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, 2017 December 31, 2016  Mortgage loans on real estate: (in thousands)  Residential mortgages $ 125,946 $ 118,542  Commercial and multi-family 492,692 462,385  Construction-Residential 1,850 2,540  Construction-Commercial 100,446 93,240  Home equities 67,343 66,234  Total real estate loans 788,277 742,941   Commercial and industrial loans 207,110 197,371  Consumer and other loans 1,521 1,417  Net deferred loan origination costs 1,097 783  Total gross loans 998,005 942,512   Allowance for loan losses (14,182) (13,916)   Loans, net $ 983,823 $ 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 September 30, 2017, the Bank sold mortgages to FNMA totaling $ 4.4 million, compared with $ 1.7 million in the three month period ended September 30, 2016. During the nine month periods ended September 30, 2017 and 2016, the Bank sold $ 9.7 million and $ 5.2 million, respectively, to FNMA. At September 30, 2017, the Bank had a loan servicing portfolio principal balance of $80 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 September 30, 2017 and $0.5 million at December 31, 2016. At September 30, 2017 there were $0. 1 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 nine month periods ended September 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:        September 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 $ 74,627 $ 374,371 $ 448,998 $ 133,588  4 25,819 94,204 120,023 59,199  5 - 10,417 10,417 8,122  6 - 13,700 13,700 4,572  7 - - - 1,629  Total $ 100,446 $ 492,692 $ 593,138 $ 207,110        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:     September 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 $ 3,491 $ 912 $ 2,012 $ 6,415 $ 200,695 $ 207,110 $ 1 $ 2,363  Residential real estate:  Residential 829 105 825 1,759 124,187 125,946 - 1,146  Construction - - - - 1,850 1,850 - -  Commercial real estate:  Commercial 168 2,301 1,488 3,957 488,735 492,692 - 8,788  Construction 6,929 452 - 7,381 93,065 100,446 - -  Home equities 538 381 570 1,489 65,854 67,343 - 1,081  Consumer and other 7 12 10 29 1,492 1,521 - 10  Total Loans $ 11,962 $ 4,163 $ 4,905 $ 21,030 $ 975,878 $ 996,908 $ 1 $ 13,388  Note: Loan balances do not include $ 1.1 million in net deferred loan origination costs as of September 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 nine month periods ended September 30, 2017 and 2016:         September 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 (51) (127) (50) - (1) (229)  Recoveries 335 - 22 - 2 359  Provision (Credit) (74) 21 41 143 5 136  Ending balance $ 5,023 $ 7,784 $ 109 $ 912 $ 354 $ 14,182   Allowance for loan  losses:  Ending balance:  Individually evaluated  for impairment $ 808 $ 877 $ 35 $ 17 $ - $ 1,737  Collectively evaluated  for impairment 4,215 6,907 74 895 354 12,445  Total $ 5,023 $ 7,784 $ 109 $ 912 $ 354 $ 14,182   Loans:  Ending balance:  Individually evaluated  for impairment $ 2,898 $ 13,693 $ 35 $ 2,545 $ 1,577 $ 20,748  Collectively evaluated  for impairment 204,212 579,445 1,486 125,251 65,766 976,160  Total $ 207,110 $ 593,138 $ 1,521 $ 127,796 $ 67,343 $ 996,908    * Includes construction loans  Note: Loan balances do not include $ 1.1 million in net deferred loan origination costs as of September 30, 2017.        September 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 (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 $ 7 15 thousand in net deferred loan origination costs as of September 30, 2016.    The following tables present the activity in the allowance for loan losses according to portfolio segment for the three month periods ended September 30, 2017 and 2016:     September 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 $ 4,970 $ 7,899 $ 104 $ 832 $ 373 $ 14,178  Charge-offs (18) (127) (17) - (1) (163)  Recoveries 4 - 1 - 1 6  Provision (Credit) 67 12 21 80 (19) 161  Ending balance $ 5,023 $ 7,784 $ 109 $ 912 $ 354 $ 14,182        September 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 $ 4,195 $ 7,308 $ 101 $ 763 $ 406 $ 12,773  Charge-offs (89) - (13) - - (102)  Recoveries 23 8 4 - - 35  Provision (Credit) 781 416 15 (176) (30) 1,006  Ending balance $ 4,910 $ 7,732 $ 107 $ 587 $ 376 $ 13,712  *Includes construction loans  Impaired Loans The following tables provide data, at the class level, for impaired loans as of the dates indicated:      At September 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 $ 751 $ 876 $ - $ 822 $ 33 $ 6  Residential real estate:  Residential 2,447 2,607 - 2,472 33 63  Construction - - - - - -  Commercial real estate:  Commercial 1,968 2,086 - 2,078 98 15  Construction 197 197 - 226 - 11  Home equities 1,577 1,677 - 1,613 48 16  Consumer and other - - - - - -  Total impaired loans $ 6,940 $ 7,443 $ - $ 7,211 $ 212 $ 111      At September 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 $ 2,147 $ 2,374 $ 808 $ 2,192 $ 101 $ 16  Residential real estate:  Residential 98 98 17 98 3 1  Construction - - - - - -  Commercial real estate:  Commercial 11,528 11,586 877 11,612 85 366  Construction - - - - - -  Home equities - - - - - -  Consumer and other 35 60 35 38 2 1  Total impaired loans $ 13,808 $ 14,118 $ 1,737 $ 13,940 $ 191 $ 384      At September 30, 2017  Recorded Investment Unpaid Principal Balance Related Allowance Average Recorded Investment Interest Income Foregone Interest Income Recognized  Total: (in thousands)  Commercial and industrial $ 2,898 $ 3,250 $ 808 $ 3,014 $ 134 $ 22  Residential real estate:  Residential 2,545 2,705 17 2,570 36 64  Construction - - - - - -  Commercial real estate:  Commercial 13,496 13,672 877 13,690 183 381  Construction 197 197 - 226 - 11  Home equities 1,577 1,677 - 1,613 48 16  Consumer and other 35 60 35 38 2 1  Total impaired loans $ 20,748 $ 21,561 $ 1,737 $ 21,151 $ 403 $ 495       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 $12.7 million and $5.1 million in loans that were restructured in a troubled debt restructuring (“TDR”) at September 30, 2017 and December 31, 2016, respectively. Of those balances, $5.3 million and $1.2 million were in non-accrual status at September 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 September 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:     September 30, 2017  (in thousands)  Total Nonaccruing Accruing Related Allowance  Commercial and industrial $ 1,525 $ 990 $ 535 $ 433  Residential real estate:  Residential 1,664 265 1,399 -  Construction - - - -  Commercial real estate:  Commercial and multi-family 8,623 3,915 4,708 368  Construction 197 - 197 -  Home equities 625 129 496 -  Consumer and other 25 - 25 25  Total troubled restructured loans $ 12,659 $ 5,299 $ 7,360 $ 826      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 borrow er 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 nine month periods ended September 30, 2017 and 2016:     Three months ended September 30, 2017 Three months ended September 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:  Deferral of principal 1 $ 874 $ 874 - $ - $ -  Residential Real Estate & Construction:  Extension of maturity 1 133 151 - - -  Extension of maturity and  interest rate reduction - - - 1 109 109  Commercial Real Estate & Construction:  Combination of concessions 1 4,179 3,397 - - -  Home Equities - - - - - -  Consumer and other loans - - - - - -        Nine months ended September 30, 2017 Nine months ended September 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:  Deferral of principal 1 $ 874 $ 874 - $ - $ -  Extension of maturity - - - 1 24 24  Term-out line of credit 1 180 180 1 20 20  Residential Real Estate & Construction:  Extension of maturity 1 133 151 1 95 95  Extension of maturity and  interest rate reduction - - - 1 109 109  Commercial Real Estate & Construction:  Extension of maturity 3 5,073 5,073 - - -  Combination of concessions 1 4,179 3,397 - - -  Home Equities:  Extension of maturity and  interest rate reduction 1 20 20 - - -  Consumer and other 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 nine month periods ended September 30, 2017 and 2016, respectively. |