Loans | Loans The following is a summary of loans: (Dollars in thousands) December 31, 2019 December 31, 2018 Amount % Amount % Commercial: Commercial real estate (1) $1,547,572 40 % $1,392,408 38 % Commercial & industrial (2) 585,289 15 620,704 17 Total commercial 2,132,861 55 2,013,112 55 Residential Real Estate: Residential real estate (3) 1,449,090 37 1,360,387 37 Consumer: Home equity 290,874 7 280,626 8 Other (4) 20,174 1 26,235 — Total consumer 311,048 8 306,861 8 Total loans (5) $3,892,999 100 % $3,680,360 100 % (1) Commercial real estate (“CRE”) consists of commercial mortgages primarily secured by income-producing property, as well as construction and development loans. Construction and development loans are made to businesses for land development or the on-site construction of industrial, commercial, or residential buildings. (2) Commercial and industrial (“C&I”) consists of loans to businesses and individuals, a substantial portion of which are fully or partially collateralized by real estate. (3) Residential real estate consists of mortgage and homeowner construction loans secured by one- to four-family residential properties. (4) Other consists of loans to individuals secured by general aviation aircraft and other personal installment loans. (5) Includes net unamortized loan origination costs of $5.3 million and $4.7 million , respectively, at December 31, 2019 and 2018 and net unamortized premiums on purchased loans of $995 thousand and $703 thousand , respectively, at December 31, 2019 and 2018 . As of December 31, 2019 and 2018 , loans amounting to $2.1 billion and $2.0 billion , respectively, were pledged as collateral to the FHLB under a blanket pledge agreement and to the FRB for the discount window. See Note 11 for additional disclosure regarding borrowings. Concentrations of Credit Risk A significant portion of our loan portfolio is concentrated among borrowers in southern New England and a substantial portion of the portfolio is collateralized by real estate in this area. The ability of single family residential and consumer borrowers to honor their repayment commitments is generally dependent on the level of overall economic activity within the market area and real estate values. The ability of commercial borrowers to honor their repayment commitments is dependent on the general economy as well as the health of the real estate economic sector in the Corporation’s market area. Past Due Loans Past due status is based on the contractual payment terms of the loan. The following tables present an aging analysis of past due loans, segregated by class of loans: (Dollars in thousands) Days Past Due December 31, 2019 30-59 60-89 Over 90 Total Past Due Current Total Loans Commercial: Commercial real estate $830 $— $603 $1,433 $1,546,139 $1,547,572 Commercial & industrial 1 — — 1 585,288 585,289 Total commercial 831 — 603 1,434 2,131,427 2,132,861 Residential Real Estate: Residential real estate 4,574 2,155 4,700 11,429 1,437,661 1,449,090 Consumer: Home equity 971 729 996 2,696 288,178 290,874 Other 42 — 88 130 20,044 20,174 Total consumer 1,013 729 1,084 2,826 308,222 311,048 Total loans $6,418 $2,884 $6,387 $15,689 $3,877,310 $3,892,999 (Dollars in thousands) Days Past Due December 31, 2018 30-59 60-89 Over 90 Total Past Due Current Total Loans Commercial: Commercial real estate $155 $925 $— $1,080 $1,391,328 $1,392,408 Commercial & industrial — — — — 620,704 620,704 Total commercial 155 925 — 1,080 2,012,032 2,013,112 Residential Real Estate: Residential real estate 6,318 2,693 1,509 10,520 1,349,867 1,360,387 Consumer: Home equity 1,281 156 552 1,989 278,637 280,626 Other 33 — — 33 26,202 26,235 Total consumer 1,314 156 552 2,022 304,839 306,861 Total loans $7,787 $3,774 $2,061 $13,622 $3,666,738 $3,680,360 Included in past due loans as of December 31, 2019 and 2018 , were nonaccrual loans of $11.5 million and $8.6 million , respectively. All loans 90 days or more past due at December 31, 2019 and 2018 were classified as nonaccrual. Impaired Loans A loan is considered impaired when, based on current information and events, it is probable that the Corporation will not be able to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Impaired loans include nonaccrual loans and loans restructured in a troubled debt restructuring. The Corporation identifies loss allocations for impaired loans on an individual loan basis. The following is a summary of impaired loans: (Dollars in thousands) Recorded Investment (1) Unpaid Principal Related Allowance December 31, 2019 2018 2019 2018 2019 2018 No Related Allowance Recorded Commercial: Commercial real estate $— $925 $— $926 $— $— Commercial & industrial — 4,681 — 4,732 — — Total commercial — 5,606 — 5,658 — — Residential Real Estate: Residential real estate 13,968 9,347 14,803 9,695 — — Consumer: Home equity 1,471 1,360 1,472 1,360 — — Other 88 — 88 — — — Total consumer 1,559 1,360 1,560 1,360 — — Subtotal 15,527 16,313 16,363 16,713 — — With Related Allowance Recorded Commercial: Commercial real estate 603 — 926 — — — Commercial & industrial 657 52 657 73 580 — Total commercial 1,260 52 1,583 73 580 — Residential Real Estate: Residential real estate 687 364 714 390 95 100 Consumer: Home equity 292 85 291 85 291 24 Other 18 22 18 22 2 3 Total consumer 310 107 309 107 293 27 Subtotal 2,257 523 2,606 570 968 127 Total impaired loans $17,784 $16,836 $18,969 $17,283 $968 $127 Total: Commercial $1,260 $5,658 $1,583 $5,731 $580 $— Residential real estate 14,655 9,711 15,517 10,085 95 100 Consumer 1,869 1,467 1,869 1,467 293 27 Total impaired loans $17,784 $16,836 $18,969 $17,283 $968 $127 (1) The recorded investment in impaired loans consists of unpaid principal balance, net of charge-offs, interest payments received applied to principal and unamortized deferred loan origination fees and costs. For accruing impaired loans (troubled debt restructurings for which management has concluded that the collectibility of the loan is not in doubt), the recorded investment also includes accrued interest. The following table presents the average recorded investment balance of impaired loans and interest income recognized on impaired loans segregated by loan class: (Dollars in thousands) Average Recorded Investment Interest Income Recognized Years ended December 31, 2019 2018 2017 2019 2018 2017 Commercial: Commercial real estate $864 $1,050 $8,425 $1 $— $79 Commercial & industrial 2,149 5,403 6,445 106 259 281 Total commercial 3,013 6,453 14,870 107 259 360 Residential real estate: Residential real estate 11,575 9,645 14,571 473 393 444 Consumer: Home equity 1,466 1,182 685 58 52 31 Other 68 69 143 2 5 10 Total consumer 1,534 1,251 828 60 57 41 Totals $16,122 $17,349 $30,269 $640 $709 $845 Nonaccrual Loans The following is a summary of nonaccrual loans, segregated by class of loans: (Dollars in thousands) December 31, 2019 2018 Commercial: Commercial real estate $603 $925 Commercial & industrial 657 — Total commercial 1,260 925 Residential Real Estate: Residential real estate 14,297 9,346 Consumer: Home equity 1,763 1,436 Other 88 — Total consumer 1,851 1,436 Total nonaccrual loans $17,408 $11,707 Accruing loans 90 days or more past due $— $— As of December 31, 2019 and 2018 , loans secured by one- to four-family residential property amounting to $5.8 million and $761 thousand , respectively, were in process of foreclosure. Nonaccrual loans of $5.9 million and $3.1 million , respectively, were current as to the payment of principal and interest as of December 31, 2019 and 2018 . There were no significant commitments to lend additional funds to borrowers whose loans were on nonaccrual status at December 31, 2019 . Troubled Debt Restructurings The recorded investment in troubled debt restructurings consists of unpaid principal balance, net of charge-offs and unamortized deferred loan origination fees and costs, at the time of the restructuring. For accruing troubled debt restructured loans, the recorded investment also includes accrued interest. The recorded investment in troubled debt restructurings was $869 thousand and $5.6 million , respectively, at December 31, 2019 and 2018 . The allowance for loan losses included specific reserves for these troubled debt restructurings of $97 thousand and $103 thousand , respectively, at December 31, 2019 and 2018 . In 2019 , there were no loans modified as a troubled debt restructuring. In 2018 , there was one commercial and industrial loan modified as a troubled debt restructuring with a pre-modification and post-modification recorded investment of $608 thousand . This troubled debt restructuring included a combination of concessions pertaining to maturity and interest only payment terms. In 2019 , there were no payment defaults on troubled debt restructured loans modified within the previous 12 months. In 2018 , payment defaults on troubled debt restructured loans modified within the previous 12 months occurred on one loan with a carrying value of $608 thousand at the time of default. As of December 31, 2019 , there were no significant commitments to lend additional funds to borrowers whose loans were restructured. Credit Quality Indicators Commercial The Corporation utilizes an internal rating system to assign a risk to each of its commercial loans. Loans are rated on a scale of 1 to 10. This scale can be assigned to three broad categories including “pass” for ratings 1 through 6, “special mention” for 7-rated loans, and “classified” for loans rated 8, 9 or 10. The loan rating system takes into consideration parameters including the borrower’s financial condition, the borrower’s performance with respect to loan terms, the adequacy of collateral, the adequacy of guarantees and other credit quality characteristics. For non-impaired loans, the Corporation takes the risk rating into consideration along with other credit attributes in the establishment of an appropriate allowance for loan losses. See Note 6 for additional information. A description of the commercial loan categories is as follows: Pass - Loans with acceptable credit quality, defined as ranging from superior or very strong to a status of lesser stature. Superior or very strong credit quality is characterized by a high degree of cash collateralization or strong balance sheet liquidity. Lesser stature loans have an acceptable level of credit quality but exhibit some weakness in various credit metrics such as collateral adequacy, cash flow, secondary sources of repayment, or performance inconsistency or may be in an industry or of a loan type known to have a higher degree of risk. Special Mention - Loans with 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 Bank’s position as creditor at some future date. Special Mention assets are not adversely classified and do not expose the Bank to sufficient risk to warrant adverse classification. Examples of these conditions include but are not limited to outdated or poor quality financial data, strains on liquidity and leverage, losses or negative trends in operating results, marginal cash flow, weaknesses in occupancy rates or trends in the case of commercial real estate and frequent delinquencies. Classified - Loans identified as “substandard,” “doubtful” or “loss” based on criteria consistent with guidelines provided by banking regulators. A “substandard” loan has defined weaknesses which make payment default or principal exposure likely, but not yet certain. Such loans are apt to be dependent upon collateral liquidation, a secondary source of repayment or an event outside of the normal course of business. The loans are closely watched and are either already on nonaccrual status or may be placed on nonaccrual status when management determines there is uncertainty of collectability. A “doubtful” loan is placed on nonaccrual status and has a high probability of loss, but the extent of the loss is difficult to quantify due to dependency upon collateral having a value that is difficult to determine or upon some near-term event which lacks certainty. A loan in the “loss” category is considered generally uncollectible or the timing or amount of payments cannot be determined. “Loss” is not intended to imply that the loan has no recovery value, but rather, it is not practical or desirable to continue to carry the asset. The Corporation’s procedures call for loan ratings and classifications to be revised whenever information becomes available that indicates a change is warranted. On a quarterly basis, management reviews the criticized loan portfolio, which generally consists of commercial loans that are risk-rated special mention or worse, and other selected loans. Management’s review focuses on the current status of the loans and strategies to improve the credit. An annual loan review program is conducted by a third party to provide an independent evaluation of the creditworthiness of the commercial loan portfolio, the quality of the underwriting and credit risk management practices and the appropriateness of the risk rating classifications. This review is supplemented with selected targeted internal reviews of the commercial loan portfolio. The following table presents the commercial loan portfolio, segregated by category of credit quality indicator: (Dollars in thousands) Pass Special Mention Classified December 31, 2019 2018 2019 2018 2019 2018 Commercial: Commercial real estate $1,546,139 $1,387,666 $830 $205 $603 $4,537 Commercial & industrial 549,416 559,019 24,961 50,426 10,912 11,259 Total commercial $2,095,555 $1,946,685 $25,791 $50,631 $11,515 $15,796 Residential and Consumer Management monitors the relatively homogeneous residential real estate and consumer loan portfolios on an ongoing basis using delinquency information by loan type. For non-impaired residential real estate and consumer loans, the Corporation assigns loss allocation factors to each respective loan type. Other techniques are utilized to monitor indicators of credit deterioration in the residential real estate loans and consumer loan portfolios. Among these techniques is the periodic tracking of loans with an updated Fair Isaac Corporation (“FICO”) score and an estimated loan to value (“LTV”) ratio. LTV ratio is determined via statistical modeling analyses. The indicated LTV levels are estimated based on such factors as the location, the original LTV ratio, and the date of origination of the loan and do not reflect actual appraisal amounts. The results of these analyses and other loan review procedures, including selected targeted internal reviews, are taken into consideration in the determination of loss allocation factors for residential real estate and home equity consumer credits. The following table presents the residential and consumer loan portfolios, segregated by category of credit quality indicator: (Dollars in thousands) Current Past Due December 31, 2019 2018 2019 2018 Residential Real Estate: Residential real estate $1,437,661 $1,349,867 $11,429 $10,520 Consumer: Home equity $288,178 $278,637 $2,696 $1,989 Other 20,044 26,202 130 33 Total consumer $308,222 $304,839 $2,826 $2,022 Loan Servicing Activities Loans sold with servicing retained result in the capitalization of loan servicing rights. The following table presents an analysis of loan servicing rights: (Dollars in thousands) Loan Servicing Rights Valuation Allowance Total Balance at December 31, 2016 $3,493 $— $3,493 Loan servicing rights capitalized 1,104 — 1,104 Amortization (984 ) — (984 ) Balance at December 31, 2017 3,613 — 3,613 Loan servicing rights capitalized 905 — 905 Amortization (867 ) — (867 ) Balance at December 31, 2018 3,651 — 3,651 Loan servicing rights capitalized 902 — 902 Amortization (1,027 ) — (1,027 ) Balance at December 31, 2019 $3,526 $— $3,526 The following table presents estimated aggregate amortization expense related to loan servicing assets: (Dollars in thousands) Years ending December 31: 2020 $825 2021 632 2022 484 2023 371 2024 284 2025 and thereafter 930 Total estimated amortization expense $3,526 Loans sold to others are serviced by the Corporation on a fee basis under various agreements. Loans serviced for others are not included in the Consolidated Balance Sheets. The following table presents the balance of loans serviced for others by type of loan: (Dollars in thousands) December 31, 2019 2018 Residential mortgages $586,996 $588,534 Commercial loans 159,948 142,218 Total $746,944 $730,752 |