Loans

3 Months Ended

Mar. 31, 2020

Receivables [Abstract]

Loans

Loans

The following is a summary of loans:

(Dollars in thousands)	March 31, 2020		December 31, 2019
Commercial:
Commercial real estate (1)		$1,618,020		$1,547,572
Commercial & industrial (2)	655,157		585,289
Total commercial	2,273,177		2,132,861
Residential Real Estate:
Residential real estate (3)	1,510,472		1,449,090
Consumer:
Home equity	287,134		290,874
Other (4)	19,613		20,174
Total consumer	306,747		311,048
Total loans (5)		$4,090,396		$3,892,999

(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 $5.2 million and $5.3 million, respectively, at March 31, 2020 and December 31, 2019 and net unamortized premiums on purchased loans of $724 thousand and $995 thousand, respectively, at March 31, 2020 and December 31, 2019.

As of March 31, 2020 and December 31, 2019, loans amounting to $2.2 billion and $2.1 billion, respectively, were pledged as collateral to the FHLB under a blanket pledge agreement and to the FRB for the discount window. See Note 7 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 age analysis of past due loans, segregated by class of loans:

(Dollars in thousands)	Days Past Due
March 31, 2020	30-59		60-89		Over 90		Total Past Due		Current		Total Loans
Commercial:
Commercial real estate		$825		$—		$450		$1,275		$1,616,745		$1,618,020
Commercial & industrial	20		—		290		310		654,847		655,157
Total commercial	845		—		740		1,585		2,271,592		2,273,177
Residential Real Estate:
Residential real estate	5,410		1,197		5,686		12,293		1,498,179		1,510,472
Consumer:
Home equity	1,596		103		783		2,482		284,652		287,134
Other	26		1		88		115		19,498		19,613
Total consumer	1,622		104		871		2,597		304,150		306,747
Total loans		$7,877		$1,301		$7,297		$16,475		$4,073,921		$4,090,396

(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

Included in past due loans as of March 31, 2020 and December 31, 2019, were nonaccrual loans of $11.4 million and $11.5 million, respectively.

All loans 90 days or more past due at March 31, 2020 and December 31, 2019 were classified as nonaccrual.

Nonaccrual Loans

Loans, with the exception of certain well-secured loans that are in the process of collection, are placed on nonaccrual status and interest recognition is suspended when such loans are 90 days or more overdue with respect to principal and/or interest, or sooner if considered appropriate by management. Well-secured loans are permitted to remain on accrual status provided that full collection of principal and interest is assured and the loan is in the process of collection. Loans are also placed on nonaccrual status when, in the opinion of management, full collection of principal and interest is doubtful. When loans are placed on nonaccrual status, interest previously accrued but not collected is reversed against current period income.  Subsequent interest payments received on nonaccrual loans are applied to the outstanding principal balance of the loan or recognized as interest income depending on management’s assessment of the ultimate collectability of the loan. Loans are removed from nonaccrual status when they have been current as to principal and interest for a period of time, the borrower has demonstrated an ability to comply with repayment terms, and when, in management’s opinion, the loans are considered to be fully collectible.

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

(Dollars in thousands)	Mar 31, 2020		Dec 31, 2019
Commercial:
Commercial real estate		$450		$603
Commercial & industrial	290		657
Total commercial	740		1,260
Residential Real Estate:
Residential real estate	15,423		14,297
Consumer:
Home equity	1,667		1,763
Other	88		88
Total consumer	1,755		1,851
Total nonaccrual loans		$17,918		$17,408
Accruing loans 90 days or more past due		$—		$—

For nonaccrual loans with a carrying value of $490 thousand as of March 31, 2020, no ACL was deemed necessary.

As of March 31, 2020 and December 31, 2019, loans secured by one- to four-family residential property amounting to $3.8 million and $5.8 million, respectively, were in process of foreclosure.

Nonaccrual loans of $6.5 million and $5.9 million, respectively, were current as to the payment of principal and interest at March 31, 2020 and December 31, 2019.

There were no significant commitments to lend additional funds to borrowers whose loans were on nonaccrual status at March 31, 2020.

The following table presents interest income recognized on nonaccrual loans segregated by loan class:

(Dollars in thousands)
Three months ended March 31, 2020	Interest Income Recognized
Commercial:
Commercial real estate		$—
Commercial & industrial	—
Total commercial	—
Residential Real Estate:
Residential real estate	168
Consumer:
Home equity	23
Other	—
Total consumer	23
Total		$191

Troubled Debt Restructurings

A loan that has been modified or renewed is considered to be a troubled debt restructuring when two conditions are met: 1) the borrower is experiencing financial difficulty and 2) concessions are made for the borrower’s benefit that would not otherwise be considered for a borrower or a transaction with similar credit risk characteristics. These concessions may include modifications of the terms of the debt such as deferral of payments, extension of maturity, reduction of principal balance, reduction of the stated interest rate other than normal market rate adjustments, or a combination of these concessions. Debt may be bifurcated

with separate terms for each tranche of the restructured debt. Restructuring of a loan in lieu of aggressively enforcing the collection of the loan may benefit the Corporation by increasing the ultimate probability of collection.

The Corporation's ACL reflects the effects of a troubled debt restructuring when management reasonably expects at the reporting date that a troubled debt restructuring will be executed with an individual borrower. A troubled debt restructuring is considered reasonably expected no later than the point when management concludes that modification is the best course of action and it is at least reasonably possible that the troubled borrower will accept some form of concession to avoid a default. Reasonably expected troubled debt restructurings and executed troubled debt restructurings are evaluated individually to determine the required ACL. Troubled debt restructurings that did not involve a below-market rate concession and perform in accordance with their modified contractual terms for a reasonable period of time may be included in the Corporation’s existing pools based on the underlying risk characteristics of the loan to measure the ACL.

Restructured loans are classified as accruing or non-accruing based on management’s assessment of the collectability of the loan.  Loans which are already on nonaccrual status at the time of the restructuring generally remain on nonaccrual status for approximately six months before management considers such loans for return to accruing status.  Accruing restructured loans are placed into nonaccrual status if and when the borrower fails to comply with the restructured terms and management deems it unlikely that the borrower will return to a status of compliance in the near term and full collection of principal and interest is in doubt.

Troubled debt restructurings are reported as such for at least one year from the date of the restructuring.  In years after the restructuring, troubled debt restructured loans are removed from this classification if the restructuring did not involve a below-market rate concession and the loan is performing in accordance with their modified contractual terms for a reasonable period of time.

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 $864 thousand and $869 thousand, respectively, at March 31, 2020 and December 31, 2019. The ACL on loans included specific reserves for these troubled debt restructurings of $95 thousand and $97 thousand, respectively, at March 31, 2020 and December 31, 2019.

For the three months ended March 31, 2020 and 2019, there were no loans modified as a troubled debt restructuring.

For the three months ended March 31, 2020 and 2019, there were no payment defaults on troubled debt restructured loans modified within the previous 12 months.

As of March 31, 2020, there were no significant commitments to lend additional funds to borrowers whose loans had been restructured in a troubled debt restructuring.

The Corporation elected to account for eligible loan modifications under Section 4013 of the CARES Act. To be an eligible loan under Section 4013 of the CARES Act, a loan modification must be (1) related to the COVID-19 pandemic; (2) executed on a loan that was not more than 30 days past due as of December 31, 2019; and (3) executed between March 1, 2020, and the earlier of (A) 60 days after the date of termination of the national emergency declared by the President on March 13, 2020 concerning the COVID-19 outbreak (the “national emergency”) or (B) December 31, 2020. Eligible loan modifications are not required to be classified as troubled debt restructured loans and will not be reported as past due provided that they are performing in accordance with the modified terms. Interest income will continue to be recognized in accordance with GAAP unless the loan is placed on nonaccrual status in accordance with the nonaccrual loans accounting policy described above.

Individually Analyzed Loans

Effective January 1, 2020, individually analyzed loans include nonaccrual commercial loans, loans classified as troubled debt restructured loans, and certain other loans based on the underlying risk characteristics and the discretion of management to individually analyze such loans. As of March 31, 2020, the carrying value of individually analyzed loans amounted to $1.8 million, of which $1.4 million were considered collateral dependent.

For collateral dependent loans where management has determined that foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and repayment of the loan is to be provided substantially through the operation or sale of the collateral, the ACL is measured based on the difference between the fair value of the collateral and the amortized cost basis of the loan as of the measurement date. See Note 10 for additional disclosure regarding fair value of individually analyzed collateral dependent loans.

The following table presents the carrying value of collateral dependent individually analyzed loans:

(Dollars in thousands)
As of March 31, 2020	Carrying Value		Related Allowance
Commercial:
Commercial real estate (1)		$450		$6
Commercial & industrial (2)	290		290
Total commercial	740		296
Residential Real Estate:
Residential real estate (3)	418		—
Consumer:
Home equity (3)	233		233
Other	—		—
Total consumer	233		233
Total		$1,391		$529

(1) Secured by income-producing property.

(2) Secured by business assets.

(3) Secured by one- to four-family residential properties.

Prior to January 1, 2020, a loan was considered impaired when, based on current information and events, it was probable that the Corporation would 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 included nonaccrual loans and loans restructured in a troubled debt restructuring. The Corporation identified loss allocations for impaired loans on an individual loan basis. The following is a summary of impaired loans:

(Dollars in thousands)
As of December 31, 2019	Recorded Investment (1)		Unpaid Principal		Related Allowance
No Related Allowance Recorded
Commercial:
Commercial real estate		$—		$—		$—
Commercial & industrial	—		—		—
Total commercial	—		—		—
Residential Real Estate:
Residential real estate	13,968		14,803		—
Consumer:
Home equity	1,471		1,472		—
Other	88		88		—
Total consumer	1,559		1,560		—
Subtotal	15,527		16,363		—
With Related Allowance Recorded
Commercial:
Commercial real estate		$603		$926		$—
Commercial & industrial	657		657		580
Total commercial	1,260		1,583		580
Residential Real Estate:
Residential real estate	687		714		95
Consumer:
Home equity	292		291		291
Other	18		18		2
Total consumer	310		309		293
Subtotal	2,257		2,606		968
Total impaired loans		$17,784		$18,969		$968
Total:
Commercial		$1,260		$1,583		$580
Residential real estate	14,655		15,517		95
Consumer	1,869		1,869		293
Total impaired loans		$17,784		$18,969		$968

(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)
Three months ended March 31, 2019	Average Recorded Investment		Interest Income Recognized
Commercial:
Commercial real estate		$976		$1
Commercial & industrial	4,689		54
Total commercial	5,665		55
Residential Real Estate:
Residential real estate	10,151		115
Consumer:
Home equity	1,480		14
Other	21		—
Total consumer	1,501		14
Total		$17,317		$184

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. The Corporation takes the risk rating into consideration along with other credit attributes in the establishment of an appropriate allowance for credit losses on loans. 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 watched asset list, which generally consists of commercial loans that are risk-rated 6 or worse, highly leverages transaction loans, high-volatility commercial real estate 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.

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.

The following table summarizes the Corporation’s loan portfolio by credit quality indicator and loan portfolio segment:

(Dollars in thousands)	Term Loans Amortized Cost by Origination Year
As of March 31, 2020	2020		2019		2018		2017		2016		Prior		Revolving Loans Amortized Cost		Revolving Loans Converted to Term Loans		Total
Commercial:
CRE:
Pass		$55,517		$235,636		$340,015		$277,871		$157,491		$530,953		$7,445		$2,517		$1,607,445
Special Mention	—		—		—		9,300		—		825		—		—		10,125
Classified	—		—		—		—		—		450		—		—		450
Total CRE	55,517		235,636		340,015		287,171		157,491		532,228		7,445		2,517		1,618,020
C&I:
Pass	43,850		80,561		59,753		70,374		43,616		189,242		130,463		1,599		619,458
Special Mention	—		—		—		1,866		3,625		17,229		2,128		66		24,914
Classified	—		—		—		—		—		8,346		2,439		—		10,785
Total C&I	43,850		80,561		59,753		72,240		47,241		214,817		135,030		1,665		655,157
Residential Real Estate:
Residential real estate:
Current	100,890		339,675		241,997		225,108		177,100		413,409		—		—		1,498,179
Past Due	—		278		633		3,109		516		7,757		—		—		12,293
Total residential real estate	100,890		339,953		242,630		228,217		177,616		421,166		—		—		1,510,472
Consumer:
Home equity:
Current	2,947		9,308		5,510		2,528		1,601		5,473		243,986		13,299		284,652
Past Due	—		—		—		50		—		93		761		1,578		2,482
Total home equity	2,947		9,308		5,510		2,578		1,601		5,566		244,747		14,877		287,134
Other:
Current	605		2,975		2,025		2,321		822		10,334		414		2		19,498
Past Due	9		—		—		—		88		17		—		1		115
Total other	614		2,975		2,025		2,321		910		10,351		414		3		19,613
Total Loans		$203,818		$668,433		$649,933		$592,527		$384,859		$1,184,128		$387,636		$19,062		$4,090,396

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

(Dollars in thousands)
As of December 31, 2019	Pass		Special Mention		Classified
Commercial:
Commercial real estate		$1,546,139		$830		$603
Commercial & industrial	549,416		24,961		10,912
Total commercial		$2,095,555		$25,791		$11,515

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

(Dollars in thousands)
As of December 31, 2019	Current		Past Due
Residential Real Estate:
Residential real estate		$1,437,661		$11,429
Consumer:
Home equity		$288,178		$2,696
Other	20,044		130
Total consumer		$308,222		$2,826