Notes to Consolidated Financial Statements. (Dollars in thousands, except per share amounts) NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Loans (Continued) The accrual of interest on loans is discontinued when, in management’s opinion, the borrower may be unable to meet payments as they become due, or at the time the loan is 90 days past due, unless the loan is well- secured and in the process of collection. Past due status is based on contractual terms of the loan. In all cases, loans are placed on nonaccrual or charged-off at an earlier date if collection of principal and interest is considered doubtful. All interest accrued but not collected for loans that are placed on nonaccrual or charged off is reversed against interest income or charged to the allowance, unless management believes that the accrual of interest is recoverable through the liquidation of collateral. Interest income on nonaccrual loans is recognized on the cash basis, until the loans are returned to accrual status. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and the loan has been performing according to the contractual terms generally for a period of not less than six months. A loan is considered impaired when it is probable, based on current information and events, the Company will be unable to collect all principal and interest payments due in accordance with the contractual terms of the loan agreement. Loans, for which the terms have been modified at the borrower’s request, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings and classified as impaired. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest when due. Loans that experience insignificant payment delays and payment shortfalls are not generally classified as impaired. Impaired loans are measured by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent. Interest on accruing impaired loans is recognized as long as such loans do not meet the criteria for nonaccrual status. Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Allowance for Loan Losses The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to expense. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Confirmed losses are charged off immediately. Subsequent recoveries, if any, are credited to the allowance. The allowance is an amount that management believes will be adequate to absorb estimated losses relating to specifically identified loans, as well as probable credit losses inherent in the balance of the loan portfolio. The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the uncollectibility of loans in light of historical experience, the nature and volume of the loan portfolio, overall portfolio quality, review of specific problem loans, current economic conditions that may affect the borrower’s ability to pay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. This evaluation does not include the effects of expected losses on specific loans or groups of loans that are related to future events or expected changes in economic conditions. While management uses the best information available to make its evaluation, future adjustments to the allowance may be necessary if there are significant changes in economic conditions. In addition, regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for loan losses, and may require the Company to make additions to the allowance based on their judgment about information available to them at the time of their examinations.
Appears in 1 contract
Sources: Merger Agreement
Notes to Consolidated Financial Statements. (Dollars in thousands, except per share amounts) NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES LOANS (Continued) Loans Credit Risk Management (Continued) Credit quality and trends in the loan portfolio segments are measured and monitored regularly. Detailed reports by product, collateral, accrual status, etc., are reviewed by the Chief Credit Officer, the Officers Loan Committee, and the Directors Loan Committee. The accrual following categories are utilized by management to analyze and manage the credit quality and risk of the loan portfolio: Pass - includes obligations where the probability of default is considered low. Special Mention - includes obligations that exhibit potential credit weaknesses or downward trends deserving management’s close attention. If left uncorrected, these potential weaknesses may result in the deterioration of the repayment prospects or credit position at a future date. These loans are not adversely classified and do not expose the Company to sufficient risk to warrant adverse classification. Substandard - includes obligations with defined weaknesses that jeopardize the orderly liquidation of debt. A substandard loan is inadequately protected by the current sound worth and paying capacity of the borrower or by the collateral pledged, if any. Normal repayment from the borrower is in jeopardy although no loss of principal is envisioned. There is a distinct possibility that a partial loss of interest and/or principal will occur if the deficiencies are not corrected. Loss potential, while existing in the aggregate amount of substandard loans, does not have to exist in individual loans classified substandard. Doubtful - includes obligations with all the weaknesses found in substandard loans with the added provision that the weaknesses make collection of debt in full, based on loans currently existing facts, conditions, and values, highly questionable and improbable. Serious problems exist to the point where partial loss of principal is discontinued whenlikely. The possibility of loss is extremely high, in management’s opinionbut because of certain important, reasonably specific pending factors that may work to strengthen the loan, the borrower loans’ classification as loss is deferred until a more exact status may be unable to meet payments as they become due, or at the time the loan is 90 days past due, unless the loan is well- secured and determined. There were no loans with a doubtful rating in the process Company’s loan portfolio as of collectionDecember 31, 2016 and 2015. Past due status is based on contractual terms Loss - includes obligations incapable of the loanrepayment or unsecured debt. In all cases, Such loans are placed on nonaccrual or considered uncollectible and of such little value, that continuance as an active asset is not warranted. Loans determined to be a loss are charged-off at an earlier the date if collection of principal and interest is considered doubtfulloss determination. All interest accrued but not collected for loans that are placed on nonaccrual or charged off is reversed against interest income or charged to the allowanceConsequently, unless management believes that the accrual of interest is recoverable through the liquidation of collateral. Interest income on nonaccrual loans is recognized on the cash basis, until the loans are returned to accrual status. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and the loan has been performing according to the contractual terms generally for a period of not less than six months. A loan is considered impaired when it is probable, based on current information and events, the Company will be unable to collect all principal and interest payments due in accordance with the contractual terms of the loan agreement. Loans, for which the terms have been modified at the borrower’s request, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings and classified as impaired. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest when due. Loans that experience insignificant payment delays and payment shortfalls are not generally classified as impaired. Impaired loans are measured by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent. Interest on accruing impaired loans is recognized as long as such loans do not meet the criteria for nonaccrual status. Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Allowance for Loan Losses The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to expense. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Confirmed losses are charged off immediately. Subsequent recoveries, if any, are credited to the allowance. The allowance is an amount that management believes will be adequate to absorb estimated losses relating to specifically identified loans, as well as probable credit losses inherent in the balance of the loan portfolio. The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the uncollectibility of loans in light of historical experience, the nature and volume of the loan portfolio, overall portfolio quality, review of specific problem loans, current economic conditions that may affect the borrower’s ability to pay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. This evaluation does not include the effects of expected losses on specific loans or groups of loans that are related to future events or expected changes in economic conditions. While management uses the best information available to make its evaluation, future adjustments to the allowance may be necessary if there are significant changes no loans with a loss rating in economic conditions. In addition, regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance loan portfolio as of December 31, 2016 and 2015. The following tables present credit quality indicators as described above for the loan lossesportfolio segments and classes as of December 31, 2016 and 2015. Pass Special Mention Substandard Doubtful Total December 31, 2016 (Dollars in Thousands) Real estate mortgages: Construction and land development $ 27,064 $ 503 $ 354 $ - $ 27,921 1-4 family 14,442 737 - - 15,179 Commercial 91,904 679 - - 92,583 Other 21,674 614 619 - 22,907 Commercial, financial, and may require the Company to make additions to the allowance based on their judgment about information available to them at the time of their examinations.agricultural 50,351 1,772 1,441 - 53,564 Consumer and other 5,752 - - - 5,752 Total: $ 211,187 $ 4,305 $ 2,414 $ - $ 217,906 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Appears in 1 contract
Sources: Merger Agreement