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Loans and Leases

12 Months Ended

Dec. 31, 2022

Note 4—Loans and Leases

Loans and leases as of the dates indicated consisted of the following:

	December 31,
(Dollars in thousands)	2022			2021
Loans and leases held-for-investment, net
Real estate:
Commercial	$	1,328,691		$	1,167,516
Agricultural		726,938			672,830
Residential and home equity		387,753			350,581
Construction		166,538			177,163
Total real estate		2,609,920			2,368,090
Commercial & industrial		478,758			427,799
Agricultural		314,525			276,684
Commercial leases		112,629			96,971
Consumer and other⁽¹⁾		5,886			78,367
Total gross loans and leases		3,521,718			3,247,911
Unearned income		(9,357	)		(10,734	)
Total net loans and leases		3,512,361			3,237,177
Allowance for credit losses		(66,885	)		(61,007	)
Total loans and leases held-for-investment, net	$	3,445,476		$	3,176,170

⁽¹⁾ Includes SBA PPP loans of $0 and $70,765 as of December 31, 2022 and December 31, 2021, respectively.

Paycheck Protection Program (“PPP”)—Under the CARES Act and H.R. 133, the U.S. Small Business Administration (“SBA”) was directed by Congress to provide loans to small businesses with less than 500 employees to assist these businesses in meeting their payroll and other financial obligations during the COVID-19 pandemic. These government guaranteed loans were made with an interest rate of 1%, a risk weight of 0% under risk-based capital rules, have a term of 2 to 5 years, and under certain conditions the SBA will forgive them. The Bank actively participated in the PPP, and since April 2020, the Bank has funded $494.39 million of loans for 2,680 small business customers. As of December 2022 and 2021, PPP loans outstanding were $0 and $70.8 million, respectively.

At December 31, 2022, the portion of loans that were approved for pledging as collateral on borrowing lines with the Federal Home Loan Bank (“FHLB”) and the Federal Reserve Bank (“FRB”) were $1.2 billion and $884 million, respectively. The borrowing capacity on these loans was $758.0 million from FHLB and $651.0 million from the FRB.

The following tables show an aging analysis of the loan & lease portfolio, including unearned income, by the time past due at December 31, 2022 and 2021:

	December 31, 2022
(Dollars in thousands)	Current		30-89 Days Past Due		90+ Days Past Due		Non- accrual		Total Past Due		Total
Loans and leases held-for-investment, net
Real estate:
Commercial	$	1,319,911	$	-	$	-	$	403	$	403	$	1,320,314
Agricultural		726,938		-		-		-		-		726,938
Residential and home equity		387,753		-		-		-		-		387,753
Construction		166,370		-		-		168		168		166,538
Total real estate		2,600,972		-		-		571		571		2,601,543
Commercial & industrial		478,758		-		-		-		-		478,758
Agricultural		314,525		-		-		-		-		314,525
Commercial leases		111,649		-		-		-		-		111,649
Consumer and other		5,789		97		-		-		97		5,886
Total loans and leases, net	$	3,511,693	$	97	$	-	$	571	$	668	$	3,512,361

	December 31, 2021
(Dollars in thousands)	Current		30-89 Days Past Due		90+ Days Past Due		Non- accrual		Total Past Due		Total
Loans and leases held-for-investment, net
Real estate:
Commercial	$	1,156,879	$	459	$	-	$	-	$	459	$	1,157,338
Agricultural		672,812		-		-		18		18		672,830
Residential and home equity		350,492		89		-		-		89		350,581
Construction		177,163		-		-		-		-		177,163
Total real estate		2,357,346		548		-		18		566		2,357,912
Commercial & industrial		427,799		-		-		-		-		427,799
Agricultural		276,186		-		-		498		498		276,684
Commercial leases		96,415		-		-		-		-		96,415
Consumer and other		78,363		4		-		-		4		78,367
Total loans and leases, net	$	3,236,109	$	552	$	-	$	516	$	1,068	$	3,237,177

Non-accrual loans are summarized as follows:

	December 31,
(Dollars in thousands)	2022		2021
Non-accrual loans and leases:
Non-accrual loans and leases, not TDRs
Real estate:
Commercial	$	403	$	-
Agricultural		-		18
Residential and home equity		-		-
Construction		168		-
Total real estate		571		18
Commercial & industrial		-		-
Agricultural		-		-
Commercial leases		-		-
Consumer and other		-		-
Subtotal		571		18
Non-accrual loans and leases, are TDRs
Real estate:
Commercial	$	-	$	-
Agricultural		-		-
Residential and home equity		-		-
Construction		-		-
Total real estate		-		-
Commercial & Industrial		-		-
Agricultural		-		498
Commercial leases		-		-
Consumer and other		-		-
Subtotal		-		498
Total non-accrual loans and leases	$	571	$	516

The following table lists total troubled debt restructured loans that the Company is either accruing or not accruing interest by loan category:

	December 31,
(Dollars in thousands)	2022		2021
Troubled debt restructured loans and leases:
Accruing TDR loans and leases
Real estate:
Commercial	$	-	$	41
Agricultural		-		-
Residential and home equity		1,305		1,522
Construction		-		-
Total real estate		1,305		1,563
Commercial & industrial		6		260
Agricultural		-		-
Commercial leases		-		-
Consumer and other		-		1
Subtotal		1,311		1,824
Non-accruing TDR loans and leases
Real estate:
Commercial	$	-	$	-
Agricultural		-		-
Residential and home equity		-		-
Construction		-		-
Total real estate		-		-
Commercial & industrial		-		-
Agricultural		-		498
Commercial leases		-		-
Consumer and other		-		-
Subtotal		-		498
Total TDR loans and leases	$	1,311	$	2,322

The following table summarizes TDRs outstanding by year of occurrence:

	Year Ended December 31, 2022
(Dollars in thousands)	# of Accruing TDR		$ of Accruing TDR		# of Non- accruing TDR		$ of Non- accruing TDR		# of Total TDR		$ of Total TDR
Loan and lease TDRs
2022		-	$	-		-	$	-		-	$	-
2021		-		-		-		-		-		-
2020		4		257		-		-		4		257
2019		-		-		-		-		-		-
Prior		8		1,054		-		-		8		1,054
Total		12	$	1,311		-	$	-		12	$	1,311

	Year Ended December 31, 2021
(Dollars in thousands)	# of Accruing TDR		$ of Accruing TDR		# of Non- accruing TDR		$ of Non- accruing TDR		# of Total TDR		$ of Total TDR
Loan and lease TDRs
2021		1	$	49		-	$	-		1	$	49
2020		5		476		2		498		7		974
2019		-		-		-		-		-		-
2018		1		84		-		-		1		84
Prior		10		1,215		-		-		10		1,215
Total		17	$	1,824		2	$	498		19	$	2,322

Outstanding loan balances (accruing and non-accruing) categorized by these credit quality indicators are summarized as follows:

	December 31, 2022
(Dollars in thousands)	Pass		Special Mention		Sub- standard		Doubtful		Total Loans & Leases		Total Allowance for Credit Losses
Loans and leases held for investment, net
Real estate:
Commercial	$	1,314,377	$	5,535	$	402	$	-	$	1,320,314	$	18,055
Agricultural		709,927		10,891		6,120		-		726,938		14,496
Residential and home equity		387,371		-		382		-		387,753		7,508
Construction		166,370		-		168		-		166,538		3,026
Total real estate		2,578,045		16,426		7,072		-		2,601,543		43,085
Commercial & industrial		478,437		63		258		-		478,758		11,503
Agricultural		308,830		5,682		13		-		314,525		10,202
Commercial leases		111,568		81		-		-		111,649		1,924
Consumer and other		5,650		-		236		-		5,886		171
Total loans and leases, net	$	3,482,530	$	22,252	$	7,579	$	-	$	3,512,361	$	66,885

	December 31, 2021
(Dollars in thousands)	Pass		Special Mention		Sub- standard		Doubtful		Total Loans & Leases		Total Allowance for Loan Losses
Loans and leases held for investment, net
Real estate:
Commercial	$	1,142,175	$	6,903	$	8,260	$	-	$	1,157,338	$	28,536
Agricultural		663,157		3,292		6,381		-		672,830		9,613
Residential and home equity		350,148		-		433		-		350,581		2,847
Construction		177,163		-		-		-		177,163		1,456
Total real estate		2,332,643		10,195		15,074		-		2,357,912		42,452
Commercial & industrial		417,806		9,321		672		-		427,799		11,489
Agricultural		275,206		958		520		-		276,684		5,465
Commercial leases		96,415		-		-		-		96,415		938
Consumer and other		78,181		-		186		-		78,367		663
Total loans and leases, net	$	3,200,251	$	20,474	$	16,452	$	-	$	3,237,177	$	61,007

The following table represents outstanding loan balances by credit quality indicators and vintage year by class of financing receivable and current period gross charge-offs by year of origination as follows:

	December 31, 2022
	Term Loans Amortized Cost Basis by Origination Year
(Dollars in thousands)	2022		2021		2020		2019		2018		Prior		Revolving Loans Amortized Cost		Total
Net loans and leases held for investment
Real estate:
Commercial
Pass	$	194,698	$	234,478	$	150,203	$	71,333	$	85,132	$	218,261	$	360,272	$	1,314,377
Special mention		-		-		-		-		3,820		1,115		600		5,535
Substandard		-		-		-		-		-		402		-		402
Doubtful		-		-		-		-		-		-		-		-
Total Commercial	$	194,698	$	234,478	$	150,203	$	71,333	$	88,952	$	219,778	$	360,872	$	1,320,314
Commercial
Current-period gross charge-offs	$	-	$	-	$	170	$	-	$	-	$	-	$	-	$	170

Agricultural
Pass	$	67,044	$	42,546	$	54,893	$	15,074	$	50,186	$	144,052	$	336,132	$	709,927
Special mention		-		-		-		2,636		-		-		8,255		10,891
Substandard		-		-		-		-		111		6,009		-		6,120
Doubtful		-		-		-		-		-		-		-		-
Total Agricultural	$	67,044	$	42,546	$	54,893	$	17,710	$	50,297	$	150,061	$	344,387	$	726,938
Agricultural
Current-period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-

Residential and home equity
Pass	$	66,847	$	96,354	$	86,545	$	14,530	$	6,632	$	76,155	$	40,308	$	387,371
Special mention		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		300		82		382
Doubtful		-		-		-		-		-		-		-		-
Total Residential and home equity	$	66,847	$	96,354	$	86,545	$	14,530	$	6,632	$	76,455	$	40,390	$	387,753
Residential and home equity
Current-period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	25	$	-	$	25

Construction
Pass	$	2,000	$	1	$	-	$	1,575	$	-	$	31	$	162,763	$	166,370
Special mention		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		168		168
Doubtful		-		-		-		-		-		-		-		-
Total construction	$	2,000	$	1	$	-	$	1,575	$	-	$	31	$	162,931	$	166,538
Construction
Current-period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-

Total Real estate	$	330,589	$	373,379	$	291,641	$	105,148	$	145,881	$	446,325	$	908,580	$	2,601,543

Commercial & industrial
Pass	$	34,410	$	36,846	$	12,325	$	8,245	$	7,167	$	5,679	$	373,765	$	478,437
Special mention		-		63		-		-		-		-		-		63
Substandard		-		-		-		-		1		5		252		258
Doubtful		-		-		-		-		-		-		-		-
Total Commercial & industrial	$	34,410	$	36,909	$	12,325	$	8,245	$	7,168	$	5,684	$	374,017	$	478,758
Commercial & industrial
Current-period gross charge-offs	$	-	$	-	$	-	$	246	$	78	$	-	$	-	$	324

Agricultural
Pass	$	5,378	$	3,083	$	989	$	1,515	$	636	$	2,071	$	295,158	$	308,830
Special mention		-		-		-		-		-		-		5,682		5,682
Substandard		-		-		-		11		2		-		-		13
Doubtful		-		-		-		-		-		-		-		-
Total Agricultural	$	5,378	$	3,083	$	989	$	1,526	$	638	$	2,071	$	300,840	$	314,525
Agricultural
Current-period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-

Commercial leases
Pass	$	35,689	$	15,874	$	13,050	$	5,904	$	20,560	$	20,491	$	-	$	111,568
Special mention		-		-		-		81		-		-		-		81
Substandard		-		-		-		-		-		-		-		-
Doubtful		-		-		-		-		-		-		-		-
Total Commercial leases	$	35,689	$	15,874	$	13,050	$	5,985	$	20,560	$	20,491	$	-	$	111,649
Commercial leases
Current-period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-

Consumer and other
Pass	$	1,476	$	634	$	275	$	176	$	315	$	1,769	$	1,005	$	5,650
Special mention		-		-		-		-		-		-		-		-
Substandard		236		-		-		-		-		-		-		236
Doubtful		-		-		-		-		-		-		-		-
Total Consumer and other	$	1,712	$	634	$	275	$	176	$	315	$	1,769	$	1,005	$	5,886
Consumer and other
Current-period gross charge-offs	$	40	$	6	$	7	$	1	$	4	$	4	$	-	$	62

Total net loans and leases	$	407,778	$	429,879	$	318,280	$	121,080	$	174,562	$	476,340	$	1,584,442	$	3,512,361

Certain directors and executive officers of the Company are defined as related parties. These related parties, including their immediate families and companies in which they are principal owners, were loan customers of the Bank during the twelve months ended December 31, 2022 and December 31, 2021. Such loans were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable loans with borrowers not related to the Company. These loans did not involve more than the normal risk of collection or have other unfavorable features. A summary of the changes in those loans is as follows:

	December 31,
(Dollars in thousands)	2022				2021

Balance at beginning of the period		$	18,128			$	11,682
New loans or advances during year			523				7,254
Repayments			(1,130	)			(808	)
Balance at end of period		$	17,521			$	18,128

Changes in the allowance for credit losses are as follows:

	Year Ended December 31, 2022
(Dollars in thousands)	Commercial & Agricultural R/E			Construction			Residential & Home Equity			Commercial & Agricultural			Commercial Leases		Consumer & Other			Total
Allowance for credit losses:
Balance at beginning of year	$	38,149		$	1,456		$	2,847		$	16,954		$	938	$	663		$	61,007
Impact of Adopting ASC 326		(6,190	)		1,855			3,032			826			629		(152	)		-
Provision / (recapture) for credit losses		762			(285	)		1,523			4,001			357		(301	)		6,057
Charge-offs		(170	)		-			(25	)		(324	)		-		(62	)		(581	)
Recoveries		-			-			131			248			-		23			402
Net (charge-offs) / recoveries		(170	)		-			106			(76	)		-		(39	)		(179	)
Balance at end of year	$	32,551		$	3,026		$	7,508		$	21,705		$	1,924	$	171		$	66,885

	Year Ended December 31, 2021
(Dollars in thousands)	Commercial & Agricultural R/E		Construction			Residential & Home Equity			Commercial & Agricultural		Commercial Leases			Consumer & Other			Total
Allowance for credit losses:
Balance at beginning of year	$	36,312	$	1,643		$	2,984		$	14,775	$	1,731		$	1,417		$	58,862
Provision / (recapture) for credit losses		1,837		(187	)		(235	)		2,025		(793	)		(737	)		1,910
Charge-offs		-		-			-			-		-			(44	)		(44	)
Recoveries		-		-			98			154		-			27			279
Net (charge-offs) / recoveries		-		-			98			154		-			(17	)		235
Balance at end of year	$	38,149	$	1,456		$	2,847		$	16,954	$	938		$	663		$	61,007

	Year Ended December 31, 2020
(Dollars in thousands)	Commercial & Agricultural R/E		Construction			Residential & Home Equity			Commercial & Agricultural			Commercial Leases			Consumer & Other			Total
Allowance for credit losses:
Balance at beginning of year	$	26,181	$	1,949		$	3,530		$	19,542		$	3,162		$	648		$	55,012
Provision / (recapture) for credit losses		10,050		(306	)		(669	)		(3,946	)		(1,431	)		802			4,500
Charge-offs		-		-			(7	)		(1,101	)		-			(66	)		(1,174	)
Recoveries		81		-			130			280			-			33			524
Net (charge-offs) / recoveries		81		-			123			(821	)		-			(33	)		(650	)
Balance at end of year	$	36,312	$	1,643		$	2,984		$	14,775		$	1,731		$	1,417		$	58,862

A loan is considered collateral dependent when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. When management determines that foreclosure is probable, expected credit losses for collateral dependent loans are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate. The collateral on the loans is a significant portion of what secures the collateral dependent loans and significant changes to the fair value of the collateral can impact the ACL. During 2022, there were no significant changes to the collateral that secures the collateral dependent loans, whether due to general deterioration or with credit quality indicators like appraisal value. The following table presents the amortized cost basis of collateral dependent loans by collateral type as of December 31, 2022:

	December 31, 2022
(Dollars in thousands)	Real Estate		Vehicles and Equipment		Total
Collateral dependent loans and leases
Real estate:
Commercial	$	1,114	$	-	$	1,114
Agricultural		11,035		-		11,035
Residential and home equity		2,153		-		2,153
Construction		-		-		-
Total Real estate		14,302		-		14,302
Commercial & industrial		-		-		-
Agricultural		-		13		13
Commercial leases		-		-		-
Consumer and other		-		158		158
Total gross loans and leases	$	14,302	$	171	$	14,473