LOANS | NOTE 5 – LOANS The components of loans were as follows: June 30, December 31, 2016 2015 (dollars in thousands) Agricultural loans $ 554,381 $ 499,320 Commercial real estate loans 268,456 161,741 Commercial loans 82,172 51,978 Residential real estate loans 55,002 34,631 Installment and consumer other 299 519 Total gross loans 960,310 748,189 Allowance for loan losses (10,791 ) (10,405 ) Loans, net $ 949,519 $ 737,784 Changes in the allowance for loan losses by portfolio segment for the six months ended June 30, 2016 and 2015 were as follows: June 30, 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 1,277 12 141 (143 ) (5 ) 1,282 Loans charged off (896 ) — — (5 ) (4 ) (905 ) Recoveries 2 1 6 — — 9 Balance, end of period $ 6,738 $ 2,250 $ 1,415 $ 385 $ 3 $ 10,791 June 30, 2015 Agricultural Commercial Real Estate Commercial Residential Real Estate Installment and Consumer Other Total Balance, beginning of year $ 3,456 $ 3,326 $ 2,420 $ 1,392 $ 9 $ 10,603 Provision for loan losses 1,177 (544 ) (851 ) (234 ) (6 ) (458 ) Loans charged off — (131 ) (411 ) (172 ) — (714 ) Recoveries 5 3 456 2 — 466 Balance, end of period $ 4,638 $ 2,654 $ 1,614 $ 988 $ 3 $ 9,897 The following tables present the balances in the allowance for loan losses and the recorded balance in loans by portfolio segment and based on impairment method as of June 30, 2016 and December 31, 2015: June 30, 2016 Individually Evaluated for Impairment Collectively Evaluated for Impairment Total (dollars in thousands) Allowance for loan losses: Agricultural loans $ 273 $ 6,465 $ 6,738 Commercial real estate loans 564 1,686 2,250 Commercial loans 964 451 1,415 Residential real estate loans — 385 385 Installment and consumer other — 3 3 Total ending allowance for loan losses 1,801 8,990 10,791 Loans: Agricultural loans 17,350 537,031 554,381 Commercial real estate loans 8,005 260,451 268,456 Commercial loans 6,275 75,897 82,172 Residential real estate loans 94 54,908 55,002 Installment and consumer other — 299 299 Total loans 31,724 928,586 960,310 Net loans $ 29,923 $ 919,596 $ 949,519 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 table presents the aging of the recorded investment in past due loans at June 30, 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 June 30, 2016 Agricultural loans $ 231 $ 1,176 $ 11,982 $ 13,389 $ 540,992 Commercial real estate loans 495 670 2,706 3,871 264,585 Commercial loans — — 3,506 3,506 78,666 Residential real estate loans 38 4 — 42 54,960 Installment and consumer other — — — — 299 Total $ 764 $ 1,850 $ 18,194 $ 20,808 $ 939,502 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 loans at June 30, 2016 and December 31, 2015: June 30, December 31, 2016 2015 (dollars in thousands) Nonaccrual loans, 90 days or more past due $ 18,194 $ 8,299 Nonaccrual loans 30-89 days past due 2,391 1,212 Nonaccrual loans, less than 30 days past due 3,357 15,068 Restructured loans not on nonaccrual status 3,583 610 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 June 30, 2016 and December 31, 2015: June 30, December 31, 2016 2015 (dollars in thousands) Agricultural loans $ 13,784 $ 17,705 Commercial real estate loans 4,715 3,162 Commercial loans 5,349 3,712 Residential real estate loans 94 — Total $ 23,942 $ 24,579 The average recorded investment in total impaired loans for the six months ended June 30, 2016 and for the year ended December 31, 2015 amounted to approximately $31.1 million and $27.6 million, respectively. Interest income recognized on total impaired loans for the six months ended June 30, 2016 and for the year ended December 31, 2015 amounted to approximately $0.5 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 $0.8 million and $1.7 million for the six months ended June 30, 2016 and for the year ended December 31, 2015, respectively. Troubled Debt Restructurings The Company has allocated approximately $0.5 million and $0.7 million of specific reserves to customers whose loan terms have been modified in troubled debt restructurings (“TDR”) at June 30, 2016 and December 31, 2015, respectively. The Company has no additional lending commitments at June 30, 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 June 30, 2016, and December 31, 2015. The following table presents the TDRs by loan class at June 30, 2016 and December 31, 2015: Non-Accrual Restructured and Accruing Total (dollars in thousands) June 30, 2016 Agricultural loans $ 6,322 $ — $ 6,322 Commercial real estate loans 2,008 2,383 4,391 Commercial loans 1,671 1,200 2,871 Residential real estate loans 94 — 94 Installment and consumer other — — — Total $ 10,095 $ 3,583 $ 13,678 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 a less 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 June 30, 2016 and December 31, 2015: As of June 30, 2016 Sound/ Acceptable/ Satisfactory/ Low Satisfactory Watch Special Mention Substandard Total Loans (dollars in thousands) Agricultural loans $ 473,008 $ 44,356 $ 19,667 $ 17,350 $ 554,381 Commercial real estate loans 230,808 21,134 8,509 8,005 268,456 Commercial loans 65,699 6,920 3,278 6,275 82,172 Residential real estate loans 51,154 3,754 — 94 55,002 Installment and consumer other 299 — — — 299 Total $ 820,968 $ 76,164 $ 31,454 $ 31,724 $ 960,310 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 |