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Allowance for Loan Losses
 3 Months Ended
Mar. 31, 2020
Allowance For Loan Losses [Abstract]  
Allowance for Loan Losses

Note 7:   Allowance for Loan Losses

 

Management extensively reviews recent trends in changes in the size and composition of the loan portfolio, historical loss experience, qualitative factors, and specific reserve needs on loans individually evaluated for impairment, in its determination of the adequacy of the allowance for loan losses.  We recorded $1.1 million in provision for loan losses for the three-month period ended March 31, 2020, as compared to $144,000 for the three-month period ended March 31, 2019.  The $923,000 increase in the provision for loan losses in the first quarter of 2020, as compared to the same quarter in 2019, resulted from year-over-year increases in: (1) the qualitative factors used in determining the adequacy of the allowance for loan losses, (2) the size of the loan portfolio, and (3) delinquent and nonaccrual loans.  The increase in the quantitative factors used in determining the provision for loan losses reflects the substantial increase in economic uncertainty and the resultant potential for increased credit losses in future periods as a consequence of the COVID-19 pandemic.  Outstanding loan balances increased $92.9 million, or 14.1%, in the quarter ended March 31, 2020, as compared to the same quarter in the previous year, and therefore required a corresponding increase in the estimable and probable loan losses inherent in the loan portfolio.  Finally, the provision for loan losses in the quarter ended March 31, 2020 was further increased, as compared to the same quarter in 2019, by the effects of an increase in the ratio of delinquent loans to total loans, which increased to 3.05% at March 31, 2020 as compared to 2.75% at March 31, 2019, coupled with an increase in nonaccrual loans that increased $1.2 million to $4.7 million at March 31, 2020 as compared to $3.4 million at March 31, 2019.

Summarized in the tables below are changes in the allowance for loan losses for the indicated periods and information pertaining to the allocation of the allowance for loan losses, balances of the allowance for loan losses, loans receivable based on individual, and collective impairment evaluation by loan portfolio class.  An allocation of a portion of the allowance to a given portfolio class does not limit the Company’s ability to absorb losses in another portfolio class.

 

 

 

March 31, 2020

 

 

 

1-4 family

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

first-lien

 

 

Residential

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

residential

 

 

construction

 

 

Commercial

 

 

Commercial

 

 

commercial

 

(In thousands)

 

mortgage

 

 

mortgage

 

 

real estate

 

 

lines of credit

 

 

and industrial

 

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning Balance

 

$

580

 

 

$

-

 

 

$

4,010

 

 

$

1,195

 

 

$

1,645

 

Charge-offs

 

 

(26

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Recoveries

 

 

1

 

 

 

-

 

 

 

-

 

 

 

2

 

 

 

-

 

Provisions

 

 

176

 

 

 

-

 

 

 

233

 

 

 

21

 

 

 

113

 

Ending balance

 

$

731

 

 

$

-

 

 

$

4,243

 

 

$

1,218

 

 

$

1,758

 

Ending balance: related to loans

   individually evaluated for impairment

 

$

95

 

 

$

-

 

 

$

76

 

 

$

98

 

 

$

379

 

Ending balance: related to loans

   collectively evaluated for impairment

 

$

636

 

 

$

-

 

 

$

4,167

 

 

$

1,120

 

 

$

1,379

 

Loans receivables:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance

 

$

212,149

 

 

$

2,338

 

 

$

261,929

 

 

$

59,354

 

 

$

84,774

 

Ending balance: individually

   evaluated for impairment

 

$

1,604

 

 

$

-

 

 

$

4,427

 

 

$

181

 

 

$

881

 

Ending balance: collectively

   evaluated for impairment

 

$

210,545

 

 

$

2,338

 

 

$

257,502

 

 

$

59,173

 

 

$

83,893

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home equity

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

Tax exempt

 

 

and junior liens

 

 

Consumer

 

 

Unallocated

 

 

Total

 

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning Balance

 

$

1

 

 

$

553

 

 

$

413

 

 

$

272

 

 

$

8,669

 

Charge-offs

 

 

-

 

 

 

(28

)

 

 

(133

)

 

 

-

 

 

 

(187

)

Recoveries

 

 

-

 

 

 

29

 

 

 

25

 

 

 

-

 

 

 

57

 

Provisions (credits)

 

 

-

 

 

 

57

 

 

 

541

 

 

 

(74

)

 

 

1,067

 

Ending balance

 

$

1

 

 

$

611

 

 

$

846

 

 

$

198

 

 

$

9,606

 

Ending balance: related to loans

   individually evaluated for impairment

 

$

-

 

 

$

128

 

 

$

1

 

 

$

-

 

 

$

777

 

Ending balance: related to loans

   collectively evaluated for impairment

 

$

1

 

 

$

483

 

 

$

845

 

 

$

198

 

 

$

8,829

 

Loans receivables:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance

 

$

7,937

 

 

$

44,732

 

 

$

76,839

 

 

$

150

 

 

$

750,202

 

Ending balance: individually

   evaluated for impairment

 

$

-

 

 

$

219

 

 

$

90

 

 

$

-

 

 

$

7,402

 

Ending balance: collectively

   evaluated for impairment

 

$

7,937

 

 

$

44,513

 

 

$

76,749

 

 

$

150

 

 

$

742,800

 

 

 

 

March 31, 2019

 

 

 

1-4 family

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

first-lien

 

 

Residential

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

residential

 

 

construction

 

 

Commercial

 

 

Commercial

 

 

commercial

 

(In thousands)

 

mortgage

 

 

mortgage

 

 

real estate

 

 

lines of credit

 

 

and industrial

 

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning Balance

 

$

766

 

 

$

-

 

 

$

3,578

 

 

$

730

 

 

$

1,285

 

   Charge-offs

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(107

)

 

 

(1

)

   Recoveries

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

   Provisions (credits)

 

 

(44

)

 

 

-

 

 

 

(208

)

 

 

179

 

 

 

276

 

Ending balance

 

$

722

 

 

$

-

 

 

$

3,370

 

 

$

802

 

 

$

1,560

 

Ending balance: related to loans

   individually evaluated for impairment

 

$

104

 

 

$

-

 

 

$

98

 

 

$

92

 

 

$

464

 

Ending balance: related to loans

   collectively evaluated for impairment

 

$

618

 

 

$

-

 

 

$

3,272

 

 

$

710

 

 

$

1,096

 

Loans receivables:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance

 

$

237,917

 

 

$

3,855

 

 

$

208,388

 

 

$

55,238

 

 

$

67,542

 

Ending balance: individually

   evaluated for impairment

 

$

1,422

 

 

$

-

 

 

$

2,863

 

 

$

318

 

 

$

1,052

 

Ending balance: collectively

   evaluated for impairment

 

$

236,495

 

 

$

3,855

 

 

$

205,525

 

 

$

54,920

 

 

$

66,490

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home equity

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

Tax exempt

 

 

and junior liens

 

 

Consumer

 

 

Unallocated

 

 

Total

 

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning Balance

 

$

1

 

 

$

409

 

 

$

385

 

 

$

152

 

 

$

7,306

 

   Charge-offs

 

 

-

 

 

 

-

 

 

 

(67

)

 

 

-

 

 

 

(175

)

   Recoveries

 

 

-

 

 

 

-

 

 

 

9

 

 

 

-

 

 

 

9

 

   Provisions (credits)

 

 

-

 

 

 

21

 

 

 

72

 

 

 

(152

)

 

 

144

 

Ending balance

 

$

1

 

 

$

430

 

 

$

399

 

 

$

-

 

 

$

7,284

 

Ending balance: related to loans

   individually evaluated for impairment

 

$

-

 

 

$

139

 

 

$

9

 

 

$

-

 

 

$

906

 

Ending balance: related to loans

   collectively evaluated for impairment

 

$

1

 

 

$

291

 

 

$

390

 

 

$

-

 

 

$

6,378

 

Loans receivables:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance

 

$

9,256

 

 

$

26,212

 

 

$

49,272

 

 

 

 

 

 

$

657,680

 

Ending balance: individually

   evaluated for impairment

 

$

-

 

 

$

207

 

 

$

101

 

 

 

 

 

 

$

5,963

 

Ending balance: collectively

   evaluated for impairment

 

$

9,256

 

 

$

26,005

 

 

$

49,171

 

 

 

 

 

 

$

651,717

 

 

The Company’s methodology for determining its allowance for loan losses includes an analysis of qualitative factors that are added to the historical loss rates in arriving at the total allowance for loan losses needed for this general pool of loans.  The qualitative factors include:

 

•

Changes in national and local economic trends;

 

•

The rate of growth in the portfolio;

 

•

Trends of delinquencies and nonaccrual balances;

 

•

Changes in loan policy; and

 

•

Changes in lending management experience and related staffing.

Each factor is assigned a value to reflect improving, stable or declining conditions based on management’s best judgment using relevant information available at the time of the evaluation.  These qualitative factors, applied to each product class, make the evaluation inherently subjective, as it requires material estimates that may be susceptible to significant revision as more information becomes available.  Adjustments to the factors are supported through documentation of changes in conditions in a narrative accompanying the allowance for loan losses analysis and calculation.

The allocation of the allowance for loan losses summarized on the basis of the Company’s calculation methodology was as follows:

 

 

 

March 31, 2020

 

 

 

1-4 family

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

first-lien

 

 

Residential

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

residential

 

 

construction

 

 

Commercial

 

 

Commercial

 

 

commercial

 

(In thousands)

 

mortgage

 

 

mortgage

 

 

real estate

 

 

lines of credit

 

 

and industrial

 

Specifically reserved

 

$

95

 

 

$

-

 

 

$

76

 

 

$

98

 

 

$

379

 

Historical loss rate

 

 

66

 

 

 

-

 

 

 

101

 

 

 

100

 

 

 

57

 

Qualitative factors

 

 

570

 

 

 

-

 

 

 

4,066

 

 

 

1,020

 

 

 

1,322

 

Total

 

$

731

 

 

$

-

 

 

$

4,243

 

 

$

1,218

 

 

$

1,758

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home equity

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

Tax exempt

 

 

and junior liens

 

 

consumer

 

 

Unallocated

 

 

Total

 

Specifically reserved

 

$

-

 

 

$

128

 

 

$

1

 

 

$

-

 

 

$

777

 

Historical loss rate

 

 

-

 

 

 

146

 

 

 

584

 

 

 

-

 

 

 

1,054

 

Qualitative factors

 

 

1

 

 

 

337

 

 

 

261

 

 

 

-

 

 

 

7,577

 

Other

 

 

-

 

 

 

-

 

 

 

-

 

 

 

198

 

 

 

198

 

Total

 

$

1

 

 

$

611

 

 

$

846

 

 

$

198

 

 

$

9,606

 

 

 

 

March 31, 2019

 

 

 

1-4 family

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

first-lien

 

 

Residential

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

residential

 

 

construction

 

 

Commercial

 

 

Commercial

 

 

commercial

 

(In thousands)

 

mortgage

 

 

mortgage

 

 

real estate

 

 

lines of credit

 

 

and industrial

 

Specifically reserved

 

$

104

 

 

$

-

 

 

$

98

 

 

$

92

 

 

$

464

 

Historical loss rate

 

 

65

 

 

 

-

 

 

 

151

 

 

 

18

 

 

 

26

 

Qualitative factors

 

 

553

 

 

 

-

 

 

 

3,121

 

 

 

692

 

 

 

1,070

 

Total

 

$

722

 

 

$

-

 

 

$

3,370

 

 

$

802

 

 

$

1,560

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home equity

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

Tax exempt

 

 

and junior liens

 

 

consumer

 

 

Unallocated

 

 

Total

 

Specifically reserved

 

$

-

 

 

$

139

 

 

$

9

 

 

$

-

 

 

$

906

 

Historical loss rate

 

 

-

 

 

 

13

 

 

 

149

 

 

 

-

 

 

 

422

 

Qualitative factors

 

 

1

 

 

 

278

 

 

 

241

 

 

 

-

 

 

 

5,956

 

Total

 

$

1

 

 

$

430

 

 

$

399

 

 

$

-

 

 

$

7,284