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:        June 30, 2017 December 31, 2016  Mortgage loans on real estate: (in thousands)  Residential mortgages $ 123,734 $ 118,542  Commercial and multi-family 477,216 462,385  Construction-Residential 2,433 2,540  Construction-Commercial 96,640 93,240  Home equities 66,144 66,234  Total real estate loans 766,167 742,941   Commercial and industrial loans 207,769 197,371  Consumer and other loans 1,502 1,417  Net deferred loan origination costs 1,055 783  Total gross loans 976,493 942,512   Allowance for loan losses (14,178) (13,916)   Loans, net $ 962,315 $ 928,596   The Bank sells certain fixed rate residential mortgages to FNMA while maintaining the servicing rights for those mortgages. In the three month period ended June 30, 2017, the Bank sold mortgages to FNMA totaling $ 2.5 million, compared with $ 2.6 million in the three month period ended June 30, 2016. During the six month periods ended June 30, 2017 and 2016, the Bank sold $5.3 million and $3.5 million, respectively, to FNMA. At June 30, 2017, the Bank had a loan servicing portfolio principal balance of $77 million upon which it earned servicing fees, compared with $76 million at December 31, 2016. The value of the mortgage servicing rights for that portfolio was $0.6 million at June 30, 2017 and $0.5 million at December 31, 2016. At June 30, 2017 there were $0. 5 million in residential mortgages held for sale compared with $0.3 million at December 31, 2016. 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, 2016. 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, 2016. Unless otherwise noted in this Form 10-Q, the policies and methodology described in the Annual Report for the year ended December 31, 2016 are consistent with those utilized by the Company in the three and six month periods ended June 30, 2017.   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-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:        June 30, 2017  (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 $ 75,063 $ 374,031 $ 449,094 $ 139,594  4 17,398 81,436 98,834 55,030  5 - 12,187 12,187 7,136  6 4,179 9,562 13,741 5,254  7 - - - 755  Total $ 96,640 $ 477,216 $ 573,856 $ 207,769        December 31, 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 $ 82,520 $ 372,235 $ 454,755 $ 121,414  4 6,541 73,655 80,196 59,117  5 - 12,506 12,506 12,623  6 4,179 3,989 8,168 3,404  7 - - - 813  Total $ 93,240 $ 462,385 $ 555,625 $ 197,371   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:     June 30, 2017  (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 $ 3,054 $ 602 $ 1,743 $ 5,399 $ 202,370 $ 207,769 $ 2 $ 2,651  Residential real estate:  Residential - 90 735 825 122,909 123,734 - 1,003  Construction - - - - 2,433 2,433 - -  Commercial real estate:  Commercial 3,576 1,417 3,119 8,112 469,104 477,216 1,288 3,110  Construction 4,044 61 4,643 8,748 87,892 96,640 464 4,179  Home equities 699 7 580 1,286 64,858 66,144 - 1,194  Consumer and other 23 - - 23 1,479 1,502 - 10  Total Loans $ 11,396 $ 2,177 $ 10,820 $ 24,393 $ 951,045 $ 975,438 $ 1,754 $ 12,147  Note: Loan balances do not include $ 1.1 million in net deferred loan origination costs as of June 30, 2017.        December 31, 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 $ 6,772 $ 2,966 $ 1,150 $ 10,888 $ 186,483 $ 197,371 $ - $ 3,106  Residential real estate:  Residential 868 123 567 1,558 116,984 118,542 - 862  Construction - - - - 2,540 2,540 - -  Commercial real estate:  Commercial 6,319 1,522 2,357 10,198 452,187 462,385 483 1,874  Construction 257 - 4,417 4,674 88,566 93,240 239 4,178  Home equities 481 119 679 1,279 64,955 66,234 - 1,261  Consumer and other 15 10 5 30 1,387 1,417 - 17  Total Loans $ 14,712 $ 4,740 $ 9,175 $ 28,627 $ 913,102 $ 941,729 $ 722 $ 11,298  Note: Loan balances do not include $783 thousand in net deferred loan origination costs as of December 31, 2016.    Allowance for loan losses  The following tables present the activity in the allowance for loan losses according to portfolio segment for the six month periods ended June 30, 2017 and 2016:         June 30, 2017   (in thousands) Commercial and Industrial Commercial Real Estate Mortgages* Consumer and Other Residential Mortgages* Home Equities Total  Allowance for loan  losses:  Beginning balance $ 4,813 $ 7,890 $ 96 $ 769 $ 348 $ 13,916  Charge-offs (33) - (33) - - (66)  Recoveries 331 - 21 - 1 353  Provision (Credit) (141) 9 20 63 24 (25)  Ending balance $ 4,970 $ 7,899 $ 104 $ 832 $ 373 $ 14,178   Allowance for loan  losses:  Ending balance:  Individually evaluated  for impairment $ 681 $ 1,189 $ 42 $ 1 $ 2 $ 1,915  Collectively evaluated  for impairment 4,289 6,710 62 831 371 12,263  Total $ 4,970 $ 7,899 $ 104 $ 832 $ 373 $ 14,178   Loans:  Ending balance:  Individually evaluated  for impairment $ 2,665 $ 12,298 $ 42 $ 2,834 $ 1,651 $ 19,490  Collectively evaluated  for impairment 205,104 561,558 1,460 123,333 64,493 955,948  Total $ 207,769 $ 573,856 $ 1,502 $ 126,167 $ 66,144 $ 975,438    * Includes construction loans  Note: Loan balances do not include $ 1.1 million in net deferred loan origination costs as of June 30, 2017.        June 30, 2016   (in thousands) Commercial and Industrial Commercial Real Estate Mortgages* Consumer and Other Residential Mortgages* Home Equities Total  Allowance for loan  losses:  Beginning balance $ 4,383 $ 7,135 $ 85 $ 909 $ 371 $ 12,883  Charge-offs (33) - (23) - - (56)  Recoveries 55 51 7 - 1 114  Provision (Credit) (210) 122 32 (146) 34 (168)  Ending balance $ 4,195 $ 7,308 $ 101 $ 763 $ 406 $ 12,773   Allowance for loan  losses:  Ending balance:  Individually evaluated  for impairment $ 324 $ 1,128 $ 40 $ 3 $ 18 $ 1,513  Collectively evaluated  for impairment 3,871 6,180 61 760 388 11,260  Total $ 4,195 $ 7,308 $ 101 $ 763 $ 406 $ 12,773   Loans:  Ending balance:  Individually evaluated  for impairment $ 4,985 $ 9,261 $ 40 $ 2,461 $ 1,614 $ 18,361  Collectively evaluated  for impairment 174,225 490,138 1,407 106,476 61,928 834,174  Total $ 179,210 $ 499,399 $ 1,447 $ 108,937 $ 63,542 $ 852,535  * Includes construction loans  Note: Loan balances do not include $ 771 thousand in net deferred loan origination costs as of June 30, 2016.    The following tables present the activity in the allowance for loan losses according to portfolio segment for the three month periods ended June 30, 2017 and 2016:     June 30, 2017  ($ in thousands) Commercial and Industrial Commercial Real Estate Mortgages* Consumer and Other Residential Mortgages* Home Equities Total  Allowance for loan  losses:  Beginning balance $ 3,963 $ 8,198 $ 135 $ 919 $ 364 $ 13,579  Charge-offs - - (5) - - (5)  Recoveries 184 - 9 - 1 194  Provision (Credit) 823 (299) (35) (87) 8 410  Ending balance $ 4,970 $ 7,899 $ 104 $ 832 $ 373 $ 14,178        June 30, 2016  ($ in thousands) Commercial and Industrial Commercial Real Estate Mortgages* Consumer and Other Residential Mortgages* Home Equities Total  Allowance for loan  losses:  Beginning balance $ 4,580 $ 7,442 $ 93 $ 696 $ 308 $ 13,119  Charge-offs (20) - (16) - - (36)  Recoveries 48 13 4 - 1 66  Provision (Credit) (413) (147) 20 67 97 (376)  Ending balance $ 4,195 $ 7,308 $ 101 $ 763 $ 406 $ 12,773  *Includes construction loans  Impaired Loans The following tables provide data, at the class level, for impaired loans as of the dates indicated:      At June 30, 2017  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 $ 203 $ 251 $ - $ 216 $ 11 $ 1  Residential real estate:  Residential 2,668 2,758 - 2,610 20 38  Construction - - - - - -  Commercial real estate:  Commercial 2,371 2,461 - 2,473 66 21  Construction - - - - - -  Home equities 1,633 1,733 - 1,672 32 10  Consumer and other - - - - - -  Total impaired loans $ 6,875 $ 7,203 $ - $ 6,971 $ 129 $ 70      At June 30, 2017  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 $ 2,462 $ 2,715 $ 681 $ 2,522 $ 78 $ 6  Residential real estate:  Residential 166 169 1 167 4 1  Construction - - - - - -  Commercial real estate:  Commercial 5,748 5,777 360 5,795 27 108  Construction 4,179 4,201 829 4,179 104 -  Home equities 18 19 2 17 1 -  Consumer and other 42 61 42 39 1 1  Total impaired loans $ 12,615 $ 12,942 $ 1,915 $ 12,719 $ 215 $ 116      At June 30, 2017  Recorded Investment Unpaid Principal Balance Related Allowance Average Recorded Investment Interest Income Foregone Interest Income Recognized  Total: (in thousands)  Commercial and industrial $ 2,665 $ 2,966 $ 681 $ 2,738 $ 89 $ 7  Residential real estate:  Residential 2,834 2,927 1 2,777 24 39  Construction - - - - - -  Commercial real estate:  Commercial 8,119 8,238 360 8,268 93 129  Construction 4,179 4,201 829 4,179 104 -  Home equities 1,651 1,752 2 1,689 33 10  Consumer and other 42 61 42 39 1 1  Total impaired loans $ 19,490 $ 20,145 $ 1,915 $ 19,690 $ 344 $ 186       At December 31, 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 $ 1,304 $ 1,604 $ - $ 1,455 $ 125 $ 51  Residential real estate:  Residential 2,513 2,720 - 2,542 39 78  Construction - - - - - -  Commercial real estate:  Commercial 2,123 2,168 - 2,181 33 89  Construction 257 257 - 404 2 28  Home equities 1,559 1,621 - 1,606 51 30  Consumer and other - - - - - -  Total impaired loans $ 7,756 $ 8,370 $ - $ 8,188 $ 250 $ 276      At December 31, 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 $ 1,844 $ 1,913 $ 492 $ 1,898 $ 62 $ 53  Residential real estate:  Residential 71 72 1 72 2 1  Construction - - - - - -  Commercial real estate:  Commercial 1,054 1,083 296 1,062 50 -  Construction 4,179 4,201 1,175 4,180 194 -  Home equities 194 206 20 195 9 1  Consumer and other 43 68 43 45 3 3  Total impaired loans $ 7,385 $ 7,543 $ 2,027 $ 7,452 $ 320 $ 58      At December 31, 2016  Recorded Investment Unpaid Principal Balance Related Allowance Average Recorded Investment Interest Income Foregone Interest Income Recognized  Total: (in thousands)  Commercial and industrial $ 3,148 $ 3,517 $ 492 $ 3,353 $ 187 $ 104  Residential real estate:  Residential 2,584 2,792 1 2,614 41 79  Construction - - - - - -  Commercial real estate:  Commercial 3,177 3,251 296 3,243 83 89  Construction 4,436 4,458 1,175 4,584 196 28  Home equities 1,753 1,827 20 1,801 60 31  Consumer and other 43 68 43 45 3 3  Total impaired loans $ 15,141 $ 15,913 $ 2,027 $ 15,640 $ 570 $ 334    Troubled debt restructurings The Company had $9.0 million and $5.1 million in loans that were restructured in a troubled debt restructuring (“TDR”) at June 30, 2017 and December 31, 2016, respectively. Of those balances, $1.7 million and $1.2 million were in non-accrual status at June 30, 2017 and December 31, 2016, 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 interest 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 June 30, 2017, 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:     June 30, 2017  (in thousands)  Total Nonaccruing Accruing Related Allowance  Commercial and industrial $ 692 $ 679 $ 13 $ 135  Residential real estate:  Residential 2,065 233 1,832 -  Construction - - - -  Commercial real estate:  Commercial and multi-family 5,593 583 5,010 150  Construction - - - -  Home equities 630 174 456 -  Consumer and other 32 - 32 32  Total troubled restructured loans $ 9,012 $ 1,669 $ 7,343 $ 317      December 31, 2016  (in thousands)  Total Nonaccruing Accruing Related Allowance  Commercial and industrial $ 574 $ 532 $ 42 $ 147  Residential real estate:  Residential 1,949 227 1,722 -  Construction - - - -  Commercial real estate:  Commercial and multi-family 1,617 313 1,304 -  Construction 257 - 257 -  Home equities 667 175 492 1  Consumer and other 26 - 26 26  Total troubled restructured loans $ 5,090 $ 1,247 $ 3,843 $ 174  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 concessions leading to the designation of a TDR are lines of credit that are termed-out and/or extensions of maturities at rates that are less than the prevailing market rates 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 month and six periods ended June 30, 2017 and 2016:     Three months ended June 30, 2017 Three months ended June 30, 2016  (Recorded Investment in thousands) (Recorded Investment 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 - - - - - -  Commercial Real Estate & Construction - - - - - -  Home Equities:  Extension of maturity and  interest rate reduction 1 20 20 - - -  Consumer and other loans - - - - - -        Six months ended June 30, 2017 Six months ended June 30, 2016  (Recorded Investment in thousands) (Recorded Investment 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:  Extension of maturity - $ - $ - 1 $ 24 $ 24  Term-out line of credit 1 180 180 1 20 20  Residential Real Estate & Construction:  Extension of maturity - - - 1 95 95  Commercial Real Estate & Construction:  Extension of maturity 3 5,073 5,073 - - -  Home Equities:  Extension of maturity and  interest rate reduction 1 20 20 - - -  Consumer loans - - - - - -   The general practice of the Bank is to work with borrowers so that they are able to repay 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. There were no loans which were classified as TDRs during the previous 12 months which defaulted during each of the three month and six month periods ended June 30, 2017 and 2016, respectively. |