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Loans and Related Allowance for Loan Losses
12 Months Ended
Dec. 31, 2015
Loans and Related Allowance for Loan Losses [Abstract]  
Loans and Related Allowance for Loan Losses



8.Loans and Related Allowance for Loan Losses

The following table summarizes the primary segments of the loan portfolio as of December 31, 2015 and December 31, 2014:



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

Commercial Real Estate

Acquisition and Development

Commercial and Industrial

Residential Mortgage

Consumer

Total

December 31, 2015

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

   Individually evaluated for impairment

$

14,646 

$

4,496 

$

1,076 

$

4,590 

$

$

24,808 

   Collectively evaluated for impairment

$

265,859 

$

106,490 

$

72,777 

$

384,149 

$

24,940 

$

854,215 

Total loans

$

280,505 

$

110,986 

$

73,853 

$

388,739 

$

24,940 

$

879,023 



 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2014

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

   Individually evaluated for impairment

$

11,949 

$

6,553 

$

1,861 

$

4,418 

$

$

24,781 

   Collectively evaluated for impairment

$

244,115 

$

92,748 

$

91,394 

$

363,223 

$

23,730 

$

815,210 

Total loans

$

256,064 

$

99,301 

$

93,255 

$

367,641 

$

23,730 

$

839,991 



The segments of the Bank’s loan portfolio are disaggregated to a level that allows management to monitor risk and performance.  The CRE loan segment is further disaggregated into two classes. Non-owner occupied CRE loans, which include loans secured by non-owner occupied nonfarm nonresidential properties, generally have a greater risk profile than all other CRE loans, which include loans secured by farmland, multifamily structures and owner-occupied commercial structures.  The A&D loan segment is further disaggregated into two classes. One-to-four family residential construction loans are generally made to individuals for the acquisition of and/or construction on a lot or lots on which a residential dwelling is to be built.  All other A&D loans are generally made to developers or investors for the purpose of acquiring, developing and constructing residential or commercial structures.  These loans have a higher risk profile because the ultimate buyer, once development is completed, is generally not known at the time of the A&D loan.  The C&I loan segment consists of loans made for the purpose of financing the activities of commercial customers.  The residential mortgage loan segment is further disaggregated into two classes: amortizing term loans, which are primarily first liens, and home equity lines of credit, which are generally second liens.  The consumer loan segment consists primarily of installment loans (direct and indirect) and overdraft lines of credit connected with customer deposit accounts.



In the ordinary course of business, executive officers and directors of the Corporation, including their families and companies in which certain directors are principal owners, were loan customers of the Bank.  Pursuant to the Bank’s lending policies, such loans were made on the same terms, including collateral, as those prevailing at the time for comparable transactions with persons who are not related to the Corporation and do not involve more than the normal risk of collectability.  Changes in the dollar amount of loans outstanding to officers, directors and their associates were as follows for the year ended December 31:







 

 



 

 

(in thousands)

 

2015

Balance at January 1

$

9,207 

Loans or advances

 

3,589 

Repayments

 

(1,403)

Balance at December 31

$

11,393 

Management uses a 10-point internal risk rating system to monitor the credit quality of the overall loan portfolio.  The first six categories are considered not criticized and are aggregated as “Pass” rated.  The criticized rating categories utilized by management generally follow bank regulatory definitions. The Special Mention category includes assets that are currently protected but are potentially weak, resulting in an undue and unwarranted credit risk, but not to the point of justifying a Substandard classification.  Loans in the Substandard category have well-defined weaknesses that jeopardize the liquidation of the debt, and have a distinct possibility that some loss will be sustained if the weaknesses are not corrected.  All loans greater than 90 days past due are considered Substandard.  Only the portion of a specific allocation of the allowance for loan losses that management believes is associated with a pending event that could trigger loss in the short term is classified in the Doubtful category. Any portion of a loan that has been charged off is placed in the Loss category.  It is possible for a loan to be classified as Substandard in the internal risk rating system, but not considered impaired under GAAP, due to the broader reach of “well-defined weaknesses” in the application of the Substandard definition.



To help ensure that risk ratings are accurate and reflect the present and future capacity of borrowers to repay a loan as agreed, the Bank has a structured loan rating process with several layers of internal and external oversight.  Generally, consumer and residential mortgage loans are included in the Pass categories unless a specific action, such as bankruptcy, repossession, or death occurs to raise awareness of a possible credit event.  The Bank’s Commercial Loan Officers are responsible for the timely and accurate risk rating of the loans in the commercial segments at origination and on an ongoing basis.  The Bank’s experienced Credit Quality and Loan Review Department performs an annual review of all commercial relationships of $500,000 or greater.  Confirmation of the appropriate risk grade is included as part of the review process on an ongoing basis.  The Credit Quality and Loan Review Department continually reviews and assesses loans within the portfolio.  In addition, the Bank engages an external consultant to conduct loan reviews on at least an annual basis. Generally, the external consultant reviews commercial relationships greater than $1,000,000 and/or criticized non-consumer loans greater than $500,000.  Detailed reviews, including plans for resolution, are performed on loans classified as Substandard on a quarterly basis.  Loans in the Special Mention and Substandard categories that are collectively evaluated for impairment are given separate consideration in the determination of the allowance. 

The following table presents the classes of the loan portfolio summarized by the aggregate Pass and the criticized categories of Special Mention and Substandard.  There were no loans classified as Doubtful within the internal risk rating system as of December 31, 2015 and 2014:



 

 

 

 

 

 

 

 

(in thousands)

Pass

Special Mention

Substandard

Total

December 31, 2015

 

 

 

 

 

 

 

 

  Commercial real estate

 

 

 

 

 

 

 

 

     Non owner-occupied

$

140,378 

$

11,574 

$

7,378 

$

159,330 

     All other CRE

 

103,811 

 

1,184 

 

16,180 

 

121,175 

  Acquisition and development

 

 

 

 

 

 

 

 

     1-4 family residential construction

 

15,011 

 

 

700 

 

15,711 

     All other A&D

 

89,963 

 

74 

 

5,238 

 

95,275 

  Commercial and industrial

 

69,420 

 

1,212 

 

3,221 

 

73,853 

  Residential mortgage

 

 

 

 

 

 

 

 

     Residential mortgage - term

 

300,558 

 

167 

 

10,744 

 

311,469 

     Residential mortgage – home equity

 

75,491 

 

 

1,779 

 

77,270 

  Consumer

 

24,881 

 

 

59 

 

24,940 

        Total

$

819,513 

$

14,211 

$

45,299 

$

879,023 



 

 

 

 

 

 

 

 

December 31, 2014

 

 

 

 

 

 

 

 

  Commercial real estate

 

 

 

 

 

 

 

 

     Non owner-occupied

$

115,276 

$

10,884 

$

11,273 

$

137,433 

     All other CRE

 

90,740 

 

8,618 

 

19,273 

 

118,631 

  Acquisition and development

 

 

 

 

 

 

 

 

     1-4 family residential construction

 

12,920 

 

 

790 

 

13,710 

     All other A&D

 

72,323 

 

1,356 

 

11,912 

 

85,591 

  Commercial and industrial

 

88,579 

 

884 

 

3,792 

 

93,255 

  Residential mortgage

 

 

 

 

 

 

 

 

     Residential mortgage - term

 

280,113 

 

379 

 

10,934 

 

291,426 

     Residential mortgage – home equity

 

74,698 

 

90 

 

1,427 

 

76,215 

  Consumer

 

23,658 

 

 

72 

 

23,730 

        Total

$

758,307 

$

22,211 

$

59,473 

$

839,991 



Management further monitors the performance and credit quality of the loan portfolio by analyzing the age of the portfolio as determined by the length of time a recorded payment is past due.  A loan is considered to be past due when a payment has not been received for 30 days past its contractual due date.  For all loan segments, the accrual of interest is discontinued when principal or interest is delinquent for 90 days or more unless the loan is well-secured and in the process of collection.  All non-accrual loans are considered to be impaired.  Interest payments received on non-accrual loans are applied as a reduction of the loan principal balance.  Loans are returned to accrual status when all principal and interest amounts contractually due are brought current and future payments are reasonably assured.  The Corporation’s policy for recognizing interest income on impaired loans does not differ from its overall policy for interest recognition. 



The following table presents the classes of the loan portfolio summarized by the aging categories of performing loans and non-accrual loans as of December 31, 2015 and December 31, 2014:







 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

Current

30-59 Day Past Due

60-89 Days Past Due

90 Days+ Past Due

Total Past Due and still accruing

Non-Accrual

Total Loans

December 31, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Commercial real estate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Non owner-occupied

$

157,217 

$

634 

$

171 

$

$

805 

$

1,308 

$

159,330 

     All other CRE

 

110,022 

 

1,179 

 

 

 

1,179 

 

9,974 

 

121,175 

  Acquisition and development

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     1-4 family residential construction

 

15,711 

 

 

 

 

 

 

15,711 

     All other A&D

 

92,867 

 

417 

 

174 

 

 

591 

 

1,817 

 

95,275 

  Commercial and industrial

 

73,619 

 

13 

 

36 

 

 

49 

 

185 

 

73,853 

  Residential mortgage

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Residential mortgage - term

 

298,391 

 

8,084 

 

2,149 

 

907 

 

11,140 

 

1,938 

 

311,469 

     Residential mortgage – home equity

 

76,195 

 

505 

 

203 

 

91 

 

799 

 

276 

 

77,270 

  Consumer

 

24,596 

 

232 

 

85 

 

27 

 

344 

 

 

24,940 

        Total

$

848,618 

$

11,064 

$

2,818 

$

1,025 

$

14,907 

$

15,498 

$

879,023 

December 31, 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Commercial real estate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Non owner-occupied

$

135,994 

$

104 

$

183 

$

$

287 

$

1,152 

$

137,433 

     All other CRE

 

112,825 

 

1,196 

 

 

 

1,196 

 

4,610 

 

118,631 

  Acquisition and development

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     1-4 family residential construction

 

13,710 

 

 

 

 

 

 

13,710 

     All other A&D

 

81,702 

 

239 

 

40 

 

 

280 

 

3,609 

 

85,591 

  Commercial and industrial

 

93,060 

 

 

20 

 

 

24 

 

171 

 

93,255 

  Residential mortgage

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Residential mortgage - term

 

279,340 

 

8,654 

 

1,350 

 

416 

 

10,420 

 

1,666 

 

291,426 

     Residential mortgage – home equity

 

74,913 

 

577 

 

313 

 

69 

 

959 

 

343 

 

76,215 

  Consumer

 

23,316 

 

287 

 

88 

 

39 

 

414 

 

 

23,730 

        Total

$

814,860 

$

11,057 

$

1,994 

$

529 

$

13,580 

$

11,551 

$

839,991 



Non-accrual loans which have been subject to a partial charge-off totaled $4.1 million as of December 31, 2015, compared to $4.6 million as of December 31, 2014.  Loans secured by 1-4 family residential real estate properties in the process of foreclosure was $1.8 million at December 31, 2015 and $1.9 million at December 31, 2014.



The ALL is maintained to absorb losses from the loan portfolio.  The ALL is based on management’s continuing evaluation of the risk characteristics and credit quality of the loan portfolio, assessment of current economic conditions, diversification and size of the portfolio, adequacy of collateral, past and anticipated loss experience, and the amount of non-performing loans.



The Bank’s methodology for determining the ALL is based on the requirements of ASC Section 310-10-35, Receivables-Overall-Subsequent Measurement, for loans individually evaluated for impairment and ASC Subtopic 450-20, Contingencies-Loss Contingencies, for loans collectively evaluated for impairment, as well as the Interagency Policy Statements on the Allowance for Loan and Lease Losses and other bank regulatory guidance.   The total of the two components represents the Bank’s ALL.



The following table summarizes the primary segments of the ALL, segregated into the amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment as of December 31, 2015 and December 31, 2014





 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

Commercial Real Estate

Acquisition and Development

Commercial and Industrial

Residential Mortgage

Consumer

 

Unallocated

Total

December 31, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Individually evaluated for impairment

$

144 

$

867 

$

16 

$

130 

$

$

$

1,157 

   Collectively evaluated for impairment

$

2,436 

$

3,262 

$

706 

$

3,655 

$

206 

$

500 

$

10,765 

Total ALL

$

2,580 

$

4,129 

$

722 

$

3,785 

$

206 

$

500 

$

11,922 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Individually evaluated for impairment

$

36 

$

1,141 

$

$

59 

$

$

$

1,236 

   Collectively evaluated for impairment

$

2,388 

$

2,771 

$

1,680 

$

3,803 

$

187 

$

$

10,829 

Total ALL

$

2,424 

$

3,912 

$

1,680 

$

3,862 

$

187 

$

$

12,065 



Management evaluates individual loans in all of the commercial segments for possible impairment if the loan  is greater than $500,000 or is part of a relationship that is greater than $750,000 and (i) is either in nonaccrual status or (ii) is risk-rated Substandard and is greater than 60 days past due.  Loans are considered to be impaired when, based on current information and events, it is probable that the Bank will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement.  Factors considered by management in evaluating impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due.  Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.  The Bank does not separately evaluate individual consumer and residential mortgage loans for impairment, unless such loans are part of larger relationship that is impaired; otherwise loans in these segments are considered impaired when they are classified as non-accrual.



Once the determination has been made that a loan is impaired, the determination of whether a specific allocation of the allowance is necessary is measured by comparing the recorded investment in the loan to the fair value of the loan using one of three methods:  (i) the present value of expected future cash flows discounted at the loan’s effective interest rate; (ii) the loan’s observable market price; or (iii) the fair value of the collateral less selling costs.  The method is selected on a loan-by-loan basis, with management utilizing the fair value of collateral method for all of the analyses.  If the fair value of the collateral less selling costs method is utilized for collateral securing loans in the commercial segments, then an updated external appraisal is ordered on the collateral supporting the loan if the loan balance is greater than $500,000 and the existing appraisal is greater than 18 months old.  If the loan balance is less than $500,000, then the estimated fair value of the collateral is determined by adjusting the existing appraisal by the appropriate percentage from an internally prepared appraisal discount grid.  This grid considers the age of a third party appraisal and the geographic region where the collateral is located in order to discount an appraisal that was performed between 2004 and 2008.  The discount rates in the appraisal discount grid are updated at least annually to reflect the most current knowledge that management has available, including the results of current appraisals.  If there is a delay in receiving an updated appraisal or if the appraisal is found to be deficient in our internal appraisal review process and re-ordered, the Bank continues to use a discount factor from the appraisal discount grid based on the collateral location and current appraisal age in order to determine the estimated fair value. If management believes that general market conditions in that geographic market have changed considerably, the property has deteriorated or perhaps lost an income stream, or a recent appraisal for a similar property indicates a significant change, then management may adjust the fair value indicated by the existing appraisal until a new appraisal is obtained.  A specific allocation of the ALL is recorded if there is any deficiency in collateral value determined by comparing the estimated fair value to the recorded investment of the loan. When updated appraisals are received and reviewed, adjustments are made to the specific allocation as needed.

The evaluation of the need and amount of a specific allocation of the ALL and whether a loan can be removed from impairment status is made on a quarterly basis. 

The following table presents impaired loans by class, segregated by those for which a specific allowance was required and those for which a specific allowance was not necessary as of December 31, 2015 and December 31, 2014:





 

 

 

 

 

 

 

 

 

 



 

Impaired Loans with Specific Allowance

 

Impaired Loans with No Specific Allowance

 

Total Impaired Loans

(in thousands)

 

Recorded Investment

 

Related Allowances

 

Recorded Investment

 

Recorded Investment

 

Unpaid Principal Balance

December 31, 2015

 

 

 

 

 

 

 

 

 

 

  Commercial real estate

 

 

 

 

 

 

 

 

 

 

     Non owner-occupied

$

676 

$

144 

$

1,031 

$

1,707 

$

1,842 

     All other CRE

 

 

 

12,939 

 

12,939 

 

13,302 

  Acquisition and development

 

 

 

 

 

 

 

 

 

 

     1-4 family residential construction

 

700 

 

178 

 

 

700 

 

746 

     All other A&D

 

1,979 

 

689 

 

1,817 

 

3,796 

 

8,362 

  Commercial and industrial

 

16 

 

16 

 

1,060 

 

1,076 

 

3,343 

  Residential mortgage

 

 

 

 

 

 

 

 

 

 

     Residential mortgage - term

 

440 

 

112 

 

3,874 

 

4,314 

 

4,808 

     Residential mortgage – home equity

 

57 

 

18 

 

219 

 

276 

 

297 

  Consumer

 

 

 

 

 

        Total impaired loans

$

3,868 

$

1,157 

$

20,940 

$

24,808 

$

32,700 



 

 

 

 

 

 

 

 

 

 

December 31, 2014

 

 

 

 

 

 

 

 

 

 

  Commercial real estate

 

 

 

 

 

 

 

 

 

 

     Non owner-occupied

$

143 

$

35 

$

4,353 

$

4,496 

$

4,543 

     All other CRE

 

 

 

7,453 

 

7,453 

 

7,944 

  Acquisition and development

 

 

 

 

 

 

 

 

 

 

     1-4 family residential construction

 

790 

 

105 

 

 

790 

 

836 

     All other A&D

 

3,615 

 

1,037 

 

2,148 

 

5,763 

 

9,590 

  Commercial and industrial

 

 

 

1,861 

 

1,861 

 

2,723 

  Residential mortgage

 

 

 

 

 

 

 

 

 

 

     Residential mortgage - term

 

296 

 

59 

 

3,779 

 

4,075 

 

4,485 

     Residential mortgage – home equity

 

 

 

343 

 

343 

 

363 

  Consumer

 

 

 

 

 

        Total impaired loans

$

4,844 

$

1,236 

$

19,937 

$

24,781 

$

30,484 



Loans that are collectively evaluated for impairment are analyzed with general allowances being made as appropriate.  For general allowances, historical loss trends are used in the estimation of losses in the current portfolio.  These historical loss amounts are modified by other qualitative factors. 



The classes described above, which are based on the Federal call code assigned to each loan, provide the starting point for the ALL analysis.  Management tracks the historical net charge-off activity (full and partial charge-offs, net of full and partial recoveries) at the call code level.  A historical charge-off factor is calculated utilizing a defined number of consecutive historical quarters. Consumer pools currently utilize a rolling 12 quarters, while Commercial pools currently utilize a rolling eight quarters. 



“Pass” rated credits are segregated from “Criticized” credits for the application of qualitative factors. The un-criticized (“pass”) pools for commercial and residential real estate are further segmented based upon the geographic location of the underlying collateral.  There are seven geographic regions utilized – six that represent the Bank’s lending footprint and a seventh for all out-of-market credits.  Different economic environments and resultant credit risks exist in each region that are acknowledged in the assignment of qualitative factors.  Loans in the criticized pools, which possess certain qualities or characteristics that may lead to collection and loss issues, are closely monitored by management and subject to additional qualitative factors.



Management supplements the historical charge-off factor with a number of additional qualitative factors that are likely to cause estimated credit losses associated with the existing loan pools to differ from historical loss experience.  The additional factors, which are evaluated quarterly and updated using information obtained from internal, regulatory, and governmental sources, are:  (i) national and local economic trends and conditions; (ii) levels of and trends in delinquency rates and non-accrual loans; (iii) trends in volumes and terms of loans; (iv) effects of changes in lending policies; (v) experience, ability, and depth of lending staff; (vi) value of underlying collateral; and (vii) concentrations of credit from a loan type, industry and/or geographic standpoint.



Management reviews the loan portfolio on a quarterly basis using a defined, consistently applied process in order to make appropriate and timely adjustments to the ALL.  When information confirms all or part of specific loans to be uncollectible, these amounts are promptly charged off against the ALL.  Residential mortgage and consumer loans are charged off after they are 120 days contractually past due.  All other loans are charged off based on an evaluation of the facts and circumstances of each individual loan. When the Bank believes that its ability to collect is solely dependent on the liquidation of the collateral, a full or partial charge-off is recorded promptly to bring the recorded investment to an amount that the Bank believes is supported by an ability to collect on the collateral.  The circumstances that may impact the Bank’s decision to charge-off all or a portion of a loan include default or non-payment by the borrower, scheduled foreclosure actions, and/or prioritization of the Bank’s claim in bankruptcy.  There may be circumstances where due to pending events, the Bank will place a specific allocation of the ALL on a loan for which a partial charge-off has been previously recognized.  This specific allocation may be either charged-off or removed depending upon the outcome of the pending event.  Full or partial charge-offs are not recovered until full principal and interest on the loan have been collected, even if a subsequent appraisal supports a higher value. In most cases, loans with partial charge-offs remain in non-accrual status. Both full and partial charge-offs reduce the recorded investment of the loan and the ALL and are considered to be charge-offs for purposes of all credit loss metrics and trends, including the historical rolling charge-off rates used in the determination of the ALL.



Activity in the ALL is presented for the years ended December 31, 2015 and December 31, 2014:







 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

Commercial Real Estate

Acquisition and Development

Commercial and Industrial

Residential Mortgage

Consumer

 

Unallocated

Total

ALL balance at January 1, 2015

$

2,424 

$

3,912 

$

1,680 

$

3,862 

$

187 

$

$

12,065 

Charge-offs

 

(420)

 

(1,261)

 

(26)

 

(300)

 

(307)

 

 

(2,314)

Recoveries

 

283 

 

382 

 

26 

 

217 

 

209 

 

 

1,117 

Provision

 

293 

 

1,096 

 

(958)

 

 

117 

 

500 

 

1,054 

ALL balance at December 31, 2015

$

2,580 

$

4,129 

$

722 

$

3,785 

$

206 

$

500 

$

11,922 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

ALL balance at January 1, 2014

$

4,052 

$

4,172 

$

766 

$

4,320 

$

284 

$

$

13,594 

Charge-offs

 

(485)

 

(2,673)

 

(266)

 

(847)

 

(512)

 

 

(4,783)

Recoveries

 

11 

 

133 

 

26 

 

229 

 

342 

 

 

741 

Provision

 

(1,154)

 

2,280 

 

1,154 

 

160 

 

73 

 

 

2,513 

ALL balance at December 31, 2014

$

2,424 

$

3,912 

$

1,680 

$

3,862 

$

187 

$

$

12,065 



The ALL is based on estimates, and actual losses will vary from current estimates.   Management believes that the granularity of the homogeneous pools and the related historical loss ratios and other qualitative factors, as well as the consistency in the application of assumptions, result in an ALL that is representative of the risk found in the components of the portfolio at any given date.

The following table presents the average recorded investment in impaired loans and related interest income recognized for the years ended December 31, 2015 and 2014:







 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



2015

2014

(in thousands)

Average investment

Interest income recognized on an accrual basis

Interest income recognized on a cash basis

Average investment

Interest income recognized on an accrual basis

Interest income recognized on a cash basis

  Commercial real estate

 

 

 

 

 

 

 

 

 

 

 

 

     Non owner-occupied

$

3,792 

$

144 

$

$

2,411 

$

71 

$

     All other CRE

 

8,688 

 

124 

 

106 

 

9,088 

 

148 

 

67 

  Acquisition and development

 

 

 

 

 

 

 

 

 

 

 

 

     1-4 family residential construction

 

736 

 

33 

 

 

1,510 

 

43 

 

     All other A&D

 

5,008 

 

119 

 

 

7,639 

 

161 

 

  Commercial and industrial

 

1,392 

 

69 

 

18 

 

2,024 

 

98 

 

  Residential mortgage

 

 

 

 

 

 

 

 

 

 

 

 

     Residential mortgage - term

 

4,258 

 

164 

 

10 

 

6,056 

 

200 

 

62 

     Residential mortgage – home equity

 

334 

 

 

 

581 

 

 

  Consumer

 

 

 

 

10 

 

 

        Total

$

24,214 

$

653 

$

136 

$

29,319 

$

725 

$

135 



In the normal course of business, the Bank modifies loan terms for various reasons.  These reasons may include as a retention strategy to compete in the current interest rate environment, and to re-amortize or extend a loan term to better match the loan’s payment stream with the borrower’s cash flows.  A modified loan is considered to be a TDR when the Bank has determined that the borrower is troubled (i.e. experiencing financial difficulties). The Bank evaluates the probability that the borrower will be in payment default on any of its debt in the foreseeable future without modification. To make this determination, the Bank performs a global financial review of the borrower and loan guarantors to assess their current ability to meet their financial obligations. 



When the Bank restructures a loan to a troubled borrower, the loan terms (i.e. interest rate, payment, amortization period and/or maturity date) are modified in such a way to enable the borrower to cover the modified debt service payments based on current financials and cash flow adequacy.  If a borrower’s hardship is thought to be temporary, then modified terms are only offered for that time period. Where possible, the Bank obtains additional collateral and/or secondary payment sources at the time of the restructure in order to put the Bank in the best possible position if the borrower is not able to meet the modified terms. To date, the Bank has not forgiven any principal as a restructuring concession. The Bank will not offer modified terms if it believes that modifying the loan terms will only delay an inevitable permanent default. 



All loans designated as TDRs are considered impaired loans and may be in either accruing or non-accruing status.  The Corporation’s policy for recognizing interest income on impaired loans does not differ from its overall policy for interest recognition.  Accordingly, the accrual of interest is discontinued when principal or interest is delinquent for 90 days or more unless the loan is well-secured and in the process of collection.  If the loan was accruing at the time of the modification, then it continues to be in accruing status subsequent to the modification. Non-accrual TDRs may return to accruing status when there has been sufficient payment performance for a period of at least six months.  TDRs are considered to be in payment default if, subsequent to modification, the loans are transferred to non-accrual status or to foreclosure.  A loan may be removed from being reported as a TDR in the calendar year following the modification if the interest rate at the time of modification was consistent with the interest rate for a loan with comparable credit risk and the loan has performed according to its modified terms for at least six months.  Further, a loan that has been removed from TDR reporting status and has been subsequently re-modified at standard market terms, may be removed from impaired status as well.



The volume, type and performance of TDR activity is considered in the assessment of the local economic trend qualitative factor used in the determination of the ALL for loans that are evaluated collectively for impairment.



There were 29 loans totaling $14.0 million and 27 loans totaling $13.7 million that were classified as TDRs at December 31, 2015 and December 31, 2014, respectively.  The following table presents the volume and recorded investment at the time of modification of TDRs by class and type of modification that occurred during the periods indicated:







 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



Temporary Rate Modification

Extension of Maturity

Modification of Payment and Other Terms



Number of Contracts

Recorded Investment

Number of Contracts

Recorded Investment

Number of Contracts

Recorded Investment

(Dollars in thousands)

 

 

 

 

 

 

 

For the year ended December 31, 2015

 

 

 

 

 

 

 

 

 

  Commercial real estate

 

 

 

 

 

 

 

 

 

     Non owner-occupied

$

$

3,097 

$

260 

     All other CRE

 

 

237 

 

3,847 

  Acquisition and development

 

 

 

 

 

 

 

 

 

     1-4 family residential construction

 

 

 

700 

     All other A&D

 

 

372 

 

1,746 

  Commercial and industrial

 

 

930 

 

  Residential mortgage

 

 

 

 

 

 

 

 

 

     Residential mortgage – term

 

156 

 

741 

 

116 

     Residential mortgage – home equity

 

 

 

  Consumer

 

 

 

        Total

$

156 

$

5,377  10 

$

6,669 



 

 

 

 

 

 

 

 

 

For the year ended December 31, 2014

 

 

 

 

 

 

 

 

 

  Commercial real estate

 

 

 

 

 

 

 

 

 

     Non owner-occupied

$

$

277 

$

     All other CRE

 

 

 

2,627 

  Acquisition and development

 

 

 

 

 

 

 

 

 

     1-4 family residential construction

 

 

 

790 

     All other A&D

 

 

 

1,782 

  Commercial and industrial

 

 

 

  Residential mortgage

 

 

 

 

 

 

 

 

 

     Residential mortgage – term

 

160 

 

233 

 

     Residential mortgage – home equity

 

 

 

  Consumer

 

 

 

        Total

$

160 

$

510 

$

5,199 



During the year ended December 31, 2015, there were nine new TDRs.  In addition, 11 existing TDRs which had reached their original modification maturity were re-modified.  A $7,541 reduction of the ALL resulted from a change to the impairment evaluation of three loans, from evaluated collectively to being evaluated individually. The remaining new TDRs were impaired at the time of modification, resulting in no impact to the ALL as a result of the modification. There was no impact to the recorded investment relating to the transfer of these loans.



During the year ended December 31, 2015, activity relating to payment defaults included one mortgage loan totaling $.1 million that was transferred to OREO in the third quarter; and two mortgage loans totaling $.2 million that were transferred to non-accrual in the fourth quarter.  During the year ended December 31, 2014, activity relating to payment defaults included three A&D loans totaling $1.6 million that were transferred to OREO in the fourth quarter; and a $.2 million C&I loan and a $.4 million owner-occupied CRE loan that were transferred to non-accrual in the third quarter. 



At December 31, 2015 and 2014, additional funds of up to $11,200 and $10,400, respectively, were committed to be advanced in connection with TDRs.