Allowance for Credit Losses [Text Block] | Note 3 : Allowance for Loan Losses, Nonperforming Assets and Impaired Loans The allowance for loan losses methodology incorporates individual evaluation of impaired loans and collective evaluation of groups of non-impaired loans. The Company performs ongoing analysis of the loan portfolio to determine credit quality and to identify impaired loans. Credit quality is rated based on the loan’s payment history, the borrower’s current financial situation and value of the underlying collateral. Impaired Loans Loans are designated as impaired when, in the judgment of management based on current information and events, it is probable that all amounts due will not not not six may 1: Troubled debt restructurings impact the estimation of the appropriate level of the allowance for loan losses. If the restructuring included forgiveness of a portion of principal or accrued interest, the charge-off is included in the historical charge-off rates applied to the collective evaluation methodology. Restructured loans are individually evaluated for impairment, and the amount of a restructured loan’s book value in excess of its fair value is accrued as a specific allocation in the allowance for loan losses. If a TDR loan payment exceeds 90 not may Collectively-Evaluated Loans The Company evaluated characteristics in the loan portfolio and determined major segments and smaller classes within each segment. These characteristics include collateral type, repayment sources, and (if applicable) the borrower’s business model. The methodology for calculating reserves for collectively-evaluated loans is applied at the class level. Portfolio Segments and Classes The segments and classes used in determining the allowance for loan losses are as follows. Real Estate Construction Construction, residential Construction, other Consumer Real Estate Equity lines Residential closed-end first Residential closed-end junior liens Investor-owned residential real estate Commercial Real Estate Multifamily real estate Commercial real estate, owner-occupied Commercial real estate, other Commercial Non Real Estate Commercial and industrial Public Sector and IDA Public sector and IDA Consumer Non Real Estate Credit cards Automobile Other consumer loans Historical Loss Rates The Company’s allowance methodology for collectively-evaluated loans applies historical loss rates by class to current class balances as part of the process of determining required reserves. Class loss rates are calculated as the net charge-offs for the class as a percentage of average class balance. The Company averages loss rates for the most recent 8 Two loss rates for each class are calculated: total net charge-offs for the class as a percentage of average class loan balance (“class loss rate”), and total net charge-offs for the class as a percentage of average classified loans in the class (“classified loss rate”). Classified loans are those with risk ratings of “substandard” or lower. Net charge-offs in both calculations include charge-offs and recoveries of classified and non-classified loans as well as those associated with impaired loans. Class historical loss rates are applied to non-classified loan balances at the reporting date, and classified historical loss rates are applied to classified balances at the reporting date. Risk Factors In addition to historical loss rates, risk factors pertinent to credit risk for each class are analyzed to estimate reserves for collectively-evaluated loans. Factors include changes in national and local economic and business conditions, the nature and volume of classes within the portfolio, loan quality, loan officers’ experience, lending policies and the Company’s loan review system. The analysis of certain factors results in standard allocations to all segments and classes. These factors include the risk from changes in lending policies, loan officers’ average years of experience, unemployment levels, bankruptcy rates, interest rate environment, and competition/legal/regulatory environments. Factors analyzed for each class, with resultant allocations based upon the level of risk assessed for each class, include the risk from changes in loan review, levels of past due loans, levels of nonaccrual loans, current class balance as a percentage of total loans, and the percentage of high risk loans within the class. Additionally, factors specific to each segment are analyzed and result in allocations to the segment. Please refer to Note 1: 10 Real estate construction loans are subject to general risks from changing commercial building and housing market trends and economic conditions that may The credit quality of consumer real estate is subject to risks associated with the borrower’s repayment ability and collateral value, measured generally by analyzing local unemployment and bankruptcy trends, local housing market trends, and interest rates. The commercial real estate segment includes loans secured by multifamily residential real estate, commercial real estate occupied by the owner/borrower, and commercial real estate leased to non-owners. Loans in the commercial real estate segment are impacted by economic risks from changing commercial real estate markets, rental markets for multi-family housing and commercial buildings, business bankruptcy rates, local unemployment and interest rate trends that would impact the businesses housed by the commercial real estate. Commercial non real estate loans are secured by collateral other than real estate, or are unsecured. Credit risk for commercial non real estate loans is subject to economic conditions, generally monitored by local business bankruptcy trends, and interest rates. Public sector and IDA loans are extended to municipalities and related entities. Credit risk is based upon the entity’s ability to repay and interest rate trends. Consumer non real estate includes credit cards, automobile and other consumer loans. Credit cards and certain other consumer loans are unsecured, while collateral is obtained for automobile loans and other consumer loans. Credit risk stems primarily from the borrower’s ability to repay, measured by average unemployment, average personal bankruptcy rates and interest rates. Factor allocations applied to each class are increased for loans rated special mention and increased to a greater extent for loans rated classified. The Company allocates additional reserves for “high risk” loans. High risk loans include junior liens, interest only and high loan to value loans. A detailed analysis showing the allowance roll-forward by portfolio segment and related loan balance by segment follows. A ctivity in the Allowance for Loan Losses for the Nine Months Ended September 30 , 2018 Real Estate Construction Consumer Real Estate Commercial Real Estate Commercial Non Real Estate Public Sector and IDA Consumer Non Real Estate Unallocated Total Balance, December 31, 2017 $ 337 $ 2,027 $ 3,044 $ 1,072 $ 419 $ 707 $ 319 $ 7,925 Charge-offs --- (36 ) --- (107 ) --- (344 ) --- (487 ) Recoveries --- 2 37 22 --- 121 --- 182 Provision for (recovery of) loan losses 137 185 (42 ) (305 ) 151 240 (273 ) 93 Balance, September 30 , 201 8 $ 474 $ 2,178 $ 3,039 $ 682 $ 570 $ 724 $ 46 $ 7,713 A ctivity in the Allowance for Loan Losses for the Nine Months Ended September 30 , 2017 Real Estate Construction Consumer Real Estate Commercial Real Estate Commercial Non Real Estate Public Sector and IDA Consumer Non Real Estate Unallocated Total Balance, December 31, 2016 $ 438 $ 1,830 $ 3,738 $ 1,063 $ 330 $ 644 $ 257 $ 8,300 Charge-offs --- (146 ) (122 ) (73 ) --- (348 ) --- (689 ) Recoveries --- 1 44 14 --- 79 --- 138 Provision for (recovery of) loan losses (140 ) 337 33 111 55 357 (29 ) 724 Balance, September 30 , 2017 $ 298 $ 2,022 $ 3,693 $ 1,115 $ 385 $ 732 $ 228 $ 8,473 A ctivity in the Allowance for Loan Losses for the Year Ended December 31, 201 7 Real Estate Construction Consumer Real Estate Commercial Real Estate Commercial Non Real Estate Public Sector and IDA Consumer Non Real Estate Unallocated Total Balance, December 31, 2016 $ 438 $ 1,830 $ 3,738 $ 1,063 $ 330 $ 644 $ 257 $ 8,300 Charge-offs --- (146 ) (139 ) (82 ) --- (452 ) --- (819 ) Recoveries --- 1 131 23 --- 132 --- 287 Provision for (recovery of) loan losses (101 ) 342 (686 ) 68 89 383 62 157 Balance, December 31 , 201 7 $ 337 $ 2,027 $ 3,044 $ 1,072 $ 419 $ 707 $ 319 $ 7,925 Allowance for Loan Losses as of September 30 , 2018 Real Estate Construction Consumer Real Estate Commercial Real Estate Commercial Non Real Estate Public Sector and IDA Consumer Non Real Estate Unallocated Total Individually evaluated for impairment $ --- $ 14 $ --- $ 142 $ --- $ --- $ --- $ 156 Collectively evaluated for impairment 474 2,164 3,039 540 570 724 46 7,557 Total $ 474 $ 2,178 $ 3,039 $ 682 $ 570 $ 724 $ 46 $ 7,713 Allowance for Loan Losses as of December 31, 201 7 Real Estate Construction Consumer Real Estate Commercial Real Estate Commercial Non Real Estate Public Sector and IDA Consumer Non Real Estate Unallocated Total Individually evaluated for impairment $ --- $ 16 $ --- $ 160 $ --- $ 1 $ --- $ 177 Collectively evaluated for impairment 337 2,011 3,044 912 419 706 319 7,748 Total $ 337 $ 2,027 $ 3,044 $ 1,072 $ 419 $ 707 $ 319 $ 7,925 Loans as of September 30 , 2018 Real Estate Construction Consumer Real Estate Commercial Real Estate Commercial Non Real Estate Public Sector and IDA Consumer Non Real Estate Unallocated Total Individually evaluated for impairment $ 2,470 $ 1,688 $ 6,610 $ 1,149 $ --- $ 17 $ --- $ 11,934 Collectively evaluated for impairment 40,078 169,991 340,146 43,348 59,369 37,570 --- 690,502 Total $ 42,548 $ 171,679 $ 346,756 $ 44,497 $ 59,369 $ 37,587 $ --- $ 702,436 Loans as of December 31, 201 7 Real Estate Construction Consumer Real Estate Commercial Real Estate Commercial Non Real Estate Public Sector and IDA Consumer Non Real Estate Unallocated Total Individually evaluated for impairment $ 2,882 $ 1,267 $ 6,516 $ 1,229 $ --- $ 30 $ --- $ 11,924 Collectively evaluated for impairment 31,812 165,698 333,898 39,289 51,443 34,618 --- 656,758 Total $ 34,694 $ 166,965 $ 340,414 $ 40,518 $ 51,443 $ 34,648 $ --- $ 668,682 A summary of ratios for the allowance for loan losses follows. As of and for the Nine Months Ended September, Year E nded December 31, 2018 2017 2017 Ratio of allowance for loan losses to the end of period loans, net of unearned income and deferred fees and costs 1.10 % 1.28 % 1.19 % Ratio of net charge-offs to average loans, net of unearned income and deferred fees and costs (1) 0.06 % 0.11 % 0.08 % ( 1 Net charge-offs are on an annualized basis. A summary of nonperforming assets follows. September 30, December 31, 2018 2017 2017 Nonperforming assets: Nonaccrual loans $ 220 $ 7 $ 6 Restructured loans in nonaccrual 2,856 3,149 2,763 Total nonperforming loans 3,076 3,156 2,769 Other real estate owned, net 2,214 2,923 2,817 Total nonperforming assets $ 5,290 $ 6,079 $ 5,586 Ratio of nonperforming assets to loans, net of unearned income and deferred fees and costs, plus other real estate owned 0.75 % 0.92 % 0.83 % Ratio of allowance for loan losses to nonperforming loans (1) 250.75 % 268.47 % 286.20 % ( 1 The Company defines nonperforming loans as nonaccrual loans and restructured loans that are nonaccrual. Nonperforming loans do not 90 A summary of loans past due 90 September 30, December 31, 2018 2017 2017 Loans past due 90 days or more and still accruing $ 63 $ 250 $ 51 Ratio of loans past due 90 days or more and still accruing to loans, net of unearned income and deferred fees and costs 0.01 % 0.04 % 0.01 % Accruing restructured loans $ 7,843 $ 4,815 $ 5,134 Impaired loans: Impaired loans with no valuation allowance $ 10,530 $ 10,522 $ 10,444 Impaired loans with a valuation allowance 1,404 1,637 1,480 Total impaired loans $ 11,934 $ 12,159 $ 11,924 Valuation allowance (156 ) (186 ) (177 ) Impaired loans, net of allowance $ 11,778 $ 11,973 $ 11,747 Average recorded investment in impaired loans (1) $ 12,684 $ 12,541 $ 13,344 Interest income recognized on impaired loans, after designation as impaired $ 414 $ 387 $ 528 Amount of income recognized on a cash basis $ --- $ --- $ --- ( 1 Nonaccrual loan relationships that meet the Company’s balance threshold of $250 $250 not No nine September 30, 2018 September 30, 2017 December 31, 2017. A detailed analysis of investment in impaired loans, associated reserves and interest income recognized, segregated by loan class follows. Impaired Loans as of September 30, 2018 Principal Balance Total Recorded Investment (1) Recorded Investment (1 ) Which There is No Related Allowance Recorded Investment (1) Which There is a Related Allowance Related Allowance Real Estate Construction (2) Construction, other $ 2,470 $ 2,470 $ 2,470 $ --- $ --- Co nsumer Real Estate (2) Residential closed-end first liens 928 882 707 175 10 Residential closed-end junior liens 150 150 --- 150 4 Investor-owned residential real estate 678 656 656 --- --- Commercial Real Estate (2) Multifamily 294 294 294 --- --- Commercial real estate, owner-occupied 3,529 3,520 3,520 --- --- Commercial real estate, other 3,152 2,796 2,796 --- --- Commercial Non Real Estate (2) Commercial and industrial 1,158 1,149 70 1,079 142 Consumer Non Real Estate (2) Automobile 17 17 17 --- --- Total $ 12,376 $ 11,934 $ 10,530 $ 1,404 $ 156 ( 1 ( 2 Impaired Loans as of December 31, 2017 Principal Balance Total Recorded Investment (1) Recorded Investment (1) Which There is No Related Allowance Recorded Investment (1) Which There is a Related Allowance Related Allowance Real Estate Construction (2) Construction 1-4 family residential $ 2,882 $ 2,882 $ 2,882 $ --- $ --- Co nsumer Real Estate (2) Residential closed-end first liens 807 768 590 178 10 Residential closed-end junior liens 174 174 --- 174 6 Investor-owned residential real estate 347 325 325 --- --- Commercial Real Estate (2) Multifamily real estate 303 303 303 --- --- Commercial real estate, owner occupied 3,619 3,611 3,611 --- --- Commercial real estate, other 2,921 2,602 2,602 --- --- Commercial Non Real Estate (2) Commercial and industrial 1,236 1,229 126 1,103 160 Consumer Non Real Estate (2) Automobile 30 30 5 25 1 Total $ 12,319 $ 11,924 $ 10,444 $ 1,480 $ 177 ( 1 Recorded investment is net of charge-offs and interest paid while a loan is in nonaccrual status. ( 2 Only classes with impaired loans are shown. The following tables show the average recorded investment and interest income recognized for impaired loans. For the Nine Months Ended September 30, 2018 Average Recorded Investment (1) Interest Income Recognized Real Estate Construction (2) Construction 1-4 family residential $ 2,697 $ 108 Co nsumer Real Estate (2) Residential closed-end first liens 891 40 Residential closed-end junior liens 162 7 Investor-owned residential real estate 661 18 Commercial Real Estate (2) Multifamily real estate 298 12 Commercial real estate, owner occupied 3,934 145 Commercial real estate, other 2,829 55 Commercial Non Real Estate (2) Commercial and industrial 1,188 28 Consumer Non Real Estate (2) Automobile 24 1 Total $ 12,684 $ 414 ( 1 ( 2 For the Nine Months Ended September 30, 2017 Average Recorded Investment (1) Interest Income Recognized Real Estate Construction (2) Construction 1-4 family residential $ 3,323 $ 133 Consumer Real Estate (2) Residential closed-end first liens 1,107 30 Residential closed-end junior liens 188 8 Investor-owned residential real estate 333 12 Commercial Real Estate (2) Multifamily real estate 310 12 Commercial real estate, owner occupied 3,420 140 Commercial real estate, other 2,658 45 Commercial Non Real Estate (2) Commercial and industrial 1,187 6 Consumer Non Real Estate Automobile 15 1 Total $ 12,541 $ 387 ( 1 ( 2 For the Year Ended December 31, 2017 Average Recorded Investment (1) Interest Income Recognized Real Estate Construction (2) Construction 1-4 family residential $ 3,298 $ 177 Consumer Real Estate (2) Residential closed-end first liens 781 57 Residential closed-end junior liens 185 11 Investor-owned residential real estate 329 1 Commercial Real Estate (2) Multifamily real estate 748 16 Commercial real estate, owner occupied 4,047 200 Commercial real estate, other 2,638 --- Commercial Non Real Estate (2) Commercial and industrial 1,282 64 Co nsumer Non Real Estate (2) Automobile 36 2 Total $ 13,344 $ 528 ( 1 ( 2 The Company reviews nonaccrual loans on an individual loan basis to determine whether future payments are reasonably assured. To satisfy this criteria, the Company’s evaluation must determine that the underlying cause of the original delinquency or weakness that indicated nonaccrual status has been resolved, such as receipt of new guarantees, increased cash flows that cover the debt service or other resolution. Nonaccrual loans that demonstrate reasonable assurance of future payments and that have made at least six may An analysis of past due and nonaccrual loans September 30, 2018 30 – 89 Days Past Due and Accruing 90 or M ore Days Past Due 90 or More Days Past Due and Accruing Nonaccruals (2) Consumer Real Estate (1) Equity lines 70 --- --- --- Residential closed-end first liens 1,388 63 38 163 Residential closed-end junior liens 12 --- --- --- Investor-owned residential real estate 54 --- --- 200 Commercial Real Estate (1) Multifamily real estate 294 195 --- 195 Commercial real estate, owner-occupied 379 --- --- --- Commercial real estate, other --- 2,510 --- 2,510 Commercial Non Real Estate (1) Commercial and industrial 196 --- --- 8 Consumer Non Real Estate (1) Credit cards 7 5 5 --- Automobile 322 10 10 --- Other consumer loans 46 10 10 --- Total $ 2,768 $ 2,793 $ 63 $ 3,076 ( 1 ( 2 ) December 31, 2017 30 – 89 Days Past Due and Accruing 90 or M ore Days Past Due 90 or More Days Past Due and Accruing Nonaccruals (2) Consumer Real Estate (1) Residential closed-end first liens $ 637 $ 16 $ 11 $ 145 Residential closed-end junior liens 188 --- --- --- Investor-owned residential real estate 66 --- --- 6 Commercial Real Estate (1) Multifamily real estate 303 --- --- --- Commercial real estate, owner occupied 402 --- --- --- Commercial real estate, other --- 2,602 --- 2,602 Commercial Non Real Estate (1) Commercial and industrial 131 --- --- 15 Consumer Non Real Estate (1) Credit cards 7 12 12 --- Automobile 375 22 22 1 Other consumer loans 154 6 6 --- Total $ 2,263 $ 2,658 $ 51 $ 2,769 ( 1 ( 2 ) The estimate of credit risk for non-impaired loans is obtained by applying allocations for internal and external factors. The allocations are increased for loans that exhibit greater credit quality risk. Credit quality indicators, which the Company terms risk grades, are assigned through the Company’s credit review function for larger loans and selective review of loans that fall below credit review thresholds. Loans that do not 75 75 50% 100% Determination of risk grades was completed for the portfolio as of September 30, 2018 December 31, 2017. The following displays collectively-evaluated loans by credit quality indicator. September 30 , 2018 Pass (1) Special Mention (1) Classified (1) Real Estate Construction Construction, 1-4 family residential $ 9,281 $ --- $ --- Construction, other 30,776 21 --- Consumer Real Estate Equity lines 16,653 296 --- Closed-end first liens 87,835 916 590 Closed-end junior liens 4,059 --- --- Investor-owned residential real estate 59,642 --- --- Commercial Real Estate Multifamily residential real estate 93,296 --- 195 Commercial real estate owner-occupied 122,589 74 32 Commercial real estate, other 123,960 --- --- Commercial Non Real Estate Commercial and industrial 43,176 167 5 Public Sector and IDA States and political subdivisions 59,369 --- --- Consumer Non Real Estate Credit cards 5,564 --- --- Automobile 15,912 78 49 Other consumer 15,934 24 9 Total $ 688,046 $ 1,576 $ 880 ( 1 The following displays collectively-evaluated loans by credit quality indicator. December 31, 201 7 Pass (1) Special Mention (1) Classified (1) Real Estate Construction Construction, 1-4 family residential $ 10,396 $ --- $ --- Construction, other 21,416 --- --- Consumer Real Estate Equity lines 16,673 39 --- Closed-end first liens 85,975 2,400 355 Closed-end junior liens 4,483 29 12 Investor-owned residential real estate 55,410 66 256 Commercial Real Estate Multifamily residential real estate 95,894 127 --- Commercial real estate owner-occupied 130,256 246 763 Commercial real estate, other 106,612 --- --- Commercial Non Real Estate Commercial and industrial 38,904 220 165 Public Sector and IDA States and political subdivisions 51,443 --- --- Consumer Non Real Estate Credit cards 5,493 --- --- Automobile 16,059 218 116 Other consumer 12,692 16 24 Total $ 651,706 $ 3,361 $ 1,691 ( 1 Sales , Purchases and Reclassification of Loans The Company finances mortgages under “best efforts” contracts with mortgage purchasers. The mortgages are designated as held for sale upon initiation. There have been no Troubled Debt Restructurings From time to time the Company modifies loans in troubled debt restructurings. Total troubled debt restructurings amounted to $10,700 September 30, 2018, $7,897 December 31, 2017, $7,964 September 30, 2017. The following table presents restructurings by class that occurred during the three September 30, 2018. Restructurings That Occurred During the Three Months Ended September 30, 2018 Number of Contracts Pre-Modification Outstanding Principal Balance Post-Modification Outstanding Principal Balance Resident ial Real Estate Investor owned real estate 2 $ 338 $ 338 Total 2 $ 338 $ 338 The restructurings completed during the three September 30, 2018 One 12 not second not The following table presents restructurings by class that occurred during the nine September 30, 2018. Restructurings That Occurred During the Nine Months Ended September 30, 2018 Number of Contracts Pre-Modification Outstanding Principal Balance Post-Modification Outstanding Principal Balance Real Estate Construction Construction, other 2 $ 2,882 $ 2,882 Residential Real Estate Investor owned real estate 2 338 338 Commercial Real Estate Commercial real estate owner-occupied 2 715 715 Total 6 $ 3,935 $ 3,935 The Company restructured six nine September 30, 2018. not One 12 not second not Two 12 not The following table present restructurings by class that occurred during the three September 30, 2017. Restructurings That Occurred During the Three Months Ended September 30, 2017 Number of Contracts Pre-Modification Outstanding Principal Balance Post-Modification Outstanding Principal Balance Commercial Non R eal E state Commercial and industrial 2 $ 1,116 $ 1,116 Consumer Non Real Estate Automobile 2 14 14 Total 4 $ 1,130 $ 1,130 Each of the restructurings completed during the three September 30, 2017 two two 13 The following table presents restructurings by class that occurred during the nine September 30, 2017. Restructurings That Occurred During the Nine Months Ended September 30, 2017 Number of Contracts Pre-Modification Outstanding Principal Balance Post-Modification Outstanding Principal Balance Commercial Real Estate Commercial real estate, owner occupied 1 $ 132 $ 132 Commercial Non R eal E state Commercial and industrial 4 1,234 1,234 Consumer Non Real Estate Automobile 2 14 14 Total 7 $ 1,380 $ 1,380 Each of the restructurings completed during the nine September 30, 2017 not four Three one two two 13 The Company analyzed its TDR portfolio for loans that defaulted during the three nine September 30, 2018 September 30, 2017, 12 one 90 three nine September 30, 2018 September 30, 2017, none 12 |