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Allowance for loan losses
 12 Months Ended
Dec. 31, 2016
Provision for Loan and Lease Losses [Abstract]  
Allowance for Credit Losses [Text Block]
Note 4.
Allowance for loan losses
 
Activity in the allowance for loan losses was as follows for the periods indicated (in thousands):
 
 
 
 
 
 
Provision for
 
 
 
 
 
 
 
 
 
 
 
 
Beginning
 
 
(Recovery of)
 
 
 
 
 
 
 
 
Ending
 
 
 
Balance
 
 
Loan Losses
 
 
Charge-offs
 
 
Recoveries
 
 
Balance
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Year Ended December 31, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Construction and land development
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential
 
$
30
 
 
$
10
 
 
$
-
 
 
$
1
 
 
$
41
 
Commercial
 
 
291
 
 
 
9
 
 
 
(10)
 
 
 
10
 
 
 
300
 
 
 
 
321
 
 
 
19
 
 
 
(10)
 
 
 
11
 
 
 
341
 
Commercial real estate
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Owner occupied
 
 
1,167
 
 
 
(490)
 
 
 
(66)
 
 
 
-
 
 
 
611
 
Non-owner occupied
 
 
460
 
 
 
(106)
 
 
 
(1)
 
 
 
53
 
 
 
406
 
Multifamily
 
 
51
 
 
 
5
 
 
 
-
 
 
 
-
 
 
 
56
 
Farmland
 
 
17
 
 
 
(139)
 
 
 
-
 
 
 
125
 
 
 
3
 
 
 
 
1,695
 
 
 
(730)
 
 
 
(67)
 
 
 
178
 
 
 
1,076
 
Consumer real estate
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Home equity lines
 
 
448
 
 
 
(127)
 
 
 
(53)
 
 
 
3
 
 
 
271
 
Secured by 1-4 family residential
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
First deed of trust
 
 
602
 
 
 
(40)
 
 
 
(140)
 
 
 
25
 
 
 
447
 
Second deed of trust
 
 
111
 
 
 
21
 
 
 
(25)
 
 
 
29
 
 
 
136
 
 
 
 
1,161
 
 
 
(146)
 
 
 
(218)
 
 
 
57
 
 
 
854
 
Commercial and industrial loans (except those secured by real estate)
 
 
94
 
 
 
44
 
 
 
(15)
 
 
 
100
 
 
 
223
 
Student loans
 
 
230
 
 
 
149
 
 
 
(221)
 
 
 
-
 
 
 
158
 
Consumer and other
 
 
2
 
 
 
10
 
 
 
(13)
 
 
 
9
 
 
 
8
 
Unallocated
 
 
59
 
 
 
654
 
 
 
-
 
 
 
-
 
 
 
713
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
3,562
 
 
$
-
 
 
$
(544)
 
 
$
355
 
 
$
3,373
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Year Ended December 31, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Construction and land development
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential
 
$
34
 
 
$
(6)
 
 
$
-
 
 
$
2
 
 
$
30
 
Commercial
 
 
202
 
 
 
292
 
 
 
(252)
 
 
 
49
 
 
 
291
 
 
 
 
236
 
 
 
286
 
 
 
(252)
 
 
 
51
 
 
 
321
 
Commercial real estate
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Owner occupied
 
 
1,837
 
 
 
(576)
 
 
 
(127)
 
 
 
33
 
 
 
1,167
 
Non-owner occupied
 
 
607
 
 
 
(151)
 
 
 
-
 
 
 
4
 
 
 
460
 
Multifamily
 
 
77
 
 
 
(26)
 
 
 
-
 
 
 
-
 
 
 
51
 
Farmland
 
 
130
 
 
 
(113)
 
 
 
-
 
 
 
-
 
 
 
17
 
 
 
 
2,651
 
 
 
(866)
 
 
 
(127)
 
 
 
37
 
 
 
1,695
 
Consumer real estate
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Home equity lines
 
 
469
 
 
 
36
 
 
 
(62)
 
 
 
5
 
 
 
448
 
Secured by 1-4 family residential
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
First deed of trust
 
 
1,345
 
 
 
(1,020)
 
 
 
(103)
 
 
 
380
 
 
 
602
 
Second deed of trust
 
 
275
 
 
 
(159)
 
 
 
(55)
 
 
 
50
 
 
 
111
 
 
 
 
2,089
 
 
 
(1,143)
 
 
 
(220)
 
 
 
435
 
 
 
1,161
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial loans (except those secured by real estate)
 
 
506
 
 
 
(350)
 
 
 
(162)
 
 
 
100
 
 
 
94
 
Student loans
 
 
217
 
 
 
13
 
 
 
-
 
 
 
-
 
 
 
230
 
Consumer and other
 
 
30
 
 
 
1
 
 
 
(55)
 
 
 
26
 
 
 
2
 
Unallocated
 
 
-
 
 
 
59
 
 
 
-
 
 
 
-
 
 
 
59
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
5,729
 
 
$
(2,000)
 
 
$
(816)
 
 
$
649
 
 
$
3,562
 
 
 
 
 
 
 
Provision for
 
 
 
 
 
 
 
 
 
 
 
 
Beginning
 
 
(Recovery of)
 
 
 
 
 
 
 
 
Ending
 
 
 
Balance
 
 
Loan Losses
 
 
Charge-offs
 
 
Recoveries
 
 
Balance
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Year Ended December 31, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Construction and land development
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential
 
$
135
 
 
$
(103)
 
 
$
-
 
 
$
2
 
 
$
34
 
Commercial
 
 
1,274
 
 
 
(1,016)
 
 
 
(100)
 
 
 
44
 
 
 
202
 
 
 
 
1,409
 
 
 
(1,119)
 
 
 
(100)
 
 
 
46
 
 
 
236
 
Commercial real estate
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Owner occupied
 
 
1,200
 
 
 
1,268
 
 
 
(631)
 
 
 
-
 
 
 
1,837
 
Non-owner occupied
 
 
670
 
 
 
430
 
 
 
(518)
 
 
 
25
 
 
 
607
 
Multifamily
 
 
19
 
 
 
58
 
 
 
-
 
 
 
-
 
 
 
77
 
Farmland
 
 
337
 
 
 
(111)
 
 
 
(96)
 
 
 
-
 
 
 
130
 
 
 
 
2,226
 
 
 
1,645
 
 
 
(1,245)
 
 
 
25
 
 
 
2,651
 
Consumer real estate
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Home equity lines
 
 
424
 
 
 
506
 
 
 
(476)
 
 
 
15
 
 
 
469
 
Secured by 1-4 family residential
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
First deed of trust
 
 
1,992
 
 
 
(442)
 
 
 
(277)
 
 
 
72
 
 
 
1,345
 
Second deed of trust
 
 
394
 
 
 
(223)
 
 
 
(86)
 
 
 
190
 
 
 
275
 
 
 
 
2,810
 
 
 
(159)
 
 
 
(839)
 
 
 
277
 
 
 
2,089
 
Commercial and industrial loans (except those secured by real estate)
 
 
724
 
 
 
(447)
 
 
 
(172)
 
 
 
401
 
 
 
506
 
Student loans
 
 
-
 
 
 
217
 
 
 
-
 
 
 
-
 
 
 
217
 
Consumer and other
 
 
70
 
 
 
(37)
 
 
 
(25)
 
 
 
22
 
 
 
30
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
7,239
 
 
$
100
 
 
$
(2,381)
 
 
$
771
 
 
$
5,729
 
 
Overall the recovery of loan losses recorded for the year ended December 31, 2015 was due primarily to credit quality improvements and an enhanced model for evaluating inherent losses in the Bank’s loan portfolio. Improvements in credit quality are provided in the following schedule:
 
 
 
December 31,
 
 
 
2016
 
2015
 
2014
 
 
 
 
 
 
 
 
 
Classified assets
 
$
10,454
 
$
15,375
 
$
30,684
 
Nonaccrual loans
 
 
2,402
 
 
3,718
 
 
7,478
 
Foreclosed real estate
 
 
2,926
 
 
6,249
 
 
12,638
 
 
During the fourth quarter of 2015, we adopted a software solution for the analysis of the allowance for loan losses. While our methodology of evaluating the adequacy of the allowance for loan losses generally did not change, the software is more robust in that it:
 
·
allows us to take a more measureable approach to our evaluation of qualitative factors such as economic conditions that may affect loss experience; and
 
·
is widely used by community banks which provides peer data that can be used as a benchmark for comparison to our analysis.
 
In addition to the adoption of the software solution for our analysis, we reviewed the last twenty years of historical loss data for peer banks in Virginia to assist us in our evaluation of environmental factors and other conditions that could affect the loan portfolio and the overall adequacy of the allowance for loan losses.
 
The allowance for loan losses at each of the periods presented includes an amount that could not be identified to individual types of loans referred to as the unallocated portion of the allowance. We recognize the inherent imprecision in estimates of losses due to various uncertainties and variability related to the factors used, and therefore a reasonable range around the estimate of losses is derived and used to ascertain whether the allowance is too high. We concluded that the unallocated portion of the allowance was acceptable given the level of classified assets and was within a reasonable range around the estimate of losses. The allowance for loan losses included an unallocated portion of approximately $713,000 and $59,000 at December 31, 2016 and 2015, respectively.
 
Discussion of the recovery of loan losses related to specific loan types are provided following:
 
·
The recovery of loan losses totaling $1,119,000 for the construction and land development loan portfolio during 2014 was attributable to changes in our assessment of the general component of the allowance for loan losses as it related to this portfolio. The general component allocated to this portfolio declined primarily as a result of the historical net recovery of 0.27% at December 31, 2014. Also contributing to the declines in the general component were declines of approximately $1,643,000 and $12,945,000 in the outstanding loan balance of this portfolio at December 31, 2014 and 2013, respectively.
 
·
The recovery of loan losses totaling $730,000 and $866,000 for the commercial real estate portfolio at December 31, 2016 and 2015, respectively, was also attributable to changes in our assessment of the general component of the allowance for loan losses as it related to this portfolio. The general component allocated to this portfolio declined primarily as a result of declines in the historical loss experience from 0.96% in 2014 to 0.57% in 2015 and to 0.20% in 2016. In addition, net charge-offs on this portfolio decreased from $1,220,000 in 2014 to $90,000 in 2015 and to a net recovery of $111,000 in 2016.
 
·
The recovery of loan losses totaling $1,143,000 for the consumer real estate portfolio in 2015 was also attributable to changes in our assessment of the general component of the allowance for loan losses as it related to this portfolio. The general component allocated to this portfolio declined primarily as a result of declines in the historical loss experience from 1.36% in 2014 to 0.24% in 2015 and to .0022% in 2016. In addition, net charge-offs on this portfolio decreased from $562,000 in 2014 to a recovery of $215,000 in 2015.
 
Loans were evaluated for impairment as follows for the periods indicated (in thousands):
 
 
 
Recorded Investment in Loans
 
 
 
Allowance
 
Loans
 
 
 
Ending
 
 
 
 
 
Ending
 
 
 
 
 
 
 
Balance
 
Individually
 
Collectively
 
Balance
 
Individually
 
Collectively
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Year Ended December 31, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Construction and land development
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential
 
$
41
 
$
-
 
$
41
 
$
6,770
 
$
-
 
$
6,770
 
Commercial
 
 
300
 
 
9
 
 
291
 
 
27,092
 
 
581
 
 
26,511
 
 
 
 
341
 
 
9
 
 
332
 
 
33,862
 
 
581
 
 
33,281
 
Commercial real estate
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Owner occupied
 
 
611
 
 
86
 
 
525
 
 
66,021
 
 
5,604
 
 
60,417
 
Non-owner occupied
 
 
406
 
 
-
 
 
406
 
 
57,944
 
 
2,236
 
 
55,708
 
Multifamily
 
 
56
 
 
-
 
 
56
 
 
8,824
 
 
-
 
 
8,824
 
Farmland
 
 
3
 
 
-
 
 
3
 
 
310
 
 
-
 
 
310
 
 
 
 
1,076
 
 
86
 
 
990
 
 
133,099
 
 
7,840
 
 
125,259
 
Consumer real estate
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Home equity lines
 
 
271
 
 
-
 
 
271
 
 
20,691
 
 
703
 
 
19,988
 
Secured by 1-4 family residential
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
First deed of trust
 
 
447
 
 
144
 
 
303
 
 
54,791
 
 
5,064
 
 
49,727
 
Second deed of trust
 
 
136
 
 
90
 
 
46
 
 
5,768
 
 
709
 
 
5,059
 
 
 
 
854
 
 
234
 
 
620
 
 
81,250
 
 
6,476
 
 
74,774
 
Commercial and industrial loans (except those secured by real estate)
 
 
223
 
 
6
 
 
217
 
 
39,390
 
 
544
 
 
38,846
 
Student loans
 
 
158
 
 
-
 
 
158
 
 
47,398
 
 
-
 
 
47,398
 
Consumer and other
 
 
721
 
 
-
 
 
721
 
 
2,101
 
 
-
 
 
2,101
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
3,373
 
$
335
 
$
3,038
 
$
337,100
 
$
15,441
 
$
321,659
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Year Ended December 31, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Construction and land development
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential
 
$
30
 
$
-
 
$
30
 
$
5,202
 
$
-
 
$
5,202
 
Commercial
 
 
291
 
 
2
 
 
289
 
 
25,948
 
 
1,822
 
 
24,126
 
 
 
 
321
 
 
2
 
 
319
 
 
31,150
 
 
1,822
 
 
29,328
 
Commercial real estate
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Owner occupied
 
 
1,167
 
 
383
 
 
784
 
 
69,256
 
 
6,785
 
 
62,471
 
Non-owner occupied
 
 
460
 
 
26
 
 
434
 
 
38,037
 
 
2,867
 
 
35,170
 
Multifamily
 
 
51
 
 
-
 
 
51
 
 
8,537
 
 
-
 
 
8,537
 
Farmland
 
 
17
 
 
-
 
 
17
 
 
388
 
 
-
 
 
388
 
 
 
 
1,695
 
 
409
 
 
1,286
 
 
116,218
 
 
9,652
 
 
106,566
 
Consumer real estate
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Home equity lines
 
 
448
 
 
-
 
 
448
 
 
20,333
 
 
1,238
 
 
19,095
 
Secured by 1-4 family residential
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
First deed of trust
 
 
602
 
 
324
 
 
278
 
 
56,776
 
 
5,759
 
 
51,017
 
Second deed of trust
 
 
111
 
 
98
 
 
13
 
 
6,485
 
 
1,212
 
 
5,273
 
 
 
 
1,161
 
 
422
 
 
739
 
 
83,594
 
 
8,209
 
 
75,385
 
Commercial and industrial loans (except those secured by real estate)
 
 
94
 
 
18
 
 
76
 
 
20,086
 
 
826
 
 
19,260
 
Student loans
 
 
230
 
 
-
 
 
230
 
 
53,989
 
 
-
 
 
53,989
 
Consumer and other
 
 
61
 
 
-
 
 
61
 
 
1,734
 
 
-
 
 
1,734
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
3,562
 
$
851
 
$
2,711
 
$
306,771
 
$
20,509
 
$
286,262
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Year Ended December 31, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Construction and land development
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential
 
$
34
 
$
-
 
$
34
 
$
4,315
 
$
164
 
$
4,151
 
Commercial
 
 
202
 
 
26
 
 
176
 
 
25,152
 
 
3,968
 
 
21,184
 
 
 
 
236
 
 
26
 
 
210
 
 
29,467
 
 
4,132
 
 
25,335
 
Commercial real estate
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Owner occupied
 
 
1,837
 
 
905
 
 
932
 
 
58,804
 
 
8,311
 
 
50,493
 
Non-owner occupied
 
 
607
 
 
-
 
 
607
 
 
38,892
 
 
6,593
 
 
32,299
 
Multifamily
 
 
77
 
 
-
 
 
77
 
 
11,438
 
 
2,322
 
 
9,116
 
Farmland
 
 
130
 
 
-
 
 
130
 
 
434
 
 
21
 
 
413
 
 
 
 
2,651
 
 
905
 
 
1,746
 
 
109,568
 
 
17,247
 
 
92,321
 
Consumer real estate
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Home equity lines
 
 
469
 
 
-
 
 
469
 
 
20,082
 
 
800
 
 
19,282
 
Secured by 1-4 family residential
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
First deed of trust
 
 
1,345
 
 
200
 
 
1,145
 
 
61,837
 
 
7,900
 
 
53,937
 
Second deed of trust
 
 
275
 
 
142
 
 
133
 
 
7,854
 
 
1,360
 
 
6,494
 
 
 
 
2,089
 
 
342
 
 
1,747
 
 
89,773
 
 
10,060
 
 
79,713
 
Commercial and industrial loans (except those secured by real estate)
 
 
506
 
 
239
 
 
267
 
 
22,165
 
 
818
 
 
21,347
 
Student loans
 
 
217
 
 
-
 
 
217
 
 
33,562
 
 
-
 
 
33,562
 
Consumer and other
 
 
30
 
 
-
 
 
30
 
 
1,611
 
 
23
 
 
1,588
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
5,729
 
$
1,512
 
$
4,217
 
$
286,146
 
$
32,280
 
$
253,866