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Loans and allowance for credit losses
 6 Months Ended
Jun. 30, 2012
Receivables [Abstract]  
Loans, Notes, Trade and Other Receivables Disclosure [Text Block]

Note 4 – Loans and allowance for credit losses

 

The Company makes residential mortgage, commercial and consumer loans to customers primarily in Talbot County, Queen Anne’s County, Kent County, Caroline County and Dorchester County in Maryland and in Kent County, Delaware. The following table provides information about the principal classes of the loan portfolio at June 30, 2012 and December 31, 2011.

 

(Dollars in thousands)   June 30, 2012     December 31, 2011  
Construction   $ 111,067     $ 119,883  
Residential real estate     306,093       321,604  
Commercial real estate     315,644       315,439  
Commercial     63,004       69,485  
Consumer     14,150       14,639  
Total loans     809,958       841,050  
Allowance for credit losses     (12,990 )     (14,288 )
Total loans, net   $ 796,968     $ 826,762  

 

Loans are stated at their principal amount outstanding net of any deferred fees and costs. Interest income on loans is accrued at the contractual rate based on the principal amount outstanding. Fees charged and costs capitalized for originating loans are being amortized substantially on the interest method over the term of the loan. A loan is placed on nonaccrual when it is specifically determined to be impaired or when principal or interest is delinquent for 90 days or more, unless the loan is well secured and in the process of collection. Any unpaid interest previously accrued on those loans is reversed from income. Interest payments received on nonaccrual loans are applied as a reduction of the loan principal balance unless collectability of the principal amount is reasonably assured, in which case interest is recognized on a cash basis. Loans are returned to accrual status when all principal and interest amounts contractually due are brought current and future payments are reasonably assured.

 

A loan is considered impaired if it is probable that the Company will not collect all principal and interest payments according to the loan’s contractual terms. An impaired loan may show deficiencies in the borrower’s overall financial condition, payment history, support available from financial guarantors and/or the fair market value of collateral. The impairment of a loan is measured at the present value of expected future cash flows using the loan’s effective interest rate, or at the loan’s observable market price or the fair value of the collateral if the loan is collateral dependent. Generally, the Company measures impairment on such loans by reference to the fair value of the collateral. Income on impaired loans is recognized on a cash basis, and payments are first applied against the principal balance outstanding (i.e., placing impaired loans on nonaccrual status). Generally, interest income is not recognized on specific impaired loans unless the likelihood of further loss is remote. The allowance for credit losses includes specific reserves related to impaired loans. Impaired loans do not include groups of smaller balance homogenous loans such as residential mortgage and consumer installment loans that are evaluated collectively for impairment. Reserves for probable credit losses related to these loans are based on historical loss ratios and are included in the formula portion of the allowance for credit losses.

 

Loans are evaluated on a case-by-case basis for impairment. Once the amount of impairment has been determined, the uncollectible portion is charged off. As seen in the table below, the difference between the unpaid principal balance and the recorded investment is the amount of partial charge-offs that have been taken. In some cases, a specific allocation within the allowance for credit losses is made until such time that a charge-off is made.

 

A loan is considered a troubled debt restructuring if a borrower is experiencing financial difficulties and a creditor has granted a concession. Concessions may include interest rate reductions or below market interest rates, principal forgiveness, restructuring amortization schedules and other actions intended to minimize potential losses.

 

The following tables provide information on impaired loans and any related allowance by loan class as of June 30, 2012 and December 31, 2011.

 

(Dollars in thousands)   Unpaid principal balance     Recorded investment with no allowance     Recorded investment with an allowance     Related allowance     Average recorded investment  
June 30, 2012                                        
Impaired nonaccrual loans:                                        
Construction   $ 23,220     $ 14,258     $ -     $ -     $ 15,214  
Residential real estate     24,948       19,588       812       420       20,221  
Commercial real estate     15,398       9,376       2,260       500       12,968  
Commercial     2,178       1,609       -       -       1,905  
Consumer     59       55       -       -       46  
Total     65,803       44,886       3,072       920       50,354  
                                         
Impaired accruing restructured loans:                                        
Construction     17,078       17,078       -       -       12,704  
Residential real estate     5,008       5,008       -       -       3,580  
Commercial real estate     15,077       15,077       -       -       12,510  
Commercial     68       68       -       -       51  
Consumer     -       -       -       -       -  
Total     37,231       37,231       -       -       28,845  
                                         
Total impaired loans:                                        
Construction     40,298       31,336       -       -       27,918  
Residential real estate     29,956       24,596       812       420       23,801  
Commercial real estate     30,475       24,453       2,260       500       25,478  
Commercial     2,246       1,677       -       -       1,956  
Consumer     59       55       -       -       46  
Total   $ 103,034     $ 82,117     $ 3,072     $ 920     $ 79,199  

 

 

(Dollars in thousands)   Unpaid principal balance     Recorded investment with no allowance     Recorded investment with an allowance     Related allowance     Average recorded investment  
December 31, 2011                                        
Impaired nonaccrual loans:                                        
Construction   $ 22,883     $ 14,005     $ 1,550     $ 170     $ 16,555  
Residential real estate     22,431       16,925       3,181       1,296       15,430  
Commercial real estate     17,372       14,012       -       -       14,624  
Commercial     2,119       1,669       -       -       2,539  
Consumer     30       28       -       -       32  
Total     64,835       46,639       4,731       1,466       49,180  
                                         
Impaired accruing restructured loans:                                        
Construction     11,781       11,781       -       -       10,663  
Residential real estate     3,792       3,792       -       -       6,093  
Commercial real estate     9,566       9,566       -       -       7,960  
Commercial     69       69       -       -       111  
Consumer     -       -       -       -       -  
Total     25,208       25,208       -       -       24,827  
                                         
Total impaired loans:                                        
Construction     34,664       25,786       1,550       170       27,218  
Residential real estate     26,223       20,717       3,181       1,296       21,523  
Commercial real estate     26,938       23,578       -       -       22,584  
Commercial     2,188       1,738       -       -       2,650  
Consumer     30       28       -       -       32  
Total   $ 90,043     $ 71,847     $ 4,731     $ 1,466     $ 74,007  

 

The following tables provide information on troubled debt restructurings by loan class as of June 30, 2012 and December 31, 2011. The amounts include nonaccrual troubled debt restructurings.

 

(Dollars in thousands)   Number of contracts     Premodification outstanding recorded
investment		     Postmodification outstanding recorded
investment		  
Troubled debt restructurings:                        
June 30, 2012                        
Construction     14     $ 21,873     $ 18,366  
Residential real estate     26       13,530       12,283  
Commercial real estate     19       21,814       18,633  
Commercial     2       125       114  
Consumer     1       30       28  
Total     62     $ 57,372     $ 42,218  
                         
December 31, 2011                        
Construction     9     $ 12,981     $ 12,539  
Residential real estate     20       11,471       10,359  
Commercial real estate     20       15,874       14,175  
Commercial     1       69       69  
Consumer     -       -       -  
Total     50     $ 40,395     $ 37,142  

 

 

(Dollars in thousands)   Number of contracts     Recorded investment  
Troubled debt restructurings that subsequently defaulted:                
June 30, 2012                
Construction     4     $ 1,288  
Residential real estate     12       8,163  
Commercial real estate     5       3,557  
Commercial     1       46  
Consumer     1       28  
Total     23     $ 13,082  
                 
December 31, 2011                
Construction     3     $ 758  
Residential real estate     10       7,353  
Commercial real estate     5       6,751  
Commercial     -       -  
Consumer     -       -  
Total     18     $ 14,862  

 

Management uses risk ratings as part of its monitoring of the credit quality in the Company’s loan portfolio. Loans that are identified as special mention, substandard and doubtful are adversely rated and are assigned higher risk ratings than favorably rated loans.

 

The following tables provide information on loan risk ratings as of June 30, 2012 and December 31, 2011.

 

(Dollars in thousands)   Pass/Performing     Special mention     Substandard     Doubtful     Nonaccrual     Total  
June 30, 2012                                                
Construction   $ 47,029     $ 26,633     $ 23,147     $ -     $ 14,258     $ 111,067  
Residential real estate     249,611       17,208       18,438       436       20,400       306,093  
Commercial real estate     257,072       19,447       27,489       -       11,636       315,644  
Commercial     56,049       3,669       1,616       61       1,609       63,004  
Consumer     13,846       185       64       -       55       14,150  
Total   $ 623,607     $ 67,142     $ 70,754     $ 497     $ 47,958     $ 809,958  

 

(Dollars in thousands)   Pass/Performing     Special mention     Substandard     Doubtful     Nonaccrual     Total  
December 31, 2011                                                
Construction   $ 50,403     $ 30,373     $ 23,552     $ -     $ 15,555     $ 119,883  
Residential real estate     261,910       13,467       25,676       445       20,106       321,604  
Commercial real estate     257,247       16,001       28,179       -       14,012       315,439  
Commercial     59,178       3,813       4,748       77       1,669       69,485  
Consumer     14,520       32       59       -       28       14,639  
Total   $ 643,258     $ 63,686     $ 82,214     $ 522     $ 51,370     $ 841,050  

 

The following tables provide information on the aging of the loan portfolio as of June 30, 2012 and December 31, 2011.

 

    Accruing              
(Dollars in thousands)   Current     30-59 days past due     60-89 days past due     90 days or more past due     Total past due     Non-accrual     Total  
June 30, 2012                                                        
Construction   $ 95,937     $ -     $ 872     $ -     $ 872     $ 14,258     $ 111,067  
Residential real estate     279,299       4,133       1,029       1,232       6,394       20,400       306,093  
Commercial real estate     297,782       2,287       1,898       2,041       6,226       11,636       315,644  
 Commercial     61,278       46       9       62       117       1,609       63,004  
 Consumer     13,837       51       23       184       258       55       14,150  
Total   $ 748,133     $ 6,517     $ 3,831     $ 3,519     $ 13,867     $ 47,958     $ 809,958  
Percent of total loans     92.4 %     0.8 %     0.5 %     0.4 %     1.7 %     5.9 %        

 

    Accruing              
(Dollars in thousands)   Current     30-59 days past due     60-89 days past due     90 days or more past due     Total past due     Non-accrual     Total  
December 31, 2011                                                        
Construction   $ 102,441     $ 1,246     $ 316     $ 325     $ 1,887     $ 15,555     $ 119,883  
Residential real estate     289,459       4,417       5,291       2,331       12,039       20,106       321,604  
Commercial real estate     289,760       10,073       1,594       -       11,667       14,012       315,439  
 Commercial     64,581       1,350       1,819       66       3,235       1,669       69,485  
 Consumer     14,492       112       6       1       119       28       14,639  
Total   $ 760,733     $ 17,198     $ 9,026     $ 2,723     $ 28,947     $ 51,370     $ 841,050  
Percent of total loans     90.5 %     2.0 %     1.1 %     0.3 %     3.4 %     6.1 %        

 

The Company has established an allowance for credit losses, which is increased by provisions charged against earnings and recoveries of previously charged-off debts and is decreased by current period charge-offs of uncollectible debts. Management evaluates the adequacy of the allowance for credit losses on a quarterly basis and adjusts the provision for credit losses based on this analysis. Allocation of a portion of the allowance to one loan class does not preclude its availability to absorb losses in other loan classes.

 

The following tables provide a summary of the activity in the allowance for credit losses allocated by loan class for the three months ended June 30, 2012 and 2011.

 

(Dollars in thousands)   Construction     Residential real estate     Commercial real estate     Commercial     Consumer     Unallocated     Total  
For the three months ended June 30, 2012                                                        
Allowance for credit losses:                                                        
Beginning balance   $ 3,344     $ 4,448     $ 3,549     $ 1,539     $ 581     $ 83     $ 13,544  
                                                         
Charge-offs     (714 )     (1,554 )     (745 )     (1,085 )     (162 )     -       (4,260 )
Recoveries     -       43       -       133       5       -       181  
Net charge-offs     (714 )     (1,511 )     (745 )     (952 )     (157 )     -       (4,079 )
                                                         
Provision     215       1,300       1,148       476       61       325       3,525  
Ending balance   $ 2,845     $ 4,237     $ 3,952     $ 1,063     $ 485     $ 408     $ 12,990  

 

(Dollars in thousands)   Construction     Residential real estate     Commercial real estate     Commercial     Consumer     Unallocated     Total  
For the three months ended June 30, 2011                                                        
Allowance for credit losses:                                                        
Beginning balance   $ 3,324     $ 5,420     $ 5,280     $ 2,776     $ 591     $ 80     $ 17,471  
                                                         
Charge-offs     (728 )     (2,390 )     (2,265 )     (1,525 )     (40 )     -       (6,948 )
Recoveries     -       34       5       380       21       -       440  
Net charge-offs     (728 )     (2,356 )     (2,260 )     (1,145 )     (19 )     -       (6,508 )
                                                         
Provision     937       1,120       2,231       1,079       33       (5 )     5,395  
Ending balance   $ 3,533     $ 4,184     $ 5,251     $ 2,710     $ 605     $ 75     $ 16,358  

 

The following tables provide a summary of the activity in the allowance for credit losses allocated by loan class for the six months ended June 30, 2012 and 2011.

 

(Dollars in thousands)   Construction     Residential real estate     Commercial real estate     Commercial     Consumer     Unallocated     Total  
For the six months ended June 30, 2012                                                        
Allowance for credit losses:                                                        
Beginning balance   $ 3,745     $ 5,014     $ 3,415     $ 1,498     $ 594     $ 22     $ 14,288  
                                                         
Charge-offs     (1,786 )     (5,673 )     (1,435 )     (4,440 )     (177 )     -       (13,511 )
Recoveries     -       94       7       208       9       -       318  
Net charge-offs     (1,786 )     (5,579 )     (1,428 )     (4,232 )     (168 )     -       (13,193 )
                                                         
Provision     886       4,802       1,965       3,797       59       386       11,895  
Ending balance   $ 2,845     $ 4,237     $ 3,952     $ 1,063     $ 485     $ 408     $ 12,990  

 

(Dollars in thousands)   Construction     Residential real estate     Commercial real estate     Commercial     Consumer     Unallocated     Total  
For the six months ended June 30, 2011                                                        
Allowance for credit losses:                                                        
Beginning balance   $ 3,327     $ 4,833     $ 3,665     $ 1,422     $ 637     $ 343     $ 14,227  
                                                         
Charge-offs     (1,414 )     (4,481 )     (2,493 )     (1,771 )     (115 )     -       (10,274 )
Recoveries     49       68       5       457       41       -       620  
Net charge-offs     (1,365 )     (4,413 )     (2,488 )     (1,314 )     (74 )     -       (9,654 )
                                                         
Provision     1,571       3,764       4,074       2,602       42       (268 )     11,785  
Ending balance   $ 3,533     $ 4,184     $ 5,251     $ 2,710     $ 605     $ 75     $ 16,358  

 

The following tables include impairment information relating to loans and the allowance for credit losses as of June 30, 2012 and 2011.

 

(Dollars in thousands)   Construction     Residential real estate     Commercial real estate     Commercial     Consumer     Unallocated     Total  
June 30, 2012                                                        
Loans individually evaluated for impairment   $ 31,336     $ 25,408     $ 26,713     $ 1,677     $ 55     $ -     $ 85,189  
Loans collectively evaluated for impairment     79,731       280,685       288,931       61,327       14,095       -       724,769  
Total loans   $ 111,067     $ 306,093     $ 315,644     $ 63,004     $ 14,150     $ -     $ 809,958  
                                                         
Allowance for credit losses allocated to:                                                        
Loans individually evaluated for impairment   $ -     $ 420     $ 500     $ -     $ -     $ -     $ 920  
Loans collectively evaluated for impairment     2,845       3,817       3,452       1,063       485       408       12,070  
Total allowance for credit losses   $ 2,845     $ 4,237     $ 3,952     $ 1,063     $ 485     $ 408     $ 12,990  

 

(Dollars in thousands)   Construction     Residential real estate     Commercial real estate     Commercial     Consumer     Unallocated     Total  
June 30, 2011                                                        
Loans individually evaluated for impairment   $ 18,129     $ 12,187     $ 15,141     $ 2,990     $ 29     $ -     $ 48,476  
Loans collectively evaluated for impairment     110,011       319,947       312,166       71,495       15,236       -       828,855  
Total loans   $ 128,140     $ 332,134     $ 327,307     $ 74,485     $ 15,265     $ -     $ 877,331  
                                                         
Allowance for credit losses allocated to:                                                        
Loans individually evaluated for impairment   $ -     $ 289     $ 506     $ 567     $ -     $ -     $ 1,362  
Loans collectively evaluated for impairment     3,533       3,895       4,745       2,143       605       75       14,996  
Total allowance for credit losses   $ 3,533     $ 4,184     $ 5,251     $ 2,710     $ 605     $ 75     $ 16,358