Allowance for Credit Losses [Text Block] | Note 7: Credit Quality Assessment Allowance for Credit Losses Credit risk can vary significantly as losses, as a percentage of outstanding loans, can vary widely during economic cycles and are sensitive to changing economic conditions. The amount of loss in any particular type of loan can vary depending on the purpose of the loan and the underlying collateral securing the loan. Collateral securing commercial loans can range from accounts receivable to equipment to improved or unimproved real estate depending on the purpose of the loan. Home mortgage and home equity loans and lines are typically secured by first or second liens on residential real estate. Consumer loans may be secured by personal property, such as auto loans or they may be unsecured loan products. To control and manage credit risk, management has an internal credit process in place to determine whether credit standards are maintained along with an in-house loan administration accompanied by oversight and review procedures. The primary purpose of loan underwriting is the evaluation of specific lending risks that involves the analysis of the borrower’s ability to service the debt as well as the assessment of the value of the underlying collateral. Oversight and review procedures include the monitoring of the portfolio credit quality, early identification of potential problem credits and the management of the problem credits. As part of the oversight and review process, the Company maintains an allowance for credit losses (the “allowance”) to absorb estimated and probable losses in the loan and lease portfolio. The allowance is based on consistent, continuous review and evaluation of the loan and lease portfolio, along with ongoing assessments of the probable losses and problem credits in each portfolio. While portions of the allowance are attributed to specific portfolio segments, the entire allowance is available to credit losses inherent in the total loan portfolio. December 31, 2016 Commercial Commercial Commercial Construction Residential Residential owner non-owner loans Consumer (in thousands) and land first lien junior lien occupied occupied and leases loans Total Allowance for credit losses: Beginning balance $ 265 $ 300 $ 47 $ 309 $ 728 $ 3,094 $ 126 $ 4,869 Charge-offs (216) - - (191) - (234) (20) (661) Recoveries - - - 40 5 101 37 183 Provision for credit losses 462 154 42 169 387 839 (16) 2,037 Ending balance $ 511 $ 454 $ 89 $ 327 $ 1,120 $ 3,800 $ 127 $ 6,428 Allowance allocated to: Legacy Loans: individually evaluated for impairment $ - $ 7 $ - $ - $ - $ 1,877 $ - $ 1,884 collectively evaluated for impairment 466 305 66 259 912 1,520 34 3,562 Acquired Loans: individually evaluated for impairment - - - - - 199 72 271 collectively evaluated for impairment 45 142 23 68 208 204 21 711 Loans: Legacy Loans: Ending balance $ 67,205 $ 113,284 $ 24,380 $ 103,710 $ 165,331 $ 133,708 $ 2,780 $ 610,398 individually evaluated for impairment - 508 - 464 2,667 3,565 - 7,204 collectively evaluated for impairment 67,205 112,776 24,380 103,246 162,664 130,143 2,780 603,194 Acquired Loans: Ending balance 5,768 81,748 10,629 30,503 51,450 29,007 2,021 211,126 individually evaluated for impairment 125 277 37 45 481 1,577 167 2,709 collectively evaluated for impairment 5,643 81,471 10,592 30,458 50,969 27,430 1,854 208,417 December 31, 2015 Commercial Commercial Commercial Construction Residential Residential owner non-owner loans Consumer (in thousands) and land first lien junior lien occupied occupied and leases loans Total Allowance for credit losses: Beginning balance $ 174 $ 272 $ 55 $ 160 $ 562 $ 2,366 $ 13 $ 3,602 Charge-offs - (23) (12) - (82) (825) (5) (947) Recoveries - 3 1 - 318 52 4 378 Provision for credit losses 91 48 3 149 (70) 1,501 114 1,836 Ending balance $ 265 $ 300 $ 47 $ 309 $ 728 $ 3,094 $ 126 $ 4,869 Allowance for credit losses: Legacy Loans: individually evaluated for impairment $ - $ - $ - $ - $ - $ 1,160 $ - $ 1,160 collectively evaluated for impairment 257 289 40 262 621 1,799 30 3,298 Acquired Loans: individually evaluated for impairment - - - - - 48 75 123 collectively evaluated for impairment 8 11 7 47 107 87 21 288 Loans: Legacy Loans: Ending balance $ 63,085 $ 89,649 $ 15,098 $ 94,393 $ 122,304 $ 121,981 $ 1,302 $ 507,811 individually evaluated for impairment - 631 63 - 2,838 5,086 - 8,618 collectively evaluated for impairment 63,085 89,018 15,035 94,393 119,466 116,895 1,302 499,193 Acquired Loans: Ending balance 6,300 93,339 12,379 36,722 59,057 38,443 2,951 249,191 individually evaluated for impairment - 363 - 232 151 1,728 150 2,624 collectively evaluated for impairment 6,300 92,976 12,379 36,490 58,906 36,715 2,801 246,567 December 31, 2014 Commercial Commercial Commercial Construction Residential Residential owner non-owner loans Consumer (in thousands) and land first lien junior lien occupied occupied and leases loans Total Allowance for credit losses: Beginning balance $ 122 $ 200 $ 34 $ 131 $ 541 $ 1,464 $ 14 $ 2,506 Charge-offs - - - - (160) (2,054) (5) (2,219) Recoveries - 1 - - 4 55 - 60 Provision for credit losses 52 71 21 29 177 2,901 4 3,255 Ending balance $ 174 $ 272 $ 55 $ 160 $ 562 $ 2,366 $ 13 $ 3,602 Allowance allocated to: Legacy Loans: individually evaluated for impairment $ 60 $ - $ - $ - $ - $ 483 $ - $ 543 collectively evaluated for impairment 108 271 25 142 502 1,745 13 2,806 Acquired Loans: individually evaluated for impairment - - 30 - - 55 - 85 collectively evaluated for impairment 6 1 - 18 60 83 - 168 Loans: Legacy Loans: Ending balance $ 56,490 $ 58,904 $ 11,006 $ 85,824 $ 100,589 $ 113,176 $ 1,485 $ 427,474 individually evaluated for impairment 1,144 308 - - 2,700 2,073 - 6,225 collectively evaluated for impairment 55,346 58,596 11,006 85,824 97,889 111,103 1,485 421,249 Acquired Loans: Ending balance 6,260 19,525 7,539 37,519 33,021 18,745 2,834 125,443 individually evaluated for impairment - 411 57 - - 405 92 965 collectively evaluated for impairment 6,260 19,114 7,482 37,519 33,021 18,340 2,742 124,478 Integral to the assessment of the allowance process is an evaluation that is performed to determine whether a specific reserve on an impaired credit is warranted. At such time an action plan is agreed upon for the particular loan, an appraisal will be ordered (for real estate based collateral) depending on the time elapsed since the prior appraisal, the loan balance and/or the result of the internal evaluation. The Company’s policy is to strictly adhere to regulatory appraisal standards. If an appraisal is ordered, no more than a 45 day turnaround is requested from the appraiser, who is selected from an approved appraiser list. After receipt of the updated appraisal, the Company’s Watch Committee will determine whether a specific reserve or a charge-off should be taken based upon an impairment analysis. When potential losses are identified, a specific provision and/or charge-off may be taken, based on the then current likelihood of repayment, that is at least in the amount of the collateral deficiency, and any potential collection costs, as determined by the independent third party appraisal. Any further collateral deterioration may result in either further specific reserves being established or additional charge-offs. The President and the Chief Lending Officer have the authority to approve a specific reserve or charge-off between Watch Committee meetings to ensure that there are no significant time lapses during this process. The Company’s systematic methodology for evaluating whether a loan is impaired begins with risk-rating credits on an individual basis and includes consideration of the borrower’s overall financial condition, resources and payment record, the sufficiency of collateral and, in a select few cases, support from financial guarantors. In measuring impairment, the Company looks to the discounted cash flows of the project itself or the value of the collateral as the primary sources of repayment of the loan. The Company will consider the existence of guarantees and the financial strength and wherewithal of the guarantors involved in any loan relationship as both a secondary source of repayment and for the potential as the primary repayment of the loan . The Company typically relies on recent third party appraisals of the collateral to assist in measuring impairment. Management has established a credit process that dictates that structured procedures be performed to monitor these loans between the receipt of an original appraisal and the updated appraisal. These procedures include the following: ⋅ An internal evaluation is updated quarterly to include borrower financial statements and/or cash flow projections. ⋅ The borrower may be contacted for a meeting to discuss an update or revised action plan which may include a request for additional collateral. ⋅ Re-verification of the documentation supporting the Company’s position with respect to the collateral securing the loan. ⋅ At the Watch Committee meeting the loan may be downgraded and a specific reserve may be decided upon in advance of the receipt of the appraisal if it is determined that the likelihood of repayment is in doubt. The Company generally follows a policy of not extending maturities on non-performing loans under existing terms. The Company may extend the maturity of a performing or current loan that may have some inherent weakness associated with the loan. Maturity date extensions only occur under terms that clearly place the Company in a position to assure full collection of the loan under the contractual terms and /or terms at the time of the extension that may eliminate or mitigate the inherent weakness in the loan. These terms may incorporate, but are not limited to additional assignment of collateral, significant balance curtailments/liquidations and assignments of additional project cash flows. Guarantees may be a consideration in the extension of loan maturities, but the Company does not extend loans based solely on guarantees. As a general matter, the Company does not view extension of a loan to be a satisfactory approach to resolving non-performing credits. On an exception basis, certain performing loans that have displayed some inherent weakness in the underlying collateral values, an inability to comply with certain loan covenants which are not affecting the performance of the credit or other identified weakness may be extended. Collateral values or estimates of discounted cash flows (inclusive of any potential cash flow from guarantees) are evaluated to estimate the probability and severity of potential losses. A specific amount of impairment is established based on the Company’s calculation of the probable loss inherent in the individual loan. The actual occurrence and severity of losses involving impaired credits can differ substantially from estimates. December 31, 2016 Commercial Commercial Commercial Construction Residential Residential owner non-owner loans Consumer (in thousands) and land first lien junior lien occupied occupied and leases loans Total Credit quality indicators: Legacy Loans: Not classified $ 67,205 $ 113,070 $ 24,380 $ 103,246 $ 162,336 $ 130,137 $ 2,780 $ 603,154 Special mention - - - - - 524 - 524 Substandard - - - - 2,401 - - 2,401 Doubtful - 214 - 464 594 3,047 - 4,319 Total $ 67,205 $ 113,284 $ 24,380 $ 103,710 $ 165,331 $ 133,708 $ 2,780 $ 610,398 Acquired Loans: Not classified $ 5,768 $ 80,678 $ 10,592 $ 30,458 $ 50,429 $ 27,430 $ 1,854 $ 207,209 Special mention - - - - - - - - Substandard - 793 - - 540 - - 1,333 Doubtful - 277 37 45 481 1,577 167 2,584 Total $ 5,768 $ 81,748 $ 10,629 $ 30,503 $ 51,450 $ 29,007 $ 2,021 $ 211,126 December 31, 2015 Commercial Commercial Commercial Construction Residential Residential owner non-owner loans Consumer (in thousands) and land first lien junior lien occupied occupied and leases loans Total Credit quality indicators: Legacy Loans: Not classified $ 63,085 $ 89,081 $ 15,035 $ 94,392 $ 119,637 $ 118,288 $ 1,302 $ 500,819 Special mention - - - - - 614 - 614 Substandard - 410 - - 2,073 7 - 2,490 Doubtful - 158 63 - 594 3,072 - 3,887 Total $ 63,085 $ 89,649 $ 15,098 $ 94,392 $ 122,304 $ 121,981 $ 1,302 $ 507,810 Acquired Loans: Not classified $ 6,300 $ 92,975 $ 12,379 $ 36,484 $ 58,393 $ 36,731 $ 2,801 $ 246,063 Special mention - - - - - - - - Substandard - - - - 519 - - 519 Doubtful - 364 - 238 145 1,712 150 2,609 Total $ 6,300 $ 93,339 $ 12,379 $ 36,722 $ 59,057 $ 38,443 $ 2,951 $ 249,191 · Special Mention - A Special Mention asset has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the institution’s credit position at some future date. Special Mention assets are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification. · Substandard - Substandard loans are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. · Doubtful - Loans classified Doubtful have all the weaknesses inherent in those classified Substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions and values, highly questionable and improbable. Loans classified Special Mention, Substandard, Doubtful or Loss are reviewed at least quarterly to determine their appropriate classification. All commercial loan relationships are reviewed annually. Non-classified residential mortgage loans and consumer loans are not evaluated unless a specific event occurs to raise the awareness of a possible credit deterioration. December 31, 2016 Commercial Commercial Commercial Construction Residential Residential owner non-owner loans Consumer (in thousands) and land first lien junior lien occupied occupied and leases loans Total Analysis of past due loans: Legacy Loans: Accruing loans current $ 67,007 $ 112,562 $ 24,090 $ 103,246 $ 162,034 $ 130,621 $ 2,780 $ 602,340 Accruing loans past due: 31-59 days past due - 394 290 - - 6 - 690 60-89 days past due 197 - - - - 34 - 231 Greater than 90 days past due 1 114 - - 2,703 - - 2,818 Total past due 198 508 290 - 2,703 40 - 3,739 Non-accrual loans - 214 - 464 594 3,047 - 4,319 Total loans $ 67,205 $ 113,284 $ 24,380 $ 103,710 $ 165,331 $ 133,708 $ 2,780 $ 610,398 Acquired Loans: Accruing loans current $ 5,768 $ 78,654 $ 10,544 $ 30,392 $ 50,503 $ 26,843 $ 1,851 $ 204,555 Accruing loans past due: 31-59 days past due - 2,259 44 66 466 587 1 3,423 60-89 days past due - 374 4 - - - 1 379 Greater than 90 days past due - 184 - - - - 1 185 Total past due - 2,817 48 66 466 587 3 3,987 Non-accrual loans - 277 37 45 481 1,577 167 2,584 Total loans $ 5,768 $ 81,748 $ 10,629 $ 30,503 $ 51,450 $ 29,007 $ 2,021 $ 211,126 December 31, 2015 Commercial Commercial Commercial Construction Residential Residential owner non-owner loans Consumer (in thousands) and land first lien junior lien occupied occupied and leases loans Total Analysis of past due loans: Legacy Loans: Accruing loans current $ 63,070 $ 89,319 $ 15,034 $ 94,141 $ 121,094 $ 117,025 $ 1,301 $ 500,983 Accruing loans past due: 31-59 days past due - - 1 252 - 24 1 278 60-89 days past due - - - - - 725 - 725 Greater than 90 days past due 15 - - - 445 - - 460 Total past due 15 - 1 252 445 749 1 1,463 Non-accrual loans - 330 63 - 765 4,207 - 5,365 Total loans $ 63,085 $ 89,649 $ 15,098 $ 94,393 $ 122,304 $ 121,981 $ 1,302 $ 507,811 Acquired Loans: Accruing loans current $ 5,924 $ 91,936 $ 12,290 $ 35,574 $ 58,369 $ 36,568 $ 2,765 $ 243,426 Accruing loans past due: 31-59 days past due 67 89 59 73 337 - 11 636 60-89 days past due 309 10 - 607 200 - 23 1,149 Greater than 90 days past due - 941 30 236 - 147 2 1,356 Total past due 376 1,040 89 916 537 147 36 3,141 Non-accrual loans - 363 - 232 151 1,728 150 2,624 Total loans $ 6,300 $ 93,339 $ 12,379 $ 36,722 $ 59,057 $ 38,443 $ 2,951 $ 249,191 Total loans either in non-accrual status or in excess of 90 days delinquent totaled $ 9.9 1.2 9.8 1.3 December 31, 2016 Commercial Commercial Commercial Construction Residential Residential owner non-owner loans Consumer (in thousands) & land first lien junior lien occupied occupied and leases loans Total Impaired loans: Legacy Loans: Recorded investment $ - $ 508 $ - $ 464 $ 2,667 $ 3,565 $ - $ 7,204 With an allowance recorded - 214 - - - 2,627 - 2,841 With no related allowance recorded - 294 - 464 2,667 938 - 4,363 Related allowance - 7 - - - 1,877 - 1,884 Unpaid principal - 508 - 464 2,667 3,565 - 7,204 Average balance of impaired loans - 541 - 491 2,667 4,127 - 7,826 Interest income recognized - 25 - 24 30 131 - 210 Acquired Loans: Recorded investment $ 125 $ 277 $ 37 $ 45 $ 481 $ 1,577 $ 167 $ 2,709 With an allowance recorded - - - - - 850 140 990 With no related allowance recorded 125 277 37 45 481 727 27 1,719 Related allowance - - - - - 199 72 271 Unpaid principal 125 815 38 45 619 2,129 174 3,945 Average balance of impaired loans 378 294 38 45 785 2,328 176 4,044 Interest income recognized 4 4 - - 17 103 1 129 December 31, 2015 Commercial Commercial Commercial Construction Residential Residential owner non-owner loans Consumer (in thousands) & land first lien junior lien occupied occupied and leases loans Total Impaired loans: Legacy Loans: Recorded investment $ - $ 631 $ 63 $ - $ 2,838 $ 5,086 $ - $ 8,618 With an allowance recorded - - - - - 1,160 - 1,160 With no related allowance recorded - 631 63 - 2,838 3,926 - 7,458 Related allowance - - - - - 1,160 - 1,160 Unpaid principal - 631 63 - 2,838 5,086 - 8,618 Average balance of impaired loans - 622 74 - 3,417 7,198 - 11,311 Interest income recognized - 29 - - 119 284 - 432 Acquired Loans: Recorded investment $ - $ 363 $ - $ 232 $ 151 $ 1,728 $ 150 $ 2,624 With an allowance recorded - - - - - 48 75 123 With no related allowance recorded - 363 - 232 151 1,680 75 2,501 Related allowance - - - - - 48 75 123 Unpaid principal - 426 - 402 302 2,742 150 4,022 Average balance of impaired loans - 444 - 197 63 901 106 1,711 Interest income recognized - 8 - 8 - 3 6 25 Included in the total impaired loans above were non-accrual loans of $ 6.9 8.0 673 345 187 The following table outlines the acquired impaired loans at December 31, 2016 and December 31, 2015: December 31, 2016 Commercial Commercial Commercial Construction Residential Residential owner non-owner loans Consumer (in thousands) and land first lien junior lien occupied occupied and leases loans Total Acquired Impaired Loans: Substandard Contractual payment receivable $ - $ - $ - $ - $ 466 $ - $ - $ 466 Non-Accretable adjustment - - - - - - - - Cash flow expected - - - - 466 - - 466 Accretable yield - - - - 18 - - 18 Loan receivable $ - $ - $ - $ - $ 448 $ - $ - $ 448 Doubtful Contractual payment receivable $ - $ - $ - $ - $ 619 $ 1,777 $ - $ 2,396 Non-Accretable adjustment - - - - 125 486 - 611 Cash flow expected - - - - 494 1,291 - 1,785 Accretable yield - - - - 13 65 - 78 Loan receivable $ - $ - $ - $ - $ 481 $ 1,226 $ - $ 1,707 December 31, 2015 Commercial Commercial Commercial Construction Residential Residential owner non-owner loans Consumer (in thousands) and land first lien junior lien occupied occupied and leases loans Total Acquired Impaired Loans: Substandard Contractual payment receivable $ - $ - $ - $ - $ 539 $ - $ - $ 539 Non-Accretable adjustment - - - - - - - - Cash flow expected - - - - 539 - - 539 Accretable yield - - - - 20 - - 20 Loan receivable $ - $ - $ - $ - $ 519 $ - $ - $ 519 Doubtful Contractual payment receivable $ - $ 426 $ - $ 403 $ 302 $ 2,742 $ - $ 3,873 Non-Accretable adjustment - 18 - 125 125 793 - 1,061 Cash flow expected - 408 - 278 177 1,949 - 2,812 Accretable yield - 44 - 40 32 237 - 353 Loan receivable $ - $ 364 $ - $ 238 $ 145 $ 1,712 $ - $ 2,459 Loans may have their terms restructured (e.g., interest rates, loan maturity date, payment and amortization period, etc.) in circumstances that provide payment relief to a borrower experiencing financial difficulty. Such restructured loans are considered impaired loans that may either be in accruing status or non-accruing status. Non-accruing restructured loans may return to accruing status provided there is a sufficient period of payment performance in accordance with the restructure terms. Loans may be removed from the restructured category in the year subsequent to the restructuring if they have performed based on all of the restructured loan terms. December 31, 2016 Number Non-Accrual Number Accrual Total (dollars in thousands) of Loans Status of Loans Status TDRs Construction and land - $ - 1 $ 125 $ 125 Residential real estate - first lien 1 214 1 294 508 Commercial - non-owner occupied 1 594 1 2,073 2,667 Commercial loans and leases 1 913 1 183 1,096 Consumer 1 140 - - 140 4 $ 1,861 4 $ 2,675 $ 4,536 December 31, 2015 Number Non-Accrual Number Accrual Total (dollars in thousands) of Loans Status of Loans Status TDRs Residential real estate - first lien - $ - 1 $ 301 $ 301 Commercial - non-owner occupied 1 594 1 2,073 2,667 Commercial loans and leases - - 1 7 7 Consumer 1 150 - - 150 2 $ 744 3 $ 2,381 $ 3,125 December 31, 2016 Not Performing Performing Related to Modified to Modified Total (in thousands) Allowance Terms Terms TDRs Construction and land Extension or other modification $ - $ - $ 125 $ 125 Residential real estate - first lien Extension or other modification 7 214 294 508 Commercial RE - non-owner occupied Rate modification - 594 2,073 2,667 Commercial loans Forbearance 913 913 183 1,096 Consumer Extension or other modification 72 140 - 140 Total troubled debt restructure loans $ 992 $ 1,861 $ 2,675 $ 4,536 December 31, 2015 Not Performing Performing Related to Modified to Modified Total (in thousands) Allowance Terms Terms TDRs Residential real estate - first lien Forbearance $ - $ - $ 301 $ 301 Commercial RE - non-owner occupied Rate modification - 594 2,073 2,667 Commercial loans Extension or other modification - - 7 7 Consumer Extension or other modification 75 150 - 150 Total troubled debt restructure loans $ 75 $ 744 $ 2,381 $ 3,125 There were four loans totaling $ 1.4 ⋅ One commercial loan in the amount of $ 183 ⋅ One land development loan in the amount of $ 125 ⋅ One residential first lien mortgage in the amount of $ 214 ⋅ The restructuring of a $ 913 There were three loans totaling $ 2.8 ⋅ Two commercial real estate loans totaling $ 2.7 ⋅ One consumer loan in the amount of $ 150 As a part of the modification of the land development loan restructured during 2016, the Bank agreed to forgive $ 215 340 125 Performing TDRs were in compliance with their modified terms and there are no further commitments associated with these loans. During the years ended December 31, 2016, 2015, and 2014, there were no TDRs that subsequently defaulted within twelve months of their modification dates. In 2016 the Company transferred one loan in the amount of $ 256 625 83 736 |