4. Allowance for Loan Losses |
A summary of changes in the allowance for loan
losses (dollars in thousands) for June 30, 2017 and December 31, 2016 is as follows:
June 30, 2017 |
|
Beginning Balance |
|
|
Charge-offs |
|
|
Recoveries |
|
|
Provision |
|
|
Ending Balance |
|
|
Individually Evaluated for Impairment |
|
|
Collectively Evaluated for Impairment |
|
Allowance for loan losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction/Land Development |
|
$ |
3,381 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
(134 |
) |
|
$ |
3,247 |
|
|
$ |
1,981 |
|
|
$ |
1,266 |
|
Farmland |
|
|
34 |
|
|
|
- |
|
|
|
- |
|
|
|
(7 |
) |
|
|
27 |
|
|
|
- |
|
|
|
27 |
|
Real Estate |
|
|
843 |
|
|
|
- |
|
|
|
2 |
|
|
|
(73 |
) |
|
|
772 |
|
|
|
218 |
|
|
|
554 |
|
Multi-Family |
|
|
23 |
|
|
|
- |
|
|
|
- |
|
|
|
(7 |
) |
|
|
16 |
|
|
|
- |
|
|
|
16 |
|
Commercial Real Estate |
|
|
705 |
|
|
|
- |
|
|
|
8 |
|
|
|
(72 |
) |
|
|
641 |
|
|
|
- |
|
|
|
641 |
|
Home Equity – closed end |
|
|
75 |
|
|
|
6 |
|
|
|
- |
|
|
|
4 |
|
|
|
73 |
|
|
|
- |
|
|
|
73 |
|
Home Equity – open end |
|
|
470 |
|
|
|
1 |
|
|
|
- |
|
|
|
(92 |
) |
|
|
377 |
|
|
|
- |
|
|
|
377 |
|
Commercial & Industrial – Non-Real Estate |
|
|
586 |
|
|
|
31 |
|
|
|
54 |
|
|
|
(201 |
) |
|
|
408 |
|
|
|
- |
|
|
|
408 |
|
Consumer |
|
|
78 |
|
|
|
23 |
|
|
|
5 |
|
|
|
46 |
|
|
|
106 |
|
|
|
- |
|
|
|
106 |
|
Dealer Finance |
|
|
1,289 |
|
|
|
941 |
|
|
|
618 |
|
|
|
525 |
|
|
|
1,491 |
|
|
|
18 |
|
|
|
1,473 |
|
Credit Cards |
|
|
59 |
|
|
|
28 |
|
|
|
16 |
|
|
|
11 |
|
|
|
58 |
|
|
|
- |
|
|
|
58 |
|
Total |
|
$ |
7,543 |
|
|
$ |
1,030 |
|
|
$ |
703 |
|
|
$ |
- |
|
|
$ |
7,216 |
|
|
$ |
2,217 |
|
|
$ |
4,999 |
|
December 31, 2016 |
|
Beginning Balance |
|
|
Charge-offs |
|
|
Recoveries |
|
|
Provision |
|
|
Ending Balance |
|
|
Individually Evaluated for Impairment |
|
|
Collectively Evaluated for Impairment |
|
Allowance for loan losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction/Land Development |
|
$ |
4,442 |
|
|
$ |
356 |
|
|
$ |
7 |
|
|
$ |
(712 |
) |
|
$ |
3,381 |
|
|
$ |
1,853 |
|
|
$ |
1,528 |
|
Farmland |
|
|
95 |
|
|
|
- |
|
|
|
- |
|
|
|
(61 |
) |
|
|
34 |
|
|
|
- |
|
|
|
34 |
|
Real Estate |
|
|
806 |
|
|
|
23 |
|
|
|
4 |
|
|
|
56 |
|
|
|
843 |
|
|
|
221 |
|
|
|
622 |
|
Multi-Family |
|
|
71 |
|
|
|
- |
|
|
|
- |
|
|
|
(48 |
) |
|
|
23 |
|
|
|
- |
|
|
|
23 |
|
Commercial Real Estate |
|
|
445 |
|
|
|
19 |
|
|
|
135 |
|
|
|
144 |
|
|
|
705 |
|
|
|
- |
|
|
|
705 |
|
Home Equity – closed end |
|
|
174 |
|
|
|
8 |
|
|
|
- |
|
|
|
(91 |
) |
|
|
75 |
|
|
|
- |
|
|
|
75 |
|
Home Equity – open end |
|
|
634 |
|
|
|
370 |
|
|
|
120 |
|
|
|
86 |
|
|
|
470 |
|
|
|
60 |
|
|
|
410 |
|
Commercial & Industrial – Non-Real Estate |
|
|
1,055 |
|
|
|
293 |
|
|
|
267 |
|
|
|
(443 |
) |
|
|
586 |
|
|
|
- |
|
|
|
586 |
|
Consumer |
|
|
108 |
|
|
|
37 |
|
|
|
19 |
|
|
|
(12 |
) |
|
|
78 |
|
|
|
- |
|
|
|
78 |
|
Dealer Finance |
|
|
836 |
|
|
|
1,081 |
|
|
|
417 |
|
|
|
1,117 |
|
|
|
1,289 |
|
|
|
20 |
|
|
|
1,269 |
|
Credit Cards |
|
|
115 |
|
|
|
74 |
|
|
|
54 |
|
|
|
(36 |
) |
|
|
59 |
|
|
|
- |
|
|
|
59 |
|
Total |
|
$ |
8,781 |
|
|
$ |
2,261 |
|
|
$ |
1,023 |
|
|
$ |
- |
|
|
$ |
7,543 |
|
|
$ |
2,154 |
|
|
$ |
5,389 |
|
The following table presents
the recorded investment in loans (dollars in thousands) based on impairment method as of June 30, 2017 and December 31, 2016:
June 30, 2017 |
|
Loan Receivable |
|
|
Individually Evaluated for Impairment |
|
|
Collectively Evaluated for Impairment |
|
Construction/Land Development |
|
$ |
73,184 |
|
|
$ |
10,993 |
|
|
$ |
62,191 |
|
Farmland |
|
|
15,024 |
|
|
|
1,858 |
|
|
|
13,166 |
|
Real Estate |
|
|
174,179 |
|
|
|
1,943 |
|
|
|
172,236 |
|
Multi-Family |
|
|
8,607 |
|
|
|
- |
|
|
|
8,607 |
|
Commercial Real Estate |
|
|
149,635 |
|
|
|
100 |
|
|
|
149,535 |
|
Home Equity – closed end |
|
|
11,392 |
|
|
|
- |
|
|
|
11,392 |
|
Home Equity –open end |
|
|
54,345 |
|
|
|
- |
|
|
|
54,345 |
|
Commercial & Industrial – Non-Real Estate |
|
|
35,708 |
|
|
|
165 |
|
|
|
35,543 |
|
Consumer |
|
|
7,387 |
|
|
|
11 |
|
|
|
7,376 |
|
Dealer Finance |
|
|
71,221 |
|
|
|
90 |
|
|
|
71,131 |
|
Credit Cards |
|
|
2,753 |
|
|
|
- |
|
|
|
2,753 |
|
|
|
$ |
603,435 |
|
|
$ |
15,160 |
|
|
$ |
588,275 |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016 |
|
Loan Receivable |
|
|
Individually Evaluated for Impairment |
|
|
Collectively Evaluated for Impairment |
|
Construction/Land Development |
|
$ |
76,172 |
|
|
$ |
9,888 |
|
|
$ |
66,284 |
|
Farmland |
|
|
12,901 |
|
|
|
- |
|
|
|
12,901 |
|
Real Estate |
|
|
172,758 |
|
|
|
1,974 |
|
|
|
170,784 |
|
Multi-Family |
|
|
7,605 |
|
|
|
- |
|
|
|
7,605 |
|
Commercial Real Estate |
|
|
150,061 |
|
|
|
2,910 |
|
|
|
147,151 |
|
Home Equity – closed end |
|
|
11,453 |
|
|
|
- |
|
|
|
11,453 |
|
Home Equity –open end |
|
|
54,420 |
|
|
|
- |
|
|
|
54,420 |
|
Commercial & Industrial – Non-Real Estate |
|
|
31,306 |
|
|
|
170 |
|
|
|
31,136 |
|
Consumer |
|
|
6,643 |
|
|
|
13 |
|
|
|
6,630 |
|
Dealer Finance |
|
|
65,495 |
|
|
|
87 |
|
|
|
65,408 |
|
Credit Cards |
|
|
2,822 |
|
|
|
- |
|
|
|
2,822 |
|
|
|
$ |
591,636 |
|
|
$ |
15,042 |
|
|
$ |
576,594 |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
The following table shows the Company’s
loan portfolio broken down by internal loan grade (dollars in thousands) as of June 30, 2107 and December 31, 2016:
June 30, 2017 |
|
Grade 1 Minimal Risk |
|
|
Grade 2 Modest Risk |
|
|
Grade 3 Average Risk |
|
|
Grade 4 Acceptable Risk |
|
|
Grade 5 Marginally Acceptable |
|
|
Grade 6 Watch |
|
|
Grade 7 Substandard |
|
|
Grade 8 Doubtful |
|
|
Total |
|
Construction/Land Development |
|
$ |
- |
|
|
$ |
602 |
|
|
$ |
13,683 |
|
|
$ |
34,210 |
|
|
$ |
9,709 |
|
|
$ |
5,588 |
|
|
$ |
9,392 |
|
|
$ |
- |
|
|
$ |
73,184 |
|
Farmland |
|
|
64 |
|
|
|
333 |
|
|
|
3,146 |
|
|
|
4,336 |
|
|
|
3,440 |
|
|
|
1,847 |
|
|
|
1,858 |
|
|
|
- |
|
|
|
15,024 |
|
Real Estate |
|
|
- |
|
|
|
1,104 |
|
|
|
53,276 |
|
|
|
91,305 |
|
|
|
20,840 |
|
|
|
5,162 |
|
|
|
2,492 |
|
|
|
- |
|
|
|
174,179 |
|
Multi-Family |
|
|
- |
|
|
|
270 |
|
|
|
4,935 |
|
|
|
3,221 |
|
|
|
181 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
8,607 |
|
Commercial Real Estate |
|
|
- |
|
|
|
2,771 |
|
|
|
38,935 |
|
|
|
95,832 |
|
|
|
10,241 |
|
|
|
1,265 |
|
|
|
591 |
|
|
|
- |
|
|
|
149,635 |
|
Home Equity – closed end |
|
|
- |
|
|
|
283 |
|
|
|
3,883 |
|
|
|
4,335 |
|
|
|
1,457 |
|
|
|
1,428 |
|
|
|
6 |
|
|
|
- |
|
|
|
11,392 |
|
Home Equity – open end |
|
|
84 |
|
|
|
1,962 |
|
|
|
16,294 |
|
|
|
31,336 |
|
|
|
4,046 |
|
|
|
173 |
|
|
|
450 |
|
|
|
- |
|
|
|
54,345 |
|
Commercial & Industrial (Non-Real Estate) |
|
|
293 |
|
|
|
840 |
|
|
|
13,218 |
|
|
|
19,125 |
|
|
|
1,485 |
|
|
|
735 |
|
|
|
12 |
|
|
|
- |
|
|
|
35,708 |
|
Consumer (excluding dealer) |
|
|
55 |
|
|
|
315 |
|
|
|
2,497 |
|
|
|
795 |
|
|
|
1,235 |
|
|
|
2,031 |
|
|
|
459 |
|
|
|
- |
|
|
|
7,387 |
|
Total |
|
$ |
496 |
|
|
$ |
8,480 |
|
|
$ |
149,867 |
|
|
$ |
284,495 |
|
|
$ |
52,634 |
|
|
$ |
18,229 |
|
|
$ |
15,260 |
|
|
$ |
- |
|
|
$ |
529,461 |
|
|
|
Credit Cards |
|
|
Dealer Finance |
|
Performing |
|
$ |
2,752 |
|
|
$ |
70,984 |
|
Non performing |
|
|
1 |
|
|
|
237 |
|
Total |
|
$ |
2,753 |
|
|
$ |
71,221 |
|
December 31, 2016 |
|
Grade 1 Minimal Risk |
|
|
Grade 2 Modest Risk |
|
|
Grade 3 Average Risk |
|
|
Grade 4 Acceptable Risk |
|
|
Grade 5 Marginally Acceptable |
|
|
Grade 6 Watch |
|
|
Grade 7 Substandard |
|
|
Grade 8 Doubtful |
|
|
Total |
|
Construction/Land Development |
|
$ |
- |
|
|
$ |
1,478 |
|
|
$ |
10,870 |
|
|
$ |
43,863 |
|
|
$ |
8,399 |
|
|
$ |
2,473 |
|
|
$ |
9,089 |
|
|
$ |
- |
|
|
$ |
76,172 |
|
Farmland |
|
|
65 |
|
|
|
- |
|
|
|
3,073 |
|
|
|
3,456 |
|
|
|
4,446 |
|
|
|
1,861 |
|
|
|
- |
|
|
|
- |
|
|
|
12,901 |
|
Real Estate |
|
|
- |
|
|
|
1,149 |
|
|
|
62,168 |
|
|
|
74,242 |
|
|
|
28,266 |
|
|
|
4,680 |
|
|
|
2,253 |
|
|
|
- |
|
|
|
172,758 |
|
Multi-Family |
|
|
- |
|
|
|
311 |
|
|
|
3,009 |
|
|
|
4,099 |
|
|
|
186 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
7,605 |
|
Commercial Real Estate |
|
|
- |
|
|
|
2,793 |
|
|
|
32,986 |
|
|
|
91,157 |
|
|
|
19,181 |
|
|
|
1,840 |
|
|
|
2,104 |
|
|
|
- |
|
|
|
150,061 |
|
Home Equity – closed end |
|
|
- |
|
|
|
150 |
|
|
|
3,966 |
|
|
|
4,139 |
|
|
|
1,746 |
|
|
|
1,414 |
|
|
|
38 |
|
|
|
- |
|
|
|
11,453 |
|
Home Equity – open end |
|
|
124 |
|
|
|
1,724 |
|
|
|
16,415 |
|
|
|
30,974 |
|
|
|
4,547 |
|
|
|
125 |
|
|
|
511 |
|
|
|
- |
|
|
|
54,420 |
|
Commercial & Industrial (Non-Real Estate) |
|
|
1,375 |
|
|
|
1,267 |
|
|
|
6,827 |
|
|
|
19,530 |
|
|
|
2,198 |
|
|
|
39 |
|
|
|
70 |
|
|
|
- |
|
|
|
31,306 |
|
Consumer (excluding dealer) |
|
|
67 |
|
|
|
174 |
|
|
|
1,837 |
|
|
|
607 |
|
|
|
1,242 |
|
|
|
2,252 |
|
|
|
466 |
|
|
|
- |
|
|
|
6,643 |
|
Total |
|
$ |
1,631 |
|
|
$ |
9,046 |
|
|
$ |
141,151 |
|
|
$ |
272,065 |
|
|
$ |
70,211 |
|
|
$ |
14,684 |
|
|
$ |
14,531 |
|
|
$ |
- |
|
|
$ |
523,319 |
|
|
|
Credit Cards |
|
|
Dealer Finance |
|
Performing |
|
$ |
2,822 |
|
|
$ |
65,291 |
|
Non performing |
|
|
- |
|
|
|
204 |
|
Total |
|
$ |
2,822 |
|
|
$ |
65,495 |
|
Description of internal loan grades:
Grade 1 – Minimal Risk: Excellent
credit, superior asset quality, excellent debt capacity and coverage, and recognized management capabilities.
Grade 2 – Modest Risk: Borrower
consistently generates sufficient cash flow to fund debt service, excellent credit, above average asset quality and liquidity.
Grade 3 – Average Risk: Borrower
generates sufficient cash flow to fund debt service. Employment (or business) is stable with good future trends. Credit
is very good.
Grade 4 – Acceptable Risk: Borrower’s
cash flow is adequate to cover debt service; however, unusual expenses or capital expenses must be covered through additional long
term debt. Employment (or business) stability is reasonable, but future trends may exhibit slight weakness. Credit history
is good. No unpaid judgments or collection items appearing on credit report.
Grade 5 – Marginally acceptable: Credit
to borrowers who may exhibit declining earnings, may have leverage that is materially above industry averages, liquidity may be
marginally acceptable. Employment or business stability may be weak or deteriorating. May be currently performing
as agreed, but would be adversely affected by developing factors such as layoffs, illness, reduced hours or declining business
prospects. Credit history shows weaknesses, past dues, paid or disputed collections and judgments, but does not
include borrowers that are currently past due on obligations or with unpaid, undisputed judgments.
Grade 6 – Watch: Loans
are currently protected, but are weak due to negative balance sheet or income statement trends. There may be a lack
of effective control over collateral or the existence of documentation deficiencies. These loans have potential weaknesses
that deserve management’s close attention. Other reasons supporting this classification include adverse economic
or market conditions, pending litigation or any other material weakness. Existing loans that become 60 or more days
past due are placed in this category pending a return to current status.
Grade 7 – Substandard: Loans having
well-defined weaknesses where a payment default and or loss is possible, but not yet probable. Cash flow is inadequate
to service the debt under the current payment, or terms, with prospects that the condition is permanent. Loans classified
as substandard are inadequately protected by the current net worth and paying capacity of the borrower and there is the likelihood
that collateral will have to be liquidated and/or guarantor(s) called upon to repay the debt. Generally, the loan is
considered collectible as to both principal and interest, primarily because of collateral coverage, however, if the deficiencies
are not corrected quickly; there is a probability of loss.
Grade 8 – Doubtful: The
loan has all the characteristics of a substandard credit, but available information indicates it is unlikely the loan will be repaid
in its entirety. Cash flow is insufficient to service the debt. It may be difficult to project the exact
amount of loss, but the probability of some loss is great. Loans are to be placed on non-accrual status when any portion
is classified doubtful.
Credit card and dealer finance loans are classified
as performing or nonperforming. A loan is nonperforming when payments of principal and interest are past due 90 days
or more.
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