Loans | (5.) LOANS The Company's loan portfolio consisted of the following as of the dates indicated (in thousands): Principal Net Deferred Amount Loan (Fees) Outstanding Costs Loans, Net March 31, 2016 Commercial business $ 317,420 $ 356 $ 317,776 Commercial mortgage 591,800 (1,484 ) 590,316 Residential real estate loans 377,406 5,098 382,504 Residential real estate lines 123,894 2,632 126,526 Consumer indirect 655,348 24,498 679,846 Other consumer 17,889 177 18,066 Total $ 2,083,757 $ 31,277 2,115,034 Allowance for loan losses (27,568 ) Total loans, net $ 2,087,466 December 31, 2015 Commercial business $ 313,475 $ 283 $ 313,758 Commercial mortgage 567,481 (1,380 ) 566,101 Residential real estate loans 376,023 5,051 381,074 Residential real estate lines 124,766 2,581 127,347 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 Loans held for sale (not included above) were comprised entirely of residential real estate mortgages and totaled $609 thousand and $1.4 million as of March 31, 2016 and December 31, 2015, respectively. 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 March 31, 2016 Commercial business $ 94 $ 2 $ - $ 96 $ 4,056 $ 313,268 $ 317,420 Commercial mortgage 53 - - 53 1,781 589,966 591,800 Residential real estate loans 515 22 - 537 1,601 375,268 377,406 Residential real estate lines 151 43 - 194 165 123,535 123,894 Consumer indirect 1,296 267 - 1,563 943 652,842 655,348 Other consumer 52 17 9 78 12 17,799 17,889 Total loans, gross $ 2,161 $ 351 $ 9 $ 2,521 $ 8,558 $ 2,072,678 $ 2,083,757 December 31, 2015 Commercial business $ 321 $ 612 $ - $ 933 $ 3,922 $ 308,620 $ 313,475 Commercial mortgage 68 146 - 214 947 566,320 567,481 Residential real estate loans 723 395 - 1,118 1,848 373,057 376,023 Residential real estate lines 199 34 - 233 235 124,298 124,766 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 There were no loans past due greater than 90 days and still accruing interest as of March 31, 2016 and December 31, 2015. There were $9 thousand and $8 thousand in consumer overdrafts which were past due greater than 90 days as of March 31, 2016 and December 31, 2015, respectively. 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 quarterly periods indicated (dollars in thousands). Pre Post Modification Modification Outstanding Outstanding Number of Recorded Recorded Contracts Investment Investment March 31, 2016 Commercial business 2 $ 312 $ 312 Commercial mortgage 1 550 550 Total 3 $ 862 $ 862 March 31, 2015 Commercial business - $ - $ - Commercial mortgage 1 682 330 Total 1 $ 682 $ 330 The loans identified as a TDR by the Company during the three month periods ended March 31, 2016 and 2015 were previously reported as an impaired loan prior to restructuring. Each of the loans restructured during the three months ended March 31, 2016 and 2015 were on nonaccrual status at the end of the respective period. The modifications related to collateral concessions. 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 classifications 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 no loans modified as a TDR within the previous 12 months that defaulted during the three months ended March 31, 2016 or 2015. 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 troubled debt restructuring 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 three month periods ended as of the dates indicated (in thousands): Unpaid Average Interest Recorded Principal Related Recorded Income Investment (1) Balance (1) Allowance Investment Recognized March 31, 2016 With no related allowance recorded: Commercial business $ 2,130 $ 2,710 $ - $ 1,516 $ - Commercial mortgage 1,349 1,697 - 1,018 - 3,479 4,407 - 2,534 - With an allowance recorded: Commercial business 1,926 1,926 825 2,339 - Commercial mortgage 432 432 127 114 - 2,358 2,358 952 2,453 - $ 5,837 $ 6,765 $ 952 $ 4,987 $ - December 31, 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 $ - (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 March 31, 2016 Uncriticized $ 303,114 $ 576,742 Special mention 5,643 8,580 Substandard 8,663 6,478 Doubtful - - Total $ 317,420 $ 591,800 December 31, 2015 Uncriticized $ 298,413 $ 551,603 Special mention 4,916 9,015 Substandard 10,146 6,863 Doubtful - - Total $ 313,475 $ 567,481 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 Residential Real Estate Real Estate Consumer Other Loans Lines Indirect Consumer March 31, 2016 Performing $ 375,805 $ 123,729 $ 654,405 $ 17,868 Non-performing 1,601 165 943 21 Total $ 377,406 $ 123,894 $ 655,348 $ 17,889 December 31, 2015 Performing $ 374,175 $ 124,531 $ 651,027 $ 18,340 Non-performing 1,848 235 1,467 21 Total $ 376,023 $ 124,766 $ 652,494 $ 18,361 The following tables set forth the changes in the allowance for loan losses for the three month periods ended as of the dates indicated (in thousands): Residential Residential Commercial Commercial Real Estate Real Estate Consumer Other Business Mortgage Loans Lines Indirect Consumer Total March 31, 2016 Allowance for loan losses: Beginning balance $ 5,540 $ 9,027 $ 1,347 $ 345 $ 10,458 $ 368 $ 27,085 Charge-offs 602 4 46 4 2,498 157 3,311 Recoveries 100 5 25 4 1,170 122 1,426 Provision 398 687 58 - 1,167 58 2,368 Ending balance $ 5,436 $ 9,715 $ 1,384 $ 345 $ 10,297 $ 391 $ 27,568 Evaluated for impairment: Individually $ 791 $ 120 $ - $ - $ - $ - $ 911 Collectively $ 4,645 $ 9,595 $ 1,384 $ 345 $ 10,297 $ 391 $ 26,657 Loans: Ending balance $ 317,420 $ 591,800 $ 377,406 $ 123,894 $ 655,348 $ 17,889 $ 2,083,757 Evaluated for impairment: Individually $ 3,924 $ 1,730 $ - $ - $ - $ - $ 5,654 Collectively $ 313,496 $ 590,070 $ 377,406 $ 123,894 $ 655,348 $ 17,889 $ 2,078,103 March 31, 2015 Allowance for loan losses: Beginning balance $ 5,621 $ 8,122 $ 1,620 $ 435 $ 11,383 $ 456 $ 27,637 Charge-offs 1,141 609 139 - 2,422 259 4,570 Recoveries 48 89 41 2 1,105 98 1,383 Provision (credit) 867 554 64 (35 ) 1,139 152 2,741 Ending balance $ 5,395 $ 8,156 $ 1,586 $ 402 $ 11,205 $ 447 $ 27,191 Evaluated for impairment: Individually $ 1,120 $ 817 $ - $ - $ - $ - $ 1,937 Collectively $ 4,275 $ 7,339 $ 1,586 $ 402 $ 11,205 $ 447 $ 25,254 Loans: Ending balance $ 277,427 $ 480,479 $ 351,088 $ 126,832 $ 637,380 $ 19,184 $ 1,892,390 Evaluated for impairment: Individually $ 4,587 $ 3,411 $ - $ - $ - $ - $ 7,998 Collectively $ 272,840 $ 477,068 $ 351,088 $ 126,832 $ 637,380 $ 19,184 $ 1,884,392 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 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, 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 real estate loans (comprised of conventional mortgages and home equity loans) and Residential real estate lines (comprised of 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. |