Allowance For Loan Losses And Credit Quality Of Financing Receivables | ALLOWANCE FOR LOAN LOSSES AND CREDIT QUALITY OF FINANCING RECEIVABLES The following table presents changes in the allowance for loan losses disaggregated by the class of loans receivable for the three and six months ended June 30, 2018 and 2017 : (Dollars in thousands) Commercial and Industrial Construction Commercial Real Estate Residential Real Estate Consumer and Other Unallocated Total Three Months Ended: June 30, 2018 Beginning balance $ 389 $ 345 $ 5,801 $ 972 $ 31 $ 290 $ 7,828 Charge-offs — — — (10 ) (31 ) — (41 ) Recoveries 1 — 5 62 11 — 79 Provision 50 57 (317 ) 114 16 478 398 Ending balance $ 440 $ 402 $ 5,489 $ 1,138 $ 27 $ 768 $ 8,264 June 30, 2017 Beginning balance $ 92 $ 425 $ 4,025 $ 925 $ 17 $ 1,313 $ 6,797 Charge-offs — — — (8 ) (8 ) — (16 ) Recoveries — — 2 1 1 — 4 Provision 109 53 216 (1 ) 10 (7 ) 380 Ending balance $ 201 $ 478 $ 4,243 $ 917 $ 20 $ 1,306 $ 7,165 Six Months Ended: June 30, 2018 Beginning balance $ 208 336 $ 5,185 $ 1,032 $ 26 $ 548 $ 7,335 Charge-offs (11 ) — — (22 ) (42 ) — (75 ) Recoveries 2 — 6 72 18 — 98 Provision 241 66 298 56 25 220 906 Ending balance $ 440 $ 402 $ 5,489 $ 1,138 $ 27 $ 768 $ 8,264 June 30, 2017 Beginning balance $ 110 359 $ 3,932 $ 899 $ 19 $ 1,377 $ 6,696 Charge-offs (13 ) — (266 ) (42 ) (13 ) — (334 ) Recoveries — — 4 9 3 — 16 Provision 104 119 573 51 11 (71 ) 787 Ending balance $ 201 $ 478 $ 4,243 $ 917 $ 20 $ 1,306 $ 7,165 The following table presents the balance of the allowance of loan losses and loans receivable by class at June 30, 2018 and December 31, 2017 disaggregated on the basis of our impairment methodology. Allowance for Loan Losses Loans Receivable (Dollars in thousands) Balance Balance Loans Individually Evaluated for Impairment Balance Related to Loans Collectively Evaluated for Impairment Balance Individually Evaluated for Impairment Collectively Evaluated for Impairment June 30, 2018 Commercial and industrial $ 440 $ 78 $ 362 $ 62,418 $ 189 $ 62,229 Construction 402 — 402 62,135 — 62,135 Commercial real estate 5,489 27 5,462 687,810 13,736 674,074 Residential real estate 1,138 — 1,138 322,983 3,936 319,047 Consumer and other loans 27 — 27 2,205 — 2,205 Unallocated 768 — — — — — Total $ 8,264 $ 105 $ 7,391 $ 1,137,551 $ 17,861 $ 1,119,690 December 31, 2017 Commercial and industrial $ 208 $ — $ 208 $ 54,759 $ 20 $ 54,739 Construction 336 — 336 42,484 — 42,484 Commercial real estate 5,185 28 5,157 551,445 4,763 546,682 Residential real estate 1,032 10 1,022 171,844 2,064 169,780 Consumer and other loans 26 — 26 1,130 — 1,130 Unallocated 548 — — — — — Total $ 7,335 $ 38 $ 6,749 $ 821,662 $ 6,847 $ 814,815 An age analysis of loans receivable, which were past due as of June 30, 2018 and December 31, 2017 , is as follows: (Dollars in thousands) 30-59 Days Past Due 60-89 days Past Due Greater Than 90 Days (a) Total Past Due Current Total Financing Receivables Recorded Investment > 90 Days and Accruing June 30, 2018 Commercial and industrial $ — $ 104 $ 189 $ 293 $ 62,125 $ 62,418 $ — Construction — — — — 62,135 62,135 — Commercial real estate 1,387 487 13,891 15,765 672,045 687,810 — Residential real estate 683 53 4,521 5,257 317,726 322,983 — Consumer and other 154 — — 154 2,051 2,205 — Total $ 2,224 $ 644 $ 18,601 $ 21,469 $ 1,116,082 $ 1,137,551 $ — December 31, 2017 Commercial and industrial $ — $ — $ 20 $ 20 $ 54,739 $ 54,759 $ — Construction — — 105 105 42,379 42,484 — Commercial real estate 4,935 126 4,314 9,374 542,071 551,445 — Residential real estate 1,304 122 1,581 3,007 168,837 171,844 — Consumer and other 8 1 — 9 1,121 1,130 — Total $ 6,247 $ 249 $ 6,020 $ 12,515 $ 809,147 $ 821,662 $ — (a) includes loans greater than 90 days past due and still accruing and non-accrual loans. Loans for which the accrual of interest has been discontinued, excluding PCI loans, at June 30, 2018 and December 31, 2017 were: (Dollars in thousands) June 30, 2018 December 31, 2017 Commercial and industrial $ 189 $ 20 Construction — 105 Commercial real estate 13,891 4,314 Residential real estate 4,521 1,581 Total $ 18,601 $ 6,020 In determining the adequacy of the allowance for loan losses, we estimate losses based on the identification of specific problem loans through our credit review process and also estimate losses inherent in other loans on an aggregate basis by loan type. The credit review process includes the independent evaluation of the loan officer assigned risk ratings by the Chief Credit Officer and a third party loan review company. Such risk ratings are assigned loss component factors that reflect our loss estimate for each group of loans. It is management’s and the Board of Directors’ responsibility to oversee the lending process to ensure that all credit risks are properly identified, monitored, and controlled, and that loan pricing, terms and other safeguards against non-performance and default are commensurate with the level of risk undertaken and is rated as such based on a risk-rating system. Factors considered in assigning risk ratings and loss component factors include: borrower specific information related to expected future cash flows and operating results, collateral values, financial condition and payment status; levels of and trends in portfolio charge-offs and recoveries; levels in portfolio delinquencies; effects of changes in loan concentrations and observed trends in the economy and other qualitative measurements. Our risk-rating system is consistent with the classification system used by regulatory agencies and with industry practices. Loan classifications of Substandard, Doubtful or Loss are consistent with the regulatory definitions of classified assets. The classification system is as follows: • Pass : This category represents loans performing to contractual terms and conditions and the primary source of repayment is adequate to meet the obligation. We have five categories within the Pass classification depending on strength of repayment sources, collateral values and financial condition of the borrower. • Special Mention : This category represents loans performing to contractual terms and conditions; however the primary source of repayment or the borrower is exhibiting some deterioration or weaknesses in financial condition that could potentially threaten the borrowers’ future ability to repay our loan principal and interest or fees due. • Substandard : This category represents loans that the primary source of repayment has significantly deteriorated or weakened which has or could threaten the borrowers’ ability to make scheduled payments. The weaknesses require close supervision by management and there is a distinct possibility that we could sustain some loss if the deficiencies are not corrected. Such weaknesses could jeopardize the timely and ultimate collection of our loan principal and interest or fees due. Loss may not be expected or evident, however, loan repayment is inadequately supported by current financial information or pledged collateral. • Doubtfu l: Loans so classified have all the inherent weaknesses of a substandard loan with the added provision that collection or liquidation in full is highly questionable and not reasonably assured. The probability of at least partial loss is high, but extraneous factors might strengthen the asset to prevent loss. The validity of the extraneous factors must be continuously monitored. Once these factors are questionable the loan should be considered for full or partial charge-off. • Loss : Loans so classified are considered uncollectible, and of such little value that their continuance as active assets is not warranted. Such loans are fully charged off. The following tables illustrate our corporate credit risk profile by creditworthiness category as of June 30, 2018 and December 31, 2017 : (Dollars in thousands) Pass Special Mention Substandard Doubtful Total June 30, 2018 Commercial and industrial $ 61,894 $ — $ 524 $ — $ 62,418 Construction 61,998 137 — — 62,135 Commercial real estate 668,858 4,157 14,795 — 687,810 Residential real estate 315,862 349 6,772 — 322,983 Consumer and other 2,205 — — — 2,205 $ 1,110,817 $ 4,643 $ 22,091 $ — $ 1,137,551 December 31, 2017 Commercial and industrial $ 54,405 $ 189 $ 165 $ — $ 54,759 Construction 42,379 105 — — 42,484 Commercial real estate 537,636 3,508 10,301 — 551,445 Residential real estate 169,395 228 2,221 — 171,844 Consumer and other 1,130 — — — 1,130 $ 804,945 $ 4,030 $ 12,687 $ — $ 821,662 The following table reflects information about our impaired loans, excluding PCI loans, by class as of June 30, 2018 and December 31, 2017 : June 30, 2018 December 31, 2017 (Dollars in thousands) Recorded Investment Unpaid Principal Balance Related Allowance Recorded Investment Unpaid Principal Balance Related Allowance With no related allowance recorded: Commercial and industrial $ — $ 10 $ — $ 20 $ 20 $ — Commercial real estate 12,808 12,808 — 3,834 4,158 — Residential real estate 3,936 3,936 — 1,844 1,877 — With an allowance recorded: Commercial and industrial 189 189 78 — — — Commercial real estate 928 928 27 929 1,392 28 Residential real estate — — — 220 223 10 Total: Commercial and industrial 189 199 78 20 20 — Commercial real estate 13,736 13,736 27 4,763 5,550 28 Residential real estate 3,936 3,936 — 2,064 2,100 10 $ 17,861 $ 17,871 $ 105 $ 6,847 $ 7,670 $ 38 The following table presents the average recorded investment and income recognized for our impaired loans, excluding PCI loans, for the three and six months ended June 30, 2018 and 2017 : For the Three Months Ended June 30, 2018 For the Three Months Ended June 30, 2017 (Dollars in thousands) Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized With no related allowance recorded: Commercial and industrial $ — $ — $ 20 $ — Construction 53 — — — Commercial real estate 8,358 71 3,237 8 Residential real estate 3,499 19 1,742 8 Total impaired loans without a related allowance 11,910 90 4,999 16 With an allowance recorded: Commercial and industrial 94 — — — Commercial real estate 929 — 1,168 — Residential real estate — — 134 — Total impaired loans with an allowance 1,023 — 1,302 — Total impaired loans $ 12,933 $ 90 $ 6,301 $ 16 For the Six Months Ended June 30, 2018 For the Six Months Ended June 30, 2017 (Dollars in thousands) Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized With no related allowance recorded: Commercial and industrial $ 12 $ — $ 20 $ — Construction 21 — — — Commercial real estate 5,638 83 2,560 8 Residential real estate 2,520 30 1,544 9 Total impaired loans without a related allowance 8,191 113 4,124 17 With an allowance recorded: Commercial and industrial 38 — 3 — Commercial real estate 1,071 — 1,879 8 Residential real estate 64 — 200 — Total impaired loans with an allowance 1,173 — 2,082 8 Total impaired loans $ 9,364 $ 113 $ 6,206 $ 25 We recognize interest income on performing impaired loans as payments are received. On non-performing impaired loans we do not recognize interest income as all payments are recorded as a reduction of principal on such loans. Impaired loans include loans modified in troubled debt restructurings where concessions have been granted to borrowers experiencing financial difficulties. These concessions could include a reduction in the interest rate on the loan, payment extensions, postponement or forgiveness of principal, forbearance or other actions intended to maximize collection. The concessions rarely result in the forgiveness of principal or accrued interest. In addition, we attempt to obtain additional collateral or guarantor support when modifying such loans. Non-accruing restructured loans may be returned to accrual status when there has been a sustained period of repayment performance (generally six consecutive months of payments) and both principal and interest are deemed collectible. The following table presents the recorded investment in troubled debt restructured loans, based on payment performance status: (Dollars in thousands) Commercial Real Estate Residential Real Estate Total June 30, 2018 Performing $ 643 $ 1,141 $ 1,784 Non-performing 2,497 1,009 3,506 Total $ 3,140 $ 2,150 $ 5,290 December 31, 2017 Performing $ 449 $ 483 $ 932 Non-performing 1,594 242 1,836 Total $ 2,043 $ 725 $ 2,768 Troubled debt restructured loans are considered impaired and are included in the previous impaired loans disclosures in this footnote. As of June 30, 2018 , we have not committed to lend additional amounts to customers with outstanding loans that are classified as troubled debt restructuring. There was one troubled debt restructuring in the amount of $514 thousand that occurred during the three and six months ended June 30, 2018. There were three troubled debt restructuring in the amount of $637 thousand that occurred during the three and six months ended June 30, 2017. The increase in troubled debt restructured loans was due to loans acquired in the Community acquisition. (Dollars in thousands) Number of Loans Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment June 30, 2018 Residential real estate 1 $ 514 $ 306 June 30, 2017 Residential real estate 3 $ 637 $ 615 There was no troubled debt restructuring for which there was a payment default within twelve months following the date of the restructuring for the three months ended June 30, 2018 . There was no troubled debt restructuring for which there was a payment default within twelve months following the date of the restructuring for the three months ended June 30, 2017 . We may obtain physical possession of residential real estate collateralizing a consumer mortgage loan via foreclosure on an in-substance repossession. As of June 30, 2018 , we had five foreclosed residential real estate properties with a carrying value of $1.2 million . As of December 31, 2017, we had one foreclosed residential real estate property with a carrying value of $179 thousand . In addition, as of June 30, 2018 and December 31, 2017 , respectively, we had consumer loans with a carrying value of $1.4 million and $180 thousand collateralized by residential real estate property for which formal foreclosure proceedings were in process. The increases in amounts at June 30, 2018, compared to December 31, 2017, were due to loans acquired in the Community acquisition. |