Loans and Allowance for Loan Losses | NOTE 3 – LOANS AND ALLOWANCE FOR LOAN LOSSES Categories of loans at September 30, 2015 and December 31, 2014 include: September, December 31, Commercial real estate $ 371,488 $ 363,467 Commercial and industrial 255,233 183,100 Residential real estate 183,775 134,455 Agricultural real estate 18,104 17,083 Consumer 10,826 7,875 Agricultural 15,628 19,267 Total loans 855,054 725,247 Allowance for loan losses (5,038 ) (5,963 ) Net loans $ 850,016 $ 719,284 In 2015, the Company began a participatory relationship with another institution in mortgage finance loans. These mortgage finance loans consist of ownership interests purchased in single family residential mortgages funded through the originator’s mortgage finance group. These loans are typically on the Company’s balance sheet for 10 to 20 days. The originator has mortgage lenders and purchase interests in individual loans they originate. As of September 30, 2015, the Company had balances of $20.0 million in mortgage finance loans classified as commercial and industrial. Over-draft deposit accounts are reclassified and included in consumer loans above. These accounts totaled $283 at September 30, 2015 and $224 at December 31, 2014. The following tables present the activity in the allowance for loan losses by portfolio segment and class for the three months ended September 30, 2015 and 2014: September 30, 2015 Commercial Commercial Residential Agricultural Consumer Agricultural Total Allowance for loan losses: Beginning balance $ 1,913 $ 2,228 $ 1,345 $ 25 $ 90 $ 42 $ 5,643 Provision for loan losses (44 ) 493 20 (2 ) 68 2 537 Loans charged-off (8 ) (1,181 ) (2 ) — (64 ) — (1,255 ) Recoveries 79 — 18 — 15 1 113 Total ending allowance balance $ 1,940 $ 1,540 $ 1,381 $ 23 $ 109 $ 45 $ 5,038 September 30, 2014 Commercial Commercial Residential Agricultural Consumer Agricultural Total Allowance for loan losses: Beginning balance $ 3,009 $ 1,478 $ 1,297 $ 153 $ 51 $ 114 $ 6,102 Provision for loan losses 225 (358 ) 358 8 52 15 300 Loans charged-off (7 ) — (238 ) — (131 ) (19 ) (395 ) Recoveries 4 4 11 — 80 1 100 Total ending allowance balance $ 3,231 $ 1,124 $ 1,428 $ 161 $ 52 $ 111 $ 6,107 The following tables present the activity in the allowance for loan losses by portfolio segment and class for the nine months ended September 30, 2015 and 2014: September 30, 2015 Commercial Commercial Residential Agricultural Consumer Agricultural Total Allowance for loan losses: Beginning balance $ 2,897 $ 1,559 $ 1,190 $ 148 $ 81 $ 88 $ 5,963 Provision for loan losses 387 1,164 321 (125 ) 164 (44 ) 1,867 Loans charged-off (1,464 ) (1,190 ) (158 ) — (182 ) — (2,994 ) Recoveries 120 7 28 — 46 1 202 Total ending allowance balance $ 1,940 $ 1,540 $ 1,381 $ 23 $ 109 $ 45 $ 5,038 September 30, 2014 Commercial Commercial Residential Agricultural Consumer Agricultural Total Allowance for loan losses: Beginning balance $ 2,866 $ 990 $ 1,360 $ 217 $ 63 $ 118 $ 5,614 Provision for loan losses 303 145 736 (56 ) 61 11 1,200 Loans charged-off (7 ) (46 ) (801 ) — (251 ) (20 ) (1,125 ) Recoveries 69 35 133 — 179 2 418 Total ending allowance balance $ 3,231 $ 1,124 $ 1,428 $ 161 $ 52 $ 111 $ 6,107 The following tables present the recorded investment in loans and the balance in the allowance for loan losses by portfolio segment and class based on impairment method as of September 30, 2015 and December 31, 2014: Loan Balance Allowance for Loan Losses September 30, 2015 Individually Collectively Total Individually Collectively Total Commercial real estate $ 3,619 $ 367,869 $ 371,488 $ 219 $ 1,721 $ 1,940 Commercial and industrial 1,629 253,604 255,233 214 1,326 1,540 Residential real estate 1,263 182,512 183,775 166 1,215 1,381 Agricultural real estate — 18,104 18,104 — 23 23 Consumer 26 10,800 10,826 2 107 109 Agricultural — 15,628 15,628 — 45 45 Total $ 6,537 $ 848,517 $ 855,054 $ 601 $ 4,437 $ 5,038 Loan Balance Allowance for Loan Losses December 31, 2014 Individually Collectively Total Individually Collectively Total Commercial real estate $ 7,267 $ 356,200 $ 363,467 $ 1,044 $ 1,853 $ 2,897 Commercial and industrial 1,710 181,390 183,100 523 1,036 1,559 Residential real estate 1,419 133,036 134,455 95 1,095 1,190 Agricultural real estate 259 16,824 17,083 16 132 148 Consumer 29 7,846 7,875 3 78 81 Agricultural — 19,267 19,267 — 88 88 Total $ 10,684 $ 714,563 $ 725,247 $ 1,681 $ 4,282 $ 5,963 The following tables present information related to impaired loans by segment and class of loans as of and for the nine months ended September 30, 2015 and the year ended December 31, 2014: September 30, 2015 Unpaid Recorded Allowance for Average Interest With no related allowance recorded: Commercial real estate $ 276 $ 275 $ — $ 945 $ 8 Commercial and industrial 1,507 812 — 599 11 Residential real estate 519 284 — 608 — Agricultural real estate — — — 66 — Consumer — — — 3 — Agricultural — — — — — Subtotal 2,302 1,371 — 2,221 19 With an allowance recorded: Commercial real estate 4,179 3,344 219 3,921 42 Commercial and industrial 1,318 817 214 1,655 23 Residential real estate 1,057 979 166 714 12 Agricultural real estate — — — 78 — Consumer 28 26 2 29 — Agricultural — — — — — Subtotal 6,582 5,166 601 6,397 77 Total $ 8,884 $ 6,537 $ 601 $ 8,618 $ 96 The above table presents interest income for the nine months ended September 30, 2015. Interest income recognized for the three months ended September 30, 2015 was not material. Interest income recognized in the above table was substantially recognized on the cash basis. The recorded investment in loans excludes accrued interest receivable due to immateriality. December 31, 2014 Unpaid Recorded Allowance for Average Interest With no related allowance recorded: Commercial real estate $ 2,496 $ 1,837 $ — $ 1,159 $ 64 Commercial and industrial 553 524 — 906 — Residential real estate 778 523 — 1,055 — Agricultural real estate 114 111 — 112 — Consumer — — — 5 — Agricultural — — — — — Subtotal 3,941 2,995 — 3,237 64 With an allowance recorded: Commercial real estate 5,717 5,430 1,044 5,504 21 Commercial and industrial 1,225 1,186 523 284 36 Residential real estate 988 896 95 1,526 14 Agricultural real estate 154 148 16 35 8 Consumer 30 29 3 11 2 Agricultural — — — 12 — Subtotal 8,114 7,689 1,681 7,372 81 Total $ 12,055 $ 10,684 $ 1,681 $ 10,609 $ 145 The above table presents interest income for the twelve months ended December 31, 2014. Interest income recognized for the three and nine months ended September 30, 2014 was not material and the average impaired balance at September 30, 2014 is materially consistent with December 31, 2014. Interest income recognized in the above table was substantially recognized on the cash basis. The recorded investment in loans excludes accrued interest receivable due to immateriality. The following tables present the aging of the recorded investment in past due loans as of September 30, 2015 and December 31, 2014, by segment and class of loans: September 30, 2015 30 - 59 60 - 89 Greater Than Nonaccrual Loans Not Total Commercial real estate $ 2,084 $ 41 $ — $ 3,650 $ 365,713 $ 371,488 Commercial and industrial 224 — 438 1,629 252,942 255,233 Residential real estate 295 162 — 1,300 182,018 183,775 Agricultural real estate — 99 — — 18,005 18,104 Consumer 52 — — 26 10,748 10,826 Agricultural — — — — 15,628 15,628 Total $ 2,655 $ 302 $ 438 $ 6,605 $ 845,054 $ 855,054 December 31, 2014 30 - 59 60 - 89 Greater Than Nonaccrual Loans Not Total Commercial real estate $ 1,010 $ 1,958 $ — $ 7,294 $ 353,205 $ 363,467 Commercial and industrial 83 165 39 1,710 181,103 183,100 Residential real estate 765 497 — 1,499 131,694 134,455 Agricultural real estate — — — 258 16,825 17,083 Consumer 22 — — 29 7,824 7,875 Agricultural — 44 — — 19,223 19,267 Total $ 1,880 $ 2,664 $ 39 $ 10,790 $ 709,874 $ 725,247 Credit Quality Indicators The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. Consumer loans are considered pass credits unless downgraded due to payment status or reviewed as part of a larger credit relationship. The Company uses the following definitions for risk ratings: Special Mention Substandard: Doubtful: The risk category of loans by class of loans is as follows as of September 30, 2015 and December 31, 2014: September 30, 2015 Pass Special Substandard Doubtful Total Commercial real estate $ 359,760 $ — $ 11,728 $ — $ 371,488 Commercial and industrial 252,816 — 2,110 307 255,233 Residential real estate 181,813 — 1,962 — 183,775 Agricultural real estate 17,701 — 403 — 18,104 Consumer 10,800 — 26 — 10,826 Agricultural 15,511 — 117 — 15,628 Total $ 838,401 $ — $ 16,346 $ 307 $ 855,054 December 31, 2014 Pass Special Substandard Doubtful Total Commercial real estate $ 340,224 $ 147 $ 23,096 $ — $ 363,467 Commercial and industrial 181,272 — 1,828 — 183,100 Residential real estate 132,285 — 2,170 — 134,455 Agricultural real estate 16,708 — 375 — 17,083 Consumer 7,846 — 29 — 7,875 Agricultural 15,432 — 3,835 — 19,267 Total $ 693,767 $ 147 $ 31,333 $ — $ 725,247 Purchased Credit Impaired Loans As part of previous acquisitions, the Company has acquired certain loans, for which there was, at acquisition, evidence of deterioration of credit quality since origination and it was probable, at acquisition, that all contractually required payments would not be collected. The recorded investments in purchase credit impaired loans as of September 30, 2015 and December 31, 2014 were as follows: September 30, December 31, Contractually required principal payments $ 5,552 $ 7,278 Discount (1,312 ) (2,167 ) Recorded investment $ 4,240 $ 5,111 For the three month and nine month periods ended September 30, 2015 and 2014, no provision for loan losses was recorded for these loans. The accretable yield associated with these loans as of the period ended September 30, 2015 was $1,139. For the period ended December 31, 2014, the accretable yield was immaterial. For the three month and nine month periods ended September 30, 2015 and 2014 the interest income recognized on these loans was immaterial. Troubled Debt Restructurings Troubled debt restructured loans outstanding as of September 30, 2015 and December 31, 2014 were as follows: September 30, 2015 December 31, 2014 Accruing Nonaccrual Accruing Nonaccrual (Dollars in thousands) Commercial Real Estate $ — $ — $ — $ 265 Total $ — $ — $ — $ 265 |