Loans | Note 6 – Loans The Bank provides commercial and industrial, commercial mortgage, commercial construction, automobile and other consumer loans in each of the markets it serves. It also offers residential mortgage, home equity and certain U.S. government guaranteed loans in Guam, the Northern Mariana Islands and California. The Bank has two commercial agricultural loans outstanding in Guam. Outstanding loan balances are presented net of unearned income, net deferred loan fees, and unamortized discount and premium totaling $2.6 million at December 31, 2018 and $2.8 million at December 31, 2017. The loan portfolio consisted of the following at: December 31, 2018 2017 Amount Percent Amount Percent (Dollars in thousands) Commercial Commercial & industrial $ 243,465 19.7 % $ 256,022 20.8 % Commercial mortgage 560,827 45.3 % 553,125 45.0 % Commercial construction 39,408 3.2 % 10,157 0.8 % Commercial agriculture 688 0.1 % 716 0.1 % Total commercial 844,388 68.2 % 820,020 66.7 % Consumer Residential mortgage 138,923 11.2 % 137,962 11.2 % Home equity 1,325 0.1 % 545 0.0 % Automobile 26,686 2.2 % 30,490 2.5 % Other consumer loans 1 227,242 18.3 % 240,863 19.6 % Total consumer 394,176 31.8 % 409,860 33.3 % Gross loans 1,238,564 100.0 % 1,229,880 100.0 % Deferred loan (fees) costs, net (2,649 ) (2,777 ) Allowance for loan losses (23,774 ) (17,279 ) Loans, net $ 1,212,141 $ 1,209,824 1 Comprised of other revolving credit, installment, and overdrafts. At December 31, 2018, total gross loans increased by $8.7 million, to $1.24 billion, up from $1.23 billion at December 31, 2017. The growth in loans was largely attributed to (i) an increase of $29.3 million in the commercial construction loan category, from $10.2 million to $39.4 million, (ii) an increase of $7.7 million commercial mortgage loans, from $553.1 million to $560.8 million, (iii) a $961 thousand increase in residential mortgage loans, to $138.9 million from $138.0 million, due to new loans, and (iv) an increase of $780 thousand in home equity loans, from $545 thousand to $ 1.3 million. These were partially offset by (i) a $13.6 million decrease in other consumer loans, to $ 227.2 million from $ 240.9 million, due primarily to payoffs and paydowns, (ii) a $12.6 million decrease in commercial & industrial loan category due to payoffs and paydowns, and (iii) a $3.8 million decrease in automobile loans outstanding. Allowance for Loan Losses The allowance for loan losses is evaluated on a regular basis by management, and is based upon management’s periodic review of the collectability of loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral, and prevailing economic conditions. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as more information becomes available. The portion of the allowance that covers unimpaired loans is based on historical charge-off experience and expected loss, given the default probability derived from the Bank’s internal risk rating process. Other adjustments may be made to the allowance for pools of loans after an assessment of internal or external influences on credit quality that are not fully reflected in the historical loss or risk rating data. Our loss migration analysis tracks a certain number of quarters of loan loss history and industry loss factors to determine historical losses by classification category for each loan type, except certain consumer loans. These calculated loss factors are then applied to outstanding loan balances for all loans on accrual designated as “Pass,” “Special Mention,” “Substandard” or “Doubtful” (“classification categories”). Additionally, a qualitative factor that is determined utilizing external economic factors and internal assessments is applied to each homogeneous loan pool. We also conduct individual loan review analyses as part of the allowance for loan loss allocation process, applying specific monitoring policies and procedures in analyzing the existing loan portfolios. Credit Quality Indicators The Bank uses several credit quality indicators to manage credit risk, including an internal credit risk rating system that categorizes loans into pass, special mention, substandard, doubtful or loss categories. Credit risk ratings are applied individually to those classes of loans that have significant or unique credit characteristics and that benefit from a case-by-case evaluation. These are typically loans to businesses or individuals in the classes which comprise the commercial portfolio segment. Groups of loans that are underwritten and structured using standardized criteria and characteristics, such as statistical models (e.g., credit scoring or payment performance), are typically risk-rated and monitored collectively. These are typically loans to individuals in the classes which comprise the consumer portfolio segment. The following are the definitions of the Bank’s credit quality indicators: Pass (A): Exceptional: Essentially risk-free credit. These are loans of the highest quality that pose virtually no risk of loss to the Bank. This includes loans fully collateralized by means of a savings account(s) and time certificate(s) of deposit, and by at least 110% of the loan amount. Borrowers should have strong financial statements, good liquidity and excellent credit. Pass (B): Standard: Multiple “strong sources of repayment.” Loans to strong borrowers with a demonstrated history of financial and managerial performance. Risk of loss is considered to be low. Loans are well structured, with clearly identified primary and readily available secondary sources of repayment. Loans may be secured by an equal amount of funds in a savings account or time certificate of deposit. Loans may be secured by marketable collateral whose value can be reasonably determined through outside appraisals. Very strong cash flow and relatively low leverage. Pass (C): Acceptable: “Good” primary and secondary sources of repayment. Loans to borrowers of average financial strength, stability and management expertise. Borrower should be a well-established individual or company with adequate financial resources to weather short-term fluctuations in the marketplace. Financial ratios and trends are favorable. The loans may be unsecured or supported by non-real estate collateral for which the value is more difficult to determine, reasonable credit risk and requiring an average amount of account officer attention. Unsecured credit is to be of unquestionable strength. Pass (D): Monitor: “Sufficient” primary source of repayment and acceptable secondary source of repayment. Acceptable business or individual credit, but the borrower’s operations, cash flow or financial conditions evidence moderate to average levels of risk. Loans are considered to be collectable in full, but may require a greater-than-average amount of loan officer attention. Borrowers are capable of absorbing normal setbacks without failure. Special Mention: A special mention asset has potential weaknesses that deserve close monitoring. These potential weaknesses may result in a 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. Special Mention should neither be a compromise between a pass grade and substandard, nor should it be a “catch all” grade to identify any loan that has a policy exception. Substandard: A substandard asset is inadequately protected by the current sound worth and payment capacity of the obligor or the collateral pledged. Assets so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. Assets are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected. Formula Classified: Formula classified loans are all loans and credit cards delinquent 90 days and over which have yet to be formally classified Special Mention, Substandard or Doubtful by the Bank’s Loan Committee. In most instances, the monthly formula total is comprised primarily of residential real estate and consumer loans and credit cards. Commercial loans are typically formally classified by the Loan Committee no later than their 90-day delinquency, and thus usually do not become part of the formula classification. Real estate loans 90 days delinquent are in the foreclosure process and are typically completed within another 60 days, and thus are not formally classified during this period. Doubtful: A loan with weaknesses well enough defined that eventual repayment in full, on the basis of currently existing facts, conditions and values, is highly questionable, even though certain factors may be present which could improve the status of the loan. The probability of some loss is extremely high, but because of certain known factors, which may work to the advantage of strengthening of the assets (i.e. capital injection, perfecting liens on additional collateral, refinancing plans, etc.), its classification as an estimated loss is deferred until its more exact status can be determined. Loss: Loans classified as “Loss” are considered uncollectible, and are either unsecured or are supported by collateral that is of little to no value. As such, their continuance as recorded assets is not warranted. While this classification does not mandate that a loan has no ultimate recovery value, losses should be taken in the period these loans are deemed to be uncollectible. Loans identified as loss are immediately approved for charge off. The Bank may refer loans to outside collection agencies, attorneys, or its internal collection division to continue collection efforts. Any subsequent recoveries are credited to the Allowance for Loan Losses. Set forth below is a summary of the Company’s activity in the allowance for loan losses during the years ended December 31, 2018, 2017 and 2016: December 31, 2018 2017 2016 (Dollars in thousands) Balance, beginning of period $ 17,279 $ 15,435 $ 14,159 Provision for loan losses 12,862 7,519 3,900 Recoveries on loans previously charged off 1,834 1,604 3,007 Charged off loans (8,201 ) (7,279 ) (5,631 ) Balance, end of period $ 23,774 $ 17,279 $ 15,435 The $6.5 million increase in the allowance for loan losses is primarily due to an increase in classified loans, consumer loan delinquency rates and as a result of the bankruptcy filing of a large commercial loan borrower, which bankruptcy was filed in January 2019, along with management’s reassessment of economic conditions and prospects. The allowance will change in the future in response to changes in the size, composition and quality of the loan portfolio, as well as periodic reassessments of prospective economic conditions. The borrower filing for bankruptcy was evaluated under ASC 450 – “Contingencies” Set forth below is information regarding gross loan balances and the related allowance for loan losses, by portfolio type, for the years ended December 31, 2018, 2017 and 2016. Commercial Residential Mortgages Consumer Total (Dollars in thousands) Year Ended December 31, 2018 Allowance for loan losses: Balance at beginning of period $ 7,623 $ 1,409 $ 8,247 $ 17,279 Charge-offs (356 ) (9 ) (7,836 ) $ (8,201 ) Recoveries 39 7 1,788 $ 1,834 Provision 7,581 241 5,040 $ 12,862 Balance at end of period $ 14,887 $ 1,648 $ 7,239 $ 23,774 Allowance balance at end of year related to: Loans individually evaluated for impairment $ 5,204 $ 104 $ 1,518 $ 6,826 Loans collectively evaluated for impairment 9,683 1,544 5,721 $ 16,948 Ending balance $ 14,887 $ 1,648 $ 7,239 $ 23,774 Loan balances at end of year: Loans individually evaluated for impairment $ 18,328 $ 4,925 $ 1,746 $ 24,999 Loans collectively evaluated for impairment 826,060 135,323 252,182 1,213,565 Ending balance $ 844,388 $ 140,248 $ 253,928 $ 1,238,564 Year Ended December 31, 2017 Allowance for loan losses: Balance at beginning of year $ 7,264 $ 1,773 $ 6,398 $ 15,435 Charge-offs (172 ) (145 ) (6,962 ) (7,279 ) Recoveries 47 6 1,551 1,604 Provision 484 (225 ) 7,260 7,519 Balance at end of year $ 7,623 $ 1,409 $ 8,247 $ 17,279 Allowance balance at end of year related to: Loans individually evaluated for impairment $ 28 $ 90 $ 1,747 $ 1,865 Loans collectively evaluated for impairment 7,595 1,319 6,500 $ 15,414 Ending balance $ 7,623 $ 1,409 $ 8,247 $ 17,279 Loan balances at end of year: Loans individually evaluated for impairment $ 7,094 $ 5,442 $ 2,237 $ 14,773 Loans collectively evaluated for impairment 812,926 133,065 269,116 1,215,107 Ending balance $ 820,020 $ 138,507 $ 271,353 $ 1,229,880 Year Ended December 31, 2016 Allowance for loan losses: Balance at beginning of year $ 6,890 $ 1,853 $ 5,416 $ 14,159 Charge-offs (276 ) (121 ) (5,234 ) $ (5,631 ) Recoveries 1,691 6 1,310 $ 3,007 Provision (1,041 ) 35 4,906 $ 3,900 Balance at end of year $ 7,264 $ 1,773 $ 6,398 $ 15,435 Allowance balance at end of year related to: Loans individually evaluated for impairment $ 157 $ 137 $ 1,858 $ 2,152 Loans collectively evaluated for impairment 7,107 1,636 4,540 $ 13,283 Ending balance $ 7,264 $ 1,773 $ 6,398 $ 15,435 Loan balances at end of year: Loans individually evaluated for impairment $ 7,577 $ 6,208 $ 1,897 $ 15,682 Loans collectively evaluated for impairment 799,922 138,223 222,180 $ 1,160,325 Ending balance $ 807,499 $ 144,431 $ 224,077 $ 1,176,007 Impairment is measured on a loan-by-loan basis for commercial and real estate loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral (if the loan is collateral dependent). Large groups of smaller-balance homogeneous loans are collectively evaluated for impairment and are not immediately written-off, but a portion of the allowance is allocated to these loans based on the evaluation. The Bank performs direct write-downs of impaired loans with a charge to the allocated component of the allowance, therefore reducing the allocated component of the reserve to zero at the end of each reporting period. The following table provides a summary of the delinquency status of the Bank’s gross loans by portfolio type: 30-59 Days Past Due 60-89 Days Past Due 90 Days and Greater Non-Accrual 90 Days and Greater Still Accruing Total Past Due Current Total Loans Outstanding (Dollars in thousands) December 31, 2018 Commercial Commercial & industrial $ 310 $ - $ 14 $ 530 $ 854 $ 242,611 $ 243,465 Commercial mortgage 419 - 1,287 184 1,890 558,937 560,827 Commercial construction 300 - - - 300 39,108 39,408 Commercial agriculture - - - - - 688 688 Total commercial 1,029 - 1,301 714 3,044 841,344 844,388 Consumer Residential mortgage 4,565 3,847 1,805 12 10,229 128,694 138,923 Home equity - 91 - - 91 1,234 1,325 Automobile 1,095 290 - 135 1,520 25,166 26,686 Other consumer 1 3,505 1,583 335 1,123 6,546 220,696 227,242 Total consumer 9,165 5,811 2,140 1,270 18,386 375,790 394,176 Total $ 10,194 $ 5,811 $ 3,441 $ 1,984 $ 21,430 $ 1,217,134 $ 1,238,564 December 31, 2017 Commercial Commercial & industrial $ 155 $ 546 $ - $ 20 $ 721 $ 255,301 $ 256,022 Commercial mortgage - 803 364 - 1,167 551,958 553,125 Commercial construction - - - - - 10,157 10,157 Commercial agriculture - - - - - 716 716 Total commercial 155 1,349 364 20 1,888 818,132 820,020 Consumer Residential mortgage 5,804 3,046 2,373 - 11,223 126,739 137,962 Home equity 7 96 - - 103 442 545 Automobile 1,512 415 - 201 2,128 28,362 30,490 Other consumer 1 3,513 2,157 257 1,725 7,652 233,211 240,863 Total consumer 10,836 5,714 2,630 1,926 21,106 388,754 409,860 Total $ 10,991 $ 7,063 $ 2,994 $ 1,946 $ 22,994 $ 1,206,886 $ 1,229,880 1 Comprised of other revolving credit, installment loans, and overdrafts. Generally, the accrual of interest on a loan is discontinued when principal or interest payments become more than 90 days past due, unless management believes the loan is adequately collateralized and it is in the process of collection. When a loan is placed on non-accrual status, previously accrued but unpaid interest is reversed against current income. Subsequent collections of cash are applied as principal reductions when received, except when the ultimate collectability of principal is probable, in which case interest payments are credited to income. Non-accrual loans may be restored to accrual status when principal and interest become current and full repayment is expected. The following table provides information as of December 31, 2018 and 2017, with respect to loans on non-accrual status, by portfolio type: December 31, 2018 December 31, 2017 (Dollars in thousands) Non-accrual loans: Commercial Commercial & industrial $ 310 $ 426 Commercial mortgage 6,909 6,554 Commercial construction - - Commercial agriculture - - Total commercial 7,219 6,980 Consumer Residential mortgage 4,795 6,063 Home equity 91 - Automobile - - Other consumer 1 278 311 Total consumer 5,164 6,374 Total non-accrual loans $ 12,383 $ 13,354 1 Comprised of other revolving credit, installment loans, and overdrafts. The Company classifies its loan portfolios using internal credit quality ratings, as discussed above under Allowance for Loan Losses December 31, 2018 2017 Increase (Decrease) (Dollars in thousands) Pass: Commercial & industrial $ 204,805 $ 222,662 $ (17,857 ) Commercial mortgage 515,764 511,702 4,062 Commercial construction 39,408 10,157 29,251 Commercial agriculture 688 716 (28 ) Residential mortgage 133,766 131,743 2,023 Home equity 1,235 538 697 Automobile 26,550 30,289 (3,739 ) Other consumer 225,632 238,827 (13,195 ) Total pass loans $ 1,147,848 $ 1,146,634 $ 1,214 Special Mention: Commercial & industrial $ 8,732 $ 20,528 $ (11,796 ) Commercial mortgage 8,990 32,723 (23,733 ) Commercial construction - - - Commercial agriculture - - - Residential mortgage - 139 (139 ) Home equity - - - Automobile - - - Other consumer - - - Total special mention loans $ 17,722 $ 53,390 $ (35,668 ) Substandard: Commercial & industrial $ 29,924 $ 12,810 $ 17,114 Commercial mortgage 36,073 8,700 27,373 Commercial construction - - - Commercial agriculture - - - Residential mortgage 705 645 60 Home equity - - - Automobile - - - Other consumer - - - Total substandard loans $ 66,702 $ 22,155 $ 44,547 Formula Classified: Commercial & industrial $ 4 $ 22 $ (18 ) Commercial mortgage - - - Commercial construction - - - Commercial agriculture - - - Residential mortgage 4,452 5,435 (983 ) Home equity 91 7 84 Automobile 135 201 (66 ) Other consumer 1,610 2,036 (426 ) Total formula classified loans $ 6,292 $ 7,701 $ (1,409 ) Doubtful: Commercial & industrial $ - $ - $ - Commercial mortgage - - - Commercial construction - - - Commercial agriculture - - - Residential mortgage - - - Home equity - - - Automobile - - - Other consumer - - - Total doubtful loans $ - $ - $ - Total outstanding loans, gross $ 1,238,564 $ 1,229,880 $ 8,684 As the above table indicates, the Company’s total loans approximated $1.24 billion at December 31, 2018, up from $1.23 billion at December 31, 2017. The disaggregation of the portfolio by risk rating in the table reflects the following changes between December 31, 2017, and December 31, 2018: • Loans rated “pass” totaled $1.15 billion at December 31, 2018, an increase of $1.2 million from $1.15 billion at December 31, 2017, due primarily to the increases of $29.3 million in commercial construction loans, $4.1 million in commercial mortgage loans and $2.0 million in residential mortgage loans. The increase in commercial construction loans is concentrated in two new loans. The commercial mortgage loan increase of $4.1 million and the residential mortgage loan increase of $2.0 million were due to net new loans being made. These increases were offset by the decreases of $17.9 million in commercial & industrial loans, $13.2 million in other consumer loans and $3.7 million in automobile loans. The decrease in commercial & industrial loans was due to two loan relationships totaling $5.1 million moved from “pass” to “special mention” and five loan relationships of $1.0 million moved from “pass” to “substandard” in addition to payoffs and pay downs. The decreases in other consumer and automobile loans were due to payoffs, pay downs and charge-offs, partially offset by the addition of new consumer loan and automobile loan bookings. • The “special mention” category decreased by $35.7 million to $17.7 million at December 31, 2018. The commercial mortgage loan category decreased to $23.7 million, due to the three loan relationships totaling $27.6 million being reassigned from “special mention” to “substandard.” The commercial & industrial loan category decreased by $11.8 million, due primarily to two loan relationships totaling $18.0 million moved from “special mention” to “substandard.” • Loans classified as “substandard” increased by $44.5 million, to $ 66.7 million at December 31, 2018. Substandard commercial and industrial loans increased by $17.1 million, to $29.9 million, due primarily to the downgrade of two loan relationships, and commercial mortgage loans increased by $27.4 million, to $36.1 million, primarily due to three loan relationships totaling $28.8 million that were downgraded from “special mention” to “substandard.” In addition, three loan relationships totaling $372 thousand downgraded from “pass” to “substandard.” • The “formula classified” category decreased by $1.4 million during the period, to $6.3 million, primarily because of the decrease of $983 thousand in residential mortgages in this classification, due to regular loan pay downs and payoffs, and the decrease of $426 thousand in the other consumer loan category. Impaired Loans A loan is considered impaired when, based on current information and events, it is probable that the Bank will be unable to collect the scheduled payments of principal and interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impaired loans include loans that are in non-accrual status and other loans that have been modified in Troubled Debt Restructurings (TDRs), where economic concessions have been granted to borrowers experiencing financial difficulties. These concessions typically result from the Company’s loss mitigation actions, and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance or other actions taken with the intention to maximize collections. The following table sets forth information regarding non-accrual loans and restructured loans, at December 31, 2018 and December 31, 2017: December 31, 2018 2017 (Dollars in thousands) Impaired loans: Restructured loans: Non-accruing restructured loans $ 5,653 $ 5,265 Accruing restructured loans 254 305 Total restructured loans 5,907 5,570 Other impaired loans 19,092 9,203 Total impaired loans $ 24,999 $ 14,773 Impaired loans less than 90 days delinquent and included in total impaired loans $ 19,287 $ 6,651 The table below contains additional information with respect to impaired loans, by portfolio type, for the years ended December 31, 2018, 2017 and 2016: Recorded Investment Unpaid Principal Balance Average Recorded Investment Interest Income Recognized (Dollars in thousands) December 31, 2018, with no related allowance recorded: Commercial & industrial $ 11,110 $ 11,110 $ 3,206 $ 51 Commercial mortgage 7,016 7,026 6,759 4 Commercial construction - - - - Commercial agriculture - - - - Residential mortgage 27 27 27 - Home equity - - - - Automobile - - - - Other consumer - - - - Total impaired loans with no related allowance $ 18,153 $ 18,163 $ 9,992 $ 55 December 31, 2018, with an allowance recorded: Commercial & industrial $ 126 $ 300 $ 181 $ - Commercial mortgage 77 93 272 1 Commercial construction - - - - Commercial agriculture - - - - Residential mortgage 4,807 4,857 4,933 2 Home equity 91 91 24 - Automobile 135 135 97 2 Other consumer 1,610 1,401 1,903 19 Total impaired loans with related allowance recorded $ 6,846 $ 6,877 $ 7,410 $ 24 December 31, 2017, with no related allowance recorded: Commercial & industrial $ 515 $ 515 $ 532 $ 1 Commercial mortgage 6,192 6,192 5,767 - Commercial construction - - - - Commercial agriculture - - - - Residential mortgage - - - - Home equity - - - - Automobile - - - - Other consumer - - - - Total impaired loans with no related allowance $ 6,707 $ 6,707 $ 6,299 $ 1 December 31, 2017, with an allowance recorded: Commercial & industrial $ 180 $ 351 $ 113 $ 1 Commercial mortgage 208 233 264 - Commercial construction - - - - Commercial agriculture - - - - Residential mortgage 5,435 5,448 5,644 - Home equity 7 7 7 - Automobile 201 211 108 3 Other consumer 2,035 2,035 1,629 17 Total impaired loans with related allowance recorded $ 8,066 $ 8,285 $ 7,765 $ 21 December 31, 2016, with no related allowance recorded: Commercial & industrial $ 1,274 $ 2,904 $ 1,135 $ - Commercial mortgage 6,073 6,299 7,052 - Commercial construction - - - - Commercial agriculture - - - - Residential mortgage 250 250 252 - Home equity - - - - Automobile - - - - Other consumer - - - - Total impaired loans with no related allowance $ 7,597 $ 9,453 $ 8,439 $ - December 31, 2016, with an allowance recorded: Commercial & industrial $ 6 $ 10 $ 57 $ - Commercial mortgage 224 224 233 - Commercial construction - - - - Commercial agriculture - - - - Residential mortgage 5,923 5,934 6,519 2 Home equity 35 35 35 - Automobile 84 84 73 2 Other consumer 1,812 1,813 1,613 17 Total impaired loans with related allowance recorded $ 8,084 $ 8,100 $ 8,530 $ 21 Impairment is measured on a loan-by-loan basis for commercial and real estate loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent. Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. The Bank performs direct write-downs of impaired loans with a charge to the allocated component of the allowance, thereby reducing the allocated component of the reserve to zero at the end of each reporting period. Troubled Debt Restructurings The Bank had $5.9 million and $5.6 million of troubled debt restructurings (TDRs) as of December 31, 2018 and 2017, respectively. The restructured loans recorded by the Bank represent financing receivables, modified for the purpose of alleviating temporary impairments to the borrower’s financial condition. The modifications that the Bank has extended to borrowers have come in the form of a change in the amortization terms, a reduction in the interest rate, interest only payments and, in limited cases, a concession to the outstanding loan balance. The workout plans between the borrower and Bank are designed to provide a bridge for the cash flow shortfalls in the near term. As the borrower works through the near-term issues, in most cases, the original contractual terms will be reinstated. Outstanding Balance December 31, Number of Loans Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment 2018 2017 (Dollars in thousands) Performing Residential mortgage 1 $ 27 $ 27 $ 27 $ - Commercial mortgage 2 369 369 226 305 Automobile - - - - - Consumer - - - - - Total performing 3 396 396 253 305 Nonperforming Residential mortgage - $ - $ - $ - $ - Commercial mortgage 12 8,776 8,776 5,654 5,265 Automobile - - - - - Consumer - - - - - Total nonperforming 12 $ 8,776 $ 8,776 $ 5,654 $ 5,265 Total 15 $ 9,172 $ 9,172 $ 5,907 $ 5,570 |