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LOANS AND ALLOWANCE FOR LOAN LOSSES
 12 Months Ended
Dec. 31, 2019
Receivables [Abstract]  
LOANS AND ALLOWANCE FOR LOAN LOSSES LOANS AND ALLOWANCE FOR LOAN LOSSES
The Company’s loan portfolio is grouped into classes to allow management to monitor the performance by the borrower and to monitor the yield on the portfolio. Consistent with ASU 2010-20, Disclosures about the Credit Quality of Financing Receivables and the Allowance for Loan Losses, the segments are further broken down into classes to allow for differing risk characteristics within a segment.
The risks associated with lending activities differ among the various loan classes and are subject to the impact of changes in interest rates, market conditions of collateral securing the loans, and general economic conditions. All of these factors may adversely impact both the borrower’s ability to repay its loans and associated collateral.
The Company has various types of commercial real estate loans, which have differing levels of credit risk. Owner occupied commercial real estate loans are generally dependent upon the successful operation of the borrower’s business, with the cash flows generated from the business being the primary source of repayment of the loan. If the business suffers a downturn in sales or profitability, the borrower’s ability to repay the loan could be in jeopardy.
Non-owner occupied and multi-family commercial real estate loans and non-owner occupied residential loans present a different credit risk to the Company than owner occupied commercial real estate loans, as the repayment of the loan is dependent upon the borrower’s ability to generate a sufficient level of occupancy to produce rental income that exceeds debt service requirements and operating expenses. Lower occupancy or lease rates may result in a reduction in cash flows, which hinders the ability of the borrower to meet debt service requirements, and may result in lower collateral values. The Company generally recognizes that greater risk is inherent in these credit relationships as compared to owner occupied loans mentioned above.
Acquisition and development loans consist of 1-4 family residential construction and commercial and land development loans. The risk of loss on these loans is largely dependent on the Company’s ability to assess the property’s value at the completion of the project, which should exceed the property’s construction costs. During the construction phase, a number of factors could potentially negatively impact the collateral value, including cost overruns, delays in completing the project, competition, and real estate market conditions which may change based on the supply of similar properties in the area. In the event the collateral value at the completion of the project is not sufficient to cover the outstanding loan balance, the Company must rely upon other repayment sources, if any, including the guarantors of the project or other collateral securing the loan.
Commercial and industrial loans include advances to local and regional businesses for general commercial purposes and include permanent and short-term working capital, machinery and equipment financing, and may be either in the form of lines of credit or term loans. Although commercial and industrial loans may be unsecured to our highest-rated borrowers, the majority of these loans are secured by the borrower’s accounts receivable, inventory and machinery and equipment. In a significant number of these loans, the collateral also includes the business real estate or the business owner’s personal real estate or assets. Commercial and industrial loans present credit exposure to the Company, as they are more susceptible to risk of loss during a downturn in the economy as borrowers may have greater difficulty in meeting their debt service requirements and the value of the collateral may decline. The Company attempts to mitigate this risk through its underwriting standards, including evaluating the creditworthiness of the borrower and, to the extent available, credit ratings of the business. Additionally, monitoring of the loans through annual renewals and meetings with the borrowers are typical. However, these procedures cannot eliminate the risk of loss associated with commercial and industrial lending.
Municipal loans consist of extensions of credit to municipalities and school districts within the Company’s market area. These loans generally present a lower risk than commercial and industrial loans, as they are generally secured by the municipality’s full taxing authority, by revenue obligations, or by its ability to raise assessments on its clients for a specific utility.
The Company originates loans to its retail clients, including fixed-rate and adjustable first lien mortgage loans with the underlying 1-4 family owner occupied residential property securing the loan. The Company’s risk exposure is minimized in these types of loans through the evaluation of the creditworthiness of the borrower, including credit scores and debt-to-income ratios, and underwriting standards which limit the loan-to-value ratio to generally no more than 80% upon loan origination, unless the borrower obtains private mortgage insurance.
Home equity loans, including term loans and lines of credit, present a slightly higher risk to the Company than 1-4 family first liens, as these loans can be first or second liens on 1-4 family owner occupied residential property, but can have loan-to-value ratios of no greater than 90% of the value of the real estate taken as collateral. The creditworthiness of the borrower is considered including credit scores and debt-to-income ratios.
Installment and other loans’ credit risk are mitigated through prudent underwriting standards, including evaluation of the creditworthiness of the borrower through credit scores and debt-to-income ratios and, if secured, the collateral value of the assets. These loans can be unsecured or secured by assets the value of which may depreciate quickly or may fluctuate, and may present a greater risk to the Company than 1-4 family residential loans.
The following table presents the loan portfolio by segment and class, excluding residential LHFS, at December 31, 2019 and 2018.
 
20192018
Commercial real estate:
Owner-occupied$170,884  $129,650  
Non-owner occupied361,050  252,794  
Multi-family106,893  78,933  
Non-owner occupied residential120,038  100,367  
Acquisition and development:
1-4 family residential construction15,865  7,385  
Commercial and land development41,538  42,051  
Commercial and industrial214,554  160,964  
Municipal47,057  50,982  
Residential mortgage:
First lien336,372  235,296  
Home equity – term14,030  12,208  
Home equity – lines of credit165,314  143,616  
Installment and other loans50,735  33,411  
Total loans (1)
$1,644,330  $1,247,657  
(1) Includes $395.9 million and $135.0 million of acquired loans at December 31, 2019 and 2018, respectively.
In order to monitor ongoing risk associated with its loan portfolio and specific loans within the segments, management uses an internal grading system. The first several rating categories, representing the lowest risk to the Bank, are combined and given a “Pass” rating. Management generally follows regulatory definitions in assigning criticized ratings to loans, including "Special Mention," "Substandard," "Doubtful" or "Loss." The Special Mention category includes loans that have potential weaknesses that may, if not monitored or corrected, weaken the asset or inadequately protect the Bank's position at some future date. These assets pose elevated risk, but their weakness does not yet justify a more severe, or classified rating. Substandard loans are classified as they have a well-defined weakness, or weaknesses that jeopardize liquidation of the debt. These loans are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. Substandard loans include loans that management has determined not to be impaired, as well as loans considered to be impaired. A Doubtful loan has a high probability of total or substantial loss, but because of specific pending events that may strengthen the asset, its classification as Loss is deferred. Loss loans are considered uncollectible, as the borrowers are often in bankruptcy, have suspended debt repayments, or have ceased business operations. Once a loan is classified as Loss, there is little prospect of collecting the loan’s principal or interest and it is charged-off.
The Company has a loan review policy and program which is designed to identify and monitor risk in the lending function. The Management ERM Committee, comprised of executive officers and loan department personnel, is charged with the oversight of overall credit quality and risk exposure of the Company's loan portfolio. This includes the monitoring of the lending activities of all Company personnel with respect to underwriting and processing new loans and the timely follow-up and corrective action for loans showing signs of deterioration in quality. A loan review program provides the Company with an
independent review of the commercial loan portfolio on an ongoing basis. Generally, consumer and residential mortgage loans are included in the Pass categories unless a specific action, such as extended delinquencies, bankruptcy, repossession or death of the borrower occurs, which heightens awareness as to a possible credit event.
Internal loan reviews are completed annually on all commercial relationships with a committed loan balance in excess of $500 thousand, which includes confirmation of risk rating by an independent credit officer. In addition, all commercial relationships greater than $500 thousand rated Substandard, Doubtful or Loss are reviewed quarterly and corresponding risk ratings are reaffirmed by the Company's Problem Loan Committee, with subsequent reporting to the Management ERM Committee and the Board of Directors.
The following summarizes the Company’s loan portfolio ratings based on its internal risk rating system at December 31, 2019 and 2018:
 
Pass
Special
Mention
Non-Impaired
Substandard
Impaired -
Substandard
DoubtfulPCI LoansTotal
December 31, 2019
Commercial real estate:
Owner-occupied$151,161  $4,513  $3,163  $5,872  $—  $6,175  $170,884  
Non-owner occupied342,753  17,152  —  —  —  1,145  361,050  
Multi-family100,361  4,822  682  345  —  683  106,893  
Non-owner occupied residential111,697  4,534  1,115  235  —  2,457  120,038  
Acquisition and development:
1-4 family residential construction15,865  —  —  —  —  —  15,865  
Commercial and land development39,939  206  1,393  —  —  —  41,538  
Commercial and industrial198,951  1,133  8,899  1,763  —  3,808  214,554  
Municipal42,649  4,408  —  —  —  —  47,057  
Residential mortgage:
First lien323,040  978  —  2,590  —  9,764  336,372  
Home equity – term13,774  74  149  13  —  20  14,030  
Home equity – lines of credit164,469  74  38  733  —  —  165,314  
Installment and other loans50,497  —  —  85  —  153  50,735  
$1,555,156  $37,894  $15,439  $11,636  $—  $24,205  $1,644,330  
December 31, 2018
Commercial real estate:
Owner-occupied$121,903  $3,024  $987  $1,880  $—  $1,856  $129,650  
Non-owner occupied242,136  10,008  —  —  —  650  252,794  
Multi-family71,482  5,886  717  131  —  717  78,933  
Non-owner occupied residential97,590  736  1,197  309  —  535  100,367  
Acquisition and development:
1-4 family residential construction
7,385  —  —  —  —  —  7,385  
Commercial and land development41,251  25  583  —  —  192  42,051  
Commercial and industrial150,286  2,278  2,940  286  —  5,174  160,964  
Municipal50,982  —  —  —  —  —  50,982  
Residential mortgage:
First lien229,971  —  —  2,877  —  2,448  235,296  
Home equity – term12,170  —  —  16  —  22  12,208  
Home equity – lines of credit142,638  165  15  798  —  —  143,616  
Installment and other loans33,229  15  1  —  —  166  33,411  
$1,201,023  $22,137  $6,440  $6,297  $—  $11,760  $1,247,657  
For commercial real estate, acquisition and development, and commercial and industrial loans, a loan is considered impaired when, based on current information and events, it is probable that the Company 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 determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Generally, loans that are more than 90 days past due are deemed impaired. 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 to determine if the loan should be placed on nonaccrual status. Nonaccrual loans in the commercial and commercial real estate portfolios and any TDRs are, by definition, deemed to be impaired. Impairment is measured on a loan-by-loan basis for commercial, construction and restructured loans by either the present value of the expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent. A loan is collateral dependent if the repayment of the loan is expected to be provided solely by the underlying collateral. For loans that are deemed to be impaired for extended periods of time, periodic updates on fair values are obtained, which may include updated appraisals. Updated fair values are incorporated into the impairment analysis in the next reporting period.
Loan charge-offs, which may include partial charge-offs, are taken on an impaired loan that is collateral dependent if the loan’s carrying balance exceeds its collateral’s appraised value, the loan has been identified as uncollectible, and it is deemed to be a confirmed loss. Typically, impaired loans with a charge-off or partial charge-off will continue to be considered impaired, unless the note is split into two and management expects the performing note to continue to perform and the loan is adequately secured. The second, or non-performing note, would be charged-off. Generally, an impaired loan with a partial charge-off may continue to have an impairment reserve on it after the partial charge-off, if factors warrant.
At December 31, 2019 and 2018, nearly all of the Company’s loan impairments were measured based on the estimated fair value of the collateral securing the loan, except for TDRs. By definition, TDRs are considered impaired. All TDR impairment analyses are initially based on discounted cash flows for those loans. For real estate loans, collateral generally consists of commercial real estate, but in the case of commercial and industrial loans, it could also consist of accounts receivable, inventory, equipment or other business assets. Commercial and industrial loans may also have real estate collateral.
Updated appraisals are generally required every 18 months for classified commercial loans in excess of $250 thousand. The “as is" value provided in the appraisal is often used as the fair value of the collateral in determining impairment, unless circumstances, such as subsequent improvements or approvals, dictate that another value provided by the appraiser is more appropriate.
Generally, impaired commercial loans secured by real estate, other than new and performing TDRs, are measured at fair value using certified real estate appraisals that had been completed within the last 18 months. Appraised values are discounted for estimated costs to sell the property and other selling considerations to arrive at the property’s fair value. In those situations in which it is determined an updated appraisal is not required for loans individually evaluated for impairment, fair values are based on either an existing appraisal or a discounted cash flow analysis as determined by management. The approaches are discussed below:
 
•Existing appraisal – if the existing appraisal provides a strong loan-to-value ratio (generally 70% or lower) and, after consideration of market conditions and knowledge of the property and area, it is determined by the Credit Administration staff that there has not been a significant deterioration in the collateral value, the existing certified appraised value may be used. Discounts to the appraised value, as deemed appropriate for selling costs, are factored into the fair value.
•Discounted cash flows – in limited cases, discounted cash flows may be used on projects in which the collateral is liquidated to reduce the borrowings outstanding, and is used to validate collateral values derived from other approaches.
Collateral on certain impaired loans is not limited to real estate, and may consist of accounts receivable, inventory, equipment or other business assets. Estimated fair values may be determined based on borrowers’ financial statements, inventory ledgers, accounts receivable agings or appraisals from individuals with knowledge in the business. Stated balances are generally discounted for the age of the financial information or the quality of the assets. In determining fair value, liquidation discounts are applied to this collateral based on existing loan valuation policies.
The Company distinguishes substandard loans on both an impaired and non-impaired basis, as it places less emphasis on a loan’s classification, and increased reliance on whether the loan was performing in accordance with the contractual terms. A substandard classification does not automatically meet the definition of impaired. Loss potential, while existing in the aggregate
amount of substandard loans, does not have to exist in individual extensions of credit classified as substandard. As a result, the Company’s methodology includes an evaluation of certain accruing commercial real estate, acquisition and development, and commercial and industrial loans rated substandard to be collectively evaluated for impairment. Although the Company believes these loans meet the definition of substandard, they are generally performing and management has concluded that it is likely the Company will be able to collect the scheduled payments of principal and interest when due according to the contractual terms of the loan agreement.
Larger groups of smaller balance homogeneous loans are collectively evaluated for impairment. Generally, the Company does not separately identify individual consumer and residential loans for impairment disclosures, unless such loans are the subject of a restructuring agreement due to financial difficulties of the borrower.
The following table, which excludes PCI loans, summarizes impaired loans by segment and class, segregated by those for which a specific allowance was required and those for which a specific allowance was not required at December 31, 2019 and 2018. The recorded investment in loans excludes accrued interest receivable due to insignificance. Related allowances established generally pertain to those loans in which loan forbearance agreements were in the process of being negotiated or updated appraisals were pending and any partial charge-off will be recorded when final information is received.
 
 Impaired Loans with a Specific AllowanceImpaired Loans with No Specific Allowance
Recorded
Investment
(Book Balance)
Unpaid
Principal Balance
(Legal Balance)
Related
Allowance
Recorded
Investment
(Book Balance)
Unpaid
Principal Balance
(Legal Balance)
December 31, 2019
Commercial real estate:
Owner-occupied$—  $—  $—  $5,872  $8,086  
Multi-family—  —  —  345  569  
Non-owner occupied residential—  —  —  235  422  
Commercial and industrial—  —  —  1,763  3,361  
Residential mortgage:
First lien425  425  36  2,165  3,164  
Home equity—term—  —  —  13  15  
Home equity—lines of credit—  —  —  733  1,077  
Installment and other loans—  —  —  85  97  
$425  $425  $36  $11,211  $16,791  
December 31, 2018
Commercial real estate:
Owner-occupied$—  $—  $—  $1,880  $2,576  
Multi-family—  —  —  131  336  
Non-owner occupied residential—  —  —  309  632  
Commercial and industrial—  —  —  286  457  
Residential mortgage:
First lien743  743  38  2,134  2,727  
Home equity—term—  —  —  16  23  
Home equity—lines of credit—  —  —  798  1,081  
$743  $743  $38  $5,554  $7,832  
The following table, which excludes PCI loans, summarizes the average recorded investment in impaired loans and related recognized interest income for the years ended December 31, 2019, 2018 and 2017.
 
 201920182017
Average
Impaired
Balance
Interest
Income
Recognized
Average
Impaired
Balance
Interest
Income
Recognized
Average
Impaired
Balance
Interest
Income
Recognized
Commercial real estate:
Owner-occupied$2,455  $2  $1,495  $2  $1,000  $6  
Non-owner occupied46  —  1,842  —  392  —  
Multi-family152  —  148  —  182  —  
Non-owner occupied residential217  —  346  —  418  —  
Acquisition and development:
1-4 family residential construction—  —  181  —  154  —  
Commercial and land development21  —  1  —  —  —  
Commercial and industrial683  —  322  —  413  —  
Residential mortgage:
First lien2,582  50  3,234  59  4,012  58  
Home equity – term13  —  19  —  61  —  
Home equity – lines of credit750  2  657  2  488  2  
Installment and other loans13  —  4  —  10  —  
$6,932  $54  $8,249  $63  $7,130  $66  
The following table presents impaired loans that are TDRs, with the recorded investment at December 31, 2019 and 2018.
 
 20192018
Number of
Contracts
Recorded
Investment
Number of
Contracts
Recorded
Investment
Accruing:
Commercial real estate:
Owner-occupied1  $30  1  $39  
Residential mortgage:
First lien9  931  11  1,069  
Home equity - lines of credit1  18  1  24  
11  979  13  1,132  
Nonaccruing:
Commercial real estate:
Owner-occupied4  1,909  1  37  
Residential mortgage:
First lien5  359  8  658  
9  2,268  9  695  
20  $3,247  22  $1,827  

There were three new commercial real estate owner occupied TDRs totaling $1.9 million for the year ended December 31, 2019, no restructured loans for the year ended December 31, 2018, and two commercial real estate owner occupied TDRs totaling $119 thousand for the year ended December 31, 2017 that were modified as TDRs within the previous 12 months which were in payment default. No additional commitments have been made to borrowers whose loans are considered TDRs.
The following table presents the number of loans modified, and their pre-modification and post-modification investment balances for the years ended December 31, 2019, and 2017. There were no loans modified during 2018.
 
Number of
Contracts
Pre-
Modification
Investment
Balance
Post-
Modification
Investment
Balance
December 31, 2019
Commercial real estate:
Owner-occupied3  $1,866  $1,881  
December 31, 2017
Commercial real estate:
Owner-occupied2  $119  $119  

The loans presented in the table above were considered TDRs as a result of the Company agreeing to below market interest rates given the risk of the transaction; allowing the loan to remain on interest only status; or a reduction in interest rates, in order to give the borrowers an opportunity to improve their cash flows. For new and accruing TDRs, impairment is generally assessed using a discounted cash flow analysis. For TDRs in default of their modified terms, impairment is generally determined on a collateral dependent approach. Certain loans modified during a period may no longer be outstanding at the end of the period if the loan was paid off.
Management further monitors the performance and credit quality of the loan portfolio by analyzing the length of time a portfolio is past due, by aggregating loans based on their delinquencies. The following table presents the classes of the loan portfolio summarized by aging categories of performing loans and nonaccrual loans at December 31, 2019 and 2018.
 
  Days Past Due   
Current30-5960-89
90+
(still accruing)
Total
Past Due
Non-
Accrual
Total
Loans
December 31, 2019
Commercial real estate:
Owner-occupied$158,723  $144  $—  $—  $144  $5,842  $164,709  
Non-owner occupied359,425  480  —  —  480  —  359,905  
Multi-family105,865  —  —  —  —  345  106,210  
Non-owner occupied residential116,370  841  66  69  976  235  117,581  
Acquisition and development:
1-4 family residential construction15,587  278  —  —  278  —  15,865  
Commercial and land development40,403  1,135  —  —  1,135  —  41,538  
Commercial and industrial208,668  315  —  —  315  1,763  210,746  
Municipal47,057  —  —  —  —  —  47,057  
Residential mortgage:
First lien314,473  9,092  1,234  150  10,476  1,659  326,608  
Home equity – term13,993  —  4  —  4  13  14,010  
Home equity – lines of credit163,907  417  275  —  692  715  165,314  
Installment and other loans50,224  236  37  —  273  85  50,582  
Subtotal1,594,695  12,938  1,616  219  14,773  10,657  1,620,125  
Loans acquired with credit deterioration:
Commercial real estate:
Owner-occupied6,015  —  129  31  160  —  6,175  
Non-owner occupied564  —  —  581  581  —  1,145  
Multi-family683  —  —  —  —  —  683  
Non-owner occupied residential
1,710  105  111  531  747  —  2,457  
Commercial and industrial3,792  —  —  16  16  —  3,808  
Residential mortgage:
First lien6,308  1,857  745  854  3,456  —  9,764  
Home equity – term16  4  —  —  4  —  20  
Installment and other loans131  22  —  —  22  —  153  
Subtotal19,219  1,988  985  2,013  4,986  —  24,205  
$1,613,914  $14,926  $2,601  $2,232  $19,759  $10,657  $1,644,330  
Days Past Due
Current30-5960-89
90+
(still accruing)
Total
Past Due
Non-
Accrual
Total
Loans
December 31, 2018
Commercial real estate:
Owner-occupied$125,887  $66  $—  $—  $66  $1,841  $127,794  
Non-owner occupied252,144  —  —  —  —  —  252,144  
Multi-family78,085  —  —  —  —  131  78,216  
Non-owner occupied residential99,268  226  29  —  255  309  99,832  
Acquisition and development:
1-4 family residential construction7,385  —  —  —  —  —  7,385  
Commercial and land development41,822  37  —  —  37  —  41,859  
Commercial and industrial154,988  411  105  —  516  286  155,790  
Municipal50,982  —  —  —  —  —  50,982  
Residential mortgage:
First lien228,714  1,592  734  —  2,326  1,808  232,848  
Home equity – term11,487  678  5  —  683  16  12,186  
Home equity – lines of credit142,394  420  28  —  448  774  143,616  
Installment and other loans33,135  66  44  —  110  —  33,245  
Subtotal1,226,291  3,496  945  —  4,441  5,165  1,235,897  
Loans acquired with credit deterioration:
Commercial real estate:
Owner-occupied1,784  —  72  —  72  —  1,856  
Non-owner occupied650  —  —  —  —  —  650  
Multi-family717  —  —  —  —  —  717  
Non-owner occupied residential535  —  —  —  —  —  535  
Acquisition and development:
Commercial and land development192  —  —  —  —  —  192  
Commercial and industrial4,943  231  —  —  231  —  5,174  
Residential mortgage:
First lien1,971  382  42  53  477  —  2,448  
Home equity – term17  5  —  —  5  —  22  
Installment and other loans149  13  —  4  17  —  166  
Subtotal10,958  631  114  57  802  —  11,760  
$1,237,249  $4,127  $1,059  $57  $5,243  $5,165  $1,247,657  

The Company maintains its ALL at a level management believes adequate for probable incurred credit losses. The ALL is established and maintained through a provision for loan losses charged to earnings. On a quarterly basis, management assesses the adequacy of the ALL utilizing a defined methodology which considers specific credit evaluation of impaired loans as discussed above, historical loan loss experience, and qualitative factors. Management believes its approach properly addresses relevant accounting guidance for loans individually identified as impaired and for loans collectively evaluated for impairment, and other bank regulatory guidance.
In connection with its quarterly evaluation of the adequacy of the ALL, management reviews its methodology to determine if it properly addresses the current risk in the loan portfolio. For each loan class, general allowances based on
quantitative factors, principally historical loss trends, are provided for loans that are collectively evaluated for impairment. An adjustment to historical loss factors may be incorporated for delinquency and other potential risk not elsewhere defined within the ALL methodology.
In addition to this quantitative analysis, adjustments to the ALL requirements are allocated on loans collectively evaluated for impairment based on additional qualitative factors, including:
Nature and Volume of Loans – including loan growth in the current and subsequent quarters based on the Company’s targeted growth and strategic plan, coupled with the types of loans booked based on risk management and credit culture; the number of exceptions to loan policy; and supervisory loan to value exceptions.
Concentrations of Credit and Changes within Credit Concentrations – including the composition of the Company’s overall portfolio makeup and management's evaluation related to concentration risk management and the inherent risk associated with the concentrations identified.
Underwriting Standards and Recovery Practices – including changes to underwriting standards and perceived impact on anticipated losses; trends in the number of exceptions to loan policy; supervisory loan to value exceptions; and effectiveness of administration of loan recovery practices.
Delinquency Trends – including delinquency percentages noted in the portfolio relative to economic conditions; severity of the delinquencies; and whether the ratios are trending upwards or downwards.
Classified Loans Trends – including internal loan ratings of the portfolio; severity of the ratings; whether the loan segment’s ratings show a more favorable or less favorable trend; and underlying market conditions and impact on the collateral values securing the loans.
Experience, Ability and Depth of Management/Lending staff – including the years of experience of senior and middle management and the lending staff; turnover of the staff; and instances of repeated criticisms of ratings.
Quality of Loan Review – including the years of experience of the loan review staff; in-house versus outsourced provider of review; turnover of staff; and the perceived quality of their work in relation to other external information.
National and Local Economic Conditions – including trends in the consumer price index, unemployment rates, the housing price index, housing statistics compared to the prior year, bankruptcy rates, regulatory and legal environment risks and competition.
The following table presents activity in the ALL for the years ended December 31, 2019, 2018 and 2017.
 
 CommercialConsumer  
Commercial
Real Estate
Acquisition
and
Development
Commercial
and
Industrial
MunicipalTotal
Residential
Mortgage
Installment
and Other
TotalUnallocatedTotal
December 31, 2019
Balance, beginning of year
$6,876  $817  $1,656  $98  $9,447  $3,753  $244  $3,997  $570  $14,014  
Provision for loan losses515  139  841  2  1,497  (347) 180  (167) (430) 900  
Charge-offs(25) —  (299) —  (324) (386) (155) (541) —  (865) 
Recoveries268  3  158  —  429  127  50  177  —  606  
Balance, end of year
$7,634  $959  $2,356  $100  $11,049  $3,147  $319  $3,466  $140  $14,655  
December 31, 2018
Balance, beginning of year
$6,763  $417  $1,446  $84  $8,710  $3,400  $211  $3,611  $475  $12,796  
Provision for loan losses(442) 396  209  14  177  363  165  528  95  800  
Charge-offs(17) (7) —  —  (24) (148) (292) (440) —  (464) 
Recoveries572  11  1  —  584  138  160  298  —  882  
Balance, end of year
$6,876  $817  $1,656  $98  $9,447  $3,753  $244  $3,997  $570  $14,014  
December 31, 2017
Balance, beginning of year
$7,530  $580  $1,074  $54  $9,238  $2,979  $144  $3,123  $414  $12,775  
Provision for loan losses38  (167) 333  30  234  531  174  705  61  1,000  
Charge-offs(835) —  (85) —  (920) (180) (166) (346) —  (1,266) 
Recoveries30  4  124  —  158  70  59  129  —  287  
Balance, end of year
$6,763  $417  $1,446  $84  $8,710  $3,400  $211  $3,611  $475  $12,796  
The following table summarizes the ending loan balances individually evaluated for impairment based upon loan segment, as well as the related ALL loss allocation for each at December 31, 2019 and 2018. PCI loans are excluded from loans individually evaluated for impairment.
 
 CommercialConsumer  
Commercial
Real Estate
Acquisition
and
Development
Commercial
and
Industrial
MunicipalTotal
Residential
Mortgage
Installment
and Other
TotalUnallocatedTotal
December 31, 2019
Loans allocated by:
Individually evaluated for impairment
$6,452  $—  $1,763  $—  $8,215  $3,336  $85  $3,421  $—  $11,636  
Collectively evaluated for impairment
752,413  57,403  212,791  47,057  1,069,664  512,380  50,650  563,030  —  1,632,694  
$758,865  $57,403  $214,554  $47,057  $1,077,879  $515,716  $50,735  $566,451  $—  $1,644,330  
Allowance for loan losses allocated by:
Individually evaluated for impairment
$—  $—  $—  $—  $—  $36  $—  $36  $—  $36  
Collectively evaluated for impairment
7,634  959  2,356  100  11,049  3,111  319  3,430  140  14,619  
$7,634  $959  $2,356  $100  $11,049  $3,147  $319  $3,466  $140  $14,655  
December 31, 2018
Loans allocated by:
Individually evaluated for impairment
$2,320  $—  $286  $—  $2,606  $3,691  $—  $3,691  $—  $6,297  
Collectively evaluated for impairment
559,424  49,436  160,678  50,982  820,520  387,429  33,411  420,840  —  1,241,360  
$561,744  $49,436  $160,964  $50,982  $823,126  $391,120  $33,411  $424,531  $—  $1,247,657  
Allowance for loan losses allocated by:
Individually evaluated for impairment
$—  $—  $—  $—  $—  $38  $—  $38  $—  $38  
Collectively evaluated for impairment
6,876  817  1,656  98  9,447  3,715  244  3,959  570  13,976  
$6,876  $817  $1,656  $98  $9,447  $3,753  $244  $3,997  $570  $14,014  

The following table provides activity for the accretable yield of purchased impaired loans for the years ended December 31, 2019 and 2018.
20192018
Accretable yield, beginning of period$2,065  $—  
New loans purchased3,497  2,243  
Accretion of income(2,336) (178) 
Reclassifications from nonaccretable difference due to improvement in expected cash flows2,444  —  
Other changes, net1,280  —  
Accretable yield, end of period$6,950  $2,065