ALLOWANCE FOR LOAN LOSSES | NOTE 5. ALLOWANCE FOR LOAN LOSSES The table below shows a summary of the activity in the allowance for loan losses for the three and six months ended June 30, 2016 and 2015 (dollars in thousands). Three months ended June 30, Six months ended June 30, 2016 2015 2016 2015 Balance, beginning of period $ 6,463 $ 5,379 $ 6,128 $ 4,630 Provision for loan losses 800 400 1,254 1,100 Loans charged off (180 ) (96 ) (336 ) (238 ) Recoveries 8 45 45 236 Balance, end of period $ 7,091 $ 5,728 $ 7,091 $ 5,728 The following tables outline the activity in the allowance for loan losses by collateral type for the three and six months ended June 30, 2016 and 2015, and show both the allowances and portfolio balances for loans individually and collectively evaluated for impairment as of June 30, 2016 and 2015 (dollars in thousands). Three months ended June 30, 2016 Construction & 1-4 Commercial Commercial & Development Farmland Family Multifamily Real Estate Industrial Consumer Total Allowance for loan losses: Beginning balance $ 729 $ 46 $ 1,257 $ 279 $ 2,292 $ 550 $ 1,310 6,463 Provision 54 15 22 31 138 478 62 800 Charge-offs (7 ) - - - - - (173 ) (180 ) Recoveries 3 - 1 - - - 4 8 Ending balance $ 779 $ 61 $ 1,280 $ 310 $ 2,430 $ 1,028 $ 1,203 $ 7,091 Three months ended June 30, 2015 Construction & 1-4 Commercial Commercial & Development Farmland Family Multifamily Real Estate Industrial Consumer Total Allowance for loan losses: Beginning balance $ 638 $ 23 $ 1,024 $ 164 $ 1,958 $ 409 $ 1,163 5,379 Provision (12 ) (2 ) 93 16 184 (34 ) 155 400 Charge-offs (4 ) - - - - - (92 ) (96 ) Recoveries 14 - 1 - - 17 13 45 Ending balance $ 636 $ 21 $ 1,118 $ 180 $ 2,142 $ 392 $ 1,239 $ 5,728 Six months ended June 30, 2016 Construction & 1-4 Commercial Commercial & Development Farmland Family Multifamily Real Estate Industrial Consumer Total Allowance for loan losses: Beginning balance $ 644 $ 22 $ 1,213 $ 246 $ 2,156 $ 513 $ 1,334 6,128 Provision 143 39 66 64 273 495 174 1,254 Charge-offs (14 ) - (7 ) - - - (315 ) (336 ) Recoveries 6 - 8 - 1 20 10 45 Ending balance $ 779 $ 61 $ 1,280 $ 310 $ 2,430 $ 1,028 $ 1,203 $ 7,091 Ending allowance balance for loans individually evaluated for impairment - - - - - 500 238 738 Ending allowance balance for loans collectively evaluated for impairment $ 779 $ 61 $ 1,280 $ 310 $ 2,430 $ 528 $ 965 $ 6,353 Ending allowance balance for loans acquired with deteriorated credit quality $ - $ - $ - $ - $ - $ - $ - $ - Loans receivable: Balance of loans individually evaluated for impairment $ 1,207 $ - $ 2,146 $ - $ 890 $ 2,775 $ 938 $ 7,956 Balance of loans collectively evaluated for impairment 99,873 8,343 164,632 37,300 331,416 72,328 95,622 809,514 Total period-end balance $ 101,080 $ 8,343 $ 166,778 $ 37,300 $ 332,306 $ 75,103 $ 96,560 $ 817,470 Balance of loans acquired with deteriorated credit quality $ 682 $ - $ 804 $ 1,043 $ - $ - $ 36 $ 2,565 Six months ended June 30, 2015 Construction & 1-4 Commercial Commercial & Development Farmland Family Multifamily Real Estate Industrial Consumer Total Allowance for loan losses: Beginning balance $ 526 $ 18 $ 909 $ 137 $ 1,571 $ 390 $ 1,079 $ 4,630 Provision 104 3 205 43 571 (139 ) 313 1,100 Charge-offs (9 ) - - - - (56 ) (173 ) (238 ) Recoveries 15 - 4 - - 197 20 236 Ending balance $ 636 $ 21 $ 1,118 $ 180 $ 2,142 $ 392 $ 1,239 $ 5,728 Ending allowance balance for loans individually evaluated for impairment - - - - - - 153 153 Ending allowance balance for loans collectively evaluated for impairment $ 636 $ 21 $ 1,118 $ 180 $ 2,142 $ 392 $ 1,086 $ 5,575 Ending allowance balance for loans acquired with deteriorated credit quality $ - $ - $ - $ - $ - $ - $ - $ - Loans receivable: Balance of loans individually evaluated for impairment $ 1,141 $ - $ 1,844 $ 856 $ 1,383 $ 39 $ 835 $ 6,098 Balance of loans collectively evaluated for impairment 69,786 3,001 151,274 20,404 247,763 56,446 118,814 667,488 Total period-end balance $ 70,927 $ 3,001 $ 153,118 $ 21,260 $ 249,146 $ 56,485 $ 119,649 $ 673,586 Balance of loans acquired with deteriorated credit quality $ 748 $ - $ 849 $ 1,070 $ - $ - $ 42 $ 2,709 Impaired Loans The Company considers a loan to be impaired when, based on current information and events, the Company determines that it will not be able to collect all amounts due according to the loan agreement, including scheduled interest payments. Generally, those loans rated special mention or lower are evaluated for impairment each quarter. Determination of impairment is treated the same across all classes of loans. When the Company identifies a loan as impaired, it measures the impairment based on the present value of expected future cash flows, discounted at the loan’s effective interest rate, except when the sole (remaining) source of repayment for the loans is the operation or liquidation of the collateral. In these cases when foreclosure is probable, the Company uses the current fair value of the collateral, less selling costs, instead of discounted cash flows. If the Company determines that the value of the impaired loan is less than the recorded investment in the loan (net of previous charge-offs, deferred loan fees or costs and unamortized premium or discount), the Company recognizes impairment through an allowance estimate or a charge-off to the allowance for loan losses. When the ultimate collectability of the total principal of an impaired loan is in doubt and the loan is on nonaccrual, all payments are applied to principal, under the cost recovery method. When the ultimate collectability of the total principal of an impaired loan is not in doubt and the loan is on nonaccrual, contractual interest is credited to interest income when received, under the cash basis method. As of June 30, 2016 and December 31, 2015, the Company was not committed to lend additional funds to any customer whose loan was classified as impaired. The following tables include the recorded investment and unpaid principal balances for impaired loans with the associated allowance amount, if applicable, as of the dates indicated. The Company determined the specific allowance based on the present values of expected future cash flows, discounted at the loan’s effective interest rate, except when the remaining source of repayment for the loan is the operation or liquidation of the collateral. In those cases, the current fair value of the collateral, less estimated selling cost, was used to determine the specific allowance recorded (dollars in thousands). June 30, 2016 Unpaid Recorded Principal Related Investment Balance Allowance With no related allowance recorded: Construction and development $ 1,207 $ 2,484 $ - 1-4 Family 2,146 2,183 - Commercial real estate 890 905 - Total mortgage loans on real estate 4,243 5,572 - Commercial and industrial 1,785 1,805 - Consumer 225 232 - Total 6,253 7,609 - With related allowance recorded: Commercial and industrial 990 1,000 500 Consumer 713 725 238 Total 1,703 1,725 738 Total loans: Construction and development 1,207 2,484 - 1-4 Family 2,146 2,183 - Commercial real estate 890 905 - Total mortgage loans on real estate 4,243 5,572 - Commercial and industrial 2,775 2,805 500 Consumer 938 957 238 Total $ 7,956 $ 9,334 $ 738 December 31, 2015 Unpaid Recorded Principal Related Investment Balance Allowance With no related allowance recorded: Construction and development $ 1,242 $ 1,241 $ - 1-4 Family 1,419 1,416 - Commercial real estate 630 629 - Total mortgage loans on real estate 3,291 3,286 - Consumer 159 159 - Total 3,450 3,445 - With related allowance recorded: Consumer 595 595 220 Total 595 595 220 Total loans: Construction and development 1,242 1,241 - 1-4 Family 1,419 1,416 - Commercial real estate 630 629 - Total mortgage loans on real estate 3,291 3,286 - Consumer 754 754 220 Total $ 4,045 $ 4,040 $ 220 Presented in the tables below is the average recorded investment of the impaired loans and the related amount of interest income recognized during the time within the period that the loans were impaired. The average balances are calculated based on the month-end balances of the loans during the periods reported (dollars in thousands). Three months ended June 30, 2016 2015 Average Interest Average Interest Recorded Income Recorded Income Investment Recognized Investment Recognized With no related allowance recorded: Construction and development $ 1,209 $ 67 $ 1,309 $ 4 1-4 Family 2,037 26 1,305 9 Commercial real estate 712 2 737 2 Total mortgage loans on real estate 3,958 95 3,351 15 Commercial and industrial 1,294 - 93 1 Consumer 246 5 121 8 Total 5,498 100 3,565 24 With related allowance recorded: Commercial and industrial 662 - - - Consumer 626 2 304 10 Total 1,288 2 304 10 Total loans: Construction and development 1,209 67 1,309 4 1-4 Family 2,037 26 1,305 9 Commercial real estate 712 2 737 2 Total mortgage loans on real estate 3,958 95 3,351 15 Commercial and industrial 1,956 - 93 1 Consumer 872 7 425 18 Total $ 6,786 $ 102 $ 3,869 $ 34 Six months ended June 30, 2016 2015 Average Interest Average Interest Recorded Income Recorded Income Investment Recognized Investment Recognized With no related allowance recorded: Construction and development $ 1,217 $ 77 $ 1,447 $ 8 1-4 Family 1,870 43 1,290 23 Commercial real estate 669 3 739 2 Total mortgage loans on real estate 3,756 123 3,476 33 Commercial and industrial 654 - 126 2 Consumer 330 7 157 9 Total 4,740 130 3,759 44 With related allowance recorded: Commercial and industrial 331 - - - Consumer 494 5 240 10 Total 825 5 240 10 Total loans: Construction and development 1,217 77 1,447 8 1-4 Family 1,870 43 1,290 23 Commercial real estate 669 3 739 2 Total mortgage loans on real estate 3,756 123 3,476 33 Commercial and industrial 985 - 126 2 Consumer 824 12 397 19 Total $ 5,565 $ 135 $ 3,999 $ 54 Troubled Debt Restructurings In situations where, for economic or legal reasons related to a borrower’s financial difficulties, the Company grants a concession for other than an insignificant period of time to the borrower that the Company would not otherwise consider, the related loan is classified as a troubled debt restructuring (“TDR”). The Company strives to identify borrowers in financial difficulty early and work with them to modify their loans to more affordable terms before such loans reach nonaccrual status. These modified terms may include rate reductions, principal forgiveness, payment forbearance and other actions intended to minimize the economic loss and to avoid foreclosure or repossession of the collateral. In cases in which the Company grants the borrower new terms that provide for a reduction of either interest or principal, the Company measures any impairment on the restructuring as previously noted for impaired loans. Loans classified as TDRs, consisting of twenty-two credits, totaled approximately $2.9 million at June 30, 2016 compared to eleven credits totaling approximately $2.2 million at December 31, 2015. Twenty of the twenty-two TDRs were acquired. Ten of the restructured loans were considered TDRs due to modification of terms through adjustments to maturity, nine restructured loans were considered TDRs due to a reduction in the interest rate to a rate lower than the current market rate, two restructured loans were considered TDRs due to modification of terms through principal payment forbearance, paying interest only for a specified period of time, as well as adjustments to maturity, and one restructured loan was considered a TDR due to modification of terms through principal payment forbearance only for a specified period of time. At June 30, 2016, two of the TDRs were in default of their modified terms and are included in nonaccrual loans. The Company individually evaluates each TDR for allowance purposes, primarily based on collateral value, and excludes these loans from the loan population that is evaluated by applying qualitative factors. As of June 30, 2016 and December 31, 2015, the Company was not committed to lend additional funds to any customer whose loan was classified as a TDR. The table below presents the TDR pre- and post-modification outstanding recorded investments by loan categories for loans modified during the six month periods ended June 30, 2016 and 2015 (dollars in thousands). June 30, 2016 June 30, 2015 Pre- Post- Pre- Post- Modification Modification Modification Modification Outstanding Outstanding Outstanding Outstanding Number Recorded Recorded Number Recorded Recorded Troubled Debt Restructurings Contracts Investment Investment Contracts Investment Investment Construction and development - $ - $ - 1 $ 30 $ 30 1-4 Family 11 789 789 2 892 892 Total $ 789 $ 789 $ 922 $ 922 There were no loans modified under troubled debt restructurings during the previous twelve month period that subsequently defaulted during the three months ended June 30, 2016 and 2015. |