Loans and the Allowance for Loan Losses (Tables)

9 Months Ended

Sep. 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:

	September 30, 2018			December 31, 2017
	(in thousands)
Mortgage loans on real estate:
Residential 1-4 family	$	110,133		$	101,021
Commercial		312,079			289,682
Construction		32,898			27,489
Second mortgages		17,874			17,918
Equity lines of credit		57,069			56,610
Total mortgage loans on real estate		530,053			492,720
Commercial and industrial loans		67,772			60,398
Consumer automobile loans		125,166			119,251
Other consumer loans		45,732			54,974
Other		10,712			11,197
Total loans, net of deferred fees (1)		779,435			738,540
Less: Allowance for loan losses		(10,231	)		(9,448	)
Loans, net of allowance and deferred fees and costs (1)	$	769,204		$	729,092

(1) Net deferred loan fees totaled $849 thousand and $916 thousand at September 30, 2018 and December 31, 2017, respectively.

Acquired Loans

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

	September 30, 2018
	(in thousands)
Outstanding principal balance		$	30,595
Carrying amount			30,038

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 September 30, 2018 are as follows:

	September 30, 2018
	(in thousands)
Outstanding principal balance		$	679
Carrying amount			448

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

	September 30, 2018
	(in thousands)
Balance at January 1, 2018	$	-
Additions from acquisition of Citizens		110
Accretion		(18	)
Other changes, net		-
Balance at end of period	$	92

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 September 30, 2018
(in thousands)
	Pass		OAEM		Substandard		Doubtful		Total
Mortgage loans on real estate:
Residential 1-4 family	$	108,270	$	-	$	1,863	$	-	$	110,133
Commercial		284,698		8,144		19,237		-		312,079
Construction		32,409		71		418		-		32,898
Second mortgages		17,535		-		339		-		17,874
Equity lines of credit		56,770		-		299		-		57,069
Total mortgage loans on real estate		499,682		8,215		22,156		-		530,053
Commercial and industrial loans		65,170		2,143		459		-		67,772
Consumer automobile loans		124,765		-		401		-		125,166
Other consumer loans		45,597		-		135		-		45,732
Other		10,712		-		-		-		10,712
Total	$	745,926	$	10,358	$	23,151	$	-	$	779,435

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 September 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	$	460	$	655	$	860	$	347	$	107,811	$	110,133	$	429
Commercial		445		710		4,707		101		306,116		312,079		149
Construction		-		-		418		-		32,480		32,898		-
Second mortgages		119		149		189		-		17,417		17,874		96
Equity lines of credit		790		91		1,011		-		55,177		57,069		962
Total mortgage loans on real estate		1,814		1,605		7,185		448		519,001		530,053		1,636
Commercial loans		214		600		559		-		66,399		67,772		419
Consumer automobile loans		1,221		196		52		-		123,697		125,166		51
Other consumer loans		778		886		2,198		-		41,870		45,732		2,198
Other		76		10		10		-		10,616		10,712		10
Total	$	4,103	$	3,297	$	10,004	$	448	$	761,583	$	779,435	$	4,314

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

In the table above, the past due totals include student loans and small business loans with principal and interest amounts that are 97 - 100% guaranteed by the federal government. The past due principal portion of these guaranteed loans totaled $3.9 million at September 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
	September 30, 2018		December 31, 2017
	(in thousands)
Mortgage loans on real estate
Residential 1-4 family	$	1,283	$	1,447
Commercial		10,498		9,468
Construction		418		721
Second mortgages		203		118
Equity lines of credit		299		292
Total mortgage loans on real estate		12,701		12,046
Commercial loans		308		836
Total	$	13,009	$	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:

	Nine Months Ended September 30,
	2018			2017
	(in thousands)
Interest income that would have been recorded under original loan terms		$	388	$	311
Actual interest income recorded for the period			249		179
Reduction in interest income on nonaccrual loans		$	139	$	132

Troubled Debt Restructurings by Class

The following table presents TDRs during the periods indicated, by class of loan. There were no troubled debt restructurings in the three or nine months ended September 30, 2018 or the three months ended September 30, 2017.

Troubled Debt Restructurings by Class
For the Nine Months Ended September 30, 2017
	Number of Modifications		Recorded Investment Prior to Modification		Recorded Investment After Modification		Current Investment on September 30, 2017
	(dollars in thousands)
Mortgage loans on real estate:
Residential 1-4 family		1	$	142	$	142	$	141
Commercial		2		3,663		3,663		3,653
Total		3	$	3,805	$	3,805	$	3,794

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 September 30, 2018												For the nine months ended September 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		$	2,139		$	1,924		$	93		$	47		$	2,123		$	63
Commercial			15,099			12,921			607			113			14,471			403
Construction			511			418			93			19			718			6
Second mortgages			547			397			131			14			510			11
Equity lines of credit			300			49			250			22			324			1
Total mortgage loans on real estate			18,596			15,709			1,174			215			18,146			484
Commercial loans			396			80			228			14			493			6
Other consumer loans			45			-			-			-			58			1
Total		$	19,037		$	15,789		$	1,402		$	229		$	18,697		$	491

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 Nine Months Ended September 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	)		-			(729	)		(502	)		(267	)		(1,579	)
Recoveries		136			-			127			189			61			513
Provision for loan losses		405			(401	)		1,336			214			295			1,849
Ending balance	$	2,349		$	140		$	5,951		$	1,545		$	246		$	10,231
Ending balance individually evaluated for impairment	$	14		$	19		$	196		$	-		$	-		$	229
Ending balance collectively evaluated for impairment		2,335			121			5,755			1,545			246			10,002
Ending balance acquired impaired loans		-			-			-			-			-			-
Ending balance	$	2,349		$	140		$	5,951		$	1,545		$	246		$	10,231
Loan Balances:
Ending balance individually evaluated for impairment	$	308		$	511		$	16,372		$	-		$	-		$	17,191
Ending balance collectively evaluated for impairment		67,363			32,387			480,436			170,898			10,712			761,796
Ending balance acquired impaired loans		101			-			347			-			-			448
Ending balance	$	67,772		$	32,898		$	497,155		$	170,898		$	10,712		$	779,435

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.