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Note 5 - Loans
 12 Months Ended
Dec. 31, 2018
Notes to Financial Statements  
Loans, Notes, Trade and Other Receivables Disclosure [Text Block]
(
5
) Loans
 
Composition of loans by primary loan portfolio class follows:
 
   
December 31,
  
(In thousands)
  
201
8
    
201
7
  
Commercial and industrial
   $
833,524
     $
779,014
  
Construction and development, excluding undeveloped land
    
225,050
      
195,912
  
Undeveloped land
    
30,092
      
18,988
  
                 
Real estate mortgage:
                
Commercial investment
    
588,610
      
594,902
  
Owner occupied commercial
    
426,373
      
398,685
  
1-4 family residential
    
276,017
      
262,110
  
Home equity - first lien
    
49,500
      
57,110
  
Home equity - junior lien
    
70,947
      
63,981
  
Subtotal: Real estate mortgage
    
1,411,447
      
1,376,788
  
                 
Consumer
    
48,058
      
38,868
  
                 
Total loans
   $
2,548,171
     $
2,409,570
  
 
 
Fees and costs of originating loans are deferred at origination and amortized over the life of the loan. Loan balances reported herein include deferred loan origination fees, net of deferred loan costs. At
December 31, 2018
and
2017,
net deferred loan origination costs exceeded deferred loan origination fees, resulting in net negative balances of
$592
thousand and
$600
thousand, respectively.
 
Bancorp’s credit exposure is diversified with secured and unsecured loans to individuals and businesses.
No
specific industry concentration exceeds
ten
percent of loans. While Bancorp has a diversified loan portfolio, a customer’s ability to honor contracts is somewhat dependent upon the economic stability and/or industry in which that customer does business. Loans outstanding and related unfunded commitments are primarily concentrated within Bancorp’s current market areas, which encompass the Louisville, Indianapolis and Cincinnati metropolitan markets.
 
Bancorp occasionally enters into loan participation agreements with other banks in the ordinary course of business to diversify credit risk. For certain sold participation loans, Bancorp has retained effective control of the loans, typically by restricting the participating institutions from pledging or selling their share of the loan without permission from Bancorp. US GAAP requires the participated portion of these loans to be recorded as secured borrowings. The participated portions of these loans are included in the commercial and industrial loan (C&I) totals above, and a corresponding liability is reflected in other liabilities. At
December 31, 2018
and
2017,
the total participated portions of loans of this nature were
$10.5
million and
$18.2
million respectively.
 
Loans to directors and their associates, including loans to companies for which directors are principal owners and executive officers are presented in the following table.
 
(In thousands)
  
Year ended December 31,
  
Loans to directors and executive officers
  
201
8
    
201
7
  
Balance as of January 1
   $
629
     $
969
  
Effect of changes in composition of directors and executive officers
    
51,415
      
–
  
Repayment of term loans
    
–
      
(175
 )
Changes in balances of revolving lines of credit
    
643
      
(165
 )
Balance as of December 31
   $
52,687
     $
629
  
 
A total of
$500
thousand in loans to directors and executive officers were past due or considered potential problem loans as of
December 31, 2018,
compared with
none
as of
December 31, 2017.
 
The following tables present balances in the recorded investment in loans and allowance for loan losses by portfolio segment and based on impairment evaluation method as of
December 31, 2018,
2017
and
2016.
 
(In thousands)
  
Type of loan
    
 
 
 
   
 
 
 
  
Construction
    
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
   
 
 
 
  
and development
    
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
   
Commercial
    
excluding
    
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
   
and
    
undeveloped
    
Undeveloped
    
Real estate
    
 
 
 
  
 
 
 
December 31, 201
8
  
industrial
    
land
    
land
    
mortgage
    
Consumer
    
Total
  
                                                 
Loans
   $
833,524
     $
225,050
     $
30,092
     $
1,411,447
     $
48,058
     $
2,548,171
  
                                                 
Loans individually evaluated for impairment
   $
220
     $
318
     $
474
     $
1,641
     $
–
     $
2,653
  
                                                 
Loans collectively evaluated for impairment
   $
833,304
     $
224,732
     $
29,618
     $
1,409,806
     $
48,058
     $
2,545,518
  
                                                 
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
and
lease losses
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
At December 31, 2017
   $
11,276
     $
1,724
     $
521
     $
11,012
     $
352
     $
24,885
  
Provision (credit)
    
2,539
      
36
      
231
      
(261
 )    
160
      
2,705
  
Charge-offs
    
(2,404
 )    
–
      
–
      
(132
 )    
(476
 )    
(3,012
 )
Recoveries
    
554
      
–
      
–
      
62
      
340
      
956
  
At December 31, 2018
   $
11,965
     $
1,760
     $
752
     $
10,681
     $
376
     $
25,534
  
                                                 
Allowance for loans individually evaluated for impairment
   $
28
     $
–
     $
–
     $
14
     $
–
     $
42
  
                                                 
Allowance for loans collectively evaluated for impairment
   $
11,937
     $
1,760
     $
752
     $
10,667
     $
376
     $
25,492
  
                                                 
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 individually evaluated for impairment
   $
1,176
     $
664
     $
474
     $
5,066
     $
–
     $
7,380
  
                                                 
Loans collectively evaluated for impairment
   $
777,838
     $
195,248
     $
18,514
     $
1,371,246
     $
38,868
     $
2,401,714
  
                                                 
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
and
lease losses
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
At December 31, 2016
   $
10,483
     $
1,923
     $
684
     $
10,573
     $
344
     $
24,007
  
Provision (credit)
    
2,373
      
(199
 )    
(163
 )    
383
      
156
      
2,550
  
Charge-offs
    
(1,782
 )    
–
      
–
      
(98
 )    
(549
 )    
(2,429
 )
Recoveries
    
202
      
–
      
–
      
154
      
401
      
757
  
At December 31, 2017
   $
11,276
     $
1,724
     $
521
     $
11,012
     $
352
     $
24,885
  
                                                 
Allowance for loans individually evaluated for impairment
   $
34
     $
–
     $
–
     $
14
     $
–
     $
48
  
                                                 
Allowance for loans collectively evaluated for impairment
   $
11,242
     $
1,724
     $
521
     $
10,998
     $
352
     $
24,837
  
                                                 
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, 2016
  
industrial
    
land
    
land
    
mortgage
    
Consumer
    
Total
  
                                                 
Loans
   $
736,841
     $
192,348
     $
21,496
     $
1,319,520
     $
35,170
     $
2,305,375
  
                                                 
Loans individually evaluated for impairment
   $
2,682
     $
538
     $
474
     $
2,516
     $
59
     $
6,269
  
                                                 
Loans collectively evaluated for impairment
   $
734,139
     $
191,810
     $
21,022
     $
1,316,400
     $
35,111
     $
2,298,482
  
                                                 
Loans acquired with deteriorated credit quality
   $
20
     $
–
     $
–
     $
604
     $
–
     $
624
  
 
   
 
 
 
  
Construction
    
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
   
 
 
 
  
and development
    
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
   
Commercial
    
excluding
    
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
   
And
    
undeveloped
    
Undeveloped
    
Real estate
    
 
 
 
  
 
 
 
   
Industrial
    
land
    
land
    
mortgage
    
Consumer
    
Total
  
Allowance for loan
and
lease losses
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
At December 31, 2015
   $
8,645
     $
1,760
     $
814
     $
10,875
     $
347
     $
22,441
  
Provision (credit)
    
2,775
      
275
      
(130
 )    
(68
 )    
148
      
3,000
  
Charge-offs
    
(1,216
 )    
(133
 )    
–
      
(576
 )    
(568
 )    
(2,493
 )
Recoveries
    
279
      
21
      
–
      
342
      
417
      
1,059
  
At December 31, 2016
   $
10,483
     $
1,923
     $
684
     $
10,573
     $
344
     $
24,007
  
                                                 
Allowance for loans individually evaluated for impairment
   $
1,207
     $
–
     $
1
     $
–
     $
59
     $
1,267
  
                                                 
Allowance for loans collectively evaluated for impairment
   $
9,276
     $
1,923
     $
683
     $
10,573
     $
285
     $
22,740
  
                                                 
Allowance for loans acquired with deteriorated credit quality
   $
–
     $
–
     $
–
     $
–
     $
–
     $
–
  
 
Considerations by Bancorp in computing its allowance 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 a negative effect on 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 loan
may
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 including any pre-sold 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 financial strength of the borrower, but can also be affected by market conditions and time to sell lots at an adequate price. 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 both the tenants and the borrower. 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 values, 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 loans individually evaluated for impairment as of
December 31, 2018
and
2017.
 
(In thousands)
  
 
 
 
  
Unpaid
    
 
 
 
  
Average
    
Interest
  
   
Recorded
    
principal
    
Related
    
recorded
    
income
  
December 31, 2018
  
investment
    
balance
    
allowance
    
investment
    
recognized
  
                                         
Loans with no related allowance recorded:
                                        
Commercial and industrial
   $
192
     $
707
     $
–
     $
161
     $
–
  
Construction and development, excluding undeveloped land
    
318
      
489
      
–
      
437
      
–
  
Undeveloped land
    
474
      
506
      
–
      
474
      
–
  
                                         
Real estate mortgage
                                        
Commercial investment
    
138
      
138
      
–
      
35
      
–
  
Owner occupied commercial
    
586
      
1,023
      
–
      
1,503
      
–
  
1-4 family residential
    
760
      
760
      
–
      
1,242
      
–
  
Home equity - first lien
    
–
      
–
      
–
      
–
      
 
  
Home equity - junior lien
    
143
      
143
      
–
      
73
      
–
  
Subtotal: Real estate mortgage
    
1,627
      
2,064
      
–
      
2,853
      
–
  
                                         
Consumer
    
–
      
–
      
–
      
23
      
 
  
Subtotal
   $
2,611
     $
3,766
     $
–
     $
3,948
     $
–
  
                                         
Loans with an allowance recorded:
                                        
Commercial and industrial
   $
28
     $
28
     $
28
     $
1,851
     $
2
  
Construction and development, excluding undeveloped land
    
–
      
–
      
–
      
–
      
–
  
Undeveloped land
    
–
      
–
      
–
      
24
      
–
  
                                         
Real estate mortgage
                                        
Commercial investment
    
–
      
–
      
–
      
–
      
–
  
Owner occupied commercial
    
–
      
–
      
–
      
897
      
–
  
1-4 family residential
    
14
      
14
      
14
      
14
      
1
  
Home equity - first lien
    
–
      
–
      
–
      
–
      
–
  
Home equity - junior lien
    
–
      
–
      
–
      
–
      
–
  
Subtotal: Real estate mortgage
    
14
      
14
      
14
      
911
      
1
  
                                         
Consumer
    
–
      
–
      
–
      
–
      
–
  
Subtotal
   $
42
     $
42
     $
42
     $
2,786
     $
3
  
                                         
Total:
                                        
Commercial and industrial
   $
220
     $
735
     $
28
     $
2,012
      
2
  
Construction and development, excluding undeveloped land
    
318
      
489
      
–
      
437
      
–
  
Undeveloped land
    
474
      
506
      
–
      
498
      
–
  
                                         
Real estate mortgage
                                        
Commercial investment
    
138
      
138
      
–
      
35
      
–
  
Owner occupied commercial
    
586
      
1,023
      
–
      
2,400
      
–
  
1-4 family residential
    
774
      
774
      
14
      
1,256
      
1
  
Home equity - first lien
    
–
      
–
      
–
      
–
      
–
  
Home equity - junior lien
    
143
      
143
      
–
      
73
      
–
  
Subtotal: Real estate mortgage
    
1,641
      
2,078
      
14
      
3,764
      
1
  
                                         
Consumer
    
–
      
–
      
–
      
23
      
–
  
Total
   $
2,653
     $
3,808
     $
42
     $
6,734
      
3
  
 
 
(In thousands)
  
 
 
 
  
Unpaid
    
 
 
 
  
Average
    
Interest
  
   
Recorded
    
principal
    
Related
    
recorded
    
income
  
December 31, 2017
  
investment
    
balance
    
allowance
    
investment
    
recognized
  
                                         
Loans with no related allowance recorded:
                                        
Commercial and industrial
   $
1,142
     $
2,202
     $
–
     $
411
     $
–
  
Construction and development, excluding undeveloped land
    
664
      
834
      
–
      
559
      
–
  
Undeveloped land
    
474
      
506
      
–
      
425
      
–
  
                                         
Real estate mortgage
                                        
Commercial investment
    
52
      
53
      
–
      
110
      
–
  
Owner occupied commercial
    
3,332
      
3,789
      
–
      
1,678
      
–
  
1-4 family residential
    
1,637
      
1,657
      
–
      
935
      
–
  
Home equity - first lien
    
–
      
–
      
–
      
–
      
 
  
Home equity - junior lien
    
31
      
31
      
–
      
186
      
–
  
Subtotal: Real estate mortgage
    
5,052
      
5,530
      
–
      
2,909
      
–
  
                                         
Consumer
    
–
      
–
      
–
      
–
      
 
  
Subtotal
   $
7,332
     $
9,072
     $
–
     $
4,304
     $
–
  
                                         
Loans with an allowance recorded:
                                        
Commercial and industrial
   $
34
     $
34
     $
34
     $
1,882
      
78
  
Construction and development, excluding undeveloped land
    
–
      
 
      
 
      
 
      
–
  
Undeveloped land
    
–
      
 
      
 
      
48
      
–
  
                                         
Real estate mortgage
                                        
Commercial investment
    
–
      
–
      
–
      
–
      
–
  
Owner occupied commercial
    
–
      
–
      
–
      
–
      
–
  
1-4 family residential
    
14
      
14
      
14
      
5
      
–
  
Home equity - first lien
    
–
      
–
      
–
      
–
      
–
  
Home equity - junior lien
    
–
      
–
      
–
      
–
      
–
  
Subtotal: Real estate mortgage
    
14
      
14
      
14
      
5
      
–
  
                                         
Consumer
    
–
      
–
      
–
      
46
      
–
  
Subtotal
   $
48
     $
48
     $
48
     $
1,981
     $
78
  
                                         
Total:
                                        
Commercial and industrial
   $
1,176
     $
2,236
     $
34
     $
2,293
      
78
  
Construction and development, excluding undeveloped land
    
664
      
834
      
–
      
559
      
–
  
Undeveloped land
    
474
      
506
      
–
      
473
      
–
  
                                         
Real estate mortgage
                                        
Commercial investment
    
52
      
53
      
–
      
110
      
–
  
Owner occupied commercial
    
3,332
      
3,789
      
–
      
1,678
      
–
  
1-4 family residential
    
1,651
      
1,671
      
14
      
940
      
–
  
Home equity - first lien
    
–
      
–
      
–
      
–
      
–
  
Home equity - junior lien
    
31
      
31
      
–
      
186
      
–
  
Subtotal: Real estate mortgage
    
5,066
      
5,544
      
14
      
2,914
      
–
  
                                         
Consumer
    
–
      
–
      
–
      
46
      
–
  
Total
   $
7,380
     $
9,120
     $
48
     $
6,285
     $
78
  
 
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 loans and fair value adjustments recorded for loans acquired. Interest paid on impaired or non-accrual loans that was used to reduce principal was
$93
thousand,
$338
thousand and
$307
thousand in
2018,
2017
and
2016,
respectively.  Interest income that would have been recorded if non-accrual loans were on a current basis in accordance with their original terms was
$391
thousand,
$159
thousand and
$149
thousand in
2018,
2017
and
2016,
respectively.
No
interest income was recognized on a cash basis in
2018,
2017,
or
2016.
 
Impaired loans include non-accrual loans and 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.  Loans past due more than
90
days or more and still accruing interest amounted to
$745
thousand and
$2
thousand at
December 31, 2018
and
2017,
respectively.
 
The following table presents the recorded investment in non-accrual loans as of
December 31, 2017
and
2016.
 
   
December 31,
  
(In thousands)
  
201
8
    
201
7
  
                 
Commercial and industrial
   $
192
     $
321
  
Construction and development, excluding undeveloped land
    
318
      
664
  
Undeveloped land
    
474
      
474
  
                 
Real estate mortgage
                
Commercial investment
    
138
      
52
  
Owner occupied commercial
    
586
      
3,332
  
1-4 family residential
    
760
      
1,637
  
Home equity - first lien
    
–
      
–
  
Home equity - junior lien
    
143
      
31
  
Subtotal: Real estate mortgage
    
1,627
      
5,052
  
                 
Consumer
    
–
      
–
  
                 
Total
   $
2,611
     $
6,511
  
 
In the course of working with borrowers, Bancorp
may
elect to restructure contractual terms of certain loans. A troubled debt restructuring (TDRs) occurs when, for economic or legal reasons related to a borrower’s financial difficulties, Bancorp grants a concession to the borrower that it would
not
otherwise consider. Bancorp had
$42
thousand and
$869
thousand of accruing loans classified as TDRs, at
December 31, 2018
and
2017,
respectively.
No
loans were classified as TDR in
2018
or
2016.
Two
loans were designated as TDRs during
2017.
A commercial loan with a pre- and post-modification recorded investment of
$39
thousand was given a payment concession so as to enable the borrower to fulfill the loan agreement. A
1
-
4
family residential loan with a pre-modification recorded investment of
$12
thousand was renewed with interest capitalized resulting in a post-modification recorded investment of
$14
thousand. Specific reserves for the full amounts of both loans were established. Two other commercial loans were considered TDRs as of
December 31, 2017.
Loans reported in
2016
as TDRs consisted of
two
commercial loans, to a single borrower, and
one
consumer loan.
No
loans classified as TDRs in
2016,
2017
or
2018
subsequently defaulted within
12
months.
 
Loans accounted for as TDRs are individually evaluated for impairment. At
December 31, 2018
loans reported as TDRs had a total allowance allocation of
$42
thousand, compared with
$48
thousand at
December 31, 2017.
At
December 31, 2018
and
2017,
Bancorp had
no
outstanding commitments to lend additional funds to borrowers whose loans have been classified as TDRs. As of
December 31, 2018
formal foreclosure proceedings were in process on consumer mortgage loans with a total recorded investment of
$528
thousand, compared with
$62
thousand as of
December 31, 2017.
 
The following table presents aging of the recorded investment in loans as of
December 31, 2018
and
2017.
 
   
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
Recorded
  
(In thousands)
  
 
 
 
  
 
 
 
  
 
 
 
  
90 or more
    
 
 
 
  
 
 
 
  
investment
  
   
 
 
 
  
 
 
 
  
 
 
 
  
days past
    
 
 
 
  
 
 
 
  
> 90 days
  
   
 
 
 
  
30-59 days
    
60-89 days
    
due (includes)
    
Total
    
Total
    
and
  
December 31, 201
8
  
Current
    
past due
    
past due
    
non-accrual)
    
past due
    
loans
    
accruing
  
                                                         
Commercial and industrial
   $
832,923
     $
197
     $
200
     $
204
     $
601
     $
833,524
     $
12
  
Construction and development, excluding undeveloped land
    
224,732
      
–
      
–
      
318
      
318
      
225,050
      
–
  
Undeveloped land
    
29,552
      
66
      
–
      
474
      
540
      
30,092
      
–
  
                                                         
Real estate mortgage
                                                        
Commercial investment
    
586,884
      
1,382
      
107
      
237
      
1,726
      
588,610
      
99
  
Owner occupied Commercial
    
421,143
      
2,732
      
1,377
      
1,121
      
5,230
      
426,373
      
535
  
1-4 family residential
    
274,547
      
374
      
336
      
760
      
1,470
      
276,017
      
–
  
Home equity - first lien
    
49,321
      
179
      
–
      
–
      
179
      
49,500
      
–
  
Home equity - junior lien
    
70,467
      
182
      
56
      
242
      
480
      
70,947
      
99
  
Subtotal: Real estate mortgage
    
1,402,362
      
4,849
      
1,876
      
2,360
      
9,085
      
1,411,447
      
733
  
                                                         
Consumer
    
48,058
      
–
      
–
      
–
      
–
      
48,058
      
–
  
                                                         
Total
   $
2,537,627
     $
5,112
     $
2,076
     $
3,356
     $
10,544
     $
2,548,171
     $
745
  
                                                         
December 31, 201
7
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
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 include 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 a potential weakness that deserves 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 well-defined weaknesses that
may
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 deteriorated beyond the characteristics of substandard loans and have been placed on non-accrual status or have been accounted for as troubled debt restructurings.
 
 
●
Doubtful: Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that weaknesses make collection or repayment in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.
 
As of
December 31, 2018
and
2017,
internally assigned risk grades of loans by category were as follows:
 
(In thousands)
  
 
 
 
  
 
 
 
  
 
 
 
  
Substandard
    
 
 
 
  
Total
  
December 31, 201
8
  
Pass
    
OAEM
    
Substandard
    
non-performing
    
Doubtful
    
loans
  
                                                 
Commercial and industrial
   $
803,073
     $
11,516
     $
18,703
     $
232
     $ –     $
833,524
  
Construction and development, excluding undeveloped land
    
220,532
      
4,200
      
–
      
318
       –      
225,050
  
Undeveloped land
    
29,618
      
–
      
–
      
474
       –      
30,092
  
                                                 
Real estate mortgage
                                                
Commercial investment
    
586,543
      
1,815
      
15
      
237
       –      
588,610
  
Owner occupied commercial
    
411,722
      
9,030
      
4,500
      
1,121
       –      
426,373
  
1-4 family residential
    
273,537
      
1,544
      
162
      
774
       –      
276,017
  
Home equity - first lien
    
49,500
      
–
      
–
      
–
       –      
49,500
  
Home equity - junior lien
    
70,437
      
249
      
19
      
242
       –      
70,947
  
Subtotal: Real estate mortgage
    
1,391,739
      
12,638
      
4,696
      
2,374
       –      
1,411,447
  
                                                 
Consumer
    
48,058
      
–
      
–
      
–
       –      
48,058
  
                                                 
Total
   $
2,493,020
     $
28,354
     $
23,399
     $
3,398
     $ –     $
2,548,171
  
                                                 
December 31, 201
7
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
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