Loans | Loans Loans were comprised of the following classifications at December 31: 2017 2016 Commercial: Commercial and Industrial Loans and Leases $ 486,668 $ 457,372 Commercial Real Estate Loans 926,729 856,094 Agricultural Loans 333,227 303,128 Retail: Home Equity Loans 152,187 133,575 Consumer Loans 67,475 59,945 Residential Mortgage Loans 178,733 183,290 Subtotal 2,145,019 1,993,404 Less: Unearned Income (3,381 ) (3,449 ) Allowance for Loan Losses (15,694 ) (14,808 ) Loans, net $ 2,125,944 $ 1,975,147 The following tables present the activity in the allowance for loan losses by portfolio class for the years ended December 31, 2017, 2016, and 2015: Commercial and Industrial Loans and Leases Commercial Real Estate Loans Agricultural Loans Home Equity Loans Consumer Loans Residential Mortgage Loans Unallocated Total December 31, 2017 Beginning Balance $ 3,725 $ 5,452 $ 4,094 $ 283 $ 235 $ 329 $ 690 $ 14,808 Provision for Loan Losses 1,147 (689 ) 840 78 517 44 (187 ) 1,750 Recoveries 14 48 9 8 272 63 — 414 Loans Charged-off (151 ) (220 ) (49 ) (39 ) (726 ) (93 ) — (1,278 ) Ending Balance $ 4,735 $ 4,591 $ 4,894 $ 330 $ 298 $ 343 $ 503 $ 15,694 Commercial and Industrial Loans and Leases Commercial Real Estate Loans Agricultural Loans Home Equity Loans Consumer Loans Residential Mortgage Loans Unallocated Total December 31, 2016 Beginning Balance $ 4,242 $ 6,342 $ 2,115 $ 383 $ 230 $ 414 $ 712 $ 14,438 Provision for Loan Losses (483 ) (846 ) 2,000 33 273 245 (22 ) 1,200 Recoveries 32 10 1 3 208 16 — 270 Loans Charged-off (66 ) (54 ) (22 ) (136 ) (476 ) (346 ) — (1,100 ) Ending Balance $ 3,725 $ 5,452 $ 4,094 $ 283 $ 235 $ 329 $ 690 $ 14,808 Commercial and Industrial Loans and Leases Commercial Real Estate Loans Agricultural Loans Home Equity Loans Consumer Loans Residential Mortgage Loans Unallocated Total December 31, 2015 Beginning Balance $ 4,627 $ 7,273 $ 1,123 $ 246 $ 354 $ 622 $ 684 $ 14,929 Provision for Loan Losses (451 ) (688 ) 992 160 (48 ) 7 28 — Recoveries 102 107 — 10 236 18 — 473 Loans Charged-off (36 ) (350 ) — (33 ) (312 ) (233 ) — (964 ) Ending Balance $ 4,242 $ 6,342 $ 2,115 $ 383 $ 230 $ 414 $ 712 $ 14,438 In determining the adequacy of the allowance for loan loss, general allocations are made for pools of loans, including non-classified loans, homogeneous portfolios of consumer and residential real estate loans, and loans within certain industry categories believed to present unique risk of loss. General allocations of the allowance are primarily made based on historical averages for loan losses for these portfolios, judgmentally adjusted for current economic factors and portfolio trends. Loan impairment is reported when full repayment under the terms of the loan is not expected. This methodology is used for all loans, including loans acquired with deteriorated credit quality if such loans perform worse than what was expected at the time of acquisition. For purchased loans, the assessment is made at the time of acquisition as well as over the life of loan. If a loan is impaired, a portion of the allowance is allocated so that the loan is reported net, at the present value of estimated future cash flows using the loan’s existing rate, or at the fair value of collateral if repayment is expected solely from the collateral. Commercial and industrial loans, commercial real estate loans, and agricultural loans are evaluated individually for impairment. Smaller balance homogeneous loans are evaluated for impairment in total. Such loans include real estate loans secured by one-to-four family residences and loans to individuals for household, family and other personal expenditures. Individually evaluated loans on non-accrual are generally considered impaired. Impaired loans, or portions thereof, are charged off when deemed uncollectible. Specific allocations on impaired loans are determined by comparing the loan balance to the present value of expected cash flows or expected collateral proceeds. Allocations are also applied to categories of loans not considered individually impaired but for which the rate of loss is expected to be greater than historical averages, including non-performing consumer or residential real estate loans. Such allocations are based on past loss experience and information about specific borrower situations and estimated collateral values. The following tables present the balance in the allowance for loan losses and the recorded investment in loans by portfolio class and based on impairment method as of December 31, 2017 and 2016: December 31, 2017 Total Commercial and Industrial Loans and Leases Commercial Real Estate Loans Agricultural Loans Home Equity Loans Consumer Loans Residential Mortgage Loans Unallocated Allowance for Loan Losses: Ending Allowance Balance Attributable to Loans: Individually Evaluated for Impairment $ 2,228 $ 1,399 $ 829 $ — $ — $ — $ — $ — Collectively Evaluated for Impairment 13,455 3,333 3,759 4,894 330 298 338 503 Acquired with Deteriorated Credit Quality 11 3 3 — — — 5 — Total Ending Allowance Balance $ 15,694 $ 4,735 $ 4,591 $ 4,894 $ 330 $ 298 $ 343 $ 503 Loans: Loans Individually Evaluated for Impairment $ 11,633 $ 5,918 $ 5,552 $ 163 $ — $ — $ — n/m (2) Loans Collectively Evaluated for Impairment 2,133,752 481,152 917,036 336,849 152,757 67,647 178,311 n/m (2) Loans Acquired with Deteriorated Credit Quality 9,117 988 6,452 789 — — 888 n/m (2) Total Ending Loans Balance (1) $ 2,154,502 $ 488,058 $ 929,040 $ 337,801 $ 152,757 $ 67,647 $ 179,199 n/m (2) (1) Total recorded investment in loans includes $9,483 in accrued interest. (2) n/m = not meaningful December 31, 2016 Total Commercial and Industrial Loans and Leases Commercial Real Estate Loans Agricultural Loans Home Equity Loans Consumer Loans Residential Mortgage Loans Unallocated Allowance for Loan Losses: Ending Allowance Balance Attributable to Loans: Individually Evaluated for Impairment $ 255 $ 24 $ 231 $ — $ — $ — $ — $ — Collectively Evaluated for Impairment 14,448 3,698 5,172 4,046 283 230 329 690 Acquired with Deteriorated Credit Quality 105 3 49 48 — 5 — — Total Ending Allowance Balance $ 14,808 $ 3,725 $ 5,452 $ 4,094 $ 283 $ 235 $ 329 $ 690 Loans: Loans Individually Evaluated for Impairment $ 1,239 $ 113 $ 832 $ 294 $ — $ — $ — n/m (2) Loans Collectively Evaluated for Impairment 1,989,128 456,769 849,510 305,946 134,032 60,046 182,825 n/m (2) Loans Acquired with Deteriorated Credit Quality 11,048 1,656 7,688 706 — 53 945 n/m (2) Total Ending Loans Balance (1) $ 2,001,415 $ 458,538 $ 858,030 $ 306,946 $ 134,032 $ 60,099 $ 183,770 n/m (2) (1) Total recorded investment in loans includes $8,011 in accrued interest. (2) n/m = not meaningful The following tables present loans individually evaluated for impairment by class of loans as of December 31, 2017 and 2016: Unpaid Principal Balance (1) Recorded Investment Allowance for Loan Losses Allocated December 31, 2017 With No Related Allowance Recorded: Commercial and Industrial Loans and Leases $ 1,205 $ 1,166 $ — Commercial Real Estate Loans 1,812 1,495 — Agricultural Loans 919 749 — Subtotal 3,936 3,410 — With An Allowance Recorded: Commercial and Industrial Loans and Leases 4,804 4,763 1,402 Commercial Real Estate Loans 4,489 4,465 832 Agricultural Loans — — — Subtotal 9,293 9,228 2,234 Total $ 13,229 $ 12,638 $ 2,234 Loans Acquired With Deteriorated Credit Quality With No Related Allowance Recorded (Included in the Total Above) $ 1,255 $ 797 $ — Loans Acquired With Deteriorated Credit Quality With An Additional Allowance Recorded (Included in the Total Above) $ 252 $ 208 $ 6 (1) Unpaid Principal Balance is the remaining contractual payments gross of partial charge-offs and discounts. Unpaid Principal Balance (1) Recorded Investment Allowance for Loan Losses Allocated December 31, 2016 With No Related Allowance Recorded: Commercial and Industrial Loans and Leases $ 85 $ 29 $ — Commercial Real Estate Loans 1,278 784 — Agricultural Loans 356 294 — Subtotal 1,719 1,107 — With An Allowance Recorded: Commercial and Industrial Loans and Leases 148 107 27 Commercial Real Estate Loans 839 827 280 Agricultural Loans 588 497 48 Subtotal 1,575 1,431 355 Total $ 3,294 $ 2,538 $ 355 Loans Acquired With Deteriorated Credit Quality With No Related Allowance Recorded (Included in the Total Above) $ 1,018 $ 531 $ — Loans Acquired With Deteriorated Credit Quality With An Additional Allowance Recorded (Included in the Total Above) $ 910 $ 768 $ 100 (1) Unpaid Principal Balance is the remaining contractual payments gross of partial charge-offs and discounts. The following tables present loans individually evaluated for impairment by class of loans for the years ended December 31, 2017, 2016 and 2015: Average Recorded Investment Interest Income Recognized Cash Basis Recognized December 31, 2017 With No Related Allowance Recorded: Commercial and Industrial Loans and Leases $ 635 $ 27 $ 2 Commercial Real Estate Loans 1,184 57 29 Agricultural Loans 690 24 16 Subtotal 2,509 108 47 With An Allowance Recorded: Commercial and Industrial Loans and Leases 1,986 4 2 Commercial Real Estate Loans 2,842 17 6 Agricultural Loans 363 — — Subtotal 5,191 21 8 Total $ 7,700 $ 129 $ 55 Loans Acquired With Deteriorated Credit Quality With No Related Allowance Recorded (Included in the Total Above) $ 792 $ 25 $ 25 Loans Acquired With Deteriorated Credit Quality With An Additional Allowance Recorded (Included in the Total Above) $ 238 $ 19 $ 7 Average Recorded Investment Interest Income Recognized Cash Basis Recognized December 31, 2016 With No Related Allowance Recorded: Commercial and Industrial Loans and Leases $ 295 $ 29 $ 15 Commercial Real Estate Loans 1,688 92 73 Agricultural Loans 461 2 1 Subtotal 2,444 123 89 With An Allowance Recorded: Commercial and Industrial Loans and Leases 102 1 1 Commercial Real Estate Loans 1,587 6 2 Agricultural Loans 249 — — Subtotal 1,938 7 3 Total $ 4,382 $ 130 $ 92 Loans Acquired With Deteriorated Credit Quality With No Related Allowance Recorded (Included in the Total Above) $ 489 $ 21 $ 10 Loans Acquired With Deteriorated Credit Quality With An Additional Allowance Recorded (Included in the Total Above) $ 711 $ — $ — Average Recorded Investment Interest Income Recognized Cash Basis Recognized December 31, 2015 With No Related Allowance Recorded: Commercial and Industrial Loans and Leases $ 447 $ 29 $ 29 Commercial Real Estate Loans 1,282 104 103 Agricultural Loans 9 1 1 Subtotal 1,738 134 133 With An Allowance Recorded: Commercial and Industrial Loans and Leases 1,726 89 89 Commercial Real Estate Loans 2,840 5 3 Agricultural Loans — — — Subtotal 4,566 94 92 Total $ 6,304 $ 228 $ 225 Loans Acquired With Deteriorated Credit Quality With No Related Allowance Recorded (Included in the Total Above) $ 196 $ — $ — Loans Acquired With Deteriorated Credit Quality With An Additional Allowance Recorded (Included in the Total Above) $ — $ — $ — All classes of loans, including loans acquired with deteriorated credit quality, are generally placed on non-accrual status when scheduled principal or interest payments are past due for 90 days or more or when the borrower’s ability to repay becomes doubtful. For purchased loans, the determination is made at the time of acquisition as well as over the life of the loan. Uncollected accrued interest for each class of loans is reversed against income at the time a loan is placed on non-accrual. Interest received on such loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. All classes of loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. Loans are typically charged-off at 180 days past due, or earlier if deemed uncollectible. Exceptions to the non-accrual and charge-off policies are made when the loan is well secured and in the process of collection. The following tables present the recorded investment in non-accrual loans and loans past due 90 days or more still on accrual by class of loans as of December 31, 2017 and 2016: Loans Past Due 90 Days or More Non-Accrual & Still Accruing 2017 2016 2017 2016 Commercial and Industrial Loans and Leases $ 4,753 $ 86 $ — $ 2 Commercial Real Estate Loans 4,618 1,408 474 — Agricultural Loans 748 792 268 — Home Equity Loans 199 73 — — Consumer Loans 286 85 — — Residential Mortgage Loans 487 1,349 — — Total $ 11,091 $ 3,793 $ 742 $ 2 Loans Acquired With Deteriorated Credit Quality (Included in the Total Above) $ 866 $ 1,264 $ — $ — The following tables present the aging of the recorded investment in past due loans by class of loans as of December 31, 2017 and 2016: Total 30-59 Days Past Due 60-89 Days Past Due 90 Days or More Past Due Total Past Due Loans Not Past Due December 31, 2017 Commercial and Industrial Loans and Leases $ 488,058 $ 209 $ 1,365 $ 905 $ 2,479 $ 485,579 Commercial Real Estate Loans 929,040 1,229 1,650 677 3,556 925,484 Agricultural Loans 337,801 27 — 268 295 337,506 Home Equity Loans 152,757 366 93 199 658 152,099 Consumer Loans 67,647 246 97 286 629 67,018 Residential Mortgage Loans 179,199 2,850 1,247 261 4,358 174,841 Total (1) $ 2,154,502 $ 4,927 $ 4,452 $ 2,596 $ 11,975 $ 2,142,527 Loans Acquired With Deteriorated Credit Quality (Included in the Total Above) $ 9,117 $ 342 $ 74 $ 27 $ 443 $ 8,674 (1) Total recorded investment in loans includes $9,483 in accrued interest. Total 30-59 Days Past Due 60-89 Days Past Due 90 Days or More Past Due Total Past Due Loans Not Past Due December 31, 2016 Commercial and Industrial Loans and Leases $ 458,538 $ 20 $ 4 $ 77 $ 101 $ 458,437 Commercial Real Estate Loans 858,030 1,509 21 330 1,860 856,170 Agricultural Loans 306,946 84 50 610 744 306,202 Home Equity Loans 134,032 707 16 73 796 133,236 Consumer Loans 60,099 175 147 85 407 59,692 Residential Mortgage Loans 183,770 3,470 1,251 806 5,527 178,243 Total (1) $ 2,001,415 $ 5,965 $ 1,489 $ 1,981 $ 9,435 $ 1,991,980 Loans Acquired With Deteriorated Credit Quality (Included in the Total Above) $ 11,048 $ 130 $ — $ 627 $ 757 $ 10,291 Loans Acquired in Current Year (Included in the Total Above) $ 262,809 $ 2,752 $ 862 $ 1,126 $ 4,740 $ 258,069 (1) Total recorded investment in loans includes $8,011 in accrued interest. Troubled Debt Restructurings: In certain instances, the Company may choose to restructure the contractual terms of loans. A troubled debt restructuring occurs when the Bank grants a concession to the borrower that it would not otherwise consider due to a borrower’s financial difficulty. In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without modification. This evaluation is performed under the Company’s internal underwriting policy. The Company uses the same methodology for loans acquired with deteriorated credit quality as for all other loans when determining whether the loan is a troubled debt restructuring. During the year ended December 31, 2017, there were three loans modified as troubled debt restructurings. During the year ended December 31, 2016, there were no loans modified as troubled debt restructurings. The following tables present the recorded investment of troubled debt restructurings by class of loans as of December 31, 2017 and 2016: Total Performing Non-Accrual (1) December 31, 2017 Commercial and Industrial Loans and Leases $ 258 $ 125 $ 133 Commercial Real Estate Loans 24 24 — Total $ 282 $ 149 $ 133 Total Performing Non-Accrual (1) December 31, 2016 Commercial and Industrial Loans and Leases $ 28 $ 28 $ — Commercial Real Estate Loans — — — Total $ 28 $ 28 $ — (1) The non-accrual troubled debt restructurings are included in the Non-Accrual Loan table presented on a previous page. The Company has no t committed to lending any additional amounts as of December 31, 2017 and 2016 to customers with outstanding loans that are classified as troubled debt restructurings. The following table presents loans by class modified as troubled debt restructurings that occurred during the year ended December 31, 2017: Number of Loans Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment December 31, 2017 Commercial and Industrial Loans and Leases 2 $ 477 $ 477 Commercial Real Estate Loans 1 28 28 Total 3 $ 505 $ 505 The troubled debt restructurings described above increased the allowance for loan losses by $149 and resulted in charge-offs of $0 during the year ending December 31, 2017. For the years ended December 31, 2016 and 2015, the Company had no loans modified as troubled debt restructurings. Additionally, there were no loans modified as troubled debt restructurings for which there was a payment default within twelve months following the modification during the years ended December 31, 2017, 2016 and 2015. A loan is considered to be in payment default once it is 30 days contractually past due under the modified terms. Credit Quality Indicators: The Company categorizes 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. The Company classifies loans as to credit risk by individually analyzing loans. This analysis includes commercial and industrial loans, commercial real estate loans, and agricultural loans with an outstanding balance greater than $250. This analysis is typically performed on at least an annual basis. The Company uses the following definitions for risk ratings: Special Mention. Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date. Substandard. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected. Doubtful. Loans 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 and improbable. Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans. Based on the most recent analysis performed, the risk category of loans by class of loans is as follows: Pass Special Mention Substandard Doubtful Total December 31, 2017 Commercial and Industrial Loans and Leases $ 462,212 $ 7,901 $ 17,945 $ — $ 488,058 Commercial Real Estate Loans 894,027 18,037 16,976 — 929,040 Agricultural Loans 304,032 27,288 6,481 — 337,801 Total $ 1,660,271 $ 53,226 $ 41,402 $ — $ 1,754,899 Loans Acquired with Deteriorated Credit Quality (Included in the Total Above) $ 2,604 $ 1,647 $ 3,978 $ — $ 8,229 Pass Special Mention Substandard Doubtful Total December 31, 2016 Commercial and Industrial Loans and Leases $ 437,353 $ 10,454 $ 10,731 $ — $ 458,538 Commercial Real Estate Loans 814,033 26,549 17,448 — 858,030 Agricultural Loans 287,975 14,670 4,301 — 306,946 Total $ 1,539,361 $ 51,673 $ 32,480 $ — $ 1,623,514 Loans Acquired with Deteriorated Credit Quality (Included in the Total Above) $ 1,897 $ 3,121 $ 5,032 $ — $ 10,050 Loans Acquired in Current Year (Included in the Total Above) $ 175,915 $ 11,638 $ 8,145 $ — $ 195,698 The Company considers the performance of the loan portfolio and its impact on the allowance for loan losses. For home equity, consumer and residential mortgage loan classes, the Company also evaluates credit quality based on the aging status of the loan, which was previously presented, and by payment activity. The following table presents the recorded investment in home equity, consumer and residential mortgage loans based on payment activity as of December 31, 2017 and 2016: Home Equity Loans Consumer Loans Residential Mortgage Loans December 31, 2017 Performing $ 152,558 $ 67,361 $ 178,712 Nonperforming 199 286 487 Total $ 152,757 $ 67,647 $ 179,199 Loans Acquired with Deteriorated Credit Quality (Included in the Total Above) $ — $ — $ 888 Home Equity Loans Consumer Loans Residential Mortgage Loans December 31, 2016 Performing $ 133,959 $ 60,014 $ 182,421 Nonperforming 73 85 1,349 Total $ 134,032 $ 60,099 $ 183,770 Loans Acquired with Deteriorated Credit Quality (Included in the Total Above) $ — $ 53 $ 945 The following table presents financing receivables purchased and/or sold during the year by portfolio segment: Commercial and Industrial Loans and Leases Commercial Real Estate Loans Total December 31, 2017 Purchases $ 800 $ 4,747 $ 5,547 Sales — 1,106 1,106 Commercial and Industrial Loans and Leases Commercial Real Estate Loans Total December 31, 2016 Purchases $ — $ 5,383 $ 5,383 Sales — 2,029 2,029 Contractually required payments receivable of loans purchased with evidence of credit deterioration during the year ended December 31, 2016 are included in the table below. The value of the purchased loans included in the table are as of acquisition date. There were no such loans purchased during the year ended December 31, 2017. 2017 2016 Commercial and Industrial Loans $ — $ 220 Commercial Real Estate Loans — 10,612 Agricultural Loans — 896 Home Equity Loans — — Consumer Loans — 87 Residential Mortgage Loans — 2,279 Total $ — $ 14,094 Cash Flows Expected to be Collected at Acquisition $ — $ 11,051 Fair Value of Acquired Loans at Acquisition — 8,807 The Company has purchased loans, for which there was, at acquisition, evidence of deterioration of credit quality since origination and it was probable, at acquisition, that all contractually required payments would not be collected. The recorded investment of those loans at December 31 in the years presented is as follows: 2017 2016 2015 Commercial and Industrial Loans $ 988 $ 1,656 $ 1,325 Commercial Real Estate Loans 6,452 7,688 5,363 Agricultural Loans 789 706 — Consumer Loans — 53 — Residential Mortgage Loans 888 945 867 Total $ 9,117 $ 11,048 $ 7,555 Carrying Amount, Net of Allowance $ 9,106 $ 10,943 $ 7,555 Accretable yield, or income expected to be collected, is as follows: 2017 2016 2015 Balance at January 1 $ 2,521 $ 1,279 $ 1,685 New Loans Purchased — 1,395 — Accretion of Income (425 ) (943 ) (483 ) Reclassifications from Non-accretable Difference 638 985 104 Charge-off of Accretable Yield — (195 ) (27 ) Balance at December 31 $ 2,734 $ 2,521 $ 1,279 For those purchased loans disclosed above, the Company increased the allowances for loan losses by $11 , $107 , and $0 during the years ended December 31, 2017, 2016, and 2015. The Company reversed allowances for loan losses of $110 , $ 2 , and $54 during the years ended December 31, 2017, 2016, and 2015. The carrying amount of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process according to local requirements of the applicable jurisdiction totaled $14 and $202 as of December 31, 2017 and 2016. Certain directors, executive officers, and principal shareholders of the Company, including their immediate families and companies in which they are principal owners, were loan customers of the Company during 2017. A summary of the activity of these loans follows: Balance January 1, 2017 Additions Changes in Persons Included Deductions Balance December 31, 2017 Collected Charged-off $ 14,276 $ 11,340 $ — $ (9,754 ) $ — $ 15,862 |