Loan and Lease Financings

The Company evaluates loans and leases for credit quality at least annually but more frequently if certain circumstances occur (such as material new information which becomes available and indicates a potential change in credit risk). The Company uses two methods to assess credit risk: loan or lease credit quality grades and credit risk classifications. The purpose of the loan or lease credit quality grade is to document the degree of risk associated with individual credits as well as inform management of the degree of risk in the portfolio taken as a whole. Credit risk classifications are used to categorize loans by degree of risk and to designate individual or committee approval authorities for higher risk credits at the time of origination. Credit risk classifications include categories for: Acceptable, Marginal, Special Attention, Special Risk, Restricted by Policy, Regulated and Prohibited by Law.

All loans and leases, except residential real estate and home equity loans and consumer loans, are assigned credit quality grades on a scale from 1 to 12 with grade 1 representing superior credit quality. The criteria used to assign grades to extensions of credit that exhibit potential problems or well-defined weaknesses are primarily based upon the degree of risk and the likelihood of orderly repayment, and their effect on the Company’s safety and soundness. Loans or leases graded 7 or weaker are considered “special attention” credits and, as such, relationships in excess of $100,000 are reviewed quarterly as part of management’s evaluation of the appropriateness of the reserve for loan and lease losses. Grade 7 credits are defined as “watch” and contain greater than average credit risk and are monitored to limit the exposure to increased risk; grade 8 credits are “special mention” and, following regulatory guidelines, are defined as having potential weaknesses that deserve management’s close attention. Credits that exhibit well-defined weaknesses and a distinct possibility of loss are considered “classified” and are graded 9 through 12 corresponding to the regulatory definitions of “substandard” (grades 9 and 10) and the more severe “doubtful” (grade 11) and “loss” (grade 12).

The following table shows the credit quality grades of the recorded investment in loans and leases, segregated by class.



	Credit Quality Grades
(Dollars in thousands)	1-6		7-12		Total
March 31, 2016
Commercial and agricultural	$	719,127	$	29,897	$	749,024
Auto and light truck	414,418		14,037		428,455
Medium and heavy duty truck	270,829		2,088		272,917
Aircraft financing	751,761		32,083		783,844
Construction equipment financing	463,858		3,924		467,782
Commercial real estate	697,789		18,821		716,610
Total	$	3,317,782	$	100,850	$	3,418,632

December 31, 2015
Commercial and agricultural	$	710,030	$	34,719	$	744,749
Auto and light truck	413,836		11,400		425,236
Medium and heavy duty truck	275,367		2,887		278,254
Aircraft financing	750,264		27,748		778,012
Construction equipment financing	448,683		6,882		455,565
Commercial real estate	680,304		19,964		700,268
Total	$	3,278,484	$	103,600	$	3,382,084

For residential real estate and home equity and consumer loans, credit quality is based on the aging status of the loan and by payment activity. The following table shows the recorded investment in residential real estate and home equity and consumer loans by performing or nonperforming status. Nonperforming loans are those loans which are on nonaccrual status or are 90 days or more past due.



(Dollars in thousands)	Performing		Nonperforming		Total
March 31, 2016
Residential real estate and home equity	$	463,905	$	2,545	$	466,450
Consumer	146,138		755		146,893
Total	$	610,043	$	3,300	$	613,343

December 31, 2015
Residential real estate and home equity	$	462,236	$	1,893	$	464,129
Consumer	148,180		299		148,479
Total	$	610,416	$	2,192	$	612,608

The following table shows the recorded investment of loans and leases, segregated by class, with delinquency aging and nonaccrual status.



(Dollars in thousands)	Current		30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due and Accruing		Total Accruing Loans		Nonaccrual		Total Financing Receivables
March 31, 2016
Commercial and agricultural	$	744,858	$	131	$	41	$	—	$	745,030	$	3,994	$	749,024
Auto and light truck	428,216		173		14		—		428,403		52		428,455
Medium and heavy duty truck	272,917		—		—		—		272,917		—		272,917
Aircraft financing	772,547		5,894		1,385		—		779,826		4,018		783,844
Construction equipment financing	466,239		655		352		—		467,246		536		467,782
Commercial real estate	714,408		391		—		—		714,799		1,811		716,610
Residential real estate and home equity	463,015		758		132		702		464,607		1,843		466,450
Consumer	145,623		442		73		27		146,165		728		146,893
Total	$	4,007,823	$	8,444	$	1,997	$	729	$	4,018,993	$	12,982	$	4,031,975

December 31, 2015
Commercial and agricultural	$	740,335	$	52	$	79	$	—	$	740,466	$	4,283	$	744,749
Auto and light truck	424,997		170		23		—		425,190		46		425,236
Medium and heavy duty truck	278,254		—		—		—		278,254		—		278,254
Aircraft financing	764,074		9,442		108		—		773,624		4,388		778,012
Construction equipment financing	454,993		33		—		—		455,026		539		455,565
Commercial real estate	698,514		362		—		—		698,876		1,392		700,268
Residential real estate and home equity	460,771		1,038		427		71		462,307		1,822		464,129
Consumer	147,419		552		209		51		148,231		248		148,479
Total	$	3,969,357	$	11,649	$	846	$	122	$	3,981,974	$	12,718	$	3,994,692

The following table shows impaired loans and leases, segregated by class, and the corresponding reserve for impaired loan and lease losses.



(Dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Reserve
March 31, 2016
With no related reserve recorded:
Commercial and agricultural	$	941	$	941	$	—
Auto and light truck	—		—		—
Medium and heavy duty truck	—		—		—
Aircraft financing	2,884		2,884		—
Construction equipment financing	536		536		—
Commercial real estate	8,192		8,192		—
Residential real estate and home equity	—		—		—
Consumer	—		—		—
Total with no related reserve recorded	12,553		12,553		—
With a reserve recorded:
Commercial and agricultural	2,708		2,708		485
Auto and light truck	—		—		—
Medium and heavy duty truck	—		—		—
Aircraft financing	1,134		1,134		1,134
Construction equipment financing	—		—		—
Commercial real estate	327		327		—
Residential real estate and home equity	365		367		147
Consumer	—		—		—
Total with a reserve recorded	4,534		4,536		1,766
Total impaired loans	$	17,087	$	17,089	$	1,766

December 31, 2015
With no related reserve recorded:
Commercial and agricultural	$	1,016	$	1,016	$	—
Auto and light truck	—		—		—
Medium and heavy duty truck	—		—		—
Aircraft financing	4,384		4,384		—
Construction equipment financing	539		539		—
Commercial real estate	8,494		8,494		—
Residential real estate and home equity	—		—		—
Consumer	—		—		—
Total with no related reserve recorded	14,433		14,433		—
With a reserve recorded:
Commercial and agricultural	2,884		2,884		649
Auto and light truck	—		—		—
Medium and heavy duty truck	—		—		—
Aircraft financing	—		—		—
Construction equipment financing	—		—		—
Commercial real estate	—		—		—
Residential real estate and home equity	366		368		148
Consumer	—		—		—
Total with a reserve recorded	3,250		3,252		797
Total impaired loans	$	17,683	$	17,685	$	797

The following table shows average recorded investment and interest income recognized on impaired loans and leases, segregated by class.



	Three Months Ended March 31,
	2016				2015
(Dollars in thousands)	Average Recorded Investment		Interest Income		Average Recorded Investment		Interest Income
Commercial and agricultural	$	3,709	$	4	$	9,808	$	10
Auto and light truck	—		—		—		—
Medium and heavy duty truck	—		—		—		—
Aircraft financing	4,028		—		9,144		6
Construction equipment financing	880		—		739		—
Commercial real estate	8,402		123		11,904		142
Residential real estate and home equity	365		4		373		4
Consumer	—		—		—		—
Total	$	17,384	$	131	$	31,968	$	162

There were no loan and lease modifications classified as troubled debt restructurings (TDR) during the three months ended March 31, 2016 and 2015. The classification between nonperforming and performing is determined at the time of modification. Modification programs focus on extending maturity dates or modifying payment patterns with most TDRs experiencing a combination of concessions. Modifications do not result in the contractual forgiveness of principal or interest.

There were no TDRs which had payment defaults within the twelve months following modification during the three months ended March 31, 2016 and 2015. Default occurs when a loan or lease is 90 days or more past due under the modified terms or transferred to nonaccrual.

The following table shows the recorded investment of loans and leases classified as troubled debt restructurings as of March 31, 2016 and December 31, 2015.



(Dollars in thousands)	March 31, 2016		December 31, 2015
Performing TDRs	$	7,383	$	7,437
Nonperforming TDRs	1,882		1,926
Total TDRs	$	9,265	$	9,363