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Note 5 - Loans and Allowance for Loan Losses
 12 Months Ended
Dec. 31, 2017
Notes to Financial Statements  
Loans, Notes, Trade and Other Receivables Disclosure [Text Block]
(
5
)       
LOANS AND ALLOWANCE FOR LOAN LOSSES
 
Loans at
December 31, 2017
and
2016
consisted of the following:
 
(In thousands)   2017   2016
         
Real estate mortgage loans:                
Residential   $
136,399
     $
137,842
  
Land    
18,198
      
13,895
  
Residential construction    
28,854
      
29,561
  
Commercial real estate    
100,133
      
96,462
  
Commercial real estate construction    
17,161
      
8,921
  
Commercial business loans    
34,114
      
24,056
  
Consumer loans:                
Home equity and second mortgage loans    
49,802
      
42,908
  
Automobile loans    
38,361
      
34,279
  
Loans secured by deposits    
1,751
      
1,879
  
Unsecured loans    
3,744
      
3,912
  
Other consumer loans    
8,714
      
9,025
  
Gross loans    
437,231
      
402,740
  
Less undisbursed portion of loans in process    
(25,020
 )    
(19,037
 )
                 
Principal loan balance    
412,211
      
383,703
  
                 
Deferred loan origination fees and costs, net    
1,041
      
837
  
Allowance for loan losses    
(3,634
 )    
(3,386
 )
                 
Loans, net   $
409,618
     $
381,154
  
 
At
December 31, 2017
and
2016,
the net unaccreted discount on loans acquired from Peoples, excluding PCI loans, was
$87,000
and
$137,000,
respectively.
 
At
December 31, 2017
and
2016,
residential mortgage loans secured by residential properties without private mortgage insurance or government guarantee and with loan-to-value ratios exceeding
90%
amounted to approximately
$3.2
million and
$3.7
million, respectively.
 
Mortgage loans serviced for the benefit of others amounted to
$117,000
and
$126,000
at
December 31, 2017
and
2016,
respectively.
 
The Bank has entered into loan transactions with certain directors, officers and their affiliates (i.e., related parties). In the opinion of management, such indebtedness was incurred in the ordinary course of business on substantially the same terms, including interest rate and collateral, as those prevailing at the time for comparable transactions with unrelated persons and does
not
involve more than normal risk of collectability or present other unfavorable features.
 
The following table represents the aggregate activity for related party loans during the years ended
December 31, 2017
and
2016.
Adjustments are made to reflect new directors and officers added during the year, as well as directors and officers that left the Company during the year.
 
(In thousands)   2017   2016
         
Beginning balance   $
7,844
     $
8,175
  
Adjustments due to officer and director changes    
(93
 )    
(900
 )
New loans    
1,303
      
2,897
  
Payments    
(1,415
 )    
(2,328
 )
                 
Ending balance   $
7,639
     $
7,844
  
 
Off-balance-sheet commitments (including commitments to make loans, unused lines of credit and letters of credit) to related parties at
December 31, 2017
and
2016
were
$2.8
million and
$2.4
million, respectively.
 
The following table provides the components of the Company’s recorded investment in loans at
December 31, 2017
and
2016:
 
 
 
Residential
Real Estate
 
Land
 
Construction
 
Commercial Real Estate
 
Commercial Business
 
Home
Equity and Second Mortgage
 
Other Consumer
 
Total
 
 
(In thousands)
December 31, 2017:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Principal loan balance
 
$
136,399
 
 
$
18,198
 
 
$
20,995
 
 
$
100,133
 
 
$
34,114
 
 
$
49,802
 
 
$
52,570
 
 
$
412,211
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accrued interest receivable
 
 
474
 
 
 
94
 
 
 
49
 
 
 
249
 
 
 
87
 
 
 
189
 
 
 
223
 
 
 
1,365
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net deferred loan origination fees and costs
 
 
87
 
 
 
17
 
 
 
(10
)
 
 
(42
)
 
 
2
 
 
 
987
 
 
 
-
 
 
 
1,041
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Recorded investment in loans
 
$
136,960
 
 
$
18,309
 
 
$
21,034
 
 
$
100,340
 
 
$
34,203
 
 
$
50,978
 
 
$
52,793
 
 
$
414,617
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2016:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Principal loan balance
 
$
137,842
 
 
$
13,895
 
 
$
19,445
 
 
$
96,462
 
 
$
24,056
 
 
$
42,908
 
 
$
49,095
 
 
$
383,703
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accrued interest receivable
 
 
455
 
 
 
42
 
 
 
44
 
 
 
249
 
 
 
67
 
 
 
141
 
 
 
226
 
 
 
1,224
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net deferred loan origination fees and costs
 
 
80
 
 
 
14
 
 
 
-
 
 
 
(42
)
 
 
3
 
 
 
782
 
 
 
-
 
 
 
837
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Recorded investment in loans
 
$
138,377
 
 
$
13,951
 
 
$
19,489
 
 
$
96,669
 
 
$
24,126
 
 
$
43,831
 
 
$
49,321
 
 
$
385,764
 
 
An analysis of the allowance for loan losses and recorded investment in loans as of and for the year ended
December 31, 2017
is as follows:
 
 
 
Residential

Real Estate
 
Land
 
Construction
 
Commercial
Real Estate
 
Commercial
Business
 
Home
Equity and
Second
Mortgage
 
Other
Consumer
 
Total
 
 
(In thousands)
Allowance for Loan Losses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
 
$
380
 
 
$
56
 
 
$
80
 
 
$
1,670
 
 
$
198
 
 
$
683
 
 
$
319
 
 
$
3,386
 
Provisions
 
 
(120
)
 
 
77
 
 
 
165
 
 
 
(124
)
 
 
226
 
 
 
28
 
 
 
663
 
 
 
915
 
Charge-offs
 
 
(74
)
 
 
-
 
 
 
-
 
 
 
(3
)
 
 
(140
)
 
 
(6
)
 
 
(713
)
 
 
(936
)
Recoveries
 
 
33
 
 
 
-
 
 
 
-
 
 
 
79
 
 
 
7
 
 
 
5
 
 
 
145
 
 
 
269
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ending balance
 
$
219
 
 
$
133
 
 
$
245
 
 
$
1,622
 
 
$
291
 
 
$
710
 
 
$
414
 
 
$
3,634
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ending allowance balance attributable to loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
 
$
35
 
 
$
-
 
 
$
-
 
 
$
-
 
 
$
4
 
 
$
13
 
 
$
-
 
 
$
52
 
Collectively evaluated for impairment
 
 
182
 
 
 
133
 
 
 
245
 
 
 
1,622
 
 
 
287
 
 
 
697
 
 
 
414
 
 
 
3,580
 
Acquired with deteriorated credit quality
 
 
2
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
2
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ending balance
 
$
219
 
 
$
133
 
 
$
245
 
 
$
1,622
 
 
$
291
 
 
$
710
 
 
$
414
 
 
$
3,634
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Recorded Investment in Loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
 
$
2,907
 
 
$
-
 
 
$
-
 
 
$
401
 
 
$
42
 
 
$
73
 
 
$
-
 
 
$
3,423
 
Collectively evaluated for impairment
 
 
133,703
 
 
 
18,309
 
 
 
21,034
 
 
 
99,891
 
 
 
34,161
 
 
 
50,905
 
 
 
52,793
 
 
 
410,796
 
Acquired with deteriorated credit quality
 
 
350
 
 
 
-
 
 
 
-
 
 
 
48
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
398
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ending balance
 
$
136,960
 
 
$
18,309
 
 
$
21,034
 
 
$
100,340
 
 
$
34,203
 
 
$
50,978
 
 
$
52,793
 
 
$
414,617
 
 
An analysis of the allowance for loan losses and recorded investment in loans as of and for the year ended
December 31, 2016
is as follows:
 
   
Residential
Real Estate
   Land   Construction   Commercial Real Estate   Commercial Business   Home
Equity and Second Mortgage		   Other Consumer   Total
    (In thousands)
Allowance for Loan Losses:                                                                
                                                                 
Beginning balance   $
527
     $
157
     $
47
     $
1,541
     $
261
     $
626
     $
256
     $
3,415
  
Provisions    
(87
 )    
(92
 )    
33
      
157
      
187
      
79
      
368
      
645
  
Charge-offs    
(118
 )    
(9
 )    
-
      
(82
 )    
(264
 )    
(36
 )    
(409
 )    
(918
 )
Recoveries    
58
      
-
      
-
      
54
      
14
      
14
      
104
      
244
  
                                                                 
Ending balance   $
380
     $
56
     $
80
     $
1,670
     $
198
     $
683
     $
319
     $
3,386
  
                                                                 
Ending allowance balance attributable to loans:                                                                
                                                                 
Individually evaluated for impairment   $
23
     $
-
     $
-
     $
-
     $
43
     $
13
     $
6
     $
85
  
Collectively evaluated for impairment    
357
      
56
      
80
      
1,670
      
155
      
670
      
313
      
3,301
  
Acquired with deteriorated credit quality    
-
      
-
      
-
      
-
      
-
      
-
      
-
      
-
  
                                                                 
Ending balance   $
380
     $
56
     $
80
     $
1,670
     $
198
     $
683
     $
319
     $
3,386
  
                                                                 
Recorded Investment in Loans:                                                                
                                                                 
Individually evaluated for impairment   $
2,083
     $
-
     $
-
     $
1,217
     $
143
     $
244
     $
20
     $
3,707
  
Collectively evaluated for impairment    
135,904
      
13,951
      
19,489
      
95,212
      
23,983
      
43,587
      
49,301
      
381,427
  
Acquired with deteriorated credit quality    
390
      
-
      
-
      
240
      
-
      
-
      
-
      
630
  
                                                                 
Ending balance   $
138,377
     $
13,951
     $
19,489
     $
96,669
     $
24,126
     $
43,831
     $
49,321
     $
385,764
  
 
An analysis of the allowance for loan losses for the year ended
December 31, 2015
is as follows:
 
   
Residential
Real Estate
   Land   Construction   Commercial Real Estate   Commercial Business   Home
Equity and Second Mortgage		   Other Consumer   Total
    (In thousands)
Allowance for Loan Losses:
                                                                
                                                                 
Beginning balance   $
609
     $
201
     $
60
     $
1,501
     $
1,480
     $
720
     $
275
     $
4,846
  
Provisions    
35
      
(44
 )    
(13
 )    
6
      
(23
 )    
(49
 )    
138
      
50
  
Charge-offs    
(128
 )    
-
      
-
      
-
      
(1,205
 )    
(78
 )    
(268
 )    
(1,679
 )
Recoveries    
11
      
-
      
-
      
34
      
9
      
33
      
111
      
198
  
                                                                 
Ending balance   $
527
     $
157
     $
47
     $
1,541
     $
261
     $
626
     $
256
     $
3,415
  
 
At
December 31, 2017
and
2016,
management applied specific qualitative factor adjustments to various portfolio segments as they determined that the historical loss experience was
not
indicative of the level of risk in the remaining balance of those portfolio segments. These adjustments increased the historical loss factors by
0.33%
to
20%
for certain loan groups, and increased the estimated allowance for loan losses related to those portfolio segments by approximately
$2.1
million and
$1.8
million, respectively. These changes were made to reflect management’s estimates of inherent losses in these portfolio segments at
December 31, 2017
and
2016.
 
At
December 31, 2017
and
2016,
for each loan portfolio segment management applied an overall qualitative factor of
1.18
to the Company’s historical loss factors. The overall qualitative factor is derived from management’s analysis of changes and trends in the following qualitative factors:
 
• Underwriting Standards – Management reviews the findings of periodic internal audit loan reviews, independent outsourced loan reviews and loan reviews performed by the banking regulators to evaluate the risk associated with changes in underwriting standards. At
December 31, 2017
and
2016,
management assessed the risk associated with this component as neutral, requiring
no
adjustment to the historical loss factors.
 
• Economic Conditions – Management analyzes trends in housing and unemployment data in the Louisville, Kentucky metropolitan area, the Company’s primary market area, to evaluate the risk associated with economic conditions. Due to a decrease in new home construction and an increase in unemployment in the Company’s primary market area, management assigned a risk factor of
1.20
for this component at
December 31, 2017
and
2016.
 
• Past Due Loans – Management analyzes trends in past due loans for the Company to evaluate the risk associated with delinquent loans. In general, past due loan ratios have remained at elevated levels compared to historical amounts since
2007,
and management assigned a risk factor of
1.20
for this component at
December 31, 2017
and
2016.
 
• Other Internal and External Factors – This component includes management’s consideration of other qualitative factors such as loan portfolio composition. The Company has focused on the origination of commercial business and real estate loans in an effort to convert the Company’s balance sheet from that of a traditional thrift institution to a commercial bank. In addition, the Company has increased its investment in mortgage loans in which it does
not
hold a
first
lien position. Commercial loans and
second
mortgage loans generally entail greater credit risk than residential mortgage loans secured by a
first
lien. As a result of changes in the loan portfolio composition and other factors, management has maintained the elevated risk factor of
1.30
for this component at
December 31, 2017
and
2016.
 
Each of the
four
factors above was assigned an equal weight to arrive at an average for the overall qualitative factor of
1.18
at
December 31, 2017
and
2016.
The effect of the overall qualitative factor was to increase the estimated allowance for loan losses by
$536,000
and
$501,000
at
December 31, 2017
and
2016,
respectively.
 
Management also adjusts the historical loss factors for loans classified as watch, special mention and substandard that are
not
individually evaluated for impairment. The adjustments consider the increased likelihood of loss on classified loans based on the Company’s separate historical experience for classified loans. The effect of the adjustments for classified loans was to increase the estimated allowance for loan losses by
$506,000
and
$559,000
at
December 31, 2017
and
2016,
respectively.
 
The following table summarizes the Company’s impaired loans as of and for the year ended
December 31, 2017.
The Company did
not
recognize any interest income on impaired loans using the cash receipts method of accounting for the year ended
December 31, 2017.
 
 
 
 
 Unpaid
 
 
Average
 
Interest
 
 
Recorded
 
Principal
 
Related
 
Recorded
 
Income
 
 
Investment
 
Balance
 
Allowance
 
Investment
 
Recognized
 
 
(In thousands)
 
 
 
 
 
 
 
 
 
 
 
Loans with no related allowance recorded:
 
 
 
 
 
 
 
 
 
 
Residential real estate
 
$
2,695
 
 
$
2,948
 
 
$
-
 
 
$
2,437
 
 
$
28
 
Land
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
2
 
Construction
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
Commercial real estate
 
 
401
 
 
 
535
 
 
 
-
 
 
 
686
 
 
 
16
 
Commercial business
 
 
12
 
 
 
12
 
 
 
-
 
 
 
57
 
 
 
1
 
Home equity and second mortgage
 
 
60
 
 
 
68
 
 
 
-
 
 
 
194
 
 
 
1
 
Other consumer
 
 
-
 
 
 
-
 
 
 
-
 
 
 
4
 
 
 
-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
3,168
 
 
$
3,563
 
 
$
-
 
 
$
3,378
 
 
$
48
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans with an allowance recorded:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential real estate
 
$
212
 
 
$
218
 
 
$
35
 
 
$
140
 
 
$
-
 
Land
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
Construction
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
Commercial real estate
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
Commercial business
 
 
30
 
 
 
30
 
 
 
4
 
 
 
40
 
 
 
-
 
Home equity and second mortgage
 
 
13
 
 
 
13
 
 
 
13
 
 
 
20
 
 
 
-
 
Other consumer
 
 
-
 
 
 
-
 
 
 
-
 
 
 
14
 
 
 
-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
255
 
 
$
261
 
 
$
52
 
 
$
214
 
 
$
-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential real estate
 
$
2,907
 
 
$
3,166
 
 
$
35
 
 
$
2,577
 
 
$
28
 
Land
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
2
 
Construction
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
Commercial real estate
 
 
401
 
 
 
535
 
 
 
-
 
 
 
686
 
 
 
16
 
Commercial business
 
 
42
 
 
 
42
 
 
 
4
 
 
 
97
 
 
 
1
 
Home equity and second mortgage
 
 
73
 
 
 
81
 
 
 
13
 
 
 
214
 
 
 
1
 
Other consumer
 
 
-
 
 
 
-
 
 
 
-
 
 
 
18
 
 
 
-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
3,423
 
 
$
3,824
 
 
$
52
 
 
$
3,592
 
 
$
48
 
 
The following table summarizes the Company’s impaired loans as of and for the year ended
December 31, 2016.
The Company did
not
recognize any interest income on impaired loans using the cash receipts method of accounting for the year ended
December 31, 2016.
 
 
 
 
 Unpaid
 
 
Average
 
Interest
 
 
Recorded
 
Principal
 
Related
 
Recorded
 
Income
 
 
Investment
 
Balance
 
Allowance
 
Investment
 
Recognized
 
 
(In thousands)
 
 
 
 
 
 
 
 
 
 
 
Loans with no related allowance recorded:
 
 
 
 
 
 
 
 
 
 
Residential real estate
 
$
1,871
 
 
$
2,223
 
 
$
-
 
 
$
1,904
 
 
$
26
 
Land
 
 
-
 
 
 
-
 
 
 
-
 
 
 
5
 
 
 
-
 
Construction
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
3
 
Commercial real estate
 
 
1,217
 
 
 
1,540
 
 
 
-
 
 
 
2,959
 
 
 
60
 
Commercial business
 
 
75
 
 
 
81
 
 
 
-
 
 
 
66
 
 
 
-
 
Home equity and second mortgage
 
 
231
 
 
 
237
 
 
 
-
 
 
 
88
 
 
 
2
 
Other consumer
 
 
-
 
 
 
-
 
 
 
-
 
 
 
4
 
 
 
1
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
3,394
 
 
$
4,081
 
 
$
-
 
 
$
5,026
 
 
$
92
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans with an allowance recorded:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential real estate
 
$
212
 
 
$
217
 
 
$
23
 
 
$
148
 
 
$
-
 
Land
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
Construction
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
Commercial real estate
 
 
-
 
 
 
-
 
 
 
-
 
 
 
99
 
 
 
-
 
Commercial business
 
 
68
 
 
 
68
 
 
 
43
 
 
 
54
 
 
 
-
 
Home equity and second mortgage
 
 
13
 
 
 
14
 
 
 
13
 
 
 
27
 
 
 
-
 
Other consumer
 
 
20
 
 
 
20
 
 
 
6
 
 
 
22
 
 
 
-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
313
 
 
$
319
 
 
$
85
 
 
$
350
 
 
$
-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential real estate
 
$
2,083
 
 
$
2,440
 
 
$
23
 
 
$
2,052
 
 
$
26
 
Land
 
 
-
 
 
 
-
 
 
 
-
 
 
 
5
 
 
 
-
 
Construction
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
3
 
Commercial real estate
 
 
1,217
 
 
 
1,540
 
 
 
-
 
 
 
3,058
 
 
 
60
 
Commercial business
 
 
143
 
 
 
149
 
 
 
43
 
 
 
120
 
 
 
-
 
Home equity and second mortgage
 
 
244
 
 
 
251
 
 
 
13
 
 
 
115
 
 
 
2
 
Other consumer
 
 
20
 
 
 
20
 
 
 
6
 
 
 
26
 
 
 
1
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
3,707
 
 
$
4,400
 
 
$
85
 
 
$
5,376
 
 
$
92
 
 
The following table summarizes the Company’s impaired loans for the year ended
December 31, 2015.
The Company did
not
recognize any interest income on impaired loans using the cash receipts method of accounting for the year ended
December 31, 2015.
 
 
 
Average
 
Interest
 
 
Recorded
 
Income
 
 
Investment
 
Recognized
 
(In thousands)
 
 
 
 
 
Loans with no related allowance recorded:
 
 
 
 
 
 
 
 
Residential real estate
 
$
1,356
 
 
$
19
 
Land
 
 
20
 
 
 
-
 
Construction
 
 
-
 
 
 
-
 
Commercial real estate
 
 
2,092
 
 
 
76
 
Commercial business
 
 
19
 
 
 
-
 
Home equity and second mortgage
 
 
64
 
 
 
2
 
Other consumer
 
 
-
 
 
 
-
 
 
 
 
 
 
 
 
 
 
 
 
$
3,551
 
 
$
97
 
 
 
 
 
 
 
 
 
 
Loans with an allowance recorded:
 
 
 
 
 
 
 
 
Residential real estate
 
$
190
 
 
$
-
 
Land
 
 
-
 
 
 
-
 
Construction
 
 
-
 
 
 
-
 
Commercial real estate
 
 
78
 
 
 
-
 
Commercial business
 
 
355
 
 
 
-
 
Home equity and second mortgage
 
 
80
 
 
 
-
 
Other consumer
 
 
-
 
 
 
-
 
 
 
 
 
 
 
 
 
 
 
 
$
703
 
 
$
-
 
 
 
 
 
 
 
 
 
 
Total:
 
 
 
 
 
 
 
 
Residential real estate
 
$
1,546
 
 
$
19
 
Land
 
 
20
 
 
 
-
 
Construction
 
 
-
 
 
 
-
 
Commercial real estate
 
 
2,170
 
 
 
76
 
Commercial business
 
 
374
 
 
 
-
 
Home equity and second mortgage
 
 
144
 
 
 
2
 
Other consumer
 
 
-
 
 
 
-
 
 
 
 
 
 
 
 
 
 
 
 
$
4,254
 
 
$
97
 
 
Nonperforming loans consists of nonaccrual loans and loans over
90
days past due and still accruing interest. The following table presents the recorded investment in nonperforming loans at
December 31, 2017
and
2016:
 
    December 31, 2017   December 31, 2016
    Nonaccrual
Loans		   Loans 90+ Days
Past Due
Still Accruing		   Total Nonperforming Loans   Nonaccrual
Loans		   Loans 90+ Days
Past Due
Still Accruing		   Total Nonperforming Loans
    (In thousands)
                         
Residential real estate   $
2,298
     $
109
     $
2,407
     $
1,634
     $
55
     $
1,689
  
Land    
-
      
95
      
95
      
-
      
-
      
-
  
Construction    
-
      
-
      
-
      
-
      
-
      
-
  
Commercial real estate    
139
      
-
      
139
      
924
      
-
      
924
  
Commercial business    
42
      
59
      
101
      
142
      
-
      
142
  
Home equity and second mortgage    
57
      
-
      
57
      
226
      
-
      
226
  
Other consumer    
-
      
28
      
28
      
20
      
23
      
43
  
                                                 
Total   $
2,536
     $
291
     $
2,827
     $
2,946
     $
78
     $
3,024
  
 
 
The following table presents the aging of the recorded investment in loans at
December 31, 2017:
 
    30-59 Days
Past Due		   60-89 Days
Past Due		   Over
90 Days
Past Due		   Total
Past Due		   Current   Purchased Credit Impaired Loans   Total
Loans
        (In thousands)
                             
Residential real estate   $
2,612
     $
338
     $
1,255
     $
4,205
     $
132,405
     $
350
     $
136,960
  
Land    
186
      
-
      
95
      
281
      
18,028
      
-
      
18,309
  
Construction    
-
      
-
      
-
      
-
      
21,034
      
-
      
21,034
  
Commercial real estate    
379
      
-
      
139
      
518
      
99,774
      
48
      
100,340
  
Commercial business    
46
      
49
      
102
      
197
      
34,006
      
-
      
34,203
  
Home equity and second mortgage    
468
      
27
      
13
      
508
      
50,470
      
-
      
50,978
  
Other consumer    
420
      
37
      
28
      
485
      
52,308
      
-
      
52,793
  
                                                         
Total   $
4,111
     $
451
     $
1,632
     $
6,194
     $
408,025
     $
398
     $
414,617
  
 
The following table presents the aging of the recorded investment in loans at
December 31, 2016:
 
    30-59 Days
Past Due		   60-89 Days
Past Due		   Over
90 Days
Past Due		   Total
Past Due		   Current   Purchased Credit Impaired Loans   Total
Loans
    (In thousands)
                             
Residential real estate   $
2,444
     $
707
     $
1,021
     $
4,172
     $
133,815
     $
390
     $
138,377
  
Land    
-
      
52
      
-
      
52
      
13,899
      
-
      
13,951
  
Construction    
-
      
-
      
-
      
-
      
19,489
      
-
      
19,489
  
Commercial real estate    
-
      
-
      
27
      
27
      
96,402
      
240
      
96,669
  
Commercial business    
155
      
-
      
83
      
238
      
23,888
      
-
      
24,126
  
Home equity and second mortgage    
352
      
-
      
13
      
365
      
43,466
      
-
      
43,831
  
Other consumer    
319
      
66
      
43
      
428
      
48,893
      
-
      
49,321
  
                                                         
Total   $
3,270
     $
825
     $
1,187
     $
5,282
     $
379,852
     $
630
     $
385,764
  
 
 
The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, public information, historical payment experience, credit documentation, and current economic trends, among other factors. The Company classifies loans based on credit risk at least quarterly. The Company uses the following regulatory definitions for risk ratings:
 
Special Mention:
Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses
may
result in deterioration of the repayment prospects for the loan or of the Company’s credit position at some future date.
 
Substandard:
Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are
not
corrected.
 
Doubtful:
Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.
 
Loss:
Loans classified as loss are considered uncollectible and of such little value that their continuance on the Company’s books as an asset is
not
warranted.
 
Loans
not
meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans.
 
The following table presents the recorded investment in loans by risk category as of the date indicated:
 
    Residential
Real Estate		   Land   Construction   Commercial Real Estate   Commercial Business   Home
Equity and Second Mortgage		   Other Consumer   Total
    (In thousands)
December 31, 2017:                                                                
Pass   $
133,618
     $
18,003
     $
20,173
     $
97,219
     $
33,245
     $
50,919
     $
52,629
     $
405,806
  
Special mention    
348
      
157
      
861
      
1,362
      
734
      
-
      
161
      
3,623
  
Substandard    
684
      
149
      
-
      
1,620
      
182
      
2
      
3
      
2,640
  
Doubtful    
2,310
      
-
      
-
      
139
      
42
      
57
      
-
      
2,548
  
Loss    
-
      
-
      
-
      
-
      
-
      
-
      
-
      
-
  
                                                                 
Total   $
136,960
     $
18,309
     $
21,034
     $
100,340
     $
34,203
     $
50,978
     $
52,793
     $
414,617
  
                                                                 
December 31, 2016
:
                                                                
Pass   $
135,328
     $
13,795
     $
19,489
     $
87,782
     $
23,246
     $
43,601
     $
49,256
     $
372,497
  
Special mention    
403
      
86
      
-
      
1,892
      
661
      
-
      
45
      
3,087
  
Substandard    
721
      
70
      
-
      
5,991
      
77
      
4
      
-
      
6,863
  
Doubtful    
1,925
      
-
      
-
      
1,004
      
142
      
226
      
20
      
3,317
  
Loss    
-
      
-
      
-
      
-
      
-
      
-
      
-
      
-
  
                                                                 
Total   $
138,377
     $
13,951
     $
19,489
     $
96,669
     $
24,126
     $
43,831
     $
49,321
     $
385,764
  
 
Troubled Debt Restructurings
 
The following table summarizes the Company’s TDRs by accrual status as of
December 31, 2017
and
2016:
 
    December 31, 2017   December 31, 2016
    Accruing   Nonaccrual   Total   Related
Allowance
for Loan
Losses		   Accruing   Nonaccrual   Total   Related
Allowance
for Loan
Losses
    (In thousands)
                                 
Residential real estate   $
487
     $
106
     $
593
     $
-
     $
433
     $
229
     $
662
     $
-
  
Commercial real estate    
356
      
-
      
356
      
-
      
291
      
168
      
459
      
-
  
Home equity and second mortgage    
15
      
-
      
15
      
-
      
18
      
-
      
18
      
-
  
                                                                 
Total   $
858
     $
106
     $
964
     $
-
     $
742
     $
397
     $
1,139
     $
-
  
 
At
December 31, 2017
and
2016,
there were
no
commitments to lend additional funds to debtors whose loan terms have been modified in a TDR.
 
The Company restructured
one
residential real estate loan in a TDR during the year ended
December 31, 2017,
with a pre-modification and post-modification outstanding balance of
$65,000
.
There were
no
TDRs that were restructured during the years ended
December 31, 2016
and
2015.
For the TDR restructured during
2017,
the terms of modification included the deferral of contractual principal payments. There were
no
principal charge-offs recorded as a result of TDRs during the years ended
December 31, 2017,
2016
and
2015.
 
The Company had payment defaults (defined as the loan becoming more than
90
days past due, being moved to nonaccrual status, or the collateral being foreclosed upon) for TDRs modified within the previous
12
months on
two
TDRs to the same borrower totaling
$187,000
during the year ended
December 31, 2015.
There were
no
such defaults during the years ended
December 31, 2017
and
2016.
In the event that a TDR subsequently defaults, the Company evaluates the restructuring for possible impairment. As a result, the related allowance for loan losses
may
be increased or charge-offs
may
be taken to reduce the carrying amount of the loan. The Company did
not
recognize any provisions for loan losses or net charge-offs as a result of defaulted TDRs for the years ended
December 31, 2017,
2016
and
2015.
 
Purchased Credit Impaired (“PCI”) Loans
 
Purchased loans acquired in a business combination are recorded at estimated fair value on their purchase date with
no
carryover of the related allowance for loan and lease losses. Such loans are accounted for individually or aggregated into pools of loans based on common risk characteristics such as credit score, loan type and date of origination. In determining the estimated fair value of purchased loans or pools, management considers a number of factors including the remaining life, estimated prepayments, estimated loss ratios, estimated value of the underlying collateral, and net present value of cash flows expected to be received, among others. Purchased loans are accounted for in accordance with guidance for certain loans acquired in a transfer (FASB ASC
310
-
30
), when the loans have evidence of credit deterioration since origination and it is probable at the date of acquisition that the acquirer will
not
collect all contractually required principal and interest payments. The difference between contractually required payments and the cash flows expected to be collected at acquisition is referred to as the nonaccretable difference. The difference between the expected cash flows and the fair value at acquisition is recorded as interest income over the remaining life of the loan or pool of loans and is referred to as the accretable yield. Subsequent decreases to the expected cash flows will generally result in a provision for loan and lease losses. Subsequent increases in expected cash flows will result in a reversal of the provision for loan losses to the extent of prior charges and then an adjustment to accretable yield, which is recognized as future interest income.
 
The following table presents the carrying amount of PCI loans accounted for under FASB ASC
310
-
30
at
December 31, 2017
and
2016:
 
(In thousands)   2017   2016
         
Residential real estate   $
350
     $
390
  
Commercial real estate    
48
      
240
  
Carrying amount    
398
      
630
  
Allowance for loan losses    
2
      
-
  
                 
    $
396
     $
630
  
 
The outstanding balance of PCI loans accounted for under FASB ASC
310
-
30,
including contractual principal, interest, fees and penalties was
$625,000
and
$754,000
at
December 31, 2017
and
2016,
respectively.
 
The allowance for loan losses related to PCI loans was
$2,000
at
December 31, 2017.
There was
no
allowance for loan losses related to PCI loans at
December 31, 2016.
Provisions for loan losses related to PCI loans were
$2,000
for the year ended
December 31, 2017.
There were
no
losses recognized or reductions of the allowance for loan losses on PCI loans for the years ended
December 31, 2016
and
2015.
 
Accretable yield, or income expected to be collected, is as follows for the years ended
December 31, 2017,
2016
and
2015:
 
(In thousands)   2017   2016   2015
             
Beginning balance   $
252
     $
319
     $
-
  
New loans acquired    
-
      
-
      
331
  
Accretion to income    
(55
 )    
(75
 )    
(12
 )
Disposals of loans    
(21
 )    
(93
 )    
-
  
Reclassification (to) from nonaccretable difference    
294
      
101
      
-
  
                         
Ending balance   $
470
     $
252
     $
319