Loans And The Allowance For Loan Losses | 4. LOANS AND THE ALLOWANCE FOR LOAN LOSSES  Loan Portfolio Composition The following table presents selected information on the composition of the Company’s loan portfolio as of the dates indicated:        September 30, 2016 December 31, 2015  Mortgage loans on real estate: (in thousands)  Residential mortgages $ 111,685 $ 103,941  Commercial and multi-family 462,411 399,819  Construction-Residential 1,214 1,546  Construction-Commercial 83,718 60,892  Home equities 64,138 61,042  Total real estate loans 723,166 627,240   Commercial and industrial loans 187,440 144,330  Consumer and other loans 1,531 1,735  Net deferred loan origination costs 715 679  Total gross loans 912,852 773,984   Allowance for loan losses (13,712) (12,883)   Loans, net $ 899,140 $ 761,101   The Bank sells certain fixed rate residential mortgages to FNMA while maintaining the servicing rights for those mortgages. In the three month period ended September 30, 2016, the Bank sold mortgages to FNMA totaling $ 1.7 million, as compared with $3.3 million in mortgages sold to FNMA in the three month period ended September 30, 2015. During the nine month periods ended September 30, 2016 and 2015, the Bank sold $5.2 million and $ 12.9 million, respectively, to FNMA. At September 30, 2016, the Bank had a loan servicing portfolio principal balance of $76 million upon which it earns servicing fees, as compared with $77 million at December 31, 2015. The value of the mortgage servicing rights for that portfolio was $0. 5 million at September 30, 2016 and $0.6 million at December 31, 2015. At September 30, 2016 there were $2.5 million in residential mortgages held for sale compared with $0.5 million at December 31, 2015. The Company had no commercial loans held-for-sale at September 30, 2016 or December 31, 2015. The Company has never been contacted by FNMA to repurchase any loans due to improper documentation or fraud.  As noted in Note 1, these financial statements should be read in conjunction with the Audited Consolidated Financial Statements and the Notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2015. Disclosures related to the basis for accounting for loans, the method for recognizing interest income on loans, the policy for placing loans on nonaccrual status and the subsequent recording of payments and resuming accrual of interest, the policy for determining past due status, a description of the Company’s accounting policies and methodology used to estimate the allowance for loan losses, the policy for charging-off loans, the accounting policies for impaired loans, and more descriptive information on the Company’s credit risk ratings are all contained in the Notes to the Audited Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015. Unless otherwise noted in this Form 10-Q, the policies and methodology described in the Annual Report for the year ended December 31, 2015 are consistent with those utilized by the Company in the three and nine month periods ended September 30, 2016.   Credit Quality Indicators  The Bank monitors the credit risk in its loan portfolio by reviewing certain credit quality indicators (“CQI”). The primary CQI for its commercial mortgage and commercial and industrial (“C&I”) portfolios is the individual loan’s credit risk rating. The following list provides a description of the credit risk ratings that are used internally by the Bank when assessing the adequacy of its allowance for loan losses:  · 1-3.2-Pass · 4-Watch · 5-O.A.E.M. (Other Assets Especially Mentioned) or Special Mention · 6-Substandard · 7-Doubtful · 8-Loss  The Company’s consumer loans, including residential mortgages and home equities, are not individually risk rated or reviewed in the Company’s loan review process. Unlike commercial customers, consumer loan customers are not required to provide the Company with updated financial information. Consumer loans also carry smaller balances. Given the lack of updated information after the initial underwriting of the loan and small size of individual loans, the Company uses delinquency status as the primary credit quality indicator for consumer loans. However, once a consumer loan is identified as impaired, it is individually evaluated for impairment.  The following tables provide data, at the class level, of credit quality indicators of certain loans for the dates specified:        September 30, 2016  (in thousands)  Corporate Credit Exposure – By Credit Rating Commercial Real Estate Construction Commercial and Multi-Family Mortgages Total Commercial Real Estate Commercial and Industrial  1-3.2 $ 71,844 $ 370,026 $ 441,870 $ 113,112  4 7,695 75,283 82,978 54,780  5 - 12,243 12,243 11,432  6 4,179 4,859 9,038 8,028  7 - - - 88  Total $ 83,718 $ 462,411 $ 546,129 $ 187,440        December 31, 2015  (in thousands)  Corporate Credit Exposure – By Credit Rating Commercial Real Estate Construction Commercial and Multi-Family Mortgages Total Commercial Real Estate Commercial and Industrial  1-3 $ 42,383 $ 340,837 $ 383,220 $ 80,379  4 13,098 40,019 53,117 47,509  5 1,224 11,772 12,996 8,973  6 4,187 7,191 11,378 7,350  7 - - - 119  Total $ 60,892 $ 399,819 $ 460,711 $ 144,330   Past Due Loans The following tables provide an analysis of the age of the recorded investment in loans that are past due as of the dates indicated:    September 30, 2016  (in thousands)   Total Past Current Total 90+ Days Non-accruing  30-59 days 60-89 days 90+ days Due Balance Balance Accruing Loans   Commercial and industrial $ 9,892 $ 1,113 $ 1,608 $ 12,613 $ 174,827 $ 187,440 $ 373 $ 6,365  Residential real estate:  Residential - 209 554 763 110,922 111,685 - 872  Construction - - - - 1,214 1,214 - -  Commercial real estate:  Commercial - 4,102 1,932 6,034 456,377 462,411 492 1,893  Construction 262 - 4,179 4,441 79,277 83,718 - 4,178  Home equities 293 437 513 1,243 62,895 64,138 - 1,087  Consumer and other 12 19 6 37 1,494 1,531 - 19  Total Loans $ 10,459 $ 5,880 $ 8,792 $ 25,131 $ 887,006 $ 912,137 $ 865 $ 14,414  NOTE: Loan balances do not include $ 715 thousand in net deferred loan origination costs as of September 30, 2016.        December 31, 2015  (in thousands)   Total Past Current Total 90+ Days Non-accruing  30-59 days 60-89 days 90+ days Due Balance Balance Accruing Loans   Commercial and industrial $ 160 $ 224 $ 66 $ 450 $ 143,880 $ 144,330 $ 40 $ 5,312  Residential real estate:  Residential 822 402 569 1,793 102,148 103,941 - 1,400  Construction - - - - 1,546 1,546 - -  Commercial real estate:  Commercial 1,919 963 457 3,339 396,480 399,819 457 3,574  Construction - - - - 60,892 60,892 - 4,187  Home equities 253 236 267 756 60,286 61,042 - 1,058  Consumer and other 8 - - 8 1,727 1,735 - 14  Total Loans $ 3,162 $ 1,825 $ 1,359 $ 6,346 $ 766,959 $ 773,305 $ 497 $ 15,545  NOTE: Loan balances do not include $679 thousand in net deferred loan origination costs as of December 31, 2015.    Allowance for loan losses  The following tables present the activity in the allowance for loan losses according to portfolio segment for the nine month periods ended September 30, 2016 and 2015:         September 30, 2016   (in thousands) Commercial and Industrial Commercial Real Estate Mortgages* Consumer Residential Mortgages* HELOC Unallocated Total  Allowance for loan  losses:  Beginning balance $ 4,383 $ 7,135 $ 85 $ 909 $ 371 $ - $ 12,883  Charge-offs (122) - (36) - - - (158)  Recoveries 78 59 11 - 1 - 149  Provision (Credit) 571 538 47 (322) 4 - 838  Ending balance $ 4,910 $ 7,732 $ 107 $ 587 $ 376 $ - $ 13,712   Allowance for loan  losses:  Ending balance:  Individually evaluated  for impairment $ 720 $ 1,109 $ 46 $ 3 $ 11 $ - $ 1,889  Collectively evaluated  for impairment 4,190 6,623 61 584 365 - 11,823  Total $ 4,910 $ 7,732 $ 107 $ 587 $ 376 $ - $ 13,712   Loans:  Ending balance:  Individually evaluated  for impairment $ 6,408 $ 7,663 $ 46 $ 2,602 $ 1,583 $ - $ 18,302  Collectively evaluated  for impairment 181,032 538,466 1,485 110,297 62,555 - 893,835  Total $ 187,440 $ 546,129 $ 1,531 $ 112,899 $ 64,138 $ - $ 912,137    * Includes construction loans  NOTE: Loan balances do not include $ 715 thousand in net deferred loan origination costs as of September 30, 2016.        September 30, 2015   (in thousands) Commercial and Industrial Commercial Real Estate Mortgages* Consumer Residential Mortgages* HELOC Unallocated Total  Allowance for loan  losses:  Beginning balance $ 4,896 $ 5,650 $ 78 $ 941 $ 819 $ 149 $ 12,533  Charge-offs (100) (35) (17) (66) - - (218)  Recoveries 88 32 8 1 - - 129  Provision (Credit) (198) 1,143 5 70 (8) - 1,012  Ending balance $ 4,686 $ 6,790 $ 74 $ 946 $ 811 $ 149 $ 13,456   Allowance for loan  losses:  Ending balance:  Individually evaluated  for impairment $ 735 $ 83 $ 44 $ - $ - $ - $ 862  Collectively evaluated  for impairment 3,951 6,707 30 946 811 149 12,594  Total $ 4,686 $ 6,790 $ 74 $ 946 $ 811 $ 149 $ 13,456   Loans:  Ending balance:  Individually evaluated  for impairment $ 5,306 $ 3,331 $ 44 $ 2,334 $ 1,038 $ - $ 12,053  Collectively evaluated  for impairment 127,474 431,583 2,890 97,622 58,863 - 718,432  Total $ 132,780 $ 434,914 $ 2,934 $ 99,956 $ 59,901 $ - $ 730,485  * Includes construction loans  NOTE: Loan balances do not include $ 754 thousand in net deferred loan origination costs as of September 30, 2015.     The following tables present the activity in the allowance for loan losses by portfolio segment for the three month periods ended September 30, 2016 and 2015:       September 30, 2016  ($ in thousands) Commercial and Industrial Commercial Real Estate Mortgages* Consumer Residential Mortgages* HELOC Unallocated Total  Allowance for loan  losses:  Beginning balance $ 4,195 $ 7,308 $ 101 $ 763 $ 406 $ - $ 12,773  Charge-offs (89) - (13) - - - (102)  Recoveries 23 8 4 - - - 35  Provision 781 416 15 (176) (30) - 1,006  Ending balance $ 4,910 $ 7,732 $ 107 $ 587 $ 376 $ - $ 13,712        September 30, 2015  ($ in thousands) Commercial and Industrial Commercial Real Estate Mortgages* Consumer Residential Mortgages* HELOC Unallocated Total  Allowance for loan  losses:  Beginning balance $ 4,645 $ 6,494 $ 71 $ 948 $ 803 $ 149 $ 13,110  Charge-offs (20) - (6) (66) - - (92)  Recoveries 31 9 2 - - - 42  Provision 30 287 7 64 8 - 396  Ending balance $ 4,686 $ 6,790 $ 74 $ 946 $ 811 $ 149 $ 13,456   Impaired Loans The following tables provide data, at the class level, for impaired loans as of the dates indicated:      At September 30, 2016  Recorded Investment Unpaid Principal Balance Related Allowance Average Recorded Investment Interest Income Foregone Interest Income Recognized  With no related allowance recorded: (in thousands)  Commercial and industrial $ 3,192 $ 3,715 $ - $ 3,581 $ 249 $ 9  Residential real estate:  Residential 2,530 2,737 - 2,557 33 56  Construction - - - - - -  Commercial real estate:  Commercial 2,168 2,202 - 2,217 21 57  Construction 262 262 - 548 1 25  Home equities 1,517 1,597 - 1,546 41 18  Consumer - - - - - -  Total impaired loans $ 9,669 $ 10,513 $ - $ 10,449 $ 345 $ 165      At September 30, 2016  Recorded Investment Unpaid Principal Balance Related Allowance Average Recorded Investment Interest Income Foregone Interest Income Recognized  With a related allowance recorded: (in thousands)  Commercial and industrial $ 3,216 $ 3,266 $ 720 $ 3,256 $ 53 $ 96  Residential real estate:  Residential 72 73 3 73 2 1  Construction - - - - - -  Commercial real estate:  Commercial 1,054 1,075 223 1,069 37 -  Construction 4,179 4,201 886 4,182 145 -  Home equities 66 68 11 67 3 -  Consumer 46 70 46 47 2 2  Total impaired loans $ 8,633 $ 8,753 $ 1,889 $ 8,694 $ 242 $ 99      At September 30, 2016  Recorded Investment Unpaid Principal Balance Related Allowance Average Recorded Investment Interest Income Foregone Interest Income Recognized  Total: (in thousands)  Commercial and industrial $ 6,408 $ 6,981 $ 720 $ 6,837 $ 302 $ 105  Residential real estate:  Residential 2,602 2,810 3 2,630 35 57  Construction - - - - - -  Commercial real estate:  Commercial 3,222 3,277 223 3,286 58 57  Construction 4,441 4,463 886 4,730 146 25  Home equities 1,583 1,665 11 1,613 44 18  Consumer 46 70 46 47 2 2  Total impaired loans $ 18,302 $ 19,266 $ 1,889 $ 19,143 $ 587 $ 264         At December 31, 2015  Recorded Investment Unpaid Principal Balance Related Allowance Average Recorded Investment Interest Income Foregone Interest Income Recognized  With no related allowance recorded: (in thousands)  Commercial and industrial $ 1,750 $ 1,811 $ - $ 1,945 $ 58 $ 47  Residential real estate:  Residential 2,444 2,555 - 2,474 90 63  Construction - - - - - -  Commercial real estate:  Commercial 3,888 3,908 - 3,930 27 179  Construction 834 834 - 834 - 31  Home equities 1,644 1,711 - 1,661 40 52  Consumer - - - - - -  Total impaired loans $ 10,560 $ 10,819 $ - $ 10,844 $ 215 $ 372      At December 31, 2015  Recorded Investment Unpaid Principal Balance Related Allowance Average Recorded Investment Interest Income Foregone Interest Income Recognized  With a related allowance recorded: (in thousands)  Commercial and industrial $ 3,572 $ 3,835 $ 552 $ 3,966 $ 255 $ 9  Residential real estate:  Residential 55 55 2 55 1 2  Construction - - - - - -  Commercial real estate:  Commercial 1,083 1,083 235 1,083 4 42  Construction 4,188 4,201 911 4,188 29 166  Home equities - - - - - -  Consumer 42 57 42 45 2 6  Total impaired loans $ 8,940 $ 9,231 $ 1,742 $ 9,337 $ 291 $ 225      At December 31, 2015  Recorded Investment Unpaid Principal Balance Related Allowance Average Recorded Investment Interest Income Foregone Interest Income Recognized  Total: (in thousands)  Commercial and industrial $ 5,322 $ 5,646 $ 552 $ 5,911 $ 313 $ 56  Residential real estate:  Residential 2,499 2,610 2 2,529 91 65  Construction - - - - - -  Commercial real estate:  Commercial 4,971 4,991 235 5,013 31 221  Construction 5,022 5,035 911 5,022 29 197  Home equities 1,644 1,711 - 1,661 40 52  Consumer 42 57 42 45 2 6  Total impaired loans $ 19,500 $ 20,050 $ 1,742 $ 20,181 $ 506 $ 597    Non-performing loans  The following table sets forth information regarding non-performing loans as of the dates specified:      September 30, 2016 December 31, 2015  (in thousands)  Non-accruing loans:  Commercial and industrial loans $ 6,365 $ 5,312  Residential real estate:  Residential 872 1,400  Construction - -  Commercial real estate:  Commercial and multi-family 1,893 3,574  Construction 4,178 4,187  Home equities 1,087 1,058  Consumer loans 19 14  Total non-accruing loans $ 14,414 $ 15,545   Accruing loans 90+ days past due 865 497  Total non-performing loans $ 15,279 $ 16,042   Total non-performing loans  to total assets 1.41 % 1.71 %  Total non-performing loans  to total loans 1.67 % 2.07 %   Troubled debt restructurings The Company had $5.1 million and $5.8 million in loans that were restructured in a troubled debt restructuring (“TDR”) at September 30, 2016 and December 31, 2015, respectively. Of those balances, $1.2 million and $1.8 million were in non-accrual status at September 30, 2016 and December 31, 2015, respectively. Any TDR that is placed on non-accrual is not reverted back to accruing status until the borrower makes timely payments as contracted for at least six months and future collection under the revised terms is probable. All of the Company’s restructurings were allowed in an effort to maximize its ability to collect on loans where borrowers were experiencing financial difficulty.  The reserve for a TDR is based upon the present value of the future expected cash flows discounted at the loan’s original effective rate or upon the fair value of the collateral less costs to sell, if the loan is deemed collateral dependent. This reserve methodology is used because all TDR loans are considered impaired. As of September 30, 2016, there were no commitments to lend additional funds to debtors owing on loans whose terms have been modified in TDRs.  The following tables summarize the loans that were classified as troubled debt restructurings as of the dates indicated:     September 30, 2016  (in thousands)  Total Nonaccruing Accruing Related Allowance  Commercial and industrial $ 493 $ 450 $ 43 $ 160  Residential real estate:  Residential 1,962 231 1,731 -  Construction - - - -  Commercial real estate:  Commercial and multi-family 1,646 317 1,329  Construction 262 - 262 -  Home equities 674 178 496 -  Consumer loans 27 - 27 27  Total troubled restructured loans $ 5,064 $ 1,176 $ 3,888 $ 187      December 31, 2015  (in thousands)  Total Nonaccruing Accruing Related Allowance  Commercial and industrial $ 517 $ 508 $ 9 $ 165  Residential real estate:  Residential 1,789 689 1,100 -  Construction - - - -  Commercial real estate:  Commercial and multi-family 1,732 334 1,398 -  Construction 834 - 834 -  Home equities 867 281 586 -  Consumer loans 28 - 28 28  Total troubled restructured loans $ 5,767 $ 1,812 $ 3,955 $ 193  The Company’s TDRs have various agreements that involve deferral of principal payments, or interest-only payments, for a period (usually 12 months or less) to allow the customer time to improve cash flow or sell the property. Other common types of concessions leading to the designation of a TDR are lines of credit that are termed out and extensions of maturities at rates that are less than the prevailing market given the risk profile of the borrower.   The following tables show the data for TDR activity by the type of concession granted to the borrower for the three and nine month periods ended September 30, 2016 and 2015:     Three months ended September 30, 2016 Three months ended September 30, 2015  (in thousands) (in thousands)  Troubled Debt Restructurings by Type of Concession Number of Contracts Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment Number of Contracts Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment   Commercial and Industrial - $ - $ - - $ - $ -  Residential Real Estate & Construction - - - - - -  Extension of maturity and  interest rate reduction 1 109 109 - - -  Commercial Real Estate & Construction - - - - - -  Home Equities - - - - - -  Consumer loans - - - - - -         Nine months ended September 30, 2016 Nine months ended September 30, 2015  (in thousands) (in thousands)  Troubled Debt Restructurings by Type of Concession Number of Contracts Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment Number of Contracts Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment   Commercial and Industrial:  Deferral of principal - $ - $ - 3 $ 541 $ 541  Extension of maturity 1 24 24 - - -  Term-out line of credit 1 20 20 - - -  Residential Real Estate & Construction:  Extension of maturity 1 95 95 - - -  Extension of maturity and  interest rate reduction 1 109 109 - - -  Commercial Real Estate & Construction - - - - - -  Home Equities  Consumer loans - - - - - -   The general practice of the Bank is to work with borrowers so that they are able to pay back their loan in full. If a borrower continues to be delinquent or cannot meet the terms of a TDR and the loan is determined to be uncollectible, the loan will be charged-off. The following table presents loans which were classified as TDRs during the previous 12 months which defaulted during the three and nine month periods ended September 30, 2016 and 2015:      Three months ended September 30, 2016 Three months ended September 30, 2015  (in thousands) (in thousands)  Troubled Debt Restructurings Number of Recorded Number of Recorded  That Subsequently Defaulted Contracts Investment Contracts Investment  Commercial and Industrial - $ - - $ -  Residential Real Estate:  Residential - - 1 127  Construction - - - -  Commercial Real Estate:  Commercial and multi-family - - 1 416  Construction - - - -  Home Equities - - - -  Consumer loans - - - -           Nine months ended September 30, 2016 Nine months ended September 30, 2015  (in thousands) (in thousands)  Troubled Debt Restructurings Number of Recorded Number of Recorded  That Subsequently Defaulted Contracts Investment Contracts Investment  Commercial and Industrial - $ - - $ -  Residential Real Estate:  Residential - - 1 127  Construction - - - -  Commercial Real Estate:  Commercial and multi-family - - 2 661  Construction - - - -  Home Equities - - 1 19  Consumer loans - - - -   |