Loans and the Allowance for Loan Losses (Tables)

9 Months Ended

Sep. 30, 2017

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:

	September 30, 2017			December 31, 2016
	(in thousands)
Mortgage loans on real estate:
Residential 1-4 family	$	100,746		$	94,827
Commercial		281,628			285,429
Construction		23,715			23,116
Second mortgages		17,557			17,128
Equity lines of credit		54,029			51,024
Total mortgage loans on real estate		477,675			471,524
Commercial and industrial loans		60,003			54,434
Consumer automobile loans		94,041			10,407
Other consumer loans		56,386			48,500
Other		12,891			19,017
Total loans, net of deferred fees (1)		700,996			603,882
Less: Allowance for loan losses		(8,951	)		(8,245	)
Loans, net of allowance and deferred fees and costs (1)	$	692,045		$	595,637

(1) Net deferred loan fees totaled $874 thousand and $522 thousand at September 30, 2017 and December 31, 2016, respectively.

Overdrawn deposit accounts are reclassified as loans and included in the Other category in the table above. Overdrawn deposit accounts totaled $728 thousand and $536 thousand at September 30, 2017 and December 31, 2016, 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 September 30, 2017
(in thousands)
	Pass		OAEM		Substandard		Doubtful		Total
Mortgage loans on real estate:
Residential 1-4 family	$	98,829	$	-	$	1,917	$	-	$	100,746
Commercial		256,898		11,696		13,034		-		281,628
Construction		22,920		74		721		-		23,715
Second mortgages		16,952		446		159		-		17,557
Equity lines of credit		53,686		-		343		-		54,029
Total mortgage loans on real estate		449,285		12,216		16,174		-		477,675
Commercial and industrial loans		58,192		1,037		774		-		60,003
Consumer automobile loans		93,984		-		57		-		94,041
Other consumer loans		56,336		-		50		-		56,386
Other		12,891		-		-		-		12,891
Total	$	670,688	$	13,253	$	17,055	$	-	$	700,996

Credit Quality Information
As of December 31, 2016
(in thousands)
	Pass		OAEM		Substandard		Doubtful		Total
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 and industrial loans		49,979		2,278		2,177		-		54,434
Consumer automobile loans		10,407		-		-		-		10,407
Other consumer loans		48,334		-		166		-		48,500
Other		19,017		-		-		-		19,017
Total	$	570,194	$	14,567	$	19,121	$	-	$	603,882

Past Due Loans

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 September 30, 2017
	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	$	869	$	-	$	621	$	1,490	$	99,256	$	100,746	$	52
Commercial		169		984		3,530		4,683		276,945		281,628		974
Construction		204		-		-		204		23,511		23,715		-
Second mortgages		79		-		-		79		17,478		17,557		-
Equity lines of credit		49		-		53		102		53,927		54,029		-
Total mortgage loans on real estate		1,370		984		4,204		6,558		471,117		477,675		1,026
Commercial loans		853		154		1,226		2,233		57,770		60,003		473
Consumer automobile loans		266		44		16		326		93,715		94,041		16
Other consumer loans		1,541		585		2,466		4,592		51,794		56,386		2,466
Other		91		8		2		101		12,790		12,891		2
Total	$	4,121	$	1,775	$	7,914	$	13,810	$	687,186	$	700,996	$	3,983

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

In the table above, the other consumer loans 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 $4.1 million at September 30, 2017.

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	$	-	$	496	$	1,060	$	93,767	$	94,827	$	218
Commercial		2,280		1,625		227		4,132		281,297		285,429		-
Construction		162		-		-		162		22,954		23,116		-
Second mortgages		-		200		188		388		16,740		17,128		58
Equity lines of credit		394		9		86		489		50,535		51,024		-
Total mortgage loans on real estate		3,400		1,834		997		6,231		465,293		471,524		276
Commercial loans		5		-		86		91		54,343		54,434		-
Consumer automobile loans		-		11		-		11		10,396		10,407		-
Other consumer loans		1,876		702		2,684		5,262		43,238		48,500		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.

Although the portion of the student loan portfolio that is 90 days or more past due would normally be considered impaired, the Company does not include these loans in its impairment analysis. Because the federal government has provided guarantees of repayment of these student loans in an amount ranging from 97% to 98% of the total principal and interest of the loans, management does not expect significant increases in past due student loans to have a material effect on the Company.

Nonaccrual Loans

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

Nonaccrual Loans by Class
	September 30, 2017		December 31, 2016
	(in thousands)
Mortgage loans on real estate
Residential 1-4 family	$	568	$	598
Commercial		8,012		6,033
Construction		518		-
Second mortgages		-		129
Equity lines of credit		343		87
Total mortgage loans on real estate		9,441		6,847
Commercial loans		771		231
Other consumer loans		-		81
Total	$	10,212	$	7,159

Interest Income Would Have Been Recorded Under Original Loan 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:

	Nine Months Ended September 30,
	2017			2016
	(in thousands)
Interest income that would have been recorded under original loan terms		$	311	$	232
Actual interest income recorded for the period			179		182
Reduction in interest income on nonaccrual loans		$	132	$	50

Troubled Debt Restructurings by Class

The following tables present TDRs during the periods indicated, by class of loan. There were no troubled debt restructurings in the three months ended September 30, 2017.

Troubled Debt Restructurings by Class
For the Three Months Ended September 30, 2016
	Number of Modifications		Recorded Investment Prior to Modification		Recorded Investment After Modification		Current Investment on September 30, 2016
	(dollars in thousands)
Mortgage loans on real estate:
Residential 1-4 family		4	$	1,002	$	1,002	$	1,002
Commercial		1		150		150		150
Second mortgages		1		53		53		53
Equity lines of credit		1		93		93		93
Total mortgage loans on real estate		7		1,298		1,298		1,298
Other consumer loans		2		8		8		8
Total		9	$	1,306	$	1,306	$	1,306

Troubled Debt Restructurings by Class
For the Nine Months Ended September 30, 2017
	Number of Modifications		Recorded Investment Prior to Modification		Recorded Investment After Modification		Current Investment on September 30, 2017
	(dollars in thousands)
Mortgage loans on real estate:
Residential 1-4 family		1	$	142	$	142	$	141
Commercial		2		3,663		3,663		3,653
Total		3	$	3,805	$	3,805	$	3,794

Troubled Debt Restructurings by Class
For the Nine Months Ended September 30, 2016
	Number of Modifications		Recorded Investment Prior to Modification		Recorded Investment After Modification		Current Investment on September 30, 2016
	(dollars in thousands)
Mortgage loans on real estate:
Residential 1-4 family		4	$	1,002	$	1,002	$	1
Commercial		1		150		150		0
Second mortgages		1		53		53		0
Equity lines of credit		1		93		93		0
Total mortgage loans on real estate		7		1,298		1,298		1
Commercial loans		1		152		152		0
Other consumer loans		2		8		8		0
Commercial loans		10	$	1,458	$	1,458	$	1

In the three and nine months ended September 30, 2017 and 2016, 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.

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 September 30, 2017												For the nine months ended September 30, 2017
				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		$	2,449		$	1,980		$	390		$	75		$	2,429		$	74
Commercial			12,430			10,758			436			87			13,447			435
Construction			93			-			93			18			269			4
Second mortgages			359			201			137			15			461			12
Equity lines of credit			344			53			290			61			250			-
Total mortgage loans on real estate		$	15,675		$	12,992		$	1,346		$	256		$	16,856		$	525
Commercial loans			1,017			163			608			183			1,513			21
Other consumer loans			-			-			-			-			54			-
Total		$	16,692		$	13,155		$	1,954		$	439		$	18,423		$	546

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			-			-			46			3
Total mortgage loans on real estate	$	19,921		$	13,853		$	5,133		$	529		$	15,679		$	917
Commercial loans		1,077			-			989			271			827			74
Other consumer loans		81			81			-			-			68			1
Total	$	21,079		$	13,934		$	6,122		$	800		$	16,574		$	992

Allowance for Loan Losses by Segment

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 Nine Months Ended September 30, 2017	Commercial			Real Estate - Construction			Real Estate - Mortgage ⁽¹⁾			Consumer ⁽²⁾			Other			Total
Allowance for Loan Losses:
Balance at the beginning of period	$	1,493		$	846		$	5,267		$	455		$	184		$	8,245
Charge-offs		(629	)		-			(1,473	)		(228	)		(136	)		(2,466	)
Recoveries		32			104			40			33			38			247
Provision for loan losses		679			(332	)		1,573			909			96			2,925
Ending balance	$	1,575		$	618		$	5,407		$	1,169		$	182		$	8,951
Ending balance individually evaluated for impairment	$	183		$	18		$	238		$	-		$	-		$	439
Ending balance collectively evaluated for impairment		1,392			600			5,169			1,169			182			8,512
Ending balance	$	1,575		$	618		$	5,407		$	1,169		$	182		$	8,951
Loan Balances:
Ending balance individually evaluated for impairment	$	771		$	93		$	14,245		$	-		$	-		$	15,109
Ending balance collectively evaluated for impairment		59,232			23,622			439,715			150,427			12,891			685,887
Ending balance	$	60,003		$	23,715		$	453,960		$	150,427		$	12,891		$	700,996

For the Year Ended December 31, 2016	Commercial			Real Estate - Construction			Real Estate - Mortgage ⁽¹⁾			Consumer			Other			Total
Allowance for Loan Losses:
Balance at the beginning of period	$	633		$	985		$	5,628		$	279		$	213		$	7,738
Charge-offs		(915	)		-			(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		$	-		$	-		$	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		$	-		$	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

⁽¹⁾ The real estate-mortgage segment includes residential 1 – 4 family, commercial real estate, second mortgages and equity lines of credit.

⁽²⁾ The consumer segment includes consumer automobile loans.

Financing Receivable, Allowance for Credit Losses, Policy or Methodology Change [Policy Text Block]

Historical loss rates calculated by migration analysis are determined by the performance of a loan over a period of time (the migration period). This migration period can be lengthened or shortened based on management's assessment of the most appropriate length of time over which to analyze losses in the loan portfolio. The Company can also calculate multiple migration periods, allowing management to assess the migration of loans based on more than one starting point.

In the third quarter of 2017, management changed its migration approach for calculating the allowance to better match the length of the current credit cycle. The number of migration periods was changed from four to eight. Each migration period remains at twelve quarters, the length of the migration period used by the Company in prior periods. This change had the result of reducing the calculated provision from $3.4 million to $2.9 million, a difference of $447 thousand. The prior quarters' methodology was resulting in distortion between required allocations by segment and the underlying credit metrics for those segments. By increasing the number of migration periods from four to eight, the migration is better able to capture the performance of the portfolio segment over a greater portion of the credit cycle.

The following table represents the effect on the loan loss provision as a result of this change in methodology. It compares the methodology results actually used for the three and nine months ended September 30, 2017 to that used in prior periods.

	Calculated Provision Based on Current Quarter Methodology			Calculated Provision Based on Prior Quarter Methodology			Difference
	(in thousands)
Portfolio Segment:
Commercial	$	679		$	970		$	(291	)
Real estate - construction		(332	)		(815	)		483
Real estate - mortgage		1,573			1,859			(286	)
Consumer loans		909			1,262			(353	)
Other		96			96			-
Total	$	2,925		$	3,372		$	(447	)