Loans | (3) Loans The composition of the Company’s loan portfolio, excluding loans held for sale, was the following for the periods presented below: (in thousands) At June 30, At December 31, Real estate mortgage loans: Commercial $ 89,482 $ 79,565 Residential and home equity 113,715 94,824 Construction 32,266 26,813 Total real estate mortgage loans 235,463 201,202 Commercial loans 46,006 44,027 Consumer and other loans 7,136 7,742 Total loans 288,605 252,971 Add (deduct): Net deferred loan costs 409 424 Allowance for loan losses (3,541 ) (3,136 ) Loans, net $ 285,473 $ 250,259 An analysis of the change in allowance for loan losses follows: Real Estate Mortgage Loans (in thousands) Commercial Residential Construction Commercial Consumer Total Three-Month Period Ended June 30, 2018 Beginning balance $ 977 $ 1,208 $ 372 $ 745 $ 83 $ 3,385 Provision for loan losses 24 101 28 2 — 155 Net (charge-offs) recoveries — — — 2 (1 ) 1 Ending balance $ 1,001 $ 1,309 $ 400 $ 749 $ 82 $ 3,541 Three-Month Period Ended June 30, 2017 Beginning balance $ 767 $ 1,086 $ 293 $ 704 $ 58 $ 2,908 Provision for loan losses 44 22 45 6 3 120 Net (charge-offs) recoveries — — — 2 (2 ) — Ending balance $ 811 $ 1,108 $ 338 $ 712 $ 59 $ 3,028 Six-Month Beginning balance $ 894 $ 1,097 $ 331 $ 724 $ 90 $ 3,136 Provision (credit) for loan losses 107 212 69 22 (1 ) 409 Net (charge-offs) recoveries — — — 3 (7 ) (4 ) Ending balance $ 1,001 $ 1,309 $ 400 $ 749 $ 82 $ 3,541 Six-Month Beginning balance $ 775 $ 1,074 $ 258 $ 714 $ 55 $ 2,876 Provision (credit) for loan losses 36 34 80 (4 ) 9 155 Net (charge-offs) recoveries — — — 2 (5 ) (3 ) Ending balance $ 811 $ 1,108 $ 338 $ 712 $ 59 $ 3,028 At June 30, 2018 Individually evaluated for impairment: Recorded investment $ 611 $ 240 $ — $ 133 $ — $ 984 Balance in allowance for loan losses $ — $ — $ — $ 133 $ — $ 133 Collectively evaluated for impairment: Recorded investment $ 88,871 $ 113,475 $ 32,266 $ 45,873 $ 7,136 $ 287,621 Balance in allowance for loan losses $ 1,001 $ 1,309 $ 400 $ 616 $ 82 $ 3,408 At December 31, 2017 Individually evaluated for impairment: Recorded investment $ — $ — $ — $ 134 $ — $ 134 Balance in allowance for loan losses $ — $ — $ — $ 134 $ — $ 134 Collectively evaluated for impairment: Recorded investment $ 79,565 $ 94,824 $ 26,813 $ 43,893 $ 7,742 $ 252,837 Balance in allowance for loan losses $ 894 $ 1,097 $ 331 $ 590 $ 90 $ 3,002 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. mixed-use Residential and Home Equity. one-to-four 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 and Home Equity Construction Commercial Loans Consumer and Other Loans Total At June 30, 2018 Grade: Pass $ 84,019 $ 110,717 $ 32,101 $ 43,994 $ 7,041 $ 277,872 Special mention 4,852 2,835 — 1,235 95 9,017 Substandard 611 163 165 777 — 1,716 Doubtful — — — — — — Loss — — — — — — Total $ 89,482 $ 113,715 $ 32,266 $ 46,006 $ 7,136 $ 288,605 At December 31, 2017 Grade: Pass $ 74,560 $ 92,282 $ 26,356 $ 42,874 $ 7,715 $ 243,787 Special mention 4,382 2,122 298 591 27 7,420 Substandard 623 420 159 562 — 1,764 Doubtful — — — — — — Loss — — — — — — Total $ 79,565 $ 94,824 $ 26,813 $ 44,027 $ 7,742 $ 252,971 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, nonowner-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. Pass Special Mention Substandard Doubtful Loss At June 30, 2018, there were two nonaccrual loans, totaling $90,000. Age analysis of past due loans is as follows: Accruing Loans (in thousands) 30-59 Days Past Due 60-89 Days Past Due Greater Than 90 Days Past Due Total Past Due Current Nonaccrual Loans Total Loans At June 30, 2018: Real estate mortgage loans: Commercial $ 42 $ 300 $ — $ 342 $ 89,140 $ — $ 89,482 Residential and home equity 215 — — 215 113,500 — 113,715 Construction — — — — 32,266 — 32,266 Commercial loans — — — — 45,916 90 46,006 Consumer and other loans — — — — 7,136 — 7,136 Total $ 257 $ 300 $ — $ 557 $ 287,958 $ 90 $ 288,605 At December 31, 2017: Real estate mortgage loans: Commercial $ — $ 623 $ — $ 623 $ 78,942 $ — $ 79,565 Residential and home equity — 255 — 255 94,569 — 94,824 Construction — — — — 26,813 — 26,813 Commercial loans — — — — 43,893 134 44,027 Consumer and other loans — — — — 7,742 — 7,742 Total $ — $ 878 $ — $ 878 $ 251,959 $ 134 $ 252,971 The following summarizes the amount of impaired loans: With No Related Allowance Recorded With an Allowance Recorded Total (in thousands) Recorded Investment Unpaid Contractual Principal Balance Recorded Investment Unpaid Contractual Principal Balance Related Allowance Recorded Investment Unpaid Contractual Principal Balance Related Allowance At June 30, 2018: Real estate mortgage loans: Commercial $ 611 $ 611 $ — $ — $ — $ 611 $ 611 $ — Residential & home equity 240 240 — — — 240 240 — Commercial loans — — 133 133 133 133 133 133 Total $ 851 $ 851 $ 133 $ 133 $ 133 $ 984 $ 984 $ 133 At December 31, 2017: Commercial loans $ — $ — $ 134 $ 134 $ 134 $ 134 $ 134 $ 134 Total $ — $ — $ 134 $ 134 $ 134 $ 134 $ 134 $ 134 The average net investment in impaired loans and interest income recognized and received on impaired loans are as follows: Three Months Ended June 30, 2018 2017 (in thousands) Average Recorded Investment Interest Income Recognized Interest Income Received Average Recorded Investment Interest Income Recognized Interest Income Received Real estate mortgage loans: Commercial $ 611 $ — $ — $ — $ — $ — Residential & home equity 251 1 — 481 22 27 Construction — — — 74 — — Commercial loans 156 — — 67 — 1 Total $ 1,018 $ 1 $ — $ 622 $ 22 $ 28 Six Months Ended June 30, 2018 2017 (in thousands) Average Interest Interest Average Interest Interest Real estate mortgage loans: Commercial $ 328 $ — $ — $ — $ — $ — Residential & home equity 212 1 — 562 22 28 Construction — — 2 74 — — Commercial loans 152 — — 69 — 1 Total $ 692 $ 1 $ 2 $ 705 $ 22 $ 29 There were no collateral dependent loans measured at fair value on a nonrecurring basis at June 30, 2018 or 2017. The restructuring of a loan constitutes a troubled debt restructuring (“TDR”) if the creditor grants a concession to the debtor that it would not otherwise consider in the normal course of business. A concession may include an extension of repayment terms which would not normally be granted, a reduction in interest rate or the forgiveness of principal and/or accrued interest. All TDRs are evaluated individually for impairment on a quarterly basis as part of the allowance for loan losses calculation. The Company entered into one new TDR during the quarter ended June 30, 2018 and during the six months ended June 30, 2018 and 2017. The Company had no new TDRs during the quarter ended June 30, 2017. Three Months Ended June 30, 2018 2017 ( dollars in thousands) Number of Contracts Pre- Modification Outstanding Recorded Investment Post- Modification Outstanding Recorded Investment Current Modification Outstanding Recorded Investment Number of Contracts Pre- Modification Outstanding Recorded Investment Post- Modification Outstanding Recorded Investment Current Modification Outstanding Recorded Investment Troubled Debt Restructurings - Commercial real estate: Modified principal 1 $ 619 $ 611 $ 611 — $ — $ — $ — Total 1 $ 619 $ 611 $ 611 — $ — $ — $ — Six Months Ended June 30, 2018 2017 (dollars in thousands) Number of Contracts Pre- Post- Current Number of Contracts Pre- Post- Current Troubled Debt Restructurings - Commercial real estate: Modified principal 1 $ 619 $ 611 $ 611 $ 1 $ 153 $ 169 $ 167 Total 1 $ 619 $ 611 $ 611 $ 1 $ 153 $ 169 $ 167 At June 30, 2018, the Company had $655,000 in loans identified as TDRs. The TDR entered into during the quarter ended June 30, 2018 did not subsequently default during that period. |