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comprised of an $11 million reduction in nonperforming loans and a $1 million reduction in foreclosed assets. The
balance of nonperforming loans at December 31, 2015 includes $6.9 million in TDRs and other loans that were paying
as agreed under modified terms or forbearance agreements but were still classified as nonperforming. We also had
$12.4 million in loans classified as performing TDRs for which we were still accruing interest at December 31, 2015,
approximately the same level as performing TDRs at December 31, 2014. Notes 2 and 4 to the consolidated financial
statements provide a more comprehensive disclosure of TDR balances and activity within recent periods.
Non-accruing loan balances secured by real estate comprised $8.4 million of total nonperforming loans at December
31, 2015, down $10.7 million, or 56%, since December 31, 2014. The gross reduction in nonperforming real estate
loans totaled $19.4 million during 2015, but reductions were partially offset by the migration of $8.7 million in real
estate loans to non-accrual status. Nonperforming commercial loans declined by $111,000, or 14%, in 2015, ending
the period at $710,000. Nonperforming consumer loans, which are largely unsecured, declined by $254,000, or 31%,
to a balance of $572,000 at December 31, 2015.
As noted above, foreclosed assets were reduced by $798,000, or 20%, in 2015 due primarily to OREO sold, but write-
downs on OREO contributed $221,000 to the reduction. Our foreclosed assets had an aggregate carrying value of $3.2
million at December 31, 2015, and were comprised of 16 properties classified as OREO and two mobile homes. At the
end of 2014 foreclosed assets totaled $4.0 million, consisting of 24 properties classified as OREO and three mobile
homes. All foreclosed assets are periodically evaluated and written down to their fair value less expected disposition
costs, if lower than the then-current carrying value.
An action plan is in place for each of our non-accruing loans and foreclosed assets and they are all being actively
managed. Collection efforts are continuously pursued for all nonperforming loans, but no assurance can be provided
that they will be resolved in a timely manner or that nonperforming balances will not increase.
Allowance for Loan and Lease Losses
The allowance for loan and lease losses, a contra-asset, is established through a provision for loan and lease losses. It
is maintained at a level that is considered adequate to absorb probable losses on specifically identified impaired loans,
as well as probable incurred losses inherent in the remaining loan portfolio. Specifically identifiable and quantifiable
losses are immediately charged off against the allowance; recoveries are generally recorded only when sufficient cash
payments are received subsequent to the charge off. Note 2 to the consolidated financial statements provides a more
comprehensive discussion of the accounting guidance we conform to and the methodology we use to determine an
appropriate allowance for loan and lease losses.
The Company’s allowance for loan and lease losses was $10.4 million, or 0.92% of gross loans at December 31, 2015,
relative to $11.2 million, or 1.16% of gross loans at December 31, 2014. The decline in the allowance in 2015 was
facilitated by the fact that many loan charge-offs during the period were charged against loss reserves established in
previous periods and therefore did not lead to the need for reserve replenishment. Moreover, while the lower allowance
for loan and lease losses is not directionally consistent with the increase in outstanding loan balances, our need for an
additional allowance was favorably impacted by loan growth occurring in portfolio segments with low historical loss
rates, and credit quality improvement in the remainder of the performing loan portfolio. The ratio of the allowance to
nonperforming loans was 108.19% at December 31, 2015, relative to 54.40% at December 31, 2014 and 31.21% at
December 31, 2013. A separate allowance for potential losses inherent in unused commitments is included in other
liabilities, and totaled $304,000 at December 31, 2015.
The table that follows summarizes the activity in the allowance for loan and lease losses for the periods indicated: