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Note 5 - Allowance for Loan Losses, Nonperforming Assets and Impaired Loans
 12 Months Ended
Dec. 31, 2018
Notes to Financial Statements  
Allowance for Credit Losses [Text Block]
Note
5:
Allowance for Loan Losses, Nonperforming Assets and Impaired Loans
The allowance for loan losses methodology incorporates individual evaluation of impaired loans and collective evaluation of groups of non-impaired loans. The Company performs ongoing analysis of the loan portfolio to determine credit quality and to identify impaired loans. Credit quality is rated based on the loan’s payment history, the borrower’s current financial situation and value of the underlying collateral.
 
Impaired Loans
Loans are designated as impaired when, in the judgment of management based on current information and events, it is probable that all amounts will
not
be collected when due according to the contractual terms of the loan agreement. Impaired loans are those loans that have been modified in a troubled debt restructure (“TDR” or “restructure”) and larger, usually non-homogeneous loans that are in nonaccrual or exhibit payment history or financial status that indicate that collection probably will
not
occur when due according to the loan’s terms. Generally, impaired loans are given risk ratings that indicate higher risk, such as “classified” or “special mention.” Impaired loans are individually evaluated to determine appropriate reserves and are measured at the lower of the invested amount or the fair value. Impaired loans that are
not
troubled debt restructures and for which fair value measurement indicates an impairment loss are designated nonaccrual. A restructured loan that maintains current status for at least
six
months
may
be in accrual status. Please refer to Note
1:
Summary of Significant Accounting Policies for additional information on evaluation of impaired loans and associated specific reserves, and policies regarding nonaccruals, past due status and charge-offs.
Troubled debt restructurings impact the estimation of the appropriate level of the allowance for loan losses. If the restructuring included forgiveness of a portion of principal or accrued interest, the charge-off is included in the historical charge-off rates applied to the collective evaluation methodology. Restructured loans are individually evaluated for impairment, and the amount of a restructured loan’s book value in excess of its fair value is accrued as a specific allocation in the allowance for loan losses. If a TDR loan payment exceeds
90
days past due, it is examined to determine whether the late payment indicates collateral dependency or cash flows below those that were used in the fair value measurement. TDRs, as well as all impaired loans, that are determined to be collateral dependent are charged down to fair value. Deficiencies indicated by impairment measurements for TDRs that are
not
collateral dependent
may
be accrued in the allowance for loan losses or charged off if deemed uncollectible.
 
Collectively-Evaluated Loans
The Company evaluated characteristics in the loan portfolio and determined major segments and smaller classes within each segment. These characteristics include collateral type, repayment sources, and (if applicable) the borrower’s business model. The methodology for calculating reserves for collectively-evaluated loans is applied at the class level.
 
Portfolio Segments and Classes
The segments and classes used in determining the allowance for loan losses are as follows.
Real Estate Construction
Construction, residential
Construction, other
 
Consumer Real Estate
Equity lines
Residential closed-end
first
liens
Residential closed-end junior liens
Investor-owned residential real estate
 
Commercial Real Estate
Multifamily real estate
Commercial real estate, owner-occupied
Commercial real estate, other
Commercial Non Real Estate
Commercial and Industrial
 
Public Sector and IDA
Public sector and IDA
 
Consumer Non Real Estate
Credit cards
Automobile
Other consumer loans
 
Historical Loss Rates
The Company’s allowance methodology for collectively-evaluated loans applies historical loss rates by class to current class balances as part of the process of determining required reserves. Class loss rates are calculated as the net charge-offs for the class as a percentage of average class balance. The Company averages loss rates for the most recent
8
quarters to determine the historical loss rate for each class.
Two loss rates for each class are calculated: total net charge-offs for the class as a percentage of average class loan balance (“class loss rate”), and total net charge-offs for the class as a percentage of average classified loans in the class (“classified loss rate”). Classified loans are those with risk ratings of “substandard” or lower. Net charge-offs in both calculations include charge-offs and recoveries of classified and non-classified loans as well as those associated with impaired loans. Class historical loss rates are applied to non-classified loan balances at the reporting date, and classified historical loss rates are applied to classified balances at the reporting date.
 
Risk Factors
In addition to historical loss rates, risk factors pertinent to credit risk for each class are analyzed to estimate reserves for collectively-evaluated loans. Factors include changes in national and local economic and business conditions, the nature and volume of classes within the portfolio, loan quality, loan officers’ experience, lending policies and the Company’s loan review system.
 
The analysis of certain factors results in standard allocations to all segments and classes. These factors include the risk from changes in lending policies, loan officers’ average years of experience, unemployment levels, bankruptcy rates, interest rate environment, and competition/legal/regulatory environments. Factors analyzed for each class, with resultant allocations based upon the level of risk assessed for each class, include the risk from changes in loan review, levels of past due loans, levels of nonaccrual loans, current class balance as a percentage of total loans, and the percentage of high risk loans within the class. Additionally, factors specific to each segment are analyzed and result in allocations to the segment. Please refer to Note
1:
Summary of Significant Accounting Policies of Form
10
-K for a discussion of risk factors pertinent to each class.
Real estate construction loans are subject to general risks from changing commercial building and housing market trends and economic conditions that
may
impact demand for completed properties and the costs of completion. These risks are measured by market-area unemployment rates, bankruptcy rates, building market trends, and interest rates.
The credit quality of consumer real estate is subject to risks associated with the borrower’s repayment ability and collateral value, measured generally by analyzing local unemployment and bankruptcy trends, local housing market trends, and interest rates.
The commercial real estate segment includes loans secured by multifamily residential real estate, commercial real estate occupied by the owner/borrower, and commercial real estate leased to non-owners. Loans in the commercial real estate segment are impacted by economic risks from changing commercial real estate markets, rental markets for multi-family housing and commercial buildings, business bankruptcy rates, local unemployment and interest rate trends that would impact the businesses housed by the commercial real estate.
Commercial non real estate loans are secured by collateral other than real estate, or are unsecured. Credit risk for commercial non real estate loans is subject to economic conditions, generally monitored by local business bankruptcy trends, and interest rates.
Public sector and IDA loans are extended to municipalities and related entities. Credit risk is based upon the entity’s ability to repay and interest rate trends.
Consumer non real estate includes credit cards, automobile and other consumer loans. Credit cards and certain other consumer loans are unsecured, while collateral is obtained for automobile loans and other consumer loans. Credit risk stems primarily from the borrower’s ability to repay, measured by average unemployment, average personal bankruptcy rates and interest rates.
Factor allocations applied to each class are increased for loans rated special mention and increased to a greater extent for loans rated classified. The Company allocates additional reserves for “high risk” loans. High risk loans include junior liens, interest only and high loan to value loans.
 
A detailed analysis showing the allowance roll-forward by portfolio segment and related loan balance by segment follows:
 
   
Activity in the Allowance for Loan Losses by Segment for the year ended December 31, 2018
   
Real Estate Construction
  
Consumer
Real Estate
  
Commercial
Real Estate
  
Commercial
Non Real
Estate
  
Public
Sector and
IDA
  
Consumer Non
Real Estate
  
Unallocated
  
Total
Balance, December 31, 2017
  
$
337
    
$
2,027
    
$
3,044
    
$
1,072
    
$
419
    
$
707
    
$
319
    
$
7,925
  
Charge-offs
  
 
---
    
 
(38
)
  
 
---
    
 
(107
)
  
 
---
    
 
(544
)
  
 
---
    
 
(689
)
Recoveries
  
 
---
    
 
3
    
 
49
    
 
22
    
 
---
    
 
161
    
 
---
    
 
235
  
Provision for (recovery of) loan losses
  
 
61
    
 
57
    
 
(295
)
  
 
(385
)
  
 
164
    
 
426
    
 
(109
)
  
 
(81
)
Balance, December 31, 2018
  
$
398
    
$
2,049
    
$
2,798
    
$
602
    
$
583
    
$
750
    
$
210
    
$
7,390
  
 
   
Activity in the Allowance for Loan Losses by Segment for the year ended December 31, 201
7
   
Real Estate Construction
  
Consumer
Real Estate
  
Commercial
Real Estate
  
Commercial
Non Real
Estate
  
Public
Sector and
IDA
  
Consumer Non
Real Estate
  
Unallocated
  
Total
Balance, December 31, 2016
   $
438
     $
1,830
     $
3,738
     $
1,063
     $
330
     $
644
     $
257
     $
8,300
  
Charge-offs
    
---
      
(146
)
    
(139
)
    
(82
)
    
---
      
(452
)
    
---
      
(819
)
Recoveries
    
---
      
1
      
131
      
23
      
---
      
132
      
---
      
287
  
Provision for (recovery of) loan losses
    
(101
)
    
342
      
(686
)
    
68
      
89
      
383
      
62
      
157
  
Balance, December 31, 201
7
   $
337
     $
2,027
     $
3,044
     $
1,072
     $
419
     $
707
     $
319
     $
7,925
  
 
 
   
Activity in the Allowance for Loan Losses by Segment for the year ended December 31, 201
6
   
Real Estate Construction
  
Consumer
Real Estate
  
Commercial
Real Estate
  
Commercial
Non Real
Estate
  
Public
Sector and
IDA
  
Consumer Non
Real Estate
  
Unallocated
  
Total
Balance, December 31, 2015
   $
576
     $
1,866
     $
4,109
     $
655
     $
436
     $
627
     $
28
     $
8,297
  
Charge-offs
    
(29
)
    
(133
)
    
(488
)
    
(883
)
    
---
      
(273
)
    
---
      
(1,806
)
Recoveries
    
---
      
2
      
83
      
10
      
---
      
64
      
---
      
159
  
Provision for (recovery of) loan losses
    
(109
)
    
95
      
34
      
(1,281
)
    
(106
)
    
226
      
229
      
1,650
  
Balance, December 31, 2016
   $
438
     $
1,830
     $
3,738
     $
1,063
     $
330
     $
644
     $
257
     $
8,300
  
 
   
Allowance for Loan Losses by Segment and Evaluation Method as of
   
December 31, 201
8
   
Real Estate Construction
  
Consumer
Real Estate
  
Commercial
Real Estate
  
Commercial
Non Real
Estate
  
Public
Sector and
IDA
  
Consumer Non
Real Estate
  
Unallocated
  
Total
Individually evaluated for impairment
  
$
---
    
$
4
    
$
---
    
$
135
    
$
---
    
$
---
    
$
---
    
$
139
  
Collectively evaluated for impairment
  
 
398
    
 
2,045
    
 
2,798
    
 
467
    
 
583
    
 
750
    
 
210
    
 
7,251
  
Total
  
$
398
    
$
2,049
    
$
2,798
    
$
602
    
$
583
    
$
750
    
$
210
    
$
7,390
  
 
   
Loans by Segment and Evaluation Method as of
   
December 31, 201
8
   
Real Estate Construction
  
Consumer
Real Estate
  
Commercial
Real Estate
  
Commercial
Non Real
Estate
  
Public
Sector and
IDA
  
Consumer Non
Real Estate
  
Unallocated
  
Total
Individually evaluated for impairment
  
$
---
    
$
1,452
    
$
4,340
    
$
1,015
    
$
---
    
$
13
    
$
---
    
$
6,820
  
Collectively evaluated for impairment
  
 
37,845
    
 
174,004
    
 
349,206
    
 
45,520
    
 
60,777
    
 
36,225
    
 
---
    
 
703,577
  
Total
  
$
37,845
    
$
175,456
    
$
353,546
    
$
46,535
    
$
60,777
    
$
36,238
    
$
---
    
$
710,397
  
 
   
Allowance for Loan Losses by Segment and Evaluation Method as of
   
December 31, 201
7
   
Real Estate Construction
  
Consumer
Real Estate
  
Commercial
Real Estate
  
Commercial
Non Real
Estate
  
Public
Sector and
IDA
  
Consumer Non
Real Estate
  
Unallocated
  
Total
Individually evaluated for impairment
   $
---
     $
16
     $
---
     $
160
     $
---
     $
1
     $
---
     $
177
  
Collectively evaluated for impairment
    
337
      
2,011
      
3,044
      
912
      
419
      
706
      
319
      
7,748
  
Total
   $
337
     $
2,027
     $
3,044
     $
1,072
     $
419
     $
707
     $
319
     $
7,925
  
 
 
   
Loans by Segment and Evaluation Method as of
   
December 31, 201
7
   
Real Estate Construction
  
Consumer
Real Estate
  
Commercial
Real Estate
  
Commercial
Non Real
Estate
  
Public
Sector and
IDA
  
Consumer Non
Real Estate
  
Unallocated
  
Total
Individually evaluated for impairment
   $
2,882
     $
1,267
     $
6,516
     $
1,229
     $
---
     $
30
     $
---
     $
11,924
  
Collectively evaluated for impairment
    
31,812
      
165,698
      
333,898
      
39,289
      
51,443
      
34,618
      
---
      
656,758
  
Total
   $
34,694
     $
166,965
     $
340,414
     $
40,518
     $
51,443
     $
34,648
     $
---
     $
668,682
  
 
A summary of ratios for the allowance for loan losses follows:
 
   
December 31,
   
2018
  
2017
Ratio of allowance for loan losses to the end of period loans, net of unearned income and deferred fees and costs
  
 
1.04
%
    
1.19
%
Ratio of net charge-offs to average loans, net of unearned income and deferred fees and costs
  
 
0.07
%
    
0.08
%
 
A summary of nonperforming assets follows:
 
   
December 31,
   
2018
  
2017
Nonperforming assets:
                
Nonaccrual loans
  
$
311
     $
6
  
Restructured loans in nonaccrual
  
 
3,109
      
2,763
  
Total nonperforming loans
  
 
3,420
      
2,769
  
Other real estate owned, net
  
 
2,052
      
2,817
  
Total nonperforming assets
  
$
5,472
     $
5,586
  
Ratio of nonperforming assets to loans, net of unearned income and deferred fees and costs, plus other real estate owned
  
 
0.77
%
    
0.83
%
Ratio of allowance for loan losses to nonperforming loans
(1)
 
 
216.08
%
    
286.20
%
 
 
(
1
)
The Company defines nonperforming loans as total nonaccrual and restructured loans that are nonaccrual. Loans
90
days past due and still accruing and accruing restructured loans are excluded.
 
A summary of loans past due
90
days or more and impaired loans follows:
 
   
December 31,
   
2018
  
2017
Loans past due 90 days or more and still accruing
  
$
35
     $
51
  
Ratio of loans past due 90 days or more and still accruing to loans, net of unearned income and deferred fees and costs
  
 
0.00
%
    
0.01
%
Accruing restructured loans
  
$
2,552
     $
5,134
  
Impaired loans:
                
Impaired loans with no valuation allowance
  
$
5,667
     $
10,444
  
Impaired loans with a valuation allowance
  
 
1,153
      
1,480
  
Total impaired loans
  
$
6,820
     $
11,924
  
Valuation allowance
  
$
(139
)
   $
(177
)
Impaired loans, net of allowance
  
$
6,681
     $
11,747
  
Average recorded investment in impaired loans
(1)
  
$
9,788
     $
13,344
  
Income recognized on impaired loans, after designation as impaired
  
$
250
     $
528
  
Amount of income recognized on a cash basis
  
$
---
     $
---
  
 
 
(
1
)
Recorded investment is net of charge-offs and interest paid while a loan is in nonaccrual status.
 
No
interest income was recognized on nonaccrual loans for the years ended
December 31, 2018,
2017
or
2016.
Nonaccrual loans that meet the Company’s balance thresholds are designated as impaired.
 
A detailed analysis of investment in impaired loans, associated reserves and interest income recognized, by loan class follows:
 
   
Impaired Loans as of December 31, 2018
   
Principal
Balance
 
(A)
Total
Recorded
Investment
(1)
  
Recorded
Investment
(1)
in (A)
for Which There is
No Related
Allowance
  
Recorded
Investment
(1)
in
(A) for Which
There is a Related
Allowance
  
Related
Allowance
Consumer Real Estate
(2)
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Residential closed-end first liens
  
$
728
    
$
719
    
$
719
    
$
---
    
$
---
  
Residential closed-end junior liens
  
 
144
    
 
143
    
 
---
    
 
143
    
 
4
  
Investor-owned residential real estate
  
 
593
    
 
590
    
 
590
    
 
---
    
 
---
  
Commercial Real Estate
(2)
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Multifamily real estate
  
 
485
    
 
483
    
 
483
    
 
---
    
 
---
  
Commercial real estate, owner occupied
  
 
1,363
    
 
1,363
    
 
1,363
    
 
---
    
 
---
  
Commercial real estate, other
  
 
2,867
    
 
2,494
    
 
2,494
    
 
---
    
 
---
  
Commercial Non Real Estate
(2)
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Commercial and Industrial
  
 
1,018
    
 
1,015
    
 
5
    
 
1,010
    
 
135
  
Consumer Non Real Estate
(2)
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Automobile
  
 
13
    
 
13
    
 
13
    
 
---
    
 
---
  
Total
  
$
7,211
    
$
6,820
    
$
5,667
    
$
1,153
    
$
139
  
 
 
   
Impaired Loans as of December 31, 2017
   
Principal
Balance
 
(A)
Total
Recorded
Investment
(1)
  
Recorded
Investment
(1)
in (A)
for Which There is
No Related
Allowance
  
Recorded
Investment
(1)
in
(A) for Which
There is a Related
Allowance
  
Related
Allowance
Real Estate Construction
(2)
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Construction other
   $
2,882
     $
2,882
     $
2,882
     $
---
     $
---
  
Consumer Real Estate
(2)
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Residential closed-end first liens
    
807
      
768
      
590
      
178
      
10
  
Residential closed-end junior liens
    
174
      
174
      
---
      
174
      
6
  
Investor-owned residential real estate
    
347
      
325
      
325
      
---
      
---
  
Commercial Real Estate
(2)
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Multifamily real estate
    
303
      
303
      
303
      
---
      
---
  
Commercial real estate, owner occupied
    
3,619
      
3,611
      
3,611
      
---
      
---
  
Commercial real estate, other
    
2,921
      
2,602
      
2,602
      
---
      
---
  
Commercial Non Real Estate
(2)
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Commercial and Industrial
    
1,236
      
1,229
      
126
      
1,103
      
160
  
Consumer Non Real Estate
(2)
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Automobile
    
30
      
30
      
5
      
25
      
1
  
Total
   $
12,319
     $
11,924
     $
10,444
     $
1,480
     $
177
  
 
 
(
1
)
Recorded investment is net of charge-offs and interest paid while a loan is in nonaccrual status.
 
(
2
)
Only classes with impaired loans are shown.
 
 
   
Average Investment and Interest Income for
Impaired Loans
For the Year Ended
December 31, 2018
   
Average Recorded
Investment
(1)
  
Interest Income
Recognized
Consumer Real Estate
(2)
  
 
 
 
  
 
 
 
Residential closed-end first liens
  
 
1,202
    
 
41
  
Residential closed-end junior liens
  
 
159
    
 
9
  
Investor-owned residential real estate
  
 
808
    
 
23
  
Commercial Real Estate
(2)
  
 
 
 
  
 
 
 
Multifamily real estate
  
 
491
    
 
20
  
Commercial real estate, owner occupied
  
 
3,038
    
 
75
  
Commercial real estate, other
  
 
2,744
    
 
54
  
Commercial Non Real Estate
(2)
  
 
 
 
  
 
 
 
Commercial and Industrial
  
 
1,326
    
 
27
  
Consumer Non Real Estate
(2)
  
 
 
 
  
 
 
 
Automobile
  
 
20
    
 
1
  
Total
  
$
9,788
    
$
250
  
 
 
(
1
)
Recorded investment is net of charge-offs and interest paid while a loan is in nonaccrual status.
 
(
2
)
Only classes with impaired loans are shown.
 
   
Average Investment and Interest Income for
Impaired Loans
For the Year Ended
December 31, 2017
   
Average Recorded
Investment
(1)
  
Interest Income
Recognized
Real Estate Construction
(2)
  
 
 
 
  
 
 
 
Construction other
   $
3,298
     $
177
  
Consumer Real Estate
(2)
  
 
 
 
  
 
 
 
Residential closed-end first liens
    
781
      
57
  
Residential closed-end junior liens
    
185
      
11
  
Investor-owned residential real estate
    
329
      
1
  
Commercial Real Estate
(2)
  
 
 
 
  
 
 
 
Multifamily real estate
    
748
      
16
  
Commercial real estate, owner occupied
    
4,047
      
200
  
Commercial real estate, other
    
2,638
      
---
  
Commercial Non Real Estate
(2)
  
 
 
 
  
 
 
 
Commercial and Industrial
    
1,282
      
64
  
Consumer Non Real Estate
(2)
  
 
 
 
  
 
 
 
Automobile
    
36
      
2
  
Total
   $
13,344
     $
528
  
 
 
(
1
)
Recorded investment is net of charge-offs and interest paid while a loan is in nonaccrual status.
 
(
2
)
Only classes with impaired loans are shown.
 
 
   
Average Investment and Interest Income for
Impaired Loans
For the Year Ended
December 31, 2016
   
Average Recorded
Investment
(1)
  
Interest Income
Recognized
Real Estate Construction
(2)
  
 
 
 
  
 
 
 
Construction 1-4 family residential
   $
462
     $
10
  
Consumer Real Estate
(2)
  
 
 
 
  
 
 
 
Residential closed-end first liens
    
642
      
38
  
Residential closed-end junior liens
    
207
      
13
  
Investor-owned residential real estate
    
74
      
4
  
Commercial Real Estate
(2)
  
 
 
 
  
 
 
 
Multifamily real estate
    
1,366
      
12
  
Commercial real estate, owner occupied
    
4,342
      
206
  
Commercial real estate, other
    
3,947
      
263
  
Commercial Non Real Estate
(2)
  
 
 
 
  
 
 
 
Commercial and Industrial
    
541
      
7
  
Consumer Non Real Estate
(2)
  
 
 
 
  
 
 
 
Automobile
    
4
      
---
  
Total
   $
11,585
     $
553
  
 
 
(
1
)
Recorded investment is net of charge-offs and interest paid while a loan is in nonaccrual status.
 
(
2
)
Only classes with impaired loans are shown.
 
An analysis of past due and nonaccrual loans follows:
 
December 31, 2018
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
   
30 – 89
Days Past
Due
 
90 or More
Days Past Due
  
90 or More
Days Past Due
and Still
Accruing
  
Nonaccruals
(Including
Impaired
Nonaccruals)
Consumer Real Estate
(1)
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Residential closed-end first liens
  
 
647
    
 
119
    
 
---
    
 
278
  
Residential closed-end junior liens
  
 
11
    
 
---
    
 
---
    
 
---
  
Investor-owned residential real estate
  
 
---
    
 
---
    
 
---
    
 
451
  
Commercial Real Estate
(1)
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Multifamily real estate
  
 
291
    
 
192
    
 
---
    
 
192
  
Commercial real estate, owner occupied
  
 
325
    
 
---
    
 
---
    
 
---
  
Commercial real estate, other
  
 
---
    
 
---
    
 
---
    
 
2,494
  
Commercial Non Real Estate
(1)
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Commercial and Industrial
  
 
10
    
 
2
    
 
2
    
 
5
  
Consumer Non Real Estate
(1)
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Credit cards
  
 
5
    
 
---
    
 
---
    
 
---
  
Automobile
  
 
296
    
 
29
    
 
29
    
 
---
  
Other consumer loans
  
 
50
    
 
4
    
 
4
    
 
---
  
Total
  
$
1,635
    
$
346
    
$
35
    
$
3,420
  
 
 
December 31, 2017
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
   
30 – 89
Days Past
Due
 
90 or More
Days Past Due
  
90 or More
Days Past Due
and Still
Accruing
  
Nonaccruals
(Including
Impaired
Nonaccruals)
Consumer Real Estate
(1)
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Residential closed-end first liens
    
637
      
16
      
11
      
145
  
Residential closed-end junior liens
    
188
      
---
      
---
      
---
  
Investor-owned residential real estate
    
66
      
---
      
---
      
6
  
Commercial Real Estate
(1)
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Multifamily real estate
    
303
      
---
      
---
      
---
  
Commercial real estate, owner occupied
    
402
      
---
      
---
      
---
  
Commercial real estate, other
    
---
      
2,602
      
---
      
2,602
  
Commercial Non Real Estate
(1)
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Commercial and Industrial
    
131
      
---
      
---
      
15
  
Consumer Non Real Estate
(1)
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Credit cards
    
7
      
12
      
12
      
---
  
Automobile
    
375
      
22
      
22
      
1
  
Other consumer loans
    
154
      
6
      
6
      
---
  
Total
   $
2,263
     $
2,658
     $
51
     $
2,769
  
 
 
(
1
)
Only classes with past due or nonaccrual loans are presented
 
The estimate of credit risk for non-impaired loans is obtained by applying allocations for internal and external factors. The allocations are increased for loans that exhibit greater credit quality risk.
Credit quality indicators, which the Company terms risk grades, are assigned through the Company’s credit review function for larger loans and selective review of loans that fall below credit review thresholds. Loans that do
not
indicate heightened risk are graded as “pass.” Loans that appear to have elevated credit risk because of frequent or persistent past due status, which is less than
75
days, or that show weakness in the borrower’s financial condition are risk graded “special mention.” Loans with frequent or persistent delinquency exceeding
75
days or that have a higher level of weakness in the borrower’s financial condition are graded “classified.” Classified loans have regulatory risk ratings of “substandard” and “doubtful.” Allocations are increased by
50%
and by
100%
for loans with grades of “special mention” and “classified,” respectively.
 
Determination of risk grades was completed for the portfolio as of
December 31, 2018
and
2017.
 
The following displays non-impaired gross loans by credit quality indicator:
 
December 31, 2018
   
Pass
  
Special
Mention
(Excluding
Impaired)
  
Classified
(Excluding
Impaired)
Real Estate Construction
  
 
 
 
  
 
 
 
  
 
 
 
Construction, 1-4 family residential
  
$
9,264
    
$
---
    
$
---
  
Construction, other
  
 
28,560
    
 
21
    
 
---
  
Consumer Real Estate
  
 
 
 
  
 
 
 
  
 
 
 
Equity lines
  
 
16,026
    
 
38
    
 
---
  
Closed-end first liens
  
 
92,253
    
 
994
    
 
582
  
Closed-end junior liens
  
 
3,954
    
 
---
    
 
---
  
Investor-owned residential real estate
  
 
60,157
    
 
---
    
 
---
  
Commercial Real Estate
  
 
 
 
  
 
 
 
  
 
 
 
Multifamily residential real estate
  
 
98,582
    
 
---
    
 
---
  
Commercial real estate owner-occupied
  
 
123,225
    
 
211
    
 
32
  
Commercial real estate, other
  
 
127,156
    
 
---
    
 
---
  
Commercial Non Real Estate
  
 
 
 
  
 
 
 
  
 
 
 
Commercial and Industrial
  
 
45,420
    
 
54
    
 
46
  
Public Sector and IDA
  
 
 
 
  
 
 
 
  
 
 
 
States and political subdivisions
  
 
60,777
    
 
---
    
 
---
 
Consumer Non Real Estate
  
 
 
 
  
 
 
 
  
 
 
 
Credit cards
  
 
5,724
    
 
---
    
 
---
  
Automobile
  
 
18,598
    
 
133
    
 
71
  
Other consumer
  
 
11,691
    
 
4
    
 
4
  
Total
  
$
701,387
    
$
1,455
    
$
735
  
 
December 31,
201
7
   
Pass
  
Special
Mention
(Excluding
Impaired)
  
Classified
(Excluding
Impaired)
Real Estate Construction
  
 
 
 
  
 
 
 
  
 
 
 
Construction, 1-4 family residential
   $
10,396
     $
---
     $
---
  
Construction, other
    
21,416
      
---
      
---
  
Consumer Real Estate
  
 
 
 
  
 
 
 
  
 
 
 
Equity lines
    
16,673
      
39
      
---
  
Closed-end first liens
    
85,975
      
2,400
      
355
  
Closed-end junior liens
    
4,483
      
29
      
12
  
Investor-owned residential real estate
    
55,410
      
66
      
256
  
Commercial Real Estate
  
 
 
 
  
 
 
 
  
 
 
 
Multifamily residential real estate
    
95,894
      
127
      
---
  
Commercial real estate owner-occupied
    
130,256
      
246
      
763
  
Commercial real estate, other
    
106,612
      
---
      
--
  
Commercial Non Real Estate
  
 
 
 
  
 
 
 
  
 
 
 
Commercial and Industrial
    
38,904
      
220
      
165
  
Public Sector and IDA
  
 
 
 
  
 
 
 
  
 
 
 
States and political subdivisions
    
51,443
      
---
      
---
  
Consumer Non Real Estate
  
 
 
 
  
 
 
 
  
 
 
 
Credit cards
    
5,493
      
---
      
---
  
Automobile
    
16,059
      
218
      
116
  
Other consumer
    
12,692
      
16
      
24
  
Total
   $
651,706
     $
3,361
     $
1,691
  
 
Sales, Purchases and Reclassification of Loans
The Company finances mortgages under “best efforts” contracts with mortgage purchasers. The mortgages are designated as held for sale upon initiation. There have been
no
major reclassifications from portfolio loans to held for sale. Occasionally, the Company purchases or sells participations in loans. All participation loans purchased met the Company’s normal underwriting standards at the time the participation was entered. Participation loans are included in the appropriate portfolio balances to which the allowance methodology is applied.
 
Troubled Debt Restructurings
From time to time the Company modifies loans in troubled debt restructurings (“TDRs”). The following tables present restructurings by class that occurred during the years ended
December 31, 2018,
2017
and
2016.
 
Note: Only classes with restructured loans are presented.
 
   
Restructurings that occurred during the year ended
December 31, 2018
   
Number of
Contracts
  
Pre-
Modification
Outstanding
Recorded
Investment
  
Post-
Modification
Outstanding
Recorded
Investment
(1)
Construction Real Estate
  
 
 
 
  
 
 
 
  
 
 
 
Construction, other
  
 
2
    
$
2,882
    
$
2,882
  
Commercial Real Estate
  
 
 
 
  
 
 
 
  
 
 
 
Commercial real estate, owner occupied
  
 
2
    
 
715
    
 
715
  
Consumer Real Estate
  
 
 
 
  
 
 
 
  
 
 
 
Closed-end first liens
  
 
1
    
 
22
    
 
22
  
Investor-owned residential real estate
  
 
8
    
 
594
    
 
594
  
Total
  
 
13
    
$
4,213
    
$
4,213
  
 
 
(
1
)
Post-modification outstanding recorded investment considers amounts immediately following the modification. Amounts do
not
reflect balances at the end of the period.
 
The Company restructured
13
loans during the
twelve
month period ended
December 31, 2018.
Each of the construction loans were restructured to extend the maturity and interest only period for each loan. As of
December 31, 2018,
the loans have been converted to permanent financing at market terms and are
no
longer considered TDR or individually evaluated for impairment.
Two commercial real estate loans were restructured to provide a
12
-month interest-only period without reducing the interest rate. When the interest-only period expires, the commercial real estate loans will be re-amortized for a longer term. The impairment measurements were based upon the present value of cash flows and did
not
result in a specific allocation for either loan.
The investor owned residential real estate loans were restructured to provide payment relief. Seven loans were restructured from amortizing to interest-only for a period of
12
months, when the loans will be reevaluated. The impairment measurements were based on the fair value of collateral and did
not
result in specific allocations. The other investor owned residential real estate restructure consolidated debt at a longer term, provided a rate reduction and capitalized interest. The impairment measurement was based upon the present value of cash flows and did
not
result in a specific allocation. The loan is in nonaccrual status and all payments made during the nonaccrual period are credited fully to principal, reducing the book balance below the present value of cash flows.
One residential closed-end
first
lien loan was restructured to provide payment relief by restructuring from amortizing to interest-only for a period of
12
months, when the loan will be reevaluated. The impairment measurement was based on the fair value of collateral and did
not
result in a specific allocation.
None
of the restructures completed during the
twelve
months ended
December 31, 2018
forgave principal or interest. 
 
 
   
Restructurings that occurred during the year ended
December 31, 201
7
   
Number of
Contracts
  
Pre-
Modification
Outstanding
Recorded
Investment
  
Post-
Modification
Outstanding
Recorded
Investment
(1)
Consumer Real Estate
  
 
 
 
  
 
 
 
  
 
 
 
Closed-end first lien
    
1
     $
8
     $
8
  
Commercial Real Estate
  
 
 
 
  
 
 
 
  
 
 
 
Commercial real estate, other
    
1
      
132
      
132
  
Commercial
Non
Real Estate
  
 
 
 
  
 
 
 
  
 
 
 
Commercial and industrial
    
4
      
1,221
      
1,221
  
Co
nsumer
Non Real Estate
  
 
 
 
  
 
 
 
  
 
 
 
Automobile
    
4
      
26
      
26
  
Total
    
10
     $
1,387
     $
1,387
  
 
 
(
1
)
Post-modification outstanding recorded investment considers amounts immediately following the modification. Amounts do
not
reflect balances at the end of the period.
 
Each of the restructurings completed during the
twelve
months ended
December 31, 2017
provided payment relief to the borrowers. The consumer real estate loan was modified to provide payment relief by extending the term. Impairment measurement was based on the present value of cash flows and did
not
result in a specific allocation.
The commercial real estate loan restructuring reduced debt service by lowering the interest rate slightly and changing the interest method from variable to fixed. Interest was capitalized and the loan was re-amortized over a longer term. Impairment measurement, based on the present value of cash flows, did
not
result in a specific allocation. The loan is in nonaccrual status and all payments made during the nonaccrual period are credited fully to principal, reducing the book balance below the present value of cash flows.
The
four
commercial non-real estate loans were restructured to reduce monthly debt service by increasing the amortization period.
Three
of the commercial non-real estate loans received rate reductions, and on
one
commercial non-real estate loan, the interest method was changed from variable to fixed. Impairment measurement, based on the present value of cash flows, indicated a specific reserve for
two
of the commercial non-real estate loans.
The
four
automobile loans were restructured pursuant to Chapter
13
bankruptcy requirements, reducing the interest rate and re-amortizing over a longer term to provide monthly debt service relief. One automobile loan restructuring included forgiveness of a small amount of principal to comply with the bankruptcy plan. Impairment measurement for all the restructured automobile loans was based on the present value of cash flows method and resulted in small specific allocations for each loan which totaled
$1.
 
   
Restructurings that occurred during the year ended
December 31, 201
6
   
Number of
Contracts
  
Pre-
Modification
Outstanding
Recorded
Investment
  
Post-
Modification
Outstanding
Recorded
Investment
(1)
Commercial Real Estate
  
 
 
 
  
 
 
 
  
 
 
 
Commercial real estate, other
    
2
     $
3,008
     $
3,008
  
Commercial
Non
Real Estate
  
 
 
 
  
 
 
 
  
 
 
 
Commercial and industrial
    
1
      
29
      
30
  
Consumer
Non Real Estate
  
 
 
 
  
 
 
 
  
 
 
 
Automobile
    
1
      
5
      
5
  
Total
    
4
     $
3,042
     $
3,043
  
 
 
(
1
)
Post-modification outstanding recorded investment considers amounts immediately following the modification. Amounts do
not
reflect balances at the end of the period.
 
During the
twelve
-month period ended
December 31, 2016,
the Company identified
four
loans as troubled debt restructurings.
Two
commercial real estate loans were originally modified in troubled debt restructurings in
2014
to provide payment relief by lowering the interest rate and allowing interest-only payments. The restructurings completed in
2016
lowered the interest rate from the
2014
restructured terms and returned the loans to amortization with payments of principal and interest. The loans were in nonaccrual status prior to the
2016
restructuring and will remain in nonaccrual until they have met the Company's policy to return to accrual status. The Company also identified during the year ended
December 31, 2016
one
commercial non-real estate loan and
one
automobile loan modified in troubled debt restructurings. The modifications provided payment relief by extending the maturity date and capitalizing interest. The loans are in nonaccrual status. Each of the
four
troubled debt restructurings are collateral dependent and the fair value is measured using the collateral method. Impairment measurement did
not
result in any specific allocations.
Of the Company’s TDR’s that defaulted in
2018,
2017
and
2016,
none
were modified within
12
months prior to default. The company defines default as
one
or more payments that occur more than
90
days past the due date, charge-off or foreclosure.