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Note 6 - Loans Acquired | 9 Months Ended
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Sep. 30, 2017
Notes to Financial Statements |
Loans Acquired [Text Block] | NOTE 6: LOANS ACQUIRED During the second quarter of 2017, the Company evaluated $249.3 million of net loans ( $254.3 million gross loans less $5.0 million discount) purchased in conjunction with the acquisition of Hardeman, described in Note 2, Acquisitions, in accordance with the provisions of ASC Topic 310 - 20, Nonrefundable Fees and Other Costs . The fair value discount is being accreted into interest income over the weighted average life of the loans using a constant yield method. These loans are not considered to be impaired loans. The Company evaluated the remaining $2.3 million of net loans ( $3.3 million gross loans less $956,000 discount) purchased in conjunction with the acquisition of Hardeman for impairment in accordance with the provisions of ASC Topic 310 - 30, Loans and Debt Securities Acquired with Deteriorated Credit Quality . Purchased loans are considered impaired if there is evidence of credit deterioration since origination and if it is probable that not all contractually required payments will be collected. During the third quarter of 2016, the Company evaluated $340.1 million of net loans ( $348.8 million gross loans less $8.7 million discount) purchased in conjunction with the acquisition of Citizens, described in Note 2, Acquisitions, in accordance with the provisions of ASC Topic 310 - 20, Nonrefundable Fees and Other Costs . The fair value discount is being accreted into interest income over the weighted average life of the loans using a constant yield method. These loans are not considered to be impaired loans. The Company evaluated the remaining $757,000 of net loans ( $1.6 million gross loans less $848,000 discount) purchased in conjunction with the acquisition of Citizens for impairment in accordance with the provisions of ASC Topic 310 - 30, Loans and Debt Securities Acquired with Deteriorated Credit Quality . See Note 2, Acquisitions, for further discussion of loans acquired. The following table reflects the carrying value of all loans acquired as of September 30, 2017 and December 31, 2016:
|  | Loans Acquired
(in thousands) |  | September 30, 2017 |  | December 31, 2016
Consumer: |  |  |  |  |  |  |  |
Other consumer |  | $ | 29,662 |  |  | $ | 49,677 |
Total consumer |  |  | 29,662 |  |  |  | 49,677 |
Real estate: |  |  |  |  |  |  |  |
Construction |  |  | 48,520 |  |  |  | 57,587 |
Single family residential |  |  | 363,796 |  |  |  | 423,176 |
Other commercial |  |  | 565,993 |  |  |  | 690,108 |
Total real estate |  |  | 978,309 |  |  |  | 1,170,871 |
Commercial: |  |  |  |  |  |  |  |
Commercial |  |  | 70,620 |  |  |  | 81,837 |
Agricultural |  |  | 13,448 |  |  |  | 3,298 |
Total commercial |  |  | 84,068 |  |  |  | 85,135 |
Total loans acquired (1) |  | $ | 1,092,039 |  |  | $ | 1,305,683 |
______________________
| ( 1 ) | Loans acquired are reported net of a $391,000 and $954,000 allowance at September 30, 2017 and December 31, 2016, respectively.
Nonaccrual loans acquired, excluding purchased credit impaired loans accounted for under ASC Topic 310 - 30, segregated by class of loans, are as follows (see Note 5, Loans and Allowance for Loan Losses, for discussion of nonaccrual loans):
(In thousands) |  | September 30, 2017 |  | December 31, 2016
Consumer: |  |  |  |  |  |  |  |
Other consumer |  | $ | 315 |  |  | $ | 456 |
Total consumer |  |  | 315 |  |  |  | 456 |
Real estate: |  |  |  |  |  |  |  |
Construction |  |  | 1,905 |  |  |  | 7,961 |
Single family residential |  |  | 11,840 |  |  |  | 13,366 |
Other commercial |  |  | 7,261 |  |  |  | 22,045 |
Total real estate |  |  | 21,006 |  |  |  | 43,372 |
Commercial: |  |  |  |  |  |  |  |
Commercial |  |  | 2,163 |  |  |  | 2,806 |
Agricultural |  |  | 216 |  |  |  | 198 |
Total commercial |  |  | 2,379 |  |  |  | 3,004 |
Total |  | $ | 23,700 |  |  | $ | 46,832 |
An age analysis of past due loans acquired segregated by class of loans, is as follows (see Note 5, Loans and Allowance for Loan Losses, for discussion of past due loans):
(In thousands) |  | Gross 30-89 Days Past Due |  | 90 Days or More Past Due |  | Total Past Due |  | Current |  | Total Loans |  | 90 Days Past Due & Accruing
September 30, 2017 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Consumer: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Other consumer |  | $ | 401 |  |  | $ | 161 |  |  | $ | 562 |  |  | $ | 29,100 |  |  | $ | 29,662 |  |  | $ | 7 |
Total consumer |  |  | 401 |  |  |  | 161 |  |  |  | 562 |  |  |  | 29,100 |  |  |  | 29,662 |  |  |  | 7 |
Real estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Construction |  |  | 19 |  |  |  | 1,420 |  |  |  | 1,439 |  |  |  | 47,081 |  |  |  | 48,520 |  |  |  | -- |
Single family residential |  |  | 4,785 |  |  |  | 3,127 |  |  |  | 7,912 |  |  |  | 355,884 |  |  |  | 363,796 |  |  |  | -- |
Other commercial |  |  | 806 |  |  |  | 2,670 |  |  |  | 3,476 |  |  |  | 562,517 |  |  |  | 565,993 |  |  |  | -- |
Total real estate |  |  | 5,610 |  |  |  | 7,217 |  |  |  | 12,827 |  |  |  | 965,482 |  |  |  | 978,309 |  |  |  | -- |
Commercial: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial |  |  | 156 |  |  |  | 1,788 |  |  |  | 1,944 |  |  |  | 68,676 |  |  |  | 70,620 |  |  |  | -- |
Agricultural |  |  | 16 |  |  |  | 42 |  |  |  | 58 |  |  |  | 13,390 |  |  |  | 13,448 |  |  |  | -- |
Total commercial |  |  | 172 |  |  |  | 1,830 |  |  |  | 2,002 |  |  |  | 82,066 |  |  |  | 84,068 |  |  |  | -- |
Total |  | $ | 6,183 |  |  | $ | 9,208 |  |  | $ | 15,391 |  |  | $ | 1,076,648 |  |  | $ | 1,092,039 |  |  | $ | 7 |
December 31, 2016 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Consumer: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Other consumer |  | $ | 571 |  |  | $ | 189 |  |  | $ | 760 |  |  | $ | 48,917 |  |  | $ | 49,677 |  |  | $ | -- |
Total consumer |  |  | 571 |  |  |  | 189 |  |  |  | 760 |  |  |  | 48,917 |  |  |  | 49,677 |  |  |  | -- |
Real estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Construction |  |  | 132 |  |  |  | 7,332 |  |  |  | 7,464 |  |  |  | 50,123 |  |  |  | 57,587 |  |  |  | -- |
Single family residential |  |  | 8,358 |  |  |  | 4,857 |  |  |  | 13,215 |  |  |  | 409,961 |  |  |  | 423,176 |  |  |  | 11 |
Other commercial |  |  | 2,836 |  |  |  | 10,741 |  |  |  | 13,577 |  |  |  | 676,531 |  |  |  | 690,108 |  |  |  | -- |
Total real estate |  |  | 11,326 |  |  |  | 22,930 |  |  |  | 34,256 |  |  |  | 1,136,615 |  |  |  | 1,170,871 |  |  |  | 11 |
Commercial: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial |  |  | 723 |  |  |  | 2,153 |  |  |  | 2,876 |  |  |  | 78,961 |  |  |  | 81,837 |  |  |  | -- |
Agricultural |  |  | 48 |  |  |  | -- |  |  |  | 48 |  |  |  | 3,250 |  |  |  | 3,298 |  |  |  | -- |
Total commercial |  |  | 771 |  |  |  | 2,153 |  |  |  | 2,924 |  |  |  | 82,211 |  |  |  | 85,135 |  |  |  | -- |
Total |  | $ | 12,668 |  |  | $ | 25,272 |  |  | $ | 37,940 |  |  | $ | 1,267,743 |  |  | $ | 1,305,683 |  |  | $ | 11 |
The following table presents a summary of loans acquired by credit risk rating, segregated by class of loans (see Note 5, Loans and Allowance for Loan Losses, for discussion of loan risk rating). Loans accounted for under ASC Topic 310 - 30 are all included in Risk Rate 1 - 4 in this table.
(In thousands) |  | Risk Rate 1-4 |  | Risk Rate 5 |  | Risk Rate 6 |  | Risk Rate 7 |  | Risk Rate 8 |  | Total
September 30, 2017 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Consumer: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Other consumer |  | $ | 28,982 |  |  | $ | -- |  |  | $ | 680 |  |  | $ | -- |  |  | $ | -- |  |  | $ | 29,662 |
Total consumer |  |  | 28,982 |  |  |  | -- |  |  |  | 680 |  |  |  | -- |  |  |  | -- |  |  |  | 29,662 |
Real estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Construction |  |  | 45,718 |  |  |  | 1,314 |  |  |  | 1,488 |  |  |  | -- |  |  |  | -- |  |  |  | 48,520 |
Single family residential |  |  | 347,821 |  |  |  | 1,534 |  |  |  | 13,825 |  |  |  | 615 |  |  |  | -- |  |  |  | 363,795 |
Other commercial |  |  | 549,853 |  |  |  | 6,200 |  |  |  | 9,941 |  |  |  | -- |  |  |  | -- |  |  |  | 565,994 |
Total real estate |  |  | 943,392 |  |  |  | 9,048 |  |  |  | 25,254 |  |  |  | 615 |  |  |  | -- |  |  |  | 978,309 |
Commercial: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial |  |  | 66,367 |  |  |  | 325 |  |  |  | 3,928 |  |  |  | -- |  |  |  | -- |  |  |  | 70,620 |
Agricultural |  |  | 13,148 |  |  |  | 300 |  |  |  | -- |  |  |  | -- |  |  |  | -- |  |  |  | 13,448 |
Total commercial |  |  | 79,515 |  |  |  | 625 |  |  |  | 3,928 |  |  |  | -- |  |  |  | -- |  |  |  | 84,068 |
Total |  | $ | 1,051,889 |  |  | $ | 9,673 |  |  | $ | 29,862 |  |  | $ | 615 |  |  | $ | -- |  |  | $ | 1,092,039 |
December 31, 2016 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Consumer: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Other consumer |  | $ | 48,992 |  |  | $ | 14 |  |  | $ | 671 |  |  | $ | -- |  |  | $ | -- |  |  | $ | 49,677 |
Total consumer |  |  | 48,992 |  |  |  | 14 |  |  |  | 671 |  |  |  | -- |  |  |  | -- |  |  |  | 49,677 |
Real estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Construction |  |  | 50,704 |  |  |  | 88 |  |  |  | 6,795 |  |  |  | -- |  |  |  | -- |  |  |  | 57,587 |
Single family residential |  |  | 400,553 |  |  |  | 2,696 |  |  |  | 18,392 |  |  |  | 1,535 |  |  |  | -- |  |  |  | 423,176 |
Other commercial |  |  | 641,018 |  |  |  | 17,384 |  |  |  | 31,706 |  |  |  | -- |  |  |  | -- |  |  |  | 690,108 |
Total real estate |  |  | 1,092,275 |  |  |  | 20,168 |  |  |  | 56,893 |  |  |  | 1,535 |  |  |  | -- |  |  |  | 1,170,871 |
Commercial: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial |  |  | 73,609 |  |  |  | 1,965 |  |  |  | 6,257 |  |  |  | 6 |  |  |  | -- |  |  |  | 81,837 |
Agricultural |  |  | 3,010 |  |  |  | 34 |  |  |  | 254 |  |  |  | -- |  |  |  | -- |  |  |  | 3,298 |
Total commercial |  |  | 76,619 |  |  |  | 1,999 |  |  |  | 6,511 |  |  |  | 6 |  |  |  | -- |  |  |  | 85,135 |
Total |  | $ | 1,217,886 |  |  | $ | 22,181 |  |  | $ | 64,075 |  |  | $ | 1,541 |  |  | $ | -- |  |  | $ | 1,305,683 |
Loans acquired were individually evaluated and recorded at estimated fair value, including estimated credit losses, at the time of acquisition. These loans are systematically reviewed by the Company to determine the risk of losses that may exceed those identified at the time of the acquisition. Techniques used in determining risk of loss are similar to the Company’s legacy loan portfolio, with most focus being placed on those loans which include the larger loan relationships and those loans which exhibit higher risk characteristics. The amount of the estimated cash flows expected to be received from the purchased credit impaired loans in excess of the fair values recorded for the purchased credit impaired loans is referred to as the accretable yield. The accretable yield is recognized as interest income over the estimated lives of the loans. Each quarter, the Company estimates the cash flows expected to be collected from the acquired purchased credit impaired loans, and adjustments may or may not be required. The impact of the adjustments on the Company’s financial results for the three and nine months ended September 30, 2017 and 2016 is shown below:
|  | Three Months Ended September 30, |  | Nine Months Ended September 30,
(In thousands) |  | 2017 |  | 2016 |  | 2017 |  | 2016
Impact on net interest income and pre-tax income |  | $ | 23 |  |  | $ | 65 |  |  | $ | 2,596 |  |  | $ | 1,240 |
Net impact, net of taxes |  | $ | 14 |  |  | $ | 40 |  |  | $ | 1,578 |  |  | $ | 754 |
These adjustments will be recognized over the remaining lives of the purchased credit impaired loans. The accretable yield adjustments recorded in future periods will change as the Company continues to evaluate expected cash flows from the purchased credit impaired loans. Changes in the carrying amount of the accretable yield for all purchased impaired loans were as follows for the three and nine months ended September 30, 2017 and 2016.
|  | Three Months Ended September 30, 2017 |  | Nine Months Ended September 30, 2017
(In thousands) |  | Accretable Yield |  | Carrying Amount of Loans |  | Accretable Yield |  | Carrying Amount of Loans
Beginning balance |  | $ | 766 |  |  | $ | 8,448 |  |  | $ | 1,655 |  |  | $ | 17,802 |
Additions |  |  | -- |  |  |  | -- |  |  |  | -- |  |  |  | 2,388 |
Accretable yield adjustments |  |  | 52 |  |  |  | -- |  |  |  | 2,698 |  |  |  | -- |
Accretion |  |  | (408 | ) |  |  | 408 |  |  |  | (3,943 | ) |  |  | 3,943 |
Payments and other reductions, net |  |  | -- |  |  |  | (980 | ) |  |  | -- |  |  |  | (16,257 | )
Balance, ending |  | $ | 410 |  |  | $ | 7,876 |  |  | $ | 410 |  |  | $ | 7,876 |
|  | Three Months Ended September 30, 2016 |  | Nine Months Ended September 30, 2016
(In thousands) |  | Accretable Yield |  | Carrying Amount of Loans |  | Accretable Yield |  | Carrying Amount of Loans
Beginning balance |  | $ | 2,365 |  |  | $ | 20,663 |  |  | $ | 954 |  |  | $ | 23,469 |
Additions |  |  | -- |  |  |  | 1,614 |  |  |  | -- |  |  |  | 1,614 |
Accretable yield adjustments |  |  | 171 |  |  |  | -- |  |  |  | 3,245 |  |  |  | -- |
Accretion |  |  | (555 | ) |  |  | 555 |  |  |  | (2,218 | ) |  |  | 2,218 |
Payments and other reductions, net |  |  | -- |  |  |  | (1,412 | ) |  |  | -- |  |  |  | (5,881 | )
Balance, ending |  | $ | 1,981 |  |  | $ | 21,420 |  |  | $ | 1,981 |  |  | $ | 21,420 |
Purchased impaired loans are evaluated on an individual borrower basis. Because some loans evaluated by the Company were determined to have experienced impairment in the estimated credit quality or cash flows, the Company recorded a provision and established an allowance for loan losses for loans acquired resulting in a total allowance on loans acquired of $391,000 at September 30, 2017 and $954,000 at December 31, 2016. There was no provision on loans acquired for the three months ended September 30, 2017. The provision on loans acquired for the nine months ended September 30, 2017 was $1.5 million. The provision on loans acquired during the three and nine months ended September 30, 2016 was $215,000 and $522,000.

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