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
June 30, 2016
Commercial and agricultural	$	725,345	$	33,830	$	759,175
Auto and light truck	427,067		30,519		457,586
Medium and heavy duty truck	271,809		1,865		273,674
Aircraft	792,536		30,306		822,842
Construction equipment	479,698		4,656		484,354
Commercial real estate	704,188		11,744		715,932
Total	$	3,400,643	$	112,920	$	3,513,563

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	750,264		27,748		778,012
Construction equipment	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
June 30, 2016
Residential real estate and home equity	$	481,128	$	1,851	$	482,979
Consumer	155,533		688		156,221
Total	$	636,661	$	2,539	$	639,200

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
June 30, 2016
Commercial and agricultural	$	755,391	$	175	$	16	$	—	$	755,582	$	3,593	$	759,175
Auto and light truck	457,190		336		13		—		457,539		47		457,586
Medium and heavy duty truck	273,674		—		—		—		273,674		—		273,674
Aircraft	811,062		7,500		—		—		818,562		4,280		822,842
Construction equipment	482,657		1,028		—		—		483,685		669		484,354
Commercial real estate	713,651		554		—		—		714,205		1,727		715,932
Residential real estate and home equity	479,970		769		389		234		481,362		1,617		482,979
Consumer	155,129		356		48		42		155,575		646		156,221
Total	$	4,128,724	$	10,718	$	466	$	276	$	4,140,184	$	12,579	$	4,152,763

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	764,074		9,442		108		—		773,624		4,388		778,012
Construction equipment	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
June 30, 2016
With no related reserve recorded:
Commercial and agricultural	$	743	$	743	$	—
Auto and light truck	—		—		—
Medium and heavy duty truck	—		—		—
Aircraft	2,450		2,450		—
Construction equipment	577		577		—
Commercial real estate	1,541		1,541		—
Residential real estate and home equity	—		—		—
Consumer	—		—		—
Total with no related reserve recorded	5,311		5,311		—
With a reserve recorded:
Commercial and agricultural	2,441		2,441		463
Auto and light truck	—		—		—
Medium and heavy duty truck	—		—		—
Aircraft	1,830		1,830		1,296
Construction equipment	—		—		—
Commercial real estate	—		—		—
Residential real estate and home equity	363		365		145
Consumer	—		—		—
Total with a reserve recorded	4,634		4,636		1,904
Total impaired loans	$	9,945	$	9,947	$	1,904

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	4,384		4,384		—
Construction equipment	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	—		—		—
Construction equipment	—		—		—
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 June 30,								Six Months Ended June 30,
	2016				2015				2016				2015
(Dollars in thousands)	Average Recorded Investment		Interest Income		Average Recorded Investment		Interest Income		Average Recorded Investment		Interest Income		Average Recorded Investment		Interest Income
Commercial and agricultural	$	3,449	$	—	$	2,134	$	6	$	3,579	$	4	$	5,971	$	16
Auto and light truck	—		—		—		—		—		—		—		—
Medium and heavy duty truck	—		—		—		—		—		—		—		—
Aircraft	4,341		—		7,269		—		4,184		—		8,207		6
Construction equipment	514		—		731		—		697		—		735		—
Commercial real estate	6,100		—		10,735		142		7,251		123		11,319		284
Residential real estate and home equity	364		4		371		4		365		8		372		8
Consumer	—		—		—		—		—		—		—		—
Total	$	14,768	$	4	$	21,240	$	152	$	16,076	$	135	$	26,604	$	314

There were no loan and lease modifications classified as troubled debt restructurings (TDR) during the three and six months ended June 30, 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 and six months ended June 30, 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 June 30, 2016 and December 31, 2015.



(Dollars in thousands)	June 30, 2016		December 31, 2015
Performing TDRs	$	363	$	7,437
Nonperforming TDRs	1,844		1,926
Total TDRs	$	2,207	$	9,363