Loans and Allowance for Loan Losses | NOTE 3 – LOANS AND ALLOWANCE FOR LOAN LOSSES Categories of loans at March 31, 2016 and December 31, 2015 include: March 31, December 31, Commercial real estate $ 397,501 $ 397,017 Commercial and industrial 247,097 262,032 Residential real estate 243,727 250,216 Agricultural real estate 16,749 18,180 Consumer 17,487 17,103 Agricultural 15,494 15,807 Total loans 938,055 960,355 Allowance for loan losses (5,980 ) (5,506 ) Net loans $ 932,075 $ 954,849 In 2015, the Company began to participate in mortgage finance loans with another institution, “the originator.” 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. As of March 31, 2016 and December 31, 2015, the Company had balances of $2,605 and $18,852 in mortgage finance loans classified as commercial and industrial. From time to time the Company has purchased pools of residential real estate loans originated by other financial institutions to hold for investment with the intent to diversify the residential real estate portfolio. As of March 31, 2016 and December 31, 2015, residential real estate loans include $72,621 and $74,738 of purchased residential real estate loans from these pools of residential real estate loans. Over-draft deposit accounts are reclassified and included in consumer loans above. These accounts totaled $246 at March 31, 2016 and $280 at December 31, 2015. The following tables present the activity in the allowance for loan losses by class for the three-month periods ended March 31, 2016 and 2015: March 31, 2016 Commercial Commercial Residential Agricultural Consumer Agricultural Total Allowance for loan losses: Beginning balance $ 2,051 $ 1,366 $ 1,824 $ 29 $ 187 $ 49 $ 5,506 Provision for loan losses 253 245 158 35 (3 ) 35 723 Loans charged-off (34 ) (55 ) (48 ) (23 ) (128 ) (3 ) (291 ) Recoveries 5 7 6 — 23 1 42 Total ending allowance balance $ 2,275 $ 1,563 $ 1,940 $ 41 $ 79 $ 82 $ 5,980 March 31, 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 174 403 160 (10 ) 20 (22 ) 725 Loans charged-off (28 ) (6 ) (84 ) — (60 ) — (178 ) Recoveries 36 3 1 — 15 — 55 Total ending allowance balance $ 3,079 $ 1,959 $ 1,267 $ 138 $ 56 $ 66 $ 6,565 The following tables present the recorded investment in loans and the balance in the allowance for loan losses by portfolio and class based on impairment method as of March 31, 2016 and December 31, 2015: March 31, 2016 Commercial Commercial Residential Agricultural Consumer Agricultural Total Allowance for loan losses: Individually evaluated for impairment $ 325 $ 26 $ 60 $ — $ 18 $ 25 $ 454 Collectively evaluated for impairment 1,950 1,537 1,880 41 61 57 5,526 Purchase credit impaired loans — — — — — — — Total $ 2,275 $ 1,563 $ 1,940 $ 41 $ 79 $ 82 $ 5,980 Loan Balance: Individually evaluated for impairment $ 3,561 $ 854 $ 1,363 $ 744 $ 179 $ 92 $ 6,793 Collectively evaluated for impairment 389,990 246,243 241,015 16,005 17,299 15,402 925,954 Purchase credit impaired loans 3,950 — 1,349 — 9 — 5,308 Total $ 397,501 $ 247,097 $ 243,727 $ 16,749 $ 17,487 $ 15,494 $ 938,055 December 31, 2015 Commercial Commercial Residential Agricultural Consumer Agricultural Total Allowance for loan losses: Individually evaluated for impairment $ 190 $ 6 $ 66 $ — $ 7 $ — $ 269 Collectively evaluated for impairment 1,861 1,360 1,758 29 180 49 5,237 Purchase credit impaired loans — — — — — — — Total $ 2,051 $ 1,366 $ 1,824 $ 29 $ 187 $ 49 $ 5,506 Loan Balance: Individually evaluated for impairment $ 2,893 $ 1,182 $ 1,491 $ — $ 72 $ 95 $ 5,733 Collectively evaluated for impairment 389,756 260,850 247,368 18,180 17,000 15,712 948,866 Purchase credit impaired loans 4,368 — 1,357 — 31 — 5,756 Total $ 397,017 $ 262,032 $ 250,216 $ 18,180 $ 17,103 $ 15,807 $ 960,355 The following table presents information related to impaired loans, excluding purchased credit impaired loans which have not deteriorated since acquisition, by class of loans as of and for the three months ended March 31, 2016: March 31, 2016 December 31, 2015 Unpaid Recorded Allowance for Unpaid Recorded Allowance for With no related allowance recorded: Commercial real estate $ 1,868 $ 1,502 $ — $ 563 $ 536 $ — Commercial and industrial 1,668 720 — 2,668 1,119 — Residential real estate 1,159 699 — 984 585 — Agricultural real estate 744 744 — — — — Consumer — — — — — — Agricultural — — — 95 95 — Subtotal 5,439 3,665 — 4,310 2,335 — With an allowance recorded: Commercial real estate 3,673 2,891 325 4,217 3,176 190 Commercial and industrial 136 134 26 93 63 6 Residential real estate 706 664 60 697 660 66 Agricultural real estate — — — — — — Consumer 187 179 18 75 72 7 Agricultural 94 92 25 — — — Subtotal 4,796 3,960 454 5,082 3,971 269 Total $ 10,235 $ 7,625 $ 454 $ 9,392 $ 6,306 $ 269 The table below presents average recorded investment and interest income related to impaired loans for the three months ended March 31, 2016 and 2015. Interest income recognized in the following table was substantially recognized on the cash basis. The recorded investment in loans excludes accrued interest receivable due to immateriality. As of the three months ended March 31, 2016 March 31, 2015 Average Interest Average Interest With no related allowance recorded: Commercial real estate $ 1,068 $ — $ 1,380 $ 1 Commercial and industrial 944 — 507 — Residential real estate 681 — 547 — Agricultural real estate 186 — 110 — Consumer 13 — 7 — Agricultural 71 — — — Subtotal 2,963 — 2,551 1 With an allowance recorded: Commercial real estate 3,091 — 5,694 — Commercial and industrial 107 — 1,340 4 Residential real estate 789 — 845 — Agricultural real estate — — 148 — Consumer 139 — 24 — Agricultural 23 — — — Subtotal 4,149 — 8,051 4 Total $ 7,112 $ — $ 10,602 $ 5 The following tables present the aging of the recorded investment in past due loans as of March 31, 2016 and December 31, 2015, by portfolio and class of loans: March 31, 2016 30 - 59 60 - 89 Greater Than Nonaccrual Loans Not Total Commercial real estate $ 354 $ — $ — $ 4,960 $ 392,187 $ 397,501 Commercial and industrial 9 17 — 854 246,217 247,097 Residential real estate 156 671 — 2,200 240,700 243,727 Agricultural real estate — — — 744 16,005 16,749 Consumer 66 63 — 188 17,170 17,487 Agricultural — 152 — 92 15,250 15,494 Total $ 585 $ 903 $ — $ 9,038 $ 927,529 $ 938,055 December 31, 2015 30 - 59 60 - 89 Greater Than Nonaccrual Loans Not Total Commercial real estate $ 645 $ 108 $ — $ 4,448 $ 391,816 $ 397,017 Commercial and industrial 2 164 — 1,182 260,684 262,032 Residential real estate 166 545 35 2,369 247,101 250,216 Agricultural real estate 138 — — — 18,042 18,180 Consumer 96 97 — 103 16,807 17,103 Agricultural — — — 95 15,712 15,807 Total $ 1,047 $ 914 $ 35 $ 8,197 $ 950,162 $ 960,355 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 March 31, 2016 and December 31, 2015: March 31, 2016 Pass Special Substandard Doubtful Total Commercial real estate $ 388,722 $ — $ 8,779 $ — $ 397,501 Commercial and industrial 246,078 — 1,019 — 247,097 Residential real estate 241,198 — 2,529 — 243,727 Agricultural real estate 15,636 — 1,113 — 16,749 Consumer 17,299 — 188 — 17,487 Agricultural 15,397 — 97 — 15,494 Total $ 924,330 $ — $ 13,725 $ — $ 938,055 December 31, 2015 Pass Special Substandard Doubtful Total Commercial real estate $ 386,917 $ — $ 10,100 $ — $ 397,017 Commercial and industrial 260,669 — 1,363 — 262,032 Residential real estate 246,901 — 3,315 — 250,216 Agricultural real estate 17,810 — 370 — 18,180 Consumer 17,000 — 103 — 17,103 Agricultural 15,707 — 100 — 15,807 Total $ 945,004 $ — $ 15,351 $ — $ 960,355 Purchased Credit Impaired Loans The Company has acquired 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 March 31, 2016 and December 31, 2015 were as follows: March 31, December 31, Contractually required principal payments $ 6,962 $ 7,550 Discount (1,654 ) (1,794 ) Recorded investment $ 5,308 $ 5,756 The accretable yield associated with these loans was $838 and $935 as of March 31, 2016 and December 31, 2015. The interest income recognized on these loans for the three-month periods ended March 31, 2016 and 2015 was $152 and $166. For the three- month periods ended March 31, 2016 and 2015, no provision for loan losses was recorded for these loans. Troubled Debt Restructurings The Company had no loans modified under troubled debt restructurings as of March 31, 2016 or December 31, 2015. |