Loans and leases receivable disclosure [Text Block] | NOTE 6 : LOANS AND ALLOWANCE FOR LOAN LOSSES December 31 (In thousands) 2016 2015 Commercial and industrial $ 49,850 $ 52,479 Construction and land development 41,650 43,694 Commercial real estate: Owner occupied 49,745 46,602 Multifamily 46,998 45,264 Other 123,696 111,987 Total commercial real estate 220,439 203,853 Residential real estate: Consumer mortgage 65,564 70,009 Investment property 45,291 46,664 Total residential real estate 110,855 116,673 Consumer installment 8,712 10,220 Total loans 431,506 426,919 Less: unearned income (560) (509) Loans, net of unearned income $ 430,946 $ 426,410 Loans secured by real estate were approximately 86.4% of the total loan portfolio at December 31, 2016 . At December 31, 2016 , the Company’s geographic loan distribution was concentrated primarily in Lee County, Alabama and surrounding areas. In accordance with ASC 310, Receivables , a portfolio segment is defined as the level at which an entity develops and documents a systematic method for determining its allowance for loan losses. As part of the Company’s quarterly assessment of the allowance , the loan portfolio is disaggregated into the following portfolio segments: commercial and industrial, construction and land development, commercial real estate, residential real estate and consumer installment. Where appropriate, the Company’s loan port folio segments are further disaggregated into classes. A class is generally determined based on the initial measurement attribute, risk characteristics of the loan, and an entity’s method for monitoring and determining credit risk. The following describe the risk characteristics relevant to each of the portfolio segments. Commercial and industrial (“C&I”) — includes loans to finance business operations, equipment purchases, or other needs for small and medium-sized commercial customers. Also included in t his category are loans to finance agricultural production. Generally the primary source of repayment is the cash flow from business operations and activities of the borrower. Construction and land development (“C&D”) — includes both loans and credit line s for the purpose of purchasing, carrying and developing land into commercial developments or residential subdivisions. Also included are loans and lines for construction of residential, multi-family and commercial buildings. Generally the primary source o f repayment is dependent upon the sale or refinance of the real estate collateral. Commercial real estate (“CRE”) — includes loans disaggregated into three classes: (1) owner occupied (2) multi-family and (3) other. Owner occupied – includes loans secur ed by business facilities to finance business operations, equipment and owner-occupied facilities primarily for small and medium-sized commercial customers. Generally the primary source of repayment is the cash flow from business operations and activities of the borrower, who owns the property. Multi family – primarily includes loans to finance income-producing multi-family properties. Loans in this class include loans for 5 or more unit residential property and apartments leased to residents. Generally, the primary source of repayment is dependent upon income generated from the real estate collateral. The underwriting of these loans takes into consideration the occupancy and rental rates, as well as the financial health of the borrower. Other – primarily includes loans to finance income-producing commercial properties. Loans in this class include loans for neighborhood retail centers, hotels, medical and professional offices, single retail stores, industrial buildings, and warehouses leased generally to local businesses and residents. Generally the primary source of repayment is dependent upon income generated from the real estate collateral. The underwriting of these loans takes into consideration the occupancy and rental rates as well as the financial health of the borrower. Residential real estate (“RRE”) — includes loans disaggregated into two classes: (1) consumer mortgage and (2) investment property. Consumer mortgage – primarily include s first or second lien mortgages a nd home equity lines to consumers that are secured by a primary residence or second home. These loans are underwritten in accordance with the Bank’s general loan policies and procedures which require, among other things, proper documentation of each borrow er’s financial condition, satisfactory cre dit history and property value. Investment property – primarily includes loans to finance income-producing 1-4 family residential properties. Generally the primary source of repayment is dependent upon income gene rated from leasing the property securing the loan. The underwriting of these loans takes into consideration the rental rates as well as the fi nancial health of the borrower. Consumer installment — includes loans to individuals both secured by personal property and unsecured. Loans include personal lines of credit, automobile loans, and other retail loans. These loans are underwritten in accordance with the Bank’s general loan policies and procedures which require, among other things, proper documentat ion of each borrower’s financial condition, satisfactory credit history, and if applicable, property value. The following is a summary of current, accruing past due and nonaccrual loans by portfolio class as of December 31, 2016 and 2015 . Accruing Accruing Total 30-89 Days Greater than Accruing Non- Total (In thousands) Current Past Due 90 days Loans Accrual Loans December 31, 2016: Commercial and industrial $ 49,747 66 — 49,813 37 $ 49,850 Construction and land development 41,223 395 — 41,618 32 41,650 Commercial real estate: Owner occupied 49,564 43 — 49,607 138 49,745 Multifamily 46,998 — — 46,998 — 46,998 Other 121,608 199 — 121,807 1,889 123,696 Total commercial real estate 218,170 242 — 218,412 2,027 220,439 Residential real estate: Consumer mortgage 64,059 1,282 — 65,341 223 65,564 Investment property 45,243 19 — 45,262 29 45,291 Total residential real estate 109,302 1,301 — 110,603 252 110,855 Consumer installment 8,652 38 — 8,690 22 8,712 Total $ 427,094 2,042 — 429,136 2,370 $ 431,506 December 31, 2015: Commercial and industrial $ 52,387 49 — 52,436 43 $ 52,479 Construction and land development 43,111 — — 43,111 583 43,694 Commercial real estate: Owner occupied 46,372 — — 46,372 230 46,602 Multifamily 45,264 — — 45,264 — 45,264 Other 110,467 — — 110,467 1,520 111,987 Total commercial real estate 202,103 — — 202,103 1,750 203,853 Residential real estate: Consumer mortgage 68,579 1,105 — 69,684 325 70,009 Investment property 46,435 229 — 46,664 — 46,664 Total residential real estate 115,014 1,334 — 116,348 325 116,673 Consumer installment 10,179 28 — 10,207 13 10,220 Total $ 422,794 1,411 — 424,205 2,714 $ 426,919 The gross interest income which would have been recorded under the original terms of those nonaccrual loans had they been accruing interest, amounted to approximately $107 thousand and $133 thousand for the years ended December 31, 2016 and 2015 , respectively. Allowance for Loan Losses The allowance for loan losses as of and for the years ended December 31, 2016 and 2015 , is presented below. Year ended December 31 (In thousands) 2016 2015 Beginning balance $ 4,289 $ 4,836 Charged-off loans (540) (1,114) Recovery of previously charged-off loans 1,379 367 Net charge-offs 839 (747) Provision for loan losses (485) 200 Ending balance $ 4,643 $ 4,289 The Company assesses the adequacy of its allowance for loan losses prior to the end of each calendar quarter. The level of the allowance is based upon management’s evaluation of the loan portfolio, past loan loss experience, current asset quality trends, known and inherent risks in the portfolio, adverse situations that may affect a borrower’s ability to repay (including the timing of future payment), the estimated value of any underlying collateral, composition of the loan portfolio, economic conditions, industry and peer bank loan loss rates and other pertinent factors, including regulatory recommendations. This evaluation is inherently subjective as it requires material estimates including the amounts and timing of future cash flows expected to be receiv ed on impaired loans that may be susceptible to significant change. Loans are charged off, in whole or in part, when management believes that the full collectability of the loan is unlikely. A loan may be partially charged-off after a “confirming event” ha s occurred which serves to validate that full repayment pursuant to the terms of the loan is unlikely. The Company deems loans impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts du e according to the contractual terms of the loan agreement. Collection of all amounts due according to the contractual terms means that both the interest and principal payments of a loan will be collected as scheduled in the loan agreement. An impairment allowance is recognized if the fair value of the loan is less than the recorded investment in the loan. The impairment is recognized through the allowance. Loans that are impaired are recorded at the present value of expected future cash flows discounted at the loan’s effective interest rate, or if the loan is collateral dependent, impairment measurement is based on the fair value of the collateral, less estimated disposal costs. The level of allowance maintained is believed by management to be adequate to absorb probable losses inherent in the portfolio at the balance sheet date. The allowance is increased by provisions charged to expense and decreased by charge-offs, net of recoveries of amounts previously charged-off. In assessing the adequacy of the allowance, the Company also considers the results of its ongoing internal, independent loan review process. The Company’s loan review process assists in determining whether there are loans in the portfolio whose credit quality has weakened over time and e valuating the risk characteristics of the entire loan portfolio. The Company’s loan review process includes the judgment of management, the input from our independent loan reviewers, and reviews that may have been conducted by bank regulatory agencies as p art of their examination process. The Company incorporates loan review results in the determination of whether or not it is probable that it will be able to collect all amounts due according to the contractual terms of a loan. As part of the Company’s qu arterly assessment of the allowance, management divides the loan portfolio into five segments: commercial and industrial, construction and land development, commercial real estate, residential real estate, and consumer installment loans. The Company analyz es each segment and estimates an allowance allocation for each loan segment. The allocation of the allowance for loan losses begins with a process of estimating the probable losses inherent for these types of loans. The estimates for these loans are esta blished by category and based on the Company’s internal system of credit risk ratings and historical loss data. The estimated loan loss allocation rate for the Company’s internal system of credit risk grades is based on its experience with similarly graded loans. For loan segments where the Company believes it does not have sufficient historical loss data, the Company may make adjustments based, in part, on loss rates of peer bank groups. At December 31, 2016 and 2015 , and for the years then ended, th e Company adjusted its historical loss rates for the commercial real estate portfolio segment based, in part, on loss rates of peer bank groups. The estimated loan loss allocation for all five loan portfolio segments is then adjusted for management’s esti mate of probable losses for several “qualitative and environmental” factors. The allocation for qualitative and environmental factors is particularly subjective and does not lend itself to exact mathematical calculation. This amount represents estimated pr obable inherent credit losses which exist, but have not yet been identified, as of the balance sheet date, and are based upon quarterly trend assessments in delinquent and nonaccrual loans, credit concentration changes, prevailing economic conditions, chan ges in lending personnel experience, changes in lending policies or procedures and other influencing factors. These qualitative and environmental factors are considered for each of the five loan segments and the allowance allocation, as determined by the p rocesses noted above, is increased or decreased based on the incremental assessment of these factors. The Company regularly re-evaluates its practices in determining the allowance for loan losses. Beginning with the quarter ended December 31, 2016, the Co mpany implemented certain refinements to its allowance for loan losses methodology in order to better capture the effects of the most recent economic cycle on the Company’s loan loss experience. First, the Company increased its look-back period for calcula ting average losses for all loan segments to 31 quarters. Prior to December 31, 2016, the Company calculated average losses for all loan segments using a rolling 20 quarter look-back period. The Company will likely continue to increase its look-back period to incorporate the effects of at least one economic downturn in its loss history. The Company believes the extension of its look-back period is appropriate due to the risks inherent in the loan portfolio. Absent this extension, the early cycle periods in which the Company experienced significant losses would be excluded from the determination of the allowance for loan losses and its balance would decrease. Second, the Company increased the range of basis point adjustments allowed for qualitative and enviro nmental factors to approximately 200 basis points, an increase of 65 basis points, or 48%, compared to the 135 basis point range used prior to December 31, 2016. After performing sensitivity testing of its calculation of the allowance for loan losses, the Company determined that it should increase the range of basis points allowed for qualitative and environmental factors in order to provide sufficient latitude in determining estimated probable credit losses during periods of economic stress. Third, the Com pany reduced the percentage allocation for qualitative and environmental factors on a weighted average basis to 21% of total basis points allocable at December 31, 2016, compared to 25% of total basis points allocable at September 30, 2016. The Company bel ieves a decrease in the percentage allocation of qualitative environmental factors on a weighted average basis was appropriate due to the extension of its look-back period described above. If the Company did not make the changes described above, the Compan y’s calculated allowance for loan loss allocation would have decreased by approximately $0.9 million, or 0.21% of total loans, at December 31, 2016. Other than the changes discussed above, the Company has not made any material changes to its methodology th at would impact the calculation of the allowance for loan losses or provision for loan losses for the periods included in the accompanying consolidated balance sheets and statements of earnings. The following table details the changes in the allowance f or loan losses by portfolio segment for the years ended December 31, 2016 and 2015 . (in thousands) Commercial and industrial Construction and land Development Commercial Real Estate Residential Real Estate Consumer Installment Total Balance, December 31, 2014 $ 639 974 1,928 1,119 176 $ 4,836 Charge-offs (100) — (866) (89) (59) (1,114) Recoveries 22 17 — 313 15 367 Net (charge-offs) recoveries (78) 17 (866) 224 (44) (747) Provision (38) (322) 817 (284) 27 200 Balance, December 31, 2015 $ 523 669 1,879 1,059 159 $ 4,289 Charge-offs (97) — (194) (182) (67) (540) Recoveries 29 1,212 — 127 11 1,379 Net (charge-offs) recoveries (68) 1,212 (194) (55) (56) 839 Provision 85 (1,069) 386 103 10 (485) Balance, December 31, 2016 $ 540 812 2,071 1,107 113 $ 4,643 The following table presents an analysis of the allowance for loan losses and recorded investment in loans by portfolio segment and impairment methodology as of December 31, 2016 and 2015 . Collectively evaluated (1) Individually evaluated (2) Total Allowance Recorded Allowance Recorded Allowance Recorded for loan investment for loan investment for loan investment (In thousands) losses in loans losses in loans losses in loans December 31, 2016: Commercial and industrial $ 540 49,835 — 15 540 49,850 Construction and land development 812 41,618 — 32 812 41,650 Commercial real estate 2,040 218,356 31 2,083 2,071 220,439 Residential real estate 1,107 110,855 — — 1,107 110,855 Consumer installment 113 8,712 — — 113 8,712 Total $ 4,612 429,376 31 2,130 4,643 431,506 December 31, 2015: Commercial and industrial $ 523 52,431 — 48 523 52,479 Construction and land development 669 43,111 — 583 669 43,694 Commercial real estate 1,758 201,077 121 2,776 1,879 203,853 Residential real estate 1,059 116,673 — — 1,059 116,673 Consumer installment 159 10,220 — — 159 10,220 Total $ 4,168 423,512 121 3,407 4,289 426,919 (1) Represents loans collectively evaluated for impairment in accordance with ASC 450-20, Loss Contingencies (formerly FAS 5), and pursuant to amendments by ASU 2010-20 regarding allowance for unimpaired loans. (2) Represents loans individually evaluated for impairment in accordance with ASC 310-30, Receivables (formerly FAS 114), and pursuant to amendments by ASU 2010-20 regarding allowance for impaired loans. Credit Quality Indicators The credit quality of the loan portfolio is summarized no less frequently than quarterly using categories similar to the standard asset classification system used by the federal banking agencies. The following table presents credit quality indicators for the loan portfolio segments and classes. These categories are utilized to develop the associated allowance for loan losses using historical losses adjusted for qualitative and environmental factors and are defined as follows: Pass – loans which are well protected by the current net worth and paying capacity of the obligor (or guarantors, if any) or by the fair value, less cost to acquire and sell, of any underlying collateral. Special Mention – loans with potential weakness that may, if not reversed or corrected, weaken the credit or inadequately protect the Company’s position at some future date. These loans are not adversely classified and do not expose an institution to sufficient risk to warrant an adverse classification. Substandard Accruing – loa ns that exhibit a well-defined weakness which presently jeopardizes debt repayment, even though they are currently performing. These loans are characterized by the distinct possibility that the Company may incur a loss in the future if these weaknesses are not corrected. Nonaccrual – includes loans where management has determined that full payment of principal and interest is in doubt. (In thousands) Pass Special Mention Substandard Accruing Nonaccrual Total loans December 31, 2016 Commercial and industrial $ 49,558 22 233 37 $ 49,850 Construction and land development 41,165 113 340 32 41,650 Commercial real estate: Owner occupied 48,788 414 405 138 49,745 Multifamily 46,998 — — — 46,998 Other 121,326 32 449 1,889 123,696 Total commercial real estate 217,112 446 854 2,027 220,439 Residential real estate: Consumer mortgage 59,450 2,613 3,278 223 65,564 Investment property 44,109 105 1,048 29 45,291 Total residential real estate 103,559 2,718 4,326 252 110,855 Consumer installment 8,580 20 90 22 8,712 Total $ 419,974 3,319 5,843 2,370 $ 431,506 December 31, 2015 Commercial and industrial $ 48,038 4,075 323 43 $ 52,479 Construction and land development 42,458 60 593 583 43,694 Commercial real estate: Owner occupied 45,772 381 219 230 46,602 Multifamily 45,264 — — — 45,264 Other 110,159 36 272 1,520 111,987 Total commercial real estate 201,195 417 491 1,750 203,853 Residential real estate: Consumer mortgage 64,502 1,964 3,218 325 70,009 Investment property 45,399 112 1,153 — 46,664 Total residential real estate 109,901 2,076 4,371 325 116,673 Consumer installment 10,038 55 114 13 10,220 Total $ 411,630 6,683 5,892 2,714 $ 426,919 Impaired loans The following table presents details related to the Company’s impaired loans. Loans which have been fully charged-off do not appear in the following table. The related allowance generally represents the following components which correspond to impaired loans: Individually evaluated impaired loans equal to or greater than $500 thousand secured by real estate (nonaccrual construction and land development, commercial real estate, and residential real estate). Individually evaluated impaired loans equal to or greater than $250 thousand not secured by real estate (nonaccrual commercial and industrial and consumer loans). The following table sets forth certain information regarding the Company’s impaired loans that were individua lly evaluated for impairment at December 31, 2016 and 2015 . December 31, 2016 (In thousands) Unpaid principal balance (1) Charge-offs and payments applied (2) Recorded investment (3) Related allowance With no allowance recorded: Commercial and industrial $ 15 — 15 Construction and land development 140 (108) 32 Commercial real estate: Other 2,874 (984) 1,890 Total commercial real estate 2,874 (984) 1,890 Total $ 3,029 (1,092) 1,937 With allowance recorded: Commercial real estate: Owner occupied 193 — 193 31 Total commercial real estate 193 — 193 31 Total $ 193 — 193 $ 31 Total impaired loans $ 3,222 (1,092) 2,130 $ 31 (1) Unpaid principal balance represents the contractual obligation due from the customer. (2) Charge-offs and payments applied represents cumulative charge-offs taken, as well as interest payments that have been applied against the outstanding principal balance. (3) Recorded investment represents the unpaid principal balance less charge-offs and payments applied; it is shown before any related allowance for loan losses. December 31, 2015 (In thousands) Unpaid principal balance (1) Charge-offs and payments applied (2) Recorded investment (3) Related allowance With no allowance recorded: Commercial and industrial $ 48 — 48 Construction and land development 2,582 (1,999) 583 Commercial real estate: Owner occupied 308 (78) 230 Other 2,136 (617) 1,519 Total commercial real estate 2,444 (695) 1,749 Total $ 5,074 (2,694) 2,380 With allowance recorded: Commercial real estate: Owner occupied $ 1,027 — 1,027 $ 121 Total commercial real estate 1,027 — 1,027 121 Total $ 1,027 — 1,027 $ 121 Total impaired loans $ 6,101 (2,694) 3,407 $ 121 (1) Unpaid principal balance represents the contractual obligation due from the customer. (2) Charge-offs and payments applied represents cumulative charge-offs taken, as well as interest payments that have been applied against the outstanding principal balance. (3) Recorded investment represents the unpaid principal balance less charge-offs and payments applied; it is shown before any related allowance for loan losses. The following table provides the average recorded investment in impaired loans and the amount of interest income recognized on impaired loans after impairment by portfolio segment and class. Year ended December 31, 2016 Year ended December 31, 2015 Average Total interest Average Total interest recorded income recorded income (In thousands) investment recognized investment recognized Impaired loans: Commercial and industrial $ 31 2 $ 60 4 Construction and land development 94 — 603 — Commercial real estate: Owner occupied 699 31 1,328 62 Other 1,687 — 911 18 Total commercial real estate 2,386 31 2,239 80 Residential real estate: Consumer mortgages — — 349 173 Investment property — — 70 76 Total residential real estate — — 419 249 Total $ 2,511 33 $ 3,321 333 Interest income recognized for 2015 included interest recoveries of $225 thousand related to two impaired residential real estate loans that paid off in June 2015. Excluding the interest recoveries on these two loans, interest income recognized on impaired loans for 2015 would have been $108 thousand. Troubled Debt Restructurings Impaired loans also include troubled debt restructurings (“TDRs”). In the normal course of business, management may grant concessions to borrowers who are experiencing financial difficulty. A concession may include, but is not limited to, delays in required payments of principal and interest for a specified period, reduction of the stated interest rate of the loan, reduction of accrued interest, extension of the maturit y date or reduction of the face amount or maturity amount of the debt. A concession has been granted when, as a result of the restructuring, the Bank does not expect to collect all amounts due, including interest at the original stated rate. A concession may have also been granted if the debtor is not able to access funds elsewhere at a market rate for debt with similar risk characteristics as the restructured debt. In determining whether a loan modification is a TDR, the Company considers the individual facts and circumstances surrounding each modification. In determining the appropriate accrual status at the time of restructure, the Company evaluates whether a restructured loan has adequate collateral protection, among other factors. Similar to oth er impaired loans, TDRs are measured for impairment based on the present value of expected payments using the loan’s original effective interest rate as the discount rate, or the fair value of the collateral, less selling costs if the loan is collateral de pendent. If the recorded investment in the loan exceeds the measure of fair value, impairment is recognized by establishing a valuation allowance as part of the allowance for loan losses or a charge-off to the allowance for loan losses. In periods subsequ ent to the modification, all TDRs are evaluated individually, including those that have payment defaults, for possible impairment. The following is a summary of accruing and nonaccrual TDRs and the related loan losses, by portfolio segment and class. TDRs Related (In thousands) Accruing Nonaccrual Total Allowance December 31, 2016 Commercial and industrial $ 15 — 15 $ — Construction and land development — 32 32 — Commercial real estate: Owner occupied 193 — 193 31 Other — 1,818 1,818 — Total commercial real estate 193 1,818 2,011 31 Total $ 208 1,850 2,058 $ 31 December 31, 2015 Commercial and industrial $ 48 — 48 $ — Construction and land development — 582 582 — Commercial real estate: Owner occupied 1,027 230 1,257 121 Total commercial real estate 1,027 230 1,257 121 Total $ 1,075 812 1,887 $ 121 At December 31, 2016 , there were no significant outstanding commitments to advance additional funds to customers whose loans had been restructured. The following table summarizes loans modified in a TDR during the respective years both before and after modification. Pre- Post- modification modification outstanding outstanding Number of recorded recorded ($ in thousands) contracts investment investment December 31, 2016 Commercial real estate: Other 3 $ 3,147 3,137 Total commercial real estate 3 3,147 3,137 Total 3 $ 3,147 3,137 December 31, 2015 Commercial and industrial 1 $ 61 66 Construction and land development 1 116 113 Commercial real estate: Owner occupied 1 216 218 Other 1 592 592 Total commercial real estate 2 808 810 Total 4 $ 985 989 The majority of the loans modified in a TDR during the years ended December 31, 2016 and 2015 , respectively, included delays in required payments of principal and/or interest or where the only concession granted by the Company was that the interest rate at renewal was not considered to be a market rate. The Company had no TDRs with a payment default during 201 6. The following table summarizes the recorded investment in loans modified in a TDR within the previous twelve months for which there was a payment default (defined as 90 days or more past due) during 2015 . Number of Recorded ($ in thousands) Contracts investment (1) December 31, 2015 Commercial real estate: Owner occupied 1 $ 262 Total commercial real estate 1 262 Residential real estate: Investment property 1 150 Total residential real estate 1 150 Total 2 $ 412 (1) Amount as of applicable month end during the respective year for which there was a payment default. |