Loans and Allowance for Loan and Lease Losses (Tables)

3 Months Ended

Mar. 31, 2015

(Dollars in Thousands)


	*At March 31,*		At December 31,
	2015		2014
Real estate loans:
Commercial	$	114,131	$	111,455
Residential		160,980		163,839
Construction		18,394		13,570
Commercial loans and leases		27,350		29,358
Municipal loans		1,895		785
Consumer loans		1,973		2,018

Total loans		324,723		321,025

Less:
Undisbursed loan proceeds		170		302
Deferred loan fees, net		681		707
Allowance for loan losses		3,984		3,903

		4,835		4,912

Total loans - net	$	319,888	$	316,113

Allowance for Loan Losses and Recorded Investment in Loans

The following table presents the balance and activity in allowance for loan losses and the recorded investment in loans and impairment methods as of March 31, 2015 (dollars in thousands):

Allowance for Loan Losses and Recorded Investment in Loans

For Three Months Ended March 31, 2015


	Commercial Real Estate Loans		Residential Real Estate Loans			Construction Real Estate Loans		Commercial Loans and Leases			Municipal Loans		Consumer Loans			Total
Balance at beginning of quarter	$	1,059	$	1,934		$	156	$	637		$	—	$	117		$	3,903
Provision (credit) for losses		74		69			68		(128	)		—		22			105
Charge-offs (1)		—		(25	)		—		—			—		(13	)		(38	)
Recoveries		—		5			1		3			—		5			14

Balance at end of quarter	$	1,133	$	1,983		$	225	$	512		$	—	$	131		$	3,984

Ending allowance balance:
Individually evaluated for impairment	$	—	$	365		$	—	$	154		$	—	$	28		$	547
Collectively evaluated for impairment		1,133		1,618			225		358			—		103			3,437

Total	$	1,133	$	1,983		$	225	$	512		$	—	$	131		$	3,984

Ending loan balance:
Individually evaluated for impairment	$	4,263	$	4,059		$	1,975	$	495		$	—	$	56		$	10,848
Collectively evaluated for impairment		109,868		156,921			16,419		26,855			1,895		1,917			313,875

Total	$	114,131	$	160,980		$	18,394	$	27,350		$	1,895	$	1,973		$	324,723

The following table presents the balance and activity in allowance for loan losses as of March 31, 2014 (dollars in thousands):

Allowance for Loan Losses

For Three Months Ended March 31, 2014


	Commercial Real Estate Loans		Residential Real Estate Loans		Construction Real Estate Loans			Commercial Loans and Leases			Municipal Loans		Consumer Loans			Total
Balance at beginning of quarter	$	1,165	$	1,743	$	356		$	623		$	—	$	106		$	3,993
Provision for losses		108		1		15			2			—		24			150
Charge-offs (1)		—		—		(40	)		(1	)		—		(16	)		(57	)
Recoveries		—		3		1			5			—		5			14

Balance at end of quarter	$	1,273	$	1,747	$	332		$	629		$	—	$	119		$	4,100

The following table presents the balance in allowance for loan losses and recorded investment in loans and impairment methods as of December 31, 2014 (dollars in thousands):

Allowance for Loan Losses and Recorded Investment in Loans

For Year Ended December 31, 2014


	Commercial Real Estate Loans		Residential Real Estate Loans		Construction Real Estate Loans		Commercial Loans and Leases		Municipal Loans		Consumer Loans		Total
Ending allowance balance:
Individually evaluated for impairment	$	—	$	319	$	—	$	166	$	—	$	12	$	497
Collectively evaluated for impairment		1,059		1,615		156		471		—		105		3,406

Total	$	1,059	$	1,934	$	156	$	637	$	—	$	117	$	3,903

Ending loan balance:
Individually evaluated for impairment	$	4,263	$	3,967	$	2,004	$	516	$	—	$	89	$	10,839
Collectively evaluated for impairment		107,192		159,872		11,566		28,842		785		1,929		310,186

Total	$	111,455	$	163,839	$	13,570	$	29,358	$	785	$	2,018	$	321,025

(1)

Policy for Charging Off Loans:

A loan should be charged off at any point in time when it no longer can be considered a bankable asset, meaning collectable within the parameters of policy. The Bank shall not renew any loan, or put a loan on a demand basis, only to defer a problem, nor is it appropriate to attempt long-term recoveries while reporting loans as assets.

An unsecured loan generally should be charged off no later than when it is 120 days past due as to principal or interest. For loans in the legal process of foreclosure against collateral of real and/or liquid value, the 120-day rule does not apply. Such charge-offs can be deferred until the foreclosure process progresses to the point where the Bank can adequately determine whether or not any ultimate loss will result. In similar instances where other legal actions will cause extraordinary delays, such as the settlement of an estate, if the loan is well collateralized, the 120-day period may be extended. On loans where the Bank is unsecured or not fully collateralized, the loan should be charged off or written down to the documented collateral value rather than merely being placed on non-accrual status.

Loan Portfolio Quality Indicators

The following tables present the credit risk profile of the Company’s loan portfolio based on rating category and payment activity as of March 31, 2015 and December 31, 2014 (dollars in thousands):

Loan Portfolio Quality Indicators

At March 31, 2015


	Commercial Real Estate Loans		Residential Real Estate Loans		Construction Real Estate Loans		Commercial Loans and Leases		Municipal Loans		Consumer Loans		Total
Rating:
Pass (Grades 1-5)	$	102,866	$	154,487	$	15,621	$	26,528	$	1,895	$	1,918	$	303,315
Watch (Grade 6)		7,002		324		1,712		327		—		—		9,365
Special Mention (Grade 7)		—		3,329		—		—		—		—		3,329
Substandard (Grade 8)		3,451		425		225		—		—		—		4,101
Doubtful (Grade 9)		812		2,415		836		495		—		55		4,613
Loss (Grade 10)		—		—		—		—		—		—		—

Total	$	114,131	$	160,980	$	18,394	$	27,350	$	1,895	$	1,973	$	324,723

Loan Portfolio Quality Indicators

At December 31, 2014


	Commercial Real Estate Loans		Residential Real Estate Loans		Construction Real Estate Loans		Commercial Loans and Leases		Municipal Loans		Consumer Loans		Total
Rating:
Pass (Grades 1-5)	$	100,095	$	157,518	$	10,786	$	28,516	$	785	$	1,929	$	299,629
Watch (Grade 6)		7,097		327		1,721		325		—		—		9,470
Special Mention (Grade 7)		—		3,355		—		—		—		—		3,355
Substandard (Grade 8)		3,451		427		228		—		—		—		4,106
Doubtful (Grade 9)		812		2,212		835		517		—		89		4,465
Loss (Grade 10)		—		—		—		—		—		—		—

Total	$	111,455	$	163,839	$	13,570	$	29,358	$	785	$	2,018	$	321,025

Loan Portfolio Aging Analysis

The following tables present the Company’s loan portfolio aging analysis as of March 31, 2015 and December 31, 2014 (dollars in thousands):

Loan Portfolio Aging Analysis

At March 31, 2015


	30-59 Days Past Due (A)		60-89 Days Past Due		90 Days and Greater		Total Past Due		Current		Total Loans Receivable		Total Loans > 90 days & Accruing
Real estate loans:
Commercial	$	—	$	—	$	812	$	812	$	113,319	$	114,131	$	—
Residential		1,155		67		1,775		2,997		157,983		160,980		—
Construction		—		—		836		836		17,558		18,394		—
Commercial loans and leases		379		—		117		496		26,854		27,350		—
Municipal loans		—		—		—		—		1,895		1,895		—
Consumer loans		2		1		1		4		1,969		1,973		1

Total	$	1,536	$	68	$	3,541	$	5,145	$	319,578	$	324,723	$	1

(A)	Includes $992,000 in loans classified as nonaccrual that are less than 30 days past due, of which $613,000 are residential real estate loans and $379,000 are commercial loans.

Loan Portfolio Aging Analysis

At December 31, 2014


	30-59 Days Past Due (A)		60-89 Days Past Due		Greater than 90 Days		Total Past Due		Current		Total Loans Receivable		Total Loans > 90 days & Accruing
Real estate loans:
Commercial	$	—	$	—	$	812	$	812	$	110,643	$	111,455	$	—
Residential		1,346		212		1,598		3,156		160,683		163,839		14
Construction		—		—		836		836		12,734		13,570		—
Commercial loans and leases		80		320		117		517		28,841		29,358		—
Municipal loans		—		—		—		—		785		785		—
Consumer loans		10		4		1		15		2,003		2,018		1

Total	$	1,436	$	536	$	3,364	$	5,336	$	315,689	$	321,025	$	15

(A)	Includes $667,000 in loans classified as nonaccrual that are less than 30 days past due, of which $587,000 are residential real estate loans and $80,000 are commercial loans.

Impaired Loans

The following table presents impaired loans as of March 31, 2015 (dollars in thousands):

Impaired Loans

At March 31, 2015


							Three Months Ended March 31, 2015
	Recorded Balance		Unpaid Principal Balance		Specific Allowance		Average Investment in Impaired Loans (1)		Interest Income Recognized (2)
Loans without a specific valuation allowance:
Real estate loans:
Commercial	$	4,263	$	4,742		N/A	$	4,263	$	43
Residential		2,715		2,967		N/A		2,634		13
Construction		1,975		1,975		N/A		1,989		17
Commercial loans and leases		71		99		N/A		71		—
Municipal loans		—		—		N/A		—		—
Consumer loans		—		—		N/A		—		—

Total	$	9,024	$	9,783		N/A	$	8,957	$	73

Loans with a specific valuation allowance:
Real estate loans:
Commercial	$	—	$	—	$	—	$	—	$	—
Residential		1,344		1,404		365		1,346		5
Construction		—		—		—		—		—
Commercial loans and leases		424		485		154		435		—
Municipal loans		—		—		—		—		—
Consumer loans		56		56		28		73		—

Total	$	1,824	$	1,945	$	547	$	1,854	$	5

All Impaired Loans	$	10,848	$	11,728	$	547	$	10,811	$	78

(1)	Includes all loans that were classified as impaired at any time during the three-month period (not just impaired loans at March 31, 2015), and their average balance for only the period during which they were classified as impaired.

(2)	Interest recorded in income during only the period the loans were classified as impaired, for all loans that were classified as impaired at any time during the three months ended March 31, 2015.

For all loan classes, interest income on loans individually classified as impaired is recognized on a cash basis after all past due and current principal payments have been made.

The following table presents impaired loans as of March 31, 2014 (dollars in thousands):

Impaired Loans

At March 31, 2014


							Three Months Ended March 31, 2014
	Recorded Balance		Unpaid Principal Balance		Specific Allowance		Average Investment in Impaired Loans (1)		Interest Income Recognized (2)
Loans without a specific valuation allowance:
Real estate loans:
Commercial	$	3,553	$	4,011		N/A	$	3,538	$	44
Residential		2,638		2,712		N/A		2,637		14
Construction		1,247		1,247		N/A		1,260		3
Commercial loans and leases		471		607		N/A		472		—
Municipal loans		—		—		N/A		—		—
Consumer loans		—		—		N/A		—		—

Total	$	7,889	$	8,577		N/A	$	7,907	$	61

Loans with a specific valuation allowance:
Real estate loans:
Commercial	$	1,277	$	1,277		86	$	1,285	$	15
Residential		2,836		2,840		474		3,236		19
Construction		3,219		4,061		251		3,029		25
Commercial loans and leases		250		291		180		255		—
Municipal loans		—		—		—		—		—
Consumer loans		73		73		8		66		—

Total	$	7,655	$	8,542	$	999	$	7,871	$	59

All Impaired Loans	$	15,544	$	17,119	$	999	$	15,778	$	120

(1)	Includes all loans that were classified as impaired at any time during the three-month period (not just impaired loans at March 31, 2014), and their average balance for only the period during which they were classified as impaired.

(2)	Interest recorded in income during only the period the loans were classified as impaired, for all loans that were classified as impaired at any time during the three months ended March 31, 2014.

For all loan classes, interest income on loans individually classified as impaired is recognized on a cash basis after all past due and current principal payments have been made.

The following table presents impaired loans as of December 31, 2014 (dollars in thousands):

Impaired Loans

At December 31, 2014


							Year Ended December 31, 2014
	Recorded Balance		Unpaid Principal Balance		Specific Allowance		Average Investment in Impaired Loans (1)		Interest Income Recognized (2)
Loans without a specific valuation allowance:
Real estate loans:
Commercial	$	4,263	$	4,742		N/A	$	4,025	$	176
Residential		2,686		2,923		N/A		2,342		58
Construction		2,004		2,004		N/A		1,744		72
Commercial loans and leases		70		99		N/A		221		—
Municipal loans		—		—		N/A		—		—
Consumer loans		—		—		N/A		—		—

Total	$	9,023	$	9,768		N/A	$	8,332	$	306

Loans with a specific valuation allowance:
Real estate loans:
Commercial	$	—	$	—	$	—	$	481	$	22
Residential		1,281		1,340		319		2,806		78
Construction		—		—		—		2,368		55
Commercial loans and leases		446		495		166		222		—
Municipal loans		—		—		—		—		—
Consumer loans		89		89		12		81		—

Total	$	1,816	$	1,924	$	497	$	5,958	$	155

All Impaired Loans	$	10,839	$	11,692	$	497	$	14,290	$	461

(1)	Includes all loans that were classified as impaired at any time during 2014 (not just impaired loans at December 31, 2014), and their average balance for only the period during which they were classified as impaired.

(2)	Interest recorded in income during only the period the loans were classified as impaired, for all loans that were classified as impaired at any time during 2014.

Loans Accounted for on Non Accrual Basis

The following table presents the Company’s non-accrual loans at March 31, 2015 and December 31, 2014 (dollars in thousands):

Loans Accounted for on a Non-Accrual Basis


	*At March 31,*		At December 31,
	2015		2014
Real estate loans:
Commercial	$	812	$	812
Residential		2,427		2,212
Construction		836		836
Commercial loans and leases		495		516
Municipal loans		—		—
Consumer loans		—		—

Total	$	4,570	$	4,376