Loans and Allowance for Credit Losses (Tables)

12 Months Ended

Dec. 31, 2017

Outstanding loans are summarized as follows (in thousands):



Loan Type	December 31, 2017			% of Total loans		December 31, 2016			% of Total loans
Commercial:
Commercial and industrial	$	100,856		11.2	%	$	88,652		11.7	%
Agricultural land and production	14,956			1.7	%	25,509			3.4	%
Total commercial	115,812			12.9	%	114,161			15.1	%
Real estate:
Owner occupied	204,452			22.7	%	191,665			25.3	%
Real estate construction and other land loans	96,460			10.7	%	69,200			9.1	%
Commercial real estate	269,254			29.9	%	184,225			24.3	%
Agricultural real estate	76,081			8.4	%	86,761			11.5	%
Other real estate	31,220			3.5	%	18,945			2.7	%
	677,467			75.2	%	550,796			72.9	%
Consumer:
Equity loans and lines of credit	76,404			8.5	%	64,494			8.5	%
Consumer and installment	29,637			3.4	%	25,910			3.5	%
Total consumer	106,041			11.9	%	90,404			12.0	%
Net deferred origination costs	1,359					1,267
Total gross loans	900,679			100.0	%	756,628			100.0	%
Allowance for credit losses	(8,778		)			(9,326		)
Total loans	$	891,901				$	747,302

Allowance for credit losses

Changes in the allowance for credit losses were as follows (in thousands):



	Years Ended December 31,
	2017			2016			2015
Balance, beginning of year	$	9,326		$	9,610		$	8,308
(Reversal of) Provision charged to operations	(1,150		)	(5,850		)	600
Losses charged to allowance	(464		)	(883		)	(961		)
Recoveries	1,066			6,449			1,663
Balance, end of year	$	8,778		$	9,326		$	9,610

The following table shows the summary of activities for the allowance for credit losses as of and for the years ended December 31, 2017, 2016, and 2015 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 of ) Provision charged to operations	(762		)	(449		)	68			(7		)	(1,150		)
Losses charged to allowance	(207		)	(22		)	(235		)	—			(464		)
Recoveries	860			66			140			—			1,066
Ending balance, December 31, 2017	$	2,071		$	5,795		$	825		$	87		$	8,778

Allowance for credit losses:
Beginning balance, January 1, 2016	$	3,562		$	5,204		$	734		$	110		$	9,610
Provision charged to operations	(6,048		)	11			203			(16		)	(5,850		)
Losses charged to allowance	(621		)	—			(262		)	—			(883		)
Recoveries	5,287			985			177			—			6,449
Ending balance, December 31, 2016	$	2,180		$	6,200		$	852		$	94		$	9,326

Allowance for credit losses:
Beginning balance, January 1, 2015	$	3,130		$	4,058		$	1,078		$	42		$	8,308
Provision charged to operations	190			1,114			(772		)	68			600
Losses charged to allowance	(802		)	—			(159		)	—			(961		)
Recoveries	1,044			32			587			—			1,663
Ending balance, December 31, 2015	$	3,562		$	5,204		$	734		$	110		$	9,610

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



	Commercial		Real Estate		Consumer		Unallocated		Total
Allowance for credit losses:
Ending balance, December 31, 2017	$	2,071	$	5,795	$	825	$	87	$	8,778
Ending balance: individually evaluated for impairment	$	1	$	1	$	34	$	—	$	36
Ending balance: collectively evaluated for impairment	$	2,070	$	5,794	$	791	$	87	$	8,742

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

Loans by impairment methdology

The following table shows the ending balances of loans as of December 31, 2017 and December 31, 2016 by portfolio segment and by impairment methodology (in thousands):



	Commercial		Real Estate		Consumer		Total
Loans:
Ending balance, December 31, 2017	$	115,812	$	677,467	$	106,041	$	899,320
Ending balance: individually evaluated for impairment	$	377	$	4,846	$	1,143	$	6,366
Ending balance: collectively evaluated for impairment	$	115,435	$	672,621	$	104,898	$	892,954

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 December 31, 2017 (in thousands):



	Pass		Special Mention		Substandard		Doubtful		Total
Commercial:
Commercial and industrial	$	84,745	$	8,217	$	7,894	$	—	$	100,856
Agricultural land and production	10,848		206		3,902		—		14,956
Real Estate:
Owner occupied	196,838		4,795		2,819		—		204,452
Real estate construction and other land loans	90,927		1,625		3,908		—		96,460
Commercial real estate	261,746		4,147		3,361		—		269,254
Agricultural real estate	48,274		1,270		26,537		—		76,081
Other real estate	29,867		1,165		188		—		31,220
Consumer:
Equity loans and lines of credit	74,535		483		1,386		—		76,404
Consumer and installment	29,634		—		3		—		29,637
Total	$	827,414	$	21,908	$	49,998	$	—	$	899,320

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		Substandard		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 December 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	$	—	$	—	$	—	$	—	$	100,856	$	100,856	$	—	$	356
Agricultural land and production	—		—		—		—		14,956		14,956		—		—
Real estate:	—								—		—
Owner occupied	—		—		—		—		204,452		204,452		—		—
Real estate construction and other land loans	—		—		1,397		1,397		95,063		96,460		—		1,397
Commercial real estate	—		—		—		—		269,254		269,254		—		976
Agricultural real estate	—		—		—		—		76,081		76,081		—		—
Other real estate	—		1,165		—		1,165		30,055		31,220		—		—
Consumer:									—		—
Equity loans and lines of credit	149		—		—		149		76,255		76,404		—		146
Consumer and installment	26		—		—		26		29,611		29,637		—		—
Total	$	175	$	1,165	$	1,397	$	2,737	$	896,583	$	899,320	$	—	$	2,875

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 December 31, 2017 (in thousands):



	Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance recorded:
Commercial:
Commercial and industrial	$	355	$	553	$	—
Real estate:
Real estate construction and other land loans	3,023		3,085		—
Commercial real estate	1,772		2,040		—
Total real estate	4,795		5,125		—
Consumer:
Equity loans and lines of credit	146		206		—
Total with no related allowance recorded	5,296		5,884		—

With an allowance recorded:
Commercial:
Commercial and industrial	22		22		1
Real estate:
Agricultural real estate	51		51		1
Consumer:
Equity loans and lines of credit	997		997		34
Total with an allowance recorded	1,070		1,070		36
Total	$	6,366	$	6,954	$	36

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	$	—
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 presents by class, information related to the average recorded investment and interest income recognized on impaired loans for the years ended December 31, 2017, 2016, and 2015 (in thousands):



	Year Ended December 31, 2017				Year Ended December 31, 2016				Year Ended December 31, 2015
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial:
Commercial and industrial	$	404	$	—	$	115	$	—	$	2,921	$	—
Agricultural land and production	—		—		42		—		—		—
Total commercial	404		—		157		—		2,921		—
Real estate:
Owner occupied	24		—		162		—		770		231
Real estate construction and other land loans	1,228		114		2,393		196		1,266		79
Commercial real estate	1,370		53		903		55		1,939		—
Agricultural real estate	—		—		173		—		211		—
Total real estate	2,622		167		3,631		251		4,186		310
Consumer:
Equity loans and lines of credit	132		—		598		—		1,858		—
Consumer and installment	6		—		41		—		—		—
Total consumer	138		—		639		—		1,858		—
Total with no related allowance recorded	3,164		167		4,427		251		8,965		310
	—
With an allowance recorded:	—
Commercial:											—
Commercial and industrial	38		1		441		3		243		—
Agricultural land and production	—		—		104		—		—		—
Total commercial	38		1		545		3		243		—
Real estate:			—				—				—
Owner occupied	—		—		120		—		190		—
Real estate construction and other land loans	1,827		—		171		—		2,297		—
Commercial real estate	470		—		548		—		753		—
Agricultural real estate	43		3		—		—		—		—
Total real estate	2,340		3		839		—		3,240		—
Consumer:
Equity loans and lines of credit	239		32		203		—		328		—
Consumer and installment	1		—		19		—		16		—
Total consumer	240		32		222		—		344		—
Total with an allowance recorded	2,618		36		1,606		3		3,827		—
Total	$	5,782	$	203	$	6,033	$	254	$	12,792	$	310

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



	December 31,
	2017		2016
Commercial	$	383	$	612
Outstanding balance	$	383	$	612
Carrying amount, net of allowance of $0	$	383	$	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):



	December 31,
	2017		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.



	December 31,
	2017		2016
Loans acquired during the year	$	—	$	631
Loans at the end of the year	$	383	$	612

Troubled Debt Restructurings

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



Troubled Debt Restructurings:	Number of Loans	Pre-Modification Outstanding Recorded Investment (1)		Principal Modification		Post Modification Outstanding Recorded Investment (2)		Outstanding Recorded Investment
Real Estate:
Agricultural real estate	1	$	59	—		$	59	$	51
Consumer:
Equity loans and line of credit	2	490		—		1,066		1,059
Total	3	$	549	$	—	$	1,125	$	1,110


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


(2)	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 year ended December 31, 2016 (dollars in thousands):



Troubled Debt Restructurings:	Number of Loans	Pre-Modification Outstanding Recorded Investment (1)		Principal Modification		Post Modification Outstanding Recorded Investment (2)		Outstanding Recorded Investment
Commercial:
Commercial and Industrial	2	$	45	$	—	$	45	$	40


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


(2)	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 year ended December 31, 2015 (dollars in thousands):



Troubled Debt Restructurings:	Number of Loans	Pre-Modification Outstanding Recorded Investment (1)		Principal Modification		Post Modification Outstanding Recorded Investment (2)		Outstanding Recorded Investment
Commercial:
Commercial and Industrial	2	$	42	$	—	$	42	$	30


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


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