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Allowance for Credit Losses

9 Months Ended

Sep. 30, 2023

4. Allowance for Credit Losses

The Company maintains the ACL that is deducted from the amortized cost basis of loans and leases to present the net carrying value of loans and leases expected to be collected. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectibility of the reported amount of loans and leases. While management utilizes its best judgment and information available, the ultimate appropriateness of the ACL is dependent upon a variety of factors beyond our control, including the performance of our loan portfolio, the economy, changes in interest rates and the view of the regulatory authorities toward loan classifications. The Company’s methodology is more fully described in our Annual Report on Form 10-K for the year ended December 31, 2022.

The Company also maintains an estimated reserve for unfunded commitments on the unaudited interim consolidated balance sheets. The reserve for unfunded commitments is reduced in the period in which the off-balance sheet financial instruments expire, loan funding occurs, or is otherwise settled.

Rollforward of the Allowance for Credit Losses

The following presents the activity in the ACL by class of loans and leases for the three and nine months ended September 30, 2023 and 2022:

Three Months Ended September 30, 2023

Commercial Lending

Residential Lending

Commercial

Home

and

Real

Lease

Residential

Equity

(dollars in thousands)

Industrial

Estate

Construction

Financing

Mortgage

Line

Consumer

Total

Allowance for credit losses:

Balance at beginning of period

13,810

39,887

9,871

1,447

32,803

11,806

38,957

148,581

Charge-offs

(784)

—

(3,665)

(4,449)

Recoveries

2,637

—

303

1,746

4,739

Provision

(1,963)

3,911

333

263

4,143

(682)

(81)

5,924

Balance at end of period

13,700

43,798

10,204

1,710

36,999

11,427

36,957

154,795

Nine Months Ended September 30, 2023

Commercial Lending

Residential Lending

Commercial

Home

and

Real

Lease

Residential

Equity

(dollars in thousands)

Industrial

Estate

Construction

Financing

Mortgage

Line

Consumer

Total

Allowance for credit losses:

Balance at beginning of period

14,564

43,810

5,843

1,551

35,175

8,296

34,661

143,900

Charge-offs

(2,572)

—

(122)

(272)

(12,963)

(15,929)

Recoveries

3,175

—

110

539

5,640

9,464

Provision

(1,467)

(12)

4,361

159

1,836

2,864

9,619

17,360

Balance at end of period

13,700

43,798

10,204

1,710

36,999

11,427

36,957

154,795


	Three Months Ended September 30, 2022
	Commercial Lending								Residential Lending
	Commercial		Commercial								Home
	and		Real				Lease		Residential		Equity
(dollars in thousands)	Industrial		Estate		Construction		Financing		Mortgage		Line		Consumer		Total
Allowance for credit losses:
Balance at beginning of period	$	15,924	$	44,726	$	5,367	$	1,398	$	33,635	$	4,734	$	43,158	$	148,942
Charge-offs		(328)		(750)		—		—		(1)		—		(3,986)		(5,065)
Recoveries		240		—		—		—		37		356		1,653		2,286
Provision		(703)		416		(643)		235		248		164		2,283		2,000
Balance at end of period	$	15,133	$	44,392	$	4,724	$	1,633	$	33,919	$	5,254	$	43,108	$	148,163


	Nine Months Ended September 30, 2022
	Commercial Lending								Residential Lending
	Commercial		Commercial								Home
	and		Real				Lease		Residential		Equity
(dollars in thousands)	Industrial		Estate		Construction		Financing		Mortgage		Line		Consumer		Total
Allowance for credit losses:
Balance at beginning of period	$	20,080	$	42,951	$	9,773	$	1,659	$	34,364	$	5,642	$	42,793	$	157,262
Charge-offs		(1,277)		(750)		—		—		(1)		(1,163)		(11,754)		(14,945)
Recoveries		594		14		—		60		245		575		5,741		7,229
Provision		(4,264)		2,177		(5,049)		(86)		(689)		200		6,328		(1,383)
Balance at end of period	$	15,133	$	44,392	$	4,724	$	1,633	$	33,919	$	5,254	$	43,108	$	148,163

Rollforward of the Reserve for Unfunded Commitments

The following presents the activity in the Reserve for Unfunded Commitments for the three and nine months ended September 30, 2023 and 2022:

Three Months Ended September 30, 2023

Commercial Lending

Residential Lending

Commercial

Home

and

Real

Lease

Residential

Equity

(dollars in thousands)

Industrial

Estate

Construction

Financing

Mortgage

Line

Consumer

Total

Reserve for unfunded commitments:

Balance at beginning of period

6,354

1,991

9,789

—

18,015

36,199

Provision

3,577

(129)

(382)

—

(6)

(1,475)

(9)

1,576

Balance at end of period

9,931

1,862

9,407

—

16,540

37,775

Nine Months Ended September 30, 2023

Commercial Lending

Residential Lending

Commercial

Home

and

Real

Lease

Residential

Equity

(dollars in thousands)

Industrial

Estate

Construction

Financing

Mortgage

Line

Consumer

Total

Reserve for unfunded commitments:

Balance at beginning of period

7,811

2,004

7,470

—

16,483

33,835

Provision

2,120

(142)

1,937

—

(17)

(15)

3,940

Balance at end of period

9,931

1,862

9,407

—

16,540

37,775


	Three Months Ended September 30, 2022
	Commercial Lending								Residential Lending
	Commercial		Commercial								Home
	and		Real				Lease		Residential		Equity
(dollars in thousands)	Industrial		Estate		Construction		Financing		Mortgage		Line		Consumer		Total
Reserve for unfunded commitments:
Balance at beginning of period	$	7,640	$	3,750	$	6,084	$	—	$	32	$	11,423	$	29	$	28,958
Provision		478		(1,397)		630		—		(4)		1,473		3		1,183
Balance at end of period	$	8,118	$	2,353	$	6,714	$	—	$	28	$	12,896	$	32	$	30,141


	Nine Months Ended September 30, 2022
	Commercial Lending								Residential Lending
	Commercial		Commercial								Home
	and		Real				Lease		Residential		Equity
(dollars in thousands)	Industrial		Estate		Construction		Financing		Mortgage		Line		Consumer		Total
Reserve for unfunded commitments:
Balance at beginning of period	$	8,615	$	2,114	$	8,963	$	—	$	15	$	10,546	$	69	$	30,322
Provision		(497)		239		(2,249)		—		13		2,350		(37)		(181)
Balance at end of period	$	8,118	$	2,353	$	6,714	$	—	$	28	$	12,896	$	32	$	30,141

Credit Quality Information

The Company performs an internal loan review and grading or scoring procedures on an ongoing basis. The review provides management with periodic information as to the quality of the loan portfolio and effectiveness of the Company’s lending policies and procedures. The objective of the loan review and grading or scoring procedures is to identify, in a timely manner, existing or emerging credit quality issues so that appropriate steps can be initiated to avoid or minimize future losses.

Loans and leases subject to grading primarily include: commercial and industrial loans, commercial real estate loans, construction loans and lease financing. Other loans subject to grading include installment loans to businesses or individuals for business and commercial purposes, overdraft lines of credit, commercial credit cards, and other credits as may be determined. Credit quality indicators for internally graded loans and leases are generally updated on an annual basis or on a quarterly basis for those loans and leases deemed to be of potentially higher risk.

An internal credit risk rating system is used to determine loan grade and is based on borrower credit risk and transactional risk. The loan grading process is a mechanism used to determine the risk of a particular borrower and is based on the following factors of a borrower: character, earnings and operating cash flow, asset and liability structure, debt capacity, management and controls, borrowing entity, and industry and operating environment.

Pass – “Pass” (uncriticized) loans and leases, are not considered to carry greater than normal risk. The borrower has the apparent ability to satisfy obligations to the Company, and therefore no loss in ultimate collection is anticipated.

Special Mention – Loans and leases that have potential weaknesses deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for assets or in the institution’s credit position at some future date. Special mention assets are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification.

Substandard – Loans and leases that are inadequately protected by the current financial condition and paying capacity of the obligor or by any collateral pledged. Loans and leases so classified must have a well-defined weakness or weaknesses that jeopardize the collection of the debt. They are characterized by the distinct possibility that the bank may sustain some loss if the deficiencies are not corrected.

Doubtful – Loans and leases that have weaknesses found in substandard borrowers with the added provision that the weaknesses make collection of debt in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Loss – Loans and leases classified as loss are considered uncollectible and of such little value that their continuance as an asset is not warranted. This classification does not mean that the loan or lease has absolutely no recovery or salvage value, but rather that it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may be effected in the future.

Loans that are primarily monitored for credit quality using FICO scores include: residential mortgage loans, home equity lines and consumer loans. FICO scores are calculated primarily based on a consideration of payment history, the current amount of debt, the length of credit history available, a recent history of new sources of credit and the mix of credit type. FICO scores are updated on a monthly, quarterly or bi-annual basis, depending on the product type.

The amortized cost basis by year of origination and credit quality indicator of the Company’s loans and leases as of September 30, 2023 was as follows:

Revolving

Loans

Converted

Term Loans

Revolving

to Term

Amortized Cost Basis by Origination Year

Loans

Amortized

(dollars in thousands)

2023

2022

2021

2020

2019

Prior

Cost Basis

Total

Commercial Lending

Commercial and Industrial

Risk rating:

Pass

55,062

294,558

368,460

35,603

150,195

147,197

906,094

3,427

1,960,596

Special Mention

31,427

730

1,125

1,569

2,677

37,711

Substandard

217

532

245

847

1,839

1,034

13,947

—

18,661

Other ⁽¹⁾

13,438

12,424

5,575

2,856

2,226

1,513

46,442

—

84,474

Total Commercial and Industrial

68,718

338,941

374,375

40,036

155,385

151,313

969,160

3,514

2,101,442

Current period gross charge-offs

130

108

2,163

—

2,572

Commercial Real Estate

Risk rating:

Pass

288,996

881,117

665,048

329,663

559,287

1,508,430

60,613

—

4,293,154

Special Mention

2,322

7,643

41,304

543

6,935

13,039

12,483

—

84,269

Substandard

—

5,110

2,004

170

—

2,599

300

—

10,183

Other ⁽¹⁾

—

145

—

145

Total Commercial Real Estate

291,318

893,870

708,356

330,376

566,222

1,524,213

73,396

—

4,387,751

Current period gross charge-offs

—

Construction

Risk rating:

Pass

129,160

209,227

335,433

59,164

64,168

28,916

3,826

—

829,894

Special Mention

—

197

669

—

866

Other ⁽¹⁾

10,194

24,825

10,313

2,260

2,115

3,932

713

—

54,352

Total Construction

139,354

234,052

345,746

61,424

66,480

33,517

4,539

—

885,112

Current period gross charge-offs

—

Lease Financing

Risk rating:

Pass

83,255

88,367

19,869

35,583

34,828

69,043

—

330,945

Special Mention

—

341

—

379

Substandard

747

440

—

1,191

Total Lease Financing

84,002

88,807

20,210

35,621

34,832

69,043

—

332,515

Current period gross charge-offs

—

Total Commercial Lending

583,392

1,555,670

1,448,687

467,457

822,919

1,778,086

1,047,095

3,514

7,706,820

Current period gross charge-offs

130

108

2,163

—

2,572

(continued)


															Revolving
															Loans
															Converted
	Term Loans												Revolving		to Term
	Amortized Cost Basis by Origination Year												Loans		Loans
(continued)													Amortized		Amortized
(dollars in thousands)	2023		2022		2021		2020		2019		Prior		Cost Basis		Cost Basis		Total
Residential Lending
Residential Mortgage
FICO:
740 and greater	$	195,053	$	527,072	$	1,018,441	$	536,878	$	231,038	$	1,012,924	$	—	$	—	$	3,521,406
680 - 739		29,006		78,642		116,247		73,209		32,906		131,547		—		—		461,557
620 - 679		2,847		11,153		15,830		10,678		5,705		36,289		—		—		82,502
550 - 619		269		3,343		4,037		2,458		249		11,724		—		—		22,080
Less than 550		—		196		2,362		1,573		50		5,373		—		—		9,554
No Score ⁽³⁾		5,589		19,402		11,729		6,343		9,757		53,515		—		—		106,335
Other ⁽²⁾		10,518		17,079		17,682		12,840		8,733		26,171		7,467		—		100,490
Total Residential Mortgage		243,282		656,887		1,186,328		643,979		288,438		1,277,543		7,467		—		4,303,924
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	122	$	—	$	—	$	122

Home Equity Line
FICO:
740 and greater		—		—		—		—		—		—		961,974		1,503		963,477
680 - 739		—		—		—		—		—		—		148,629		2,382		151,011
620 - 679		—		—		—		—		—		—		34,333		1,326		35,659
550 - 619		—		—		—		—		—		—		9,099		948		10,047
Less than 550		—		—		—		—		—		—		5,257		264		5,521
No Score ⁽³⁾		—		—		—		—		—		—		1,673		—		1,673
Total Home Equity Line		—		—		—		—		—		—		1,160,965		6,423		1,167,388
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	254	$	18	$	272

Total Residential Lending	$	243,282	$	656,887	$	1,186,328	$	643,979	$	288,438	$	1,277,543	$	1,168,432	$	6,423	$	5,471,312
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	122	$	254	$	18	$	394

Consumer Lending
FICO:
740 and greater		85,839		139,753		84,741		39,390		27,790		13,589		116,342		153		507,597
680 - 739		60,184		79,628		43,948		20,531		16,192		8,577		74,428		416		303,904
620 - 679		21,797		32,632		18,094		8,650		9,214		6,191		33,543		892		131,013
550 - 619		3,745		10,422		7,898		4,953		5,597		4,069		12,456		684		49,824
Less than 550		774		5,629		4,519		3,175		3,048		2,459		4,567		560		24,731
No Score ⁽³⁾		1,455		297		—		—		5		13		41,852		150		43,772
Other ⁽²⁾		—		1,188		1,007		340		1,086		1		89,740		—		93,362
Total Consumer Lending	$	173,794	$	269,549	$	160,207	$	77,039	$	62,932	$	34,899	$	372,928	$	2,855	$	1,154,203
Current period gross charge-offs	$	152	$	1,710	$	1,723	$	880	$	1,500	$	1,995	$	4,541	$	462	$	12,963

Total Loans and Leases	$	1,000,468	$	2,482,106	$	2,795,222	$	1,188,475	$	1,174,289	$	3,090,528	$	2,588,455	$	12,792	$	14,332,335
Current period gross charge-offs	$	282	$	1,779	$	1,797	$	908	$	1,608	$	4,280	$	4,795	$	480	$	15,929

(1)	Other credit quality indicators used for monitoring purposes are primarily FICO scores. The majority of the loans in this population were originated to borrowers with a prime FICO score.

(2)	Other credit quality indicators used for monitoring purposes are primarily internal risk ratings. The majority of the loans in this population were graded with a “Pass” rating.

(3)	No FICO scores are primarily related to loans and leases extended to non-residents. Loans and leases of this nature are primarily secured by collateral and/or are closely monitored for performance.

The amortized cost basis by year of origination and credit quality indicator of the Company’s loans and leases as of December 31, 2022 was as follows:

Revolving

Loans

Converted

Term Loans

Revolving

to Term

Amortized Cost Basis by Origination Year

Loans

Amortized

(dollars in thousands)

2022

2021

2020

2019

2018

Prior

Cost Basis

Total

Commercial Lending

Commercial and Industrial

Risk rating:

Pass

359,881

422,567

54,656

170,222

51,476

137,257

894,384

15,715

2,106,158

Special Mention

2,059

240

1,371

2,643

184

1,431

22,897

378

31,203

Substandard

625

289

1,117

1,092

668

885

14,733

19,474

Other ⁽¹⁾

17,679

7,721

4,329

3,965

1,881

1,167

42,320

—

79,062

Total Commercial and Industrial

380,244

430,817

61,473

177,922

54,209

140,740

974,334

16,158

2,235,897

Commercial Real Estate

Risk rating:

Pass

889,583

695,882

319,838

565,587

395,474

1,173,163

48,081

—

4,087,608

Special Mention

170

—

555

14,878

512

11,398

675

—

28,188

Substandard

—

173

—

1,704

14,485

—

16,362

Other ⁽¹⁾

—

151

—

151

Total Commercial Real Estate

889,753

695,882

320,566

580,465

397,690

1,199,197

48,756

—

4,132,309

Construction

Risk rating:

Pass

124,464

261,536

96,423

97,000

88,973

84,704

25,957

—

779,057

Special Mention

—

221

—

221

Substandard

—

490

—

511

Other ⁽¹⁾

29,694

21,339

4,686

2,201

3,784

2,196

954

—

64,854

Total Construction

154,158

282,875

101,109

99,422

92,778

87,390

26,911

—

844,643

Lease Financing

Risk rating:

Pass

113,563

24,052

43,497

37,502

6,004

67,687

—

292,305

Special Mention

—

411

2,498

1,299

—

4,208

Substandard

—

197

1,357

—

1,577

Total Lease Financing

113,563

24,463

46,192

38,813

6,015

69,044

—

298,090

Total Commercial Lending

1,537,718

1,434,037

529,340

896,622

550,692

1,496,371

1,050,001

16,158

7,510,939

(continued)

Revolving

Loans

Converted

Term Loans

Revolving

to Term

Amortized Cost Basis by Origination Year

Loans

(continued)

Amortized

(dollars in thousands)

2022

2021

2020

2019

2018

Prior

Cost Basis

Total

Residential Lending

Residential Mortgage

FICO:

740 and greater

557,636

1,064,444

560,463

245,241

165,258

920,100

—

3,513,142

680 - 739

73,929

112,672

82,416

40,355

22,126

130,508

—

462,006

620 - 679

12,320

13,804

9,881

3,649

3,054

35,441

—

78,149

550 - 619

2,455

2,246

1,791

263

601

6,955

—

14,311

Less than 550

—

1,321

367

—

966

5,304

—

7,958

No Score ⁽³⁾

22,289

14,671

6,820

10,599

15,921

47,245

—

117,545

Other ⁽²⁾

18,970

18,211

15,287

9,201

9,124

29,128

9,202

554

109,677

Total Residential Mortgage

687,599

1,227,369

677,025

309,308

217,050

1,174,681

9,202

554

4,302,788

Home Equity Line

FICO:

740 and greater

—

817,123

2,059

819,182

680 - 739

—

171,117

2,714

173,831

620 - 679

—

45,368

2,100

47,468

550 - 619

—

7,485

1,029

8,514

Less than 550

—

1,151

481

1,632

No Score ⁽³⁾

—

4,724

—

4,724

Total Home Equity Line

—

1,046,968

8,383

1,055,351

Total Residential Lending

687,599

1,227,369

677,025

309,308

217,050

1,174,681

1,056,170

8,937

5,358,139

Consumer Lending

FICO:

740 and greater

200,887

111,047

53,534

43,912

24,951

8,432

125,126

185

568,074

680 - 739

99,787

67,140

37,260

31,751

15,874

7,665

72,101

514

332,092

620 - 679

25,949

29,587

14,226

16,872

9,672

6,488

31,854

937

135,585

550 - 619

3,017

5,475

5,226

8,056

5,396

3,924

11,269

854

43,217

Less than 550

656

1,351

2,286

3,779

1,869

1,593

3,541

443

15,518

No Score ⁽³⁾

3,205

258

—

38,805

227

42,599

Other ⁽²⁾

1,615

4,082

353

1,368

—

78,430

85,849

Total Consumer Lending

335,116

218,940

112,885

105,789

57,786

28,131

361,126

3,161

1,222,934

Total Loans and Leases

2,560,433

2,880,346

1,319,250

1,311,719

825,528

2,699,183

2,467,297

28,256

14,092,012

(1)	Other credit quality indicators used for monitoring purposes are primarily FICO scores. The majority of the loans in this population were originated to borrowers with a prime FICO score.

(2)	Other credit quality indicators used for monitoring purposes are primarily internal risk ratings. The majority of the loans in this population were graded with a “Pass” rating.

(3)	No FICO scores are primarily related to loans and leases extended to non-residents. Loans and leases of this nature are primarily secured by collateral and/or are closely monitored for performance.

There were no loans and leases graded as Loss as of September 30, 2023 and December 31, 2022.

Past-Due Status

The Company continually updates its aging analysis for loans and leases to monitor the migration of loans and leases into past due categories. The Company considers loans and leases that are delinquent for 30 days or more to be past due. As of September 30, 2023 and December 31, 2022, the aging analysis of the amortized cost basis of the Company’s past due loans and leases was as follows:

September 30, 2023

Past Due

Loans and

Greater

Leases Past

Than or

Due 90 Days

30-59

60-89

Equal to

or More and

Days

90 Days

Total

Total Loans

Still Accruing

(dollars in thousands)

Past Due

Current

and Leases

Interest

Commercial and industrial

3,989

673

1,277

5,939

2,095,503

2,101,442

289

Commercial real estate

—

300

170

470

4,387,281

4,387,751

170

Construction

—

885,112

—

Lease financing

—

332,515

—

Residential mortgage

3,239

—

6,575

9,814

4,294,110

4,303,924

1,430

Home equity line

6,741

938

3,320

10,999

1,156,389

1,167,388

—

Consumer

20,327

3,967

1,681

25,975

1,128,228

1,154,203

1,681

Total

34,296

5,878

13,023

53,197

14,279,138

14,332,335

3,570


	December 31, 2022
	Past Due												Loans and
					Greater								Leases Past
					Than or								Due 90 Days
	30-59		60-89		Equal to								or More and
	Days		Days		90 Days		Total				Total Loans		Still Accruing
(dollars in thousands)	Past Due		Past Due		Past Due		Past Due		Current		and Leases		Interest
Commercial and industrial	$	2,682	$	769	$	1,441	$	4,892	$	2,231,005	$	2,235,897	$	291
Commercial real estate		4,505		—		727		5,232		4,127,077		4,132,309		—
Construction		109		—		—		109		844,534		844,643		—
Lease financing		—		—		—		—		298,090		298,090		—
Residential mortgage		3,681		1,983		2,572		8,236		4,294,552		4,302,788		58
Home equity line		5,161		1,381		2,072		8,614		1,046,737		1,055,351		—
Consumer		29,927		6,801		2,886		39,614		1,183,320		1,222,934		2,885
Total	$	46,065	$	10,934	$	9,698	$	66,697	$	14,025,315	$	14,092,012	$	3,234

Nonaccrual Loans and Leases

The Company generally places a loan or lease on nonaccrual status when management believes that collection of principal or interest has become doubtful or when a loan or lease becomes 90 days past due as to principal or interest, unless it is well secured and in the process of collection. The Company charges off a loan or lease when facts indicate that the loan or lease is considered uncollectible.

The amortized cost basis of loans and leases on nonaccrual status as of September 30, 2023 and December 31, 2022 and the amortized cost basis of loans and leases on nonaccrual status with no ACL as of September 30, 2023 and December 31, 2022 were as follows:


	September 30, 2023
	Nonaccrual
	Loans
	and Leases
	With No		Nonaccrual
	Allowance		Loans
(dollars in thousands)	for Credit Losses		and Leases
Commercial and industrial	$	503	$	988
Residential mortgage		2,674		7,435
Home equity line		596		6,200
Total Nonaccrual Loans and Leases	$	3,773	$	14,623


	December 31, 2022
	Nonaccrual
	Loans
	and Leases
	With No		Nonaccrual
	Allowance		Loans
(dollars in thousands)	for Credit Losses		and Leases
Commercial and industrial	$	665	$	1,215
Commercial real estate		727		727
Residential mortgage		1,560		6,166
Home equity line		596		3,797
Total Nonaccrual Loans and Leases	$	3,548	$	11,905

For the three and nine months ended September 30, 2023, the Company recognized interest income of $0.1 million and $0.4 million, respectively, on nonaccrual loans and leases, and for the three and nine months ended September 30, 2022, the Company recognized interest income of $0.1 million and $0.2 million, respectively, on nonaccrual loans and leases. Furthermore, for the three and nine months ended September 30, 2023, the amount of accrued interest receivables written off by reversing interest income was $0.2 million and $0.7 million, respectively, and for the three and nine months ended September 30, 2022 the amount of accrued interest receivables written off by reversing interest income was $0.3 million and $0.7 million, respectively.

Collateral-Dependent Loans and Leases

Collateral-dependent loans and leases are those for which repayment (on the basis of the Company’s assessment as of the reporting date) is expected to be provided substantially through the operation or sale of the collateral and the borrower is experiencing financial difficulty. As of September 30, 2023 and December 31, 2022, the amortized cost basis of collateral-dependent loans were $7.5 million and $8.2 million, respectively. As of both September 30, 2023 and December 31, 2022, these loans were primarily collateralized by residential real estate property and the fair value of collateral on substantially all collateral-dependent loans were significantly in excess of their amortized cost basis.

Loan Modifications to Borrowers Experiencing Financial Difficulty

The Company adopted the provisions of Accounting Standards Update (“ASU”) No. 2022-02, Financial Instruments – Credit Losses (Topic 326), Troubled Debt Restructurings and Vintage Disclosures, on January 1, 2023. This update eliminates the accounting guidance on troubled debt restructurings (“TDRs”) for creditors in Subtopic 310-40, updates the requirements related to accounting for credit losses under Topic 326 and adds enhanced disclosures for creditors with respect to loan refinancings and restructurings for borrowers experiencing financial difficulty. For additional information, see “Note 1. Organization and Basis of Presentation.”

Commercial and industrial loans with a borrower experiencing financial difficulty may be modified through interest rate reductions, term extensions, and converting revolving credit lines to term loans. Modifications of commercial real estate and construction loans with a borrower experiencing financial difficulty may involve reducing the interest rate for the remaining term of the loan or extending the maturity date at an interest rate lower than the current market rate for new debt with similar risk. Modifications of construction loans with a borrower experiencing financial difficulty may also involve extending the interest-only payment period. Interest continues to accrue on the missed payments and as a result, the effective yield on the loan remains unchanged. Modifications of residential real estate loans with a borrower experiencing financial difficulty may be comprised of loans where monthly payments are lowered to accommodate the borrowers' financial needs for a period of time, including extended interest-only periods and reamortization of the balance. Modifications of consumer loans with a borrower experiencing financial difficulty may involve interest rate reductions and term extensions.

Loans modified with a borrower experiencing financial difficulty, whether in default or not, may already be on nonaccrual status and in some cases, partial charge-offs may have already been taken against the outstanding loan balance. Loans modified with a borrower experiencing financial difficulty are evaluated for impairment. As a result, this may have a financial effect of impacting the specific ACL associated with the loan. An ACL for impaired commercial loans, including commercial real estate and construction loans, is measured based on the present value of expected future cash flows discounted at the loan's effective interest rate or if the loan is collateral-dependent, the estimated fair value of the collateral, less any selling costs. An ACL for impaired residential real estate loans is measured based on the estimated fair value of the collateral, less any selling costs. Management exercises significant judgment in developing these estimates.

The following tables present, by class of financing receivable and type of modification granted, the amortized cost basis as of September 30, 2023, related to loans modified to borrowers experiencing financial difficulty during the three and nine months ended September 30, 2023:

Interest Rate Reduction

Three Months Ended

Nine Months Ended

September 30, 2023

Amortized

% of Total Class

Amortized

% of Total Class

(dollars in thousands)

Cost Basis⁽¹⁾

of Financing Receivable

Cost Basis⁽¹⁾

of Financing Receivable

Consumer

255

0.02

889

0.08

Total

255

n/m

889

0.01

n/m – Represents less than 0.01% of total class of financing receivable.

(1)	The amortized cost basis reflects all partial paydowns and charge-offs since the modification date and do not include loans modified to borrowers experiencing financial difficulty that have been fully paid off, charged off, or foreclosed upon by the end of the period.

Term Extension

Three Months Ended

Nine Months Ended

September 30, 2023

Amortized

% of Total Class

Amortized

% of Total Class

(dollars in thousands)

Cost Basis⁽¹⁾

of Financing Receivable

Cost Basis⁽¹⁾

of Financing Receivable

Commercial and industrial

145

0.01

248

0.01

Commercial real estate

—

1,214

0.03

Construction

669

0.08

897

0.10

Residential mortgage

—

n/m

Consumer

n/m

130

0.01

Total

831

0.01

2,522

0.02

n/m – Represents less than 0.01% of total class of financing receivable.

(1)	The amortized cost basis reflects all partial paydowns and charge-offs since the modification date and do not include loans modified to borrowers experiencing financial difficulty that have been fully paid off, charged off, or foreclosed upon by the end of the period.

The following tables describe, by class of financing receivable and type of modification granted, the financial effect of the modifications made to borrowers experiencing financial difficulty during the three and nine months ended September 30, 2023:


	Interest Rate Reduction
	Financial Effect
	Three Months Ended September 30, 2023	Nine Months Ended September 30, 2023
Consumer	Reduced weighted-average contractual interest rate by 13.31%.	Reduced weighted-average contractual interest rate by 13.22%.


	Term Extension
	Financial Effect
	Three Months Ended September 30, 2023	Nine Months Ended September 30, 2023
Commercial and industrial	Added a weighted-average 2.6 years to the life of loans.	Added a weighted-average 3.0 years to the life of loans.
Commercial real estate	—	Added a weighted-average 1.0 years to the life of loans.
Construction	Added a weighted-average 1.0 years to the life of loans.	Added a weighted-average 1.4 years to the life of loans.
Residential mortgage	—	Added a weighted-average 5.9 years to the life of loans.
Consumer	Added a weighted-average 2.9 years to the life of loans.	Added a weighted-average 3.6 years to the life of loans.

The following table presents, by class of financing receivable and type of modification granted, the amortized cost basis, as of September 30, 2023, of loans that had a payment default during the three and nine months ended September 30, 2023 and were modified in the 12 months before default to borrowers experiencing financial difficulty. The Company is reporting these defaulted loans based on a payment default definition of 30 days past due:


	Amortized Cost Basis of Modified Loans That Subsequently Defaulted⁽¹⁾
	Three Months Ended September 30, 2023		Nine Months Ended September 30, 2023
(dollars in thousands)	Interest Rate Reduction		Interest Rate Reduction
Consumer	$	166	$	186
Total	$	166	$	186

(1)	The amortized cost basis reflects all partial paydowns and charge-offs since the modification date and do not include loans modified to borrowers experiencing financial difficulty that have been fully paid off, charged off, or foreclosed upon by the end of the period.

Performance of the loans that are modified to borrowers experiencing financial difficulty is monitored to understand the effectiveness of the Company’s modification efforts. As of September 30, 2023, the aging analysis of the amortized cost basis of the performance of loans that have been modified in the last 12 months related to borrowers experiencing financial difficulty was as follows:


		September 30, 2023
		Past Due
						Greater Than
						or Equal to
		30-59 Days		60-89 Days		90 Days		Total
(dollars in thousands)		Past Due		Past Due		Past Due		Past Due		Current		Total
Commercial and industrial	$	—	$	—	$	—	$	—	$	248	$	248
Commercial real estate		—		—		—		—		1,214		1,214
Construction		—		—		—		—		897		897
Residential mortgage		—		—		—		—		33		33
Consumer		62		18		18		98		921		1,019
Total	$	62	$	18	$	18	$	98	$	3,313	$	3,411

The Company had commitments to extend credit, standby letters of credit, and commercial letters of credit totaling $7.0 billion as of September 30, 2023. Of the $7.0 billion at September 30, 2023, there were commitments of $5.0 million to lend additional funds to borrowers experiencing financial difficulty for which the Company had modified the terms of the loans in the form of an interest rate reduction or a term extension during the nine months ended September 30, 2023.

Troubled Debt Restructuring Disclosures Prior to Adoption of ASU No. 2022-02

Prior to the adoption of ASU No. 2022-02, the Company accounted for a modification to the contractual terms of a loan that resulted in granting a concession to a borrower experiencing financial difficulty as a TDR. On January 1, 2023, the Company adopted ASU No. 2022-02, which eliminated TDR accounting prospectively for all restructurings occurring on or after January 1, 2023. Loans that were restructured in a TDR prior to the adoption of ASU No. 2022-02 will continue to be accounted for under the historical TDR accounting until the loan is paid off or subsequently modified. The disclosures below related to TDRs for prior periods are presented in accordance with Subtopic 310-40, Receivables—Troubled Debt Restructurings by Creditors.

Commercial and industrial loans modified in a TDR may have involved temporary interest-only payments, term extensions, and converting revolving credit lines to term loans. Modifications of commercial real estate and construction loans in a TDR may have involved reducing the interest rate for the remaining term of the loan, extending the maturity date at an interest rate lower than the current market rate for new debt with similar risk, or substituting or adding a new borrower or guarantor. Modifications of construction loans in a TDR may have also involved extending the interest-only payment period. Interest continued to accrue on the missed payments and as a result, the effective yield on the loan remained unchanged. Residential real estate loans modified in a TDR may have been comprised of loans where monthly payments were lowered to accommodate the borrowers' financial needs for a period of time, including extended interest-only periods and reamortization of the balance. Modifications of consumer loans in a TDR may have involved temporary or permanent reduced payments, temporary interest-only payments and below-market interest rates.

Loans modified in a TDR may have already been on nonaccrual status and in some cases, partial charge-offs may have already been taken against the outstanding loan balance. Loans modified in a TDR were evaluated for impairment. As a result, this may have had a financial effect of impacting the specific ACL associated with the loan. An ACL for impaired commercial loans, including commercial real estate and construction loans, that had been modified in a TDR was measured based on the present value of expected future cash flows discounted at the loan's effective interest rate or if the loan was collateral-dependent, the estimated fair value of the collateral, less any selling costs. An ACL for impaired residential real estate loans that had been modified in a TDR was measured based on the estimated fair value of the collateral, less any selling costs. Management exercised significant judgment in developing these estimates.

The following presents, by class, information related to loans modified in a TDR during the three and nine months ended September 30, 2022 presented in accordance with Subtopic 310-40, Receivables—Troubled Debt Restructurings by Creditors:


	Three Months Ended					Nine Months Ended
	September 30, 2022					September 30, 2022
	Number of	Recorded		Related		Number of	Recorded		Related
(dollars in thousands)	Contracts⁽¹⁾	Investment⁽²⁾		ACL		Contracts⁽¹⁾	Investment⁽²⁾		ACL
Commercial and industrial	2	$	201	$	4	2	$	201	$	4
Residential mortgage	—		—		—	1		252		32
Consumer	50		387		114	234		2,286		424
Total	52	$	588	$	118	237	$	2,739	$	460

(1)	The number of contracts does not include TDRs that have been fully paid off, charged off, or foreclosed upon by the end of the period.

(2)	The recorded investment balances reflect all partial paydowns and charge-offs since the modification date and do not include TDRs that have been fully paid off, charged off, or foreclosed upon by the end of the period.

The above loans were modified in a TDR through an extension of maturity dates, reduced payments, or below-market interest rates.

The Company had commitments to extend credit, standby letters of credit, and commercial letters of credit totaling $7.0 billion as of December 31, 2022. Of the $7.0 billion at December 31, 2022, there were commitments of $0.1 million to lend additional funds related to borrowers who had loan terms modified in a TDR.

The following table presents, by class, loans modified in TDRs that have defaulted in the periods below within 12 months of their permanent modification date for the periods indicated, presented in accordance with Subtopic 310-40, Receivables—Troubled Debt Restructurings by Creditors. The Company was reporting these defaulted TDRs based on a payment default definition of 30 days past due:


	Three Months Ended			Nine Months Ended
	September 30, 2022			September 30, 2022
	Number of	Recorded		Number of	Recorded
(dollars in thousands)	Contracts⁽¹⁾	Investment⁽²⁾		Contracts⁽¹⁾	Investment⁽²⁾
Commercial and industrial	1	$	216	2	$	541
Consumer	123		1,561	219		2,939
Total	124	$	1,777	221	$	3,480

(1)	The number of contracts does not include TDRs that have been fully paid off, charged off, or foreclosed upon by the end of the period.

(2)	The recorded investment balances reflect all partial paydowns and charge-offs since the modification date and do not include TDRs that have been fully paid off, charged off, or foreclosed upon by the end of the period.

Foreclosed Property

As of September 30, 2023, there were no residential real estate properties held from foreclosed residential mortgage loans. As of December 31, 2022, residential real estate property held from one foreclosed residential mortgage loan of $0.1 million was included in other real estate owned and repossessed personal property shown in the unaudited interim consolidated balance sheets.