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LOANS AND ALLOWANCE FOR LOAN LOSSES
 6 Months Ended
Jun. 30, 2019
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 were 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, 2019                                        
Beginning balance  $424   $857   $336   $1,863   $40   $558   $652   $4,730 
Charge-offs   —    (1)   (45)   —    —    (15)   —    (61)
Recoveries   65    3    39    4    —    21    —    132 
Provision   (127)   (41)   5    531    3    (42)   (329)   — 
Ending balance  $362   $818   $335   $2,398   $43   $522   $323   $4,801 
                                         
Six Months Ended                                        
June 30, 2019                                        
Beginning balance  $481   $892   $254   $1,926   $38   $537   $545   $4,673 
Charge-offs   —    (2)   (151)   —    —    (14)   —    (167)
Recoveries   65    20    88    6    —    116    —    295 
Provision   (184)   (92)   144    466    5    (117)   (222)   — 
Ending balance  $362   $818   $335   $2,398   $43   $522   $323   $4,801 
                                         
Individually evaluated for impairment  $80   $84   $10   $605   $—   $159   $—   $938 
                                         
Collectively evaluated for impairment  $282   $734   $325   $1,793   $43   $363   $323   $3,863 
                                         
Three Months Ended                                        
June 30, 2018                                        
Beginning balance  $350   $1,005   $245   $1,786   $18   $625   $680   $4,709 
Charge-offs   —    (57)   (50)   —    —    (9)   —    (116)
Recoveries   —    —    15    3    —    48    —    66 
Provision   9    22    (5)   122    (2)   (44)   (102)   — 
Ending balance  $359   $970   $205   $1,911   $16   $620   $578   $4,659 
                                         
Six Months Ended                                        
June 30, 2018                                        
Beginning balance  $506   $1,001   $262   $1,761   $35   $726   $286   $4,577 
Charge-offs   —    (58)   (118)   —    —    (13)   —    (189)
Recoveries   —    53    51    59    —    73    —    236 
Provision   (147)   (26)   10    91    (19)   (166)   292    35 
Ending balance  $359   $970   $205   $1,911   $16   $620   $578   $4,659 
                                         
Individually evaluated for impairment  $—   $76   $1   $28   $—   $221   $—   $326 
                                         
Collectively evaluated for impairment  $359   $894   $204   $1,883   $16   $399   $578   $4,333 
                                         
Loans                                        
June 30, 2019                                        
Individually evaluated for impairment  $389   $362   $54   $2,937   $—   $2,613        $6,355 
Collectively evaluated for impairment   40,492    84,720    24,628    138,005    9,948    93,079         390,872 
Ending balance  $40,881   $85,082   $24,682   $140,942   $9,948   $95,692        $397,227 
                                         
December 31, 2018                                        
Individually evaluated for impairment  $578   $21   $90   $623   $—   $2,712        $4,024 
Collectively evaluated for impairment   48,531    91,385    24,292    138,830    8,843    93,168         405,049 
Ending balance  $49,109   $91,406   $24,382   $139,453   $8,843   $95,880        $409,073 

 

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, 
   2019   2018   2019   2018   2019   2018 
Risk ratings 1 and 2  $12,032   $15,300   $12,759   $11,972   $9,208   $7,962 
Risk rating 3   17,950    23,938    41,464    50,266    88,377    89,173 
Risk rating 4   9,829    9,082    27,666    23,961    37,280    36,193 
Risk rating 5   681    211    2,846    5,204    2,469    4,850 
Risk rating 6   389    578    347    3    3,608    1,275 
   $40,881   $49,109   $85,082   $91,406   $140,942   $139,453 

 

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, 
   2019   2018   2019   2018   2019   2018 
Performing  $24,640   $24,320   $9,948   $8,843   $94,775   $94,925 
Nonperforming   —    —    —    —    —    — 
Nonaccrual   42    62    —    —    917    955 
   $24,682   $24,382   $9,948   $8,843   $95,692   $95,880 

 

The following schedule provides information on loans that were considered TDRs that were modified during the three- and six-month periods ended June 30, 2019 and June 30, 2018:

 

   Three Months Ended June 30, 2019   Six Months Ended June 30, 2019 
       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   2   $2,471   $2,471    2   $2,471   $2,471 
Residential real estate   1    17    17    1    17    17 
    3   $2,488   $2,488    3   $2,488   $2,488 

 

   Three Months Ended June 30, 2018   Six Months Ended June 30, 2018 
       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 and industrial   —   $—   $—    1   $39   $39 

 

The pre-modification and post-modification outstanding recorded investments represent 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 June 30, 2019 and 2018 where the borrower was past due with respect to principal and/or interest for 30 days or more during the three and six-month periods ended June 30, 2019 and June 30, 2018 that had been modified during the year prior to the default:

 

   Three Months Ended   Six Months Ended 
   June 30, 2019   June 30, 2019 
(Dollars in thousands)  Number   Recorded   Number   Recorded 
   of Loans   Investment   of Loans   Investment 
Commercial real estate   2   $2,471    2   $2,471 

 

   Three Months Ended   Six Months Ended 
   June 30, 2018   June 30, 2018 
(Dollars in thousands)  Number   Recorded   Number   Recorded 
   of Loans   Investment   of Loans   Investment 
Commercial and industrial   1   $39    1   $39 

 

Impaired loans by loan category follow:

 

       Unpaid     
(Dollars in thousands)  Recorded   Principal   Related 
   Investment   Balance   Allowance 
June 30, 2019               
With no related allowance recorded               
  Agricultural  $—   $—   $— 
  Commercial and industrial   —    —    — 
  Consumer   —    —    — 
  Commercial real estate   —    —    — 
  Construction real estate   —    —    — 
  Residential real estate   115    115    — 
Total   115    115    — 
With an allowance recorded               
  Agricultural   389    469    80 
  Commercial and industrial   362    446    84 
  Consumer   54    64    10 
  Commercial real estate   2,937    3,542    605 
  Construction real estate   —    —    — 
  Residential real estate   2,498    2,656    159 
Total   6,240    7,177    938 
Total               
  Agricultural   389    469    80 
  Commercial and industrial   362    446    84 
  Consumer   54    64    10 
  Commercial real estate   2,937    3,542    605 
  Construction real estate   —    —    — 
  Residential real estate   2,613    2,771    159 
Total  $6,355   $7,292   $938 
                
December 31, 2018               
With no related allowance recorded               
  Agricultural  $185   $185   $— 
  Commercial and industrial   —    —    — 
  Consumer   1    1    — 
  Construction real estate   —    —    — 
  Commercial real estate   73    109    — 
  Residential real estate   250    261    — 
Total   509    556    — 
With an allowance recorded               
  Agricultural   393    440    94 
  Commercial and industrial   21    21    3 
  Consumer   89    89    13 
  Construction real estate   —    —    — 
  Commercial real estate   550    609    20 
  Residential real estate   2,462    2,494    167 
Total   3,515    3,653    297 
Total               
  Agricultural   578    625    94 
  Commercial and industrial   21    21    3 
  Consumer   90    90    13 
  Construction real estate   —    —    — 
  Commercial real estate   623    718    20 
  Residential real estate   2,712    2,755    167 
Total  $4,024   $4,209   $297 

 

The following schedule provides information regarding average balances of impaired loans and interest recognized on impaired loans for the six months ended June 30, 2019 and 2018:

 

   Average   Interest 
(Dollars in thousands)  Recorded   Income 
   Investment   Recognized 
June 30, 2019          
With no related allowance recorded          
  Agricultural  $62   $— 
  Commercial and industrial   —    10 
  Consumer   —    — 
  Commercial real estate   49    75 
  Residential real estate   174    54 
Total   285    139 
With an allowance recorded          
  Agricultural   390    — 
  Commercial and industrial   136    — 
  Consumer   69    — 
  Commercial real estate   1,340    — 
  Residential real estate   2,498    — 
Total   4,433    0 
Total          
  Agricultural   452    — 
  Commercial and industrial   136    10 
  Consumer   69    — 
  Commercial real estate   1,389    75 
  Residential real estate   2,672    54 
Total  $4,718   $139 

 

   Average   Interest 
(Dollars in thousands)  Recorded   Income 
   Investment   Recognized 
June 30, 2018          
With no related allowance recorded          
  Agricultural  $423   $— 
  Commercial and industrial   20    2 
  Consumer   3    — 
  Commercial real estate   79    — 
  Residential real estate   137    1 
Total   662    3 
With an allowance recorded          
  Agricultural   —    — 
  Commercial and industrial   215    8 
  Consumer   43    1 
  Commercial real estate   733    22 
  Residential real estate   2,633    63 
Total   3,624    94 
Total          
  Agricultural   423    — 
  Commercial and industrial   235    10 
  Consumer   46    1 
  Commercial real estate   812    22 
  Residential real estate   2,770    64 
Total  $4,286   $97 

 

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, 2019                                   
Agricultural  $—   $—   $—   $—   $40,881   $40,881   $— 
Commercial and industrial   —    —    —    —    85,082    85,082    — 
Consumer   77    6    5    88    24,594    24,682    — 
Commercial real estate   1,372    1,099    —    2,471    138,471    140,942    — 
Construction real estate   —    —    —    —    9,948    9,948    — 
Residential real estate   660    250    124    1,034    94,658    95,692    — 
   $2,109   $1,355   $129   $3,593   $393,634   $397,227   $— 
                                    
December 31, 2018                                   
Agricultural  $—   $—   $—   $—   $49,109   $49,109   $— 
Commercial and industrial   5    —    —    5    91,401    91,406    — 
Consumer   149    40    11    200    24,182    24,382    — 
Commercial real estate   —    —    73    73    139,380    139,453    — 
Construction real estate   —    —    —    —    8,843    8,843    — 
Residential real estate   1,493    486    648    2,627    93,253    95,880    — 
   $1,647   $526   $732   $2,905   $406,168   $409,073   $— 

 

(1) Includes nonaccrual loans.

 

Nonaccrual loans by loan category follow:

 

(Dollars in thousands)  June 30,   December 31, 
   2019   2018 
Agricultural  $389   $393 
Commercial and industrial   346    — 
Consumer   42    62 
Commercial real estate   2,516    123 
Construction real estate   —    — 
Residential real estate   917    954 
   $4,210   $1,532