Loans, Notes, Trade and Other Receivables Disclosure [Text Block] | Note 4 Loans and Allowance for Credit Losses The Company makes residential mortgage, commercial and consumer loans to customers primarily in Talbot County, Queen Anne’s County, Kent County, Caroline County and Dorchester County in Maryland and in Kent County, Delaware. (Dollars in thousands) June 30, December 31, Construction $ 81,148 $ 85,632 Residential real estate 320,041 307,063 Commercial real estate 345,713 330,253 Commercial 66,959 64,911 Consumer 7,218 7,255 Total loans 821,079 795,114 Allowance for credit losses (8,358) (8,316) Total loans, net $ 812,721 $ 786,798 Loans are stated at their principal amount outstanding net of any purchase premiums, deferred fees and costs. Interest income on loans is accrued at the contractual rate based on the principal amount outstanding. Fees charged and costs capitalized for originating loans are being amortized substantially on the interest method over the term of the loan. A loan is placed on nonaccrual (i.e., interest income is no longer accrued) when it is specifically determined to be impaired or when principal or interest is delinquent for 90 days or more, unless the loan is well secured and in the process of collection. Any unpaid interest previously accrued on those loans is reversed from income. Interest payments received on nonaccrual loans are applied as a reduction of the loan principal balance unless collectability of the principal amount is reasonably assured, in which case interest is recognized on a cash basis. Loans are returned to accrual status when all principal and interest amounts contractually due are brought current and future payments are reasonably assured. A loan is considered impaired if it is probable that the Company will not collect all principal and interest payments according to the loan’s contractual terms. An impaired loan may show deficiencies in the borrower’s overall financial condition, payment history, support available from financial guarantors and/or the fair market value of collateral. The impairment of a loan is measured at the present value of expected future cash flows using the loan’s effective interest rate, or at the loan’s observable market price or the fair value of the collateral if the loan is collateral dependent. Generally, the Company measures impairment on such loans by reference to the fair value of the collateral. Once the amount of impairment has been determined, the uncollectible portion is charged off. Income on impaired loans is recognized on a cash basis, and payments are first applied against the principal balance outstanding (i.e., placing impaired loans on nonaccrual status). Generally, interest income is not recognized on impaired loans unless the likelihood of further loss is remote. The allowance for credit losses may include specific reserves related to impaired loans. Specific reserves remain until charge offs are made. Impaired loans do not include groups of smaller balance homogenous loans such as residential mortgage and consumer installment loans that are evaluated collectively for impairment. Reserves for probable credit losses related to these loans are based on historical loss ratios and are included in the formula portion of the allowance for credit losses. See additional discussion under the caption “Critical Accounting Policies” in Management’s Discussion and Analysis of Financial Condition and Results of Operations. A loan is considered a troubled debt restructuring (“TDR”) if a borrower is experiencing financial difficulties and a creditor has granted a concession. Concessions may include interest rate reductions or below market interest rates, principal forgiveness, restructuring amortization schedules and other actions intended to minimize potential losses. Loans are identified to be restructured when signs of impairment arise such as borrower interest rate reduction request, slowness to pay, or when an inability to repay becomes evident. The terms being offered are evaluated to determine if they are more liberal than those that would be indicated by policy or industry standards for similar, untroubled credits. In those situations where the terms or the interest rates are considered to be more favorable than industry standards or the current underwriting guidelines of the Company’s banking subsidiary, Shore United Bank (the “Bank”), the loan is classified as a TDR. All loans designated as TDRs are considered impaired loans and may be on either accrual or nonaccrual status. In instances where the loan has been placed on nonaccrual status, six consecutive months of timely payments are required prior to returning the loan to accrual status. All loans classified as TDRs which are restructured and accrue interest under revised terms require a full and comprehensive review of the borrower’s financial condition, capacity for repayment, realistic assessment of collateral values, and the assessment of risk entered into any workout agreement. Current financial information on the borrower, guarantor, and underlying collateral is analyzed to determine if it supports the ultimate collection of principal and interest. For commercial loans, the cash flows are analyzed, both for the underlying project and globally. For consumer loans, updated salary, credit history and cash flow information is obtained. Current market conditions are also considered. Following a full analysis, the determination of the appropriate loan structure is made. In the normal course of banking business, risks related to specific loan categories are as follows: Construction loans Construction loans generally finance the construction of residential real estate for builders and individuals for single family dwellings. In addition, the Bank periodically finances the construction of commercial projects. Credit risk factors include the borrower’s ability to successfully complete the construction on time and within budget, changing market conditions which could affect the value and marketability of projects, changes in the borrower’s ability or willingness to repay the loan and potentially rising interest rates which can impact both the borrower’s ability to repay and the collateral value. Residential real estate Residential real estate loans are typically made to consumers and are secured by residential real estate. Credit risk arises from the borrower’s continuing financial stability, which can be adversely impacted by job loss, divorce, illness, or personal bankruptcy, among other factors. Also impacting credit risk would be a shortfall in the value of the residential real estate in relation to the outstanding loan balance in the event of a default or subsequent liquidation of the real estate collateral. Commercial real estate Commercial real estate loans consist of both loans secured by owner occupied properties and non-owner occupied where an established banking relationship exists and involves investment properties for warehouse, retail, and office space with a history of occupancy and cash flow. These loans are subject to adverse changes in the local economy and commercial real estate markets. Credit risk associated with owner occupied properties arises from the borrower’s financial stability and the ability of the borrower and the business to repay the loan. Non-owner occupied properties carry the risk of a tenant’s deteriorating credit strength, lease expirations in soft markets and sustained vacancies which can adversely impact cash flow. Commercial Commercial loans are secured or unsecured loans for business purposes. Loans are typically secured by accounts receivable, inventory, equipment and/or other assets of the business. Credit risk arises from the successful operation of the business which may be affected by competition, rising interest rates, regulatory changes and adverse conditions in the local and regional economy. Consumer Consumer loans include home equity loans and lines, installment loans and personal lines of credit. Credit risk is similar to residential real estate loans above as it is subject to the borrower’s continuing financial stability and the value of the collateral securing the loan. (Dollars in thousands) Construction Residential Commercial Commercial Consumer Unallocated Total June 30, 2016 Loans individually evaluated for impairment $ 9,670 $ 9,719 $ 7,188 $ 192 $ 99 $ - $ 26,868 Loans collectively evaluated for impairment 71,478 310,322 338,525 66,767 7,119 - 794,211 Total loans $ 81,148 $ 320,041 $ 345,713 $ 66,959 $ 7,218 $ - $ 821,079 Allowance for credit losses allocated to: Loans individually evaluated for impairment $ 764 $ 207 $ 276 $ 45 $ - $ - $ 1,292 Loans collectively evaluated for impairment 980 1,828 2,595 632 206 825 7,066 Total allowance for credit losses $ 1,744 $ 2,035 $ 2,871 $ 677 $ 206 $ 825 $ 8,358 (Dollars in thousands) Construction Residential Commercial Commercial Consumer Unallocated Total December 31, 2015 Loans individually evaluated for impairment $ 11,598 $ 7,945 $ 7,762 $ 161 $ 122 $ - $ 27,588 Loans collectively evaluated for impairment 74,034 299,118 322,491 64,750 7,133 - 767,526 Total loans $ 85,632 $ 307,063 $ 330,253 $ 64,911 $ 7,255 $ - $ 795,114 Allowance for credit losses allocated to: Loans individually evaluated for impairment $ 619 $ 435 $ 340 $ - $ 7 $ - $ 1,401 Loans collectively evaluated for impairment 1,027 1,746 2,659 558 149 776 6,915 Total allowance for credit losses $ 1,646 $ 2,181 $ 2,999 $ 558 $ 156 $ 776 $ 8,316 (Dollars in thousands) Unpaid Recorded Recorded Related Quarter-to- Year-to-date Interest June 30, 2016 Impaired nonaccrual loans: Construction $ 11,000 $ 2,562 $ 2,867 $ 739 $ 5,489 $ 6,353 $ - Residential real estate 5,886 4,046 1,579 134 3,914 3,103 - Commercial real estate 2,832 1,777 409 121 2,058 2,308 - Commercial 212 147 45 45 164 161 - Consumer 99 99 - - 106 114 - Total 20,029 8,631 4,900 1,039 11,731 12,039 - Impaired accruing TDRs: Construction 4,241 3,449 792 25 4,244 4,142 43 Residential real estate 4,095 2,719 1,376 73 4,931 5,300 102 Commercial real estate 5,001 1,589 3,412 155 5,066 5,215 85 Commercial - - - - - - - Consumer - - - - - - - Total 13,337 7,757 5,580 253 14,241 14,657 230 Total impaired loans: Construction 15,241 6,011 3,659 764 9,733 10,495 43 Residential real estate 9,980 6,764 2,955 207 8,845 8,403 102 Commercial real estate 7,834 3,366 3,822 276 7,124 7,523 85 Commercial 212 147 45 45 164 161 - Consumer 99 99 - - 106 114 - Total $ 33,366 $ 16,387 $ 10,481 $ 1,292 $ 25,972 $ 26,696 $ 230 June 30, 2015 (Dollars in thousands) Unpaid Recorded Recorded Related Quarter-to- Year-to-date Interest December 31, 2015 Impaired nonaccrual loans: Construction $ 11,850 $ 4,647 $ 2,882 $ 588 $ 8,478 $ 8,169 $ - Residential real estate 2,563 1,773 487 208 2,041 2,159 - Commercial real estate 2,988 1,813 209 9 2,707 2,698 - Commercial 175 161 - - 95 72 - Consumer 128 98 23 7 123 123 - Total 17,704 8,492 3,601 812 13,444 13,221 - Impaired accruing TDRs: Construction 4,069 3,266 803 31 4,109 4,064 40 Residential real estate 5,686 2,380 3,306 227 7,393 6,866 160 Commercial real estate 5,740 1,702 4,038 331 6,238 6,255 116 Commercial - - - - 41 43 - Consumer - - - - - - - Total 15,495 7,348 8,147 589 17,781 17,228 316 Total impaired loans: Construction 15,919 7,913 3,685 619 12,587 12,233 40 Residential real estate 8,249 4,153 3,793 435 9,434 9,025 160 Commercial real estate 8,728 3,515 4,247 340 8,945 8,953 116 Commercial 175 161 - - 136 115 - Consumer 128 98 23 7 123 123 - Total $ 33,199 $ 15,840 $ 11,748 $ 1,401 $ 31,225 $ 30,449 $ 316 (Dollars in thousands) 1/1/16 New Disbursements Charge Reclassification/ Payoffs 6/30/16 Related For the six months ended 6/30/2016 Accruing TDRs Construction $ 4,069 $ - $ 172 $ - $ - $ - $ 4,241 $ 25 Residential Real Estate 5,686 533 (350) - (1,595) (179) 4,095 73 Commercial Real Estate 5,740 495 (659) (117) (458) - 5,001 155 Commercial - - - - - - - - Consumer - - - - - - - - Total $ 15,495 $ 1,028 $ (837) $ (117) $ (2,053) $ (179) $ 13,337 $ 253 Nonaccrual TDRs Construction $ 4,960 $ 2,570 $ (1,847) $ (254) $ - $ - $ 5,429 $ 739 Residential Real Estate 445 - (293) - 1,595 - 1,747 72 Commercial Real Estate - - - (258) 458 - 200 112 Commercial - - - - - - - - Consumer 23 - (23) - - - - - Total $ 5,428 $ 2,570 $ (2,163) $ (512) $ 2,053 $ - $ 7,376 $ 923 Total TDRs $ 20,923 $ 3,598 $ (3,000) $ (629) $ - $ (179) $ 20,713 $ 1,176 (Dollars in thousands) 1/1/15 New Disbursements Charge Reclassification/ Payoffs 6/30/15 Related For the six months ended 6/30/2015 Accruing TDRs Construction $ 4,022 $ - $ (39) $ - $ 142 $ - $ 4,125 $ 35 Residential Real Estate 6,368 1,837 (245) - (78) - 7,882 267 Commercial Real Estate 6,237 - (9) - - - 6,228 21 Commercial 47 - (7) - - - 40 - Consumer - - - - - - - - Total $ 16,674 $ 1,837 $ (300) $ - $ 64 $ - $ 18,275 $ 323 Nonaccrual TDRs Construction $ 3,321 $ - $ (100) $ (579) $ 2,911 $ - $ 5,553 $ 661 Residential Real Estate 3,382 - (18) - (2,911) - 453 - Commercial Real Estate 346 - (4) (40) (302) - - - Commercial - - - - - - - - Consumer 25 - (1) - - - 24 - Total $ 7,074 $ - $ (123) $ (619) $ (302) $ - $ 6,030 $ 661 Total TDRs $ 23,748 $ 1,837 $ (423) $ (619) $ (238) $ - $ 24,305 $ 984 (Dollars in thousands) Number of Premodification Postmodification Related TDRs: For the six months ended June 30, 2016 Construction - $ - $ - $ - Residential real estate 3 668 668 - Commercial real estate 1 495 495 - Commercial - - - - Consumer - - - - Total 4 $ 1,163 $ 1,163 $ - For the six months ended June 30, 2015 Construction - $ - $ - $ - Residential real estate 10 1,835 1,837 19 Commercial real estate - - - - Commercial - - - - Consumer - - - - Total 10 $ 1,835 $ 1,837 $ 19 During the three and six months ended June 30, 2016, there were four TDRs which were modified. The modifications to these TDRs consisted of reductions in principal, interest and rate as well as payment frequency for one of the TDRs. The following tables provide information on TDRs that defaulted during the six months ended June 30, 2016 and June 30, 2015. Generally, a loan is considered in default when principal or interest is past due 90 days or more. (Dollars in thousands) Number of Recorded Related TDRs that subsequently defaulted: For the six months ended June 30, 2016 Construction 1 $ 241 $ - Residential real estate - - - Commercial real estate 2 375 - Commercial - - - Consumer - - - Total 3 $ 616 $ - TDRs that subsequently defaulted: For the six months ended June 30, 2015 Construction - $ - $ - Residential real estate - - - Commercial real estate 2 279 - Commercial - - - Consumer - - - Total 2 $ 279 $ - Management uses risk ratings as part of its monitoring of the credit quality in the Company’s loan portfolio. Loans that are identified as special mention, substandard or doubtful are adversely rated. They are assigned higher risk ratings than favorably rated loans in the calculation of the formula portion of the allowance for credit losses. (Dollars in thousands) Pass/Performing Special Substandard Doubtful Total June 30, 2016 Construction $ 67,567 $ 4,061 $ 9,520 $ - $ 81,148 Residential real estate 303,447 6,739 9,855 - 320,041 Commercial real estate 320,593 15,980 9,140 - 345,713 Commercial 65,795 733 431 - 66,959 Consumer 7,119 - 99 - 7,218 Total $ 764,521 $ 27,513 $ 29,045 $ - $ 821,079 (Dollars in thousands) Pass/Performing Special Substandard Doubtful Total December 31, 2015 Construction $ 70,214 $ 3,903 $ 11,515 $ - $ 85,632 Residential real estate 290,857 8,837 7,369 - 307,063 Commercial real estate 302,438 18,699 9,116 - 330,253 Commercial 63,628 1,075 208 - 64,911 Consumer 7,107 26 122 - 7,255 Total $ 734,244 $ 32,540 $ 28,330 $ - $ 795,114 Accruing (Dollars in thousands) Current 30-59 60-89 90 days Total past Nonaccrual Total June 30, 2016 Construction $ 75,619 $ - $ 100 $ - $ 100 $ 5,429 $ 81,148 Residential real estate 311,432 934 2,050 - 2,984 5,625 320,041 Commercial real estate 342,536 731 260 - 991 2,186 345,713 Commercial 66,763 4 - - 4 192 66,959 Consumer 7,094 19 - 6 25 99 7,218 Total $ 803,444 $ 1,688 $ 2,410 $ 6 $ 4,104 $ 13,531 $ 821,079 Percent of total loans 97.9 % 0.2 % 0.3 % - % 0.5 % 1.6 % 100 % Accruing (Dollars in thousands) Current 30-59 60-89 90 days Total past Nonaccrual Total December 31, 2015 Construction $ 78,082 $ 21 $ - $ - $ 21 $ 7,529 $ 85,632 Residential real estate 300,563 2,139 2,102 - 4,241 2,259 307,063 Commercial real estate 327,370 - 861 - 861 2,022 330,253 Commercial 64,670 49 31 - 80 161 64,911 Consumer 7,107 13 6 7 26 122 7,255 Total $ 777,792 $ 2,222 $ 3,000 $ 7 $ 5,229 $ 12,093 $ 795,114 Percent of total loans 97.8 % 0.3 % 0.4 % - % 0.7 % 1.5 % 100 % Management evaluates the adequacy of the allowance for credit losses at least quarterly and adjusts the provision for credit losses based on this analysis. The following tables provide a summary of the activity in the allowance for credit losses allocated by loan class for the three months and six months ended June 30, 2016 and 2015. (Dollars in thousands) Construction Residential Commercial Commercial Consumer Unallocated Total For the three months ended June 30, 2016 Allowance for credit losses: Beginning balance $ 1,753 $ 2,014 $ 3,257 $ 585 $ 177 $ 523 $ 8,309 Charge-offs (13) (102) (265) (58) (2) - (440) Recoveries 10 33 10 57 4 - 114 Net charge-offs (3) (69) (255) (1) 2 - (326) Provision (6) 90 (131) 93 27 302 375 Ending balance $ 1,744 $ 2,035 $ 2,871 $ 677 $ 206 $ 825 $ 8,358 (Dollars in thousands) Construction Residential Commercial Commercial Consumer Unallocated Total For the three months ended June 30, 2015 Allowance for credit losses: Beginning balance $ 1,884 $ 2,124 $ 2,339 $ 441 $ 180 $ 830 $ 7,798 Charge-offs (216) (142) (280) (25) (35) - (698) Recoveries 104 121 2 35 15 - 277 Net charge-offs (112) (21) (278) 10 (20) - (421) Provision 80 215 555 54 8 (372) 540 Ending balance $ 1,852 $ 2,318 $ 2,616 $ 505 $ 168 $ 458 $ 7,917 (Dollars in thousands) Construction Residential Commercial Commercial Consumer Unallocated Total For the six months ended June 30, 2016 Allowance for credit losses: Beginning balance $ 1,646 $ 2,181 $ 2,999 $ 558 $ 156 $ 776 $ 8,316 Charge-offs (254) (118) (503) (125) (10) - (1,010) Recoveries 16 67 10 122 12 - 227 Net charge-offs (238) (51) (493) (3) 2 - (783) Provision 336 (95) 365 122 48 49 825 Ending balance $ 1,744 $ 2,035 $ 2,871 $ 677 $ 206 $ 825 $ 8,358 (Dollars in thousands) Construction Residential Commercial Commercial Consumer Unallocated Total For the six months ended June 30, 2015 Allowance for credit losses: Beginning balance $ 1,303 $ 2,834 $ 2,379 $ 448 $ 229 $ 502 $ 7,695 Charge-offs (579) (257) (320) (149) (45) - (1,350) Recoveries 107 145 15 82 33 - 382 Net charge-offs (472) (112) (305) (67) (12) - (968) Provision 1,021 (404) 542 124 (49) (44) 1,190 Ending balance $ 1,852 $ 2,318 $ 2,616 $ 505 $ 168 $ 458 $ 7,917 Foreclosure Proceedings Consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure totaled $1.2 million and $581 thousand as of June 30, 2016 and December 31, 2015, respectively. |