Loans and Allowance for Loan Losses (Tables)

6 Months Ended

Jun. 30, 2018

The following table shows outstanding loans by class and payment aging as of June 30, 2018 and December 31, 2017.



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, 2018
30-59 days past due	$	—	$	—	$	—	$	—	$	77	$	—	$	11	$	88
60-89 days past due	—		—		—		—		—		—		—		—
90 days or more past due	—		—		—		—		—		—		—		—
Total past due	—		—		—		—		77		—		11		88
Current	241,994		317,587		839,667		57,015		125,954		108,829		26,477		1,717,523
Total loans ³	$	241,994	$	317,587	$	839,667	$	57,015	$	126,031	$	108,829	$	26,488	$	1,717,611
Non-accrual loans ²	$	—	$	—	$	—	$	—	$	385	$	—	$	—	$	385
December 31, 2017
30-59 days past due	$	—	$	—	$	—	$	—	$	99	$	255	$	330	$	684
60-89 days past due	1,340		—		—		—		—		—		—		1,340
90 days or more past due	—		—		—		—		307		—		—		307
Total past due	1,340		—		—		—		406		255		330		2,331
Current	234,495		300,963		822,984		63,828		132,061		95,271		27,080		1,676,682
Total loans ³	$	235,835	$	300,963	$	822,984	$	63,828	$	132,467	$	95,526	$	27,410	$	1,679,013
Non-accrual loans ²	$	—	$	—	$	—	$	—	$	406	$	—	$	—	$	406

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 One purchased credit impaired ("PCI") loan with an unpaid balance of $6 thousand and no carrying value was not accreting interest at June 30, 2018. Three PCI loans with unpaid balances totaling $131 thousand and no carrying values were not accreting interest at December 31, 2017. Amounts exclude accreting PCI loans totaling $2.1 million at both June 30, 2018 and December 31, 2017 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, 2018 or December 31, 2017.

³ Amounts include net deferred loan origination costs of $800 thousand and $818 thousand at June 30, 2018 and December 31, 2017, respectively. Amounts are also net of unaccreted purchase discounts on non-PCI loans of $956 thousand and $1.2 million at June 30, 2018 and December 31, 2017, 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 June 30, 2018 and December 31, 2017.



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
June 30, 2018
Pass	$	224,707	$	299,469	$	836,634	$	54,324	$	124,103	$	108,829	$	26,389	$	2,140	$	1,676,595
Special Mention	14,842		8,904		2,232		—		1,121		—		—		—		27,099
Substandard	2,403		8,005		—		2,691		719		—		99		—		13,917
Total loans	$	241,952	$	316,378	$	838,866	$	57,015	$	125,943	$	108,829	$	26,488	$	2,140	$	1,717,611
December 31, 2017
Pass	$	214,636	$	281,104	$	818,570	$	60,859	$	130,558	$	95,526	$	27,287	$	1,325	$	1,629,865
Special Mention	9,318		9,284		1,850		—		—		—		—		790		21,242
Substandard	11,816		9,409		1,774		2,969		1,815		—		123		—		27,906
Total loans	$	235,770	$	299,797	$	822,194	$	63,828	$	132,373	$	95,526	$	27,410	$	2,115	$	1,679,013

Troubled Debt Restructurings on Financing Receivables

The following table summarizes the carrying amount of TDR loans by loan class as of June 30, 2018 and December 31, 2017.



(in thousands)
Recorded investment in Troubled Debt Restructurings ¹	June 30, 2018		December 31, 2017
Commercial and industrial	$	1,917	$	2,165
Commercial real estate, owner-occupied	7,002		6,999
Commercial real estate, investor	1,844		2,171
Construction	2,691		2,969
Home equity	348		347
Other residential	988		1,148
Installment and other consumer	704		721
Total	$	15,494	$	16,520

¹There were no TDR loans on non-accrual status at June 30, 2018 and December 31, 2017.

The following table presents information for loans modified in a TDR during the presented periods, including the number of modified contracts, the recorded investment in the loans prior to modification, and the recorded investment in the loans at period end 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
TDRs during the three months ended June 30, 2018:
Commercial and industrial	2	$	254	$	245	$	235
TDRs during the three months ended June 30, 2017:
None	—	$	—	$	—	$	—



TDRs during the six months ended June 30, 2018:
Commercial and industrial	2	$	254	$	245	$	235
TDRs during the six months ended June 30, 2017:
Installment and consumer	1	$	50	$	50	$	49

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
June 30, 2018
Recorded investment in impaired loans:
With no specific allowance recorded	$	306	$	—	$	—	$	2,691	$	385	$	989	$	46	$	4,417
With a specific allowance recorded	1,611		7,002		1,844		—		347		—		658		11,462
Total recorded investment in impaired loans	$	1,917	$	7,002	$	1,844	$	2,691	$	732	$	989	$	704	$	15,879
Unpaid principal balance of impaired loans	$	1,905	$	6,993	$	1,837	$	2,688	$	729	$	987	$	703	$	15,842
Specific allowance	232		126		47		—		6		—		92		503
Average recorded investment in impaired loans during the quarter ended June 30, 2018	2,092		7,005		1,849		2,833		736		990		708		16,213
Interest income recognized on impaired loans during the quarter ended June 30, 2018¹	28		66		20		37		5		13		8		177
Average recorded investment in impaired loans during the six months ended June 30, 2018	2,104		7,003		1,956		2,878		742		1,043		712		16,438
Interest income recognized on impaired loans during the six months ended June 30, 2018 ¹	183		132		42		75		10		26		15		483
Average recorded investment in impaired loans during the quarter ended June 30, 2017	2,072		7,000		3,283		3,240		642		1,173		943		18,353
Interest income recognized on impaired loans during the quarter ended June 30, 2017¹	25		66		20		37		7		14		10		179
Average recorded investment in impaired loans during the six months ended June 30, 2017	2,117		6,998		2,941		3,241		667		1,437		939		18,340
Interest income recognized on impaired loans during the six months ended June 30, 2017 ¹	48		132		43		71		14		34		20		362

¹No interest income on impaired loans was recognized on a cash basis during the three months ended June 30, 2018. Interest income recognized on a cash basis totaled $128 thousand during the six months ended June 30, 2018 and was primarily related to the pay-off of two non-accrual commercial PCI loans. No interest income on impaired loans was recognized on a cash basis during the three and six months ended June 30, 2017.



(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, 2017
Recorded investment in impaired loans:
With no specific allowance recorded	$	309	$	—	$	—	$	2,689	$	406	$	995	$	46	$	4,445
With a specific allowance recorded	1,856		6,999		2,171		280		347		153		675		12,481
Total recorded investment in impaired loans	$	2,165	$	6,999	$	2,171	$	2,969	$	753	$	1,148	$	721	$	16,926
Unpaid principal balance of impaired loans	$	2,278	$	6,993	$	2,168	$	2,963	$	750	$	1,147	$	720	$	17,019
Specific allowance	$	50	$	188	$	159	$	7	$	6	$	1	$	102	$	513

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 June 30, 2018
Beginning balance	$	3,693		$	2,080	$	6,455		$	697		$	979		$	543	$	351		$	973		$	15,771
Provision (reversal)	(1,098		)	259		935			(189		)	(27		)	203		(66		)	(17		)	—
Charge-offs	(3		)	—		—			—			—			—		(2		)	—			(5		)
Recoveries	5			—		—			—			—			—		42			—			47
Ending balance	$	2,597		$	2,339	$	7,390		$	508		$	952		$	746	$	325		$	956		$	15,813
Three months ended June 30, 2017
Beginning balance	$	4,413		$	1,992	$	6,133		$	546		$	990		$	444	$	359		$	342		$	15,219
Provision (reversal)	(490		)	90		(68		)	(135		)	(9		)	65		(23		)	570			—
Charge-offs	—			—		—			—			—			—		—			—			—
Recoveries	9			—		—			—			—			—		4			—			13
Ending balance	$	3,932		$	2,082	$	6,065		$	411		$	981		$	509	$	340		$	912		$	15,232



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, 2018
Allowance for loan losses:
Beginning balance	$	3,654		$	2,294	$	6,475		$	681		$	1,031		$	536	$	378		$	718		$	15,767
Provision (reversal)	(1,063		)	45		915			(173		)	(79		)	210		(93		)	238			—
Charge-offs	(3		)	—		—			—			—			—		(2		)	—			(5		)
Recoveries	9			—		—			—			—			—		42			—			51
Ending balance	$	2,597		$	2,339	$	7,390		$	508		$	952		$	746	$	325		$	956		$	15,813
Six months ended June 30, 2017
Allowance for loan losses:
Beginning balance	$	3,248		$	1,753	$	6,320		$	781		$	973		$	454	$	372		$	1,541		$	15,442
Provision (reversal)	896			329		(255		)	(370		)	8			55		(34		)	(629		)	—
Charge-offs	(284		)	—		—			—			—			—		(3		)	—			(287		)
Recoveries	72			—		—			—			—			—		5			—			77
Ending balance	$	3,932		$	2,082	$	6,065		$	411		$	981		$	509	$	340		$	912		$	15,232



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, 2018
Ending ALLL related to loans collectively evaluated for impairment	$	2,365		$	2,213		$	7,343		$	508		$	946		$	746		$	233		$	956	$	15,310
Ending ALLL related to loans individually evaluated for impairment	232			126			47			—			6			—			92			—		503
Ending ALLL related to purchased credit-impaired loans	—			—			—			—			—			—			—			—		—
Ending balance	$	2,597		$	2,339		$	7,390		$	508		$	952		$	746		$	325		$	956	$	15,813
Recorded Investment:
Collectively evaluated for impairment	$	240,035		$	309,376		$	837,022		$	54,324		$	125,211		$	107,840		$	25,784		$	—	$	1,699,592
Individually evaluated for impairment	1,917			7,002			1,844			2,691			732			989			704			—		15,879
Purchased credit-impaired	42			1,209			801			—			88			—			—			—		2,140
Total	$	241,994		$	317,587		$	839,667		$	57,015		$	126,031		$	108,829		$	26,488		$	—	$	1,717,611
Ratio of allowance for loan losses to total loans	1.07		%	0.74		%	0.88		%	0.89		%	0.76		%	0.69		%	1.23		%	NM		0.92		%
Allowance for loan losses to non-accrual loans	NM			NM			NM			NM			247		%	NM			NM			NM		4,107		%

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, 2017
Ending ALLL related to loans collectively evaluated for impairment	$	3,604		$	2,106		$	6,316		$	674		$	1,025		$	535		$	276		$	718	$	15,254
Ending ALLL related to loans individually evaluated for impairment	50			188			159			7			6			1			102			—		513
Ending ALLL related to purchased credit-impaired loans	—			—			—			—			—			—			—			—		—
Ending balance	$	3,654		$	2,294		$	6,475		$	681		$	1,031		$	536		$	378		$	718	$	15,767
Recorded Investment:
Collectively evaluated for impairment	$	233,605		$	292,798		$	820,023		$	60,859		$	131,620		$	94,378		$	26,689		$	—	$	1,659,972
Individually evaluated for impairment	2,165			6,999			2,171			2,969			753			1,148			721			—		16,926
Purchased credit-impaired	65			1,166			790			—			94			—			—			—		2,115
Total	$	235,835		$	300,963		$	822,984		$	63,828		$	132,467		$	95,526		$	27,410		$	—	$	1,679,013
Ratio of allowance for loan losses to total loans	1.55		%	0.76		%	0.79		%	1.07		%	0.78		%	0.56		%	1.38		%	NM		0.94		%
Allowance for loan losses to non-accrual loans	NM			NM			NM			NM			254		%	NM			NM			NM		3,883		%

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	June 30, 2018				December 31, 2017
(in thousands)	Unpaid Principal Balance		Carrying Value		Unpaid Principal Balance		Carrying Value
Commercial and industrial	$	125	$	42	$	276	$	65
Commercial real estate, owner occupied	1,271		1,209		1,297		1,166
Commercial real estate, investor	1,049		801		1,064		790
Home equity	220		88		231		94
Total purchased credit-impaired loans	$	2,665	$	2,140	$	2,868	$	2,115

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						Six months ended
(in thousands)	June 30, 2018			June 30, 2017			June 30, 2018			June 30, 2017
Balance at beginning of period	$	1,142		$	1,386		$	1,254		$	1,476
Accretion	(83		)	(80		)	(195		)	(170		)
Balance at end of period	$	1,059		$	1,306		$	1,059		$	1,306