Credit Quality Indicators

6 Months Ended

Jun. 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 and leases 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 June 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
June 30, 2019
Originated loans:
Commercial real estate
Owner occupied	$	172,236	$	2,554	$	701	$	175,491
Non-owner occupied		275,057		3,964		95		279,116
Farmland		118,827		2,754		899		122,480
Other		97,515		0		234		97,749
Commercial
Commercial and industrial		237,225		1,569		2,015		240,809
Agricultural		36,987		188		76		37,251
Total originated loans	$	937,847	$	11,029	$	4,020	$	952,896
Acquired loans:
Commercial real estate
Owner occupied	$	40,162	$	120	$	631	$	40,913
Non-owner occupied		12,656		56		40		12,752
Farmland		34,668		642		3,586		38,896
Other		6,526		0		549		7,075
Commercial
Commercial and industrial		14,508		141		802		15,451
Agricultural		6,409		259		213		6,881
Total acquired loans	$	114,929	$	1,218	$	5,821	$	121,968
Total loans	$	1,052,776	$	12,247	$	9,841	$	1,074,864

(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 June 30, 2019, other real estate owned and foreclosure properties were $74 thousand and $1.1 million, 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 June 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
June 30, 2019
Originated loans:
Performing	$	312,123	$	83,832	$	166,067	$	27,988	$	10,351
Nonperforming		2,327		751		621		157		9
Total originated loans	$	314,450	$	84,583	$	166,688	$	28,145	$	10,360
Acquired loans:
Performing	$	71,469	$	21,127	$	0	$	7,404	$	110
Nonperforming		891		261		0		152		0
Total acquired loans		72,360		21,388		0		7,556		110
Total loans	$	386,810	$	105,971	$	166,688	$	35,701	$	10,470

	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