Loans | Note 4—Loans Loan Portfolio Composition The table below provides the composition of the loan portfolio at June 30, 2021 and December 31, 2020. The portfolio is comprised of two segments, commercial and consumer loans. The commercial loan segment is disaggregated by industry class which allows the Corporation to monitor risk and performance. Those industries representing the largest dollar investment and most risk are listed separately. The “Other” commercial loans category is comprised of various industries. The consumer related segment is comprised of residential mortgages, home equity and other consumer loans. The Corporation has not engaged in sub-prime residential mortgage originations. June 30, % Total December 31, % Total (dollars in thousands) 2021 Loans 2020 Loans Builder & developer $ 147,377 9.5 $ 147,609 9.6 Commercial real estate investor 278,269 18.0 236,924 15.3 Residential real estate investor 232,352 15.1 238,458 15.4 Hotel/Motel 81,822 5.3 79,421 5.2 Wholesale & retail 86,405 5.6 108,425 7.0 Manufacturing 74,987 4.9 79,142 5.1 Agriculture 93,272 6.0 80,450 5.2 Service 78,597 5.1 76,838 5.0 Other 258,573 16.8 280,616 18.2 Total commercial related loans 1,331,654 86.3 1,327,883 86.0 Residential mortgages 99,558 6.4 95,751 6.2 Home equity 91,617 5.9 96,711 6.3 Other 20,983 1.4 24,244 1.5 Total consumer related loans 212,158 13.7 216,706 14.0 Total loans $ 1,543,812 100.0 $ 1,544,589 100.0 Loan Risk Ratings The Corporation’s internal risk rating system follows regulatory guidance as to risk classifications and definitions. Every approved loan is assigned a risk rating. Generally, risk ratings for commercial related loans are determined by a formal evaluation of risk factors performed by the Corporation’s underwriting staff. For consumer and residential mortgage loans, the bank follows the Uniform Retail Credit Classification guidance. Commercial loans up to $ 500,000 may be scored using a third-party credit scoring software model for risk rating purposes. The loan portfolio is monitored on a continuous basis by loan officers, loan review personnel and senior management. Adjustments of loan risk ratings within the Watch, Criticized and Classified categories are generally performed by the Special Asset Committee, which includes senior management. The Committee, which typically meets at least quarterly, makes changes, as appropriate, to risk ratings when it becomes aware of credit events such as payment delinquency, cessation of a business or project, bankruptcy or death of the borrower, or changes in collateral value. In addition to review by the Committee, existing loans are monitored by the primary loan officer and loan review officer to determine if any changes, upward or downward, in risk ratings are appropriate. Primary loan officers may recommend a change to a risk rating and internal loan review officers may downgrade existing loans, except to non-accrual status. Only the Committee, Executive Chairman or President/CEO may downgrade a loan to non-accrual status or upgrade a loan that is criticized or classified. The Corporation uses ten risk ratings to grade commercial loans. The first seven ratings are considered “pass” ratings. A pass rating is a satisfactory credit rating, which applies to a loan that is expected to perform in accordance with the loan agreement and has a low probability of loss. A loan rated “special mention” has a potential weakness which may, if not corrected, weaken the loan or inadequately protect the Corporation’s position at some future date. A loan rated “substandard” is inadequately protected by the current sound worth or paying capacity of the obligor, or of the collateral pledged. A “substandard” loan has a well-defined weakness or weaknesses that could jeopardize liquidation of the loan, which exposes the Corporation to potential loss if the deficiencies are not corrected. When circumstances indicate that collection of the loan is doubtful, the loan is risk-rated “nonaccrual,” the accrual of interest income is discontinued, and any unpaid interest previously credited to income is reversed. The table below does not include the regulatory classification of “doubtful,” nor does it include the regulatory classification of “loss”, because the Corporation promptly charges off loan losses. The table below presents a summary of loan risk ratings by loan class at June 30, 2021 and December 31, 2020. Special (dollars in thousands) Pass Mention Substandard Nonaccrual Total June 30, 2021 Builder & developer $ 136,225 $ 7,177 $ 3,152 $ 823 $ 147,377 Commercial real estate investor 271,441 5,592 1,050 186 278,269 Residential real estate investor 225,356 3,321 688 2,987 232,352 Hotel/Motel 50,126 531 18,377 12,788 81,822 Wholesale & retail 83,136 2,050 1,219 0 86,405 Manufacturing 67,173 0 55 7,759 74,987 Agriculture 85,554 2,276 394 5,048 93,272 Service 72,099 658 4,869 971 78,597 Other 235,133 1,458 13,274 8,708 258,573 Total commercial related loans 1,226,243 23,063 43,078 39,270 1,331,654 Residential mortgage 99,547 0 11 0 99,558 Home equity 91,023 48 0 546 91,617 Other 20,809 0 0 174 20,983 Total consumer related loans 211,379 48 11 720 212,158 Total loans $ 1,437,622 $ 23,111 $ 43,089 $ 39,990 $ 1,543,812 December 31, 2020 Builder & developer $ 133,804 $ 11,305 $ 2,121 $ 379 $ 147,609 Commercial real estate investor 230,113 6,379 231 201 236,924 Residential real estate investor 234,316 1,215 130 2,797 238,458 Hotel/Motel 48,264 542 18,143 12,472 79,421 Wholesale & retail 99,821 8,591 13 0 108,425 Manufacturing 67,968 0 3,610 7,564 79,142 Agriculture 72,829 416 3,776 3,429 80,450 Service 75,618 249 0 971 76,838 Other 256,040 1,481 13,804 9,291 280,616 Total commercial related loans 1,218,773 30,178 41,828 37,104 1,327,883 Residential mortgage 95,466 123 11 151 95,751 Home equity 96,026 55 0 630 96,711 Other 23,954 0 0 290 24,244 Total consumer related loans 215,446 178 11 1,071 216,706 Total loans $ 1,434,219 $ 30,356 $ 41,839 $ 38,175 $ 1,544,589 Impaired Loans The table below presents a summary of impaired loans at June 30, 2021 and December 31, 2020. Generally, impaired loans are all loans risk rated nonaccrual or classified troubled debt restructuring. An allowance is established for those individual loans that are commercial related where the Corporation has doubt as to the full recovery of the outstanding principal balance. Typically, impaired consumer related loans are partially or fully charged-off eliminating the need for specific allowance. The recorded investment represents outstanding unpaid principal loan balances adjusted for payments collected on a non-cash basis and charge-offs. With No Allowance With A Related Allowance Total Recorded Unpaid Recorded Unpaid Related Recorded Unpaid (dollars in thousands) Investment Principal Investment Principal Allowance Investment Principal June 30, 2021 Builder & developer $ 1,013 $ 1,256 $ 0 $ 0 $ 0 $ 1,013 $ 1,256 Commercial real estate investor 1,053 1,065 0 0 0 1,053 1,065 Residential real estate investor 2,590 2,745 397 397 210 2,987 3,142 Hotel/Motel 12,788 12,792 0 0 0 12,788 12,792 Wholesale & retail 0 0 0 0 0 0 0 Manufacturing 7,759 7,946 0 0 0 7,759 7,946 Agriculture 3,924 4,108 1,124 1,219 544 5,048 5,327 Service 971 1,061 0 0 0 971 1,061 Other commercial 4,278 4,483 4,431 4,884 3,090 8,709 9,367 Total impaired commercial related loans 34,376 35,456 5,952 6,500 3,844 40,328 41,956 Residential mortgage 0 0 0 0 0 0 0 Home equity 546 582 0 0 0 546 582 Other consumer 174 191 0 0 0 174 191 Total impaired consumer related loans 720 773 0 0 0 720 773 Total impaired loans $ 35,096 $ 36,229 $ 5,952 $ 6,500 $ 3,844 $ 41,048 $ 42,729 December 31, 2020 Builder & developer $ 575 $ 790 $ 0 $ 0 $ 0 $ 575 $ 790 Commercial real estate investor 1,163 1,170 0 0 0 1,163 1,170 Residential real estate investor 581 862 2,216 2,216 216 2,797 3,078 Hotel/Motel 12,472 12,472 0 0 0 12,472 12,472 Wholesale & retail 237 237 0 0 0 237 237 Manufacturing 7,564 7,564 0 0 0 7,564 7,564 Agriculture 2,270 2,382 1,159 1,217 615 3,429 3,599 Service 971 1,061 0 0 0 971 1,061 Other commercial 5,739 5,954 3,552 3,888 2,481 9,291 9,842 Total impaired commercial related loans 31,572 32,492 6,927 7,321 3,312 38,499 39,813 Residential mortgage 151 151 0 0 0 151 151 Home equity 630 653 0 0 0 630 653 Other consumer 290 301 0 0 0 290 301 Total impaired consumer related loans 1,071 1,105 0 0 0 1,071 1,105 Total impaired loans $ 32,643 $ 33,597 $ 6,927 $ 7,321 $ 3,312 $ 39,570 $ 40,918 The table below presents a summary of average impaired loans and related interest income that was included in net income for the three and six months ended June 30, 2021 and 2020. Interest income on loans with no related allowance is the result of interest collected on a cash basis, except accruing TDRs. With No Related Allowance With A Related Allowance Total Average Total Average Total Average Total Recorded Interest Recorded Interest Recorded Interest (dollars in thousands) Investment Income Investment Income Investment Income Three months ended June 30, 2021 Builder & developer $ 1,014 $ 0 $ 0 $ 0 $ 1,014 $ 0 Commercial real estate investor 1,080 12 0 0 1,080 12 Residential real estate investor 1,623 58 1,306 0 2,929 58 Hotel/Motel 12,620 0 0 0 12,620 0 Wholesale & retail 118 13 0 0 118 13 Manufacturing 7,749 0 0 0 7,749 0 Agriculture 2,974 0 1,101 0 4,075 0 Service 971 0 0 0 971 0 Other commercial 4,914 16 4,291 0 9,205 16 Total impaired commercial related loans 33,063 99 6,698 0 39,761 99 Residential mortgage 0 0 0 0 0 0 Home equity 601 0 0 0 601 0 Other consumer 216 4 0 0 216 4 Total impaired consumer related loans 817 4 0 0 817 4 Total impaired loans $ 33,880 $ 103 $ 6,698 $ 0 $ 40,578 $ 103 Three months ended June 30, 2020 Builder & developer $ 942 $ 10 $ 141 $ 0 $ 1,083 $ 10 Commercial real estate investor 1,297 18 0 0 1,297 18 Residential real estate investor 929 16 4,984 0 5,913 16 Hotel/Motel 0 0 0 0 0 0 Wholesale & retail 256 1 3,535 0 3,791 1 Manufacturing 6 0 512 0 518 0 Agriculture 2,386 40 1,094 0 3,480 40 Service 1,302 1 0 0 1,302 1 Other commercial 3,074 20 3,629 0 6,703 20 Total impaired commercial related loans 10,192 106 13,895 0 24,087 106 Residential mortgage 153 0 0 0 153 0 Home equity 660 16 0 0 660 16 Other consumer 218 4 0 0 218 4 Total impaired consumer related loans 1,031 20 0 0 1,031 20 Total impaired loans $ 11,223 $ 126 $ 13,895 $ 0 $ 25,118 $ 126 With No Related Allowance With A Related Allowance Total Average Total Average Total Average Total Recorded Interest Recorded Interest Recorded Interest (dollars in thousands) Investment Income Investment Income Investment Income Six months ended June 30, 2021 Builder & developer $ 868 $ 0 0 $ 0 $ 868 $ 0 Commercial real estate investor 1,108 23 0 0 1,108 23 Residential real estate investor 1,275 58 1,610 0 2,885 58 Hotel/Motel 12,570 0 0 0 12,570 0 Wholesale & retail 158 14 0 0 158 14 Manufacturing 7,687 0 0 0 7,687 0 Agriculture 2,739 37 1,120 0 3,859 37 Service 971 0 0 0 971 0 Other commercial 5,513 26 4,045 0 9,558 26 Total impaired commercial related loans 32,889 158 6,775 0 39,664 158 Residential mortgage 51 0 0 0 51 0 Home equity 610 0 0 0 610 0 Other consumer 240 7 0 0 240 7 Total impaired consumer related loans 901 7 0 0 901 7 Total impaired loans $ 33,790 $ 165 6,775 $ 0 $ 40,565 $ 165 Six months ended June 30, 2020 Builder & developer $ 835 $ 22 $ 252 $ 0 $ 1,087 $ 22 Commercial real estate investor 1,322 40 0 0 1,322 40 Residential real estate investor 864 22 5,002 0 5,866 22 Hotel/Motel 0 0 0 0 0 0 Wholesale & retail 261 3 4,751 0 5,012 3 Manufacturing 8 3 716 0 724 3 Agriculture 2,185 59 1,082 0 3,267 59 Service 900 3 0 0 900 3 Other commercial 2,639 49 3,631 0 6,270 49 Total impaired commercial related loans 9,014 201 15,434 0 24,448 201 Residential mortgage 194 3 0 0 194 3 Home equity 666 37 0 0 666 37 Other consumer 220 7 0 0 220 7 Total impaired consumer related loans 1,080 47 0 0 1,080 47 Total impaired loans $ 10,094 $ 248 $ 15,434 $ 0 $ 25,528 $ 248 Past Due and Nonaccrual The performance and credit quality of the loan portfolio is also monitored by using an aging schedule that shows the length of time a loan is past due. The table below presents a summary of past due loans, nonaccrual loans and current loans by loan segment and class at June 30, 2021 and December 31, 2020. ≥ 90 Days 30-59 60-89 Past Due Total Past Days Days and Due and Total (dollars in thousands) Past Due Past Due Accruing Nonaccrual Nonaccrual Current Loans June 30, 2021 Builder & developer $ 0 $ 0 $ 0 $ 823 $ 823 $ 146,554 $ 147,377 Commercial real estate investor 82 0 0 186 268 278,001 278,269 Residential real estate investor 0 0 0 2,987 2,987 229,365 232,352 Hotel/Motel 0 0 0 12,788 12,788 69,034 81,822 Wholesale & retail 139 0 0 0 139 86,266 86,405 Manufacturing 0 0 0 7,759 7,759 67,228 74,987 Agriculture 0 0 0 5,048 5,048 88,224 93,272 Service 0 0 0 971 971 77,626 78,597 Other 0 0 0 8,708 8,708 249,865 258,573 Total commercial related loans 221 0 0 39,270 39,491 1,292,163 1,331,654 Residential mortgage 0 67 0 0 67 99,491 99,558 Home equity 0 130 0 546 676 90,941 91,617 Other 498 580 0 174 1,252 19,731 20,983 Total consumer related loans 498 777 0 720 1,995 210,163 212,158 Total loans $ 719 $ 777 $ 0 $ 39,990 $ 41,486 $ 1,502,326 $ 1,543,812 December 31, 2020 Builder & developer $ 427 $ 489 $ 322 $ 379 $ 1,617 $ 145,992 $ 147,609 Commercial real estate investor 0 0 0 201 201 236,723 236,924 Residential real estate investor 136 0 0 2,797 2,933 235,525 238,458 Hotel/Motel 0 0 0 12,472 12,472 66,949 79,421 Wholesale & retail 29 0 0 0 29 108,396 108,425 Manufacturing 0 0 0 7,564 7,564 71,578 79,142 Agriculture 0 0 0 3,429 3,429 77,021 80,450 Service 0 709 0 971 1,680 75,158 76,838 Other 679 887 0 9,291 10,857 269,759 280,616 Total commercial related loans 1,271 2,085 322 37,104 40,782 1,287,101 1,327,883 Residential mortgage 0 0 937 151 1,088 94,663 95,751 Home equity 206 177 36 630 1,049 95,662 96,711 Other 717 321 0 290 1,328 22,916 24,244 Total consumer related loans 923 498 973 1,071 3,465 213,241 216,706 Total loans $ 2,194 $ 2,583 $ 1,295 $ 38,175 $ 44,247 $ 1,500,342 $ 1,544,589 Troubled Debt Restructurings Loans classified as troubled debt restructurings (TDRs) are designated impaired and arise when the Corporation grants borrowers experiencing financial difficulties concessions that it would not otherwise consider. Concessions granted with respect to these loans involve an extension of the maturity date or a below market interest rate relative to new debt with similar credit risk. The principal balance of outstanding TDRs was $ 1,058,000 at June 30, 2021 and $ 1,395,000 at December 31, 2020. There were no allowances allocated to any TDRs at June 30, 2021 or December 31, 2020. There are no commitments to lend to existing TDRs. A TDR is considered to be in payment default once it is contractually past due pursuant to the terms of the loan documents. Generally, these loans are secured by real estate. If repayment of the loan is determined to be collateral dependent, the loan is evaluated for impairment loss based on the fair value of the collateral. For loans that are not collateral dependent, the present value of expected future cash flows, discounted at the loan’s original effective interest rate, is used to determine any impairment loss. A nonaccrual TDR represents a nonaccrual loan, as previously defined, which includes an economic concession. Nonaccrual TDRs are restored to accrual status if principal and interest payments, under the modified terms, are current for six consecutive payments after the modification and future principal and interest payments are reasonably assured. In contrast, an accruing TDR represents a loan that, at the time of the modification, has a demonstrated history of payments and with respect to which management believes that future loan payments are reasonably assured under the modified terms. As of June 30, 2021, there are no modifications for consumer loans, four mortgage loans totaling approximately $ 1,422,000 and 16 commercial loans totaling approximately $ 67,734,000 under the CARES Act, which are not considered TDRs. There were no loans whose terms have been modified under TDRs during the three and six months ended June 30, 2021 and 2020. There were no defaults for the three and six months ended June 30, 2021 and June 30, 2020 for TDRs entered into during the previous 12 month period. |