Loans and Loans Held for Sale

9 Months Ended

Sep. 30, 2020

Loans are presented net of unearned income of $18.6 million at September 30, 2020 and $4.6 million at December 31, 2019 and net of a discount related to purchase accounting fair value adjustments of $9.3 million at September 30, 2020 and $12.3 million at December 31, 2019. The following table presents loans as of the dates presented:


(dollars in thousands)	September 30, 2020		December 31, 2019
Commercial
Commercial real estate	$	3,290,138	$	3,416,518
Commercial and industrial	2,042,467		1,720,833
Commercial construction	477,429		375,445
Total Commercial Loans	5,810,034		5,512,796
Consumer
Residential mortgage	950,887		998,585
Home Equity	537,869		538,348
Installment and other consumer	80,735		79,033
Consumer construction	15,343		8,390
Total Consumer Loans	1,584,834		1,624,356
Total Portfolio Loans	7,394,868		7,137,152
Loans held for sale	16,724		5,256
Total Loans(1)	$	7,411,592	$	7,142,408

(1) Excludes interest receivable of $28.0 million at September 30, 2020 and $22.1 million at December 31, 2019. Interest receivable is included in other assets in the consolidated balance sheets.

Commercial and industrial loans, or C&I, included $550.1 million of loans originated under the Paycheck Protection Program, or PPP, at September 30, 2020. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security, or CARES Act was signed into law. The CARES Act included the PPP, a program designed to aid small and medium sized businesses through federally guaranteed loans distributed through banks. PPP loans are forgivable, in whole or in part, if the proceeds are used for payroll and other permitted expenses in accordance with the requirements of the PPP. The loans are 100 percent guaranteed by the Small Business Administration, or SBA. These loans carry a fixed rate of 1.00 percent and a term of two years, or five years for loans approved by the SBA, on or after June 5, 2020. Payments are deferred for at least six months of the loan. The SBA pays us a processing fee ranging from 1 percent to 5 percent based on the size of the loan. Interest is accrued as earned and loan origination fees and direct costs are deferred and accreted or amortized into interest income over the life of the loan using the level yield method. When a PPP loan is paid off or forgiven by the SBA, the remaining unaccreted or unamortized net origination fees or costs will be immediately recognized into income.

We attempt to limit our exposure to credit risk by diversifying our loan portfolio by segment, geography, collateral and industry and actively managing concentrations. When concentrations exist in certain segments, we mitigate this risk by reviewing the relevant economic indicators and internal risk rating trends and through stress testing of the loans in these segments. Total commercial loans represented 78.6 percent of total portfolio loans at September 30, 2020 and 77.2 percent at December 31, 2019. Within our commercial portfolio, the CRE and Commercial Construction portfolios combined comprised $3.8 billion, or 64.8 percent, of total commercial loans at September 30, 2020 and $3.8 billion, or 68.8 percent, of total commercial loans at December 31, 2019 and 50.9 percent of total portfolio loans at September 30, 2020 and 53.1 percent at December 31, 2019. Further segmentation of the CRE and commercial construction portfolios by collateral type reveals no concentration in excess of 15 percent of both total CRE and commercial construction loans at September 30, 2020 and 11 percent at December 31, 2019.

We lend primarily in Pennsylvania and the contiguous states of Ohio, New York, West Virginia and Maryland. The majority of our commercial and consumer loans are made to businesses and individuals in this geography, resulting in a concentration. We believe our knowledge and familiarity with customers and conditions locally outweighs this geographic concentration risk. The conditions of the local and regional economies are monitored closely through publicly available data and information supplied by our customers. We also use subscription services for additional geographic and industry specific information. Our CRE and commercial construction portfolios have exposure outside of this geography of 6.0 percent of the combined portfolios and 3.1 percent of total portfolio loans at September 30, 2020. This compares to 5.4 percent of the combined portfolios and 2.9 percent of total portfolio loans at December 31, 2019.

We individually evaluate all substandard and nonaccrual commercial loans that have experienced a forbearance or change in terms agreement, and all substandard consumer and residential mortgage loans that entered into an agreement to modify their existing loan, to determine if they should be designated as troubled debt restructurings, or TDRs.

All TDRs will be reported as such for the remaining life of the loan, unless the restructuring agreement specifies an interest rate equal to or greater than the rate that would be accepted at the time of the restructuring for a new loan with comparable risk and it is fully expected that the remaining principal and interest will be collected according to the restructured agreement. TDRs can be returned to accruing status if the ultimate collectability of all contractual amounts due, according to the restructured agreement, is not in doubt and there is a period of a minimum of six months of satisfactory payment performance by the borrower either immediately before or after the restructuring.

The following tables summarize restructured loans as of the dates presented:


	September 30, 2020
(dollars in thousands)	Performing TDRs		Nonperforming TDRs		Total TDRs
Commercial real estate	$	19	$	14,504	$	14,523
Commercial and industrial	7,322		1,549		8,871
Commercial construction	3,986		—		3,986
Business banking	1,539		441		1,980
Consumer real estate	5,606		2,154		7,760
Other consumer	6		—		6
Total(1)	$	18,478	$	18,648	$	37,126

(1) 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 Instruments.


	December 31, 2019
(dollars in thousands)	Performing TDRs		Nonperforming TDRs		Total TDRs
Commercial real estate	$	22,233	$	6,713	$	28,946
Commercial and industrial	6,909		695		7,604
Commercial construction	1,425		—		1,425
Residential mortgage	2,013		822		2,835
Home equity	4,371		678		5,049
Installment and other consumer	9		4		13
Total	$	36,960	$	8,912	$	45,872

The significant increase in nonperforming TDRs at September 30, 2020 compared to December 31, 2019 was primarily related to a $21.3 million CRE relationship, which was placed on nonaccrual in the first quarter of 2020 and charged down by $10.0 million in the third quarter of 2020, leaving a remaining outstanding balance of $11.3 million. The relationship experienced continued deterioration as a result of the COVID-19 pandemic.

There were two TDRs totaling $0.1 million that returned to accruing status during the three months ended September 30, 2020 and three TDRs totaling $22.7 million that returned to accruing status during the nine months ended September 30, 2020. There were three TDRs totaling $0.2 million that returned to accruing status during the three months ended September 30, 2019 and five TDRs totaling $0.2 million that returned to accruing status during the nine months ended September 30, 2019.

The following tables present the restructured loans by portfolio segment and by type of concession for the three and nine months ended September 30, 2020:


	Three Months Ended September 30, 2020									Nine Months Ended September 30, 2020
(dollars in thousands)	Number of Loans			Pre-Modification Outstanding Recorded Investment(1)		Post-Modification Outstanding Recorded Investment(1)		Total Difference in Recorded Investment		Number of Loans		Pre-Modification Outstanding Recorded Investment(1)		Post-Modification Outstanding Recorded Investment(1)		Total Difference in Recorded Investment
Totals by Loan Segment
Commercial Real Estate





Principal deferral and maturity date extension	—			—		—		—		1		2,210		2,210		—



Maturity date extension and payment delay	1			333		171		(162)		1		333		171		(162)

Total Commercial Real Estate	1			333		171		(162)		2		2,543		2,381		(162)
Commercial and Industrial



Principal deferral and maturity date extension	—			—		—		—		1		2,467		1,263		(1,205)
Maturity date extension and interest rate reduction	1			3,735		3,735		—		1		3,735		3,735		—




Below market interest rate and payment delay	1			287		287		—		2		362		361		(1)

Payment deferral resulting in payment delay	—			—		—		—		1		93		23		(70)
Total Commercial and Industrial	2			4,022		4,022		—		5		6,657		5,381		(1,276)
Commercial Construction


Maturity date extension	—			—		—		—		3		2,593		2,561		(32)








Total Commercial Construction	—			—		—		—		3		2,593		2,561		(32)
Residential Mortgage
Consumer bankruptcy(2)	2			98		96		(2)		5		575		567		(8)








Maturity date extension and payment reduction	—			—		—		—		3		176		176		—

Total Residential Mortgage	2			98		96		(2)		8		751		743		(8)
Home Equity
Consumer bankruptcy(2)	7			206		239		33		14		456		485		29








Maturity date extension and payment delay	1			30		30		—		1		30		30		—

Total Home Equity	8		8	236		269		33		15		486		515		29
Installment and Other Consumer
Consumer bankruptcy(2)	1			4		4		—		1		4		4		—










Total Installment and Other Consumer	$	1		$	4	$	4	$	—	$	1	$	4	$	4	$	—
Totals by Concession Type
Principal deferral and maturity date extension	—			—		—		—		2		4,677		3,473		(1,204)
Maturity date extension and interest rate reduction	1			3,735		3,735		—		1		3,735		3,735		—
Payment deferral resulting in payment delay	—			—		—		—		1		93		23		(70)
Maturity date extension	—			—		—		—		3		2,593		2,561		(32)
Consumer bankruptcy(2)	10			308		339		31		20		1,035		1,056		21


Maturity date extension and payment delay	2			363		201		(162)		2		363		201		(162)


Below market interest rate and payment delay	1			287		287		—		2		362		361		(1)
Maturity date extension and payment reduction	—			—		—		—		3		176		176		—
Total(3)	14			$	4,693	$	4,562	$	(131)	34		$	13,034	$	11,586	$	(1,448)
(1) Excludes loans that were fully paid off or fully charged-off by period end. The pre-modification balance represents the balance outstanding prior to modification. The post-modification balance represents the outstanding balance at period end. (2) Consumer bankruptcy loans where the debt has been legally discharged through the bankruptcy court and not reaffirmed. (3) 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 Instruments.

The following tables present the restructured loans by portfolio segment and by type of concession for the three and nine months ended September 30, 2019:


	Three Months Ended September 30, 2019								Nine Months Ended September 30, 2019
(dollars in thousands)	Number of Loans		Pre-Modification Outstanding Recorded Investment(1)		Post-Modification Outstanding Recorded Investment(1)		Total Difference in Recorded Investment		Number of Loans		Pre-Modification Outstanding Recorded Investment(1)		Post-Modification Outstanding Recorded Investment(1)		Total Difference in Recorded Investment
Totals by Loan Segment
Commercial Real Estate


Maturity date extension	—		—		—		—		1		1,322		1,298		(24)
Maturity date extension and interest rate reduction	—		—		—		—		1		151		147		(4)
Principal deferral	3		23,517		23,236		(281)		3		23,517		23,236		(281)

Principal forgiveness	—		—		—		—		1		4,690		4,518		(172)
Below market interest rate	2		569		548		(21)		2		569		548		(21)
Total Commercial Real Estate	5		24,086		23,784		(302)		8		30,249		29,747		(502)
Commercial and Industrial



Maturity date extension and interest rate reduction	—		—		—		—		1		4,751		4,333		(418)
Principal deferral	1		1,250		1,250		—		1		1,250		1,250		—
Principal deferral and maturity date extension	1		292		277		(15)		1		292		277		(15)


Total Commercial and Industrial	2		1,542		1,527		(15)		3		6,293		5,860		(433)










Residential Mortgage
Consumer bankruptcy(2)	—		—		—		—		3		165		160		(5)







Total Residential Mortgage	—		—		—		—		3		165		160		(5)
Home Equity
Consumer bankruptcy(2)	14		504		485		(19)		27		801		746		(55)
Interest rate reduction	—		—		—		—		2		190		189		(1)






Total Home Equity	14		504		485		(19)		29		991		935		(56)
Installment and Other Consumer
Consumer bankruptcy(2)	1		4		4		—		3		13		10		(3)







Total Installment and Other Consumer	$	1	$	4	$	4	$	—	$	3	$	13	$	10	$	(3)
Totals by Concession Type
Maturity date extension	—		—		—		—		1		1,322		1,298		(24)
Maturity date extension and interest rate reduction	—		—		—		—		2		4,902		4,480		(422)
Principal forgiveness	—		—		—		—		1		4,690		4,518		(172)
Consumer bankruptcy(2)	15		508		489		(19)		33		979		916		(63)
Interest rate reduction	—		—		—		—		2		190		189		(1)


Principal deferral	4		24,767		24,486		(281)		4		24,767		24,486		(281)
Principal deferral and maturity date extension	1		292		277		(15)		1		292		277		(15)

Below market interest rate	2		569		548		(21)		2		569		548		(21)
Total(3)	22		$	26,136	$	25,800	$	(336)	46		$	37,711	$	36,712	$	(999)

(1) Excludes loans that were fully paid off or fully charged-off by period end. The pre-modification balance represents the balance outstanding prior to modification. The post-modification balance represents the outstanding balance at period end.

(2) Consumer bankruptcy loans where the debt has been legally discharged through the bankruptcy court and not reaffirmed.

(3) 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 Instruments.

In response to the coronavirus, or COVID-19, pandemic and its economic impact on our customers, we implemented a short-term modification program that complies with the CARES Act to provide temporary payment relief to those borrowers directly impacted by COVID-19 who were not more than 30 days past due as of December 31, 2019. This program allows for a deferral of payments for 90 days and up to a maximum of 180 days for our commercial customers. The customer remains

responsible for deferred payments along with any additional interest accrued during the deferral period. For our consumer customers, interest does not accrue during the deferral period and the maturity date is extended by the length of the deferral period. Under the applicable guidance, none of these loans were considered restructured as of September 30, 2020. We had 144 loans that were modified totaling $350.0 million at September 30, 2020 compared to 2,360 loans that were modified totaling $1.4 billion at June 30, 2020.

As of September 30, 2020, we had 21 commitments to lend an additional $1.7 million on TDRs. Defaulted TDRs are defined as loans having a payment default of 90 days or more after the restructuring takes place. There were no TDRs that defaulted during the three months ended September 30, 2020 and six TDRs totaling $18.1 million that defaulted during the nine months ended September 30, 2020 that were restructured within the last 12 months prior to defaulting. Included in the $18.1 million of defaulted TDRs for the nine months ended September 30, 2020 was the $11.3 million CRE relationship discussed above. There were no TDRs that defaulted during the three and nine months ended September 30, 2019 that were restructured within the last 12 months prior to defaulting.

The following table is a summary of nonperforming assets as of the dates presented:


	Nonperforming Assets
(dollars in thousands)	September 30, 2020			December 31, 2019
Nonperforming Assets
Nonaccrual loans		$	65,424		$	45,145
Nonaccrual TDRs		18,648			8,912
Total Nonaccrual Loans		84,072			54,057
OREO		2,317			3,525
Total Nonperforming Assets		$	86,389		$	57,582

The significant increases in nonperforming loans at September 30, 2020 compared to December 31, 2019 was primarily related to the above mentioned $21.3 million CRE relationship, the $10.9 million lending relationship related to the customer fraud and a $4.9 million CRE relationship. The $21.3 million CRE relationship was placed on nonaccrual in the first quarter of 2020 and charged down by $10.0 million in the third quarter of 2020, leaving a remaining outstanding balance of $11.3 million. The relationship experienced continued deterioration as a result of the COVID-19 pandemic. The $10.9 million lending relationship relating to the customer fraud was moved to nonperforming in the second quarter of 2020 and the $4.9 million CRE relationship moved to nonperforming in the third quarter of 2020.