CHFC 2017 Annual Report

The following schedule summarizes impaired loans to commercial borrowers and the related valuation allowance at December 31, 2017 and 2016 and partial loan charge-offs (confirmed losses) taken on these impaired loans: (Dollars in thousands) Amount Valuation Allowance Confirmed Losses Cumulative Inherent Loss Percentage December 31, 2017 Impaired loans — originated commercial loan portfolio: With valuation allowance and no charge-offs $ 48,622 $ 4,618 $ — 9% With valuation allowance and charge-offs 8,591 919 9,335 57% With charge-offs and no valuation allowance 4,695 — 2,568 35% Without valuation allowance or charge-offs 21,889 — — —% Total impaired loans to commercial borrowers $ 83,797 $ 5,537 $ 11,903 18% December 31, 2016 Impaired loans — originated commercial loan portfolio: With valuation allowance and no charge-offs $ 41,305 $ 4,377 $ — 11 % With valuation allowance and charge-offs 9,115 857 10,524 58 % With charge-offs and no valuation allowance 4,001 — 6,665 62 % Without valuation allowance or charge-offs 24,102 — — —% Total impaired loans to commercial borrowers $ 78,523 $ 5,234 $ 17,189 23 % After analyzing the various components of the customer relationships and evaluating the underlying collateral of impaired loans, we determined that impaired loans in the commercial loan portfolio totaling $57.2 million at December 31, 2017 required a specific allocation of the allowance for loan losses (valuation allowance) of $5.5 million, compared to $50.4 million of impaired loans in the commercial loan portfolio at December 31, 2016 which required a valuation allowance of $5.2 million. Nonperforming Loans The following schedule provides the composition of nonperforming loans, by major loan category, as of December 31, 2017 and 2016. December 31, 2017 2016 (Dollars in thousands) Amount Percent of Total Amount Percent of Total Commercial loan portfolio: Commercial $ 19,691 31.2% $ 13,178 29.7% Commercial real estate 29,545 46.9 19,877 44.8 Real estate construction and land development 77 0.1 80 0.2 Subtotal — commercial loan portfolio 49,313 78.2 33,135 74.7 Consumer loan portfolio: Residential mortgage 8,635 13.7 6,969 15.7 Consumer installment 842 1.3 879 2.0 Home equity 4,305 6.8 3,351 7.6 Subtotal — consumer loan portfolio 13,782 21.8 11,199 25.3 Total nonperforming loans $ 63,095 100.0% $ 44,334 100.0% Total nonperforming loans were $63.1 million at December 31, 2017, an increase of $18.8 million, or 42.3%, compared to $44.3 million at December 31, 2016. The increase in nonperforming loans during 2017 was primarily attributable to commercial real estate and commercial loans downgraded to nonaccrual status. Nonperforming loans in the commercial loan portfolio were $49.3 million at December 31, 2017, an increase of $16.2 million, or 48.8%, from $33.1 million at December 31, 2016. Nonperforming loans in the commercial loan portfolio comprised 78.2% of total nonperforming loans at December 31, 2017, compared to 74.7%at December 31, 2016. Nonperforming loans in the consumer loan portfoliowere $13.8million at December 31, 2017, an increase of $2.6 million, or 23.1%, from $11.2 million at December 31, 2016. 55