Loans and Allowance for Loan Losses | NOTE 3 – LOANS AND ALLOWANCE FOR LOAN LOSSES Categories of loans at June 30, 2017 and December 31, 2016 include: June 30, 2017 December 31, 2016 Commercial real estate $ 640,539 $ 593,108 Commercial and industrial 360,687 348,465 Residential real estate 326,097 338,387 Agricultural real estate 69,371 38,331 Consumer 43,241 40,902 Agricultural 89,461 24,412 Total loans 1,529,396 1,383,605 Allowance for loan losses (7,568 ) (6,432 ) Net loans $ 1,521,828 $ 1,377,173 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. As of June 30, 2017 and December 31, 2016, the Company had balances of $10,000 and $10,000 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 June 30, 2017 and December 31, 2016, residential real estate loans include $82,239 and $90,705 of purchased residential real estate loans from these pools of residential real estate loans. The unamortized balance of merger purchase accounting adjustments related to non-purchase credit impaired loans included in the loan totals above are $2,518 at June 30, 2017, and $3,043 at December 31, 2016. Over-draft deposit accounts are reclassified and included in consumer loans above. These accounts totaled $894 at June 30, 2017 and $567 at December 31, 2016. The following tables present the activity in the allowance for loan losses by class for the three-month periods ended June 30, 2017 and 2016: June 30, 2017 Commercial Real Estate Commercial and Industrial Residential Real Estate Agricultural Real Estate Consumer Agricultural Total Allowance for loan losses: Beginning balance $ 2,592 $ 2,059 $ 1,875 $ 66 $ 391 $ 65 $ 7,048 Provision for loan losses (245 ) 397 58 46 298 74 628 Loans charged-off (29 ) (409 ) (27 ) (3 ) (242 ) — (710 ) Recoveries 406 23 93 — 75 5 602 Total ending allowance balance $ 2,724 $ 2,070 $ 1,999 $ 109 $ 522 $ 144 $ 7,568 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 The following tables present the activity in the allowance for loan losses by class for the six-month periods ended June 30, 2017 and 2016: June 30, 2017 Commercial Real Estate Commercial and Industrial Residential Real Estate Agricultural Real Estate Consumer Agricultural Total Allowance for loan losses: Beginning balance $ 2,420 $ 1,881 $ 1,765 $ 35 $ 266 $ 65 $ 6,432 Provision for loan losses (78 ) 585 374 77 650 115 1,723 Loans charged-off (92 ) (422 ) (238 ) (3 ) (601 ) (41 ) (1,397 ) Recoveries 474 26 98 — 207 5 810 Total ending allowance balance $ 2,724 $ 2,070 $ 1,999 $ 109 $ 522 $ 144 $ 7,568 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 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, 2017 and December 31, 2016: June 30, 2017 Commercial Real Estate Commercial and Industrial Residential Real Estate Agricultural Real Estate Consumer Agricultural Total Allowance for loan losses: Individually evaluated for impairment $ 204 $ 51 $ 358 $ 34 $ 35 $ 28 $ 710 Collectively evaluated for impairment 2,515 2,019 1,592 69 486 116 6,797 Purchase credit impaired loans 5 — 49 6 1 — 61 Total $ 2,724 $ 2,070 $ 1,999 $ 109 $ 522 $ 144 $ 7,568 Loan Balance: Individually evaluated for impairment $ 2,837 $ 1,542 $ 3,979 $ 398 $ 352 $ 292 $ 9,400 Collectively evaluated for impairment 627,923 354,760 320,081 65,255 42,883 85,326 1,496,228 Purchase credit impaired loans 9,779 4,385 2,037 3,718 6 3,843 23,768 Total $ 640,539 $ 360,687 $ 326,097 $ 69,371 $ 43,241 $ 89,461 $ 1,529,396 December 31, 2016 Commercial Real Estate Commercial and Industrial Residential Real Estate Agricultural Real Estate Consumer Agricultural Total Allowance for loan losses: Individually evaluated for impairment $ 270 $ 22 $ 288 $ 2 $ 45 $ — $ 627 Collectively evaluated for impairment 2,150 1,859 1,477 33 221 65 5,805 Purchase credit impaired loans — — — — — — — Total $ 2,420 $ 1,881 $ 1,765 $ 35 $ 266 $ 65 $ 6,432 Loan Balance: Individually evaluated for impairment $ 3,182 $ 550 $ 3,321 $ 834 $ 429 $ 3 $ 8,319 Collectively evaluated for impairment 577,863 344,414 332,962 36,668 40,471 24,409 1,356,787 Purchase credit impaired loans 12,063 3,501 2,104 829 2 — 18,499 Total $ 593,108 $ 348,465 $ 338,387 $ 38,331 $ 40,902 $ 24,412 $ 1,383,605 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, 2017 and December 31, 2016. The recorded investment in loans excludes accrued interest receivable due to immateriality. June 30, 2017 December 31, 2016 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 $ 1,023 $ 1,005 $ — $ 904 $ 676 $ — Commercial and industrial 1,231 1,025 — 510 309 — Residential real estate 648 397 — 1,230 980 — Agricultural real estate 62 62 — 824 812 — Consumer 29 — — 53 51 — Agricultural 12 12 — — — — Subtotal 3,005 2,501 — 3,521 2,828 — With an allowance recorded: Commercial real estate 2,388 1,884 209 4,493 2,506 270 Commercial and industrial 545 517 51 265 240 22 Residential real estate 4,330 4,072 407 2,433 2,341 288 Agricultural real estate 503 399 40 23 23 2 Consumer 458 358 36 449 378 45 Agricultural 280 280 28 3 3 — Subtotal 8,504 7,510 771 7,666 5,491 627 Total $ 11,509 $ 10,011 $ 771 $ 11,187 $ 8,319 $ 627 The tables below present average recorded investment and interest income related to impaired loans for the three months and six months ended June 30, 2017 and 2016. 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, 2017 June 30, 2016 Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized With no related allowance recorded: Commercial real estate $ 1,099 $ — $ 1,464 $ 4 Commercial and industrial 1,034 — 716 — Residential real estate 330 1 652 3 Agricultural real estate 31 12 698 — Consumer — — 14 — Agricultural 7 — 104 1 Subtotal 2,501 13 3,648 8 With an allowance recorded: Commercial real estate 2,229 7 2,036 4 Commercial and industrial 558 — 117 — Residential real estate 3,563 13 911 3 Agricultural real estate 339 — — — Consumer 383 2 217 5 Agricultural 150 — 61 — Subtotal 7,222 22 3,342 12 Total $ 9,723 $ 35 $ 6,990 $ 20 As of and for the six months ended June 30, 2017 June 30, 2016 Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized With no related allowance recorded: Commercial real estate $ 841 $ 7 $ 1,233 $ 4 Commercial and industrial 667 3 845 — Residential real estate 688 1 662 3 Agricultural real estate 437 12 399 — Consumer 26 — 16 — Agricultural 6 — 100 1 Subtotal 2,665 23 3,255 8 With an allowance recorded: Commercial real estate 2,195 9 2,516 4 Commercial and industrial 378 1 109 — Residential real estate 3,207 15 877 3 Agricultural real estate 211 — — — Consumer 368 2 177 5 Agricultural 141 — 35 — Subtotal 6,500 27 3,714 12 Total $ 9,165 $ 50 $ 6,969 $ 20 The following tables present the aging of the recorded investment in past due loans as of June 30, 2017 and December 31, 2016, by portfolio and class of loans: June 30, 2017 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 $ 651 $ 14 $ 250 $ 6,980 $ 632,644 $ 640,539 Commercial and industrial 255 387 — 5,922 354,123 360,687 Residential real estate 18 709 — 4,849 320,521 326,097 Agricultural real estate 26 — — 3,638 65,707 69,371 Consumer 293 91 — 358 42,499 43,241 Agricultural 608 — 21 4,135 84,697 89,461 Total $ 1,851 $ 1,201 $ 271 $ 25,882 $ 1,500,191 $ 1,529,396 December 31, 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 $ 2,955 $ 788 $ — $ 12,258 $ 577,107 $ 593,108 Commercial and industrial 419 — — 4,051 343,995 348,465 Residential real estate 368 847 — 4,285 332,887 338,387 Agricultural real estate — — — 1,664 36,667 38,331 Consumer 303 43 — 432 40,124 40,902 Agricultural 52 — — 3 24,357 24,412 Total $ 4,097 $ 1,678 $ — $ 22,693 $ 1,355,137 $ 1,383,605 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, 2017 and December 31, 2016: June 30, 2017 Unclassified Classified Total Commercial real estate $ 616,362 $ 24,177 $ 640,539 Commercial and industrial 346,510 14,177 360,687 Residential real estate 321,091 5,006 326,097 Agricultural real estate 63,906 5,465 69,371 Consumer 42,871 370 43,241 Agricultural 85,168 4,293 89,461 Total $ 1,475,908 $ 53,488 $ 1,529,396 December 31, 2016 Unclassified Classified Total Commercial real estate $ 576,070 $ 17,038 $ 593,108 Commercial and industrial 341,307 7,158 348,465 Residential real estate 333,298 5,089 338,387 Agricultural real estate 36,190 2,141 38,331 Consumer 40,382 520 40,902 Agricultural 24,134 278 24,412 Total $ 1,351,381 $ 32,224 $ 1,383,605 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, 2017 and December 31, 2016 were as follows: June 30, 2017 December 31, 2016 Contractually required principal payments $ 32,584 $ 27,413 Discount (8,816 ) (8,914 ) Recorded investment $ 23,768 $ 18,499 The remaining estimated accretable yield associated with these loans was $1,920 and $1,063 as of June 30, 2017 and December 31, 2016. The interest income recognized on these loans for the three-month and six-month periods ended June 30, 2017 and 2016 was $699, $1,412, $86 and $238. For the three-month and six periods ended June 30, 2017 there was an $8 provision for loan loss reversal and a $61 provision for loan losses recorded for these loans. For the three and six-month periods ended June 30, 2016, there was a provision for loan losses of $0 and $0 recorded for these loans. Troubled Debt Restructurings The Company had no loans modified under troubled debt restructurings as of June 30, 2017 or December 31, 2016. |