Loans | NOTE 4-Loans Loan Portfolio Composition The table below provides the composition of the loan portfolio at December 31, 2019 and 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. December 31, % Total December 31, % Total (dollars in thousands) 2019 Loans 2018 Loans Builder & developer $ 159,312 10.6 $ 154,977 10.4 Commercial real estate investor 207,227 13.8 210,501 14.2 Residential real estate investor 247,969 16.5 231,118 15.6 Hotel/Motel 80,260 5.3 77,480 5.2 Wholesale & retail 109,238 7.3 117,280 7.9 Manufacturing 86,511 5.7 80,075 5.4 Agriculture 80,719 5.4 65,540 4.4 Other 313,371 20.7 342,839 23.0 Total commercial related loans 1,284,607 85.3 1,279,810 86.1 Residential mortgages 94,868 6.3 83,977 5.7 Home equity 100,827 6.7 98,019 6.6 Other 24,833 1.7 23,874 1.6 Total consumer related loans 220,528 14.7 205,870 13.9 Total loans $ 1,505,135 100.0 $ 1,485,680 100.0 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 south central Pennsylvania, specifically York County and Lancaster County and north central Maryland, specifically Baltimore County, Harford County and Baltimore City. 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, 2019 , the Corporation had three industry concentrations that exceeded 10 percent of the total loan portfolio : residential real estate investor, which represented 16.5 percent of the portfolio; commercial real estate investor, which represented 13.8 percent of the portfolio; and builder & developer, which represented 10.6 percent of the portfolio. At December 31, 2018 , the Corporation had three industry concentrations that exceeded 10 percent of the total loan portfolio : residential real estate investor, which represented 15.6 percent of the portfolio; commercial real estate investor, which represented 14.2 percent of the portfolio; and builder & developer, which represented 10.4 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 $ 9,355,000 at December 31, 2019 and $7,502,000 at December 31, 2018 . During 2019 , total additions were $ 2,944,000 and total repayments and reductions were $1,091,000 . As of year-end 2019 , 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. 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 December 31, 2019 and 2018 . Special (dollars in thousands) Pass Mention Substandard Nonaccrual Total December 31, 2019 Builder & developer $ 151,672 $ 6,503 $ 252 $ 885 $ 159,312 Commercial real estate investor 201,967 3,890 1,145 225 207,227 Residential real estate investor 238,216 3,780 202 5,771 247,969 Hotel/Motel 67,732 12,528 0 0 80,260 Wholesale & retail 89,556 10,513 1,954 7,215 109,238 Manufacturing 76,721 1,058 7,597 1,135 86,511 Agriculture 76,350 1,123 404 2,842 80,719 Other 277,634 16,490 13,748 5,499 313,371 Total commercial related loans 1,179,848 55,885 25,302 23,572 1,284,607 Residential mortgage 94,388 131 74 275 94,868 Home equity 100,089 61 0 677 100,827 Other 24,600 0 7 226 24,833 Total consumer related loans 219,077 192 81 1,178 220,528 Total loans $ 1,398,925 $ 56,077 $ 25,383 $ 24,750 $ 1,505,135 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 December 31, 2019 and 2018 . As of December 31, 2019, generally, impaired loans are all loans risk rated nonaccrual or classified as troubled debt restructurings. As of December 31, 2018, generally, impaired loans are certain loans risk rated substandard and all loans risk rated nonaccrual or classified as troubled debt restructuring. 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 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 December 31, 2019 Builder & developer $ 621 $ 651 $ 473 $ 474 $ 238 $ 1,094 $ 1,125 Commercial real estate investor 1,370 1,371 0 0 0 1,370 1,371 Residential real estate investor 734 753 5,037 5,137 1,873 5,771 5,890 Hotel/Motel 0 0 0 0 0 0 0 Wholesale & retail 273 273 7,184 7,811 2,537 7,457 8,084 Manufacturing 13 13 1,122 1,220 463 1,135 1,233 Agriculture 1,784 1,791 1,058 1,058 701 2,842 2,849 Other commercial 1,864 1,974 3,635 3,888 1,608 5,499 5,862 Total impaired commercial related loans 6,659 6,826 18,509 19,588 7,420 25,168 26,414 Residential mortgage 275 277 0 0 0 275 277 Home equity 677 677 0 0 0 677 677 Other consumer 226 231 0 0 0 226 231 Total impaired consumer related loans 1,178 1,185 0 0 0 1,178 1,185 Total impaired loans $ 7,837 $ 8,011 $ 18,509 $ 19,588 $ 7,420 $ 26,346 $ 27,599 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 years ended December 31, 2019 , 2018 and 2017 . Interest income on loans with a related allowance is the result of interest collected prior to the loan moving to nonaccrual status. 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 December 31, 2019 Builder & developer $ 1,086 $ 43 $ 219 $ 0 $ 1,305 $ 43 Commercial real estate investor 2,756 123 0 0 2,756 123 Residential real estate investor 628 32 4,791 0 5,419 32 Hotel/Motel 0 0 0 0 0 0 Wholesale & retail 1,241 10 7,325 0 8,566 10 Manufacturing 276 17 1,394 0 1,670 17 Agriculture 1,108 29 423 0 1,531 29 Other commercial 4,252 90 4,990 0 9,242 90 Total impaired commercial related loans 11,347 344 19,142 0 30,489 344 Residential mortgage 323 11 0 0 323 11 Home equity 607 18 0 0 607 18 Other consumer 267 16 0 0 267 16 Total impaired consumer related loans 1,197 45 0 0 1,197 45 Total impaired loans $ 12,544 $ 389 $ 19,142 $ 0 $ 31,686 $ 389 December 31, 2018 Builder & developer $ 1,716 $ 17 $ 55 $ 9 $ 1,771 $ 26 Commercial real estate investor 5,147 287 212 0 5,359 287 Residential real estate investor 1,492 56 877 7 2,369 63 Hotel/Motel 0 0 0 0 0 0 Wholesale & retail 5,292 34 3,089 301 8,381 335 Manufacturing 2,733 93 712 206 3,445 299 Agriculture 474 43 0 0 474 43 Other commercial 3,474 97 579 28 4,053 125 Total impaired commercial related loans 20,328 627 5,524 551 25,852 1,178 Residential mortgage 395 42 0 0 395 42 Home equity 516 52 0 0 516 52 Other consumer 247 34 0 0 247 34 Total impaired consumer related loans 1,158 128 0 0 1,158 128 Total impaired loans $ 21,486 $ 755 $ 5,524 $ 551 $ 27,010 $ 1,306 December 31, 2017 Builder & developer $ 3,528 $ 140 $ 1,088 $ 0 $ 4,616 $ 140 Commercial real estate investor 5,142 268 432 0 5,574 268 Residential real estate investor 1,371 65 303 0 1,674 65 Hotel/Motel 72 0 7 0 79 0 Wholesale & retail 5,741 260 0 0 5,741 260 Manufacturing 2,713 214 730 0 3,443 214 Agriculture 242 0 210 0 452 0 Other commercial 1,052 55 110 0 1,162 55 Total impaired commercial related loans 19,861 1,002 2,880 0 22,741 1,002 Residential mortgage 134 1 0 0 134 1 Home equity 368 34 0 0 368 34 Other consumer 258 15 0 0 258 15 Total impaired consumer related loans 760 50 0 0 760 50 Total impaired loans $ 20,621 $ 1,052 $ 2,880 $ 0 $ 23,501 $ 1,052 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, 2019 and 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 December 31, 2019 Builder & developer $ 0 $ 0 $ 43 $ 885 $ 928 $ 158,384 $ 159,312 Commercial real estate investor 0 0 0 225 225 207,002 207,227 Residential real estate investor 295 0 0 5,771 6,066 241,903 247,969 Hotel/Motel 0 0 0 0 0 80,260 80,260 Wholesale & retail 0 0 0 7,215 7,215 102,023 109,238 Manufacturing 409 0 0 1,135 1,544 84,967 86,511 Agriculture 14 0 0 2,842 2,856 77,863 80,719 Other 463 1,865 120 5,499 7,947 305,424 313,371 Total commercial related loans 1,181 1,865 163 23,572 26,781 1,257,826 1,284,607 Residential mortgage 0 70 104 275 449 94,419 94,868 Home equity 249 276 0 677 1,202 99,625 100,827 Other 750 68 13 226 1,057 23,776 24,833 Total consumer related loans 999 414 117 1,178 2,708 217,820 220,528 Total loans $ 2,180 $ 2,279 $ 280 $ 24,750 $ 29,489 $ 1,475,646 $ 1,505,135 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 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. The table below shows loans whose terms have been modified under TDRs during the years ended December 31, 2019 and 2018 . There were no impairment loss recognized on any of these TDRs. There were no defaults during the year ended December 31, 2019 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 Investment Investment at Period End Years ended: December 31, 2019 1 $ 63 $ 63 $ 54 Commercial related loans accruing December 31, 2018 3 $ 1,264 $ 1,305 $ 1,291 Commercial related loans accruing |