Loans, Allowance for Loan Losses and Credit Quality

6 Months Ended

Jun. 30, 2020

Loans, Allowance for Loan Losses and Credit Quality [Abstract]

LOANS, ALLOWANCE FOR LOAN LOSSES AND CREDIT QUALITY

LOANS AND ALLOWANCE FOR LOAN LOSSES

As disclosed in Note 4 - Loans, Allowance for Credit Losses and Credit Quality, the Company adopted the CECL standard, effective January 1, 2020. As required by disclosure guidance, the Company has included relevant disclosures from the prior year and prior to the adoption of CECL within this footnote, as it relates to loans and allowance for loan losses.

The following table bifurcates the amount of loans and the allowance allocated to each loan category based on the type of impairment analysis as of December 31, 2019:

	December 31, 2019
	Commercial and Industrial		Commercial Real Estate		Commercial Construction		Small Business		Residential Real Estate		Home Equity		Other Consumer		Total
	(Dollars in thousands)
Financing receivables ending balance:
Collectively evaluated for impairment	$	1,370,580	$	3,987,848	$	547,293	$	173,960	$	1,571,848	$	1,127,963	$	29,663	$	8,809,155
Individually evaluated for impairment	24,456		8,337		—		537		11,228		4,948		122		49,628
Purchased credit impaired loans	—		6,174		—		—		7,493		887		302		14,856
Total loans by group	$	1,395,036	$	4,002,359	$	547,293	$	174,497	$	1,590,569	$	1,133,798	$	30,087	$	8,873,639	(1)

(1) The amount of net deferred costs on originated loans included in the ending balance was $7.1 million at December 31, 2019. Net unamortized discounts on acquired loans not deemed to be purchased credit impaired ("PCI") included in the ending balance was $21.6 million at December 31, 2019.

At December 31, 2019, the reserve for unfunded loan commitments was $2.1 million.

The following table summarizes changes in allowance for loan losses by loan category for the periods indicated:

	Three Months Ended June 30, 2019
	(Dollars in thousands)
	Commercial and Industrial			Commercial Real Estate		Commercial Construction		Small Business			Residential Real Estate		Home Equity			Other Consumer			Total
Allowance for loan losses
Beginning balance	$	16,872		$	32,049	$	5,355	$	1,784		$	3,234	$	5,507		$	339		$	65,140
Charge-offs	—			—		—		(49		)	—		(71		)	(352		)	(472		)
Recoveries	—			13		—		20			—		18			241			292
Provision (benefit)	(15		)	598		238		13			62		93			11			1,000
Ending balance	$	16,857		$	32,660	$	5,593	$	1,768		$	3,296	$	5,547		$	239		$	65,960
	Six Months Ended June 30, 2019
	(Dollars in thousands)
	Commercial and Industrial			Commercial Real Estate		Commercial Construction		Small Business			Residential Real Estate		Home Equity			Other Consumer			Total
Allowance for loan losses
Beginning balance	$	15,760		$	32,370	$	5,158	$	1,756		$	3,219	$	5,608		$	422		$	64,293
Charge-offs	—			—		—		(194		)	—		(184		)	(653		)	(1,031		)
Recoveries	124			46		—		47			1		84			396			698
Provision (benefit)	973			244		435		159			76		39			74			2,000
Ending balance	$	16,857		$	32,660	$	5,593	$	1,768		$	3,296	$	5,547		$	239		$	65,960
Ending balance: collectively evaluated for impairment	$	16,850		$	32,586	$	5,593	$	1,730		$	2,507	$	5,388		$	233		$	64,887
Ending balance: individually evaluated for impairment	$	7		$	74	$	—	$	38		$	789	$	159		$	6		$	1,073

The Company's historical approach to loan portfolio segmentation by risk characteristics and monitoring of credit quality for commercial loans under previous accounting guidance was consistent with that applied under the newly adopted CECL standard. See Note 4 - Loans, Allowance for Credit Losses and Credit Quality further discussion surrounding the Company's policies for loan segmentation and credit quality monitoring.

The following tables detail the amount of outstanding principal balances relative to each of the risk-rating categories for the Company’s loan portfolio as of December 31, 2019:

		December 31, 2019
Category	Risk Rating	Commercial  and Industrial		Commercial Real Estate		Commercial Construction		Small Business		Total
		(Dollars in thousands)
Pass	1 - 6	$	1,274,155	$	3,860,555	$	542,608	$	171,213	$	5,848,531
Potential weakness	7	63,485		97,268		2,247		1,416		164,416
Definite weakness-loss unlikely	8	57,396		44,536		2,438		1,868		106,238
Partial loss probable	9	—		—		—		—		—
Definite loss	10	—		—		—		—		—
Total		$	1,395,036	$	4,002,359	$	547,293	$	174,497	$	6,119,185

Impaired Loans

Under previous accounting guidance, a loan was considered impaired when, based on current information and events, it was probable that the Company would be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment included payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experienced insignificant payment delays and payment shortfalls generally were not classified as impaired. Management determined the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.

The table below sets forth information regarding the Company’s impaired loans by loan portfolio at the date indicated:

	December 31, 2019
	Recorded Investment		Unpaid Principal Balance		Related Allowance
	(Dollars in thousands)
With no related allowance recorded
Commercial and industrial	$	23,786	$	34,970	$	—
Commercial real estate	6,213		12,101		—
Small business	469		484		—
Residential real estate	4,976		5,123		—
Home equity	3,764		3,893		—
Other consumer	34		34		—
Subtotal	39,242		56,605		—
With an allowance recorded
Commercial and industrial	$	670	$	670	$	126
Commercial real estate	2,124		2,124		48
Small business	68		105		8
Residential real estate	6,252		7,163		637
Home equity	1,184		1,382		156
Other consumer	88		91		5
Subtotal	10,386		11,535		980
Total	$	49,628	$	68,140	$	980

The following table sets forth information regarding interest income recognized on impaired loans, by portfolio, for the periods indicated:

	Three Months Ended				Six Months Ended
	June 30, 2019				June 30, 2019
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
	(Dollars in thousands)
With no related allowance recorded
Commercial and industrial	$	27,406	$	34	$	28,971	$	70
Commercial real estate	7,496		92		7,582		186
Small business	309		2		319		6
Residential real estate	4,713		58		4,727		113
Home equity	4,751		53		4,783		107
Other consumer	42		1		45		1
Subtotal	44,717		240		46,427		483
With an allowance recorded
Commercial and industrial	$	268	$	3	$	270	$	6
Commercial real estate	1,662		24		1,672		49
Small business	190		2		192		5
Residential real estate	6,707		59		6,775		116
Home equity	972		11		978		22
Other consumer	132		2		135		2
Subtotal	9,931		101		10,022		200
Total	$	54,648	$	341	$	56,449	$	683

Purchased Credit Impaired Loans

Under previous accounting guidance, certain loans acquired by the Company may have shown evidence of deterioration of credit quality since origination at purchase date, and it was therefore deemed unlikely that the Company would be able to collect all contractually required payments. As such, these loans were deemed to be PCI loans and the carrying value and prospective income recognition were predicated upon future cash flows expected to be collected. The following table displays certain information pertaining to PCI loans at the date indicated:

	December 31, 2019
	(Dollars in thousands)
Outstanding balance	$	18,358
Carrying amount	$	14,856

The following table summarizes activity in the accretable yield for the PCI loan portfolio for the periods indicated:

	Three Months Ended June 30			Six Months Ended June 30
	2019			2019
	(Dollars in thousands)
Beginning balance	$	1,164		$	1,191
Acquisition	1,464			1,464
Accretion	(662		)	(803		)
Other change in expected cash flows (1)	272			386
Ending balance	$	2,238		$	2,238

(1) Represents changes in cash flows expected to be collected and resulting in increased interest income as a prospective yield adjustment over the remaining life of the loan(s).