Management has an established methodology to determine the adequacy of the allowance for loan losses that assesses the risks and losses inherent in the loan portfolio. For purposes of determining the allowance for loan losses, the Company has segmented certain loans in the portfolio by product type. Loans are segmented into the following pools: Commercial and Agriculture loans, Commercial Real Estate – Owner Occupied loans, Commercial Real Estate – Non-owner Occupied loans, Residential Real Estate loans, Real Estate Construction loans, Farm Real Estate loans and Consumer and Other loans. Loss migration rates for each risk category are calculated and used as the basis for calculating loan loss allowance allocations. Loss migration rates are calculated over a three-year period for all portfolio segments. Management also considers certain economic factors for trends that management uses to account for the qualitative and environmental changes in risk, which affects the level of the reserve. The following economic factors are analyzed:

The total allowance reflects management’s estimate of loan losses inherent in the loan portfolio at the consolidated balance sheet date. The Company considers the allowance for loan losses of $13,679 adequate to cover loan losses inherent in the loan portfolio, at December 31, 2018. The following tables present, by portfolio segment, the changes in the allowance for loan losses, the ending allocation of the allowance for loan losses and the loan balances outstanding for the years ended December 31, 2018, 2017 and 2016. The changes can be impacted by overall loan volume, adversely graded loans, historical charge-offs and economic factors.

December 31, 2018	Beginning balance		Charge-offs			Recoveries		Provision (Credit)			Ending Balance
Commercial & Agriculture	$	1,562	$	(249	)	$	169	$	265		$	1,747
Commercial Real Estate:
Owner Occupied		2,043		(193	)		158		(46	)		1,962
Non-Owner Occupied		5,307		(153	)		28		621			5,803
Residential Real Estate		1,910		(105	)		208		(482	)		1,531
Real Estate Construction		834		—			—		212			1,046
Farm Real Estate		430		—			5		(38	)		397
Consumer and Other		290		(203	)		100		97			284
Unallocated		758		—			—		151			909
Total	$	13,134	$	(903	)	$	668	$	780		$	13,679

For the year ended December 31, 2018, the allowance for Commercial & Agriculture loans increased as a result of an increase in general reserves due to higher loan balances. The result was represented as an increase in the provision. The allowance for Commercial Real Estate – Owner Occupied loans was reduced by a decrease in general reserves as a result of lower loss rates. The result was represented as a decrease in the provision. The allowance for Commercial Real Estate – Non-Owner Occupied loans increased due to an increase in general reserves required for this type as a result of higher loan balances. The allowance for Residential Real Estate loans was reduced by a decrease in general reserves required for this type as a result of a decrease in loss rates, represented by a decrease in the provision. The allowance for Real Estate Construction loans increased due to higher outstanding loan balances for this type of loan. The allowance for Farm Real Estate loans was reduced by a decrease in general reserves required for this type as a result of lower outstanding loan balances. The result was represented as a decrease in the provision. Management feels that the unallocated amount is appropriate and within the relevant range for the allowance that is reflective of the risk in the portfolio.

December 31, 2017	Beginning balance		Charge-offs			Recoveries		Provision (Credit)			Ending Balance
Commercial & Agriculture	$	2,018	$	(11	)	$	372	$	(817	)	$	1,562
Commercial Real Estate:
Owner Occupied		2,171		(328	)		69		131			2,043
Non-Owner Occupied		4,606		(38	)		46		693			5,307
Residential Real Estate		3,089		(400	)		194		(973	)		1,910
Real Estate Construction		420		—			44		370			834
Farm Real Estate		442		—			3		(15	)		430
Consumer and Other		314		(165	)		43		98			290
Unallocated		245		—			—		513			758
Total	$	13,305	$	(942	)	$	771	$	—		$	13,134

For the year ended December 31, 2017, the allowance for Commercial & Agriculture loans was reduced by a decrease in general reserves as a result of lower loss rates. The result was represented as a decrease in the provision. The allowance for Commercial Real Estate – Owner Occupied loans was reduced by a decrease in general reserves and charge-offs. The allowance for Commercial Real Estate – Non-Owner Occupied loans increased due to an increase in general reserves required for this type as a result of higher loan balances. The allowance for Residential Real Estate loans was reduced by a decrease in general reserves required for this type as a result of a decrease in loss rates, represented by a decrease in the provision. The allowance for Real Estate Construction loans increased due to higher outstanding loan balances for this type of loan. The allowance for Farm Real Estate loans was reduced by a decrease in general reserves required for this type as a result of lower outstanding loan balances. The result was represented as a decrease in the provision.

December 31, 2016	Beginning balance		Charge-offs			Recoveries		Provision (Credit)			Ending Balance
Commercial & Agriculture	$	1,478	$	(880	)	$	105	$	1,315		$	2,018
Commercial Real Estate:
Owner Occupied		2,467		(228	)		56		(124	)		2,171
Non-Owner Occupied		4,657		(23	)		1,372		(1,400	)		4,606
Residential Real Estate		4,086		(455	)		479		(1,021	)		3,089
Real Estate Construction		371		(115	)		12		152			420
Farm Real Estate		538		—			—		(96	)		442
Consumer and Other		382		(125	)		46		11			314
Unallocated		382		—			—		(137	)		245
Total	$	14,361	$	(1,826	)	$	2,070	$	(1,300	)	$	13,305

For the year ended December 31, 2016, the increase in allowance for Commercial & Agriculture loans was due to an increase in general reserves as a result of higher balances and higher loss rates in criticized loans. The result was represented as an increase in the provision. The allowance for Commercial Real Estate – Owner Occupied loans was reduced not only by a decrease in specific reserves required for this type, but also by a decrease in general reserves due to decreases in classified, non-accrual loans and lower loss rates for this type. The result of these changes was represented as a decrease in the provision. The decrease in allowance for Commercial Real Estate – Non-Owner Occupied loans was the result of a decrease in general reserves required as a result of lower loss rates and improvement in past due, classified and non-accrual loans for this type. In addition, a payoff on a previously charged down loan was received resulting in a recovery of approximately $1,303. The net result was represented as a decrease in the provision. The allowance for Residential Real Estate loans was reduced by a decrease in general reserves required for this type as a result of a decrease in loss rates, represented by a decrease in the provision. The allowance for Real Estate Construction loans increased due to an increase in loss rates for this type of loan, which was represented as an increase in the provision. The allowance for Farm Real Estate loans was reduced by a decrease in general reserves required for this type as a result of lower outstanding loan balances and a decrease in loss rates. The result of these changes was represented as a decrease in the provision.

The following tables present, by portfolio segment, the allocation of the allowance for loan losses and related loan balances as of December 31, 2018 and December 31, 2017.

December 31, 2018	Loans acquired with credit deterioration		Loans individually evaluated for impairment		Loans collectively evaluated for impairment		Total
Allowance for loan losses:
Commercial & Agriculture	$	—	$	—	$	1,747	$	1,747
Commercial Real Estate:
Owner Occupied		—		12		1,950		1,962
Non-Owner Occupied		—		—		5,803		5,803
Residential Real Estate		8		122		1,401		1,531
Real Estate Construction		—		—		1,046		1,046
Farm Real Estate		—		7		390		397
Consumer and Other		—		—		284		284
Unallocated		—		—		909		909
Total	$	8	$	141	$	13,530	$	13,679

Outstanding loan balances:
Commercial & Agriculture	$	41	$	367	$	176,693	$	177,101
Commercial Real Estate:
Owner Occupied		—		484		209,637		210,121
Non-Owner Occupied		—		31		523,567		523,598
Residential Real Estate		883		1,279		455,688		457,850
Real Estate Construction		—		—		135,195		135,195
Farm Real Estate		—		696		37,817		38,513
Consumer and Other		—		—		19,563		19,563
Total	$	924	$	2,857	$	1,558,160	$	1,561,941

December 31, 2017	Loans acquired with credit deterioration		Loans individually evaluated for impairment		Loans collectively evaluated for impairment		Total
Allowance for loan losses:
Commercial & Agriculture	$	82	$	4	$	1,476	$	1,562
Commercial Real Estate:
Owner Occupied		—		6		2,037		2,043
Non-Owner Occupied		—		—		5,307		5,307
Residential Real Estate		44		109		1,757		1,910
Real Estate Construction		—		—		834		834
Farm Real Estate		—		6		424		430
Consumer and Other		—		—		290		290
Unallocated		—		—		758		758
Total	$	126	$	125	$	12,883	$	13,134

Outstanding loan balances:
Commercial & Agriculture	$	87	$	438	$	151,948	$	152,473
Commercial Real Estate:
Owner Occupied		—		1,010		163,089		164,099
Non-Owner Occupied		—		44		425,579		425,623
Residential Real Estate		128		1,360		267,247		268,735
Real Estate Construction		—		—		97,531		97,531
Farm Real Estate		—		608		38,853		39,461
Consumer and Other		—		—		16,739		16,739
Total	$	215	$	3,460	$	1,160,986	$	1,164,661

The following tables represent credit exposures by internally assigned risk ratings for the periods ended December 31, 2018 and 2017. The remaining loans in the Residential Real Estate, Real Estate Construction and Consumer and Other loan categories that are not assigned a risk grade are presented in a separate table below. The risk rating analysis estimates the capability of the borrower to repay the contractual obligations of the loan agreements as scheduled or at all. The Company’s internal credit risk rating system is based on experiences with similarly graded loans.

December 31, 2018	Pass		Special Mention		Substandard		Doubtful		Ending Balance
Commercial & Agriculture	$	173,783	$	1,509	$	1,809	$	—	$	177,101
Commercial Real Estate:
Owner Occupied		201,228		3,512		5,381		—		210,121
Non-Owner Occupied		520,487		2,023		1,088		—		523,598
Residential Real Estate		70,908		580		7,363		—		78,851
Real Estate Construction		124,769		13		41		—		124,823
Farm Real Estate		32,908		3,096		2,509		—		38,513
Consumer and Other		1,713		—		20		—		1,733
Total	$	1,125,796	$	10,733	$	18,211	$	—	$	1,154,740

December 31, 2017	Pass		Special Mention		Substandard		Doubtful		Ending Balance
Commercial & Agriculture	$	140,842	$	8,412	$	3,219	$	—	$	152,473
Commercial Real Estate:
Owner Occupied		155,756		1,166		7,177		—		164,099
Non-Owner Occupied		422,363		2,321		939		—		425,623
Residential Real Estate		62,628		1,997		5,873		—		70,498
Real Estate Construction		91,545		15		27		—		91,587
Farm Real Estate		25,228		11,236		2,997		—		39,461
Consumer and Other		1,312		—		70		—		1,382
Total	$	899,674	$	25,147	$	20,302	$	—	$	945,123

The following tables present performing and nonperforming loans based solely on payment activity for the years ended December 31, 2018 and December 31, 2017 that have not been assigned an internal risk grade. The types of loans presented here are not assigned a risk grade unless there is evidence of a problem. Payment activity is reviewed by management on a monthly basis to evaluate performance. Loans are considered to be nonperforming when they become 90 days past due or if management thinks that we may not collect all of our principal and interest. Nonperforming loans also include certain loans that have been modified in Troubled Debt Restructurings (TDRs) where economic concessions have been granted to borrowers who have experienced or are expected to experience financial difficulties. These concessions typically result from the Company’s loss mitigation activities and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance or other actions due to economic status. Certain TDRs are classified as nonperforming at the time of restructure and may only be returned to performing status after considering the borrower’s sustained repayment performance for a reasonable period, generally six months.

The following tables include an aging analysis of the recorded investment of past due loans outstanding as of December 31, 2018 and 2017.

December 31, 2018	30-59 Days Past Due		60-89 Days Past Due		90 Days or Greater		Total Past Due		Current		Purchased Credit- Impaired Loans		Total Loans		Past Due 90 Days and Accruing
Commercial & Agriculture	$	225	$	—	$	92	$	317	$	176,743	$	41	$	177,101	$	—
Commercial Real Estate:
Owner Occupied		547		413		564		1,524		208,597		—		210,121		—
Non-Owner Occupied		288		290		372		950		522,648		—		523,598		—
Residential Real Estate		7,118		677		806		8,601		448,366		883		457,850		—
Real Estate Construction		—		12		27		39		135,156		—		135,195		—
Farm Real Estate		33		—		158		191		38,322		—		38,513		—
Consumer and Other		117		57		9		183		19,380		—		19,563		—
Total	$	8,328	$	1,449	$	2,028	$	11,805	$	1,549,212	$	924	$	1,561,941	$	—

December 31, 2017	30-59 Days Past Due		60-89 Days Past Due		90 Days or Greater		Total Past Due		Current		Purchased Credit- Impaired Loans		Total Loans		Past Due 90 Days and Accruing
Commercial & Agriculture	$	575	$	2	$	685	$	1,262	$	151,124	$	87	$	152,473	$	—
Commercial Real Estate:
Owner Occupied		897		104		484		1,485		162,614		—		164,099		—
Non-Owner Occupied		133		—		470		603		425,020		—		425,623		—
Residential Real Estate		1,613		229		785		2,627		265,980		128		268,735		—
Real Estate Construction		—		—		27		27		97,504		—		97,531		—
Farm Real Estate		27		—		186		213		39,248		—		39,461		—
Consumer and Other		92		96		16		204		16,535		—		16,739		16
Total	$	3,337	$	431	$	2,653	$	6,421	$	1,158,025	$	215	$	1,164,661	$	16

The following table presents loans on nonaccrual status, excluding purchased credit-impaired (PCI) loans, as of December 31, 2018 and 2017.

Nonaccrual Loans: Loans are considered for nonaccrual status upon reaching 90 days delinquency, unless the loan is well secured and in the process of collection, although the Company may be receiving partial payments of interest and partial repayments of principal on such loans. When a loan is placed on nonaccrual status, previously accrued but unpaid interest is deducted from interest income. A loan may be returned to accruing status only if one of three conditions are met: the loan is well-secured and none of the principal and interest has been past due for a minimum of 90 days; the loan is a TDR and the borrower has made a minimum of six months payments; or the principal and interest payments are reasonably assured and a sustained period of performance has occurred, generally six months. The gross interest income that would have been recorded on nonaccrual loans in 2018, 2017 and 2016 if the loans had been current in accordance with their original terms and had been outstanding throughout the period or since origination, if held for part of the period, was $587, $712 and $701, respectively. The amount of interest income on such loans recognized on a cash basis was $360 in 2018, $139 in 2017 and $1,138 in 2016.

Modifications: A modification of a loan constitutes a TDR when the Company for economic or legal reasons related to a borrower’s financial difficulties grants a concession to the borrower that it would not otherwise consider. The Company offers various types of concessions when modifying a loan, however, forgiveness of principal is rarely granted. Commercial Real Estate loans modified in a TDR often involve reducing the interest rate lower than the current market rate for new debt with similar risk. Real Estate loans modified in a TDR were primarily comprised of interest rate reductions where monthly payments were lowered to accommodate the borrowers’ financial needs.

Loans modified in a TDR are typically already on non-accrual status and partial charge-offs have in some cases already been taken against the outstanding loan balance. As a result, loans modified in a TDR may have the financial effect of increasing the specific allowance associated with the loan. An allowance for impaired loans that have been modified in a TDR are measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate or the estimated fair value of the collateral, less any selling costs, if the loan is collateral dependent. Management exercises significant judgment in developing these estimates. TDRs accounted for $143 of the allowance for loan losses as of December 31, 2018, $169 as of December 31, 2017 and $278 as of December 31, 2016.

Loan modifications that are considered TDRs completed during the twelve month periods ended December 31, 2018, 2017 and 2016 were as follows:

	For the Twelve Month Period Ended December 31, 2018
	Number of Contracts		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment
Commercial & Agriculture		—	$	—	$	—
Commercial Real Estate:
Owner Occupied		—		—		—
Non-Owner Occupied		—		—		—
Residential Real Estate		1		23		23
Real Estate Construction		—		—		—
Farm Real Estate		1		110		110
Consumer and Other		—		—		—
Total Loan Modifications		2	$	133	$	133

	For the Twelve Month Period Ended December 31, 2017
	Number of Contracts		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment
Commercial & Agriculture		—	$	—	$	—
Commercial Real Estate:
Owner Occupied		—		—		—
Non-Owner Occupied		—		—		—
Residential Real Estate		1		13		13
Real Estate Construction		—		—		—
Farm Real Estate		—		—		—
Consumer and Other		—		—		—
Total Loan Modifications		1	$	13	$	13

	For the Twelve Month Period Ended December 31, 2016
	Number of Contracts		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment
Commercial & Agriculture		4	$	529	$	529
Commercial Real Estate:
Owner Occupied		—		—		—
Non-Owner Occupied		—		—		—
Residential Real Estate		2		308		308
Real Estate Construction		—		—		—
Farm Real Estate		3		700		700
Consumer and Other		—		—		—
Total Loan Modifications		9	$	1,537	$	1,537

Recidivism, or the borrower defaulting on its obligation pursuant to a modified loan, results in the loan once again becoming a non-accrual loan. Recidivism occurs at a notably higher rate than do defaults on new originations loans, so modified loans present a higher risk of loss than do new origination loans. During the periods ended December 31, 2018, 2017 and 2016, there were no defaults on loans that were modified and considered TDRs during the previous twelve months.

Impaired Loans: Larger (greater than $350) commercial loan, commercial real estate loan and farm real estate loan relationships, all TDRs and residential real estate and consumer loans that are part of a larger relationship are tested for impairment. These loans are analyzed to determine if it is probable that all amounts will not be collected according to the contractual terms of the loan agreement. If management determines that the value of the impaired loan is less than the recorded investment in the loan (net of previous charge-offs, deferred loan fees or costs and unamortized premium or discount), impairment is recognized through an allowance estimate or a charge-off to the allowance.

The following tables include the recorded investment and unpaid principal balances for impaired financing receivables, excluding PCI loans, with the associated allowance amount, if applicable, as of December 31, 2018 and 2017.

	December 31, 2018						December 31, 2017
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance recorded:
Commercial & Agriculture	$	367	$	367			$	—	$	—
Commercial Real Estate:
Owner Occupied		193		193				693		913
Non-Owner Occupied		31		34				44		48
Residential Real Estate		1,017		1,089				977		1,049
Farm Real Estate		256		256				148		148
Consumer and Other		—		—				—		—
Total		1,864		1,939				1,862		2,158
With an allowance recorded:
Commercial & Agriculture		—		—	$	—		438		438	$	4
Commercial Real Estate:
Owner Occupied		291		291		12		317		317		6
Non-Owner Occupied		—		—		—		—		—		—
Residential Real Estate		262		265		122		383		387		109
Farm Real Estate		440		440		7		460		460		6
Total		993		996		141		1,598		1,602		125
Total:
Commercial & Agriculture		367		367		—		438		438		4
Commercial Real Estate:
Owner Occupied		484		484		12		1,010		1,230		6
Non-Owner Occupied		31		34		—		44		48		—
Residential Real Estate		1,279		1,354		122		1,360		1,436		109
Farm Real Estate		696		696		7		608		608		6
Consumer and Other		—		—		—		—		—		—
Total	$	2,857	$	2,935	$	141	$	3,460	$	3,760	$	125

The following tables include the average recorded investment and interest income recognized for impaired financing receivables as of, and for the years ended, December 31, 2018, 2017 and 2016.

For the year ended:	December 31, 2018				December 31, 2017
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Commercial & Agriculture	$	636	$	25	$	1,375	$	34
Commercial Real Estate:
Owner Occupied		610		33		1,507		75
Non-Owner Occupied		39		5		233		6
Residential Real Estate		1,519		75		1,515		73
Real Estate Construction		—		—		—		—
Farm Real Estate		716		29		613		28
Consumer and Other		—		—		—		—
Total	$	3,520	$	167	$	5,243	$	216

Foreclosed assets acquired in settlement of loans are carried at fair value less estimated costs to sell and are included in other assets on the Consolidated Balance Sheet. As of December 31, 2018 and 2017, a total of $0 and $16, respectively, of foreclosed assets were included with other assets. As of December 31, 2018 and 2017, the Company had initiated formal foreclosure procedures on $311 and $239, respectively, of consumer residential mortgages.

Changes in the amortizable yield for PCI loans were as follows, since acquisition:

Loans acquired with credit deterioration of $878 and accounted for in accordance with ASC 310-30 were individually evaluated to estimate credit losses and a net recovery amount for each loan. The net cash flows for each loan were then discounted to present value using a risk-adjusted market rate. The table below presents the components of the purchase accounting adjustments.

The following table presents additional information regarding loans acquired and accounted for in accordance with ASC 310-30:

There has been $8 and $126 in allowance for loan losses recorded for acquired loans with or without specific evidence of deterioration in credit quality as of December 31, 2018 and 2017, respectively.