Allowance For Loan Losses And Credit Quality Of Financing Receivables | NOTE 4 – ALLOWANCE FOR LOAN LOSSES AND CREDIT QUALITY OF FINANCING RECEIVABLES The following table presents changes in the allowance for loan losses disaggregated by the class of loans receivable for the three months ended March 31, 2016 and 201 5 : Commercial Commercial Residential Consumer and Real Real and (Dollars in thousands) Industrial Construction Estate Estate Other Unallocated Total Three Months Ended: March 31, 2016 Beginning balance $ 85 $ 220 $ 3,646 $ 784 $ 87 $ 768 $ 5,590 Charge-offs - - - (9) (19) - (28) Recoveries 7 - 31 - 1 - 39 Provision 6 47 170 133 52 (197) 211 Ending balance $ 98 $ 267 $ 3,847 $ 908 $ 121 $ 571 $ 5,812 March 31, 2015 Beginning balance $ 231 383 $ 3,491 $ 903 $ 19 $ 614 $ 5,641 Charge-offs (19) - (188) - (7) - (214) Recoveries 4 - 12 12 3 - 31 Provision (78) 5 472 (74) 73 (93) 305 Ending balance $ 138 $ 388 $ 3,787 $ 841 $ 88 $ 521 $ 5,763 The following table presents the balance of the allowance of loan losses and loans receivable by class at March 31 , 201 6 and December 31, 201 5 disaggregated on the basis of our impairment methodology. Allowance for Loan Losses Loans Receivable Balance Balance Related to Related to Loans Loans Individually Collectively Individually Collectively Evaluated for Evaluated for Evaluated for Evaluated for (Dollars in thousands) Balance Impairment Impairment Balance Impairment Impairment March 31, 2016 Commercial and industrial $ 98 $ - $ 98 $ 24,278 $ 20 $ 24,258 Construction 267 - 267 15,827 - 15,827 Commercial real estate 3,847 249 3,598 409,358 5,130 404,228 Residential real estate 908 68 840 130,189 1,333 128,856 Consumer and other loans 121 107 14 1,172 138 1,034 Unallocated 571 - - - - - Total $ 5,812 $ 424 $ 4,817 $ 580,824 $ 6,621 $ 574,203 December 31, 2015 Commercial and industrial $ 85 $ - $ 85 $ 20,023 $ 20 $ 20,003 Construction 220 - 220 13,348 - 13,348 Commercial real estate 3,646 112 3,534 382,262 5,160 377,102 Residential real estate 784 79 705 127,204 1,546 125,658 Consumer and other loans 87 73 14 1,253 138 1,115 Unallocated 768 - - - - - Total $ 5,590 $ 264 $ 4,558 $ 544,090 $ 6,864 $ 537,226 An age analysis of loans receivable , which were past due as of March 31, 2016 and December 31, 201 5 , is as follows: Recorded Investment Greater Total > 90 Days 30-59 Days 60-89 days Than Total Past Financing and (Dollars in thousands) Past Due Past Due 90 Days (a) Due Current Receivables Accruing March 31, 2016 Commercial and industrial $ - $ 4 $ 20 $ 24 $ 24,254 $ 24,278 $ - Construction - - - - 15,827 15,827 - Commercial real estate 2,306 1,280 3,993 7,579 401,779 409,358 - Residential real estate 1,001 247 1,202 2,450 127,739 130,189 - Consumer and other 4 - 138 142 1,030 1,172 - Total $ 3,311 $ 1,531 $ 5,353 $ 10,195 $ 570,629 $ 580,824 $ - December 31, 2015 Commercial and industrial $ 5 $ - $ 20 $ 25 $ 19,998 $ 20,023 $ - Construction - - - - 13,348 13,348 - Commercial real estate 758 1,461 4,016 6,235 376,027 382,262 - Residential real estate 335 247 1,138 1,720 125,484 127,204 - Consumer and other 16 1 138 155 1,098 1,253 - Total $ 1,114 $ 1,709 $ 5,312 $ 8,135 $ 535,955 $ 544,090 $ - (a) includes loans greater than 90 days past due and still accruing and non-accrual loans. Loans for which the accrual of interest has been discontinued at March 31, 2016 and December 31, 201 5 were: (Dollars in thousands) March 31, 2016 December 31, 2015 Commercial and industrial $ 20 $ 20 Commercial real estate 3,993 4,016 Residential real estate 1,202 1,138 Consumer and other 138 138 Total $ 5,353 $ 5,312 In determining the adequacy of the allowance for loan losses, we estimate losses based on the identification of specific problem loans through our credit review process and also estimate losses inherent in other loans on an aggregate basis by loan type. The credit review process includes the independent evaluation of the loan officer assigned risk ratings by the Chief Credit Officer and a third party loan review company. Such risk ratings are assigned loss component factors that reflect our loss estimate for each group of loans. It is management’s and the Board of Directors’ responsibility to oversee the lending process to ensure that all credit risks are properly identified, monitored, and controlle d, and that loan pricing, terms and other safeguards against non-performance and default are commensurate with the level of risk undertaken and is rated as such based on a risk-rating system. Factors considered in assigning risk ratings and loss component factors include: borrower specific information related to expected future cash flows and operating results, collate ral values, financial condition and payment status; levels of and trends in portfolio charge-offs and recoveries; levels in portfolio delinquencies; effects of changes in loan concentrations and observed trends in the economy and other qualitative measurements. Our ris k-rating system is consistent with the classification system used by reg ulatory agencies and with industry practices. Loan classifications of Substandard, Doubtful or Loss are consistent with the regulatory definitions of classified assets. The classification system is as follows: · Pass : This category represents loans performing to contractual terms and conditions and the primary source of repayment is adequate to meet the obligation. We have five categories within the Pass classification depending on strength of repayment sources, collateral values and financial condition of the borrower. · Special Mention : This category represents loans performing to contractual terms and conditions; however the primary source of repayment or the borrower is exhibiting some deterioration or weaknesses in financial condition that could potentially threaten the borrowers’ future ability to repay our loan principal and interest or fees due. · Substandard : This category represents loans that the primary source of repayment has significantly deteriorated or weakened which has or could threaten the borrowers’ ability to make scheduled payments. The weaknesses require close supervision by management and there is a distinct possibility that we could sustain some loss if the deficiencies are not corrected. Such weaknesses could jeopardize the timely and ultimate collection of our loan principal and interest or fees due. Loss may not be expected or evident, however, loan repayment is inadequately supported by current financial information or pledged collateral. · Doubtfu l: Loans so classified have all the inherent weaknesses of a substandard loan with the added provision that collection or liquidation in full is highly questionable and not reasonably assured. The probability of at least partial loss is high, but extraneous factors might strengthen the asset to prevent loss. The validity of the extraneous factors must be continuously monitored. Once these factors are questionable the loan should be considered for full or partial charge-off. · Loss : Loans so classified are considered uncollectible, and of such little value that their continuance as active assets is not warranted. Such loans are fully charged off. The following tables illustrate our corporate credit risk profile by creditworthiness category as of March 31, 2016 and December 31, 201 5 : Special (Dollars in thousands) Pass Mention Substandard Doubtful Total March 31, 2016 Commercial and industrial $ 24,224 $ 19 $ 35 $ - $ 24,278 Construction 15,827 - - - 15,827 Commercial real estate 394,515 8,887 5,956 - 409,358 Residential real estate 128,119 737 1,333 - 130,189 Consumer and other 1,034 - 138 - 1,172 $ 563,719 $ 9,643 $ 7,462 $ - $ 580,824 December 31, 2015 Commercial and industrial $ 19,983 $ 5 $ 35 $ - $ 20,023 Construction 13,348 - - - 13,348 Commercial real estate 367,305 8,957 6,000 - 382,262 Residential real estate 124,915 743 1,546 - 127,204 Consumer and other 1,115 - 138 - 1,253 $ 526,666 $ 9,705 $ 7,719 $ - $ 544,090 The following table reflects information about our impaired loans by class as of March 31, 2016 and December 31, 201 5 : March 31, 2016 December 31, 2015 Unpaid Unpaid Recorded Principal Related Recorded Principal Related (Dollars in thousands) Investment Balance Allowance Investment Balance Allowance With no related allowance recorded: Commercial and industrial $ 20 $ 20 $ - $ 20 $ 20 $ - Commercial real estate 2,207 2,218 - 2,684 2,684 - Residential real estate 999 999 - 1,123 1,152 - With an allowance recorded: Commercial real estate 2,923 2,923 249 2,476 2,476 112 Residential real estate 334 364 68 423 423 79 Consumer and other 138 138 107 138 138 73 Total: Commercial and industrial 20 20 - 20 20 - Commercial real estate 5,130 5,141 249 5,160 5,160 112 Residential real estate 1,333 1,363 68 1,546 1,575 79 Consumer and other 138 138 107 138 138 73 $ 6,621 $ 6,662 $ 424 $ 6,864 $ 6,893 $ 264 The following table presents the average recorded investment and income recognized for the three months ended March 31 , 201 6 and 201 5 : For the Three Months Ended March 31, 2016 For the Three Months Ended March 31, 2015 Average Interest Average Interest Recorded Income Recorded Income (Dollars in thousands) Investment Recognized Investment Recognized With no related allowance recorded: Commercial and industrial $ 20 $ - $ 10 $ - Commercial real estate 2,446 8 2,759 5 Residential real estate 1,061 1 1,631 1 Total impaired loans without a related allowance 3,527 9 4,400 6 With an allowance recorded: Commercial real estate 2,699 8 2,766 8 Residential real estate 379 - 513 3 Consumer and other 138 - 69 - Total impaired loans with an allowance 3,216 8 3,395 11 Total impaired loans $ 6,743 $ 17 $ 7,795 $ 17 We recognize interest income on performing impaired loans as payments are received. On non-performing impaired loans we do not recognize interest income as all payments are recorded as a reduction of principal on such loans. Impaired loans include loans modified in troubled debt restructurings where concessions have been granted to borrowers experiencing financial difficulties. These concessions could include a reduction in the interest rate on the loan, payment extensions, postponement or forgiveness of principal, forbearance or other actions intended to maximize collection. The concessions rarely result in the forgiveness of principal or accrued interest. In addition, we attempt to obtain additional collateral or guarantor support when modifying such loans. Non-accruing restructured loans may be returned to accrual status when there has been a sustained period of repayment performance (generally six consecutive months of payments) and both principal and interest are deemed collectible. The following table presents the recorded investment in troubled debt restructured loans, based on payment performance status: (Dollars in thousands) Commercial Real Estate Residential Real Estate Total March 31, 2016 Performing $ 1,137 $ 131 $ 1,268 Non-performing 1,828 194 2,022 Total $ 2,965 $ 325 $ 3,290 December 31, 2015 Performing $ 1,144 $ 409 $ 1,553 Non-performing 1,831 194 2,025 Total $ 2,975 $ 603 $ 3,578 Troubled debt restructured loans are considered impaired and are included in the previous impaired loans disclosures in this footnote. As of March 31, 2016 , we have not committed to lend additional amounts to customers with outstanding loans that are classified as troubled debt restructurings. There were no troubled debt restructurings that occurred during the three months ended March 31 , 2 016 and 2015 . There were no troubled debt restructurings for which there was a payment default within twelve months following the date of the restructuring for the three months ended March 31, 2016 and 2015 . We may obtain physical possession of residential real estate collateralizing a consumer mortgage loan via foreclosure on an in-substance repossession. As of both March 31, 2016 and December 31, 2015 , we he ld $130 thousand in foreclosed residential real estate properties as a result of obtaining physical possession. I n addition, as of March 31, 2016 and December 31, 2015,respectively , we had consumer loans with a carrying value of $878 thousand and $945 thousand collateralized by residential real estate property for which formal foreclosure proceedings were in process. |