| Loans and Allowance for Loan Losses | 3. Loans and Allowance
for Loan Losses The following table presents the CorporationÂ’s loan portfolio
by category of loans as of September 30, 2016, and December 31, 2015: LOAN PORTFOLIO (DOLLARS IN THOUSANDS)
September 30, December 31,
2016 2015
$ $
Commercial real estate
Commercial mortgages 87,676 87,613
Agriculture mortgages 167,531 158,321
Construction 28,796 14,966
Total commercial real estate 284,003 260,900
Consumer real estate (a)
1-4 family residential mortgages 143,066 133,538
Home equity loans 10,537 10,288
Home equity lines of credit 50,251 37,374
Total consumer real estate 203,854 181,200
Commercial and industrial
Commercial and industrial 41,705 36,189
Tax-free loans 11,485 19,083
Agriculture loans 19,363 18,305
Total commercial and industrial 72,553 73,577
Consumer 4,663 3,892
Gross loans prior to deferred fees 565,073 519,569
Less:
Deferred loan costs, net (895 ) (714 )
Allowance for loan losses 7,435 7,078
Total net loans 558,533 513,205
(a) Real estate loans serviced for others, which are not included in the Consolidated Balance Sheets, totaled $59,506,000 and $38,024,000
as of September 30, 2016, and December 31, 2015, respectively. The Corporation grades commercial credits differently
than consumer credits. The following tables represent all of the CorporationÂ’s commercial credit exposures by internally
assigned grades as of September 30, 2016 and December 31, 2015. The grading analysis estimates the capability of the borrower to
repay the contractual obligations under the loan agreements as scheduled. The Corporation's internal commercial credit risk grading
system is based on experiences with similarly graded loans. The Corporation's internally assigned grades
for commercial credits are as follows:
· Pass – loans which are protected by the current net worth and paying capacity of the obligor
or by the value of the underlying collateral.
· Special Mention – loans where a potential weakness or risk exists, which could cause a more
serious problem if not corrected.
· Substandard – loans that have a well-defined weakness based on objective evidence and characterized
by the distinct possibility that the Corporation will sustain some loss if the deficiencies are not corrected.
· Doubtful – loans classified as doubtful have all the weaknesses inherent in a substandard
asset. In addition, these weaknesses make collection or liquidation in full highly questionable and improbable, based on
existing circumstances.
· Loss – loans classified as a loss are considered uncollectible, or of such value that continuance
as an asset is not warranted. COMMERCIAL CREDIT EXPOSURE CREDIT RISK PROFILE BY INTERNALLY ASSIGNED GRADE (DOLLARS IN THOUSANDS)
September 30, 2016 Commercial Agriculture Construction Commercial Tax-free Agriculture Total
$ $ $ $ $ $ $
Grade:
Pass 83,351 161,428 27,796 37,969 11,485 18,262 340,291
Special Mention 996 3,761 — 294 — 366 5,417
Substandard 3,329 2,342 1,000 3,442 — 735 10,848
Doubtful — — — — — — —
Loss — — — — — — —
Total 87,676 167,531 28,796 41,705 11,485 19,363 356,556
December 31, 2015 Commercial Agriculture Construction Commercial Tax-free Agriculture Total
$ $ $ $ $ $ $
Grade:
Pass 81,865 154,507 13,822 35,416 19,083 17,860 322,553
Special Mention 511 623 — — — 125 1,259
Substandard 5,237 3,191 1,144 773 — 320 10,665
Doubtful — — — — — — —
Loss — — — — — — —
Total 87,613 158,321 14,966 36,189 19,083 18,305 334,477 For consumer loans, the Corporation evaluates credit quality based
on whether the loan is considered performing or non-performing. Non-performing loans consist of those loans greater than 90 days
delinquent and nonaccrual loans. The following tables present the balances of consumer loans by classes of the loan portfolio based
on payment performance as of September 30, 2016 and December 31, 2015: CONSUMER CREDIT EXPOSURE CREDIT RISK PROFILE BY PAYMENT PERFORMANCE (DOLLARS IN THOUSANDS)
September 30, 2016 1-4 Family Home Equity Home Equity Consumer Total
Payment performance: $ $ $ $ $
Performing 142,570 10,482 50,251 4,656 207,959
Non-performing 496 55 — 7 558
Total 143,066 10,537 50,251 4,663 208,517
December 31, 2015 1-4 Family Home Equity Home Equity Consumer Total
Payment performance: $ $ $ $ $
Performing 133,220 10,278 37,327 3,889 184,714
Non-performing 318 10 47 3 378
Total 133,538 10,288 37,374 3,892 185,092 The following tables present an age analysis of the CorporationÂ’s
past due loans, segregated by loan portfolio class, as of September 30, 2016 and December 31, 2015: AGING OF LOANS RECEIVABLE (DOLLARS IN THOUSANDS)
Loans
Greater Receivable >
30-59 Days 60-89 Days than 90 Total Past Total Loans 90 Days and
September 30, 2016 Past Due Past Due Days Due Current Receivable Accruing
$ $ $ $ $ $ $
Commercial real estate
Commercial mortgages 350 — 586 936 86,740 87,676 161
Agriculture mortgages — — — — 167,531 167,531 —
Construction — — — — 28,796 28,796 —
Consumer real estate
1-4 family residential mortgages 465 198 496 1,159 141,907 143,066 496
Home equity loans 41 5 55 101 10,436 10,537 2
Home equity lines of credit — — — — 50,251 50,251 —
Commercial and industrial
Commercial and industrial 5 — 75 80 41,625 41,705 —
Tax-free loans — — — — 11,485 11,485 —
Agriculture loans — — — — 19,363 19,363 —
Consumer 16 5 7 28 4,635 4,663 7
Total 877 208 1,219 2,304 562,769 565,073 666
Loans
Greater Receivable >
30-59 Days 60-89 Days than 90 Total Past Total Loans 90 Days and
December 31, 2015 Past Due Past Due Days Due Current Receivable Accruing
$ $ $ $ $ $ $
Commercial real estate
Commercial mortgages — 601 — 601 87,012 87,613 —
Agriculture mortgages — — — — 158,321 158,321 —
Construction — — — — 14,966 14,966 —
Consumer real estate
1-4 family residential mortgages 1,264 123 318 1,705 131,833 133,538 318
Home equity loans 27 59 10 96 10,192 10,288 10
Home equity lines of credit 35 — 47 82 37,292 37,374 47
Commercial and industrial
Commercial and industrial 20 9 — 29 36,160 36,189 —
Tax-free loans — — — — 19,083 19,083 —
Agriculture loans — — — — 18,305 18,305 —
Consumer 17 17 3 37 3,855 3,892 3
Total 1,363 809 378 2,550 517,019 519,569 378 The following table presents nonaccrual loans by classes of the
loan portfolio as of September 30, 2016 and December 31, 2015: NONACCRUAL LOANS BY LOAN CLASS (DOLLARS IN THOUSANDS)
September 30, December 31,
2016 2015
$ $
Commercial real estate
Commercial mortgages 677 380
Agriculture mortgages — —
Construction — —
Consumer real estate
1-4 family residential mortgages — —
Home equity loans 53 —
Home equity lines of credit — —
Commercial and industrial
Commercial and industrial 75 —
Tax-free loans — —
Agriculture loans — —
Consumer — —
Total 805 380 As of September 30, 2016 and December 31, 2015, all of the CorporationÂ’s
commercial loans on nonaccrual status were also considered impaired. Information with respect to impaired loans for the three and
nine months ended September 30, 2016 and September 30, 2015, is as follows: IMPAIRED LOANS (DOLLARS IN THOUSANDS)
Three months ended September 30, Nine months ended September 30,
2016 2015 2016 2015
$ $ $ $
Average recorded balance of impaired loans 1,830 1,820 1,894 1,997
Interest income recognized on impaired loans 14 23 42 68 Interest income on impaired loans would have increased by approximately
$9,000 and $16,000 for the three and nine months ended September 30, 2016, compared to $3,000 and $17,000 for the three and nine
months ended September 30, 2015, had these loans performed in accordance with their original terms. During the nine months ended September 30, 2016 and 2015, there
were no loan modifications made that would cause a loan to be considered a troubled debt restructuring (TDR). A TDR is a loan where
management has granted a concession to the borrower from the original terms. A concession is generally defined as more favorable
payment or credit terms granted to a borrower in an effort to improve the likelihood of the lender collecting principal in its
entirety. Concessions usually are in the form of interest only for a period of time, or a lower interest rate offered in an effort
to enable the borrower to continue to make normally scheduled payments. The following tables summarize information in regards to impaired
loans by loan portfolio class as of September 30, 2016, December 31, 2015, and September 30, 2015:
IMPAIRED LOAN ANALYSIS
(DOLLARS IN THOUSANDS)
September 30, 2016 Recorded Unpaid Related Average Interest
$ $ $ $ $
With no related allowance recorded:
Commercial real estate
Commercial mortgages 730 827 — 561 —
Agriculture mortgages 1,267 1,267 — 1,295 42
Construction — — — — —
Total commercial real estate 1,997 2,094 — 1,856 42
Commercial and industrial
Commercial and industrial 75 75 — 38 —
Tax-free loans — — — — —
Agriculture loans — — — — —
Total commercial and industrial 75 75 — 38 —
Total with no related allowance 2,072 2,169 — 1,894 42
With an allowance recorded:
Commercial real estate
Commercial mortgages — — — — —
Agriculture mortgages — — — — —
Construction — — — — —
Total commercial real estate — — — — —
Commercial and industrial
Commercial and industrial — — — — —
Tax-free loans — — — — —
Agriculture loans — — — — —
Total commercial and industrial — — — — —
Total with a related allowance — — — — —
Total by loan class:
Commercial real estate
Commercial mortgages 730 827 — 561 —
Agriculture mortgages 1,267 1,267 — 1,295 42
Construction — — — — —
Total commercial real estate 1,997 2,094 — 1,856 42
Commercial and industrial
Commercial and industrial 75 75 — 38 —
Tax-free loans — — — — —
Agriculture loans — — — — —
Total commercial and industrial 75 75 — 38 —
Total 2,072 2,169 — 1,894 42
IMPAIRED LOAN ANALYSIS
(DOLLARS IN THOUSANDS)
December 31, 2015 Recorded Unpaid Related Average Interest
$ $ $ $ $
With no related allowance recorded:
Commercial real estate
Commercial mortgages 380 952 — 544 —
Agriculture mortgages 1,325 1,325 — 1,359 83
Construction — — — — —
Total commercial real estate 1,705 2,277 — 1,903 83
Commercial and industrial
Commercial and industrial — 49 — 54 3
Tax-free loans — — — — —
Agriculture loans — — — — —
Total commercial and industrial — 49 — 54 3
Total with no related allowance 1,705 2,326 — 1,957 86
With an allowance recorded:
Commercial real estate
Commercial mortgages — — — — —
Agriculture mortgages — — — — —
Construction — — — — —
Total commercial real estate — — — — —
Commercial and industrial
Commercial and industrial — — — — —
Tax-free loans — — — — —
Agriculture loans — — — — —
Total commercial and industrial — — — — —
Total with a related allowance — — — — —
Total by loan class:
Commercial real estate
Commercial mortgages 380 952 — 544 —
Agriculture mortgages 1,325 1,325 — 1,359 83
Construction — — — — —
Total commercial real estate 1,705 2,277 — 1,903 83
Commercial and industrial
Commercial and industrial — 49 — 54 3
Tax-free loans — — — — —
Agriculture loans — — — — —
Total commercial and industrial — 49 — 54 3
Total 1,705 2,326 — 1,957 86
IMPAIRED LOAN ANALYSIS
(DOLLARS IN THOUSANDS)
September 30, 2015 Recorded Unpaid Related Average Interest
$ $ $ $ $
With no related allowance recorded:
Commercial real estate
Commercial mortgages 423 995 — 572 —
Agriculture mortgages 1,345 1,345 — 1,367 65
Construction — — — — —
Total commercial real estate 1,768 2,340 — 1,939 65
Commercial and industrial
Commercial and industrial 46 53 — 58 3
Tax-free loans — — — — —
Agriculture loans — — — — —
Total commercial and industrial 46 53 — 58 3
Total with no related allowance 1,814 2,393 — 1,997 68
With an allowance recorded:
Commercial real estate
Commercial mortgages — — — — —
Agriculture mortgages — — — — —
Construction — — — — —
Total commercial real estate — — — — —
Commercial and industrial
Commercial and industrial — — — — —
Tax-free loans — — — — —
Agriculture loans — — — — —
Total commercial and industrial — — — — —
Total with a related allowance — — — — —
Total by loan class:
Commercial real estate
Commercial mortgages 423 995 — 572 —
Agriculture mortgages 1,345 1,345 — 1,367 65
Construction — — — — —
Total commercial real estate 1,768 2,340 — 1,939 65
Commercial and industrial
Commercial and industrial 46 53 — 58 3
Tax-free loans — — — — —
Agriculture loans — — — — —
Total commercial and industrial 46 53 — 58 3
Total 1,814 2,393 — 1,997 68 The following table details activity in the allowance for loan losses by portfolio segment for the nine months ended September
30, 2016: ALLOWANCE FOR CREDIT LOSSES (DOLLARS IN THOUSANDS)
Commercial Consumer Commercial Consumer Unallocated Total
$ $ $ $ $ $
Allowance for credit losses:
Beginning balance - December 31, 2015 3,831 1,403 1,314 62 468 7,078
Charge-offs — — (4 ) (12 ) — (16 )
Recoveries — 10 16 2 — 28
Provision (303 ) (45 ) 47 15 236 (50 )
Balance - March 31, 2016 3,528 1,368 1,373 67 704 7,040
Charge-offs — — — (2 ) — (2 )
Recoveries — — 159 — — 159
Provision 255 105 (271 ) 6 (45 ) 50
Ending Balance - June 30, 2016 3,783 1,473 1,261 71 659 7,247
Charge-offs — — (19 ) (10 ) — (29 )
Recoveries — 1 9 7 — 17
Provision 95 95 101 20 (111 ) 200
Ending Balance - September 30, 2016 3,878 1,569 1,352 88 548 7,435 During the nine months ended September 30, 2016, a credit provision was recorded for the commercial and industrial
segment with provision expense recorded in all other loan categories. For the entire portfolio, $200,000 of additional provision
expense was needed for the first nine months of 2016. Delinquency rates among most loan pools remain very low with the total amount
of delinquent loans lower on September 30, 2016 than on December 31, 2015, even with larger loan balances. The Corporation received
$157,000 more recoveries than charge-offs for the nine months ended September 30, 2016. These favorable results acted to offset
higher levels of classified loans and non-accruals resulting in $200,000 of additional provision being sufficient to cover the
growth in the loan portfolio. Changes in qualitative factors were minimal during the third quarter and the provision expense recorded
was mostly to account for significant loan growth during the year-to-date period. T ALLOWANCE FOR CREDIT LOSSES (DOLLARS IN THOUSANDS)
Commercial Consumer Commercial Consumer Unallocated Total
$ $ $ $ $ $
Allowance for credit losses:
Beginning balance - December 31, 2014 3,834 1,367 1,301 66 573 7,141
Charge-offs (272 ) — — (1 ) — (273 )
Recoveries 2 — 70 — — 72
Provision 623 (283 ) (147 ) (11 ) 18 200
Balance - March 31, 2015 4,187 1,084 1,224 54 591 7,140
Charge-offs — — (2 ) (3 ) — (5 )
Recoveries 1 — 11 2 — 14
Provision (29 ) (20 ) 157 22 (30 ) 100
Ending Balance - June 30, 2015 4,159 1,064 1,390 75 561 7,249
Charge-offs — — — (4 ) — (4 )
Recoveries — — 10 1 — 11
Provision (63 ) 94 (195 ) (26 ) 40 (150 )
Ending Balance - September 30, 2015 4,096 1,158 1,205 46 601 7,106 During the nine months ended September 30, 2015, provision expense was recorded for the commercial real estate
segment with credit provisions recorded in all other loan categories. There were $272,000 of commercial real estate loan charge-offs
during the first quarter of 2015, which increased the historical loss rates and ultimately resulted in a higher required reserve
amount for the commercial real estate category as of March 31, 2015. However, since the first quarter, charge-offs had been at
a minimum, economic conditions continued to improve, and the qualitative factors impacting commercial real estate had declined,
resulting in a lower allocation. The majority of the CorporationÂ’s total allowance is devoted to commercial real estate as
this is the largest element of the portfolio and generally carries a higher element of credit risk. With charge-offs and recoveries
running at minimal levels for the second and third quarters of 2015, it had been the qualitative factor movements that were primarily
responsible for adjusting the allocations shown above for the four main loan categories. The following tables present the balance in the allowance for credit
losses and the recorded investment in loans receivable by portfolio segment based on impairment method as of September 30, 2016
and December 31, 2015: ALLOWANCE FOR CREDIT LOSSES AND RECORDED INVESTMENT IN LOANS RECEIVABLE (DOLLARS IN THOUSANDS)
As of September 30, 2016: Commercial Consumer Commercial Consumer Unallocated Total
$ $ $ $ $ $
Allowance for credit losses:
Ending balance: individually evaluated
for impairment — — — — — —
Ending balance: collectively evaluated
for impairment 3,878 1,569 1,352 88 548 7,435
Loans receivable:
Ending balance 284,003 203,854 72,553 4,663 565,073
Ending balance: individually evaluated
for impairment 1,997 — 75 — 2,072
Ending balance: collectively evaluated
for impairment 282,006 203,854 72,478 4,663 563,001
As of December 31, 2015: Commercial Consumer Commercial Consumer Unallocated Total
$ $ $ $ $ $
Allowance for credit losses:
Ending balance: individually evaluated
for impairment — — — — — —
Ending balance: collectively evaluated
for impairment 3,831 1,403 1,314 62 468 7,078
Loans receivable:
Ending balance 260,900 181,200 73,577 3,892 519,569
Ending balance: individually evaluated
for impairment 1,705 — — — 1,705
Ending balance: collectively evaluated
for impairment 259,195 181,200 73,577 3,892 517,864 |
