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Allowance for Loan Losses
 9 Months Ended
Sep. 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 historical loss experience and estimated loss emergence period, with adjustments for various exposures that management believes are not adequately represented by historical loss experience, and (3) an unallocated allowance maintained for measurement imprecision associated with 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 $4.2 million in the unallocated allowance previously reported as of September 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.

For loans that are collectively evaluated, we analyze historical loss experience by loan segment over periods deemed to be relevant to the inherent risk of loss in the portfolios. These losses are adjusted to reflect the loss emergence period (the period from the event that triggers the eventual default until the actual loss is recognized with a charge-off.) These amounts are supplemented by certain qualitative risk factors reflecting management’s view of how losses may vary from those represented by historical loss rates. These qualitative risk factors include: 1) changes in lending policies and procedures, including changes in underwriting standards and collection, charge-off, and recovery practices not considered elsewhere in estimating credit losses; 2) changes in international, national, regional, and local economic and business conditions and developments that affect the collectability of the portfolio, including the condition of various market segments; 3) changes in the nature and volume of the portfolio and in the terms of loans; 4) changes in the experience, ability, and depth of lending management and other relevant staff; 5) changes in the volume and severity of past due loans, the volume of nonaccrual loans, and the volume and severity of adversely classified or rated loans; 6) changes in the quality of the institution’s loan review system; 7) changes in the value of underlying collateral for collateral dependent loans; 8) the existence and effect of any concentrations of credit, and changes in the level of such concentrations; and 9) the effect of other external factors such as legal and regulatory requirements on the level of estimated credit losses in the institution’s existing portfolio.

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. 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 September 30, 2015:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(Dollars in thousands)
Commercial
 
 
 
 
 
 
 
 
 
 
 
Mortgages
 
Construction
 
C&I (1)
 
Total Commercial
 
Residential
 
Consumer
 
Un-allocated
 
Total
Beginning Balance

$8,529

 

$1,684

 

$7,010

 

$17,223

 

$5,405

 

$2,683

 

$2,276

 

$27,587

Charge-offs
—

 
—

 
(378
)
 
(378
)
 
(34
)
 
(313
)
 
—

 
(725
)
Recoveries
4

 
—

 
30

 
34

 
22

 
43

 
—

 
99

Provision
(38
)
 
5

 
691

 
658

 
150

 
(164
)
 
(444
)
 
200

Ending Balance

$8,495

 

$1,689

 

$7,353

 

$17,537

 

$5,543

 

$2,249

 

$1,832

 

$27,161

(1) Commercial & industrial loans.

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

$8,192

 

$494

 

$7,888

 

$16,574

 

$6,191

 

$2,577

 

$1,927

 

$27,269

Charge-offs
—

 
—

 
(92
)
 
(92
)
 
—

 
(56
)
 
—

 
(148
)
Recoveries
7

 
—

 
29

 
36

 
1

 
10

 
—

 
47

Provision
57

 
206

 
(611
)
 
(348
)
 
111

 
221

 
616

 
600

Ending Balance

$8,256

 

$700

 

$7,214

 

$16,170

 

$6,303

 

$2,752

 

$2,543

 

$27,768

(1) Commercial & industrial loans.

The following table presents the activity in the allowance for loan losses for nine months ended September 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
)
 
—

 
(429
)
 
(829
)
 
(88
)
 
(484
)
 
—

 
(1,401
)
Recoveries
88

 
—

 
62

 
150

 
26

 
63

 
—

 
239

Provision
605

 
389

 
(267
)
 
727

 
175

 
(43
)
 
(559
)
 
300

Ending Balance

$8,495

 

$1,689

 

$7,353

 

$17,537

 

$5,543

 

$2,249

 

$1,832

 

$27,161

(1) Commercial & industrial loans.

The following table presents the activity in the allowance for loan losses for nine months ended September 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
)
 
—

 
(403
)
 
(1,380
)
 
(72
)
 
(186
)
 
—

 
(1,638
)
Recoveries
19

 
—

 
75

 
94

 
36

 
40

 
—

 
170

Provision
1,192

 
317

 
(293
)
 
1,216

 
(111
)
 
387

 
(142
)
 
1,350

Ending Balance

$8,256

 

$700

 

$7,214

 

$16,170

 

$6,303

 

$2,752

 

$2,543

 

$27,768


(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. See Note 6 for disclosure on the redefining of impaired loans as of September 30, 2015.
(Dollars in thousands)
September 30, 2015
 
December 31, 2014
 
Loans
 
Related Allowance
 
Loans
 
Related Allowance
Loans Individually Evaluated for Impairment:
 
 
 
 
 
 
 
Commercial:
 
 
 
 
 
 
 
Mortgages

$15,552

 

$1,256

 

$14,991

 

$927

Construction & development
—

 
—

 
—

 
—

Commercial & industrial
3,218

 
186

 
2,921

 
177

Residential real estate
10,146

 
312

 
3,698

 
326

Consumer
1,674

 
63

 
409

 
153

Subtotal

$30,590

 

$1,817

 

$22,019

 

$1,583

Loans Collectively Evaluated for Impairment:
 
 
 
 
 
 
 
Commercial:
 
 
 
 
 
 
 
Mortgages

$858,215

 

$7,239

 

$828,987

 

$7,275

Construction & development
121,857

 
1,689

 
79,592

 
1,300

Commercial & industrial
581,012

 
7,167

 
608,997

 
7,810

Residential real estate
1,014,068

 
5,231

 
981,717

 
5,104

Consumer
344,176

 
2,186

 
337,964

 
2,560

Subtotal

$2,919,328

 

$23,512

 

$2,837,257

 

$24,049

Unallocated
—

 
1,832

 
—

 
2,391

Total

$2,949,918

 

$27,161

 

$2,859,276

 

$28,023