Note 6. Loan Quality and Allowance for Loan Losses

The following table presents, by class, the activity in the Allowance for Loan Losses (ALL) for the periods ended:


	Residential Real Estate 1-4 Family
			Junior Liens &				Commercial
(Dollars in thousands)	First Liens		Lines of Credit		Construction		Real Estate		Commercial		Consumer		Unallocated		Total

ALL at December 31, 2016	$	1,105	$	323	$	224	$	6,109	$	1,893	$	100	$	1,321	$	11,075
Charge-offs		(8)		-		-		-		-		(28)		-		(36)
Recoveries		1		-		-		-		102		16		-		119
Provision		2		(2)		50		17		(11)		11		53		120
ALL at March 31, 2017	$	1,100	$	321	$	274	$	6,126	$	1,984	$	99	$	1,374	$	11,278

ALL at December 31, 2015	$	989	$	308	$	194	$	5,649	$	1,519	$	102	$	1,325	$	10,086
Charge-offs		(3)		-		-		(3)		(63)		(42)		-		(111)
Recoveries		32		-		-		-		15		20		-		67
Provision		(21)		8		5		535		39		19		(285)		300
ALL at March 31, 2016	$	997	$	316	$	199	$	6,181	$	1,510	$	99	$	1,040	$	10,342

The following table presents, by class, loans that were evaluated for the ALL under the specific reserve (individually) and those that were evaluated under the general reserve (collectively) and the amount of the ALL established in each class as of March 31, 2017 and December 31, 2016:




	Residential Real Estate 1-4 Family
			Junior Liens &				Commercial
(Dollars in thousands)	First Liens		Lines of Credit		Construction		Real Estate		Commercial		Consumer		Unallocated		Total

March 31, 2017
Loans evaluated for ALL:
Individually	$	624	$	52	$	478	$	13,946	$	-	$	-	$	-	$	15,100
Collectively		165,940		49,341		10,460		383,375		274,722		4,591		-		888,429
Total	$	166,564	$	49,393	$	10,938	$	397,321	$	274,722	$	4,591	$	-	$	903,529

ALL established for loans evaluated:
Individually	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Collectively		1,100		321		274		6,126		1,984		99		1,374		11,278
ALL at March 31, 2017	$	1,100	$	321	$	274	$	6,126	$	1,984	$	99	$	1,374	$	11,278

December 31, 2016
Loans evaluated for ALL:
Individually	$	628	$	52	$	480	$	13,523	$	-	$	-	$	-	$	14,683
Collectively		167,942		50,161		8,495		377,061		270,826		4,705		-		879,190
Total	$	168,570	$	50,213	$	8,975	$	390,584	$	270,826	$	4,705	$	-	$	893,873

ALL established for loans evaluated:
Individually	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Collectively		1,105		323		224		6,109		1,893		100		1,321		11,075
ALL at December 31, 2016	$	1,105	$	323	$	224	$	6,109	$	1,893	$	100	$	1,321	$	11,075

The following table shows additional information about those loans considered to be impaired at March 31, 2017 and December 31, 2016:



	Impaired Loans
	With No Allowance				With Allowance
(Dollars in thousands)			Unpaid					Unpaid
	Recorded		Principal		Recorded		Principal		Related
March 31, 2017	Investment		Balance		Investment		Balance		Allowance
Residential Real Estate 1-4 Family
First liens	$	914	$	987	$	-	$	-	$	-
Junior liens and lines of credit		85		93		-		-		-
Total		999		1,080		-		-		-
Residential real estate - construction		478		534		-		-		-
Commercial real estate		13,946		14,634		-		-		-
Commercial		23		35		-		-		-
Total	$	15,446	$	16,283	$	-	$	-	$	-



December 31, 2016
Residential Real Estate 1-4 Family
First liens	$	956	$	1,030	$	-	$	-	$	-
Junior liens and lines of credit		85		93		-		-		-
Total		1,041		1,123		-		-		-
Residential real estate - construction		480		535		-		-		-
Commercial real estate		13,523		14,133				-		-
Commercial		23		35		-		-		-
Total	$	15,067	$	15,826	$	-	$	-	$	-

The following table shows the average of impaired loans and related interest income for the three months ended March 31, 2017 and 2016:


	Three Months Ended
	March 31, 2017
	Average		Interest
(Dollars in thousands)	Recorded		Income
	Investment		Recognized
Residential Real Estate 1-4 Family
First liens	$	919	$	10
Junior liens and lines of credit		85		-
Total		1,004		10
Residential real estate - construction		479		-
Commercial real estate		13,519		116
Commercial		23		-
Total	$	15,025	$	126


	Three Months Ended
	March 31, 2016
	Average		Interest
(Dollars in thousands)	Recorded		Income
	Investment		Recognized
Residential Real Estate 1-4 Family
First liens	$	1,069	$	6
Junior liens and lines of credit		70		-
Total		1,139		6
Residential real estate - construction		502		-
Commercial real estate		14,372		121
Commercial		44		-
Total	$	16,057	$	127

The following table presents the aging of payments of the loan portfolio:



(Dollars in thousands)			Loans Past Due and Still Accruing										Total
	Current		30-59 Days		60-89 Days		90 Days+		Total		Non-Accrual		Loans
March 31, 2017
Residential Real Estate 1-4 Family
First liens	$	165,959	$	375	$	34	$	-	$	409	$	196	$	166,564
Junior liens and lines of credit		49,180		98		30		-		128		85		49,393
Total		215,139		473		64		-		537		281		215,957
Residential real estate - construction		10,460		-		-		-		-		478		10,938
Commercial real estate		390,943		378		1,519		-		1,897		4,481		397,321
Commercial		274,454		55		190		-		245		23		274,722
Consumer		4,575		8		8		-		16		-		4,591
Total	$	895,571	$	914	$	1,781	$	-	$	2,695	$	5,263	$	903,529



December 31, 2016
Residential Real Estate 1-4 Family
First liens	$	166,689	$	1,236	$	414	$	-	$	1,650	$	231	$	168,570
Junior liens and lines of credit		50,031		96		-		-		96		86		50,213
Total		216,720		1,332		414		-		1,746		317		218,783
Residential real estate - construction		8,495		-		-		-		-		480		8,975
Commercial real estate		384,658		858		447		665		1,970		3,956		390,584
Commercial		270,478		250		75		-		325		23		270,826
Consumer		4,672		30		3		-		33		-		4,705
Total	$	885,023	$	2,470	$	939	$	665	$	4,074	$	4,776	$	893,873

The following table reports the internal credit rating for the loan portfolio. Consumer purpose loans are assigned a rating of either pass or substandard based on the performance status of the loans. Substandard consumer loans are comprised of loans 90 days or more past due and still accruing, and nonaccrual loans. Commercial purpose loans may be assigned any rating in accordance with the Bank’s internal risk rating system.



	Pass		Special Mention		Substandard		Doubtful
(Dollars in thousands)	(1-5)		(6)		(7)		(8)		Total

March 31, 2017
Residential Real Estate 1-4 Family
First liens	$	165,245	$	187	$	1,132	$	-	$	166,564
Junior liens and lines of credit		49,207		28		158		-		49,393
Total		214,452		215		1,290		-		215,957
Residential real estate - construction		10,188		-		750		-		10,938
Commercial real estate		383,578		-		13,743		-		397,321
Commercial		271,690		178		2,854		-		274,722
Consumer		4,591		-		-		-		4,591
Total	$	884,499	$	393	$	18,637	$	-	$	903,529



December 31, 2016
Residential Real Estate 1-4 Family
First liens	$	167,199	$	227	$	1,144	$	-	$	168,570
Junior liens and lines of credit		50,017		28		168		-		50,213
Total		217,216		255		1,312		-		218,783
Residential real estate - construction		8,220		-		755		-		8,975
Commercial real estate		377,283		-		13,301		-		390,584
Commercial		267,901		957		1,968		-		270,826
Consumer		4,705		-		-		-		4,705
Total	$	875,325	$	1,212	$	17,336	$	-	$	893,873

The following table presents information on the Bank’s Troubled Debt Restructuring (TDR) loans:


								Troubled Debt Restructurings
								That Have Defaulted on
								Modified Terms in the
(Dollars in thousands)	Troubled Debt Restructurings							Last Twelve Months
	Number of	Recorded						Number of	Recorded
	Contracts	Investment		Performing*		Nonperforming*		Contracts	Investment
March 31, 2017
Residential real estate - construction	1	$	478	$	478	$	-	-	$	-
Residential real estate	5		869		718		151	1		151
Commercial real estate	11		11,950		10,700		1,250	1		1,250
Total	17	$	13,297	$	11,896	$	1,401	2	$	1,401


December 31, 2016
Residential real estate - construction	1	$	480	$	480	$	-	-	$	-
Residential real estate	5		875		724		151	1		151
Commercial real estate	11		12,064		10,814		1,250	1		1,250
Total	17	$	13,419	$	12,018	$	1,401	2	$	1,401

*The performing status is determined by the loan’s compliance with the modified terms.

There were no new TDR loans made in the first three months of 2017.

The following table reports new TDR loans during 2016, concession granted and the recorded investment as of March 31, 2016:

New During Period

Number of

Pre-TDR

After-TDR

Recorded

Three Months Ended March 31, 2016

Contracts

Modification

Investment

Concession

Commercial real estate

525

508

maturity