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Allowance for Loan Losses
 6 Months Ended
Jun. 30, 2015
Receivables [Abstract]  
Allowance for Loan Losses
Allowance for Loan Losses
The allowance for loan losses is management’s best estimate of the inherent risk of loss in the loan portfolio as of the balance sheet date. The allowance is increased by provisions charged to earnings and by recoveries of amounts previously charged off, and is reduced by charge-offs on loans. The Corporation uses a methodology to systematically measure the amount of estimated loan loss exposure inherent in the loan portfolio for purposes of establishing a sufficient allowance for loan losses. The methodology includes three elements: (1) identification of loss allocations for individual loans deemed to be impaired, (2) application of loss allocation factors for non-impaired loans based on credit grade, historical loss experience, estimated loss emergence period and delinquency status, with adjustments for various exposures not adequately presented in historical loss experience, and (3) an unallocated allowance maintained for measurement imprecision associated with impaired and nonaccrual loans.

Prior to December 31, 2014, the unallocated allowance included amounts for management’s qualitative and quantitative assessment of certain other loan portfolio risks not captured in other components of the allowance. The 2014 presentation of the allowance for loan losses by portfolio segment, set forth below, has been revised to conform to the December 31, 2014 presentation format. The reclassification resulted in a reduction of $5.0 million in the unallocated allowance previously reported as of June 30, 2014, with a corresponding increase to the allowance by portfolio segment. The reclassification resulted in no change in the total allowance.

Loss allocations for loans deemed to be impaired are measured on a discounted cash flow method based upon the loan’s contractual effective interest rate, or at the loan’s observable market price, or, if the loan is collateral dependent, at the fair value of the collateral. For collateral dependent loans for which repayment is dependent on the sale of the collateral, management adjusts the fair value for estimated costs to sell. For collateral dependent loans for which repayment is dependent on the operation of the collateral, such as accruing troubled debt restructured loans, estimated costs to sell are not incorporated into the measurement. Management may also adjust appraised values to reflect estimated market value declines or apply other discounts to appraised values for unobservable factors resulting from its knowledge of circumstances associated with the property.

Individual commercial loans not deemed to be impaired are evaluated using an internal rating system and the application of loss allocation factors. The loan rating system is described under the caption “Credit Quality Indicators” in Note 5. The loan rating system and the related loss allocation factors take into consideration parameters including the borrower’s financial condition, the borrower’s performance with respect to loan terms, the adequacy of collateral and the adequacy of guarantees. We periodically reassess and revise the loss allocation factors used in the assignment of loss exposure to appropriately reflect our analysis of migrational loss experience. Revisions to loss allocation factors are not retroactively applied. We analyze historical loss experience over periods deemed to be relevant to the inherent risk of loss in the commercial loan portfolio and the related estimate of the loss emergence period as of the balance sheet date. We also adjust loss factor allocations for various exposures we believe are not adequately presented in historical loss experience, including our assessments of credit risk associated with certain industries, an ongoing trend toward larger credit relationships, recent changes in portfolio composition, conditions that may affect the ability of borrowers to meet debt service requirements and trends in rental rates on commercial real estate.

Portfolios of more homogeneous populations of loans, including the various categories of residential mortgages and consumer loans, are analyzed as groups, with loss allocation factors assigned to each group based on account delinquency status. We periodically reassess and revise the loss allocation factors. Revisions to loss allocation factors are not retroactively applied. We analyze historical loss experience over periods deemed to be relevant to the inherent risk of loss in residential mortgage and consumer loan portfolios and the related estimate of the loss emergence period as of the balance sheet date. We also adjust loss factor allocations for various exposures we believe are not adequately presented in historical loss experience including trends in real estate values, conditions that may affect the collateral position, consideration of general economic conditions, increases in delinquency levels and regulatory changes affecting the foreclosure process. These matters are also evaluated taking into account the geographic location of the underlying loans.

Because the methodology is based upon historical experience and trends, current economic data as well as management’s judgment, factors may arise that result in different estimations. Significant factors that could give rise to changes in these estimates may include, but are not limited to, changes in economic conditions in our market area, concentration of risk and declines in local property values. Adversely different conditions or assumptions could lead to increases in the allowance. In addition, various regulatory agencies periodically review the allowance for loan losses. Such agencies may require additions to the allowance based on their judgments about information available to them at the time of their examination.

The following table presents the activity in the allowance for loan losses for three months ended June 30, 2015:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(Dollars in thousands)
Commercial
 
 
 
 
 
 
 
 
 
 
 
Mortgages
 
Construction
 
C&I (1)
 
Total Commercial
 
Residential
 
Consumer
 
Un-allocated
 
Total
Beginning Balance

$8,331

 

$1,229

 

$7,803

 

$17,363

 

$5,355

 

$2,731

 

$2,361

 

$27,810

Charge-offs
(200
)
 
—

 
(44
)
 
(244
)
 
(6
)
 
(105
)
 
—

 
(355
)
Recoveries
4

 
—

 
18

 
22

 
2

 
8

 
—

 
32

Provision
394

 
455

 
(767
)
 
82

 
54

 
49

 
(85
)
 
100

Ending Balance

$8,529

 

$1,684

 

$7,010

 

$17,223

 

$5,405

 

$2,683

 

$2,276

 

$27,587

(1) Commercial & industrial loans.

The following table presents the activity in the allowance for loan losses for three months ended June 30, 2014:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(Dollars in thousands)
Commercial
 
 
 
 
 
 
 
 
 
 
 
Mortgages
 
Construction
 
C&I (1)
 
Total Commercial
 
Residential
 
Consumer
 
Un-allocated
 
Total
Beginning Balance

$6,547

 

$269

 

$8,470

 

$15,286

 

$7,148

 

$2,577

 

$2,032

 

$27,043

Charge-offs
(32
)
 
—

 
(115
)
 
(147
)
 
(30
)
 
(90
)
 
—

 
(267
)
Recoveries
6

 
—

 
20

 
26

 
—

 
17

 
—

 
43

Provision
1,671

 
225

 
(487
)
 
1,409

 
(927
)
 
73

 
(105
)
 
450

Ending Balance

$8,192

 

$494

 

$7,888

 

$16,574

 

$6,191

 

$2,577

 

$1,927

 

$27,269

(1) Commercial & industrial loans.

The following table presents the activity in the allowance for loan losses for six months ended June 30, 2015:
(Dollars in thousands)
Commercial
 
 
 
 
 
 
 
 
 
 
 
Mortgages
 
Construction
 
C&I (1)
 
Total Commercial
 
Residential
 
Consumer
 
Un-allocated
 
Total
Beginning Balance

$8,202

 

$1,300

 

$7,987

 

$17,489

 

$5,430

 

$2,713

 

$2,391

 

$28,023

Charge-offs
(400
)
 
—

 
(51
)
 
(451
)
 
(54
)
 
(171
)
 
—

 
(676
)
Recoveries
84

 
—

 
32

 
116

 
4

 
20

 
—

 
140

Provision
643

 
384

 
(958
)
 
69

 
25

 
121

 
(115
)
 
100

Ending Balance

$8,529

 

$1,684

 

$7,010

 

$17,223

 

$5,405

 

$2,683

 

$2,276

 

$27,587

(1) Commercial & industrial loans.

The following table presents the activity in the allowance for loan losses for six months ended June 30, 2014:
(Dollars in thousands)
Commercial
 
 
 
 
 
 
 
 
 
 
 
Mortgages
 
Construction
 
C&I (1)
 
Total Commercial
 
Residential
 
Consumer
 
Un-allocated
 
Total
Beginning Balance

$8,022

 

$383

 

$7,835

 

$16,240

 

$6,450

 

$2,511

 

$2,685

 

$27,886

Charge-offs
(977
)
 
—

 
(311
)
 
(1,288
)
 
(72
)
 
(130
)
 
—

 
(1,490
)
Recoveries
12

 
—

 
46

 
58

 
35

 
30

 
—

 
123

Provision
1,135

 
111

 
318

 
1,564

 
(222
)
 
166

 
(758
)
 
750

Ending Balance

$8,192

 

$494

 

$7,888

 

$16,574

 

$6,191

 

$2,577

 

$1,927

 

$27,269


(1) Commercial & industrial loans.

The following table presents the Corporation’s loan portfolio and associated allowance for loan loss by portfolio segment and by impairment methodology:
(Dollars in thousands)
June 30, 2015
 
December 31, 2014
 
Loans
 
Related Allowance
 
Loans
 
Related Allowance
Loans Individually Evaluated for Impairment:
 
 
 
 
 
 
 
Commercial:
 
 
 
 
 
 
 
Mortgages

$14,363

 

$1,177

 

$14,991

 

$927

Construction & development
—

 
—

 
—

 
—

Commercial & industrial
3,248

 
69

 
2,921

 
177

Residential real estate
3,103

 
233

 
3,698

 
326

Consumer
795

 
174

 
409

 
153

Subtotal

$21,509

 

$1,653

 

$22,019

 

$1,583

Loans Collectively Evaluated for Impairment:
 
 
 
 
 
 
 
Commercial:
 
 
 
 
 
 
 
Mortgages

$862,226

 

$7,352

 

$828,987

 

$7,275

Construction & development
110,989

 
1,684

 
79,592

 
1,300

Commercial & industrial
592,711

 
6,941

 
608,997

 
7,810

Residential real estate
998,160

 
5,172

 
981,717

 
5,104

Consumer
342,989

 
2,509

 
337,964

 
2,560

Subtotal

$2,907,075

 

$23,658

 

$2,837,257

 

$24,049

Unallocated
—

 
2,276

 
—

 
2,391

Total

$2,928,584

 

$27,587

 

$2,859,276

 

$28,023