ALLOWANCE FOR CREDIT LOSSES AND CREDIT QUALITY INFORMATION

9 Months Ended

Sep. 30, 2022

ALLOWANCE FOR CREDIT LOSSES AND CREDIT QUALITY INFORMATION

8. 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 nine months ended September 30, 2022 and 2021. The increase was primarily due to an initial ACL of $49.6 million recorded in connection with the BMBC Merger and loan growth during the quarter. The initial $49.6 million ACL recorded includes $23.5 million related to non-PCD loans, or the initial provision for credit loss recorded, and $26.1 million related to PCD loans, which does not have an initial income statement impact, but adjusts the amortized cost basis of the loans at acquisition (i.e., a balance sheet gross-up).


(Dollars in thousands)	Commercial and Industrial(1)		Owner-occupied Commercial		Commercial Mortgages		Construction		Residential(2)		Consumer(3)		Total
Three months ended September 30, 2022
Allowance for credit losses
Beginning balance	$	60,921	$	5,510	$	23,663	$	5,058	$	4,988	$	41,830	$	141,970

Charge-offs	(5,120)		—		(544)		—		—		(1,834)		(7,498)
Recoveries	3,194		4		101		653		207		114		4,273
Provision (credit)	889		489		(1,686)		788		(377)		7,347		7,450
Ending balance	$	59,884	$	6,003	$	21,534	$	6,499	$	4,818	$	47,457	$	146,195
Nine months ended September 30, 2022
Allowance for credit losses
Beginning balance	$	49,967	$	4,574	$	11,623	$	1,903	$	3,352	$	23,088	$	94,507
Initial allowance on acquired PCD loans	22,614		595		2,684		71		61		78		26,103
Charge-offs	(11,308)		(179)		(581)		—		(186)		(4,062)		(16,316)
Recoveries	4,667		271		223		653		737		663		7,214
(Credit) provision(4)	(6,056)		742		7,585		3,872		854		27,690		34,687
Ending balance	$	59,884	$	6,003	$	21,534	$	6,499	$	4,818	$	47,457	$	146,195
Period-end allowance allocated to:
Loans evaluated on an individual basis	$	5,348	$	—	$	—	$	—	$	—	$	—	$	5,348
Loans evaluated on a collective basis	54,536		6,003		21,534		6,499		4,818		47,457		140,847
Ending balance	$	59,884	$	6,003	$	21,534	$	6,499	$	4,818	$	47,457	$	146,195
Period-end loan balances:
Loans evaluated on an individual basis	$	21,565	$	1,713	$	9,483	$	5,360	$	6,451	$	1,884	$	46,456
Loans evaluated on a collective basis	3,147,913		1,786,878		3,270,896		1,022,843		752,142		1,675,244		11,655,916
Ending balance	$	3,169,478	$	1,788,591	$	3,280,379	$	1,028,203	$	758,593	$	1,677,128	$	11,702,372

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

(2)Period-end loan balance excludes reverse mortgages at fair value of $3.0 million.

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

(4)Includes $23.5 million initial provision for credit losses on non-PCD loans.


(Dollars in thousands)	Commercial and Industrial(1)		Owner - occupied Commercial		Commercial Mortgages		Construction		Residential(2)		Consumer(3)		Total
Three months ended September 30, 2021
Allowance for credit losses
Beginning balance	$	87,203	$	6,181	$	16,099	$	3,512	$	3,293	$	16,130	$	132,418
Charge-offs	(7,612)		(38)		—		(2,473)		—		(738)		(10,861)
Recoveries	4,031		41		198		—		34		320		4,624
(Credit) provision	(17,804)		(1,260)		(3,054)		1,068		(326)		66		(21,310)
Ending balance	$	65,818	$	4,924	$	13,243	$	2,107	$	3,001	$	15,778	$	104,871
Nine months ended September 30, 2021
Allowance for loan losses
Beginning balance, prior to adoption of ASC 326	$	150,875	$	9,615	$	31,071	$	12,190	$	6,893	$	18,160	$	228,804
Charge-offs	(19,176)		(83)		—		(2,473)		—		(1,683)		(23,415)
Recoveries	6,550		146		242		—		629		948		8,515
(Credit) provision	(72,431)		(4,754)		(18,070)		(7,610)		(4,521)		(1,647)		(109,033)
Ending balance	$	65,818	$	4,924	$	13,243	$	2,107	$	3,001	$	15,778	$	104,871
Period-end allowance allocated to:
Loans evaluated on an individual basis	$	2,247	$	—	$	8	$	—	$	—	$	—	$	2,255
Loans evaluated on a collective basis	63,571		4,924		13,235		2,107		3,001		15,778		102,616
Ending balance	$	65,818	$	4,924	$	13,243	$	2,107	$	3,001	$	15,778	$	104,871
Period-end loan balances:
Loans evaluated on an individual basis	$	24,375	$	2,071	$	2,708	$	2,184	$	5,877	$	2,496	$	39,711
Loans evaluated on a collective basis	2,204,139		1,337,589		1,985,276		760,462		568,804		1,115,718		7,971,988
Ending balance	$	2,228,514	$	1,339,660	$	1,987,984	$	762,646	$	574,681	$	1,118,214	$	8,011,699

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

(2)Period-end loan balance excludes reverse mortgages at fair value of $7.5 million.

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

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


	September 30, 2022
(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)	$	6,641		$	8,351		$	14,992		$	3,149,649		$	4,837		$	3,169,478
Owner-occupied commercial	887			—			887			1,787,365			339			1,788,591
Commercial mortgages	6,927			—			6,927			3,268,392			5,060			3,280,379
Construction	—			2,000			2,000			1,021,045			5,158			1,028,203
Residential(3)	2,694			1,094			3,788			752,782			2,023			758,593
Consumer(4)	14,873			13,309			28,182			1,646,994			1,952			1,677,128
Total	$	32,022		$	24,754		$	56,776		$	11,626,227		$	19,369		$	11,702,372
% of Total Loans	0.27		%	0.21		%	0.49		%	99.34		%	0.17		%	100		%

(1)There was no allowance on nonaccrual loans as of September 30, 2022.

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

(3)Residential accruing current balances excludes reverse mortgages at fair value of $3.0 million.

(4)Includes $23.8 million of delinquent, but still accruing, U.S. government-guaranteed student loans that carry little risk of credit loss.


	December 31, 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)	$	5,007		$	547		$	5,554		$	2,256,554		$	8,211		$	2,270,319
Owner-occupied commercial	741			—			741			1,340,155			811			1,341,707
Commercial mortgages	3,525			810			4,335			1,875,105			2,070			1,881,510
Construction	7,933			—			7,933			679,268			12			687,213
Residential(3)	1,856			—			1,856			537,752			3,125			542,733
Consumer(4)	10,227			8,634			18,861			1,137,332			2,380			1,158,573
Total(4)	$	29,289		$	9,991		$	39,280		$	7,826,166		$	16,609		$	7,882,055
% of Total Loans	0.37		%	0.13		%	0.50		%	99.29		%	0.21		%	100		%

(1)Nonaccrual loans with an allowance totaled less than $0.1 million

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

(3)Residential accruing current balances excludes reverse mortgages, at fair value of $3.9 million.

(4)Includes $17.0 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 September 30, 2022 and December 31, 2021:


	September 30, 2022		December 31, 2021
(Dollars in thousands)	Property		Equipment and other		Property		Equipment and other
Commercial and industrial(1)	$	3,906	$	931	$	4,199	$	4,012
Owner-occupied commercial	339		—		811		—
Commercial mortgages	5,060		—		2,070		—
Construction	5,158		—		12		—
Residential(2)	2,023		—		3,125		—
Consumer(3)	1,952		—		2,380		—
Total	$	18,438	$	931	$	12,597	$	4,012

(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 $0.3 million and $0.6 million during the three and nine months ended September 30, 2022, respectively, and $0.2 million and $0.6 million during the three and nine months ended September 30, 2021, respectively.

As of September 30, 2022, there were 37 residential loans and 12 commercial loans in the process of foreclosure. The total outstanding balance on these loans was $5.2 million and $3.3 million, respectively. As of December 31, 2021, there were 28 residential loans and 9 commercial loans in the process of foreclosure. The total outstanding balance on these loans was $2.5 million and $3.2 million, respectively. Loan workout and other real estate owned (OREO) (recoveries) expenses were less than $0.3 million and $0.5 million during the three and nine months ended September 30, 2022, respectively, and $0.6 million and $1.4 million during three and nine months ended September 30, 2021, respectively. Loan workout and OREO expenses are included in Loan workout and other credit costs on the Consolidated Statement of Income.

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 September 30, 2022.


	Term Loans Amortized Cost Basis by Origination Year
	2022		2021		2020		2019		2018		Prior		Revolving loans amortized cost basis		Revolving loans converted to term		Total
(Dollars in thousands)
Commercial and industrial(1):
Risk Rating
Pass(2)	$	930,884	$	606,030	$	464,829	$	262,628	$	149,437	$	263,633	$	7,690	$	234,667	$	2,919,798
Special mention	24,704		36,492		8,117		10,012		6,415		445		—		11,649		97,834
Substandard or Lower	28,685		16,986		8,290		44,594		38,139		10,196		10		4,946		151,846
	$	984,273	$	659,508	$	481,236	$	317,234	$	193,991	$	274,274	$	7,700	$	251,262	$	3,169,478
Owner-occupied commercial:
Risk Rating
Pass	$	210,160	$	353,951	$	269,106	$	233,159	$	114,041	$	378,377	$	—	$	140,573	$	1,699,367
Special mention	537		—		—		—		—		2,803		—		3,427		6,767
Substandard or Lower	972		5,481		23,882		2,497		11,952		22,972		—		14,701		82,457
	$	211,669	$	359,432	$	292,988	$	235,656	$	125,993	$	404,152	$	—	$	158,701	$	1,788,591
Commercial mortgages:
Risk Rating
Pass	$	336,888	$	669,155	$	529,554	$	554,465	$	251,605	$	650,400	$	—	$	202,570	$	3,194,637
Special mention	1,456		77		6,077		6,201		—		32,197		—		3,706		49,714
Substandard or Lower	1,716		2,981		12,846		3,227		3,618		11,063		—		577		36,028
	$	340,060	$	672,213	$	548,477	$	563,893	$	255,223	$	693,660	$	—	$	206,853	$	3,280,379
Construction:
Risk Rating
Pass	$	345,581	$	324,841	$	167,194	$	13,731	$	26,587	$	3,915	$	—	$	129,465	$	1,011,314
Special mention	—		603		8,926		—		—		—		—		—		9,529
Substandard or Lower	2,000		4,402		—		190		—		—		—		768		7,360
	$	347,581	$	329,846	$	176,120	$	13,921	$	26,587	$	3,915	$	—	$	130,233	$	1,028,203
Residential(3):
Risk Rating
Performing	$	43,179	$	116,041	$	61,107	$	36,561	$	45,222	$	450,032	$	—	$	—	$	752,142
Nonperforming(4)	—		565		503		1,000		124		4,259		—		—		6,451
	$	43,179	$	116,606	$	61,610	$	37,561	$	45,346	$	454,291	$	—	$	—	$	758,593
Consumer(5):
Risk Rating
Performing	$	416,706	$	206,914	$	133,026	$	57,333	$	233,399	$	77,423	$	544,810	$	5,241	$	1,674,852
Nonperforming(6)	—		—		238		—		539		—		1,238		261		2,276
	$	416,706	$	206,914	$	133,264	$	57,333	$	233,938	$	77,423	$	546,048	$	5,502	$	1,677,128

(1)Includes commercial small business leases.

(2)Includes $4.2 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 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 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, 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)	$	556,896	$	420,698	$	329,354	$	273,345	$	139,800	$	148,809	$	5,551	$	176,006	$	2,050,459
Special mention	35,910		949		3,052		1,057		429		15,299		—		17,545		74,241
Substandard or Lower	12,533		14,408		53,655		29,046		19,114		6,921		29		9,913		145,619
	$	605,339	$	436,055	$	386,061	$	303,448	$	159,343	$	171,029	$	5,580	$	203,464	$	2,270,319
Owner-occupied commercial:
Risk Rating
Pass	$	305,156	$	189,128	$	172,503	$	67,526	$	136,697	$	262,629	$	—	$	128,188	$	1,261,827
Special mention	938		5,359		2,561		891		—		7,019		—		10,543		27,311
Substandard or Lower	3,192		13,736		4,138		9,418		5,580		11,039		—		5,466		52,569
	$	309,286	$	208,223	$	179,202	$	77,835	$	142,277	$	280,687	$	—	$	144,197	$	1,341,707
Commercial mortgages:
Risk Rating
Pass	$	416,149	$	280,889	$	217,311	$	134,477	$	229,863	$	368,527	$	—	$	187,396	$	1,834,612
Special mention	—		4,185		—		861		11,588		1,385		—		2,097		20,116
Substandard or Lower	2,438		1,624		3,789		2,114		2,254		14,085		—		478		26,782
	$	418,587	$	286,698	$	221,100	$	137,452	$	243,705	$	383,997	$	—	$	189,971	$	1,881,510
Construction:
Risk Rating
Pass	$	248,053	$	195,269	$	84,868	$	39,585	$	2,223	$	11,297	$	—	$	88,839	$	670,134

Substandard or Lower	12,922		—		2,422		—		90		—		—		1,645		17,079
	$	260,975	$	195,269	$	87,290	$	39,585	$	2,313	$	11,297	$	—	$	90,484	$	687,213
Residential(3):
Risk Rating
Performing	$	59,977	$	28,426	$	12,526	$	32,871	$	44,969	$	358,964	$	—	$	—	$	537,733
Nonperforming(4)	—		112		1,044		—		63		3,781		—		—		5,000
	$	59,977	$	28,538	$	13,570	$	32,871	$	45,032	$	362,745	$	—	$	—	$	542,733
Consumer(5):
Risk Rating
Performing	$	219,918	$	169,922	$	74,048	$	203,519	$	39,113	$	60,952	$	382,718	$	5,364	$	1,155,554
Nonperforming(6)	—		147		—		600		71		—		1,655		546		3,019
	$	219,918	$	170,069	$	74,048	$	204,119	$	39,184	$	60,952	$	384,373	$	5,910	$	1,158,573

(1)Includes commercial small business leases.

(2)Includes $31.5 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 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 accruing interest.

Troubled Debt Restructurings (TDRs)

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



(Dollars in thousands)	September 30, 2022		December 31, 2021
Performing TDRs	$	17,108	$	14,204
Nonperforming TDRs	1,079		756
Total TDRs	$	18,187	$	14,960

Approximately $0.3 million and $0.2 million in related reserves have been established for these loans at September 30, 2022 and December 31, 2021, respectively.

The following tables present information regarding the types of loan modifications made for the three and nine months ended September 30, 2022 and 2021:


	Three months ended September 30, 2022					Nine months ended September 30, 2022
	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	—	—	—	2	2	1	—	—	2	3

Commercial mortgages	—	—	—	—	—	—	1	—	—	1
Construction	—	—	—	—	—	—	1	—	—	1
Residential	—	—	—	—	—	1	—	1	—	2
Consumer	50	8	4	2	64	51	32	7	3	93
Total	50	8	4	4	66	53	34	8	5	100


	Three months ended September 30, 2021					Nine months ended September 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




Residential	—	—	—	—	—	—	—	2	—	2
Consumer	—	1	3	—	4	—	1	23	1	25
Total	—	1	3	—	4	—	1	25	1	27

(1)Other includes interest rate reduction, forbearance, and interest only payments.

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 nine months ended September 30, 2022 and 2021.


	Three Months Ended September 30, 2022				Nine Months Ended September 30, 2022

(Dollars in thousands)	Pre Modification		Post Modification		Pre Modification		Post Modification
Commercial	$	157	$	157	$	185	$	185

Commercial mortgages	2,390		2,390		2,390		2,390
Construction	2,000		2,000		2,000		2,000
Residential	—		—		138		138
Consumer	948		948		1,409		1,409
Total(1)(2)	$	5,495	$	5,495	$	6,122	$	6,122

(1)During the three and nine months ended September 30, 2022, the TDRs set forth in the table above resulted in a less than $0.1 million increase and a $0.3 million increase in the allowance for credit losses, respectively, and no additional charge-offs in either period. During the three and nine months ended September 30, 2022, 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 Coronavirus Aid, Relief, and Economic Security (CARES) Act.


	Three Months Ended September 30, 2021				Nine Months Ended September 30, 2021

(Dollars in thousands)	Pre Modification		Post Modification		Pre Modification		Post Modification




Residential	$	—	$	—	$	147	$	147
Consumer	216		216		1,022		1,022
Total(1)(2)	$	216	$	216	$	1,169	$	1,169

(1)During the three and nine months ended September 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 nine months ended September 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.