Note 6. Loan Quality and Allowance for Loan Losses

The following table presents, by class, the activity in the Allowance for Loan Losses (ALL) for the periods shown:


	Residential Real Estate 1-4 Family
	First		Junior Liens &				Commercial
(Dollars in thousands)	Liens		Lines of Credit		Construction		Real Estate		Commercial		Consumer		Unallocated		Total

ALL at June 30, 2018	$	1,022	$	318	$	282	$	7,028	$	2,233	$	107	$	1,492	$	12,482
Charge-offs		—		—		—		—		(208)		(23)		—		(231)
Recoveries		—		—		—		1		19		5		—		25
Provision		(16)		(4)		(4)		242		122		12		(102)		250
ALL at September 30, 2018	$	1,006	$	314	$	278	$	7,271	$	2,166	$	101	$	1,390	$	12,526

ALL at December 31, 2017	$	1,060	$	330	$	224	$	6,526	$	2,110	$	105	$	1,437	$	11,792
Charge-offs		—		—		—		—		(8,944)		(78)		—		(9,022)
Recoveries		1		—		—		17		135		24		—		177
Provision		(55)		(16)		54		728		8,865		50		(47)		9,579
ALL at September 30, 2018	$	1,006	$	314	$	278	$	7,271	$	2,166	$	101	$	1,390	$	12,526

ALL at June 30, 2017	$	1,075	$	322	$	281	$	6,052	$	2,023	$	100	$	1,454	$	11,307
Charge-offs		—		—		—		(9)		(6)		(31)		—		(46)
Recoveries		1		5		—		17		5		4		—		32
Provision		(15)		(3)		(42)		198		(19)		19		112		250
ALL at September 30, 2017	$	1,061	$	324	$	239	$	6,258	$	2,003	$	92	$	1,566	$	11,543

ALL at December 31, 2016	$	1,105	$	323	$	224	$	6,109	$	1,893	$	100	$	1,321	$	11,075
Charge-offs		(13)		—		—		(14)		(8)		(83)		—		(118)
Recoveries		2		6		—		17		111		30		—		166
Provision		(33)		(5)		15		146		7		45		245		420
ALL at September 30, 2017	$	1,061	$	324	$	239	$	6,258	$	2,003	$	92	$	1,566	$	11,543

The following table presents, by class, loans that were evaluated for the ALL under the specific reserve (individually) and those that were evaluated under the general reserve (collectively) and the amount of the ALL established in each class as of September 30, 2018 and December 31, 2017:



	Residential Real Estate 1-4 Family
	First		Junior Liens &				Commercial
(Dollars in thousands)	Liens		Lines of Credit		Construction		Real Estate		Commercial		Consumer		Unallocated		Total

September 30, 2018
Loans evaluated for ALL:
Individually	$	408	$	—	$	460	$	10,574	$	3,106	$	—	$	—	$	14,548
Collectively		149,763		48,084		11,829		465,264		276,729		4,766		—		956,435
Total	$	150,171	$	48,084	$	12,289	$	475,838	$	279,835	$	4,766	$	—	$	970,983

ALL established for loans evaluated:
Individually	$	—	$	—	$	—	$	—	$	181	$	—	$	—	$	181
Collectively		1,006		314		278		7,271		1,985		101		1,390		12,345
ALL at September 30, 2018	$	1,006	$	314	$	278	$	7,271	$	2,166	$	101	$	1,390	$	12,526

December 31, 2017
Loans evaluated for ALL:
Individually	$	459	$	—	$	466	$	10,981	$	—	$	—	$	—	$	11,906
Collectively		157,975		50,371		9,435		417,447		291,519		5,047		—		931,794
Total	$	158,434	$	50,371	$	9,901	$	428,428	$	291,519	$	5,047	$	—	$	943,700

ALL established for loans evaluated:
Individually	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Collectively		1,060		330		224		6,526		2,110		105		1,437		11,792
ALL at December 31, 2017	$	1,060	$	330	$	224	$	6,526	$	2,110	$	105	$	1,437	$	11,792

The following table shows additional information about those loans considered to be impaired at September 30, 2018 and December 31, 2017:



	Impaired Loans
	With No Allowance				With Allowance
(Dollars in thousands)			Unpaid				Unpaid
	Recorded		Principal		Recorded		Principal		Related
September 30, 2018	Investment		Balance		Investment		Balance		Allowance
Residential Real Estate 1-4 Family
First liens	$	754	$	870	$	—	$	—	$	—
Junior liens and lines of credit		66		66		—		—		—
Total		820		936		—		—		—
Residential real estate - construction		460		531		—		—		—
Commercial real estate		10,715		11,248		—		—		—
Commercial		3,082		10,653		181		181		181
Total	$	15,077	$	23,368	$	181	$	181	$	181



December 31, 2017
Residential Real Estate 1-4 Family
First liens	$	869	$	950	$	—	$	—	$	—
Junior liens and lines of credit		—		—		—		—		—
Total		869		950		—		—		—
Residential real estate - construction		466		531		—		—		—
Commercial real estate		11,061		11,541		—		—		—
Commercial		187		201		—		—		—
Total	$	12,583	$	13,223	$	—	$	—	$	—

The following table shows the average of impaired loans and related interest income for the three and nine months ended September 30, 2018 and 2017:


	Three Months Ended				Nine Months Ended
	September 30, 2018				September 30, 2018
	Average		Interest		Average		Interest
(Dollars in thousands)	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
Residential Real Estate 1-4 Family
First liens	$	1,091	$	10	$	899	$	31
Junior liens and lines of credit		268		2		750		2
Total		1,359		12		1,649		33
Residential real estate - construction		461		—		463		—
Commercial real estate		10,789		107		10,314		316
Commercial		3,465		—		5,284		—
Total	$	16,074	$	119	$	17,710	$	349

	Three Months Ended				Nine Months Ended
	September 30, 2017				September 30, 2017
	Average		Interest		Average		Interest
(Dollars in thousands)	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
Residential Real Estate 1-4 Family
First liens	$	1,157	$	10	$	1,152	$	32
Junior liens and lines of credit		54		—		85		—
Total		1,211		10		1,237		32
Residential real estate - construction		471		—		475		—
Commercial real estate		11,218		109		12,216		328
Commercial		292		—		263		—
Total	$	13,192	$	119	$	14,191	$	360

The following table presents the aging of payments of the loan portfolio:



(Dollars in thousands)			Loans Past Due and Still Accruing										Total
	Current		30-59 Days		60-89 Days		90 Days+		Total		Non-Accrual		Loans
September 30, 2018
Residential Real Estate 1-4 Family
First liens	$	149,366	$	503	$	231	$	—	$	734	$	71	$	150,171
Junior liens and lines of credit		47,907		40		71		43		154		23		48,084
Total		197,273		543		302		43		888		94		198,255
Residential real estate - construction		11,359		70		400		—		470		460		12,289
Commercial real estate		468,202		2,224		3,606		—		5,830		1,806		475,838
Commercial		276,180		328		64		—		392		3,263		279,835
Consumer		4,726		39		1		—		40		—		4,766
Total	$	957,740	$	3,204	$	4,373	$	43	$	7,620	$	5,623	$	970,983



December 31, 2017
Residential Real Estate 1-4 Family
First liens	$	157,247	$	485	$	534	$	—	$	1,019	$	168	$	158,434
Junior liens and lines of credit		50,202		139		30		—		169		—		50,371
Total		207,449		624		564		—		1,188		168		208,805
Residential real estate - construction		9,435		—		—		—		—		466		9,901
Commercial real estate		425,806		421		347		—		768		1,854		428,428
Commercial		291,221		111		—		—		111		187		291,519
Consumer		5,017		23		7		—		30		—		5,047
Total	$	938,928	$	1,179	$	918	$	—	$	2,097	$	2,675	$	943,700

The following table reports the internal credit rating for the loan portfolio. Consumer purpose loans are assigned a rating of either pass or substandard based on the performance status of the loans. Substandard consumer loans are comprised of loans 90 days or more past due and still accruing, and nonaccrual loans. Commercial purpose loans may be assigned any rating in accordance with the Bank’s internal risk rating system.



	Pass		Special Mention		Substandard		Doubtful
(Dollars in thousands)	(1-5)		(6)		(7)		(8)		Total

September 30, 2018
Residential Real Estate 1-4 Family
First liens	$	149,741	$	—	$	430	$	—	$	150,171
Junior liens and lines of credit		48,018		—		66		—		48,084
Total		197,759		—		496		—		198,255
Residential real estate - construction		11,556		—		733		—		12,289
Commercial real estate		466,800		665		8,373		—		475,838
Commercial		275,249		—		4,586		—		279,835
Consumer		4,766		—		—		—		4,766
Total	$	956,130	$	665	$	14,188	$	—	$	970,983



December 31, 2017
Residential Real Estate 1-4 Family
First liens	$	157,395	$	—	$	1,039	$	—	$	158,434
Junior liens and lines of credit		50,371		—		—		—		50,371
Total		207,766		—		1,039		—		208,805
Residential real estate - construction		8,893		—		1,008		—		9,901
Commercial real estate		419,277		680		8,471		—		428,428
Commercial		289,916		—		1,603		—		291,519
Consumer		5,047		—		—		—		5,047
Total	$	930,899	$	680	$	12,121	$	—	$	943,700

The following table presents information on the Bank’s Troubled Debt Restructuring (TDR) loans:


								Troubled Debt Restructurings
								Within the Last 12 Months
								That Have Defaulted
(Dollars in thousands)	Troubled Debt Restructurings							On Modified Terms
	Number of	Recorded						Number of	Recorded
	Contracts	Investment		Performing*		Nonperforming*		Contracts	Investment
September 30, 2018
Residential real estate - construction	1	$	460	$	—	$	460	—	$	—
Residential real estate	4		683		683		—	—		—
Commercial real estate	11		10,574		8,909		1,665	—		—
Total	16	$	11,717	$	9,592	$	2,125	—	$	—


December 31, 2017
Residential real estate - construction	1	$	466	$	466	$	—	—	$	—
Residential real estate	5		737		701		36	—		—
Commercial real estate	11		10,983		10,388		595	—		—
Total	17	$	12,186	$	11,555	$	631	—	$	—

*The performing status is determined by the loan’s compliance with the modified terms.

There were no new TDR loans during 2018 and 2017.