Loans, Allowance for Credit Losses and Credit Quality (Notes)

6 Months Ended

Jun. 30, 2020

Receivables [Abstract]

Loans, Allowance for Credit Losses and Credit Quality [Text Block]

LOANS, ALLOWANCE FOR CREDIT LOSSES AND CREDIT QUALITY

Loans Held for Sale

The Bank primarily classifies new residential real estate mortgage loans as held for sale based on intent, which is determined when loans are underwritten. Residential real estate mortgage loans not designated as held for sale are retained based upon available liquidity, for interest rate risk management and other business purposes.

The Company has elected the fair value option to account for originated closed loans intended for sale. Accordingly, changes in fair value relating to loans intended for sale are recorded in earnings and are offset by changes in fair value relating to interest rate lock commitments and forward sales commitments. Gains and losses on residential loan sales (sales proceeds minus carrying amount) are recorded in mortgage banking income. Upfront costs and fees related to items for which the fair value option is elected are recognized in earnings as incurred and are not deferred.

Loans    

Loans that the Company has the intent and ability to hold until maturity or payoff are carried at amortized cost (net of the allowance for credit losses). Amortized cost is the principal amount outstanding, adjusted by partial charge-offs and net of deferred loan costs or fees. For originated loans, loan fees and certain direct origination costs are deferred and amortized into interest income over the expected term of the loan using the level-yield method.  When a loan is paid off, the unamortized portion is recognized in interest income. Interest income on loans is accrued based upon the daily principal amount outstanding except for loans on nonaccrual status.

 As a general rule, loans more than 90 days past due with respect to principal or interest are classified as nonaccrual loans, or sooner if management considers such action to be prudent. However, loans that are more than 90 days past due may be kept on an accruing status if the loan is well secured and in the process of collection. The Company may also put a junior lien mortgage on nonaccrual status as a result of delinquency with respect to the first position, which is held by the Bank or by another financial institution, while the junior lien is currently performing. Income accruals are suspended on all nonaccrual loans in a timely manner and all previously accrued and uncollected interest is reversed against current income. A loan remains on nonaccrual status until it becomes current with respect to principal and interest (and in certain instances remains current for up to six months), the loan is liquidated, or when the loan is determined to be uncollectible and is charged-off against the allowance for credit losses. When doubt exists as to the collectability of a loan, any payments received are applied to reduce the amortized cost of the loan to the

extent necessary to eliminate such doubt. For all loan portfolios, a charge-off occurs when the Company determines that a specific loan, or portion thereof, is uncollectible.  This determination is made based on management's review of specific facts and circumstances of the individual loan, including assessing the viability of the customer’s business or project as a going concern, the expected cash flows to repay the loan, the value of the collateral and the ability and willingness of any guarantors to perform. 

Allowance for Credit Losses - Loans Held for Investment

The allowance for credit losses is established based upon the Company's current estimate of expected lifetime credit losses on loans measured at amortized cost. Loan losses are charged against the allowance when Management's assessments confirm that the Company will not collect the full amortized cost basis of a loan. Subsequent recoveries, if any, are credited to the allowance.

Under the CECL methodology, the Company estimates credit losses for financial assets on a collective basis for loans sharing similar risk characteristics using a quantitative model combined with an assessment of certain qualitative factors designed to address forecast risk and model risk inherent in the quantitative model output. The quantitative model utilizes a factor based approach to estimate expected credit losses using Probability of Default ("PD"), Loss Given Default ("LGD") and Exposure at Default ("EAD"), which are derived from internal historical default and loss experience. The model estimates expected credit losses using loan level data over the estimated life of the exposure, considering the effect of prepayments. Economic forecasts are incorporated into the estimate over a reasonable and supportable forecast period, beyond which is a reversion to the Company's historical long-run average. Management has determined a reasonable and supportable period of 12 months, and a straight line reversion period of 6 months, to be appropriate for purposes of estimating expected credit losses. The qualitative risk factors impacting the expected risk of loss within the portfolio include the following:

• Lending policies and procedures

• Economic and business conditions

• Nature and volume of loans

• Changes in management

• Changes in credit quality

• Changes in loan review system

• Changes to underlying collateral values

• Concentrations of credit risk

• Other external factors

Loans that do not share similar risk characteristics with any pools of assets are subject to individual assessment and are removed from the collectively assessed pools to avoid double counting. For the loans that are individually assessed, the Company uses either a discounted cash flow (“DCF”) approach or a fair value of collateral approach. The latter approach is used for loans deemed to be collateral dependent or when foreclosure is probable.

Accrued interest receivable amounts are excluded from balances of loans held at amortized cost and are included within other assets on the consolidated balance sheet. Management has elected not to measure an allowance for credit losses on these amounts as the Company employs a timely write-off policy. Consistent with the Company's policy for nonaccrual loans, accrued interest receivable is typically written off when loans reach 90 days past due and are placed on nonaccrual status.

In the ordinary course of business, the Company enters into commitments to extend credit, commercial letters of credit, and standby letters of credit. Such financial instruments are recorded in the financial statements when they become payable. The credit risk associated with these commitments is evaluated in a manner similar to the allowance for credit losses. The reserve for unfunded lending commitments is included in other liabilities on the consolidated balance sheet.

Acquired Loans

Prior to its adoption of CECL, and under legacy GAAP, the Company maintained a portfolio of acquired loans, which, at acquisition, were recorded at fair value with no carryover of the allowance for loan losses. Acquired loans were also reviewed to determine if the loan had evidence of deterioration in credit quality and also if it was probable, at acquisition, that all contractually required payments would not be collected. Loans meeting such criteria were deemed to be purchased credit impaired ("PCI") loans. Under the accounting model for PCI loans, the excess of cash flows expected to be collected over the carrying amount of the loans, referred to as the "accretable yield", was accreted into interest income over the life of the loans using the effective yield method. Accordingly, PCI loans were not subject to classification as nonaccrual in the same manner as originated loans. Rather, acquired PCI loans were generally considered to be accruing loans because their interest income related to the accretable yield recognized and not to contractual interest payments at the loan level. The difference between contractually required principal and interest payments and the cash flows expected to be collected, referred to as the "nonaccretable difference", included estimates of both the impact of prepayments and future credit losses expected to be incurred over the life of the loans.

Under the CECL standard, the concept of PCI assets was effectively replaced with purchased credit deteriorated ("PCD") assets, the balances of which should be treated in a manner consistent with loans held for investment for purposes of estimating an allowance for credit losses. As a result, upon the Company's adoption of CECL on January 1, 2020, loan balances previously classified as PCI assets were re-classified as PCD assets and will be prospectively accounted for in accordance with the standard. See Note 2 - Recent Accounting Standards Updates for further discussion surrounding the day one impact associated with adoption of CECL as it relates to PCI assets.

Loans Held for Investment and Allowance for Credit Losses

The following table summarizes the change in allowance for credit losses by loan category, and bifurcates the amount of loans allocated to each loan category for the period indicated:

	Three Months Ended June 30, 2020
	(Dollars in thousands)
	Commercial and Industrial			Commercial Real Estate			Commercial Construction			Small Business			Residential Real Estate		Home  Equity			Other Consumer			Total
Allowance for credit losses
Beginning balance	$	21,649		$	29,498		$	3,747		$	3,829		$	14,847	$	17,910		$	896		$	92,376
Charge-offs	—			—			—			(36		)	—		(4		)	(670		)	(710		)
Recoveries	4			—			—			3			—		95			408			510
Provision for credit loss expense	4,009			7,458			754			765			199		6,859			(44		)	20,000
Ending balance (1)	$	25,662		$	36,956		$	4,501		$	4,561		$	15,046	$	24,860		$	590		$	112,176
	Six Months Ended June 30, 2020
	(Dollars in thousands)
	Commercial and Industrial			Commercial Real Estate			Commercial Construction			Small Business			Residential Real Estate		Home  Equity			Other Consumer			Total
Allowance for credit losses
Beginning balance, pre adoption of Topic 326	$	17,594		$	32,935		$	6,053		$	1,746		$	3,440	$	5,576		$	396		$	67,740
Cumulative effect accounting adjustment (2)	(1,984		)	(13,048		)	(3,652		)	495			9,828		7,012			212			(1,137		)
Cumulative effect accounting adjustment (3)	49			337			—			—			423		319			29			1,157
Charge-offs	—			—			—			(145		)	—		(142		)	(1,157		)	(1,444		)
Recoveries	46			—			—			6			1		153			654			860
Provision for credit loss expense	9,957			16,732			2,100			2,459			1,354		11,942			456			45,000
Ending balance (1)	$	25,662		$	36,956		$	4,501		$	4,561		$	15,046	$	24,860		$	590		$	112,176

(1) Balances of accrued interest receivable excluded from amortized cost and the calculation of allowance for credit losses amounted to $32.9 million as of June 30, 2020.

(2) Represents adjustment needed to reflect the cumulative day one impact pursuant to the Company's adoption of Accounting Standards Update 2016-13. The adjustment represents a $1.1 million decrease to the allowance attributable to the change in accounting methodology for estimating the allowance for credit losses resulting from the Company's adoption of the standard.

(3) Represents adjustment needed to reflect the day one re-class of the Company's PCI loan balances to PCD and the associated gross-up, pursuant to the Company's adoption of Accounting Standards Update 2016-13. The adjustment represents a $1.2 million increase to the allowance resulting from the day one re-class.

The balance of allowance for credit losses of $112.2 million as of June 30, 2020 represents an increase of $44.4 million, or 65.5%, in comparison to the implementation balances at January 1, 2020, and an increase of $19.8 million, or 21.4% compared to March 31, 2020. This increase in the allowance during the second quarter and in comparison to December 31, 2019 was primarily driven by anticipated credit deterioration due to the ongoing COVID-19 pandemic. The model applies a reasonable and supportable forecast period of one year, with a reversion period of six months. This forecast was adjusted to use a more severe outlook at both March 31, 2020 and June 30, 2020, as compared to the baseline forecast that was used to calculate opening balances on January 1, 2020 as a result of the uncertainty in the outlook due to the ongoing pandemic. In addition, the impacts of the pandemic have become more apparent during the second quarter of 2020, especially within certain industries. While management is unable to know with certainty the direct, indirect, and future impacts of the COVID-19 pandemic, it is expected it will have a material adverse impact on future losses across a broad range of loan segments.  As such, the provision for credit loss recognized in 2020 reflects increased reserve allocations to loan segments that are considered to have elevated loss exposure associated with the COVID-19 pandemic.  These loan segments primarily include commercial relationships within industries that are subject to mandated closures and capacity limits that will potentially impede the borrowers’ ability to make loan payments, including loans in the following industry sections: Accommodations, Food Services, Retail Trade, Health Care and Social Assistance, Recreation

and Entertainment, Transportation and Warehousing, Educational Services, and Other Services (excluding Public Administration).  In addition to these industry exposures, additional risk of loss was attributable to non-owner occupied real estate borrowers with significant retail tenant exposure, as well as home equity loans within a junior lien position.  Leveraging actual historical loss given default (LGD) rates combined with stressing of assumptions over probability of default rates over these higher risk segments, qualitative adjustments were made to the initially model-driven calculated loss reserves. 

For the purpose of estimating the allowance for credit losses, management segregated the loan portfolio into the portfolio segments detailed in the above tables.  Each of these loan categories possesses unique risk characteristics that are considered when determining the appropriate level of allowance for each segment.  Some of the risk characteristics unique to each loan category include:

Commercial Portfolio

• Commercial and Industrial: Loans in this category consist of revolving and term loan obligations extended to business and corporate enterprises for the purpose of financing working capital and/or capital investment.  Collateral generally consists of pledges of business assets including, but not limited to: accounts receivable, inventory, plant and equipment, or real estate, if applicable. Repayment sources consist of primarily, operating cash flow, and secondarily, liquidation of assets.

• Commercial Real Estate: Loans in this category consist of mortgage loans to finance investment in real property such as multi-family residential, commercial/retail, office, industrial, hotels, educational and healthcare facilities and other specific use properties.  Loans are typically written with amortizing payment structures.  Collateral values are determined based upon third party appraisals and evaluations.  Loan to value ratios at origination are governed by established policy and regulatory guidelines. Repayment sources consist of, primarily, cash flow from operating leases and rents and, secondarily, liquidation of assets.

• Commercial Construction: Loans in this category consist of short-term construction loans, revolving and nonrevolving credit lines and construction/permanent loans to finance the acquisition, development and construction or rehabilitation of real property.  Project types include residential land development, 1-4 family, condominium, and multi-family home construction, commercial/retail, office, industrial, hotels, educational and healthcare facilities and other specific use properties.  Loans may be written with nonamortizing or hybrid payment structures depending upon the type of project.  Collateral values are determined based upon third party appraisals and evaluations.  Loan to value ratios at origination are governed by established policy and regulatory guidelines.  Repayment sources vary depending upon the type of project and may consist of sale or lease of units, operating cash flows or liquidation of other assets.

• Small Business: Loans in this category consist of revolving, term loan and mortgage obligations extended to sole proprietors and small businesses for purposes of financing working capital and/or capital investment.  Collateral generally consists of pledges of business assets including, but not limited to, accounts receivable, inventory, plant and equipment, or real estate if applicable.  Repayment sources consist primarily of operating cash flows and, secondarily, liquidation of assets.

For the commercial portfolio it is the Company’s policy to obtain personal guarantees for payment from individuals holding material ownership interests in the borrowing entities.

Consumer Portfolio

• Residential Real Estate: Residential mortgage loans held in the Company’s portfolio are made to borrowers who demonstrate the ability to make scheduled payments with full consideration to underwriting factors such as current and expected income, employment status, current assets, other financial resources, credit history and the value of the collateral.  Collateral consists of mortgage liens on 1-4 family residential properties.  Residential mortgage loans also include loans to construct owner-occupied 1-4 family residential properties.

• Home Equity: Home equity loans and credit lines are made to qualified individuals and are primarily secured by senior or junior mortgage liens on owner-occupied 1-4 family homes, condominiums or vacation homes. Each home equity loan has a fixed rate and is billed in equal payments comprised of principal and interest. The majority of home equity lines of credit have a variable rate and are billed in interest-only payments during the draw period. At the end of the draw period, the home equity line of credit is billed as a percentage of the then outstanding principal balance plus all accrued interest over a predetermined repayment period, as set forth in the note. Additionally, the Company has the option of renewing each line of credit for additional draw periods.  Borrower qualifications include favorable credit history combined with supportive income requirements and combined loan to value ratios within established policy guidelines.

• Other Consumer: Other consumer loan products include personal lines of credit and amortizing loans made to qualified individuals for various purposes such as education, debt consolidation, personal expenses or overdraft protection.  Borrower

qualifications include favorable credit history combined with supportive income and collateral requirements within established policy guidelines.  These loans may be secured or unsecured.

Credit Quality

The Company continually monitors the asset quality of the loan portfolio using all available information. Based on this information, loans demonstrating certain payment issues or other weaknesses may be categorized as adversely risk-rated, delinquent, nonperforming and/or put on nonaccrual status. Additionally, in the course of resolving such loans, the Company may choose to restructure the contractual terms of certain loans to match the borrower’s ability to repay the loan based on their current financial condition.

The Company reviews numerous credit quality indicators when assessing the risk in its loan portfolio. For the commercial portfolio, the Company utilizes a 10-point credit risk-rating system, which assigns a risk-grade to each loan obligation based on a number of quantitative and qualitative factors associated with a commercial or small business loan transaction. Factors considered include industry and market conditions, position within the industry, earnings trends, operating cash flow, asset/liability values, debt capacity, guarantor strength, management and controls, financial reporting, collateral, and other considerations. The risk-ratings categories for the commercial portfolio are defined as follows:

• Pass: Risk-rating grades “1” through “6” comprise those loans ranging from ‘Substantially Risk Free’ which indicates borrowers are of unquestioned credit standing and the pinnacle of credit quality, well established companies with a very strong financial condition, and loans fully secured by cash collateral, through ‘Acceptable Risk’, which indicates borrowers may exhibit declining earnings, strained cash flow, increasing or above average leverage and/or weakening market fundamentals that indicate below average asset quality, margins and market share. Collateral coverage is protective.

• Potential Weakness: Borrowers exhibit potential credit weaknesses or downward trends deserving management’s close attention. If not checked or corrected, these trends will weaken the Company’s asset and position. While potentially weak, currently these borrowers are marginally acceptable; no loss of principal or interest is envisioned.

• Definite Weakness Loss Unlikely: Borrowers exhibit well defined weaknesses that jeopardize the orderly liquidation of debt. Loans may be inadequately protected by the current net worth and paying capacity of the obligor or by the collateral pledged, if any. Normal repayment from the borrower is in jeopardy, although no loss of principal is envisioned. However, there is a distinct possibility that a partial loss of interest and/or principal will occur if the deficiencies are not corrected. Collateral coverage may be inadequate to cover the principal obligation.

• Partial Loss Probable: Borrowers exhibit well defined weaknesses that jeopardize the orderly liquidation of debt with the added provision that the weaknesses make collection of the debt in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. Serious problems exist to the point where partial loss of principal is likely.

• Definite Loss: Borrowers deemed incapable of repayment. Loans to such borrowers are considered uncollectible and of such little value that continuation as active assets of the Company is not warranted.

The Company utilizes a comprehensive, continuous strategy for evaluating and monitoring commercial credit quality. Initially, credit quality is determined at loan origination and is re-evaluated when subsequent actions, such as renewals, modifications or reviews, occur. Actively managed commercial borrowers are required to provide updated financial information at least annually which is carefully evaluated for any changes in credit quality. Larger loan relationships are subject to a full annual credit review by experienced credit professionals, while continuous portfolio monitoring techniques are employed to evaluate changes in credit quality for smaller loan relationships. Any changes in credit quality are reflected in risk-rating changes. Additionally, the Company retains an independent loan review firm to evaluate the credit quality of the commercial loan portfolio. The independent loan review process achieves significant penetration into the commercial loan portfolio and reports the results of these reviews to the Audit Committee of the Board of Directors on a quarterly basis. Loan modifications granted by the Company allowing payment deferrals for qualifying borrowers in accordance with the Coronavirus Aid, Relief and Economic Recovery Act ("CARES Act") have not been assessed for downgrades of risk ratings.

For the Company’s consumer portfolio, the quality of the loan is best indicated by the repayment performance of an individual borrower. As a result, for this portfolio the Company utilizes a pass/default risk-rating system, based on an age analysis (i.e., days past due) associated with each consumer loan. Under this structure, consumer loans less than 90 days past due are assigned a "pass" rating, while any consumer loans greater than 90 days past due are assigned a "default" rating. Loan modifications granted by the Company allowing payment deferrals for qualifying borrowers in accordance with the CARES Act have not been reflected as delinquent loans.

The following table details the amortized cost balances of the Company's loan portfolios, presented by credit quality indicator and origination year as of the date indicated below:

	June 30, 2020
	2020			2019		2018		2017		2016		Prior		Revolving Loans		Revolving converted to Term		Total
	(Dollars in thousands)
Commercial and industrial
Pass	$	911,414	(1)	$	193,832	$	129,199	$	44,664	$	27,640	$	25,095	$	565,953	$	2,668	$	1,900,465
Potential weakness	1,896			1,818		1,426		4,787		1,609		544		12,515		50		24,645
Definite weakness - loss unlikely	2,124			1,779		23,609		5,552		2,555		1,430		42,437		—		79,486
Partial loss probable	—			—		—		—		—		49		—		—		49
Definite loss	—			—		—		—		—		—		—		—		—
Total commercial and industrial	$	915,434		$	197,429	$	154,234	$	55,003	$	31,804	$	27,118	$	620,905	$	2,718	$	2,004,645
Commercial real estate
Pass	$	490,280		$	895,594	$	546,513	$	607,633	$	438,455	$	846,195	$	48,889	$	14,854	$	3,888,413
Potential weakness	5,218			6,423		4,821		23,123		14,159		47,055		—		—		100,799
Definite weakness - loss unlikely	3,747			2,992		37,155		21,091		4,525		12,325		—		—		81,835
Partial loss probable	—			—		—		—		—		—		—		—		—
Definite loss	—			—		—		—		—		—		—		—		—
Total commercial real estate	$	499,245		$	905,009	$	588,489	$	651,847	$	457,139	$	905,575	$	48,889	$	14,854	$	4,071,047
Commercial construction
Pass	$	91,981		$	241,910	$	95,253	$	66,282	$	—	$	6,810	$	32,012	$	1,095	$	535,343
Potential weakness	—			367		382		—		—		—		177		—		926
Definite weakness - loss unlikely	—			—		1,519		—		—		—		—		—		1,519
Partial loss probable	—			—		—		—		—		—		—		—		—
Definite loss	—			—		—		—		—		—		—		—		—
Total commercial construction	$	91,981		$	242,277	$	97,154	$	66,282	$	—	$	6,810	$	32,189	$	1,095	$	537,788
Small business
Pass	$	14,711		$	30,764	$	22,702	$	16,803	$	16,109	$	25,521	$	39,804	$	—	$	166,414
Potential weakness	—			11		17		12		748		246		563		—		1,597
Definite weakness - loss unlikely	186			444		80		173		114		447		833		—		2,277
Partial loss probable	—			—		—		—		—		—		—		—		—
Definite loss	—			—		—		—		—		—		—		—		—
Total small business	$	14,897		$	31,219	$	22,799	$	16,988	$	16,971	$	26,214	$	41,200	$	—	$	170,288
Residential real estate
Pass	$	78,072		$	185,896	$	213,340	$	187,713	$	263,749	$	495,816	$	—	$	—	$	1,424,586
Default	—			—		427		939		369		4,808		—		—		6,543
Total residential real estate	$	78,072		$	185,896	$	213,767	$	188,652	$	264,118	$	500,624	$	—	$	—	$	1,431,129
Home equity
Pass	$	43,516		$	70,369	$	64,874	$	64,569	$	49,347	$	130,900	$	691,110	$	2,635	$	1,117,320
Default	—			—		—		15		—		419		2,466		303		3,203
Total home equity	$	43,516		$	70,369	$	64,874	$	64,584	$	49,347	$	131,319	$	693,576	$	2,938	$	1,120,523

Other consumer
Pass	$	451	$	566	$	266	$	916	$	836	$	9,193	$	11,965	$	—	$	24,193
Default	—		—		—		—		—		35		—		—		35
Total other consumer	$	451	$	566	$	266	$	916	$	836	$	9,228	$	11,965	$	—	$	24,228
Total	$	1,643,596	$	1,632,765	$	1,141,583	$	1,044,272	$	820,215	$	1,606,888	$	1,448,724	$	21,605	$	9,359,648

(1) Loans originated as part of the Payroll Protection Program ("PPP") program established by the CARES Act are included within commercial and industrial under the 2020 vintage year and "pass" category as these loans are 100% guaranteed by the U.S. government.

For the Company’s consumer portfolio, the quality of the loan is best indicated by the repayment performance of an individual borrower. However, the Company does supplement performance data with current Fair Isaac Corporation (“FICO”) scores and Loan to Value (“LTV”) estimates. Current FICO data is purchased and appended to all consumer loans on a regular basis. In addition, automated valuation services and broker opinions of value are used to supplement original value data for the residential and home equity portfolios, periodically. The following table shows the weighted average FICO scores and the weighted average combined LTV ratios as of the periods indicated below:

	June 30 2020		December 31 2019
Residential portfolio
FICO score (re-scored)(1)	750		749
LTV (re-valued)(2)	57.4	%	59.0	%
Home equity portfolio
FICO score (re-scored)(1)	770		767
LTV (re-valued)(2)(3)	47.0	%	46.6	%

 

(1) The average FICO scores at June 30, 2020 are based upon rescores available from May 2020 and origination score data for loans booked in June 2020.  The average FICO scores at December 31, 2019 were based upon rescores available from November 2019 and origination score data for loans booked in December 2019.

(2) The combined LTV ratios for June 30, 2020 are based upon updated automated valuations as of May 2020, when available, and/or the most current valuation data available.  The combined LTV ratios for December 31, 2019 were based upon updated automated valuations as of November 2019, when available, and/or the most current valuation data available as of such date.  The updated automated valuations provide new information on loans that may be available since the previous valuation was obtained.  If no new information is available, the valuation will default to the previously obtained data or most recent appraisal.

(3) For home equity loans and lines in a subordinate lien, the LTV data represents a combined LTV, taking into account the senior lien data for loans and lines.

Unfunded Commitments

Management evaluates the need for a reserve on unfunded lending commitments in a manner consistent with loans held for investment. At June 30, 2020, the Company's estimated reserve for unfunded commitments amounted to $790,000.

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. Delinquent loans are managed by a team of collection specialists and 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 nonaccrual loans. The Company also may use discretion regarding other loans over 90 days delinquent if the loan is well secured and/or in process of collection.

In response to the COVID-19 pandemic, the Company has granted loan modifications to allow deferral of payments for borrowers negatively impacted by the pandemic. The amount of loans with active deferrals as of June 30, 2020 was $1.2 billion. In accordance with regulatory guidance, these modifications are not considered to be troubled debt restructures if they were performing prior to December 31, 2019. Additionally, these loans are not reflected as being past due and therefore are not impacting nonaccrual or delinquency totals as of June 30, 2020. The Company does, however, consider these deferrals when estimating loss reserves.

The following table shows information regarding nonaccrual loans as of the dates indicated:

	Nonaccrual Balances
	June 30, 2020							December 31, 2019
	With Allowance for Credit Losses		Without Allowance for Credit Losses		Total			Total
	(Dollars in thousands)
Commercial and industrial	$	1,045	$	19,691	$	20,736		$	22,574
Commercial real estate	2,169		4,144		6,313			3,016
Commercial construction	—		—		—			—
Small business	619		—		619			311
Residential real estate	12,331		2,230		14,561			13,360
Home equity	6,329		108		6,437			6,570
Other consumer	90		—		90			61
Total nonaccrual loans	$	22,583	$	26,173	$	48,756	(1)	$	45,892	(1)

(1)Included in these amounts were $24.1 million and $24.8 million of nonaccruing TDRs at June 30, 2020 and December 31, 2019, respectively.

It is the Company's policy to reverse any accrued interest when a loan is put on nonaccrual status, and as such the Company did not record any interest income on nonaccrual loans during the three and six months ended June 30, 2020.

The following table shows information regarding foreclosed residential real estate property at the dates indicated:

	June 30, 2020		December 31, 2019
	(Dollars in thousands)
Foreclosed residential real estate property held by the creditor	$	—	$	—
Recorded investment in mortgage loans collateralized by residential real estate property that are in the process of foreclosure	$	2,642	$	3,294

The following tables show the age analysis of past due financing receivables as of the dates indicated:

	June 30, 2020
	30-59 days			60-89 days			90 days or more			Total Past Due					Total Financing Receivables		Amortized Cost >90 Days and  Accruing
	Number of Loans	Principal Balance		Number of Loans	Principal Balance		Number of Loans	Principal Balance		Number of Loans	Principal Balance		Current
	(Dollars in thousands)
Loan Portfolio
Commercial and industrial	2	$	32	—	$	—	6	$	1,045	8	$	1,077	$	2,003,568	$	2,004,645	$	—
Commercial real estate	5	3,550		1	68		5	935		11	4,553		4,066,494		4,071,047		—
Commercial construction	—	—		1	510		—	—		1	510		537,278		537,788		—
Small business	13	917		17	453		11	123		41	1,493		168,795		170,288		—
Residential real estate	15	2,819		8	1,247		38	6,333		61	10,399		1,420,730		1,431,129		—
Home equity	8	554		8	671		40	3,203		56	4,428		1,116,095		1,120,523		—
Other consumer (1)	163	189		13	27		13	94		189	310		23,918		24,228		58
Total	206	$	8,061	48	$	2,976	113	$	11,733	367	$	22,770	$	9,336,878	$	9,359,648	$	58

	December 31, 2019
	30-59 days			60-89 days			90 days or more			Total Past Due					Total Financing Receivables		Recorded Investment >90 Days and  Accruing
	Number of Loans	Principal Balance		Number of Loans	Principal Balance		Number of Loans	Principal Balance		Number of Loans	Principal Balance		Current
	(Dollars in thousands)
Loan Portfolio
Commercial and industrial	1	$	253	2	$	323	5	$	760	8	$	1,336	$	1,393,700	$	1,395,036	$	—
Commercial real estate	7	1,690		1	194		8	2,038		16	3,922		3,998,437		4,002,359		218		(2	)
Commercial construction	1	560		—	—		—	—		1	560		546,733		547,293		—
Small business	11	837		3	15		6	115		20	967		173,530		174,497		—
Residential real estate	17	2,237		17	3,055		38	7,020		72	12,312		1,578,257		1,590,569		1,652		(2	)
Home equity	23	1,689		8	524		40	3,854		71	6,067		1,127,731		1,133,798		265		(2	)
Other consumer (1)	387	245		12	44		16	32		415	321		29,766		30,087		22
Total	447	$	7,511	43	$	4,155	113	$	13,819	603	$	25,485	$	8,848,154	$	8,873,639	$	2,157

(1) Other consumer portfolio is inclusive of deposit account overdrafts recorded as loan balances.

(2) Represents purchased credit impaired loans that were accruing interest due to expectations of future cash collections.

Troubled Debt Restructurings

In the course of resolving nonperforming loans, the Bank may choose to restructure the contractual terms of certain loans. The Bank attempts to work out an alternative payment schedule with the borrower in order to avoid foreclosure actions. Any loans that are modified are reviewed by the Bank to identify if a TDR has occurred, which is when, for economic or legal reasons related to a borrower’s financial difficulties, the Bank grants a concession to the borrower that it would not otherwise consider. Terms may be modified to fit the ability of the borrower to repay in line with its current financial status and the restructuring of the loan may include the transfer of assets from the borrower to satisfy the debt, a modification of loan terms, or a combination of the two.

The following table shows the Company’s total TDRs and other pertinent information as of the dates indicated:

		June 30, 2020		December 31, 2019
	(Dollars in thousands)
TDRs on accrual status		$	17,741	$	19,599
TDRs on nonaccrual		24,098		24,766
Total TDRs		$	41,839	$	44,365
Amount of specific reserves associated with TDRs		n/a		$	855
Additional commitments to lend to a borrower who has been a party to a TDR		$	139	$	63

The Company’s policy is to have any restructured loan which is on nonaccrual status prior to being modified remain on nonaccrual status for six months subsequent to being modified before management considers its return to accrual status. If the restructured loan is on accrual status prior to being modified, it is reviewed to determine if the modified loan should remain on accrual status. Additionally, loans classified as TDRs are adjusted to reflect the changes in value of the recorded investment in the loan, if any, resulting from the granting of a concession. For all residential loan modifications, the borrower must perform during a 90 day trial period before the modification is finalized.

The following table shows the troubled debt restructurings which occurred during the periods indicated and the change in the recorded investment subsequent to the modifications occurring:

	Three Months Ended					Six Months Ended
	June 30, 2020					June 30, 2020
	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
	(Dollars in thousands)
Troubled debt restructurings
Commercial and industrial	1	$	40	$	40	3	$	308	$	308
Commercial real estate	4	1,170		1,170		5	1,774		1,774
Small business	1	63		63		2	112		88
Residential real estate	1	382		433		2	559		642
Home equity	—	—		—		—	—		—
Other consumer	—	—		—		—	—		—
Total	7	$	1,655	$	1,706	12	$	2,753	$	2,812

	Three Months Ended					Six Months Ended
	June 30, 2019					June 30, 2019
	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
	(Dollars in thousands)
Troubled debt restructurings
Commercial and industrial	1	$	97	$	97	1	$	97	$	97
Commercial real estate	—	—		—		1	150		150
Small business	2	56		56		2	56		56
Home equity	—	—		—		1	75		75
Total	3	$	153	$	153	5	$	378	$	378

 

The following table shows the Company’s post-modification balance of TDRs listed by type of modification during the period indicated:

	Three Months Ended		Six Months Ended
	June 30		June 30
	2020	2019	2020		2019
	(Dollars in thousands)
Adjusted interest rate	—	—	$	604	$	150
Court ordered concession	—	—	25		75
Extended maturity	1,706	153	2,183		153
Total	1,706	153	$	2,812	$	378

The Company considers a loan to have defaulted when it reaches 90 days past due. During the three and six months ended June 30, 2020, there were no loans modified during the prior twelve months that subsequently defaulted. During the three and six months ended June 30, 2019 there was one residential loan modified during the preceding twelve months with a recorded investment of $120,000, which subsequently defaulted.