ALLOWANCE FOR CREDIT LOSSES AND CREDIT QUALITY INFORMATION

9 Months Ended

Sep. 30, 2023

ALLOWANCE FOR CREDIT LOSSES AND CREDIT QUALITY INFORMATION

7. ALLOWANCE FOR CREDIT LOSSES AND CREDIT QUALITY INFORMATION

The following tables provide the activity of allowance for credit losses and loan balances for the three and nine months ended September 30, 2023 and 2022. The increase was primarily due to the impacts of the economic uncertainty and forecast and net loan growth.


(Dollars in thousands)	Commercial and Industrial(1)		Owner-occupied Commercial		Commercial Mortgages		Construction		Residential(2)		Consumer(3)		Total
Three months ended September 30, 2023
Allowance for credit losses
Beginning balance	$	62,783	$	6,335	$	31,937	$	9,228	$	5,043	$	56,543	$	171,869

Charge-offs	(10,675)		—		(300)		—		—		(5,872)		(16,847)
Recoveries	2,124		14		1		1		55		357		2,552
Provision	7,438		1,501		1,549		2,088		253		5,585		18,414
Ending balance	$	61,670	$	7,850	$	33,187	$	11,317	$	5,351	$	56,613	$	175,988
Nine months ended September 30, 2023
Allowance for credit losses
Beginning balance	$	59,394	$	6,019	$	21,473	$	6,987	$	4,668	$	53,320	$	151,861

Charge-offs	(30,496)		(184)		(300)		—		(33)		(15,374)		(46,387)
Recoveries	5,554		50		4		532		211		906		7,257
Provision	27,218		1,965		12,010		3,798		505		17,761		63,257
Ending balance	$	61,670	$	7,850	$	33,187	$	11,317	$	5,351	$	56,613	$	175,988
Period-end allowance allocated to:
Loans evaluated on an individual basis	$	1,054	$	161	$	—	$	1,600	$	—	$	—	$	2,815
Loans evaluated on a collective basis	60,616		7,689		33,187		9,717		5,351		56,613		173,173
Ending balance	$	61,670	$	7,850	$	33,187	$	11,317	$	5,351	$	56,613	$	175,988
Period-end loan balances:
Loans evaluated on an individual basis	$	26,355	$	16,442	$	7,918	$	4,828	$	5,838	$	1,798	$	63,179
Loans evaluated on a collective basis	3,223,382		1,907,729		3,637,805		1,038,740		849,502		1,955,284		12,612,442
Ending balance	$	3,249,737	$	1,924,171	$	3,645,723	$	1,043,568	$	855,340	$	1,957,082	$	12,675,621

(1)Includes commercial small business leases.

(2)Period-end loan balance excludes reverse mortgages at fair value of $2.8 million.

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


(Dollars in thousands)	Commercial and Industrial(1)		Owner - occupied Commercial		Commercial Mortgages		Construction		Residential(2)		Consumer(3)		Total
Three months ended September 30, 2022
Allowance for credit losses
Beginning balance	$	60,921	$	5,510	$	23,663	$	5,058	$	4,988	$	41,830	$	141,970

Charge-offs	(5,120)		—		(544)		—		—		(1,834)		(7,498)
Recoveries	3,194		4		101		653		207		114		4,273
Provision (credit)	889		489		(1,686)		788		(377)		7,347		7,450
Ending balance	$	59,884	$	6,003	$	21,534	$	6,499	$	4,818	$	47,457	$	146,195
Nine months ended September 30, 2022
Allowance for loan losses
Beginning balance	$	49,967	$	4,574	$	11,623	$	1,903	$	3,352	$	23,088	$	94,507
Initial allowance on acquired PCD loans	22,614		595		2,684		71		61		78		26,103
Charge-offs	(11,308)		(179)		(581)		—		(186)		(4,062)		(16,316)
Recoveries	4,667		271		223		653		737		663		7,214
(Credit) provision(4)	(6,056)		742		7,585		3,872		854		27,690		34,687
Ending balance	$	59,884	$	6,003	$	21,534	$	6,499	$	4,818	$	47,457	$	146,195
Period-end allowance allocated to:
Loans evaluated on an individual basis	$	5,348	$	—	$	—	$	—	$	—	$	—	$	5,348
Loans evaluated on a collective basis	54,536		6,003		21,534		6,499		4,818		47,457		140,847
Ending balance	$	59,884	$	6,003	$	21,534	$	6,499	$	4,818	$	47,457	$	146,195
Period-end loan balances:
Loans evaluated on an individual basis	$	21,565	$	1,713	$	9,483	$	5,360	$	6,451	$	1,884	$	46,456
Loans evaluated on a collective basis	3,147,913		1,786,878		3,270,896		1,022,843		752,142		1,675,244		11,655,916
Ending balance	$	3,169,478	$	1,788,591	$	3,280,379	$	1,028,203	$	758,593	$	1,677,128	$	11,702,372

(1)Includes commercial small business leases.

(2)Period-end loan balance excludes reverse mortgages at fair value of $3.0 million.

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

(4)Includes $23.5 million initial provision for credit losses on non-PCD loans.

The following tables show nonaccrual and past due loans presented at amortized cost at the date indicated:


	September 30, 2023
(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 With No Allowance			Nonaccrual Loans With An Allowance			Total Loans
Commercial and industrial(1)	$	10,183		$	1,119		$	11,302		$	3,212,140		$	21,138		$	5,157		$	3,249,737
Owner-occupied commercial	1,669			—			1,669			1,907,355			14,085			1,062			1,924,171
Commercial mortgages	16,691			—			16,691			3,622,326			6,706			—			3,645,723
Construction	8,285			2,016			10,301			1,028,439			726			4,102			1,043,568
Residential(2)	6,764			—			6,764			846,045			2,531			—			855,340
Consumer(3)	15,580			11,222			26,802			1,928,327			1,953			—			1,957,082
Total	$	59,172		$	14,357		$	73,529		$	12,544,632		$	47,139		$	10,321		$	12,675,621
% of Total Loans	0.47		%	0.11		%	0.58		%	98.97		%	0.37		%	0.08		%	100		%

(1)Includes commercial small business leases.

(2)Residential accruing current balances excludes reverse mortgages at fair value of $2.8 million.

(3)Includes $16.1 million of delinquent, but still accruing, U.S. government-guaranteed student loans that carry little risk of credit loss.


	December 31, 2022
(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)	$	10,767		$	311		$	11,078		$	3,116,478		$	6,770		$	3,134,326
Owner-occupied commercial	3,500			474			3,974			1,805,222			386			1,809,582
Commercial mortgages	2,137			237			2,374			3,343,551			5,159			3,351,084
Construction	—			—			—			1,038,906			5,143			1,044,049
Residential(3)	2,563			—			2,563			753,703			3,199			759,465
Consumer(4)	12,263			15,513			27,776			1,781,009			2,145			1,810,930
Total(4)	$	31,230		$	16,535		$	47,765		$	11,838,869		$	22,802		$	11,909,436
% of Total Loans	0.26		%	0.14		%	0.40		%	99.41		%	0.19		%	100		%

(1)There were no nonaccrual loans with an allowance as of December 31, 2022.

(2)Includes commercial small business leases.

(3)Residential accruing current balances excludes reverse mortgages, at fair value of $2.4 million.

(4)Includes $21.1 million of delinquent, but still accruing, U.S. government-guaranteed student loans that carry little risk of credit loss.

The following table presents the amortized cost basis of nonaccruing collateral-dependent loans by class at September 30, 2023 and December 31, 2022:


	September 30, 2023		December 31, 2022
(Dollars in thousands)	Property		Equipment and other		Property		Equipment and other
Commercial and industrial(1)	$	21,650	$	4,645	$	3,848	$	2,922
Owner-occupied commercial	15,147		—		386		—
Commercial mortgages	6,706		—		5,159		—
Construction	4,828		—		5,143		—
Residential(2)	2,531		—		3,199		—
Consumer(3)	1,953		—		2,145		—
Total	$	52,815	$	4,645	$	19,880	$	2,922

(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.

As of September 30, 2023, there were 33 residential loans and 14 commercial loans in the process of foreclosure. The total outstanding balance on these loans was $3.8 million and $3.6 million, respectively. As of December 31, 2022, there were 45 residential loans and 8 commercial loans in the process of foreclosure. The total outstanding balance on these loans was $6.7 million and $1.6 million, respectively. Loan workout and other real estate owned (OREO) (recoveries) expenses were $(0.3) million and less than $0.1 million during the three and nine months ended September 30, 2023, respectively, and $0.3 million and $0.5 million during three and nine months ended September 30, 2022, respectively. Loan workout and OREO expenses are included in Loan workout and other credit costs on the unaudited Consolidated Statements 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. These 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. These 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 September 30, 2023.


	Term Loans Amortized Cost Basis by Origination Year(1)
	2023		2022		2021		2020		2019		Prior		Revolving loans amortized cost basis		Revolving loans converted to term		Total
(Dollars in thousands)
Commercial and industrial(2):
Risk Rating
Pass	$	830,232	$	854,412	$	321,269	$	264,724	$	119,282	$	396,845	$	8,710	$	243,969	$	3,039,443
Special mention	14,913		24,194		2,917		350		798		7		—		861		44,040
Substandard or Lower	53,341		34,854		5,908		11,086		24,982		19,568		—		16,515		166,254
	$	898,486	$	913,460	$	330,094	$	276,160	$	145,062	$	416,420	$	8,710	$	261,345	$	3,249,737
Current-period gross writeoffs	$	399	$	5,410	$	8,437	$	1,398	$	6,435	$	8,417	$	—	$	—	$	30,496
Owner-occupied commercial:
Risk Rating
Pass	$	289,740	$	269,796	$	268,593	$	213,060	$	206,999	$	361,669	$	—	$	171,762	$	1,781,619
Special mention	2,907		2,182		6,638		1,122		9,621		5,601		—		1,615		29,686
Substandard or Lower	8,936		18,540		9,523		11,588		2,831		42,725		—		18,723		112,866
	$	301,583	$	290,518	$	284,754	$	225,770	$	219,451	$	409,995	$	—	$	192,100	$	1,924,171
Current-period gross writeoffs	$	—	$	—	$	—	$	—	$	184	$	—	$	—	$	—	$	184
Commercial mortgages:
Risk Rating
Pass	$	682,033	$	478,103	$	521,669	$	475,369	$	494,904	$	625,112	$	—	$	263,124	$	3,540,314
Special mention	9,599		—		69		4,802		24,401		19,797		—		294		58,962
Substandard or Lower	9,913		2,584		1,343		11,041		1,249		4,846		—		15,471		46,447
	$	701,545	$	480,687	$	523,081	$	491,212	$	520,554	$	649,755	$	—	$	278,889	$	3,645,723
Current-period gross writeoffs	$	—	$	83	$	—	$	217	$	—	$	—	$	—	$	—	$	300
Construction:
Risk Rating
Pass	$	361,914	$	387,776	$	158,656	$	20,879	$	2,405	$	9,241	$	—	$	41,362	$	982,233
Special mention	14,239		14,338		10,691		—		—		—		—		—		39,268
Substandard or Lower	8,285		—		4,102		8,954		161		—		—		565		22,067
	$	384,438	$	402,114	$	173,449	$	29,833	$	2,566	$	9,241	$	—	$	41,927	$	1,043,568
Current-period gross writeoffs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Residential(3):
Risk Rating
Performing	$	152,336	$	68,990	$	104,664	$	57,762	$	34,205	$	431,381	$	—	$	—	$	849,338
Nonperforming	—		170		589		489		1,259		3,495		—		—		6,002
	$	152,336	$	69,160	$	105,253	$	58,251	$	35,464	$	434,876	$	—	$	—	$	855,340
Current-period gross writeoffs	$	33	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	33
Consumer(4):
Risk Rating
Performing	$	251,967	$	598,183	$	164,642	$	107,950	$	47,046	$	256,796	$	523,391	$	5,188	$	1,955,163
Nonperforming	—		—		—		199		41		—		1,367		312		1,919
	$	251,967	$	598,183	$	164,642	$	108,149	$	47,087	$	256,796	$	524,758	$	5,500	$	1,957,082
Current-period gross writeoffs	$	787	$	10,716	$	3,174	$	235	$	142	$	320	$	—	$	—	$	15,374

(1)Origination date represents the most recent underwriting of the loan which includes new relationships, renewals and extensions.

(2)Includes commercial small business leases.

(3)Excludes reverse mortgages at fair value.

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

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 December 31, 2022.


	Term Loans Amortized Cost Basis by Origination Year
	2022		2021		2020		2019		2018		Prior		Revolving loans amortized cost basis		Revolving loans converted to term		Total
(Dollars in thousands)
Commercial and industrial(1):
Risk Rating
Pass	$	1,123,803	$	501,761	$	387,225	$	211,310	$	153,713	$	276,588	$	8,099	$	250,486	$	2,912,985
Special mention	28,672		27,689		7,585		9,451		347		1,010		—		2,596		77,350
Substandard or Lower	32,362		16,162		6,943		37,534		37,133		6,768		—		7,089		143,991
	$	1,184,837	$	545,612	$	401,753	$	258,295	$	191,193	$	284,366	$	8,099	$	260,171	$	3,134,326
Owner-occupied commercial:
Risk Rating
Pass	$	280,898	$	325,388	$	258,177	$	226,717	$	106,390	$	363,420	$	—	$	132,942	$	1,693,932
Special mention	17,376		—		—		—		—		2,166		—		3,351		22,893
Substandard or Lower	2,981		1,500		23,284		4,401		11,864		35,311		—		13,416		92,757
	$	301,255	$	326,888	$	281,461	$	231,118	$	118,254	$	400,897	$	—	$	149,709	$	1,809,582
Commercial mortgages:
Risk Rating
Pass	$	516,783	$	600,226	$	526,312	$	549,788	$	276,414	$	594,024	$	—	$	210,550	$	3,274,097
Special mention	1,450		75		3,848		6,121		9,596		32,014		—		—		53,104
Substandard or Lower	1,861		1,210		12,552		2,909		3,573		1,209		—		569		23,883
	$	520,094	$	601,511	$	542,712	$	558,818	$	289,583	$	627,247	$	—	$	211,119	$	3,351,084
Construction:
Risk Rating
Pass	$	448,581	$	299,619	$	115,667	$	9,319	$	26,553	$	7,539	$	—	$	122,116	$	1,029,394

Special mention	—		—		—		—		—		—		—		581		581
Substandard or Lower	—		4,200		8,930		183		—		—		—		761		14,074
	$	448,581	$	303,819	$	124,597	$	9,502	$	26,553	$	7,539	$	—	$	123,458	$	1,044,049
Residential(2):
Risk Rating
Performing	$	64,500	$	110,508	$	60,625	$	36,118	$	45,859	$	434,175	$	—	$	—	$	751,785
Nonperforming	—		729		502		999		1,218		4,232		—		—		7,680
	$	64,500	$	111,237	$	61,127	$	37,117	$	47,077	$	438,407	$	—	$	—	$	759,465
Consumer(3):
Risk Rating
Performing	$	595,158	$	195,397	$	126,456	$	54,449	$	220,039	$	71,478	$	540,308	$	5,232	$	1,808,517
Nonperforming	—		—		350		—		479		—		1,255		329		2,413
	$	595,158	$	195,397	$	126,806	$	54,449	$	220,518	$	71,478	$	541,563	$	5,561	$	1,810,930

(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.

Troubled Loans

The Company offers loan modifications to commercial and consumer borrowers that may result in a payment delay, interest rate reduction, term extension, principal forgiveness, or combination thereof. Loan modifications are offered on a case-by-case basis and are generally term extension, payment delay, and interest rate reduction modification types. Forbearance (due to hardship) programs result in modification types including payment delay and/or term extension. In addition, certain reorganization bankruptcy judgments may result in interest rate reduction, term extension, or principal forgiveness modification types.

The following table shows the amortized cost basis at the end of the reporting period of troubled loans, disaggregated by portfolio segment and type of modification granted.


	September 30, 2023
(Dollars in thousands)	Term Extension		More-Than-Insignificant Payment Delay		Combination- Term Extension and Payment Delay		Combination- Term Extension and Interest Rate Reduction		Combination - Payment Delay and Interest Rate Reduction		Total		% of Total Loan Category
Commercial and industrial(1)	$	36,683	$	1,193	$	10,163	$	31	$	—	$	48,070	1.48	%
Owner-occupied commercial	—		—		1,062		209		—		1,271		0.07	%
Commercial mortgages	9,427		—		—		—		—		9,427		0.26	%
Construction	9,194		—		—		—		—		9,194		0.88	%
Residential	563		50		—		—		—		613		0.07	%
Consumer(2)	1,102		2,704		5,154		157		494		9,611		0.49	%
Total	$	56,969	$	3,947	$	16,379	$	397	$	494	$	78,186	0.62	%

(1)Includes commercial small business leases.

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

The following table describes the financial effect of the modifications made to troubled loans as of September 30, 2023:


	Term Extension(1)	Interest Rate Reduction(2)	More-Than-Insignificant Payment Delay(3)
Commercial and industrial	1.55	4.00%	0.09%
Owner-occupied commercial	1.27	2.58	0.01
Commercial mortgages	1.33	—	—
Construction	0.27	—	—
Residential	20.18	—	—
Consumer	3.07	3.27	0.07

(1)Represents the weighted-average increase in the life of modified loans measured in years, which reduces monthly payment amounts for borrowers.

(2)Represents the weighted-average decrease in the contractual interest rate on the modified loans.

(3)Represents the percentage of loans deferred over the total loan portfolio excluding reverse mortgages at fair value.

As of September 30, 2023, the Company had commitments to extend credit of $4.8 million to borrowers experiencing financial difficulty whose terms had been modified.

Upon the Company’s determination that a modified loan (or portion of a loan) has subsequently been deemed uncollectible, the loan (or a portion of the loan) is written off. Therefore, the amortized cost basis of the loan is reduced by the uncollectible amount and the allowance for credit losses is adjusted by the same amount.

The following table shows the amortized cost of loans that received a term extension modification that had a payment default during the period and were modified in the 12 months before default to borrowers experiencing financial difficulty as of September 30, 2023.


	Term Extension		More-Than-Insignificant Payment Delay		Combination Term Extension & Payment Delay		Total
Commercial and industrial	$	707	$	—	$	10,163	$	10,870
Owner-occupied commercial	—		—		1,062		1,062



Consumer	—		101		—		101
Total	$	707	$	101	$	11,225	$	12,033

The Company closely monitors the performance of troubled loans to understand the effectiveness of its modification efforts. The following table shows the performance of loans that have been modified in the last 12 months:


	September 30, 2023
(Dollars in thousands)	30-89 Days Past Due and Still Accruing		90+ Days Past Due and Still Accruing		Accruing Current Balances		Nonaccrual Loans		Total
Commercial and industrial(1)	$	428	$	—	$	36,299	$	11,343	$	48,070
Owner-occupied commercial	—		—		—		1,271		1,271
Commercial mortgages	—		—		9,427		—		9,427
Construction	8,285		—		909		—		9,194
Residential(2)	—		—		613		—		613
Consumer(2)	727		207		8,277		400		9,611
Total	$	9,440	$	207	$	55,525	$	13,014	$	78,186

(1)Includes commercial small business leases.

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

Troubled Debt Restructurings (TDRs) under ASC 326 for periods prior to adoption of ASU 2022-02

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



(Dollars in thousands)	December 31, 2022
Performing TDRs	$	19,737
Nonperforming TDRs	2,006
Total TDRs	$	21,743

Approximately $0.6 million in related reserves have been established for these loans at December 31, 2022.

The following table presents information regarding the types of loan modifications made for the three and nine months ended September 30, 2022:


	Three months ended September 30, 2022					Nine months ended September 30, 2022
	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	—	—	—	2	2	1	—	—	2	3

Commercial mortgages	—	—	—	—	—	—	1	—	—	1
Construction	—	—	—	—	—	—	1	—	—	1
Residential	—	—	—	—	—	1	—	1	—	2
Consumer	50	8	4	2	64	51	32	7	3	93
Total	50	8	4	4	66	53	34	8	5	100

(1)Other includes interest rate reduction, forbearance, and interest only payments.

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 nine months ended September 30, 2022.


	Three months ended September 30, 2022				Nine Months Ended September 30, 2022
(Dollars in thousands)	Pre Modification		Post Modification		Pre Modification		Post Modification
Commercial	$	157	$	157	$	185	$	185

Commercial mortgages	2,390		2,390		2,390		2,390
Construction	2,000		2,000		2,000		2,000
Residential	—		—		138		138
Consumer	948		948		1,409		1,409
Total(1)(2)	$	5,495	$	5,495	$	6,122	$	6,122

(1)During the three and nine months ended September 30, 2022 the TDRs set forth in the table above resulted in a less than $0.1 million increase and a $0.3 million increase in the allowance for credit losses, respectively, and no additional charge-offs in either period. During the three and nine months ended September 30, 2022, no TDRs defaulted that had received troubled debt modification during the past twelve months.

(2)The TDRs set forth in the table above did not occur as a result of the loan forbearance program under the CARES Act.