Allowance for Loan Losses | Allowance for Loan Losses Changes in the allowance for loan losses for the years December 31, 2018 , 2017 and 2016 were as follows: December 31, 2018 2017 2016 (in thousands) Balance, beginning $ 4,411 $ 4,505 $ 4,959 Provision for (recovery of) loan losses 777 (625 ) (188 ) Recoveries added to the allowance 504 901 341 Loan losses charged to the allowance (236 ) (370 ) (607 ) Balance, ending $ 5,456 $ 4,411 $ 4,505 Nonaccrual and past due loans by class at December 31, 2018 and December 31, 2017 were as follows: December 31, 2018 (in thousands) 30 - 59 60 - 89 90 or More Total Past Current Total Loans 90 or More Nonaccrual Commercial - Non Real Estate: Commercial & Industrial $ 127 $ — $ — $ 127 $ 32,959 $ 33,086 $ — $ 1,081 Commercial Real Estate: Owner Occupied — — — — 136,309 136,309 — — Non-owner occupied — — — — 129,286 129,286 — 364 Construction and Farmland: Residential — — — — 6,706 6,706 — — Commercial — — — — 55,220 55,220 — — Consumer: Installment 4 — — 4 8,466 8,470 — — Residential: Equity Lines — — — — 32,815 32,815 — 92 Single family 960 196 900 2,056 186,990 189,046 695 581 Multifamily — — — — 7,923 7,923 — — All Other Loans — — — — 8,454 8,454 — — Total $ 1,091 $ 196 $ 900 $ 2,187 $ 605,128 $ 607,315 $ 695 $ 2,118 December 31, 2017 (in thousands) 30 - 59 60 - 89 90 or More Total Past Current Total Loans 90 or More Nonaccrual 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 December 31, 2018 , December 31, 2017 and December 31, 2016 were as follows: As of and for the Twelve Months Ended December 31, 2018 (in thousands) Construction Residential Commercial Commercial Consumer All Other Unallocated Total Allowance for credit losses: Beginning Balance $ 332 $ 1,754 $ 1,627 $ 570 $ 69 $ 29 $ 30 $ 4,411 Charge-Offs — (24 ) — (139 ) (33 ) (40 ) — (236 ) Recoveries 266 28 78 100 19 13 — 504 Provision (recovery) (15 ) 30 283 388 (2 ) 95 (2 ) 777 Ending balance $ 583 $ 1,788 $ 1,988 $ 919 $ 53 $ 97 $ 28 $ 5,456 Ending balance: Individually evaluated for impairment $ — $ 119 $ 193 $ 650 $ — $ — $ — $ 962 Ending balance: collectively evaluated for impairment $ 583 $ 1,669 $ 1,795 $ 269 $ 53 $ 97 $ 28 $ 4,494 Loans: Ending balance $ 61,926 $ 229,784 $ 265,595 $ 33,086 $ 8,470 $ 8,454 $ — $ 607,315 Ending balance individually evaluated for impairment $ 280 $ 4,044 $ 2,919 $ 1,316 $ — $ — $ — $ 8,559 Ending balance collectively evaluated for impairment $ 61,646 $ 225,740 $ 262,676 $ 31,770 $ 8,470 $ 8,454 $ — $ 598,756 As of and for the Twelve Months Ended December 31, 2017 (in thousands) Construction Residential Commercial Commercial Consumer All Other 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 Provision (recovery) (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 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 $ 2,259 $ — $ 517,125 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 $ 2,259 $ — $ 503,745 Beginning with the quarter ended September 30, 2018, the Company changed its allowance methodology for the look-back period used in calculating the loss history portion of the general reserves assigned to unimpaired credits. During this quarter, management determined it necessary to extend the loss history period utilized in the calculation from five years to seven years in light of current trends for growth and asset quality, as well as the ongoing economic cycle and the Bank's overall lending environment. The Company believes that the expanded loss history 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 twelve months ended December 31, 2018 as a result of the change in allowance methodology from that used in prior periods. (in thousands) Calculated Provision Based on Current Methodology Calculated Provision Based on Prior Methodology Difference Portfolio Segment: Construction and Farmland $ (15 ) $ (197 ) $ 182 Residential Real Estate 30 (161 ) 191 Commercial Real Estate 283 140 143 Commercial 388 326 62 Consumer (2 ) (7 ) 5 All Other Loans 95 102 (7 ) Total, excluding unallocated $ 779 $ 203 $ 576 Impaired loans by class at December 31, 2018 and December 31, 2017 were as follows: As of and for the Year Ended December 31, 2018 (in thousands) Unpaid Recorded Related Average Interest With no related allowance: Commercial - Non Real Estate: Commercial & Industrial $ 564 $ 356 $ — $ 422 $ 25 Commercial Real Estate: Owner Occupied — — — — — Non-owner occupied 558 501 — 511 4 Construction and Farmland: Residential — — — — — Commercial 332 281 — 297 27 Consumer: Installment — — — — — Residential: Equity lines 468 92 — 93 — Single family 2,616 2,499 — 2,565 101 Multifamily 284 286 — 289 14 Other Loans — — — — — $ 4,822 $ 4,015 $ — $ 4,177 $ 171 With an allowance recorded: Commercial - Non Real Estate: Commercial & Industrial $ 971 $ 960 $ 650 $ 1,063 $ 60 Commercial Real Estate: Owner Occupied — — — — — Non-owner occupied 2,418 2,425 193 2,454 101 Construction and Farmland: Residential — — — — — Commercial — — — — — Consumer: Installment — — — — — Residential: Equity lines — — — — — Single family 1,242 1,190 119 1,204 51 Multifamily — — — — — Other Loans — — — — — $ 4,631 $ 4,575 $ 962 $ 4,721 $ 212 Total: Commercial $ 1,535 $ 1,316 $ 650 $ 1,485 $ 85 Commercial Real Estate 2,976 2,926 193 2,965 105 Construction and Farmland 332 281 — 297 27 Consumer — — — — — Residential 4,610 4,067 119 4,151 166 Other — — — — — Total $ 9,453 $ 8,590 $ 962 $ 8,898 $ 383 (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, 2017 (in thousands) Unpaid Recorded Related Average Interest 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, and any partial charge-offs. For the year ended December 31, 2016 , the average recorded investment of impaired loans was $13.7 million . The interest income recognized on impaired loans was $415 thousand in 2016 . 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, 2018 and December 31, 2017 was as follows: As of December 31, 2018 (in thousands) INTERNAL RISK RATING GRADES Pass Pass Monitored Special Substandard Doubtful Loss Total Commercial - Non Real Estate: Commercial & Industrial $ 28,699 $ 2,292 $ 995 $ 1,100 $ — $ — $ 33,086 Commercial Real Estate: Owner Occupied 110,418 16,665 9,187 39 — — 136,309 Non-owner occupied 106,658 17,139 3,397 2,092 — — 129,286 Construction and Farmland: Residential 2,295 1,120 3,291 — — — 6,706 Commercial 16,682 22,533 15,658 347 — — 55,220 Residential: Equity Lines 31,813 910 — 16 76 — 32,815 Single family 172,360 11,567 2,704 2,270 145 — 189,046 Multifamily 7,160 479 — 284 — — 7,923 All other loans 8,435 19 — — — — 8,454 Total $ 484,520 $ 72,724 $ 35,232 $ 6,148 $ 221 $ — $ 598,845 Performing Nonperforming Consumer Credit Exposure by Payment Activity $ 8,466 $ 4 As of December 31, 2017 (in thousands) INTERNAL RISK RATING GRADES Pass Pass Monitored Special 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 Farmland: 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 Zero consumer loans were rated below Pass at December 31, 2018 . Three consumer loan totaling $13 thousand was rated below Pass at December 31, 2017 . |