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 loan classification, for the three months ended March 31, 2018 and 2017 (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 March 31, 2018 and December 31, 2017 (in thousands). Commercial and Commercial Residential DDA Industrial Real Estate Real Estate Home Equity Consumer Overdrafts Total Three months ended March 31, 2018 Allowance for loan loss Beginning balance $ 4,571 $ 6,183 $ 5,212 $ 1,138 $ 62 $ 1,670 $ 18,836 Charge-offs (339 ) (157 ) (131 ) (71 ) (99 ) (636 ) (1,433 ) Recoveries 2 223 106 — 46 420 797 Provision for acquired loans — — — — — — — Provision 529 (480 ) (244 ) 133 203 40 181 Ending balance $ 4,763 $ 5,769 $ 4,943 $ 1,200 $ 212 $ 1,494 $ 18,381 Three months ended March 31, 2017 Allowance for loan loss Beginning balance $ 4,206 $ 6,573 $ 6,680 $ 1,417 $ 82 $ 772 $ 19,730 Charge-offs (53 ) (180 ) (626 ) (121 ) (6 ) (636 ) (1,622 ) Recoveries 2 11 25 — 11 371 420 Provision for acquired loans — (19 ) — — — — (19 ) Provision 128 (381 ) 644 3 (23 ) 329 700 Ending balance $ 4,283 $ 6,004 $ 6,723 $ 1,299 $ 64 $ 836 $ 19,209 As of March 31, 2018 Allowance for loan loss Evaluated for impairment: Individually $ — $ 172 $ — $ — $ — $ — $ 172 Collectively 4,759 5,530 4,843 1,200 208 1,494 18,034 Acquired with deteriorated credit quality 4 67 100 — 4 — 175 Total $ 4,763 $ 5,769 $ 4,943 $ 1,200 $ 212 $ 1,494 $ 18,381 Loans Evaluated for impairment: Individually $ 849 $ 8,757 $ — $ — $ — $ — $ 9,606 Collectively 203,537 1,282,064 1,462,622 138,477 29,454 3,523 3,119,677 Acquired with deteriorated credit quality 206 5,483 2,593 — 116 — 8,398 Total $ 204,592 $ 1,296,304 $ 1,465,215 $ 138,477 $ 29,570 $ 3,523 $ 3,137,681 As of December 31, 2017 Allowance for loan loss Evaluated for impairment: Individually $ — $ 647 $ — $ — $ — $ — $ 647 Collectively 4,567 5,313 5,112 1,138 58 1,670 17,858 Acquired with deteriorated credit quality 4 223 100 — 4 — 331 Total $ 4,571 $ 6,183 $ 5,212 $ 1,138 $ 62 $ 1,670 $ 18,836 Loans Evaluated for impairment: Individually $ 849 $ 8,818 $ — $ — $ — $ — $ 9,667 Collectively 207,429 1,263,076 1,465,685 139,499 29,046 4,411 3,109,146 Acquired with deteriorated credit quality 206 5,682 2,593 — 116 — 8,597 Total $ 208,484 $ 1,277,576 $ 1,468,278 $ 139,499 $ 29,162 $ 4,411 $ 3,127,410 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 portfolio loan classification (in thousands): Commercial and Industrial Commercial Real Estate Total March 31, 2018 Pass $ 171,815 $ 1,252,937 $ 1,424,752 Special mention 25,524 7,078 32,602 Substandard 7,253 36,289 43,542 Doubtful — — — Total $ 204,592 $ 1,296,304 $ 1,500,896 December 31, 2017 Pass $ 175,951 $ 1,231,256 $ 1,407,207 Special mention 25,872 8,068 33,940 Substandard 6,661 38,252 44,913 Doubtful — — — Total $ 208,484 $ 1,277,576 $ 1,486,060 The following table presents the Company's non-commercial loans by payment performance, by portfolio loan classification (in thousands): Performing Non-Performing Total March 31, 2018 Residential real estate $ 1,461,802 $ 3,413 $ 1,465,215 Home equity 138,341 136 138,477 Consumer 29,570 — 29,570 DDA overdrafts 3,523 — 3,523 Total $ 1,633,236 $ 3,549 $ 1,636,785 December 31, 2017 Residential real estate $ 1,465,445 $ 2,833 $ 1,468,278 Home equity 139,239 260 139,499 Consumer 29,162 — 29,162 DDA overdrafts 4,411 — 4,411 Total $ 1,638,257 $ 3,093 $ 1,641,350 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 status 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 portfolio loan classification (in thousands): March 31, 2018 Accruing Current 30-59 days 60-89 days Over 90 days Non-accrual Total Residential real estate $ 1,456,243 $ 4,353 $ 1,206 $ 82 $ 3,331 $ 1,465,215 Home equity 137,727 458 157 1 134 138,477 Commercial and industrial 203,468 61 — — 1,063 204,592 Commercial real estate 1,289,722 1,520 — — 5,062 1,296,304 Consumer 29,549 21 — — — 29,570 DDA overdrafts 3,092 422 1 8 — 3,523 Total $ 3,119,801 $ 6,835 $ 1,364 $ 91 $ 9,590 $ 3,137,681 December 31, 2017 Accruing Current 30-59 days 60-89 days Over 90 days Non-accrual Total Residential real estate $ 1,458,746 $ 5,990 $ 709 $ 19 $ 2,814 $ 1,468,278 Home equity 138,480 671 88 92 168 139,499 Commercial and industrial 206,447 549 1 142 1,345 208,484 Commercial real estate 1,269,520 1,841 245 — 5,970 1,277,576 Consumer 29,108 39 13 2 — 29,162 DDA overdrafts 3,849 541 14 7 — 4,411 Total $ 3,106,150 $ 9,631 $ 1,070 $ 262 $ 10,297 $ 3,127,410 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. March 31, 2018 December 31, 2017 Unpaid Unpaid Recorded Principal Related Recorded Principal Related Investment Balance Allowance Investment Balance Allowance With no related allowance recorded: Commercial and industrial $ 849 $ 3,013 $ — $ 849 $ 3,013 $ — Commercial real estate 5,782 7,607 — 3,036 4,861 — Total $ 6,631 $ 10,620 $ — $ 3,885 $ 7,874 $ — With an allowance recorded: Commercial and industrial $ — $ — $ — $ — $ — $ — Commercial real estate 2,975 2,975 172 5,782 5,782 647 Total $ 2,975 $ 2,975 $ 172 $ 5,782 $ 5,782 $ 647 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): Three months ended March 31, 2018 2017 Average Interest Average Interest Recorded Income Recorded Income Investment Recognized Investment Recognized With no related allowance recorded: Commercial and industrial $ 774 — $ 1,365 $ — Commercial real estate 3,008 3 3,118 5 Total $ 3,782 $ 3 $ 4,483 $ 5 With an allowance recorded: Commercial and industrial $ — $ — $ — $ — Commercial real estate 5,750 52 2,832 19 Total $ 5,750 $ 52 $ 2,832 $ 19 Approximately $0.1 million and $0.2 million of interest income would have been recognized during the three months ended March 31, 2018 and 2017 , 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 March 31, 2018 . 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 2011-02, 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): March 31, 2018 December 31, 2017 Non- Non- Accruing Accruing Total Accruing Accruing Total Commercial and industrial $ 125 $ — $ 125 $ 135 $ — $ 135 Commercial real estate 8,324 — 8,324 8,381 — 8,381 Residential real estate 20,786 256 21,042 21,005 84 21,089 Home equity 3,015 40 3,055 3,047 50 3,097 Consumer — — — — — — Total $ 32,250 $ 296 $ 32,546 $ 32,568 $ 134 $ 32,702 New TDRs Three months ended March 31, 2018 2017 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 3,015 3,015 Residential real estate 7 412 412 9 1,130 1,130 Home equity 4 77 77 2 58 58 Consumer — — — — — — Total 11 $ 489 $ 489 12 $ 4,203 $ 4,203 |