Loans and Allowance for Loan Losses (Tables)

9 Months Ended

Sep. 30, 2015

Past due and non-accrual loans by class as of September 30, 2015 and December 31, 2014 were as follows:



(dollars in thousands)	Commercial and industrial		Commercial real estate, owner-occupied		Commercial real estate, investor		Construction		Home equity		Other residential ¹		Installment and other consumer		Total
September 30, 2015
30-59 days past due	$	1,780	$	139	$	421	$	—	$	862	$	—	$	7	$	3,209
60-89 days past due	150		—		—		—		99		—		2		251
90 days or more past due	21		—		—		—		100		—		72		193
Total past due	1,951		139		421		—		1,061		—		81		3,653
Current	188,016		239,196		671,256		54,921		112,670		71,682		21,806		1,359,547
Total loans ³	$	189,967	$	239,335	$	671,677	$	54,921	$	113,731	$	71,682	$	21,887	$	1,363,200

Non-accrual ²	354		—		2,020		2		172		—		90		2,638

December 31, 2014
30-59 days past due	$	183	$	—	$	—	$	—	$	646	$	—	$	180	$	1,009
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

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 $2 thousand of Purchased Credit Impaired ("PCI") loans that had stopped accreting interest at September 30, 2015 and $1.4 million at December 31, 2014. Amounts exclude accreting PCI loans of $3.7 million and $3.8 million at September 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. These accreting PCI loans are included in current loans.

³ Amounts include net deferred loan costs of $861 thousand and $487 thousand at September 30, 2015 and December 31, 2014, respectively. Amounts are also net of unaccreted purchase discounts on non-PCI loans of $3.4 million and $4.4 million at September 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 September 30, 2015 and December 31, 2014:



(in thousands)	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:
September 30, 2015
Pass	$	166,622	$	216,017	$	662,858	$	51,680	$	111,020	$	71,596	$	21,544	$	3,249	$	1,304,586
Special Mention	18,288		12,445		2,438		—		1,419		—		—		—		34,590
Substandard	4,873		9,184		4,651		3,238		1,224		86		343		425		24,024
Total loans	$	189,783	$	237,646	$	669,947	$	54,918	$	113,663	$	71,682	$	21,887	$	3,674	$	1,363,200

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 September 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)	As of
Recorded investment in Troubled Debt Restructurings ¹	September 30, 2015		December 31, 2014

Commercial and industrial	$	4,098	$	3,584
Commercial real estate, owner-occupied	6,993		8,459
Commercial real estate, investor	733		524
Construction ²	3,238		5,684
Home equity	463		694
Other residential	2,020		2,045
Installment and other consumer	1,367		1,713
Total	$	18,912	$	22,703

¹Includes $18.8 million and $15.9 million of TDR loans that were accruing interest as of September 30, 2015 and December 31, 2014, respectively. Includes $147 thousand and $1.8 million of acquired loans at September 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 being restructured. The table below excludes fully paid-off and fully charged-off TDR loans.



(dollars in thousands)	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 September 30, 2015:
Commercial and industrial	1	$	700	$	700	$	700
Total	1	$	700	$	700	$	700

Troubled Debt Restructurings during the three months ended September 30, 2014:
Commercial and industrial	2	$	513	$	596	$	596
Commercial real estate, owner occupied	1	4,226		4,216		4,206
Commercial real estate, investor	1	74		74		74
Construction	1	815		814		814
Total	5	$	5,628	$	5,700	$	5,690




Troubled Debt Restructurings during the nine months ended September 30, 2015:
Commercial and industrial	5	$	1,482	$	1,582	$	1,463
Commercial real estate, investor	1	222		221		217
Total	6	$	1,704	$	1,803	$	1,680

Troubled Debt Restructurings during the nine months ended September 30, 2014:
Commercial and industrial ¹	7	$	1,336	$	1,460	$	1,431
Commercial real estate, owner-occupied	1	4,226		4,216		4,206
Other residential	1	815		814		814
Home equity	2	224		224		222
Installment and other consumer	6	281		278		270
Total	17	$	6,882	$	6,992	$	6,943

¹Excludes one contract modified and subsequently paid off during the nine months ended September 30, 2014 in the amount of $905 thousand pre-modification and post-modification.

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)	Commercial and industrial		Commercial real estate, owner-occupied		Commercial real estate, investor		Construction		Home equity		Other residential		Installment and other consumer		Total
September 30, 2015
Recorded investment in impaired loans:
With no specific allowance recorded	$	2,108	$	2,882	$	2,537	$	2,688	$	171	$	1,220	$	329	$	11,935
With a specific allowance recorded	2,343		4,111		217		552		391		800		1,128		9,542
Total recorded investment in impaired loans	$	4,451	$	6,993	$	2,754	$	3,240	$	562	$	2,020	$	1,457	$	21,477
Unpaid principal balance of impaired loans:
With no specific allowance recorded	$	2,105	$	2,882	$	4,528	$	2,688	$	171	$	1,220	$	329	$	13,923
With a specific allowance recorded	2,398		4,111		217		674		391		800		1,128		9,719
Total unpaid principal balance of impaired loans	$	4,503	$	6,993	$	4,745	$	3,362	$	562	$	2,020	$	1,457	$	23,642
Specific allowance	$	935	$	55	$	—	$	3	$	3	$	71	$	121	$	1,188

Average recorded investment in impaired loans during the quarter ended September 30, 2015	$	4,473	$	7,695	$	2,886	$	3,262	$	610	$	2,025	$	1,439	$	22,390
Interest income recognized on impaired loans during the quarter ended September 30, 2015	$	58	$	84	$	10	$	22	$	5	$	23	$	15	$	217
Average recorded investment in impaired loans during the nine months ended September 30, 2015	$	4,121	$	8,183	$	2,916	$	4,473	$	616	$	2,033	$	1,579	$	23,921
Interest income recognized on impaired loans during the nine months ended September 30, 2015	$	176	$	228	$	24	$	40	$	14	$	69	$	51	$	602
Average recorded investment in impaired loans during the quarter ended September 30, 2014	$	5,292	$	6,982	$	3,090	$	6,678	$	857	$	1,440	$	1,847	$	26,186
Interest income recognized on impaired loans during the quarter ended September 30, 2014	$	88	$	54	$	7	$	23	$	5	$	14	$	19	$	210
Average recorded investment in impaired loans during the nine months ended September 30, 2014	$	5,818	$	5,980	$	3,186	$	6,568	$	730	$	1,726	$	1,876	$	25,884
Interest income recognized on impaired loans during the nine months ended September 30, 2014	$	309	$	220	$	21	$	67	$	14	$	56	$	56	$	743



(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)	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 September 30, 2015
Allowance for loan losses:
Beginning balance	$	2,540		$	2,052	$	5,944		$	535		$	843		$	435		$	444		$	1,561		$	14,354
Provision (reversal)	86			17		128			158			9			(50		)	32			(380		)	—
Charge-offs	(2		)	—		—			—			—			—			(1		)	—			(3		)
Recoveries	92			—		12			—			1			—			1			—			106
Ending balance	$	2,716		$	2,069	$	6,084		$	693		$	853		$	385		$	476		$	1,181		$	14,457

For the nine months ended September 30, 2015
Allowance for loan losses:
Beginning balance	$	2,837		$	1,924	$	6,672		$	839		$	859		$	433		$	566		$	969		$	15,099
Provision (reversal)	(306		)	145		(606		)	693			(9		)	(48		)	(81		)	212			—
Charge-offs	(5		)	—		—			(839		)	—			—			(12		)	—			(856		)
Recoveries	190			—		18			—			3			—			3			—			214
Ending balance	$	2,716		$	2,069	$	6,084		$	693		$	853		$	385		$	476		$	1,181		$	14,457



Allowance for Loan Losses Rollforward for the Period
(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

For the three months ended September 30, 2014
Allowance for loan losses:
Beginning balance	$	3,125		$	1,979		$	6,713		$	571		$	944		$	454		$	481		$	633	$	14,900
Provision (reversal)	(263		)	9			(26		)	(33		)	(18		)	(8		)	90			249		—
Charge-offs	—			—			—			—			—			—			(2		)	—		(2		)
Recoveries	44			5			5			96			1			—			—			—		151
Ending balance	$	2,906		$	1,993		$	6,692		$	634		$	927		$	446		$	569		$	882	$	15,049

For the nine months ended September 30, 2014
Allowance for loan losses:
Beginning balance	$	3,056		$	2,012		$	6,196		$	633		$	875		$	317		$	629		$	506	$	14,224
Provision (reversal)	(208		)	(24		)	455			109			49			129			(136		)	376		750
Charge-offs	(66		)	—			—			(204		)	—			—			(6		)	—		(276		)
Recoveries	124			5			41			96			3			—			82			—		351
Ending balance	$	2,906		$	1,993		$	6,692		$	634		$	927		$	446		$	569		$	882	$	15,049



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 September 30, 2015:
Ending ALLL related to loans collectively evaluated for impairment	$	1,781		$	2,013		$	6,084		$	691		$	850		$	314		$	355		$	1,181	$	13,269
Ending ALLL related to loans individually evaluated for impairment	$	928		$	56		$	—		$	—		$	3		$	71		$	121		$	—	$	1,179
Ending ALLL related to purchased credit-impaired loans	$	7		$	—		$	—		$	2		$	—		$	—		$	—		$	—	$	9
Total	$	2,716		$	2,069		$	6,084		$	693		$	853		$	385		$	476		$	1,181	$	14,457

Loans outstanding:
Collectively evaluated for impairment	$	185,478		$	230,653		$	667,192		$	51,681		$	113,101		$	69,662		$	20,430		$	—	$	1,338,197
Individually evaluated for impairment¹	4,305			6,993			2,754			3,238			562			2,020			1,457			—		21,329
Purchased credit-impaired	184			1,689			1,731			2			68			—			—			—		3,674
Total	$	189,967		$	239,335		$	671,677		$	54,921		$	113,731		$	71,682		$	21,887		$	—	$	1,363,200
Ratio of allowance for loan losses to total loans	1.43		%	0.86		%	0.91		%	1.26		%	0.75		%	0.54		%	2.17		%	NM		1.06		%
Allowance for loan losses to non-accrual loans	767		%	NM			301		%	347		%	496		%	NM			481		%	NM		548		%

¹ Total excludes $147 thousand 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 September 30, 2015 and December 31, 2014.



	September 30, 2015				December 31, 2014
PCI Loans (in thousands)	Unpaid principal balance		Carrying value		Unpaid principal balance		Carrying value
Commercial and industrial	$	258	$	184	$	479	$	324
Commercial real estate	4,355		3,420		6,831		4,790
Construction	125		2		136		11
Home equity	227		68		232		67
Total purchased credit-impaired loans	$	4,965	$	3,674	$	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						Nine months ended
(dollars in thousands)	September 30, 2015			September 30, 2014			September 30, 2015			September 30, 2014
Balance at beginning of period	$	3,711		$	4,514		$	4,027		$	3,649
Removals ¹	(837		)	—			(914		)	(273		)
Accretion	(128		)	(126		)	(367		)	(494		)
Reclassifications from nonaccretable difference ²	—			(242		)	—			1,264
Balance at end of period	$	2,746		$	4,146		$	2,746		$	4,146

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.