Loans | Note 4 —Loans Loan Portfolio Composition The table below provides the composition of the loan portfolio at March 31 , 201 7 and December 31, 201 6 . 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) 2017 Loans 2016 Loans Builder & developer $ 164,637 12.5 $ 148,635 11.7 Commercial real estate investor 248,785 18.9 243,623 19.2 Residential real estate investor 199,017 15.1 183,623 14.4 Hotel/Motel 69,528 5.3 82,085 6.5 Wholesale & retail 93,368 7.1 88,062 6.9 Manufacturing 40,254 3.1 32,616 2.6 Agriculture 55,613 4.2 51,848 4.1 Other 250,815 18.9 242,872 19.1 Total commercial related loans 1,122,017 85.1 1,073,364 84.5 Residential mortgages 73,134 5.5 73,496 5.8 Home equity 94,987 7.2 94,222 7.4 Other 28,487 2.2 29,689 2.3 Total consumer related loans 196,608 14.9 197,407 15.5 Total loans $ 1,318,625 100.0 $ 1,270,771 100.0 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 March 3 1 , 201 7 and December 31, 201 6 . Special (dollars in thousands) Pass Mention Substandard Nonaccrual Total March 31, 2017 Builder & developer $ 155,189 $ 6,005 $ 3,059 $ 384 $ 164,637 Commercial real estate investor 242,535 1,486 4,512 252 248,785 Residential real estate investor 192,881 4,117 692 1,327 199,017 Hotel/Motel 69,492 0 0 36 69,528 Wholesale & retail 85,963 387 7,018 0 93,368 Manufacturing 35,239 1,791 3,224 0 40,254 Agriculture 53,909 1,353 0 351 55,613 Other 243,719 5,823 892 381 250,815 Total commercial related loans 1,078,927 20,962 19,397 2,731 1,122,017 Residential mortgage 73,041 0 85 8 73,134 Home equity 94,542 49 0 396 94,987 Other 28,082 106 9 290 28,487 Total consumer related loans 195,665 155 94 694 196,608 Total loans $ 1,274,592 $ 21,117 $ 19,491 $ 3,425 $ 1,318,625 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 Impaired Loans The table below presents a summary of impaired loans at March 3 1 , 201 7 and December 31, 201 6 . 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, 2017 Builder & developer $ 3,059 $ 3,194 $ 384 $ 384 $ 200 $ 3,443 $ 3,578 Commercial real estate investor 4,764 4,778 0 0 0 4,764 4,778 Residential real estate investor 1,399 1,399 620 620 269 2,019 2,019 Hotel/Motel 0 0 36 36 31 36 36 Wholesale & retail 7,276 7,276 0 0 0 7,276 7,276 Manufacturing 1,949 1,949 1,275 1,275 400 3,224 3,224 Agriculture 0 0 351 351 263 351 351 Other commercial 1,091 1,091 182 298 82 1,273 1,389 Total impaired commercial related loans 19,538 19,687 2,848 2,964 1,245 22,386 22,651 Residential mortgage 93 122 0 0 0 93 122 Home equity 396 396 0 0 0 396 396 Other consumer 299 299 0 0 0 299 299 Total impaired consumer related loans 788 817 0 0 0 788 817 Total impaired loans $ 20,326 $ 20,504 $ 2,848 $ 2,964 $ 1,245 $ 23,174 $ 23,468 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 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, 2017 and March 31, 2016 . 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, 2017 Builder & developer $ 3,284 $ 54 $ 0 $ 384 $ 0 $ 0 $ 3,668 $ 54 $ 0 Commercial real estate investor 5,328 63 7 0 0 0 5,328 63 7 Residential real estate investor 1,402 14 5 460 0 0 1,862 14 5 Hotel/Motel 180 0 0 18 0 0 198 0 0 Wholesale & retail 3,768 3 0 0 0 0 3,768 3 0 Manufacturing 1,281 9 0 637 0 0 1,918 9 0 Agriculture 284 0 0 356 0 0 640 0 0 Other commercial 1,026 14 0 183 0 0 1,209 14 0 Total impaired commercial related loans 16,553 157 12 2,038 0 0 18,591 157 12 Residential mortgage 117 0 0 0 0 0 117 0 0 Home equity 320 1 1 0 0 0 320 1 1 Other consumer 235 1 1 0 0 0 235 1 1 Total impaired consumer related loans 672 2 2 0 0 0 672 2 2 Total impaired loans $ 17,225 $ 159 $ 14 $ 2,038 $ 0 $ 0 $ 19,263 $ 159 $ 14 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 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 7 and December 31, 201 6 . ≥ 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, 2017 Builder & developer $ 3,972 $ 201 $ 0 $ 384 $ 4,557 $ 160,080 $ 164,637 Commercial real estate investor 294 0 0 252 546 248,239 248,785 Residential real estate investor 0 0 0 1,327 1,327 197,690 199,017 Hotel/Motel 0 0 0 36 36 69,492 69,528 Wholesale & retail 41 130 0 0 171 93,197 93,368 Manufacturing 0 0 0 0 0 40,254 40,254 Agriculture 0 0 0 351 351 55,262 55,613 Other 473 83 0 381 937 249,878 250,815 Total commercial related loans 4,780 414 0 2,731 7,925 1,114,092 1,122,017 Residential mortgage 49 0 68 8 125 73,009 73,134 Home equity 73 143 0 396 612 94,375 94,987 Other 191 9 12 290 502 27,985 28,487 Total consumer related loans 313 152 80 694 1,239 195,369 196,608 Total loans $ 5,093 $ 566 $ 80 $ 3,425 $ 9,164 $ 1,309,461 $ 1,318,625 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 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 3 1 , 201 7 and March 31, 201 6 . There were no defaults during the three months ended March 3 1 , 201 7 for TDRs entered into during the previous 12 month period. |