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Loans
 12 Months Ended
Dec. 31, 2012
Loans [Abstract]  
LOANS

NOTE 3 – LOANS

Loans consist of the following at December 31:

 

                 

(Dollars in thousands)

   2012     2011  

Commercial

   $ 104,899     $ 89,828  

Commercial real estate

     119,192       106,332  

Residential real estate

     110,412       103,518  

Construction & land development

     23,358       18,061  

Consumer

     6,480       6,216  
   

 

 

    

 

 

  

Total loans before deferred costs

     364,341       323,955  

Deferred loan costs

     239       227  
   

 

 

    

 

 

  

Total Loans

   $ 364,580     $ 324,182  
   

 

 

    

 

 

  

Loan Origination/Risk Management

The Company has certain lending policies and procedures in place that are designed to maximize loan income within an acceptable level of risk. Management reviews and approves these policies and procedures on a regular basis. A reporting system supplements the review process by providing management with frequent reports related to loan production, loan quality, concentrations of credit, loan delinquencies and non-performing and potential problem loans. Diversification in the loan portfolio is a means of managing risk associated with fluctuations in economic conditions.

Commercial loans are underwritten after evaluating and understanding the borrower’s ability to operate profitably and prudently expand its business. Underwriting standards are designed to promote relationship banking rather than transactional banking. The Company’s management examines current and occasionally projected cash flows to determine the ability of the borrower to repay their obligations as agreed. Commercial loans are primarily made based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of borrowers, however, may not be as expected and the collateral securing these loans may fluctuate in value. Most commercial loans are secured by the assets being financed or other business assets such as accounts receivable or inventory and may incorporate a personal guarantee; however, some short-term loans may be made on an unsecured basis. In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers.

Commercial real estate loans are subject to underwriting standards and processes similar to commercial loans, in addition to those of real estate loans. These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Commercial real estate lending typically involves higher loan principal amounts and the repayment of these loans is largely dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan. Commercial real estate loans may be adversely affected by conditions in the real estate markets or in the general economy. The properties securing the Company’s commercial real estate portfolio are diverse in terms of type. This diversity helps reduce the Company’s exposure to adverse economic events that affect any single industry. Management monitors and evaluates commercial real estate loans based on collateral, geography and risk grade criteria. In addition, management tracks the level of owner-occupied commercial real estate loans versus non-owner occupied loans. At December 31, 2012 and 2011, approximately 81% and 89%, respectively of the outstanding principal balance of the Company’s commercial real estate loans were secured by owner-occupied properties.

With respect to loans to developers and builders that are secured by non-owner occupied properties, the Company generally requires the borrower to have had an existing relationship with the Company and have a proven record of success. Construction and land development loans are underwritten utilizing independent appraisal reviews, sensitivity analysis of absorption and lease rates and financial analysis of the developers and property owners. Construction and land development loans are generally based upon estimates of costs and value associated with the completed project. These estimates may be inaccurate. Construction and land development loans often involve the disbursement of substantial funds with repayment substantially dependent on the success of the ultimate project. Sources or repayment for these types of loans may be pre-committed permanent loans from approved long-term lenders, sales of developed property or an interim loan commitment from the Company until permanent financing is obtained. These loans are closely monitored by on-site inspections and are considered to have higher risk than other real estate loans due to their ultimate repayment being sensitive to interest rate changes, governmental regulation of real property, general economic conditions and the availability of long-term financing.

 

The Company originates consumer loans utilizing a judgmental underwriting process. To monitor and manage consumer loan risk, policies and procedures are developed and modified, as needed, jointly by line and staff personnel. This activity, coupled with relatively small loan amounts that are spread across many individual borrowers, minimizes risk.

The Company maintains an independent loan review department that reviews and validates the credit risk program on a periodic basis. Results of these reviews are presented to management. The loan review process complements and reinforces the risk identification and assessment decisions made by lenders and credit personnel, as well as the Company’s policies and procedures.

Concentrations of Credit

Nearly all of the Company’s lending activity occurs within the State of Ohio, including the four counties of Holmes, Stark, Tuscarawas and Wayne, as well as other markets. The majority of the Company’s loan portfolio consists of commercial and industrial and commercial real estate loans. As of December 31, 2012 and 2011, there were no concentrations of loans related to any single industry.

Allowance for Loan Losses

The following table details activity in the allowance for loan losses by portfolio segment for the years ended December 31, 2012, 2011 and 2010. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.

 

                                                         

(Dollars in thousands)

   Commercial     Commercial
Real Estate		     Residential
Real Estate		     Construction
& Land
Development		     Consumer     Unallocated     Total  

December 31, 2012

                                                        

Beginning balance, January 1

   $ 1,024     $ 1,673     $ 894     $ 180     $ 78     $ 233     $ 4,082  

Provision for loan losses

     (78 )      512       206       73       23       87       823  

Charge-offs

     (29 )      (283 )      (106 )      —         (89 )              (507 ) 

Recoveries

     16       —         102       —         64               182  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

            

 

 

  

Net charge-offs

     (13 )      (283 )      (4 )      —         (25 )              (325 ) 
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Ending balance

   $ 933     $ 1,902     $ 1,096     $ 253     $ 76     $ 320     $ 4,580  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

December 31, 2011

                                                        

Beginning balance, January 1

   $ 1,179     $ 1,183     $ 1,057     $ 213     $ 80     $ 319     $ 4,031  

Provision for loan losses

     294       558       115       8       61       (86 )      950  

Charge-offs

     (487 )      (68 )      (297 )      (41 )      (121 )              (1,014 ) 

Recoveries

     38       —         19       —         58               115  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

            

 

 

  

Net charge-offs

     (449 )      (68 )      (278 )      (41 )      (63 )              (899 ) 
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Ending balance

   $ 1,024     $ 1,673     $ 894     $ 180     $ 78     $ 233     $ 4,082  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

December 31, 2010

                                                        

Beginning balance, January 1

   $ 1,031     $ 1,338     $ 1,140     $ 246     $ 77     $ 228     $ 4,060  

Provision for loan losses

     534       32       405       110       63       91       1,235  

Charge-offs

     (479 )      (187 )      (488 )      (143 )      (92 )              (1,389 ) 

Recoveries

     93       —         —         —         32               125  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

            

 

 

  

Net charge-offs

     (386 )      (187 )      (488 )      (143 )      (60 )              (1,264 ) 
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Ending balance

   $ 1,179     $ 1,183     $ 1,057     $ 213     $ 80     $ 319     $ 4,031  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

The following table presents the balance in the allowance for loan losses and the ending loan balances by portfolio segment and based on impairment method as of December 31:

 

                                                         

(Dollars in thousands)

   Commercial     Commercial
Real Estate		     Residential
Real Estate		     Construction
& Land
Development		     Consumer     Unallocated     Total  

2012

                                                        

Allowance for loan losses:

                                                        

Ending allowance balances attributable to loans:

                                                        

Individually evaluated for impairment

   $ 85     $ 522     $ 172     $ —       $ —       $ —       $ 779  

Collectively evaluated for impairment

     848       1,380       924       253       76       320       3,801  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total ending allowance balance

   $ 933     $ 1,902     $ 1,096     $ 253     $ 76     $ 320     $ 4,580  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Loans:

                                                        

Loans individually evaluated for impairment

   $ 4,315     $ 4,573     $ 1,137     $ 166     $ —               $ 10,191  

Loans collectively evaluated for impairment

     100,584       114,619       109,275       23,192       6,480               354,150  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

            

 

 

  

Total ending loans balance

   $ 104,899     $ 119,192     $ 110,412     $ 23,358     $ 6,480             $ 364,341  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

            

 

 

  

2011

                                                        

Allowance for loan losses:

                                                        

Ending allowance balances attributable to loans:

                                                        

Individually evaluated for impairment

   $ 165     $ 304     $ 53     $ —       $ —       $ —       $ 522  

Collectively evaluated for impairment

     859       1,369       841       180       78       233       3,560  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total ending allowance balance

   $ 1,024     $ 1,673     $ 894     $ 180     $ 78     $ 233     $ 4,082  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Loans:

                                                        

Loans individually evaluated for impairment

   $ 4,605     $ 2,476     $ 182     $ —       $ —               $ 7,263  

Loans collectively evaluated for impairment

     85,223       103,856       103,336       18,061       6,216               316,692  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

            

 

 

  

Total ending loans balance

   $ 89,828     $ 106,332     $ 103,518     $ 18,061     $ 6,216             $ 323,955  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

            

 

 

  

 

The following table presents loans individually evaluated for impairment by class of loans as of December 31:

 

                                                         

(Dollars in thousands)

   Unpaid
principal
balance		     Recorded
investment
with no
allowance		     Recorded
investment
with
allowance		     Total
recorded
investment		     Related
allowance		     Average
recorded
investment		     Interest
Income
recognized		  

2012

                                                        

Commercial

   $ 4,315     $ —       $ 4,329     $ 4,329     $ 85     $ 4,123     $ 167  

Commercial real estate

     4,906       1,723       2,849       4,572       522       4,396       152  

Residential real estate

     1,223       86       1,057       1,143       172       770       18  

Construction & land development

     173       166       —         166       —         167       —    
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total impaired loans

   $ 10,617     $ 1,975     $ 8,235     $ 10,210     $ 779     $ 9,456     $ 337  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

2011

                                                        

Commercial

   $ 4,605     $ —       $ 4,605     $ 4,605     $ 165     $ 2,890     $ 91  

Commercial real estate

     2,621       —         2,476       2,476       304       2,924       78  

Residential real estate

     182       —         182       182       53       103       —    

Construction & land development

     —         —         —         —         —         —         —    
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total impaired loans

   $ 7,408     $ —       $ 7,263     $ 7,263     $ 522     $ 5,917     $ 169  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

2010

                                                        

Commercial

   $ 644     $ 51     $ 571     $ 622     $ 106     $ 571     $ 2  

Commercial real estate

     1,047       109       777       886       132       1,631       —    

Residential real estate

     590       298       —         298       —         97       —    

Construction & land development

     683       —         440       440       92       483       —    
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total impaired loans

   $ 2,964     $ 458     $ 1,788     $ 2,246     $ 330     $ 2,782     $ 2  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

The following table presents the aging of past due and nonaccrual loans by class of loans as of December 31:

 

                                                         

(Dollars in thousands)

   Current     30-59 days
past due		     60-89 days
past due		     90 days +
past due		     Non-accrual     Total past
due and
non-
accrual		     Total
loans		  

2012

                                                        

Commercial

   $ 104,348     $ 60     $ 8     $ —       $ 483     $ 551     $ 104,899  

Commercial real estate

     117,372       41       34       —         1,745       1,820       119,192  

Residential real estate

     108,574       472       430       131       805       1,838       110,412  

Construction & land development

     23,180       —         5       —         173       178       23,358  

Consumer

     6,325       132       23       —         —         155       6,480  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total Loans

   $ 359,799     $ 705     $ 500     $ 131     $ 3,206     $ 4,542     $ 364,341  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

2011

                                                        

Commercial

   $ 89,365     $ 272     $ 28     $ 150     $ 13     $ 463     $ 89,828  

Commercial real estate

     103,828       587       250       141       1,526       2,504       106,332  

Residential real estate

     100,297       1,443       303       282       1,193       3,221       103,518  

Construction & land development

     17,885       —         —         —         176       176       18,061  

Consumer

     5,985       194       29       8       —         231       6,216  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total Loans

   $ 317,360     $ 2,496     $ 610     $ 581     $ 2,908     $ 6,595     $ 323,955  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Troubled Debt Restructurings

The Company had troubled debt restructurings of $8.7 million as of December 31, 2012, with $718 thousand of specific reserves allocated to customers whose loan terms have been modified in troubled debt restructurings. As of December 31, 2011, the Company had troubled debt restructurings of $8.5 million, with $516 thousand of specific reserves allocated.

Of the loans that were restructured in 2011, one loan in the amount of $54 thousand subsequently defaulted in 2012. Of the loans that were restructured in 2010, two loans totaling $199 thousand subsequently defaulted in 2011.

Loan modifications that are considered troubled debt restructurings completed during the year ended December 31:

 

                         

(Dollars in thousands)

   Number of
loans restructured		     Pre-Modification
Recorded Investment		     Post-Modification
Recorded Investment		  

2012

                        

Commercial real estate

     2     $ 177     $ 177  

Residential real estate

     9       798       798  
   

 

 

    

 

 

    

 

 

  

Total Restructured Loans

     11     $ 975     $ 975  
   

 

 

    

 

 

    

 

 

  

2011

                        

Commercial

     2     $ 4,440     $ 4,440  

Commercial real estate

     2       372       372  

Residential real estate

     5       286       286  
   

 

 

    

 

 

    

 

 

  

Total Restructured Loans

     9     $ 5,098     $ 5,098  
   

 

 

    

 

 

    

 

 

  

 

Credit Quality Indicators

The Company 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 Company analyzes commercial loans individually by classifying the loans as to credit risk. This analysis includes commercial loans with an outstanding balance greater than $275 thousand. This analysis is performed on an annual basis. The Company uses the following definitions for risk ratings:

Pass. Loans classified as pass (Acceptable, Low Acceptable or Pass Watch) may exhibit a wide array of characteristics but at a minimum represent an acceptable risk to the bank. Borrowers in this rating may have leveraged but acceptable balance sheet positions, satisfactory asset quality, stable to favorable sales & earnings trends, acceptable liquidity and adequate cash flow. Loans are considered fully collectible and require an average amount of administration. While generally adhering to credit policy, these loans may exhibit occasional exceptions that do not result in undue risk to the Bank. Borrowers are generally capable of absorbing setbacks, financial and otherwise, without the threat of failure.

Special Mention. Loans classified as special mention have a material weakness that deserves management’s close attention. If left uncorrected, these weaknesses may result in deterioration of the repayment prospects for the loan or of the Bank’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 Bank will sustain some loss if the deficiencies are not corrected.

Doubtful. Loans classified as doubtful have all the weaknesses 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. Loans listed as not rated are either less than $275 thousand or are included in groups of homogeneous loans. Based on the most recent analysis performed, the risk category of loans by class is as follows at December 31:

 

                                                 

(Dollars in thousands)

   Pass     Special
mention		     Substandard     Doubtful     Not
rated		     Total  

2012

                                                

Commercial

   $ 92,123     $ 5,854     $ 6,637     $ —       $ 285     $ 104,899  

Commercial real estate

     102,602       5,671       8,459       —         2,460       119,192  

Residential real estate

     200       —         53       —         110,159       110,412  

Construction & land development

     18,063       2,750       1,244       —         1,301       23,358  

Consumer

     —         —         —         —         6,480       6,480  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total

   $ 212,988     $ 14,275     $ 16,393     $ —       $ 120,685     $ 364,341  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

2011

                                                

Commercial

   $ 76,216     $ 5,147     $ 7,710     $ —       $ 755     $ 89,828  

Commercial real estate

     84,846       10,385       8,686       —         2,415       106,332  

Residential real estate

     1,151       —         61       —         102,306       103,518  

Construction & land development

     12,695       4,340       168       —         858       18,061  

Consumer

     —         —         —         —         6,216       6,216  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total

   $ 174,908     $ 19,872     $ 16,625     $ —       $ 112,550     $ 323,955  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

Non-performing loans include loans past due 90 days and greater and loans on nonaccrual of interest status. The following table presents loans that are not rated, by class of loans as of December 31:

 

                         

(Dollars in thousands)

   Performing     Non-Performing     Total  

2012

                        

Commercial

   $ 285     $ —       $ 285  

Commercial real estate

     2,460       —         2,460  

Residential real estate

     109,276       883       110,159  

Construction & land development

     1,294       7       1,301  

Consumer

     6,480       —         6,480  
   

 

 

    

 

 

    

 

 

  

Total

   $ 119,795     $ 890     $ 120,685  
   

 

 

    

 

 

    

 

 

  

2011

                        

Commercial

   $ 755     $ —       $ 755  

Commercial real estate

     2,415       —         2,415  

Residential real estate

     100,892       1,414       102,306  

Construction & land development

     850       8       858  

Consumer

     6,208       8       6,216  
   

 

 

    

 

 

    

 

 

  

Total

   $ 111,120     $ 1,430     $ 112,550  
   

 

 

    

 

 

    

 

 

  

Loans serviced for others approximated $60.2 million and $49.9 million at December 31, 2012 and 2011, respectively.

Mortgage Servicing Rights

For the years ended December 31, 2012 and 2011, the Company had outstanding mortgage servicing rights (“MSRs”) of $214 thousand and $167 thousand, respectively. No valuation allowance was recorded at December 31, 2012 or 2011 as the fair value of the MSRs exceeded their carrying value. On December 31, 2012, the Company had $52.7 million residential mortgage loans with servicing retained as compared to $44.3 million with servicing retained at December 31, 2011.