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 and nine months ended September 30, 2017 and 2016 : (Dollars in thousands) Commercial and Industrial Construction Commercial Real Estate Residential Real Estate Consumer and Other Unallocated Total Three Months Ended: September 30, 2017 Beginning balance $ 201 $ 478 $ 4,243 $ 917 $ 20 $ 1,306 $ 7,165 Charge-offs — — — — (7 ) — (7 ) Recoveries 1 — 1 1 1 — 4 Provision (31 ) (17 ) 1,105 87 30 (834 ) 340 Ending balance $ 171 $ 461 $ 5,349 $ 1,005 $ 44 $ 472 $ 7,502 September 30, 2016 Beginning balance $ 199 $ 208 $ 4,020 $ 914 $ 17 $ 630 $ 5,988 Charge-offs — — (91 ) (25 ) (11 ) — (127 ) Recoveries 5 — 2 1 4 — 12 Provision 5 106 (24 ) (48 ) 8 411 458 Ending balance $ 209 $ 314 $ 3,907 $ 842 $ 18 $ 1,041 $ 6,331 Nine Months Ended: September 30, 2017 Beginning balance $ 110 359 $ 3,932 $ 899 $ 19 $ 1,377 $ 6,696 Charge-offs (13 ) — (266 ) (42 ) (20 ) — (341 ) Recoveries 1 — 5 10 4 — 20 Provision 73 102 1,678 138 41 (905 ) 1,127 Ending balance $ 171 $ 461 $ 5,349 $ 1,005 $ 44 $ 472 $ 7,502 September 30, 2016 Beginning balance $ 85 220 $ 3,646 $ 784 $ 87 $ 768 $ 5,590 Charge-offs (138 ) — (156 ) (59 ) (30 ) — (383 ) Recoveries 21 — 36 7 6 — 70 Provision 241 94 381 110 (45 ) 273 1,054 Ending balance $ 209 $ 314 $ 3,907 $ 842 $ 18 $ 1,041 $ 6,331 The following table presents the balance of the allowance of loan losses and loans receivable by class at September 30, 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 September 30, 2017 Commercial and industrial $ 171 $ — $ 171 $ 46,493 $ 20 $ 46,473 Construction 461 — 461 43,834 — 43,834 Commercial real estate 5,349 784 4,565 536,122 5,699 530,423 Residential real estate 1,005 1 1,004 167,496 1,823 165,673 Consumer and other loans 44 — 44 2,197 — 2,197 Unallocated 472 — — — — — Total $ 7,502 $ 785 $ 6,245 $ 796,142 $ 7,542 $ 788,600 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 September 30, 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 September 30, 2017 Commercial and industrial $ 137 $ 192 $ 20 $ 349 $ 46,144 $ 46,493 $ — Construction 107 — — 107 43,727 43,834 — Commercial real estate 212 — 5,246 5,458 530,664 536,122 — Residential real estate 966 6 1,338 2,310 165,186 167,496 — Consumer and other 8 — — 8 2,189 2,197 — Total $ 1,430 $ 198 $ 6,604 $ 8,232 $ 787,910 $ 796,142 $ — 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 September 30, 2017 and December 31, 2016 were: (Dollars in thousands) September 30, 2017 December 31, 2016 Commercial and industrial $ 20 $ 33 Commercial real estate 5,246 4,048 Residential real estate 1,338 1,752 Total $ 6,604 $ 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 September 30, 2017 and December 31, 2016 : (Dollars in thousands) Pass Special Mention Substandard Doubtful Total September 30, 2017 Commercial and industrial $ 46,178 $ 295 $ 20 $ — $ 46,493 Construction 43,727 107 — — 43,834 Commercial real estate 520,867 4,019 11,236 — 536,122 Residential real estate 165,163 231 2,102 — 167,496 Consumer and other 2,197 — — — 2,197 $ 778,132 $ 4,652 $ 13,358 $ — $ 796,142 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 September 30, 2017 and December 31, 2016 : September 30, 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 $ 20 $ 38 $ — $ 19 $ 19 $ — Commercial real estate 3,455 4,014 — 2,324 2,324 — Residential real estate 1,722 1,790 — 1,604 1,629 — With an allowance recorded: Commercial and industrial — — — 14 14 14 Commercial real estate 2,244 2,272 784 2,273 2,364 135 Residential real estate 101 118 1 363 363 6 Total: Commercial and industrial 20 38 — 33 33 14 Commercial real estate 5,699 6,286 784 4,597 4,688 135 Residential real estate 1,823 1,908 1 1,967 1,992 6 $ 7,542 $ 8,232 $ 785 $ 6,597 $ 6,713 $ 155 The following tables presents the average recorded investment and income recognized for our impaired loans for the three and nine months ended September 30, 2017 and 2016 : For the Three Months Ended September 30, 2017 For the Three Months Ended September 30, 2016 (Dollars in thousands) Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized With no related allowance recorded: Commercial and industrial $ 20 $ — $ 20 $ — Commercial real estate 3,819 8 2,002 4 Residential real estate 1,880 5 1,316 3 Total impaired loans without a related allowance 5,719 13 3,338 7 With an allowance recorded: Commercial real estate 1,285 — 2,394 8 Residential real estate 51 — 184 — Total impaired loans with an allowance 1,336 — 2,578 8 Total impaired loans $ 7,055 $ 13 $ 5,916 $ 15 For the Nine Months Ended September 30, 2017 For the Nine Months Ended September 30, 2016 (Dollars in thousands) Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized With no related allowance recorded: Commercial and industrial $ 20 $ — $ 20 $ — Commercial real estate 2,848 21 2,224 16 Residential real estate 1,639 14 1,188 6 Total impaired loans without a related allowance 4,507 35 3,432 22 With an allowance recorded: Commercial and industrial 3 — — — Commercial real estate 1,832 8 2,546 25 Residential real estate 191 — 281 — Consumer and other — — 69 — Total impaired loans with an allowance 2,026 8 2,896 25 Total impaired loans $ 6,533 $ 43 $ 6,328 $ 47 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 September 30, 2017 Performing $ 453 $ 486 $ 939 Non-performing 2,218 247 2,465 Total $ 2,671 $ 733 $ 3,404 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 September 30, 2017 , we have not committed to lend additional amounts to customers with outstanding loans that are classified as troubled debt restructuring. There were no troubled debt restructuring that occurred during the three months ended September 30, 2017. There were three troubled debt restructuring in the amount of $637 thousand that occurred during the nine months ended September 30, 2017 . There were no troubled debt restructuring that occurred during the three and nine months ended September 30, 2016. The following table summarizes troubled debt restructuring that occurred during the nine months ended September 30, 2017. Number of Loans Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment (Dollars in thousands) Residential real estate 3 $ 637 $ 615 There were no troubled debt restructuring for which there was a payment default within twelve months following the date of the restructuring for the nine months ended September 30, 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 September 30, 2017 , we had one foreclosed residential real estate property with a carrying value of $179 thousand . As of December 31, 2016, we did not hold any foreclosed residential real estate properties. In addition, as of September 30, 2017 and December 31, 2016 , respectively, we had consumer loans with a carrying value of $469 thousand and $666 thousand collateralized by residential real estate property for which formal foreclosure proceedings were in process. |