Loans and Allowance for Loan Losses | NOTE 3 – LOANS AND ALLOWANCE FOR LOAN LOSSES The following table lists categories of loans at September 30, 2020, and December 31, 2019. September 30, 2020 December 31, 2019 Commercial real estate $ 1,188,329 $ 1,178,427 Commercial and industrial 857,244 571,647 Residential real estate 402,242 503,439 Agricultural real estate 127,349 141,868 Consumer 67,465 68,378 Agricultural 83,084 92,893 Total loans 2,725,713 2,556,652 Allowance for loan losses (34,087 ) (12,232 ) Net loans $ 2,691,626 $ 2,544,420 Included in the commercial and industrial loan balances at September 30, 2020, are $376,040 of loans that were originated under the SBA PPP program. 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. During the first nine months of 2020, the Company purchased one pool of residential real estate loans totaling $752. As of September 30, 2020, and December 31, 2019, residential real estate loans include $96,917 and $144,554 of purchased residential real estate loans. The unamortized discount of merger purchase accounting adjustments related to non-purchase credit impaired loans included in the loan totals above are $5,945 with related loans of $402,250 at September 30, 2020, and $8,287 with related loans of $624,747 at December 31, 2019. Overdraft deposit accounts are reclassified and included in consumer loans above. These accounts totaled $674 at September 30, 2020, and $815 at December 31, 2019. The following tables present the activity in the allowance for loan losses by class for the three-month periods ended September 30, 2020, and 2019. September 30, 2020 Commercial Real Estate Commercial and Industrial Residential Real Estate Agricultural Real Estate Consumer Agricultural Total Allowance for loan losses: Beginning balance $ 9,467 $ 10,168 $ 5,315 $ 975 $ 7,343 $ 810 $ 34,078 Provision for loan losses (218 ) 1,361 (591 ) 468 (158 ) (47 ) 815 Loans charged-off (308 ) (3 ) (153 ) (167 ) (244 ) — (875 ) Recoveries 1 3 22 5 33 5 69 Total ending allowance balance $ 8,942 $ 11,529 $ 4,593 $ 1,281 $ 6,974 $ 768 $ 34,087 September 30, 2019 Commercial Real Estate Commercial and Industrial Residential Real Estate Agricultural Real Estate Consumer Agricultural Total Allowance for loan losses: Beginning balance $ 4,712 $ 7,948 $ 2,908 $ 525 $ 1,344 $ 340 $ 17,777 Provision for loan losses 396 49 (324 ) 131 241 186 679 Loans charged-off (506 ) (18 ) (355 ) (9 ) (313 ) (5 ) (1,206 ) Recoveries 47 17 450 38 73 — 625 Total ending allowance balance $ 4,649 $ 7,996 $ 2,679 $ 685 $ 1,345 $ 521 $ 17,875 The following tables present the activity in the allowance for loan losses by class for the nine-month periods ended September 30, 2020, and 2019. September 30, 2020 Commercial Real Estate Commercial and Industrial Residential Real Estate Agricultural Real Estate Consumer Agricultural Total Allowance for loan losses: Beginning balance $ 3,919 $ 3,061 $ 2,676 $ 608 $ 1,422 $ 546 $ 12,232 Provision for loan losses 5,189 8,711 2,203 859 6,076 217 23,255 Loans charged-off (367 ) (259 ) (312 ) (191 ) (697 ) (1 ) (1,827 ) Recoveries 201 16 26 5 173 6 427 Total ending allowance balance $ 8,942 $ 11,529 $ 4,593 $ 1,281 $ 6,974 $ 768 $ 34,087 September 30, 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 981 13,979 805 299 973 262 17,299 Loans charged-off (1,114 ) (8,756 ) (934 ) (43 ) (994 ) (47 ) (11,888 ) Recoveries 120 66 488 38 296 2 1,010 Total ending allowance balance $ 4,649 $ 7,996 $ 2,679 $ 685 $ 1,345 $ 521 $ 17,875 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 September 30, 2020, and December 31, 2019. September 30, 2020 Commercial Real Estate Commercial and Industrial Residential Real Estate Agricultural Real Estate Consumer Agricultural Total Allowance for loan losses: Individually evaluated for impairment $ 910 $ 4,639 $ 536 $ 776 $ 70 $ 159 $ 7,090 Collectively evaluated for impairment 7,600 5,571 3,930 149 6,904 491 24,645 Purchased credit impaired loans 432 1,319 127 356 — 118 2,352 Total $ 8,942 $ 11,529 $ 4,593 $ 1,281 $ 6,974 $ 768 $ 34,087 Loan Balance: Individually evaluated for impairment $ 5,017 $ 28,434 $ 6,378 $ 3,111 $ 259 $ 480 $ 43,679 Collectively evaluated for impairment 1,176,817 824,265 393,129 120,346 67,186 80,512 2,662,255 Purchased credit impaired loans 6,495 4,545 2,735 3,892 20 2,092 19,779 Total $ 1,188,329 $ 857,244 $ 402,242 $ 127,349 $ 67,465 $ 83,084 $ 2,725,713 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 1,166,106 550,201 493,309 135,776 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 $ 1,178,427 $ 571,647 $ 503,439 $ 141,868 $ 68,378 $ 92,893 $ 2,556,652 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 September 30, 2020, and December 31, 2019. The recorded investment in loans excludes accrued interest receivable due to immateriality. September 30, 2020 December 31, 2019 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 $ — $ — $ — $ 2,166 $ 2,150 $ — Commercial and industrial 19,970 13,857 — 20,152 14,832 — Residential real estate 4,506 4,235 — 4,395 4,324 — Agricultural real estate — — — 1,610 1,533 — Consumer — — — — — — Agricultural — — — — — — Subtotal 24,476 18,092 — 28,323 22,839 — With an allowance recorded: Commercial real estate 8,006 6,452 1,342 3,469 2,749 338 Commercial and industrial 18,913 18,130 5,958 1,845 1,640 213 Residential real estate 3,346 2,990 663 3,395 3,244 324 Agricultural real estate 7,247 5,812 1,132 1,142 1,015 149 Consumer 281 259 70 430 381 39 Agricultural 1,497 1,010 277 1,619 1,359 152 Subtotal 39,290 34,653 9,442 11,900 10,388 1,215 Total $ 63,766 $ 52,745 $ 9,442 $ 40,223 $ 33,227 $ 1,215 The tables below present average recorded investment and interest income related to impaired loans for the three and nine months ended September 30, 2020, and 2019. 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 September 30, 2020 September 30, 2019 Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized With no related allowance recorded: Commercial real estate $ 18 $ 35 $ 3,327 $ 3 Commercial and industrial 13,857 — 808 — Residential real estate 4,262 14 7,800 19 Agricultural real estate — — 1,750 — Consumer — — 15 — Agricultural — — 161 — Subtotal 18,137 49 13,861 22 With an allowance recorded: Commercial real estate 6,324 16 7,032 — Commercial and industrial 15,483 190 21,066 9 Residential real estate 3,586 2 3,891 20 Agricultural real estate 5,356 28 1,296 2 Consumer 271 3 728 4 Agricultural 1,435 1 1,128 — Subtotal 32,455 240 35,141 35 Total $ 50,592 $ 289 $ 49,002 $ 57 As of and for the nine months ended September 30, 2020 September 30, 2019 Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized With no related allowance recorded: Commercial real estate $ 556 $ 36 $ 7,427 $ 82 Commercial and industrial 14,229 23 2,064 5 Residential real estate 4,299 14 4,161 50 Agricultural real estate 566 5 1,804 — Consumer — — 31 — Agricultural — — 300 — Subtotal 19,650 78 15,787 137 With an allowance recorded: Commercial real estate 5,667 35 7,140 74 Commercial and industrial 9,507 362 18,528 12 Residential real estate 3,573 5 6,965 28 Agricultural real estate 3,534 34 907 2 Consumer 318 3 772 9 Agricultural 1,401 1 663 2 Subtotal 24,000 440 34,975 127 Total $ 43,650 $ 518 $ 50,762 $ 264 The following tables present the aging of the recorded investment in past due loans as of September 30, 2020, and December 31, 2019, by portfolio and class of loans. September 30, 2020 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 $ 579 $ 158 $ — $ 6,452 $ 1,181,140 $ 1,188,329 Commercial and industrial 254 203 — 31,987 824,800 857,244 Residential real estate 605 2,720 248 7,225 391,444 402,242 Agricultural real estate — — — 5,812 121,537 127,349 Consumer 178 78 — 259 66,950 67,465 Agricultural 70 — — 1,010 82,004 83,084 Total $ 1,686 $ 3,159 $ 248 $ 52,745 $ 2,667,875 $ 2,725,713 December 31, 2019 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 $ 1,191 $ 218 $ — $ 6,913 $ 1,170,105 $ 1,178,427 Commercial and industrial 74 11 — 16,906 554,656 571,647 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 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. Loans that participated in the short-term deferral program are not automatically considered classified solely due to a deferral, are subject to ongoing monitoring and will be downgraded or placed on nonaccrual if a noted weakness exists. 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 September 30, 2020, and December 31, 2019. September 30, 2020 Unclassified Classified Total Commercial real estate $ 1,180,611 $ 7,718 $ 1,188,329 Commercial and industrial 814,402 42,842 857,244 Residential real estate 395,017 7,225 402,242 Agricultural real estate 119,977 7,372 127,349 Consumer 67,206 259 67,465 Agricultural 81,317 1,767 83,084 Total $ 2,658,530 $ 67,183 $ 2,725,713 December 31, 2019 Unclassified Classified Total Commercial real estate $ 1,167,101 $ 11,326 $ 1,178,427 Commercial and industrial 539,877 31,770 571,647 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 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 table below lists recorded investments in purchased credit impaired loans as of September 30, 2020, and December 31, 2019. September 30, 2020 December 31, 2019 Contractually required principal payments $ 25,497 $ 29,895 Discount (5,718 ) (6,505 ) Recorded investment $ 19,779 $ 23,390 The accretable yield associated with these loans was $2,756 and $3,127 as of September 30, 2020, and December 31, 2019. The interest income recognized on these loans for the three-month periods ended September 30, 2020, and 2019, was $ 402 and $ 1,479 . The interest income recognized on these loans for the nine-month periods ended September 30, 2020, and 2019, was $ 1,263 and $ 2,011 . For the three and nine-month periods ended September 30, 2020, there was a provision for loan losses of $ 54 and $ 2,072 recorded for these loans. For the three and nine-month periods ended September 30, 2019, there was a provision for loan losses of $ 28 and $ 191 recorded for these loans. Troubled Debt Restructurings The Company had troubled debt restructurings with an amortized cost of $15,045 and $15,508 as of September 30, 2020, and December 31, 2019. The Company had allocated $367 of allowance for these loans at September 30, 2020. At December 31, 2019, there was no allowance for these loans. At September 30, 2020, and December 31, 2019, there were no commitments to lend additional amounts on these loans. There were no loan modifications considered to be troubled debt restructurings that occurred during the three or nine-month periods ended September 30, 2020, or 2019. No restructured loans that were modified within the twelve months preceding September 30, 2020, have subsequently had a payment default. There were no troubled debt restructurings within the twelve months preceding September 30, 2019. Default is determined at 90 or more days past due, charge-off or foreclosure. As of September 30, 2020, we had 63 deferrals of either the full loan payment or the principal component of the loan payment on outstanding loan balances of $40,232 in connection with the COVID-19 relief provided by the CARES Act. These deferrals were no more than 180 days in duration and were not considered troubled debt restructurings based on interagency guidance issued in March 2020. |