Credit Quality Indicators

3 Months Ended

Mar. 31, 2019

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 establishes a risk rating at origination for all commercial loan and commercial real estate relationships. For relationships over $750 thousand, management monitors the loans on an ongoing basis for any changes in the borrower’s ability to service their debt. Management also affirms the risk ratings for the loans and leases in their respective portfolios on 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. Special mention assets are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification.

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. Substandard loans 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.

As of March 31, 2019 and December 31, 2018, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

(In Thousands of Dollars)	Pass		Special Mention		Sub standard		Total
March 31, 2019
Originated loans:
Commercial real estate
Owner occupied	$	162,064	$	1,653	$	730	$	164,447
Non-owner occupied		251,581		4,085		98		255,764
Farmland		113,432		1,285		65		114,782
Other		99,207		1,417		242		100,866
Commercial
Commercial and industrial		234,405		736		2,238		237,379
Agricultural		34,915		77		402		35,394
Total originated loans	$	895,604	$	9,253	$	3,775	$	908,632
Acquired loans:
Commercial real estate
Owner occupied	$	42,666	$	127	$	860	$	43,653
Non-owner occupied		15,889		57		146		16,092
Farmland		36,040		665		3,693		40,398
Other		6,470		0		652		7,122
Commercial
Commercial and industrial		16,079		170		885		17,134
Agricultural		6,706		362		545		7,613
Total acquired loans	$	123,850	$	1,381	$	6,781	$	132,012
Total loans	$	1,019,454	$	10,634	$	10,556	$	1,040,644

(In Thousands of Dollars)	Pass		Special Mention		Sub standard		Total
December 31, 2018
Originated loans:
Commercial real estate
Owner occupied	$	156,892	$	945	$	746	$	158,583
Non-owner occupied		251,240		4,139		101		255,480
Farmland		109,391		1,301		69		110,761
Other		92,669		1,325		248		94,242
Commercial
Commercial and industrial		219,938		4,207		2,456		226,601
Agricultural		37,158		81		482		37,721
Total originated loans	$	867,288	$	11,998	$	4,102	$	883,388
Acquired loans:
Commercial real estate
Owner occupied	$	43,763	$	430	$	746	$	44,939
Non-owner occupied		16,601		58		187		16,846
Farmland		36,565		668		3,749		40,982
Other		7,434		0		657		8,091
Commercial
Commercial and industrial		16,407		170		1,564		18,141
Agricultural		8,612		346		567		9,525
Total acquired loans	$	129,382	$	1,672	$	7,470	$	138,524
Total loans	$	996,670	$	13,670	$	11,572	$	1,021,912

The Company considers the performance of the loan portfolio and its impact on the allowance for loan losses. For residential, consumer indirect and direct loan classes, the Company also evaluates credit quality based on the aging status of the loan, which was previously presented, and by payment activity. In the 1-4 family residential real estate portfolio at March 31, 2019, there were $208 thousand of other real estate owned properties and $1.0 million of properties in foreclosure. Other real estate owned and foreclosure properties were $0 at March 31, 2019 and $1.2 million at December 31, 2018.

The following tables present the recorded investment in residential, consumer indirect and direct auto loans based on payment activity as of March 31, 2019 and December 31, 2018. Nonperforming loans are loans past due 90 days or more and still accruing interest and nonaccrual loans.

	Residential Real Estate				Consumer
(In Thousands of Dollars)	1-4 Family Residential		Home Equity Lines of Credit		Indirect		Direct		Other
March 31, 2019
Originated loans:
Performing	$	304,589	$	82,178	$	165,152	$	29,564	$	10,782
Nonperforming		2,293		730		567		184		8
Total originated loans	$	306,882	$	82,908	$	165,719	$	29,748	$	10,790
Acquired loans:
Performing	$	74,841	$	22,222	$	0	$	8,246	$	162
Nonperforming		931		323		0		235		0
Total acquired loans		75,772		22,545		0		8,481		162
Total loans	$	382,654	$	105,453	$	165,719	$	38,229	$	10,952

	Residential Real Estate				Consumer
(In Thousands of Dollars)	1-4 Family Residential		Home Equity Lines of Credit		Indirect		Direct		Other
December 31, 2018
Originated loans:
Performing	$	304,519	$	82,035	$	169,091	$	30,237	$	11,892
Nonperforming		2,503		675		715		254		2
Total originated loans	$	307,022	$	82,710	$	169,806	$	30,491	$	11,894
Acquired loans:
Performing	$	77,661	$	23,400	$	0	$	9,304	$	162
Nonperforming		1,123		217		0		138		0
Total acquired loans		78,784		23,617		0		9,442		162
Total loans	$	385,806	$	106,327	$	169,806	$	39,933	$	12,056