Loans | NOTE 4-Loans Loan Portfolio Composition The table below provides the composition of the loan portfolio at December 31, 2017 and 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. December 31, % Total December 31, % Total (dollars in thousands) 2017 Loans 2016 Loans Builder & developer $ 184,402 13.2 $ 148,635 11.7 Commercial real estate investor 230,827 16.5 243,623 19.2 Residential real estate investor 209,414 15.0 183,623 14.4 Hotel/Motel 63,195 4.5 82,085 6.5 Wholesale & retail 103,040 7.3 88,062 6.9 Manufacturing 62,510 4.5 32,616 2.6 Agriculture 59,931 4.3 51,848 4.1 Other 284,511 20.3 242,872 19.1 Total commercial related loans 1,197,830 85.6 1,073,364 84.5 Residential mortgages 79,325 5.6 73,496 5.8 Home equity 97,950 7.0 94,222 7.4 Other 24,659 1.8 29,689 2.3 Total consumer related loans 201,934 14.4 197,407 15.5 Total loans $ 1,399,764 100.0 $ 1,270,771 100.0 Concentrations of Credit Risk Concentrations of credit risk arise when a number of clients 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 clients 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 client base lessens this risk. At December 31, 2017 , the Corporation had three industry concentrations that exceeded 10 percent of the total loan portfolio : commercial real estate investor, which represented 16.5 percent of the portfolio; residential real estate investor, which represented 15.0 percent of the portfolio; and builder & developer, which represented 13.2 percent of the portfolio. 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. 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 affiliates of such persons was $ 8,580,000 at December 31, 2017 and $162,000 at December 31, 2016 . During 2017 , total additions were $ 9,360,000 and total repayments and reductions were $942,000 . As of year-end 2017 , 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 at least 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 commercial 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, 2017 and 2016 . Special (dollars in thousands) Pass Mention Substandard Nonaccrual Total December 31, 2017 Builder & developer $ 179,897 $ 1,832 $ 581 $ 2,092 $ 184,402 Commercial real estate investor 224,822 360 4,339 1,306 230,827 Residential real estate investor 204,139 4,065 711 499 209,414 Hotel/Motel 63,195 0 0 0 63,195 Wholesale & retail 95,128 254 7,658 0 103,040 Manufacturing 58,082 588 3,840 0 62,510 Agriculture 57,140 2,476 0 315 59,931 Other 283,086 507 918 0 284,511 Total commercial related loans 1,165,489 10,082 18,047 4,212 1,197,830 Residential mortgage 79,068 10 85 162 79,325 Home equity 97,498 0 0 452 97,950 Other 24,394 30 9 226 24,659 Total consumer related loans 200,960 40 94 840 201,934 Total loans $ 1,366,449 $ 10,122 $ 18,141 $ 5,052 $ 1,399,764 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 December 31, 2017 and 2016 . Generally, impaired loans are certain loans risk rated substandard and all loans risk rated 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, 2017 Builder & developer $ 2,673 $ 3,008 $ 0 $ 0 $ 0 $ 2,673 $ 3,008 Commercial real estate investor 4,585 4,601 1,060 1,060 243 5,645 5,661 Residential real estate investor 1,210 1,510 0 0 0 1,210 1,510 Hotel/Motel 0 0 0 0 0 0 0 Wholesale & retail 7,912 7,912 0 0 0 7,912 7,912 Manufacturing 3,840 3,840 0 0 0 3,840 3,840 Agriculture 315 315 0 0 0 315 315 Other commercial 918 918 0 0 0 918 918 Total impaired commercial related loans 21,453 22,104 1,060 1,060 243 22,513 23,164 Residential mortgage 247 276 0 0 0 247 276 Home equity 452 452 0 0 0 452 452 Other consumer 235 235 0 0 0 235 235 Total impaired consumer related loans 934 963 0 0 0 934 963 Total impaired loans $ 22,387 $ 23,067 $ 1,060 $ 1,060 $ 243 $ 23,447 $ 24,127 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 years ended December 31, 2017 , 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 December 31, 2017 Builder & developer $ 3,528 $ 140 $ 0 $ 1,088 $ 0 $ 0 $ 4,616 $ 140 $ 0 Commercial real estate investor 5,142 248 20 432 0 0 5,574 248 20 Residential real estate investor 1,371 52 13 303 0 0 1,674 52 13 Hotel/Motel 72 0 0 7 0 0 79 0 0 Wholesale & retail 5,741 260 0 0 0 0 5,741 260 0 Manufacturing 2,713 214 0 730 0 0 3,443 214 0 Agriculture 242 0 0 210 0 0 452 0 0 Other commercial 1,052 55 0 110 0 0 1,162 55 0 Total impaired commercial related loans 19,861 969 33 2,880 0 0 22,741 969 33 Residential mortgage 134 1 0 0 0 0 134 1 0 Home equity 368 17 17 0 0 0 368 17 17 Other consumer 258 8 7 0 0 0 258 8 7 Total impaired consumer related loans 760 26 24 0 0 0 760 26 24 Total impaired loans $ 20,621 $ 995 $ 57 $ 2,880 $ 0 $ 0 $ 23,501 $ 995 $ 57 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 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, 2017 and 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 December 31, 2017 Builder & developer $ 615 $ 26 $ 0 $ 2,092 $ 2,733 $ 181,669 $ 184,402 Commercial real estate investor 0 0 0 1,306 1,306 229,521 230,827 Residential real estate investor 347 0 0 499 846 208,568 209,414 Hotel/Motel 0 0 0 0 0 63,195 63,195 Wholesale & retail 0 0 0 0 0 103,040 103,040 Manufacturing 0 0 0 0 0 62,510 62,510 Agriculture 0 137 0 315 452 59,479 59,931 Other 203 117 0 0 320 284,191 284,511 Total commercial related loans 1,165 280 0 4,212 5,657 1,192,173 1,197,830 Residential mortgage 392 72 67 162 693 78,632 79,325 Home equity 264 5 0 452 721 97,229 97,950 Other 123 5 9 226 363 24,296 24,659 Total consumer related loans 779 82 76 840 1,777 200,157 201,934 Total loans $ 1,944 $ 362 $ 76 $ 5,052 $ 7,434 $ 1,392,330 $ 1,399,764 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 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, 2017 and 2016. There were no defaults during the year ended December 31, 2017 for TDRs entered into during the previous 12 month period. |