ALLOWANCE FOR LOAN LOSSES AND CREDIT QUALITY INFORMATION | 8. ALLOWANCE FOR LOAN LOSSES AND CREDIT QUALITY INFORMATION Allowance for Loan Losses We maintain an allowance for loan losses which represents our best estimate of probable losses in our loan portfolio. As losses are realized, they are charged to this allowance. We established our allowance in accordance with guidance provided in ASC 450, Contingencies (ASC 450), ASC 310, Receivables (ASC 310), and the SEC’s Staff Accounting Bulletin 102 , Selected Loan Loss Allowance Methodology and Documentation Issues (SAB 102). When we have reason to believe it is probable that we will not be able to collect all contractually due amounts of principal and interest, loans are evaluated for impairment on an individual basis and a specific allocation of the allowance is assigned in accordance with ASC 310-10. We also maintain an allowance for loan losses on acquired loans when: (i) for loans accounted for under ASC 310-30, there is deterioration in credit quality subsequent to acquisition and (ii) for loans accounted for under ASC 310-20, the inherent losses in the loans exceed the remaining credit discount recorded at the time of acquisition. The determination of the allowance for loan losses requires significant judgment reflecting our best estimate of impairment related to specifically identified impaired loans as well as probable loan losses in the remaining loan portfolio. Our evaluation is based on a continuing review of these portfolios. The following are included in our allowance for loan losses: • Specific reserves for impaired loans • An allowance for each pool of homogeneous loans based on historical loss experience • Adjustments for qualitative and environmental factors allocated to pools of homogeneous loans When it is probable that the Bank will be unable to collect all amounts due (interest and principal) in accordance with the contractual terms of the loan agreement, it assigns a specific reserve to that loan, as necessary. Unless loans are well-secured and collection is imminent, loans greater than 90 days past due are deemed impaired and their respective reserves are generally charged off once the loss has been confirmed. Estimated specific reserves are based on collateral values, estimates of future cash flows or market valuations. We charge loans off when they are deemed to be uncollectible. During the years ended December 31, 2018 and 2017 , net charge-offs totaled $14.2 million , or 0.29% of average loans, and $10.1 million or 0.30% of average loans, respectively. Allowances for pooled homogeneous loans, that are not deemed impaired, are based on historical net loss experience. Estimated losses for pooled portfolios are determined differently for commercial loan pools and retail loan pools. Commercial loans are pooled as follows: commercial, owner-occupied commercial, commercial mortgages and construction. Each pool is further segmented by internally assessed risk ratings. Loan losses for commercial loans are estimated by determining the probability of default and expected loss severity upon default. The probability of default is calculated based on the historical rate of migration to impaired status during the last 32 quarters. During the year ended December 31, 2018 , we increased the look-back period to 32 quarters from 28 quarters used at December 31, 2017 . This increase in the look-back period allows us to continue to anchor to the fourth quarter of 2010 to ensure that the quantitative reserves calculated by the allowance for loan loss model are adequately considering the losses within a full credit cycle. Loss severity upon default is calculated as the actual loan losses (net of recoveries) on impaired loans in their respective pool during the same time frame. Retail loans are pooled into the following segments: residential mortgage, consumer secured and consumer unsecured loans. Pooled reserves for retail loans are calculated based solely on average net loss rates over the same 32 quarter look-back period. Qualitative adjustment factors consider various current internal and external conditions which are allocated among loan types and take into consideration: • Current underwriting policies, staff, and portfolio mix, • Internal trends of delinquency, nonaccrual and criticized loans by segment, • Risk rating accuracy, control and regulatory assessments/environment, • General economic conditions - locally and nationally, • Market trends impacting collateral values, and • The competitive environment, as it could impact loan structure and underwriting. The above factors are based on their relative standing compared to the period in which historic losses are used in quantitative reserve estimates and current directional trends. Qualitative factors in our model can add to or subtract from quantitative reserves. The allowance methodology uses a loss emergence period (LEP), which is the period of time between an event that triggers the probability of a loss and the confirmation of the loss. We estimate the commercial LEP to be approximately nine quarters as of December 31, 2018 . Our residential mortgage and consumer LEP remained at four quarters as of December 31, 2018 . We evaluate LEP quarterly for reasonableness and complete a detailed historical analysis of our LEP annually for our commercial portfolio and review of the current four quarter LEP for the retail portfolio to determine the continued reasonableness of this assumption. In prior periods, our allowance methodology included a component related to model estimation and complexity risk. During the second quarter of 2016 , as a result of continued refinement of the model and normal review of the factors, we removed the model estimation and complexity risk component from our calculation of the allowance for loan losses. Our loan officers and risk managers meet at least quarterly to discuss and review the conditions and risks associated with individual problem loans. In addition, various regulatory agencies periodically review our loan ratings and allowance for loan losses and the Bank’s internal loan review department performs loan reviews. The following tables provide the activity of our allowance for loan losses and loan balances for the years ended December 31, 2018 , 2017 and 2016 : (Dollars in thousands) Commercial Owner- occupied Commercial Commercial Mortgages Construction Residential Consumer Total Year Ended December 31, 2018 Allowance for loan losses Beginning balance $ 16,732 $ 5,422 $ 5,891 $ 2,861 $ 1,798 $ 7,895 $ 40,599 Charge-offs (12,130 ) (417 ) (255 ) (1,475 ) (91 ) (2,615 ) (16,983 ) Recoveries 1,381 34 255 3 154 926 2,753 Provision (credit) 8,328 (38 ) 924 2,341 (404 ) 2,126 13,277 Provision (credit) for acquired loans (100 ) 56 (9 ) (18 ) (29 ) (7 ) (107 ) Ending balance $ 14,211 $ 5,057 $ 6,806 $ 3,712 $ 1,428 $ 8,325 $ 39,539 Period-end allowance allocated to: Loans individually evaluated for impairment $ 876 $ — $ — $ 444 $ 543 $ 168 $ 2,031 Loans collectively evaluated for impairment 13,334 4,965 6,727 3,254 847 8,155 37,282 Acquired loans evaluated for impairment 1 92 79 14 38 2 226 Ending balance $ 14,211 $ 5,057 $ 6,806 $ 3,712 $ 1,428 $ 8,325 $ 39,539 Period-end loan balances: Loans individually evaluated for impairment (2) $ 14,837 $ 4,406 $ 4,083 $ 2,781 $ 11,017 $ 7,883 $ 45,007 Loans collectively evaluated for impairment 1,366,151 938,934 1,005,504 310,511 132,064 651,160 4,404,324 Acquired nonimpaired loans 89,970 112,386 145,648 2,525 57,708 21,745 429,982 Acquired impaired loans 1,531 4,248 7,504 749 761 151 14,944 Ending balance (3) $ 1,472,489 $ 1,059,974 $ 1,162,739 $ 316,566 $ 201,550 $ 680,939 $ 4,894,257 (Dollars in thousands) Commercial Owner- occupied Commercial Commercial Mortgages Construction Residential Consumer Total Year Ended December 31, 2017 Allowance for loan losses Beginning balance $ 13,339 $ 6,588 $ 8,915 $ 2,838 $ 2,059 $ 6,012 $ 39,751 Charge-offs (5,008 ) (296 ) (4,612 ) (574 ) (168 ) (3,184 ) (13,842 ) Recoveries 1,355 127 255 306 178 1,505 3,726 Provision (credit) 6,972 (1,098 ) 1,160 222 (300 ) 3,572 10,528 Provision (credit) for acquired loans 74 101 173 69 29 (10 ) 436 Ending balance $ 16,732 $ 5,422 $ 5,891 $ 2,861 $ 1,798 $ 7,895 $ 40,599 Period-end allowance allocated to: Loans individually evaluated for impairment $ 3,687 $ — $ 18 $ — $ 760 $ 193 $ 4,658 Loans collectively evaluated for impairment 12,871 5,410 5,779 2,828 1,002 7,693 35,583 Acquired loans evaluated for impairment 174 12 94 33 36 9 358 Ending balance $ 16,732 $ 5,422 $ 5,891 $ 2,861 $ 1,798 $ 7,895 $ 40,599 Period-end loan balances: Loans individually evaluated for impairment (2) $ 19,196 $ 3,655 $ 6,076 $ 6,022 $ 13,778 $ 7,588 $ 56,315 Loans collectively evaluated for impairment 1,324,636 933,352 983,400 258,887 146,621 514,713 4,161,609 Acquired nonimpaired loans 116,566 136,437 188,505 15,759 72,304 35,945 565,516 Acquired impaired loans 4,156 5,803 9,724 940 784 247 21,654 Ending balance (3) $ 1,464,554 $ 1,079,247 $ 1,187,705 $ 281,608 $ 233,487 $ 558,493 $ 4,805,094 (Dollars in thousands) Commercial Owner- occupied Commercial Commercial Mortgages Construction Residential Consumer Complexity (1) Total Year Ended December 31, 2016 Allowance for loan losses Beginning balance $ 11,156 $ 6,670 $ 6,487 $ 3,521 $ 2,281 $ 5,964 $ 1,010 $ 37,089 Charge-offs (5,052 ) (1,556 ) (422 ) (57 ) (88 ) (6,152 ) — (13,327 ) Recoveries 594 117 322 484 254 1,232 — 3,003 Provision (credit) 6,260 1,163 2,466 (1,117 ) (422 ) 4,989 (1,010 ) 12,329 Provision for acquired loans 381 194 62 7 34 (21 ) — 657 Ending balance $ 13,339 $ 6,588 $ 8,915 $ 2,838 $ 2,059 $ 6,012 $ — $ 39,751 Period-end allowance allocated to: Loans individually evaluated for impairment $ 322 $ — $ 1,247 $ 217 $ 911 $ 198 $ — $ 2,895 Loans collectively evaluated for impairment 12,834 6,573 7,482 2,535 1,125 5,797 — 36,346 Acquired loans evaluated for impairment 183 15 186 86 23 17 — 510 Ending balance $ 13,339 $ 6,588 $ 8,915 $ 2,838 $ 2,059 $ 6,012 $ — $ 39,751 Period-end loan balances evaluated for: Loans individually evaluated for impairment (2) $ 2,266 $ 2,078 $ 9,898 $ 1,419 $ 13,547 $ 7,863 $ — $ 37,071 Loans collectively evaluated for impairment 1,120,193 899,590 921,333 189,468 157,738 386,146 — 3,674,468 Acquired nonimpaired loans 159,089 164,372 221,937 28,131 94,883 55,651 — 724,063 Acquired impaired loans 6,183 12,122 10,386 3,694 860 369 — 33,614 Ending balance (3) $ 1,287,731 $ 1,078,162 $ 1,163,554 $ 222,712 $ 267,028 $ 450,029 $ — $ 4,469,216 (1) Represents the portion of the allowance for loan losses established to account for the inherent complexity and uncertainty of estimates. (2) The difference between this amount and nonaccruing loans represents accruing troubled debt restructured loans which are considered to be impaired loans of $15.0 million at December 31, 2018 , $20.1 million as of December 31, 2017 , and $14.3 million at December 31, 2016 . (3) Ending loan balances do not include net deferred fees. Nonaccrual and Past Due Loans Nonaccruing loans are those on which the accrual of interest has ceased. Typically, we discontinue accrual of interest on originated loans after payments become more than 90 days past due or earlier if we do not expect the full collection of principal or interest in accordance with the terms of the loan agreement. Interest accrued but not collected at the date a loan is placed on nonaccrual status is reversed and charged against interest income. In addition, the accretion of net deferred loan fees and amortization of net deferred loan costs is suspended when a loan is placed on nonaccrual status. Subsequent cash receipts are applied either to the outstanding principal balance or recorded as interest income, depending on our assessment of the ultimate collectability of principal and interest. Loans greater than 90 days past due and still accruing are defined as loans contractually past due 90 days or more as to principal or interest payments, but which remain in accrual status because they are considered well secured and are in the process of collection. The following tables show our nonaccrual and past due loans at the dates indicated: December 31, 2018 (Dollars in thousands) 30–59 Days Past Due and Still Accruing 60–89 Days Past Due and Still Accruing Greater Than 90 Days Past Due and Still Accruing Total Past Due And Still Accruing Accruing Current Balances Acquired Impaired Loans Nonaccrual Loans Total Loans Commercial $ 3,653 $ 993 $ 71 $ 4,717 $ 1,452,185 $ 1,531 $ 14,056 $ 1,472,489 Owner-occupied commercial 733 865 — 1,598 1,049,722 4,248 4,406 1,059,974 Commercial mortgages 1,388 908 — 2,296 1,148,988 7,504 3,951 1,162,739 Construction 157 — — 157 312,879 749 2,781 316,566 Residential 1,970 345 660 2,975 194,960 761 2,854 201,550 Consumer 525 971 104 1,600 677,182 151 2,006 680,939 Total (1) (2) $ 8,426 $ 4,082 $ 835 $ 13,343 $ 4,835,916 $ 14,944 $ 30,054 $ 4,894,257 % of Total Loans 0.17 % 0.08 % 0.02 % 0.27 % 98.81 % 0.31 % 0.61 % 100.00 % (1) Balances in table above includes $430.0 million in acquired non-impaired loans. (2) Residential accruing current balances excludes reverse mortgages at fair value of $16.5 million . December 31, 2017 (Dollars in thousands) 30–59 Days Past Due and Still Accruing 60–89 Days Past Due and Still Accruing Greater Than 90 Days Past Due and Still Accruing Total Past Due And Still Accruing Accruing Current Balances Acquired Impaired Loans Nonaccrual Loans Total Loans Commercial $ 1,050 $ — $ — $ 1,050 $ 1,440,291 $ 4,156 $ 19,057 $ 1,464,554 Owner-occupied commercial 2,069 233 — 2,302 1,067,488 5,803 3,654 1,079,247 Commercial mortgages 320 90 — 410 1,171,701 9,724 5,870 1,187,705 Construction — — — — 278,864 940 1,804 281,608 Residential 2,058 731 356 3,145 225,434 784 4,124 233,487 Consumer 1,117 463 105 1,685 554,634 247 1,927 558,493 Total (1) (2) $ 6,614 $ 1,517 $ 461 $ 8,592 $ 4,738,412 $ 21,654 $ 36,436 $ 4,805,094 % of Total Loans 0.14 % 0.03 % 0.01 % 0.18 % 98.61 % 0.45 % 0.76 % 100.00 % (1) Balances in table above includes $565.5 million in acquired non-impaired loans. (2) Residential accruing current balances excludes reverse mortgages at fair value of $19.8 million . Impaired Loans Loans for which it is probable we will not collect all principal and interest due according to their contractual terms, which is assessed based on the credit characteristics of the loan and/or payment status, are measured for impairment in accordance with the provisions of ASC 310 and SAB 102. The amount of impairment is required to be measured using one of three methods: (1) the present value of expected future cash flows discounted at the loan’s effective interest rate; (2) the fair value of collateral, if the loan is collateral dependent or (3) the loan’s observable market price. If the measure of the impaired loan is less than the recorded investment in the loan, a related allowance is allocated for the impairment. The following tables provide an analysis of our impaired loans at December 31, 2018 and December 31, 2017 : December 31, 2018 (Dollars in thousands) Ending Loan Balances Loans with No Related Reserve (1) Loans with Related Reserve (2) Related Reserve Contractual Principal Balances (2) Average Loan Balances Commercial $ 14,841 $ 8,625 $ 6,216 $ 878 $ 22,365 $ 18,484 Owner-occupied commercial 6,065 4,406 1,659 92 6,337 5,378 Commercial mortgages 5,679 4,083 1,596 79 15,372 7,438 Construction 3,530 — 3,530 458 5,082 5,091 Residential 11,321 6,442 4,879 581 13,771 12,589 Consumer 7,916 6,899 1,017 170 8,573 7,956 Total $ 49,352 $ 30,455 $ 18,897 $ 2,258 $ 71,500 $ 56,936 (1) Reflects loan balances at or written down to their remaining book balance. (2) The above includes acquired impaired loans totaling $4.3 million in the ending loan balance and $4.8 million in the contractual principal balance. December 31, 2017 (Dollars in thousands) Ending Loan Balances Loans with No Related Reserve (1) Loans with Related Reserve (2) Related Reserve Contractual Principal Balances (2) Average Loan Balances Commercial $ 20,842 $ 3,422 $ 17,420 $ 3,861 $ 23,815 $ 15,072 Owner-occupied commercial 5,374 3,654 1,720 12 5,717 5,827 Commercial mortgages 7,598 4,487 3,111 112 16,658 12,630 Construction 6,292 6,023 269 33 6,800 4,523 Residential 14,181 8,282 5,899 796 17,015 14,533 Consumer 7,819 6,304 1,515 203 8,977 8,158 Total $ 62,106 $ 32,172 $ 29,934 $ 5,017 $ 78,982 $ 60,743 (1) Reflects loan balances at or written down to their remaining book balance. (2) The above includes acquired impaired loans totaling $5.8 million in the ending loan balance and $6.8 million in the contractual principal balance. Interest income of $0.8 million and $1.0 million was recognized on impaired loans during 2018 and 2017 respectively. As of December 31, 2018 , there were 26 residential loans and 11 commercial loans in the process of foreclosure. The total outstanding balance on the loans was $1.9 million and $5.3 million , respectively. As of December 31, 2017 , there were 33 residential loans and 8 commercial loans in the process of foreclosure. The total outstanding balance on the loans was $2.9 million and $6.0 million , respectively. Reserves on Acquired Nonimpaired Loans In accordance with ASC 310, loans acquired by the Bank through its mergers with First National Bank of Wyoming (FNBW), Alliance Bancorp, Inc. (Alliance), and Penn Liberty Bank (Penn Liberty) are reflected on the balance sheet at their fair values on the date of acquisition as opposed to their contractual values. Therefore, on the date of acquisition establishing an allowance for acquired loans is prohibited. After the acquisition date, the Bank performs a separate allowance analysis on a quarterly basis to determine if an allowance for loan loss is necessary. Should the credit risk calculated exceed the purchased loan portfolio’s remaining credit mark, additional reserves will be added to the Bank’s allowance. When a purchased loan becomes impaired after its acquisition, it is evaluated as part of the Bank’s reserve analysis and a specific reserve is established to be included in the Bank’s allowance. Credit Quality Indicators Below is a description of each of our risk ratings for all commercial loans: • Pass . These borrowers currently show no indication of deterioration or potential problems and their loans are considered fully collectible • Special Mention. Borrowers have potential weaknesses that deserve management’s close attention. Borrowers in this category may be experiencing adverse operating trends, for example, declining revenues or margins, high leverage, tight liquidity, or increasing inventory without increasing sales. These adverse trends can have a potential negative effect on the borrower’s repayment capacity. These assets are not adversely classified and do not expose the Bank to significant risk that would warrant a more severe rating. Borrowers in this category may also be experiencing significant management problems, pending litigation, or other structural credit weaknesses. • Substandard . Borrowers have well-defined weaknesses that require extensive oversight by management. Borrowers in this category may exhibit one or more of the following: inadequate debt service coverage, unprofitable operations, insufficient liquidity, high leverage, and weak or inadequate capitalization. Relationships in this category are not adequately protected by the sound financial worth and paying capacity of the obligor or the collateral pledged on the loan, if any. A distinct possibility exists that the Bank will sustain some loss if the deficiencies are not corrected. • Doubtful . Borrowers have well-defined weaknesses inherent in the Substandard category with the added characteristic that the possibility of loss is extremely high. Current circumstances in the credit relationship make collection or liquidation in full highly questionable. A doubtful asset has some pending event that may strengthen the asset that defers the loss classification. Such impending events include: perfecting liens on additional collateral, obtaining collateral valuations, an acquisition or liquidation preceding, proposed merger, or refinancing plan. • Loss . Loans are uncollectible or of such negligible value that continuance as a bankable asset is not supportable. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather it is not practical to defer writing off this asset even though partial recovery may be recognized sometime in the future. Residential and Consumer Loans The residential and consumer loan portfolios are monitored on an ongoing basis using delinquency information and loan type as credit quality indicators. These credit quality indicators are assessed in the aggregate in these relatively homogeneous portfolios. Loans that are greater than 90 days past due are generally considered nonperforming and placed on nonaccrual status. The following tables provide an analysis of loans by portfolio segment based on the credit quality indicators used to determine the Allowance for Loan Loss. Commercial Credit Exposure December 31, 2018 (Dollars in thousands) Commercial and Industrial Owner-occupied Commercial Commercial Mortgages Construction Total Commercial (1) Amount % Risk Rating: Special mention $ 8,710 $ 21,230 $ — $ — $ 29,940 Substandard: Accrual 37,424 21,081 9,767 168 68,440 Nonaccrual 13,180 4,406 3,951 2,337 23,874 Doubtful 876 — — 444 1,320 Total Special Mention and Substandard 60,190 46,717 13,718 2,949 123,574 3 % Acquired impaired 1,531 4,248 7,504 749 14,032 — % Pass 1,410,768 1,009,009 1,141,517 312,868 3,874,162 97 % Total $ 1,472,489 $ 1,059,974 $ 1,162,739 $ 316,566 $ 4,011,768 100 % (1) Table includes $350.5 million of acquired non-impaired loans at December 31, 2018 . December 31, 2017 Commercial and Industrial Owner-occupied Commercial Construction Total Commercial (1) (Dollars in thousands) Amount % Risk Rating: Special mention $ 22,789 $ 16,783 $ — $ — $ 39,572 Substandard: Accrual 34,332 19,386 1,967 4,965 60,650 Nonaccrual 15,370 3,654 5,852 1,804 26,680 Doubtful 3,687 — 18 — 3,705 Total Special Mention and Substandard 76,178 39,823 7,837 6,769 130,607 3 % Acquired impaired 4,156 5,803 9,724 940 20,623 1 % Pass 1,384,220 1,033,621 1,170,144 273,899 3,861,884 96 % Total $ 1,464,554 $ 1,079,247 $ 1,187,705 $ 281,608 $ 4,013,114 100 % (1) Table includes $457.3 million of acquired non-impaired loans at December 31, 2017 . Residential and Consumer Credit Exposure Total Residential and Consumer (1) Residential Consumer 2018 2017 (Dollars in thousands) 2018 2017 2018 2017 Amount Percent Amount Percent Nonperforming (2) $ 11,017 $ 13,778 $ 7,883 $ 7,588 $ 18,900 2 % $ 21,366 3 % Acquired impaired loans 761 784 151 247 912 — % 1,031 — % Performing 189,772 218,925 672,905 550,658 862,677 98 % 769,583 97 % Total $ 201,550 $ 233,487 $ 680,939 $ 558,493 $ 882,489 100 % $ 791,980 100 % (1) Total includes acquired non-impaired loans of $79.5 million at December 31, 2018 and $108.2 million at December 31, 2017 . (2) Includes $14.0 million as of December 31, 2018 and $15.3 million as of December 31, 2017 of troubled debt restructured mortgages and home equity installment loans that are performing in accordance with the loans modified terms and are accruing interest. Troubled Debt Restructurings (TDR) A modification is classified as a TDR if both of the following exist: (1) the borrower is experiencing financial difficulty and (2) the Bank has granted a concession to the borrower. Many aspects of the borrower’s financial situation are assessed when determining whether they are experiencing financial difficulty. Concessions may include the reduction of the interest rate to a rate lower than current market rate for a new loan with similar risk, extension of the maturity date, reduction of accrued interest, or principal forgiveness. The assessments of whether a borrower is experiencing (or is likely to experience) financial difficulty and whether a concession has been granted is subjective in nature and management’s judgment is required when determining whether a modification is a TDR. The following table presents the balance of TDRs as of the indicated dates: (Dollars in thousands) December 31, 2018 December 31, 2017 Performing TDRs $ 14,953 $ 20,061 Nonperforming TDRs 10,211 9,627 Total TDRs $ 25,164 $ 29,688 Approximately $1.2 million and $1.0 million in related reserves have been established for these loans at December 31, 2018 and December 31, 2017 , respectively. The following tables present information regarding the types of loan modifications made and the balances of loans modified as TDRs during the years ended December 31, 2018 and 2017 : December 31, 2018 December 31, 2017 Contractual payment reduction Maturity date extension Discharged in bankruptcy Other (1) Total Contractual Maturity Discharged Other (1) Total Commercial 6 — — — 6 1 4 — — 5 Owner-occupied commercial — — — — — — 1 — — 1 Commercial mortgages 2 1 — — 3 — 1 — — 1 Construction — 1 — — 1 — 5 — 1 6 Residential 4 — 1 — 5 2 1 5 1 9 Consumer 8 2 7 3 20 1 4 12 8 25 20 4 8 3 35 4 16 17 10 47 (1) Other includes interest rate reduction, forbearance, and interest only payments. Year Ended December 31, (Dollars in thousands) 2018 2017 Pre Modification Post Modification Pre Modification Post Modification Commercial $ 5,102 $ 5,102 $ 954 $ 954 Owner-occupied commercial — — 3,071 3,071 Commercial mortgages 2,190 2,190 183 183 Construction 920 920 6,054 6,054 Residential 557 557 1,652 1,652 Consumer 1,481 1,481 2,498 2,498 $ 10,250 $ 10,250 $ 14,412 $ 14,412 Principal balances are generally not forgiven when a loans is modified as a TDR. Nonaccruing restructured loans remain in nonaccrual status until there has been a period of sustained repayment performance, which is typically six months, and payment is reasonably assured. The TDRs shown in the table above resulted in a decreased our allowance for loan losses by $2.0 million through allocation of a related reserve, and resulted in $5.0 million of incremental charge-offs during the year ended December 31, 2018 . For the year ended December 31, 2017 , the TDRs set forth in the table above increased our allowance for loan losses by $0.1 million through allocation of a related reserve, and resulted in no incremental charge-offs. |