Loans and Allowance For Credit Losses | Loans and Allowance for Credit Losses Outstanding loans are summarized as follows: Loan Type (Dollars in thousands) September 30, 2017 % of Total Loans December 31, 2016 % of Total Loans Commercial: Commercial and industrial $ 90,511 11.6 % $ 88,652 11.7 % Agricultural land and production 18,074 2.4 % 25,509 3.4 % Total commercial 108,585 14.0 % 114,161 15.1 % Real estate: Owner occupied 191,918 24.6 % 191,665 25.3 % Real estate construction and other land loans 84,135 10.8 % 69,200 9.1 % Commercial real estate 212,008 27.2 % 184,225 24.3 % Agricultural real estate 72,082 9.3 % 86,761 11.5 % Other real estate 19,572 2.6 % 18,945 2.7 % Total real estate 579,715 74.5 % 550,796 72.9 % Consumer: Equity loans and lines of credit 61,822 8.0 % 64,494 8.5 % Consumer and installment 27,595 3.5 % 25,910 3.5 % Total consumer 89,417 11.5 % 90,404 12.0 % Net deferred origination costs 1,009 1,267 Total gross loans 778,726 100.0 % 756,628 100.0 % Allowance for credit losses (8,916 ) (9,326 ) Total loans $ 769,810 $ 747,302 At September 30, 2017 and December 31, 2016 , loans originated under Small Business Administration (SBA) programs totaling $24,569,000 and $16,590,000 , respectively, were included in the real estate and commercial categories, of which, $18,170,000 or 74% 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 September 30, 2017 and December 31, 2016 . The amounts of loans at September 30, 2017 and December 31, 2016 are as follows (in thousands): September 30, 2017 December 31, 2016 Commercial $ 404 $ 612 Outstanding balance $ 404 $ 612 Carrying amount, net of allowance of $0 $ 404 $ 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): September 30, 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. September 30, 2017 December 31, 2016 Loans acquired during the year $ — $ 631 Loans at the end of the period $ 404 $ 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 September 30, 2017 and 2016 by portfolio segment (in thousands): Commercial Real Estate Consumer Unallocated Total Allowance for credit losses: Beginning balance, July 01, 2017 $ 2,196 $ 5,931 $ 793 $ 377 $ 9,297 (Reversal) provision charged to operations (532 ) (251 ) (35 ) (82 ) (900 ) Losses charged to allowance (4 ) — (18 ) — (22 ) Recoveries 514 5 22 — 541 Ending balance, September 30, 2017 $ 2,174 $ 5,685 $ 762 $ 295 $ 8,916 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 The following table shows the summary of activities for the allowance for loan losses as of and for the nine months ended September 30, 2017 and 2016 by portfolio segment of loans (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 (776 ) (554 ) (21 ) 201 (1,150 ) Losses charged to allowance (48 ) (22 ) (162 ) — (232 ) Recoveries 818 61 93 — 972 Ending balance, September 30, 2017 $ 2,174 $ 5,685 $ 762 $ 295 $ 8,916 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 The following is a summary of the Allowance by impairment methodology and portfolio segment as of September 30, 2017 and December 31, 2016 (in thousands): Commercial Real Estate Consumer Unallocated Total Allowance for credit losses: Ending balance, September 30, 2017 $ 2,174 $ 5,685 $ 762 $ 295 $ 8,916 Ending balance: individually evaluated for impairment $ 1 $ 25 $ 30 $ — $ 56 Ending balance: collectively evaluated for impairment $ 2,173 $ 5,660 $ 732 $ 295 $ 8,860 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, September 30, 2017 $ 108,585 $ 579,715 $ 89,417 $ 777,717 Ending balance: individually evaluated for impairment $ 394 $ 5,035 $ 199 $ 5,628 Ending balance: collectively evaluated for impairment $ 108,191 $ 574,680 $ 89,218 $ 772,089 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 September 30, 2017 (in thousands): Pass Special Mention Sub-Standard Doubtful Total Commercial: Commercial and industrial $ 74,450 $ 8,692 $ 7,369 $ — $ 90,511 Agricultural land and production 9,036 1,986 7,052 — 18,074 Real Estate: Owner occupied 184,377 4,700 2,841 — 191,918 Real estate construction and other land loans 80,504 1,783 1,848 — 84,135 Commercial real estate 207,673 2,438 1,897 — 212,008 Agricultural real estate 43,136 1,290 27,656 — 72,082 Other real estate 19,572 — — — 19,572 Consumer: Equity loans and lines of credit 60,512 507 803 — 61,822 Consumer and installment 27,592 — 3 — 27,595 Total $ 706,852 $ 21,396 $ 49,469 $ — $ 777,717 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 September 30, 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 $ — $ — $ — $ — $ 90,511 $ 90,511 $ — $ 372 Agricultural land and production — — — — 18,074 18,074 — — Real estate: — — — — Owner occupied — — — — 191,918 191,918 — — Real estate construction and other land loans 1,397 — — 1,397 82,738 84,135 — 1,397 Commercial real estate — — — — 212,008 212,008 — 1,000 Agricultural real estate — — — — 72,082 72,082 — — Other real estate — — — — 19,572 19,572 — — Consumer: — — — Equity loans and lines of credit 19 — — 19 61,803 61,822 — 199 Consumer and installment 60 2 — 62 27,533 27,595 — — Total $ 1,476 $ 2 $ — $ 1,478 $ 776,239 $ 777,717 $ — $ 2,968 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 September 30, 2017 (in thousands): Recorded Investment Unpaid Principal Balance Related Allowance With no related allowance recorded: Commercial: Commercial and industrial $ 372 $ 562 $ — Real estate: Real estate construction and other land loans 1,397 1,460 — Commercial real estate 1,804 2,058 — Total real estate 3,201 3,518 — Consumer: Equity loans and lines of credit 154 212 — Total with no related allowance recorded 3,727 4,292 — With an allowance recorded: Commercial: Commercial and industrial 22 22 1 Real estate: Real estate construction and other land loans 1,783 1,783 24 Agricultural real estate 51 51 1 Total real estate 1,834 1,834 25 Consumer: Equity loans and lines of credit 45 46 30 Total with an allowance recorded 1,901 1,902 56 Total $ 5,628 $ 6,194 $ 56 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 September 30, 2017 and 2016 . Three Months Ended September 30, 2017 Three Months Ended September 30, 2016 Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized With no related allowance recorded: Commercial: Commercial and industrial $ 390 $ — $ — $ — Real estate: Owner occupied — — 108 — Real estate construction and other land loans 1,423 — 2,686 51 Commercial real estate 1,822 13 838 14 Total real estate 3,245 13 3,632 65 Consumer: Equity loans and lines of credit 142 — — — Consumer and installment 15 — 8 — Total consumer 157 — 8 — Total with no related allowance recorded 3,792 13 3,640 65 With an allowance recorded: Commercial: Commercial and industrial 22 — 519 1 Real estate: Owner occupied — — 127 — Real estate construction and other land loans 1,859 27 — — Commercial real estate — — 540 — Agricultural real estate 57 1 — — Total real estate 1,916 28 667 — Consumer: Equity loans and lines of credit 46 — 160 — Consumer and installment — — 15 — Total consumer 46 — 175 — Total with an allowance recorded 1,984 28 1,361 1 Total $ 5,776 $ 41 $ 5,001 $ 66 Nine Months Ended September 30, 2017 Nine Months Ended September 30, 2016 Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized With no related allowance recorded: Commercial: Commercial and industrial $ 416 $ — $ 104 $ — Agricultural land and production — — — — Total commercial 416 — 104 — Real estate: Owner occupied 32 — 189 — Real estate construction and other land loans 1,014 — 2,884 156 Commercial real estate 1,325 40 997 41 Agricultural real estate — — — — Other real estate — — — — Total real estate 2,371 40 4,070 197 Consumer: Equity loans and lines of credit 127 — 745 — Consumer and installment 8 — 6 — Total consumer 135 — 751 — Total with no related allowance recorded 2,922 40 4,925 197 With an allowance recorded: Commercial: Commercial and industrial 28 1 559 2 Agricultural land and production — — — — Total commercial 28 1 559 2 Real estate: Owner occupied — — 156 — Real estate construction and other land loans 2,025 88 — — Commercial real estate 532 — 552 — Agricultural real estate 40 2 — — Other real estate — — — — Total real estate 2,597 90 708 — Consumer: Equity loans and lines of credit 102 — 162 — Consumer and installment 1 — 10 — Total consumer 103 — 172 — Total with an allowance recorded 2,728 91 1,439 2 Total $ 5,650 $ 131 $ 6,364 $ 199 Foregone interest on nonaccrual loans totaled $159,000 and $104,000 for the nine month periods ended September 30, 2017 and 2016 , respectively. Foregone interest on nonaccrual loans totaled $54,000 and $12,000 for the three month periods ended September 30, 2017 and 2016 , respectively. Troubled Debt Restructurings: As of September 30, 2017 and December 31, 2016 , the Company has a recorded investment in troubled debt restructurings of $2,722,000 and $3,109,000 , respectively. The Company has allocated $26,000 and $82,000 of specific reserves to loans whose terms have been modified in troubled debt restructurings as of September 30, 2017 and December 31, 2016 , respectively. The Company has committed to lend no additional amounts as of September 30, 2017 to customers with outstanding loans that are classified as troubled debt restructurings. During the nine month period ended September 30, 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 nine months ended September 30, 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 $ 51 Consumer: Equity loans and lines of credit 1 62 — 66 62 Total 2 $ 121 $ — $ 125 $ 113 (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, 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 $ 42 During the quarter ended September 30, 2017 and 2016 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, 2017 or September 30, 2016 . |