LOANS | NOTE 10 – LOANS 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, 2018 ($ In thousands) Past Due 30 to 89 Days Past Due 90 Days or More and Still Accruing Non- Accrual Total Past Due and Non- Accrual Total Loans Real Estate-construction $ 267 $ 15 $ 235 $ 517 $ 251,240 Residential secured loans including multifamily and farmland 3,060 275 6,041 9,376 529,515 Real Estate-non farm non-residential 935 447 6,059 7,441 654,040 Commercial 222 30 1,121 1,373 246,401 Lease Financing Rec. - - - - 2,659 Obligations of states and subdivisions - - - - 16,374 Consumer 271 38 116 425 48,254 Total $ 4,755 $ 805 $ 13,572 $ 19,132 $ 1,748,483 December 31, 2017 ($ In Thousands) Past Due 30 to 89 Days Past Due 90 Days or More and Still Accruing Non- Accrual Total Past Due and Non- Accrual Total Loans Real Estate-construction $ 192 $ 27 $ 92 $ 311 $ 183,328 Real Estate-residential 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 million as of September 30, 2018 and $2.0 million as of December 31, 2017. The outstanding balance of these loans is the undiscounted sum of all amounts, including amounts deemed principal, interest, fees, penalties, and other under the loans, owed at the reporting date, whether or not currently due and whether or not any such amounts have been charged off. Changes in the carrying amount and accretable yield for acquired impaired loans were as follows at September 30, 2018 and December 31, 2017: ($ In Thousands) September 30, 2018 December 31, 2017 Accretable Yield Carrying Amount of Loans Accretable Yield Carrying Amount of Loans Balance at beginning of period $ 836 $ 1,185 $ 894 $ 1,305 Accretion (41 ) 41 (58 ) 58 Payments received, net (78 ) - (178 ) Charge-off (10 ) (10 ) - - Balance at end of period $ 785 $ 1,138 $ 836 $ 1,185 The following tables provide additional detail of impaired loans broken out according to class as of September 30, 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 September 30, 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. September 30, 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 $ 179 $ 179 $ - $ 251 $ 2 Commercial real estate 8,672 8,794 - 5,095 188 Consumer real estate 6,329 6,586 - 4,098 72 Consumer installment 127 127 - 80 23 Total 15,307 15,686 $ - 9,524 285 Impaired loans with a related allowance: Commercial installment $ 943 $ 943 $ 275 $ 970 $ 2 Commercial real estate 2,089 2,089 104 2,457 103 Consumer real estate 375 375 85 603 12 Consumer installment 27 27 27 24 - Total $ 3,434 $ 3,434 $ 491 $ 4,054 $ 117 Total Impaired Loans: Commercial installment $ 1,122 $ 1,122 $ 275 $ 1,221 $ 4 Commercial real estate 10,761 10,882 104 7,552 290 Consumer real estate 6,704 6,961 85 4,701 84 Consumer installment 154 154 27 104 23 Total Impaired Loans $ 18,741 $ 19,119 $ 491 $ 13,578 $ 401 As of September 30, 2018, the Company had $1.2 million of foreclosed residential real estate property obtained by physical possession and $0.3 million of consumer mortgage loans secured by residential real estate properties for which foreclosure proceedings are in process according to local jurisdictions. December 31, 2017 ($ 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 The following table is a summary of interest recognized and cash-basis interest earned on impaired loans: ($ In Thousands) Three Months Ended September 30, 2018 Nine Months Ended September 30, 2018 Interest income recognized during impairment 81 235 Cash-basis interest income recognized 113 401 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, 2018 was $211,000 and $441,000, respectively. The Company had no loan commitments to borrowers in nonaccrual status at September 30, 2018 and December 31, 2017. If the Company grants a concession to a borrower in financial difficulty, the loan is classified as a troubled debt restructuring (“TDR”). One TDR was modified during the three months and nine months ended September 30, 2018. There were 0 and 5 TDRs modified during the three months and nine months ended September 30, 2017, respectively. The balance of TDRs was $9.1 million at September 30, 2018 and $6.9 million at December 31, 2017. The increase of $2.2 million is attributable to . There was $0.1 million allocated in specific reserves established with respect to these loans as of September 30, 2018. As of September 30, 2018, the Company had no additional amount committed on any loan classified as TDR. The following tables set forth the amounts and past due status for the Bank TDRs at September 30, 2018 and December 31, 2017: ($ In Thousands) September 30, 2018 Current Loans Past Due 30-89 Past Due 90 days and still accruing Non- accrual Total Commercial installment $ 14 $ - $ - $ - $ 14 Commercial real estate 3,674 - - 1,234 4,908 Residential real estate 449 1,007 - 2,670 4,126 Consumer installment 25 - - 13 38 Total $ 4,162 $ 1,007 $ - $ 3,917 $ 9,086 Allowance for loan Losses $ 114 $ 12 $ - $ 13 $ 139 December 31, 2017 Current Loans Past Due 30-89 Past Due 90 days and still accruing Non- accrual Total Commercial installment $ - $ - $ - $ - $ - Commercial real estate 3,702 92 - 1,025 4,819 Residential 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 no loans during the quarter ending September 30, 2018 and 1 loan which totaled $84,000 and 3 loans which totaled $355,000 . Internal Risk Ratings The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt, such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company uses the following definitions for risk ratings, which are consistent with the definitions used in supervisory guidance: Special Mention Substandard Doubtful Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans. As of September 30, 2018 and December 31, 2017, and based on the most recent analysis performed, the risk categories of loans by class of loans (excluding mortgage loans held for sale) were as follows: September 30, 2018 ($ In Thousands) Commercial Real Estate Consumer Real Estate Installment and Other Commercial, Financial and Agriculture Total Pass $ 1,062,713 $ 350,893 $ 42,352 $ 242,190 $ 1,698,148 Special Mention 13,360 1,169 - 2,691 17,220 Substandard 20,860 10,520 290 1,908 33,578 Doubtful 87 - - 18 105 Subtotal $ 1,097,020 $ 362,582 $ 42,642 $ 246,807 $ 1,749,051 Less: Unearned discount 568 - - - 568 Loans, net of unearned discount $ 1,096,452 $ 362,582 $ 42,642 $ 246,807 $ 1,748,483 December 31, 2017 ($ In thousands) Commercial Real Estate Consumer Real Estate Installment and Other Commercial, Financial and Agriculture 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 Activity in the allowance for loan losses for the period was as follows: ($ In Thousands) Three Months Nine Months Ended Ended September 30, 2018 September 30, 2018 Balance at beginning of period $ 9,512 $ 8,288 Loans charged-off: Real Estate (42 ) (59 ) Installment and Other (39 ) (71 ) Commercial, Financial and Agriculture (242 ) (247 ) Total (323 ) (377 ) Recoveries on loans previously charged-off: Real Estate 107 170 Installment and Other 39 102 Commercial, Financial and Agriculture 18 36 Total 164 308 Net charge-off (159 ) (69 ) Provision for Loan Losses 412 1,546 Balance at end of period $ 9,765 $ 9,765 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, 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. September 30, 2018 ($ In thousands) Commercial Installment Financial Real Estate And Other And Agriculture Total Loans Individually evaluated $ 17,466 $ 153 $ 1,122 $ 18,741 Collectively evaluated 1,416,870 48,171 264,701 1,729,742 Total $ 1,434,336 $ 48,324 $ 265,823 $ 1,748,483 Allowance for Loan Losses Individually evaluated $ 190 $ 26 $ 275 $ 491 Collectively evaluated 7,327 167 1,780 9,274 Total $ 7,517 $ 193 $ 2,055 $ 9,765 December 31, 2017 ($ In thousands) Commercial, Installment Financial Real Estate and Other And Agriculture 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 |