ALLOWANCE FOR LOAN LOSSES | LOANS Loans were as follows for the dates indicated: June 30, 2015 December 31, 2014 (Dollars in thousands) Commercial $ 145,326 $ 118,312 Residential mortgage 41,499 39,317 Mortgage warehouse 124,580 132,636 Residential construction 2,374 1,664 Home equity 13,429 13,195 Consumer and other 4,147 4,325 Subtotal 331,355 309,449 Less: Net deferred loan costs 251 277 Allowance for loan losses (3,730 ) (3,595 ) Loans, net $ 327,876 $ 306,131 At June 30, 2015 and 2014 , the Bank’s mortgage warehouse division had repurchase agreements with 33 and 25 mortgage companies, respectively. The following table identifies the activity and related interest and fee income attributable to the mortgage warehouse division for the periods presented: Three Months Ended June 30, Six Months Ended June 30, 2015 2014 2015 2014 (Dollars in thousands) Mortgage Warehouse: Originations $ 852,564 $ 516,097 $ 1,617,565 $ 930,693 Sold Loans 820,627 501,886 1,558,691 913,848 Interest income 1,369 1,141 2,615 2,035 Warehouse fees 264 162 499 287 Wire transfer fees 84 51 157 92 Loan servicing fees 13 — 13 — ALLOWANCE FOR LOAN LOSSES The following tables present the activity in the allowance for loan losses by portfolio segment for the three months ended June 30, 2015 and 2014 : Three Months Ended June 30, 2015 Commercial Residential Mortgage Mortgage Warehouse Residential Construction Home Equity Consumer and Other Unallocated Total (Dollars in thousands) Allowance for loan losses: Beginning balance $ 2,250 $ 612 $ 673 $ 5 $ 85 $ 50 $ — $ 3,675 Charge-offs — — — — — (4 ) — (4 ) Recoveries — — — — 1 8 — 9 Provision 96 41 (193 ) (1 ) 11 96 — 50 Ending balance $ 2,346 $ 653 $ 480 $ 4 $ 97 $ 150 $ — $ 3,730 Three Months Ended June 30, 2014 Commercial Residential Mortgage Mortgage Warehouse Residential Construction Home Equity Consumer and Other Unallocated Total (Dollars in thousands) Allowance for loan losses: Beginning balance $ 2,633 $ 535 $ 520 $ 1 $ 106 $ 73 $ — $ 3,868 Charge-offs — (107 ) — — — (7 ) — (114 ) Recoveries — — — — 5 2 — 7 Provision (131 ) 79 61 1 (4 ) (6 ) — — Ending balance $ 2,502 $ 507 $ 581 $ 2 $ 107 $ 62 $ — $ 3,761 The following table presents the activity in the allowance for loan losses by portfolio segment for the six months ended June 30, 2015 and 2014 : Six Months Ended June 30, 2015 Commercial Mortgage Mortgage Warehouse Residential Construction Home Equity Consumer and Other Unallocated Total (Dollars in thousands) Allowance for loan losses: Beginning balance $ 2,116 $ 676 $ 654 $ 4 $ 90 $ 55 $ — $ 3,595 Charge-offs (20 ) (5 ) — — — (9 ) — (34 ) Recoveries — — — — 1 13 — 14 Provision 250 (18 ) (174 ) — 6 91 — 155 Ending balance $ 2,346 $ 653 $ 480 $ 4 $ 97 $ 150 $ — $ 3,730 Six Months Ended June 30, 2014 Commercial Mortgage Mortgage Warehouse Residential Construction Home Equity Consumer and Other Unallocated Total (Dollars in thousands) Allowance for loan losses: Beginning balance $ 2,725 $ 458 $ 508 $ — $ 111 $ 83 $ 20 $ 3,905 Charge-offs — (144 ) — — — (14 ) — (158 ) Recoveries — — — — 5 9 — 14 Provision (223 ) 193 73 2 (9 ) (16 ) (20 ) — Ending balance $ 2,502 $ 507 $ 581 $ 2 $ 107 $ 62 $ — $ 3,761 The following tables present the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of the dates indicated: June 30, 2015 Commercial Residential Mortgage Mortgage Warehouse Residential Construction Home Equity Consumer and Other Unallocated Total (Dollars in thousands) Allowance for loan losses: Ending balance attributable to loans: Individually evaluated for impairment $ 1,025 $ 142 $ — $ — $ 26 $ 107 $ — $ 1,300 Collectively evaluated for impairment 1,321 511 480 4 71 43 — 2,430 Acquired with deteriorated credit quality — — — — — — — — Total ending allowance $ 2,346 $ 653 $ 480 $ 4 $ 97 $ 150 $ — $ 3,730 Loans: Individually evaluated for impairment $ 3,939 $ 1,757 $ — $ — $ 103 $ 203 $ — $ 6,002 Collectively evaluated for impairment 141,387 39,633 124,580 2,374 13,326 3,944 — 325,244 Acquired with deteriorated credit quality — 109 — — — — — 109 Total ending loan balance $ 145,326 $ 41,499 $ 124,580 $ 2,374 $ 13,429 $ 4,147 $ — $ 331,355 December 31, 2014 Commercial Residential Mortgage Mortgage Warehouse Residential Construction Home Equity Consumer and Other Unallocated Total (Dollars in thousands) Allowance for loan losses: Ending balance attributable to loans: Individually evaluated for impairment $ 764 $ 122 $ — $ — $ — $ — $ — $ 886 Collectively evaluated for impairment 1,352 554 654 4 90 55 — 2,709 Acquired with deteriorated credit quality — — — — — — — — Total ending allowance $ 2,116 $ 676 $ 654 $ 4 $ 90 $ 55 $ — $ 3,595 Loans: Individually evaluated for impairment $ 9,005 $ 2,206 $ — $ — $ 7 $ — $ — $ 11,218 Collectively evaluated for impairment 108,688 36,999 132,636 1,664 13,188 4,325 — 297,500 Acquired with deteriorated credit quality 619 112 — — — — — 731 Total ending loan balance $ 118,312 $ 39,317 $ 132,636 $ 1,664 $ 13,195 $ 4,325 $ — $ 309,449 The following table presents information related to impaired loans by class of loans as of the dates indicated: June 30, 2015 December 31, 2014 Unpaid Principal Balance Recorded Investment Allowance for Loan Losses Allocated Unpaid Principal Balance Recorded Investment Allowance for Loan Losses Allocated (Dollars in thousands) With no related allowance recorded: Commercial: Commercial and other $ 2 $ 2 $ — $ — $ — $ — Real estate 1,016 1,015 — 2,962 2,960 — Five or more family — — — 3,699 3,699 — Land 130 112 — 138 123 — Residential mortgage 1,060 998 — 1,151 1,103 — Home equity 76 76 — 8 7 — Subtotal 2,284 2,203 — 7,958 7,892 — With an allowance recorded: Commercial: Real estate 1,558 1,461 365 830 769 281 Land 1,934 1,349 660 1,937 1,454 483 Residential mortgage 818 759 142 1,169 1,103 122 Home equity 27 27 26 — — — Consumer and other 203 203 107 — — — Subtotal 4,540 3,799 1,300 3,936 3,326 886 Total $ 6,824 $ 6,002 $ 1,300 $ 11,894 $ 11,218 $ 886 The following tables present loans individually evaluated for impairment by class of loans for the periods indicated: Three Months Ended June 30, 2015 2014 Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized (Dollars in thousands) With no related allowance recorded: Commercial: Commercial and other $ 3 $ — $ — $ — Real estate 994 15 2,788 41 Five or more family — — 3,738 61 Land 116 — 200 — Residential mortgage 1,022 2 1,682 2 Residential construction - land — — 43 — Home equity 77 1 11 — Subtotal 2,212 18 8,462 104 With an allowance recorded: Commercial: Real estate 1,495 9 812 — Land 1,373 — 2,550 — Residential mortgage 769 5 260 — Home equity 28 — 28 — Consumer and other 205 — — — Subtotal 3,870 14 3,650 — Total $ 6,082 $ 32 $ 12,112 $ 104 Six Months Ended June 30, 2015 2014 Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized (Dollars in thousands) With no related allowance recorded: Commercial: Commercial and other $ 2 $ — $ — $ — Real estate 1,958 60 2,500 80 Five or more family 1,836 60 3,625 110 Land 118 — 200 — Mortgage 1,060 3 1,457 8 Residential construction - land — — 22 — Home equity 39 1 11 — Subtotal 5,013 124 7,815 198 With an allowance recorded: Commercial: Real estate 1,216 9 813 — Land 1,406 — 2,562 — Mortgage 842 7 218 — Home equity 18 — 28 — Consumer and other 103 — — — Subtotal 3,585 16 3,621 — Total $ 8,598 $ 140 $ 11,436 $ 198 The following table presents the recorded investment in nonaccrual loans and loans past due over 90 days still on accrual by class of loans as of the dates indicated. The Bank had no loans greater than 90 days past due that were accruing as of June 30, 2015 or December 31, 2014 . Nonaccrual June 30, 2015 December 31, 2014 (Dollars in thousands) Commercial: Commercial and industrial $ — $ 27 Real estate 1,149 879 Land 1,461 1,577 Residential mortgage 1,048 1,933 Home equity 27 7 Consumer and other 203 — Total $ 3,888 $ 4,423 The following tables present the aging of the recorded investment in past due loans by class of loans as of the dates indicated : June 30, 2015 30-59 Days Past Due 60-89 Days Past Due Greater than 90 Days Past Due Total Past Due Current Total (Dollars in thousands) Commercial: Commercial and industrial $ — $ — $ — $ — $ 16,777 $ 16,777 Real estate 240 — 921 1,161 83,109 84,270 Five or more family — — — — 22,919 22,919 Construction — — — — 11,094 11,094 Land — — 1,108 1,108 9,158 10,266 Residential mortgage — 148 813 961 40,538 41,499 Mortgage warehouse — — — — 124,580 124,580 Residential construction: Construction — — — — 2,096 2,096 Land — — — — 278 278 Home equity 38 18 9 65 13,364 13,429 Consumer and other 7 — 203 210 3,937 4,147 Total $ 285 $ 166 $ 3,054 $ 3,505 $ 327,850 $ 331,355 December 31, 2014 30-59 Days Past Due 60-89 Days Past Due Greater than 90 Days Past Due Total Past Due Current Total (Dollars in thousands) Commercial: Commercial and industrial $ — $ — $ 27 $ 27 $ 17,388 $ 17,415 Real estate 72 — 822 894 74,369 75,263 Five or more family — — — — 16,486 16,486 Construction — — — — 2,322 2,322 Land — — 1,216 1,216 5,610 6,826 Residential mortgage 454 203 920 1,577 37,740 39,317 Mortgage warehouse — — — — 132,636 132,636 Residential construction: Construction — — — — 1,472 1,472 Land — — — — 192 192 Home equity — 73 7 80 13,115 13,195 Consumer and other 19 — — 19 4,306 4,325 Total $ 545 $ 276 $ 2,992 $ 3,813 $ 305,636 $ 309,449 Troubled Debt Restructurings A loan modification is considered a troubled debt restructuring (“TDR”) when a borrower is experiencing financial difficulty and the Company grants a concession it would not otherwise consider but for the borrower’s financial difficulties. The following table presents the Company’s TDRs as of the dates indicated: June 30, 2015 December 31, 2014 (Dollars in thousands) TDRs: Performing in accordance with modified repayment terms $ 1,795 $ 5,873 Nonperforming 66 762 $ 1,861 $ 6,635 Specific reserve $ 51 $ 23 TDRs previously disclosed resulted in no charge-offs during the three and six months ended June 30, 2015 and 2014 . The Company had not committed to lend additional amounts to customers with outstanding TDR loans at June 30, 2015 and December 31, 2014 . The following tables present loans by class modified as TDRs that occurred during the periods indicated: Three Months Ended June 30, 2015 2014 Number of Loans Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment Number of Loans Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment (Dollars in thousands) Commercial: Real Estate 3 $ 1,006 $ 1,014 1 $ 1,880 $ 1,880 Home equity 1 73 78 — — — Total 4 $ 1,079 $ 1,092 1 $ 1,880 $ 1,880 Six Months Ended June 30, 2015 2014 Number of Loans Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment Number of Loans Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment (Dollars in thousands) Commercial: Real Estate 4 $ 1,213 $ 1,221 2 $ 2,799 $ 2,799 Five or more family — — — 1 3,507 3,750 Home equity 1 73 78 — — — Total 5 $ 1,286 $ 1,299 3 $ 6,306 $ 6,549 During the three and six months ended June 30, 2015 , the concessions granted by the Company consisted of a reduction in monthly payments and loan refinances at below market interest rates. During the three and six months ended June 30, 2014 , the concessions granted by the Company consisted of loan refinances at below market interest rates. There were no TDRs that defaulted within twelve months following the modification during the three and six months ended June 30, 2015 and 2014 . A loan is considered to be in payment default once it is 90 days contractually past due under the modified terms. In order to determine whether a borrower is experiencing financial difficulty, 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 by the Company’s Officer Loan Committee. Credit Quality Indicators The Company categorizes loans into risk categories based on relevant information about the ability of 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 Company analyzes loans individually by classifying the loans as to credit risk. The analysis includes loans with risk ratings of Special Mention, Substandard, and Doubtful. This analysis is performed on a quarterly basis. The Company uses the following definitions for risk ratings: Special Mention . Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date. Substandard . Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected. Doubtful . Loans classified as doubtful have all 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 existing facts, conditions, and values, highly questionable and improbable. Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass-rated loans. The Bank monitors credit quality on loans not rated through the loan’s individual payment performance. The following tables present the risk category of loans by class based on the most recent analysis performed as of the dates indicated: June 30, 2015 Pass Special Mention Substandard Doubtful (Dollars in thousands) Commercial: Commercial and industrial $ 16,775 $ — $ 2 $ — Real estate 79,056 2,555 2,659 — Five or more family 22,919 — — — Construction 11,094 — — — Land 8,721 84 1,461 — Residential mortgage 39,750 23 1,726 — Mortgage warehouse 124,580 — — — Residential construction: Construction 2,096 — — — Land 278 — — — Home equity 13,326 — 103 — Consumer and other 3,944 — 203 — Total $ 322,539 $ 2,662 $ 6,154 $ — December 31, 2014 Pass Special Mention Substandard Doubtful (Dollars in thousands) Commercial: Commercial and industrial $ 17,397 $ — $ 18 $ — Real estate 67,597 1,663 5,983 20 Five or more family 12,787 — 3,699 — Construction 2,322 — — — Land 5,147 102 1,577 — Residential mortgage 36,827 120 2,370 — Mortgage warehouse 132,636 — — — Residential construction: Construction 1,472 — — — Land 192 — — — Home equity 13,113 73 9 — Consumer and other 4,325 — — — Total $ 293,815 $ 1,958 $ 13,656 $ 20 Purchased Loans The Company purchased loans during 2007, for which there was, at acquisition, evidence of deterioration of credit quality since origination and it was then probable that all contractually required payments would not be collected. The outstanding balance and carrying amount of those loans was as follows: June 30, 2015 December 31, 2014 (Dollars in thousands) Commercial: Commercial and industrial $ — $ 27 Real estate — 621 Residential mortgage 109 112 Outstanding balance $ 109 $ 760 Carrying amount, net of allowance of $0 $ 109 $ 731 Accretable yield, or income expected to be collected, was as follows: Three Months Ended June 30, Six Months Ended June 30, 2015 2014 2015 2014 (Dollars in thousands) Beginning balance $ 7 $ 59 $ 18 $ 73 Reclassification from non-accretable yield — — — — Accretion of income (7 ) (14 ) (18 ) (28 ) Ending balance $ — $ 45 $ — $ 45 For the purchased loans disclosed above, the Company did not increase the allowance for loan losses during the three and six months ended June 30, 2015 or 2014 . No allowance for loan losses was reversed during the three and six months ended June 30, 2015 or 2014 . |