Allowance For Loan Losses | NOTE 5. Allowance for Loan Losses Changes in the allowance for loan losses for the six months ended June 30, 2017 and 2016 and the year ended December 31, 2016 were as follows: Six Months Ended Year Ended Six Months Ended June 30, December 31, June 30, 2017 2016 2016 (in thousands) Balance, beginning $ 4,505 $ 4,959 $ 4,959 (Recovery of) provision for loan losses (757 ) (188 ) 79 Recoveries added to the allowance 799 341 90 Loan losses charged to the allowance (140 ) (607 ) (155 ) Balance, ending $ 4,407 $ 4,505 $ 4,973 Nonaccrual and past due loans by class at June 30, 2017 and December 31, 2016 were as follows: June 30, 2017 (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 $ — $ — $ — $ — $ 35,678 $ 35,678 $ — $ 237 Commercial Real Estate: Owner Occupied 415 — — 415 125,014 125,429 — 415 Non-owner occupied 49 — — 49 112,968 113,017 — 183 Construction and Farmland: Residential — — — — 3,519 3,519 — — Commercial — — — — 32,259 32,259 — — Consumer: Installment 28 2 6 36 12,507 12,543 — 16 Residential: Equity Lines 67 — — 67 32,409 32,476 — 108 Single family 699 197 4,283 5,179 187,896 193,075 — 4,642 Multifamily — — — — 4,367 4,367 — — All Other Loans — — — — 1,816 1,816 — — Total $ 1,258 $ 199 $ 4,289 $ 5,746 $ 548,433 $ 554,179 $ — $ 5,601 December 31, 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 Past Due Still Accruing Nonaccrual Loans 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 Allowance for loan losses by segment at June 30, 2017 and December 31, 2016 were as follows: As of and For the Six Months Ended June 30, 2017 (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 $ 450 $ 1,992 $ 1,522 $ 235 $ 69 $ 22 $ 215 $ 4,505 Charge-Offs — (33 ) — (58 ) (24 ) (25 ) — (140 ) Recoveries 504 163 93 14 23 2 — 799 (Recovery of) provision for loan losses (547 ) (296 ) (33 ) 93 (3 ) 23 6 (757 ) Ending balance $ 407 $ 1,826 $ 1,582 $ 284 $ 65 $ 22 $ 221 $ 4,407 Ending balance: Individually evaluated for impairment $ — $ 205 $ 64 $ 2 $ — $ — $ — $ 271 Ending balance: collectively evaluated for impairment $ 407 $ 1,621 $ 1,518 $ 282 $ 65 $ 22 $ 221 $ 4,136 Loans: Ending balance $ 35,778 $ 229,918 $ 238,446 $ 35,678 $ 12,543 $ 1,816 $ — $ 554,179 Ending balance individually evaluated for impairment $ 331 $ 8,571 $ 1,748 $ 504 $ 16 $ — $ — $ 11,170 Ending balance collectively evaluated for impairment $ 35,447 $ 221,347 $ 236,698 $ 35,174 $ 12,527 $ 1,816 $ — $ 543,009 As of and for the Twelve Months Ended December 31, 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 — (535 ) — — (30 ) (42 ) — (607 ) Recoveries 144 124 8 11 49 5 — 341 (Recovery of) provision for loan losses (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 Impaired loans by class as of and for the periods ended June 30, 2017 and December 31, 2016 were as follows: As of and for the Six Months Ended June 30, 2017 (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 $ 258 $ 237 $ — $ 266 $ 7 Commercial Real Estate: Owner Occupied 865 750 — 753 7 Non-owner occupied 215 184 — 185 — Construction and Farmland: Residential — — — — — Commercial 331 331 — 338 14 Consumer: Installment 17 16 — 17 — Residential: Equity lines 236 60 — 62 — Single family 7,273 7,083 — 7,172 60 Multifamily — — — — — Other Loans — — — — — $ 9,195 $ 8,661 $ — $ 8,793 $ 88 With an allowance recorded: Commercial - Non Real Estate: Commercial & Industrial $ 267 $ 267 $ 2 $ 276 $ 6 Commercial Real Estate: Owner Occupied — — — — — Non-owner occupied 815 817 64 821 18 Construction and Farmland: Residential — — — — — Commercial — — — — — Residential: Equity lines 218 48 48 48 — Single family 1,400 1,392 157 1,401 31 Multifamily — — — — — Other Loans — — — — — $ 2,700 $ 2,524 $ 271 $ 2,546 $ 55 Total: Commercial $ 525 $ 504 $ 2 $ 542 $ 13 Commercial Real Estate 1,895 1,751 64 1,759 25 Construction and Farmland 331 331 — 338 14 Consumer 17 16 — 17 — Residential 9,127 8,583 205 8,683 91 Other — — — — — Total $ 11,895 $ 11,185 $ 271 $ 11,339 $ 143 (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, 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 $ 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, 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, 2017 was $11.3 million . The interest income recognized on impaired loans for the three months ended June 30, 2017 was $75 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. Consumer loans are evaluated for collection based on payment performance. 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, 2017 and December 31, 2016 was as follows: As of June 30, 2017 (in thousands) INTERNAL RISK RATING GRADES Pass Pass Monitored Special Mention Substandard Doubtful Loss Total Commercial - Non Real Estate: Commercial & Industrial $ 31,883 $ 3,435 $ 113 $ 247 $ — $ — $ 35,678 Commercial Real Estate: Owner Occupied 109,982 13,675 1,022 335 415 — 125,429 Non-owner occupied 81,629 29,556 1,416 416 — — 113,017 Construction and Farmland: Residential 3,430 89 — — — — 3,519 Commercial 21,976 9,952 — 331 — — 32,259 Residential: Equity Lines 31,917 451 — — 108 — 32,476 Single family 179,100 6,757 525 6,549 144 — 193,075 Multifamily 4,367 — — — — — 4,367 All other loans 1,816 — — — — — 1,816 Total $ 466,100 $ 63,915 $ 3,076 $ 7,878 $ 667 $ — $ 541,636 Performing Nonperforming Consumer Credit Exposure by Payment Activity $ 12,507 $ 36 As of December 31, 2016 (in thousands) INTERNAL RISK RATING GRADES Pass Pass Monitored Special Mention 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 Farm land: 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 |