Loans | Note 5—Loans Loan Portfolio Composition The table below provides the composition of the loan portfolio at September 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. September 30, % Total December 31, % Total (dollars in thousands) 2016 Loans 2015 Loans Builder & developer $ 128,996 10.7 $ 133,978 11.9 Commercial real estate investor 229,619 19.0 191,994 17.1 Residential real estate investor 175,768 14.6 161,144 14.3 Hotel/Motel 82,714 6.8 84,171 7.5 Wholesale & retail 88,422 7.3 77,694 6.9 Manufacturing 39,327 3.3 30,325 2.7 Agriculture 48,105 4.0 41,217 3.7 Other 223,954 18.5 215,891 19.2 Total commercial related loans 1,016,905 84.2 936,414 83.4 Residential mortgages 69,845 5.8 70,094 6.2 Home equity 91,468 7.6 86,408 7.7 Other 29,624 2.4 30,295 2.7 Total consumer related loans 190,937 15.8 186,797 16.6 Total loans $ 1,207,842 100.0 $ 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 $500,000 , 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 September 30, 2016 and December 31, 2015 . Special (dollars in thousands) Pass Mention Substandard Nonaccrual Total September 30, 2016 Builder & developer $ 118,625 $ 6,445 $ 3,542 $ 384 $ 128,996 Commercial real estate investor 222,173 1,494 5,952 0 229,619 Residential real estate investor 169,863 4,192 1,710 3 175,768 Hotel/Motel 82,353 0 0 361 82,714 Wholesale & retail 79,769 8,653 0 0 88,422 Manufacturing 33,946 4,763 618 0 39,327 Agriculture 46,295 802 0 1,008 48,105 Other 216,411 6,404 876 263 223,954 Total commercial related loans 969,435 32,753 12,698 2,019 1,016,905 Residential mortgage 69,625 0 99 121 69,845 Home equity 91,085 71 0 312 91,468 Other 29,361 72 129 62 29,624 Total consumer related loans 190,071 143 228 495 190,937 Total loans $ 1,159,506 $ 32,896 $ 12,926 $ 2,514 $ 1,207,842 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 September 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 September 30, 2016 Builder & developer $ 3,542 $ 3,678 $ 384 $ 384 $ 200 $ 3,926 $ 4,062 Commercial real estate investor 5,952 5,967 0 0 0 5,952 5,967 Residential real estate investor 1,713 2,438 0 0 0 1,713 2,438 Hotel/Motel 361 361 0 0 0 361 361 Wholesale & retail 262 262 0 0 0 262 262 Manufacturing 618 618 0 0 0 618 618 Agriculture 636 636 372 372 263 1,008 1,008 Other commercial 956 956 183 298 31 1,139 1,254 Total impaired commercial related loans 14,040 14,916 939 1,054 494 14,979 15,970 Residential mortgage 220 289 0 0 0 220 289 Home equity 312 312 0 0 0 312 312 Other consumer 191 191 0 0 0 191 191 Total impaired consumer related loans 723 792 0 0 0 723 792 Total impaired loans $ 14,763 $ 15,708 $ 939 $ 1,054 $ 494 $ 15,702 $ 16,762 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 nine months ended September 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 September 30, 2016 Builder & developer $ 3,722 $ 56 $ 0 $ 192 $ 0 $ 0 $ 3,914 $ 56 $ 0 Commercial real estate investor 5,854 74 0 0 0 0 5,854 74 0 Residential real estate investor 1,086 14 0 255 0 0 1,341 14 0 Hotel/Motel 371 0 0 0 0 0 371 0 0 Wholesale & retail 269 3 0 0 0 0 269 3 0 Manufacturing 620 10 0 0 0 0 620 10 0 Agriculture 636 16 16 376 0 0 1,012 16 16 Other commercial 954 14 0 183 0 0 1,137 14 0 Total impaired commercial related loans 13,512 187 16 1,006 0 0 14,518 187 16 Residential mortgage 253 1 1 0 0 0 253 1 1 Home equity 312 1 1 0 0 0 312 1 1 Other consumer 192 3 1 0 0 0 192 3 1 Total impaired consumer related loans 757 5 3 0 0 0 757 5 3 Total impaired loans $ 14,269 $ 192 $ 19 $ 1,006 $ 0 $ 0 $ 15,275 $ 192 $ 19 Three months ended September 30, 2015 Builder & developer $ 4,128 $ 93 $ 30 $ 1,445 $ 0 $ 0 $ 5,573 $ 93 $ 30 Commercial real estate investor 4,935 83 33 1,106 0 0 6,041 83 33 Residential real estate investor 776 5 0 998 7 0 1,774 12 0 Hotel/Motel 470 6 6 0 0 0 470 6 6 Wholesale & retail 385 4 0 0 0 0 385 4 0 Manufacturing 638 10 0 0 0 0 638 10 0 Agriculture 0 0 0 422 0 0 422 0 0 Other commercial 1,935 14 0 0 0 0 1,935 14 0 Total impaired commercial related loans 13,267 215 69 3,971 7 0 17,238 222 69 Residential mortgage 159 1 0 0 0 0 159 1 0 Home equity 172 0 0 0 0 0 172 0 0 Other consumer 343 4 1 0 0 0 343 4 1 Total impaired consumer related loans 674 5 1 0 0 0 674 5 1 Total impaired loans $ 13,941 $ 220 $ 70 $ 3,971 $ 7 $ 0 $ 17,912 $ 227 $ 70 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 Nine months ended September 30, 2016 Builder & developer $ 3,917 $ 174 $ 0 $ 96 $ 0 $ 0 $ 4,013 $ 174 $ 0 Commercial real estate investor 5,876 224 0 0 0 0 5,876 224 0 Residential real estate investor 821 38 0 536 0 0 1,357 38 0 Hotel/Motel 393 2 2 0 0 0 393 2 2 Wholesale & retail 285 8 0 0 0 0 285 8 0 Manufacturing 624 29 0 0 0 0 624 29 0 Agriculture 318 17 17 391 0 0 709 17 17 Other commercial 1,332 62 20 91 0 0 1,423 62 20 Total impaired commercial related loans 13,566 554 39 1,114 0 0 14,680 554 39 Residential mortgage 246 1 1 0 0 0 246 1 1 Home equity 295 3 2 0 0 0 295 3 2 Other consumer 226 9 4 0 0 0 226 9 4 Total impaired consumer related loans 767 13 7 0 0 0 767 13 7 Total impaired loans $ 14,333 $ 567 $ 46 $ 1,114 $ 0 $ 0 $ 15,447 $ 567 $ 46 Nine months ended September 30, 2015 Builder & developer $ 4,037 $ 214 $ 32 $ 1,745 $ 0 $ 0 $ 5,782 $ 214 $ 32 Commercial real estate investor 4,704 562 416 1,491 0 0 6,195 562 416 Residential real estate investor 926 19 1 897 19 0 1,823 38 1 Hotel/Motel 492 11 11 0 0 0 492 11 11 Wholesale & retail 389 14 2 0 0 0 389 14 2 Manufacturing 645 30 0 0 0 0 645 30 0 Agriculture 0 0 0 425 13 13 425 13 13 Other commercial 1,617 81 31 118 0 0 1,735 81 31 Total impaired commercial related loans 12,810 931 493 4,676 32 13 17,486 963 506 Residential mortgage 167 4 0 0 0 0 167 4 0 Home equity 149 0 0 0 0 0 149 0 0 Other consumer 367 13 6 0 0 0 367 13 6 Total impaired consumer related loans 683 17 6 0 0 0 683 17 6 Total impaired loans $ 13,493 $ 948 $ 499 $ 4,676 $ 32 $ 13 $ 18,169 $ 980 $ 512 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 September 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 September 30, 2016 Builder & developer $ 0 $ 0 $ 0 $ 384 $ 384 $ 128,612 $ 128,996 Commercial real estate investor 211 0 0 0 211 229,408 229,619 Residential real estate investor 132 203 93 3 431 175,337 175,768 Hotel/Motel 0 0 0 361 361 82,353 82,714 Wholesale & retail 134 0 0 0 134 88,288 88,422 Manufacturing 0 0 0 0 0 39,327 39,327 Agriculture 0 0 0 1,008 1,008 47,097 48,105 Other 0 0 0 263 263 223,691 223,954 Total commercial related loans 477 203 93 2,019 2,792 1,014,113 1,016,905 Residential mortgage 0 433 68 121 622 69,223 69,845 Home equity 235 40 0 312 587 90,881 91,468 Other 67 132 12 62 273 29,351 29,624 Total consumer related loans 302 605 80 495 1,482 189,455 190,937 Total loans $ 779 $ 808 $ 173 $ 2,514 $ 4,274 $ 1,203,568 $ 1,207,842 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 nine months ended September 30, 2016 and 2015. There were no defaults during the three and nine months ended September 30, 2016 for TDRs entered into during the previous 12 month period. |