LOANS | NOTE G LOANS Loans typically provide higher yields than the other types of earning assets, and, thus, one of the Company's goals is for loans to be the largest category of the Company's earning assets. For the quarter ending September 30, 2015 and December 31, 2014, average loans accounted for 72.8 69.9 Composition of Loan Portfolio September 30, 2015 December 31, 2014 Amount Percent Amount Percent (Dollars in thousands) Mortgage loans held for sale $ 1,058 0.1 % $ 2,103 0.3 % Commercial, financial and agricultural 123,872 16.6 106,109 15.0 Real Estate: Mortgage-commercial 251,631 33.7 238,602 33.8 Mortgage-residential 265,762 35.5 256,406 36.3 Construction 85,769 11.5 84,935 12.0 Lease financing receivable 2,303 .3 - - Consumer and other 17,251 2.3 18,479 2.6 Total loans 747,646 100 % 706,634 100 % Allowance for loan losses (6,734) (6,095) Net loans $ 740,912 $ 700,539 In the context of this discussion, a "real estate mortgage loan" is defined as any loan, other than a loan for construction purposes, secured by real estate, regardless of the purpose of the loan. The Company follows the common practice of financial institutions in the Company’s market area of obtaining a security interest in real estate whenever possible, in addition to any other available collateral. This collateral is taken to reinforce the likelihood of the ultimate repayment of the loan and tends to increase the magnitude of the real estate loan portfolio component. Generally, the Company limits its loan-to-value ratio to 80 Loans held for sale consist of mortgage loans originated by the Bank and sold into the secondary market. Commitments from investors to purchase the loans are obtained upon origination. (In thousands) Three Months Nine Months Ended Ended Sept. 30, 2015 Sept. 30, 2015 Balance at beginning of period $ 6,419 $ 6,095 Loans charged-off: Real Estate (58) (407) Installment and Other (24) (87) Commercial, Financial and Agriculture (183) (183) Total (265) (677) Recoveries on loans previously charged-off: Real Estate 296 849 Installment and Other 32 56 Commercial, Financial and Agriculture 2 11 Total 330 916 Net recoveries 65 239 Provision for Loan Losses 250 400 Balance at end of period $ 6,734 $ 6,734 Allocation of the Allowance for Loan Losses September 30, 2015 (Dollars in thousands) Amount % of loans Commercial Non Real Estate $ 765 17.1 % Commercial Real Estate 2,607 57.7 Consumer Real Estate 1,414 22.8 Consumer 137 2.4 Unallocated 1,811 - Total $ 6,734 100 % December 31, 2014 (Dollars in thousands) Amount % of loans Commercial Non Real Estate $ 713 15.3 % Commercial Real Estate 3,355 57.9 Consumer Real Estate 1,852 24.2 Consumer 175 2.6 Unallocated - - Total $ 6,095 100 % Sept. 30, December 31, 2015 2014 (In thousands) Impaired Loans: Impaired loans without a valuation allowance $ 6,322 $ 4,702 Impaired loans with a valuation allowance 4,510 4,858 Total impaired loans $ 10,832 $ 9,560 Allowance for loan losses on impaired loans at period end 1,028 968 Total nonaccrual loans 7,949 6,056 Past due 90 days or more and still accruing 6 669 Average investment in impaired loans 9,534 7,077 Three Months Nine Months Interest income recognized during impairment - - Cash-basis interest income recognized 43 166 The gross interest income that would have been recorded in the period that ended if the nonaccrual loans had been current in accordance with their original terms and had been outstanding throughout the period or since origination, if held for part of the three months and nine months ended September 30, 2015 was $ 123,000 322,000 1,000 98,000 September 30, 2015 Commercial, Installment Financial Real and and Total (In thousands) Loans Individually evaluated $ 10,522 $ 42 $ 268 $ 10,832 Collectively evaluated 590,844 18,100 126,812 735,756 Total $ 601,366 $ 18,142 $ 127,080 $ 746,588 Allowance for Loan Losses Individually evaluated $ 980 $ 26 $ 22 $ 1,028 Collectively evaluated 3,292 1,672 742 5,706 Total $ 4,272 $ 1,698 $ 764 $ 6,734 December 31, 2014 Commercial, Installment Financial Real and and Total (In thousands) Loans Individually evaluated $ 9,282 $ 38 $ 240 $ 9,560 Collectively evaluated 568,952 18,610 107,409 694,971 Total $ 578,234 $ 18,648 $ 107,649 $ 704,531 Allowance for Loan Losses Individually evaluated $ 922 $ 29 $ 17 $ 968 Collectively evaluated 4,285 146 696 5,127 Total $ 5,207 $ 175 $ 713 $ 6,095 September 30, 2015 Average Interest Recorded Income Recorded Unpaid Related Investment Recognized Investment Balance Allowance YTD YTD (In thousands) Impaired loans with no related allowance: Commercial installment $ - $ - $ - $ 3 $ - Commercial real estate 6,077 6,116 - 4,927 43 Consumer real estate 238 238 - 200 - Consumer installment 7 7 - 8 - Total $ 6,322 $ 6,361 $ - $ 5,138 $ 43 Impaired loans with a related allowance: Commercial installment $ 268 $ 268 $ 22 $ 254 $ 10 Commercial real estate 3,232 3,232 479 2,882 102 Consumer real estate 975 975 501 1,230 11 Consumer installment 35 35 26 30 - Total $ 4,510 $ 4,510 $ 1,028 $ 4,396 $ 123 Total Impaired Loans: Commercial installment $ 268 $ 268 $ 22 $ 257 $ 10 Commercial real estate 9,309 9,348 479 7,809 145 Consumer real estate 1,213 1,213 501 1,430 11 Consumer installment 42 42 26 38 - Total Impaired Loans $ 10,832 $ 10,871 $ 1,028 $ 9,534 $ 166 On January 1, 2015, the Company adopted Accounting Standards Update (ASU) 2014-4, Receivables Troubled Debt Restructuring by Creditors. As of September 30, 2015, the Company had $ 1.5 0.1 December 31, 2014 Average Interest Recorded Income Recorded Unpaid Related Investment Recognized Investment Balance Allowance YTD YTD (In thousands) Impaired loans with no related allowance: Commercial installment $ - $ - $ - $ 50 $ - Commercial real estate 4,665 4,665 - 2,654 142 Consumer real estate 27 27 - 179 - Consumer installment 10 10 - 11 - Total $ 4,702 $ 4,702 $ - $ 2,894 $ 142 Impaired loans with a related allowance: Commercial installment $ 240 $ 240 $ 18 $ 189 $ 20 Commercial real estate 2,558 2,558 315 2,415 59 Consumer real estate 2,032 2,032 607 1,546 33 Consumer installment 28 28 28 33 2 Total $ 4,858 $ 4,858 $ 968 $ 4,183 $ 114 Total Impaired Loans: Commercial installment $ 240 $ 240 $ 18 $ 239 $ 20 Commercial real estate 7,223 7,223 315 5,069 201 Consumer real estate 2,059 2,059 607 1,725 33 Consumer installment 38 38 28 44 2 Total Impaired Loans $ 9,560 $ 9,560 $ 968 $ 7,077 $ 256 Loans acquired with deteriorated credit quality are those purchased in the BCB Holding Company, Inc. acquisition (See Note C -Business Combination for further information). These loans were recorded at estimated fair value at the acquisition date with no carryover of the related allowance for loan losses. The acquired loans were segregated as of the acquisition date between those considered to be performing (acquired non-impaired loans) and those with evidence of credit deterioration (acquired impaired loans). Acquired loans are considered impaired if there is evidence of credit deterioration and if it is probable, at acquisition, all contractually required payments will not be collected. December 31, 2014 (In thousands) Commercial, Mortgage- Mortgage- Commercial Total Contractually required payments $ 1,519 $ 29,648 $ 7,933 $ 976 $ 40,076 Cash flows expected to be collected 1,570 37,869 9,697 1,032 50,168 Fair value of loans acquired 1,513 28,875 7,048 957 38,393 Total outstanding acquired impaired loans were $ 3,133,976 3,480,190 September 30, 2015 December 31, 2014 Accretable Carrying Accretable Carrying Balance at beginning of period $ 1,417 $ 2,063 $ - $ - Additions due to BCB acquisition on July 1, 2014 - - 1,603 2,325 Accretion (141) 141 (186) 186 Payments received, net - (346) - (448) Balance at end of period $ 1,276 $ 1,858 $ 1,417 $ 2,063 For the Three Months Ending September 30, 2015 Outstanding Outstanding Recorded Recorded Investment Interest Investment Post- Number of Income Pre-Modification Modification Loans Recognized Commercial installment $ - $ - - $ - Commercial real estate 269 268 1 3 Consumer real estate - - - - Consumer installment - - - - Total $ 269 $ 268 1 $ 3 For the Nine Months Ending September 30, 2015 Outstanding Outstanding Recorded Recorded Investment Interest Investment Post- Number of Income Pre-Modification Modification Loans Recognized Commercial installment $ - $ - - $ - Commercial real estate 269 267 1 3 Consumer real estate - - - - Consumer installment - - - - Total $ 269 $ 267 1 $ 3 There were no TDRs that were modified during the three month period ending September 30, 2015, that had subsequently violated the terms of the modification. The balance of troubled debt restructurings (TDRs) was $6.8 million at September 30, 2015 and December 31, 2014, respectively, calculated for regulatory reporting purposes. As of September 30, 2015, the company had no additional amount committed on any loan classified as troubled debt restructuring. (in thousands) September 30, 2015 Current Past Due Past Due Non- Total Commercial installment $ 214 $ - $ - $ 52 $ 266 Commercial real estate 1,931 - - 2,641 4,572 Consumer real estate 728 - - 1,241 1,969 Consumer installment 9 - - 31 40 Total $ 2,882 $ - $ - $ 3,965 $ 6,847 Allowance for loan losses $ 112 $ - $ - $ 177 $ 289 (in thousands) December 31, 2014 Current Past Due Past Due Non- Total Commercial installment $ 233 $ - $ - $ - $ 233 Commercial real estate 1,685 - - 2,729 4,414 Consumer real estate 952 622 - 449 2,023 Consumer installment 10 - - 103 113 Total $ 2,880 $ 622 $ - $ 3,281 $ 6,783 Allowance for loan losses $ 120 $ 11 $ 103 $ - $ 234 September 30, 2015 (In thousands) Past Due Past Due Non- Total Total Real Estate-construction $ 424 $ - $ 3,244 $ 3,668 $ 85,769 Real Estate-mortgage 1,009 6 2,141 3,156 265,762 Real Estate-non farm non residential 674 - 2,425 3,099 251,631 Commercial 305 - 106 411 123,872 Lease Financing Rec. - - - - 2,303 Consumer 93 - 33 126 17,251 Total $ 2,505 $ 6 $ 7,949 $ 10,460 $ 746,588 December 31, 2014 (In thousands) Past Due Past Due Non- Total Total Real Estate-construction $ 428 $ - $ 2,747 $ 3,175 $ 84,935 Real Estate-mortgage 3,208 208 2,164 5,580 256,406 Real Estate-non farm non residential 3,408 461 1,102 4,971 238,601 Commercial 29 - 5 34 106,109 Consumer 90 - 38 128 18,480 Total $ 7,163 $ 669 $ 6,056 $ 13,888 $ 704,531 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, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company uses the following definitions for risk ratings, which are consistent with the definitions used in supervisory guidance: 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 institution 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. Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans. ($ in thousands) September 30, 2015 Commercial, Real Estate Real Installment Financial Total Pass $ 409,569 $ 168,836 $ 18,060 $ 126,741 $ 723,206 Special Mention 4,313 156 - 171 4,640 Substandard 17,260 1,395 82 193 18,930 Doubtful - 330 - - 330 Subtotal 431,142 170,717 18,142 127,105 747,106 Less: Unearned discount 419 74 - 25 518 Loans, net of unearned discount $ 430,723 $ 170,643 $ 18,142 $ 127,080 $ 746,588 December 31, 2014 Commercial, Real Estate Real Installment Financial Total Pass $ 388,568 $ 167,827 $ 18,558 $ 107,126 $ 682,079 Special Mention 4,756 191 - 498 5,445 Substandard 14,727 2,567 90 63 17,447 Doubtful - - - - - Subtotal 408,051 170,585 18,648 107,687 704,971 Less: Unearned discount 320 82 - 38 440 Loans, net of unearned discount $ 407,731 $ 170,503 $ 18,648 $ 107,649 $ 704,531 |