Credit Quality Indicators

9 Months Ended

Sep. 30, 2019

Credit Quality Indicators:

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company establishes a risk rating at origination for all commercial loan and commercial real estate relationships. For relationships over $750 thousand, management monitors the loans on an ongoing basis for any changes in the borrower’s ability to service their debt. Management also affirms the risk ratings for the loans in their respective portfolios on an annual basis. The Company uses the following definitions for risk ratings:

Special Mention. Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date. Special mention assets are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification.

Substandard. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. Substandard loans are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans.

As of September 30, 2019 and December 31, 2018, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

(In Thousands of Dollars)	Pass		Special Mention		Sub standard		Total
September 30, 2019
Originated loans:
Commercial real estate
Owner occupied	$	164,545	$	1,974	$	1,271	$	167,790
Non-owner occupied		279,579		3,913		71		283,563
Farmland		129,504		2,726		847		133,077
Other		91,732		0		223		91,955
Commercial
Commercial and industrial		232,589		1,532		3,769		237,890
Agricultural		42,854		41		69		42,964
Total originated loans	$	940,803	$	10,186	$	6,250	$	957,239
Acquired loans:
Commercial real estate
Owner occupied	$	38,626	$	115	$	664	$	39,405
Non-owner occupied		11,503		55		103		11,661
Farmland		33,400		205		3,547		37,152
Other		6,374		0		546		6,920
Commercial
Commercial and industrial		12,510		0		843		13,353
Agricultural		5,761		259		211		6,231
Total acquired loans	$	108,174	$	634	$	5,914	$	114,722
Total loans	$	1,048,977	$	10,820	$	12,164	$	1,071,961

(In Thousands of Dollars)	Pass		Special Mention		Sub standard		Total
December 31, 2018
Originated loans:
Commercial real estate
Owner occupied	$	156,892	$	945	$	746	$	158,583
Non-owner occupied		251,240		4,139		101		255,480
Farmland		109,391		1,301		69		110,761
Other		92,669		1,325		248		94,242
Commercial
Commercial and industrial		219,938		4,207		2,456		226,601
Agricultural		37,158		81		482		37,721
Total originated loans	$	867,288	$	11,998	$	4,102	$	883,388
Acquired loans:
Commercial real estate
Owner occupied	$	43,763	$	430	$	746	$	44,939
Non-owner occupied		16,601		58		187		16,846
Farmland		36,565		668		3,749		40,982
Other		7,434		0		657		8,091
Commercial
Commercial and industrial		16,407		170		1,564		18,141
Agricultural		8,612		346		567		9,525
Total acquired loans	$	129,382	$	1,672	$	7,470	$	138,524
Total loans	$	996,670	$	13,670	$	11,572	$	1,021,912

The Company considers the performance of the loan portfolio and its impact on the allowance for loan losses. For residential, consumer indirect and direct loan classes, the Company evaluates credit quality based on the aging status of the loan, which was previously presented, and by payment activity. In the 1-4 family residential real estate portfolio at September 30, 2019, other real estate owned and foreclosure properties were $74 thousand and $500 thousand, respectively. There were no other real estate owned properties, and foreclosure properties were $1.2 million at December 31, 2018.

The following tables present the recorded investment in residential, consumer indirect and direct auto loans based on payment activity as of September 30, 2019 and December 31, 2018. Nonperforming loans are loans past due 90 days or more and still accruing interest and nonaccrual loans.

	Residential Real Estate				Consumer
(In Thousands of Dollars)	1-4 Family Residential		Home Equity Lines of Credit		Indirect		Direct		Other
September 30, 2019
Originated loans:
Performing	$	319,869	$	88,415	$	168,141	$	27,278	$	9,758
Nonperforming		1,408		724		687		184		3
Total originated loans	$	321,277	$	89,139	$	168,828	$	27,462	$	9,761
Acquired loans:
Performing	$	67,400	$	20,201	$	0	$	6,562	$	101
Nonperforming		998		252		0		183		0
Total acquired loans		68,398		20,453		0		6,745		101
Total loans	$	389,675	$	109,592	$	168,828	$	34,207	$	9,862

	Residential Real Estate				Consumer
(In Thousands of Dollars)	1-4 Family Residential		Home Equity Lines of Credit		Indirect		Direct		Other
December 31, 2018
Originated loans:
Performing	$	304,519	$	82,035	$	169,091	$	30,237	$	11,892
Nonperforming		2,503		675		715		254		2
Total originated loans	$	307,022	$	82,710	$	169,806	$	30,491	$	11,894
Acquired loans:
Performing	$	77,661	$	23,400	$	0	$	9,304	$	162
Nonperforming		1,123		217		0		138		0
Total acquired loans		78,784		23,617		0		9,442		162
Total loans	$	385,806	$	106,327	$	169,806	$	39,933	$	12,056