Credit Quality Indicators

3 Months Ended

Mar. 31, 2020

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 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, 2020 and December 31, 2019, 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, 2020
Originated loans:
Commercial real estate
Owner occupied	$	188,841	$	3,073	$	1,551	$	193,465
Non-owner occupied		278,852		7,092		77		286,021
Farmland		138,919		1,815		380		141,114
Other		90,895		246		181		91,322
Commercial
Commercial and industrial		246,242		1,453		3,504		251,199
Agricultural		42,736		47		337		43,120
Total originated loans	$	986,485	$	13,726	$	6,030	$	1,006,241
Acquired loans:
Commercial real estate
Owner occupied	$	53,806	$	104	$	1,039	$	54,949
Non-owner occupied		65,387		53		777		66,217
Farmland		31,961		0		2,457		34,418
Other		21,256		0		66		21,322
Commercial
Commercial and industrial		28,768		0		2,748		31,516
Agricultural		4,816		332		95		5,243
Total acquired loans	$	205,994	$	489	$	7,182	$	213,665
Total loans	$	1,192,479	$	14,215	$	13,212	$	1,219,906

(In Thousands of Dollars)	Pass		Special Mention		Sub standard		Total
December 31, 2019
Originated loans:
Commercial real estate
Owner occupied	$	177,540	$	5,357	$	1,026	$	183,923
Non-owner occupied		279,103		7,374		47		286,524
Farmland		136,674		1,457		384		138,515
Other		93,082		0		189		93,271
Commercial
Commercial and industrial		238,351		1,673		3,784		243,808
Agricultural		46,283		6		33		46,322
Total originated loans	$	971,033	$	15,867	$	5,463	$	992,363
Acquired loans:
Commercial real estate
Owner occupied	$	34,707	$	110	$	607	$	35,424
Non-owner occupied		10,246		54		119		10,419
Farmland		32,112		0		3,265		35,377
Other		5,891		0		69		5,960
Commercial
Commercial and industrial		10,570		0		1,080		11,650
Agricultural		5,617		317		113		6,047
Total acquired loans	$	99,143	$	481	$	5,253	$	104,877
Total loans	$	1,070,176	$	16,348	$	10,716	$	1,097,240

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 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, 2020, other real estate owned and foreclosure properties were $131 thousand and $231 thousand, respectively. At December 31, 2019 other real estate owned and foreclosure properties were $19 thousand and $316 thousand, respectively.

The following tables present the recorded investment in residential, consumer indirect and direct auto loans based on payment activity as of March 31, 2020 and December 31, 2019. 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, 2020
Originated loans:
Performing	$	313,813	$	93,346	$	169,461	$	28,553	$	9,252
Nonperforming		1,645		711		696		326		14
Total originated loans	$	315,458	$	94,057	$	170,157	$	28,879	$	9,266
Acquired loans:
Performing	$	105,310	$	20,669	$	0	$	7,308	$	100
Nonperforming		5,084		230		0		158		0
Total acquired loans		110,394		20,899		0		7,466		100
Total loans	$	425,852	$	114,956	$	170,157	$	36,345	$	9,366

	Residential Real Estate				Consumer
(In Thousands of Dollars)	1-4 Family Residential		Home Equity Lines of Credit		Indirect		Direct		Other
December 31, 2019
Originated loans:
Performing	$	322,554	$	91,291	$	171,037	$	27,358	$	9,478
Nonperforming		1,672		683		688		209		6
Total originated loans	$	324,226	$	91,974	$	171,725	$	27,567	$	9,484
Acquired loans:
Performing	$	62,611	$	19,397	$	0	$	5,893	$	154
Nonperforming		845		248		0		175		0
Total acquired loans		63,456		19,645		0		6,068		154
Total loans	$	387,682	$	111,619	$	171,725	$	33,635	$	9,638