Loan and Lease Receivables, Impaired Loans and Leases and Allowance for Loan and Lease Losses

Loan and lease receivables consist of the following:



	September 30, 2017		December 31, 2016
	(In Thousands)
Commercial real estate:
Commercial real estate — owner occupied	$	182,755	$	176,459
Commercial real estate — non-owner occupied	461,586		473,158
Land development	41,499		56,638
Construction	115,660		101,206
Multi-family	125,080		92,762
1-4 family	40,173		45,651
Total commercial real estate	966,753		945,874
Commercial and industrial	447,223		450,298
Direct financing leases, net	28,868		30,951
Consumer and other:
Home equity and second mortgages	7,776		8,412
Other	17,447		16,329
Total consumer and other	25,223		24,741
Total gross loans and leases receivable	1,468,067		1,451,864
Less:
Allowance for loan and lease losses	19,923		20,912
Deferred loan fees	1,354		1,189
Loans and leases receivable, net	$	1,446,790	$	1,429,763

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



	September 30, 2017		December 31, 2016
	(In Thousands)
Retained, unguaranteed portion of sold SBA loans	$	30,632	$	30,418
Other SBA loans⁽¹⁾	25,684		31,728
Total SBA loans	$	56,316	$	62,146


(1)	Primarily consisted of SBA Express loans, partially funded 7(a) program loans, and impaired SBA loans that were repurchased from the secondary market, all of which were not saleable as of September 30, 2017 and December 31, 2016, respectively.

As of September 30, 2017 and December 31, 2016, $11.9 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 September 30, 2017 and 2016 was $6.3 million and $3.3 million, respectively. The total principal amount of the guaranteed portion of SBA loans sold during the nine months ended September 30, 2017 and 2016 was $15.5 million and $36.4 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 nine months ended September 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 September 30, 2017 and December 31, 2016 was $103.3 million and $105.1 million, respectively.

The total principal amount of transferred participation interests in other originated commercial loans during the three months ended September 30, 2017 and 2016 was $9.0 million and $7.9 million, respectively. The total principal amount of transferred participation interests in other originated commercial loans during the nine months ended September 30, 2017 and 2016 was $17.0 million and $17.7 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 September 30, 2017 and December 31, 2016 was $91.7 million and $102.7 million, respectively. As of September 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 $146.2 million and $106.1 million, respectively. No loans in this participation portfolio were considered impaired as of September 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 September 30, 2017 and December 31, 2016 was $669,000 and $1.2 million, respectively.

The Corporation also previously sold residential real estate loans, servicing released, in the secondary market. No residential real estate loans were sold during the three months ended September 30, 2017 and $8.0 million were sold during the three months ended September 30, 2016. The total principal amount of residential real estate loans sold during the nine months ended September 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 September 30, 2017 and December 31, 2016:



	September 30, 2017
	Category
	I			II			III			IV			Total
	(Dollars in Thousands)
Commercial real estate:
Commercial real estate — owner occupied	$	147,603		$	19,324		$	8,690		$	7,138		$	182,755
Commercial real estate — non-owner occupied	438,874			19,769			1,117			1,826			461,586
Land development	37,659			795			275			2,770			41,499
Construction	109,102			773			431			5,354			115,660
Multi-family	125,080			—			—			—			125,080
1-4 family	29,051			7,824			1,233			2,065			40,173
Total commercial real estate	887,369			48,485			11,746			19,153			966,753
Commercial and industrial	348,179			26,605			58,470			13,969			447,223
Direct financing leases, net	26,854			305			1,709			—			28,868
Consumer and other:
Home equity and second mortgages	7,764			—			8			4			7,776
Other	17,066			—			—			381			17,447
Total consumer and other	24,830			—			8			385			25,223
Total gross loans and leases receivable	$	1,287,232		$	75,395		$	71,933		$	33,507		$	1,468,067
Category as a % of total portfolio	87.68		%	5.14		%	4.90		%	2.28		%	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 $36.7 million and $34.3 million of loans and leases as Substandard as of September 30, 2017 and December 31, 2016, respectively. The Corporation identified $5.1 million of loans and leases as Doubtful as of September 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 September 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 September 30, 2017 and December 31, 2016 was as follows:



	September 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	$	—		$	—		$	—		$	—		$	175,675			$	175,675
Non-owner occupied	—			—			—			—			459,760				459,760
Land development	—			—			—			—			38,729				38,729
Construction	392			—			—			392			109,914				110,306
Multi-family	—			—			—			—			125,080				125,080
1-4 family	—			—			—			—			38,309				38,309
Commercial and industrial	2,257			470			—			2,727			430,539				433,266
Direct financing leases, net	—			—			—			—			28,868				28,868
Consumer and other:
Home equity and second mortgages	229			—			—			229			7,547				7,776
Other	—			—			—			—			17,066				17,066
Total	2,878			470			—			3,348			1,431,487				1,434,835
Non-accruing loans and leases
Commercial real estate:
Owner occupied	—			—			4,825			4,825			2,255				7,080
Non-owner occupied	—			—			1,791			1,791			35				1,826
Land development	—			—			—			—			2,770				2,770
Construction	—			—			5,353			5,353			1				5,354
Multi-family	—			—			—			—			—				—
1-4 family	529			10			1,041			1,580			284				1,864
Commercial and industrial	207			497			11,005			11,709			2,248				13,957
Direct financing leases, net	—			—			—			—			—				—
Consumer and other:
Home equity and second mortgages	—			—			—			—			—				—
Other	—			—			358			358			23				381
Total	736			507			24,373			25,616			7,616			—	33,232
Total loans and leases
Commercial real estate:
Owner occupied	—			—			4,825			4,825			177,930				182,755
Non-owner occupied	—			—			1,791			1,791			459,795				461,586
Land development	—			—			—			—			41,499				41,499
Construction	392			—			5,353			5,745			109,915				115,660
Multi-family	—			—			—			—			125,080				125,080
1-4 family	529			10			1,041			1,580			38,593				40,173
Commercial and industrial	2,464			967			11,005			14,436			432,787				447,223
Direct financing leases, net	—			—			—			—			28,868				28,868
Consumer and other:
Home equity and second mortgages	229			—			—			229			7,547				7,776
Other	—			—			358			358			17,089				17,447
Total	$	3,614		$	977		$	24,373		$	28,964		$	1,439,103			$	1,468,067
Percent of portfolio	0.24		%	0.07		%	1.66		%	1.97		%	98.03		%		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 September 30, 2017 and December 31, 2016, respectively.



	September 30, 2017		December 31, 2016
	(Dollars in Thousands)
Non-accrual loans and leases
Commercial real estate:
Commercial real estate — owner occupied	$	7,080	$	2,223
Commercial real estate — non-owner occupied	1,826		1,609
Land development	2,770		3,440
Construction	5,354		2,918
Multi-family	—		—
1-4 family	1,864		1,937
Total non-accrual commercial real estate	18,894		12,127
Commercial and industrial	13,957		12,463
Direct financing leases, net	—		—
Consumer and other:
Home equity and second mortgages	—		—
Other	381		604
Total non-accrual consumer and other loans	381		604
Total non-accrual loans and leases	33,232		25,194
Foreclosed properties, net	2,585		1,472
Total non-performing assets	35,817		26,666
Performing troubled debt restructurings	275		717
Total impaired assets	$	36,092	$	27,383



	September 30, 2017		December 31, 2016
Total non-accrual loans and leases to gross loans and leases	2.26	%	1.74	%
Total non-performing assets to total gross loans and leases plus foreclosed properties, net	2.44		1.83
Total non-performing assets to total assets	2.01		1.50
Allowance for loan and lease losses to gross loans and leases	1.36		1.44
Allowance for loan and lease losses to non-accrual loans and leases	59.95		83.00

As of September 30, 2017 and December 31, 2016, $10.9 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 September 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 September 30, 2017 and December 31, 2016.



	As of September 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	$	888	3	$	1,065	$	930
Commercial real estate — non-owner occupied	1	158		35		1	158		39
Land development	1	5,745		2,770		1	5,745		3,440
Construction	—	—		—		2	331		314
Multi-family	—	—		—		—	—		—
1-4 family	10	1,287		1,353		11	1,391		1,393
Commercial and industrial	11	8,944		5,759		10	8,094		7,058
Consumer and other:
Home equity and second mortgage	1	37		4		1	37		8
Other	2	2,094		359		1	2,076		378
Total	29	$	19,330	$	11,168	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 September 30, 2017 and December 31, 2016, the Corporation’s troubled debt restructurings grouped by type of concession were as follows:



	As of September 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	$	8
Interest rate concession	1	49		1	52
Combination of extension of term and interest rate concession	14	4,997		16	6,056
Commercial and industrial:
Combination of extension of term and interest rate concession	11	5,759		10	7,058
Consumer and other:
Extension of term	1	342		1	378
Combination of extension of term and interest rate concession	2	21		1	8
Total	29	$	11,168	30	$	13,560

During the three months ended September 30, 2017, two commercial and industrial loans totaling $800,000 were modified to a troubled debt restructuring. During the nine months ended September 30, 2017, four commercial and industrial loans and one consumer loan totaling $4.4 million and $17,000, respectively, were modified to a troubled debt restructuring. No loans were modified to a troubled debt restructuring during the three and nine months ended September 30, 2016.

There were five loans and leases modified in a troubled debt restructuring during the previous 12 months which subsequently defaulted during the three and nine months ended September 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 Nine Months Ended September 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	$	6,727	$	6,727		$	—	$	4,898		$	394		$	—	$	394
Non-owner occupied	1,826		1,866			—		1,932			99			—		99
Land development	2,770		5,441			—		3,218			65			—		65
Construction	2,482		2,482			—		611			208			—		208
Multi-family	—		—			—		1			—			—		—
1-4 family	2,065		2,319			—		2,387			69			—		69
Commercial and industrial	1,740		2,103			—		6,782			509			—		509
Direct financing leases, net	—		—			—		—			—			—		—
Consumer and other:
Home equity and second mortgages	4		4			—		6			—			—		—
Other	358		1,025			—		397			45			—		45
Total	17,972		21,967			—		20,232			1,389			—		1,389
With impairment reserve recorded:
Commercial real estate:
Owner occupied	411		411			15		424			19			—		19
Non-owner occupied	—		—			—		—			—			—		—
Land development	—		—		—	—		—		—	—		—	—		—
Construction	2,872		2,872		—	94		4,091		—	108		—	—		108
Multi-family	—		—			—		—			—			—		—
1-4 family	—		—			—		—			—			—		—
Commercial and industrial	12,229		12,702			5,658		10,114			453			—		453
Direct financing leases, net	—		—			—		—			—			—		—
Consumer and other:
Home equity and second mortgages	—		—			—		—			—			—		—
Other	23		23			23		10			—			—		—
Total	15,535		16,008			5,790		14,639			580			—		580
Total:
Commercial real estate:
Owner occupied	7,138		7,138			15		5,322			413			—		413
Non-owner occupied	1,826		1,866			—		1,932			99			—		99
Land development	2,770		5,441			—		3,218			65			—		65
Construction	5,354		5,354			94		4,702			316			—		316
Multi-family	—		—			—		1			—			—		—
1-4 family	2,065		2,319			—		2,387			69			—		69
Commercial and industrial	13,969		14,805			5,658		16,896			962			—		962
Direct financing leases, net	—		—			—		—			—			—		—
Consumer and other:
Home equity and second mortgages	4		4			—		6			—			—		—
Other	381		1,048			23		407			45			—		45
Grand total	$	33,507	$	37,975		$	5,790	$	34,871		$	1,969		$	—	$	1,969


(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 $4.5 million and $3.4 million as of September 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 $275,000 and $717,000 of loans as of September 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 September 30, 2017
	Commercial Real Estate			Commercial and Industrial			Consumer and Other			Total
	(Dollars in Thousands)
Beginning balance	$	12,003		$	9,090		$	584		$	21,677
Charge-offs	(8		)	(3,217		)	(5		)	(3,230		)
Recoveries	2			2			1			5
Net charge-offs	(6		)	(3,215		)	(4		)	(3,225		)
Provision for credit losses	(2,462		)	3,968			(35		)	1,471
Ending balance	$	9,535		$	9,843		$	545		$	19,923



	As of and for the Three Months Ended September 30, 2016
	Commercial Real Estate			Commercial and Industrial			Consumer and Other			Total
	(Dollars in Thousands)
Beginning balance	$	11,436		$	6,017		$	701		$	18,154
Charge-offs	(259		)	(1,396		)	(1		)	(1,656		)
Recoveries	31			—			1			32
Net charge-offs	(228		)	(1,396		)	—			(1,624		)
Provision for credit losses	1,607			2,051			(121		)	3,537
Ending balance	$	12,815		$	6,672		$	580		$	20,067



	As of and for the Nine Months Ended September 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	(126		)	(6,978		)	(92		)	(7,196		)
Recoveries	152			314			42			508
Net recoveries (charge-offs)	26			(6,664		)	(50		)	(6,688		)
Provision for credit loss	(2,875		)	8,537			37			5,699
Ending balance	$	9,535		$	9,843		$	545		$	19,923



	As of and for the Nine Months Ended September 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	(1,194		)	(2,048		)	(8		)	(3,250		)
Recoveries	170			2			5			177
Net charge-offs	(1,024		)	(2,046		)	(3		)	(3,073		)
Provision for credit loss	2,619			4,331			(126		)	6,824
Ending balance	$	12,815		$	6,672		$	580		$	20,067

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



	As of September 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	$	9,426	$	4,185	$	522	$	14,133
Individually evaluated for impairment	109		5,658		23		5,790
Loans acquired with deteriorated credit quality	—		—		—		—
Total	$	9,535	$	9,843	$	545	$	19,923
Loans and lease receivables:
Collectively evaluated for impairment	$	947,600	$	462,122	$	24,838	$	1,434,560
Individually evaluated for impairment	18,535		13,962		385		32,882
Loans acquired with deteriorated credit quality	618		7		—		625
Total	$	966,753	$	476,091	$	25,223	$	1,468,067



	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