42
As shown in the table immediately above, the Company’s provision for loan and lease losses, which is credited to the
allowance, was decreased by $4.000 million, or 92%, in 2014 relative to 2013. The dollar volume of net loan losses
charged off against the allowance also declined by $5.767 million, or 88%. Our allowance for loan and lease losses
is maintained at a level to cover probable losses on specifically identified loans as well as probable incurred losses in
the remaining loan portfolio, and any shortfall in the allowance identified pursuant to our analysis of probable losses
is covered by the end of each reporting period. Our allowance for probable losses on specifically identified impaired
loans increased slightly during 2014 due to loss reserves established for loans migrating from non-impaired to
impaired status during the year, partially offset by the charge-off of losses against the allowance. The allowance for
probable losses inherent in non-impaired loans declined by $527,000, despite higher loan balances, as a reflection of
continued improvement in the credit quality of non-impaired loans. Additional details on our provision for loan and
lease losses and its relationship to actual charge-offs is contained above in the “Provision for Loan and Lease Losses”
section.
Provided below is a summary of the allocation of the allowance for loan and lease losses for specific loan categories
at the dates indicated. The allocation presented should not be viewed as an indication that charges to the allowance
will be incurred in these amounts or proportions, or that the portion of the allowance allocated to a particular loan
category represents the total amount available for charge-offs that may occur within that category.
Allocation of Allowance for Loan andLease Losses
(dollars in thousands)
Real Estate
6,243 $
72.55% 5,544 $
71.94% 8,034 $
62.04% 8,260 $
76.19% 10,143 $
77.32%
Agricultural
986
2.86% 978
3.13% 258
2.56% 19
2.25% 62
1.67%
Commercial and Industrial
(2)
1,944
22.64% 3,787
22.00% 3,467
32.12% 6,396
16.78% 7,937
15.35%
Consumer Loans
1,765
1.95% 1,117
2.93% 2,114
3.28% 2,608
4.77% 2,996
5.66%
Unallocated
310
-
251
-
-
-
-
-
-
-
Total
$11,248
100.00% $11,677
100.00% $13,873
100.00% $17,283
100.00% $ 21,138
100.00%
(1)
Represents percentage of loans in category to total loans
(2)
Includes mortgage warehouse lines
As of December 31,
2014
2013
2012
2011
2010
Amount
%Total
(1)
Loans
Amount
%Total
(1)
Loans
Amount
%Total
(1)
Loans
Amount
%Total
(1)
Loans
Amount
%Total
(1)
Loans
The Company’s allowance for loan and lease losses at December 31, 2014 represents management’s best estimate of
probable losses in the loan portfolio as of that date, but no assurance can be given that the Company will not experi-
ence substantial losses relative to the size of the allowance. Furthermore, fluctuations in credit quality, changes in
economic conditions, updated accounting or regulatory requirements, and/or other factors could induce us to augment
or reduce the allowance.
Investments
The Company’s investments consist of debt and marketable equity securities (together, the “investment portfolio”),
investments in the time deposits of other banks, surplus interest-earning balances in our Federal Reserve Bank
account, and overnight fed funds sold. Surplus FRB balances and fed funds sold to correspondent banks represent
the investment of temporary excess liquidity. The Company’s investments serve several purposes: 1) they provide
liquidity to even out cash flows from the loan and deposit activities of customers; 2) they provide a source of pledged
assets for securing public deposits, bankruptcy deposits and certain borrowed funds which require collateral; 3) they
constitute a large base of assets with maturity and interest rate characteristics that can be changed more readily than
the loan portfolio, to better match changes in the deposit base and other funding sources of the Company; 4) they are
an alternative interest-earning use of funds when loan demand is light; and 5) they can provide partially tax exempt
income. Aggregate investments totaled $514 million, or 31% of total assets at December 31, 2014, compared to $452
million, or 32% of total assets at December 31, 2013.
