ALLOWANCE FOR LOAN LOSSES | ALLOWANCE FOR LOAN LOSSES The table below shows a summary of the activity in the allowance for loan losses for the three and nine months ended September 30, 2017 and 2016 (dollars in thousands). Three months ended September 30, Nine months ended September 30, 2017 2016 2017 2016 Balance, beginning of period $ 7,320 $ 7,091 $ 7,051 $ 6,128 Provision for loan losses 420 450 1,145 1,704 Loans charged off (155 ) (173 ) (635 ) (509 ) Recoveries 20 15 44 60 Balance, end of period $ 7,605 $ 7,383 $ 7,605 $ 7,383 The following tables outline the activity in the allowance for loan losses by collateral type for the three and nine months ended September 30, 2017 and 2016 , and show both the allowances and portfolio balances for loans individually and collectively evaluated for impairment as of September 30, 2017 and 2016 (dollars in thousands). Three months ended September 30, 2017 Construction & Farmland 1-4 Multifamily Commercial Commercial & Consumer Total Allowance for loan losses: Beginning balance $ 806 $ 54 $ 1,276 $ 361 $ 3,036 $ 683 $ 1,104 $ 7,320 Provision 28 6 (19 ) (21 ) 227 135 64 420 Charge-offs — — — — — (77 ) (78 ) (155 ) Recoveries 14 — 2 — — — 4 20 Ending balance $ 848 $ 60 $ 1,259 $ 340 $ 3,263 $ 741 $ 1,094 $ 7,605 Three months ended September 30, 2016 Construction & Farmland 1-4 Multifamily Commercial Commercial & Consumer Total Allowance for loan losses: Beginning balance $ 779 $ 61 $ 1,280 $ 310 $ 2,430 $ 1,028 $ 1,203 $ 7,091 Provision (48 ) — 64 43 613 (336 ) 114 450 Charge-offs — — — — — — (173 ) (173 ) Recoveries 4 — 3 — — — 8 15 Ending balance $ 735 $ 61 $ 1,347 $ 353 $ 3,043 $ 692 $ 1,152 $ 7,383 Nine months ended September 30, 2017 Construction & Farmland 1-4 Multifamily Commercial Commercial & Consumer Total Allowance for loan losses: Beginning balance $ 579 $ 60 $ 1,377 $ 355 $ 2,499 $ 759 $ 1,422 $ 7,051 Provision 241 — (122 ) (15 ) 764 252 25 1,145 Charge-offs — — — — — (270 ) (365 ) (635 ) Recoveries 28 — 4 — — — 12 44 Ending balance $ 848 $ 60 $ 1,259 $ 340 $ 3,263 $ 741 $ 1,094 $ 7,605 Ending allowance balance for loans individually evaluated for impairment — — — — — — 336 336 Ending allowance balance for loans collectively evaluated for impairment $ 848 $ 60 $ 1,259 $ 340 $ 3,263 $ 741 $ 758 $ 7,269 Ending allowance balance for loans acquired with deteriorated credit quality $ — $ — $ — $ — $ — $ — $ — $ — Loans receivable: Balance of loans individually evaluated for impairment $ 186 $ — $ 1,452 $ — $ 651 $ 6 $ 1,182 $ 3,477 Balance of loans collectively evaluated for impairment 122,315 14,130 250,551 50,770 461,771 125,224 82,283 1,107,044 Total period-end balance $ 122,501 $ 14,130 $ 252,003 $ 50,770 $ 462,422 $ 125,230 $ 83,465 $ 1,110,521 Balance of loans acquired with deteriorated credit quality $ 55 $ — $ 2,814 $ 1,806 $ 3,033 $ 1,884 $ 5 $ 9,597 Nine months ended September 30, 2016 Construction & Farmland 1-4 Multifamily Commercial Commercial & Consumer Total Allowance for loan losses: Beginning balance $ 644 $ 22 $ 1,213 $ 246 $ 2,156 $ 513 $ 1,334 $ 6,128 Provision 95 39 130 107 886 159 288 1,704 Charge-offs (14 ) — (7 ) — — — (488 ) (509 ) Recoveries 10 — 11 — 1 20 18 60 Ending balance $ 735 $ 61 $ 1,347 $ 353 $ 3,043 $ 692 $ 1,152 $ 7,383 Ending allowance balance for loans individually evaluated for impairment — — — — 331 149 267 747 Ending allowance balance for loans collectively evaluated for impairment $ 735 $ 61 $ 1,347 $ 353 $ 2,712 $ 543 $ 885 $ 6,636 Ending allowance balance for loans acquired with deteriorated credit quality $ — $ — $ — $ — $ — $ — $ — $ — Loans receivable: Balance of loans individually evaluated for impairment $ 649 $ — $ 1,975 $ — $ 4,931 $ 3,063 $ 942 $ 11,560 Balance of loans collectively evaluated for impairment 91,706 8,281 173,417 42,560 360,291 74,249 84,764 835,268 Total period-end balance $ 92,355 $ 8,281 $ 175,392 $ 42,560 $ 365,222 $ 77,312 $ 85,706 $ 846,828 Balance of loans acquired with deteriorated credit quality $ 677 $ — $ 564 $ 1,033 $ — $ — $ — $ 2,274 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. 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 (dollars in thousands). September 30, 2017 Recorded Investment Unpaid Principal Balance Related Allowance With no related allowance recorded: Construction and development $ 186 $ 205 $ — 1-4 Family 1,452 1,573 — Commercial real estate 651 666 — Total mortgage loans on real estate 2,289 2,444 — Commercial and industrial 6 6 — Consumer 185 199 — Total 2,480 2,649 — With related allowance recorded: Consumer 997 1,032 336 Total 997 1,032 336 Total loans: Construction and development 186 205 — 1-4 Family 1,452 1,573 — Commercial real estate 651 666 — Total mortgage loans on real estate 2,289 2,444 — Commercial and industrial 6 6 — Consumer 1,182 1,231 336 Total $ 3,477 $ 3,681 $ 336 December 31, 2016 Recorded Investment Unpaid Principal Balance Related Allowance With no related allowance recorded: Construction and development $ 645 $ 661 $ — 1-4 Family 1,673 1,701 — Commercial real estate 608 623 — Total mortgage loans on real estate 2,926 2,985 — Commercial and industrial 15 16 Consumer 153 166 — Total 3,094 3,167 — With related allowance recorded: Commercial and industrial 428 430 136 Consumer 855 873 287 Total 1,283 1,303 423 Total loans: Construction and development 645 661 — 1-4 Family 1,673 1,701 — Commercial real estate 608 623 — Total mortgage loans on real estate 2,926 2,985 — Commercial and industrial 443 446 136 Consumer 1,008 1,039 287 Total $ 4,377 $ 4,470 $ 423 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 September 30, 2017 2016 Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized With no related allowance recorded: Construction and development $ 187 $ 2 $ 1,014 $ 3 1-4 Family 1,231 18 2,082 8 Commercial real estate 632 8 702 2 Total mortgage loans on real estate 2,050 28 3,798 13 Commercial and industrial 22 — 1,692 — Consumer 196 — 269 2 Total 2,268 28 5,759 15 With related allowance recorded: Commercial real estate — — 1,440 — Total mortgage loans on real estate — — 1,440 — Commercial and industrial — 1,126 — Consumer 933 668 — Total 933 — 3,234 — Total loans: Construction and development 187 2 1,014 3 1-4 Family 1,231 18 2,082 8 Commercial real estate 632 8 2,142 2 Total mortgage loans on real estate 2,050 28 5,238 13 Commercial and industrial 22 — 2,818 — Consumer 1,129 — 937 2 Total $ 3,201 $ 28 $ 8,993 $ 15 Nine months ended September 30, 2017 2016 Average Interest Average Interest With no related allowance recorded: Construction and development $ 389 $ 8 $ 1,150 $ 80 1-4 Family 1,517 61 1,940 51 Commercial real estate 613 35 680 5 Total mortgage loans on real estate 2,519 104 3,770 136 Commercial and industrial 163 — 1,000 — Consumer 322 1 396 9 Total 3,004 105 5,166 145 With related allowance recorded: Commercial real estate — — 480 — Total mortgage loans on real estate — — 480 — Commercial and industrial — — 596 — Consumer 813 1 466 5 Total 813 1 1,542 5 Total loans: Construction and development 389 8 1,150 80 1-4 Family 1,517 61 1,940 51 Commercial real estate 613 35 1,160 5 Total mortgage loans on real estate 2,519 104 4,250 136 Commercial and industrial 163 — 1,596 — Consumer 1,135 2 862 14 Total $ 3,817 $ 106 $ 6,708 $ 150 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, or otherwise include a concession, the Company identifies the loan as a TDR and measures any impairment on the restructuring as previously noted for impaired loans. Loans classified as TDRs, consisting of eighteen credits, totaled approximately $1.6 million at September 30, 2017 , compared to eighteen credits totaling $2.4 million at December 31, 2016 . Eight of the restructured loans were considered TDRs due to modification of terms through adjustments to maturity, nine of the restructured loans were considered TDRs due to a reduction in the interest rate to a rate lower than the current market rate, and one restructured loan was considered a TDR due to modification of terms through principal payment forbearance, paying interest only for a specified period of time. As of September 30, 2017 and December 31, 2016 , all restructured loans were performing under their modified terms. The Company individually evaluates each TDR for allowance purposes, primarily based on collateral value, and excludes these loans from the loan population that is collectively evaluated for impairment. At September 30, 2017 and December 31, 2016 , there were no available balances on loans classified as TDRs that the Company was committed to lend. The table below presents the TDR pre- and post-modification outstanding recorded investments by loan categories for loans modified during the nine month periods ended September 30, 2017 and 2016 (dollars in thousands). September 30, 2017 September 30, 2016 Number of Contracts Pre- Modification Outstanding Recorded Investment Post- Modification Outstanding Recorded Investment Number of Pre- Post- Troubled Debt Restructurings 1-4 Family — $ — $ — 10 $ 632 $ 632 Consumer 1 6 6 — — — Total $ 6 $ 6 $ 632 $ 632 There were no loans modified under TDRs during the previous twelve month period that subsequently defaulted during the three months ended September 30, 2017 and 2016 . |