Allowance For Credit Losses | Allowance For Credit Losses The following table summarizes the activity in the allowance for credit losses, by portfolio loan classification, for the six months ended June 30, 2020 and 2019 (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. Commercial and Commercial Residential DDA Industrial Real Estate Real Estate Home Equity Consumer Overdrafts Total Six months ended June 30, 2020 Beginning balance $ 2,059 $ 2,606 $ 3,448 $ 1,187 $ 975 $ 1,314 $ 11,589 Impact of adopting CECL 1,715 3,254 2,139 (598) (810) 60 5,760 Charge-offs (77) (422) (859) (206) (91) (1,162) (2,817) Recoveries 14 331 103 56 141 800 1,445 Provision for credit losses 2,555 4,321 2,492 208 (95) (259) 9,222 Ending balance $ 6,266 $ 10,090 $ 7,323 $ 647 $ 120 $ 753 $ 25,199 Six months ended June 30, 2019 Beginning balance $ 4,060 $ 4,495 $ 4,116 $ 1,268 $ 319 $ 1,708 $ 15,966 Charge-offs (51) (178) (631) (117) (296) (1,213) (2,486) Recoveries 140 607 125 — 143 749 1,764 (Recovery of) Provision (1,353) (1,455) 349 60 343 607 (1,449) Ending balance $ 2,796 $ 3,469 $ 3,959 $ 1,211 $ 509 $ 1,851 $ 13,795 Three months ended June 30, 2020 Beginning balance $ 5,855 $ 9,389 $ 6,958 $ 702 $ 233 $ 1,256 24,393 Charge-offs — (39) (376) (161) (36) (459) (1,071) Recoveries 5 128 8 9 128 349 627 (Recovery of) provision 406 612 733 97 (205) (393) 1,250 Ending balance $ 6,266 $ 10,090 $ 7,323 $ 647 $ 120 $ 753 $ 25,199 Three months ended June 30, 2019 Beginning balance $ 2,970 $ 4,640 $ 3,820 $ 1,248 $ 468 $ 1,500 $ 14,646 Charge-offs (51) (133) (303) (71) (111) (588) (1,257) Recoveries 5 575 50 — 46 330 1,006 (Recovery of) provision (128) (1,613) 392 34 106 609 (600) Ending balance $ 2,796 $ 3,469 $ 3,959 $ 1,211 $ 509 $ 1,851 $ 13,795 Management systematically monitors the loan portfolio and the appropriateness of the allowance for credit losses on a quarterly basis to provide for expected losses inherent in the portfolio. Management assesses the risk in each loan type based on historica l trends, the general economic environment of its local markets, individual loan performance and other relevant factors. The provision for credit losses recorded during the six months ended June 30, 2020 largely reflects the expected economic impact from the COVID-19 pandemic. The Company's estimate of future economic conditions utilized in its provision estimate is primarily dependent on expected unemployment ranges over a two-year period. Beyond two years, a straight line reversion to historical average loss rates is applied over the life of the loan pool in the migration methodology. The vintage methodology applies future average loss rates based on net losses in historical periods where the unemployment rate was within the forecasted range. As a result of COVID-19, expected unemployment ranges have significantly increased and resulted in an increase in the Company's provision for credit losses. 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. Non-Performing 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 credit 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. The following tables present the amortized cost basis of loans on non-accrual status and loans past due over 90 days still accruing as of June 30, 2020 (in thousands): Non-accrual With No Non-accrual With Loans Past Due Allowance for Allowance for Over 90 Days Credit Losses Credit Losses Still Accruing Commercial & Industrial $ 207 $ 880 $ — 1-4 Family — 2,212 — Hotels — 2,748 — Multi-family — — — Non Residential Non-Owner Occupied — 346 3 Non Residential Owner Occupied 2,521 888 — Commercial Real Estate 2,521 6,194 3 Residential Real Estate 232 3,245 4 Home Equity — 265 61 Consumer — — — Total $ 2,960 $ 10,584 $ 68 The following table presents the Company's loans on non-accrual status and loans past due over 90 days still accruing as of December 31, 2019 (in thousands): Loans Past Due Over 90 Days Non-accrual Still Accruing Commercial and industrial $ 1,182 $ 184 Commercial real estate 6,384 — Residential real estate 3,393 83 Home equity 531 — Consumer — — Total $ 11,490 $ 267 The Company recognized less than $0.1 million of interest income on nonaccrual loans during each of the three months ended June 30, 2020 and 2019 and less than $0.1 million and $0.2 million for the six months ended June 30, 2020 and 2019, respectively. The following table presents the amortized cost basis of collateral-dependent loans as of June 30, 2020 (in thousands). Changes in the fair value of the collateral for collateral-dependent loans are reported as credit loss expense or a reversal of credit loss expense in the period of change. Secured by Real Estate Equipment Commercial and industrial $ 207 $ — 1-4 Family — — Hotels 2,634 — Multi-family — — Non Residential Non-Owner Occupied — — Non Residential Owner Occupied 2,520 — Commercial real estate 5,154 — Total $ 5,361 $ — The following table presents the Company’s impaired loans, by class (in thousands) as of December 31, 2019. The difference between the unpaid principal balance and the recorded investment generally reflects amounts that have been previously charged-off. There were no impaired residential, home equity, or consumer loans. December 31, 2019 Unpaid Recorded Principal Related Investment Balance Allowance With no related allowance recorded: Commercial and industrial $ 501 $ 501 $ — Commercial real estate 3,546 3,572 — Total $ 4,047 $ 4,073 $ — With an allowance recorded: Commercial and industrial $ — $ — $ — Commercial real estate 2,644 2,644 87 Total $ 2,644 $ 2,644 $ 87 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 three and six months ended June 30, 2019: Three months ended June 30, 2019 Six months ended June 30, 2019 Average Interest Average Interest Recorded Income Recorded Income Investment Recognized Investment Recognized With no related allowance recorded: Commercial and industrial $ 589 — $ 603 $ — Commercial real estate 3,614 2 5,067 38 Total $ 4,203 $ 2 $ 5,670 $ 38 With an allowance recorded: Commercial and industrial $ — $ — $ — $ — Commercial real estate 5,667 76 4,326 106 Total $ 5,667 $ 76 $ 4,326 $ 106 The Company would have recognized less than $0.1 million of interest income during each of the three months ended June 30, 2020 and 2019 and less than $0.1 million during each of the six months ended June 30, 2020 and 2019 if such loans had been current in accordance with their original terms. 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 days past due. The following table presents the aging of the amortized cost basis in past-due loans as of June 30, 2020 by class of loan (in thousands): 30-59 60-89 90+ Total Current Total Past Due Past Due Past Due Past Due Loans Loans Commercial and industrial $ 130 $ 30 $ — $ 160 $ 368,962 $ 369,122 1-4 Family 753 — — 753 123,061 123,814 Hotels — — — — 295,179 295,179 Multi-family — — — — 204,580 204,580 Non Residential Non-Owner Occupied — — 3 3 628,625 628,628 Non Residential Owner Occupied 161 — — 161 215,311 215,472 Commercial real estate 914 — 3 917 1,466,756 1,467,673 Residential real estate 3,923 1,334 4 5,261 1,625,890 1,631,151 Home Equity 223 108 61 392 142,280 142,672 Consumer 67 — — 67 52,211 52,278 Overdrafts 272 1 — 273 2,427 2,700 Total $ 5,529 $ 1,473 $ 68 $ 7,070 $ 3,658,526 $ 3,665,596 The following presents an aging analysis of the Company's past-due loans, by class, as of December 31, 2019 (in thousands): 30-59 60-89 90+ Total Current Total Past Due Past Due Past Due Past Due Loans Loans Commercial and industrial $ 243 $ 31 $ 184 $ 458 $ 307,557 $ 308,015 Commercial real estate 1,514 66 — 1,580 1,458,157 1,459,737 Residential real estate 5,758 1,643 83 7,484 1,632,912 1,640,396 Home equity 840 116 — 956 147,972 148,928 Consumer 156 32 — 188 54,075 54,263 Overdrafts 644 86 — 730 4,030 4,760 Total $ 9,155 $ 1,974 $ 267 $ 11,396 $ 3,604,703 $ 3,616,099 Troubled Debt Restructurings ("TDRs") 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. These modifications range from partial deferrals (interest only) to full deferrals (principal and interest). 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 fores eeable 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). Substantially all of the Company's TDRs are accruing interest. June 30, 2020 December 31, 2019 Commercial and industrial $ — $ — 1-4 Family 126 N/R Hotels 2,634 N/R Multi-family 1,921 N/R Non Residential Non-Owner Occupied — N/R Non Residential Owner Occupied 234 N/R Commercial real estate 4,915 4,973 Residential real estate 20,631 21,029 Home equity 2,138 3,628 Consumer 185 — Total $ 27,869 $ 29,630 N/R = Not reported. Results for reporting periods beginning after January 1, 2020 are presented under ASC 326, while prior period amounts continue to be reported in accordance with previously applicable GAAP . The Company has allocate d $1.6 million and $0.8 million of the allowance for credit losses for these loans as of June 30, 2020 and December 31, 2019, respectively. As of June 30, 2020, the Company has not committed to lend any additional amounts in relation to these loans. The following table presents loans by class, modified as TDRs, that occurred during the six months ended June 30, 2020 and 2019, respectively (dollars in thousands): June 30, 2020 June 30, 2019 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 — $ — $ — — $ — $ — 1-4 Family — — — N/R N/R N/R Hotels — — — N/R N/R N/R Multi-family — — — N/R N/R N/R Non Owner Non-Owner Occupied — — — N/R N/R N/R Non Owner Owner Occupied — — — N/R N/R N/R Commercial real estate — — — — — — Residential real estate 24 1,720 1,716 27 2,066 2,066 Home equity 2 70 70 7 194 194 Consumer — — — — — — Total 26 $ 1,790 $ 1,786 34 $ 2,260 $ 2,260 N/R = Not reported. Results for reporting periods beginning after January 1, 2020 are presented under ASC 326, while prior period amounts continue to be reported in accordance with previously applicable GAAP . The TDRs above increased the allowance for credit losses by less than $0.1 million in each of the six months ended of June 30, 2020 and 2019 and resulted in charge-offs of less than $0.1 million during those same time periods. The Company had one TDR that subsequently defaulted in 2019. The loan balance was approximately $3.0 million and the subsequent default resulted in a charge-off of $0.7 million and the remaining balance was transferred to OREO during 2019. The Company has had no TDRs that subsequently defaulted in 2020. COVID-19 Pandemic In March of 2020, in response to the COVID-19 pandemic, reg ulatory guidance was issued that clarified the accounting for loan modifications. Modifications of loan terms do not automatically result in a TDR. Short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief, are not TDRs. This includes short-term (e.g., six months) modifications such as payment deferrals, fee waivers, extension of repayment terms, or other dela ys that are insignificant. Borrowers considered current are those that are less than 30 days past due on their contractual payments at the time the modification program was implemented. However, these deferrals do not absolve the company from performing its normal risk rating and therefore a loan could be current and have a less than satisfactory risk rating. Through June 30, 2020, the Company has granted deferrals of approximately $125 million for mortgage borrowers and $430 million for commercial borrowers. As of June 30, 2020, $3.6 million of the mortgage deferrals were previously and currently considered TDRs due to Chapter 7 bankruptcies. Credit Quality Indicators All commercial loans within the portfolio are subject to internal risk rating. All non-commercial loans are evaluated based on payment history. 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 and overall collateral position, along with other economic trends and historical payment performance. The risk rating for each credit is 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. Based on the most recent analysis performed, the risk category of loans by class of loans at June 30, 2020 is as follows (in thousands): Revolving Term Loans Loans Amortized Cost Basis by Origination Year and Risk Level Amortized 2020 2019 2018 2017 2016 Prior Cost Basis Total Commercial and industrial Pass $ 74,977 $ 74,675 $ 63,750 $ 38,259 $ 10,177 $ 11,707 $ 62,386 $ 335,931 Special mention 85 46 18 61 — 441 211 862 Substandard 64 830 1,196 816 8,729 2,195 18,499 32,329 Total $ 75,126 $ 75,551 $ 64,964 $ 39,136 $ 18,906 $ 14,343 $ 81,096 $ 369,122 Revolving Term Loans Loans Amortized Cost Basis by Origination Year and Risk Level Amortized 2020 2019 2018 2017 2016 Prior Cost Basis Total Commercial real estate - Total Pass $ 172,741 $ 343,898 $ 200,306 $ 165,468 $ 164,439 $ 346,209 $ 27,105 $ 1,420,166 Special mention — 5,156 1,222 691 359 6,211 — 13,639 Substandard 220 1,655 4,596 3,927 9,919 13,144 407 33,868 Total $ 172,961 $ 350,709 $ 206,124 $ 170,086 $ 174,717 $ 365,564 $ 27,512 $ 1,467,673 Commercial real estate - 1-4 Family Pass $ 19,584 $ 21,409 $ 10,445 $ 8,686 $ 6,918 $ 37,060 $ 9,734 $ 113,836 Special mention — — — 26 334 3,053 — 3,413 Substandard — 229 — 952 109 5,268 7 6,565 Total $ 19,584 $ 21,638 $ 10,445 $ 9,664 $ 7,361 $ 45,381 $ 9,741 $ 123,814 Commercial real estate - Hotels Pass $ 14,655 $ 110,833 $ 35,038 $ 49,483 $ 21,518 $ 56,378 $ — $ 287,905 Substandard — — — — 4,526 2,748 — 7,274 Total $ 14,655 $ 110,833 $ 35,038 $ 49,483 $ 26,044 $ 59,126 $ — $ 295,179 Commercial real estate - Multi-family Pass $ 57,954 $ 57,159 $ 2,836 $ 22,528 $ 32,957 $ 27,812 $ 770 $ 202,016 Special mention — 1,921 561 — — — — 2,482 Substandard — — — — — 82 — 82 Total $ 57,954 $ 59,080 $ 3,397 $ 22,528 $ 32,957 $ 27,894 $ 770 $ 204,580 Commercial real estate - Non Residential Non-Owner Occupied Pass $ 69,473 $ 120,792 $ 121,420 $ 57,873 $ 81,033 $ 160,184 $ 11,318 $ 622,093 Special mention — 316 602 574 — 595 — 2,087 Substandard 58 98 1,181 78 1,446 1,347 240 4,448 Total $ 69,531 $ 121,206 $ 123,203 $ 58,525 $ 82,479 $ 162,126 $ 11,558 $ 628,628 Commercial real estate - Non Residential Owner Occupied Pass $ 11,076 $ 33,705 $ 30,567 $ 26,899 $ 22,012 $ 64,777 $ 5,279 $ 194,315 Special mention — 2,919 58 91 24 2,563 — 5,655 Substandard 162 1,329 3,415 2,896 3,839 3,700 161 15,502 Total $ 11,238 $ 37,953 $ 34,040 $ 29,886 $ 25,875 $ 71,040 $ 5,440 $ 215,472 Revolving Term Loans Loans Amortized Cost Basis by Origination Year and Risk Level Amortized 2020 2019 2018 2017 2016 Prior Cost Basis Total Residential real estate Performing $ 197,377 $ 281,064 $ 223,330 $ 165,437 $ 129,448 $ 507,921 $ 123,143 $ 1,627,720 Non-performing — 668 — 124 212 2,374 53 3,431 Total $ 197,377 $ 281,732 $ 223,330 $ 165,561 $ 129,660 $ 510,295 $ 123,196 $ 1,631,151 Home equity Performing $ 5,054 $ 7,570 $ 7,121 $ 2,733 $ 2,121 $ 12,861 $ 105,047 $ 142,507 Non-performing — — — — — — 165 165 Total $ 5,054 $ 7,570 $ 7,121 $ 2,733 $ 2,121 $ 12,861 $ 105,212 $ 142,672 Consumer Performing $ 9,689 $ 18,922 $ 12,199 $ 4,492 $ 2,485 $ 2,284 $ 2,207 $ 52,278 Non-performing — — — — — — — — Total $ 9,689 $ 18,922 $ 12,199 $ 4,492 $ 2,485 $ 2,284 $ 2,207 $ 52,278 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 December 31, 2019 Pass $ 276,847 $ 1,408,644 $ 1,685,491 Special mention 2,472 13,838 16,310 Substandard 28,696 37,255 65,951 Total $ 308,015 $ 1,459,737 $ 1,767,752 The following table presents the Company's non-commercial loans by payment performance, by portfolio loan classification (in thousands): Performing Non-Performing Total December 31, 2019 Residential real estate $ 1,636,920 $ 3,476 $ 1,640,396 Home equity 148,397 531 148,928 Consumer 54,263 — 54,263 Total $ 1,839,580 $ 4,007 $ 1,843,587 |