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, 2017		December 31, 2016
	(In Thousands)
Commercial real estate:
Commercial real estate — owner occupied	$	183,161	$	176,459
Commercial real estate — non-owner occupied	468,778		473,158
Land development	46,500		56,638
Construction	104,515		101,206
Multi-family	124,488		92,762
1-4 family	38,922		45,651
Total commercial real estate	966,364		945,874
Commercial and industrial	437,955		450,298
Direct financing leases, net	29,216		30,951
Consumer and other:
Home equity and second mortgages	7,973		8,412
Other	17,976		16,329
Total consumer and other	25,949		24,741
Total gross loans and leases receivable	1,459,484		1,451,864
Less:
Allowance for loan and lease losses	21,677		20,912
Deferred loan fees	1,309		1,189
Loans and leases receivable, net	$	1,436,498	$	1,429,763

As of June 30, 2017 and December 31, 2016, the total amount of the Corporation’s ownership of SBA loans on the Consolidated Balance Sheets comprised of the following:



	June 30, 2017		December 31, 2016
	(In Thousands)
Retained, unguaranteed portion of sold SBA loans	$	32,716	$	30,418
Other SBA loans⁽¹⁾	31,446		31,728
Total SBA loans	$	64,162	$	62,146


(1)	Primarily consisted of SBA Express loans and partially funding 7(a) program loans, which were not saleable as of June 30, 2017 and December 31, 2016, respectively.

As of June 30, 2017 and December 31, 2016, $11.6 million and $5.5 million of loans in this portfolio were considered impaired, respectively.

Loans transferred to third parties consist of the guaranteed portion of SBA loans which the Corporation sold in the secondary market, participation interests in other originated loans and residential real estate loans. The total principal amount of the guaranteed portion of SBA loans sold during the three months ended June 30, 2017 and 2016 was $5.9 million and $20.0 million, respectively. The total principal amount of the guaranteed portion of SBA loans sold during the six months ended June 30, 2017 and 2016 was $9.2 million and $33.1 million, respectively. Each of the transfers of these financial assets met the qualifications for sale accounting, and therefore all of the loans transferred during the three and six months ended June 30, 2017 and 2016 have been derecognized in the unaudited Consolidated Financial Statements. The guaranteed portion of SBA loans were transferred at their fair value and the related gain was recognized upon the transfer as non-interest income in the unaudited Consolidated Financial Statements. The total outstanding balance of sold SBA loans at June 30, 2017 and December 31, 2016 was $101.2 million and $105.1 million, respectively.

The total principal amount of transferred participation interests in other originated commercial loans during the three months ended June 30, 2017 and 2016 was $2.4 million and $9.4 million, respectively. The total principal amount of transferred participation interests in other originated commercial loans during the six months ended June 30, 2017 and 2016 was $7.9 million and $9.8 million, respectively, all of which were treated as sales and derecognized under the applicable accounting guidance at the time of transfer. No gain or loss was recognized on participation interests in other originated loans as they were 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 outstanding balance of these transferred loans at June 30, 2017 and December 31, 2016 was $89.8 million and $102.7 million, respectively. As of June 30, 2017 and December 31, 2016, the total amount of the Corporation’s partial ownership of these transferred loans on the unaudited Consolidated Balance Sheets was $144.7 million and $106.1 million, respectively. No loans in this participation portfolio were considered impaired as of June 30, 2017 and December 31, 2016. The Corporation does not share in the participant’s portion of any potential charge-offs. The total amount of loan participations purchased on the unaudited Consolidated Balance Sheets as of June 30, 2017 and December 31, 2016 was $688,000 and $1.2 million, respectively.

The Corporation also previously sold residential real estate loans, servicing released, in the secondary market. The total principal amount of residential real estate loans sold during the three months ended June 30, 2017 and 2016 was $597,000 and $8.0 million, respectively. The total principal amount of residential real estate loans sold during the six months ended June 30, 2017 and 2016 was $1.6 million and $15.2 million, respectively. Each of the transfers of these financial assets met the qualifications for sale accounting, and therefore all of the loans transferred have been derecognized in the unaudited Consolidated Financial Statements. The loans were transferred at their fair value and the related gain was recognized as non-interest income upon the transfer in the unaudited Consolidated Financial Statements.

The following tables illustrate 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, 2017 and December 31, 2016:



	June 30, 2017
	Category
	I			II			III			IV			Total
	(Dollars in Thousands)
Commercial real estate:
Commercial real estate — owner occupied	$	145,360		$	18,750		$	11,847		$	7,204		$	183,161
Commercial real estate — non-owner occupied	440,470			24,943			1,468			1,897			468,778
Land development	42,399			804			284			3,013			46,500
Construction	97,939			792			431			5,353			104,515
Multi-family	124,488			—			—			—			124,488
1-4 family	27,102			7,914			1,382			2,524			38,922
Total commercial real estate	877,758			53,203			15,412			19,991			966,364
Commercial and industrial	331,529			33,596			55,357			17,473			437,955
Direct financing leases, net	26,677			2,539			—			—			29,216
Consumer and other:
Home equity and second mortgages	7,957			—			10			6			7,973
Other	17,582			—			—			394			17,976
Total consumer and other	25,539			—			10			400			25,949
Total gross loans and leases receivable	$	1,261,503		$	89,338		$	70,779		$	37,864		$	1,459,484
Category as a % of total portfolio	86.44		%	6.12		%	4.85		%	2.59		%	100.00		%



	December 31, 2016
	Category
	I			II			III			IV			Total
	(Dollars in Thousands)
Commercial real estate:
Commercial real estate — owner occupied	$	142,704		$	20,294		$	11,174		$	2,287		$	176,459
Commercial real estate — non-owner occupied	447,895			20,933			2,721			1,609			473,158
Land development	52,082			823			293			3,440			56,638
Construction	93,510			3,154			1,624			2,918			101,206
Multi-family	87,418			1,937			3,407			—			92,762
1-4 family	38,504			3,144			1,431			2,572			45,651
Total commercial real estate	862,113			50,285			20,650			12,826			945,874
Commercial and industrial	348,201			42,949			46,675			12,473			450,298
Direct financing leases, net	29,351			1,600			—			—			30,951
Consumer and other:
Home equity and second mortgages	8,271			121			12			8			8,412
Other	15,714			—			11			604			16,329
Total consumer and other	23,985			121			23			612			24,741
Total gross loans and leases receivable	$	1,263,650		$	94,955		$	67,348		$	25,911		$	1,451,864
Category as a % of total portfolio	87.04		%	6.54		%	4.64		%	1.78		%	100.00		%

Credit underwriting through a committee process is a key component of the Corporation’s operating philosophy. Commercial lenders 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.

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 borrowers’ management team or the industry in which the borrower operates. 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 or 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 Bank’s loan committee.

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 Bank. 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 contractual 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 the Bank’s loan committee on a monthly basis and the Bank’s board 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 Bank will receive the contractual principal and interest in accordance with the original 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 the Bank’s loan committee on a monthly basis and the Bank’s board of directors at each of their regularly scheduled meetings.

Utilizing regulatory classification terminology, the Corporation identified $39.0 million and $34.3 million of loans and leases as Substandard as of June 30, 2017 and December 31, 2016, respectively. The Corporation identified $6.7 million of loans and leases as Doubtful as of June 30, 2017. No loans and leases were considered Doubtful as of December 31, 2016. Additionally, no loans were considered Special Mention, or Loss as of either June 30, 2017 or December 31, 2016. The population of Substandard loans is a subset of Category III and Category IV loans.

The delinquency aging of the loan and lease portfolio by class of receivable as of June 30, 2017 and December 31, 2016 was as follows:



	June 30, 2017
	30-59 Days Past Due			60-89 Days Past Due			Greater Than 90 Days Past Due			Total Past Due			Current			Total Loans and Leases
	(Dollars in Thousands)
Accruing loans and leases
Commercial real estate:
Owner occupied	$	—		$	50		$	—		$	50		$	175,967		$	176,017
Non-owner occupied	—			—			—			—			466,881			466,881
Land development	—			—			—			—			43,487			43,487
Construction	—			—			—			—			99,162			99,162
Multi-family	—			—			—			—			124,488			124,488
1-4 family	—			—			—			—			37,026			37,026
Commercial and industrial	974			2,075			—			3,049			417,441			420,490
Direct financing leases, net	—			—			—			—			29,216			29,216
Consumer and other:
Home equity and second mortgages	—			—			—			—			7,973			7,973
Other	—			—			—			—			17,582			17,582
Total	$	974		$	2,125		$	—		$	3,099		$	1,419,223		$	1,422,322
Non-accruing loans and leases
Commercial real estate:
Owner occupied	$	—		$	—		$	4,825		$	4,825		$	2,319		$	7,144
Non-owner occupied	—			—			1,861			1,861			36			1,897
Land development	—			—			—			—			3,013			3,013
Construction	2,872			—			2,481			5,353			—			5,353
Multi-family	—			—			—			—			—			—
1-4 family	—			548			1,051			1,599			297			1,896
Commercial and industrial	—			89			14,156			14,245			3,220			17,465
Direct financing leases, net	—			—			—			—			—			—
Consumer and other:
Home equity and second mortgages	—			—			—			—			—			—
Other	—			18			376			394			—			394
Total	$	2,872		$	655		$	24,750		$	28,277		$	8,885		$	37,162
Total loans and leases
Commercial real estate:
Owner occupied	$	—		$	50		$	4,825		$	4,875		$	178,286		$	183,161
Non-owner occupied	—			—			1,861			1,861			466,917			468,778
Land development	—			—			—			—			46,500			46,500
Construction	2,872			—			2,481			5,353			99,162			104,515
Multi-family	—			—			—			—			124,488			124,488
1-4 family	—			548			1,051			1,599			37,323			38,922
Commercial and industrial	974			2,164			14,156			17,294			420,661			437,955
Direct financing leases, net	—			—			—			—			29,216			29,216
Consumer and other:
Home equity and second mortgages	—			—			—			—			7,973			7,973
Other	—			18			376			394			17,582			17,976
Total	$	3,846		$	2,780		$	24,750		$	31,376		$	1,428,108		$	1,459,484
Percent of portfolio	0.26		%	0.19		%	1.70		%	2.15		%	97.85		%	100.00		%



	December 31, 2016
	30-59 Days Past Due			60-89 Days Past Due			Greater Than 90 Days Past Due			Total Past Due			Current			Total Loans and Leases
	(Dollars in Thousands)
Accruing loans and leases
Commercial real estate:
Owner occupied	$	—		$	—		$	—		$	—		$	174,236		$	174,236
Non-owner occupied	—			—			—			—			471,549			471,549
Land development	—			—			—			—			53,198			53,198
Construction	—			—			—			—			98,288			98,288
Multi-family	—			—			—			—			92,762			92,762
1-4 family	75			—			—			75			43,639			43,714
Commercial and industrial	55			468			—			523			437,312			437,835
Direct financing leases, net	—			—			—			—			30,951			30,951
Consumer and other:
Home equity and second mortgages	—			—			—			—			8,412			8,412
Other	—			—			—			—			15,725			15,725
Total	$	130		$	468		$	—		$	598		$	1,426,072		$	1,426,670
Non-accruing loans and leases
Commercial real estate:
Owner occupied	$	—		$	—		$	1,183		$	1,183		$	1,040		$	2,223
Non-owner occupied	—			—			—			—			1,609			1,609
Land development	—			—			—			—			3,440			3,440
Construction	2,482			—			436			2,918			—			2,918
Multi-family	—			—			—			—			—			—
1-4 family	—			—			1,240			1,240			697			1,937
Commercial and industrial	3,345			168			6,740			10,253			2,210			12,463
Direct financing leases, net	—			—			—			—			—			—
Consumer and other:
Home equity and second mortgages	—			—			—			—			—			—
Other	186			—			378			564			40			604
Total	$	6,013		$	168		$	9,977		$	16,158		$	9,036		$	25,194
Total loans and leases
Commercial real estate:
Owner occupied	$	—		$	—		$	1,183		$	1,183		$	175,276		$	176,459
Non-owner occupied	—			—			—			—			473,158			473,158
Land development	—			—			—			—			56,638			56,638
Construction	2,482			—			436			2,918			98,288			101,206
Multi-family	—			—			—			—			92,762			92,762
1-4 family	75			—			1,240			1,315			44,336			45,651
Commercial and industrial	3,400			636			6,740			10,776			439,522			450,298
Direct financing leases, net	—			—			—			—			30,951			30,951
Consumer and other:
Home equity and second mortgages	—			—			—			—			8,412			8,412
Other	186			—			378			564			15,765			16,329
Total	$	6,143		$	636		$	9,977		$	16,756		$	1,435,108		$	1,451,864
Percent of portfolio	0.42		%	0.04		%	0.69		%	1.15		%	98.85		%	100.00		%

The Corporation’s total impaired assets consisted of the following at June 30, 2017 and December 31, 2016, respectively.



	June 30, 2017		December 31, 2016
	(Dollars in Thousands)
Non-accrual loans and leases
Commercial real estate:
Commercial real estate — owner occupied	$	7,144	$	2,223
Commercial real estate — non-owner occupied	1,897		1,609
Land development	3,013		3,440
Construction	5,353		2,918
Multi-family	—		—
1-4 family	1,896		1,937
Total non-accrual commercial real estate	19,303		12,127
Commercial and industrial	17,465		12,463
Direct financing leases, net	—		—
Consumer and other:
Home equity and second mortgages	—		—
Other	394		604
Total non-accrual consumer and other loans	394		604
Total non-accrual loans and leases	37,162		25,194
Foreclosed properties, net	2,585		1,472
Total non-performing assets	39,747		26,666
Performing troubled debt restructurings	702		717
Total impaired assets	$	40,449	$	27,383



	June 30, 2017		December 31, 2016
Total non-accrual loans and leases to gross loans and leases	2.55	%	1.74	%
Total non-performing assets to total gross loans and leases plus foreclosed properties, net	2.72		1.83
Total non-performing assets to total assets	2.25		1.50
Allowance for loan and lease losses to gross loans and leases	1.49		1.44
Allowance for loan and lease losses to non-accrual loans and leases	58.33		83.00

As of June 30, 2017 and December 31, 2016, $12.2 million and $12.8 million of the non-accrual loans and leases were considered troubled debt restructurings, respectively. There were no unfunded commitments associated with troubled debt restructured loans and leases as of June 30, 2017.

The following table provides the number of loans modified in a troubled debt restructuring and the pre- and post-modification recorded investment by class of receivable as of June 30, 2017 and December 31, 2016.



	As of June 30, 2017					As of December 31, 2016
	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)
Commercial real estate:
Commercial real estate — owner occupied	3	$	1,065	$	900	3	$	1,065	$	930
Commercial real estate — non-owner occupied	1	158		36		1	158		39
Land development	1	5,745		3,013		1	5,745		3,440
Construction	—	—		—		2	331		314
Multi-family	—	—		—		—	—		—
1-4 family	11	1,287		1,367		11	1,391		1,393
Commercial and industrial	10	9,420		7,179		10	8,094		7,058
Consumer and other:
Home equity and second mortgage	1	37		6		1	37		8
Other	2	2,094		371		1	2,076		378
Total	29	$	19,806	$	12,872	30	$	18,897	$	13,560

All loans and leases modified as a troubled debt restructuring are measured 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, 2017 and December 31, 2016, the Corporation’s troubled debt restructurings grouped by type of concession were as follows:



	As of June 30, 2017			As of December 31, 2016
	Number of Loans	Recorded Investment		Number of Loans	Recorded Investment
	(Dollars in Thousands)
Commercial real estate:
Extension of term	1	$	1	1	$	8
Interest rate concession	1	51		1	52
Combination of extension of term and interest rate concession	14	5,265		16	6,056
Commercial and industrial:
Combination of extension of term and interest rate concession	10	7,179		10	7,058
Consumer and other:
Extension of term	1	353		1	378
Combination of extension of term and interest rate concession	2	23		1	8
Total	29	$	12,872	30	$	13,560

During the three and six months ended June 30, 2017, one consumer and other and two commercial and industrial loans, totaling $17,000 and $3.6 million, respectively, were modified to a troubled debt restructuring. No loans were modified to a troubled debt restructuring during the three and six months ended June 30, 2016.

There were no loans and leases modified in a troubled debt restructuring during the previous 12 months which subsequently defaulted during the three and six months ended June 30, 2017.

The following represents additional information regarding the Corporation’s impaired loans and leases, including performing troubled debt restructurings, by class:



	As of and for the Six Months Ended June 30, 2017
	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	$	6,782	$	6,782		$	—	$	3,954		$	302		$	—	$	302
Non-owner occupied	1,897		1,937			—		1,974			68			—		68
Land development	3,013		5,683			—		3,363			46			—		46
Construction	—		—			—		927			—			—		—
Multi-family	—		—			—		2			—			—		—
1-4 family	2,524		2,776			—		2,545			43			—		43
Commercial and industrial	5,065		9,309			—		7,519			358			—		358
Direct financing leases, net	—		—			—		—			—			—		—
Consumer and other:
Home equity and second mortgages	6		6			—		7			—			—		—
Other	371		1,037			—		424			30			—		30
Total	$	19,658	$	27,530		$	—	$	20,715		$	847		$	—	$	847
With impairment reserve recorded:
Commercial real estate:
Owner occupied	$	422	$	422		$	29	$	429		$	13		$	—	$	13
Non-owner occupied	—		—			—		—			—			—		—
Land development	—		—		—	—		—		—	—		—	—		—
Construction	5,353		5,353		—	1,801		3,449		—	192		—	—		192
Multi-family	—		—			—		—			—			—		—
1-4 family	—		—			—		—			—			—		—
Commercial and industrial	12,408		12,788			5,733		8,748			310			—		310
Direct financing leases, net	—		—			—		—			—			—		—
Consumer and other:
Home equity and second mortgages	—		—			—		—			—			—		—
Other	23		23			23		4			—			—		—
Total	$	18,206	$	18,586		$	7,586	$	12,630		$	515		$	—	$	515
Total:
Commercial real estate:
Owner occupied	$	7,204	$	7,204		$	29	$	4,383		$	315		$	—	$	315
Non-owner occupied	1,897		1,937			—		1,974			68			—		68
Land development	3,013		5,683			—		3,363			46			—		46
Construction	5,353		5,353			1,801		4,376			192			—		192
Multi-family	—		—			—		2			—			—		—
1-4 family	2,524		2,776			—		2,545			43			—		43
Commercial and industrial	17,473		22,097			5,733		16,267			668			—		668
Direct financing leases, net	—		—			—		—			—			—		—
Consumer and other:
Home equity and second mortgages	6		6			—		7			—			—		—
Other	394		1,060			23		428			30			—		30
Grand total	$	37,864	$	46,116		$	7,586	$	33,345		$	1,362		$	—	$	1,362


(1)	Average recorded investment is calculated primarily using daily average balances.



	As of and for the Year Ended December 31, 2016
	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	$	1,788	$	1,788	$	—	$	3,577	$	328	$	118	$	210
Non-owner occupied	1,609		1,647		—		1,318		91		79		12
Land development	3,440		6,111		—		3,898		107		—		107
Construction	436		438		—		291		20		—		20
Multi-family	—		—		—		—		1		134		(133		)
1-4 family	2,379		2,379		—		2,755		125		94		31
Commercial and industrial	1,307		1,307		—		709		79		62		17
Direct financing leases, net	—		—		—		6		—		—		—
Consumer and other:
Home equity and second mortgages	8		8		—		307		16		127		(111		)
Other	378		1,044		—		510		71		—		71
Total	$	11,345	$	14,722	$	—	$	13,371	$	838	$	614	$	224
With impairment reserve recorded:
Commercial real estate:
Owner occupied	$	499	$	499	$	70	$	111	$	28	$	—	$	28
Non-owner occupied	—		—		—		—		—		—		—
Land development	—		—		—		—		—		—		—
Construction	2,482		2,482		1,790		834		45		—		45
Multi-family	—		—		—		—		—		—		—
1-4 family	193		199		39		203		5		—		5
Commercial and industrial	11,166		11,166		3,700		8,448		701		—		701
Direct financing leases, net	—		—		—		—		—		—		—
Consumer and other:
Home equity and second mortgages	—		—		—		—		—		—		—
Other	226		226		—		19		—		—		—
Total	$	14,566	$	14,572	$	5,599	$	9,615	$	779	$	—	$	779
Total:
Commercial real estate:
Owner occupied	$	2,287	$	2,287	$	70	$	3,688	$	356	$	118	$	238
Non-owner occupied	1,609		1,647		—		1,318		91		79		12
Land development	3,440		6,111		—		3,898		107		—		107
Construction	2,918		2,920		1,790		1,125		65		—		65
Multi-family	—		—		—		—		1		134		(133		)
1-4 family	2,572		2,578		39		2,958		130		94		36
Commercial and industrial	12,473		12,473		3,700		9,157		780		62		718
Direct financing leases, net	—		—		—		6		—		—		—
Consumer and other:
Home equity and second mortgages	8		8		—		307		16		127		(111		)
Other	604		1,270		—		529		71		—		71
Grand total	$	25,911	$	29,294	$	5,599	$	22,986	$	1,617	$	614	$	1,003


(1)	Average recorded investment is calculated primarily using daily average balances.

The difference between the recorded investment of loans and leases and the unpaid principal balance of $8.3 million and $3.4 million as of June 30, 2017 and December 31, 2016, respectively, represents partial charge-offs of loans and leases resulting from losses due to the appraised 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 $702,000 and $717,000 of loans as of June 30, 2017 and December 31, 2016, respectively, that were performing troubled debt restructurings, and although 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 such loan’s principal. Foregone interest represents the interest that was contractually due on the loan but not received or recorded. To the extent the amount of principal on a non-accrual loan 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 categorizes the portfolio into segments with similar risk characteristics. 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 Three Months Ended June 30, 2017
	Commercial Real Estate			Commercial and Industrial			Consumer and Other			Total
	(Dollars in Thousands)
Beginning balance	$	12,817		$	7,943		$	906		$	21,666
Charge-offs	(51		)	(3,706		)	—			(3,757		)
Recoveries	46			66			—			112
Net (charge-offs) recoveries	$	(5	)	$	(3,640	)	$	—		$	(3,645	)
Provision for credit losses	(809		)	4,787			(322		)	3,656
Ending balance, gross	$	12,003		$	9,090		$	584		$	21,677



	As of and for the Three Months Ended June 30, 2016
	Commercial Real Estate			Commercial and Industrial			Consumer and Other			Total
	(Dollars in Thousands)
Beginning balance	$	11,480		$	4,488		$	716		$	16,684
Charge-offs	(894		)	(456		)	—			(1,350		)
Recoveries	55			2			1			58
Net (charge-offs) recoveries	$	(839	)	$	(454	)	$	1		$	(1,292	)
Provision for credit losses	795			1,983			(16		)	2,762
Ending balance, gross	$	11,436		$	6,017		$	701		$	18,154



	As of and for the Six Months Ended June 30, 2017
	Commercial Real Estate			Commercial and Industrial			Consumer and Other			Total
	(Dollars in Thousands)
Beginning balance	$	12,384		$	7,970		$	558		$	20,912
Charge-offs	(118		)	(3,761		)	(87		)	(3,966		)
Recoveries	150			312			41			503
Net (charge-offs) recoveries	$	32		$	(3,449	)	$	(46	)	$	(3,463	)
Provision for credit loss	(413		)	4,569			72			4,228
Ending balance, gross	$	12,003		$	9,090		$	584		$	21,677



	As of and for the Six Months Ended June 30, 2016
	Commercial Real Estate			Commercial and Industrial			Consumer and Other			Total
	(Dollars in Thousands)
Beginning balance	$	11,220		$	4,387		$	709		$	16,316
Charge-offs	(935		)	(652		)	(7		)	(1,594		)
Recoveries	139			2			4			145
Net (charge-offs) recoveries	$	(796	)	$	(650	)	$	(3	)	$	(1,449	)
Provision for credit loss	1,012			2,280			(5		)	3,287
Ending balance, gross	$	11,436		$	6,017		$	701		$	18,154

The following tables provide information regarding the allowance for loan and lease losses and balances by type of allowance methodology.



	As of June 30, 2017
	Commercial Real Estate		Commercial and Industrial		Consumer and Other		Total
	(Dollars in Thousands)
Allowance for loan and lease losses:
Collectively evaluated for impairment	$	10,173	$	3,357	$	561	$	14,091
Individually evaluated for impairment	1,830		5,733		23		7,586
Loans acquired with deteriorated credit quality	—		—		—		—
Total	$	12,003	$	9,090	$	584	$	21,677
Loans and lease receivables:
Collectively evaluated for impairment	$	946,374	$	449,697	$	25,549	$	1,421,620
Individually evaluated for impairment	18,881		17,467		400		36,748
Loans acquired with deteriorated credit quality	1,109		7		—		1,116
Total	$	966,364	$	467,171	$	25,949	$	1,459,484



	As of December 31, 2016
	Commercial Real Estate		Commercial and Industrial		Consumer and Other		Total
	(Dollars in Thousands)
Allowance for loan and lease losses:
Collectively evaluated for impairment	$	10,485	$	4,270	$	558	$	15,313
Individually evaluated for impairment	1,899		3,700		—		5,599
Loans acquired with deteriorated credit quality	—		—		—		—
Total	$	12,384	$	7,970	$	558	$	20,912
Loans and lease receivables:
Collectively evaluated for impairment	$	933,048	$	468,776	$	24,129	$	1,425,953
Individually evaluated for impairment	11,222		12,452		612		24,286
Loans acquired with deteriorated credit quality	1,604		21		—		1,625
Total	$	945,874	$	481,249	$	24,741	$	1,451,864