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Note 3 - Loans
 9 Months Ended
Sep. 30, 2018
Notes to Financial Statements  
Loans, Notes, Trade and Other Receivables Disclosure [Text Block]
(
3
)
Loans
 
Composition of loans, net of deferred fees and costs, by primary loan portfolio class follows:
 
(In thousands)
  
September
30
, 201
8
    
December 31, 201
7
  
Commercial and industrial
   $
816,252
     $
779,014
  
Construction and development, excluding undeveloped land
    
211,415
      
195,912
  
Undeveloped land
    
21,692
      
18,988
  
                 
Real estate mortgage:
                
Commercial investment
    
630,000
      
594,902
  
Owner occupied commercial
    
420,098
      
398,685
  
1-4 family residential
    
274,409
      
262,110
  
Home equity - first lien
    
46,062
      
57,110
  
Home equity - junior lien
    
67,105
      
63,981
  
Subtotal: Real estate mortgage
    
1,437,674
      
1,376,788
  
                 
Consumer
    
47,450
      
38,868
  
                 
Total loans
   $
2,534,483
     $
2,409,570
  
 
The following table presents the balance in the recorded investment in loans and allowance for loan losses by portfolio segment and based on impairment evaluation method as of
September 30, 2018
and
December 31, 2017.
 
(In thousands)
  
Type of loan
    
 
 
 
   
 
 
 
  
Construction
    
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
   
 
 
 
  
and development
    
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
   
Commercial
    
excluding
    
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
   
and
    
undeveloped
    
Undeveloped
    
Real estate
    
 
 
 
  
 
 
 
September 30, 2018
  
industrial
    
land
    
land
    
mortgage
    
Consumer
    
Total
  
                                                 
Loans
   $
816,252
     $
211,415
     $
21,692
     $
1,437,674
     $
47,450
     $
2,534,483
  
                                                 
Loans collectively evaluated for impairment
   $
815,024
     $
211,035
     $
21,218
     $
1,434,982
     $
47,450
     $
2,529,709
  
                                                 
Loans individually evaluated for impairment
   $
1,228
     $
380
     $
474
     $
2,692
     $
-
     $
4,774
  
                                                 
Loans acquired with deteriorated credit quality
   $
-
     $
-
     $
-
     $
-
     $
-
     $
-
  
 
   
 
 
 
  
Construction
    
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
   
 
 
 
  
and development
    
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
   
Commercial
    
excluding
    
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
   
and
    
undeveloped
    
Undeveloped
    
Real estate
    
 
 
 
  
 
 
 
   
industrial
    
land
    
land
    
mortgage
    
Consumer
    
Total
  
                                                 
Allowance for loan losses
   $
11,101
     $
1,969
     $
582
     $
11,162
     $
408
     $
25,222
  
                                                 
Allowance for loans collectively evaluated for impairment
   $
10,955
     $
1,969
     $
582
     $
11,093
     $
408
     $
25,007
  
                                                 
Allowance for loans individually evaluated for impairment
   $
146
     $
-
     $
-
     $
69
     $
-
     $
215
  
                                                 
Allowance for loans acquired with deteriorated credit quality
   $
-
     $
-
     $
-
     $
-
     $
-
     $
-
  
 
 
(In thousands)
  
Type of loan
    
 
 
 
   
 
 
 
  
Construction
    
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
   
 
 
 
  
and development
    
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
   
Commercial
    
excluding
    
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
   
and
    
undeveloped
    
Undeveloped
    
Real estate
    
 
 
 
  
 
 
 
December 31, 2017
  
industrial
    
land
    
land
    
mortgage
    
Consumer
    
Total
  
                                                 
Loans
   $
779,014
     $
195,912
     $
18,988
     $
1,376,788
     $
38,868
     $
2,409,570
  
                                                 
Loans collectively evaluated for impairment
   $
777,838
     $
195,248
     $
18,514
     $
1,371,246
     $
38,868
     $
2,401,714
  
                                                 
Loans individually evaluated for impairment
   $
1,176
     $
664
     $
474
     $
5,066
     $
-
     $
7,380
  
                                                 
Loans acquired with deteriorated credit quality
   $
-
     $
-
     $
-
     $
476
     $
-
     $
476
  
 
   
 
 
 
  
Construction
    
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
   
 
 
 
  
and development
    
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
   
Commercial
    
excluding
    
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
   
and
    
undeveloped
    
Undeveloped
    
Real estate
    
 
 
 
  
 
 
 
   
industrial
    
land
    
land
    
mortgage
    
Consumer
    
Total
  
                                                 
Allowance for loan losses
   $
11,276
     $
1,724
     $
521
     $
11,012
     $
352
     $
24,885
  
                                                 
Allowance for loans collectively evaluated for impairment
   $
11,242
     $
1,724
     $
521
     $
10,998
     $
352
     $
24,837
  
                                                 
Allowance for loans individually evaluated for impairment
   $
34
     $
-
     $
-
     $
14
     $
-
     $
48
  
                                                 
Allowance for loans acquired with deteriorated credit quality
   $
-
     $
-
     $
-
     $
-
     $
-
     $
-
  
 
 
The considerations by Bancorp in computing its allowance for loan losses are determined based on the various risk characteristics of each loan segment. Relevant risk characteristics are as follows:
 
 
●
Commercial and industrial loans: Loans in this category are made to businesses. Generally these loans are secured by assets of the business and repayment is expected from cash flows of the business. A decline in the strength of the business or a weakened economy and resultant decreased consumer and/or business spending
may
have an effect on the credit quality in this loan category.
 
 
●
Construction and development, excluding undeveloped land: Loans in this category primarily include owner-occupied and investment construction loans and commercial development projects. In most cases, construction loans require only interest to be paid during construction. Upon completion or stabilization, the construction loans generally convert to permanent financing in the real estate mortgage segment, requiring principal amortization. Repayment of development loans is derived from sale of lots or units. Credit risk is affected by construction delays, cost overruns, market conditions and availability of permanent financing, to the extent such permanent financing is
not
being provided by Bancorp.
 
 
●
Undeveloped land: Loans in this category are secured by land acquired for development by the borrower, but for which
no
development has yet taken place. Credit risk is primarily dependent upon the financial strength of the borrower, but can also be affected by market conditions and time to sell lots at an adequate price in the future. Credit risk is also affected by availability of permanent financing, including to the end user, to the extent such permanent financing is
not
being provided by Bancorp.  
 
 
●
Real estate mortgage: Loans in this category are made to and secured by owner-occupied residential real estate, owner-occupied real estate used for business purposes, and income-producing investment properties. For owner occupied residential and owner-occupied commercial real estate, repayment is dependent on financial strength of the borrower. For income-producing investment properties, repayment is dependent on financial strength of tenants, and to a lesser extent the borrowers’ financial strength, once the project is stabilized. Underlying properties are generally located in Bancorp's primary market area. Cash flows of income producing investment properties
may
be adversely impacted by a downturn in the economy as reflected in increased vacancy rates, which in turn, will have an effect on credit quality and property values. Overall health of the economy, including unemployment rates and real estate prices, has an effect on credit quality in this loan category.
 
 
●
Consumer: Loans in this category
may
be either secured or unsecured and repayment is dependent on credit quality of the individual borrower and, if applicable, adequacy of collateral securing the loan. Therefore, overall health of the economy, including unemployment rates as well as home and securities prices, will have a significant effect on credit quality in this loan category.
 
 
The following tables present the activity in the allowance for loan losses for the
three
and
nine
month periods ended
September 30, 2018,
and
2017.
 
   
Three months ended
    
Nine months ended
  
   
September 30,
    
September 30,
  
(In thousands)
  
2018
    
2017
    
2018
    
2017
  
Beginning balance
   $
24,873
     $
25,115
     $
24,885
     $
24,007
  
Loans charged-off
                                
Commerical and Industrial
    
(451
 )    
(288
 )    
(2,390
 )    
(770
 )
Construction and development
    
-
      
-
      
-
      
-
  
Raw land
    
-
      
-
      
-
      
-
  
Real estate mortgage
    
(14
 )    
(11
 )    
(14
 )    
(45
 )
Consumer
    
(96
 )    
(161
 )    
(332
 )    
(418
 )
Total loans charged-off
    
(561
 )    
(460
 )    
(2,736
 )    
(1,233
 )
Recoveries of loans previously charged-off
                                
Commerical and Industrial
    
62
      
8
      
74
      
128
  
Construction and development
    
-
      
-
      
-
      
-
  
Raw land
    
-
      
-
      
-
      
-
  
Real estate mortgage
    
51
      
34
      
57
      
98
  
Consumer
    
62
      
101
      
237
      
298
  
Total loan recoveries
    
175
      
143
      
368
      
524
  
Net loans charged-off
    
(386
 )    
(317
 )    
(2,368
 )    
(709
 )
Provision (credit) for loan losses
                                
Commerical and Industrial
    
(627
 )    
(205
 )    
2,141
      
1,518
  
Construction and development
    
31
      
119
      
245
      
9
  
Raw land
    
81
      
(3
 )    
61
      
(85
 )
Real estate mortgage
    
1,210
      
183
      
107
      
54
  
Consumer
    
40
      
56
      
151
      
154
  
Total provision expense
    
735
      
150
      
2,705
      
1,650
  
Ending balance
   $
25,222
     $
24,948
     $
25,222
     $
24,948
  
 
The following tables present loans individually evaluated for impairment as of
September 30, 2018
and
December 31, 2017.
 
   
 
 
 
  
 
 
 
  
 
 
 
  
For the three and nine months
  
   
As of September 30, 2018
    
ended September 30, 2018
  
(In thousands)
  
 
 
 
  
Unpaid
    
 
 
 
  
Three month
    
Nine month
  
   
Recorded
    
principal
    
Related
    
average recorded
    
average recorded
  
(In thousands)
  
investment
    
balance
    
allowance
    
investment
    
investment
  
                                         
Loans with no related allowance recorded:
                                        
Commercial and industrial
   $
-
     $
-
     $
-
     $
119
     $
398
  
Construction and development, excluding undeveloped land
    
380
      
550
      
-
      
380
      
524
  
Undeveloped land
    
474
      
506
      
-
      
474
      
474
  
                                         
Real estate mortgage
                                        
Commercial investment
    
-
      
-
      
-
      
-
      
13
  
Owner occupied commercial
    
759
      
1,217
      
-
      
996
      
2,190
  
1-4 family residential
    
1,507
      
1,527
      
-
      
1,307
      
1,461
  
Home equity - first lien
    
-
      
-
      
-
      
-
      
-
  
Home equity - junior lien
    
115
      
115
      
-
      
60
      
45
  
Subtotal: Real estate mortgage
    
2,381
      
2,859
      
-
      
2,363
      
3,709
  
                                         
Consumer
    
-
      
-
      
-
      
-
      
23
  
Subtotal
   $
3,235
     $
3,915
     $
-
     $
3,336
     $
5,128
  
                                         
Loans with an allowance recorded:
                                        
Commercial and industrial
   $
1,228
     $
2,203
     $
146
     $
1,720
     $
1,853
  
Construction and development, excluding undeveloped land
    
-
      
-
      
-
      
-
      
-
  
Undeveloped land
    
-
      
-
      
-
      
-
      
24
  
                                         
Real estate mortgage
                                        
Commercial investment
    
-
      
-
      
-
      
-
      
-
  
Owner occupied commercial
    
297
      
297
      
55
      
937
      
897
  
1-4 family residential
    
14
      
14
      
14
      
14
      
14
  
Home equity - first lien
    
-
      
-
      
-
      
-
      
-
  
Home equity - junior lien
    
-
      
-
      
-
      
-
      
-
  
Subtotal: Real estate mortgage
    
311
      
311
      
69
      
951
      
911
  
                                         
Consumer
    
-
      
-
      
-
      
-
      
-
  
Subtotal
   $
1,539
     $
2,514
     $
215
     $
2,671
     $
2,788
  
                                         
Total:
                                        
Commercial and industrial
   $
1,228
     $
2,203
     $
146
     $
1,839
     $
2,251
  
Construction and development, excluding undeveloped land
    
380
      
550
      
-
      
380
      
524
  
Undeveloped land
    
474
      
506
      
-
      
474
      
498
  
                                         
Real estate mortgage
                                        
Commercial investment
    
-
      
-
      
-
      
-
      
13
  
Owner occupied commercial
    
1,056
      
1,514
      
55
      
1,933
      
3,087
  
1-4 family residential
    
1,521
      
1,541
      
14
      
1,321
      
1,475
  
Home equity - first lien
    
-
      
-
      
-
      
-
      
-
  
Home equity - junior lien
    
115
      
115
      
-
      
60
      
45
  
Subtotal: Real estate mortgage
    
2,692
      
3,170
      
69
      
3,314
      
4,620
  
                                         
Consumer
    
-
      
-
      
-
      
-
      
23
  
Total
   $
4,774
     $
6,429
     $
215
     $
6,007
     $
7,916
  
 
Stock Yar
ds Bancorp, inc. and subsidiary
 
 
   
 
 
 
  
 
 
 
  
 
 
 
  
For the three and nine months
  
   
As of December 31, 2017
 
  
ended September, 30 2017
  
   
 
 
 
  
Unpaid
    
 
 
 
  
Three month
    
Nine month
  
   
Recorded
    
principal
    
Related
    
average recorded
    
average recorded
  
(In thousands)
  
investment
    
balance
    
allowance
    
investment
    
investment
  
                                         
Loans with no related allowance recorded:
                                        
Commercial and industrial
   $
1,142
     $
2,202
     $
-
     $
195
     $
228
  
Construction and development, excluding undeveloped land
    
664
      
834
      
-
      
574
      
533
  
Undeveloped land
    
474
      
506
      
-
      
474
      
413
  
                                         
Real estate mortgage
                                        
Commercial investment
    
52
      
53
      
-
      
110
      
124
  
Owner occupied commercial
    
3,332
      
3,789
      
-
      
1,390
      
1,264
  
1-4 family residential
    
1,637
      
1,657
      
-
      
726
      
759
  
Home equity - first lien
    
-
      
-
      
-
      
-
      
-
  
Home equity - junior lien
    
31
      
31
      
-
      
125
      
224
  
Subtotal: Real estate mortgage
    
5,052
      
5,530
      
-
      
2,351
      
2,371
  
                                         
Consumer
    
-
      
17
      
-
      
-
      
-
  
Subtotal
   $
7,332
     $
9,089
     $
-
     $
3,594
     $
3,545
  
                                         
Loans with an allowance recorded:
                                        
Commercial and industrial
   $
34
     $
34
     $
34
     $
2,185
     $
2,343
  
Construction and development, excluding undeveloped land
    
-
      
-
      
-
      
-
      
-
  
Undeveloped land
    
-
      
-
      
-
      
-
      
60
  
                                         
Real estate mortgage
                                        
Commercial investment
    
-
      
-
      
-
      
-
      
-
  
Owner occupied commercial
    
-
      
-
      
-
      
-
      
-
  
1-4 family residential
    
14
      
14
      
14
      
6
      
3
  
Home equity - first lien
    
-
      
-
      
-
      
-
      
-
  
Home equity - junior lien
    
-
      
-
      
-
      
-
      
-
  
Subtotal: Real estate mortgage
    
14
      
14
      
14
      
6
      
3
  
                                         
Consumer
    
-
      
-
      
-
      
57
      
58
  
Subtotal
   $
48
     $
48
     $
48
     $
2,248
     $
2,464
  
                                         
Total:
                                        
Commercial and industrial
   $
1,176
     $
2,236
     $
34
     $
2,380
     $
2,571
  
Construction and development, excluding undeveloped land
    
664
      
834
      
-
      
574
      
533
  
Undeveloped land
    
474
      
506
      
-
      
474
      
473
  
                                         
Real estate mortgage
    
-
      
-
      
-
      
-
      
-
  
Commercial investment
    
52
      
53
      
-
      
110
      
124
  
Owner occupied commercial
    
3,332
      
3,789
      
-
      
1,390
      
1,264
  
1-4 family residential
    
1,651
      
1,671
      
14
      
732
      
762
  
Home equity - first lien
    
-
      
-
      
-
      
-
      
-
  
Home equity - junior lien
    
31
      
31
      
-
      
125
      
224
  
Subtotal: Real estate mortgage
    
5,066
      
5,544
      
14
      
2,357
      
2,374
  
                                         
Consumer
    
-
      
17
      
-
      
57
      
58
  
Total
   $
7,380
     $
9,137
     $
48
     $
5,842
     $
6,009
  
 
Differences between recorded investment amounts and unpaid principal balance amounts less related allowance are due to partial charge-offs which have occurred over the life of certain loans.
 
Impaired loans include non-accrual loans and accruing loans accounted for as troubled debt restructurings (TDRs), which continue to accrue interest. Non-performing loans include the balance of impaired loans plus any loans over
90
days past due and still accruing interest. Bancorp had
$212
thousand past due more than
90
days and still accruing interest at
September 30, 2018,
compared with
$2
thousand at
December 31, 2017,
and
$261
thousand at
September 30, 2017.
 
The following table presents the recorded investment in non-accrual loans as of
September 30, 2018
and
December 31, 2017.
 
(In thousands)
  
September
30
, 201
8
    
December 31, 201
7
  
                 
Commercial and industrial
   $
450
     $
321
  
Construction and development, excluding undeveloped land
    
380
      
664
  
Undeveloped land
    
474
      
474
  
                 
Real estate mortgage
                
Commercial investment
    
-
      
52
  
Owner occupied commercial
    
1,056
      
3,332
  
1-4 family residential
    
1,507
      
1,637
  
Home equity - first lien
    
-
      
-
  
Home equity - junior lien
    
115
      
31
  
Subtotal: Real estate mortgage
    
2,678
      
5,052
  
                 
Consumer
    
-
      
-
  
                 
Total
   $
3,982
     $
6,511
  
 

In the course of working with borrowers, Bancorp
may
elect to restructure the contractual terms of certain loans. Troubled debt restructurings (TDRs) occur when, for economic, legal, or other reasons related to a borrower’s financial difficulties, Bancorp grants a concession to the borrower that it would
not
otherwise consider.
 
At
September 30, 2018
and
December 31, 2017,
Bancorp had
$792
thousand and
$869
thousand of accruing loans classified as TDRs, respectively. Bancorp did
not
modify and classify any additional loans as TDRs during the
three
-month or
nine
-month periods ended
September 30, 2018.
One residential real estate loan with a recorded investment of
$14
thousand as of
September 30, 2018,
was modified and classified as a TDR in the
three
-month period ended
September 30, 2017.
Interest due and unpaid was capitalized into the principal balance resulting in the TDR classification. A specific reserve was established for the entire recorded investment of this loan. One additional loan, a commercial loan with a recorded investment of
$30
thousand at
September 30, 2018
was modified and classified as a TDR in the
nine
-month period ended
September 30, 2017.
The pre- and post-modification balance for this loan was
$39,000.
The monthly payment amount of this loan was modified to enable the borrower to fulfill the loan agreement. A specific reserve was established for the entire recorded investment of this loan.
 
No
loans classified and reported as troubled debt restructured within the
twelve
months prior to
September 30, 2018
defaulted during the
three
or
nine
month periods ended
September 30, 2018.
Likewise,
no
loans classified and reported as troubled debt restructured within the
twelve
months prior to
September 30, 2017
defaulted during the
three
-month or
nine
-month periods ended
September 30, 2017.
Loans accounted for as TDRs include modifications from original terms such as those due to bankruptcy proceedings, certain modifications of amortization periods or extended suspension of principal payments due to customer financial difficulties. Loans accounted for as TDRs are individually evaluated for impairment and, at
September 30, 2018,
had a total allowance allocation of
$77
thousand, compared with
$48
thousand at
December 31, 2017.
 
At
September 30, 2018
and
December 31, 2017,
Bancorp did
not
have any outstanding commitments to lend additional funds to borrowers whose loans have been modified as TDRs.
 
At
September 30, 2018
formal foreclosure proceedings were in process on consumer mortgage loans with a total recorded investment of
$1.3
million, all secured by residential real estate properties. As of
December 31, 2017,
formal foreclosure proceedings were in process on consumer mortgage loans with a total recorded investment of
$62
thousand.
 
The following table presents the aging of the recorded investment in loans as of
September 30, 2018
and
December 31, 2017.
 
   
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
Recorded
  
(In thousands)
  
 
 
 
  
 
 
 
  
 
 
 
  
90 or more
    
 
 
 
  
 
 
 
  
investment
  
   
 
 
 
  
 
 
 
  
 
 
 
  
days past
    
 
 
 
  
 
 
 
  
> 90 days
  
   
 
 
 
  
30-59 days
    
60-89 days
    
due (includes)
    
Total
    
Total
    
and
  
September 30, 2018
  
Current
    
past due
    
past due
    
non-accrual)
    
past due
    
loans
    
accruing
  
                                                         
Commercial and industrial
   $
814,238
     $
1,105
     $
459
     $
450
     $
2,014
     $
816,252
     $
-
  
Construction and development, excluding undeveloped land
    
211,035
      
-
      
-
      
380
      
380
      
211,415
      
-
  
Undeveloped land
    
21,218
      
-
      
-
      
474
      
474
      
21,692
      
-
  
                                                         
Real estate mortgage
                                                        
Commercial investment
    
627,852
      
2,010
      
138
      
-
      
2,148
      
630,000
      
-
  
Owner occupied commercial
    
417,611
      
1,264
      
167
      
1,056
      
2,487
      
420,098
      
-
  
1-4 family residential
    
269,848
      
2,757
      
125
      
1,679
      
4,561
      
274,409
      
172
  
Home equity - first lien
    
46,032
      
30
      
-
      
-
      
30
      
46,062
      
-
  
Home equity - junior lien
    
66,458
      
48
      
444
      
155
      
647
      
67,105
      
40
  
Subtotal: Real estate mortgage
    
1,427,801
      
6,109
      
874
      
2,890
      
9,873
      
1,437,674
      
212
  
                                                         
Consumer
    
47,447
      
3
      
-
      
-
      
3
      
47,450
      
-
  
                                                         
Total
   $
2,521,739
     $
7,217
     $
1,333
     $
4,194
     $
12,744
     $
2,534,483
     $
212
  
                                                         
December 31, 2017
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
                                                         
Commercial and industrial
   $
776,118
     $
2,571
     $
4
     $
321
     $
2,896
     $
779,014
     $
-
  
Construction and development, excluding undeveloped land
    
194,936
      
-
      
312
      
664
      
976
      
195,912
      
-
  
Undeveloped land
    
18,514
      
-
      
-
      
474
      
474
      
18,988
      
-
  
                                                         
Real estate mortgage
                                                        
Commercial investment
    
594,242
      
608
      
-
      
52
      
660
      
594,902
      
-
  
Owner occupied commercial
    
394,623
      
455
      
275
      
3,332
      
4,062
      
398,685
      
-
  
1-4 family residential
    
259,994
      
172
      
307
      
1,637
      
2,116
      
262,110
      
-
  
Home equity - first lien
    
56,938
      
172
      
-
      
-
      
172
      
57,110
      
-
  
Home equity - junior lien
    
63,667
      
87
      
194
      
33
      
314
      
63,981
      
2
  
Subtotal: Real estate mortgage
    
1,369,464
      
1,494
      
776
      
5,054
      
7,324
      
1,376,788
      
2
  
                                                         
Consumer
    
38,699
      
86
      
83
      
-
      
169
      
38,868
      
-
  
                                                         
Total
   $
2,397,731
     $
4,151
     $
1,175
     $
6,513
     $
11,839
     $
2,409,570
     $
2
  
 
Consistent with regulatory guidance, Bancorp categorizes loans into credit risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information and current economic trends. Pass-rated loans included all risk-rated loans other than those classified as other assets especially mentioned, substandard, and doubtful, which are defined below:
 
 
●
Other assets especially mentioned (“OAEM”): Loans classified as OAEM have potential weaknesses that deserve management's close attention. These potential weaknesses
may
result in deterioration of repayment prospects for the loan or of Bancorp's credit position at some future date.
 
 
●
Substandard: Loans classified as substandard are inadequately protected by the paying capacity of the obligor or of collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize repayment of the debt. Default is a distinct possibility if the deficiencies are
not
corrected.
 
 
●
Substandard non-performing: Loans classified as substandard non-performing have all the characteristics of substandard loans and have been placed on non-accrual status or have been accounted for as troubled debt restructurings. Loans are placed on non-accrual status when prospects for recovering both principal and accrued interest are considered doubtful or when a default of principal or interest has existed for
90
days or more. While on non-accrual status, payments of interest are applied to reduce the recorded investment in the loan.
 
 
●
Doubtful: Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or repayment in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.
 
As of
September 30, 2018
and
December 31, 2017,
the internally assigned risk grades of loans by category were as follows:
 
(In thousands)
  
 
 
 
  
 
 
 
  
 
 
 
  
Substandard
    
 
 
 
  
Total
  
September 30, 2018
  
Pass
    
OAEM
    
Substandard
    
non-performing
    
Doubtful
    
loans
  
                                                 
Commercial and industrial
   $
779,735
     $
20,981
     $
14,308
     $
1,228
     $
-
     $
816,252
  
Construction and development, excluding undeveloped land
    
206,835
      
4,200
      
-
      
380
      
-
      
211,415
  
Undeveloped land
    
21,209
      
-
      
9
      
474
      
-
      
21,692
  
                                                 
Real estate mortgage
                                                
Commercial investment
    
626,517
      
2,698
      
785
      
-
      
-
      
630,000
  
Owner occupied commercial
    
402,184
      
15,152
      
1,706
      
1,056
      
-
      
420,098
  
1-4 family residential
    
270,635
      
1,841
      
240
      
1,693
      
-
      
274,409
  
Home equity - first lien
    
46,062
      
-
      
-
      
-
      
-
      
46,062
  
Home equity - junior lien
    
66,483
      
100
      
367
      
155
      
-
      
67,105
  
Subtotal: Real estate mortgage
    
1,411,881
      
19,791
      
3,098
      
2,904
      
-
      
1,437,674
  
                                                 
Consumer
    
47,347
      
103
      
-
      
-
      
-
      
47,450
  
                                                 
Total
   $
2,467,007
     $
45,075
     $
17,415
     $
4,986
     $
-
     $
2,534,483
  
                                                 
                                                 
December 31, 2017
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
                                                 
Commercial and industrial
   $
751,628
     $
12,032
     $
14,178
     $
1,176
     $
-
     $
779,014
  
Construction and development, excluding undeveloped land
    
195,248
      
-
      
-
      
664
      
-
      
195,912
  
Undeveloped land
    
18,484
      
-
      
30
      
474
      
-
      
18,988
  
                                                 
Real estate mortgage
                                                
Commercial investment
    
591,232
      
3,599
      
19
      
52
      
-
      
594,902
  
Owner occupied commercial
    
383,455
      
8,683
      
3,215
      
3,332
      
-
      
398,685
  
1-4 family residential
    
256,968
      
2,477
      
1,014
      
1,651
      
-
      
262,110
  
Home equity - first lien
    
57,110
      
-
      
-
      
-
      
-
      
57,110
  
Home equity - junior lien
    
63,471
      
247
      
230
      
33
      
-
      
63,981
  
Subtotal: Real estate mortgage
    
1,352,236
      
15,006
      
4,478
      
5,068
      
-
      
1,376,788
  
                                                 
Consumer
    
38,747
      
117
      
4
      
-
      
-
      
38,868
  
                                                 
Total
   $
2,356,343
     $
27,155
     $
18,690
     $
7,382
     $
-
     $
2,409,570