Loans and Allowance for Loan Losses | NOTE 4 – LOANS AND ALLOWANCE FOR LOAN LOSSES The following table lists categories of loans at December 31, 2019 and 2018. 2019 2018 Commercial real estate $ 1,158,022 $ 1,251,992 Commercial and industrial 592,052 582,527 Residential real estate 503,439 444,540 Agricultural real estate 141,868 139,332 Consumer 68,378 62,894 Agricultural 92,893 94,123 Total loans 2,556,652 2,575,408 Allowance for loan losses (12,232 ) (11,454 ) Net loans $ 2,544,420 $ 2,563,954 During 2019 the Company purchased eight pools of residential real estate loans totaling $130,502. As of December 31, 2019 and 2018, residential real estate loans include $144,554 and $64,558 of purchased residential real estate loans. Overdraft deposit accounts are reclassified and included in consumer loans above. These accounts totaled $815 and $1,279 at December 31, 2019 and 2018. The following tables present the activity in the allowance for loan losses by class for the years ended December 31, 2019, 2018 and 2017. December 31, 2019 Commercial Real Estate Commercial and Industrial Residential Real Estate Agricultural Real Estate Consumer Agricultural Total Allowance for loan losses: Beginning balance $ 4,662 $ 2,707 $ 2,320 $ 391 $ 1,070 $ 304 $ 11,454 Provision for loan losses 1,310 14,193 941 213 1,387 310 18,354 Loans charged-off (2,178 ) (13,911 ) (1,077 ) (43 ) (1,394 ) (87 ) (18,690 ) Recoveries 125 72 492 47 359 19 1,114 Total ending allowance balance $ 3,919 $ 3,061 $ 2,676 $ 608 $ 1,422 $ 546 $ 12,232 December 31, 2018 Commercial Real Estate Commercial and Industrial Residential Real Estate Agricultural Real Estate Consumer Agricultural Total Allowance for loan losses: Beginning balance $ 2,740 $ 2,136 $ 2,262 $ 319 $ 768 $ 273 $ 8,498 Provision for loan losses 1,832 636 97 146 1,188 62 3,961 Loans charged-off (1,779 ) (118 ) (293 ) (93 ) (1,431 ) (43 ) (3,757 ) Recoveries 1,869 53 254 19 545 12 2,752 Total ending allowance balance $ 4,662 $ 2,707 $ 2,320 $ 391 $ 1,070 $ 304 $ 11,454 December 31, 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 (69 ) 651 604 287 1,236 244 2,953 Loans charged-off (271 ) (431 ) (350 ) (16 ) (1,025 ) (42 ) (2,135 ) Recoveries 660 35 243 13 291 6 1,248 Total ending allowance balance $ 2,740 $ 2,136 $ 2,262 $ 319 $ 768 $ 273 $ 8,498 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 December 31, 2019 and 2018. December 31, 2019 Commercial Real Estate Commercial and Industrial Residential Real Estate Agricultural Real Estate Consumer Agricultural Total Allowance for loan losses: Individually evaluated for impairment $ 281 $ 199 $ 303 $ 56 $ 39 $ 57 $ 935 Collectively evaluated for impairment 3,581 2,848 2,352 459 1,383 394 11,017 Purchased credit impaired loans 57 14 21 93 — 95 280 Total $ 3,919 $ 3,061 $ 2,676 $ 608 $ 1,422 $ 546 $ 12,232 Loan Balance: Individually evaluated for impairment $ 4,375 $ 16,335 $ 7,358 $ 584 $ 381 $ 518 $ 29,551 Collectively evaluated for impairment 1,145,701 570,606 493,309 135,776 67,972 90,347 2,503,711 Purchased credit impaired loans 7,946 5,111 2,772 5,508 25 2,028 23,390 Total $ 1,158,022 $ 592,052 $ 503,439 $ 141,868 $ 68,378 $ 92,893 $ 2,556,652 December 31, 2018 Commercial Real Estate Commercial and Industrial Residential Real Estate Agricultural Real Estate Consumer Agricultural Total Allowance for loan losses: Individually evaluated for impairment $ 242 $ 185 $ 391 $ 22 $ 62 $ 10 $ 912 Collectively evaluated for impairment 3,695 2,493 1,861 367 925 293 9,634 Purchased credit impaired loans 725 29 68 2 83 1 908 Total $ 4,662 $ 2,707 $ 2,320 $ 391 $ 1,070 $ 304 $ 11,454 Loan Balance: Individually evaluated for impairment $ 23,323 $ 5,020 $ 4,434 $ 856 $ 678 $ 2,252 $ 36,563 Collectively evaluated for impairment 1,215,173 571,171 437,219 133,415 61,978 89,194 2,508,150 Purchased credit impaired loans 13,496 6,336 2,887 5,061 238 2,677 30,695 Total $ 1,251,992 $ 582,527 $ 444,540 $ 139,332 $ 62,894 $ 94,123 $ 2,575,408 Excluding purchased credit impaired loans, included in the above tables is $624,747, $827,676 and $796,064 of loans purchased at a discount acquired as part of a merger and the discount associated with these loans is $8,287, $11,372 and $7,231 at December 31, 2019, 2018 and 2017. The following table presents information related to impaired loans, excluding those purchased credit impaired loans which have not deteriorated since acquisition, by class of loans as of and for the year ended December 31, 2019. December 31, 2019 Unpaid Principal Balance Recorded Investment Allowance for Loan Losses Allocated Average Recorded Investment Interest Income Recognized With no related allowance recorded: Commercial real estate $ 2,166 $ 2,150 $ — $ 6,372 $ 82 Commercial and industrial 20,152 14,832 — 4,617 11 Residential real estate 4,395 4,324 — 4,193 50 Agricultural real estate 1,610 1,533 — 1,750 — Consumer — — — 25 — Agricultural — — — 240 — Subtotal 28,323 22,839 — 17,197 143 With an allowance recorded: Commercial real estate 3,469 2,749 338 6,262 74 Commercial and industrial 1,845 1,640 213 15,150 21 Residential real estate 3,395 3,244 324 6,221 59 Agricultural real estate 1,142 1,015 149 928 2 Consumer 430 381 39 694 9 Agricultural 1,619 1,359 152 803 2 Subtotal 11,900 10,388 1,215 30,058 167 Total $ 40,223 $ 33,227 $ 1,215 $ 47,255 $ 310 The above table presents interest income for the twelve months ended December 31, 2019. 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 table presents information related to impaired loans, excluding purchased credit impaired loans which have not deteriorated since acquisition, by portfolio and class of loans as of and for the year ended December 31, 2018. December 31, 2018 Unpaid Principal Balance Recorded Investment Allowance for Loan Losses Allocated Average Recorded Investment Interest Income Recognized With no related allowance recorded: Commercial real estate $ 20,940 $ 20,902 $ — $ 5,652 $ 150 Commercial and industrial 3,446 3,396 — 5,629 66 Residential real estate 533 527 — 744 20 Agricultural real estate 2,038 2,035 — 1,364 18 Consumer 61 55 — 32 2 Agricultural 756 756 — 411 18 Subtotal 27,774 27,671 — 13,832 274 With an allowance recorded: Commercial real estate 8,700 7,179 967 2,913 142 Commercial and industrial 2,255 1,911 214 1,068 53 Residential real estate 4,934 4,582 459 4,188 74 Agricultural real estate 261 242 24 429 2 Consumer 1,144 859 145 568 33 Agricultural 162 106 11 418 4 Subtotal 17,456 14,879 1,820 9,584 308 Total $ 45,230 $ 42,550 $ 1,820 $ 23,416 $ 582 The above table presents interest income for the twelve months ended December 31, 2018. 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 December 31, 2019 and 2018, by portfolio and class of loans. December 31, 2019 30 – 59 Days Past Due 60 – 89 Days Past Due Greater 90 Days Past Due Still On Accrual Nonaccrual Loans Not Past Due Total Commercial real estate $ 1,191 $ 218 $ — $ 6,913 $ 1,149,700 $ 1,158,022 Commercial and industrial 74 11 — 16,906 575,061 592,052 Residential real estate 831 1,008 — 8,013 493,587 503,439 Agricultural real estate 59 78 — 4,807 136,924 141,868 Consumer 402 138 — 381 67,457 68,378 Agricultural 10 14 — 1,359 91,510 92,893 Total $ 2,567 $ 1,467 $ — $ 38,379 $ 2,514,239 $ 2,556,652 December 31, 2018 30 – 59 Days Past Due 60 – 89 Days Past Due Greater 90 Days Past Due Still On Accrual Nonaccrual Loans Not Past Due Total Commercial real estate $ 1,302 $ 259 $ — $ 12,768 $ 1,237,663 $ 1,251,992 Commercial and industrial 509 2,467 — 6,954 572,597 582,527 Residential real estate 782 2,188 18 5,257 436,295 444,540 Agricultural real estate — 30 — 4,857 134,445 139,332 Consumer 501 157 — 914 61,322 62,894 Agricultural 186 3 — 2,453 91,481 94,123 Total $ 3,280 $ 5,104 $ 18 $ 33,203 $ 2,533,803 2,575,408 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 unclassified 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 : Loans classified as pass do not have any noted weaknesses and repayment of the loan is expected. These loans are considered unclassified. Special Mention : Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the Company’s credit position at some future date. These loans are considered classified. Substandard : Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected. These loans are considered classified. Doubtful : Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. These loans are considered classified. The risk category of loans by class of loans is as follows as of December 31, 2019 and 2018. December 31, 2019 Unclassified Classified Total Commercial real estate $ 1,146,696 $ 11,326 $ 1,158,022 Commercial and industrial 560,282 31,770 592,052 Residential real estate 495,418 8,021 503,439 Agricultural real estate 132,065 9,803 141,868 Consumer 67,997 381 68,378 Agricultural 88,607 4,286 92,893 Total $ 2,491,065 $ 65,587 $ 2,556,652 December 31, 2018 Unclassified Classified Total Commercial real estate $ 1,215,015 $ 36,977 $ 1,251,992 Commercial and industrial 553,045 29,482 582,527 Residential real estate 439,184 5,356 444,540 Agricultural real estate 129,285 10,047 139,332 Consumer 61,976 918 62,894 Agricultural 90,848 3,275 94,123 Total $ 2,489,353 $ 86,055 2,575,408 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 purchased credit impaired loans as of December 31, 2019, 2018 and 2017 were as follows. 2019 2018 2017 Contractually required principal payments $ 29,895 $ 40,772 $ 41,349 Discount (6,505 ) (10,077 ) (12,492 ) Recorded investment $ 23,390 $ 30,695 $ 28,857 The accretable yield associated with these loans was $3,127, $3,785 and $1,980 as of December 31, 2019, 2018 and 2017. The interest income recognized on these loans was $2,227, $1,096 and $1,785 for the years ended December 31, 2019, 2018 and 2017. For the year ended December 31, 2019 there was $628 reversal of provision for loan losses recorded for these loans. For the years ended December 31, 2018 and 2017 there was $714 and $194 provision for loan losses recorded for these loans. Troubled Debt Restructurings Consistent with accounting and regulatory guidance, the Company recognizes a TDR when the Company, for economic or legal reasons related to a borrower’s financial difficulties, grants a concession to the borrower that would not normally be considered. Regardless of the form of concession granted, the Company’s objective in offering a TDR is to increase the probability of repayment of the borrower’s loan. Troubled debt restructurings by class of loans are as follows as of December 31, 2019. Number of Loans Recorded Investment Impairment Recognized Commercial real estate 1 $ 1,247 $ — Commercial and industrial 1 14,261 4,994 Total troubled debt restructurings 2 $ 15,508 $ 4,994 Consistent with accounting and regulatory guidance, the Company recognizes a TDR when the Company, for economic or legal reasons related to a borrower’s financial difficulties, grants a concession to the borrower that would not normally be considered. Regardless of the form of concession granted, the Company’s objective in offering a TDR is to increase the probability of repayment of the borrower’s loan. A concession was granted on these loans in the form of either an interest rate reduction, material maturity date extension or an extension of the amortization plan to provide payment relief. These loans are included in the previous impaired loan tables, were individually assessed for impairment and a charge-off of $4,994 was subsequently recorded in commercial and industrial loans. No interest income was recognized on these loans as they were accounted for as non-accrual during the period. There are no outstanding commitments on these loans as of December 31, 2019. |