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ALLOWANCE FOR LOAN LOSSES AND CREDIT QUALITY INFORMATION
 9 Months Ended
Sep. 30, 2018
Receivables [Abstract]  
ALLOWANCE FOR LOAN LOSSES AND CREDIT QUALITY INFORMATION
6. ALLOWANCE FOR LOAN LOSSES AND CREDIT QUALITY INFORMATION
Allowance for Loan Losses
We maintain an allowance for loan losses which represents our best estimate of probable losses in our loan portfolio. As losses are realized, they are charged to this allowance. We established our allowance in accordance with guidance provided in the SEC’s Staff Accounting Bulletin 102 (SAB 102), Selected Loan Loss Allowance Methodology and Documentation Issues, ASC 450, Contingencies and ASC 310, Receivables. When we have reason to believe it is probable that we will not be able to collect all contractually due amounts of principal and interest, loans are evaluated for impairment on an individual basis and a specific allocation of the allowance is assigned in accordance with ASC 310-10. We also maintain an allowance for loan losses on acquired loans when: (i) for loans accounted for under ASC 310-30, there is deterioration in credit quality subsequent to acquisition and (ii) for loans accounted for under ASC 310-20, the inherent losses in the loans exceed the remaining credit discount recorded at the time of acquisition. The determination of the allowance for loan losses requires significant judgment reflecting our best estimate of impairment related to specifically identified impaired loans as well as probable loan losses in the remaining loan portfolio. Our evaluation is based on a continuing review of these portfolios. The following are included in our allowance for loan losses:
 
•
Specific reserves for impaired loans
•
An allowance for each pool of homogenous loans based on historical loss experience
•
Adjustments for qualitative and environmental factors allocated to pools of homogenous loans
When it is probable that the Bank will be unable to collect all amounts due (interest and principal) in accordance with the contractual terms of the loan agreement, it assigns a specific reserve to that loan, as necessary. Unless loans are well-secured and collection is imminent, loans greater than 90 days past due are deemed impaired and their respective reserves are generally charged off once the loss has been confirmed. Estimated specific reserves are based on collateral values, estimates of future cash flows or market valuations. We charge loans off when they are deemed to be uncollectible. During the nine months ended September 30, 2018 and 2017, net charge-offs totaled $8.7 million, or 0.24%, of average loans annualized, and $6.5 million, or 0.19%, of average loans annualized, respectively.
Allowances for pooled homogeneous loans, that are not deemed impaired, are based on historical net loss experience. Estimated losses for pooled portfolios are determined differently for commercial loan pools and retail loan pools. Commercial loans are pooled as follows: commercial, owner-occupied commercial, commercial mortgages and construction. Each pool is further segmented by internally assessed risk ratings. Loan losses for commercial loans are estimated by determining the probability of default and expected loss severity upon default. The probability of default is calculated based on the historical rate of migration to impaired status during the last 31 quarters. During the third quarter of 2018, we increased the look-back period to 31 quarters from the 28 quarters used at December 31, 2017. This increase in the look-back period allows us to continue to anchor to the fourth quarter of 2010 to ensure that the quantitative reserves calculated by the allowance for loan loss model are adequately considering the losses within a full credit cycle.
Loss severity upon default is calculated as the actual loan losses (net of recoveries) on impaired loans in their respective pool during the same time frame. Retail loans are pooled into the following segments: residential mortgage, consumer secured and consumer unsecured loans. Pooled reserves for retail loans are calculated based solely on average net loss rates over the same 31 quarter look-back period.
Qualitative adjustment factors consider various current internal and external conditions which are allocated among loan types and take into consideration:
 
•
Current underwriting policies, staff, and portfolio mix,
•
Internal trends of delinquency, nonaccrual and criticized loans by segment,
•
Risk rating accuracy, control and regulatory assessments/environment,
•
General economic conditions - locally and nationally,
•
Market trends impacting collateral values, and
•
The competitive environment, as it could impact loan structure and underwriting.
The above factors are based on their relative standing compared to the period in which historic losses are used in quantitative reserve estimates and current directional trends. Qualitative factors in our model can add to or subtract from quantitative reserves.
The allowance methodology uses a loss emergence period (LEP), which is the period of time between an event that triggers the probability of a loss and the confirmation of the loss. We estimate the commercial LEP to be approximately nine quarters as of September 30, 2018. Our residential mortgage and consumer LEP remained at four quarters as of September 30, 2018. We evaluate LEP quarterly for reasonableness and complete a detailed historical analysis of our LEP annually for our commercial portfolio and review the current four quarter LEP for the retail portfolio to determine the continued reasonableness of this assumption.
Our loan officers and risk managers meet at least quarterly to discuss and review the conditions and risks associated with individual problem loans. In addition, various regulatory agencies periodically review our loan ratings and allowance for loan losses and the Bank’s internal loan review department performs loan reviews.
The following tables provide the activity of our allowance for loan losses and loan balances for the three and nine months ended September 30, 2018:
(Dollars in thousands)
 
Commercial
 
Owner-occupied
Commercial
 
Commercial
Mortgages
 
Construction
 
Residential(1)
 
Consumer
 
Total
Three months ended September 30, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Allowance for loan losses
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
 
$
15,842

 
$
5,284

 
$
6,951

 
$
3,289

 
$
1,519

 
$
8,152

 
$
41,037

Charge-offs
 
(1,761
)
 
—

 
—

 
(1,475
)
 
—

 
(567
)
 
(3,803
)
Recoveries
 
621

 
16

 
52

 
1

 
28

 
144

 
862

Provision (credit)
 
1,947

 
273

 
(598
)
 
1,657

 
(71
)
 
626

 
3,834

Provision (credit) for acquired loans
 
(82
)
 
—

 
(21
)
 
—

 
(1
)
 
(14
)
 
(118
)
Ending balance
 
$
16,567

 
$
5,573

 
$
6,384

 
$
3,472

 
$
1,475

 
$
8,341

 
$
41,812

Nine months ended September 30, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Allowance for loan losses
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
 
$
16,732

 
$
5,422

 
$
5,891

 
$
2,861

 
$
1,798

 
$
7,895

 
$
40,599

Charge-offs
 
(6,861
)
 
(351
)
 
(48
)
 
(1,475
)
 
(54
)
 
(1,857
)
 
(10,646
)
Recoveries
 
1,060

 
28

 
189

 
3

 
117

 
598

 
1,995

Provision (credit)
 
5,730

 
419

 
356

 
2,106

 
(382
)
 
1,711

 
9,940

Provision (credit) for acquired loans
 
(94
)
 
55

 
(4
)
 
(23
)
 
(4
)
 
(6
)
 
(76
)
Ending balance
 
$
16,567

 
$
5,573

 
$
6,384

 
$
3,472

 
$
1,475

 
$
8,341

 
$
41,812

Period-end allowance allocated to:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans individually evaluated for impairment
 
$
3,970

 
$
9

 
$
—

 
$
444

 
$
570

 
$
171

 
$
5,164

Loans collectively evaluated for impairment
 
12,517

 
5,546

 
6,300

 
3,019

 
870

 
8,167

 
36,419

Acquired loans evaluated for impairment
 
80

 
18

 
84

 
9

 
35

 
3

 
229

Ending balance
 
$
16,567

 
$
5,573

 
$
6,384

 
$
3,472

 
$
1,475

 
$
8,341

 
$
41,812

Period-end loan balances:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans individually evaluated for impairment(2)
 
$
19,910

 
$
2,829

 
$
6,502

 
$
2,903

 
$
11,479

 
$
8,256

 
$
51,879

Loans collectively evaluated for impairment
 
1,387,143

 
958,356

 
961,345

 
322,822

 
134,074

 
620,727

 
4,384,467

Acquired nonimpaired loans
 
97,552

 
119,403

 
156,483

 
7,025

 
60,407

 
24,568

 
465,438

Acquired impaired loans
 
2,070

 
4,816

 
8,951

 
737

 
766

 
153

 
17,493

Ending balance(3)
 
$
1,506,675

 
$
1,085,404

 
$
1,133,281

 
$
333,487

 
$
206,726

 
$
653,704

 
$
4,919,277

(1) 
Period-end loan balance excludes reverse mortgages at fair value of $16.6 million.
(2) 
The difference between this amount and nonaccruing loans represents accruing troubled debt restructured loans of $15.2 million for the period ending September 30, 2018. Accruing troubled debt restructured loans are considered impaired loans.
(3) 
Ending loan balances do not include net deferred fees.



The following table provides the activity of the allowance for loan losses and loan balances for the three and nine months ended September 30, 2017:
(Dollars in thousands)
 
Commercial
 
Owner -
occupied
Commercial
 
Commercial
Mortgages
 
Construction
 
Residential(1)
 
Consumer
 
Total
Three months ended September 30, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Allowance for loan losses
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
 
$
14,224

 
$
5,816

 
$
7,335

 
$
3,432

 
$
2,050

 
$
7,148

 
$
40,005

Charge-offs
 
(1,603
)
 
(104
)
 
(1,196
)
 
(215
)
 
(59
)
 
(575
)
 
(3,752
)
Recoveries
 
417

 
12

 
16

 
301

 
11

 
295

 
1,052

Provision (credit)
 
2,128

 
(96
)
 
(231
)
 
427

 
(49
)
 
644

 
2,823

Provision for acquired loans
 
(7
)
 
104

 
(5
)
 
(28
)
 
9

 
—

 
73

Ending balance
 
$
15,159

 
$
5,732

 
$
5,919

 
$
3,917

 
$
1,962

 
$
7,512

 
$
40,201

Nine months ended September 30, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Allowance for loan losses
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
 
$
13,339

 
$
6,588

 
$
8,915

 
$
2,838

 
$
2,059

 
$
6,012

 
$
39,751

Charge-offs
 
(3,787
)
 
(296
)
 
(1,702
)
 
(346
)
 
(112
)
 
(2,606
)
 
(8,849
)
Recoveries
 
820

 
120

 
69

 
305

 
141

 
943

 
2,398

Provision (credit)
 
4,597

 
(802
)
 
(1,602
)
 
1,056

 
(146
)
 
3,177

 
6,280

Provision for acquired loans
 
190

 
122

 
239

 
64

 
20

 
(14
)
 
621

Ending balance
 
$
15,159

 
$
5,732

 
$
5,919

 
$
3,917

 
$
1,962

 
$
7,512

 
$
40,201

Period-end allowance allocated to:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans individually evaluated for impairment
 
$
1,220

 
$
—

 
$
131

 
$
—

 
$
858

 
$
198

 
$
2,407

Loans collectively evaluated for impairment
 
13,646

 
5,699

 
5,638

 
3,881

 
1,078

 
7,310

 
37,252

Acquired loans evaluated for impairment
 
293

 
33

 
150

 
36

 
26

 
4

 
542

Ending balance
 
$
15,159

 
$
5,732

 
$
5,919

 
$
3,917

 
$
1,962

 
$
7,512

 
$
40,201

Period-end loan balances:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans individually evaluated for impairment(2)
 
$
12,845

 
$
3,346

 
$
9,012

 
$
1,839

 
$
14,060

 
$
7,409

 
$
48,511

Loans collectively evaluated for impairment
 
1,249,027

 
941,296

 
943,699

 
271,447

 
148,715

 
472,488

 
4,026,672

Acquired nonimpaired loans
 
120,987

 
144,710

 
194,394

 
19,085

 
77,154

 
40,136

 
596,466

Acquired impaired loans
 
5,235

 
7,401

 
9,969

 
946

 
788

 
243

 
24,582

Ending balance(3)
 
$
1,388,094

 
$
1,096,753

 
$
1,157,074

 
$
293,317

 
$
240,717

 
$
520,276

 
$
4,696,231

 
(1) 
Period-end loan balance excludes reverse mortgages at fair value of $21.4 million.
(2) 
The difference between this amount and nonaccruing loans represents accruing troubled debt restructured loans of $14.9 million for the period ending September 30, 2017. Accruing troubled debt restructured loans are considered impaired loans.
(3) 
Ending loan balances do not include net deferred fees.
Nonaccrual and Past Due Loans
Nonaccruing loans are those on which the accrual of interest has ceased. Typically, we discontinue accrual of interest on originated loans after payments become more than 90 days past due or earlier if we do not expect the full collection of principal or interest in accordance with the terms of the loan agreement. Interest accrued but not collected at the date a loan is placed on nonaccrual status is reversed and charged against interest income. In addition, the accretion of net deferred loan fees and amortization of net deferred loan costs is suspended when a loan is placed on nonaccrual status. Subsequent cash receipts are applied either to the outstanding principal balance or recorded as interest income, depending on our assessment of the ultimate collectability of principal and interest. Loans greater than 90 days past due and still accruing are defined as loans contractually past due 90 days or more as to principal or interest payments, but which remain in accrual status because they are considered well secured and are in the process of collection.
The following tables show our nonaccrual and past due loans at the dates indicated:

 
 
September 30, 2018
(Dollars in thousands)
 
30–59 Days
Past Due 
and
Still 
Accruing
 
60–89 Days
Past Due and
Still 
Accruing
 
Greater 
Than
90 Days
Past Due and
Still Accruing
 
Total Past
Due
And Still
Accruing
 
Accruing
Current
Balances
 
Acquired
Impaired
Loans
 
Nonaccrual
Loans
 
Total
Loans
Commercial
 
$
1,324

 
$
144

 
$
2

 
$
1,470

 
$
1,484,007

 
$
2,070

 
$
19,128

 
$
1,506,675

Owner-occupied commercial
 
1,526

 
782

 
—

 
2,308

 
1,075,451

 
4,816

 
2,829

 
1,085,404

Commercial mortgages
 
674

 
263

 
—

 
937

 
1,117,184

 
8,951

 
6,209

 
1,133,281

Construction
 
—

 
—

 
—

 
—

 
329,847

 
737

 
2,903

 
333,487

Residential(1)
 
2,336

 
879

 
24

 
3,239

 
199,456

 
766

 
3,265

 
206,726

Consumer
 
612

 
174

 
185

 
971

 
650,226

 
153

 
2,354

 
653,704

Total(2)
 
$
6,472

 
$
2,242

 
$
211

 
$
8,925

 
$
4,856,171

 
$
17,493

 
$
36,688

 
$
4,919,277

% of Total Loans
 
0.13
%
 
0.05
%
 
—
%
 
0.18
%
 
98.72
%
 
0.36
%
 
0.75
%
 
100
%
(1) 
Residential accruing current balances excludes reverse mortgages at fair value of $16.6 million.
(2) 
The balances above include a total of $465.4 million acquired non-impaired loans.
 
 
December 31, 2017
(Dollars in thousands)
 
30–59 Days
Past Due 
and
Still 
Accruing
 
60–89 Days
Past Due 
and
Still 
Accruing
 
Greater 
Than
90 Days
Past Due and
Still Accruing
 
Total Past
Due
And Still
Accruing
 
Accruing
Current
Balances
 
Acquired
Impaired
Loans
 
Nonaccrual
Loans
 
Total
Loans
Commercial
 
$
1,050

 
$
—

 
$
—

 
$
1,050

 
$
1,440,291

 
$
4,156

 
$
19,057

 
$
1,464,554

Owner-occupied commercial
 
2,069

 
233

 
—

 
2,302

 
1,067,488

 
5,803

 
3,654

 
1,079,247

Commercial mortgages
 
320

 
90

 
—

 
410

 
1,171,701

 
9,724

 
5,870

 
1,187,705

Construction
 
—

 
—

 
—

 
—

 
278,864

 
940

 
1,804

 
281,608

Residential(1)
 
2,058

 
731

 
356

 
3,145

 
225,434

 
784

 
4,124

 
233,487

Consumer
 
1,117

 
463

 
105

 
1,685

 
554,634

 
247

 
1,927

 
558,493

Total(2)
 
$
6,614

 
$
1,517

 
$
461

 
$
8,592

 
$
4,738,412

 
$
21,654

 
$
36,436

 
$
4,805,094

% of Total Loans
 
0.14
%
 
0.03
%
 
0.01
%
 
0.18
%
 
98.61
%
 
0.45
%
 
0.76
%
 
100
%
(1) 
Residential accruing current balances excludes reverse mortgages, at fair value of $19.8 million.
(2) 
The balances above include a total of $565.5 million acquired non-impaired loans.
Impaired Loans
Loans for which it is probable we will not collect all principal and interest due according to their contractual terms, which is assessed based on the credit characteristics of the loan and/or payment status, are measured for impairment in accordance with the provisions of SAB 102 and ASC 310. The amount of impairment is required to be measured using one of three methods: (1) the present value of expected future cash flows discounted at the loan’s effective interest rate; (2) the fair value of collateral, if the loan is collateral dependent or (3) the loan’s observable market price. If the measure of the impaired loan is less than the recorded investment in the loan, a related allowance is allocated for the impairment.
The following tables provide an analysis of our impaired loans at September 30, 2018 and December 31, 2017:
 
 
 
September 30, 2018
(Dollars in thousands)
 
Ending
Loan
Balances
 
Loans with
No Related
Reserve(1)
 
Loans with
Related
Reserve
 
Related Reserve
 
Contractual
Principal Balances
 
Average Loan Balances
Commercial
 
$
20,211

 
$
8,713

 
$
11,498

 
$
4,050

 
$
23,609

 
$
18,479

Owner-occupied commercial
 
4,502

 
2,553

 
1,949

 
27

 
4,766

 
5,099

Commercial mortgages
 
8,114

 
6,502

 
1,612

 
84

 
16,816

 
8,740

Construction
 
3,132

 
122

 
3,010

 
453

 
5,171

 
4,808

Residential
 
11,690

 
7,509

 
4,181

 
605

 
14,109

 
13,249

Consumer
 
8,289

 
7,264

 
1,025

 
174

 
9,015

 
7,862

Total(2)
 
$
55,938

 
$
32,663

 
$
23,275

 
$
5,393

 
$
73,486

 
$
58,237

(1) 
Reflects loan balances at or written down to their remaining book balance.
(2) 
The above includes acquired impaired loans totaling $4.1 million in the ending loan balance and $4.5 million in the contractual principal balance.
 
 
December 31, 2017
(Dollars in thousands)
 
Ending
Loan
Balances
 
Loans with
No Related
Reserve(1)
 
Loans with
Related
Reserve
 
Related
Reserve
 
Contractual
Principal
Balances
 
Average
Loan
Balances
Commercial
 
$
20,842

 
$
3,422

 
$
17,420

 
$
3,861

 
$
23,815

 
$
15,072

Owner-occupied commercial
 
5,374

 
3,654

 
1,720

 
12

 
5,717

 
5,827

Commercial mortgages
 
7,598

 
4,487

 
3,111

 
112

 
16,658

 
12,630

Construction
 
6,292

 
6,023

 
269

 
33

 
6,800

 
4,523

Residential
 
14,181

 
8,282

 
5,899

 
796

 
17,015

 
14,533

Consumer
 
7,819

 
6,304

 
1,515

 
203

 
8,977

 
8,158

Total(2)
 
$
62,106

 
$
32,172

 
$
29,934

 
$
5,017

 
$
78,982

 
$
60,743

(1) 
Reflects loan balances at or written down to their remaining book balance.
(2) 
The above includes acquired impaired loans totaling $5.8 million in the ending loan balance and $6.8 million in the contractual principal balance.
Interest income of $0.6 million and $1.3 million was recognized on impaired loans during the three and nine months ended September 30, 2018, respectively. Interest income of $0.3 million and $1.0 million was recognized on impaired loans during the three and nine months ended September 30, 2017, respectively.
As of September 30, 2018, there were 27 residential loans and eight commercial loans in the process of foreclosure. The total outstanding balance on these loans was $2.1 million and $5.6 million, respectively. As of December 31, 2017, there were 33 residential loans and 8 commercial loans in the process of foreclosure. The total outstanding balance on the loans was $2.9 million and $6.0 million, respectively.
Reserves on Acquired Nonimpaired Loans
In accordance with ASC 310, loans acquired by the Bank through its mergers with First National Bank of Wyoming, Alliance Bancorp, Inc. (Alliance) and Penn Liberty Bank (Penn Liberty) are reflected on the balance sheet at their fair values on the date of acquisition as opposed to their contractual values. Therefore, on the date of acquisition establishing an allowance for acquired loans is prohibited. After the acquisition date, the Bank performs a separate allowance analysis on a quarterly basis to determine if an allowance for loan loss is necessary. Should the credit risk calculated exceed the purchased loan portfolio’s remaining credit mark, additional reserves will be added to the Bank’s allowance. When a purchased loan becomes impaired after its acquisition, it is evaluated as part of the Bank’s reserve analysis and a specific reserve is established to be included in the Bank’s allowance.
Credit Quality Indicators
Below is a description of each of our risk ratings for all commercial loans:
 
•
Pass. These borrowers currently show no indication of deterioration or potential problems and their loans are considered fully collectible.
•
Special Mention. Borrowers have potential weaknesses that deserve management’s close attention. Borrowers in this category may be experiencing adverse operating trends, for example, declining revenues or margins, high leverage, tight liquidity, or increasing inventory without increasing sales. These adverse trends can have a potential negative effect on the borrower’s repayment capacity. These assets are not adversely classified and do not expose the Bank to significant risk that would warrant a more severe rating. Borrowers in this category may also be experiencing significant management problems, pending litigation, or other structural credit weaknesses.
•
Substandard. Borrowers have well-defined weaknesses that require extensive oversight by management. Borrowers in this category may exhibit one or more of the following: inadequate debt service coverage, unprofitable operations, insufficient liquidity, high leverage, and weak or inadequate capitalization. Relationships in this category are not adequately protected by the sound financial worth and paying capacity of the obligor or the collateral pledged on the loan, if any. A distinct possibility exists that the Bank will sustain some loss if the deficiencies are not corrected.
•
Doubtful. Borrowers have well-defined weaknesses inherent in the Substandard category with the added characteristic that the possibility of loss is extremely high. Current circumstances in the credit relationship make collection or liquidation in full highly questionable. A doubtful asset has some pending event that may strengthen the asset that defers the loss classification. Such impending events include: perfecting liens on additional collateral, obtaining collateral valuations, an acquisition or liquidation preceding, proposed merger, or refinancing plan.
•
Loss. Loans are uncollectible or of such negligible value that continuance as a bankable asset is not supportable. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather it is not practical to defer writing off this asset even though partial recovery may be recognized sometime in the future.
Residential and Consumer Loans
The residential and consumer loan portfolios are monitored on an ongoing basis using delinquency information and loan type as credit quality indicators. These credit quality indicators are assessed in the aggregate in these relatively homogeneous portfolios. Loans that are greater than 90 days past due are generally considered nonperforming and placed on nonaccrual status.

The following tables provide an analysis of loans by portfolio segment based on the credit quality indicators used to determine the Allowance for Loan Loss.
Commercial Credit Exposure
 
 
September 30, 2018
 
 
Commercial and Industrial
 
Owner-occupied
Commercial
 
Commercial
Mortgages
 
Construction
 
Total
Commercial(1)
(Dollars in thousands)
 
 
 
 
 
 
 
 
 
Amount
 
%
Risk Rating:
 
 
 
 
 
 
 
 
 
 
 
 
Special mention
 
$
21,315

 
$
32,123

 
$
10,806

 
$
—

 
$
64,244

 
 
Substandard:
 
 
 
 
 
 
 
 
 
 
 
 
Accrual
 
17,247

 
24,662

 
1,546

 
169

 
43,624

 
 
Nonaccrual
 
15,158

 
2,820

 
6,209

 
2,460

 
26,647

 
 
Doubtful
 
3,970

 
9

 
—

 
444

 
4,423

 
 
Total Special Mention and Substandard
 
57,690

 
59,614

 
18,561

 
3,073

 
138,938

 
3
%
Acquired impaired
 
2,070

 
4,816

 
8,951

 
737

 
16,574

 
1
%
Pass
 
1,446,915

 
1,020,974

 
1,105,769

 
329,677

 
3,903,335

 
96
%
Total
 
$
1,506,675

 
$
1,085,404

 
$
1,133,281

 
$
333,487

 
$
4,058,847

 
100
%
(1) 
 Table includes $380.5 million of acquired non-impaired loans as of September 30, 2018.

 
 
December 31, 2017
 
 
Commercial
 and Industrial
 
Owner-occupied
Commercial
 
Commercial
Mortgages
 
Construction
 
Total
Commercial(1)
(Dollars in thousands)
 
 
 
 
 
 
 
 
 
Amount
 
%
Risk Rating:
 
 
 
 
 
 
 
 
 
 
 
 
Special mention
 
$
22,789

 
$
16,783

 
$
—

 
$
—

 
$
39,572

 
 
Substandard:
 
 
 
 
 
 
 
 
 


 
 
Accrual
 
34,332

 
19,386

 
1,967

 
4,965

 
60,650

 
 
Nonaccrual
 
15,370

 
3,654

 
5,852

 
1,804

 
26,680

 
 
Doubtful
 
3,687

 
—

 
18

 
—

 
3,705

 
 
Total Special Mention and Substandard
 
76,178

 
39,823

 
7,837

 
6,769

 
130,607

 
3
%
Acquired impaired
 
4,156

 
5,803

 
9,724

 
940

 
20,623

 
1
%
Pass
 
1,384,220

 
1,033,621

 
1,170,144

 
273,899

 
3,861,884

 
96
%
Total
 
$
1,464,554

 
$
1,079,247

 
$
1,187,705

 
$
281,608

 
$
4,013,114

 
100
%
(1) 
Table includes $457.3 million of acquired non-impaired loans as of December 31, 2017.
Residential and Consumer Credit Exposure
 
 
 
Residential(2)
 
Consumer
 
Total Residential and Consumer(3)
 
 
September 30,
 
December 31,
 
September 30,
 
December 31,
 
September 30, 2018
 
December 31, 2017
(Dollars in thousands)
 
2018
 
2017
 
2018
 
2017
 
Amount
 
Percent
 
Amount
 
Percent
Nonperforming(1)
 
$
11,479

 
$
13,778

 
$
8,256

 
$
7,588

 
$
19,735

 
2
%
 
$
21,366

 
3
%
Acquired impaired loans
 
766

 
784

 
153

 
247

 
919

 
—
%
 
1,031

 
—
%
Performing
 
194,481

 
218,925

 
645,295

 
550,658

 
839,776

 
98
%
 
769,583

 
97
%
Total
 
$
206,726

 
$
233,487

 
$
653,704

 
$
558,493

 
$
860,430

 
100
%
 
$
791,980

 
100
%
(1) 
Includes $14.1 million as of September 30, 2018 and $15.3 million as of December 31, 2017 of troubled debt restructured mortgages and home equity installment loans that are performing in accordance with the loans’ modified terms and are accruing interest.
(2) 
Residential performing loans excludes $16.6 million and $19.8 million of reverse mortgages at fair value as of September 30, 2018 and December 31, 2017, respectively.
(3) 
Total includes $85.0 million and $108.2 million in acquired non-impaired loans as of September 30, 2018 and December 31, 2017, respectively.
Troubled Debt Restructurings (TDRs)
TDRs are recorded in accordance with ASC 310-40, Troubled Debt Restructuring by Creditors. 
The following table presents the balance of TDRs as of the indicated dates:
(Dollars in thousands)
 
September 30, 2018
 
December 31, 2017
Performing TDRs
 
$
15,192

 
$
20,061

Nonperforming TDRs
 
14,604

 
9,627

Total TDRs
 
$
29,796

 
$
29,688


Approximately $2.0 million and $1.0 million in related reserves have been established for these loans at September 30, 2018 and December 31, 2017, respectively.
The following table presents information regarding the types of loan modifications made for the nine months ended September 30, 2018 and 2017:
 
 
September 30, 2018
 
September 30, 2017
 
 
Contractual payment reduction and term extension
 
Maturity Date Extension
 
Discharged in bankruptcy
 
Other(1)
 
Total
 
Contractual payment reduction and term extension
 
Maturity Date Extension
 
Discharged in bankruptcy
 
Other(1)
 
Total
Commercial
 
6

 
—

 
—

 
—

 
6

 
1

 
1

 
—

 
—

 
2

Owner-occupied commercial
 
—

 
—

 
—

 
—

 
—

 
—

 
1

 
—

 
—

 
1

Commercial Mortgages
 
2

 
1

 
—

 
—

 
3

 
—

 
—

 
—

 
—

 
—

Construction
 
—

 
1

 
—

 
—

 
1

 
—

 
2

 
—

 
1

 
3

Residential
 
4

 
—

 
—

 
—

 
4

 
2

 
—

 
3

 
—

 
5

Consumer
 
8

 
1

 
4

 
2

 
15

 
1

 
—

 
11

 
6

 
18

Total
 
20

 
3

 
4

 
2

 
29

 
4

 
4

 
14

 
7

 
29

(1) 
Other includes underwriting exceptions.
Principal balances are generally not forgiven when a loan is modified as a TDR. Nonaccruing restructured loans remain in nonaccrual status until there has been a period of sustained repayment performance, which is typically six months, and payment is reasonably assured.
The following table presents loans identified as TDRs during the three and nine months ended September 30, 2018 and 2017.
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2018
 
2017
 
2018
 
2017
(Dollars in thousands)
 
Pre Modification
 
Post Modification
 
Pre Modification
 
Post Modification
 
Pre Modification
 
Post Modification
 
Pre Modification
 
Post Modification
Commercial
 
$
320

 
$
320

 
$
—

 
$
—

 
$
5,102

 
$
5,102

 
$
781

 
$
781

Owner-occupied commercial
 
—

 
—

 
—

 
—

 
—

 
—

 
3,071

 
3,071

Commercial mortgages
 
168

 
168

 
—

 
—

 
2,190

 
2,190

 
—

 
—

Construction
 
—

 
—

 
—

 
—

 
920

 
920

 
1,836

 
1,836

Residential
 
—

 
—

 
1,058

 
1,058

 
469

 
469

 
1,300

 
1,300

Consumer
 
113

 
113

 
609

 
609

 
1,236

 
1,236

 
1,867

 
1,867

Total
 
$
601

 
$
601

 
$
1,667

 
$
1,667

 
$
9,917

 
$
9,917

 
$
8,855

 
$
8,855


During the nine months ended September 30, 2018, the TDRs set forth in the table above resulted in a $0.7 million decrease in our allowance for loan losses and $0.1 million of additional charge-offs. For the same period of 2017, the TDRs set forth in the table resulted in no increase in our allowance for loan losses, and resulted in no additional charge-offs. During the three months ended September 30, 2018, five TDRs defaulted that had received troubled debt modification during the past twelve months with a total loan amount of $0.5 million. During the three months ended September 30, 2017, four TDRs defaulted that had received troubled debt modification during the past twelve months with a total loan amount of $3.7 million.