Loans | Loans Loans were comprised of the following classifications at March 31, 2018 and December 31, 2017: March 31, December 31, Commercial: Commercial and Industrial Loans and Leases $ 482,219 $ 486,668 Commercial Real Estate Loans 947,948 926,729 Agricultural Loans 329,138 333,227 Retail: Home Equity Loans 151,943 152,187 Consumer Loans 64,492 67,475 Residential Mortgage Loans 178,108 178,733 Subtotal 2,153,848 2,145,019 Less: Unearned Income (3,302 ) (3,381 ) Allowance for Loan Losses (14,460 ) (15,694 ) Loans, Net $ 2,136,086 $ 2,125,944 The following tables present the activity in the allowance for loan losses by portfolio class for the three months ended March 31, 2018 and 2017: March 31, 2018 Commercial and Industrial Loans and Leases Commercial Real Estate Loans Agricultural Loans Home Equity Loans Consumer Loans Residential Mortgage Loans Unallocated Total Beginning Balance $ 4,735 $ 4,591 $ 4,894 $ 330 $ 298 $ 343 $ 503 $ 15,694 Provision for Loan Losses 367 25 (69 ) (44 ) 97 (18 ) (8 ) 350 Recoveries 1 6 — 2 89 2 — 100 Loans Charged-off (1,500 ) — — (16 ) (168 ) — — (1,684 ) Ending Balance $ 3,603 $ 4,622 $ 4,825 $ 272 $ 316 $ 327 $ 495 $ 14,460 March 31, 2017 Commercial and Industrial Loans and Leases Commercial Real Estate Loans Agricultural Loans Home Equity Loans Consumer Loans Residential Mortgage Loans Unallocated Total Beginning Balance $ 3,725 $ 5,452 $ 4,094 $ 283 $ 235 $ 329 $ 690 $ 14,808 Provision for Loan Losses (115 ) 278 267 17 118 19 (84 ) 500 Recoveries 2 5 — — 60 27 — 94 Loans Charged-off — (39 ) — (1 ) (169 ) (27 ) — (236 ) Ending Balance $ 3,612 $ 5,696 $ 4,361 $ 299 $ 244 $ 348 $ 606 $ 15,166 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 the 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 March 31, 2018 and December 31, 2017: March 31, 2018 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 $ 1,181 $ 252 $ 929 $ — $ — $ — $ — $ — Collectively Evaluated for Impairment 13,238 3,348 3,660 4,825 272 316 322 495 Acquired with Deteriorated Credit Quality 41 3 33 — — — 5 — Total Ending Allowance Balance $ 14,460 $ 3,603 $ 4,622 $ 4,825 $ 272 $ 316 $ 327 $ 495 Loans: Loans Individually Evaluated for Impairment $ 9,793 $ 4,249 $ 5,401 $ 143 $ — $ — $ — n/m (2) Loans Collectively Evaluated for Impairment 2,144,933 478,473 938,731 332,888 152,527 64,655 177,659 n/m (2) Loans Acquired with Deteriorated Credit Quality 8,819 790 6,194 957 — — 878 n/m (2) Total Ending Loans Balance (1) $ 2,163,545 $ 483,512 $ 950,326 $ 333,988 $ 152,527 $ 64,655 $ 178,537 n/m (2) (1) Total recorded investment in loans includes $9,697 in accrued interest. (2) n/m = not meaningful 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 The following tables present loans individually evaluated for impairment by class of loans as of March 31, 2018 and December 31, 2017: March 31, 2018 Unpaid Principal Balance (1) Recorded Investment Allowance for Loan Losses Allocated With No Related Allowance Recorded: Commercial and Industrial Loans and Leases $ 1,186 $ 1,145 $ — Commercial Real Estate Loans 1,384 1,233 — Agricultural Loans 858 686 — Subtotal 3,428 3,064 — With An Allowance Recorded: Commercial and Industrial Loans and Leases 3,333 3,113 255 Commercial Real Estate Loans 4,760 4,567 962 Agricultural Loans — — — Subtotal 8,093 7,680 1,217 Total $ 11,521 $ 10,744 $ 1,217 Loans Acquired With Deteriorated Credit Quality With No Related Allowance Recorded (Included in the Total Above) $ 832 $ 544 $ — Loans Acquired With Deteriorated Credit Quality With An Additional Allowance Recorded (Included in the Total Above) $ 620 $ 407 $ 36 (1) Unpaid Principal Balance is the remaining contractual principal payments gross of partial charge-offs and discounts. December 31, 2017 Unpaid Principal Balance (1) Recorded Investment Allowance for Loan Losses Allocated 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 principal payments gross of partial charge-offs and discounts. The following tables present loans individually evaluated for impairment by class of loans for the three month period ended March 31, 2018 and 2017: March 31, 2018 Average Recorded Investment Interest Income Recognized Cash Basis Recognized With No Related Allowance Recorded: Commercial and Industrial Loans and Leases $ 1,183 $ 13 $ 1 Commercial Real Estate Loans 1,407 13 6 Agricultural Loans 700 — — Subtotal 3,290 26 7 With An Allowance Recorded: Commercial and Industrial Loans and Leases 4,284 1 — Commercial Real Estate Loans 4,623 3 — Agricultural Loans — — — Subtotal 8,907 4 — Total $ 12,197 $ 30 $ 7 Loans Acquired With Deteriorated Credit Quality With No Related Allowance Recorded (Included in the Total Above) $ 563 $ — $ — Loans Acquired With Deteriorated Credit Quality With An Additional Allowance Recorded (Included in the Total Above) $ 412 $ 4 $ — March 31, 2017 Average Recorded Investment Interest Income Recognized Cash Basis Recognized With No Related Allowance Recorded: Commercial and Industrial Loans and Leases $ 16 $ — $ — Commercial Real Estate Loans 522 4 4 Agricultural Loans 719 5 — Subtotal 1,257 9 4 With An Allowance Recorded: Commercial and Industrial Loans and Leases 103 1 1 Commercial Real Estate Loans 2,423 6 6 Agricultural Loans 497 — — Subtotal 3,023 7 7 Total $ 4,280 $ 16 $ 11 Loans Acquired With Deteriorated Credit Quality With No Related Allowance Recorded (Included in the Total Above) $ 209 $ — $ — Loans Acquired With Deteriorated Credit Quality With An Additional Allowance Recorded (Included in the Total Above) $ 1,007 $ 7 $ 7 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 March 31, 2018 and December 31, 2017: Non-Accrual Loans Loans Past Due 90 Days or More & Still Accruing March 31, December 31, March 31, December 31, 2018 2017 2018 2017 Commercial and Industrial Loans and Leases $ 3,105 $ 4,753 $ — $ — Commercial Real Estate Loans 4,502 4,618 893 474 Agricultural Loans 697 748 228 268 Home Equity Loans 188 199 — — Consumer Loans 71 286 — — Residential Mortgage Loans 916 487 — — Total $ 9,479 $ 11,091 $ 1,121 $ 742 Loans Acquired With Deteriorated Credit Quality (Included in the Total Above) $ 822 $ 866 $ — $ — The following tables present the aging of the recorded investment in past due loans by class of loans as of March 31, 2018 and December 31, 2017: March 31, 2018 Total 30-59 Days Past Due 60-89 Days Past Due 90 Days or More Past Due Total Past Due Loans Not Past Due Commercial and Industrial Loans and Leases $ 483,512 $ 659 $ 180 $ 633 $ 1,472 $ 482,040 Commercial Real Estate Loans 950,326 1,195 — 2,237 3,432 946,894 Agricultural Loans 333,988 106 — 228 334 333,654 Home Equity Loans 152,527 529 94 188 811 151,716 Consumer Loans 64,655 303 62 71 436 64,219 Residential Mortgage Loans 178,537 3,860 123 701 4,684 173,853 Total (1) $ 2,163,545 $ 6,652 $ 459 $ 4,058 $ 11,169 $ 2,152,376 Loans Acquired With Deteriorated Credit Quality (Included in the Total Above) $ 8,819 $ 518 $ — $ 27 $ 545 $ 8,274 (1) Total recorded investment in loans includes $9,697 in accrued interest. December 31, 2017 Total 30-59 Days Past Due 60-89 Days Past Due 90 Days or More Past Due Total Past Due Loans Not Past Due 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. 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 three months ended March 31, 2018, there were no loans modified as a troubled debt restructuring. During the three months ended March 31, 2017, there was one loan modified as a troubled debt restructuring. The following tables present the recorded investment of troubled debt restructurings by class of loans as of March 31, 2018 and December 31, 2017: March 31, 2018 Total Performing Non-Accrual (1) Commercial and Industrial Loans and Leases $ 224 $ 124 $ 100 Commercial Real Estate Loans — — — Total $ 224 $ 124 $ 100 December 31, 2017 Total Performing Non-Accrual (1) Commercial and Industrial Loans and Leases $ 258 $ 125 $ 133 Commercial Real Estate Loans 24 24 — Total $ 282 $ 149 $ 133 (1) The non-accrual troubled debt restructurings are included in the Non-Accrual Loan table presented on a previous page. The Company had not committed to lending any additional amounts as of March 31, 2018 and December 31, 2017 to customers with outstanding loans that are classified as troubled debt restructurings. The following tables present loans by class modified as troubled debt restructurings that occurred during the three months ending March 31, 2018 and 2017: March 31, 2018 Number of Loans Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment Commercial and Industrial Loans and Leases — $ — $ — Commercial Real Estate Loans — — — Total — $ — $ — The troubled debt restructurings described above increased the allowance for loan losses by $0 and resulted in charge-offs of $0 during the three months ending March 31, 2018. March 31, 2017 Number of Loans Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment Commercial and Industrial Loans and Leases — $ — $ — Commercial Real Estate Loans 1 28 28 Total 1 $ 28 $ 28 The troubled debt restructurings described above increased the allowance for loan losses by $2 and resulted in charge-offs of $0 during the three months ending March 31, 2017. 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 three months ending March 31, 2018 and 2017. 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: March 31, 2018 Pass Special Mention Substandard Doubtful Total Commercial and Industrial Loans and Leases $ 459,442 $ 7,953 $ 16,117 $ — $ 483,512 Commercial Real Estate Loans 917,878 16,163 16,285 — 950,326 Agricultural Loans 300,012 27,917 6,059 — 333,988 Total $ 1,677,332 $ 52,033 $ 38,461 $ — $ 1,767,826 Loans Acquired With Deteriorated Credit Quality (Included in the Total Above) $ 2,395 $ 1,652 $ 3,894 $ — $ 7,941 December 31, 2017 Pass Special Mention Substandard Doubtful Total 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 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 March 31, 2018 and December 31, 2017: March 31, 2018 Home Equity Loans Consumer Loans Residential Mortgage Loans Performing $ 152,339 $ 64,584 $ 177,621 Nonperforming 188 71 916 Total $ 152,527 $ 64,655 $ 178,537 Loans Acquired With Deteriorated Credit Quality (Included in the Total Above) $ — $ — $ 878 December 31, 2017 Home Equity Loans Consumer Loans Residential Mortgage Loans 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 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 is as follows: March 31, 2018 December 31, 2017 Commercial and Industrial Loans $ 790 $ 988 Commercial Real Estate Loans 6,194 6,452 Agricultural Loans 957 789 Residential Mortgage Loans 878 888 Total $ 8,819 $ 9,117 Carrying Amount, Net of Allowance $ 8,778 $ 9,106 Accretable yield, or income expected to be collected, is as follows: 2018 2017 Balance at January 1 $ 2,734 $ 2,521 New Loans Purchased — — Accretion of Income (81 ) (42 ) Reclassifications from Non-accretable Difference 86 311 Charge-off of Accretable Yield — — Balance at March 31 $ 2,739 $ 2,790 For those purchased loans disclosed above, the Company increased the allowance for loan losses by $30 and $11 during the three months ended March 31, 2018 and 2017. No allowance for loan losses were reversed during the same period. 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 $28 as of March 31, 2018 and $14 as of December 31, 2017. |