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, 2018 Allowance for loan loss Beginning balance $ 4,571 $ 6,183 $ 5,212 $ 1,138 $ 62 $ 1,670 $ 18,836 Charge-offs (733 ) (369 ) (682 ) (219 ) (769 ) (2,701 ) (5,473 ) Recoveries 2,152 732 367 — 166 1,496 4,913 Provision (1,930 ) (2,011 ) (781 ) 349 860 1,243 (2,270 ) Provision for acquired loans with deteriorated credit quality — (40 ) — — — — (40 ) Ending balance $ 4,060 $ 4,495 $ 4,116 $ 1,268 $ 319 $ 1,708 $ 15,966 Commercial and industrial Commercial real estate Residential real estate Home equity Consumer DDA overdrafts Total December 31, 2017 Allowance for loan loss Beginning balance $ 4,206 $ 6,573 $ 6,680 $ 1,417 $ 82 $ 772 $ 19,730 Charge-offs (400 ) (720 ) (1,637 ) (403 ) (60 ) (2,714 ) (5,934 ) Recoveries 58 112 294 45 63 1,462 2,034 Provision 707 57 (125 ) 79 (23 ) 2,150 2,845 Provision for acquired loans with deteriorated credit quality — 161 — — — — 161 Ending balance $ 4,571 $ 6,183 $ 5,212 $ 1,138 $ 62 $ 1,670 $ 18,836 As of December 31, 2018 Allowance for loan loss Evaluated for impairment: Individually $ — $ 428 $ — $ — $ — $ — $ 428 Collectively 4,059 4,015 4,116 1,268 312 1,708 15,478 Acquired with deteriorated credit quality 1 52 — — 7 — 60 Total $ 4,060 $ 4,495 $ 4,116 $ 1,268 $ 319 $ 1,708 $ 15,966 Loans Evaluated for impairment: Individually $ 651 $ 9,855 $ — $ — $ — $ — $ 10,506 Collectively 284,018 1,412,023 1,654,892 153,496 51,077 6,328 3,561,834 Acquired with deteriorated credit quality 1,645 11,413 2,097 — 113 — 15,268 Total $ 286,314 $ 1,433,291 $ 1,656,989 $ 153,496 $ 51,190 $ 6,328 $ 3,587,608 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 non-commercial loans are evaluated based on payment history. A performing loan is a loan to a borrower that has and is expected to fulfill the contractual terms of the loan agreement. The borrower generally makes the contractual payments on the due date, is expected to continue to pay timely, is not in default and has not been placed on nonaccrual. A non-performing loan is a loan that is generally past due 90 days or greater and/or is classified as non-accrual. 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 or 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, 2018 Pass $ 250,856 $ 1,381,170 $ 1,632,026 Special mention 27,886 5,696 33,582 Substandard 7,572 46,425 53,997 Doubtful — — — Total $ 286,314 $ 1,433,291 $ 1,719,605 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 class (in thousands): Performing Non-Performing Total December 31, 2018 Residential real estate $ 1,652,543 $ 4,446 $ 1,656,989 Home equity 153,334 162 153,496 Consumer 51,188 2 51,190 DDA overdrafts 6,322 6 6,328 Total $ 1,863,387 $ 4,616 $ 1,868,003 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 The following presents an aging analysis of the Company’s accruing and non-accruing loans, by class (in thousands): December 31, 2018 Accruing Current 30-59 days 60-89 days Over 90 days Non-accrual Total Residential real estate $ 1,642,724 $ 8,607 $ 1,213 $ 170 $ 4,275 $ 1,656,989 Home equity 152,083 1,240 11 24 138 153,496 Commercial and industrial 284,140 397 49 52 1,676 286,314 Commercial real estate 1,424,245 487 94 4 8,461 1,433,291 Consumer 50,894 253 41 1 1 51,190 DDA overdrafts 5,840 467 15 6 — 6,328 Total $ 3,559,926 $ 11,451 $ 1,423 $ 257 $ 14,551 $ 3,587,608 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 presents the Company’s impaired loans, by class (in thousands): December 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 $ 651 $ 651 $ — $ 849 $ 3,013 $ — Commercial real estate 6,870 6,895 — 3,036 4,861 — Total $ 7,521 $ 7,546 $ — $ 3,885 $ 7,874 $ — With an allowance recorded: Commercial and industrial $ — $ — $ — $ — $ — $ — Commercial real estate 2,985 2,985 428 5,782 5,782 647 Total $ 2,985 $ 2,985 $ 428 $ 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): For the year ended December 31, 2018 December 31, 2017 Average Interest Average Interest Recorded Income Recorded Income Investment Recognized Investment Recognized With no related allowance recorded: Commercial and industrial $ 845 $ — $ 1,086 $ — Commercial real estate 4,623 39 4,534 69 Total $ 5,468 $ 39 $ 5,620 $ 69 With an allowance recorded: Commercial and industrial $ — $ — $ — $ — Commercial real estate 5,043 220 4,307 149 Total $ 5,043 $ 220 $ 4,307 $ 149 If the Company's non-accrual and impaired loans had been current in accordance with their original terms, approximately $0.2 million , $0.2 million and $0.4 million of interest income would have been recognized during the years ended December 31, 2018 , 2017 and 2016 , respectively. There were no commitments to provide additional funds on non-accrual, impaired or other potential problem loans at December 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 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, 2018 December 31, 2017 Non- Non- Accruing Accruing Total Accruing Accruing Total Commercial and industrial $ 98 $ — $ 98 $ 135 $ — $ 135 Commercial real estate 8,205 — 8,205 8,381 — 8,381 Residential real estate 22,863 658 23,521 21,005 84 21,089 Home equity 3,025 5 3,030 3,047 50 3,097 Consumer — — — — — — $ 34,191 $ 663 $ 34,854 $ 32,568 $ 134 $ 32,702 New TDRs New TDRs For the year ended For the year ended December 31, 2018 December 31, 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 — — — 2 3,098 3,003 Residential real estate 33 2,326 2,326 33 3,987 3,987 Home equity 10 274 274 13 271 271 Consumer — — — — — — 43 $ 2,600 $ 2,600 48 $ 7,356 $ 7,261 |