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

Loan and lease receivables consist of the following:



	December 31, 2017		December 31, 2016
	(In Thousands)
Commercial real estate:
Commercial real estate — owner occupied	$	200,387	$	176,459
Commercial real estate — non-owner occupied	470,236		473,158
Land development	40,154		56,638
Construction	125,157		101,206
Multi-family	136,978		92,762
1-4 family	44,976		45,651
Total commercial real estate	1,017,888		945,874
Commercial and industrial	429,002		450,298
Direct financing leases, net	30,787		30,951
Consumer and other:
Home equity and second mortgages	7,262		8,412
Other	18,099		16,329
Total consumer and other	25,361		24,741
Total gross loans and leases receivable	1,503,038		1,451,864
Less:
Allowance for loan and lease losses	18,763		20,912
Deferred loan fees	1,443		1,189
Loans and leases receivable, net	$	1,482,832	$	1,429,763

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



	December 31, 2017		December 31, 2016
	(In Thousands)
Retained, unguaranteed portions of sold SBA loans	$	30,071	$	30,418
Other SBA loans⁽¹⁾	22,254		30,617
Total SBA loans	$	52,325	$	61,035


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

As of December 31, 2017 and 2016, $11.1 million and $5.5 million of SBA loans were considered impaired, respectively.

Loans transferred to third parties consist of the guaranteed portions 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 portions of SBA loans sold during the year ended December 31, 2017 and 2016 was $16.5 million and $41.2 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 year ended December 31, 2017 and 2016 have been derecognized in the Consolidated Financial Statements. The guaranteed portions of SBA loans were transferred at their fair value and the related gain was recognized upon the transfer as non-interest income in the Consolidated Financial Statements. The total outstanding balance of sold SBA loans at December 31, 2017 and 2016 was $100.3 million and $105.1 million, respectively.

The total principal amount of transferred participation interests in other originated commercial loans during the year ended December 31, 2017 and 2016 was $63.6 million and $17.6 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 December 31, 2017 and 2016 was $106.4 million and $102.7 million, respectively. As of December 31, 2017 and 2016, the total amount of the Corporation’s partial ownership of these transferred loans on the Consolidated Balance Sheets was $181.7 million and $106.1 million, respectively. No loans in this participation portfolio were considered impaired as of December 31, 2017 and 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 Consolidated Balance Sheets as of December 31, 2017 and 2016 was $650,000 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 year ended December 31, 2017 and 2016 was $1.6 million and $26.3 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 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 Consolidated Financial Statements.

Certain of the Corporation’s executive officers, directors and their related interests are loan clients of the Bank. As of December 31, 2017 and 2016, loans aggregating approximately $10.5 million and $6.3 million, respectively, were outstanding to such parties. New loans granted to such parties during the years ended December 31, 2017 and 2016 were approximately $8.3 million and $673,000 and repayments on such loans were approximately $4.1 million and $1.3 million, respectively. These loans were made in the ordinary course of business and on substantially the same terms as those prevailing at the time for comparable loans not related to the lender. None of these loans were considered impaired as of December 31, 2017 or 2016.

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 December 31, 2017 and 2016:



	December 31, 2017
	Category
	I			II			III			IV			Total
	(Dollars in Thousands)
Commercial real estate:
Commercial real estate — owner occupied	$	166,018		$	18,442		$	8,850		$	7,077		$	200,387
Commercial real estate — non-owner occupied	441,246			27,854			1,102			34			470,236
Land development	36,470			1,057			—			2,627			40,154
Construction	121,528			757			—			2,872			125,157
Multi-family	136,978			—			—			—			136,978
1-4 family	34,598			7,735			1,220			1,423			44,976
Total commercial real estate	936,838			55,845			11,172			14,033			1,017,888
Commercial and industrial	341,875			25,344			49,453			12,330			429,002
Direct financing leases, net	28,866			342			1,579			—			30,787
Consumer and other:
Home equity and second mortgages	7,250			8			—			4			7,262
Other	17,745			—			—			354			18,099
Total consumer and other	24,995			8			—			358			25,361
Total gross loans and leases receivable	$	1,332,574		$	81,539		$	62,204		$	26,721		$	1,503,038
Category as a % of total portfolio	88.66		%	5.42		%	4.14		%	1.78		%	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 primarily 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 subcommittees of the Bank’s Loan Committee on a monthly basis and the Bank’s 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 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 subcommittees of the Bank’s Loan Committee on a monthly basis and the Bank’s Boards of Directors at each of their regularly scheduled meetings.

Utilizing regulatory classification terminology, the Corporation identified $32.7 million and $34.3 million of loans and leases as Substandard as of December 31, 2017 and 2016, respectively. The Corporation identified $4.7 million of loans and leases as Doubtful as of December 31, 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 December 31, 2017 or 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 December 31, 2017 and 2016 was as follows:



	December 31, 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	$	—		$	—		$	—		$	—		$	193,366		$	193,366
Non-owner occupied	—			—			—			—			470,202			470,202
Land development	—			—			—			—			37,528			37,528
Construction	—			196			—			196			122,089			122,285
Multi-family	—			—			—			—			136,978			136,978
1-4 family	496			—			—			496			43,319			43,815
Commercial and industrial	1,169			197			—			1,366			415,315			416,681
Direct financing leases, net	—			—			—			—			30,787			30,787
Consumer and other:
Home equity and second mortgages	106			—			—			106			7,156			7,262
Other	—			—			—			—			17,745			17,745
Total	1,771			393			—			2,164			1,474,485			1,476,649
Non-accruing loans and leases
Commercial real estate:
Owner occupied	405			—			4,836			5,241			1,780			7,021
Non-owner occupied	—			—			—			—			34			34
Land development	—			—			—			—			2,626			2,626
Construction	—			—			2,872			2,872			—			2,872
Multi-family	—			—			—			—			—			—
1-4 family	—			—			948			948			213			1,161
Commercial and industrial	782			—			7,349			8,131			4,190			12,321
Direct financing leases, net	—			—			—			—			—			—
Consumer and other:
Home equity and second mortgages	—			—			—			—			—			—
Other	—			—			345			345			9			354
Total	1,187			—			16,350			17,537			8,852			26,389
Total loans and leases
Commercial real estate:
Owner occupied	405			—			4,836			5,241			195,146			200,387
Non-owner occupied	—			—			—			—			470,236			470,236
Land development	—			—			—			—			40,154			40,154
Construction	—			196			2,872			3,068			122,089			125,157
Multi-family	—			—			—			—			136,978			136,978
1-4 family	496			—			948			1,444			43,532			44,976
Commercial and industrial	1,951			197			7,349			9,497			419,505			429,002
Direct financing leases, net	—			—			—			—			30,787			30,787
Consumer and other:
Home equity and second mortgages	106			—			—			106			7,156			7,262
Other	—			—			345			345			17,754			18,099
Total	$	2,958		$	393		$	16,350		$	19,701		$	1,483,337		$	1,503,038
Percent of portfolio	0.20		%	0.03		%	1.09		%	1.32		%	98.68		%	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 December 31, 2017 and 2016, respectively.



	December 31, 2017		December 31, 2016
	(In Thousands)
Non-accrual loans and leases
Commercial real estate:
Commercial real estate — owner occupied	$	7,021	$	2,223
Commercial real estate — non-owner occupied	34		1,609
Land development	2,626		3,440
Construction	2,872		2,918
Multi-family	—		—
1-4 family	1,161		1,937
Total non-accrual commercial real estate	13,714		12,127
Commercial and industrial	12,321		12,463
Direct financing leases, net	—		—
Consumer and other:
Home equity and second mortgages	—		—
Other	354		604
Total non-accrual consumer and other loans	354		604
Total non-accrual loans and leases	26,389		25,194
Foreclosed properties, net	1,069		1,472
Total non-performing assets	27,458		26,666
Performing troubled debt restructurings	332		717
Total impaired assets	$	27,790	$	27,383



	December 31, 2017		December 31, 2016
Total non-accrual loans and leases to gross loans and leases	1.76	%	1.74	%
Total non-performing assets to total gross loans and leases plus foreclosed properties, net	1.83		1.83
Total non-performing assets to total assets	1.53		1.50
Allowance for loan and lease losses to gross loans and leases	1.25		1.44
Allowance for loan and lease losses to non-accrual loans and leases	71.10		83.00

As of December 31, 2017 and 2016, $8.8 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 December 31, 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 December 31, 2017 and 2016:



	As of December 31, 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	$	880	3	$	1,065	$	930
Commercial real estate — non-owner occupied	1	158		34		1	158		39
Land development	1	5,745		2,626		1	5,745		3,440
Construction	—	—		—		2	331		314
Multi-family	—	—		—		—	—		—
1-4 family	8	627		307		11	1,391		1,393
Commercial and industrial	10	8,759		4,951		10	8,094		7,058
Consumer and other:
Home equity and second mortgage	2	37		4		1	37		8
Other	2	2,094		345		1	2,076		378
Total	27	$	18,485	$	9,147	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 December 31, 2017 and 2016, the Corporation’s troubled debt restructurings grouped by type of concession were as follows:



	As of December 31, 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	12	3,793		1	52
Combination of extension of term and interest rate concession	1	54		16	6,056
Commercial and industrial:
Combination of extension of term and interest rate concession	10	4,951		10	7,058
Consumer and other:
Extension of term	1	328		1	378
Combination of extension of term and interest rate concession	3	21		1	8
Total	27	$	9,147	30	$	13,560

During the year ended December 31, 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. During the year ended December 31, 2016, three commercial and industrial loans and one commercial real estate loan totaling $675,000 and $441,000, respectively, were modified to a troubled debt restructuring.

There were no loans and leases modified in a troubled debt restructuring during the previous 12 months which subsequently defaulted during the year ended December 31, 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 Year Ended December 31, 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	$	7,077	$	7,077	$	—	$	5,549	$	613	$	—	$	613
Non-owner occupied	34		75		—		1,830		97		226		(129		)
Land development	2,627		5,297		—		3,092		84		—		84
Construction	—		—		—		2,000		134		214		(80		)
Multi-family	—		—		—		1		—		—		—
1-4 family	1,423		1,706		—		2,146		53		7		46
Commercial and industrial	5,465		6,502		—		3,634		858		7		851
Direct financing leases, net	—		—		—		—		—		—		—
Consumer and other:
Home equity and second mortgages	4		3		—		7		—		—		—
Other	345		1,011		—		365		59		—		59
Total	16,975		21,671		—		18,624		1,898		454		1,444
With impairment reserve recorded:
Commercial real estate:
Owner occupied	—		—		—		—		—		—		—
Non-owner occupied	—		—		—		—		—		—		—
Land development	—		—		—		—		—		—		—
Construction	2,872		2,872		415		2,252		158		—		158
Multi-family	—		—		—		—		—		—		—
1-4 family	—		—		—		—		—		—		—
Commercial and industrial	6,865		8,813		4,067		12,288		639		—		639
Direct financing leases, net	—		—		—		—		—		—		—
Consumer and other:
Home equity and second mortgages	—		—		—		—		—		—		—
Other	9		9		9		—		—		—		—
Total	9,746		11,694		4,491		14,540		797		—		797
Total:
Commercial real estate:
Owner occupied	7,077		7,077		—		5,549		613		—		613
Non-owner occupied	34		75		—		1,830		97		226		(129		)
Land development	2,627		5,297		—		3,092		84		—		84
Construction	2,872		2,872		415		4,252		292		214		78
Multi-family	—		—		—		1		—		—		—
1-4 family	1,423		1,706		—		2,146		53		7		46
Commercial and industrial	12,330		15,315		4,067		15,922		1,497		7		1,490
Direct financing leases, net	—		—		—		—		—		—		—
Consumer and other:
Home equity and second mortgages	4		3		—		7		—		—		—
Other	354		1,020		9		365		59		—		59
Grand total	$	26,721	$	33,365	$	4,491	$	33,164	$	2,695	$	454	$	2,241


(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.



	As of and for the Year Ended December 31, 2015
	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	$	2,164	$	2,164	$	—	$	712	$	53	$	12	$	41
Non-owner occupied	2,314		2,355		—		962		25		—		25
Land development	4,413		7,083		—		4,333		133		—		133
Construction	120		120		—		474		—		—		—
Multi-family	2		369		—		10		27		—		27
1-4 family	2,423		2,486		—		1,604		82		4		78
Commercial and industrial	2,546		2,590		—		544		172		6		166
Direct financing leases, net	38		38		—		4		—		—		—
Consumer and other:
Home equity and second mortgages	500		500		—		390		23		63		(40		)
Other	655		1,321		—		688		82		—		82
Total	15,175		19,026		—		9,721		597		85		512
With impairment reserve recorded:
Commercial real estate:
Owner occupied	814		814		20		215		7		2		5
Non-owner occupied	—		—		—		—		—		—		—
Land development	—		—		—		—		—		—		—
Construction	397		397		48		34		—		—		—
Multi-family	—		—		—		—		—		—		—
1-4 family	945		950		173		605		34		—		34
Commercial and industrial	6,603		6,603		847		810		102		—		102
Direct financing leases, net	—		—		—		—		—		—		—
Consumer and other:
Home equity and second mortgages	99		99		25		58		10		—		10
Other	—		—		—		—		—		—		—
Total	8,858		8,863		1,113		1,722		153		2		151
Total:
Commercial real estate:
Owner occupied	2,978		2,978		20		927		60		14		46
Non-owner occupied	2,314		2,355		—		962		25		—		25
Land development	4,413		7,083		—		4,333		133		—		133
Construction	517		517		48		508		—		—		—
Multi-family	2		369		—		10		27		—		27
1-4 family	3,368		3,436		173		2,209		116		4		112
Commercial and industrial	9,149		9,193		847		1,354		274		6		268
Direct financing leases, net	38		38		—		4		—		—		—
Consumer and other:
Home equity and second mortgages	599		599		25		448		33		63		(30		)
Other	655		1,321		—		688		82		—		82
Grand total	$	24,033	$	27,889	$	1,113	$	11,443	$	750	$	87	$	663


(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 $6.6 million, $3.4 million and $3.9 million as of December 31, 2017, 2016 and 2015, 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 $332,000, $717,000 and $1.7 million of loans as of December 31, 2017, 2016 and 2015, 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 Year Ended December 31, 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	(127		)	(8,621		)	(92		)	(8,840		)
Recoveries	153			323			43			519
Net recoveries (charge-offs)	26			(8,298		)	(49		)	(8,321		)
Provision for credit losses	(2,279		)	8,553			(102		)	6,172
Ending balance	$	10,131		$	8,225		$	407		$	18,763



	As of and for the Year Ended December 31, 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		)	(2,273		)	(127		)	(3,594		)
Recoveries	274			91			7			372
Net charge-offs	(920		)	(2,182		)	(120		)	(3,222		)
Provision for credit losses	2,084			5,765			(31		)	7,818
Ending balance	$	12,384		$	7,970		$	558		$	20,912



	As of and for the Year Ended December 31, 2015
	Commercial Real Estate			Commercial and Industrial			Consumer and Other			Total
	(Dollars in Thousands)
Beginning balance	$	8,619		$	5,492		$	218		$	14,329
Charge-offs	(793		)	(711		)	(9		)	(1,513		)
Recoveries	104			6			4			114
Net charge-offs	(689		)	(705		)	(5		)	(1,399		)
Provision for credit losses	3,290			(400		)	496			3,386
Ending balance	$	11,220		$	4,387		$	709		$	16,316

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



	As of December 31, 2017
	Commercial Real Estate		Commercial and Industrial		Consumer and Other		Total
	(Dollars in Thousands)
Allowance for loan and lease losses:
Collectively evaluated for impairment	$	9,716	$	4,158	$	398	$	14,272
Individually evaluated for impairment	415		4,067		9		4,491
Loans acquired with deteriorated credit quality	—		—		—		—
Total	$	10,131	$	8,225	$	407	$	18,763
Loans and lease receivables:
Collectively evaluated for impairment	$	1,003,855	$	447,459	$	25,003	1,476,317
Individually evaluated for impairment	13,506		12,324		358		26,188
Loans acquired with deteriorated credit quality	527		6		—		533
Total	$	1,017,888	$	459,789	$	25,361	$	1,503,038



	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

The Corporation’s net investment in direct financing leases consists of the following:



	As of December 31,
	2017			2016
	(In Thousands)
Minimum lease payments receivable	$	24,898		$	26,096
Estimated unguaranteed residual values in leased property	8,312			7,625
Initial direct costs	76			106
Unearned lease and residual income	(2,499		)	(2,876		)
Investment in commercial direct financing leases	$	30,787		$	30,951

There were no impairments of residual value of leased property during the years ended December 31, 2017, 2016 and 2015.

The Corporation leases equipment under direct financing leases expiring in future years. Some of these leases provide for additional rents based on use in excess of a stipulated minimum number of hours and generally allow the lessees to purchase the equipment for fair value at the end of the lease term.

Future aggregate maturities of minimum lease payments to be received are as follows:



(In Thousands)
Maturities during year ended December 31,
2018	$	8,866
2019	6,635
2020	4,632
2021	2,301
2022	1,393
Thereafter	1,071
	$	24,898