Management has an established methodology for determining 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. 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 total allowance reflects management’s estimate of loan losses inherent in the loan portfolio at the balance sheet date. The Company considers the allowance for loan losses of $14,144 adequate to cover loan losses inherent in the loan portfolio, at September 30, 2019. The following tables present, by portfolio segment, the changes in the allowance for loan losses for the three and nine months ended September 30, 2019 and 2018.

For the three months ended September 30, 2019	Beginning balance		Charge-offs			Recoveries		Provision			Ending Balance
Commercial & Agriculture	$	1,828	$	—		$	61	$	43		$	1,932
Commercial Real Estate:
Owner Occupied		2,009		—			43		85			2,137
Non-Owner Occupied		5,867		—			55		226			6,148
Residential Real Estate		1,698		(20	)		67		(136	)		1,609
Real Estate Construction		1,135		—			1		47			1,183
Farm Real Estate		365		—			1		1			367
Consumer and Other		201		(16	)		16		52			253
Unallocated		683		—			—		(168	)		515
Total	$	13,786	$	(36	)	$	244	$	150		$	14,144

For the three months ended September 30, 2019, the allowance for Commercial & Agriculture loans increased due to an increase in general reserves required for this type as a result of higher loan balances. The result was represented as an increase in the provision. The allowance for Commercial Real Estate – Owner Occupied loans increased due to an increase in general reserves required for this type as a result of higher loan balances. The result was represented as an increase in the provision. The allowance for Commercial Real Estate – Non-Owner Occupied loans increased due to an increase in general reserves required as a result of an increase in loan balances. This was represented as an increase in the provision. The allowance for Residential Real Estate loans decreased due to 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 general reserves required as a result of an increase in loan balances. The allowance for Consumer and Other loans increased due to an increase in loss rates. The result was represented as an increase 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 at September 30, 2019.

For the three months ended September 30, 2018	Beginning balance		Charge-offs			Recoveries		Provision			Ending Balance
Commercial & Agriculture	$	1,630	$	—		$	64	$	(63	)	$	1,631
Commercial Real Estate:
Owner Occupied		2,161		—			18		(136	)		2,043
Non-Owner Occupied		5,135		(76	)		2		384			5,445
Residential Real Estate		1,691		(12	)		88		32			1,799
Real Estate Construction		861		—			—		120			981
Farm Real Estate		410		—			1		(18	)		393
Consumer and Other		300		(45	)		34		26			315
Unallocated		679		—			—		45			724
Total	$	12,867	$	(133	)	$	207	$	390		$	13,331

For the three months ended September 30, 2018, the allowance for Commercial & Agriculture loans increased due to amounts recovered on previously charged off loans offset by a decrease in general reserves required for this type 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 decreased due to a decrease in general reserves required for this type as a result of lower loan balances and 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 and higher loss rates. The allowance for Residential Real Estate loans increased due to the net recoveries recorded during the quarter for this loan type. The allowance for Real Estate Construction loans increased due to an increase in general reserves required as a result of higher loan balances. 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.

For the nine months ended September 30, 2019	Beginning balance		Charge-offs			Recoveries		Provision			Ending Balance
Commercial & Agriculture	$	1,747	$	(27	)	$	65	$	147		$	1,932
Commercial Real Estate:
Owner Occupied		1,962		(60	)		282		(47	)		2,137
Non-Owner Occupied		5,803		—			99		246			6,148
Residential Real Estate		1,531		(223	)		229		72			1,609
Real Estate Construction		1,046		(24	)		1		160			1,183
Farm Real Estate		397		—			3		(33	)		367
Consumer and Other		284		(97	)		67		(1	)		253
Unallocated		909		—			—		(394	)		515
Total	$	13,679	$	(431	)	$	746	$	150		$	14,144

For the nine months ended September 30, 2019, the allowance for Commercial & Agriculture loans increased due to an increase in general reserves required for this type as a result of higher loan balances, offset by a decrease in the loss rates. The result was represented as an increase in the provision. The allowance for Commercial Real Estate –Owner Occupied loans increased due to an increase in general reserves required as a result of higher loan balances and higher loss rates, offset by net recoveries on previously charged off amounts, resulting in a decrease in the provision. The allowance for Commercial Real Estate – Non-Owner Occupied loans increased due to an increase in general reserves required as a result of higher loan balances, offset by a decrease in the loss rates. This was represented as an increase in the provision. The allowance for Residential Real Estate loans increased due to an increase in general reserves required for this type as a result of an increase in loan balances and loss rates, represented by an increase in the provision. The allowance for Real Estate Construction loans increased due to an increase in general reserves required as a result of higher loan balances. The allowance for Farm Real Estate loans was reduced by a decrease in classified loan balances and the reserve required for this type of loan. The result was represented as a decrease in the provision. The allowance for Consumer and Other loans decreased due to a decrease in the general reserves required for the type as a result of a decrease in loan balances and loss rates. 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 at September 30, 2019.

For the nine months ended September 30, 2018	Beginning balance		Charge-offs			Recoveries		Provision			Ending Balance
Commercial & Agriculture	$	1,562	$	(248	)	$	168	$	149		$	1,631
Commercial Real Estate:
Owner Occupied		2,043		(193	)		148		45			2,043
Non-Owner Occupied		5,307		(121	)		23		236			5,445
Residential Real Estate		1,910		(74	)		181		(218	)		1,799
Real Estate Construction		834		—			—		147			981
Farm Real Estate		430		—			4		(41	)		393
Consumer and Other		290		(148	)		67		106			315
Unallocated		758		—			—		(34	)		724
Total	$	13,134	$	(784	)	$	591	$	390		$	13,331

For the nine months ended September 30, 2018, the allowance for Commercial & Agriculture loans increased due to an increase in general reserves required for this type as a result of higher loan balances and higher loss rates. The result was represented as an increase in the provision. The allowance for Commercial Real Estate – Non-Owner Occupied loans increased due to an increase in general reserves required as a result of higher loan balances. This was represented as an increase 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 general reserves required as a result of higher loan balances. 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.

The following tables present, by portfolio segment, the allocation of the allowance for loan losses and related loan balances as of September 30, 2019 and December 31, 2018.

September 30, 2019	Loans acquired with credit deterioration		Loans individually evaluated for impairment		Loans collectively evaluated for impairment		Total
Allowance for loan losses:
Commercial & Agriculture	$	—	$	—	$	1,932	$	1,932
Commercial Real Estate:
Owner Occupied		—		6		2,131		2,137
Non-Owner Occupied		—		—		6,148		6,148
Residential Real Estate		—		98		1,511		1,609
Real Estate Construction		—		—		1,183		1,183
Farm Real Estate		—		—		367		367
Consumer and Other		—		—		253		253
Unallocated		—		—		515		515
Total	$	—	$	104	$	14,040	$	14,144
Outstanding loan balances:
Commercial & Agriculture	$	—	$	367	$	196,466	$	196,833
Commercial Real Estate:
Owner Occupied		—		436		226,065		226,501
Non-Owner Occupied		—		376		558,428		558,804
Residential Real Estate		539		1,039		463,877		465,455
Real Estate Construction		—		—		149,018		149,018
Farm Real Estate		—		681		35,605		36,286
Consumer and Other		—		—		15,743		15,743
Total	$	539	$	2,899	$	1,645,202	$	1,648,640

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

The following tables present credit exposures by internally assigned risk grades as of September 30, 2019 and December 31, 2018. 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 grading system is based on experiences with similarly graded loans.

Generally, Residential Real Estate, Real Estate Construction and Consumer and Other loans are not risk-graded, except when collateral is used for a business purpose. Only those loans that have been risk rated are included below.

September 30, 2019	Pass		Special Mention		Substandard		Doubtful		Ending Balance
Commercial & Agriculture	$	193,224	$	738	$	2,871	$	—	$	196,833
Commercial Real Estate:
Owner Occupied		217,643		3,759		5,099		—		226,501
Non-Owner Occupied		555,893		2,258		653		—		558,804
Residential Real Estate		71,298		651		6,278		—		78,227
Real Estate Construction		138,221		—		10		—		138,231
Farm Real Estate		32,920		579		2,787		—		36,286
Consumer and Other		897		—		20		—		917
Total	$	1,210,096	$	7,985	$	17,718	$	—	$	1,235,799

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

The following tables present performing and nonperforming loans based solely on payment activity for the periods ended September 30, 2019 and December 31, 2018 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 and if management determines 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 September 30, 2019 and December 31, 2018.

September 30, 2019	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	$	531	$	56	$	99	$	686	$	196,147	$	—	$	196,833	$	—
Commercial Real Estate:
Owner Occupied		206		—		774		980		225,521		—		226,501		—
Non-Owner Occupied		248		—		9		257		558,547		—		558,804		—
Residential Real Estate		367		234		1,307		1,908		463,008		539		465,455		—
Real Estate Construction		84		—		—		84		148,934		—		149,018		—
Farm Real Estate		122		—		9		131		36,155		—		36,286		—
Consumer and Other		76		6		34		116		15,627		—		15,743		17
Total	$	1,634	$	296	$	2,232	$	4,162	$	1,643,939	$	539	$	1,648,640	$	17

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	$	—

The following table presents loans on nonaccrual status, excluding purchased credit-impaired (PCI) loans, as of September 30, 2019 and December 31, 2018.

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. Payments received on nonaccrual loans are applied to the unpaid principal balance. 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 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.

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. Residential Real Estate loans modified in a TDR primarily involve interest rate reductions where monthly payments are 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 fair value of the collateral, less any selling costs, if the loan is collateral dependent. Management exercises significant judgment in developing these estimates. As of September 30, 2019, TDRs accounted for $104 of the allowance for loan losses. As of December 31, 2018, TDRs accounted for $143 of the allowance for loan losses.

Loan modifications that are considered TDRs completed during the periods ended September 30, 2019 and September 30, 2018 were as follows:

For the Three-Month Period Ended

September 30, 2019

Number of

Contracts

Pre-

Modification

Outstanding

Recorded

Investment

Post-

Modification

Outstanding

Recorded

Investment

Commercial & Agriculture

—

Commercial Real Estate—Owner Occupied

—

Commercial Real Estate—Non-Owner Occupied

—

Residential Real Estate

—

Real Estate Construction

—

Farm Real Estate

—

Consumer and Other

—

Total Loan Modifications

—

	For the Three-Month Period Ended
	September 30, 2018
	Number of Contracts		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment
Commercial & Agriculture		—	$	—	$	—
Commercial Real Estate—Owner Occupied		—		—		—
Commercial Real Estate—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 Nine-Month Period Ended
	September 30, 2019
	Number of Contracts		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment
Commercial & Agriculture		—	$	—	$	—
Commercial Real Estate—Owner Occupied		—		—		—
Commercial Real Estate—Non-Owner Occupied		1		382		382
Residential Real Estate		—		—		—
Real Estate Construction		—		—		—
Farm Real Estate		—		—		—
Consumer and Other		—		—		—
Total Loan Modifications		1	$	382	$	382

	For the Nine-Month Period Ended
	September 30, 2018
	Number of Contracts		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment
Commercial & Agriculture		—	$	—	$	—
Commercial Real Estate—Owner Occupied		—		—		—
Commercial Real Estate—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

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 origination loans, so modified loans present a higher risk of loss than do new origination loans.

During both the three- and nine-month periods ended September 30, 2019 and September 30, 2018, there were no defaults on loans that were modified and considered TDRs during the respective previous twelve months.

Impaired Loans: Larger (greater than $350) Commercial & Agricultural and Commercial Real Estate loan relationships, all TDRs and Residential Real Estate and Consumer loans that are part of a larger relationship are tested for impairment on a quarterly basis. 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 table includes the recorded investment and unpaid principal balances for impaired loans, excluding PCI loans, with the associated allowance amount, if applicable, as of September 30, 2019 and December 31, 2018.

	September 30, 2019						December 31, 2018
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance recorded:
Commercial & Agriculture	$	367	$	367			$	367	$	367
Commercial Real Estate:
Owner Occupied		175		175				193		193
Non-Owner Occupied		376		376				31		34
Residential Real Estate		794		866				1,017		1,089
Farm Real Estate		681		681				256		256
Total		2,393		2,465				1,864		1,939
With an allowance recorded:
Commercial Real Estate:
Owner Occupied		261		261	$	6		291		291	$	12
Residential Real Estate		245		249		98		262		265		122
Farm Real Estate		—		—		—		440		440		7
Total		506		510		104		993		996		141
Total:
Commercial & Agriculture		367		367		—		367		367		—
Commercial Real Estate:
Owner Occupied		436		436		6		484		484		12
Non-Owner Occupied		376		376		—		31		34		—
Residential Real Estate		1,039		1,115		98		1,279		1,354		122
Farm Real Estate		681		681		—		696		696		7
Total	$	2,899	$	2,975	$	104	$	2,857	$	2,935	$	141

The following table includes the average recorded investment and interest income recognized for impaired financing receivables for the three-and nine-month periods ended September 30, 2019 and 2018.

	September 30, 2019				September 30, 2018
For the three months ended	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Commercial & Agriculture	$	367	$	12	$	675	$	6
Commercial Real Estate—Owner Occupied		448		8		511		9
Commercial Real Estate—Non-Owner Occupied		378		6		38		1
Residential Real Estate		1,083		14		1,811		17
Farm Real Estate		681		7		742		7
Total	$	2,957	$	47	$	3,777	$	40

	September 30, 2019				September 30, 2018
For the nine months ended	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Commercial & Agriculture	$	367	$	24	$	704	$	19
Commercial Real Estate—Owner Occupied		463		25		641		26
Commercial Real Estate—Non-Owner Occupied		292		15		41		4
Residential Real Estate		1,148		45		1,580		51
Farm Real Estate		687		22		721		22
Total	$	2,957	$	131	$	3,687	$	122

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

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

There was $0 and $8 in allowance for loan losses recorded for acquired loans with or without specific evidence of deterioration in credit quality as of September 30, 2019 and December 31, 2018, respectively.

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 September 30, 2019 and December 31, 2018, respectively, there were no foreclosed assets included in other assets. As of September 30, 2019 and December 31, 2018, the Company had initiated formal foreclosure procedures on $479 and $311, respectively, of consumer residential mortgages.