LOANS AND ALLOWANCE FOR CREDIT LOSSES (Table)

12 Months Ended

Dec. 31, 2016

The following table provides information about the principal classes of the loan portfolio at December 31, 2016 and 2015.


(Dollars in thousands)	2016		2015
Construction	$	84,002	$	85,632
Residential real estate		325,768		307,063
Commercial real estate		382,681		330,253
Commercial		72,435		64,911
Consumer		6,639		7,255
Total loans		871,525		795,114
Allowance for credit losses		(8,726)		(8,316)
Total loans, net	$	862,799	$	786,798

Allowance for Credit Losses on Financing Receivables

The following tables include impairment information relating to loans and the allowance for credit losses as of December 31, 2016 and 2015.


			Residential		Commercial
(Dollars in thousands)	Construction		real estate		real estate		Commercial		Consumer		Unallocated		Total
December 31, 2016
Loans individually
evaluated for impairment	$	8,007	$	7,778	$	6,088	$	-	$	99	$	-	$	21,972
Loans collectively
evaluated for impairment		75,995		317,990		376,593		72,435		6,540		-		849,553
Total loans	$	84,002	$	325,768	$	382,681	$	72,435	$	6,639	$	-	$	871,525

Allowance for credit
losses allocated to:
Loans individually
evaluated for impairment	$	1,639	$	317	$	185	$	-	$	-	$	-	$	2,141
Loans collectively
evaluated for impairment		1,148		1,636		2,425		1,145		231		-		6,585
Total loans	$	2,787	$	1,953	$	2,610	$	1,145	$	231	$	-	$	8,726

During 2016, due to the consolidation of Talbot and CNB, the processes and assumptions affecting the allowance methodology were re-evaluated for a more unified representation of the new consolidated bank. This re-evaluation resulted in a net change in the unallocated portion of the allowance of $776 thousand.


			Residential		Commercial
(Dollars in thousands)	Construction		real estate		real estate		Commercial		Consumer		Unallocated		Total
December 31, 2015
Loans individually
evaluated for impairment	$	11,598	$	7,945	$	7,762	$	161	$	122	$	-	$	27,588
Loans collectively
evaluated for impairment		74,034		299,118		322,491		64,750		7,133		-		767,526
Total loans	$	85,632	$	307,063	$	330,253	$	64,911	$	7,255	$	-	$	795,114

Allowance for credit
losses allocated to:
Loans individually
evaluated for impairment	$	619	$	435	$	340	$	-	$	7	$	-	$	1,401
Loans collectively
evaluated for impairment		1,027		1,746		2,659		558		149		776		6,915
Total loans	$	1,646	$	2,181	$	2,999	$	558	$	156	$	776	$	8,316

The following tables provide a summary of the activity in the allowance for credit losses allocated by loan class for 2016 and 2015.

Allocation of a portion of the allowance to one loan class does not preclude its availability to absorb losses in other loan classes.


			Residential		Commercial
(Dollars in thousands)	Construction		real estate		real estate		Commercial		Consumer		Unallocated		Total
2016
Allowance for credit losses:
Beginning Balance	$	1,646	$	2,181	$	2,999	$	558	$	156	$	776	$	8,316

Charge-offs		(615)		(580)		(503)		(497)		(45)		-		(2,240)
Recoveries		35		298		25		428		16		-		802
Net charge-offs		(580)		(282)		(478)		(69)		(29)		-		(1,438)

Provision		1,721		54		89		656		104		(776)		1,848
Ending Balance	$	2,787	$	1,953	$	2,610	$	1,145	$	231	$	-	$	8,726


			Residential		Commercial
(Dollars in thousands)	Construction		real estate		real estate		Commercial		Consumer		Unallocated		Total
2015
Allowance for credit losses:
Beginning Balance	$	1,303	$	2,834	$	2,379	$	448	$	229	$	502	$	7,695

Charge-offs		(1,058)		(283)		(920)		(396)		(67)		-		(2,724)
Recoveries		125		398		379		319		49		-		1,270
Net charge-offs		(933)		115		(541)		(77)		(18)		-		(1,454)

Provision		1,276		(768)		1,161		187		(55)		274		2,075
Ending Balance	$	1,646	$	2,181	$	2,999	$	558	$	156	$	776	$	8,316

Impaired Financing Receivables

The following tables provide information on impaired loans and any related allowance by loan class as of December 31, 2016 and 2015. The difference between the unpaid principal balance and the recorded investment is the amount of partial charge-offs that have been taken.


				Recorded		Recorded
	Unpaid			investment		investment			Average		Interest
	principal			with no		with an	Related		recorded		income
(Dollars in thousands)	balance			allowance		allowance	allowance		investment		recognized
December 31, 2016
Impaired nonaccrual loans:
Construction	$	7,247	$	-	$	3,818	$	1,621	$	5,707	$	-
Residential real estate		4,013		1,957		1,946		166		3,500		-
Commercial real estate		1,801		959		193		117		2,144		-
Commercial		-		-		-		-		108		-
Consumer		99		99		-		-		106		-
Total	$	13,160	$	3,015	$	5,957	$	1,904	$	11,565	$	-

Impaired accruing TDRs:
Construction	$	4,189	$	3,479	$	710	$	18	$	4,172	$	96
Residential real estate		3,875		2,829		1,046		151		4,663		195
Commercial real estate		4,936		1,573		3,363		68		5,090		174
Commercial		-		-		-		-		-		-
Consumer		-		-		-		-		-		-
Total	$	13,000	$	7,881	$	5,119	$	237	$	13,925	$	465

Total impaired loans:
Construction	$	11,436	$	3,479	$	4,528	$	1,639	$	9,879	$	96
Residential real estate		7,888		4,786		2,992		317		8,163		195
Commercial real estate		6,737		2,532		3,556		185		7,234		174
Commercial		-		-		-		-		108		-
Consumer		99		99		-		-		106		-
Total	$	26,160	$	10,896	$	11,076	$	2,141	$	25,490	$	465



				Recorded		Recorded
	Unpaid			investment		investment			Average		Interest
	principal			with no		with an	Related		recorded		income
(Dollars in thousands)	balance			allowance		allowance	allowance		investment		recognized
December 31, 2015
Impaired nonaccrual loans:
Construction	$	11,850	$	4,647	$	2,882	$	588	$	8,176	$	-
Residential real estate		2,563		1,773		487		208		2,767		-
Commercial real estate		2,988		1,813		209		9		2,159		-
Commercial		175		161		-		-		126		-
Consumer		128		98		23		7		122		-
Total	$	17,704	$	8,492	$	3,601	$	812	$	13,350	$	-

Impaired accruing TDRs:
Construction	$	4,069	$	3,266	$	803	$	31	$	4,080	$	84
Residential real estate		5,686		2,380		3,306		227		6,947		312
Commercial real estate		5,740		1,702		4,038		331		5,943		254
Commercial		-		-		-		-		27		1
Consumer		-		-		-		-		-		-
Total	$	15,495	$	7,348	$	8,147	$	589	$	16,997	$	651

Total impaired loans:
Construction	$	15,919	$	7,913	$	3,685	$	619	$	12,256	$	84
Residential real estate		8,249		4,153		3,793		435		9,714		312
Commercial real estate		8,728		3,515		4,247		340		8,102		254
Commercial		175		161		-		-		153		1
Consumer		128		98		23		7		122		-
Total	$	33,199	$	15,840	$	11,748	$	1,401	$	30,347	$	651

Troubled Debt Restructurings on Financing Receivables

The following tables provide a roll-forward for troubled debt restructurings as of December 31, 2016 and December 31, 2015.


	1/1/2016												12/31/2016
	TDR		New		Disbursements		Charge		Reclassifications/				TDR		Related
(Dollars in thousands)	Balance		TDRs		(Payments)		offs		Transfer In/(Out)		Payoffs		Balance		Allowance
For the year ended
December 31, 2016
Accruing TDRs
Construction	$	4,069	$	-	$	120	$	-	$	-	$	-	$	4,189	$	18
Residential real estate		5,686		565		(405)		-		(1,595)		(376)		3,875		151
Commercial real estate		5,740		495		(724)		(117)		(458)		-		4,936		68
Commercial		-		-		-		-		-		-		-		-
Consumer		-		-		-		-		-		-		-		-
Total	$	15,495	$	1,060	$	(1,009)	$	(117)	$	(2,053)	$	(376)	$	13,000	$	237

Nonaccrual TDRs
Construction	$	4,960	$	2,570	$	(2,022)	$	(590)	$	(1,100)	$	-	$	3,818	$	1,621
Residential real estate		445		117		(531)		(23)		1,595		-		1,603		156
Commercial real estate		-		-		(117)		(258)		458		-		83		-
Commercial		-		-		-		-		-		-		-		-
Consumer		23		-		(23)		-		-		-		-		-
Total	$	5,428	$	2,687	$	(2,693)	$	(871)	$	953	$	-	$	5,504	$	1,777

Total	$	20,923	$	3,747	$	(3,702)	$	(988)	$	(1,100)	$	(376)	$	18,504	$	2,014


	1/1/2015													12/31/15
	TDR		New		Disbursements		Charge		Reclassifications/					TDR		Related
(Dollars in thousands)	Balance		TDRs		(Payments)		offs		Transfer In/(Out)			Payoffs		Balance		Allowance
For the year ended
December 31, 2015
Accruing TDRs
Construction	$	4,022	$	-	$	(95)	$	-	$	142		$	-	$	4,069	$	31
Residential real estate		6,368		1,837		(1,195)		-		(1,324)			-		5,686		227
Commercial real estate		6,237		-		(497)		-		-			-		5,740		331
Commercial		47		-		(6)		-		(41)			-		-		-
Consumer		-		-		-		-		-			-		-		-
Total	$	16,674	$	1,837	$	(1,793)	$	-	$	(1,223)		$	-	$	15,495	$	589

Nonaccrual TDRs
Construction	$	3,321	$	-	$	(214)	$	(1,058)	$	2,911		$	-	$	4,960	$	588
Residential real estate		3,382		-		(26)		-		(2,911)			-		445		141
Commercial real estate		346		-		(4)		(40)		(302)			-		-		-
Commercial		-		-		-		-		-			-		-		-
Consumer		25		-		(2)		-		-			-		23		7
Total	$	7,074	$	-	$	(246)	$	(1,098)	$	(302)		$	-	$	5,428	$	736

Total	$	23,748	$	1,837	$	(2,039)	$	(1,098)	$	(1,525)	*	$	-	$	20,923	$	1,325

* $1.3 million in subsequently modified TDRs were transferred from accruing TDR classification to accrual status during the third quarter of 2015, thus removing the TDR designation. In accordance with ASC 310-40-50-2 “Creditor Disclosure of Troubled Debt Restructurings,” an impaired loan that has been subsequently restructured in a troubled debt restructuring involving modification of terms need not be included in the disclosures in years after the restructuring if both of the following conditions exist: a) the subsequent restructuring agreement specifies an interest rate equal to or greater than the rate that the creditor was willing to accept at the time of the restructuring for a new loan with comparable risk; and b) the loan is not impaired based on the terms specified by the restructuring agreement. During the period ended December 31, 2015, three loans totaling $1.3 million met the conditions stipulated in ASC 310-40-50-2, and after a careful evaluation of well supported documentation by management, these loans were upgraded to accrual status.

The following tables provide information on loans that were modified and considered TDRs during 2016 and 2015.


		Premodification		Postmodification
		outstanding		outstanding
	Number of	recorded		recorded		Related
(Dollars in thousands)	contracts	investment		investment		allowance
TDRs:
For the year ended
December 31, 2016
Construction	-	$	-	$	-	$	-
Residential real estate	3		667		688		-
Commercial real estate	2		695		572		-
Commercial	-		-		-		-
Consumer	-		-		-		-
Total	5	$	1,362	$	1,260	$	-

For the year ended
December 31, 2015
Construction	-	$	-	$	-	$	-
Residential real estate	10		1,835		1,837		19
Commercial real estate	1		2,262		2,347		-
Commercial	-		-		-		-
Consumer	-		-		-		-
Total	11	$	4,097	$	4,184	$	19

Troubled Debt Restructurings That Defaulted On Financing Receivables

During the year ended December 31, 2016, there were five TDRs which were modified. The modifications to these TDRs consisted of reductions in principal, interest and rate as well as payment frequency for one of the TDRs.

The following tables provide information on TDRs that defaulted during 2016 and 2015. Generally, a loan is considered in default when principal or interest is past due 90 days or more.


	Number of	Recorded		Related
(Dollars in thousands)	contracts	investment		allowance
TDRs that subsequently defaulted:
For the year ended
December 31, 2016
Construction	2	$	589	$	-
Residential real estate	1		23		-
Commercial real estate	2		375		-
Commercial	-		-		-
Consumer	-		-		-
Total	5	$	987	$	-

For the year ended
December 31, 2015
Construction	-	$	-	$	-
Residential real estate	-		-		-
Commercial real estate	2		279		-
Commercial	-		-		-
Consumer	-		-		-
Total	2	$	279	$	-

Financing Receivable Credit Quality Indicators

The following tables provide information on loan risk ratings as of December 31, 2016 and 2015.


			Special
(Dollars in thousands)	Pass/Performing		Mention		Substandard		Doubtful		Total
December 31, 2016
Construction	$	72,641	$	4,195	$	7,166	$	-	$	84,002
Residential real estate		312,242		6,646		6,880		-		325,768
Commercial real estate		363,461		10,939		8,281		-		382,681
Commercial		71,313		857		265		-		72,435
Consumer		6,540		-		99		-		6,639
Total	$	826,197	$	22,637	$	22,691	$	-	$	871,525


			Special
(Dollars in thousands)	Pass/Performing		Mention		Substandard		Doubtful		Total
December 31, 2015
Construction	$	70,214	$	3,903	$	11,515	$	-	$	85,632
Residential real estate		290,857		8,837		7,369		-		307,063
Commercial real estate		302,438		18,699		9,116		-		330,253
Commercial		63,628		1,075		208		-		64,911
Consumer		7,107		26		122		-		7,255
Total	$	734,244	$	32,540	$	28,330	$	-	$	795,114

Past Due Financing Receivables

The following tables provide information on the aging of the loan portfolio as of December 31, 2016 and 2015.


		Accruing
				30-59 days			60-89 days			Greater than			Total
(Dollars in thousands)	Current			past due			past due			90 days			past due			Nonaccrual			Total
December 31, 2016
Construction	$	80,079		$	-		$	105		$	-		$	105		$	3,818		$	84,002
Residential real estate		317,992			1,778			2,095			-			3,873			3,903			325,768
Commercial real estate		375,552			3,219			2,758			-			5,977			1,152			382,681
Commercial		72,272			19			134			10			163			-			72,435
Consumer		6,515			13			2			10			25			99			6,639
Total	$	852,410		$	5,029		$	5,094		$	20		$	10,143		$	8,972		$	871,525
Percent of total loans		97.8	%		0.6	%		0.6	%		-	%		1.2	%		1.0	%		100.0	%


		Accruing
				30-59 days			60-89 days			Greater than			Total
(Dollars in thousands)	Current			past due			past due			90 days			past due			Nonaccrual			Total
December 31, 2015
Construction	$	78,082		$	21		$	-		$	-		$	21		$	7,529		$	85,632
Residential real estate		300,563			2,139			2,102			-			4,241			2,259			307,063
Commercial real estate		327,370			-			861			-			861			2,022			330,253
Commercial		64,670			49			31			-			80			161			64,911
Consumer		7,107			13			6			7			26			122			7,255
Total	$	777,792		$	2,222		$	3,000		$	7		$	5,229		$	12,093		$	795,114
Percent of total loans		97.8	%		0.3	%		0.4	%		-	%		0.7	%		1.5	%		100.0	%