Loans | NOTE 4-Loans Loan Portfolio Composition The table below provides the composition of the loan portfolio at December 31, 2016 and 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 “O ther ” 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. December 31, % Total December 31, % Total (dollars in thousands) 2016 Loans 2015 Loans Builder & developer $ 148,635 11.7 $ 133,978 11.9 Commercial real estate investor 243,623 19.2 191,994 17.1 Residential real estate investor 183,623 14.4 161,144 14.3 Hotel/Motel 82,085 6.5 84,171 7.5 Wholesale & retail 88,062 6.9 77,694 6.9 Manufacturing 32,616 2.6 30,325 2.7 Agriculture 51,848 4.1 41,217 3.7 Other 242,872 19.1 215,891 19.2 Total commercial related loans 1,073,364 84.5 936,414 83.4 Residential mortgages 73,496 5.8 70,094 6.2 Home equity 94,222 7.4 86,408 7.7 Other 29,689 2.3 30,295 2.7 Total consumer related loans 197,407 15.5 186,797 16.6 Total loans $ 1,270,771 100.0 $ 1,123,211 100.0 Concentrations of Credit Risk Concentrations of credit risk arise when a number of c lient s are engaged in similar business activities in the same geographic region or have similar economic features that could cause their ability to meet contractual obligations to be similarly affected by changes in economic conditions. Most of the Corporation's business is with c lient s in York County, Pennsylvania and northern-central Maryland, specifically Baltimore, Harford and Carroll counties. Although this focus may pose a concentration risk geographically, the Corporation believes that the diverse local economy and our detailed knowledge of the c lient base lessens this risk. At December 31, 2016 , the Corporation had three industry concentrations that exceeded 10 percent of the total loan portfolio : commercial real estate investor, which represented 19.2 percent of the portfolio; residential real estate investor, which represented 14.4 percent of the portfolio; and builder & developer, which represented 11.7 percent of the portfolio. At December 31, 2015 , the Corporation had three industry concentrations that exceeded 10 percent of the total loan portfolio : commercial real estate investor, which represented 17.1 percent of the portfolio; residential real estate investor, which represented 14.3 percent of the portfolio; and builder & developer, which represented 11.9 percent of the portfolio. Loans to borrowers within these industries are usually collateralized by real estate. The principal balance of outstanding loans to directors, executive officers, principal shareholders and any a ffiliates of such persons was $162,000 at December 31, 2016 and $129,000 at December 31, 2015 . During 2016 , total additions were $170,000 and total repayments and reductions were $137,000 . As of year-end 2016 , all loans to this group were current and performing in accordance with contractual terms. 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 typically 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. 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 December 31, 2016 and 2015 . Special (dollars in thousands) Pass Mention Substandard Nonaccrual Total December 31, 2016 Builder & developer $ 138,653 $ 6,090 $ 3,508 $ 384 $ 148,635 Commercial real estate investor 236,240 1,490 5,893 0 243,623 Residential real estate investor 177,763 4,157 866 837 183,623 Hotel/Motel 81,724 0 0 361 82,085 Wholesale & retail 79,884 8,178 0 0 88,062 Manufacturing 27,564 4,439 613 0 32,616 Agriculture 50,123 796 0 929 51,848 Other 235,515 6,213 885 259 242,872 Total commercial related loans 1,027,466 31,363 11,765 2,770 1,073,364 Residential mortgage 73,340 14 85 57 73,496 Home equity 93,908 70 0 244 94,222 Other 29,420 97 129 43 29,689 Total consumer related loans 196,668 181 214 344 197,407 Total loans $ 1,224,134 $ 31,544 $ 11,979 $ 3,114 $ 1,270,771 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 December 31, 2016 and 2015 . Generally, impaired loans are loans risk rated substandard and nonaccrual or classified as troubled debt restructurings . An allowance is established for those individual loans that are commercial related where the Corporation has doubt as to full recovery of the outstanding principal balance. Typically, impaired consumer related loans are partially or fully charged-off eliminating the need for a specific allowance. 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 December 31, 2016 Builder & developer $ 3,508 $ 3,644 $ 384 $ 384 $ 200 $ 3,892 $ 4,028 Commercial real estate investor 5,893 5,908 0 0 0 5,893 5,908 Residential real estate investor 1,404 1,404 299 299 136 1,703 1,703 Hotel/Motel 361 361 0 0 0 361 361 Wholesale & retail 260 260 0 0 0 260 260 Manufacturing 613 613 0 0 0 613 613 Agriculture 568 568 361 361 263 929 929 Other commercial 961 961 183 298 82 1,144 1,259 Total impaired commercial related loans 13,568 13,719 1,227 1,342 681 14,795 15,061 Residential mortgage 142 222 0 0 0 142 222 Home equity 244 244 0 0 0 244 244 Other consumer 172 172 0 0 0 172 172 Total impaired consumer related loans 558 638 0 0 0 558 638 Total impaired loans $ 14,126 $ 14,357 $ 1,227 $ 1,342 $ 681 $ 15,353 $ 15,699 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 years ended December 31, 2016 , 2015 and 2014 . 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 December 31, 2016 Builder & developer $ 3,835 $ 230 $ 0 $ 153 $ 0 $ 0 $ 3,988 $ 230 $ 0 Commercial real estate investor 5,880 301 0 0 0 0 5,880 301 0 Residential real estate investor 937 29 2 489 0 0 1,426 29 2 Hotel/Motel 386 2 2 0 0 0 386 2 2 Wholesale & retail 280 11 0 0 0 0 280 11 0 Manufacturing 622 39 0 0 0 0 622 39 0 Agriculture 368 26 26 385 0 0 753 26 26 Other commercial 1,258 76 20 110 0 0 1,368 76 20 Total impaired commercial related loans 13,566 714 50 1,137 0 0 14,703 714 50 Residential mortgage 225 2 1 0 0 0 225 2 1 Home equity 285 2 2 0 0 0 285 2 2 Other consumer 216 11 4 0 0 0 216 11 4 Total impaired consumer related loans 726 15 7 0 0 0 726 15 7 Total impaired loans $ 14,292 $ 729 $ 57 $ 1,137 $ 0 $ 0 $ 15,429 $ 729 $ 57 December 31, 2015 Builder & developer $ 4,086 $ 275 $ 33 $ 1,396 $ 0 $ 0 $ 5,482 $ 275 $ 33 Commercial real estate investor 4,959 644 416 1,193 0 0 6,152 644 416 Residential real estate investor 871 24 1 882 27 0 1,753 51 1 Hotel/Motel 478 14 14 0 0 0 478 14 14 Wholesale & retail 373 18 2 0 0 0 373 18 2 Manufacturing 642 40 0 0 0 0 642 40 0 Agriculture 0 0 0 424 13 13 424 13 13 Other commercial 1,651 95 31 95 0 0 1,746 95 31 Total impaired commercial related loans 13,060 1,110 497 3,990 40 13 17,050 1,150 510 Residential mortgage 166 4 0 0 0 0 166 4 0 Home equity 159 2 2 0 0 0 159 2 2 Other consumer 343 22 13 0 0 0 343 22 13 Total impaired consumer related loans 668 28 15 0 0 0 668 28 15 Total impaired loans $ 13,728 $ 1,138 $ 512 $ 3,990 $ 40 $ 13 $ 17,718 $ 1,178 $ 525 December 31, 2014 Builder & developer $ 4,154 $ 290 $ 20 $ 3,958 $ 18 $ 0 $ 8,112 $ 308 $ 20 Commercial real estate investor 6,794 213 102 299 87 0 7,093 300 102 Residential real estate investor 527 35 26 1,409 7 0 1,936 42 26 Hotel/Motel 463 19 0 0 0 0 463 19 0 Wholesale & retail 764 90 78 0 0 0 764 90 78 Manufacturing 665 42 0 0 0 0 665 42 0 Agriculture 0 0 0 442 31 0 442 31 0 Other commercial 1,156 148 128 390 22 0 1,546 170 128 Total impaired commercial related loans 14,523 837 354 6,498 165 0 21,021 1,002 354 Residential mortgage 147 4 3 0 0 0 147 4 3 Home equity 208 4 3 0 0 0 208 4 3 Other consumer 482 32 32 0 0 0 482 32 32 Total impaired consumer related loans 837 40 38 0 0 0 837 40 38 Total impaired loans $ 15,360 $ 877 $ 392 $ 6,498 $ 165 $ 0 $ 21,858 $ 1,042 $ 392 Past Due and Nonaccrual The performance and credit quality of the loan portfolio is also monitored by using an aging schedule which 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 December 31, 2016 and 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 December 31, 2016 Builder & developer $ 1,456 $ 0 $ 0 $ 384 $ 1,840 $ 146,795 $ 148,635 Commercial real estate investor 392 209 0 0 601 243,022 243,623 Residential real estate investor 171 0 0 837 1,008 182,615 183,623 Hotel/Motel 0 0 0 361 361 81,724 82,085 Wholesale & retail 0 0 0 0 0 88,062 88,062 Manufacturing 0 0 0 0 0 32,616 32,616 Agriculture 0 0 0 929 929 50,919 51,848 Other 238 102 498 259 1,097 241,775 242,872 Total commercial related loans 2,257 311 498 2,770 5,836 1,067,528 1,073,364 Residential mortgage 55 0 68 57 180 73,316 73,496 Home equity 203 176 0 244 623 93,599 94,222 Other 131 127 167 43 468 29,221 29,689 Total consumer related loans 389 303 235 344 1,271 196,136 197,407 Total loans $ 2,646 $ 614 $ 733 $ 3,114 $ 7,107 $ 1,263,664 $ 1,270,771 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 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 with respect to which 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 years ended December 31, 2016 and 2015. There were no defaults during the year ended December 31, 2016 for TDRs entered into during the previous 12 month period. |