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LOANS
 6 Months Ended
Jun. 30, 2012
LoansAbstract  
LOANS
4. LOANS

 

Loans outstanding, by general ledger classification, as of June 30, 2012 and December 31, 2011, consisted of the following:

       % of       % of 
   June 30,   Total   December 31,   Total 
(In thousands)  2012   Loans   2011   Loans 
Residential mortgage  $526,726    47.61%  $498,482    48.01%
Commercial mortgage   384,289    34.73    330,559    31.84 
Commercial loans   116,493    10.53    123,845    11.93 
Construction loans   6,804    0.62    13,713    1.32 
Home equity lines of credit   49,057    4.43    50,291    4.84 
Consumer loans, including fixed                    
  rate home equity loans   20,885    1.89    19,439    1.87 
Other loans   2,128    0.19    2,016    0.19 
  Total loans  $1,106,382    100.00%  $1,038,345    100.00%

 

In determining an appropriate amount for the allowance, the Bank segments and evaluates the loan portfolio based on federal call report codes. The following portfolio classes have been identified as of June 30, 2012 and December 31, 2011:

  

       % of       % of 
   June 30,   Total   December 31,   Total 
(In thousands)  2012   Loans   2011   Loans 
Primary residential mortgage  $540,043    48.96%  $511,418    49.40%
Home equity lines of credit   49,057    4.45    50,394    4.87 
Junior lien loan on residence   12,773    1.16    13,053    1.26 
Multifamily property   126,515    11.47    104,056    10.05 
Owner-occupied commercial real estate   105,149    9.53    107,852    10.42 
Investment commercial real estate   228,344    20.70    186,998    18.06 
Commercial and industrial   21,022    1.90    29,825    2.88 
Secured by farmland   210    0.02    —    N/A 
Agricultural production loans   16    N/A    18    N/A 
Commercial construction loans   6,798    0.62    19,208    1.85 
Consumer and other loans   13,135    1.19    12,516    1.21 
  Total loans  $1,103,062    100.00%  $1,035,338    100.00%
Net deferred fees   3,320         3,007      
  Total loans including net deferred costs  $1,106,382        $1,038,345      

 

Included in the totals above for June 30, 2012 are $355 thousand of unamortized discount as compared to $691 thousand of unamortized discount for December 31, 2011.

 

The following tables present the loan balances by portfolio class, based on impairment method, and the corresponding balances in the allowance for loan losses as of June 30, 2012 and December 31, 2011:

 

June 30, 2012
   Total   Ending ALLL   Total   Ending ALLL         
   Loans   Attributable   Loans   Attributable         
   Individually   to Loans   Collectively   to Loans         
   Evaluated   Individually   Evaluated   Collectively       Total 
   for   Evaluated for   for   Evaluated for   Total   Ending 
(In thousands)  Impairment   Impairment   Impairment   Impairment   Loans   ALLL 
Primary                        
  residential                              
  mortgage  $8,868   $430   $531,175   $2,172   $540,043   $2,602 
Home equity lines                              
  of credit   98    —    48,959    208    49,057    208 
Junior lien loan                              
  on residence   466    —    12,307    55    12,773    55 
Multifamily                              
  property   107    —    126,408    839    126,515    839 
Owner-occupied                              
  commercial                              
  real estate   10,686    554    94,463    2,864    105,149    3,418 
Investment commercial                              
  real estate   5,687    384    222,657    4,400    228,344    4,784 
Commercial and                              
  industrial   746    46    20,276    871    21,022    917 
Secured by farmland   —    —    210    3    210    3 
Agricultural                              
  production   —    —    16    1    16    1 
Commercial                              
  construction   —    —    6,798    234    6,798    234 
Consumer and                              
  other   —    —    13,135    77    13,135    77 
Unallocated   —    —    —    548    —    548 
Total ALLL  $26,658   $1,414   $1,076,404   $12,272   $1,103,062   $13,686 

 

 

December 31, 2011
   Total   Ending ALLL   Total   Ending ALLL         
   Loans   Attributable   Loans   Attributable         
   Individually   to Loans   Collectively   to Loans         
   Evaluated   Individually   Evaluated   Collectively       Total 
   for   Evaluated for   for   Evaluated for   Total   Ending 
(In thousands)  Impairment   Impairment   Impairment   Impairment   Loans   ALLL 
Primary                              
  residential                              
  mortgage  $8,878   $345   $502,540   $2,069   $511,418   $2,414 
Home equity lines                              
  of credit   489    —    49,905    204    50,394    204 
Junior lien loan                              
  on residence   680    9    12,373    55    13,053    64 
Multifamily                              
  property   550    52    103,506    653    104,056    705 
Owner-occupied                              
  commercial                              
  real estate   9,054    322    98,798    2,786    107,852    3,108 
Investment commercial                              
  real estate   5,986    509    181,012    3,672    186,998    4,181 
Commercial and                              
  industrial   576    51    29,249    1,240    29,825    1,291 
Agricultural                              
  production   —    —    18    1    18    1 
Commercial                              
  construction   —    —    19,208    669    19,208    669 
Consumer and                              
  other   —    —    12,516    78    12,516    78 
Unallocated   —    —    —    508    —    508 
Total ALLL  $26,213   $1,288   $1,009,125   $11,935   $1,035,338   $13,223 

 

Impaired loans include nonaccrual loans of $19.0 million at June 30, 2012 and $18.9 million at December 31, 2011. Impaired loans also include performing commercial mortgage and commercial troubled debt restructured loans of $6.1 million at June 30, 2012 and $7.3 million at December 31, 2011. The allowance allocated to troubled debt restructured loans which are nonaccrual totaled $300 thousand as of June 30, 2012 and $280 thousand at December 31, 2011, respectively. All accruing troubled debt restructured loans were paying in accordance with restructured terms as of June 30, 2012. The Corporation has not committed to lend additional amounts as of June 30, 2012 to customers with outstanding loans that are classified as loan restructurings.

 

The following tables present loans individually evaluated for impairment by class of loans as of June 30, 2012 and December 31, 2011:

 

June 30, 2012
   Unpaid           Average   Interest 
   Principal   Recorded   Specific   Impaired   Income 
(In thousands)  Balance   Investment   Reserves   Loans   Recognized 
With no related allowance recorded:                         
  Primary residential mortgage  $7,895   $5,647   $—   $6,514   $50 
  Multifamily property   264    107    —    337    — 
  Owner-occupied commercial real estate   9,313    7,844    —    7,736    127 
  Investment commercial real estate   1,183    738    —    895    3 
  Commercial and industrial   723    656    —    634    16 
  Home equity lines of credit   98    98    —    346    5 
  Junior lien loan on residence   655    466    —    774    — 
    Total loans with no related allowance  $20,131   $15,556   $—   $17,236   $201 
With related allowance recorded:                         
  Primary residential mortgage  $3,409   $3,221   $430   $2,893   $40 
  Owner-occupied commercial real estate   3,291    2,842    554    1,729    19 
  Investment commercial real estate   4,949    4,949    384    4,949    162 
  Commercial and industrial   90    90    46    99    4 
  Junior lien loan on residence   —    —    —    —    7 
    Total loans with related allowance  $11,739   $11,102   $1,414   $9,670   $232 
Total loans individually evaluated for                         
  impairment  $31,870   $26,658   $1,414   $26,906   $433 

 

 

December 31, 2011
   Unpaid           Average   Interest 
   Principal   Recorded   Specific   Impaired   Income 
(In thousands)  Balance   Investment   Reserves   Loans   Recognized 
With no related allowance recorded:                         
  Primary residential mortgage  $7,586   $5,844   $—   $4,721   $87 
  Multifamily property   312    286    —    243    — 
  Owner-occupied commercial real estate   10,630    7,049    —    5,575    158 
  Investment commercial real estate   397    299    —    322    20 
  Commercial and industrial   475    475    —    433    24 
  Home equity lines of credit   595    489    —    66    18 
  Junior lien loan on residence   682    555    —    453    9 
    Total loans with no related allowance  $20,677   $14,997   $—   $11,813   $316 
With related allowance recorded:                         
  Primary residential mortgage  $3,083   $3,034   $345   $1,496   $99 
  Multifamily property   264    264    52    71    13 
  Owner-occupied commercial real estate   2,020    2,005    322    1,254    66 
  Investment commercial real estate   5,979    5,687    509    2,865    373 
  Commercial and industrial   101    101    51    495    9 
  Junior lien loan on residence   138    125    9    128    — 
  Commercial construction   —    —    —    995    — 
    Total loans with related allowance  $11,585   $11,216   $1,288   $7,304   $560 
Total loans individually evaluated for                         
  impairment  $32,262   $26,213   $1,288   $19,117   $876 

 

The Corporation did not recognize any income on nonaccruing impaired loans for the three and six months ended June 30, 2012.

The following tables present the recorded investment in nonaccrual and loans past due over 90 days still on accrual by class of loans as of June 30, 2012 and December 31, 2011:

   June 30, 2012 
       Loans Past Due 
       Over 90 Days 
       And Still 
       Accruing 
(In thousands)  Nonaccrual   Interest 
Primary residential mortgage  $7,273   $— 
Home equity lines of credit   98    — 
Junior lien loan on residence   217    — 
Multifamily property   107    — 
Owner-occupied commercial real estate   10,279    — 
Investment commercial real estate   737    — 
Commercial and industrial   300    — 
Total  $19,011   $— 

 

   December 31, 2011 
       Loans Past Due 
       Over 90 Days 
       And Still 
       Accruing 
(In thousands)  Nonaccrual   Interest 
Primary residential mortgage  $7,468   $— 
Home equity lines of credit   489    — 
Junior lien loan on residence   680    — 
Multifamily property   550    — 
Owner-occupied commercial real estate   8,641    — 
Investment commercial real estate   1,037    — 
Commercial and industrial   —    345 
Total  $18,865   $345 

 

Nonaccrual loans and loans past due 90 days still on accrual include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans.

The following tables present the aging of the recorded investment in past due loans as of June 30, 2012 and December 31, 2011 by class of loans, excluding nonaccrual loans:

June 30, 2012
   30-59   60-89   Greater Than     
   Days   Days   90 Days   Total 
(In thousands)  Past Due   Past Due   Past Due   Past Due 
Primary residential mortgage  $1,490   $470   $—   $1,960 
Junior lien loan on residence   —    28    —    28 
Investment commercial real estate   605    238    —    843 
Consumer and other   5    —    —    5 
  Total  $2,100   $736   $—   $2,836 

 

December 31, 2011
   30-59   60-89   Greater Than     
   Days   Days   90 Days   Total 
(In thousands)  Past Due   Past Due   Past Due   Past Due 
Primary residential mortgage  $4,857   $898   $—   $5,755 
Home equity lines of credit   565    19    —    584 
Junior lien loan on residence   399    —    —    399 
Multifamily property   395    —    —    395 
Owner-occupied commercial real estate   3,381    —    —    3,381 
Investment commercial real estate   242    —    —    242 
Commercial and industrial   368    —    345    713 
Commercial construction   500    —    —    500 
Consumer and other   8    —    —    8 
  Total  $10,715   $917   $345   $11,977 

 

Credit Quality Indicators:

The Corporation categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Corporation analyzes loans individually by classifying the loans as to credit risk. The risk rating analysis of loans is performed (i) when the loan is initially underwritten, (ii) annually for loans in excess of $500,000, (iii) on a random quarterly basis from either internal reviews with the Senior Credit Officer or externally through an independent loan review firm, or (iv) whenever Management otherwise identifies a potentially negative trend or issue relating to a borrower. In addition, for all loan types, the Corporation evaluates credit quality based on the aging status of the loan, which was previously presented.

The Corporation uses the following definitions for risk ratings:

Special Mention: Loans subject to special mention have a potential weakness that deserves Management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loans or of the institution’s credit position at some future date.

Substandard: Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful: Loans classified as doubtful have all the weakness inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass-rated loans. As of June 30, 2012, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

       Special         
(In thousands)  Pass   Mention   Substandard   Doubtful 
Primary residential mortgage  $529,663   $2,200   $8,180   $— 
Home equity lines of credit   48,959    —    98    — 
Junior lien loan on residence   12,264    43    466    — 
Multifamily property   125,380    641    494    — 
Farmland   210    —    —    — 
Owner-occupied commercial real estate   82,038    5,135    17,976    — 
Investment commercial real estate   193,247    16,047    19,050    — 
Agricultural production loans   16    —    —    — 
Commercial and industrial   19,491    693    838    — 
Commercial construction   5,194    1,604    —    — 
Consumer and other loans   12,649    486    —    — 
  Total  $1,029,111   $26,849   $47,102   $— 

 

As of December 31, 2011, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

       Special         
(In thousands)  Pass   Mention   Substandard   Doubtful 
Primary residential mortgage  $496,815   $5,437   $9,166   $— 
Home equity lines of credit   49,905    —    489    — 
Junior lien loan on residence   12,244    129    680    — 
Multifamily property   102,948    163    945    — 
Owner-occupied commercial real estate   81,797    9,524    16,531    — 
Investment commercial real estate   157,579    9,599    19,820    — 
Agricultural production loans   18    —    —    — 
Commercial and industrial   28,020    835    970    — 
Commercial construction   18,474    234    500    — 
Consumer and other loans   12,021    495    —    — 
  Total  $959,821   $26,416   $49,101   $— 

 

At June 30, 2012, $26.7 million of the $47.1 million of the substandard loans were also considered impaired as compared to December 31, 2011, when $26.2 million of the $49.1 million of the substandard loans were also impaired.

The activity in the allowance for loan losses for the three months ended June 30, 2012 is summarized below:

   April 1,               June 30, 
   2012               2012 
   Beginning               Ending 
(In thousands)  ALLL   Charge-Offs   Recoveries   Provision   ALLL 
Primary residential mortgage  $2,533   $(427)  $1   $495   $2,602 
Home equity lines of credit   203    —    —    5    208 
Junior lien loan on residence   59    (1)   4    (7)   55 
Multifamily property   789    (21)   —    71    839 
Farmland   3    —    —    —    3 
Owner-occupied commercial real estate   3,544    (804)   13    665    3,418 
Investment commercial real estate   4,341    —    9    434    4,784 
Agricultural production loans   1    —    —    —    1 
Commercial and industrial   1,044    (67)   2    (62)   917 
Commercial construction   360    (19)   —    (107)   234 
Consumer and other loans   74    (3)   3    3    77 
Unallocated   545    —    —    3    548 
  Total ALLL  $13,496   $(1,342)  $32   $1,500   $13,686 

 

The activity in the allowance for loan losses for the six months ended June 30, 2012 is summarized below:

   January 1,               June 30, 
   2012               2012 
   Beginning               Ending 
(In thousands)  ALLL   Charge-Offs   Recoveries   Provision   ALLL 
Primary residential mortgage  $2,414   $(988)  $1   $1,175   $2,602 
Home equity lines of credit   204    (91)   —    95    208 
Junior lien loan on residence   64    (57)   4    44    55 
Multifamily property   705    (375)   —    509    839 
Farmland   —    —    —    3    3 
Owner-occupied commercial real estate   3,108    (916)   126    1,100    3,418 
Investment commercial real estate   4,181    (56)   9    650    4,784 
Agricultural production loans   1    —    —    —    1 
Commercial and industrial   1,291    (112)   4    (266)   917 
Commercial construction   669    (72)   —    (363)   234 
Consumer and other loans   78    (20)   6    13    77 
Unallocated   508    —    —    40    548 
  Total ALLL  $13,223   $(2,687)  $150   $3,000   $13,686 

 

The activity in the allowance for loan losses for the three months ended June 30, 2011 is summarized below:

   April 1,               June 30, 
   2011               2011 
   Beginning               Ending 
(In thousands)  ALLL   Charge-Offs   Recoveries   Provision   ALLL 
Primary residential mortgage  $1,574   $(115)  $—   $204   $1,663 
Home equity lines of credit   174    —    —    11    185 
Junior lien loan on residence   207    (1)   14    (12)   208 
Multifamily property   367    —    —    96    463 
Farmland   —    —    —    —    — 
Owner-occupied commercial real estate   3,387    (1,555)   39    1,650    3,521 
Investment commercial real estate   4,712    (618)   1    4    4,099 
Agricultural production loans   —    —    —    —    — 
Commercial and industrial   2,451    (29)   24    (47)   2,399 
Commercial construction   903    (86)   —    (23)   794 
Consumer and other loans   90    (4)   —    13    99 
Unallocated   521    —    —    104    625 
  Total ALLL  $14,386   $(2,408)  $78   $2,000   $14,056 

 

The activity in the allowance for loan losses for the six months ended June 30, 2011 is summarized below:

   January 1,               June 30, 
   2011               2011 
   Beginning               Ending 
(In thousands)  ALLL   Charge-Offs   Recoveries   Provision   ALLL 
Primary residential mortgage  $1,502   $(287)  $—   $448   $1,663 
Home equity lines of credit   160    (60)   —    85    185 
Junior lien loan on residence   228    (13)   14    (21)   208 
Multifamily property   303    (26)   8    178    463 
Farmland   —    —    —    —    — 
Owner-occupied commercial real estate   2,777    (1,555)   39    2,260    3,521 
Investment commercial real estate   4,759    (1,691)   1    1,030    4,099 
Agricultural production loans   —    —    —    —    — 
Commercial and industrial   2,719    (96)   26    (250)   2,399 
Commercial construction   1,246    (586)   11    123    794 
Consumer and other loans   66    (11)   —    44    99 
Unallocated   522    —    —    103    625 
  Total ALLL  $14,282   $(4,325)  $99   $4,000   $14,056 

 

Troubled Debt Restructurings:

The Corporation has allocated $709 thousand and $707 thousand of specific reserves, on accruing TDR’s, to customers whose loan terms have been modified in troubled debt restructurings as of June 30, 2012 and December 31, 2011, respectively. There were no unfunded commitments to lend additional amounts to customers with outstanding loans that are classified as troubled debt restructurings.

During the six month period ending June 30, 2012, the terms of certain loans were modified as troubled debt restructurings. The modification of the terms of such loans included one or a combination of the following: a reduction of the stated interest rate of the loan; an extension of the maturity date at a stated rate of interest lower that the current market rate for new debt with similar risk; or a permanent reduction of the recorded investment in the loan.

The following table presents loans by class modified as troubled debt restructurings that occurred during the three month period ending June 30, 2012:

       Pre-   Post- 
       Modification   Modification 
       Outstanding   Outstanding 
   Number of   Recorded   Recorded 
(Dollars in thousands)  Contracts   Investment   Investment 
Primary residential mortgage   2   $260   $260 
Junior lien on residence   —    —    — 
Owner-occupied commercial real estate   —    —    — 
  Total   4   $260   $260 

 

The following table presents loans by class modified as troubled debt restructurings that occurred during the six month period ending June 30, 2012:

       Pre-   Post- 
       Modification   Modification 
       Outstanding   Outstanding 
   Number of   Recorded   Recorded 
(Dollars in thousands)  Contracts   Investment   Investment 
Primary residential mortgage   4   $610   $610 
Junior lien on residence   1    249    249 
Owner-occupied commercial real estate   1    2,197    2,197 
  Total   6   $3,056   $3,056 

 

The identification of the troubled debt restructured loans did not have a significant impact on the allowance for loan losses. In addition, there were no charge-offs as a result of the classification of these loans as troubled debt restructuring during the quarter ended June 30, 2012. The primary residential mortgages were modified by reducing the interest rates. The junior lien on residence loan was modified through the deferral of certain scheduled principal payments. The owner-occupied commercial real estate loan was modified through a rate change, revised amortization and partial forgiveness of principal, which had previously been charged off.

The primary residential mortgages were modified by reducing the interest rates or extending the maturity date. The junior lien on residence loan was modified through the deferral of certain scheduled principal payments. The owner-occupied commercial real estate loans were modified with rate reductions and revised amortization schedules; one also had a partial forgiveness of principal which had been previously charged off. The investment commercial real estate loan was modified through rate reduction and deferral of principal amortization.

The following table presents loans by class modified as troubled debt restructurings on accrual as of June 30, 2012:

       Pre-   Post-     
       Modification   Modification     
       Outstanding   Outstanding     
   Number of   Recorded   Recorded   Specific 
(Dollars in thousands)  Contracts   Investment   Investment   Reserves 
Primary residential mortgage   4   $1,596   $1,596   $279 
Junior lien on residence   1    249    249    — 
Owner-occupied commercial real estate   1    406    406    — 
Investment commercial real estate   1    4,949    4,949    384 
Commercial and industrial   3    447    447    46 
  Total   10   $7,647   $7,647   $709 

 

There are nine loans totaling $6.1 million that have been categorized as troubled debt restructurings that are also included in loans that are on nonaccrual. Four of these loans consist of owner-occupied commercial real estate and total $5.2 million. Four are residential first mortgages totaling $598 thousand and one is a commercial mortgage totaling $299 thousand on a mixed use investment property.

The following table presents loans by class modified as troubled debt restructurings from July 1, 2011 through June 30, 2012 for which there was a payment default during the same period:

   Number of   Recorded 
(Dollars in thousands  Contracts   Investment 
Owner-occupied commercial real estate   1   $406 
  Total   1   $406 

 

For troubled debt restructured loans identified during the quarter ended June 30, 2012, there were no payment defaults during the three months ended June 30, 2012.

The terms of certain other potential problem loans were modified during the three month period ending June 30, 2012 that did not meet the definition of a troubled debt restructuring. These loans have a total recorded investment at June 30, 2012 of $2.0 million. The modification of these loans involved either a modification of the terms of a loan to borrowers who were not experiencing financial difficulties or a delay in a payment that was considered to be insignificant.

In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is performed under the Corporation’s internal underwriting policy.