LOANS | NOTE 4 – LOANS The components of loans were as follows: September 30, December 31, 2017 2016 (dollars in thousands) Agricultural loans $ 675,856 $ 624,632 Commercial real estate loans 290,420 270,475 Commercial loans 107,569 89,944 Residential real estate loans 52,527 45,276 Installment and consumer other 229 159 Total gross loans 1,126,601 1,030,486 Allowance for loan losses (13,625 ) (12,645 ) Loans, net $ 1,112,976 $ 1,017,841 Changes in the allowance for loan losses by portfolio segment for the nine months ended September 30, 2017 and 2016 were as follows: September 30, 2017 Agricultural Commercial Real Estate Commercial Residential Real Estate Installment and Consumer Other Unallocated Total (dollars in thousands) Balance, beginning of year $ 8,173 $ 2,762 $ 1,239 $ 470 $ 1 $ — $ 12,645 Provision for loan losses 688 733 1,137 (241 ) 1 — 2,318 Loans charged off — (575 ) (917 ) — — — (1,492 ) Recoveries 43 80 31 — — — 154 Balance, end of period $ 8,904 $ 3,000 $ 1,490 $ 229 $ 2 $ — $ 13,625 September 30, 2016 Agricultural Commercial Real Estate Commercial Residential Real Estate Installment and Consumer Other Unallocated Total (dollars in thousands) Balance, beginning of year $ 6,355 $ 2,237 $ 1,268 $ 533 $ 12 $ — $ 10,405 Provision for loan losses 1,947 419 168 (118 ) (6 ) 6 2,416 Loans charged off (896 ) (50 ) (277 ) (5 ) (4 ) — (1,232 ) Recoveries 2 26 9 — — — 37 Balance, end of period $ 7,408 $ 2,632 $ 1,168 $ 410 $ 2 $ 6 $ 11,626 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 September 30, 2017 and December 31, 2016: September 30, 2017 Individually Evaluated for Impairment Collectively Evaluated for Impairment Total (dollars in thousands) Allowance for loan losses: Agricultural loans $ 884 $ 8,020 $ 8,904 Commercial real estate loans 200 2,800 3,000 Commercial loans 43 1,447 1,490 Residential real estate loans — 229 229 Installment and consumer other — 2 2 Total ending allowance for loan losses 1,127 12,498 13,625 Loans: Agricultural loans 29,097 646,759 675,856 Commercial real estate loans 3,834 286,586 290,420 Commercial loans 1,158 106,411 107,569 Residential real estate loans — 52,527 52,527 Installment and consumer other — 229 229 Total loans 34,089 1,092,512 1,126,601 Net loans $ 32,962 $ 1,080,014 $ 1,112,976 December 31, 2016 Individually Evaluated for Impairment Collectively Evaluated for Impairment Total (dollars in thousands) Allowance for loan losses: Agricultural loans $ 546 $ 7,627 $ 8,173 Commercial real estate loans 377 2,385 2,762 Commercial loans 413 826 1,239 Residential real estate loans — 470 470 Installment and consumer other — 1 1 Total ending allowance for loan losses 1,336 11,309 12,645 Loans: Agricultural loans 13,044 611,588 624,632 Commercial real estate loans 4,952 265,523 270,475 Commercial loans 3,376 86,568 89,944 Residential real estate loans 68 45,208 45,276 Installment and consumer other — 159 159 Total loans 21,440 1,009,046 1,030,486 Net loans $ 20,104 $ 997,737 $ 1,017,841 The following table presents the aging of the recorded investment in past due loans at September 30, 2017 and December 31, 2016: 30-59 Days Past Due 60-89 Days Past Due 90+ Days Past Due Total Past Due Loans Not Past Due (dollars in thousands) September 30, 2017 Agricultural loans $ 3,429 $ 258 $ 6,264 $ 9,951 $ 665,905 Commercial real estate loans — 624 2,892 3,516 286,904 Commercial loans 135 — 1,118 1,253 106,316 Residential real estate loans 3 — — 3 52,524 Installment and consumer other — — — — 229 Total $ 3,567 $ 882 $ 10,274 $ 14,723 $ 1,111,878 December 31, 2016 Agricultural loans $ 12 $ — $ 9,680 $ 9,692 $ 614,940 Commercial real estate loans — 287 2,710 2,997 267,478 Commercial loans 371 — 2,695 3,066 86,878 Residential real estate loans — — — — 45,276 Installment and consumer other — — — — 159 Total $ 383 $ 287 $ 15,085 $ 15,755 $ 1,014,731 The following table lists information on nonaccrual, restructured, and certain past due loans at September 30, 2017 and December 31, 2016: September 30, December 31, 2017 2016 (dollars in thousands) Nonaccrual loans, 90 days or more past due $ 10,274 $ 15,085 Nonaccrual loans 30-89 days past due 2,430 371 Nonaccrual loans, less than 30 days past due 158 4,651 Restructured loans not on nonaccrual status 8,087 4,300 90 days or more past due and still accruing — — Total 20,949 24,407 The following table presents the recorded investment in nonaccrual loans and loans past due 90 days or more at September 30, 2017 and December 31, 2016: September 30, December 31, 2017 2016 (dollars in thousands) Agricultural loans $ 8,228 $ 12,323 Commercial real estate loans 3,516 4,340 Commercial loans 1,118 3,376 Residential real estate loans — 68 Total $ 12,862 $ 20,107 The average recorded investment in total impaired loans for the nine months ended September 30, 2017 and for the year ended December 31, 2016 amounted to approximately $27.8 million and $25.9 million, respectively. Impaired loans include nonaccrual loans, restructured loans, and loans that are 90 days or more past due and still accruing. Interest income recognized on total impaired loans for the nine months ended September 30, 2017 and for the year ended December 31, 2016 amounted to approximately $0.3 million and $0.4 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 $0.7 million and $1.5 million for the nine months ended September 30, 2017 and for the year ended December 31, 2016, respectively. Troubled Debt Restructurings The Company has allocated approximately $0.8 million and $0.5 million of specific reserves to customers whose loan terms have been modified in troubled debt restructurings (“TDR”) at September 30, 2017 and December 31, 2016, respectively. The Company had no additional lending commitments at September 30, 2017 or December 31, 2016 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 there has been a satisfactory period 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 September 30, 2017 and December 31, 2016. The following table presents the TDRs by loan class at September 30, 2017 and December 31, 2016: Non-Accrual Restructured and Accruing Total (dollars in thousands) September 30, 2017 Agricultural loans $ 4,356 $ 7,729 $ 12,085 Commercial real estate loans 624 318 942 Commercial loans — 40 40 Total $ 4,980 $ 8,087 $ 13,067 December 31, 2016 Agricultural loans $ 7,947 $ 3,925 $ 11,872 Commercial real estate loans 1,400 325 1,725 Commercial loans 371 50 421 Total $ 9,718 $ 4,300 $ 14,018 The following table provides the number of loans modified in a troubled debt restructuring investment by class for the nine months ended September 30, 2017 and 2016: For the Nine Months Ended For the Nine Months Ended September 30, 2017 September 30, 2016 Number of Loans Recorded Investment Number of Loans Recorded Investment (dollars in thousands) Troubled debt restructurings: Agricultural loans 16 $ 6,810 14 $ 8,704 Commercial real estate loans — — 2 553 Commercial loans — — 2 1,632 Total 16 $ 6,810 18 $ 10,889 The following table provides the troubled debt restructurings for the nine months ended September 30, 2017 and 2016 grouped by type of concession: For the Nine Months Ended For the Nine Months Ended September 30, 2017 September 30, 2016 Number of Loans Recorded Investment Number of Loans Recorded Investment (dollars in thousands) Agricultural loans Payment concessions 9 $ 5,581 6 $ 1,732 Extension of interest-only payments 6 908 5 1,243 Combination of extension of term and interest rate concessions 1 321 3 5,729 Commercial real estate loans Extension of interest-only payments — — 2 553 Commercial loans Extension of interest-only payments — — 2 1,632 Total 16 $ 6,810 18 $ 10,889 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. Beginning in the third quarter of 2016, the substandard category was separated in to performing and impaired subcategories to provide more detailed analysis of this category of loans. 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 – Performing. Credits classified as substandard – performing generally have well-defined weaknesses. Collateral coverage is adequate and the loans are not considered impaired. Payments are being made and the loans are on accrual status. Substandard - Impaired . 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. Loans are considered impaired. Loans are either exhibiting signs of delinquency, are on non-accrual or are identified as a TDR. 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 substandard - 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 was as follows as of September 30, 2017 and December 31, 2016: As of September 30, 2017 Sound/ Acceptable/ Satisfactory/ Low Satisfactory Watch Special Mention Substandard Performing Substandard Impaired Total Loans (dollars in thousands) Agricultural loans $ 508,722 $ 100,993 $ 15,012 $ 41,923 9,206 $ 675,856 Commercial real estate loans 225,807 43,907 7,300 9,890 3,516 290,420 Commercial loans 88,132 12,741 1,144 4,434 1,118 107,569 Residential real estate loans 48,623 3,784 — — 120 52,527 Installment and consumer other 229 — — — — 229 Total $ 871,513 $ 161,425 $ 23,456 $ 56,247 $ 13,960 $ 1,126,601 As of December 31, 2016 Sound/ Acceptable/ Satisfactory/ Low Satisfactory Watch Special Mention Substandard Performing Substandard Impaired Total Loans (dollars in thousands) Agricultural loans $ 502,084 $ 84,801 $ 12,657 $ 12,046 $ 13,044 $ 624,632 Commercial real estate loans 225,038 27,368 378 12,739 4,952 270,475 Commercial loans 74,221 6,624 1,632 4,091 3,376 89,944 Residential real estate loans 40,556 4,151 501 — 68 45,276 Installment and consumer other 159 — — — — 159 Total $ 842,058 $ 122,944 $ 15,168 $ 28,876 $ 21,440 $ 1,030,486 |