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ALLOWANCE FOR LOAN LOSSES AND CREDIT QUALITY

3 Months Ended

Mar. 31, 2020

ALLOWANCE FOR LOAN LOSSES AND CREDIT QUALITY

ALLOWANCE FOR LOAN LOSSES AND CREDIT QUALITY

NOTE 4. ALLOWANCE FOR LOAN LOSSES AND CREDIT QUALITY

The following tables present the activity in the allowance for loan losses by portfolio segment for the three-month periods ended March 31, 2020 and 2019:

Commercial

Real Estate

Commercial

and

Agri-business

Consumer

and

Multifamily

and

Other

1-4 Family

Other

(dollars in thousands)

Industrial

Residential

Agricultural

Commercial

Mortgage

Consumer

Unallocated

Total

Three Months Ended March 31, 2020

Beginning balance, January 1

25,789

15,796

3,869

447

2,086

345

2,320

50,652

Provision for credit losses

2,628

2,750

(167)

395

175

745

6,600

Loans charged-off

(3,735)

(13)

(101)

(3,849)

Recoveries

112

206

Net loans charged-off

(3,678)

112

(6)

(73)

(3,643)

Ending balance

24,739

18,658

3,704

521

2,475

447

3,065

53,609


			Commercial
			Real Estate
	Commercial		and		Agri-business				Consumer
	and		Multifamily		and		Other		1-4 Family		Other
(dollars in thousands)	Industrial		Residential		Agricultural		Commercial		Mortgage		Consumer		Unallocated		Total
Three Months Ended March 31, 2019
Beginning balance, January 1	$	22,518	$	15,393	$	4,305	$	368	$	2,292	$	283	$	3,294	$	48,453
Provision for loan losses		1,493		18		(161)		5		45		85		(285)		1,200
Loans charged-off		(83)		0		0		0		(82)		(119)		0		(284)
Recoveries		102		36		2		0		11		42		0		193
Net loans charged-off		19		36		2		0		(71)		(77)		0		(91)
Ending balance	$	24,030	$	15,447	$	4,146	$	373	$	2,266	$	291	$	3,009	$	49,562

The following tables present the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of March 31, 2020 and December 31, 2019:

Commercial

Real Estate

Commercial

and

Agri-business

Consumer

and

Multifamily

and

Other

1-4 Family

Other

(dollars in thousands)

Industrial

Residential

Agricultural

Commercial

Mortgage

Consumer

Unallocated

Total

March 31, 2020

Allowance for loan losses:

Ending allowance balance attributable to loans:

Individually evaluated for impairment

6,676

502

427

7,662

Collectively evaluated for impairment

18,063

18,156

3,647

521

2,048

447

3,065

45,947

Total ending allowance balance

24,739

18,658

3,704

521

2,475

447

3,065

53,609

Loans:

Loans individually evaluated for impairment

15,726

4,127

430

2,695

22,978

Loans collectively evaluated for impairment

1,412,920

1,754,085

329,067

104,163

365,666

96,859

4,062,760

Total ending loans balance

1,428,646

1,758,212

329,497

104,163

368,361

96,859

4,085,738


			Commercial
			Real Estate
	Commercial		and		Agri-business				Consumer
	and		Multifamily		and		Other		1-4 Family		Other
(dollars in thousands)	Industrial		Residential		Agricultural		Commercial		Mortgage		Consumer		Unallocated			Total
December 31, 2019
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	9,324	$	538	$	90	$	0	$	426	$	6	$	0	$	10,384
Collectively evaluated for impairment		16,465		15,258		3,779		447		1,660		339		2,320		40,268
Total ending allowance balance	$	25,789	$	15,796	$	3,869	$	447	$	2,086	$	345	$	2,320	$	50,652

Loans:
Loans individually evaluated for impairment	$	19,580	$	4,998	$	445	$	0	$	2,789	$	17	$	0	$	27,829
Loans collectively evaluated for impairment		1,407,246		1,665,842		379,186		112,166		375,210		98,349		0		4,037,999
Total ending loans balance	$	1,426,826	$	1,670,840	$	379,631	$	112,166	$	377,999	$	98,366	$	0	$	4,065,828

The following table presents loans individually evaluated for impairment by class of loans as of March 31, 2020:


	Unpaid				Allowance for
	Principal		Recorded		Loan Losses
(dollars in thousands)	Balance		Investment		Allocated
With no related allowance recorded:
Commercial and industrial loans:
Working capital lines of credit loans	$	1,097	$	1,097	$	—
Non-working capital loans		2,012		619		—
Commercial real estate and multi-family residential loans:
Owner occupied loans		2,284		2,103		—
Agri-business and agricultural loans:
Loans secured by farmland		603		283		—
Consumer 1‑4 family loans:
Closed end first mortgage loans		403		322		—
Open end and junior lien loans		49		49		—
With an allowance recorded:
Commercial and industrial loans:
Working capital lines of credit loans		5,140		3,433		1,431
Non-working capital loans		13,211		10,577		5,245
Commercial real estate and multi-family residential loans:
Owner occupied loans		2,024		2,024		502
Agri-business and agricultural loans:
Loans secured by farmland		147		147		57
Consumer 1‑4 family mortgage loans:
Closed end first mortgage loans		1,635		1,638		371
Open end and junior lien loans		635		634		46
Residential construction loans		51		52		10
Other consumer loans		0		0		0
Total	$	29,291	$	22,978	$	7,662

The following table presents loans individually evaluated for impairment by class of loans as of December 31, 2019:


	Unpaid				Allowance for
	Principal		Recorded		Loan Losses
(dollars in thousands)	Balance		Investment		Allocated
With no related allowance recorded:
Commercial and industrial loans:
Working capital lines of credit loans	$	22	$	22	$	—
Non-working capital loans		2,130		735		—
Commercial real estate and multi-family residential loans:
Owner occupied loans		3,189		3,010		—
Agri-business and agricultural loans:
Loans secured by farmland		603		283		—
Loans for ag production		15		15		—
Consumer 1‑4 family loans:
Closed end first mortgage loans		411		330		—
Open end and junior lien loans		121		121		—
With an allowance recorded:
Commercial and industrial loans:
Working capital lines of credit loans		6,214		6,214		3,089
Non-working capital loans		13,230		12,609		6,235
Commercial real estate and multi-family residential loans:
Owner occupied loans		1,988		1,988		538
Agri-business and agricultural loans:
Loans secured by farmland		147		147		90
Consumer 1‑4 family mortgage loans:
Closed end first mortgage loans		1,643		1,646		363
Open end and junior lien loans		641		640		53
Residential construction loans		51		52		10
Other consumer loans		17		17		6
Total	$	30,422	$	27,829	$	10,384

The following table presents loans individually evaluated for impairment by class of loans as of and for the three-month period ended March 31, 2020:


					Cash Basis
	Average		Interest		Interest
	Recorded		Income		Income
(dollars in thousands)	Investment		Recognized		Recognized
With no related allowance recorded:
Commercial and industrial loans:
Working capital lines of credit loans	$	380	$	0	$	0
Non-working capital loans		558		1		1
Commercial real estate and multi-family residential loans:
Owner occupied loans		2,144		5		4
Agri-business and agricultural loans:
Loans secured by farmland		283		0		0
Consumer 1‑4 family loans:
Closed end first mortgage loans		325		1		1
Open end and junior lien loans		85		0		0
With an allowance recorded:
Commercial and industrial loans:
Working capital lines of credit loans		5,287		0		0
Non-working capital loans		11,719		90		90
Commercial real estate and multi-family residential loans:
Owner occupied loans		1,999		30		30
Agri-business and agricultural loans:
Loans secured by farmland		147		0		0
Consumer 1‑4 family mortgage loans:
Closed end first mortgage loans		1,641		21		20
Open end and junior lien loans		638		0		0
Residential construction loans		52		0		0
Total	$	25,258	$	148	$	146

The following table presents loans individually evaluated for impairment by class of loans as of and for the three-month period ended March 31, 2019:


					Cash Basis
	Average		Interest		Interest
	Recorded		Income		Income
(dollars in thousands)	Investment		Recognized		Recognized
With no related allowance recorded:
Commercial and industrial loans:
Working capital lines of credit loans	$	155	$	1	$	0
Non-working capital loans		1,549		29		24
Commercial real estate and multi-family residential loans:
Owner occupied loans		1,621		11		8
Agri-business and agricultural loans:
Loans secured by farmland		283		0		0
Consumer 1‑4 family loans:
Closed end first mortgage loans		380		1		1
Open end and junior lien loans		193		0		0
With an allowance recorded:
Commercial and industrial loans:
Working capital lines of credit loans		6,487		72		59
Non-working capital loans		11,416		132		128
Commercial real estate and multi-family residential loans:
Owner occupied loans		2,080		13		12
Agri-business and agricultural loans:
Loans secured by farmland		147		2		1
Consumer 1‑4 family mortgage loans:
Closed end first mortgage loans		1,598		12		12
Other consumer loans		43		1		1
Total	$	25,952	$	274	$	246

The following table presents the aging of the recorded investment in past due loans as of March 31, 2020 by class of loans:

30‑89

Greater than

Total Past

Loans Not

Days

90 Days

Due and

(dollars in thousands)

Past Due

Nonaccrual

Total

Commercial and industrial loans:

Working capital lines of credit loans

725,870

449

4,529

4,978

730,848

Non-working capital loans

693,515

4,184

4,283

697,798

Commercial real estate and multi-family residential loans:

Construction and land development loans

333,699

Owner occupied loans

568,122

430

3,186

3,616

571,738

Nonowner occupied loans

583,709

Multifamily loans

269,066

Agri-business and agricultural loans:

Loans secured by farmland

145,124

430

145,554

Loans for agricultural production

183,943

Other commercial loans

104,163

Consumer 1‑4 family mortgage loans:

Closed end first mortgage loans

171,452

785

819

1,623

173,075

Open end and junior lien loans

182,388

683

792

183,180

Residential construction loans

12,052

12,106

Other consumer loans

96,736

114

123

96,859

Total

4,069,839

1,945

13,883

15,899

4,085,738

The following table presents the aging of the recorded investment in past due loans as of December 31, 2019 by class of loans:



			30‑89		Greater than				Total Past
	Loans Not		Days		90 Days				Due and
(dollars in thousands)	Past Due		Past Due		Past Due		Nonaccrual		Nonaccrual		Total
Commercial and industrial loans:
Working capital lines of credit loans	$	703,737	$	10	$	0	$	6,236	$	6,246	$	709,983
Non-working capital loans		710,557		4		0		6,282		6,286		716,843
Commercial real estate and multi-family residential loans:
Construction and land development loans		286,534		0		0		0		0		286,534
Owner occupied loans		569,303		0		0		4,056		4,056		573,359
Nonowner occupied loans		570,687		0		0		0		0		570,687
Multifamily loans		240,260		0		0		0		0		240,260
Agri-business and agricultural loans:
Loans secured by farmland		173,959		0		0		430		430		174,389
Loans for agricultural production		205,228		0		0		14		14		205,242
Other commercial loans		112,166		0		0		0		0		112,166
Consumer 1‑4 family mortgage loans:
Closed end first mortgage loans		174,902		1,099		45		827		1,971		176,873
Open end and junior lien loans		187,255		188		0		761		949		188,204
Residential construction loans		12,870		0		0		52		52		12,922
Other consumer loans		98,176		173		0		17		190		98,366
Total	$	4,045,634	$	1,474	$	45	$	18,675	$	20,194	$	4,065,828

Troubled Debt Restructurings:

Troubled debt restructured loans are included in the totals for impaired loans. The Company has allocated $2.6 million and $2.5 million of specific reserves to customers whose loan terms have been modified in troubled debt restructurings as of March 31, 2020 and December 31, 2019, respectively. The Company is not committed to lend additional funds to debtors whose loans have been modified in a troubled debt restructuring.


	March 31,		December 31,
(dollars in thousands)	2020		2019
Accruing troubled debt restructured loans	$	5,852	$	5,909
Nonaccrual troubled debt restructured loans		2,311		3,188
Total troubled debt restructured loans	$	8,163	$	9,097

During the three months ended March 31, 2020, certain loans were modified as troubled debt restructurings. The modified terms of these loans include one or a combination of the following: inadequate compensation for the terms of the restructure or renewal; a modification of the repayment terms which delays principal repayment for some period; or renewal terms offered to borrowers in financial distress where no additional credit enhancements were obtained at the time of renewal.

The following table presents loans by class modified as new troubled debt restructurings that occurred during the three months ended March 31, 2020:

Modified Repayment Terms

Pre-Modification

Post-Modification

Extension

Outstanding

Period or

Number of

Recorded

Number of

Range

(dollars in thousands)

Loans

Investment

Loans

(in months)

Troubled Debt Restructurings

Commercial and industrial loans:

Non-working capital loans

788

122

Total

788

122

For the three month period ended March 31, 2020, the troubled debt restructurings described above increased the allowance for loan losses by $122,000, and charge-offs of $666,000 were recorded.

As of March 31, 2020, total deferrals attributed to COVID-19 were $99.8 million representing 77 borrowers. This represented 2% of the total loan portfolio. Of that total 50 were commercial loan borrowers representing $99.3 million in loans, or 3% of commercial loans and 27 were retail loan borrowers representing $528,000, or less than 1% of total retail loans. Of the total deferrals, 95% are for three-month deferrals of principal only. In accordance with the March 22, 2020 Joint Interagency Regulatory Guidance, these were not considered to be troubled debt restructurings and were excluded from the table above.

During the three months ended March 31, 2019, certain loans were modified as troubled debt restructurings. The modified terms of these loans include one or a combination of the following: inadequate compensation for the terms of the restructure or renewal; a modification of the repayment terms which delays principal repayment for some period; or renewal terms offered to borrowers in financial distress where no additional credit enhancements were obtained at the time of renewal.

Additional concessions were granted to borrowers with previously identified troubled debt restructured loans during the period. One of the loans is for a commercial real estate building where the cash flow does not support the loan with a recorded investment of $533,000. The other loan is for commercial and industrial non-working capital purposes and this borrower had a recorded investment of $70,000 that was subsequently paid off prior to March 31, 2019. These concessions are not included in the table on the next page.

The following table presents loans by class modified as new troubled debt restructurings that occurred during the three months ended March 31, 2019:

Modified Repayment Terms

Pre-Modification

Post-Modification

Extension

Outstanding

Period or

Number of

Recorded

Number of

Range

(dollars in thousands)

Loans

Investment

Loans

(in months)

Troubled Debt Restructurings

Commercial and industrial loans:

Working capital lines of credit loans

Total

For the three-month period ended March 31, 2019, the troubled debt restructuring described above did not impact the allowance for loan losses and no charge-off was recorded.

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 analyzes commercial loans individually by classifying the loans as to credit risk. This analysis is performed on a quarterly basis for Special Mention, Substandard and Doubtful grade loans and annually on Pass grade loans over $250,000.

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 Company 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 characteristics 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 with the exception of consumer troubled debt restructurings which are evaluated and listed with Substandard commercial grade loans and consumer nonaccrual loans which are evaluated individually and listed with Not Rated loans. Loans listed as Not Rated are consumer loans or commercial loans with consumer characteristics included in groups of homogenous loans which are analyzed for credit quality indicators utilizing delinquency status.

As of March 31, 2020, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

Special

Not

(dollars in thousands)

Pass

Mention

Substandard

Doubtful

Rated

Total

Commercial and industrial loans:

Working capital lines of credit loans

651,403

54,559

24,527

359

730,848

Non-working capital loans

653,230

17,834

21,406

5,328

697,798

Commercial real estate and multi-family residential loans:

Construction and land development loans

333,699

Owner occupied loans

527,818

33,555

10,365

571,738

Nonowner occupied loans

582,374

758

577

583,709

Multifamily loans

269,066

Agri-business and agricultural loans:

Loans secured by farmland

138,247

5,879

1,428

145,554

Loans for agricultural production

172,730

11,213

183,943

Other commercial loans

104,163

Consumer 1‑4 family mortgage loans:

Closed end first mortgage loans

44,863

1,960

126,252

173,075

Open end and junior lien loans

11,016

683

171,481

183,180

Residential construction loans

12,054

12,106

Other consumer loans

27,439

69,420

96,859

Total

3,516,048

123,798

60,998

384,894

4,085,738

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


			Special						Not
(dollars in thousands)	Pass		Mention		Substandard		Doubtful		Rated		Total
Commercial and industrial loans:
Working capital lines of credit loans	$	631,728	$	40,551	$	37,278	$	0	$	426	$	709,983
Non-working capital loans		673,370		18,782		19,381		0		5,310		716,843
Commercial real estate and multi-family residential loans:
Construction and land development loans		286,534		0		0		0		0		286,534
Owner occupied loans		535,496		14,804		23,059		0		0		573,359
Nonowner occupied loans		569,315		781		591		0		0		570,687
Multifamily loans		240,260		0		0		0		0		240,260
Agri-business and agricultural loans:
Loans secured by farmland		165,005		7,952		1,432		0		0		174,389
Loans for agricultural production		191,489		13,738		15		0		0		205,242
Other commercial loans		112,166		0		0		0		0		112,166
Consumer 1‑4 family mortgage loans:
Closed end first mortgage loans		47,405		0		1,976		0		127,492		176,873
Open end and junior lien loans		10,845		0		762		0		176,597		188,204
Residential construction loans		0		0		51		0		12,871		12,922
Other consumer loans		27,250		0		17		0		71,099		98,366
Total	$	3,490,863	$	96,608	$	84,562	$	0	$	393,795	$	4,065,828