Loans | Note 4—Loans Loan Portfolio Composition The table below provides the composition of the loan portfolio at June 30, 2017 and December 31, 2016 . 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) 2017 Loans 2016 Loans Builder & developer $ 171,389 12.7 $ 148,635 11.7 Commercial real estate investor 255,127 18.8 243,623 19.2 Residential real estate investor 203,315 15.0 183,623 14.4 Hotel/Motel 65,581 4.9 82,085 6.5 Wholesale & retail 93,609 6.9 88,062 6.9 Manufacturing 53,700 4.0 32,616 2.6 Agriculture 57,024 4.2 51,848 4.1 Other 257,222 19.0 242,872 19.1 Total commercial related loans 1,156,967 85.5 1,073,364 84.5 Residential mortgages 75,104 5.5 73,496 5.8 Home equity 94,129 7.0 94,222 7.4 Other 27,448 2.0 29,689 2.3 Total consumer related loans 196,681 14.5 197,407 15.5 Total loans $ 1,353,648 100.0 $ 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 at a minimum quarterly , 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, 2017 and December 31, 2016 . Special (dollars in thousands) Pass Mention Substandard Nonaccrual Total June 30, 2017 Builder & developer $ 162,179 $ 1,923 $ 2,999 $ 4,288 $ 171,389 Commercial real estate investor 248,939 368 5,571 249 255,127 Residential real estate investor 197,552 4,041 717 1,005 203,315 Hotel/Motel 65,581 0 0 0 65,581 Wholesale & retail 87,288 367 5,954 0 93,609 Manufacturing 48,685 0 5,015 0 53,700 Agriculture 55,345 1,342 0 337 57,024 Other 254,940 871 898 513 257,222 Total commercial related loans 1,120,509 8,912 21,154 6,392 1,156,967 Residential mortgage 75,011 0 85 8 75,104 Home equity 93,690 49 0 390 94,129 Other 27,063 103 9 273 27,448 Total consumer related loans 195,764 152 94 671 196,681 Total loans $ 1,316,273 $ 9,064 $ 21,248 $ 7,063 $ 1,353,648 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 June 30, 2017 and December 31, 2016 . 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, 2017 Builder & developer $ 2,999 $ 3,134 $ 4,288 $ 4,288 $ 1,021 $ 7,287 $ 7,422 Commercial real estate investor 5,820 5,836 0 0 0 5,820 5,836 Residential real estate investor 1,423 1,423 299 299 136 1,722 1,722 Hotel/Motel 0 0 0 0 0 0 0 Wholesale & retail 6,211 6,211 0 0 0 6,211 6,211 Manufacturing 3,790 3,790 1,225 1,225 400 5,015 5,015 Agriculture 0 0 337 337 263 337 337 Other commercial 1,228 1,228 183 298 82 1,411 1,526 Total impaired commercial related loans 21,471 21,622 6,332 6,447 1,902 27,803 28,069 Residential mortgage 93 122 0 0 0 93 122 Home equity 390 390 0 0 0 390 390 Other consumer 282 282 0 0 0 282 282 Total impaired consumer related loans 765 794 0 0 0 765 794 Total impaired loans $ 22,236 $ 22,416 $ 6,332 $ 6,447 $ 1,902 $ 28,568 $ 28,863 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 and six months ended June 30, 2017 and 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 June 30, 2017 Builder & developer $ 3,029 $ 48 $ 0 $ 2,336 $ 0 $ 0 $ 5,365 $ 48 $ 0 Commercial real estate investor 5,292 60 4 0 0 0 5,292 60 4 Residential real estate investor 1,411 12 2 460 0 0 1,871 12 2 Hotel/Motel 0 0 0 18 0 0 18 0 0 Wholesale & retail 6,743 80 0 0 0 0 6,743 80 0 Manufacturing 2,869 76 0 1,250 18 0 4,119 94 0 Agriculture 0 0 0 344 0 0 344 0 0 Other commercial 1,160 14 0 183 0 0 1,343 14 0 Total impaired commercial related loans 20,504 290 6 4,591 18 0 25,095 308 6 Residential mortgage 93 0 0 0 0 0 93 0 0 Home equity 393 4 4 0 0 0 393 4 4 Other consumer 290 4 4 0 0 0 290 4 4 Total impaired consumer related loans 776 8 8 0 0 0 776 8 8 Total impaired loans $ 21,280 $ 298 $ 14 $ 4,591 $ 18 $ 0 $ 25,871 $ 316 $ 14 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 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, 2017 Builder & developer $ 3,189 $ 101 $ 0 $ 1,685 $ 0 $ 0 $ 4,874 $ 101 $ 0 Commercial real estate investor 5,492 123 11 0 0 0 5,492 123 11 Residential real estate investor 1,409 27 7 406 0 0 1,815 27 7 Hotel/Motel 120 0 0 12 0 0 132 0 0 Wholesale & retail 4,582 83 0 0 0 0 4,582 83 0 Manufacturing 2,117 86 0 833 18 0 2,950 104 0 Agriculture 189 0 0 350 0 0 539 0 0 Other commercial 1,094 27 0 183 0 0 1,277 27 0 Total impaired commercial related loans 18,192 447 18 3,469 18 0 21,661 465 18 Residential mortgage 109 0 0 0 0 0 109 0 0 Home equity 343 4 4 0 0 0 343 4 4 Other consumer 251 6 6 0 0 0 251 6 6 Total impaired consumer related loans 703 10 10 0 0 0 703 10 10 Total impaired loans $ 18,895 $ 457 $ 28 $ 3,469 $ 18 $ 0 $ 22,364 $ 475 $ 28 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 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, 2017 and December 31, 2016 . ≥ 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, 2017 Builder & developer $ 1,197 $ 0 $ 0 $ 4,288 $ 5,485 $ 165,904 $ 171,389 Commercial real estate investor 289 0 0 249 538 254,589 255,127 Residential real estate investor 0 0 0 1,005 1,005 202,310 203,315 Hotel/Motel 0 0 0 0 0 65,581 65,581 Wholesale & retail 0 0 0 0 0 93,609 93,609 Manufacturing 0 0 0 0 0 53,700 53,700 Agriculture 1,277 0 0 337 1,614 55,410 57,024 Other 54 0 0 513 567 256,655 257,222 Total commercial related loans 2,817 0 0 6,392 9,209 1,147,758 1,156,967 Residential mortgage 0 182 67 8 257 74,847 75,104 Home equity 261 55 0 390 706 93,423 94,129 Other 83 56 93 273 505 26,943 27,448 Total consumer related loans 344 293 160 671 1,468 195,213 196,681 Total loans $ 3,161 $ 293 $ 160 $ 7,063 $ 10,677 $ 1,342,971 $ 1,353,648 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 and six months ended June 30, 2017 and June 30, 2016. There were no defaults during the three and six months ended June 30, 2017 for TDRs entered into during the previous 12 month period. |