Loans | (3) Loans The segments and classes of loans are as follows: At March 31, At December 31, (in thousands) 2017 2016 Real estate mortgage loans: Commercial $ 65,488 65,805 Residential and home equity 89,877 88,883 Construction 22,709 19,991 Total real estate mortgage loans 178,074 174,679 Commercial loans 45,607 46,340 Consumer and other loans 4,589 4,275 Total loans 228,270 225,294 Add (deduct): Net deferred loan costs 380 350 Allowance for loan losses (2,908 ) (2,876 ) Loans, net $ 225,742 222,768 An analysis of the change in the allowance for loan losses follows: Real Estate Mortgage Loans Residential Consumer and Home Commercial and Other (in thousands) Commercial Equity Construction Loans Loans Total Three-Month Period Ended March 31, 2017 Beginning balance $ 775 1,074 258 714 55 2,876 (Credit) provision for loan losses (8 ) 12 35 (10 ) 6 35 Net (charge-offs) recoveries — — — — (3 ) (3 ) Ending balance $ 767 1,086 293 704 58 2,908 Three-Month Period Ended March 31, 2016 Beginning balance $ 707 868 246 596 56 2,473 (Credit) provision for loan losses (6 ) 40 2 94 4 134 Net (charge-offs) recoveries — — — — (2 ) (2 ) Ending balance $ 701 908 248 690 58 2,605 At March 31, 2017 Individually evaluated for impairment: Recorded investment $ — 663 73 69 — 805 Balance in allowance for loan losses $ — — — 69 — 69 Individually evaluated for impairment: Recorded investment $ 65,488 89,214 22,636 45,538 4,589 227,465 Balance in allowance for loan losses $ 767 1,086 293 635 58 2,839 At December 31, 2016 Individually evaluated for impairment: Recorded investment $ — 662 73 76 — 811 Balance in allowance for loan losses $ — — — 76 — 76 Individually evaluated for impairment: Recorded investment $ 65,805 88,221 19,918 46,264 4,275 224,483 Balance in allowance for loan losses $ 775 1,074 258 638 55 2,800 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 Company identifies the portfolio segments and classes as follows: Real Estate Mortgage Loans. Commercial. non-owner mixed-use Residential and Home Equity. one-to-four nonowner-occupied 1-year, 3-year, 5-year, 7-year 15-year 30-year Construction. Commercial Loans. Small-to-medium 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: Real Estate Mortgage Loans (in thousands) Commercial Residential Construction Commercial Consumer Total At March 31, 2017 Grade: Pass $ 61,458 85,335 22,158 44,840 4,541 218,332 Special mention 4,030 3,507 371 319 46 8,273 Substandard — 1,035 180 448 2 1,665 Doubtful — — — — — — Loss — — — — — — Total $ 65,488 89,877 22,709 45,607 4,589 228,270 At December 31, 2016 Grade: Pass 61,734 84,695 19,485 45,623 4,227 215,764 Special mention 4,071 3,152 333 250 46 7,852 Substandard — 1,036 173 467 2 1,678 Doubtful — — — — — — Loss — — — — — — Total $ 65,805 88,883 19,991 46,340 4,275 225,294 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 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. Pass Special Mention Substandard Doubtful Loss At March 31, 2017, there were four nonaccrual loans, totaling $805,000. Age analysis of past-due Accruing Loans 30-59 Days 60-89 Days Greater Than Past Due Total Past Current Nonaccrual Total (in thousands) At March 31, 2017: Real estate mortgage loans: Commercial $ — — — — 65,488 — 65,488 Residential and home equity — — — — 89,214 663 89,877 Construction — — — — 22,636 73 22,709 Commercial loans 32 — — 32 45,506 69 45,607 Consumer and other loans — — — — 4,589 — 4,589 Total $ 32 — — 32 227,433 805 228,270 At December 31, 2016: Real estate mortgage loans: Commercial — — — — 65,805 — 65,805 Residential and home equity 371 — — 371 87,850 662 88,883 Construction — — — — 19,918 73 19,991 Commercial loans — — — — 46,264 76 46,340 Consumer and other loans — — — — 4,275 — 4,275 Total $ 371 — — 371 224,112 811 225,294 The following summarizes the amount of impaired loans: With No Related Allowance Recorded With an Allowance Recorded Total Unpaid Unpaid Unpaid Contractual Contractual Contractual Recorded Principal Recorded Principal Related Recorded Principal Related (in thousands) Investment Balance Investment Balance Allowance Investment Balance Allowance At March 31, 2017: Residential and home equity $ 663 663 — — — 663 663 — Construction loans 73 73 — — — 73 73 — Commercial loans — — 69 69 69 69 69 69 Total $ 736 736 69 69 69 805 805 69 At December 31, 2016: Residential and home equity 662 662 — — — 662 662 — Construction loans 73 73 — — — 73 73 — Commercial loans — — 76 76 76 76 76 76 Total $ 735 735 76 76 76 811 811 76 The average net investment in impaired loans and interest income recognized and received on impaired loans are as follows: Three Months Ended March 31, 2017 2016 Average Interest Interest Average Interest Interest Recorded Income Income Recorded Income Income (in thousands) Investment Recognized Received Investment Recognized Received Residential and Home Equity $ 650 — — — — — Commercial Loans 73 — 1 146 1 1 Construction 74 — — — — — Total $ 797 — 1 146 1 1 There were no collateral dependent loans measured at fair value on a nonrecurring basis at March 31, 2017 or March 31, 2016. The company did not enter into any new troubled debt restructured loans during the three months ended March 31, 2017 and 2016. |