Loans and Allowance for Credit Losses | Loans and Allowance for Credit Losses Outstanding loans are summarized as follows: Loan Type (Dollars in thousands) June 30, 2019 % of Total Loans December 31, 2018 % of Total Loans Commercial: Commercial and industrial $ 110,178 11.5 % $ 101,533 11.1 % Agricultural production 25,987 2.7 % 7,998 0.9 % Total commercial 136,165 14.2 % 109,531 12.0 % Real estate: Owner occupied 195,626 20.4 % 183,169 19.9 % Real estate construction and other land loans 102,927 10.7 % 101,606 11.1 % Commercial real estate 302,026 31.5 % 305,118 33.2 % Agricultural real estate 75,077 7.8 % 76,884 8.4 % Other real estate 33,214 3.6 % 32,799 3.6 % Total real estate 708,870 74.0 % 699,576 76.2 % Consumer: Equity loans and lines of credit 71,107 7.4 % 69,958 7.6 % Consumer and installment 42,345 4.4 % 38,038 4.2 % Total consumer 113,452 11.8 % 107,996 11.8 % Net deferred origination costs 1,724 1,592 Total gross loans 960,211 100.0 % 918,695 100.0 % Allowance for credit losses (9,405 ) (9,104 ) Total loans $ 950,806 $ 909,591 At June 30, 2019 and December 31, 2018 , loans originated under Small Business Administration (SBA) programs totaling $23,386,000 and $22,297,000 , respectively, were included in the real estate and commercial categories, of which, $17,402,000 or 74% and $16,493,000 or 74% , respectively, are secured by government guarantees. 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 June 30, 2019 and 2018 by portfolio segment (in thousands): Commercial Real Estate Consumer Unallocated Total Allowance for credit losses: Beginning balance, April 1, 2019 $ 1,450 $ 6,709 $ 895 $ 64 $ 9,118 (Reversal) provision charged to operations 372 (156 ) 7 77 300 Losses charged to allowance (50 ) — (6 ) — (56 ) Recoveries 28 — 15 — 43 Ending balance, June 30, 2019 $ 1,800 $ 6,553 $ 911 $ 141 $ 9,405 Allowance for credit losses: Beginning balance, April 1, 2018 $ 1,736 $ 6,131 $ 812 $ 109 $ 8,788 (Reversal) provision charged to operations 206 (53 ) (28 ) (75 ) 50 Losses charged to allowance (36 ) — (23 ) — (59 ) Recoveries 32 77 32 — 141 Ending balance, June 30, 2018 $ 1,938 $ 6,155 $ 793 $ 34 $ 8,920 The following table shows the summary of activities for the Allowance as of and for the six months ended June 30, 2019 and 2018 by portfolio segment (in thousands): Commercial Real Estate Consumer Unallocated Total Allowance for credit losses: Beginning balance, January 1, 2019 $ 1,671 $ 6,539 $ 826 $ 68 $ 9,104 (Reversal) provision charged to operations 120 14 68 73 275 Losses charged to allowance (50 ) — (15 ) — (65 ) Recoveries 59 — 32 — 91 Ending balance, June 30, 2019 $ 1,800 $ 6,553 $ 911 $ 141 $ 9,405 Allowance for credit losses: Beginning balance, January 1, 2018 $ 2,071 $ 5,795 $ 825 $ 87 $ 8,778 (Reversal) provision charged to operations (150 ) 278 (25 ) (53 ) 50 Losses charged to allowance (86 ) — (65 ) — (151 ) Recoveries 103 82 58 — 243 Ending balance, June 30, 2018 $ 1,938 $ 6,155 $ 793 $ 34 $ 8,920 The following is a summary of the Allowance by impairment methodology and portfolio segment as of June 30, 2019 and December 31, 2018 (in thousands): Commercial Real Estate Consumer Unallocated Total Allowance for credit losses: Ending balance, June 30, 2019 $ 1,800 $ 6,553 $ 911 $ 141 $ 9,405 Ending balance: individually evaluated for impairment $ 6 $ 18 $ 60 $ — $ 84 Ending balance: collectively evaluated for impairment $ 1,794 $ 6,535 $ 851 $ 141 $ 9,321 Ending balance, December 31, 2018 $ 1,671 $ 6,539 $ 826 $ 68 $ 9,104 Ending balance: individually evaluated for impairment $ 9 $ 27 $ 54 $ — $ 90 Ending balance: collectively evaluated for impairment $ 1,662 $ 6,512 $ 772 $ 68 $ 9,014 Commercial Real Estate Consumer Total Loans: Ending balance, June 30, 2019 $ 136,165 $ 708,870 $ 113,452 $ 958,487 Ending balance: individually evaluated for impairment $ 262 $ 3,098 $ 2,091 $ 5,451 Ending balance: collectively evaluated for impairment $ 135,903 $ 705,772 $ 111,361 $ 953,036 Loans: Ending balance, December 31, 2018 $ 109,531 $ 699,576 $ 107,996 $ 917,103 Ending balance: individually evaluated for impairment $ 348 $ 4,215 $ 1,346 $ 5,909 Ending balance: collectively evaluated for impairment $ 109,183 $ 695,361 $ 106,650 $ 911,194 The following table shows the loan portfolio by class allocated by management’s internal risk ratings at June 30, 2019 (in thousands): Pass Special Mention Sub-Standard Doubtful Total Commercial: Commercial and industrial $ 106,340 $ 2,312 $ 1,526 $ — $ 110,178 Agricultural production 19,996 2,991 3,000 — 25,987 Real Estate: Owner occupied 191,944 2,796 886 — 195,626 Real estate construction and other land loans 99,994 1,347 1,586 — 102,927 Commercial real estate 296,459 4,038 1,529 — 302,026 Agricultural real estate 55,120 13,507 6,450 — 75,077 Other real estate 33,214 — — — 33,214 Consumer: Equity loans and lines of credit 66,817 1,445 2,845 — 71,107 Consumer and installment 42,307 — 38 — 42,345 Total $ 912,191 $ 28,436 $ 17,860 $ — $ 958,487 The following table shows the loan portfolio by class allocated by management’s internally assigned risk grade ratings at December 31, 2018 (in thousands): Pass Special Mention Sub-Standard Doubtful Total Commercial: Commercial and industrial $ 86,876 $ 12,072 $ 2,585 $ — $ 101,533 Agricultural production 5,955 2,043 — — 7,998 Real Estate: Owner occupied 179,214 3,056 899 — 183,169 Real estate construction and other land loans 95,301 3,270 3,035 — 101,606 Commercial real estate 298,714 5,268 1,136 — 305,118 Agricultural real estate 57,544 165 19,175 — 76,884 Other real estate 32,799 — — — 32,799 Consumer: Equity loans and lines of credit 68,016 380 1,562 — 69,958 Consumer and installment 38,036 — 2 — 38,038 Total $ 862,455 $ 26,254 $ 28,394 $ — $ 917,103 The following table shows an aging analysis of the loan portfolio by class and the time past due at June 30, 2019 (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 $ 1,533 $ — $ — $ 1,533 $ 108,645 $ 110,178 $ — $ 244 Agricultural production — — — — 25,987 25,987 — — Real estate: — — Owner occupied — — — — 195,626 195,626 — 208 Real estate construction and other land loans — — — — 102,927 102,927 — — Commercial real estate 447 — — 447 301,579 302,026 — 925 Agricultural real estate — — — — 75,077 75,077 — — Other real estate — — — — 33,214 33,214 — — Consumer: — Equity loans and lines of credit — — — — 71,107 71,107 — 1,029 Consumer and installment 7 — — 7 42,338 42,345 — 36 Total $ 1,987 $ — $ — $ 1,987 $ 956,500 $ 958,487 $ — $ 2,442 The following table shows an aging analysis of the loan portfolio by class and the time past due at December 31, 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 $ 255 $ — $ — $ 255 $ 101,278 $ 101,533 $ — $ 298 Agricultural production — — — — 7,998 7,998 — — Real estate: — Owner occupied 215 — — 215 182,954 183,169 — 215 Real estate construction and other land loans — — 1,439 1,439 100,167 101,606 — 1,439 Commercial real estate — — — — 305,118 305,118 — 418 Agricultural real estate — — — — 76,884 76,884 — — Other real estate — — — — 32,799 32,799 — — Consumer: Equity loans and lines of credit 953 — — 953 69,005 69,958 — 370 Consumer and installment 7 — — 7 38,031 38,038 — — Total $ 1,430 $ — $ 1,439 $ 2,869 $ 914,234 $ 917,103 $ — $ 2,740 The following table shows information related to impaired loans by class at June 30, 2019 (in thousands): Recorded Investment Unpaid Principal Balance Related Allowance With no related allowance recorded: Commercial: Commercial and industrial $ 211 $ 463 $ — Real estate: Owner occupied $ 207 $ 213 $ — Real estate construction and other land loans 1,018 1,018 — Commercial real estate 1,672 1,939 — Total real estate 2,897 3,170 — Consumer: Equity loans and lines of credit 960 1,007 — Total with no related allowance recorded 4,068 4,640 — With an allowance recorded: Commercial: Commercial and industrial 51 52 6 Real estate: Commercial real estate 157 158 18 Agricultural real estate 44 44 — Total real estate 201 202 18 Consumer: Equity loans and lines of credit 1,095 1,105 44 Consumer and installment 36 36 16 Total consumer 1,131 1,141 60 Total with an allowance recorded 1,383 1,395 84 Total $ 5,451 $ 6,035 $ 84 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, 2018 (in thousands): Recorded Investment Unpaid Principal Balance Related Allowance With no related allowance recorded: Commercial: Commercial and industrial $ 259 $ 493 $ — Real estate: Owner occupied 215 215 — Real estate construction and other land loans 2,613 2,676 — Commercial real estate 1,182 1,414 — Total real estate 4,010 4,305 — Consumer: Equity loans and lines of credit 248 285 — Total with no related allowance recorded 4,517 5,083 — With an allowance recorded: Commercial: Commercial and industrial 89 90 9 Real estate: Commercial real estate 161 162 27 Agricultural real estate 44 44 — Total real estate 205 206 27 Consumer: Equity loans and lines of credit 1,098 1,103 54 Total with an allowance recorded 1,392 1,399 90 Total $ 5,909 $ 6,482 $ 90 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 June 30, 2019 and 2018 (in thousands). Three Months Ended June 30, 2019 Three Months Ended June 30, 2018 Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized With no related allowance recorded: Commercial: Commercial and industrial $ 223 $ — $ 327 $ — Real estate: Owner occupied 209 — — — Real estate construction and other land loans 1,058 16 2,914 22 Commercial real estate 1,417 12 1,727 13 Agricultural real estate — — 2,288 119 Other real estate — — 1,142 — Total real estate 2,684 28 8,071 154 Consumer: Equity loans and lines of credit 739 1 197 — Total with no related allowance recorded 3,646 29 8,595 154 With an allowance recorded: Commercial: Commercial and industrial 70 — 56 1 Real estate: Commercial real estate 428 3 165 3 Agricultural real estate 44 1 51 1 Total real estate 472 4 216 4 Consumer: Equity loans and lines of credit 1,099 14 1,020 14 Consumer and installment 17 — 3 — Total consumer 1,116 14 1,023 14 Total with an allowance recorded 1,658 18 1,295 19 Total $ 5,304 $ 47 $ 9,890 $ 173 The following tables present by class, information related to the average recorded investment and interest income recognized on impaired loans for the six months ended June 30, 2019 and 2018 (in thousands). Six Months Ended June 30, 2019 Six Months Ended June 30, 2018 Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized With no related allowance recorded: Commercial: Commercial and industrial $ 236 $ — $ 337 $ — Real estate: Owner occupied 211 — — — Real estate construction and other land loans 1,715 32 2,951 45 Commercial real estate 1,313 25 1,629 26 Agricultural real estate — — 1,307 119 Other real estate — — 985 — Total real estate 3,239 57 6,872 190 Consumer: Equity loans and lines of credit 527 2 196 — Total with no related allowance recorded 4,002 59 7,405 190 With an allowance recorded: Commercial: Commercial and industrial 77 1 52 2 Agricultural land and production — — — — Total commercial 77 1 52 2 Real estate: Owner occupied — — — — Commercial real estate 472 6 232 3 Agricultural real estate 44 1 51 1 Total real estate 516 7 283 4 Consumer: Equity loans and lines of credit 1,102 28 1,010 29 Consumer and installment 9 — 6 — Total consumer 1,111 28 1,016 29 Total with an allowance recorded 1,704 36 1,351 35 Total $ 5,706 $ 95 $ 8,756 $ 225 Foregone interest on nonaccrual loans totaled $85,000 and $187,000 for the six month periods ended June 30, 2019 and 2018 , respectively. Foregone interest on nonaccrual loans totaled 53,000 and 89,000 for the three month periods ended June 30, 2019 and 2018 , respectively. Troubled Debt Restructurings: As of June 30, 2019 and December 31, 2018 , the Company has a recorded investment in troubled debt restructurings of $3,125,000 and $3,220,000 , respectively. The Company has allocated $62,000 and $50,000 of specific reserves to loans whose terms have been modified in troubled debt restructurings as of June 30, 2019 and December 31, 2018 , respectively. The Company has committed to lend no additional amounts as of June 30, 2019 to customers with outstanding loans that are classified as troubled debt restructurings. During the six months ended June 30, 2019 two loans were modified as troubled debt restructuring. 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 six months ended June 30, 2019 (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 Consumer: Equity loans and lines of credit 2 $ 132 $ — $ 132 $ 128 Total 2 $ 132 $ — $ 132 $ 128 (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, 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 $ 36 Real Estate: Commercial real estate 1 166 — 166 165 Agricultural real estate 1 3,050 — 3,050 3,050 Total real estate 2 3,216 — 3,216 3,215 Total 3 $ 3,254 $ — $ 3,254 $ 3,251 The following table presents loans by class modified as troubled debt restructurings that occurred during the three months ended June 30, 2019 (in thousands): Troubled Debt Restructuring Number of Loans Pre-Modification Outstanding Recorded Investment (1) Principal Modification (2) Post Modification Outstanding Recorded Investment (3) Outstanding Recorded Investment Consumer: Equity loans and lines of credit 1 $ 119 — $ 119 $ 115 The following table presents loans by class modified as troubled debt restructurings that occurred during the three months ended June 30, 2018 (in thousands): Troubled Debt Restructuring 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 $ 3,050 $ 3,050 $ 3,050 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 and three months ended June 30, 2019 or June 30, 2018 . |