Quarterly report pursuant to Section 13 or 15(d)

Allowance for Loan and Lease Losses

v3.8.0.1
Allowance for Loan and Lease Losses
3 Months Ended
Mar. 31, 2018
Receivables [Abstract]  
Allowance for Loan and Lease Losses

NOTE 4. ALLOWANCE FOR LOAN AND LEASE LOSSES

The allowance for loan and lease losses is a reserve established through a provision for loan losses charged to expense, which represents management’s best estimate of probable losses that have been incurred within the existing portfolio of loans.  The allowance, in the judgment of management, is necessary to reserve for estimated loan losses and risks inherent in the loan portfolio. The methodology is based on historical loss experience by type of credit and internal risk grade, changes in the composition and volume of the portfolio, and specific loss allocations, with adjustments for current events and conditions. The Company’s process for determining the appropriate level of the allowance for loan and lease losses is designated to account for credit deterioration as it occurs.

During 2017, the Company refined its allowance for loan loss methodology based upon management judgement and applicable regulatory guidance.  The calculation of reserves on loans collectively evaluated for impairment was altered to reflect five years of historical loss experience which more appropriately matches the weighted average life of loans in the portfolio.  Additionally, the calculated historical loss experience is now allocated across the portfolio’s risk rates using a probability of default curve constructed from the Bank’s historical default data. Management also updated the qualitative component of the reserve on loans collectively evaluated for impairment to allow for a greater sensitivity to current trends.

Changes in the allowance for loan and lease losses by loan portfolio and segment for the three months ended March 31, 2018 and 2017 are as follows:

 

 

 

Allowance Rollforward

 

Three Months Ended March 31, 2018

 

Beginning

Balance

 

 

Charge-offs

 

 

Recoveries

 

 

Provision

 

 

Ending

Balance

 

 

 

(Dollars in thousands)

 

Commercial and industrial loans

 

$

3,046

 

 

$

(324

)

 

$

66

 

 

$

118

 

 

$

2,906

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1-4 single family residential loans

 

 

902

 

 

 

 

 

 

 

 

 

(15

)

 

 

887

 

Construction, land and development loans

 

 

441

 

 

 

 

 

 

 

 

 

99

 

 

 

540

 

Commercial real estate loans (including multifamily)

 

 

898

 

 

 

 

 

 

 

 

 

134

 

 

 

1,032

 

Consumer loans and leases

 

 

198

 

 

 

(6

)

 

 

 

 

 

(17

)

 

 

175

 

Municipal and other loans

 

 

167

 

 

 

 

 

 

 

 

 

20

 

 

 

187

 

Ending Allowance Balance

 

$

5,652

 

 

$

(330

)

 

$

66

 

 

$

339

 

 

$

5,727

 

 

 

 

Allowance Rollforward

 

Three Months Ended March 31, 2017

 

Beginning

Balance

 

 

Charge-offs

 

 

Recoveries

 

 

Provision

 

 

Ending

Balance

 

 

 

(Dollars in thousands)

 

Commercial and industrial loans

 

$

2,347

 

 

$

(260

)

 

$

 

 

$

364

 

 

$

2,451

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1-4 single family residential loans

 

 

647

 

 

 

 

 

 

 

 

 

29

 

 

 

676

 

Construction, land and development loans

 

 

364

 

 

 

 

 

 

 

 

 

16

 

 

 

380

 

Commercial real estate loans (including multifamily)

 

 

667

 

 

 

(15

)

 

 

 

 

 

45

 

 

 

697

 

Consumer loans and leases

 

 

186

 

 

 

(82

)

 

 

 

 

 

90

 

 

 

194

 

Municipal and other loans

 

 

146

 

 

 

 

 

 

 

 

 

6

 

 

 

152

 

Ending Allowance Balance

 

$

4,357

 

 

$

(357

)

 

$

 

 

$

550

 

 

$

4,550

 

 

Credit Quality Indicators

In evaluating credit risk, the Company looks at multiple factors; however, management considers delinquency status to be the most meaningful indicator of the credit quality of 1-4 single family residential, home equity loans and lines of credit and consumer loans. Delinquency statistics are updated at least monthly. Internal risk ratings are considered the most meaningful indicator of credit quality for commercial, construction, land and development and commercial real estate loans. Internal risk ratings are updated on a continuous basis.

The following tables present an aging analysis of the recorded investment for delinquent loans by portfolio and segment:

 

 

 

Accruing

 

 

 

 

 

 

 

 

 

March 31, 2018

 

Current

 

 

30 to 59

Days Past

Due

 

 

60 to 89

Days Past

Due

 

 

90 Days or

More Past

Due

 

 

Non-

Accrual

 

 

Total

 

 

 

(Dollars in thousands)

 

Commercial and industrial loans

 

$

135,102

 

 

$

175

 

 

$

100

 

 

$

 

 

$

2,023

 

 

$

137,400

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1-4 single family residential loans

 

 

236,611

 

 

 

451

 

 

 

15

 

 

 

 

 

 

1,305

 

 

 

238,382

 

Construction, land and development

 

 

142,048

 

 

 

1,293

 

 

 

305

 

 

 

 

 

 

 

 

 

143,646

 

Commercial real estate loans (including multifamily)

 

 

289,138

 

 

 

 

 

 

 

 

 

 

 

 

433

 

 

 

289,571

 

Consumer loans and leases

 

 

20,577

 

 

 

142

 

 

 

 

 

 

 

 

 

105

 

 

 

20,824

 

Municipal and other loans

 

 

52,278

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

52,278

 

Total loans

 

$

875,754

 

 

$

2,061

 

 

$

420

 

 

$

 

 

$

3,866

 

 

$

882,101

 

 

 

 

Accruing

 

 

 

 

 

 

 

 

 

December 31, 2017

 

Current

 

 

30 to 59

Days Past

Due

 

 

60 to 89

Days Past

Due

 

 

90 Days or

More Past

Due

 

 

Non-

Accrual

 

 

Total

 

 

 

(Dollars in thousands)

 

Commercial and industrial loans

 

$

132,775

 

 

$

302

 

 

$

3

 

 

$

33

 

 

$

1,927

 

 

$

135,040

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1-4 single family residential loans

 

 

230,738

 

 

 

637

 

 

 

 

 

 

 

 

 

1,135

 

 

 

232,510

 

Construction, land and development

 

 

139,470

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

139,470

 

Commercial real estate loans (including multifamily)

 

 

284,869

 

 

 

415

 

 

 

 

 

 

 

 

 

447

 

 

 

285,731

 

Consumer loans and leases

 

 

22,538

 

 

 

98

 

 

 

47

 

 

 

 

 

 

53

 

 

 

22,736

 

Municipal and other loans

 

 

53,632

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

53,632

 

Total loans

 

$

864,022

 

 

$

1,452

 

 

$

50

 

 

$

33

 

 

$

3,562

 

 

$

869,119

 

 

There were no loans past due greater than 90 days or more and still accruing at March 31, 2018. There was one loan past due greater than 90 days or more and still accruing at December 31, 2017 with a recorded investment of $33 thousand.

At March 31, 2018, non-accrual loans that were 30 to 59 days past due were $267 thousand, non-accrual loans that were 60 to 89 days past due were $213 thousand, and non-accrual loans that were 90 days or more past due were $288 thousand. At December 31, 2017, non-accrual loans that were 30 to 59 days past due were $209 thousand, non-accrual loans that were 60 to 89 days past due were $57 thousand, and non-accrual loans that were 90 days or more past due were $427 thousand.

Loans exhibiting potential credit weaknesses that deserve management’s close attention and that if left uncorrected may result in deterioration of the repayment capacity of the borrower are categorized as special mention. Loans with well-defined credit weaknesses including payment defaults, declining collateral values, frequent overdrafts, operating losses, increasing balance sheet leverage, inadequate cash flow, project cost overruns, unreasonable construction delays, past due real estate taxes or exhausted interest reserves are assigned an internal risk rating of substandard. Loans classified as substandard can be on an accrual or non-accrual basis, as determined by its unique characteristics. A loan with a weakness so severe that collection in full is highly questionable or improbable will be assigned an internal risk rating of doubtful.

The following table summarizes the Company’s loans by key indicators of credit quality:

 

March 31, 2018

 

Pass

 

 

Special

Mention

 

 

Substandard

 

 

Doubtful

 

 

 

(Dollars in thousands)

 

Commercial and industrial loans

 

$

131,535

 

 

$

2,270

 

 

$

3,595

 

 

$

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1-4 single family residential loans

 

 

233,216

 

 

 

935

 

 

 

4,231

 

 

 

 

Construction, land and development

 

 

141,647

 

 

 

94

 

 

 

1,905

 

 

 

 

Commercial real estate loans (including multifamily)

 

 

281,847

 

 

 

4,500

 

 

 

3,224

 

 

 

 

Consumer loans and leases

 

 

20,660

 

 

 

 

 

 

164

 

 

 

 

Municipal and other loans

 

 

52,278

 

 

 

 

 

 

 

 

 

 

Total loans

 

$

861,183

 

 

$

7,799

 

 

$

13,119

 

 

$

 

 

December 31, 2017

 

Pass

 

 

Special

Mention

 

 

Substandard

 

 

Doubtful

 

 

 

(Dollars in thousands)

 

Commercial and industrial loans

 

$

129,288

 

 

$

2,331

 

 

$

3,421

 

 

$

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1-4 single family residential loans

 

 

228,450

 

 

 

1,090

 

 

 

2,970

 

 

 

 

Construction, land and development

 

 

137,760

 

 

 

1,403

 

 

 

307

 

 

 

 

Commercial real estate loans (including multifamily)

 

 

276,096

 

 

 

5,877

 

 

 

3,758

 

 

 

 

Consumer loans and leases

 

 

22,528

 

 

 

 

 

 

208

 

 

 

 

Municipal and other loans

 

 

53,632

 

 

 

 

 

 

 

 

 

 

Total loans

 

$

847,754

 

 

$

10,701

 

 

$

10,664

 

 

$

 

 

Internal risk ratings and other credit metrics are key factors in identifying loans to be individually evaluated for impairment and impact management’s estimates of loss factors used in determining the amount of the allowance for loan and lease losses.

The following table shows the Company’s investment in loans disaggregated based on the method of evaluating impairment:

 

 

 

Loans - Recorded Investment

 

 

Allowance for Credit Loss

 

March 31, 2018

 

Individually

Evaluated for

Impairment

 

 

Collectively

Evaluated for

Impairment

 

 

Individually

Evaluated for

Impairment

 

 

Collectively

Evaluated for

Impairment

 

 

 

(Dollars in thousands)

 

Commercial and industrial loans

 

$

1,882

 

 

$

135,518

 

 

$

1,148

 

 

$

1,758

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1-4 single family residential loans

 

 

1,458

 

 

 

236,924

 

 

 

 

 

 

887

 

Construction, land and development

 

 

 

 

 

143,646

 

 

 

 

 

 

540

 

Commercial real estate loans (including multifamily)

 

 

433

 

 

 

289,138

 

 

 

 

 

 

1,032

 

Consumer loans and leases

 

 

106

 

 

 

20,718

 

 

 

21

 

 

 

154

 

Municipal and other loans

 

 

 

 

 

52,278

 

 

 

 

 

 

187

 

Total loans

 

$

3,879

 

 

$

878,222

 

 

$

1,169

 

 

$

4,558

 

 

 

 

Loans - Recorded Investment

 

 

Allowance for Credit Loss

 

December 31, 2017

 

Individually

Evaluated for

Impairment

 

 

Collectively

Evaluated for

Impairment

 

 

Individually

Evaluated for

Impairment

 

 

Collectively

Evaluated for

Impairment

 

 

 

(Dollars in thousands)

 

Commercial and industrial loans

 

$

2,194

 

 

$

132,846

 

 

$

1,226

 

 

$

1,820

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1-4 single family residential loans

 

 

1,292

 

 

 

231,218

 

 

 

119

 

 

 

783

 

Construction, land and development

 

 

 

 

 

139,470

 

 

 

 

 

 

441

 

Commercial real estate loans (including multifamily)

 

 

447

 

 

 

285,284

 

 

 

 

 

 

898

 

Consumer loans and leases

 

 

53

 

 

 

22,683

 

 

 

16

 

 

 

182

 

Municipal and other loans

 

 

 

 

 

53,632

 

 

 

 

 

 

167

 

Total loans

 

$

3,986

 

 

$

865,133

 

 

$

1,361

 

 

$

4,291

 

 

The following tables set forth certain information regarding the Company’s impaired loans that were evaluated for specific reserves:

 

 

 

Impaired Loans - With Allowance

 

 

Impaired Loans - With no

Allowance

 

March 31, 2018

 

Recorded

Investment

 

 

Unpaid

Principal

Balance

 

 

Related

Allowance

 

 

Recorded

Investment

 

 

Unpaid

Principal

Balance

 

 

 

(Dollars in thousands)

 

Commercial and industrial loans

 

$

1,727

 

 

$

1,742

 

 

$

1,148

 

 

$

155

 

 

$

333

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1-4 single family residential loans

 

 

 

 

 

 

 

 

 

 

 

1,458

 

 

 

1,458

 

Construction, land and development

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate loans (including multifamily)

 

 

 

 

 

 

 

 

 

 

 

433

 

 

 

433

 

Consumer loans and leases

 

 

106

 

 

 

106

 

 

 

21

 

 

 

 

 

 

 

Municipal and other loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total loans

 

$

1,833

 

 

$

1,848

 

 

$

1,169

 

 

$

2,046

 

 

$

2,224

 

 

 

 

Impaired Loans - With Allowance

 

 

Impaired Loans - With no

Allowance

 

December 31, 2017

 

Recorded

Investment

 

 

Unpaid

Principal

Balance

 

 

Related

Allowance

 

 

Recorded

Investment

 

 

Unpaid

Principal

Balance

 

 

 

(Dollars in thousands)

 

Commercial and industrial loans

 

$

1,811

 

 

$

1,850

 

 

$

1,226

 

 

$

383

 

 

$

386

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1-4 single family residential loans

 

 

119

 

 

 

119

 

 

 

119

 

 

 

1,173

 

 

 

1,174

 

Construction, land and development

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate loans (including multifamily)

 

 

 

 

 

 

 

 

 

 

 

447

 

 

 

447

 

Consumer loans and leases

 

 

53

 

 

 

52

 

 

 

16

 

 

 

 

 

 

 

Municipal and other loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total loans

 

$

1,983

 

 

$

2,021

 

 

$

1,361

 

 

$

2,003

 

 

$

2,007

 

 

 

 

Three Months Ended March 31,

 

 

 

2018

 

 

2017

 

 

 

Average

Recorded

Investment

 

 

Interest

Income

Recognized

 

 

Average

Recorded

Investment

 

 

Interest

Income

Recognized

 

 

 

(Dollars in thousands)

 

Commercial and industrial loans

 

$

1,913

 

 

$

 

 

$

1,940

 

 

$

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1-4 single family residential loans

 

 

1,463

 

 

 

 

 

 

334

 

 

 

 

Construction, land and development

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate loans (including multifamily)

 

 

437

 

 

 

 

 

 

2,301

 

 

 

 

Consumer loans and leases

 

 

106

 

 

 

 

 

 

25

 

 

 

 

Municipal and other loans

 

 

 

 

 

 

 

 

 

 

 

 

Total loans

 

$

3,919

 

 

$

 

 

$

4,600

 

 

$

 

 

Troubled Debt Restructurings:

The following table provides a summary of troubled debt restructurings (“TDRs”) based upon delinquency status, all of which are considered impaired:

 

 

 

March 31, 2018

 

 

December 31, 2017

 

 

 

Number of

contracts

 

 

Recorded

Investment

 

 

Number of

contracts

 

 

Recorded

Investment

 

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

Performing TDRs:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial loans

 

 

2

 

 

$

52

 

 

 

5

 

 

$

270

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1-4 single family residential loans

 

 

2

 

 

 

153

 

 

 

 

 

 

 

Construction, land and development

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate loans (including multifamily)

 

 

 

 

 

 

 

 

 

 

 

 

Consumer loans and leases

 

 

 

 

 

 

 

 

 

 

 

 

Municipal and other loans

 

 

 

 

 

 

 

 

 

 

 

 

Total performing TDRs

 

 

4

 

 

 

205

 

 

 

5

 

 

 

270

 

Nonperforming TDRs

 

 

8

 

 

 

586

 

 

 

10

 

 

 

651

 

Total TDRs

 

 

12

 

 

$

791

 

 

 

15

 

 

$

921

 

Allowance attributable to TDRs

 

 

 

 

 

$

247

 

 

 

 

 

 

$

411

 

 

The following table summarizes TDRs and includes newly designated TDRs as well as modifications made to existing TDRs. Modifications may include, but are not limited to, granting a material extension of time, entering into a forbearance agreement, adjusting the interest rate, accepting interest only payments for an extended period of time, a change in the amortization period or a combination of any of these. Post-modification balances represent the recorded investment at the end of Day 2 in which the modification was made:

 

 

 

Three Months Ended March 31,

 

 

 

2018

 

 

2017

 

 

 

Number of

Contracts

 

 

Pre-

Modification

Outstanding

Recorded

Investment

 

 

Post-

Modification

Outstanding

Recorded

Investment

 

 

Related

Allowance

 

 

Number

of

Contracts

 

 

Pre-

Modification

Outstanding

Recorded

Investment

 

 

Post-

Modification

Outstanding

Recorded

Investment

 

 

Related

Allowance

 

 

 

(Dollars in thousands)

 

Commercial and industrial loans

 

 

5

 

 

$

369

 

 

$

369

 

 

$

30

 

 

 

6

 

 

$

383

 

 

$

383

 

 

$

109

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1-4 single family residential loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction, land and development

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate loans (including

   multifamily)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer loans and leases

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Municipal and other loans