Annual report pursuant to Section 13 and 15(d)

LOANS

v3.10.0.1
LOANS
12 Months Ended
Dec. 31, 2018
LOANS [Abstract]  
LOANS
NOTE 3 –   LOANS

Portfolio loans were as follows at year end (dollars in thousands):

   
2018
   
2017
 
Commercial and industrial
 
$
513,345
   
$
465,208
 
                 
Commercial real estate:
               
Residential developed
   
14,825
     
11,888
 
Unsecured to residential developers
   
     
2,332
 
Vacant and unimproved
   
44,169
     
39,752
 
Commercial development
   
712
     
1,103
 
Residential improved
   
98,500
     
90,467
 
Commercial improved
   
295,618
     
298,714
 
Manufacturing and industrial
   
114,887
     
97,679
 
Total commercial real estate
   
568,711
     
541,935
 
                 
Consumer
               
Residential mortgage
   
238,174
     
224,452
 
Unsecured
   
130
     
226
 
Home equity
   
78,503
     
82,234
 
Other secured
   
6,795
     
6,254
 
Total consumer
   
323,602
     
313,166
 
                 
Total loans
   
1,405,658
     
1,320,309
 
Allowance for loan losses
   
(16,876
)
   
(16,600
)
   
$
1,388,782
   
$
1,303,709
 

The following tables present the activity in the allowance for loan losses by portfolio segment for the years ended December 31, 2018 and 2017 (dollars in thousands):

2018
 
Commercial
and
Industrial
   
Commercial
Real Estate
   
Consumer
   
Unallocated
   
Total
 
Beginning balance
 
$
6,478
   
$
6,590
   
$
3,494
   
$
38
   
$
16,600
 
Charge-offs
   
(1,206
)
   
     
(129
)
   
     
(1,335
)
Recoveries
   
86
     
922
     
153
     
     
1,161
 
Provision for loan losses
   
1,498
     
(968
)
   
(69
)
   
(11
)
   
450
 
Ending Balance
 
$
6,856
   
$
6,544
   
$
3,449
   
$
27
   
$
16,876
 

2017
 
Commercial
and
Industrial
   
Commercial
Real Estate
   
Consumer
   
Unallocated
   
Total
 
Beginning balance
 
$
6,345
   
$
6,703
   
$
3,871
   
$
43
   
$
16,962
 
Charge-offs
   
(108
)
   
     
(158
)
   
     
(266
)
Recoveries
   
123
     
821
     
310
     
     
1,254
 
Provision for loan losses
   
118
     
(934
)
   
(529
)
   
(5
)
   
(1,350
)
   
$
6,478
   
$
6,590
   
$
3,494
   
$
38
   
$
16,600
 

The following tables present the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method (dollars in thousands):

December 31, 2018
 
Commercial
and
Industrial
   
Commercial
Real Estate
   
Consumer
   
Unallocated
   
Total
 
Allowance for loan losses:
                             
Ending allowance attributable to loans:
                             
Individually reviewed for impairment
 
$
449
   
$
181
   
$
468
   
$
   
$
1,098
 
Collectively evaluated for impairment
   
6,407
     
6,363
     
2,981
     
27
     
15,778
 
Total ending allowance balance
 
$
6,856
   
$
6,544
   
$
3,449
   
$
27
   
$
16,876
 
                                         
Loans:
                                       
Individually reviewed for impairment
 
$
7,375
   
$
3,499
   
$
6,347
   
$
   
$
17,221
 
Collectively evaluated for impairment
   
505,970
     
565,212
     
317,255
     
     
1,388,437
 
Total ending loans balance
 
$
513,345
   
$
568,711
   
$
323,602
   
$
   
$
1,405,658
 

December 31, 2017
 
Commercial
and
Industrial
   
Commercial
Real Estate
   
Consumer
   
Unallocated
   
Total
 
Allowance for loan losses:
                             
Ending allowance attributable to loans:
                             
Individually reviewed for impairment
 
$
497
   
$
197
   
$
514
   
$
   
$
1,208
 
Collectively evaluated for impairment
   
5,981
     
6,393
     
2,980
     
38
     
15,392
 
Total ending allowance balance
 
$
6,478
   
$
6,590
   
$
3,494
   
$
38
   
$
16,600
 
                                         
Loans:
                                       
Individually reviewed for impairment
 
$
6,402
   
$
7,332
   
$
8,345
   
$
   
$
22,079
 
Collectively evaluated for impairment
   
458,806
     
534,603
     
304,821
     
     
1,298,230
 
Total ending loans balance
 
$
465,208
   
$
541,935
   
$
313,166
   
$
   
$
1,320,309
 

The following table presents loans individually evaluated for impairment by class of loans as of December 31, 2018 (dollars in thousands):

December 31, 2018
 
Unpaid
Principal
Balance
   
Recorded
Investment
   
Allowance
Allocated
 
With no related allowance recorded:
                 
Commercial and industrial
 
$
2,515
   
$
1,375
   
$
 
                         
Commercial real estate:
                       
Residential developed
   
     
     
 
Unsecured to residential developers
   
     
     
 
Vacant and unimproved
   
143
     
143
     
 
Commercial development
   
     
     
 
Residential improved
   
140
     
140
     
 
Commercial improved
   
1,675
     
1,675
     
 
Manufacturing and industrial
   
     
     
 
     
1,958
     
1,958
     
 
Consumer:
                       
Residential mortgage
   
     
     
 
Unsecured
   
     
     
 
Home equity
   
     
     
 
Other secured
   
     
     
 
     
     
     
 
Total with no related allowance recorded
 
$
4,473
   
$
3,333
   
$
 
                         
With an allowance recorded:
                       
Commercial and industrial
 
$
6,000
   
$
6,000
   
$
449
 
                         
Commercial real estate:
                       
Residential developed
   
172
     
172
     
2
 
Unsecured to residential developers
   
     
     
 
Vacant and unimproved
   
     
     
 
Commercial development
   
     
     
 
Residential improved
   
193
     
193
     
13
 
Commercial improved
   
794
     
794
     
155
 
Manufacturing and industrial
   
382
     
382
     
11
 
     
1,541
     
1,541
     
181
 
Consumer:
                       
Residential mortgage
   
5,029
     
5,029
     
371
 
Unsecured
   
     
     
 
Home equity
   
1,318
     
1,318
     
97
 
Other secured
   
     
     
 
     
6,347
     
6,347
     
468
 
Total with an allowance recorded
 
$
13,888
   
$
13,888
   
$
1,098
 
Total
 
$
18,361
   
$
17,221
   
$
1,098
 

The following table presents loans individually evaluated for impairment by class of loans as of December 31, 2017 (dollars in thousands):

December 31, 2017
 
Unpaid
Principal
Balance
   
Recorded
Investment
   
Allowance
Allocated
 
With no related allowance recorded:
                 
Commercial and industrial
 
$
3,438
   
$
3,438
   
$
 
                         
Commercial real estate:
                       
Residential developed
   
     
     
 
Unsecured to residential developers
   
     
     
 
Vacant and unimproved
   
     
     
 
Commercial development
   
190
     
190
     
 
Residential improved
   
15
     
15
     
 
Commercial improved
   
     
     
 
Manufacturing and industrial
   
     
     
 
     
205
     
205
     
 
Consumer:
                       
Residential mortgage
   
     
     
 
Unsecured
   
     
     
 
Home equity
   
     
     
 
Other secured
   
     
     
 
     
     
     
 
Total with no related allowance recorded
 
$
3,643
   
$
3,643
   
$
 
                         
With an allowance recorded:
                       
Commercial and industrial
 
$
2,964
   
$
2,964
   
$
497
 
                         
Commercial real estate:
                       
Residential developed
   
179
     
179
     
4
 
Unsecured to residential developers
   
     
     
 
Vacant and unimproved
   
126
     
126
     
3
 
Commercial development
   
     
     
 
Residential improved
   
1,715
     
1,715
     
69
 
Commercial improved
   
4,928
     
4,928
     
119
 
Manufacturing and industrial
   
179
     
179
     
2
 
     
7,127
     
7,127
     
197
 
Consumer:
                       
Residential mortgage
   
6,638
     
6,638
     
409
 
Unsecured
   
     
     
 
Home equity
   
1,707
     
1,707
     
105
 
Other secured
   
     
     
 
     
8,345
     
8,345
     
514
 
Total with an allowance recorded
 
$
18,436
   
$
18,436
   
$
1,208
 
Total
 
$
22,079
   
$
22,079
   
$
1,208
 

The following table presents information regarding average balances of impaired loans and interest recognized on impaired loans for the years ended December 31, 2018 and 2017 (dollars in thousands):

   
2018
   
2017
 
Average of impaired loans during the period:
           
Commercial and industrial
 
$
5,398
   
$
5,505
 
                 
Commercial real estate:
               
Residential developed
   
175
     
182
 
Unsecured to residential developers
   
     
 
Vacant and unimproved
   
208
     
287
 
Commercial development
   
32
     
189
 
Residential improved
   
845
     
2,732
 
Commercial improved
   
3,303
     
5,768
 
Manufacturing and industrial
   
357
     
230
 
                 
Consumer
   
7,191
     
9,889
 
                 
Interest income recognized during impairment:
               
Commercial and industrial
   
1,034
     
935
 
Commercial real estate
   
219
     
411
 
Consumer
   
295
     
390
 
                 
Cash-basis interest income recognized
               
Commercial and industrial
   
1,034
     
931
 
Commercial real estate
   
172
     
414
 
Consumer
   
293
     
392
 

Nonaccrual loans include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans.  The following tables present the recorded investment in nonaccrual and loans past due over 90 days still on accrual by class of loans as of December 31, 2018 and 2017 (dollars in thousands):

December 31, 2018
 
Nonaccrual
   
Over 90 days
Accruing
 
Commercial and industrial
 
$
874
   
$
 
                 
Commercial real estate:
               
Residential developed
   
     
 
Unsecured to residential developers
   
     
 
Vacant and unimproved
   
     
 
Commercial development
   
     
 
Residential improved
   
15
     
 
Commercial improved
   
303
     
 
Manufacturing and industrial
   
     
 
     
318
     
 
Consumer:
               
Residential mortgage
   
111
     
 
Unsecured
   
     
 
Home equity
   
     
1
 
Other secured
   
     
 
     
111
     
1
 
Total
 
$
1,303
   
$
1
 

December 31, 2017
 
Nonaccrual
   
Over 90 days
Accruing
 
Commercial and industrial
 
$
4
   
$
 
                 
Commercial real estate:
               
Residential developed
   
     
 
Unsecured to residential developers
   
     
 
Vacant and unimproved
   
     
 
Commercial development
   
190
     
 
Residential improved
   
89
     
 
Commercial improved
   
106
     
 
Manufacturing and industrial
   
     
 
     
385
     
 
Consumer:
               
Residential mortgage
   
2
     
 
Unsecured
   
4
     
 
Home equity
   
     
 
Other secured
   
     
 
     
6
     
 
Total
 
$
395
   
$
 

The following table presents the aging of the recorded investment in past due loans as of December 31, 2018 by class of loans (dollars in thousands):

December 31, 2018
 
30-90
Days
   
Greater
Than
90 Days
   
Total
Past Due
   
Loans Not
Past Due
   
Total
 
Commercial and industrial
 
$
   
$
   
$
   
$
513,345
   
$
513,345
 
                                         
Commercial real estate:
                                       
Residential developed
   
     
     
     
14,825
     
14,825
 
Unsecured to residential developers
   
     
     
     
     
 
Vacant and unimproved
   
57
     
     
57
     
44,112
     
44,169
 
Commercial development
   
     
     
     
712
     
712
 
Residential improved
   
86
     
16
     
102
     
98,398
     
98,500
 
Commercial improved
   
100
     
303
     
403
     
295,215
     
295,618
 
Manufacturing and industrial
   
     
     
     
114,887
     
114,887
 
     
243
     
319
     
562
     
568,149
     
568,711
 
Consumer:
                                       
Residential mortgage
   
     
110
     
110
     
238,064
     
238,174
 
Unsecured
   
7
     
     
7
     
123
     
130
 
Home equity
   
67
     
1
     
68
     
78,435
     
78,503
 
Other secured
   
130
     
     
130
     
6,665
     
6,795
 
     
204
     
111
     
315
     
323,287
     
323,602
 
Total
 
$
447
   
$
430
   
$
877
   
$
1,404,781
   
$
1,405,658
 

The following table presents the aging of the recorded investment in past due loans as of December 31, 2017 by class of loans (dollars in thousands):

December 31, 2017
 
30-90
Days
   
Greater Than
90 Days
   
Total
Past Due
   
Loans Not
Past Due
   
Total
 
Commercial and industrial
 
$
290
     
   
$
290
   
$
464,918
   
$
465,208
 
                                         
Commercial real estate:
                                       
Residential developed
   
     
     
     
11,888
     
11,888
 
Unsecured to residential developers
   
     
     
     
2,332
     
2,332
 
Vacant and unimproved
   
     
     
     
39,752
     
39,752
 
Commercial development
   
     
190
     
190
     
913
     
1,103
 
Residential improved
   
     
89
     
89
     
90,378
     
90,467
 
Commercial improved
   
125
     
     
125
     
298,589
     
298,714
 
Manufacturing and industrial
   
     
     
     
97,679
     
97,679
 
     
125
     
279
     
404
     
541,531
     
541,935
 
Consumer:
                                       
Residential mortgage
   
215
     
     
215
     
224,237
     
224,452
 
Unsecured
   
10
     
     
10
     
216
     
226
 
Home equity
   
76
     
     
76
     
82,158
     
82,234
 
Other secured
   
     
     
     
6,254
     
6,254
 
     
301
     
     
301
     
312,865
     
313,166
 
Total
 
$
716
   
$
279
   
$
995
   
$
1,319,314
   
$
1,320,309
 

The Company had allocated $1,098,000 and $1,208,000 of specific reserves to customers whose loan terms have been modified in troubled debt restructurings (“TDRs”) as of December 31, 2018 and 2017, respectively.  These loans may have involved the restructuring of terms to allow customers to mitigate the risk of foreclosure by meeting a lower loan payment requirement based upon their current cash flow.  These may also include loans that renewed at existing contractual rates, but below market rates for comparable credit.  The Company has been active at utilizing these programs and working with its customers to reduce the risk of foreclosure.  For commercial loans, these modifications typically include an interest only period and, in some cases, a lowering of the interest rate on the loan.  In some cases, the modification will include separating the note into two notes with the first note structured to be supported by current cash flows and collateral, and the second note made for the remaining unsecured debt.  The second note is charged off immediately and collected only after the first note is paid in full.  This modification type is commonly referred to as an A-B note structure.  For consumer mortgage loans, the restructuring typically includes a lowering of the interest rate to provide payment and cash flow relief.  For each restructuring, a comprehensive credit underwriting analysis of the borrower’s financial condition and prospects of repayment under the revised terms is performed to assess whether the structure can be successful and that cash flows will be sufficient to support the restructured debt.  An analysis is also performed to determine whether the restructured loan should be on accrual status.  Generally, if the loan is on accrual at the time of restructure, it will remain on accrual after the restructuring.  In some cases, a nonaccrual loan may be placed on accrual at restructuring if the loan’s actual payment history demonstrates it would have cash flowed under the restructured terms.  After six consecutive payments under the restructured terms, a nonaccrual restructured loan is reviewed for possible upgrade to accruing status.

Based upon regulatory guidance issued in 2014, the Company has determined that in situations where there is a subsequent modification or renewal and the loan is brought to market terms, including a contractual interest rate not less than a market interest rate for new debt with similar credit risk characteristics, the TDR and impaired loan designations may be removed.  In addition, the TDR designation may also be removed from loans modified under an A-B note structure.  If the remaining “A” note is at a market rate at the time of restructuring (taking into account the borrower’s credit risk and prevailing market conditions), the loan can be removed from TDR designation in a subsequent calendar year after six months of performance in accordance with the new terms.  The market rate relative to the borrower’s credit risk is determined through analysis of market pricing information gathered from peers and use of a loan pricing model.  The general objective of the model is to achieve a consistent return on equity from one credit to the next, taking into consideration differences in credit risk.  In the model, credits with higher risk receive a higher potential loss allocation, and therefore require a higher interest rate to achieve the target return on equity.

As with other impaired loans, an allowance for loan loss is estimated for each TDR based on the most likely source of repayment for each loan.  For impaired commercial real estate loans that are collateral dependent, the allowance is computed based on the fair value of the underlying collateral, less estimated costs to sell.  For impaired commercial loans where repayment is expected from cash flows from business operations, the allowance is computed based on a discounted cash flow computation.  Certain groups of TDRs, such as residential mortgages, have common characteristics and for them the allowance is computed based on a discounted cash flow computation on the change in weighted rate for the pool.  The allowance allocations for commercial TDRs where we have reduced the contractual interest rate are computed by measuring cash flows using the new payment terms discounted at the original contractual rate.

The following table presents information regarding TDRs as of December 31, 2018 and 2017 (dollars in thousands):

   
2018
   
2017
 
   
Number of
Loans
   
Outstanding
Recorded
Balance
   
Number of
Loans
   
Outstanding
Recorded
Balance
 
Commercial and industrial
   
18
   
$
6,502
     
19
   
$
6,403
 
Commercial real estate
   
22
     
3,305
     
33
     
7,332
 
Consumer
   
83
     
6,346
     
99
     
8,345
 
     
123
   
$
16,153
     
151
   
$
22,080
 

The following table presents information related to accruing TDRs as of December 31, 2018 and 2017. The table presents the amount of accruing TDRs that were on nonaccrual status prior to the restructuring, accruing at the time of restructuring and those that were upgraded to accruing status after receiving six consecutive monthly payments in accordance with the restructured terms as of December 31, 2018 and 2017 (dollars in thousands):

   
2018
   
2017
 
Accruing TDR - nonaccrual at restructuring
 
$
   
$
 
Accruing TDR - accruing at restructuring
   
10,336
     
16,809
 
Accruing TDR - upgraded to accruing after six consecutive payments
   
5,693
     
4,955
 
   
$
16,029
   
$
21,764
 

The following tables present information regarding troubled debt restructurings executed during the years ended December 31, 2018 and 2017  (dollars in thousands):

   
2018
   
2017
 
   
# of
Loans
   
Pre-TDR
Balance
   
Writedown
Upon
TDR
   
# of
Loans
   
Pre-TDR
Balance
   
Writedown
Upon
TDR
 
Commercial and industrial
   
2
   
$
244
   
$
     
   
$
   
$
 
Commercial real estate
   
3
     
492
     
     
1
     
1,018
     
 
Consumer
   
10
     
456
     
     
6
     
410
     
 
     
15
   
$
1,192
   
$
     
7
   
$
1,428
   
$
 

According to the accounting standards, not all loan modifications are TDRs.  TDRs are modifications or renewals where the Company has granted a concession to a borrower in financial distress.  The Company reviews all modifications and renewals for determination of TDR status.  In some situations a borrower may be experiencing financial distress, but the Company does not provide a concession.  These modifications are not considered TDRs.  In other cases, the Company might provide a concession, such as a reduction in interest rate, but the borrower is not experiencing financial distress.  This could be the case if the Company is matching a competitor’s interest rate.  These modifications would also not be considered TDRs.  Finally, any renewals at existing terms for borrowers not experiencing financial distress would not be considered TDRs.  As with other loans not considered TDR or impaired, allowance allocations are based on the historical based allocation for the applicable loan grade and loan class.

Payment defaults on TDRs have been minimal and during the twelve months ended December 31, 2018 and 2017 the balance of loans that became delinquent by more than 90 days past due or that were transferred to nonaccrual within 12 months of restructuring were not material.

Credit Quality Indicators:   The Company categorizes loans into risk categories based on relevant information about the ability of the borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information and current economic trends, among other factors.  The Company analyzes commercial loans individually and classifies these relationships by credit risk grading.  The Company uses an eight point grading system, with grades 5 through 8 being considered classified, or watch, credits.  All commercial loans are assigned a grade at origination, at each renewal or any amendment.  When a credit is first downgraded to a watch credit (either through renewal, amendment, loan officer identification or the loan review process), an Administrative Loan Review (“ALR”) is generated by the credit department and the loan officer.  All watch credits have an ALR completed monthly which analyzes the collateral position and cash flow of the borrower and its guarantors.  The loan officer is required to complete both a short term and long term plan to rehabilitate or exit the credit and to give monthly comments on the progress to these plans.  Management meets quarterly with loan officers to discuss each of these credits in detail and to help formulate solutions where progress has stalled.  When necessary, the loan officer proposes changes to the assigned loan grade as part of the ALR.  Additionally, Loan Review reviews all loan grades upon origination, renewal or amendment and again as loans are selected though the loan review process.  The credit will stay on the ALR until either its grade has improved to a 4 or the credit relationship is at a zero balance.  The Company uses the following definitions for the risk grades:

1. Excellent - Loans supported by extremely strong financial condition or secured by the Bank’s own deposits. Minimal risk to the Bank and the probability of serious rapid financial deterioration is extremely small.

2. Above Average - Loans supported by sound financial statements that indicate the ability to repay or borrowings secured (and margined properly) with marketable securities. Nominal risk to the Bank and probability of serious financial deterioration is highly unlikely. The overall quality of these credits is very high.

3. Good Quality - Loans supported by satisfactory asset quality and liquidity, good debt capacity coverage, and good management in all critical positions. Loans are secured by acceptable collateral with adequate margins. There is a slight risk of deterioration if adverse market conditions prevail.

4. Acceptable Risk - Loans carrying an acceptable risk to the Bank, which may be slightly below average quality. The borrower has limited financial strength with considerable leverage. There is some probability of deterioration if adverse market conditions prevail. These credits should be monitored closely by the Relationship Manager.

5. Marginally Acceptable - Loans are of marginal quality with above normal risk to the Bank. The borrower shows acceptable asset quality but very little liquidity with high leverage. There is inconsistent earning performance without the ability to sustain adverse market conditions. The primary source of repayment is questionable, but the secondary source of repayment still remains an option. Very close attention by the Relationship Manager and management is needed.

6. Substandard - Loans are inadequately protected by the net worth and paying capacity of the borrower or the collateral pledged. The primary and secondary sources of repayment are questionable. Heavy debt condition may be evident and volume and earnings deterioration may be underway. It is possible that the Bank will sustain some loss if the deficiencies are not immediately addressed and corrected.

7. Doubtful - Loans supported by weak or no financial statements, as well as the ability to repay the entire loan, are questionable. Loans in this category are normally characterized less than adequate collateral, insolvent, or extremely weak financial condition. A loan classified doubtful has all the weaknesses inherent in one classified substandard with the added characteristic that the weaknesses makes collection or liquidation in full highly questionable. The possibility of loss is extremely high, however, activity may be underway to minimize the loss or maximize the recovery.

8. Loss - Loans are considered uncollectible and of little or no value as a bank asset.

At year end, the risk grade category of commercial loans by class of loans was as follows (dollars in thousands):

December 31, 2018
   
1
     
2
     
3
     
4
     
5
     
6
     
7
     
8
   
Total
 
Commercial and industrial
 
$
15,000
   
$
15,708
   
$
164,901
   
$
299,622
   
$
11,186
   
$
6,054
   
$
874
   
$
   
$
513,345
 
                                                                         
Commercial real estate:
                                                                       
Residential developed
   
     
     
     
14,220
     
605
     
     
     
     
14,825
 
Unsecured to residential developers
   
     
     
     
     
     
     
     
     
 
Vacant and unimproved
   
     
7,635
     
3,543
     
30,688
     
2,303
     
     
     
     
44,169
 
Commercial development
   
     
     
86
     
626
     
     
     
     
     
712
 
Residential improved
   
     
     
19,645
     
78,337
     
311
     
192
     
15
     
     
98,500
 
Commercial improved
   
     
5,292
     
62,756
     
222,152
     
4,751
     
364
     
303
     
     
295,618
 
Manufacturing & industrial
   
     
3,372
     
24,799
     
81,261
     
5,455
     
     
     
     
114,887
 
   
$
15,000
   
$
32,007
   
$
275,730
   
$
726,906
   
$
24,611
   
$
6,610
   
$
1,192
   
$
   
$
1,082,056
 

December 31, 2017
   
1
     
2
     
3
     
4
     
5
     
6
     
7
     
8
   
Total
 
Commercial and industrial
 
$
   
$
15,002
   
$
137,774
   
$
291,373
   
$
15,170
   
$
5,885
   
$
4
   
$
   
$
465,208
 
                                                                         
Commercial real estate:
                                                                       
Residential developed
   
     
     
48
     
11,068
     
772
     
     
     
     
11,888
 
Unsecured to residential developers
   
     
     
     
2,332
     
     
     
     
     
2,332
 
Vacant and unimproved
   
     
     
19,244
     
17,332
     
3,176
     
     
     
     
39,752
 
Commercial development
   
     
     
104
     
809
     
     
     
190
     
     
1,103
 
Residential improved
   
     
     
7,275
     
80,818
     
1,533
     
752
     
89
     
     
90,467
 
Commercial improved
   
     
1,398
     
64,043
     
228,888
     
3,353
     
926
     
106
     
     
298,714
 
Manufacturing & industrial
   
     
927
     
44,714
     
49,238
     
2,311
     
489
     
     
     
97,679
 
   
$
   
$
17,327
   
$
273,202
   
$
681,858
   
$
26,315
   
$
8,052
   
$
389
   
$
   
$
1,007,143
 

Commercial loans rated a 6, 7 or 8 per the Company’s internal risk rating system are considered substandard, doubtful or loss, respectively.

Commercial loans classified as substandard or worse were as follows at year-end (dollars in thousands):

   
2018
   
2017
 
Not classified as impaired
  $
   
$
2,010
 
Classified as impaired
   
7,802
     
6,431
 
Total commercial loans classified substandard or worse
 
$
7,802
   
$
8,441
 

The Company considers the performance of the loan portfolio and its impact on the allowance for loan losses. For consumer loan classes, the Company also evaluates credit quality based on the aging status of the loan, which was previously presented, and by payment activity. The following tables present the recorded investment in consumer loans based on payment activity as of December 31, 2018 and 2017 (dollars in thousands):

December 31, 2018
 
Residential
Mortgage
   
Consumer
Unsecured
   
Home
Equity
   
Consumer
Other
 
Performing
 
$
238,064
   
$
130
   
$
78,502
   
$
6,795
 
Nonperforming
   
110
     
     
1
     
 
Total
 
$
238,174
   
$
130
   
$
78,503
   
$
6,795
 

December 31, 2017
 
Residential
Mortgage
   
Consumer
Unsecured
   
Home
Equity
   
Consumer
Other
 
Performing
 
$
224,452
   
$
226
   
$
82,234
   
$
6,254
 
Nonperforming
   
     
     
     
 
Total
 
$
224,452
   
$
226
   
$
82,234
   
$
6,254