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, 2017 Commercial business $ 374,992 $ 526 $ 375,518 Commercial mortgage 676,455 (1,448 ) 675,007 Residential real estate loans 421,614 6,557 428,171 Residential real estate lines 118,056 2,818 120,874 Consumer indirect 758,761 27,359 786,120 Other consumer 16,762 175 16,937 Total $ 2,366,640 $ 35,987 2,402,627 Allowance for loan losses (31,081 ) Total loans, net $ 2,371,546 December 31, 2016 Commercial business $ 349,079 $ 468 $ 349,547 Commercial mortgage 671,552 (1,494 ) 670,058 Residential real estate loans 421,476 6,461 427,937 Residential real estate lines 119,745 2,810 122,555 Consumer indirect 725,754 26,667 752,421 Other consumer 17,465 178 17,643 Total $ 2,305,071 $ 35,090 2,340,161 Allowance for loan losses (30,934 ) Total loans, net $ 2,309,227 Loans held for sale (not included above) were comprised entirely of residential real estate mortgages and totaled $2.1 million and $1.1 million as of March 31, 2017 and December 31, 2016, 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 March 31, 2017 Commercial business $ 976 $ 97 $ - $ 1,073 $ 3,753 $ 370,166 $ 374,992 Commercial mortgage 99 - - 99 1,267 675,089 676,455 Residential real estate loans 1,052 198 - 1,250 1,601 418,763 421,614 Residential real estate lines 202 63 - 265 336 117,455 118,056 Consumer indirect 1,239 303 - 1,542 1,040 756,179 758,761 Other consumer 71 12 10 93 13 16,656 16,762 Total loans, gross $ 3,639 $ 673 $ 10 $ 4,322 $ 8,010 $ 2,354,308 $ 2,366,640 December 31, 2016 Commercial business $ 1,337 $ - $ - $ 1,337 $ 2,151 $ 345,591 $ 349,079 Commercial mortgage 48 - - 48 1,025 670,479 671,552 Residential real estate loans 1,073 253 - 1,326 1,236 418,914 421,476 Residential real estate lines 216 - - 216 372 119,157 119,745 Consumer indirect 2,320 488 - 2,808 1,526 721,420 725,754 Other consumer 134 15 9 158 7 17,300 17,465 Total loans, gross $ 5,128 $ 756 $ 9 $ 5,893 $ 6,317 $ 2,292,861 $ 2,305,071 There were no 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, 2017 Commercial business - $ - $ - Commercial mortgage - - - Total - $ - $ - March 31, 2016 Commercial business 2 $ 312 $ 312 Commercial mortgage 1 550 550 Total 3 $ 862 $ 862 The loans identified as TDRs by the Company during the three month period ended March 31, 2016 were previously reported as impaired loans prior to restructuring. All loans restructured during the three months ended March 31, 2016 were on nonaccrual status at the end of those respective periods. 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 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 no loans modified as a TDR within the previous 12 months that defaulted during the three months ended March 31, 2017 or 2016. 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, 2017 With no related allowance recorded: Commercial business $ 424 $ 625 $ - $ 686 $ - Commercial mortgage 589 589 - 620 - 1,013 1,214 - 1,306 - With an allowance recorded: Commercial business 3,329 3,329 1,897 2,296 - Commercial mortgage 678 678 126 432 - 4,007 4,007 2,023 2,728 - $ 5,020 $ 5,221 $ 2,023 $ 4,034 $ - December 31, 2016 With no related allowance recorded: Commercial business $ 645 $ 1,044 $ - $ 1,032 $ - Commercial mortgage 673 882 - 725 - 1,318 1,926 - 1,757 - With an allowance recorded: Commercial business 1,506 1,506 694 1,141 - Commercial mortgage 352 352 124 486 - 1,858 1,858 818 1,627 - $ 3,176 $ 3,784 $ 818 $ 3,384 $ - (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, 2017 Uncriticized $ 351,108 $ 658,453 Special mention 10,636 11,660 Substandard 13,248 6,342 Doubtful - - Total $ 374,992 $ 676,455 December 31, 2016 Uncriticized $ 326,254 $ 652,550 Special mention 10,377 12,690 Substandard 12,448 6,312 Doubtful - - Total $ 349,079 $ 671,552 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, 2017 Performing $ 420,013 $ 117,720 $ 757,721 $ 16,739 Non-performing 1,601 336 1,040 23 Total $ 421,614 $ 118,056 $ 758,761 $ 16,762 December 31, 2016 Performing $ 420,240 $ 119,373 $ 724,228 $ 17,449 Non-performing 1,236 372 1,526 16 Total $ 421,476 $ 119,745 $ 725,754 $ 17,465 Allowance for Loan Losses 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, 2017 Allowance for loan losses: Beginning balance $ 7,225 $ 10,315 $ 1,478 $ 303 $ 11,311 $ 302 $ 30,934 Charge-offs (1,122 ) (10 ) (14 ) (43 ) (2,809 ) (203 ) (4,201 ) Recoveries 158 214 40 10 1,051 94 1,567 Provision 7,742 (6,852 ) (64 ) (56 ) 1,909 102 2,781 Ending balance $ 14,003 $ 3,667 $ 1,440 $ 214 $ 11,462 $ 295 $ 31,081 Evaluated for impairment: Individually $ 1,842 $ 120 $ - $ - $ - $ - $ 1,962 Collectively $ 12,161 $ 3,547 $ 1,440 $ 214 $ 11,462 $ 295 $ 29,119 Loans: Ending balance $ 374,992 $ 676,455 $ 421,614 $ 118,056 $ 758,761 $ 16,762 $ 2,366,640 Evaluated for impairment: Individually $ 3,549 $ 1,195 $ - $ - $ - $ - $ 4,744 Collectively $ 371,443 $ 675,260 $ 421,614 $ 118,056 $ 758,761 $ 16,762 $ 2,361,896 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 (credit) 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 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, potentially resulting in 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 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. |