LOANS | NOTE 11 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 quarters ended June 30, 2016 and December 31, 2015, average loans accounted for 73.8% and 73.3% of average earning assets, respectively. The Company controls and mitigates the inherent credit and liquidity risks through the composition of its loan portfolio. June 30, 2016 ($ In thousands) Past Due Past Due Non- Total Total Real Estate-construction $ 561 $ - $ 2,629 $ 3,190 $ 101,439 Real Estate-mortgage 1,388 267 2,049 3,704 282,420 Real Estate-non farm non residential 296 - 951 1,247 296,676 Commercial 134 - 73 207 118,924 Lease Financing Rec. - - - - 2,642 Obligations of states and subdivisions - - - - 6,965 Consumer 20 - 40 60 15,017 Total $ 2,399 $ 267 $ 5,742 $ 8,408 $ 824,083 December 31, 2015 ($ In thousands) Past Due 90 Days or More Total Past Past Due and Due and 30 to 89 Still Non- Non- Total Days Accruing Accrual Accrual Loans Real Estate-construction $ 311 $ - $ 2,956 $ 3,267 $ 99,161 Real Estate-mortgage 3,339 29 2,055 5,423 272,180 Real Estate-non farm non residential 736 - 2,225 2,961 253,309 Commercial 97 - 100 197 129,197 Lease Financing Rec. - - - - 2,650 Obligations of states and subdivisions - - - - 969 Consumer 70 - 32 102 15,049 Total $ 4,553 $ 29 $ 7,368 $ 11,950 $ 772,515 Loans acquired with deteriorated credit quality are those purchased in the BCB Holding Company, Inc. acquisition. 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. ($ In thousands) Commercial, financial and Mortgage- Mortgage- Commercial agricultural Commercial Residential and other 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 $2,927,095 as of June 30, 2016 and $3,039,840 as of December 31, 2015. The outstanding balance of these loans is the undiscounted sum of all amounts, including amounts deemed principal, interest, fees, penalties, and other under the loans, owed at the reporting date, whether or not currently due and whether or not any such amounts have been charged off. June 30, 2016 December 31, 2015 Carrying Carrying Accretable Amount of Accretable Amount of Yield Loans Yield Loans Balance at beginning of period $ 1,219 $ 1,821 $ 1,417 $ 2,063 Accretion (39) 39 (198) 198 Payments received, net - (113) - (440) Balance at end of period $ 1,180 $ 1,747 $ 1,219 $ 1,821 June 30, 2016 Average Interest Recorded Income Recorded Unpaid Related Investment Recognized Investment Balance Allowance YTD YTD ($ In thousands) Impaired loans with no related allowance: Commercial installment $ - $ - $ - $ - $ - Commercial real estate 4,588 4,550 - 4,979 10 Consumer real estate 337 337 - 257 - Consumer installment 5 5 - 6 - Total $ 4,930 $ 4,892 $ - $ 5,242 $ 10 Impaired loans with a related allowance: Commercial installment $ 262 $ 262 $ 61 $ 281 $ 6 Commercial real estate 2,727 2,727 373 2,870 59 Consumer real estate 761 761 495 810 8 Consumer installment 42 42 24 35 - Total $ 3,792 $ 3,792 $ 953 $ 3,996 $ 73 Total Impaired Loans: Commercial installment $ 262 $ 262 $ 61 $ 281 $ 6 Commercial real estate 7,315 7,277 373 7,849 69 Consumer real estate 1,098 1,098 495 1,067 8 Consumer installment 47 47 24 41 - Total Impaired Loans $ 8,722 $ 8,684 $ 953 $ 9,238 $ 83 As of June 30, 2016, the Company had $1.4 million of foreclosed residential real estate property obtained by physical possession and $.5 million of consumer mortgage loans secured by residential real estate properties for which foreclosure proceedings are in process according to local jurisdictions. December 31, 2015 Average Interest Recorded Income Recorded Unpaid Related Investment Recognized Investment Balance Allowance YTD YTD ($ In thousands) Impaired loans with no related allowance: Commercial installment $ - $ - $ - $ 2 $ - Commercial real estate 5,790 5,828 - 5,099 50 Consumer real estate 223 223 - 205 - Consumer installment 7 7 - 8 - Total $ 6,020 $ 6,058 $ - $ 5,314 $ 50 Impaired loans with a related allowance: Commercial installment $ 306 $ 306 $ 50 $ 264 $ 14 Commercial real estate 2,927 2,927 444 2,891 132 Consumer real estate 842 842 438 1,152 15 Consumer installment 32 32 25 31 - Total $ 4,107 $ 4,107 $ 957 $ 4,338 $ 161 Total Impaired Loans: Commercial installment $ 306 $ 306 $ 50 $ 266 $ 14 Commercial real estate 8,717 8,755 444 7,990 182 Consumer real estate 1,065 1,065 438 1,357 15 Consumer installment 39 39 25 39 - Total Impaired Loans $ 10,127 $ 10,165 $ 957 $ 9,652 $ 211 The following table represents the Company’s impaired loans at June 30, 2016, and December 31, 2015. June 30, December 31, 2016 2015 ($ In thousands) Impaired Loans: Impaired loans without a valuation allowance $ 4,930 $ 6,020 Impaired loans with a valuation allowance 3,792 4,107 Total impaired loans $ 8,722 $ 10,127 Allowance for loan losses on impaired loans at period end 953 957 Total nonaccrual loans 5,742 7,368 Past due 90 days or more and still accruing 267 29 Average investment in impaired loans 9,238 9,652 The following table is a summary of interest recognized and cash-basis interest earned on impaired loans: Three Months Six Months Ended Ended June 30, 2016 June 30, 2016 Interest income recognized during impairment $ 40 $ 85 Cash-basis interest income recognized 40 83 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 six months ended June 30, 2016 was $100,000 and $198,000, respectively, and $105,000 and $199,000, respectively, for the three months and six months ended June 30, 2015. The Company had no loan commitments to borrowers in non-accrual status at June 30, 2016 and December 31, 2015. The following tables provide detail of troubled debt restructurings (TDRs) at June 30, 2016. For the Three Months Ending June 30, 2016 Outstanding Outstanding Recorded Recorded Investment Interest Investment Post- Number of Income Pre-Modification Modification Loans Recognized Commercial installment $ - $ - - $ - Commercial real estate - - - - Consumer real estate - - - - Consumer installment - - - - Total $ - $ - - $ - For the Six Months Ending June 30, 2016 Outstanding Outstanding Recorded Recorded Investment Interest Investment Post- Number of Income Pre-Modification Modification Loans Recognized Commercial installment $ 285 $ 285 1 $ 6 Commercial real estate - - - - Consumer real estate - - - - Consumer installment - - - - Total $ 285 $ 285 1 $ 6 There were no TDRs modified during the three month period ended June 30, 2016. The balance of troubled debt restructurings (TDRs)was $6.8 million at June 30, 2016 and $6.9 million at December 31, 2015, respectively, calculated for regulatory reporting purposes. There was $247,000 allocated in specific reserves established with respect to these loans as of June 30, 2016. As of June 30, 2016, the company had no additional amount committed on any loan classified as troubled debt restructuring. The following tables set forth the amounts and past due status for the Bank TDRs at June 30, 2016 and December 31, 2015: ($ In Thousands) June 30, 2016 Past Due 90 days Current Past Due and still Non- Loans 30-89 accruing accrual Total Commercial installment $ 189 $ - $ - $ 50 $ 239 Commercial real estate 2,534 - - 3,582 6,116 Consumer real estate 250 - - 129 379 Consumer installment 7 - - 27 34 Total $ 2,980 $ - $ - $ 3,788 $ 6,768 Allowance for loan losses $ 118 $ - $ - $ 129 $ 247 ($ In Thousands) December 31, 2015 Past Due 90 days Current Past Due and still Non- Loans 30-89 accruing accrual Total Commercial installment $ 206 $ - $ - $ 50 $ 256 Commercial real estate 1,823 - - 2,934 4,757 Consumer real estate 721 - - 1,135 1,856 Consumer installment 8 - - 29 37 Total $ 2,758 $ - $ - $ 4,148 $ 6,906 Allowance for loan losses $ 106 $ - $ - $ 197 $ 303 Internal Risk Ratings 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. As of June 30, 2016 and December 31, 2015, and based on the most recent analysis performed, the risk categories of loans by class of loans (excluding mortgage loans held for sale) were as follows: ($ In Thousands) June 30, 2016 Commercial, Real Estate Real Installment Financial Commercial Mortgage Other Agriculture Total Pass $ 492,372 $ 169,666 $ 20,575 $ 124,783 $ 807,396 Special Mention 785 245 - 205 1,235 Substandard 14,264 1,360 85 149 15,858 Doubtful - 321 - 42 363 Subtotal 507,421 171,592 20,660 125,179 824,852 Less: Unearned discount 382 67 - 320 769 Loans, net of unearned discount $ 507,039 $ 171,525 $ 20,660 $ 124,859 $ 824,083 December 31, 2015 Commercial, Real Estate Real Installment Financial Commercial Mortgage Other Agriculture Total Pass $ 434,638 $ 167,394 $ 19,556 $ 132,101 $ 753,689 Special Mention 681 153 - 168 1,002 Substandard 16,655 1,453 75 178 18,361 Doubtful - 327 - - 327 Subtotal 451,974 169,327 19,631 132,447 773,379 Less: Unearned discount 448 76 - 340 864 Loans, net of unearned discount $ 451,526 $ 169,251 $ 19,631 $ 132,107 $ 772,515 Activity in the allowance for loan losses for the period was as follows: ($ In Thousands) Three Months Six Months Ended Ended June 30, 2016 June 30, 2016 Balance at beginning of period $ 6,982 $ 6,747 Loans charged-off: Real Estate (78) (156) Installment and Other (19) (28) Commercial, Financial and Agriculture - (6) Total (97) (190) Recoveries on loans previously charged-off: Real Estate 147 191 Installment and Other 19 37 Commercial, Financial and Agriculture 4 80 Total 170 308 Net recoveries 73 118 Provision for Loan Losses 204 394 Balance at end of period $ 7,259 $ 7,259 Allocation of the Allowance for Loan Losses June 30, 2016 ($ In Thousands) % of loans in each category Amount to total loans Commercial Non Real Estate $ 865 15.1 % Commercial Real Estate 3,215 61.5 Consumer Real Estate 1,540 20.8 Consumer 134 2.5 Unallocated 1,505 0.1 Total $ 7,259 100 % December 31, 2015 ($ In Thousands) % of loans in each category Amount to total loans Commercial Non Real Estate $ 895 17.1 % Commercial Real Estate 3,018 58.4 Consumer Real Estate 1,477 21.9 Consumer 141 2.5 Unallocated 1,216 0.1 Total $ 6,747 100 % The following tables provide the ending balances in the Company's loans (excluding mortgage loans held for sale) and allowance for loan losses, broken down by portfolio segment as of June 30, 2016 and December 31, 2015. The tables also provide additional detail as to the amount of our loans and allowance that correspond to individual versus collective impairment evaluation. Loan Losses. June 30, 2016 Commercial, Installment Financial Real and and Estate Other Agriculture Total (In thousands) Loans Individually evaluated $ 8,413 $ 47 $ 262 $ 8,722 Collectively evaluated 671,632 15,268 128,461 815,361 Total $ 680,045 $ 15,315 $ 128,723 $ 824,083 Allowance for Loan Losses Individually evaluated $ 868 $ 24 $ 61 $ 953 Collectively evaluated 3,887 1,615 804 6,306 Total $ 4,755 $ 1,639 $ 865 $ 7,259 December 31, 2015 Commercial, Installment Financial Real and and Estate Other Agriculture Total (In thousands) Loans Individually evaluated $ 9,782 $ 39 $ 306 $ 10,127 Collectively evaluated 610,996 19,591 131,801 762,388 Total $ 620,778 $ 19,630 $ 132,107 $ 772,515 Allowance for Loan Losses Individually evaluated $ 882 $ 25 $ 50 $ 957 Collectively evaluated 3,613 1,332 845 5,790 Total $ 4,495 $ 1,357 $ 895 $ 6,747 |