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Loan and Lease Receivables, Impaired Loans and Leases and Allowance for Loan and Lease Losses | 6 Months Ended
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Jun. 30, 2014
Receivables [Abstract] |
Loan and Lease Receivables, Impaired Loans and Leases and Allowance for Loan and Lease Losses | Loan and Lease Receivables, Impaired Loans and Leases and Allowance for Loan and Lease Losses Loan and lease receivables consist of the following:
|  | June 30, 2014 |  | December 31, 2013
|  | (In Thousands)
Commercial real estate |  |  |  |
Commercial real estate — owner occupied |  | $ | 141,704 |  |  | $ | 141,164 |
Commercial real estate — non-owner occupied |  | 333,179 |  |  | 341,695 |
Construction and land development |  | 75,749 |  |  | 68,708 |
Multi-family |  | 59,826 |  |  | 62,758 |
1-4 family |  | 26,945 |  |  | 30,786 |
Total commercial real estate |  | 637,403 |  |  | 645,111 |
Commercial and industrial |  | 325,900 |  |  | 293,552 |
Direct financing leases, net |  | 29,649 |  |  | 26,065 |
Consumer and other |  |  |  |
Home equity and second mortgages |  | 4,370 |  |  | 5,272 |
Other |  | 11,293 |  |  | 11,972 |
Total consumer and other |  | 15,663 |  |  | 17,244 |
Total gross loans and leases receivable |  | 1,008,615 |  |  | 981,972 |
Less: |  |  |  |
Allowance for loan and lease losses |  | 14,015 |  |  | 13,901 |
Deferred loan fees |  | 879 |  |  | 1,021 |
Loans and leases receivable, net |  | $ | 993,721 |  |  | $ | 967,050 |
The total principal amount of loans transferred to third parties, which consisted solely of participation interests in originated loans, during the three months ended June 30, 2014 and 2013 was $6.6 million and $10.1 million, respectively. For the six months ended June 30, 2014 and 2013, $11.7 million and $13.9 million of loans were transfered to third parties, respectively. Each of the transfers of these financial assets met the qualifications for sale accounting, including the requirements specific to loan participations, and therefore all of the loans transferred during the three and six months ended June 30, 2014 and June 30, 2013 have been derecognized in the unaudited Consolidated Financial Statements. The Corporation has a continuing involvement in each of the agreements by way of relationship management and servicing the loans; however, there are no further obligations to the third-party participant required of the Corporation in the event of a borrower’s default, other than standard representations and warranties related to sold amounts. The loans were transferred at their fair value and no gain or loss was recognized upon the transfer, as the participation interest was transferred at or near the date of loan origination and the payments received for servicing the portion of the loans participated represents adequate compensation. The total amount of loan participations purchased on the Corporation’s Consolidated Balance Sheets as of June 30, 2014 and December 31, 2013 was $490,000 and $498,000, respectively. The total amount of outstanding loans transferred to third parties as loan participations sold at June 30, 2014 and December 31, 2013 was $45.4 million and $52.1 million, respectively, all of which was treated as a sale and derecognized under the applicable accounting guidance in effect at the time of the transfers of the financial assets. The Corporation’s continuing involvement with these loans is by way of partial ownership, relationship management and all servicing responsibilities. As of June 30, 2014 and December 31, 2013, the total amount of the Corporation’s partial ownership of loans on the Corporation’s Consolidated Balance Sheets was $64.8 million and $77.2 million, respectively. As of June 30, 2014 and December 31, 2013, no loans in this participation sold portfolio were considered impaired. The Corporation does not share in the participant’s portion of the charge-offs. At each of June 30, 2014 and December 31, 2013, the carrying amount of the loan purchased with deteriorated credit quality was $1.4 million. This loan is classified as a non-performing troubled debt restructuring because the Corporation cannot reasonably estimate the timing of the cash flows expected to be collected and therefore the discount will not be accreted to earnings until the carrying amount is fully paid. During the six months ended June 30, 2014, there were no changes to the allowance for loan and lease losses relating to this loan, as it is a collateral dependent loan and was deemed to have sufficient collateral value as of June 30, 2014 to support the carrying value. The following information illustrates ending balances of the Corporation’s loan and lease portfolio, including impaired loans by class of receivable, and considering certain credit quality indicators as of June 30, 2014 and December 31, 2013:
|  | Category |  |
As of June 30, 2014 |  | I |  | II |  | III |  | IV |  | Total
|  | (Dollars in Thousands)
Commercial real estate: |  |  |  |  |  |  |  |  |  |
Commercial real estate — owner occupied |  | $ | 118,384 |  |  | $ | 9,236 |  |  | $ | 13,490 |  |  | $ | 594 |  |  | $ | 141,704 |
Commercial real estate — non-owner occupied |  | 295,398 |  |  | 16,292 |  |  | 21,212 |  |  | 277 |  |  | 333,179 |
Construction and land development |  | 61,567 |  |  | 2,248 |  |  | 6,637 |  |  | 5,297 |  |  | 75,749 |
Multi-family |  | 54,191 |  |  | 5,611 |  |  | — |  |  | 24 |  |  | 59,826 |
1-4 family |  | 18,317 |  |  | 5,014 |  |  | 3,019 |  |  | 595 |  |  | 26,945 |
Total commercial real estate |  | 547,857 |  |  | 38,401 |  |  | 44,358 |  |  | 6,787 |  |  | 637,403 |
Commercial and industrial |  | 296,645 |  |  | 12,967 |  |  | 9,624 |  |  | 6,664 |  |  | 325,900 |
Direct financing leases, net |  | 26,387 |  |  | 2,916 |  |  | 346 |  |  | — |  |  | 29,649 |
Consumer and other: |  |  |  |  |  |  |  |  |  |
Home equity and second mortgages |  | 3,649 |  |  | 20 |  |  | 147 |  |  | 554 |  |  | 4,370 |
Other |  | 10,516 |  |  | — |  |  | — |  |  | 777 |  |  | 11,293 |
Total consumer and other |  | 14,165 |  |  | 20 |  |  | 147 |  |  | 1,331 |  |  | 15,663 |
Total gross loans and leases receivable |  | $ | 885,054 |  |  | $ | 54,304 |  |  | $ | 54,475 |  |  | $ | 14,782 |  |  | $ | 1,008,615 |
Category as a % of total portfolio |  | 87.75 | % |  | 5.38 | % |  | 5.40 | % |  | 1.47 | % |  | 100.00 | %
|  | Category |  |
As of December 31, 2013 |  | I |  | II |  | III |  | IV |  | Total
|  | (Dollars in Thousands)
Commercial real estate: |  |  |  |  |  |  |  |  |  |
Commercial real estate — owner occupied |  | $ | 118,764 |  |  | $ | 11,259 |  |  | $ | 10,802 |  |  | $ | 339 |  |  | $ | 141,164 |
Commercial real estate — non-owner occupied |  | 290,865 |  |  | 29,444 |  |  | 21,103 |  |  | 283 |  |  | 341,695 |
Construction and land development |  | 53,493 |  |  | 1,972 |  |  | 7,754 |  |  | 5,489 |  |  | 68,708 |
Multi-family |  | 57,049 |  |  | 5,678 |  |  | — |  |  | 31 |  |  | 62,758 |
1-4 family |  | 19,197 |  |  | 7,611 |  |  | 3,312 |  |  | 666 |  |  | 30,786 |
Total commercial real estate |  | 539,368 |  |  | 55,964 |  |  | 42,971 |  |  | 6,808 |  |  | 645,111 |
Commercial and industrial |  | 268,109 |  |  | 11,688 |  |  | 5,712 |  |  | 8,043 |  |  | 293,552 |
Direct financing leases, net |  | 23,171 |  |  | 2,421 |  |  | 473 |  |  | — |  |  | 26,065 |
Consumer and other: |  |  |  |  |  |  |  |  |  |
Home equity and second mortgages |  | 4,408 |  |  | 134 |  |  | 150 |  |  | 580 |  |  | 5,272 |
Other |  | 11,177 |  |  | — |  |  | — |  |  | 795 |  |  | 11,972 |
Total consumer and other |  | 15,585 |  |  | 134 |  |  | 150 |  |  | 1,375 |  |  | 17,244 |
Total gross loans and leases receivable |  | $ | 846,233 |  |  | $ | 70,207 |  |  | $ | 49,306 |  |  | $ | 16,226 |  |  | $ | 981,972 |
Category as a % of total portfolio |  | 86.18 | % |  | 7.15 | % |  | 5.02 | % |  | 1.65 | % |  | 100.00 | %
Credit underwriting through a committee process is a key component of the Corporation’s operating philosophy. Business development officers have relatively low individual lending authority limits, and thus a significant portion of the Corporation’s new credit extensions require approval from a loan approval committee regardless of the type of loan or lease, asset quality grade of the credit, amount of the credit, or the related complexities of each proposal. In addition, the Corporation makes every effort to ensure that there is appropriate collateral at the time of origination to protect the Corporation’s interest in the related loan or lease. Each credit is evaluated for proper risk rating upon origination, at the time of each subsequent renewal, upon receipt and evaluation of updated financial information from the Corporation’s borrowers, or as other circumstances dictate. The Corporation uses a nine grade risk rating system to monitor the ongoing credit quality of its loans and leases. The risk rating grades follow a consistent definition, and are then applied to specific loan types based on the nature of the loan. Each risk rating is subjective and, depending on the size and nature of the credit, subject to various levels of review and concurrence on the stated risk rating. In addition to its nine grade risk rating system, the Corporation groups loans into four loan and related risk categories which determine the level and nature of review by management. Category I — Loans and leases in this category are performing in accordance with the terms of the contract and generally exhibit no immediate concerns regarding the security and viability of the underlying collateral, financial stability of the borrower, integrity or strength of the borrower’s management team or the industry in which the borrower operates. Loans and leases in this category are not subject to additional monitoring procedures above and beyond what is required at the origination or renewal of the loan or lease. The Corporation monitors Category I loans and leases through payment performance, continued maintenance of its personal relationships with such borrowers and continued review of such borrowers’ compliance with the terms of their respective agreements. Category II — Loans and leases in this category are beginning to show signs of deterioration in one or more of the Corporation’s core underwriting criteria such as financial stability, management strength, industry trends and collateral values. Management will place credits in this category to allow for proactive monitoring and resolution with the borrower to possibly mitigate the area of concern and prevent further deterioration or risk of loss to the Corporation. Category II loans are considered performing but are monitored frequently by the assigned business development officer and by subcommittees of the Banks’ loan committees. Category III — Loans and leases in this category are identified by management as warranting special attention. However, the balance in this category is not intended to represent the amount of adversely classified assets held by the Banks. Category III loans and leases generally exhibit undesirable characteristics such as evidence of adverse financial trends and conditions, managerial problems, deteriorating economic conditions within the related industry, or evidence of adverse public filings and may exhibit collateral shortfall positions. Management continues to believe that it will collect all required principal and interest in accordance with the original terms of the contracts relating to the loans and leases in this category, and therefore Category III loans are considered performing with no specific reserves established for this category. Category III loans are monitored by management and loan committees of the Banks on a monthly basis and the Banks’ Boards of Directors at each of their regularly scheduled meetings. Category IV — Loans and leases in this category are considered to be impaired. Impaired loans and leases have been placed on non-accrual as management has determined that it is unlikely that the Banks will receive the required principal and interest in accordance with the contractual terms of the agreement. Impaired loans are individually evaluated to assess the need for the establishment of specific reserves or charge-offs. When analyzing the adequacy of collateral, the Corporation obtains external appraisals at least annually for impaired loans and leases. External appraisals are obtained from the Corporation’s approved appraiser listing and are independently reviewed to monitor the quality of such appraisals. To the extent a collateral shortfall position is present, a specific reserve or charge-off will be recorded to reflect the magnitude of the impairment. Loans and leases in this category are monitored by management and loan committees of the Banks on a monthly basis and the Banks’ Boards of Directors at each of their regularly scheduled meetings. Utilizing regulatory classification terminology, the Corporation identified $29.3 million and $22.8 million of loans and leases as Substandard as of June 30, 2014 and December 31, 2013, respectively. No loans were considered Special Mention, Doubtful or Loss as of either June 30, 2014 or December 31, 2013. The population of Substandard loans are all Category IV loans and a subset of Category III loans. The delinquency aging of the loan and lease portfolio by class of receivable as of June 30, 2014 and December 31, 2013 were as follows:
As of June 30, 2014 |  | 30-59 days past due |  | 60-89 days past due |  | Greater than 90 days past due |  | Total past due |  | Current |  | Total loans
|  | (Dollars in Thousands)
Accruing loans and leases |  |  |  |  |  |  |  |  |  |  |  |
Commercial real estate: |  |  |  |  |  |  |  |  |  |  |  |
Owner occupied |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 141,190 |  |  | $ | 141,190 |
Non-owner occupied |  | — |  |  | — |  |  | — |  |  | — |  |  | 332,902 |  |  | 332,902 |
Construction and land development |  | — |  |  | — |  |  | — |  |  | — |  |  | 70,517 |  |  | 70,517 |
Multi-family |  | — |  |  | — |  |  | — |  |  | — |  |  | 59,802 |  |  | 59,802 |
1-4 family |  | — |  |  | — |  |  | — |  |  | — |  |  | 26,569 |  |  | 26,569 |
Commercial and industrial |  | — |  |  | — |  |  | — |  |  | — |  |  | 319,268 |  |  | 319,268 |
Direct financing leases, net |  | — |  |  | — |  |  | — |  |  | — |  |  | 29,649 |  |  | 29,649 |
Consumer and other: |  |  |  |  |  |  |  |  |  |  |  |
Home equity and second mortgages |  | 18 |  |  | — |  |  | — |  |  | 18 |  |  | 4,004 |  |  | 4,022 |
Other |  | — |  |  | — |  |  | — |  |  | — |  |  | 10,516 |  |  | 10,516 |
Total |  | 18 |  |  | — |  |  | — |  |  | 18 |  |  | 994,417 |  |  | 994,435 |
Non-accruing loans and leases |  |  |  |  |  |  |  |  |  |  |  |
Commercial real estate: |  |  |  |  |  |  |  |  |  |  |  |
Owner occupied |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 514 |  |  | $ | 514 |
Non-owner occupied |  | — |  |  | — |  |  | — |  |  | — |  |  | 277 |  |  | 277 |
Construction and land development |  | — |  |  | — |  |  | — |  |  | — |  |  | 5,232 |  |  | 5,232 |
Multi-family |  | — |  |  | — |  |  | — |  |  | — |  |  | 24 |  |  | 24 |
1-4 family |  | — |  |  | — |  |  | 113 |  |  | 113 |  |  | 263 |  |  | 376 |
Commercial and industrial |  | 30 |  |  | — |  |  | 6,464 |  |  | 6,494 |  |  | 138 |  |  | 6,632 |
Direct financing leases, net |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Consumer and other: |  |  |  |  |  |  |  |  |  |  |  |
Home equity and second mortgages |  | — |  |  | — |  |  | — |  |  | — |  |  | 348 |  |  | 348 |
Other |  | — |  |  | — |  |  | 777 |  |  | 777 |  |  | — |  |  | 777 |
Total |  | 30 |  |  | — |  |  | 7,354 |  |  | 7,384 |  |  | 6,796 |  |  | 14,180 |
Total loans and leases |  |  |  |  |  |  |  |  |  |  |  |
Commercial real estate: |  |  |  |  |  |  |  |  |  |  |  |
Owner occupied |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 141,704 |  |  | $ | 141,704 |
Non-owner occupied |  | — |  |  | — |  |  | — |  |  | — |  |  | 333,179 |  |  | 333,179 |
Construction and land development |  | — |  |  | — |  |  | — |  |  | — |  |  | 75,749 |  |  | 75,749 |
Multi-family |  | — |  |  | — |  |  | — |  |  | — |  |  | 59,826 |  |  | 59,826 |
1-4 family |  | — |  |  | — |  |  | 113 |  |  | 113 |  |  | 26,832 |  |  | 26,945 |
Commercial and industrial |  | 30 |  |  | — |  |  | 6,464 |  |  | 6,494 |  |  | 319,406 |  |  | 325,900 |
Direct financing leases, net |  | — |  |  | — |  |  | — |  |  | — |  |  | 29,649 |  |  | 29,649 |
Consumer and other: |  |  |  |  |  |  |  |  |  |  |  |
Home equity and second mortgages |  | 18 |  |  | — |  |  | — |  |  | 18 |  |  | 4,352 |  |  | 4,370 |
Other |  | — |  |  | — |  |  | 777 |  |  | 777 |  |  | 10,516 |  |  | 11,293 |
Total |  | $ | 48 |  |  | $ | — |  |  | $ | 7,354 |  |  | $ | 7,402 |  |  | $ | 1,001,213 |  |  | $ | 1,008,615 |
Percent of portfolio |  | — | % |  | — | % |  | 0.73 | % |  | 0.73 | % |  | 99.27 | % |  | 100.00 | %
As of December 31, 2013 |  | 30-59 days past due |  | 60-89 days past due |  | Greater than 90 days past due |  | Total past due |  | Current |  | Total loans
|  | (Dollars in Thousands)
Accruing loans and leases |  |  |  |  |  |  |  |  |  |  |  |
Commercial real estate: |  |  |  |  |  |  |  |  |  |  |  |
Owner occupied |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 140,825 |  |  | $ | 140,825 |
Non-owner occupied |  | — |  |  | — |  |  | — |  |  | — |  |  | 341,412 |  |  | 341,412 |
Construction and land development |  | — |  |  | — |  |  | — |  |  | — |  |  | 63,286 |  |  | 63,286 |
Multi-family |  | — |  |  | — |  |  | — |  |  | — |  |  | 62,727 |  |  | 62,727 |
1-4 family |  | — |  |  | — |  |  | — |  |  | — |  |  | 30,265 |  |  | 30,265 |
Commercial and industrial |  | — |  |  | — |  |  | — |  |  | — |  |  | 285,541 |  |  | 285,541 |
Direct financing leases, net |  | — |  |  | — |  |  | — |  |  | — |  |  | 26,065 |  |  | 26,065 |
Consumer and other: |  |  |  |  |  |  |  |  |  |  |  |
Home equity and second mortgages |  | — |  |  | — |  |  | — |  |  | — |  |  | 4,819 |  |  | 4,819 |
Other |  | — |  |  | — |  |  | — |  |  | — |  |  | 11,177 |  |  | 11,177 |
Total |  | — |  |  | — |  |  | — |  |  | — |  |  | 966,117 |  |  | 966,117 |
Non-accruing loans and leases |  |  |  |  |  |  |  |  |  |  |  |
Commercial real estate: |  |  |  |  |  |  |  |  |  |  |  |
Owner occupied |  | $ | — |  |  | $ | — |  |  | $ | 254 |  |  | $ | 254 |  |  | $ | 85 |  |  | $ | 339 |
Non-owner occupied |  | — |  |  | — |  |  | — |  |  | — |  |  | 283 |  |  | 283 |
Construction and land development |  | — |  |  | — |  |  | — |  |  | — |  |  | 5,422 |  |  | 5,422 |
Multi-family |  | — |  |  | — |  |  | — |  |  | — |  |  | 31 |  |  | 31 |
1-4 family |  | — |  |  | 180 |  |  | 123 |  |  | 303 |  |  | 218 |  |  | 521 |
Commercial and industrial |  | 1,944 |  |  | 1,407 |  |  | 53 |  |  | 3,404 |  |  | 4,607 |  |  | 8,011 |
Direct financing leases, net |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Consumer and other: |  |  |  |  |  |  |  |  |  |  |  |
Home equity and second mortgages |  | — |  |  | — |  |  | 85 |  |  | 85 |  |  | 368 |  |  | 453 |
Other |  | — |  |  | — |  |  | 795 |  |  | 795 |  |  | — |  |  | 795 |
Total |  | 1,944 |  |  | 1,587 |  |  | 1,310 |  |  | 4,841 |  |  | 11,014 |  |  | 15,855 |
Total loans and leases |  |  |  |  |  |  |  |  |  |  |  |
Commercial real estate: |  |  |  |  |  |  |  |  |  |  |  |
Owner occupied |  | $ | — |  |  | $ | — |  |  | $ | 254 |  |  | $ | 254 |  |  | $ | 140,910 |  |  | $ | 141,164 |
Non-owner occupied |  | — |  |  | — |  |  | — |  |  | — |  |  | 341,695 |  |  | 341,695 |
Construction and land development |  | — |  |  | — |  |  | — |  |  | — |  |  | 68,708 |  |  | 68,708 |
Multi-family |  | — |  |  | — |  |  | — |  |  | — |  |  | 62,758 |  |  | 62,758 |
1-4 family |  | — |  |  | 180 |  |  | 123 |  |  | 303 |  |  | 30,483 |  |  | 30,786 |
Commercial and industrial |  | 1,944 |  |  | 1,407 |  |  | 53 |  |  | 3,404 |  |  | 290,148 |  |  | 293,552 |
Direct financing leases, net |  | — |  |  | — |  |  | — |  |  | — |  |  | 26,065 |  |  | 26,065 |
Consumer and other: |  |  |  |  |  |  |  |  |  |  |  |
Home equity and second mortgages |  | — |  |  | — |  |  | 85 |  |  | 85 |  |  | 5,187 |  |  | 5,272 |
Other |  | — |  |  | — |  |  | 795 |  |  | 795 |  |  | 11,177 |  |  | 11,972 |
Total |  | $ | 1,944 |  |  | $ | 1,587 |  |  | $ | 1,310 |  |  | $ | 4,841 |  |  | $ | 977,131 |  |  | $ | 981,972 |
Percent of portfolio |  | 0.20 | % |  | 0.16 | % |  | 0.13 | % |  | 0.49 | % |  | 99.51 | % |  | 100.00 | %
The Corporation’s total impaired assets consisted of the following at June 30, 2014 and December 31, 2013, respectively.
|  | June 30, 2014 |  | December 31, 2013
|  | (Dollars in Thousands)
Non-accrual loans and leases |  |  |  |
Commercial real estate: |  |  |  |
Commercial real estate — owner occupied |  | $ | 514 |  |  | $ | 339 |
Commercial real estate — non-owner occupied |  | 277 |  |  | 283 |
Construction and land development |  | 5,232 |  |  | 5,422 |
Multi-family |  | 24 |  |  | 31 |
1-4 family |  | 376 |  |  | 521 |
Total non-accrual commercial real estate |  | 6,423 |  |  | 6,596 |
Commercial and industrial |  | 6,632 |  |  | 8,011 |
Direct financing leases, net |  | — |  |  | — |
Consumer and other: |  |  |  |
Home equity and second mortgages |  | 348 |  |  | 453 |
Other |  | 777 |  |  | 795 |
Total non-accrual consumer and other loans |  | 1,125 |  |  | 1,248 |
Total non-accrual loans and leases |  | 14,180 |  |  | 15,855 |
Foreclosed properties, net |  | 329 |  |  | 333 |
Total non-performing assets |  | 14,509 |  |  | 16,188 |
Performing troubled debt restructurings |  | 602 |  |  | 371 |
Total impaired assets |  | $ | 15,111 |  |  | $ | 16,559 |
|  | June 30, 2014 |  | December 31, 2013
Total non-accrual loans and leases to gross loans and leases |  | 1.41 | % |  | 1.61 | %
Total non-performing assets to total gross loans and leases plus foreclosed properties, net |  | 1.44 |  |  | 1.65 |
Total non-performing assets to total assets |  | 1.11 |  |  | 1.28 |
Allowance for loan and lease losses to gross loans and leases |  | 1.39 |  |  | 1.42 |
Allowance for loan and lease losses to non-accrual loans and leases |  | 98.84 |  |  | 87.68 |
As of June 30, 2014 and December 31, 2013, $7.7 million and $8.1 million of the non-accrual loans were considered troubled debt restructurings, respectively. As of June 30, 2014, there were no unfunded commitments associated with troubled debt restructured loans and leases.
|  | As of June 30, 2014 |  | As of December 31, 2013
|  | Number of Loans |  | Pre-Modification Recorded Investment |  | Post-Modification Recorded Investment |  | Number of Loans |  | Pre-Modification Recorded Investment |  | Post-Modification Recorded Investment
|  | (Dollars in Thousands)
Troubled debt restructurings: |  |  |  |  |  |  |  |  |  |  |  |
Commercial real estate |  |  |  |  |  |  |  |  |  |  |  |
Commercial real estate — owner occupied |  | 2 |  | $ | 624 |  |  | $ | 594 |  |  | 1 |  | $ | 110 |  |  | $ | 84 |
Commercial real estate — non-owner occupied |  | 4 |  | 390 |  |  | 277 |  |  | 3 |  | 385 |  |  | 283 |
Construction and land development |  | 3 |  | 6,060 |  |  | 5,297 |  |  | 3 |  | 6,060 |  |  | 5,489 |
Multi-family |  | 1 |  | 184 |  |  | 24 |  |  | 1 |  | 184 |  |  | 31 |
1-4 family |  | 9 |  | 861 |  |  | 595 |  |  | 10 |  | 911 |  |  | 666 |
Commercial and industrial |  | 3 |  | 356 |  |  | 182 |  |  | 5 |  | 1,935 |  |  | 565 |
Direct financing leases, net |  | — |  | — |  |  | — |  |  | — |  | — |  |  | — |
Consumer and other: |  |  |  |  |  |  |  |  |  |  |  |
Home equity and second mortgages |  | 6 |  | 843 |  |  | 554 |  |  | 6 |  | 752 |  |  | 580 |
Other |  | 1 |  | 2,077 |  |  | 777 |  |  | 1 |  | 2,076 |  |  | 795 |
Total |  | 29 |  | $ | 11,395 |  |  | $ | 8,300 |  |  | 30 |  | $ | 12,413 |  |  | $ | 8,493 |
All loans and leases modified as a troubled debt restructuring are evaluated for impairment. The nature and extent of the impairment of restructured loans, including those which have experienced a default, is considered in the determination of an appropriate level of the allowance for loan and lease losses. As of June 30, 2014 and December 31, 2013, the Corporation’s troubled debt restructurings grouped by type of concession were as follows:
|  | As of June 30, 2014 |  | As of December 31, 2013
|  | Number of Loans |  | Recorded Investment |  | Number of Loans |  | Recorded Investment
|  | (Dollars in Thousands)
Commercial real estate |  |  |  |  |  |  |  |
Extension of term |  | 1 |  |  | $ | 48 |  |  | 1 |  |  | $ | 55 |
Combination of extension and interest rate concession |  | 18 |  |  | 6,739 |  |  | 17 |  |  | 6,498 |
Commercial and industrial |  |  |  |  |  |  |  |
Extension of term |  | — |  |  | — |  |  | 1 |  |  | 49 |
Combination of extension and interest rate concession |  | 3 |  |  | 182 |  |  | 4 |  |  | 516 |
Consumer and other |  |  |  |  |  |  |  |
Extension of term |  | 1 |  |  | 777 |  |  | 2 |  |  | 880 |
Combination of extension and interest rate concession |  | 6 |  |  | 554 |  |  | 5 |  |  | 495 |
Total |  | 29 |  |  | $ | 8,300 |  |  | 30 |  |  | $ | 8,493 |
There were no loans and leases modified in a troubled debt restructuring during the previous 12 months which subsequently defaulted during the six months ended June 30, 2014.
The following represents additional information regarding the Corporation’s impaired loans and leases by class:
|  | Impaired Loans and Leases
|  | As of and for the Six Months Ended June 30, 2014
|  | Recorded investment |  | Unpaid principal balance |  | Impairment reserve |  | Average recorded investment(1) |  | Foregone interest income |  | Interest income recognized |  | Net foregone interest income
|  | (In Thousands)
With no impairment reserve recorded: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial real estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Owner occupied |  | $ | 80 |  |  | $ | 80 |  |  | $ | — |  |  | $ | 207 |  |  | $ | 8 |  |  | $ | 78 |  |  | $ | (70 | )
Non-owner occupied |  | 225 |  |  | 225 |  |  | — |  |  | 226 |  |  | 5 |  |  | — |  |  | 5 |
Construction and land development |  | 5,297 |  |  | 7,968 |  |  | — |  |  | 5,419 |  |  | 80 |  |  | — |  |  | 80 |
Multi-family |  | 24 |  |  | 391 |  |  | — |  |  | 28 |  |  | 26 |  |  | — |  |  | 26 |
1-4 family |  | 189 |  |  | 189 |  |  | — |  |  | 239 |  |  | 5 |  |  | 12 |  |  | (7 | )
Commercial and industrial |  | 200 |  |  | 210 |  |  | — |  |  | 323 |  |  | 7 |  |  | 220 |  |  | (213 | )
Direct financing leases, net |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Consumer and other: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Home equity and second mortgages |  | 498 |  |  | 498 |  |  | — |  |  | 676 |  |  | 12 |  |  | — |  |  | 12 |
Other |  | 777 |  |  | 1,443 |  |  | — |  |  | 780 |  |  | 43 |  |  | — |  |  | 43 |
Total |  | 7,290 |  |  | 11,004 |  |  | — |  |  | 7,898 |  |  | 186 |  |  | 310 |  |  | (124 | )
With impairment reserve recorded: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial real estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Owner occupied |  | $ | 514 |  |  | $ | 514 |  |  | $ | 115 |  |  | $ | 173 |  |  | $ | 8 |  |  | $ | — |  |  | $ | 8 |
Non-owner occupied |  | 52 |  |  | 92 |  |  | 52 |  |  | 53 |  |  | 2 |  |  | — |  |  | 2 |
Construction and land development |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Multi-family |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
1-4 family |  | 406 |  |  | 411 |  |  | 175 |  |  | 414 |  |  | 9 |  |  | — |  |  | 9 |
Commercial and industrial |  | 6,464 |  |  | 6,464 |  |  | 208 |  |  | 6,688 |  |  | 236 |  |  | — |  |  | 236 |
Direct financing leases, net |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Consumer and other: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Home equity and second mortgages |  | 56 |  |  | 56 |  |  | 56 |  |  | 59 |  |  | 2 |  |  | — |  |  | 2 |
Other |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Total |  | 7,492 |  |  | 7,537 |  |  | 606 |  |  | 7,387 |  |  | 257 |  |  | — |  |  | 257 |
Total: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial real estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Owner occupied |  | $ | 594 |  |  | $ | 594 |  |  | $ | 115 |  |  | $ | 380 |  |  | $ | 16 |  |  | $ | 78 |  |  | $ | (62 | )
Non-owner occupied |  | 277 |  |  | 317 |  |  | 52 |  |  | 279 |  |  | 7 |  |  | — |  |  | 7 |
Construction and land development |  | 5,297 |  |  | 7,968 |  |  | — |  |  | 5,419 |  |  | 80 |  |  | — |  |  | 80 |
Multi-family |  | 24 |  |  | 391 |  |  | — |  |  | 28 |  |  | 26 |  |  | — |  |  | 26 |
1-4 family |  | 595 |  |  | 600 |  |  | 175 |  |  | 653 |  |  | 14 |  |  | 12 |  |  | 2 |
Commercial and industrial |  | 6,664 |  |  | 6,674 |  |  | 208 |  |  | 7,011 |  |  | 243 |  |  | 220 |  |  | 23 |
Direct financing leases, net |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Consumer and other: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Home equity and second mortgages |  | 554 |  |  | 554 |  |  | 56 |  |  | 735 |  |  | 14 |  |  | — |  |  | 14 |
Other |  | 777 |  |  | 1,443 |  |  | — |  |  | 780 |  |  | 43 |  |  | — |  |  | 43 |
Grand total |  | $ | 14,782 |  |  | $ | 18,541 |  |  | $ | 606 |  |  | $ | 15,285 |  |  | $ | 443 |  |  | $ | 310 |  |  | $ | 133 |
(1) | Average recorded investment is calculated primarily using daily average balances.
|  | Impaired Loans and Leases
|  | As of and for the Year Ended December 31, 2013
|  | Recorded investment |  | Unpaid principal balance |  | Impairment reserve |  | Average recorded investment(1) |  | Foregone interest income |  | Interest income recognized |  | Net Foregone Interest Income
|  | (In Thousands)
With no impairment reserve recorded: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial real estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Owner occupied |  | $ | 339 |  |  | $ | 339 |  |  | $ | — |  |  | $ | 715 |  |  | $ | 57 |  |  | $ | 50 |  |  | $ | 7 |
Non-owner occupied |  | 229 |  |  | 229 |  |  | — |  |  | 1,586 |  |  | 198 |  |  | 17 |  |  | 181 |
Construction and land development |  | 5,489 |  |  | 8,160 |  |  | — |  |  | 5,777 |  |  | 203 |  |  | 3 |  |  | 200 |
Multi-family |  | 31 |  |  | 398 |  |  | — |  |  | 366 |  |  | 93 |  |  | — |  |  | 93 |
1-4 family |  | 244 |  |  | 244 |  |  | — |  |  | 405 |  |  | 31 |  |  | 34 |  |  | (3 | )
Commercial and industrial |  | 555 |  |  | 766 |  |  | — |  |  | 434 |  |  | 97 |  |  | 114 |  |  | (17 | )
Direct financing leases, net |  | — |  |  | — |  |  | — |  |  | 6 |  |  | — |  |  | — |  |  | — |
Consumer and other: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Home equity and second mortgages |  | 518 |  |  | 518 |  |  | — |  |  | 593 |  |  | 37 |  |  | 3 |  |  | 34 |
Other |  | 795 |  |  | 1,461 |  |  | — |  |  | 942 |  |  | 100 |  |  | — |  |  | 100 |
Total |  | 8,200 |  |  | 12,115 |  |  | — |  |  | 10,824 |  |  | 816 |  |  | 221 |  |  | 595 |
With impairment reserve recorded: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial real estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Owner occupied |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Non-owner occupied |  | 54 |  |  | 94 |  |  | 54 |  |  | 88 |  |  | 6 |  |  | — |  |  | 6 |
Construction and land development |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Multi-family |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
1-4 family |  | 422 |  |  | 422 |  |  | 155 |  |  | 437 |  |  | 18 |  |  | — |  |  | 18 |
Commercial and industrial |  | 7,488 |  |  | 7,488 |  |  | 131 |  |  | 670 |  |  | 42 |  |  | — |  |  | 42 |
Direct financing leases, net |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Consumer and other: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Home equity and second mortgages |  | 62 |  |  | 62 |  |  | 62 |  |  | 65 |  |  | 5 |  |  | — |  |  | 5 |
Other |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Total |  | 8,026 |  |  | 8,066 |  |  | 402 |  |  | 1,260 |  |  | 71 |  |  | — |  |  | 71 |
Total: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial real estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Owner occupied |  | $ | 339 |  |  | $ | 339 |  |  | $ | — |  |  | $ | 715 |  |  | $ | 57 |  |  | $ | 50 |  |  | $ | 7 |
Non-owner occupied |  | 283 |  |  | 323 |  |  | 54 |  |  | 1,674 |  |  | 204 |  |  | 17 |  |  | 187 |
Construction and land development |  | 5,489 |  |  | 8,160 |  |  | — |  |  | 5,777 |  |  | 203 |  |  | 3 |  |  | 200 |
Multi-family |  | 31 |  |  | 398 |  |  | — |  |  | 366 |  |  | 93 |  |  | — |  |  | 93 |
1-4 family |  | 666 |  |  | 666 |  |  | 155 |  |  | 842 |  |  | 49 |  |  | 34 |  |  | 15 |
Commercial and industrial |  | 8,043 |  |  | 8,254 |  |  | 131 |  |  | 1,104 |  |  | 139 |  |  | 114 |  |  | 25 |
Direct financing leases, net |  | — |  |  | — |  |  | — |  |  | 6 |  |  | — |  |  | — |  |  | — |
Consumer and other: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Home equity and second mortgages |  | 580 |  |  | 580 |  |  | 62 |  |  | 658 |  |  | 42 |  |  | 3 |  |  | 39 |
Other |  | 795 |  |  | 1,461 |  |  | — |  |  | 942 |  |  | 100 |  |  | — |  |  | 100 |
Grand total |  | $ | 16,226 |  |  | $ | 20,181 |  |  | $ | 402 |  |  | $ | 12,084 |  |  | $ | 887 |  |  | $ | 221 |  |  | $ | 666 |
(1) | Average recorded investment is calculated primarily using daily average balances.
The difference between the loans and leases recorded investment and the unpaid principal balance of $3.8 million and $4.0 million as of June 30, 2014 and December 31, 2013 represents partial charge-offs resulting from confirmed losses due to the value of the collateral securing the loans and leases being below the carrying values of the loans and leases. Impaired loans and leases also included $602,000 and $371,000 of loans as of June 30, 2014 and December 31, 2013, that were performing troubled debt restructurings, and thus, while not on non-accrual, were reported as impaired, due to the concession in terms. When a loan is placed on non-accrual, interest accrual is discontinued and previously accrued but uncollected interest is deducted from interest income. Cash payments collected on non-accrual loans are first applied to principal. Foregone interest represents the interest that was contractually due on the note but not received or recorded. To the extent the amount of principal on a non-accrual note is fully collected and additional cash is received, the Corporation will recognize interest income. To determine the level and composition of the allowance for loan and lease losses, the Corporation breaks out the portfolio by segments and risk ratings. First, the Corporation evaluates loans and leases for potential impairment classification. The Corporation analyzes each loan and lease determined to be impaired on an individual basis to determine a specific reserve based upon the estimated value of the underlying collateral for collateral-dependent loans, or alternatively, the present value of expected cash flows. The Corporation applies historical trends from established risk factors to each category of loans and leases that has not been individually evaluated for the purpose of establishing the general portion of the allowance. A summary of the activity in the allowance for loan and lease losses by portfolio segment is as follows:
|  | As of and for the Six Months Ended June 30, 2014
|  | Commercial real estate |  | Commercial and industrial |  | Consumer and other |  | Direct financing leases, net |  | Total
|  | (Dollars in Thousands)
Allowance for credit losses: |  |  |  |  |  |  |  |  |  |
Beginning balance |  | $ | 9,055 |  |  | $ | 4,235 |  |  | $ | 273 |  |  | $ | 338 |  |  | $ | 13,901 |
Charge-offs |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Recoveries |  | 17 |  |  | 1 |  |  | 7 |  |  | — |  |  | 25 |
Provision |  | (304 | ) |  | 410 |  |  | (39 | ) |  | 22 |  |  | 89 |
Ending balance |  | $ | 8,768 |  |  | $ | 4,646 |  |  | $ | 241 |  |  | $ | 360 |  |  | $ | 14,015 |
Ending balance: individually evaluated for impairment |  | $ | 342 |  |  | $ | 208 |  |  | $ | 56 |  |  | $ | — |  |  | $ | 606 |
Ending balance: collectively evaluated for impairment |  | $ | 8,426 |  |  | $ | 4,438 |  |  | $ | 185 |  |  | $ | 360 |  |  | $ | 13,409 |
Ending balance: loans acquired with deteriorated credit quality |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Loans and lease receivables: |  |  |  |  |  |  |  |  |  |
Ending balance, gross |  | $ | 637,403 |  |  | $ | 325,900 |  |  | $ | 15,663 |  |  | $ | 29,649 |  |  | $ | 1,008,615 |
Ending balance: individually evaluated for impairment |  | $ | 5,416 |  |  | $ | 6,664 |  |  | $ | 1,331 |  |  | $ | — |  |  | $ | 13,411 |
Ending balance: collectively evaluated for impairment |  | $ | 630,616 |  |  | $ | 319,236 |  |  | $ | 14,332 |  |  | $ | 29,649 |  |  | $ | 993,833 |
Ending balance: loans acquired with deteriorated credit quality |  | $ | 1,371 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 1,371 |
Allowance as % of gross loans |  | 1.38 | % |  | 1.43 | % |  | 1.54 | % |  | 1.21 | % |  | 1.39 | %
|  | As of and for the Six Months Ended June 30, 2013
|  | Commercial real estate |  | Commercial and industrial |  | Consumer and other |  | Direct financing leases, net |  | Total
|  | (Dollars in Thousands)
Allowance for credit losses: |  |  |  |  |  |  |  |  |  |
Beginning balance |  | $ | 10,693 |  |  | $ | 4,129 |  |  | $ | 371 |  |  | $ | 207 |  |  | $ | 15,400 |
Charge-offs |  | (641 | ) |  | (13 | ) |  | (4 | ) |  | — |  |  | (658 | )
Recoveries |  | 318 |  |  | 1 |  |  | 2 |  |  | 5 |  |  | 326 |
Provision |  | 95 |  |  | 103 |  |  | (42 | ) |  | (22 | ) |  | 134 |
Ending balance |  | $ | 10,465 |  |  | $ | 4,220 |  |  | $ | 327 |  |  | $ | 190 |  |  | $ | 15,202 |
Ending balance: individually evaluated for impairment |  | $ | 739 |  |  | $ | 37 |  |  | $ | 67 |  |  | $ | — |  |  | $ | 843 |
Ending balance: collectively evaluated for impairment |  | $ | 9,726 |  |  | $ | 4,183 |  |  | $ | 260 |  |  | $ | 190 |  |  | $ | 14,359 |
Ending balance: loans acquired with deteriorated credit quality |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Loans and lease receivables: |  |  |  |  |  |  |  |  |  |
Ending balance, gross |  | $ | 644,686 |  |  | $ | 272,799 |  |  | $ | 16,201 |  |  | $ | 15,252 |  |  | $ | 948,938 |
Ending balance: individually evaluated for impairment |  | $ | 8,342 |  |  | $ | 736 |  |  | $ | 1,669 |  |  | $ | 35 |  |  | $ | 10,782 |
Ending balance: collectively evaluated for impairment |  | $ | 634,809 |  |  | $ | 272,063 |  |  | $ | 14,532 |  |  | $ | 15,217 |  |  | $ | 936,621 |
Ending balance: loans acquired with deteriorated credit quality |  | $ | 1,535 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 1,535 |
Allowance as % of gross loans |  | 1.62 | % |  | 1.55 | % |  | 2.02 | % |  | 1.25 | % |  | 1.60 | %

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