| Loans and Allowance | Note 5: Loans and Allowance The Company’s loan and allowance policies are as follows: Loans Receivable Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoffs are reported at their outstanding principal balances adjusted for unearned income, charge-offs, the allowance for loan losses, any unamortized deferred fees or costs on originated loans and unamortized premiums or discounts on purchased loans. For loans amortized at cost, interest income is accrued based on the unpaid principal balance. Premiums and discounts are amortized as a level yield adjustment over the respective term of the loan. For loans not secured by real estate or loans secured by real estate with loan-to-value ratios of 80% or more, the accrual of interest is discontinued at the time the loan is 90 days past due unless the credit is well-secured and in process of collection. For loans secured by real estate with a loan-to-value ratio of less than 80%, the accrual of interest is discontinued after the loan is 120 days past due. Past due status is based on contractual terms of the loan. For all loan classes, the entire balance of the loan is considered past due if the minimum payment contractually required to be paid is not received by the contractual due date. For all loan classes, loans are placed on nonaccrual or charged off at an earlier date if collection of principal or interest is considered doubtful. F For all classes, all interest accrued but not collected for loans that are placed on nonaccrual or charged off are reversed against interest income. The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Nonaccrual loans are returned to accrual status when, in the opinion of management, the financial position of the borrower indicates there is no longer any reasonable doubt as to the timely collection of interest or principal. The Company requires a period of satisfactory performance of not less than six months before returning a nonaccrual loan to accrual status. There were no changes in the Company’s nonaccrual policy during the six month periods ended June 30, 2015 and 2014 (unaudited). When cash payments are received on impaired loans in each loan class, the Company records the payment as interest income unless collection of the remaining recorded principal amount is doubtful, at which time payments are used to reduce the principal balance of the loan. Troubled debt restructured loans recognize interest income on an accrual basis at the renegotiated rate if the loan is in compliance with the modified terms. Allowance for Loan Losses The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to income. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. The allowance consists of general and allocated components. The general component covers non-impaired loans and is based on the product of the historical loss experience rate, adjusted by certain qualitative factors in basis points, and the portfolio balance for each loan segment. The historical loss experience rate is determined for each loan portfolio segment and is based on the actual loss history experienced by the Company over the prior four years. Management believes the four year historical loss experience methodology is appropriate in the current economic environment. The allocated component relates to loans that are classified as impaired. For those loans that are classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due The fair values of collateral-dependent impaired loans are based on independent appraisals of the collateral. In general, the Company acquires an updated appraisal upon identification of impairment and annually thereafter for commercial non-real estate, commercial real estate and multi-family real estate loans. After determining the collateral value as described, the fair value is calculated based on the determined collateral value less selling expenses. Segments of loans with similar risk characteristics are collectively evaluated for impairment based on the segment’s historical loss experience adjusted for changes in trends, conditions and other relevant factors that affect repayment of the loans. Accordingly, the Company generally does not separately identify individual consumer and residential loans for impairment measurements, unless such loans are the subject of a restructuring agreement due to financial difficulties of the borrower. Categories of loans receivable include:
June 30, December 31,
2015 2014
(Unaudited)
Real estate:
Agricultural $ 124,361 $ 120,436
Commercial and multi-family 18,678 19,059
One- to four-family residential 42,501 41,674
Agricultural and commercial non-real estate 65,555 68,049
Consumer 4,455 4,296
255,550 253,514
Less
Allowance for losses 8,116 7,413
Total loans $ 247,434 $ 246,101 The risk characteristics of each loan portfolio segment are as follows: Agricultural Real Estate Agricultural real estate loans are primarily comprised of loans for the purchase of farmland. Loan-to-value ratios on loans secured by farmland generally do not exceed 70% and have amortization periods limited to twenty one years. Agricultural and Commercial Non-Real Estate Agricultural non-real estate loans are generally comprised of seasonal operating lines to cash grain farmers to plant and harvest corn and soybeans and term loans to fund the purchase of equipment. Specific underwriting standards have been established for agricultural-related loans including the establishment of projections for each operating year based on industry-developed estimates of farm input costs and expected commodity yields and prices. Operating lines are typically written for one year and secured by the crop and other farm assets as considered necessary. Commercial non-real estate loans are primarily based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of borrowers, however, may not be as expected and the collateral securing these loans may fluctuate in value. Most commercial non-real estate loans are secured by the assets being financed or other business assets, such as accounts receivable or inventory, and may include a personal guarantee. Short-term loans may be made on an unsecured basis. Commercial and Multi-Family Real Estate Commercial and multi-family real estate lending typically involves higher loan principal amounts and the repayment of these loans is generally dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan. Commercial and multi-family real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy. The characteristics of properties securing the Company’s commercial and multi-family real estate portfolio are diverse, but virtually all of these loans are secured by properties in Nebraska. Management monitors and evaluates commercial real estate and multi-family real estate loans based on collateral, geography and risk grade criteria. In addition, the Company generally will not finance single purpose projects unless other underwriting factors are present to help mitigate risk. In addition, management tracks the level of owner-occupied commercial real estate versus nonowner-occupied loans. Residential Real Estate and Consumer Residential real estate and consumer loans consist of two segments - residential mortgage loans and personal loans. For residential mortgage loans that are secured by 1-4 family residences and are generally owner-occupied, the Company generally establishes a maximum loan-to-value ratio of 80% of the sales price or appraised value, whichever is lower, and requires private mortgage insurance if that ratio is exceeded. Home equity loans are typically secured by a subordinate interest in 1-4 family residences, and consumer loans are secured by consumer assets, such as automobiles or recreational vehicles. Some consumer personal loans are unsecured, such as small installment loans and certain lines of credit. Repayment of these loans is primarily dependent on the personal income of the borrowers, which can be impacted by economic conditions in their market areas, such as unemployment levels. Repayment can also be impacted by changes in property values on residential properties. Risk is mitigated by the fact that the loans are of smaller individual amounts and spread over a large number of borrowers. The following table presents by portfolio segment, the activity in the allowance for loan losses for the three and six months ended June 30, 2015, and 2014:
Real Estate
Commercial One- to Agricultural
and Four-Family and
Agricultural Multi-Family Residential Commercial Consumer Total
(Unaudited)
Three Months Ended June 30, 2015
Allowance for Loan Losses:
Balance, beginning of period $ 4,380 $ 391 $ 615 $ 2,312 $ 103 $ 7,801
Provision for loan losses 162 2 - 141 10 315
Loans charged to the allowance - - - - - -
Recoveries of loans previously charged off - - - - - -
Balance, end of period $ 4,542 $ 393 $ 615 $ 2,453 $ 113 $ 8,116
Six Months Ended June 30, 2015
Allowance for Loan Losses:
Balance, beginning of period $ 3,999 $ 510 $ 631 $ 2,167 $ 106 $ 7,413
Provision for loan losses 543 (117 ) (16 ) 286 4 700
Loans charged to the allowance - - - - - -
Recoveries of loans previously charged off - - - - 3 3
Balance, end of period $ 4,542 $ 393 $ 615 $ 2,453 $ 113 $ 8,116
Three Months Ended June 30, 2014
Allowance for Loan Losses:
Balance, beginning of period $ 3,657 $ 602 $ 629 $ 1,485 $ 83 $ 6,456
Provision for loan losses 147 (26 ) 29 132 3 285
Loans charged to the allowance - - - - - -
Recoveries of loans previously charged off - - - - - -
Balance, end of period $ 3,804 $ 576 $ 658 $ 1,617 $ 86 $ 6,741
Six Months Ended June 30, 2014
Allowance for Loan Losses:
Balance, beginning of period $ 3,340 $ 597 $ 510 $ 1,638 $ 86 $ 6,171
Provision for loan losses 464 (21 ) 148 (21 ) - 570
Loans charged to the allowance - - - - - -
Recoveries of loans previously charged off - - - - - -
Balance, end of period $ 3,804 $ 576 $ 658 $ 1,617 $ 86 $ 6,741 The following table presents by portfolio segment, allowance for loan losses and the recorded investment in loans based on portfolio segment and impairment method as of June 30, 2015 and December 31, 2014:
Real Estate
Commercial One- to Agricultural
and Four-Family and
Agricultural Multi-Family Residential Commercial Consumer Total
At June 30, 2015 (Unaudited)
Allowance:
Ending balance $ 4,542 $ 393 $ 615 $ 2,453 $ 113 $ 8,116
Ending balance individually evaluated for impairment $ - $ - $ 5 $ - $ - $ 5
Ending balance collectively evaluated for impairment $ 4,542 $ 393 $ 610 $ 2,453 $ 113 $ 8,111
Loans:
Ending balance $ 124,361 $ 18,678 $ 42,501 $ 65,555 $ 4,455 $ 255,550
Ending balance individually evaluated for impairment $ - $ - $ 14 $ - $ - $ 14
Ending balance collectively evaluated for impairment $ 124,361 $ 18,678 $ 42,487 $ 65,555 $ 4,455 $ 255,536
At December 31, 2014
Allowance:
Ending balance $ 3,999 $ 510 $ 631 $ 2,167 $ 106 $ 7,413
Ending balance individually evaluated for impairment $ - $ 111 $ 10 $ - $ - $ 121
Ending balance collectively evaluated for impairment $ 3,999 $ 399 $ 621 $ 2,167 $ 106 $ 7,292
Loans:
Ending balance $ 120,436 $ 19,059 $ 41,674 $ 68,049 $ 4,296 $ 253,514
Ending balance individually evaluated for impairment $ - $ 120 $ 17 $ - $ - $ 137
Ending balance collectively evaluated for impairment $ 120,436 $ 18,939 $ 41,657 $ 68,049 $ 4,296 $ 253,377 The following table presents the credit risk profile of the Company’s loan portfolio based on rating category and payment activity as of June 30, 2015:
Real Estate
Commercial One- to Agricultural
and Four-Family and
Agricultural Multi-Family Residential Commercial Consumer Total
(Unaudited)
Pass $ 123,608 $ 18,678 $ 41,961 $ 65,546 $ 4,425 $ 254,218
Special Mention - - 356 8 14 378
Substandard 753 - 184 1 16 954
Doubtful - - - - - -
Loss - - - - - -
Total $ 124,361 $ 18,678 $ 42,501 $ 65,555 $ 4,455 $ 255,550 The following table presents the credit risk profile of the Company’s loan portfolio based on rating category and payment activity as of December 31, 2014:
Real Estate
Commercial One- to Agricultural
and Four-Family and
Agricultural Multi-Family Residential Commercial Consumer Total
Pass $ 119,905 $ 18,929 $ 41,053 $ 67,787 $ 4,257 $ 251,931
Special Mention 117 10 431 10 21 589
Substandard 414 120 190 252 18 994
Doubtful - - - - - -
Loss - - - - - -
Total $ 120,436 $ 19,059 $ 41,674 $ 68,049 $ 4,296 $ 253,514 The Company generally categorizes all classes of loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. Generally, smaller dollar consumer loans are excluded from this grading process and are reflected in the Pass category. The delinquency trends of these consumer loans are monitored on a homogeneous basis and the related delinquent amounts are reflected in the aging analysis table below. The Company uses the following definitions for risk ratings: The Pass asset quality rating encompasses assets that have generally performed as expected. With the exception of some smaller consumer and residential loans, these assets generally do not have delinquency. Loans assigned this rating include loans to borrowers possessing solid credit quality with acceptable risk. Borrowers in these grades are differentiated from higher grades on the basis of size (capital and/or revenue), leverage, asset quality, stability of the industry or specific market area and quality/coverage of collateral. These borrowers generally have a history of consistent earnings and reasonable leverage. The Special Mention asset quality rating encompasses assets that have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the institution’s credit position at some future date. Special mention assets are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification. This grade is intended to include loans to borrowers whose credit quality has clearly deteriorated and where risk of further decline is possible unless active measures are taken to correct the situation. Weaknesses are considered potential at this state and are not yet fully defined. The Substandard asset quality rating encompasses assets that are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any; assets having a well-defined weakness based upon objective evidence; assets characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected; or the possibility that liquidation will not be timely. Loans categorized in this grade possess a well-defined credit weakness and the likelihood of repayment from the primary source is uncertain. Significant financial deterioration has occurred and very close attention is warranted to ensure the full repayment without loss. Collateral coverage may be marginal and the accrual of interest has been suspended. The Doubtful asset quality rating encompasses assets that have all of the weaknesses of those classified as Substandard. In addition, these weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. The Loss asset quality rating encompasses assets that are considered uncollectible and of such little value that their continuance as assets of the bank is not warranted. A loss classification does not mean that an asset has no recovery or salvage value; instead, it means that it is not practical or desirable to defer writing off or reserving all or a portion of a basically worthless asset, even though partial recovery may be realized in the future. The following table presents the Company’s loan portfolio aging analysis and nonperforming loans as of June 30, 2015:
Real Estate
Commercial One- to Agricultural
and Four-Family and
Agricultural Multi-Family Residential Commercial Consumer Total
(Unaudited)
Past Due:
30-59 days $ - $ - $ 110 $ 8 $ 24 $ 142
60-89 days 343 - 74 - - 417
90 days or more - - - 20 - 20
Total past due 343 - 184 28 24 579
Current 124,018 18,678 42,317 65,527 4,431 254,971
Total loans $ 124,361 $ 18,678 $ 42,501 $ 65,555 $ 4,455 $ 255,550
Nonaccrual loans $ 343 $ - $ 183 $ - $ 9 $ 535
Loans past due 90 days and still accruing - - - 20 - 20
$ 343 $ - $ 183 $ 20 $ 9 $ 555 The following table presents the Company’s loan portfolio aging analysis and nonperforming loans as of December 31, 2014:
Real Estate
Commercial One- to Agricultural
and Four-Family and
Agricultural Multi-Family Residential Commercial Consumer Total
Past Due:
30-59 days $ - $ - $ 882 $ 469 $ - $ 1,351
60-89 days - - 258 - 7 265
90 days or more - - 173 - - 173
Total past due - - 1,313 469 7 1,789
Current 120,436 19,059 40,361 67,580 4,289 251,725
Total loans $ 120,436 $ 19,059 $ 41,674 $ 68,049 $ 4,296 $ 253,514
Nonaccrual loans $ - $ 120 $ 174 $ - $ 11 $ 305
Loans past due 90 days and still accruing - - 173 - - 173
$ - $ 120 $ 347 $ - $ 11 $ 478 A loan is considered impaired, in accordance with the impairment accounting guidance (ASC 310-10-35-16), when based on current information and events, it is probable the Company will be unable to collect all amounts due from the borrower in accordance with the contractual terms of the loan. Impaired loans include nonperforming commercial loans but also include loans modified in troubled debt restructurings where concessions have been granted to borrowers experiencing financial difficulties. These concessions could include a reduction in the interest rate on the loan, payment extensions, forgiveness of principal, forbearance or other actions intended to maximize collection. The following table presents impaired loans and specific valuation allowance based on class level at June 30, 2015:
Real Estate
Commercial One- to Agricultural
and Four-Family and
Agricultural Multi-Family Residential Commercial Consumer Total
(Unaudited)
Impaired loans with an allowance for loan losses $ - $ - $ 14 $ - $ - $ 14
Impaired loans with no allowance for loan losses - - - - - -
Total impaired loans $ - $ - $ 14 $ - $ - $ 14
Unpaid principal balance of impaired loans $ - $ - $ 14 $ - $ - $ 14
Allowance for loan losses on impaired loans - - 5 - - 5 The following table presents average impaired loans based on class level for the three and six months ended June 30, 2015 and 2014:
Real Estate
Commercial One- to Agricultural
and Four-Family and
Agricultural Multi-Family Residential Commercial Consumer Total
(Unaudited)
Three Months Ended June 30, 2015
Average recorded investment in impaired loans $ - $ - $ 15 $ - $ - $ 15
Interest income recognized on impaired loans $ - $ - $ - $ - $ - $ -
Six Months Ended June 30, 2015
Average recorded investment in impaired loans $ - $ 40 $ 15 $ - $ - $ 55
Interest income recognized on impaired loans $ - $ 4 $ - $ - $ - $ 4
Three Months Ended June 30, 2014
Average recorded investment in impaired loans $ - $ 136 $ 19 $ - $ - $ 155
Interest income recognized on impaired loans $ - $ - $ - $ - $ - $ -
Six Months Ended June 30, 2014
Average recorded investment in impaired loans $ - $ 139 $ 20 $ - $ - $ 159
Interest income recognized on impaired loans $ - $ 3 $ 1 $ - $ - $ 4 The following table presents impaired loans and specific valuation allowance based on class level at December 31, 2014:
Real Estate
Commercial One- to Agricultural
and Four-Family and
Agricultural Multi-Family Residential Commercial Consumer Total
Impaired loans with an allowance for loan losses $ - $ 120 $ 17 $ - $ - $ 137
Impaired loans with no allowance for loan losses - - - - - -
Total impaired loans $ - $ 120 $ 17 $ - $ - $ 137
Unpaid principal balance of impaired loans $ - $ 120 $ 17 $ - $ - $ 137
Allowance for loan losses on impaired loans - 111 10 - - 121
Average recorded investment in impaired loans - 131 19 - - 150 During the three and six months ended June 30, 2015 and 2014 (unaudited), there were no new restructurings classified as troubled debt restructurings. At June 30, 2015 and 2014 (unaudited), there were no such loans restructured within the last twelve months that were in default. |
