Loans and the Allowance for Loan Losses (Tables)

12 Months Ended

Dec. 31, 2016

Loans and the Allowance for Loan Losses [Abstract]

The following is a summary of the balances in each class of the Company's loan portfolio as of the dates indicated:

	December 31, 2016			December 31, 2015
	(in thousands)
Mortgage loans on real estate:
Residential 1-4 family	$	94,827		$	96,997
Commercial		285,429			277,758
Construction		23,116			19,685
Second mortgages		17,128			15,148
Equity lines of credit		51,024			47,256
Total mortgage loans on real estate		471,524			456,844
Commercial loans		54,434			43,197
Consumer loans		58,907			50,427
Other		19,017			18,007
Total loans		603,882			568,475
Less: Allowance for loan losses		(8,245	)		(7,738	)
Loans, net of allowance and deferred fees (1)	$	595,637		$	560,737

(1) Net deferred loan fees totaled $522 thousand and $407 thousand at December 31, 2016 and December 31, 2015, respectively.

Overdrawn deposit accounts are reclassified as loans and included in the Other category in the table above. Overdrawn deposit accounts totaled $536 thousand and $648 thousand at December 31, 2016 and December 31, 2015, respectively.

Credit Quality Information

The following table presents credit quality exposures by internally assigned risk ratings as of the dates indicated:

Credit Quality Information As of December 31, 2016
	Pass		OAEM		Substandard		Total
	(in thousands)
Mortgage loans on real estate:
Residential 1-4 family	$	92,458	$	1,138	$	1,231	$	94,827
Commercial		260,948		10,014		14,467		285,429
Construction		22,219		162		735		23,116
Second mortgages		16,445		475		208		17,128
Equity lines of credit		50,387		500		137		51,024
Total mortgage loans on real estate		442,457		12,289		16,778		471,524
Commercial loans		49,979		2,278		2,177		54,434
Consumer loans		58,741		0		166		58,907
Other		19,017		0		0		19,017
Total	$	570,194	$	14,567	$	19,121	$	603,882

Credit Quality Information As of December 31, 2015
	Pass		OAEM		Substandard		Total
	(in thousands)
Mortgage loans on real estate:
Residential 1-4 family	$	94,576	$	0	$	2,421	$	96,997
Commercial		261,749		7,394		8,615		277,758
Construction		18,931		0		754		19,685
Second mortgages		14,835		0		313		15,148
Equity lines of credit		47,161		0		95		47,256
Total mortgage loans on real estate		437,252		7,394		12,198		456,844
Commercial loans		40,268		467		2,462		43,197
Consumer loans		50,327		0		100		50,427
Other		18,007		0		0		18,007
Total	$	545,854	$	7,861	$	14,760	$	568,475

Past Due Loans

AGE ANALYSIS OF PAST DUE LOANS BY CLASS

All classes of loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. Interest and fees continue to accrue on past due loans until the date the loan is placed in nonaccrual status, if applicable. The following table includes an aging analysis of the recorded investment in past due loans as of the dates indicated. Also included in the table below are loans that are 90 days or more past due as to interest and principal and still accruing interest, because they are well-secured and in the process of collection. Loans in nonaccrual status that are also past due are included in the aging categories in the table below.

Age Analysis of Past Due Loans as of December 31, 2016
	30 - 59 Days Past Due		60 - 89 Days Past Due		90 or More Days Past Due		Total Past Due		Total Current Loans (1)		Total Loans		Recorded Investment > 90 Days Past Due and Accruing
	(in thousands)
Mortgage loans on real estate:
Residential 1-4 family	$	564	$	0	$	496	$	1,060	$	93,767	$	94,827	$	218
Commercial		2,280		1,625		227		4,132		281,297		285,429		0
Construction		162		0		0		162		22,954		23,116		0
Second mortgages		0		200		188		388		16,740		17,128		58
Equity lines of credit		394		9		86		489		50,535		51,024		0
Total mortgage loans on real estate		3,400		1,834		997		6,231		465,293		471,524		276
Commercial loans		5		0		86		91		54,343		54,434		0
Consumer loans		1,876		713		2,684		5,273		53,634		58,907		2,603
Other		41		12		5		58		18,959		19,017		5
Total	$	5,322	$	2,559	$	3,772	$	11,653	$	592,229	$	603,882	$	2,884

(1) For purposes of this table, Total Current Loans includes loans that are 1 - 29 days past due.

In the table above, the consumer category includes student loans with principal and interest amounts that are 97 - 98% guaranteed by the federal government. The past due principal portion of these guaranteed loans totaled $4.8 million at December 31, 2016.

Age Analysis of Past Due Loans as of December 31, 2015
	30 - 59 Days Past Due		60 - 89 Days Past Due		90 or More Days Past Due		Total Past Due		Total Current Loans (1)		Total Loans		Recorded Investment > 90 Days Past Due and Accruing
	(in thousands)
Mortgage loans on real estate:
Residential 1-4 family	$	309	$	1,042	$	275	$	1,626	$	95,371	$	96,997	$	0
Commercial		1,266		31		23		1,320		276,438		277,758		23
Construction		161		0		0		161		19,524		19,685		0
Second mortgages		21		39		165		225		14,923		15,148		0
Equity lines of credit		170		0		0		170		47,086		47,256		0
Total mortgage loans on real estate		1,927		1,112		463		3,502		453,342		456,844		23
Commercial loans		500		88		232		820		42,377		43,197		164
Consumer loans		1,673		1,350		3,163		6,186		44,241		50,427		3,163
Other		64		3		6		73		17,934		18,007		6
Total	$	4,164	$	2,553	$	3,864	$	10,581	$	557,894	$	568,475	$	3,356

(1) For purposes of this table, Total Current Loans includes loans that are 1 - 29 days past due.

Nonaccrual Loans

The following table presents loans in nonaccrual status by class of loan as of the dates indicated:

Nonaccrual Loans by Class

	December 31, 2016		December 31, 2015
	(in thousands)
Mortgage loans on real estate:
Residential 1-4 family	$	598	$	1,457
Commercial		6,033		2,623
Second mortgages		129		226
Equity lines of credit		87		0
Total mortgage loans on real estate		6,847		4,306
Commercial loans		231		276
Consumer loans		81		0
Total	$	7,159	$	4,582

Interest Income to be Earned under the Original Terms

The following table presents the interest income that the Company would have earned under the original terms of its nonaccrual loans and the actual interest recorded by the Company on nonaccrual loans for the periods presented:

	Years Ended December 31,
	2016			2015
	(in thousands)
Interest income that would have been recorded under original loan terms		$	318	$	196
Actual interest income recorded for the period			269		141
Reduction in interest income on nonaccrual loans		$	49	$	55

Troubled Debt Restructurings by Class

The following table presents TDRs during the period indicated, by class of loan:

Troubled Debt Restructurings by Class For the Year Ended December 31, 2016
	Number of Modifications		Recorded Investment Prior to Modification		Recorded Investment After Modification		Current Investment on December 31, 2016
	(dollars in thousands)
Mortgage loans on real estate:
Residential 1-4 family		6	$	1,061	$	1,061	$	992
Commercial		1		150		150		0
Second mortgages		1		53		53		53
Equity lines of credit		1		93		93		86
Total mortgage loans on real estate		9	$	1,357	$	1,357	$	1,131
Commercial loans		1		152		152		144
Consumer loans		2		8		8		0
Total		12	$	1,517	$	1,517	$	1,275

Troubled Debt Restructurings by Class For the Year Ended December 31, 2015
	Number of Modifications		Recorded Investment Prior to Modification		Recorded Investment After Modification		Current Investment on December 31, 2015
	(dollars in thousands)
Mortgage loans on real estate:
Commercial		5	$	2,094	$	2,594	$	2,400
Construction		1		435		435		0
Second mortgages		1		61		61		61
Total		7	$	2,590	$	3,090	$	2,461

Restructurings that Subsequently Defaulted

In the years ended December 31, 2016 and 2015 there were no defaulting TDRs where the default occurred within twelve months of restructuring. The Company considers a TDR in default when any of the following occurs: the loan, as restructured, becomes 90 days or more past due; the loan is moved to nonaccrual status following the restructure; the loan is restructured again under terms that would qualify it as a TDR if it were not already so classified; or any portion of the loan is charged off.

All TDRs are factored into the determination of the allowance for loan losses and included in the impaired loan analysis, as discussed below.

Impaired Loans by Class

The following table includes the recorded investment and unpaid principal balances (a portion of which may have been charged off) for impaired loans with the associated allowance amount, if applicable, as of the dates presented. Also presented are the average recorded investments in the impaired loans and the related amount of interest recognized for the periods presented. The average balances are calculated based on daily average balances.

Impaired Loans by Class
	As of December 31, 2016												For the Year Ended December 31, 2016
				Recorded Investment
	Unpaid Principal Balance			Without Valuation Allowance			With Valuation Allowance			Associated Allowance			Average Recorded Investment			Interest Income Recognized
	(in thousands)
Mortgage loans on real estate:
Residential 1-4 family		$	2,496		$	1,835		$	622		$	75		$	2,741		$	119
Commercial			16,193			11,095			4,274			415			11,885			727
Construction			619			528			96			22			496			43
Second mortgages			526			309			141			17			511			25
Equity lines of credit			87			86			0			0			46			3
Total mortgage loans on real estate		$	19,921		$	13,853		$	5,133		$	529		$	15,679		$	917
Commercial loans			1,077			0			989			271			827			74
Consumer loans			81			81			0			0			68			1
Total		$	21,079		$	13,934		$	6,122		$	800		$	16,574		$	992

Impaired Loans by Class
	As of December 31, 2015												For the Year Ended December 31, 2015
				Recorded Investment
	Unpaid Principal Balance			Without Valuation Allowance			With Valuation Allowance			Associated Allowance			Average Recorded Investment			Interest Income Recognized
	(in thousands)
Mortgage loans on real estate:
Residential 1-4 family		$	2,994		$	1,530		$	1,261		$	146		$	2,267		$	132
Commercial			10,203			6,166			3,208			608			9,305			473
Construction			99			0			99			36			465			5
Second mortgages			535			499			0			0			571			21
Total mortgage loans on real estate		$	13,831		$	8,195		$	4,568		$	790		$	12,608		$	631
Commercial loans			330			207			68			8			952			28
Consumer loans			12			12			0			0			13			1
Total		$	14,173		$	8,414		$	4,636		$	798		$	$ 13,573		$	660

Allowance for Loan Losses by Segment

ALLOWANCE FOR LOAN LOSSES BY SEGMENT

The total allowance reflects management's estimate of loan losses inherent in the loan portfolio at the balance sheet date. The Company considers the allowance for loan losses of $8.2 million adequate to cover loan losses inherent in the loan portfolio at December 31, 2016.

The following table presents, by portfolio segment, the changes in the allowance for loan losses and the recorded investment in loans for the periods presented. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.

ALLOWANCE FOR LOAN LOSSES AND RECORDED INVESTMENT IN LOANS
(in thousands)
For the Year Ended December 31, 2016	Commercial			Real Estate - Construction			Real Estate - Mortgage			Consumer			Other			Total
Allowance for Loan Losses:
Balance at the beginning of period	$	633		$	985		$	5,628		$	279		$	213		$	7,738
Charge-offs		(915	)		0			(504	)		(204	)		(147	)		(1,770	)
Recoveries		79			3			197			28			40			347
Provision for loan losses		1,696			(142	)		(54	)		352			78			1,930
Ending balance		1,493			846			5,267			455			184			8,245
Ending balance individually evaluated for impairment		271			22			507			0			0			800
Ending balance collectively evaluated for impairment		1,222			824			4,760			455			184			7,445
Ending balance		1,493			846			5,267			455			184			8,245
Loan Balances:
Ending balance individually evaluated for impairment		989			624			18,362			81			0			20,056
Ending balance collectively evaluated for impairment		53,445			22,492			430,046			58,826			19,017			583,826
Ending balance	$	54,434		$	23,116		$	448,408		$	58,907		$	19,017		$	603,882

For the Year Ended December 31, 2015	Commercial			Real Estate - Construction			Real Estate - Mortgage			Consumer			Other			Total
Allowance for Loan Losses:
Balance at the beginning of period	$	595		$	703		$	5,347		$	219		$	211		$	7,075
Charge-offs		(293	)		0			(321	)		(92	)		(191	)		(897	)
Recoveries		50			1			393			39			52			535
Provision for loan losses		281			281			209			113			141			1,025
Ending balance		633			985			5,628			279			213			7,738
Ending balance individually evaluated for impairment		8			36			754			0			0			798
Ending balance collectively evaluated for impairment		625			949			4,874			279			213			6,940
Ending balance		633			985			5,628			279			213			7,738
Loan Balances:
Ending balance individually evaluated for impairment		275			99			12,664			12			0			13,050
Ending balance collectively evaluated for impairment		42,922			19,586			424,495			50,415			18,007			555,425
Ending balance	$	43,197		$	19,685		$	437,159		$	50,427		$	18,007		$	568,475

Change in Allowance Methodology

The following table represents the effect on the loan loss provision as a result of these changes in methodology. It compares the methodology actually used for the year ended December 31, 2016 to that used in prior periods.

	Calculated Provision Based on Current Methodology			Calculated Provision Based on Prior Methodology			Difference
	(in thousands)
Portfolio Segment:
Commercial	$	1,696		$	2,054		$	(358	)
Real estate - construction		(142	)		(858	)		716
Real estate - mortgage		(54	)		73			(127	)
Consumer loans		352			910			(558	)
Other		78			78			0
Total	$	1,930		$	2,257		$	(327	)