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Allowance for Loan Losses
 12 Months Ended
Dec. 31, 2019
Receivables [Abstract]  
Allowance for Loan Losses
6.
Allowance for Loan Losses
The Company maintains an allowance for loan losses in an amount determined by management on the basis of the character of the loans, loan performance, financial condition of borrowers, the value of collateral securing loans and other relevant factors. The following table summarizes the changes in the Company’s allowance for loan losses for the years indicated.
An analysis of the allowance for loan losses for each of the three years ending December 31, 2019, 2018 and 2017 is as follows:
 
   
2019
   2018   2017 
(dollars in thousands)            
Allowance for loan losses, beginning of year
  
$
28,543
 
  $26,255   $24,406 
Loans
charged-off
  
 
(454
) 
   (833)    (390) 
Recoveries on loans previously
charged-off
  
 
246
 
   1,771    449 
  
 
 
   
 
 
   
 
 
 
Net recoveries (charge-offs)
  
 
(208
) 
   938    59 
Provision charged to expense
  
 
1,250
 
   1,350    1,790 
  
 
 
   
 
 
   
 
 
 
Allowance for loan losses, end of year
  
$
29,585
 
  $28,543   $26,255 
  
 
 
   
 
 
   
 
 
 
 
Further information pertaining to the allowance for loan losses at December 31, 2019 follows:
 
 
 
Construction
and Land
Development
 
 
Commercial
and
Industrial
 
 
Municipal
 
 
Commercial
Real Estate
 
 
Residential
Real Estate
 
 
Consumer
 
 
Home

Equity
 
 
Unallocated
 
 
Total
 
(dollars in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Allowance for Loan Losses:
 
 
 
 
 
 
 
 
 
Ending balance at December 31
, 2018
 
$
1,092
 
 
$
10,998
 
 
$
1,838
 
 
$
10,663
 
 
$
2,190
 
 
$
365
 
 
$
1,111
 
 
$
286
 
 
$
28,543
 
Charge-offs
 
 
—  
 
 
 
(137
) 
 
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
(295
) 
 
 
(22
) 
 
 
—  
 
 
 
(454
) 
Recoveries
 
 
—  
 
 
 
60
 
 
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
186
 
 
 
—  
 
 
 
—  
 
 
 
246
 
Provision
 
 
(761
) 
 
 
675
 
 
 
728
 
 
 
801
 
 
 
4
 
 
 
56
 
 
 
(24
) 
 
 
(229
) 
 
 
1,250
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ending balance at December 31
, 2019
 
$
331
 
 
$
11,596
 
 
$
2,566
 
 
$
11,464
 
 
$
2,194
 
 
$
312
 
 
$
1,065
 
 
$
57
 
 
$
29,585
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Amount of allowance for loan losses for loans deemed to be impaired
 
$
—  
 
 
$
15
 
 
$
—  
 
 
$
87
 
 
$
—  
 
 
$
—  
 
 
$
—  
 
 
$
—  
 
 
$
102
 
Amount of allowance for loan losses for loans not deemed to be impaired
 
$
331
 
 
$
11,581
 
 
$
2,566
 
 
$
11,377
 
 
$
2,194
 
 
$
312
 
 
$
1,065
 
 
$
57
 
 
$
29,483
 
Loans:
 
 
 
 
 
 
 
 
 
Ending balance
 
$
8,992
 
 
$
812,417
 
 
$
120,455
 
 
$
786,102
 
 
$
371,897
 
 
$
21,893
 
 
$
304,363
 
 
$
—  
 
 
$
2,426,119
 
Loans deemed to be impaired
 
$
—  
 
 
$
906
 
 
$
—  
 
 
$
2,346
 
 
$
—  
 
 
$
—  
 
 
$
—  
 
 
$
—  
 
 
$
3,252
 
Loans not deemed to be impaired
 
$
8,992
 
 
$
811,511
 
 
$
120,455
 
 
$
783,756
 
 
$
371,897
 
 
$
21,893
 
 
$
304,363
 
 
$
—  
 
 
$
2,422,867
 
Further information pertaining to the allowance for loan losses at December 31, 2018 follows:
 
 
 
Construction
and Land
Development
 
 
Commercial
and
Industrial
 
 
Municipal
 
 
Commercial
Real Estate
 
 
Residential
Real Estate
 
 
Consumer
 
 
Home
Equity
 
 
Unallocated
 
 
Total
 
(dollars in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Allowance for Loan Losses:
 
 
 
 
 
 
 
 
 
Balance at December 31
, 2017
 
$
1,645
 
 
$
9,651
 
 
$
1,720
 
 
$
9,728
 
 
$
1,873
 
 
$
373
 
 
$
989
 
 
$
276
 
 
$
26,255
 
Charge-offs
 
 
—  
 
 
 
(67
) 
 
 
—  
 
 
 
—  
 
 
 
(450
) 
 
 
(316
) 
 
 
—  
 
 
 
—  
 
 
 
(833
) 
Recoveries
 
 
1,436
 
 
 
57
 
 
 
—  
 
 
 
—  
 
 
 
75
 
 
 
203
 
 
 
—  
 
 
 
—  
 
 
 
1,771
 
Provision
 
 
(1,989
) 
 
 
1,357
 
 
 
118
 
 
 
935
 
 
 
692
 
 
 
105
 
 
 
122
 
 
 
10
 
 
 
1,350
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ending balance at December 31
, 2018
 
$
1,092
 
 
$
10,998
 
 
$
1,838
 
 
$
10,663
 
 
$
2,190
 
 
$
365
 
 
$
1,111
 
 
$
286
 
 
$
28,543
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Amount of allowance for loan losses for loans deemed to be impaired
 
$
—  
 
 
$
54
 
 
$
—  
 
 
$
91
 
 
$
—  
 
 
$
—  
 
 
$
—  
 
 
$
—  
 
 
$
145
 
Amount of allowance for loan losses for loans not deemed to be impaired
 
$
1,092
 
 
$
10,944
 
 
$
1,838
 
 
$
10,572
 
 
$
2,190
 
 
$
365
 
 
$
1,111
 
 
$
286
 
 
$
28,398
 
Loans:
 
 
 
 
 
 
 
 
 
Ending balance
 
$
13,628
 
 
$
761,625
 
 
$
97,290
 
 
$
750,362
 
 
$
348,250
 
 
$
22,083
 
 
$
292,340
 
 
$
—  
 
 
$
2,285,578
 
Loans deemed to be impaired
 
$
—  
 
 
$
401
 
 
$
—  
 
 
$
2,650
 
 
$
—  
 
 
$
—  
 
 
$
—  
 
 
$
—  
 
 
$
3,051
 
Loans not deemed to be impaired
 
$
13,628
 
 
$
761,224
 
 
$
97,290
 
 
$
747,712
 
 
$
348,250
 
 
$
22,083
 
 
$
292,340
 
 
$
—  
 
 
$
2,282,527
 
 
CREDIT QUALITY INFORMATION
The Company utilizes a
six-grade
internal loan rating system for commercial real estate, construction and commercial loans as follows:
Loans rated
1-3
(Pass)—Loans in this category are considered “pass” rated loans with low to average risk.
Loans rated 4 (Monitor)—
T
hese loans represent classified loans that management is closely monitoring for credit quality. These loans have had or may have minor credit quality deterioration as of December 31, 2019.
Loans rated 5 (Substandard)—Substandard loans represent classified loans that management is closely monitoring for credit quality. These loans have had more significant credit quality deterioration as of December 31, 2019.
Loans rated 6 (Doubtful)—Doubtful loans represent classified loans that management is closely monitoring for credit quality. These loans had more significant credit quality deterioration as of December 31, 2019 and are doubtful for full collection.
Impaired—
I
mpaired loans represent classified loans that management is closely monitoring for credit quality. A loan is classified as impaired when it is probable that the Company will be unable to collect all amounts due.
The following table presents the Company’s loans by risk rating at December 31, 2019.
 
   
Construction
and Land
Development
  
Commercial

and

Industrial
   
Municipal
   
Commercial
Real Estate
(dollars in thousands)
              
Grade:
        
1-3
(Pass)
  
$  8,992
  
$
807,486
 
  
$
120,455
 
  
$759,402
4 (Monitor)
  
—  
  
 
4,025
 
  
 
—  
 
  
24,354
5 (Substandard)
  
—  
  
 
—  
 
  
 
—  
 
  
—  
6 (Doubtful)
  
—  
  
 
—  
 
  
 
—  
 
  
—  
Impaired
  
—  
  
 
906
 
  
 
—  
 
  
2,346
  
 
  
 
 
   
 
 
   
 
Total
  
$  8,992
  
$
812,417
 
  
$
120,455
 
  
$786,102
  
 
  
 
 
   
 
 
   
 
The Company has increased its exposure to larger loans to large institutions with publicly available credit ratings. These ratings are tracked as a credit quality indicator for these loans.
The following table presents the Company’s loans by credit rating at December 31, 2019.
 
   
Commercial

and

Industrial
   
Municipal
   
Commercial

Real Estate
   
Total
 
(
dollars
in thousands)
                
Credit Rating:
        
Aaa-Aa3
  
$
523,644
 
  
$
53,273
 
  
$
40,437
 
  
$
617,354
 
A1-A3
  
 
186,044
 
  
 
7,354
 
  
 
148,346
 
  
 
341,744
 
Baa1-Baa3
  
 
—  
 
  
 
51,133
 
  
 
144,711
 
  
 
195,844
 
Ba
1
  
 
—  
 
  
 
5,895
 
  
 
—  
 
  
 
5,895
 
  
 
 
   
 
 
   
 
 
   
 
 
 
Total
  
$
709,688
 
  
$
117,655
 
  
$
333,494
 
  
$
1,160,837
 
  
 
 
   
 
 
   
 
 
   
 
 
 
 
The following table presents the Company’s loans by risk rating at December 31, 2018.
 
   Construction
and Land
Development		   Commercial
and
Industrial		   Municipal   Commercial
Real 
E
state		 
(dollars in thousands)                
Grade:
        
1-3
(Pass)
  $13,628   $757,089   $97,290   $723,170 
4 (Monitor)
   —      4,135    —      24,542 
5 (Substandard)
   —      —      —      —   
6 (Doubtful)
   —      —      —      —   
Impaired
   —      401    —      2,650 
  
 
 
   
 
 
   
 
 
   
 
 
 
Total
  $13,628   $761,625   $97,290   $750,362 
  
 
 
   
 
 
   
 
 
   
 
 
 
The following table presents the Company’s loans by credit rating at December 31, 2018.
 
   Commercial
and
Industrial		   Municipal   Commercial
Real Estate		   Total 
(
dollars
in thousands)		                
Credit Rating:
        
Aaa-Aa3
  $491,247   $54,105   $42,790   $588,142 
A1-A3
   172,472    7,605    151,381    331,458 
Baa1-Baa3
   —      26,970    118,197    145,167 
Ba
1
   —      6,810    —      6,810 
  
 
 
   
 
 
   
 
 
   
 
 
 
Total
  $663,719   $95,490   $312,368   $1,071,577 
  
 
 
   
 
 
   
 
 
   
 
 
 
The Company utilized payment performance as credit quality indicators for residential real estate, consumer and overdrafts, and the home equity portfolio. The indicators are depicted in the table “aging of
past-due
loans,” below.
AGING OF
PAST-DUE
LOANS
At December 31, 2019 the aging of past due loans are as follows:
 
   
Accruing
30-89 Days

Past Due
   
Non
Accrual
   
Accruing
Greater
Than
90
 
Days
   
Total
Past
Due
   
Current
Loans
   
Total
 
(dollars in thousands)
                        
Construction and land development
  
$
—  
 
  
$
—  
 
  
$
—  
 
  
$
—  
 
  
$
8,992
 
  
$
8,992
 
Commercial and industrial
  
 
227
 
  
 
400
 
  
 
—  
 
  
 
627
 
  
 
811,790
 
  
 
812,417
 
Municipal
  
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
120,455
 
  
 
120,455
 
Commercial real estate
  
 
840
 
  
 
492
 
  
 
—  
 
  
 
1,332
 
  
 
784,770
 
  
 
786,102
 
Residential real estate
  
 
1,563
 
  
 
683
 
  
 
—  
 
  
 
2,246
 
  
 
369,651
 
  
 
371,897
 
Consumer and overdrafts
  
 
18
 
  
 
4
 
  
 
—  
 
  
 
22
 
  
 
21,871
 
  
 
21,893
 
Home equity
  
 
603
 
  
 
435
 
  
 
—  
 
  
 
1,038
 
  
 
303,325
 
  
 
304,363
 
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total
  
$
3,251
 
  
$
2,014
 
  
$
—  
 
  
$
5,265
 
  
$
2,420,854
 
  
$
2,426,119
 
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
 
At December 31, 2018 the aging of past due loans are as follows:
 
   Accruing
30-89 Days

Past Due		   Non
Accrual		   
Accruing
Greater
Than
90
 
Days
   
Total
Past
 
Due
   Current
Loans		   Total 
(dollars in thousands)                        
Construction and land development
  $—     $—     $—     $—     $13,628   $13,628 
Commercial and industrial
   187    115    —      302    761,323    761,625 
Municipal
   —      —      —      —      97,290    97,290 
Commercial real estate
   774    190    —      964    749,398    750,362 
Residential real estate
   2,554    569    —      3,123    345,127    348,250 
Consumer and overdrafts
   24    14    —      38    22,045    22,083 
Home equity
   1,108    425    —      1,533    290,807    292,340 
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total
  $4,647   $1,313   $—     $5,960   $2,279,618   $2,285,578 
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
IMPAIRED LOANS
A loan is impaired when, based on current information and events, it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. When a loan is impaired, the Company measures impairment based on the present value of expected future cash flows discounted at the loan’s effective interest rate, except that as a practical expedient, the Company measures impairment based on a loan’s observable market price or the fair value of the collateral if the loan is collateral dependent. Loans are
charged-off
when management believes that the collectibility of the loan’s principal is not probable. The specific factors that management considers in making the determination that the collectibility of the loan’s principal is not probable include; the delinquency status of the loan, the fair value of the collateral, if secured, and the financial strength of the borrower and/or guarantors. For collateral dependent loans, the amount of the recorded investment in a loan that exceeds the fair value of the collateral is
charged-off
against the allowance for loan losses in lieu of an allocation of a specific allowance amount when such an amount has been identified definitively as uncollectible. The Company’s policy for recognizing interest income on impaired loans is contained within Note 1 of the “Notes to Consolidated Financial Statements.”
 
The following is information pertaining to impaired loans at December 31, 2019:
 
   
Carrying
Value
   
Unpaid
Balance
Principal
   
Required
Reserve
   
Average
Carrying
 
Value
Recognized
   
Interest
Income
 
(dollars in thousands)
                    
With no required reserve recorded:
          
Construction and land development
  
$
—  
 
  
$
—  
 
  
$
—  
 
  
$
—  
 
  
$
—  
 
Commercial and industrial
  
 
770
 
  
 
976
 
  
 
—  
 
  
 
138
 
  
 
6
 
Municipal
  
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
—  
 
Commercial real estate
  
 
160
 
  
 
189
 
  
 
—  
 
  
 
445
 
  
 
—  
 
Residential real estate
  
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
—  
 
Consumer
  
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
—  
 
Home equity
  
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total
  
$
930
 
  
$
1,165
 
  
$
—  
 
  
$
583
 
  
$
6
 
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
With required reserve recorded:
          
Construction and land development
  
$
—  
 
  
$
—  
 
  
$
—  
 
  
$
—  
 
  
$
—  
 
Commercial and industrial
  
 
136
 
  
 
137
 
  
 
15
 
  
 
264
 
  
 
7
 
Municipal
  
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
—  
 
Commercial real estate
  
 
2,186
 
  
 
2,306
 
  
 
87
 
  
 
2,314
 
  
 
90
 
Residential real estate
  
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
—  
 
Consumer
  
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
—  
 
Home equity
  
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total
  
$
2,322
 
  
$
2,443
 
  
$
102
 
  
$
2,578
 
  
$
97
 
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total
               
Construction and land development
  
$
—  
 
  
$
—  
 
  
$
—  
 
  
$
—  
 
  
$
—  
 
Commercial and industrial
  
 
906
 
  
 
1,113
 
  
 
15
 
  
 
402
 
  
 
13
 
Municipal
  
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
—  
 
Commercial real estate
  
 
2,346
 
  
 
2,495
 
  
 
87
 
  
 
2,759
 
  
 
90
 
Residential real estate
  
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
—  
 
Consumer
  
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
—  
 
Home equity
  
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total
  
$
3,252
 
  
$
3,608
 
  
$
102
 
  
$
3,161
 
  
$
103
 
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
 
The following is information pertaining to impaired loans at December 31, 2018:
 
   Carrying
Value		   Unpaid
Balance
Principal		   Required
Reserve		   Average
Carrying
Value
Recognized		   Interest
Income		 
(dollars in thousands)                    
With no required reserve recorded:
          
Construction and land development
  $—     $—     $—     $—     $—   
Commercial and industrial
   87    291    —      46    5 
Municipal
   —      —      —      —      —   
Commercial real estate
   189    212    —      249    —   
Residential real estate
   —      —      —      —      —   
Consumer
   —      —      —      —      —   
Home equity
   —      —      —      —      —   
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total
  $276   $503   $—     $295   $5 
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
With required reserve recorded:
          
Construction and land development
  $—     $—     $—     $—     $—   
Commercial and industrial
   314    315    54    462    13 
Municipal
   —      —      —      —      —   
Commercial real estate
   2,461    2,575    91    2,322    97 
Residential real estate
   —      —      —      2,412    81 
Consumer
   —      —      —      —      —   
Home equity
   —      —      —      —      —   
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total
  $2,775   $2,890   $145   $5,196   $191 
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total
               
Construction and land development
  $—     $—     $—     $—     $—   
Commercial and industrial
   401    606    54    508    18 
Municipal
   —      —      —      —      —   
Commercial real estate
   2,650    2,787    91    2,571    97 
Residential real estate
   —      —      —      2,412    81 
Consumer
   —      —      —      —      —   
Home equity
   —      —      —      —      —   
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total
  $3,051   $3,393   $145   $5,491   $196 
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Troubled Debt Restructurings are identified as a modification in which a concession was granted to a customer who was having financial difficulties. This concession may be below market rate, longer amortization/term, or a lower payment amount. The present value calculation of the modification did not result in an increase in the allowance for these loans beyond any previously established allocations.
There was one commercial and industrial loan that was modified during the first quarter of 2019. The loan was modified by reducing the interest rates as well as extending the term on the loan. The
pre-modification
and post-modification outstanding recorded investment was $39,000. The financial impact for the modification was not material. This loan was subsequently charged off during the third quarter of 2019. Also, there were no commitments to lend additional funds to troubled debt restructuring borrowers. 
There was one residential real estate loan and one consumer loan that were modified during the first quarter of 2018. The loans were modified by reducing the interest rates as well as extending the terms on both loans. The
pre-modification
and post-modification outstanding recorded investment was $2,675,000 for the residential real estate loan that was not accruing interest. The
pre-modification
and post-modification outstanding recorded investment was $17,000 for the consumer loan that was accruing interest. The financial impact for the modifications was not material. Both troubled debt restructurings subsequently defaulted during 2018. The residential real estate loan was partially charged off for $450,000 and was recorded as other real estate owned for $2,225,000 during the fourth quarter of 2018. This property was subsequently sold during the third quarter of 2019. Other real estate owned is included in other assets on the balance sheet. The consumer loan was fully charged off during the fourth quarter of 2018.