Loans and Allowance for Credit Losses (Tables)

6 Months Ended

Jun. 30, 2017

Outstanding loans are summarized as follows:



Loan Type (Dollars in thousands)	June 30, 2017			% of Total Loans		December 31, 2016			% of Total Loans
Commercial:
Commercial and industrial	$	88,218		11.5	%	$	88,652		11.7	%
Agricultural land and production	23,480			3.1	%	25,509			3.4	%
Total commercial	111,698			14.6	%	114,161			15.1	%
Real estate:
Owner occupied	185,302			24.1	%	191,665			25.3	%
Real estate construction and other land loans	74,887			9.7	%	69,200			9.1	%
Commercial real estate	212,130			27.6	%	184,225			24.3	%
Agricultural real estate	76,988			10.0	%	86,761			11.5	%
Other real estate	19,288			2.5	%	18,945			2.7	%
Total real estate	568,595			73.9	%	550,796			72.9	%
Consumer:
Equity loans and lines of credit	60,509			8.0	%	64,494			8.5	%
Consumer and installment	27,101			3.5	%	25,910			3.5	%
Total consumer	87,610			11.5	%	90,404			12.0	%
Net deferred origination costs	1,085					1,267
Total gross loans	768,988			100.0	%	756,628			100.0	%
Allowance for credit losses	(9,297		)			(9,326		)
Total loans	$	759,691				$	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 June 30, 2017 and 2016 by portfolio segment (in thousands):



	Commercial			Real Estate			Consumer			Unallocated		Total
Allowance for credit losses:
Beginning balance, April 01, 2017	$	2,021		$	6,225		$	775		$	193	$	9,214
(Reversal) provision charged to operations	(7		)	(346		)	19			184		(150		)
Losses charged to allowance	—			—			(27		)	—		(27		)
Recoveries	182			52			26			—		260
Ending balance, June 30, 2017	$	2,196		$	5,931		$	793		$	377	$	9,297

Allowance for credit losses:
Beginning balance, April 1, 2016	$	3,743		$	5,281		$	894		$	218	$	10,136
(Reversal) provision charged to operations	(4,673		)	(56		)	55			74		(4,600		)
Losses charged to allowance	—			—			(105		)	—		(105		)
Recoveries	3,902			435			104			—		4,441
Ending balance, June 30, 2016	$	2,972		$	5,660		$	948		$	292	$	9,872

The following table shows the summary of activities for the allowance for loan losses as of and for the six months ended June 30, 2017 and 2016 by portfolio segment of loans (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	(244		)	(304		)	15			283		(250		)
Losses charged to allowance	(44		)	(22		)	(144		)	—		(210		)
Recoveries	304			57			70			—		431
Ending balance, June 30, 2017	$	2,196		$	5,931		$	793		$	377	$	9,297

Allowance for credit losses:
Beginning balance, January 1, 2016	$	3,562		$	5,204		$	734		$	110	$	9,610
(Reversal) provision charged to operations	(4,825		)	(395		)	188			182		(4,850		)
Losses charged to allowance	(4		)	—			(114		)	—		(118		)
Recoveries	4,239			851			140			—		5,230
Ending balance, June 30, 2016	$	2,972		$	5,660		$	948		$	292	$	9,872

The following is a summary of the Allowance by impairment methodology and portfolio segment as of June 30, 2017 and December 31, 2016 (in thousands):



	Commercial		Real Estate		Consumer		Unallocated		Total
Allowance for credit losses:
Ending balance, June 30, 2017	$	2,196	$	5,931	$	793	$	377	$	9,297
Ending balance: individually evaluated for impairment	$	1	$	29	$	46	$	—	$	76
Ending balance: collectively evaluated for impairment	$	2,195	$	5,902	$	747	$	377	$	9,221

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, June 30, 2017	$	111,698	$	568,595	$	87,610	$	767,903
Ending balance: individually evaluated for impairment	$	427	$	5,248	$	207	$	5,882
Ending balance: collectively evaluated for impairment	$	111,271	$	563,347	$	87,403	$	762,021

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 June 30, 2017 (in thousands):



	Pass		Special Mention		Sub-Standard		Doubtful		Total
Commercial:
Commercial and industrial	$	70,941	$	8,516	$	8,761	$	—	$	88,218
Agricultural land and production	14,952		8,461		67		—		23,480
Real Estate:
Owner occupied	177,269		5,151		2,882		—		185,302
Real estate construction and other land loans	71,081		1,890		1,916		—		74,887
Commercial real estate	208,130		1,533		2,467		—		212,130
Agricultural real estate	47,246		7,790		21,952		—		76,988
Other real estate	19,288		—		—		—		19,288
Consumer:
Equity loans and lines of credit	59,185		512		812		—		60,509
Consumer and installment	27,099		—		2		—		27,101
Total	$	695,191	$	33,853	$	38,859	$	—	$	767,903

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 June 30, 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	$	—	$	—	$	—	$	—	$	88,218	$	88,218	$	—	$	404
Agricultural land and production	—		—		—		—		23,480		23,480		—		—
Real estate:	—						—		—		—
Owner occupied	—		—		—		—		185,302		185,302		—		—
Real estate construction and other land loans	—		—		—		—		74,887		74,887		—		1,459
Commercial real estate	—		—		—		—		212,130		212,130		—		1,029
Agricultural real estate	—		—		—		—		76,988		76,988		—		—
Other real estate	—		—		—		—		19,288		19,288		—		—
Consumer:							—		—		—
Equity loans and lines of credit	—		—		—		—		60,509		60,509		—		207
Consumer and installment	32		—		—		32		27,069		27,101		—		—
Total	$	32	$	—	$	—	$	32	$	767,871	$	767,903	$	—	$	3,099

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 carrying amount of those loans is included in the balance sheet amounts of loans receivable at June 30, 2017 and December 31, 2016. The amounts of loans at June 30, 2017 and December 31, 2016 are as follows (in thousands):



	June 30, 2017		December 31, 2016
Commercial	$	441	$	612
Outstanding balance	$	441	$	612
Carrying amount, net of allowance of $0	$	441	$	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):



	June 30, 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.



	June 30, 2017		December 31, 2016
Loans acquired during the year	$	—	$	631
Loans at the end of the period	$	441	$	612

The following table shows information related to impaired loans by class at June 30, 2017 (in thousands):



	Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance recorded:
Commercial:
Commercial and industrial	$	404	$	585	$	—
Real estate:
Real estate construction and other land loans	1,459		1,495		—
Commercial real estate	1,841		2,080		—
Total real estate	3,300		3,575		—
Consumer:
Equity loans and lines of credit	161		215		—
Total with no related allowance recorded	3,865		4,375		—

With an allowance recorded:
Commercial:
Commercial and industrial	23		23		1
Real estate:
Real estate construction and other land loans	1,889		1,889		28
Agricultural real estate	59		59		1
Total real estate	1,948		1,948		29
Consumer:
Equity loans and lines of credit	46		46		46
Total with an allowance recorded	2,017		2,017		76
Total	$	5,882	$	6,392	$	76

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 June 30, 2017 and 2016.



	Three Months Ended June 30, 2017				Three Months Ended June 30, 2016
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial:
Commercial and industrial	$	418	$	—	$	33	$	—
Real estate:
Owner occupied	—		—		162		51
Real estate construction and other land loans	1,478		—		2,901		14
Commercial real estate	1,332		13		995		—
Total real estate	2,810		13		4,058		65
Consumer:
Equity loans and lines of credit	133		—		902		—
Consumer and installment	—		—		10		—
Total consumer	133		—		912		—
Total with no related allowance recorded	3,361		13		5,003		65

With an allowance recorded:
Commercial:
Commercial and industrial	23		—		1,032		1
Real estate:
Owner occupied	—		—		173		—
Real estate construction and other land loans	2,026		31		—		—
Commercial real estate	525		—		553		—
Agricultural real estate	58		1		—		—
Total real estate	2,609		32		726		—
Consumer:
Equity loans and lines of credit	56		1		126		—
Consumer and installment	—		—		—		—
Total consumer	56		1		126		—
Total with an allowance recorded	2,688		33		1,884		1
Total	$	6,049	$	46	$	6,887	$	66



	Six Months Ended June 30, 2017				Six Months Ended June 30, 2016
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial:
Commercial and industrial	$	429	$	—	$	149	$	—
Agricultural land and production	—		—		—		—
Total commercial	429		—		149		—
Real estate:
Owner occupied	45		—		212		106
Real estate construction and other land loans	844		—		2,988		28
Commercial real estate	1,115		27		1,065		—
Agricultural real estate	—		—		—		—
Other real estate	—		—		—		—
Total real estate	2,004		27		4,265		134
Consumer:
Equity loans and lines of credit	124		—		1,065		—
Consumer and installment	2		—		5		—
Total consumer	126		—		1,070		—
Total with no related allowance recorded	2,559		27		5,484		134

With an allowance recorded:
Commercial:
Commercial and industrial	30		1		638		1
Agricultural land and production	—		—		—		—
Total commercial	30		1		638		1
Real estate:
Owner occupied	—		—		175		—
Real estate construction and other land loans	2,101		60		—		—
Commercial real estate	759		—		559		—
Agricultural real estate	34		1		—		—
Other real estate	—		—		—		—
Total real estate	2,894		61		734		—
Consumer:
Equity loans and lines of credit	126		1		152		—
Consumer and installment	2		—		5		—
Total consumer	128		1		157		—
Total with an allowance recorded	3,052		63		1,529		1
Total	$	5,611	$	90	$	7,013	$	135

Troubled debt restructurings

The following table presents loans by class modified as troubled debt restructurings that occurred during the six months ended June 30, 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		64
Total	2	$	121	$	—	$	125	$	123


(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 six months ended June 30, 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	$	44