As disclosed in Note 1 - "Summary of Significant Accounting Policies" and 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 and accounting policies 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 allowance for loan losses was allocated to loan types using both a formula-based approach applied to groups of loans and an analysis of certain individual loans for impairment. The formula-based approach emphasized loss factors derived from actual historical portfolio loss rates, which were combined with an assessment of certain qualitative factors to determine the allowance amounts allocated to the various loan categories. Allowance amounts were determined based on an estimate of the historical average annual percentage rate of loan loss for each loan category, an estimate of the incurred loss emergence and confirmation period for each loan category, and certain qualitative risk factors considered in the computation of the allowance for loan losses.

The formula-based approach evaluated groups of loans with common characteristics, which consisted of similar loan types with similar terms and conditions, to determine the appropriate allocation within each portfolio section. This approach incorporated qualitative adjustments based upon management’s assessment of various market and portfolio specific risk factors into its formula-based estimate. Due to the imprecise nature of the loan loss estimation process and ever changing conditions, the qualitative risk attributes may not have been adequately captured amounts of incurred loss in the formula-based loan loss components used to determine the Bank’s analysis of the appropriateness of the allowance for loan losses.

The Bank evaluated certain loans within the commercial and industrial, commercial real estate, commercial construction and small business portfolios individually for specific impairment. A loan was considered impaired when, based on current information and events, it was probable that the Bank 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, contractual interest rates 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. Loans were selected for evaluation based upon a change in internal risk rating, occurrence of delinquency, loan classification, troubled debt restructuring or nonaccrual status. A specific allowance amount was allocated to an individual loan when such loan had been deemed impaired and when the amount of the probable loss was able to be estimated. Estimates of loss were determined by the present value of anticipated future cash flows, the loan’s observable fair market value, or the fair value of the collateral, if the loan is collateral dependent. However, for collateral dependent loans, the amount of the recorded investment in a loan that exceeded the fair value of the collateral less costs to sell was charged-off against the allowance for loan losses in lieu of an allocation of a specific allowance amount when such an amount had been identified definitively as uncollectible.

In the ordinary course of business, the Bank 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 loan losses. The reserve for unfunded lending commitments is included in other liabilities in the balance sheet. At December 31, 2019 and 2018, the reserve for unfunded loan commitments was $2.1 million and $1.3 million, respectively.


	December 31, 2019
	Commercial and Industrial		Commercial Real Estate		Commercial Construction		Small Business		Residential Real Estate		Home Equity		Other Consumer		Total
	(Dollars in thousands)
Allowance for loan losses
Beginning balance	$	15,760	$	32,370	$	5,158	$	1,756	$	3,219	$	5,608	$	422	$	64,293
Charge-offs	(244)		(2,614)		—		(509)		—		(240)		(1,598)		(5,205)
Recoveries	1,131		152		—		122		142		318		787		2,652
Provision (benefit)	947		3,027		895		377		79		(110)		785		6,000
Ending balance	$	17,594	$	32,935	$	6,053	$	1,746	$	3,440	$	5,576	$	396	$	67,740
Ending balance: collectively evaluated for impairment	$	17,468	$	32,887	$	6,053	$	1,738	$	2,803	$	5,420	$	391	$	66,760
Ending balance: individually evaluated for impairment	$	126	$	48	$	—	$	8	$	637	$	156	$	5	$	980

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)


	December 31, 2018
	Commercial and Industrial		Commercial Real Estate		Commercial Construction		Small Business		Residential Real Estate		Home Equity		Other Consumer		Total
	(Dollars in thousands)
Allowance for loan losses
Beginning balance	$	13,256	$	31,453	$	5,698	$	1,577	$	2,822	$	5,390	$	447	$	60,643
Charge-offs	(355)		(82)		—		(372)		(148)		(293)		(1,347)		(2,597)
Recoveries	182		188		—		46		12		156		888		1,472
Provision (benefit)	2,677		811		(540)		505		533		355		434		4,775
Ending balance	$	15,760	$	32,370	$	5,158	$	1,756	$	3,219	$	5,608	$	422	$	64,293
Ending balance: collectively evaluated for impairment	$	15,753	$	32,333	$	5,158	$	1,755	$	2,357	$	5,444	$	414	$	63,214
Ending balance: individually evaluated for impairment	$	7	$	37	$	—	$	1	$	862	$	164	$	8	$	1,079

Financing receivables ending balance:
Collectively evaluated for impairment	$	1,064,800	$	3,235,418	$	365,165	$	164,135	$	906,959	$	1,085,961	$	15,901	$	6,838,339
Individually evaluated for impairment	28,829		10,839		—		541		12,706		5,948		197		59,060
Purchase credit impaired loans	—		4,991		—		—		3,629		175		—		8,795
Total loans by group	$	1,093,629	$	3,251,248	$	365,165	$	164,676	$	923,294	$	1,092,084	$	16,098	$	6,906,194	(1)

(1)The amount of net deferred costs on originated loans included in the ending balance was $7.1 million at December 31, 2019 and 2018. Net unamortized discounts on acquired loans not deemed to be purchased credit impaired ("PCI") included in the ending balance were $21.6 million and $15.2 million at December 31, 2019 and 2018 respectively.

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" for further discussion surrounding the Company's policies for loan segmentation and credit quality monitoring.


		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

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

The table below sets forth information regarding the Company’s impaired loans. The information for average recorded investment and interest income recognized is reflective of the full period being presented and does not take into account the date at which a loan was deemed to be impaired. See information below as of the dates indicated:


	As of and For the Years Ended December 31
	2019
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
	(Dollars in thousands)
With no related allowance recorded
Commercial and industrial	$	23,786	$	34,970	$	—	$	27,056	$	136
Commercial real estate	6,213		12,101		—		12,595		523

Small business	469		484		—		471		22
Residential real estate	4,976		5,123		—		5,045		222
Home equity	3,764		3,893		—		3,869		184
Other consumer	34		34		—		41		3
Subtotal	39,242		56,605		—		49,077		1,090
With an allowance recorded
Commercial and industrial	670		670		126		718		29
Commercial real estate	2,124		2,124		48		2,176		122

Small business	68		105		8		74		2
Residential real estate	6,252		7,163		637		6,326		239
Home equity	1,184		1,382		156		1,214		52
Other consumer	88		91		5		97		3
Subtotal	10,386		11,535		980		10,605		447
Total	$	49,628	$	68,140	$	980	$	59,682	$	1,537


	2018
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
	(Dollars in thousands)
With no related allowance recorded
Commercial and industrial	$	28,459	$	35,913	$	—	$	31,117	$	142
Commercial real estate	9,552		9,832		—		10,561		519

Small business	358		439		—		401		14
Residential real estate	4,518		4,686		—		4,597		212
Home equity	4,957		5,199		—		5,230		220
Other consumer	56		56		—		64		4
Subtotal	47,900		56,125		—		51,970		1,111
With an allowance recorded
Commercial and industrial	370		370		7		385		19
Commercial real estate	1,287		1,287		37		1,311		74

Small business	183		223		1		225		13
Residential real estate	8,188		9,217		862		8,459		289
Home equity	991		1,149		164		1,018		43
Other consumer	141		143		8		154		5
Subtotal	11,160		12,389		1,079		11,552		443
Total	$	59,060	$	68,514	$	1,079	$	63,522	$	1,554

All acquired loans were recorded at fair value with no carryover of the allowance for loan losses. At acquisition, loans were also reviewed to determine if the loan had evidence of deterioration in credit quality and to review if it was probable, at acquisition, that all contractually required payments were not collected. Such loans 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.

A decrease in expected cash flows in subsequent periods were an indication that the loan was impaired which would have likely required the recognition of a charge-off against the allowance for loan losses or an establishment of a specific reserve. An increase in expected cash flows in subsequent periods served, first, to reduce any previously established specific reserve by the increase in the present value of cash flows expected to be collected. Any increase above the previously established specific reserve resulted in a recalculation of the amount of accretable yield for the loan. The adjustment of accretable yield due to an increase in expected cash flows was accounted for as a change in estimate. The additional cash flows expected to be collected were reclassified from the nonaccretable difference to the accretable yield, and the amount of periodic accretion was adjusted accordingly over the remaining life of the loans.

A PCI loan may have been resolved either through receipt of payment (in full or in part) from the borrower, the sale of the loan to a third party, or foreclosure of the collateral. In the event of a sale of the loan, a gain or loss on sale would have been recognized and reported within noninterest income based on the difference between the sales proceeds and the carrying amount of the loan. For PCI loans accounted for on an individual loan basis and resolved directly with the borrower, any amount received from resolution in excess of the carrying amount of the loan was recognized and reported within interest income.

A refinancing or modification of a PCI loan accounted for individually was assessed to determine whether the modification represented a TDR. If the loan was considered to be a TDR, it would have been included in the total impaired loans reported by the Company. The loan would have continued to recognize interest income based upon the excess of cash flows expected to be collected over the carrying amount of the loan.

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: