		628,115		637,173		6,364
Residential real estate lines		163		20		—		183		221		73,568		73,972		221
Consumer indirect		16,128		3,204		—		19,332		3,814		892,577		915,723		3,814
Other consumer		122		27		21		170		13		44,984		45,167		13
Total loans, gross	$	25,268	$	4,058	$	21	$	29,347	$	26,639	$	4,360,265	$	4,416,251	$	21,316

There were $36 thousand and $21 thousand in consumer overdrafts which were past due greater than 90 days as of March 31, 2024 and December 31, 2023. Consumer overdrafts are overdrawn deposit accounts which have been reclassified as loans but by their terms do not accrue interest.

Interest income on nonaccrual loans, if recognized, is recorded using the cash basis method of accounting. There was no interest income recognized on nonaccrual loans during the three months ended March 31, 2024 and 2023. Estimated interest income of $132 thousand and $122 thousand for the three months ended March 31, 2024 and 2023, respectively, would have been recorded if all such loans had been accruing interest according to their original contractual terms.

Loan Modifications for Borrower Experiencing Financial Difficulty

Loans may be modified when it is determined that a borrower is experiencing financial difficulty. Loan modifications may include principal forgiveness, interest rate reduction, an other-than-insignificant payment delay, and term extensions, or a combination of these concessions.

The following table presents the amortized cost basis of loans modified to borrowers experiencing financial difficulty, disaggregated by loan class and type of concession granted as of March 31, 2024 (in thousands):


	Term Extension
	Amortized Cost Basis		% of Total Loans
Loan Type
Commercial business	$	—		0.0	%
Commercial mortgage		—		0.0	%
Residential real estate loans		1,506		0.2	%
Residential real estate lines		—		0.0	%
Consumer indirect		—		0.0	%
Other consumer		—		0.0	%
Total	$	1,506		0.0	%

The following table describes the financial effect of the modifications made to borrowers experiencing financial difficulty:


Term Extension
Loan Type		Financial Effect
Residential real estate loans		Added a weighted average 10.0 years to the life of the loans, which reduced monthly payment amount for the borrower.

(4.) LOANS (Continued)

The Company closely monitors the performance of 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 in the three months ended March 31, 2024 (in thousands):


	Payment Status (Amortized Cost Basis)
	Current		30-89 Days Past Due		90+ Days Past Due
Loan Type
Commercial business	$	-	$	-	$	-
Commercial mortgage		-		-		-
Residential real estate loans		865		144		97
Residential real estate lines		-		-		-
Consumer indirect		-		-		-
Other consumer		-		-		-
Total	$	865	$	144	$	97

Collateral Dependent Loans

Management has determined that specific commercial loans on nonaccrual status, all loans that have had their terms restructured when a borrower is experiencing financial difficulty, and other loans deemed appropriate by management where repayment is expected to be provided substantially through the operation or sale of the collateral to be collateral dependent loans. The following table presents the amortized cost basis of collateral dependent loans by collateral type as of March 31, 2024 and December 31, 2023 (in thousands):


	Collateral type
	Business assets		Real property		Total		Specific Reserve
March 31, 2024
Commercial business	$	7,260	$	5,000	$	12,260	$	2,314
Commercial mortgage		—		20,808		20,808		—
Total	$	7,260	$	25,808	$	33,068	$	2,314

December 31, 2023
Commercial business	$	8,698	$	5,000	$	13,698	$	2,198
Commercial mortgage		—		26,575		26,575		559
Total	$	8,698	$	31,575	$	40,273	$	2,757

Credit Quality Indicators

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors such as the fair value of collateral. The Company analyzes commercial business and commercial mortgage loans individually by classifying the loans as to credit risk. Risk ratings are updated any time the situation warrants. The Company uses the following definitions for risk ratings:

Special Mention: Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the Company’s credit position at some future date.

Substandard: Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

Doubtful: Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Loans that do not meet the criteria above that are analyzed individually as part of the process described above are considered “uncriticized” or pass-rated loans and are included in groups of homogeneous loans with similar risk and loss characteristics.

(4.) LOANS (Continued)

The following tables set forth the Company’s commercial loan portfolio, categorized by internally assigned asset classification, as of the dates indicated (in thousands):


	Term Loans Amortized Cost Basis by Origination Year
	2024		2023		2022		2021		2020		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
March 31, 2024
Commercial Business:
Uncriticized	$	7,337	$	107,289	$	96,821	$	75,632	$	39,515	$	74,444	$	277,930	$	—	$	678,968
Special mention		—		7,023		—		2,310		—		950		2,379		—		12,662
Substandard		57		1,243		10		105		27		6		8,570		—		10,018
Doubtful		—		—		5,041		—		—		633		242		—		5,916
Total Commercial Business loans	$	7,394	$	115,555	$	101,872	$	78,047	$	39,542	$	76,033	$	289,121	$	—	$	707,564
Current period gross write-offs	$	—	$	—	$	—	$	—	$	—	$	17	$	—	$	—	$	17

Commercial Mortgage:
Uncriticized	$	25,656	$	364,635	$	629,850	$	317,407	$	209,655	$	429,008	$	—	$	—	$	1,976,211
Special mention		—		—		4,716		17,414		6,825		17,417		—		—		46,372
Substandard		—		—		—		212		895		10,541		—		—		11,648
Doubtful		—		1,394		333		4,098		13		4,987		—		—		10,825
Total Commercial Mortgage loans	$	25,656	$	366,029	$	634,899	$	339,131	$	217,388	$	461,953	$	—	$	—	$	2,045,056
Current period gross write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—


	Term Loans Amortized Cost Basis by Origination Year
	2023		2022		2021		2020		2019		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
December 31, 2023
Commercial Business
Uncriticized	$	111,035	$	124,572	$	77,079	$	49,531	$	21,971	$	64,648	$	257,585	$	—	$	706,421
Special mention		7,532		—		2,400		—		114		—		2,442		—		12,488
Substandard		1,609		11		81		—		—		888		8,532		—		11,121
Doubtful		—		5,097		—		—		14		397		162		—		5,670
Total	$	120,176	$	129,680	$	79,560	$	49,531	$	22,099	$	65,933	$	268,721	$	—	$	735,700
Current period gross write-offs	$	—	$	5	$	3	$	31	$	8	$	235	$	—	$	—	$	282

Commercial Mortgage
Uncriticized	$	350,370	$	603,686	$	328,916	$	209,213	$	151,022	$	294,703	$	—	$	—	$	1,937,910
Special mention		—		494		17,136		8,982		119		11,355		—		—		38,086
Substandard		—		338		212		918		—		17,291		—		—		18,759
Doubtful		1,397		—		4,098		14		67		4,988		—		—		10,564
Total	$	351,767	$	604,518	$	350,362	$	219,127	$	151,208	$	328,337	$	—	$	—	$	2,005,319

(4.) LOANS (Continued)

The Company utilizes payment status as a means of identifying and reporting problem and potential problem retail loans. The Company considers nonaccrual loans and loans past due greater than 90 days and still accruing interest to be non-performing. The following tables set forth the Company’s retail loan portfolio, categorized by performance status, as of the dates indicated (in thousands):


	Term Loans Amortized Cost Basis by Origination Year
	2024		2023		2022		2021		2020		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
March 31, 2024
Residential Real Estate Loans
Performing	$	8,514	$	114,423	$	79,271	$	78,727	$	107,364	$	253,064	$	—	$	—	$	641,363
Non-performing		—		298		522		1,084		1,427		3,466		—		—		6,797
Total Residential Real Estate Loans	$	8,514	$	114,721	$	79,793	$	79,811	$	108,791	$	256,530	$	—	$	—	$	648,160
Current period gross write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Residential Real Estate Lines
Performing	$	—	$	—	$	—	$	—	$	—	$	—	$	70,458	$	4,975	$	75,433
Non-performing		—		—		—		—		—		—		73		162		235
Total Residential Real Estate Lines	$	—	$	—	$	—	$	—	$	—	$	—	$	70,531	$	5,137	$	75,668
Current period gross write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Consumer Indirect
Performing	$	54,006	$	234,715	$	310,666	$	210,874	$	68,800	$	38,487	$	—	$	—	$	917,548
Non-performing		—		566		969		882		294		169		—		—		2,880
Total Consumer Indirect Loans	$	54,006	$	235,281	$	311,635	$	211,756	$	69,094	$	38,656	$	—	$	—	$	920,428
Current period gross write-offs	$	—	$	1,357	$	2,245	$	1,422	$	504	$	689	$	—	$	—	$	6,217

Other Consumer
Performing	$	1,924	$	35,157	$	3,489	$	1,228	$	751	$	385	$	2,200	$	—	$	45,134
Non-performing		—		—		—		—		—		—		36		—		36
Total Other Consumer Loans	$	1,924	$	35,157	$	3,489	$	1,228	$	751	$	385	$	2,236	$	—	$	45,170
Current period gross write-offs	$	93	$	42	$	75	$	7	$	16	$	4	$	32	$	—	$	269

(4.) LOANS (Continued)


	Term Loans Amortized Cost Basis by Origination Year
	2023		2022		2021		2020		2019		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
December 31, 2023
Residential Real Estate Loans
Performing	$	112,704	$	80,117	$	80,323	$	109,601	$	70,325	$	190,388	$	—	$	—	$	643,458
Non-performing		—		384		1,190		1,354		1,137		2,299		—		—		6,364
Total	$	112,704	$	80,501	$	81,513	$	110,955	$	71,462	$	192,687	$	—	$	—	$	649,822
Current period gross write-offs	$	—	$	—	$	—	$	—	$	32	$	95	$	—	$	—	$	127

Residential Real Estate Lines
Performing	$	—	$	—	$	—	$	—	$	—	$	—	$	72,128	$	5,018	$	77,146
Non-performing		—		—		—		—		—		—		55		166		221
Total	$	—	$	—	$	—	$	—	$	—	$	—	$	72,183	$	5,184	$	77,367
Current period gross write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	28	$	13	$	41

Consumer Indirect
Performing	$	247,194	$	336,369	$	232,891	$	78,652	$	31,091	$	18,820	$	—	$	—	$	945,017
Non-performing		724		1,083		1,273		380		224		130		—		—		3,814
Total	$	247,918	$	337,452	$	234,164	$	79,032	$	31,315	$	18,950	$	—	$	—	$	948,831
Current period gross write-offs	$	1,371	$	6,279	$	5,845	$	1,787	$	1,282	$	1,459	$	—	$	—	$	18,023

Other Consumer
Performing	$	35,483	$	3,990	$	1,424	$	949	$	217	$	256	$	2,747	$	—	$	45,066
Non-performing		13		—		—		—		—		—		21		—		34
Total	$	35,496	$	3,990	$	1,424	$	949	$	217	$	256	$	2,768	$	—	$	45,100

(4.) LOANS (Continued)

Allowance for Credit Losses – Loans

The following table sets forth the changes in the allowance for credit losses – loans for the three months ended March 31, 2024 and 2023 (in thousands):


	Commercial Business			Commercial Mortgage			Residential Real Estate Loans			Residential Real Estate Lines			Consumer Indirect			Other Consumer			Total
Three months ended March 31, 2024
Allowance for credit losses – loans:
Beginning balance	$	13,102		$	15,858		$	5,286		$	764		$	14,099		$	1,973		$	51,082
Charge-offs		(17	)		—			(8	)		—			(6,217	)		(269	)		(6,511	)
Recoveries		54			1			4			—			3,244			87			3,390
(Benefit) provision		(148	)		(1,746	)		(652	)		30			(1,272	)		(1,098	)		(4,886	)
Ending balance	$	12,991		$	14,113		$	4,630		$	794		$	9,854		$	693		$	43,075

	Commercial Business			Commercial Mortgage			Residential Real Estate Loans			Residential Real Estate Lines			Consumer Indirect			Other Consumer			Total
Three months ended March 31, 2023
Allowance for credit losses – loans:
Beginning balance	$	12,585		$	14,412		$	3,301		$	608		$	14,238		$	269		$	45,413
Charge-offs		(27	)		—			(63	)		(16	)		(4,620	)		(382	)		(5,108	)
Recoveries		151			2			5			—			2,782			79			3,019
Provision		202			781			970			59			1,717			475			4,204
Ending balance	$	12,911		$	15,195		$	4,213		$	651		$	14,117		$	441		$	47,528

(4.) LOANS (Continued)

Risk Characteristics

Commercial business loans primarily consist of loans to small to mid-sized businesses in our market area in a diverse range of industries. These loans are typically associated with higher credit risk and typically are made on the basis of the borrower’s ability to make repayment from the cash flow of the borrower’s business. Further, the collateral securing the loans may depreciate over time, may be difficult to appraise and may fluctuate in value. The credit risk related to commercial loans is largely influenced by general economic conditions, including inflation, and the resulting impact on a borrower’s operations or on the value of underlying collateral, if any.

Commercial mortgage loans generally have larger balances and involve a greater degree of risk than residential mortgage loans, potentially resulting in higher losses on an individual customer basis. Loan repayment is often dependent on the successful operation and management of the properties, as well as on the collateral securing the loan. Economic events, including inflation, influencing the ability of the tenants to pay rent at these properties, or conditions in the real estate market could have an adverse impact on the cash flows generated by properties securing the Company’s commercial real estate loans and on the value of such properties.

Residential real estate loans (comprised of conventional mortgages and home equity loans) and residential real estate lines of credit (comprised of home equity lines of credit) are generally made based on the borrower’s ability to make repayment from his or her employment and other income but are secured by real property whose value tends to be more easily ascertainable. Credit risk for these types of loans is generally influenced by general economic conditions, the characteristics of individual borrowers, and the nature of the loan collateral.

Consumer indirect and other consumer loans may entail greater credit risk than residential mortgage loans and home equities, particularly in the case of other consumer loans which are primarily unsecured or, in the case of some BaaS loans, secured by depreciable assets such as solar panels, and in the case of indirect consumer loans, secured by depreciable assets such as automobiles. In such cases, any repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment of the outstanding loan balance. In addition, consumer loan collections are dependent on the borrower’s continuing financial stability, and thus are more likely to be affected by inflation and adverse personal circumstances such as job loss, illness or personal bankruptcy, including the heightened risk that such circumstances may arise as a result of inflation. Furthermore, the application of various federal and state laws, including bankruptcy and insolvency laws, may limit the amount which can be recovered on such loans.