LOANS, ALLOWANCE FOR LOAN LOSSES AND CREDIT QUALITY | LOANS, ALLOWANCE FOR LOAN LOSSES, AND CREDIT QUALITY The following tables bifurcate the amount of loans and the allowance allocated to each loan category based on the type of impairment analysis as of the periods indicated: September 30, 2015 (Dollars in thousands) Commercial and Industrial Commercial Real Estate Commercial Construction Small Business Residential Real Estate Home Equity Other Consumer Total Financing receivables ending balance: Collectively evaluated for impairment $ 856,916 $ 2,618,612 $ 307,908 $ 91,307 $ 627,031 $ 901,863 $ 15,330 $ 5,418,967 Individually evaluated for impairment $ 5,596 $ 29,506 $ 306 $ 971 $ 15,247 $ 5,777 $ 611 $ 58,014 Purchased credit impaired loans $ — $ 11,224 $ — $ — $ 9,659 $ 254 $ 3 $ 21,140 Total loans by group $ 862,512 $ 2,659,342 $ 308,214 $ 92,278 $ 651,937 $ 907,894 $ 15,944 $ 5,498,121 (1 ) December 31, 2014 (Dollars in thousands) Commercial and Industrial Commercial Real Estate Commercial Construction Small Business Residential Real Estate Home Equity Other Consumer Total Financing receivables ending balance: Collectively evaluated for impairment $ 856,185 $ 2,304,099 $ 265,501 $ 84,159 $ 505,799 $ 858,305 $ 16,335 $ 4,890,383 Individually evaluated for impairment $ 4,654 $ 30,729 $ 311 $ 1,088 $ 15,055 $ 5,330 $ 868 $ 58,035 Purchased credit impaired loans $ — $ 12,495 $ 182 $ — $ 9,405 $ 228 $ 5 $ 22,315 Total loans by group $ 860,839 $ 2,347,323 $ 265,994 $ 85,247 $ 530,259 $ 863,863 $ 17,208 $ 4,970,733 (1 ) (1) The amount of net deferred costs included in the ending balance was $4.0 million and $2.8 million at September 30, 2015 and December 31, 2014 , respectively. The following tables summarize changes in allowance for loan losses by loan category for the periods indicated: Three Months Ended September 30, 2015 (Dollars in thousands) Commercial and Industrial Commercial Real Estate Commercial Construction Small Business Residential Real Estate Home Equity Other Consumer Total Allowance for loan losses Beginning balance $ 15,279 $ 26,359 $ 4,071 $ 1,248 $ 2,551 $ 4,871 $ 616 $ 54,995 Charge-offs (497 ) (28 ) — (2 ) (40 ) (249 ) (349 ) (1,165 ) Recoveries 22 152 — 57 6 130 208 575 Provision (benefit) (518 ) 582 422 (20 ) 75 128 131 800 Ending balance $ 14,286 $ 27,065 $ 4,493 $ 1,283 $ 2,592 $ 4,880 $ 606 $ 55,205 Three Months Ended September 30, 2014 (Dollars in thousands) Commercial and Industrial Commercial Real Estate Commercial Construction Small Business Residential Real Estate Home Equity Other Consumer Total Allowance for loan losses Beginning balance $ 15,929 $ 25,095 $ 3,757 $ 1,154 $ 2,879 $ 4,969 $ 755 $ 54,538 Charge-offs (504 ) (691 ) — (73 ) (199 ) (160 ) (279 ) (1,906 ) Recoveries 6 57 — 29 178 67 135 472 Provision (benefit) 91 1,248 356 45 (36 ) 71 126 1,901 Ending balance $ 15,522 $ 25,709 $ 4,113 $ 1,155 $ 2,822 $ 4,947 $ 737 $ 55,005 Nine Months Ended September 30, 2015 (Dollars in thousands) Commercial and Industrial Commercial Real Estate Commercial Construction Small Business Residential Real Estate Home Equity Other Consumer Total Allowance for loan losses Beginning balance $ 15,573 $ 25,873 $ 3,945 $ 1,171 $ 2,834 $ 4,956 $ 748 $ 55,100 Charge-offs (1,531 ) (236 ) — (198 ) (242 ) (659 ) (922 ) (3,788 ) Recoveries 903 1,006 — 189 52 234 509 2,893 Provision (benefit) (659 ) 422 548 121 (52 ) 349 271 1,000 Ending balance $ 14,286 $ 27,065 $ 4,493 $ 1,283 $ 2,592 $ 4,880 $ 606 $ 55,205 Ending balance: individually evaluated for impairment $ 252 $ 225 $ — $ 28 $ 1,313 $ 245 $ 27 $ 2,090 Ending balance: collectively evaluated for impairment $ 14,034 $ 26,840 $ 4,493 $ 1,255 $ 1,279 $ 4,635 $ 579 $ 53,115 Nine Months Ended September 30, 2014 (Dollars in thousands) Commercial and Industrial Commercial Real Estate Commercial Construction Small Business Residential Real Estate Home Equity Other Consumer Total Allowance for loan losses Beginning balance $ 15,622 $ 24,541 $ 3,371 $ 1,215 $ 2,760 $ 5,036 $ 694 $ 53,239 Charge-offs (1,757 ) (4,273 ) — (469 ) (653 ) (562 ) (908 ) (8,622 ) Recoveries 213 322 — 168 368 215 449 1,735 Provision (benefit) 1,444 5,119 742 241 347 258 502 8,653 Ending balance $ 15,522 $ 25,709 $ 4,113 $ 1,155 $ 2,822 $ 4,947 $ 737 $ 55,005 Ending balance: individually evaluated for impairment $ 541 $ 315 $ — $ 10 $ 1,521 $ 269 $ 43 $ 2,699 Ending balance: collectively evaluated for impairment $ 14,981 $ 25,394 $ 4,113 $ 1,145 $ 1,301 $ 4,678 $ 694 $ 52,306 For the purpose of estimating the allowance for loan losses, management segregates the loan portfolio into the portfolio segments detailed in the above tables. Each of these loan categories possesses unique risk characteristics that are considered when determining the appropriate level of allowance for each segment. Some of the risk characteristics unique to each loan category include: Commercial Portfolio • Commercial and Industrial : Loans in this category consist of revolving and term loan obligations extended to business and corporate enterprises for the purpose of financing working capital and/or capital investment. Collateral generally consists of pledges of business assets including, but not limited to: accounts receivable, inventory, plant & equipment, or real estate, if applicable. Repayment sources consist of primarily, operating cash flow, and secondarily, liquidation of assets. • Commercial Real Estate : Loans in this category consist of mortgage loans to finance investment in real property such as multi-family residential, commercial/retail, office, industrial, hotels, educational and healthcare facilities and other specific use properties. Loans are typically written with amortizing payment structures. Collateral values are determined based upon third party appraisals and evaluations. Loan to value ratios at origination are governed by established policy and regulatory guidelines. Repayment sources consist of primarily, cash flow from operating leases and rents, and secondarily, liquidation of assets. • Commercial Construction : Loans in this category consist of short-term construction loans, revolving and nonrevolving credit lines and construction/permanent loans to finance the acquisition, development and construction or rehabilitation of real property. Project types include residential 1-4 family, condominium and multi-family homes, commercial/retail, office, industrial, hotels, educational and healthcare facilities and other specific use properties. Loans may be written with nonamortizing or hybrid payment structures depending upon the type of project. Collateral values are determined based upon third party appraisals and evaluations. Loan to value ratios at origination are governed by established policy and regulatory guidelines. Repayment sources vary depending upon the type of project and may consist of sale or lease of units, operating cash flows or liquidation of other assets. • Small Business: Loans in this category consist of revolving, term loan and mortgage obligations extended to sole proprietors and small businesses for purposes of financing working capital and/or capital investment. Collateral generally consists of pledges of business assets including, but not limited to, accounts receivable, inventory, plant & equipment, or real estate if applicable. Repayment sources consist primarily of operating cash flows, and secondarily, liquidation of assets. For the commercial portfolio it is the Company’s policy to obtain personal guarantees for payment from individuals holding material ownership interests of the borrowing entities. Consumer Portfolio • Residential Real Estate : Residential mortgage loans held in the Company’s portfolio are made to borrowers who demonstrate the ability to make scheduled payments with full consideration to underwriting factors such as current and expected income, employment status, current assets, other financial resources, credit history and the value of the collateral. Collateral consists of mortgage liens on 1-4 family residential properties. The Company does not originate or purchase sub-prime loans. • Home Equity : Home equity loans and lines are made to qualified individuals and are secured by senior or junior mortgage liens on owner-occupied 1-4 family homes, condominiums or vacation homes or on nonowner occupied 1-4 family homes with more restrictive loan to value requirements. The home equity loan has a fixed rate and is billed in equal payments comprised of principal and interest. The home equity line of credit has a variable rate and is billed in interest-only payments during the draw period. At the end of the draw period, the home equity line of credit is billed as a percentage of the principal balance plus all accrued interest. Additionally, the Company has the option of renewing the line of credit for additional draw periods. Borrower qualifications include favorable credit history combined with supportive income requirements and combined loan to value ratios within established policy guidelines. • Other Consumer: Other consumer loan products include personal lines of credit and amortizing loans made to qualified individuals for various purposes such as education, auto loans, debt consolidation, personal expenses or overdraft protection. Borrower qualifications include favorable credit history combined with supportive income and collateral requirements within established policy guidelines. These loans may be secured or unsecured. Credit Quality The Company continually monitors the asset quality of the loan portfolio using all available information. Based on this information, loans demonstrating certain payment issues or other weaknesses may be categorized as delinquent, impaired, nonperforming and/or put on nonaccrual status. Additionally, in the course of resolving such loans, the Company may choose to restructure the contractual terms of certain loans to match the borrower’s ability to repay the loan based on their current financial condition. If a restructured loan meets certain criteria, it may be categorized as a troubled debt restructuring (“TDR”). The Company reviews numerous credit quality indicators when assessing the risk in its loan portfolio. For the commercial portfolio, the Company utilizes a 10-point commercial risk-rating system, which assigns a risk-grade to each borrower based on a number of quantitative and qualitative factors associated with a commercial loan transaction. Factors considered include industry and market conditions, position within the industry, earnings trends, operating cash flow, asset/liability values, debt capacity, guarantor strength, management and controls, financial reporting, collateral, and other considerations. The risk-ratings categories are defined as follows: • 1- 6 Rating — Pass: Risk-rating grades “1” through “6” comprise those loans ranging from ‘Substantially Risk Free’ which indicates borrowers are of unquestioned credit standing and the pinnacle of credit quality, well established companies with a very strong financial condition, and loans fully secured by cash collateral, through ‘Acceptable Risk’, which indicates borrowers may exhibit declining earnings, strained cash flow, increasing leverage and/or weakening market fundamentals that indicate above average or below average asset quality, margins and market share. Collateral coverage is protective. • 7 Rating — Potential Weakness: Borrowers exhibit potential credit weaknesses or downward trends deserving management’s close attention. If not checked or corrected, these trends will weaken the Company’s asset and position. While potentially weak, currently these borrowers are marginally acceptable; no loss of principal or interest is envisioned. • 8 Rating — Definite Weakness Loss Unlikely: Borrowers exhibit well defined weaknesses that jeopardize the orderly liquidation of debt. Loan may be inadequately protected by the current net worth and paying capacity of the obligor or by the collateral pledged, if any. Normal repayment from the borrower is in jeopardy, although no loss of principal is envisioned. However, there is a distinct possibility that a partial loss of interest and/or principal will occur if the deficiencies are not corrected. Collateral coverage may be inadequate to cover the principal obligation. • 9 Rating — Partial Loss Probable: Borrowers exhibit well defined weaknesses that jeopardize the orderly liquidation of debt with the added provision that the weaknesses make collection of the debt in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. Serious problems exist to the point where partial loss of principal is likely. • 10 Rating — Definite Loss: Borrowers deemed incapable of repayment. Loans to such borrowers are considered uncollectible and of such little value that continuation as active assets of the Company is not warranted. The credit quality of the commercial loan portfolio is actively monitored and any changes in credit quality are reflected in risk-rating changes. Risk-ratings are assigned or reviewed for all new loans, when advancing significant additions to existing relationships (over $50,000 ), at least quarterly for all actively managed loans, and any time a significant event occurs, including at renewal of the loan. The Company utilizes a comprehensive strategy for monitoring commercial credit quality. Borrowers are required to provide updated financial information at least annually which is carefully evaluated for any changes in credit quality. Larger loan relationships are subject to a full annual credit review by an experienced credit analysis group. Additionally, the Company retains an independent loan review firm to evaluate the credit quality of the commercial loan portfolio. The independent loan review process achieves significant penetration into the commercial loan portfolio and reports the results of these reviews to the Audit Committee of the Board of Directors on a quarterly basis. The following table details the amount of outstanding principal balances relative to each of the risk-rating categories for the Company’s commercial portfolio: September 30, 2015 Category Risk Rating Commercial and Industrial Commercial Real Estate Commercial Construction Small Business Total (Dollars in thousands) Pass 1 - 6 $ 796,556 $ 2,504,079 $ 297,405 $ 88,793 $ 3,686,833 Potential weakness 7 45,609 93,609 10,280 2,666 152,164 Definite weakness-loss unlikely 8 20,272 60,421 529 735 81,957 Partial loss probable 9 75 1,233 — 84 1,392 Definite loss 10 — — — — — Total $ 862,512 $ 2,659,342 $ 308,214 $ 92,278 $ 3,922,346 December 31, 2014 Category Risk Rating Commercial and Industrial Commercial Real Estate Commercial Construction Small Business Total (Dollars in thousands) Pass 1 - 6 $ 801,578 $ 2,196,109 $ 248,696 $ 81,255 $ 3,327,638 Potential weakness 7 37,802 82,372 15,464 2,932 138,570 Definite weakness-loss unlikely 8 20,241 67,571 1,834 949 90,595 Partial loss probable 9 1,218 1,271 — 111 2,600 Definite loss 10 — — — — — Total $ 860,839 $ 2,347,323 $ 265,994 $ 85,247 $ 3,559,403 For the Company’s consumer portfolio, the quality of the loan is best indicated by the repayment performance of an individual borrower. However, the Company does supplement performance data with current Fair Isaac Corporation (“FICO”) scores and Loan to Value (“LTV”) estimates. Current FICO data is purchased and appended to all consumer loans on a quarterly basis. In addition, automated valuation services and broker opinions of value are used to supplement original value data for the residential and home equity portfolios, periodically. The following table shows the weighted average FICO scores and the weighted average combined LTV ratios as of the periods indicated below: September 30, December 31, Residential portfolio FICO score (re-scored)(1) 741 739 LTV (re-valued)(2) 60.8 % 67.1 % Home equity portfolio FICO score (re-scored)(1) 765 764 LTV (re-valued)(2) 50.9 % 53.6 % (1) The average FICO scores for September 30, 2015 are based upon rescores available from August 31, 2015 and origination score data for loans booked between September 1, 2015 and September 30, 2015. The average FICO scores for December 31, 2014 are based upon rescores available from November 30, 2014 and origination score data for loans booked between December 1, 2014 and December 31, 2014. (2) The combined LTV ratios for September 30, 2015 are based upon updated automated valuations as of March 31, 2015 and origination value data for loans booked between April 1, 2015 and September 30, 2015. The combined LTV ratios for December 31, 2014 are based upon updated automated valuations as of February 28, 2013 and actual score data for loans booked from March 1, 2013 through December 31, 2014. For home equity loans and lines in a subordinate lien position, the LTV data represents a combined LTV, taking into account the senior lien data for loans and lines. The Company’s philosophy toward managing its loan portfolios is predicated upon careful monitoring, which stresses early detection and response to delinquent and default situations. Delinquent loans are managed by a team of seasoned collection specialists and the Company seeks to make arrangements to resolve any delinquent or default situation over the shortest possible time frame. As a general rule, loans more than 90 days past due with respect to principal or interest are classified as nonaccrual loans. As permitted by banking regulations, certain consumer loans 90 days or more past due may continue to accrue interest. The Company also may use discretion regarding other loans over 90 days delinquent if the loan is well secured and in process of collection. Set forth below is information regarding the Company’s nonaccrual, delinquent, TDRs, and impaired loans at the period shown. The following table shows nonaccrual loans at the dates indicated: September 30, 2015 December 31, 2014 (Dollars in thousands) Commercial and industrial $ 4,114 $ 2,822 Commercial real estate 8,699 7,279 Commercial construction 307 311 Small business 159 246 Residential real estate 9,106 8,697 Home equity 7,142 8,038 Other consumer 40 — Total nonaccrual loans(1) $ 29,567 $ 27,393 (1) Included in these amounts were $5.2 million of nonaccruing TDRs at both September 30, 2015 and December 31, 2014 , respectively. The following table shows information regarding foreclosed residential real estate property at the date indicated: September 30, 2015 (Dollars in thousands) Foreclosed residential real estate property held by the creditor $ 1,700 Recorded investment in mortgage loans collateralized by residential real estate property that are in the process of foreclosure $ 1,465 The following table shows the age analysis of past due financing receivables as of the dates indicated: September 30, 2015 30-59 days 60-89 days 90 days or more Total Past Due Total Financing Receivables Recorded Investment >90 Days and Accruing Number of Loans Principal Balance Number of Loans Principal Balance Number of Loans Principal Balance Number of Loans Principal Balance Current (Dollars in thousands) Loan Portfolio Commercial and industrial 6 $ 383 3 $ 920 10 $ 3,334 19 $ 4,637 $ 857,875 $ 862,512 $ — Commercial real estate 6 1,222 4 746 16 4,769 26 6,737 2,652,605 2,659,342 — Commercial construction — — — — 1 306 1 306 307,908 308,214 — Small business 8 27 4 44 10 105 22 176 92,102 92,278 — Residential real estate 12 1,620 9 1,760 23 4,096 44 7,476 644,461 651,937 — Home equity 27 1,770 13 769 14 1,295 54 3,834 904,060 907,894 — Other consumer (1) 308 262 9 16 13 33 330 311 15,633 15,944 — Total 367 $ 5,284 42 $ 4,255 87 $ 13,938 496 $ 23,477 $ 5,474,644 $ 5,498,121 $ — December 31, 2014 30-59 days 60-89 days 90 days or more Total Past Due Total Financing Receivables Recorded Investment >90 Days and Accruing Number of Loans Principal Balance Number of Loans Principal Balance Number of Loans Principal Balance Number of Loans Principal Balance Current (Dollars in thousands) Loan Portfolio Commercial and industrial 18 $ 3,192 10 $ 1,007 19 $ 2,320 47 $ 6,519 $ 854,320 $ 860,839 $ — Commercial real estate 19 13,428 6 1,480 16 4,225 41 19,133 2,328,190 2,347,323 — Commercial construction 1 506 — — 1 311 2 817 265,177 265,994 — Small business 7 21 8 113 7 173 22 307 84,940 85,247 — Residential real estate 13 1,670 10 1,798 36 4,826 59 8,294 521,965 530,259 106 Home equity 20 1,559 7 307 23 2,402 50 4,268 859,595 863,863 — Other consumer (1) 318 382 16 23 15 15 349 420 16,788 17,208 13 Total 396 $ 20,758 57 $ 4,728 117 $ 14,272 570 $ 39,758 $ 4,930,975 $ 4,970,733 $ 119 (1) Other consumer portfolio is inclusive of deposit account overdrafts recorded as loan balances. In the course of resolving nonperforming loans, the Company may choose to restructure the contractual terms of certain loans. The Company attempts to work out an alternative payment schedule with the borrower in order to avoid foreclosure actions. Any loans that are modified are reviewed by the Company to identify if a TDR has occurred, which is when, for economic or legal reasons related to a borrower’s financial difficulties, the Company grants a concession to the borrower that it would not otherwise consider. Terms may be modified to fit the ability of the borrower to repay in line with its current financial status and the restructuring of the loan may include the transfer of assets from the borrower to satisfy the debt, a modification of loan terms, or a combination of the two. The following table shows the Company’s total TDRs and other pertinent information as of the dates indicated: September 30, 2015 December 31, 2014 (Dollars in thousands) TDRs on accrual status $ 37,477 $ 38,382 TDRs on nonaccrual 5,201 5,248 Total TDRs $ 42,678 $ 43,630 Amount of specific reserves included in the allowance for loan losses associated with TDRs $ 1,681 $ 2,004 Additional commitments to lend to a borrower who has been a party to a TDR $ 1,366 $ 1,400 The Company’s policy is to have any restructured loan which is on nonaccrual status prior to being modified remain on nonaccrual status for six months, subsequent to being modified, before management considers its return to accrual status. If the restructured loan is on accrual status prior to being modified, it is reviewed to determine if the modified loan should remain on accrual status. Additionally, loans classified as TDRs are adjusted to reflect the changes in value of the recorded investment in the loan, if any, resulting from the granting of a concession. For all residential loan modifications, the borrower must perform during a 90 day trial period before the modification is finalized. The following table shows the modifications which occurred during the periods indicated and the change in the recorded investment subsequent to the modifications occurring: Three Months Ended Nine Months Ended September 30, 2015 September 30, 2015 Number of Contracts Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment (1) Number of Contracts Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment (1) (Dollars in thousands) Troubled debt restructurings Commercial and industrial 1 $ 100 $ 100 10 $ 1,153 $ 1,153 Commercial real estate 1 653 653 6 2,963 2,963 Small business 2 103 103 7 269 269 Residential real estate 2 218 245 5 376 403 Home equity 1 36 36 4 251 251 Total 7 $ 1,110 $ 1,137 32 $ 5,012 $ 5,039 Three Months Ended Nine Months Ended September 30, 2014 September 30, 2014 Number of Contracts Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment (1) Number of Contracts Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment (1) (Dollars in thousands) Troubled debt restructurings Commercial and industrial 3 $ 193 $ 193 12 $ 744 $ 744 Commercial real estate 5 2,095 2,095 13 4,225 4,225 Small business — — — 1 58 58 Residential real estate 1 156 158 8 1,388 1,419 Home equity 2 55 55 9 781 781 Other consumer — — — 1 8 8 Total 11 $ 2,499 $ 2,501 44 $ 7,204 $ 7,235 (1) The post-modification balances represent the legal principal balance of the loan on the date of modification. These amounts may show an increase when modifications include a capitalization of interest. The following table shows the Company’s post-modification balance of TDRs listed by type of modification during the period indicated: Three Months Ended September 30 Nine Months Ended September 30 2015 2014 2015 2014 (Dollars in thousands) (Dollars in thousands) Extended maturity $ 855 $ 1,902 $ 2,204 $ 3,403 Adjusted interest rate — — — 726 Combination rate and maturity 246 599 2,769 2,269 Court ordered concession 36 — 66 837 Total $ 1,137 $ 2,501 $ 5,039 $ 7,235 The Company considers a loan to have defaulted when it reaches 90 days past due. The following table shows loans that have been modified during the past twelve months which have subsequently defaulted during the periods indicated: Three Months Ended September 30 2015 2014 Number of Contracts Recorded Investment Number of Contracts Recorded Investment (Dollars in thousands) Troubled debt restructurings that subsequently defaulted Commercial and industrial — — 1 46 Residential real estate — — 1 87 — $ — 2 $ 133 Nine Months Ended September 30 2015 2014 Number of Contracts Recorded Investment Number of Contracts Recorded Investment (Dollars in thousands) Troubled debt restructurings that subsequently defaulted Commercial real estate 2 $ 880 — $ — Commercial and industrial 3 339 1 46 Residential real estate — — 3 214 5 $ 1,219 4 $ 260 All TDR loans are considered impaired and therefore are subject to a specific review for impairment. The impairment analysis appropriately discounts the present value of the anticipated cash flows by the loan’s contractual rate of interest in effect prior to the loan’s modification. The amount of impairment, if any, is recorded as a specific loss allocation to each individual loan in the allowance for loan losses. Commercial loans (commercial and industrial, commercial construction, commercial real estate and small business loans), residential loans, and home equity loans that have been classified as TDRs and which subsequently default are reviewed to determine if the loan should be deemed collateral dependent. In such an instance, any shortfall between the value of the collateral and the carrying value of the loan is determined by measuring the recorded investment in the loan against the fair value of the collateral less estimated costs to sell. The Company charges off the amount of any confirmed loan loss in the period when the loans, or portion of loans, are deemed uncollectible. Smaller balance consumer TDR loans are reviewed for performance to determine when a charge-off is appropriate. A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. The tables below set forth information regarding the Company’s impaired loans by loan portfolio at the dates indicated: September 30, 2015 Recorded Investment Unpaid Principal Balance Related Allowance (Dollars in thousands) With no related allowance recorded Commercial and industrial $ 2,041 $ 2,193 $ — Commercial real estate 13,740 14,835 — Commercial construction 306 308 — Small business 458 494 — Residential real estate 3,555 3,658 — Home equity 4,564 4,631 — Other consumer 195 196 — Subtotal 24,859 26,315 — With an allowance recorded Commercial and industrial $ 3,555 $ 3,641 $ 252 Commercial real estate 15,766 15,938 225 Small business 513 543 28 Residential real estate 11,692 12,806 1,313 Home equity 1,213 1,359 245 Other consumer 416 430 27 Subtotal 33,155 34,717 2,090 Total $ 58,014 $ 61,032 $ 2,090 December 31, 2014 Recorded Investment Unpaid Principal Balance Related Allowance (Dollars in thousands) With no related allowance recorded Commercial and industrial $ 3,005 $ 3,278 $ — Commercial real estate 15,982 17,164 — Commercial construction 311 311 — Small business 692 718 — Residential real estate 2,439 2,502 — Home equity 4,169 4,221 — Other consumer 338 341 — Subtotal 26,936 28,535 — With an allowance recorded Commercial and industrial $ 1,649 $ 1,859 $ 412 Commercial real estate 14,747 15,514 197 Small business 396 458 7 Residential real estate 12,616 13,727 1,500 Home equity 1,161 1,264 262 Other consumer 530 530 38 Subtotal 31,099 33,352 2,416 Total $ 58,035 $ 61,887 $ 2,416 The following tables set forth information regarding interest income recognized on impaired loans, by portfolio, for the periods indicated: Three Months Ended Nine Months Ended September 30, 2015 September 30, 2015 Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized (Dollars in thousands) With no related allowance recorded Commercial and industrial $ 2,080 $ 11 $ 2,204 $ 41 Commercial real estate 13,876 89 14,433 337 Commercial construction 307 — 309 — Small business 465 4 484 14 Residential real estate 3,566 42 3,601 123 Home equity 4,585 44 4,670 134 Other consumer 198 4 207 12 Subtotal 25,077 194 25,908 661 With an allowance recorded Commercial and industrial $ 3,687 $ 10 $ 3,894 $ 57 Commercial real estate 15,830 204 15,993 609 Small business 540 7 564 22 Residential real estate 11,698 106 11,764 358 Home equity 1,221 4 1,238 13 Other consumer 421 4 443 11 Subtotal 33,397 335 33,896 1,070 Total $ 58,474 $ 529 $ 59,804 $ 1,731 Three Months Ended Nine Months Ended September 30, 2014 September 30, 2014 Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized (Dollars in thousands) With no related allowance recorded Commercial and industrial $ 4,411 $ 47 $ 4,743 $ 155 Commercial real estate 16,517 154 17,098 492 Small business 840 8 889 25 Residential real estate 2,806 34 2,836 71 Home equity 4,405 45 4,456 136 Other consumer 365 5 382 19 Subtotal 29,655 293 30,715 904 With an allowance recorded Commercial and industrial $ 3,889 $ 24 $ 4,285 $ 98 Commercial real estate 17,509 233 17,674 700 Small business 427 7 452 22 Residential real estate 12,841 106 12,959 324 Home equity 1,111 4 1,124 15 Other consumer 625 5 656 17 Subtotal 36,402 379 37,150 1,176 Total $ 66,057 $ 672 $ 67,865 $ 2,080 Certain loans acquired by the Company may have shown evidence of deterioration of credit quality since origination and it was therefore deemed unlikely that the Company would be able to collect all contractually required payments. As such, these loans were deemed to be PCI loans and the carrying value and prospective income recognition are predicated upon future cash flows expected to be collected. The following table displays certain information pertaining to PCI loans at the dates indicated: September 30, 2015 December 31, 2014 (Dollars in thousands) Outstanding balance $ 23,877 $ 25,279 Carrying amount $ 21,140 $ 22,315 The following table summarizes activity in the accretable yield for the PCI loan portfolio: Three Months Ended September 30 Nine Months Ended September 30 2015 2014 2015 2014 (Dollars in thousands) Beginning balance $ 2,527 $ 3,845 $ 2,974 $ 2,514 Acquisition — — 319 — Accretion (592 ) (667 ) (2,138 ) (1,722 ) Other change in expected cash flows (1) 278 380 978 2,572 Reclassification from nonaccretable difference for loans which have paid off (2) 218 — 298 194 Ending balance $ 2,431 $ 3,558 $ 2,431 $ 3,558 (1) Represents changes in cash flows expected to be collected and resulting in increased interest income as a prospective yield adjustment over the remaining life of the loan(s). (2) Results in increased interest income during the period in which the loan paid off at amount greater than originally expected. |