Loans | (3) Loans The segments and classes of loans are as follows (in thousands): At June 30, At December 31, Real estate mortgage loans: Commercial $ 56,240 52,661 Residential and home equity 63,038 51,858 Construction 16,039 15,876 Total real estate mortgage loans 135,317 120,395 Commercial loans 35,224 30,755 Consumer and other loans 3,154 2,877 Total loans 173,695 154,027 Add (deduct): Net deferred loan costs 187 (60 ) Allowance for loan losses (2,307 ) (2,098 ) Loans, net $ 171,575 151,869 An analysis of the change in the allowance for loan losses follows (in thousands): Real Estate Mortgage Loans Consumer Commercial Residential Construction Commercial and Other Total Three-Month Period Ended June 30, 2015: Beginning balance $ 630 622 277 537 50 2,116 Provision (credit) for loan losses 76 175 (40 ) (18 ) (2 ) 191 Net (charge-offs) recoveries 0 0 0 0 0 0 Ending balance $ 706 797 237 519 48 2,307 Three-Month Period Ended June 30, 2014: Beginning balance $ 617 575 160 401 22 1,775 Provision (credit) for loan losses 432 (52 ) 114 69 (1 ) 562 Net recoveries 0 0 0 8 0 8 Ending balance $ 1,049 523 274 478 21 2,345 Six-Month Period Ended June 30, 2015: Beginning balance $ 641 594 263 562 38 2,098 Provision for loan losses 65 203 (26 ) (43 ) 10 209 Net (charge-offs) recoveries 0 0 0 0 0 0 Ending balance $ 706 797 237 519 48 2,307 Six-Month Period Ended June 30, 2014: Beginning balance $ 604 545 175 387 23 1,734 Provision (credit) for loan losses 445 (22 ) 99 71 (2 ) 591 Net recoveries 0 0 0 20 0 20 Ending balance $ 1,049 523 274 478 21 2,345 At June 30, 2015: Individually evaluated for impairment: Recorded investment $ 0 0 0 168 7 175 Balance in allowance for loan losses $ 0 0 0 49 5 54 Collectively evaluated for impairment: Recorded investment $ 56,240 63,038 16,039 35,056 3,147 173,520 Balance in allowance for loan losses $ 706 797 237 470 43 2,253 At December 31, 2014: Individually evaluated for impairment: Recorded investment $ 0 0 0 229 8 237 Balance in allowance for loan losses $ 0 0 0 92 6 98 Collectively evaluated for impairment: Recorded investment $ 52,661 51,858 15,876 30,526 2,869 153,790 Balance in allowance for loan losses $ 641 594 263 470 32 2,000 The Company has divided the loan portfolio into three portfolio segments and five portfolio classes, each with different risk characteristics and methodologies for assessing risk. All loans are underwritten based upon standards set forth in the policies approved by the Company’s Board of Directors. The portfolio segments and classes are identified by the Company as follows: Real Estate Mortgage Loans. Commercial. Residential and Home Equity. Construction. Commercial Loans. Equipment loans generally have a term of five years or less and may have a fixed or variable rate; we use conservative margins when pricing these loans. Working capital loans generally do not exceed one year and typically, they are secured by accounts receivable, inventory, and personal guarantees of the principals of the business. Significant factors affecting a commercial borrower’s creditworthiness include the quality of management and the ability both to evaluate changes in the supply and demand characteristics affecting the business’ markets for products and services and to respond effectively to such changes. These loans may be made unsecured or secured, but most are made on a secured basis. Risks associated with our commercial loan portfolio include local, regional, and national market conditions. Other factors of risk could include changes in the borrower’s management and fluctuations in collateral value. Additionally, there may be refinancing risk if a commercial loan includes a balloon payment which must be refinanced or paid off at loan maturity. In reference to our risk management process, our commercial loan portfolio presents a higher risk profile than our consumer real estate and consumer loan portfolios. Therefore, we require that all loans to businesses must have a clearly stated and reasonable payment plan to allow for timely retirement of debt, unless secured by liquid collateral or as otherwise justified. Consumer and Other Loans. The following summarizes the loan credit quality (in thousands): Pass Special Substandard Doubtful Loss Total At June 30, 2015: Real estate mortgage loans: Commercial $ 51,443 2,829 1,968 0 0 56,240 Residential and home equity 58,927 2,716 1,395 0 0 63,038 Construction 15,861 178 0 0 0 16,039 Commercial loans 34,508 548 168 0 0 35,224 Consumer and other loans 3,144 0 10 0 0 3,154 Total $ 163,883 6,271 3,541 0 0 173,695 At December 31, 2014: Real estate mortgage loans: Commercial 50,654 0 2,007 0 0 52,661 Residential and home equity 47,357 3,065 1,436 0 0 51,858 Construction 15,714 154 8 0 0 15,876 Commercial loans 30,006 520 229 0 0 30,755 Consumer and other loans 2,801 68 8 0 0 2,877 Total $ 146,532 3,807 3,688 0 0 154,027 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. Loans classified as substandard or special mention are reviewed quarterly by the Company for further deterioration or improvement to determine if they are appropriately classified and whether there is any impairment. All loans are graded upon initial issuance. Furthermore, construction loans, non-owner occupied commercial real estate loans, and commercial loan relationships in excess of $500,000 are reviewed at least annually. The Company determines the appropriate loan grade during the renewal process and reevaluates the loan grade in situations when a loan becomes past due. Loans excluded from the review process above are generally classified as pass credits until: (a) they become past due; (b) management becomes aware of deterioration in the credit worthiness of the borrower; or (c) the client contacts the Company for a modification. In these circumstances, the loan is specifically evaluated for potential classification as to special mention, substandard or even charged-off. The Company uses the following definitions for risk ratings: Pass Special Mention Substandard Doubtful Loss At June 30, 2015, there were no loans over thirty days past due, no loans past due ninety days or more but still accruing and three loans on nonaccrual. Age analysis of past due loans at June 30, 2015 and December 31, 2014 is as follows (in thousands): Age analysis of past-due loans is as follows (in thousands): Accruing Loans 30-59 60-89 Greater Total Due Current Nonaccrual Total At June 30, 2015: Real estate mortgage loans: Commercial $ 0 0 0 0 56,240 0 56,240 Residential and home equity 0 0 0 0 63,038 0 63,038 Construction 0 0 0 0 16,039 0 16,039 Commercial loans 0 0 0 0 35,056 168 35,224 Consumer and other loans 0 0 0 0 3,154 0 3,154 Total $ 0 0 0 0 173,527 168 173,695 At December 31, 2014: Real estate mortgage loans: Commercial 0 0 0 0 52,661 0 52,661 Residential and home equity 0 0 0 0 51,858 0 51,858 Construction 0 0 0 0 15,876 0 15,876 Commercial loans 18 0 0 18 30,566 171 30,755 Consumer and other loans 0 0 0 0 2,877 0 2,877 Total $ 18 0 0 18 153,838 171 154,027 The following summarizes the amount of impaired loans (in thousands): With No Related With an Allowance Recorded Total Recorded Unpaid Recorded Unpaid Related Recorded Unpaid Related At June 30, 2015: Commercial loans 0 0 168 168 49 168 168 49 Consumer & other loans 0 0 7 7 5 7 7 5 Total $ 0 0 175 175 54 175 175 54 At December 31, 2014: Commercial loans 0 0 229 229 92 229 229 92 Consumer & other loans 0 0 8 8 6 8 8 6 Total $ 0 0 237 237 98 237 237 98 The average net investment in impaired loans and interest income recognized and received on impaired loans are as follows (in thousands): Three Months Ended June 30, 2015 2014 Average Interest Interest Average Interest Interest Commercial real estate $ 0 0 0 1,403 0 0 Residential and home equity 0 0 0 36 1 1 Commercial loans 216 3 2 213 2 3 Consumer & Other 7 0 0 0 0 0 Total $ 223 3 2 1,652 3 4 Six Months Ended June 30, 2015 2014 Average Interest Interest Average Interest Interest Commercial real estate $ 0 0 0 775 0 0 Residential and home equity 0 0 0 36 1 1 Commercial loans 222 7 8 216 6 7 Consumer & Other 7 0 0 0 0 0 Total $ 229 7 8 1,027 7 8 There were no loans measured at fair value on a nonrecurring basis at June 30, 2015 and December 31, 2014. |