Allowance For Loan Losses And Credit Quality Of Financing Receivables | 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 ended March 31, 2017 and 2016 : (Dollars in thousands) Commercial and Industrial Construction Commercial Real Estate Residential Real Estate Consumer and Other Unallocated Total Three Months Ended: March 31, 2017 Beginning balance $ 110 $ 359 $ 3,932 $ 899 $ 19 $ 1,377 $ 6,696 Charge-offs (13 ) — (266 ) (34 ) (5 ) — (318 ) Recoveries — — 2 8 2 — 12 Provision (5 ) 66 357 52 1 (64 ) 407 Ending balance $ 92 $ 425 $ 4,025 $ 925 $ 17 $ 1,313 $ 6,797 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 The following table presents the balance of the allowance of loan losses and loans receivable by class at March 31, 2017 and December 31, 2016 disaggregated on the basis of our impairment methodology. Allowance for Loan Losses Loans Receivable (Dollars in thousands) Balance Balance Loans Individually Evaluated for Impairment Balance Related to Loans Collectively Evaluated for Impairment Balance Individually Evaluated for Impairment Collectively Evaluated for Impairment March 31, 2017 Commercial and industrial $ 92 $ — $ 92 $ 35,906 $ 19 $ 35,887 Construction 425 — 425 35,662 — 35,662 Commercial real estate 4,025 31 3,994 485,617 4,302 481,315 Residential real estate 925 7 918 161,543 1,714 159,829 Consumer and other loans 17 — 17 962 — 962 Unallocated 1,313 — — — — — Total $ 6,797 $ 38 $ 5,446 $ 719,690 $ 6,035 $ 713,655 December 31, 2016 Commercial and industrial $ 110 $ 14 $ 96 $ 40,280 $ 33 $ 40,247 Construction 359 — 359 25,360 — 25,360 Commercial real estate 3,932 135 3,797 479,227 4,597 474,630 Residential real estate 899 6 893 150,237 1,967 148,270 Consumer and other loans 19 — 19 1,038 — 1,038 Unallocated 1,377 — — — — — Total $ 6,696 $ 155 $ 5,164 $ 696,142 $ 6,597 $ 689,545 An age analysis of loans receivable, which were past due as of March 31, 2017 and December 31, 2016 , is as follows: (Dollars in thousands) 30-59 Days Past Due 60-89 days Past Due Greater Than 90 Days (a) Total Past Due Current Total Financing Receivables Recorded Investment > 90 Days and Accruing March 31, 2017 Commercial and industrial $ — $ — $ 123 $ 123 $ 35,783 $ 35,906 $ 104 Construction — — — — 35,662 35,662 — Commercial real estate 1,233 105 3,843 5,181 480,436 485,617 — Residential real estate 823 — 1,586 2,409 159,134 161,543 — Consumer and other 5 — — 5 957 962 — Total $ 2,061 $ 105 $ 5,552 $ 7,718 $ 711,972 $ 719,690 $ 104 December 31, 2016 Commercial and industrial $ — $ — $ 137 $ 137 $ 40,143 $ 40,280 $ 104 Construction — — 309 309 25,051 25,360 309 Commercial real estate 84 719 4,103 4,906 474,321 479,227 55 Residential real estate 786 247 1,752 2,785 147,452 150,237 — Consumer and other 4 — — 4 1,034 1,038 — Total $ 874 $ 966 $ 6,301 $ 8,141 $ 688,001 $ 696,142 $ 468 (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, 2017 and December 31, 2016 were: (Dollars in thousands) March 31, 2017 December 31, 2016 Commercial and industrial $ 19 $ 33 Commercial real estate 3,843 4,048 Residential real estate 1,586 1,752 Total $ 5,448 $ 5,833 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 controlled, 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, collateral 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 risk-rating system is consistent with the classification system used by regulatory 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, 2017 and December 31, 2016 : (Dollars in thousands) Pass Special Mention Substandard Doubtful Total March 31, 2017 Commercial and industrial $ 35,783 $ 104 $ — $ 19 $ 35,906 Construction 35,662 — — — 35,662 Commercial real estate 470,313 6,531 8,773 — 485,617 Residential real estate 159,075 473 1,995 — 161,543 Consumer and other 962 — — — 962 $ 701,795 $ 7,108 $ 10,768 $ 19 $ 719,690 December 31, 2016 Commercial and industrial $ 40,247 $ — $ 33 $ — $ 40,280 Construction 25,360 — — — 25,360 Commercial real estate 463,889 7,461 7,877 — 479,227 Residential real estate 147,526 584 2,127 — 150,237 Consumer and other 1,038 — — — 1,038 $ 678,060 $ 8,045 $ 10,037 $ — $ 696,142 The following table reflects information about our impaired loans by class as of March 31, 2017 and December 31, 2016 : March 31, 2017 December 31, 2016 (Dollars in thousands) Recorded Investment Unpaid Principal Balance Related Allowance Recorded Investment Unpaid Principal Balance Related Allowance With no related allowance recorded: Commercial and industrial $ 19 $ 19 $ — $ 19 $ 19 $ — Commercial real estate 2,292 2,292 — 2,324 2,324 — Residential real estate 1,446 1,446 — 1,604 1,629 — With an allowance recorded: Commercial and industrial — — — 14 14 14 Commercial real estate 2,010 2,270 31 2,273 2,364 135 Residential real estate 268 307 7 363 363 6 Total: Commercial and industrial 19 19 — 33 33 14 Commercial real estate 4,302 4,562 31 4,597 4,688 135 Residential real estate 1,714 1,753 7 1,967 1,992 6 $ 6,035 $ 6,334 $ 38 $ 6,597 $ 6,713 $ 155 The following table presents the average recorded investment and income recognized for the three ended March 31, 2017 and 2016 : For the Three Months Ended March 31, 2017 For the Three Months Ended March 31, 2016 (Dollars in thousands) Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized With no related allowance recorded: Commercial and industrial $ 19 $ — $ 20 $ — Commercial real estate 2,308 — 2,446 8 Residential real estate 1,525 1 1,061 1 Total impaired loans without a related allowance 3,852 1 3,527 9 With an allowance recorded: Commercial and industrial 7 — — — Commercial real estate 2,142 8 2,699 8 Residential real estate 316 — 379 — Consumer and other — — 138 — Total impaired loans with an allowance 2,465 8 3,216 8 Total impaired loans $ 6,317 $ 9 $ 6,743 $ 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, 2017 Performing $ 459 $ 128 $ 587 Non-performing 2,243 — 2,243 Total $ 2,702 $ 128 $ 2,830 December 31, 2016 Performing $ 550 $ 129 $ 679 Non-performing 2,258 — 2,258 Total $ 2,808 $ 129 $ 2,937 Troubled debt restructured loans are considered impaired and are included in the previous impaired loans disclosures in this footnote. As of March 31, 2017 , 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, 2017 and 2016 . 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, 2017 and 2016 . We may obtain physical possession of residential real estate collateralizing a consumer mortgage loan via foreclosure on an in-substance repossession. As of March 31, 2017 and December 31, 2016, we did not hold any foreclosed residential real estate properties. In addition, as of March 31, 2017 and December 31, 2016 , respectively, we had consumer loans with a carrying value of $640 thousand and $666 thousand collateralized by residential real estate property for which formal foreclosure proceedings were in process. |