Loans and reserve for credit losses (Tables)

6 Months Ended

Jun. 30, 2015

Schedule of Accounts, Notes, Loans and Financing Receivable

The composition of the loan portfolio at June 30, 2015 and December 31, 2014 was as follows (dollars in thousands):



	June 30, 2015					December 31, 2014
	Amount			Percent		Amount			Percent
Originated loans (a):
Commercial real estate:
Owner occupied	$	271,263		19.9	%	$	198,845		16.8	%
Non-owner occupied	394,516			29.0	%	383,287			32.4	%
Total commercial real estate loans	665,779			48.9	%	582,132			49.2	%
Construction	120,706			8.9	%	100,437			8.5	%
Residential real estate	184,309			13.6	%	122,478			10.4	%
Commercial and industrial	352,189			25.9	%	342,746			29.0	%
Consumer	37,129			2.7	%	34,897			2.9	%
Total loans	1,360,112			100.0	%	1,182,690			100.0	%

Less:
Deferred loan fees	(2,031		)			(1,703		)
Reserve for loan losses	(23,501		)			(22,053		)
Loans, net	$	1,334,580				$	1,158,934

Acquired loans (b):
Commercial real estate:
Owner occupied	$	45,469		19.7	%	$	48,413		18.0	%
Non-owner occupied	89,522			38.7	%	102,890			38.2	%
Total commercial real estate loans	134,991			58.4	%	151,303			56.2	%
Construction	12,346			5.3	%	22,564			8.4	%
Residential real estate	61,773			26.7	%	71,385			26.5	%
Commercial and industrial	20,592			8.9	%	22,444			8.3	%
Consumer	1,491			0.7	%	1,963			0.6	%
Total loans	$	231,193		100.0	%	$	269,659		100.0	%


Acquired covered loans (c):
Commercial real estate:
Owner occupied	$	11,003		31.2	%	$	11,851		29.5	%
Non-owner occupied	10,338			29.3	%	11,366			28.3	%
Total commercial real estate loans	21,341			60.5	%	23,217			57.8	%
Construction	2,224			6.3	%	2,427			6.0	%
Residential real estate	8,979			25.4	%	10,824			26.9	%
Commercial and industrial	2,426			6.9	%	3,285			8.2	%
Consumer	315			0.9	%	438			1.1	%
Total loans	$	35,285		100.0	%	$	40,191		100.0	%



Total loans:
Commercial real estate:
Owner occupied	$	327,735		20.1	%	$	259,109		17.4	%
Non-owner occupied	494,376			30.4	%	497,543			33.3	%
Total commercial real estate loans	822,111			50.5	%	756,652			50.7	%
Construction	135,276			8.3	%	125,428			8.4	%
Residential real estate	255,061			15.7	%	204,687			13.7	%
Commercial and industrial	375,207			23.1	%	368,475			24.7	%
Consumer	38,935			2.4	%	37,298			2.5	%
Total loans	1,626,590			100.0	%	1,492,540			100.0	%

Less:
Deferred loan fees	(2,031		)			(1,703		)
Reserve for loan losses	(23,501		)			(22,053		)
Loans, net	$	1,601,058				$	1,468,784

(a) Originated loans are loans organically made through the Company’s normal and customary origination process, including ARM purchases.
(b) Acquired loans are loans acquired in the acquisition of Home Federal Bancorp, Inc. (“Home”), discussed elsewhere in this Quarterly Report on Form 10-Q (the “Form 10-Q”), less acquired covered loans.
(c) Acquired covered loans are loans acquired in the acquisition of Home that are covered under FDIC loss share agreements.

Changes in Loss Share Payable Associated with Covered Loans

Changes in the loss share payable (receivable) associated with acquired covered loans for the three and six months ended June 30, 2015 were as follows (dollars in thousands):



	Three months ended			Six months ended
	June 30, 2015
Balance at beginning of period	$	(332	)	(449	)
Paid to FDIC	332			781
Increase due to impairment	—			73
FDIC reimbursement	(354		)	(800	)
Shared loss expenses	69			105
Shared income	(21		)	(21	)
Adjustments from prior periods	38			43
Balance at end of period	$	(268	)	(268	)

Allowance for Credit Losses on Financing Receivables

Transactions and allocations in the reserve for loan losses and unfunded loan commitments, by portfolio segment, for the three and six months ended June 30, 2015 and 2014 were as follows (dollars in thousands):



	Commercial real estate			Construction		Residential real estate			Commercial and industrial			Consumer			Unallocated			Total
For the three months ended June 30, 2015
Allowance for Loan Losses
Balance at March 31, 2015	$	4,781		$	1,255	$	2,512		$	11,359		$	978		$	2,359		$	23,244
Loan loss provision (credit)	38			78		(175		)	(166		)	290			(65		)	—
Recoveries	216			23		260			344			162			—			1,005
Loans charged off	(3		)	—		(134		)	(182		)	(429		)	—			(748		)
Balance at end of period	$	5,032		$	1,356	$	2,463		$	11,355		$	1,001		$	2,294		$	23,501

Reserve for unfunded lending commitments
Balance at March 31, 2015	$	48		$	268	$	25		$	75		$	24		$	—		$	440
Provision for unfunded loan commitments	—			—		—			—			—			—			—
Balance at end of period	$	48		$	268	$	25		$	75		$	24		$	—		$	440

Reserve for credit losses
Reserve for loan losses	$	5,032		$	1,356	$	2,463		$	11,355		$	1,001		$	2,294		$	23,501
Reserve for unfunded lending commitments	48			268		25			75			24			—			440
Total reserve for credit losses	$	5,080		$	1,624	$	2,488		$	11,430		$	1,025		$	2,294		$	23,941



	Commercial real estate			Construction		Residential real estate			Commercial and industrial			Consumer			Unallocated			Total
For the six months ended June 30, 2015
Allowance for Loan Losses
Balance at December 31, 2014	$	5,614		$	1,133	$	2,121		$	6,844		$	1,047		$	5,294		$	22,053
Loan loss provision (credit)	(3,909		)	101		101			4,270			437			(3,000		)	(2,000		)
Recoveries	3,606			122		585			555			277			—			5,145
Loans charged off	(279		)	—		(344		)	(314		)	(760		)	—			(1,697		)
Balance at end of period	$	5,032		$	1,356	$	2,463		$	11,355		$	1,001		$	2,294		$	23,501

Reserve for unfunded lending commitments
Balance at December 31, 2014	$	48		$	268	$	25		$	75		$	24		$	—		$	440
Provision for unfunded loan commitments	—			—		—			—			—			—			—
Balance at end of period	$	48		$	268	$	25		$	75		$	24		$	—		$	440

Reserve for credit losses
Reserve for loan losses	$	5,032		$	1,356	$	2,463		$	11,355		$	1,001		$	2,294		$	23,501
Reserve for unfunded lending commitments	48			268		25			75			24			—			440
Total reserve for credit losses	$	5,080		$	1,624	$	2,488		$	11,430		$	1,025		$	2,294		$	23,941



	Commercial real estate			Construction			Residential real estate			Commercial and industrial			Consumer			Unallocated			Total
For the three months ended June 30, 2014
Allowance for Loan Losses
Balance at March 31, 2014	$	8,803		$	602		$	2,227		$	6,840		$	1,243		$	2,007		$	21,722
Loan loss provision (credit)	82			(163		)	(215		)	255			129			(88		)	—
Recoveries	60			289			157			546			67			—			1,119
Loans charged off	(985		)	—			(101		)	(1,026		)	(258		)	—			(2,370		)
Balance at end of period	$	7,960		$	728		$	2,068		$	6,615		$	1,181		$	1,919		$	20,471

Reserve for unfunded lending commitments
Balance at March 31, 2014	$	48		$	268		$	25		$	75		$	24		$	—		$	440
Provision for unfunded loan commitments	—			—			—			—			—			—			—
Balance at end of period	$	48		$	268		$	25		$	75		$	24		$	—		$	440

Reserve for credit losses
Reserve for loan losses	$	7,960		$	728		$	2,068		$	6,615		$	1,181		$	1,919		$	20,471
Reserve for unfunded lending commitments	48			268			25			75			24			—			440
Total reserve for credit losses	$	8,008		$	996		$	2,093		$	6,690		$	1,205		$	1,919		$	20,911



	Commercial real estate			Construction			Residential real estate			Commercial and industrial			Consumer			Unallocated		Total
For the six months ended June 30, 2014
Allowance for Loan Losses
Balance at December 31, 2013	$	9,565		$	535		$	2,381		$	6,261		$	1,401		$	714	$	20,857
Loan loss provision	(1,478		)	115			(270		)	237			191			1,205		—
Recoveries	1,001			374			281			1,457			154			—		3,267
Loans charged off	(1,128		)	(296		)	(324		)	(1,340		)	(565		)	—		(3,653		)
Balance at end of period	$	7,960		$	728		$	2,068		$	6,615		$	1,181		$	1,919	$	20,471

Reserve for unfunded lending commitments
Balance at December 31, 2013	$	48		$	268		$	25		$	75		$	24		$	—	$	440
Provision for unfunded loan commitments	—			—			—			—			—			—		—
Balance at end of period	$	48		$	268		$	25		$	75		$	24		$	—	$	440

Reserve for credit losses
Reserve for loan losses	$	7,960		$	728		$	2,068		$	6,615		$	1,181		$	1,919	$	20,471
Reserve for unfunded lending commitments	48			268			25			75			24			—		440
Total reserve for credit losses	$	8,008		$	996		$	2,093		$	6,690		$	1,205		$	1,919	$	20,911

An individual loan is impaired when, based on current information and events, management believes that it is probable that the Bank will be unable to collect all amounts due according to the contractual terms of the loan agreement. The following table presents the reserve for loan losses and the recorded investment in loans by portfolio segment and impairment evaluation method at June 30, 2015 and December 31, 2014 (dollars in thousands):



	Reserve for loan losses						Recorded investment in loans
	Individually evaluated for impairment		Collectively evaluated for impairment		Total		Individually evaluated for impairment		Collectively evaluated for impairment		Total
June 30, 2015
Commercial real estate	$	82	$	4,950	$	5,032	$	4,591	$	817,520	$	822,111
Construction	—		1,356		1,356		521		134,755		135,276
Residential real estate	—		2,463		2,463		55		255,006		255,061
Commercial and industrial	125		11,230		11,355		2,862		372,345		375,207
Consumer	—		1,001		1,001		—		38,935		38,935
	$	207	$	21,000	21,207		$	8,029	$	1,618,561	$	1,626,590
Unallocated					2,294
					$	23,501

December 31, 2014
Commercial real estate	$	60	$	5,554	$	5,614	$	28,947	$	727,705	$	756,652
Construction	—		1,133		1,133		963		124,465		125,428
Residential real estate	—		2,121		2,121		317		204,370		204,687
Commercial and industrial	25		6,819		6,844		3,495		364,980		368,475
Consumer	—		1,047		1,047		—		37,298		37,298
	$	85	$	16,674	16,759		$	33,722	$	1,458,818	$	1,492,540
Unallocated					5,294
					$	22,053

Financing Receivable Credit Quality Indicators

The following table presents, by portfolio class, the recorded investment in loans by internally assigned grades at June 30, 2015 and December 31, 2014 (dollars in thousands):



	Loan grades
	Acceptable		Pass-Watch		Special Mention		Substandard		Total
June 30, 2015
Originated loans (a):
Commercial real estate:
Owner occupied	$	244,397	$	9,972	$	2,419	$	14,475	$	271,263
Non-owner occupied	368,635		12,614		7,768		5,499		394,516
Total commercial real estate loans	613,032		22,586		10,187		19,974		665,779
Construction	118,485		818		1,383		20		120,706
Residential real estate	182,320		869		601		519		184,309
Commercial and industrial	319,169		19,922		70		13,028		352,189
Consumer	37,116		—		—		13		37,129
	$	1,270,122	$	44,195	$	12,241	$	33,554	$	1,360,112



Acquired loans (b):
Commercial real estate:
Owner occupied	$	33,779	$	3,546	$	7,886	$	258	$	45,469
Non-owner occupied	67,634		6,300		7,909		7,679		89,522
Total commercial real estate loans	101,413		9,846		15,795		7,937		134,991
Construction	12,346		—		—		—		12,346
Residential real estate	60,686		—		—		1,087		61,773
Commercial and industrial	16,952		107		3,524		9		20,592
Consumer	1,487		—		—		4		1,491
	$	192,884	$	9,953	$	19,319	$	9,037	$	231,193

Acquired covered loans (c):
Commercial real estate:
Owner occupied	$	10,900	$	—	$	—	$	103	$	11,003
Non-owner occupied	5,127		—		4,593		618		10,338
Total commercial real estate loans	16,027		—		4,593		721		21,341
Construction	45		2,140		—		39		2,224
Residential real estate	8,632		—		—		347		8,979
Commercial and industrial	1,923		—		—		503		2,426
Consumer	315		—		—		—		315
	$	26,942	$	2,140	$	4,593	$	1,610	$	35,285

Total loans:
Commercial real estate:
Owner occupied	$	289,076	$	13,518	$	10,305	$	14,836	$	327,735
Non-owner occupied	441,396		18,914		20,270		13,796		494,376
Total commercial real estate loans	730,472		32,432		30,575		28,632		822,111
Construction	130,876		2,958		1,383		59		135,276
Residential real estate	251,638		869		601		1,953		255,061
Commercial and industrial	338,044		20,029		3,594		13,540		375,207
Consumer	38,918		—		—		17		38,935
	$	1,489,948	$	56,288	$	36,153	$	44,201	$	1,626,590

(a) Originated loans are loans organically made through the Company’s normal and customary origination process, including ARM purchases.
(b) Acquired loans are loans acquired in the acquisition of Home less acquired covered loans.
(c) Acquired covered loans are loans acquired in the acquisition of Home that are covered under FDIC loss share agreements.

Loan grades

Acceptable

Pass-Watch

Special
Mention

Substandard

Total

December 31, 2014

Originated loans (a):

Commercial real estate:



Owner occupied	$	167,509	$	8,749	$	4,035	$	18,552	$	198,845
Non-owner occupied	350,420		10,383		16,145		6,339		383,287
Total commercial real estate loans	517,929		19,132		20,180		24,891		582,132
Construction	95,440		3,086		1,850		61		100,437
Residential real estate	119,280		1,380		552		1,266		122,478
Commercial and industrial	306,030		18,721		14,676		3,319		342,746
Consumer	34,852		—		—		45		34,897
	$	1,073,531	$	42,319	$	37,258	$	29,582	$	1,182,690

Acquired loans (b):
Commercial real estate:
Owner occupied	$	42,673	$	1,125	$	4,352	$	263	$	48,413
Non-owner occupied	75,340		11,019		12,265		4,266		102,890
Total commercial real estate loans	118,013		12,144		16,617		4,529		151,303
Construction	22,448		—		—		116		22,564
Residential real estate	70,002		—		—		1,383		71,385
Commercial and industrial	22,236		151		—		57		22,444
Consumer	1,907		—		—		56		1,963
	$	234,606	$	12,295	$	16,617	$	6,141	$	269,659

Acquired covered loans (c):
Commercial real estate:
Owner occupied	$	10,363	$	—	$	1,048	$	440	$	11,851
Non-owner occupied	5,668		361		4,641		696		11,366
Total commercial real estate loans	16,031		361		5,689		1,136		23,217
Construction	48		2,332		—		47		2,427
Residential real estate	9,601		—		—		1,223		10,824
Commercial and industrial	2,779		—		—		506		3,285
Consumer	438		—		—		—		438
	$	28,897	$	2,693	$	5,689	$	2,912	$	40,191

Total loans:
Commercial real estate:
Owner occupied	$	220,545	$	9,874	$	9,435	$	19,255	$	259,109
Non-owner occupied	431,428		21,763		33,051		11,301		497,543
Total commercial real estate loans	651,973		31,637		42,486		30,556		756,652
Construction	117,936		5,418		1,850		224		125,428
Residential real estate	198,883		1,380		552		3,872		204,687
Commercial and industrial	331,045		18,872		14,676		3,882		368,475
Consumer	37,197		—		—		101		37,298
	$	1,337,034	$	57,307	$	59,564	$	38,635	$	1,492,540

(a) Originated loans are loans organically made through the Company’s normal and customary origination process, including ARM purchases.

(b) Acquired loans are loans acquired in the acquisition of Home less acquired covered loans.

(c) Acquired covered loans are loans acquired in the acquisition of Home that are covered under FDIC loss share agreements.

Past Due Financing Receivables

The following table presents, by portfolio class, an age analysis of past due loans, including loans placed on non-accrual at June 30, 2015 and December 31, 2014 (dollars in thousands):



	30-89 days past due		90 days or more past due		Total past due		Current		Total loans
June 30, 2015
Originated loans (a):
Commercial real estate:
Owner occupied	$	—	$	1,215	$	1,215	$	270,048	$	271,263
Non-owner occupied	—		—		—		394,516		394,516
Total commercial real estate loans	—		1,215		1,215		664,564		665,779
Construction	—		—		—		120,706		120,706
Residential real estate	181		—		181		184,128		184,309
Commercial and industrial	159		385		544		351,645		352,189
Consumer	172		13		185		36,944		37,129
	$	512	$	1,613	$	2,125	$	1,357,987	$	1,360,112

Acquired loans (b):
Commercial real estate:
Owner occupied	$	—	$	—	$	—	$	45,469	$	45,469
Non-owner occupied	—		—		—		89,522		89,522
Total commercial real estate loans	—		—		—		134,991		134,991
Construction	—		—		—		12,346		12,346
Residential real estate	614		351		965		60,808		61,773
Commercial and industrial	—		—		—		20,592		20,592
Consumer	13		—		13		1,478		1,491
	$	627	$	351	$	978	$	230,215	$	231,193

Acquired covered loans (c):
Commercial real estate:
Owner occupied	$	185	$	—	$	185	$	10,818	$	11,003
Non-owner occupied	—		—		—		10,338		10,338
Total commercial real estate loans	185		—		185		21,156		21,341
Construction	—		—		—		2,224		2,224
Residential real estate	314		—		314		8,665		8,979
Commercial and industrial	—		5		5		2,421		2,426
Consumer	—		—		—		315		315
	$	499	$	5	$	504	$	34,781	$	35,285

Total loans:
Commercial real estate:
Owner occupied	$	185	$	1,215	$	1,400	$	326,335	$	327,735
Non-owner occupied	—		—		—		494,376		494,376
Total commercial real estate loans	185		1,215		1,400		820,711		822,111
Construction	—		—		—		135,276		135,276



Residential real estate	1,109		351		1,460		253,601		255,061
Commercial and industrial	159		390		549		374,658		375,207
Consumer	185		13		198		38,737		38,935
	$	1,638	$	1,969	$	3,607	$	1,622,983	$	1,626,590

December 31, 2014
Originated loans (a):
Commercial real estate:
Owner occupied	$	732	$	3,716	$	4,448	$	194,397	$	198,845
Non-owner occupied	1,718		971		2,689		380,598		383,287
Total commercial real estate loans	2,450		4,687		7,137		574,995		582,132
Construction	—		100		100		100,337		100,437
Residential real estate	662		110		772		121,706		122,478
Commercial and industrial	288		334		622		342,124		342,746
Consumer	139		45		184		34,713		34,897
	$	3,539	$	5,276	$	8,815	$	1,173,875	$	1,182,690

Acquired loans (b):
Commercial real estate:
Owner occupied	$	24	$	—	$	24	$	48,389	$	48,413
Non-owner occupied	—		120		120		102,770		102,890
Total commercial real estate loans	24		120		144		151,159		151,303
Construction	—		—		—		22,564		22,564
Residential real estate	1,361		288		1,649		69,736		71,385
Commercial and industrial	—		—		—		22,444		22,444
Consumer	55		—		55		1,908		1,963
	$	1,440	$	408	$	1,848	$	267,811	$	269,659

Acquired covered loans (c):
Commercial real estate:
Owner occupied	$	—	$	—	$	—	$	11,851	$	11,851
Non-owner occupied	—		27		27		11,339		11,366
Total commercial real estate loans	—		27		27		23,190		23,217
Construction	—		—		—		2,427		2,427
Residential real estate	375		—		375		10,449		10,824
Commercial and industrial	—		—		—		3,285		3,285
Consumer	11		—		11		427		438
	$	386	$	27	$	413	$	39,778	$	40,191

Total loans:
Commercial real estate:
Owner occupied	$	756	$	3,716	$	4,472	$	254,637	$	259,109
Non-owner occupied	1,718		1,118		2,836		494,707		497,543
Total commercial real estate loans	2,474		4,834		7,308		749,344		756,652
Construction	—		100		100		125,328		125,428
Residential real estate	2,398		398		2,796		201,891		204,687
Commercial and industrial	288		334		622		367,853		368,475
Consumer	205		45		250		37,048		37,298



	$	5,365	$	5,711	$	11,076	$	1,481,464	$	1,492,540

(a) Originated loans are loans organically made through the Company's normal and customary origination process, including ARM purchases.
(b) Acquired loans are loans acquired in the acquisition of Home less acquired covered loans.
(c) Acquired covered loans are loans acquired in the acquisition of Home that are covered under FDIC loss share agreements.

Impaired Financing Receivables

The following table presents information related to impaired loans, by portfolio class, at June 30, 2015 and December 31, 2014 (dollars in thousands):



	Impaired loans
	With a related allowance		Without a related allowance		Total recorded balance		Unpaid principal balance		Related allowance
June 30, 2015
Commercial real estate:
Owner occupied	$	1,470	$	1,626	$	3,096	$	4,246	$	73
Non-owner occupied	1,074		421		1,495		1,556		9
Total commercial real estate loans	2,544		2,047		4,591		5,802		82
Construction	—		521		521		521		—
Residential real estate	—		55		55		58		—
Commercial and industrial	2,452		410		2,862		3,371		125
Consumer	—		—		—		—		—
	$	4,996	$	3,033	$	8,029	$	9,752	$	207

December 31, 2014
Commercial real estate:
Owner occupied	$	436	$	5,624	$	6,060	$	8,699	$	41
Non-owner occupied	1,087		21,800		22,887		22,943		19
Total commercial real estate loans	1,523		27,424		28,947		31,642		60
Construction	—		963		963		963		—
Residential real estate	—		317		317		353		—
Commercial and industrial	2,702		793		3,495		3,962		25
Consumer	—		—		—		—		—
	$	4,225	$	29,497	$	33,722	$	36,920	$	85

At June 30, 2015 and December 31, 2014, the total recorded balance of impaired loans in the above table included $4.9 million and $22.8 million, respectively, of troubled debt restructuring (“TDR”) loans which were not on non-accrual status.

The following table presents, by portfolio class, the average recorded investment in impaired loans for the three and six months ended June 30, 2015 and 2014 (dollars in thousands):



	Three Months Ended June 30,				Six Months Ended June 30, 2015
	2015		2014		2015		2014
Commercial real estate:
Owner occupied	$	3,323	$	6,120	$	4,235	$	7,198
Non-owner occupied	12,121		22,762		15,709		22,799
Total commercial real estate loans	15,444		28,882		19,944		29,997
Construction	632		1,351		742		1,563
Residential real estate	99		443		171		439
Commercial and industrial	2,942		4,515		3,127		4,951
Consumer	—		—		—		—
	$	19,117	$	35,191	$	23,984	$	36,950

Schedule of Financing Receivables, Non Accrual Status

Information with respect to the Company’s non-accrual loans, by portfolio class, at June 30, 2015 and December 31, 2014 is as follows (dollars in thousands):



	June 30, 2015		December 31, 2014
Commercial real estate:
Owner occupied	$	2,697	$	5,564
Non-owner occupied	749		1,940
Total commercial real estate loans	3,446		7,504
Construction	20		216
Residential real estate	1,774		3,165
Commercial and industrial	652		744
Consumer	4		56
Total non-accrual loans	$	5,896	$	11,685

Accruing loans which are contractually past due 90 days or more:
Commercial real estate:
Owner occupied	$	—	$	—
Non-owner occupied	—		—
Total commercial real estate loans	—		—
Construction	—		—
Residential real estate	—		—
Commercial and industrial	34		9
Consumer	13		45
Total accruing loans which are contractually past due 90 days or more	$	47	$	54