Loans | Note 4—Loans Loan Portfolio Composition The table below provides the composition of the loan portfolio at March 31, 2022 and December 31, 2021. 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. March 31, % Total December 31, % Total (dollars in thousands) 2022 Loans 2021 Loans Builder & developer $ 155,832 10.2 $ 156,462 10.2 Commercial real estate investor 330,601 21.6 322,887 21.1 Residential real estate investor 229,760 15.0 227,017 14.8 Hotel/Motel 70,010 4.6 70,254 4.6 Wholesale & retail 76,122 5.0 76,340 5.0 Manufacturing 84,424 5.5 72,720 4.8 Agriculture 96,365 6.3 95,317 6.2 Service 70,384 4.6 65,163 4.3 Other 192,428 12.6 222,179 14.5 Total commercial related loans 1,305,926 85.4 1,308,339 85.5 Residential mortgages 106,302 7.0 103,741 6.8 Home equity 93,859 6.1 94,842 6.2 Other 22,409 1.5 22,829 1.5 Total consumer related loans 222,570 14.6 221,412 14.5 Total loans $ 1,528,496 100.0 $ 1,529,751 100.0 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 Watch and Special Asset Committees, which includes senior management. The Committees, which typically meet at least quarterly, make changes, as appropriate, to these risk ratings. In addition to review by the Committees, 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 President/CEO or CFO may approve a downgrade of a loan to non-accrual status. The Special Asset Committee or President/CEO may upgrade a loan that is criticized or classified. The Corporation uses eleven risk ratings to grade commercial loans. The first six 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 March 31, 2022 and December 31, 2021. Special (dollars in thousands) Pass Mention Substandard Nonaccrual Total March 31, 2022 Builder & developer $ 143,088 $ 5,716 $ 6,222 $ 806 $ 155,832 Commercial real estate investor 325,943 920 1,029 2,709 330,601 Residential real estate investor 228,262 941 394 163 229,760 Hotel/Motel 53,058 0 4,877 12,075 70,010 Wholesale & retail 73,691 335 2,096 0 76,122 Manufacturing 75,112 0 4,573 4,739 84,424 Agriculture 78,018 15,225 712 2,410 96,365 Service 62,991 400 6,022 971 70,384 Other 172,909 1,346 13,537 4,636 192,428 Total commercial related loans 1,213,072 24,883 39,462 28,509 1,305,926 Residential mortgage 104,350 0 772 1,180 106,302 Home equity 93,400 0 0 459 93,859 Other 22,318 0 0 91 22,409 Total consumer related loans 220,068 0 772 1,730 222,570 Total loans $ 1,433,140 $ 24,883 $ 40,234 $ 30,239 $ 1,528,496 December 31, 2021 Builder & developer $ 142,983 $ 6,016 $ 6,656 $ 807 $ 156,462 Commercial real estate investor 316,976 929 1,039 3,943 322,887 Residential real estate investor 226,126 0 611 280 227,017 Hotel/Motel 40,789 0 17,273 12,192 70,254 Wholesale & retail 73,821 1,346 1,173 0 76,340 Manufacturing 67,544 0 51 5,125 72,720 Agriculture 90,226 80 714 4,297 95,317 Service 57,667 404 6,121 971 65,163 Other 201,226 1,384 14,197 5,372 222,179 Total commercial related loans 1,217,358 10,159 47,835 32,987 1,308,339 Residential mortgage 103,669 0 10 62 103,741 Home equity 94,358 47 0 437 94,842 Other 22,733 0 0 96 22,829 Total consumer related loans 220,760 47 10 595 221,412 Total loans $ 1,438,118 $ 10,206 $ 47,845 $ 33,582 $ 1,529,751 Impaired Loans The table below presents a summary of impaired loans at March 31, 2022 and December 31, 2021. Generally, impaired loans are all loans risk rated nonaccrual or classified troubled debt restructuring. An allowance is established for those individual loans 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 March 31, 2022 Builder & developer $ 988 $ 1,075 $ 0 $ 0 $ 0 $ 988 $ 1,075 Commercial real estate investor 3,428 4,678 0 0 0 3,428 4,678 Residential real estate investor 163 321 0 0 0 163 321 Hotel/Motel 12,075 12,734 0 0 0 12,075 12,734 Wholesale & retail 0 0 0 0 0 0 0 Manufacturing 4,739 5,159 0 0 0 4,739 5,159 Agriculture 2,410 2,834 0 0 0 2,410 2,834 Service 0 0 971 1,061 377 971 1,061 Other commercial 361 413 4,275 5,095 2,618 4,636 5,508 Total impaired commercial related loans 24,164 27,214 5,246 6,156 2,995 29,410 33,370 Residential mortgage 62 63 1,118 1,118 166 1,180 1,181 Home equity 459 520 0 0 0 459 520 Other consumer 91 101 0 0 0 91 101 Total impaired consumer related loans 612 684 1,118 1,118 166 1,730 1,802 Total impaired loans $ 24,776 $ 27,898 $ 6,364 $ 7,274 $ 3,161 $ 31,140 $ 35,172 December 31, 2021 Builder & developer $ 991 $ 1,078 $ 0 $ 0 $ 0 $ 991 $ 1,078 Commercial real estate investor 2,834 2,854 1,878 1,878 1,464 4,712 4,732 Residential real estate investor 280 438 0 0 0 280 438 Hotel/Motel 12,192 12,754 0 0 0 12,192 12,754 Wholesale & retail 0 0 0 0 0 0 0 Manufacturing 5,125 5,501 0 0 0 5,125 5,501 Agriculture 2,709 2,893 1,588 1,784 467 4,297 4,677 Service 0 0 971 1,061 377 971 1,061 Other commercial 3,622 4,376 1,750 2,389 1,750 5,372 6,765 Total impaired commercial related loans 27,753 29,894 6,187 7,112 4,058 33,940 37,006 Residential mortgage 62 64 0 0 0 62 64 Home equity 437 474 0 0 0 437 474 Other consumer 96 104 0 0 0 96 104 Total impaired consumer related loans 595 642 0 0 0 595 642 Total impaired loans $ 28,348 $ 30,536 $ 6,187 $ 7,112 $ 4,058 $ 34,535 $ 37,648 The table below presents a summary of average impaired loans and related interest income that was included in net income for the three months ended March 31, 2022 and 2021. 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 March 31, 2022 Builder & developer $ 990 $ 0 $ 0 $ 0 $ 990 $ 0 Commercial real estate investor 3,131 0 939 0 4,070 0 Residential real estate investor 221 23 0 0 221 23 Hotel/Motel 12,134 0 0 0 12,134 0 Wholesale & retail 0 0 0 0 0 0 Manufacturing 4,932 21 0 0 4,932 21 Agriculture 2,559 186 794 0 3,353 186 Service 0 0 971 0 971 0 Other commercial 1,992 115 3,012 0 5,004 115 Total impaired commercial related loans 25,959 345 5,716 0 31,675 345 Residential mortgage 63 0 559 0 622 0 Home equity 448 0 0 0 448 0 Other consumer 93 0 0 0 93 0 Total impaired consumer related loans 604 0 559 0 1,163 0 Total impaired loans $ 26,563 $ 345 $ 6,275 $ 0 $ 32,838 $ 345 Three months ended March 31, 2021 Builder & developer $ 796 $ 0 $ 0 $ 0 $ 796 $ 0 Commercial real estate investor 1,136 11 0 0 1,136 11 Residential real estate investor 618 0 2,216 0 2,834 0 Hotel/Motel 12,461 0 0 0 12,461 0 Wholesale & retail 236 1 0 0 236 1 Manufacturing 7,651 0 0 0 7,651 0 Agriculture 2,147 37 1,119 0 3,266 37 Service 971 0 0 0 971 0 Other commercial 6,130 0 3,851 0 9,981 0 Total impaired commercial related loans 32,146 49 7,186 0 39,332 49 Residential mortgage 76 0 0 0 76 0 Home equity 643 0 0 0 643 0 Other consumer 274 3 0 0 274 3 Total impaired consumer related loans 993 3 0 0 993 3 Total impaired loans $ 33,139 $ 52 $ 7,186 $ 0 $ 40,325 $ 52 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 March 31, 2022 and December 31, 2021. ≥ 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 March 31, 2022 Builder & developer $ 0 $ 0 $ 0 $ 806 $ 806 $ 155,026 $ 155,832 Commercial real estate investor 0 0 0 2,709 2,709 327,892 330,601 Residential real estate investor 157 0 0 163 320 229,440 229,760 Hotel/Motel 0 0 0 12,075 12,075 57,935 70,010 Wholesale & retail 0 0 0 0 0 76,122 76,122 Manufacturing 0 0 0 4,739 4,739 79,685 84,424 Agriculture 0 0 324 2,410 2,734 93,631 96,365 Service 0 1,185 0 971 2,156 68,228 70,384 Other 1,479 0 0 4,636 6,115 186,313 192,428 Total commercial related loans 1,636 1,185 324 28,509 31,654 1,274,272 1,305,926 Residential mortgage 683 228 0 1,180 2,091 104,211 106,302 Home equity 190 0 0 459 649 93,210 93,859 Other 3,213 0 0 91 3,304 19,105 22,409 Total consumer related loans 4,086 228 0 1,730 6,044 216,526 222,570 Total loans $ 5,722 $ 1,413 $ 324 $ 30,239 $ 37,698 $ 1,490,798 $ 1,528,496 December 31, 2021 Builder & developer $ 0 $ 0 $ 0 $ 807 $ 807 $ 155,655 $ 156,462 Commercial real estate investor 0 812 0 3,943 4,755 318,132 322,887 Residential real estate investor 0 0 0 280 280 226,737 227,017 Hotel/Motel 0 0 0 12,192 12,192 58,062 70,254 Wholesale & retail 0 183 0 0 183 76,157 76,340 Manufacturing 0 0 0 5,125 5,125 67,595 72,720 Agriculture 0 0 324 4,297 4,621 90,696 95,317 Service 0 0 0 971 971 64,192 65,163 Other 9 34 0 5,372 5,415 216,764 222,179 Total commercial related loans 9 1,029 324 32,987 34,349 1,273,990 1,308,339 Residential mortgage 0 308 0 62 370 103,371 103,741 Home equity 193 0 0 437 630 94,212 94,842 Other 5,869 132 0 96 6,097 16,732 22,829 Total consumer related loans 6,062 440 0 595 7,097 214,315 221,412 Total loans $ 6,071 $ 1,469 $ 324 $ 33,582 $ 41,446 $ 1,488,305 $ 1,529,751 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 $ 15,954,000 at March 31, 2022 and $ 954,000 at December 31, 2021. There was a $ 1,901,000 allowance allocated to TDRs at March 31, 2022 and none at December 31, 2021. 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 March 31, 2022, there are no modifications for consumer loans, one mortgage loan totaling approximately $ 641,000 and five commercial loans totaling approximately $ 33,527,000 under the CARES Act, which are not considered TDRs. As of March 31, 2021, there were no modifications for consumer loans, five mortage loans totaling approximately $ 2,060,000 and 38 commercial loans totaling approximately $ 86,091,000 under the CARES Act, which are not considered TDRs. The below table shows loans whose terms have been modified under TDRs during the three months ended March 31, 2022 and 2021. TDR concessions include maturity extensions, below market interest rates relative to new debt with similar risk and interest or principal forgiveness. One commercial relationship included principal forgiveness of $ 1,329,000 , which was recognized in the prior period, in accordance with a bankruptcy court order. One of the loans modified in March 2022 is not performing under their modified terms. There were no defaults for the three months ended March 31, 2022 and March 31, 2021 for TDRs entered into during the previous 12 month period. TDR Modifications Pre-Modification Post-Modification Number Outstanding Outstanding Recorded of Recorded Recorded Investment (dollars in thousands) Contracts Investments Investments at Period End Three months ended: March 31, 2022 Commercial related loans nonaccrual 2 $ 15,093 $ 13,764 $ 12,014 Consumer related loans accruing 1 $ 134 $ 134 $ 133 Consumer related loans nonaccrual 1 $ 1,053 $ 1,118 $ 952 March 31, 2021 None |