Allowance for Credit Losses

9 Months Ended

Sep. 30, 2023

Receivables [Abstract]

Allowance for Credit Losses

Allowance for Credit Losses

Allowance for Credit Losses Methodology

The ACL represents management's estimate of lifetime credit losses for assets within its scope, specifically loans and leases and unfunded commitments. To calculate the ACL, management uses models to estimate the PD and LGD for loans utilizing inputs that include forecasted future economic conditions and that are dependent upon specific macroeconomic variables relevant to each of the Bank's loan and lease portfolios. Moody's Analytics, a third party, provided the historical and forward-looking macroeconomic data utilized in the models used to calculate the ACL.

In calculating ACL, the Bank considered the financial and economic environment at the time of assessment and economic scenarios that differed in the levels of severity and sensitivity to the ACL results. At each measurement date, the Bank selects the scenario that reflects its view of future economic conditions and is determined to be the most probable outcome.

All forecasts are updated for each variable where applicable and incorporated as relevant into the ACL calculation. Actual credit loss results and the timing thereof will differ from the estimate of credit losses, either in a strong economy or a recession, as the portfolio will change through time due to growth, risk mitigation actions and other factors. In addition, the scenarios used will differ and change through time as economic conditions change. Economic scenarios might not capture deterioration or improvement in the economy timely enough for the Bank to be able to adequately address the impact to the ACL.

Select macroeconomic variables are projected over the forecast period, and they could have a material impact in determining the ACL. As the length of the forecast period increases, information about the future becomes less readily available and projections are inherently less certain.

The following is a discussion of the changes in the factors that influenced management's current estimate of expected credit losses. The changes in the ACL estimate for all portfolio segments, during the three months ended September 30, 2023, reflect portfolio mix changes and credit migration trends. Because of the uncertain economic environment, the Bank opted to use Moody's Analytics' August 2023 baseline economic forecast for estimating the ACL as of September 30, 2023.

In the baseline scenario selected, the probability that the economy will perform better than this baseline is equal to the probability that it will perform worse and included the following factors:

•U.S. real GDP average annualized growth of 2.0% in 2023, 1.3% in 2024, 2.3% in 2025, and 2.8% in 2026;

•U.S. unemployment rate average of 3.6% in 2023, 4.0% in 2024, 4.2% in 2025, and 4.2% in 2026; and

•The forecasted average federal funds rate is expected to be 5.0% in 2023, 5.1% in 2024, 4.2% in 2025 and 3.1% in 2026.

The Bank uses an additional scenario that differs in terms of severity, both favorable and unfavorable, to assess the sensitivity in the ACL results and to inform qualitative adjustments. The economic factors are consistent between scenarios. Bank selected the Moody's Analytics' August S2 scenario for this analysis. In the scenario selected, there is a 75% probability that the economy will perform better, broadly speaking, and a 25% probability that it will perform worse; and the scenario includes the following factors:

•The combination of supply-side shortages, rising political tensions, still-elevated inflation, still-elevated interest rates, and reduced credit availability causes the economy to fall into a mild recession in the fourth quarter of 2023. The decline lasts for three quarters and the peak-to-trough decline is 1.0%. The unemployment rate rises to a peak of 6.5% in the third quarter of 2024;

•The crisis caused by Russia’s invasion of Ukraine persists longer than expected. Supply-chain issues worsen, increasing shortages of affected goods, weakening manufacturing more than expected. The shortages keep inflation elevated, though slightly below the baseline because of the weaker economy;

•Because the Fed remains concerned about inflation, it keeps the fed funds rate elevated in the fourth quarter of 2023 despite the weakening economy;

•U.S. real GDP average annualized growth of 2.0% in 2023, 0.3% in 2024, 2.5% in 2025, and 3.2% in 2026;

•U.S. unemployment rate average of 3.8% in 2023, 6.1% in 2024, 4.9% in 2025, and 4.2% in 2026; and

•The forecasted average federal funds rate is expected to be 5.0% in 2023, 3.9% in 2024, 2.4% in 2025 and 2.5% in 2026.

The results using the comparison scenario as well as changes to the macroeconomic variables subsequent to selected August 2023 economic forecast scenarios for sensitivity analysis were reviewed by management and were considered when evaluating the qualitative factor adjustments.

The ACL is measured on a collective (pool) basis when similar characteristics exist. The Company has selected models at the portfolio level using a risk-based approach, with larger, more complex portfolios having more complex models. Except as noted below, the macroeconomic variables that are inputs to the models are reasonable and supportable over the life of the loans in that they reasonably project the key economic variables in the near term and then converge to a long run equilibrium trend. These models produce reasonable and supportable estimates of loss over the life of the loans as the projected credit losses will also converge to a steady state in line with the variables applied. The Company measures the ACL using the following methods:

Commercial Real Estate: Non-owner occupied commercial real estate, multifamily, and construction loans are analyzed using a model that uses four primary property variables: net operating income, property value, property type, and location. For PD estimation, the model simulates potential future paths of net operating income given commercial real estate market factors determined from macroeconomic and regional commercial real estate forecasts. Using the resulting expected debt service coverage ratios, together with predicted loan-to-values and other variables, the model estimates PD from the range of conditional possibilities. In addition, the model estimates maturity PD capturing refinance default risk to produce a total PD for the loan. The model estimates LGD, inclusive of principal loss and liquidation expenses, empirically using predicted loan-to-value as well as certain market and other factors. The LGD calculation also includes a separate maturity risk component. The primary economic drivers in the model are GDP growth, U.S. unemployment rate, and 10-Year Treasury yield. These economic drivers are translated into a forecast, provided by Moody's Analytics' REIS, of real estate metrics, such as rental rates, vacancies, and cap rates. The model produces PD and LGD on a quarter-by-quarter basis for the life of loan.

The owner-occupied commercial real-estate portfolio utilizes a top-down macroeconomic model using linear regression. This model produces portfolio level quarterly net charge-off rates for 10 years and carries forward the last quarter's expected loss percentage projection to remaining periods. The primary economic drivers for this model are CRE price index and a five-state average unemployment rate.

Commercial: Non-homogeneous commercial loans and leases and residential development loans are analyzed in a multi-step process. An initial PD is estimated using a model driven by an obligor's selected financial statement ratios, together with cycle-adjusting information based on the obligor's state and industry. An initial LGD is derived separately based on collateral type using collateral value and a haircut to reflect the loss in liquidation. Another model then applies an auto-regression technique to the initial PD and LGD metrics to estimate the PD and LGD curves according to the macroeconomic scenario over a one-year reasonable and supportable forecast. The primary economic drivers in the model are the S&P 500 Stock Price Index, S&P 500 Market Volatility Index, U.S. unemployment rate, as well as appropriate yield curves and credit spreads. This model utilizes output reversion methodology, which, after one year, reverts on a straight-line basis over two years to long-term PD estimated using financial statement ratios of each obligor.

The model for the homogeneous lease and equipment finance agreement portfolio uses lease and equipment finance agreement information, such as origination and performance, as well as macroeconomic variables to calculate PD and LGD values. The PD calculation is based on survival analysis while LGD is calculated using a two-step regression. The model calculates LGD using an estimate of the probability that a defaulted lease or equipment finance agreement will have a loss, and an estimate of the loss amount. The primary economic drivers for the model are GDP, U.S. unemployment rate, and a home price growth index. The model produces PD and LGD curves at the lease or equipment finance agreement level for each month in the forecast horizon.

Residential: The models for residential real estate and HELOCs utilize loan level variables, such as origination and performance, as well as macroeconomic variables to calculate PD and LGD. The U.S. unemployment rate and home price growth rate indexes are primary economic drivers in both the residential real estate and HELOC models. In addition, the prime rate is also a primary driver in the HELOC model. The models focus on establishing an empirical relationship between default probabilities and a set of loan-level, borrower, and macroeconomic credit risk drivers. The LGD calculation for residential real estate is based on an estimate of the probability that a defaulted loan will have a loss, and then an estimate of the loss amount. HELOCs utilize the same model using residential real estate LGD values to assign loans to cohorts based on FICO scores and loan age. The model produces PD and LGD curves at the loan level for each quarter in the forecast horizon.

Consumer: Historical net charge-off information as well as economic forecast assumptions are used to project loss rates for the Consumer segment.

All loans and leases that have not been modeled receive a loss rate via an extrapolated rate methodology. The loans and leases receiving an extrapolated rate include certain loans acquired through the Merger, newly originated loans and leases, and loans and leases without the granularity of data necessary to be modeled. Based on the vintage year, credit classification, and reporting category of the modeled loans and leases, a loss factor is calculated and applied to the non-modeled loans and leases. The results are evaluated qualitatively to ensure reasonability and compliance with CECL.

Along with the quantitative factors produced by the above models, management also considers prepayment speeds and qualitative factors when determining the ACL. The Company uses a prepayment model that forecasts the constant prepayment rates based on institution specific data for the commercial real estate, commercial and industrial, and consumer portfolios and a forward curve approach that changes with macro-economic input variables for the residential and leases portfolios. Below are the nine qualitative factors considered where applicable:

•Changes in lending policies and procedures, including changes in underwriting standards and collection, charge-off, and recovery practices not considered elsewhere in estimating credit losses.

•Changes in national, regional, and local economic and business conditions and developments that affect the collectability of the portfolio, including the condition of various market segments.

•Changes in the nature and volume of the portfolio and in the terms of loans and leases.

•Changes in the experience, ability, and depth of lending management and other relevant staff.

•Changes in the volume and severity of past due loans and leases, the volume of non-accrual loans and leases, and the volume and severity of adversely classified or graded loans and leases.

•Changes in the quality of the Bank's credit review system.

•Changes in the value of the underlying collateral for collateral-dependent loans and leases.

•The existence and effect of any concentrations of credit, and changes in the level of such concentrations.

•The effect of other external factors such as competition and legal and regulatory requirements on the level of estimated credit losses in the Bank's existing portfolio.

The Company evaluated each qualitative factor as of September 30, 2023 and concluded that a material adjustment to the amounts indicated by the models was not necessary as the models adequately reflected the significant changes in credit conditions and overall portfolio risk.

Loss factors from the models, prepayment speeds, and qualitative factors are input into the Company's CECL accounting application which aggregates the information. The Company then uses two methods to calculate the current expected credit loss: 1) the DCF method, which is used for all loans except lines of credit and 2) the non-DCF method which is used for lines of credit due to difficulty of calculating an effective interest rate when lines have yet to be drawn on. The DCF method utilizes the effective interest rate of individual assets to discount the expected credit losses adjusted for prepayments. The difference in the net present value and the amortized cost of the asset will result in the required allowance. The non-DCF method uses the exposure at default, along with the expected credit losses adjusted for prepayments to calculate the required allowance.

The following tables summarize activity related to the allowance for credit losses by portfolio segment for the periods indicated:

	Three Months Ended September 30, 2023
(in thousands)	Commercial Real Estate		Commercial		Residential		Consumer & Other		Total
Allowance for credit losses on loans and leases
Balance, beginning of period	$	118,954	$	211,651	$	65,941	$	8,057	$	404,603
Provision for credit losses for loans and leases	2,734		35,952		(4,619)		1,015		35,082
Charge-offs	—		(26,629)		(206)		(1,884)		(28,719)
Recoveries	31		4,901		156		506		5,594
Net recoveries (charge-offs)	31		(21,728)		(50)		(1,378)		(23,125)
Balance, end of period	$	121,719	$	225,875	$	61,272	$	7,694	$	416,560
Reserve for unfunded commitments
Balance, beginning of period	$	10,000	$	5,821	$	3,018	$	988	$	19,827
(Recapture) provision for credit losses on unfunded commitments	(11)		1,579		67		20		1,655
Balance, end of period	9,989		7,400		3,085		1,008		21,482
Total allowance for credit losses	$	131,708	$	233,275	$	64,357	$	8,702	$	438,042
	Nine Months Ended September 30, 2023
(in thousands)	Commercial Real Estate		Commercial		Residential		Consumer & Other		Total
Allowance for credit losses on loans and leases
Balance, beginning of period	$	77,813	$	167,135	$	50,329	$	5,858	$	301,135
Initial ACL on PCD loans acquired during the period	8,736		17,204		454		98		26,492
Provision for credit losses for loans and leases (1)	35,046		106,979		10,605		4,166		156,796
Charge-offs	(174)		(77,913)		(458)		(3,921)		(82,466)
Recoveries	298		12,470		342		1,493		14,603
Net recoveries (charge-offs)	124		(65,443)		(116)		(2,428)		(67,863)
Balance, end of period	$	121,719	$	225,875	$	61,272	$	7,694	$	416,560
Reserve for unfunded commitments
Balance, beginning of period	$	7,207	$	3,049	$	3,196	$	769	$	14,221
Initial ACL recorded for unfunded commitments acquired during the period	2,257		3,066		268		176		5,767
Provision (recapture) for credit losses on unfunded commitments	525		1,285		(379)		63		1,494
Balance, end of period	9,989		7,400		3,085		1,008		21,482
Total allowance for credit losses	$	131,708	$	233,275	$	64,357	$	8,702	$	438,042

(1) Includes $88.4 million initial provision related to non-PCD loans acquired during the first quarter of 2023.

	Three Months Ended September 30, 2022
(in thousands)	Commercial Real Estate		Commercial		Residential		Consumer & Other		Total
Allowance for credit losses on loans and leases
Balance, beginning of period	$	88,983	$	131,455	$	36,586	$	4,087	$	261,111
(Recapture) provision for credit losses for loans and leases	(3,563)		26,762		4,307		1,036		28,542
Charge-offs	—		(9,459)		(4)		(929)		(10,392)
Recoveries	123		2,842		249		590		3,804
Net recoveries (charge-offs)	123		(6,617)		245		(339)		(6,588)
Balance, end of period	$	85,543	$	151,600	$	41,138	$	4,784	$	283,065
Reserve for unfunded commitments
Balance, beginning of period	$	7,351	$	2,232	$	2,735	$	505	$	12,823
(Recapture) provision for credit losses on unfunded commitments	(1,994)		579		304		141		(970)
Balance, end of period	5,357		2,811		3,039		646		11,853
Total allowance for credit losses	$	90,900	$	154,411	$	44,177	$	5,430	$	294,918
	Nine Months Ended September 30, 2022
(in thousands)	Commercial Real Estate		Commercial		Residential		Consumer & Other		Total
Allowance for credit losses on loans and leases
Balance, beginning of period	$	99,075	$	117,573	$	29,068	$	2,696	$	248,412
(Recapture) provision for credit losses for loans and leases	(13,745)		52,058		11,603		3,109		53,025
Charge-offs	(8)		(26,352)		(171)		(2,650)		(29,181)
Recoveries	221		8,321		638		1,629		10,809
Net recoveries (charge-offs)	213		(18,031)		467		(1,021)		(18,372)
Balance, end of period	$	85,543	$	151,600	$	41,138	$	4,784	$	283,065
Reserve for unfunded commitments
Balance, beginning of period	$	8,461	$	2,028	$	1,957	$	321	$	12,767
(Recapture) provision for credit losses on unfunded commitments	(3,104)		783		1,082		325		(914)
Balance, end of period	5,357		2,811		3,039		646		11,853
Total allowance for credit losses	$	90,900	$	154,411	$	44,177	$	5,430	$	294,918

Asset Quality and Non-Performing Loans and Leases

The Bank manages asset quality and controls credit risk through diversification of the loan and lease portfolio and the application of policies designed to promote sound underwriting and loan and lease monitoring practices. The Bank's Credit Quality Administration department is charged with monitoring asset quality, establishing credit policies and procedures, and enforcing the consistent application of these policies and procedures across the Bank. Reviews of non-performing, past due loans and leases and larger credits, designed to identify potential charges to the allowance for credit losses, and to determine the adequacy of the allowance, are conducted on an ongoing basis. These reviews consider such factors as the financial strength of borrowers, the value of the applicable collateral, loan and lease loss experience, estimated loan and lease losses, growth in the loan and lease portfolio, prevailing economic conditions, and other factors.

Loans and Leases Past Due and Non-Accrual Loans and Leases

Typically, loans in a non-accrual status will not have an allowance for credit loss as they will be written down to their net realizable value or charged-off. However, the net realizable value for homogeneous leases and equipment finance agreements is determined by the LGD calculated by the CECL model and therefore leases and equipment finance agreements on non-accrual will have an allowance for credit losses until they become 181 days past due, at which time they are charged-off. The Company recognized no interest income on non-accrual loans and leases during the three and nine months ended September 30, 2023 and 2022.

The following tables present the carrying value of the loans and leases past due, by loan and lease class, as of the dates presented:

	September 30, 2023
(in thousands)	Greater than 30 to 59 Days Past Due		60 to 89 Days Past Due		90 Days or More and Accruing		Total Past Due		Non-Accrual (1)		Current and Other		Total Loans and Leases
Commercial real estate
Non-owner occupied term, net	$	1,617	$	503	$	70	$	2,190	$	5,308	$	6,483,140	$	6,490,638
Owner occupied term, net	2,546		3,476		1		6,023		20,745		5,208,459		5,235,227
Multifamily, net	—		—		—		—		—		5,684,495		5,684,495
Construction & development, net	—		—		—		—		—		1,669,918		1,669,918
Residential development, net	—		—		—		—		—		354,922		354,922
Commercial
Term, net	2,863		2,802		101		5,766		12,283		5,419,866		5,437,915
Lines of credit & other, net	8,533		288		477		9,298		4,106		2,340,144		2,353,548
Leases & equipment finance, net	18,159		19,180		8,028		45,367		27,952		1,655,672		1,728,991
Residential
Mortgage, net (2)	537		14,029		22,491		37,057		—		6,084,781		6,121,838
Home equity loans & lines, net	4,757		2,398		3,388		10,543		—		1,889,405		1,899,948
Consumer & other, net	935		295		240		1,470		—		191,688		193,158
Total, net of deferred fees and costs	$	39,947	$	42,971	$	34,796	$	117,714	$	70,394	$	36,982,490	$	37,170,598

(1) Loans and leases on non-accrual with an amortized cost basis of $70.4 million had a related allowance for credit losses of $25.9 million at September 30, 2023.

(2) Includes government guaranteed mortgage loans that the Bank has the right but not the obligation to repurchase that are past due 90 days or more, totaling $700,000 at September 30, 2023.

	December 31, 2022
(in thousands)	Greater than 30 to 59 Days Past Due		60 to 89 Days Past Due		90 Days or More and Accruing		Total Past Due		Non-Accrual (1)		Current and Other		Total Loans and Leases
Commercial real estate
Non-owner occupied term, net	$	811	$	538	$	—	$	1,349	$	2,963	$	3,890,528	$	3,894,840
Owner occupied term, net	168		50		1		219		2,048		2,565,494		2,567,761
Multifamily, net	—		—		—		—		—		5,285,791		5,285,791
Construction & development, net	—		—		—		—		—		1,077,346		1,077,346
Residential development, net	—		—		—		—		—		200,838		200,838
Commercial
Term, net	1,241		1,489		19		2,749		5,303		3,021,495		3,029,547
Lines of credit & other, net	514		419		4		937		—		959,117		960,054
Leases & equipment finance, net	19,929		23,288		7,886		51,103		20,388		1,634,681		1,706,172
Residential
Mortgage, net (2)	847		10,619		24,943		36,409		—		5,610,626		5,647,035
Home equity loans & lines, net	2,808		1,526		1,569		5,903		—		1,626,062		1,631,965
Consumer & other, net	446		200		134		780		—		153,852		154,632
Total, net of deferred fees and costs	$	26,764	$	38,129	$	34,556	$	99,449	$	30,702	$	26,025,830	$	26,155,981

(1) Loans and leases on non-accrual with an amortized cost basis of $30.7 million had a related allowance for credit losses of $17.5 million at December 31, 2022.

(2) Includes government guaranteed mortgage loans the Bank has the right but not the obligation to repurchase that are past due 90 days or more, totaling $6.6 million at December 31, 2022.

Collateral-Dependent Loans and Leases

Loans are classified as collateral dependent when it is probable that the Bank will be unable to collect the scheduled payments of principal and interest when due, and repayment is expected to be provided substantially through the operation or sale of the collateral. There have been no significant changes in the level of collateralization from the prior periods. The following table summarizes the amortized cost basis of the collateral-dependent loans and leases by the type of collateral securing the assets as of September 30, 2023:

(in thousands)	Residential Real Estate		Commercial Real Estate		General Business Assets		Other		Total
Commercial real estate
Non-owner occupied term, net	$	—	$	5,154	$	—	$	—	$	5,154
Owner occupied term, net	—		18,654		—		—		18,654
Commercial
Term, net	2,835		567		5,158		1,007		9,567
Line of credit & other, net	—		1,841		1,272		—		3,113
Leases & equipment finance, net	—		—		27,952		—		27,952
Residential
Mortgage, net	48,779		—		—		—		48,779
Home equity loans & lines, net	2,912		—		—		—		2,912
Total, net of deferred fees and costs	$	54,526	$	26,216	$	34,382	$	1,007	$	116,131

Loan and Lease Modifications Made to Borrowers Experiencing Financial Difficulty

In January 2023, the Company adopted ASU 2022-02, which eliminated the accounting guidance for troubled debt restructurings while enhancing disclosure requirements for certain loan refinancing and restructurings by creditors when a borrower is experiencing financial difficulty. This guidance was applied on a prospective basis. Upon adoption of this guidance, the Company no longer establishes a reserve for modifications to borrowers experiencing financial difficulty. Instead, these modifications are included in their respective cohort and a historical loss rate is applied to the current loan balance to arrive at the quantitative baseline portion of the allowance.

Modifications to borrowers in financial difficulty may include term extensions, interest rate reductions, principal or interest forgiveness, or an other-than-insignificant payment delay. In some cases, the Company provides multiple types of concessions on one loan. Typically, one type of concession, such as a term extension, is granted initially. If the borrower continues to experience financial difficulty, another concession, such as principal forgiveness, may be granted. For the loans included in the "combination" columns below, multiple types of modifications have been made on the same loan within the current reporting period. The combination is at least two of the following: term extension, principal forgiveness, an other-than-insignificant payment delay, or an interest rate reduction.

The following table presents the amortized cost basis of loans at September 30, 2023 that were both experiencing financial difficulty and modified during the three and nine months ended September 30, 2023, by class and type of modification. The percentage of the amortized cost basis of loans that were modified to borrowers in financial distress as compared to the amortized cost basis of each class of financing receivable is also presented below.

	Three Months Ended September 30, 2023
(in thousands)	Interest Rate Reduction		Term Extension		Other -Than-Insignificant Payment Delay		Combination - Term Extension and Other-than-Insignificant Payment Delay		% of total class of financing receivable
Commercial
Lines of credit & other, net	$	—	$	2,649	$	—	$	—	0.11	%
Leases & equipment finance, net	—		974		—		—		0.06	%
Residential
Mortgage, net	—		—		13,228		2,823		0.26	%
Total loans and leases experiencing financial difficulty	$	—	$	3,623	$	13,228	$	2,823	0.05	%

	Nine Months Ended September 30, 2023
(in thousands)	Interest Rate Reduction		Term Extension		Other -Than-Insignificant Payment Delay		Combination - Term Extension and Other-than-Insignificant Payment Delay		% of total class of financing receivable
Commercial real estate
Owner occupied term, net	$	666	$	—	$	—	$	—	0.01	%
Commercial
Term, net	377		483		—		—		0.02	%
Lines of credit & other, net	—		4,333		—		—		0.18	%
Leases & equipment finance, net	—		1,515		—		—		0.09	%
Residential
Mortgage, net	—		451		35,031		5,703		0.67	%
Total loans and leases experiencing financial difficulty	$	1,043	$	6,782	$	35,031	$	5,703	0.13	%

		Three Months Ended September 30, 2023
Type of Modification	Loan Type	Financial Effect
Term extension	Lines of credit & other, net	Added a weighted average 3 months to the life of the loans, which reduced monthly payments for the borrowers
Term extension	Leases & equipment finance, net	Added a weighted average of 9 months to the life of the loans and leases, which reduced monthly payments for the borrowers
Other-than-insignificant payment delay	Mortgage, net	Deferred $892,000 of principal and interest payments
Combination - Term Extension and Other-than-Insignificant Payment Delay	Mortgage, net	Added a weighted average 13.0 years and deferred $287,000 of principal and interest payments

		Nine Months Ended September 30, 2023
Type of Modification	Loan Type	Financial Effect
Term extension	Term, net	Added a weighted average of 7 months to the life of the loans, which reduced monthly payments for the borrowers
Term extension	Lines of credit & other, net	Added a weighted average of 8 months to the life of the loans, which reduced monthly payments for the borrowers
Term extension	Leases & equipment finance, net	Added a weighted average of 9 months to the life of the loans and leases, which reduced monthly payments for the borrowers
Term extension	Mortgage, net	Added a weighted average 6.4 years to the life of the loans, which reduced monthly payments for the borrowers
Interest Rate Reduction	Owner occupied term, net	Reduced weighted average interest rate by 4.00%
Interest Rate Reduction	Term, net	Reduced weighted average interest rate by 4.15%
Other-than-insignificant payment delay	Mortgage, net	Deferred $2.6 million of principal and interest payments
Combination - Term Extension and Other-than-Insignificant Payment Delay	Mortgage, net	Added a weighted average 13.2 years and deferred $443,000 of principal and interest payments

The Company closely monitors the performance of loans that are modified for borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. The following tables presents the performance of such loans that have been modified for the three and nine months ended September 30, 2023:

Three Months Ended September 30, 2023
Loan Type	Current		Greater than 30 to 59 Days Past Due		60 to 89 Days Past Due		90 Days or Greater Past Due		Nonaccrual
(in thousands)
Commercial
Term, net	$	—	$	—	$	—	$	—	$	—
Lines of credit & other, net	2,030		—		—		—		619
Leases & equipment finance, net	950		—		24		—		—
Residential
Mortgage, net	15,690		—		86		275		—
Total loans and leases, net of deferred fees and costs	$	18,670	$	—	$	110	$	275	$	619

Nine Months Ended September 30, 2023
Loan Type	Current		Greater than 30 to 59 Days Past Due		60 to 89 Days Past Due		90 Days or Greater Past Due		Nonaccrual
(in thousands)
Commercial real estate
Owner occupied term, net	$	—	$	—	$	—	$	—	$	666
Commercial
Term, net	94		—		389		—		377
Lines of credit & other, net	3,426		—		—		288		619
Leases & equipment finance, net	1,153		117		72		53		120
Residential
Mortgage, net	39,102		—		285		1,798		—
Total loans and leases, net of deferred fees and costs	$	43,775	$	117	$	746	$	2,139	$	1,782

Credit Quality Indicators

Management regularly reviews loans and leases in the portfolio to assess credit quality indicators and to determine appropriate loan classification and grading. In addition, the Company's board of directors reviews and approves the credit quality indicators each year. The Bank differentiates its lending portfolios into homogeneous and non-homogeneous loans and leases. Homogeneous loans and leases are initially risk rated on a single risk rating scale based on the past due status of the loan or lease. Homogeneous loans and leases that have risk-based modifications or forbearances enter into an alternative elevated risk rating scale that freezes the elevated risk rating and requires six consecutive months of scheduled payments without delinquency before the loan or lease can return to the delinquency-based risk rating scale. Homogeneous loans and leases with other defined risk factors such as confirmed bankruptcy, business closure, death of a guarantor or fraud will be set to a floor substandard rating.

The Bank's risk rating methodology for its non-homogeneous loans and leases uses a dual risk rating approach to assess the credit risk. This approach uses two scales to provide a comprehensive assessment of credit default risk and recovery risk. The probability of default scale measures a borrower's credit default risk using risk ratings ranging from 1 to 16, where a higher rating represents higher risk. For non-homogeneous loans and leases, PD ratings of 1 through 9 are "pass" grades, while PD ratings of 10 and 11 are "watch" grades. PD ratings of 12-16 correspond to the regulatory-defined categories of special mention (12), substandard (13-14), doubtful (15), and loss (16). The loss given default scale measures the amount of loss that may not be recovered in the event of a default, using six alphabetic ratings from A-F, where a higher rating represents higher risk. The LGD scale quantifies recovery risk associated with an event of default and predicts the amount of loss that would be incurred on a loan or lease if a borrower were to experience a major default and includes variables that may be external to the borrower, such as industry, geographic location, and credit cycle stage. It could also include variables specific to the loan or lease, including collateral valuation, covenant structure and debt type. The product of the borrower's PD and a loan or lease LGD is the loan or lease expected loss, expressed as a percentage. This provides a common language of credit risk across different loans.

The PD scale estimates the likelihood that a borrower will experience a major default on any of its debt obligations within a specified time period. Examples of major defaults include payments 90 days or more past due, non-accrual classification, bankruptcy filing, or a full or partial charge-off of a loan or lease. As such, the PD scale represents the credit quality indicator for non-homogeneous loans and leases.

The credit quality indicator rating categories follow regulatory classification and can be generally described by the following groupings for loans and leases:

Pass/Watch—A pass loan or lease is a loan or lease with a credit risk level acceptable to the Bank for extending credit and maintaining normal credit monitoring. A watch loan or lease is considered pass rated but has a heightened level of unacceptable default risk due to an emerging risk element or declining performance trend. Watch ratings are expected to be temporary, with issues resolved or manifested to the extent that a higher or lower risk rating would be appropriate within a short period of time.

Special Mention—A special mention loan or lease has 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 institution's credit position at some future date. These borrowers have an elevated probability of default but not to the point of a substandard classification.

Substandard—A substandard loan or lease is inadequately protected by the current net worth and paying capacity of the borrower or of the collateral pledged, if any. Loans and leases classified as substandard have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

Doubtful—Loans or leases classified as doubtful have all the weaknesses inherent in those classified as substandard with the added characteristic that the weaknesses make collection or liquidation in full, based on currently existing facts, conditions, and values, highly questionable and improbable.

Loss—Loans or leases classified as loss are considered uncollectible and of such little value that their continuance as bankable assets is not warranted.

The following tables represent the amortized costs basis of the loans and leases by credit classification and vintage year by loan and lease class of financing receivable as of the dates presented:

(in thousands)		Term Loans Amortized Cost Basis by Origination Year												Revolving Loans Amortized Cost Basis		Revolving to Non-Revolving Loans Amortized Cost (1)
	September 30, 2023	2023		2022		2021		2020		2019		Prior						Total
Commercial real estate:
Non-owner occupied term, net
Credit quality indicator:
	Pass/Watch	$	495,764	$	1,303,985	$	1,189,840	$	619,947	$	768,012	$	1,927,643	$	42,593	$	—	$	6,347,784
	Special mention	—		299		1,330		1,342		—		10,961		—		—		13,932
	Substandard	30,518		452		—		1,468		35,367		61,011		—		—		128,816
	Doubtful	—		—		—		—		—		92		—		—		92
	Loss	—		—		—		—		—		14		—		—		14
Total non-owner occupied term, net		$	526,282	$	1,304,736	$	1,191,170	$	622,757	$	803,379	$	1,999,721	$	42,593	$	—	$	6,490,638
Current YTD period:
	Gross charge-offs	—		—		—		—		—		—		—		—		—
Owner occupied term, net
Credit quality indicator:
	Pass/Watch	$	420,271	$	1,134,084	$	992,861	$	460,738	$	592,256	$	1,399,829	$	66,864	$	—	$	5,066,903
	Special mention	332		6,120		6,067		3,451		17,108		12,199		—		—		45,277
	Substandard	3,962		4,590		50,274		17,490		13,735		31,084		—		—		121,135
	Doubtful	—		233		—		—		—		187		—		—		420
	Loss	—		—		—		—		1,492		—		—		—		1,492
Total owner occupied term, net		$	424,565	$	1,145,027	$	1,049,202	$	481,679	$	624,591	$	1,443,299	$	66,864	$	—	$	5,235,227
Current YTD period:
	Gross charge-offs	—		—		—		—		—		174		—		—		174
Multifamily, net
Credit quality indicator:
	Pass/Watch	$	182,118	$	2,031,627	$	1,591,670	$	411,423	$	601,534	$	756,623	$	105,197	$	—	$	5,680,192
	Special mention	—		—		1,285		—		—		2,071		—		—		3,356
	Substandard	—		—		—		—		—		947		—		—		947
Total multifamily, net		$	182,118	$	2,031,627	$	1,592,955	$	411,423	$	601,534	$	759,641	$	105,197	$	—	$	5,684,495
Current YTD period:
	Gross charge-offs	—		—		—		—		—		—		—		—		—
Construction & development, net
Credit quality indicator:
	Pass/Watch	$	129,367	$	597,238	$	705,409	$	177,098	$	29,736	$	5,515	$	25,555	$	—	$	1,669,918
Total construction & development, net		$	129,367	$	597,238	$	705,409	$	177,098	$	29,736	$	5,515	$	25,555	$	—	$	1,669,918
Current YTD period:
	Gross charge-offs	—		—		—		—		—		—		—		—		—
Residential development, net
Credit quality indicator:
	Pass/Watch	$	65,120	$	109,863	$	36,451	$	1,331	$	—	$	1,503	$	139,685	$	969	$	354,922
Total residential development, net		$	65,120	$	109,863	$	36,451	$	1,331	$	—	$	1,503	$	139,685	$	969	$	354,922
Current YTD period:
	Gross charge-offs	—		—		—		—		—		—		—		—		—
Total commercial real estate		$	1,327,452	$	5,188,491	$	4,575,187	$	1,694,288	$	2,059,240	$	4,209,679	$	379,894	$	969	$	19,435,200

(in thousands)		Term Loans Amortized Cost Basis by Origination Year												Revolving Loans Amortized Cost Basis		Revolving to Non-Revolving Loans Amortized Cost (1)
	September 30, 2023	2023		2022		2021		2020		2019		Prior						Total
Commercial:
Term, net
Credit quality indicator:
	Pass/Watch	$	609,556	$	1,260,756	$	945,804	$	424,845	$	289,972	$	631,147	$	994,636	$	50,855	$	5,207,571
	Special mention	14,339		21,873		74,393		401		4,418		10,648		—		—		126,072
	Substandard	1,385		5,568		12,349		3,872		9,607		10,202		51,408		4,259		98,650
	Doubtful	—		1,296		—		657		51		1,851		—		—		3,855
	Loss	—		406		—		—		—		1,361		—		—		1,767
Total term, net		$	625,280	$	1,289,899	$	1,032,546	$	429,775	$	304,048	$	655,209	$	1,046,044	$	55,114	$	5,437,915
Current YTD period:
	Gross charge-offs	—		935		—		313		328		525		41		808		2,950
Lines of credit & other, net
Credit quality indicator:
	Pass/Watch	$	77,838	$	114,137	$	56,859	$	12,888	$	11,196	$	16,604	$	1,910,485	$	6,356	$	2,206,363
	Special mention	2,634		1,979		429		336		—		5		40,884		119		46,386
	Substandard	1,419		144		—		—		—		838		64,476		32,493		99,370
	Doubtful	—		191		189		—		—		—		304		250		934
	Loss	—		—		200		—		1		1		293		—		495
Total lines of credit & other, net		$	81,891	$	116,451	$	57,677	$	13,224	$	11,197	$	17,448	$	2,016,442	$	39,218	$	2,353,548
Current YTD period:
	Gross charge-offs	—		168		—		—		144		4		916		1,245		2,477
Leases & equipment finance, net
Credit quality indicator:
	Pass/Watch	$	578,297	$	575,049	$	238,870	$	113,363	$	84,829	$	42,842	$	—	$	—	$	1,633,250
	Special mention	2,155		12,110		6,330		1,925		1,121		261		—		—		23,902
	Substandard	4,200		12,461		5,354		2,188		1,201		676		—		—		26,080
	Doubtful	3,040		23,705		10,143		3,404		1,844		333		—		—		42,469
	Loss	308		1,886		767		255		53		21		—		—		3,290
Total leases & equipment finance, net		$	588,000	$	625,211	$	261,464	$	121,135	$	89,048	$	44,133	$	—	$	—	$	1,728,991
Current YTD period:
	Gross charge-offs	338		31,818		24,912		7,196		5,402		2,820						72,486
Total commercial		$	1,295,171	$	2,031,561	$	1,351,687	$	564,134	$	404,293	$	716,790	$	3,062,486	$	94,332	$	9,520,454
Residential:
Mortgage, net
Credit quality indicator:
	Pass/Watch	$	136,274	$	1,814,701	$	2,389,093	$	533,164	$	450,775	$	761,474	$	—	$	—	$	6,085,481
	Special mention	285		5,210		1,394		321		1,846		5,509		—		—		14,565
	Substandard	1,798		2,125		2,335		787		1,868		6,422		—		—		15,335
	Loss	—		1,815		2,281		308		—		2,053		—		—		6,457
Total mortgage, net		$	138,357	$	1,823,851	$	2,395,103	$	534,580	$	454,489	$	775,458	$	—	$	—	$	6,121,838
Current YTD period:
	Gross charge-offs	—		—		—		—		—		6		—		—		6

(in thousands)		Term Loans Amortized Cost Basis by Origination Year												Revolving Loans Amortized Cost Basis		Revolving to Non-Revolving Loans Amortized Cost (1)
	September 30, 2023	2023		2022		2021		2020		2019		Prior						Total
Home equity loans & lines, net
Credit quality indicator:
	Pass/Watch	$	456	$	1,267	$	1,630	$	123	$	1,211	$	35,781	$	1,836,003	$	12,933	$	1,889,404
	Special mention	—		—		—		—		50		1,068		5,252		785		7,155
	Substandard	—		—		12		29		137		76		1,218		228		1,700
	Loss	—		—		—		—		21		111		1,376		181		1,689
Total home equity loans & lines, net		$	456	$	1,267	$	1,642	$	152	$	1,419	$	37,036	$	1,843,849	$	14,127	$	1,899,948
Current YTD period:
	Gross charge-offs	—		—		—		—		—		4		448		—		452
Total residential		$	138,813	$	1,825,118	$	2,396,745	$	534,732	$	455,908	$	812,494	$	1,843,849	$	14,127	$	8,021,786
Consumer & other, net:
Credit quality indicator:
	Pass/Watch	$	35,117	$	18,255	$	7,794	$	5,521	$	4,080	$	5,921	$	113,204	$	1,799	$	191,691
	Special mention	41		9		129		1		49		95		795		110		1,229
	Substandard	—		14		2		2		1		16		146		48		229
	Loss	—		—		—		—		—		7		2		—		9
Total consumer & other, net		$	35,158	$	18,278	$	7,925	$	5,524	$	4,130	$	6,039	$	114,147	$	1,957	$	193,158
Current YTD period:
	Gross charge-offs	2,292		114		20		18		21		240		897		319		3,921
Grand total		$	2,796,594	$	9,063,448	$	8,331,544	$	2,798,678	$	2,923,571	$	5,745,002	$	5,400,376	$	111,385	$	37,170,598

(1) Loans included in the Revolving to Non-Revolving Loans Amortized Cost Basis column include loans converted from Revolving to Non-Revolving in the current year/period presented. Loans converted from Revolving to Non-Revolving in prior years are presented in the corresponding vintage column based on origination date.

(in thousands)		Term Loans Amortized Cost Basis by Origination Year												Revolving Loans Amortized Cost Basis		Revolving to Non-Revolving Loans Amortized Cost
	December 31, 2022	2022		2021		2020		2019		2018		Prior						Total
Commercial real estate:
Non-owner occupied term, net
Credit quality indicator:
	Pass/Watch	$	726,865	$	746,833	$	389,476	$	590,571	$	404,905	$	968,254	$	4,327	$	4,442	$	3,835,673
	Special mention	1,185		—		1,482		4,597		4,002		4,603		—		—		15,869
	Substandard	452		—		—		311		34,393		8,129		—		—		43,285
	Loss	—		—		—		—		—		13		—		—		13
Total non-owner occupied term, net		$	728,502	$	746,833	$	390,958	$	595,479	$	443,300	$	980,999	$	4,327	$	4,442	$	3,894,840
Owner occupied term, net
Credit quality indicator:
	Pass/Watch	$	660,479	$	544,011	$	183,996	$	307,944	$	211,539	$	585,740	$	4,552	$	117	$	2,498,378
	Special mention	2,091		20,328		239		3,279		9,527		19,562		—		—		55,026
	Substandard	—		—		404		660		1,356		11,833		—		—		14,253
	Loss	—		—		—		—		—		104		—		—		104
Total owner occupied term, net		$	662,570	$	564,339	$	184,639	$	311,883	$	222,422	$	617,239	$	4,552	$	117	$	2,567,761
Multifamily, net
Credit quality indicator:
	Pass/Watch	$	1,944,714	$	1,556,986	$	364,306	$	618,523	$	219,260	$	496,628	$	82,467	$	2,907	$	5,285,791
Total multifamily, net		$	1,944,714	$	1,556,986	$	364,306	$	618,523	$	219,260	$	496,628	$	82,467	$	2,907	$	5,285,791
Construction & development, net
Credit quality indicator:
	Pass/Watch	$	248,437	$	505,680	$	205,577	$	83,808	$	—	$	18,183	$	2,393	$	—	$	1,064,078
	Special mention	—		13,268		—		—		—		—		—		—		13,268
Total construction & development, net		$	248,437	$	518,948	$	205,577	$	83,808	$	—	$	18,183	$	2,393	$	—	$	1,077,346
Residential development, net
Credit quality indicator:
	Pass/Watch	$	38,662	$	20,609	$	417	$	—	$	—	$	—	$	141,150	$	—	$	200,838
Total residential development, net		$	38,662	$	20,609	$	417	$	—	$	—	$	—	$	141,150	$	—	$	200,838
Total commercial real estate		$	3,622,885	$	3,407,715	$	1,145,897	$	1,609,693	$	884,982	$	2,113,049	$	234,889	$	7,466	$	13,026,576

(in thousands)		Term Loans Amortized Cost Basis by Origination Year												Revolving Loans Amortized Cost Basis		Revolving to Non-Revolving Loans Amortized Cost
	December 31, 2022	2022		2021		2020		2019		2018		Prior						Total
Commercial:
Term, net
Credit quality indicator:
	Pass/Watch	$	792,764	$	643,930	$	174,188	$	156,068	$	130,309	$	278,695	$	744,193	$	44,033	$	2,964,180
	Special mention	—		1,138		3		100		1,488		935		—		411		4,075
	Substandard	16,424		1,403		1,362		1,358		10,619		2,211		27,240		—		60,617
	Doubtful	—		—		675		—		—		—		—		—		675
Total term, net		$	809,188	$	646,471	$	176,228	$	157,526	$	142,416	$	281,841	$	771,433	$	44,444	$	3,029,547
Lines of credit & other, net
Credit quality indicator:
	Pass/Watch	$	57,715	$	6,271	$	4,660	$	13,304	$	8,653	$	1,257	$	813,110	$	36,573	$	941,543
	Special mention	—		—		—		—		—		—		5,833		1,933		7,766
	Substandard	—		314		—		—		—		1,102		6,031		3,294		10,741
	Doubtful	—		—		—		—		—		—		—		1		1
	Loss	—		—		—		—		—		—		3		—		3
Total lines of credit & other, net		$	57,715	$	6,585	$	4,660	$	13,304	$	8,653	$	2,359	$	824,977	$	41,801	$	960,054
Leases & equipment finance, net
Credit quality indicator:
	Pass/Watch	$	812,537	$	362,612	$	190,507	$	149,667	$	62,292	$	40,328	$	—	$	—	$	1,617,943
	Special mention	9,840		8,403		2,902		2,423		665		182		—		—		24,415
	Substandard	11,531		8,165		3,452		2,697		1,477		177		—		—		27,499
	Doubtful	11,822		13,034		4,326		3,419		1,211		197		—		—		34,009
	Loss	1,243		505		275		236		28		19		—		—		2,306
Total leases & equipment finance, net		$	846,973	$	392,719	$	201,462	$	158,442	$	65,673	$	40,903	$	—	$	—	$	1,706,172
Total commercial		$	1,713,876	$	1,045,775	$	382,350	$	329,272	$	216,742	$	325,103	$	1,596,410	$	86,245	$	5,695,773
Residential:
Mortgage, net
Credit quality indicator:
	Pass/Watch	$	1,465,067	$	2,389,861	$	485,576	$	471,416	$	143,611	$	661,715	$	—	$	—	$	5,617,246
	Special mention	307		1,351		1,203		2,365		752		5,487		—		—		11,465
	Substandard	—		1,664		1,041		2,693		2,015		9,907		—		—		17,320
	Loss	—		561		—		193		193		57		—		—		1,004
Total mortgage, net		$	1,465,374	$	2,393,437	$	487,820	$	476,667	$	146,571	$	677,166	$	—	$	—	$	5,647,035
Home equity loans & lines, net
Credit quality indicator:
	Pass/Watch	$	1,117	$	630	$	—	$	—	$	16	$	7,320	$	1,584,200	$	32,778	$	1,626,061
	Special mention	—		—		—		—		—		79		3,208		1,047		4,334
	Substandard	—		—		—		—		—		53		557		154		764
	Loss	—		—		—		—		—		—		357		449		806
Total home equity loans & lines, net		$	1,117	$	630	$	—	$	—	$	16	$	7,452	$	1,588,322	$	34,428	$	1,631,965
Total residential		$	1,466,491	$	2,394,067	$	487,820	$	476,667	$	146,587	$	684,618	$	1,588,322	$	34,428	$	7,279,000

(in thousands)		Term Loans Amortized Cost Basis by Origination Year												Revolving Loans Amortized Cost Basis		Revolving to Non-Revolving Loans Amortized Cost
	December 31, 2022	2022		2021		2020		2019		2018		Prior						Total
Consumer & other, net:
Credit quality indicator:
	Pass/Watch	$	22,959	$	7,990	$	6,701	$	6,232	$	2,626	$	4,436	$	102,465	$	442	$	153,851
	Special mention	6		—		27		14		42		66		371		122		648
	Substandard	—		9		1		9		—		32		47		25		123
	Loss	—		—		—		—		—		7		3		—		10
Total consumer & other, net		$	22,965	$	7,999	$	6,729	$	6,255	$	2,668	$	4,541	$	102,886	$	589	$	154,632
Grand total		$	6,826,217	$	6,855,556	$	2,022,796	$	2,421,887	$	1,250,979	$	3,127,311	$	3,522,507	$	128,728	$	26,155,981