Allowance For Credit Losses | Loans and Allowance for Credit Losses Outstanding loans are summarized as follows: Loan Type (Dollars in thousands) March 31, 2017 % of Total Loans December 31, 2016 % of Total Loans Commercial: Commercial and industrial $ 88,012 11.5 % $ 88,652 11.7 % Agricultural land and production 16,273 2.1 % 25,509 3.4 % Total commercial 104,285 13.6 % 114,161 15.1 % Real estate: Owner occupied 188,454 24.7 % 191,665 25.3 % Real estate construction and other land loans 76,483 10.0 % 69,200 9.1 % Commercial real estate 208,082 27.2 % 184,225 24.3 % Agricultural real estate 77,451 10.1 % 86,761 11.5 % Other real estate 18,587 2.5 % 18,945 2.7 % Total real estate 569,057 74.5 % 550,796 72.9 % Consumer: Equity loans and lines of credit 63,243 8.3 % 64,494 8.5 % Consumer and installment 26,805 3.6 % 25,910 3.5 % Total consumer 90,048 11.9 % 90,404 12.0 % Net deferred origination costs 1,000 1,267 Total gross loans 764,390 100.0 % 756,628 100.0 % Allowance for credit losses (9,214 ) (9,326 ) Total loans $ 755,176 $ 747,302 At March 31, 2017 and December 31, 2016 , loans originated under Small Business Administration (SBA) programs totaling $17,034,000 and $16,590,000 , respectively, were included in the real estate and commercial categories, of which, $12,406,000 or 73% and $12,188,000 or 73% , respectively, are secured by government guarantees. Purchased Credit Impaired Loans The Company has loans that were acquired in acquisitions for which there was at acquisition evidence of deterioration of credit quality since origination, and for which it was probable at acquisition that all contractually required payments would not be collected. The carrying amount of those loans is included in the balance sheet amounts of loans receivable at March 31, 2017 and December 31, 2016 . The amounts of loans at March 31, 2017 and December 31, 2016 are as follows (in thousands): March 31, 2017 December 31, 2016 Commercial $ 470 $ 612 Outstanding balance $ 470 $ 612 Carrying amount, net of allowance of $0 $ 470 $ 612 Purchased credit impaired (PCI) loans are recorded at the amount paid, such that there is no carryover of the seller’s allowance for loan losses. The Company estimates the amount and timing of expected cash flows for each loan and the expected cash flows in excess of amount paid is recorded as interest income over the remaining life of the loan (accretable yield). The excess of the loan’s contractual principal and interest over expected cash flows is not recorded (nonaccretable difference). Over the life of the loan expected cash flows continue to be estimated. If the present value of expected cash flows is less than the carrying amount, a loss is recorded. If the present value of expected cash flows is greater than the carrying amount, it is recognized as part of future interest income. Loans acquired during each year for which it was probable at acquisition that all contractually required payments would not be collected are as follows (in thousands): March 31, 2017 December 31, 2016 Contractually required payments receivable on PCI loans at acquisition: Commercial $ — $ 982 Total $ — $ 982 Cash flows expected to be collected at acquisition $ — $ 693 Fair value of acquired loans at acquisition $ — $ 631 Certain of the loans acquired by the Company that are within the scope of Topic ASC 310-30 are not accounted for using the income recognition model of the Topic because the Company cannot reliably estimate cash flows expected to be collected. The carrying amounts of such loans (which are included in the carrying amount, net of allowance, described above) are as follows. March 31, 2017 December 31, 2016 Loans acquired during the year $ — $ 631 Loans at the end of the period $ 470 $ 612 Allowance for Credit Losses The allowance 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 March 31, 2017 and 2016 by portfolio segment (in thousands): Commercial Real Estate Consumer Unallocated Total Allowance for credit losses: Beginning balance, January 1, 2017 $ 2,180 $ 6,200 $ 852 $ 94 $ 9,326 (Reversal) provision charged to operations (237 ) 43 (5 ) 99 (100 ) Losses charged to allowance (44 ) (22 ) (116 ) — (182 ) Recoveries 122 4 44 — 170 Ending balance, March 31, 2017 $ 2,021 $ 6,225 $ 775 $ 193 $ 9,214 Allowance for credit losses: Beginning balance, January 1, 2016 $ 3,562 $ 5,204 $ 734 $ 110 $ 9,610 (Reversal) provision charged to operations (152 ) (340 ) 134 108 (250 ) Losses charged to allowance (4 ) — (9 ) — (13 ) Recoveries 337 417 35 — 789 Ending balance, March 31, 2016 $ 3,743 $ 5,281 $ 894 $ 218 $ 10,136 The following is a summary of the Allowance by impairment methodology and portfolio segment as of March 31, 2017 and December 31, 2016 (in thousands): Commercial Real Estate Consumer Unallocated Total Allowance for credit losses: Ending balance, March 31, 2017 $ 2,021 $ 6,225 $ 775 $ 193 $ 9,214 Ending balance: individually evaluated for impairment $ 1 $ 217 $ 1 $ — $ 219 Ending balance: collectively evaluated for impairment $ 2,020 $ 6,008 $ 774 $ 193 $ 8,995 Ending balance, December 31, 2016 $ 2,180 $ 6,200 $ 852 $ 94 $ 9,326 Ending balance: individually evaluated for impairment $ 3 $ 241 $ 63 $ — $ 307 Ending balance: collectively evaluated for impairment $ 2,177 $ 5,959 $ 789 $ 94 $ 9,019 Commercial Real Estate Consumer Total Loans: Ending balance, March 31, 2017 $ 104,285 $ 569,057 $ 90,048 $ 763,390 Ending balance: individually evaluated for impairment $ 451 $ 5,517 $ 169 $ 6,137 Ending balance: collectively evaluated for impairment $ 103,834 $ 563,540 $ 89,879 $ 757,253 Loans: Ending balance, December 31, 2016 $ 114,161 $ 550,796 $ 90,404 $ 755,361 Ending balance: individually evaluated for impairment $ 487 $ 4,238 $ 544 $ 5,269 Ending balance: collectively evaluated for impairment $ 113,674 $ 546,558 $ 89,860 $ 750,092 The following table shows the loan portfolio by class allocated by management’s internal risk ratings at March 31, 2017 (in thousands): Pass Special Mention Sub-Standard Doubtful Total Commercial: Commercial and industrial $ 69,532 $ 8,417 $ 10,063 $ — $ 88,012 Agricultural land and production 10,691 5,515 67 — 16,273 Real Estate: Owner occupied 179,655 5,140 3,659 — 188,454 Real estate construction and other land loans 71,461 2,091 2,931 — 76,483 Commercial real estate 202,285 3,126 2,671 — 208,082 Agricultural real estate 44,568 8,010 24,873 — 77,451 Other real estate 18,423 164 — — 18,587 Consumer: Equity loans and lines of credit 61,781 514 948 — 63,243 Consumer and installment 26,803 — 2 — 26,805 Total $ 685,199 $ 32,977 $ 45,214 $ — $ 763,390 The following table shows the loan portfolio by class allocated by management’s internally assigned risk grade ratings at December 31, 2016 (in thousands): Pass Special Mention Sub-Standard Doubtful Total Commercial: Commercial and industrial $ 75,212 $ 907 $ 12,533 $ — $ 88,652 Agricultural land and production 16,562 8,681 266 — 25,509 Real Estate: Owner occupied 184,987 2,865 3,813 — 191,665 Real estate construction and other land loans 62,538 5,259 1,403 — 69,200 Commercial real estate 179,966 1,548 2,711 — 184,225 Agricultural real estate 49,270 10,390 27,101 — 86,761 Other real estate 18,779 166 — — 18,945 Consumer: Equity loans and lines of credit 62,782 95 1,617 — 64,494 Consumer and installment 25,890 — 20 — 25,910 Total $ 675,986 $ 29,911 $ 49,464 $ — $ 755,361 The following table shows an aging analysis of the loan portfolio by class and the time past due at March 31, 2017 (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 $ — $ — $ — $ — $ 88,012 $ 88,012 $ — $ 428 Agricultural land and production — — — — 16,273 16,273 — — Real estate: — — — — Owner occupied — — — — 188,454 188,454 — — Real estate construction and other land loans — — — — 76,483 76,483 — 1,494 Commercial real estate — — — — 208,082 208,082 — 1,053 Agricultural real estate — — — — 77,451 77,451 — — Other real estate — — — — 18,587 18,587 — — Consumer: — — — Equity loans and lines of credit — — — — 63,243 63,243 — 104 Consumer and installment 28 — — 28 26,777 26,805 — — Total $ 28 $ — $ — $ 28 $ 763,362 $ 763,390 $ — $ 3,079 The following table shows an aging analysis of the loan portfolio by class and the time past due at December 31, 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 $ — $ — $ — $ — $ 88,652 $ 88,652 $ — $ 447 Agricultural land and production — — — — 25,509 25,509 — — Real estate: — Owner occupied 87 — — 87 191,578 191,665 — 107 Real estate construction and other land loans — — — — 69,200 69,200 — — Commercial real estate 565 — — 565 183,660 184,225 — 1,082 Agricultural real estate — — — — 86,761 86,761 — — Other real estate — — — — 18,945 18,945 — — Consumer: Equity loans and lines of credit 62 48 — 110 64,384 64,494 — 526 Consumer and installment 38 — — 38 25,872 25,910 — 18 Total $ 752 $ 48 $ — $ 800 $ 754,561 $ 755,361 $ — $ 2,180 The following table shows information related to impaired loans by class at March 31, 2017 (in thousands): Recorded Investment Unpaid Principal Balance Related Allowance With no related allowance recorded: Commercial: Commercial and industrial $ 428 $ 600 $ — Real estate: Real estate construction and other land loans 1,494 1,500 — Commercial real estate 819 960 — Total real estate 2,313 2,460 — Consumer: Equity loans and lines of credit 103 139 — Total with no related allowance recorded 2,844 3,199 — With an allowance recorded: Commercial: Commercial and industrial 23 23 1 Real estate: Real estate construction and other land loans 2,092 2,092 71 Commercial real estate 1,053 1,136 146 Agricultural real estate 59 59 — Total real estate 3,204 3,287 217 Consumer: Equity loans and lines of credit 66 79 1 Total with an allowance recorded 3,293 3,389 219 Total $ 6,137 $ 6,588 $ 219 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, 2016 (in thousands): Recorded Investment Unpaid Principal Balance Related Allowance With no related allowance recorded: Commercial: Commercial and industrial $ 447 $ 612 $ — Total commercial 447 612 — Real estate: Owner occupied 107 111 — Commercial real estate 827 967 — Total real estate 934 1,078 — Consumer: Equity loans and lines of credit 167 234 — Consumer and installment 6 9 — Total consumer 173 243 — Total with no related allowance recorded 1,554 1,933 — With an allowance recorded: Commercial: Commercial and industrial 40 40 3 Real estate: Real estate construction and other land loans 2,222 2,222 79 Commercial real estate 1,082 1,146 162 Total real estate 3,304 3,368 241 Consumer: Equity loans and lines of credit 359 364 61 Consumer and installment 12 12 2 Total consumer 371 376 63 Total with an allowance recorded 3,715 3,784 307 Total $ 5,269 $ 5,717 $ 307 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 months ended March 31, 2017 and 2016 . Three Months Ended March 31, 2017 Three Months Ended March 31, 2016 Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized With no related allowance recorded: Commercial: Commercial and industrial $ 439 $ — $ 243 $ — Real estate: Owner occupied 79 — 291 54 Real estate construction and other land loans 373 — 3,094 19 Commercial real estate 824 13 1,156 — Total real estate 1,276 13 4,541 73 Consumer: Equity loans and lines of credit 110 — 1,278 — Consumer and installment 4 — 3 — Total consumer 114 — 1,281 — Total with no related allowance recorded 1,829 13 6,065 73 With an allowance recorded: Commercial: Commercial and industrial 36 1 360 1 Real estate: Owner occupied — — 178 — Real estate construction and other land loans 2,173 31 — — Commercial real estate 1,067 — 564 — Agricultural real estate 15 1 — — Total real estate 3,255 32 742 — Consumer: Equity loans and lines of credit 181 1 196 — Consumer and installment 3 — 8 — Total consumer 184 1 204 — Total with an allowance recorded 3,475 34 1,306 1 Total $ 5,304 $ 47 $ 7,371 $ 74 Foregone interest on nonaccrual loans totaled $25,000 and $61,000 for the three month periods ended March 31, 2017 and 2016 , respectively. Troubled Debt Restructurings: As of March 31, 2017 and December 31, 2016 , the Company has a recorded investment in troubled debt restructurings of $3,058,000 and $3,109,000 , respectively. The Company has allocated $73,000 and $82,000 of specific reserves to loans whose terms have been modified in troubled debt restructurings as of March 31, 2017 and December 31, 2016 , respectively. The Company has committed to lend no additional amounts as of March 31, 2017 to customers with outstanding loans that are classified as troubled debt restructurings. During the three month period ended March 31, 2017 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 three months ended March 31, 2017 (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 Real Estate: Agricultural real estate 1 $ 59 $ — $ 59 $ 59 Consumer: Equity loans and lines of credit 1 62 — 66 66 Total 2 $ 121 $ — $ 125 $ 125 (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 three months ended March 31, 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: Commercial and Industrial 2 $ 45 $ — $ 45 $ 45 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 three months ended March 31, 2017 or March 31, 2016 . |