Loans

9 Months Ended

Sep. 30, 2024

Loans and Leases Receivable Disclosure [Abstract]

Loans

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
September 30, 2024
Commercial business	$	653,921	$	598		$	654,519
Commercial mortgage - construction		535,124		(1,618	)		533,506
Commercial mortgage - multifamily		468,064		(537	)		467,527
Commercial mortgage - non-owner occupied		815,369		(977	)		814,392
Commercial mortgage - owner occupied		290,221		(5	)		290,216
Residential real estate loans		636,870		11,371			648,241
Residential real estate lines		72,926		3,277			76,203
Consumer indirect		846,903		27,748			874,651
Other consumer		43,803		(69	)		43,734
Total	$	4,363,201	$	39,788			4,402,989
Allowance for credit losses – loans							(44,678	)
Total loans, net						$	4,358,311
December 31, 2023
Commercial business	$	734,947	$	753		$	735,700
Commercial mortgage - construction		495,198		(2,195	)		493,003
Commercial mortgage - multifamily		452,778		(623	)		452,155
Commercial mortgage - non-owner occupied		789,631		(1,116	)		788,515
Commercial mortgage - owner occupied		271,662		(16	)		271,646
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 $2.5 million and $1.4 million as of September 30, 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 $276.8 million and $269.4 million as of September 30, 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 both September 30, 2024, and December 31, 2023, AIR for loans totaled $20.8 million 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 specific allowance
September 30, 2024
Commercial business	$	7	$	6,500	$	8	$	6,515	$	5,752	$	641,654	$	653,921	$	332
Commercial mortgage - construction		52		—		—		52		20,280		514,792		535,124		20,280
Commercial mortgage - multifamily		—		—		—		—		71		467,993		468,064		71
Commercial mortgage - non-owner occupied		334		—		—		334		4,903		810,132		815,369		4,582
Commercial mortgage - owner occupied		—		—		—		—		366		289,855		290,221		366
Residential real estate loans		2,356		—		—		2,356		5,790		628,724		636,870		5,790
Residential real estate lines		81		49		—		130		232		72,564		72,926		232
Consumer indirect		7,284		1,998		—		9,282		3,291		834,330		846,903		3,291
Other consumer		236		11		35		282		14		43,507		43,803		14
Total loans, gross	$	10,350	$	8,558	$	43	$	18,951	$	40,699	$	4,303,551	$	4,363,201	$	34,958
December 31, 2023
Commercial business	$	341	$	—	$	—	$	341	$	5,664	$	728,942	$	734,947	$	341
Commercial mortgage - construction		—		727		—		727		5,320		489,151		495,198		5,320
Commercial mortgage - multifamily		4,036		—		—		4,036		189		448,553		452,778		189
Commercial mortgage - non-owner occupied		338		—		—		338		4,651		784,642		789,631		4,651
Commercial mortgage - owner occupied		1,526		—		—		1,526		403		269,733		271,662		403
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 $35 thousand and $21 thousand in consumer overdrafts which were past due greater than 90 days as of September 30, 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 nine months ended September 30, 2024 and 2023. Estimated interest income of $519 thousand and $437 thousand for the nine months ended September 30, 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 Borrowers 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.

(4.) LOANS (Continued)

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 September 30, 2024 (in thousands):

	Term Extension
	Amortized Cost Basis		% of Total Loans
Loan Type
Commercial business	$	—		0.0	%
Commercial mortgage - construction		—		0.0	%
Commercial mortgage - multifamily		—		0.0	%
Commercial mortgage - non-owner occupied		—		0.0	%
Commercial mortgage - owner occupied		—		0.0	%
Residential real estate loans		1,736		0.1	%
Residential real estate lines		—		0.0	%
Consumer indirect		—		0.0	%
Other consumer		—		0.0	%
Total	$	1,736		0.1	%

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 loan, which reduced the monthly payment amount for the borrower.

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 nine months ended September 30, 2024 (in thousands):

	Payment Status (Amortized Cost Basis)
	Current		30-89 Days Past Due		90+ Days Past Due
Loan Type
Commercial business	$	—	$	—	$	—
Commercial mortgage - construction		—		—		—
Commercial mortgage - multifamily		—		—		—
Commercial mortgage - non-owner occupied		—		—		—
Commercial mortgage - owner occupied		—		—		—
Residential real estate loans		1,196		386		154
Residential real estate lines		—		—		—
Consumer indirect		—		—		—
Other consumer		—		—		—
Total	$	1,196	$	386	$	154

(4.) LOANS (Continued)

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 September 30, 2024 and December 31, 2023 (in thousands):

	Collateral type
	Business assets		Real property		Total		Specific Reserve
September 30, 2024
Commercial business	$	6,939	$	5,000	$	11,939	$	2,321
Commercial mortgage - construction		—		29,812		29,812		—
Commercial mortgage - multifamily		—		70		70		—
Commercial mortgage - non-owner occupied		—		17,788		17,788		24
Commercial mortgage - owner occupied		—		745		745		—
Total	$	6,939	$	53,415	$	60,354	$	2,345
December 31, 2023
Commercial business	$	8,698	$	5,000	$	13,698	$	2,198
Commercial mortgage - construction		—		14,939		14,939		—
Commercial mortgage - multifamily		—		6,164		6,164		559
Commercial mortgage - non-owner occupied		—		4,651		4,651		—
Commercial mortgage - owner occupied		—		821		821		—
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
September 30, 2024
Commercial Business:
Uncriticized	$	79,428	$	85,801	$	76,264	$	46,767	$	33,608	$	20,535	$	277,164	$	—	$	619,567
Special mention		95		5,487		319		2,261		3		1,843		8,931		—		18,939
Substandard		15		1,077		21		72		22		200		9,093		—		10,500
Doubtful		—		—		5,039		—		—		265		209		—		5,513
Total Commercial Business loans	$	79,538	$	92,365	$	81,643	$	49,100	$	33,633	$	22,843	$	295,397	$	—	$	654,519
Current period gross write-offs	$	—	$	5	$	—	$	20	$	—	$	85	$	—	$	—	$	110
Commercial Mortgage - Construction
Uncriticized	$	25,209	$	156,803	$	307,613	$	3,996	$	346	$	6,683	$	—	$	—	$	500,650
Special mention		—		—		723		2,269		—		—		—		—		2,992
Substandard		—		—		—		—		—		9,583		—		—		9,583
Doubtful		—		820		—		19,461		—		—		—		—		20,281
Total Commercial Mortgage - Construction	$	25,209	$	157,623	$	308,336	$	25,726	$	346	$	16,266	$	—	$	—	$	533,506
Current period gross write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial Mortgage - Multifamily
Uncriticized	$	16,393	$	106,024	$	46,205	$	145,511	$	65,848	$	70,012	$	—	$	—	$	449,993
Special mention		—		—		3,778		—		6,825		5,721		—		—		16,324
Substandard		—		—		—		—		472		667		—		—		1,139
Doubtful		—		71		—		—		—		—		—		—		71
Total Commercial Mortgage - Multifamily	$	16,393	$	106,095	$	49,983	$	145,511	$	73,145	$	76,400	$	—	$	—	$	467,527
Current period gross write-offs	$	—	$	—	$	—	$	13	$	—	$	—	$	—	$	—	$	13
Commercial Mortgage - Non-Owner Occupied
Uncriticized	$	33,926	$	68,164	$	241,192	$	101,858	$	83,380	$	255,321	$	—	$	—	$	783,841
Special mention		—		—		—		4,726		—		7,824		—		—		12,550
Substandard		—		12,885		—		210		—		3		—		—		13,098
Doubtful		—		—		321		—		—		4,582		—		—		4,903
Total Commercial Mortgage - Non-Owner Occupied	$	33,926	$	81,049	$	241,513	$	106,794	$	83,380	$	267,730	$	—	$	—	$	814,392
Current period gross write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial Mortgage - Owner Occupied
Uncriticized	$	59,047	$	43,501	$	50,565	$	34,492	$	43,908	$	55,723	$	—	$	—	$	287,236
Special mention		—		—		454		—		318		1,228		—		—		2,000
Substandard		—		—		224		—		379		12		—		—		615
Doubtful		—		—		—		—		—		365		—		—		365
Total Commercial Mortgage - Owner Occupied	$	59,047	$	43,501	$	51,243	$	34,492	$	44,605	$	57,328	$	—	$	—	$	290,216
Current period gross write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

(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
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 Commercial Business	$	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 - Construction
Uncriticized	$	115,475	$	269,461	$	59,147	$	9,352	$	7,447	$	225	$	—	$	—	$	461,107
Special mention		—		—		16,895		—		—		—		—		—		16,895
Substandard		—		—		—		—		—		9,681		—		—		9,681
Doubtful		1,320		—		4,000		—		—		—		—		—		5,320
Total Commercial Mortgage - Construction	$	116,795	$	269,461	$	80,042	$	9,352	$	7,447	$	9,906	$	—	$	—	$	493,003
Current period gross write-offs	$	980	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	980
Commercial Mortgage - Multifamily
Uncriticized	$	111,622	$	53,495	$	128,605	$	68,029	$	23,359	$	51,476	$	—	$	—	$	436,586
Special mention		—		494		241		6,825		119		—		—		—		7,679
Substandard		—		—		—		499		—		7,215		—		—		7,714
Doubtful		77		—		83		14		—		2		—		—		176
Total Commercial Mortgage - Multifamily	$	111,699	$	53,989	$	128,929	$	75,367	$	23,478	$	58,693	$	—	$	—	$	452,155
Current period gross write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial Mortgage - Non-Owner Occupied
Uncriticized	$	78,053	$	212,188	$	103,894	$	83,714	$	93,645	$	197,915	$	—	$	—	$	769,409
Special mention		—		—		—		2,157		—		11,355		—		—		13,512
Substandard		—		338		212		—		—		379		—		—		929
Doubtful		—		—		15		—		67		4,583		—		—		4,665
Total Commercial Mortgage - Non-Owner Occupied	$	78,053	$	212,526	$	104,121	$	85,871	$	93,712	$	214,232	$	—	$	—	$	788,515
Current period gross write-offs	$	—	$	—	$	—	$	14	$	—	$	—	$	—	$	—	$	14
Commercial Mortgage - Owner Occupied
Uncriticized	$	45,220	$	68,542	$	37,270	$	48,118	$	26,571	$	45,087	$	—	$	—	$	270,808
Special mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		419		—		16		—		—		435
Doubtful		—		—		—		—		—		403		—		—		403
Total Commercial Mortgage - Owner Occupied	$	45,220	$	68,542	$	37,270	$	48,537	$	26,571	$	45,506	$	—	$	—	$	271,646
Current period gross write-offs	$	—	$	—	$	—	$	—	$	—	$	18	$	—	$	—	$	18

(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
September 30, 2024
Residential Real Estate Loans
Performing	$	36,246	$	113,089	$	76,412	$	76,403	$	102,516	$	237,785	$	—	$	—	$	642,451
Non-performing		—		396		529		806		1,264		2,795		—		—		5,790
Total Residential Real Estate Loans	$	36,246	$	113,485	$	76,941	$	77,209	$	103,780	$	240,580	$	—	$	—	$	648,241
Current period gross write-offs	$	—	$	—	$	—	$	—	$	—	$	109	$	—	$	—	$	109
Residential Real Estate Lines
Performing	$	—	$	—	$	—	$	—	$	—	$	—	$	71,630	$	4,341	$	75,971
Non-performing		—		—		—		—		—		—		51		181		232
Total Residential Real Estate Lines	$	—	$	—	$	—	$	—	$	—	$	—	$	71,681	$	4,522	$	76,203
Current period gross write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Consumer Indirect
Performing	$	170,455	$	200,312	$	260,279	$	168,344	$	50,062	$	21,908	$	—	$	—	$	871,360
Non-performing		147		592		983		981		402		186		—		—		3,291
Total Consumer Indirect Loans	$	170,602	$	200,904	$	261,262	$	169,325	$	50,464	$	22,094	$	—	$	—	$	874,651
Current period gross write-offs	$	100	$	3,585	$	4,553	$	3,475	$	1,352	$	1,308	$	—	$	—	$	14,373
Other Consumer
Performing	$	6,489	$	30,578	$	2,641	$	872	$	413	$	259	$	2,433	$	—	$	43,685
Non-performing		4		2		—		—		—		7		36		—		49
Total Other Consumer Loans	$	6,493	$	30,580	$	2,641	$	872	$	413	$	266	$	2,469	$	—	$	43,734
Current period gross write-offs	$	428	$	79	$	118	$	25	$	25	$	4	$	88	$	—	$	767

(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
Current period gross write-offs	$	902	$	127	$	105	$	52	$	31	$	20	$	47	$	—	$	1,284

(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 and nine months ended September 30, 2024 and 2023 (in thousands):

				Commercial Mortgage												Residential Real Estate
	Commercial Business			Construction			Multi- family			Non-Owner Occupied			Owner Occupied			Loans			Lines			Consumer Indirect			Other Consumer			Total
Three months ended September 30, 2024
Allowance for credit losses – loans:
Beginning balance	$	12,246		$	3,746		$	3,449		$	6,052		$	2,118		$	4,211		$	769		$	10,842		$	519		$	43,952
Charge-offs		(40	)		—			(13	)		—			—			(2	)		—			(4,410	)		(187	)		(4,652	)
Recoveries		43			—			1			1			1			3			—			2,857			81			2,987
(Benefit) provision		(3,774	)		1,656			(828	)		1,425			2,081			(417	)		64			2,057			127			2,391
Ending balance	$	8,475		$	5,402		$	2,609		$	7,478		$	4,200		$	3,795		$	833		$	11,346		$	540		$	44,678
Nine months ended September 30, 2024
Beginning balance	$	13,102		$	3,710		$	4,009		$	6,074		$	2,065		$	5,286		$	764		$	14,099		$	1,973		$	51,082
Charge-offs		(110	)		—			(13	)		—			—			(109	)		—			(14,373	)		(767	)		(15,372	)
Recoveries		143			—			—			3			4			10			—			9,003			301			9,464
(Benefit) provision		(4,660	)		1,692			(1,387	)		1,401			2,131			(1,392	)		69			2,617			(967	)		(496	)
Ending balance	$	8,475		$	5,402		$	2,609		$	7,478		$	4,200		$	3,795		$	833		$	11,346		$	540		$	44,678
				Commercial Mortgage												Residential Real Estate
	Commercial Business			Construction			Multi- family			Non-Owner Occupied			Owner Occupied			Loans			Lines			Consumer Indirect			Other Consumer			Total
Three months ended September 30, 2023
Allowance for credit losses – loans:
Beginning balance	$	13,418		$	3,868		$	4,260		$	6,407		$	2,291		$	4,646		$	710		$	13,306		$	930		$	49,836
Charge-offs		(146	)		—			—			—			—			—			—			(4,848	)		(344	)		(5,338	)
Recoveries		114			—			—			886			86			4			—			2,565			85			3,740
Provision		(600	)		(255	)		(43	)		(1,081	)		(142	)		(791	)		(173	)		3,583			894			1,392
Ending balance	$	12,786		$	3,613		$	4,217		$	6,212		$	2,235		$	3,859		$	537		$	14,606		$	1,565		$	49,630
Nine months ended September 30, 2023
Beginning balance		12,585			2,657			3,409			6,237			2,109			3,301			608			14,238			269			45,413
Charge-offs		(263	)		—			—			—			(18	)		(102	)		(41	)		(12,477	)		(1,064	)		(13,965	)
Recoveries		322			—			—			887			89			35			—			8,056			253			9,642
Provision (benefit)		142			956			808			(912	)		55			625			(30	)		4,789			2,107			8,540
Ending balance	$	12,786		$	3,613		$	4,217		$	6,212		$	2,235		$	3,859		$	537		$	14,606		$	1,565		$	49,630

(4.) LOANS (Continued)

Risk Characteristics

Loans are pooled based on their homogeneous risk characteristics. The Company has divided its loan portfolio into segments, as the loans within each segment have similar characteristics related to loan purpose, tenor, amortization, repayment source, payment frequency, collateral and recourse.

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. Beginning in the third quarter of 2024, the Company further disaggregated the commercial mortgage loans into the following categories: construction, multifamily, non-owner occupied, and owner occupied based on the risk characteristics of the loans and the Company’s methodology for monitoring and assessing credit risk.

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.