Loans | (5.) LOANS The Company's loan portfolio consisted of the following as of the dates indicated (in thousands): Principal Net Deferred Amount Loan Costs Outstanding (Fees) Loans, Net September 30, 2015 Commercial business $ 297,640 $ 236 $ 297,876 Commercial mortgage 549,911 (1,382 ) 548,529 Residential mortgage 96,298 (19 ) 96,279 Home equity 401,103 7,531 408,634 Consumer indirect 641,453 24,261 665,714 Other consumer 19,020 184 19,204 Total $ 2,005,425 $ 30,811 2,036,236 Allowance for loan losses (26,455 ) Total loans, net $ 2,009,781 December 31, 2014 Commercial business $ 267,377 $ 32 $ 267,409 Commercial mortgage 476,407 (1,315 ) 475,092 Residential mortgage 100,241 (140 ) 100,101 Home equity 379,774 6,841 386,615 Consumer indirect 636,357 25,316 661,673 Other consumer 20,915 197 21,112 Total $ 1,881,071 $ 30,931 1,912,002 Allowance for loan losses (27,637 ) Total loans, net $ 1,884,365 Loans held for sale (not included above) were comprised entirely of residential real estate mortgages and totaled $1.6 million and $755 thousand as of September 30, 2015 and December 31, 2014, respectively. Past Due Loans Aging The Company's recorded investment, by loan class, in current and nonaccrual loans, as well as an analysis of accruing delinquent loans is set forth as of the dates indicated (in thousands): Greater 30-59 Days 60-89 Days Than 90 Total Past Past Due Past Due Days Due Nonaccrual Current Total Loans September 30, 2015 Commercial business $ 657 $ - $ - $ 657 $ 3,064 $ 293,919 $ 297,640 Commercial mortgage 383 9 - 392 1,802 547,717 549,911 Residential mortgage 99 - - 99 1,523 94,676 96,298 Home equity 709 122 - 831 792 399,480 401,103 Consumer indirect 1,710 338 - 2,048 1,292 638,113 641,453 Other consumer 100 62 8 170 12 18,838 19,020 Total loans, gross $ 3,658 $ 531 $ 8 $ 4,197 $ 8,485 $ 1,992,743 $ 2,005,425 December 31, 2014 Commercial business $ 28 $ - $ - $ 28 $ 4,288 $ 263,061 $ 267,377 Commercial mortgage 83 - - 83 3,020 473,304 476,407 Residential mortgage 321 - - 321 1,194 98,726 100,241 Home equity 799 67 - 866 463 378,445 379,774 Consumer indirect 2,429 402 - 2,831 1,169 632,357 636,357 Other consumer 148 48 8 204 11 20,700 20,915 Total loans, gross $ 3,808 $ 517 $ 8 $ 4,333 $ 10,145 $ 1,866,593 $ 1,881,071 There were no loans past due greater than 90 days and still accruing interest as of September 30, 2015 and December 31, 2014. There were $8 thousand in consumer overdrafts which were past due greater than 90 days as of September 30, 2015 and December 31, 2014. Consumer overdrafts are overdrawn deposit accounts which have been reclassified as loans but by their terms do not accrue interest. Troubled Debt Restructurings A modification of a loan constitutes a troubled debt restructuring ("TDR") when a borrower is experiencing financial difficulty and the modification constitutes a concession. Commercial loans modified in a TDR may involve temporary interest-only payments, term extensions, reducing the interest rate for the remaining term of the loan, extending the maturity date at an interest rate lower than the current market rate for new debt with similar risk, collateral concessions, forgiveness of principal, forebearance agreements, or substituting or adding a new borrower or guarantor. The following table presents information related to loans modified in a TDR during the periods indicated (dollars in thousands). Quarter-to-Date Year-to-Date 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 September 30, 2015 Commercial business - $ - $ - 2 $ 1,342 $ 1,342 Commercial mortgage - - - 1 682 330 Total - $ - $ - 3 $ 2,024 $ 1,672 September 30, 2014 Commercial business - $ - $ - 1 $ 1,381 $ 1,381 Commercial mortgage - - - - - - Total - $ - $ - 1 $ 1,381 $ 1,381 The loans identified as a TDR by the Company during the nine month periods ended September 30, 2015 and 2014 were previously on nonaccrual status and reported as impaired loans prior to restructuring. The modifications during the reported periods primarily related to extending amortization periods, forebearance agreements, requesting additional collateral and, in one instance, forgiveness of principal. Nonaccrual loans that are restructured remain on nonaccrual status, but may move to accrual status after they have performed according to the restructured terms for a period of time. The TDR classification did not have a material impact on the Company's determination of the allowance for loan losses because the modified loans were impaired and evaluated for a specific reserve both before and after restructuring. There were two commercial business loans with an aggregate pre-default balance of $1.3 million restructured in the 12 months prior to September 30, 2015 that went into default during the nine months ended September 30, 2015. There were no loans modified as a TDR in the 12 months prior to September 30, 2014 that defaulted during the nine months ended September 30, 2014. For purposes of this disclosure, a loan modified as a TDR is considered to have defaulted when the borrower becomes 90 days past due. Impaired Loans Management has determined that specific commercial loans on nonaccrual status and all loans that have had their terms restructured in a TDR are impaired loans. The following table presents the recorded investment, unpaid principal balance and related allowance of impaired loans as of the dates indicated, and average recorded investment and interest income recognized on impaired loans for the year-to-date periods ended as of the dates indicated (in thousands): Unpaid Average Interest Recorded Principal Related Recorded Income Investment (1) Balance (1) Allowance Investment Recognized September 30, 2015 With no related allowance recorded: Commercial business $ 1,291 $ 2,750 $ - $ 1,314 $ - Commercial mortgage 912 1,260 - 1,077 - 2,203 4,010 - 2,391 - With an allowance recorded: Commercial business 1,773 1,773 806 2,152 - Commercial mortgage 890 890 278 1,147 - 2,663 2,663 1,084 3,299 - $ 4,866 $ 6,673 $ 1,084 $ 5,690 $ - December 31, 2014 With no related allowance recorded: Commercial business $ 1,408 $ 1,741 $ - $ 1,431 $ - Commercial mortgage 781 920 - 1,014 - 2,189 2,661 - 2,445 - With an allowance recorded: Commercial business 2,880 2,880 1,556 1,998 - Commercial mortgage 2,239 2,239 911 1,560 - 5,119 5,119 2,467 3,558 - $ 7,308 $ 7,780 $ 2,467 $ 6,003 $ - (1) Difference between recorded investment and unpaid principal balance represents partial charge-offs. Credit Quality Indicators The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors such as the fair value of collateral. The Company analyzes commercial business and commercial mortgage loans individually by classifying the loans as to credit risk. Risk ratings are updated any time the situation warrants. The Company uses the following definitions for risk ratings: Special Mention: Loans classified as special mention have a potential weakness that deserves management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the Company's credit position at some future date. Substandard: Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. Doubtful: Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. Loans that do not meet the criteria above that are analyzed individually as part of the process described above are considered "uncriticized" or pass-rated loans and are included in groups of homogeneous loans with similar risk and loss characteristics. The following table sets forth the Company's commercial loan portfolio, categorized by internally assigned asset classification, as of the dates indicated (in thousands): Commercial Commercial Business Mortgage September 30, 2015 Uncriticized $ 282,900 $ 532,892 Special mention 4,763 9,247 Substandard 9,977 7,772 Doubtful - - Total $ 297,640 $ 549,911 December 31, 2014 Uncriticized $ 250,961 $ 460,880 Special mention 5,530 5,411 Substandard 10,886 10,116 Doubtful - - Total $ 267,377 $ 476,407 The Company utilizes payment status as a means of identifying and reporting problem and potential problem retail loans. The Company considers nonaccrual loans and loans past due greater than 90 days and still accruing interest to be non-performing. The following table sets forth the Company's retail loan portfolio, categorized by payment status, as of the dates indicated (in thousands): Residential Home Consumer Other Mortgage Equity Indirect Consumer September 30, 2015 Performing $ 94,775 $ 400,311 $ 640,161 $ 19,000 Non-performing 1,523 792 1,292 20 Total $ 96,298 $ 401,103 $ 641,453 $ 19,020 December 31, 2014 Performing $ 99,047 $ 379,311 $ 635,188 $ 20,896 Non-performing 1,194 463 1,169 19 Total $ 100,241 $ 379,774 $ 636,357 $ 20,915 Allowance for Loan Losses Loans and the related allowance for loan losses are presented below as of the dates indicated (in thousands): Commercial Commercial Residential Home Consumer Other Business Mortgage Mortgage Equity Indirect Consumer Total September 30, 2015 Loans: Ending balance $ 297,640 $ 549,911 $ 96,298 $ 401,103 $ 641,453 $ 19,020 $ 2,005,425 Evaluated for impairment: Individually $ 3,064 $ 1,802 $ - $ - $ - $ - $ 4,866 Collectively $ 294,576 $ 548,109 $ 96,298 $ 401,103 $ 641,453 $ 19,020 $ 2,000,559 Allowance for loan losses: Ending balance $ 5,281 $ 8,888 $ 456 $ 1,177 $ 10,264 $ 389 $ 26,455 Evaluated for impairment: Individually $ 806 $ 278 $ - $ - $ - $ - $ 1,084 Collectively $ 4,475 $ 8,610 $ 456 $ 1,177 $ 10,264 $ 389 $ 25,371 September 30, 2014 Loans: Ending balance $ 275,027 $ 470,566 $ 103,183 $ 376,062 $ 630,441 $ 21,096 $ 1,876,375 Evaluated for impairment: Individually $ 3,258 $ 2,460 $ - $ - $ - $ - $ 5,718 Collectively $ 271,769 $ 468,106 $ 103,183 $ 376,062 $ 630,441 $ 21,096 $ 1,870,657 Allowance for loan losses: Ending balance $ 5,758 $ 7,488 $ 592 $ 1,658 $ 11,292 $ 456 $ 27,244 Evaluated for impairment: Individually $ 1,331 $ 269 $ - $ - $ - $ - $ 1,600 Collectively $ 4,427 $ 7,219 $ 592 $ 1,658 $ 11,292 $ 456 $ 25,644 The following table sets forth the changes in the allowance for loan losses for the three and nine month periods ended September 30, 2015 (in thousands): Commercial Commercial Residential Home Consumer Other Business Mortgage Mortgage Equity Indirect Consumer Total Three months ended September 30, 2015 Beginning balance $ 5,334 $ 9,358 $ 465 $ 1,198 $ 10,676 $ 469 $ 27,500 Charge-offs 106 56 37 98 2,380 239 2,916 Recoveries 38 44 34 34 905 62 1,117 Provision (credit) 15 (458 ) (6 ) 43 1,063 97 754 Ending balance $ 5,281 $ 8,888 $ 456 $ 1,177 $ 10,264 $ 389 $ 26,455 Nine months ended Septembe r 30, 2015 Beginning balance $ 5,621 $ 8,122 $ 570 $ 1,485 $ 11,383 $ 456 $ 27,637 Charge-offs 1,260 866 114 336 6,643 652 9,871 Recoveries 172 140 80 53 3,206 255 3,906 Provision 748 1,492 (80 ) (25 ) 2,318 330 4,783 Ending balance $ 5,281 $ 8,888 $ 456 $ 1,177 $ 10,264 $ 389 $ 26,455 The following table sets forth the changes in the allowance for loan losses for the three and nine month periods ended September 30, 2014 (in thousands): Commercial Commercial Residential Home Consumer Other Business Mortgage Mortgage Equity Indirect Consumer Total Three months ended September 30, 2014 Beginning balance $ 5,402 $ 7,633 $ 618 $ 1,607 $ 11,446 $ 460 $ 27,166 Charge-offs 105 111 16 73 2,606 272 3,183 Recoveries 61 45 5 7 1,029 99 1,246 Provision (credit) 400 (79 ) (15 ) 117 1,423 169 2,015 Ending balance $ 5,758 $ 7,488 $ 592 $ 1,658 $ 11,292 $ 456 $ 27,244 Nine months ended September 30, 2014 Beginning balance $ 4,273 $ 7,743 $ 676 $ 1,367 $ 12,230 $ 447 $ 26,736 Charge-offs 176 276 163 335 7,392 765 9,107 Recoveries 158 58 34 47 3,129 310 3,736 Provision (credit) 1,503 (37 ) 45 579 3,325 464 5,879 Ending balance $ 5,758 $ 7,488 $ 592 $ 1,658 $ 11,292 $ 456 $ 27,244 Risk Characteristics Commercial business loans primarily consist of loans to small to midsize businesses in our market area in a diverse range of industries. These loans are typically made on the basis of the borrower's ability to make repayment from the cash flow of the borrower's business. Risk arises primarily due to a difference between expected and actual cash flows of the borrowers. Further, the collateral securing the loans may depreciate over time, may be difficult to appraise and may fluctuate in value. The credit risk related to commercial loans is largely influenced by general economic conditions and the resulting impact on a borrower's operations or on the value of underlying collateral, if any. Commercial mortgage loans generally have larger balances and involve a greater degree of risk than residential mortgage loans, potentially resulting in higher losses on an individual customer basis. Loan repayment is often dependent on the successful operation and management of the properties, as well as on the collateral securing the loan. Economic events or conditions in the real estate market could have an adverse impact on the cash flows generated by properties securing the Company's commercial real estate loans and on the value of such properties. Residential mortgage loans and home equities (comprised of home equity loans and home equity lines) are generally made on the basis of the borrower's ability to make repayment from his or her employment and other income, but are secured by real property whose value tends to be more easily ascertainable. Credit risk for these types of loans is generally influenced by general economic conditions, the characteristics of individual borrowers, and the nature and sufficiency of the loan collateral. Consumer indirect and other consumer loans may entail greater credit risk than residential mortgage loans and home equities, particularly in the case of other consumer loans which are unsecured or, in the case of indirect consumer loans, secured by depreciable assets, such as automobiles or boats. In such cases, any repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment of the outstanding loan balance. In addition, consumer loan collections are dependent on the borrower's continuing financial stability, and thus are more likely to be affected by adverse personal circumstances such as job loss, illness or personal bankruptcy. Furthermore, the application of various federal and state laws, including bankruptcy and insolvency laws, may limit the amount which can be recovered on such loans. |