Loans and Allowance for Loan Losses (Tables)

3 Months Ended

Mar. 31, 2017

The following table shows outstanding loans by class and payment aging as of March 31, 2017 and December 31, 2016.



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
March 31, 2017
30-59 days past due	$	600	$	133	$	—	$	—	$	77	$	—	$	24	$	834
60-89 days past due	—		—		1,076		—		—		—		—		1,076
90 days or more past due	—		—		—		—		—		—		—		—
Total past due	600		133		1,076		—		77		—		24		1,910
Current	219,160		254,047		711,005		67,162		115,103		84,720		24,463		1,475,660
Total loans ³	$	219,760	$	254,180	$	712,081	$	67,162	$	115,180	$	84,720	$	24,487	$	1,477,570
Non-accrual loans ²	$	—	$	—	$	1,076	$	—	$	87	$	—	$	52	$	1,215
December 31, 2016
30-59 days past due	$	283	$	—	$	—	$	—	$	77	$	—	$	2	$	362
60-89 days past due	—		—		—		—		—		—		49		49
90 days or more past due	—		—		—		—		91		—		—		91
Total past due	283		—		—		—		168		—		51		502
Current	218,332		247,713		724,228		74,809		117,039		78,549		25,444		1,486,114
Total loans ³	$	218,615	$	247,713	$	724,228	$	74,809	$	117,207	$	78,549	$	25,495	$	1,486,616
Non-accrual loans ²	$	—	$	—	$	—	$	—	$	91	$	—	$	54	$	145

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 There were no purchased credit impaired ("PCI") loans that had stopped accreting interest at March 31, 2017 and December 31, 2016. Amounts exclude accreting PCI loans of $2.9 million at March 31, 2017 and December 31, 2016, 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 March 31, 2017 or December 31, 2016.

³ Amounts include net deferred loan origination costs of $808 thousand and $883 thousand at March 31, 2017 and December 31, 2016, respectively. Amounts are also net of unaccreted purchase discounts on non-PCI loans of $1.6 million and $1.8 million at March 31, 2017 and December 31, 2016, respectively.

Financing Receivable Credit Quality Indicators

The following table represents an analysis of the carrying amount in loans, net of deferred fees and costs and purchase premiums or discounts, by internally assigned risk grades, including PCI loans, at March 31, 2017 and December 31, 2016.



Credit Risk Profile by Internally Assigned Risk 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
March 31, 2017
Pass	$	201,777	$	239,437	$	707,223	$	63,921	$	113,868	$	84,720	$	24,081	$	2,937	$	1,437,964
Special Mention	4,554		4,573		249		—		—		—		—		—		9,376
Substandard	13,388		9,077		2,909		3,241		1,209		—		406		—		30,230
Total loans	$	219,719	$	253,087	$	710,381	$	67,162	$	115,077	$	84,720	$	24,487	$	2,937	$	1,477,570
December 31, 2016
Pass	$	201,987	$	234,849	$	720,417	$	71,564	$	115,680	$	78,549	$	25,083	$	2,920	$	1,451,049
Special Mention	9,197		4,799		607		—		1,334		—		—		—		15,937
Substandard	7,391		6,993		1,498		3,245		91		—		412		—		19,630
Total loans	$	218,575	$	246,641	$	722,522	$	74,809	$	117,105	$	78,549	$	25,495	$	2,920	$	1,486,616

Troubled Debt Restructurings on Financing Receivables

The following table summarizes the carrying amount of TDR loans by loan class as of March 31, 2017 and December 31, 2016. 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	March 31, 2017		December 31, 2016
Commercial and industrial	$	2,070	$	2,207
Commercial real estate, owner-occupied	7,001		6,993
Commercial real estate, investor	2,235		2,256
Construction	3,241		3,245
Home equity	623		625
Other residential	1,175		1,965
Installment and other consumer	895		877
Total	$	17,240	$	18,168

¹There were no TDR loans on non-accrual status at March 31, 2017 and December 31, 2016.

The following table presents information for loans modified in a TDR during the presented periods, including the 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 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 March 31, 2017:
Installment and other consumer	1	$	50	$	50	$	50
Troubled Debt Restructurings during the three months ended March 31, 2016:
Commercial real estate, investor	1	$	1,549	$	1,546	$	1,541

Impaired Financing Receivables

The following tables summarize information by class on impaired loans and their related allowances. 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
March 31, 2017
Recorded investment in impaired loans:
With no specific allowance recorded	$	314	$	—	$	1,076	$	2,690	$	88	$	1,175	$	99	$	5,442
With a specific allowance recorded	1,756		7,001		2,235		551		623		—		847		13,013
Total recorded investment in impaired loans	$	2,070	$	7,001	$	3,311	$	3,241	$	711	$	1,175	$	946	$	18,455
Unpaid principal balance of impaired loans	$	2,054	$	6,993	$	3,323	$	3,238	$	708	$	1,174	$	946	$	18,436
Specific allowance	28		157		374		6		10		—		98		673
Average recorded investment in impaired loans during the quarter ended March 31, 2017	2,138		6,997		2,783		3,243		713		1,571		939		18,384
Interest income recognized on impaired loans during the quarter ended March 31, 2017 ¹	23		66		23		34		8		19		10		183
Average recorded investment in impaired loans during the quarter ended March 31, 2016	4,283		6,993		3,129		3,238		868		2,004		1,239		21,754
Interest income recognized on impaired loans during the quarter ended March 31, 2016 ¹	57		66		16		38		4		23		13		217

¹No interest income on impaired loans was recognized on a cash basis during the three months ended March 31, 2017 and March 31, 2016.



(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, 2016
Recorded investment in impaired loans:
With no specific allowance recorded	$	315	$	—	$	—	$	2,692	$	91	$	1,008	$	103	$	4,209
With a specific allowance recorded	1,892		6,993		2,256		553		624		957		829		14,104
Total recorded investment in impaired loans	$	2,207	$	6,993	$	2,256	$	3,245	$	715	$	1,965	$	932	$	18,313
Unpaid principal balance of impaired loans	$	2,177	$	6,993	$	2,252	$	3,238	$	713	$	1,965	$	932	$	18,270
Specific allowance	$	285	$	163	$	375	$	8	$	7	$	55	$	98	$	991

Allowance for Credit Losses on Financing Receivables

The following tables disclose activity in the allowance for loan losses ("ALLL") and the recorded investment in loans by class, 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 March 31, 2017
Beginning balance	$	3,248		$	1,753		$	6,320		$	781		$	973	$	454		$	372		$	1,541		$	15,442
Provision (reversal)	1,386			239			(187		)	(235		)	17		(10		)	(11		)	(1,199		)	—
Charge-offs	(284		)	—			—			—			—		—			(3		)	—			(287		)
Recoveries	63			—			—			—			—		—			1			—			64
Ending balance	$	4,413		$	1,992		$	6,133		$	546		$	990	$	444		$	359		$	342		$	15,219
Three months ended March 31, 2016
Beginning balance	$	3,023		$	2,249		$	6,178		$	724		$	910	$	394		$	425		$	1,096		$	14,999
Provision (reversal)	(247		)	(630		)	388			98			133		36			9			213			—
Charge-offs	(9		)	—			—			—			—		—			—			—			(9		)
Recoveries	32			—			5			—			1		—			—			—			38
Ending balance	$	2,799		$	1,619		$	6,571		$	822		$	1,044	$	430		$	434		$	1,309		$	15,028



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
March 31, 2017
Ending ALLL related to loans collectively evaluated for impairment	$	4,385		$	1,835		$	5,759		$	540		$	980		$	444		$	261		$	342	$	14,546
Ending ALLL related to loans individually evaluated for impairment	28			157			374			6			10			—			98			—		673
Ending ALLL related to purchased credit-impaired loans	—			—			—			—			—			—			—			—		—
Ending balance	$	4,413		$	1,992		$	6,133		$	546		$	990		$	444		$	359		$	342	$	15,219
Recorded Investment:
Collectively evaluated for impairment	$	217,649		$	246,086		$	707,070		$	63,921		$	114,366		$	83,545		$	23,541		$	—	$	1,456,178
Individually evaluated for impairment	2,070			7,001			3,311			3,241			711			1,175			946			—		18,455
Purchased credit-impaired	41			1,093			1,700			—			103			—			—			—		2,937
Total	$	219,760		$	254,180		$	712,081		$	67,162		$	115,180		$	84,720		$	24,487		$	—	$	1,477,570
Ratio of allowance for loan losses to total loans	2.01		%	0.78		%	0.86		%	0.81		%	0.86		%	0.52		%	1.47		%	NM		1.03		%
Allowance for loan losses to non-accrual loans	NM			NM			570		%	NM			1,138		%	NM			690		%	NM		1,253		%

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, 2016
Ending ALLL related to loans collectively evaluated for impairment	$	2,963		$	1,590		$	5,945		$	773		$	966		$	399		$	274		$	1,541	$	14,451
Ending ALLL related to loans individually evaluated for impairment	285			163			375			8			7			55			98			—		991
Ending ALLL related to purchased credit-impaired loans	—			—			—			—			—			—			—			—		—
Ending balance	$	3,248		$	1,753		$	6,320		$	781		$	973		$	454		$	372		$	1,541	$	15,442
Recorded Investment:
Collectively evaluated for impairment	$	216,368		$	239,648		$	720,266		$	71,564		$	116,390		$	76,584		$	24,563		$	—	$	1,465,383
Individually evaluated for impairment	2,207			6,993			2,256			3,245			715			1,965			932			—		18,313
Purchased credit-impaired	40			1,072			1,706			—			102			—			—			—		2,920
Total	$	218,615		$	247,713		$	724,228		$	74,809		$	117,207		$	78,549		$	25,495		$	—	$	1,486,616
Ratio of allowance for loan losses to total loans	1.49		%	0.71		%	0.87		%	1.04		%	0.83		%	0.58		%	1.46		%	NM		1.04		%
Allowance for loan losses to non-accrual loans	NM			NM			NM			NM			1,071		%	NM			683		%	NM		10,650		%

NM - Not Meaningful

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

The following table reflects the unpaid principal balance and related carrying value of PCI loans.



PCI Loans	March 31, 2017				December 31, 2016
(in thousands)	Unpaid Principal Balance		Carrying Value		Unpaid Principal Balance		Carrying Value
Commercial and industrial	$	42	$	41	$	45	$	40
Commercial real estate, owner occupied	1,332		1,093		1,344		1,072
Commercial real estate, investor	1,702		1,700		1,713		1,706
Home equity	247		103		248		102
Total purchased credit-impaired loans	$	3,323	$	2,937	$	3,350	$	2,920

Accretable Yield Activity

The activities in the accretable yield, or income expected to be earned over the remaining lives of the PCI loans were as follows:



Accretable Yield	Three months ended
(in thousands)	March 31, 2017			March 31, 2016
Balance at beginning of period	$	1,476		$	2,618
Additions	—			—
Removals ¹	—			(778		)
Accretion	(90		)	(98		)
Reclassifications from nonaccretable difference ²	—			—
Balance at end of period	$	1,386		$	1,742

¹Represents 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.