LOANS AND ALLOWANCE FOR CREDIT LOSSES

12 Months Ended

Dec. 31, 2013

Receivables [Abstract]

Loans, Notes, Trade and Other Receivables Disclosure [Text Block]

NOTE 3. 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 December 31, 2013 and 2012.

(Dollars in thousands)	2013		2012
Construction	$	64,591	$	108,051
Residential real estate		274,857		288,011
Commercial real estate		304,605		314,941
Commercial		57,195		60,786
Consumer		10,671		13,293
Total loans		711,919		785,082
Allowance for credit losses		(10,725)		(15,991)
Total loans, net	$	701,194	$	769,091

In the normal course of banking business, loans are made to officers and directors and their affiliated interests. These loans are made on substantially the same terms and conditions as those prevailing at the time for comparable transactions with persons who are not related to the Company and are not considered to involve more than the normal risk of collectibility. As of December 31, 2013 and 2012, such loans outstanding, both direct and indirect (including guarantees), to directors, their associates and policy-making officers, totaled approximately $23.2 million and $26.0 million, respectively. During 2013 and 2012, loan additions were approximately $1.0 million and $9.7 million, respectively, and loan repayments were approximately $3.8 million and $6.1 million, respectively.

The following tables include impairment information relating to loans and the allowance for credit losses as of December 31, 2013 and 2012.

			Residential		Commercial
(Dollars in thousands)	Construction		real estate		real estate		Commercial		Consumer		Unallocated		Total
December 31, 2013
Loans individually evaluated for impairment	$	5,569	$	19,748	$	14,462	$	887	$	48	$	-	$	40,714
Loans collectively evaluated for impairment		59,022		255,109		290,143		56,308		10,623		-		671,205
Total loans	$	64,591	$	274,857	$	304,605	$	57,195	$	10,671	$	-	$	711,919
Allowance for credit losses allocated to:
Loans individually evaluated for impairment	$	204	$	285	$	44	$	245	$	5	$	-	$	783
Loans collectively evaluated for impairment		1,756		3,569		2,985		1,021		238		373		9,942
Total allowance for credit losses	$	1,960	$	3,854	$	3,029	$	1,266	$	243	$	373	$	10,725

			Residential		Commercial
(Dollars in thousands)	Construction		real estate		real estate		Commercial		Consumer		Unallocated		Total
December 31, 2012
Loans individually evaluated for impairment	$	37,029	$	18,549	$	32,447	$	715	$	87	$	-	$	88,827
Loans collectively evaluated for impairment		71,022		269,462		282,494		60,071		13,206		-		696,255
Total loans	$	108,051	$	288,011	$	314,941	$	60,786	$	13,293	$	-	$	785,082
Allowance for credit losses allocated to:
Loans individually evaluated for impairment	$	941	$	598	$	614	$	-	$	48	$	-	$	2,201
Loans collectively evaluated for impairment		3,446		4,596		3,520		1,682		359		187		13,790
Total allowance for credit losses	$	4,387	$	5,194	$	4,134	$	1,682	$	407	$	187	$	15,991

The following tables provide information on impaired loans and any related allowance by loan class as of December 31, 2013 and 2012. The difference between the unpaid principal balance and the recorded investment is the amount of partial charge-offs that have been taken.

			Recorded		Recorded
	Unpaid		investment		investment				Average
	principal		with no		with an		Related		recorded
(Dollars in thousands)	balance		allowance		allowance		allowance		investment
December 31, 2013
Impaired nonaccrual loans:
Construction	$	6,787	$	3,709	$	240	$	203	$	7,270
Residential real estate		7,692		3,862		1,304		225		10,240
Commercial real estate		5,218		4,261		410		38		7,829
Commercial		1,801		547		245		245		619
Consumer		56		43		5		5		48
Total		21,554		12,422		2,204		716		26,006
Impaired accruing TDRs:
Construction		1,620		1,527		93		1		14,405
Residential real estate		14,582		13,177		1,405		60		11,101
Commercial real estate		9,791		9,006		785		6		13,308
Commercial		95		95		-		-		105
Consumer		-		-		-		-		-
Total		26,088		23,805		2,283		67		38,919
Total impaired loans:
Construction		8,407		5,236		333		204		21,675
Residential real estate		22,274		17,039		2,709		285		21,341
Commercial real estate		15,009		13,267		1,195		44		21,137
Commercial		1,896		642		245		245		724
Consumer		56		43		5		5		48
Total	$	47,642	$	36,227	$	4,487	$	783	$	64,925

			Recorded		Recorded
	Unpaid		investment		investment				Average
	principal		with no		with an		Related		recorded
(Dollars in thousands)	balance		allowance		allowance		allowance		investment
December 31, 2012
Impaired nonaccrual loans:
Construction	$	14,288	$	3,371	$	6,323	$	941	$	12,428
Residential real estate		17,975		9,469		2,063		598		17,472
Commercial real estate		19,515		11,838		2,729		614		12,975
Commercial		1,556		594		-		-		1,538
Consumer		92		39		48		48		55
Total		53,426		25,311		11,163		2,201		44,468
Impaired accruing TDRs:
Construction		27,335		27,335		-		-		21,193
Residential real estate		7,017		7,017		-		-		5,064
Commercial real estate		17,880		17,880		-		-		16,252
Commercial		121		121		-		-		87
Consumer		-		-		-		-		-
Total		52,353		52,353		-		-		42,596
Total impaired loans:
Construction		41,623		30,706		6,323		941		33,621
Residential real estate		24,992		16,486		2,063		598		22,536
Commercial real estate		37,395		29,718		2,729		614		29,227
Commercial		1,677		715		-		-		1,625
Consumer		92		39		48		48		55
Total	$	105,779	$	77,664	$	11,163	$	2,201	$	87,064

The following tables provide information on loans that were modified and considered TDRs during 2013 and 2012.

		Premodification		Postmodification
		outstanding		outstanding
	Number of	recorded		recorded		Related
(Dollars in thousands)	contracts	investment		investment		allowance
TDRs:
For the year ended December 31, 2013
Construction	3	$	218	$	218	$	-
Residential real estate	7		12,485		12,494		38
Commercial real estate	4		2,212		2,211		82
Commercial	-		-		-		-
Consumer	-		-		-		-
Total	14	$	14,915	$	14,923	$	120
For the year ended December 31, 2012
Construction	12	$	17,347	$	17,361	$	-
Residential real estate	17		5,264		4,908		-
Commercial real estate	8		7,389		7,537		-
Commercial	2		76		60		-
Consumer	-		-		-		-
Total	39	$	30,076	$	29,866	$	-

The following tables provide information on TDRs that defaulted during 2013 and 2012. Generally, a loan is considered in default when principal or interest is past due 90 days or more.

	Number of	Recorded		Related
(Dollars in thousands)	contracts	investment		allowance
TDRs that subsequently defaulted (1):
For the year ended December 31, 2013
Construction	-	$	-	$	-
Residential real estate	6		1,918		-
Commercial real estate	2		2,151		74
Commercial	-		-		-
Consumer	-		-		-
Total	8	$	4,069	$	74
TDRs that subsequently defaulted (2):
For the year ended December 31, 2012
Construction	1	$	666	$	-
Residential real estate	3		913		-
Commercial real estate	-		-		-
Commercial	-		-		-
Consumer	-		-		-
Total	4	$	1,579	$	-

(1)  These loans were classified as TDRs during 2012.

(2)  These loans were classified as TDRs during 2011.

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 or doubtful are adversely rated. They are assigned higher risk ratings than favorably rated loans in the calculation of the formula portion of the allowance for credit losses. At December 31, 2013, $152 thousand of nonaccrual loans were identified as special mention, $13.0 million were substandard and $1.4 million were doubtful. The comparable amounts at December 31, 2012 were $929 thousand, $20.4 million and $15.2 million, respectively.

The following tables provide information on loan risk ratings as of December 31, 2013 and 2012.

			Special
(Dollars in thousands)	Pass/Performing		mention		Substandard		Doubtful		Nonaccrual		Total
December 31, 2013
Construction	$	40,210	$	15,708	$	4,724	$	-	$	3,949	$	64,591
Residential real estate		233,359		22,486		13,846		-		5,166		274,857
Commercial real estate		255,288		30,105		14,541		-		4,671		304,605
Commercial		52,032		3,691		680		-		792		57,195
Consumer		10,451		48		124		-		48		10,671
Total	$	591,340	$	72,038	$	33,915	$	-	$	14,626	$	711,919

			Special
(Dollars in thousands)	Pass/Performing		mention		Substandard		Doubtful		Nonaccrual		Total
December 31, 2012
Construction	$	45,385	$	30,817	$	22,155	$	-	$	9,694	$	108,051
Residential real estate		237,299		23,657		15,090		433		11,532		288,011
Commercial real estate		257,418		21,554		21,402		-		14,567		314,941
Commercial		55,432		3,062		1,639		59		594		60,786
Consumer		13,147		-		59		-		87		13,293
Total	$	608,681	$	79,090	$	60,345	$	492	$	36,474	$	785,082

The following tables provide information on the aging of the loan portfolio as of December 31, 2013 and 2012.

	Accruing
				30-59			60-89			90 days
				days past			days past			or more			Total past			Non-
(Dollars in thousands)	Current			due			due			past due			due			accrual			Total
December 31, 2013
Construction	$	60,642		$	-		$	-		$	-		$	-		$	3,949		$	64,591
Residential real estate		265,182			2,765			1,724			20			4,509			5,166			274,857
Commercial real estate		299,295			639			-			-			639			4,671			304,605
Commercial		55,576			330			247			250			827			792			57,195
Consumer		10,469			23			131			-			154			48			10,671
Total	$	691,164		$	3,757		$	2,102		$	270		$	6,129		$	14,626		$	711,919
Percent of total loans		97.1	%		0.5	%		0.3	%		-	%		0.8	%		2.1	%

	Accruing
				30-59			60-89			90 days
				days past			days past			or more			Total past			Non-
(Dollars in thousands)	Current			due			due			past due			due			accrual			Total
December 31, 2012
Construction	$	98,221		$	136		$	-		$	-		$	136		$	9,694		$	108,051
Residential real estate		272,311			3,116			762			290			4,168			11,532			288,011
Commercial real estate		298,522			887			800			165			1,852			14,567			314,941
Commercial		59,746			380			66			-			446			594			60,786
Consumer		13,125			57			19			5			81			87			13,293
Total	$	741,925		$	4,576		$	1,647		$	460		$	6,683		$	36,474		$	785,082
Percent of total loans		94.5	%		0.6	%		0.2	%		0.1	%		0.9	%		4.6	%

The following tables provide a summary of the activity in the allowance for credit losses allocated by loan class for 2013 and 2012.

Allocation of a portion of the allowance to one loan class does not preclude its availability to absorb losses in other loan classes.

			Residential		Commercial
(Dollars in thousands)	Construction		real estate		real estate		Commercial		Consumer		Unallocated		Total
2013
Allowance for credit losses:
Beginning balance	$	4,387	$	5,194	$	4,134	$	1,682	$	407	$	187	$	15,991
Charge-offs		(20,695)		(7,163)		(6,162)		(665)		(113)		-		(34,798)
Recoveries		161		545		161		839		42		-		1,748
Net charge-offs		(20,534)		(6,618)		(6,001)		174		(71)		-		(33,050)
Provision		18,107		5,278		4,896		(590)		(93)		186		27,784
Ending balance	$	1,960	$	3,854	$	3,029	$	1,266	$	243	$	373	$	10,725

			Residential		Commercial
(Dollars in thousands)	Construction		real estate		real estate		Commercial		Consumer		Unallocated		Total
2012
Allowance for credit losses:
Beginning balance	$	3,745	$	5,014	$	3,415	$	1,498	$	594	$	22	$	14,288
Charge-offs		(7,826)		(9,838)		(2,954)		(5,451)		(576)		-		(26,645)
Recoveries		6		102		166		304		25		-		603
Net charge-offs		(7,820)		(9,736)		(2,788)		(5,147)		(551)		-		(26,042)
Provision		8,462		9,916		3,507		5,331		364		165		27,745
Ending balance	$	4,387	$	5,194	$	4,134	$	1,682	$	407	$	187	$	15,991