Loans | (5.) LOANS The Company's loan portfolio consisted of the following at December 31 (in thousands): Principal Net Deferred Amount Loan (Fees) Outstanding Costs Loans, Net 2015 Commercial business $ 313,475 $ 283 $ 313,758 Commercial mortgage 567,481 (1,380 ) 566,101 Residential mortgage 98,302 7 98,309 Home equity 402,487 7,625 410,112 Consumer indirect 652,494 24,446 676,940 Other consumer 18,361 181 18,542 Total $ 2,052,600 $ 31,162 2,083,762 Allowance for loan losses (27,085 ) Total loans, net $ 2,056,677 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 The Company's significant concentrations of credit risk in the loan portfolio relate to a geographic concentration in the communities that the Company serves. Certain executive officers, directors and their business interests are customers of the Company. Transactions with these parties are based on the same terms as similar transactions with unrelated third parties and do not carry more than normal credit risk. Borrowings by these related parties amounted to $ 3.5 11.9 2.9 11.3 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 December 31 (in thousands): 30-59 Days 60-89 Days Greater Than Total Past Past Due Past Due 90 Days Due Nonaccrual Current Total Loans 2015 Commercial business $ 321 $ 612 $ - $ 933 $ 3,922 $ 308,620 $ 313,475 Commercial mortgage 68 146 - 214 947 566,320 567,481 Residential mortgage 203 - - 203 1,325 96,774 98,302 Home equity 719 429 - 1,148 758 400,581 402,487 Consumer indirect 1,975 286 - 2,261 1,467 648,766 652,494 Other consumer 98 13 8 119 13 18,229 18,361 Total loans, gross $ 3,384 $ 1,486 $ 8 $ 4,878 $ 8,432 $ 2,039,290 $ 2,052,600 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 8 Interest income on nonaccrual loans, if recognized, is recorded using the cash basis method of accounting. There was no interest income recognized on nonaccrual loans during the years ended December 31, 2015, 2014 and 2013. For the years ended December 31, 2015, 2014 and 2013, estimated interest income of $ 432 527 531 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 presents, by loan class, information related to loans modified in a TDR during the years ended December 31 (in thousands). Pre Post Modification Modification Outstanding Outstanding Number of Recorded Recorded Contracts Investment Investment 2015 Commercial business 2 $ 1,342 $ 1,342 Commercial mortgage 1 682 330 Total 3 $ 2,024 $ 1,672 2014 Commercial business 1 $ 1,381 $ 1,381 Commercial mortgage - - - Total 1 $ 1,381 $ 1,381 The loans identified as TDRs by the Company during the years ended December 31, 2015 and 2014 were on nonaccrual status and reported as impaired loans prior to restructuring. The modifications during the year ended December 31, 2015 primarily related to extending amortization periods, forebearance agreements, requesting additional collateral and, in one instance, forgiveness of principal. For the year ended December 31, 2014, the restructured loan modification related to extending the amortization period of the loan. All loans restructured during the years ended December 31, 2015 and 2014 were on nonaccrual status at the end of those respective years. 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 either classified as substandard, with an increased risk allowance allocation, or impaired and evaluated for a specific reserve both before and after restructuring. There were two 1.3 no Impaired Loans Management has determined that specific commercial loans on nonaccrual status and all loans that have had their terms restructured in a troubled debt restructuring are impaired loans. The following table presents data on impaired loans at December 31 (in thousands): Unpaid Average Interest Recorded Principal Related Recorded Income Investment (1) Balance (1) Allowance Investment Recognized 2015 With no related allowance recorded: Commercial business $ 1,441 $ 1,810 $ - $ 1,352 $ - Commercial mortgage 937 1,285 - 1,013 - 2,378 3,095 - 2,365 - With an allowance recorded: Commercial business 2,481 2,481 996 1,946 - Commercial mortgage 10 10 10 449 - 2,491 2,491 1,006 2,395 - $ 4,869 $ 5,586 $ 1,006 $ 4,760 $ - 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 not meeting 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 December 31 (in thousands): Commercial Commercial Business Mortgage 2015 Uncriticized $ 298,413 $ 551,603 Special mention 4,916 9,015 Substandard 10,146 6,863 Doubtful - - Total $ 313,475 $ 567,481 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 December 31 (in thousands): Residential Home Consumer Other Mortgage Equity Indirect Consumer 2015 Performing $ 96,977 $ 401,729 $ 651,027 $ 18,340 Non-performing 1,325 758 1,467 21 Total $ 98,302 $ 402,487 $ 652,494 $ 18,361 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 The following tables set forth the changes in the allowance for loan losses for the years ended December 31 (in thousands): Commercial Commercial Residential Home Consumer Other Business Mortgage Mortgage Equity Indirect Consumer Total 2015 Allowance for loan losses: Beginning balance $ 5,621 $ 8,122 $ 570 $ 1,485 $ 11,383 $ 456 $ 27,637 Charge-offs (1,433 ) (895 ) (175 ) (421 ) (9,156 ) (878 ) (12,958 ) Recoveries 212 146 82 63 4,200 322 5,025 Provision (credit) 1,140 1,654 (13 ) 101 4,031 468 7,381 Ending balance $ 5,540 $ 9,027 $ 464 $ 1,228 $ 10,458 $ 368 $ 27,085 Evaluated for impairment: Individually $ 996 $ 10 $ - $ - $ - $ - $ 1,006 Collectively $ 4,544 $ 9,017 $ 464 $ 1,228 $ 10,458 $ 368 $ 26,079 Loans: Ending balance $ 313,475 $ 567,481 $ 98,302 $ 402,487 $ 652,494 $ 18,361 $ 2,052,600 Evaluated for impairment: Individually $ 3,922 $ 947 $ - $ - $ - $ - $ 4,869 Collectively $ 309,553 $ 566,534 $ 98,302 $ 402,487 $ 652,494 $ 18,361 $ 2,047,731 2014 Allowance for loan losses: Beginning balance $ 4,273 $ 7,743 $ 676 $ 1,367 $ 12,230 $ 447 $ 26,736 Charge-offs (204 ) (304 ) (190 ) (340 ) (10,004 ) (972 ) (12,014 ) Recoveries 201 143 39 56 4,321 366 5,126 Provision 1,351 540 45 402 4,836 615 7,789 Ending balance $ 5,621 $ 8,122 $ 570 $ 1,485 $ 11,383 $ 456 $ 27,637 Evaluated for impairment: Individually $ 1,556 $ 911 $ - $ - $ - $ - $ 2,467 Collectively $ 4,065 $ 7,211 $ 570 $ 1,485 $ 11,383 $ 456 $ 25,170 Loans: Ending balance $ 267,377 $ 476,407 $ 100,241 $ 379,774 $ 636,357 $ 20,915 $ 1,881,071 Evaluated for impairment: Individually $ 4,288 $ 3,020 $ - $ - $ - $ - $ 7,308 Collectively $ 263,089 $ 473,387 $ 100,241 $ 379,774 $ 636,357 $ 20,915 $ 1,873,763 Commercial Commercial Residential Home Consumer Other Business Mortgage Mortgage Equity Indirect Consumer Total 2013 Allowance for loan losses: Beginning balance $ 4,884 $ 6,581 $ 740 $ 1,282 $ 10,715 $ 512 $ 24,714 Charge-offs (1,070 ) (553 ) (411 ) (391 ) (8,125 ) (928 ) (11,478 ) Recoveries 349 319 54 157 3,161 381 4,421 Provision 110 1,396 293 319 6,479 482 9,079 Ending balance $ 4,273 $ 7,743 $ 676 $ 1,367 $ 12,230 $ 447 $ 26,736 Evaluated for impairment: Individually $ 201 $ 1,057 $ - $ - $ - $ - $ 1,258 Collectively $ 4,072 $ 6,686 $ 676 $ 1,367 $ 12,230 $ 447 $ 25,478 Loans: Ending balance $ 265,751 $ 470,312 $ 113,101 $ 320,658 $ 609,390 $ 22,893 $ 1,802,105 Evaluated for impairment: Individually $ 3,474 $ 9,663 $ - $ - $ - $ - $ 13,137 Collectively $ 262,277 $ 460,649 $ 113,101 $ 320,658 $ 609,390 $ 22,893 $ 1,788,968 Risk Characteristics Commercial business loans primarily consist of loans to small to mid-sized businesses in our market area in a diverse range of industries. These loans are of higher risk and typically are made on the basis of the borrower's ability to make repayment from the cash flow of the borrower's business. 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, inferring higher potential 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 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. |