LOANS AND THE ALLOWANCE FOR LOAN LOSSES

12 Months Ended

Dec. 31, 2021

LOANS AND THE ALLOWANCE FOR LOAN LOSSES

LOANS AND THE ALLOWANCE FOR LOAN LOSSES

NOTE 5 – LOANS AND THE ALLOWANCE FOR LOAN LOSSES

Major categories of loans as of December 31, 2021 and 2020 are summarized as follows:

	December 31,		December 31,
	2021		2020
	(dollars in thousands)
Commercial and industrial	$	286,946	$	393,312
Agricultural and farmland		247,796		222,723
Commercial real estate - owner occupied		234,544		222,360
Commercial real estate - non-owner occupied		684,023		520,395
Multi-family		263,911		236,391
Construction and land development		298,048		225,652
One-to-four family residential		327,837		306,775
Municipal, consumer, and other		156,584		119,398
Loans, before allowance for loan losses		2,499,689		2,247,006
Allowance for loan losses		(23,936)		(31,838)
Loans, net of allowance for loan losses	$	2,475,753	$	2,215,168
Paycheck Protection Program (PPP) loans (included above)
Commercial and industrial	$	28,404	$	153,860
Agricultural and farmland		913		3,049
Municipal, consumer, and other		171		6,587
Total PPP loans	$	29,488	$	163,496

The following tables detail activity in the allowance for loan losses for the years ended December 31:

					Commercial		Commercial								Municipal,
	Commercial		Agricultural		Real Estate		Real Estate				Construction		One-to-four		Consumer,
	and		and		Owner		Non-owner				and Land		Family		and
	Industrial		Farmland		Occupied		Occupied		Multi-Family		Development		Residential		Other		Total
	(dollars in thousands)
Balance, December 31, 2018	$	3,748	$	2,650	$	2,506	$	2,644	$	912	$	4,176	$	2,782	$	1,091	$	20,509
Provision for loan losses		1,139		146		(376)		1,110		153		(1,640)		513		2,359		3,404
Charge-offs		(886)		(30)		(407)		(111)		(41)		(9)		(1,105)		(684)		(3,273)
Recoveries		440		—		56		20		—		450		350		343		1,659
Balance, December 31, 2019		4,441		2,766		1,779		3,663		1,024		2,977		2,540		3,109		22,299
Provision for loan losses		677		(1,946)		961		7,862		933		1,032		(894)		1,907		10,532
Charge-offs		(1,784)		(27)		(39)		(349)		—		(27)		(155)		(587)		(2,968)
Recoveries		595		—		440		75		—		250		310		305		1,975
Balance, December 31, 2020		3,929		793		3,141		11,251		1,957		4,232		1,801		4,734		31,838
Provision for loan losses		(1,474)		52		(1,280)		(3,130)		(694)		340		(472)		(1,419)		(8,077)
Charge-offs		(668)		—		(30)		—		—		—		(267)		(449)		(1,414)
Recoveries		653		—		9		24		—		342		249		312		1,589
Balance, December 31, 2021	$	2,440	$	845	$	1,840	$	8,145	$	1,263	$	4,914	$	1,311	$	3,178	$	23,936

The following tables present the recorded investments in loans and the allowance for loan losses by category as of December 31:

					Commercial		Commercial								Municipal,
	Commercial		Agricultural		Real Estate		Real Estate				Construction		One-to-four		Consumer,
	and		and		Owner		Non-owner				and Land		Family		and
December 31, 2021	Industrial		Farmland		Occupied		Occupied		Multi-Family		Development		Residential		Other		Total
Loan balances:	(dollars in thousands)
Collectively evaluated for impairment	$	272,064	$	247,021	$	216,794	$	641,555	$	262,701	$	293,548	$	314,807	$	143,510	$	2,392,000
Individually evaluated for impairment		14,744		12		12,332		29,575		—		2,018		6,897		13,041		78,619
Acquired with deteriorated credit quality		138		763		5,418		12,893		1,210		2,482		6,133		33		29,070
Total	$	286,946	$	247,796	$	234,544	$	684,023	$	263,911	$	298,048	$	327,837	$	156,584	$	2,499,689
Allowance for loan losses:
Collectively evaluated for impairment	$	2,253	$	845	$	1,480	$	5,138	$	1,259	$	4,895	$	1,099	$	1,302	$	18,271
Individually evaluated for impairment		187		—		327		2,999		—		—		210		1,875		5,598
Acquired with deteriorated credit quality		—		—		33		8		4		19		2		1		67
Total	$	2,440	$	845	$	1,840	$	8,145	$	1,263	$	4,914	$	1,311	$	3,178	$	23,936
					Commercial		Commercial								Municipal,
	Commercial		Agricultural		Real Estate		Real Estate				Construction		One-to-four		Consumer,
	and		and		Owner		Non-owner				and Land		Family		and
December 31, 2020	Industrial		Farmland		Occupied		Occupied		Multi-Family		Development		Residential		Other		Total
Loan balances:	(dollars in thousands)
Collectively evaluated for impairment	$	387,072	$	217,077	$	201,417	$	480,165	$	234,252	$	219,822	$	287,845	$	105,796	$	2,133,446
Individually evaluated for impairment		5,312		4,793		13,132		25,993		876		3,809		10,343		13,546		77,804
Acquired with deteriorated credit quality		928		853		7,811		14,237		1,263		2,021		8,587		56		35,756
Total	$	393,312	$	222,723	$	222,360	$	520,395	$	236,391	$	225,652	$	306,775	$	119,398	$	2,247,006
Allowance for loan losses:
Collectively evaluated for impairment	$	2,736	$	771	$	2,306	$	6,736	$	1,950	$	3,984	$	1,237	$	1,432	$	21,152
Individually evaluated for impairment		1,193		22		429		4,255		—		222		560		3,301		9,982
Acquired with deteriorated credit quality		—		—		406		260		7		26		4		1		704
Total	$	3,929	$	793	$	3,141	$	11,251	$	1,957	$	4,232	$	1,801	$	4,734	$	31,838

The following tables present loans individually evaluated for impairment by category of loans as of December 31:

	Unpaid
	Principal		Recorded		Related
December 31, 2021	Balance		Investment		Allowance
With an allowance recorded:	(dollars in thousands)
Commercial and industrial	$	303	$	303	$	187
Agricultural and farmland		—		—		—
Commercial real estate - owner occupied		3,013		3,013		327
Commercial real estate - non-owner occupied		14,912		14,893		2,999
Multi-family		—		—		—
Construction and land development		—		—		—
One-to-four family residential		1,421		1,314		210
Municipal, consumer, and other		8,523		8,498		1,875
Total	$	28,172	$	28,021	$	5,598
With no related allowance:
Commercial and industrial	$	14,452	$	14,441	$	—
Agricultural and farmland		12		12		—
Commercial real estate - owner occupied		9,534		9,319		—
Commercial real estate - non-owner occupied		14,755		14,682		—
Multi-family		—		—		—
Construction and land development		2,112		2,018		—
One-to-four family residential		7,129		5,583		—
Municipal, consumer, and other		4,603		4,543		—
Total	$	52,597	$	50,598	$	—
Total loans individually evaluated for impairment:
Commercial and industrial	$	14,755	$	14,744	$	187
Agricultural and farmland		12		12		—
Commercial real estate - owner occupied		12,547		12,332		327
Commercial real estate - non-owner occupied		29,667		29,575		2,999
Multi-family		—		—		—
Construction and land development		2,112		2,018		—
One-to-four family residential		8,550		6,897		210
Municipal, consumer, and other		13,126		13,041		1,875
Total	$	80,769	$	78,619	$	5,598

	Unpaid
	Principal		Recorded		Related
December 31, 2020	Balance		Investment		Allowance
With an allowance recorded:	(dollars in thousands)
Commercial and industrial	$	2,737	$	2,725	$	1,193
Agricultural and farmland		169		168		22
Commercial real estate - owner occupied		3,072		3,040		429
Commercial real estate - non-owner occupied		20,726		20,394		4,255
Multi-family		—		—		—
Construction and land development		2,081		2,055		222
One-to-four family residential		2,963		2,739		560
Municipal, consumer, and other		12,207		12,181		3,301
Total	$	43,955	$	43,302	$	9,982
With no related allowance:
Commercial and industrial	$	3,322	$	2,587	$	—
Agricultural and farmland		4,625		4,625		—
Commercial real estate - owner occupied		10,164		10,092		—
Commercial real estate - non-owner occupied		5,727		5,599		—
Multi-family		876		876		—
Construction and land development		1,762		1,754		—
One-to-four family residential		9,325		7,604		—
Municipal, consumer, and other		1,431		1,365		—
Total	$	37,232	$	34,502	$	—
Total loans individually evaluated for impairment:
Commercial and industrial	$	6,059	$	5,312	$	1,193
Agricultural and farmland		4,794		4,793		22
Commercial real estate - owner occupied		13,236		13,132		429
Commercial real estate - non-owner occupied		26,453		25,993		4,255
Multi-family		876		876		—
Construction and land development		3,843		3,809		222
One-to-four family residential		12,288		10,343		560
Municipal, consumer, and other		13,638		13,546		3,301
Total	$	81,187	$	77,804	$	9,982

The following table presents the average recorded investment and interest income recognized for loans individually evaluated for impairment by category of loans during the years ended December 31:

	Year Ended December 31,
	2021				2020				2019
	Average		Interest		Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized		Investment		Recognized
With an allowance recorded:	(dollars in thousands)
Commercial and industrial	$	1,593	$	89	$	3,031	$	169	$	5,275	$	152
Agricultural and farmland		83		4		273		9		464		12
Commercial real estate - owner occupied		3,052		177		1,622		98		874		43
Commercial real estate - non-owner occupied		16,494		791		6,345		220		101		7
Multi-family		—		—		—		—		—		—
Construction and land development		554		27		2,441		116		3,988		171
One-to-four family residential		1,988		77		3,120		110		3,414		79
Municipal, consumer, and other		8,681		158		10,617		286		9,284		396
Total	$	32,445	$	1,323	$	27,449	$	1,008	$	23,400	$	860
With no related allowance:
Commercial and industrial	$	7,125	$	330	$	4,004	$	251	$	6,744	$	206
Agricultural and farmland		290		17		11,061		561		14,826		824
Commercial real estate - owner occupied		7,771		344		11,056		528		10,190		483
Commercial real estate - non-owner occupied		10,339		432		14,412		458		3,465		131
Multi-family		434		10		447		10		1,344		9
Construction and land development		2,107		28		892		23		107		4
One-to-four family residential		6,248		192		8,022		316		8,360		240
Municipal, consumer, and other		4,666		86		3,089		115		4,874		104
Total	$	38,980	$	1,439	$	52,983	$	2,262	$	49,910	$	2,001
Total loans individually evaluated for impairment:
Commercial and industrial	$	8,718	$	419	$	7,035	$	420	$	12,019	$	358
Agricultural and farmland		373		21		11,334		570		15,290		836
Commercial real estate - owner occupied		10,823		521		12,678		626		11,064		526
Commercial real estate - non-owner occupied		26,833		1,223		20,757		678		3,566		138
Multi-family		434		10		447		10		1,344		9
Construction and land development		2,661		55		3,333		139		4,095		175
One-to-four family residential		8,236		269		11,142		426		11,774		319
Municipal, consumer, and other		13,347		244		13,706		401		14,158		500
Total	$	71,425	$	2,762	$	80,432	$	3,270	$	73,310	$	2,861

The following tables present the recorded investment in loans by category based on current payment and accrual status as of December 31:

	Accruing Interest
			30 - 89 Days		90+ Days				Total
December 31, 2021	Current		Past Due		Past Due		Nonaccrual		Loans
	(dollars in thousands)
Commercial and industrial	$	286,563	$	9	$	—	$	374	$	286,946
Agricultural and farmland		247,772		24		—		—		247,796
Commercial real estate - owner occupied		234,441		103		—		—		234,544
Commercial real estate - non-owner occupied		683,029		823		—		171		684,023
Multi-family		263,911		—		—		—		263,911
Construction and land development		297,465		64		—		519		298,048
One-to-four family residential		325,780		383		32		1,642		327,837
Municipal, consumer, and other		156,297		214		16		57		156,584
Total	$	2,495,258	$	1,620	$	48	$	2,763	$	2,499,689

	Accruing Interest
			30 - 89 Days		90+ Days				Total
December 31, 2020	Current		Past Due		Past Due		Nonaccrual		Loans
	(dollars in thousands)
Commercial and industrial	$	392,490	$	—	$	—	$	822	$	393,312
Agricultural and farmland		222,723		—		—		—		222,723
Commercial real estate - owner occupied		221,308		112		—		940		222,360
Commercial real estate - non-owner occupied		516,387		—		—		4,008		520,395
Multi-family		236,391		—		—		—		236,391
Construction and land development		225,508		—		—		144		225,652
One-to-four family residential		301,282		984		595		3,914		306,775
Municipal, consumer, and other		119,055		211		21		111		119,398
Total	$	2,235,144	$	1,307	$	616	$	9,939	$	2,247,006

The following tables present total loans by category based on their assigned risk ratings determined by management as of December 31:

December 31, 2021	Pass		Pass-Watch		Substandard		Doubtful		Total
	(dollars in thousands)
Commercial and industrial	$	267,088	$	5,114	$	14,744	$	—	$	286,946
Agricultural and farmland		221,898		25,213		685		—		247,796
Commercial real estate - owner occupied		198,862		24,098		11,584		—		234,544
Commercial real estate - non-owner occupied		619,212		32,372		32,439		—		684,023
Multi-family		241,362		22,549		—		—		263,911
Construction and land development		268,556		27,474		2,018		—		298,048
One-to-four family residential		308,951		11,221		7,665		—		327,837
Municipal, consumer, and other		143,299		244		13,041		—		156,584
Total	$	2,269,228	$	148,285	$	82,176	$	—	$	2,499,689

December 31, 2020	Pass		Pass-Watch		Substandard		Doubtful		Total
	(dollars in thousands)
Commercial and industrial	$	368,843	$	18,258	$	6,211	$	—	$	393,312
Agricultural and farmland		191,662		25,540		5,521		—		222,723
Commercial real estate - owner occupied		176,823		31,990		13,547		—		222,360
Commercial real estate - non-owner occupied		432,752		58,699		28,944		—		520,395
Multi-family		204,449		31,066		876		—		236,391
Construction and land development		193,646		28,193		3,813		—		225,652
One-to-four family residential		280,198		14,526		12,051		—		306,775
Municipal, consumer, and other		105,539		312		13,547		—		119,398
Total	$	1,953,912	$	208,584	$	84,510	$	—	$	2,247,006

There were no troubled debt restructurings during the year ended December 31, 2021. The following tables present the financial effect of troubled debt restructurings for the years ended December 31, 2020 and 2019:

						Charge-offs
		Recorded Investment				and Specific
Year Ended December 31, 2020	Number	Pre-Modification		Post-Modification		Reserves
	(dollars in thousands)
Commercial real estate - owner occupied	1		853		853		—
Total	1	$	853	$	853	$	—
						Charge-offs
		Recorded Investment				and Specific
Year Ended December 31, 2019	Number	Pre-Modification		Post-Modification		Reserves
	(dollars in thousands)
Commercial and industrial	3	$	516	$	516	$	—
Agricultural and farmland	2		392		392		—
Commercial real estate - owner occupied	1		170		170		—
One-to-four family residential	1		21		21		—
Total	7	$	1,099	$	1,099	$	—

During the years ended December 31, 2020 and 2019, all troubled debt restructurings were the result of a payment concession. As of December 31, 2021 and 2020, there were no troubled debt restructurings which had subsequent payment defaults within 12 months of the modification. For purposes of this disclosure, the Company considers “default” to mean 90 days or more past due as to interest or principal or were on nonaccrual status subsequent to restructuring.

As of December 31, 2021 and 2020, the Company had $3,512,000 and $8,950,000 of troubled debt restructurings, respectively. Restructured loans are evaluated for impairment quarterly as part of the Company’s determination of the allowance for loan losses. There were no material commitments to lend additional funds to debtors owing receivables whose terms have been modified in troubled debt restructurings.

The Coronavirus Aid, Relief, and Economic Security Act (the CARES Act), along with a joint statement issued by banking regulatory agencies, provided that short-term loan payment modifications to borrowers experiencing financial hardship due to COVID-19 made prior to January 1, 2022 generally do not need to be accounted for as a troubled debt restructuring. As of December 31, 2021 and 2020, the Company had loans totaling $204,000 and $27,986,000 that were granted a payment modification due to a COVID-19 related financial hardship and have not returned to regular payments. Substantially all modifications were in the form of a three-month interest-only period or a one-month payment deferral. Some borrowers have received more than one loan payment modification.

Changes in the accretable yield for loans acquired with deteriorated credit quality were as follows for the years ended December 31:

	Year Ended December 31,
	2021		2020		2019
	(dollars in thousands)
Beginning balance	$	1,397	$	1,662	$	2,101
Reclassification from non-accretable difference		508		288		822
Disposals		(1,089)		—		—
Accretion income		(403)		(553)		(1,261)
Ending balance	$	413	$	1,397	$	1,662