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Note 4 - Allowance for Loan Losses, Nonperforming Assets and Impaired Loans
 9 Months Ended
Sep. 30, 2016
Notes to Financial Statements  
Allowance for Credit Losses [Text Block]
Note 4:
     Allowance for Loan Losses, Nonperforming Assets and Impaired Loans
 
The allowance for loan losses methodology incorporates individual evaluation of impaired loans and collective evaluation of groups of non-impaired loans. The Company performs ongoing analysis of the loan portfolio to determine credit quality and to identify impaired loans. Credit quality is rated based on the loan’s payment history, the borrower’s current financial situation and the value of the underlying collateral.
Impaired loans are those loans that have been modified in a troubled debt restructure (“TDR” or “restructure”) and larger, non-homogeneous loans that are in nonaccrual or exhibit payment history or financial status that indicate the probability that collection will not occur when due according to the loan’s original contractual terms. Generally, impaired loans are given risk ratings that indicate higher risk, such as “classified” or “other assets especially mentioned.” Impaired loans are individually evaluated to determine appropriate reserves and are measured at the lower of the invested amount or the fair value. Impaired loans that are not troubled debt restructures and for which fair value measurement indicates an impairment loss are designated nonaccrual. A restructured loan that maintains current status for at least six months may be in accrual status. Please refer to Note 1 of the Company’s 2015 Form 10-K, “Summary of Significant Accounting Policies” for additional information on evaluation of impaired loans and associated specific reserves, and policies regarding nonaccruals, past due status and charge-offs.
Troubled debt restructures impact the estimation of the appropriate level of the allowance for loan losses. If the restructuring included forgiveness of a portion of principal, the charge-off is included in the historical charge-off rates incorporated in the collective evaluation methodology. Further, restructured loans are individually evaluated for impairment and any amount of book value that exceeds fair value is accrued in the allowance for loan losses. TDRs that experience a payment default are examined to determine whether the default indicates collateral dependency or a decline in estimates of cash flow used in the fair value measurement. TDRs that are determined to be collateral-dependent, as well as all impaired loans that are determined to be collateral dependent, are charged down to fair value net of estimated costs to sell. Deficiencies indicated by impairment measurements for TDRs that are not collateral dependent may be accrued in the allowance for loan losses or charged off if deemed uncollectible.
The Company evaluated characteristics in the loan portfolio and determined major segments and smaller classes within each segment. These characteristics include collateral type, repayment sources, and (if applicable) the borrower’s business model. The methodology for calculating reserves for collectively-evaluated loans is applied at the class level.
 
Portfolio Segments and Classes
The segments and classes used in determining the allowance for loan losses are as follows.
Real Estate Construction
Construction, residential
Construction, other
 
Consumer Real Estate
Equity lines
Residential closed-end first liens
Residential closed-end junior liens
Investor-owned residential real estate
 
Commercial Real Estate
Multifamily real estate
Commercial real estate, owner-occupied
Commercial real estate, other
Commercial Non Real Estate
Commercial and industrial
 
Public Sector and IDA
Public sector and IDA
 
Consumer Non Real Estate
Credit cards
Automobile
Other consumer loans
 
Historical Loss Rates
The Company’s allowance methodology for collectively-evaluated loans applies historical loss rates by class to current class balances as part of the process of determining required reserves. Class loss rates are calculated as the net charge-offs for the class as a percentage of average class balance. The Company averages loss rates for the most recent 8 quarters to determine the historical loss rate for each class.
Two loss rates for each class are calculated: total net charge-offs for the class as a percentage of average class loan balance (“class loss rate”), and total net charge-offs for the class as a percentage of average classified loans in the class (“classified loss rate”). Classified loans are those with risk ratings of “substandard”, “doubtful” or “loss”. Net charge-offs in both calculations include charge-offs and recoveries of classified and non-classified loans as well as those associated with impaired loans. Class historical loss rates are applied to non-classified loan balances at the reporting date, and classified historical loss rates are applied to classified loan balances that are not individually evaluated at the reporting date.
 
Risk Factors
In addition to historical loss rates, risk factors pertinent to credit risk for each class are analyzed to estimate reserves for collectively-evaluated loans. Factors include changes in national and local economic and business conditions, the nature and volume of classes within the portfolio, loan quality, loan officers’ experience, lending policies and the Company’s loan review system.
The analysis of certain factors results in standard allocations to all segments and classes. These factors include loan officers’ average years of experience, the risk from changes in loan review, unemployment levels, bankruptcy rates, the interest rate environment, and the competitive, legal and regulatory environments.
Factors analyzed for each class, with resultant allocations based upon the level of risk assessed for each class, include the risk from changes in lending policies, levels of past due loans, nonaccrual loans, current class balance as a percentage of total loans, and the percentage of high risk loans within the class. Additionally, factors specific to each segment are analyzed and result in allocations to the segment. Please refer to the Company’s 2015 10-K, Note 1: Summary of Significant Accounting Policies for a discussion of risk factors pertinent to each class.
Real estate construction loans are subject to general risks from changing commercial building and housing market trends and economic conditions that may impact demand for completed properties and the costs of completion. These risks are measured by market-area unemployment rates, bankruptcy rates, housing market trends, and interest rates.
The credit quality of consumer real estate is subject to risks associated with the borrower’s repayment ability and collateral value, measured generally by analyzing local unemployment and bankruptcy trends, local housing market trends, and interest rates.
The commercial real estate segment includes loans secured by multifamily residential real estate, commercial real estate occupied by the owner/borrower, and commercial real estate leased to non-owners. Loans in the commercial real estate segment are impacted by economic risks from changing commercial real estate markets, rental markets for multi-family housing and commercial buildings, business bankruptcy rates, local unemployment and interest rate trends that would impact the businesses housed by the commercial real estate.
Commercial non real estate loans are secured by collateral other than real estate, or are unsecured. Credit risk for commercial non real estate loans is subject to economic conditions, generally monitored by local business bankruptcy trends, and interest rates.
Public sector and IDA loans are extended to municipalities and related entities. Credit risk is based upon the entity’s ability to repay and interest rate trends.
Consumer non real estate includes credit cards, automobile and other consumer loans. Credit cards and certain other consumer loans are unsecured, while collateral is obtained for automobile loans and other consumer loans. Credit risk stems primarily from the borrower’s ability to repay, measured by average unemployment, average personal bankruptcy rates and interest rates.
Factor allocations applied to each class are increased for loans rated special mention and increased to a greater extent for loans rated classified. The Company allocates additional reserves for “high risk” loans. High risk loans include junior liens, interest only and high loan to value loans.
 
A detailed analysis showing the allowance roll-forward by portfolio segment and related loan balance by segment follows.
 
 
 
A
ctivity in the Allowance for Loan Losses for the Nine Months Ended September 30, 2016
 
 
 
Real Estate
Construction
 
 
Consumer
Real Estate
 
 
Commercial
Real Estate
 
 
Commercial
Non Real
Estate
 
 
Public
Sector and
IDA
 
 
Consumer Non
Real Estate
 
 
Unallocated
 
 
Total
 
Balance, December 31, 2015
 
$
576
 
 
$
1,866
 
 
$
4,109
 
 
$
655
 
 
$
436
 
 
$
627
 
 
$
28
 
 
$
8,297
 
Charge-offs
 
 
(29
)
 
 
(131
)
 
 
(149
)
 
 
(767
)
 
 
---
 
 
 
(191
)
 
 
---
 
 
 
(1,267
)
Recoveries
 
 
---
 
 
 
2
 
 
 
71
 
 
 
6
 
 
 
---
 
 
 
44
 
 
 
---
 
 
 
123
 
Provision for loan losses
 
 
(43
)
 
 
111
 
 
 
(525
)
 
 
1,493
 
 
 
(66
)
 
 
152
 
 
 
26
 
 
 
1,148
 
Balance,
September 30, 2016
 
$
504
 
 
$
1,848
 
 
$
3,506
 
 
$
1,387
 
 
$
370
 
 
$
632
 
 
$
54
 
 
$
8,301
 
 
 
 
A
ctivity in the Allowance for Loan Losses for the Nine Months Ended September 30, 2015
 
 
 
Real Estate
Construction
 
 
Consumer
Real Estate
 
 
Commercial
Real Estate
 
 
Commercial
Non Real
Estate
 
 
Public
Sector and
IDA
 
 
Consumer Non
Real Estate
 
 
Unallocated
 
 
Total
 
Balance, December 31, 2014
   $ 612     $ 1,662     $ 3,537     $ 1,475     $ 327     $ 602     $ 48     $ 8,263  
Charge-offs
     ---       (201
)
     (155
)
     (453
)
     ---       (193
)
     ---       (1,002
)
Recoveries
     ---       1       36       1       ---       84       ---       122  
Provision for loan losses
   $ (77
)
     332       420       (153
)
     170       21       21       734  
Balance,
September 30, 2015
   $ 535     $ 1,794     $ 3,838     $ 870     $ 497     $ 514     $ 69     $ 8,117  
 
 
 
A
ctivity in the Allowance for Loan Losses for the Year Ended December 31, 2015
 
 
 
Real Estate Construction
 
 
Consumer Real Estate
 
 
Commercial Real Estate
 
 
Commercial Non Real Estate
 
 
Public Sector and IDA
 
 
Consumer Non
Real Estate
 
 
Unallocated
 
 
Total
 
Balance, December 31, 2014
   $ 612     $ 1,662     $ 3,537     $ 1,475     $ 327     $ 602     $ 48     $ 8,263  
Charge-offs
     ---       (205
)
     (1,114
)
     (490
)
     ---       (311
)
     ---       (2,120
)
Recoveries
     ---       2       49       1       ---       93       ---       145  
Provision for loan losses
   $ (36
)
   $ 407     $ 1,637     $ (331
)
   $ 109     $ 243     $ (20
)
   $ 2,009  
Balance,
December 31, 2015
   $ 576     $ 1,866     $ 4,109     $ 655     $ 436     $ 627     $ 28     $ 8,297  
 
 
 
Allowance for Loan Losses as of September 30, 2016
 
 
 
Real Estate
Construction
 
 
Consumer
Real Estate
 
 
Commercial
Real Estate
 
 
Commercial
Non Real
Estate
 
 
Public
Sector and
IDA
 
 
Consumer Non
Real Estate
 
 
Unallocated
 
 
Total
 
Individually evaluated for impairment
 
$
---
 
 
$
27
 
 
$
---
 
 
$
---
 
 
$
---
 
 
$
---
 
 
$
---
 
 
$
27
 
Collectively evaluated for impairment
 
 
504
 
 
 
1,821
 
 
 
3,506
 
 
 
1,387
 
 
 
370
 
 
 
632
 
 
 
54
 
 
 
8,274
 
Total
 
$
504
 
 
$
1,848
 
 
$
3,506
 
 
$
1,387
 
 
$
370
 
 
$
632
 
 
$
54
 
 
$
8,301
 
 
 
 
Allowance for Loan Losses as of December 31, 2015
 
 
 
Real Estate
Construction
 
 
Consumer
Real Estate
 
 
Commercial
Real Estate
 
 
Commercial
Non Real
Estate
 
 
Public
Sector and
IDA
 
 
Consumer Non
Real Estate
 
 
Unallocated
 
 
Total
 
Individually evaluated for impairment
   $ ---     $ 22     $ 23     $ ---     $ ---     $ ---     $ ---     $ 45  
Collectively evaluated for impairment
     576       1,844       4,086       655       436       627       28       8,252  
Total
   $ 576     $ 1,866     $ 4,109     $ 655     $ 436     $ 627     $ 28     $ 8,297  
 
 
 
Loans as of September 30, 2016
 
 
 
Real Estate Construction
 
 
Consumer Real Estate
 
 
Commercial Real Estate
 
 
Commercial Non Real Estate
 
 
Public Sector and IDA
 
 
Consumer Non
Real Estate
 
 
Unallocated
 
 
Total
 
Individually evaluated for impairment
 
$
273
 
 
$
889
 
 
$
8,448
 
 
$
297
 
 
$
---
 
 
$
3
 
 
$
---
 
 
$
9,910
 
Collectively evaluated for impairment
 
 
39,917
 
 
 
150,263
 
 
 
316,641
 
 
 
41,273
 
 
 
45,957
 
 
 
33,076
 
 
 
---
 
 
 
627,127
 
Total loans
 
$
40,190
 
 
$
151,152
 
 
$
325,089
 
 
$
41,570
 
 
$
45,957
 
 
$
33,079
 
 
$
---
 
 
$
637,037
 
 
 
 
Loans as of December 31, 2015
 
 
 
Real Estate Construction
 
 
Consumer Real Estate
 
 
Commercial Real Estate
 
 
Commercial Non Real Estate
 
 
Public Sector and IDA
 
 
Consumer Non
Real Estate
 
 
Unallocated
 
 
Total
 
Individually evaluated for impairment
   $ 718     $ 962     $ 12,575     $ 1,091     $ ---     $ ---     $ ---     $ 15,346  
Collectively evaluated for impairment
     47,533       142,542       296,803       36,480       51,335       29,845       ---       604,538  
Total
   $ 48,251     $ 143,504     $ 309,378     $ 37,571     $ 51,335     $ 29,845     $ ---     $ 619,884  
 
A summary of ratios for the allowance for loan losses follows.
 
 
 
As of the
Nine Months Ended
September 30,
 
 
For the
Year
E
nded
December 31,
 
 
 
2016
 
 
2015
 
 
2015
 
Ratio of allowance for loan losses to the end of period loans, net of unearned income and deferred fees
 
 
1.30
%
     1.30
%
     1.34
%
Ratio of net charge-offs to average loans, net of unearned income and deferred fees
(1)
 
 
0.25
%
     0.19
%
     0.32
%
 
(1)
Net charge-offs are on an annualized basis.
 
A summary of nonperforming assets follows.
 
 
 
September 30,
 
 
December 31,
 
 
 
2016
 
 
2015
 
 
2015
 
Nonperforming assets:
                        
Nonaccrual loans
 
$
1,592
 
   $ 3,207     $ 2,043  
Restructured loans in nonaccrual
 
 
3,901
 
     5,781       4,639  
Total nonperforming loans
 
 
5,493
 
     8,988       6,682  
Other real estate owned, net
 
 
3,188
 
     4,194       4,165  
Total nonperforming assets
 
$
8,681
 
   $ 13,182     $ 10,847  
Ratio of nonperforming assets to loans, net of unearned income and deferred fees, plus other real estate owned
 
 
1.36
%
     2.09
%
     1.74
%
Ratio of allowance for loan losses to nonperforming loans
(
1
)
 
 
151.12
%
     90.31
%
     124.17
%
 
(1)
The Company defines nonperforming loans as nonaccrual loans. Loans 90 days or more past due and still accruing and accruing restructured loans are excluded.
 
A summary of loans past due 90 days or more and impaired loans follows.
 
 
 
September 30,
 
 
December 31,
 
 
 
2016
 
 
2015
 
 
2015
 
Loans past due 90 days or more and still accruing
 
$
195
 
   $ 47     $ 156  
Ratio of loans past due 90 days or more and still accruing to loans, net of unearned income and deferred fees
 
 
0.03
%
     0.01
%
     0.03
%
Accruing restructured loans
 
$
4,662
 
   $ 6,080     $ 8,814  
Impaired loans:
                        
Impaired loans with no valuation allowance
 
$
9,290
 
   $ 12,548     $ 12,973  
Impaired loans with a valuation allowance
 
 
620
 
     2,464       2,373  
Total impaired loans
 
$
9,910
 
   $ 15,012     $ 15,346  
Valuation allowance
 
 
(27
)
     (144
)
     (45
)
Impaired loans, net of allowance
 
$
9,883
 
   $ 14,868     $ 15,301  
Average recorded investment in impaired loans
(1)
 
$
12,908
 
   $ 15,902     $ 17,297  
Interest income recognized on impaired loans, after designation as impaired
 
$
476
 
   $ 267     $ 769  
Amount of income recognized on a cash basis
 
$
---
 
   $ ---     $ ---  
 
(1)
   
Recorded investment is net of charge-offs and interest paid while a loan is in nonaccrual status.
 
Nonaccrual loans that meet the Company’s balance threshold of $250 and all TDRs are designated as impaired. No interest income was recognized on nonaccrual loans for the nine months ended September 30, 2016 or September 30, 2015 or for the year ended December 31, 2015.
 
A detailed analysis of investment in impaired loans, associated reserves and interest income recognized, segregated by loan class follows.     
 
 
 
Impaired Loans as of September 30, 2016
 
 
 
Principal
Balance
 
 
Total
Recorded
Investment
(1)
 
 
Recorded
Investment
(1
)
for
Which There is No
Related Allowance
 
 
Recorded
Investment
(1)
for
Which There is a
Related Allowance
 
 
Related
Allowance
 
Real Estate Construction
(2)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Construction 1-4 family residential
 
$
280
 
 
$
273
 
 
$
273
 
 
$
---
 
 
$
---
 
Co
nsumer
Real Estate
(2)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential closed-end first liens
 
 
653
 
 
 
615
 
 
 
269
 
 
 
346
 
 
 
15
 
Residential closed-end junior liens
 
 
201
 
 
 
201
 
     ---  
 
 
201
 
 
 
8
 
Investor-owned residential real estate
 
 
73
 
 
 
73
 
     ---  
 
 
73
 
 
 
4
 
Commercial Real Estate
(2)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Multifamily real estate
 
 
1,732
 
 
 
1,459
 
 
 
1,459
 
 
 
---
 
 
 
---
 
Commercial real estate, owner-occupied
 
 
4,277
 
 
 
4,228
 
 
 
4,228
 
 
 
---
 
 
 
---
 
Commercial real estate, other
 
 
3,012
 
 
 
2,761
 
 
 
2,761
 
 
 
---
 
 
 
---
 
Commercial Non Real Estate
(2)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
 
 
311
 
 
 
297
 
 
 
297
 
 
 
---
 
 
 
---
 
Consumer Non Real Estate
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Automobile
 
 
3
 
 
 
3
 
 
 
3
 
 
 
---
 
 
 
---
 
Total
 
$
10,542
 
 
$
9,910
 
 
$
9,290
 
 
$
620
 
 
$
27
 
 
(1)
     
Recorded investment is net of charge-offs and interest paid while a loan is in nonaccrual status.
(2)     
Only classes with impaired loans are shown.
 
 
 
Impaired Loans as of December 31, 2015
 
 
 
Principal
Balance
 
 
Total
Recorded
Investment
(1)
 
 
Recorded
Investment
(1)
for
Which There is No
Related Allowance
 
 
Recorded
Investment
(1)
for
Which There is a
Related Allowance
 
 
Related
Allowance
 
Real Estate Construction
(2)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Construction 1-4 family residential
  $ 718     $ 718     $ 718     $ ---     $ ---  
Co
nsumer
Real Estate
(2)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential closed-end first liens
     713       669       305       364       13  
Residential closed-end junior liens
     218       218       ---       218       5  
Investor-owned residential real estate
     75       75       ---       75       4  
Commercial Real Estate
(2)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Multifamily real estate
     1,988       1,728       1,728       ---       ---  
Commercial real estate, owner occupied
     5,068       5,020       3,304       1,716       23  
Commercial real estate, other
     5,990       5,827       5,827       ---       ---  
Commercial Non Real Estate
(2)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
     1,099       1,091       1,091       ---       ---  
Total
   $ 15,869     $ 15,346     $ 12,973     $ 2,373     $ 45  
 
(1)
Recorded investment is net of charge-offs and interest paid while a loan is in nonaccrual status.
(2)
Only classes with impaired loans are shown.
 
The following tables show the average recorded investment and interest income recognized for impaired loans.
 
 
 
For the Nine Months Ended
September 30, 2016
 
 
 
Average
Recorded
Investment
(1)
 
 
Interest
Income
Recognized
 
Real Estate Construction
(2)
 
 
 
 
 
 
 
 
Construction 1-4 family residential
 
$
529
 
 
$
---
 
Co
nsumer
Real Estate
(2)
 
 
 
 
 
 
 
 
Residential closed-end first liens
 
 
652
 
 
 
28
 
Residential closed-end junior liens
 
 
210
 
 
 
10
 
Investor-owned residential real estate
 
 
74
 
 
 
3
 
Commercial Real Estate
(2)
 
 
 
 
 
 
 
 
Multifamily real estate
 
 
1,741
 
 
 
7
 
Commercial real estate, owner occupied
 
 
4,629
 
 
 
175
 
Commercial real estate, other
 
 
4,372
 
 
 
252
 
Commercial
Non Real Estate
(2)
 
 
 
 
 
 
 
 
Commercial and industrial
 
 
697
 
 
 
1
 
Consumer Non Real Estate
 
 
 
 
 
 
 
 
Automobile
 
 
4
 
 
 
---
 
Total
 
$
12,908
 
 
$
476
 
 
(1)
Recorded investment is net of charge-offs and interest paid while a loan is in nonaccrual status.
(2)
Only classes with impaired loans are shown.
 
 
 
For the Nine Months Ended
September 30, 2015
 
 
 
Average
Recorded
Investment
(1)
 
 
Interest
Income
Recognized
 
Co
nsumer
Real Estate
(2)
 
 
 
 
 
 
 
 
Residential closed-end first liens
   $ 685     $ 33  
Residential closed-end junior liens
     231       11  
Investor-owned residential real estate
     76       4  
Commercial Real Estate
(2)
 
 
 
 
 
 
 
 
Multifamily real estate
     2,670       ---  
Commercial real estate, owner occupied
     5,302       86  
Commercial real estate, other
     5,924       128  
Commercial
Non Real Estate
(2)
 
 
 
 
 
 
 
 
Commercial and industrial
     1,014       5  
Total
   $ 15,902     $ 267  
 
(1)
Recorded investment is net of charge-offs and interest paid while a loan is in nonaccrual status.
(2)
Only classes with impaired loans are shown.
 
 
 
For the Year Ended
December 31, 2015
 
 
 
Averag
e
Recorded
Investment
(1)
 
 
Interest
Income
Recognized
 
Real Estate Construction
(2)
 
 
 
 
 
 
 
 
Construction 1-4 family residential
   $ 612     $ 23  
Consumer
Real Estate
(2)
 
 
 
 
 
 
 
 
Residential closed-end first liens
     681       43  
Residential closed-end junior liens
     228       15  
Investor-owned residential real estate
     76       5  
Commercial Real Estate
(2)
 
 
 
 
 
 
 
 
Multifamily real estate
     2,581       84  
Commercial real estate, owner occupied
     6,141       251  
Commercial real estate, other
     5,888       308  
Commercial
Non Real Estate
(2)
 
 
 
 
 
 
 
 
Commercial and industrial
     1,090       40  
Total
   $ 17,297     $ 769  
 
(1)
Recorded investment is net of charge-offs and interest paid while a loan is in nonaccrual status.
(2)
Only classes with impaired loans are shown.
 
The Company reviews nonaccrual loans on an individual loan basis to determine whether future payments are reasonably assured. To satisfy this criteria, the Company’s evaluation must determine that the underlying cause of the original delinquency or weakness that indicated nonaccrual status has been resolved, such as receipt of new guarantees, increased cash flows that cover the debt service or other resolution. Nonaccrual loans that demonstrate reasonable assurance of future payments and that have made at least six consecutive payments in accordance with repayment terms and timeframes may be returned to accrual status.
A restructured loan that maintains current status for at least six months may be returned to accrual status.
 
An analysis of past due and nonaccrual loans
follows.
 
September 30, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
30 – 89
Days Past
Due
 
 
90 or
M
ore
Days Past Due
 
 
90 or More
Days Past Due
and Still
Accruing
 
 
Nonaccruals
(Including
Impaired
Nonaccruals)
 
Real Estate
Construction
(1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Construction residential
 
$
---
 
 
$
---
 
 
$
---
 
 
$
273
 
Consumer Real Estate
(1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity lines
 
 
37
 
 
 
---
 
 
 
---
 
 
 
---
 
Residential closed-end first liens
 
 
801
 
 
 
181
 
 
 
137
 
 
 
44
 
Residential closed-end junior liens
 
 
117
 
 
 
37
 
 
 
37
 
 
 
---
 
Investor-owned residential real estate
 
 
239
 
 
 
---
 
 
 
---
 
 
 
19
 
Commercial Real Estate
(1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Multifamily real estate
 
 
318
 
 
 
1,459
 
 
 
---
 
 
 
1,459
 
Commercial real estate, owner-occupied
 
 
127
 
 
 
455
 
 
 
---
 
 
 
574
 
Commercial real estate, other
 
 
---
 
 
 
---
 
 
 
---
 
 
 
2,760
 
Commercial
Non Real Estate
(1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
 
 
66
 
 
 
335
 
 
 
---
 
 
 
361
 
Consumer Non Real Estate
(1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Credit cards
 
 
3
 
 
 
11
 
 
 
11
 
 
 
---
 
Automobile
 
 
225
 
 
 
6
 
 
 
6
 
 
 
3
 
Other consumer loans
 
 
74
 
 
 
4
 
 
 
4
 
 
 
---
 
Total
 
$
2,007
 
 
$
2,488
 
 
$
195
 
 
$
5,493
 
 
(1)
     Only classes with past-due or nonaccrual loans are shown.
 
December 31, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
30 – 89
Days Past
Due
 
 
90 or
M
ore
Days Past Due
 
 
90 or More
Days Past Due
and Still
Accruing
 
 
Nonaccruals
(Including
Impaired
Nonaccruals)
 
Real Estate
Construction
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Construction, residential
   $ ---     $ ---     $ ---     $ 718  
Construction, other
     26       ---       ---       ---  
Consumer Real Estate
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity lines
     16       ---       ---       ---  
Residential closed-end first liens
     1,402       106       106       14  
Residential closed-end junior liens
     123       39       39       ---  
Investor-owned residential real estate
     248       ---       ---       ---  
Commercial Real Estate
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Multifamily real estate
     684       1,728       ---       1,728  
Commercial real estate, owner occupied
     ---       357       ---       494  
Commercial real estate, other
     ---       ---       ---       2,845  
Commercial
Non Real Estate
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
     142       883       ---       883  
Public Sector and IDA
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Public sector and IDA
     ---       ---       ---       ---  
Consumer Non Real Estate
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Credit cards
     5       6       6       ---  
Automobile
     286       5       5       ---  
Other consumer loans
     60       ---       ---       ---  
Total
   $ 2,992     $ 3,124     $ 156     $ 6,682  
 
The estimate of credit risk for non-impaired loans is obtained by applying allocations for internal and external factors. The allocations are increased for loans that exhibit greater credit quality risk.
Credit quality indicators, which the Company terms risk grades, are assigned through the Company’s credit review function for larger loans and selective review of loans that fall below credit review thresholds. Loans that do not indicate heightened risk are graded as “pass.” Loans that appear to have elevated credit risk because of frequent or persistent past due status, which is less than 75 days, or that show weakness in the borrower’s financial condition are risk graded “special mention.” Loans with frequent or persistent delinquency exceeding 75 days or that have a higher level of weakness in the borrower’s financial condition are graded “classified.” Classified loans have regulatory risk ratings of “substandard” and “doubtful.” Allowance for loan loss allocations are increased by 50% and by 100% for loans with grades of “special mention” and “classified,” respectively.
Determination of risk grades was completed for the portfolio as of September 30, 2016 and December 31, 2015.
 
The following displays collectively-evaluated loans by credit quality indicator.
 
September 30, 2016
 
 
 
Pass
 
 
Special
Mention
(Excluding
Impaired)
 
 
Classified
(Excluding
Impaired)
 
Real Estate
Construction
 
 
 
 
 
 
 
 
 
 
 
 
Construction, 1-4 family residential
 
$
14,169
 
 
$
3,580
 
 
$
---
 
Construction, other
 
 
22,168
 
 
 
---
 
 
 
---
 
Consumer
Real Estate
 
 
 
 
 
 
 
 
 
 
 
 
Equity lines
 
 
16,631
 
 
 
39
 
 
 
13
 
Closed-end first liens
 
 
82,284
 
 
 
1,061
 
 
 
1,114
 
Closed-end junior liens
 
 
5,006
 
 
 
16
 
 
 
56
 
Investor-owned residential real estate
 
 
43,271
 
 
 
29
 
 
 
743
 
Commercial Real Estate
 
 
 
 
 
 
 
 
 
 
 
 
Multifamily residential real estate
 
 
98,654
 
 
 
458
 
 
 
1,287
 
Commercial real estate owner-occupied
 
 
115,544
 
 
 
1,230
 
 
 
384
 
Commercial real estate, other
 
 
99,028
 
 
 
56
 
 
 
---
 
Commercial
Non Real Estate
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
 
 
39,177
 
 
 
1,550
 
 
 
546
 
Public Sector and IDA
 
 
 
 
 
 
 
 
 
 
 
 
States and political subdivisions
 
 
45,957
 
 
 
---
 
 
 
---
 
Consumer Non Real Estate
 
 
 
 
 
 
 
 
 
 
 
 
Credit cards
 
 
5,835
 
 
 
---
 
 
 
---
 
Automobile
 
 
14,251
 
 
 
104
 
 
 
168
 
Other consumer
 
 
12,641
 
 
 
58
 
 
 
19
 
Total
 
$
614,616
 
 
$
8,181
 
 
$
4,330
 
 
The following displays collectively-evaluated loans by credit quality indicator.
 
December 31, 201
5
 
 
 
Pass
 
 
Special
Mention
(Excluding
Impaired)
 
 
Classified
(Excluding
Impaired)
 
Real Estate
Construction
 
 
 
 
 
 
 
 
 
 
 
 
Construction, 1-4 family residential
   $ 10,626     $ 3,694  
 
$
---
 
Construction, other
     33,213       ---  
 
 
---
 
Consumer
Real Estate
 
 
 
 
 
 
 
 
 
 
 
 
Equity lines
     16,236       15       87  
Closed-end first liens
     78,614       708       1,370  
Closed-end junior liens
     4,983       55       61  
Investor-owned residential real estate
     39,616       31       766  
Commercial Real Estate
 
 
 
 
 
 
 
 
 
 
 
 
Multifamily residential real estate
     77,060       ---       1,804  
Commercial real estate owner-occupied
     121,741       1,165       1,274  
Commercial real estate, other
     93,701       58       ---  
Commercial
Non Real Estate
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
     35,652       285       543  
Public Sector and IDA
 
 
 
 
 
 
 
 
 
 
 
 
States and political subdivisions
     51,335       ---       ---  
Consumer Non Real Estate
 
 
 
 
 
 
 
 
 
 
 
 
Credit cards
     5,773       ---       ---  
Automobile
     12,414       102       138  
Other consumer
     11,359       31       28  
Total
   $ 592,323     $ 6,144     $ 6,071  
 
Sales
,
Purchases and Reclassification of Loans
The Company finances mortgages under “best efforts” contracts with mortgage purchasers. The mortgages are designated as held for sale upon initiation. There have been no reclassifications from portfolio loans to held for sale. There have been no loans held for sale transferred to portfolio loans. Occasionally, the Company purchases or sells participations in loans. All participation loans purchased met the Company’s normal underwriting standards at the time the participation was entered. Participation loans are included in the appropriate portfolio balances to which the allowance methodology is applied.
 
Troubled Debt Restructurings
 
From time to time the Company modifies loans in troubled debt restructurings. Total troubled debt restructurings amounted to $8,563 at September 30, 2016, $13,453 at December 31, 2015, and $11,861 at September 30, 2015.
 
The following table presents restructurings by class that were identified during the three month period ended September 30, 2016.
 
 
 
Restructurings That Occurred During the Three Months
Ended
September 30, 2016
 
 
 
Number of
Contracts
 
 
Pre-Modification
Outstanding
Principal Balance
 
 
Post-Modification
Outstanding
Principal Balance
 
Commercial Non R
eal
E
state
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
 
 
1
 
 
$
28
 
 
$
30
 
Consumer Non Real Estate
 
 
 
 
 
 
 
 
 
 
 
 
Automobile
 
 
1
 
 
 
5
 
 
 
5
 
Total
 
 
2
 
 
$
33
 
 
$
35
 
 
During the three month period ended September 30, 2016, the Company identified one commercial non-real estate loan and one automobile loan modified in troubled debt restructurings. The modifications provided payment relief by extending the maturity date and capitalizing interest. The loans are in nonaccrual status. The loans are collateral dependent and the fair value is measured using the collateral method. Impairment measurement did not result in a specific allocation for any of the four restructured loans.
The Company did not modify any loans in troubled debt restructures during the three months ended September 30, 2015.
 
The following tables present restructurings by class that occurred during the nine month periods ended September 30, 2016 and 2015.
 
 
 
Restructurings That Occurred During the Nine Months
Ended
September 30, 2016
 
 
 
Number of
Contracts
 
 
Pre-Modification
Outstanding
Principal Balance
 
 
Post-Modification
Outstanding
Principal Balance
 
Commercial R
eal
E
state
 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate, other
 
 
2
 
 
$
3,008
 
 
$
3,008
 
Commercial Non Real Estate
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
 
 
1
 
 
 
28
 
 
 
30
 
Consumer Non Real Estate
 
 
 
 
 
 
 
 
 
 
 
 
Automobile
 
 
1
 
 
 
5
 
 
 
5
 
Total
 
 
4
 
 
$
3,041
 
 
$
3,043
 
 
In addition to the loans identified as troubled debt restructures during the three month period ended September, 30, 2016, the Company identified two other loans as troubled debt restructures during the first six months of 2016. Two commercial real estate loans restructured during the second quarter of 2016 were originally modified in troubled debt restructurings in 2014 to provide payment relief by lowering the interest rate and allowing interest-only payments. The restructurings completed in 2016 lowered the interest rate from the 2014 restructured terms and returned the loans to amortization with payments of principal and interest. The loans were in nonaccrual status prior to the 2016 restructuring and will remain in nonaccrual until they have met the Company's policy to return to accrual status. The loans are collateral dependent and the fair value is measured using the collateral method. Impairment measurement did not result in a specific allocation.
 
 
 
Restructurings That Occurred During the Nine Months
Ended
September 30, 2015
 
 
 
Number of
Contracts
 
 
Pre-Modification
Outstanding
Principal Balance
 
 
Post-Modification
Outstanding
Principal Balance
 
Commercial R
eal
E
state
 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate, owner occupied
     1     $ 994     $ 907  
Total
     1     $ 994     $ 907  
 
During the nine month period ended September 30, 2015, the Company restructured 1 loan to provide payment relief. The restructuring provided payment relief by forgiving principal of $100, capitalizing interest and re-amortizing payments. As of September 30, 2015, the restructured loan was in nonaccrual status. The fair value measurement of the restructured loan as of September 30, 2015 resulted in no specific allocation to the allowance for loan losses.
The Company analyzed its TDR portfolio for loans that defaulted during the nine month periods ended September 30, 2016 and September 30, 2015, and that were modified within 12 months prior to default. The Company defines default as one or more payments that occur more than 90 days past the due date, charge-offs, or foreclosure after the date of restructuring. There were no restructured loans that defaulted that were modified within 12 months prior to default for the nine month periods ended September 30, 2016 and 2015.