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LOANS AND ASSET QUALITY
 6 Months Ended
Jun. 30, 2017
Accounts, Notes, Loans and Financing Receivable, Gross, Allowance, and Net [Abstract]  
LOANS AND ASSET QUALITY

NOTE 4 – LOANS AND ASSET QUALITY

 

Asset Quality. The following tables set forth the amount of the Bank’s current, past due, and non-accrual loans by categories of loans and restructured loans, at the dates indicated.

 

At June 30, 2017               90 Days or              
(dollars in thousands)         30-89 Days     More and              
    Current     Past Due     Still Accruing     Nonaccrual     Total  
                               
Commercial and industrial   $ 3,690     $ 49     $ -     $ -     $ 3,739  
Commercial real estate     65,015       -       -       640       65,655  
Consumer and indirect     94,343       835       -       331       95,509  
Residential real estate     102,816       1,699       57       2,556       107,128  
                                         
    $ 265,864     $ 2,583     $ 57     $ 3,527     $ 272,031  

 

At December 31, 2016               90 Days or              
(dollars in thousands)         30-89 Days     More and              
    Current     Past Due     Still Accruing     Nonaccrual     Total  
                               
Commercial and industrial   $ 4,679     $ -     $ -     $ -     $ 4,679  
Commercial real estate     68,775       -       -       647       69,422  
Consumer and indirect     82,134       992       -       456       83,582  
Residential real estate     103,941       1,798       36       2,648       108,423  
                                         
    $ 259,529     $ 2,790     $ 36     $ 3,751     $ 266,106  

 

The balances in the above charts have not been reduced by the allowance for loan loss and the unearned income on loans. For the period ending June 30, 2017, the allowance for loan loss is $2,599,000 and the unearned income is $1,012,000. For the period ending December 31, 2016, the allowance for loan loss is $2,484,000 and the unearned income is $1,048,000.

 

    June 30,     December 31,  
    2017     2016  
    (dollars in thousands)  
             
Troubled debt restructured loans   $ 302     $ 312  
Non-accrual and 90 days or more and still accruing loans to gross loans     1.32 %     1.43 %
Allowance for credit losses to non-accrual and 90 days or more and still accruing loans     72.52 %     65.59 %

 

At June 30, 2017 there were three troubled debt restructured loans consisting of a commercial loan of $222,000, a residential real estate loan of $47,000 and a consumer loan of $33,000. The consumer and residential real estate loans are both on nonaccrual.

 

At June 30, 2017, there was $1,112,000 in loans outstanding, included in the current and 30-89 days past due columns in the above table, as to which known information about possible credit problems of borrowers caused management to have doubts as to the ability of such borrowers to comply with present loan repayment terms. Such loans consist of loans which were not 90 days or more past due but where the borrower is in bankruptcy or has a history of delinquency, or the loan to value ratio is considered excessive due to deterioration of the collateral or other factors. The three loans outstanding, totaling $1,112,000, are as follows: $726,000 Commercial Real Estate loan where the guarantor is in bankruptcy and the loan has an accelerated payoff since we have an assignment of rents from the property which has a very long-term national tenant; $164,000 Home Equity Line of Credit which is paying as agreed, however the borrower has defaulted on other commercial loans which have been satisfied; and a $222,000 Commercial loan with a loan to value ratio which has deteriorated, which has a complete specific reserve of $222,000. All three of these loans are classified with a risk rating of Substandard.

 

Non-accrual loans with specific reserves at June 30, 2017 are comprised of:

 

Consumer loans – Three loans to three borrowers in the amount of $182,000 with a specific reserve of $65,000 established for the loans.

 

Residential Real Estate – Three loans to three borrowers in the amount of $1,385,000, secured by residential property with a specific reserve of $451,000 established for the loans.

 

Below is a summary of the recorded investment amount and related allowance for losses of the Bank’s impaired loans at June 30, 2017 and December 31, 2016.

 

(dollars in thousands)                              
June 30, 2017   Recorded
Investment		     Unpaid 
Principal 
Balance		     Interest 
Income 
Recognized		     Specific
Reserve		     Average 
Recorded
Investment		  
Impaired loans with specific reserves:                                        
Real-estate - mortgage:                                        
Residential   $ 1,385       1,414       -       451       1,426  
Commercial     -       -       -       -       -  
Consumer     182       182       2       65       231  
Installment     -       -       -       -       -  
Home Equity     -       -       -       -       -  
Commercial     222       222       6       222       225  
Total impaired loans with specific reserves   $ 1,789       1,818       8       738       1,882  
                                         
Impaired loans with no specific reserve:                                        
Real-estate - mortgage:                                        
Residential   $ 1,426       2,166       7        n/a       2,478  
Commercial     1,367       1,519       17        n/a       1,558  
Consumer     62       62       -        n/a       101  
Installment     87       87       -        n/a       87  
Home Equity     -       -       -        n/a       -  
Commercial     2       2       -        n/a       2  
Total impaired loans with no specific reserve   $ 2,944       3,836       24       -       4,226  

 

(dollars in thousands)                              
December 31, 2016   Recorded
Investment		     Unpaid
Principal
Balance		     Interest
Income
Recognized		     Specific
Reserve		     Average
Recorded
Investment		  
Impaired loans with specific reserves:                                        
Real-estate - mortgage:                                        
Residential   $ 1,393       1,422       58       252       1,442  
Commercial     -       -       -       -       -  
Consumer     128       128       -       50       167  
Installment     -       -       -       -       -  
Home Equity     -       -       -       -       -  
 Commercial     229       229       8       228       235  
Total impaired loans with specific reserves   $ 1,750       1,779       66       530       1,844  
                                         
Impaired loans with no specific reserve:                                        
Real-estate - mortgage:                                        
Residential   $ 1,479       2,219       21        n/a       2,463  
Commercial     1,413       1,565       59        n/a       1,594  
Consumer     182       182       -        n/a       75  
Installment     193       193       -        n/a       -  
Home Equity     -       -       -        n/a       -  
Commercial     -       -       -        n/a       -  
Total impaired loans with no specific reserve   $ 3,267       4,159       80       -       4,132  

 

Following are tables for June 2017 and December 2016 showing the provision for each group of loans.

 

    Commercial           Consumer                    
June 30, 2017   and     Commercial     and     Residential              
(dollars in thousands)   Industrial     Real Estate     Indirect     Real Estate     Unallocated     Total  
                                     
Balance, beginning of year   $ 284     $ 259     $ 876     $ 1,051     $ 14     $ 2,484  
Provision for credit losses     (27 )     35       211       (45 )     (9 )     165  
Recoveries     -       -       177       27       -       204  
Loans charged off     -       -       (251 )     (3 )     -       (254 )
                                                 
Balance, end of quarter   $ 257     $ 294     $ 1,013     $ 1,030     $ 5     $ 2,599  
                                                 
Individually evaluated for impairment:                                                
Balance in allowance   $ 222     $ -     $ 65     $ 451     $ -     $ 738  
Related loan balance     222       1,367       307       1,425       -       3,321  
                                                 
Collectively evaluated for impairment:                                                
Balance in allowance   $ 35     $ 294     $ 948     $ 579     $ 5     $ 1,861  
Related loan balance     3,517       64,288       95,202       105,703       -       268,710  

 

    Commercial           Consumer                    
December 31, 2016   and     Commercial     and     Residential              
(dollars in thousands)   Industrial     Real Estate     Indirect     Real Estate     Unallocated     Total  
                                     
Balance, beginning of year   $ 305     $ 262     $ 804     $ 1,631     $ 148     $ 3,150  
Provision for credit losses     (30 )     361       431       240       (134 )     868  
Recoveries     9       -       336       34       -       379  
Loans charged off     -       (364 )     (695 )     (854 )     -       (1,913 )
                                                 
Balance, end of year   $ 284     $ 259     $ 876     $ 1,051     $ 14     $ 2,484  
                                                 
Individually evaluated for impairment:                                                
Balance in allowance   $ 229     $ -     $ 50     $ 251     $ -     $ 530  
Related loan balance     229       1,413       503       2,872       -       5,017  
                                                 
Collectively evaluated for impairment:                                                
Balance in allowance   $ 56     $ 259     $ 826     $ 799     $ 14     $ 1,954  
Related loan balance     4,451       68,009       83,078       105,552       -       261,090  

 

Following is a table showing activity for non-accrual loans for the quarters ended June 30, 2017 and June 30, 2016.

 

(Dollars in thousands)   Commercial &     Commercial     Consumer &     Residential        
    Industrial     Real Estate     Indirect     Real Estate     Total  
                               
                               
December 31, 2016   $ -     $ 647     $ 456     $ 2,648     $ 3,751  
Transfer into non-accrual     -       -       353       125       478  
Transfer to REO     -       -       -       -       -  
Loans paid down/payoffs     -       (7 )     (115 )     (214 )     (336 )
Loans brought to accrual status     -       -       (112 )     -       (112 )
Loans charged off     -       -       (251 )     (3 )     (254 )
                                         
June 30, 2017   $ -     $ 640     $ 331     $ 2,556     $ 3,527  
                                         
                                         
December 31, 2015   $ -     $ 300     $ 596     $ 2,883       3,779  
Transfer into non-accrual     -       840       969       1,461       3,270  
Transfer to REO     -       (114 )     -       (126 )     (240 )
Loans paid down/payoffs     -       (15 )     (414 )     (716 )     (1,145 )
Loans brought to accrual status     -       -       (25 )     (135 )     (160 )
Loans charged off     -       (364 )     (670 )     (719 )     (1,753 )
                                         
June 30, 2016   $ -     $ 647     $ 456     $ 2,648     $ 3,751  

 

Credit Quality Information

 

The following tables represent credit exposures by creditworthiness category for the quarter ending June 30, 2017 and the year ended December 31, 2016. The use of creditworthiness categories to grade loans permits management to estimate a portion of credit risk. The Bank’s internal creditworthiness is based on experience with similarly graded credits. Loans that trend upward toward higher credit grades typically have less credit risk and loans that migrate downward typically have more credit risk.

 

The Bank’s internal risk ratings are as follows:

 

1 Superior – minimal risk (normally supported by pledged deposits, United States government securities, etc.)
2 Above Average – low risk. (all of the risks associated with this credit based on each of the bank’s creditworthiness criteria are minimal)
3 Average – moderately low risk. (most of the risks associated with this credit based on each of the bank’s creditworthiness criteria are minimal)
4 Acceptable – moderate risk. (the weighted overall risk associated with this credit based on each of the bank’s creditworthiness criteria is acceptable)
5 Other Assets Especially Mentioned – moderately high risk. (possesses deficiencies which corrective action by the bank would remedy; potential watch list)
6 Substandard – (the bank is inadequately protected and there exists the distinct possibility of sustaining some loss if not corrected)
7 Doubtful – (weaknesses make collection or liquidation in full, based on currently existing facts, improbable)
8 Loss – (of little value; not warranted as a bankable asset)

 

Loans rated 1-4 are considered “Pass” for purposes of the risk rating chart below.

 

Risk ratings of loans by categories of loans are as follows:

 

    Commercial           Consumer              
June 30, 2017   and     Commercial     and     Residential        
(dollars in thousands)   Industrial     Real Estate     Indirect     Real Estate     Total  
                               
Pass   $ 3,517     $ 63,837     $ 94,194     $ 104,164     $ 265,712  
Special mention     -       334       848       493       1,675  
Substandard     222       1,484       407       2,471       4,584  
Doubtful     -       -       60       -       60  
Loss     -       -       -       -       -  
                                         
    $ 3,739     $ 65,655     $ 95,509     $ 107,128     $ 272,031  
                                         
Non-accrual     -       640       331       2,556       3,527  
Troubled debt restructures     222       -       33       47       302  
Number of TDRs accounts     1       -       1       1       3  
Non-performing TDRs   $ -     $ -     $ 33     $ 47     $ 80  
Non-performing TDRs  accounts     -       -       1       1       2  

 

    Commercial           Consumer              
December 31, 2016   and     Commercial     and     Residential        
(dollars in thousands)   Industrial     Real Estate     Indirect     Real Estate     Total  
                               
Pass   $ 4,357     $ 64,208     $ 82,943     $ 105,225     $ 256,733  
Special mention     94       3,801       276       527       4,698  
Substandard     228       1,413       327       2,493       4,461  
Doubtful     -       -       36       178       214  
Loss     -       -       -       -       -  
                                         
    $ 4,679     $ 69,422     $ 83,582     $ 108,423     $ 266,106  
                                         
Non-accrual     -       647       456       2,648       3,751  
Troubled debt restructures     228       -       36       48       312  
Number of TDRs accounts     1       -       1       1       3  
Non-performing TDRs   $ -     $ -     $ 36     $ 48     $ 84  
Non-performing TDRs  accounts     -       -       1       1       2