LOANS | NOTE 4 – LOANS The components of loans were as follows: June 30, December 31, 2018 2017 (dollars in thousands) Agricultural loans $ 702,426 $ 686,430 Commercial real estate loans 289,184 292,704 Commercial loans 118,425 114,332 Residential real estate loans 71,150 55,138 Installment and consumer other 339 347 Total gross loans 1,181,524 1,148,951 Allowance for loan losses (15,129 ) (13,247 ) Net loans $ 1,166,395 $ 1,135,704 Changes in the allowance for loan losses by portfolio segment for the six months ended June 30, 2018 and 2017 were as follows: Agricultural Commercial Real Estate Commercial Residential Real Estate Installment and Consumer Other Total (dollars in thousands) June 30, 2018 Balance, beginning of year $ 9,712 $ 1,978 $ 1,508 $ 47 $ 2 $ 13,247 Provision for loan losses 1,915 (1,284 ) 3 (3 ) (1 ) 630 Loans charged off — (42 ) — — — (42 ) Recoveries 1 1,251 41 — 1 1,294 Balance, end of period $ 11,628 $ 1,903 $ 1,552 $ 44 $ 2 $ 15,129 June 30, 2017 Balance, beginning of year $ 8,173 $ 2,762 $ 1,239 $ 470 $ 1 $ 12,645 Provision for loan losses 1,029 473 1,028 (246 ) 1 2,285 Loans charged off — (575 ) (917 ) — — (1,492 ) Recoveries 1 36 28 — — 65 Balance, end of period $ 9,203 $ 2,696 $ 1,378 $ 224 $ 2 $ 13,503 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, 2018 and December 31, 2017: June 30, 2018 Individually Evaluated for Impairment Collectively Evaluated for Impairment Total (dollars in thousands) Allowance for loan losses: Agricultural loans $ 2,855 $ 8,773 $ 11,628 Commercial real estate loans 10 1,893 1,903 Commercial loans 781 771 1,552 Residential real estate loans — 44 44 Installment and consumer other — 2 2 Total ending allowance for loan losses 3,646 11,483 15,129 Loans: Agricultural loans 42,838 659,588 702,426 Commercial real estate loans 2,366 286,818 289,184 Commercial loans 1,878 116,547 118,425 Residential real estate loans — 71,150 71,150 Installment and consumer other — 339 339 Total loans 47,082 1,134,442 1,181,524 Net loans $ 43,436 $ 1,122,959 $ 1,166,395 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 June 30, 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) June 30, 2018 Agricultural loans $ 1,132 $ 780 $ 5,709 $ 7,621 $ 694,805 $ 702,426 Commercial real estate loans 2,385 — 2,366 4,751 284,433 289,184 Commercial loans — 731 1,089 1,820 116,605 118,425 Residential real estate loans — — — — 71,150 71,150 Installment and consumer other — — — — 339 339 Total $ 3,517 $ 1,511 $ 9,164 $ 14,192 $ 1,167,332 $ 1,181,524 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 June 30, 2018 and December 31, 2017: June 30, December 31, 2018 2017 (dollars in thousands) Nonaccrual loans, 90 days or more past due $ 9,164 $ 9,610 Nonaccrual loans 30-89 days past due 1,778 1,493 Nonaccrual loans, less than 30 days past due 15,363 456 Restructured loans not on nonaccrual status 11,173 9,019 90 days or more past due and still accruing — — Total $ 37,478 $ 20,578 The following table presents the average recorded investment and interest income recognized on impaired loans by portfolio segment for six months ended June 30, 2018 and 2017: For the Six Months Ended 2018 2017 Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized (dollars in thousands) Agricultural loans $ 35,791 $ 1,417 $ 10,810 $ 113 Commercial real estate loans 2,416 6 4,392 60 Commercial loans 1,836 25 2,254 4 Residential real estate loans — — 34 — Total $ 40,042 $ 1,448 $ 17,490 $ 177 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 $1.0 million and $0.5 million for the six months ended June 30, 2018 and 2017, respectively. Troubled Debt Restructurings The Company has allocated approximately $1.4 million and $0.9 million of specific reserves to customers whose loan terms have been modified in troubled debt restructurings (“TDR”) at June 30, 2018 and December 31, 2017, respectively. The Company had no additional lending commitments at June 30, 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 June 30, 2018 and December 31, 2017: Non-Accrual Restructured and Accruing Total (dollars in thousands) June 30, 2018 Agricultural loans $ 6,136 $ 11,150 $ 17,286 Commercial real estate loans 323 — 323 Commercial loans — 23 23 Total $ 6,459 $ 11,173 $ 17,632 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 six months ended June 30, 2018 and 2017: For the Six Months Ended For the Six Months Ended June 30, 2018 June 30, 2017 Number of Loans Recorded Investment Number of Loans Recorded Investment (dollars in thousands) Troubled debt restructurings: Agricultural loans 15 $ 5,375 3 $ 546 Total 15 $ 5,375 3 $ 546 The following table provides the troubled debt restructurings for the six months ended June 30, 2018 and 2017 grouped by type of concession: For the Six Months Ended For the Six Months Ended June 30, 2018 June 30, 2017 Number of Loans Recorded Investment Number of Loans Recorded Investment (dollars in thousands) Agricultural loans Payment concessions 9 $ 3,744 2 $ 221 Extension of interest-only payments 6 1,631 — — Combination of extension of term and interest rate concessions — — 1 325 Total 15 $ 5,375 3 $ 546 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 June 30, 2018 and December 31, 2017: As of June 30, 2018 Sound/ Acceptable/ Satisfactory/ Low Satisfactory Watch Special Mention Substandard Performing Substandard Impaired Total Loans (dollars in thousands) Agricultural loans $ 492,010 $ 130,625 $ 4,193 $ 32,760 $ 42,838 $ 702,426 Commercial real estate loans 239,625 35,196 590 11,407 2,366 289,184 Commercial loans 97,225 16,738 — 2,584 1,878 118,425 Residential real estate loans 67,310 3,840 — — — 71,150 Installment and consumer other 339 — — — — 339 Total $ 896,509 $ 186,399 $ 4,783 $ 46,751 $ 47,082 $ 1,181,524 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 June 30, 2018, the Company pledged $249.0 million of loans to secure a line-of-credit at the Federal Reserve of Chicago up to $186.7 million which was unused at June 30, 2018. No loans were pledged to the Federal Reserve of Chicago at December 31, 2017. |