Loans and Allowance for Credit Losses |
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Receivables [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Loans and Allowance for Credit Losses |
Loans and leases, net of unearned income Loans and leases, net of unearned income are summarized as follows as of December 31:
(1) Includes PPP loans totaling $1.6 billion as of December 31, 2020. The Corporation has extended credit to officers and directors of the Corporation and to their associates. These related-party loans are made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with unrelated persons and do not involve more than the normal risk of collection. The aggregate dollar amount of these loans, including unadvanced commitments, was $162.5 million and $90.1 million as of December 31, 2020 and 2019, respectively. During 2020, additions totaled $103.5 million and repayments totaled $31.1 million for related-party loans. Allowance for Credit Losses, effective January 1, 2020 As discussed in Note 1, "Summary of Significant Accounting Policies," the Corporation adopted CECL effective January 1, 2020. CECL requires estimated credit losses on loans to be determined based on an expected life of loan model, as compared to an incurred loss model (in effect for periods prior to 2020). Accordingly, ACL disclosures subsequent to January 1, 2020 are not always comparable to prior periods. In addition, certain new disclosures required under CECL are not applicable to prior periods. As a result, the following tables present disclosures separately for each period, where appropriate. New disclosures required under CECL are only shown for the current period and are noted. See Note 1, "Summary of Significant Accounting Policies," for a summary of the impact of adopting CECL on January 1, 2020. Under CECL, loans evaluated individually for impairment consist of non-accrual loans and TDRs. Under the incurred loss model in effect prior to the adoption of CECL, loans evaluated individually for impairment were referred to as impaired loans. The ACL related to loans consists of loans evaluated collectively and individually for expected credit losses. The ACL related to loans represents an estimate of expected credit losses over the expected life of the loans as of the balance sheet date and is recorded as a reduction to Net Loans. The ACL for OBS credit exposures includes estimated losses on unfunded loan commitments, letters of credit and other OBS credit exposures. The total ACL is increased by charges to expense, through the provision for credit losses, and decreased by charge-offs, net of recoveries. The following table presents the components of the ACL under CECL:
The following table presents the activity in the ACL in 2020:
(1) Includes $12.6 million of reserves for OBS credit exposures as of January 1, 2020. (2) Includes $(840,000) related to OBS credit exposures for the year ended December 31, 2020. (3) Includes $14.4 million of reserves for OBS credit exposures as of December 31, 2020. The following table presents the activity in the ACL - loans by portfolio segment, for the year ended December 31, 2020:
(1) Provision included in the table only includes the portion related to Net Loans. The higher provision during 2020 was largely driven by the overall downturn in economic forecasts due to COVID-19, resulting in higher expected future credit losses under CECL. The ACL includes qualitative adjustments, as appropriate, intended to capture the impact of uncertainties not reflected in the quantitative models. Qualitative adjustments include and consider changes in national, regional and local economic and business conditions, an assessment of the lending environment, including underwriting standards and other factors affecting credit quality. Qualitative adjustments have increased compared to those at the time of the adoption of CECL on January 1, 2020 primarily as a result of uncertainties related to the economic impact of COVID-19, including consideration for the future performance of loans that received deferrals or forbearances as a result of COVID-19 and the impact COVID-19 had on certain industries where the quantitative models was not fully capturing the appropriate level of risk. PPP loans that were issued during 2020 are fully guaranteed by the SBA and as such, no ACL were recorded against the PPP loan portfolio. Allowance for Credit Losses, prior to January 1, 2020 Prior to January 1, 2020, the ACL consisted of the allowance for loan losses and the reserve for unfunded lending commitments. The allowance for loan losses represented management’s estimate of incurred losses in the loan portfolio as of the balance sheet date and is recorded as a reduction to Net Loans. The reserve for unfunded lending commitments represented management’s estimate of incurred losses in unfunded loan commitments and letters of credit, and was recorded in other liabilities on the consolidated balance sheets. The ACL was increased by charges to expense, through the provision for credit losses, and decreased by charge-offs, net of recoveries. The following table presents the components of the ACL as of December 31:
The following table presents the activity in the ACL for the years ended December 31:
(1) Includes $(6.3) million and $2.7 million related to OBS credit exposures for the years ended 2019 and 2018, respectively. (2) Includes $2.6 million and $8.9 million of reserves for OBS credit exposures as of December 31, 2019 and 2018. The following tables present the activity in the allowance for loan losses by portfolio segment for the year ended December 31, 2019 and 2018, by portfolio segment:
(1) Provision included in the table only includes the portion related to Net Loans Non-accrual Loans All loans individually evaluated for impairment are measured for losses on a quarterly basis. As of December 31, 2020 and December 31, 2019, substantially all of the Corporation’s individually evaluated loans with total commitments greater than or equal to $1.0 million were measured based on the estimated fair value of each loan’s collateral, if any. Collateral could be in the form of real estate, in the case of commercial mortgages and construction loans, or business assets, such as accounts receivable or inventory, in the case of commercial and industrial loans. Commercial and industrial loans may also be secured by real estate. As of December 31, 2020 and 2019, approximately 83% and 93%, respectively, of loans evaluated individually for impairment with principal balances greater than or equal to $1.0 million, whose primary collateral is real estate, were measured at estimated fair value using appraisals performed by state certified third-party appraisers that had been updated in the preceding 12 months. The following table presents total non-accrual loans, by class segment:
As of December 31, 2020, there were $68.6 million of non-accrual loans that did not have a related allowance for credit losses. The estimated fair values of the collateral securing these loans exceeded their carrying amount, or the loans were previously charged down to realizable collateral values. Accordingly, no specific valuation allowance was considered to be necessary. In 2020, the total interest income that would have been recorded if non-accrual loans had been current in accordance with their original terms was $5.8 million. The amount of interest income on non-accrual loans that was recognized in 2020 was approximately $290,000. Asset Quality Maintaining an appropriate ACL is dependent on various factors, including the ability to identify potential problem loans in a timely manner. For commercial construction, residential construction, commercial and industrial, and commercial real estate, an internal risk rating process is used. The Corporation believes that internal risk ratings are the most relevant credit quality indicator for these types of loans. The migration of loans through the various internal risk categories is a significant component of the ACL methodology for these loans, under both the CECL and incurred loss models, which bases the probability of default on this migration. Assigning risk ratings involves judgment. The Corporation's loan review officers provide a separate assessment of risk rating accuracy. Risk ratings may be changed based on the ongoing monitoring procedures performed by loan officers or credit administration staff, or if specific loan review assessments identify a deterioration or an improvement in the loans. The following table summarizes designated internal risk categories by portfolio segment and loan class, by origination year, in the current period:
(1) Excludes real estate - construction - other. (2) Loans originated in 2020 include $1.6 million of PPP loans that were assigned a rating of Pass based on the existence of a federal government guaranty through the SBA. The information presented in the preceding table is not required to be disclosed for periods prior to the adoption of CECL. The following table presents the most comparable required information for the prior period, internal credit risk ratings for the indicated loan class segments:
The Corporation does not assign internal risk ratings to smaller balance, homogeneous loans, such as home equity, residential mortgage, construction loans to individuals secured by residential real estate, consumer and equipment lease financing. For these loans, the most relevant credit quality indicator is delinquency status. The migration of loans through the various delinquency status categories is a significant component of the ACL methodology for those loans, under both the CECL and incurred loss models, which base the PD on this migration. The Corporation considers the performance of the loan portfolio and its impact on the ACL. For certain loans classes, the Corporation evaluates credit quality based on the aging status of the loan. The following table presents the amortized cost of these loans based on payment activity, by origination year, for the current period:
The information presented in the preceding table not required to be disclosed for periods prior to the adoption of CECL. The following table presents the most comparable required information for the prior period, a summary of performing, delinquent and non-performing loans for the indicated class segments:
(1)Includes all accruing loans 30 days to 89 days past due. (2)Includes all accruing loans 90 days or more past due and all non-accrual loans. The following table presents non-performing assets:
(1) Excludes $8.1 million of residential mortgage properties for which formal foreclosure proceedings were in process as of December 31, 2020. The following tables present the aging of the amortized cost basis of loans, by class segment:
Collateral-Dependent Loans A financial asset is considered to be collateral-dependent when the debtor is experiencing financial difficulty and repayment is expected to be provided substantially through the sale or operation of the collateral. For all classes of financial assets deemed collateral-dependent, the Corporation elected the practical expedient to estimate expected credit losses based on the collateral’s fair value less cost to sell. In most cases, the Corporation records a partial charge-off to reduce the loan’s carrying value to the collateral’s fair value less cost to sell. Substantially all of the collateral supporting collateral-dependent financial assets consists of various types of real estate including residential properties; commercial properties such as retail centers, office buildings, and lodging; agriculture land; and vacant land. Troubled Debt Restructurings The following table presents TDRs, by class segment for the years ended December 31:
(1) Included within non-accrual loans in the preceding table. The following table presents TDRs, by class segment, for loans that were modified during the years ended December 31:
Restructured loan modifications may include payment schedule modifications, interest rate concessions, bankruptcies, principal reduction or some combination of these concessions. The restructured loan modifications primarily included maturity date extensions, rate modifications and payment schedule modifications. In accordance with regulatory guidance, payment schedule modifications granted after March 13, 2020, to borrowers impacted by the effects of COVID-19 pandemic and who are not delinquent at the time of the payment schedule modifications, have been excluded from TDRs. For the year ended December 31, 2020, payment schedule modifications having a recorded investment of $3.5 billion were excluded from TDRs based on this regulatory guidance.
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