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
	First		Junior Liens &				Commercial
(Dollars in thousands)	Liens		Lines of Credit		Construction		Real Estate		Commercial		Consumer		Unallocated		Total

ALL at June 30, 2017	$	1,075	$	322	$	281	$	6,052	$	2,023	$	100	$	1,454	$	11,307
Charge-offs		—		—		—		(9)		(6)		(31)		—		(46)
Recoveries		1		5		—		17		5		4		—		32
Provision		(15)		(3)		(42)		198		(19)		19		112		250
ALL at September 30, 2017	$	1,061	$	324	$	239	$	6,258	$	2,003	$	92	$	1,566	$	11,543

ALL at December 31, 2016	$	1,105	$	323	$	224	$	6,109	$	1,893	$	100	$	1,321	$	11,075
Charge-offs		(13)		—		—		(14)		(8)		(83)		—		(118)
Recoveries		2		6		—		17		111		30		—		166
Provision		(33)		(5)		15		146		7		45		245		420
ALL at September 30, 2017	$	1,061	$	324	$	239	$	6,258	$	2,003	$	92	$	1,566	$	11,543

ALL at June 30, 2016	$	1,023	$	319	$	205	$	5,940	$	1,596	$	97	$	1,138	$	10,318
Charge-offs		—		—		—		(776)		—		(42)		—		(818)
Recoveries		1		—		—		5		7		22		—		35
Provision		(3)		1		8		876		132		21		115		1,150
ALL at September 30, 2016	$	1,021	$	320	$	213	$	6,045	$	1,735	$	98	$	1,253	$	10,685

ALL at December 31, 2015	$	989	$	308	$	194	$	5,649	$	1,519	$	102	$	1,325	$	10,086
Charge-offs		(49)		—		—		(2,730)		(66)		(126)		—		(2,971)
Recoveries		34		—		—		18		129		64		—		245
Provision		47		12		19		3,108		153		58		(72)		3,325
ALL at September 30, 2016	$	1,021	$	320	$	213	$	6,045	$	1,735	$	98	$	1,253	$	10,685

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 September 30, 2017 and December 31, 2016:



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

September 30, 2017
Loans evaluated for ALL:
Individually	$	697	$	53	$	469	$	11,180	$	190	$	—	$	—	$	12,589
Collectively		160,283		50,088		9,107		392,566		282,337		4,533		—		898,914
Total	$	160,980	$	50,141	$	9,576	$	403,746	$	282,527	$	4,533	$	—	$	911,503

ALL established for loans evaluated:
Individually	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Collectively		1,061		324		239		6,258		2,003		92		1,566		11,543
ALL at September 30, 2017	$	1,061	$	324	$	239	$	6,258	$	2,003	$	92	$	1,566	$	11,543

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 September 30, 2017 and December 31, 2016:



	Impaired Loans
	With No Allowance				With Allowance
(Dollars in thousands)			Unpaid				Unpaid
	Recorded		Principal		Recorded		Principal		Related
September 30, 2017	Investment		Balance		Investment		Balance		Allowance
Residential Real Estate 1-4 Family
First liens	$	1,142	$	1,239	$	—	$	—	$	—
Junior liens and lines of credit		53		54		—		—		—
Total		1,195		1,293		—		—		—
Residential real estate - construction		469		531		—		—		—
Commercial real estate		11,180		11,645		—		—		—
Commercial		291		304		—		—		—
Total	$	13,135	$	13,773	$	—	$	—	$	—



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 and nine months ended September 30, 2017 and 2016:


	Three Months Ended				Nine Months Ended
	September 30, 2017				September 30, 2017
	Average		Interest		Average		Interest
(Dollars in thousands)	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
Residential Real Estate 1-4 Family
First liens	$	1,157	$	10	$	1,152	$	32
Junior liens and lines of credit		54		—		85		—
Total		1,211		10		1,237		32
Residential real estate - construction		471		—		475		—
Commercial real estate		11,218		109		12,216		328
Commercial		292		—		263		—
Total	$	13,192	$	119	$	14,191	$	360


	Three Months Ended				Nine Months Ended
	September 30, 2016				September 30, 2016
	Average		Interest		Average		Interest
(Dollars in thousands)	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
Residential Real Estate 1-4 Family
First liens	$	1,196	$	10	$	1,262	$	30
Junior liens and lines of credit		96		—		90		—
Total		1,292		10		1,352		30
Residential real estate - construction		548		—		554		—
Commercial real estate		13,889		118		17,871		478
Commercial		25		—		34		—
Total	$	15,754	$	128	$	19,811	$	508

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
September 30, 2017
Residential Real Estate 1-4 Family
First liens	$	160,383	$	69	$	93	$	103	$	265	$	332	$	160,980
Junior liens and lines of credit		49,964		87		37		—		124		53		50,141
Total		210,347		156		130		103		389		385		211,121
Residential real estate - construction		8,951		156		—		—		156		469		9,576
Commercial real estate		399,784		1,994		91		—		2,085		1,877		403,746
Commercial		282,038		198		—		—		198		291		282,527
Consumer		4,515		16		2		—		18		—		4,533
Total	$	905,635	$	2,520	$	223	$	103	$	2,846	$	3,022	$	911,503



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

September 30, 2017
Residential Real Estate 1-4 Family
First liens	$	158,175	$	1,486	$	1,319	$	—	$	160,980
Junior liens and lines of credit		50,088		—		53		—		50,141
Total		208,263		1,486		1,372		—		211,121
Residential real estate - construction		8,361		—		1,215		—		9,576
Commercial real estate		392,367		685		10,694		—		403,746
Commercial		280,941		18		1,568		—		282,527
Consumer		4,533		—		—		—		4,533
Total	$	894,465	$	2,189	$	14,849	$	—	$	911,503



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
September 30, 2017
Residential real estate - construction	1	$	469	$	469	$	—	—	$	—
Residential real estate	5		746		707		39	1		39
Commercial real estate	11		11,094		10,499		595	1		595
Total	17	$	12,309	$	11,675	$	634	2	$	634


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 during 2017.

The following table reports new TDR loans during 2016, concession granted and the recorded investment as of September 30, 2016:


	New During Period
Nine Months Ended	Number of		Pre-TDR		After-TDR		Recorded
September 30, 2016	Contracts		Modification		Modification		Investment	Concession
Commercial real estate	1	$	525	$	525	$	515	multiple
Residential real estate	1		238		238		238	maturity
	2	$	763	$	763	$	753