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Allowance for Loan Losses
 6 Months Ended
Jun. 30, 2015
Allowance for Loan Losses
Note 6: Allowance for Loan Losses

Allowance for Loan Losses

A disaggregation of and an analysis of the change in the allowance for loan losses by segment is shown below.

 

(Dollars in thousands)    Mortgage
Loans on
Real Estate		      Commercial
and
Industrial		      Consumer
Loans		      Total  

For the Three Months Ended June 30, 2015

            

ALLOWANCE FOR LOAN LOSSES:

            

Beginning Balance

    $ 2,763       $ 315       $ 169       $ 3,247   

(Charge-offs)

      —           —           (54 )       (54 ) 

Recoveries

      5         —           36         41   

Provision

      121         105         (21 )       205   
  

 

 

     

 

 

     

 

 

     

 

 

  

Ending Balance

    $ 2,889       $ 420       $ 130       $ 3,439   
  

 

 

     

 

 

     

 

 

     

 

 

  

Individually evaluated for impairment

    $ 801       $ 122       $ —         $ 923   

Collectively evaluated for impairment

      2,088         298         130         2,516   
     Mortgage
Loans on
Real Estate		      Commercial
and
Industrial		      Consumer
Loans		      Total  

For the Three Months Ended June 30, 2014

            

ALLOWANCE FOR LOAN LOSSES:

            

Beginning Balance

    $ 2,497       $ 248       $ 205       $ 2,950   

(Charge-offs)

      (75 )       —           (12 )       (87 ) 

Recoveries

      8         —           5         13   

Provision

      159         (37 )       (25 )       97   
  

 

 

     

 

 

     

 

 

     

 

 

  

Ending Balance

    $ 2,589       $ 211       $ 173       $ 2,973   
  

 

 

     

 

 

     

 

 

     

 

 

  

Individually evaluated for impairment

    $ 724       $ —         $ 32       $ 756   

Collectively evaluated for impairment

      1,865         211         141         2,217   

 

(Dollars in thousands)    Mortgage
Loans on
Real Estate		      Commercial
and
Industrial		      Consumer
Loans		      Total  

For the Six Months Ended June 30, 2015

            

ALLOWANCE FOR LOAN LOSSES:

            

Beginning Balance

    $ 2,778       $ 323       $ 104       $ 3,205   

(Charge-offs)

      (1 )       —           (86 )       (87 ) 

Recoveries

      10         —           41         51   

Provision

      102         97         71         270   
  

 

 

     

 

 

     

 

 

     

 

 

  

Ending Balance

    $ 2,889       $ 420       $ 130       $ 3,439   
  

 

 

     

 

 

     

 

 

     

 

 

  
     Mortgage
Loans on
Real Estate		      Commercial
and
Industrial		      Consumer
Loans		      Total  

For the Six Months Ended June 30, 2014

            

ALLOWANCE FOR LOAN LOSSES:

            

Beginning Balance

    $ 2,465       $ 256       $ 204       $ 2,925   

(Charge-offs)

      (214 )       —           (21 )       (235 ) 

Recoveries

      14         —           7         21   

Provision

      324         (45 )       (17 )       262   
  

 

 

     

 

 

     

 

 

     

 

 

  

Ending Balance

    $ 2,589       $ 211       $ 173       $ 2,973   
  

 

 

     

 

 

     

 

 

     

 

 

  

Loan receivables evaluated for impairment individually and collectively by segment as of June 30, 2015 and December 31, 2014 are as follows:

 

(Dollars in thousands)

As of June 30, 2015

    Mortgage
Loans
on Real Estate		      Commercial
and
Industrial		      Consumer
Loans		      Total  

Individually evaluated for impairment

    $ 9,645       $ 122       $ 3       $ 9,770   

Collectively evaluated for impairment

      270,272         30,879         5,620         306,771   
  

 

 

     

 

 

     

 

 

     

 

 

  

Total Gross Loans

    $ 279,917       $ 31,001       $ 5,623       $ 316,541   
  

 

 

     

 

 

     

 

 

     

 

 

  

As of December 31, 2014

    Mortgage
Loans on
Real Estate		      Commercial
and
Industrial		      Consumer
Loans		      Total  

Individually evaluated for impairment

    $ 6,842       $ —         $ 16       $ 6,858   

Collectively evaluated for impairment

      251,861         34,002         5,333         291,196   
  

 

 

     

 

 

     

 

 

     

 

 

  

Total Gross Loans

    $ 258,703       $ 34,002       $ 5,349       $ 298,054   
  

 

 

     

 

 

     

 

 

     

 

 

  

 

Internal Risk Rating Grades

Internal risk rating grades are generally assigned to commercial loans not secured by real estate, commercial mortgages, residential mortgages greater than $1 million, smaller residential mortgages which are impaired, loans to real estate developers and contractors, consumer loans greater than $250,000 with chronic delinquency, and TDRs, as shown in the following table. The grading analysis estimates the capability of the borrower to repay the contractual obligations of the loan agreements as scheduled. Risk grades (refer to Note 2) are evaluated as new information becomes available for each borrowing relationship or at least quarterly.

 

(Dollars in thousands)

As of June 30, 2015

    Construction,
Land and
Land
Development		      Farmland      Commercial
Mortgages
(Non-Owner
Occupied)		      Commercial
Mortgages
(Owner
Occupied)		      Commercial
and
Industrial		      Total  

Grade:

                  

Pass

    $ 36,215       $ 1,080       $ 18,546       $ 27,518       $ 29,267       $ 112,626   

Watch

      5,497         —           1,703         3,299         1,228         11,727   

Special mention

      1,102         —           —           3,484         273         4,859   

Substandard

      1,080         —           1,669         2,140         233         5,122   

Doubtful

      —           —           —           —           —           —     
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Total

    $ 43,894       $ 1,080       $ 21,918       $ 36,441       $ 31,001       $ 134,334   
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

 

As of December 31, 2014

    Construction,
Land and
Land
Development		      Farmland      Commercial
Mortgages
(Non-Owner
Occupied)		      Commercial
Mortgages
(Owner
Occupied)		      Commercial
and
Industrial		      Total  

Grade:

                  

Pass

    $ 34,913       $ 1,128       $ 16,426       $ 23,967       $ 31,041       $ 107,475   

Watch

      5,649         —           3,770         4,430         2,492         16,341   

Special mention

      1,403         —           —           2,789         154         4,346   

Substandard

      1,083         —           338         2,140         315         3,876   

Doubtful

      —           —           —           —           —           —     
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Total

    $ 43,048       $ 1,128       $ 20,534       $ 33,326       $ 34,002       $ 132,038   
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Loans not assigned internal risk rating grades are comprised of smaller residential mortgages and smaller consumer loans. Payment activity of these loans is reviewed monthly by management. However, some of these loans are graded when the borrower’s total exposure to the Bank exceeds the limits noted above. Loans are considered to be nonperforming when they are delinquent by 90 days or more or non-accruing and credit risk is primarily evaluated by delinquency status, as shown in the table below.

 

(Dollars in thousands)           Residential                

As of June 30, 2015

PAYMENT ACTIVITY STATUS

    Residential
First
Mortgages (1)		      Revolving
and Junior
Mortgages (2)		      Consumer
Loans (3)		      Total  

Performing

    $ 148,999       $ 26,247       $ 5,618       $ 180,864   

Nonperforming

      1,223         115         5         1,343   
  

 

 

     

 

 

     

 

 

     

 

 

  

Total

    $ 150,222       $ 26,362       $ 5,623       $ 182,207   
  

 

 

     

 

 

     

 

 

     

 

 

  

 

As of December 31, 2014

PAYMENT ACTIVITY STATUS

    Residential
First
Mortgages (4)		      Residential
Revolving
and Junior
Mortgages (5)		      Consumer
Loans (6)		      Total  

Performing

    $ 134,908       $ 25,369       $ 5,234       $ 165,511   

Nonperforming

      359         31         115         505   
  

 

 

     

 

 

     

 

 

     

 

 

  

Total

    $ 135,267       $ 25,400       $ 5,349       $ 166,016   
  

 

 

     

 

 

     

 

 

     

 

 

  

 

(1) Residential First Mortgages which have been assigned a risk rating grade of Substandard totaled $1.9 million as of June 30, 2015.
(2) Residential Revolving and Junior Mortgages which have been assigned a risk rating grade of Substandard totaled $216 thousand as of June 30, 2015.
(3) Consumer Loans which have been assigned a risk rating grade of Substandard were zero as of June 30, 2015.
(4) Residential First Mortgages which have been assigned a risk rating grade of Substandard totaled $2.1 million as of December 31, 2014.
(5) Residential Revolving and Junior Mortgages which have been assigned a risk rating grade of Substandard totaled $219 thousand as of December 31, 2014.
(6) Consumer Loans which have been assigned a risk rating grade of Substandard totaled $1 thousand as of December 31, 2014.

 

Impaired Loans

The following tables show the Company’s recorded investment and the customers’ unpaid principal balances for impaired loans, with the associated allowance amount, if applicable, as of June 30, 2015 and December 31, 2014, along with the average recorded investment and interest income recognized for the three and six months ended June 30, 2015 and 2014, respectively.

 

(Dollars in thousands)   As of June 30, 2015     As of December 31, 2014  

IMPAIRED LOANS

                                    
    Recorded
Investment		     Customers’ Unpaid
Principal Balance		     Related
Allowance		     Recorded
Investment		     Customers’ Unpaid
Principal Balance		     Related
Allowance		  

With no related allowance:

            

Construction, land and land development

   $ 448      $ 452      $ —        $ 450      $ 452      $ —     

Residential First Mortgages

     1,957        1,981        —          1,568        1,584        —     

Residential Revolving and Junior Mortgages (1)

     50        50        —          50        50        —     

Commercial Mortgages (Non-owner occupied)

     1,309        1,309        —          264        264        —     

Commercial Mortgages (Owner occupied)

     1,936        1,969        —          1,887        1,916        —     

Commercial and Industrial

     —          —          —          —          —          —     

Consumer (2)

     3        3        —          5        5        —     
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
    5,703        5,764        —          4,224        4,271        —     
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

With an allowance recorded:

            

Construction, land and land development

     270        292        128        277        292        144   

Residential First Mortgages

     2,154        2,154        356        2,173        2,173        437   

Residential Revolving and Junior Mortgages (1)

     173        173        83        173        173        84   

Commercial Mortgages (Non-owner occupied)

     —          —          —          —          —          —     

Commercial Mortgages (Owner occupied)

     1,348        1,356        234        —          —          —     

Commercial and Industrial

     122        122        122        —          —          —     

Consumer (2)

     —          —          —          11        11        11   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
    4,067        4,097        923        2,634        2,649        676   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total Impaired Loans:

            

Construction, land and land development

     718        744        128        727        744        144   

Residential First Mortgages

     4,111        4,135        356        3,741        3,757        437   

Residential Revolving and Junior Mortgages (1)

     223        223        83        223        223        84   

Commercial Mortgages (Non-owner occupied)

     1,309        1,309        —          264        264        —     

Commercial Mortgages (Owner occupied)

     3,284        3,325        234        1,887        1,916        —     

Commercial and Industrial

     122        122        122        —          —          —     

Consumer (2)

     3        3        —          16        16        11   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
  $ 9,770      $ 9,861      $ 923      $ 6,858      $ 6,920      $ 676   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

(1) Junior mortgages include equity lines.
(2) Includes credit cards.

 

     For the three months ended      For the three months ended  
     June 30, 2015      June 30, 2014  
(Dollars in thousands)    Average
Recorded
Investment		      Interest
Income
Recognized		      Average
Recorded
Investment		      Interest
Income
Recognized		  

With no related allowance:

            

Construction, land and land development

    $ 449       $ —         $ 451       $ 1   

Residential First Mortgages

      1,761         18         1,042         10   

Residential Revolving and Junior Mortgages (1)

      50         1         —           —     

Commercial Mortgages (Non-owner occupied)

      786         14         264         4   

Commercial Mortgages (Owner occupied)

      1,552         18         1,917         20   

Commercial and Industrial

      —           —           —           —     

Consumer (2)

      4         —           —           —     
  

 

 

     

 

 

     

 

 

     

 

 

  
     4,602         51         3,674         35   
  

 

 

     

 

 

     

 

 

     

 

 

  

With an allowance recorded:

            

Construction, land and land development

      272         1         288         1   

Residential First Mortgages

      2,160         26         2,186         26   

Residential Revolving and Junior Mortgages (1)

      173         2         174         2   

Commercial Mortgages (Non-owner occupied)

      —           —           —           —     

Commercial Mortgages (Owner occupied)

      1,026         8         —           —     

Commercial and Industrial

      123         —           —           —     

Consumer (2)

      —           —           38         1   
  

 

 

     

 

 

     

 

 

     

 

 

  
     3,754         37         2,686         30   
  

 

 

     

 

 

     

 

 

     

 

 

  

Total

            

Construction, land and land development

      721         1         739         2   

Residential First Mortgages

      3,921         44         3,228         36   

Residential Revolving and Junior Mortgages (1)

      223         3         174         2   

Commercial Mortgages (Non-owner occupied)

      786         14         264         4   

Commercial Mortgages (Owner occupied)

      2,578         26         1,917         20   

Commercial and Industrial

      123         —           —           —     

Consumer (2)

      4         —           38         1   
  

 

 

     

 

 

     

 

 

     

 

 

  
   $ 8,356       $ 88       $ 6,360       $ 65   
  

 

 

     

 

 

     

 

 

     

 

 

  

 

(1) Junior mortgages include equity lines.
(2) Includes credit cards.

 

     For the six months ended
June 30, 2015		      For the six months ended
June 30, 2014		  
(Dollars in thousands)    Average
Recorded
Investment		      Interest
Income
Recognized		      Average
Recorded
Investment		      Interest
Income
Recognized		  

With no related allowance:

            

Construction, land and land development

    $ 449       $ —         $ 452       $ 2   

Residential First Mortgages

      1,696         36         1,046         21   

Residential Revolving and Junior Mortgages (1)

      50         2         —           —     

Commercial Mortgages (Non-owner occupied)

      612         18         264         8   

Commercial Mortgages (Owner occupied)

      1,429         27         1,924         42   

Commercial and Industrial

      —           —           —           —     

Consumer (2)

      4         —           —           —     
  

 

 

     

 

 

     

 

 

     

 

 

  
     4,240         83         3,686         73   
  

 

 

     

 

 

     

 

 

     

 

 

  

With an allowance recorded:

            

Construction, land and land development

      274         2         242         1   

Residential First Mortgages

      2,164         52         2,190         47   

Residential Revolving and Junior Mortgages (1)

      173         4         174         4   

Commercial Mortgages (Non-owner occupied)

      —           —           —           —     

Commercial Mortgages (Owner occupied)

      919         12         —           —     

Commercial and Industrial

      82         —           —           —     

Consumer (2)

      —           —           38         2   
  

 

 

     

 

 

     

 

 

     

 

 

  
     3,612         70         2,644         54   
  

 

 

     

 

 

     

 

 

     

 

 

  

Total

            

Construction, land and land development

      723         2         694         3   

Residential First Mortgages

      3,860         88         3,236         68   

Residential Revolving and Junior Mortgages (1)

      223         6         174         4   

Commercial Mortgages (Non-owner occupied)

      612         18         264         8   

Commercial Mortgages (Owner occupied)

      2,348         39         1,924         42   

Commercial and Industrial

      82         —           —           —     

Consumer (2)

      4         —           38         2   
  

 

 

     

 

 

     

 

 

     

 

 

  
   $ 7,852       $ 153       $ 6,330       $ 127   
  

 

 

     

 

 

     

 

 

     

 

 

  

 

(1) Junior mortgages include equity lines.
(2) Includes credit cards.

Smaller non-accruing loans and non-accruing loans that are not graded because they are included in homogenous pools generally do not meet the criteria for impairment testing, and are therefore excluded from impaired loan disclosures. At June 30, 2015 and December 31, 2014, non-accruing loans excluded from impaired loan disclosure totaled $591 thousand and $663 thousand, respectively. If interest on these non-accruing loans had been accrued, such income would have approximated $4 thousand and $6 thousand during the three months ended June 30, 2015 and 2014, respectively, and $8 thousand and $13 thousand during the six months ended June 30, 2015 and 2014, respectively.

 

Loan Modifications

Loans modified as TDRs are considered impaired and are individually evaluated for the amount of impairment in the ALL. The following table presents, by segments of loans, information related to loans modified as TDRs during the three and six months ended June 30, 2015 and 2014.

 

     For the three months ended      For the three months ended  
     June 30, 2015      June 30, 2014  

(Dollars in thousands)

TROUBLED DEBT RESTRUCTURINGS

    Number of
Loans		      Pre-Modification
Outstanding
Recorded
Investment		      Post-Modification
Outstanding
Recorded
Investment		      Number of
Loans		      Pre-Modification
Outstanding
Recorded
Investment		      Post-Modification
Outstanding
Recorded
Investment		  

Construction, land and land development (1)

      —         $ —         $ —           2       $ 282       $ 282   

 

(1) Modifications were an extension of loan terms.

 

     For the six months ended      For the six months ended  
     June 30, 2015      June 30, 2014  

(Dollars in thousands)

TROUBLED DEBT RESTRUCTURINGS

    Number of
Loans		      Pre-Modification
Outstanding
Recorded
Investment		      Post-Modification
Outstanding
Recorded
Investment		      Number of
Loans		      Pre-Modification
Outstanding
Recorded
Investment		      Post-Modification
Outstanding
Recorded
Investment		  

Construction, land and land development (1)

      —         $ —         $ —           2       $ 282       $ 282   

Commercial mortgages (Owner occupied) (2)

      1         105         124         —           —           —     

 

(1) Modifications were an extension of loan terms.
(2) Modifications were capitalization of interest.

 

(Dollars in thousands)    For the three months ended
June 30, 2015		      For the three months ended
June 30, 2014		  

TROUBLED DEBT RESTRUCTURINGS THAT SUBSEQUENTLY DEFAULTED

    Number of
Loans		      Recorded
Investment		      Number of
Loans		      Recorded
Investment		  

Residential revolving and junior mortgages

      —         $ —           1       $ 75   
(Dollars in thousands)    For the six months ended
June 30, 2015		      For the six months ended
June 30, 2014		  

TROUBLED DEBT RESTRUCTURINGS THAT SUBSEQUENTLY DEFAULTED

    Number of
Loans		      Recorded
Investment		      Number of
Loans		      Recorded
Investment		  

Residential revolving and junior mortgages

      —         $ —           1       $ 75   

Commercial mortgages (Owner occupied)

      1         124         —           —     

Other Real Estate Owned

The table below details the properties included in other real estate owned (“OREO”) as of June 30, 2015 and December 31, 2014. There was one collateralized consumer residential mortgage loan with a balance of $28 thousand in the process of foreclosure as of June 30, 2015. The property was foreclosed on August 3, 2015.

 

     As of June 30, 2015      As of December 31, 2014  
(Dollars in thousands)    No. of
Properties		      Carrying
Value		      No. of
Properties		      Carrying
Value		  

Residential

      7       $ 1,407         10       $ 1,559   

Land lots

      7         442         13         587   

Convenience stores

      2         234         2         234   

Restaurant

      1         107         1         107   

Commercial properties

      2         434         1         304   
  

 

 

     

 

 

     

 

 

     

 

 

  

Total

      19       $ 2,624         27       $ 2,791   
  

 

 

     

 

 

     

 

 

     

 

 

  

Included in other assets as of June 30, 2015, was one residential property purchased in 2013 from a related party with a value of $724 thousand and a former branch, which was closed April 30, 2015, with a value of $398 thousand. As of December 31, 2014, the residential property was included in other assets and had a value of $771 thousand. Both properties are being marketed for sale.