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LOANS AND ASSET QUALITY | 9 Months Ended
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Sep. 30, 2017
LOANS AND ASSET QUALITY |
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 September 30, 2017 |  |  |  |  |  |  |  | 90 Days or |  |  |  |  |  |
(dollars in thousands) |  |  |  |  | 30-89 Days |  | More and |  |  |  |  |  |
|  | Current |  | Past Due |  | Still Accruing |  | Nonaccrual |  | Total
Commercial and industrial |  | $ | 3,989 |  | $ | 8 |  | $ | — |  | $ | 48 |  | $ | 4,045
Commercial real estate |  |  | 68,267 |  |  | — |  |  | — |  |  | 499 |  |  | 68,766
Consumer and indirect |  |  | 94,578 |  |  | 1,085 |  |  | — |  |  | 385 |  |  | 96,048
Residential real estate |  |  | 100,256 |  |  | 326 |  |  | 71 |  |  | 2,934 |  |  | 103,587
|  | $ | 267,090 |  | $ | 1,419 |  | $ | 71 |  | $ | 3,866 |  | $ | 272,446
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 September 30, 2017, the allowance for loan loss is $2.6 million and the unearned income is $983,000. For the period ending December 31, 2016, the allowance for loan loss is $2,484,000 and the unearned income is $1,048,000.
|  | September 30, |  | December 31, |
|  | 2017 |  | 2016 |
|  | (dollars in thousands) |
Troubled debt restructured loans |  | $ | 299 |  | $ | 312 |
Non-accrual and 90 days or more and still accruing loans to gross loans |  |  | 1.46 | % |  | 1.43 | %
Allowance for credit losses to non-accrual and 90 days or more and still accruing loans |  |  | 66.10 | % |  | 65.59 | %
At September 30, 2017 there were three troubled debt restructured loans consisting of a commercial loan of $219,500, a residential real estate loan of $46,692 and a consumer loan of $32,696. The consumer and residential real estate loans are both on nonaccrual. At September 30, 2017, there was $1,088,970 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 $1,088,0970 are as follows: $706,974 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; $162,496 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 $219,500 Commercial loan with a loan to value ratio which has deteriorated, which has a complete specific reserve of $219,500. All three of these loans are classified with a risk rating of Substandard. Non-accrual loans with specific reserves at September 30, 2017 are comprised of: Consumer loans – Three loans to three borrowers in the amount of $174,589 with a specific reserve of $57,797 established for the loans. Residential Real Estate – Two loans to two borrowers in the amount of $1,344,654, secured by residential property with a specific reserve of $532,378 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 September 30, 2017 and December 31, 2016.
(dollars in thousands) |  |  |  |  |  |  |  |  |  |  |  |  |  | Average
|  | Recorded |  | Principal |  | Income |  | Specific |  | Recorded
September 30, 2017 |  | Investment |  | Balance |  | Recognized |  | Reserve |  | Investment
Impaired loans with specific reserves: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Real-estate - mortgage: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Residential |  | $ | 1,345 |  | $ | 1,374 |  | $ | — |  | $ | 532 |  | $ | 1,364
Commercial |  |  | — |  |  | — |  |  | — |  |  | — |  |  | —
Consumer |  |  | 175 |  |  | 175 |  |  | 4 |  |  | 58 |  |  | 230
Installment |  |  | — |  |  | — |  |  | — |  |  | — |  |  | —
Home Equity |  |  | — |  |  | — |  |  | — |  |  | — |  |  | —
Commercial |  |  | 219 |  |  | 219 |  |  | 8 |  |  | 220 |  |  | 224
Total impaired loans with specific reserves |  | $ | 1,739 |  | $ | 1,768 |  | $ | 12 |  | $ | 810 |  | $ | 1,818
Impaired loans with no specific reserve: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Real-estate - mortgage: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Residential |  | $ | 1,203 |  | $ | 2,011 |  | $ | 13 |  |  | n/a |  | $ | 2,377
Commercial |  |  | 1,312 |  |  | 1,312 |  |  | 29 |  |  | n/a |  |  | 1,244
Consumer |  |  | 108 |  |  | 108 |  |  | — |  |  | n/a |  |  | 104
Installment |  |  | 146 |  |  | 146 |  |  | — |  |  | n/a |  |  | 130
Home Equity |  |  | — |  |  | — |  |  | — |  |  | n/a |  |  | —
Commercial |  |  | 529 |  |  | 529 |  |  | — |  |  | n/a |  |  | 531
Total impaired loans with no specific reserve |  | $ | 3,298 |  | $ | 4,106 |  | $ | 42 |  |  | — |  | $ | 4,386
(dollars in thousands) |  |  |  |  | Unpaid |  | Interest |  |  |  |  | Average
|  | Recorded |  | Principal |  | Income |  | Specific |  | Recorded
December 31, 2016 |  | Investment |  | Balance |  | Recognized |  | Reserve |  | 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 September 2017 and December 2016 showing the provision for each group of loans.
|  | Commercial |  |  |  |  | Consumer |  |  |  |  |  |  |  |  |
September 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 |  |  | (37) |  |  | 4 |  |  | 246 |  |  | 44 |  |  | (14) |  |  | 243
Recoveries |  |  | — |  |  | 14 |  |  | 212 |  |  | 27 |  |  | — |  |  | 253
Loans charged off |  |  | — |  |  | — |  |  | (354) |  |  | (3) |  |  | — |  |  | (357)
Balance, end of year |  | $ | 247 |  | $ | 277 |  | $ | 980 |  | $ | 1,119 |  | $ | — |  | $ | 2,623
Individually evaluated for impairment: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Balance in allowance |  | $ | 220 |  | $ | — |  | $ | 58 |  | $ | 532 |  | $ | — |  | $ | 810
Related loan balance |  |  | 220 |  |  | — |  |  | 175 |  |  | 1,345 |  |  | — |  |  | 1,740
Collectively evaluated for impairment: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Balance in allowance |  | $ | 27 |  | $ | 277 |  | $ | 922 |  | $ | 587 |  | $ | — |  | $ | 1,813
Related loan balance |  |  | 3,824 |  |  | 68,766 |  |  | 95,873 |  |  | 102,242 |  |  | — |  |  | 270,705
|  | Commercial |  |  |  |  | Consumer |  |  |  |  |  |  |  |  |
December 31, |  | 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 |  | $ | 252 |  | $ | — |  | $ | 531
Related loan balance |  |  | 229 |  |  | 1,413 |  |  | 503 |  |  | 2,872 |  |  | — |  |  | 5,017
Collectively evaluated for impairment: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Balance in allowance |  | $ | 56 |  | $ | 259 |  | $ | 826 |  | $ | 799 |  | $ | 13 |  | $ | 1,953
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 September 30, 2017 and September 30, 2016.
|  | Commercial |  |  |  | Consumer |  |  |  |
|  | and |  | Commercial |  | and |  | Residential |  |
|  | Industrial |  | Real Estate |  | Indirect |  | Real Estate |  | Totals
December 31, 2016 Balance |  | — |  | 647 |  | 456 |  | 2,648 |  | 3,751
Transfers into non-accrual |  | 48 |  | — |  | 586 |  | 605 |  | 1,239
Transfers to OREO |  | — |  | — |  | — |  | — |  | —
Loans paid down/payoffs |  | — |  | (16) |  | (144) |  | (316) |  | (476)
Loans returned to accrual status |  | — |  | (132) |  | (159) |  | — |  | (291)
Loans charged off |  | — |  | — |  | (354) |  | (3) |  | (357)
September 30, 2017 |  | 48 |  | 499 |  | 385 |  | 2,934 |  | 3,866
December 31, 2015 |  | — |  | 300 |  | 831 |  | 2,575 |  | 3,706
Transfers into non-accrual |  | — |  | 325 |  | 759 |  | 103 |  | 1,187
Transfers to OREO |  | — |  | — |  | — |  | — |  | —
Loans paid down/payoffs |  | — |  | (10) |  | (482) |  | (354) |  | (846)
Loans returned to accrual status |  | — |  | — |  | (177) |  | (135) |  | (312)
Loans charged off |  | — |  | — |  | (524) |  | (854) |  | (1,378)
September 30, 2016 |  | — |  | 615 |  | 407 |  | 1,335 |  | 2,357
Credit Quality Information The following tables represent credit exposures by creditworthiness category for the quarter ending September 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:
September 30, 2017 |  | Commercial |  |  |  |  | Consumer |  |  |  |  |  |
|  | and |  | Commercial |  | and |  | Residential |  |  |
(dollars in thousands) |  | Industrial |  | Real Estate |  | Indirect |  | Real Estate |  | Total
Pass |  | $ | 3,825 |  | $ | 67,124 |  | $ | 94,619 |  | $ | 100,210 |  | $ | 265,778
Special mention |  |  | — |  |  | 437 |  |  | 834 |  |  | 479 |  |  | 1,750
Substandard |  |  | 219 |  |  | 1,122 |  |  | 514 |  |  | 2,898 |  |  | 4,753
Doubtful |  |  | — |  |  | 83 |  |  | 82 |  |  | — |  |  | 165
Loss |  |  | — |  |  | — |  |  | — |  |  | — |  |  | —
|  | $ | 4,044 |  | $ | 68,766 |  | $ | 96,049 |  | $ | 103,587 |  | $ | 272,446
Non-accrual |  |  | 48 |  |  | 499 |  |  | 385 |  |  | 2,934 |  |  | 3,866
Troubled debt restructures |  |  | 219 |  |  | — |  |  | 33 |  |  | 47 |  |  | 299
Number of TDRs accounts |  |  | 1 |  |  | — |  |  | 1 |  |  | 1 |  |  | 3
Non-performing TDRs |  |  | — |  |  | — |  |  | 33 |  |  | 47 |  |  | 80
Number of non-performing TDR accounts |  |  | — |  |  | — |  |  | 1 |  |  | 1 |  |  | 2
December 31, 2016 |  | Commercial |  |  |  |  | Consumer |  |  |  |  |  |
|  | 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
Number of non-performing TDR accounts |  |  | — |  |  | — |  |  | 1 |  |  | 1 |  |  | 2

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