NOTE 4 – LOANS AND THE ALLOWANCE FOR LOAN LOSSES

Major categories of loans as of September 30, 2019 and December 31, 2018 are summarized as follows:


	September 30,		December 31,
	2019		2018
	(dollars in thousands)
Commercial and industrial	$	340,650	$	360,501
Agricultural and farmland		205,041		209,875
Commercial real estate - owner occupied		239,805		255,074
Commercial real estate - non-owner occupied		552,262		533,910
Multi-family		191,646		135,925
Construction and land development		210,939		237,275
One-to-four family residential		321,947		313,108
Municipal, consumer, and other		108,724		98,589
Total loans, before allowance for loan losses		2,171,014		2,144,257
Allowance for loan losses		(22,761)		(20,509)
Loans, net of allowance for loan losses	$	2,148,253	$	2,123,748

The following tables detail activity in the allowance for loan losses for the three and nine months ended September 30, 2019 and 2018:


					Commercial		Commercial								Municipal,
	Commercial		Agricultural		Real Estate		Real Estate				Construction		One-to-four		Consumer,
	and		and		Owner		Non-owner				and Land		Family		and
Three Months Ended September 30, 2019	Industrial		Farmland		Occupied		Occupied		Multi‑Family		Development		Residential		Other		Total
Allowance for loan losses:	(dollars in thousands)
Balance, June 30, 2019	$	5,187	$	2,862	$	2,487	$	2,721	$	1,153	$	3,723	$	3,569	$	840	$	22,542
Provision for loan losses		(915)		(133)		(482)		521		(182)		(601)		(692)		3,168		684
Charge-offs		(32)		—		(216)		(111)		(41)		—		(387)		(150)		(937)
Recoveries		313		—		26		5		—		1		42		85		472
Balance, September 30, 2019	$	4,553	$	2,729	$	1,815	$	3,136	$	930	$	3,123	$	2,532	$	3,943	$	22,761

					Commercial		Commercial								Municipal,
	Commercial		Agricultural		Real Estate		Real Estate				Construction		One-to-four		Consumer,
	and		and		Owner		Non-owner				and Land		Family		and
Three Months Ended September 30, 2018	Industrial		Farmland		Occupied		Occupied		Multi‑Family		Development		Residential		Other		Total
Allowance for loan losses:	(dollars in thousands)
Balance, June 30, 2018	$	4,927	$	2,375	$	1,616	$	2,930	$	920	$	3,345	$	3,062	$	1,170	$	20,345
Provision for loan losses		220		319		47		(36)		(13)		365		213		123		1,238
Charge-offs		(43)		—		(44)		—		—		—		(439)		(136)		(662)
Recoveries		30		—		45		5		—		2		109		59		250
Balance, September 30, 2018	$	5,134	$	2,694	$	1,664	$	2,899	$	907	$	3,712	$	2,945	$	1,216	$	21,171


					Commercial		Commercial								Municipal,
	Commercial		Agricultural		Real Estate		Real Estate				Construction		One-to-four		Consumer,
	and		and		Owner		Non-owner				and Land		Family		and
Nine Months Ended September 30, 2019	Industrial		Farmland		Occupied		Occupied		Multi‑Family		Development		Residential		Other		Total
Allowance for loan losses:	(dollars in thousands)
Balance, December 31, 2018	$	3,748	$	2,650	$	2,506	$	2,644	$	912	$	4,176	$	2,782	$	1,091	$	20,509
Provision for loan losses		700		109		(356)		588		59		(1,478)		541		3,103		3,266
Charge-offs		(315)		(30)		(382)		(111)		(41)		(9)		(1,026)		(522)		(2,436)
Recoveries		420		—		47		15		—		434		235		271		1,422
Balance, September 30, 2019	$	4,553	$	2,729	$	1,815	$	3,136	$	930	$	3,123	$	2,532	$	3,943	$	22,761

					Commercial		Commercial
	Commercial		Agricultural		Real Estate		Real Estate								Consumer
	and		and		Owner		Non-owner				Construction		Residential		and
Nine Months Ended September 30, 2018	Industrial		Farmland		Occupied		Occupied		Multi‑Family		and Land		Real Estate		Other		Total
Allowance for loan losses:	(dollars in thousands)
Balance, December 31, 2017	$	5,411	$	2,385	$	1,510	$	2,476	$	997	$	2,981	$	2,723	$	1,282	$	19,765
Provision for loan losses		(213)		309		149		356		(90)		528		553		199		1,791
Charge-offs		(178)		—		(46)		(69)		—		(53)		(727)		(459)		(1,532)
Recoveries		114		—		51		136		—		256		396		194		1,147
Balance, September 30, 2018	$	5,134	$	2,694	$	1,664	$	2,899	$	907	$	3,712	$	2,945	$	1,216	$	21,171

The following tables present the recorded investments in loans and the allowance for loan losses by category as of September 30, 2019 and December 31, 2018:


					Commercial		Commercial								Municipal,
	Commercial		Agricultural		Real Estate		Real Estate				Construction		One-to-four		Consumer,
	and		and		Owner		Non-owner				and Land		Family		and
September 30, 2019	Industrial		Farmland		Occupied		Occupied		Multi‑Family		Development		Residential		Other		Total
Loan balances:	(dollars in thousands)
Collectively evaluated for impairment	$	328,063	$	188,068	$	218,223	$	529,096	$	188,715	$	204,553	$	298,978	$	94,654	$	2,050,350
Individually evaluated for impairment		10,163		15,860		12,441		3,835		1,334		2,694		11,810		13,970		72,107
Acquired with deteriorated credit quality		2,424		1,113		9,141		19,331		1,597		3,692		11,159		100		48,557
Total	$	340,650	$	205,041	$	239,805	$	552,262	$	191,646	$	210,939	$	321,947	$	108,724	$	2,171,014

Allowance for loan losses:
Collectively evaluated for impairment	$	2,044	$	2,503	$	1,431	$	2,761	$	921	$	1,697	$	1,560	$	860	$	13,777
Individually evaluated for impairment		2,509		73		323		71		—		1,262		853		3,082		8,173
Acquired with deteriorated credit quality		—		153		61		304		9		164		119		1		811
Total	$	4,553	$	2,729	$	1,815	$	3,136	$	930	$	3,123	$	2,532	$	3,943	$	22,761

					Commercial		Commercial								Municipal,
	Commercial		Agricultural		Real Estate		Real Estate				Construction		One-to-four		Consumer,
	and		and		Owner		Non-owner				and Land		Family		and
December 31, 2018	Industrial		Farmland		Occupied		Occupied		Multi‑Family		Development		Residential		Other		Total
Loan balances:	(dollars in thousands)
Collectively evaluated for impairment	$	350,435	$	197,414	$	226,068	$	504,368	$	132,379	$	229,626	$	287,173	$	98,059	$	2,025,522
Individually evaluated for impairment		7,488		11,295		19,202		7,820		1,678		3,331		12,837		416		64,067
Acquired with deteriorated credit quality		2,578		1,166		9,804		21,722		1,868		4,318		13,098		114		54,668
Total	$	360,501	$	209,875	$	255,074	$	533,910	$	135,925	$	237,275	$	313,108	$	98,589	$	2,144,257

Allowance for loan losses:
Collectively evaluated for impairment	$	2,188	$	2,611	$	1,423	$	2,566	$	640	$	2,024	$	1,464	$	1,024	$	13,940
Individually evaluated for impairment		1,554		39		1,066		73		267		1,714		1,265		67		6,045
Acquired with deteriorated credit quality		6		—		17		5		5		438		53		—		524
Total	$	3,748	$	2,650	$	2,506	$	2,644	$	912	$	4,176	$	2,782	$	1,091	$	20,509

The following tables present loans individually evaluated for impairment by category of loans as of September 30, 2019 and December 31, 2018:


	Unpaid						Average		Interest
	Principal		Recorded		Related		Recorded		Income
September 30, 2019	Balance		Investment		Allowance		Investment		Recognized
With an allowance recorded:	(dollars in thousands)
Commercial and industrial	$	4,902	$	4,902	$	2,509	$	5,081	$	115
Agricultural and farmland		490		490		73		404		12
Commercial real estate - owner occupied		1,953		1,953		323		1,998		90
Commercial real estate - non-owner occupied		101		100		71		102		5
Multi-family		—		—		—		—		—
Construction and land development		2,591		2,590		1,262		2,842		131
One-to-four family residential		2,095		2,087		853		2,091		65
Municipal, consumer, and other		9,202		9,175		3,082		9,202		103
Total	$	21,334	$	21,297	$	8,173	$	21,720	$	521

With no related allowance:
Commercial and industrial	$	5,258	$	5,261	$	—	$	5,681	$	150
Agricultural and farmland		15,369		15,370		—		15,889		352
Commercial real estate - owner occupied		10,479		10,488		—		10,640		360
Commercial real estate - non-owner occupied		3,730		3,735		—		4,000		111
Multi-family		1,337		1,334		—		1,349		9
Construction and land development		105		104		—		107		3
One-to-four family residential		9,751		9,723		—		10,107		194
Municipal, consumer, and other		4,809		4,795		—		4,871		71
Total	$	50,838	$	50,810	$	—	$	52,644	$	1,250

Total:
Commercial and industrial	$	10,160	$	10,163	$	2,509	$	10,762	$	265
Agricultural and farmland		15,859		15,860		73		16,293		364
Commercial real estate - owner occupied		12,432		12,441		323		12,638		450
Commercial real estate - non-owner occupied		3,831		3,835		71		4,102		116
Multi-family		1,337		1,334		—		1,349		9
Construction and land development		2,696		2,694		1,262		2,949		134
One-to-four family residential		11,846		11,810		853		12,198		259
Municipal, consumer, and other		14,011		13,970		3,082		14,073		174
Total	$	72,172	$	72,107	$	8,173	$	74,364	$	1,771


	Unpaid						Average		Interest
	Principal		Recorded		Related		Recorded		Income
December 31, 2018	Balance		Investment		Allowance		Investment		Recognized
With an allowance recorded:	(dollars in thousands)
Commercial and industrial	$	2,833	$	2,833	$	1,554	$	4,274	$	106
Agricultural and farmland		406		406		39		566		16
Commercial real estate - owner occupied		2,323		2,322		1,066		3,574		67
Commercial real estate - non-owner occupied		103		103		73		640		7
Multi-family		1,362		1,362		267		1,472		66
Construction and land development		3,136		3,135		1,714		2,593		161
One-to-four family residential		3,022		3,008		1,265		3,377		82
Municipal, consumer, and other		230		231		67		302		5
Total	$	13,415	$	13,400	$	6,045	$	16,798	$	510

With no related allowance:
Commercial and industrial	$	4,651	$	4,655	$	—	$	5,093	$	59
Agricultural and farmland		10,888		10,889		—		8,815		526
Commercial real estate - owner occupied		16,891		16,880		—		12,217		384
Commercial real estate - non-owner occupied		7,715		7,717		—		7,110		147
Multi-family		316		316		—		355		17
Construction and land development		198		196		—		528		3
One-to-four family residential		9,874		9,829		—		10,706		168
Municipal, consumer, and other		184		185		—		297		5
Total	$	50,717	$	50,667	$	—	$	45,121	$	1,309

Total:
Commercial and industrial	$	7,484	$	7,488	$	1,554	$	9,367	$	165
Agricultural and farmland		11,294		11,295		39		9,381		542
Commercial real estate - owner occupied		19,214		19,202		1,066		15,791		451
Commercial real estate - non-owner occupied		7,818		7,820		73		7,750		154
Multi-family		1,678		1,678		267		1,827		83
Construction and land development		3,334		3,331		1,714		3,121		164
One-to-four family residential		12,896		12,837		1,265		14,083		250
Municipal, consumer, and other		414		416		67		599		10
Total	$	64,132	$	64,067	$	6,045	$	61,919	$	1,819

The following tables present the recorded investment in loans by category based on current payment and accrual status as of September 30, 2019 and December 31, 2018:


	Accruing Interest
			30 - 89 Days		90+ Days				Total
September 30, 2019	Current		Past Due		Past Due		Nonaccrual		Loans
	(dollars in thousands)
Commercial and industrial	$	334,983	$	811	$	29	$	4,827	$	340,650
Agricultural and farmland		198,506		370		—		6,165		205,041
Commercial real estate - owner occupied		235,322		3,118		184		1,181		239,805
Commercial real estate - non-owner occupied		551,393		225		66		578		552,262
Multi-family		190,157		—		155		1,334		191,646
Construction and land development		210,746		140		—		53		210,939
One-to-four family residential		314,807		2,145		357		4,638		321,947
Municipal, consumer, and other		108,256		267		—		201		108,724
Total loans	$	2,144,170	$	7,076	$	791	$	18,977	$	2,171,014


	Accruing Interest
			30 - 89 Days		90+ Days				Total
December 31, 2018	Current		Past Due		Past Due		Nonaccrual		Loans
	(dollars in thousands)
Commercial and industrial	$	356,481	$	122	$	1,747	$	2,151	$	360,501
Agricultural and farmland		207,791		108		—		1,976		209,875
Commercial real estate - owner occupied		249,698		538		184		4,654		255,074
Commercial real estate - non-owner occupied		532,241		1,058		—		611		533,910
Multi-family		134,368		1,361		196		—		135,925
Construction and land development		236,798		82		—		395		237,275
One-to-four family residential		304,439		2,154		600		5,915		313,108
Municipal, consumer, and other		97,998		380		37		174		98,589
Total loans	$	2,119,814	$	5,803	$	2,764	$	15,876	$	2,144,257

The following tables present total loans by category based on their assigned risk ratings determined by management as of September 30, 2019 and December 31, 2018:


September 30, 2019	Pass		Watch		Substandard		Doubtful		Total
	(dollars in thousands)
Commercial and industrial	$	306,285	$	22,524	$	11,841	$	—	$	340,650
Agricultural and farmland		178,777		9,577		16,687		—		205,041
Commercial real estate - owner occupied		206,456		21,122		12,227		—		239,805
Commercial real estate - non-owner occupied		503,137		46,735		2,390		—		552,262
Multi-family		188,392		1,765		1,489		—		191,646
Construction and land development		202,554		5,233		3,152		—		210,939
One-to-four family residential		294,322		14,072		13,553		—		321,947
Municipal, consumer, and other		94,336		417		13,971		—		108,724
Total loans	$	1,974,259	$	121,445	$	75,310	$	—	$	2,171,014


December 31, 2018	Pass		Watch		Substandard		Doubtful		Total
	(dollars in thousands)
Commercial and industrial	$	315,815	$	35,176	$	9,510	$	—	$	360,501
Agricultural and farmland		185,598		12,116		12,161		—		209,875
Commercial real estate - owner occupied		217,017		17,845		20,212		—		255,074
Commercial real estate - non-owner occupied		486,859		39,231		7,820		—		533,910
Multi-family		131,583		2,468		1,874		—		135,925
Construction and land development		227,775		5,663		3,837		—		237,275
One-to-four family residential		282,704		14,599		15,805		—		313,108
Municipal, consumer, and other		97,668		497		424		—		98,589
Total loans	$	1,945,019	$	127,595	$	71,643	$	—	$	2,144,257

The following tables present the financial effect of troubled debt restructurings for the three months ended September 30, 2019 and 2018:


						Charge-offs
		Recorded Investment				and Specific
Three Months Ended September 30, 2019	Number	Pre-Modification		Post-Modification		Reserves
	(dollars in thousands)
One-to-four family residential	1	$	21	$	21		—


						Charge-offs
		Recorded Investment				and Specific
Three Months Ended September 30, 2018	Number	Pre-Modification		Post-Modification		Reserves
	(dollars in thousands)
Commercial and industrial	1	$	120	$	120	$	35
Agricultural and farmland	1		171		171		—
Commercial real estate - owner occupied	2		5,173		5,189		47
One-to-four family residential	2		898		897		421
Total	6	$	6,362	$	6,377	$	503

The following tables present the financial effect of troubled debt restructurings for the nine months ended September 30, 2019 and 2018:


						Charge-offs
		Recorded Investment				and Specific
Nine Months Ended September 30, 2019	Number	Pre-Modification		Post-Modification		Reserves
	(dollars in thousands)
Commercial and industrial	3	$	516	$	516	$	—
Agricultural and farmland	2		392		392		—
Commercial real estate - owner occupied	1		170		170		—
One-to-four family residential	1		21		21		—
Total	7	$	1,099	$	1,099	$	—

						Charge-offs
		Recorded Investment				and Specific
Nine Months Ended September 30, 2018	Number	Pre-Modification		Post-Modification		Reserves
	(dollars in thousands)
Commercial and industrial	2	$	296	$	296	$	157
Agricultural and farmland	1		171		171		—
Commercial real estate - owner occupied	2		5,173		5,189		47
One-to-four family residential	4		1,230		1,255		480
Total	9	$	6,870	$	6,911	$	684

During the three and nine months ended September 30, 2019 and 2018, all troubled debt restructurings were the result of a payment concession.

Of the troubled debt restructurings entered into during the last 12 months, there were none which had subsequent payment defaults during the three and nine months ended September 30, 2019 and 2018, respectively. For purposes of this disclosure, the Company considers “default” to mean 90 days or more past due as to interest or principal or were on nonaccrual status subsequent to restructuring.

As of September 30, 2019 and December 31, 2018, the Company had $9,919,000 and $13,362,000 of troubled debt restructurings, respectively. Restructured loans are evaluated for impairment quarterly as part of the Company’s determination of the allowance for loan losses. There were no material commitments to lend additional funds to debtors owing receivables whose terms have been modified in troubled debt restructurings.

Changes in the accretable yield for loans acquired with deteriorated credit quality were as follows for the three and nine months ended September 30, 2019 and 2018:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
	(dollars in thousands)
Beginning balance	$	1,633	$	1,474	$	2,101	$	2,723
Reclassification from non-accretable difference		129		179		536		608
Accretion income		(231)		(691)		(1,106)		(2,369)
Ending balance	$	1,531	$	962	$	1,531	$	962