Loans | (5.) LOANS The Company’s loan portfolio consisted of the following as of the dates indicated (in thousands): Principal Net Deferred Loans, March 31, 2023 Commercial business $ 694,427 $ 683 $ 695,110 Commercial mortgage 1,845,762 ( 4,281 ) 1,841,481 Residential real estate loans 578,363 13,483 591,846 Residential real estate lines 72,793 3,293 76,086 Consumer indirect 984,302 37,900 1,022,202 Other consumer 16,495 112 16,607 Total $ 4,192,142 $ 51,190 4,243,332 Allowance for credit losses – loans ( 47,528 ) Total loans, net $ 4,195,804 December 31, 2022 Commercial business $ 663,611 $ 638 $ 664,249 Commercial mortgage 1,683,814 ( 3,974 ) 1,679,840 Residential real estate loans 576,279 13,681 589,960 Residential real estate lines 74,432 3,238 77,670 Consumer indirect 985,580 38,040 1,023,620 Other consumer 15,002 108 15,110 Total $ 3,998,718 $ 51,731 4,050,449 Allowance for credit losses – loans ( 45,413 ) Total loans, net $ 4,005,036 Loans held for sale (not included above) were comprised entirely of residential real estate mortgages and totaled $ 682 thousand and $ 550 thousand as of March 31, 2023 and December 31, 2022, respectively. The Company elected to exclude AIR from the amortized cost basis of loans disclosed throughout this footnote. As of March 31, 2023 and December 31, 2022, AIR for loans totaled $ 17.0 million and $ 16.6 million , respectively, and is included in other assets on the Company’s consolidated statements of financial condition. (5.) 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 60-89 Days Greater Total Past Nonaccrual Current Total Nonaccrual March 31, 2023 Commercial business $ 925 $ — $ — $ 925 $ 334 $ 693,168 $ 694,427 $ 233 Commercial mortgage — — — — 2,550 1,843,212 1,845,762 520 Residential real estate loans 778 49 — 827 3,267 574,269 578,363 3,267 Residential real estate lines 219 30 — 249 159 72,385 72,793 159 Consumer indirect 5,812 1,245 — 7,057 2,487 974,758 984,302 2,487 Other consumer 104 1 4 109 — 16,386 16,495 — Total loans, gross $ 7,838 $ 1,325 $ 4 $ 9,167 $ 8,797 $ 4,174,178 $ 4,192,142 $ 6,666 December 31, 2022 Commercial business $ 176 $ 10 $ — $ 186 $ 340 $ 663,085 $ 663,611 $ 233 Commercial mortgage — — — — 2,564 1,681,250 1,683,814 659 Residential real estate loans 1,306 28 — 1,334 4,071 570,874 576,279 4,071 Residential real estate lines 264 102 — 366 142 73,924 74,432 142 Consumer indirect 12,637 2,073 — 14,710 3,079 967,791 985,580 3,079 Other consumer 111 1 1 113 1 14,888 15,002 1 Total loans, gross $ 14,494 $ 2,214 $ 1 $ 16,709 $ 10,197 $ 3,971,812 $ 3,998,718 $ 8,185 There were $ 4 thousand and $ 1 thousand of consumer overdrafts which were past due greater than 90 days as of March 31, 2023 and December 31, 2022, respectively. 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, 2023 and 2022. Estimated interest income of $ 122 thousand and $ 161 thousand for the three months ended March 31, 2023 and 2022, 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, 2023 (in thousands): Term Extension Amortized Cost Basis % of Total Loans Loan Type Commercial business $ - 0.00 % Commercial mortgage - 0.00 % Residential real estate loans 158 0.03 % Residential real estate lines - 0.00 % Consumer indirect - 0.00 % Other consumer - 0.00 % Total $ 158 0.00 % (5.) LOANS (Continued) 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 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 three months ended March 31, 2023 (in thousands): Payment Status (Amortized Cost Basis) Current 30-89 Days 90+ Days Loan Type Commercial business $ - $ - $ - Commercial mortgage - - - Residential real estate loans 158 - - Residential real estate lines - - - Consumer indirect - - - Other consumer - - - Total $ 158 $ - $ - 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, 2023 and December 31, 2022 (in thousands): Collateral type Business assets Real property Total Specific Reserve March 31, 2023 Commercial business $ 3,307 $ 78 $ 3,385 $ 732 Commercial mortgage — 18,546 18,546 1,140 Total $ 3,307 $ 18,624 $ 21,931 $ 1,872 December 31, 2022 Commercial business $ 147 $ 993 $ 1,140 $ 126 Commercial mortgage — 21,592 21,592 1,152 Total $ 147 $ 22,585 $ 22,732 $ 1,278 (5.) LOANS (Continued) 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. 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 2023 2022 2021 2020 2019 Prior Revolving Revolving Total March 31, 2023 Commercial Business: Uncriticized $ 28,923 $ 152,049 $ 94,802 $ 46,348 $ 26,149 $ 64,882 $ 252,189 $ — $ 665,342 Special mention — 237 2,388 18,995 12 187 3,272 — 25,091 Substandard — 41 1,002 1,295 77 1,392 870 — 4,677 Doubtful — — — — — — — — — Total Commercial Business loans $ 28,923 $ 152,327 $ 98,192 $ 66,638 $ 26,238 $ 66,461 $ 256,331 $ — $ 695,110 Current period gross write-offs $ — $ 5 $ — $ 7 $ 5 $ 10 $ — $ — $ 27 Commercial Mortgage: Uncriticized $ 167,701 $ 506,777 $ 382,081 $ 244,874 $ 155,960 $ 342,082 $ — $ — $ 1,799,475 Special mention — — — 10,118 — 12,033 — — 22,151 Substandard — 343 202 105 75 19,130 — — 19,855 Doubtful — — — — — — — — — Total Commercial Mortgage loans $ 167,701 $ 507,120 $ 382,283 $ 255,097 $ 156,035 $ 373,245 $ — $ — $ 1,841,481 Current period gross write-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — (5.) LOANS (Continued) Term Loans Amortized Cost Basis by Origination Year 2022 2021 2020 2019 2018 Prior Revolving Revolving Total December 31, 2022 Commercial Business Uncriticized $ 146,581 $ 105,001 $ 61,115 $ 29,644 $ 39,625 $ 21,467 $ 244,848 $ — $ 648,281 Special mention 238 2,351 8,736 7 5 — 1,809 — 13,146 Substandard — 72 — 42 516 1,034 1,158 — 2,822 Doubtful — — — — — — — — — Total $ 146,819 $ 107,424 $ 69,851 $ 29,693 $ 40,146 $ 22,501 $ 247,815 $ — $ 664,249 Commercial Mortgage Uncriticized $ 464,863 $ 380,138 $ 260,463 $ 171,918 $ 116,770 $ 248,771 $ — $ — $ 1,642,923 Special mention — — 2,319 136 — 11,784 — — 14,239 Substandard 2,987 202 105 78 10,104 9,202 — — 22,678 Doubtful — — — — — — — — — Total $ 467,850 $ 380,340 $ 262,887 $ 172,132 $ 126,874 $ 269,757 $ — $ — $ 1,679,840 (5.) 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 2023 2022 2021 2020 2019 Prior Revolving Revolving Total March 31, 2023 Residential Real Estate Loans Performing $ 14,093 $ 80,513 $ 84,985 $ 116,787 $ 75,111 $ 217,090 $ — $ — $ 588,579 Nonperforming — 104 424 575 430 1,734 — — 3,267 Total Residential Real Estate Loans $ 14,093 $ 80,617 $ 85,409 $ 117,362 $ 75,541 $ 218,824 $ — $ — $ 591,846 Current period gross write-offs $ — $ — $ — $ — $ 32 $ 31 $ — $ — $ 63 Residential Real Estate Lines Performing $ — $ — $ — $ — $ — $ — $ 69,849 $ 6,078 $ 75,927 Nonperforming — — — — — — 41 118 159 Total Residential Real Estate Lines $ — $ — $ — $ — $ — $ — $ 69,890 $ 6,196 $ 76,086 Current period gross write-offs $ — $ — $ — $ — $ — $ — $ 3 $ 13 $ 16 Consumer Indirect Performing $ 84,318 $ 418,196 $ 305,429 $ 112,809 $ 51,838 $ 47,125 $ — $ — $ 1,019,715 Nonperforming — 864 903 337 228 155 — — 2,487 Total Consumer Indirect Loans $ 84,318 $ 419,060 $ 306,332 $ 113,146 $ 52,066 $ 47,280 $ — $ — $ 1,022,202 Current period gross write-offs $ 3 $ 1,322 $ 1,692 $ 497 $ 586 $ 520 $ — $ — $ 4,620 Other Consumer Performing $ 3,748 $ 5,367 $ 2,285 $ 1,735 $ 565 $ 420 $ 2,483 $ — $ 16,603 Nonperforming — — — — — — 4 — 4 Total Other Consumer Loans $ 3,748 $ 5,367 $ 2,285 $ 1,735 $ 565 $ 420 $ 2,487 $ — $ 16,607 Current period gross write-offs $ 265 $ 34 $ 48 $ 9 $ 5 $ 8 $ 13 $ — $ 382 (5.) LOANS (Continued) Term Loans Amortized Cost Basis by Origination Year 2022 2021 2020 2019 2018 Prior Revolving Revolving Total December 31, 2022 Residential Real Estate Loans Performing $ 79,882 $ 85,821 $ 118,819 $ 76,437 $ 55,520 $ 169,410 $ — $ — $ 585,889 Nonperforming — 305 510 795 677 1,784 — — 4,071 Total $ 79,882 $ 86,126 $ 119,329 $ 77,232 $ 56,197 $ 171,194 $ — $ — $ 589,960 Residential Real Estate Lines Performing $ — $ — $ — $ — $ — $ — $ 70,942 $ 6,586 $ 77,528 Nonperforming — — — — — — 34 108 142 Total $ — $ — $ — $ — $ — $ — $ 70,976 $ 6,694 $ 77,670 Consumer Indirect Performing $ 440,332 $ 331,902 $ 126,664 $ 59,981 $ 39,352 $ 22,310 $ — $ — $ 1,020,541 Nonperforming 748 1,209 432 381 205 104 — — 3,079 Total $ 441,080 $ 333,111 $ 127,096 $ 60,362 $ 39,557 $ 22,414 $ — $ — $ 1,023,620 Other Consumer Performing $ 6,463 $ 2,664 $ 2,043 $ 761 $ 213 $ 308 $ 2,656 $ — $ 15,108 Nonperforming — — — — — — 2 — 2 Total $ 6,463 $ 2,664 $ 2,043 $ 761 $ 213 $ 308 $ 2,658 $ — $ 15,110 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, 2023 and 2022 (in thousands): Commercial Commercial Residential Residential Consumer Other 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 Commercial Commercial Residential Residential Consumer Other Total Three months ended March 31, 2022 Allowance for credit losses – loans: Beginning balance $ 11,099 $ 14,777 $ 1,604 $ 379 $ 11,611 $ 206 $ 39,676 Charge-offs ( 51 ) — — — ( 2,486 ) ( 376 ) ( 2,913 ) Recoveries 88 1 5 5 1,936 91 2,126 Provision (benefit) ( 1,015 ) ( 1,032 ) 243 41 3,507 333 2,077 Ending balance $ 10,121 $ 13,746 $ 1,852 $ 425 $ 14,568 $ 254 $ 40,966 (5.) 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, 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 unsecured or, 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 v arious federal and state laws, including bankruptcy and insolvency laws, may limit the amount which can be recovered on such loans. |