XML 32 R13.htm IDEA: XBRL DOCUMENT v3.8.0.1
Loans, Allowance for Loan Losses and Credit Quality
 9 Months Ended
Sep. 30, 2017
Loans, Allowance for Loan Losses and Credit Quality [Abstract]  
LOANS, ALLOWANCE FOR LOAN LOSSES AND CREDIT QUALITY
LOANS, ALLOWANCE FOR LOAN LOSSES, AND CREDIT QUALITY
The following tables bifurcate the amount of loans and the allowance allocated to each loan category based on the type of impairment analysis as of the periods indicated:
 
September 30, 2017
 
 
(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:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Collectively evaluated for impairment
$
823,007

 
$
3,060,211

 
$
395,267

 
$
129,676

 
$
735,454

 
$
1,045,445

 
$
9,550

 
$
6,198,610

  
Individually evaluated for impairment
$
35,515

 
$
19,018

 
$
—

 
$
980

 
$
13,649

 
$
6,636

 
$
322

 
$
76,120

  
Purchased credit impaired loans
$
—

 
$
7,931

 
$
—

 
$
—

 
$
7,027

 
$
214

 
$
—

 
$
15,172

 
Total loans by group
$
858,522

 
$
3,087,160

 
$
395,267

 
$
130,656

 
$
756,130

 
$
1,052,295

 
$
9,872

 
$
6,289,902

(1
)
 
December 31, 2016
 
 
(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:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Collectively evaluated for impairment
$
862,875

 
$
2,983,642

 
$
320,391

 
$
121,855

 
$
622,392

 
$
982,095

 
$
10,666

 
$
5,903,916

 
Individually evaluated for impairment
$
39,178

 
$
16,813

 
$
—

 
$
871

 
$
14,175

 
$
5,863

 
$
397

 
$
77,297

  
Purchased credit impaired loans
$
—

 
$
10,343

 
$
—

 
$
—

 
$
7,859

 
$
189

 
$
1

 
$
18,392

 
Total loans by group
$
902,053

 
$
3,010,798

 
$
320,391

 
$
122,726

 
$
644,426

 
$
988,147

 
$
11,064

 
$
5,999,605

(1
)
 
(1)
The amount of net deferred costs on originated loans included in the ending balance was $5.6 million and $5.1 million at September 30, 2017 and December 31, 2016, respectively. Net unamortized discounts on acquired loans not deemed to be purchased credit impaired ("PCI") included in the ending balance was $9.8 million and $8.6 million at September 30, 2017 and December 31, 2016, respectively.
    












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

 
Three Months Ended September 30, 2017
 
(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
$
13,544

 
$
30,947

 
$
4,814

 
$
1,613

 
$
2,693

 
$
5,353

 
$
515

 
$
59,479

Charge-offs
(124
)
 
—

 
—

 
(164
)
 
(43
)
 
(81
)
 
(405
)
 
(817
)
Recoveries
404

 
286

 
—

 
17

 
15

 
65

 
261

 
1,048

Provision (benefit)
(994
)
 
(233
)
 
806

 
140

 
111

 
89

 
81

 
—

Ending balance
$
12,830

 
$
31,000

 
$
5,620

 
$
1,606

 
$
2,776

 
$
5,426

 
$
452

 
$
59,710

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended September 30, 2016
 
(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
$
14,027

 
$
29,011

 
$
5,216

 
$
1,441

 
$
2,578

 
$
4,986

 
$
468

 
$
57,727

Charge-offs
(27
)
 
(341
)
 
—

 
(98
)
 
—

 
(154
)
 
(523
)
 
(1,143
)
Recoveries
63

 
124

 
—

 
28

 
130

 
24

 
302

 
671

Provision (benefit)
(189
)
 
609

 
117

 
113

 
(44
)
 
196

 
148

 
950

Ending balance
$
13,874

 
$
29,403

 
$
5,333

 
$
1,484

 
$
2,664

 
$
5,052

 
$
395

 
$
58,205


 
Nine Months Ended September 30, 2017
 
(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
$
16,921

 
$
30,369

 
$
4,522

 
$
1,502

 
$
2,621

 
$
5,238

 
$
393

 
$
61,566

Charge-offs
(3,715
)
 
—

 
—

 
(258
)
 
(182
)
 
(217
)
 
(1,151
)
 
(5,523
)
Recoveries
604

 
343

 
—

 
96

 
29

 
167

 
778

 
2,017

Provision (benefit)
(980
)
 
288

 
1,098

 
266

 
308

 
238

 
432

 
1,650

Ending balance
$
12,830

 
$
31,000

 
$
5,620

 
$
1,606

 
$
2,776

 
$
5,426

 
$
452

 
$
59,710

Ending balance: individually evaluated for impairment
$
71

 
$
49

 
$
—

 
$
1

 
$
1,020

 
$
257

 
$
19

 
$
1,417

Ending balance: collectively evaluated for impairment
$
12,759

 
$
30,951

 
$
5,620

 
$
1,605

 
$
1,756

 
$
5,169

 
$
433

 
$
58,293

 
Nine Months Ended September 30, 2016
 
(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
$
13,802

 
$
27,327

 
$
5,366

 
$
1,264

 
$
2,590

 
$
4,889

 
$
587

 
$
55,825

Charge-offs
(31
)
 
(365
)
 
—

 
(191
)
 
(27
)
 
(491
)
 
(1,152
)
 
(2,257
)
Recoveries
850

 
535

 
—

 
122

 
182

 
77

 
796

 
2,562

Provision (benefit)
(747
)
 
1,906

 
(33
)
 
289

 
(81
)
 
577

 
164

 
2,075

Ending balance
$
13,874

 
$
29,403

 
$
5,333

 
$
1,484

 
$
2,664

 
$
5,052

 
$
395

 
$
58,205

Ending balance: individually evaluated for impairment
$
134

 
$
355

 
$
—

 
$
2

 
$
1,156

 
$
223

 
$
23

 
$
1,893

Ending balance: collectively evaluated for impairment
$
13,740

 
$
29,048

 
$
5,333

 
$
1,482

 
$
1,508

 
$
4,829

 
$
372

 
$
56,312


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 and 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 and 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 and equipment, or real estate if applicable.  Repayment sources consist primarily of operating cash flows and, secondarily, liquidation of assets.
For the commercial portfolio it is the Company’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 Company’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 or purchase sub-prime loans.
•
Home Equity: Home equity loans and credit lines are made to qualified individuals and are primarily secured by senior or junior mortgage liens on owner-occupied 1-4 family homes, condominiums or vacation homes. Each home equity loan has a fixed rate and is billed in equal payments comprised of principal and interest. Each 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, each home equity line of credit is billed as a percentage of the principal balance plus all accrued interest. Additionally, the Company has the option of renewing each 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 include personal lines of credit and amortizing loans made to qualified individuals for various purposes such as education, 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 or above average leverage and/or weakening market fundamentals that indicate 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 Company’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 Loss Unlikely: 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 Company 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:
 
 
 
September 30, 2017
Category
Risk
Rating
 
Commercial  and
Industrial
 
Commercial
Real Estate
 
Commercial
Construction
 
Small Business
 
Total
 
 
 
(Dollars in thousands)
Pass
1 - 6
 
$
764,946

 
$
2,968,237

 
$
393,836

 
$
128,464

 
$
4,255,483

Potential weakness
7
 
23,477

 
73,219

 
—

 
1,543

 
98,239

Definite weakness-loss unlikely
8
 
63,856

 
45,240

 
1,431

 
646

 
111,173

Partial loss probable
9
 
6,243

 
464

 
—

 
3

 
6,710

Definite loss
10
 
—

 
—

 
—

 
—

 
—

Total
 
 
$
858,522

 
$
3,087,160

 
$
395,267

 
$
130,656

 
$
4,471,605


 
 
 
December 31, 2016
Category
Risk
Rating
 
Commercial  and
Industrial
 
Commercial
Real Estate
 
Commercial
Construction
 
Small Business
 
Total
 
 
 
(Dollars in thousands)
Pass
1 - 6
 
$
783,825

 
$
2,876,570

 
$
317,099

 
$
120,304

 
$
4,097,798

Potential weakness
7
 
46,176

 
84,641

 
1,363

 
1,859

 
134,039

Definite weakness-loss unlikely
8
 
71,991

 
47,164

 
1,929

 
556

 
121,640

Partial loss probable
9
 
61

 
2,423

 
—

 
7

 
2,491

Definite loss
10
 
—

 
—

 
—

 
—

 
—

Total
 
 
$
902,053

 
$
3,010,798

 
$
320,391

 
$
122,726

 
$
4,355,968


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”) scores and Loan to Value (“LTV”) estimates. Current FICO data is purchased and appended to all consumer loans on a regular 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:
 
September 30,
2017
 
December 31,
2016
Residential portfolio
 
 
 
FICO score (re-scored)(1)
745

 
743

LTV (re-valued)(2)
61.0
%
 
63.2
%
Home equity portfolio
 
 
 
FICO score (re-scored)(1)
766

 
767

LTV (re-valued)(2)
55.9
%
 
55.9
%
 
(1)
The average FICO scores for September 30, 2017 are based upon rescores available from August 31, 2017 and origination score data for loans booked between September 1, 2017 and September 30, 2017. The average FICO scores for December 31, 2016 are based upon rescores available from November 30, 2016 and origination score data for loans booked between December 1, 2016 and December 31, 2016.
(2)
The combined LTV ratios for September 30, 2017 and December 31, 2016 are based upon updated automated valuations as of March 31, 2015 and origination value data for loans booked between April 1, 2015 and through the dates indicated. For home equity loans and lines in a subordinate lien position, the LTV data represents a combined LTV, taking into account the senior lien data for loans and lines.
Asset Quality
The Company’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 Company 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. The Company also may use discretion regarding other loans over 90 days delinquent if the loan is well secured and/or in process of collection.

The following table shows information regarding nonaccrual loans at the dates indicated:
 
September 30, 2017
 
December 31, 2016
 
(Dollars in thousands)
Commercial and industrial
$
32,556

 
$
37,455

Commercial real estate
3,052

 
6,266

Small business
403

 
302

Residential real estate
8,297

 
7,782

Home equity
5,903

 
5,553

Other consumer
59

 
47

Total nonaccrual loans (1)
$
50,270

 
$
57,405



(1)
Included in these amounts were $5.8 million and $5.2 million of nonaccruing TDRs at September 30, 2017 and December 31, 2016, respectively.
The following table shows information regarding foreclosed residential real estate property at the dates indicated:
 
September 30, 2017
 
December 31, 2016
 
(Dollars in thousands)
Foreclosed residential real estate property held by the creditor
$
2,538

 
$
3,775

Recorded investment in mortgage loans collateralized by residential real estate property that are in the process of foreclosure
$
1,608

 
$
1,715


The following table shows the age analysis of past due financing receivables as of the dates indicated:
 
September 30, 2017
 
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
 
 
(Dollars in thousands)
Loan Portfolio
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
12

 
$
839

 
2

 
$
315

 
45

 
$
32,490

 
59

 
$
33,644

 
$
824,878

 
$
858,522

 
$
—

Commercial real estate
10

 
4,413

 
—

 
—

 
8

 
1,755

 
18

 
6,168

 
3,080,992

 
3,087,160

 
—

Commercial construction
1

 
566

 
—

 
—

 
—

 
—

 
1

 
566

 
394,701

 
395,267

 
—

Small business
11

 
130

 
5

 
14

 
17

 
107

 
33

 
251

 
130,405

 
130,656

 
—

Residential real estate
12

 
1,125

 
10

 
2,392

 
20

 
2,843

 
42

 
6,360

 
749,770

 
756,130

 
—

Home equity
20

 
1,016

 
9

 
516

 
20

 
2,559

 
49

 
4,091

 
1,048,204

 
1,052,295

 
—

Other consumer (1)
229

 
226

 
10

 
38

 
12

 
14

 
251

 
278

 
9,594

 
9,872

 
7

Total
295

 
$
8,315

 
36

 
$
3,275

 
122

 
$
39,768

 
453

 
$
51,358

 
$
6,238,544

 
$
6,289,902

 
$
7

 
December 31, 2016
 
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
 
 
(Dollars in thousands)
Loan Portfolio
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
8

 
$
100

 
32

 
$
253

 
6

 
$
2,480

 
46

 
$
2,833

 
$
899,220

 
$
902,053

 
$
—

Commercial real estate
5

 
1,518

 
8

 
1,957

 
8

 
3,105

 
21

 
6,580

 
3,004,218

 
3,010,798

 
—

Commercial construction
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
320,391

 
320,391

 
—

Small business
9

 
323

 
—

 
—

 
19

 
140

 
28

 
463

 
122,263

 
122,726

 
—

Residential real estate
11

 
1,277

 
9

 
1,950

 
27

 
3,507

 
47

 
6,734

 
637,692

 
644,426

 
—

Home equity
19

 
1,117

 
11

 
767

 
16

 
1,209

 
46

 
3,093

 
985,054

 
988,147

 
—

Other consumer (1)
249

 
184

 
12

 
17

 
15

 
7

 
276

 
208

 
10,856

 
11,064

 
2

Total
301

 
$
4,519

 
72

 
$
4,944

 
91

 
$
10,448

 
464

 
$
19,911

 
$
5,979,694

 
$
5,999,605

 
$
2



(1) Other consumer portfolio is inclusive of deposit account overdrafts recorded as loan balances.
Troubled Debt Restructurings
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:
 
September 30, 2017
 
December 31, 2016
 
(Dollars in thousands)
TDRs on accrual status
$
26,731

 
$
27,093

TDRs on nonaccrual
5,776

 
5,199

Total TDRs
$
32,507

 
$
32,292

Amount of specific reserves included in the allowance for loan losses associated with TDRs
$
1,417

 
$
1,417

Additional commitments to lend to a borrower who has been a party to a TDR
$
1,084

 
$
1,378


The Company’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
 
Nine Months Ended
 
September 30, 2017
 
September 30, 2017
 
Number of
Contracts
 
Pre-Modification
Outstanding
Recorded
Investment
 
Post-Modification
Outstanding
Recorded
Investment (1)
 
Number of
Contracts
 
Pre-Modification
Outstanding
Recorded
Investment
 
Post-Modification
Outstanding
Recorded
Investment (1)
 
(Dollars in thousands)
Troubled debt restructurings
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
1

 
$
196

 
$
196

 
9

 
$
1,575

 
$
1,575

Commercial real estate
—

 
—

 
—

 
6

 
1,884

 
1,884

Small business
2

 
183

 
183

 
10

 
447

 
447

Residential real estate
—

 
—

 
—

 
5

 
889

 
900

Home equity
4

 
436

 
436

 
14

 
1,427

 
1,430

Total
7

 
$
815

 
$
815

 
44

 
$
6,222

 
$
6,236

 
 
Three Months Ended
 
Nine Months Ended
 
September 30, 2016
 
September 30, 2016
 
Number of
Contracts
 
Pre-Modification
Outstanding
Recorded
Investment
 
Post-Modification
Outstanding
Recorded
Investment (1)
 
Number of
Contracts
 
Pre-Modification
Outstanding
Recorded
Investment
 
Post-Modification
Outstanding
Recorded
Investment (1)
 
(Dollars in thousands)
Troubled debt restructurings
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
—

 
$
—

 
$
—

 
7

 
$
528

 
$
528

Commercial real estate
3

 
986

 
986

 
9

 
2,329

 
2,329

Small business
1

 
59

 
59

 
3

 
168

 
168

Residential real estate
—

 
—

 
—

 
5

 
1,167

 
1,209

Home equity
4

 
328

 
328

 
8

 
632

 
632

Other consumer
—

 
—

 
—

 
5

 
107

 
107

Total
8

 
$
1,373

 
$
1,373

 
37

 
$
4,931

 
$
4,973

 
(1)
The post-modification balances represent the legal principal balance of the loan on the date of modification. 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 during the periods indicated:
 
Three Months Ended September 30
 
Nine Months Ended September 30
 
2017
 
2016
 
2017
 
2016
 
(Dollars in thousands)
 
(Dollars in thousands)
Extended maturity
$
486

 
$
256

 
$
4,565

 
$
2,638

Adjusted interest rate
—

 
—

 
—

 
92

Combination rate and maturity
196

 
730

 
196

 
990

Court ordered concession
133

 
387

 
1,475

 
1,253

Total
$
815

 
$
1,373

 
$
6,236

 
$
4,973


The Company considers a loan to have defaulted when it reaches 90 days past due. There were no loans modified during the preceding twelve months that had subsequently defaulted during the three months ended September 30, 2017. There was one residential real estate loan modified during the past twelve months with a recorded investment of $205,000 which has subsequently defaulted during the nine months ended September 30, 2017. There was one home equity loan modified during the preceding twelve months with a recorded investment of $141,000 that had subsequently defaulted during the three and nine months ended September 30, 2016.
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 costs to sell. The Company 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.
Impaired Loans
A loan is considered impaired when, based on current information and events, it is probable that the Company 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:
 
September 30, 2017
 
Recorded
Investment
 
Unpaid
Principal
Balance
 
Related
Allowance
 
(Dollars in thousands)
With no related allowance recorded
 
 
 
 
 
Commercial and industrial
$
33,824

 
$
38,181

 
$
—

Commercial real estate
14,462

 
15,476

 
—

Small business
678

 
762

 
—

Residential real estate
3,908

 
4,066

 
—

Home equity
4,880

 
4,984

 
—

Other consumer
97

 
97

 
—

Subtotal
57,849

 
63,566

 
—

With an allowance recorded
 
 
 
 
 
Commercial and industrial
$
1,691

 
$
1,691

 
$
71

Commercial real estate
4,556

 
4,670

 
49

Small business
302

 
315

 
1

Residential real estate
9,741

 
10,421

 
1,020

Home equity
1,756

 
1,977

 
257

Other consumer
225

 
227

 
19

Subtotal
18,271

 
19,301

 
1,417

Total
$
76,120

 
$
82,867

 
$
1,417

 
December 31, 2016
 
Recorded
Investment
 
Unpaid
Principal
Balance
 
Related
Allowance
 
(Dollars in thousands)
With no related allowance recorded
 
 
 
 
 
Commercial and industrial
$
28,776

 
$
29,772

 
$
—

Commercial real estate
11,628

 
12,891

 
—

Small business
494

 
569

 
—

Residential real estate
4,216

 
4,427

 
—

Home equity
4,485

 
4,572

 
—

Other consumer
146

 
146

 
—

Subtotal
49,745

 
52,377

 
—

With an allowance recorded
 
 
 
 
 
Commercial and industrial
$
10,402

 
$
10,440

 
$
3,661

Commercial real estate
5,185

 
5,533

 
196

Small business
377

 
392

 
8

Residential real estate
9,959

 
10,530

 
1,086

Home equity
1,378

 
1,547

 
242

Other consumer
251

 
252

 
21

Subtotal
27,552

 
28,694

 
5,214

Total
$
77,297

 
$
81,071

 
$
5,214


The following tables set forth information regarding interest income recognized on impaired loans, by portfolio, for the periods indicated:
 
Three Months Ended
 
Nine Months Ended
 
September 30, 2017
 
September 30, 2017
 
Average
Recorded
Investment
 
Interest
Income
Recognized
 
Average
Recorded
Investment
 
Interest
Income
Recognized
 
(Dollars in thousands)
With no related allowance recorded
 
 
 
 
 
 
 
Commercial and industrial
$
33,935

 
$
18

 
$
36,329

 
$
179

Commercial real estate
14,569

 
151

 
14,798

 
460

Small business
682

 
5

 
702

 
17

Residential real estate
3,928

 
51

 
3,962

 
152

Home equity
4,883

 
50

 
4,935

 
146

Other consumer
99

 
2

 
104

 
5

Subtotal
58,096

 
277

 
60,830

 
959

With an allowance recorded
 
 
 
 
 
 
 
Commercial and industrial
$
1,698

 
$
21

 
$
1,768

 
$
65

Commercial real estate
4,569

 
65

 
4,599

 
195

Small business
305

 
3

 
315

 
11

Residential real estate
9,752

 
79

 
9,838

 
234

Home equity
1,765

 
14

 
1,782

 
41

Other consumer
229

 
2

 
237

 
5

Subtotal
18,318

 
184

 
18,539

 
551

Total
$
76,414

 
$
461

 
$
79,369

 
$
1,510



 
Three Months Ended
 
Nine Months Ended
 
September 30, 2016
 
September 30, 2016
 
Average
Recorded
Investment
 
Interest
Income
Recognized
 
Average
Recorded
Investment
 
Interest
Income
Recognized
 
(Dollars in thousands)
With no related allowance recorded
 
 
 
 
 
 
 
Commercial and industrial
$
2,444

 
$
16

 
$
2,584

 
$
48

Commercial real estate
11,549

 
115

 
11,775

 
348

Small business
646

 
5

 
679

 
18

Residential real estate
4,255

 
42

 
4,286

 
134

Home equity
4,616

 
45

 
4,677

 
138

Other consumer
162

 
3

 
168

 
9

Subtotal
23,672

 
226

 
24,169

 
695

With an allowance recorded
 
 
 
 
 
 
 
Commercial and industrial
$
2,097

 
$
4

 
$
2,135

 
$
13

Commercial real estate
6,854

 
42

 
6,977

 
126

Small business
367

 
6

 
384

 
17

Residential real estate
10,004

 
92

 
10,071

 
272

Home equity
1,299

 
13

 
1,310

 
36

Other consumer
265

 
2

 
272

 
6

Subtotal
20,886

 
159

 
21,149

 
470

Total
$
44,558

 
$
385

 
$
45,318

 
$
1,165



Purchased Credit Impaired Loans

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 Company would be able to collect all contractually required payments. As such, these loans were deemed to be 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 PCI loans at the dates indicated:
 
September 30, 2017
 
December 31, 2016
 
(Dollars in thousands)
Outstanding balance
$
17,025

 
$
20,477

Carrying amount
$
15,172

 
$
18,392



The following table summarizes activity in the accretable yield for the PCI loan portfolio:
 
Three Months Ended September 30
 
Nine Months Ended September 30
 
2017
 
2016
 
2017
 
2016
 
(Dollars in thousands)
Beginning balance
$
2,185

 
$
2,625

 
$
2,370

 
$
2,827

Accretion
(359
)
 
(359
)
 
(968
)
 
(1,188
)
Other change in expected cash flows (1)
167

 
213

 
573

 
744

Reclassification from nonaccretable difference for loans which have paid off (2)
70

 
—

 
88

 
96

Ending balance
$
2,063

 
$
2,479

 
$
2,063

 
$
2,479



(1) 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).
(2) Results in increased interest income during the period in which the loan paid off at amount greater than originally expected.