XML 23 R12.htm IDEA: XBRL DOCUMENT v3.8.0.1
Note 3 - Allowance for Loan Losses, Nonperforming Assets and Impaired Loans
 9 Months Ended
Sep. 30, 2017
Notes to Financial Statements  
Allowance for Credit Losses [Text Block]
Note
3
:
     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 value of the underlying collateral.
 
Impaired Loans
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 suggests that collection will probably
not
occur when due according to the loan’s 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
2016
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 or accrued interest, the charge-off is included in the historical charge-off rates applied to the collective evaluation methodology. Restructured loans are individually evaluated for impairment and the amount of a restructured loan’s book value in excess of its fair value is accrued as a specific allocation in the allowance for loan losses. TDRs that experience a payment default are examined to determine whether the default indicates collateral dependency or cash flows below those that were used in the fair value measurement. TDRs, as well as all impaired loans, that are determined to be collateral dependent are charged down to fair value. 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.
 
Collectively-Evaluated Loans
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 applies historical charge-off rates on the class level. 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 applied to each class.
T
wo 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” or lower. 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 balances at the reporting date.
 
Risk Factors
In addition to historical loss rates, the Company analyzes factors pertinent to credit risk for each class 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 the risk from changes in lending policies, 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 levels of past due loans, levels of 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
2016
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
, 2017
  
   
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, 2016
  
$
438
    
$
1,830
    
$
3,738
    
$
1,063
    
$
330
    
$
644
    
$
257
    
$
8,300
  
Charge-offs
  
 
---
    
 
(146
)
  
 
(122
)
  
 
(73
)
  
 
---
    
 
(348
)
  
 
---
    
 
(689
)
Recoveries
  
 
---
    
 
1
    
 
44
    
 
14
    
 
---
    
 
79
    
 
---
    
 
138
  
Provision for loan losses
  
 
(140
)
  
 
337
    
 
33
    
 
111
    
 
55
    
 
357
    
 
(29
)
  
 
724
  
Balance,
September 30,
2017
  
$
298
    
$
2,022
    
$
3,693
    
$
1,115
    
$
385
    
$
732
    
$
228
    
$
8,473
  
 
   
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 Year Ended December 31, 201
6
  
   
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
 )    
(133
 )    
(488
 )    
(883
 )    
---
      
(273
 )    
---
      
(1,806
 )
Recoveries
    
---
      
2
      
83
      
10
      
---
      
64
      
---
      
159
  
Provision for loan losses
    
(109
 )    
95
      
34
      
1,281
      
(106
 )    
226
      
229
      
1,650
  
Balance,
December 31
,
2016
   $
438
     $
1,830
     $
3,738
     $
1,063
     $
330
     $
644
     $
257
     $
8,300
  
 
   
Allowance for Loan Losses as of
September
30
, 2017
  
   
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
  
$
---
    
$
21
    
$
---
    
$
163
    
$
---
    
$
2
    
$
---
    
$
186
  
Collectively evaluated
for impairment
  
 
298
    
 
2,001
    
 
3,693
    
 
952
    
 
385
    
 
730
    
 
228
    
 
8,287
  
Total
  
$
298
    
$
2,022
    
$
3,693
    
$
1,115
    
$
385
    
$
732
    
$
228
    
$
8,473
  
 
   
Allowance for Loan Losses
as of
December 31, 201
6
  
   
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
   $
---
     $
25
     $
1
     $
---
     $
---
     $
---
     $
---
     $
26
  
Collectively evaluated
for impairment
    
438
      
1,805
      
3,737
      
1,063
      
330
      
644
      
257
      
8,274
  
Total
   $
438
     $
1,830
     $
3,738
     $
1,063
     $
330
     $
644
     $
257
     $
8,300
  
 
 
 
   
Loans as of
September
30
, 2017
  
   
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
  
$
3,300
    
$
1,276
    
$
6,319
    
$
1,248
    
$
---
    
$
16
    
$
---
    
$
12,159
  
Collectively evaluated for impairment
  
 
28,926
    
 
165,115
    
 
330,910
    
 
41,807
    
 
48,391
    
 
33,683
    
 
---
    
 
648,832
  
Total
  
$
32,226
    
$
166,391
    
$
337,229
    
$
43,055
    
$
48,391
    
$
33,699
    
$
---
    
$
660,991
  
 
   
Loans as of
December 31, 201
6
  
   
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
   $
270
     $
877
     $
7,782
     $
241
     $
---
     $
3
     $
---
     $
9,173
  
Collectively evaluated
for impairment
    
36,075
      
156,841
      
328,675
      
38,783
      
45,474
      
33,525
      
---
      
639,373
  
Total
   $
36,345
     $
157,718
     $
336,457
     $
39,024
     $
45,474
     $
33,528
     $
---
     $
648,546
  
 
A summary of ratios for the allowance for loan losses follows.
 
   
As of and for the
 
   
Nine
Months Ended
September
30,
    
Year
E
nded
December 31,
  
   
201
7
    
20
16
    
20
16
  
Ratio of allowance for loan losses to the end of period loans, net of unearned income and deferred fees
and costs
  
 
1.28
%
    
1.30
 %    
1.28
 %
Ratio of net charge-offs to average loans, net of unearned income and deferred
fees and
costs
(1)
  
 
0.11
%
    
0.25
 %    
0.26
 %
 
(
1
)
Net charge-offs are on an annualized basis.
 
A summary of nonperforming assets follows.
 
   
September
30,
    
December 31,
  
   
201
7
    
20
16
    
20
16
  
Nonperforming
assets:
                        
Nonaccrual loans
  
$
7
     $
1,592
     $
1,168
  
Restructured loans
in nonaccrual
  
 
3,149
      
3,901
      
4,687
  
Total nonperforming loans
  
 
3,156
      
5,493
      
5,855
  
Other real estate owned, net
  
 
2,923
      
3,188
      
3,156
  
Total nonperforming assets
  
$
6,079
     $
8,681
     $
9,011
  
Ratio of nonperforming assets to loans, net of unearned income and deferred fees
and costs, plus other real estate owned
  
 
0.92
%
    
1.36
 %    
1.38
 %
Ratio of allowance for loan losses to nonperforming
loans
(
1
)
 
 
268.47
%
    
151.12
 %    
141.76
 %
 
(
1
)
The Company defines nonperforming loans as nonaccrual loans and restructured loans that are nonaccrual. Nonperforming loans do 
not
include loans
90
days past due and still accruing or accruing restructured loans.
 
A summary of loans past due
90
days or more and impaired loans follows
.
 
   
September
30,
    
December 31,
  
   
201
7
    
20
16
    
20
16
  
Loans
past due 90 days or more and still accruing
  
$
250
     $
195
     $
63
  
Ratio of loans past due 90 days or more and still accruing to loans, net of unearned income and deferred fees
and costs
  
 
0.04
%
    
0.03
 %    
0.01
 %
Accruing restructured loans
  
$
4,815
     $
4,662
     $
3,769
  
Impaired loans
:
                        
Impaired loans with no valuation allowance
  
$
10,522
     $
9,290
     $
8,269
  
Impaired loans with a valuation allowance
  
 
1,637
      
620
      
904
  
Total impaired loans
  
$
12,159
     $
9,910
     $
9,173
  
Valuation allowance
  
 
(186
)
    
(27
 )    
(26
 )
Impaired loans, net of allowance
  
$
11,973
     $
9,883
     $
9,147
  
Average recorded investment in impaired loans
(1)
  
$
12,541
     $
12,908
     $
11,585
  
Interest i
ncome recognized on impaired loans, after designation as impaired
  
$
387
     $
476
     $
553
  
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 loan relationships that meet the Company’s balance threshold of
$250
and all TDRs are designated as impaired. The Company also designates as impaired other loan relationships that meet the Company’s balance threshold of
$250
and for which the Company does
not
expect to collect according to the note’s contractual terms.
No
interest income was recognized on nonaccrual loans for the
nine
months ended
September 30, 2017
or
September 30, 2016
or for the year ended
December 31, 2016.
 
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, 2017
  
   
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
, other
 
$
3,300
    
$
3,300
    
$
3,300
    
$
---
    
$
---
  
Co
nsumer
Real Estate
(2)
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Residential closed-end first liens
  
 
804
    
 
766
    
 
440
    
 
326
    
 
15
  
Residential closed-end junior liens
  
 
180
    
 
180
    
 
---
    
 
180
    
 
6
  
Investor-owned residential real estate
  
 
349
    
 
330
    
 
330
    
 
---
    
 
---
  
Commercial Real Estate
(2)
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Multifamily
  
 
307
    
 
307
    
 
307
    
 
---
    
 
---
  
Commercial real estate, owner-occupied
  
 
3,390
    
 
3,383
    
 
3,383
    
 
---
    
 
---
  
Commercial real estate, other
  
 
2,936
    
 
2,629
    
 
2,629
    
 
---
    
 
---
  
Commercial Non Real Estate
(2)
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Commercial and industrial
  
 
1,268
    
 
1,248
    
 
131
    
 
1,117
    
 
163
  
Consumer Non Real Estate
(2)
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Automobile
  
 
16
    
 
16
    
 
2
    
 
14
    
 
2
  
Total
  
$
12,550
    
$
12,159
    
$
10,522
    
$
1,637
    
$
186
  
 
(
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, 201
6
  
   
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
     $
270
     $
270
     $
---
     $
---
  
Co
nsumer
Real Estate
(2)
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Residential closed-end first liens
    
648
      
609
      
267
      
342
      
14
  
Residential closed-end junior liens
    
195
      
195
      
---
      
195
      
7
  
Investor-owned residential real estate
    
73
      
73
      
---
      
73
      
4
  
Commercial Real Estate
(2)
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Multifamily real estate
    
1,364
      
1,091
      
1,091
      
---
      
---
  
Commercial real estate, owner occupied
    
4,005
      
3,957
      
3,663
      
294
      
1
  
Commercial real estate, other
    
2,997
      
2,734
      
2,734
      
---
      
---
  
Commercial Non Real Estate
(2)
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Commercial and industrial
    
255
      
241
      
241
      
---
      
---
  
Consumer Non Real Estate
(2)
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Automobile
    
3
      
3
      
3
      
---
      
---
  
Total
   $
9,820
     $
9,173
     $
8,269
     $
904
     $
26
  
 
(
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, 2017
  
   
Average
Recorded
Investment
(1)
    
Interest
Income
Recognized
  
Real Estate Construction
(2)
  
 
 
 
  
 
 
 
Construction 1-4 family residential
  
$
3,323
    
$
133
  
Co
nsumer
Real Estate
(2)
  
 
 
 
  
 
 
 
Residential closed-end first liens
  
 
1,107
    
 
30
  
Residential closed-end junior liens
  
 
188
    
 
8
  
Investor-owned residential real estate
  
 
333
    
 
12
  
Commercial Real Estate
(2)
  
 
 
 
  
 
 
 
Multifamily real estate
  
 
310
    
 
12
  
Commercial real estate, owner occupied
  
 
3,420
    
 
140
  
Commercial real estate, other
  
 
2,658
    
 
45
  
Commercial
Non Real Estate
(2)
  
 
 
 
  
 
 
 
Commercial
and industrial
  
 
1,187
    
 
6
  
Consumer Non Real Estate
(2)
  
 
 
 
  
 
 
 
Automobile
  
 
15
    
 
1
  
Total
  
$
12,541
    
$
387
  
 
(
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, 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 Year Ended
December 31, 201
6
  
   
Average
Recorded
Investment
(1)
    
Interest
Income
Recognized
  
Real Estate Construction
(2)
  
 
 
 
  
 
 
 
Construction 1-4 family residential
   $
462
     $
10
  
Consumer
Real Estate
(2)
  
 
 
 
  
 
 
 
Residential closed-end first liens
    
642
      
38
  
Residential closed-end junior liens
    
207
      
13
  
Investor-owned residential real estate
    
74
      
4
  
Commercial Real Estate
(2)
  
 
 
 
  
 
 
 
Multifamily real estate
    
1,366
      
12
  
Commercial real estate, owner occupied
    
4,342
      
206
  
Commercial real estate, other
    
3,947
      
263
  
Commercial
Non Real Estate
(2)
  
 
 
 
  
 
 
 
Commercial
and industrial
    
541
      
7
  
Co
nsumer
Non Real Estate
(2)
  
 
 
 
  
 
 
 
Automobile
    
4
      
---
  
Total
   $
11,585
     $
553
  
 
(
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, 2017
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
   
3
0 – 89 Days
Past Due and
Accruing
   
90 or
M
ore
Days Past Due
    
90
or More Days
Past Due and
Accruing
    
Nonaccruals
(2)
  
Consumer Real Estate
(1)
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Residential closed-end first liens
  
 
901
    
 
88
    
 
88
    
 
266
 
Residential closed-end junior liens
  
 
197
    
 
---
    
 
---
    
 
---
  
Investor-owned residential real estate
  
 
1
    
 
7
    
 
---
    
 
---
  
Commercial Real Estate
(1)
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Multifamily real estate
  
 
307
    
 
---
    
 
---
    
 
---
  
Commercial real estate, owner-occupied
  
 
676
    
 
---
    
 
---
    
 
128
  
Commercial real estate, other
  
 
---
    
 
---
    
 
---
    
 
2,629
  
Commercial
Non Real Estate
(1)
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Commercial and
industrial
  
 
65
    
 
---
    
 
---
    
 
131
  
Consumer Non Real Estate
(1)
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Credit cards
  
 
7
    
 
16
    
 
16
    
 
---
  
Automobile
  
 
295
    
 
22
    
 
22
    
 
2
  
Other
consumer loans
  
 
94
    
 
124
    
 
124
    
 
---
  
Total
  
$
2,543
    
$
257
    
$
250
    
$
3,156
  
 
(
1
)
Only classes with past-due or nonaccrual loans are shown.
(
2
)
Includes current and past due loans in nonaccrual status. Includes impaired loans in nonaccrual status.
 
December 31, 201
6
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
   
3
0 – 89 Days
Past Due and
Accruing
    
90 or
M
ore
Days Past Due
    
90
or More
Days Past Due
and Accruing
    
Nonaccruals
(2)
  
Real Estate
Construction
(1)
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Construction, residential
   $
---
     $
---
     $
---
     $
270
  
Construction, other
    
25
      
---
      
---
      
---
  
Consumer Real Estate
(1)
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Equity lines
    
10
      
---
      
---
      
---
  
Residential closed-end first liens
    
1,498
      
6
      
6
      
---
  
Residential closed-end junior liens
    
114
      
36
      
36
      
---
  
Investor-owned residential real estate
    
56
      
234
      
---
      
253
  
Commercial Real Estate
(1)
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Multifamily real estate
    
132
      
1,091
      
---
      
1,091
  
Commercial real estate, owner occupied
    
339
      
202
      
---
      
1,183
  
Commercial real estate, other
    
---
      
80
      
---
      
2,814
  
Commercial
Non Real Estate
(1)
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Commercial and
industrial
    
6
      
218
      
---
      
241
  
Consumer Non Real Estate
(1)
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Credit cards
    
8
      
5
      
5
      
---
  
Automobile
    
234
      
12
      
12
      
3
  
Other
consumer loans
    
131
      
4
      
4
      
---
  
Total
   $
2,553
     $
1,888
     $
63
     $
5,855
  
 
(
1
)
Only classes with past-due or nonaccrual loans are shown.
(
2
)
Includes current and past due loans in nonaccrual status. Includes impaired loans in nonaccrual status.
 
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, 2017
and
December 31, 2016.
 
The following displays collectively-evaluated loans by credit quality indicator.
 
September
30
,
2017
   
Pass
    
Special
Mention
(1)
    
 
Classified
(1)
  
Real Estate
Construction
  
 
 
 
  
 
 
 
  
 
 
 
Construction, 1-4 family residential
  
$
11,005
    
$
---
    
$
---
  
Construction, other
  
 
17,921
    
 
---
    
 
---
  
Consumer
Real Estate
  
 
 
 
  
 
 
 
  
 
 
 
Equity lines
  
 
17,128
    
 
42
    
 
---
  
Closed-end first liens
  
 
85,309
    
 
1,762
    
 
691
  
Closed-end junior liens
  
 
4,496
    
 
31
    
 
14
  
Investor-owned residential real estate
  
 
55,314
    
 
---
    
 
328
  
Commercial Real Estate
  
 
 
 
  
 
 
 
  
 
 
 
Multifamily residential real estate
  
 
99,932
    
 
---
    
 
128
  
Commercial real estate owner-occupied
  
 
128,997
    
 
254
    
 
1,151
  
Commercial real estate, other
  
 
100,448
    
 
---
    
 
---
  
Commercial
Non Real Estate
  
 
 
 
  
 
 
 
  
 
 
 
Commercial and i
ndustrial
  
 
41,593
    
 
149
    
 
65
  
Public Sector and IDA
  
 
 
 
  
 
 
 
  
 
 
 
States and political subdivisions
  
 
48,391
    
 
---
    
 
---
  
Consumer Non Real Estate
  
 
 
 
  
 
 
 
  
 
 
 
Credit cards
  
 
5,379
    
 
---
    
 
---
  
Automobile
  
 
16,110
    
 
69
    
 
135
  
Other consumer
  
 
11,928
    
 
42
    
 
20
  
Total
  
$
643,951
    
$
2,349
    
$
2,532
  
 
(
1
)
Excludes impaired, if any.
 
The following displays collectively-evaluated loans by credit quality indicator.
 
 
December 31,
201
6
   
Pass
    
Special
Mention
(1)
    
 
Classified
(1)
  
Real Estate
Construction
  
 
 
 
  
 
 
 
  
 
 
 
Construction, 1-4 family residential
   $
11,635
     $
3,468
    
$
---
  
Construction, other
    
20,972
      
---
    
 
---
  
Consumer
Real Estate
  
 
 
 
  
 
 
 
  
 
 
 
Equity lines
    
17,034
      
82
      
---
  
Closed-end first liens
    
83,658
      
1,267
      
580
  
Closed-end junior liens
    
4,861
      
15
      
151
  
Investor-owned residential real estate
    
48,277
      
333
      
583
  
Commercial Real Estate
  
 
 
 
  
 
 
 
  
 
 
 
Multifamily residential real estate
    
99,002
      
1,733
      
---
  
Commercial real estate owner-occupied
    
120,170
      
1,188
      
1,425
  
Commercial real estate, other
    
103,534
      
1,543
      
80
  
Commercial
Non Real Estate
  
 
 
 
  
 
 
 
  
 
 
 
Commercial and i
ndustrial
    
35,521
      
3,229
      
33
  
Public Sector and IDA
  
 
 
 
  
 
 
 
  
 
 
 
States and political subdivisions
    
45,474
      
---
      
---
  
Consumer Non Real Estate
  
 
 
 
  
 
 
 
  
 
 
 
Credit cards
    
5,978
      
---
      
---
  
Automobile
    
14,457
      
25
      
192
  
Other consumer
    
12,229
      
636
      
8
  
Total
   $
622,802
     $
13,519
     $
3,052
  
 
(
1
)
Excludes impaired, if any.
 
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
$7,964
at
September 30, 2017,
$8,456
at
December 31, 2016,
and
$8,563
at
September 30, 2016.
 
The
following table present restructurings by class that occurred during the
three
month period ended
September 30, 2017.
 
   
Restructurings That Occurred During the
Three Months
Ended
September 30, 2017
  
   
Number of
Contracts
    
Pre-Modification
Outstanding
Principal Balance
    
Post-Modification
Outstanding
Principal Balance
  
Commercial
Non
R
eal
E
state
  
 
 
 
  
 
 
 
  
 
 
 
Commercial
and industrial
  
 
2
    
$
1,116
    
$
1,116
  
Consumer Non Real Estate
  
 
 
 
  
 
 
 
  
 
 
 
Automobile
  
 
2
    
 
14
    
 
14
  
Total
  
 
4
    
$
1,130
    
$
1,130
  
 
Each of the restructurings completed during the
three
-month period ended
September 30, 2017
provided payment relief to the borrowers without forgiving principal or interest. The
two
commercial non-real estate loans were restructured to reduce monthly debt service by increasing the amortization period
and reducing the rate. Impairment measurement, based on the present value of cash flows, indicated a specific reserve for each of the commercial non-real estate loans. The
two
automobile loans were restructured pursuant to Chapter
13
bankruptcy requirements, reducing the interest rate and re-amortizing over a longer term to provide monthly debt service relief. Impairment measurement was based on the present value of cash flows method and resulted in specific allocations for each loan.
 
The following table presents restructurings by class that occurred during the
nine
month period ending
September 30, 2017.
 
   
Restructurings That Occurred During the
Nine Months
Ended
September 30, 2017
  
   
Number of
Contracts
    
Pre-Modification
Outstanding
Principal Balance
    
Post-Modification
Outstanding
Principal Balance
  
Commercial Real Estate
  
 
 
 
  
 
 
 
  
 
 
 
Commercial real estate, owner occupied
  
 
1
    
$
132
    
$
132
  
Commercial Non R
eal
E
state
  
 
 
 
  
 
 
 
  
 
 
 
Commercial and industrial
  
 
4
      
1,234
      
1,234
  
Consumer Non Real Estate
  
 
 
 
  
 
 
 
  
 
 
 
Automobile
  
 
2
    
 
14
    
 
14
  
Total
  
 
7
    
$
1,380
    
$
1,380
  
 
Each of the restructurings completed during the
nine
-month period ended
September 30, 2017
provided payment relief to the borrowers without forgiving principal or interest. The commercial real estate loan was restructured to reduce monthly debt service by lowering the interest rate and changing the interest method from variable to fixed. Interest was capitalized and the loan was re-amortized over a longer term. Impairment measurement, based on the present value of cash flows, did
not
result in a specific allocation. The
four
commercial non-real estate loans were restructured to reduce monthly debt service by increasing the amortization period. Three of the commercial non-real estate loans received rate reductions, and the interest method on
one
commercial non-real estate loan was changed from variable to fixed. Impairment measurement, based on the present value of cash flows, indicated a specific reserve for
two
of the commercial non-real estate loans. The
two
automobile loans were restructured pursuant to Chapter
13
bankruptcy requirements, reducing the interest rate and re-amortizing over a longer term to provide monthly debt service relief. Impairment measurement was based on the present value of cash flows method and resulted in specific allocations for each loan.
 
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 following table presents restructurings by class that occurred during the
nine
month period ended
September 30, 2016.
 
   
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
nine
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.
 
The Company analyzed its TDR portfolio for loans that defaulted during the
three
and
nine
month periods ended
September 30, 2017
and
September 30, 2016,
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. Of the restructured loans that defaulted during the
three
and
nine
month periods ended
September 30, 2017
and
September 30, 2016,
none
were modified within
12
months prior to default.