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Allowance for Loan Losses
 12 Months Ended
Dec. 31, 2018
Receivables [Abstract]  
Allowance for Loan Losses
6.     Allowance for Loan Losses
The Company maintains an allowance for loan losses in an amount determined by management on the basis of the character of the loans, loan performance, financial condition of borrowers, the value of collateral securing loans and other relevant factors. The following table summarizes the changes in the Company’s allowance for loan losses for the years indicated.
An analysis of the allowance for loan losses for each of the three years ending December 31, 2018, 2017 and 2016 is as follows:
 
  
2018
  
2017
  
2016
 
(dollars in thousands)
         
    
Allowance for loan losses, beginning of year
 
$
26,255
  $24,406  $23,075 
    
Loans
charged-off
  
(833
) 
  (390)   (389) 
    
Recoveries on loans previously
charged-off
  
1,771
   449   434 
  
 
 
  
 
 
  
 
 
 
    
Net recoveries (charge-offs)
  
938
   59   45 
    
Provision charged to expense
  
1,350
   1,790   1,375 
    
Reclassification to other liabilities*
  
—
   —   (89) 
  
 
 
  
 
 
  
 
 
 
    
Allowance for loan losses, end of year
 
$
28,543
  $26,255  $24,406 
  
 
 
  
 
 
  
 
 
 
 
*
The reclassification relates to allowance for loan losses allocations on unused commitments that have been reclassified to other liabilities.
 
Further information pertaining to the allowance for loan losses at December 31, 2018 follows:
 
  
Construction
and Land
Development
  
Commercial
and
Industrial
  
Municipal
  
Commercial
Real Estate
  
Residential
Real
Estate
  
Consumer
  
Home
Equity
  
Unallocated
  
Total
 
(dollars in thousands)
                           
          
Allowance for Loan Losses:
                                    
          
Balance at December 31, 2017
 
$
1,645
  
$
9,651
  
$
1,720
  
$
9,728
  
$
1,873
  
$
373
  
$
989
  
$
276
  
$
26,255
 
          
Charge-offs
  
—
   
(67
) 
  
—
   
—
   
(450
) 
  
(316
) 
  
—
   
—
   
(833
) 
          
Recoveries
  
1,436
   
57
   
—
   
—
   
75
   
203
   
—
   
—
   
1,771
 
          
Provision
  
(1,989
) 
  
1,357
   
118
   
935
   
692
   
105
   
122
   
10
   
1,350
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
          
Ending balance at December 31, 2018
 
$
1,092
  
$
10,998
  
$
1,838
  
$
10,663
  
$
2,190
  
$
365
  
$
1,111
  
$
286
  
$
28,543
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
          
Amount of allowance for loan losses for loans deemed to be impaired
 
$
—
  
$
54
  
$
—
  
$
91
  
$
—
  
$
—
  
$
—
  
$
—
  
$
145
 
          
Amount of allowance for loan losses for loans not deemed to be impaired
 
$
1,092
  
$
10,944
  
$
1,838
  
$
10,572
  
$
2,190
  
$
365
  
$
1,111
  
$
286
  
$
28,398
 
          
Loans:
                                    
          
Ending balance
 
$
13,628
  
$
761,625
  
$
97,290
  
$
750,362
  
$
348,250
  
$
22,083
  
$
292,340
  
$
—
  
$
2,285,578
 
          
Loans deemed to be impaired
 
$
—
  
$
401
  
$
—
  
$
2,650
  
$
—
  
$
—
  
$
—
  
$
—
  
$
3,051
 
          
Loans not deemed to be impaired
 
$
13,628
  
$
761,224
  
$
97,290
  
$
747,712
  
$
348,250
  
$
22,083
  
$
292,340
  
$
—
  
$
2,282,527
 
Further information pertaining to the allowance for loan losses at December 31, 2017 follows:
 
  
Construction
and Land
Development
  
Commercial
and
Industrial
  
Municipal
  
Commercial
Real
Estate
  
Residential
Real
Estate
  
Consumer
  
Home
Equity
  
Unallocated
  
Total
 
(dollars in thousands)
                           
          
Allowance for Loan Losses:
                                    
          
Balance at December 31, 2016
 $1,012  $6,972  $1,612  $11,135  $1,698  $582  $1,102  $293  $24,406 
          
Charge-offs
  —   (49)   —   —   —   (341)   —   —   (390) 
          
Recoveries
  —   110   —   —   2   255   82   —   449 
          
Provision
  633   2,618   108   (1,407)   173   (123)   (195)   (17)   1,790 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
          
Ending balance at December 31, 2017
 $1,645  $9,651  $1,720  $9,728  $1,873  $373  $989  $276  $26,255 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
          
Amount of allowance for loan losses for loans deemed to be impaired
 $—  $7  $—  $99  $58  $—  $—  $—  $164 
          
Amount of allowance for loan losses for loans not deemed to be impaired
 $1,645  $9,644  $1,720  $9,629  $1,815  $373  $989  $276  $26,091 
          
Loans:
                                    
          
Ending balance
 $18,931  $763,807  $106,599  $732,491  $287,731  $19,040  $247,345  $—  $2,175,944 
          
Loans deemed to be impaired
 $—  $348  $—  $2,554  $4,212  $—  $—  $—  $7,114 
          
Loans not deemed to be impaired
 $18,931  $763,459  $106,599  $729,937  $283,519  $19,040  $247,345  $—  $2,168,830 
 
CREDIT QUALITY INFORMATION
The Company utilizes a
six-grade
internal loan rating system for commercial real estate, construction and commercial loans as follows:
Loans rated
1-3
(Pass) — Loans in this category are considered “pass” rated loans with low to average risk.
Loans rated 4 (Monitor) — These loans represent classified loans that management is closely monitoring for credit quality. These loans have had or may have minor credit quality deterioration as of December 31, 2018.
Loans rated 5 (Substandard) — Substandard loans represent classified loans that management is closely monitoring for credit quality. These loans have had more significant credit quality deterioration as of December 31, 2018.
Loans rated 6 (Doubtful) — Doubtful loans represent classified loans that management is closely monitoring for credit quality. These loans had more significant credit quality deterioration as of December 31, 2018, and are doubtful for full collection.
Impaired — Impaired loans represent classified loans that management is closely monitoring for credit quality. A loan is classified as impaired when it is probable that the Company will be unable to collect all amounts due.
The following table presents the Company’s loans by risk rating at December 31, 2018.
 
  
Construction
and Land
Development
  
Commercial
and
Industrial
  
Municipal
  
Commercial
Real Estate
 
(dollars in thousands)
            
     
Grade:
                
     
1-3
(Pass)
 
$
13,628
  
$
757,089
  
$
97,290
  
$
723,170
 
     
4 (Monitor)
  
—
   
4,135
   
—
   
24,542
 
     
5 (Substandard)
  
—
   
—
   
—
   
—
 
     
6 (Doubtful)
  
—
   
—
   
—
   
—
 
     
Impaired
  
—
   
401
   
—
   
2,650
 
  
 
 
  
 
 
  
 
 
  
 
 
 
     
Total
 
$
13,628
  
$
761,625
  
$
97,290
  
$
750,362
 
  
 
 
  
 
 
  
 
 
  
 
 
 
The Company has increased its exposure to larger loans to large institutions with publicly available credit ratings. These ratings are tracked as a credit quality indicator for these loans.
The following table presents the Company’s loans by credit rating at December 31, 2018.
 
  
Commercial
and
Industrial
  
Municipal
  
Commercial
Real Estate
  
Total
 
(dollars in thousands)
            
     
Credit Rating:
                
     
Aaa-Aa3
 
$
491,247
  
$
54,105
  
$
42,790
  
$
588,142
 
     
A1-A3
  
172,472
   
7,605
   
151,381
   
331,458
 
     
Baa1-Baa3
  
—
   
26,970
   
118,197
   
145,167
 
     
Ba2
  
—
   
6,810
   
—
   
6,810
 
  
 
 
  
 
 
  
 
 
  
 
 
 
     
Total
 
$
 663,719
  
$
95,490
  
$
312,368
  
$
 1,071,577
 
  
 
 
  
 
 
  
 
 
  
 
 
 
 
The following table presents the Company’s loans by risk rating at December 31, 2017.
 
  
Construction
and Land
Development
  
Commercial

and

Industrial
  
Municipal
  
Commercial
Real Estate
 
(dollars in thousands)
            
     
Grade:
                
     
1-3
(Pass)
 $18,931  $ 758,093  $106,599  $ 705,235 
     
4 (Monitor)
  —   5,366   —   24,702 
     
5 (Substandard)
  —   —   —   — 
     
6 (Doubtful)
  —   —   —   — 
     
Impaired
  —   348   —   2,554 
  
 
 
  
 
 
  
 
 
  
 
 
 
     
Total
 $18,931  $763,807  $106,599  $732,491 
  
 
 
  
 
 
  
 
 
  
 
 
 
The following table presents the Company’s loans by credit rating at December 31, 2017.
 
  
Commercial
and
Industrial
  
Municipal
  
Commercial
Real Estate
  
Total
 
(dollars in thousands)
            
     
Credit Rating:
                
     
Aaa-Aa3
 $478,905  $62,029  $45,066  $586,000 
     
A1-A3
  195,599   7,635   128,554   331,788 
     
Baa1-Baa3
  —   26,970   122,000   148,970 
     
Ba2
  —   8,165   —   8,165 
  
 
 
  
 
 
  
 
 
  
 
 
 
     
Total
 $ 674,504  $ 104,799  $295,620  $ 1,074,923 
  
 
 
  
 
 
  
 
 
  
 
 
 
The Company utilized payment performance as credit quality indicators for residential real estate, consumer and overdrafts, and the home equity portfolio. The indicators are depicted in the table “aging of
past-due
loans,” below.
AGING OF
PAST-DUE
LOANS
At December 31, 2018 the aging of past due loans are as follows:
 
  
Accruing
30-89 Days

Past Due
  
Non
Accrual
  
Accruing
Greater
Than 90
Days
  
Total
Past Due
  
Current
Loans
  
Total
 
(dollars in thousands)
                  
       
Construction and land development
 
$
—
  
$
—
  
$
—
  
$
—
  
$
13,628
  
$
13,628
 
       
Commercial and industrial
  
187
   
115
   
—
   
302
   
761,323
   
761,625
 
       
Municipal
  
—
   
—
   
—
   
—
   
97,290
   
97,290
 
       
Commercial real estate
  
774
   
190
   
—
   
964
   
749,398
   
750,362
 
       
Residential real estate
  
2,554
   
569
   
—
   
3,123
   
345,127
   
348,250
 
       
Consumer and overdrafts
  
24
   
14
   
—
   
38
   
22,045
   
22,083
 
       
Home equity
  
1,108
   
425
   
—
   
1,533
   
290,807
   
292,340
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
       
    Total
 
$
4,647
  
$
1,313
  
$
—
  
$
5,960
  
$
 2,279,618
  
$
 2,285,578
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
 
At December 31, 2017 the aging of past due loans are as follows:
 
  
Accruing
30-89

Days
Past Due
  
Non
Accrual
  
Accruing
Greater
Than 90
Days
  
Total
Past
Due
  
Current
Loans
  
Total
 
(dollars in thousands)
                  
       
Construction and land development
 $—  $—  $—  $—  $18,931  $18,931 
       
Commercial and industrial
  65   44   —   109   763,698   763,807 
       
Municipal
  —   —   —   —   106,599   106,599 
       
Commercial real estate
  672   215   —   887   731,604   732,491 
       
Residential real estate
  4,282   724   —   5,006   282,725   287,731 
       
Consumer and overdrafts
  5   6   —   11   19,029   19,040 
       
Home equity
  618   695   —   1,313   246,032   247,345 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
       
Total
 $5,642  $1,684  $—  $7,326  $ 2,168,618  $ 2,175,944 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
IMPAIRED LOANS
A loan is impaired when, based on current information and events, it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. When a loan is impaired, the Company measures impairment based on the present value of expected future cash flows discounted at the loan’s effective interest rate, except that as a practical expedient, the Company measures impairment based on a loan’s observable market price or the fair value of the collateral if the loan is collateral dependent. Loans are
charged-off
when management believes that the collectibility of the loan’s principal is not probable. The specific factors that management considers in making the determination that the collectibility of the loan’s principal is not probable include; the delinquency status of the loan, the fair value of the collateral, if secured, and the financial strength of the borrower and/or guarantors. For collateral dependent loans, the amount of the recorded investment in a loan that exceeds the fair value of the collateral is
charged-off
against the allowance for loan losses in lieu of an allocation of a specific allowance amount when such an amount has been identified definitively as uncollectible. The Company’s policy for recognizing interest income on impaired loans is contained within Note 1 of the “Notes to Consolidated Financial Statements.”
 
The following is information pertaining to impaired loans at December 31, 2018:
 
  
Carrying
Value
  
Unpaid
Balance
Principal
  
Required
Reserve
  
Average
Carrying Value
Recognized
  
Interest
Income
 
(dollars in thousands)
               
      
With no required reserve recorded:
                    
      
Construction and land development
 
$
—
  
$
—
  
$
—
  
$
—
  
$
—
 
      
Commercial and industrial
  
87
   
291
   
—
   
46
   
5
 
      
Municipal
  
—
   
—
   
—
   
—
   
—
 
      
Commercial real estate
  
189
   
212
   
—
   
249
   
—
 
      
Residential real estate
  
—
   
—
   
—
   
—
   
—
 
      
Consumer
  
—
   
—
   
—
   
—
   
—
 
      
Home equity
  
—
   
—
   
—
   
—
   
—
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
      
Total
 
$
276
  
$
503
  
$
—
  
$
295
  
$
5
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
      
With required reserve recorded:
                    
      
Construction and land development
 
$
—
  
$
—
  
$
—
  
$
—
  
$
—
 
      
Commercial and industrial
  
314
   
315
   
54
   
462
   
13
 
      
Municipal
  
—
   
—
   
—
   
—
   
—
 
      
Commercial real estate
  
2,461
   
2,575
   
91
   
2,322
   
97
 
      
Residential real estate
  
—
   
—
   
—
   
2,412
   
81
 
      
Consumer
  
—
   
—
   
—
   
—
   
—
 
      
Home equity
  
—
   
—
   
—
   
—
   
—
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
      
Total
 
$
2,775
  
$
2,890
  
$
145
  
$
5,196
  
$
191
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
      
Total
                    
      
Construction and land development
 
$
—
  
$
—
  
$
—
  
$
—
  
$
—
 
      
Commercial and industrial
  
401
   
606
   
54
   
508
   
18
 
      
Municipal
  
—
   
—
   
—
   
—
   
—
 
      
Commercial real estate
  
2,650
   
2,787
   
91
   
2,571
   
97
 
      
Residential real estate
  
—
   
—
   
—
   
2,412
   
81
 
      
Consumer
  
—
   
—
   
—
   
—
   
—
 
      
Home equity
  
—
   
—
   
—
   
—
   
—
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
      
Total
 
$
3,051
  
$
3,393
  
$
145
  
$
5,491
  
$
196
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
 
The following is information pertaining to impaired loans at December 31, 2017:
 
  
Carrying
Value
  
Unpaid
Balance
Principal
  
Required
Reserve
  
Average
Carrying Value
Recognized
  
Interest
Income
 
(dollars in thousands)
               
      
With no required reserve recorded:
                    
      
Construction and land development
 $—  $—  $—  $—  $— 
      
Commercial and industrial
  113   325   —   54   4 
      
Municipal
  —   —   —   —   — 
      
Commercial real estate
  420   548   —   286   21 
      
Residential real estate
  —   —   —   73   — 
      
Consumer
  —   —   —   —   — 
      
Home equity
  —   —   —   —   — 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
      
Total
 $533  $873  $—  $413  $25 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
      
With required reserve recorded:
                    
      
Construction and land development
 $—  $—  $—  $43  $— 
      
Commercial and industrial
  235   235   7   318   12 
      
Municipal
  —   —   —   —   — 
      
Commercial real estate
  2,134   2,135   99   2,501   72 
      
Residential real estate
  4,212   4,212   58   2,333   73 
      
Consumer
  —   —   —   —   — 
      
Home equity
  —   —   —   —   — 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
      
Total
 $6,581  $6,582  $164  $5,195  $157 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
      
Total
                    
      
Construction and land development
 $—  $—  $—  $43  $— 
      
Commercial and industrial
  348   560   7   372   16 
      
Municipal
  —   —   —   —   — 
      
Commercial real estate
  2,554   2,683   99   2,787   93 
      
Residential real estate
  4,212   4,212   58   2,406   73 
      
Consumer
  —   —   —   —   — 
      
Home equity
  —   —   —   —   — 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
      
Total
 $7,114  $7,455  $164  $5,608  $182 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Troubled Debt Restructurings are identified as a modification in which a concession was granted to a customer who was having financial difficulties. This concession may be below market rate, longer amortization/term, or a lower payment amount. The present value calculation of the modification did not result in an increase in the allowance for these loans beyond any previously established allocations.
There was one residential real estate loan and one consumer loan that were modified during the first quarter of 2018. The loans were modified by reducing the interest rates as well as extending the terms on both loans. The
pre-modification
and post-modification outstanding recorded investment was $2,675,000 for the residential real estate loan that was not accruing interest. The
pre-modification
and post-modification outstanding recorded investment was $17,000 for the consumer loan that was accruing interest. The financial impact for the modifications was not material. Both troubled debt restructurings subsequently defaulted during 2018. The residential real estate loan was partially charged off for $450,000 and was recorded as other real estate owned for $2,225,000 during the fourth quarter of 2018. Other real estate owned is included in other assets on the balance sheet. The consumer loan was fully charged off during the fourth quarter of 2018.
There were no troubled debt restructurings occurring during the year ended December 31, 2017. There were no troubled debt restructurings that subsequently defaulted during 2017.