LOANS | NOTE E - 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. At December 31, 2018 and 2017, respectively, loans accounted for 77.0% and 74.5% of earning assets. The Company controls and mitigates the inherent credit and liquidity risks through the composition of its loan portfolio. The following table shows the composition of the loan portfolio by category: ($ in thousands) December 31, 2018 December 31, 2017 Amount Percent of Total Amount Percent of Total Mortgage loans held for sale $ 4,838 0.3 % $ 4,790 0.3 % Commercial, financial and agricultural 301,182 14.6 % 165,780 13.5 % Real Estate: Mortgage-commercial 776,880 37.6 % 467,484 38.0 % Mortgage-residential 617,804 29.9 % 385,099 31.3 % Construction 298,718 14.5 % 183,328 14.9 % Lease financing receivable 2,891 0.1 % 2,450 0.2 % Obligations of states and subdivisions 16,941 0.8 % 3,109 0.3 % Installment and other 46,006 2.2 % 18,056 1.5 % Total loans 2,065,260 100 % 1,230,096 100 % Allowance for loan losses (10,065 ) (8,288 ) Net loans $ 2,055,195 $ 1,221,808 Loans held for sale consist of mortgage loans originated by the Bank and sold into the secondary market. Commitments from investors to purchase the loans are obtained upon origination. Activity in the allowance for loan losses for December 31, 2018, 2017 and 2016 was as follows: ($ in thousands) 2018 2017 2016 Balance at beginning of period $ 8,288 $ 7,510 $ 6,747 Prior period reclassification – Mortgage Reserve Funding (181 ) - - Beginning balance of allowance restated 8,107 7,510 6,747 Loans charged-off: Commercial Real Estate (222 ) (110 ) (275 ) Consumer Real Estate (7 ) (152 ) (352 ) Installment and Other (87 ) (81 ) (73 ) Commercial, Financial and Agriculture (265 ) (62 ) (71 ) Total (581 ) (405 ) (771 ) Recoveries on loans previously charged-off: Commercial Real Estate 44 279 226 Consumer Real Estate 183 243 529 Installment and Other 148 105 70 Commercial, Financial and Agriculture 44 50 84 Total 419 677 909 Net (Charge-offs) Recoveries (162 ) 272 138 Provision for Loan Losses 2,120 506 625 Balance at end of period $ 10,065 $ 8,288 $ 7,510 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 December 31, 2018 and 2017. Allocation of the Allowance for Loan Losses December 31, 2018 (Dollars in thousands) Amount % of loans in each category to total loans Commercial, Financial and Agriculture $ 2,060 14.8 % Commercial Real Estate 6,258 64.6 % Consumer Real Estate 1,743 18.9 % Installment and other 201 1.7 % Unallocated (197 ) - Total $ 10,065 100 % December 31, 2017 (Dollars in thousands) Amount % of loans in each category to total loans Commercial, Financial and Agriculture $ 1,608 14.0 % Commercial Real Estate 4,644 64.8 % Consumer Real Estate 1,499 18.9 % Installment and other 173 2.3 % Unallocated 364 - Total $ 8,288 100 % The following table represents the Company’s impaired loans at December 31, 2018 and 2017. This table includes performing troubled debt restructurings. December 31, December 31, ($ in thousands) 2018 2017 Impaired Loans: Impaired loans without a valuation allowance (1) $ 25,247 $ 6,559 Impaired loans with a valuation allowance 5,864 4,015 Total impaired loans $ 31,111 $ 10,574 Allowance for loan losses on impaired loans at period end 1,179 661 Total non-accrual loans (2) 25,073 5,674 Past due 90 days or more and still accruing 1,265 285 Average investment in impaired loans 16,257 9,041 (1) Impaired loans without a valuation allowance at December 31, 2018 includes $ 17,652 (2) Non-accruals at December 31, 2018 includes $ 13,405 The following table is a summary of interest recognized and cash-basis interest earned on impaired loans for the years ended December 31, 2018, 2017 and 2016 ($ in thousands): 2018 2017 2016 Interest income recognized during impairment $ 256 $ - $ - Cash-basis interest income recognized 721 326 188 The gross interest income that would have been recorded in the period that ended if the non-accrual 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 twelve months for the years ended December 31, 2018, 2017 and 2016, was $782 thousand, $342 thousand and $389 thousand, respectively. The Company had no loan commitments to borrowers in non-accrual status at December 31, 2018 and 2017. The following tables provide the ending balances in the Company's loans (excluding mortgage loans held for sale) and allowance for loan losses, broken down by portfolio segment as of and . The tables also provide additional detail as to the amount of our loans and allowance that correspond to individual versus collective impairment evaluation. The impairment evaluation corresponds to the Company's systematic methodology for estimating its Allowance for Loan Losses. December 31, 2018 ($ in thousands) Installment Commercial, Commercial Consumer Real Estate and Other Financial and Agriculture Total Loans Individually evaluated(1) $ 22,558 $ 6,581 $ 118 $ 1,854 $ 31,111 Collectively evaluated 1,309,322 383,368 34,292 302,329 2,029,311 Total $ 1,331,880 $ 389,949 $ 34,410 $ 304,183 $ 2,060,422 Allowance for Loan Losses Individually evaluated $ 758 $ 66 $ 26 $ 329 $ 1,179 Collectively evaluated 5,303 1,677 175 1,731 8,886 Total $ 6,061 $ 1,743 $ 201 $ 2,060 $ 10,065 (1) Impaired loans individually evaluated at December 31, 2018 include $17,652 in PCI loans. December 31, 2017 (In thousands) Installment Commercial, Commercial Consumer and Other Financial and Agriculture Total Loans Individually evaluated $ 6,717 $ 2,685 $ 52 $ 1,120 $ 10,574 Collectively evaluated 803,476 212,458 28,511 170,287 1,214,732 Total $ 810,193 $ 215,143 $ 28,563 $ 171,407 $ 1,225,306 Allowance for Loan Losses Individually evaluated $ 234 $ 137 $ 23 $ 267 $ 661 Collectively evaluated 4,516 1,436 334 1,341 7,627 Total $ 4,750 $ 1,573 $ 357 $ 1,608 $ 8,288 The following tables provide additional detail of impaired loans broken out according to class as of December 31, 2018, 2017 and 2016. The recorded investment included in the following table represents customer balances net of any partial charge-offs recognized on the loans, net of any deferred fees and costs. 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. December 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, financial and agriculture $ 894 $ 894 $ - $ 379 $ 27 Commercial real estate 18,046 19,775 - 7,685 427 Consumer real estate 6,215 6,530 - 4,522 69 Consumer installment 92 92 - 82 3 Total $ 25,247 $ 27,291 $ - $ 12,668 $ 526 Impaired loans with a related allowance: Commercial, financial and agriculture $ 960 $ 960 $ 329 $ 968 $ 3 Commercial real estate 4,512 4,512 758 2,868 176 Consumer real estate 366 366 66 555 16 Consumer installment 26 26 26 24 - Total $ 5,846 $ 5,864 $ 1,179 $ 4,415 $ 195 Total Impaired Loans: Commercial, financial and agriculture $ 1,854 $ 1,854 $ 329 $ 1,347 $ 30 Commercial real estate 22,558 24,287 758 10,553 603 Consumer real estate 6,581 6,896 66 5,077 85 Consumer installment 118 118 26 106 3 Total Impaired Loans (1) $ 31,111 $ 33,155 $ 1,179 $ 17,083 $ 721 (1) – Total impaired loans as of December 31, 2018 include $ 17,652 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, financial and agriculture $ 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, financial and agriculture $ 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, financial and agriculture $ 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 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, financial and agriculture $ - $ - $ - $ - $ - 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, financial and agriculture $ 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, financial and agriculture $ 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 We acquired loans with deteriorated credit quality in 2014, 2017 and 2018. 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 (purchased credit impaired loans). Acquired loans are considered to be impaired if it is probable, based on current available information, that the Company will be unable to collect all cash flows as expected. If expected cash flows cannot reasonably be estimated as to what will be collected, there will not be any interest income recognized on these loans. The following presents information regarding the contractually required payments receivable, cash flows expected to be collected and the estimated fair value of PCI loans acquired in the acquisitions from 2014, 2017 and 2018. PCI loans were pooled for the Sunshine acquisition due to having common characteristics. The contractually required payments totaled $ 4.2 3.9 3.8 Southwest March 1, 2018 Commercial, financial and agricultural Mortgage- Commercial Mortgage- Residential Commercial and other Total Contractually required payments $ 437 $ 168 $ 111 $ 210 $ 925 Cash flows expected to be collected 355 62 109 180 706 Fair value of loans acquired 329 58 101 169 657 Total outstanding purchased credit impaired loans were $467 thousand as of December 31, 2018. 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. November 1, 2018 FMB Commercial, financial and agricultural Mortgage- Commercial Mortgage- Residential Commercial and other Total Contractually required payments $ 700 $ 6,803 $ 890 $ 1,546 $ 9,939 Cash flows expected to be collected 608 6,104 828 1,064 8,604 Fair value of loans acquired 567 5,653 768 990 7,978 As of December 31, 2018, total outstanding purchased credit impaired loans were $ 9.9 accretable yield was $ 626 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 purchased credit impaired loans were as follows for the year ended December 31, 2018 ($ in thousands): Accretable Carrying Amount Balance at beginning of period $ 836 $ 1,185 Reclassification from prior years 859 3,229 Additions 2,487 12,290 Accretion (83 ) 217 Transfer from non-accretable (254 ) 120 Payments received, net - (3,214 ) Charge-off (10 ) (10 ) Balance at end of period $ 3,835 $ 13,817 The following tables provide additional detail of troubled debt restructurings (TDRs) during the twelve months ended December 31, 2018, 2017 and 2016 ($ in thousands, except for number of loans). December 31, 2018 Outstanding Recorded Outstanding Recorded Interest Investment Pre-Modification Investment Post-Modification Number of Loans Income Recognized Commercial, financial and agriculture $ 681 $ 663 2 $ 23 Commercial real estate 3,536 3,532 3 80 Residential real estate - - - - Consumer installment - - - - Total $ 4,217 $ 4,195 5 $ 103 December 31, 2017 Outstanding Recorded Outstanding Recorded Interest Investment Pre-Modification Investment Post-Modification Number of Loans Income Recognized Commercial, financial and agriculture $ - $ - - $ - Commercial real estate 526 494 4 17 Residential real estate 66 64 1 4 Consumer installment - - - - Total $ 592 $ 558 5 $ 21 December 31, 2016 Outstanding Recorded Outstanding Recorded Interest Investment Pre-Modification Investment Post-Modification Number of Loans Income Recognized Commercial, financial and agriculture $ - $ - - $ - Commercial real estate 296 269 1 13 Residential real estate - - - - Consumer installment - - - - Total $ 296 $ 269 1 $ 13 The TDRs presented above increased the allowance for loan losses and resulted in charge-offs of $0, $0 and $208 thousand for the years ended December 31, 2018, 2017 and 2016, respectively. The balance of troubled debt restructurings at December 31, 2018, 2017 and 2016, was $14.3 million, $6.9 million and $4.1 million, respectively, calculated for regulatory reporting purpose. As of December 31, 2018, the Company had no additional amount committed on any loan classified as troubled debt restructuring. During the twelve month periods ended December 31, 2018, 2017 and 2016, the terms of 2, 5 and 1 loans, respectively, were modified as TDRs. The modifications included one of the following or a combination of the following: maturity date extensions, interest only payments, amortizations were extended beyond what would be available on similar type loans, and payment waiver. No interest rate concessions were given on these nor were any of these loans written down. The following tables represents the Company’s TDRs for the year ended December 31, 2018, 2017 and 2016: ($ in thousands) December 31, 2018 Current Loans Past Due 30-89 Past Due 90 days and still accruing Non-Accrual Total Commercial, financial and agriculture $ 13 $ 646 $ - $ 18 $ 676 Commercial real estate 4,827 - - 5,425 10,252 Residential real estate 442 86 - 2,801 3,329 Consumer installment 25 - - 13 38 Total $ 5,307 $ 732 $ - $ 8,257 $ 14,295 Allowance for loan losses $ 80 $ 13 $ - $ 110 $ 203 ($ in thousands) December 31, 2017 Current Loans Past Due 30-89 Past Due 90 days and still accruing Non-Accrual Total Commercial, financial and agriculture $ - $ - $ - $ - $ - Commercial real estate 3,702 92 - 1,024 4,818 Residential real estate 1,013 89 - 987 2,089 Consumer installment - - 5 18 23 Total $ 4,715 $ 181 $ 5 $ 2,029 $ 6,930 Allowance for loan losses $ 100 $ 22 $ 5 $ 27 $ 154 ($ in thousands) December 31, 2016 Current Loans Past Due 30-89 Past Due 90 days and still accruing Non-Accrual Total Commercial, financial and agriculture $ 151 $ - $ - $ - $ 151 Commercial real estate 2,463 - - 1,101 3,564 Residential real estate 154 90 - 122 366 Consumer installment 6 - - 23 29 Total $ 2,774 $ 90 $ - $ 1,246 $ 4,110 Allowance for loan losses $ 125 $ - $ - $ 40 $ 165 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: ($ in thousands) December 31, 2018 Past Due 30 to 89 Days Past Due 90 Days or More and Still Accruing Non-Accrual Total Past Due Non-Accrual Total Loans Real Estate-construction $ 818 $ 114 $ 1,838 $ 2,770 $ 298,718 Residential secured loans including multi-family and farmland 5,528 650 9,192 15,370 617,804 Real Estate-nonfarm nonresidential 4,319 456 12,755 17,530 776,880 Commercial 1,650 - 1,208 2,858 301,182 Lease financing receivable - - - - 2,891 Obligations of states and subdivisions - - - - 16,941 Installment and other 507 45 80 632 46,006 Total $ 12,822 $ 1,265 $ 25,073 $ 39,160 $ 2,060,422 (1) – Non-Accruals include $13,405 in PCI loans ($ in thousands) December 31, 2017 Past Due 30 to 89 Days Past Due 90 Days or More and Still Accruing Non-Accrual Total Past Due Non-Accrual Total Loans Real Estate-construction $ 192 $ 27 $ 92 $ 311 $ 183,328 Residential secured loans including multi-family and farmland 2,656 176 2,692 5,524 385,099 Real Estate- nonfarm nonresidential 1,487 82 1,724 3,293 467,484 Commercial 393 - 1,120 1,513 165,780 Lease finance receivable - - - - 2,450 Obligations of states and subdivisions - - - - 3,109 Installment and other 57 - 46 103 18,056 Total $ 4,785 $ 285 $ 5,674 $ 10,744 $ 1,225,306 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 December 31, 2018 and 2017, and based on the most recent analysis performed, the risk category of loans by class of loans (excluding mortgage loans held for sale) was as follows: December 31, 2018 ($ in thousands) Commercial, C ommercial Consumer Installment and Other Financial and Agriculture Total Pass $ 1,286,151 $ 377,028 $ 34,127 $ 300,685 $ 1,997,991 Special Mention 12,401 1,962 13 842 15,218 Substandard 33,856 10,959 270 2,640 47,725 Doubtful 85 - - 16 101 Subtotal $ 1,332,493 $ 389,949 $ 34,410 $ 304,183 $ 2,061,035 Less: Unearned Discount 613 - - - 613 Loans, net of unearned discount $ 1,331,880 $ 389,949 $ 34,410 $ 304,183 $ 2,060,422 December 31, 2017 ($ in Thousands) Commercial, Commercial Real Estate Consumer Real Estate Installment and Other 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 |