Allowance For Credit Losses | ce for credit losses (the “Allowance”) is a valuation allowance for probable incurred credit losses in the Company’s loan portfolio. The Allowance is established through a provision for credit losses which is charged to expense. Additions to the Allowance are expected to maintain the adequacy of the total Allowance after credit losses and loan growth. Credit exposures determined to be uncollectible are charged against the Allowance. Cash received on previously charged off credits is recorded as a recovery to the Allowance. The overall Allowance consists of two primary components, specific reserves related to impaired loans and general reserves for probable incurred losses related to loans that are not impaired. For all portfolio segments, the determination of the general reserve for loans that are not impaired is based on estimates made by management, including but not limited to, consideration of historical losses by portfolio segment (and in certain cases peer data) over the most recent 20 quarters, and qualitative factors including economic trends in the Company’s service areas, industry experience and trends, geographic concentrations, estimated collateral values, the Company’s underwriting policies, the character of the loan portfolio, and probable losses inherent in the portfolio taken as a whole. The following table shows the summary of activities for the Allowance as of and for the three months ended June 30, 2015 and 2014 by portfolio segment (in thousands): Commercial Real Estate Consumer Unallocated Total Allowance for credit losses: Beginning balance, April 1, 2015 $ 3,129 $ 4,457 $ 765 $ 48 $ 8,399 Provision charged to operations 610 (36 ) (26 ) (48 ) 500 Losses charged to allowance (287 ) — (42 ) — (329 ) Recoveries 101 8 35 — 144 Ending balance, June 30, 2015 $ 3,553 $ 4,429 $ 732 $ — $ 8,714 Allowance for credit losses: Beginning balance, April 1, 2014 $ 2,012 $ 4,672 $ 1,391 $ 246 $ 8,321 Provision charged to operations 78 (340 ) (187 ) 49 (400 ) Losses charged to allowance (265 ) (183 ) (325 ) — (773 ) Recoveries 49 8 102 — 159 Ending balance, June 30, 2014 $ 1,874 $ 4,157 $ 981 $ 295 $ 7,307 The following table shows the summary of activities for the allowance for loan losses as of and for the six months ended June 30, 2015 and 2014 by portfolio segment of loans (in thousands): Commercial Real Estate Consumer Unallocated Total Allowance for credit losses: Beginning balance, January 1, 2015 $ 3,130 $ 4,058 $ 1,078 $ 42 $ 8,308 Provision charged to operations 917 355 (730 ) (42 ) 500 Losses charged to allowance (697 ) — (73 ) — (770 ) Recoveries 203 16 457 — 676 Ending balance, June 30, 2015 $ 3,553 $ 4,429 $ 732 $ — $ 8,714 Allowance for credit losses: Beginning balance, January 1, 2014 $ 2,444 $ 5,174 $ 1,168 $ 422 $ 9,208 Provision charged to operations 526 (850 ) 51 (127 ) (400 ) Losses charged to allowance (1,194 ) (183 ) (410 ) — (1,787 ) Recoveries 98 16 172 — 286 Ending balance, June 30, 2014 $ 1,874 $ 4,157 $ 981 $ 295 $ 7,307 The following is a summary of the Allowance by impairment methodology and portfolio segment as of June 30, 2015 and December 31, 2014 (in thousands): Commercial Real Estate Consumer Unallocated Total Allowance for credit losses: Ending balance, June 30, 2015 $ 3,553 $ 4,429 732 $ — $ 8,714 Ending balance: individually evaluated for impairment $ 12 $ 150 40 $ — $ 202 Ending balance: collectively evaluated for impairment $ 3,541 $ 4,279 692 $ — $ 8,512 Ending balance, December 31, 2014 $ 3,130 $ 4,058 $ 1,078 $ 42 $ 8,308 Ending balance: individually evaluated for impairment $ 230 $ 162 $ 220 $ — $ 612 Ending balance: collectively evaluated for impairment $ 2,900 $ 3,896 $ 858 $ 42 $ 7,696 The following table shows the ending balances of loans as of June 30, 2015 and December 31, 2014 by portfolio segment and by impairment methodology (in thousands): Commercial Real Estate Consumer Total Loans: Ending balance, June 30, 2015 $ 137,864 $ 405,730 $ 51,713 $ 595,307 Ending balance: individually evaluated for impairment $ 276 $ 8,334 $ 1,982 $ 10,592 Ending balance: collectively evaluated for impairment $ 137,588 $ 397,396 $ 49,731 $ 584,715 Loans: Ending balance, December 31, 2014 $ 128,147 $ 386,627 $ 57,668 $ 572,442 Ending balance: individually evaluated for impairment $ 7,268 $ 8,512 $ 3,046 $ 18,826 Ending balance: collectively evaluated for impairment $ 120,879 $ 378,115 $ 54,622 $ 553,616 The following table shows the loan portfolio by class allocated by management’s internal risk ratings at June 30, 2015 (in thousands): Pass Special Mention Sub-Standard Doubtful Total Commercial: Commercial and industrial $ 80,040 $ 10,691 $ 865 $ — $ 91,596 Agricultural land and production 46,268 — — — 46,268 Real Estate: Owner occupied 165,108 5,530 2,166 — 172,804 Real estate construction and other land loans 28,951 1,975 3,737 — 34,663 Commercial real estate 112,198 3,747 6,336 — 122,281 Agricultural real estate 64,806 2,558 360 — 67,724 Other real estate 8,258 — — — 8,258 Consumer: Equity loans and lines of credit 40,190 464 3,765 — 44,419 Consumer and installment 7,278 — 16 — 7,294 Total $ 553,097 $ 24,965 $ 17,245 $ — $ 595,307 The following table shows the loan portfolio by class allocated by management’s internally assigned risk grade ratings at December 31, 2014 (in thousands): Pass Special Mention Sub-Standard Doubtful Total Commercial: Commercial and industrial $ 78,333 $ 2,345 $ 8,329 $ — $ 89,007 Agricultural land and production 39,140 — — — 39,140 Real Estate: Owner occupied 170,568 2,778 3,458 — 176,804 Real estate construction and other land loans 32,114 1,130 5,679 — 38,923 Commercial real estate 95,831 215 10,742 — 106,788 Agricultural real estate 55,018 2,123 360 — 57,501 Other real estate 6,611 — — — 6,611 Consumer: Equity loans and lines of credit 42,334 72 5,169 — 47,575 Consumer and installment 10,072 — 21 — 10,093 Total $ 530,021 $ 8,663 $ 33,758 $ — $ 572,442 The following table shows an aging analysis of the loan portfolio by class and the time past due at June 30, 2015 (in thousands): 30-59 Days Past Due 60-89 Days Past Due Greater Than 90 Days Past Due Total Past Due Current Total Loans Recorded Investment > 90 Days Accruing Non-accrual Commercial: Commercial and industrial $ — $ — $ 227 $ 227 $ 91,369 $ 91,596 $ — $ 275 Agricultural land and production — — — — 46,268 46,268 — — Real estate: — — — — Owner occupied — — 572 572 172,232 172,804 — 939 Real estate construction and other land loans — — 547 547 34,116 34,663 — 547 Commercial real estate — — 1,408 1,408 120,873 122,281 — 2,112 Agricultural real estate 360 — — 360 67,364 67,724 — 360 Other real estate — — — — 8,258 8,258 — — Consumer: — — — Equity loans and lines of credit — — 1,743 1,743 42,676 44,419 — 1,967 Consumer and installment 57 — — 57 7,237 7,294 — 16 Total $ 417 $ — $ 4,497 $ 4,914 $ 590,393 $ 595,307 $ — $ 6,216 The following table shows an aging analysis of the loan portfolio by class and the time past due at December 31, 2014 (in thousands): 30-59 Days Past Due 60-89 Days Past Due Greater Than 90 Days Past Due Total Past Due Current Total Loans Recorded Investment > 90 Days Accruing Non- accrual Commercial: Commercial and industrial $ 172 $ 88 $ — $ 260 $ 88,747 $ 89,007 $ — $ 7,265 Agricultural land and production — — — — 39,140 39,140 — — Real estate: — Owner occupied 164 — 249 413 176,391 176,804 — 1,363 Real estate construction and other land loans 547 — — 547 38,376 38,923 — 547 Commercial real estate — — — — 106,788 106,788 — 1,468 Agricultural real estate — — — — 57,501 57,501 — 360 Other real estate — — — — 6,611 6,611 — — Consumer: Equity loans and lines of credit — — 227 227 47,348 47,575 — 3,030 Consumer and installment 30 — — 30 10,063 10,093 — 19 Total $ 913 $ 88 $ 476 $ 1,477 $ 570,965 $ 572,442 $ — $ 14,052 The following table shows information related to impaired loans by class at June 30, 2015 (in thousands): Recorded Investment Unpaid Principal Balance Related Allowance With no related allowance recorded: Commercial: Commercial and industrial $ 211 $ 213 $ — Real estate: Owner occupied 749 820 — Real estate construction and other land loans 547 799 — Commercial real estate 2,594 2,774 — Agricultural real estate 360 360 — Total real estate 4,250 4,753 — Consumer: Equity loans and lines of credit 1,755 2,435 — Total with no related allowance recorded 6,216 7,401 — With an allowance recorded: Commercial: Commercial and industrial 65 67 12 Real estate: Owner occupied 190 215 25 Real estate construction and other land loans 3,190 3,190 1 Commercial real estate 704 713 124 Total real estate 4,084 4,118 150 Consumer: Equity loans and lines of credit 211 223 39 Consumer and installment 16 18 1 Total consumer 227 241 40 Total with an allowance recorded 4,376 4,426 202 Total $ 10,592 $ 11,827 $ 202 The recorded investment in loans excludes accrued interest receivable and net loan origination fees, due to immateriality. The following table shows information related to impaired loans by class at December 31, 2014 (in thousands): Recorded Investment Unpaid Principal Balance Related Allowance With no related allowance recorded: Commercial: Commercial and industrial $ 6,440 $ 9,991 $ — Agricultural land and production — 1,722 — Total commercial 6,440 11,713 — Real estate: Owner occupied 1,188 1,255 — Real estate construction and other land loans 547 799 — Commercial real estate 1,794 1,794 — Agricultural real estate 360 360 — Total real estate 3,889 4,208 — Consumer: Equity loans and lines of credit 2,019 2,707 — Consumer and installment — — — Total consumer 2,019 2,707 — Total with no related allowance recorded 12,348 18,628 — With an allowance recorded: Commercial: Commercial and industrial 828 835 230 Real estate: Owner occupied 199 219 30 Real estate construction and other land loans 3,542 3,542 72 Commercial real estate 882 1,022 60 Total real estate 4,623 4,783 162 Consumer: Equity loans and lines of credit 1,008 1,026 217 Consumer and installment 19 21 3 Total consumer 1,027 1,047 220 Total with an allowance recorded 6,478 6,665 612 Total $ 18,826 $ 25,293 $ 612 The recorded investment in loans excludes accrued interest receivable and net loan origination fees, due to immateriality. The following presents by class, information related to the average recorded investment and interest income recognized on impaired loans for the three months ended June 30, 2015 and 2014 . Three Months Ended June 30, 2015 Three Months Ended June 30, 2014 Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized With no related allowance recorded: Commercial: Commercial and industrial $ 4,257 $ — $ 155 $ — Real estate: Owner occupied 1,033 — 2,532 20 Real estate construction and other land loans 547 58 1,245 — Commercial real estate 2,598 — 632 — Agricultural real estate 360 — — — Total real estate 4,538 58 4,409 20 Consumer: Equity loans and lines of credit 2,091 — 1,883 — Consumer and installment — — 23 — Total consumer 2,091 — 1,906 — Total with no related allowance recorded 10,886 58 6,470 20 With an allowance recorded: Commercial: Commercial and industrial 76 — — — Real estate: Owner occupied 191 — — — Real estate construction and other land loans 3,250 — 3,832 68 Commercial real estate 708 20 — — Total real estate 4,149 20 3,832 68 Consumer: Equity loans and lines of credit 229 — 222 — Consumer and installment 17 — — — Total consumer 246 — 222 — Total with an allowance recorded 4,471 20 4,054 68 Total $ 15,357 $ 78 $ 10,524 $ 88 The following presents by class, information related to the average recorded investment and interest income recognized on impaired loans for the six months ended June 30, 2015 and 2014 . Six Months Ended June 30, 2015 Six Months Ended June 30, 2014 Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized With no related allowance recorded: Commercial: Commercial and industrial $ 5,362 $ — $ 255 $ — Agricultural land and production — — — — Total commercial 5,362 — 255 — Real estate: Owner occupied 1,119 — 2,911 41 Real estate construction and other land loans 553 118 1,349 — Commercial real estate 2,237 — 554 — Agricultural real estate 360 — — — Other real estate — — — — Total real estate 4,269 118 4,814 41 Consumer: Equity loans and lines of credit 2,219 — 1,917 — Consumer and installment — — 12 — Total consumer 2,219 — 1,929 — Total with no related allowance recorded 11,850 118 6,998 41 With an allowance recorded: Commercial: Commercial and industrial 415 — 498 — Agricultural land and production — — — — Total commercial 415 — 498 — Real estate: Owner occupied 195 — 55 — Real estate construction and other land loans 3,356 — 3,923 138 Commercial real estate 870 39 — — Agricultural real estate — — — — Other real estate — — — — Total real estate 4,421 39 3,978 138 Consumer: Equity loans and lines of credit 444 — 224 — Consumer and installment 18 — 35 — Total consumer 462 — 259 — Total with an allowance recorded 5,298 39 4,735 138 Total $ 17,148 $ 157 $ 11,733 $ 179 Foregone interest on nonaccrual loans totaled $355,000 and $185,000 for the six month periods ended June 30, 2015 and 2014 , respectively. For the three month periods ended June 30, 2015 and 2014, foregone interest on nonaccrual loans totaled $136,000 and $95,000 , respectively. Troubled Debt Restructurings: As of June 30, 2015 and December 31, 2014 , the Company has a recorded investment in troubled debt restructurings of $6,251,000 and $6,600,000 , respectively. The Company has allocated $ 2,000 and $132,000 of specific reserves to loans whose terms have been modified in troubled debt restructurings as of June 30, 2015 and December 31, 2014 , respectively. The Company has committed to lend no additional amounts as of June 30, 2015 to customers with outstanding loans that are classified as troubled debt restructurings. During the six month period ended June 30, 2015 two loans were modified as a troubled debt restructuring. The modification of the terms of such loan included one or a combination of the following: a reduction of the stated interest rate of the loan or an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk. During the same period, there were no troubled debt restructurings in which the amount of principal or accrued interest owed from the borrower was forgiven. During the three months ended June 30, 2015 , no loans were modified as troubled debt restructurings. The following table presents loans by class modified as troubled debt restructurings that occurred during the six months ended June 30, 2015 (in thousands): Troubled Debt Restructurings: Number of Loans Pre-Modification Outstanding Recorded Investment (1) Principal Modification (2) Post Modification Outstanding Recorded Investment (3) Outstanding Recorded Investment Commercial and Industrial 2 $ 42 $ — $ 42 $ 38 (1) Amounts represent the recorded investment in loans before recognizing effects of the TDR, if any. (2) Principal Modification includes principal forgiveness at the time of modification, contingent principal forgiveness granted over the life of the loan based on borrower performance, and principal that has been legally separated and deferred to the end of the loan, with zero percent contractual interest rate. (3) Balance outstanding after principal modification, if any borrower reduction to recorded investment. The following table presents loans by class modified as troubled debt restructurings that occurred during the six months ended June 30, 2014 (in thousands): Troubled Debt Restructurings: Number of Loans Pre-Modification Outstanding Recorded Investment (1) Principal Modification (2) Post Modification Outstanding Recorded Investment (3) Outstanding Recorded Investment Equity loans and lines of credit 1 $ 7 $ — $ 7 $ 6 The following table presents loans by class modified as troubled debt restructurings that occurred during the three months ending June 30, 2014 (in thousands): Troubled Debt Restructurings: Number of Loans Pre-Modification Outstanding Recorded Investment (1) Principal Modification (2) Post Modification Outstanding Recorded Investment (3) Outstanding Recorded Investment Equity loans and lines of credit 1 $ 7 $ — $ 7 $ 6 (1) Amounts represent the recorded investment in loans before recognizing effects of the TDR, if any. (2) Principal Modification includes principal forgiveness at the time of modification, contingent principal forgiveness granted over the life of the loan based on borrower performance, and principal that has been legally separated and deferred to the end of the loan, with zero percent contractual interest rate. (3) Balance outstanding after principal modification, if any borrower reduction to recorded investment. A loan is considered to be in payment default once it is 90 days contractually past due under the modified terms. There were no defaults on troubled debt restructurings, within twelve months following the modification, during the six months ended June 30, 2015 or June 30, 2014 . |