XML 31 R12.htm IDEA: XBRL DOCUMENT v3.7.0.1
Loans and Allowance for Loan Losses
 12 Months Ended
Dec. 31, 2016
Receivables [Abstract]  
Loans and Allowance for Loan Losses

Note 3 – Loans and Allowance for Loan Losses

 

The Bank’s loan portfolio as of December 31 was as follows:

 

(Dollars in thousands)

 

    2016     2015  
Agricultural   $ 44,614     $ 40,232  
Commercial and industrial     96,088       94,347  
Consumer     21,596       20,090  
Real estate - commercial     110,762       97,736  
Real estate - construction     6,153       5,390  
Real estate - residential     89,787       91,509  
    Loans, gross     369,000       349,304  
Allowance for loan losses     (4,277 )     (4,194 )
    Loans, net   $ 364,723     $ 345,110  

 

ChoiceOne manages its credit risk through the use of its loan policy and its loan approval process and by monitoring of loan credit performance. The loan approval process for commercial loans involves individual and group approval authorities. Individual authority levels are based on the experience of the lender. Group authority approval levels can consist of an internal loan committee that includes the Bank’s President or Senior Lender and other loan officers for loans that exceed individual approval levels, or a loan committee of the Board of Directors for larger commercial loans. Most consumer loans are approved by individual loan officers based on standardized underwriting criteria, with larger consumer loans subject to approval by the internal loan committee.

 

Ongoing credit review of commercial loans is the responsibility of the loan officers. ChoiceOne’s internal credit committee meets at least monthly and reviews loans with payment issues and loans with a risk rating of 5, 6, or 7. Risk ratings of commercial loans are reviewed periodically and adjusted if needed. ChoiceOne’s consumer loan portfolio is primarily monitored on an exception basis. Loans where payments are past due are turned over to the Bank’s collection department, which works with the borrower to bring payments current or take other actions when necessary. In addition to internal reviews of credit performance, ChoiceOne contracts with a third party for independent loan review that monitors the loan approval process and the credit quality of the loan portfolio.

 

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

 

(Dollars in thousands)         Commercial           Commercial     Construction     Residential              
    Agricultural     and Industrial     Consumer     Real Estate     Real Estate     Real Estate     Unallocated     Total  
2016
Allowance for Loan Losses		                                                                
Beginning balance   $ 420     $ 586     $ 297     $ 1,030     $ 46     $ 1,388     $ 427     $ 4,194  
Charge-offs     —       (37 )     (218 )     —       —       (102 )     —       (357 )
Recoveries     —       31       149       89       —       171       —       440  
Provision     13       108       77       319       16       (444 )     (89 )     —  
Ending balance   $ 433     $ 688     $ 305     $ 1,438     $ 62     $ 1,013     $ 338     $ 4,277  
                                                                 
Individually evaluated for impairment   $ 3     $ 11     $ 2     $ 91     $ —     $ 296     $ —     $ 403  
                                                                 
Collectively evaluated for impairment   $ 430     $ 677     $ 303     $ 1,347     $ 62     $ 717     $ 338     $ 3,874  
                                                                 
Loans                                                                
Individually evaluated for impairment   $ 526     $ 301     $ 28     $ 1,073     $ —     $ 2,983             $ 4,911  
Collectively evaluated for impairment     44,088       95,787       21,568       109,689       6,153       86,804               364,089  
Ending balance   $ 44,614     $ 96,088     $ 21,596     $ 110,762     $ 6,153     $ 89,787             $ 369,000  

 

(Dollars in thousands)           Commercial             Commercial     Construction     Residential                  
    Agricultural     and Industrial     Consumer     Real Estate     Real Estate     Real Estate     Unallocated     Total  
2015
Allowance for Loan Losses		                                                                
Beginning balance   $ 186     $ 527     $ 184     $ 1,641     $ 9     $ 1,193     $ 433     $ 4,173  
Charge-offs     —       (30 )     (291 )     —       —       (140 )     —       (461 )
Recoveries     1       64       121       47       —       149       —       382  
Provision     233       25       283       (658 )     37       186       (6 )     100  
Ending balance   $ 420     $ 586     $ 297     $ 1,030     $ 46     $ 1,388     $ 427     $ 4,194  
                                                                 
Individually evaluated for impairment   $ 3     $ 15     $ 1     $ 191     $ —     $ 296     $ —     $ 506  
                                                                 
Collectively evaluated for impairment   $ 417     $ 571     $ 296     $ 839     $ 46     $ 1,092     $ 427     $ 3,688  
                                                                 
Loans                                                                
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  

 

(Dollars in thousands)         Commercial           Commercial     Construction     Residential              
    Agricultural     and Industrial     Consumer     Real Estate     Real Estate     Real Estate     Unallocated     Total  
2014
Allowance for Loan Losses		                                                                
Beginning balance   $ 178     $ 562     $ 192     $ 1,842     $ 12     $ 1,626     $ 323     $ 4,735  
Charge-offs     —       (1 )     (273 )     (665 )     —       (133 )     —       (1,072 )
Recoveries     20       119       179       48       —       44       —       410  
Provision     (12 )     (153 )     86       416       (3 )     (344 )     110       100  
Ending balance   $ 186     $ 527     $ 184     $ 1,641     $ 9     $ 1,193     $ 433     $ 4,173  
                                                                 
Individually evaluated for impairment   $ —     $ —     $ 4     $ 745     $ —     $ 365     $ —     $ 1,114  
                                                                 
Collectively evaluated for impairment   $ 186     $ 527     $ 180     $ 896     $ 9     $ 828     $ 433     $ 3,059  
                                                                 
Loans                                                                
Individually evaluated for impairment   $ —     $ 38     $ 36     $ 3,853     $ —     $ 2,958             $ 6,885  
Collectively evaluated for impairment     41,098       88,024       20,716       95,954       2,691       90,745               339,228  
Ending balance   $ 41,098     $ 88,062     $ 20,752     $ 99,807     $ 2,691     $ 93,703             $ 346,113  

  

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 watch credits. 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 as of December 31 was as follows:

 

Corporate Credit Exposure - Credit Risk Profile By Creditworthiness Category

 

(Dollars in thousands)   Agricultural     Commercial and Industrial     Commercial Real Estate  
    2016     2015     2016     2015     2016     2015  
Risk ratings 1 and 2   $ 12,005     $ 10,416     $ 12,135     $ 10,480     $ 8,013     $ 3,875  
Risk rating 3     23,852       25,189       56,714       66,921       59,343       57,540  
Risk rating 4     7,505       3,086       25,895       16,169       39,641       29,826  
Risk rating 5     726       1,491       1,267       574       1,867       3,776  
Risk rating 6     526       50       77       129       1,898       2,719  
Risk rating 7     —       —       —       74       —       —  
    $ 44,614     $ 40,232     $ 96,088     $ 94,347     $ 110,762     $ 97,736  

 

Consumer Credit Exposure - Credit Risk Profile Based On Payment Activity

 

(Dollars in thousands)   Consumer     Construction Real Estate     Residential Real Estate  
    2016     2015     2016     2015     2016     2015  
Performing   $ 21,590     $ 20,090     $ 6,153     $ 5,390     $ 88,767     $ 90,796  
Nonperforming     —       —       —       —       229       282  
Nonaccrual     6       —       —       —       791       431  
    $ 21,596     $ 20,090     $ 6,153     $ 5,390     $ 89,787     $ 91,509  

 

Included within the loan categories above were loans in the process of foreclosure. As of December 31, 2016, and 2015 loans in the process of foreclosure totaled $282,000 and $13,000, respectively.

 

The following schedule provides information on loans that were considered troubled debt restructurings (“TDRs”) that were modified during the twelve months ended December 31, 2016 and December 31, 2015:

 

    December 31, 2016     December 31, 2015  
          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  
Agricultural     1     $ 105     $ 105       —     $ —     $ —  
Commercial and industrial     —       —       —       —       —       —  
Consumer     —       —       —       —       —       —  
Commercial real estate     —       —       —       4       439       439  
Residential real estate     2       155       155       2       195       195  
      3     $ 260     $ 260       6     $ 634     $ 634  

 

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.

 

The following schedule provides information on TDRs as of December 31, 2016 and December 31, 2015 where the borrower was past due with respect to principal and/or interest for 30 days or more during the twelve months ended December 31, 2016 and December 31, 2015 that had been modified during the 12-month period prior to the default:

 

    With Payment Defaults During the Following Periods  
    December 31, 2016     December 31, 2015  
(Dollars in thousands)   Number     Recorded     Number     Recorded  
    of Loans     Investment     of Loans     Investment  
Agricultural     —     $ —       —     $ —  
Commercial and industrial     —       —       —       —  
Consumer     —       —       —       —  
Commercial real estate     1       105       3       400  
Residential real estate     —       —       —       —  
      1     $ 105       3     $ 400  

 

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 December 31 were as follows:

 

          Unpaid           Average     Interest  
(Dollars in thousands)   Recorded     Principal     Related     Recorded     Income  
    Investment     Balance     Allowance     Investment     Recognized  
2016                                        
With no related allowance recorded                                        
Agricultural   $ 482     $ 485     $ —     $ 220     $ 13  
Commercial and industrial     206       207       —       91       3  
Consumer     —       —       —       1       —  
Commercial real estate     342       939       —       925       2  
Residential real estate     301       292       —       167       5  
Subtotal     1,331       1,923       —       1,404       23  
With an allowance recorded                                        
Agricultural     44       44       3       72       3  
Commercial and industrial     95       95       11       218       —  
Consumer     28       28       2       24       2  
Commercial real estate     731       804       91       1,281       33  
Residential real estate     2,682       2,711       296       2,672       108  
Subtotal     3,580       3,682       403       4,267       146  
Total                                        
Agricultural     526       529       3       292       16  
Commercial and industrial     301       302       11       309       3  
Consumer     28       28       2       25       2  
Commercial real estate     1,073       1,743       91       2,206       35  
Residential real estate     2,983       3,003       296       2,839       113  
Total   $ 4,911     $ 5,605     $ 403     $ 5,671     $ 169  

 

          Unpaid           Average     Interest  
(Dollars in thousands)   Recorded     Principal     Related     Recorded     Income  
    Investment     Balance     Allowance     Investment     Recognized  
2015                                        
With no related allowance recorded                                        
Agricultural   $ —     $ —     $ —     $ —     $ —  
Commercial and industrial     74       103       —       25       —  
Consumer     —       —       —       2       —  
Commercial real estate     1,540       1,540       —       1,061       11  
Residential real estate     13       13       —       191       —  
Subtotal     1,627       1,656       —       1,279       11  
With an allowance recorded                                        
Agricultural     50       50       3       62       (6 )
Commercial and industrial     118       118       15       44       1  
Consumer     24       24       1       34       3  
Commercial real estate     1,250       1,755       191       2,002       64  
Residential real estate     2,516       2,516       296       2,425       86  
Subtotal     3,958       4,463       506       4,567       148  
Total                                        
Agricultural     50       50       3       62       (6 )
Commercial and industrial     192       221       15       69       1  
Consumer     24       24       1       36       3  
Commercial real estate     2,790       3,295       191       3,063       75  
Residential real estate     2,529       2,529       296       2,616       86  
Total   $ 5,585     $ 6,119     $ 506     $ 5,846     $ 159  

 

          Unpaid           Average     Interest  
(Dollars in thousands)   Recorded     Principal     Related     Recorded     Income  
    Investment     Balance     Allowance     Investment     Recognized  
2014                                        
With no related allowance recorded                                        
Agricultural   $ —     $ —     $ —     $ 90     $ —  
Commercial and industrial     38       43       —       81       —  
Consumer     8       8       —       3       —  
Commercial real estate     413       419       —       352       6  
Residential real estate     502       502       —       492       9  
Subtotal     961       972       —       1,018       15  
With an allowance recorded                                        
Agricultural     —       —       —       130       —  
Commercial and industrial     —       —       —       292       4  
Consumer     28       28       4       31       3  
Commercial real estate     3,440       4,498       745       3,932       81  
Residential real estate     2,456       2,474       365       2,323       91  
Subtotal     5,924       7,000       1,114       6,708       179  
Total                                        
Agricultural     —       —       —       220       —  
Commercial and industrial     38       43       —       373       4  
Consumer     36       36       4       34       3  
Commercial real estate     3,853       4,917       745       4,284       87  
Residential real estate     2,958       2,976       365       2,815       100  
Total   $ 6,885     $ 7,972     $ 1,114     $ 7,726     $ 194  

 

An aging analysis of loans by loan category as of December 31 follows:

 

                Loans                          
    Loans     Loans     Past Due                       Loans  
    Past Due     Past Due     Greater                       90 Days Past  
(Dollars in thousands)   30 to 59     60 to 89     Than 90           Loans Not     Total     Due and  
    Days (1)     Days (1)     Days (1)     Total (1)     Past Due     Loans     Accruing  
2016                                                        
Agricultural   $ —     $ —     $ —     $ —     $ 44,614     $ 44,614     $ —  
Commercial and industrial     —       30       245       275       95,813       96,088       —  
Consumer     99       2       6       107       21,489       21,596       —  
Commercial real estate     —       —       260       260       110,502       110,762       —  
Construction real estate     —       —       —       —       6,153       6,153       —  
Residential real estate     1,027       109       646       1,782       88,005       89,787       229  
    $ 1,126     $ 141     $ 1,157     $ 2,424     $ 366,576     $ 369,000     $ 229  
                                                         
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 as of December 31 follow:

 

(Dollars in thousands)            
    2016     2015  
Agricultural   $ 482     $ 50  
Commercial and industrial     245       77  
Consumer     6       —  
Commercial real estate     458       1,640  
Construction real estate     —       —  
Residential real estate     792       431  
    $ 1,983     $ 2,198