| Loans | Note 5 – Loans The Company grants loans primarily to customers throughout north central, central and south central Pennsylvania and the southern tier of New York. The recently completed MidCoast acquisition has expanded our lending market into Wilmington and Dover, Delaware. Although the Company had a diversified loan portfolio at June 30, 2020 and December 31, 2019, a substantial portion of its debtors’ ability to honor their contracts is dependent on the economic conditions within these regions. The following table summarizes the primary segments of the loan portfolio and how those segments are analyzed within the allowance for loan losses as of June 30, 2020 and December 31, 2019 (in thousands):
June 30, 2020 Total Loans Individually evaluated for impairment Loans acquired with deteriorated credit quality Collectively evaluated for impairment
Real estate loans:
Residential $ 210,789 $ 1,194 $ 21 $ 209,574
Commercial 513,598 11,829 3,820 497,949
Agricultural 313,136 3,470 1,781 307,885
Construction 31,744 - - 31,744
Consumer 30,973 - - 30,973
Other commercial loans 132,503 1,741 - 130,762
Other agricultural loans 44,912 1,289 381 43,242
State and political subdivision loans 85,978 - - 85,978
Total 1,363,633 19,523 6,003 1,338,107
Allowance for loan losses 14,827 888 - 13,939
Net loans $ 1,348,806 $ 18,635 $ 6,003 $ 1,324,168
December 31, 2019 Total Loans Individually evaluated for impairment Loans acquired with deteriorated credit quality Collectively evaluated for impairment
Real estate loans:
Residential $ 217,088 $ 1,166 $ 23 $ 215,899
Commercial 342,023 11,537 1,210 329,276
Agricultural 311,464 3,782 - 307,682
Construction 15,519 - - 15,519
Consumer 9,947 4 - 9,943
Other commercial loans 69,970 1,902 49 68,019
Other agricultural loans 55,112 1,281 - 53,831
State and political subdivision loans 94,446 - - 94,446
Total 1,115,569 19,672 1,282 1,094,615
Allowance for loan losses 13,845 735 - 13,110
Net loans $ 1,101,724 $ 18,937 $ 1,282 $ 1,081,505 The Company evaluated whether loans acquired as part of the MidCoast acquisition were within the scope of ASC 310-30, Receivables-Loans and Debt Securities Acquired with Deteriorated Credit Quality. Purchased credit-impaired loans are loans that have evidence of credit deterioration since origination and it is probable at the date of acquisition that the Company will not collect all contractually required principal and interest payments. There were no material increases or decreases in the expected cash flows of these loans between April 17, 2020 (the “acquisition date”) and June 30, 2020. The fair value of purchased credit-impaired loans, on the acquisition date, was determined, primarily based on the fair value of loan collateral. The carrying value of purchased loans acquired with deteriorated credit quality as a result of the MidCoast acquisition was $ at June 30, 2020. On the acquisition date, the preliminary estimate of the unpaid principal balance for all loans evidencing credit impairment acquired in the MidCoast acquisition was $ and the estimated fair value of the loans was $ . Total contractually required payments on these loans, including interest, at the acquisition date was $ . However, the Company’s preliminary estimate of expected cash flows was $ at the acquisition date. At the acquisition date, the Company established a credit risk related non-accretable discount (a discount representing amounts which are not expected to be collected from the customer nor liquidation of collateral) of $ relating to these impaired loans, reflected in the recorded net fair value. Such amount is reflected as a non-accretable fair value adjustment to loans. The Company further estimated the timing and amount of expected cash flows in excess of the estimated fair value and established an accretable discount of $ on the acquisition date relating to these impaired loans. The table below presents the components of the purchase accounting adjustments related to the purchased impaired loans acquired in the MidCoast Acquisition as of April 17, 2020 (in thousands):
April 17, 2020
Contractually required principal and interest at acquisition $ 8,801
Non-accretable discount (2,966 )
Expected cash flows 5,835
Accretable discount $ (966 )
Estimated fair value $ 4,869 Changes in the accretable yield for PCI loans were as follows for the three and six months ended June 30, 2020 and 2019, respectively (in thousands):
Three months ended June 30, Six months ended June 30,
2020 2019 2020 2019
Balance at beginning of period $ 88 $ 102 $ 89 $ 104
Acquisition of Midcoast 966 - 966 -
Accretion (67 ) (2 ) (68 ) (4 )
Balance at end of period $ 987 $ 100 $ 987 $ 100 The following table presents additional information regarding loans acquired with specific evidence of deterioration in credit quality under ASC 310-30 (in thousands):
June 30, 2020 December 31, 2019
Outstanding balance $ 10,589 $ 4,072
Carrying amount 6,003 1,282 The segments of the Company’s loan portfolio are disaggregated into classes to a level that allows management to monitor risk and performance. Residential real estate mortgages consist primarily of 15 to 30 year first mortgages on residential real estate, while residential real estate home equity loans are consumer purpose installment loans or lines of credit with terms of 15 years or less secured by a mortgage which is often a second lien on residential real estate. Commercial real estate loans are business purpose loans secured by a mortgage on commercial real estate. Agricultural real estate loans are loans secured by a mortgage on real estate used in agriculture production. Construction real estate loans are loans secured by residential, commercial or agricultural real estate used during the construction phase of residential, commercial or agricultural projects. Consumer loans are typically unsecured or primarily secured by assets other than real estate and overdraft lines of credit are typically secured by customer deposit accounts. Other commercial loans are loans for commercial purposes primarily secured by non-real estate collateral. Other agricultural loans are loans for agricultural purposes primarily secured by non-real estate collateral. State and political subdivision loans are loans to state and local municipalities for capital and operating expenses or tax free loans used to finance commercial development. Management considers other commercial loans, other agricultural loans, state and political subdivision loans, commercial real estate loans and agricultural real estate loans which are 90 days or more past due to be impaired. Management will also consider a loan impaired based on other factors it becomes aware of, including the customer’s results of operations and cash flows or if the loan is modified in a troubled debt restructuring. In addition, certain residential mortgages, home equity and consumer loans that are cross collateralized with commercial relationships that are determined to be impaired may also be classified as impaired. Impaired loans are analyzed to determine if it is probable that all amounts will not be collected according to the contractual terms of the loan agreement. If management determines that the value of the impaired loan is less than the recorded investment in the loan (net of previous charge-offs, deferred loan fees or costs and unamortized premium or discount), impairment is recognized through an allocation to the allowance for loan losses or a charge-off to the allowance for loan losses. The following table includes the recorded investment and unpaid principal balances for impaired loan receivables by class, excluding PCI loans, with the associated allowance amount, if applicable (in thousands):
June 30, 2020 Unpaid Principal Balance Recorded Investment With No Allowance Recorded Investment With Allowance Total Recorded Investment Related Allowance
Real estate loans:
Mortgages $ 1,272 $ 756 $ 297 $ 1,053 $ 20
Home Equity 163 79 62 141 10
Commercial 12,402 10,613 1,216 11,829 452
Agricultural 3,628 1,535 1,935 3,470 77
Other commercial loans 2,360 1,375 366 1,741 175
Other agricultural loans 1,377 125 1,164 1,289 154
Total $ 21,202 $ 14,483 $ 5,040 $ 19,523 $ 888
December 31, 2019
Real estate loans:
Mortgages $ 1,212 $ 794 $ 223 $ 1,017 $ 20
Home Equity 170 83 66 149 12
Commercial 12,070 10,723 814 11,537 251
Agricultural 3,900 1,580 2,202 3,782 151
Consumer 4 4 - 4 -
Other commercial loans 2,517 1,555 347 1,902 147
Other agricultural loans 1,347 126 1,155 1,281 154
Total $ 21,220 $ 14,865 $ 4,807 $ 19,672 $ 735 The following tables includes the average balance of impaired loan receivables by class and the income recognized on these receivables for the three and six month periods ended June 30, 2020 and 2019 (in thousands):
For the Six Months Ended
June 30, 2020 June 30, 2019
Average Recorded Investment Interest Income Recognized Interest Income Recognized Cash Basis Average Recorded Investment Interest Income Recognized Interest Income Recognized Cash Basis
Real estate loans:
Mortgages $ 1,047 $ 10 $ - $ 1,088 $ 9 $ -
Home Equity 144 3 - 90 2 -
Commercial 11,529 219 2 11,699 230 11
Agricultural 3,761 40 - 5,205 56 -
Consumer 3 - - 1 - -
Other commercial loans 1,822 2 - 2,096 1 -
Other agricultural loans 1,283 4 - 1,424 4 -
Total $ 19,589 $ 278 $ 2 $ 21,603 $ 302 $ 11
For the Three Months Ended
June 30, 2020 June 30, 2019
Real estate loans:
Mortgages $ 1,062 $ 5 $ - $ 1,073 $ 5 $ -
Home Equity 142 1 - 95 1 -
Commercial 11,572 115 - 10,849 111 5
Agricultural 3,746 19 - 4,835 24 -
Consumer 2 - - 2 - -
Other commercial loans 1,805 1 - 2,056 - -
Other agricultural loans 1,290 2 - 1,416 2 -
Total $ 19,619 $ 143 $ - $ 20,326 $ 143 $ 5 Credit Quality Information For commercial real estate, agricultural real estate, construction, other commercial, other agricultural and state and political subdivision loans, management uses a nine grade internal risk rating system to monitor and assess credit quality. The first five categories are considered not criticized and are aggregated as “Pass” rated. The criticized rating categories utilized by management generally follow bank regulatory definitions. The definitions of each rating are defined below:
• Pass (Grades 1-5) – These loans are to customers with credit quality ranging from an acceptable to very high quality and are protected by the current net worth and paying capacity of the obligor or by the value of the underlying collateral.
• Special Mention (Grade 6) – This loan grade is in accordance with regulatory guidance and includes loans where a potential weakness or risk exists, which could cause a more serious problem if not corrected.
• Substandard (Grade 7) – This loan grade is in accordance with regulatory guidance and includes loans that have a well-defined weakness based on objective evidence and be characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.
• Doubtful (Grade 8) – This loan grade is in accordance with regulatory guidance and includes loans that have all the weaknesses inherent in a substandard asset. In addition, these weaknesses make collection or liquidation in full highly questionable and improbable, based on existing circumstances.
• Loss (Grade 9) – This loan grade is in accordance with regulatory guidance and includes loans that are considered uncollectible, or of such value that continuance as an asset is not warranted. To help ensure that risk ratings are accurate and reflect the present and future capacity of borrowers to repay the loan as agreed, the Company’s loan rating process includes several layers of internal and external oversight. The Company’s loan officers are responsible for the timely and accurate risk rating of the loans in each of their portfolios at origination and on an ongoing basis under the supervision of management. All commercial, agricultural and state and political relationships over $500,000 are reviewed annually to ensure the appropriateness of the loan grade. In addition, the Company engages an external consultant on at least an annual basis to: 1) review a minimum of 50% of the dollar volume of the commercial, agricultural and municipal loan portfolios on an annual basis, 2) review a sample of new loans originated for over $1.0 million in the last year, 3) review a sample of borrowers with commitments greater than or equal to $1.0 million, 4) review selected loan relationships over $750,000 which are over 30 days past due or classified Special Mention, Substandard, Doubtful, or Loss, and 5) such other loans which management or the consultant deems appropriate. The following tables represent credit exposures by internally assigned grades as of June 30, 2020 and December 31, 2019 (in thousands):
June 30, 2020 Pass Special Mention Substandard Doubtful Loss Ending Balance
Real estate loans:
Commercial $ 499,279 $ 6,022 $ 8,258 $ 39 $ - $ 513,598
Agricultural 282,906 15,843 14,387 - - 313,136
Construction 31,744 - - - - 31,744
Other commercial loans 126,757 1,626 4,060 60 - 132,503
Other agricultural loans 41,151 1,027 2,734 - - 44,912
State and political subdivision loans 85,592 - 386 - - 85,978
Total $ 1,067,429 $ 24,518 $ 29,825 $ 99 $ - $ 1,121,871
December 31, 2019 Pass Special Mention Substandard Doubtful Loss Ending Balance
Real estate loans:
Commercial $ 329,831 $ 4,305 $ 7,848 $ 39 $ - $ 342,023
Agricultural 287,044 14,261 10,159 - - 311,464
Construction 15,519 - - - - 15,519
Other commercial loans 66,880 984 2,042 64 - 69,970
Other agricultural loans 51,711 1,077 2,324 - - 55,112
State and political subdivision loans 93,993 - 453 - - 94,446
Total $ 844,978 $ 20,627 $ 22,826 $ 103 $ - $ 888,534 For residential real estate mortgages, home equity and consumer loans, credit quality is monitored based on whether the loan is performing or non-performing, which is typically based on the aging status of the loan and payment activity, unless a specific action, such as bankruptcy, repossession, death or significant delay in payment occurs to raise awareness of a possible credit event. Non-performing loans include those loans that are considered nonaccrual, described in more detail below, and all loans past due 90 or more days and still accruing. The following table presents the recorded investment in those loan classes based on payment activity as of June 30, 2020 and December 31, 2019 (in thousands):
June 30, 2020 Performing Non-performing PCI Total
Real estate loans:
Mortgages $ 152,008 $ 1,061 $ 21 $ 153,090
Home Equity 57,644 55 - 57,699
Consumer 30,950 23 - 30,973
Total $ 240,602 $ 1,139 $ 21 $ 241,762
December 31, 2019 Performing Non-performing PCI Total
Real estate loans:
Mortgages $ 156,151 $ 904 $ 23 $ 157,078
Home Equity 59,950 60 - 60,010
Consumer 9,939 8 - 9,947
Total $ 226,040 $ 972 $ 23 $ 227,035 Aging Analysis of Past Due Loan Receivables Management further monitors the performance and credit quality of the loan portfolio by analyzing the age of the portfolio as determined by the length of time a recorded payment is past due. The following table includes an aging analysis of the recorded investment of past due loan receivables as of June 30, 2020 and December 31, 2019 (in thousands):
June 30, 2020 30-59 Days Past Due 60-89 Days Past Due 90 Days Or Greater Total Past Due Current PCI Total Financing Receivables 90 Days or Greater and Accruing
Real estate loans:
Mortgages $ 129 $ 384 $ 511 $ 1,024 $ 152,045 $ 21 $ 153,090 $ 169
Home Equity 227 47 51 325 57,374 - 57,699 -
Commercial 1,210 913 4,942 7,065 502,713 3,820 513,598 416
Agricultural 1,250 1,928 4 3,182 308,173 1,781 313,136 -
Construction - - - - 31,744 - 31,744 -
Consumer 136 33 20 189 30,784 - 30,973 20
Other commercial loans 78 2 1,642 1,722 130,781 - 132,503 49
Other agricultural loans 60 1,290 20 1,370 43,161 381 44,912 -
State and political subdivision loans - - - - 85,978 - 85,978 -
Total $ 3,090 $ 4,597 $ 7,190 $ 14,877 $ 1,342,753 $ 6,003 $ 1,363,633 $ 654
Loans considered non-accrual $ 2 $ 2,699 $ 6,536 $ 9,237 $ 1,456 $ - $ 10,693
Loans still accruing 3,088 1,898 654 5,640 1,341,297 6,003 1,352,940
Total $ 3,090 $ 4,597 $ 7,190 $ 14,877 $ 1,342,753 $ 6,003 $ 1,363,633
December 31, 2019 30-59 Days Past Due 60-89 Days Past Due 90 Days Or Greater Total Past Due Current PCI Total Loan Receivables 90 Days or Greater and Accruing
Real estate loans:
Mortgages $ 581 $ 57 $ 319 $ 957 $ 156,098 $ 23 $ 157,078 $ 1
Home Equity 334 11 56 401 59,609 - 60,010 1
Commercial 750 573 3,720 5,043 335,770 1,210 342,023 -
Agricultural 118 - 785 903 310,561 - 311,464 299
Construction - - - - 15,519 - 15,519 -
Consumer 113 10 8 131 9,816 - 9,947 2
Other commercial loans 217 71 1,946 2,234 67,687 49 69,970 184
Other agricultural loans 29 32 - 61 55,051 - 55,112 -
State and political subdivision loans - - - - 94,446 - 94,446 -
Total $ 2,142 $ 754 $ 6,834 $ 9,730 $ 1,104,557 $ 1,282 $ 1,115,569 $ 487
Loans considered non-accrual $ 90 $ 95 $ 6,347 $ 6,532 $ 5,004 $ - $ 11,536
Loans still accruing 2,052 659 487 3,198 1,099,553 1,282 1,104,033
Total $ 2,142 $ 754 $ 6,834 $ 9,730 $ 1,104,557 $ 1,282 $ 1,115,569 Nonaccrual Loans Loans are considered for non-accrual status upon reaching 90 days delinquency, although the Company may be receiving partial payments of interest and partial repayments of principal on such loans, or if full payment of principal and interest is not expected. Additionally, if management is made aware of other information including bankruptcy, repossession, death, or legal proceedings, the loan may be placed on non-accrual status. If a loan is 90 days or more past due and is well secured and in the process of collection, it may still be considered accruing. The following table reflects the loan receivables, excluding PCI loans, on non-accrual status as of June 30, 2020 and December 31, 2019, respectively. The balances are presented by class of loan receivable (in thousands):
June 30, 2020 December 31, 2019
Real estate loans:
Mortgages $ 892 $ 903
Home Equity 55 59
Commercial 5,005 5,080
Agricultural 2,046 2,578
Consumer 3 6
Other commercial loans 1,657 1,837
Other agricultural loans 1,035 1,073
$ 10,693 $ 11,536 Loan Modifications Related to COVID-19 The Company has elected to follow the loan modification guidance under Section 4013 of the CARES Act with regard to COVID-19 modifications made between March 1, 2020 and the earlier of either December 31, 2020 or the 60th day after the end of the COVID-19 national emergency. Under section 4013 of the CARES Act, loans less than 30 days past due as of December 31, 2019 will be considered current for COVID-19 modifications. A financial institution can then suspend the requirements under GAAP for loan modifications related to COVID-19 that would otherwise be categorized as a TDR, and suspend any determination of a loan modified as a result of COVID-19 as being a TDR, including the requirement to determine impairment for accounting purposes. Similarly, the Financial Accounting Standards Board has confirmed that short-term modifications made on a good-faith basis in response to COVID-19 to loan customers who were current prior to any relief are not TDRs. A modification of six months or less is considered to be a short-term loan modification. In response to the COVID-19 pandemic, the Company has prudently executed loan modifications for existing loan customers, which includes deferrals of interest and in certain cases deferrals of principal and interest. The following table presents information regarding loans which were subject to a loan modification related to COVID-19, with balances as of the date of modification and June 30, 2020, as well as the balance by modification type as of June 30, 2020.
June 30 Number of loans Balance as of Modification date Number of modified loan as of June 30, 2020 Balance as of June 30, 2020 % of loans as of June 30, 2020
Real estate loans:
Mortgages 46 $ 9,803 12 $ 1,962 1.28 %
Home Equity 27 1,283 2 80 0.14 %
Commercial 246 140,632 67 42,867 8.35 %
Agricultural 43 15,833 18 6,658 2.13 %
Construction 3 1,178 2 196 0.62 %
Consumer 10 68 1 7 0.02 %
Other commercial loans 88 24,077 25 1,292 0.98 %
Other agricultural loans 46 3,347 7 2,335 5.20 %
Total 509 $ 196,221 134 $ 55,397 4.06 % Troubled Debt Restructurings In situations where, for economic or legal reasons related to a borrower’s financial difficulties, management may grant a concession for other than an insignificant period of time to the borrower that would not otherwise be considered, the related loan is classified as a Troubled Debt Restructuring (TDR). Management strives to identify borrowers in financial difficulty early and work with them to structure more affordable terms before their loan reaches nonaccrual status. These restructured terms may include rate reductions, principal forgiveness, payment forbearance and other actions intended to minimize the economic loss and to avoid foreclosure or repossession of the collateral. In cases where borrowers are granted new terms that provide for a reduction of interest or principal, or both, management measures any impairment on the restructuring by calculating the present value of the revised loan terms and comparing this balance to the Company’s investment in the loan prior to the restructuring. As these loans are individually evaluated, they are excluded from pooled portfolios when calculating the allowance for loan and lease losses and a separate allocation within the allowance for loan and lease losses is provided. Management continually evaluates loans that are considered TDRs, including payment history under the modified loan terms, the borrower’s ability to continue to repay the loan based on continued evaluation of their operating results and cash flows from operations. As of June 30, 2020 and December 31, 2019, included within the allowance for loan losses are reserves of $290,000 and $345,000 respectively, that are associated with loans modified as TDRs. Loan modifications that are considered TDRs completed during the three and six months ended June 30, 2020 and 2019 were as follows (dollars in thousands):
For the Three Months Ended June 30, 2020
Number of contracts Pre-modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment
Interest Modification Term Modification Interest Modification Term Modification Interest Modification Term Modification
Real estate loans:
Commercial - 2 $ - $ 406 $ - $ 406
Total - 2 $ - $ 406 $ - $ 406
For the Six Months Ended June 30, 2020
Number of contracts Pre-modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment
Interest Modification Term Modification Interest Modification Term Modification Interest Modification Term Modification
Real estate loans:
Commercial - 2 $ - $ 406 $ - $ 406
Agricultural - 1 - 150 - 150
Total - 3 $ - $ 556 $ - $ 556
For the Three Months Ended June 30, 2019
Number of contracts Pre-modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment
Interest Modification Term Modification Interest Modification Term Modification Interest Modification Term Modification
Real estate loans:
Mortgages - 1 $ - $ 4 $ - $ 4
Home Equity - 1 - 40 - 40
Commercial - 4 - 222 - 222
Total - 6 $ - $ 266 $ - $ 266
For the Six Months Ended June 30, 2019
Number of contracts Pre-modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment
Interest Modification Term Modification Interest Modification Term Modification Interest Modification Term Modification
Real estate loans:
Mortgages - 1 $ - $ 4 $ - $ 4
Home Equity - 1 - 40 - 40
Commercial - 5 - 799 - 799
Total - 7 $ - $ 843 $ - $ 843 Recidivism, or the borrower defaulting on its obligation pursuant to a modified loan, results in the loan once again becoming a non-accrual loan. Recidivism on modified loans occurs at a notably higher rate than do defaults on new origination loans, so modified loans present a higher risk of loss than do new origination loans. The following table presents the recorded investment in loans that were modified as TDRs during each 12-month period prior to the current reporting periods, which began January 1, 2020 and 2019 (6 month periods) and April 1, 2020 and 2019
For the Three Months Ended For the Six Months Ended
June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019
Number of contracts Recorded investment Number of contracts Recorded investment Number of contracts Recorded investment Number of contracts Recorded investment
Real estate loans:
Commercial - $ - 1 $ 542 - $ - 1 $ 542
Agricultural - - 1 1,439 - - 1 1,439
Other agricultural loans - - 3 137 - - 4 261
Total recidivism - $ - 5 $ 2,118 - $ - 6 $ 2,242 Allowance for Loan Losses The following table segregates the allowance for loan losses (ALLL) into the amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment as of June 30, 2020 and December 31, 2019, respectively (in thousands):
June 30, 2020 December 31, 2019
Individually evaluated for impairment Collectively evaluated for impairment Total Individually evaluated for impairment Collectively evaluated for impairment Total
Real estate loans:
Residential $ 30 $ 1,176 $ 1,206 $ 32 $ 1,082 $ 1,114
Commercial 452 4,492 4,944 251 4,298 4,549
Agricultural 77 4,984 5,061 151 4,871 5,022
Construction - 81 81 - 43 43
Consumer - 362 362 - 112 112
Other commercial loans 175 1,026 1,201 147 1,108 1,255
Other agricultural loans 154 667 821 154 807 961
State and political subdivision loans - 547 547 - 536 536
Unallocated - 604 604 - 253 253
Total $ 888 $ 13,939 $ 14,827 $ 735 $ 13,110 $ 13,845 The following tables roll forward the balance of the ALLL by portfolio segment for the three and six months ended June 30, 2020 and 2019, respectively (in thousands):
For the three months ended June 30, 2020
Balance at March 31, 2020 Charge-offs Recoveries Provision Balance at June 30, 2020
Real estate loans:
Residential $ 1,154 $ - $ - $ 52 $ 1,206
Commercial 4,729 - 33 182 4,944
Agricultural 4,878 - - 183 5,061
Construction 56 - - 25 81
Consumer 117 (10 ) 4 251 362
Other commercial loans 1,297 - 3 (99 ) 1,201
Other agricultural loans 835 - - (14 ) 821
State and political subdivision loans 558 - - (11 ) 547
Unallocated 623 - - (19 ) 604
Total $ 14,247 $ (10 ) $ 40 $ 550 $ 14,827
For the three months ended June 30, 2019
Balance at March 31, 2019 Charge-offs Recoveries Provision Balance at June 30, 2019
Real estate loans:
Residential $ 1,089 $ - $ - $ (23 ) $ 1,066
Commercial 4,130 (93 ) - 363 4,400
Agricultural 4,392 - - 140 4,532
Construction 32 - - 4 36
Consumer 124 (8 ) 7 (5 ) 118
Other commercial loans 1,283 (38 ) 2 81 1,328
Other agricultural loans 756 - - (15 ) 741
State and political subdivision loans 565 - - (26 ) 539
Unallocated 713 - - (169 ) 544
Total $ 13,084 $ (139 ) $ 9 $ 350 $ 13,304
For the six months ended June 30, 2020
Balance at December 31, 2019 Charge-offs Recoveries Provision Balance at June 30, 2020
Real estate loans:
Residential $ 1,114 $ - $ - $ 92 $ 1,206
Commercial 4,549 (1 ) 34 362 4,944
Agricultural 5,022 - - 39 5,061
Construction 43 - - 38 81
Consumer 112 (18 ) 12 256 362
Other commercial loans 1,255 - 5 (59 ) 1,201
Other agricultural loans 961 - - (140 ) 821
State and political subdivision loans 536 - - 11 547
Unallocated 253 - - 351 604
Total $ 13,845 $ (19 ) $ 51 $ 950 $ 14,827
For the six months ended June 30, 2019
Balance at December 31, 2018 Charge-offs Recoveries Provision Balance at June 30, 2019
Real estate loans:
Residential $ 1,105 $ - $ - $ (39 ) $ 1,066
Commercial 4,115 (293 ) - 578 4,400
Agricultural 4,264 - - 268 4,532
Construction 58 - - (22 ) 36
Consumer 120 (22 ) 18 2 118
Other commercial loans 1,354 (38 ) 5 7 1,328
Other agricultural loans 752 - - (11 ) 741
State and political subdivision loans 762 - - (223 ) 539
Unallocated 354 - - 190 544
Total $ 12,884 $ (353 ) $ 23 $ 750 $ 13,304 The Company allocates the ALLL based on the factors described below, which conform to the Company’s loan classification policy and credit quality measurements. In reviewing risk within the Company’s loan portfolio, management has determined there to be several different risk categories within the loan portfolio. The ALLL consists of amounts applicable to: (i) residential real estate loans; (ii) residential real estate home equity loans; (iii) commercial real estate loans; (iv) agricultural real estate loans; (v) real estate construction loans; (vi) other commercial and agricultural loans; (vii) consumer loans; (viii) other agricultural loans and (ix) state and political subdivision loans. Factors considered in this process include general loan terms, collateral, and availability of historical data to support the analysis. Historical loss percentages are calculated and used as the basis for calculating allowance allocations. Certain qualitative factors are evaluated to determine additional inherent risks in the loan portfolio, which are not necessarily reflected in the historical loss percentages. These factors are then added to the historical allocation percentage to get the adjusted factor to be applied to non-classified loans. The following qualitative factors are analyzed:
• Level of and trends in delinquencies and impaired/classified loans
◾ Change in volume and severity of past due loans
◾ Volume of non-accrual loans
◾ Volume and severity of classified, adversely or graded loans;
• Level of and trends in charge-offs and recoveries;
• Trends in volume, terms and nature of the loan portfolio;
• Effects of any changes in risk selection and underwriting standards and any other changes in lending and recovery policies, procedures and practices;
• Changes in the quality of the Company’s loan review system;
• Experience, ability and depth of lending management and other relevant staff;
• National, state, regional and local economic trends and business conditions
◾ General economic conditions
◾ Unemployment rates
◾ Inflation rate/ Consumer Price Index
◾ Changes in values of underlying collateral for collateral-dependent loans;
• Industry conditions including the effects of external factors such as competition, legal, and regulatory requirements on the level of estimated credit losses;
• Existence and effect of any credit concentrations, and changes in the level of such concentrations; and
• Any change in the level of board oversight. The Company analyzes its loan portfolio at least each quarter to determine the adequacy of its ALLL. Loans determined to be TDRs are impaired and for purposes of estimating the ALLL must be individually evaluated for impairment. In calculating the impairment, the Company calculates the present value utilizing an analysis of discounted cash flows. If the present value calculated is below the recorded investment of the loan, impairment is recognized by a charge to the provision for loan and lease losses and a credit to the ALLL. For For the three months ended June 30, 2019, the allowance for commercial real estate was increased in general reserves due to an increase in the size of the portfolio as well as an increase in specific reserves. This was represented as an increase in the provision. The allowance for agricultural real estate loans was increased in general reserves as a result of an increase in loans classified as special mention and an increase in specific reserves. The result of this was represented as an increase in the provision. The allowance for other commercial loans was increased as a result of a general increase in the size of the portfolio and an increase in the volume of classified loans. The result of these changes was represented as an increase in the provision. For the six months ended June 30, 2019, the allowance for commercial real estate was increased in general reserves due to general increase in the size of the portfolio. There also was an increase in specific reserves for commercial real estate, which was partially offset by the decrease in substandard loans. The total change was represented as an increase in the provision. The allowance for agricultural real estate loans was increased in general reserves as a result of higher loan balances and an increase in the amount of loans classified as special mention, substandard nonaccrual. Additionally, there was an increase in specific reserves. These resulted in an increase in the provision. The allowance for state and political subdivision was decreased as a result a decrease in the volume of classified loans. The result of this change was represented as a decrease in the provision. Foreclosed Assets Held For Sale Foreclosed assets acquired in settlement of loans are carried at fair value, less estima |
