LOANS | NOTE 10 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 March 31, 2018 and December 31, 2017, average loans accounted for 73.2 74.1 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. March 31, 2018 ($ In thousands) Past Due Past Due Non- Total Total Real Estate-construction $ 289 $ 35 $ 147 $ 471 $ 213,712 Real Estate-mortgage 3,976 456 2,464 6,896 475,868 Real Estate-non farm non-residential 1,541 426 1,778 3,745 561,153 Commercial 784 179 1,314 2,277 213,118 Lease Financing Rec. - - - - 2,433 Obligations of states and subdivisions - - - - 15,861 Consumer 123 - 43 166 34,434 Total $ 6,713 $ 1,096 $ 5,746 $ 13,555 $ 1,516,579 December 31, 2017 ($ In Thousands) Past Due Past Due Non- Total Total Real Estate-construction $ 192 $ 27 $ 92 $ 311 $ 183,328 Real Estate-mortgage 2,656 176 2,692 5,524 385,099 Real Estate-non farm non-residential 1,487 82 1,724 3,293 467,484 Commercial 393 - 1,120 1,513 165,780 Lease Financing Rec. - - - - 2,450 Obligations of states and subdivisions - - - - 3,109 Consumer 57 - 46 103 18,056 Total $ 4,785 $ 285 $ 5,674 $ 10,744 $ 1,225,306 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. Total outstanding acquired impaired loans were $ 2.0 2.0 ($ In Thousands) March 31, 2018 December 31, 2017 Accretable Carrying Accretable Carrying Balance at beginning of period $ 836 $ 1,185 $ 894 $ 1,305 Accretion (17) 17 (58) 58 Payments received, net - (20) - (178) Charge-off (10) (10) - - Balance at end of period $ 809 $ 1,172 $ 836 $ 1,185 The following tables provide additional detail of impaired loans broken out according to class as of March 31, 2018 and December 31, 2017. The recorded investment included in the following tables represents customer balances net of any partial charge-offs recognized on the loans, net of any deferred fees and costs. As nearly all of our impaired loans at March 31, 2018 are on nonaccrual status, recorded investment excludes any insignificant amount of accrued interest receivable on loans 90-days or more past due and still accruing. The unpaid balance represents the recorded balance prior to any partial charge-offs. March 31, 2018 ($ In Thousands) Average Interest Recorded Income Recorded Unpaid Related Investment Recognized Investment Balance Allowance YTD YTD Impaired loans with no related allowance: Commercial installment $ 286 $ 286 $ - $ 278 $ - Commercial real estate 3,947 4,152 - 4,014 39 Consumer real estate 2,454 3,021 - 2,317 20 Consumer installment 53 53 - 41 - Total $ 6,740 $ 7,512 - $ 6,650 $ 59 Impaired loans with a related allowance: Commercial installment $ 1,043 $ 1,043 $ 435 $ 947 $ - Commercial real estate 2,444 2,444 207 2,540 33 Consumer real estate 492 492 130 498 5 Consumer installment 16 16 16 20 - Total $ 3,995 $ 3,995 $ 788 $ 4,005 $ 38 Total Impaired Loans: Commercial installment $ 1,329 $ 1,329 $ 435 $ 1,225 $ - Commercial real estate 6,391 6,596 207 6,554 72 Consumer real estate 2,946 3,513 130 2,815 25 Consumer installment 69 69 16 61 - Total Impaired Loans $ 10,735 $ 11,507 $ 788 $ 10,655 $ 97 As of March 31, 2018, the Company had $ 1.2 0.2 December 31, 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 $ 270 $ 270 $ - $ 90 $ 1 Commercial real estate 4,080 4,176 - 3,502 101 Consumer real estate 2,180 2,424 - 1,897 83 Consumer installment 29 29 - 17 - Total $ 6,559 $ 6,899 $ - $ 5,506 $ 185 Impaired loans with a related allowance: Commercial installment $ 850 $ 850 $ 267 $ 262 $ 14 Commercial real estate 2,638 2,638 234 2,756 112 Consumer real estate 504 504 137 493 15 Consumer installment 23 23 23 24 - Total $ 4,015 $ 4,015 $ 661 $ 3,535 $ 141 Total Impaired Loans: Commercial installment $ 1,120 $ 1,120 $ 267 $ 352 $ 15 Commercial real estate 6,718 6,814 234 6,258 213 Consumer real estate 2,684 2,928 137 2,390 98 Consumer installment 52 52 23 41 - Total Impaired Loans $ 10,574 $ 10,914 $ 661 $ 9,041 $ 326 March 31, December 31, 2018 2017 ($ In Thousands) Impaired Loans: Impaired loans without a valuation allowance $ 6,740 $ 6,559 Impaired loans with a valuation allowance 3,995 4,015 Total impaired loans $ 10,735 $ 10,574 Allowance for loan losses on impaired loans at period end 788 661 Total nonaccrual loans 5,746 5,674 Past due 90 days or more and still accruing 1,096 285 Average investment in impaired loans 10,655 9,041 ($ In Thousands) Three Months Three Months Interest income recognized during impairment $ 97 $ 100 Cash-basis interest income recognized 97 100 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 ended March 31, 2018 and March 31, 2017 was $ 86,000 75,000 If the Company grants a concession to a borrower in financial difficulty, the loan is classified as a troubled debt restructuring (“TDR”). There were no TDRs modified during the three month period ended March 31, 2018. The balance of TDRs was $ 7.1 6.9 0.1 ($ In Thousands) March 31, 2018 Current Past Due Past Due Non- Total Commercial installment $ 16 $ - $ - $ - $ 16 Commercial real estate 3,314 - 349 1,078 4,741 Consumer real estate 1,195 87 - 1,053 2,335 Consumer installment 27 - - 15 42 Total $ 4,552 $ 87 $ 349 $ 2,146 $ 7,134 Allowance for loan Losses $ 118 $ - $ - $ 15 $ 133 ($ In Thousands) December 31, 2017 Current Past Due Past Due Non- Total Commercial installment $ - $ - $ - $ - $ - Commercial real estate 3,702 92 - 1,025 4,819 Consumer real estate 1,012 89 - 987 2,088 Consumer installment - - 5 18 23 Total $ 4,714 $ 181 $ 5 $ 2,030 $ 6,930 Allowance for loan losses $ 100 $ 22 $ 5 $ 27 $ 154 A loan is considered to be in payment default once it is 90 days contractually past due under the modified terms. There were 2 loans which totaled $ 295,000 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. March 31, 2018 ($ In Thousands) Real Real Installment Commercial, Total Pass $ 915,825 $ 297,379 $ 41,767 $ 218,974 $ 1,473,945 Special Mention 14,257 1,912 98 3,173 19,440 Substandard 15,644 5,132 27 2,570 23,373 Doubtful 91 - - 477 568 Subtotal 945,817 304,423 41,892 225,194 1,517,326 Less: Unearned discount 747 - - - 747 Loans, net of unearned discount $ 945,070 $ 304,423 $ 41,892 $ 225,194 $ 1,516,579 December 31, 2017 ($ In Thousands) Real Real Installment Commercial, Total Pass $ 763,572 $ 226,178 $ 28,482 $ 166,819 $ 1,185,051 Special Mention 15,987 680 - 2,908 19,575 Substandard 14,979 4,622 80 1,905 21,586 Doubtful 94 - - 23 117 Subtotal 794,632 231,480 28,562 171,655 1,226,329 Less: Unearned discount 710 65 - 248 1,023 Loans, net of unearned discount $ 793,922 $ 231,415 $ 28,562 $ 171,407 $ 1,225,306 ($ In Thousands) Three Months Three Months Ended Ended March 31, 2018 March 31, 2017 Balance at beginning of period $ 8,288 $ 7,510 Loans charged-off: Real Estate 4 65 Installment and Other 19 8 Commercial, Financial and Agriculture - 1 Total (23) 74 Recoveries on loans previously charged-off: Real Estate 22 301 Installment and Other 87 13 Commercial, Financial and Agriculture 8 17 Total 117 331 Net recoveries 94 257 Provision for Loan Losses 277 46 Balance at end of period $ 8,659 $ 7,813 The following tables represent how the allowance for loan losses is allocated to a particular loan type, as well as the percentage of the category to total loans at March 31, 2018 and December 31, 2017. Allocation of the Allowance for Loan Losses March 31, 2018 ($ In Thousands) Amount % of loans Commercial Non Real Estate $ 1,916 14.8 % Commercial Real Estate 4,848 62.4 Consumer Real Estate 1,538 20.0 Consumer 177 2.8 Unallocated 180 - Total $ 8,659 100 % December 31, 2017 ($ In Thousands) Amount % of loans Commercial Non Real Estate $ 1,608 14.0 % Commercial Real Estate 4,644 64.8 Consumer Real Estate 1,499 18.9 Consumer 173 2.3 Unallocated 364 - Total $ 8,288 100 % 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 March 31, 2018 and December 31, 2017. The tables also provide additional detail as to the amount of our loans and allowance that correspond to individual versus collective impairment evaluation. The impairment evaluation corresponds to the Company's systematic methodology for estimating its Allowance for Loan Losses. See Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations Provision for Loan and Lease Losses” for a description of our methodology. March 31, 2018 ($ In thousands) Installment Financial Real Estate and and Total Loans Individually evaluated $ 9,337 $ 69 $ 1,329 $ 10,735 Collectively evaluated 1,240,156 41,823 223,865 1,505,844 Total $ 1,249,493 $ 41,892 $ 225,194 $ 1,516,579 Allowance for Loan Losses Individually evaluated $ 337 $ 16 $ 435 $ 788 Collectively evaluated 6,229 161 1,481 7,871 Total $ 6,566 $ 177 $ 1,916 $ 8,659 December 31, 2017 ($ In thousands) Commercial, Installment Financial Real Estate and and Total Loans Individually evaluated $ 9,402 $ 52 $ 1,120 $ 10,574 Collectively evaluated 1,015,934 28,511 170,287 1,214,732 Total $ 1,025,336 $ 28,563 $ 171,407 $ 1,225,306 Allowance for Loan Losses Individually evaluated $ 371 $ 23 $ 267 $ 661 Collectively evaluated 5,952 334 1,341 7,627 Total $ 6,323 $ 357 $ 1,608 $ 8,288 |