CASH 2017 Annual Report

88 Certain shortcomings are inherent in the method of analysis discussed above and as presented in the table. For example, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in different degrees to changes in market interest rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in market rates. Additionally, certain assets, such as adjustable rate mortgage loans, have features that restrict changes in interest rates on a short-term basis and over the life of the asset. Furthermore, although management has estimated changes in the levels of prepayments and early withdrawal in these rate environments, such levels would likely deviate from those assumed in calculating the table. Finally, the ability of some borrowers to service their debt may decrease in the event of an interest rate increase. The above EAR and EVE measures do not include all actions that management may undertake to manage interest rate risk in response to anticipated changes in interest rates. Asset Quality At September 30, 2017, non-performing assets, consisting of impaired/non-accruing loans, accruing loans delinquent 90 days or more, foreclosed real estate and repossessed consumer property totaled $37.9 million, or 0.72% of total assets, compared to $1.2 million, or 0.03% of total assets, at September 30, 2016. The increase in NPAs was primarily related to two large, well- collateralized agricultural relationships that became more than 90 days past due. These loan relationships were both still accruing in the fourth fiscal quarter and one was paid in full on November 1, 2017. The majority of the past due receivables related to AFS/ IBEX are due to the notification requirements and processing time by most insurance carriers while the insurer is processing the return of the unearned premium. Management will continue to accrue interest until maturity as the unearned premium is ordinarily sufficient to pay off the outstanding balance and the contractual interest due. Non-accruing loans at September 30, 2017, totaled approximately $0.7 million. The Company had repossessed assets of approximately $0.3 million at September 30, 2017. The Company maintains an allowance for loan losses because it is probable that some loans may not be repaid in full. At September 30, 2017, the Company had an allowance for loan losses of $7.5 million as compared to $5.6 million at September 30, 2016. This increase was mainly due to loan growth and a downgrade of a large well-collateralized agricultural relationship, as mentioned previously. Management’s periodic review of the allowance for loan losses is based on various subjective and objective factors including the Company’s past loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral and current economic conditions. While management may allocate portions of the allowance for specifically identified problem loan situations, themajority of the allowance is based on both subjective and objective factors related to the overall loan portfolio and is available for any loan charge-offs that may occur. As stated previously, there can be no assurance future losses will not exceed estimated amounts, or that additional provisions for loan losses will not be required in future periods. In addition, the Bank is subject to review by the OCC, which has the authority to require management to make changes to the allowance for loan losses, and the Company is subject to similar review by the Federal Reserve. In determining the allowance for loan losses, the Company specifically identifies loans it considers to have potential collectability problems. Based on criteria established byASC 310, Receivables , some of these loans are considered to be “impaired” while others are not considered to be impaired, but possess weaknesses that the Company believes merit additional analysis in establishing the allowance for loan losses. All other loans are evaluated by applying estimated loss ratios to various pools of loans. The Company then analyzes other applicable qualitative factors (such as economic conditions) in determining the aggregate amount of the allowance needed. At September 30, 2017, none of the allowance for loan losses was allocated to impaired loans. See Note 3 of the “Notes to Consolidated Financial Statements,” which is included in Part II, Item 8 “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K. Of the allowance, $2.0 million was allocated to other identified problem loans and loan relationships, representing 3.5% of the related loan balances, and $5.5 million, representing 0.4% of the related loan balances, was allocated to the remaining overall loan portfolio based on historical loss experience and qualitative factors. At September 30, 2016, $0.01 million of the allowance for loan losses was allocated to impaired loans, representing 1.7% of the related loan balances. $0.9millionwas allocated to other identified problem loan situations or 1.9%of related loan balances, and $4.7million, representing 0.5%, was allocated against losses from the overall loan portfolio based on historical loss experience and qualitative factors. TheCompanymaintains an internal loan reviewand classification processwhich involvesmultiple officers of theCompany and is designed to assess the general quality of credit underwriting and to promote early identification of potential problem loans. All loan officers are charged with the responsibility of risk rating all loans in their portfolios and updating the ratings, positively or negatively, on an ongoing basis as conditions warrant.