Loans, Allowance for Loan Losses and Credit Quality

9 Months Ended

Sep. 30, 2018

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, 2018
	(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	$	972,842	$	3,114,414	$	352,491	$	148,609	$	784,533	$	1,067,389	$	13,425	$	6,453,703
Individually evaluated for impairment	$	30,938	$	13,023	$	—	$	591	$	12,825	$	6,410	$	244	$	64,031
Purchased credit impaired loans	$	—	$	5,054	$	—	$	—	$	4,452	$	162	$	—	$	9,668
Total loans by group	$	1,003,780	$	3,132,491	$	352,491	$	149,200	$	801,810	$	1,073,961	$	13,669	$	6,527,402	(1	)

	December 31, 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	$	853,885	$	3,093,945	$	401,797	$	131,667	$	733,809	$	1,045,053	$	9,573	$	6,269,729
Individually evaluated for impairment	$	34,643	$	16,638	$	—	$	703	$	13,684	$	6,826	$	307	$	72,801
Purchased credit impaired loans	$	—	$	5,978	$	—	$	—	$	6,836	$	209	$	—	$	13,023
Total loans by group	$	888,528	$	3,116,561	$	401,797	$	132,370	$	754,329	$	1,052,088	$	9,880	$	6,355,553	(1	)

 

(1) The amount of net deferred costs on originated loans included in the ending balance was $6.9 million and $6.1 million at September 30, 2018 and December 31, 2017, respectively. Net unamortized discounts on acquired loans not deemed to be purchased credit impaired ("PCI") included in the ending balance was $8.6 million and $9.4 million at September 30, 2018 and December 31, 2017, respectively.

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

	Three Months Ended September 30, 2018
	(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	$	14,788		$	32,095		$	5,216		$	1,709		$	2,909		$	5,468		$	372		$	62,557
Charge-offs	(218		)	(82		)	—			(111		)	—			(87		)	(349		)	(847		)
Recoveries	108			29			—			10			9			71			223			450
Provision (benefit)	430			226			(189		)	160			153			102			193			1,075
Ending balance	$	15,108		$	32,268		$	5,027		$	1,768		$	3,071		$	5,554		$	439		$	63,235
	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

	Nine Months Ended September 30, 2018
	(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	$	13,256		$	31,453		$	5,698		$	1,577		$	2,822		$	5,390		$	447		$	60,643
Charge-offs	(355		)	(82		)	—			(237		)	(148		)	(261		)	(926		)	(2,009		)
Recoveries	179			67			—			29			12			128			611			1,026
Provision (benefit)	2,028			830			(671		)	399			385			297			307			3,575
Ending balance	$	15,108		$	32,268		$	5,027		$	1,768		$	3,071		$	5,554		$	439		$	63,235
Ending balance: collectively evaluated for impairment	$	15,101		$	32,234		$	5,027		$	1,767		$	2,197		$	5,386		$	426		$	62,138
Ending balance: individually evaluated for impairment	$	7		$	34		$	—		$	1		$	874		$	168		$	13		$	1,097
	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: collectively evaluated for impairment	$	12,759		$	30,951		$	5,620		$	1,605		$	1,756		$	5,169		$	433		$	58,293
Ending balance: individually evaluated for impairment	$	71		$	49		$	—		$	1		$	1,020		$	257		$	19		$	1,417

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.  Residential mortgage loans also include loans to construct owner-occupied 1-4 family residential properties.

• 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, the home equity line of credit is billed as a percentage of the then outstanding principal balance plus all accrued interest over a predetermined repayment period, as set forth in the note. 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 adversely risk-rated, 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 credit risk-rating system, which assigns a risk-grade to each loan obligation based on a number of quantitative and qualitative factors associated with a commercial or small business 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. Actively managed commercial 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, while continuous portfolio monitoring techniques are employed to evaluate changes in credit quality for smaller loan relationships. 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 tables detail the amount of outstanding principal balances relative to each of the risk-rating categories for the Company’s commercial portfolio:

		September 30, 2018
Category	Risk Rating	Commercial  and Industrial		Commercial Real Estate		Commercial Construction		Small Business		Total
		(Dollars in thousands)
Pass	1 - 6	$	935,769	$	3,041,551	$	352,190	$	146,809	$	4,476,319
Potential weakness	7	17,655		52,089		301		1,053		71,098
Definite weakness-loss unlikely	8	45,399		38,453		—		1,338		85,190
Partial loss probable	9	4,957		398		—		—		5,355
Definite loss	10	—		—		—		—		—
Total		$	1,003,780	$	3,132,491	$	352,491	$	149,200	$	4,637,962

		December 31, 2017
Category	Risk Rating	Commercial  and Industrial		Commercial Real Estate		Commercial Construction		Small Business		Total
		(Dollars in thousands)
Pass	1 - 6	$	806,331	$	3,007,672	$	400,964	$	130,265	$	4,345,232
Potential weakness	7	16,563		69,788		—		1,471		87,822
Definite weakness-loss unlikely	8	59,415		38,637		833		631		99,516
Partial loss probable	9	6,219		464		—		3		6,686
Definite loss	10	—		—		—		—		—
Total		$	888,528	$	3,116,561	$	401,797	$	132,370	$	4,539,256

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, 2018		December 31, 2017
Residential portfolio
FICO score (re-scored)(1)	748		745
LTV (re-valued)(2)	58.2	%	59.2	%
Home equity portfolio
FICO score (re-scored)(1)	767		766
LTV (re-valued)(2)(3)	48.9	%	50.1	%

 

(1) The average FICO scores at September 30, 2018 are based upon rescores available from August 2018 and origination score data for loans booked in September 2018. The average FICO scores at December 31, 2017 are based upon rescores available from August 2017 and origination score data for loans booked between September and December 2017.

(2) The combined LTV ratios for September 30, 2018 are based upon updated automated valuations as of August 2018, when available or the most current valuation data available. The combined LTV ratios for December 31, 2017 are based upon updated automated valuations as of August 2017, when available, or the most current valuation data available. The updated automated valuations provide new information on loans that may be available since the previous valuation was obtained. If no new information is available, the valuation will default to the previously obtained data or most recent appraisal.

(3) 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.

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 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, 2018		December 31, 2017
	(Dollars in thousands)
Commercial and industrial	$	28,742	$	32,055
Commercial real estate	1,960		3,123
Small business	191		230
Residential real estate	8,076		8,129
Home equity	6,367		6,022
Other consumer	49		71
Total nonaccrual loans (1)	$	45,385	$	49,630

(1)Included in these amounts were $3.4 million and $6.1 million of nonaccruing TDRs at September 30, 2018 and December 31, 2017, respectively.

The following table shows information regarding foreclosed residential real estate property at the dates indicated:

	September 30, 2018		December 31, 2017
	(Dollars in thousands)
Foreclosed residential real estate property held by the creditor	$	190	$	612
Recorded investment in mortgage loans collateralized by residential real estate property that are in the process of foreclosure	$	3,880	$	2,971

The following tables show the age analysis of past due financing receivables as of the dates indicated:

	September 30, 2018
	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	3	$	265	5	$	431	10	$	28,694	18	$	29,390	$	974,390	$	1,003,780	$	—
Commercial real estate	7	2,188		5	849		6	1,430		18	4,467		3,128,024		3,132,491		—
Commercial construction	—	—		—	—		—	—		—	—		352,491		352,491		—
Small business	9	483		6	60		17	139		32	682		148,518		149,200		—
Residential real estate	10	1,129		12	2,367		19	3,367		41	6,863		794,947		801,810		—
Home equity	16	909		9	797		25	2,825		50	4,531		1,069,430		1,073,961		—
Other consumer (1)	272	118		8	20		13	46		293	184		13,485		13,669		9
Total	317	$	5,092	45	$	4,524	90	$	36,501	452	$	46,117	$	6,481,285	$	6,527,402	$	9

	December 31, 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	2	$	195	2	$	370	14	$	32,007	18	$	32,572	$	855,956	$	888,528	$	—
Commercial real estate	7	3,060		—	—		9	1,793		16	4,853		3,111,708		3,116,561		—
Commercial construction	—	—		—	—		—	—		—	—		401,797		401,797		—
Small business	17	339		11	144		10	57		38	540		131,830		132,370		—
Residential real estate	6	870		13	2,385		22	3,471		41	6,726		747,603		754,329		—
Home equity	22	1,310		6	451		20	2,025		48	3,786		1,048,302		1,052,088		—
Other consumer (1)	265	197		16	27		17	45		298	269		9,611		9,880		8
Total	319	$	5,971	48	$	3,377	92	$	39,398	459	$	48,746	$	6,306,807	$	6,355,553	$	8

(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, 2018		December 31, 2017
	(Dollars in thousands)
TDRs on accrual status	$	24,554	$	25,852
TDRs on nonaccrual	3,370		6,067
Total TDRs	$	27,924	$	31,919
Amount of specific reserves included in the allowance for loan losses associated with TDRs	$	1,097	$	1,342
Additional commitments to lend to a borrower who has been a party to a TDR	$	1,224	$	487

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 tables show 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, 2018					September 30, 2018
	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	2	$	126	$	126	2	$	126	$	126
Commercial real estate	1	205		205		2	650		650
Residential real estate	3	503		523		4	652		672
Home equity	2	74		74		8	546		546
Total	8	$	908	$	928	16	$	1,974	$	1,994

 

	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

 

(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				Nine Months Ended
	September 30				September 30
	2018		2017		2018		2017
	(Dollars in thousands)				(Dollars in thousands)
Extended maturity	$	617	$	486	$	1,062	$	4,565
Combination rate and maturity	237		196		237		196
Court ordered concession	74		133		695		1,475
Total	$	928	$	815	$	1,994	$	6,236

The Company considers a loan to have defaulted when it reaches 90 days past due. As of September 30, 2018, there were no loans modified during the past twelve months that subsequently defaulted during the three and nine month periods ended September 30, 2018. There were no loans modified during the preceding twelve months that subsequently defaulted during the three month period ended September 30, 2017. There was one residential real estate loan modified during the preceding twelve months with a recorded investment of $205,000, which subsequently defaulted during the nine month period ended September 30, 2017.

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, 2018
	Recorded Investment		Unpaid Principal Balance		Related Allowance
	(Dollars in thousands)
With no related allowance recorded
Commercial and industrial	$	30,618	$	38,297	$	—
Commercial real estate	11,329		11,962		—
Small business	445		523		—
Residential real estate	4,783		4,925		—
Home equity	4,973		5,181		—
Other consumer	60		61		—
Subtotal	52,208		60,949		—
With an allowance recorded
Commercial and industrial	$	320	$	320	$	7
Commercial real estate	1,694		1,694		34
Small business	146		152		1
Residential real estate	8,042		8,921		874
Home equity	1,437		1,620		168
Other consumer	184		187		13
Subtotal	11,823		12,894		1,097
Total	$	64,031	$	73,843	$	1,097

	December 31, 2017
	Recorded Investment		Unpaid Principal Balance		Related Allowance
	(Dollars in thousands)
With no related allowance recorded
Commercial and industrial	$	34,267	$	38,329	$	—
Commercial real estate	13,245		14,374		—
Small business	556		619		—
Residential real estate	4,264		4,397		—
Home equity	4,950		5,056		—
Other consumer	91		92		—
Subtotal	57,373		62,867		—
With an allowance recorded
Commercial and industrial	$	376	$	376	$	10
Commercial real estate	3,393		3,399		42
Small business	147		153		1
Residential real estate	9,420		10,154		1,007
Home equity	1,876		2,110		265
Other consumer	216		217		17
Subtotal	15,428		16,409		1,342
Total	$	72,801	$	79,276	$	1,342

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, 2018				September 30, 2018
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
	(Dollars in thousands)
With no related allowance recorded
Commercial and industrial	$	31,376	$	28	$	32,424	$	89
Commercial real estate	12,040		135		12,423		428
Small business	432		4		478		13
Residential real estate	4,798		56		4,826		173
Home equity	5,078		58		5,185		168
Other consumer	62		1		66		3
Subtotal	53,786		282		55,402		874
With an allowance recorded
Commercial and industrial	$	324	$	4	$	330	$	11
Commercial real estate	1,701		24		1,715		71
Small business	148		3		154		8
Residential real estate	8,057		69		8,194		207
Home equity	1,453		14		1,467		39
Other consumer	187		1		194		4
Subtotal	11,870		115		12,054		340
Total	$	65,656	$	397	$	67,456	$	1,214

	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

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, 2018		December 31, 2017
	(Dollars in thousands)
Outstanding balance	$	10,725	$	14,485
Carrying amount	$	9,668	$	13,023

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

	Three Months Ended September 30						Nine Months Ended September 30
	2018			2017			2018			2017
	(Dollars in thousands)
Beginning balance	$	1,604		$	2,185		$	1,791		$	2,370
Accretion	(518		)	(359		)	(931		)	(968		)
Other change in expected cash flows (1)	104			167			308			573
Reclassification from nonaccretable difference for loans which have paid off (2)	203			70			225			88
Ending balance	$	1,393		$	2,063		$	1,393		$	2,063

(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.