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Allowances for Loan Losses
 9 Months Ended
Sep. 30, 2022
Allowance for Credit Loss [Abstract]  
Allowances for Loan Losses
5.
ALLOWANCE FOR LOAN LOSSES to be updated

The segments of the Company’s loan portfolio are disaggregated to a level that allows management to monitor risk and performance. The loan segments used are consistent with the internal reports evaluated by the Company’s management and Board of Directors to monitor risk and performance within various segments of its loan portfolio and, therefore, no further disaggregation is considered necessary. The Company’s loan portfolio consists primarily of real estate loans on commercial and residential property. The portfolio also includes agricultural loans, commercial loans, municipal loans, and consumer loans.

The Company’s primary lending activity is the origination of commercial loans extended to small and mid-sized commercial and industrial entities.

Commercial loans are primarily underwritten on the basis of the borrowers’ ability to service such debt from income. The cash flows of borrowers, however, may not be as expected and the collateral securing these loans may fluctuate in value. As a general practice, the Company takes as collateral a security interest in any equipment, or other chattel, although loans may also be made on an unsecured basis. Collateralized working capital loans typically are secured by short-term assets whereas long-term loans are primarily secured by long-term assets.

Construction and Land loans are to finance the construction of owner-occupied and income producing properties. These loans are categorized within commercial or one-to-four family residential loans based upon the underlying collateral and intended use following the completion of the construction period. Real estate development and construction loans are approved based on an analysis of the borrower and guarantor, the viability of the project and on an acceptable percentage of the appraised value of the property securing the loan. Construction loan funds are disbursed periodically based on the percentage of construction or development completed. The Company carefully monitors these loans with on-site inspections and requires the receipt of lien waivers on funds advanced. The Company considers the market conditions and feasibility of proposed projects, the financial condition and reputation of the borrower and guarantors, the amount of the borrower’s equity in the project, independent appraisals, cost estimates and pre-construction sale information. The Company also makes loans on occasion for the purchase of land for future development by the borrower. Land loans are extended for the future development for either commercial or residential use by the borrower. The Company carefully analyzes the intended use of the property and the viability thereof.

The Company’s commercial real estate loans consist of mortgage loans secured by nonresidential real estate, such as by apartment buildings, small office buildings, and owner-occupied properties. Commercial real estate loans are secured by the subject property and are underwritten based on loan to value limits, cash flow coverage and general creditworthiness of the obligors. These loans tend to involve larger loan balances and their repayment is typically dependent upon the successful operation and management of the underlying real estate.

Residential real estate loans are underwritten based on the borrower’s repayment capacity and source, value of the underlying property, credit history and stability. These loans are secured by a first or second mortgage on the borrower’s principal residence or their second/vacation home (excluding investment/rental property).

In addition to the main types of loans discussed above, the Company also originates agricultural loans, consumer loans, and municipal loans. The agricultural loan portfolio consists of loans to local farmers and agricultural businesses that are generally secured by farmland and equipment. The consumer loan portfolio consists of lending in the form of home equity loans secured by financed property and personal consumer loans, which may be secured or unsecured. The municipal loan portfolio consists of loans to qualified local municipalities, which are generally supported by the taxing authority of the borrowing municipality, and is frequently secured by collateral.

Management has an established methodology to determine the adequacy of the allowance for loan losses that assesses the risks and losses inherent in the loan portfolio. For purposes of determining the allowance for loan losses the Company has segmented certain loans in the portfolio by product type. Loans are segmented into the following pools: agriculture loans, commercial real estate loans, commercial loans, residential real estate loans, consumer loans, and municipal loans. Historical loss percentages for each risk category are calculated and used as the basis for calculating allowance allocations. These historical loss percentages are calculated over a four-year period for all portfolio segments.

Certain qualitative factors are then added to the historical allocation percentage to get the adjusted factor to be applied to non-classified loans. The following qualitative factors are analyzed for each portfolio segment:

•
Levels of and trends in delinquencies
•
Trends in volume and terms
•
Changes in collateral
•
Changes in management and lending staff
•
Economic trends
•
Concentrations of credit
•
Changes in lending policies
•
External factors
•
Changes in underwriting process
•
Trends in credit quality ratings

These qualitative factors are reviewed each quarter and adjusted based upon relevant changes within the portfolio.

The total allowance reflects management’s estimate of loan losses inherent in the loan portfolio at the Consolidated Balance Sheet date. The Company considers the allowance for loan losses adequate to cover loan losses inherent in the loan portfolio at September 30, 2022 and December 31, 2021.

The following table summarizes the activity in the allowance for loan losses by loan class for the three month periods ended September 30, 2022 and 2021.

 

 

 

Agriculture
Loans

 

 

Commercial and PPP
Loans

 

 

Commercial
Real Estate
Loans

 

 

Residential
Real Estate
Loan

 

 

Consumer
Loans

 

 

Municipal
Loans

 

 

Unallocated
Loans

 

 

Total

 

(In Thousands)

 

For the Three Months Ended September 30, 2022

 

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

17

 

 

$

506

 

 

$

1,786

 

 

$

1,547

 

 

$

21

 

 

$

13

 

 

$

-

 

 

$

3,890

 

Charge-offs

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Recoveries

 

 

—

 

 

 

25

 

 

 

—

 

 

 

139

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

164

 

Provision

 

 

21

 

 

 

96

 

 

 

427

 

 

 

(43

)

 

 

12

 

 

 

2

 

 

 

—

 

 

 

515

 

Ending balance

 

$

38

 

 

$

627

 

 

$

2,213

 

 

$

1,643

 

 

$

33

 

 

$

15

 

 

$

-

 

 

$

4,569

 

 

 

For the Three Months Ended September 30, 2021

 

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

98

 

 

$

350

 

 

$

342

 

 

$

1,670

 

 

$

23

 

 

$

16

 

 

$

376

 

 

$

2,875

 

Charge-offs

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(2

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(2

)

Recoveries

 

 

—

 

 

 

1

 

 

 

—

 

 

 

4

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

5

 

Provision

 

 

31

 

 

 

107

 

 

 

21

 

 

 

698

 

 

 

(3

)

 

 

13

 

 

 

(410

)

 

 

457

 

Ending balance

 

$

129

 

 

$

458

 

 

$

363

 

 

$

2,370

 

 

$

20

 

 

$

29

 

 

$

(34

)

 

$

3,335

 

 

The following table summarizes the activity in the allowance for loan losses by loan class for the nine month periods ended September 30, 2022 and 2021.

 

 

 

Agriculture
Loans

 

 

Commercial and PPP
Loans

 

 

Commercial
Real Estate
Loans

 

 

Residential
Real Estate
Loan

 

 

Consumer
Loans

 

 

Municipal
Loans

 

 

Unallocated
Loans

 

 

Total

 

(In Thousands)

 

For the Nine Months Ended September 30, 2022

 

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

23

 

 

$

582

 

 

$

799

 

 

$

1,634

 

 

$

22

 

 

$

15

 

 

$

77

 

 

$

3,152

 

Charge-offs

 

 

—

 

 

 

(1

)

 

 

(1

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(2

)

Recoveries

 

 

—

 

 

 

32

 

 

 

—

 

 

 

195

 

 

 

2

 

 

 

—

 

 

 

—

 

 

 

229

 

Provision

 

 

15

 

 

 

14

 

 

 

1,415

 

 

 

(186

)

 

 

9

 

 

 

0

 

 

 

(77

)

 

 

1,190

 

Ending balance

 

$

38

 

 

$

627

 

 

$

2,213

 

 

$

1,643

 

 

$

33

 

 

$

15

 

 

$

0

 

 

$

4,569

 

 

 

For the Nine Months Ended September 30, 2021

 

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

120

 

 

$

290

 

 

$

314

 

 

$

1,702

 

 

$

35

 

 

$

18

 

 

$

310

 

 

$

2,789

 

Charge-offs

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(49

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(49

)

Recoveries

 

 

—

 

 

 

19

 

 

 

—

 

 

 

28

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

47

 

Provision

 

 

9

 

 

 

149

 

 

 

49

 

 

 

689

 

 

 

(15

)

 

 

11

 

 

 

(344

)

 

 

548

 

Ending balance

 

$

129

 

 

$

458

 

 

$

363

 

 

$

2,370

 

 

$

20

 

 

$

29

 

 

$

(34

)

 

$

3,335

 

 

 

The majority of the increase in the allowance for loan losses allocated to the commercial real estate loans can be attributed to the risk associated with an increase in our commercial real estate loan balances in relation to other loan categories. Please see the "Credit Quality Information" section below for further details.

 

The following table illustrates the balance of loans individually evaluated vs. collectively evaluated for impairment at September 30, 2022 and December 31, 2021.

 

 

 

Agriculture
Loans

 

 

Commercial and PPP
Loans

 

 

Commercial
Real Estate
Loans

 

 

Residential
Real Estate
Loan

 

 

Consumer
Loans

 

 

Municipal
Loans

 

 

Unallocated
Loans

 

 

Total

 

(In Thousands)

 

As of September 30, 2022

 

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance

 

$

38

 

 

$

627

 

 

$

2,213

 

 

$

1,643

 

 

$

33

 

 

$

15

 

 

$

0

 

 

$

4,569

 

Ending balance: individually
   evaluated for impairment

 

$

—

 

 

$

—

 

 

$

—

 

 

$

16

 

 

$

2

 

 

$

—

 

 

$

—

 

 

$

18

 

Ending balance: collectively evaluated
   for impairment

 

$

38

 

 

$

627

 

 

$

2,213

 

 

$

1,627

 

 

$

31

 

 

$

15

 

 

$

0

 

 

$

4,551

 

Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance

 

$

13,977

 

 

$

98,475

 

 

$

482,367

 

 

$

251,832

 

 

$

11,929

 

 

$

5,404

 

 

 

 

 

$

863,984

 

Ending balance: individually
   evaluated for impairment

 

$

100

 

 

$

35

 

 

$

2,410

 

 

$

3,140

 

 

$

2

 

 

$

—

 

 

 

 

 

$

5,687

 

Ending balance: loans acquired with deteriorated credit
   quality

 

$

—

 

 

$

—

 

 

$

4,218

 

 

$

593

 

 

$

—

 

 

$

—

 

 

 

 

 

$

4,811

 

Ending balance: collectively evaluated
   for impairment

 

$

13,877

 

 

$

98,440

 

 

$

475,739

 

 

$

248,099

 

 

$

11,927

 

 

$

5,404

 

 

 

 

 

$

853,486

 

 

 

 

Agriculture
Loans

 

 

Commercial and PPP
Loans

 

 

Commercial
Real Estate
Loans

 

 

Residential
Real Estate
Loan

 

 

Consumer
Loans

 

 

Municipal
Loans

 

 

Unallocated
Loans

 

 

Total

 

(In Thousands)

 

As of December 31, 2021

 

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance

 

$

23

 

 

$

582

 

 

$

799

 

 

$

1,634

 

 

$

22

 

 

$

15

 

 

 

77

 

 

$

3,152

 

Ending balance: individually
   evaluated for impairment

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

Ending balance: collectively evaluated
   for impairment

 

$

23

 

 

$

582

 

 

$

799

 

 

$

1,634

 

 

$

22

 

 

$

15

 

 

 

77

 

 

$

3,152

 

Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance

 

$

9,341

 

 

$

122,378

 

 

$

338,749

 

 

$

231,302

 

 

$

7,087

 

 

$

6,182

 

 

 

 

 

$

715,039

 

Ending balance: individually
   evaluated for impairment

 

$

-

 

 

$

42

 

 

$

-

 

 

$

709

 

 

$

-

 

 

$

-

 

 

 

 

 

$

751

 

Ending balance: loans acquired with deteriorated credit
   quality

 

$

-

 

 

$

512

 

 

$

4,394

 

 

$

650

 

 

$

-

 

 

$

-

 

 

 

 

 

$

5,556

 

Ending balance: collectively evaluated
   for impairment

 

$

9,341

 

 

$

121,824

 

 

$

334,355

 

 

$

229,943

 

 

$

7,087

 

 

$

6,182

 

 

 

 

 

$

708,732

 

The Company evaluated whether loans acquired in the Merger were within the scope of ASC 310-30, Receivables - Loans and Debt Securities Acquired with Deteriorated Credit Quality. Purchased credit-impaired loans ("PCI") are loans that have evidence of credit deterioration since origination and it is probable at the date of acquisition that the Company will not collect all contractually required principal and interest payments. The fair value of purchased credit-impaired loans, on the acquisition date, was determined, primarily based on the fair value of loan collateral. The carrying value of purchased loans acquired with deteriorated credit quality as a result of the Merger was $4,811 and $5,556 at September 30, 2022 and December 31, 2021, respectively.

On the acquisition date, the preliminary estimate of the unpaid principal balance for all PCI loans acquired through the Merger was $6,627 and the estimated fair value of the loans was $5,384. Total contractually required payments on these loans, including

interest, at acquisition was $8,509. The Company's preliminary estimate of expected cash flows was $5,793 at the acquisition date. The Company established a credit risk related non-accretable discount of $2,716 relating to these impaired loans, reflected in the recorded net fair value. The Company further estimated the timing and amount of expected cash flows in excess of the estimated fair value and established an accretable discount of $409 relating to these impaired loans.

The following table provides activity for the accretable yield of PCI loans for the three and nine months ended September 30, 2022:

(In Thousands)

 

Three Months Ended September 30, 2022

 

 

Nine Months Ended September 30, 2022

 

Accretable yield, beginning of period

 

$

181

 

 

$

307

 

Additions

 

 

—

 

 

 

—

 

Accretion of income

 

 

(22

)

 

 

(148

)

Reclassifications from nonaccretable difference due to improvement in expected cash flows

 

 

—

 

 

 

—

 

Other changes, net

 

 

(152

)

 

 

(152

)

Accretable yield, end of period

 

$

7

 

 

$

7

 

Credit Quality Information

The following tables represent credit exposures by internally assigned grades as of September 30, 2022 and December 31, 2021. The grading analysis estimates the capability of the borrower to repay the contractual obligations of the loan agreements as scheduled or at all.

The Company’s internally assigned grades are as follows:

Pass – loans that are protected by the current net worth and paying capacity of the obligor or by the value of the underlying collateral. There are four sub-grades within the Pass category to further distinguish the loan.

Special Mention – loans where a potential weakness or risk exists, which could cause a more serious problem if not corrected.

Substandard – loans that have a well-defined weakness based on objective evidence and are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

Doubtful – loans classified as Doubtful have all the weaknesses inherent in a Substandard asset. In addition, these weaknesses make collection or liquidation in full highly questionable and improbable, based on existing circumstances.

Loss – loans classified as a Loss are considered uncollectible and are immediately charged against allowances.

The following table presents the classes of the loan portfolio summarized by the internal risk rating system as of September 30, 2022 and December 31, 2021:

(In Thousands)

 

 

 

 

Special

 

 

 

 

 

 

 

 

 

 

As of September 30, 2022

 

Pass

 

 

Mention

 

 

Substandard

 

 

Doubtful

 

 

Total

 

Agriculture loans

 

$

13,877

 

 

$

-

 

 

$

100

 

 

$

-

 

 

$

13,977

 

Commercial and PPP loans

 

 

93,894

 

 

 

2,195

 

 

 

2,386

 

 

 

-

 

 

 

98,475

 

Commercial real estate loans

 

 

474,045

 

 

 

1,694

 

 

 

4,680

 

 

 

1,948

 

 

 

482,367

 

Residential real estate loans

 

 

246,512

 

 

 

1,422

 

 

 

3,898

 

 

 

-

 

 

 

251,832

 

Consumer loans

 

 

11,927

 

 

 

-

 

 

 

2

 

 

 

-

 

 

 

11,929

 

Municipal loans

 

 

5,404

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

5,404

 

Total

 

$

845,659

 

 

$

5,311

 

 

$

11,066

 

 

$

1,948

 

 

$

863,984

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In Thousands)

 

 

 

 

Special

 

 

 

 

 

 

 

 

 

 

As of December 31, 2021

 

Pass

 

 

Mention

 

 

Substandard

 

 

Doubtful

 

 

Total

 

Agriculture loans

 

$

9,341

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

9,341

 

Commercial and PPP

 

 

117,918

 

 

 

3,757

 

 

 

703

 

 

 

-

 

 

 

122,378

 

Commercial real estate loans

 

 

332,156

 

 

 

2,077

 

 

 

4,516

 

 

 

-

 

 

 

338,749

 

Residential real estate loans

 

 

228,664

 

 

 

1,657

 

 

 

981

 

 

 

-

 

 

 

231,302

 

Consumer loans

 

 

7,087

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

7,087

 

Municipal loans

 

 

6,182

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

6,182

 

Total

 

$

701,348

 

 

$

7,491

 

 

$

6,200

 

 

$

-

 

 

$

715,039

 

 

 

The following tables present an aging analysis of the recorded investment of past-due loans at September 30, 2022 and December 31, 2021.

 

 

September 30, 2022

 

(In Thousands)

 

30-59
Days
Past Due

 

 

60-89
Days
Past Due

 

 

90 Days
or Greater
Past Due

 

 

Total
Past Due

 

 

Current

 

 

Purchased Credit Impaired Loans

 

 

Total
  Loans

 

 

Total > 90
Days and
Accruing

 

Agriculture loans

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

13,977

 

 

$

—

 

 

$

13,977

 

 

$

—

 

Commercial and PPP loans

 

 

18

 

 

 

19

 

 

 

13

 

 

 

50

 

 

 

98,425

 

 

 

-

 

 

 

98,475

 

 

 

13

 

Commercial real estate loans

 

 

-

 

 

 

-

 

 

 

262

 

 

 

262

 

 

 

477,887

 

 

 

4,218

 

 

 

482,367

 

 

 

73

 

Residential real estate loans

 

 

1,524

 

 

 

617

 

 

 

451

 

 

 

2,592

 

 

 

248,647

 

 

 

593

 

 

 

251,832

 

 

 

28

 

Consumer loans

 

 

24

 

 

 

-

 

 

 

2

 

 

 

26

 

 

 

11,903

 

 

 

-

 

 

 

11,929

 

 

 

-

 

Municipal loans

 

 

-

 

 

 

144

 

 

 

-

 

 

 

144

 

 

 

5,260

 

 

 

-

 

 

 

5,404

 

 

 

-

 

Total

 

$

1,566

 

 

$

780

 

 

$

728

 

 

$

3,074

 

 

$

856,099

 

 

$

4,811

 

 

$

863,984

 

 

$

114

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2021

 

(In Thousands)

 

30-59
Days
Past Due

 

 

60-89
Days
Past Due

 

 

90 Days
or Greater
Past Due

 

 

Total
Past Due

 

 

Current

 

 

Purchased Credit Impaired Loans

 

 

Total
  Loans

 

 

Total > 90
Days and
  Accruing

 

Agriculture loans

 

$

83

 

 

$

-

 

 

$

-

 

 

$

83

 

 

$

9,258

 

 

$

-

 

 

$

9,341

 

 

$

-

 

Commercial and PPP loans

 

 

66

 

 

 

-

 

 

 

-

 

 

 

66

 

 

 

121,800

 

 

 

512

 

 

 

122,378

 

 

 

-

 

Commercial real estate loans

 

 

245

 

 

 

-

 

 

 

-

 

 

 

245

 

 

 

334,110

 

 

 

4,394

 

 

 

338,749

 

 

 

-

 

Residential real estate loans

 

 

1,427

 

 

 

211

 

 

 

869

 

 

 

2,507

 

 

 

228,145

 

 

 

650

 

 

 

231,302

 

 

 

762

 

Consumer loans

 

 

31

 

 

 

2

 

 

 

-

 

 

 

33

 

 

 

7,054

 

 

 

-

 

 

 

7,087

 

 

 

-

 

Municipal loans

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

6,182

 

 

 

-

 

 

 

6,182

 

 

 

-

 

Total

 

$

1,852

 

 

$

213

 

 

$

869

 

 

$

2,934

 

 

$

706,549

 

 

$

5,556

 

 

$

715,039

 

 

$

762

 

 

Impaired Loans

The following tables present the recorded investment and unpaid principal balances for impaired loans and related allowance, if applicable. Also presented are the average recorded investments and the related amount of interest recognized during the time within the period that the impaired loans were impaired.

 

 

As of September 30, 2022

 

(In Thousands)

 

Recorded Investment

 

 

Unpaid Principal Balance

 

 

Related Allowance

 

With no related allowance recorded:

 

 

 

 

 

 

 

 

 

Agriculture loans

 

$

100

 

 

$

100

 

 

$

—

 

Commercial loans

 

 

35

 

 

 

55

 

 

 

—

 

Commercial real estate loans

 

 

2,410

 

 

 

2,410

 

 

 

—

 

Residential real estate loans

 

 

2,966

 

 

 

3,006

 

 

 

—

 

Consumer loans

 

 

—

 

 

 

—

 

 

 

—

 

Municipal loans

 

 

—

 

 

 

—

 

 

 

—

 

With an allowance recorded:

 

 

 

 

 

 

 

 

 

Agriculture loans

 

$

—

 

 

$

—

 

 

$

—

 

Commercial loans

 

 

—

 

 

 

—

 

 

 

—

 

Commercial real estate loans

 

 

—

 

 

 

—

 

 

 

—

 

Residential real estate loans

 

 

174

 

 

 

175

 

 

 

16

 

Consumer loans

 

 

2

 

 

 

2

 

 

 

2

 

Municipal loans

 

 

—

 

 

 

—

 

 

 

—

 

Total

 

 

 

 

 

 

 

 

 

Agriculture loans

 

$

100

 

 

$

100

 

 

$

—

 

Commercial loans

 

 

35

 

 

 

55

 

 

 

—

 

Commercial real estate loans

 

 

2,410

 

 

 

2,410

 

 

 

—

 

Residential real estate loans

 

 

3,140

 

 

 

3,181

 

 

 

16

 

Consumer loans

 

 

2

 

 

 

2

 

 

 

2

 

Municipal loans

 

 

—

 

 

 

—

 

 

 

—

 

 

 

$

5,687

 

 

$

5,748

 

 

$

18

 

 

 

 

 

As of December 31, 2021

 

(In Thousands)

 

Recorded Investment

 

 

Unpaid Principal Balance

 

 

Related Allowance

 

With no related allowance recorded:

 

 

 

 

 

 

 

 

 

Agriculture loans

 

$

—

 

 

$

—

 

 

$

—

 

Commercial loans

 

 

42

 

 

 

61

 

 

 

—

 

Commercial real estate loans

 

 

—

 

 

 

—

 

 

 

—

 

Residential real estate loans

 

 

709

 

 

 

779

 

 

 

—

 

Consumer loans

 

 

—

 

 

 

—

 

 

 

—

 

Municipal loans

 

 

—

 

 

 

—

 

 

 

—

 

 

 

 

 

 

 

 

 

 

 

With an allowance recorded:

 

 

 

 

 

 

 

 

 

Agriculture loans

 

$

—

 

 

$

—

 

 

$

—

 

Commercial loans

 

 

—

 

 

 

—

 

 

 

—

 

Commercial real estate loans

 

 

—

 

 

 

—

 

 

 

—

 

Residential real estate loans

 

 

—

 

 

 

—

 

 

 

—

 

Consumer loans

 

 

—

 

 

 

—

 

 

 

—

 

Municipal loans

 

 

—

 

 

 

—

 

 

 

—

 

 

 

 

—

 

 

 

—

 

 

 

—

 

Total

 

 

 

 

 

 

 

 

 

Agriculture loans

 

$

—

 

 

$

—

 

 

$

—

 

Commercial loans

 

 

42

 

 

 

61

 

 

 

—

 

Commercial real estate loans

 

 

—

 

 

 

—

 

 

 

—

 

Residential real estate loans

 

 

709

 

 

 

779

 

 

 

—

 

Consumer loans

 

 

—

 

 

 

—

 

 

 

—

 

Municipal loans

 

 

—

 

 

 

—

 

 

 

—

 

 

 

$

751

 

 

$

840

 

 

$

—

 

 

 

 

 

 

For the Three Months Ended September 30,

 

 

 

2022

 

 

2021

 

(In Thousands)

 

Average
Recorded
Investment

 

 

Interest Income Recognized

 

 

Average
Recorded Investment

 

 

Interest Income Recognized

 

With no related allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

Agriculture loans

 

$

133

 

 

$

5

 

 

$

—

 

 

$

—

 

Commercial loans

 

 

37

 

 

 

—

 

 

 

—

 

 

 

—

 

Commercial real estate loans

 

 

2,421

 

 

 

65

 

 

 

—

 

 

 

—

 

Residential real estate loans

 

 

2,986

 

 

 

36

 

 

 

138

 

 

 

—

 

Consumer loans

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Municipal loans

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

 

5,577

 

 

 

106

 

 

 

138

 

 

 

—

 

With an allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

Agriculture loans

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

Commercial loans

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Commercial real estate loans

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Residential real estate loans

 

 

174

 

 

 

3

 

 

 

—

 

 

 

—

 

Consumer loans

 

 

2

 

 

 

—

 

 

 

—

 

 

 

—

 

Municipal loans

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

 

176

 

 

 

3

 

 

 

—

 

 

 

—

 

Total

 

$

5,753

 

 

$

109

 

 

$

138

 

 

$

—

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Nine Months Ended September 30,

 

 

 

2022

 

 

2021

 

(In Thousands)

 

Average
Recorded
Investment

 

 

Interest Income
Recognized

 

 

Average
Recorded
Investment

 

 

Interest Income
Recognized

 

With no related allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

Agriculture loans

 

$

210

 

 

$

8

 

 

$

—

 

 

$

—

 

Commercial loans

 

 

35

 

 

 

—

 

 

 

—

 

 

 

—

 

Commercial real estate loans

 

 

2,451

 

 

 

100

 

 

 

—

 

 

 

—

 

Residential real estate loans

 

 

3,048

 

 

 

57

 

 

 

141

 

 

 

—

 

Consumer loans

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Municipal loans

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

$

5,744

 

 

$

165

 

 

$

141

 

 

$

—

 

With an allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

Agriculture loans

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

Commercial loans

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Commercial real estate loans

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Residential real estate loans

 

 

175

 

 

 

5

 

 

 

—

 

 

 

—

 

Consumer loans

 

 

2

 

 

 

—

 

 

 

—

 

 

 

—

 

Municipal loans

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

 

177

 

 

 

5

 

 

 

—

 

 

 

—

 

Total

 

$

5,921

 

 

$

170

 

 

$

141

 

 

$

—

 

 

 

The following table presents nonaccrual loans by classes of the loan portfolio:

(In Thousands)

 

September 30,
2022

 

 

December 31,
2021

 

Commercial loans

 

$

36

 

 

$

39

 

Commercial real estate loans

 

 

290

 

 

 

144

 

Residential real estate loans

 

 

1,537

 

 

 

449

 

Consumer loans

 

 

2

 

 

 

2

 

Total

 

$

1,865

 

 

$

634

 

 

The above nonaccrual loans as of September 30, 2022 excludes PCI loans with a total balance of $4,811. Management does not consider these loans to be non-performing as they are accounted for under the acrretable yield method and are performing in line with expectations as of September 30, 2022.

Approximately $482,367 or 55.8% of the Bank’s loan portfolio was in commercial real estate loans at September 30, 2022. While the Bank does not have a concentration of credit risk with any single borrower or industry, repayments on loans in these portfolios can be negatively influenced by decreases in real estate values. The Bank mitigates this risk through conservative underwriting policies and procedures. In addition, $127,127 of real estate-commercial loans were owner occupied properties as of September 30, 2022. These types of loans are generally considered to involve less risk than nonowner-occupied mortgages.

At September 30, 2022 and December 31, 2021, the carrying amount of borrowings secured by loans pledged to the FHLB under its blanket lien was $0 and $1,120, respectively.

Loan Modifications and Troubled Debt Restructurings (TDRs)

A loan is considered to be a TDR loan when the Company grants a concession to the borrower because of the borrower’s financial condition that it would not otherwise consider. Such concessions include the reduction of interest rates, forgiveness of principal or interest, or other modifications of interest rates that are less than the current market rate for new obligations with similar risk.

The Bank may grant a concession or modification for economic or legal reasons related to a borrower’s financial condition that it would not otherwise consider resulting in a modified loan which is then identified as a troubled debt restructuring (TDR). The Bank may modify loans through rate reductions, extensions of maturity, interest only payments, or payment modifications to better match the timing of cash flows due under the modified terms with the cash flows from the borrowers’ operations. Loan modifications are intended to minimize the economic loss and to avoid foreclosure or repossession of the collateral. TDRs are considered impaired loans for purposes of calculating the Bank’s allowance for loan losses.

The Bank identifies loans for potential restructure primarily through direct communication with the borrower and evaluation of the borrower’s financial statements, revenue projections, tax returns, and credit reports. Even if the borrower is not presently in default, management will consider the likelihood that cash flow shortages, adverse economic conditions, and negative trends may result in a payment default in the near future. As of September 30, 2022 and December 31, 2021, the Company had no loans identified as TDRs. There were also no new loan modifications during the three and nine months ended September 30, 2022 and 2021 that were considered TDRs.