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Loans and Allowance for Loan Losses
3 Months Ended
Mar. 31, 2015
Loans and Allowance for Loan Losses [Abstract]  
Loans and Allowance for Loan Losses

NOTE 4 – Loans and Allowance for Loan Losses

 

The following table summarizes the composition of our loan portfolio. Total gross loans are recorded net of deferred loan fees and costs, which totaled $1.8 million as of March 31, 2015 and December 31, 2014.

 

  
  March  31, 2015   December 31, 2014
(dollars in thousands) Amount %  of Total   Amount %  of Total
Commercial          
Owner occupied RE $203,921 22.4%   $ 191,061 21.9%
Non-owner occupied RE 190,816 21.0%   183,440 21.1%
Construction 48,172 5.3%   50,995 5.8%
Business 162,164 17.8%   149,986 17.2%
Total commercial loans 605,073 66.5%   575,482 66.0%
Consumer          
Real estate 153,517 16.9%   146,859 16.9%
Home equity 95,321 10.5%   95,629 11.0%
Construction 41,267 4.5%   39,226 4.5%
Other 14,143 1.6%   14,250 1.6%
Total consumer loans 304,248 33.5%   295,964 34.0%
Total gross loans, net of deferred fees     909,321 100.0%   871,446 100.0%
Less—allowance for loan losses (12,241)     (11,752)  
Total loans, net $897,080     $ 859,694  

 

 

Maturities and Sensitivity of Loans to Changes in Interest Rates

The information in the following tables summarizes the loan maturity distribution by type and related interest rate characteristics based on the contractual maturities of individual loans, including loans which may be subject to renewal at their contractual maturity. Renewal of such loans is subject to review and credit approval, as well as modification of terms upon maturity. Actual repayments of loans may differ from the maturities reflected below, because borrowers have the right to prepay obligations with or without prepayment penalties.

 

 

 

       
    March 31, 2015
(dollars in thousands) One year
or less
After one
but within
five years
After five
years
Total
Commercial        
Owner occupied RE $  21,496  106,695  75,730  203,921 
Non-owner occupied RE 44,866  113,925  32,025  190,816 
Construction 10,698  25,761  11,713  48,172 
Business 72,580  77,461  12,123  162,164 
Total commercial loans 149,640  323,842  131,591  605,073 
Consumer        
Real estate 26,051  42,622  84,844  153,517 
Home equity 4,685  28,491  62,145  95,321 
Construction 16,185  2,535  22,547  41,267 
Other 6,994  5,401  1,748  14,143 
  Total consumer loans 53,915  79,049  171,284  304,248 
  Total gross loans, net of deferred fees $203,555  402,891  302,875  909,321 
Loans maturing after one year with:        
Fixed interest rates       $525,938 
Floating interest rates       179,828 
    
      December 31, 2014
    One year
or less
After one
but within
five years
After five
years
Total
  Commercial        
  Owner occupied RE $  20,737  98,110  72,214  191,061 
  Non-owner occupied RE 46,718  104,402  32,320  183,440 
  Construction 11,923  25,145  13,927  50,995 
  Business 75,718  65,899  8,369  149,986 
  Total commercial loans 155,096  293,556  126,830  575,482 
  Consumer        
  Real estate 21,571  41,549  83,739  146,859 
  Home equity 5,645  28,394  61,590  95,629 
  Construction 13,531  2,073  23,622  39,226 
  Other 7,278  5,637  1,335  14,250 
    Total consumer 48,025  77,653  170,286  295,964 
    Total gross loan, net of deferred fees $203,121  371,209  297,116  871,446 
  Loans maturing after one year with :        
  Fixed interest rates       494,058 
  Floating interest rates       174,267 
           
           

 

Portfolio Segment Methodology

 

Commercial

Commercial loans are assessed for estimated losses by grading each loan using various risk factors identified through periodic reviews. We apply historic grade-specific loss factors to each loan class. In the development of our statistically derived loan grade loss factors, we observe historical losses over 12 quarters for each loan grade. These loss estimates are adjusted as appropriate based on additional analysis of external loss data or other risks identified from current economic conditions and credit quality trends. The allowance also includes an amount for the estimated impairment on nonaccrual commercial loans and commercial loans modified in a troubled debt restructuring (“TDR”), whether on accrual or nonaccrual status.

 

 

 

Consumer

For consumer loans, we determine the allowance on a collective basis utilizing historical losses over 12 quarters to represent our best estimate of inherent loss. We pool loans, generally by loan class with similar risk characteristics. The allowance also includes an amount for the estimated impairment on nonaccrual consumer loans and consumer loans modified in a TDR, whether on accrual or nonaccrual status.

 

Credit Quality Indicators

 

Commercial

We manage a consistent process for assessing commercial loan credit quality by monitoring our loan grading trends and past due statistics. All loans are subject to individual risk assessment. Our risk categories include Pass, Special Mention, Substandard, and Doubtful, each of which is defined by banking regulatory agencies. Delinquency statistics are also an important indicator of credit quality in the establishment of our allowance for credit losses.

 

We categorize our loans into risk categories based on relevant information about the ability of the borrower to service their debt such as current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. A description of the general characteristics of the risk grades is as follows:

 

· Pass—These loans range from minimal credit risk to average however still acceptable credit risk.

 

· Special mention—A special mention loan has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or the institution’s credit position at some future date.

 

· Substandard—A substandard loan is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified must have a well-defined weakness, or weaknesses, that may jeopardize the liquidation of the debt. A substandard loan is characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

 

· Doubtful—A doubtful loan has all of the weaknesses inherent in one classified as substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of the currently existing facts, conditions and values, highly questionable and improbable.

 

The tables below provide a breakdown of outstanding commercial loans by risk category.

 

    March 31, 2015
(dollars in thousands) Owner
occupied RE
Non-owner
occupied RE
Construction Business Total
Pass $198,503 180,577 46,105 152,750 577,935
Special mention 3,796 3,351  129 4,653 11,929
Substandard 1,622 6,888 1,938 4,761 15,209
Doubtful - - - - -
  $203,921 190,816 48,172 162,164 605,073

 

 

 

 
    December 31, 2014
  Owner
occupied RE
Non-owner
occupied RE
Construction Business Total
Pass $184,158 173,711  48,140  140,432  546,441 
Special mention 5,035 3,376  129  4,715  13,255 
Substandard 1,868 6,353  2,726  4,839  15,786 
Doubtful -
  $191,061 183,440  50,995  149,986  575,482 
           

The following tables provide past due information for outstanding commercial loans and include loans on nonaccrual status as well as accruing TDRs.

 

 
        March 31, 2015
(dollars in thousands) Owner
occupied RE
Non-owner
occupied RE
Construction Business Total
Current $203,177 187,072 47,640 160,358 598,247
30-59 days past due 464 129 - 299 892
60-89 days past due - 60 532 159 751
Greater than 90 Days 280 3,555 - 1,348 5,183
  $203,921 190,816 48,172 162,164 605,073
         
        December 31, 2014
  Owner
occupied RE
Non-owner
occupied RE
Construction Business Total
Current $190,801 180,577 50,212 148,317 569,907
30-59 days past due - 49 - 35 84
60-89 days past due - 246 - 155 401
Greater than 90 Days 260 2,568 783 1,479 5,090
  $191,061 183,440 50,995 149,986 575,482
           
               

As of March 31, 2015 and December 31, 2014, loans 30 days or more past due represented 0.91% and 0.73% of our total loan portfolio, respectively. Commercial loans 30 days or more past due were 0.75% and 0.64% of our total loan portfolio as of March 31, 2015 and December 31, 2014, respectively.

 

Consumer

We manage a consistent process for assessing consumer loan credit quality by monitoring our loan grading trends and past due statistics. All loans are subject to individual risk assessment. Our categories include Pass, Special Mention, Substandard, and Doubtful, which are defined above. Delinquency statistics are also an important indicator of credit quality in the establishment of our allowance for loan losses.

 

The tables below provide a breakdown of outstanding consumer loans by risk category.

 

 
        March 31, 2015
(dollars in thousands) Real estate Home equity Construction Other Total
Pass $150,687 91,100 41,267 13,972 297,026
Special mention 794  2,976 - 136 3,906
Substandard 2,036 1,245 - 35 3,316
Doubtful - - - - -
  $153,517 95,321 41,267 14,143 304,248

 

 

 

           
        December 31, 2014
  Real estate Home equity Construction Other Total
Pass $144,070  91,084  39,226  14,013  288,393 
Special mention 953  3,268  139  4,360 
Substandard 1,836  1,277  98  3,211 
Doubtful
  $146,859  95,629  39,226  14,250  295,964 
           

The following tables provide past due information for outstanding consumer loans and include loans on nonaccrual status as well as accruing TDRs.

 

         
        March 31, 2015
(dollars in thousands) Real estate Home equity Construction Other Total
Current $152,458 94,919 41,267 14,133 302,777
30-59 days past due 602 84 - 3 689
60-89 days past due - 130 - 7 137
Greater than 90 Days 457 188 - - 645
  $153,517 95,321 41,267 14,143 304,248
         
        December 31, 2014
  Real estate Home equity Construction Other Total
Current $146,362  95,311 39,226 14,247 294,146
30-59 days past due 40  - - - 40
60-89 days past due 130 - 3 133
Greater than 90 Days 457  188 - - 645
  $146,859  95,629 39,226 14,250 295,964
           

As of March 31, 2015 and December 31, 2014, consumer loans 30 days or more past due were 0.16% and 0.09%, respectively, of total loans.

 

Nonperforming assets

 

The following table shows the nonperforming assets and the related percentage of nonperforming assets to total assets and gross loans. Generally, a loan is placed on nonaccrual status when it becomes 90 days past due as to principal or interest, or when we believe, after considering economic and business conditions and collection efforts, that the borrower’s financial condition is such that collection of the contractual principal or interest on the loan is doubtful. A payment of interest on a loan that is classified as nonaccrual is recognized as a reduction in principal when received.

 

 

 

Following is a summary of our nonperforming assets, including nonaccruing TDRs.

 

         
(dollars in thousands)   March 31, 2015   December 31, 2014
Commercial        
Owner occupied RE   $  280        322 
Non-owner occupied RE   3,167    2,344 
Construction     783 
Business   1,130    1,408 
Consumer        
Real estate   457    457 
Home equity   188    188 
Construction    
Other    
Nonaccruing troubled debt restructurings   1,301    1,147 
Total nonaccrual loans, including nonaccruing TDRs   6,525    6,650 
Other real estate owned   2,570    3,307 
Total nonperforming assets    $9,095    9,957 
Nonperforming assets as a percentage of:        
Total assets   0.85%   0.97%
Gross loans   1.00%   1.14%
Total loans over 90 days past due   5,828    5,735
Loans over 90 days past due and still accruing     -
Accruing troubled debt restructurings     $  8,336    8,562
         

 

Impaired Loans

 

The table below summarizes key information for impaired loans. Our impaired loans include loans on nonaccrual status and loans modified in a TDR, whether on accrual or nonaccrual status. These impaired loans may have estimated impairment which is included in the allowance for loan losses. Our commercial and consumer impaired loans are evaluated individually to determine the related allowance for loan losses.

 

       
    March 31, 2015
    Recorded investment  
      Impaired loans  
  Unpaid   with related Related
  Principal Impaired allowance for allowance for
(dollars in thousands) Balance loans loan losses loan losses
Commercial        
Owner occupied RE $  1,079 1,079 1,079 373
Non-owner occupied RE 9,219 5,308 3,509 918
Construction 1,938 1,938 532 156
Business 4,672 4,262 3,077 2,497
Total commercial 16,908 12,587 8,197 3,944
Consumer        
Real estate 1,706 1,706 1,386 672
Home equity 346 346 346 190
Construction - - - -
Other 222 222 222 222
Total consumer 2,274 2,274 1,954 1,084
Total $19,182 14,861 10,151 5,028

 

 

 

       
    December 31, 2014
    Recorded investment  
      Impaired loans  
  Unpaid   with related Related
  Principal Impaired allowance for allowance for
  Balance loans loan losses loan losses
Commercial        
Owner occupied RE $  1,122  1,122  1,060  371 
Non-owner occupied RE 5,813  4,522  2,777  801 
Construction 5,268  2,726  1,315  324 
Business 5,385  4,565  3,528  2,464 
Total commercial 17,588  12,935  8,680  3,960 
Consumer        
Real estate 1,620  1,620  1,299  585 
Home equity 347  347  347  191 
Construction
Other 310  310  310  310 
Total consumer 2,277  2,277  1,956  1,086 
Total $19,865  15,212  10,636  5,046 
           

 

The following table provides the average recorded investment in impaired loans and the amount of interest income recognized on impaired loans after impairment by portfolio segment and class.

 

           
  Three months ended
March 31, 2015
  Three months ended
March 31, 2014
  Year ended
December 31, 2014
(dollars in thousands) Average
recorded
investment
Recognized
interest
income
  Average
recorded
investment
Recognized
interest
income
  Average
recorded
investment
Recognized
interest
income
Commercial                
Owner occupied RE $  1,101 22     1,930 2      1,568  47 
Non-owner occupied RE 4,915 22   5,417 15   5,693  104 
Construction 2,332 18   1,829 14   1,977  75 
Business 4,413 36   4,724 40   4,522  154 
Total commercial 12,761 98   13,900 71   13,760  380 
Consumer                
Real estate 1,663 11   2,092 12   2,094  53 
Home equity 346 2   264 2   251  10 
Construction -   -  
Other 266  2   221  2   282  13 
Total consumer 2,275 15   2,577 16   2,627  76 
Total $ 15,036 113    16,477 87    16,387  456 

 

Allowance for Loan Losses

 

The allowance for loan loss is management’s estimate of credit losses inherent in the loan portfolio. The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

 

 

We have an established process to determine the adequacy of the allowance for loan losses that assesses the losses inherent in our portfolio. While we attribute portions of the allowance to specific portfolio segments, the entire allowance is available to absorb credit losses inherent in the total loan portfolio. Our process involves procedures to appropriately consider the unique risk characteristics of our commercial and consumer loan portfolio segments. For each portfolio segment, impairment is measured individually for each impaired loan. Our allowance levels are influenced by loan volume, loan grade or delinquency status, historic loss experience and other economic conditions.

 

The following table summarizes the activity related to our allowance for loan losses by commercial and consumer portfolio segments:

 

 

                     
              Three months ended March 31, 2015
  Commercial   Consumer    
(dollars in thousands) Owner occupied RE Non-owner occupied RE Construction Business   Real
Estate
Home
equity
Construction Other   Total
Balance, beginning of period $ 1,645 2,332 614 3,625   1,714 1,162 236 424   11,752
Provision for loan losses 259 295 (149) 183   109 - 15 (87)   625
Loan charge-offs - (78) - (66)   - - - (1)   (145)
Loan recoveries - 2 - 7   - - - -   9
Net loan charge-offs - (76) - (59)   - - - (1)   (136)
Balance, end of period $ 1,904 2,551 465 3,749   1,823 1,162 251 336   12,241
Net charge-offs to average loans (annualized)                 0.06%
Allowance for loan losses to gross loans                 1.35%
Allowance for loan losses to nonperforming loans                 187.61%
                     
              Three months ended March 31, 2014
  Commercial   Consumer    
(dollars in thousands) Owner occupied RE Non-owner occupied RE Construction Business   Real
Estate
Home
equity
Construction Other   Total
Balance, beginning of period $ 1,880 2,633 397 3,329   1,091 644 99 140   10,213
Provision for loan losses 13 780 4 43   151 82 5 (78)   1,000
Loan charge-offs - (434) - -   - (76) - (2)   (512)
Loan recoveries - - - 11   - 1 -   12
Net loan charge-offs - (434) - 11   - (75) - (2)   (500)
Balance, end of period $ 1,893 2,979 401 3,383   1,242 651 104 60   10,713
Net charge-offs to average loans (annualized)                 0.27%
Allowance for loan losses to gross loans                 1.38%
Allowance for loan losses to nonperforming loans                 120.99%
                       
                         

The following table disaggregates our allowance for loan losses and recorded investment in loans by impairment methodology.

 

 
            March 31, 2015
  Allowance for loan losses   Recorded investment in loans
(dollars in thousands) Commercial Consumer Total   Commercial Consumer Total
Individually evaluated $3,944 1,084 5,028   12,587 2,274 14,861
Collectively evaluated 4,725 2,488 7,213   592,486 301,974 894,460
Total $8,669 3,572 12,241   605,073 304,248 909,321
             
            December 31, 2014
  Allowance for loan losses   Recorded investment in loans
  Commercial Consumer Total   Commercial Consumer Total
Individually evaluated $3,960 1,086 5,046   12,935 2,277 15,212
Collectively evaluated 4,256 2,450 6,706   562,547 293,687 856,234
Total $8,216 3,536 11,752   575,482 295,964 871,446