Loans | Note 4—Loans Loan Portfolio Composition The table below provides the composition of the loan portfolio at March 31, 2018 and December 31, 2017 . 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) 2018 Loans 2017 Loans Builder & developer $ 163,839 11.5 $ 184,402 13.2 Commercial real estate investor 230,981 16.2 230,827 16.5 Residential real estate investor 222,940 15.7 209,414 15.0 Hotel/Motel 75,074 5.3 63,195 4.5 Wholesale & retail 102,673 7.2 103,040 7.3 Manufacturing 67,466 4.7 62,510 4.5 Agriculture 62,565 4.4 59,931 4.3 Other 296,303 20.8 284,511 20.3 Total commercial related loans 1,221,841 85.8 1,197,830 85.6 Residential mortgages 80,826 5.7 79,325 5.6 Home equity 97,646 6.9 97,950 7.0 Other 23,444 1.6 24,659 1.8 Total consumer related loans 201,916 14.2 201,934 14.4 Total loans $ 1,423,757 100.0 $ 1,399,764 100.0 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 March 31, 2018 and December 31, 2017 . Special (dollars in thousands) Pass Mention Substandard Nonaccrual Total March 31, 2018 Builder & developer $ 160,995 $ 546 $ 207 $ 2,091 $ 163,839 Commercial real estate investor 223,751 2,710 4,278 242 230,981 Residential real estate investor 216,408 5,008 683 841 222,940 Hotel/Motel 75,074 0 0 0 75,074 Wholesale & retail 96,259 394 6,020 0 102,673 Manufacturing 63,222 580 3,664 0 67,466 Agriculture 59,794 2,331 136 304 62,565 Other 294,438 736 1,129 0 296,303 Total commercial related loans 1,189,941 12,305 16,117 3,478 1,221,841 Residential mortgage 80,542 9 84 191 80,826 Home equity 97,189 0 0 457 97,646 Other 23,183 28 9 224 23,444 Total consumer related loans 200,914 37 93 872 201,916 Total loans $ 1,390,855 $ 12,342 $ 16,210 $ 4,350 $ 1,423,757 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 Impaired Loans The table below presents a summary of impaired loans at March 31, 2018 and December 31, 2017 . 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 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 March 31, 2018 Builder & developer $ 2,298 $ 2,634 $ 0 $ 0 $ 0 $ 2,298 $ 2,634 Commercial real estate investor 4,520 4,535 0 0 0 4,520 4,535 Residential real estate investor 1,524 1,824 0 0 0 1,524 1,824 Hotel/Motel 0 0 0 0 0 0 0 Wholesale & retail 6,273 6,273 0 0 0 6,273 6,273 Manufacturing 3,664 3,664 0 0 0 3,664 3,664 Agriculture 440 440 0 0 0 440 440 Other commercial 1,129 1,129 0 0 0 1,129 1,129 Total impaired commercial related loans 19,848 20,499 0 0 0 19,848 20,499 Residential mortgage 275 305 0 0 0 275 305 Home equity 457 457 0 0 0 457 457 Other consumer 233 233 0 0 0 233 233 Total impaired consumer related loans 965 995 0 0 0 965 995 Total impaired loans $ 20,813 $ 21,494 $ 0 $ 0 $ 0 $ 20,813 $ 21,494 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 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, 2018 and 2017 . 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, 2018 Builder & developer $ 2,486 $ 6 $ 0 $ 0 $ 0 $ 0 $ 2,486 $ 6 $ 0 Commercial real estate investor 4,552 60 4 530 0 0 5,082 60 4 Residential real estate investor 1,366 12 3 0 0 0 1,366 12 3 Hotel/Motel 0 0 0 0 0 0 0 0 0 Wholesale & retail 7,092 100 0 0 0 0 7,092 100 0 Manufacturing 3,752 91 0 0 0 0 3,752 91 0 Agriculture 378 1 0 0 0 0 378 1 0 Other commercial 1,024 15 0 0 0 0 1,024 15 0 Total impaired commercial related loans 20,650 285 7 530 0 0 21,180 285 7 Residential mortgage 261 0 0 0 0 0 261 0 0 Home equity 454 2 2 0 0 0 454 2 2 Other consumer 235 5 5 0 0 0 235 5 5 Total impaired consumer related loans 950 7 7 0 0 0 950 7 7 Total impaired loans $ 21,600 $ 292 $ 14 $ 530 $ 0 $ 0 $ 22,130 $ 292 $ 14 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 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 31, 2018 and December 31, 2017 . ≥ 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, 2018 Builder & developer $ 220 $ 0 $ 0 $ 2,091 $ 2,311 $ 161,528 $ 163,839 Commercial real estate investor 897 1,275 0 242 2,414 228,567 230,981 Residential real estate investor 348 350 0 841 1,539 221,401 222,940 Hotel/Motel 0 0 0 0 0 75,074 75,074 Wholesale & retail 299 0 0 0 299 102,374 102,673 Manufacturing 0 0 0 0 0 67,466 67,466 Agriculture 0 21 1,188 304 1,513 61,052 62,565 Other 196 15 0 0 211 296,092 296,303 Total commercial related loans 1,960 1,661 1,188 3,478 8,287 1,213,554 1,221,841 Residential mortgage 1,157 0 68 191 1,416 79,410 80,826 Home equity 362 39 0 457 858 96,788 97,646 Other 181 49 8 224 462 22,982 23,444 Total consumer related loans 1,700 88 76 872 2,736 199,180 201,916 Total loans $ 3,660 $ 1,749 $ 1,264 $ 4,350 $ 11,023 $ 1,412,734 $ 1,423,757 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 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 31, 2018 and 2017. There were no defaults during the three ended March 31, 2018 for TDRs entered into during the previous 12 month period. |