PCI Loans and Related Allowance for Loan Losses

6 Months Ended

Jun. 30, 2020

PCI Loans and Related Allowance for Loan Losses [Abstract]

PCI Loans and Related Allowance for Loan Losses

Note 4. PCI Loans and Related Allowance for Loan Losses

On January 30, 2009, the Company entered into a Purchase and Assumption Agreement with the Federal Deposit Insurance Corporation (FDIC) to assume all of the deposits and certain other liabilities and acquire substantially all assets of Suburban Federal Savings Bank (SFSB). The Company is applying the provisions of FASB ASC 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality, to all loans acquired in the SFSB transaction (the “PCI loans”). Of the total $198.3 million in loans acquired, $49.1 million met the criteria of FASB ASC 310-30. These loans, consisting mainly of construction loans, were deemed impaired at the acquisition date. The remaining $149.1 million of loans acquired, comprised mainly of residential 1-4 family, were analogized to meet the criteria of FASB ASC 310-30. Analysis of this portfolio revealed that SFSB utilized weak underwriting and documentation standards, which led the Company to believe that significant losses were probable given the economic environment at the time.

As of June 30, 2020 and December 31, 2019, the outstanding contractual balance of the PCI loans was $49.2 million and $53.2 million, respectively. The carrying amount, by loan type, as of these dates is as follows (dollars in thousands):

	June 30, 2020				December 31, 2019
			% of PCI				% of PCI
	Amount		Loans		Amount		Loans
Mortgage loans on real estate:
Residential 1‑4 family	$	26,531	89.91	%	$	29,465	90.58	%
Commercial		470	1.59			490	1.51
Construction and land development		1,127	3.82			1,172	3.60
Second mortgages		1,156	3.92			1,169	3.59
Multifamily		223	0.76			232	0.72
Total real estate loans		29,507	100.00			32,528	100.00
Total PCI loans	$	29,507	100.00	%	$	32,528	100.00	%

There was no activity in the allowance for loan losses on PCI loans for the three and six months ended June 30, 2020 and 2019.

The following table presents information on the PCI loans collectively evaluated for impairment in the allowance for loan losses at June 30, 2020 and December 31, 2019 (dollars in thousands):

	June 30, 2020				December 31, 2019
	Allowance		Recorded				Recorded
	for loan		investment in		Allowance for		investment in
	losses		loans		loan losses		loans
Mortgage loans on real estate:
Residential 1‑4 family	$	156	$	26,531	$	156	$	29,465
Commercial		—		470		—		490
Construction and land development		—		1,127		—		1,172
Second mortgages		—		1,156		—		1,169
Multifamily		—		223		—		232
Total real estate loans		156		29,507		156		32,528
Total PCI loans	$	156	$	29,507	$	156	$	32,528

The change in the accretable yield balance for the six months ended June 30, 2020 and the year ended December 31, 2019, is as follows (dollars in thousands):

Balance, January 1, 2019	$	38,107
Accretion		(6,010)
Reclassification from nonaccretable difference		1,369
Balance, December 31, 2019	$	33,466
Accretion		(2,150)
Reclassification from nonaccretable difference		61
Balance, June 30, 2020	$	31,377

The PCI loans were not classified as nonperforming assets as of June 30, 2020, as the loans are accounted for on a pooled basis, and interest income, through accretion of the difference between the carrying amount of the loans and the expected cash flows, is being recognized on all PCI loans.