Loans | Note 5—Loans Loan Portfolio Composition The table below provides the composition of the loan portfolio at March 3 1 , 201 6 and December 31, 201 5 . 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) 2016 Loans 2015 Loans Builder & developer $ 141,923 12.3 $ 133,978 11.9 Commercial real estate investor 210,016 18.3 191,994 17.1 Residential real estate investor 158,813 13.8 161,144 14.3 Hotel/Motel 83,589 7.3 84,171 7.5 Wholesale & retail 77,645 6.7 77,694 6.9 Manufacturing 32,988 2.9 30,325 2.7 Agriculture 41,366 3.6 41,217 3.7 Other 218,670 19.0 215,891 19.2 Total commercial related loans 965,010 83.9 936,414 83.4 Residential mortgages 68,418 5.9 70,094 6.2 Home equity 86,136 7.5 86,408 7.7 Other 30,583 2.7 30,295 2.7 Total consumer related loans 185,137 16.1 186,797 16.6 Total loans $ 1,150,147 100.0 $ 1,123,211 100.0 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 and residential mortgages held for investment are determined by a formal evaluation of risk factors performed by the Corporation’s underwriting staff. For consumer loans, and commercial loans up to $750,000 , the Corporation uses third-party credit scoring software models 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 are generally performed by the Special Asset Committee, which includes senior management. The Committee, which meets monthly, 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. The Corporation uses ten risk ratings to grade loans. The first seven ratings, representing the lowest risk, are combined and given a “pass” rating. 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 net worth or paying capacity of the borrower 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 loss if the deficiencies are not corrected. A loan classified “doubtful” has all the weaknesses inherent in one classified substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and value highly improbable and the possibility of loss extremely high. 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,” which is subsumed within the nonaccrual risk rating category, nor does it include the regulatory classification of “loss” because the Corporation promptly charges off known loan losses. The table below presents a summary of loan risk ratings by loan class at March 3 1 , 201 6 and December 31, 201 5 . Special (dollars in thousands) Pass Mention Substandard Nonaccrual Total March 31, 2016 Builder & developer $ 131,096 $ 6,888 $ 3,847 $ 92 $ 141,923 Commercial real estate investor 203,806 388 5,822 0 210,016 Residential real estate investor 150,934 6,605 863 411 158,813 Hotel/Motel 83,178 0 0 411 83,589 Wholesale & retail 69,121 8,496 0 28 77,645 Manufacturing 29,586 2,776 626 0 32,988 Agriculture 40,627 349 0 390 41,366 Other 215,757 1,284 862 767 218,670 Total commercial related loans 924,105 26,786 12,020 2,099 965,010 Residential mortgage 68,121 0 97 200 68,418 Home equity 85,711 74 0 351 86,136 Other 30,189 118 129 147 30,583 Total consumer related loans 184,021 192 226 698 185,137 Total loans $ 1,108,126 $ 26,978 $ 12,246 $ 2,797 $ 1,150,147 December 31, 2015 Builder & developer $ 122,919 $ 6,775 $ 3,873 $ 411 $ 133,978 Commercial real estate investor 185,621 396 5,957 20 191,994 Residential real estate investor 153,072 6,601 874 597 161,144 Hotel/Motel 83,751 0 0 420 84,171 Wholesale & retail 69,973 7,678 0 43 77,694 Manufacturing 26,705 2,990 630 0 30,325 Agriculture 40,795 0 0 422 41,217 Other 212,971 1,131 855 934 215,891 Total commercial related loans 895,807 25,571 12,189 2,847 936,414 Residential mortgage 69,930 0 97 67 70,094 Home equity 85,690 516 0 202 86,408 Other 29,973 75 130 117 30,295 Total consumer related loans 185,593 591 227 386 186,797 Total loans $ 1,081,400 $ 26,162 $ 12,416 $ 3,233 $ 1,123,211 Impaired Loans The table below presents a summary of impaired loans at March 3 1 , 201 6 and December 31, 201 5 . Generally, impaired loans are loans risk rated substandard and nonaccrual . An allowance is established for individual commercial loans where the Corporation has doubt as to full recovery of the outstanding principal balance. The recorded investment represents outstanding unpaid principal loan balances adjusted for 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, 2016 Builder & developer $ 3,939 $ 4,074 $ 0 $ 0 $ 0 $ 3,939 $ 4,074 Commercial real estate investor 5,822 5,837 0 0 0 5,822 5,837 Residential real estate investor 462 1,186 812 854 192 1,274 2,040 Hotel/Motel 411 411 0 0 0 411 411 Wholesale & retail 293 293 0 0 0 293 293 Manufacturing 626 626 0 0 0 626 626 Agriculture 0 0 390 390 263 390 390 Other commercial 1,629 1,744 0 0 0 1,629 1,744 Total impaired commercial related loans 13,182 14,171 1,202 1,244 455 14,384 15,415 Residential mortgage 297 339 0 0 0 297 339 Home equity 351 391 0 0 0 351 391 Other consumer 276 293 0 0 0 276 293 Total impaired consumer related loans 924 1,023 0 0 0 924 1,023 Total impaired loans $ 14,106 $ 15,194 $ 1,202 $ 1,244 $ 455 $ 15,308 $ 16,438 December 31, 2015 Builder & developer $ 4,284 $ 4,917 $ 0 $ 0 $ 0 $ 4,284 $ 4,917 Commercial real estate investor 5,977 5,991 0 0 0 5,977 5,991 Residential real estate investor 649 1,199 822 864 142 1,471 2,063 Hotel/Motel 420 420 0 0 0 420 420 Wholesale & retail 309 309 0 0 0 309 309 Manufacturing 630 630 0 0 0 630 630 Agriculture 0 0 422 422 263 422 422 Other commercial 1,789 1,904 0 0 0 1,789 1,904 Total impaired commercial related loans 14,058 15,370 1,244 1,286 405 15,302 16,656 Residential mortgage 164 188 0 0 0 164 188 Home equity 202 242 0 0 0 202 242 Other consumer 247 265 0 0 0 247 265 Total impaired consumer related loans 613 695 0 0 0 613 695 Total impaired loans $ 14,671 $ 16,065 $ 1,244 $ 1,286 $ 405 $ 15,915 $ 17,351 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 3 1 , 201 6 and 201 5 . With No Related Allowance With A Related Allowance Total Average Total Cash Basis Average Total Cash Basis Average Total Cash Basis Recorded Interest Interest Recorded Interest Interest Recorded Interest Interest (dollars in thousands) Investment Income Income Investment Income Income Investment Income Income Three months ended March 31, 2016 Builder & developer $ 4,111 $ 59 $ 0 $ 0 $ 0 $ 0 $ 4,111 $ 59 $ 0 Commercial real estate investor 5,899 76 0 0 0 0 5,899 76 0 Residential real estate investor 555 5 0 817 7 0 1,372 12 0 Hotel/Motel 416 2 2 0 0 0 416 2 2 Wholesale & retail 301 3 0 0 0 0 301 3 0 Manufacturing 628 10 0 0 0 0 628 10 0 Agriculture 0 0 0 406 0 0 406 0 0 Other commercial 1,709 18 4 0 0 0 1,709 18 4 Total impaired commercial related loans 13,619 173 6 1,223 7 0 14,842 180 6 Residential mortgage 230 0 0 0 0 0 230 0 0 Home equity 277 1 1 0 0 0 277 1 1 Other consumer 261 3 2 0 0 0 261 3 2 Total impaired consumer related loans 768 4 3 0 0 0 768 4 3 Total impaired loans $ 14,387 $ 177 $ 9 $ 1,223 $ 7 $ 0 $ 15,610 $ 184 $ 9 Three months ended March 31, 2015 Builder & developer $ 3,946 $ 60 $ 1 $ 2,045 $ 0 $ 0 $ 5,991 $ 60 $ 1 Commercial real estate investor 4,474 296 249 1,876 32 32 6,350 328 281 Residential real estate investor 1,077 16 0 795 (3) 0 1,872 13 0 Hotel/Motel 515 3 3 0 0 0 515 3 3 Wholesale & retail 392 5 2 0 0 0 392 5 2 Manufacturing 652 10 0 0 0 0 652 10 0 Agriculture 0 0 0 428 7 0 428 7 0 Other commercial 1,299 24 2 237 0 0 1,536 24 2 Total impaired commercial related loans 12,355 414 257 5,381 36 32 17,736 450 289 Residential mortgage 175 2 3 0 0 0 175 2 3 Home equity 125 0 0 0 0 0 125 0 0 Other consumer 390 6 4 0 0 0 390 6 4 Total impaired consumer related loans 690 8 7 0 0 0 690 8 7 Total impaired loans $ 13,045 $ 422 $ 264 $ 5,381 $ 36 $ 32 $ 18,426 $ 458 $ 296 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 3 1 , 201 6 and December 31, 201 5 . ≥ 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, 2016 Builder & developer $ 570 $ 0 $ 307 $ 92 $ 969 $ 140,954 $ 141,923 Commercial real estate investor 215 0 0 0 215 209,801 210,016 Residential real estate investor 0 0 0 411 411 158,402 158,813 Hotel/Motel 0 0 0 411 411 83,178 83,589 Wholesale & retail 119 138 0 28 285 77,360 77,645 Manufacturing 0 0 0 0 0 32,988 32,988 Agriculture 0 0 200 390 590 40,776 41,366 Other 0 0 193 767 960 217,710 218,670 Total commercial related loans 904 138 700 2,099 3,841 961,169 965,010 Residential mortgage 271 0 79 200 550 67,868 68,418 Home equity 156 54 75 351 636 85,500 86,136 Other 150 59 12 147 368 30,215 30,583 Total consumer related loans 577 113 166 698 1,554 183,583 185,137 Total loans $ 1,481 $ 251 $ 866 $ 2,797 $ 5,395 $ 1,144,752 $ 1,150,147 December 31, 2015 Builder & developer $ 398 $ 308 $ 0 $ 411 $ 1,117 $ 132,861 $ 133,978 Commercial real estate investor 216 396 0 20 632 191,362 191,994 Residential real estate investor 0 304 0 597 901 160,243 161,144 Hotel/Motel 0 0 0 420 420 83,751 84,171 Wholesale & retail 0 119 0 43 162 77,532 77,694 Manufacturing 0 0 0 0 0 30,325 30,325 Agriculture 0 0 0 422 422 40,795 41,217 Other 324 0 198 934 1,456 214,435 215,891 Total commercial related loans 938 1,127 198 2,847 5,110 931,304 936,414 Residential mortgage 0 0 249 67 316 69,778 70,094 Home equity 485 71 0 202 758 85,650 86,408 Other 171 163 37 117 488 29,807 30,295 Total consumer related loans 656 234 286 386 1,562 185,235 186,797 Total loans $ 1,594 $ 1,361 $ 484 $ 3,233 $ 6,672 $ 1,116,539 $ 1,123,211 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 generally involve an extension of the maturity date or a below market interest rate relative to new debt with similar credit risk. 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 management believes that future loan payments are reasonably assured under the modified terms. There were no loans whose terms have been modified under TDRs during the three months ended March 31, 2016 and 2015. There were no defaults during the three months ended March 31, 2016 for TDRs entered into during the previous 12 month period. |