Loans | Note 4—Loans Loan Portfolio Composition The table below provides the composition of the loan portfolio at June 30, 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. June 30, % Total December 31, % Total (dollars in thousands) 2018 Loans 2017 Loans Builder & developer $ 160,530 11.0 $ 184,402 13.2 Commercial real estate investor 226,218 15.4 230,827 16.5 Residential real estate investor 232,041 15.8 209,414 15.0 Hotel/Motel 75,531 5.2 63,195 4.5 Wholesale & retail 104,823 7.1 103,040 7.3 Manufacturing 79,450 5.4 62,510 4.5 Agriculture 65,476 4.5 59,931 4.3 Other 321,276 21.9 284,511 20.3 Total commercial related loans 1,265,345 86.3 1,197,830 85.6 Residential mortgages 80,393 5.5 79,325 5.6 Home equity 96,934 6.6 97,950 7.0 Other 23,224 1.6 24,659 1.8 Total consumer related loans 200,551 13.7 201,934 14.4 Total loans $ 1,465,896 100.0 $ 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 June 30, 2018 and December 31, 2017 . Special (dollars in thousands) Pass Mention Substandard Nonaccrual Total June 30, 2018 Builder & developer $ 157,711 $ 536 $ 195 $ 2,088 $ 160,530 Commercial real estate investor 218,742 362 6,059 1,055 226,218 Residential real estate investor 225,538 4,862 521 1,120 232,041 Hotel/Motel 75,531 0 0 0 75,531 Wholesale & retail 95,969 2,374 6,362 118 104,823 Manufacturing 75,426 574 3,450 0 79,450 Agriculture 61,996 3,186 0 294 65,476 Other 318,469 1,847 960 0 321,276 Total commercial related loans 1,229,382 13,741 17,547 4,675 1,265,345 Residential mortgage 80,147 8 84 154 80,393 Home equity 96,369 0 0 565 96,934 Other 22,974 25 9 216 23,224 Total consumer related loans 199,490 33 93 935 200,551 Total loans $ 1,428,872 $ 13,774 $ 17,640 $ 5,610 $ 1,465,896 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 June 30, 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 June 30, 2018 Builder & developer $ 2,283 $ 2,618 $ 0 $ 0 $ 0 $ 2,283 $ 2,618 Commercial real estate investor 7,114 7,129 0 0 0 7,114 7,129 Residential real estate investor 1,641 1,911 0 0 0 1,641 1,911 Hotel/Motel 0 0 0 0 0 0 0 Wholesale & retail 6,730 6,730 0 0 0 6,730 6,730 Manufacturing 3,450 3,450 0 0 0 3,450 3,450 Agriculture 294 294 0 0 0 294 294 Other commercial 960 960 0 0 0 960 960 Total impaired commercial related loans 22,472 23,092 0 0 0 22,472 23,092 Residential mortgage 238 262 0 0 0 238 262 Home equity 565 565 0 0 0 565 565 Other consumer 225 229 0 0 0 225 229 Total impaired consumer related loans 1,028 1,056 0 0 0 1,028 1,056 Total impaired loans $ 23,500 $ 24,148 $ 0 $ 0 $ 0 $ 23,500 $ 24,148 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 and six months ended June 30, 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 June 30, 2018 Builder & developer $ 2,291 $ 5 $ 0 $ 0 $ 0 $ 0 $ 2,291 $ 5 $ 0 Commercial real estate investor 5,817 75 3 0 0 0 5,817 75 3 Residential real estate investor 1,582 8 2 0 0 0 1,582 8 2 Hotel/Motel 0 0 0 0 0 0 0 0 0 Wholesale & retail 6,501 90 0 0 0 0 6,501 90 0 Manufacturing 3,557 92 0 0 0 0 3,557 92 0 Agriculture 367 0 0 0 0 0 367 0 0 Other commercial 1,045 16 0 0 0 0 1,045 16 0 Total impaired commercial related loans 21,160 286 5 0 0 0 21,160 286 5 Residential mortgage 257 1 0 0 0 0 257 1 0 Home equity 511 9 9 0 0 0 511 9 9 Other consumer 229 4 4 0 0 0 229 4 4 Total impaired consumer related loans 997 14 13 0 0 0 997 14 13 Total impaired loans $ 22,157 $ 300 $ 18 $ 0 $ 0 $ 0 $ 22,157 $ 300 $ 18 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 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, 2018 Builder & developer $ 2,418 $ 11 $ 0 $ 0 $ 0 $ 0 $ 2,418 $ 11 $ 0 Commercial real estate investor 5,406 135 7 0 0 0 5,406 135 7 Residential real estate investor 1,458 20 5 0 0 0 1,458 20 5 Hotel/Motel 0 0 0 0 0 0 0 0 0 Wholesale & retail 6,972 190 0 0 0 0 6,972 190 0 Manufacturing 3,652 183 0 0 0 0 3,652 183 0 Agriculture 350 1 0 0 0 0 350 1 0 Other commercial 1,002 31 0 0 0 0 1,002 31 0 Total impaired commercial related loans 21,258 571 12 0 0 0 21,258 571 12 Residential mortgage 253 1 0 0 0 0 253 1 0 Home equity 491 11 11 0 0 0 491 11 11 Other consumer 231 9 9 0 0 0 231 9 9 Total impaired consumer related loans 975 21 20 0 0 0 975 21 20 Total impaired loans $ 22,233 $ 592 $ 32 $ 0 $ 0 $ 0 $ 22,233 $ 592 $ 32 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 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, 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 June 30, 2018 Builder & developer $ 257 $ 0 $ 0 $ 2,088 $ 2,345 $ 158,185 $ 160,530 Commercial real estate investor 600 362 0 1,055 2,017 224,201 226,218 Residential real estate investor 212 501 0 1,120 1,833 230,208 232,041 Hotel/Motel 0 0 0 0 0 75,531 75,531 Wholesale & retail 0 0 0 118 118 104,705 104,823 Manufacturing 0 0 0 0 0 79,450 79,450 Agriculture 324 70 0 294 688 64,788 65,476 Other 3,688 0 0 0 3,688 317,588 321,276 Total commercial related loans 5,081 933 0 4,675 10,689 1,254,656 1,265,345 Residential mortgage 477 321 68 154 1,020 79,373 80,393 Home equity 163 56 0 565 784 96,150 96,934 Other 107 6 8 216 337 22,887 23,224 Total consumer related loans 747 383 76 935 2,141 198,410 200,551 Total loans $ 5,828 $ 1,316 $ 76 $ 5,610 $ 12,830 $ 1,453,066 $ 1,465,896 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. The table below shows loans whose terms have been modified under TDRs during the three and six months ended June 30, 2018 and 2017 . There were no impairment losses recognized on any of these TDRs, and they are all performing under their modified terms. There were no defaults during the three and six months ended June 30, 2018 for TDRs entered into during the previous 12 month period. Modifications Pre-Modification Post-Modification Number Outstanding Outstanding Recorded of Recorded Recorded Investment (dollars in thousands) Contracts Investments Investments at Period End Three months ended: June 30, 2018 Commercial related loans accruing 1 $ 150 $ 150 $ 139 June 30, 2017 None Six months ended: June 30, 2018 Commercial related loans accruing 1 $ 150 $ 150 $ 139 June 30, 2017 None |