ALLOWANCE FOR LOAN AND LEASE LOSSES AND CREDIT QUALITY INFORMATION

3 Months Ended

Mar. 31, 2020

ALLOWANCE FOR LOAN AND LEASE LOSSES AND CREDIT QUALITY INFORMATION

8. ALLOWANCE FOR CREDIT LOSSES AND CREDIT QUALITY INFORMATION

The following table provides the activity of our allowance for credit losses and loan balances for the three months ended March 31, 2020 under the current expected credit loss (CECL) model in accordance with ASC 326 (as adopted on January 1, 2020):


(Dollars in thousands)	Commercial and Industrial⁽¹⁾		Owner-occupied Commercial		Commercial Mortgages		Construction		Residential⁽²⁾		Consumer⁽³⁾		Total
Three months ended March 31, 2020
Allowance for credit losses
Beginning balance, prior to adoption of ASC 326	$	22,849	$	4,616	$	7,452	$	3,891	$	1,381	$	7,387	$	47,576
Impact of adopting ASC 326⁽⁴⁾	19,747		(1,472)		1,662		681		7,522		7,715		35,855
Charge-offs	(3,064)		(283)		(51)		—		(143)		(914)		(4,455)
Recoveries	2,847		125		29		5		91		354		3,451
Provision (credit)	23,392		6,555		17,508		621		2,742		5,828		56,646
Ending balance	$	65,771	$	9,541	$	26,600	$	5,198	$	11,593	$	20,370	$	139,073








Period-end allowance allocated to:
Loans evaluated on an individual basis	$	20	$	—	$	—	$	—	$	—	$	—	$	20
Loans evaluated on a collective basis	65,751		9,541		26,600		5,198		11,593		20,370		139,053

Ending balance	$	65,771	$	9,541	$	26,600	$	5,198	$	11,593	$	20,370	$	139,073
Period-end loan balances:
Loans evaluated on an individual basis	$	8,843	$	4,818	$	4,691	$	96	$	6,152	$	2,295	$	26,895
Loans evaluated on a collective basis	2,289,529		1,308,375		2,218,426		626,157		949,613		1,115,991		8,508,091


Ending balance	$	2,298,372	$	1,313,193	$	2,223,117	$	626,253	$	955,765	$	1,118,286	$	8,534,986

⁽¹⁾Includes commercial small business leases.

⁽²⁾Period-end loan balance excludes reverse mortgages at fair value of $15.8 million.

⁽³⁾Includes home equity lines of credit, installment loans, unsecured lines of credit and education loans.

⁽⁴⁾The impact of adopting ASC 326 includes $0.1 million for the initial allowance on loans purchased with credit deterioration.

The following table provides the activity of the allowance for loan and lease losses and loan balances for the three months ended March 31, 2019 under the incurred loss model:


(Dollars in thousands)	Commercial and Industrial⁽¹⁾		Owner - occupied Commercial		Commercial Mortgages		Construction		Residential⁽²⁾		Consumer		Total
Three months ended March 31, 2019
Allowance for loan and lease losses
Beginning balance	$	14,211	$	5,057	$	6,806	$	3,712	$	1,428	$	8,325	$	39,539
Charge-offs	(742)		—		(2)		—		(122)		(684)		(1,550)
Recoveries	358		3		29		1		(14)		301		678
Provision (credit)	7,123		(111)		(156)		331		51		257		7,495
Provision (credit) for acquired loans	66		—		2		—		58		33		159
Ending balance	$	21,016	$	4,949	$	6,679	$	4,044	$	1,401	$	8,232	$	46,321








Period-end allowance allocated to:
Individually evaluated for impairment	$	4,588	$	—	$	—	$	367	$	533	$	166	$	5,654
Collectively evaluated for impairment	16,427		4,856		6,600		3,663		830		8,064		40,440
Acquired loans individually evaluated for impairment	1		93		79		14		38		2		227
Ending balance	$	21,016	$	4,949	$	6,679	$	4,044	$	1,401	$	8,232	$	46,321
Period-end loan balances:
Individually evaluated for impairment⁽²⁾	$	16,109	$	5,384	$	3,999	$	2,781	$	10,590	$	8,169	$	47,032
Collectively evaluated for impairment	1,415,689		1,198,337		753,911		347,035		130,499		824,684		4,670,155
Acquired nonimpaired loans	782,160		105,154		1,575,527		225,245		949,804		295,450		3,933,340
Acquired impaired loans	6,130		4,070		19,715		636		8,483		3,456		42,490
Ending balance⁽³⁾	$	2,220,088	$	1,312,945	$	2,353,152	$	575,697	$	1,099,376	$	1,131,759	$	8,693,017

⁽¹⁾Includes commercial small business leases.

⁽²⁾Period-end loan balance excludes reverse mortgages at fair value of $16.2 million.

⁽³⁾The difference between this amount and nonaccruing loans represents accruing troubled debt restructured loans of $15.0 million for the period ending March 31, 2019. Accruing troubled debt restructured loans are considered impaired loans.

⁽⁴⁾Ending loan balances do not include net deferred fees.

The following table shows our nonaccrual and past due loans presented at amortized cost at the date indicated under the current expected credit loss model:


	March 31, 2020
(Dollars in thousands)	30–89 Days Past Due and Still Accruing			Greater Than 90 Days Past Due and Still Accruing			Total Past Due And Still Accruing			Accruing Current Balances			Nonaccrual Loans⁽¹⁾			Total Loans
Commercial and industrial⁽²⁾	$	8,526		$	83		$	8,609		$	2,281,204		$	8,559		$	2,298,372
Owner-occupied commercial	6,009			241			6,250			1,303,392			3,551			1,313,193
Commercial mortgages	5,840			680			6,520			2,215,286			1,311			2,223,117
Construction	330			2,068			2,398			623,855			—			626,253
Residential⁽³⁾	4,089			118			4,207			947,827			3,731			955,765
Consumer⁽⁴⁾	13,077			11,159			24,236			1,091,952			2,098			1,118,286
Total	$	37,871		$	14,349		$	52,220		$	8,463,516		$	19,250		$	8,534,986
% of Total Loans	0.44		%	0.17		%	0.61		%	99.16		%	0.23		%	100		%

⁽¹⁾Nonaccrual loans with an allowance totaled $18 thousand.

⁽²⁾Includes commercial small business leases.

⁽³⁾Residential accruing current balances excludes reverse mortgages at fair value of $15.8 million.

⁽⁴⁾Includes $21.5 million of delinquent, but still accruing, U.S. government-guaranteed student loans that carry little risk of credit loss.

The following table shows our nonaccrual and past due loans presented at unpaid principal balance at the date indicated under the incurred loss model:


	December 31, 2019
(Dollars in thousands)	30–89 Days Past Due and Still Accruing			Greater Than 90 Days Past Due and Still Accruing			Total Past Due And Still Accruing			Accruing Current Balances			Acquired Impaired Loans			Nonaccrual Loans			Total Loans
Commercial and industrial⁽¹⁾	$	6,289		$	2,038		$	8,327		$	2,214,506		$	1,564		$	11,031		$	2,235,428
Owner-occupied commercial	1,498			831			2,329			1,283,320			6,757			4,060			1,296,466
Commercial mortgages	4,999			99			5,098			2,207,582			8,670			1,626			2,222,976
Construction	—			—			—			580,591			491			—			581,082
Residential⁽²⁾	6,733			437			7,170			980,893			7,326			4,490			999,879
Consumer⁽³⁾	13,164			12,745			25,909			1,098,980			2,127			1,715			1,128,731
Total⁽³⁾	$	32,683		$	16,150		$	48,833		$	8,365,872		$	26,935		$	22,922		$	8,464,562
% of Total Loans	0.39		%	0.19		%	0.58		%	98.83		%	0.32		%	0.27		%	100		%

⁽¹⁾Includes commercial small business leases.

⁽²⁾Residential accruing current balances excludes reverse mortgages, at fair value of $16.6 million.

⁽³⁾Includes $22.3 million of delinquent, but still accruing, U.S. government-guaranteed student loans that carry little risk of credit loss.

⁽⁴⁾The balances above include a total of $3.2 billion acquired non-impaired loans.

The following table presents the amortized cost basis of nonaccruing collateral-dependent loans by class at March 31, 2020 under the current expected credit loss model:


	March 31, 2020
(Dollars in thousands)	Property		Equipment and other
Commercial and industrial⁽¹⁾	$	4,078	$	4,733
Owner-occupied commercial	4,818		—
Commercial mortgages	4,691		—
Construction	96		—
Residential⁽²⁾	6,152		—
Consumer⁽³⁾	2,273		23
Total	$	22,108	$	4,756

⁽¹⁾Includes commercial small business leases.

⁽²⁾Excludes reverse mortgages at fair value.

⁽³⁾Includes home equity lines of credit, installment loans, unsecured lines of credit and education loans.

The following table provides an analysis of the Company's impaired loans at December 31, 2019 under the incurred loss model:


	December 31, 2019
(Dollars in thousands)	Ending Loan Balances		Loans with No Related Reserve⁽¹⁾		Loans with Related Reserve⁽²⁾		Related Reserve		Contractual Principal Balances⁽²⁾		Average Loan Balances
Commercial and industrial	$	11,900	$	9,979	$	1,921	$	1,185	$	14,653	$	17,033
Owner-occupied commercial	5,596		3,919		1,677		233		6,083		7,869
Commercial mortgages	4,888		1,753		3,135		65		5,215		4,607
Construction	435		—		435		24		488		1,686
Residential	14,119		8,858		5,261		557		16,721		12,031
Consumer	7,584		5,876		1,708		178		8,444		7,729
Total	$	44,522	$	30,385	$	14,137	$	2,242	$	51,604	$	50,955

⁽¹⁾Reflects loan balances at or written down to their remaining book balance.

⁽²⁾The above includes acquired impaired loans totaling $7.9 million in the ending loan balance and $9.0 million in the contractual principal balance.

Interest income of $0.2 million was recognized on individually reviewed loans during the three months ended March 31, 2020. Interest income of $0.2 million was recognized on impaired loans during the three months ended March 31, 2019.

As of March 31, 2020, there were 30 residential loans and 24 commercial loans in the process of foreclosure. The total outstanding balance on these loans was $2.7 million and $5.9 million, respectively. As of December 31, 2019, there were 33 residential loans and 29 commercial loans in the process of foreclosure. The total outstanding balance on these loans was $3.2 million and $9.5 million, respectively.

Credit Quality Indicators

Below is a description of each of our risk ratings for all commercial loans:

•Pass. These borrowers currently show no indication of deterioration or potential problems and their loans are considered fully collectible.

•Special Mention. Borrowers have potential weaknesses that deserve management’s close attention. Borrowers in this category may be experiencing adverse operating trends, for example, declining revenues or margins, high leverage, tight liquidity, or increasing inventory without increasing sales. These adverse trends can have a potential negative effect on the borrower’s repayment capacity. These assets are not adversely classified and do not expose the Bank to significant risk that would warrant a more severe rating. Borrowers in this category may also be experiencing significant management problems, pending litigation, or other structural credit weaknesses.

•Substandard or Lower. Borrowers have well-defined weaknesses that require extensive oversight by management. Borrowers in this category may exhibit one or more of the following: inadequate debt service coverage, unprofitable operations, insufficient liquidity, high leverage, and weak or inadequate capitalization. Relationships in this category are not adequately protected by the sound financial worth and paying capacity of the obligor or the collateral pledged on the loan, if any. A distinct possibility exists that the Bank will sustain some loss if the deficiencies are not corrected. In addition, some borrowers in this category could have the added characteristic that the possibility of loss is extremely high. Current circumstances in the credit relationship make collection or liquidation in full highly questionable. Such impending events include: perfecting liens on additional collateral, obtaining collateral valuations, an acquisition or liquidation preceding, proposed merger, or refinancing plan.

Residential and Consumer Loans

The residential and consumer loan portfolios are monitored on an ongoing basis using delinquency information and loan type as credit quality indicators. These credit quality indicators are assessed in the aggregate in these relatively homogeneous portfolios. Loans that are greater than 90 days past due are generally considered nonperforming and placed on nonaccrual status.

The following tables provide an analysis of loans by portfolio segment based on the credit quality indicators used to determine the allowance for credit losses, as of March 31, 2020 under the current expected credit loss model.


	Term Loans Amortized Cost Basis by Origination Year
	2020		2019		2018		2017		2016		Prior		Revolving loans amortized cost basis		Revolving loans converted to term		Total
(Dollars in thousands)
Commercial and industrial⁽¹⁾:
Risk Rating
Pass	$	190,880	$	694,130	$	453,091	$	286,737	$	160,831	$	237,584	$	6,939	$	152,139	$	2,182,331
Special mention	206		—		—		560		38		12,932		—		—		13,736
Substandard or Lower	—		36,281		20,002		7,068		10,680		22,673		32		5,569		102,305
	$	191,086	$	730,411	$	473,093	$	294,365	$	171,549	$	273,189	$	6,971	$	157,708	$	2,298,372
Owner-occupied commercial:
Risk Rating
Pass	$	34,334	$	270,384	$	115,803	$	186,657	$	149,168	$	362,582	$	—	$	152,211	$	1,271,139
Special mention	—		—		—		—		—		—		—		—		—
Substandard or Lower	1,364		9,462		6,640		3,578		7,716		9,195		—		4,099		42,054
	$	35,698	$	279,846	$	122,443	$	190,235	$	156,884	$	371,777	$	—	$	156,310	$	1,313,193
Commercial mortgages:
Risk Rating
Pass	$	89,774	$	351,122	$	351,240	$	321,439	$	345,287	$	600,663	$	—	$	127,042	$	2,186,567
Special mention	—		—		—		16,091		—		918		—		—		17,009
Substandard or Lower	141		1,310		1,404		5,850		2,676		5,865		—		2,295		19,541
	$	89,915	$	352,432	$	352,644	$	343,380	$	347,963	$	607,446	$	—	$	129,337	$	2,223,117
Construction:
Risk Rating
Pass	$	51,084	$	216,257	$	253,520	$	49,438	$	7,054	$	2,134	$	—	$	46,670	$	626,157
Special mention	—		—		—		—		—		—		—		—		—
Substandard or Lower	—		—		—		—		—		96		—		—		96
	$	51,084	$	216,257	$	253,520	$	49,438	$	7,054	$	2,230	$	—	$	46,670	$	626,253
Residential⁽²⁾:
Risk Rating
Performing	$	8,616	$	38,158	$	99,082	$	125,502	$	180,131	$	498,013	$	—	$	—	$	949,502
Nonperforming⁽³⁾	—		—		—		—		92		6,171		—		—		6,263
	$	8,616	$	38,158	$	99,082	$	125,502	$	180,223	$	504,184	$	—	$	—	$	955,765
Consumer⁽⁴⁾:
Risk Rating
Performing	$	20,145	$	178,737	$	276,960	$	90,890	$	64,239	$	87,182	$	390,190	$	7,642	$	1,115,985
Nonperforming⁽⁵⁾	—		—		660		164		—		(161)		1,235		403		2,301
	$	20,145	$	178,737	$	277,620	$	91,054	$	64,239	$	87,021	$	391,425	$	8,045	$	1,118,286

⁽¹⁾Includes commercial small business leases.

⁽²⁾Excludes reverse mortgages at fair value.

⁽³⁾Includes troubled debt restructured mortgages performing in accordance with the loans' modified terms and are accruing interest.

⁽⁴⁾Includes home equity lines of credit, installment loans, unsecured lines of credit and education loans.

⁽⁵⁾Includes troubled debt restructured home equity installment loans performing in accordance with the loans' modified terms and are accruing interest.

The following tables provide an analysis of loans by portfolio segment based on the credit quality indicators used to determine the allowance for loan and lease loss, as of December 31, 2019 under the incurred loss model.

Commercial Credit Exposure


	December 31, 2019
	Commercial and Industrial⁽¹⁾		Owner-occupied Commercial		Commercial Mortgages		Construction		Total Commercial⁽²⁾
(Dollars in thousands)									Amount		%
Risk Rating:
Special mention	$	12,287	$	—	$	40,478	$	—	$	52,765
Substandard:
Accrual	78,809		32,679		23,017		—		134,505
Nonaccrual	9,852		4,037		1,626		—		15,515
Doubtful	1,179		23		—		—		1,202
Total Special Mention and Substandard	102,127		36,739		65,121		—		203,987		3	%
Acquired impaired	1,564		6,757		8,670		491		17,482		—	%
Pass	2,131,737		1,252,970		2,149,185		580,591		6,114,483		97	%
Total	$	2,235,428	$	1,296,466	$	2,222,976	$	581,082	$	6,335,952	100	%

⁽¹⁾Includes commercial small business leases.

⁽²⁾Includes $2.2 billion of acquired non-impaired loans as of December 31, 2019.

Retail Credit Exposure


	Residential⁽²⁾		Consumer		Total Retail⁽³⁾
	December 31, 2019		December 31, 2019		December 31, 2019
(Dollars in thousands)							Amount		Percent
Nonperforming⁽¹⁾	$	12,858	$	7,374	$	20,232	1	%
Acquired impaired loans	7,326		2,127		9,453		—	%
Performing	979,695		1,119,230		2,098,925		99	%
Total	$	999,879	$	1,128,731	$	2,128,610	100	%

⁽¹⁾Includes $14.0 million as of December 31, 2019 of troubled debt restructured mortgages and home equity installment loans that are performing in accordance with the loans’ modified terms and are accruing interest.

⁽²⁾Residential performing loans excludes $16.6 million of reverse mortgages at fair value as of December 31, 2019.

⁽³⁾Total includes $1.1 billion in acquired non-impaired loans as of December 31, 2019.

Troubled Debt Restructurings (TDRs)

The following table presents the balance of TDRs as of the indicated dates:



(Dollars in thousands)	March 31, 2020		December 31, 2019
Performing TDRs	$	14,070	$	14,281
Nonperforming TDRs	3,873		5,896
Total TDRs	$	17,943	$	20,177

Approximately $0.7 million and $0.6 million in related reserves have been established for these loans at March 31, 2020 and December 31, 2019, respectively.

The following tables present information regarding the types of loan modifications made for the three months ended March 31, 2020 and 2019:


	Three months ended March 31, 2020
	Contractual payment reduction and term extension	Maturity Date Extension	Discharged in bankruptcy	Other⁽¹⁾	Total
Commercial and industrial	1	—	—	—	1
Owner-occupied commercial	1	—	—	—	1
Commercial mortgages	—	1	—	—	1
Construction	—	—	—	—	—
Residential	—	—	1	1	2
Consumer	—	—	3	2	5
Total	2	1	4	3	10


	Three months ended March 31, 2019
	Contractual payment reduction and term extension	Maturity Date Extension	Discharged in bankruptcy	Other⁽¹⁾	Total
Commercial and industrial	—	—	—	—	—
Owner-occupied commercial	—	—	—	—	—
Commercial mortgages	1	—	—	—	1
Construction	—	—	—	—	—
Residential	—	—	1	1	2
Consumer	—	—	1	3	4
Total	1	—	2	4	7

⁽¹⁾Other includes underwriting exceptions.

Principal balances are generally not forgiven when a loan is modified as a TDR. Nonaccruing restructured loans remain in nonaccrual status until there has been a period of sustained repayment performance, which is typically six months, and repayment is reasonably assured.

The following table presents loans modified as TDRs during the three months ended March 31, 2020 and 2019.


	Three Months Ended March 31,
	2020						2019
(Dollars in thousands)	Pre Modification		Post Modification		Pre Modification		Post Modification
Commercial	$	20	$	20	$	—	$	—
Owner-occupied commercial	650		650		—		—
Commercial mortgages	110		110		31		31
Construction	—		—		—		—
Residential	226		226		102		102
Consumer	247		247		868		868
Total	$	1,253	$	1,253	$	1,001	$	1,001

During the three months ended March 31, 2020, the TDRs set forth in the table above resulted in a less than $0.1 million increase in our allowance for credit losses and no additional charge-offs, compared to a less than $0.1 million decrease in our allowance for credit losses and no additional charge-offs for the same period in 2019.

During the three months ended March 31, 2020, no TDRs defaulted that had received troubled debt modification during the past twelve months, compared with one loan with a total loan amount of less than $0.1 million during the three months ended March 31, 2019.

The TDRs set forth in the table above did not occur as a result of the loan forbearance program under the CARES Act. Refer to Note 21 and "Management's Discussion and Analysis - Nonperforming Assets" for further details on modifications that have occurred during the period following March 31, 2020 due to the current economic environment as a result of the COVID-19 pandemic.