Loans

12 Months Ended

Dec. 31, 2019

Receivables [Abstract]

Loans

Loans

The following is a summary of loans:

(Dollars in thousands)	December 31, 2019				December 31, 2018
	Amount		%		Amount		%
Commercial:
Commercial real estate (1)		$1,547,572	40	%		$1,392,408	38	%
Commercial & industrial (2)	585,289		15		620,704		17
Total commercial	2,132,861		55		2,013,112		55
Residential Real Estate:
Residential real estate (3)	1,449,090		37		1,360,387		37
Consumer:
Home equity	290,874		7		280,626		8
Other (4)	20,174		1		26,235		—
Total consumer	311,048		8		306,861		8
Total loans (5)		$3,892,999	100	%		$3,680,360	100	%

(1) Commercial real estate (“CRE”) consists of commercial mortgages primarily secured by income-producing property, as well as construction and development loans. Construction and development loans are made to businesses for land development or the on-site construction of industrial, commercial, or residential buildings.

(2) Commercial and industrial (“C&I”) consists of loans to businesses and individuals, a substantial portion of which are fully or partially collateralized by real estate.

(3) Residential real estate consists of mortgage and homeowner construction loans secured by one- to four-family residential properties.

(4) Other consists of loans to individuals secured by general aviation aircraft and other personal installment loans.

(5) Includes net unamortized loan origination costs of $5.3 million and $4.7 million, respectively, at December 31, 2019 and 2018 and net unamortized premiums on purchased loans of $995 thousand and $703 thousand, respectively, at December 31, 2019 and 2018.

As of December 31, 2019 and 2018, loans amounting to $2.1 billion and $2.0 billion, respectively, were pledged as collateral to the FHLB under a blanket pledge agreement and to the FRB for the discount window. See Note 11 for additional disclosure regarding borrowings.

Concentrations of Credit Risk

A significant portion of our loan portfolio is concentrated among borrowers in southern New England and a substantial portion of the portfolio is collateralized by real estate in this area.  The ability of single family residential and consumer borrowers to honor their repayment commitments is generally dependent on the level of overall economic activity within the market area and real estate values.  The ability of commercial borrowers to honor their repayment commitments is dependent on the general economy as well as the health of the real estate economic sector in the Corporation’s market area.

Past Due Loans

Past due status is based on the contractual payment terms of the loan. The following tables present an aging analysis of past due loans, segregated by class of loans:

(Dollars in thousands)	Days Past Due
December 31, 2019	30-59		60-89		Over 90		Total Past Due		Current		Total Loans
Commercial:
Commercial real estate		$830		$—		$603		$1,433		$1,546,139		$1,547,572
Commercial & industrial	1		—		—		1		585,288		585,289
Total commercial	831		—		603		1,434		2,131,427		2,132,861
Residential Real Estate:
Residential real estate	4,574		2,155		4,700		11,429		1,437,661		1,449,090
Consumer:
Home equity	971		729		996		2,696		288,178		290,874
Other	42		—		88		130		20,044		20,174
Total consumer	1,013		729		1,084		2,826		308,222		311,048
Total loans		$6,418		$2,884		$6,387		$15,689		$3,877,310		$3,892,999

(Dollars in thousands)	Days Past Due
December 31, 2018	30-59		60-89		Over 90		Total Past Due		Current		Total Loans
Commercial:
Commercial real estate		$155		$925		$—		$1,080		$1,391,328		$1,392,408
Commercial & industrial	—		—		—		—		620,704		620,704
Total commercial	155		925		—		1,080		2,012,032		2,013,112
Residential Real Estate:
Residential real estate	6,318		2,693		1,509		10,520		1,349,867		1,360,387
Consumer:
Home equity	1,281		156		552		1,989		278,637		280,626
Other	33		—		—		33		26,202		26,235
Total consumer	1,314		156		552		2,022		304,839		306,861
Total loans		$7,787		$3,774		$2,061		$13,622		$3,666,738		$3,680,360

Included in past due loans as of December 31, 2019 and 2018, were nonaccrual loans of $11.5 million and $8.6 million, respectively.

All loans 90 days or more past due at December 31, 2019 and 2018 were classified as nonaccrual.

Impaired Loans

A loan is considered impaired when, based on current information and events, it is probable that the Corporation will not be able to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Impaired loans include nonaccrual loans and loans restructured in a troubled debt restructuring. The Corporation identifies loss allocations for impaired loans on an individual loan basis.

The following is a summary of impaired loans:

(Dollars in thousands)	Recorded Investment (1)				Unpaid Principal				Related Allowance
December 31,	2019		2018		2019		2018		2019		2018
No Related Allowance Recorded
Commercial:
Commercial real estate		$—		$925		$—		$926		$—		$—
Commercial & industrial	—		4,681		—		4,732		—		—
Total commercial	—		5,606		—		5,658		—		—
Residential Real Estate:
Residential real estate	13,968		9,347		14,803		9,695		—		—
Consumer:
Home equity	1,471		1,360		1,472		1,360		—		—
Other	88		—		88		—		—		—
Total consumer	1,559		1,360		1,560		1,360		—		—
Subtotal	15,527		16,313		16,363		16,713		—		—
With Related Allowance Recorded
Commercial:
Commercial real estate	603		—		926		—		—		—
Commercial & industrial	657		52		657		73		580		—
Total commercial	1,260		52		1,583		73		580		—
Residential Real Estate:
Residential real estate	687		364		714		390		95		100
Consumer:
Home equity	292		85		291		85		291		24
Other	18		22		18		22		2		3
Total consumer	310		107		309		107		293		27
Subtotal	2,257		523		2,606		570		968		127
Total impaired loans		$17,784		$16,836		$18,969		$17,283		$968		$127
Total:
Commercial		$1,260		$5,658		$1,583		$5,731		$580		$—
Residential real estate	14,655		9,711		15,517		10,085		95		100
Consumer	1,869		1,467		1,869		1,467		293		27
Total impaired loans		$17,784		$16,836		$18,969		$17,283		$968		$127

(1) The recorded investment in impaired loans consists of unpaid principal balance, net of charge-offs, interest payments received applied to principal and unamortized deferred loan origination fees and costs. For accruing impaired loans (troubled debt restructurings for which management has concluded that the collectibility of the loan is not in doubt), the recorded investment also includes accrued interest.

The following table presents the average recorded investment balance of impaired loans and interest income recognized on impaired loans segregated by loan class:

(Dollars in thousands)	Average Recorded Investment						Interest Income Recognized
Years ended December 31,	2019		2018		2017		2019		2018		2017
Commercial:
Commercial real estate		$864		$1,050		$8,425		$1		$—		$79
Commercial & industrial	2,149		5,403		6,445		106		259		281
Total commercial	3,013		6,453		14,870		107		259		360
Residential real estate:
Residential real estate	11,575		9,645		14,571		473		393		444
Consumer:
Home equity	1,466		1,182		685		58		52		31
Other	68		69		143		2		5		10
Total consumer	1,534		1,251		828		60		57		41
Totals		$16,122		$17,349		$30,269		$640		$709		$845

Nonaccrual Loans

The following is a summary of nonaccrual loans, segregated by class of loans:

(Dollars in thousands)
December 31,	2019		2018
Commercial:
Commercial real estate		$603		$925
Commercial & industrial	657		—
Total commercial	1,260		925
Residential Real Estate:
Residential real estate	14,297		9,346
Consumer:
Home equity	1,763		1,436
Other	88		—
Total consumer	1,851		1,436
Total nonaccrual loans		$17,408		$11,707
Accruing loans 90 days or more past due		$—		$—

As of December 31, 2019 and 2018, loans secured by one- to four-family residential property amounting to $5.8 million and $761 thousand, respectively, were in process of foreclosure.

Nonaccrual loans of $5.9 million and $3.1 million, respectively, were current as to the payment of principal and interest as of December 31, 2019 and 2018.

There were no significant commitments to lend additional funds to borrowers whose loans were on nonaccrual status at December 31, 2019.

Troubled Debt Restructurings

The recorded investment in troubled debt restructurings consists of unpaid principal balance, net of charge-offs and unamortized deferred loan origination fees and costs, at the time of the restructuring. For accruing troubled debt restructured loans, the recorded investment also includes accrued interest. The recorded investment in troubled debt

restructurings was $869 thousand and $5.6 million, respectively, at December 31, 2019 and 2018. The allowance for loan losses included specific reserves for these troubled debt restructurings of $97 thousand and $103 thousand, respectively, at December 31, 2019 and 2018.

In 2019, there were no loans modified as a troubled debt restructuring. In 2018, there was one commercial and industrial loan modified as a troubled debt restructuring with a pre-modification and post-modification recorded investment of $608 thousand. This troubled debt restructuring included a combination of concessions pertaining to maturity and interest only payment terms.

In 2019, there were no payment defaults on troubled debt restructured loans modified within the previous 12 months. In 2018, payment defaults on troubled debt restructured loans modified within the previous 12 months occurred on one loan with a carrying value of $608 thousand at the time of default.

As of December 31, 2019, there were no significant commitments to lend additional funds to borrowers whose loans were restructured.

Credit Quality Indicators

Commercial

The Corporation utilizes an internal rating system to assign a risk to each of its commercial loans. Loans are rated on a scale of 1 to 10. This scale can be assigned to three broad categories including “pass” for ratings 1 through 6, “special mention” for 7-rated loans, and “classified” for loans rated 8, 9 or 10. The loan rating system takes into consideration parameters including the borrower’s financial condition, the borrower’s performance with respect to loan terms, the adequacy of collateral, the adequacy of guarantees and other credit quality characteristics. For non-impaired loans, the Corporation takes the risk rating into consideration along with other credit attributes in the establishment of an appropriate allowance for loan losses. See Note 6 for additional information.

A description of the commercial loan categories is as follows:

Pass - Loans with acceptable credit quality, defined as ranging from superior or very strong to a status of lesser stature. Superior or very strong credit quality is characterized by a high degree of cash collateralization or strong balance sheet liquidity. Lesser stature loans have an acceptable level of credit quality but exhibit some weakness in various credit metrics such as collateral adequacy, cash flow, secondary sources of repayment, or performance inconsistency or may be in an industry or of a loan type known to have a higher degree of risk.

Special Mention - Loans with potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the Bank’s position as creditor at some future date. Special Mention assets are not adversely classified and do not expose the Bank to sufficient risk to warrant adverse classification. Examples of these conditions include but are not limited to outdated or poor quality financial data, strains on liquidity and leverage, losses or negative trends in operating results, marginal cash flow, weaknesses in occupancy rates or trends in the case of commercial real estate and frequent delinquencies.

Classified - Loans identified as “substandard,” “doubtful” or “loss” based on criteria consistent with guidelines provided by banking regulators. A “substandard” loan has defined weaknesses which make payment default or principal exposure likely, but not yet certain. Such loans are apt to be dependent upon collateral liquidation, a secondary source of repayment or an event outside of the normal course of business. The loans are closely watched and are either already on nonaccrual status or may be placed on nonaccrual status when management determines there is uncertainty of collectability. A “doubtful” loan is placed on nonaccrual status and has a high probability of loss, but the extent of the loss is difficult to quantify due to dependency upon collateral having a value that is difficult to determine or upon some near-term event which lacks certainty. A loan in the “loss” category is considered generally uncollectible or the timing or amount of payments cannot be determined. “Loss” is not intended to imply that the loan has no recovery value, but rather, it is not practical or desirable to continue to carry the asset.

The Corporation’s procedures call for loan ratings and classifications to be revised whenever information becomes available that indicates a change is warranted. On a quarterly basis, management reviews the criticized loan portfolio, which generally consists of commercial loans that are risk-rated special mention or worse, and other selected loans. Management’s review focuses on the current status of the loans and strategies to improve the credit. An annual loan review program is conducted by a third party to provide an independent evaluation of the creditworthiness of the commercial loan portfolio, the quality of the underwriting and credit risk management practices and the appropriateness of the risk rating classifications. This review is supplemented with selected targeted internal reviews of the commercial loan portfolio.

The following table presents the commercial loan portfolio, segregated by category of credit quality indicator:

(Dollars in thousands)	Pass				Special Mention				Classified
December 31,	2019		2018		2019		2018		2019		2018
Commercial:
Commercial real estate		$1,546,139		$1,387,666		$830		$205		$603		$4,537
Commercial & industrial	549,416		559,019		24,961		50,426		10,912		11,259
Total commercial		$2,095,555		$1,946,685		$25,791		$50,631		$11,515		$15,796

Residential and Consumer

Management monitors the relatively homogeneous residential real estate and consumer loan portfolios on an ongoing basis using delinquency information by loan type. For non-impaired residential real estate and consumer loans, the Corporation assigns loss allocation factors to each respective loan type.

Other techniques are utilized to monitor indicators of credit deterioration in the residential real estate loans and consumer loan portfolios. Among these techniques is the periodic tracking of loans with an updated Fair Isaac Corporation (“FICO”) score and an estimated loan to value (“LTV”) ratio. LTV ratio is determined via statistical modeling analyses. The indicated LTV levels are estimated based on such factors as the location, the original LTV ratio, and the date of origination of the loan and do not reflect actual appraisal amounts. The results of these analyses and other loan review procedures, including selected targeted internal reviews, are taken into consideration in the determination of loss allocation factors for residential real estate and home equity consumer credits.

The following table presents the residential and consumer loan portfolios, segregated by category of credit quality indicator:

(Dollars in thousands)	Current				Past Due
December 31,	2019		2018		2019		2018
Residential Real Estate:
Residential real estate		$1,437,661		$1,349,867		$11,429		$10,520
Consumer:
Home equity		$288,178		$278,637		$2,696		$1,989
Other	20,044		26,202		130		33
Total consumer		$308,222		$304,839		$2,826		$2,022

Loan Servicing Activities

Loans sold with servicing retained result in the capitalization of loan servicing rights. The following table presents an analysis of loan servicing rights:

(Dollars in thousands)	Loan Servicing Rights			Valuation Allowance		Total
Balance at December 31, 2016		$3,493			$—		$3,493
Loan servicing rights capitalized	1,104			—		1,104
Amortization	(984		)	—		(984		)
Balance at December 31, 2017	3,613			—		3,613
Loan servicing rights capitalized	905			—		905
Amortization	(867		)	—		(867		)
Balance at December 31, 2018	3,651			—		3,651
Loan servicing rights capitalized	902			—		902
Amortization	(1,027		)	—		(1,027		)
Balance at December 31, 2019		$3,526			$—		$3,526

The following table presents estimated aggregate amortization expense related to loan servicing assets:

(Dollars in thousands)
Years ending December 31:	2020		$825
	2021	632
	2022	484
	2023	371
	2024	284
	2025 and thereafter	930
Total estimated amortization expense			$3,526

Loans sold to others are serviced by the Corporation on a fee basis under various agreements.  Loans serviced for others are not included in the Consolidated Balance Sheets.  The following table presents the balance of loans serviced for others by type of loan:

(Dollars in thousands)
December 31,	2019		2018
Residential mortgages		$586,996		$588,534
Commercial loans	159,948		142,218
Total		$746,944		$730,752