Document



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
______________________________________________________________________
FORM 10-Q
______________________________________________________________________
ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2016
 
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________             
Commission file number 000-18911
______________________________________________________________________
GLACIER BANCORP, INC.
(Exact name of registrant as specified in its charter)
 ______________________________________________________________________
MONTANA
81-0519541
(State or other jurisdiction of
incorporation or organization)
(IRS Employer
Identification No.)
 
 
49 Commons Loop, Kalispell, Montana
59901
(Address of principal executive offices)
(Zip Code)
(406) 756-4200
Registrant’s telephone number, including area code
Not Applicable
(Former name, former address, and former fiscal year, if changed since last report) 
______________________________________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    ý  Yes    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    ý  Yes    No  ¨
Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
ý
 
Accelerated filer
¨
Non-accelerated filer
¨
(Do not check if a smaller reporting company)
Smaller reporting company
¨
Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   ¨  Yes    ý  No
The number of shares of Registrant’s common stock outstanding on July 18, 2016 was 76,172,299. No preferred shares are issued or outstanding.





TABLE OF CONTENTS
 


 
Page
Part I. Financial Information
 
Item 1 – Financial Statements
 





ABBREVIATIONS/ACRONYMS

 

ALCO – Asset Liability Committee
ALLL or allowance – allowance for loan and lease losses
ASC – Accounting Standards CodificationTM
Bank – Glacier Bank
Basel III – third installment of the Basel Accords
Board – Glacier Bancorp, Inc.’s Board of Directors
Cañon – Cañon Bank Corporation and its subsidiary, Cañon National Bank
CCP – Core Consolidation Project
CDE – Certified Development Entity
CDFI Fund – Community Development Financial Institutions Fund
CEO – Chief Executive Officer
CFO – Chief Financial Officer
Company – Glacier Bancorp, Inc.
DDA – demand deposit account
Dodd-Frank Act – Dodd-Frank Wall Street Reform and Consumer Protection Act
Fannie Mae – Federal National Mortgage Association
FASB – Financial Accounting Standards Board
FHLB – Federal Home Loan Bank
Final Rules – final rules implemented by the federal banking agencies that amended regulatory risk-based capital rules
FRB – Federal Reserve Bank
Freddie Mac – Federal Home Loan Mortgage Corporation
GAAP – accounting principles generally accepted in the United States of America
Ginnie Mae – Government National Mortgage Association
LIBOR – London Interbank Offered Rate
LIHTC – Low Income Housing Tax Credit
NMTC – New Markets Tax Credit
NOW – negotiable order of withdrawal
NRSRO – Nationally Recognized Statistical Rating Organizations
OCI – other comprehensive income
OREO – other real estate owned
Repurchase agreements – securities sold under agreements to repurchase
S&P – Standard and Poor’s
SEC – United States Securities and Exchange Commission
TDR – troubled debt restructuring
VIE – variable interest entity
 
 
 
 
 
 
 
 








GLACIER BANCORP, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
 
(Dollars in thousands, except per share data)
June 30,
2016
 
December 31,
2015
Assets
 
 
 
Cash on hand and in banks
$
147,748

 
117,137

Federal funds sold

 
6,080

Interest bearing cash deposits
12,585

 
70,036

Cash and cash equivalents
160,333

 
193,253

Investment securities, available-for-sale
2,487,955

 
2,610,760

Investment securities, held-to-maturity
680,574

 
702,072

Total investment securities
3,168,529

 
3,312,832

Loans held for sale
74,140

 
56,514

Loans receivable
5,378,617

 
5,078,681

Allowance for loan and lease losses
(132,386
)
 
(129,697
)
Loans receivable, net
5,246,231

 
4,948,984

Premises and equipment, net
177,911

 
194,030

Other real estate owned
24,370

 
26,815

Accrued interest receivable
47,554

 
44,524

Deferred tax asset
46,488

 
58,475

Core deposit intangible, net
12,970

 
14,555

Goodwill
140,638

 
140,638

Non-marketable equity securities
24,791

 
27,495

Other assets
75,487

 
71,117

Total assets
$
9,199,442

 
9,089,232

Liabilities
 
 
 
Non-interest bearing deposits
$
1,907,026

 
1,918,310

Interest bearing deposits
5,181,790

 
5,026,698

Securities sold under agreements to repurchase
414,327

 
423,414

Federal Home Loan Bank advances
328,832

 
394,131

Other borrowed funds
4,926

 
6,602

Subordinated debentures
125,920

 
125,848

Accrued interest payable
3,486

 
3,517

Other liabilities
108,476

 
114,062

Total liabilities
8,074,783

 
8,012,582

Stockholders’ Equity
 
 
 
Preferred shares, $0.01 par value per share, 1,000,000 shares authorized, none issued or outstanding

 

Common stock, $0.01 par value per share, 117,187,500 shares authorized
762

 
761

Paid-in capital
737,379

 
736,368

Retained earnings - substantially restricted
366,105

 
337,532

Accumulated other comprehensive income
20,413

 
1,989

Total stockholders’ equity
1,124,659

 
1,076,650

Total liabilities and stockholders’ equity
$
9,199,442

 
9,089,232

Number of common stock shares issued and outstanding
76,171,580

 
76,086,288


See accompanying notes to unaudited condensed consolidated financial statements.

4




GLACIER BANCORP, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 
Three Months ended
 
Six Months ended
(Dollars in thousands, except per share data)
June 30,
2016
 
June 30,
2015
 
June 30,
2016
 
June 30,
2015
Interest Income
 
 
 
 
 
 
 
Investment securities
$
23,037

 
21,959

 
46,920

 
44,918

Residential real estate loans
8,124

 
7,942

 
16,409

 
15,703

Commercial loans
47,002

 
40,698

 
91,505

 
79,720

Consumer and other loans
7,906

 
8,018

 
15,616

 
15,762

Total interest income
86,069

 
78,617

 
170,450

 
156,103

Interest Expense
 
 
 
 
 
 
 
Deposits
4,560

 
4,112

 
9,355

 
8,259

Securities sold under agreements to repurchase
275

 
232

 
593

 
473

Federal Home Loan Bank advances
1,665

 
2,217

 
3,317

 
4,412

Other borrowed funds
14

 
15

 
32

 
42

Subordinated debentures
910

 
793

 
1,802

 
1,565

Total interest expense
7,424

 
7,369

 
15,099

 
14,751

Net Interest Income
78,645

 
71,248

 
155,351

 
141,352

Provision for loan losses

 
282

 
568

 
1,047

Net interest income after provision for loan losses
78,645

 
70,966

 
154,783

 
140,305

Non-Interest Income
 
 
 
 
 
 
 
Service charges and other fees
15,772

 
15,062

 
30,453

 
28,511

Miscellaneous loan fees and charges
1,163

 
1,142

 
2,184

 
2,299

Gain on sale of loans
8,257

 
7,600

 
14,249

 
13,030

Loss on sale of investments
(220
)
 
(98
)
 
(112
)
 
(93
)
Other income
1,787

 
2,096

 
4,237

 
4,748

Total non-interest income
26,759

 
25,802

 
51,011

 
48,495

Non-Interest Expense
 
 
 
 
 
 
 
Compensation and employee benefits
37,560

 
32,729

 
74,501

 
64,973

Occupancy and equipment
6,443

 
6,432

 
13,119

 
12,492

Advertising and promotions
2,085

 
2,240

 
4,210

 
4,167

Data processing
3,938

 
2,971

 
7,311

 
5,522

Other real estate owned
214

 
1,377

 
604

 
2,135

Regulatory assessments and insurance
1,066

 
1,006

 
2,574

 
2,311

Core deposit intangibles amortization
788

 
755

 
1,585

 
1,486

Other expenses
12,367

 
12,435

 
22,913

 
22,356

Total non-interest expense
64,461

 
59,945

 
126,817

 
115,442

Income Before Income Taxes
40,943

 
36,823

 
78,977

 
73,358

Federal and state income tax expense
10,492

 
7,488

 
19,844

 
16,353

Net Income
$
30,451

 
29,335

 
59,133

 
57,005

Basic earnings per share
$
0.40

 
0.39

 
0.78

 
0.76

Diluted earnings per share
$
0.40

 
0.39

 
0.78

 
0.76

Dividends declared per share
$
0.20

 
0.19

 
0.40

 
0.37

Average outstanding shares - basic
76,170,734

 
75,530,591

 
76,148,493

 
75,369,366

Average outstanding shares - diluted
76,205,069

 
75,565,655

 
76,191,655

 
75,407,621


See accompanying notes to unaudited condensed consolidated financial statements.

5




GLACIER BANCORP, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 
 
Three Months ended
 
Six Months ended
(Dollars in thousands)
June 30,
2016
 
June 30,
2015
 
June 30,
2016
 
June 30,
2015
Net Income
$
30,451

 
29,335

 
59,133

 
57,005

Other Comprehensive Income (Loss), Net of Tax
 
 
 
 
 
 
 
Unrealized gains (losses) on available-for-sale securities
26,961

 
(25,750
)
 
40,559

 
(20,569
)
Reclassification adjustment for losses included in net income
118

 
49

 
57

 
45

Net unrealized gains (losses) on available-for-sale securities
27,079

 
(25,701
)
 
40,616

 
(20,524
)
Tax effect
(10,491
)
 
9,957

 
(15,735
)
 
7,978

Net of tax amount
16,588

 
(15,744
)
 
24,881

 
(12,546
)
Unrealized (losses) gains on derivatives used for cash flow hedges
(4,020
)
 
3,896

 
(13,948
)
 
(2,097
)
Reclassification adjustment for losses included in net income
1,578

 
1,257

 
3,407

 
2,508

Net unrealized (losses) gains on derivatives used for cash flow hedges
(2,442
)
 
5,153

 
(10,541
)
 
411

Tax effect
946

 
(1,996
)
 
4,084

 
(169
)
Net of tax amount
(1,496
)
 
3,157

 
(6,457
)
 
242

Total other comprehensive income (loss), net of tax
15,092

 
(12,587
)
 
18,424

 
(12,304
)
Total Comprehensive Income
$
45,543

 
16,748

 
77,557

 
44,701

























See accompanying notes to unaudited condensed consolidated financial statements.

6




GLACIER BANCORP, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
Six Months ended June 30, 2016 and 2015
 
(Dollars in thousands, except per share data)
Common Stock
 
Paid-in Capital
 
Retained
Earnings
Substantially Restricted
 
Accumulated
Other Compre-
hensive Income
 
 
Shares
 
Amount
 
 
 
 
Total
Balance at December 31, 2014
75,026,092

 
$
750

 
708,356

 
301,197

 
17,744

 
1,028,047

Comprehensive income

 

 

 
57,005

 
(12,304
)
 
44,701

Cash dividends declared ($0.37 per share)

 

 

 
(28,019
)
 

 
(28,019
)
Stock issuances under stock incentive plans
61,522

 
1

 
(300
)
 

 

 
(299
)
Stock issued in connection with acquisitions
443,644

 
4

 
10,772

 

 

 
10,776

Stock-based compensation and related taxes

 

 
1,245

 

 

 
1,245

Balance at June 30, 2015
75,531,258

 
$
755

 
720,073

 
330,183

 
5,440

 
1,056,451

Balance at December 31, 2015
76,086,288

 
$
761

 
736,368

 
337,532

 
1,989

 
1,076,650

Comprehensive income

 

 

 
59,133

 
18,424

 
77,557

Cash dividends declared ($0.40 per share)

 

 

 
(30,560
)
 

 
(30,560
)
Stock issuances under stock incentive plans
85,292

 
1

 
(1
)
 

 

 

Stock-based compensation and related taxes

 

 
1,012

 

 

 
1,012

Balance at June 30, 2016
76,171,580

 
$
762

 
737,379

 
366,105

 
20,413

 
1,124,659






















See accompanying notes to unaudited condensed consolidated financial statements.

7




GLACIER BANCORP, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
 
Six Months ended
(Dollars in thousands)
June 30,
2016
 
June 30,
2015
Operating Activities
 
 
 
Net income
$
59,133

 
57,005

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Provision for loan losses
568

 
1,047

Net amortization of investment securities premiums and discounts
13,423

 
13,376

Loans held for sale originated or acquired
(481,713
)
 
(449,630
)
Proceeds from sales of loans held for sale
482,533

 
460,799

Gain on sale of loans
(14,249
)
 
(13,030
)
Loss on sale of investments
112

 
93

Stock-based compensation expense, net of tax benefits
459

 
700

Excess tax benefits from stock-based compensation
(15
)
 
(102
)
Depreciation of premises and equipment
7,532

 
6,658

(Gain) loss on sale of other real estate owned and write-downs, net
(22
)
 
619

Amortization of core deposit intangibles
1,585

 
1,486

Net increase in accrued interest receivable
(3,030
)
 
(3,173
)
Net (increase) decrease in other assets
(3,484
)
 
3,983

Net decrease in accrued interest payable
(31
)
 
(496
)
Net decrease in other liabilities
(8,552
)
 
(2,405
)
Net cash provided by operating activities
54,249

 
76,930

Investing Activities
 
 
 
Sales of available-for-sale securities
20,539

 
35,558

Maturities, prepayments and calls of available-for-sale securities
319,271

 
346,230

Purchases of available-for-sale securities
(188,827
)
 
(347,212
)
Maturities, prepayments and calls of held-to-maturity securities
21,625

 
10,065

Purchases of held-to-maturity securities
(1,222
)
 
(83,004
)
Principal collected on loans
765,468

 
723,316

Loans originated or acquired
(1,070,512
)
 
(967,774
)
Net decrease (increase) of premises and equipment and other real estate owned
8,451

 
(7,403
)
Proceeds from sale of other real estate owned
5,636

 
6,288

Net proceeds from sale of non-marketable equity securities
2,705

 
29,877

Net cash received in acquisitions

 
19,712

Net cash used in investing activities
(116,866
)
 
(234,347
)











See accompanying notes to unaudited condensed consolidated financial statements.

8




GLACIER BANCORP, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
 
 
Six Months ended
(Dollars in thousands)
June 30,
2016
 
June 30,
2015
Financing Activities
 
 
 
Net increase in deposits
$
143,808

 
66,625

Net (decrease) increase in securities sold under agreements to repurchase
(9,087
)
 
10,472

Net decrease in short-term Federal Home Loan Bank advances
(40,000
)
 

Proceeds from long-term Federal Home Loan Bank advances

 
50,000

Repayments of long-term Federal Home Loan Bank advances
(25,299
)
 
(19,410
)
Net decrease in other borrowed funds
(1,604
)
 
(575
)
Cash dividends paid
(38,136
)
 
(36,188
)
Excess tax benefits from stock-based compensation
15

 
102

Stock-based compensation activity

 
(299
)
Net cash provided by financing activities
29,697

 
70,727

Net decrease in cash and cash equivalents
(32,920
)
 
(86,690
)
Cash and cash equivalents at beginning of period
193,253

 
442,409

Cash and cash equivalents at end of period
$
160,333

 
355,719

Supplemental Disclosure of Cash Flow Information
 
 
 
Cash paid during the period for interest
$
15,129

 
15,248

Cash paid during the period for income taxes
18,252

 
15,961

Supplemental Disclosure of Non-Cash Investing Activities
 
 
 
Sale and refinancing of other real estate owned
$
602

 
265

Transfer of loans to other real estate owned
3,635

 
5,181

Dividend declared but not paid
15,317

 
14,388

Acquisitions
 
 
 
Fair value of common stock shares issued

 
10,776

Cash consideration for outstanding shares

 
12,219

Fair value of assets acquired

 
174,637

Liabilities assumed

 
152,779

















See accompanying notes to unaudited condensed consolidated financial statements.

9




GLACIER BANCORP, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
Note 1. Nature of Operations and Summary of Significant Accounting Policies

General
Glacier Bancorp, Inc. (“Company”) is a Montana corporation headquartered in Kalispell, Montana. The Company provides a full range of banking services to individuals and businesses in Montana, Idaho, Wyoming, Colorado, Utah and Washington through its wholly-owned bank subsidiary, Glacier Bank (“Bank”). The Company offers a wide range of banking products and services, including transaction and savings deposits, real estate, commercial, agriculture and consumer loans and mortgage origination services. The Company serves individuals, small to medium-sized businesses, community organizations and public entities.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the Company’s financial condition as of June 30, 2016, the results of operations and comprehensive income for the three and six month periods ended June 30, 2016 and 2015, and changes in stockholders’ equity and cash flows for the six month periods ended June 30, 2016 and 2015. The condensed consolidated statement of financial condition of the Company as of December 31, 2015 has been derived from the audited consolidated statements of the Company as of that date.

The accompanying unaudited condensed consolidated financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America (“GAAP”) for complete financial statements. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015. Operating results for the six months ended June 30, 2016 are not necessarily indicative of the results anticipated for the year ending December 31, 2016.

The Company is a defendant in legal proceedings arising in the normal course of business. In the opinion of management, the disposition of pending litigation will not have a material affect on the Company’s consolidated financial position, results of operations or liquidity.

Material estimates that are particularly susceptible to significant change include: 1) the determination of the allowance for loan and lease losses (“ALLL” or “allowance”); 2) the valuation of investment securities; 3) the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans; and 4) the evaluation of goodwill impairment. For the determination of the ALLL and real estate valuation estimates, management obtains independent appraisals (new or updated) for significant items. Estimates relating to investment valuations are obtained from independent third parties. Estimates relating to the evaluation of goodwill for impairment are determined based on internal calculations using significant independent party inputs.

Principles of Consolidation
The consolidated financial statements of the Company include the parent holding company, the Bank and all variable interest entities (“VIE”) for which the Company has both the power to direct the VIE’s significant activities and the obligation to absorb losses or right to receive benefits of the VIE that could potentially be significant to the VIE. The Bank consists of thirteen bank divisions, a treasury division and an information technology division. The treasury division includes the Bank’s investment portfolio and wholesale borrowings and the information technology division includes the Bank’s internal data processing and information technology expenses. The Bank divisions operate under separate names, management teams and directors. The Company considers the Bank to be its sole operating segment as the Bank 1) engages in similar bank business activity from which it earns revenues and incurs expenses; 2) the operating results of the Bank are regularly reviewed by the Chief Executive Officer (i.e., the chief operating decision maker) who makes decisions about resources to be allocated to the Bank; and 3) financial information is available for the Bank. All significant inter-company transactions have been eliminated in consolidation.

In October 2015, the Company completed its acquisition of Cañon Bank Corporation and its wholly-owned subsidiary, Cañon National Bank, a community bank based in Cañon City, Colorado (collectively, “Cañon”). In February 2015, the Company completed its acquisition of Montana Community Banks, Inc. and its wholly-owned subsidiary, Community Bank, Inc., a community bank based in Ronan, Montana. The transactions were accounted for using the acquisition method, and their results of operations have been included in the Company’s consolidated financial statements as of the acquisition dates.


10




In February 2015, the Financial Accounting Standards Board’s (“FASB”) amended consolidation guidance by modifying the evaluation of whether limited partnerships and similar legal entities are VIEs or voting interest entities and by changing how entities analyze related-party relationships and fee arrangements. As a result of this amendment, the Company determined it was no longer the primary beneficiary of its Low-Income Housing Tax Credit (“LIHTC”) partnerships and deconsolidated its LIHTC investments effective January 1, 2016. There was no material effect on the Company’s financial condition or results of operations upon adoption of this accounting guidance.

Pending Acquisition
On April 20, 2016, the Company announced the signing of a definitive agreement to acquire Treasure State Bank, a community bank based in Missoula, Montana. Treasure State Bank provides banking services to individuals and businesses in the greater Missoula market. Upon closing of the transaction, which is anticipated to take place in the third quarter of 2016, Treasure State Bank will be merged into the Bank and will become part of the First Security Bank of Missoula division.

Loans Receivable
Loans that are intended to be held-to-maturity are reported at the unpaid principal balance less net charge-offs and adjusted for deferred fees and costs on originated loans and unamortized premiums or discounts on acquired loans. Fees and costs on originated loans and premiums or discounts on acquired loans are deferred and subsequently amortized or accreted as a yield adjustment over the expected life of the loan utilizing the interest method. The objective of the interest method is to calculate periodic interest income at a constant effective yield. When a loan is paid off prior to maturity, the remaining fees and costs on originated loans and premiums or discounts on acquired loans are immediately recognized into interest income.

The Company’s loan segments, which are based on the purpose of the loan, include residential real estate, commercial, and consumer loans. The Company’s loan classes, a further disaggregation of segments, include residential real estate loans (residential real estate segment), commercial real estate and other commercial loans (commercial segment), and home equity and other consumer loans (consumer segment).

Loans that are thirty days or more past due based on payments received and applied to the loan are considered delinquent. Loans are designated non-accrual and the accrual of interest is discontinued when the collection of the contractual principal or interest is unlikely. A loan is typically placed on non-accrual when principal or interest is due and has remained unpaid for ninety days or more. When a loan is placed on non-accrual status, interest previously accrued but not collected is reversed against current period interest income. Subsequent payments on non-accrual loans are applied to the outstanding principal balance if doubt remains as to the ultimate collectability of the loan. Interest accruals are not resumed on partially charged-off impaired loans. For other loans on nonaccrual, interest accruals are resumed on such loans only when they are brought fully current with respect to interest and principal and when, in the judgment of management, the loans are estimated to be fully collectible as to both principal and interest.

The Company considers impaired loans to be the primary credit quality indicator for monitoring the credit quality of the loan portfolio. Loans are designated impaired when, based upon current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement and, therefore, the Company has serious doubts as to the ability of such borrowers to fulfill the contractual obligation. Impaired loans include non-performing loans (i.e., non-accrual loans and accruing loans ninety days or more past due) and accruing loans under ninety days past due where it is probable payments will not be received according to the loan agreement (e.g., troubled debt restructuring). Interest income on accruing impaired loans is recognized using the interest method. The Company measures impairment on a loan-by-loan basis in the same manner for each class within the loan portfolio. An insignificant delay or shortfall in the amounts of payments would not cause a loan or lease to be considered impaired. The Company determines the significance of payment delays and shortfalls on a case-by-case basis, taking into consideration all of the facts and circumstances surrounding the loan and the borrower, including the length and reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest due.


11




A restructured loan is considered a troubled debt restructuring (“TDR”) if the creditor, for economic or legal reasons related to the debtor’s financial difficulties, grants a concession to the debtor that it would not otherwise consider. The Company periodically enters into restructure agreements with borrowers whereby the loans were previously identified as TDRs. When such circumstances occur, the Company carefully evaluates the facts of the subsequent restructure to determine the appropriate accounting and under certain circumstances it may be acceptable not to account for the subsequently restructured loan as a TDR. When assessing whether a concession has been granted by the Company, any prior forgiveness on a cumulative basis is considered a continuing concession. A TDR loan is considered an impaired loan and a specific valuation allowance is established when the fair value of the collateral-dependent loan or present value of the loan’s expected future cash flows (discounted at the loan’s effective interest rate based on the original contractual rate) is lower than the carrying value of the impaired loan. The Company has made the following types of loan modifications, some of which were considered a TDR:
reduction of the stated interest rate for the remaining term of the debt;
extension of the maturity date(s) at a stated rate of interest lower than the current market rate for newly originated debt having similar risk characteristics; and
reduction of the face amount of the debt as stated in the debt agreements.

The Company recognizes that while borrowers may experience deterioration in their financial condition, many continue to be creditworthy customers who have the willingness and capacity for debt repayment. In determining whether non-restructured or unimpaired loans issued to a single or related party group of borrowers should continue to accrue interest when the borrower has other loans that are impaired or are TDRs, the Company on a quarterly or more frequent basis performs an updated and comprehensive assessment of the willingness and capacity of the borrowers to timely and ultimately repay their total debt obligations, including contingent obligations. Such analysis takes into account current financial information about the borrowers and financially responsible guarantors, if any, including for example:
analysis of global, i.e., aggregate debt service for total debt obligations;
assessment of the value and security protection of collateral pledged using current market conditions and alternative market assumptions across a variety of potential future situations; and
loan structures and related covenants.

For additional information relating to loans, see Note 3.

Allowance for Loan and Lease Losses
Based upon management’s analysis of the Company’s loan portfolio, the balance of the ALLL is an estimate of probable credit losses known and inherent within the Bank’s loan portfolio as of the date of the consolidated financial statements. The ALLL is analyzed at the loan class level and is maintained within a range of estimated losses. Determining the adequacy of the ALLL involves a high degree of judgment and is inevitably imprecise as the risk of loss is difficult to quantify. The determination of the ALLL and the related provision for loan losses is a critical accounting estimate that involves management’s judgments about all known relevant internal and external environmental factors that affect loan losses. The balance of the ALLL is highly dependent upon management’s evaluations of borrowers’ current and prospective performance, appraisals and other variables affecting the quality of the loan portfolio. Individually significant loans and major lending areas are reviewed periodically to determine potential problems at an early date. Changes in management’s estimates and assumptions are reasonably possible and may have a material impact upon the Company’s consolidated financial statements, results of operations or capital.

Risk characteristics considered in the ALLL analysis applicable to each loan class within the Company's loan portfolio are as follows:

Residential Real Estate.  Residential real estate loans are secured by owner-occupied 1-4 family residences.  Repayment of these loans is primarily dependent on the personal income and credit rating of the borrowers.  Credit risk in these loans is impacted by economic conditions within the Company’s market areas that affect the value of the property securing the loans and affect the borrowers' personal incomes.  Mitigating risk factors for this loan class include a large number of borrowers, geographic dispersion of market areas and the loans are originated for relatively smaller amounts.

Commercial Real Estate.  Commercial real estate loans typically involve larger principal amounts, and repayment of these loans is generally dependent on the successful operation of the property securing the loan and/or the business conducted on the property securing the loan.  Credit risk in these loans is impacted by the creditworthiness of a borrower, valuation of the property securing the loan and conditions within the local economies in the Company’s diverse, geographic market areas.


12




Commercial.  Commercial loans consist of loans to commercial customers for use in financing working capital needs, equipment purchases and business expansions.  The loans in this category are repaid primarily from the cash flow of a borrower’s principal business operation.  Credit risk in these loans is driven by creditworthiness of a borrower and the economic conditions that impact the cash flow stability from business operations across the Company’s diverse, geographic market areas.

Home Equity.  Home equity loans consist of junior lien mortgages and first and junior lien lines of credit (revolving open-end and amortizing closed-end) secured by owner-occupied 1-4 family residences.  Repayment of these loans is primarily dependent on the personal income and credit rating of the borrowers.  Credit risk in these loans is impacted by economic conditions within the Company’s market areas that affect the value of the residential property securing the loans and affect the borrowers' personal incomes.  Mitigating risk factors for this loan class are a large number of borrowers, geographic dispersion of market areas and the loans are originated for terms that range from 10 years to 20 years.

Other Consumer.  The other consumer loan portfolio consists of various short-term loans such as automobile loans and loans for other personal purposes.  Repayment of these loans is primarily dependent on the personal income of the borrowers.  Credit risk is driven by consumer economic factors (such as unemployment and general economic conditions in the Company’s diverse, geographic market area) and the creditworthiness of a borrower.

The ALLL consists of a specific valuation allowance component and a general valuation allowance component. The specific component relates to loans that are determined to be impaired and individually evaluated for impairment. The Company measures impairment on a loan-by-loan basis based on the present value of expected future cash flows discounted at the loan’s effective interest rate, except when it is determined that repayment of the loan is expected to be provided solely by the underlying collateral. For impairment based on expected future cash flows, the Company considers all information available as of a measurement date, including past events, current conditions, potential prepayments, and estimated cost to sell when such costs are expected to reduce the cash flows available to repay or otherwise satisfy the loan. For alternative ranges of cash flows, the likelihood of the possible outcomes is considered in determining the best estimate of expected future cash flows. The effective interest rate for a loan restructured in a TDR is based on the original contractual rate. For collateral-dependent loans and real estate loans for which foreclosure or a deed-in-lieu of foreclosure is probable, impairment is measured by the fair value of the collateral, less estimated cost to sell. The fair value of the collateral is determined primarily based upon appraisal or evaluation of the underlying real property value.

The general valuation allowance component relates to probable credit losses inherent in the balance of the loan portfolio based on historical loss experience, adjusted for changes in trends and conditions of qualitative or environmental factors. The historical loss experience is based on the previous twelve quarters loss experience by loan class adjusted for risk characteristics in the existing loan portfolio. The same trends and conditions are evaluated for each class within the loan portfolio; however, the risk characteristics are weighted separately at the individual class level based on the Company’s judgment and experience.

The changes in trends and conditions evaluated for each class within the loan portfolio include the following:
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;
Changes in global, national, regional, and local economic and business conditions and developments that affect the collectability of the portfolio, including the condition of various market segments;
Changes in the nature and volume of the portfolio and in the terms of loans;
Changes in experience, ability, and depth of lending management and other relevant staff;
Changes in the volume and severity of past due and nonaccrual loans;
Changes in the quality of the Company’s loan review system;
Changes in the value of underlying collateral for collateral-dependent loans;
The existence and effect of any concentrations of credit, and changes in the level of such concentrations; and
The effect of other external factors such as competition and legal and regulatory requirements on the level of estimated credit losses in the Company’s existing portfolio.


13




The ALLL is increased by provisions for loan losses which are charged to expense. The portions of loan balances determined by management to be uncollectible are charged off as a reduction of the ALLL and recoveries of amounts previously charged off are credited as an increase to the ALLL. The Company’s charge-off policy is consistent with bank regulatory standards. Consumer loans generally are charged off when the loan becomes over 120 days delinquent. Real estate acquired as a result of foreclosure or by deed-in-lieu of foreclosure is classified as real estate owned until such time as it is sold.

At acquisition date, the assets and liabilities of acquired banks are recorded at their estimated fair values which results in no ALLL carried over from acquired banks. Subsequent to acquisition, an allowance will be recorded on the acquired loan portfolios for further credit deterioration, if any.

Reclassifications
Certain reclassifications have been made to the 2015 financial statements to conform to the 2016 presentation.

Impact of Recent Authoritative Accounting Guidance
The Accounting Standards Codification (“ASC”) is FASB’s officially recognized source of authoritative GAAP applicable to all public and non-public non-governmental entities. Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under the authority of the federal securities laws are also sources of authoritative GAAP for the Company as an SEC registrant. All other accounting literature is non-authoritative. The following paragraphs provide descriptions of recently adopted or newly issued but not yet effective accounting standards that could have a material effect on the Company’s financial position or results of operations.

In June 2016, FASB amended FASB ASC Topic 326, Financial Instruments - Credit Losses. The amendments in this Update replace the incurred loss model with a methodology that reflects expected credit losses over the life of the loan and requires consideration of a broader range of reasonable and supportable information to calculate credit loss estimates. The amendments are effective for public business entities for the first interim and annual reporting periods beginning after December 15, 2019. The Company is currently evaluating the impact of these amendments to the Company’s financial position and results of operations.

In March 2016, FASB amended FASB ASC Topic 718, Compensation - Stock Compensation. The amendments in this Update address certain aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification of awards on the statement of cash flows. The amendments are effective for public business entities for the first interim and annual reporting periods beginning after December 15, 2016. Early adoption is permitted in any interim or annual period. The Company is currently evaluating the impact of these amendments, but does not expect them to have a material effect on the Company’s financial position or results of operations.

In February 2016, FASB amended FASB ASC Topic 842, Leases. The amendments in this Update address several aspects of lease accounting with the significant change being the recognition of lease assets and lease liabilities for leases previously classified as operating leases. The amendments are effective for public business entities for the first interim and annual reporting periods beginning after December 15, 2018 and early adoption is permitted. The Company is currently evaluating the impact of these amendments, but does not expect them to have a material effect on the Company’s financial position or results of operations.

In January 2016, FASB amended FASB ASC Topic 825, Financial Instruments. The amendments in this Update address certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The amendments are effective for public business entities for the first interim and annual reporting periods beginning after December 15, 2017. Early adoption is only permitted under certain circumstances outlined in the amendments. A reporting entity should apply the amendments by means of a cumulative-effect adjustment to the Company’s statement of financial condition as of the beginning of the reporting year of adoption. The amendments related to equity securities without readily determinable fair values should be applied prospectively. The Company is currently evaluating the impact of these amendments, but does not expect them to have a material effect on the Company’s financial position or results of operations.


14




In September 2015, FASB amended FASB ASC Topic 805, Business Combinations. The amendments in this Update require that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustments are necessary. The amendments in this Update require that the acquirer record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. The amendments in this Update require an entity to present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. The amendments should be applied prospectively to all periods presented and are effective for public business entities for annual periods and interim periods within those annual periods, beginning after December 15, 2015. The Company has evaluated the impact of these amendments and determined there was not a material effect on the Company’s financial position or results of operations.

In February 2015, FASB amended FASB ASC Topic 810, Consolidation. The amendments in this Update make targeted changes to the current consolidation guidance and end a deferral available for investment companies. The amendments modify the evaluation of whether limited partnerships and similar legal entities are VIEs or voting interest entities. Consolidation conclusions may change for entities that already are VIEs due to changes in how entities would analyze related-party relationships and fee arrangements. The amendments relax existing criteria for determining when fees paid to a decision maker or service provider do not represent a variable interest by focusing on whether those fees are “at market.” The amendments eliminate both the consolidation model specific to limited partnerships and the current presumption that a general partner controls a limited partnership. Application of the new amendments could result in some entities being deconsolidated or considered a VIE and subject to additional disclosures. The amendments are effective for public business entities for the first interim and annual reporting periods beginning after December 15, 2015. Early adoption is permitted, including adoption in an interim period with any adjustments reflected as of the beginning of the reporting year that includes the interim period. A reporting entity may apply the amendments using a modified retrospective approach by recording a cumulative-effect adjustment to equity as of the beginning of the reporting year of adoption or may apply the amendments retrospectively. The Company has evaluated the impact of these amendments and determined there was not a material effect on the Company’s financial position or results of operations.

In May 2014, FASB amended FASB ASC Topic 606, Revenue from Contracts with Customers. The amendments clarify the principals for recognizing revenue and develop a common revenue standard among industries. The new guidance establishes the following core principal: recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for goods or services. Five steps are provided for a company or organization to follow to achieve such core principle. The new guidance also includes a cohesive set of disclosure requirements that will provide users of financial statements with comprehensive information about the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The entity should apply the amendments using one of two retrospective methods described in the amendment. Accounting Standards Update No. 2015-14, Revenue from Contracts with Customers (Topic 606) delayed the effective date for public entities to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Early application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company is currently evaluating the impact of these amendments, but does not expect them to have a material effect on the Company’s financial position or results of operations.


15




Note 2. Investment Securities

The following tables present the amortized cost, the gross unrealized gains and losses and the fair value of the Company’s investment securities:
 
June 30, 2016
 
Amortized Cost
 
Gross Unrealized
 
Fair Value
(Dollars in thousands)
 
Gains
 
Losses
 
Available-for-sale
 
 
 
 
 
 
 
U.S. government and federal agency
$
43,573

 
33

 
(220
)
 
43,386

U.S. government sponsored enterprises
46,307

 
592

 

 
46,899

State and local governments
858,382

 
49,742

 
(5,335
)
 
902,789

Corporate bonds
434,209

 
3,076

 
(192
)
 
437,093

Residential mortgage-backed securities
1,042,121

 
16,219

 
(552
)
 
1,057,788

Total available-for-sale
2,424,592

 
69,662

 
(6,299
)
 
2,487,955

Held-to-maturity
 
 
 
 
 
 
 
State and local governments
680,574

 
48,980

 
(3,189
)
 
726,365

Total held-to-maturity
680,574

 
48,980

 
(3,189
)
 
726,365

Total investment securities
$
3,105,166

 
118,642

 
(9,488
)
 
3,214,320


 
December 31, 2015
 
Amortized Cost
 
Gross Unrealized
 
Fair Value
(Dollars in thousands)
 
Gains
 
Losses
 
Available-for-sale
 
 
 
 
 
 
 
U.S. government and federal agency
$
47,868

 
15

 
(432
)
 
47,451

U.S. government sponsored enterprises
93,230

 
100

 
(163
)
 
93,167

State and local governments
856,738

 
34,159

 
(5,878
)
 
885,019

Corporate bonds
386,629

 
611

 
(3,077
)
 
384,163

Residential mortgage-backed securities
1,203,548

 
6,180

 
(8,768
)
 
1,200,960

Total available-for-sale
2,588,013

 
41,065

 
(18,318
)
 
2,610,760

Held-to-maturity
 
 
 
 
 
 
 
State and local governments
702,072

 
31,863

 
(4,422
)
 
729,513

Total held-to-maturity
702,072

 
31,863

 
(4,422
)
 
729,513

Total investment securities
$
3,290,085

 
72,928

 
(22,740
)
 
3,340,273



16




The following table presents the amortized cost and fair value of available-for-sale and held-to-maturity securities by contractual maturity at June 30, 2016. Actual maturities may differ from expected or contractual maturities since issuers have the right to prepay obligations with or without prepayment penalties.

 
June 30, 2016
 
Available-for-Sale
 
Held-to-Maturity
(Dollars in thousands)
Amortized Cost
 
Fair Value
 
Amortized Cost
 
Fair Value
Due within one year
$
142,316

 
142,834

 

 

Due after one year through five years
467,688

 
472,160

 

 

Due after five years through ten years
176,826

 
187,546

 
39,376

 
41,965

Due after ten years
595,641

 
627,627

 
641,198

 
684,400

 
1,382,471

 
1,430,167

 
680,574

 
726,365

Residential mortgage-backed securities 1
1,042,121

 
1,057,788

 

 

Total
$
2,424,592

 
2,487,955

 
680,574

 
726,365

__________
1 Residential mortgage-backed securities, which have prepayment provisions, are not assigned to maturity categories due to fluctuations in their prepayment speeds.

Proceeds from sales and calls of investment securities and the associated gains and losses that have been included in earnings are listed below:
 
Three Months ended
 
Six Months ended
(Dollars in thousands)
June 30,
2016
 
June 30,
2015
 
June 30,
2016
 
June 30,
2015
Available-for-sale
 
 
 
 
 
 
 
Proceeds from sales and calls of investment securities
$
29,861

 
11,918

 
88,484

 
74,621

Gross realized gains 1
143

 
43

 
943

 
82

Gross realized losses 1
(261
)
 
(92
)
 
(1,000
)
 
(127
)
Held-to-maturity
 
 
 
 
 
 
 
Proceeds from calls of investment securities
10,470

 
9,605

 
21,625

 
10,065

Gross realized gains 1
44

 
14

 
91

 
15

Gross realized losses 1
(146
)
 
(63
)
 
(146
)
 
(63
)
__________
1 The gain or loss on the sale or call of each investment security is determined by the specific identification method.


17




Investment securities with an unrealized loss position are summarized as follows:

 
June 30, 2016
 
Less than 12 Months
 
12 Months or More
 
Total
(Dollars in thousands)
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
Available-for-sale
 
 
 
 
 
 
 
 
 
 
 
U.S. government and federal agency
$
1,686

 
(2
)
 
34,603

 
(218
)
 
36,289

 
(220
)
State and local governments
15,644

 
(239
)
 
123,203

 
(5,096
)
 
138,847

 
(5,335
)
Corporate bonds
36,068

 
(97
)
 
18,521

 
(95
)
 
54,589

 
(192
)
Residential mortgage-backed securities
63,098

 
(271
)
 
28,018

 
(281
)
 
91,116

 
(552
)
Total available-for-sale
$
116,496

 
(609
)
 
204,345

 
(5,690
)
 
320,841

 
(6,299
)
Held-to-maturity
 
 
 
 
 
 
 
 
 
 
 
State and local governments
$
2,967

 
(73
)
 
90,809

 
(3,116
)
 
93,776

 
(3,189
)
Total held-to-maturity
$
2,967

 
(73
)
 
90,809

 
(3,116
)
 
93,776

 
(3,189
)
 
 
December 31, 2015
 
Less than 12 Months
 
12 Months or More
 
Total
(Dollars in thousands)
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
Available-for-sale
 
 
 
 
 
 
 
 
 
 
 
U.S. government and federal agency
$
42,493

 
(432
)
 
2

 

 
42,495

 
(432
)
U.S. government sponsored enterprises
60,010

 
(163
)
 

 

 
60,010

 
(163
)
State and local governments
102,422

 
(1,629
)
 
115,943

 
(4,249
)
 
218,365

 
(5,878
)
Corporate bonds
228,258

 
(1,812
)
 
13,962

 
(1,265
)
 
242,220

 
(3,077
)
Residential mortgage-backed securities
730,412

 
(7,226
)
 
53,021

 
(1,542
)
 
783,433

 
(8,768
)
Total available-for-sale
$
1,163,595

 
(11,262
)
 
182,928

 
(7,056
)
 
1,346,523

 
(18,318
)
Held-to-maturity
 
 
 
 
 
 
 
 
 
 
 
State and local governments
$
42,322

 
(594
)
 
81,709

 
(3,828
)
 
124,031

 
(4,422
)
Total held-to-maturity
$
42,322

 
(594
)
 
81,709

 
(3,828
)
 
124,031

 
(4,422
)

Based on an analysis of its investment securities with unrealized losses as of June 30, 2016 and December 31, 2015, the Company determined that none of such securities had other-than-temporary impairment and the unrealized losses were primarily the result of interest rate changes and market spreads subsequent to acquisition. The fair value of the investment securities is expected to recover as payments are received and the securities approach maturity. At June 30, 2016, management determined that it did not intend to sell investment securities with unrealized losses, and there was no expected requirement to sell any of its investment securities with unrealized losses before recovery of their amortized cost.
 


18




Note 3. Loans Receivable, Net

The Company’s loan portfolio is comprised of three segments: residential real estate, commercial, and consumer and other loans. The loan segments are further disaggregated into the following classes: residential real estate, commercial real estate, other commercial, home equity and other consumer loans. The following table presents loans receivable for each portfolio class of loans:
 
At or for the Six Months ended
 
At or for the Year ended
(Dollars in thousands)
June 30,
2016
 
December 31,
2015
Residential real estate loans
$
672,895

 
688,912

Commercial loans
 
 
 
Real estate
2,773,298

 
2,633,953

Other commercial
1,258,227

 
1,099,564

Total
4,031,525

 
3,733,517

Consumer and other loans
 
 
 
Home equity
431,659

 
420,901

Other consumer
242,538

 
235,351

Total
674,197

 
656,252

Loans receivable 1
5,378,617

 
5,078,681

Allowance for loan and lease losses
(132,386
)
 
(129,697
)
Loans receivable, net
$
5,246,231

 
4,948,984

Weighted-average interest rate on loans (tax-equivalent)
4.83
%
 
4.84
%
__________
1 
Includes net deferred fees, costs, premiums and discounts of $12,188,000 and $15,529,000 at June 30, 2016 and December 31, 2015, respectively.

The following tables summarize the activity in the ALLL by portfolio segment:
  
 
Three Months ended June 30, 2016
(Dollars in thousands)
Total
 
Residential
Real Estate
 
Commercial
Real Estate
 
Other
Commercial
 
Home
Equity
 
Other
Consumer
Balance at beginning of period
$
130,071

 
13,196

 
67,046

 
36,054

 
8,149

 
5,626

Provision for loan losses

 
699

 
(2,617
)
 
654

 
447

 
817

Charge-offs
(1,369
)
 
(255
)
 
(34
)
 
(267
)
 
31

 
(844
)
Recoveries
3,684

 
26

 
2,414

 
590

 
2

 
652

Balance at end of period
$
132,386

 
13,666

 
66,809

 
37,031

 
8,629

 
6,251


 
Three Months ended June 30, 2015
(Dollars in thousands)
Total
 
Residential
Real Estate
 
Commercial
Real Estate
 
Other
Commercial
 
Home
Equity
 
Other
Consumer
Balance at beginning of period
$
129,856

 
15,131

 
67,327

 
31,515

 
9,519

 
6,364

Provision for loan losses
282

 
(258
)
 
491

 
532

 
(559
)
 
76

Charge-offs
(1,301
)
 
(44
)
 
(303
)
 
(675
)
 
(122
)
 
(157
)
Recoveries
1,682

 
21

 
1,182

 
111

 
108

 
260

Balance at end of period
$
130,519

 
14,850

 
68,697

 
31,483

 
8,946

 
6,543


19




 
Six Months ended June 30, 2016
(Dollars in thousands)
Total
 
Residential
Real Estate
 
Commercial
Real Estate
 
Other
Commercial
 
Home
Equity
 
Other
Consumer
Balance at beginning of period
$
129,697

 
14,427

 
67,877

 
32,525

 
8,998

 
5,870

Provision for loan losses
568

 
(450
)
 
(3,490
)
 
4,374

 
(346
)
 
480

Charge-offs
(2,532
)
 
(355
)
 
(287
)
 
(591
)
 
(198
)
 
(1,101
)
Recoveries
4,653

 
44

 
2,709

 
723

 
175

 
1,002

Balance at end of period
$
132,386

 
13,666

 
66,809

 
37,031

 
8,629

 
6,251

 
 
Six Months ended June 30, 2015
(Dollars in thousands)
Total
 
Residential
Real Estate
 
Commercial
Real Estate
 
Other
Commercial
 
Home
Equity
 
Other
Consumer
Balance at beginning of period
$
129,753

 
14,680

 
67,799

 
30,891

 
9,963

 
6,420

Provision for loan losses
1,047

 
182

 
205

 
1,644

 
(1,018
)
 
34

Charge-offs
(2,598
)
 
(58
)
 
(748
)
 
(1,369
)
 
(153
)
 
(270
)
Recoveries
2,317

 
46

 
1,441

 
317

 
154

 
359

Balance at end of period
$
130,519

 
14,850

 
68,697

 
31,483

 
8,946

 
6,543


The following tables disclose the balance in the ALLL and the recorded investment in loans by portfolio segment:

 
June 30, 2016
(Dollars in thousands)
Total
 
Residential
Real Estate
 
Commercial
Real Estate
 
Other
Commercial
 
Home
Equity
 
Other
Consumer
Allowance for loan and lease losses
 
 
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
$
4,365

 
215

 
877

 
2,761

 
118

 
394

Collectively evaluated for impairment
128,021

 
13,451

 
65,932

 
34,270

 
8,511

 
5,857

Total allowance for loan and lease losses
$
132,386

 
13,666

 
66,809

 
37,031

 
8,629

 
6,251

Loans receivable
 
 
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
$
130,803

 
18,248

 
75,739

 
27,133

 
6,442

 
3,241

Collectively evaluated for impairment
5,247,814

 
654,647

 
2,697,559

 
1,231,094

 
425,217

 
239,297

Total loans receivable
$
5,378,617

 
672,895

 
2,773,298

 
1,258,227

 
431,659

 
242,538

 

20




 
December 31, 2015
(Dollars in thousands)
Total
 
Residential
Real Estate
 
Commercial
Real Estate
 
Other
Commercial
 
Home
Equity
 
Other
Consumer
Allowance for loan and lease losses
 
 
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
$
8,124

 
782

 
1,629

 
5,277

 
64

 
372

Collectively evaluated for impairment
121,573

 
13,645

 
66,248

 
27,248

 
8,934

 
5,498

Total allowance for loan and lease losses
$
129,697

 
14,427

 
67,877

 
32,525

 
8,998

 
5,870

Loans receivable
 
 
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
$
140,773

 
20,767

 
85,845

 
23,874

 
6,493

 
3,794

Collectively evaluated for impairment
4,937,908

 
668,145

 
2,548,108

 
1,075,690

 
414,408

 
231,557

Total loans receivable
$
5,078,681

 
688,912

 
2,633,953

 
1,099,564

 
420,901

 
235,351


Substantially all of the Company’s loans receivable are with customers in the Company’s geographic market areas. Although the Company has a diversified loan portfolio, a substantial portion of its customers’ ability to honor their obligations is dependent upon the economic performance in the Company’s market areas.

The following tables disclose information related to impaired loans by portfolio segment:

 
At or for the Three or Six Months ended June 30, 2016
(Dollars in thousands)
Total
 
Residential
Real Estate
 
Commercial
Real Estate
 
Other
Commercial
 
Home
Equity
 
Other
Consumer
Loans with a specific valuation allowance
 
 
 
 
 
 
 
 
 
 
 
Recorded balance
$
23,744

 
3,176

 
10,068

 
9,188

 
156

 
1,156

Unpaid principal balance
23,991

 
3,243

 
10,084

 
9,307

 
165

 
1,192

Specific valuation allowance
4,365

 
215

 
877

 
2,761

 
118

 
394

Average balance - three months
27,688

 
5,338

 
10,073

 
10,669

 
306

 
1,302

Average balance - six months
30,020

 
6,310

 
10,900

 
11,087

 
238

 
1,485

Loans without a specific valuation allowance
 
 
 
 
 
 
 
 
 
 
 
Recorded balance
$
107,059

 
15,072

 
65,671

 
17,945

 
6,286

 
2,085

Unpaid principal balance
131,848

 
16,617

 
82,908

 
22,932

 
7,221

 
2,170

Average balance - three months
108,147

 
14,306

 
68,717

 
16,842

 
6,194

 
2,088

Average balance - six months
107,461

 
13,709

 
70,241

 
15,212

 
6,259

 
2,040

Total
 
 
 
 
 
 
 
 
 
 
 
Recorded balance
$
130,803

 
18,248

 
75,739

 
27,133

 
6,442

 
3,241

Unpaid principal balance
155,839

 
19,860

 
92,992

 
32,239

 
7,386

 
3,362

Specific valuation allowance
4,365

 
215

 
877

 
2,761

 
118

 
394

Average balance - three months
135,835

 
19,644

 
78,790

 
27,511

 
6,500

 
3,390

Average balance - six months
137,481

 
20,019

 
81,141

 
26,299

 
6,497

 
3,525

 

21




 
At or for the Year ended December 31, 2015
(Dollars in thousands)
Total
 
Residential
Real Estate
 
Commercial
Real Estate
 
Other
Commercial
 
Home
Equity
 
Other
Consumer
Loans with a specific valuation allowance
 
 
 
 
 
 
 
 
 
 
 
Recorded balance
$
34,683

 
8,253

 
12,554

 
11,923

 
102

 
1,851

Unpaid principal balance
36,157

 
9,198

 
12,581

 
12,335

 
109

 
1,934

Specific valuation allowance
8,124

 
782

 
1,629

 
5,277

 
64

 
372

Average balance
36,176

 
6,393

 
15,827

 
11,768

 
426

 
1,762

Loans without a specific valuation allowance
 
 
 
 
 
 
 
 
 
 
 
Recorded balance
$
106,090

 
12,514

 
73,291

 
11,951

 
6,391

 
1,943

Unpaid principal balance
132,718

 
13,969

 
94,028

 
15,539

 
7,153

 
2,029

Average balance
116,356

 
13,615

 
78,684

 
15,479

 
6,350

 
2,228

Total
 
 
 
 
 
 
 
 
 
 
 
Recorded balance
$
140,773

 
20,767

 
85,845

 
23,874

 
6,493

 
3,794

Unpaid principal balance
168,875

 
23,167

 
106,609

 
27,874

 
7,262

 
3,963

Specific valuation allowance
8,124

 
782

 
1,629

 
5,277

 
64

 
372

Average balance
152,532

 
20,008

 
94,511

 
27,247

 
6,776

 
3,990


Interest income recognized on impaired loans for the six months ended June 30, 2016 and 2015 was not significant.

The following tables present an aging analysis of the recorded investment in loans by portfolio segment:
 
 
June 30, 2016
(Dollars in thousands)
Total
 
Residential
Real Estate
 
Commercial
Real Estate
 
Other
Commercial
 
Home
Equity
 
Other
Consumer
Accruing loans 30-59 days past due
$
18,253

 
453

 
7,515

 
6,709

 
2,872

 
704

Accruing loans 60-89 days past due
5,226

 
1,183

 
885

 
1,910

 
385

 
863

Accruing loans 90 days or more past due
6,194

 
772

 
1,924

 
3,115

 
382

 
1

Non-accrual loans
45,017

 
4,409

 
23,147

 
11,308

 
5,572

 
581

Total past due and non-accrual loans
74,690

 
6,817

 
33,471

 
23,042

 
9,211

 
2,149

Current loans receivable
5,303,927

 
666,078

 
2,739,827

 
1,235,185

 
422,448

 
240,389

Total loans receivable
$
5,378,617

 
672,895

 
2,773,298

 
1,258,227

 
431,659

 
242,538

 
 
December 31, 2015
(Dollars in thousands)
Total
 
Residential
Real Estate
 
Commercial
Real Estate
 
Other
Commercial
 
Home
Equity
 
Other
Consumer
Accruing loans 30-59 days past due
$
15,801

 
4,895

 
4,393

 
3,564

 
1,601

 
1,348

Accruing loans 60-89 days past due
3,612

 
961

 
1,841