Loans and the Allowance for Loan Losses (Tables)

6 Months Ended

Jun. 30, 2018

Loans and the Allowance for Loan Losses [Abstract]

The following is a summary of the balances in each class of the Company's portfolio of loans held for investment as of the dates indicated:

	June 30, 2018			December 31, 2017
	(in thousands)
Mortgage loans on real estate:
Residential 1-4 family	$	109,961		$	101,021
Commercial		301,241			289,682
Construction		36,929			27,489
Second mortgages		18,007			17,918
Equity lines of credit		55,250			56,610
Total mortgage loans on real estate		521,388			492,720
Commercial and industrial loans		64,701			60,398
Consumer automobile loans		125,866			119,251
Other consumer loans		52,109			54,974
Other		12,153			11,197
Total loans, net of deferred fees (1)		776,217			738,540
Less: Allowance for loan losses		(9,873	)		(9,448	)
Loans, net of allowance and deferred fees and costs (1)	$	766,344		$	729,092

(1) Net deferred loan fees totaled $925 thousand and $916 thousand at June 30, 2018 and December 31, 2017, respectively.

Acquired Loans

The outstanding principal balance and the carrying amount of acquired loans included in the consolidated balance sheet as of June 30, 2018 are as follows:

	June 30, 2018
	(in thousands)
Outstanding principal balance		$	37,528
Carrying amount			36,923

The outstanding principal balance and related carrying amount of acquired impaired loans, for which the Company applies FASB ASC 310-30 to account for interest earned, as of June 30, 2018 are as follows:

	June 30, 2018
	(in thousands)
Outstanding principal balance		$	686
Carrying amount			458

The following table presents changes in the accretable yield on acquired impaired loans, for which the Company applies FASB ASC 310-30, at June 30, 2018:

	June 30, 2018
	(in thousands)
Balance at January 1, 2018	$	-
Additions from acquisition of Citizens		110
Accretion		(11	)
Other changes, net		-
Balance at end of period	$	99

Credit Quality Information

The following table presents credit quality exposures by internally assigned risk ratings as of the dates indicated:

Credit Quality Information
As of June 30, 2018
(in thousands)
	Pass		OAEM		Substandard		Doubtful		Total
Mortgage loans on real estate:
Residential 1-4 family	$	107,835	$	-	$	2,126	$	-	$	109,961
Commercial		275,700		6,147		19,394		-		301,241
Construction		36,135		73		721		-		36,929
Second mortgages		17,250		413		344		-		18,007
Equity lines of credit		54,896		-		354		-		55,250
Total mortgage loans on real estate		491,816		6,633		22,939		-		521,388
Commercial and industrial loans		62,297		1,932		472		-		64,701
Consumer automobile loans		125,506		-		360		-		125,866
Other consumer loans		52,063		-		46		-		52,109
Other		12,153		-		-		-		12,153
Total	$	743,835	$	8,565	$	23,817	$	-	$	776,217

Credit Quality Information
As of December 31, 2017
(in thousands)
	Pass		OAEM		Substandard		Doubtful		Total
Mortgage loans on real estate:
Residential 1-4 family	$	98,656	$	-	$	2,365	$	-	$	101,021
Commercial		264,275		10,526		14,881		-		289,682
Construction		26,694		74		721		-		27,489
Second mortgages		17,211		431		276		-		17,918
Equity lines of credit		56,318		-		292		-		56,610
Total mortgage loans on real estate		463,154		11,031		18,535		-		492,720
Commercial and industrial loans		58,091		1,469		838		-		60,398
Consumer automobile loans		119,211		-		40		-		119,251
Other consumer loans		54,926		-		48		-		54,974
Other		11,197		-		-		-		11,197
Total	$	706,579	$	12,500	$	19,461	$	-	$	738,540

Past Due Loans

The following table includes an aging analysis of the recorded investment in past due loans as of the dates indicated. Also included in the table below are loans that are 90 days or more past due as to interest and principal and still accruing interest, because they are well-secured and in the process of collection. Loans in nonaccrual status that are also past due are included in the aging categories in the table below.

Age Analysis of Past Due Loans as of June 30, 2018
	30 - 59 Days Past Due		60 - 89 Days Past Due		90 or More Days Past Due		Acquired Impaired		Total Current Loans ⁽¹⁾		Total Loans		Recorded Investment > 90 Days Past Due and Accruing
	(in thousands)
Mortgage loans on real estate:
Residential 1-4 family	$	503	$	-	$	941	$	350	$	108,167	$	109,961	$	262
Commercial		626		-		3,235		108		297,272		301,241		-
Construction		-		-		721		-		36,208		36,929		-
Second mortgages		13		-		95		-		17,899		18,007		52
Equity lines of credit		29		20		53		-		55,148		55,250		-
Total mortgage loans on real estate		1,171		20		5,045		458		514,694		521,388		314
Commercial loans		-		-		-		-		64,701		64,701		-
Consumer automobile loans		925		63		95		-		124,783		125,866		95
Other consumer loans		850		151		1,880		-		49,228		52,109		1,880
Other		79		11		6		-		12,057		12,153		6
Total	$	3,025	$	245	$	7,026	$	458	$	765,463	$	776,217	$	2,295

⁽¹⁾ For purposes of this table, Total Current Loans includes loans that are 1 - 29 days past due.

In the table above, the other consumer loans category includes student loans with principal and interest amounts that are 97 - 98% guaranteed by the federal government. The past due principal portion of these guaranteed loans totaled $2.7 million at June 30, 2018.

Age Analysis of Past Due Loans as of December 31, 2017
	30 - 59 Days Past Due		60 - 89 Days Past Due		90 or More Days Past Due		Total Current Loans ⁽¹⁾		Total Loans		Recorded Investment > 90 Days Past Due and Accruing
	(in thousands)
Mortgage loans on real estate:
Residential 1-4 family	$	229	$	153	$	1,278	$	99,361	$	101,021	$	261
Commercial		194		771		1,753		286,964		289,682		-
Construction		-		-		721		26,768		27,489		-
Second mortgages		15		-		163		17,740		17,918		45
Equity lines of credit		75		19		53		56,463		56,610		-
Total mortgage loans on real estate		513		943		3,968		487,296		492,720		306
Commercial loans		709		-		1,060		58,629		60,398		471
Consumer automobile loans		517		122		41		118,571		119,251		41
Other consumer loans		2,222		544		2,360		49,848		54,974		2,360
Other		84		9		4		11,100		11,197		4
Total	$	4,045	$	1,618	$	7,433	$	725,444	$	738,540	$	3,182

⁽¹⁾ For purposes of this table, Total Current Loans includes loans that are 1 - 29 days past due.

Nonaccrual Loans

The following table presents loans in nonaccrual status by class of loan as of the dates indicated:

Nonaccrual Loans by Class
	June 30, 2018		December 31, 2017
	(in thousands)
Mortgage loans on real estate
Residential 1-4 family	$	1,540	$	1,447
Commercial		10,802		9,468
Construction		722		721
Second mortgages		154		118
Equity lines of credit		354		292
Total mortgage loans on real estate		13,572		12,046
Commercial loans		319		836
Total	$	13,891	$	12,882

Interest Income to be Earned Under Original Terms and Actual Interest Recorded

The following table presents the interest income that the Company would have earned under the original terms of its nonaccrual loans and the actual interest recorded by the Company on nonaccrual loans for the periods presented:

	Six Months Ended June 30,
	2018			2017
	(in thousands)
Interest income that would have been recorded under original loan terms		$	235	$	241
Actual interest income recorded for the period			173		180
Reduction in interest income on nonaccrual loans		$	62	$	61

Troubled Debt Restructurings by Class

The following tables present TDRs during the periods indicated, by class of loan. There were no troubled debt restructurings in the three or six months ended June 30, 2018.

Troubled Debt Restructurings by Class
For the Three Months Ended June 30, 2017
	Number of Modifications		Recorded Investment Prior to Modification		Recorded Investment After Modification		Current Investment on June 30, 2017
	(dollars in thousands)
Mortgage loans on real estate:
Commercial		2	$	3,663	$	3,663	$	4

Troubled Debt Restructurings by Class
For the Six Months Ended June 30, 2017
	Number of Modifications		Recorded Investment Prior to Modification		Recorded Investment After Modification		Current Investment on June 30, 2017
	(dollars in thousands)
Mortgage loans on real estate:
Residential 1-4 family		1	$	142	$	142	$	142
Commercial		2		3,663		3,663		3,663
Total		3	$	3,805	$	3,805	$	3,805

Impaired Loans by Class

The following table includes the recorded investment and unpaid principal balances (a portion of which may have been charged off) for impaired loans, exclusive of acquired impaired loans, with the associated allowance amount, if applicable, as of the dates presented. Also presented are the average recorded investments in the impaired loans and the related amount of interest recognized for the periods presented. The average balances are calculated based on daily average balances.

Impaired Loans by Class
	As of June 30, 2018												For the six months ended June 30, 2018
				Recorded Investment
	Unpaid Principal Balance			Without Valuation Allowance			With Valuation Allowance			Associated Allowance			Average Recorded Investment			Interest Income Recognized
	(in thousands)
Mortgage loans on real estate:
Residential 1-4 family		$	2,186		$	1,777		$	390		$	151		$	2,111		$	29
Commercial			15,619			13,254			608			111			14,807			131
Construction			817			721			94			20			815			5
Second mortgages			502			350			132			14			490			6
Equity lines of credit			355			102			253			24			335			1
Total mortgage loans on real estate		$	19,479		$	16,204		$	1,477		$	320		$	18,558		$	172
Commercial loans			357			319			-			-			583			-
Other consumer loans			32			-			-			-			85			-
Total		$	19,868		$	16,523		$	1,477		$	320		$	19,226		$	172

Impaired Loans by Class
	As of December 31, 2017											For the Year Ended December 31, 2017
			Recorded Investment
	Unpaid Principal Balance		Without Valuation Allowance			With Valuation Allowance			Associated Allowance			Average Recorded Investment			Interest Income Recognized
	(in thousands)
Mortgage loans on real estate:
Residential 1-4 family	$	2,873		$	2,499		$	316		$	52		$	2,525		$	90
Commercial		15,262			11,622			1,644			1			13,541			579
Construction		814			721			92			18			406			23
Second mortgages		473			318			135			14			464			20
Equity lines of credit		293			53			239			10			261			-
Total mortgage loans on real estate	$	19,715		$	15,213		$	2,426		$	95		$	17,197		$	712
Commercial loans		1,115			836			-			-			1,388			30
Other consumer loans		-			-			-			-			41			-
Total	$	20,830		$	16,049		$	2,426		$	95		$	18,626		$	742

Allowance for Loan Losses by Segment

The following table presents, by portfolio segment, the changes in the allowance for loan losses and the recorded investment in loans for the periods presented. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.

ALLOWANCE FOR LOAN LOSSES AND RECORDED INVESTMENT IN LOANS
(in thousands)
For the Six Months Ended June 30, 2018	Commercial			Real Estate - Construction			Real Estate - Mortgage ⁽¹⁾			Consumer ⁽²⁾			Other			Total
Allowance for Loan Losses:
Balance at the beginning of period	$	1,889		$	541		$	5,217		$	1,644		$	157		$	9,448
Charge-offs		(81	)		-			(422	)		(344	)		(160	)		(1,007	)
Recoveries		67			-			80			139			46			332
Provision for loan losses		443			(258	)		732			60			123			1,100
Ending balance	$	2,318		$	283		$	5,607		$	1,499		$	166		$	9,873
Ending balance individually evaluated for impairment	$	-		$	20		$	300		$	-		$	-		$	320
Ending balance collectively evaluated for impairment		2,318			263			5,307			1,499			166			9,553
Ending balance acquired impaired loans		-			-			-			-			-			-
Ending balance	$	2,318		$	283		$	5,607		$	1,499		$	166		$	9,873
Loan Balances:
Ending balance individually evaluated for impairment	$	319		$	815		$	16,866		$	-		$	-		$	18,000
Ending balance collectively evaluated for impairment		64,274			36,114			467,243			177,975			12,153			757,759
Ending balance acquired impaired loans		108			-			350			-			-			458
Ending balance	$	64,701		$	36,929		$	484,459		$	177,975		$	12,153		$	776,217

For the Year Ended December 31, 2017	Commercial			Real Estate - Construction			Real Estate - Mortgage ⁽¹⁾			Consumer			Other			Total
Allowance for Loan Losses:
Balance at the beginning of period	$	1,493		$	846		$	5,267		$	455		$	184		$	8,245
Charge-offs		(807	)		-			(1,934	)		(279	)		(267	)		(3,287	)
Recoveries		37			104			45			56			88			330
Provision for loan losses		1,166			(409	)		1,839			1,412			152			4,160
Ending balance	$	1,889		$	541		$	5,217		$	1,644		$	157		$	9,448
Ending balance individually evaluated for impairment	$	-		$	18		$	77		$	-		$	-		$	95
Ending balance collectively evaluated for impairment		1,889			523			5,140			1,644			157			9,353
Ending balance	$	1,889		$	541		$	5,217		$	1,644		$	157		$	9,448
Loan Balances:
Ending balance individually evaluated for impairment	$	836		$	813		$	16,826		$	-		$	-		$	18,475
Ending balance collectively evaluated for impairment		59,562			26,676			448,405			174,225			11,197			720,065
Ending balance	$	60,398		$	27,489		$	465,231		$	174,225		$	11,197		$	738,540

⁽¹⁾ The real estate-mortgage segment includes residential 1 – 4 family, commercial real estate, second mortgages and equity lines of credit.

⁽²⁾ The consumer segment includes consumer automobile loans.