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LOANS AND ASSET QUALITY
 3 Months Ended
Mar. 31, 2017
Accounts, Notes, Loans and Financing Receivable, Gross, Allowance, and Net [Abstract]  
LOANS AND ASSET QUALITY

NOTE 3 – 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 March 31, 2017               90 Days or              
(Dollars in Thousands)         30-89 Days     More and              
    Current     Past Due     Still Accruing     Nonaccrual     Total  
                               
Commercial and industrial   $ 4,422     $ -     $ -     $ -     $ 4,422  
Commercial real estate     65,202       -       -       647       65,849  
Consumer and indirect     90,916       639       -       434       91,989  
Residential real estate     105,431       324       35       2,691       108,481  
                                         
    $ 265,971     $ 963     $ 35     $ 3,772     $ 270,741  

 

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 March 31, 2017, the allowance for loan loss is $2,602,000 and the unearned income is $1,034,000. For the period ending December 31, 2016, the allowance for loan loss is $2,484,000 and the unearned income is $1,049,000.

 

    At     At  
    March 31,     December 31,  
    2017     2016  
    (Dollars in Thousands)  
             
Troubled debt restructured loans   $ 307     $ 312  
Non-accrual and 90 days or more and still accruing loans to gross loans     1.41 %     1.43 %
Allowance for credit losses to non-accrual and 90 days or more and still accruing loans     68.35 %     65.59 %

 

At March 31, 2017 there were three troubled debt restructured loans consisting of a commercial loan of $225,000, a residential real estate loan of $48,000 and a consumer loan of $34,000. The consumer and residential real estate loan are both on nonaccrual.

 

At March 31, 2017, there was $1,135,000 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 $1,135,000, are as follows: $745,000 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; $165,000 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 $225,000 Commercial loan with a loan to value ratio which has deteriorated, which has a complete specific reserve of $225,000. All three of these loans are classified with a risk rating of Substandard.

 

Non-accrual loans with specific reserves at March 31, 2017 are comprised of:

 

Consumer loans – Two loans to two borrowers in the amount of $124,000 with a specific reserve of $45,000 established for the loans.

 

Residential Real Estate – Three loans to three borrowers in the amount of $1,792,000, secured by residential property with a specific reserve of $252,000 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 March 31, 2017 and December 31, 2016.

 

(Dollars in thousands)                              
March 31, 2017   Recorded
Investment		     Unpaid
Principal
Balance		     Interest
Income
Recognized		     Specific
Reserve		     Average
Recorded
Investment		  
Impaired loans with specific reserves:                                        
Real-estate - mortgage:                                        
Residential   $ 1,392       1,421       -       252       1,428  
Commercial     -       -       -       -       -  
Consumer     124       124       -       45       164  
Installment     -       -       -       -       -  
Home Equity     -       -       -       -       -  
Commercial     225       225       3       225       227  
Total impaired loans with specific reserves   $ 1,741       1,770       3       522       1,819  
                                         
Impaired loans with no specific reserve:                                        
Real-estate - mortgage:                                        
Residential   $ 1,512       2,252       4        n/a       2,528  
Commercial     1,392       1,544       9        n/a       1,570  
Consumer     178       178       -        n/a       217  
Installment     179       179       -        n/a       179  
Home Equity     -       -       -        n/a       -  
Commercial     2       2       -        n/a       2  
Total impaired loans with no specific reserve   $ 3,263       4,155       13       -       4,496  

 

(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 March 2017 and December 2016 showing the provision for each group of loans.

 

    Commercial           Consumer                    
March 31, 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     (10 )     105       196       (80 )     (16 )     195  
Recoveries     -       -       67       26       -       93  
Loans charged off     -       -       (167 )     (3 )     -       (170 )
                                                 
Balance, end of quarter   $ 274     $ 364     $ 972     $ 994     $ (2 )   $ 2,602  
                                                 
Individually evaluated for impairment:                                                
Balance in allowance   $ 225     $ -     $ 45     $ 252     $ -     $ 522  
Related loan balance     225       1,392       323       2,808       -       4,748  
                                                 
Collectively evaluated for impairment:                                                
Balance in allowance   $ 49     $ 364     $ 927     $ 742     $ (2 )   $ 2,080  
Related loan balance     4,197       64,457       91,666       105,673       -       265,993  

 

    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 March 31, 2017 and March 31, 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     -       -       233       84       317  
Transfer to REO     -       -       -       -       -  
Loans paid down/payoffs     -       -       (54 )     (38 )     (92 )
Loans brought to accrual status     -       -       (34 )     -       (34 )
Loans charged off     -       -       (167 )     (3 )     (170 )
                                         
March 31, 2017   $ -     $ 647     $ 434     $ 2,691     $ 3,772  
                                         
December 31,2015   $ -     $ 300     $ 596     $ 2,883     $ 3,780  
Transfer into non-accrual     -       -       280       95       375  
Transfer to REO     -       -       -       (126 )     (126 )
Loans paid down/payoffs     -       (2 )     (236 )     (44 )     (282 )
Loans brought to accrual status     -       -       (25 )     (135 )     (160 )
Loans charged off     -       -       (163 )     (864 )     (1,027 )
                                         
March 31, 2016   $ -     $ 298     $ 452     $ 1,809     $ 2,560  

 

Credit Quality Information

 

The following tables represent credit exposures by creditworthiness category for the quarter ending March 31, 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              
March 31, 2017   and     Commercial     and     Residential        
(Dollars in Thousands)   Industrial     Real Estate     Indirect     Real Estate     Total  
                               
Pass   $ 4,123     $ 60,485     $ 91,615     $ 105,469     $ 261,692  
Special mention     74       3,764       73       505       4,416  
Substandard     225       1,600       267       2,336       4,428  
Doubtful     -       -       34       171       205  
Loss     -       -       -       -       -  
                                         
    $ 4,422     $ 65,849     $ 91,989     $ 108,481     $ 270,741  
                                         
Non-accrual     -       647       434       2,691       3,772  
Troubled debt restructures     225       -       34       48       307  
Number of TDRs accounts     1       -       1       1       3  
Non-performing TDRs   $ -     $ -     $ 34     $ 48     $ 82  
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     $ 82,942     $ 105,226     $ 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     $ 83,581     $ 108,424     $ 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