We maintain an allowance for loan losses, or ALL, at a level determined to be adequate to absorb estimated probable credit losses inherent in the loan portfolio as of the balance sheet date. We develop and document a systematic ALL methodology based on the following portfolio segments: 1) CRE, 2) C&I, 3) Commercial Construction, 4) Consumer Real Estate and 5) Other Consumer.

The following are key risks within each portfolio segment:

CRE—Loans secured by commercial purpose real estate, including both owner occupied properties and investment properties, for various purposes such as hotels, strip malls and apartments. Operations of the individual projects as well as global cash flows of the debtors are the primary sources of repayment for these loans. The condition of the local economy is an important indicator of risk, but there are also more specific risks depending on the collateral type as well as the business prospects of the lessee, if the project is not owner occupied.

C&I—Loans made to operating companies or manufacturers for the purpose of production, operating capacity, accounts receivable, inventory or equipment financing. Cash flow from the operations of the company is the primary source of repayment for these loans. The condition of the local economy is an important indicator of risk, but there are also more specific risks depending on the industry of the company. Collateral for these types of loans often do not have sufficient value in a distressed or liquidation scenario to satisfy the outstanding debt.

Commercial Construction—Loans made to finance construction of buildings or other structures, as well as to finance the acquisition and development of raw land for various purposes. While the risk of these loans is generally confined to the construction period, if there are problems, the project may not be complete, and as such, may not provide sufficient cash flow on its own to service the debt or have sufficient value in a liquidation to cover the outstanding principal. The condition of the local economy is an important indicator of risk, but there are also more specific risks depending on the type of project and the experience and resources of the developer.

Consumer Real Estate—Loans secured by first and second liens such as home equity loans, home equity lines of credit and 1-4 family residences, including purchase money mortgages. The primary source of repayment for these loans is the income and assets of the borrower. The condition of the local economy, in particular the unemployment rate, is an important indicator of risk for this segment. The state of the local housing market can also have a significant impact on this segment because low demand and/or declining home values can limit the ability of borrowers to sell a property and satisfy the debt.

Other Consumer—Loans made to individuals that may be secured by assets other than 1-4 family residences, as well as unsecured loans. This segment includes auto loans, unsecured loans and lines and credit cards. The primary source of repayment for these loans is the income and assets of the borrower. The condition of the local economy, in particular the unemployment rate, is an important indicator of risk for this segment. The value of the collateral, if there is any, is less likely to be a source of repayment due to less certain collateral values.

We further assess risk within each portfolio segment by pooling loans with similar risk characteristics. For the commercial loan classes, the most important indicator of risk is the internally assigned risk rating, including pass, special mention and substandard. Consumer loans are pooled by type of collateral, lien position and loan to value ratio for consumer real estate loans. Historical loss rates are applied to these loan pools to determine the reserve for loans collectively evaluated for impairment.

We continually monitor our ALL methodology to ensure that it is responsive to the current economic environment. No changes were made to our ALL methodology for the six months ended June 30, 2014.

Management monitors various credit quality indicators for both the commercial and consumer loan portfolios, including delinquency, nonperforming status and changes in risk ratings on a monthly basis.

The following tables present the age analysis of past due loans segregated by class of loans as of June 30, 2014 and December 31, 2013:



	June 30, 2014
(dollars in thousands)	Current		30-59 Days Past Due		60-89 Days Past Due		Nonaccrual		Total Past Due		Total Loans
Commercial real estate	$	1,629,928	$	753	$	44	$	5,658	$	6,455	$	1,636,383
Commercial and industrial	918,846		559		249		2,537		3,345		922,191
Commercial construction	185,428		—		1,014		1,869		2,883		188,311
Residential mortgage	488,551		1,022		898		2,118		4,038		492,589
Home equity	412,851		1,466		478		1,431		3,375		416,226
Installment and other consumer	65,380		364		68		26		458		65,838
Consumer construction	3,541		—		—		—		—		3,541
Loans held for sale	1,802		—		—		1,300		1,300		3,102
Totals	$	3,706,327	$	4,164	$	2,751	$	14,939	$	21,854	$	3,728,181

	December 31, 2013
(dollars in thousands)	Current		30-59 Days Past Due		60-89 Days Past Due		Nonaccrual		Total Past Due		Total Loans
Commercial real estate	$	1,595,590	$	1,209	$	207	$	10,750	$	12,166	$	1,607,756
Commercial and industrial	836,276		2,599		278		3,296		6,173		842,449
Commercial construction	139,133		1,049		751		2,742		4,542		143,675
Residential mortgage	481,260		828		1,666		3,338		5,832		487,092
Home equity	408,777		2,468		659		2,291		5,418		414,195
Installment and other consumer	67,420		382		44		37		463		67,883
Consumer construction	3,149		—		—		—		—		3,149
Loans held for sale	2,136		—		—		—		—		2,136
Totals	$	3,533,741	$	8,535	$	3,605	$	22,454	$	34,594	$	3,568,335

We continually monitor the commercial loan portfolio through an internal risk rating system. Loan risk ratings are assigned based upon the creditworthiness of the borrower and are reviewed on an ongoing basis according to our internal policies. Loans within the pass rating generally have a lower risk of loss than loans risk rated as special mention or substandard.

Our risk ratings are consistent with regulatory guidance and are as follows:

Pass—The loan is currently performing and is of high quality.

Special Mention—A special mention loan has potential weaknesses that warrant management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects or in the strength of our credit position at some future date. Economic and market conditions, beyond the borrower’s control, may in the future necessitate this classification.

Substandard—A substandard loan is not adequately protected by the net worth and/or paying capacity of the borrower or by the collateral pledged, if any. Substandard loans have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. These loans are characterized by the distinct possibility that we will sustain some loss if the deficiencies are not corrected.

The following tables summarize the recorded investment in commercial loan classes by internally assigned risk ratings as of the dates presented:



	June 30, 2014
(dollars in thousands)	Commercial Real Estate		% of Total		Commercial and Industrial		% of Total		Commercial Construction		% of Total		Total		% of Total
Pass	$	1,563,882	95.6	%	$	872,686	94.6	%	$	167,267	88.8	%	$	2,603,835	94.8	%
Special mention	45,275		2.8	%	33,966		3.7	%	12,882		6.8	%	92,123		3.4	%
Substandard	27,226		1.6	%	15,539		1.7	%	8,162		4.4	%	50,927		1.8	%
Total	$	1,636,383	100	%	$	922,191	100.0	%	$	188,311	100.0	%	$	2,746,885	100.0	%

	December 31, 2013
(dollars in thousands)	Commercial Real Estate		% of Total		Commercial and Industrial		% of Total		Commercial Construction		% of Total		Total		% of Total
Pass	$	1,519,720	94.5	%	$	792,029	94.0	%	$	119,177	82.9	%	$	2,430,926	93.7	%
Special mention	57,073		3.6	%	34,085		4.1	%	15,621		10.9	%	106,779		4.1	%
Substandard	30,963		1.9	%	16,335		1.9	%	8,877		6.2	%	56,175		2.2	%
Total	$	1,607,756	100.0	%	$	842,449	100.0	%	$	143,675	100.0	%	$	2,593,880	100.0	%

We monitor the delinquent status of the consumer portfolio on a monthly basis. Loans are considered nonperforming when interest and principal are 90 days or more past due or management has determined that a material deterioration in the borrower’s financial condition exists. The risk of loss is generally highest for nonperforming loans.

The following tables indicate the recorded investment in consumer loan classes by performing and nonperforming status as of the dates presented:



	June 30, 2014
(dollars in thousands)	Residential Mortgage		% of Total		Home Equity		% of Total		Installment and other consumer		% of Total		Consumer Construction		% of Total		Total		% of Total
Performing	$	490,471	99.6	%	$	414,795	99.7	%	$	65,812	99.9	%	$	3,541	100.0	%	$	974,619	99.6	%
Nonperforming	2,118		0.4	%	1,431		0.3	%	26		0.1	%	—		—	%	3,575		0.4	%
Total	$	492,589	100.0	%	$	416,226	100.0	%	$	65,838	100.0	%	$	3,541	100.0	%	$	978,194	100.0	%

	December 31, 2013
(dollars in thousands)	Residential Mortgage		% of Total		Home Equity		% of Total		Installment and other consumer		% of Total		Consumer Construction		% of Total		Total		% of Total
Performing	$	483,754	99.3	%	$	411,904	99.4	%	$	67,846	99.9	%	$	3,149	100.0	%	$	966,653	99.4	%
Nonperforming	3,338		0.7	%	2,291		0.6	%	37		0.1	%	—		—	%	5,666		0.6	%
Total	$	487,092	100.0	%	$	414,195	100.0	%	$	67,883	100.0	%	$	3,149	100.0	%	$	972,319	100.0	%

We individually evaluate all substandard and nonaccrual commercial loans greater than $0.5 million for impairment. Loans are considered to be impaired when based upon current information and events it is probable that we will be unable to collect all principal and interest payments due according to the original contractual terms of the loan agreement. All TDRs are considered to be impaired loans and will be reported as an impaired loan for the remaining life of the loan, unless the restructuring agreement specifies an interest rate equal to or greater than the rate that would be accepted at the time of the restructuring for a new loan with comparable risk and it is expected that the remaining principal and interest will be fully collected according to the restructured agreement. For all TDRs, regardless of size, as well as all other impaired loans, we conduct further analysis to determine the probable loss and assign a specific reserve to the loan if deemed appropriate.

The following table presents investments in loans considered to be impaired and related information on those impaired loans for the periods presented:



	June 30, 2014						December 31, 2013
(dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
Without a related allowance recorded:
Commercial real estate	$	21,228	$	28,296	$	—	$	26,968	$	35,474	$	—
Commercial and industrial	9,545		9,660		—		9,580		9,703		—
Commercial construction	8,179		11,866		—		7,391		12,353		—
Consumer real estate	7,082		7,629		—		8,026		9,464		—
Other consumer	107		109		—		124		128		—
Total without a Related Allowance Recorded	46,141		57,560		—		52,089		67,122		—
With a related allowance recorded:
Commercial real estate	—		—		—		—		—		—
Commercial and industrial	—		—		—		—		—		—
Commercial construction	—		—		—		681		1,383		25
Consumer real estate	47		47		47		53		53		53
Other consumer	21		21		11		33		33		19
Total with a Related Allowance Recorded	68		68		58		767		1,469		97
Total:
Commercial real estate	21,228		28,296		—		26,968		35,474		—
Commercial and industrial	9,545		9,660		—		9,580		9,703		—
Commercial construction	8,179		11,866		—		8,072		13,736		25
Consumer real estate	7,129		7,676		47		8,079		9,517		53
Other consumer	128		130		11		157		161		19
Total	$	46,209	$	57,628	$	58	$	52,856	$	68,591	$	97

As of June 30, 2014, CRE loans of $21.2 million comprised 46 percent of the total impaired loans of $46.2 million. These impaired loans are collateralized primarily by commercial real estate properties such as retail or strip malls, office buildings and various other types of commercial purpose properties. These loans are generally considered collateral dependent and charge-offs are recorded when a confirmed loss exists. Approximately $7.9 million of charge-offs have been recorded relating to these CRE loans over the life of these loans. It is our policy to order appraisals on an annual basis on impaired loans or sooner if facts and circumstances warrant. As of June 30, 2014, an estimated fair value less cost to sell of approximately $34.7 million existed for CRE impaired loans. We have current appraisals on all but $0.6 million of the $21.2 million of impaired CRE loans. We have not ordered an appraisal on this loan due to an outstanding settlement agreement with the borrower which would result in the collection of the remaining recorded investment in the loan.

The following tables summarize investments in loans considered to be impaired and related information on those impaired loans for the periods presented:



	For the Three Months Ended
	June 30, 2014				June 30, 2013
(dollars in thousands)	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Without a related allowance recorded:
Commercial real estate	$	21,382	$	159	$	30,956	$	174
Commercial and industrial	9,317		57		12,452		66
Commercial construction	8,279		57		16,376		87
Consumer real estate	7,166		100		8,708		156
Other consumer	109		1		114		2
Total without a Related Allowance Recorded	46,253		374		68,606		485
With a related allowance recorded:
Commercial real estate	—		—		2,084		—
Commercial and industrial	—		—		—		—
Commercial construction	—		—		—		—
Consumer real estate	48		1		86		4
Other consumer	22		—		28		1
Total with a Related Allowance Recorded	70		1		2,198		5
Total:
Commercial real estate	21,382		159		33,040		174
Commercial and industrial	9,317		57		12,452		66
Commercial construction	8,279		57		16,376		87
Consumer real estate	7,214		101		8,794		160
Other consumer	131		1		142		3
Total	$	46,323	$	375	$	70,804	$	490



	For the Six Months Ended
	June 30, 2014				June 30, 2013
(dollars in thousands)	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Without a related allowance recorded:
Commercial real estate	$	21,980	$	329	$	31,181	$	415
Commercial and industrial	9,066		114		12,449		135
Commercial construction	8,301		114		16,854		221
Consumer real estate	7,260		203		9,194		215
Other consumer	112		2		106		2
Total without a Related Allowance Recorded	46,719		762		69,784		988
With a related allowance recorded:
Commercial real estate	$	—	$	—	3,282		$	—
Commercial and industrial	—		—		—		—
Commercial construction	—		—		—		—
Consumer real estate	50		2		43		4
Other consumer	23		1		14		1
Total with a Related Allowance Recorded	73		3		3,339		5
Total:
Commercial real estate	21,980		329		34,463		415
Commercial and industrial	9,066		114		12,449		135
Commercial construction	8,301		114		16,854		221
Consumer real estate	7,310		205		9,237		219
Other consumer	135		3		120		3
Total	$	46,792	$	765	$	73,123	$	993

The following tables detail activity in the ALL for the periods presented:



	Three Months Ended June 30, 2014
(dollars in thousands)	Commercial Real Estate			Commercial and Industrial			Commercial Construction			Consumer Real Estate			Other Consumer			Total Loans
Balance at beginning of period	$	19,880		$	13,979		$	5,183		$	6,408		$	1,166		$	46,616
Charge-offs	(1,737		)	(743		)	(664		)	(425		)	(177		)	(3,746		)
Recoveries	1,294			2,936			324			164			126			4,844
Net Recoveries/ (Charge-offs)	(443		)	2,193			(340		)	(261		)	(51		)	1,098
Provision for loan losses	1,296			(3,168		)	(84		)	558			264			(1,134		)
Balance at End of Period	$	20,733		$	13,004		$	4,759		$	6,705		$	1,379		$	46,580


	Three Months Ended June 30, 2013
(dollars in thousands)	Commercial Real Estate			Commercial and Industrial			Commercial Construction			Consumer Real Estate			Other Consumer			Total Loans
Balance at beginning of period	$	24,442		$	8,676		$	6,603		$	5,259		$	956		$	45,936
Charge-offs	(1,170		)	(563		)	(54		)	(743		)	(399		)	(2,929		)
Recoveries	1,572			190			2			225			86			2,075
Net (Charge-offs)/ Recoveries	402			(373		)	(52		)	(518		)	(313		)	(854		)
Provision for loan losses	(1,360		)	820			(739		)	1,914			388			1,023
Balance at End of Period	$	23,484		$	9,123		$	5,812		$	6,655		$	1,031		$	46,105


	Six Months Ended June 30, 2014
(dollars in thousands)	Commercial Real Estate			Commercial and Industrial			Commercial Construction			Consumer Real Estate			Other Consumer			Total Loans
Balance at beginning of period	$	18,921		$	14,433		$	5,374		$	6,362		$	1,165		$	46,255
Charge-offs	(2,004		)	(1,033		)	(692		)	(547		)	(445		)	(4,721		)
Recoveries	1,834			3,249			375			223			210			5,891
Net Recoveries/ (Charge-offs)	(170		)	2,216			(317		)	(324		)	(235		)	1,170
Provision for loan losses	1,982			(3,645		)	(298		)	667			449			(845		)
Balance at End of Period	$	20,733		$	13,004		$	4,759		$	6,705		$	1,379		$	46,580


	Six Months Ended June 30, 2013
(dollars in thousands)	Commercial Real Estate			Commercial and Industrial			Commercial Construction			Consumer Real Estate			Other Consumer			Total Loans
Balance at beginning of period	$	25,246		$	7,759		$	7,500		$	5,058		$	921		$	46,484
Charge-offs	(2,809		)	(1,923		)	(443		)	(1,237		)	(651		)	(7,063		)
Recoveries	2,322			290			55			508			179			3,354
Net (Charge-offs)/ Recoveries	(487		)	(1,633		)	(388		)	(729		)	(472		)	(3,709		)
Provision for loan losses	(1,275		)	2,997			(1,300		)	2,326			582			3,330
Balance at End of Period	$	23,484		$	9,123		$	5,812		$	6,655		$	1,031		$	46,105

The following tables present the ALL and recorded investments in loans by category as of June 30, 2014 and December 31, 2013:



	June 30, 2014
	Allowance for Loan Losses						Portfolio Loans
(dollars in thousands)	Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Total		Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Total
Commercial real estate	$	—	$	20,733	$	20,733	$	21,228	$	1,615,155	$	1,636,383
Commercial and industrial	—		13,004		13,004		9,545		912,646		922,191
Commercial construction	—		4,759		4,759		8,179		180,132		188,311
Consumer real estate	47		6,658		6,705		7,129		905,227		912,356
Other consumer	11		1,368		1,379		128		65,710		65,838
Total	$	58	$	46,522	$	46,580	$	46,209	$	3,678,870	$	3,725,079

	December 31, 2013
	Allowance for Loan Losses						Portfolio Loans
(dollars in thousands)	Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Total		Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Total
Commercial real estate	$	—	$	18,921	$	18,921	$	26,968	$	1,580,788	$	1,607,756
Commercial and industrial	—		14,433		14,433		9,580		832,869		842,449
Commercial construction	25		5,349		5,374		8,072		135,603		143,675
Consumer real estate	53		6,309		6,362		8,079		896,357		904,436
Other consumer	19		1,146		1,165		157		67,726		67,883
Total	$	97	$	46,158	$	46,255	$	52,856	$	3,513,343	$	3,566,199