Loans | Loans Loans were comprised of the following classifications at June 30, 2019 and December 31, 2018: June 30, December 31, Commercial: Commercial and Industrial Loans and Leases $ 554,290 $ 543,761 Commercial Real Estate Loans 1,213,579 1,208,646 Agricultural Loans 364,116 365,208 Retail: Home Equity Loans 203,351 207,987 Consumer Loans 77,612 77,547 Residential Mortgage Loans 307,726 328,592 Subtotal 2,720,674 2,731,741 Less: Unearned Income (3,646 ) (3,682 ) Allowance for Loan Losses (16,239 ) (15,823 ) Loans, Net $ 2,700,789 $ 2,712,236 The following tables present the activity in the allowance for loan losses by portfolio class for the three months ended June 30, 2019 and 2018: June 30, 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 $ 3,317 $ 5,741 $ 5,453 $ 214 $ 483 $ 429 $ 606 $ 16,243 Provision for Loan Losses (303 ) 104 272 54 124 (47 ) 46 250 Recoveries 34 14 — — 93 3 — 144 Loans Charged-off (56 ) (18 ) — (10 ) (278 ) (36 ) — (398 ) Ending Balance $ 2,992 $ 5,841 $ 5,725 $ 258 $ 422 $ 349 $ 652 $ 16,239 June 30, 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 $ 3,603 $ 4,622 $ 4,825 $ 272 $ 316 $ 327 $ 495 $ 14,460 Provision for Loan Losses (44 ) 335 753 86 107 19 (36 ) 1,220 Recoveries 4 5 — 8 68 29 — 114 Loans Charged-off — (4 ) — — (144 ) (9 ) — (157 ) Ending Balance $ 3,563 $ 4,958 $ 5,578 $ 366 $ 347 $ 366 $ 459 $ 15,637 The following tables present the activity in the allowance for loan losses by portfolio class for the six months ended June 30, 2019 and 2018: June 30, 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 44 669 (51 ) 39 333 (79 ) (30 ) 925 Recoveries 51 19 — — 214 6 — 290 Loans Charged-off (56 ) (138 ) — (10 ) (545 ) (50 ) — (799 ) Ending Balance $ 2,992 $ 5,841 $ 5,725 $ 258 $ 422 $ 349 $ 652 $ 16,239 June 30, 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 323 360 684 42 204 1 (44 ) 1,570 Recoveries 5 11 — 10 157 31 — 214 Loans Charged-off (1,500 ) (4 ) — (16 ) (312 ) (9 ) — (1,841 ) Ending Balance $ 3,563 $ 4,958 $ 5,578 $ 366 $ 347 $ 366 $ 459 $ 15,637 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 June 30, 2019 and December 31, 2018: June 30, 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 $ 1,550 $ 139 $ 1,411 $ — $ — $ — $ — $ — Collectively Evaluated for Impairment 14,327 2,853 4,073 5,725 258 422 344 652 Acquired with Deteriorated Credit Quality 362 — 357 — — — 5 — Total Ending Allowance Balance $ 16,239 $ 2,992 $ 5,841 $ 5,725 $ 258 $ 422 $ 349 $ 652 Loans: Loans Individually Evaluated for Impairment $ 6,047 $ 2,115 $ 3,932 $ — $ — $ — $ — n/m (2) Loans Collectively Evaluated for Impairment 2,716,376 552,938 1,207,345 367,030 203,982 77,824 307,257 n/m (2) Loans Acquired with Deteriorated Credit Quality 10,029 882 5,629 1,882 368 — 1,268 n/m (2) Total Ending Loans Balance (1) $ 2,732,452 $ 555,935 $ 1,216,906 $ 368,912 $ 204,350 $ 77,824 $ 308,525 n/m (2) (1) Total recorded investment in loans includes $11,778 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 June 30, 2019 and December 31, 2018: June 30, 2019 Unpaid Principal Balance (1) Recorded Investment Allowance for Loan Losses Allocated With No Related Allowance Recorded: Commercial and Industrial Loans and Leases $ 2,346 $ 142 $ — Commercial Real Estate Loans 4,003 2,615 — Agricultural Loans 1,742 1,475 — Subtotal 8,091 4,232 — With An Allowance Recorded: Commercial and Industrial Loans and Leases 1,974 1,974 139 Commercial Real Estate Loans 4,314 3,981 1,768 Agricultural Loans — — — Subtotal 6,288 5,955 1,907 Total $ 14,379 $ 10,187 $ 1,907 Loans Acquired With Deteriorated Credit Quality With No Related Allowance Recorded (Included in the Total Above) $ 6,884 $ 3,320 $ — Loans Acquired With Deteriorated Credit Quality With An Additional Allowance Recorded (Included in the Total Above) $ 1,142 $ 820 $ 357 (1) Unpaid Principal Balance is the remaining contractual 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 June 30, 2019 and 2018: June 30, 2019 Average Recorded Investment Interest Income Recognized Cash Basis Recognized With No Related Allowance Recorded: Commercial and Industrial Loans and Leases $ 164 $ 2 $ — Commercial Real Estate Loans 2,981 11 — Agricultural Loans 1,412 — — Subtotal 4,557 13 — With An Allowance Recorded: Commercial and Industrial Loans and Leases 2,128 — — Commercial Real Estate Loans 3,957 — — Agricultural Loans — — — Subtotal 6,085 — — Total $ 10,642 $ 13 $ — Loans Acquired With Deteriorated Credit Quality With No Related Allowance Recorded (Included in the Total Above) $ 3,386 $ 8 $ — Loans Acquired With Deteriorated Credit Quality With An Additional Allowance Recorded (Included in the Total Above) $ 744 $ — $ — June 30, 2018 Average Recorded Investment Interest Income Recognized Cash Basis Recognized With No Related Allowance Recorded: Commercial and Industrial Loans and Leases $ 1,142 $ 13 $ — Commercial Real Estate Loans 1,180 13 — Agricultural Loans 546 — — Subtotal 2,868 26 — With An Allowance Recorded: Commercial and Industrial Loans and Leases 2,690 1 — Commercial Real Estate Loans 5,130 6 — Agricultural Loans — — — Subtotal 7,820 7 — Total $ 10,688 $ 33 $ — Loans Acquired With Deteriorated Credit Quality With No Related Allowance Recorded (Included in the Total Above) $ 546 $ — $ — Loans Acquired With Deteriorated Credit Quality With An Additional Allowance Recorded (Included in the Total Above) $ 207 $ 7 $ — The following tables present the average balance and related interest income of loans individually evaluated for impairment by class of loans for the six month period ended June 30, 2019 and 2018: June 30, 2019 Average Recorded Investment Interest Income Recognized Cash Basis Recognized With No Related Allowance Recorded: Commercial and Industrial Loans and Leases $ 301 $ 4 $ — Commercial Real Estate Loans 3,291 28 — Agricultural Loans 1,409 — — Subtotal 5,001 32 — With An Allowance Recorded: Commercial and Industrial Loans and Leases 2,207 — — Commercial Real Estate Loans 4,324 — — Agricultural Loans — — — Subtotal 6,531 — — Total $ 11,532 $ 32 $ — Loans Acquired With Deteriorated Credit Quality With No Related Allowance Recorded (Included in the Total Above) $ 4,414 $ 15 $ — Loans Acquired With Deteriorated Credit Quality With An Additional Allowance Recorded (Included in the Total Above) $ 3,861 $ — $ — June 30, 2018 Average Recorded Investment Interest Income Recognized Cash Basis Recognized With No Related Allowance Recorded: Commercial and Industrial Loans and Leases $ 1,163 $ 26 $ 1 Commercial Real Estate Loans 1,294 26 6 Agricultural Loans 623 — — Subtotal 3,080 52 7 With An Allowance Recorded: Commercial and Industrial Loans and Leases 3,487 2 — Commercial Real Estate Loans 4,876 9 — Agricultural Loans — — — Subtotal 8,363 11 — Total $ 11,443 $ 63 $ 7 Loans Acquired With Deteriorated Credit Quality With No Related Allowance Recorded (Included in the Total Above) $ 548 $ — $ — Loans Acquired With Deteriorated Credit Quality With An Additional Allowance Recorded (Included in the Total Above) $ 211 $ 11 $ — 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 June 30, 2019 and December 31, 2018: Non-Accrual Loans Loans Past Due 90 Days or More & Still Accruing June 30, December 31, June 30, December 31, 2019 2018 2019 2018 Commercial and Industrial Loans and Leases $ 1,997 $ 2,430 $ 455 $ — Commercial Real Estate Loans 5,748 6,833 114 368 Agricultural Loans 1,475 1,449 435 274 Home Equity Loans 90 88 — — Consumer Loans 113 162 — — Residential Mortgage Loans 1,506 1,617 — — Total $ 10,929 $ 12,579 $ 1,004 $ 642 Loans Acquired With Deteriorated Credit Quality (Included in the Total Above) $ 4,452 $ 4,162 $ 78 $ 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 June 30, 2019 and December 31, 2018: June 30, 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 $ 555,935 $ 298 $ 47 $ 455 $ 800 $ 555,135 Commercial Real Estate Loans 1,216,906 1,562 467 1,467 3,496 1,213,410 Agricultural Loans 368,912 1,857 180 435 2,472 366,440 Home Equity Loans 204,350 609 213 89 911 203,439 Consumer Loans 77,824 690 46 83 819 77,005 Residential Mortgage Loans 308,525 4,675 1,165 1,181 7,021 301,504 Total (1) $ 2,732,452 $ 9,691 $ 2,118 $ 3,710 $ 15,519 $ 2,716,933 Loans Acquired With Deteriorated Credit Quality (Included in the Total Above) $ 10,029 $ 860 $ 26 $ 974 $ 1,860 $ 8,169 (1) Total recorded investment in loans includes $11,778 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 and six months ended June 30, 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 June 30, 2019 and December 31, 2018: June 30, 2019 Total Performing Non-Accrual (1) Commercial and Industrial Loans and Leases $ 118 $ 118 $ — Commercial Real Estate Loans — — — Total $ 118 $ 118 $ — 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 no t committed to lending any additional amounts as of June 30, 2019 and December 31, 2018 to customers with outstanding loans that are classified as troubled debt restructurings. For the three and six months ended June 30, 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 and six months ended June 30, 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: June 30, 2019 Pass Special Mention Substandard Doubtful Total Commercial and Industrial Loans and Leases $ 536,263 $ 5,745 $ 13,927 $ — $ 555,935 Commercial Real Estate Loans 1,182,369 22,329 12,208 — 1,216,906 Agricultural Loans 309,423 47,012 12,477 — 368,912 Total $ 2,028,055 $ 75,086 $ 38,612 $ — $ 2,141,753 Loans Acquired With Deteriorated Credit Quality (Included in the Total Above) $ 230 $ 1,435 $ 6,728 $ — $ 8,393 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 June 30, 2019 and December 31, 2018: June 30, 2019 Home Equity Loans Consumer Loans Residential Mortgage Loans Performing $ 204,260 $ 77,711 $ 307,019 Nonperforming 90 113 1,506 Total $ 204,350 $ 77,824 $ 308,525 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: June 30, 2019 December 31, 2018 Commercial and Industrial Loans $ 882 $ 1,038 Commercial Real Estate Loans 5,629 6,993 Agricultural Loans 1,882 1,877 Home Equity Loans 368 365 Residential Mortgage Loans 1,268 1,283 Total $ 10,029 $ 11,556 Carrying Amount, Net of Allowance $ 9,626 $ 11,548 Accretable yield, or income expected to be collected, is as follows: 2019 2018 Balance at April 1 $ 3,203 $ 2,739 New Loans Purchased — — Accretion of Income (202 ) (140 ) Reclassifications from Non-accretable Difference 131 65 Charge-off of Accretable Yield — (97 ) Balance at June 30 $ 3,132 $ 2,567 For those purchased loans disclosed above, the Company increased the allowance for loan losses by $147 during the three months ended June 30, 2019. The company did no t increase the allowance for loan losses during the three months ended June 30, 2018. The Company reversed no allowances for loan losses during the three months ended June 30, 2019. The Company reversed allowances for loan losses of $3 during the three months ended June 30, 2018. 2019 2018 Balance at January 1 $ 3,138 $ 2,734 New Loans Purchased — — Accretion of Income (524 ) (221 ) Reclassifications from Non-accretable Difference 518 151 Charge-off of Accretable Yield — (97 ) Balance at June 30 $ 3,132 $ 2,567 For those purchased loans disclosed above, the Company increased the allowances for loan losses by $424 and $30 during the six months ended June 30, 2019 and 2018. The Company reversed no allowances for loan losses for the six months ended June 30, 2019. The Company reversed allowances for loan losses of $3 for the six months ended June 30, 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 $10 as of June 30, 2019 and $58 as of December 31, 2018. |