| ALLOWANCE FOR CREDIT LOSSES | ALLOWANCE FOR CREDIT LOSSES The Company maintains an ACL at a level determined to be adequate to absorb expected credit losses associated with the Company’s financial instruments over the life of those instruments as of the balance sheet date. Refer to Note 1, Basis of Presentation for details of reclassification of our portfolio segments related to the adoption of ASU 2016-13 Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instrument. The Company develops and documents a systematic ACL methodology based on the following portfolio segments: 1) CRE, 2) C&I, 3) Residential Mortgages, 4) Other Consumer, 5) Construction and 6) Other. The Company’s loan portfolio is segmented by homogeneous loan types that behave similarly to economic cycles. The segmentation in the CECL model is different from the segmentation in the Incurred Loss model. The following is a discussion of the key risks by portfolio segment that management assesses in preparing the ACL. CRE loans are secured by commercial purpose real estate, including both owner occupied properties and investment properties, for various purposes such as hotels, strip malls and apartments. Operations of the individual projects as well as global cash flows of the debtors are the primary sources of repayment for these loans. The condition of the local economy is an important indicator of risk, but there are also more specific risks depending on the collateral type as well as the business. C&I loans are made to operating companies or manufacturers for the purpose of production, operating capacity, accounts receivable, inventory or equipment financing. Cash flow from the operations of the borrower is the primary source of repayment for these loans. The condition of the local economy is an important indicator of risk, but there are also more specific risks depending on the industry of the borrower. Collateral for these types of loans often do not have sufficient value in a distressed or liquidation scenario to satisfy the outstanding debt. These loans are also made to local and state municipalities for various purposes including refinancing existing obligations, infrastructure up-fit and expansion, or to purchase new equipment. These loans may be secured by general obligations from the municipal authority or revenues generated by infrastructure and equipment financed by the Company. The primary repayment source for these loans include the tax base of the municipality, specific revenue streams related to the infrastructure financed, and other business operations of the municipal authority. The health and stability of state and local economies directly impacts each municipality’s tax basis and are important indicators of risk for this segment. The ability of each municipality to increase taxes and fees to offset debt service requirements give this type of loan a very low risk profile in the continuum of the Company’s loan portfolio. Residential Mortgages are loans secured by first and second liens such as home equity loans, home equity lines of credit and 1-4 family residential mortgages, including purchase money mortgages. The primary source of repayment for these loans is the income of the borrower. The condition of the local economy, in particular the unemployment rate, is an important indicator of risk for this segment. The state of the local housing market can also have a significant impact on this segment because low demand and/or declining home values can limit the ability of borrowers to sell a property and satisfy the debt. Other Consumer loans are made to individuals and may be either secured by assets other than 1-4 family residences or unsecured. This segment includes auto loans and unsecured loans and lines. The primary source of repayment for these loans is the income and assets of the borrower. The condition of the local economy, in particular the unemployment rate, is an important indicator of risk for this segment. The value of the collateral, if there is any, is less likely to be a source of repayment due to less certain collateral values. Construction loans include both commercial and consumer. Commercial loans are made to finance construction of buildings or other structures, as well as to finance the acquisition and development of raw land for various purposes. While the risk of these loans is generally confined to the construction period, if there are problems, the project may not be completed, and as such, may not provide sufficient cash flow on its own to service the debt or have sufficient value in a liquidation to cover the outstanding principal. The condition of the local economy is an important indicator of risk, but there are also more specific risks depending on the type of project and the experience and resources of the developer. Consumer loans are made for the construction of residential homes for which a binding sales contract exists and generally are for a period of time sufficient to complete construction. Residential construction loans to individuals generally provide for the payment of interest only during the construction phase. Credit risk for residential real estate construction loans can arise from construction delays, cost overruns, failure of the contractor to complete the project to specifications and economic conditions that could impact demand for or supply of the property being constructed. Other loans include unique risk attributes considered inconsistent with our current underwriting standards. The ACL reserve for the Other segment is based on a discounted cash flow methodology and reserves will fluctuate based on expected cash flow changes in the future. These inconsistencies may include, but are not limited to i) transaction and/or relationship sizes that exceed limits established in 2018, ii) overreliance on secondary, tertiary or guarantor cash flow, iii) land acquisition loans without a defined source of amortization, and iv) loan structures on operating lines of credit dependent on the value of real estate rather than trading assets. Management continuously assesses underwriting standards, but significantly enhanced these standards in 2018. Our model is based on our best estimate of facts known with the most current information. Certain portions of the CECL model are inherently subjective and include, but are not limited to estimates with respect to: prepayment speeds, the timing of prepayments, potential losses given default, discount rates and the timing of future cash flows. Management utilizes widely published economic forecasts as the basis for the regression analysis used to estimate the probability of default in the baseline model. The peaks and troughs of these forecasts serve as guardrails for potential subjective adjustments. In addition to considering the outcomes based on the range of forecasts, management recognizes that the assumptions used in economic forecasts may not perfectly align with our market area, risk profile or unique attributes of our portfolio along with other important considerations. Severe changes in forecasts can also create significant variability and management must assess not only the absolute balance of reserves but also consider the appropriateness of the velocity of change. Therefore, management developed a framework to assess the tolerance and reasonableness of the CECL modeling process by challenging certain elements of the forecasts, when appropriate. These outcomes, known as “challenger models,” provide opportunities to examine and subjectively adjust the CECL model output and are designed to be counter cyclical, thereby reducing variability. Credit Quality Indicators: The Company’s portfolio grading analysis estimates the capability of the borrower to repay the contractual obligations of the loan agreements as scheduled or at all. The Company’s internal credit risk grading system is based on debt service coverage, collateral values and other subjective factors. Mortgage and consumer loans are defaulted to a pass grade until a loan migrates to past due status. The Company has a loan review policy and an annual scope report that details the level of loan review for commercial loans in a given year. Primary objectives of loan reviews include the identification of emerging risks and patterns that might influence potential future losses. In concert with significant enhancements to the underwriting process, the scope of loan review has been broadened since 2019 to include assurance testing with respect to the accuracy of the underwriting function. Since 2020 and continuing into 2021, the Company used a four step approach for loan review in the following categories: • A review of the largest twenty pass-rated loan relationships, which represents approximately a quarter of total loans; • A sampling of new loans originated to include an examination of the evidence of appropriate approval, adherence to loan policy and the completeness and accuracy of the analysis contained in the approval document; • A sampling of Large Loan Relationships (“LLRs”) which are defined as loan relationships with aggregate exposure of at least $2.0 million that are not part of the top twenty review; and • Concentration focus reviews of identified segments that represent concentration risk, represented by collateral types including but not limited to hospitality, multifamily and retail with the goal of examining patterns of loss history, document exceptions, policy exceptions and emerging trends in risk characteristics. The Company’s internally assigned grades are as follows: Pass – The Company uses six grades of pass. Generally, a pass rating indicates that the loan is currently performing and is of high quality. Special Mention – Assets with potential weaknesses that warrant management’s close attention and 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. Substandard – Assets that are inadequately protected by the current sound worth and paying capacity of the obligor or by the collateral pledged, if any. Assets so classified have a well-defined weakness, or weaknesses that jeopardize the liquidation of the debt. Such assets are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected. Doubtful – Assets with all the weaknesses inherent in one classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions, and values, highly questionable and improbable. Loss – Assets considered of such little value that its continuance on the books is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may be affected in the future. The following table presents loan balances by year of origination and internally assigned risk rating for our portfolio segments as of December 31: Risk Rating (Dollars in Thousands) 2021 2020 2019 2018 2017 2016 and Prior Revolving Total Commercial Real Estate Pass $ 195,441 $ 165,100 $ 215,575 $ 292,857 $ 115,024 $ 292,197 $ 38,382 $ 1,314,576 Special Mention 229 — — — 4,205 826 — 5,260 Substandard — — 314 2,742 215 145 — 3,416 Doubtful — — — — — — — — Total Commercial Real Estate $ 195,670 $ 165,100 $ 215,889 $ 295,599 $ 119,444 $ 293,168 $ 38,382 $ 1,323,252 Commercial and Industrial Pass $ 55,173 $ 50,087 $ 15,648 $ 38,298 $ 23,575 $ 150,656 $ 3,857 $ 337,294 Special Mention — — 8 — — — 8 Substandard 14 — 308 4,815 2,798 — 139 8,074 Doubtful — — — — — — — — Total Commercial and Industrial $ 55,187 $ 50,087 $ 15,956 $ 43,121 $ 26,373 $ 150,656 $ 3,996 $ 345,376 Residential Mortgages Pass $ 155,892 $ 91,023 $ 63,682 $ 73,333 $ 8,640 $ 48,087 $ 13,237 $ 453,894 Special Mention — — — — — 553 — 553 Substandard — — 1,008 743 188 1,602 — 3,541 Doubtful — — — — — — — — Total Residential Mortgages $ 155,892 $ 91,023 $ 64,690 $ 74,076 $ 8,828 $ 50,242 $ 13,237 $ 457,988 Other Consumer Pass $ 9,353 $ 10,199 $ 979 $ 450 $ 186 $ 23,048 $ 339 $ 44,554 Special Mention — — — — — — — — Substandard 11 3 11 57 30 — — 112 Doubtful — — — — — — — — Total Other Consumer $ 9,364 $ 10,202 $ 990 $ 507 $ 216 $ 23,048 $ 339 $ 44,666 Construction Pass $ 140,639 $ 82,523 $ 24,336 $ 9,739 $ 5,328 $ 3,407 $ 15,269 $ 281,241 Special Mention — — 175 — — 429 — 604 Substandard — 107 809 95 — 91 — 1,102 Doubtful — — — — — — — — Total Construction $ 140,639 $ 82,630 $ 25,320 $ 9,834 $ 5,328 $ 3,927 $ 15,269 $ 282,947 Other Pass $ — $ — $ — $ — $ 122,848 $ 62,399 $ — $ 185,247 Special Mention — — — — — 3,281 — 3,281 Substandard — — — 87,329 40,882 41,161 — 169,372 Doubtful — — — — — — — — Total Other Loans $ — $ — $ — $ 87,329 $ 163,730 $ 106,841 $ — $ 357,900 Total Portfolio Loans Pass $ 556,498 $ 398,932 $ 320,220 $ 414,677 $ 275,601 $ 579,794 $ 71,084 $ 2,616,806 Special Mention 229 — 175 8 4,205 5,089 — 9,706 Substandard 25 110 2,450 95,781 44,113 42,999 139 185,617 Doubtful — — — — — — — — Total Portfolio Loans $ 556,752 $ 399,042 $ 322,845 $ 510,466 $ 323,919 $ 627,882 $ 71,223 $ 2,812,129 The following table presents loan balances by year of origination and performing and nonperforming status for our portfolio segments as of December 31: (Dollars in Thousands) 2021 2020 2019 2018 2017 2016 and Prior Revolving Total Commercial Real Estate Performing $ 195,670 $ 165,100 $ 215,575 $ 292,857 $ 119,229 $ 293,102 $ 38,382 $ 1,319,915 Nonperforming — — 314 2,742 215 66 — 3,337 Total Commercial Real Estate $ 195,670 $ 165,100 $ 215,889 $ 295,599 $ 119,444 $ 293,168 $ 38,382 $ 1,323,252 Commercial and Industrial Performing $ 55,187 $ 50,087 $ 15,648 $ 43,117 $ 26,373 $ 150,656 $ 3,857 $ 344,925 Nonperforming — — 308 4 — — 139 451 Total Commercial and Industrial $ 55,187 $ 50,087 $ 15,956 $ 43,121 $ 26,373 $ 150,656 $ 3,996 $ 345,376 Residential Mortgages Performing $ 155,892 $ 91,023 $ 63,682 $ 73,564 $ 8,640 $ 49,399 $ 13,237 $ 455,437 Nonperforming — — 1,008 512 188 843 — 2,551 Total Residential Mortgages $ 155,892 $ 91,023 $ 64,690 $ 74,076 $ 8,828 $ 50,242 $ 13,237 $ 457,988 Other Consumer Performing $ 9,364 $ 10,202 $ 979 $ 450 $ 211 $ 23,048 $ 339 $ 44,593 Nonperforming — — 11 57 5 — — 73 Total Other Consumer $ 9,364 $ 10,202 $ 990 $ 507 $ 216 $ 23,048 $ 339 $ 44,666 Construction Performing $ 140,639 $ 82,523 $ 24,511 $ 9,834 $ 5,328 $ 3,858 $ 15,269 $ 281,962 Nonperforming — 107 809 — — 69 — 985 Total Construction $ 140,639 $ 82,630 $ 25,320 $ 9,834 $ 5,328 $ 3,927 $ 15,269 $ 282,947 Other Performing $ — $ — $ — $ 87,329 $ 163,730 $ 106,841 $ — $ 357,900 Nonperforming — — — — — — — Total Other Loans $ — $ — $ — $ 87,329 $ 163,730 $ 106,841 $ — $ 357,900 Total Portfolio Loans Performing $ 556,752 $ 398,935 $ 320,395 $ 507,151 $ 323,511 $ 626,904 $ 71,084 $ 2,804,732 Nonperforming — 107 2,450 3,315 408 978 139 7,397 Total Portfolio Loans $ 556,752 $ 399,042 $ 322,845 $ 510,466 $ 323,919 $ 627,882 $ 71,223 $ 2,812,129 Age Analysis of Past-Due Loans by Class The following tables include an aging analysis of the recorded investment of past-due portfolio loans as the periods presented: December 31, 2021 (Dollars in Thousands) Current Loans Loans 30-59 Loans 60-89 Total 30-89 Days Nonaccrual Loans Total Portfolio Loans Commercial Real Estate $ 1,319,686 $ 229 $ — $ 229 $ 3,337 $ 1,323,252 Commercial & Industrial 344,628 80 217 297 451 345,376 Residential Mortgages 454,754 683 — 683 2,551 457,988 Other Consumer 44,132 367 94 461 73 44,666 Construction 281,962 — — — 985 282,947 Other 357,900 — — — — 357,900 Total (1) $ 2,803,062 $ 1,359 $ 311 $ 1,670 $ 7,397 $ 2,812,129 (1) Refer to Note 1, Summary of Significant Accounting Policies for details of reclassification of our portfolio segments related to the adoption of ASU 2016-13 Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. December 31, 2020 (Dollars in Thousands) Current Loans Loans 30-59 Loans 60-89 Total 30-89 Days Nonaccrual Loans Total Portfolio Loans Commercial Real Estate $ 1,428,092 $ 3,487 $ 329 $ 3,816 $ 21,891 $ 1,453,799 Commercial & Industrial 556,324 194 190 384 456 557,164 Residential Mortgages 466,688 1,347 — 1,347 4,135 472,170 Other Consumer 56,890 278 295 573 184 57,647 Construction 400,775 193 91 284 5,331 406,390 Other — — — — — — Total $ 2,908,769 $ 5,499 $ 905 $ 6,404 $ 31,997 $ 2,947,170 Loans past due 90 days or more and still accruing were zero at December 31, 2021 and 2020. Loans past due 90 days are automatically transferred to nonaccrual status. Loans past due 30 to 89 days or more and still accruing decreased $4.7 million to $1.7 million at December 31, 2021 compared to $6.4 million at December 31, 2020, primarily in the commercial real estate segment. There were no nonaccrual or past due loans related to loans held-for-sale in December 31, 2021. As of December 31, 2020 loans held-for-sale in connection with sale of Bank branches included $7 thousand in nonaccrual status and $7 thousand that were past due. The following table presents loans on nonaccrual status and loans past due 90 days or more and still accruing by class of loan as of December 31, 2021. For the twelve months ended December 31, 2021, the amount of interest income on nonaccrual loans was immaterial. There were no loans at December 31, 2021 that were past due more than 90 days and still accruing. As of and for the December 31, 2021 (Dollars in Thousands) Beginning of End of Nonaccrual Past Due Commercial Real Estate $ 21,891 $ 3,337 $ — $ — Commercial and Industrial 456 451 — — Residential Mortgages 4,135 2,551 — — Other Consumer 184 73 — — Construction 5,331 985 808 — Other — — — — Total Portfolio Loans $ 31,997 $ 7,397 $ 808 $ — A loan is considered impaired when it is transferred to nonaccrual status, or remains on accrual status, but is considered a TDR. Impaired loans with a commitment of $1.0 million or more are individually evaluated. During the year ended December 31, 2021, no material amount of interest income was recognized on individually evaluated loans subsequent to their classification as individually evaluated loans. The following table presents the amortized cost basis of collateral-dependent individually evaluated loans as of December 31, 2021. Changes in the fair value of the types of collateral for individually evaluated loans are reported as credit loss expense or a reversal of credit loss expense in the period of change. December 31, 2021 (Dollars in Thousands) Real Estate Commercial Real Estate $ 2,742 Commercial and Industrial — Residential Mortgages — Other Consumer — Construction 808 Other — Total $ 3,550 The following tables presents activity in the ACL and ALL for the periods presented: December 31, 2021 (Dollars in Thousands) Commercial Real Estate Commercial & Industrial Residential Mortgages Other Consumer Construction Other (1) Total Allowance for Credit Losses on Loans: Balance, Beginning of Year $ 36,428 $ 5,064 $ 2,099 $ 2,479 $ 8,004 $ — $ 54,074 Impact of CECL Adoption 6,587 1,379 3,356 (877) (80) 51,277 61,642 Provision for Credit Losses on Loans (6,215) (2,249) (982) 1,561 781 10,454 3,350 Charge-offs (19,662) (374) (273) (2,256) (1,859) — (24,424) Recoveries 159 291 168 586 93 — 1,297 Net (Charge-offs) / Recoveries (19,503) (83) (105) (1,670) (1,766) — (23,127) Balance, End of Year $ 17,297 $ 4,111 $ 4,368 $ 1,493 $ 6,939 $ 61,731 $ 95,939 (1) In connection with our adoption of Topic 326, we made changes to our loan portfolio segments to align with the methodology applied in determining the allowance under CECL. Our new segmentation breaks out Other loans from our original loan segments: CRE, C&I, residential mortgages and construction. The allowance balance at the beginning of period was reclassified to Other from their original loan segments: CRE, C&I, residential mortgages and construction to conform to current presentation. December 31, 2020 (Dollars in Thousands) Commercial Real Estate Commercial & Industrial Residential Mortgages Other Consumer Construction Total Allowance for Credit Losses on Loans: Balance, Beginning of Year $ 24,706 $ 3,601 $ 1,736 $ 3,299 $ 5,420 $ 38,762 Provision for Credit Losses on Loans 11,055 1,527 594 2,434 2,396 18,006 Charge-offs (40) (66) (258) (3,991) — (4,355) Recoveries 707 2 27 737 188 1,661 Net (Charge-offs) / Recoveries 667 (64) (231) (3,254) $ 188 (2,694) Balance, End of Year $ 36,428 $ 5,064 $ 2,099 $ 2,479 $ 8,004 $ 54,074 December 31, 2019 (Dollars in Thousands) Commercial Real Estate Commercial & Industrial Residential Mortgages Other Consumer Construction Total Allowance for Credit Losses on Loans: Balance, Beginning of Year $ 23,897 $ 1,058 $ 6,129 $ 2,728 $ 5,387 $ 39,199 Provision for Credit Losses on Loans 878 2,565 (4,205) 4,370 (204) 3,404 Charge-offs (69) (22) (197) (4,401) (393) (5,082) Recoveries — — 9 602 630 1,241 Net (Charge-offs) / Recoveries (69) (22) (188) (3,799) 237 (3,841) Balance, End of Year $ 24,706 $ 3,601 $ 1,736 $ 3,299 $ 5,420 $ 38,762 The adoption of Topic 326 resulted in an increase to our ACL of $61.6 million on January 1, 2021. The Day 1 model introduced a segmented pool of loans for discrete analysis. This segmented pool had an aggregate principal balance of $379.9 million at January 1, 2021, the initial break-out, and included unique risk attributes considered inconsistent with current underwriting standards. The analysis applied to this pool resulted in expected credit losses of $51.3 million, at adoption, and is disclosed in the Other segment in the 2021 tables below. Our CECL methodology introduced a modified discounted cash flow methodology based on expected cash flow changes in the future for the Other segment. A significant population of the Other segment was not impaired under the probable incurred loss model and therefore not subject to a collateral dependent specific reserve analysis. For the population of the Other segment that was impaired under the incurred loss model, based on collateral values, the specific reserves totaled zero. Certain portions of the CECL model are inherently subjective and include, but are not limited to, estimates with respect to: prepayment speeds, the timing of prepayments, potential losses given default, discount rates and the timing of future cash flows. Management utilizes widely published economic forecasts as the basis for the regression analysis used to estimate the probability of default in the baseline model. The peaks and troughs of these forecasts serve as guardrails for potential subjective adjustments. In addition to considering the outcomes based on the range of forecasts, management recognizes that the assumptions used in economic forecasts may not perfectly align with our market area, risk profile or unique attributes of our portfolio along with other important considerations. Severe changes in forecasts can also create significant variability and management must assess not only the absolute balance of reserves but also consider the appropriateness of the velocity of change. Therefore, management developed a framework to assess the tolerance and reasonableness of the CECL modeling process by challenging certain elements of the forecasts, when appropriate. These outcomes, known as “challenger models,” provide opportunities to examine and subjectively adjust the CECL model output and are designed to be counter cyclical, thereby reducing variability. An expected credit loss of $51.3 million upon adoption was established based on the discounted cash flow method with a discount rate, which was quantitatively adjusted. The ACL increased $41.8 million to $95.9 million at December 31, 2021 compared to $54.1 million at December 31, 2020 primarily due to the Day 1 adoption of CECL of $61.6 million. During the year ended December 31, 2021 adjustments to the CECL model were made to account for additional potential deterioration in credit quality with respect to certain loans on deferral. Following the conclusion of the deferral program on June 30, 2021, management observed that $62.2 million of loans that were previously in the deferral program were recovering at rates much lower than peers. Accordingly, management attempted workout strategies with these clients. After workout strategies were exhausted unsatisfactorily, these loans were sold during the third and fourth quarters of 2021. During the third quarter of 2021, $50.2 million of loans were sold related to nine notes within two performing relationships that had been previously reserved and released. During the fourth quarter of 2021, we sold $12.0 million of loans related to two notes, which resulted in $2.2 million net charge-offs and added $0.5 million to provision expense. The ACL was $95.9 million, or 3.41% of total portfolio loans at December 31, 2021, as compared to $54.1 million, or 1.83% of total portfolio loans, at December 31, 2020. Net charge-offs were $23.1 million in 2021 as compared to $2.7 million in 2020. The increase in charge-offs of $20.4 million was primarily attributable to the resolution of five problem relationships during 2021, in which the majority were previously reserved. As a percentage of average total portfolio loans, net charge-offs were 0.79% and 0.09% for the years ended December 31, 2021 and December 31, 2020, respectively. Nonperforming loans as a percentage of total portfolio loans were 0.26% and 1.09% as of December 31, 2021 and December 31, 2020, respectively. A release of $1.3 million was recorded in 2021 for the provision for unfunded commitments. Per the guidance related to CECL, unfunded loan commitments are included as part of the provision for credit losses rather than noninterest expense, where it was previously recorded. The following tables represent credit exposures by internally assigned risk ratings as of December 31, 2021 and 2020: December 31, 2021 (Dollars in Thousands) Commercial Real Estate Commercial & Industrial Residential Mortgages Other Consumer Construction Other Total Pass $ 1,314,576 $ 337,294 $ 453,894 $ 44,554 $ 281,241 $ 185,247 $ 2,616,806 Special Mention 5,260 8 553 — 604 3,281 9,706 Substandard 3,416 8,074 3,541 112 1,102 169,372 185,617 Doubtful — — — — — — — Loss — — — — — — — Total Portfolio Loans $ 1,323,252 $ 345,376 $ 457,988 $ 44,666 $ 282,947 $ 357,900 $ 2,812,129 Performing Loans $ 1,319,915 $ 344,925 $ 455,437 $ 44,593 $ 281,962 $ 357,900 $ 2,804,732 Nonaccrual Loans 3,337 451 2,551 73 985 — 7,397 Total Portfolio Loans $ 1,323,252 $ 345,376 $ 457,988 $ 44,666 $ 282,947 $ 357,900 $ 2,812,129 December 31, 2020 (Dollars in Thousands) Commercial Real Estate Commercial & Industrial Residential Mortgages Other Consumer Construction Total Pass $ 1,281,106 $ 478,536 $ 415,773 $ 57,418 $ 289,781 $ 2,522,614 Special Mention 126,535 48 723 6 58,899 186,211 Substandard 46,158 78,580 55,674 223 57,710 238,345 Doubtful — — — — — — Loss — — — — — — Total Portfolio Loans $ 1,453,799 $ 557,164 $ 472,170 $ 57,647 $ 406,390 $ 2,947,170 Performing Loans $ 1,431,908 $ 556,708 $ 468,035 $ 57,463 $ 401,059 $ 2,915,173 Nonaccrual Loans 21,891 456 4,135 184 5,331 31,997 Total Portfolio Loans $ 1,453,799 $ 557,164 $ 472,170 $ 57,647 $ 406,390 $ 2,947,170 Special mention, substandard and doubtful loans at December 31, 2021 decreased $229.2 million to $195.3 million compared to $424.5 million at December 31, 2020, with a decrease of $176.5 million in special mention and a decrease of $52.7 million in substandard. The variances between loan segments for the years ended 2021 and 2020 primarily relates to the Other loan segment breakout due to the adoption of CECL. The special mention decrease between 2021 and 2020 relates primarily to the restructuring of a loan relationship of $177.2 million in connection with the dismissal of a lawsuit disclosed in the second quarter 2021 Form 10-Q and on Form 8-K dated September 8, 2021. The Bank believes that it is fully secured on all loans outstanding related to the lawsuit with an enhanced collateral position, including cross-collateralizations and executed documents reaffirming the legality, validity and binding nature of all loan documents that were executed in favor the the Bank. The decrease in substandard from the year ended December 31, 2020 is primarily due to payoffs and charge-offs totaling $55.7 on five large commercial relationships. At December 31, 2020 $7 thousand of loans with a risk rating of substandard were held-for-sale in connection with the sale of Bank branches. Prior to the adoption of Topic 326 on January 1, 2021, we calculated our ALL using an incurred loan loss methodology. The following tables are disclosures related to the allowance for credit losses in prior periods. The following tables present the balances in the ACL and the recorded investment in the loan balances based on impairment method as of December 31, 2020 and 2019. December 31, 2020 (Dollars in Thousands) Commercial Real Estate Commercial & Industrial Residential Mortgages Other Consumer Construction Total Allowance for Loan Losses on Loans: Individually Evaluated for Impairment $ 13,773 $ — $ — $ — $ 1,477 $ 15,250 Collectively Evaluated for Impairment 22,655 5,064 2,099 2,479 6,527 38,824 Total Allowance for Loan Losses $ 36,428 $ 5,064 $ 2,099 $ 2,479 $ 8,004 $ 54,074 Total Portfolio Loans: Individually Evaluated for Impairment $ 27,666 $ — $ 50,618 $ — $ 56,987 $ 135,271 Collectively Evaluated for Impairment 1,426,133 557,164 421,552 57,647 349,403 2,811,899 Total Portfolio Loans $ 1,453,799 $ 557,164 $ 472,170 $ 57,647 $ 406,390 $ 2,947,170 The recorded investment in loans excludes accrued interest receivable. Individually evaluated impaired loans do not include certain TDR loans which are less than $1.0 million. The following tables include the recorded investment and unpaid principal balance for impaired loans with the associated allowance, if applicable, at December 31, 2020 and 2019. December 31, 2020 (Dollars in Thousands) Unpaid Principal Balance Recorded Balance Specific Allowance Average Investment in Impaired Loans Interest Income Recognized Loans without a Specific Valuation Allowance: Commercial Real Estate $ 3,236 $ 3,236 $ — $ 4,201 $ 128 Construction 55,248 55,248 — 56,941 1,871 Residential Mortgages 50,618 50,618 — 51,716 1,906 Loans with a Specific Valuation Allowance: Commercial Real Estate 24,430 24,430 13,773 27,780 163 Commercial and Industrial — — — 184 — Construction 1,739 1,739 1,477 1,739 — Total by Category: Commercial Real Estate 27,666 27,666 13,773 31,981 291 Commercial and Industrial — — — 184 — Construction 56,987 56,987 1,477 58,680 1,871 Residential Mortgages 50,618 50,618 — 51,716 1,906 Total Impaired Loans $ 135,271 $ 135,271 $ 15,250 $ 142,561 $ 4,068 December 31, 2019 (Dollars in Thousands) Unpaid Principal Balance Recorded Balance Specific Allowance Average Investment in Impaired Loans Interest Income Recognized Loans without a Specific Valuation Allowance: Commercial Real Estate $ 4,487 $ 4,487 $ — $ 5,885 $ 131 Construction 59,053 59,053 — 59,558 3,056 Residential Mortgages 52,966 52,966 — 57,079 5,862 Loans with a Specific Valuation Allowance: Commercial Real Estate 28,769 28,769 5,779 31,201 — Commercial and Industrial 390 390 390 434 — Construction — — — 1,716 — Total by Category: Commercial Real Estate 33,256 33,256 5,779 37,086 131 Commercial and Industrial 390 390 390 434 — Construction 59,053 59,053 — 61,274 3,056 Residential Mortgages 52,966 52,966 — 57,079 5,862 Total Impaired Loans $ 145,665 $ 145,665 $ 6,169 $ 155,873 $ 9,049 |
