Loans and Allowance for Loan Losses (Tables)

12 Months Ended

Dec. 31, 2018

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



Loan Aging Analysis by Class
(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, 2018
30-59 days past due	$	5	$	—	$	1,004	$	—	$	—			$	112	$	1,121
60-89 days past due	—		—		—		—		—		—		—		—
90 days or more past due	—		—		—		—		—		—		—		—
Total past due	5		—		1,004		—		—		—		112		1,121
Current	230,734		313,277		872,406		76,423		124,696		117,847		27,360		1,762,743
Total loans ²	$	230,739	$	313,277	$	873,410	$	76,423	$	124,696	$	117,847	$	27,472	$	1,763,864
Non-accrual loans¹	$	319	$	—	$	—	$	—	$	313	$	—	$	65	$	697
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 ²	$	235,835	$	300,963	$	822,984	$	63,828	$	132,467	$	95,526	$	27,410	$	1,679,013
Non-accrual loans ¹	$	—	$	—	$	—	$	—	$	406	$	—	$	—	$	406

¹ Includes no purchased credit impaired ("PCI") loans at December 31, 2018. Three purchased credit impaired loans with unpaid balances totaling $131 thousand and no carrying values were not accreting interest at December 31, 2017. Amounts exclude accreting PCI loans of $2.1 million and December 31, 2018 and 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 December 31, 2018 or 2017.

² Amounts include net deferred loan origination costs of $635 thousand and $818 thousand at December 31, 2018 and 2017, respectively. Amounts are also net of unaccreted purchase discounts on non-PCI loans of $708 thousand and $1.2 million at December 31, 2018 and 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 December 31, 2018 and 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
December 31, 2018
Pass	$	219,625	$	299,998	$	870,443	$	73,735	$	122,844	$	117,847	$	27,312	$	2,112	$	1,733,916
Special Mention	9,957		4,106		2,156		—		1,121		—		—		—		17,340
Substandard	1,126		7,986		—		2,688		648		—		160		—		12,608
Total loans	$	230,708	$	312,090	$	872,599	$	76,423	$	124,613	$	117,847	$	27,472	$	2,112	$	1,763,864
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 December 31, 2018 and December 31, 2017.



(in thousands)	As of
Recorded investment in Troubled Debt Restructurings¹	December 31, 2018		December 31, 2017
Commercial and industrial	$	1,506	$	2,165
Commercial real estate, owner-occupied	6,993		6,999
Commercial real estate, investor	1,821		2,171
Construction	2,688		2,969
Home equity	251		347
Other residential	462		1,148
Installment and other consumer²	685		721
Total	$	14,406	$	16,520

¹Includes no acquired TDR loans as of December 31, 2018 or December 31, 2017.

²There were two TDR loans on non-accrual status with recorded investments totaling $65 thousand at December 31, 2018 and no TDR loans on non-accrual status at 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 modified during 2018:
Commercial and industrial	2	$	254	$	245	$	172
TDRs modified during 2017:
Installment and other consumer	1	$	50	$	50	$	47

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
December 31, 2018
Recorded investment in impaired loans:
With no specific allowance recorded	$	303	$	—	$	—	$	2,688	$	313	$	462	$	111	$	3,877
With a specific allowance recorded	1,522		6,993		1,821		—		251		—		574		11,161
Total recorded investment in impaired loans	$	1,825	$	6,993	$	1,821	$	2,688	$	564	$	462	$	685	$	15,038
Unpaid principal balance of impaired loans	$	1,813	$	6,993	$	1,812	$	2,688	$	562	$	461	$	684	$	15,013
Specific allowance	$	466	$	189	$	45	$	—	$	5	$	—	$	73	$	778
Average recorded investment in impaired loans during 2018	$	1,980	$	7,000	$	1,904	$	2,803	$	671	$	915	$	704	$	15,977
Interest income recognized on impaired loans during 2018 ¹	$	239	$	266	$	83	$	156	$	19	$	45	$	29	$	837
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
Average recorded investment in impaired loans during 2017	$	2,113	$	6,998	$	2,842	$	3,132	$	679	$	1,324	$	841	$	17,929
Interest income recognized on impaired loans during 2017 ¹	$	202	$	266	$	87	$	147	$	24	$	62	$	37	$	825
¹Interest income recognized on a cash basis totaled $135 thousand and $100 thousand in 2018 and 2017, respectively, and was primarily related to the payoff of non-accrual commercial PCI loans.

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 Year Ended
(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
Year ended December 31, 2018
Beginning balance	$	3,654		$	2,294	$	6,475	$	681		$	1,031		$	536	$	378		$	718		$	15,767
Provision (reversal)	(1,232		)	113		1,228		75			(116		)	264		(108		)	(224		)	—
Charge-offs	(3		)	—		—		—			—			—		(2		)	—			(5		)
Recoveries	17			—		—		—			—			—		42			—			59
Ending balance	$	2,436		$	2,407	$	7,703	$	756		$	915		$	800	$	310		$	494		$	15,821
Year ended December 31, 2017
Beginning balance	$	3,248		$	1,753	$	6,320	$	781		$	973		$	454	$	372		$	1,541		$	15,442
Provision (reversal)	584			541		155		(100		)	58			82		3			(823		)	500
Charge-offs	(289		)	—		—		—			—			—		(4		)	—			(293		)
Recoveries	111			—		—		—			—			—		7			—			118
Ending balance	$	3,654		$	2,294	$	6,475	$	681		$	1,031		$	536	$	378		$	718		$	15,767



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, 2018
Ending ALLL related to loans collectively evaluated for impairment	$	1,970		$	2,218		$	7,658		$	756		$	910		$	800		$	237		$	494	$	15,043
Ending ALLL related to loans individually evaluated for impairment	466			189			45			—			5			—			73			—		778
Ending ALLL related to purchased credit-impaired loans	—			—			—			—			—			—			—			—		—
Ending balance	$	2,436		$	2,407		$	7,703		$	756		$	915		$	800		$	310		$	494	$	15,821
Recorded Investment:
Collectively evaluated for impairment	$	228,883		$	305,097		$	870,778		$	73,735		$	124,049		$	117,385		$	26,787		$	—	$	1,746,714
Individually evaluated for impairment	1,825			6,993			1,821			2,688			564			462			685			—		15,038
Purchased credit-impaired	31			1,187			811			—			83			—			—			—		2,112
Total	$	230,739		$	313,277		$	873,410		$	76,423		$	124,696		$	117,847		$	27,472		$	—	$	1,763,864
Ratio of allowance for loan losses to total loans	1.06		%	0.77		%	0.88		%	0.99		%	0.73		%	0.68		%	1.13		%	NM		0.90		%
Allowance for loan losses to non-accrual loans	764		%	NM			NM			NM			292		%	NM			477		%	NM		2,270		%

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
Loans outstanding:
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	December 31, 2018				December 31, 2017
(in thousands)	Unpaid Principal Balance		Carrying Value		Unpaid Principal Balance		Carrying Value
Commercial and industrial	$	89	$	31	$	276	$	65
Commercial real estate, owner occupied	1,247		1,187		1,297		1,166
Commercial real estate, investor	1,033		811		1,064		790
Home equity	210		83		231		94
Total purchased credit-impaired loans	$	2,579	$	2,112	$	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	Years ended
(in thousands)	December 31, 2018			December 31, 2017
Balance at beginning of period	$	1,254		$	1,476
Additions	—			109
Accretion	(320		)	(331		)
Balance at end of period	$	934		$	1,254

Schedule of Related Party Transactions

The following table shows changes in net loans to related parties for each of the two years ended December 31, 2018 and 2017:



(in thousands)	2018			2017
Balance at beginning of year	$	11,852		$	1,988
Additions	863			3,186
Advances	—			74
Repayments	(2,080		)	(128		)
Reclassified due to a change in borrower status¹	—			6,732
Balance at end of year	$	10,635		$	11,852

¹During 2017, two new directors joined our Board of Directors resulting in the reclassification of existing loans to those directors and their businesses to related party status.