Allowance For Loan Losses | ALLOWANCE FOR LOAN LOSSES Management systematically monitors the loan portfolio and the appropriateness of the allowance for loan losses on a quarterly basis to provide for probable losses inherent in the portfolio. Management assesses the risk in each loan type based on historical trends, the general economic environment of its local markets, individual loan performance and other relevant factors. Individual credits in excess of $1 million are selected at least annually for detailed loan reviews, which are utilized by management to assess the risk in the portfolio and the appropriateness of the allowance. Due to the nature of commercial lending, evaluation of the appropriateness of the allowance as it relates to these types of loan types is often based more upon specific credit reviews, with consideration given to the potential impairment of certain credits and historical loss rates, adjusted for economic conditions and other inherent risk factors. The following summarizes the activity in the allowance for loan loss, by portfolio segment (in thousands). The allocation of a portion of the allowance in one portfolio segment does not preclude its availability to absorb losses in other portfolio segments. The following also presents the balance in the allowance for loan loss disaggregated on the basis of the Company’s impairment measurement method and the related recorded investment in loans, by portfolio segment (in thousands). Commercial and industrial Commercial real estate Residential real estate Home equity Consumer DDA overdrafts Total December 31, 2016 Allowance for loan loss Beginning balance $ 3,271 $ 6,985 $ 6,778 $ 1,463 $ 97 $ 657 $ 19,251 Charge-offs (148 ) (1,676 ) (1,734 ) (390 ) (126 ) (1,412 ) (5,486 ) Recoveries 14 487 187 — 118 764 1,570 Provision 1,069 614 1,449 344 (7 ) 763 4,232 Provision for acquired loans with deteriorated credit quality — 163 — — — — 163 Ending balance $ 4,206 $ 6,573 $ 6,680 $ 1,417 $ 82 $ 772 $ 19,730 December 31, 2015 Allowance for loan loss Beginning balance $ 1,582 $ 8,845 $ 7,208 $ 1,495 $ 85 $ 859 $ 20,074 Charge-offs (5,768 ) (580 ) (1,144 ) (312 ) (210 ) (1,414 ) (9,428 ) Recoveries 74 366 199 — 186 792 1,617 Provision 7,383 (2,199 ) 515 280 36 420 6,435 Provision for acquired loans with deteriorated credit quality — 553 — — — — 553 Ending balance $ 3,271 $ 6,985 $ 6,778 $ 1,463 $ 97 $ 657 $ 19,251 As of December 31, 2016 Allowance for loan loss Evaluated for impairment: Individually $ — $ 665 $ — $ — $ — $ — $ 665 Collectively 4,200 5,788 6,589 1,417 82 772 18,848 Acquired with deteriorated credit quality 6 120 91 — — — 217 Total $ 4,206 $ 6,573 $ 6,680 $ 1,417 $ 82 $ 772 $ 19,730 Loans Evaluated for impairment: Individually $ 1,611 $ 5,970 $ — $ — $ — $ — $ 7,581 Collectively 183,741 1,216,050 1,448,830 141,965 32,545 5,071 3,028,202 Acquired with deteriorated credit quality 315 7,496 2,632 — — — 10,443 Total $ 185,667 $ 1,229,516 $ 1,451,462 $ 141,965 $ 32,545 $ 5,071 $ 3,046,226 As of December 31, 2015 Allowance for loan loss Evaluated for impairment: Individually $ — $ — $ — $ — $ — $ — $ — Collectively 3,267 6,173 6,765 1,463 97 657 18,422 Acquired with deteriorated credit quality 4 812 13 — — — 829 Total $ 3,271 $ 6,985 $ 6,778 $ 1,463 $ 97 $ 657 $ 19,251 Loans Evaluated for impairment: Individually $ 2,349 $ 6,133 $ — $ — $ — $ — $ 8,482 Collectively 162,662 1,109,327 1,381,064 147,036 35,997 3,361 2,839,447 Acquired with deteriorated credit quality 329 12,121 2,069 — 86 — 14,605 Total $ 165,340 $ 1,127,581 $ 1,383,133 $ 147,036 $ 36,083 $ 3,361 $ 2,862,534 Credit Quality Indicators All non-commercial loans are evaluated based on payment history. All commercial loans within the portfolio are subject to internal risk grading. The Company’s internal risk ratings for commercial loans are: Exceptional, Good, Acceptable, Pass/Watch, Special Mention, Substandard and Doubtful. Each internal risk rating is defined in the loan policy using the following criteria: balance sheet yields, ratios and leverage, cash flow spread and coverage, prior history, capability of management, market position/industry, potential impact of changing economic, legal, regulatory or environmental conditions, purpose structure, collateral support, and guarantor support. Risk grades are generally assigned by the primary lending officer and are periodically evaluated by the Company’s internal loan review process. Based on an individual loan’s risk grade, estimated loss percentages are applied to the outstanding balance of the loan to determine the amount of probable loss. The Company categorizes loans into risk categories based on relevant information regarding the customer’s debt service ability, capacity, overall collateral position along with other economic trends, and historical payment performance. The risk grades for each credit are updated when the Company receives current financial information, the loan is reviewed by the Company’s internal loan review/credit administration departments, or the loan becomes delinquent or impaired. The risk grades are updated a minimum of annually for loans rated exceptional, good, acceptable, or pass/watch. Loans rated special mention, substandard or doubtful are reviewed at least quarterly. The Company uses the following definitions for its risk ratings: Risk Rating Description Pass Ratings: (a) Exceptional Loans classified as exceptional are secured with liquid collateral conforming to the internal loan policy. Loans rated within this category pose minimal risk of loss to the bank and the risk grade within this pool of loans is generally updated on an annual basis. (b) Good Loans classified as good have similar characteristics that include a strong balance sheet, satisfactory debt service coverage ratios, strong management and/or guarantors, and little exposure to economic cycles. Loans within this category are generally reviewed on an annual basis. Loans in this category generally have a low chance of loss to the bank. (c) Acceptable Loans classified as acceptable have acceptable liquidity levels, adequate debt service coverage ratios, experienced management, and have average exposure to economic cycles. Loans within this category generally have a low risk of loss to the bank. (d) Pass/watch Loans classified as pass/watch have erratic levels of leverage and/or liquidity, cash flow is volatile and the borrower is subject to moderate economic risk. A borrower in this category poses a low to moderate risk of loss to the bank. Special mention Loans classified as special mention have a potential weakness(es) that deserves management's close attention. The potential weakness could result in deterioration of the loan repayment or the bank's credit position at some future date. A loan rated in this category poses a moderate loss risk to the bank. Substandard Loans classified as substandard reflect a customer with a well defined weakness that jeopardizes the liquidation of the debt. Loans in this category have the possibility that the bank will sustain some loss if the deficiencies are not corrected and the bank's collateral value is weakened by the financial deterioration of the borrower. Doubtful Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristics that make collection of the full contract amount highly improbable. Loans rated in this category are most likely to cause the bank to have a loss due to a collateral shortfall or a negative capital position. The following table presents the Company's commercial loans by credit quality indicators, by class (in thousands): Commercial and industrial Commercial real estate Total December 31, 2016 Pass $ 176,823 $ 1,178,288 $ 1,355,111 Special mention 2,427 16,031 18,458 Substandard 6,417 35,197 41,614 Doubtful — — — Total $ 185,667 $ 1,229,516 $ 1,415,183 December 31, 2015 Pass $ 156,664 $ 1,070,506 $ 1,227,170 Special mention 4,099 20,942 25,041 Substandard 4,539 36,133 40,672 Doubtful 38 — 38 Total $ 165,340 $ 1,127,581 $ 1,292,921 The following table presents the Company's non-commercial loans by payment performance, by class (in thousands): Performing Non-Performing Total December 31, 2016 Residential real estate $ 1,451,389 $ 73 $ 1,451,462 Home equity 141,934 31 141,965 Consumer 32,545 — 32,545 DDA overdrafts 5,071 — 5,071 Total $ 1,630,939 $ 104 $ 1,631,043 December 31, 2015 Residential real estate $ 1,379,797 $ 3,336 $ 1,383,133 Home equity 147,013 23 147,036 Consumer 36,049 34 36,083 DDA overdrafts 3,361 — 3,361 Total $ 1,566,220 $ 3,393 $ 1,569,613 Aging Analysis of Accruing and Non-Accruing Loans The following presents an aging analysis of the Company’s accruing and non-accruing loans, by class (in thousands). The purchased credit-impaired loan column represents the purchased credit-impaired loans that the Company acquired that are contractually past due, but are still performing in accordance with the Company's initial expectations. December 31, 2016 Accruing Current 30-59 days 60-89 days Over 90 days Purchased-Credit Impaired Non-accrual Total Residential real estate $ 1,441,086 $ 5,364 $ 637 $ 73 $ — $ 4,302 $ 1,451,462 Home equity 141,192 423 219 31 — 100 141,965 Commercial and industrial 183,615 94 — — — 1,958 185,667 Commercial real estate 1,221,344 553 — 278 — 7,341 1,229,516 Consumer 32,506 38 1 — — — 32,545 DDA overdrafts 4,472 595 4 — — — 5,071 Total $ 3,024,215 $ 7,067 $ 861 $ 382 $ — $ 13,701 $ 3,046,226 December 31, 2015 Accruing Current 30-59 days 60-89 days Over 90 days Purchased-Credit Impaired Non-accrual Total Residential real estate $ 1,373,604 $ 5,261 $ 932 $ 418 $ — $ 2,918 $ 1,383,133 Home equity 146,493 318 65 24 — 136 147,036 Commercial and industrial 162,435 141 — 19 — 2,745 165,340 Commercial real estate 1,114,953 762 211 — 506 11,149 1,127,581 Consumer 35,886 154 9 34 — — 36,083 DDA overdrafts 3,048 310 3 — — — 3,361 Total $ 2,836,419 $ 6,946 $ 1,220 $ 495 $ 506 $ 16,948 $ 2,862,534 The following presents the Company’s impaired loans, by class (in thousands): December 31, 2016 December 31, 2015 Unpaid Unpaid Recorded Principal Related Recorded Principal Related Investment Balance Allowance Investment Balance Allowance With no related allowance recorded: Commercial and industrial $ 1,611 $ 3,775 $ — $ 2,349 $ 7,547 $ — Commercial real estate 3,138 4,963 — 6,133 9,502 — Total $ 4,749 $ 8,738 $ — $ 8,482 $ 17,049 $ — With an allowance recorded Commercial and industrial $ — $ — $ — $ — $ — $ — Commercial real estate 2,832 2,832 665 — — — Total $ 2,832 $ 2,832 $ 665 $ — $ — $ — The following table presents information related to the average recorded investment and interest income recognized on the Company’s impaired loans, by class (in thousands): For the year ended December 31, 2016 December 31, 2015 Average Interest Average Interest Recorded Income Recorded Income Investment Recognized Investment Recognized With no related allowance recorded: Commercial and industrial 2,099 — 2,913 — Commercial real estate 4,039 14 5,606 4 Total $ 6,138 $ 14 $ 8,519 $ 4 With an allowance recorded Commercial and industrial — — — — Commercial real estate 1,419 24 1,012 — Total $ 1,419 $ 24 $ 1,012 $ — If the Company's non-accrual and impaired loans had been current in accordance with their original terms, approximately $0.4 million , $0.8 million and $0.5 million of interest income would have been recognized during the years ended December 31, 2016 , 2015 and 2014 , respectively. There were no commitments to provide additional funds on non-accrual, impaired or other potential problem loans at December 31, 2016 . Loan Modifications The Company’s policy on loan modifications typically does not allow for modifications that would be considered a concession from the Company. However, when there is a modification, the Company evaluates each modification to determine if the modification constitutes a troubled debt restructuring (“TDR”) in accordance with ASU 2011-2, whereby a modification of a loan would be considered a TDR when both of the following conditions are met: (1) a borrower is experiencing financial difficulty and (2) the modification constitutes a concession. When determining whether the borrower is experiencing financial difficulties, the Company reviews whether the debtor is currently in payment default on any of its debt or whether it is probable that the debtor would be in payment default in the foreseeable future without the modification. Other indicators of financial difficulty include whether the debtor has declared or is in the process of declaring bankruptcy, the debtor’s ability to continue as a going concern, or the debtor’s projected cash flow to service its debt (including principal and interest) in accordance with the contractual terms for the foreseeable future, without a modification. Regulatory guidance requires loans to be accounted for as collateral-dependent loans when borrowers have filed Chapter 7 bankruptcy, the debt has been discharged by the bankruptcy court and the borrower has not reaffirmed the debt. The filing of bankruptcy is deemed to be evidence that the borrower is in financial difficulty and the discharge of the debt by the bankruptcy court is deemed to be a concession granted to the borrower. The following tables set forth the Company’s TDRs (in thousands): December 31, 2016 December 31, 2015 Non- Non- Accruing Accruing Total Accruing Accruing Total Commercial and industrial $ 42 $ — $ 42 $ 58 $ — $ 58 Commercial real estate 5,525 — 5,525 1,746 — 1,746 Residential real estate 20,424 391 20,815 17,796 191 17,987 Home equity 3,105 30 3,135 2,659 34 2,693 Consumer — — — — — — $ 29,096 $ 421 $ 29,517 $ 22,259 $ 225 $ 22,484 New TDRs New TDRs For the year ended For the year ended December 31, 2016 December 31, 2015 Pre Post Pre Post Modification Modification Modification Modification Outstanding Outstanding Outstanding Outstanding Number of Recorded Recorded Number of Recorded Recorded Contracts Investment Investment Contracts Investment Investment Commercial and industrial — $ — $ — — $ — $ — Commercial real estate 2 5,021 4,366 — — — Residential real estate 37 3,812 3,812 38 2,969 2,969 Home equity 9 221 221 13 361 361 Consumer — — — — — — 48 $ 9,054 $ 8,399 51 $ 3,330 $ 3,330 |