Loans | (5.) The Company’s loan portfolio consisted of the following as of the dates indicated (in thousands): Principal Amount Outstanding Net Deferred Loan (Fees) Costs Loans, Net March 31, 2019 Commercial business $ 552,834 $ 911 $ 553,745 Commercial mortgage 995,183 (1,924 ) 993,259 Residential real estate loans 525,036 9,655 534,691 Residential real estate lines 105,592 3,031 108,623 Consumer indirect 872,410 30,352 902,762 Other consumer 15,941 158 16,099 Total $ 3,066,996 $ 42,183 3,109,179 Allowance for loan losses (33,327 ) Total loans, net $ 3,075,852 December 31, 2018 Commercial business $ 557,040 $ 821 $ 557,861 Commercial mortgage 960,265 (2,071 ) 958,194 Residential real estate loans 514,981 9,174 524,155 Residential real estate lines 106,712 3,006 109,718 Consumer indirect 888,732 31,185 919,917 Other consumer 16,590 163 16,753 Total $ 3,044,320 $ 42,278 3,086,598 Allowance for loan losses (33,914 ) Total loans, net $ 3,052,684 Loans held for sale (not included above) were comprised entirely of residential real estate mortgages and totaled $2.1 million and $2.9 million as of March 31, 2019 and December 31, 2018, 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): 30-59 Days Past Due 60-89 Days Past Due Greater Than 90 Days Total Past Due Nonaccrual Current Total Loans March 31, 2019 Commercial business $ 328 $ 150 $ — $ 478 $ 594 $ 551,762 $ 552,834 Commercial mortgage 443 375 — 818 909 993,456 995,183 Residential real estate loans 924 367 — 1,291 2,225 521,520 525,036 Residential real estate lines 150 15 — 165 252 105,175 105,592 Consumer indirect 1,388 497 — 1,885 1,822 868,703 872,410 Other consumer 87 8 2 97 — 15,844 15,941 Total loans, gross $ 3,320 $ 1,412 $ 2 $ 4,734 $ 5,802 $ 3,056,460 $ 3,066,996 December 31, 2018 Commercial business $ 227 $ 1 $ — $ 228 $ 912 $ 555,900 $ 557,040 Commercial mortgage 574 — — 574 1,586 958,105 960,265 Residential real estate loans 1,295 242 — 1,537 2,391 511,053 514,981 Residential real estate lines 102 — — 102 255 106,355 106,712 Consumer indirect 2,424 698 — 3,122 1,989 883,621 888,732 Other consumer 139 3 8 150 — 16,440 16,590 Total loans, gross $ 4,761 $ 944 $ 8 $ 5,713 $ 7,133 $ 3,031,474 $ 3,044,320 (5.) There were no loans past due greater than 90 days and still accruing interest as of March 31, 2019 and December 31, 2018. There were $2 thousand and $8 thousand in consumer overdrafts which were past due greater than 90 days as of March 31, 2019 and December 31, 2018, 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, forbearance 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, 2019 and 2018. There were no loans modified as a TDR within the previous 12 months that defaulted during the three months ended March 31, 2019 and 2018. 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 months ended March 31, 2019 and twelve-month period ended December 31, 2018 (in thousands): Recorded Investment (1) Unpaid Principal Balance (1) Related Allowance Average Recorded Investment Interest Income Recognized March 31, 2019 With no related allowance recorded: Commercial business $ 221 $ 292 $ — $ 356 $ — Commercial mortgage 1,333 2,109 — 1,730 — 1,554 2,401 — 2,086 — With an allowance recorded: Commercial business 504 504 181 660 — Commercial mortgage 19 19 2 20 — 523 523 183 680 — $ 2,077 $ 2,924 $ 183 $ 2,766 $ — December 31, 2018 With no related allowance recorded: Commercial business $ 319 $ 487 $ — $ 1,156 $ — Commercial mortgage 2,013 2,789 — 692 — 2,332 3,276 — 1,848 — With an allowance recorded: Commercial business 725 725 205 2,458 — Commercial mortgage 21 21 1 1,936 — 746 746 206 4,394 — $ 3,078 $ 4,022 $ 206 $ 6,242 $ — (1) Difference between recorded investment and unpaid principal balance represents partial charge-offs. (5.) 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 Business Commercial Mortgage March 31, 2019 Uncriticized $ 524,977 $ 979,254 Special mention 18,266 4,186 Substandard 9,591 11,743 Doubtful — — Total $ 552,834 $ 995,183 December 31, 2018 Uncriticized $ 531,756 $ 943,991 Special mention 16,499 10,633 Substandard 8,785 5,641 Doubtful — — Total $ 557,040 $ 960,265 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 Real Estate Loans Residential Real Estate Lines Consumer Indirect Other Consumer March 31, 2019 Performing $ 522,811 $ 105,340 $ 870,588 $ 15,939 Non-performing 2,225 252 1,822 2 Total $ 525,036 $ 105,592 $ 872,410 $ 15,941 December 31, 2018 Performing $ 512,590 $ 106,457 $ 886,743 $ 16,582 Non-performing 2,391 255 1,989 8 Total $ 514,981 $ 106,712 $ 888,732 $ 16,590 (5.) Allowance for Loan Losses The following table sets forth the changes in the allowance for loan losses for the three-month periods ended as of the dates indicated (in thousands): Commercial Business Commercial Mortgage Residential Real Estate Loans Residential Real Estate Lines Consumer Indirect Other Consumer Total March 31, 2019 Allowance for loan losses: Beginning balance $ 14,312 $ 5,219 $ 1,112 $ 210 $ 12,572 $ 489 $ 33,914 Charge-offs (130 ) — (31 ) — (2,982 ) (309 ) (3,452 ) Recoveries 103 17 6 2 1,424 120 1,672 Provision (credit) (2,118 ) 1,080 178 (39 ) 2,011 81 1,193 Ending balance $ 12,167 $ 6,316 $ 1,265 $ 173 $ 13,025 $ 381 $ 33,327 Evaluated for impairment: Individually $ 181 $ 2 $ — $ — $ — $ — $ 183 Collectively $ 11,986 $ 6,314 $ 1,265 $ 173 $ 13,025 $ 381 $ 33,144 Loans: Ending balance $ 552,834 $ 995,183 $ 525,036 $ 105,592 $ 872,410 $ 15,941 $ 3,066,996 Evaluated for impairment: Individually $ 725 $ 1,352 $ — $ — $ — $ — $ 2,077 Collectively $ 552,109 $ 993,831 $ 525,036 $ 105,592 $ 872,410 $ 15,941 $ 3,064,919 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 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. (5.) 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 based on 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. |