LOANS | NOTE 5 – LOANS The components of loans were as follows: March 31, December 31, 2016 2015 (dollars in thousands) Agricultural loans $ 520,756 $ 499,320 Commercial real estate loans 165,563 161,741 Commercial loans 52,518 51,978 Residential real estate loans 36,823 34,631 Installment and consumer other 188 519 Total gross loans 775,848 748,189 Allowance for loan losses (11,218 ) (10,405 ) Loans, net $ 764,630 $ 737,784 Changes in the allowance for loan losses by portfolio segment for the three months ended March 31, 2016 and 2015 were as follows: March 31, 2016 Agricultural Commercial Real Estate Commercial Residential Real Estate Installment and Consumer Other Total (dollars in thousands) Balance, beginning of year $ 6,355 $ 2,237 $ 1,268 $ 533 $ 12 $ 10,405 Provision for loan losses 535 217 (97 ) 167 (10 ) 812 Loans charged off — — — — — — Recoveries 1 — — — — 1 Balance, end of period $ 6,891 $ 2,454 $ 1,171 $ 700 $ 2 $ 11,218 March 31, 2015 Balance, beginning of year $ 3,456 $ 3,326 $ 2,420 $ 1,392 $ 9 $ 10,603 Provision for loan losses 235 (405 ) (401 ) (25 ) (6 ) (602 ) Loans charged off — (36 ) (113 ) — — (149 ) Recoveries 1 1 415 — — 417 Balance, end of period $ 3,692 $ 2,886 $ 2,321 $ 1,367 $ 3 $ 10,269 The following tables present the balances in the allowance for loan losses and the recorded investment and unpaid principal balance in loans by portfolio segment and based on impairment method as of March 31, 2016 and December 31, 2015: March 31, 2016 Individually Evaluated for Impairment Collectively Evaluated for Impairment Total (dollars in thousands) Allowance for loan losses: Agricultural loans $ 874 $ 6,017 $ 6,891 Commercial real estate loans 798 1,656 2,454 Commercial loans 807 363 1,170 Residential real estate loans — 701 701 Installment and consumer other — 2 2 Total ending allowance for loan losses 2,479 8,739 11,218 Loans: Agricultural loans 15,899 504,857 520,756 Commercial real estate loans 4,173 161,390 165,563 Commercial loans 4,379 48,139 52,518 Residential real estate loans 107 36,716 36,823 Installment and consumer other — 188 188 Total loans 24,558 751,290 775,848 Net loans $ 22,079 $ 742,551 $ 764,630 December 31, 2015 Individually Evaluated for Impairment Collectively Evaluated for Impairment Total (dollars in thousands) Allowance for loan losses: Agricultural loans $ 1,055 $ 5,300 $ 6,355 Commercial real estate loans 357 1,880 2,237 Commercial loans 890 378 1,268 Residential real estate loans — 533 533 Installment and consumer other — 12 12 Total ending allowance for loan losses 2,302 8,103 10,405 Loans: Agricultural loans 20,724 478,596 499,320 Commercial real estate loans 4,197 157,544 161,741 Commercial loans 5,481 46,497 51,978 Residential real estate loans — 34,631 34,631 Installment and consumer other — 519 519 Total loans 30,402 717,787 748,189 Net loans $ 28,100 $ 709,684 $ 737,784 The following tables present the aging of the recorded investment in past due loans at March 31, 2016 and December 31, 2015: 30-59 Days Past Due 60-89 Days Past Due 90+ Days Past Due Total Past Due Loans Not Past Due (dollars in thousands) March 31, 2016 Agricultural loans $ — $ 868 $ 11,212 $ 12,080 $ 508,676 Commercial real estate loans — — 2,417 2,417 163,146 Commercial loans — — 3,477 3,477 49,041 Residential real estate loans — — — — 36,823 Installment and consumer other — — — — 188 Total $ — $ 868 $ 17,106 $ 17,974 $ 757,874 December 31, 2015 Agricultural loans $ 978 $ 5 $ 2,405 $ 3,388 $ 495,932 Commercial real estate loans — 234 2,418 2,652 159,089 Commercial loans — — 3,476 3,476 48,502 Residential real estate loans 5 — — 5 34,626 Installment and consumer other — — — — 519 Total $ 983 $ 239 $ 8,299 $ 9,521 $ 738,668 The following table lists information on nonaccrual, restructured, and certain past due loan at March 31, 2016 and December 31, 2015: March 31, December 31, 2016 2015 (dollars in thousands) Nonaccrual loans, 90 days or more past due $ 17,106 $ 8,299 Nonaccrual loans 30-89 days past due 690 1,212 Nonaccrual loans, less than 30 days past due 1,768 15,068 Restructured loans not on nonaccrual status 602 610 90 days or more past due and still accruing — — The following table presents the recorded investment in nonaccrual loans and loans past due 90 days or more at March 31, 2016 and December 31, 2015: March 31, December 31, 2016 2015 (dollars in thousands) Agricultural loans $ 13,058 $ 17,705 Commercial real estate loans 2,922 3,162 Commercial loans 3,477 3,712 Residential real estate loans 107 — Total $ 19,564 $ 24,579 The average recorded investment in total impaired loans for the three months ended March 31, 2016 and for the year ended December 31, 2015 amounted to approximately $27.5 million and $27.6 million, respectively. Interest income recognized on total impaired loans for the three months ended March 31, 2016 and for the year ended December 31, 2015 amounted to approximately $0.1 million and $1.7 million, respectively. For nonaccrual loans included in impaired loans, the interest income that would have been recognized had those loans been performing in accordance with their original terms would have been approximately $0.4 million and $1.7 million for the three months ended March 31, 2016 and for the year ended December 31, 2015, respectively. Troubled Debt Restructurings The Company has allocated approximately $0.3 million and $0.7 million of specific reserves to customers whose loan terms have been modified in troubled debt restructurings (“TDR”) at March 31, 2016 and December 31, 2015, respectively. The Company has no additional lending commitments at March 31, 2016 and December 31, 2015 to customers with outstanding loans that are classified as TDRs. A TDR on nonaccrual status is classified as a nonaccrual loan until evaluation supports reasonable assurance of repayment and of performance according to the modified terms of the loan. Once this assurance is reached, the TDR is classified as a restructured loan. There were no unfunded commitments on these loans at March 31, 2016, and December 31, 2015. The following table presents the TDRs by loan class at March 31, 2016 and December 31, 2015: Non-Accrual Restructured and Accruing Total (dollars in thousands) March 31, 2016 Agricultural loans $ 6,165 $ — $ 6,165 Commercial real estate loans 504 483 987 Commercial loans 107 119 226 Residential real estate loans — — — Installment and consumer other — — — Total $ 6,776 $ 602 $ 7,378 December 31, 2015 Agricultural loans $ 1,337 $ — $ 1,337 Commercial real estate loans 744 486 1,230 Commercial loans 235 124 359 Residential real estate loans — — — Installment and consumer other — — — Total $ 2,316 $ 610 $ 2,926 Credit Quality Indicators The Company categorizes loans into risk categories based on relevant information about the ability of the 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 agricultural, commercial, and commercial real estate loans individually by classifying the credits as to credit risk. The process of analyzing loans for changes in risk rating is ongoing through routine monitoring of the portfolio and annual internal credit reviews for credits with total exposure in excess of $300,000. The Company uses the following definitions for credit risk ratings: Sound. Credits classified as sound show very good probability of ongoing ability to meet and/or exceed obligations. Acceptable. Credits classified as acceptable show a good probability of ongoing ability to meet and/or exceed obligations. Satisfactory. Credits classified as satisfactory show fair probability of ongoing ability to meet and/or exceed obligations. Low Satisfactory . Credits classified as low satisfactory show fair probability of ongoing ability to meet and/or exceed obligations. Low satisfactory credits may be newer or have less of an established track record of financial performance, inconsistent earnings, or may be going through an expansion. Watch. Credits classified as watch show some questionable probability of ongoing ability to meet and/or exceed obligations. Special Mention. Credits classified as special mention show potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loans or of the institution’s credit position at some future date. Substandard . Credits classified as substandard generally have well-defined weaknesses that jeopardize the repayment of the debt. They have a distinct possibility that a loss will be sustained if the deficiencies are not corrected. Doubtful. Credits 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. The Company categorizes residential real estate, installment and consumer other loans as satisfactory at the time of origination based on information obtained as to the ability of the borrower(s) to service their debt, such as current financial information, employment status and history, historical payment experience, credit scores and type and amount of collateral among other factors. The Company updates relevant information on these types of loans at the time of refinance, troubled debt restructuring or other indications of financial difficulty, downgrading as needed using the same category descriptions as for agricultural, commercial, and commercial real estate loans. In addition, the Company further considers current payment status as an indicator of which risk category to assign the borrower. The greater the level of deteriorated risk as indicated by a loan’s assigned risk category, the greater the likelihood a loss will occur in the future. If the loan is impaired then the loan loss reserves for the loan are recorded at the loss level of impairment. If the loan is not impaired, then its loan loss reserves are determined by the application of a loss rate that increases with risk in accordance with the allowance for loan loss analysis. Based on the most recent analysis performed by management, the risk category of loans by class of loans is as follows as of March 31, 2016 and December 31, 2015: As of March 31, 2016 Sound/ Acceptable/ Satisfactory/ Low Satisfactory Watch Special Mention Substandard Total Loans (dollars in thousands) Agricultural loans $ 463,869 $ 27,903 $ 13,085 $ 15,899 $ 520,756 Commercial real estate loans 141,961 15,030 4,399 4,173 165,563 Commercial loans 42,409 5,218 512 4,379 52,518 Residential real estate loans 29,626 4,561 2,529 107 36,823 Installment and consumer other 186 2 — — 188 Total $ 678,051 $ 52,714 $ 20,525 $ 24,558 $ 775,848 As of December 31, 2015 Sound/ Acceptable/ Satisfactory/ Low Satisfactory Watch Special Mention Substandard Total Loans (dollars in thousands) Agricultural loans $ 441,528 $ 30,762 $ 6,306 $ 20,724 $ 499,320 Commercial real estate loans 139,061 13,956 4,527 4,197 161,741 Commercial loans 40,496 5,468 533 5,481 51,978 Residential real estate loans 27,514 4,572 2,545 — 34,631 Installment and consumer other 518 1 — — 519 Total $ 649,117 $ 54,759 $ 13,911 $ 30,402 $ 748,189 |