LOANS

3 Months Ended

Mar. 31, 2015

Loans Receivable, Net [Abstract]

LOANS

NOTE G — 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 March 31, 2015 and December 31, 2014, average loans accounted for 69.5% and 69.8% of average earning assets, respectively. 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:

Composition of Loan Portfolio

	March 31, 2015					December 31, 2014
	Amount		Percent of Total			Amount		Percent of Total
	(Dollars in thousands)
Mortgage loans held for sale	$	1,657		0.2	%	$	2,103		0.3	%
Commercial, financial and agricultural		110,806		15.5			106,109		15.0
Real Estate:
Mortgage-commercial		242,969		33.8			238,602		33.8
Mortgage-residential		254,844		35.5			256,406		36.3
Construction		93,168		13.0			84,935		12.0
Consumer and other		14,572		2.0			18,479		2.6
Total loans		718,016		100	%		706,634		100	%
Allowance for loan losses		(5,928)					(6,095)
Net loans	$	712,088				$	700,539

In the context of this discussion, a "real estate mortgage loan" is defined as elements of its loan portfolio through strategies that diversify the lending mix.

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 the period was as follows:

(In thousands)

	Three Months
	Ended
	March 31, 2015
Balance at beginning of period	$	6,095
Loans charged-off:
Real Estate		(342)
Installment and Other		(25)
Commercial, Financial and Agriculture		-
Total		(367)
Recoveries on loans previously charged-off:
Real Estate		33
Installment and Other		11
Commercial, Financial and Agriculture		6
Total		50
Net charge-offs		(317)
Provision for Loan Losses		150
Balance at end of period	$	5,928

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 March 31, 2015 and December 31, 2014.

Allocation of the Allowance for Loan Losses

	March 31, 2015
	(Dollars in thousands)
			% of loans
	Amount		in each category to total loans
Commercial Non Real Estate	$	735		15.4	%
Commercial Real Estate		2,715		58.2
Consumer Real Estate		1,487		23.7
Consumer		167		2.7
Unallocated		824		-
Total	$	5,928		100	%

	December 31, 2014
	(Dollars in thousands)
			% of loans
	Amount		in each category to total loans
Commercial Non Real Estate	$	713		15.3	%
Commercial Real Estate		3,355		57.9
Consumer Real Estate		1,852		24.2
Consumer		175		2.6
Unallocated		-		-
Total	$	6,095		100	%

The following table represents the Company’s impaired loans at March 31, 2015, and December 31, 2014.

	March 31,		December 31,
	2015		2014
	(In thousands)
Impaired Loans:
Impaired loans without a valuation allowance	$	4,906	$	4,702
Impaired loans with a valuation allowance		3,717		4,858
Total impaired loans	$	8,623	$	9,560
Allowance for loan losses on impaired loans at period End		936		968
Total nonaccrual loans		5,995		6,056
Past due 90 days or more and still accruing		426		669
Average investment in impaired loans		9,092		7,077

The following table is a summary of interest recognized and cash-basis interest earned on impaired loans:

	Three Months Ended		Three Months Ended
	March 31, 2015		March 31, 2014
Interest income recognized during impairment	$	34	$	-
Cash-basis interest income recognized		34		40

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 ended March 31, 2015 and 2014, was $94,000 and $33,000, respectively. The Company had no loan commitments to borrowers in non-accrual status at March 31, 2015 and December 31, 2014.

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 March 31, 2015 and December 31, 2014. 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.

March 31, 2015

					Commercial,
			Installment		Financial
	Real Estate		and Other		and Agriculture		Total
	(In thousands)
Loans
Individually evaluated	$	8,352	$	37	$	234	$	8,623
Collectively evaluated		578,368		19,367		110,001		707,736
Total	$	586,720	$	19,404	$	110,235	$	716,359
Allowance for Loan Losses
Individually evaluated	$	892	$	28	$	16	$	936
Collectively evaluated		3,311		963		718		4,992
Total	$	4,203	$	991	$	734	$	5,928

December 31, 2014

					Commercial,
			Installment		Financial
	Real Estate		and Other		and Agriculture		Total
	(In thousands)
Loans
Individually evaluated	$	9,282	$	38	$	240	$	9,560
Collectively evaluated		568,952		18,610		107,409		694,971
Total	$	578,234	$	18,648	$	107,649	$	704,531
Allowance for Loan Losses
Individually evaluated	$	922	$	29	$	17	$	968
Collectively evaluated		4,285		146		696		5,127
Total	$	5,207	$	175	$	713	$	6,095

The following tables provide additional detail of impaired loans broken out according to class as of March 31, 2015 and December 31, 2014. The recorded investment included in the following tables represent 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 March 31, 2015, 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.

March 31, 2015

							Average		Interest
							Recorded		Income
	Recorded		Unpaid		Related		Investment		Recognized
	Investment		Balance		Allowance		YTD		YTD
	(In thousands)
Impaired loans with no related allowance:
Commercial installment	$	9	$	9	$	-	$	5	$	-
Commercial real estate		4,622		4,622		-		4,644		6
Consumer real estate		266		266		-		146		-
Consumer installment		9		9		-		9		-
Total	$	4,906	$	4,906	$	-	$	4,804	$	6
Impaired loans with a related allowance:
Commercial installment	$	234	$	234	$	16	$	237	$	2
Commercial real estate		2,494		2,494		390		2,526		23
Consumer real estate		961		961		502		1,497		3
Consumer installment		28		28		28		28		-
Total	$	3,717	$	3,717	$	936	$	4,288	$	28
Total Impaired Loans:
Commercial installment	$	243	$	243	$	16	$	242	$	2
Commercial real estate		7,116		7,116		390		7,170		29
Consumer real estate		1,227		1,227		502		1,643		3
Consumer installment		37		37		28		37		-
Total Impaired Loans	$	8,623	$	8,623	$	936	$	9,092	$	34

On January 1, 2015, the Company adopted Accounting Standards Update (ASU) 2014-4, Receivables – Troubled Debt Restructuring by Creditors. As of March 31, 2015, the Company had $1.7 million of foreclosed residential real estate property obtained by physical possession and no consumer mortgage loans secured by residential real estate properties for which foreclosure proceedings are in process according to local jurisdictions.

December 31, 2014

							Average		Interest
							Recorded		Income
	Recorded		Unpaid		Related		Investment		Recognized
	Investment		Balance		Allowance		YTD		YTD
	(In thousands)
Impaired loans with no related allowance:
Commercial installment	$	-	$	-	$	-	$	50	$	-
Commercial real estate		4,665		4,665		-		2,654		142
Consumer real estate		27		27		-		179		-
Consumer installment		10		10		-		11		-
Total	$	4,702	$	4,702	$	-	$	2,894	$	142
Impaired loans with a related allowance:
Commercial installment	$	240	$	240	$	18	$	189	$	20
Commercial real estate		2,558		2,558		315		2,415		59
Consumer real estate		2,032		2,032		607		1,546		33
Consumer installment		28		28		28		33		2
Total	$	4,858	$	4,858	$	968	$	4,183	$	114
Total Impaired Loans:
Commercial installment	$	240	$	240	$	18	$	239	$	20
Commercial real estate		7,223		7,223		315		5,069		201
Consumer real estate		2,059		2,059		607		1,725		33
Consumer installment		38		38		28		44		2
Total Impaired Loans	$	9,560	$	9,560	$	968	$	7,077	$	256

Loans acquired with deteriorated credit quality are those purchased in the BCB Holding Company, Inc. acquisition (See Note C -Business Combination for further information). 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.

The following table presents information regarding the contractually required payments receivable, cash flows expected to be collected and the estimated fair value of loans acquired in the BCB acquisition as of July 1, 2014, the closing date of the transaction: 

	December 31, 2014
	(In thousands)
	Commercial, financial and agricultural		Mortgage- Commercial		Mortgage- Residential		Commercial and other		Total
Contractually required payments	$	1,519	$	29,648	$	7,933	$	976	$	40,076
Cash flows expected to be collected		1,570		37,869		9,697		1,032		50,168
Fair value of loans acquired		1,513		28,875		7,048		957		38,393

Total outstanding acquired impaired loans were $3,413,818 as of March 31, 2015 and $3,480,190 as of December 31, 2014. 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 March 31, 2015 and December 31, 2014: (in thousands)

	March 31, 2015				December 31, 2014
	Accretable Yield		Carrying Amount of  Loans		Accretable Yield		Carrying Amount of Loans
Balance at beginning of period	$	1,417	$	2,063	$	-	$	-
Additions due to BCB acquisition on July 1, 2014		-		-		1,603		2,325
Accretion		-		-		(186)		186
Payments received, net		-		(66)		-		(448)
Balance at end of period	$	1,417	$	1,997	$	1,417	$	2,063

The following tables provide detail of troubled debt restructurings (TDRs) at March 31, 2015.

For the Three Months Ending March 31, 2015

			Outstanding
	Outstanding		Recorded
	Recorded		Investment				Interest
	Investment		Post-		Number of		Income
	Pre-Modification		Modification		Loans		Recognized
Commercial installment	$	-	$	-		-	$	-
Commercial real estate		-		-		-		-
Consumer real estate		-		-		-		-
Consumer installment		-		-		-	$	-
Total	$	-	$	-		-	$	-

During the three month period ending March 31, 2015, there were no loans modified as TDR.

The balance of troubled debt restructurings (TDRs) at March 31, 2015 and December 31, 2014 was $6.7 million and $6.8 million, respectively, calculated for regulatory reporting purposes. As of March 31, 2015, the company had no additional amount committed on any loan classified as troubled debt restructuring.

The following tables set forth the amounts and past due status for the Bank TDRs at March 31, 2015 and December 31, 2014:

(in thousands)

	March 31, 2015
	Current Loans		Past Due 30-89		Past Due 90 days and still accruing		Non- accrual		Total
Commercial installment	$	229	$	-	$	-	$	-	$	229
Commercial real estate		1,680		-		-		2,695		4,375
Consumer real estate		711		-		-		1,273		1,984
Consumer installment		9		-		-		94		103
Total	$	2,629	$	-	$	-	$	4,062	$	6,691
Allowance for loan losses	$	108	$	-	$	-	$	192	$	300

(in thousands)

	December 31, 2014
	Current Loans		Past Due 30-89		Past Due 90 days and still accruing		Non- accrual		Total
Commercial installment	$	233	$	-	$	-	$	-	$	233
Commercial real estate		1,685		-		-		2,729		4,414
Consumer real estate		952		622		-		449		2,023
Consumer installment		10		-		-		103		113
Total	$	2,880	$	622	$	-	$	3,281	$	6,783
Allowance for loan losses	$	120	$	11	$	103	$	-	$	234

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:

	March 31, 2015
	(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	$	361	$	365	$	2,712	$	3,438	$	93,168
Real Estate-mortgage		1,355		61		2,089		3,505		254,844
Real Estate-non farm non residential		706		-		1,092		1,798		242,969
Commercial		82		-		65		147		110,806
Consumer		63		-		37		100		14,572
Total	$	2,567	$	426	$	5,995	$	8,988	$	716,359

	December 31, 2014
	(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	$	428	$	-	$	2,747	$	3,175	$	84,935
Real Estate-mortgage		3,208		208		2,164		5,580		256,406
Real Estate-non farm non residential		3,408		461		1,102		4,971		238,601
Commercial		29		-		5		34		106,109
Consumer		90		-		38		128		18,480
Total	$	7,163	$	669	$	6,056	$	13,888	$	704,531

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.    Loans classified as special mention have a potential weakness that deserves management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the Company’s credit position at some future date.

Substandard.    Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful.    Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

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 March 31, 2015 and December 31, 2014, 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:

($ in thousands)

March 31, 2015

							Commercial,
	Real Estate		Real Estate		Installment and		Financial and
	Commercial		Mortgage		Other		Agriculture		Total
Pass	$	395,935	$	168,067	$	19,321	$	109,782	$	693,105
Special Mention		4,606		189		-		365		5,160
Substandard		16,497		1,824		83		120		18,524
Doubtful		-		-		-		-		-
Subtotal		417,038		170,080		19,404		110,267		716,789
Less:
Unearned discount		318		80		-		32		430
Loans, net of unearned discount	$	416,720	$	170,000	$	19,404	$	110,235	$	716,359

December 31, 2014

							Commercial,
	Real Estate Commercial		Real Estate Mortgage		Installment and Other		Financial and Agriculture		Total
Pass	$	388,568	$	167,827	$	18,558	$	107,126	$	682,079
Special Mention		4,756		191		-		498		5,445
Substandard		14,727		2,567		90		63		17,447
Doubtful		-		-		-		-		-
Subtotal		408,051		170,585		18,648		107,687		704,971
Less:
Unearned discount		320		82		-		38		440
Loans, net of unearned discount	$	407,731	$	170,503	$	18,648	$	107,649	$	704,531