LOANS, ALLOWANCE FOR LOAN LOSSES AND CREDIT QUALITY

The following tables bifurcate the amount of allowance allocated to each loan category based on the type of impairment analysis as of the periods indicated:



	March 31, 2014
	(Dollars in thousands)
	Commercial and Industrial		Commercial Real Estate		Commercial Construction		Small Business		Residential Real Estate		Home Equity		Other Consumer		Total
Financing receivables ending balance:
Total loans by group	$	822,509	$	2,282,939	$	239,536	$	78,147	$	538,626	$	827,285	$	18,227	$	4,807,269	(1	)
Individually evaluated for impairment	$	8,554	$	37,076	$	100	$	1,852	$	16,602	$	5,133	$	1,186	$	70,503
Purchase credit impaired loans	$	1	$	18,439	$	192	$	—	$	10,170	$	315	$	14	$	29,131
Collectively evaluated for impairment	$	813,954	$	2,227,424	$	239,244	$	76,295	$	511,854	$	821,837	$	17,027	$	4,707,635



	December 31, 2013
	(Dollars in thousands)
	Commercial and Industrial		Commercial Real Estate		Commercial Construction		Small Business		Residential Real Estate		Home Equity		Other Consumer		Total
Financing receivables ending balance:
Total loans by group	$	784,202	$	2,249,260	$	223,859	$	77,240	$	541,443	$	822,141	$	20,162	$	4,718,307	(1	)
Individually evaluated for impairment	$	9,148	$	39,516	$	100	$	1,903	$	15,200	$	4,890	$	1,298	$	72,055
Purchase credit impaired loans	$	1	$	18,612	$	197	$	—	$	10,389	$	326	$	19	$	29,544
Collectively evaluated for impairment	$	775,053	$	2,191,132	$	223,562	$	75,337	$	515,854	$	816,925	$	18,845	$	4,616,708


(1)	The amount of net deferred fees included in the ending balance was $2.3 million at both March 31, 2014 and December 31, 2013.

The following tables summarize changes in allowance for loan losses by loan category for the periods indicated:



	Three Months Ended March 31, 2014
	(Dollars in thousands)
	Commercial and Industrial			Commercial Real Estate			Commercial Construction		Small Business			Residential Real Estate			Home Equity			Other Consumer			Total
Allowance for loan losses
Beginning balance	$	15,622		$	24,541		$	3,371	$	1,215		$	2,760		$	5,036		$	694		$	53,239
Charge-offs	(783		)	(2,922		)	—		(268		)	(128		)	(94		)	(371		)	(4,566		)
Recoveries	79			68			—		47			—			93			167			454
Provision	683			3,230			199		213			197			(277		)	257			4,502
Ending balance	$	15,601		$	24,917		$	3,570	$	1,207		$	2,829		$	4,758		$	747		$	53,629
Ending balance: Individually evaluated for impairment	$	647		$	369		$	—	$	109		$	1,641		$	114		$	62		$	2,942
Ending balance: Collectively evaluated for impairment	$	14,954		$	24,548		$	3,570	$	1,098		$	1,188		$	4,644		$	685		$	50,687
	Three Months Ended March 31, 2013
	(Dollars in thousands)
	Commercial and Industrial			Commercial Real Estate			Commercial Construction		Small Business			Residential Real Estate			Home Equity			Other Consumer			Total
Allowance for loan losses
Beginning balance	$	13,461		$	22,598		$	2,811	$	1,524		$	2,930		$	7,703		$	807		$	51,834
Charge-offs	(423		)	(407		)	—		(145		)	(61		)	(277		)	(261		)	(1,574		)
Recoveries	136			—			—		39			—			21			150			346
Provision	269			378			328		(174		)	179			269			51			1,300
Ending balance	$	13,443		$	22,569		$	3,139	$	1,244		$	3,048		$	7,716		$	747		$	51,906
Ending balance: Individually evaluated for impairment	$	771		$	385		$	—	$	113		$	1,577		$	58		$	119		$	3,023
Ending balance: Collectively evaluated for impairment	$	12,672		$	22,184		$	3,139	$	1,131		$	1,471		$	7,658		$	628		$	48,883

For the purpose of estimating the allowance for loan losses, management segregates the loan portfolio into the portfolio segments detailed in the above tables. Each of these loan categories possesses unique risk characteristics that are considered when determining the appropriate level of allowance for each segment. Some of the risk characteristics unique to each loan category include:

Commercial Portfolio

•

Commercial & Industrial: Loans in this category consist of revolving and term loan obligations extended to business and corporate enterprises for the purpose of financing working capital and/or capital investment. Collateral generally consists of pledges of business assets including, but not limited to: accounts receivable, inventory, plant & equipment, or real estate, if applicable. Repayment sources consist of: primarily, operating cash flow, and secondarily, liquidation of assets.

•

Commercial Real Estate: Loans in this category consist of mortgage loans to finance investment in real property such as multi-family residential, commercial/retail, office, industrial, hotels, educational and healthcare facilities and other specific use properties. Loans are typically written with amortizing payment structures. Collateral values are determined based upon third party appraisals and evaluations. Loan to value ratios at origination are governed by established policy and regulatory guidelines. Repayment sources consist of: primarily, cash flow from operating leases and rents, and secondarily, liquidation of assets.

•

Commercial Construction: Loans in this category consist of short-term construction loans, revolving and nonrevolving credit lines and construction/permanent loans to finance the acquisition, development and construction or rehabilitation of real property. Project types include: residential 1-4 family condominium and multi-family homes, commercial/retail, office, industrial, hotels, educational and healthcare facilities and other specific use properties. Loans may be written with nonamortizing or hybrid payment structures depending upon the type of project. Collateral values are determined based upon third party appraisals and evaluations. Loan to value ratios at origination are governed by established policy and regulatory guidelines. Repayment sources vary depending upon the type of project and may consist of: sale or lease of units, operating cash flows or liquidation of other assets.

•

Small Business: Loans in this category consist of revolving, term loan and mortgage obligations extended to sole proprietors and small businesses for purposes of financing working capital and/or capital investment. Collateral generally consists of pledges of business assets including, but not limited to: accounts receivable, inventory, plant & equipment, or real estate if applicable. Repayment sources consist of: primarily, operating cash flows, and secondarily, liquidation of assets.

For the commercial portfolio it is the Bank’s policy to obtain personal guarantees for payment from individuals holding material ownership interests of the borrowing entities.

Consumer Portfolio

•

Residential Real Estate: Residential mortgage loans held in the Bank’s portfolio are made to borrowers who demonstrate the ability to make scheduled payments with full consideration to underwriting factors such as current and expected income, employment status, current assets, other financial resources, credit history and the value of the collateral. Collateral consists of mortgage liens on 1-4 family residential properties. The Company does not originate sub-prime loans.

•

Home Equity: Home equity loans and lines are made to qualified individuals and are secured by senior or junior mortgage liens on owner-occupied 1-4 family homes, condominiums or vacation homes or on nonowner occupied 1-4 family homes with more restrictive loan to value requirements. The home equity loan has a fixed rate and is billed in equal payments comprised of principal and interest. The home equity line of credit has a variable rate and is billed in interest-only payments during the draw period. At the end of the draw period, the home equity line of credit is billed as a percentage of the principal balance plus all accrued interest. Additionally, the Bank has the option of renewing the line of credit for additional draw periods. Borrower qualifications include favorable credit history combined with supportive income requirements and combined loan to value ratios within established policy guidelines.

•

Other Consumer: Other consumer loan products including personal lines of credit and amortizing loans made to qualified individuals for various purposes such as education, auto loans, debt consolidation, personal expenses or overdraft protection. Borrower qualifications include favorable credit history combined with supportive income and collateral requirements within established policy guidelines. These loans may be secured or unsecured.

Credit Quality

The Company continually monitors the asset quality of the loan portfolio using all available information. Based on this information, loans demonstrating certain payment issues or other weaknesses may be categorized as delinquent, impaired, nonperforming and/or put on nonaccrual status. Additionally, in the course of resolving such loans, the Company may choose to restructure the contractual terms of certain loans to match the borrower’s ability to repay the loan based on their current financial condition. If a restructured loan meets certain criteria, it may be categorized as a troubled debt restructuring (“TDR”).

The Company reviews numerous credit quality indicators when assessing the risk in its loan portfolio. For the commercial portfolio, the Company utilizes a 10-point commercial risk-rating system, which assigns a risk-grade to each borrower based on a number of quantitative and qualitative factors associated with a commercial loan transaction. Factors considered include industry and market conditions, position within the industry, earnings trends, operating cash flow, asset/liability values, debt capacity, guarantor strength, management and controls, financial reporting, collateral, and other considerations. The risk-ratings categories are defined as follows:

•

1- 6 Rating — Pass: Risk-rating grades “1” through “6” comprise those loans ranging from ‘Substantially Risk Free’ which indicates borrowers are of unquestioned credit standing and the pinnacle of credit quality, well established companies with a very strong financial condition, and loans fully secured by cash collateral, through ‘Acceptable Risk’, which indicates borrowers may exhibit declining earnings, strained cash flow, increasing leverage and/or weakening market fundamentals that indicate above average or below average asset quality, margins and market share. Collateral coverage is protective.


•	7 Rating — Potential Weakness: Borrowers exhibit potential credit weaknesses or downward trends deserving management’s close attention. If not checked or corrected, these trends will weaken the Bank’s asset and position. While potentially weak, currently these borrowers are marginally acceptable; no loss of principal or interest is envisioned.

•

8 Rating — Definite Weakness: Borrowers exhibit well defined weaknesses that jeopardize the orderly liquidation of debt. Loan may be inadequately protected by the current net worth and paying capacity of the obligor or by the collateral pledged, if any. Normal repayment from the borrower is in jeopardy, although no loss of principal is envisioned. However, there is a distinct possibility that a partial loss of interest and/or principal will occur if the deficiencies are not corrected. Collateral coverage may be inadequate to cover the principal obligation.


•	9 Rating — Partial Loss Probable: Borrowers exhibit well defined weaknesses that jeopardize the orderly liquidation of debt with the added provision that the weaknesses make collection of the debt in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. Serious problems exist to the point where partial loss of principal is likely.


•	10 Rating — Definite Loss: Borrowers deemed incapable of repayment. Loans to such borrowers are considered uncollectible and of such little value that continuation as active assets of the Bank is not warranted.

The credit quality of the commercial loan portfolio is actively monitored and any changes in credit quality are reflected in risk-rating changes. Risk-ratings are assigned or reviewed for all new loans, when advancing significant additions to existing relationships (over $50,000), at least quarterly for all actively managed loans, and any time a significant event occurs, including at renewal of the loan.

The Company utilizes a comprehensive strategy for monitoring commercial credit quality. Borrowers are required to provide updated financial information at least annually which is carefully evaluated for any changes in credit quality. Larger loan relationships are subject to a full annual credit review by an experienced credit analysis group. Additionally, the Company retains an independent loan review firm to evaluate the credit quality of the commercial loan portfolio. The independent loan review process achieves significant penetration into the commercial loan portfolio and reports the results of these reviews to the Audit Committee of the Board of Directors on a quarterly basis.

The following table details the amount of outstanding principal balances relative to each of the risk-rating categories for the Company’s commercial portfolio:



		March 31, 2014
Category	Risk Rating	Commercial and Industrial		Commercial Real Estate		Commercial Construction		Small Business		Total
		(Dollars in thousands)
Pass	1 - 6	$	752,417	$	2,096,405	$	223,947	$	73,045	$	3,145,814
Potential weakness	7	44,354		104,090		10,929		3,086		162,459
Definite weakness-loss unlikely	8	23,303		72,774		4,560		1,846		102,483
Partial loss probable	9	2,435		9,670		100		170		12,375
Definite loss	10	—		—		—		—		—
Total		$	822,509	$	2,282,939	$	239,536	$	78,147	$	3,423,131



		December 31, 2013
Category	Risk Rating	Commercial and Industrial		Commercial Real Estate		Commercial Construction		Small Business		Total
		(Dollars in thousands)
Pass	1 - 6	$	736,996	$	2,068,995	$	210,372	$	71,514	$	3,087,877
Potential weakness	7	21,841		91,984		8,608		3,031		125,464
Definite weakness-loss unlikely	8	24,409		85,767		4,779		2,552		117,507
Partial loss probable	9	956		2,514		100		143		3,713
Definite loss	10	—		—		—		—		—
Total		$	784,202	$	2,249,260	$	223,859	$	77,240	$	3,334,561

For the Company’s consumer portfolio, the quality of the loan is best indicated by the repayment performance of an individual borrower. However, the Company does supplement performance data with current Fair Isaac Corporation (“FICO”) and Loan to Value (“LTV”) estimates. Current FICO data is purchased and appended to all consumer loans on a quarterly basis. In addition, automated valuation services and broker opinions of value are used to supplement original value data for the residential and home equity portfolios, periodically. The following table shows the weighted average FICO scores and the weighted average combined LTV ratios as of the periods indicated below:



	March 31, 2014		December 31, 2013
Residential portfolio
FICO score (re-scored) (1)	738		738
LTV (re-valued) (2)	67.1	%	67.0	%
Home equity portfolio
FICO score (re-scored) (1)	764		763
LTV (re-valued) (2)	53.1	%	53.0	%


(1)	The average FICO scores for March 31, 2014 are based upon rescores available from February 28, 2014 and origination score data for loans booked between March 1, 2014 and March 31, 2014. The average FICO scores for December 31, 2013 are based upon rescores available from November 30, 2013 and origination score data for loans booked between December 1, 2013 and December 31, 2013.

(2)

The combined LTV ratios for March 31, 2014 are based upon updated automated valuations as of February 28, 2013 and origination value data for loans booked between March 1, 2013 and March 31, 2014. The combined LTV ratios for December 31, 2013 are based upon updated automated valuations as of February 28, 2013 and origination value data for loans booked from March 1, 2013 through December 31, 2013. For home equity loans and lines in a subordinate lien, the LTV data represents a combined LTV, taking into account the senior lien data for loans and lines.

The Bank’s philosophy toward managing its loan portfolios is predicated upon careful monitoring, which stresses early detection and response to delinquent and default situations. Delinquent loans are managed by a team of seasoned collection specialists and the Bank seeks to make arrangements to resolve any delinquent or default situation over the shortest possible time frame. As a general rule, loans more than 90 days past due with respect to principal or interest are classified as nonaccrual loans. As permitted by banking regulations, certain consumer loans 90 days or more past due may continue to accrue interest. The Company also may use discretion regarding other loans over 90 days delinquent if the loan is well secured and in process of collection. Set forth is information regarding the Company’s nonaccrual, delinquent, TDRs, and impaired loans at the period shown.

The following table shows nonaccrual loans at the dates indicated:



	March 31, 2014		December 31, 2013
	(Dollars in thousands)
Commercial and industrial	$	3,299	$	4,178
Commercial real estate	13,870		11,734
Commercial construction	100		100
Small business	788		633
Residential real estate	10,632		10,329
Home equity	7,062		7,068
Other consumer	28		92
Total nonaccrual loans (1)	$	35,779	$	34,134


(1)	Included in these amounts were $7.0 million and $7.5 million of nonaccruing TDRs at March 31, 2014 and December 31, 2013, respectively.

The following table shows the age analysis of past due financing receivables as of the dates indicated:



	March 31, 2014
	30-59 days			60-89 days			90 days or more			Total Past Due					Total Financing Receivables		Recorded Investment >90 Days and Accruing
	Number of Loans	Principal Balance		Number of Loans	Principal Balance		Number of Loans	Principal Balance		Number of Loans	Principal Balance		Current		Total Financing Receivables		Recorded Investment >90 Days and Accruing
	(Dollars in thousands)
Loan Portfolio
Commercial and industrial	18	$	1,491	9	$	1,460	19	$	3,021	46	$	5,972	$	816,537	$	822,509	$	—
Commercial real estate	18	5,144		8	3,917		19	9,230		45	18,291		2,264,648		2,282,939		—
Commercial construction	—	—		—	—		1	100		1	100		239,436		239,536		—
Small business	11	276		—	—		16	354		27	630		77,517		78,147		—
Residential real estate	20	2,760		9	1,737		39	6,293		68	10,790		527,836		538,626		368
Home equity	19	1,604		6	278		27	2,749		52	4,631		822,654		827,285		—
Other consumer	89	476		17	32		16	49		122	557		17,670		18,227		24
Total	175	$	11,751	49	$	7,424	137	$	21,796	361	$	40,971	$	4,766,298	$	4,807,269	$	392



	December 31, 2013
	30-59 days			60-89 days			90 days or more			Total Past Due					Total Financing Receivables		Recorded Investment >90 Days and Accruing
	Number of Loans	Principal Balance		Number of Loans	Principal Balance		Number of Loans	Principal Balance		Number of Loans	Principal Balance		Current		Total Financing Receivables		Recorded Investment >90 Days and Accruing
	(Dollars in thousands)
Loan Portfolio
Commercial and industrial	9	$	743	6	$	327	20	$	3,763	35	$	4,833	$	779,369	$	784,202	$	—
Commercial real estate	21	8,643		2	356		30	8,155		53	17,154		2,232,106		2,249,260		—
Commercial construction	1	847		—	—		1	100		2	947		222,912		223,859		—
Small business	18	353		6	227		14	247		38	827		76,413		77,240		—
Residential real estate	23	2,903		8	1,630		39	6,648		70	11,181		530,262		541,443		462
Home equity	27	1,922		8	852		23	2,055		58	4,829		817,312		822,141		—
Other consumer	110	514		30	106		34	148		174	768		19,394		20,162		63
Total	209	$	15,925	60	$	3,498	161	$	21,116	430	$	40,539	$	4,677,768	$	4,718,307	$	525

In the course of resolving nonperforming loans, the Bank may choose to restructure the contractual terms of certain loans. The Bank attempts to work out an alternative payment schedule with the borrower in order to avoid foreclosure actions. Any loans that are modified are reviewed by the Bank to identify if a TDR has occurred, which is when, for economic or legal reasons related to a borrower’s financial difficulties, the Bank grants a concession to the borrower that it would not otherwise consider. Terms may be modified to fit the ability of the borrower to repay in line with its current financial status and the restructuring of the loan may include the transfer of assets from the borrower to satisfy the debt, a modification of loan terms, or a combination of the two.

The following table shows the Company’s total TDRs and other pertinent information as of the dates indicated:



	March 31, 2014		December 31, 2013
	(Dollars in thousands)
TDRs on accrual status	$	40,329	$	38,410
TDRs on nonaccrual	6,998		7,454
Total TDRs	$	47,327	$	45,864
Amount of specific reserves included in the allowance for loan losses associated with TDRs:	$	2,044	$	2,474
Additional commitments to lend to a borrower who has been a party to a TDR:	$	2,071	$	1,877

The Bank’s policy is to have any restructured loan which is on nonaccrual status prior to being modified remain on nonaccrual status for six months, subsequent to being modified, before management considers its return to accrual status. If the restructured loan is on accrual status prior to being modified, it is reviewed to determine if the modified loan should remain on accrual status. Additionally, loans classified as TDRs are adjusted to reflect the changes in value of the recorded investment in the loan, if any, resulting from the granting of a concession. For all residential loan modifications, the borrower must perform during a 90 day trial period before the modification is finalized.

The following table shows the modifications which occurred during the periods indicated and the change in the recorded investment subsequent to the modifications occurring:



	Three Months Ended
	March 31, 2014
	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment (1)
	(Dollars in thousands)
Troubled debt restructurings
Commercial & industrial	9	$	424	$	424
Commercial real estate	6	1,883		1,883
Small business	1	58		58
Residential real estate	2	513		542
Other consumer	1	8		8
Total	19	$	2,886	$	2,915



	Three Months Ended
	March 31, 2013
	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment (1)
	(Dollars in thousands)
Troubled debt restructurings
Small business	4	$	268	$	268
Residential real estate	4	1,156		1,182
Home equity	2	165		165
Other consumer	2	11		11
Total	12	$	1,600	$	1,626


(1)	The post-modification balances represent the balance of the loan on the date of modifications. These amounts may show an increase when modifications include a capitalization of interest.

The following table shows the Company’s post-modification balance of TDRs listed by type of modification as of the periods indicated:



	Three Months Ended March 31
	2014		2013
	(Dollars in thousands)
Extended maturity	$	835	$	268
Adjusted interest rate	728		—
Combination rate & maturity	1,344		1,347
Court ordered concession	8		11
Total	$	2,915	$	1,626

The following table shows the loans that have been modified during the past twelve months which have subsequently defaulted during the periods indicated. The Company considers a loan to have defaulted when it reaches 90 days past due.



	Three Months Ended March 31
	2014			2013
	Number of Contracts	Recorded Investment		Number of Contracts	Recorded Investment
	(Dollars in thousands)
Troubled debt restructurings that subsequently defaulted
Commercial & industrial	2	$	52	2	$	201
Commercial real estate	1	176		2	494
Residential real estate	1	327		—	—
Total	4	$	555	4	$	695

All TDR loans are considered impaired and therefore are subject to a specific review for impairment. The impairment analysis appropriately discounts the present value of the anticipated cash flows by the loan’s contractual rate of interest in effect prior to the loan’s modification. The amount of impairment, if any, is recorded as a specific loss allocation to each individual loan in the allowance for loan losses. Commercial loans (commercial and industrial, commercial construction, commercial real estate and small business loans), residential loans, and home equity loans that have been classified as TDRs and which subsequently default are reviewed to determine if the loan should be deemed collateral dependent. In such an instance, any shortfall between the value of the collateral and the carrying value of the loan is determined by measuring the recorded investment in the loan against the fair value of the collateral less estimated costs to sell. The Bank charges off the amount of any confirmed loan loss in the period when the loans, or portion of loans, are deemed uncollectible. Smaller balance consumer TDR loans are reviewed for performance to determine when a charge-off is appropriate.

A loan is considered impaired when, based on current information and events, it is probable that the Bank will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.

The tables below set forth information regarding the Company’s impaired loans by loan portfolio at the dates indicated:



	March 31, 2014
	Recorded Investment		Unpaid Principal Balance		Related Allowance
	(Dollars in thousands)
With no related allowance recorded
Commercial & industrial	$	5,064	$	5,615	$	—
Commercial real estate	21,227		22,908		—
Commercial construction	100		408		—
Small business	1,401		1,603		—
Residential real estate	2,930		3,095		—
Home equity	4,514		4,580		—
Other consumer	402		408		—
Subtotal	35,638		38,617		—
With an allowance recorded
Commercial & industrial	$	3,490	$	3,545	$	647
Commercial real estate	15,849		16,889		369
Small business	451		566		109
Residential real estate	13,672		14,717		1,641
Home equity	619		690		114
Other consumer	784		786		62
Subtotal	34,865		37,193		2,942
Total	$	70,503	$	75,810	$	2,942



	December 31, 2013
	Recorded Investment		Unpaid Principal Balance		Related Allowance
	(Dollars in thousands)
With no related allowance recorded
Commercial & industrial	$	7,147	$	7,288	$	—
Commercial real estate	14,283		15,891		—
Commercial construction	100		408		—
Small business	1,474		1,805		—
Residential real estate	1,972		2,026		—
Home equity	4,263		4,322		—
Other consumer	446		446		—
Subtotal	29,685		32,186		—
With an allowance recorded
Commercial & industrial	$	2,001	$	2,045	$	1,150
Commercial real estate	25,233		25,377		765
Small business	429		462		109
Residential real estate	13,228		14,197		1,564
Home equity	627		694		116
Other consumer	852		856		70
Subtotal	42,370		43,631		3,774
Total	$	72,055	$	75,817	$	3,774

The following tables set forth information regarding interest income recognized on impaired loans, by portfolio, for the periods indicated:



	Three Months Ended
	March 31, 2014
	Average Recorded Investment		Interest Income Recognized
	(Dollars in thousands)
With no related allowance recorded
Commercial & industrial	$	5,409	$	68
Commercial real estate	21,522		333
Commercial construction	100		3
Small business	1,456		24
Residential real estate	2,938		28
Home equity	4,529		52
Other consumer	413		8
Subtotal	36,367		516
With an allowance recorded
Commercial & industrial	$	3,516	$	39
Commercial real estate	16,640		207
Small business	460		8
Residential real estate	13,679		132
Home equity	623		7
Other consumer	800		7
Subtotal	35,718		400
Total	$	72,085	$	916



	Three Months Ended
	March 31, 2013
	Average Recorded Investment		Interest Income Recognized
	(Dollars in thousands)
With no related allowance recorded
Commercial & industrial	$	5,111	$	73
Commercial real estate	13,945		222
Commercial construction	1,609		13
Small business	1,241		20
Residential real estate	2,532		23
Home equity	4,019		46
Other consumer	670		13
Subtotal	29,127		410
With an allowance recorded
Commercial & industrial	$	2,760	$	40
Commercial real estate	17,381		268
Small business	891		13
Residential real estate	13,930		135
Home equity	441		6
Other consumer	1,283		12
Subtotal	36,686		474
Total	$	65,813	$	884

Certain loans acquired by the Company may have shown evidence of deterioration of credit quality since origination and it was therefore deemed unlikely that the Bank would be able to collect all contractually required payments. As such, these loans were deemed to be Purchase Credit Impaired (“PCI”) loans and the carrying value and prospective income recognition are predicated upon future cash flows expected to be collected. The following table displays certain information pertaining to purchased credit impaired loans at the dates indicated:



	March 31, 2014		December 31, 2013
	(Dollars in thousands)
Outstanding balance	$	33,168	$	33,555
Carrying amount	$	29,131	$	29,544

The following table summarizes activity in the accretable yield for the PCI loan portfolio:



	(Dollars in thousands)
Balance at January 1, 2013	$	2,464
Acquisition	386
Accretion	(1,812		)
Other change in expected cash flows (2)	1,142
Reclassification from nonaccretable difference for loans with improved cash flows (1)	334
Balance at December 31, 2013	2,514

Balance at January 1, 2014	$	2,514
Accretion	(377		)
Other change in expected cash flows (2)	541
Reclassification from nonaccretable difference for loans with improved cash flows (1)	—
Balance at March 31, 2014	$	2,678

(1) Results in increased interest income during the period in which the loan paid off.

(2) Represents changes in cash flows expected to be collected and resulting in increased interest income as a prospective yield adjustment over the remaining life of the loan(s).