Allowance For Loan Losses | NOTE 5. Allowance for Loan Losses Changes in the allowance for loan losses for the nine months ended September 30, 2016 and 2015 and the year ended December 31, 2015 were as follows: Nine Months Ended Year Ended Nine Months Ended September 30, December 31, September 30, 2016 2015 2015 (in thousands) Balance, beginning $ 4,959 $ 5,080 $ 5,080 (Recovery of) provision for loan losses (46 ) (227 ) 23 Recoveries added to the allowance 217 562 499 Loan losses charged to the allowance (472 ) (456 ) (438 ) Balance, ending $ 4,658 $ 4,959 $ 5,164 Nonaccrual and past due loans by class at September 30, 2016 and December 31, 2015 were as follows: September 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 $ 455 $ — $ 300 $ 755 $ 29,419 $ 30,174 $ 300 $ 375 Commercial Real Estate: Owner Occupied 94 760 — 854 111,705 112,559 — 1,017 Non-owner occupied 334 — — 334 87,655 87,989 — 949 Construction and Farmland: Residential 50 — — 50 6,668 6,718 — — Commercial — — — — 31,885 31,885 — — Consumer: Installment 18 — 7 25 13,439 13,464 — 12 Residential: Equity Lines — — — — 30,302 30,302 — 137 Single family 569 — 4,437 5,006 190,647 195,653 — 4,815 Multifamily — — — — 3,625 3,625 — — All Other Loans — — — — 1,943 1,943 — — Total $ 1,520 $ 760 $ 4,744 $ 7,024 $ 507,288 $ 514,312 $ 300 $ 7,305 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 September 30, 2016 and December 31, 2015 were as follows: As of and for the Nine Months Ended September 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 — (424 ) — — (16 ) (32 ) — (472 ) Recoveries 44 114 7 9 39 4 — 217 (Recovery of) provision for loan losses (265 ) 45 250 (1 ) (51 ) (17 ) (7 ) (46 ) Ending balance $ 554 $ 2,057 $ 1,525 $ 219 $ 81 $ 8 $ 214 $ 4,658 Ending balance: Individually evaluated for impairment $ — $ 348 $ 162 $ 7 $ — $ — $ — $ 517 Ending balance: collectively evaluated for impairment $ 554 $ 1,709 $ 1,363 $ 212 $ 81 $ 8 $ 214 $ 4,141 Loans: Ending balance $ 38,603 $ 229,580 $ 200,548 $ 30,174 $ 13,464 $ 1,943 $ — $ 514,312 Ending balance individually evaluated for impairment $ 1,338 $ 9,424 $ 3,911 $ 1,187 $ — $ — $ — $ 15,860 Ending balance collectively evaluated for impairment $ 37,265 $ 220,156 $ 196,637 $ 28,987 $ 13,464 $ 1,943 $ — $ 498,452 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 (Recovery of) provision for loan losses (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 September 30, 2016 and December 31, 2015 were as follows: As of and for the Nine Months Ended September 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 $ 639 $ 603 $ — $ 635 $ 30 Commercial Real Estate: Owner Occupied 1,502 1,359 — 1,378 11 Non-owner occupied 1,200 1,085 — 1,098 13 Construction and Farmland: Residential — — — — — Commercial 1,338 1,341 — 1,366 57 Residential: Equity lines — — — — — Single family 7,399 7,299 — 7,373 150 Multifamily — — — — — Other Loans — — — — — $ 12,078 $ 11,687 $ — $ 11,850 $ 261 With an allowance recorded: Commercial - Non Real Estate: Commercial & Industrial $ 596 $ 589 $ 7 $ 626 $ 17 Commercial Real Estate: Owner Occupied 204 204 37 206 7 Non-owner occupied 1,264 1,268 125 1,280 48 Construction and Farmland: Residential — — — — — Commercial — — — — — Residential: Equity lines 460 120 61 123 — Single family 2,055 2,015 287 2,034 61 Multifamily — — — — — Other Loans — — — — — $ 4,579 $ 4,196 $ 517 $ 4,269 $ 133 Total: Commercial $ 1,235 $ 1,192 $ 7 $ 1,261 $ 47 Commercial Real Estate 4,170 3,916 162 3,962 79 Construction and Farmland 1,338 1,341 — 1,366 57 Residential 9,914 9,434 348 9,530 211 Other — — — — — Total $ 16,657 $ 15,883 $ 517 $ 16,119 $ 394 (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 September 30, 2016 was $16.0 million . The interest income recognized on impaired loans for the three months ended September 30, 2016 was $113 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, 2016 and December 31, 2015 was as follows: As of September 30, 2016 (in thousands) INTERNAL RISK RATING GRADES Pass Pass Monitored Special Mention Substandard Doubtful Loss Total Commercial - Non Real Estate: Commercial & Industrial $ 25,582 $ 3,501 $ 181 $ 910 $ — $ — $ 30,174 Commercial Real Estate: Owner Occupied 95,555 13,588 1,646 1,333 437 — 112,559 Non-owner occupied 52,103 34,556 — 1,330 — — 87,989 Construction and Farmland: Residential 6,668 50 — — — — 6,718 Commercial 24,942 6,591 — 352 — — 31,885 Residential: Equity Lines 29,700 465 — 17 120 — 30,302 Single family 177,110 10,630 597 7,165 151 — 195,653 Multifamily 3,625 — — — — — 3,625 All other loans 1,943 — — — — — 1,943 Total $ 417,228 $ 69,381 $ 2,424 $ 11,107 $ 708 $ — $ 500,848 Performing Nonperforming Consumer Credit Exposure by Payment Activity $ 13,439 $ 25 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 |