Loans and Allowance for Credit Losses (Tables)

3 Months Ended

Mar. 31, 2017

Outstanding loans are summarized as follows:



Loan Type (Dollars in thousands)	March 31, 2017			% of Total Loans		December 31, 2016			% of Total Loans
Commercial:
Commercial and industrial	$	88,012		11.5	%	$	88,652		11.7	%
Agricultural land and production	16,273			2.1	%	25,509			3.4	%
Total commercial	104,285			13.6	%	114,161			15.1	%
Real estate:
Owner occupied	188,454			24.7	%	191,665			25.3	%
Real estate construction and other land loans	76,483			10.0	%	69,200			9.1	%
Commercial real estate	208,082			27.2	%	184,225			24.3	%
Agricultural real estate	77,451			10.1	%	86,761			11.5	%
Other real estate	18,587			2.5	%	18,945			2.7	%
Total real estate	569,057			74.5	%	550,796			72.9	%
Consumer:
Equity loans and lines of credit	63,243			8.3	%	64,494			8.5	%
Consumer and installment	26,805			3.6	%	25,910			3.5	%
Total consumer	90,048			11.9	%	90,404			12.0	%
Net deferred origination costs	1,000					1,267
Total gross loans	764,390			100.0	%	756,628			100.0	%
Allowance for credit losses	(9,214		)			(9,326		)
Total loans	$	755,176				$	747,302

Allowance for credit losses

The following table shows the summary of activities for the Allowance as of and for the three months ended March 31, 2017 and 2016 by portfolio segment (in thousands):



	Commercial			Real Estate			Consumer			Unallocated		Total
Allowance for credit losses:
Beginning balance, January 1, 2017	$	2,180		$	6,200		$	852		$	94	$	9,326
(Reversal) provision charged to operations	(237		)	43			(5		)	99		(100		)
Losses charged to allowance	(44		)	(22		)	(116		)	—		(182		)
Recoveries	122			4			44			—		170
Ending balance, March 31, 2017	$	2,021		$	6,225		$	775		$	193	$	9,214

Allowance for credit losses:
Beginning balance, January 1, 2016	$	3,562		$	5,204		$	734		$	110	$	9,610
(Reversal) provision charged to operations	(152		)	(340		)	134			108		(250		)
Losses charged to allowance	(4		)	—			(9		)	—		(13		)
Recoveries	337			417			35			—		789
Ending balance, March 31, 2016	$	3,743		$	5,281		$	894		$	218	$	10,136

The following is a summary of the Allowance by impairment methodology and portfolio segment as of March 31, 2017 and December 31, 2016 (in thousands):



	Commercial		Real Estate		Consumer		Unallocated		Total
Allowance for credit losses:
Ending balance, March 31, 2017	$	2,021	$	6,225	$	775	$	193	$	9,214
Ending balance: individually evaluated for impairment	$	1	$	217	$	1	$	—	$	219
Ending balance: collectively evaluated for impairment	$	2,020	$	6,008	$	774	$	193	$	8,995

Ending balance, December 31, 2016	$	2,180	$	6,200	$	852	$	94	$	9,326
Ending balance: individually evaluated for impairment	$	3	$	241	$	63	$	—	$	307
Ending balance: collectively evaluated for impairment	$	2,177	$	5,959	$	789	$	94	$	9,019

Schedule of receivable by impairment methodology



	Commercial		Real Estate		Consumer		Total
Loans:
Ending balance, March 31, 2017	$	104,285	$	569,057	$	90,048	$	763,390
Ending balance: individually evaluated for impairment	$	451	$	5,517	$	169	$	6,137
Ending balance: collectively evaluated for impairment	$	103,834	$	563,540	$	89,879	$	757,253

Loans:
Ending balance, December 31, 2016	$	114,161	$	550,796	$	90,404	$	755,361
Ending balance: individually evaluated for impairment	$	487	$	4,238	$	544	$	5,269
Ending balance: collectively evaluated for impairment	$	113,674	$	546,558	$	89,860	$	750,092

Loan portfolio by internal risk rating

The following table shows the loan portfolio by class allocated by management’s internal risk ratings at March 31, 2017 (in thousands):



	Pass		Special Mention		Sub-Standard		Doubtful		Total
Commercial:
Commercial and industrial	$	69,532	$	8,417	$	10,063	$	—	$	88,012
Agricultural land and production	10,691		5,515		67		—		16,273
Real Estate:
Owner occupied	179,655		5,140		3,659		—		188,454
Real estate construction and other land loans	71,461		2,091		2,931		—		76,483
Commercial real estate	202,285		3,126		2,671		—		208,082
Agricultural real estate	44,568		8,010		24,873		—		77,451
Other real estate	18,423		164		—		—		18,587
Consumer:
Equity loans and lines of credit	61,781		514		948		—		63,243
Consumer and installment	26,803		—		2		—		26,805
Total	$	685,199	$	32,977	$	45,214	$	—	$	763,390

The following table shows the loan portfolio by class allocated by management’s internally assigned risk grade ratings at December 31, 2016 (in thousands):



	Pass		Special Mention		Sub-Standard		Doubtful		Total
Commercial:
Commercial and industrial	$	75,212	$	907	$	12,533	$	—	$	88,652
Agricultural land and production	16,562		8,681		266		—		25,509
Real Estate:
Owner occupied	184,987		2,865		3,813		—		191,665
Real estate construction and other land loans	62,538		5,259		1,403		—		69,200
Commercial real estate	179,966		1,548		2,711		—		184,225
Agricultural real estate	49,270		10,390		27,101		—		86,761
Other real estate	18,779		166		—		—		18,945
Consumer:
Equity loans and lines of credit	62,782		95		1,617		—		64,494
Consumer and installment	25,890		—		20		—		25,910
Total	$	675,986	$	29,911	$	49,464	$	—	$	755,361

Loan portfolio by time past due

The following table shows an aging analysis of the loan portfolio by class and the time past due at March 31, 2017 (in thousands):



	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days Past Due		Total Past Due		Current		Total Loans		Recorded Investment > 90 Days Accruing		Non-accrual
Commercial:
Commercial and industrial	$	—	$	—	$	—	$	—	$	88,012	$	88,012	$	—	$	428
Agricultural land and production	—		—		—		—		16,273		16,273		—		—
Real estate:	—						—		—		—
Owner occupied	—		—		—		—		188,454		188,454		—		—
Real estate construction and other land loans	—		—		—		—		76,483		76,483		—		1,494
Commercial real estate	—		—		—		—		208,082		208,082		—		1,053
Agricultural real estate	—		—		—		—		77,451		77,451		—		—
Other real estate	—		—		—		—		18,587		18,587		—		—
Consumer:							—		—		—
Equity loans and lines of credit	—		—		—		—		63,243		63,243		—		104
Consumer and installment	28		—		—		28		26,777		26,805		—		—
Total	$	28	$	—	$	—	$	28	$	763,362	$	763,390	$	—	$	3,079

The following table shows an aging analysis of the loan portfolio by class and the time past due at December 31, 2016 (in thousands):



	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days Past Due		Total Past Due		Current		Total Loans		Recorded Investment > 90 Days Accruing		Non- accrual
Commercial:
Commercial and industrial	$	—	$	—	$	—	$	—	$	88,652	$	88,652	$	—	$	447
Agricultural land and production	—		—		—		—		25,509		25,509		—		—
Real estate:	—
Owner occupied	87		—		—		87		191,578		191,665		—		107
Real estate construction and other land loans	—		—		—		—		69,200		69,200		—		—
Commercial real estate	565		—		—		565		183,660		184,225		—		1,082
Agricultural real estate	—		—		—		—		86,761		86,761		—		—
Other real estate	—		—		—		—		18,945		18,945		—		—
Consumer:
Equity loans and lines of credit	62		48		—		110		64,384		64,494		—		526
Consumer and installment	38		—		—		38		25,872		25,910		—		18
Total	$	752	$	48	$	—	$	800	$	754,561	$	755,361	$	—	$	2,180

Impaired loans

The following table shows information related to impaired loans by class at March 31, 2017 (in thousands):



	Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance recorded:
Commercial:
Commercial and industrial	$	428	$	600	$	—
Real estate:
Real estate construction and other land loans	1,494		1,500		—
Commercial real estate	819		960		—
Total real estate	2,313		2,460		—
Consumer:
Equity loans and lines of credit	103		139		—
Total with no related allowance recorded	2,844		3,199		—

With an allowance recorded:
Commercial:
Commercial and industrial	23		23		1
Real estate:
Real estate construction and other land loans	2,092		2,092		71
Commercial real estate	1,053		1,136		146
Agricultural real estate	59		59		—
Total real estate	3,204		3,287		217
Consumer:
Equity loans and lines of credit	66		79		1
Total with an allowance recorded	3,293		3,389		219
Total	$	6,137	$	6,588	$	219

The recorded investment in loans excludes accrued interest receivable and net loan origination fees, due to immateriality.

The following table shows information related to impaired loans by class at December 31, 2016 (in thousands):



	Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance recorded:
Commercial:
Commercial and industrial	$	447	$	612	$	—
Total commercial	447		612		—
Real estate:
Owner occupied	107		111		—
Commercial real estate	827		967		—
Total real estate	934		1,078		—
Consumer:
Equity loans and lines of credit	167		234		—
Consumer and installment	6		9		—
Total consumer	173		243		—
Total with no related allowance recorded	1,554		1,933		—

With an allowance recorded:
Commercial:
Commercial and industrial	40		40		3
Real estate:
Real estate construction and other land loans	2,222		2,222		79
Commercial real estate	1,082		1,146		162
Total real estate	3,304		3,368		241
Consumer:
Equity loans and lines of credit	359		364		61
Consumer and installment	12		12		2
Total consumer	371		376		63
Total with an allowance recorded	3,715		3,784		307
Total	$	5,269	$	5,717	$	307

The recorded investment in loans excludes accrued interest receivable and net loan origination fees, due to immateriality.

The following tables present by class, information related to the average recorded investment and interest income recognized on impaired loans for the three months ended March 31, 2017 and 2016.



	Three Months Ended March 31, 2017				Three Months Ended March 31, 2016
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial:
Commercial and industrial	$	439	$	—	$	243	$	—
Real estate:
Owner occupied	79		—		291		54
Real estate construction and other land loans	373		—		3,094		19
Commercial real estate	824		13		1,156		—
Total real estate	1,276		13		4,541		73
Consumer:
Equity loans and lines of credit	110		—		1,278		—
Consumer and installment	4		—		3		—
Total consumer	114		—		1,281		—
Total with no related allowance recorded	1,829		13		6,065		73

With an allowance recorded:
Commercial:
Commercial and industrial	36		1		360		1
Real estate:
Owner occupied	—		—		178		—
Real estate construction and other land loans	2,173		31		—		—
Commercial real estate	1,067		—		564		—
Agricultural real estate	15		1		—		—
Total real estate	3,255		32		742		—
Consumer:
Equity loans and lines of credit	181		1		196		—
Consumer and installment	3		—		8		—
Total consumer	184		1		204		—
Total with an allowance recorded	3,475		34		1,306		1
Total	$	5,304	$	47	$	7,371	$	74

The carrying amount of those loans is included in the balance sheet amounts of loans receivable at March 31, 2017 and December 31, 2016. The amounts of loans at March 31, 2017 and December 31, 2016 are as follows (in thousands):



	March 31, 2017		December 31, 2016
Commercial	$	470	$	612
Outstanding balance	$	470	$	612
Carrying amount, net of allowance of $0	$	470	$	612

Purchased credit impaired (PCI) loans are recorded at the amount paid, such that there is no carryover of the seller’s allowance for loan losses. The Company estimates the amount and timing of expected cash flows for each loan and the expected cash flows in excess of amount paid is recorded as interest income over the remaining life of the loan (accretable yield). The excess of the loan’s contractual principal and interest over expected cash flows is not recorded (nonaccretable difference). Over the life of the loan expected cash flows continue to be estimated. If the present value of expected cash flows is less than the carrying amount, a loss is recorded. If the present value of expected cash flows is greater than the carrying amount, it is recognized as part of future interest income.

Loans acquired during each year for which it was probable at acquisition that all contractually required payments would not be collected are as follows (in thousands):



	March 31, 2017		December 31, 2016
Contractually required payments receivable on PCI loans at acquisition:
Commercial	$	—	$	982
Total	$	—	$	982
Cash flows expected to be collected at acquisition	$	—	$	693
Fair value of acquired loans at acquisition	$	—	$	631

Certain of the loans acquired by the Company that are within the scope of Topic ASC 310-30 are not accounted for using the income recognition model of the Topic because the Company cannot reliably estimate cash flows expected to be collected. The carrying amounts of such loans (which are included in the carrying amount, net of allowance, described above) are as follows.



	March 31, 2017		December 31, 2016
Loans acquired during the year	$	—	$	631
Loans at the end of the period	$	470	$	612

Troubled debt restructurings

The following table presents loans by class modified as troubled debt restructurings that occurred during the three months ended March 31, 2017 (in thousands):



Troubled Debt Restructurings:	Number of Loans	Pre-Modification Outstanding Recorded Investment (1)		Principal Modification (2)		Post Modification Outstanding Recorded Investment (3)		Outstanding Recorded Investment
Real Estate:
Agricultural real estate	1	$	59	$	—	$	59	$	59
Consumer:
Equity loans and lines of credit	1	62		—		66		66
Total	2	$	121	$	—	$	125	$	125


(1)	Amounts represent the recorded investment in loans before recognizing effects of the TDR, if any.


(2)	Principal Modification includes principal forgiveness at the time of modification, contingent principal forgiveness granted over the life of the loan based on borrower performance, and principal that has been legally separated and deferred to the end of the loan, with zero percent contractual interest rate.


(3)	Balance outstanding after principal modification, if any borrower reduction to recorded investment.

The following table presents loans by class modified as troubled debt restructurings that occurred during the three months ended March 31, 2016 (in thousands):



Troubled Debt Restructurings:	Number of Loans	Pre-Modification Outstanding Recorded Investment (1)		Principal Modification (2)		Post Modification Outstanding Recorded Investment (3)		Outstanding Recorded Investment
Commercial:
Commercial and Industrial	2	$	45	$	—	$	45	$	45