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LOANS AND ALLOWANCE FOR LOAN LOSSES
 6 Months Ended
Jun. 30, 2016
Receivables [Abstract]  
LOANS AND ALLOWANCE FOR LOAN LOSSES

NOTE 3 – LOANS AND ALLOWANCE FOR LOAN LOSSES

 

Activity in the allowance for loan losses and balances in the loan portfolio was as follows:

 

        Commercial                        
(Dollars in thousands)       and       Commercial   Construction   Residential        
    Agricultural   Industrial   Consumer   Real Estate   Real Estate   Real Estate   Unallocated   Total  
Allowance for Loan Losses
Three Months Ended June 30, 2016		  
 		  
 		  
 		  
 		  
 		  
 		  
 		  
 		  
 		  
 		  
 		  
 		  
 		  
 		  
 		  
 		  
 		  
 		  
 		  
 		  
 		  
 		  
 		  
 		  
 		  
 		  
 		  
 		  
 		  
 		  
 		  
 
Beginning balance   $ 382     $ 691     $ 272     $ 1,138     $ 43     $ 1,350     $ 249     $ 4,124  
Charge-offs     —       —       (29 )     —       —       —       —       (29 )
Recoveries     —       8       28       23       —       142       —       201  
Provision     18       (42 )     6       (28 )     2       (270 )     315       —  
Ending balance   $ 400     $ 657     $ 277     $ 1,133     $ 45     $ 1,222     $ 563     $ 4,296  
                                                                 
Six Months Ended June 30, 2016                                                                
Beginning balance   $ 420     $ 586     $ 297     $ 1,030     $ 46     $ 1,388     $ 427     $ 4,194  
Charge-offs     —       (33 )     (68 )     —       —       (69 )     —       (170 )
Recoveries     —       23       69       31       —       149       —       272  
Provision     (20 )     81       (21 )     72       (2 )     (246 )     136       —  
Ending balance   $ 400     $ 657     $ 277     $ 1,133     $ 45     $ 1,222     $ 563     $ 4,296  
                                                                 
Individually evaluated for impairment   $ 11     $ 11     $ 1     $ 177     $ —     $ 364     $ —     $ 564  
                                                                 
Collectively evaluated for impairment   $ 389     $ 646     $ 276     $ 956     $ 45     $ 858     $ 563     $ 3,732  
                                                                 
Three Months Ended June 30, 2015                                                                
Beginning balance   $ 201     $ 613     $ 193     $ 1,498     $ 39     $ 1,482     $ 295     $ 4,321  
Charge-offs     —       —       (55 )     —       —       (20 )     —       (75 )
Recoveries     1       20       42       14       —       30       —       107  
Provision     77       (136 )     13       (228 )     (11 )     (116 )     401       —  
Ending balance   $ 279     $ 497     $ 193     $ 1,284     $ 28     $ 1,376     $ 696     $ 4,353  
                                                                 
Six Months Ended June 30, 2015                                                                
Beginning balance   $ 187     $ 527     $ 183     $ 1,641     $ 9     $ 1,193     $ 433     $ 4,173  
Charge-offs     —       —       (106 )     —       —       (21 )     —       (127 )
Recoveries     1       48       79       21       —       58       —       207  
Provision     91       (78 )     37       (378 )     19       146       263       100  
Ending balance   $ 279     $ 497     $ 193     $ 1,284     $ 28     $ 1,376     $ 696     $ 4,353  
                                                                 
Individually evaluated for impairment   $ —     $ —     $ 1     $ 333     $ —     $ 332     $ —     $ 666  
                                                                 
Collectively evaluated for impairment   $ 279     $ 497     $ 192     $ 951     $ 28     $ 1,044     $ 696     $ 3,687  
                                                                 
Loans

June 30, 2016

                                                                
Individually evaluated for impairment   $ 173     $ 294     $ 22     $ 2,628     $ —     $ 2,916             $ 6,033  
Collectively evaluated for impairment     34,500       97,436       20,887       103,606       5,427       89,353               351,209  
Ending balance   $ 34,673     $ 97,730     $ 20,909     $ 106,234     $ 5,427     $ 92,269             $ 357,242  
                                                                 
December 31, 2015                                                                
Individually evaluated for impairment   $ 50     $ 192     $ 24     $ 2,790     $ —     $ 2,529             $ 5,585  
Collectively evaluated for impairment     40,182       94,155       20,066       94,946       5,390       88,980               343,719  
Ending balance   $ 40,232     $ 94,347     $ 20,090     $ 97,736     $ 5,390     $ 91,509             $ 349,304  

 

The process to monitor the credit quality of ChoiceOne’s loan portfolio includes tracking (1) the risk ratings of business loans, (2) the level of classified business loans, and (3) delinquent and nonperforming consumer loans. Business loans are risk rated on a scale of 1 to 8. A description of the characteristics of the ratings follows:

 

Risk ratings 1 and 2: These loans are considered pass credits. They exhibit good to exceptional credit risk and demonstrate the ability to repay the loan from normal business operations.

 

Risk rating 3: These loans are considered pass credits. They exhibit acceptable credit risk and demonstrate the ability to repay the loan from normal business operations.

 

Risk rating 4: These loans are considered pass credits. However, they have potential developing weaknesses that, if not corrected, may cause deterioration in the ability of the borrower to repay the loan. While a loss is possible for a loan with this rating, it is not anticipated.

 

Risk rating 5: These loans are considered special mention credits. Loans in this risk rating are considered to be inadequately protected by the net worth and debt service coverage of the borrower or of any pledged collateral. These loans have well defined weaknesses that may jeopardize the borrower’s ability to repay the loan. If the weaknesses are not corrected, loss of principal and interest could be probable.

 

Risk rating 6: These loans are considered substandard credits. These loans have well defined weaknesses, the severity of which makes collection of principal and interest in full questionable. Loans in this category may be placed on nonaccrual status.

 

Risk rating 7: These loans are considered doubtful credits. Some loss of principal and interest has been determined to be probable. The estimate of the amount of loss could be affected by factors such as the borrower’s ability to provide additional capital or collateral. Loans in this category are on nonaccrual status.

 

Risk rating 8: These loans are considered loss credits. They are considered uncollectible and will be charged off against the allowance for loan losses.

 

Information regarding the Bank’s credit exposure is as follows:

 

Corporate Credit Exposure - Credit Risk Profile By Creditworthiness Category

 

   Agricultural   Commercial and Industrial   Commercial Real Estate 
(Dollars in thousands)   June 30,    December 31,    June 30,    December 31,    June 30,    December 31, 
    2016    2015    2016    2015    2016    2015 
Risk ratings 1 and 2  $7,979   $10,416   $11,315   $10,480   $6,505   $3,875 
Risk rating 3   18,758    25,189    67,159    66,921    56,179    57,540 
Risk rating 4   6,053    3,086    18,310    16,169    38,213    29,826 
Risk rating 5   1,837    1,491    825    574    3,433    3,776 
Risk rating 6   46    50    121    129    1,904    2,719 
Risk rating 7   —    —    —    74    —    — 
   $34,673   $40,232   $97,730   $94,347   $106,234   $97,736 

                       
Corporate Credit Exposure - Credit Risk Profile Based On Payment Activity        

                         
   Consumer   Construction Real Estate   Residential Real Estate 
(Dollars in thousands)   June 30,    December 31,    June 30,    December 31,    June 30,    December 31, 
    2016    2015    2016    2015    2016    2015 
Performing  $20,909   $20,090   $5,427   $5,390   $91,687   $90,796 
Nonperforming   —    —    —    —    —    282 
Nonaccrual   —    —    —    —    582    431 
   $20,909   $20,090   $5,427   $5,390   $92,269   $91,509 

 

The following schedule provides information on loans that were considered TDRs that were modified during the three- and six-months periods ended June 30, 2016:

                         
   Three Months Ended June 30, 2016   Six Months Ended June 30, 2016 
         Pre-    Post-         Pre-    Post- 
         Modification    Modification         Modification    Modification 
         Outstanding     Outstanding          Outstanding     Outstanding  
(Dollars in thousands)   Number of    Recorded    Recorded    Number of    Recorded    Recorded 
    Loans    Investment    Investment    Loans    Investment    Investment 
Commercial real estate   —   $—   $—    1   $128   $128 
Residential real estate   2    150    150    3    179    179 
Total   2   $150   $150    4   $307   $307 

 

The pre-modification and post-modification outstanding recorded investment represents amounts as of the date of loan modification. If a difference exists between the pre-modification and post-modification outstanding recorded investment, it represents impairment recognized through the provision for loan losses computed based on a loan’s post-modification present value of expected future cash flows discounted at the loan’s original effective interest rate. If no difference exists, a loss is not expected to be incurred based on an assessment of the borrower’s expected cash flows.

 

Loans are classified as performing when they are current as to principal and interest payments or are past due on payments less than 90 days. Loans are classified as nonperforming when they are past due 90 days or more as to principal and interest payments or are considered a troubled debt restructuring.

 

Impaired loans by loan category as of June 30, 2016 and 2015 were as follows:

 

       Unpaid       Average   Interest 
(Dollars in thousands)  Recorded   Principal   Related   Recorded   Income 
   Investment   Balance   Allowance   Investment   Recognized 
June 30, 2016                         
With no related allowance recorded                         
Agricultural  $—   $—   $—   $43   $— 
Commercial and industrial   —    —    —    25    — 
Consumer   —    —    —    —    — 
Commercial real estate   1,253    1,450    —    1,351    5 
Residential real estate   170    170    —    89    — 
Subtotal   1,423    1,620    —    1,508    5 
With an allowance recorded                         
Agricultural   173    175    11    90    14 
Commercial and industrial   295    295    11    241    1 
Consumer   22    22    1    23    1 
Commercial real estate   1,375    1,917    177    1,482    54 
Residential real estate   2,745    2,633    364    2,612    58 
Subtotal   4,610    5,042    564    4,448    128 
Total                         
Agricultural   173    175    11    133    14 
Commercial and industrial   294    295    11    266    1 
Consumer   22    22    1    23    1 
Commercial real estate   2,628    3,367    177    2,833    59 
Residential real estate   2,916    2,803    364    2,701    58 
Total  $6,033   $6,662   $564   $5,956   $133 
                          
June 30, 2015                         
With no related allowance recorded                         
Agricultural  $—   $—   $—   $—   $— 
Commercial and industrial   74    103    —    16    — 
Consumer   —    —    —    3    — 
Commercial real estate   1,540    1,540    —    658    5 
Residential real estate   13    13    —    300    — 
Subtotal   1,627    1,656    —    977    5 
With an allowance recorded                         
Agricultural   50    50    3    70    (6)
Commercial and industrial   118    118    15    —    — 
Consumer   24    24    1    26    1 
Commercial real estate   1,250    1,755    191    2,408    39 
Residential real estate   2,516    2,516    296    2,393    41 
Subtotal   3,958    4,463    506    4,897    75 
Total                         
Agricultural   50    50    3    70    (6)
Commercial and industrial   192    221    15    16    — 
Consumer   24    24    1    29    1 
Commercial real estate   2,790    3,295    191    3,066    44 
Residential real estate   2,529    2,529    296    2,693    41 
Total  $5,585   $6,119   $506   $5,874   $80 

 

An aging analysis of loans by loan category follows:

 

           Greater               90 Days Past 
(Dollars in thousands)  30 to 59   60 to 89   Than 90       Loans Not       Due and 
   Days   Days   Days (1)   Total   Past Due   Total Loans   Accruing 
June 30, 2016                                   
Agricultural  $—   $—   $—   $—   $34,673   $34,673   $— 
Commercial and industrial   —    73    290    363    97,367    97,730    — 
Consumer   22    12    —    34    20,875    20,909    — 
Commercial real estate   265    261    280    806    105,428    106,234    — 
Construction real estate   —    —    —    —    5,427    5,427    — 
Residential real estate   83    810    238    1,131    91,138    92,269    102 
   $370   $1,156   $808   $2,334   $354,908   $357,242   $102 
                                    
December 31, 2015                                   
Agricultural  $3   $—   $—   $3   $40,229   $40,232   $— 
Commercial and industrial   90    322    77    489    93,858    94,347    — 
Consumer   115    —    —    115    19,975    20,090    — 
Commercial real estate   505    297    1,233    2,035    95,701    97,736    — 
Construction real estate   299    —    —    299    5,091    5,390    — 
Residential real estate   1,012    364    200    1,576    89,933    91,509    29 
   $2,024   $983   $1,510   $4,517   $344,787   $349,304   $29 

 

(1) Includes nonaccrual loans.

 

Nonaccrual loans by loan category follow:

 

(Dollars in thousands)  June 30,   December 31, 
   2016   2015 
Agricultural  $46   $50 
Commercial and industrial   289    77 
Consumer   —    — 
Commercial real estate   1,719    1,640 
Construction real estate   —    — 
Residential real estate   582    431 
   $2,636   $2,198