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Loans
 9 Months Ended
Sep. 30, 2013
Loans [Abstract]  
Loans
Note 5 – Loans
 
Loans were comprised of the following classifications at September 30, 2013 and December 31, 2012:
 
 
 
September 30,
 
December 31,
 
 
 
2013
 
2012
 
Commercial:
 
 
 
 
 
 
 
Commercial and Industrial Loans and Leases
 
$
338,770
 
$
335,373
 
Commercial Real Estate Loans
 
 
530,260
 
 
488,496
 
Agricultural Loans
 
 
185,868
 
 
179,906
 
Retail:
 
 
 
 
 
 
 
Home Equity Loans
 
 
75,018
 
 
74,437
 
Consumer Loans
 
 
46,754
 
 
41,103
 
Residential Mortgage Loans
 
 
107,620
 
 
88,586
 
Subtotal
 
 
1,284,290
 
 
1,207,901
 
Less: Unearned Income
 
 
(2,848)
 
 
(3,035)
 
Allowance for Loan Losses
 
 
(14,464)
 
 
(15,520)
 
Loans, Net
 
$
1,266,978
 
$
1,189,346
 
 
The following table presents the activity in the allowance for loan losses by portfolio class for the three months ending September 30, 2013 and 2012:
 
 
 
Commercial
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
and
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Industrial
 
Commercial
 
 
 
 
Home
 
 
 
 
Residential
 
 
 
 
 
 
 
 
 
Loans and
 
Real Estate
 
Agricultural
 
Equity
 
Consumer
 
Mortgage
 
 
 
 
 
 
 
 
 
Leases
 
Loans
 
Loans
 
Loans
 
Loans
 
Loans
 
Unallocated
 
Total
 
September 30, 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning Balance
 
$
4,258
 
$
8,636
 
$
817
 
$
313
 
$
199
 
$
280
 
$
760
 
$
15,263
 
Provision for Loan Losses
 
 
(361)
 
 
(214)
 
 
53
 
 
89
 
 
64
 
 
36
 
 
(67)
 
 
(400)
 
Recoveries
 
 
108
 
 
7
 
 
—
 
 
—
 
 
33
 
 
2
 
 
—
 
 
150
 
Loans Charged-off
 
 
(34)
 
 
(212)
 
 
—
 
 
(193)
 
 
(93)
 
 
(17)
 
 
—
 
 
(549)
 
Ending Balance
 
$
3,971
 
$
8,217
 
$
870
 
$
209
 
$
203
 
$
301
 
$
693
 
$
14,464
 
 
 
 
Commercial
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
and
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Industrial
 
Commercial
 
 
 
 
Home
 
 
 
 
Residential
 
 
 
 
 
 
 
 
 
Loans and
 
Real Estate
 
Agricultural
 
Equity
 
Consumer
 
Mortgage
 
 
 
 
 
 
 
 
 
Leases
 
Loans
 
Loans
 
Loans
 
Loans
 
Loans
 
Unallocated
 
Total
 
September 30, 2012
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning Balance
 
$
4,707
 
$
8,732
 
$
890
 
$
181
 
$
227
 
$
391
 
$
564
 
$
15,692
 
Provision for Loan Losses
 
 
193
 
 
376
 
 
21
 
 
21
 
 
12
 
 
(12)
 
 
29
 
 
640
 
Recoveries
 
 
8
 
 
62
 
 
—
 
 
—
 
 
35
 
 
2
 
 
—
 
 
107
 
Loans Charged-off
 
 
(54)
 
 
(351)
 
 
—
 
 
(7)
 
 
(63)
 
 
(42)
 
 
—
 
 
(517)
 
Ending Balance
 
$
4,854
 
$
8,819
 
$
911
 
$
195
 
$
211
 
$
339
 
$
593
 
$
15,922
 
 
The following table presents the activity in the allowance for loan losses by portfolio class for the nine months ending September 30, 2013 and 2012:
 
 
 
Commercial
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
and
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Industrial
 
Commercial
 
 
 
 
Home
 
 
 
Residential
 
 
 
 
 
 
 
 
 
Loans and
 
Real Estate
 
Agricultural
 
Equity
 
Consumer
 
Mortgage
 
 
 
 
 
 
 
 
 
Leases
 
Loans
 
Loans
 
Loans
 
Loans
 
Loans
 
Unallocated
 
Total
 
September 30, 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning Balance
 
$
4,555
 
$
8,931
 
$
989
 
$
141
 
$
214
 
$
186
 
$
504
 
$
15,520
 
Provision for Loan Losses
 
 
(618)
 
 
(261)
 
 
(119)
 
 
326
 
 
100
 
 
133
 
 
189
 
 
(250)
 
Recoveries
 
 
121
 
 
85
 
 
—
 
 
—
 
 
104
 
 
5
 
 
—
 
 
315
 
Loans Charged-off
 
 
(87)
 
 
(538)
 
 
—
 
 
(258)
 
 
(215)
 
 
(23)
 
 
—
 
 
(1,121)
 
Ending Balance
 
$
3,971
 
$
8,217
 
$
870
 
$
209
 
$
203
 
$
301
 
$
693
 
$
14,464
 
 
 
 
Commercial
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
and
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Industrial
 
Commercial
 
 
 
 
Home
 
 
 
Residential
 
 
 
 
 
 
 
 
 
Loans and
 
Real Estate
 
Agricultural
 
Equity
 
Consumer
 
Mortgage
 
 
 
 
 
 
 
 
 
Leases
 
Loans
 
Loans
 
Loans
 
Loans
 
Loans
 
Unallocated
 
Total
 
September 30, 2012
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning Balance
 
$
3,493
 
$
9,297
 
$
926
 
$
258
 
$
190
 
$
402
 
$
746
 
$
15,312
 
Provision for Loan Losses
 
 
1,466
 
 
232
 
 
(15)
 
 
(9)
 
 
141
 
 
59
 
 
(153)
 
 
1,721
 
Recoveries
 
 
57
 
 
88
 
 
—
 
 
1
 
 
99
 
 
11
 
 
—
 
 
256
 
Loans Charged-off
 
 
(162)
 
 
(798)
 
 
—
 
 
(55)
 
 
(219)
 
 
(133)
 
 
—
 
 
(1,367)
 
Ending Balance
 
$
4,854
 
$
8,819
 
$
911
 
$
195
 
$
211
 
$
339
 
$
593
 
$
15,922
 
 
In determining the adequacy of the allowance for loan loss, general allocations are made for other pools of loans, including non-classified loans, homogeneous portfolios of consumer and residential real estate loans, and loans within certain industry categories believed to present unique risk of loss.  General allocations of the allowance are primarily made based on a three-year historical average for loan losses for these portfolios, judgmentally adjusted for current economic factors and portfolio trends.  For 2012, the Company utilized a 4 quarter rolling historical loan loss average.  Beginning in 2013, management deemed a rolling 12 quarter historical loan loss average to be more indicative of the inherent losses in the Company’s loan portfolio in the current economic environment than the 4 quarter average.  This change in methodology resulted in an increase to the required loan loss allowance of approximately $280 in the first quarter of 2013.
 
Loan impairment is reported when full repayment under the terms of the loan is not expected.  This methodology is used for all loans, including loans acquired with deteriorated credit quality.  For purchased loans, the assessment is made at the time of acquisition as well as over the life of loan.  If a loan is impaired, a portion of the allowance is allocated so that the loan is reported net, at the present value of estimated future cash flows using the loan’s existing rate, or at the fair value of collateral if repayment is expected solely from the collateral. Commercial and industrial loans, commercial real estate loans, and agricultural loans are evaluated individually for impairment.  Smaller balance homogeneous loans are evaluated for impairment in total.  Such loans include real estate loans secured by one-to-four family residences and loans to individuals for household, family and other personal expenditures.  Individually evaluated loans on non-accrual are generally considered impaired.  Impaired loans, or portions thereof, are charged off when deemed uncollectible.
 
The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio class and based on impairment method as of September 30, 2013 and December 31, 2012:
 
 
 
 
 
 
Commercial
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
and
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Industrial
 
Commercial
 
 
 
 
Home
 
 
 
 
Residential
 
 
 
 
 
 
 
 
 
Loans and
 
Real Estate
 
Agricultural
 
Equity
 
Consumer
 
Mortgage
 
 
 
 
 
 
Total
 
Leases
 
Loans
 
Loans
 
Loans
 
Loans
 
Loans
 
Unallocated
 
September 30, 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Allowance for Loan Losses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ending Allowance Balance
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Attributable to Loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Individually Evaluated
    for Impairment
 
$
3,681
 
$
461
 
$
3,220
 
$
—
 
$
—
 
$
—
 
$
—
 
$
—
 
Collectively Evaluated
    for Impairment
 
 
10,774
 
 
3,510
 
 
4,988
 
 
870
 
 
209
 
 
203
 
 
301
 
 
693
 
Acquired with Deteriorated
    Credit Quality
 
 
9
 
 
—
 
 
9
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
Total Ending Allowance Balance
 
$
14,464
 
$
3,971
 
$
8,217
 
$
870
 
$
209
 
$
203
 
$
301
 
$
693
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans Individually
    Evaluated for Impairment
 
$
9,577
 
$
2,622
 
$
6,267
 
$
688
 
$
—
 
$
—
 
$
—
 
$
—
 
Loans Collectively
    Evaluated for Impairment
 
 
1,271,221
 
 
334,789
 
 
518,842
 
 
187,787
 
 
75,278
 
 
46,741
 
 
107,784
 
 
—
 
Loans Acquired with Deteriorated
    Credit Quality
 
 
8,909
 
 
2,186
 
 
6,438
 
 
—
 
 
—
 
 
138
 
 
147
 
 
—
 
Total Ending Loans Balance (1)
 
$
1,289,707
 
$
339,597
 
$
531,547
 
$
188,475
 
$
75,278
 
$
46,879
 
$
107,931
 
$
—
 
 
(1)  Total recorded investment in loans includes $5,417 in accrued interest.
 
 
 
 
 
 
Commercial
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
and
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Industrial
 
Commercial
 
 
 
 
Home
 
 
 
 
Residential
 
 
 
 
 
 
 
 
 
Loans and
 
Real Estate
 
Agricultural
 
Equity
 
Consumer
 
Mortgage
 
 
 
 
 
 
Total
 
Leases
 
Loans
 
Loans
 
Loans
 
Loans
 
Loans
 
Unallocated
 
December 31, 2012
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Allowance for Loan Losses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ending Allowance Balance
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Attributable to Loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Individually Evaluated
   for Impairment
 
$
5,323
 
$
1,279
 
$
3,894
 
$
150
 
$
—
 
$
—
 
$
—
 
$
—
 
Collectively Evaluated
   for Impairment
 
 
10,109
 
 
3,208
 
 
5,017
 
 
839
 
 
141
 
 
214
 
 
186
 
 
504
 
Acquired with Deteriorated
   Credit Quality
 
 
88
 
 
68
 
 
20
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
Total Ending Allowance Balance
 
$
15,520
 
$
4,555
 
$
8,931
 
$
989
 
$
141
 
$
214
 
$
186
 
$
504
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans Individually
   Evaluated for Impairment
 
$
12,520
 
$
2,547
 
$
7,550
 
$
2,423
 
$
—
 
$
—
 
$
—
 
$
—
 
Loans Collectively
   Evaluated for Impairment
 
 
1,189,729
 
 
331,920
 
 
473,209
 
 
180,152
 
 
74,699
 
 
41,083
 
 
88,666
 
 
—
 
Loans Acquired with Deteriorated
   Credit Quality
 
 
11,174
 
 
1,840
 
 
9,037
 
 
—
 
 
—
 
 
148
 
 
149
 
 
—
 
Total Ending Loans Balance (1)
 
$
1,213,423
 
$
336,307
 
$
489,796
 
$
182,575
 
$
74,699
 
$
41,231
 
$
88,815
 
$
—
 
 
(1)  Total recorded investment in loans includes $5,522 in accrued interest.
 
The following table presents loans individually evaluated for impairment by class of loans as of September 30, 2013 and December 31, 2012:
 
 
 
Unpaid
 
 
 
 
Allowance for
 
 
 
Principal
 
Recorded
 
Loan Losses
 
 
 
Balance(1)
 
Investment
 
Allocated
 
September 30, 2013
 
 
 
 
 
 
 
 
 
 
With No Related Allowance Recorded:
 
 
 
 
 
 
 
 
 
 
Commercial and Industrial Loans and Leases
 
$
2,143
 
$
2,161
 
$
—
 
Commercial Real Estate Loans
 
 
3,694
 
 
1,907
 
 
—
 
Agricultural Loans
 
 
675
 
 
688
 
 
—
 
Subtotal
 
 
6,512
 
 
4,756
 
 
—
 
With An Allowance Recorded:
 
 
 
 
 
 
 
 
 
 
Commercial and Industrial Loans and Leases
 
 
511
 
 
461
 
 
461
 
Commercial Real Estate Loans
 
 
4,608
 
 
4,488
 
 
3,229
 
Agricultural Loans
 
 
—
 
 
—
 
 
—
 
Subtotal
 
 
5,119
 
 
4,949
 
 
3,690
 
Total
 
$
11,631
 
$
9,705
 
$
3,690
 
 
 
 
 
 
 
 
 
 
 
 
Loans Acquired With Deteriorated Credit Quality With No Related Allowance
     Recorded (Included in the Total Above)
 
$
125
 
$
119
 
$
—
 
Loans Acquired With Deteriorated Credit Quality With An Additional Allowance
     Recorded (Included in the Total Above)
 
$
34
 
$
9
 
$
9
 
 
(1) Unpaid Principal Balance is the remaining contractual payments inclusive of partial charge-offs.
 
 
 
Unpaid
 
 
 
 
Allowance for
 
 
 
Principal
 
Recorded
 
Loan Losses
 
 
 
Balance(1)
 
Investment
 
Allocated
 
December 31, 2012
 
 
 
 
 
 
 
 
 
 
With No Related Allowance Recorded:
 
 
 
 
 
 
 
 
 
 
Commercial and Industrial Loans and Leases
 
$
108
 
$
87
 
$
—
 
Commercial Real Estate Loans
 
 
4,312
 
 
2,154
 
 
—
 
Agricultural Loans
 
 
2,126
 
 
2,137
 
 
—
 
Subtotal
 
 
6,546
 
 
4,378
 
 
—
 
With An Allowance Recorded:
 
 
 
 
 
 
 
 
 
 
Commercial and Industrial Loans and Leases
 
 
2,642
 
 
2,581
 
 
1,347
 
Commercial Real Estate Loans
 
 
5,579
 
 
5,418
 
 
3,914
 
Agricultural Loans
 
 
285
 
 
286
 
 
150
 
Subtotal
 
 
8,506
 
 
8,285
 
 
5,411
 
Total
 
$
15,052
 
$
12,663
 
$
5,411
 
 
 
 
 
 
 
 
 
 
 
 
Loans Acquired With Deteriorated Credit Quality With No Related
     Allowance Recorded (Included in the Total Above)
 
$
45
 
$
25
 
$
—
 
Loans Acquired With Deteriorated Credit Quality With An
     Additional Allowance Recorded (Included in the Total Above)
 
$
155
 
$
118
 
$
88
 
 
(1) Unpaid Principal Balance is the remaining contractual payments inclusive of partial charge-offs.
 
The following table presents loans individually evaluated for impairment by class of loans for the three month period ended September 30, 2013 and 2012:
 
 
 
Average
 
Interest
 
Cash
 
 
 
Recorded
 
Income
 
Basis
 
 
 
Investment
 
Recognized
 
Recognized
 
September 30, 2013
 
 
 
 
 
 
 
 
 
 
With No Related Allowance Recorded:
 
 
 
 
 
 
 
 
 
 
Commercial and Industrial Loans and Leases
 
$
2,223
 
$
33
 
$
32
 
Commercial Real Estate Loans
 
 
1,956
 
 
1
 
 
2
 
Agricultural Loans
 
 
751
 
 
21
 
 
16
 
Subtotal
 
 
4,930
 
 
55
 
 
50
 
With An Allowance Recorded:
 
 
 
 
 
 
 
 
 
 
Commercial and Industrial Loans and Leases
 
 
464
 
 
1
 
 
1
 
Commercial Real Estate Loans
 
 
5,415
 
 
5
 
 
4
 
Agricultural Loans
 
 
—
 
 
—
 
 
—
 
Subtotal
 
 
5,879
 
 
6
 
 
5
 
Total
 
$
10,809
 
$
61
 
$
55
 
 
 
 
 
 
 
 
 
 
 
 
Loans Acquired With Deteriorated Credit Quality With No
     Related Allowance Recorded (Included in the Total Above)
 
$
119
 
$
—
 
$
—
 
Loans Acquired With Deteriorated Credit Quality With An
     Additional Allowance Recorded (Included in the Total Above)
 
$
214
 
$
1
 
$
1
 
 
 
 
Average
 
Interest
 
Cash
 
 
 
Recorded
 
Income
 
Basis
 
 
 
Investment
 
Recognized
 
Recognized
 
September 30, 2012
 
 
 
 
 
 
 
 
 
 
With No Related Allowance Recorded:
 
 
 
 
 
 
 
 
 
 
Commercial and Industrial Loans and Leases
 
$
139
 
$
1
 
$
1
 
Commercial Real Estate Loans
 
 
3,353
 
 
12
 
 
12
 
Agricultural Loans
 
 
—
 
 
—
 
 
—
 
Subtotal
 
 
3,492
 
 
13
 
 
13
 
With An Allowance Recorded:
 
 
 
 
 
 
 
 
 
 
Commercial and Industrial Loans and Leases
 
 
2,749
 
 
4
 
 
3
 
Commercial Real Estate Loans
 
 
7,179
 
 
6
 
 
5
 
Agricultural Loans
 
 
—
 
 
—
 
 
—
 
Subtotal
 
 
9,928
 
 
10
 
 
8
 
Total
 
$
13,420
 
$
23
 
$
21
 
 
 
 
 
 
 
 
 
 
 
 
Loans Acquired With Deteriorated Credit Quality With No
     Related Allowance Recorded (Included in the Total Above)
 
$
471
 
$
1
 
$
1
 
Loans Acquired With Deteriorated Credit Quality With An
     Additional Allowance Recorded (Included in the Total Above)
 
$
134
 
$
3
 
$
3
 
 
The following table presents loans individually evaluated for impairment by class of loans for the nine month period ended September 30, 2013 and 2012:
 
 
 
Average
 
Interest
 
Cash
 
 
 
Recorded
 
Income
 
Basis
 
 
 
Investment
 
Recognized
 
Recognized
 
September 30, 2013
 
 
 
 
 
 
 
 
 
 
With No Related Allowance Recorded:
 
 
 
 
 
 
 
 
 
 
Commercial and Industrial Loans and Leases
 
$
818
 
$
33
 
$
33
 
Commercial Real Estate Loans
 
 
2,196
 
 
1
 
 
2
 
Agricultural Loans
 
 
1,738
 
 
196
 
 
200
 
Subtotal
 
 
4,752
 
 
230
 
 
235
 
With An Allowance Recorded:
 
 
 
 
 
 
 
 
 
 
Commercial and Industrial Loans and Leases
 
 
1,797
 
 
3
 
 
3
 
Commercial Real Estate Loans
 
 
5,745
 
 
17
 
 
13
 
Agricultural Loans
 
 
—
 
 
—
 
 
—
 
Subtotal
 
 
7,542
 
 
20
 
 
16
 
Total
 
$
12,294
 
$
250
 
$
251
 
 
 
 
 
 
 
 
 
 
 
 
Loans Acquired With Deteriorated Credit Quality With No
     Related Allowance Recorded (Included in the Total Above)
 
$
39
 
$
—
 
$
—
 
Loans Acquired With Deteriorated Credit Quality With An
     Additional Allowance Recorded (Included in the Total Above)
 
$
182
 
$
2
 
$
2
 
 
 
 
Average
 
Interest
 
Cash
 
 
 
Recorded
 
Income
 
Basis
 
 
 
Investment
 
Recognized
 
Recognized
 
September 30, 2012
 
 
 
 
 
 
 
 
 
 
With No Related Allowance Recorded:
 
 
 
 
 
 
 
 
 
 
Commercial and Industrial Loans and Leases
 
$
298
 
$
3
 
$
3
 
Commercial Real Estate Loans
 
 
5,023
 
 
17
 
 
17
 
Agricultural Loans
 
 
49
 
 
2
 
 
2
 
Subtotal
 
 
5,370
 
 
22
 
 
22
 
With An Allowance Recorded:
 
 
 
 
 
 
 
 
 
 
Commercial and Industrial Loans and Leases
 
 
2,795
 
 
7
 
 
6
 
Commercial Real Estate Loans
 
 
7,003
 
 
17
 
 
14
 
Agricultural Loans
 
 
—
 
 
—
 
 
—
 
Subtotal
 
 
9,798
 
 
24
 
 
20
 
Total
 
$
15,168
 
$
46
 
$
42
 
 
 
 
 
 
 
 
 
 
 
 
Loans Acquired With Deteriorated Credit Quality With No
     Related Allowance Recorded (Included in the Total Above)
 
$
169
 
$
1
 
$
1
 
Loans Acquired With Deteriorated Credit Quality With An
     Additional Allowance Recorded (Included in the Total Above)
 
$
93
 
$
3
 
$
3
 
 
All classes of loans, including loans acquired with deteriorated credit quality, are generally placed on non-accrual status when scheduled principal or interest payments are past due for 90 days or more or when the borrower’s ability to repay becomes doubtful.  For purchased loans, the determination is made at the time of acquisition as well as over the life of the loan.  Uncollected accrued interest for each class of loans is reversed against income at the time a loan is placed on non-accrual. Interest received on such loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. All classes of loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. Loans are typically charged-off at 180 days past due, or earlier if deemed uncollectible.  Exceptions to the non-accrual and charge-off policies are made when the loan is well secured and in the process of collection.
 
The following table presents the recorded investment in non-accrual loans and loans past due 90 days or more still on accrual by class of loans as of September 30, 2013 and December 31, 2012:
 
 
 
 
 
 
 
 
 
Loans Past Due
 
 
 
 
 
 
 
 
 
90 Days or More
 
 
 
Non-Accrual
 
& Still Accruing
 
 
 
2013
 
2012
 
2013
 
2012
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and Industrial Loans and Leases
 
$
434
 
$
2,480
 
$
—
 
$
—
 
Commercial Real Estate Loans
 
 
6,017
 
 
7,275
 
 
—
 
 
—
 
Agricultural Loans
 
 
—
 
 
—
 
 
94
 
 
—
 
Home Equity Loans
 
 
149
 
 
178
 
 
—
 
 
—
 
Consumer Loans
 
 
189
 
 
167
 
 
—
 
 
—
 
Residential Mortgage Loans
 
 
68
 
 
257
 
 
—
 
 
—
 
Total
 
$
6,857
 
$
10,357
 
$
94
 
$
—
 
Loans Acquired With Deteriorated Credit Quality
 
 
 
 
 
 
 
 
 
 
 
 
 
(Included in the Total Above)
 
$
256
 
$
148
 
$
—
 
$
—
 
 
The following table presents the aging of the recorded investment in past due loans by class of loans as of September 30, 2013 and December 31, 2012:
 
 
 
 
 
 
 
 
 
 
 
 
90 Days
 
 
 
 
 
 
 
 
 
 
 
 
30-59 Days
 
60-89 Days
 
or More
 
Total
 
Loans Not
 
 
 
Total
 
Past Due
 
Past Due
 
Past Due
 
Past Due
 
Past Due
 
September 30, 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and Industrial Loans and Leases
 
$
339,597
 
$
251
 
$
19
 
$
413
 
$
683
 
$
338,914
 
Commercial Real Estate Loans
 
 
531,547
 
 
561
 
 
216
 
 
1,805
 
 
2,582
 
 
528,965
 
Agricultural Loans
 
 
188,475
 
 
1,021
 
 
—
 
 
94
 
 
1,115
 
 
187,360
 
Home Equity Loans
 
 
75,278
 
 
194
 
 
145
 
 
149
 
 
488
 
 
74,790
 
Consumer Loans
 
 
46,879
 
 
127
 
 
26
 
 
50
 
 
203
 
 
46,676
 
Residential Mortgage Loans
 
 
107,931
 
 
1,599
 
 
163
 
 
68
 
 
1,830
 
 
106,101
 
Total (1)
 
$
1,289,707
 
$
3,753
 
$
569
 
$
2,579
 
$
6,901
 
$
1,282,806
 
Loans Acquired With Deteriorated
    Credit Quality (Included in the Total Above)
 
$
8,909
 
$
245
 
$
—
 
$
—
 
$
245
 
$
8,664
 
 
(1)  Total recorded investment in loans includes $5,417 in accrued interest.
 
 
 
 
 
 
 
 
 
 
 
90 Days
 
 
 
 
 
 
 
 
 
 
 
30-59 Days
 
60-89 Days
 
or More
 
Total
 
Loans Not
 
 
 
Total
 
Past Due
 
Past Due
 
Past Due
 
Past Due
 
Past Due
 
December 31, 2012
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and Industrial Loans and Leases
 
$
336,307
 
$
436
 
$
133
 
$
448
 
$
1,017
 
$
335,290
 
Commercial Real Estate Loans
 
 
489,796
 
 
1,352
 
 
—
 
 
2,063
 
 
3,415
 
 
486,381
 
Agricultural Loans
 
 
182,575
 
 
42
 
 
14
 
 
—
 
 
56
 
 
182,519
 
Home Equity Loans
 
 
74,699
 
 
177
 
 
48
 
 
178
 
 
403
 
 
74,296
 
Consumer Loans
 
 
41,231
 
 
431
 
 
23
 
 
18
 
 
472
 
 
40,759
 
Residential Mortgage Loans
 
 
88,815
 
 
2,070
 
 
495
 
 
257
 
 
2,822
 
 
85,993
 
Total (1)
 
$
1,213,423
 
$
4,508
 
$
713
 
$
2,964
 
$
8,185
 
$
1,205,238
 
Loans Acquired With Deteriorated
    Credit Quality (Included in the Total Above)
 
$
11,174
 
$
—
 
$
120
 
$
—
 
$
120
 
$
11,054
 
 
(1)  Total recorded investment in loans includes $5,522 in accrued interest.
 
Troubled Debt Restructurings:
 
In certain instances, the Company may choose to restructure the contractual terms of loans.  A troubled debt restructuring occurs when the Bank grants a concession to the borrower that it would not otherwise consider due to a borrower’s financial difficulty.    In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without modification.  This evaluation is performed under the Company’s internal underwriting policy.  The Company uses the same methodology for loans acquired with deteriorated credit quality as for all other loans when determining whether the loan is a troubled debt restructuring.
 
During the nine months ended September 30, 2013 and the year ended December 31, 2012, the terms of certain loans were modified as troubled debt restructurings. The modification of the terms of such loans included one or a combination of the following:  a reduction of the stated interest rate of the loan; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; or a permanent reduction of the recorded investment in the loan.  There were no troubled debt restructurings for the nine months ended September 30, 2013 and the year ended December 31, 2012 for loans acquired with deteriorated credit quality at the time of acquisition.
 
The following table presents the recorded investment of troubled debt restructurings by class of loans as of September 30, 2013 and December 31, 2012:
 
 
 
Total
 
Performing
 
Non-Accrual(1)
 
September 30, 2013
 
 
 
 
 
 
 
 
 
 
Commercial and Industrial Loans and Leases
 
$
2,609
 
$
2,188
 
$
421
 
Commercial Real Estate Loans
 
 
4,417
 
 
381
 
 
4,036
 
Total
 
$
7,026
 
$
2,569
 
$
4,457
 
 
 
 
Total
 
Performing
 
Non-Accrual(1)
 
December 31, 2012
 
 
 
 
 
 
 
 
 
 
Commercial and Industrial Loans and Leases
 
$
2,461
 
$
66
 
$
2,395
 
Commercial Real Estate Loans
 
 
6,031
 
 
304
 
 
5,727
 
Total
 
$
8,492
 
$
370
 
$
8,122
 
 
(1)     The non-accrual troubled debt restructurings are included in the Non-Accrual Loan table presented on previous page.
 
The Company has committed to lending an additional amount of $40 as of September 30, 2013 to customers with outstanding loans that are classified as troubled debt restructurings.  The Company had not committed to lending any additional amounts as of December 31, 2012 to customers with outstanding loans that are classified as troubled debt restructurings.
 
The following table presents loans by class modified as troubled debt restructurings that occurred during the three months ending September 30, 2013 and 2012:
 
 
 
 
 
 
Pre-Modification
 
Post-Modification
 
 
 
Number of
 
Outstanding Recorded
 
Outstanding Recorded
 
 
 
Loans
 
Investment
 
Investment
 
September 30, 2013
 
 
 
 
 
 
 
 
 
 
Commercial and Industrial Loans and Leases
 
 
1
 
$
224
 
$
230
 
Commercial Real Estate Loans
 
 
—
 
 
—
 
 
—
 
Total
 
 
1
 
$
224
 
$
230
 
 
The troubled debt restructurings described above increased the allowance for loan losses by $0 and resulted in charge-offs of $0 during the three months ending September 30, 2013.
 
 
 
 
 
 
Pre-Modification
 
Post-Modification
 
 
 
Number of
 
Outstanding Recorded
 
Outstanding Recorded
 
 
 
Loans
 
Investment
 
Investment
 
September 30, 2012
 
 
 
 
 
 
 
 
 
 
Commercial and Industrial Loans and Leases
 
 
2
 
$
9
 
$
9
 
Commercial Real Estate Loans
 
 
—
 
 
—
 
 
—
 
Total
 
 
2
 
$
9
 
$
9
 
 
The troubled debt restructurings described above increased the allowance for loan losses by $0 and resulted in charge-offs of $0 during the three months ending September 30, 2012.
 
The following table presents loans by class modified as troubled debt restructurings that occurred during the nine months ending September 30, 2013 and 2012:
 
 
 
 
 
 
Pre-Modification
 
Post-Modification
 
 
 
Number of
 
Outstanding Recorded
 
Outstanding Recorded
 
 
 
Loans
 
Investment
 
Investment
 
September 30, 2013
 
 
 
 
 
 
 
 
 
 
Commercial and Industrial Loans and Leases
 
 
1
 
$
224
 
$
230
 
Commercial Real Estate Loans
 
 
1
 
 
81
 
 
118
 
Total
 
 
2
 
$
305
 
$
348
 
 
The troubled debt restructurings described above decreased the allowance for loan losses by $210 and resulted in charge-offs of $0 during the nine months ending September 30, 2013.
 
 
 
 
 
 
Pre-Modification
 
Post-Modification
 
 
 
Number of
 
Outstanding Recorded
 
Outstanding Recorded
 
 
 
Loans
 
Investment
 
Investment
 
September 30, 2012
 
 
 
 
 
 
 
 
 
 
Commercial and Industrial Loans and Leases
 
 
2
 
$
9
 
$
9
 
Commercial Real Estate Loans
 
 
—
 
 
—
 
 
—
 
Total
 
 
2
 
$
9
 
$
9
 
 
The troubled debt restructurings described above increased the allowance for loan losses by $0 and resulted in charge-offs of $0 during the nine months ending September 30, 2012.
 
The following table presents loans by class modified as troubled debt restructurings for which there was a payment default within twelve months following the modification during the three months ending September 30, 2013 and 2012:
 
Troubled Debt Restructurings That Subsequently Defaulted:
 
Number of Loans
 
 
Recorded Investment
 
September 30, 2013
 
 
 
 
 
 
 
 
Commercial and Industrial Loans and Leases
 
 
—
 
 
$
—
 
Commercial Real Estate Loans
 
 
—
 
 
 
—
 
Total
 
 
—
 
 
$
—
 
 
The troubled debt restructurings that subsequently defaulted described above resulted in no change to the allowance for loan losses and no charge-offs during the three months ending September 30, 2013.
 
Troubled Debt Restructurings That Subsequently Defaulted:
 
Number of Loans
 
Recorded Investment
 
September 30, 2012
 
 
 
 
 
 
 
Commercial and Industrial Loans and Leases
 
 
—
 
$
—
 
Commercial Real Estate Loans
 
 
1
 
 
834
 
Total
 
 
1
 
$
834
 
 
The troubled debt restructurings that subsequently defaulted described above resulted in no change to the allowance for loan losses and no charge-offs during the three months ending September 30, 2012.
 
A loan is considered to be in payment default once it is 30 days contractually past due under the modified terms.
 
The following table presents loans by class modified as troubled debt restructurings for which there was a payment default within twelve months following the modification during the nine months ending September 30, 2013 and 2012:
 
Troubled Debt Restructurings That Subsequently Defaulted:
 
Number of Loans
 
Recorded Investment
 
September 30, 2013
 
 
 
 
 
 
Commercial and Industrial Loans and Leases
 
—
 
$
—
 
Commercial Real Estate Loans
 
—
 
 
—
 
Total
 
—
 
$
—
 
 
The troubled debt restructurings that subsequently defaulted described above resulted in no change to the allowance for loan losses and no charge-offs during the nine months ending September 30, 2013.
 
Troubled Debt Restructurings That Subsequently Defaulted:
 
Number of Loans
 
Recorded Investment
 
September 30, 2012
 
 
 
 
 
 
Commercial and Industrial Loans and Leases
 
1
 
$
565
 
Commercial Real Estate Loans
 
2
 
 
1,126
 
Total
 
3
 
$
1,691
 
 
The troubled debt restructurings that subsequently defaulted described above resulted in no change to the allowance for loan losses and charge-offs of $108 during the nine months ending September 30, 2012.
 
A loan is considered to be in payment default once it is 30 days contractually past due under the modified terms. 
 
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 classifies loans as to credit risk by individually analyzing loans.  This analysis includes commercial and industrial loans, commercial real estate loans, and agricultural loans with an outstanding balance greater than $100.  This analysis is typically performed on at least 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.
 
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.  They 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. Based on the most recent analysis performed, the risk category of loans by class of loans is as follows:
 
 
 
 
 
 
Special
 
 
 
 
 
 
 
 
 
 
 
 
Pass
 
Mention
 
Substandard
 
Doubtful
 
Total
 
September 30, 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and Industrial Loans and Leases
 
$
314,037
 
$
13,936
 
$
11,624
 
$
—
 
$
339,597
 
Commercial Real Estate Loans
 
 
497,670
 
 
17,380
 
 
16,497
 
 
—
 
 
531,547
 
Agricultural Loans
 
 
184,974
 
 
2,606
 
 
895
 
 
—
 
 
188,475
 
Total
 
$
996,681
 
$
33,922
 
$
29,016
 
$
—
 
$
1,059,619
 
Loans Acquired With Deteriorated Credit Quality
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(Included in the Total Above)
 
$
3,180
 
$
816
 
$
4,628
 
$
—
 
$
8,624
 
 
 
 
 
 
 
Special
 
 
 
 
 
 
 
 
 
 
 
 
Pass
 
Mention
 
Substandard
 
Doubtful
 
Total
 
December 31, 2012
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and Industrial Loans and Leases
 
$
307,997
 
$
14,441
 
$
13,869
 
$
—
 
$
336,307
 
Commercial Real Estate Loans
 
 
446,639
 
 
21,338
 
 
21,819
 
 
—
 
 
489,796
 
Agricultural Loans
 
 
176,730
 
 
2,855
 
 
2,990
 
 
—
 
 
182,575
 
Total
 
$
931,366
 
$
38,634
 
$
38,678
 
$
—
 
$
1,008,678
 
Loans Acquired With Deteriorated Credit Quality
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(Included in the Total Above)
 
$
319
 
$
3,220
 
$
7,338
 
$
—
 
$
10,877
 
 
The Company considers the performance of the loan portfolio and its impact on the allowance for loan losses. For home equity, consumer and residential mortgage loan classes, the Company also evaluates credit quality based on the aging status of the loan, which was previously presented, and by payment activity.  The following table presents the recorded investment in home equity, consumer and residential mortgage loans based on payment activity as of September 30, 2013 and December 31, 2012:
 
 
 
Home Equity
 
Consumer
 
Residential
 
 
 
Loans
 
Loans
 
Mortgage Loans
 
September 30, 2013
 
 
 
 
 
 
 
 
 
 
Performing
 
$
75,129
 
$
46,690
 
$
107,863
 
Nonperforming
 
 
149
 
 
189
 
 
68
 
Total
 
$
75,278
 
$
46,879
 
$
107,931
 
Loans Acquired With Deteriorated Credit Quality
 
 
 
 
 
 
 
 
 
 
(Included in the Total Above)
 
$
—
 
$
138
 
$
147
 
 
 
Home Equity
 
Consumer
 
Residential
 
 
Loans
 
Loans
 
Mortgage Loans
 
December 31, 2012
 
 
 
 
 
 
 
 
 
Performing
$
74,521
 
$
41,064
 
$
88,558
 
Nonperforming
 
178
 
 
167
 
 
257
 
Total
$
74,699
 
$
41,231
 
$
88,815
 
Loans Acquired With Deteriorated Credit Quality
 
 
 
 
 
 
 
 
 
(Included in the Total Above)
$
—
 
$
148
 
$
149
 
 
The Company has purchased loans, for which there was, at acquisition, evidence of deterioration of credit quality since origination and it was probable, at acquisition, that all contractually required payments would not be collected.  The recorded investment of those loans is as follows:
 
 
 
September 30, 2013
 
Commercial and Industrial Loans
 
$
2,186
 
Commercial Real Estate Loans
 
 
6,438
 
Home Equity Loans
 
 
—
 
Consumer Loans
 
 
138
 
Residential Mortgage Loans
 
 
147
 
Total
 
$
8,909
 
 
 
 
 
 
Carrying amount, Net of Allowance
 
$
8,900
 
 
 
 
December 31, 2012
 
Commercial and Industrial Loans
 
$
1,840
 
Commercial Real Estate Loans
 
 
9,037
 
Home Equity Loans
 
 
—
 
Consumer Loans
 
 
148
 
Residential Mortgage Loans
 
 
149
 
Total
 
$
11,174
 
 
 
 
 
 
Carrying amount, Net of Allowance
 
$
11,086
 
   
Accretable yield, or income expected to be collected, is as follows:
 
 
 
September 30, 2013
 
September 30, 2012
 
Balance at July 1
 
$
182
 
$
389
 
New Loans Purchased
 
 
—
 
 
—
 
Accretion of Income
 
 
(443)
 
 
(223)
 
Reclassifications from Non-accretable Difference
 
 
444
 
 
262
 
Charge-off of Accretable Yield
 
 
—
 
 
—
 
Balance at September 30
 
$
183
 
$
428
 
 
Accretable yield, or income expected to be collected, is as follows:
 
 
 
September 30, 2013
 
September 30, 2012
 
Balance at January 1
 
$
170
 
$
967
 
New Loans Purchased
 
 
—
 
 
—
 
Accretion of Income
 
 
(889)
 
 
(1,007)
 
Reclassifications from Non-accretable Difference
 
 
902
 
 
468
 
Charge-off of Accretable Yield
 
 
—
 
 
—
 
Balance at September 30
 
$
183
 
$
428
 
 
For those purchased loans disclosed above, the Company decreased the allowance for loan losses by $141 during the three months ended September 30, 2013.  For those purchased loans disclosed above, the Company decreased the allowance for loan losses by $80 during the nine months ended September 30, 2013.  For those purchased loans disclosed above, the Company increased the allowance for loan losses by $20 during the three and nine months ended September 30, 2012. No allowances for loan losses were reversed during the same periods.