Loans and Allowance for Loan Losses | NOTE 3 – LOANS AND ALLOWANCE FOR LOAN LOSSES Categories of loans at June 30, 2016 and December 31, 2015 include: June 30, 2016 December 31, 2015 Commercial real estate $ 413,499 $ 397,017 Commercial and industrial 253,468 262,032 Residential real estate 262,387 250,216 Agricultural real estate 16,565 18,180 Consumer 17,899 17,103 Agricultural 16,292 15,807 Total loans 980,110 960,355 Allowance for loan losses (6,030 ) (5,506 ) Net loans $ 974,080 $ 954,849 The Company has participated 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. The Company ceased participation in the program during 2016, and at June 30, 2016 and December 31, 2015, the Company had balances of $- 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. In the quarter ended June 30, 2016, the Company purchased a pool of residential real estate loans totaling $19,641. As of June 30, 2016 and December 31, 2015, residential real estate loans include $88,326 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 $301 at June 30, 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 June 30, 2016 and 2015: June 30, 2016 Commercial Real Estate Commercial and Industrial Residential Real Estate Agricultural Real Estate Consumer Agricultural Total Allowance for loan losses: Beginning balance $ 2,275 $ 1,563 $ 1,940 $ 41 $ 79 $ 82 $ 5,980 Provision for loan losses 196 16 157 — 182 (19 ) 532 Loans charged-off ( 190 ) (7 ) (200 ) — (153 ) — (550 ) Recoveries 27 2 20 — 19 — 68 Total ending allowance balance $ 2,308 $ 1,574 $ 1,917 $ 41 $ 127 $ 63 $ 6,030 June 30, 2015 Commercial Real Estate Commercial and Industrial Residential Real Estate Agricultural Real Estate Consumer Agricultural Total Allowance for loan losses: Beginning balance $ 3,079 $ 1,959 $ 1,267 $ 138 $ 56 $ 66 $ 6,565 Provision for loan losses 256 267 143 (113 ) 76 (24 ) 605 Loans charged-off (1,428 ) (2 ) (72 ) — (59 ) — (1,561 ) Recoveries 6 4 7 — 17 — 34 Total ending allowance balance $ 1,913 $ 2,228 $ 1,345 $ 25 $ 90 $ 42 $ 5,643 The following tables present the activity in the allowance for loan losses by class for the six-month periods ended June 30, 2016 and 2015: June 30, 2016 Commercial Real Estate Commercial and Industrial Residential Real Estate Agricultural Real Estate Consumer Agricultural Total Allowance for loan losses: Beginning balance $ 2,051 $ 1,366 $ 1,824 $ 29 $ 187 $ 49 $ 5,506 Provision for loan losses 449 261 315 35 179 16 1,255 Loans charged-off (224 ) (62 ) (248 ) (23 ) (281 ) (3 ) (841 ) Recoveries 32 9 26 — 42 1 110 Total ending allowance balance $ 2,308 $ 1,574 $ 1,917 $ 41 $ 127 $ 63 $ 6,030 June 30, 2015 Commercial Real Estate Commercial and Industrial Residential Real Estate Agricultural Real Estate Consumer Agricultural Total Allowance for loan losses: Beginning balance $ 2,897 $ 1,559 $ 1,190 $ 148 $ 81 $ 88 $ 5,963 Provision for loan losses 430 670 303 (123 ) 96 (46 ) 1,330 Loans charged-off (1,456 ) (8 ) (156 ) — (119 ) — (1,739 ) Recoveries 42 7 8 — 32 — 89 Total ending allowance balance $ 1,913 $ 2,228 $ 1,345 $ 25 $ 90 $ 42 $ 5,643 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 June 30, 2016 and December 31, 2015: June 30, 2016 Commercial Real Estate Commercial and Industrial Residential Real Estate Agricultural Real Estate Consumer Agricultural Total Allowance for loan losses: Individually evaluated for impairment $ 238 $ 6 $ 73 $ — $ 26 $ — $ 343 Collectively evaluated for impairment 2,070 1,568 1,844 41 101 63 5,687 Purchase credit impaired loans — — — — — — — Total $ 2,308 $ 1,574 $ 1,917 $ 41 $ 127 $ 63 $ 6,030 Loan Balance: Individually evaluated for impairment $ 2,029 $ 770 $ 1,710 $ 656 $ 314 $ 236 $ 5,715 Collectively evaluated for impairment 407,569 252,698 259,411 15,909 17,576 16,056 969,219 Purchase credit impaired loans 3,901 — 1,266 — 9 — 5,176 Total $ 413,499 $ 253,468 $ 262,387 $ 16,565 $ 17,899 $ 16,292 $ 980,110 December 31, 2015 Commercial Real Estate Commercial and Industrial Residential Real Estate Agricultural Real Estate Consume 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 June 30, 2016 and December 31, 2015. The recorded investment in loans excludes accrued interest receivable due to immateriality. June 30, 2016 December 31, 2015 Unpaid Principal Balance Recorded Investment Allowance for Loan Losses Allocated Unpaid Principal Balance Recorded Investment Allowance for Loan Losses Allocated With no related allowance recorded: Commercial real estate $ 4,179 $ 1,962 $ — $ 563 $ 536 $ — Commercial and industrial 1,668 710 — 2,668 1,119 — Residential real estate 1,169 921 — 984 585 — Agricultural real estate 696 656 — — — — Consumer 115 50 — — — — Agricultural 241 236 — 95 95 — Subtotal 8,068 4,535 — 4,310 2,335 — With an allowance recorded: Commercial real estate 927 897 238 4,217 3,176 190 Commercial and industrial 66 60 6 93 63 6 Residential real estate 823 789 73 697 660 66 Agricultural real estate — — — — — — Consumer 319 264 26 75 72 7 Agricultural — — — — — — Subtotal 2,135 2,010 343 5,082 3,971 269 Total $ 10,203 $ 6,545 $ 343 $ 9,392 $ 6,306 $ 269 The table below presents average recorded investment and interest income related to impaired loans for the three months ended June 30, 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 and for the three months ended June 30, 2016 June 30, 2015 Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized With no related allowance recorded: Commercial real estate $ 1,464 $ 4 $ 795 $ 7 Commercial and industrial 716 — 555 7 Residential real estate 652 3 675 — Agricultural real estate 698 — 83 — Consumer 14 — — — Agricultural 104 1 ― — Subtotal 3,648 8 2,108 14 With an allowance recorded: Commercial real estate 2,036 4 3,513 5 Commercial and industrial 117 — 1,690 22 Residential real estate 911 3 611 2 Agricultural real estate — — 84 — Consumer 217 5 38 — Agricultural 61 — — — Subtotal 3,342 12 5,936 29 Total $ 6,990 $ 20 $ 8,044 $ 43 The table below presents average recorded investment and interest income related to impaired loans for the six months ended June 30, 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 and for the six months ended June 30, 2016 June 30, 2015 Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized With no related allowance recorded: Commercial real estate $ 1,233 $ 4 $ 1,091 $ 8 Commercial and industrial 845 ― 536 7 Residential real estate 662 3 627 — Agricultural real estate 399 — 95 — Consumer 16 — 4 — Agricultural 100 1 ― — Subtotal 3,255 8 2,353 15 With an allowance recorded: Commercial real estate 2,516 4 4,441 5 Commercial and industrial 109 ― 1,514 26 Residential real estate 877 3 719 2 Agricultural real estate ― — 111 — Consumer 177 5 30 — Agricultural 35 — — — Subtotal 3,714 12 6,815 33 Total $ 6,969 $ 20 $ 9,168 $ 48 The following tables present the aging of the recorded investment in past due loans as of June 30, 2016 and December 31, 2015, by portfolio and class of loans: June 30, 2016 30 - 59 Days Past Due 60 - 89 Days Past Due Greater Than 90 Days Past Due Still On Accrual Nonaccrual Loans Not Past Due Total Commercial real estate $ 840 $ — $ — $ 3,403 $ 409,256 $ 413,499 Commercial and industrial 135 — — 770 252,563 253,468 Residential real estate 137 824 — 2,467 258,959 262,387 Agricultural real estate — — — 656 15,909 16,565 Consumer 72 2 — 323 17,502 17,899 Agricultural — — — 236 16,056 16,292 Total $ 1,184 $ 826 $ — $ 7,855 $ 970,245 $ 980,110 December 31, 2015 30 - 59 Days Past Due 60 - 89 Days Past Due Greater Than 90 Days Past Due Still On Accrual Nonaccrual Loans Not Past Due 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: Pass Special Mention Substandard Doubtful The risk category of loans by class of loans is as follows as of June 30, 2016 and December 31, 2015: June 30, 2016 Pass Special Mention Substandard Doubtful Total Commercial real estate $ 406,266 $ — $ 7,233 $ — $ 413,499 Commercial and industrial 252,826 — 642 — 253,468 Residential real estate 259,592 — 2,795 — 262,387 Agricultural real estate 15,552 — 1,013 — 16,565 Consumer 17,587 — 312 — 17,899 Agricultural 16,052 — 240 — 16,292 Total $ 967,875 $ — $ 12,235 $ — $ 980,110 December 31, 2015 Pass Special Mention 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 June 30, 2016 and December 31, 2015 were as follows: June 30, 2016 December 31, 2015 Contractually required principal payments $ 6,759 $ 7,550 Discount (1,583 ) (1,794 ) Recorded investment $ 5,176 $ 5,756 The accretable yield associated with these loans was $818 and $935 as of June 30, 2016 and December 31, 2015. The interest income recognized on these loans for the three-month and six-month periods ended June 30, 2016 and 2015 was $86, $238, $204 and $371. For the three-month and six-month periods ended June 30, 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 June 30, 2016 or December 31, 2015. |