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, 2018 % of Total Loans December 31, 2017 % of Total Loans Commercial: Commercial and industrial $ 102,352 11.2 % $ 100,856 11.2 % Agricultural production 10,516 1.2 % 14,956 1.7 % Total commercial 112,868 12.4 % 115,812 12.9 % Real estate: Owner occupied 186,997 20.5 % 204,452 22.7 % Real estate construction and other land loans 95,656 10.5 % 96,460 10.7 % Commercial real estate 306,778 33.6 % 269,254 29.9 % Agricultural real estate 70,580 7.7 % 76,081 8.4 % Other real estate 33,526 3.9 % 31,220 3.5 % Total real estate 693,537 76.2 % 677,467 75.2 % Consumer: Equity loans and lines of credit 70,518 7.7 % 76,404 8.5 % Consumer and installment 33,512 3.7 % 29,637 3.4 % Total consumer 104,030 11.4 % 106,041 11.9 % Net deferred origination costs 1,442 1,359 Total gross loans 911,877 100.0 % 900,679 100.0 % Allowance for credit losses (9,025 ) (8,778 ) Total loans $ 902,852 $ 891,901 At September 30, 2018 and December 31, 2017 , loans originated under Small Business Administration (SBA) programs totaling $26,223,000 and $25,925,000 , respectively, were included in the real estate and commercial categories, of which, $19,403,000 or 74% and $19,182,000 or 74% , 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, 2018 and December 31, 2017 . The amounts of loans at September 30, 2018 and December 31, 2017 are as follows (in thousands): September 30, 2018 December 31, 2017 Commercial $ 291 $ 383 Outstanding balance $ 291 $ 383 Carrying amount, net of allowance of $0 $ 291 $ 383 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. 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 (in thousands): September 30, 2018 December 31, 2017 Loans acquired during the year $ — $ — Loans at the end of the period $ 291 $ 383 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, 2018 and 2017 by portfolio segment (in thousands): Commercial Real Estate Consumer Unallocated Total Allowance for credit losses: Beginning balance, July 1, 2018 $ 1,938 $ 6,155 $ 793 $ 34 $ 8,920 (Reversal) provision charged to operations (273 ) 203 16 54 — Losses charged to allowance — — (23 ) — (23 ) Recoveries 29 20 79 — 128 Ending balance, September 30, 2018 $ 1,694 $ 6,378 $ 865 $ 88 $ 9,025 Allowance for credit losses: Beginning balance, July 1, 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 The following table shows the summary of activities for the allowance for loan losses as of and for the nine months ended September 30, 2018 and 2017 by portfolio segment of loans (in thousands): Commercial Real Estate Consumer Unallocated Total Allowance for credit losses: Beginning balance, January 1, 2018 $ 2,071 $ 5,795 $ 825 $ 87 $ 8,778 (Reversal) provision charged to operations (422 ) 481 (10 ) 1 50 Losses charged to allowance (87 ) — (88 ) — (175 ) Recoveries 132 102 138 — 372 Ending balance, September 30, 2018 $ 1,694 $ 6,378 $ 865 $ 88 $ 9,025 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 The following is a summary of the Allowance by impairment methodology and portfolio segment as of September 30, 2018 and December 31, 2017 (in thousands): Commercial Real Estate Consumer Unallocated Total Allowance for credit losses: Ending balance, September 30, 2018 $ 1,694 $ 6,378 $ 865 $ 88 $ 9,025 Ending balance: individually evaluated for impairment $ 1 $ 163 $ 58 $ — $ 222 Ending balance: collectively evaluated for impairment $ 1,693 $ 6,215 $ 807 $ 88 $ 8,803 Ending balance, December 31, 2017 $ 2,071 $ 5,795 $ 825 $ 87 $ 8,778 Ending balance: individually evaluated for impairment $ 1 $ 1 $ 34 $ — $ 36 Ending balance: collectively evaluated for impairment $ 2,070 $ 5,794 $ 791 $ 87 $ 8,742 Commercial Real Estate Consumer Total Loans: Ending balance, September 30, 2018 $ 112,868 $ 693,537 $ 104,030 $ 910,435 Ending balance: individually evaluated for impairment $ 342 $ 5,768 $ 1,363 $ 7,473 Ending balance: collectively evaluated for impairment $ 112,526 $ 687,769 $ 102,667 $ 902,962 Loans: Ending balance, December 31, 2017 $ 115,812 $ 677,467 $ 106,041 $ 899,320 Ending balance: individually evaluated for impairment $ 377 $ 4,846 $ 1,143 $ 6,366 Ending balance: collectively evaluated for impairment $ 115,435 $ 672,621 $ 104,898 $ 892,954 The following table shows the loan portfolio by class allocated by management’s internal risk ratings at September 30, 2018 (in thousands): Pass Special Mention Sub-Standard Doubtful Total Commercial: Commercial and industrial $ 90,893 $ 10,200 $ 1,259 $ — $ 102,352 Agricultural production 6,516 2,636 1,364 — 10,516 Real Estate: Owner occupied 183,013 3,080 904 — 186,997 Real estate construction and other land loans 91,289 1,325 3,042 — 95,656 Commercial real estate 300,450 2,503 3,825 — 306,778 Agricultural real estate 46,196 688 23,696 — 70,580 Other real estate 32,409 — 1,117 — 33,526 Consumer: Equity loans and lines of credit 68,329 383 1,806 — 70,518 Consumer and installment 33,510 — 2 — 33,512 Total $ 852,605 $ 20,815 $ 37,015 $ — $ 910,435 The following table shows the loan portfolio by class allocated by management’s internally assigned risk grade ratings at December 31, 2017 (in thousands): Pass Special Mention Sub-Standard Doubtful Total Commercial: Commercial and industrial $ 84,745 $ 8,217 $ 7,894 $ — $ 100,856 Agricultural production 10,848 206 3,902 — 14,956 Real Estate: Owner occupied 196,838 4,795 2,819 — 204,452 Real estate construction and other land loans 90,927 1,625 3,908 — 96,460 Commercial real estate 261,746 4,147 3,361 — 269,254 Agricultural real estate 48,274 1,270 26,537 — 76,081 Other real estate 29,867 1,165 188 — 31,220 Consumer: Equity loans and lines of credit 74,535 483 1,386 — 76,404 Consumer and installment 29,634 — 3 — 29,637 Total $ 827,414 $ 21,908 $ 49,998 $ — $ 899,320 The following table shows an aging analysis of the loan portfolio by class and the time past due at September 30, 2018 (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 $ — $ — $ — $ — $ 102,352 $ 102,352 $ — $ 291 Agricultural production — — — — 10,516 10,516 — — Real estate: — — — — Owner occupied — — — — 186,997 186,997 — — Real estate construction and other land loans — — 1,439 1,439 94,217 95,656 — 1,439 Commercial real estate — — — — 306,778 306,778 — 908 Agricultural real estate — — — — 70,580 70,580 — — Other real estate — — 1,117 1,117 32,409 33,526 — 1,117 Consumer: — — — Equity loans and lines of credit — — — — 70,518 70,518 — 378 Consumer and installment 19 — — 19 33,493 33,512 — — Total $ 19 $ — $ 2,556 $ 2,575 $ 907,860 $ 910,435 $ — $ 4,133 The following table shows an aging analysis of the loan portfolio by class and the time past due at December 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 $ — $ — $ — $ — $ 100,856 $ 100,856 $ — $ 356 Agricultural production — — — — 14,956 14,956 — — Real estate: — Owner occupied — — — — 204,452 204,452 — — Real estate construction and other land loans — — 1,397 1,397 95,063 96,460 — 1,397 Commercial real estate — — — — 269,254 269,254 — 976 Agricultural real estate — — — — 76,081 76,081 — — Other real estate — 1,165 — 1,165 30,055 31,220 — — Consumer: Equity loans and lines of credit 149 — — 149 76,255 76,404 — 146 Consumer and installment 26 — — 26 29,611 29,637 — — Total $ 175 $ 1,165 $ 1,397 $ 2,737 $ 896,583 $ 899,320 $ — $ 2,875 The following table shows information related to impaired loans by class at September 30, 2018 (in thousands): Recorded Investment Unpaid Principal Balance Related Allowance With no related allowance recorded: Commercial: Commercial and industrial $ 290 $ 513 $ — Real estate: Real estate construction and other land loans 2,764 2,827 — Commercial real estate 1,680 1,993 — Other real estate 1,117 1,180 — Total real estate 5,561 6,000 — Consumer: Equity loans and lines of credit 255 287 — Total with no related allowance recorded 6,106 6,800 — With an allowance recorded: Commercial: Commercial and industrial 52 52 1 Real estate: Commercial real estate 163 164 162 Agricultural real estate 44 44 1 Total real estate 207 208 163 Consumer: Equity loans and lines of credit 1,108 1,111 58 Total with an allowance recorded 1,367 1,371 222 Total $ 7,473 $ 8,171 $ 222 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, 2017 (in thousands): Recorded Investment Unpaid Principal Balance Related Allowance With no related allowance recorded: Commercial: Commercial and industrial $ 355 $ 553 $ — Real estate: Real estate construction and other land loans 3,023 3,085 — Commercial real estate 1,772 2,040 — Total real estate 4,795 5,125 — Consumer: Equity loans and lines of credit 146 206 — Total with no related allowance recorded 5,296 5,884 — With an allowance recorded: Commercial: Commercial and industrial 22 22 1 Real estate: Agricultural real estate 51 51 1 Consumer: Equity loans and lines of credit 997 997 34 Total with an allowance recorded 1,070 1,070 36 Total $ 6,366 $ 6,954 $ 36 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, 2018 and 2017 (in thousands). Three Months Ended September 30, 2018 Three Months Ended September 30, 2017 Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized With no related allowance recorded: Commercial: Commercial and industrial $ 298 $ — $ 390 $ — Real estate: Real estate construction and other land loans 2,851 21 1,423 — Commercial real estate 1,695 13 1,822 13 Agricultural real estate 2,288 — — — Other real estate 836 — — — Total real estate 7,670 34 3,245 13 Consumer: Equity loans and lines of credit 224 — 142 — Consumer and installment — — 15 — Total consumer 224 — 157 — Total with no related allowance recorded 8,192 34 3,792 13 With an allowance recorded: Commercial: Commercial and industrial 53 1 22 — Real estate: Real estate construction and other land loans — — 1,859 27 Commercial real estate 164 3 — — Agricultural real estate 50 1 57 1 Other real estate 279 — — — Total real estate 493 4 1,916 28 Consumer: Equity loans and lines of credit 1,111 14 46 — Consumer and installment 3 — — — Total consumer 1,114 14 46 — Total with an allowance recorded 1,660 19 1,984 28 Total $ 9,852 $ 53 $ 5,776 $ 41 Nine Months Ended September 30, 2018 Nine Months Ended September 30, 2017 Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized With no related allowance recorded: Commercial: Commercial and industrial $ 324 $ — $ 416 $ — Real estate: Owner occupied — — 32 — Real estate construction and other land loans 2,918 66 1,014 — Commercial real estate 1,648 39 1,325 40 Agricultural real estate 1,525 119 — — Other real estate 913 — — — Total real estate 7,004 224 2,371 40 Consumer: Equity loans and lines of credit 207 — 127 — Consumer and installment — — 8 — Total consumer 207 — 135 — Total with no related allowance recorded 7,535 224 2,922 40 With an allowance recorded: Commercial: Commercial and industrial 52 3 28 1 Real estate: Real estate construction and other land loans — — 2,025 88 Commercial real estate 211 9 532 — Agricultural real estate 50 2 40 2 Other real estate 112 — — — Total real estate 373 11 2,597 90 Consumer: Equity loans and lines of credit 1,040 43 102 — Consumer and installment 4 — 1 — Total consumer 1,044 43 103 — Total with an allowance recorded 1,469 57 2,728 91 Total $ 9,004 $ 281 $ 5,650 $ 131 Foregone interest on nonaccrual loans totaled $293,000 and $159,000 for the nine month periods ended September 30, 2018 and 2017 , respectively. Foregone interest on nonaccrual loans totaled $106,000 and $54,000 for the three month periods ended September 30, 2018 and 2017 , respectively. Troubled Debt Restructurings: As of September 30, 2018 and December 31, 2017 , the Company has a recorded investment in troubled debt restructurings of $3,393,000 and $3,551,000 , respectively. The Company has allocated $189,000 and $36,000 of specific reserves to loans whose terms have been modified in troubled debt restructurings as of September 30, 2018 and December 31, 2017 , respectively. The Company has committed to lend no additional amounts as of September 30, 2018 to customers with outstanding loans that are classified as troubled debt restructurings. During the nine months month period ended September 30, 2018 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, 2018 (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 1 $ 38 $ — $ 38 $ 31 Real Estate: Commercial real estate 1 166 — 166 163 Total 2 $ 204 $ — $ 204 $ 194 (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, 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 During the quarter ended September 30, 2018 and September 30, 2017 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, 2018 or September 30, 2017 . |