Allowance for Loan Losses and Credit Quality of Loans

3 Months Ended

Mar. 31, 2019

Allowance for Loan Losses and Credit Quality of Loans [Abstract]

Allowance for Loan Losses and Credit Quality of Loans

4.          Allowance for Loan Losses and Credit Quality of Loans

Allowance for Loan Losses

The allowance for loan losses is maintained at a level estimated by management to provide adequately for probable incurred losses inherent in the current loan portfolio. The appropriateness of the allowance for loan losses is continuously monitored. It is assessed for appropriateness using a methodology designed to ensure the level of the allowance reasonably reflects the loan portfolio’s risk profile and can absorb all reasonably estimable credit losses inherent in the current loan portfolio.

To develop and document a systematic methodology for determining the allowance for loan losses, the Company has divided the loan portfolio into three segments, each with different risk characteristics and methodologies for assessing risk. Those segments are further segregated between our loans accounted for under the amortized cost method (referred to as “originated” loans) and loans acquired in a business combination (referred to as “acquired” loans). Each portfolio segment is broken down into class segments where appropriate. Class segments contain unique measurement attributes, risk characteristics and methods for monitoring and assessing risk that are necessary to develop the allowance for loan losses. Unique characteristics such as borrower type, loan type, collateral type and risk characteristics define each class segment. The following table illustrates the portfolio and class segments for the Company’s loan portfolio:

Portfolio	Class
Commercial Loans	Commercial and Industrial
	Commercial Real Estate
	Business Banking
Consumer Loans	Dealer Finance
	Specialty Lending
	Direct
Residential Real Estate

Commercial Loans

The Company offers a variety of Commercial loan products. The Company’s underwriting analysis for commercial loans typically includes credit verification, independent appraisals, a review of the borrower’s financial condition and a detailed analysis of the borrower’s underlying cash flows.

Commercial and Industrial (“C&I”) – The Company offers a variety of loan options to meet the specific needs of our C&I customers including term loans, time notes and lines of credit. Such loans are made available to businesses for working capital needs such as inventory and receivables, business expansion, equipment purchases, livestock purchase and seasonal crop expenses. Generally, a collateral lien is placed on equipment or other assets owned by the borrower. These loans typically carry a higher risk than Commercial Real Estate loans due to the nature of the underlying collateral, which can be business assets such as equipment, accounts receivable and perishable agricultural products, which are exposed to industry price volatility. To reduce these risks, management also attempts to obtain personal guarantees of the owners or obtain government loan guarantees to provide further support.

Commercial Real Estate (“CRE”) – The Company offers CRE loans to finance real estate purchases, refinancings, expansions and improvements to commercial and agricultural properties. CRE loans are made to finance the purchases and improvements of real property, which generally consists of real estate with completed structures. These CRE loans are secured by liens on the real estate, which may include both owner occupied and non-owner-occupied properties, such as apartments, commercial structures, health care facilities and other facilities. These loans are typically less risky than C&I loans, since they are secured by real estate. The Company’s underwriting analysis includes credit verification, independent appraisals, a review of the borrower’s financial condition and a detailed analysis of the borrower’s underlying cash flows. These loans are typically originated in amounts of no more than 80% of the appraised value of the property and no more than 75% of the appraised value of the agricultural property. Government loan guarantees may be obtained to provide further support for agricultural property.

Business Banking - The Company offers a variety of loan options to meet the specific needs of our Business Banking customers including term loans, Business Banking mortgages and lines of credit. Such loans are generally less than $750 thousand and are made available to businesses for working capital such as inventory and receivables, business expansion, equipment purchases and agricultural needs. Generally, a collateral lien is placed on assets owned by the borrower and can include real estate, equipment, inventory, receivables or other business assets. These loans carry a higher risk than C&I and CRE loans due to the smaller size of the borrower and lower levels of capital. To reduce these risks, the Company obtains personal guarantees of the owners for a majority of the loans.

Consumer Loans

The Company offers a variety of Consumer loan products including Dealer Finance, Specialty Lending and Direct loans.

Dealer Finance – The Company maintains relationships with many dealers primarily in the communities that we serve. Through these relationships, the Company primarily finances the purchases of automobiles indirectly through dealer relationships. Approximately 95% of the Dealer Finance relationships represent automobile financing. Most of these loans carry a fixed rate of interest with principal repayment terms typically ranging from three to six years, based upon the nature of the collateral and the size of the loan. The majority of Dealer Finance Consumer loans are underwritten on a secured basis using the underlying collateral being financed.

Specialty Lending – The Company offers unsecured Consumer loans across a national footprint originated through our relationship with national technology-driven consumer lending companies to finance such things as dental and medical procedures, K-12 tuition, solar energy installations and other consumer purpose loans. Advances of credit through this specialty lending business line are subject to the Company’s underwriting standards including criteria such as FICO score and debt to income thresholds.

Direct – The Company offers a variety of consumer installment loans to finance vehicle purchases, mobile home purchases and personal expenditures. In addition to installment loans, the Company also offers personal lines of credit, overdraft protection, home equity lines of credit and second mortgage loans (loans secured by a lien position on one-to-four family residential real estate) to finance home improvements, debt consolidation, education and other uses. Most of the consumer installment loans carry a fixed rate of interest with principal repayment terms typically ranging from one to ten years, based upon the nature of the collateral and the size of the loan. For home equity loans, consumers are able to borrow up to 85% of the equity in their homes. These loans carry a higher risk than first mortgage residential loans as they are often in a second position with respect to collateral. Consumer installment loans are often secured with collateral consisting of a perfected lien on the asset being purchased or a perfected lien on a consumer’s deposit account. Risk is reduced through underwriting criteria, which include credit verification, appraisals, a review of the borrower’s financial condition and personal cash flows. A security interest, with title insurance when necessary, is taken in the underlying real estate.

Residential Real Estate

Residential real estate loans consist primarily of loans secured by a first or second mortgage on primary residences. We originate adjustable-rate and fixed-rate, one-to-four-family residential real estate loans for the construction, purchase or refinancing of a mortgage. These loans are collateralized by owner-occupied properties located in the Company’s market area. When market conditions are favorable, for longer term, fixed-rate residential real estate mortgages without escrow, the Company retains the servicing, but sells the right to receive principal and interest to Government-sponsored enterprises. This practice allows the Company to manage interest rate risk, liquidity risk and credit risk. Loans on one-to-four-family residential real estate are generally originated in amounts of no more than 85% of the purchase price or appraised value (whichever is lower) or have private mortgage insurance. Mortgage title insurance and hazard insurance are normally required. Construction loans have a unique risk because they are secured by an incomplete dwelling. This risk is reduced through periodic site inspections, including one at each loan draw period.

Allowance for Loan Loss Calculation

For purposes of evaluating the adequacy of the allowance, the Company considers a number of significant factors that affect the collectability of the portfolio. For individually impaired loans, these include estimates of impairment, if any, which reflect the facts and circumstances that affect the likelihood of repayment of such loans as of the evaluation date. For homogeneous pools of loans, estimates of the Company’s exposure to credit loss reflect a current assessment of a number of factors, which could affect collectability. These factors include: past loss experience, size, trend, composition and nature of loans; changes in lending policies and procedures, including underwriting standards and collection, charge-offs and recoveries; trends experienced in nonperforming and delinquent loans; current economic conditions in the Company’s market; portfolio concentrations that may affect loss experienced across one or more components of the portfolio; the effect of external factors such as competition, legal and regulatory requirements; and the experience, ability and depth of lending management and staff. In addition, various regulatory agencies, as an integral component of their examination process, periodically review the Company’s allowance for loan losses. Such agencies may require the Company to make loan grade changes as well as recognize additions to the allowance based on their examinations.

After a thorough consideration of the factors discussed above, any required additions or reductions to the allowance for loan losses are made periodically by charges or credits to the provision for loan losses. These charges are necessary to maintain the allowance at a level which management believes is reflective of overall level of incurred loss in the portfolio. While management uses available information to recognize losses on loans, additions and reductions of the allowance may fluctuate from one reporting period to another. These fluctuations are reflective of changes in risk associated with portfolio content or changes in management’s assessment of any or all of the determining factors discussed above.

The following table illustrates the changes in the allowance for loan losses by our portfolio segments:

(In thousands)	Commercial Loans			Consumer Loans			Residential Real Estate			Total
Balance as of December 31, 2018	$	32,759		$	37,178		$	2,568		$	72,505
Charge-offs		(747	)		(7,433	)		(274	)		(8,454	)
Recoveries		94			1,399			54			1,547
Provision		53			5,660			94			5,807
Ending Balance as of March 31, 2019	$	32,159		$	36,804		$	2,442		$	71,405
Balance as of December 31, 2017	$	27,606		$	36,830		$	5,064		$	69,500
Charge-offs		(805	)		(7,687	)		(182	)		(8,674	)
Recoveries		187			1,644			47			1,878
Provision		1,202			6,186			108			7,496
Ending Balance as of March 31, 2018	$	28,190		$	36,973		$	5,037		$	70,200

For acquired loans, to the extent that we experience deterioration in borrower credit quality resulting in a decrease in our expected cash flows subsequent to acquisition of the loans, an allowance for loan losses would be established based on our estimate of incurred losses at the balance sheet date. There was no allowance for loan losses for the acquired loan portfolio as of March 31, 2019 and December 31, 2018. There were no net charge-offs related to acquired loans during the three months ended March 31, 2019 and approximately $0.1 million during the three months ended March 31, 2018, and are included in the table above.

The following table illustrates the allowance for loan losses and the recorded investment by portfolio segments:

(In thousands)	Commercial Loans		Consumer Loans		Residential Real Estate		Total
As of March 31, 2019
Allowance for loan losses	$	32,159	$	36,804	$	2,442	$	71,405
Allowance for loans individually evaluated for impairment		25		-		-		25
Allowance for loans collectively evaluated for impairment	$	32,134	$	36,804	$	2,442	$	71,380
Ending balance of loans	$	3,250,482	$	2,249,419	$	1,390,411	$	6,890,312
Ending balance of originated loans individually evaluated for impairment		6,009		7,813		7,220		21,042
Ending balance of acquired loans collectively evaluated for impairment		140,103		29,626		142,814		312,543
Ending balance of originated loans collectively evaluated for impairment	$	3,104,370	$	2,211,980	$	1,240,377	$	6,556,727
As of December 31, 2018
Allowance for loan losses	$	32,759	$	37,178	$	2,568	$	72,505
Allowance for loans individually evaluated for impairment		25		-		-		25
Allowance for loans collectively evaluated for impairment	$	32,734	$	37,178	$	2,568	$	72,480
Ending balance of loans	$	3,222,310	$	2,284,563	$	1,380,836	$	6,887,709
Ending balance of originated loans individually evaluated for impairment		5,786		7,887		6,905		20,578
Ending balance of acquired loans collectively evaluated for impairment		143,690		31,624		147,277		322,591
Ending balance of originated loans collectively evaluated for impairment	$	3,072,834	$	2,245,052	$	1,226,654	$	6,544,540

Credit Quality of Loans

For all loan classes within the Company’s loan portfolio, loans are placed on nonaccrual status when timely collection of principal and/or interest in accordance with contractual terms is in doubt. Loans are transferred to nonaccrual status generally when principal or interest payments become ninety days delinquent, unless the loan is well-secured and in the process of collection or sooner when management concludes circumstances indicate that borrowers may be unable to meet contractual principal or interest payments. When a loan is transferred to a nonaccrual status, all interest previously accrued in the current period but not collected is reversed against interest income in that period. Interest accrued in a prior period and not collected is charged-off against the allowance for loan losses.

If ultimate repayment of a nonaccrual loan is expected, any payments received are applied in accordance with contractual terms. If ultimate repayment of principal is not expected, any payment received on a nonaccrual loan is applied to principal until ultimate repayment becomes expected. For all loan classes within the Company’s loan portfolio, nonaccrual loans are returned to accrual status when they become current as to principal and interest and demonstrate a period of performance under the contractual terms and, in the opinion of management, are fully collectible as to principal and interest. For loans in all portfolios, the principal amount is charged off in full or in part as soon as management determines, based on available facts, that the collection of principal in full or in part is improbable. For Commercial loans, management considers specific facts and circumstances relative to individual credits in making such a determination. For Consumer and Residential Real Estate loan classes, management uses specific guidance and thresholds from the Federal Financial Institutions Examination Council’s Uniform Retail Credit Classification and Account Management Policy.

The following tables set forth information with regard to past due and nonperforming loans by loan class:

(In thousands)	31-60 Days Past Due Accruing		61-90 Days Past Due Accruing		Greater Than 90 Days Past Due Accruing		Total Past Due Accruing		Nonaccrual		Current		Recorded Total Loans
As of March 31, 2019
Originated
Commercial Loans:
C&I	$	74	$	-	$	-	$	74	$	899	$	858,653	$	859,626
CRE		5,794		420		-		6,214		4,818		1,753,079		1,764,111
Business Banking		1,149		235		-		1,384		5,970		479,288		486,642
Total Commercial Loans	$	7,017	$	655	$	-	$	7,672	$	11,687	$	3,091,020	$	3,110,379
Consumer Loans:
Dealer Finance	$	11,388	$	1,962	$	878	$	14,228	$	2,924	$	1,173,956	$	1,191,108
Specialty Lending		3,235		1,733		1,604		6,572		45		522,527		529,144
Direct		2,530		808		393		3,731		2,895		492,915		499,541
Total Consumer Loans	$	17,153	$	4,503	$	2,875	$	24,531	$	5,864	$	2,189,398	$	2,219,793
Residential Real Estate	$	1,573	$	398	$	315	$	2,286	$	6,141	$	1,239,170	$	1,247,597
Total Originated Loans	$	25,743	$	5,556	$	3,190	$	34,489	$	23,692	$	6,519,588	$	6,577,769
Acquired
Commercial Loans:
C&I	$	-	$	-	$	-	$	-	$	-	$	27,166	$	27,166
CRE		-		-		-		-		-		80,623		80,623
Business Banking		121		285		-		406		383		31,525		32,314
Total Commercial Loans	$	121	$	285	$	-	$	406	$	383	$	139,314	$	140,103
Consumer Loans:
Dealer Finance	$	-	$	-	$	-	$	-	$	-	$	3	$	3
Direct		76		2		-		78		219		29,326		29,623
Total Consumer Loans	$	76	$	2	$	-	$	78	$	219	$	29,329	$	29,626
Residential Real Estate	$	788	$	119	$	145	$	1,052	$	1,338	$	140,424	$	142,814
Total Acquired Loans	$	985	$	406	$	145	$	1,536	$	1,940	$	309,067	$	312,543
Total Loans	$	26,728	$	5,962	$	3,335	$	36,025	$	25,632	$	6,828,655	$	6,890,312

(In thousands)	31-60 Days Past Due Accruing		61-90 Days Past Due Accruing		Greater Than 90 Days Past Due Accruing		Total Past Due Accruing		Nonaccrual		Current		Recorded Total Loans
As of December 31, 2018
Originated
Commercial Loans:
C&I	$	909	$	-	$	-	$	909	$	1,062	$	846,148	$	848,119
CRE		1,089		-		588		1,677		4,995		1,734,558		1,741,230
Business Banking		1,092		302		-		1,394		5,974		481,903		489,271
Total Commercial Loans	$	3,090	$	302	$	588	$	3,980	$	12,031	$	3,062,609	$	3,078,620
Consumer Loans:
Dealer Finance	$	14,519	$	2,300	$	1,186	$	18,005	$	1,971	$	1,196,136	$	1,216,112
Specialty Lending		3,479		1,773		1,562		6,814		-		518,114		524,928
Direct		2,962		1,437		552		4,951		2,592		504,356		511,899
Total Consumer Loans	$	20,960	$	5,510	$	3,300	$	29,770	$	4,563	$	2,218,606	$	2,252,939
Residential Real Estate	$	1,426	$	157	$	1,182	$	2,765	$	6,778	$	1,224,016	$	1,233,559
Total Originated Loans	$	25,476	$	5,969	$	5,070	$	36,515	$	23,372	$	6,505,231	$	6,565,118
Acquired
Commercial Loans:
C&I	$	-	$	-	$	-	$	-	$	-	$	26,124	$	26,124
CRE		-		-		-		-		-		84,492		84,492
Business Banking		466		288		-		754		390		31,930		33,074
Total Commercial Loans	$	466	$	288	$	-	$	754	$	390	$	142,546	$	143,690
Consumer Loans:
Dealer Finance	$	1	$	1	$	-	$	2	$	-	$	30	$	32
Direct		152		41		15		208		227		31,157		31,592
Total Consumer Loans	$	153	$	42	$	15	$	210	$	227	$	31,187	$	31,624
Residential Real Estate	$	546	$	42	$	-	$	588	$	1,498	$	145,191	$	147,277
Total Acquired Loans	$	1,165	$	372	$	15	$	1,552	$	2,115	$	318,924	$	322,591
Total Loans	$	26,641	$	6,341	$	5,085	$	38,067	$	25,487	$	6,824,155	$	6,887,709

There were no material commitments to extend further credit to borrowers with nonperforming loans as of March 31, 2019 and December 31, 2018.

Impaired Loans

The methodology used to establish the allowance for loan losses on impaired loans incorporates specific allocations on loans analyzed individually. Classified loans, including all troubled debt restructured loans (“TDRs”) and nonaccrual Commercial loans that are graded Substandard, Doubtful or Loss, with outstanding balances of $750 thousand or more are evaluated for impairment through the Company’s quarterly status review process. The Company considers Commercial loans less than $750 thousand to be homogeneous loans. In determining that we will be unable to collect all principal and/or interest payments due in accordance with the contractual terms of the loan agreements, we consider factors such as payment history and changes in the financial condition of individual borrowers, local economic conditions, historical loss experience and the conditions of the various markets in which the collateral may be liquidated. For loans that are identified as impaired, impairment is measured by one of three methods: 1) the fair value of collateral less cost to sell, 2) present value of expected future cash flows or 3) the loan’s observable market price. These impaired loans are reviewed on a quarterly basis for changes in the measurement of impairment. Impaired amounts are charged off immediately if such amounts are determined by management to be uncollectable. Any change to the previously recognized amount of impairment loss is recognized as a component of the provision for loan losses.

The following table provides information on impaired loans specifically evaluated for impairment:

	March 31, 2019						December 31, 2018
(In thousands)	Recorded Investment Balance(Book)		Unpaid Principal Balance (Legal)		Related Allowance		Recorded Investment Balance(Book)		Unpaid Principal Balance (Legal)		Related Allowance
Originated
With no related allowance recorded:
Commercial Loans:
C&I	$	244	$	516			$	228	$	497
CRE		4,237		6,272				4,312		6,330
Business Banking		1,299		2,341				1,013		2,001
Total Commercial Loans	$	5,780	$	9,129			$	5,553	$	8,828
Consumer Loans:
Dealer Finance	$	187	$	283			$	143	$	241
Direct		7,626		9,763				7,744		9,831
Total Consumer Loans	$	7,813	$	10,046			$	7,887	$	10,072
Residential Real Estate	$	7,220	$	9,839			$	6,905	$	9,414
Total	$	20,813	$	29,014			$	20,345	$	28,314
With an allowance recorded:
Commercial Loans:
C&I	$	229	$	236	$	25	$	233	$	238	$	25
Total Commercial Loans	$	229	$	236	$	25	$	233	$	238	$	25
Total Loans	$	21,042	$	29,250	$	25	$	20,578	$	28,552	$	25

There were no acquired impaired loans specifically evaluated for impairment as of March 31, 2019 or December 31, 2018.

The following table summarizes the average recorded investments on loans specifically evaluated for impairment and the interest income recognized:

	For the three months ended
	March 31, 2019				March 31, 2018
(In thousands)	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Originated
Commercial Loans:
C&I	$	462	$	1	$	467	$	-
CRE		4,282		30		4,506		32
Business Banking		1,263		6		954		5
Total Commercial Loans	$	6,007	$	37	$	5,927	$	37
Consumer Loans:
Dealer Finance	$	173	$	2	$	184	$	3
Direct		7,716		98		8,190		109
Total Consumer Loans	$	7,889	$	100	$	8,374	$	112
Residential Real Estate	$	7,166	$	77	$	6,881	$	73
Total Originated	$	21,062	$	214	$	21,182	$	222
Total Loans	$	21,062	$	214	$	21,182	$	222

Credit Quality Indicators

The Company has developed an internal loan grading system to evaluate and quantify the Company’s loan portfolio with respect to quality and risk. The system focuses on, among other things, financial strength of borrowers, experience and depth of borrower’s management, primary and secondary sources of repayment, payment history, nature of the business and outlook on particular industries. The internal grading system enables the Company to monitor the quality of the entire loan portfolio on a consistent basis and provide management with an early warning system, enabling recognition and response to problem loans and potential problem loans.

Commercial Grading System

For C&I and CRE loans, the Company uses a grading system that relies on quantifiable and measurable characteristics when available. This would include comparison of financial strength to available industry averages, comparison of transaction factors (loan terms and conditions) to loan policy and comparison of credit history to stated repayment terms and industry averages. Some grading factors are necessarily more subjective such as economic and industry factors, regulatory environment and management. C&I and CRE loans are graded Doubtful, Substandard, Special Mention and Pass.

● Doubtful

A Doubtful loan has a high probability of total or substantial loss, but because of specific pending events that may strengthen the asset, its classification as a loss is deferred. Doubtful borrowers are usually in default, lack adequate liquidity or capital and lack the resources necessary to remain an operating entity. Pending events can include mergers, acquisitions, liquidations, capital injections, the perfection of liens on additional collateral, the valuation of collateral and refinancing. Generally, pending events should be resolved within a relatively short period and the ratings will be adjusted based on the new information. Nonaccrual treatment is required for Doubtful assets because of the higher probability of loss.

● Substandard

Substandard loans have a high probability of payment default or they have other well-defined weaknesses. They require more intensive supervision by bank management. Substandard loans are generally characterized by current or expected unprofitable operations, inadequate debt service coverage, inadequate liquidity or marginal capitalization. Repayment may depend on collateral or other credit risk mitigants. For some Substandard loans, the likelihood of full collection of interest and principal may be in doubt and those loans should be placed on nonaccrual. Although Substandard assets in the aggregate will have a distinct potential for loss, an individual asset’s loss potential does not have to be distinct for the asset to be rated Substandard.

● Special Mention

Special Mention loans have potential weaknesses that may, if not checked or corrected, weaken the asset or inadequately protect the Company’s position at some future date. These loans pose elevated risk, but their weakness does not yet justify a Substandard classification. Borrowers may be experiencing adverse operating trends (i.e., declining revenues or margins) or may be struggling with an ill-proportioned balance sheet (i.e., increasing inventory without an increase in sales, high leverage, tight liquidity). Adverse economic or market conditions, such as interest rate increases or the entry of a new competitor, may also support a Special Mention rating. Although a Special Mention loan has a higher probability of default than a pass asset, its default is not imminent.

● Pass

Loans graded as Pass encompass all loans not graded as Doubtful, Substandard or Special Mention. Pass loans are in compliance with loan covenants and payments are generally made as agreed. Pass loans range from superior quality to fair quality.

Business Banking Grading System

Business Banking loans are graded as either Classified or Non-classified:

● Classified

Classified loans are inadequately protected by the current worth and paying capacity of the obligor or, if applicable, the collateral pledged. These loans have a well-defined weakness or weaknesses, that jeopardize the liquidation of the debt or in some cases make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. Classified loans have a higher probability of payment default or total substantial loss. These loans require more intensive supervision by management and are generally characterized by current or expected unprofitable operations, inadequate debt service coverage, inadequate liquidity or marginal capitalization. Repayment may depend on collateral or other credit risk mitigants. Classified loans where the full collection of interest and principal is in doubt are considered to have a nonaccrual status. In some cases, Classified loans are considered uncollectable and of such little value that their continuance as assets is not warranted.

● Non-classified

Loans graded as Non-classified encompass all loans not graded as Classified. Non-classified loans are in compliance with loan covenants and payments are generally made as agreed.

Consumer and Residential Real Estate Grading System

Consumer and Residential Real Estate loans are graded as either Nonperforming or Performing.

 ● Nonperforming

Nonperforming loans are loans that are 1) over 90 days past due and interest is still accruing or 2) on nonaccrual status.

 ● Performing

 
All loans not meeting any of these criteria are considered Performing.

The following tables illustrate the Company’s credit quality by loan class:

(In thousands)	March 31, 2019
Originated
Commercial Credit Exposure
By Internally Assigned Grade:			C&I		CRE		Total
Pass			$	806,097	$	1,704,986	$	2,511,083
Special Mention				13,217		14,172		27,389
Substandard				40,312		44,953		85,265
Total			$	859,626	$	1,764,111	$	2,623,737
Business Banking Credit Exposure					Business Banking
By Internally Assigned Grade:							Total
Non-classified					$	473,402	$	473,402
Classified						13,240		13,240
Total					$	486,642	$	486,642
Consumer Credit Exposure	Dealer Finance		Specialty Lending
By Payment Activity:					Direct		Total
Performing	$	1,187,306	$	527,495	$	496,253	$	2,211,054
Nonperforming		3,802		1,649		3,288		8,739
Total	$	1,191,108	$	529,144	$	499,541	$	2,219,793
Residential Real Estate Credit Exposure					Residential Real Estate
By Payment Activity:							Total
Performing					$	1,241,141	$	1,241,141
Nonperforming						6,456		6,456
Total					$	1,247,597	$	1,247,597

Acquired
Commercial Credit Exposure
By Internally Assigned Grade:	C&I		CRE		Total
Pass	$	24,488	$	76,934	$	101,422
Special Mention		2,670		3,074		5,744
Substandard		8		615		623
Total	$	27,166	$	80,623	$	107,789
Business Banking Credit Exposure			Business Banking
By Internally Assigned Grade:					Total
Non-classified			$	29,295	$	29,295
Classified				3,019		3,019
Total			$	32,314	$	32,314
Consumer Credit Exposure	Dealer Finance
By Payment Activity:			Direct		Total
Performing	$	3	$	29,404	$	29,407
Nonperforming		-		219		219
Total	$	3	$	29,623	$	29,626
Residential Real Estate Credit Exposure			Residential Real Estate
By Payment Activity:					Total
Performing			$	141,331	$	141,331
Nonperforming				1,483		1,483
Total			$	142,814	$	142,814

(In thousands)	December 31, 2018
Originated
Commercial Credit Exposure
By Internally Assigned Grade:			C&I		CRE		Total
Pass			$	796,778	$	1,681,330	$	2,478,108
Special Mention				11,348		13,894		25,242
Substandard				39,993		46,006		85,999
Total			$	848,119	$	1,741,230	$	2,589,349
Business Banking Credit Exposure					Business Banking
By Internally Assigned Grade:							Total
Non-classified					$	476,052	$	476,052
Classified						13,219		13,219
Total					$	489,271	$	489,271
Consumer Credit Exposure	Dealer Finance		Specialty Lending
By Payment Activity:					Direct		Total
Performing	$	1,212,955	$	523,366	$	508,755	$	2,245,076
Nonperforming		3,157		1,562		3,144		7,863
Total	$	1,216,112	$	524,928	$	511,899	$	2,252,939
Residential Real Estate Credit Exposure					Residential Real Estate
By Payment Activity:							Total
Performing					$	1,225,599	$	1,225,599
Nonperforming						7,960		7,960
Total					$	1,233,559	$	1,233,559

Acquired
Commercial Credit Exposure
By Internally Assigned Grade:	C&I		CRE		Total
Pass	$	23,283	$	83,762	$	107,045
Special Mention		2,831		92		2,923
Substandard		10		638		648
Total	$	26,124	$	84,492	$	110,616
Business Banking Credit Exposure			Business Banking
By Internally Assigned Grade:					Total
Non-classified			$	29,945	$	29,945
Classified				3,129		3,129
Total			$	33,074	$	33,074
Consumer Credit Exposure	Dealer Finance
By Payment Activity:			Direct		Total
Performing	$	32	$	31,350	$	31,382
Nonperforming		-		242		242
Total	$	32	$	31,592	$	31,624
Residential Real Estate Credit Exposure			Residential Real Estate
By Payment Activity:					Total
Performing			$	145,779	$	145,779
Nonperforming				1,498		1,498
Total			$	147,277	$	147,277

Troubled Debt Restructuring

When the Company modifies a loan in a troubled debt restructuring, such modifications include one or a combination of the following: an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; temporary reduction in the interest rate; or change in scheduled payment amount. Residential Real Estate and Consumer TDRs occurring during 2019 and 2018 were due to the reduction in the interest rate or extension of the term. Commercial TDRs during 2019 and 2018 were both a reduction of the interest rate and change in terms.

When the Company modifies a loan in a troubled debt restructuring, management measures for impairment, if any, based on the present value of the expected future cash flows, discounted at the contractual interest rate of the original loan agreement, except when the sole (remaining) source of repayment for the loan is the operation or liquidation of the collateral. In these cases, management uses the current fair value of the collateral, less selling costs. If management determines that the value of the modified loan is less than the recorded investment in the loan an impairment charge would be recognized.

The following table illustrates the recorded investment and number of modifications for modified loans, including the recorded investment in the loans prior to a modification and the recorded investment in the loans after restructuring:

	Three months ended March 31, 2019						Three months ended March 31, 2018
(Dollars in thousands)	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Commercial Loans:
C&I		1	$	65	$	65		-	$	-	$	-
Business Banking		2		388		388		3		319		410
Total Commercial Loans		3	$	453	$	453		3	$	319	$	410
Consumer Loans:
Dealer Finance		5	$	74	$	74		6	$	82	$	81
Direct		6		320		320		2		41		41
Total Consumer Loans		11	$	394	$	394		8	$	123	$	122
Residential Real Estate		6	$	388	$	405		5	$	323	$	323
Total Troubled Debt Restructurings		20	$	1,235	$	1,252		16	$	765	$	855

The following table illustrates the recorded investment and number of modifications for TDRs where a concession has been made and subsequently defaulted during the period:

	Three months ended March 31, 2019				Three months ended March 31, 2018
(Dollars in thousands)	Number of Contracts		Recorded Investment		Number of Contracts		Recorded Investment
Commercial Loans:
Business Banking		-	$	-		1	$	200
Total Commercial Loans		-	$	-		1	$	200
Consumer Loans:
Dealer Finance		2	$	17		-	$	-
Direct		10		600		14		870
Total Consumer Loans		12	$	617		14	$	870
Residential Real Estate		8	$	398		8	$	504
Total Troubled Debt Restructurings		20	$	1,015		23	$	1,574