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Note 5 - Allowance for Loan Losses, Nonperforming Assets and Impaired Loans
 12 Months Ended
Dec. 31, 2017
Notes to Financial Statements  
Allowance for Credit Losses [Text Block]
Note
5
: 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
Loans are designated as impaired when, in the judgment of management based on current information and events, it is probable that all amounts due will
not
be collected according to the contractual terms of the loan agreement. 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 that collection probably will
not
occur when due according to the loan’s 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:
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 restructurings 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, beginning in
2013
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” 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, 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 the risk from changes in lending policies, loan officers’ average years of experience, unemployment levels, bankruptcy rates, interest rate environment, and competition/legal/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 loan review, 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 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, building 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:
 
   
Activity in th
e Allowance for Loan Losses by S
egment
for the year
ended
December 31
, 201
7
  
   
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
)
  
 
(139
)
  
 
(82
)
  
 
---
    
 
(452
)
  
 
---
    
 
(819
)
Recoveries
  
 
---
    
 
1
    
 
131
    
 
23
    
 
---
    
 
132
    
 
---
    
 
287
  
Provision for loan losses
  
 
(101
)
  
 
342
    
 
(686
)
  
 
68
    
 
89
    
 
383
    
 
62
    
 
157
  
Balance,
December 31, 201
7
  
$
337
    
$
2,027
    
$
3,044
    
$
1,072
    
$
419
    
$
707
    
$
319
    
$
7,925
  
 
   
Activity in th
e Allowance for Loan Losses by S
egment
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, 201
6
   $
438
     $
1,830
     $
3,738
     $
1,063
     $
330
     $
644
     $
257
     $
8,300
  
 
 
   
Activity in th
e Allowance for Loan Losses by S
egment
for the year
ended
December 31
, 201
5
  
   
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, 201
5
   $
576
     $
1,866
     $
4,109
     $
655
     $
436
     $
627
     $
28
     $
8,297
  
 
   
Allowance for Loan Losses by Segment and Evaluation Method as of
  
   
December 31, 201
7
  
   
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
  
$
---
    
$
16
    
$
---
    
$
160
    
$
---
    
$
1
    
$
---
    
$
177
  
Collectively evaluated
for impairment
  
 
337
    
 
2,011
    
 
3,044
    
 
912
    
 
419
    
 
706
    
 
319
    
 
7,748
  
Total
  
$
337
    
$
2,027
    
$
3,044
    
$
1,072
    
$
419
    
$
707
    
$
319
    
$
7,925
  
 
   
Loans by Segment and Evaluation Method as of
  
   
December 31, 201
7
  
   
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
  
$
2,882
    
$
1,267
    
$
6,516
    
$
1,229
    
$
---
    
$
30
    
$
---
    
$
11,924
  
Collectively evaluated
for impairment
  
 
31,812
    
 
165,698
    
 
333,898
    
 
39,289
    
 
51,443
    
 
34,618
    
 
---
    
 
656,758
  
Total
  
$
34,694
    
$
166,965
    
$
340,414
    
$
40,518
    
$
51,443
    
$
34,648
    
$
---
    
$
668,682
  
 
   
Allowance for Loan Losses by Segment and Evaluation Method 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 by Segment and Evaluation Method 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:
 
   
December 31,
  
   
201
7
    
20
16
  
Ratio of allowance for loan losses to the end of period loans, net of unearned income and deferred fees
and costs
  
 
1.19
%
    
1.28
%
Ratio of net charge-offs to average loans, net of unearned income and deferred
fees and costs
  
 
0.08
%
    
0.26
%
 
A summary of nonperforming assets follows:
 
   
December 31,
  
   
201
7
    
20
16
  
Nonperforming
assets:
                
Nonaccrual loans
  
$
6
     $
1,168
  
Restructured loans
in nonaccrual
  
 
2,763
      
4,687
  
Total nonperforming loans
  
 
2,769
      
5,855
  
Other real estate owned, net
  
 
2,817
      
3,156
  
Total nonperforming assets
  
$
5,586
     $
9,011
  
Ratio of nonperforming assets to loans, net of unearned income and deferred fees
and costs, plus other real estate owned
  
 
0.83
%
    
1.38
%
Ratio of allowance for loan losses to nonperforming
loans
(
1
)
 
 
286.20
%
    
141.76
%
 
 
(
1
)
The Company defines nonperforming loans as total nonaccrual and restructured loans that are nonaccrual. Loans
90
days 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:
 
   
December 31,
  
   
201
7
    
20
16
  
Loans
past due 90 days or more and still accruing
  
$
51
     $
63
  
Ratio of loans past due 90 days or more and still accruing to loans, net of unearned income and deferred fees
and costs
  
 
0.01
%
    
0.01
%
Accruing restructured loans
  
$
5,134
     $
3,769
  
Impaired loans
:
                
Impaired loans with no valuation allowance
  
$
10,444
     $
8,269
  
Impaired loans with a valuation allowance
  
 
1,480
      
904
  
Total impaired loans
  
$
11,924
     $
9,173
  
Valuation allowance
  
$
(177
)
   $
(26
)
Impaired loans, net of allowance
  
$
11,747
     $
9,147
  
Average recorded investment in impaired loans
(1)
  
$
13,344
     $
11,585
  
Income recognized on impaired loans
, after designation as impaired
  
$
528
     $
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.
 
No
interest income was recognized on nonaccrual loans for the years ended
December 31, 2017,
2016
or
2015.
Nonaccrual loans that meet the Company’s balance thresholds are designated as impaired.
A detailed analysis of investment in impaired loans, associated reserves and interest income recognized, by loan class follows:
 
   
Impaired Loans as of December 31, 201
7
  
   
Principal
Balance
   
(A)
Total Recorded
Investment
(1)
    
Recorded Investment
(1)
in (A) for Which There is No Related Allowance
    
Recorded
Investment
(1)
in (A) for Which There is a Related Allowance
    
Related
Allowance
 
Real Estate Construction
(2)
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Construction
other
  
$
2,882
    
$
2,882
    
$
2,882
    
$
---
    
$
---
  
Co
nsumer
Real Estate
(2)
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Residential closed-end first liens
  
 
807
    
 
768
    
 
590
    
 
178
    
 
10
  
Residential closed-end junior liens
  
 
174
    
 
174
    
 
---
    
 
174
    
 
6
  
Investor-owned residential real estate
  
 
347
    
 
325
    
 
325
    
 
---
    
 
---
  
Commercial Real Estate
(2)
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Multifamily real estate
  
 
303
    
 
303
    
 
303
    
 
---
    
 
---
  
Commercial real estate, owner occupied
  
 
3,619
    
 
3,611
    
 
3,611
    
 
---
    
 
---
  
Commercial real estate, other
  
 
2,921
    
 
2,602
    
 
2,602
    
 
---
    
 
---
  
Commercial Non Real Estate
(2)
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Commercial and Industrial
  
 
1,236
    
 
1,229
    
 
126
    
 
1,103
    
 
160
  
Consumer Non Real Estate
(2)
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Automobile
  
 
30
    
 
30
    
 
5
    
 
25
    
 
1
  
Total
  
$
12,319
    
$
11,924
    
$
10,444
    
$
1,480
    
$
177
  
 
   
Impaired Loans as of December 31, 201
6
  
   
Principal
Balance
   
(A)
Total Recorded
Investment
(1)
    
Recorded Investment
(1)
in (A) for Which There is No Related Allowance
    
Recorded
Investment
(1)
in (A) 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.
 
   
Average Investment and Interest Income
for Impaired Loans
For the Year Ended
December 31, 201
7
  
   
Average Recorded Investment
(1)
    
Interest Income Recognized
  
Real Estate Construction
(2)
  
 
 
 
  
 
 
 
Construction
other
  
$
3,298
    
$
177
  
Consumer
Real Estate
(2)
  
 
 
 
  
 
 
 
Residential closed-end first liens
  
 
781
    
 
57
  
Residential closed-end junior liens
  
 
185
    
 
11
  
Investor-owned residential real estate
  
 
329
    
 
1
  
Commercial Real Estate
(2)
  
 
 
 
  
 
 
 
Multifamily real estate
  
 
748
    
 
16
  
Commercial real estate, owner occupied
  
 
4,047
    
 
200
  
Commercial real estate, other
  
 
2,638
    
 
---
  
Commercial
Non Real Estate
(2)
  
 
 
 
  
 
 
 
Commercial
and Industrial
  
 
1,282
    
 
64
  
Consumer Non Real Estate
(2)
  
 
 
 
  
 
 
 
Automobile
  
 
36
    
 
2
  
Total
  
$
13,344
    
$
528
  
 
(
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.
 
   
Average Investment and Interest Income for
Impaired Loans
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
  
Consumer 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.
 
   
Average Investment and Interest Income for
Impaired Loans
For the Year Ended
December 31, 201
5
  
   
Average 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.
 
An analysis of past due and nonaccrual loans follows:
 
December 31, 201
7
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
   
3
0 – 89
Days Past
Due
   
90 or
M
ore Days Past Due
    
90
or More Days Past Due and Still Accruing
    
Nonaccruals (I
ncluding Impaired Nonaccruals)
  
Real Estate
Construction
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Construction, residential
  
$
---
    
$
---
    
$
---
    
$
---
  
Construction, other
  
 
---
    
 
---
    
 
---
    
 
---
  
Consumer Real Estate
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Equity lines
  
 
---
    
 
---
    
 
---
    
 
---
  
Residential closed-end first liens
  
 
637
    
 
16
    
 
11
    
 
145
  
Residential closed-end junior liens
  
 
188
    
 
---
    
 
---
    
 
---
  
Investor-owned residential real estate
  
 
66
    
 
---
    
 
---
    
 
6
  
Commercial Real Estate
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Multifamily real estate
  
 
303
    
 
---
    
 
---
    
 
---
  
Commercial real estate, owner occupied
  
 
402
    
 
---
    
 
---
    
 
---
  
Commercial real estate, other
  
 
---
    
 
2,602
    
 
---
    
 
2,602
  
Commercial
Non Real Estate
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Commercial and
Industrial
  
 
131
    
 
---
    
 
---
    
 
15
  
Public Sector and IDA
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Public sector and IDA
  
 
---
    
 
---
    
 
---
    
 
---
  
Consumer Non Real Estate
 
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Credit cards
  
 
7
    
 
12
    
 
12
    
 
---
  
Automobile
  
 
375
    
 
22
    
 
22
    
 
1
  
Other
consumer loans
  
 
154
    
 
6
    
 
6
    
 
---
  
Total
  
$
2,263
    
$
2,658
    
$
51
    
$
2,769
  
 
December 31, 201
6
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
   
3
0 – 89
Days Past
Due
   
90 or
M
ore Days Past Due
    
90
or More Days Past Due and Still Accruing
    
Nonaccruals (I
ncluding Impaired Nonaccruals)
  
Real Estate
Construction
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Construction, residential
   $
---
     $
---
     $
---
     $
270
  
Construction, other
    
25
      
---
      
---
      
---
  
Consumer Real Estate
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
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
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
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
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Commercial and
Industrial
    
6
      
218
      
---
      
241
  
Public Sector and IDA
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Public sector and IDA
    
---
      
---
      
---
      
---
  
Consumer Non Real Estate
 
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Credit cards
    
8
      
5
      
5
      
---
  
Automobile
    
234
      
12
      
12
      
3
  
Other
consumer loans
    
131
      
4
      
4
      
---
  
Total
   $
2,553
     $
1,888
     $
63
     $
5,855
  
 
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.” 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
December 31, 2017
and
2016.
The following displays non-impaired
gross loans by credit quality indicator:
 
December 31, 201
7
  
 
 
 
  
 
 
 
  
 
 
 
   
Pass
    
Special
Mention
(Excluding
Impaired)
    
 
Classified
(Excluding
Impaired)
  
Real Estate
Construction
  
 
 
 
  
 
 
 
  
 
 
 
Construction, 1-4 family residential
  
$
10,396
    
$
---
    
$
---
  
Construction, other
  
 
21,416
    
 
---
    
 
---
  
Consumer
Real Estate
  
 
 
 
  
 
 
 
  
 
 
 
Equity lines
  
 
16,673
    
 
39
    
 
---
  
Closed-end first liens
  
 
85,975
    
 
2,400
    
 
355
  
Closed-end junior liens
  
 
4,483
    
 
29
    
 
12
  
Investor-owned residential real estate
  
 
55,410
    
 
66
    
 
256
  
Commercial Real Estate
  
 
 
 
  
 
 
 
  
 
 
 
Multifamily residential real estate
  
 
95,894
    
 
127
    
 
---
  
Commercial real estate owner-occupied
  
 
130,256
    
 
246
    
 
763
  
Commercial real estate, other
  
 
106,612
    
 
---
    
 
--
  
Commercial
Non Real Estate
  
 
 
 
  
 
 
 
  
 
 
 
Commercial and Industrial
  
 
38,904
    
 
220
    
 
165
  
Public Sector and IDA
  
 
 
 
  
 
 
 
  
 
 
 
States and political subdivisions
  
 
51,443
    
 
---
    
 
---
 
Consumer Non Real Estate
  
 
 
 
  
 
 
 
  
 
 
 
Credit cards
  
 
5,493
    
 
---
    
 
---
  
Automobile
  
 
16,059
    
 
218
    
 
116
  
Other consumer
  
 
12,692
    
 
16
    
 
24
  
Total
  
$
651,706
    
$
3,361
    
$
1,691
  
 
December 31, 201
6
  
 
 
 
  
 
 
 
  
 
 
 
   
Pass
    
Special
Mention
(Excluding
Impaired)
    
 
Classified
(Excluding
Impaired)
  
Real Estate
Construction
  
 
 
 
  
 
 
 
  
 
 
 
Construction, 1-4 family residential
   $
11,635
     $
3,648
     $
---
  
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 Industrial
    
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
  
 
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
major reclassifications from portfolio loans to held for sale. 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 (“TDRs”). The following tables present restructurings by class that occurred during the years ended
December 31, 2017,
2016
and
2015.
 
Note: Only classes with restructured loans are presented.
 
   
Restructurings that occurred during the year ended
December 31, 201
7
  
   
Number of
Contracts
    
Pre-Modification Outstanding Recorded Investment
    
Post-Modification Outstanding Recorded Investment
(1)
  
Consumer Real Estate
  
 
 
 
  
 
 
 
  
 
 
 
Closed-end first lien
  
 
1
    
$
8
    
$
8
  
Commercial Real Estate
  
 
 
 
  
 
 
 
  
 
 
 
Commercial real estate, other
  
 
1
    
 
132
    
 
132
  
Commercial
Non
Real Estate
  
 
 
 
  
 
 
 
  
 
 
 
Commercial
and industrial
  
 
4
    
 
1,221
    
 
1,221
  
Co
nsumer
N
on
R
eal
E
state
  
 
 
 
  
 
 
 
  
 
 
 
Automobile
  
 
4
    
 
26
    
 
26
  
Total
  
 
10
    
$
1,387
    
$
1,387
  
 
 
(
1
)
Post-modification outstanding recorded investment considers amounts immediate
ly following the modification. Amounts do
not
reflect balances at the end of the period.
 
Each of the restructurings completed during the
twelve
months ended
December 31, 2017
provided payment relief to the borrowers. The consumer real estate loan was modified to provide payment relief by extending the term. Impairment measurement was based on the present value of cash flows and did
not
result in a specific allocation.
The commercial real estate loan was restructured to reduce monthly debt service by lowering the interest rate slightly 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 loan is in nonaccrual status and all payments made during the nonaccrual period are credited fully to principal, reducing the book balance below the present value of cash flows.
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 on
one
commercial non-real estate loan, the interest method 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
four
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.
One
automobile loan restructuring included forgiveness of a small amount of principal to comply with the bankruptcy plan. Impairment measurement for all the restructured automobile loans was based on the present value of cash flows method and resulted in small specific allocations for each loan which totaled
$1.
 
   
Restructurings that occurred during the year ended
December 31, 201
6
  
   
Number of
Contracts
    
Pre-Modification Outstanding Recorded Investment
    
Post-Modification Outstanding Recorded Investment
(1)
  
Commercial Real Estate
  
 
 
 
  
 
 
 
  
 
 
 
Commercial real estate, other
    
2
     $
3,008
     $
3,008
  
Commercial
Non
Real Estate
  
 
 
 
  
 
 
 
  
 
 
 
Commercial
and industrial
    
1
      
29
      
30
  
Consumer
N
on
R
eal
E
state
  
 
 
 
  
 
 
 
  
 
 
 
Automobile
    
1
      
5
      
5
  
Total
    
4
     $
3,042
     $
3,043
  
 
 
(
1
)
Post-modification outstanding recorded investment considers amounts immediate
ly following the modification. Amounts do
not
reflect balances at the end of the period.
 
During the
twelve
-month period ended
December 31, 2016,
the Company identified
four
loans as troubled debt restructurings.
Two
commercial real estate loans 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 Company also identified during the year ended
December 31, 2016
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. Each of the
four
troubled debt restructurings are collateral dependent and the fair value is measured using the collateral method. Impairment measurement did
not
result in any specific allocations.
 
   
Restructurings that occurred during the year ended
December 31, 201
5
  
   
Number of
Contracts
    
Pre-Modification Outstanding Recorded Investment
    
Post-Modification Outstanding Recorded Investment
(1)
  
Real Estate
Construction
  
 
 
 
  
 
 
 
  
 
 
 
Construction, 1-4 family residential
    
2
     $
718
     $
718
  
Commercial Real Estate
  
 
 
 
  
 
 
 
  
 
 
 
Commercial real estate owner-occupied
    
3
      
2,710
      
2,623
  
Commercial Non Real Estate
  
 
 
 
  
 
 
 
  
 
 
 
Commercial and industrial
    
1
      
200
      
200
  
Total
    
6
     $
3,628
     $
3,541
  
 
 
(
1
)
Post-modification outstanding recorded investment considers amounts immediate
ly following the modification. Amounts do
not
reflect balances at the end of the period.
 
During the
twelve
-month period ended
December 31, 2015,
the Company modified
six
loans in troubled debt restructurings in order to provide payment relief. One commercial real estate owner-occupied loan was restructured to forgive principal of
$100,
reduce the interest rate, capitalize interest and re-amortize payments. The fair value measurement of the restructured loan as of
December 31, 2015
resulted in
no
specific allocation to the allowance for loan losses.
Two
commercial real estate owner-occupied loans were modified during the
fourth
quarter of
2015
to require payments of interest only. As of
December 31, 2015,
the impairment analysis determined a combined allocation to the allowance for loan losses of
$23.
Two
construction loans were modified during the
fourth
quarter of
2015
to become non-revolving and require payments of interest only. The fair value measurement of the restructured loans as of
December 31, 2015
resulted in
no
specific allocation to the allowance for loan losses.
One
commercial loan was restructured during the
fourth
quarter of
2015
to extend the maturity date. The fair value measurement of the restructured loan as of
December 31, 2015
resulted in
no
specific allocation to the allowance for loan losses.
Of the Company’s TDR’s that defaulted in
2017,
2016
and
2015,
none
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-off or foreclosure.