ALLOWANCE FOR LOAN LOSSES AND CREDIT QUALITY | NOTE 4. ALLOWANCE FOR LOAN LOSSES AND CREDIT QUALITY Commercial Real Estate Commercial and Agri-business Consumer and Multifamily and Other 1-4 Family Other (dollars in thousands) Industrial Residential Agricultural Commercial Mortgage Consumer Unallocated Total Three Months Ended March 31, 2018 Beginning balance, January 1 $ 21,097 $ 14,714 $ 4,920 $ 577 $ 2,768 $ 379 $ 2,666 $ 47,121 Provision for loan losses 3,902 207 (76) (67) (794) (49) 177 3,300 Loans charged-off (4,360) (491) 0 0 (7) (119) 0 (4,977) Recoveries 86 8 4 0 51 34 0 183 Net loans charged-off (4,274) (483) 4 0 44 (85) 0 (4,794) Ending balance $ 20,725 $ 14,438 $ 4,848 $ 510 $ 2,018 $ 245 $ 2,843 $ 45,627 Commercial Real Estate Commercial and Agri-business Consumer and Multifamily and Other 1-4 Family Other (dollars in thousands) Industrial Residential Agricultural Commercial Mortgage Consumer Unallocated Total Three Months Ended March 31, 2017 Beginning balance, January 1 $ 20,272 $ 13,452 $ 3,532 $ 461 $ 2,827 $ 387 $ 2,787 $ 43,718 Provision for loan losses (339) 257 (77) 84 (77) 37 315 200 Loans charged-off (375) (48) 0 0 (7) (73) 0 (503) Recoveries 223 57 4 0 47 28 0 359 Net loans charged-off (152) 9 4 0 40 (45) 0 (144) Ending balance $ 19,781 $ 13,718 $ 3,459 $ 545 $ 2,790 $ 379 $ 3,102 $ 43,774 The following tables present the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of March 31, 2018 and December 31, 2017: Commercial Real Estate Commercial and Agri-business Consumer and Multifamily and Other 1-4 Family Other (dollars in thousands) Industrial Residential Agricultural Commercial Mortgage Consumer Unallocated Total March 31, 2018 Allowance for loan losses: Ending allowance balance attributable to loans: Individually evaluated for impairment $ 1,850 $ 526 $ 0 $ 0 $ 269 $ 26 $ 0 $ 2,671 Collectively evaluated for impairment 18,875 13,912 4,848 510 1,749 219 2,843 42,956 Total ending allowance balance $ 20,725 $ 14,438 $ 4,848 $ 510 $ 2,018 $ 245 $ 2,843 $ 45,627 Loans: Loans individually evaluated for impairment $ 8,820 $ 4,873 $ 283 $ 0 $ 1,799 $ 49 $ 0 $ 15,824 Loans collectively evaluated for impairment 1,476,113 1,475,135 316,772 116,507 372,266 73,051 0 3,829,844 Total ending loans balance $ 1,484,933 $ 1,480,008 $ 317,055 $ 116,507 $ 374,065 $ 73,100 $ 0 $ 3,845,668 Commercial Real Estate Commercial and Agri-business Consumer and Multifamily and Other 1-4 Family Other (dollars in thousands) Industrial Residential Agricultural Commercial Mortgage Consumer Unallocated Total December 31, 2017 Allowance for loan losses: Ending allowance balance attributable to loans: Individually evaluated for impairment $ 2,067 $ 795 $ 0 $ 0 $ 310 $ 44 $ 0 $ 3,216 Collectively evaluated for impairment 19,030 13,919 4,920 577 2,458 335 2,666 43,905 Total ending allowance balance $ 21,097 $ 14,714 $ 4,920 $ 577 $ 2,768 $ 379 $ 2,666 $ 47,121 Loans: Loans individually evaluated for impairment $ 6,979 $ 4,802 $ 283 $ 0 $ 1,756 $ 50 $ 0 $ 13,870 Loans collectively evaluated for impairment 1,411,648 1,438,219 382,643 123,922 374,013 74,144 0 3,804,589 Total ending loans balance $ 1,418,627 $ 1,443,021 $ 382,926 $ 123,922 $ 375,769 $ 74,194 $ 0 $ 3,818,459 Unpaid Allowance for Principal Recorded Loan Losses (dollars in thousands) Balance Investment Allocated With no related allowance recorded: Commercial and industrial loans: Working capital lines of credit loans $ 5,342 $ 2,050 $ 0 Non-working capital loans 4,389 2,045 0 Commercial real estate and multi-family residential loans: Construction and land development loans 88 88 0 Owner occupied loans 3,876 3,139 0 Agri-business and agricultural loans: Loans secured by farmland 603 283 0 Consumer 1-4 family loans: Closed end first mortgage loans 618 537 0 Open end and junior lien loans 250 250 0 With an allowance recorded: Commercial and industrial loans: Working capital lines of credit loans 1,597 1,597 577 Non-working capital loans 3,128 3,128 1,273 Commercial real estate and multi-family residential loans: Construction and land development loans 824 824 123 Owner occupied loans 822 822 403 Consumer 1-4 family mortgage loans: Closed end first mortgage loans 1,012 1,012 269 Other consumer loans 49 49 26 Total $ 22,598 $ 15,824 $ 2,671 The following table presents loans individually evaluated for impairment by class of loans as of December 31, 2017: Unpaid Allowance for Principal Recorded Loan Losses (dollars in thousands) Balance Investment Allocated With no related allowance recorded: Commercial and industrial loans: Working capital lines of credit loans $ 491 $ 491 $ 0 Non-working capital loans 2,973 1,579 0 Commercial real estate and multi-family residential loans: Construction and land development loans 88 88 0 Owner occupied loans 2,558 2,310 0 Agri-business and agricultural loans: Loans secured by farmland 602 283 0 Consumer 1-4 family loans: Closed end first mortgage loans 636 570 0 With an allowance recorded: Commercial and industrial loans: Working capital lines of credit loans 1,617 1,617 667 Non-working capital loans 3,292 3,292 1,400 Commercial real estate and multi-family residential loans: Construction and land development loans 827 827 350 Owner occupied loans 1,577 1,577 445 Consumer 1-4 family mortgage loans: Closed end first mortgage loans 950 950 269 Open end and junior lien loans 236 236 41 Other consumer loans 50 50 44 Total $ 15,897 $ 13,870 $ 3,216 Cash Basis Average Interest Interest Recorded Income Income (dollars in thousands) Investment Recognized Recognized With no related allowance recorded: Commercial and industrial loans: Working capital lines of credit loans $ 1,011 $ 7 $ 2 Non-working capital loans 1,728 15 5 Commercial real estate and multi-family residential loans: Construction and land development loans 102 1 0 Owner occupied loans 2,557 7 2 Agri-business and agricultural loans: Loans secured by farmland 283 0 0 Consumer 1-4 family loans: Closed end first mortgage loans 543 2 1 Open end and junior lien loans 92 0 0 With an allowance recorded: Commercial and industrial loans: Working capital lines of credit loans 1,608 2 1 Non-working capital loans 3,216 2 0 Commercial real estate and multi-family residential loans: Construction and land development loans 721 11 5 Owner occupied loans 1,194 0 0 Consumer 1-4 family mortgage loans: Closed end first mortgage loans 968 7 4 Open end and junior lien loans 154 0 0 Other consumer loans 49 1 0 Total $ 14,226 $ 55 $ 20 The following table presents loans individually evaluated for impairment by class of loans as of and for the three-month period ended March 31, 2017: Cash Basis Average Interest Interest Recorded Income Income (dollars in thousands) Investment Recognized Recognized With no related allowance recorded: Commercial and industrial loans: Working capital lines of credit loans $ 577 $ 7 $ 7 Non-working capital loans 1,381 8 5 Commercial real estate and multi-family residential loans: Construction and land development loans 126 1 1 Owner occupied loans 2,572 1 1 Nonowner occupied loans 4,604 84 72 Agri-business and agricultural loans: Loans secured by farmland 283 0 0 Consumer 1-4 family loans: Closed end first mortgage loans 191 1 0 Open end and junior lien loans 156 0 0 With an allowance recorded: Commercial and industrial loans: Working capital lines of credit loans 1,363 11 8 Non-working capital loans 6,699 49 39 Commercial real estate and multi-family residential loans: Owner occupied loans 1,665 5 4 Consumer 1-4 family mortgage loans: Closed end first mortgage loans 1,071 7 4 Other consumer loans 54 1 0 Total $ 20,742 $ 175 $ 141 30-89 Greater than Total Past Loans Not Days 90 Days Due and (dollars in thousands) Past Due Past Due Past Due Nonaccrual Nonaccrual Total Commercial and industrial loans: Working capital lines of credit loans $ 775,855 $ 0 $ 0 $ 2,998 $ 2,998 $ 778,853 Non-working capital loans 702,304 0 0 3,776 3,776 706,080 Commercial real estate and multi-family residential loans: Construction and land development loans 236,060 881 0 0 881 236,941 Owner occupied loans 539,547 0 0 3,314 3,314 542,861 Nonowner occupied loans 506,476 155 0 0 155 506,631 Multifamily loans 193,575 0 0 0 0 193,575 Agri-business and agricultural loans: Loans secured by farmland 145,083 0 0 283 283 145,366 Loans for agricultural production 171,689 0 0 0 0 171,689 Other commercial loans 116,507 0 0 0 0 116,507 Consumer 1-4 family mortgage loans: Closed end first mortgage loans 179,003 767 26 382 1,175 180,178 Open end and junior lien loans 180,042 287 0 250 537 180,579 Residential construction loans 13,308 0 0 0 0 13,308 Other consumer loans 73,015 85 0 0 85 73,100 Total $ 3,832,464 $ 2,175 $ 26 $ 11,003 $ 13,204 $ 3,845,668 The following table presents the ageing of the recorded investment in past due loans as of December 31, 2017 by class of loans: 30-89 Greater than Total Past Loans Not Days 90 Days Due and (dollars in thousands) Past Due Past Due Past Due Nonaccrual Nonaccrual Total Commercial and industrial loans: Working capital lines of credit loans $ 742,205 $ 11 $ 0 $ 1,459 $ 1,470 $ 743,675 Non-working capital loans 671,490 0 0 3,462 3,462 674,952 Commercial real estate and multi-family residential loans: Construction and land development loans 215,713 8,000 0 0 8,000 223,713 Owner occupied loans 534,648 0 0 3,620 3,620 538,268 Nonowner occupied loans 507,696 0 0 0 0 507,696 Multifamily loans 173,100 244 0 0 244 173,344 Agri-business and agricultural loans: Loans secured by farmland 186,160 0 0 283 283 186,443 Loans for agricultural production 196,483 0 0 0 0 196,483 Other commercial loans 123,922 0 0 0 0 123,922 Consumer 1-4 family mortgage loans: Closed end first mortgage loans 177,410 1,183 6 342 1,531 178,941 Open end and junior lien loans 183,056 89 0 236 325 183,381 Residential construction loans 13,447 0 0 0 0 13,447 Other consumer loans 74,102 92 0 0 92 74,194 Total $ 3,799,432 $ 9,619 $ 6 $ 9,402 $ 19,027 $ 3,818,459 Troubled Debt Restructurings: Troubled debt restructured loans are included in the totals for impaired loans. The Company has allocated $ 2.3 March 31, December 31, (dollars in thousands) 2018 2017 Accruing troubled debt restructured loans $ 4,085 $ 2,893 Nonaccrual troubled debt restructured loans 7,945 7,750 Total troubled debt restructured loans $ 12,030 $ 10,643 During the three months ended March 31, 2018, certain loans were modified as troubled debt restructurings. The modified terms of these loans include one or a combination of the following: inadequate compensation for the terms of the restructure or renewal; a modification of the repayment terms which delays principal repayment for some period; or renewal terms offered to borrowers in financial distress where no additional credit enhancements were obtained at the time of renewal. Additional concessions were granted to borrowers with previously identified troubled debt restructured loans during the period. The loan to one of the borrowers is for a commercial real estate building where the collateral value and cash flows from the companies occupying the buildings do not support the loan with recorded investments of $ 341,000 551,000 All Modifications Modified Repayment Terms Pre-Modification Post-Modification Extension Outstanding Outstanding Period or Number of Recorded Recorded Number of Range (dollars in thousands) Loans Investment Investment Loans (in months) Troubled Debt Restructurings Commercial and industrial loans: Working capital lines of credit loans 1 $ 600 $ 600 1 0 Non-working capital loans 1 1,400 1,400 1 0 Commercial real estate and multi- family residential loans: Construction and land development loans 1 824 824 1 12 Owner occupied loans 1 387 387 1 12 Consumer 1-4 family loans: Closed end first mortgage loans 1 198 197 1 239 Total 5 $ 3,409 $ 3,408 5 0-239 For the three-month period ending March 31, 2018, the troubled debt restructurings described in the table above decreased the allowance for loan losses by $ 227,000 For the three-month period ending March 31, 2018, charge-offs of $ 1.6 During the three months ended March 31, 2017, certain loans were modified as troubled debt restructurings. The modified terms of these loans include one or a combination of the following: inadequate compensation for the terms of the restructure or renewal; a modification of the repayment terms which delays principal repayment for some period; or renewal terms offered to borrowers in financial distress where no additional credit enhancements were obtained at the time of renewal. Additional concessions were granted to borrowers with previously identified troubled debt restructured loans during the three months ended March 31, 2017. The loans to two of the borrowers are for commercial real estate buildings where the collateral value and cash flows from the companies occupying the buildings do not support the loans with recorded investments of $ 500,000 690,000 Modified Repayment Terms Pre-Modification Post-Modification Extension Outstanding Outstanding Period or Number of Recorded Recorded Number of Range (dollars in thousands) Loans Investment Investment Loans (in months) Troubled Debt Restructurings Commercial and industrial loans: Non-working capital loans 2 1,712 1,712 2 6 Commercial real estate and multi- family residential loans: Owner occupied loans 1 486 486 1 6 Consumer 1-4 family loans: Closed end first mortgage loans 1 44 46 1 350 Total 4 $ 2,242 $ 2,244 4 6-350 For the period ended March 31, 2017, the commercial and industrial troubled debt restructurings described above increased the allowance for loan losses by $ 34,000 49,000 No charge-offs resulted from any troubled debt restructurings described above during the three-month period ended March 31, 2017. There were no troubled debt restructurings that had payment defaults within the twelve months following modification during the three-month periods ended March 31, 2018 and 2017. 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 analyzes commercial loans individually by classifying the loans as to credit risk. This analysis is performed on a quarterly basis for Special Mention, Substandard and Doubtful grade loans and annually on Pass grade loans over $ 150,000 The Company uses the following definitions for risk ratings: Special Mention. Substandard. Doubtful. Loans not meeting the criteria above that are analyzed individually as part of the above-described process are considered to be Pass rated loans with the exception of consumer troubled debt restructurings which are evaluated and listed with Substandard commercial grade loans and consumer nonaccrual loans which are evaluated individually and listed with Not Rated loans. Loans listed as Not Rated are consumer loans or commercial loans with consumer characteristics included in groups of homogenous loans which are analyzed for credit quality indicators utilizing delinquency status. Special Not (dollars in thousands) Pass Mention Substandard Doubtful Rated Total Commercial and industrial loans: Working capital lines of credit loans $ 712,842 $ 42,204 $ 23,510 $ 0 $ 297 $ 778,853 Non-working capital loans 654,352 22,189 24,707 0 4,832 706,080 Commercial real estate and multi- family residential loans: Construction and land development loans 235,676 441 824 0 0 236,941 Owner occupied loans 501,679 19,028 22,154 0 0 542,861 Nonowner occupied loans 504,275 1,676 680 0 0 506,631 Multifamily loans 193,338 237 0 0 0 193,575 Agri-business and agricultural loans: Loans secured by farmland 132,475 8,580 4,311 0 0 145,366 Loans for agricultural production 162,007 8,482 1,200 0 0 171,689 Other commercial loans 116,502 0 0 0 5 116,507 Consumer 1-4 family mortgage loans: Closed end first mortgage loans 55,130 0 1,551 0 123,497 180,178 Open end and junior lien loans 9,855 0 250 0 170,474 180,579 Residential construction loans 0 0 0 0 13,308 13,308 Other consumer loans 14,282 0 49 0 58,769 73,100 Total $ 3,292,413 $ 102,837 $ 79,236 $ 0 $ 371,182 $ 3,845,668 As of December 31, 2017, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows: Special Not (dollars in thousands) Pass Mention Substandard Doubtful Rated Total Commercial and industrial loans: Working capital lines of credit loans $ 688,748 $ 33,337 $ 21,350 $ 0 $ 240 $ 743,675 Non-working capital loans 624,275 20,171 25,834 0 4,672 674,952 Commercial real estate and multi- family residential loans: Construction and land development loans 222,445 441 827 0 0 223,713 Owner occupied loans 496,231 19,361 22,676 0 0 538,268 Nonowner occupied loans 505,033 1,970 693 0 0 507,696 Multifamily loans 173,100 244 0 0 0 173,344 Agri-business and agricultural loans: Loans secured by farmland 174,118 7,988 4,337 0 0 186,443 Loans for agricultural production 185,772 9,716 995 0 0 196,483 Other commercial loans 123,917 0 0 0 5 123,922 Consumer 1-4 family mortgage loans: Closed end first mortgage loans 52,301 0 1,520 0 125,120 178,941 Open end and junior lien loans 8,259 0 236 0 174,886 183,381 Residential construction loans 0 0 0 0 13,447 13,447 Other consumer loans 18,642 0 50 0 55,502 74,194 Total $ 3,272,841 $ 93,228 $ 78,518 $ 0 $ 373,872 $ 3,818,459 |