Allowance For Loan Losses | Allowance For Loan Losses Management systematically monitors the loan portfolio and the adequacy 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 are selected throughout the year for detailed loan reviews, which are utilized by management to assess the risk in the portfolio and the adequacy of the allowance. Due to the nature of commercial lending, evaluation of the adequacy of the allowance as it relates to these 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 table summarizes the activity in the allowance for loan loss, by portfolio segment, for the six months ended June 30, 2017 and 2016 (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 table 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, as of June 30, 2017 and December 31, 2016 (in thousands). Commercial & Commercial Residential DDA Industrial Real Estate Real Estate Home Equity Consumer Overdrafts Total Six months ended June 30, 2017 Allowance for loan loss Beginning balance $ 4,206 $ 6,573 $ 6,680 $ 1,417 $ 82 $ 772 $ 19,730 Charge-offs (110 ) (282 ) (884 ) (239 ) (29 ) (1,271 ) (2,815 ) Recoveries 55 32 156 — 25 690 958 Provision for acquired loans — 39 — — — — 39 Provision (59 ) (205 ) 695 176 (5 ) 549 1,151 Ending balance $ 4,092 $ 6,157 $ 6,647 $ 1,354 $ 73 $ 740 $ 19,063 Six months ended June 30, 2016 Allowance for loan loss Beginning balance $ 3,271 $ 6,985 $ 6,778 $ 1,463 $ 97 $ 657 $ 19,251 Charge-offs (45 ) (1,071 ) (742 ) (175 ) (82 ) (639 ) (2,754 ) Recoveries 4 404 90 — 81 402 981 Provision for acquired loans — 168 — — — — 168 Provision 861 (213 ) 232 135 (5 ) 483 1,493 Ending balance $ 4,091 $ 6,273 $ 6,358 $ 1,423 $ 91 $ 903 $ 19,139 As of June 30, 2017 Allowance for loan loss Evaluated for impairment: Individually $ — $ 679 $ — $ — $ — $ — $ 679 Collectively 4,090 5,299 6,619 1,354 71 740 18,173 Acquired with deteriorated credit quality 2 179 28 — 2 — 211 Total $ 4,092 $ 6,157 $ 6,647 $ 1,354 $ 73 $ 740 $ 19,063 Loans Evaluated for impairment: Individually $ 1,200 $ 8,924 $ — $ — $ — $ — $ 10,124 Collectively 196,188 1,240,617 1,452,968 139,534 30,744 3,630 3,063,681 Acquired with deteriorated credit quality 41 7,195 2,610 — 116 — 9,962 Total $ 197,429 $ 1,256,736 $ 1,455,578 $ 139,534 $ 30,860 $ 3,630 $ 3,083,767 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 Credit Quality Indicators All commercial loans within the portfolio are subject to internal risk grading. All non-commercial loans are evaluated based on payment history. The Company’s internal risk ratings for commercial loans are: Pass, 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 and 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. (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 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 June 30, 2017 Pass $ 189,029 $ 1,214,689 $ 1,403,718 Special mention 742 9,312 10,054 Substandard 7,658 32,735 40,393 Doubtful — — — Total $ 197,429 $ 1,256,736 $ 1,454,165 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 The following table presents the Company's non-commercial loans by payment performance, by class (in thousands): Performing Non-Performing Total June 30, 2017 Residential real estate $ 1,453,930 $ 1,648 $ 1,455,578 Home equity 139,381 153 139,534 Consumer 30,860 — 30,860 DDA overdrafts 3,630 — 3,630 Total $ 1,627,801 $ 1,801 $ 1,629,602 December 31, 2016 Residential real estate $ 1,447,087 $ 4,375 $ 1,451,462 Home equity 141,834 131 141,965 Consumer 32,545 — 32,545 DDA overdrafts 5,071 — 5,071 Total $ 1,626,537 $ 4,506 $ 1,631,043 Aging Analysis of Accruing and Non-Accruing Loans Interest income on loans is accrued and credited to operations based upon the principal amount outstanding, using methods that generally result in level rates of return. Loan origination fees, and certain direct costs, are deferred and amortized as an adjustment to the yield over the term of the loan. The accrual of interest generally is discontinued when a loan becomes 90 days past due as to principal or interest for all loan types. However, any loan may be placed on non-accrual if the Company receives information that indicates a borrower is unable to meet the contractual terms of its respective loan agreement. Other indicators considered for placing a loan on non-accrual status include the borrower’s involvement in bankruptcies, foreclosures, repossessions, litigation and any other situation resulting in doubt as to whether full collection of contractual principal and interest is attainable. When interest accruals are discontinued, unpaid interest recognized in income in the current year is reversed, and interest accrued in prior years is charged to the allowance for loan losses. Management may elect to continue the accrual of interest when the net realizable value of collateral exceeds the principal balance and related accrued interest, and the loan is in the process of collection. Generally for all loan classes, interest income during the period the loan is non-performing is recorded on a cash basis after recovery of principal is reasonably assured. Cash payments received on nonperforming loans are typically applied directly against the outstanding principal balance until the loan is fully repaid. Generally, loans are restored to accrual status when the obligation is brought current, the borrower has performed in accordance with the contractual terms for a reasonable period of time, and the ultimate collectability of the total contractual principal and interest is no longer in doubt. Generally, all loan types are considered past due when the contractual terms of a loan are not met and the borrower is 30 days or more past due on a payment. Furthermore, residential and home equity loans are generally subject to charge-off when the loan becomes 120 days past due, depending on the estimated fair value of the collateral less cost to dispose, versus the outstanding loan balance. Commercial loans are generally charged off when the loan becomes 120 days past due. Open-end consumer loans are generally charged off when the loan becomes 180 days past due. The following table presents an aging analysis of the Company’s accruing and non-accruing loans, by class (in thousands): June 30, 2017 Accruing Current 30-59 days 60-89 days Over 90 days Purchased-Credit Impaired Non-accrual Total Residential real estate $ 1,448,322 $ 5,081 $ 527 $ 40 $ — $ 1,608 $ 1,455,578 Home equity 138,753 408 119 101 — 153 139,534 Commercial and industrial 195,599 253 6 — — 1,571 197,429 Commercial real estate 1,248,666 672 — — 148 7,250 1,256,736 Consumer 30,790 60 1 9 — — 30,860 DDA overdrafts 3,103 521 6 — — — 3,630 Total $ 3,065,233 $ 6,995 $ 659 $ 150 $ 148 $ 10,582 $ 3,083,767 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 The following table presents the Company’s impaired loans, by class (in thousands). The difference between the unpaid principal balance and the recorded investment generally reflects amounts that have been previously charged-off. There are no impaired residential, home equity, or consumer loans. June 30, 2017 December 31, 2016 Unpaid Unpaid Recorded Principal Related Recorded Principal Related Investment Balance Allowance Investment Balance Allowance With no related allowance recorded: Commercial and industrial $ 1,200 $ 3,365 $ — $ 1,611 $ 3,775 $ — Commercial real estate 3,091 4,916 — 3,138 4,963 — Total $ 4,291 $ 8,281 $ — $ 4,749 $ 8,738 $ — With an allowance recorded: Commercial and industrial $ — $ — $ — $ — $ — $ — Commercial real estate 5,833 5,833 679 2,832 2,832 665 Total $ 5,833 $ 5,833 $ 679 $ 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): Six months ended June 30, 2017 2016 Average Interest Average Interest Recorded Income Recorded Income Investment Recognized Investment Recognized With no related allowance recorded: Commercial and industrial $ 1,282 — $ 2,339 $ — Commercial real estate 6,022 63 4,739 9 Total $ 7,304 $ 63 $ 7,078 $ 9 With an allowance recorded: Commercial and industrial $ — $ — $ — $ — Commercial real estate 2,832 38 — — Total $ 2,832 $ 38 $ — $ — Less than $0.1 million and $0.2 million of interest income would have been recognized during the six months ended June 30, 2017 and 2016 , respectively, if such loans had been current in accordance with their original terms. There were no commitments to provide additional funds on non-accrual, impaired or other potential problem loans at June 30, 2017 . 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 borrower is currently in payment default on any of its debt or whether it is probable that the borrower would be in payment default in the foreseeable future without the modification. Other indicators of financial difficulty include whether the borrower has declared or is in the process of declaring bankruptcy, the borrower’s ability to continue as a going concern, and the borrower’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): June 30, 2017 December 31, 2016 Non- Non- Accruing Accruing Total Accruing Accruing Total Commercial and industrial $ 35 $ — $ 35 $ 42 $ — $ 42 Commercial real estate 8,483 — 8,483 5,525 — 5,525 Residential real estate 20,647 154 20,801 20,424 391 20,815 Home equity 3,146 — 3,146 3,105 30 3,135 Consumer — — — — — — Total $ 32,311 $ 154 $ 32,465 $ 29,096 $ 421 $ 29,517 New TDRs Six months ended June 30, 2017 2016 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 — — — 1 2,225 2,225 Residential real estate 19 2,593 2,593 20 1,857 1,857 Home equity 5 154 154 3 69 69 Consumer — — — — — — Total 24 $ 2,747 $ 2,747 24 $ 4,151 $ 4,151 |