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, 2017 and December 31, 2016, average loans accounted for 74.1 73.8 Generally, the Company will place a delinquent loan in nonaccrual status when the loan becomes 90 days or more past due. At the time a loan is placed in nonaccrual status, all interest which has been accrued on the loan but remains unpaid is reversed and deducted from earnings as a reduction of reported interest income. No additional interest is accrued on the loan balance until the collection of both principal and interest becomes reasonably certain. The following tables summarize by class our loans classified as past due in excess of 30 days or more in addition to those loans classified as non-accrual: September 30, 2017 ($ In thousands) Past Due Total 90 Days Past Due Past Due or More and 30 to 89 and Still Non- Non- Total Days Accruing Accrual Accrual Loans Real Estate-construction $ 497 $ 105 $ 98 $ 700 $ 171,609 Real Estate-mortgage 1,630 180 2,733 4,543 377,307 Real Estate-non farm non-residential 759 - 1,764 2,523 456,110 Commercial 115 1,151 211 1,477 164,577 Lease Financing Rec. - - - - 2,008 Obligations of states and subdivisions - - - - 5,892 Consumer 140 - 46 186 20,690 Total $ 3,141 $ 1,436 $ 4,852 $ 9,429 $ 1,198,193 December 31, 2016 ($ In Thousands) Past Due 90 Days Total or More Past Due Past Due and and 30 to 89 Still Non- Non- Total Days Accruing Accrual Accrual Loans Real Estate-construction $ 204 $ 96 $ 658 $ 958 $ 109,394 Real Estate-mortgage 2,745 102 1,662 4,509 289,640 Real Estate-non farm non residential 269 - 909 1,178 314,359 Commercial 9 - 2 11 129,423 Lease Financing Rec. - - - - 2,204 Obligations of states and subdivisions - - - - 6,698 Consumer 22 - 33 55 15,336 Total $ 3,249 $ 198 $ 3,264 $ 6,711 $ 867,054 In connection with our acquisition of BCB Holding Company, Inc. in 2014, we acquired loans with deteriorated credit quality. 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 $ 2.1 2.2 ($ In Thousands) September 30, 2017 December 31, 2016 Carrying Carrying Accretable Amount of Accretable Amount of Yield Loans Yield Loans Balance at beginning of period $ 894 $ 1,305 $ 1,219 $ 1,821 Accretion (43) 43 (325) 325 Payments received, net - (139) - (841) Balance at end of period $ 851 $ 1,209 $ 894 $ 1,305 September 30, 2017 ($ In Thousands) Average Interest Recorded Income Recorded Unpaid Related Investment Recognized Investment Balance Allowance YTD YTD Impaired loans with no related allowance: Commercial installment $ 15 $ 15 $ - $ 45 $ - Commercial real estate 4,383 4,504 - 3,358 89 Consumer real estate 2,235 2,437 - 1,826 63 Consumer installment 29 29 - 14 - Total $ 6,662 $ 6,985 $ - $ 5,243 $ 152 Impaired loans with a related allowance: $ 195 $ 195 $ 101 $ 115 $ - Commercial installment 2,499 2,499 237 2,786 80 Commercial real estate 506 506 136 490 12 Consumer real estate 23 23 17 24 - Consumer installment $ 3,223 $ 3,223 $ 491 $ 3,415 $ 92 Total Total Impaired Loans: Commercial installment $ 210 $ 210 $ 101 $ 160 $ - Commercial real estate 6,882 7,003 237 6,144 169 Consumer real estate 2,741 2,943 136 2,316 75 Consumer installment 52 52 17 38 - Total Impaired Loans $ 9,885 $ 10,208 $ 491 $ 8,658 $ 244 As of September 30, 2017, the Company had $ 1.0 0.2 December 31, 2016 ($ In Thousands) Average Interest Recorded Income Recorded Unpaid Related Investment Recognized Investment Balance Allowance YTD YTD Impaired loans with no related allowance: Commercial installment $ - $ - $ - $ - $ - Commercial real estate 2,324 2,570 - 4,368 37 Consumer real estate 329 329 - 291 1 Consumer installment 14 14 - 9 - Total $ 2,667 $ 2,913 $ - $ 4,668 $ 38 Impaired loans with a related allowance: Commercial installment $ 153 $ 153 $ 10 $ 244 $ 9 Commercial real estate 2,726 2,726 343 2,832 127 Consumer real estate 556 669 308 733 14 Consumer installment 26 27 21 32 - Total $ 3,461 $ 3,575 $ 682 $ 3,841 $ 150 Total Impaired Loans: Commercial installment $ 153 $ 153 $ 10 $ 244 $ 9 Commercial real estate 5,050 5,296 343 7,200 164 Consumer real estate 885 998 308 1,024 15 Consumer installment 40 41 21 41 - Total Impaired Loans $ 6,128 $ 6,488 $ 682 $ 8,509 $ 188 Sept. 30, December 31, 2017 2016 ($ In Thousands) Impaired Loans: Impaired loans without a valuation allowance $ 6,662 $ 2,667 Impaired loans with a valuation allowance 3,223 3,461 Total impaired loans $ 9,885 $ 6,128 Allowance for loan losses on impaired loans at period end 491 682 Total nonaccrual loans 4,852 3,264 Past due 90 days or more and still accruing 1,436 198 Average investment in impaired loans 8,658 8,509 Three Months Nine Months Ended Ended ($ In Thousands) Sept. 30, 2017 Sept. 30, 2017 Interest income recognized during impairment - - Cash-basis interest income recognized 60 244 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, 2017 was $ 90,000 243,000 If the Company grants a concession to a borrower in financial difficulty, the loan is classified as a troubled debt restructuring (“TDR”). The following tables provide detail of TDRs at Sept. 30, 2017. For the Three Months Ending September 30, 2017 ($ 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, 2017 ($ 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 152 149 2 5 Consumer installment - - - - Total $ 152 $ 149 2 $ 5 There were no TDRs modified during the three month period ended September 30, 2017. The balance of TDRs was $ 7.3 4.1 0.2 ($ In Thousands) September 30, 2017 Past Due 90 days Current Past Due and still Non- Loans 30-89 accruing accrual Total Commercial installment $ - $ - $ - $ 308 $ 308 Commercial real estate 3,461 267 - 1,047 4,775 Consumer real estate 1,099 88 - 1,011 2,198 Consumer installment 5 - - 19 24 Total $ 4,565 $ 355 $ - $ 2,385 $ 7,305 Allowance for loan losses $ 107 $ 14 $ - $ 122 $ 243 ($ In Thousands) December 31, 2016 Past Due 90 days Current Past Due and still Non- Loans 30-89 accruing accrual Total Commercial installment $ 151 $ - $ - $ - $ 151 Commercial real estate 2,463 - - 1,102 3,565 Consumer real estate 154 90 - 122 366 Consumer installment 6 - - 23 29 Total $ 2,774 $ 90 $ - $ 1,247 $ 4,111 Allowance for loan losses $ 125 $ - $ - $ 40 $ 165 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, 2017 ($ In Thousands) Real Real Installment Commercial, Estate Estate and Financial and Commercial Mortgage Other Agriculture Total Pass $ 746,097 $ 223,995 $ 28,184 $ 164,373 $ 1,162,649 Special Mention 9,619 825 - 3,127 13,571 Substandard 16,743 4,172 89 1,892 22,896 Doubtful 95 - - 26 121 Subtotal 772,554 228,992 28,273 169,418 1,199,237 Less: Unearned discount 750 59 - 235 1,044 Loans, net of unearned discount $ 771,804 $ 228,933 $ 28,273 $ 169,183 $ 1,198,193 December 31, 2016 ($ In Thousands) Real Real Installment Commercial, Estate Estate and Financial and Commercial Mortgage Other Agriculture Total Pass $ 522,949 $ 174,325 $ 21,278 $ 134,235 $ 852,787 Special Mention 376 237 - 618 1,231 Substandard 11,873 1,336 79 208 13,496 Doubtful - 200 - 40 240 Subtotal 535,198 176,098 21,357 135,101 867,754 Less: Unearned discount 378 60 - 262 700 Loans, net of unearned discount $ 534,820 $ 176,038 $ 21,357 $ 134,839 $ 867,054 ($ In Thousands) Three Months Nine Months Ended Ended Sept. 30, 2017 Sept. 30, 2017 Balance at beginning of period $ 8,070 $ 7,510 Loans charged-off: Real Estate (39) (259) Installment and Other (21) (63) Commercial, Financial and Agriculture (-) (1) Total (60) (323) Recoveries on loans previously charged-off: Real Estate 45 498 Installment and Other 23 67 Commercial, Financial and Agriculture 7 39 Total 75 604 Net recoveries 15 281 Provision for Loan Losses 90 384 Balance at end of period $ 8,175 $ 8,175 Allocation of the Allowance for Loan Losses September 30, 2017 ($ In Thousands) % of loans in each category Amount to total loans Commercial Non Real Estate $ 1,557 14.1 % Commercial Real Estate 4,662 64.4 Consumer Real Estate 1,510 19.1 Consumer 174 2.4 Secondary market reserve 180 - Unallocated 92 - Total $ 8,175 100 % December 31, 2016 ($ In Thousands) % of loans in each category Amount to total loans Commercial Non Real Estate $ 1,118 15.6 % Commercial Real Estate 4,071 61.6 Consumer Real Estate 1,589 20.3 Consumer 155 2.4 Unallocated 577 0.1 Total $ 7,510 100 % September 30, 2017 (In thousands) Installment Financial and and Real Estate Other Agriculture Total Loans Individually evaluated $ 9,623 $ 52 $ 210 $ 9,885 Collectively evaluated 991,115 28,222 168,971 1,188,308 Total $ 1,000,738 $ 28,374 $ 169,181 $ 1,198,193 Allowance for Loan Losses Individually evaluated $ 373 $ 17 $ 101 $ 491 Collectively evaluated 5,978 249 1,457 7,684 Total $ 6,351 $ 266 $ 1,558 $ 8,175 December 31, 2016 (In thousands) Commercial, Installment Financial and and Real Estate Other Agriculture Total Loans Individually evaluated $ 5,935 $ 40 $ 153 $ 6,128 Collectively evaluated 704,923 21,317 134,686 860,926 Total $ 710,858 $ 21,357 $ 134,839 $ 867,054 Allowance for Loan Losses Individually evaluated $ 651 $ 21 $ 10 $ 682 Collectively evaluated 5,009 711 1,108 6,828 Total $ 5,660 $ 732 $ 1,118 $ 7,510 |