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 for credit losses inherent in the total loan portfolio. December 31, 2017 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 $ 511 $ 454 $ 89 $ 327 $ 1,120 $ 3,800 $ 127 $ 6,428 Charge-offs (155) (133) (31) (235) - (1,605) (108) (2,267) Recoveries 6 - 1 6 6 113 35 167 Provision for credit losses 373 347 118 519 284 221 (31) 1,831 Ending balance $ 735 $ 668 $ 177 $ 617 $ 1,410 $ 2,529 $ 23 $ 6,159 Allowance allocated to: individually evaluated for impairment $ 202 $ - $ 29 $ - $ 11 $ 668 $ - $ 910 collectively evaluated for impairment $ 533 $ 668 $ 148 $ 617 $ 1,399 $ 1,861 $ 23 $ 5,249 Loans: Ending balance $ 74,398 $ 194,896 $ 43,047 $ 170,408 $ 260,802 $ 188,729 $ 4,328 $ 936,608 individually evaluated for impairment $ 761 $ 2,009 $ 396 $ 508 $ 5,867 $ 3,724 $ - $ 13,265 collectively evaluated for impairment $ 73,637 $ 192,887 $ 42,651 $ 169,900 $ 254,935 $ 185,005 $ 4,328 $ 923,343 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: individually evaluated for impairment $ - $ 7 $ - $ - $ - $ 2,076 $ 72 $ 2,155 collectively evaluated for impairment $ 511 $ 447 $ 89 $ 327 $ 1,120 $ 1,724 $ 55 $ 4,273 Loans: Ending balance $ 72,973 $ 195,032 $ 35,009 $ 134,213 $ 216,781 $ 162,715 $ 4,801 $ 821,524 individually evaluated for impairment $ 125 $ 785 $ 37 $ 509 $ 3,148 $ 5,142 $ 167 $ 9,913 collectively evaluated for impairment $ 72,848 $ 194,247 $ 34,972 $ 133,704 $ 213,633 $ 157,573 $ 4,634 $ 811,611 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: individually evaluated for impairment $ - $ - $ - $ - $ - $ 1,208 $ 75 $ 1,283 collectively evaluated for impairment $ 265 $ 300 $ 47 $ 309 $ 728 $ 1,886 $ 51 $ 3,586 Loans: Ending balance $ 69,385 $ 182,988 $ 27,477 $ 131,114 $ 181,361 $ 160,424 $ 4,253 $ 757,002 individually evaluated for impairment $ - $ 994 $ 63 $ 232 $ 2,989 $ 6,814 $ 150 $ 11,242 collectively evaluated for impairment $ 69,385 $ 181,994 $ 27,414 $ 130,882 $ 178,372 $ 153,610 $ 4,103 $ 745,760 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, 2017 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: Not classified $ 73,761 $ 193,174 $ 42,651 $ 169,900 $ 253,255 $ 184,858 $ 4,328 $ 921,927 Special mention - - - - 1,592 - - 1,592 Substandard 637 1,103 5 508 3,725 801 - 6,779 Doubtful - 619 391 - 2,230 3,070 - 6,310 Total $ 74,398 $ 194,896 $ 43,047 $ 170,408 $ 260,802 $ 188,729 $ 4,328 $ 936,608 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: Not classified $ 72,973 $ 193,748 $ 34,972 $ 133,704 $ 212,765 $ 157,567 $ 4,634 $ 810,363 Special mention - - - - - 524 - 524 Substandard - 793 - - 2,941 - - 3,734 Doubtful - 491 37 509 1,075 4,624 167 6,903 Total $ 72,973 $ 195,032 $ 35,009 $ 134,213 $ 216,781 $ 162,715 $ 4,801 $ 821,524 · Special Mention · Substandard · Doubtful 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. An aged analysis of past due loans is as follows: December 31, 2017 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: Accruing loans current $ 73,386 $ 185,135 $ 42,491 $ 169,596 $ 251,608 $ 185,239 $ 4,328 $ 911,783 Accruing loans past due: 30-59 days past due 279 6,381 110 173 - 52 - 6,995 60-89 days past due 96 1,330 - - 364 - - 1,790 Greater than 90 days past due - 328 50 131 2,963 - - 3,472 Total past due 375 8,039 160 304 3,327 52 - 12,257 Non-accrual loans 637 1,722 396 508 5,867 3,438 - 12,568 Total loans $ 74,398 $ 194,896 $ 43,047 $ 170,408 $ 260,802 $ 188,729 $ 4,328 $ 936,608 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: Accruing loans current $ 72,775 $ 191,216 $ 34,634 $ 133,638 $ 212,537 $ 157,464 $ 4,631 $ 806,895 Accruing loans past due: 30-59 days past due - 2,653 334 66 466 593 1 4,113 60-89 days past due 197 374 4 - - 34 1 610 Greater than 90 days past due 1 298 - - 2,703 - 1 3,003 Total past due 198 3,325 338 66 3,169 627 3 7,726 Non-accrual loans - 491 37 509 1,075 4,624 167 6,903 Total loans $ 72,973 $ 195,032 $ 35,009 $ 134,213 $ 216,781 $ 162,715 $ 4,801 $ 821,524 Total loans either in non-accrual status or in excess of 90 days delinquent totaled $ 16.0 1.7 9.9 1.2 729 349 December 31, 2017 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: Recorded investment $ 761 $ 2,009 $ 396 $ 508 $ 5,867 $ 3,724 $ - $ 13,265 With an allowance recorded 637 - 391 - 2,230 2,883 - 6,141 With no related allowance recorded 124 2,009 5 508 3,637 841 - 7,124 Related allowance 202 - 29 - 11 668 - 910 Unpaid principal 762 2,034 403 509 5,884 5,293 - 14,885 Average balance of impaired loans 756 2,100 403 519 5,956 5,988 - 15,722 Interest income recognized 19 60 12 - 132 150 - 373 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: Recorded investment $ 125 $ 785 $ 37 $ 509 $ 3,148 $ 5,142 $ 167 $ 9,913 With an allowance recorded - 214 - - - 3,477 140 3,831 With no related allowance recorded 125 571 37 509 3,148 1,665 27 6,082 Related allowance - 7 - - - 2,076 72 2,155 Unpaid principal 125 1,323 38 509 3,286 5,694 174 11,149 Average balance of impaired loans 378 835 38 536 3,452 6,455 176 11,870 Interest income recognized 4 29 - 24 47 234 1 339 Included in the total impaired loans above were non-accrual loans of $ 12.6 6.9 898 673 345 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, 2017 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 2 886 1 287 1,173 Residential real estate - junior lien 1 398 - - 398 Commercial - non-owner occupied 2 2,815 - - 2,815 Commercial loans and leases 2 599 1 208 807 7 $ 4,698 3 $ 620 $ 5,318 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 A summary of TDR modifications outstanding and performance under modified terms is as follows: December 31, 2017 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 - 886 287 1,173 Residential real estate - junior lien Forbearance 30 398 - 398 Commercial RE - non-owner occupied Rate modification - 2,815 - 2,815 Commercial loans Extension or other modification - 85 208 293 Forbearance 32 514 - 514 Total troubled debt restructure loans $ 62 $ 4,698 $ 620 $ 5,318 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 Extension or other modification 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 There were four new loans restructured during 2017, consisting of the following: · A commercial loan in the amount of $ 85 · A residential first lien mortgage loan in the amount of $ 398 · A residential first lien mortgage loan in the amount of $ 683 · A commercial loan in the amount of $ 208 TDRs restructured prior to 2017 consisted of the following: · Two residential first lien loans totaling $ 491 · One commercial loan in the amount $ 514 · One land development loan in the amount of $ 125 · Two commercial real estate loans totaling $ 2.8 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 2017 there were no TDRs that subsequently defaulted within twelve months of their modification dates. There was one consumer loan restructured in 2015 in the amount of $ 150 Management routinely evaluates other real estate owned (“OREO”) based upon periodic appraisals. For the years ended December 31, 2017, 2016 and 2015 there were additional allowances recorded of $ 581 83 736 12 184 |