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, 2018 December 31, 2017  Mortgage loans on real estate: (in thousands)  Residential mortgages $ 146,076 $ 131,208  Commercial and multi-family 552,023 519,902  Construction-Residential 587 2,134  Construction-Commercial 115,519 107,274  Home equities 69,319 69,745  Total real estate loans 883,524 830,263   Commercial and industrial loans 239,485 232,211  Consumer and other loans 1,447 1,654  Net deferred loan origination costs 1,439 1,187  Total gross loans 1,125,895 1,065,315   Allowance for loan losses (15,235) (14,019)   Loans, net $ 1,110,660 $ 1,051,296   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, 2018, the Bank did no t sell any mortgages to FNMA, compared with $ 2.5 million in the three month period ended June 30, 2017. The Bank did no t sell any mortgages to FNMA during the six month period ended June 30, 2018, compared with $5.3 million during the six month period ended June 30, 2017. At June 30, 2018, the Bank had a loan servicing portfolio principal balance of $74 million upon which it earned servicing fees, c ompared with $78 million at December 31, 2017. The value of the mortgage servicing rights for that portfolio was $0.6 million at each of the periods June 30, 2018 and December 31, 2017. No loans were held for sale at June 30, 2018 or December 31, 2017. The Company has never been contacted by FNMA to repurchase any loans due to improper documentation or fraud.  The Company did not hold any foreclosed residential real estate property at June 30, 2018 or December 31, 2017. There were $0.7 million and $0.3 million at June 30, 2018 and December 31, 2017, respectively, in loans secured by residential real estate that were in the process of foreclosure.  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, 2017. 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, 2017. Unless otherwise noted in this Form 10-Q, the policies and methodology described in the Annual Report for the year ended December 31, 2017 are consistent with those utilized by the Company in the three and six month periods ended June 30, 2018.   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:  · Acceptable or better · Watch · Special Mention · Substandard · Doubtful · 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, 2018  (in thousands)  Corporate Credit Exposure – By Credit Rating Commercial Real Estate Construction Commercial and Multi-Family Mortgages Total Commercial Real Estate Commercial and Industrial  Acceptable or better $ 65,378 $ 439,190 $ 504,568 $ 174,153  Watch 41,166 92,419 133,585 54,457  Special Mention - 11,395 11,395 6,845  Substandard 8,975 9,019 17,994 3,324  Doubtful/Loss - - - 706  Total $ 115,519 $ 552,023 $ 667,542 $ 239,485        December 31, 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  Acceptable or better $ 83,203 $ 418,819 $ 502,022 $ 158,181  Watch 24,071 87,746 111,817 57,827  Special Mention - 4,106 4,106 13,247  Substandard - 9,231 9,231 2,134  Doubtful/Loss - - - 822  Total $ 107,274 $ 519,902 $ 627,176 $ 232,211   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, 2018  (in thousands)   Current Non-accruing Total  Balance 30-59 days 60-89 days 90+ days Loans Balance   Commercial and industrial $ 235,827 $ 882 $ 300 $ - $ 2,476 $ 239,485  Residential real estate:  Residential 144,599 320 - - 1,157 146,076  Construction 587 - - - - 587  Commercial real estate:  Commercial 535,511 6,425 967 385 8,735 552,023  Construction 106,157 154 - 233 8,975 115,519  Home equities 67,786 227 57 - 1,249 69,319  Consumer and other 1,447 - - - - 1,447  Total Loans $ 1,091,914 $ 8,008 $ 1,324 $ 618 $ 22,592 $ 1,124,456  Note: Loan balances do not include $ 1. 4 million in net deferred loan origination costs as of June 30, 2018.        December 31, 2017  (in thousands)   Current Non-accruing Total  Balance 30-59 days 60-89 days 90+ days Loans Balance   Commercial and industrial $ 225,915 $ 4,019 $ 163 $ 365 $ 1,749 $ 232,211  Residential real estate:  Residential 129,251 731 - - 1,226 131,208  Construction 2,134 - - - - 2,134  Commercial real estate:  Commercial 508,044 2,611 - 309 8,938 519,902  Construction 102,109 3,239 1,926 - - 107,274  Home equities 68,415 171 40 - 1,119 69,745  Consumer and other 1,628 11 6 - 9 1,654  Total Loans $ 1,037,496 $ 10,782 $ 2,135 $ 674 $ 13,041 $ 1,064,128  Note: Loan balances do not include $1.2 million in net deferred loan origination costs as of December 31, 2017.    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, 2018 and 2017:         June 30, 2018   (in thousands) Commercial and Industrial Commercial Real Estate Mortgages* Consumer and Other Residential Mortgages* Home Equities Total  Allowance for loan  losses:  Beginning balance $ 5,204 $ 7,409 $ 109 $ 950 $ 347 $ 14,019  Charge-offs (67) - (64) (86) (11) (228)  Recoveries 13 - 4 - 1 18  Provision (Credit) (809) 2,036 41 161 (3) 1,426  Ending balance $ 4,341 $ 9,445 $ 90 $ 1,025 $ 334 $ 15,235   Allowance for loan  losses:  Ending balance:  Individually evaluated  for impairment $ 94 $ 1,245 $ 24 $ 38 $ - $ 1,401  Collectively evaluated  for impairment 4,247 8,200 66 987 334 13,834  Total $ 4,341 $ 9,445 $ 90 $ 1,025 $ 334 $ 15,235   Loans:  Ending balance:  Individually evaluated  for impairment $ 2,936 $ 18,475 $ 24 $ 2,522 $ 1,904 $ 25,861  Collectively evaluated  for impairment 236,549 649,067 1,423 144,141 67,415 1,098,595  Total $ 239,485 $ 667,542 $ 1,447 $ 146,663 $ 69,319 $ 1,124,456    * Includes construction loans  Note: Loan balances do not include $ 1. 4 million in net deferred loan origination costs as of June 30, 2018.        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.    The following tables present the activity in the allowance for loan losses according to portfolio segment for the three month periods ended June 30, 2018 and 2017:     June 30, 2018  ($ in thousands) Commercial and Industrial Commercial Real Estate Mortgages* Consumer and Other Residential Mortgages* Home Equities Total  Allowance for loan  losses:  Beginning balance $ 5,115 $ 8,145 $ 96 $ 1,007 $ 330 $ 14,693  Charge-offs - - (30) (86) (11) (127)  Recoveries 7 - 3 - - 10  Provision (Credit) (781) 1,300 21 104 15 659  Ending balance $ 4,341 $ 9,445 $ 90 $ 1,025 $ 334 $ 15,235        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  *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, 2018  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 $ 2,625 $ 3,772 $ - $ 2,716 $ 72 $ 50  Residential real estate:  Residential 2,062 2,321 - 2,136 21 32  Construction - - - - - -  Commercial real estate:  Commercial 2,778 2,903 - 2,818 46 58  Construction 154 154 - 169 - 7  Home equities 1,904 2,045 - 1,946 39 16  Consumer and other - - - - - -  Total impaired loans $ 9,523 $ 11,195 $ - $ 9,785 $ 178 $ 163      At June 30, 2018  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 $ 311 $ 339 $ 94 $ 326 $ 11 $ 1  Residential real estate:  Residential 460 484 38 463 12 -  Construction - - - - - -  Commercial real estate:  Commercial 6,568 6,769 511 6,624 148 -  Construction 8,975 8,975 734 8,975 120 113  Home equities - - - - - -  Consumer and other 24 28 24 24 - 1  Total impaired loans $ 16,338 $ 16,595 $ 1,401 $ 16,412 $ 291 $ 115      At June 30, 2018  Recorded Investment Unpaid Principal Balance Related Allowance Average Recorded Investment Interest Income Foregone Interest Income Recognized  Total: (in thousands)  Commercial and industrial $ 2,936 $ 4,111 $ 94 $ 3,042 $ 83 $ 51  Residential real estate:  Residential 2,522 2,805 38 2,599 33 32  Construction - - - - - -  Commercial real estate:  Commercial 9,346 9,672 511 9,442 194 58  Construction 9,129 9,129 734 9,144 120 120  Home equities 1,904 2,045 - 1,946 39 16  Consumer and other 24 28 24 24 - 1  Total impaired loans $ 25,861 $ 27,790 $ 1,401 $ 26,197 $ 469 $ 278       At December 31, 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 $ 1,023 $ 1,917 $ - $ 1,704 $ 92 $ 28  Residential real estate:  Residential 2,415 2,594 - 2,456 46 83  Construction - - - - - -  Commercial real estate:  Commercial 2,336 2,469 - 2,449 134 32  Construction 187 187 - 218 - 13  Home equities 1,785 1,892 - 1,828 62 33  Consumer and other - - - - - -  Total impaired loans $ 7,746 $ 9,059 $ - $ 8,655 $ 334 $ 189      At December 31, 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 $ 1,240 $ 1,431 $ 372 $ 1,279 $ 79 $ 12  Residential real estate:  Residential 196 196 28 196 6 3  Construction - - - - - -  Commercial real estate:  Commercial 6,689 6,819 643 6,755 156 129  Construction - - - - - -  Home equities - - - - - -  Consumer and other 34 59 34 37 3 2  Total impaired loans $ 8,159 $ 8,505 $ 1,077 $ 8,267 $ 244 $ 146      At December 31, 2017  Recorded Investment Unpaid Principal Balance Related Allowance Average Recorded Investment Interest Income Foregone Interest Income Recognized  Total: (in thousands)  Commercial and industrial $ 2,263 $ 3,348 $ 372 $ 2,983 $ 171 $ 40  Residential real estate:  Residential 2,611 2,790 28 2,652 52 86  Construction - - - - - -  Commercial real estate:  Commercial 9,025 9,288 643 9,204 290 161  Construction 187 187 - 218 - 13  Home equities 1,785 1,892 - 1,828 62 33  Consumer and other 34 59 34 37 3 2  Total impaired loans $ 15,905 $ 17,564 $ 1,077 $ 16,922 $ 578 $ 335    Troubled debt restructurings  The following tables summarize the loans that were classified as troubled debt restructurings as of the dates indicated:     June 30, 2018  (in thousands)  Total Nonaccruing Accruing Related Allowance  Commercial and industrial $ 749 $ 289 $ 460 $ 56  Residential real estate:  Residential 1,627 262 1,365 3  Construction - - - -  Commercial real estate:  Commercial and multi-family 4,330 3,719 611 146  Construction 154 - 154 -  Home equities 782 127 655 -  Consumer and other 24 - 24 24  Total TDR loans $ 7,666 $ 4,397 $ 3,269 $ 229      December 31, 2017  (in thousands)  Total Nonaccruing Accruing Related Allowance  Commercial and industrial $ 734 $ 220 $ 514 $ 8  Residential real estate:  Residential 1,656 271 1,385 -  Construction - - - -  Commercial real estate:  Commercial and multi-family 3,854 3,767 87 236  Construction 187 - 187 -  Home equities 794 128 666 -  Consumer and other 25 - 25 24  Total TDR loans $ 7,250 $ 4,386 $ 2,864 $ 268   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, 2018, there were no commitments to lend additional funds to debtors owing on loans whose terms have been modified in TDRs.  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 month periods ended June 30, 2018 and 2017:     Three months ended June 30, 2018 Three months ended June 30, 2017  (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:  Term-out line of credit 1 $ 29 $ 29 - $ - $ -  Combination of concessions 1 63 63 - - -  Residential Real Estate & Construction - - - - - -  Commercial Real Estate & Construction:  Extension of maturity - - - 1 20 20  Combination of concessions 1 154 154 - - -  Home Equities - - - - - -  Deferral of principal 1 100 100 - - -  Consumer and other loans - - - - - -        Six months ended June 30, 2018 Six months ended June 30, 2017  (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:  Term-out line of credit 1 $ 29 $ 29 1 $ 180 $ 180  Combination of concessions 1 63 63 - - -  Residential Real Estate & Construction: - - - - - -  Commercial Real Estate & Construction:  Extension of maturity 1 181 181 3 5,073 5,073  Combination of concessions 1 154 154 - - -  Home Equities:  Deferral of principal 1 100 100 - - -  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. A loan is considered in default when the loan is 90 days past due. There were no loans which were classified as TDRs during the previous 12 months which defaulted during the three or six month periods ended June 30, 2018 and 2017. |