Loans and Allowance for Loan Losses (Tables)

6 Months Ended

Jun. 30, 2016

Outstanding loans by class and payment aging as of June 30, 2016 and December 31, 2015 were as follows:



Loan Aging Analysis by Loan Class
(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
June 30, 2016
30-59 days past due	$	44	$	—	$	—	$	—	$	780	$	—	$	—	$	824
60-89 days past due	—		—		1,676		—		—		—		63		1,739
90 days or more past due	21		176		—		—		99		—		—		296
Total past due	65		176		1,676		—		879		—		63		2,859
Current	215,192		241,927		701,782		77,024		111,361		73,761		24,493		1,445,540
Total loans ³	$	215,257	$	242,103	$	703,458	$	77,024	$	112,240	$	73,761	$	24,556	$	1,448,399
Non-accrual ²	$	21	$	176	$	1,676	$	—	$	789	$	—	$	63	$	2,725
December 31, 2015
30-59 days past due	$	36	$	—	$	1,096	$	1	$	—	$	—	$	249	$	1,382
60-89 days past due	—		—		—		—		633		—		89		722
90 days or more past due	21		—		—		—		99		—		—		120
Total past due	57		—		1,096		1		732		—		338		2,224
Current	219,395		242,309		714,783		65,494		111,568		73,154		22,301		1,449,004
Total loans ³	$	219,452	$	242,309	$	715,879	$	65,495	$	112,300	$	73,154	$	22,639	$	1,451,228
Non-accrual ²	$	21	$	—	$	1,903	$	1	$	171	$	—	$	83	$	2,179

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 thousand of Purchased Credit Impaired ("PCI") loans that had stopped accreting interest at December 31, 2015. Amounts exclude accreting PCI loans of $2.9 million and $3.7 million at June 30, 2016 and December 31, 2015, 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. There were no accruing past due loans more than ninety days at June 30, 2016 or December 31, 2015.

³ Amounts include net deferred loan costs of $726 thousand and $768 thousand at June 30, 2016 and December 31, 2015, respectively. Amounts are also net of unaccreted purchase discounts on non-PCI loans of $2.5 million and $3.2 million at June 30, 2016 and December 31, 2015, 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, 2016 and December 31, 2015:



Credit Risk Profile by Internally Assigned Grade
(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
June 30, 2016
Pass	$	199,923	$	230,799	$	697,897	$	73,786	$	109,408	$	73,761	$	24,162	$	2,863	$	1,412,599
Special Mention	11,818		2,101		362		—		1,120		—		—		—		15,401
Substandard	3,477		8,165		3,484		3,238		1,641		—		394		—		20,399
Total loans	$	215,218	$	241,065	$	701,743	$	77,024	$	112,169	$	73,761	$	24,556	$	2,863	$	1,448,399
December 31, 2015
Pass	$	192,560	$	219,060	$	710,042	$	62,255	$	109,959	$	73,154	$	22,307	$	3,260	$	1,392,597
Special Mention	22,457		12,371		372		—		1,100		—		—		—		36,300
Substandard	4,260		9,167		3,739		3,239		1,173		—		332		421		22,331
Total loans	$	219,277	$	240,598	$	714,153	$	65,494	$	112,232	$	73,154	$	22,639	$	3,681	$	1,451,228

Troubled Debt Restructurings on Financing Receivables

The table below summarizes outstanding TDR loans by loan class as of June 30, 2016 and December 31, 2015. The summary includes both TDRs that are on non-accrual status and those that continue to accrue interest.



(in thousands)
Recorded investment in Troubled Debt Restructurings ¹	June 30, 2016		December 31, 2015
Commercial and industrial	$	3,676	$	4,698
Commercial real estate, owner-occupied	6,992		6,993
Commercial real estate, investor	2,317		514
Construction ²	3,238		3,238
Home equity	677		460
Other residential	1,987		2,010
Installment and other consumer	1,079		1,168
Total	$	19,966	$	19,081

¹Includes $19.9 million and $19.0 million of TDR loans that were accruing interest as of June 30, 2016 and December 31, 2015, respectively. Includes $618 thousand and $137 thousand of acquired loans at June 30, 2016 and December 31, 2015, 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 additional 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 charged-off TDR loans and loans modified in a TDR and subsequently paid-off during the years presented.



(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 June 30, 2016:
Commercial real estate, investor	1	$	281	$	281	$	281
Home equity ¹	1	87		222		222
Total	2	$	368	$	503	$	503

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 six months ended June 30, 2016:
Commercial real estate, investor	2	$	1,830	$	1,826	$	1,808
Home equity ¹	1	87		222		222
Total	3	$	1,917	$	2,048	$	2,030

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

¹The home equity TDR modification during the second quarter of 2016 included debt consolidation which increased the post-modification balance.

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
June 30, 2016
Recorded investment in impaired loans:
With no specific allowance recorded	$	1,059	$	—	$	1,676	$	2,688	$	789	$	1,198	$	159	$	7,569
With a specific allowance recorded	2,637		7,169		2,317		550		606		789		982		15,050
Total recorded investment in impaired loans	$	3,696	$	7,169	$	3,993	$	3,238	$	1,395	$	1,987	$	1,141	$	22,619
Unpaid principal balance of impaired loans	$	3,697	$	7,169	$	5,984	$	3,238	$	1,411	$	1,987	$	1,142	$	24,628
Specific allowance	671		98		472		5		12		64		99		1,421
Average recorded investment in impaired loans during the quarter ended June 30, 2016	3,771		7,081		3,917		3,238		1,286		1,993		1,184		22,470
Interest income recognized on impaired loans during the quarter ended June 30, 2016	44		66		22		32		6		23		12		205
Average recorded investment in impaired loans during the six months ended June 30, 2016	4,027		7,037		3,523		3,238		1,077		1,998		1,211		22,111
Interest income recognized on impaired loans during the six months ended June 30, 2016	98		133		38		70		11		45		25		420
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



(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, 2015
Recorded investment in impaired loans:
With no specific allowance recorded	$	2,198	$	4,111	$	2,416	$	2,687	$	171	$	1,214	$	131	$	12,928
With a specific allowance recorded	2,522		2,882		—		551		388		797		1,120		8,260
Total recorded investment in impaired loans	$	4,720	$	6,993	$	2,416	$	3,238	$	559	$	2,011	$	1,251	$	21,188
Unpaid principal balance of impaired loans	$	4,763	$	6,993	$	4,408	$	3,424	$	559	$	2,011	$	1,251	$	23,409
Specific allowance	$	912	$	70	$	—	$	1	$	3	$	67	$	116	$	1,169

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
Three months ended June 30, 2016
Allowance for loan losses:
Beginning balance	$	2,799		$	1,619		$	6,571		$	822		$	1,044		$	430		$	434		$	1,309	$	15,028
Provision (reversal)	(192		)	12			19			9			31			(4		)	(20		)	145		—
Charge-offs	—			—			—			—			—			—			(4		)	—		(4		)
Recoveries	30			—			5			—			1			—			27			—		63
Ending balance	$	2,637		$	1,631		$	6,595		$	831		$	1,076		$	426		$	437		$	1,454	$	15,087
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



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
Six months ended June 30, 2016
Allowance for loan losses:
Beginning balance	$	3,023		$	2,249		$	6,178		$	724		$	910		$	394	$	425		$	1,096	$	14,999
Provision (reversal)	(440		)	(618		)	407			107			165			32		(11		)	358		—
Charge-offs	(9		)	—			—			—			—			—		(4		)	—		(13		)
Recoveries	63			—			10			—			1			—		27			—		101
Ending balance	$	2,637		$	1,631		$	6,595		$	831		$	1,076		$	426	$	437		$	1,454	$	15,087
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 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
June 30, 2016
Ending ALLL related to loans collectively evaluated for impairment	$	1,966		$	1,533		$	6,123		$	826		$	1,064		$	362		$	338		$	1,454	$	13,666
Ending ALLL related to loans individually evaluated for impairment	671			98			472			5			12			64			99			—		1,421
Ending ALLL related to purchased credit-impaired loans	—			—			—			—			—			—			—			—		—
Total	$	2,637		$	1,631		$	6,595		$	831		$	1,076		$	426		$	437		$	1,454	$	15,087
Loans outstanding:
Collectively evaluated for impairment	$	211,522		$	233,896		$	697,750		$	73,786		$	110,774		$	71,774		$	23,415		$	—	$	1,422,917
Individually evaluated for impairment	3,696			7,169			3,993			3,238			1,395			1,987			1,141			—		22,619
Purchased credit-impaired	39			1,038			1,715			—			71			—			—			—		2,863
Total	$	215,257		$	242,103		$	703,458		$	77,024		$	112,240		$	73,761		$	24,556		$	—	$	1,448,399
Ratio of allowance for loan losses to total loans	1.23		%	0.67		%	0.94		%	1.08		%	0.96		%	0.58		%	1.78		%	NM		1.04		%
Allowance for loan losses to non-accrual loans	12,557		%	927		%	393		%	NM			136		%	NM			694		%	NM		554		%

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
December 31, 2015
Ending ALLL related to loans collectively evaluated for impairment	$	2,111		$	2,179		$	6,178		$	723		$	907		$	327		$	309		$	1,096	$	13,830
Ending ALLL related to loans individually evaluated for impairment	904			70			—			—			3			67			116			—		1,160
Ending ALLL related to purchased credit-impaired loans	8			—			—			1			—			—			—			—		9
Total	$	3,023		$	2,249		$	6,178		$	724		$	910		$	394		$	425		$	1,096	$	14,999
Loans outstanding:
Collectively evaluated for impairment	$	214,695		$	233,605		$	711,737		$	62,256		$	111,673		$	71,143		$	21,388		$	—	$	1,426,497
Individually evaluated for impairment¹	4,582			6,993			2,416			3,238			559			2,011			1,251			—		21,050
Purchased credit-impaired	175			1,711			1,726			1			68			—			—			—		3,681
Total	$	219,452		$	242,309		$	715,879		$	65,495		$	112,300		$	73,154		$	22,639		$	—	$	1,451,228
Ratio of allowance for loan losses to total loans	1.38		%	0.93		%	0.86		%	1.11		%	0.81		%	0.54		%	1.88		%	NM		1.03		%
Allowance for loan losses to non-accrual loans	14,395		%	NM			325		%	72,400		%	532		%	NM			512		%	NM		688		%

¹ Total excludes $138 thousand PCI loans as of December 31, 2015 that have experienced credit deterioration 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

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

The following table presents the outstanding balances and related carrying values of PCI loans as of June 30, 2016 and December 31, 2015.



	June 30, 2016				December 31, 2015
PCI Loans (in thousands)	Unpaid principal balance		Carrying value		Unpaid principal balance		Carrying value
Commercial and industrial	$	50	$	39	$	237	$	175
Commercial real estate	3,104		2,753		4,329		3,437
Construction	—		—		187		1
Home equity	221		71		224		68
Total purchased credit-impaired loans	$	3,375	$	2,863	$	4,977	$	3,681

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
(in thousands)	June 30, 2016			June 30, 2015			June 30, 2016			June 30, 2015
Balance at beginning of period	$	1,742		$	3,831		$	2,618		$	4,027
Removals ¹	—			—			(778		)	(77		)
Accretion	(87		)	(120		)	(185		)	(239		)
Reclassifications from nonaccretable difference ²	—			—			—			—
Balance at end of period	$	1,655		$	3,711		$	1,655		$	3,711

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.