Loans and Allowance for Loan Losses (Tables)

6 Months Ended

Jun. 30, 2015

Outstanding loans by class and payment aging as of June 30, 2015 and December 31, 2014 are as follows:



Loan Aging Analysis by Class as of June 30, 2015 and December 31, 2014
(dollars in thousands; 2015 unaudited)	Commercial and industrial			Commercial real estate, owner-occupied			Commercial real estate, investor			Construction			Home equity			Other residential ¹			Installment and other consumer			Total
June 30, 2015
30-59 days past due	$	—		$	—		$	—		$	—		$	999		$	—		$	148		$	1,147
60-89 days past due	—			—			—			—			—			—			4			4
Greater than 90 days past due (non-accrual) ²	347			1,403			2,278			2,733			265			—			42			7,068
Total past due	347			1,403			2,278			2,733			1,264			—			194			8,219
Current	184,673			233,718			661,079			46,021			114,229			73,721			17,545			1,330,986
Total loans ³	$	185,020		$	235,121		$	663,357		$	48,754		$	115,493		$	73,721		$	17,739		$	1,339,205
Non-accrual loans to total loans	0.2		%	0.6		%	0.3		%	5.6		%	0.2		%	—		%	0.2		%	0.5		%
December 31, 2014
30-59 days past due	$	183		$	—		$	—		$	—		$	646		$	—		$	180		$	1,009
60-89 days past due	—			—			—			—			—			—			—			—
Greater than 90 days past due (non-accrual) ²	—			1,403			2,429			5,134			280			—			104			9,350
Total past due	183			1,403			2,429			5,134			926			—			284			10,359
Current	210,040			229,202			671,070			43,279			109,862			73,035			16,504			1,352,992
Total loans ³	$	210,223		$	230,605		$	673,499		$	48,413		$	110,788		$	73,035		$	16,788		$	1,363,351
Non-accrual loans to total loans	—		%	0.6		%	0.4		%	10.6		%	0.3		%	—		%	0.6		%	0.7		%

¹ Our residential loan portfolio does not include sub-prime loans, nor is it our practice to underwrite loans commonly referred to as "Alt-A mortgages", the characteristics of which are loans lacking full documentation, borrowers having low FICO scores or higher loan-to-value ratios.

² Amounts include $1.4 million of Purchased Credit Impaired ("PCI") loans that had stopped accreting interest at both June 30, 2015 and December 31, 2014. Amounts exclude accreting PCI loans of $3.7 million and $3.8 million at June 30, 2015 and December 31, 2014, respectively, as we have a reasonable expectation about future cash flows to be collected and we continue to recognize accretable yield on these loans in interest income. There were no accruing loans past due more than ninety days at June 30, 2015 or December 31, 2014.

³ Amounts include net deferred loan costs of $781 thousand and $487 thousand at June 30, 2015 and December 31, 2014, respectively. Amounts are also net of unaccreted purchase discounts on non-PCI loans of $3.7 million and $4.4 million at June 30, 2015 and December 31, 2014, respectively.

Financing Receivable Credit Quality Indicators

The following table represents an analysis of loans by internally assigned grades, including the PCI loans, at June 30, 2015 and December 31, 2014:



(in thousands; 2015 unaudited)	Commercial and industrial		Commercial real estate, owner-occupied		Commercial real estate, investor		Construction		Home equity		Other residential		Installment and other consumer		Purchased credit-impaired		Total
Credit Risk Profile by Internally Assigned Grade:
June 30, 2015
Pass	$	171,350	$	210,225	$	654,056	$	45,471	$	113,616	$	72,123	$	17,439	$	2,211	$	1,286,491
Special Mention	10,334		11,004		2,116		—		428		—		—		1,027		24,909
Substandard	3,145		10,820		5,450		3,277		1,382		1,598		300		1,833		27,805
Total loans	$	184,829	$	232,049	$	661,622	$	48,748	$	115,426	$	73,721	$	17,739	$	5,071	$	1,339,205

December 31, 2014
Pass	$	197,659	$	205,820	$	651,548	$	41,710	$	107,933	$	70,987	$	16,101	$	2,210	$	1,293,968
Special Mention	6,776		10,406		13,304		1,008		322		—		190		1,140		33,146
Substandard	5,464		11,763		6,473		5,684		2,466		2,048		497		1,842		36,237
Total loans	$	209,899	$	227,989	$	671,325	$	48,402	$	110,721	$	73,035	$	16,788	$	5,192	$	1,363,351

Troubled Debt Restructurings on Financing Receivables

The table below summarizes outstanding TDR loans by loan class as of June 30, 2015 and December 31, 2014. The summary includes both TDRs that are on non-accrual status and those that continue to accrue interest.



(in thousands; 2015 unaudited)	As of
Recorded investment in Troubled Debt Restructurings ¹	June 30, 2015		December 31, 2014

Commercial and industrial	$	4,149	$	3,584
Commercial real estate, owner-occupied	8,396		8,459
Commercial real estate, investor	740		524
Construction ²	3,277		5,684
Home equity	558		694
Other residential	2,029		2,045
Installment and other consumer	1,400		1,713
Total	$	20,549	$	22,703

¹Includes $16.1 million and $15.9 million of TDR loans that were accruing interest as of June 30, 2015 and December 31, 2014, respectively. Includes $1.6 million and $1.8 million of acquired loans at June 30, 2015 and December 31, 2014, respectively.

²In June 2015, one TDR loan was transferred to loans held-for-sale at fair value totaling $1.5 million, net of an $839 thousand charge-off to the allowance for loan losses. The loan was subsequently sold in June 2015 for no gain or loss.

The table below presents the following information for loans modified in a TDR during the presented periods: number of contracts modified, the recorded investment in the loans prior to modification, and the recorded investment in the loans after the loans were restructured. The table below excludes fully paid-off and fully charged-off TDR loans.



(dollars in thousands; unaudited)	Number of Contracts Modified	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment at period end
Troubled Debt Restructurings during the three months ended June 30, 2015:
Commercial and industrial	4	$	782	$	882	$	882
Commercial real estate, investor	1	222		221		221
Total	5	$	1,004	$	1,103	$	1,103

Troubled Debt Restructurings during the three months ended June 30, 2014:
Commercial and industrial	3	$	308	$	354	$	354
Installment and other consumer	3	111		110		109
Total	6	$	419	$	464	$	463




Troubled Debt Restructurings during the six months ended June 30, 2015:
Commercial and industrial	4	$	782	$	882	$	882
Commercial real estate, investor	1	222		221		221
Total	5	$	1,004	$	1,103	$	1,103

Troubled Debt Restructurings during the six months ended June 30, 2014:
Commercial and industrial	6	$	1,728	$	1,759	$	1,471
Home equity	1	150		150		149
Installment and other consumer	6	281		278		276
Total	13	$	2,159	$	2,187	$	1,896

Impaired Financing Receivables

The tables below summarize information on impaired loans and their related allowance. Total impaired loans include non-accrual loans, accruing TDR loans and accreting PCI loans that have experienced post-acquisition declines in cash flows expected to be collected.



(in thousands; unaudited)	Commercial and industrial		Commercial real estate, owner-occupied		Commercial real estate, investor		Construction		Home equity		Other residential		Installment and other consumer		Total
June 30, 2015
Recorded investment in impaired loans:
With no specific allowance recorded	$	1,903	$	5,514	$	3,018	$	2,727	$	265	$	1,022	$	281	$	14,730
With a specific allowance recorded	2,592		2,882		—		556		393		1,007		1,139		8,569
Total recorded investment in impaired loans	$	4,495	$	8,396	$	3,018	$	3,283	$	658	$	2,029	$	1,420	$	23,299
Unpaid principal balance of impaired loans:
With no specific allowance recorded	$	1,899	$	6,514	$	5,010	$	2,727	$	265	$	1,022	$	281	$	17,718
With a specific allowance recorded	2,656		2,882		—		741		393		1,007		1,139		8,818
Total unpaid principal balance of impaired loans	$	4,555	$	9,396	$	5,010	$	3,468	$	658	$	2,029	$	1,420	$	26,536
Specific allowance	$	772	$	70	$	—	$	6	$	3	$	79	$	149	$	1,079

Average recorded investment in impaired loans during the quarter ended June 30, 2015	$	4,173	$	8,412	$	2,947	$	4,475	$	610	$	2,033	$	1,557	$	24,207
Interest income recognized on impaired loans during the quarter ended June 30, 2015	$	56	$	78	$	8	$	9	$	4	$	23	$	17	$	195
Average recorded investment in impaired loans during the six months ended June 30, 2015	$	3,946	$	8,427	$	2,931	$	5,078	$	618	$	2,037	$	1,650	$	24,687
Interest income recognized on impaired loans during the six months ended June 30, 2015	$	118	$	144	$	14	$	18	$	9	$	46	$	36	$	385
Average recorded investment in impaired loans during the quarter ended June 30, 2014	$	6,217	$	5,476	$	3,186	$	6,503	$	755	$	1,686	$	1,898	$	25,721
Interest income recognized on impaired loans during the quarter ended June 30, 2014	$	103	$	83	$	7	$	23	$	5	$	19	$	19	$	259
Average recorded investment in impaired loans during the six months ended June 30, 2014	$	6,081	$	5,480	$	3,235	$	6,513	$	666	$	1,870	$	1,891	$	25,736
Interest income recognized on impaired loans during the six months ended June 30, 2014	$	221	$	166	$	14	$	44	$	9	$	42	$	37	$	533



(in thousands)	Commercial and industrial		Commercial real estate, owner-occupied		Commercial real estate, investor		Construction		Home equity		Other residential		Installment and other consumer		Total

December 31, 2014
Recorded investment in impaired loans:
With no specific allowance recorded	$	1,141	$	5,577	$	2,954	$	5,134	$	393	$	1,026	$	239	$	16,464
With a specific allowance recorded	2,443		2,882		—		561		300		1,019		1,554		$	8,759
Total recorded investment in impaired loans	$	3,584	$	8,459	$	2,954	$	5,695	$	693	$	2,045	$	1,793	$	25,223
Unpaid principal balance of impaired loans:
With no specific allowance recorded	$	1,186	$	6,577	$	4,945	$	7,824	$	880	$	1,026	$	239	$	22,677
With a specific allowance recorded	2,524		2,882		—		749		300		1,019		1,554		9,028
Total unpaid principal balance of impaired loans	$	3,710	$	9,459	$	4,945	$	8,573	$	1,180	$	2,045	$	1,793	$	31,705
Specific allowance	$	694	$	65	$	—	$	3	$	—	$	92	$	284	$	1,138
Average recorded investment in impaired loans during 2014	5,354		6,604		3,138		6,471		741		1,744		1,857		25,909
Interest income recognized on impaired loans during 2014	378		288		28		85		19		74		76		948

Allowance for Credit Losses on Financing Receivables

The following tables disclose loans by major portfolio category and activity in the ALLL, as well as the related ALLL disaggregated by impairment evaluation method.



Allowance for Loan Losses Rollforward for the Period
(in thousands; unaudited)	Commercial and industrial			Commercial real estate, owner-occupied			Commercial real estate, investor			Construction			Home equity			Other residential		Installment and other consumer			Unallocated		Total

For the three months ended June 30, 2015
Allowance for loan losses:
Beginning balance	$	2,620		$	2,094		$	6,292		$	778		$	923		$	430	$	462		$	1,557	$	15,156
Provision (reversal)	(117		)	(42		)	(351		)	596			(81		)	5		(14		)	4		—
Charge-offs	(1		)	—			—			(839		)	—			—		(5		)	—		(845		)
Recoveries	38			—			3			—			1			—		1			—		43
Ending balance	$	2,540		$	2,052		$	5,944		$	535		$	843		$	435	$	444		$	1,561	$	14,354

For the six months ended June 30, 2015
Allowance for loan losses:
Beginning balance	$	2,837		$	1,924		$	6,672		$	839		$	859		$	433	$	566		$	969	$	15,099
Provision (reversal)	(392		)	128			(734		)	535			(18		)	2		(113		)	592		—
Charge-offs	(3		)	—			—			(839		)	—			—		(11		)	—		(853		)
Recoveries	98			—			6			—			2			—		2			—		108
Ending balance	$	2,540		$	2,052		$	5,944		$	535		$	843		$	435	$	444		$	1,561	$	14,354



Allowance for Loan Losses Rollforward for the Period
(in thousands; unaudited)	Commercial and industrial			Commercial real estate, owner-occupied			Commercial real estate, investor		Construction			Home equity		Other residential		Installment and other consumer			Unallocated		Total

For the three months ended June 30, 2014
Allowance for loan losses:
Beginning balance	$	2,772		$	1,985		$	6,469	$	536		$	887	$	409	$	565		$	609	$	14,232
Provision (reversal)	310			(6		)	213		42			56		45		(84		)	24		600
Charge-offs	(5		)	—			—		(7		)	—		—		(1		)	—		(13		)
Recoveries	48			—			31		—			1		—		1			—		81
Ending balance	$	3,125		$	1,979		$	6,713	$	571		$	944	$	454	$	481		$	633	$	14,900

For the six months ended June 30, 2014
Allowance for loan losses:
Beginning balance	$	3,056		$	2,012		$	6,196	$	633		$	875	$	317	$	629		$	506	$	14,224
Provision (reversal)	55			(33		)	481		142			67		137		(226		)	127		750
Charge-offs	(66		)	—			—		(204		)	—		—		(4		)	—		(274		)
Recoveries	80			—			36		—			2		—		82			—		200
Ending balance	$	3,125		$	1,979		$	6,713	$	571		$	944	$	454	$	481		$	633	$	14,900



Allowance for Loan Losses and Recorded Investment in Loans
(dollars in thousands; unaudited)	Commercial and industrial			Commercial real estate, owner-occupied			Commercial real estate, investor			Construction			Home equity			Other residential			Installment and other consumer			Unallocated		Total

As of June 30, 2015:
Ending ALLL related to loans collectively evaluated for impairment	$	1,768		$	1,982		$	5,944		$	529		$	840		$	356		$	295		$	1,561	$	13,275
Ending ALLL related to loans individually evaluated for impairment	$	771		$	70		$	—		$	—		$	3		$	79		$	149		$	—	$	1,072
Ending ALLL related to purchased credit-impaired loans	$	1		$	—		$	—		$	6		$	—		$	—		$	—		$	—	$	7
Total	$	2,540		$	2,052		$	5,944		$	535		$	843		$	435		$	444		$	1,561	$	14,354

Loans outstanding:
Collectively evaluated for impairment	$	180,489		$	225,057		$	658,604		$	45,471		$	114,768		$	71,692		$	16,319		$	—	$	1,312,400
Individually evaluated for impairment¹	4,340			6,993			3,018			3,277			657			2,029			1,420			—		21,734
Purchased credit-impaired	191			3,071			1,735			6			68			—			—			—		5,071
Total	$	185,020		$	235,121		$	663,357		$	48,754		$	115,493		$	73,721		$	17,739		$	—	$	1,339,205
Ratio of allowance for loan losses to total loans	1.37		%	0.87		%	0.90		%	1.10		%	0.73		%	0.59		%	2.50		%	NM		1.07		%
Allowance for loan losses to non-accrual loans	732		%	146		%	261		%	20		%	318		%	—		%	1,057		%	NM		203		%

¹ Total excludes $1.6 million of PCI loans that have experienced post-acquisition declines in cash flows expected to be collected. These loans are included in the "purchased credit-impaired" amount in the next line below.

NM - Not Meaningful



Allowance for Loan Losses and Recorded Investment in Loans
(dollars in thousands)	Commercial and industrial			Commercial real estate, owner-occupied			Commercial real estate, investor			Construction			Home equity			Other residential			Installment and other consumer			Unallocated		Total

As of December 31, 2014:
Ending ALLL related to loans collectively evaluated for impairment	$	2,143		$	1,859		$	6,672		$	836		$	859		$	341		$	282		$	969	$	13,961
Ending ALLL related to loans individually evaluated for impairment	$	690		$	65		$	—		$	—		$	—		$	92		$	284		$	—	$	1,131
Ending ALLL related to purchased credit-impaired loans	$	4		$	—		$	—		$	3		$	—		$	—		$	—		$	—	$	7
Total	$	2,837		$	1,924		$	6,672		$	839		$	859		$	433		$	566		$	969	$	15,099

Loans outstanding:
Collectively evaluated for impairment	$	206,603		$	220,933		$	668,371		$	42,718		$	110,028		$	70,990		$	14,995		$	—	$	1,334,638
Individually evaluated for impairment¹	3,296			7,056			2,954			5,684			693			2,045			1,793			—		23,521
Purchased credit-impaired	324			2,616			2,174			11			67			—			—			—		5,192
Total	$	210,223		$	230,605		$	673,499		$	48,413		$	110,788		$	73,035		$	16,788		$	—	$	1,363,351
Ratio of allowance for loan losses to total loans	1.35		%	0.83		%	0.99		%	1.73		%	0.78		%	0.59		%	3.37		%	NM		1.11		%
Allowance for loan losses to non-accrual loans	NM			137		%	275		%	16		%	307		%	NM			544		%	NM		161		%

¹ Total excludes $1.7 million PCI loans that have experienced credit deterioration post-acquisition, which are included in the "purchased credit-impaired" amount in the next line below.

NM - Not Meaningful

Certain Loans Acquired in Transfer Not Accounted for as Debt Securities Acquired During Period

The following table reflects the outstanding balance and related carrying value of PCI loans as of June 30, 2015 and December 31, 2014.



	June 30, 2015				December 31, 2014
PCI Loans (in thousands; 2015 unaudited)	Unpaid principal balance		Carrying value		Unpaid principal balance		Carrying value
Commercial and industrial	$	280	$	191	$	479	$	324
Commercial real estate	6,782		4,806		6,831		4,790
Construction	128		6		136		11
Home equity	228		68		232		67
Total purchased credit-impaired loans	$	7,418	$	5,071	$	7,678	$	5,192

Accretable Yield Activity

The activities in the accretable yield, or income expected to be earned, for PCI loans were as follows:



Accretable Yield	Three months ended						Six months ended
(dollars in thousands, unaudited)	June 30, 2015			June 30, 2014			June 30, 2015			June 30, 2014
Balance at beginning of period	$	3,831		$	5,301		$	4,027		$	3,649
Removals ¹	—			(273		)	(77		)	(273		)
Accretion	(120		)	(187		)	(239		)	(367		)
Reclassifications from nonaccretable difference ²	—			(327		)	—			1,505
Balance at end of period	$	3,711		$	4,514		$	3,711		$	4,514

¹ Represents the accretable difference that is relieved when a loan exits the PCI population due to pay-off, full charge-off, or transfer to repossessed assets, etc.

²Primarily relates to changes in expected credit performance and changes in expected timing of cash flows.