Loans | Loans The following is a summary of loans: (Dollars in thousands) September 30, 2018 December 31, 2017 Amount % Amount % Commercial: Commercial real estate (1) $1,240,350 35 % $1,210,495 36 % Commercial & industrial (2) 656,882 18 612,334 18 Total commercial 1,897,232 53 1,822,829 54 Residential Real Estate: Residential real estate (3) 1,349,340 38 1,227,248 36 Consumer: Home equity 282,331 8 292,467 9 Other (4) 27,300 1 31,527 1 Total consumer 309,631 9 323,994 10 Total loans (5) $3,556,203 100 % $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 $4.8 million and $3.8 million , respectively, at September 30, 2018 and December 31, 2017 and net unamortized premiums on purchased loans of $746 thousand and $878 thousand , respectively, at September 30, 2018 and December 31, 2017 . As of September 30, 2018 and December 31, 2017 , there were $1.9 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 September 30, 2018 30-59 60-89 Over 90 Total Past Due Current Total Loans Commercial: Commercial real estate $— $931 $— $931 $1,239,419 $1,240,350 Commercial & industrial — 20 122 142 656,740 656,882 Total commercial — 951 122 1,073 1,896,159 1,897,232 Residential Real Estate: Residential real estate 5,322 2,936 1,140 9,398 1,339,942 1,349,340 Consumer: Home equity 1,854 534 551 2,939 279,392 282,331 Other 109 — — 109 27,191 27,300 Total consumer 1,963 534 551 3,048 306,583 309,631 Total loans $7,285 $4,421 $1,813 $13,519 $3,542,684 $3,556,203 (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 September 30, 2018 and December 31, 2017 , were nonaccrual loans of $6.4 million and $11.8 million , respectively. All loans 90 days or more past due at September 30, 2018 and December 31, 2017 were classified as nonaccrual. Impaired Loans Impaired loans include nonaccrual loans and 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 Sep 30, Dec 31, Sep 30, Dec 31, Sep 30, Dec 31, No Related Allowance Recorded Commercial: Commercial real estate $— $— $— $— $— $— Commercial & industrial 4,825 4,986 4,877 5,081 — — Total commercial 4,825 4,986 4,877 5,081 — — Residential Real Estate: Residential real estate 8,737 9,069 8,896 9,256 — — Consumer: Home equity 1,582 557 1,583 557 — — Other — 14 — 14 — — Total consumer 1,582 571 1,583 571 — — Subtotal 15,144 14,626 15,356 14,908 — — With Related Allowance Recorded Commercial: Commercial real estate $— $4,954 $— $9,910 $— $1,018 Commercial & industrial 54 191 75 212 — 1 Total commercial 54 5,145 75 10,122 — 1,019 Residential Real Estate: Residential real estate 692 715 722 741 101 104 Consumer: Home equity 52 — 51 — 8 — Other 23 133 23 132 3 6 Total consumer 75 133 74 132 11 6 Subtotal 821 5,993 871 10,995 112 1,129 Total impaired loans $15,965 $20,619 $16,227 $25,903 $112 $1,129 Total: Commercial $4,879 $10,131 $4,952 $15,203 $— $1,019 Residential real estate 9,429 9,784 9,618 9,997 101 104 Consumer 1,657 704 1,657 703 11 6 Total impaired loans $15,965 $20,619 $16,227 $25,903 $112 $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 September 30, 2018 2017 2018 2017 Commercial: Commercial real estate $— $8,041 $— $21 Commercial & industrial 5,324 6,427 62 67 Total commercial 5,324 14,468 62 88 Residential Real Estate: Residential real estate 9,265 15,107 96 102 Consumer: Home equity 1,424 543 22 5 Other 25 142 — 2 Total consumer 1,449 685 22 7 Totals $16,038 $30,260 $180 $197 (Dollars in thousands) Average Recorded Investment Interest Income Recognized Nine months ended September 30, 2018 2017 2018 2017 Commercial: Commercial real estate $1,352 $9,117 $— $73 Commercial & industrial 5,599 6,750 201 219 Total commercial 6,951 15,867 201 292 Residential Real Estate: Residential real estate 9,709 15,750 293 374 Consumer: Home equity 1,045 734 41 25 Other 85 142 5 8 Total consumer 1,130 876 46 33 Totals $17,790 $32,493 $540 $699 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) Sep 30, Dec 31, Commercial: Commercial real estate $— $4,954 Commercial & industrial 122 283 Total commercial 122 5,237 Residential Real Estate: Residential real estate 9,063 9,414 Consumer: Home equity 1,624 544 Other — 16 Total consumer 1,624 560 Total nonaccrual loans $10,809 $15,211 Accruing loans 90 days or more past due $— $— As of September 30, 2018 and December 31, 2017 , loans secured by one- to four-family residential property amounting to $816 thousand and $4.4 million , respectively, were in process of foreclosure. Nonaccrual loans of $4.4 million and $3.4 million , respectively, were current as to the payment of principal and interest at September 30, 2018 and December 31, 2017 . There were no significant commitments to lend additional funds to borrowers whose loans were on nonaccrual status at September 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. 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 $5.7 million and $11.2 million , respectively, at September 30, 2018 and December 31, 2017 . The allowance for loan losses included specific reserves for these troubled debt restructurings of $104 thousand and $1.1 million , respectively, at September 30, 2018 and December 31, 2017 . As of September 30, 2018 , there were no significant commitments to lend additional funds to borrowers whose loans had been restructured. For the three months ended September 30, 2018 , there were no loans modified as a troubled debt restructuring. For the nine months ended September 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 nine months ended September 30, 2017 . For both the three and nine months ended September 30, 2018 , payment defaults on troubled debt restructured loans modified within the previous 12 months occurred on one loan with a carrying value of $608 thousand at the time of default. For the three months ended September 30, 2017 , there were no payment defaults on troubled debt restructured loans modified within the previous 12 months. For the nine months ended September 30, 2017 , payment defaults on troubled debt restructured loans modified within the previous 12 months occurred on two loans with a total carrying value of $1.6 million at the time of default. 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 4.74 at September 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. On a quarterly basis, management reviews the criticized loan portfolio, which generally consists of commercial loans that are risk-rated special mention or worse, and other selected loans. Management’s review focuses on the current status of the loans 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 Sep 30, Dec 31, Sep 30, Dec 31, Sep 30, Dec 31, Commercial: Commercial real estate 1,235,579 1,205,381 1,065 — 3,706 5,114 Commercial & industrial 593,673 592,749 55,012 9,804 8,197 9,781 Total commercial $1,829,252 $1,798,130 $56,077 $9,804 $11,903 $14,895 Residential and Consumer Management monitors the relatively homogeneous residential real estate and consumer loan portfolios on an ongoing basis using delinquency information by loan type. For non-impaired residential real estate and consumer loans, the Corporation assigns loss allocation factors to each respective loan type. See Note 6 for additional information. Other techniques are utilized to monitor indicators of credit deterioration in the residential real estate loans and consumer loan portfolios. 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 loan type and credit quality indicator: (Dollars in thousands) Current Past Due Sep 30, Dec 31, Sep 30, Dec 31, Residential Real Estate: Self-originated mortgages $1,224,575 $1,091,291 $8,172 $6,413 Purchased mortgages 115,367 128,102 1,226 1,442 Total residential real estate $1,339,942 $1,219,393 $9,398 $7,855 Consumer: Home equity $279,392 $289,326 $2,939 $3,141 Other 27,191 31,484 109 43 Total consumer $306,583 $320,810 $3,048 $3,184 |