ALLOWANCE FOR CREDIT LOSSES AND CREDIT QUALITY INFORMATION

6 Months Ended

Jun. 30, 2021

ALLOWANCE FOR CREDIT LOSSES AND CREDIT QUALITY INFORMATION

7. ALLOWANCE FOR CREDIT LOSSES AND CREDIT QUALITY INFORMATION

The following tables provide the activity of allowance for credit losses and loan balances for the three and six months ended June 30, 2021 and 2020. During the first half of 2021, the decrease to the allowance for credit losses was primarily due to positive economic developments in our forecasts and improved credit quality metrics with declines in our problem assets, nonperforming assets and delinquencies.


(Dollars in thousands)	Commercial and Industrial(1)		Owner-occupied Commercial		Commercial Mortgages		Construction		Residential(2)		Consumer(3)		Total
Three months ended June 30, 2021
Allowance for credit losses
Beginning balance	$	125,870	$	9,617	$	30,545	$	14,287	$	5,702	$	18,797	$	204,818

Charge-offs	(6,512)		(45)		—		—		—		(521)		(7,078)
Recoveries	1,379		15		30		—		455		362		2,241
Provision (credit)	(33,534)		(3,406)		(14,476)		(10,775)		(2,864)		(2,508)		(67,563)
Ending balance	$	87,203	$	6,181	$	16,099	$	3,512	$	3,293	$	16,130	$	132,418
Six months ended June 30, 2021
Allowance for credit losses
Beginning balance	$	150,875	$	9,615	$	31,071	$	12,190	$	6,893	$	18,160	$	228,804
Charge-offs	(11,564)		(45)		—		—		—		(945)		(12,554)
Recoveries	2,519		105		44		—		595		628		3,891
Provision (credit)	(54,627)		(3,494)		(15,016)		(8,678)		(4,195)		(1,713)		(87,723)
Ending balance	$	87,203	$	6,181	$	16,099	$	3,512	$	3,293	$	16,130	$	132,418
Period-end allowance allocated to:
Loans evaluated on an individual basis	$	1	$	—	$	10	$	—	$	—	$	—	$	11
Loans evaluated on a collective basis	87,202		6,181		16,089		3,512		3,293		16,130		132,407

Ending balance	$	87,203	$	6,181	$	16,099	$	3,512	$	3,293	$	16,130	$	132,418
Period-end loan balances:
Loans evaluated on an individual basis	$	14,446	$	3,868	$	3,962	$	72	$	4,994	$	2,608	$	29,950
Loans evaluated on a collective basis	2,365,251		1,356,813		2,020,722		779,529		601,064		1,102,561		8,225,940


Ending balance	$	2,379,697	$	1,360,681	$	2,024,684	$	779,601	$	606,058	$	1,105,169	$	8,255,890

(1)Includes commercial small business leases and PPP loans.

(2)Period-end loan balance excludes reverse mortgages at fair value of $8.4 million.

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


(Dollars in thousands)	Commercial and Industrial(1)		Owner - occupied Commercial		Commercial Mortgages		Construction		Residential(2)		Consumer(3)		Total
Three months ended June 30, 2020
Allowance for credit losses
Beginning balance	$	65,771	$	9,541	$	26,600	$	5,198	$	11,593	$	20,370	$	139,073

Charge-offs	(2,072)		(53)		—		—		(32)		(667)		(2,824)
Recoveries	968		—		3		—		24		194		1,189
Provision (credit)	79,558		(532)		11,794		4,928		(2,414)		1,420		94,754
Ending balance	$	144,225	$	8,956	$	38,397	$	10,126	$	9,171	$	21,317	$	232,192
Six months ended June 30, 2020
Allowance for loan losses
Beginning balance, prior to adoption of ASC 326	$	22,849	$	4,616	$	7,452	$	3,891	$	1,381	$	7,387	$	47,576
Impact of adopting ASC 326(4)	19,747		(1,472)		1,662		681		7,522		7,715		35,855
Charge-offs	(5,136)		(336)		(51)		—		(175)		(1,581)		(7,279)
Recoveries	3,815		125		32		5		115		548		4,640
Provision	102,950		6,023		29,302		5,549		328		7,248		151,400
Ending balance	$	144,225	$	8,956	$	38,397	$	10,126	$	9,171	$	21,317	$	232,192
Period-end allowance allocated to:
Loans evaluated on an individual basis	$	18	$	—	$	—	$	—	$	—	$	—	$	18
Loans evaluated on a collective basis	144,207		8,956		38,397		10,126		9,171		21,317		232,174
Ending balance	$	144,225	$	8,956	$	38,397	$	10,126	$	9,171	$	21,317	$	232,192
Period-end loan balances:
Loans evaluated on an individual basis	$	15,634	$	5,425	$	4,470	$	88	$	5,452	$	2,464	$	33,533
Loans evaluated on a collective basis	3,151,200		1,331,828		2,161,077		638,416		889,408		1,130,907		9,302,836
Ending balance	$	3,166,834	$	1,337,253	$	2,165,547	$	638,504	$	894,860	$	1,133,371	$	9,336,369

(1)Includes commercial small business leases and PPP loans.

(2)Period-end loan balance excludes reverse mortgages at fair value of $16.1 million.

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

(4)Includes $0.1 million for the initial allowance on loans purchased with credit deterioration.

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


	June 30, 2021
(Dollars in thousands)	30–89 Days Past Due and Still Accruing			Greater Than 90 Days Past Due and Still Accruing			Total Past Due And Still Accruing			Accruing Current Balances			Nonaccrual Loans(1)			Total Loans
Commercial and industrial(2)	$	8,160		$	482		$	8,642		$	2,356,794		$	14,261		$	2,379,697
Owner-occupied commercial	3,817			—			3,817			1,354,083			2,781			1,360,681
Commercial mortgages	3,000			—			3,000			2,020,069			1,615			2,024,684
Construction	7,383			—			7,383			772,218			—			779,601
Residential(3)	1,260			1,093			2,353			600,979			2,726			606,058
Consumer(4)	7,971			6,958			14,929			1,087,599			2,641			1,105,169
Total	$	31,591		$	8,533		$	40,124		$	8,191,742		$	24,024		$	8,255,890
% of Total Loans	0.38		%	0.10		%	0.48		%	99.23		%	0.29		%	100		%

(1)Nonaccrual loans with an allowance totaled $10 thousand.

(2)Includes commercial small business leases and PPP loans.

(3)Residential accruing current balances excludes reverse mortgages at fair value of $8.4 million.

(4)Includes $13.6 million of delinquent, but still accruing, U.S. government-guaranteed student loans that carry little risk of credit loss.


	December 31, 2020
(Dollars in thousands)	30–89 Days Past Due and Still Accruing			Greater Than 90 Days Past Due and Still Accruing			Total Past Due And Still Accruing			Accruing Current Balances			Nonaccrual Loans(1)			Total Loans
Commercial and industrial(2)	$	7,313		$	3,652		$	10,965		$	2,924,522		$	13,816		$	2,949,303
Owner-occupied commercial	3,120			892			4,012			1,323,355			5,360			1,332,727
Commercial mortgages	5,944			1,090			7,034			2,061,853			17,175			2,086,062
Construction	371			—			371			715,904			—			716,275
Residential(3)	3,049			25			3,074			758,072			3,247			764,393
Consumer(4)	8,355			11,035			19,390			1,144,217			2,310			1,165,917
Total(4)	$	28,152		$	16,694		$	44,846		$	8,927,923		$	41,908		$	9,014,677
% of Total Loans	0.31		%	0.19		%	0.50		%	99.04		%	0.46		%	100		%

(1)Nonaccrual loans with an allowance totaled $13 thousand

(2)Includes commercial small business leases and PPP loans.

(3)Residential accruing current balances excludes reverse mortgages, at fair value of $10.1 million.

(4)Includes $18.2 million of delinquent, but still accruing, U.S. government-guaranteed student loans that carry little risk of credit loss.

The following table presents the amortized cost basis of nonaccruing collateral-dependent loans by class at June 30, 2021 and December 31, 2020:


	June 30, 2021		December 31, 2020
(Dollars in thousands)	Property		Equipment and other		Property		Equipment and other
Commercial and industrial(1)	$	11,498	$	2,763	$	10,646	$	3,170
Owner-occupied commercial	2,781		—		5,360		—
Commercial mortgages	1,615		—		17,175		—
Construction	—		—		—		—
Residential(2)	2,726		—		3,247		—
Consumer(3)	2,641		—		2,294		16
Total	$	21,261	$	2,763	$	38,722	$	3,186

(1)Includes commercial small business leases.

(2)Excludes reverse mortgages at fair value.

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

Interest income recognized on individually reviewed loans was $0.2 million during the three months ended June 30, 2021 and 2020, respectively, and $0.4 million during the six months ended June 30, 2021 and 2020, respectively.

As of June 30, 2021, there were 23 residential loans and 23 commercial loans in the process of foreclosure. The total outstanding balance on these loans was $1.3 million and $11.8 million, respectively. As of December 31, 2020, there were 27 residential loans and 23 commercial loans in the process of foreclosure. The total outstanding balance on these loans was $1.9 million and $12.8 million, respectively. Loan workout and OREO expenses were $0.2 million and $0.7 million during the three and six months ended June 30, 2021, and $1.1 million and $1.8 million during three and six months ended June 30, 2020. Loan workout and OREO expenses are included in Loan workout and other credit costs on the Consolidated Statement of Income (Loss).

Credit Quality Indicators

Below is a description of each of the risk ratings for all commercial loans:

•Pass. These borrowers currently show no indication of deterioration or potential problems and their loans are considered fully collectible.

•Special Mention. These borrowers have potential weaknesses that deserve management’s close attention. Borrowers in this category may be experiencing adverse operating trends, for example, declining revenues or margins, high leverage, tight liquidity, or increasing inventory without increasing sales. These adverse trends can have a potential negative effect on the borrower’s repayment capacity. These assets are not adversely classified and do not expose the Bank to significant risk that would warrant a more severe rating. Borrowers in this category may also be experiencing significant management problems, pending litigation, or other structural credit weaknesses.

•Substandard or Lower. These borrowers have well-defined weaknesses that require extensive oversight by management. Borrowers in this category may exhibit one or more of the following: inadequate debt service coverage, unprofitable operations, insufficient liquidity, high leverage, and weak or inadequate capitalization. Relationships in this category are not adequately protected by the sound financial worth and paying capacity of the obligor or the collateral pledged on the loan, if any. A distinct possibility exists that the Bank will sustain some loss if the deficiencies are not corrected. In addition, some borrowers in this category could have the added characteristic that the possibility of loss is extremely high. Current circumstances in the credit relationship make collection or liquidation in full highly questionable. Such impending events include: perfecting liens on additional collateral, obtaining collateral valuations, an acquisition or liquidation preceding, proposed merger, or refinancing plan.

Residential and Consumer Loans

The residential and consumer loan portfolios are monitored on an ongoing basis using delinquency information and loan type as credit quality indicators. These credit quality indicators are assessed in the aggregate in these relatively homogeneous portfolios. Loans that are greater than 90 days past due are generally considered nonperforming and placed on nonaccrual status.

The following tables provide an analysis of loans by portfolio segment based on the credit quality indicators used to determine the allowance for credit losses as of June 30, 2021.


	Term Loans Amortized Cost Basis by Origination Year
	2021		2020		2019		2018		2017		Prior		Revolving loans amortized cost basis		Revolving loans converted to term		Total
(Dollars in thousands)
Commercial and industrial(1):
Risk Rating
Pass(2)	$	270,308	$	698,723	$	347,351	$	236,657	$	144,007	$	172,211	$	5,500	$	135,762	$	2,010,519
Special mention	13,738		659		28,717		10,786		943		15,035		—		51,343		121,221
Substandard or Lower	12,307		25,261		65,445		49,864		49,931		36,968		27		8,154		247,957
	$	296,353	$	724,643	$	441,513	$	297,307	$	194,881	$	224,214	$	5,527	$	195,259	$	2,379,697
Owner-occupied commercial:
Risk Rating
Pass	$	145,214	$	223,752	$	207,609	$	75,082	$	131,905	$	317,070	$	—	$	130,649	$	1,231,281
Special mention	763		1,124		3,138		482		10,692		10,418		—		14,105		40,722
Substandard or Lower	—		7,157		13,918		14,330		19,617		25,676		—		7,980		88,678
	$	145,977	$	232,033	$	224,665	$	89,894	$	162,214	$	353,164	$	—	$	152,734	$	1,360,681
Commercial mortgages:
Risk Rating
Pass	$	264,232	$	314,468	$	238,420	$	181,718	$	224,772	$	470,819	$	—	$	230,137	$	1,924,566
Special mention	—		8,168		1,751		885		21,004		6,179		—		1,849		39,836
Substandard or Lower	—		13,190		22,470		2,217		1,562		19,797		—		1,046		60,282
	$	264,232	$	335,826	$	262,641	$	184,820	$	247,338	$	496,795	$	—	$	233,032	$	2,024,684
Construction:
Risk Rating
Pass	$	137,727	$	208,583	$	149,019	$	142,891	$	11,236	$	9,283	$	—	$	93,945	$	752,684
Special mention	7,931		—		—		—		3,515		—		—		—		11,446
Substandard or Lower	4,988		—		4,967		—		98		71		—		5,347		15,471
	$	150,646	$	208,583	$	153,986	$	142,891	$	14,849	$	9,354	$	—	$	99,292	$	779,601
Residential(3):
Risk Rating
Performing	$	11,589	$	35,330	$	17,243	$	43,732	$	61,268	$	431,902	$	—	$	—	$	601,064
Nonperforming(4)	—		112		—		—		63		4,819		—		—		4,994
	$	11,589	$	35,442	$	17,243	$	43,732	$	61,331	$	436,721	$	—	$	—	$	606,058
Consumer(5):
Risk Rating
Performing	$	65,016	$	231,337	$	98,951	$	214,502	$	47,934	$	75,185	$	362,142	$	7,147	$	1,102,214
Nonperforming(6)	—		361		33		619		193		—		1,351		398		2,955
	$	65,016	$	231,698	$	98,984	$	215,121	$	48,127	$	75,185	$	363,493	$	7,545	$	1,105,169

(1)Includes commercial small business leases.

(2)Includes $222.9 million of PPP loans.

(3)Excludes reverse mortgages at fair value.

(4)Includes troubled debt restructured mortgages performing in accordance with the loans' modified terms and are accruing interest.

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

(6)Includes troubled debt restructured home equity installment loans performing in accordance with the loans' modified terms and are accruing interest.

The following tables provide an analysis of loans by portfolio segment based on the credit quality indicators used to determine the allowance for credit losses, as of December 31, 2020.


	Term Loans Amortized Cost Basis by Origination Year
	2020		2019		2018		2017		2016		Prior		Revolving loans amortized cost basis		Revolving loans converted to term		Total
(Dollars in thousands)
Commercial and industrial(1):
Risk Rating
Pass(2)	$	1,250,528	$	448,704	$	296,594	$	157,359	$	97,036	$	125,361	$	6,182	$	136,110	$	2,517,874
Special mention	3,040		26,470		28,636		8,482		2,577		16,993		—		34,403		120,601
Substandard or Lower	82,868		60,227		57,880		50,446		15,151		35,150		63		9,043		310,828
	$	1,336,436	$	535,401	$	383,110	$	216,287	$	114,764	$	177,504	$	6,245	$	179,556	$	2,949,303
Owner-occupied commercial:
Risk Rating
Pass	$	220,165	$	225,766	$	90,515	$	135,903	$	123,897	$	271,086	$	—	$	123,194	$	1,190,526
Special mention	1,525		5,885		1,838		17,578		4,125		1,997		—		14,467		47,415
Substandard or Lower	3,703		13,426		15,272		19,883		11,581		19,331		—		11,590		94,786
	$	225,393	$	245,077	$	107,625	$	173,364	$	139,603	$	292,414	$	—	$	149,251	$	1,332,727
Commercial mortgages:
Risk Rating
Pass	$	379,592	$	283,004	$	240,924	$	257,809	$	254,780	$	375,473	$	—	$	148,210	$	1,939,792
Special mention	8,324		1,774		21,762		21,269		1,274		6,507		—		1,870		62,780
Substandard or Lower	26,343		25,402		2,253		1,950		3,242		24,300		—		—		83,490
	$	414,259	$	310,180	$	264,939	$	281,028	$	259,296	$	406,280	$	—	$	150,080	$	2,086,062
Construction:
Risk Rating
Pass	$	189,257	$	214,956	$	208,981	$	11,414	$	7,414	$	3,645	$	—	$	66,018	$	701,685
Special mention	—		—		—		3,515		—		—		—		—		3,515
Substandard or Lower	—		8,648		—		—		—		79		—		2,348		11,075
	$	189,257	$	223,604	$	208,981	$	14,929	$	7,414	$	3,724	$	—	$	68,366	$	716,275
Residential(3):
Risk Rating
Performing	$	42,475	$	26,309	$	71,410	$	85,277	$	149,643	$	383,358	$	—	$	—	$	758,472
Nonperforming(4)	113		—		—		—		283		5,525		—		—		5,921
	$	42,588	$	26,309	$	71,410	$	85,277	$	149,926	$	388,883	$	—	$	—	$	764,393
Consumer(5):
Risk Rating
Performing	$	235,948	$	134,064	$	251,087	$	63,713	$	44,700	$	53,717	$	371,842	$	8,287	$	1,163,358
Nonperforming(6)	—		—		636		232		—		—		1,396		295		2,559
	$	235,948	$	134,064	$	251,723	$	63,945	$	44,700	$	53,717	$	373,238	$	8,582	$	1,165,917

(1)Includes commercial small business leases.

(2)Includes $751.2 million of PPP loans.

(3)Excludes reverse mortgages at fair value.

(4)Includes troubled debt restructured mortgages performing in accordance with the loans' modified terms and are accruing interest.

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

(6)Includes troubled debt restructured home equity installment loans performing in accordance with the loans' modified terms and are accruing interest.

Troubled Debt Restructurings (TDRs)

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



(Dollars in thousands)	June 30, 2021		December 31, 2020
Performing TDRs	$	14,997	$	15,539
Nonperforming TDRs	2,694		4,601
Total TDRs	$	17,691	$	20,140

Approximately $0.2 million and less than $0.1 million in related reserves have been established for these loans at June 30, 2021 and December 31, 2020, respectively. The following tables present information regarding the types of loan modifications made for the three and six months ended June 30, 2021 and 2020:


	Three months ended June 30, 2021					Six months ended June 30, 2021
	Contractual payment reduction and term extension	Maturity Date Extension	Discharged in bankruptcy	Other(1)	Total	Contractual payment reduction and term extension	Maturity Date Extension	Discharged in bankruptcy	Other(1)	Total
Commercial and industrial	—	—	—	—	—	—	—	—	—	—
Owner-occupied commercial	—	—	—	—	—	—	—	—	—	—
Commercial mortgages	—	—	—	—	—	—	—	—	—	—
Construction	—	—	—	—	—	—	—	—	—	—
Residential	—	—	—	—	—	—	—	2	—	2
Consumer	—	—	3	1	4	—	—	20	1	21
Total	—	—	3	1	4	—	—	22	1	23


	Three months ended June 30, 2020					Six months ended June 30, 2020
	Contractual payment reduction and term extension	Maturity Date Extension	Discharged in bankruptcy	Other(1)	Total	Contractual payment reduction and term extension	Maturity Date Extension	Discharged in bankruptcy	Other(1)	Total
Commercial and industrial	—	—	—	—	—	1	—	—	—	1
Owner-occupied commercial	2	—	—	—	2	3	—	—	—	3
Commercial mortgages	—	—	—	—	—	—	1	—	—	1

Residential	—	—	3	1	4	—	—	4	2	6
Consumer	—	—	4	1	5	—	—	7	3	10
Total	2	—	7	2	11	4	1	11	5	21

(1)Includes underwriting exceptions.

Principal balances are generally not forgiven when a loan is modified as a TDR. Nonaccruing restructured loans remain in nonaccrual status until there has been a period of sustained repayment performance, which is typically six months, and repayment is reasonably assured. The following tables present loans modified as TDRs during the three and six months ended June 30, 2021 and 2020.


	Three Months Ended June 30, 2021				Six Months Ended June 30, 2021

(Dollars in thousands)	Pre Modification		Post Modification		Pre Modification		Post Modification
Commercial	$	—	$	—	$	—	$	—
Owner-occupied commercial	—		—		—		—
Commercial mortgages	—		—		—		—

Residential	—		—		166		166
Consumer	155		155		839		839
Total(1)(2)	$	155	$	155	$	1,005	$	1,005

(1)During the three and six months ended June 30, 2021, the TDRs set forth in the table above resulted in a less than $0.1 million increase in the allowance for credit losses for both periods, and no additional charge-offs in either period. During the three and six months ended June 30, 2021, no TDRs defaulted that had received troubled debt modification during the past twelve months.

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


	Three Months Ended June 30, 2020				Six Months Ended June 30, 2020

(Dollars in thousands)	Pre Modification		Post Modification		Pre Modification		Post Modification
Commercial	$	—	$	—	$	31	$	31
Owner-occupied commercial	567		567		1,216		1,216
Commercial mortgages	—		—		104		104

Residential	905		905		1,126		1,126
Consumer	245		245		459		459
Total(1)(2)	$	1,717	$	1,717	$	2,936	$	2,936

(1)During the three and six months ended June 30, 2020 the TDRs set forth in the table above resulted in a less than $0.1 million increase and a $0.1 million increase in the allowance for credit losses, respectively, and no additional charge-offs in either period. During the three and six months ended June 30, 2020, no TDRs defaulted that had received troubled debt modification during the past twelve months.

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