ALLOWANCE FOR CREDIT LOSSES | ALLOWANCE FOR CREDIT LOSSESWe maintain an ACL at a level determined to be adequate to absorb estimated expected credit losses within the loan portfolio over the contractual life of an instrument that considers our historical loss experience, current conditions and forecasts of future economic conditions as of the balance sheet date. We develop and document a systematic ACL methodology based on the following portfolio segments: 1) Commercial Real Estate, or CRE, 2) Commercial and Industrial, or C&I, 3) Commercial Construction, 4) Business Banking, 5) Consumer Real Estate and 6) Other Consumer. The following are key risks within each portfolio segment: CRE —Loans secured by commercial purpose real estate, including both owner-occupied properties and investment properties for various purposes such as hotels, retail, multifamily and health care. Operations of the individual projects and 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 and the business prospects of the lessee, if the project is not owner-occupied. C&I —Loans 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 company 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 company. Collateral for these types of loans often does not have sufficient value in a distressed or liquidation scenario to satisfy the outstanding debt. Commercial Construction —Loans 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/development 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. Business Banking —Commercial purpose loans made to small businesses that are standard, non-complex products evaluated through a streamlined credit approval process that has been designed to maximize efficiency while maintaining high credit quality standards that meet small business market customers’ needs. The business banking portfolio is monitored by utilizing a standard and closely managed process focusing on behavioral and performance criteria. The condition of the local economy is an important indicator of risk, but there are also more specific risks depending on the collateral type and business. Consumer Real Estate —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 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 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 made to individuals that may be secured by assets other than 1-4 family residences, as well as unsecured loans. This segment includes auto loans and unsecured loans and lines of credit. 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. Management monitors various credit quality indicators for the commercial, business banking and consumer loan portfolios, including changes in risk ratings, nonperforming status and delinquency on a monthly basis. We monitor the commercial loan portfolio through an internal risk rating system. Loan risk ratings are assigned based upon the creditworthiness of the borrower and are reviewed on an ongoing basis according to our internal policies. Loans within the pass rating generally have a lower risk of loss than loans risk rated as special mention or substandard. Our risk ratings are consistent with regulatory guidance and are as follows: Pass —The loan is currently performing and is of high quality. Special Mention —A special mention loan has potential weaknesses that warrant management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects or in the strength of our credit position at some future date. Substandard —A substandard loan is not adequately protected by the net worth and/or paying capacity of the borrower or by the collateral pledged, if any. Substandard loans have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. These loans are characterized by the distinct possibility that we will sustain some loss if the deficiencies are not corrected. Doubtful —Loans classified doubtful have all the weaknesses inherent in those 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. The following tables present loan balances by year of origination and internally assigned risk rating for our portfolio segments as of the dates presented: September 30, 2022 Risk Rating (dollars in thousands) 2022 2021 2020 2019 2018 2017 and Prior Revolving Revolving-Term Total Commercial Real Estate Pass $ 228,599 $ 363,347 $ 278,153 $ 432,862 $ 238,351 $ 760,947 $ 21,051 $ — $ 2,323,310 Special mention — — — 9,407 20,189 118,852 — — 148,448 Substandard — 3,226 1,319 12,652 14,937 58,690 — — 90,824 Doubtful — — — — — — — — — Total Commercial Real Estate 228,599 366,573 279,472 454,921 273,477 938,489 21,051 — 2,562,582 Commercial and Industrial Pass 185,389 293,593 97,811 72,039 66,958 137,693 574,820 — 1,428,303 Special mention — 14,849 — 4,213 2,091 7,193 13,466 — 41,812 Substandard — — — 13,018 1,219 1,979 15,548 — 31,764 Doubtful — — — — — — — — — Total Commercial and Industrial 185,389 308,442 97,811 89,270 70,268 146,865 603,834 — 1,501,879 Commercial Construction Pass 83,458 171,331 43,840 32,949 4,331 3,150 28,758 — 367,817 Special mention — — — 5,565 — — — — 5,565 Substandard — — — — — 1,897 — — 1,897 Doubtful — — — — — — — — — Total Commercial Construction 83,458 171,331 43,840 38,514 4,331 5,047 28,758 — 375,279 Business Banking Pass 213,494 240,694 91,018 116,429 86,469 287,074 107,849 679 1,143,706 Special mention — 85 189 851 3,076 4,796 121 95 9,213 Substandard — — 3,082 2,114 2,983 15,760 171 574 24,684 Doubtful — — — — — — — — — Total Business Banking 213,494 240,779 94,289 119,394 92,528 307,630 108,141 1,348 1,177,603 Consumer Real Estate Pass 224,054 150,932 93,003 76,097 31,556 198,505 541,548 21,267 1,336,962 Special mention — — — — — 895 — — 895 Substandard 38 89 137 292 1,220 9,797 636 2,899 15,108 Doubtful — — — — — — — — — Total Consumer Real Estate 224,092 151,021 93,140 76,389 32,776 209,197 542,184 24,166 1,352,965 Other Consumer Pass 17,127 12,046 6,385 4,028 1,399 848 83,463 1,278 126,574 Special mention — — — — — — — — — Substandard — — 4 30 — — — — 34 Doubtful — — — — — — — — — Total Other Consumer 17,127 12,046 6,389 4,058 1,399 848 83,463 1,278 126,608 Pass 952,121 1,231,943 610,210 734,404 429,064 1,388,217 1,357,489 23,224 6,726,672 Special mention — 14,934 189 20,036 25,356 131,736 13,587 95 205,933 Substandard 38 3,315 4,542 28,106 20,359 88,123 16,355 3,473 164,311 Doubtful — — — — — — — — — Total Loan Balance $ 952,159 $ 1,250,192 $ 614,941 $ 782,546 $ 474,779 $ 1,608,076 $ 1,387,431 $ 26,792 $ 7,096,916 December 31, 2021 Risk Rating (dollars in thousands) 2021 2020 2019 2018 2017 2016 and Prior Revolving Revolving-Term Total Commercial Real Estate Pass $ 385,347 $ 316,003 $ 412,191 $ 314,303 $ 213,019 $ 698,992 $ 35,448 $ — $ 2,375,303 Special mention — — 37,786 6,401 40,445 75,938 — — 160,570 Substandard — 1,356 18,743 14,039 12,555 106,461 1,500 — 154,654 Doubtful — — — — — — — — — Total Commercial Real Estate 385,347 317,359 468,720 334,743 266,019 881,391 36,948 — 2,690,528 Commercial and Industrial Pass 437,483 126,371 115,359 83,030 37,176 132,182 536,554 — 1,468,155 Special mention 46 — 3,060 2,546 72 832 8,887 — 15,443 Substandard — — 14,221 1,336 4,174 3,456 4,961 — 28,148 Doubtful — — 1,777 — — — — — 1,777 Total Commercial and Industrial 437,529 126,371 134,417 86,912 41,422 136,470 550,402 — 1,513,523 Commercial Construction Pass 142,321 108,405 111,512 16,838 989 3,539 30,036 — 413,640 Special mention — — — — — 4,458 — — 4,458 Substandard — 2,157 2,020 — — 2,480 — — 6,657 Doubtful — — — — — — — — — Total Commercial Construction 142,321 110,562 113,532 16,838 989 10,477 30,036 — 424,755 Business Banking Pass 257,264 107,791 141,411 110,586 79,187 293,215 107,093 443 1,096,990 Special mention 104 151 1,986 1,365 1,057 5,929 160 111 10,863 Substandard 41 106 1,579 3,277 1,645 19,591 977 625 27,841 Doubtful — — — — — — — — — Total Business Banking 257,409 108,048 144,976 115,228 81,889 318,735 108,230 1,179 1,135,693 Consumer Real Estate Pass 137,465 100,995 91,981 48,531 39,029 231,861 442,530 23,391 1,115,783 Special mention — — — — — 937 — — 937 Substandard — — 184 1,625 1,355 5,664 876 1,161 10,865 Doubtful — — — — — — — — — Total Consumer Real Estate 137,465 100,995 92,165 50,156 40,384 238,462 443,406 24,552 1,127,585 Other Consumer Pass 19,976 9,396 7,120 2,878 613 2,037 57,702 1,130 100,852 Special mention — — — — — — — — — Substandard 83 52 141 215 408 4,407 201 1,547 7,054 Doubtful — — — — — — — — — Total Other Consumer 20,059 9,448 7,261 3,093 1,021 6,444 57,903 2,677 107,906 Pass 1,379,856 768,961 879,574 576,166 370,013 1,361,826 1,209,363 24,964 6,570,723 Special Mention 150 151 42,832 10,312 41,574 88,094 9,047 111 192,271 Substandard 124 3,671 36,888 20,492 20,137 142,059 8,515 3,333 235,219 Doubtful — — 1,777 — — — — — 1,777 Total Loan Balance $ 1,380,130 $ 772,783 $ 961,071 $ 606,970 $ 431,724 $ 1,591,979 $ 1,226,925 $ 28,408 $ 6,999,990 We monitor the delinquent status of the commercial and consumer portfolios on a monthly basis. Loans are considered nonperforming and placed on nonaccrual when interest and principal are 90 days or more past due or management has determined that a material deterioration in the borrower’s financial condition exists. The risk of loss is generally highest for nonperforming loans. The following tables present loan balances by year of origination and performing and nonperforming status for our portfolio segments as of the dates presented: September 30, 2022 (dollars in thousands) 2022 2021 2020 2019 2018 2017 and Prior Revolving Revolving-Term Total Commercial Real Estate Performing $ 228,599 $ 366,573 $ 279,472 $ 454,441 $ 273,477 $ 931,136 $ 21,051 $ — $ 2,554,749 Nonperforming — — — 480 — 7,353 — — 7,833 Total Commercial Real Estate 228,599 366,573 279,472 454,921 273,477 938,489 21,051 — 2,562,582 Commercial and Industrial Performing 185,389 308,442 97,811 89,270 70,214 146,814 603,604 — 1,501,544 Nonperforming — — — — 54 51 230 — 335 Total Commercial and Industrial 185,389 308,442 97,811 89,270 70,268 146,865 603,834 — 1,501,879 Commercial Construction Performing 83,458 171,331 43,840 38,514 4,331 4,663 28,758 — 374,895 Nonperforming — — — — — 384 — — 384 Total Commercial Construction 83,458 171,331 43,840 38,514 4,331 5,047 28,758 — 375,279 Business Banking Performing 213,494 240,779 94,289 119,050 90,907 303,348 108,039 1,252 1,171,158 Nonperforming — — — 344 1,621 4,282 102 96 6,445 Total Business Banking 213,494 240,779 94,289 119,394 92,528 307,630 108,141 1,348 1,177,603 Consumer Real Estate Performing 224,092 150,885 92,672 75,953 32,401 204,232 542,005 23,352 1,345,592 Nonperforming — 136 468 436 375 4,965 179 814 7,373 Total Consumer Real Estate 224,092 151,021 93,140 76,389 32,776 209,197 542,184 24,166 1,352,965 Other Consumer Performing 17,127 12,046 6,116 4,058 1,399 717 83,463 1,275 126,201 Nonperforming — — 273 — — 131 — 3 407 Total Other Consumer 17,127 12,046 6,389 4,058 1,399 848 83,463 1,278 126,608 Performing 952,159 1,250,056 614,200 781,286 472,729 1,590,910 1,386,920 25,879 7,074,139 Nonperforming — 136 741 1,260 2,050 17,166 511 913 22,777 Total Loan Balance $ 952,159 $ 1,250,192 $ 614,941 $ 782,546 $ 474,779 $ 1,608,076 $ 1,387,431 $ 26,792 $ 7,096,916 December 31, 2021 (dollars in thousands) 2021 2020 2019 2018 2017 2016 and Prior Revolving Revolving-Term Total Commercial Real Estate Performing $ 385,347 $ 317,359 $ 461,613 $ 332,482 $ 259,723 $ 865,567 $ 36,948 $ — $ 2,659,039 Nonperforming — 7,107 2,261 6,296 15,824 — — 31,488 Total Commercial Real Estate 385,347 317,359 468,720 334,743 266,019 881,391 36,948 — 2,690,528 Commercial and Industrial Performing 437,529 126,371 123,944 86,852 38,540 136,427 548,622 — 1,498,285 Nonperforming — — 10,473 60 2,882 43 1,780 — 15,239 Total Commercial and Industrial 437,529 126,371 134,417 86,912 41,422 136,470 550,402 — 1,513,523 Commercial Construction Performing 142,321 110,562 111,445 16,838 989 10,093 30,036 — 422,284 Nonperforming — — 2,087 — — 384 — — 2,471 Total Commercial Construction 142,321 110,562 113,532 16,838 989 10,477 30,036 — 424,755 Business Banking Performing 257,368 107,984 144,689 113,820 81,195 311,673 108,202 1,122 1,126,052 Nonperforming 41 64 287 1,408 694 7,062 28 57 9,641 Total Business Banking 257,409 108,048 144,976 115,228 81,889 318,735 108,230 1,179 1,135,693 Consumer Real Estate Performing 137,465 100,253 91,689 49,853 39,657 234,297 443,238 23,839 1,120,291 Nonperforming — 742 476 303 727 4,165 168 713 7,294 Total Consumer Real Estate 137,465 100,995 92,165 50,156 40,384 238,462 443,406 24,552 1,127,585 Other Consumer Performing 20,059 9,290 7,261 3,093 1,021 6,444 57,903 2,677 107,748 Nonperforming — 158 — — — — — — 158 Total Other Consumer 20,059 9,448 7,261 3,093 1,021 6,444 57,903 2,677 107,906 Performing 1,380,089 771,819 940,641 602,938 421,125 1,564,501 1,224,949 27,638 6,933,699 Nonperforming 41 964 20,430 4,032 10,599 27,478 1,976 770 66,291 Total Loan Balance $ 1,380,130 $ 772,783 $ 961,071 $ 606,970 $ 431,724 $ 1,591,979 $ 1,226,925 $ 28,408 $ 6,999,990 The following tables present the age analysis of past due loans segregated by class of loans as of the dates presented: September 30, 2022 (dollars in thousands) Current 30-59 Days 60-89 Days Non - performing Total Past Total Loans Commercial real estate $ 2,554,749 $ — $ — $ 7,833 $ 7,833 $ 2,562,582 Commercial and industrial 1,501,512 29 3 335 367 1,501,879 Commercial construction 374,895 — — 384 384 375,279 Business banking 1,168,727 574 1,857 6,445 8,876 1,177,603 Consumer real estate 1,341,890 2,188 1,514 7,373 11,075 1,352,965 Other consumer 126,027 119 55 407 581 126,608 Total $ 7,067,800 $ 2,910 $ 3,429 $ 22,777 $ 29,116 $ 7,096,916 December 31, 2021 (dollars in thousands) Current 30-59 Days 60-89 Days Non - performing Total Past Total Loans Commercial real estate $ 2,659,040 $ — $ — $ 31,488 $ 31,488 $ 2,690,528 Commercial and industrial 1,497,755 529 — 15,239 15,768 1,513,523 Commercial construction 421,834 450 — 2,471 2,921 424,755 Business banking 1,124,748 813 491 9,641 10,945 1,135,693 Consumer real estate 1,117,074 1,087 2,130 7,294 10,511 1,127,585 Other consumer 107,492 206 50 158 414 107,906 Total (1) $ 6,927,943 $ 3,085 $ 2,671 $ 66,291 $ 72,047 $ 6,999,990 (1) We had eight loans that were modified totaling $28.8 million under the CARES Act at December 31, 2021. These customers were not considered past due as a result of their delayed payments. Upon exiting the loan modification deferral program, the measurement of loan delinquency will resume where it left off upon entry into the program. Due to the modification program, this delinquency table may not accurately reflect the credit risk associated with these loans. The following tables present loans on nonaccrual status by class of loan for the year-to-date periods presented: September 30, 2022 (dollars in thousands) Beginning of Period Nonaccrual End of Period Nonaccrual Nonaccrual With No Related Allowance Interest Income Recognized on Nonaccrual (1) Commercial real estate $ 31,488 $ 7,833 $ 6,317 $ 625 Commercial and industrial 15,239 335 — 86 Commercial construction 2,471 384 — — Business banking 9,641 6,445 1,092 242 Consumer real estate 7,294 7,373 — 178 Other consumer 158 407 — 1 Total $ 66,291 $ 22,777 $ 7,409 $ 1,132 (1) Represents only cash payments received and applied to interest on nonaccrual loans for the nine months ended September 30, 2022. December 31, 2021 (dollars in thousands) Beginning of Period Nonaccrual End of Period Nonaccrual Nonaccrual With No Related Allowance Interest Income Recognized on Nonaccrual (1) Commercial real estate $ 101,070 $ 31,488 $ 28,046 $ 158 Commercial and industrial 16,985 15,239 5,707 74 Commercial construction 384 2,471 2,020 (28) Business banking 17,122 9,641 1,696 427 Consumer real estate 11,117 7,294 — 496 Other consumer 96 158 — 1 Total $ 146,774 $ 66,291 $ 37,469 $ 1,128 (1) Represents only cash payments received and applied to interest on nonaccrual loans for the twelve months ended December 31, 2021. The following tables present collateral-dependent loans by class of loans as of the dates presented: September 30, 2022 Type of Collateral (dollars in thousands) Real Estate Business Investment/Cash Other Commercial real estate $ 5,837 $ — $ 480 $ — Commercial and industrial — 658 — — Commercial construction 1,674 — — — Business banking 524 1,175 — — Consumer real estate 576 — — — Total $ 8,611 $ 1,833 $ 480 $ — December 31, 2021 Type of Collateral (dollars in thousands) Real Estate Business Investment/Cash Other Commercial real estate $ 28,046 $ — $ — $ — Commercial and industrial 259 4,905 — 10,473 Commercial construction 4,210 — — — Business banking 910 1,636 — — Consumer real estate 1,031 — — — Total $ 34,456 $ 6,541 $ — $ 10,473 The following tables present activity in the ACL for the periods presented: Three Months Ended September 30, 2022 (dollars in thousands) Commercial Commercial and Commercial Business Banking Consumer Other Total Allowance for credit losses on loans: Balance at beginning of period $ 45,314 $ 21,526 $ 6,583 $ 12,157 $ 9,673 $ 2,842 $ 98,095 Provision for credit losses on loans (1) (2,997) 3,806 (1,159) 950 1,075 634 2,309 Charge-offs (628) — — (178) (161) (272) (1,239) Recoveries 145 6 — 242 39 97 529 Net (Charge-offs)/ Recoveries (483) 6 — 64 (122) (175) (710) Balance at End of Period $ 41,834 $ 25,338 $ 5,424 $ 13,171 $ 10,626 $ 3,301 $ 99,694 (1) Excludes the provision for credits losses for unfunded commitments. Three Months Ended September 30, 2021 (dollars in thousands) Commercial Commercial and Commercial Business Banking Consumer Other Total Allowance for credit losses on loans: Balance at beginning of period $ 63,186 $ 14,426 $ 5,905 $ 14,756 $ 8,647 $ 2,717 $ 109,637 Provision for credit losses on loans (1) (7,856) 11,599 1,391 (2,689) (80) (63) 2,302 Charge-offs (3,661) (2) (56) (167) (76) (245) (4,207) Recoveries 1 216 2 241 33 123 616 Net (Charge-offs)/Recoveries (3,660) 214 (54) 74 (43) (122) (3,591) Balance at End of Period $ 51,670 $ 26,239 $ 7,242 $ 12,141 $ 8,524 $ 2,532 $ 108,348 (1) Excludes the provision for credit losses for unfunded commitments. Nine Months Ended September 30, 2022 (dollars in thousands) Commercial Commercial and Commercial Business Banking Consumer Other Total Allowance for credit losses on loans: Balance at beginning of period $ 50,700 $ 19,727 $ 5,355 $ 11,338 $ 8,733 $ 2,723 $ 98,576 Provision for credit losses on loans (1) (8,471) 4,573 68 3,158 2,083 1,393 2,804 Charge-offs (827) (5,797) — (1,924) (299) (1,052) (9,899) Recoveries 432 6,835 1 599 109 237 8,213 Net (Charge-offs)/Recoveries (395) 1,038 1 (1,325) (190) (815) (1,686) Balance at End of Period $ 41,834 $ 25,338 $ 5,424 $ 13,171 $ 10,626 $ 3,301 $ 99,694 (1) Excludes the provision for credits losses for unfunded commitments. Nine Months Ended September 30, 2021 (dollars in thousands) Commercial Commercial and Commercial Business Banking (1) Consumer Other Total Allowance for credit losses on loans: Balance at beginning of period $ 65,656 $ 16,100 $ 7,239 $ 15,917 $ 10,014 $ 2,686 $ 117,612 Provision for credit losses on loans (1) (2,922) 14,552 54 (2,736) (1,335) (1) 7,612 Charge-offs (12,030) (4,777) (56) (1,494) (422) (698) (19,477) Recoveries 966 364 5 454 267 545 2,601 Net (Charge-offs)/Recoveries (11,064) (4,413) (51) (1,040) (155) (153) (16,876) Balance at End of Period $ 51,670 $ 26,239 $ 7,242 $ 12,141 $ 8,524 $ 2,532 $ 108,348 (1) Excludes the provision for credits losses for unfunded commitments. |