Loans | Loans The following is a summary of loans: (Dollars in thousands) September 30, December 31, 2018 Commercial: Commercial real estate (1) $1,517,320 $1,392,408 Commercial & industrial (2) 566,426 620,704 Total commercial 2,083,746 2,013,112 Residential Real Estate: Residential real estate (3) 1,378,518 1,360,387 Consumer: Home equity 294,250 280,626 Other (4) 21,592 26,235 Total consumer 315,842 306,861 Total loans (5) $3,778,106 $3,680,360 (1) Consists 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) Consists of loans to businesses and individuals, a substantial portion of which are fully or partially collateralized by real estate. (3) Consists of mortgage and homeowner construction loans secured by one- to four-family residential properties. (4) Consists of loans to individuals secured by general aviation aircraft and other personal installment loans. (5) Includes net unamortized loan origination costs of $5.7 million and $4.7 million , respectively, at September 30, 2019 and December 31, 2018 and net unamortized premiums on purchased loans of $575 thousand and $703 thousand , respectively, at September 30, 2019 and December 31, 2018 . As of both September 30, 2019 and December 31, 2018 , loans amounting to $2.0 billion were 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, 2019 30-59 60-89 Over 90 Total Past Due Current Total Loans Commercial: Commercial real estate $— $— $684 $684 $1,516,636 $1,517,320 Commercial & industrial 1 — — 1 566,425 566,426 Total commercial 1 — 684 685 2,083,061 2,083,746 Residential Real Estate: Residential real estate 4,333 2,506 4,760 11,599 1,366,919 1,378,518 Consumer: Home equity 744 417 812 1,973 292,277 294,250 Other 11 — 88 99 21,493 21,592 Total consumer 755 417 900 2,072 313,770 315,842 Total loans $5,089 $2,923 $6,344 $14,356 $3,763,750 $3,778,106 (Dollars in thousands) Days Past Due December 31, 2018 30-59 60-89 Over 90 Total Past Due Current Total Loans Commercial: Commercial real estate $155 $925 $— $1,080 $1,391,328 $1,392,408 Commercial & industrial — — — — 620,704 620,704 Total commercial 155 925 — 1,080 2,012,032 2,013,112 Residential Real Estate: Residential real estate 6,318 2,693 1,509 10,520 1,349,867 1,360,387 Consumer: Home equity 1,281 156 552 1,989 278,637 280,626 Other 33 — — 33 26,202 26,235 Total consumer 1,314 156 552 2,022 304,839 306,861 Total loans $7,787 $3,774 $2,061 $13,622 $3,666,738 $3,680,360 Included in past due loans as of September 30, 2019 and December 31, 2018 , were nonaccrual loans of $9.8 million and $8.6 million , respectively. All loans 90 days or more past due at September 30, 2019 and December 31, 2018 were classified as nonaccrual. Impaired Loans A loan is considered impaired when, based on current information and events, it is probable that the Corporation will not be able to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. 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 $684 $925 $926 $926 $— $— Commercial & industrial — 4,681 — 4,732 — — Total commercial 684 5,606 926 5,658 — — Residential Real Estate: Residential real estate 12,531 9,347 13,368 9,695 — — Consumer: Home equity 1,379 1,360 1,379 1,360 — — Other 88 — 88 — — — Total consumer 1,467 1,360 1,467 1,360 — — Subtotal 14,682 16,313 15,761 16,713 — — With Related Allowance Recorded Commercial: Commercial real estate $— $— $— $— $— $— Commercial & industrial — 52 — 73 — — Total commercial — 52 — 73 — — Residential Real Estate: Residential real estate 360 364 386 390 96 100 Consumer: Home equity 220 85 220 85 220 24 Other 19 22 19 22 5 3 Total consumer 239 107 239 107 225 27 Subtotal 599 523 625 570 321 127 Total impaired loans $15,281 $16,836 $16,386 $17,283 $321 $127 Total: Commercial $684 $5,658 $926 $5,731 $— $— Residential real estate 12,891 9,711 13,754 10,085 96 100 Consumer 1,706 1,467 1,706 1,467 225 27 Total impaired loans $15,281 $16,836 $16,386 $17,283 $321 $127 (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, 2019 2018 2019 2018 Commercial: Commercial real estate $886 $— $— $— Commercial & industrial — 5,324 — 62 Total commercial 886 5,324 — 62 Residential Real Estate: Residential real estate 12,017 9,265 109 96 Consumer: Home equity 1,414 1,424 16 22 Other 108 25 3 — Total consumer 1,522 1,449 19 22 Totals $14,425 $16,038 $128 $180 (Dollars in thousands) Average Recorded Investment Interest Income Recognized Nine months ended September 30, 2019 2018 2019 2018 Commercial: Commercial real estate $929 $1,352 $1 $— Commercial & industrial 2,835 5,599 103 201 Total commercial 3,764 6,951 104 201 Residential Real Estate: Residential real estate 10,972 9,709 331 293 Consumer: Home equity 1,409 1,045 43 41 Other 55 85 2 5 Total consumer 1,464 1,130 45 46 Totals $16,200 $17,790 $480 $540 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 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 for a period of time, 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 $684 $925 Commercial & industrial — — Total commercial 684 925 Residential Real Estate: Residential real estate 12,531 9,346 Consumer: Home equity 1,599 1,436 Other 88 — Total consumer 1,687 1,436 Total nonaccrual loans $14,902 $11,707 Accruing loans 90 days or more past due $— $— As of September 30, 2019 and December 31, 2018 , loans secured by one- to four-family residential property amounting to $5.9 million and $761 thousand , respectively, were in process of foreclosure. Nonaccrual loans of $5.1 million and $3.1 million , respectively, were current as to the payment of principal and interest at September 30, 2019 and December 31, 2018 . There were no significant commitments to lend additional funds to borrowers whose loans were on nonaccrual status at September 30, 2019 . Troubled Debt Restructurings Loans are considered to be troubled debt restructurings when the Corporation has granted concessions to a borrower due to the borrower’s financial condition that it otherwise would not have considered. 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 of 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 collectability of the loan. Loans which are already on nonaccrual status at the time of the restructuring generally remain on nonaccrual status for approximately six 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 $876 thousand and $5.6 million , respectively, at September 30, 2019 and December 31, 2018 . The allowance for loan losses included specific reserves for these troubled debt restructurings of $101 thousand and $103 thousand , respectively, at September 30, 2019 and December 31, 2018 . For the three and nine months ended September 30, 2019 , there were no loans modified as a troubled debt restructuring. 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. For the three and nine months ended September 30, 2019 there were no payment defaults on troubled debt restructured loans modified within the previous 12 months. For 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. As of September 30, 2019 , there were no significant commitments to lend additional funds to borrowers whose loans had been restructured. 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. 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 collectability. 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 $1,498,212 $1,387,666 $18,224 $205 $884 $4,537 Commercial & industrial 529,219 559,019 25,679 50,426 11,528 11,259 Total commercial $2,027,431 $1,946,685 $43,903 $50,631 $12,412 $15,796 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. 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 Fair Isaac Corporation (“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 real estate and home equity consumer credits. 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 $1,261,364 $1,238,402 $10,503 $9,079 Purchased mortgages 105,555 111,465 1,096 1,441 Total residential real estate $1,366,919 $1,349,867 $11,599 $10,520 Consumer: Home equity $292,277 $278,637 $1,973 $1,989 Other 21,493 26,202 99 33 Total consumer $313,770 $304,839 $2,072 $2,022 |