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Note 3 - Allowance for Loan Losses, Nonperforming Assets and Impaired Loans
 9 Months Ended
Sep. 30, 2019
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
Loans are designated as impaired when, in the judgment of management based on current information and events, it is probable that all amounts will
not
be collected when due 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, usually 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 “special mention.” 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 the Company’s
2018
Form
10
-K, 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. If a TDR loan payment exceeds
90
days past due, it is examined to determine whether the late payment 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’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 of Form
10
-K 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.
 
   
A
ctivity in the Allowance for Loan Losses for the
Nine
Months Ended
September
30
, 201
9
   
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, 2018  
$
398
    
$
2,049
    
$
2,798
    
$
602
    
$
583
    
$
750
    
$
210
    
$
7,390
  
Charge-offs
  
 
---
    
 
(147
)
  
 
(150
)
  
 
---
 
  
 
---
    
 
(399
)
  
 
---
    
 
(696
)
Recoveries
  
 
---
    
 
---
    
 
37
    
 
---
    
 
---
    
 
181
    
 
---
    
 
218
  
Provision for (recovery of) loan losses
  
 
56
    
 
199
    
 
14
    
 
(75
)
  
 
(93
)
  
 
156
    
 
93
    
 
350
  
Balance,
September
30
, 201
9
  
$
454
    
$
2,101
    
$
2,699
    
$
527
    
$
490
    
$
688
    
$
303
    
$
7,262
  
 
   
A
ctivity in the Allowance for Loan Losses for the
Nine
Months Ended
September
3
0
, 201
8
   
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, 2017   $
337
     $
2,027
     $
3,044
     $
1,072
     $
419
     $
707
     $
319
     $
7,925
  
Charge-offs
    
---
      
(36
)
    
---
      
(107
)
    
---
      
(344
)
    
---
      
(487
)
Recoveries
    
---
      
2
      
37
      
22
      
---
      
121
      
---
      
182
  
Provision for (recovery of) loan losses
    
137
      
185
      
(42
)
    
(305
)
    
151
      
240
      
(273
)
    
93
  
Balance,
September
3
0
, 201
8
   $
474
     $
2,178
     $
3,039
     $
682
     $
570
     $
724
     $
46
     $
7,713
  
 
   
A
ctivity in the Allowance for Loan Losses for the Year Ended December 31, 201
8
   
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, 2017   $
337
     $
2,027
     $
3,044
     $
1,072
     $
419
     $
707
     $
319
     $
7,925
  
Charge-offs
    
---
      
(38
)
    
---
      
(107
)
    
---
      
(544
)
    
---
      
(689
)
Recoveries
    
---
      
3
      
49
      
22
      
---
      
161
      
---
      
235
  
Provision for (recovery of) loan losses
    
61
      
57
      
(295
)
    
(385
)
    
164
      
426
      
(109
)
    
(81
)
Balance,
December 31
, 201
8
   $
398
     $
2,049
     $
2,798
     $
602
     $
583
     $
750
     $
210
     $
7,390
  
 
   
Allowance for Loan Losses as of
September
30
, 201
9
   
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
    
$
---
    
$
117
    
$
---
    
$
---
    
$
---
    
$
120
  
Collectively evaluated for impairment
  
 
454
    
 
2,098
    
 
2,699
    
 
410
    
 
490
    
 
688
    
 
303
    
 
7,142
  
Total
  
$
454
    
$
2,101
    
$
2,699
    
$
527
    
$
490
    
$
688
    
$
303
    
$
7,262
  
 
   
Allowance for Loan Losses
as of
December 31, 201
8
   
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
   $
---
     $
4
     $
---
     $
135
     $
---
     $
---
     $
---
     $
139
  
Collectively evaluated for impairment
    
398
      
2,045
      
2,798
      
467
      
583
      
750
      
210
      
7,251
  
Total
   $
398
     $
2,049
     $
2,798
     $
602
     $
583
     $
750
     $
210
     $
7,390
  
 
   
Loans as of
September
30
, 201
9
   
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
  
$
---
    
$
1,398
    
$
3,892
    
$
938
    
$
---
    
$
5
    
$
---
    
$
6,233
  
Collectively evaluated for impairment
  
 
42,972
    
 
177,716
    
 
356,601
    
 
44,928
    
 
59,731
    
 
34,578
    
 
---
    
 
716,526
  
Total
  
$
42,972
    
$
179,114
    
$
360,493
    
$
45,866
    
$
59,731
    
$
34,583
    
$
---
    
$
722,759
  
 
   
Loans as of December 31, 201
8
   
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
   $
---
     $
1,452
     $
4,340
     $
1,015
     $
---
     $
13
     $
---
     $
6,820
  
Collectively evaluated for impairment
    
37,845
      
174,004
      
349,206
      
45,520
      
60,777
      
36,225
      
---
      
703,577
  
Total
   $
37,845
     $
175,456
     $
353,546
     $
46,535
     $
60,777
     $
36,238
     $
---
     $
710,397
  
 
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,
   
2019
  
2018
  
2018
Ratio of allowance for loan losses to the end of period loans, net of unearned income and deferred fees and costs
  
 
1.01
%
    
1.10
%
    
1.04
%
Ratio of net charge-offs to average loans, net of unearned income and deferred fees and costs
(1)
  
 
0.09
%
    
0.06
%
    
0.07
%
 
 
(
1
)
Net charge-offs are on an annualized basis.
 
A summary of nonperforming assets follows.
 
   
September 30,
  
December 31,
   
2019
  
2018
  
2018
Nonperforming assets:
                        
Nonaccrual loans
  
$
699
     $
220
     $
311
  
Restructured loans in nonaccrual
  
 
3,377
      
2,856
      
3,109
  
Total nonperforming loans
  
 
4,076
      
3,076
      
3,420
  
Other real estate owned, net
  
 
1,470
      
2,214
      
2,052
  
Total nonperforming assets
  
$
5,546
     $
5,290
     $
5,472
  
Ratio of nonperforming assets to loans, net of unearned income and deferred fees and costs, plus other real estate owned
  
 
0.77
%
    
0.75
%
    
0.77
%
Ratio of allowance for loan losses to nonperforming loans
(1)
 
 
178.16
%
    
250.75
%
    
216.08
%
 
(
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,
   
2019
  
2018
  
2018
Loans past due 90 days or more and still accruing
  
$
212
     $
63
     $
35
  
Ratio of loans past due 90 days or more and still accruing to loans, net of unearned income and deferred fees and costs
  
 
0.03
%
    
0.01
%
    
0.00
%
Accruing restructured loans
  
$
1,880
     $
7,843
     $
2,552
  
Impaired loans:
                        
Impaired loans with no valuation allowance
  
$
5,163
     $
10,530
     $
5,667
  
Impaired loans with a valuation allowance
  
 
1,070
      
1,404
      
1,153
  
Total impaired loans
  
$
6,233
     $
11,934
     $
6,820
  
Valuation allowance
  
 
(120
)
    
(156
)
    
(139
)
Impaired loans, net of allowance
  
$
6,113
     $
11,778
     $
6,681
  
Average recorded investment in impaired loans
(1)
  
$
6,729
     $
12,684
     $
9,788
  
Interest income recognized on impaired loans, after designation as impaired
  
$
144
     $
414
     $
250
  
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, 2019
or
September 30, 2018
or for the year ended
December 31, 2018.
 
A detailed analysis of investment in impaired loans and associated reserves, segregated by loan class follows.     
 
   
Impaired Loans as of September 30, 2019
   
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
Co
nsumer
Real Estate
(2)
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Equity lines
  
$
98
    
$
98
    
$
98
    
$
---
    
$
---
  
Residential closed-end first liens
  
 
749
    
 
737
    
 
737
    
 
---
    
 
---
  
Residential closed-end junior liens
  
 
132
    
 
132
    
 
---
    
 
132
    
 
3
  
Investor-owned residential real estate
  
 
441
    
 
431
    
 
431
    
 
---
    
 
---
  
Commercial Real Estate
(2)
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Multifamily
  
 
281
    
 
281
    
 
281
    
 
---
    
 
---
  
Commercial real estate, owner-occupied
  
 
1,185
    
 
1,160
    
 
1,160
    
 
---
    
 
---
  
Commercial real estate, other
  
 
2,867
    
 
2,451
    
 
2,451
    
 
---
    
 
---
  
Commercial Non Real Estate
(2)
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Commercial and industrial
  
 
938
    
 
938
    
 
---
    
 
938
    
 
117
  
Consumer Non Real Estate
(2)
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Automobile
  
 
5
    
 
5
    
 
5
    
 
---
    
 
---
  
Total
  
$
6,696
    
$
6,233
    
$
5,163
    
$
1,070
    
$
120
  
 
(
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, 2018
   
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
Co
nsumer
Real Estate
(2)
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Residential closed-end first liens
   $
728
     $
719
     $
719
     $
---
     $
---
  
Residential closed-end junior liens
    
144
      
143
      
---
      
143
      
4
  
Investor-owned residential real estate
    
593
      
590
      
590
      
---
      
---
  
Commercial Real Estate
(2)
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Multifamily real estate
    
485
      
483
      
483
      
---
      
---
  
Commercial real estate, owner occupied
    
1,363
      
1,363
      
1,363
      
---
      
---
  
Commercial real estate, other
    
2,867
      
2,494
      
2,494
      
---
      
---
  
Commercial Non Real Estate
(2)
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Commercial and industrial
    
1,018
      
1,015
      
5
      
1,010
      
135
  
Consumer Non Real Estate
(2)
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Automobile
    
13
      
13
      
13
      
---
      
---
  
Total
   $
7,211
     $
6,820
     $
5,667
     $
1,153
     $
139
  
 
(
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, 2019
   
Average Recorded
Investment
(1)
  
Interest Income
Recognized
Co
nsumer
Real Estate
(2)
  
 
 
 
  
 
 
 
Equity lines
  
$
97
    
$
5
  
Residential closed-end first liens
  
 
990
    
 
10
  
Residential closed-end junior liens
  
 
137
    
 
6
  
Investor-owned residential real estate
  
 
432
    
 
14
  
Commercial Real Estate
(2)
  
 
 
 
  
 
 
 
Multifamily real estate
  
 
463
    
 
9
  
Commercial real estate, owner occupied
  
 
1,174
    
 
39
  
Commercial real estate, other
  
 
2,451
    
 
43
  
Commercial
Non Real Estate
(2)
  
 
 
 
  
 
 
 
Commercial and industrial
  
 
976
    
 
18
  
Consumer Non Real Estate
(2)
  
 
 
 
  
 
 
 
Automobile
  
 
9
    
 
---
  
Total
  
$
6,729
    
$
144
  
 
(
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, 2018
   
Average Recorded
Investment
(1)
  
Interest Income
Recognized
Real Estate Construction
(2)
  
 
 
 
  
 
 
 
Construction 1-4 family residential
   $
2,697
     $
108
  
Consumer Real Estate
(2)
  
 
 
 
  
 
 
 
Residential closed-end first liens
    
891
      
40
  
Residential closed-end junior liens
    
162
      
7
  
Investor-owned residential real estate
    
661
      
18
  
Commercial Real Estate
(2)
  
 
 
 
  
 
 
 
Multifamily real estate
    
298
      
12
  
Commercial real estate, owner occupied
    
3,934
      
145
  
Commercial real estate, other
    
2,829
      
55
  
Commercial Non Real Estate
(2)
  
 
 
 
  
 
 
 
Commercial and industrial
    
1,188
      
28
  
Consumer Non Real Estate
  
 
 
 
  
 
 
 
Automobile
    
24
      
1
  
Total
   $
12,684
     $
414
  
 
(
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, 2018
   
Average Recorded
Investment
(1)
  
Interest Income
Recognized
Consumer
Real Estate
(2)
  
 
 
 
  
 
 
 
Residential closed-end first liens
   $
1,202
     $
41
  
Residential closed-end junior liens
    
159
      
9
  
Investor-owned residential real estate
    
808
      
23
  
Commercial Real Estate
(2)
  
 
 
 
  
 
 
 
Multifamily real estate
    
491
      
20
  
Commercial real estate, owner occupied
    
3,038
      
75
  
Commercial real estate, other
    
2,744
      
54
  
Commercial
Non Real Estate
(2)
  
 
 
 
  
 
 
 
Commercial and industrial
    
1,326
      
27
  
Co
nsumer
Non Real Estate
(2)
  
 
 
 
  
 
 
 
Automobile
    
20
      
1
  
Total
   $
9,788
     $
250
  
 
(
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.
 
An analysis of past due and nonaccrual loans
follows.
 
September 30, 2019
 
   
30 – 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
  
$
888
    
$
717
    
$
36
    
$
681
 
Residential closed-end junior liens
  
 
22
    
 
132
    
 
132
    
 
---
  
Investor-owned residential real estate
  
 
---
    
 
264
    
 
---
    
 
264
  
Commercial Real Estate
(1)
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Multifamily real estate
  
 
94
    
 
---
    
 
---
    
 
---
  
Commercial real estate, owner-occupied
  
 
243
    
 
293
    
 
---
    
 
531
  
Commercial real estate, other
  
 
---
    
 
---
    
 
---
    
 
2,451
  
Commercial Non Real Estate
(1)
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Commercial and industrial
  
 
211
    
 
144
    
 
---
    
 
144
  
Consumer Non Real Estate
(1)
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Credit cards
  
 
1
    
 
1
    
 
1
    
 
---
  
Automobile
  
 
185
    
 
40
    
 
40
    
 
---
  
Other consumer loans
  
 
91
    
 
3
    
 
3
    
 
5
  
Total
  
$
1,735
    
$
1,594
    
$
212
    
$
4,076
  
 
(
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, 2018
 
   
30 – 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
   $
647
     $
119
     $
---
     $
278
  
Residential closed-end junior liens
    
11
      
---
      
---
      
---
  
Investor-owned residential real estate
    
---
      
---
      
---
      
451
  
Commercial Real Estate
(1)
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Multifamily real estate
    
291
      
192
      
---
      
192
  
Commercial real estate, owner occupied
    
325
      
---
      
---
      
---
  
Commercial real estate, other
    
---
      
---
      
---
      
2,494
  
Commercial
Non Real Estate
(1)
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Commercial and industrial
    
10
      
2
      
2
      
5
  
Consumer Non Real Estate
(1)
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Credit cards
    
5
      
---
      
---
      
---
  
Automobile
    
296
      
29
      
29
      
---
  
Other consumer loans
    
50
      
4
      
4
      
---
  
Total
   $
1,635
     $
346
     $
35
     $
3,420
  
 
(
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.” 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, 2019
and
December 31, 2018.
 
The following displays collectively-evaluated loans by credit quality indicator.
 
September 30, 2019
 
   
Pass
(1)
  
Special
Mention
(1)
  
Classified
(1)
Real Estate
Construction
  
 
 
 
  
 
 
 
  
 
 
 
Construction, 1-4 family residential
  
$
7,408
    
$
---
    
$
---
  
Construction, other
  
 
35,564
    
 
---
    
 
---
  
Consumer Real Estate
  
 
 
 
  
 
 
 
  
 
 
 
Equity lines
  
 
15,984
    
 
---
    
 
---
  
Closed-end first liens
  
 
93,553
    
 
---
    
 
587
  
Closed-end junior liens
  
 
3,976
    
 
---
    
 
---
  
Investor-owned residential real estate
  
 
63,593
    
 
---
    
 
23
  
Commercial Real Estate
  
 
 
 
  
 
 
 
  
 
 
 
Multifamily residential real estate
  
 
97,522
    
 
---
    
 
---
  
Commercial real estate owner-occupied
  
 
127,008
    
 
---
    
 
30
  
Commercial real estate, other
  
 
132,041
    
 
---
    
 
---
  
Commercial
Non Real Estate
  
 
 
 
  
 
 
 
  
 
 
 
Commercial and industrial
  
 
44,719
    
 
62
    
 
147
  
Public Sector and IDA
  
 
 
 
  
 
 
 
  
 
 
 
States and political subdivisions
  
 
59,731
    
 
---
    
 
---
  
Consumer Non Real Estate
  
 
 
 
  
 
 
 
  
 
 
 
Credit cards
  
 
5,479
    
 
---
    
 
---
  
Automobile
  
 
15,648
    
 
---
    
 
46
  
Other consumer
  
 
13,391
    
 
---
    
 
14
  
Total
  
$
715,617
    
$
62
    
$
847
  
 
(
1
)
Excludes impaired, if any.
 
The following displays collectively-evaluated loans by credit quality indicator.
 
December 31,
201
8
 
   
Pass
(1)
  
Special
Mention
(1)
  
Classified
(1)
Real Estate
Construction
  
 
 
 
  
 
 
 
  
 
 
 
Construction, 1-4 family residential
   $
9,264
     $
---
    
$
---
  
Construction, other
    
28,560
      
21
    
 
---
  
Consumer
Real Estate
  
 
 
 
  
 
 
 
  
 
 
 
Equity lines
    
16,026
      
38
      
---
  
Closed-end first liens
    
92,253
      
994
      
582
  
Closed-end junior liens
    
3,954
      
---
      
---
  
Investor-owned residential real estate
    
60,157
      
---
      
---
  
Commercial Real Estate
  
 
 
 
  
 
 
 
  
 
 
 
Multifamily residential real estate
    
98,582
      
---
      
---
  
Commercial real estate owner-occupied
    
123,225
      
211
      
32
  
Commercial real estate, other
    
127,156
      
---
      
---
  
Commercial
Non Real Estate
  
 
 
 
  
 
 
 
  
 
 
 
Commercial and industrial
    
45,420
      
54
      
46
  
Public Sector and IDA
  
 
 
 
  
 
 
 
  
 
 
 
States and political subdivisions
    
60,777
      
---
      
---
  
Consumer Non Real Estate
  
 
 
 
  
 
 
 
  
 
 
 
Credit cards
    
5,724
      
---
      
---
  
Automobile
    
18,598
      
133
      
71
  
Other consumer
    
11,691
      
4
      
4
  
Total
   $
701,387
     $
1,455
     $
735
  
 
(
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
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. Total troubled debt restructurings amounted to
$5,257
at
September 30, 2019,
$5,661
at
December 31, 2018,
and
$10,700
at
September 30, 2018.
The Company modified
one
loan in a troubled debt restructuring during the
three
and
nine
month periods ended
September 30, 2019.
The following table presents restructuring by class that occurred during the
three
month period ended
September 30, 2019.
 
   
Restructurings That Occurred During the Three Months Ended September 30, 2019
   
Number of Contracts
  
Pre-Modification
Outstanding
Principal Balance
  
Post-Modification
Outstanding
Principal Balance
Residential Real Estate
  
 
 
 
  
 
 
 
  
 
 
 
Equity lines
  
 
1
    
$
98
    
$
98
  
Total
  
 
1
    
$
98
    
$
98
  
 
The restructuring completed during the
three
-month period ended
September 30, 2019
provided relief to the borrower without forgiving principal or interest. The loan covenants require that the balance be paid in full for a period of
30
days each year. The Company allowed the borrower to maintain full funding for the past year, and extended the maturity date. The impairment measurement at
September 30, 2019
was based upon the fair value of collateral and did
not
result in a specific allocation.
 
The following table presents restructurings by class that occurred during the
three
month period ended
September 30, 2018.
 
   
Restructurings That Occurred During the Three Months Ended September 30, 2018
   
Number of Contracts
  
Pre-Modification
Outstanding
Principal Balance
  
Post-Modification
Outstanding
Principal Balance
Residential Real Estate
  
 
 
 
  
 
 
 
  
 
 
 
Investor owned real estate
  
 
2
    
$
338
    
$
338
  
Total
  
 
2
    
$
338
    
$
338
  
 
The restructurings completed during the
three
-month period ended
September 30, 2018
provided payment relief to the borrowers without forgiving principal or interest. One loan was restructured to provide for a
12
-month interest-only period, after which the loan will be re-evaluated. The impairment measurement at
September 30, 2018
was based on the fair value of collateral and did
not
result in a specific allocation. The
second
restructure consolidated debt at a longer term, provided a rate reduction for certain of the loans consolidated but increased the interest rate on certain other loans consolidated, and capitalized interest. The impairment measurement at
September 30, 2018
was based upon the present value of cash flows and did
not
result in a specific allocation.
 
The following table presents restructurings by class that occurred during the
nine
month period ended
September 30, 2019.
 
   
Restructurings That Occurred During the Nine Months Ended September 30, 2019
   
Number of Contracts
  
Pre-Modification
Outstanding
Principal Balance
  
Post-Modification
Outstanding
Principal Balance
Residential Real Estate
  
 
 
 
  
 
 
 
  
 
 
 
Equity lines
  
 
1
    
$
98
    
$
98
  
Total
  
 
1
    
$
98
    
$
98
  
 
The restructuring completed during the
nine
-month period ended
September 30, 2019
provided relief to the borrower without forgiving principal or interest. The loan covenants require that the balance be paid in full for a period of
30
days each year. The Company allowed the borrower to maintain full funding for the past year, and extended the maturity date. The impairment measurement at
September 30, 2019
was based upon the fair value of collateral and did
not
result in a specific allocation.
 
The following table presents restructurings by class that occurred during the
nine
month period ended
September 30, 2018.
 
   
Restructurings That Occurred During the Nine Months Ended
September 30, 2018
   
Number of Contracts
  
Pre-Modification
Outstanding
Principal Balance
  
Post-Modification
Outstanding
Principal Balance
Real Estate Construction
  
 
 
 
  
 
 
 
  
 
 
 
Construction, other
  
 
2
    
$
2,882
    
$
2,882
  
Residential Real Estate
  
 
 
 
  
 
 
 
  
 
 
 
Investor owned real estate
  
 
2
    
 
338
    
 
338
  
Commercial Real Estate
  
 
 
 
  
 
 
 
  
 
 
 
Commercial real estate owner-occupied
  
 
2
    
 
715
    
 
715
  
Total
  
 
6
    
$
3,935
    
$
3,935
  
 
The Company restructured
six
loans during the
nine
month period ended
September 30, 2018.
Each of the construction loans were restructured to extend the maturity and interest only period. Impairment measurements at
September 30, 2018
were based on the fair value of the collateral and did
not
result in a specific allocation.
One of the investor owned real estate loans was restructured to provide for a
12
-month interest-only period. The impairment measurement at
September 30, 2018
was based on the fair value of collateral and did
not
result in a specific allocation. The
second
investor owned residential real estate loan consolidated debt at a longer term, provided a rate reduction for certain of the loans consolidated but increased the interest rate on certain other loans consolidated, and capitalized interest. The impairment measurement at
September 30, 2018
was based upon the present value of cash flows and did
not
result in a specific allocation.
Two commercial real estate loans were restructured to provide a
12
-month interest-only period, after which the loans will be re-amortized for a longer term. The impairment measurements at
September 30, 2018
were based upon the present value of cash flows and did
not
result in a specific allocation for either loan.
 
The Company analyzed its TDR portfolio for loans that defaulted during the
three
and
nine
month periods ended
September 30, 2019
and
September 30, 2018,
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 Company's TDRs at
September 30, 2019,
seven
consumer real estate loans within
one
relationship totaling
$263
defaulted within
12
months of modification. The impairment measurement is based upon the fair value of collateral, less estimated cost to sell, and resulted in
no
allocation. All of the defaulted loans are in nonaccrual status and the Company is working with the borrowers to recover its investment. One commercial real estate loan defaulted within
12
months of modification. The impairment measurement is based upon the fair value of collateral, less estimated cost to sell, and resulted in
no
allocation. Of the restructured loans that defaulted during the
nine
month period ended
September 30, 2018,
none
were modified within
12
months prior to default.