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Allowance for Loan and Lease Losses
 3 Months Ended
Mar. 31, 2015
Loans and Leases Receivable Disclosure [Abstract]  
Allowance for Loan and Lease Losses

6. Allowance for Loan and Lease Losses

 

Originated Loans and Leases

Management reviews the appropriateness of the allowance for loan and lease losses (“allowance”) on a regular basis. Management considers the accounting policy relating to the allowance to be a critical accounting policy, given the inherent uncertainty in evaluating the levels of the allowance required to cover credit losses in the portfolio and the material effect that assumptions could have on the Company’s results of operations. The Company has developed a methodology to measure the amount of estimated loan loss exposure inherent in the loan portfolio to assure that an appropriate allowance is maintained. The Company’s methodology is based upon guidance provided in SEC Staff Accounting Bulletin No. 102, Selected Loan Loss Allowance Methodology and Documentation Issues and ASC Topic 310, Receivables and ASC Topic 450, Contingencies.

 

The model is comprised of five major components that management has deemed appropriate in evaluating the appropriateness of the allowance for loan and lease losses. While none of these components, when used independently, is effective in arriving at a reserve level that appropriately measures the risk inherent in the portfolio, management believes that using them collectively, provides reasonable measurement of the loss exposure in the portfolio. The five components include: impaired loans; individually reviewed and graded loans; past due and nonaccrual loans; historical loss experience; and qualitative or subjective analysis.

 

Since the methodology is based upon historical experience and trends as well as management’s judgment, factors may arise that result in different estimates. Significant factors that could give rise to changes in these estimates may include, but are not limited to, changes in economic conditions in the local area, concentration of risk, changes in interest rates, and declines in local property values. While management’s evaluation of the allowance as of March 31, 2015, considers the allowance to be appropriate, under adversely different conditions or assumptions, the Company would need to increase or decrease the allowance.

 

Acquired Loans and Leases

 

Acquired loans accounted for under ASC 310-30

 

For our acquired loans, our allowance for loan losses is estimated based upon our expected cash flows for these loans. To the extent that we experience a deterioration in borrower credit quality resulting in a decrease in our expected cash flows subsequent to the acquisition of the loans, an allowance for loan losses would be established based on our estimate of future credit losses over the remaining life of the loans.

 

Acquired loans accounted for under ASC 310-20

 

We establish our allowance for loan losses through a provision for credit losses based upon an evaluation process that is similar to our evaluation process used for originated loans. This evaluation, which includes a review of loans on which full collectability may not be reasonably assured, considers, among other matters, the estimated fair value of the underlying collateral, economic conditions, historical net loan loss experience, carrying value of the loans, which includes the remaining net purchase discount or premium, and other factors that warrant recognition in determining our allowance for loan losses.

 

The following tables detail activity in the allowance for loan and lease losses segregated by originated and acquired loan and lease portfolios and by portfolio segment for the three months ended March 31, 2015 and 2014. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.

  

Three months ended March 31, 2015                  
(in thousands)  Commercial and
Industrial		  Commercial Real Estate  Residential Real Estate  Consumer and Other  Finance Leases  Total
Allowance for originated loans and leases                              
Beginning balance  $9,157   $12,069   $5,030   $1,900   $0   $28,156 
Charge-offs   (2)   (14)   (93)   (267)   0    (376)
Recoveries   147    208    47    168    0    570 
Provision (credit)   528    75    (319)   56        340 
Ending Balance  $9,830   $12,338   $4,665   $1,857   $0   $28,690 

 

 

Three months ended March 31, 2015                  
(in thousands)  Commercial and
Industrial		  Commercial Real Estate  Residential Real Estate  Consumer and Other  Finance Leases  Total
Allowance for acquired loans                              
Beginning balance  $431   $337   $51   $22   $0   $841 
Charge-offs   (1)   0    (30)   0    0    (31)
Recoveries   7    107    2    0    0    116 
Provision (credit)   126    (278)   20    1    0    (131)
Ending Balance  $563   $166   $43   $23   $0   $795 
                   
Three months ended March 31, 2014                  
(in thousands)  Commercial and Industrial  Commercial Real Estate  Residential Real Estate  Consumer and Other  Finance Leases  Total
Allowance for originated loans and leases                              
Beginning balance  $8,406   $10,459   $5,771   $2,059   $5   $26,700 
Charge-offs   (121)   (180)   (193)   (252)   0    (746)
Recoveries   65    2    12    117    0    196 
Provision (credit)   419    134    (222)   185    (5)   511 
Ending Balance  $8,769   $10,415   $5,368   $2,109   $0   $26,661 
                   
Three months ended March 31, 2014                  
(in thousands)  Commercial and Industrial  Commercial Real Estate  Residential Real Estate  Consumer and Other  Covered Loans  Total
Allowance for acquired loans                              
Beginning balance  $168   $770   $274   $58   $0   $1,270 
Charge-offs   (19)   (25)   (99)   (6)   0    (149)
Recoveries   0    0    0    0    0    0 
Provision (credit)   149    74    (105)   114    0    232 
Ending Balance  $298   $819   $70   $166   $0   $1,353 
                   
At March 31, 2015 and December 31, 2014, the allocation of the allowance for loan and lease losses summarized on the basis of the Company’s impairment methodology was as follows:
                   
(in thousands)  Commercial and Industrial  Commercial Real Estate  Residential Real Estate  Consumer and Other  Finance Leases  Total
Allowance for originated loans and leases                  
March 31, 2015                  
Individually evaluated for impairment  $0   $1,678   $0   $0   $0   $1,678 
Collectively evaluated for impairment   9,830    10,660    4,665    1,857    0    27,012 
Ending balance  $9,830   $12,338   $4,665   $1,857   $0   $28,690 

 

 

(in thousands)  Commercial and
Industrial		  Commercial Real Estate  Residential Real Estate  Consumer and Other  Covered Loans  Total
Allowance for acquired loans                    
March 31, 2015                              
Individually evaluated for impairment  $354   $160   $0   $0   $0   $514 
Collectively evaluated for Impairment   209    6    43    23    0    281 
Ending balance  $563   $166   $43   $23   $0   $795 
                   
                   
(in thousands)  Commercial and Industrial  Commercial Real Estate  Residential Real Estate  Consumer and Other  Finance Leases  Total
Allowance for originated loans and leases            
December 31, 2014                  
Individually evaluated for impairment  $0   $652   $0   $0   $0   $652 
Collectively evaluated for Impairment   9,157    11,417    5,030    1,900    0    27,504 
Ending balance  $9,157   $12,069   $5,030   $1,900   $0   $28,156 
                   
                   
(in thousands)  Commercial and Industrial  Commercial Real Estate  Residential Real Estate  Consumer and Other  Covered Loans  Total
Allowance for acquired loans            
December 31, 2014                  
Individually evaluated for impairment  $414   $100   $0   $0   $0   $514 
Collectively evaluated for impairment   17    237    51    22    0    327 
Ending balance  $431   $337   $51   $22   $0   $841 

 

The recorded investment in loans and leases summarized on the basis of the Company’s impairment methodology as of March 31, 2015 and December 31, 2014 was as follows:

  

(in thousands)  Commercial and
Industrial		  Commercial Real Estate  Residential Real Estate  Consumer and Other  Finance Leases  Total
Originated loans and leases            
March 31, 2015                  
Individually evaluated for impairment  $1,048   $8,872   $924   $0   $0   $10,844 
Collectively evaluated for impairment   764,977    1,137,999    920,265    53,663    13,106    2,890,010 
Total  $766,025   $1,146,871   $921,189   $53,663   $13,106   $2,900,854 

 

 

(in thousands)  Commercial and
Industrial		  Commercial Real Estate  Residential Real Estate  Consumer and Other  Covered Loans  Total
Acquired loans                  
March 31, 2015                  
Individually evaluated for impairment  $1,201   $3,321   $947   $0   $0   $5,469 
Loans acquired with deteriorated credit quality  $763   $11,569   $3,657   $0   $15,014   $31,003 
Collectively evaluated for impairment   91,049    319,496    79,206    1,047    1,754    492,552 
Total  $93,013   $334,386   $83,810   $1,047   $16,768   $529,024 

  

(in thousands)  Commercial and
Industrial		  Commercial Real Estate  Residential Real Estate  Consumer and Other  Finance Leases  Total
Originated loans and leases                  
December 31, 2014                  
Individually evaluated for impairment  $1,283    7,675   $1,408   $0   $0   $10,366 
Collectively evaluated for impairment   765,753    1,103,367    896,453    54,172    12,251    2,831,996 
Total  $767,036   $1,111,042   $897,861   $54,172   $12,251   $2,842,362 

 

(in thousands)  Commercial and
Industrial		  Commercial Real Estate  Residential Real Estate  Consumer and Other  Covered Loans  Total
Acquired loans                  
December 31, 2014                  
Individually evaluated for impairment  $628    1,195   $440   $0   $0   $2,263 
Loans acquired with deteriorated credit quality   995    11,640    3,669    0    18,106    34,410 
Collectively evaluated for impairment   95,411    334,741    84,181    1,095    1,213    516,641 
Total  $97,034   $347,576   $88,290   $1,095   $19,319   $553,314 

 

A loan is impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement. Impaired loans consist of our non-homogenous nonaccrual loans, and all loans restructured in a troubled debt restructuring (TDR). Specific reserves on individually identified impaired loans that are not collateral dependent are measured based on the present value of expected future cash flows discounted at the original effective interest rate of each loan. For loans that are collateral dependent, impairment is measured based on the fair value of the collateral less estimated selling costs, and such impaired amounts are generally charged off. The majority of impaired loans are collateral dependent impaired loans that have limited exposure or require limited specific reserves because of the amount of collateral support with respect to these loans, and previous charge-offs. Interest payments on impaired loans are typically applied to principal unless collectability of the principal amount is reasonably assured. In these cases, interest is recognized on a cash basis.

 

 

  

03/31/2015

 

12/31/2014

(in thousands)  Recorded Investment  Unpaid Principal Balance  Related Allowance  Recorded Investment  Unpaid Principal Balance  Related Allowance
Originated loans and leases with no related allowance
Commercial and industrial                  
Commercial and industrial other  $248   $262   $0   $1,283   $1,307   $0 
Commercial real estate                              
Commercial real estate other   7,994    8,646    0    6,021    6,628    0 
Residential real estate                              
Home equity   924    944    0    1,408    1,499    0 
Subtotal  $9,166   $9,852   $0   $8,712   $9,434   $0 
                               
Originated loans and leases with related allowance                         
                               
Commercial real estate                              
Commercial real estate other   1,678    1,702    735    1,654    1,654    652 
Subtotal  $1,678   $1,702   $735   $1,654   $1,654   $652 
Total  $10,844   $11,554   $735   $10,366   $11,088   $652 

 

  03/31/2015  12/31/2014
(in thousands)  Recorded Investment  Unpaid Principal Balance  Related Allowance  Recorded Investment  Unpaid Principal Balance  Related Allowance
Acquired loans and leases with no related allowance                  
Commercial and industrial                              
Commercial and industrial other  $389   $626   $0   $64   $64   $0 
Commercial real estate                              
Construction   372    372    0    0    0    0 
Commercial real estate other   2,308    2,334    0    941    1,204    0 
Residential real estate                              
Home equity   947    947    0    440    440    0 
Subtotal  $4,016   $4,279   $0   $1,445   $1,708   $0 
Acquired loans and leases with related allowance                              
Commercial and industrial                              
Commercial and industrial other   812    812    354    564    564    414 
Commercial real estate                              
Commercial real estate other   641    641    160    254    254    100 
Subtotal  $1,453   $1,453   $514   $818   $818   $514 
Total  $5,469   $5,732   $514   $2,263   $2,526   $514 

 

 

The average recorded investment and interest income recognized on impaired loans for the three months ended March 31, 2015 and 2014 was as follows:

 

  Three Months Ended  Three Months Ended
    03/31/2015    03/31/2014
(in thousands)   Average Recorded Investment    Interest Income Recognized    Average Recorded Investment    Interest Income Recognized 
Originated loans and leases with no related allowance                    
Commercial and industrial                    
Commercial and industrial other   786    0    3,047    0 
Commercial real estate                    
Construction   0    0    5,966    0 
Commercial real estate other   8,471    0    9,840    0 
Residential real estate                    
Home equity   924    0    1,057    0 
Subtotal  $10,181   $0   $19,910   $0 
Originated loans and leases with related allowance                    
Commercial real estate other   1,678    0    453    0 
Subtotal  $1,678   $0   $453   $0 
Total  $11,859   $0   $20,363   $0 

 

  Three Months Ended  Three Months Ended
    03 /31/2015 

03/31/2014
(in thousands)   Average Recorded Investment    Interest Income Recognized    Average Recorded Investment    Interest Income Recognized 
Acquired loans and leases with no related allowance                    
Commercial and industrial                    
Commercial and industrial other   581    0    1,084    0 
Commercial real estate                    
Construction   373    0    2,028    0 
Commercial real estate other   2,480    0    6,081    5 
Residential real estate                    
Home equity   947    0    88    0 
Subtotal  $4,381   $0   $9,281   $5 
Acquired loans and leases with related allowance                    
Commercial and industrial                    
Commercial and industrial other   815    0    0    0 
Commercial real estate                    
Commercial real estate other   245    0    0    0 
Subtotal  $1,060   $0   $0   $0 
Total  $5,441   $0   $9,281   $5 

 

Loans are considered modified in a TDR when, due to a borrower’s financial difficulties, the Company makes a concession(s) to the borrower that it would not otherwise consider. These modifications may include, among others, an extension for the term of the loan, and granting a period when interest-only payments can be made with the principal payments made over the remaining term of the loan or at maturity.

 

 

The following tables present information on loans modified in troubled debt restructuring during the periods indicated.

 

March 31, 2015

   

Three months ended

 
                  Defaulted TDRs4  
(in thousands)    Number of Loans    Pre-Modification Outstanding Recorded Investment    Post-Modification Outstanding Recorded Investment    Number of Loans    Post-Modification Outstanding Recorded Investment  
Commercial and industrial                         
Commercial and industrial other1    2   $319    319    0   $0 
Commercial real estate                         
Commercial real estate other2    2    614    614    0    0 
Residential real estate                          

Home equity3 		   9    1,108    1,108    0    0 
Total    13   $2,041    2,041    0   $0 

1 Represents the following concessions: extension of term
2 Represents the following concessions: extension of term and reduction of rate (1 loan: $28,000) and extension of term (1 loan: $585,000)
3 Represents the following concessions: extension of term and reduction of rate (6 loans: $732,000) and reduction of rate (3 loans : $376,000)
4 TDRs that defaulted during the last three months that were restructured in the prior twelve months.

 

March 31, 2014   Three months ended 
                   Defaulted TDRs1 
(in thousands)    Number of Loans    Pre-Modification Outstanding Recorded Investment    Post-Modification Outstanding Recorded Investment    Number of Loans    Post-Modification Outstanding Recorded Investment  
Commercial and industrial                          
Commercial and industrial other    0   $0    0    1   $63 
Residential real estate                          
Home equity    0    0    0    1    195 
Total    0   $0    0    2   $258 

1 TDRs that defaulted in the quarter ended March 31, 2014 that had been restructured in the prior twelve months.

 

The following tables present credit quality indicators (internal risk grade) by class of commercial and industrial loans and commercial real estate loans as of March 31, 2015 and December 31, 2014.

 

March 31, 2015                  
(in thousands)  Commercial
and Industrial
Other		  Commercial
and Industrial
Agriculture		  Commercial
Real Estate
Other		  Commercial
Real Estate
Agriculture		  Commercial
Real Estate
Construction		  Total
Originated Loans and Leases                  
Internal risk grade:                  
Pass  $692,901   $58,390   $981,283   $59,231   $66,976   $1,858,781 
Special Mention   9,941    184    21,009    150    3,681    34,965 
Substandard   4,441    168    14,017    524    0    19,150 
Total  $707,283   $58,742   $1,016,309   $59,905   $70,657   $1,912,896 

 

 

March 31, 2015                  
(in thousands)  Commercial
and Industrial
Other		  Commercial
and Industrial
Agriculture		  Commercial
Real Estate
Other		  Commercial
Real Estate
Agriculture		  Commercial
Real Estate
Construction		  Total
Acquired Loans and Leases                  
Internal risk grade:                  
Pass  $88,844   $0   $267,113   $2,344   $42,293   $400,594 
Special Mention   1,280    0    3,773    0    0    5,053 
Substandard   2,889    0    16,937    0    1,926    21,752 
Total  $93,013   $0   $287,823   $2,344   $44,219   $427,399 
                   
December 31, 2014                  
(in thousands)  Commercial
and Industrial
Other		  Commercial
and Industrial
Agriculture		  Commercial
Real Estate
Other		  Commercial
Real Estate
Agriculture		  Commercial
Real Estate
Construction		  Total
Originated Loans and Leases                  
Internal risk grade:                  
Pass  $670,478   $78,250   $945,898   $58,455   $68,696   $1,821,777 
Special Mention   12,602    151    19,692    155    3,731    36,331 
Substandard   5,449    106    14,031    384    0    19,970 
Total  $688,529   $78,507   $979,621   $58,994   $72,427   $1,878,078 
                   
December 31, 2014                  
(in thousands)  Commercial
and Industrial
Other		  Commercial
and Industrial
Agriculture		  Commercial
Real Estate
Other		  Commercial
Real Estate
Agriculture		  Commercial
Real Estate
Construction		  Total
Acquired Loans and Leases                  
Internal risk grade:                  
Pass  $94,054   $0   $15,611   $1,352   $306,268   $417,285 
Special Mention   83    0    5,675    0    0    5,758 
Substandard   2,897    0    14,620    1,830    2,220    21,567 
Total  $97,034   $0   $35,906   $3,182   $308,488   $444,610 

 

The following tables present credit quality indicators by class of residential real estate loans and by class of consumer loans. Nonperforming loans include nonaccrual, impaired, and loans 90 days past due and accruing interest. All other loans are considered performing as of March 31, 2015 and December 31, 2014. For purposes of this footnote, acquired loans that were recorded at fair value at the acquisition date and are 90 days or greater past due are considered performing.

 

March 31, 2015               
(in thousands)  Residential Home Equity  Residential Mortgages  Consumer Indirect  Consumer Other  Total
Originated Loans and Leases               
Performing  $187,113   $725,857   $17,654   $35,766   $966,390 
Nonperforming   1,433    6,786    62    181    8,462 
Total  $188,546   $732,643   $17,716   $35,947   $974,852 

 

 

March 31, 2015               
(in thousands)  Residential Home Equity  Residential Mortgages  Consumer Indirect  Consumer Other  Total
Acquired Loans and Leases               
Performing  $52,099   $30,130   $0   $1,047   $83,276 
Nonperforming   616    965    0    0    1,581 
Total  $52,715   $31,095   $0   $1,047   $84,857 
                
December 31, 2014               
(in thousands)  Residential Home Equity  Residential Mortgages  Consumer Indirect  Consumer Other  Total
Originated Loans and Leases               
Performing  $185,619   $704,663   $18,197   $35,626   $944,105 
Nonperforming   1,338    6,241    101    248    7,928 
Total  $186,957   $710,904   $18,298   $35,874   $952,033 

 

                
December 31, 2014               
(in thousands)  Residential Home Equity  Residential Mortgages  Consumer Indirect  Consumer Other  Total
Acquired Loans and Leases               
Performing  $55,416   $31,304   $0   $1,095   $87,815 
Nonperforming   592    978    0    0    1,570 
Total  $56,008   $32,282   $0   $1,095   $89,385