Loans | Loans The following is a summary of loans: (Dollars in thousands) March 31, 2017 December 31, 2016 Amount % Amount % Commercial: Mortgages (1) $1,076,648 33 % $1,074,186 33 % Construction & development (2) 123,841 4 121,371 4 Commercial & industrial (3) 562,010 18 576,109 18 Total commercial 1,762,499 55 1,771,666 55 Residential real estate: Mortgages 1,100,435 34 1,094,824 34 Homeowner construction 30,775 1 27,924 1 Total residential real estate 1,131,210 35 1,122,748 35 Consumer: Home equity lines 258,695 8 264,200 8 Home equity loans 36,050 1 37,272 1 Other (4) 36,406 1 38,485 1 Total consumer 331,151 10 339,957 10 Total loans (5) $3,224,860 100 % $3,234,371 100 % (1) Loans primarily secured by income producing property. (2) Loans for construction of commercial properties, loans to developers for construction of residential properties and loans for land development. (3) Loans to businesses and individuals, a substantial portion of which are fully or partially collateralized by real estate. (4) Loans to individuals secured by general aviation aircraft and other personal installment loans. (5) Includes net unamortized loan origination costs of $3.2 million and $3.0 million , respectively, at March 31, 2017 and December 31, 2016 and net unamortized premiums on purchased loans of $907 thousand and $783 thousand , respectively, at March 31, 2017 and December 31, 2016 . As of March 31, 2017 and December 31, 2016 , there were $1.5 billion and $1.4 billion , respectively, of loans pledged as collateral to the FHLBB under a blanket pledge agreement and to the FRB for the discount window. See Note 7 for additional disclosure regarding borrowings. Nonaccrual Loans Loans, with the exception of certain well-secured loans that are in the process of collection, are placed on nonaccrual status and interest recognition is suspended when such loans are 90 days or more overdue with respect to principal and/or interest, or sooner if considered appropriate by management. Well-secured loans are permitted to remain on accrual status provided that full collection of principal and interest is assured and the loan is in the process of collection. Loans are also placed on nonaccrual status when, in the opinion of management, full collection of principal and interest is doubtful. Interest previously accrued but not collected on such loans is reversed against current period income. Subsequent interest payments received on nonaccrual loans are applied to the outstanding principal balance of the loan or recognized as interest income depending on management’s assessment of the ultimate collectability of the loan. Loans are removed from nonaccrual status when they have been current as to principal and interest generally for a period of six months, the borrower has demonstrated an ability to comply with repayment terms, and when, in management’s opinion, the loans are considered to be fully collectible. The following is a summary of nonaccrual loans, segregated by class of loans: (Dollars in thousands) Mar 31, Dec 31, Commercial: Mortgages $7,809 $7,811 Construction & development — — Commercial & industrial 1,129 1,337 Residential real estate: Mortgages 12,253 11,736 Homeowner construction — — Consumer: Home equity lines 91 — Home equity loans 730 1,058 Other 115 116 Total nonaccrual loans $22,127 $22,058 Accruing loans 90 days or more past due $— $— As of March 31, 2017 and December 31, 2016 , loans secured by one- to four-family residential property amounting to $6.6 million and $5.7 million , respectively, were in process of foreclosure. Nonaccrual loans of $4.0 million and $3.5 million , respectively, were current as to the payment of principal and interest at March 31, 2017 and December 31, 2016 . There were no significant commitments to lend additional funds to borrowers whose loans were on nonaccrual status at March 31, 2017 . Past Due Loans Past due status is based on the contractual payment terms of the loan. The following tables present an age analysis of past due loans, segregated by class of loans: (Dollars in thousands) Days Past Due March 31, 2017 30-59 60-89 Over 90 Total Past Due Current Total Loans Commercial: Mortgages $— $— $7,806 $7,806 $1,068,842 $1,076,648 Construction & development — — — — 123,841 123,841 Commercial & industrial 7 — 1,039 1,046 560,964 562,010 Residential real estate: Mortgages 1,826 1,515 7,192 10,533 1,089,902 1,100,435 Homeowner construction — — — — 30,775 30,775 Consumer: Home equity lines 517 — — 517 258,178 258,695 Home equity loans 423 102 380 905 35,145 36,050 Other 14 — 111 125 36,281 36,406 Total loans $2,787 $1,617 $16,528 $20,932 $3,203,928 $3,224,860 (Dollars in thousands) Days Past Due December 31, 2016 30-59 60-89 Over 90 Total Past Due Current Total Loans Commercial: Mortgages $901 $— $7,807 $8,708 $1,065,478 $1,074,186 Construction & development — — — — 121,371 121,371 Commercial & industrial 409 — 745 1,154 574,955 576,109 Residential real estate: Mortgages 5,381 652 6,193 12,226 1,082,598 1,094,824 Homeowner construction — — — — 27,924 27,924 Consumer: Home equity lines 655 26 — 681 263,519 264,200 Home equity loans 776 76 658 1,510 35,762 37,272 Other 32 1 110 143 38,342 38,485 Total loans $8,154 $755 $15,513 $24,422 $3,209,949 $3,234,371 Included in past due loans as of March 31, 2017 and December 31, 2016 , were nonaccrual loans of $18.1 million and $18.6 million , respectively. All loans 90 days or more past due at March 31, 2017 and December 31, 2016 were classified as nonaccrual. Impaired Loans Impaired loans are loans for which it is probable that the Corporation will not be able to collect all amounts due according to the contractual terms of the loan agreements and loans restructured in a troubled debt restructuring. The following is a summary of impaired loans: (Dollars in thousands) Recorded Investment (1) Unpaid Principal Related Allowance Mar 31, Dec 31, Mar 31, Dec 31, Mar 31, Dec 31, No Related Allowance Recorded: Commercial: Mortgages $4,673 $4,676 $9,014 $9,019 $— $— Construction & development — — — — — — Commercial & industrial 5,618 6,458 5,758 6,550 — — Residential real estate: Mortgages 14,953 14,385 15,092 14,569 — — Homeowner construction — — — — — — Consumer: Home equity lines 91 — 91 — — — Home equity loans 730 1,137 752 1,177 — — Other — 116 — 116 — — Subtotal 26,065 26,772 30,707 31,431 — — With Related Allowance Recorded: Commercial: Mortgages $5,106 $5,104 $6,089 $6,087 $461 $448 Construction & development — — — — — — Commercial & industrial 1,266 662 1,325 699 201 3 Residential real estate: Mortgages 1,232 1,285 1,258 1,310 183 151 Homeowner construction — — — — — — Consumer: Home equity lines — — — — — — Home equity loans — — — — — — Other 143 28 143 29 16 4 Subtotal 7,747 7,079 8,815 8,125 861 606 Total impaired loans $33,812 $33,851 $39,522 $39,556 $861 $606 Total: Commercial $16,663 $16,900 $22,186 $22,355 $662 $451 Residential real estate 16,185 15,670 16,350 15,879 183 151 Consumer 964 1,281 986 1,322 16 4 Total impaired loans $33,812 $33,851 $39,522 $39,556 $861 $606 (1) The recorded investment in impaired loans consists of unpaid principal balance, net of charge-offs, interest payments received applied to principal and unamortized deferred loan origination fees and costs. For impaired accruing loans (troubled debt restructurings for which management has concluded that the collectibility of the loan is not in doubt), the recorded investment also includes accrued interest. The following tables present the average recorded investment balance of impaired loans and interest income recognized on impaired loans segregated by loan class. (Dollars in thousands) Average Recorded Investment Interest Income Recognized Three months ended March 31, 2017 2016 2017 2016 Commercial: Mortgages $9,780 $14,740 $26 $93 Construction & development — — — — Commercial & industrial 6,965 3,800 76 11 Residential real estate: Mortgages 16,240 11,069 122 69 Homeowner construction — — — — Consumer: Home equity lines 76 671 2 2 Home equity loans 893 1,175 8 13 Other 143 145 4 2 Totals $34,097 $31,600 $238 $190 Troubled Debt Restructurings Loans are considered restructured in a troubled debt restructuring when the Corporation has granted concessions to a borrower due to the borrower’s financial condition that it otherwise would not have considered. These concessions may include modifications of the terms of the debt such as deferral of payments, extension of maturity, reduction of principal balance, reduction of the stated interest rate other than normal market rate adjustments, or a combination of these concessions. Debt may be bifurcated with separate terms for each tranche of the restructured debt. Restructuring a loan in lieu of aggressively enforcing the collection of the loan may benefit the Corporation by increasing the ultimate probability of collection. Restructured loans are classified as accruing or non-accruing based on management’s assessment of the collectibility of the loan. Loans which are already on nonaccrual status at the time of the restructuring generally remain on nonaccrual status for approximately 6 months before management considers such loans for return to accruing status. Accruing restructured loans are placed into nonaccrual status if and when the borrower fails to comply with the restructured terms and management deems it unlikely that the borrower will return to a status of compliance in the near term. Troubled debt restructurings are reported as such for at least one year from the date of the restructuring. In years after the restructuring, troubled debt restructured loans are removed from this classification if the restructuring did not involve a below-market rate concession and the loan is not deemed to be impaired based on the terms specified in the restructuring agreement. Troubled debt restructurings are classified as impaired loans. The Corporation identifies loss allocations for impaired loans on an individual loan basis. The recorded investment in troubled debt restructurings was $21.5 million and $22.3 million , respectively, at March 31, 2017 and December 31, 2016 . These amounts included insignificant balances of accrued interest. The allowance for loan losses included specific reserves for these troubled debt restructurings of $660 thousand and $567 thousand , respectively, at March 31, 2017 and December 31, 2016 . As of March 31, 2017 , there were no significant commitments to lend additional funds to borrowers whose loans had been restructured. In the three months ended March 31, 2017 and 2016 , there were no loans modified as a troubled debt restructuring. In the three months ended March 31, 2017 and 2016 , payment defaults on troubled debt restructured loans modified within the previous 12 months occurred on 1 loan totaling $779 thousand and 6 loans totaling $809 thousand , respectively. Credit Quality Indicators Commercial The Corporation utilizes an internal rating system to assign a risk to each of its commercial loans. Loans are rated on a scale of 1 to 10. This scale can be assigned to three broad categories including “pass” for ratings 1 through 6, “special mention” for 7-rated loans, and “classified” for loans rated 8, 9 or 10. The loan rating system takes into consideration parameters including the borrower’s financial condition, the borrower’s performance with respect to loan terms, the adequacy of collateral, the adequacy of guarantees and other credit quality characteristics. The weighted average risk rating of the Corporation’s commercial loan portfolio was 4.67 at March 31, 2017 and 4.68 at December 31, 2016 . For non-impaired loans, the Corporation takes the risk rating into consideration along with other credit attributes in the establishment of an appropriate allowance for loan losses. A description of the commercial loan categories are as follows: Pass - Loans with acceptable credit quality, defined as ranging from superior or very strong to a status of lesser stature. Superior or very strong credit quality is characterized by a high degree of cash collateralization or strong balance sheet liquidity. Lesser stature loans have an acceptable level of credit quality but exhibit some weakness in various credit metrics such as collateral adequacy, cash flow, secondary sources of repayment, or performance inconsistency or may be in an industry or of a loan type known to have a higher degree of risk. Special Mention - Loans with potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the Bank’s position as creditor at some future date. Special Mention assets are not adversely classified and do not expose the Bank to sufficient risk to warrant adverse classification. Examples of these conditions include but are not limited to outdated or poor quality financial data, strains on liquidity and leverage, losses or negative trends in operating results, marginal cash flow, weaknesses in occupancy rates or trends in the case of commercial real estate and frequent delinquencies. Classified - Loans identified as “substandard”, “doubtful” or “loss” based on criteria consistent with guidelines provided by banking regulators. A “substandard” loan has defined weaknesses which make payment default or principal exposure likely, but not yet certain. Such loans are apt to be dependent upon collateral liquidation, a secondary source of repayment or an event outside of the normal course of business. The loans are closely watched and are either already on nonaccrual status or may be placed on nonaccrual status when management determines there is uncertainty of collectibility. A “doubtful” loan is placed on non-accrual status and has a high probability of loss, but the extent of the loss is difficult to quantify due to dependency upon collateral having a value that is difficult to determine or upon some near-term event which lacks certainty. A loan in the “loss” category is considered generally uncollectible or the timing or amount of payments cannot be determined. “Loss” is not intended to imply that the loan has no recovery value but rather it is not practical or desirable to continue to carry the asset. The Corporation’s procedures call for loan ratings and classifications to be revised whenever information becomes available that indicates a change is warranted. The criticized loan portfolio, which generally consists of commercial loans that are risk-rated special mention or worse, and other selected loans are reviewed by management on a quarterly basis, focusing on the current status and strategies to improve the credit. An annual loan review program is conducted by a third party to provide an independent evaluation of the creditworthiness of the commercial loan portfolio, the quality of the underwriting and credit risk management practices and the appropriateness of the risk rating classifications. This review is supplemented with selected targeted internal reviews of the commercial loan portfolio. The following table presents the commercial loan portfolio, segregated by category of credit quality indicator: (Dollars in thousands) Pass Special Mention Classified Mar 31, Dec 31, Mar 31, Dec 31, Mar 31, Dec 31, Commercial: Mortgages $1,067,829 $1,065,358 $776 $776 $8,043 $8,052 Construction & development 123,841 121,371 — — — — Commercial & industrial 545,494 559,416 9,230 8,938 7,286 7,755 Total commercial loans $1,737,164 $1,746,145 $10,006 $9,714 $15,329 $15,807 Residential and Consumer The residential and consumer portfolios are monitored on an ongoing basis by the Corporation using delinquency information and loan type as credit quality indicators. These credit quality indicators are assessed on an aggregate basis in these relatively homogeneous portfolios. For non-impaired loans, the Corporation assigns loss allocation factors to each respective loan type. Various other techniques are utilized to monitor indicators of credit deterioration in the portfolios of residential real estate mortgages and home equity lines and loans. Among these techniques is the periodic tracking of loans with an updated FICO score and an estimated loan to value (“LTV”) ratio. LTV ratio is determined via statistical modeling analyses. The indicated LTV levels are estimated based on such factors as the location, the original LTV ratio, and the date of origination of the loan and do not reflect actual appraisal amounts. The results of these analyses and other loan review procedures are taken into consideration in the determination of loss allocation factors for residential mortgage and home equity consumer credits. The following table presents the residential and consumer loan portfolios, segregated by category of credit quality indicator: (Dollars in thousands) Current and Under 90 Days Past Due Over 90 Days Past Due Mar 31, Dec 31, Mar 31, Dec 31, Residential real estate: Accruing mortgages $1,088,182 $1,083,088 $— $— Nonaccrual mortgages 5,061 5,543 7,192 6,193 Homeowner construction 30,775 27,924 — — Total residential loans $1,124,018 $1,116,555 $7,192 $6,193 Consumer: Home equity lines $258,695 $264,200 $— $— Home equity loans 35,670 36,614 380 658 Other 36,295 38,375 111 110 Total consumer loans $330,660 $339,189 $491 $768 |