Loans and Allowance for Credit Losses | NOTE 4 – ALLOWANCE FOR CREDIT LOSSES AND ASSET QUALITY Loans and leases, net of unearned income Loans and leases, net of unearned income are summarized as follows as of December 31: 2020 2019 (in thousands) Real estate - commercial mortgage $ 7,105,092 $ 6,700,776 Commercial and industrial (1) 5,670,828 4,446,701 Real-estate - residential mortgage 3,141,915 2,641,465 Real-estate - home equity 1,202,913 1,314,944 Real-estate - construction 1,047,218 971,079 Consumer 466,772 463,164 Equipment lease financing and other 284,377 322,625 Overdrafts 4,806 3,582 Gross loans 18,923,921 16,864,336 Unearned income (23,101) (26,810) Net Loans $ 18,900,820 $ 16,837,526 (1) Includes PPP loans totaling $1.6 billion as of December 31, 2020. The Corporation has extended credit to officers and directors of the Corporation and to their associates. These related-party loans are made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with unrelated persons and do not involve more than the normal risk of collection. The aggregate dollar amount of these loans, including unadvanced commitments, was $162.5 million and $90.1 million as of December 31, 2020 and 2019, respectively. During 2020, additions totaled $103.5 million and repayments totaled $31.1 million for related-party loans. Allowance for Credit Losses, effective January 1, 2020 As discussed in Note 1, "Summary of Significant Accounting Policies," the Corporation adopted CECL effective January 1, 2020. CECL requires estimated credit losses on loans to be determined based on an expected life of loan model, as compared to an incurred loss model (in effect for periods prior to 2020). Accordingly, ACL disclosures subsequent to January 1, 2020 are not always comparable to prior periods. In addition, certain new disclosures required under CECL are not applicable to prior periods. As a result, the following tables present disclosures separately for each period, where appropriate. New disclosures required under CECL are only shown for the current period and are noted. See Note 1, "Summary of Significant Accounting Policies," for a summary of the impact of adopting CECL on January 1, 2020. Under CECL, loans evaluated individually for impairment consist of non-accrual loans and TDRs. Under the incurred loss model in effect prior to the adoption of CECL, loans evaluated individually for impairment were referred to as impaired loans. The ACL related to loans consists of loans evaluated collectively and individually for expected credit losses. The ACL related to loans represents an estimate of expected credit losses over the expected life of the loans as of the balance sheet date and is recorded as a reduction to Net Loans. The ACL for OBS credit exposures includes estimated losses on unfunded loan commitments, letters of credit and other OBS credit exposures. The total ACL is increased by charges to expense, through the provision for credit losses, and decreased by charge-offs, net of recoveries. The following table presents the components of the ACL under CECL: 2020 (in thousands) ACL - loans $ 277,567 ACL - OBS credit exposure 14,373 Total ACL $ 291,940 The following table presents the activity in the ACL in 2020: 2020 (in thousands) Balance at beginning of period $ 166,209 Impact of adopting CECL on January 1, 2020 (1) 58,348 Loans charged off (30,557) Recoveries of loans previously charged off 21,020 Net loans recovered (charged off) (9,537) Provision for credit losses (2) 76,920 Balance at the end of the period (3) $ 291,940 (1) Includes $12.6 million of reserves for OBS credit exposures as of January 1, 2020. (2) Includes $(840,000) related to OBS credit exposures for the year ended December 31, 2020. (3) Includes $14.4 million of reserves for OBS credit exposures as of December 31, 2020. The following table presents the activity in the ACL - loans by portfolio segment, for the year ended December 31, 2020: Real Estate - Commercial and Real Estate - Real Estate - Real Estate - Consumer Equipment lease financing, other Total (in thousands) Year ended December 31, 2020 Balance at December 31, 2019 $ 45,610 $ 68,602 $ 17,744 $ 19,771 $ 4,443 $ 3,762 $ 3,690 $ 163,622 Impact of adopting CECL on January 1, 2020 29,361 (18,576) (65) 21,235 4,015 5,969 3,784 45,723 Loans charged off (4,225) (18,915) (1,193) (620) (17) (3,400) (2,187) (30,557) Recoveries of loans previously charged off 1,027 11,396 504 491 5,122 1,875 605 21,020 Net loans recovered (charged off) (3,198) (7,519) (689) (129) 5,105 (1,525) (1,582) (9,537) Provision for loan losses (1) 31,652 32,264 (2,758) 11,118 2,045 2,699 741 77,760 Balance at December 31, 2020 $ 103,425 $ 74,771 $ 14,232 $ 51,995 $ 15,608 $ 10,905 $ 6,633 $ 277,567 (1) Provision included in the table only includes the portion related to Net Loans. The higher provision during 2020 was largely driven by the overall downturn in economic forecasts due to COVID-19, resulting in higher expected future credit losses under CECL. The ACL includes qualitative adjustments, as appropriate, intended to capture the impact of uncertainties not reflected in the quantitative models. Qualitative adjustments include and consider changes in national, regional and local economic and business conditions, an assessment of the lending environment, including underwriting standards and other factors affecting credit quality. Qualitative adjustments have increased compared to those at the time of the adoption of CECL on January 1, 2020 primarily as a result of uncertainties related to the economic impact of COVID-19, including consideration for the future performance of loans that received deferrals or forbearances as a result of COVID-19 and the impact COVID-19 had on certain industries where the quantitative models was not fully capturing the appropriate level of risk. PPP loans that were issued during 2020 are fully guaranteed by the SBA and as such, no ACL were recorded against the PPP loan portfolio. Allowance for Credit Losses, prior to January 1, 2020 Prior to January 1, 2020, the ACL consisted of the allowance for loan losses and the reserve for unfunded lending commitments. The allowance for loan losses represented management’s estimate of incurred losses in the loan portfolio as of the balance sheet date and is recorded as a reduction to Net Loans. The reserve for unfunded lending commitments represented management’s estimate of incurred losses in unfunded loan commitments and letters of credit, and was recorded in other liabilities on the consolidated balance sheets. The ACL was increased by charges to expense, through the provision for credit losses, and decreased by charge-offs, net of recoveries. The following table presents the components of the ACL as of December 31: 2019 2018 (in thousands) Allowance for loan losses $ 163,622 $ 160,537 Reserve for unfunded lending commitments 2,587 8,873 Total ACL $ 166,209 $ 169,410 The following table presents the activity in the ACL for the years ended December 31: 2019 2018 (in thousands) Balance at beginning of period $ 169,410 $ 176,084 Loans charged off (53,189) (66,076) Recoveries of loans previously charged off 17,163 12,495 Net loans recovered (charged off) (36,026) (53,581) Provisions for credit losses (1) 32,825 46,907 Balance at the end of the period (2) $ 166,209 $ 169,410 (1) Includes $(6.3) million and $2.7 million related to OBS credit exposures for the years ended 2019 and 2018, respectively. (2) Includes $2.6 million and $8.9 million of reserves for OBS credit exposures as of December 31, 2019 and 2018. The following tables present the activity in the allowance for loan losses by portfolio segment for the year ended December 31, 2019 and 2018, by portfolio segment: Real Estate - Commercial and Industrial Real Estate - Real Estate - Real Estate - Consumer Equipment Finance Leasing and Other Total (in thousands) Balance at December 31, 2018 52,889 58,868 18,911 18,921 5,061 3,217 2,670 160,537 Loans charged off (1,837) (42,410) (1,291) (1,545) (143) (3,403) (2,560) (53,189) Recoveries of loans previously charged off 2,202 8,721 688 989 2,591 1,306 666 17,163 Net loans recovered (charged off) 365 (33,689) (603) (556) 2,448 (2,097) (1,894) (36,026) Provision for loan losses (1) (7,644) 43,423 (564) 1,406 (3,066) 2,642 2,914 39,111 Balance at December 31, 2019 $ 45,610 $ 68,602 $ 17,744 $ 19,771 $ 4,443 $ 3,762 $ 3,690 0 $ 163,622 (1) Provision included in the table only includes the portion related to Net Loans Non-accrual Loans All loans individually evaluated for impairment are measured for losses on a quarterly basis. As of December 31, 2020 and December 31, 2019, substantially all of the Corporation’s individually evaluated loans with total commitments greater than or equal to $1.0 million were measured based on the estimated fair value of each loan’s collateral, if any. Collateral could be in the form of real estate, in the case of commercial mortgages and construction loans, or business assets, such as accounts receivable or inventory, in the case of commercial and industrial loans. Commercial and industrial loans may also be secured by real estate. As of December 31, 2020 and 2019, approximately 83% and 93%, respectively, of loans evaluated individually for impairment with principal balances greater than or equal to $1.0 million, whose primary collateral is real estate, were measured at estimated fair value using appraisals performed by state certified third-party appraisers that had been updated in the preceding 12 months. The following table presents total non-accrual loans, by class segment: 2020 2019 With a Related Allowance Without a Related Allowance Total Total (in thousands) Real estate - commercial mortgage $ 19,909 $ 31,561 $ 51,470 $ 33,166 Commercial and industrial 13,937 18,056 31,993 48,106 Real estate - residential mortgage 24,590 1,517 26,107 16,676 Real estate - home equity 9,398 190 9,588 7,004 Real estate - construction 437 958 1,395 3,618 Consumer 332 — 332 — Equipment lease financing and other — 16,313 16,313 16,528 Total $ 68,603 $ 68,595 $ 137,198 $ 125,098 As of December 31, 2020, there were $68.6 million of non-accrual loans that did not have a related allowance for credit losses. The estimated fair values of the collateral securing these loans exceeded their carrying amount, or the loans were previously charged down to realizable collateral values. Accordingly, no specific valuation allowance was considered to be necessary. In 2020, the total interest income that would have been recorded if non-accrual loans had been current in accordance with their original terms was $5.8 million. The amount of interest income on non-accrual loans that was recognized in 2020 was approximately $290,000. Asset Quality Maintaining an appropriate ACL is dependent on various factors, including the ability to identify potential problem loans in a timely manner. For commercial construction, residential construction, commercial and industrial, and commercial real estate, an internal risk rating process is used. The Corporation believes that internal risk ratings are the most relevant credit quality indicator for these types of loans. The migration of loans through the various internal risk categories is a significant component of the ACL methodology for these loans, under both the CECL and incurred loss models, which bases the probability of default on this migration. Assigning risk ratings involves judgment. The Corporation's loan review officers provide a separate assessment of risk rating accuracy. Risk ratings may be changed based on the ongoing monitoring procedures performed by loan officers or credit administration staff, or if specific loan review assessments identify a deterioration or an improvement in the loans. The following table summarizes designated internal risk categories by portfolio segment and loan class, by origination year, in the current period: December 31, 2020 Term Loans Amortized Cost Basis by Origination Year Revolving Loans Revolving Loans converted to Term Loans (dollars in thousands) Amortized Amortized 2020 2019 2018 2017 2016 Prior Cost Basis Cost Basis Total Real estate - construction (1) Pass $ 185,883 $ 229,097 $ 217,604 $ 81,086 $ 37,976 $ 110,470 $ 38,026 $ — $ 900,142 Special Mention — — — — 7,047 6,212 — — 13,259 Substandard or Lower — 447 — 2,000 753 1,637 632 — 5,469 Total real estate - construction 185,883 229,544 217,604 83,086 45,776 118,319 38,658 — 918,870 Real estate - construction (1) Current period gross charge-offs — — — — — (17) — — (17) Current period recoveries — — — — 68 5,054 — — 5,122 Total net (charge-offs) recoveries — — — — 68 5,037 — — 5,105 Commercial and industrial (2) Pass 2,283,533 508,541 298,567 214,089 208,549 596,646 1,278,689 — 5,388,614 Special Mention 6,633 23,834 29,167 10,945 11,506 25,960 45,994 — 154,039 Substandard or Lower 3,221 5,947 8,434 11,251 11,192 23,852 64,278 — 128,175 Total commercial and industrial 2,293,387 538,322 336,168 236,285 231,247 646,458 1,388,961 — 5,670,828 Commercial and industrial Current period gross charge-offs — (114) (30) (488) (393) (520) (17,370) — (18,915) Current period recoveries — 43 486 216 162 4,531 5,958 — 11,396 Total net (charge-offs) recoveries — (71) 456 (272) (231) 4,011 (11,412) — (7,519) Real estate - commercial mortgage Pass 973,664 917,510 708,946 794,955 783,094 2,213,343 53,041 404 6,444,957 Special Mention 13,639 40,874 84,047 80,705 89,112 167,424 2,364 — 478,165 Substandard or Lower 1,238 6,681 6,247 39,027 22,605 103,007 2,225 940 181,970 Total real estate - commercial mortgage 988,541 965,065 799,240 914,687 894,811 2,483,774 57,630 1,344 7,105,092 Real estate - commercial mortgage Current period gross charge-offs (60) (21) (36) (2,515) (29) (1,547) (17) — (4,225) Current period recoveries — 6 — — 1 1,020 — — 1,027 Total net (charge-offs) recoveries (60) (15) (36) (2,515) (28) (527) (17) — (3,198) Total Pass $ 3,443,080 $ 1,655,148 $ 1,225,117 $ 1,090,130 $ 1,029,619 $ 2,920,459 $ 1,369,756 $ 404 $ 12,733,713 Special Mention 20,272 64,708 113,214 91,650 107,665 199,596 48,358 — 645,463 Substandard or Lower 4,459 13,075 14,681 52,278 34,550 128,496 67,135 940 315,614 Total $ 3,467,811 $ 1,732,931 $ 1,353,012 $ 1,234,058 $ 1,171,834 $ 3,248,551 $ 1,485,249 $ 1,344 $ 13,694,790 (1) Excludes real estate - construction - other. (2) Loans originated in 2020 include $1.6 million of PPP loans that were assigned a rating of Pass based on the existence of a federal government guaranty through the SBA. The information presented in the preceding table is not required to be disclosed for periods prior to the adoption of CECL. The following table presents the most comparable required information for the prior period, internal credit risk ratings for the indicated loan class segments: December 31, 2019 Pass Special Mention Substandard or Lower Total (dollars in thousands) Real estate - commercial mortgage $ 6,429,407 $ 137,163 $ 134,206 $ 6,700,776 Commercial and industrial - secured 3,830,847 171,442 195,884 4,198,173 Commercial and industrial - unsecured 234,987 9,665 3,876 248,528 Total commercial and industrial 4,065,834 181,107 199,760 4,446,701 Construction - commercial residential 100,808 2,897 3,461 107,166 Construction - commercial 765,562 1,322 2,676 769,560 Total construction (excluding construction - other) 866,370 4,219 6,137 876,726 $ 11,361,611 $ 322,489 $ 340,103 $ 12,024,203 % of Total 94.5 % 2.7 % 2.8 % 100.0 % The Corporation does not assign internal risk ratings to smaller balance, homogeneous loans, such as home equity, residential mortgage, construction loans to individuals secured by residential real estate, consumer and equipment lease financing. For these loans, the most relevant credit quality indicator is delinquency status. The migration of loans through the various delinquency status categories is a significant component of the ACL methodology for those loans, under both the CECL and incurred loss models, which base the PD on this migration. The Corporation considers the performance of the loan portfolio and its impact on the ACL. For certain loans classes, the Corporation evaluates credit quality based on the aging status of the loan. The following table presents the amortized cost of these loans based on payment activity, by origination year, for the current period: December 31, 2020 Term Loans Amortized Cost Basis by Origination Year Revolving Loans Revolving Loans converted to Term Loans (dollars in thousands) Amortized Amortized 2020 2019 2018 2017 2016 Prior Cost Basis Cost Basis Total Real estate - home equity Performing $ 31,445 $ 8,176 $ 13,906 $ 11,024 $ 11,667 $ 126,749 $ 982,285 $ 5,321 $ 1,190,573 Non-performing — 88 23 233 221 2,290 9,485 — 12,340 Total real estate - home equity 31,445 8,264 13,929 11,257 11,888 129,039 991,770 5,321 1,202,913 Real estate - home equity Current period gross charge-offs — — — — — (34) (1,159) — (1,193) Current period recoveries — — — — — 138 366 — 504 Total net (charge-offs) recoveries — — — — — 104 (793) — (689) Real estate - residential mortgage Performing 1,255,532 585,878 228,398 341,563 264,990 434,889 — — 3,111,250 Non-performing 217 2,483 3,177 2,483 722 21,583 — — 30,665 Total real estate - residential mortgage 1,255,749 588,361 231,575 344,046 265,712 456,472 — — 3,141,915 Real estate - residential mortgage Current period gross charge-offs — (68) (101) (190) (7) (254) — — (620) Current period recoveries — 68 16 1 1 405 — — 491 Total net (charge-offs) recoveries — — (85) (189) (6) 151 — — (129) Consumer Performing 114,399 98,587 95,072 43,334 25,804 36,086 52,698 42 466,022 Non-performing 168 19 124 141 114 150 34 — 750 Total consumer 114,567 98,606 95,196 43,475 25,918 36,236 52,732 42 466,772 Consumer Current period gross charge-offs (134) (542) (524) (444) (489) (769) (498) — (3,400) Current period recoveries — 64 165 159 94 101 1,292 — 1,875 Total net (charge-offs) recoveries (134) (478) (359) (285) (395) (668) 794 — (1,525) Equipment lease financing and other Performing 102,324 65,303 49,453 34,995 15,631 5,040 — — 272,746 Non-performing — — 30 15,983 142 282 — — 16,437 Total leasing and other 102,324 65,303 49,483 50,978 15,773 5,322 — — 289,183 Equipment lease financing and other Current period gross charge-offs (606) (1,581) — — — — — — (2,187) Current period recoveries 185 349 21 18 11 21 — — 605 Total net (charge-offs) recoveries (421) (1,232) 21 18 11 21 — — (1,582) Construction - other Performing 96,444 24,888 6,822 — 16 — — — 128,170 Non-performing — — — 178 — — — — 178 Total construction - other 96,444 24,888 6,822 178 16 — — — 128,348 Construction - other Current period gross charge-offs — — — — — — — — — Current period recoveries — — — — — — — — — Total net (charge-offs) recoveries — — — — — — — — — Total Performing $ 1,600,144 $ 782,832 $ 393,651 $ 430,916 $ 318,108 $ 602,764 $ 1,034,983 $ 5,363 $ 5,168,761 Non-performing 385 2,590 3,354 19,018 1,199 24,305 9,519 — 60,370 Total $ 1,600,529 $ 785,422 $ 397,005 $ 449,934 $ 319,307 $ 627,069 $ 1,044,502 $ 5,363 $ 5,229,131 The information presented in the preceding table not required to be disclosed for periods prior to the adoption of CECL. The following table presents the most comparable required information for the prior period, a summary of performing, delinquent and non-performing loans for the indicated class segments: December 31, 2019 Performing Delinquent (1) Non-performing (2) Total (dollars in thousands) Real estate - home equity $ 1,292,035 $ 12,341 $ 10,568 $ 1,314,944 Real estate - residential mortgage 2,584,763 34,291 22,411 2,641,465 Construction - other 92,649 895 809 94,353 Consumer - direct 63,582 465 190 64,237 Consumer - indirect 393,974 4,685 268 398,927 Total consumer 457,556 5,150 458 463,164 Equipment lease financing and other 278,743 4,012 16,642 299,397 $ 4,705,746 $ 56,689 $ 50,888 $ 4,813,323 % of Total 97.8 % 1.2 % 1.0 % 100 % (1) Includes all accruing loans 30 days to 89 days past due. (2) Includes all accruing loans 90 days or more past due and all non-accrual loans. The following table presents non-performing assets: December 31, December 31, (in thousands) Non-accrual loans $ 137,198 $ 125,098 Loans 90 days or more past due and still accruing 9,929 16,057 Total non-performing loans 147,127 141,155 OREO (1) 4,178 6,831 Total non-performing assets $ 151,305 $ 147,986 (1) Excludes $8.1 million of residential mortgage properties for which formal foreclosure proceedings were in process as of December 31, 2020. The following tables present the aging of the amortized cost basis of loans, by class segment: 30-59 60-89 ≥ 90 Days Days Past Days Past Past Due Non- Due Due and Accruing Accrual Current Total (in thousands) December 31, 2020 Real estate – commercial mortgage $ 14,999 $ 9,273 $ 1,177 $ 51,470 $ 7,028,173 $ 7,105,092 Commercial and industrial 11,285 1,068 616 31,993 5,625,866 5,670,828 Real estate – residential mortgage 22,281 7,675 4,687 26,107 3,081,165 3,141,915 Real estate – home equity 5,622 1,654 2,753 9,588 1,183,296 1,202,913 Real estate – construction 1,938 — 155 1,395 1,043,730 1,047,218 Consumer 3,036 501 417 332 462,486 466,772 Equipment lease financing and other 838 150 124 16,313 248,657 266,082 Total $ 59,999 $ 20,321 $ 9,929 $ 137,198 $ 18,673,373 $ 18,900,820 30-59 Days Past 60-89 ≥ 90 Days Non- Current Total (in thousands) December 31, 2019 Real estate – commercial mortgage $ 10,912 $ 1,543 $ 4,113 $ 33,166 $ 6,651,042 $ 6,700,776 Commercial and industrial 2,302 2,630 1,385 48,106 4,392,278 4,446,701 Real estate – residential mortgage 26,982 7,309 5,735 16,676 2,584,763 2,641,465 Real estate – home equity 9,635 2,706 3,564 7,004 1,292,035 1,314,944 Real estate – construction 1,715 900 688 3,618 964,158 971,079 Consumer 4,228 922 458 — 457,556 463,164 Equipment lease financing and other 552 3,460 114 16,528 278,743 299,397 Total $ 56,326 $ 19,470 $ 16,057 $ 125,098 $ 16,620,575 $ 16,837,526 Collateral-Dependent Loans A financial asset is considered to be collateral-dependent when the debtor is experiencing financial difficulty and repayment is expected to be provided substantially through the sale or operation of the collateral. For all classes of financial assets deemed collateral-dependent, the Corporation elected the practical expedient to estimate expected credit losses based on the collateral’s fair value less cost to sell. In most cases, the Corporation records a partial charge-off to reduce the loan’s carrying value to the collateral’s fair value less cost to sell. Substantially all of the collateral supporting collateral-dependent financial assets consists of various types of real estate including residential properties; commercial properties such as retail centers, office buildings, and lodging; agriculture land; and vacant land. Troubled Debt Restructurings The following table presents TDRs, by class segment for the years ended December 31: 2020 2019 (in thousands) Real estate - commercial mortgage $ 28,451 $ 13,330 Commercial and industrial 6,982 5,193 Real estate - residential mortgage 18,602 21,551 Real estate - home equity 14,391 15,068 Consumer — 8 Total accruing TDRs 68,426 55,150 Non-accrual TDRs (1) 35,755 20,825 Total TDRs $ 104,181 $ 75,975 (1) Included within non-accrual loans in the preceding table. The following table presents TDRs, by class segment, for loans that were modified during the years ended December 31: 2020 2019 2018 Number of Loans Post-Modification Recorded Investment Number of Loans Post-Modification Recorded Investment Number of Loans Post-Modification Recorded Investment (dollars in thousands) Real estate - commercial mortgage 12 $ 24,868 2 $ 263 6 $ 8,261 Commercial and industrial 20 5,218 16 5,378 8 4,226 Real estate - residential mortgage 48 10,493 6 2,252 7 801 Real estate - home equity 48 4,359 59 2,706 96 5,087 Consumer 14 345 — — — — Total 142 $ 45,283 83 $ 10,599 117 $ 18,375 Restructured loan modifications may include payment schedule modifications, interest rate concessions, bankruptcies, principal reduction or some combination of these concessions. The restructured loan modifications primarily included maturity date extensions, rate modifications and payment schedule modifications. In accordance with regulatory guidance, payment schedule modifications granted after March 13, 2020, to borrowers impacted by the effects of COVID-19 pandemic and who are not delinquent at the time of the payment schedule modifications, have been excluded from TDRs. For the year ended December 31, 2020, payment schedule modifications having a recorded investment of $3.5 billion were excluded from TDRs based on this regulatory guidance. |