Loans and Allowance for Loan Losses (Tables)

9 Months Ended

Sep. 30, 2016

Outstanding loans by class and payment aging as of September 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
September 30, 2016
30-59 days past due	$	2	$	135	$	—	$	—	$	90	$	—	$	83	$	310
60-89 days past due	—		—		—		—		—		—		—		—
90 days or more past due	44		176		—		—		99		—		—		319
Total past due	46		311		—		—		189		—		83		629
Current	221,161		237,227		715,051		80,491		111,022		77,769		24,313		1,467,034
Total loans ³	$	221,207	$	237,538	$	715,051	$	80,491	$	111,211	$	77,769	$	24,396	$	1,467,663
Non-accrual ²	$	44	$	176	$	—	$	—	$	260	$	—	$	60	$	540
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 September 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 loans more than ninety days past due at September 30, 2016 or December 31, 2015.

³ Amounts include net deferred loan costs of $869 thousand and $768 thousand at September 30, 2016 and December 31, 2015, respectively. Amounts are also net of unaccreted purchase discounts on non-PCI loans of $1.9 million and $3.2 million at September 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 September 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
September 30, 2016
Pass	$	203,784	$	224,502	$	711,192	$	77,253	$	108,908	$	77,769	$	23,976	$	2,874	$	1,430,258
Special Mention	8,859		4,478		356		—		1,120		—		—		—		14,813
Substandard	8,524		7,505		1,793		3,238		1,112		—		420		—		22,592
Total loans	$	221,167	$	236,485	$	713,341	$	80,491	$	111,140	$	77,769	$	24,396	$	2,874	$	1,467,663
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 September 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	September 30, 2016		December 31, 2015
Commercial and industrial	$	2,964	$	4,698
Commercial real estate, owner-occupied	6,993		6,993
Commercial real estate, investor	2,299		514
Construction ²	3,238		3,238
Home equity	696		460
Other residential	1,974		2,010
Installment and other consumer	1,024		1,168
Total	$	19,188	$	19,081

¹Includes $19.1 million and $19.0 million of TDR loans that were accruing interest as of September 30, 2016 and December 31, 2015, respectively. Includes no acquired loans at September 30, 2016 and $137 thousand of acquired loans at December 31, 2015.

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 September 30, 2016:
None	—	$	—	$	—	$	—

Troubled Debt Restructurings during the three months ended September 30, 2015:
Commercial and industrial	1	$	700	$	700	$	700



Troubled Debt Restructurings during the nine months ended September 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 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

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
September 30, 2016
Recorded investment in impaired loans:
With no specific allowance recorded	$	1,102	$	—	$	—	$	2,688	$	260	$	1,189	$	108	$	5,347
With a specific allowance recorded	1,906		7,169		2,299		550		625		785		976		14,310
Total recorded investment in impaired loans	$	3,008	$	7,169	$	2,299	$	3,238	$	885	$	1,974	$	1,084	$	19,657
Unpaid principal balance of impaired loans	$	3,008	$	7,169	$	2,299	$	3,238	$	885	$	1,974	$	1,084	$	19,657
Specific allowance	569		108		474		5		34		59		94		1,343
Average recorded investment in impaired loans during the quarter ended September 30, 2016	3,352		7,169		3,146		3,238		1,140		1,981		1,113		21,139
Interest income recognized on impaired loans during the quarter ended September 30, 2016 ¹	44		67		1,385		32		38		22		12		1,600
Average recorded investment in impaired loans during the nine months ended September 30, 2016	3,802		7,081		3,397		3,238		1,098		1,993		1,179		21,788
Interest income recognized on impaired loans during the nine months ended September 30, 2016 ¹	142		133		1,489		105		48		67		37		2,021
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

¹Interest income recognized on a cash basis totaled $1.4 million for the three and nine months ended September 30, 2016 and was primarily related to the interest recovery upon the pay-off of a partially charged off non-accrual commercial real estate loan during the third quarter. No interest interest income on impaired loans was recognized on a cash basis during the three and nine months ended September 30, 2015.



(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 September 30, 2016
Allowance for loan losses:
Beginning balance	$	2,637		$	1,631		$	6,595		$	831	$	1,076		$	426		$	437		$	1,454		$	15,087
Provision (reversal)	828			(10		)	(2,416		)	105		(125		)	22			(73		)	119			(1,550		)
Charge-offs	—			—			—			—		—			—			—			—			—
Recoveries	29			—			2,146			—		1			—			—			—			2,176
Ending balance	$	3,494		$	1,621		$	6,325		$	936	$	952		$	448		$	364		$	1,573		$	15,713
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



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
Nine months ended September 30, 2016
Allowance for loan losses:
Beginning balance	$	3,023		$	2,249		$	6,178		$	724		$	910		$	394		$	425		$	1,096	$	14,999
Provision (reversal)	388			(628		)	(2,009		)	212			40			54			(84		)	477		(1,550		)
Charge-offs	(9		)	—			—			—			—			—			(4		)	—		(13		)
Recoveries	92			—			2,156			—			2			—			27			—		2,277
Ending balance	$	3,494		$	1,621		$	6,325		$	936		$	952		$	448		$	364		$	1,573	$	15,713
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 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
September 30, 2016
Ending ALLL related to loans collectively evaluated for impairment	$	2,925		$	1,513		$	5,851		$	931		$	918		$	389		$	270		$	1,573	$	14,370
Ending ALLL related to loans individually evaluated for impairment	569			108			474			5			34			59			94			—		1,343
Ending ALLL related to purchased credit-impaired loans	—			—			—			—			—			—			—			—		—
Total	$	3,494		$	1,621		$	6,325		$	936		$	952		$	448		$	364		$	1,573	$	15,713
Loans outstanding:
Collectively evaluated for impairment	$	218,159		$	229,316		$	711,042		$	77,253		$	110,255		$	75,795		$	23,312		$	—	$	1,445,132
Individually evaluated for impairment	3,008			7,169			2,299			3,238			885			1,974			1,084			—		19,657
Purchased credit-impaired	40			1,053			1,710			—			71			—			—			—		2,874
Total	$	221,207		$	237,538		$	715,051		$	80,491		$	111,211		$	77,769		$	24,396		$	—	$	1,467,663
Ratio of allowance for loan losses to total loans	1.58		%	0.68		%	0.88		%	1.16		%	0.86		%	0.58		%	1.49		%	NM		1.07		%
Allowance for loan losses to non-accrual loans	7,941		%	921		%	NM			NM			366		%	NM			607		%	NM		2,910		%

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 September 30, 2016 and December 31, 2015.



	September 30, 2016				December 31, 2015
PCI Loans (in thousands)	Unpaid principal balance		Carrying value		Unpaid principal balance		Carrying value
Commercial and industrial	$	47	$	40	$	237	$	175
Commercial real estate	3,080		2,763		4,329		3,437
Construction	—		—		187		1
Home equity	220		71		224		68
Total purchased credit-impaired loans	$	3,347	$	2,874	$	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						Nine months ended
(in thousands)	September 30, 2016			September 30, 2015			September 30, 2016			September 30, 2015
Balance at beginning of period	$	1,655		$	3,711		$	2,618		$	4,027
Removals ¹	—			(837		)	(778		)	(914		)
Accretion	(89		)	(128		)	(274		)	(367		)
Reclassifications from nonaccretable difference ²	—			—			—			—
Balance at end of period	$	1,566		$	2,746		$	1,566		$	2,746

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.