Allowance For Loan Losses | NOTE 5. Allowance for Loan Losses Changes in the allowance for loan losses for the six months ended June 30, 2016 and 2015 and the year ended December 31, 2015 were as follows: Six Months Ended Year Ended Six Months Ended June 30, December 31, June 30, 2016 2015 2015 (in thousands) Balance, beginning $ 4,959 $ 5,080 $ 5,080 Provision for (recovery of) loan losses 79 (227 ) 433 Recoveries added to the allowance 90 562 343 Loan losses charged to the allowance (155 ) (456 ) (320 ) Balance, ending $ 4,973 $ 4,959 $ 5,536 Nonaccrual and past due loans by class at June 30, 2016 and December 31, 2015 were as follows: June 30, 2016 (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 $ 287 $ 333 $ — $ 620 $ 29,674 $ 30,294 $ — $ 114 Commercial Real Estate: Owner Occupied 451 445 — 896 113,025 113,921 — 1,040 Non-owner occupied — 575 — 575 87,092 87,667 — 913 Construction and Farmland: Residential 490 — — 490 8,367 8,857 — — Commercial 2,093 — — 2,093 28,788 30,881 — — Consumer: Installment 35 8 5 48 13,313 13,361 5 — Residential: Equity Lines 101 18 — 119 31,141 31,260 — 142 Single family 959 4,367 1,249 6,575 187,668 194,243 28 1,769 Multifamily — — — — 3,835 3,835 — — All Other Loans — — — — 3,088 3,088 — — Total $ 4,416 $ 5,746 $ 1,254 $ 11,416 $ 505,991 $ 517,407 $ 33 $ 3,978 December 31, 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 Past Due Still Accruing Nonaccrual Loans Commercial - Non Real Estate: Commercial & Industrial $ 1 $ — $ — $ 1 $ 29,365 $ 29,366 $ — $ 475 Commercial Real Estate: Owner Occupied 623 142 — 765 108,942 109,707 — 1,614 Non-owner occupied — 55 746 801 64,664 65,465 — 948 Construction and Farmland: Residential 50 — — 50 8,509 8,559 — — Commercial 356 72 — 428 32,582 33,010 — 310 Consumer: Installment 43 3 — 46 13,484 13,530 — — Residential: Equity Lines 175 — — 175 34,246 34,421 — 276 Single family 2,123 209 1,296 3,628 191,602 195,230 307 1,662 Multifamily — — — — 3,975 3,975 — — All Other Loans — — — — 2,310 2,310 — — Total $ 3,371 $ 481 $ 2,042 $ 5,894 $ 489,679 $ 495,573 $ 307 $ 5,285 Allowance for loan losses by segment at June 30, 2016 and December 31, 2015 were as follows: As of and For the Six Months Ended June 30, 2016 (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 $ 775 $ 2,322 $ 1,268 $ 211 $ 109 $ 53 $ 221 $ 4,959 Charge-Offs — (127 ) — — (11 ) (17 ) — (155 ) Recoveries 28 13 5 8 33 3 — 90 Provision (198 ) 2 271 (26 ) (46 ) 47 29 79 Ending balance $ 605 $ 2,210 $ 1,544 $ 193 $ 85 $ 86 $ 250 $ 4,973 Ending balance: Individually evaluated for impairment $ 20 $ 368 $ 137 $ 5 $ — $ — $ — $ 530 Ending balance: collectively evaluated for impairment $ 585 $ 1,842 $ 1,407 $ 188 $ 85 $ 86 $ 250 $ 4,443 Loans: Ending balance $ 39,738 $ 229,338 $ 201,588 $ 30,294 $ 13,361 $ 3,088 $ — $ 517,407 Ending balance individually evaluated for impairment $ 1,362 $ 6,382 $ 3,913 $ 452 $ — $ — $ — $ 12,109 Ending balance collectively evaluated for impairment $ 38,376 $ 222,956 $ 197,675 $ 29,842 $ 13,361 $ 3,088 $ — $ 505,298 As of and for the Twelve Months Ended December 31, 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 ) — (66 ) (25 ) — (456 ) Recoveries 75 142 115 181 33 16 — 562 Provision (85 ) 355 (147 ) (434 ) 39 20 25 (227 ) Ending balance $ 775 $ 2,322 $ 1,268 $ 211 $ 109 $ 53 $ 221 $ 4,959 Ending balance: Individually evaluated for impairment $ 10 $ 423 $ 141 $ 2 $ — $ — $ — $ 576 Ending balance: collectively evaluated for impairment $ 765 $ 1,899 $ 1,127 $ 209 $ 109 $ 53 $ 221 $ 4,383 Loans: Ending balance $ 41,569 $ 233,626 $ 175,172 $ 29,366 $ 13,530 $ 2,310 $ — $ 495,573 Ending balance individually evaluated for impairment $ 1,392 $ 7,209 $ 4,555 $ 847 $ — $ — $ — $ 14,003 Ending balance collectively evaluated for impairment $ 40,177 $ 226,417 $ 170,617 $ 28,519 $ 13,530 $ 2,310 $ — $ 481,570 Impaired loans by class as of and for the periods ended June 30, 2016 and December 31, 2015 were as follows: As of and for the Six Months Ended June 30, 2016 (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 $ 192 $ 156 $ — $ 184 $ 6 Commercial Real Estate: Owner Occupied 1,513 1,385 — 1,399 8 Non-owner occupied 1,153 1,050 — 1,060 7 Construction and Farmland: Residential — — — — — Commercial 360 361 — 367 16 Residential: Equity lines — — — — — Single family 3,835 3,650 — 3,730 58 Multifamily — — — — — Other Loans — — — — — $ 7,053 $ 6,602 $ — $ 6,740 $ 95 With an allowance recorded: Commercial - Non Real Estate: Commercial & Industrial $ 298 $ 298 $ 5 $ 306 $ 7 Commercial Real Estate: Owner Occupied 205 206 38 207 5 Non-owner occupied 1,273 1,277 99 1,285 32 Construction and Farmland: Residential — — — — — Commercial 1,002 1,006 20 1,009 21 Residential: Equity lines 545 207 78 210 2 Single family 2,573 2,541 290 2,556 39 Multifamily — — — — — Other Loans — — — — — $ 5,896 $ 5,535 $ 530 $ 5,573 $ 106 Total: Commercial $ 490 $ 454 $ 5 $ 490 $ 13 Commercial Real Estate 4,144 3,918 137 3,951 52 Construction and Farmland 1,362 1,367 20 1,376 37 Residential 6,953 6,398 368 6,496 99 Other — — — — — Total $ 12,949 $ 12,137 $ 530 $ 12,313 $ 201 (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, 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 $ 747 $ 534 $ — $ 749 $ 18 Commercial Real Estate: Owner Occupied 2,146 1,964 — 1,999 19 Non-owner occupied 1,174 1,093 — 1,108 15 Construction and Farmland: Residential — — — — — Commercial 337 310 — 325 — Residential: Equity lines 149 145 — 145 5 Single family 4,407 4,288 — 4,245 126 Multifamily — — — — — Other Loans — — — — — $ 8,960 $ 8,334 $ — $ 8,571 $ 183 With an allowance recorded: Commercial - Non Real Estate: Commercial & Industrial $ 313 $ 313 $ 2 $ 328 $ 15 Commercial Real Estate: Owner Occupied 207 208 39 210 10 Non-owner occupied 1,291 1,295 102 1,311 69 Construction and Farmland: Residential — — — — — Commercial 1,081 1,085 10 1,109 48 Residential: Equity lines 551 216 86 221 3 Single family 2,596 2,575 337 2,600 76 Multifamily — — — — — Other Loans — — — — — $ 6,039 $ 5,692 $ 576 $ 5,779 $ 221 Total: Commercial $ 1,060 $ 847 $ 2 $ 1,077 $ 33 Commercial Real Estate 4,818 4,560 141 4,628 113 Construction and Farmland 1,418 1,395 10 1,434 48 Residential 7,703 7,224 423 7,211 210 Other — — — — — Total $ 14,999 $ 14,026 $ 576 $ 14,350 $ 404 (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 for impaired loans for the three months ended June 30, 2016 was $12.2 million . The interest income recognized on impaired loans for the three months ended June 30, 2016 was $111 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 June 30, 2016 and December 31, 2015 was as follows: As of June 30, 2016 (in thousands) INTERNAL RISK RATING GRADES Pass Pass Monitored Special Mention Substandard Doubtful Loss Total Commercial - Non Real Estate: Commercial & Industrial $ 26,294 $ 3,605 $ 226 $ 169 $ — $ — $ 30,294 Commercial Real Estate: Owner Occupied 94,780 14,647 2,688 1,361 445 — 113,921 Non-owner occupied 58,413 26,541 1,220 1,493 — — 87,667 Construction and Farmland: Residential 8,857 — — — — — 8,857 Commercial 20,500 10,002 — 379 — — 30,881 Residential: Equity Lines 29,847 1,271 — 18 124 — 31,260 Single family 174,215 15,551 268 3,630 579 — 194,243 Multifamily 3,835 — — — — — 3,835 All other loans 3,088 — — — — — 3,088 Total $ 419,829 $ 71,617 $ 4,402 $ 7,050 $ 1,148 $ — $ 504,046 Performing Nonperforming Consumer Credit Exposure by Payment Activity $ 13,313 $ 48 As of December 31, 2015 (in thousands) INTERNAL RISK RATING GRADES Pass Pass Monitored Special Mention Substandard Doubtful Loss Total Commercial - Non Real Estate: Commercial & Industrial $ 25,375 $ 3,175 $ 335 $ 364 $ 117 $ — $ 29,366 Commercial Real Estate: Owner Occupied 90,230 12,553 4,521 1,416 987 — 109,707 Non-owner occupied 42,988 21,072 — 1,405 — — 65,465 Construction and Farm land: Residential 8,559 — — — — — 8,559 Commercial 20,391 10,886 1,395 338 — — 33,010 Residential: Equity Lines 30,267 3,878 — 145 131 — 34,421 Single family 170,168 19,086 950 4,600 426 — 195,230 Multifamily 3,975 — — — — — 3,975 All other loans 2,265 45 — — — — 2,310 Total $ 394,218 $ 70,695 $ 7,201 $ 8,268 $ 1,661 $ — $ 482,043 Performing Nonperforming Consumer Credit Exposure by Payment Activity $ 13,484 $ 46 |