Allowance For Loan Losses | NOTE 5. Allowance for Loan Losses Changes in the allowance for loan losses for the nine months ended September 30, 2015 and 2014 and the year ended December 31, 2014 were as follows: Nine Months Ended Year Ended Nine Months Ended September 30, December 31, September 30, 2015 2014 2014 (in thousands) Balance, beginning $ 5,080 $ 5,488 $ 5,488 Provision charged to operating expense 23 350 — Recoveries added to the allowance 499 725 614 Loan losses charged to the allowance (438 ) (1,483 ) (515 ) Balance, ending $ 5,164 $ 5,080 $ 5,587 Nonaccrual and past due loans by class at September 30, 2015 and December 31, 2014 were as follows: September 30, 2015 (in thousands) 30 - 59 Days Past Due 60 - 89 Days Past Due 90 or More Days Past Due Total Past Due Current Total Loans 90 or More Days Past Due Still Accruing Nonaccrual Loans Commercial - Non Real Estate: Commercial & Industrial $ 108 $ — $ — $ 108 $ 27,310 $ 27,418 $ — $ 560 Commercial Real Estate: Owner Occupied 871 — — 871 108,604 109,475 — 1,712 Non-owner occupied 907 — 766 1,673 61,784 63,457 — 971 Construction and Farmland: Residential — 249 140 389 8,205 8,594 — 140 Commercial — 53 — 53 32,314 32,367 — 326 Consumer: Installment 58 1 1 60 13,556 13,616 1 — Residential: Equity Lines 3,423 6 — 3,429 31,270 34,699 — 281 Single family 2,397 — 733 3,130 192,830 195,960 — 1,683 Multifamily — — — — 3,453 3,453 — — All Other Loans — — — — 2,177 2,177 — — Total $ 7,764 $ 309 $ 1,640 $ 9,713 $ 481,503 $ 491,216 $ 1 $ 5,673 December 31, 2014 (in thousands) 30 - 59 Days Past Due 60 - 89 Days Past Due 90 or More Days Past Due Total Past Due Current Total Loans 90 or More Past Due Still Accruing Nonaccrual Loans Commercial - Non Real Estate: Commercial & Industrial $ 28 $ — $ — $ 28 $ 28,104 $ 28,132 $ — $ 2,106 Commercial Real Estate: Owner Occupied 2,191 — — 2,191 97,516 99,707 — 2,591 Non-owner occupied 56 210 808 1,074 60,518 61,592 — 1,231 Construction and Farmland: Residential — 52 — 52 5,149 5,201 — — Commercial — — 57 57 31,231 31,288 — 787 Consumer: Installment 50 15 6 71 13,803 13,874 6 — Residential: Equity Lines 132 41 185 358 30,763 31,121 — 331 Single family 1,243 440 644 2,327 191,246 193,573 — 3,660 Multifamily — — — — 3,016 3,016 — — All Other Loans — — — — 2,316 2,316 — — Total $ 3,700 $ 758 $ 1,700 $ 6,158 $ 463,662 $ 469,820 $ 6 $ 10,706 Allowance for loan losses by segment at September 30, 2015 and December 31, 2014 were as follows: As of and for the Nine Months Ended September 30, 2015 (in thousands) Construction and Farmland Residential Commercial Real Estate Commercial - Non Real Estate Consumer All Other Loans Unallocated Total Allowance for credit losses: Beginning Balance $ 951 $ 1,977 $ 1,347 $ 464 $ 103 $ 42 $ 196 $ 5,080 Charge-Offs (166 ) (152 ) (47 ) — (54 ) (19 ) — (438 ) Recoveries 63 157 60 179 26 14 — 499 Provision 85 102 89 (307 ) 27 13 14 23 Ending balance $ 933 $ 2,084 $ 1,449 $ 336 $ 102 $ 50 $ 210 $ 5,164 Ending balance: Individually evaluated for impairment $ 138 $ 343 $ 102 $ 8 $ — $ — $ — $ 591 Ending balance: collectively evaluated for impairment $ 795 $ 1,741 $ 1,347 $ 328 $ 102 $ 50 $ 210 $ 4,573 Loans: Ending balance $ 40,961 $ 234,112 $ 172,932 $ 27,418 $ 13,616 $ 2,177 $ — $ 491,216 Ending balance individually evaluated for impairment $ 2,266 $ 7,052 $ 4,746 $ 953 $ — $ — $ — $ 15,017 Ending balance collectively evaluated for impairment $ 38,695 $ 227,060 $ 168,186 $ 26,465 $ 13,616 $ 2,177 $ — $ 476,199 As of and for the Twelve Months Ended December 31, 2014 (in thousands) Construction and Farmland Residential Commercial Real Estate Commercial - Non Real Estate Consumer All Other Loans Unallocated Total Allowance for credit losses: Beginning Balance $ 1,032 $ 2,225 $ 1,337 $ 555 $ 102 $ 82 $ 155 $ 5,488 Charge-Offs (482 ) (808 ) (83 ) — (86 ) (24 ) — (1,483 ) Recoveries 26 63 381 164 87 4 — 725 Provision 375 497 (288 ) (255 ) — (20 ) 41 350 Ending balance $ 951 $ 1,977 $ 1,347 $ 464 $ 103 $ 42 $ 196 $ 5,080 Ending balance: Individually evaluated for impairment $ 93 $ 303 $ 203 $ 44 $ — $ — $ — $ 643 Ending balance: collectively evaluated for impairment $ 858 $ 1,674 $ 1,144 $ 420 $ 103 $ 42 $ 196 $ 4,437 Loans: Ending balance $ 36,489 $ 227,710 $ 161,299 $ 28,132 $ 13,874 $ 2,316 $ — $ 469,820 Ending balance individually evaluated for impairment $ 2,665 $ 6,550 $ 5,716 $ 2,106 $ — $ — $ — $ 17,037 Ending balance collectively evaluated for impairment $ 33,824 $ 221,160 $ 155,583 $ 26,026 $ 13,874 $ 2,316 $ — $ 452,783 Impaired loans by class as of and for the periods ended September 30, 2015 and December 31, 2014 were as follows: As of and for the Nine Months Ended September 30, 2015 (in thousands) Unpaid Principal Balance Recorded Investment (1) Related Allowance Average Recorded Investment Interest Income Recognized With no related allowance: Commercial - Non Real Estate: Commercial & Industrial $ 1,081 $ 881 $ — $ 1,075 $ 3 Commercial Real Estate: Owner Occupied 2,439 2,273 — 2,375 22 Non-owner occupied 1,242 1,176 — 1,183 — Construction and Farmland: Residential 140 140 — 134 3 Commercial 1,367 1,348 — 1,372 34 Residential: Equity lines 399 219 — 221 1 Single family 4,663 4,550 — 4,701 104 Multifamily — — — — — Other Loans — — — — — $ 11,331 $ 10,587 $ — $ 11,061 $ 167 With an allowance recorded: Commercial - Non Real Estate: Commercial & Industrial $ 73 $ 73 $ 8 $ 81 $ 13 Commercial Real Estate: Owner Occupied — — — — — Non-owner occupied 1,299 1,303 102 1,315 52 Construction and Farmland: Residential — — — — — Commercial 778 781 138 809 24 Residential: Equity lines 304 148 76 149 2 Single family 2,162 2,152 267 2,166 31 Multifamily — — — — — Other Loans — — — — — $ 4,616 $ 4,457 $ 591 $ 4,520 $ 122 Total: Commercial $ 1,154 $ 954 $ 8 $ 1,156 $ 16 Commercial Real Estate 4,980 4,752 102 4,873 74 Construction and Farmland 2,285 2,269 138 2,315 61 Residential 7,528 7,069 343 7,237 138 Other — — — — — Total $ 15,947 $ 15,044 $ 591 $ 15,581 $ 289 (1) Recorded investment is defined as the summation of the outstanding principal balance, accrued interest, net deferred loan fees or costs, and any partial charge-offs. As of and for the Twelve Months End December 31, 2014 (in thousands) Unpaid Principal Balance Recorded Investment (1) Related Allowance Average Recorded Investment Interest Income Recognized With no related allowance: Commercial - Non Real Estate: Commercial & Industrial $ 2,159 $ 2,013 $ — $ 2,256 $ 19 Commercial Real Estate: Owner Occupied 2,824 2,473 — 2,857 48 Non-owner occupied 2,675 2,560 — 2,796 86 Construction and Farmland: Residential — — — — — Commercial 2,319 2,319 — 2,362 68 Residential: Equity lines 252 78 — 252 — Single family 5,634 5,218 — 5,719 149 Multifamily — — — — — Other Loans — — — — — $ 15,863 $ 14,661 $ — $ 16,242 $ 370 With an allowance recorded: Commercial - Non Real Estate: Commercial & Industrial $ 289 $ 94 $ 44 $ 289 $ — Commercial Real Estate: Owner Occupied 689 689 203 704 33 Non-owner occupied — — — — — Construction and Farmland: Residential — — — — — Commercial 385 350 93 393 5 Residential: Equity lines 403 253 95 403 5 Single family 1,007 1,008 208 1,020 41 Multifamily — — — — — Other Loans — — — — — $ 2,773 $ 2,394 $ 643 $ 2,809 $ 84 Total: Commercial $ 2,448 $ 2,107 $ 44 $ 2,545 $ 19 Commercial Real Estate 6,188 5,722 203 6,357 167 Construction and Farmland 2,704 2,669 93 2,755 73 Residential 7,296 6,557 303 7,394 195 Other — — — — — Total $ 18,636 $ 17,055 $ 643 $ 19,051 $ 454 (1) Recorded investment is defined as the summation of the outstanding principal balance, accrued interest, net deferred loan fees or costs, and any partial charge-offs. The average recorded investment of impaired loans for the three months ended September 30, 2015 was $15.3 million . The interest income recognized on impaired loans for the three months ended September 30, 2015 was $94 thousand . When the ultimate collectability of the total principal of an impaired loan is in doubt and the loan is in nonaccrual status, all payments are applied to principal under the cost-recovery method. For financial statement purposes, the recorded investment in nonaccrual loans is the actual principal balance reduced by payments that would otherwise have been applied to interest. When reporting information on these loans to the applicable customers, the unpaid principal balance is reported as if payments were applied to principal and interest under the original terms of the loan agreements. Therefore, the unpaid principal balance reported to the customer would be higher than the recorded investment in the loan for financial statement purposes. When the ultimate collectability of the total principal of the impaired loan is not in doubt and the loan is in nonaccrual status, contractual interest is credited to interest income when received under the cash-basis method. The Company uses a rating system for evaluating the risks associated with non-consumer loans. Consumer loans are not evaluated for risk unless the characteristics of the loan fall within classified categories. Descriptions of these ratings are as follows: Pass Pass loans exhibit acceptable history of profits, cash flow ability and liquidity. Sufficient cash flow exists to service the loan. All obligations have been paid by the borrower in an as agreed manner. Pass Monitored Pass monitored loans may be experiencing income and cash volatility, inconsistent operating trends, nominal liquidity and/or a leveraged balance sheet. A higher level of supervision is required for these loans as the potential for a negative event could impact the borrower’s ability to repay the loan. Special Mention Special mention loans exhibit negative trends and potential weakness that, if left uncorrected, may negatively affect the borrower’s ability to repay its obligations. The risk of default is not imminent and the borrower still demonstrates sufficient financial strength to service debt. Substandard Substandard loans exhibit well defined weaknesses resulting in a higher probability of default. The borrowers exhibit adverse financial trends and a diminishing ability or willingness to service debt. Doubtful Doubtful loans exhibit all of the characteristics inherent in substandard loans; however given the severity of weaknesses, the collection of 100% of the principal is unlikely under current conditions. Loss Loss loans are considered uncollectible over a reasonable period of time and of such little value that its continuance as a bankable asset is not warranted. Credit quality information by class at September 30, 2015 and December 31, 2014 was as follows: As of September 30, 2015 (in thousands) INTERNAL RISK RATING GRADES Pass Pass Monitored Special Mention Substandard Doubtful Loss Total Commercial - Non Real Estate: Commercial & Industrial $ 24,387 $ 2,098 $ 350 $ 459 $ 124 $ — $ 27,418 Commercial Real Estate: Owner Occupied 90,723 13,543 3,145 1,048 1,016 — 109,475 Non-owner occupied 41,932 19,763 — 1,762 — — 63,457 Construction and Farmland: Residential 8,454 — — 140 — — 8,594 Commercial 19,334 11,447 73 1,513 — — 32,367 Residential: Equity Lines 30,414 3,935 70 146 134 — 34,699 Single family 169,489 20,652 436 4,950 433 — 195,960 Multifamily 3,453 — — — — — 3,453 All other loans 2,128 49 — — — — 2,177 Total $ 390,314 $ 71,487 $ 4,074 $ 10,018 $ 1,707 $ — $ 477,600 Performing Nonperforming Consumer Credit Exposure by Payment Activity $ 13,556 $ 60 As of December 31, 2014 (in thousands) INTERNAL RISK RATING GRADES Pass Pass Monitored Special Mention Substandard Doubtful Loss Total Commercial - Non Real Estate: Commercial & Industrial $ 24,579 $ 1,775 $ 21 $ 701 $ 1,056 $ — $ 28,132 Commercial Real Estate: Owner Occupied 77,979 17,401 — 3,189 1,138 — 99,707 Non-owner occupied 42,630 14,779 1,402 2,733 48 — 61,592 Construction and Farm land: Residential 5,112 89 — — — — 5,201 Commercial 23,192 5,184 2,083 750 79 — 31,288 Residential: Equity Lines 29,440 1,429 — 185 67 — 31,121 Single family 165,932 21,011 — 6,062 568 — 193,573 Multifamily 2,144 872 — — — — 3,016 All other loans 2,316 — — — — — 2,316 Total $ 373,324 $ 62,540 $ 3,506 $ 13,620 $ 2,956 $ — $ 455,946 Performing Nonperforming Consumer Credit Exposure by Payment Activity $ 13,803 $ 71 |