LOANS AND ALLOWANCE FOR CREDIT LOSSES

12 Months Ended

Dec. 31, 2014

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, 2014 and 2013.

(Dollars in thousands)	2014		2013
Construction	$	69,157	$	64,591
Residential real estate		273,336		274,857
Commercial real estate		305,788		304,605
Commercial		52,671		57,195
Consumer		9,794		10,671
Total loans		710,746		711,919
Allowance for credit losses		(7,695)		(10,725)
Total loans, net	$	703,051	$	701,194

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, 2014 and 2013, such loans outstanding, both direct and indirect (including guarantees), to directors, their associates and policy-making officers, totaled approximately $18.7 million and $23.2 million, respectively. During 2014 and 2013, loan additions were approximately $1.8 million and $1.0 million, respectively, and loan repayments were approximately $6.2 million and $3.8 million, respectively.

The following tables include impairment information relating to loans and the allowance for credit losses as of December 31, 2014 and 2013.

			Residential		Commercial
(Dollars in thousands)	Construction		real estate		real estate		Commercial		Consumer		Unallocated		Total
December 31, 2014
Loans individually evaluated for impairment	$	10,067	$	10,403	$	9,359	$	188	$	124	$	-	$	30,141
Loans collectively evaluated for impairment		59,090		262,933		296,429		52,483		9,670		-		680,605
Total loans	$	69,157	$	273,336	$	305,788	$	52,671	$	9,794	$	-	$	710,746
Allowance for credit losses allocated to:
Loans individually evaluated for impairment	$	41	$	1,099	$	129	$	1	$	3	$	-	$	1,273
Loans collectively evaluated for impairment		1,262		1,735		2,250		447		226		502		6,422
Total allowance for credit losses	$	1,303	$	2,834	$	2,379	$	448	$	229	$	502	$	7,695

			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

The following tables provide information on impaired loans and any related allowance by loan class as of December 31, 2014 and 2013. 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		Interest
	principal		with no		with an		Related		recorded		income
(Dollars in thousands)	balance		allowance		allowance		allowance		investment		recognized
December 31, 2014
Impaired nonaccrual loans:
Construction	$	9,277	$	6,045	$	-	$	-	$	7,739	$	-
Residential real estate		4,664		1,053		2,982		799		3,322		-
Commercial real estate		4,703		2,842		280		100		3,889		-
Commercial		1,372		136		5		1		437		-
Consumer		129		99		25		3		79		-
Total		20,145		10,175		3,292		903		15,466		-
Impaired accruing TDRs:
Construction		4,022		3,196		826		41		2,743		68
Residential real estate		6,368		668		5,700		300		15,123		372
Commercial real estate		6,237		4,774		1,463		29		6,574		254
Commercial		47		47		-		-		55		2
Consumer		-		-		-		-		-		-
Total		16,674		8,685		7,989		370		24,495		696
Total impaired loans:
Construction		13,299		9,241		826		41		10,482		68
Residential real estate		11,032		1,721		8,682		1,099		18,445		372
Commercial real estate		10,940		7,616		1,743		129		10,463		254
Commercial		1,419		183		5		1		492		2
Consumer		129		99		25		3		79		-
Total	$	36,819	$	18,860	$	11,281	$	1,273	$	39,961	$	696

			Recorded		Recorded
	Unpaid		investment		investment				Average		Interest
	principal		with no		with an		Related		recorded		income
(Dollars in thousands)	balance		allowance		allowance		allowance		investment		recognized
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	$	-

The following tables provide a roll-forward for troubled debt restructurings as of December 31, 2014 and December 31, 2013.

	12/31/13								Reclassification/						12/31/14
	TDR		New		Disbursements		Charge		Transfers		Loan				TDR		Related
(Dollars in thousands)	Balance		TDRs		(Payments)		offs		In/(Out)		Sale		Payoffs		Balance		Allowance
For the year ended 12/31/2014
Accruing TDRs
Construction	$	1,620	$	-	$	(186)	$	(538)	$	3,396	$	-	$	(270)	$	4,022	$	41
Residential Real Estate		14,582		-		(1,150)		(3,614)		(3,136)		-		(314)		6,368		300
Commercial Real Estate		9,791		-		(99)		(549)		(1,805)		-		(1,101)		6,237		29
Commercial		95		-		(24)		-		-		-		(24)		47		-
Consumer		-		-		-		-		-		-		-		-		-
Total	$	26,088	$	-	$	(1,459)	$	(4,701)	$	(1,545)	$	-	$	(1,709)	$	16,674	$	370
Nonaccrual TDRs
Construction	$	3,561	$	-	$	(12)	$	(235)	$	7	$	-	$	-	$	3,321	$	-
Residential Real Estate		1,884		-		(50)		(203)		1,874		-		(123)		3,382		724
Commercial Real Estate		842		-		(95)		(65)		(336)		-		-		346		100
Commercial		-		-		-		-		-		-		-		-		-
Consumer		26		-		(1)		-		-		-		-		25		3
Total	$	6,313	$	-	$	(158)	$	(503)	$	1,545	$	-	$	(123)	$	7,074	$	827
Total TDRs	$	32,401	$	-	$	(1,617)	$	(5,204)	$	-	$	-	$	(1,832)	$	23,748	$	1,197

	12/31/12								Reclassification/						12/31/13
	TDR		New		Disbursements				Transfers		9/30/13				TDR		Related
(Dollars in thousands)	Balance		TDRs		(Payments)		Charge offs		In/(Out)		Loan Sale		Payoffs		Balance		Allowance
For the year ended 12/31/2013
Accruing TDRs
Construction	$	27,335	$	95	$	228	$	(13,557)	$	(3,521)	$	(7,908)	$	(1,052)	$	1,620	$	1
Residential Real Estate		7,017		10,433		(86)		(632)		(1,755)		(395)		-		14,582		60
Commercial Real Estate		17,880		1,738		(39)		(2,108)		(410)		(7,162)		(108)		9,791		6
Commercial		121		-		(26)		-		-		-		-		95		-
Consumer		-		-		-		-		-		-		-		-		-
Total	$	52,353	$	12,266	$	77	$	(16,297)	$	(5,686)	$	(15,465)	$	(1,160)	$	26,088	$	67
Nonaccrual TDRs
Construction	$	1,448	$	-	$	(64)	$	(639)	$	3,521	$	(57)	$	(648)	$	3,561	$	25
Residential Real Estate		2,169		258		(90)		(1,253)		1,755		(759)		(196)		1,884		-
Commercial Real Estate		2,970		-		(281)		(866)		410		-		(1,391)		842		-
Commercial		-		-		-		-		-		-		-		-		-
Consumer		27		-		(1)		-		-		-		-		26		26
Total	$	6,614	$	258	$	(436)	$	(2,758)	$	5,686	$	(816)	$	(2,235)	$	6,313	$	51
Total TDRs	$	58,967	$	12,524	$	(359)	$	(19,055)	$	-	$	(16,281)	$	(3,395)	$	32,401	$	118

The following tables provide information on loans that were modified and considered TDRs during 2014 and 2013.

			Premodification		Postmodification
			outstanding		outstanding
	Number of		recorded		recorded		Related
(Dollars in thousands)	contracts		investment		investment		allowance
TDRs:
For the year ended December 31, 2014
Construction		-	$	-	$	-	$	-
Residential real estate		-		-		-		-
Commercial real estate		-		-		-		-
Commercial		-		-		-		-
Consumer		-		-		-		-
Total		-	$	-	$	-	$	-
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

The following tables provide information on TDRs that defaulted during 2014 and 2013. 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:
For the year ended December 31, 2014
Construction	-	$	-	$	-
Residential real estate	-		-		-
Commercial real estate	-		-		-
Commercial	-		-		-
Consumer	-		-		-
Total	-	$	-	$	-
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

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

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, 2014, there were no nonaccrual loans classified as special mention, $13.4 million of nonaccrual loans were identified as substandard and $89 thousand were doubtful. The comparable amounts at December 31, 2013 were $152 thousand, $13.0 million and $1.4 million, respectively.

The following tables provide information on loan risk ratings as of December 31, 2014 and 2013.

			Special
(Dollars in thousands)	Pass/Performing		mention		Substandard		Doubtful		Total
December 31, 2014
Construction	$	52,241	$	5,643	$	11,273	$	-	$	69,157
Residential real estate		252,643		6,675		14,018		-		273,336
Commercial real estate		275,573		20,040		10,175		-		305,788
Commercial		50,583		1,885		114		89		52,671
Consumer		9,658		13		123		-		9,794
Total	$	640,698	$	34,256	$	35,703	$	89	$	710,746

(Dollars in thousands)	Pass/Performing		Special mention		Substandard		Doubtful		Total
December 31, 2013
Construction	$	39,268	$	15,884	$	9,439	$	-	$	64,591
Residential real estate		235,054		22,638		17,114		51		274,857
Commercial real estate		255,280		30,105		19,210		10		304,605
Commercial		52,032		3,691		972		500		57,195
Consumer		10,451		48		172		-		10,671
Total	$	592,085	$	72,366	$	46,907	$	561	$	711,919

The following tables provide information on the aging of the loan portfolio as of December 31, 2014 and 2013.

	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, 2014
Construction	$	61,325		$	1,786		$	-		$	-		$	1,786		$	6,046		$	69,157
Residential real estate		263,165			3,351			2,702			83			6,136			4,035			273,336
Commercial real estate		301,695			459			513			-			972			3,121			305,788
Commercial		52,352			47			131			-			178			141			52,671
Consumer		9,619			11			37			4			52			123			9,794
Total	$	688,156		$	5,654		$	3,383		$	87		$	9,124		$	13,466		$	710,746
Percent of total loans		96.8	%		0.8	%		0.5	%		-	%		1.3	%		1.9	%

	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, 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	%

The following tables provide a summary of the activity in the allowance for credit losses allocated by loan class for 2014 and 2013. Allocation of a portion of the allowance to one loan class does not preclude its availability to absorb losses in other loan classes.

(Dollars in thousands)	Construction		Residential real estate		Commercial real estate		Commercial		Consumer		Unallocated		Total
2014
Allowance for credit losses:
Beginning balance	$	1,960	$	3,854	$	3,029	$	1,266	$	243	$	373	$	10,725
Charge-offs		(725)		(2,407)		(1,648)		(2,389)		(163)		-		(7,332)
Recoveries		149		376		58		341		28		-		952
Net charge-offs		(576)		(2,031)		(1,590)		(2,048)		(135)		-		(6,380)
Provision		(81)		1,011		940		1,230		121		129		3,350
Ending balance	$	1,303	$	2,834	$	2,379	$	448	$	229	$	502	$	7,695

(Dollars in thousands)	Construction		Residential real estate		Commercial 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