Loans | Loans The following is a summary of loans: (Dollars in thousands) June 30, December 31, 2019 Commercial: Commercial real estate (1) $1,630,998 $1,547,572 Commercial & industrial (2) 852,445 585,289 Total commercial 2,483,443 2,132,861 Residential Real Estate: Residential real estate (3) 1,508,223 1,449,090 Consumer: Home equity 277,632 290,874 Other (4) 18,343 20,174 Total consumer 295,975 311,048 Total loans (5) $4,287,641 $3,892,999 (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 portion of which are fully or partially collateralized by real estate. C&I also includes $212.2 million of PPP loans as of June 30, 2020 . (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 fees of $453 thousand at June 30, 2020 and net unamortized loan origination costs of $5.3 million , at December 31, 2019 and net unamortized premiums on purchased loans of $1.1 million and $995 thousand , respectively, at June 30, 2020 and December 31, 2019 . As of June 30, 2020 and December 31, 2019 , loans amounting to $2.2 billion and $2.1 billion , respectively, were pledged as collateral to the FHLB under a blanket pledge agreement and to the FRB. See Note 7 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 age analysis of past due loans, segregated by class of loans: (Dollars in thousands) Days Past Due June 30, 2020 30-59 60-89 Over 90 Total Past Due Current Total Loans Commercial: Commercial real estate $— $— $431 $431 $1,630,567 $1,630,998 Commercial & industrial 2 1 — 3 852,442 852,445 Total commercial 2 1 431 434 2,483,009 2,483,443 Residential Real Estate: Residential real estate 3,858 3,545 5,096 12,499 1,495,724 1,508,223 Consumer: Home equity 829 16 788 1,633 275,999 277,632 Other 16 2 88 106 18,237 18,343 Total consumer 845 18 876 1,739 294,236 295,975 Total loans $4,705 $3,564 $6,403 $14,672 $4,272,969 $4,287,641 (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 Included in past due loans as of June 30, 2020 and December 31, 2019 , were nonaccrual loans of $10.6 million and $11.5 million , respectively. All loans 90 days or more past due at June 30, 2020 and December 31, 2019 were classified as nonaccrual. Nonaccrual Loans Loans, with the exception of certain well-secured loans that are in the process of collection, are placed on nonaccrual status and interest recognition is suspended when such loans are 90 days or more overdue with respect to principal and/or interest, or sooner if considered appropriate by management. Well-secured loans are permitted to remain on accrual status provided that full collection of principal and interest is assured and the loan is in the process of collection. Loans are also placed on nonaccrual status when, in the opinion of management, full collection of principal and interest is doubtful. When loans are placed on nonaccrual status, interest previously accrued but not collected is reversed against current period income. Subsequent interest payments received on nonaccrual loans are applied to the outstanding principal balance of the loan or recognized as interest income depending on management’s assessment of the ultimate collectibility of the loan. Loans are removed from nonaccrual status when they have been current as to principal and interest for a period of time, the borrower has demonstrated an ability to comply with repayment terms, and when, in management’s opinion, the loans are considered to be fully collectible. The following is a summary of nonaccrual loans, segregated by class of loans: (Dollars in thousands) Jun 30, Dec 31, Commercial: Commercial real estate $431 $603 Commercial & industrial — 657 Total commercial 431 1,260 Residential Real Estate: Residential real estate 13,850 14,297 Consumer: Home equity 1,648 1,763 Other 88 88 Total consumer 1,736 1,851 Total nonaccrual loans $16,017 $17,408 Accruing loans 90 days or more past due $— $— For nonaccrual loans with a carrying value of $1.4 million as of June 30, 2020 , no ACL was deemed necessary. As of June 30, 2020 and December 31, 2019 , loans secured by one- to four-family residential property amounting to $3.4 million and $5.8 million , respectively, were in process of foreclosure. Nonaccrual loans of $5.5 million and $5.9 million , respectively, were current as to the payment of principal and interest at June 30, 2020 and December 31, 2019 . There were no significant commitments to lend additional funds to borrowers whose loans were on nonaccrual status at June 30, 2020 . The following table presents interest income recognized on nonaccrual loans segregated by loan class: (Dollars in thousands) Interest Income Recognized Periods ended June 30, 2020 Three Months Six Months Commercial: Commercial real estate $— $— Commercial & industrial — — Total commercial — — Residential Real Estate: Residential real estate 103 271 Consumer: Home equity 17 40 Other — — Total consumer 17 40 Total $120 $311 Troubled Debt Restructurings A loan that has been modified or renewed is considered to be a troubled debt restructuring (“TDR”) when two conditions are met: 1) the borrower is experiencing financial difficulty and 2) concessions are made for the borrower’s benefit that would not otherwise be considered for a borrower or a transaction with similar credit risk characteristics. These concessions may include modifications of the terms of the debt such as deferral of payments, extension of maturity, reduction of principal balance, reduction of the stated interest rate other than normal market rate adjustments, or a combination of these concessions. Debt may be bifurcated with separate terms for each tranche of the restructured debt. Restructuring of a loan in lieu of aggressively enforcing the collection of the loan may benefit the Corporation by increasing the ultimate probability of collection. The Corporation's ACL reflects the effects of a TDR when management reasonably expects at the reporting date that a TDR will be executed with an individual borrower. A TDR is considered reasonably expected no later than the point when management concludes that modification is the best course of action and it is at least reasonably possible that the troubled borrower will accept some form of concession to avoid a default. Reasonably expected TDRs and executed TDRs are evaluated individually to determine the required ACL. Troubled debt restructurings that did not involve a below-market rate concession and perform in accordance with their modified contractual terms for a reasonable period of time may be included in the Corporation’s existing pools based on the underlying risk characteristics of the loan to measure the ACL. Restructured loans are classified as accruing or non-accruing based on management’s assessment of the collectibility of the loan. Loans which are already on nonaccrual status at the time of the restructuring generally remain on nonaccrual status for approximately six months before management considers such loans for return to accruing status. Accruing restructured loans are placed into nonaccrual status if and when the borrower fails to comply with the restructured terms and management deems it unlikely that the borrower will return to a status of compliance in the near term and full collection of principal and interest is in doubt. TDRs are reported as such for at least one year from the date of the restructuring. In years after the restructuring, TDRs are removed from this classification if the restructuring did not involve a below-market rate concession and the loan is performing in accordance with their modified contractual terms for a reasonable period of time. The recorded investment in TDRs 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 TDRs, the recorded investment also includes accrued interest. The recorded investment in TDRs was $6.5 million and $869 thousand , respectively, at June 30, 2020 and December 31, 2019 . The ACL on loans included specific reserves for these TDRs of $137 thousand and $97 thousand , respectively, at June 30, 2020 and December 31, 2019 . As of June 30, 2020 , there were no significant commitments to lend additional funds to borrowers whose loans had been restructured in a TDR. The Corporation has elected to account for eligible loan modifications under Section 4013 of the CARES Act. To be eligible under Section 4013 of the CARES Act, a loan modification must be (1) related to the COVID-19 pandemic; (2) executed on a loan that was not more than 30 days past due as of December 31, 2019; and (3) executed between March 1, 2020, and the earlier of (A) 60 days after the date of termination of the national emergency declared by the President on March 13, 2020 concerning the COVID-19 outbreak (the “national emergency”) or (B) December 31, 2020. Eligible loan modifications are not required to be classified as TDRs and will not be reported as past due provided that they are performing in accordance with the modified terms. Interest income will continue to be recognized in accordance with GAAP unless the loan is placed on nonaccrual status in accordance with the nonaccrual loans accounting policy described above. As of June 30, 2020, Washington Trust has executed 583 modifications on loan balances of $652.2 million . The majority of these modifications qualified as eligible loan modifications under Section 4013 of the CARES Act and therefore, were not required to be classified as TDRs and were not reported as past due. Twelve of these modifications on loan balances of $5.6 million were past due before the COVID-19 pandemic and therefore, were classified as TDRs and were included in past due loans as of June 30, 2020. The following tables present loans modified as a TDR: (Dollars in thousands) Outstanding Recorded Investment (1) # of Loans Pre-Modifications Post-Modifications Three months ended June 30, 2020 2019 2020 2019 2020 2019 Commercial: Commercial real estate 1 — $841 $— $841 $— Commercial & industrial 2 — 460 — 460 — Total commercial 3 — 1,301 — 1,301 — Residential Real Estate: Residential real estate 6 — 3,512 — 3,512 — Consumer: Home equity 3 — 802 — 802 — Other — — — — — — Total consumer 3 — $802 $— $802 $— Total 12 — $5,615 $— $5,615 $— (1) The recorded investment in TDRs 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 TDRs, the recorded investment also includes accrued interest. (Dollars in thousands) Outstanding Recorded Investment (1) # of Loans Pre-Modifications Post-Modifications Six months ended June 30, 2020 2019 2020 2019 2020 2019 Commercial: Commercial real estate 1 — $841 $— $841 $— Commercial & industrial 2 — 460 — 460 — Total commercial 3 — 1,301 — 1,301 — Residential Real Estate: Residential real estate 6 — 3,512 — 3,512 — Consumer: Home equity 3 — 802 — 802 — Other — — — — — — Total consumer 3 — $802 $— $802 $— Total 12 — $5,615 $— $5,615 $— (1) The recorded investment in TDRs 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 TDRs, the recorded investment also includes accrued interest. The following table presents information on how loans were modified as a TDR: (Dollars in thousands) Three Months Six Months Periods ended June 30, 2020 2019 2020 2019 Below-market interest rate concession $— $— $— $— Payment deferral 5,202 — 5,202 — Maturity / amortization concession — — — — Interest only payments — — — — Combination (1) 413 — 413 — Total $5,615 $— $5,615 $— (1) Loans included in this classification were modified with a combination of any two of the concessions listed in this table. For the three and six months ended June 30, 2020 , payment defaults on TDRs modified within the previous 12 months occurred on one loan with a carrying value of $47 thousand at the time of the default. For the three and six months ended June 30, 2019 , there were no payment defaults on TDRs modified within the previous 12 months. Individually Analyzed Loans Effective January 1, 2020, individually analyzed loans include nonaccrual commercial loans, loans classified as TDRs, and certain other loans based on the underlying risk characteristics and the discretion of management to individually analyze such loans. As of June 30, 2020 , the carrying value of individually analyzed loans amounted to $7.1 million , of which $4.3 million were considered collateral dependent. For collateral dependent loans where management has determined that foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and repayment of the loan is to be provided substantially through the operation or sale of the collateral, the ACL is measured based on the difference between the fair value of the collateral and the amortized cost basis of the loan as of the measurement date. See Note 10 for additional disclosure regarding fair value of individually analyzed collateral dependent loans. The following table presents the carrying value of collateral dependent individually analyzed loans: (Dollars in thousands) As of June 30, 2020 Carrying Value Related Allowance Commercial: Commercial real estate (1) $431 $— Commercial & industrial (2) 414 — Total commercial 845 — Residential Real Estate: Residential real estate (3) 2,664 — Consumer: Home equity (3) 754 233 Other — — Total consumer 754 233 Total $4,263 $233 (1) Secured by income-producing property. (2) Secured by business assets. (3) Secured by one- to four-family residential properties. Prior to January 1, 2020, impaired loans included nonaccrual loans and loans restructured in a TDR. The Corporation identified loss allocations for impaired loans on an individual loan basis. The following is a summary of impaired loans: (Dollars in thousands) As of December 31, 2019 Recorded Investment (1) Unpaid Principal Related Allowance No Related Allowance Recorded Commercial: Commercial real estate $— $— $— Commercial & industrial — — — Total commercial — — — Residential Real Estate: Residential real estate 13,968 14,803 — Consumer: Home equity 1,471 1,472 — Other 88 88 — Total consumer 1,559 1,560 — Subtotal 15,527 16,363 — With Related Allowance Recorded Commercial: Commercial real estate $603 $926 $— Commercial & industrial 657 657 580 Total commercial 1,260 1,583 580 Residential Real Estate: Residential real estate 687 714 95 Consumer: Home equity 292 291 291 Other 18 18 2 Total consumer 310 309 293 Subtotal 2,257 2,606 968 Total impaired loans $17,784 $18,969 $968 Total: Commercial $1,260 $1,583 $580 Residential real estate 14,655 15,517 95 Consumer 1,869 1,869 293 Total impaired loans $17,784 $18,969 $968 (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 (TDRs 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) Three Months Six Months For the periods ended June 30, 2019 Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized Commercial: Commercial real estate $926 $— $951 $1 Commercial & industrial 3,868 49 4,276 103 Total commercial 4,794 49 5,227 104 Residential Real Estate: Residential real estate 10,728 107 10,441 222 Consumer: Home equity 1,332 13 1,406 27 Other 35 — 28 — Total consumer 1,367 13 1,434 27 Total $16,889 $169 $17,102 $353 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. The Corporation takes the risk rating into consideration along with other credit attributes in the establishment of an appropriate allowance for credit losses on loans. 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 may exhibit some weakness in various credit metrics such as collateral adequacy, cash flow, performance or may be in an industry or of a loan type known to have a higher degree of risk. These weaknesses may be mitigated by secondary sources of repayment, including SBA guarantees. 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 collectibility. 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 watched asset list, which generally consists of commercial loans that are risk-rated 6 or worse, highly leveraged transaction loans, high-volatility commercial real estate 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. 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. The following table summarizes the Corporation’s loan portfolio by credit quality indicator and loan portfolio segment: (Dollars in thousands) Term Loans Amortized Cost by Origination Year As of June 30, 2020 2020 2019 2018 2017 2016 Prior Revolving Loans Amortized Cost Revolving Loans Converted to Term Loans Total Commercial: CRE: Pass $204,928 $376,942 $338,798 $249,371 $150,315 $285,727 $11,917 $2,422 $1,620,420 Special Mention — — — 9,301 — 846 — — 10,147 Classified — — — — — 431 — — 431 Total CRE 204,928 376,942 338,798 258,672 150,315 287,004 11,917 2,422 1,630,998 C&I: Pass 286,230 103,671 84,136 63,842 68,551 112,282 100,844 1,462 821,018 Special Mention 271 — — 2,434 — 16,897 1,630 68 21,300 Classified 414 — — — — 7,592 2,121 — 10,127 Total C&I 286,915 103,671 84,136 66,276 68,551 136,771 104,595 1,530 852,445 Residential Real Estate: Residential real estate: Current 227,967 321,681 205,996 201,423 160,586 378,071 — — 1,495,724 Past Due — 510 631 2,139 111 9,108 — — 12,499 Total residential real estate 227,967 322,191 206,627 203,562 160,697 387,179 — — 1,508,223 Consumer: Home equity: Current 6,958 8,591 5,204 2,108 1,375 5,026 234,470 12,267 275,999 Past Due — — — 176 — 13 497 947 1,633 Total home equity 6,958 8,591 5,204 2,284 1,375 5,039 234,967 13,214 277,632 Other: Current 1,132 2,645 1,842 2,113 742 9,434 327 2 18,237 Past Due 8 — — 11 87 — — — 106 Total other 1,140 2,645 1,842 2,124 829 9,434 327 2 18,343 Total Loans $727,908 $814,040 $636,607 $532,918 $381,767 $825,427 $351,806 $17,168 $4,287,641 Consistent with industry practice, Washington Trust may renew commercial loans at or immediately prior to their maturity. Renewals subject to full credit evaluation before being granted are reported as current period originations in the table above. The following table presents the commercial loan portfolio, segregated by category of credit quality indicator: (Dollars in thousands) As of December 31, 2019 Pass Special Mention Classified Commercial: Commercial real estate $1,546,139 $830 $603 Commercial & industrial 549,416 24,961 10,912 Total commercial $2,095,555 $25,791 $11,515 The following table presents the residential and consumer loan portfolios, segregated by category of credit quality indicator: (Dollars in thousands) As of December 31, 2019 Current Past Due Residential Real Estate: Residential real estate $1,437,661 $11,429 Consumer: Home equity $288,178 $2,696 Other 20,044 130 Total consumer $308,222 $2,826 |