XML 54 R15.htm IDEA: XBRL DOCUMENT

Note 7 - Loans and Related Allowance for Loan and Lease Losses

9 Months Ended

Sep. 30, 2015

Receivables [Abstract]

Loans, Notes, Trade and Other Receivables Disclosure [Text Block]

NOTE 7 - LOANS AND RELATED ALLOWANCE FOR LOAN AND LEASE LOSSES

Major classifications of loans are summarized as follows (in thousands):

		September 30,				December 31,
		2015				2014

Commercial and industrial		$	53,154			$	60,744
Real estate - construction			17,576				30,296
Real estate - mortgage:
Residential			260,291				227,552
Commercial			174,336				147,413
Consumer installment			4,875				4,579
			510,232				470,584
Less: Allowance for loan and lease losses			6,320				6,846

Net loans		$	503,912			$	463,738

The Company’s primary business activity is with customers located within its local Northeastern Ohio trade area, eastern Geauga County, and contiguous counties to the north, east, and south. The Company also serves the central Ohio market with offices in Dublin and Westerville, Ohio. Commercial, residential, consumer, and agricultural loans are granted. Although the Company has a diversified loan portfolio, loans outstanding to individuals and businesses are dependent upon the local economic conditions in the Company’s immediate trade area.

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff generally are reported at their outstanding unpaid principal balances net of the allowance for loan and lease losses. Interest income is recognized as income when earned on the accrual method. The accrual of interest is discontinued on a loan when management believes, after considering economic and business conditions, the borrower’s financial condition is such that collection of interest is doubtful. Interest received on nonaccrual loans is recorded as income or applied against principal according to management’s judgment as to the collectability of such principal.

Loan origination fees and certain direct loan origination costs are being deferred and the net amount amortized as an adjustment of the related loan’s yield. Management is amortizing these amounts over the contractual life of the related loans.

The following tables summarize the primary segments of the loan portfolio and allowance for loan and lease losses (in thousands):

										Real Estate- Mortgage
September 30, 2015		Commercial and industrial				Real estate- construction				Residential				Commercial				Consumer installment				Total
Loans:
Individually evaluated for impairment		$	1,603			$	1,887			$	3,925			$	4,481			$	6			$	11,902
Collectively evaluated for impairment			51,551				15,689				256,366				169,855				4,869				498,330
Total loans		$	53,154			$	17,576			$	260,291			$	174,336			$	4,875			$	510,232

										Real estate- Mortgage
December 31, 2014		Commercial and industrial				Real estate- construction				Residential				Commercial				Consumer installment				Total
Loans:
Individually evaluated for impairment		$	1,393			$	3,296			$	5,183			$	4,490			$	6			$	14,368
Collectively evaluated for impairment			59,351				27,000				222,369				142,923				4,573				456,216
Total loans		$	60,744			$	30,296			$	227,552			$	147,413			$	4,579			$	470,584

										Real Estate- Mortgage
September 30, 2015		Commercial and industrial				Real estate- construction				Residential				Commercial				Consumer installment				Total
Allowance for loan and lease losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment		$	119			$	153			$	267			$	86			$	-			$	625
Collectively evaluated for impairment			459				181				3,159				1,853				43				5,695
Total ending allowance balance		$	578			$	334			$	3,426			$	1,939			$	43			$	6,320

										Real Estate- Mortgage
December 31, 2014		Commercial and industrial				Real estate- construction				Residential				Commercial				Consumer installment				Total
Allowance for loan and lease losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment		$	83			$	589			$	892			$	30			$	2			$	1,596
Collectively evaluated for impairment			559				279				2,811				1,546				55				5,250
Total ending allowance balance		$	642			$	868			$	3,703			$	1,576			$	57			$	6,846

The Company’s loan portfolio is segmented to a level that allows management to monitor risk and performance. The portfolio is segmented into Commercial and Industrial (“C&I”), Real Estate Construction, Real Estate - Mortgage which is further segmented into Residential and Commercial real estate, and Consumer Installment Loans. The C&I loan segment consists of loans made for the purpose of financing the activities of commercial customers. The residential mortgage loan segment consists of loans made for the purpose of financing the activities of residential homeowners. The commercial mortgage loan segment consists of loans made for the purpose of financing the activities of commercial real estate owners and operators. The consumer loan segment consists primarily of installment loans and overdraft lines of credit connected with customer deposit accounts.

Management evaluates individual loans in all of the commercial segments for possible impairment based on guidance established by the Board of Directors. Loans are considered to be impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in evaluating impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. The Company does not separately evaluate individual consumer and residential mortgage loans for impairment, unless such loans are part of a larger relationship that is impaired.

Once the determination has been made that a loan is impaired, the determination of whether a specific allocation of the allowance is necessary is measured by comparing the recorded investment in the loan to the fair value of the loan using one of the following methods: (a) the present value of expected future cash flows discounted at the loan’s effective interest rate; (b) the loan’s observable market price; or (c) the fair value of the collateral less selling costs. The method is selected on a loan-by-loan basis, with management primarily utilizing the fair value of collateral method. The evaluation of the need and amount of a specific allocation of the allowance and whether a loan can be removed from impairment status is made on a quarterly basis. The Company’s policy for recognizing interest income on impaired loans does not differ from its overall policy for interest recognition.

The following tables present impaired loans by class, segregated by those for which a specific allowance was required and those for which a specific allowance was not necessary (in thousands):

September 30, 2015
Impaired Loans
							Unpaid
		Recorded					Principal			Related
		Investment					Balance			Allowance
With no related allowance recorded:
Commercial and industrial		$	675			$	673			$	-
Real estate - construction			1,735				1,734				-
Real estate - mortgage:
Residential			2,100				2,098				-
Commercial			2,277				2,276				-
Consumer installment			6				6				-
Total		$	6,793			$	6,787			$	-

With an allowance recorded:
Commercial and industrial		$	928			$	926			$	119
Real estate - construction			152				152				153
Real estate - mortgage:
Residential			1,825				1,825				267
Commercial			2,204				2,198				86
Total		$	5,109			$	5,101			$	625

Total:
Commercial and industrial		$	1,603			$	1,599			$	119
Real estate - construction			1,887				1,886				153
Real estate - mortgage:
Residential			3,925				3,923				267
Commercial			4,481				4,474				86
Consumer installment			6				6				-
Total		$	11,902			$	11,888			$	625

December 31, 2014
Impaired Loans
							Unpaid
		Recorded					Principal			Related
		Investment					Balance			Allowance
With no related allowance recorded:
Commercial and industrial		$	1,146			$	1,145			$	-
Real estate - construction			2,707				2,705				-
Real estate - mortgage:
Residential			2,202				2,197				-
Commercial			4,064				4,060				-
Total		$	10,119			$	10,107			$	-

With an allowance recorded:
Commercial and industrial		$	247			$	247			$	83
Real estate - construction			589				589				589
Real estate - mortgage:
Residential			2,981				2,978				892
Commercial			426				426				30
Consumer installment			6				6				2
Total		$	4,249			$	4,246			$	1,596

Total:
Commercial and industrial		$	1,393			$	1,392			$	83
Real estate - construction			3,296				3,294				589
Real estate - mortgage:
Residential			5,183				5,175				892
Commercial			4,490				4,486				30
Consumer installment			6				6				2
Total		$	14,368			$	14,353			$	1,596

The following tables present interest income by class, recognized on impaired loans (in thousands):

		For the Three Months Ended September 30, 2015								For the Nine Months Ended September 30, 2015

		Average Recorded Investment				Interest Income Recognized				Average Recorded Investment				Interest Income Recognized
Total:
Commercial and industrial		$	1,480			$	21			$	1,354			$	73
Real estate - construction			2,347				28				2,614				94
Real estate - mortgage:
Residential			4,195				43				4,514				128
Commercial			5,476				71				4,871				200
Consumer installment			6				-				6				-
		$	13,504			$	163			$	13,358			$	495

		For the Three Months Ended September 30, 2014								For the Nine Months Ended September 30, 2014

		Average Recorded Investment				Interest Income Recognized				Average Recorded Investment				Interest Income Recognized
Total:
Commercial and industrial		$	1,842			$	22			$	2,107			$	71
Real estate - construction			3,556				38				3,644				119
Real estate - mortgage:
Residential			5,328				62				5,319				164
Commercial			5,192				83				5,678				241
Consumer installment			11				-				12				-
		$	15,929			$	205			$	16,760			$	595

Management uses a nine-point internal risk-rating system to monitor the credit quality of the overall loan portfolio. The first five categories are considered not criticized and are aggregated as Pass rated. The criticized rating categories utilized by management generally follow bank regulatory definitions. The Special Mention category includes assets that are currently protected but are potentially weak, resulting in an undue and unwarranted credit risk, but not to the point of justifying a Substandard classification. Loans in the Substandard category have well-defined weaknesses that jeopardize the liquidation of the debt and have a distinct possibility that some loss will be sustained if the weaknesses are not corrected. All loans greater than 90 days past due are considered Substandard. Any portion of a loan that has been charged off is placed in the Loss category.

To help ensure that risk ratings are accurate and reflect the present and future capacity of borrowers to repay a loan as agreed, the Company has a structured loan-rating process with several layers of internal and external oversight. Generally, consumer and residential mortgage loans are included in the Pass categories unless a specific action, such as bankruptcy, repossession, or death, occurs to raise awareness of a possible credit event. The Company’s Commercial Loan Officers are responsible for the timely and accurate risk rating of the loans in their portfolios at origination and on an ongoing basis with the Chief Credit Officer ultimately responsible for accurate and timely risk ratings. The Credit Department performs an annual review of all commercial relationships with loan balances of $1,000,000 or greater. Confirmation of the appropriate risk grade is included in the review on an ongoing basis. The Company engages an external consultant to conduct loan reviews on a semiannual basis. Generally, the external consultant reviews commercial relationships greater than $250,000 and/or criticized relationships greater than $125,000. Detailed reviews, including plans for resolution, are performed on loans classified as Substandard on a quarterly basis. Loans in the Special Mention and Substandard categories that are collectively evaluated for impairment are given separate consideration in the determination of the allowance.

The primary risk of commercial and industrial loans is the current economic uncertainties. C&I loans are, by nature, secured by less substantial collateral than real estate-secured loans. The primary risk of real estate construction loans is potential delays and /or disputes during the completion process. The primary risk of residential real estate loans is current economic uncertainties along with the slow recovery in the housing market. The primary risk of commercial real estate loans is loss of income of the owner or occupier of the property and the inability of the market to sustain rent levels. Consumer installment loans historically have experienced higher delinquency rates. Consumer installments are typically secured by less substantial collateral than other types of credits.

The following tables present the classes of the loan portfolio summarized by the aggregate Pass and the criticized categories of Special Mention, Substandard and Doubtful within the internal risk-rating system (in thousands):

						Special												Total
		Pass				Mention				Substandard				Doubtful				Loans
September 30, 2015

Commercial and industrial		$	51,230			$	504			$	1,384			$	36			$	53,154
Real estate - construction			16,836				-				588				152				17,576
Real estate - mortgage:
Residential			254,170				549				5,572				-				260,291
Commercial			161,721				4,622				7,993				-				174,336
Consumer installment			4,868				-				7				-				4,875
Total		$	488,825			$	5,675			$	15,544			$	188			$	510,232

						Special												Total
		Pass				Mention				Substandard				Doubtful				Loans
December 31, 2014

Commercial and industrial		$	58,976			$	-			$	1,730			$	38			$	60,744
Real estate - construction			29,212				495				-				589				30,296
Real estate - mortgage:
Residential			218,244				584				8,724				-				227,552
Commercial			137,755				3,908				5,750				-				147,413
Consumer installment			4,572				-				7				-				4,579
Total		$	448,759			$	4,987			$	16,211			$	627			$	470,584

Management further monitors the performance and credit quality of the loan portfolio by analyzing the age of the portfolio as determined by the length of time a recorded payment is past due.

Nonperforming assets include nonaccrual loans, troubled debt restructurings (TDRs), loans 90 days or more past due, EMORECO assets, other real estate owned, and repossessed assets. A loan is classified as nonaccrual when, in the opinion of management, there are serious doubts about collectability of interest and principal. Accrual of interest is discontinued on a loan when management believes, after considering economic and business conditions, the borrower’s financial condition is such that collection of principal and interest is doubtful. Payments received on nonaccrual loans are applied against principal according to management’s shadow accounting system.

The following tables present the classes of the loan portfolio summarized by the aging categories of performing loans (in thousands):

						30-59 Days				60-89 Days				90 Days+				Total				Total
		Current				Past Due				Past Due				Past Due				Past Due				Loans
September 30, 2015

Commercial and industrial		$	52,398			$	567			$	166			$	23			$	756			$	53,154
Real estate - construction			16,988				588				-				-				588				17,576
Real estate - mortgage:
Residential			257,976				1,241				112				962				2,315				260,291
Commercial			173,522				132				426				256				814				174,336
Consumer installment			4,845				30				-				-				30				4,875
Total		$	505,729			$	2,558			$	704			$	1,241			$	4,503			$	510,232

						30-59 Days				60-89 Days				90 Days+				Total				Total
		Current				Past Due				Past Due				Past Due				Past Due				Loans
December 31, 2014

Commercial and industrial		$	60,296			$	349			$	68			$	31			$	448			$	60,744
Real estate - construction			30,296				-				-				-				-				30,296
Real estate - mortgage:
Residential			223,209				2,065				363				1,915				4,343				227,552
Commercial			146,816				30				-				567				597				147,413
Consumer installment			4,547				27				3				2				32				4,579
Total		$	465,164			$	2,471			$	434			$	2,515			$	5,420			$	470,584

The following tables present the classes of the loan portfolio summarized by nonaccrual loans (in thousands):

		September 30, 2015				90+ Days Past
		Nonaccrual				Due and Accruing


Commercial and industrial		$	836			$	49
Real estate - construction			142				-
Real estate - mortgage:
Residential			3,592				-
Commercial			1,842				-
Consumer installment			4				-
Total		$	6,416			$	49

		December 31, 2014				90+ Days Past
		Nonaccrual				Due and Accruing


Commercial and industrial		$	365			$	-
Real estate - construction			587				-
Real estate - mortgage:
Residential			5,438				165
Commercial			955				-
Consumer installment			2				-
Total		$	7,347			$	165

An allowance for loan and lease losses (“ALLL”) is maintained to absorb losses from the loan portfolio. The ALLL is based on management’s continuing evaluation of the risk characteristics and credit quality of the loan portfolio, assessment of current economic conditions, diversification and size of the portfolio, adequacy of collateral, past and anticipated loss experience, and the amount of nonperforming loans.

The Company’s methodology for determining the ALLL is based on the requirements of ASC Section 310-10-35 for loans individually evaluated for impairment (discussed above) and ASC Subtopic 450-20 for loans collectively evaluated for impairment, as well as the Interagency Policy Statements on the Allowance for Loan and Lease Losses and other bank regulatory guidance. The total of the two components represents the Company’s ALLL. Management also performs impairment analyses on TDRs, which may result in specific reserves.

Loans that are collectively evaluated for impairment are analyzed with general allowances being made as appropriate. For general allowances, historical loss trends are used in the estimation of losses in the current portfolio. These historical loss amounts are modified by other qualitative factors.

The classes described above, which are based on the purpose code assigned to each loan, provide the starting point for the ALLL analysis. Management tracks the historical net charge-off activity at the purpose code level. A historical charge-off factor is calculated using the last four consecutive historical quarters.

Management has identified a number of additional qualitative factors which it uses to supplement the historical charge-off factor because these factors are likely to cause estimated credit losses associated with the existing loan pools to differ from historical loss experience. The additional factors that are evaluated quarterly and updated using information obtained from internal, regulatory, and governmental sources are: national and local economic trends and conditions; levels of and trends in delinquency rates and nonaccrual loans; trends in volumes and terms of loans; effects of changes in lending policies; experience, ability, and depth of lending staff; value of underlying collateral; and concentrations of credit from a loan type, industry and/or geographic standpoint.

Management reviews the loan portfolio on a quarterly basis using a defined, consistently applied process in order to make appropriate and timely adjustments to the ALLL. When information confirms all or part of specific loans to be uncollectible, these amounts are promptly charged off against the ALLL.

The following tables summarize the primary segments of the loan portfolio (in thousands):

		Commercial and industrial				Real estate- construction				Real estate- residential mortgage				Real estate- commercial mortgage				Consumer installment				Total
ALLL balance at December 31, 2014		$	642			$	868			$	3,703			$	1,576			$	57			$	6,846
Charge-offs			(196	)			(385	)			(425	)			(92	)			(11	)			(1,109	)
Recoveries			186				-				161				5				21				373
Provision			(54	)			(149	)			(13	)			450				(24	)			210
ALLL balance at September 30, 2015		$	578			$	334			$	3,426			$	1,939			$	43			$	6,320

		Commercial and industrial				Real estate- construction				Real estate- residential mortgage				Real estate- commercial mortgage				Consumer installment				Total
ALLL balance at December 31, 2013		$	614			$	576			$	3,664			$	2,170			$	22			$	7,046
Charge-offs			(95	)			-				(481	)			-				(40	)			(616	)
Recoveries			88				60				289				40				11				488
Provision			79				207				478				(456	)			62				370
ALLL balance at September 30, 2014		$	686			$	843			$	3,950			$	1,754			$	55			$	7,288

		Commercial and industrial				Real estate- construction				Real estate- residential mortgage				Real estate- commercial mortgage				Consumer installment				Total
ALLL balance at June 30, 2015		$	610			$	363			$	3,347			$	1,978			$	48			$	6,346
Charge-offs			(100	)			-				(124	)			(5	)			-				(229	)
Recoveries			5				-				81				5				7				98
Provision			63				(29	)			122				(39	)			(12	)			105
ALLL balance at September 30, 2015		$	578			$	334			$	3,426			$	1,939			$	43			$	6,320

		Commercial and industrial				Real estate- construction				Real estate- residential mortgage				Real estate- commercial mortgage				Consumer installment				Total
ALLL balance at June 30, 2014		$	596			$	423			$	4,130			$	1,925			$	55			$	7,129
Charge-offs			(3	)			-				(24	)			-				(5	)			(32	)
Recoveries			23				-				94				-				4				121
Provision			70				420				(250	)			(171	)			1				70
ALLL balance at September 30, 2014		$	686			$	843			$	3,950			$	1,754			$	55			$	7,288

Although the residential real estate loan balance increased at year to date ended September 30, 2015, the category experienced a negative provision. This was due to charge-offs and payoffs of loans causing the related allowance to fall from $892,000 at December 31, 2014 to $267,000 at September 30, 2015.

The following tables summarize troubled debt restructurings (in thousands):

		For the Three Months Ended
		September 30, 2015
		Number of Contracts												Pre-Modification				Post-Modification
Troubled Debt Restructurings		Term Modification				Other				Total				Outstanding Recorded Investment				Outstanding Recorded Investment
Commercial and industrial			2				-				2			$	15			$	15
Residential real estate			1				-				1				164				164
Consumer			1				-				1				9				9

		For the Nine Months Ended
		September 30, 2015
		Number of Contracts												Pre-Modification				Post-Modification
Troubled Debt Restructurings		Term Modification				Other				Total				Outstanding Recorded Investment				Outstanding Recorded Investment
Commercial and industrial			3				1				4			$	126			$	126
Real estate construction			1				-				1				181				181
Residential real estate			2				1				3				398				418
Consumer			1				-				1				9				9

		For the Three Months Ended
		September 30, 2014
		Number of Contracts												Pre-Modification				Post-Modification
Troubled Debt Restructurings		Term Modification				Other				Total				Outstanding Recorded Investment				Outstanding Recorded Investment
Commercial and industrial			1				-				1			$	75			$	75
Residential real estate			2				-				2				165				165

		For the Nine Months Ended
		September 30, 2014
		Number of Contracts												Pre-Modification				Post-Modification
Troubled Debt Restructurings		Term Modification				Other				Total				Outstanding Recorded Investment				Outstanding Recorded Investment
Commercial and industrial			2				-				2			$	82			$	82
Residential real estate			3				-				3				215				215
Commercial real estate			1				-				1				73				73
Consumer			1				-				1				7				7

The following table summarizes subsequent defaults of troubled debt restructurings (in thousands):

		For the Three Months Ended
		September 30, 2015
Troubled Debt Restructurings subsequently defaulted		Number of Contracts				Recorded Investment
Commercial and industrial			1			$	8
Consumer			1				8

		For the Nine Months Ended
		September 30, 2015
Troubled Debt Restructurings subsequently defaulted		Number of Contracts				Recorded Investment
Commercial and industrial			3			$	55
Real estate construction			1				152
Consumer			1				8

No TDRs, modified in the twelve months prior to September 30, 2014, subsequently defaulted in the three or nine months ended September 30, 2014.