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Note 3 - Allowance for Loan Losses, Nonperforming Assets and Impaired Loans
 9 Months Ended
Sep. 30, 2018
Notes to Financial Statements  
Allowance for Credit Losses [Text Block]
Note
3
:
     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 due 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, 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 “other assets especially mentioned.” 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.
 
   
A
ctivity in the Allowance for Loan Losses for the
Nine
Months Ended
September
30
, 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
  
 
---
    
 
(36
)
  
 
---
    
 
(107
)
  
 
---
    
 
(344
)
  
 
---
    
 
(487
)
Recoveries
  
 
---
    
 
2
    
 
37
    
 
22
    
 
---
    
 
121
    
 
---
    
 
182
  
Provision for (recovery of) loan losses
  
 
137
    
 
185
    
 
(42
)
  
 
(305
)
  
 
151
    
 
240
    
 
(273
 
)
  
 
93
  
Balance,
September
30
, 201
8
  
$
474
    
$
2,178
    
$
3,039
    
$
682
    
$
570
    
$
724
    
$
46
    
$
7,713
  
 
 
   
A
ctivity in the Allowance for Loan Losses for the
Nine
Months Ended
September
30
, 2017
  
   
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
)
    
(122
)
    
(73
)
    
---
      
(348
)
    
---
      
(689
)
Recoveries
    
---
      
1
      
44
      
14
      
---
      
79
      
---
      
138
  
Provision for (recovery of) loan losses
    
(140
)
    
337
      
33
      
111
      
55
      
357
      
(29
)
    
724
  
Balance,
September
30
, 2017
   $
298
     $
2,022
     $
3,693
     $
1,115
     $
385
     $
732
     $
228
     $
8,473
  
 
   
A
ctivity in the Allowance for Loan Losses 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
  
 
   
Allowance for Loan Losses as of
September
30
, 2018
  
   
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
  
$
---
    
$
14
    
$
---
    
$
142
    
$
---
    
$
---
    
$
---
    
$
156
  
Collectively evaluated for impairment
  
 
474
    
 
2,164
    
 
3,039
    
 
540
    
 
570
    
 
724
    
 
46
    
 
7,557
  
Total
  
$
474
    
$
2,178
    
$
3,039
    
$
682
    
$
570
    
$
724
    
$
46
    
$
7,713
  
 
   
Allowance for Loan Losses
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 as of
September
30
, 2018
  
   
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
  
$
2,470
    
$
1,688
    
$
6,610
    
$
1,149
    
$
---
    
$
17
    
$
---
    
$
11,934
  
Collectively evaluated for impairment
  
 
40,078
    
 
169,991
    
 
340,146
    
 
43,348
    
 
59,369
    
 
37,570
    
 
---
    
 
690,502
  
Total
  
$
42,548
    
$
171,679
    
$
346,756
    
$
44,497
    
$
59,369
    
$
37,587
    
$
---
    
$
702,436
  
 
   
Loans 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.
 
   
As of and for the
 
   
Nine Months Ended
September,
    
Year
E
nded
December 31,
  
   
2018
    
2017
    
2017
  
Ratio of allowance for loan losses to the end of period loans, net of unearned income and deferred fees and costs
  
 
1.10
%
    
1.28
%
    
1.19
%
Ratio of net charge-offs to average loans, net of unearned income and deferred fees and costs
(1)
  
 
0.06
%
    
0.11
%
    
0.08
%
 
(
1
)
Net charge-offs are on an annualized basis.
 
A summary of nonperforming assets follows.
 
   
September 30,
    
December 31,
  
   
2018
    
2017
    
2017
  
Nonperforming assets:
                        
Nonaccrual loans
  
$
220
     $
7
     $
6
  
Restructured loans in nonaccrual
  
 
2,856
      
3,149
      
2,763
  
Total nonperforming loans
  
 
3,076
      
3,156
      
2,769
  
Other real estate owned, net
  
 
2,214
      
2,923
      
2,817
  
Total nonperforming assets
  
$
5,290
     $
6,079
     $
5,586
  
Ratio of nonperforming assets to loans, net of unearned income and deferred fees and costs, plus other real estate owned
  
 
0.75
%
    
0.92
%
    
0.83
%
Ratio of allowance for loan losses to nonperforming loans
(1)
 
 
250.75
%
    
268.47
%
    
286.20
%
 
(
1
)
The Company defines nonperforming loans as nonaccrual loans and restructured loans that are nonaccrual. Nonperforming loans do
not
include loans
90
days past due and still accruing or accruing restructured loans.
 
A summary of loans past due
90
days or more and impaired loans follows.
 
   
September 30,
    
December 31,
  
   
2018
    
2017
    
2017
  
Loans past due 90 days or more and still accruing
  
$
63
     $
250
     $
51
  
Ratio of loans past due 90 days or more and still accruing to loans, net of unearned income and deferred fees and costs
  
 
0.01
%
    
0.04
%
    
0.01
%
Accruing restructured loans
  
$
7,843
     $
4,815
     $
5,134
  
Impaired loans:
                        
Impaired loans with no valuation allowance
  
$
10,530
     $
10,522
     $
10,444
  
Impaired loans with a valuation allowance
  
 
1,404
      
1,637
      
1,480
  
Total impaired loans
  
$
11,934
     $
12,159
     $
11,924
  
Valuation allowance
  
 
(156
)
    
(186
)
    
(177
)
Impaired loans, net of allowance
  
$
11,778
     $
11,973
     $
11,747
  
Average recorded investment in impaired loans
(1)
  
$
12,684
     $
12,541
     $
13,344
  
Interest income recognized on impaired loans, after designation as impaired
  
$
414
     $
387
     $
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.
 
Nonaccrual loan relationships that meet the Company’s balance threshold of
$250
and all TDRs are designated as impaired. The Company also designates as impaired other loan relationships that meet the Company’s balance threshold of
$250
and for which the Company does
not
expect to collect according to the note’s contractual terms.
No
interest income was recognized on nonaccrual loans for the
nine
months ended
September 30, 2018
or
September 30, 2017
or for the year ended
December 31, 2017.
 
A detailed analysis of investment in impaired loans, associated reserves and interest income recognized, segregated by loan class follows.     
 
   
Impaired Loans as of September 30, 2018
  
   
Principal
Balance
   
Total
Recorded
Investment
(1)
    
Recorded
Investment
(1
)
for
Which There is No
Related Allowance
    
Recorded
Investment
(1)
for
Which There is a
Related Allowance
    
Related
Allowance
 
Real Estate Construction
(2)
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Construction, other
  
$
2,470
    
$
2,470
    
$
2,470
    
$
---
    
$
---
  
Co
nsumer
Real Estate
(2)
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Residential closed-end first liens
  
 
928
    
 
882
    
 
707
    
 
175
    
 
10
  
Residential closed-end junior liens
  
 
150
    
 
150
    
 
---
    
 
150
    
 
4
  
Investor-owned residential real estate
  
 
678
    
 
656
    
 
656
    
 
---
    
 
---
  
Commercial Real Estate
(2)
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Multifamily
  
 
294
    
 
294
    
 
294
    
 
---
    
 
---
  
Commercial real estate, owner-occupied
  
 
3,529
    
 
3,520
    
 
3,520
    
 
---
    
 
---
  
Commercial real estate, other
  
 
3,152
    
 
2,796
    
 
2,796
    
 
---
    
 
---
  
Commercial Non Real Estate
(2)
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Commercial and industrial
  
 
1,158
    
 
1,149
    
 
70
    
 
1,079
    
 
142
  
Consumer Non Real Estate
(2)
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Automobile
  
 
17
    
 
17
    
 
17
    
 
---
    
 
---
  
Total
  
$
12,376
    
$
11,934
    
$
10,530
    
$
1,404
    
$
156
  
 
(
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.
 
   
Impaired Loans as of December 31, 2017
  
   
Principal
Balance
   
Total
Recorded
Investment
(1)
    
Recorded
Investment
(1)
for
Which There is No Related Allowance
    
Recorded
Investment
(1)
for
Which There is a
Related Allowance
    
Related
Allowance
 
Real Estate Construction
(2)
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Construction 1-4 family residential
   $
2,882
     $
2,882
     $
2,882
     $
---
     $
---
  
Co
nsumer
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.
 
The following tables show the average recorded investment and interest income recognized for impaired loans.
 
   
For the Nine Months Ended
September 30, 2018
  
   
Average
Recorded
Investment
(1)
    
Interest
Income
Recognized
  
Real Estate Construction
(2)
  
 
 
 
  
 
 
 
Construction 1-4 family residential
  
$
2,697
    
$
108
  
Co
nsumer
Real Estate
(2)
  
 
 
 
  
 
 
 
Residential closed-end first liens
  
 
891
    
 
40
  
Residential closed-end junior liens
  
 
162
    
 
7
  
Investor-owned residential real estate
  
 
661
    
 
18
  
Commercial Real Estate
(2)
  
 
 
 
  
 
 
 
Multifamily real estate
  
 
298
    
 
12
  
Commercial real estate, owner occupied
  
 
3,934
    
 
145
  
Commercial real estate, other
  
 
2,829
    
 
55
  
Commercial
Non Real Estate
(2)
  
 
 
 
  
 
 
 
Commercial and industrial
  
 
1,188
    
 
28
  
Consumer Non Real Estate
(2)
  
 
 
 
  
 
 
 
Automobile
  
 
24
    
 
1
  
Total
  
$
12,684
    
$
414
  
 
(
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.
 
 
   
For the Nine Months Ended
September 30, 2017
  
   
Average
Recorded
Investment
(1)
    
Interest
Income
Recognized
  
Real Estate Construction
(2)
  
 
 
 
  
 
 
 
Construction 1-4 family residential
   $
3,323
     $
133
  
Consumer Real Estate
(2)
  
 
 
 
  
 
 
 
Residential closed-end first liens
    
1,107
      
30
  
Residential closed-end junior liens
    
188
      
8
  
Investor-owned residential real estate
    
333
      
12
  
Commercial Real Estate
(2)
  
 
 
 
  
 
 
 
Multifamily real estate
    
310
      
12
  
Commercial real estate, owner occupied
    
3,420
      
140
  
Commercial real estate, other
    
2,658
      
45
  
Commercial Non Real Estate
(2)
  
 
 
 
  
 
 
 
Commercial and industrial
    
1,187
      
6
  
Consumer Non Real Estate
  
 
 
 
  
 
 
 
Automobile
    
15
      
1
  
Total
   $
12,541
     $
387
  
 
(
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.
 
   
For the Year Ended
December 31, 2017
  
   
Average
Recorded
Investment
(1)
    
Interest
Income
Recognized
  
Real Estate Construction
(2)
  
 
 
 
  
 
 
 
Construction 1-4 family residential
   $
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
  
Co
nsumer
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.
 
The Company reviews nonaccrual loans on an individual loan basis to determine whether future payments are reasonably assured. To satisfy this criteria, the Company’s evaluation must determine that the underlying cause of the original delinquency or weakness that indicated nonaccrual status has been resolved, such as receipt of new guarantees, increased cash flows that cover the debt service or other resolution. Nonaccrual loans that demonstrate reasonable assurance of future payments and that have made at least
six
consecutive payments in accordance with repayment terms and timeframes
may
be returned to accrual status.
 
An analysis of past due and nonaccrual loans
follows.
 
September 30, 2018
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
   
30 – 89 Days
Past Due and
Accruing
   
90 or
M
ore
Days Past Due
    
90 or More Days
Past Due and
Accruing
    
Nonaccruals
(2)
  
Consumer Real Estate
(1)
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Equity lines
  
 
70
    
 
---
    
 
---
    
 
---
  
Residential closed-end first liens
  
 
1,388
    
 
63
    
 
38
    
 
163
  
Residential closed-end junior liens
  
 
12
    
 
---
    
 
---
    
 
---
  
Investor-owned residential real estate
  
 
54
    
 
---
    
 
---
    
 
200
  
Commercial Real Estate
(1)
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Multifamily real estate
  
 
294
    
 
195
    
 
---
    
 
195
  
Commercial real estate, owner-occupied
  
 
379
    
 
---
    
 
---
    
 
---
  
Commercial real estate, other
  
 
---
    
 
2,510
    
 
---
    
 
2,510
  
Commercial Non Real Estate
(1)
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Commercial and industrial
  
 
196
    
 
---
    
 
---
    
 
8
  
Consumer Non Real Estate
(1)
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Credit cards
  
 
7
    
 
5
    
 
5
    
 
---
  
Automobile
  
 
322
    
 
10
    
 
10
    
 
---
  
Other consumer loans
  
 
46
    
 
10
    
 
10
    
 
---
  
Total
  
$
2,768
    
$
2,793
    
$
63
    
$
3,076
  
 
(
1
)
     Only classes with past-due or nonaccrual loans are shown.
(
2
)
     Includes current and past due loans in nonaccrual status. Includes impaired loans in nonaccrual status.
 
December 31, 2017
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
   
30 – 89 Days
Past Due and
Accruing
    
90 or
M
ore
Days Past Due
    
90 or More
Days Past Due
and Accruing
    
Nonaccruals
(2)
  
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 shown.
(
2
)
     Includes current and past due loans in nonaccrual status. Includes impaired loans in nonaccrual status.
 
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
September 30, 2018
and
December 31, 2017.
 
The following displays collectively-evaluated loans by credit quality indicator.
 
September
30
,
2018
 
   
Pass
(1)
    
Special
Mention
(1)
    
 
Classified
(1)
  
Real Estate
Construction
  
 
 
 
  
 
 
 
  
 
 
 
Construction, 1-4 family residential
  
$
9,281
    
$
---
    
$
---
  
Construction, other
  
 
30,776
    
 
21
    
 
---
  
Consumer Real Estate
  
 
 
 
  
 
 
 
  
 
 
 
Equity lines
  
 
16,653
    
 
296
    
 
---
  
Closed-end first liens
  
 
87,835
    
 
916
    
 
590
  
Closed-end junior liens
  
 
4,059
    
 
---
    
 
---
  
Investor-owned residential real estate
  
 
59,642
    
 
---
    
 
---
  
Commercial Real Estate
  
 
 
 
  
 
 
 
  
 
 
 
Multifamily residential real estate
  
 
93,296
    
 
---
    
 
195
  
Commercial real estate owner-occupied
  
 
122,589
    
 
74
    
 
32
  
Commercial real estate, other
  
 
123,960
    
 
---
    
 
---
  
Commercial
Non Real Estate
  
 
 
 
  
 
 
 
  
 
 
 
Commercial and industrial
  
 
43,176
    
 
167
    
 
5
  
Public Sector and IDA
  
 
 
 
  
 
 
 
  
 
 
 
States and political subdivisions
  
 
59,369
    
 
---
    
 
---
  
Consumer Non Real Estate
  
 
 
 
  
 
 
 
  
 
 
 
Credit cards
  
 
5,564
    
 
---
    
 
---
  
Automobile
  
 
15,912
    
 
78
    
 
49
  
Other consumer
  
 
15,934
    
 
24
    
 
9
  
Total
  
$
688,046
    
$
1,576
    
$
880
  
 
(
1
)
     
Excludes impaired, if any. 
 
The following displays collectively-evaluated loans by credit quality indicator.
 
December 31,
201
7
 
   
Pass
(1)
    
Special
Mention
(1)
    
 
Classified
(1)
  
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
  
 
(
1
)
     
Excludes impaired, if any.
 
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. Total troubled debt restructurings amounted to
$10,700
at
September 30, 2018,
$7,897
at
December 31, 2017,
and
$7,964
at
September 30, 2017.
 
The following table presents restructurings by class that occurred during the
three
month period ended
September 30, 2018.
 
   
Restructurings That Occurred During the Three Months
Ended September 30, 2018
  
   
Number of
Contracts
    
Pre-Modification
Outstanding
Principal Balance
    
Post-Modification
Outstanding
Principal Balance
  
Resident
ial Real Estate
  
 
 
 
  
 
 
 
  
 
 
 
Investor owned real estate
  
 
2
    
$
338
    
$
338
  
Total
  
 
2
    
$
338
    
$
338
  
 
The restructurings completed during the
three
-month period ended
September 30, 2018
provided payment relief to the borrowers without forgiving principal or interest.
One
loan was restructured to provide for a
12
-month interest-only period, after which the loan will be re-evaluated. The impairment measurement was based on the fair value of collateral and did
not
result in a specific allocation. The
second
restructure consolidated debt at a longer term, provided a rate reduction for certain of the loans consolidated but increased the interest rate on certain other loans consolidated, and capitalized interest. The impairment measurement was based upon the present value of cash flows and did
not
result in a specific allocation.
 
The following table presents restructurings by class that occurred during the
nine
month period ended
September 30, 2018.
 
   
Restructurings That Occurred During the Nine Months
Ended September 30, 2018
  
   
Number of
Contracts
    
Pre-Modification
Outstanding
Principal Balance
    
Post-Modification
Outstanding
Principal Balance
  
Real Estate Construction
  
 
 
 
  
 
 
 
  
 
 
 
Construction, other
  
 
2
    
$
2,882
    
$
2,882
  
Residential Real Estate
  
 
 
 
  
 
 
 
  
 
 
 
Investor owned real estate
  
 
2
    
 
338
    
 
338
  
Commercial Real Estate
  
 
 
 
  
 
 
 
  
 
 
 
Commercial real estate owner-occupied
  
 
2
    
 
715
    
 
715
  
Total
  
 
6
    
$
3,935
    
$
3,935
  
 
The Company restructured
six
loans during the
nine
month period ended
September 30, 2018.
Each of the construction loans were restructured to extend the maturity and interest only period. Impairment measurements were based on the fair value of the collateral and did
not
result in a specific allocation.
One
of the investor owned real estate loans was restructured to provide for a
12
-month interest-only period, after which the loan will be reevaluated. The impairment measurement was based on the fair value of collateral and did
not
result in a specific allocation. The
second
investor owned residential real estate loan consolidated debt at a longer term, provided a rate reduction for certain of the loans consolidated but increased the interest rate on certain other loans consolidated, and capitalized interest. The impairment measurement was based upon the present value of cash flows and did
not
result in a specific allocation.
Two
commercial real estate loans were restructured to provide a
12
-month interest-only period. 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 following table present restructurings by class that occurred during the
three
month period ended
September 30, 2017.
 
   
Restructurings That Occurred During the Three Months
Ended September 30, 2017
  
   
Number of
Contracts
    
Pre-Modification
Outstanding
Principal Balance
    
Post-Modification
Outstanding
Principal Balance
  
Commercial Non R
eal
E
state
  
 
 
 
  
 
 
 
  
 
 
 
Commercial and industrial
  
 
2
    
$
1,116
    
$
1,116
  
Consumer Non Real Estate
  
 
 
 
  
 
 
 
  
 
 
 
Automobile
  
 
2
    
 
14
    
 
14
  
Total
  
 
4
    
$
1,130
    
$
1,130
  
 
Each of the restructurings completed during the
three
-month period ended
September 30, 2017
provided payment relief to the borrowers without forgiving principal or interest. The
two
commercial non-real estate loans were restructured to reduce monthly debt service by increasing the amortization period and reducing the rate. Impairment measurement, based on the present value of cash flows, indicated a specific reserve for each of the commercial non-real estate loans. The
two
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. Impairment measurement was based on the present value of cash flows method and resulted in specific allocations for each loan.
 
The following table presents restructurings by class that occurred during the
nine
month period ending
September 30, 2017.
 
   
Restructurings That Occurred During the Nine Months
Ended September 30, 2017
  
   
Number of
Contracts
    
Pre-Modification
Outstanding
Principal Balance
    
Post-Modification
Outstanding
Principal Balance
  
Commercial Real Estate
  
 
 
 
  
 
 
 
  
 
 
 
Commercial real estate, owner occupied
  
 
1
    
$
132
    
$
132
  
Commercial Non R
eal
E
state
  
 
 
 
  
 
 
 
  
 
 
 
Commercial and industrial
  
 
4
    
 
1,234
    
 
1,234
  
Consumer Non Real Estate
  
 
 
 
  
 
 
 
  
 
 
 
Automobile
  
 
2
    
 
14
    
 
14
  
Total
  
 
7
    
$
1,380
    
$
1,380
  
 
Each of the restructurings completed during the
nine
-month period ended
September 30, 2017
provided payment relief to the borrowers without forgiving principal or interest. The commercial real estate loan was restructured to reduce monthly debt service by lowering the interest rate 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 the interest method on
one
commercial non-real estate loan 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
two
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. Impairment measurement was based on the present value of cash flows method and resulted in specific allocations for each loan.
The Company analyzed its TDR portfolio for loans that defaulted during the
three
and
nine
month periods ended
September 30, 2018
and
September 30, 2017,
and that were modified within
12
months prior to default. For these purposes, the Company defines default as
one
or more payments that occur more than
90
days past the due date, charge-offs, or foreclosure after the date of restructuring. Of the restructured loans that defaulted during the
three
and
nine
month periods ended
September 30, 2018
and
September 30, 2017,
none
were modified within
12
months prior to default.