LOANS | NOTE 4 – LOANS The components of loans were as follows: March 31, December 31, 2018 2017 (dollars in thousands) Agricultural loans $ 698,106 $ 686,430 Commercial real estate loans 292,271 292,704 Commercial loans 113,825 114,332 Residential real estate loans 60,026 55,138 Installment and consumer other 297 347 Total gross loans 1,164,525 1,148,951 Allowance for loan losses (14,612 ) (13,247 ) Net loans $ 1,149,913 $ 1,135,704 Changes in the allowance for loan losses by portfolio segment for the three months ended March 31, 2018 and 2017 were as follows: Agricultural Commercial Real Estate Commercial Residential Real Estate Installment and Consumer Other Total (dollars in thousands) March 31, 2018 Balance, beginning of year $ 9,712 $ 1,978 $ 1,508 $ 47 $ 2 $ 13,247 Provision for loan losses 1,537 (1,118 ) (319 ) (2 ) (1 ) 97 Loans charged off — (42 ) — — — (42 ) Recoveries 1 1,240 68 — 1 1,310 Balance, end of period $ 11,250 $ 2,058 $ 1,257 $ 45 $ 2 $ 14,612 March 31, 2017 Balance, beginning of year $ 8,173 $ 2,762 $ 1,239 $ 470 $ 1 $ 12,645 Provision for loan losses 132 180 424 25 — 761 Loans charged off — — (17 ) — — (17 ) Recoveries — 13 26 — — 39 Balance, end of period $ 8,305 $ 2,955 $ 1,672 $ 495 $ 1 $ 13,428 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 March 31, 2018 and December 31, 2017: March 31, 2018 Individually Evaluated for Impairment Collectively Evaluated for Impairment Total (dollars in thousands) Allowance for loan losses: Agricultural loans $ 2,419 $ 8,831 $ 11,250 Commercial real estate loans — 2,058 2,058 Commercial loans 273 984 1,257 Residential real estate loans — 45 45 Installment and consumer other — 2 2 Total ending allowance for loan losses 2,692 11,920 14,612 Loans: Agricultural loans 35,545 662,561 698,106 Commercial real estate loans 575 291,696 292,271 Commercial loans 1,153 112,672 113,825 Residential real estate loans 114 59,912 60,026 Installment and consumer other — 297 297 Total loans 37,387 1,127,138 1,164,525 Net loans $ 34,695 $ 1,115,218 $ 1,149,913 December 31, 2017 Individually Evaluated for Impairment Collectively Evaluated for Impairment Total (dollars in thousands) Allowance for loan losses: Agricultural loans $ 1,026 $ 8,686 $ 9,712 Commercial real estate loans - 1,978 1,978 Commercial loans 410 1,098 1,508 Residential real estate loans — 47 47 Installment and consumer other — 2 2 Total ending allowance for loan losses 1,436 11,811 13,247 Loans: Agricultural loans 28,744 657,686 686,430 Commercial real estate loans 2,465 290,239 292,704 Commercial loans 1,793 112,539 114,332 Residential real estate loans — 55,138 55,138 Installment and consumer other — 347 347 Total loans 33,002 1,115,949 1,148,951 Net loans $ 31,566 $ 1,104,138 $ 1,135,704 The following table presents the aging of the recorded investment in past due loans at March 31, 2018 and December 31, 2017: 30-59 Days Past Due 60-89 Days Past Due 90+ Days Past Due Total Past Due Loans Not Past Due Total Loans (dollars in thousands) March 31, 2018 Agricultural loans $ 1,434 $ 41 $ 5,137 $ 6,612 $ 691,494 $ 698,106 Commercial real estate loans 1,131 794 575 2,500 289,771 292,271 Commercial loans 169 — 1,064 1,233 112,592 113,825 Residential real estate loans 11 — — 11 60,015 60,026 Installment and consumer other — — — — 297 297 Total $ 2,745 $ 835 $ 6,776 $ 10,356 $ 1,154,169 $ 1,164,525 December 31, 2017 Agricultural loans $ 476 $ — $ 6,819 $ 7,295 $ 679,135 $ 686,430 Commercial real estate loans — — 2,149 2,149 290,555 292,704 Commercial loans 1,064 — 642 1,706 112,626 114,332 Residential real estate loans — — — — 55,138 55,138 Installment and consumer other — — — — 347 347 Total $ 1,540 $ — $ 9,610 $ 11,150 $ 1,137,801 $ 1,148,951 The following table lists information on nonaccrual, restructured, and certain past due loans at March 31, 2018 and December 31, 2017: March 31, December 31, 2018 2017 (dollars in thousands) Nonaccrual loans, 90 days or more past due $ 6,776 $ 9,610 Nonaccrual loans 30-89 days past due 1,004 1,493 Nonaccrual loans, less than 30 days past due 9,966 456 Restructured loans not on nonaccrual status 10,488 9,019 90 days or more past due and still accruing — — Total $ 28,234 $ 20,578 The following table presents the average recorded investment and interest income recognized on impaired loans by portfolio segment for three months ended March 31, 2018 and 2017: For the Three Months Ended March 31, 2018 2017 Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized (dollars in thousands) Agricultural loans $ 32,145 $ 646 $ 11,199 $ 69 Commercial real estate loans 1,520 — 4,582 12 Commercial loans 1,473 1 3,261 7 Residential real estate loans 57 1 67 1 Total $ 35,195 $ 648 $ 19,109 $ 89 Impaired loans include nonaccrual loans, restructured loans, and loans that are 90 days or more past due and still accruing. 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 $0.3 million for the three months ended March 31, 2018 and 2017, respectively. Troubled Debt Restructurings The Company has allocated approximately $0.8 million and $0.9 million of specific reserves to customers whose loan terms have been modified in troubled debt restructurings (“TDR”) at March 31, 2018 and December 31, 2017, respectively. The Company had no additional lending commitments at March 31, 2018 or December 31, 2017 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. The following table presents the TDRs by loan class at March 31, 2018 and December 31, 2017: Non-Accrual Restructured and Accruing Total (dollars in thousands) March 31, 2018 Agricultural loans $ 5,852 $ 10,459 $ 16,311 Commercial real estate loans 575 — 575 Commercial loans — 29 29 Total $ 6,427 $ 10,488 $ 16,915 December 31, 2017 Agricultural loans $ 3,822 $ 8,668 $ 12,490 Commercial real estate loans 575 316 891 Commercial loans — 35 35 Total $ 4,397 $ 9,019 $ 13,416 The following table provides the number of loans modified in a troubled debt restructuring investment by class for the three months ended March 31, 2018 and 2017: For the Three Months Ended For the Three Months Ended March 31, 2018 March 31, 2017 Number of Loans Recorded Investment Number of Loans Recorded Investment (dollars in thousands) Troubled debt restructurings: Agricultural loans 7 $ 2,842 1 $ 325 Total 7 $ 2,842 1 $ 325 The following table provides the troubled debt restructurings for the three months ended March 31, 2018 and 2017 grouped by type of concession: For the Three Months Ended For the Three Months Ended March 31, 2018 March 31, 2017 Number of Loans Recorded Investment Number of Loans Recorded Investment (dollars in thousands) Agricultural loans Payment concessions 6 $ 2,751 — $ — Extension of interest-only payments 1 91 — — Combination of extension of term and interest rate concessions — — 1 325 Total 7 $ 2,842 1 $ 325 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 – 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 March 31, 2018 and December 31, 2017: As of March 31, 2018 Sound/ Acceptable/ Satisfactory/ Low Satisfactory Watch Special Mention Substandard Performing Substandard Impaired Total Loans (dollars in thousands) Agricultural loans $ 513,843 $ 113,296 $ 3,187 $ 32,235 $ 35,545 $ 698,106 Commercial real estate loans 229,163 50,413 2,449 9,671 575 292,271 Commercial loans 91,877 17,440 — 3,355 1,153 113,825 Residential real estate loans 55,882 4,030 — — 114 60,026 Installment and consumer other 297 — — — — 297 Total $ 891,062 $ 185,179 $ 5,636 $ 45,261 $ 37,387 $ 1,164,525 As of December 31, 2017 Sound/ Acceptable/ Satisfactory/ Low Satisfactory Watch Special Mention Substandard Performing Substandard Impaired Total Loans (dollars in thousands) Agricultural loans $ 503,292 $ 115,374 $ 3,443 $ 35,577 $ 28,744 $ 686,430 Commercial real estate loans 225,898 50,043 4,574 9,724 2,465 292,704 Commercial loans 93,347 13,384 885 4,923 1,793 114,332 Residential real estate loans 50,917 4,221 — — — 55,138 Installment and consumer other 347 — — — — 347 Total $ 873,801 $ 183,022 $ 8,902 $ 50,224 $ 33,002 $ 1,148,951 As of March 31, 2018, the Company pledged $246.9 million of loans to secure a line-of-credit at the Federal Reserve of Chicago up to $187.3 million which was unused at March 31, 2018. No loans were pledged to the Federal Reserve of Chicago at December 31, 2017. |