Loans | Note 4—Loans Loan Portfolio Composition The table below provides the composition of the loan portfolio at June 30, 2019 and December 31, 2018 . 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) 2019 Loans 2018 Loans Builder & developer $ 153,983 10.4 $ 154,977 10.4 Commercial real estate investor 204,581 13.9 210,501 14.2 Residential real estate investor 230,162 15.6 231,118 15.6 Hotel/Motel 80,788 5.5 77,480 5.2 Wholesale & retail 111,724 7.6 117,280 7.9 Manufacturing 89,657 6.1 80,075 5.4 Agriculture 64,367 4.4 65,540 4.4 Other 331,527 22.4 342,839 23.0 Total commercial related loans 1,266,789 85.9 1,279,810 86.1 Residential mortgages 87,849 6.0 83,977 5.7 Home equity 97,303 6.6 98,019 6.6 Other 21,937 1.5 23,874 1.6 Total consumer related loans 207,089 14.1 205,870 13.9 Total loans $ 1,473,878 100.0 $ 1,485,680 100.0 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 (the ‘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. In addition to review by the Committee, existing loans are monitored by the primary loan officer and loan review to determine if any changes, upward or downward, in risk ratings are appropriate. Primary loan officers and loan review may downgrade existing loans, except to non-accrual status. Only the Committee, Executive Chairman or President/CEO may upgrade a loan that is classified. 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 June 30, 2019 and December 31, 2018 . Special (dollars in thousands) Pass Mention Substandard Nonaccrual Total June 30, 2019 Builder & developer $ 150,034 $ 2,711 $ 270 $ 968 $ 153,983 Commercial real estate investor 198,144 3,817 2,390 230 204,581 Residential real estate investor 218,832 6,448 218 4,664 230,162 Hotel/Motel 80,788 0 0 0 80,788 Wholesale & retail 91,593 8,628 4,271 7,232 111,724 Manufacturing 78,897 8,260 1,155 1,345 89,657 Agriculture 60,718 750 2,251 648 64,367 Other 298,163 10,722 13,985 8,657 331,527 Total commercial related loans 1,177,169 41,336 24,540 23,744 1,266,789 Residential mortgage 87,231 422 75 121 87,849 Home equity 96,709 63 0 531 97,303 Other 21,670 0 7 260 21,937 Total consumer related loans 205,610 485 82 912 207,089 Total loans $ 1,382,779 $ 41,821 $ 24,622 $ 24,656 $ 1,473,878 December 31, 2018 Builder & developer $ 152,188 $ 1,604 $ 411 $ 774 $ 154,977 Commercial real estate investor 204,141 1,808 4,317 235 210,501 Residential real estate investor 222,227 3,597 235 5,059 231,118 Hotel/Motel 77,480 0 0 0 77,480 Wholesale & retail 94,726 9,973 4,952 7,629 117,280 Manufacturing 72,058 4,991 1,302 1,724 80,075 Agriculture 61,636 3,244 0 660 65,540 Other 318,940 7,760 12,689 3,450 342,839 Total commercial related loans 1,203,396 32,977 23,906 19,531 1,279,810 Residential mortgage 83,305 7 82 583 83,977 Home equity 97,395 13 0 611 98,019 Other 23,601 1 9 263 23,874 Total consumer related loans 204,301 21 91 1,457 205,870 Total loans $ 1,407,697 $ 32,998 $ 23,997 $ 20,988 $ 1,485,680 Impaired Loans The table below presents a summary of impaired loans at June 30, 2019 and December 31, 2018 . As of June 30, 2019, generally, impaired loans are all loans risk rated nonaccrual or classified as troubled debt restructuring. As of December 31, 2018 , generally, impaired loans are certain loans r isk rated substandard and all loans risk rated nonaccrual or classified as troubled debt restructuring s. 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 specific allowance. The recorded investment represents outstanding unpaid principal loan balances adjusted for payments collected on a non-cash basis and 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, 2019 Builder & developer $ 1,192 $ 1,347 $ 0 $ 0 $ 0 $ 1,192 $ 1,347 Commercial real estate investor 2,620 2,620 0 0 0 2,620 2,620 Residential real estate investor 403 407 4,261 4,338 1,218 4,664 4,745 Hotel/Motel 0 0 0 0 0 0 0 Wholesale & retail 244 244 7,232 7,571 2,461 7,476 7,815 Manufacturing 15 15 1,330 1,400 539 1,345 1,415 Agriculture 648 652 0 0 0 648 652 Other commercial 1,948 1,954 6,709 6,738 2,383 8,657 8,692 Total impaired commercial related loans 7,070 7,239 19,532 20,047 6,601 26,602 27,286 Residential mortgage 121 121 0 0 0 121 121 Home equity 531 531 0 0 0 531 531 Other consumer 260 262 0 0 0 260 262 Total impaired consumer related loans 912 914 0 0 0 912 914 Total impaired loans $ 7,982 $ 8,153 $ 19,532 $ 20,047 $ 6,601 $ 27,514 $ 28,200 December 31, 2018 Builder & developer $ 1,047 $ 1,318 $ 138 $ 138 $ 51 $ 1,185 $ 1,456 Commercial real estate investor 4,552 4,552 0 0 0 4,552 4,552 Residential real estate investor 909 909 4,385 4,385 1,218 5,294 5,294 Hotel/Motel 0 0 0 0 0 0 0 Wholesale & retail 5,200 5,200 7,629 7,629 757 12,829 12,829 Manufacturing 1,320 1,320 1,706 1,706 539 3,026 3,026 Agriculture 660 660 0 0 0 660 660 Other commercial 13,245 13,245 2,894 2,894 1,114 16,139 16,139 Total impaired commercial related loans 26,933 27,204 16,752 16,752 3,679 43,685 43,956 Residential mortgage 665 689 0 0 0 665 689 Home equity 611 611 0 0 0 611 611 Other consumer 272 272 0 0 0 272 272 Total impaired consumer related loans 1,548 1,572 0 0 0 1,548 1,572 Total impaired loans $ 28,481 $ 28,776 $ 16,752 $ 16,752 $ 3,679 $ 45,233 $ 45,528 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, 2019 and 2018 . With No Related Allowance With A Related Allowance Total Average Total Average Total Average Total Recorded Interest Recorded Interest Recorded Interest (dollars in thousands) Investment Income Investment Income Investment Income Three months ended June 30, 2019 Builder & developer $ 1,196 $ 14 $ 0 $ 0 $ 1,196 $ 14 Commercial real estate investor 2,644 34 0 0 2,644 34 Residential real estate investor 362 6 4,283 0 4,645 6 Hotel/Motel 0 0 0 0 0 0 Wholesale & retail 245 3 7,204 0 7,449 3 Manufacturing 16 4 1,454 0 1,470 4 Agriculture 652 20 0 0 652 20 Other commercial 1,953 0 6,778 0 8,731 0 Total impaired commercial related loans 7,068 81 19,719 0 26,787 81 Residential mortgage 276 3 0 0 276 3 Home equity 564 5 0 0 564 5 Other consumer 271 5 0 0 271 5 Total impaired consumer related loans 1,111 13 0 0 1,111 13 Total impaired loans $ 8,179 $ 94 $ 19,719 $ 0 $ 27,898 $ 94 Three months ended June 30, 2018 Builder & developer $ 2,291 $ 5 $ 0 $ 0 $ 2,291 $ 5 Commercial real estate investor 5,817 78 0 0 5,817 78 Residential real estate investor 1,582 10 0 0 1,582 10 Hotel/Motel 0 0 0 0 0 0 Wholesale & retail 6,501 90 0 0 6,501 90 Manufacturing 3,557 92 0 0 3,557 92 Agriculture 367 0 0 0 367 0 Other commercial 1,045 16 0 0 1,045 16 Total impaired commercial related loans 21,160 291 0 0 21,160 291 Residential mortgage 257 1 0 0 257 1 Home equity 511 18 0 0 511 18 Other consumer 229 8 0 0 229 8 Total impaired consumer related loans 997 27 0 0 997 27 Total impaired loans $ 22,157 $ 318 $ 0 $ 0 $ 22,157 $ 318 With No Related Allowance With A Related Allowance Total Average Total Average Total Average Total Recorded Interest Recorded Interest Recorded Interest (dollars in thousands) Investment Income Investment Income Investment Income Six months ended June 30, 2019 Builder & developer $ 1,147 $ 28 $ 45 $ 0 $ 1,192 $ 28 Commercial real estate investor 3,280 68 0 0 3,280 68 Residential real estate investor 544 11 4,318 0 4,862 11 Hotel/Motel 0 0 0 0 0 0 Wholesale & retail 1,897 6 7,346 0 9,243 6 Manufacturing 451 9 1,538 0 1,989 9 Agriculture 654 33 0 0 654 33 Other commercial 5,717 0 5,483 0 11,200 0 Total impaired commercial related loans 13,690 155 18,730 0 32,420 155 Residential mortgage 406 9 0 0 406 9 Home equity 579 11 0 0 579 11 Other consumer 271 9 0 0 271 9 Total impaired consumer related loans 1,256 29 0 0 1,256 29 Total impaired loans $ 14,946 $ 184 $ 18,730 $ 0 $ 33,676 $ 184 Six months ended June 30, 2018 Builder & developer $ 2,418 $ 11 $ 0 $ 0 $ 2,418 $ 11 Commercial real estate investor 5,406 142 0 0 5,406 142 Residential real estate investor 1,458 25 0 0 1,458 25 Hotel/Motel 0 0 0 0 0 0 Wholesale & retail 6,972 190 0 0 6,972 190 Manufacturing 3,652 183 0 0 3,652 183 Agriculture 350 1 0 0 350 1 Other commercial 1,002 31 0 0 1,002 31 Total impaired commercial related loans 21,258 583 0 0 21,258 583 Residential mortgage 253 1 0 0 253 1 Home equity 491 22 0 0 491 22 Other consumer 231 18 0 0 231 18 Total impaired consumer related loans 975 41 0 0 975 41 Total impaired loans $ 22,233 $ 624 $ 0 $ 0 $ 22,233 $ 624 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, 2019 and December 31, 2018 . ≥ 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, 2019 Builder & developer $ 177 $ 0 $ 147 $ 968 $ 1,292 $ 152,691 $ 153,983 Commercial real estate investor 0 0 0 230 230 204,351 204,581 Residential real estate investor 393 0 114 4,664 5,171 224,991 230,162 Hotel/Motel 0 0 0 0 0 80,788 80,788 Wholesale & retail 1,828 0 88 7,232 9,148 102,576 111,724 Manufacturing 438 0 0 1,345 1,783 87,874 89,657 Agriculture 96 1,336 0 648 2,080 62,287 64,367 Other 8,946 932 50 8,657 18,585 312,942 331,527 Total commercial related loans 11,878 2,268 399 23,744 38,289 1,228,500 1,266,789 Residential mortgage 214 18 105 121 458 87,391 87,849 Home equity 173 69 0 531 773 96,530 97,303 Other 347 16 7 260 630 21,307 21,937 Total consumer related loans 734 103 112 912 1,861 205,228 207,089 Total loans $ 12,612 $ 2,371 $ 511 $ 24,656 $ 40,150 $ 1,433,728 $ 1,473,878 December 31, 2018 Builder & developer $ 159 $ 547 $ 43 $ 774 $ 1,523 $ 153,454 $ 154,977 Commercial real estate investor 0 0 1,828 235 2,063 208,438 210,501 Residential real estate investor 244 812 0 5,059 6,115 225,003 231,118 Hotel/Motel 0 0 0 0 0 77,480 77,480 Wholesale & retail 0 0 97 7,629 7,726 109,554 117,280 Manufacturing 0 0 0 1,724 1,724 78,351 80,075 Agriculture 0 0 0 660 660 64,880 65,540 Other 4,877 0 0 3,450 8,327 334,512 342,839 Total commercial related loans 5,280 1,359 1,968 19,531 28,138 1,251,672 1,279,810 Residential mortgage 0 10 66 583 659 83,318 83,977 Home equity 206 94 0 611 911 97,108 98,019 Other 263 2 94 263 622 23,252 23,874 Total consumer related loans 469 106 160 1,457 2,192 203,678 205,870 Total loans $ 5,749 $ 1,465 $ 2,128 $ 20,988 $ 30,330 $ 1,455,350 $ 1,485,680 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, 2019 and 2018 . There were no impa irment losses recognized on these TDR s. There were no defaults during the six months ended June 30, 2019 for TDRs entered into durin g 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, 2019 None June 30, 2018 Commercial related loans accruing 1 $ 150 $ 150 $ 139 Six months ended: June 30, 2019 Commercial related loans accruing 1 $ 63 $ 63 $ 59 June 30, 2018 Commercial related loans accruing 1 $ 150 $ 150 $ 139 |