Loans and Allowance for Loan Losses | NOTE 5. Loans and Allowance for Loan Losses The composition of loans at March 31, 2018 and December 31, 2017 was as follows: March 31, December 31, 2018 2017 (in thousands) Mortgage loans on real estate: Construction and land development $ 48,276 $ 43,786 Secured by farmland 8,351 8,568 Secured by 1-4 family residential properties 218,030 223,210 Multifamily 4,030 4,095 Commercial 245,909 239,915 Commercial and industrial loans 38,498 37,427 Consumer installment loans 9,471 10,187 All other loans 9,468 2,050 Total loans $ 582,033 $ 569,238 Net deferred loan fees (428 ) (421 ) Allowance for loan losses (4,530 ) (4,411 ) Net Loans $ 577,075 $ 564,406 Changes in the allowance for loan losses for the three months ended March 31, 2018 and 2017 and the year ended December 31, 2017 were as follows: Three Months Ended Year Ended Three Months Ended March 31, December 31, March 31, 2018 2017 2017 (in thousands) Balance, beginning $ 4,411 $ 4,505 $ 4,505 Provision for (recovery of) loan losses 205 (625 ) (527 ) Recoveries added to the allowance 52 901 502 Loan losses charged to the allowance (138 ) (370 ) (62 ) Balance, ending $ 4,530 $ 4,411 $ 4,418 Nonaccrual and past due loans by class at March 31, 2018 and December 31, 2017 were as follows: March 31, 2018 (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 $ — $ 17 $ 75 $ 92 $ 38,406 $ 38,498 $ — $ 331 Commercial Real Estate: Owner Occupied — — — — 132,667 132,667 — — Non-owner occupied 175 239 — 414 112,828 113,242 — 747 Construction and Farmland: Residential — — — — 7,288 7,288 — — Commercial — — — — 49,339 49,339 — — Consumer: Installment 9 — 9 18 9,453 9,471 — 10 Residential: Equity Lines — — 18 18 31,654 31,672 18 43 Single family 334 74 294 702 185,656 186,358 — 669 Multifamily — — — — 4,030 4,030 — — All Other Loans 240 — — 240 9,228 9,468 — — Total $ 758 $ 330 $ 396 $ 1,484 $ 580,549 $ 582,033 $ 18 $ 1,800 December 31, 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 Past Due Still Accruing Nonaccrual Loans Commercial - Non Real Estate: Commercial & Industrial $ 75 $ 10 $ 142 $ 227 $ 37,200 $ 37,427 $ — $ 594 Commercial Real Estate: Owner Occupied — — — — 127,018 127,018 — — Non-owner occupied — 368 — 368 112,529 112,897 — 767 Construction and Farmland: Residential — — — — 3,214 3,214 — — Commercial 187 — — 187 48,953 49,140 — — Consumer: Installment 17 — 2 19 10,168 10,187 — 13 Residential: Equity Lines 18 — — 18 32,820 32,838 — 44 Single family 829 572 4,060 5,461 184,911 190,372 — 4,921 Multifamily — — — — 4,095 4,095 — — All Other Loans — — — — 2,050 2,050 — — Total $ 1,126 $ 950 $ 4,204 $ 6,280 $ 562,958 $ 569,238 $ — $ 6,339 Allowance for loan losses by segment at March 31, 2018 and December 31, 2017 were as follows: As of and for the Three Months Ended March 31, 2018 (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 $ 332 $ 1,754 $ 1,627 $ 570 $ 69 $ 29 $ 30 $ 4,411 Charge-Offs — — — (122 ) (1 ) (15 ) — (138 ) Recoveries 11 8 2 20 7 4 — 52 (Recovery of) provision for loan losses 19 (51 ) 35 35 (10 ) 95 82 205 Ending balance $ 362 $ 1,711 $ 1,664 $ 503 $ 65 $ 113 $ 112 $ 4,530 Ending balance: Individually evaluated for impairment $ — $ 167 $ 58 $ 92 $ 9 $ — $ — $ 326 Ending balance: collectively evaluated for impairment $ 362 $ 1,544 $ 1,606 $ 411 $ 56 $ 113 $ 112 $ 4,204 Loans: Ending balance $ 56,627 $ 222,060 $ 245,909 $ 38,498 $ 9,471 $ 9,468 $ — $ 582,033 Ending balance individually evaluated for impairment $ 306 $ 3,947 $ 1,877 $ 574 $ 10 $ — $ — $ 6,714 Ending balance collectively evaluated for impairment $ 56,321 $ 218,113 $ 244,032 $ 37,924 $ 9,461 $ 9,468 $ — $ 575,319 As of and for the Twelve Months Ended December 31, 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 (19 ) (55 ) (1 ) (187 ) (59 ) (49 ) — (370 ) Recoveries 535 212 65 44 40 5 — 901 (Recovery of) provision for loan losses (634 ) (395 ) 41 478 19 51 (185 ) (625 ) Ending balance $ 332 $ 1,754 $ 1,627 $ 570 $ 69 $ 29 $ 30 $ 4,411 Ending balance: Individually evaluated for impairment $ — $ 195 $ 59 $ 195 $ 9 $ — $ — $ 458 Ending balance: collectively evaluated for impairment $ 332 $ 1,559 $ 1,568 $ 375 $ 60 $ 29 $ 30 $ 3,953 Loans: Ending balance $ 52,354 $ 227,305 $ 239,915 $ 37,427 $ 10,187 $ 2,050 $ — $ 569,238 Ending balance individually evaluated for impairment $ 315 $ 8,315 $ 1,904 $ 858 $ 34 $ — $ — $ 11,426 Ending balance collectively evaluated for impairment $ 52,039 $ 218,990 $ 238,011 $ 36,569 $ 10,153 $ 2,050 $ — $ 557,812 Impaired loans by class as of and for the periods ended March 31, 2018 and December 31, 2017 were as follows: As of and for the Three Months Ended March 31, 2018 (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 $ 740 $ 482 $ — $ 505 $ 7 Commercial Real Estate: Owner Occupied 328 328 — 330 4 Non-owner occupied 795 747 — 752 — Construction and Farmland: Residential — — — — — Commercial 354 307 — 311 7 Consumer: Installment 2 2 — 2 — Residential: Equity lines — — — — — Single family 3,123 2,705 — 2,904 25 Multifamily — — — — — Other Loans — — — — — $ 5,342 $ 4,571 $ — $ 4,804 $ 43 With an allowance recorded: Commercial - Non Real Estate: Commercial & Industrial $ 92 $ 92 $ 92 $ 92 $ — Commercial Real Estate: Owner Occupied — — — — — Non-owner occupied 801 804 58 806 9 Construction and Farmland: Residential — — — — — Commercial — — — — — Consumer: Installment 9 9 9 9 — Residential: Equity lines 217 43 43 43 — Single family 1,263 1,211 124 1,215 14 Multifamily — — — — — Other Loans — — — — — $ 2,382 $ 2,159 $ 326 $ 2,165 $ 23 Total: Commercial $ 832 $ 574 $ 92 $ 597 $ 7 Commercial Real Estate 1,924 1,879 58 1,888 13 Construction and Farmland 354 307 — 311 7 Consumer 11 11 9 11 — Residential 4,603 3,959 167 4,162 39 Other — — — — — Total $ 7,724 $ 6,730 $ 326 $ 6,969 $ 66 (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. Accrued interest and net deferred loan fees or costs totaled $16 thousand at March 31, 2018 . As of and for the Twelve Months End December 31, 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 $ 626 $ 304 $ — $ 342 $ 23 Commercial Real Estate: Owner Occupied 330 331 — 336 15 Non-owner occupied 805 767 — 785 20 Construction and Farmland: Residential — — — — — Commercial 362 316 — 330 28 Consumer: Installment 25 25 — 27 1 Residential: Equity lines — — — — — Single family 7,371 6,985 — 7,069 124 Multifamily — — — — — Other Loans — — — — — $ 9,519 $ 8,728 $ — $ 8,889 $ 211 With an allowance recorded: Commercial - Non Real Estate: Commercial & Industrial $ 595 $ 556 $ 195 $ 567 $ 17 Commercial Real Estate: Owner Occupied — — — — — Non-owner occupied 806 809 59 817 37 Construction and Farmland: Residential — — — — — Commercial — — — — — Consumer: Installment 9 9 9 9 — Residential: Equity lines 217 44 44 45 — Single family 1,349 1,299 151 1,315 57 Multifamily — — — — — Other Loans — — — — — $ 2,976 $ 2,717 $ 458 $ 2,753 $ 111 Total: Commercial $ 1,221 $ 860 $ 195 $ 909 $ 40 Commercial Real Estate 1,941 1,907 59 1,938 72 Construction and Farmland 362 316 — 330 28 Consumer 34 34 9 36 1 Residential 8,937 8,328 195 8,429 181 Other — — — — — Total $ 12,495 $ 11,445 $ 458 $ 11,642 $ 322 (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. Accrued interest and net deferred loan fees or costs totaled $19 thousand at December 31, 2017 . 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 March 31, 2018 and December 31, 2017 was as follows: As of March 31, 2018 (in thousands) INTERNAL RISK RATING GRADES Pass Pass Monitored Special Mention Substandard Doubtful Loss Total Commercial - Non Real Estate: Commercial & Industrial $ 34,691 $ 1,633 $ 1,837 $ 337 $ — $ — $ 38,498 Commercial Real Estate: Owner Occupied 116,817 10,525 4,997 328 — — 132,667 Non-owner occupied 81,000 19,344 12,151 747 — — 113,242 Construction and Farmland: Residential 6,498 98 692 — — — 7,288 Commercial 25,089 23,944 — 306 — — 49,339 Residential: Equity Lines 31,330 299 — — 43 — 31,672 Single family 178,103 5,625 389 2,058 183 — 186,358 Multifamily 2,668 500 862 — — — 4,030 All other loans 9,468 — — — — — 9,468 Total $ 485,664 $ 61,968 $ 20,928 $ 3,776 $ 226 $ — $ 572,562 Performing Nonperforming Consumer Credit Exposure by Payment Activity $ 9,453 $ 18 As of December 31, 2017 (in thousands) INTERNAL RISK RATING GRADES Pass Pass Monitored Special Mention Substandard Doubtful Loss Total Commercial - Non Real Estate: Commercial & Industrial $ 33,279 $ 1,788 $ 1,748 $ 612 $ — $ — $ 37,427 Commercial Real Estate: Owner Occupied 112,649 10,893 3,146 330 — — 127,018 Non-owner occupied 82,050 17,992 12,088 767 — — 112,897 Construction and Farm land: Residential 2,614 600 — — — — 3,214 Commercial 30,093 17,069 1,663 315 — — 49,140 Residential: Equity Lines 32,495 299 — — 44 — 32,838 Single family 177,829 5,869 155 6,327 192 — 190,372 Multifamily 3,588 — 507 — — — 4,095 All other loans 2,050 — — — — — 2,050 Total $ 476,647 $ 54,510 $ 19,307 $ 8,351 $ 236 $ — $ 559,051 Performing Nonperforming Consumer Credit Exposure by Payment Activity $ 10,168 $ 19 |