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, 2018
Commercial and agricultural	$	984,159	$	27,541	$	1,011,700
Auto and light truck	491,220		19,831		511,051
Medium and heavy duty truck	276,977		3,033		280,010
Aircraft	837,584		30,835		868,419
Construction equipment	599,003		20,216		619,219
Commercial real estate	732,987		15,939		748,926
Total	$	3,921,930	$	117,395	$	4,039,325

December 31, 2017
Commercial and agricultural	$	906,074	$	23,923	$	929,997
Auto and light truck	482,455		14,361		496,816
Medium and heavy duty truck	293,318		3,617		296,935
Aircraft	815,956		28,701		844,657
Construction equipment	552,684		10,753		563,437
Commercial real estate	726,134		15,434		741,568
Total	$	3,776,621	$	96,789	$	3,873,410

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, 2018
Residential real estate and home equity	$	516,208	$	1,922	$	518,130
Consumer	133,460		182		133,642
Total	$	649,668	$	2,104	$	651,772

December 31, 2017
Residential real estate and home equity	$	523,803	$	2,319	$	526,122
Consumer	127,982		164		128,146
Total	$	651,785	$	2,483	$	654,268

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, 2018
Commercial and agricultural	$	1,008,424	$	16	$	22	$	—	$	1,008,462	$	3,238	$	1,011,700
Auto and light truck	501,029		533		365		—		501,927		9,124		511,051
Medium and heavy duty truck	279,177		496		—		—		279,673		337		280,010
Aircraft	856,589		6,039		—		—		862,628		5,791		868,419
Construction equipment	615,738		2,382		101		—		618,221		998		619,219
Commercial real estate	744,355		680		—		—		745,035		3,891		748,926
Residential real estate and home equity	515,124		657		427		114		516,322		1,808		518,130
Consumer	132,649		746		65		9		133,469		173		133,642
Total	$	4,653,085	$	11,549	$	980	$	123	$	4,665,737	$	25,360	$	4,691,097

December 31, 2017
Commercial and agricultural	$	927,113	$	281	$	—	$	—	$	927,394	$	2,603	$	929,997
Auto and light truck	485,885		2,869		21		—		488,775		8,041		496,816
Medium and heavy duty truck	296,564		—		—		—		296,564		371		296,935
Aircraft	823,638		14,570		4,492		—		842,700		1,957		844,657
Construction equipment	561,665		333		448		—		562,446		991		563,437
Commercial real estate	738,006		23		121		—		738,150		3,418		741,568
Residential real estate and home equity	521,943		1,508		352		429		524,232		1,890		526,122
Consumer	127,107		776		99		30		128,012		134		128,146
Total	$	4,481,921	$	20,360	$	5,533	$	459	$	4,508,273	$	19,405	$	4,527,678

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, 2018
With no related reserve recorded:
Commercial and agricultural	$	3,013	$	3,013	$	—
Auto and light truck	1,913		1,913		—
Medium and heavy duty truck	337		337		—
Aircraft	1,514		1,514		—
Construction equipment	601		601		—
Commercial real estate	2,870		2,870		—
Residential real estate and home equity	—		—		—
Consumer	—		—		—
Total with no related reserve recorded	10,248		10,248		—
With a reserve recorded:
Commercial and agricultural	—		—		—
Auto and light truck	6,972		6,972		360
Medium and heavy duty truck	—		—		—
Aircraft	4,238		4,238		431
Construction equipment	344		344		101
Commercial real estate	939		939		173
Residential real estate and home equity	350		352		132
Consumer	—		—		—
Total with a reserve recorded	12,843		12,845		1,197
Total impaired loans	$	23,091	$	23,093	$	1,197

December 31, 2017
With no related reserve recorded:
Commercial and agricultural	$	2,439	$	2,439	$	—
Auto and light truck	—		—		—
Medium and heavy duty truck	371		371		—
Aircraft	1,901		1,901		—
Construction equipment	584		584		—
Commercial real estate	2,375		2,375		—
Residential real estate and home equity	—		—		—
Consumer	—		—		—
Total with no related reserve recorded	7,670		7,670		—
With a reserve recorded:
Commercial and agricultural	—		—		—
Auto and light truck	7,780		7,780		243
Medium and heavy duty truck	—		—		—
Aircraft	—		—		—
Construction equipment	344		344		108
Commercial real estate	971		971		181
Residential real estate and home equity	352		354		134
Consumer	—		—		—
Total with a reserve recorded	9,447		9,449		666
Total impaired loans	$	17,117	$	17,119	$	666

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



	Three Months Ended March 31,
	2018				2017
(Dollars in thousands)	Average Recorded Investment		Interest Income		Average Recorded Investment		Interest Income
Commercial and agricultural	$	2,843	$	—	$	2,704	$	1
Auto and light truck	7,827		—		84		—
Medium and heavy duty truck	347		—		—		—
Aircraft	3,069		—		8,795		—
Construction equipment	1,330		—		1,161		—
Commercial real estate	3,696		—		3,904		—
Residential real estate and home equity	350		4		358		4
Consumer	—		—		—		—
Total	$	19,462	$	4	$	17,006	$	5

There were no loan and lease modifications classified as a troubled debt restructuring (TDR) during the three months ended March 31, 2018 and 2017. 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, 2018 and 2017. 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, 2018 and December 31, 2017.



(Dollars in thousands)	March 31, 2018		December 31, 2017
Performing TDRs	$	349	$	352
Nonperforming TDRs	125		537
Total TDRs	$	474	$	889