LOANS | NOTE 4 – LOANS The components of loans were as follows: September 30, December 31, 2019 2018 (dollars in thousands) Agricultural loans $ 673,742 $ 724,508 Commercial real estate loans 256,919 299,212 Commercial loans 103,213 116,460 Residential real estate loans 46,670 66,843 Installment and consumer other 223 272 Total gross loans 1,080,767 1,207,295 Allowance for loan losses (15,065 ) (16,505 ) Net loans $ 1,065,702 $ 1,190,790 Changes in the allowance for loan losses by portfolio segment for the three and nine months ended September 30, 2019 and 2018 were as follows: Agricultural Commercial Real Estate Commercial Residential Real Estate Installment and Consumer Other Total (dollars in thousands) For the Three Months Ended September 30, 2019 Balance, beginning of period $ 13,647 $ 1,882 $ 709 $ 19 $ 1 $ 16,258 Provision for loan losses (1,093 ) (44 ) (14 ) (4 ) 1 (1,154 ) Loans charged off (54 ) (1 ) — — — (55 ) Recoveries 1 15 — — — 16 Balance, end of period $ 12,501 $ 1,852 $ 695 $ 15 $ 2 $ 15,065 For the Nine Months Ended September 30,2019 Balance, beginning of year $ 12,258 $ 2,779 $ 1,414 $ 53 $ 1 $ 16,505 Provision for loan losses 281 91 139 (38 ) 1 474 Loans charged off (54 ) (2,625 ) (960 ) — — (3,639 ) Recoveries 16 1,607 102 — — 1,725 Balance, end of period $ 12,501 $ 1,852 $ 695 $ 15 $ 2 $ 15,065 For the Three Months Ended September 30, 2018 Balance, beginning of period $ 11,628 $ 1,903 $ 1,552 $ 44 $ 2 $ 15,129 Provision for loan losses 932 22 30 10 (1 ) 993 Loans charged off — — — — — — Recoveries — 10 11 — — 21 Balance, end of period $ 12,560 $ 1,935 $ 1,593 $ 54 $ 1 $ 16,143 For the Nine Months Ended September 30,2018 Balance, beginning of year $ 9,712 $ 1,978 $ 1,508 $ 47 $ 2 $ 13,247 Provision for loan losses 2,847 (1,262 ) 33 7 (2 ) 1,623 Loans charged off — (42 ) — — — (42 ) Recoveries 1 1,261 52 — 1 1,315 Balance, end of period $ 12,560 $ 1,935 $ 1,593 $ 54 $ 1 $ 16,143 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, 2019 and December 31, 2018: September 30, 2019 Individually Evaluated for Impairment Collectively Evaluated for Impairment Total (dollars in thousands) Allowance for loan losses: Agricultural loans $ 3,702 $ 8,799 $ 12,501 Commercial real estate loans 4 1,848 1,852 Commercial loans 298 397 695 Residential real estate loans — 15 15 Installment and consumer other — 2 2 Total ending allowance for loan losses 4,004 11,061 15,065 Loans: Agricultural loans 60,049 613,693 673,742 Commercial real estate loans 1,016 255,903 256,919 Commercial loans 600 102,613 103,213 Residential real estate loans 63 46,607 46,670 Installment and consumer other — 223 223 Total loans 61,728 1,019,039 1,080,767 Net loans $ 57,724 $ 1,007,978 $ 1,065,702 December 31, 2018 Individually Evaluated for Impairment Collectively Evaluated for Impairment Total (dollars in thousands) Allowance for loan losses: Agricultural loans $ 2,325 $ 9,933 $ 12,258 Commercial real estate loans 583 2,196 2,779 Commercial loans 745 669 1,414 Residential real estate loans — 53 53 Installment and consumer other — 1 1 Total ending allowance for loan losses 3,653 12,852 16,505 Loans: Agricultural loans 52,947 671,561 724,508 Commercial real estate loans 2,037 297,175 299,212 Commercial loans 1,773 114,687 116,460 Residential real estate loans — 66,843 66,843 Installment and consumer other — 272 272 Total loans 56,757 1,150,538 1,207,295 Net loans $ 53,104 $ 1,137,686 $ 1,190,790 The following tables present loans individually evaluated for impairment by class of loans at September 30, 2019 and December 31, 2018: September 30, 2019 Unpaid Principal Balance Recorded Investment Allowance for Loan Losses Allocated (dollars in thousands) With no related allowance: Agricultural loans $ 21,014 $ 20,969 $ — Commercial real estate loans — — — Commercial loans — — — Residential real estate loans 63 63 — $ 21,077 $ 21,032 $ — With an allowance recorded: Agricultural loans $ 41,652 $ 39,080 $ 3,702 Commercial real estate loans 1,015 1,016 4 Commercial loans 609 600 298 Residential real estate loans — — — $ 43,276 $ 40,696 $ 4,004 Total $ 64,353 $ 61,728 $ 4,004 December 31, 2018 Unpaid Principal Balance Recorded Investment Allowance for Loan Losses Allocated (dollars in thousands) With no related allowance: Agricultural loans $ 22,218 $ 21,654 $ — Commercial real estate loans — — — Commercial loans 455 455 — Residential real estate loans — — — $ 22,673 $ 22,109 $ — With an allowance recorded: Agricultural loans $ 33,090 $ 31,293 $ 2,325 Commercial real estate loans 2,037 2,037 583 Commercial loans 1,326 1,318 745 Residential real estate loans — — — $ 36,453 $ 34,648 $ 3,653 Total $ 59,126 $ 56,757 $ 3,653 The following table presents the aging of the recorded investment in past due loans at September 30, 2019 and December 31, 2018: 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) September 30, 2019 Agricultural loans $ 2,201 $ 92 $ 4,399 $ 6,692 $ 667,050 $ 673,742 Commercial real estate loans — — — — 256,919 256,919 Commercial loans 99 — 531 630 102,583 103,213 Residential real estate loans 117 — 63 180 46,490 46,670 Installment and consumer other — — — — 223 223 Total $ 2,417 $ 92 $ 4,993 $ 7,502 $ 1,073,265 $ 1,080,767 December 31, 2018 Agricultural loans $ 460 $ 969 $ 7,968 $ 9,397 $ 715,111 $ 724,508 Commercial real estate loans — — 2,037 2,037 297,175 299,212 Commercial loans — — 600 600 115,860 116,460 Residential real estate loans — — — — 66,843 66,843 Installment and consumer other — — — — 272 272 Total $ 460 $ 969 $ 10,605 $ 12,034 $ 1,195,261 $ 1,207,295 The following table lists information on nonaccrual loans, troubled debt restructured loans, and loans 90 days or more past due and still accruing at September 30, 2019 and December 31, 2018: September 30, December 31, 2019 2018 (dollars in thousands) Nonaccrual loans, 90 days or more past due $ 4,993 $ 10,605 Nonaccrual loans 30-89 days past due 238 868 Nonaccrual loans, less than 30 days past due 15,545 11,510 Troubled debt restructured loans not on nonaccrual status 28,520 19,389 90 days or more past due and still accruing — — Total $ 49,296 $ 42,372 The following table presents the recorded investment in nonaccrual loans and loans 90 days or more past due and still accruing by class of loan: September 30, December 31, 2019 2018 (dollars in thousands) Agricultural loans $ 20,182 $ 19,173 Commercial real estate loans — 2,037 Commercial loans 531 1,773 Residential real estate loans 63 — Total $ 20,776 $ 22,983 The following tables present the average recorded investment and interest income recognized on impaired loans by portfolio segment for the three and nine months ended September 30, 2019 and 2018: As of and for the Three Months Ended September 30, 2019 Unpaid Principal Balance Recorded Investment Allowance for Loan Losses Allocated Average Recorded Investment Interest Income Recognized (dollars in thousands) Agricultural loans $ 62,666 $ 60,049 $ 3,702 $ 59,963 $ 1,384 Commercial real estate loans 1,015 1,016 4 1,019 15 Commercial loans 609 600 298 566 6 Residential real estate loans 63 63 — 32 1 Total $ 64,353 $ 61,728 $ 4,004 $ 61,580 $ 1,406 As of and for the Nine Months Ended September 30, 2019 Unpaid Principal Balance Recorded Investment Allowance for Loan Losses Allocated Average Recorded Investment Interest Income Recognized (dollars in thousands) Agricultural loans $ 62,666 $ 60,049 $ 3,702 $ 56,498 $ 4,088 Commercial real estate loans 1,015 1,016 4 1,527 46 Commercial loans 609 600 298 1,187 9 Residential real estate loans 63 63 — 32 1 Total $ 64,353 $ 61,728 $ 4,004 $ 59,243 $ 4,144 As of and for the Three Months Ended September 30, 2018 Unpaid Principal Balance Recorded Investment Allowance for Loan Losses Allocated Average Recorded Investment Interest Income Recognized (dollars in thousands) Agricultural loans $ 53,336 $ 52,444 $ 3,470 $ 47,641 $ 1,290 Commercial real estate loans 2,244 2,238 10 2,302 — Commercial loans 1,843 1,835 766 1,857 4 Total $ 57,423 $ 56,517 $ 4,246 $ 51,800 $ 1,294 As of and for the Nine Months Ended September 30, 2018 Unpaid Principal Balance Recorded Investment Allowance for Loan Losses Allocated Average Recorded Investment Interest Income Recognized (dollars in thousands) Agricultural loans $ 53,336 $ 52,444 $ 3,470 $ 40,594 $ 2,706 Commercial real estate loans 2,244 2,238 10 2,352 5 Commercial loans 1,843 1,835 766 1,814 29 Total $ 57,423 $ 56,517 $ 4,246 $ 44,760 $ 2,740 Impaired loans include nonaccrual loans, troubled debt 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 $1.6 million and $2.7 million for the nine months ended September 30, 2019 and 2018, respectively. Troubled Debt Restructurings The Company allocated approximately $3.8 million and $2.0 million of specific reserves to customers whose loan terms have been modified in troubled debt restructurings (“TDR”) at September 30, 2019 and December 31, 2018, respectively. The Company had no additional lending commitments at September 30, 2019 or December 31, 2018 to customers with outstanding loans that were 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 September 30, 2019 and December 31, 2018: Non-Accrual Restructured and Accruing Total (dollars in thousands) September 30, 2019 Agricultural loans $ 13,049 $ 27,435 $ 40,484 Commercial real estate loans — 1,016 1,016 Commercial loans 531 69 600 Total $ 13,580 $ 28,520 $ 42,100 December 31, 2018 Agricultural loans $ 12,034 $ 19,389 $ 31,423 Commercial loans 92 — 92 Total $ 12,126 $ 19,389 $ 31,515 The following table provides the number of loans modified in a troubled debt restructuring investment by class for the nine months ended September 30, 2019 and 2018 For the Nine Months Ended September 30, 2019 September 30, 2018 Number of Loans Recorded Investment Number of Loans Recorded Investment (dollars in thousands) Troubled debt restructurings: Agricultural loans 41 $ 17,454 16 $ 5,994 Commercial real estate loans 1 1,021 — — Commercial loans 4 1,115 1 92 Total 46 $ 19,590 17 $ 6,086 The following table provides the troubled debt restructurings for the nine months ended September 30, 2019 and 2018 grouped by type of concession: For the Nine Months Ended September 30, 2019 September 30, 2018 Number of Loans Recorded Investment Number of Loans Recorded Investment (dollars in thousands) Agricultural loans Payment concessions 3 $ 703 8 $ 3,526 Term concessions 12 4,078 — — Rate concessions 1 85 — — Extension of interest-only payments 24 12,436 8 2,468 Capitalized interest 1 152 — — Commercial real estate loans Payment concessions 1 1,021 — — Commercial loans Combination of extension of term and interest rate concessions 2 1,046 — — Payment concessions 2 69 1 92 Total 46 $ 19,590 17 $ 6,086 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 September 30, 2019 and December 31, 2018: As of September 30, 2019 Sound/ Acceptable/ Satisfactory/ Low Satisfactory Watch Special Mention Substandard Performing Substandard Impaired Total Loans (dollars in thousands) Agricultural loans $ 403,311 $ 171,822 $ 9,346 $ 29,214 $ 60,049 $ 673,742 Commercial real estate loans 232,636 12,033 — 11,234 1,016 256,919 Commercial loans 89,215 9,833 — 3,565 600 103,213 Residential real estate loans 46,183 254 — 170 63 46,670 Installment and consumer other 223 — — — — 223 Total $ 771,568 $ 193,942 $ 9,346 $ 44,183 $ 61,728 $ 1,080,767 As of December 31, 2018 Sound/ Acceptable/ Satisfactory/ Low Satisfactory Watch Special Mention Substandard Performing Substandard Impaired Total Loans (dollars in thousands) Agricultural loans $ 495,418 $ 133,582 $ 564 $ 41,997 $ 52,947 $ 724,508 Commercial real estate loans 253,853 18,968 4,642 19,712 2,037 299,212 Commercial loans 95,842 15,237 1,360 2,248 1,773 116,460 Residential real estate loans 62,787 3,883 — 173 — 66,843 Installment and consumer other 272 — — — — 272 Total $ 908,172 $ 171,670 $ 6,566 $ 64,130 $ 56,757 $ 1,207,295 |