Loans | Loans Loans were comprised of the following classifications at March 31, 2019 and December 31, 2018: March 31, December 31, Commercial: Commercial and Industrial Loans and Leases $ 555,967 $ 543,761 Commercial Real Estate Loans 1,212,090 1,208,646 Agricultural Loans 347,999 365,208 Retail: Home Equity Loans 203,611 207,987 Consumer Loans 78,113 77,547 Residential Mortgage Loans 314,634 328,592 Subtotal 2,712,414 2,731,741 Less: Unearned Income (3,582 ) (3,682 ) Allowance for Loan Losses (16,243 ) (15,823 ) Loans, Net $ 2,692,589 $ 2,712,236 The following tables present the activity in the allowance for loan losses by portfolio class for the three months ended March 31, 2019 and 2018: March 31, 2019 Commercial and Industrial Loans and Leases Commercial Real Estate Loans Agricultural Loans Home Equity Loans Consumer Loans Residential Mortgage Loans Unallocated Total Beginning Balance $ 2,953 $ 5,291 $ 5,776 $ 229 $ 420 $ 472 $ 682 $ 15,823 Provision for Loan Losses 347 565 (323 ) (15 ) 209 (32 ) (76 ) 675 Recoveries 17 5 — — 121 3 — 146 Loans Charged-off — (120 ) — — (267 ) (14 ) — (401 ) Ending Balance $ 3,317 $ 5,741 $ 5,453 $ 214 $ 483 $ 429 $ 606 $ 16,243 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 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, 2019 and December 31, 2018: March 31, 2019 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 $ 1,427 $ 104 $ 1,323 $ — $ — $ — $ — $ — Collectively Evaluated for Impairment 14,534 3,213 4,141 5,453 214 483 424 606 Acquired with Deteriorated Credit Quality 282 — 277 — — — 5 — Total Ending Allowance Balance $ 16,243 $ 3,317 $ 5,741 $ 5,453 $ 214 $ 483 $ 429 $ 606 Loans: Loans Individually Evaluated for Impairment $ 6,815 $ 2,410 $ 4,405 $ — $ — $ — $ — n/m (2) Loans Collectively Evaluated for Impairment 2,707,925 554,348 1,205,000 351,808 204,258 78,356 314,155 n/m (2) Loans Acquired with Deteriorated Credit Quality 10,472 902 6,127 1,798 368 — 1,277 n/m (2) Total Ending Loans Balance (1) $ 2,725,212 $ 557,660 $ 1,215,532 $ 353,606 $ 204,626 $ 78,356 $ 315,432 n/m (2) (1) Total recorded investment in loans includes $12,798 in accrued interest. (2) n/m = not meaningful December 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 $ 1,823 $ 143 $ 1,680 $ — $ — $ — $ — $ — Collectively Evaluated for Impairment 13,992 2,810 3,608 5,776 229 420 467 682 Acquired with Deteriorated Credit Quality 8 — 3 — — — 5 — Total Ending Allowance Balance $ 15,823 $ 2,953 $ 5,291 $ 5,776 $ 229 $ 420 $ 472 $ 682 Loans: Loans Individually Evaluated for Impairment $ 9,619 $ 3,536 $ 6,083 $ — $ — $ — $ — n/m (2) Loans Collectively Evaluated for Impairment 2,722,867 540,768 1,198,806 368,817 208,644 77,761 328,071 n/m (2) Loans Acquired with Deteriorated Credit Quality 11,556 1,038 6,993 1,877 365 — 1,283 n/m (2) Total Ending Loans Balance (1) $ 2,744,042 $ 545,342 $ 1,211,882 $ 370,694 $ 209,009 $ 77,761 $ 329,354 n/m (2) (1) Total recorded investment in loans includes $12,301 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, 2019 and December 31, 2018: March 31, 2019 Unpaid Principal Balance (1) Recorded Investment Allowance for Loan Losses Allocated With No Related Allowance Recorded: Commercial and Industrial Loans and Leases $ 2,410 $ 186 $ — Commercial Real Estate Loans 4,519 3,261 — Agricultural Loans 1,669 1,399 — Subtotal 8,598 4,846 — With An Allowance Recorded: Commercial and Industrial Loans and Leases 2,223 2,223 104 Commercial Real Estate Loans 4,549 4,108 1,600 Agricultural Loans — — — Subtotal 6,772 6,331 1,704 Total $ 15,370 $ 11,177 $ 1,704 Loans Acquired With Deteriorated Credit Quality With No Related Allowance Recorded (Included in the Total Above) $ 7,151 $ 3,525 $ — Loans Acquired With Deteriorated Credit Quality With An Additional Allowance Recorded (Included in the Total Above) $ 1,159 $ 837 $ 277 (1) Unpaid Principal Balance is the remaining contractual principal payments gross of partial charge-offs and discounts. December 31, 2018 Unpaid Principal Balance (1) Recorded Investment Allowance for Loan Losses Allocated With No Related Allowance Recorded: Commercial and Industrial Loans and Leases $ 3,721 $ 1,183 $ — Commercial Real Estate Loans 5,828 4,383 — Agricultural Loans 1,726 1,450 — Subtotal 11,275 7,016 — With An Allowance Recorded: Commercial and Industrial Loans and Leases 2,353 2,353 143 Commercial Real Estate Loans 4,404 4,212 1,683 Agricultural Loans — — — Subtotal 6,757 6,565 1,826 Total $ 18,032 $ 13,581 $ 1,826 Loans Acquired With Deteriorated Credit Quality With No Related Allowance Recorded (Included in the Total Above) $ 8,060 $ 3,958 $ — Loans Acquired With Deteriorated Credit Quality With An Additional Allowance Recorded (Included in the Total Above) $ 196 $ 4 $ 3 (1) Unpaid Principal Balance is the remaining contractual payments gross of partial charge-offs and discounts. The following tables present the average balance and related interest income of loans individually evaluated for impairment by class of loans for the three month period ended March 31, 2019 and 2018: March 31, 2019 Average Recorded Investment Interest Income Recognized Cash Basis Recognized With No Related Allowance Recorded: Commercial and Industrial Loans and Leases $ 438 $ 2 $ 2 Commercial Real Estate Loans 3,601 19 9 Agricultural Loans 1,405 — — Subtotal 5,444 21 11 With An Allowance Recorded: Commercial and Industrial Loans and Leases 2,286 — — Commercial Real Estate Loans 4,691 — — Agricultural Loans — — — Subtotal 6,977 — — Total $ 12,421 $ 21 $ 11 Loans Acquired With Deteriorated Credit Quality With No Related Allowance Recorded (Included in the Total Above) $ 3,547 $ 8 $ — Loans Acquired With Deteriorated Credit Quality With An Additional Allowance Recorded (Included in the Total Above) $ 762 $ — $ — 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 $ — 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, 2019 and December 31, 2018: Non-Accrual Loans Loans Past Due 90 Days or More & Still Accruing March 31, December 31, March 31, December 31, 2019 2018 2019 2018 Commercial and Industrial Loans and Leases $ 2,290 $ 2,430 $ — $ — Commercial Real Estate Loans 6,446 6,833 408 368 Agricultural Loans 1,398 1,449 — 274 Home Equity Loans 118 88 — — Consumer Loans 228 162 — — Residential Mortgage Loans 1,556 1,617 — — Total $ 12,036 $ 12,579 $ 408 $ 642 Loans Acquired With Deteriorated Credit Quality (Included in the Total Above) $ 4,624 $ 4,162 $ 278 $ 141 Loans Acquired in Current Year (Included in the Total Above) $ — $ 4,603 $ — $ 96 The following tables present the aging of the recorded investment in past due loans by class of loans as of March 31, 2019 and December 31, 2018: March 31, 2019 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 $ 557,660 $ 4,447 $ 218 $ 51 $ 4,716 $ 552,944 Commercial Real Estate Loans 1,215,532 896 68 2,322 3,286 1,212,246 Agricultural Loans 353,606 16 365 871 1,252 352,354 Home Equity Loans 204,626 546 3 117 666 203,960 Consumer Loans 78,356 216 213 223 652 77,704 Residential Mortgage Loans 315,432 5,222 157 1,412 6,791 308,641 Total (1) $ 2,725,212 $ 11,343 $ 1,024 $ 4,996 $ 17,363 $ 2,707,849 Loans Acquired With Deteriorated Credit Quality (Included in the Total Above) $ 10,472 $ — $ 68 $ 2,222 $ 2,290 $ 8,182 (1) Total recorded investment in loans includes $12,798 in accrued interest. December 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 $ 545,342 $ 5,414 $ 183 $ 72 $ 5,669 $ 539,673 Commercial Real Estate Loans 1,211,882 768 705 3,032 4,505 1,207,377 Agricultural Loans 370,694 563 805 274 1,642 369,052 Home Equity Loans 209,009 471 125 60 656 208,353 Consumer Loans 77,761 971 94 149 1,214 76,547 Residential Mortgage Loans 329,354 4,771 1,520 1,387 7,678 321,676 Total (1) $ 2,744,042 $ 12,958 $ 3,432 $ 4,974 $ 21,364 $ 2,722,678 Loans Acquired With Deteriorated Credit Quality (Included in the Total Above) $ 11,556 $ 448 $ 885 $ 1,259 $ 2,592 $ 8,964 Loans Acquired in Current Year (Included in the Total Above) $ 481,901 $ 2,571 $ 1,620 $ 2,191 $ 6,382 $ 475,519 (1) Total recorded investment in loans includes $12,301 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, 2019 and 2018, there were no loans 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, 2019 and December 31, 2018: March 31, 2019 Total Performing Non-Accrual (1) Commercial and Industrial Loans and Leases $ 120 $ 120 $ — Commercial Real Estate Loans — — — Total $ 120 $ 120 $ — December 31, 2018 Total Performing Non-Accrual (1) Commercial and Industrial Loans and Leases $ 121 $ 121 $ — Commercial Real Estate Loans — — — Total $ 121 $ 121 $ — (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, 2019 and December 31, 2018 to customers with outstanding loans that are classified as troubled debt restructurings. For the three months ended March 31, 2019 and 2018, 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 three months ended March 31, 2019 and 2018. 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, 2019 Pass Special Mention Substandard Doubtful Total Commercial and Industrial Loans and Leases $ 529,641 $ 8,155 $ 19,864 $ — $ 557,660 Commercial Real Estate Loans 1,174,789 24,998 15,745 — 1,215,532 Agricultural Loans 301,273 37,468 14,865 — 353,606 Total $ 2,005,703 $ 70,621 $ 50,474 $ — $ 2,126,798 Loans Acquired With Deteriorated Credit Quality (Included in the Total Above) $ 289 $ 1,438 $ 7,100 $ — $ 8,827 December 31, 2018 Pass Special Mention Substandard Doubtful Total Commercial and Industrial Loans and Leases $ 517,497 $ 7,541 $ 20,304 $ — $ 545,342 Commercial Real Estate Loans 1,165,937 26,723 19,222 — 1,211,882 Agricultural Loans 313,309 40,983 16,402 — 370,694 Total $ 1,996,743 $ 75,247 $ 55,928 $ — $ 2,127,918 Loans Acquired With Deteriorated Credit Quality (Included in the Total Above) $ — $ 1,436 $ 8,472 $ — $ 9,908 Loans Acquired in Current Year (Included in the Total Above) $ 250,415 $ 14,972 $ 11,521 $ — $ 276,908 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, 2019 and December 31, 2018: March 31, 2019 Home Equity Loans Consumer Loans Residential Mortgage Loans Performing $ 204,508 $ 78,128 $ 313,876 Nonperforming 118 228 1,556 Total $ 204,626 $ 78,356 $ 315,432 December 31, 2018 Home Equity Loans Consumer Loans Residential Mortgage Loans Performing $ 208,921 $ 77,599 $ 327,737 Nonperforming 88 162 1,617 Total $ 209,009 $ 77,761 $ 329,354 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, 2019 December 31, 2018 Commercial and Industrial Loans $ 902 $ 1,038 Commercial Real Estate Loans 6,127 6,993 Agricultural Loans 1,798 1,877 Home Equity Loans 368 365 Residential Mortgage Loans 1,277 1,283 Total $ 10,472 $ 11,556 Carrying Amount, Net of Allowance $ 10,190 $ 11,548 Accretable yield, or income expected to be collected, is as follows: 2019 2018 Balance at January 1 $ 3,138 $ 2,734 New Loans Purchased — — Accretion of Income (322 ) (81 ) Reclassifications from Non-accretable Difference 387 86 Charge-off of Accretable Yield — — Balance at March 31 $ 3,203 $ 2,739 For those purchased loans disclosed above, the Company increased the allowance for loan losses by $277 and $30 during the three months ended March 31, 2019 and 2018. The Company reversed allowance for loan losses by $3 during the three months ended March 31, 2019. No allowance for loan losses were reversed during the three months ended March 31, 2018. 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 $58 as of December 31, 2018. There were no such loans as of March 31, 2019. |