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, 2018 Commercial business $ 463,526 $ 613 $ 464,139 Commercial mortgage 823,305 (2,214 ) 821,091 Residential real estate loans 470,111 7,824 477,935 Residential real estate lines 112,428 2,918 115,346 Consumer indirect 866,598 31,501 898,099 Other consumer 16,482 172 16,654 Total $ 2,752,450 $ 40,814 2,793,264 Allowance for loan losses (35,594 ) Total loans, net $ 2,757,670 December 31, 2017 Commercial business $ 449,763 $ 563 $ 450,326 Commercial mortgage 810,851 (1,943 ) 808,908 Residential real estate loans 457,761 7,522 465,283 Residential real estate lines 113,422 2,887 116,309 Consumer indirect 845,682 30,888 876,570 Other consumer 17,443 178 17,621 Total $ 2,694,922 $ 40,095 2,735,017 Allowance for loan losses (34,672 ) Total loans, net $ 2,700,345 Loans held for sale (not included above) were comprised entirely of residential real estate mortgages and totaled $ 1.5 2.7 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, 2018 Commercial business $ 127 $ - $ - $ 127 $ 4,312 $ 459,087 $ 463,526 Commercial mortgage 388 - - 388 2,310 820,607 823,305 Residential real estate loans 853 110 - 963 2,224 466,924 470,111 Residential real estate lines 167 - - 167 372 111,889 112,428 Consumer indirect 1,443 370 - 1,813 1,467 863,318 866,598 Other consumer 91 13 17 121 15 16,346 16,482 Total loans, gross $ 3,069 $ 493 $ 17 $ 3,579 $ 10,700 $ 2,738,171 $ 2,752,450 December 31, 2017 Commercial business $ 64 $ 36 $ - $ 100 $ 5,344 $ 444,319 $ 449,763 Commercial mortgage 56 375 - 431 2,623 807,797 810,851 Residential real estate loans 1,908 56 - 1,964 2,252 453,545 457,761 Residential real estate lines 349 - - 349 404 112,669 113,422 Consumer indirect 2,806 672 - 3,478 1,895 840,309 845,682 Other consumer 174 15 11 200 2 17,241 17,443 Total loans, gross $ 5,357 $ 1,154 $ 11 $ 6,522 $ 12,520 $ 2,675,880 $ 2,694,922 There were no 17 11 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. There were no loans modified as a TDR during the three months ended March 31, 2018 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 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 period ended March 31, 2018 and twelve month period ended December 31, 2017 (in thousands): Unpaid Average Interest Recorded Principal Related Recorded Income Investment (1) Balance (1) Allowance Investment Recognized March 31, 2018 With no related allowance recorded: Commercial business $ 1,259 $ 1,775 $ - $ 1,523 $ - Commercial mortgage 569 569 - 576 - 1,828 2,344 - 2,099 - With an allowance recorded: Commercial business 3,194 3,286 1,699 3,587 - Commercial mortgage 2,222 2,222 719 2,370 - 5,416 5,508 2,418 5,957 - $ 7,244 $ 7,852 $ 2,418 $ 8,056 $ - December 31, 2017 With no related allowance recorded: Commercial business $ 1,635 $ 2,370 $ - $ 853 $ - Commercial mortgage 584 584 - 621 - 2,219 2,954 - 1,474 - With an allowance recorded: Commercial business 3,853 3,853 2,056 4,468 - Commercial mortgage 2,528 2,528 115 1,516 - 6,381 6,381 2,171 5,984 - $ 8,600 $ 9,335 $ 2,171 $ 7,458 $ - (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, 2018 Uncriticized $ 441,798 $ 804,177 Special mention 9,872 12,057 Substandard 11,856 7,071 Doubtful - - Total $ 463,526 $ 823,305 December 31, 2017 Uncriticized $ 429,692 $ 791,127 Special mention 7,120 12,185 Substandard 12,951 7,539 Doubtful - - Total $ 449,763 $ 810,851 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, 2018 Performing $ 467,887 $ 112,056 $ 865,131 $ 16,450 Non-performing 2,224 372 1,467 32 Total $ 470,111 $ 112,428 $ 866,598 $ 16,482 December 31, 2017 Performing $ 455,509 $ 113,018 $ 843,787 $ 17,430 Non-performing 2,252 404 1,895 13 Total $ 457,761 $ 113,422 $ 845,682 $ 17,443 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, 2018 Allowance for loan losses: Beginning balance $ 15,668 $ 3,696 $ 1,322 $ 180 $ 13,415 $ 391 $ 34,672 Charge-offs (105 ) (4 ) (19 ) (94 ) (2,994 ) (433 ) (3,649 ) Recoveries 120 7 69 3 1,330 93 1,622 Provision (credit) (741 ) 1,774 28 129 1,481 278 2,949 Ending balance $ 14,942 $ 5,473 $ 1,400 $ 218 $ 13,232 $ 329 $ 35,594 Evaluated for impairment: Individually $ 1,699 $ 719 $ - $ - $ - $ - $ 2,418 Collectively $ 13,243 $ 4,754 $ 1,400 $ 218 $ 13,232 $ 329 $ 33,176 Loans: Ending balance $ 463,526 $ 823,305 $ 470,111 $ 112,428 $ 866,598 $ 16,482 $ 2,752,450 Evaluated for impairment: Individually $ 4,453 $ 2,791 $ - $ - $ - $ - $ 7,244 Collectively $ 459,073 $ 820,514 $ 470,111 $ 112,428 $ 866,598 $ 16,482 $ 2,745,206 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 (credit) 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 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. |