Loans | Note 5—Loans Loan Portfolio Composition The table below provides the composition of the loan portfolio at June 30, 2016 and December 31, 2015 . 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) 2016 Loans 2015 Loans Builder & developer $ 140,888 12.1 $ 133,978 11.9 Commercial real estate investor 219,394 18.8 191,994 17.1 Residential real estate investor 169,772 14.5 161,144 14.3 Hotel/Motel 84,740 7.3 84,171 7.5 Wholesale & retail 77,714 6.7 77,694 6.9 Manufacturing 32,838 2.8 30,325 2.7 Agriculture 44,751 3.8 41,217 3.7 Other 210,716 18.0 215,891 19.2 Total commercial related loans 980,813 84.0 936,414 83.4 Residential mortgages 67,436 5.8 70,094 6.2 Home equity 87,934 7.5 86,408 7.7 Other 31,336 2.7 30,295 2.7 Total consumer related loans 186,706 16.0 186,797 16.6 Total loans $ 1,167,519 100.0 $ 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 June 30, 2016 and December 31, 2015 . Special (dollars in thousands) Pass Mention Substandard Nonaccrual Total June 30, 2016 Builder & developer $ 130,490 $ 6,496 $ 3,817 $ 85 $ 140,888 Commercial real estate investor 212,992 646 5,756 0 219,394 Residential real estate investor 164,362 4,441 859 110 169,772 Hotel/Motel 84,360 0 0 380 84,740 Wholesale & retail 69,519 8,182 0 13 77,714 Manufacturing 29,245 2,971 622 0 32,838 Agriculture 43,388 348 0 1,015 44,751 Other 208,335 1,245 870 266 210,716 Total commercial related loans 942,691 24,329 11,924 1,869 980,813 Residential mortgage 67,151 0 85 200 67,436 Home equity 87,549 72 0 313 87,934 Other 31,069 73 129 65 31,336 Total consumer related loans 185,769 145 214 578 186,706 Total loans $ 1,128,460 $ 24,474 $ 12,138 $ 2,447 $ 1,167,519 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 June 30, 2016 and December 31, 2015 . 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 June 30, 2016 Builder & developer $ 3,902 $ 4,037 $ 0 $ 0 $ 0 $ 3,902 $ 4,037 Commercial real estate investor 5,756 5,771 0 0 0 5,756 5,771 Residential real estate investor 459 1,184 510 510 29 969 1,694 Hotel/Motel 380 380 0 0 0 380 380 Wholesale & retail 276 276 0 0 0 276 276 Manufacturing 622 622 0 0 0 622 622 Agriculture 636 636 379 379 263 1,015 1,015 Other commercial 953 953 183 298 31 1,136 1,251 Total impaired commercial related loans 12,984 13,859 1,072 1,187 323 14,056 15,046 Residential mortgage 285 327 0 0 0 285 327 Home equity 313 313 0 0 0 313 313 Other consumer 194 194 0 0 0 194 194 Total impaired consumer related loans 792 834 0 0 0 792 834 Total impaired loans $ 13,776 $ 14,693 $ 1,072 $ 1,187 $ 323 $ 14,848 $ 15,880 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 and six months ended June 30, 2016 and 2015 . 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 June 30, 2016 Builder & developer $ 3,920 $ 59 $ 0 $ 0 $ 0 $ 0 $ 3,920 $ 59 $ 0 Commercial real estate investor 5,789 74 0 0 0 0 5,789 74 0 Residential real estate investor 460 4 0 661 7 0 1,121 11 0 Hotel/Motel 396 0 0 0 0 0 396 0 0 Wholesale & retail 285 3 0 0 0 0 285 3 0 Manufacturing 624 10 0 0 0 0 624 10 0 Agriculture 318 0 0 385 0 0 703 0 0 Other commercial 1,291 30 16 91 0 0 1,382 30 16 Total impaired commercial related loans 13,083 180 16 1,137 7 0 14,220 187 16 Residential mortgage 300 1 1 0 0 0 300 1 1 Home equity 332 1 1 0 0 0 332 1 1 Other consumer 235 2 0 0 0 0 235 2 0 Total impaired consumer related loans 867 4 2 0 0 0 867 4 2 Total impaired loans $ 13,950 $ 184 $ 18 $ 1,137 $ 7 $ 0 $ 15,087 $ 191 $ 18 Three months ended June 30, 2015 Builder & developer $ 4,027 $ 60 $ 1 $ 1,820 $ 0 $ 0 $ 5,847 $ 60 $ 1 Commercial real estate investor 3,865 117 136 2,235 0 0 6,100 117 136 Residential real estate investor 1,073 5 0 903 8 0 1,976 13 0 Hotel/Motel 501 3 3 0 0 0 501 3 3 Wholesale & retail 388 4 0 0 0 0 388 4 0 Manufacturing 645 10 0 0 0 0 645 10 0 Agriculture 0 0 0 423 2 2 423 2 2 Other commercial 1,779 14 0 0 0 0 1,779 14 0 Total impaired commercial related loans 12,278 213 140 5,381 10 2 17,659 223 142 Residential mortgage 179 0 0 0 0 0 179 0 0 Home equity 141 0 0 0 0 0 141 0 0 Other consumer 384 4 1 0 0 0 384 4 1 Total impaired consumer related loans 704 4 1 0 0 0 704 4 1 Total impaired loans $ 12,982 $ 217 $ 141 $ 5,381 $ 10 $ 2 $ 18,363 $ 227 $ 143 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 Six months ended June 30, 2016 Builder & developer $ 4,042 $ 118 $ 0 $ 0 $ 0 $ 0 $ 4,042 $ 118 $ 0 Commercial real estate investor 5,850 150 0 0 0 0 5,850 150 0 Residential real estate investor 523 9 0 715 14 0 1,238 23 0 Hotel/Motel 404 2 2 0 0 0 404 2 2 Wholesale & retail 293 5 0 0 0 0 293 5 0 Manufacturing 626 20 0 0 0 0 626 20 0 Agriculture 212 0 0 397 0 0 609 0 0 Other commercial 1,457 48 20 61 0 0 1,518 48 20 Total impaired commercial related loans 13,407 352 22 1,173 14 0 14,580 366 22 Residential mortgage 255 1 1 0 0 0 255 1 1 Home equity 289 2 2 0 0 0 289 2 2 Other consumer 239 6 2 0 0 0 239 6 2 Total impaired consumer related loans 783 9 5 0 0 0 783 9 5 Total impaired loans $ 14,190 $ 361 $ 27 $ 1,173 $ 14 $ 0 $ 15,363 $ 375 $ 27 Six months ended June 30, 2015 Builder & developer $ 3,994 $ 121 $ 3 $ 1,895 $ 0 $ 0 $ 5,889 $ 121 $ 3 Commercial real estate investor 4,262 413 317 1,988 32 32 6,250 445 349 Residential real estate investor 977 14 0 920 12 0 1,897 26 0 Hotel/Motel 508 5 5 0 0 0 508 5 5 Wholesale & retail 390 9 2 0 0 0 390 9 2 Manufacturing 648 20 31 0 0 0 648 20 31 Agriculture 0 0 0 426 13 13 426 13 13 Other commercial 1,510 66 0 158 0 0 1,668 66 0 Total impaired commercial related loans 12,289 648 358 5,387 57 45 17,676 705 403 Residential mortgage 168 0 0 0 0 0 168 0 0 Home equity 130 0 0 0 0 0 130 0 0 Other consumer 387 10 5 0 0 0 387 10 5 Total impaired consumer related loans 685 10 5 0 0 0 685 10 5 Total impaired loans $ 12,974 $ 658 $ 363 $ 5,387 $ 57 $ 45 $ 18,361 $ 715 $ 408 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, 2016 and December 31, 2015 . ≥ 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, 2016 Builder & developer $ 199 $ 0 $ 0 $ 85 $ 284 $ 140,604 $ 140,888 Commercial real estate investor 261 0 0 0 261 219,133 219,394 Residential real estate investor 145 284 0 110 539 169,233 169,772 Hotel/Motel 0 0 0 380 380 84,360 84,740 Wholesale & retail 0 0 0 13 13 77,701 77,714 Manufacturing 0 0 0 0 0 32,838 32,838 Agriculture 170 0 0 1,015 1,185 43,566 44,751 Other 99 0 0 266 365 210,351 210,716 Total commercial related loans 874 284 0 1,869 3,027 977,786 980,813 Residential mortgage 0 247 68 200 515 66,921 67,436 Home equity 200 119 0 313 632 87,302 87,934 Other 299 102 12 65 478 30,858 31,336 Total consumer related loans 499 468 80 578 1,625 185,081 186,706 Total loans $ 1,373 $ 752 $ 80 $ 2,447 $ 4,652 $ 1,162,867 $ 1,167,519 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 and six months ended June 30, 2016 and 2015. There were no defaults during the three and six months ended June 30, 2016 for TDRs entered into during the previous 12 month period. |