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 September 30, 2016 and 2015 by portfolio segment (in thousands): Commercial Real Estate Consumer Unallocated Total Allowance for credit losses: Beginning balance, July 1, 2016 $ 2,972 $ 5,660 $ 948 $ 292 $ 9,872 (Reversal) Provision charged to operations (963 ) 259 (23 ) (273 ) (1,000 ) Losses charged to allowance (494 ) — (36 ) — (530 ) Recoveries 803 131 23 — 957 Ending balance, September 30, 2016 $ 2,318 $ 6,050 $ 912 $ 19 $ 9,299 Allowance for credit losses: Beginning balance, July 1, 2015 $ 3,553 $ 4,429 $ 732 $ — $ 8,714 (Reversal) Provision charged to operations (186 ) 154 27 105 100 Losses charged to allowance (11 ) — (22 ) — (33 ) Recoveries 267 8 37 — 312 Ending balance, September 30, 2015 $ 3,623 $ 4,591 $ 774 $ 105 $ 9,093 The following table shows the summary of activities for the allowance for loan losses as of and for the nine months ended September 30, 2016 and 2015 by portfolio segment of loans (in thousands): Commercial Real Estate Consumer Unallocated Total Allowance for credit losses: Beginning balance, January 1, 2016 $ 3,562 $ 5,204 $ 734 $ 110 $ 9,610 (Reversal) Provision charged to operations (5,787 ) (136 ) 164 (91 ) (5,850 ) Losses charged to allowance (499 ) — (148 ) — (647 ) Recoveries 5,042 982 162 — 6,186 Ending balance, September 30, 2016 $ 2,318 $ 6,050 $ 912 $ 19 $ 9,299 Allowance for credit losses: Beginning balance, January 1, 2015 $ 3,130 $ 4,058 $ 1,078 $ 42 $ 8,308 Provision charged to operations 731 509 (703 ) 63 600 Losses charged to allowance (708 ) — (95 ) — (803 ) Recoveries 470 24 494 — 988 Ending balance, September 30, 2015 $ 3,623 $ 4,591 $ 774 $ 105 $ 9,093 The following is a summary of the Allowance by impairment methodology and portfolio segment as of September 30, 2016 and December 31, 2015 (in thousands): Commercial Real Estate Consumer Unallocated Total Allowance for credit losses: Ending balance, September 30, 2016 $ 2,318 $ 6,050 $ 912 $ 19 $ 9,299 Ending balance: individually evaluated for impairment $ 13 $ 96 $ 83 $ — $ 192 Ending balance: collectively evaluated for impairment $ 2,305 $ 5,954 $ 829 $ 19 $ 9,107 Ending balance, December 31, 2015 $ 3,562 $ 5,204 $ 734 $ 110 $ 9,610 Ending balance: individually evaluated for impairment $ 1 $ 128 $ 35 $ — $ 164 Ending balance: collectively evaluated for impairment $ 3,561 $ 5,076 $ 699 $ 110 $ 9,446 The following table shows the ending balances of loans as of September 30, 2016 and December 31, 2015 by portfolio segment and by impairment methodology (in thousands): Commercial Real Estate Consumer Total Loans: Ending balance, September 30, 2016 $ 114,637 $ 449,759 $ 64,458 $ 628,854 Ending balance: individually evaluated for impairment $ 134 $ 3,898 $ 374 $ 4,406 Ending balance: collectively evaluated for impairment $ 114,503 $ 445,861 $ 64,084 $ 624,448 Loans: Ending balance, December 31, 2015 $ 132,669 $ 410,226 $ 54,799 $ 597,694 Ending balance: individually evaluated for impairment $ 30 $ 5,199 $ 1,470 $ 6,699 Ending balance: collectively evaluated for impairment $ 132,639 $ 405,027 $ 53,329 $ 590,995 The following table shows the loan portfolio by class allocated by management’s internal risk ratings at September 30, 2016 (in thousands): Pass Special Mention Sub-Standard Doubtful Total Commercial: Commercial and industrial $ 75,494 $ 7,613 $ 5,930 $ — $ 89,037 Agricultural land and production 19,631 4,209 1,760 — 25,600 Real Estate: Owner occupied 164,295 3,982 1,178 — 169,455 Real estate construction and other land loans 40,384 — 2,255 — 42,639 Commercial real estate 128,184 804 703 — 129,691 Agricultural real estate 60,709 8,320 27,072 — 96,101 Other real estate 11,873 — — — 11,873 Consumer: Equity loans and lines of credit 39,702 97 894 — 40,693 Consumer and installment 23,744 — 21 — 23,765 Total $ 564,016 $ 25,025 $ 39,813 $ — $ 628,854 The following table shows the loan portfolio by class allocated by management’s internally assigned risk grade ratings at December 31, 2015 (in thousands): Pass Special Mention Sub-Standard Doubtful Total Commercial: Commercial and industrial $ 77,783 $ 22,607 $ 1,807 $ — $ 102,197 Agricultural land and production 20,422 — 10,050 — 30,472 Real Estate: Owner occupied 163,570 3,785 1,555 — 168,910 Real estate construction and other land loans 34,916 644 3,125 — 38,685 Commercial real estate 110,833 1,683 4,728 — 117,244 Agricultural real estate 66,347 — 8,520 — 74,867 Other real estate 10,520 — — — 10,520 Consumer: Equity loans and lines of credit 40,332 — 1,964 — 42,296 Consumer and installment 12,488 — 15 — 12,503 Total $ 537,211 $ 28,719 $ 31,764 $ — $ 597,694 The following table shows an aging analysis of the loan portfolio by class and the time past due at September 30, 2016 (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 $ — $ — $ — $ — $ 89,037 $ 89,037 $ — $ 92 Agricultural land and production — — — — 25,600 25,600 — — Real estate: — — — — Owner occupied — 92 — 92 169,363 169,455 — 112 Real estate construction and other land loans — — — — 42,639 42,639 — 166 Commercial real estate — — — — 129,691 129,691 — 530 Agricultural real estate — — — — 96,101 96,101 — — Other real estate — — — — 11,873 11,873 — — Consumer: — — — Equity loans and lines of credit — — — — 40,693 40,693 — 367 Consumer and installment 43 — — 43 23,722 23,765 — 7 Total $ 43 $ 92 $ — $ 135 $ 628,719 $ 628,854 $ — $ 1,274 The following table shows an aging analysis of the loan portfolio by class and the time past due at December 31, 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 $ — $ — $ — $ — $ 102,197 $ 102,197 $ — $ 29 Agricultural land and production — — — — 30,472 30,472 — — Real estate: — Owner occupied — — — — 168,910 168,910 — 347 Real estate construction and other land loans — — — — 38,685 38,685 — — Commercial real estate 98 — — 98 117,146 117,244 — 567 Agricultural real estate — — — — 74,867 74,867 — — Other real estate — — — — 10,520 10,520 — — Consumer: Equity loans and lines of credit — 166 — 166 42,130 42,296 — 1,457 Consumer and installment 38 — — 38 12,465 12,503 — 13 Total $ 136 $ 166 $ — $ 302 $ 597,392 $ 597,694 $ — $ 2,413 The following table shows information related to impaired loans by class at September 30, 2016 (in thousands): Recorded Investment Unpaid Principal Balance Related Allowance With no related allowance recorded: Real estate: Owner occupied $ 279 $ 323 $ — Real estate construction and other land loans 2,255 2,255 — Commercial real estate 835 975 — Total real estate 3,369 3,553 — Consumer: Consumer and installment 7 10 — Total with no related allowance recorded 3,376 3,563 — With an allowance recorded: Commercial: Commercial and industrial 134 134 13 Real estate: Commercial real estate 529 565 96 Total real estate 529 565 96 Consumer: Equity loans and lines of credit 367 370 83 Total with an allowance recorded 1,030 1,069 192 Total $ 4,406 $ 4,632 $ 192 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, 2015 (in thousands): Recorded Investment Unpaid Principal Balance Related Allowance With no related allowance recorded: Commercial: Commercial and industrial $ — $ 1 $ — Total commercial — 1 — Real estate: Owner occupied 166 245 — Real estate construction and other land loans 3,125 3,125 — Commercial real estate 1,162 1,302 — Total real estate 4,453 4,672 — Consumer: Equity loans and lines of credit 1,291 1,991 — Total with no related allowance recorded 5,744 6,664 — With an allowance recorded: Commercial: Commercial and industrial 30 33 1 Real estate: Owner occupied 180 212 18 Commercial real estate 566 588 110 Total real estate 746 800 128 Consumer: Equity loans and lines of credit 166 179 33 Consumer and installment 13 15 2 Total consumer 179 194 35 Total with an allowance recorded 955 1,027 164 Total $ 6,699 $ 7,691 $ 164 The recorded investment in loans excludes accrued interest receivable and net loan origination fees, due to immateriality. The following tables present by class, information related to the average recorded investment and interest income recognized on impaired loans for the three and nine months ended September 30, 2016 and 2015 . Three Months Ended September 30, 2016 Three Months Ended September 30, 2015 Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized With no related allowance recorded: Commercial: Commercial and industrial $ — $ — $ 143 $ — Real estate: Owner occupied 108 — 556 — Real estate construction and other land loans 2,686 51 1,064 57 Commercial real estate 838 14 2,020 — Agricultural real estate — — 72 — Total real estate 3,632 65 3,712 57 Consumer: Equity loans and lines of credit — — 1,595 — Consumer and installment 8 — — — Total consumer 8 — 1,595 — Total with no related allowance recorded 3,640 65 5,450 57 With an allowance recorded: Commercial: Commercial and industrial 519 1 55 — Real estate: Owner occupied 127 — 187 — Real estate construction and other land loans — — 2,123 — Commercial real estate 540 — 660 20 Total real estate 667 — 2,970 20 Consumer: Equity loans and lines of credit 160 — 209 — Consumer and installment 15 — 14 — Total consumer 175 — 223 — Total with an allowance recorded 1,361 1 3,248 20 Total $ 5,001 $ 66 $ 8,698 $ 77 Nine Months Ended September 30, 2016 Nine Months Ended September 30, 2015 Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized With no related allowance recorded: Commercial: Commercial and industrial $ 104 $ — $ 3,797 $ — Real estate: Owner occupied 189 — 950 — Real estate construction and other land loans 2,884 156 706 175 Commercial real estate 997 41 2,171 — Agricultural real estate — — 274 — Total real estate 4,070 197 4,101 175 Consumer: Equity loans and lines of credit 745 — 2,032 — Consumer and installment 6 — — — Total consumer 751 — 2,032 — Total with no related allowance recorded 4,925 197 9,930 175 With an allowance recorded: Commercial: Commercial and industrial 559 2 307 — Total commercial 559 2 307 — Real estate: Owner occupied 156 — 193 — Real estate construction and other land loans — — 2,986 — Commercial real estate 552 — 807 59 Total real estate 708 — 3,986 59 Consumer: Equity loans and lines of credit 162 — 373 — Consumer and installment 10 — 17 — Total consumer 172 — 390 — Total with an allowance recorded 1,439 2 4,683 59 Total $ 6,364 $ 199 $ 14,613 $ 234 Foregone interest on nonaccrual loans totaled $104,000 and $366,000 for the nine month periods ended September 30, 2016 and 2015 , respectively. For the three month periods ended September 30, 2016 and 2015 , foregone interest on nonaccrual loans totaled $12,000 and $91,000 , respectively. Troubled Debt Restructurings: As of September 30, 2016 and December 31, 2015 , the Company has a recorded investment in troubled debt restructurings of $3,153,000 and $5,623,000 , respectively. The Company has allocated $ 3,000 and $1,000 of specific reserves to loans whose terms have been modified in troubled debt restructurings as of September 30, 2016 and December 31, 2015 , respectively. The Company has committed to lend no additional amounts as of September 30, 2016 to customers with outstanding loans that are classified as troubled debt restructurings. During the nine month period ended September 30, 2016 two loans were modified as troubled debt restructurings. The modification of the terms of such loans 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 or which resulted in a charge-off or change to the allowance for loan losses. The following table presents loans by class modified as troubled debt restructurings that occurred during the nine months ended September 30, 2016 (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 $ 45 $ — $ 45 $ 42 (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 nine months ended September 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: Commercial and Industrial 2 $ 42 $ — $ 42 $ 34 During the nine month period ended September 30, 2015 two loans were modified as troubled debt restructurings. The modification of the terms of such loans 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 or which resulted in a charge-off or change to the allowance for loan losses. During the quarter ended September 30, 2016 and 2015 no loans were modified as troubled debt restructuring. 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 nine months ended September 30, 2016 or September 30, 2015 . |