Allowance for Loan Losses | Allowance for Loan Losses Changes in the allowance for loan losses for the years December 31, 2016 , 2015 and 2014 were as follows: December 31, 2016 2015 2014 (in thousands) Balance, beginning $ 4,959 $ 5,080 $ 5,488 (Recovery of) provision for loan losses (188 ) (227 ) 350 Recoveries added to the allowance 341 562 725 Loan losses charged to the allowance (607 ) (456 ) (1,483 ) Balance, ending $ 4,505 $ 4,959 $ 5,080 Nonaccrual and past due loans by class at December 31, 2016 and December 31, 2015 were as follows: December 31, 2016 (in thousands) 30 - 59 60 - 89 90 or More Total Past Current Total Loans 90 or More Nonaccrual Commercial - Non Real Estate: Commercial & Industrial $ 69 $ 49 $ — $ 118 $ 30,223 $ 30,341 $ — $ 278 Commercial Real Estate: Owner Occupied 150 384 — 534 114,820 115,354 — 431 Non-owner occupied — 54 135 189 92,982 93,171 — 1,066 Construction and Farmland: Residential 50 — — 50 4,627 4,677 — — Commercial 499 — — 499 26,615 27,114 — — Consumer: Installment 23 2 11 36 12,641 12,677 8 8 Residential: Equity Lines 66 — — 66 31,240 31,306 — 132 Single family 444 51 166 661 195,999 196,660 — 5,076 Multifamily — — — — 3,566 3,566 — — All Other Loans — — — — 2,076 2,076 — — Total $ 1,301 $ 540 $ 312 $ 2,153 $ 514,789 $ 516,942 $ 8 $ 6,991 December 31, 2015 (in thousands) 30 - 59 60 - 89 90 or More Total Past Current Total Loans 90 or More Nonaccrual 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 December 31, 2016 , December 31, 2015 and December 31, 2014 were as follows: As of and for the Twelve Months Ended December 31, 2016 (in thousands) Construction Residential Commercial Commercial Consumer All Other Unallocated Total Allowance for credit losses: Beginning Balance $ 775 $ 2,322 $ 1,268 $ 211 $ 109 $ 53 $ 221 $ 4,959 Charge-Offs — (535 ) — — (30 ) (42 ) — (607 ) Recoveries 144 124 8 11 49 5 — 341 Provision (recovery) (469 ) 81 246 13 (59 ) 6 (6 ) (188 ) Ending balance $ 450 $ 1,992 $ 1,522 $ 235 $ 69 $ 22 $ 215 $ 4,505 Ending balance: Individually evaluated for impairment $ — $ 268 $ 102 $ 15 $ — $ — $ — $ 385 Ending balance: collectively evaluated for impairment $ 450 $ 1,724 $ 1,420 $ 220 $ 69 $ 22 $ 215 $ 4,120 Loans: Ending balance $ 31,791 $ 231,532 $ 208,525 $ 30,341 $ 12,677 $ 2,076 $ — $ 516,942 Ending balance individually evaluated for impairment $ 1,320 $ 8,608 $ 2,864 $ 581 $ 7 $ — $ — $ 13,380 Ending balance collectively evaluated for impairment $ 30,471 $ 222,924 $ 205,661 $ 29,760 $ 12,670 $ 2,076 $ — $ 503,562 As of and for the Twelve Months Ended December 31, 2015 (in thousands) Construction Residential Commercial Commercial Consumer All Other 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 (recovery) (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 As of and for the Twelve Months Ended December 31, 2014 (in thousands) Construction Residential Commercial Commercial Consumer All Other 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 (recovery) 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 Beginning with the quarter ended December 31, 2015, the Company changed its allowance methodology for the risk scale used in calculating the environmental factors portion of the general reserves assigned to unimpaired credits. During this quarter, management determined it necessary to adjust each of the risk scores assigned to all nine current environmental factors due to changes that had occurred both internally and outside of the Company that have an impact on payment defaults, collateral values, risk ratings, etc. The Company believes that the revised risk scale is more indicative of the losses and risks inherent in the portfolio. The following table represents the effect on the loan loss provision for the year ended December 31, 2015 as a result of the change in allowance methodology from that used in prior periods. No similar changes to the methodology were made in the current period. (in thousands) Calculated Provision Based on Current Methodology Calculation Provision Based on Prior Methodology Difference Portfolio Segment: Construction and Farmland $ (85 ) $ (118 ) $ 33 Residential Real Estate 355 173 182 Commercial Real Estate (147 ) (280 ) 133 Commercial (434 ) (457 ) 23 Consumer 39 28 11 All Other Loans 20 19 1 Total, excluding unallocated $ (252 ) $ (635 ) $ 383 Impaired loans by class at December 31, 2016 and December 31, 2015 were as follows: As of and for the Year Ended December 31, 2016 (in thousands) Unpaid Recorded Related Average Interest With no related allowance: Commercial - Non Real Estate: Commercial & Industrial $ 311 $ 299 $ — $ 356 $ 21 Commercial Real Estate: Owner Occupied 869 772 — 778 15 Non-owner occupied 1,298 1,066 — 1,137 13 Construction and Farmland: Residential — — — — — Commercial 1,320 1,324 — 1,358 75 Consumer: Installment 8 8 — 9 — Residential: Equity lines 17 17 — 18 — Single family 7,072 6,849 — 6,930 170 Multifamily — — — — — Other Loans — — — — — $ 10,895 $ 10,335 $ — $ 10,586 $ 294 With an allowance recorded: Commercial - Non Real Estate: Commercial & Industrial $ 283 $ 283 $ 15 $ 298 $ 14 Commercial Real Estate: Owner Occupied 203 203 37 205 10 Non-owner occupied 824 826 65 834 37 Construction and Farmland: Residential — — — — — Commercial — — — — — Residential: Equity lines 458 115 56 120 — Single family 1,678 1,638 212 1,676 60 Multifamily — — — — — Other Loans — — — — — $ 3,446 $ 3,065 $ 385 $ 3,133 $ 121 Total: Commercial $ 594 $ 582 $ 15 $ 654 $ 35 Commercial Real Estate 3,194 2,867 102 2,954 75 Construction and Farmland 1,320 1,324 — 1,358 75 Consumer 8 8 — 9 — Residential 9,225 8,619 268 8,744 230 Other — — — — — Total $ 14,341 $ 13,400 $ 385 $ 13,719 $ 415 (1) Recorded investment is defined as the summation of the outstanding principal balance, accrued interest, and any partial charge-offs. As of and for the Year Ended December 31, 2015 (in thousands) Unpaid Recorded Related Average Interest 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, and any partial charge-offs. For the year ended December 31, 2014 , the average recorded investment of impaired loans was $19.1 million . The interest income recognized on impaired loans was $454 thousand in 2014 . 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 December 31, 2016 and December 31, 2015 was as follows: As of December 31, 2016 (in thousands) INTERNAL RISK RATING GRADES Pass Pass Monitored Special Substandard Doubtful Loss Total Commercial - Non Real Estate: Commercial & Industrial $ 25,951 $ 3,858 $ 170 $ 362 $ — $ — $ 30,341 Commercial Real Estate: Owner Occupied 99,365 13,050 1,766 742 431 — 115,354 Non-owner occupied 60,259 30,515 891 1,506 — — 93,171 Construction and Farmland: Residential 4,627 50 — — — — 4,677 Commercial 21,105 5,349 314 346 — — 27,114 Residential: Equity Lines 30,791 382 — 17 116 — 31,306 Single family 182,404 6,850 724 6,533 149 — 196,660 Multifamily 3,032 534 — — — — 3,566 All other loans 2,076 — — — — — 2,076 Total $ 429,610 $ 60,588 $ 3,865 $ 9,506 $ 696 $ — $ 504,265 Performing Nonperforming Consumer Credit Exposure by Payment Activity $ 12,641 $ 36 As of December 31, 2015 (in thousands) INTERNAL RISK RATING GRADES Pass Pass Monitored Special 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 Farmland: 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 One consumer loan totaling $5 thousand was rated below Pass at December 31, 2016 . No consumer loans were rated below Pass at December 31, 2015 . |