Loans | Loans The following is a summary of loans: (Dollars in thousands) June 30, 2018 December 31, 2017 Amount % Amount % Commercial: Commercial real estate (1) $1,218,643 35 % $1,210,495 36 % Commercial & industrial (2) 632,029 18 612,334 18 Total commercial 1,850,672 53 1,822,829 54 Residential Real Estate: Residential real estate (3) 1,327,418 38 1,227,248 36 Consumer: Home equity 283,744 8 292,467 9 Other (4) 28,396 1 31,527 1 Total consumer 312,140 9 323,994 10 Total loans (5) $3,490,230 100 % $3,374,071 100 % (1) Commercial real estate loans consist of commercial mortgages primarily secured by income producing property, as well as construction and development loans. Construction and development loans are made to businesses for land development or the on-site construction of industrial, commercial, or residential buildings. (2) Commercial & industrial consist of loans to businesses and individuals, a substantial portion of which are fully or partially collateralized by real estate. (3) Residential real estate loans consist of mortgage and homeowner construction loans secured by one- to four- family residential properties. (4) Other consumer loans consists of loans to individuals secured by general aviation aircraft and other personal installment loans. (5) Includes net unamortized loan origination costs of $4.5 million and $3.8 million , respectively, at June 30, 2018 and December 31, 2017 and net unamortized premiums on purchased loans of $794 thousand and $878 thousand , respectively, at June 30, 2018 and December 31, 2017 . As of June 30, 2018 and December 31, 2017 , there were $1.8 billion and $1.6 billion , respectively, of loans pledged as collateral to the FHLB under a blanket pledge agreement and to the FRB for the discount window. See Note 7 for additional disclosure regarding borrowings. Past Due Loans Past due status is based on the contractual payment terms of the loan. The following tables present an age analysis of past due loans, segregated by class of loans: (Dollars in thousands) Days Past Due June 30, 2018 30-59 60-89 Over 90 Total Past Due Current Total Loans Commercial: Commercial real estate $— $— $— $— $1,218,643 $1,218,643 Commercial & industrial 2,454 — 397 2,851 629,178 632,029 Total commercial 2,454 — 397 2,851 1,847,821 1,850,672 Residential Real Estate: Residential real estate 6,540 1,150 3,553 11,243 1,316,175 1,327,418 Consumer: Home equity 1,713 385 487 2,585 281,159 283,744 Other 15 1 — 16 28,380 28,396 Total consumer 1,728 386 487 2,601 309,539 312,140 Total loans $10,722 $1,536 $4,437 $16,695 $3,473,535 $3,490,230 (Dollars in thousands) Days Past Due December 31, 2017 30-59 60-89 Over 90 Total Past Due Current Total Loans Commercial: Commercial real estate $6 $— $4,954 $4,960 $1,205,535 $1,210,495 Commercial & industrial 3,793 2 281 4,076 608,258 612,334 Total commercial 3,799 2 5,235 9,036 1,813,793 1,822,829 Residential Real Estate: Residential real estate 1,678 2,274 3,903 7,855 1,219,393 1,227,248 Consumer: Home equity 2,798 75 268 3,141 289,326 292,467 Other 29 — 14 43 31,484 31,527 Total consumer 2,827 75 282 3,184 320,810 323,994 Total loans $8,304 $2,351 $9,420 $20,075 $3,353,996 $3,374,071 Included in past due loans as of June 30, 2018 and December 31, 2017 , were nonaccrual loans of $8.6 million and $11.8 million , respectively. All loans 90 days or more past due at June 30, 2018 and December 31, 2017 were classified as nonaccrual. Impaired Loans Impaired loans are nonaccrual loans, which are loans for which it is probable that the Corporation will not be able to collect all amounts due according to the contractual terms of the loan agreements, as well as loans restructured in a troubled debt restructuring. The Corporation identifies loss allocations for impaired loans on an individual loan basis. The following is a summary of impaired loans: (Dollars in thousands) Recorded Investment (1) Unpaid Principal Related Allowance Jun 30, Dec 31, Jun 30, Dec 31, Jun 30, Dec 31, No Related Allowance Recorded Commercial: Commercial real estate $— $— $— $— $— $— Commercial & industrial 5,426 4,986 5,477 5,081 — — Total commercial 5,426 4,986 5,477 5,081 — — Residential Real Estate: Residential real estate 9,078 9,069 9,245 9,256 — — Consumer: Home equity 1,124 557 1,124 557 — — Other — 14 — 14 — — Total consumer 1,124 571 1,124 571 — — Subtotal 15,628 14,626 15,846 14,908 — — With Related Allowance Recorded Commercial: Commercial real estate $— $4,954 $— $9,910 $— $1,018 Commercial & industrial 337 191 389 212 18 1 Total commercial 337 5,145 389 10,122 18 1,019 Residential Real Estate: Residential real estate 1,495 715 1,546 741 168 104 Consumer: Home equity 19 — 19 — 8 — Other 34 133 34 132 4 6 Total consumer 53 133 53 132 12 6 Subtotal 1,885 5,993 1,988 10,995 198 1,129 Total impaired loans $17,513 $20,619 $17,834 $25,903 $198 $1,129 Total: Commercial $5,763 $10,131 $5,866 $15,203 $18 $1,019 Residential real estate 10,573 9,784 10,791 9,997 168 104 Consumer 1,177 704 1,177 703 12 6 Total impaired loans $17,513 $20,619 $17,834 $25,903 $198 $1,129 (1) The recorded investment in impaired loans consists of unpaid principal balance, net of charge-offs, interest payments received applied to principal and unamortized deferred loan origination fees and costs. For accruing impaired loans (troubled debt restructurings for which management has concluded that the collectibility of the loan is not in doubt), the recorded investment also includes accrued interest. The following tables present the average recorded investment balance of impaired loans and interest income recognized on impaired loans segregated by loan class. (Dollars in thousands) Average Recorded Investment Interest Income Recognized Three months ended June 30, 2018 2017 2018 2017 Commercial: Commercial real estate $— $9,549 $— $26 Commercial & industrial 5,983 6,864 73 76 Total commercial 5,983 16,413 73 102 Residential Real Estate: Residential real estate 10,017 15,915 85 150 Consumer: Home equity 1,036 697 10 10 Other 88 140 2 2 Total consumer 1,124 837 12 12 Totals $17,124 $33,165 $170 $264 (Dollars in thousands) Average Recorded Investment Interest Income Recognized Six months ended June 30, 2018 2017 2018 2017 Commercial: Commercial real estate $2,039 $9,664 $— $52 Commercial & industrial 5,738 6,914 139 152 Total commercial 7,777 16,578 139 204 Residential Real Estate: Residential real estate 9,934 16,076 197 272 Consumer: Home equity 853 832 19 20 Other 116 142 5 6 Total consumer 969 974 24 26 Totals $18,680 $33,628 $360 $502 Nonaccrual Loans Loans, with the exception of certain well-secured loans that are in the process of collection, are placed on nonaccrual status and interest recognition is suspended when such loans are 90 days or more overdue with respect to principal and/or interest, or sooner if considered appropriate by management. Well-secured loans are permitted to remain on accrual status provided that full collection of principal and interest is assured and the loan is in the process of collection. Loans are also placed on nonaccrual status when, in the opinion of management, full collection of principal and interest is doubtful. When loans are placed on nonaccrual status, interest previously accrued but not collected on such loans is reversed against current period income. Subsequent interest payments received on nonaccrual loans are applied to the outstanding principal balance of the loan or recognized as interest income depending on management’s assessment of the ultimate collectability of the loan. Loans are removed from nonaccrual status when they have been current as to principal and interest generally for a period of six months, the borrower has demonstrated an ability to comply with repayment terms, and when, in management’s opinion, the loans are considered to be fully collectible. The following is a summary of nonaccrual loans, segregated by class of loans: (Dollars in thousands) Jun 30, Dec 31, Commercial: Commercial real estate $— $4,954 Commercial & industrial 397 283 Total commercial 397 5,237 Residential Real Estate: Residential real estate 10,206 9,414 Consumer: Home equity 1,133 544 Other 9 16 Total consumer 1,142 560 Total nonaccrual loans $11,745 $15,211 Accruing loans 90 days or more past due $— $— As of June 30, 2018 and December 31, 2017 , loans secured by one- to four-family residential property amounting to $2.2 million and $4.4 million , respectively, were in process of foreclosure. Nonaccrual loans of $3.2 million and $3.4 million , respectively, were current as to the payment of principal and interest at June 30, 2018 and December 31, 2017 . There were no significant commitments to lend additional funds to borrowers whose loans were on nonaccrual status at June 30, 2018 . Troubled Debt Restructurings Loans are considered restructured in a troubled debt restructuring when the Corporation has granted concessions, that it otherwise would not have considered, to a borrower experiencing financial difficulties. These concessions may include modifications of the terms of the debt such as deferral of payments, extension of maturity, reduction of principal balance, reduction of the stated interest rate other than normal market rate adjustments, or a combination of these concessions. Debt may be bifurcated with separate terms for each tranche of the restructured debt. Restructuring a loan in lieu of aggressively enforcing the collection of the loan may benefit the Corporation by increasing the ultimate probability of collection. Restructured loans are classified as accruing or non-accruing based on management’s assessment of the collectibility of the loan. Loans that are already on nonaccrual status at the time of the restructuring generally remain on nonaccrual status for approximately 6 months before management considers such loans for return to accruing status. Accruing restructured loans are placed into nonaccrual status if and when the borrower fails to comply with the restructured terms and management deems it unlikely that the borrower will return to a status of compliance in the near term. Troubled debt restructurings are reported as such for at least one year from the date of the restructuring. In years after the restructuring, troubled debt restructured loans are removed from this classification if the restructuring did not involve a below-market rate concession and the loan is not deemed to be impaired based on the terms specified in the restructuring agreement. Troubled debt restructurings are classified as impaired loans. The recorded investment in troubled debt restructurings consists of unpaid principal balance, net of charge-offs and unamortized deferred loan origination fees and costs, at the time of the restructuring. For accruing troubled debt restructured loans, the recorded investment also includes accrued interest. The recorded investment in troubled debt restructurings was $6.6 million and $11.2 million , respectively, at June 30, 2018 and December 31, 2017 . These amounts included insignificant balances of accrued interest. The allowance for loan losses included specific reserves for these troubled debt restructurings of $123 thousand and $1.1 million , respectively, at June 30, 2018 and December 31, 2017 . As of June 30, 2018 , there were no significant commitments to lend additional funds to borrowers whose loans had been restructured. For the three months ended June 30, 2018 , there were no loans modified as a troubled debt restructuring. For the six months ended June 30, 2018 , there was one loan modified as a troubled debt restructuring with a pre-modification and post-modification recorded investment of $608 thousand . This troubled debt restructuring included a combination of concessions pertaining to maturity and interest only payment terms. There were no loans modified as a troubled debt restructuring for the three and six months ended June 30, 2017 . For the three and six months ended June 30, 2018 , there were no payment defaults on troubled debt restructured loans modified within the previous 12 months. For the three and six months ended June 30, 2017 , payment defaults on troubled debt restructured loans modified within the previous 12 months occurred on three loans totaling $1.1 million and four loans totaling $1.9 million , respectively. Credit Quality Indicators Commercial The Corporation utilizes an internal rating system to assign a risk to each of its commercial loans. Loans are rated on a scale of 1 to 10. This scale can be assigned to three broad categories including “pass” for ratings 1 through 6, “special mention” for 7-rated loans, and “classified” for loans rated 8, 9 or 10. The loan rating system takes into consideration parameters including the borrower’s financial condition, the borrower’s performance with respect to loan terms, the adequacy of collateral, the adequacy of guarantees and other credit quality characteristics. The weighted average risk rating of the Corporation’s commercial loan portfolio was 4.73 at June 30, 2018 and 4.70 at December 31, 2017 . For non-impaired loans, the Corporation takes the risk rating into consideration along with other credit attributes in the establishment of an appropriate allowance for loan losses. See Note 6 for additional information. A description of the commercial loan categories is as follows: Pass - Loans with acceptable credit quality, defined as ranging from superior or very strong to a status of lesser stature. Superior or very strong credit quality is characterized by a high degree of cash collateralization or strong balance sheet liquidity. Lesser stature loans have an acceptable level of credit quality but exhibit some weakness in various credit metrics such as collateral adequacy, cash flow, secondary sources of repayment, or performance inconsistency or may be in an industry or of a loan type known to have a higher degree of risk. Special Mention - Loans with potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the Bank’s position as creditor at some future date. Special Mention assets are not adversely classified and do not expose the Bank to sufficient risk to warrant adverse classification. Examples of these conditions include but are not limited to outdated or poor quality financial data, strains on liquidity and leverage, losses or negative trends in operating results, marginal cash flow, weaknesses in occupancy rates or trends in the case of commercial real estate and frequent delinquencies. Classified - Loans identified as “substandard,” “doubtful” or “loss” based on criteria consistent with guidelines provided by banking regulators. A “substandard” loan has defined weaknesses which make payment default or principal exposure likely, but not yet certain. Such loans are apt to be dependent upon collateral liquidation, a secondary source of repayment or an event outside of the normal course of business. The loans are closely watched and are either already on nonaccrual status or may be placed on nonaccrual status when management determines there is uncertainty of collectibility. A “doubtful” loan is placed on nonaccrual status and has a high probability of loss, but the extent of the loss is difficult to quantify due to dependency upon collateral having a value that is difficult to determine or upon some near-term event which lacks certainty. A loan in the “loss” category is considered generally uncollectible or the timing or amount of payments cannot be determined. “Loss” is not intended to imply that the loan has no recovery value, but rather, it is not practical or desirable to continue to carry the asset. The Corporation’s procedures call for loan ratings and classifications to be revised whenever information becomes available that indicates a change is warranted. The criticized loan portfolio, which generally consists of commercial loans that are risk-rated special mention or worse, and other selected loans are reviewed by management on a quarterly basis, focusing on the current status and strategies to improve the credit. An annual loan review program is conducted by a third party to provide an independent evaluation of the creditworthiness of the commercial loan portfolio, the quality of the underwriting and credit risk management practices and the appropriateness of the risk rating classifications. This review is supplemented with selected targeted internal reviews of the commercial loan portfolio. The following table presents the commercial loan portfolio, segregated by category of credit quality indicator: (Dollars in thousands) Pass Special Mention Classified Jun 30, Dec 31, Jun 30, Dec 31, Jun 30, Dec 31, Commercial: Mortgages $1,041,127 $1,067,373 $1,831 $— $— $5,114 Construction & development 175,685 138,008 — — — — Commercial real estate 1,216,812 1,205,381 1,831 — — 5,114 Commercial & industrial 586,941 592,749 35,612 9,804 9,476 9,781 Total commercial $1,803,753 $1,798,130 $37,443 $9,804 $9,476 $14,895 Residential and Consumer The residential and consumer portfolios are monitored on an ongoing basis by the Corporation using delinquency information and loan type as credit quality indicators. These credit quality indicators are assessed on an aggregate basis in these relatively homogeneous portfolios. For non-impaired loans, the Corporation assigns loss allocation factors to each respective loan type. See Note 6 for additional information. Various other techniques are utilized to monitor indicators of credit deterioration in the portfolios of residential real estate loans and consumer loans. Among these techniques is the periodic tracking of loans with an updated FICO score and an estimated loan to value (“LTV”) ratio. LTV ratio is determined via statistical modeling analyses. The indicated LTV levels are estimated based on such factors as the location, the original LTV ratio, and the date of origination of the loan and do not reflect actual appraisal amounts. The results of these analyses and other loan review procedures are taken into consideration in the determination of loss allocation factors for residential mortgage and home equity consumer credits. See Note 6 for additional information. The following table presents the residential and consumer loan portfolios, segregated by category of credit quality indicator: (Dollars in thousands) Current Past Due Jun 30, Dec 31, Jun 30, Dec 31, Residential Real Estate: Self-originated mortgages $1,194,914 $1,091,291 $10,012 $6,413 Purchased mortgages 121,261 128,102 1,231 1,442 Total residential real estate $1,316,175 $1,219,393 $11,243 $7,855 Consumer: Home equity $281,159 $289,326 $2,585 $3,141 Other 28,380 31,484 16 43 Total consumer $309,539 $320,810 $2,601 $3,184 |