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 September 30, 2016 and December 31, 2015, average loans accounted for 75.2 73.3 September 30, 2016 ($ In thousands) Past Due Past Due Non- Total Total Real Estate-construction $ 518 $ - $ 2,788 $ 3,306 $ 104,644 Real Estate-mortgage 1,220 259 1,969 3,448 296,587 Real Estate-non farm non-residential 269 161 934 1,364 307,963 Commercial - - 72 72 121,963 Lease Financing Rec. - - - - 2,211 Obligations of states and subdivisions - - - - 6,861 Consumer 55 - 36 91 14,137 Total $ 2,062 $ 420 $ 5,799 $ 8,281 $ 854,366 December 31, 2015 ($ In Thousands) Past Due Past Due Non- Total Total 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, 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 $ 2,601,027 3,039,840 ($ In Thousands) September 30, 2016 December 31, 2015 Accretable Carrying Accretable Carrying Yield Loans Yield Loans Balance at beginning of period $ 1,219 $ 1,821 $ 1,417 $ 2,063 Accretion (130) 130 (198) 198 Payments received, net - (440) - (440) Balance at end of period $ 1,089 $ 1,511 $ 1,219 $ 1,821 September 30, 2016 ($ In Thousands) 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 4,581 4,620 - 4,879 20 Consumer real estate 353 352 - 281 1 Consumer installment 15 15 - 8 - Total $ 4,949 $ 4,987 $ - $ 5,168 $ 21 Impaired loans with a related allowance: Commercial installment $ 227 $ 227 $ 58 $ 267 $ 7 Commercial real estate 2,819 2,819 413 2,858 86 Consumer real estate 679 679 417 778 11 Consumer installment 28 28 22 33 - Total $ 3,753 $ 3,753 $ 910 $ 3,936 $ 104 Total Impaired Loans: Commercial installment $ 227 $ 227 $ 58 $ 267 $ 7 Commercial real estate 7,400 7,439 413 7,737 106 Consumer real estate 1,032 1,031 417 1,059 12 Consumer installment 43 43 22 41 - Total Impaired Loans $ 8,702 $ 8,740 $ 910 $ 9,104 $ 125 As of September 30, 2016, the Company had $ 1.4 4 ($ In Thousands) 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 Sept. 30, December 31, 2016 2015 ($ In Thousands) Impaired Loans: Impaired loans without a valuation allowance $ 4,949 $ 6,020 Impaired loans with a valuation allowance 3,753 4,107 Total impaired loans $ 8,702 $ 10,127 Allowance for loan losses on impaired loans at period end 910 957 Total nonaccrual loans 5,799 7,368 Past due 90 days or more and still accruing 420 29 Average investment in impaired loans 9,104 9,652 Three Months Nine Months Ended Ended Sept. 30, 2016 Sept. 30, 2016 ($ In Thousands) Interest income recognized during impairment $ - $ - Cash-basis interest income recognized 47 125 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, 2016 was $ 99,000 123,000 322,000 The following tables provide detail of troubled debt restructurings (TDRs) at September 30, 2016. For the Three Months Ending September 30, 2016 ($ In Thousands 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 Nine Months Ending September 30, 2016 ($ In Thousands Outstanding Outstanding Recorded Recorded Investment Interest Investment Post- Number of Income Pre-Modification Modification Loans Recognized Commercial installment $ - $ - - $ - Commercial real estate 296 276 1 10 Consumer real estate - - - - Consumer installment - - - - Total $ 296 $ 276 1 $ 10 There were no TDRs modified during the three month period ended September 30, 2016. The balance of troubled debt restructurings (TDRs)was $ 6.7 6.9 243,000 ($ In Thousands) September 30, 2016 Current Past Due Past Due Non- Total Commercial installment $ 155 $ - $ - $ 50 $ 205 Commercial real estate 2,494 - - 3,607 6,101 Consumer real estate 247 - - 126 373 Consumer installment 7 - - 25 32 Total $ 2,903 $ - $ - $ 3,808 $ 6,711 Allowance for loan losses $ 115 $ - $ - $ 128 $ 243 ($ In Thousands) December 31, 2015 Current Past Due Past Due Non- 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. September 30, 2016 Commercial, Real Estate Real Installment Financial Total Pass $ 509,503 $ 174,547 $ 26,114 $ 126,799 $ 836,963 Special Mention 915 241 - 650 1,806 Substandard 14,263 1,517 85 111 15,976 Doubtful - 318 - 41 359 Subtotal 524,681 176,623 26,199 127,601 855,104 Less: Unearned discount 379 63 - 296 738 Loans, net of unearned discount $ 524,302 $ 176,560 $ 26,199 $ 127,305 $ 854,366 December 31, 2015 ($ In Thousands Real Estate Real Installment Commercial, 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 ($ In Thousands) Three Months Nine Months Ended Ended Sept. 30, 2016 Sept. 30, 2016 Balance at beginning of period $ 7,259 $ 6,747 Loans charged-off: Real Estate (130) (286) Installment and Other (26) (55) Commercial, Financial and Agriculture - (6) Total (156) (347) Recoveries on loans previously charged-off: Real Estate 217 408 Installment and Other 15 52 Commercial, Financial and Agriculture 3 83 Total 235 543 Net recoveries 79 196 Provision for Loan Losses 143 538 Balance at end of period $ 7,481 $ 7,481 Allocation of the Allowance for Loan Losses September 30, 2016 ($ In Thousands) Amount % of loans Commercial Non Real Estate $ 920 14.9 % Commercial Real Estate 3,364 61.4 Consumer Real Estate 1,475 20.6 Consumer 133 3.0 Unallocated 1,589 0.1 Total $ 7,481 100 % December 31, 2015 ($ In Thousands) Amount % of 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 September 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. September 30, 2016 Real Installment Commercial, Total ($ In Thousands) Loans Individually evaluated $ 8,432 $ 43 $ 227 $ 8,702 Collectively evaluated 700,286 14,437 130,941 845,664 Total $ 708,718 $ 14,480 $ 131,168 $ 854,366 Allowance for Loan Losses Individually evaluated $ 830 $ 22 $ 58 $ 910 Collectively evaluated 4,009 1,700 862 6,571 Total $ 4,839 $ 1,722 $ 920 $ 7,481 December 31, 2015 Real Installment Commercial, 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 |