Loans and Allowance for Loan Losses | Loans and Allowance for Loan Losses At June 30, 2017 and December 31, 2016 , respectively, the loan portfolio consisted of the following: June 30, December 31, (In thousands) Commercial: Secured by real estate $ 32,573 $ 34,213 Other 50,296 47,852 Commercial real estate 470,349 382,551 Commercial construction 11,695 14,943 Residential real estate 85,666 84,321 Consumer: Secured by real estate 30,826 30,176 Other 478 244 Government Guaranteed Loans - guaranteed portion 9,532 9,732 Other 641 51 Total gross loans 692,056 604,083 Less: Deferred loan costs, net 344 226 Allowance for loan losses 8,550 7,905 8,894 8,131 Loans, net $ 683,162 $ 595,952 The Corporation has purchased the guaranteed portion of several Government Guaranteed loans. Due to the guarantee of the principal amount of these loans, no allowance for loan losses is established for these loans. Activity in the allowance for loan losses is summarized as follows: For the three months ended June 30, 2017 Balance, beginning of period Provision charged to operations Loans charged off Recoveries of loans charged off Balance, end of period (In thousands) Commercial $ 2,560 $ 84 $ (1 ) $ 19 $ 2,662 Commercial real estate 5,149 327 — 26 5,502 Commercial construction 384 (131 ) — — 253 Residential real estate 65 (7 ) — — 58 Consumer 73 (10 ) — — 63 Other loans — 5 (1 ) 1 5 Unallocated 15 (8 ) — — 7 Total $ 8,246 $ 260 $ (2 ) $ 46 $ 8,550 For the six months ended June 30, 2017 Balance, beginning of period Provision charged to operations Loans charged off Recoveries of loans charged off Balance, end of period (In thousands) Commercial $ 2,663 $ (34 ) $ (2 ) $ 35 $ 2,662 Commercial real estate 4,734 717 — 51 5,502 Commercial construction 355 (102 ) — — 253 Residential real estate 66 (8 ) — — 58 Consumer 75 (13 ) — 1 63 Other loans — 5 (1 ) 1 5 Unallocated 12 (5 ) — — 7 Total $ 7,905 $ 560 $ (3 ) $ 88 $ 8,550 For the three months ended June 30, 2016 Balance, beginning of period Provision charged to operations Loans charged off Recoveries of loans charged off Balance, end of period (In thousands) Commercial $ 3,720 $ (386 ) $ (1 ) $ 340 $ 3,673 Commercial real estate 4,413 (156 ) (64 ) 31 4,224 Commercial construction 112 72 — — 184 Residential real estate 106 — — — 106 Consumer 119 19 (7 ) 1 132 Other loans 1 1 (2 ) — — Unallocated 69 — — — 69 Total $ 8,540 $ (450 ) $ (74 ) $ 372 $ 8,388 For the six months ended June 30, 2016 Balance, beginning of period Provision charged to operations Loans charged off Recoveries of loans charged off Balance, end of period (In thousands) Commercial $ 3,698 $ (402 ) $ (3 ) $ 380 $ 3,673 Commercial real estate 4,660 (431 ) (64 ) 59 4,224 Commercial construction 114 70 — — 184 Residential real estate 109 (3 ) — — 106 Consumer 118 19 (7 ) 2 132 Other loans 3 (1 ) (2 ) — — Unallocated 121 (52 ) — — 69 Total $ 8,823 $ (800 ) $ (76 ) $ 441 $ 8,388 The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on the impairment method as of June 30, 2017 and December 31, 2016 . June 30, 2017 Commercial Commercial Real Estate Commercial Construction Residential Real Estate Consumer Government Guaranteed Other Loans Unallocated Total (In thousands) Allowance for loan losses Ending allowance balance attributable to loans Individually evaluated for impairment $ 35 $ 588 $ — $ — $ — $ — $ — $ — $ 623 Collectively evaluated for impairment 2,627 4,914 253 58 63 — 5 7 7,927 Total ending allowance balance $ 2,662 $ 5,502 $ 253 $ 58 $ 63 $ — $ 5 $ 7 $ 8,550 Loans: Loans individually evaluated for impairment $ 1,496 $ 6,335 $ — $ — $ 70 $ — $ — $ — $ 7,901 Loans collectively evaluated for impairment 81,373 464,014 11,695 85,666 31,234 9,532 641 — 684,155 Total ending loan balance $ 82,869 $ 470,349 $ 11,695 $ 85,666 $ 31,304 $ 9,532 $ 641 $ — $ 692,056 December 31, 2016 Commercial Commercial Real Estate Commercial Construction Residential Real Estate Consumer Government Guaranteed Other Loans Unallocated Total (In thousands) Allowance for loan losses Ending allowance balance attributable to loans Individually evaluated for impairment $ 9 $ 601 $ — $ — $ — $ — $ — $ — $ 610 Collectively evaluated for impairment 2,654 4,133 355 66 75 — — 12 7,295 Total ending allowance balance $ 2,663 $ 4,734 $ 355 $ 66 $ 75 $ — $ — $ 12 $ 7,905 Loans: Loans individually evaluated for impairment $ 1,698 $ 6,331 $ — $ — $ 78 $ — $ — $ — $ 8,107 Loans collectively evaluated for impairment 80,367 376,220 14,943 84,321 30,342 9,732 51 — 595,976 Total ending loan balance $ 82,065 $ 382,551 $ 14,943 $ 84,321 $ 30,420 $ 9,732 $ 51 $ — $ 604,083 The following table presents the recorded investment in nonaccrual loans at the dates indicated: June 30, 2017 December 31, 2016 (In thousands) Secured by real estate $ 37 $ — Commercial real estate 719 528 Consumer: Secured by real estate 70 78 Total nonaccrual loans $ 826 $ 606 At June 30, 2017 there was one residential mortgage past due 90 days and still accruing in the amount of $320,000 which was brought under 90 days past due subsequent to quarter end. At December 31, 2016 , there were no loans that were past due 90 days and still accruing. The following table presents loans individually evaluated for impairment by class of loan at and for the periods indicated: At and for the six months ended June 30, 2017 Unpaid Principal Balance Recorded Investment Allowance for Loan Losses Allocated Average Recorded Investment Interest Income Recognized (In thousands) With no related allowance recorded: Commercial: Secured by real estate $ 1,414 $ 1,289 $ 1,321 $ 41 Commercial real estate 3,495 3,191 3,156 62 Consumer: Secured by real estate 77 70 74 — With an allowance recorded: Commercial: Secured by real estate 37 37 $ 27 52 — Other 170 170 8 200 7 Commercial real estate 3,144 3,144 588 3,160 64 $ 8,337 $ 7,901 $ 623 $ 7,963 $ 174 During the six months ended June 30, 2017 , no interest income was recognized on a cash basis. At and for the year ended December 31, 2016 Unpaid Principal Balance Recorded Investment Allowance for Loan Losses Allocated Average Recorded Investment Interest Income Recognized (In thousands) With no related allowance recorded: Commercial: Secured by real estate $ 1,481 $ 1,353 $ 2,018 $ 92 Other — — 27 — Commercial real estate 3,448 3,156 3,128 181 Consumer: Secured by real estate 81 78 81 — With an allowance recorded: Commercial: Secured by real estate 120 120 $ — 186 7 Other 225 225 9 247 17 Commercial real estate 3,175 3,175 601 4,109 130 $ 8,530 $ 8,107 $ 610 $ 9,796 $ 427 During the year ended December 31, 2016 , no interest income was recognized on a cash basis. The following table presents the aging of the recorded investment in past due loans by class of loans as of June 30, 2017 and December 31, 2016 . Nonaccrual loans are included in the disclosure by payment status. June 30, 2017 30-59 Days Past Due 60-89 Days Past Due Greater than 90 Days Past Due Total Past Due Loans Not Past Due Total (In thousands) Commercial: Secured by real estate $ — $ — $ — $ — $ 32,573 $ 32,573 Other — — — — 50,296 50,296 Commercial real estate 98 514 — 612 469,737 470,349 Commercial construction — — — — 11,695 11,695 Residential real estate — — 320 320 85,346 85,666 Consumer: Secured by real estate 3 — 34 37 30,789 30,826 Other — — — — 478 478 Government Guaranteed — — — — 9,532 9,532 Other — — — — 641 641 Total $ 101 $ 514 $ 354 $ 969 $ 691,087 $ 692,056 December 31, 2016 30-59 Days Past Due 60-89 Days Past Due Greater than 90 Days Past Due Total Past Due Loans Not Past Due Total (In thousands) Commercial: Secured by real estate $ — $ — $ — $ — $ 34,213 $ 34,213 Other — — — — 47,852 47,852 Commercial real estate 106 — — 106 382,445 382,551 Commercial construction — — — — 14,943 14,943 Residential real estate — — — — 84,321 84,321 Consumer: Secured by real estate 6 — 40 46 30,130 30,176 Other — — — — 244 244 Government Guaranteed — — — — 9,732 9,732 Other — — — — 51 51 Total $ 112 $ — $ 40 $ 152 $ 603,931 $ 604,083 Troubled Debt Restructurings In order to determine whether a borrower is experiencing financial difficulty necessitating a restructuring, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is performed under the Corporation’s internal underwriting policy. A loan is considered to be in payment default once it is contractually 90 days past due under the modified terms. At June 30, 2017 and December 31, 2016 , the Corporation had $7.7 million and $8.0 million , respectively, of loans whose terms have been modified in troubled debt restructurings. Of these loans, $7.1 million and $7.5 million were performing in accordance with their new terms at June 30, 2017 and December 31, 2016 , respectively. The remaining troubled debt restructurings are reported as nonaccrual loans. Specific reserves of $595,000 and $610,000 have been allocated for the troubled debt restructurings at June 30, 2017 and December 31, 2016 , respectively. As of June 30, 2017 and December 31, 2016 , the Corporation has committed $235,000 and $190,000 , respectively, of additional funds to a single customer with an outstanding line of credit that is classified as a troubled debt restructuring. As of June 30, 2017, there was one troubled debt restructuring for $514,000 which was in payment default within twelve months following the modification. As of June 30, 2016, there were no trouble debt restructurings that were in payment default within twelve months following the modification. There were no new loans classified as a troubled debt restructuring during the three and six months ended June 30, 2017 or June 30, 2016 . Credit Quality Indicators The Corporation categorizes certain 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 Corporation analyzes loans individually by classifying the loans as to credit risk. This analysis includes non-homogeneous loans, such as commercial, commercial real estate and commercial construction loans. This analysis is performed at the time the loan is originated and annually thereafter. The Corporation uses the following definitions for risk ratings. Special Mention – A Special Mention asset has potential weaknesses that deserve management’s close attention, which, if left uncorrected, may result in deterioration of the repayment prospects for the asset or the Bank’s credit position at some future date. Special Mention assets are not adversely classified and do not expose the Bank to sufficient risk to warrant adverse classification. Substandard – Substandard loans are inadequately protected by the current net worth and paying capacity of the borrower or by the collateral pledged, if any. Loans so classified must have a well-defined weakness or weaknesses that jeopardize the repayment and liquidation of the debt. These loans are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. Doubtful – A Doubtful loan has all of the weaknesses inherent in those classified as Substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions, and values, highly questionable or improbable. The likelihood of loss is extremely high, but because of certain important and reasonably specific factors, an estimated loss is deferred until a more exact status can be determined. Loss – A loan classified Loss is considered uncollectible and of such little value that its continuance as an asset is not warranted. This classification does not necessarily mean that an asset has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off a basically worthless asset even though partial recovery may be effected in the future. Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans. As of June 30, 2017 and December 31, 2016 , and based on the most recent analysis performed at those times, the risk category of loans by class is as follows: June 30, 2017 Pass Special Mention Substandard Doubtful Loss Total (In thousands) Commercial: Secured by real estate $ 29,651 $ 2,473 $ 449 $ — $ — $ 32,573 Other 49,510 229 557 — — 50,296 Commercial real estate 455,050 13,178 2,121 — — 470,349 Commercial construction 11,695 — — — — 11,695 Total $ 545,906 $ 15,880 $ 3,127 $ — $ — $ 564,913 December 31, 2016 Pass Special Mention Substandard Doubtful Loss Total (In thousands) Commercial: Secured by real estate $ 32,159 $ 1,601 $ 453 $ — $ — $ 34,213 Other 46,865 404 583 — — 47,852 Commercial real estate 366,251 14,345 1,955 — — 382,551 Commercial construction 14,943 — — — — 14,943 Total $ 460,218 $ 16,350 $ 2,991 $ — $ — $ 479,559 The Corporation considers the performance of the loan portfolio and its impact on the allowance for loans losses. For the residential real estate and consumer loan segments, the Corporation also evaluates credit quality based on payment activity. The following table presents the recorded investment in residential real estate and consumer loans based on payment activity as of June 30, 2017 and December 31, 2016 . June 30, 2017 Current Past Due or Nonaccrual Total (In thousands) Residential real estate $ 85,346 $ 320 $ 85,666 Consumer: Secured by real estate 30,789 37 30,826 Other 478 — 478 Total $ 116,613 $ 357 $ 116,970 December 31, 2016 Current Past Due or Nonaccrual Total (In thousands) Residential real estate $ 84,321 $ — $ 84,321 Consumer: Secured by real estate 30,130 46 30,176 Other 244 — 244 Total $ 114,695 $ 46 $ 114,741 |