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LOANS
9 Months Ended
Sep. 30, 2013
Receivables [Abstract]  
LOANS

NOTE 3 – LOANS

Loans consist of the following:

 

(Dollars in thousands)    September 30, 2013      December 31, 2012  

Commercial

   $ 116,190       $ 104,899   

Commercial real estate

     126,423         119,192   

Residential real estate

     112,819         110,412   

Construction & land development

     14,904         23,358   

Consumer

     6,838         6,480   
  

 

 

    

 

 

 

Total loans before deferred costs

     377,174         364,341   

Deferred loan costs

     260         239   
  

 

 

    

 

 

 

Total Loans

   $ 377,434       $ 364,580   
  

 

 

    

 

 

 

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 September 30, 2013 and December 31, 2012, approximately 80% and 81%, 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 of 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.

Loans serviced for others approximated $59.0 million and $60.2 million at September 30, 2013 and December 31, 2012, respectively.

Concentrations of Credit

Nearly all of the Company’s lending activity occurs within the state of Ohio, including the four (4) 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 September 30, 2013 and December 31, 2012, 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 three and nine month periods ended September 30, 2013 and 2012. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories. The increase in the provision for possible loan losses related to commercial loans was affected by a qualitative adjustment for loans rated special mention, as well as changes in volume and credit quality of loans in this category. The provision for possible loan losses related to residential real estate increased during third quarter 2013 as a result of a increase in non performing loans within this category.

 

                                                                                          

(Dollars in thousands)

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

Three months ended September 30, 2013

                

Beginning balance, June 30, 2013

   $ 1,316      $ 1,815      $ 1,174      $ 162       $ 144      $ 334       $ 4,945   

Provision for possible loan losses

     27        (5     95        18         (48     123         210   

Charge-offs

     (54     —          (28     —           (9        (91

Recoveries

     5        —          3        —           5           13   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Net charge-offs

     (49     —          (25     —           (4        (78
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Ending balance

   $ 1,294      $ 1,810      $ 1,244      $ 180       $ 92      $ 457       $ 5,077   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

 

                                                                                          

(Dollars in thousands)

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

Nine months ended September 30, 2013

               

Beginning balance, December 31, 2012

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

Provision for possible loan losses

     455        (41     162        (73     (10     137         630   

Charge-offs

     (112     (51     (28     —          (11        (202

Recoveries

     18        —          14        —          37           69   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net charge-offs

     (94     (51     (14     —          26           (133
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Ending balance

   $ 1,294      $ 1,810      $ 1,244      $ 180      $ 92      $ 457       $ 5,077   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

 

                                                                                          

(Dollars in thousands)

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

Three months ended September 30, 2012

                 

Beginning balance, June 30, 2012

   $ 896       $ 1,927       $ 1,051      $ 217       $   64      $ 316      $ 4,471   

Provision for possible loan losses

     94         108         (45     85         46        (82     206   

Charge-offs

     —           —           —          —           (39       (39

Recoveries

     2         —           10        —           11          23   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Net charge-offs

     2         —           10        —           (28       (16
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Ending balance

   $    992       $ 2,035       $ 1,016      $ 302       $ 82      $ 234      $ 4,661   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

                                                                                          

(Dollars in thousands)

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

Nine months ended September 30, 2012

                

Beginning balance, December 31, 2011

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

Provision for possible loan losses

     (33     376        127        122         24        1         617   

Charge-offs

     (15     (14     (104     —           (70     —           (203

Recoveries

     16        —          99        —           50        —           165   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Net charge-offs

     1        (14     (5     —           (20     —           (38
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Ending balance

   $ 992      $ 2,035      $ 1,016      $ 302       $ 82      $ 234       $ 4,661   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

 

The following table presents the balance in the allowance for loan losses and the ending loan balances by portfolio segment and based on the impairment method as of September 30, 2013 and December 31, 2012:

 

(Dollars in thousands)

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

September 30, 2013

             

Allowance for loan losses:

             

Ending allowance balances attributable to loans:

             

Individually evaluated for impairment

  $ 185      $ 442      $ 292      $ —        $ —        $ —        $ 919   

Collectively evaluated for impairment

    1,109        1,368        952        180        92        457        4,158   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total ending allowance balance

  $ 1,294      $ 1,810      $ 1,244      $ 180      $ 92      $ 457      $ 5,077   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loans:

             

Loans individually evaluated for impairment

  $ 3,898      $ 3,460      $ 1,832      $ —        $ —          $ 9,190   

Loans collectively evaluated for impairment

    112,292        122,963        110,987        14,904        6,838          367,984   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Total ending loans balance

  $ 116,190      $ 126,423      $ 112,819      $ 14,904      $ 6,838        $ 377,174   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

December 31, 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   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

 

The following table presents loans individually evaluated for impairment by class of loans as of September 30, 2013 and December 31, 2012:

 

(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
 

September 30, 2013

                    

Commercial

   $ 3,913       $ 7       $ 3,902       $ 3,909       $ 185       $ 3,917       $ 126   

Commercial real estate

     3,767         306         3,155         3,461         442         3,730         125   

Residential real estate

     1,942         583         1,237         1,820         292         1,270         29   

Construction & land development

     —           —           —           —           —           28         2   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired loans

   $ 9,622       $ 896       $ 8,294       $ 9,190       $ 919       $ 8,945       $ 282   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

December 31, 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   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The following table presents the aging of past due loans and nonaccrual loans as of September 30, 2013 and December 31, 2012 by class of loans:

 

(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  

September 30, 2013

                    

Commercial

   $ 115,714       $ 405       $ —         $ —         $ 71       $ 476       $ 116,190   

Commercial real estate

     124,753         271         216         —           1,183         1,670         126,423   

Residential real estate

     110,681         767         257         36         1,078         2,138         112,819   

Construction & land development

     13,954         950         —           —           —           950         14,904   

Consumer

     6,616         137         85         —           —           222         6,838   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total Loans

   $ 371,718       $ 2,530       $ 558       $ 36       $ 2,332       $ 5,456       $ 377,174   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

December 31, 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   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

Troubled Debt Restructurings

All troubled debt restructurings (“TDR’s) are individually evaluated for impairment and a related allowance is recorded, as needed. Loans whose terms have been modified as TDR’s totaled $8.2 million as of September 30, 2013, and $8.7 million as of December 31, 2012, with $823 thousand and $718 thousand of specific reserves allocated to those loans, respectively. At September 30, 2013, $7.5 million of the loans classified as TDR’s were performing in accordance with their modified terms. Of the remaining $736 thousand, all were in nonaccrual of interest status.

None of the loans that were restructured in 2011 or 2012 have subsequently defaulted in the three or nine month periods ended September 30, 2013 and 2012. Loan modifications that are considered TDR’s completed during the three and nine month periods ended September 30, 2013 and 2012 were as follows:

 

     For the Three Months Ended September 30, 2013  

(Dollars in thousands)

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

Commercial

     1       $ 7       $ 7   

Residential Real Estate

     2         188         188   
  

 

 

    

 

 

    

 

 

 

Total Restructured Loans

     3       $ 195       $ 195   
  

 

 

    

 

 

    

 

 

 

 

     For the Nine Months Ended September 30, 2013  

(Dollars in thousands)

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

Commercial

     3       $ 83       $ 83   

Residential Real Estate

     2         188         188   
  

 

 

    

 

 

    

 

 

 

Total Restructured Loans

     5       $ 271       $ 271   
  

 

 

    

 

 

    

 

 

 

 

     For the Three Months Ended September 30, 2012  

(Dollars in thousands)

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

Commercial Real Estate

     1       $ 140       $ 140   

Residential Real Estate

     5         333         333   
  

 

 

    

 

 

    

 

 

 

Total Restructured Loans

     6       $ 473       $ 473   
  

 

 

    

 

 

    

 

 

 

 

     For the Nine Months Ended September 30, 2012  

(Dollars in thousands)

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

Commercial Real Estate

     1       $ 140       $ 140   

Residential Real Estate

     7         488         488   
  

 

 

    

 

 

    

 

 

 

Total Restructured Loans

     8       $ 628       $ 628   
  

 

 

    

 

 

    

 

 

 

The loans restructured during the three and nine months ended September 30, 2013 and 2012 were modified by changing the monthly payment to interest only. No principal reductions were made.

 

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 and 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 minimum represent an acceptable risk to the Bank. Borrowers in this rating may have leveraged but acceptable balance sheet positions, satisfactory asset quality, and stable to favorable sales and 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 material weaknesses that deserve management’s close attention. If left uncorrected, these weaknesses may result in deterioration of the repayment prospects for the loan 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 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 that do not meet the criteria for special mention, substandard or doubtful classification, when analyzed individually as part of the above described process are considered to be pass rated loans. As of September 30, 2013 and December 31, 2012, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

 

(Dollars in thousands)

   Pass      Special
Mention
     Substandard      Doubtful      Not Rated      Total  

September 30, 2013

                 

Commercial

   $ 100,746       $ 9,850       $ 5,170       $ —         $ 424       $ 116,190   

Commercial real estate

     111,168         7,553         5,879         —           1,823         126,423   

Residential real estate

     243         —           48         —           112,528         112,819   

Construction & land development

     11,598         —           2,040         —           1,266         14,904   

Consumer

     —           —           —           —           6,838         6,838   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 223,755       $ 17,403       $ 13,137       $ —         $ 122,879       $ 377,174   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

December 31, 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   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Loans listed as not rated are either less than $275 thousand or are included in groups of homogeneous loans. The following table presents loans that are not rated by class of loans as of September 30, 2013 and December 31, 2012. Non-performing loans include loans past due 90 days and greater and loans on nonaccrual of interest.

 

(Dollars in thousands)

   Performing      Non-Performing      Total  

September 30, 2013

        

Commercial

   $ 424       $ —         $ 424   

Commercial real estate

     1,823         —           1,823   

Residential real estate

     111,462         1,066         112,528   

Construction & land development

     1,266         —           1,266   

Consumer

     6,838         —           6,838   
  

 

 

    

 

 

    

 

 

 

Total

   $ 121,813       $ 1,066       $ 122,879   
  

 

 

    

 

 

    

 

 

 

December 31, 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