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ALLOWANCE FOR LOAN AND LEASE LOSSES AND CREDIT QUALITY INFORMATION

6 Months Ended

Jun. 30, 2020

ALLOWANCE FOR LOAN AND LEASE LOSSES AND CREDIT QUALITY INFORMATION

7. ALLOWANCE FOR CREDIT LOSSES AND CREDIT QUALITY INFORMATION

The following table provides the activity of allowance for credit losses and loan balances for the three and six months ended June 30, 2020 under the 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 June 30, 2020
Allowance for credit losses
Beginning balance	$	65,771	$	9,541	$	26,600	$	5,198	$	11,593	$	20,370	$	139,073

Charge-offs	(2,072)		(53)		—		—		(32)		(667)		(2,824)
Recoveries	968		—		3		—		24		194		1,189
Provision (credit)	79,558		(532)		11,794		4,928		(2,414)		1,420		94,754
Ending balance	$	144,225	$	8,956	$	38,397	$	10,126	$	9,171	$	21,317	$	232,192
Six months ended June 30, 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	(5,136)		(336)		(51)		—		(175)		(1,581)		(7,279)
Recoveries	3,815		125		32		5		115		548		4,640
Provision (credit)	102,950		6,023		29,302		5,549		328		7,248		151,400
Ending balance	$	144,225	$	8,956	$	38,397	$	10,126	$	9,171	$	21,317	$	232,192
Period-end allowance allocated to:
Loans evaluated on an individual basis	$	18	$	—	$	—	$	—	$	—	$	—	$	18
Loans evaluated on a collective basis	144,207		8,956		38,397		10,126		9,171		21,317		232,174

Ending balance	$	144,225	$	8,956	$	38,397	$	10,126	$	9,171	$	21,317	$	232,192
Period-end loan balances:
Loans evaluated on an individual basis	$	15,634	$	5,425	$	4,470	$	88	$	5,452	$	2,464	$	33,533
Loans evaluated on a collective basis	3,151,200		1,331,828		2,161,077		638,416		889,408		1,130,907		9,302,836


Ending balance	$	3,166,834	$	1,337,253	$	2,165,547	$	638,504	$	894,860	$	1,133,371	$	9,336,369

⁽¹⁾Includes commercial small business leases and PPP loans.

⁽²⁾Period-end loan balance excludes reverse mortgages at fair value of $16.1 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 and six months ended June 30, 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 June 30, 2019
Allowance for loan and lease losses
Beginning balance	$	21,016	$	4,949	$	6,679	$	4,044	$	1,401	$	8,232	$	46,321
Charge-offs	(13,002)		(8)		(153)		(42)		(163)		(960)		(14,328)
Recoveries	203		78		398		1		(2)		498		1,176
Provision (credit)	13,568		(526)		(474)		(1,013)		24		72		11,651
Provision (credit) for acquired loans	219		(13)		94		(6)		98		152		544
Ending balance	$	22,004	$	4,480	$	6,544	$	2,984	$	1,358	$	7,994	$	45,364
Six months ended June 30, 2019
Allowance for loan losses
Beginning balance	$	14,211	$	5,057	$	6,806	$	3,712	$	1,428	$	8,325	$	39,539
Charge-offs	(13,744)		(8)		(155)		(42)		(285)		(1,644)		(15,878)
Recoveries	561		81		427		2		(16)		799		1,854
Provision (credit)	20,691		(637)		(630)		(682)		75		329		19,146
Provision (credit) for acquired loans	285		(13)		96		(6)		156		185		703
Ending balance	$	22,004	$	4,480	$	6,544	$	2,984	$	1,358	$	7,994	$	45,364
Period-end allowance allocated to:
Individually evaluated for impairment	$	4,324	$	—	$	—	$	—	$	488	$	183	$	4,995
Collectively evaluated for impairment	17,679		4,401		6,496		2,976		828		7,810		40,190
Acquired loans individually evaluated for impairment	1		79		48		8		42		1		179
Ending balance	$	22,004	$	4,480	$	6,544	$	2,984	$	1,358	$	7,994	$	45,364
Period-end loan balances:
Individually evaluated for impairment⁽²⁾	$	21,171	$	8,753	$	2,431	$	—	$	11,398	$	7,383	$	51,136
Collectively evaluated for impairment	1,575,810		1,168,864		765,268		324,307		134,235		848,396		4,816,880
Acquired nonimpaired loans	738,579		99,326		1,464,739		216,843		912,288		267,955		3,699,730
Acquired impaired loans	4,964		3,951		13,609		546		7,863		2,999		33,932
Ending balance⁽³⁾	$	2,340,524	$	1,280,894	$	2,246,047	$	541,696	$	1,065,784	$	1,126,733	$	8,601,678

⁽¹⁾Includes commercial small business leases.

⁽²⁾Period-end loan balance excludes reverse mortgages at fair value of $15.9 million.

⁽³⁾The difference between this amount and nonaccruing loans represents accruing troubled debt restructured loans of $14.2 million for the period ending June 30, 2019. Accruing troubled debt restructured loans are considered impaired loans.

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

The following table shows nonaccrual and past due loans presented at amortized cost at the date indicated under the CECL model:


	June 30, 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⁾	$	7,577		$	1,080		$	8,657		$	3,142,796		$	15,381		$	3,166,834
Owner-occupied commercial	5,198			197			5,395			1,327,646			4,212			1,337,253
Commercial mortgages	7,895			996			8,891			2,155,508			1,148			2,165,547
Construction	—			—			—			638,504			—			638,504
Residential⁽³⁾	1,504			175			1,679			890,063			3,118			894,860
Consumer⁽⁴⁾	5,473			6,153			11,626			1,119,429			2,316			1,133,371
Total	$	27,647		$	8,601		$	36,248		$	9,273,946		$	26,175		$	9,336,369
% of Total Loans	0.30		%	0.09		%	0.39		%	99.33		%	0.28		%	100		%

⁽¹⁾Nonaccrual loans with an allowance totaled $16 thousand.

⁽²⁾Includes commercial small business leases and PPP loans.

⁽³⁾Residential accruing current balances excludes reverse mortgages at fair value of $16.1 million.

⁽⁴⁾Includes $10.5 million of delinquent, but still accruing, U.S. government-guaranteed student loans that carry little risk of credit loss.

The following table shows 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⁾Balances in the table 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 June 30, 2020 under the CECL model:


	June 30, 2020
(Dollars in thousands)	Property		Equipment and other
Commercial and industrial⁽¹⁾	$	11,008	$	4,373
Owner-occupied commercial	4,212		—
Commercial mortgages	1,148		—
Construction	—		—
Residential⁽²⁾	3,118		—
Consumer⁽³⁾	2,316		—
Total	$	21,802	$	4,373

⁽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 and $0.4 million was recognized on individually reviewed loans during the three and six months ended June 30, 2020. Interest income of $0.4 million and $0.6 million was recognized on impaired loans during the three and six months ended June 30, 2019.

As of June 30, 2020, there were 25 residential loans and 20 commercial loans in the process of foreclosure. The total outstanding balance on these loans was $2.0 million and $6.2 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. Loan workout and OREO expenses were $1.1 million and $1.8 million during the three and six months ended June 30, 2020, respectively, and $1.1 million and $1.3 million during three and six months ended June 30, 2019, respectively. Loan workout and OREO expenses are included in Loan workout and other credit costs on the Consolidated Statement of Income.

Credit Quality Indicators

Below is a description of each of the 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 June 30, 2020 under the CECL 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⁽²⁾	$	1,249,900	$	568,960	$	310,071	$	207,981	$	135,074	$	176,408	$	6,368	$	137,064	$	2,791,826
Special mention	1,106		24,940		17,372		7,703		4,699		31,935		—		16,089		103,844
Substandard or Lower	58,854		68,996		58,303		44,712		9,854		24,370		31		6,044		271,164
	$	1,309,860	$	662,896	$	385,746	$	260,396	$	149,627	$	232,713	$	6,399	$	159,197	$	3,166,834
Owner-occupied commercial:
Risk Rating
Pass	$	95,721	$	262,486	$	112,582	$	166,073	$	144,973	$	340,010	$	—	$	149,516	$	1,271,361
Special mention	—		311		—		11,585		—		1,266		—		1,848		15,010
Substandard or Lower	1,818		9,282		7,188		8,952		9,209		9,645		—		4,788		50,882
	$	97,539	$	272,079	$	119,770	$	186,610	$	154,182	$	350,921	$	—	$	156,152	$	1,337,253
Commercial mortgages:
Risk Rating
Pass	$	163,925	$	335,085	$	291,054	$	316,021	$	317,738	$	530,844	$	—	$	127,835	$	2,082,502
Special mention	20,041		6,276		—		15,857		1,901		4,570		—		1,870		50,515
Substandard or Lower	140		1,306		1,394		4,157		2,650		20,604		—		2,279		32,530
	$	184,106	$	342,667	$	292,448	$	336,035	$	322,289	$	556,018	$	—	$	131,984	$	2,165,547
Construction:
Risk Rating
Pass	$	90,202	$	204,676	$	220,350	$	38,300	$	6,156	$	4,201	$	—	$	55,891	$	619,776
Special mention	—		8,137		—		—		—		—		—		—		8,137
Substandard or Lower	—		8,775		—		—		—		88		—		1,728		10,591
	$	90,202	$	221,588	$	220,350	$	38,300	$	6,156	$	4,289	$	—	$	57,619	$	638,504
Residential⁽³⁾:
Risk Rating
Performing	$	12,967	$	35,388	$	92,212	$	112,961	$	173,609	$	462,272	$	—	$	—	$	889,409
Nonperforming⁽⁴⁾	—		—		—		—		92		5,359		—		—		5,451
	$	12,967	$	35,388	$	92,212	$	112,961	$	173,701	$	467,631	$	—	$	—	$	894,860
Consumer⁽⁵⁾:
Risk Rating
Performing	$	85,834	$	165,512	$	287,173	$	80,871	$	57,913	$	70,555	$	375,483	$	7,392	$	1,130,733
Nonperforming⁽⁶⁾	—		—		651		219		—		—		1,378		390		2,638
	$	85,834	$	165,512	$	287,824	$	81,090	$	57,913	$	70,555	$	376,861	$	7,782	$	1,133,371

⁽¹⁾Includes commercial small business leases.

⁽²⁾Includes $945.1 million of PPP loans.

⁽³⁾Excludes reverse mortgages at fair value.

⁽⁴⁾Includes troubled debt restructured mortgages performing in accordance with the loans' modified terms and are accruing interest.

⁽⁵⁾Includes home equity lines of credit, installment loans, unsecured lines of credit and education loans.

⁽⁶⁾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)	June 30, 2020		December 31, 2019
Performing TDRs	$	14,550	$	14,281
Nonperforming TDRs	4,284		5,896
Total TDRs	$	18,834	$	20,177

Approximately $0.8 million and $0.6 million in related reserves have been established for these loans at June 30, 2020 and December 31, 2019, respectively.

The following tables present information regarding the types of loan modifications made for the three and six months ended June 30, 2020 and 2019:


	Three months ended June 30, 2020									Six months ended June 30, 2020
	Contractual payment reduction and term extension	Maturity Date Extension	Discharged in bankruptcy	Other⁽¹⁾	Total	Contractual payment reduction and term extension	Maturity Date Extension	Discharged in bankruptcy	Other⁽¹⁾	Total
Commercial and industrial	—	—	—	—	—	1	—	—	—	1
Owner-occupied commercial	2	—	—	—	2	3	—	—	—	3
Commercial mortgages	—	—	—	—	—	—	1	—	—	1
Construction	—	—	—	—	—	—	—	—	—	—
Residential	—	—	3	1	4	—	—	4	2	6
Consumer	—	—	4	1	5	—	—	7	3	10
Total	2	—	7	2	11	4	1	11	5	21


	Three months ended June 30, 2019									Six months ended June 30, 2019
	Contractual payment reduction and term extension	Maturity Date Extension	Discharged in bankruptcy	Other⁽¹⁾	Total	Contractual payment reduction and term extension	Maturity Date Extension	Discharged in bankruptcy	Other⁽¹⁾	Total
Commercial and industrial	—	1	—	2	3	—	1	—	2	3
Owner-occupied commercial	—	—	—	2	2	—	—	—	2	2
Commercial mortgages	—	—	—	1	1	1	—	—	1	2
Construction	—	—	—	—	—	—	—	—	—	—
Residential	3	—	—	—	3	4	—	1	—	5
Consumer	3	1	—	—	4	6	1	1	—	8
Total	6	2	—	5	13	11	2	2	5	20

⁽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 and six months ended June 30, 2020 and 2019.


	Three Months Ended June 30,														Six Months Ended June 30,
	2020						2019						2020				2019
(Dollars in thousands)	Pre Modification		Post Modification		Pre Modification		Post Modification		Pre Modification		Post Modification		Pre Modification		Post Modification
Commercial	$	—	$	—	$	1,347	$	1,347	$	31	$	31	$	1,347	$	1,347
Owner-occupied commercial	567		567		1,435		1,435		1,216		1,216		1,435		1,435
Commercial mortgages	—		—		483		483		104		104		514		514
Construction	—		—		—		—		—		—		—		—
Residential	905		905		321		321		1,126		1,126		423		423
Consumer	245		245		540		540		459		459		1,408		1,408
Total	$	1,717	$	1,717	$	4,126	$	4,126	$	2,936	$	2,936	$	5,127	$	5,127

During the three and six months ended June 30, 2020, the TDRs set forth in the table above resulted in a less than $0.1 million and $0.1 million increase in the allowance for credit losses, respectively, and no additional charge-offs in either period. For the three and six months ended June 30, 2019 the TDRs set forth in the table above resulted in a $0.1 million and $0.2 million decrease in the allowance for credit losses, respectively, and no additional charge-offs for either period.

During the three months ended June 30, 2020, no TDRs defaulted that had received troubled debt modification during the past twelve months, compared to three TDRs with a total loan amount of $1.2 million during the three months ended June 30, 2019. During the six months ended June 30, 2020, no TDRs defaulted that had received troubled debt modification during the past twelve months, compared with four TDRs with a total loan amount of $1.3 million during the six months ended June 30, 2019.

During the three months ended June 30, 2020, the Company began providing a number of customer relief programs in its commercial and retail portfolios, such as payment deferrals or interest only payments on loans and leases. The TDRs set forth in the table above did not occur as a result of the loan forbearance program under the CARES Act. During the second quarter of 2020, the Company modified approximately $2.1 billion of loans and leases to provide its customers this monetary relief.