ALLOWANCE FOR LOAN LOSSES | LOANS Loans were as follows for the dates indicated: September 30, 2015 December 31, 2014 (Dollars in thousands) Commercial $ 151,708 $ 118,312 Residential mortgage 41,749 39,317 Mortgage warehouse 141,446 132,636 Residential construction 3,053 1,664 Home equity 14,578 13,195 Consumer and other 3,491 4,325 Subtotal 356,025 309,449 Net deferred loan costs 302 277 Allowance for loan losses (3,677 ) (3,595 ) Loans, net $ 352,650 $ 306,131 At September 30, 2015 and 2014 , the Bank’s mortgage warehouse division had repurchase agreements with 34 and 27 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 September 30, Nine Months Ended September 30, 2015 2014 2015 2014 (Dollars in thousands) Mortgage Warehouse: Originations $ 948,518 $ 612,514 $ 2,566,083 $ 1,543,207 Sold Loans 933,125 622,590 2,491,816 1,536,438 Interest income 1,119 1,307 3,734 3,342 Warehouse fees 299 201 798 488 Wire transfer fees 96 64 253 156 Loan servicing fees 32 — 45 — ALLOWANCE FOR LOAN LOSSES The following tables present the activity in the allowance for loan losses by portfolio segment for the three months ended September 30, 2015 and 2014 : Three Months Ended September 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 $ 2,346 $ 653 $ 480 $ 4 $ 97 $ 150 $ — $ 3,730 Charge-offs — (30 ) — — (18 ) (109 ) — (157 ) Recoveries — — — — — 4 — 4 Provision 10 1 56 1 24 8 — 100 Ending balance $ 2,356 $ 624 $ 536 $ 5 $ 103 $ 53 $ — $ 3,677 Three Months Ended September 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 $ 2,502 $ 507 $ 581 $ 2 $ 107 $ 62 $ — $ 3,761 Charge-offs — — — — (12 ) (7 ) — (19 ) Recoveries — — — — — 4 — 4 Provision (96 ) 105 13 — (17 ) (5 ) — — Ending balance $ 2,406 $ 612 $ 594 $ 2 $ 78 $ 54 $ — $ 3,746 The following table presents the activity in the allowance for loan losses by portfolio segment for the nine months ended September 30, 2015 and 2014 : Nine Months Ended September 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 ) (35 ) — — (18 ) (118 ) — (191 ) Recoveries — — — — 1 17 — 18 Provision 260 (17 ) (118 ) 1 30 99 — 255 Ending balance $ 2,356 $ 624 $ 536 $ 5 $ 103 $ 53 $ — $ 3,677 Nine Months Ended September 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 ) — — (12 ) (21 ) — (177 ) Recoveries — — — — 5 13 — 18 Provision (319 ) 298 86 2 (26 ) (21 ) (20 ) — Ending balance $ 2,406 $ 612 $ 594 $ 2 $ 78 $ 54 $ — $ 3,746 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: September 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 $ 950 $ 71 $ — $ — $ 18 $ — $ — $ 1,039 Collectively evaluated for impairment 1,406 553 536 5 85 53 — 2,638 Acquired with deteriorated credit quality — — — — — — — — Total ending allowance $ 2,356 $ 624 $ 536 $ 5 $ 103 $ 53 $ — $ 3,677 Loans: Individually evaluated for impairment $ 3,877 $ 1,689 $ — $ — $ 100 $ — $ — $ 5,666 Collectively evaluated for impairment 147,831 39,953 141,446 3,053 14,478 3,491 — 350,252 Acquired with deteriorated credit quality — 107 — — — — — 107 Total ending loan balance $ 151,708 $ 41,749 $ 141,446 $ 3,053 $ 14,578 $ 3,491 $ — $ 356,025 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: September 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: Real estate $ 1,659 $ 1,638 $ — $ 2,962 $ 2,960 $ — Five or more family — — — 3,699 3,699 — Land — — — 138 123 — Residential mortgage 1,465 1,342 — 1,151 1,103 — Home equity 81 81 — 8 7 — Subtotal 3,205 3,061 — 7,958 7,892 — With an allowance recorded: Commercial: Real estate 1,016 918 317 830 769 281 Land 1,913 1,321 633 1,937 1,454 483 Residential mortgage 348 347 71 1,169 1,103 122 Home equity 19 19 18 — — — Subtotal 3,296 2,605 1,039 3,936 3,326 886 Total $ 6,501 $ 5,666 $ 1,039 $ 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 September 30, 2015 2014 Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized (Dollars in thousands) With no related allowance recorded: Commercial: Real estate $ 1,690 $ 21 $ 3,015 $ 47 Five or more family — — 3,722 62 Land — — 196 — Residential mortgage 1,383 7 1,431 1 Residential construction - land — — 8 — Home equity 84 1 2 — Subtotal 3,157 29 8,374 110 With an allowance recorded: Commercial: Real estate 940 — 827 — Land 1,357 — 1,549 — Residential mortgage 355 — 722 5 Home equity 20 — 23 — Subtotal 2,672 — 3,121 5 Total $ 5,829 $ 29 $ 11,495 $ 115 Nine Months Ended September 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 $ 1 $ — $ — $ — Real estate 1,761 81 2,873 127 Five or more family 1,217 60 3,657 172 Land — — 199 — Mortgage 1,045 10 1,448 9 Residential construction - land — — 17 — Home equity 52 2 8 — Subtotal 4,076 153 8,202 308 With an allowance recorded: Commercial: Real estate 1,123 9 818 — Land 1,390 — 2,221 — Mortgage 678 7 388 5 Home equity 18 — 26 — Consumer and other 68 — — — Subtotal 3,277 16 3,453 5 Total $ 7,353 $ 169 $ 11,655 $ 313 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. Nonaccrual Loans Past Due Over 90 Days Still Accruing September 30, 2015 December 31, 2014 September 30, 2015 December 31, 2014 (Dollars in thousands) Commercial: Commercial and industrial $ — $ 27 $ — $ — Real estate 1,252 879 — — Land 1,321 1,577 — — Residential mortgage 993 1,933 — — Home equity 62 7 2 — Total $ 3,628 $ 4,423 $ 2 $ — The following tables present the aging of the recorded investment in past due loans by class of loans as of the dates indicated : September 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 $ — $ — $ — $ — $ 17,227 $ 17,227 Real estate 25 512 1,227 1,764 86,928 88,692 Five or more family — — — — 23,742 23,742 Construction — — — — 12,005 12,005 Land — — 996 996 9,046 10,042 Residential mortgage 8 60 883 951 40,798 41,749 Mortgage warehouse — — — — 141,446 141,446 Residential construction: Construction — — — — 2,145 2,145 Land — — — — 908 908 Home equity — 139 47 186 14,392 14,578 Consumer and other 1 — — 1 3,490 3,491 Total $ 34 $ 711 $ 3,153 $ 3,898 $ 352,127 $ 356,025 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: September 30, 2015 December 31, 2014 (Dollars in thousands) TDRs: Performing in accordance with modified repayment terms $ 1,753 $ 5,873 Nonperforming 66 762 $ 1,819 $ 6,635 Specific reserve $ — $ 23 TDRs previously disclosed resulted in no charge-offs during the three and nine months ended September 30, 2015 and 2014 . The Company had not committed to lend additional amounts to customers with outstanding TDR loans at September 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 September 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 — $ — $ — 1 $ 226 $ 226 Mortgage — — — 4 514 673 Total — $ — $ — 5 $ 740 $ 899 Nine Months Ended September 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 3 $ 3,025 $ 3,025 Five or more family — — — 1 3,507 3,750 Mortgage — — — 4 514 673 Home equity 1 73 78 — — — Total 5 $ 1,286 $ 1,299 8 $ 7,046 $ 7,448 During the nine months ended September 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 nine months ended September 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 nine months ended September 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: September 30, 2015 Pass Special Mention Substandard Doubtful (Dollars in thousands) Commercial: Commercial and industrial $ 17,227 $ — $ — $ — Real estate 83,549 2,416 2,727 — Five or more family 23,742 — — — Construction 12,005 — — — Land 8,638 83 1,321 — Residential mortgage 40,356 22 1,371 — Mortgage warehouse 141,446 — — — Residential construction: Construction 2,145 — — — Land 908 — — — Home equity 14,478 — 100 — Consumer and other 3,491 — — — Total $ 347,985 $ 2,521 $ 5,519 $ — 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: September 30, 2015 December 31, 2014 (Dollars in thousands) Commercial: Commercial and industrial $ — $ 27 Real estate — 621 Residential mortgage 107 112 Outstanding balance $ 107 $ 760 Carrying amount, net of allowance of $0 $ 107 $ 731 Accretable yield, or income expected to be collected, was as follows: Three Months Ended September 30, Nine Months Ended September 30, 2015 2014 2015 2014 (Dollars in thousands) Beginning balance $ — $ 45 $ 18 $ 73 Reclassification from non-accretable yield — — — — Accretion of income — (13 ) (18 ) (41 ) Ending balance $ — $ 32 $ — $ 32 For the purchased loans disclosed above, the Company did not increase the allowance for loan losses during the three and nine months ended September 30, 2015 or 2014 . No allowance for loan losses was reversed during the three and nine months ended September 30, 2015 or 2014 . |