Loans

9 Months Ended

Sep. 30, 2022

NOTE 4 LOANS

Loan balances as of September 30, 2022 and December 31, 2021 are summarized below:


	(In Thousands)
Loans:	September 30, 2022			December 31, 2021
Consumer Real Estate	$	416,001		$	395,873
Agricultural Real Estate		205,089			198,343
Agricultural		128,615			118,368
Commercial Real Estate		1,063,661			848,477
Commercial and Industrial		229,388			208,270
Consumer		70,602			57,737
Other		30,662			32,089
		2,144,018			1,859,157
Less: Net deferred loan fees and costs		(1,402	)		(1,738	)
		2,142,616			1,857,419
Less: Allowance for loan losses		(19,990	)		(16,242	)
Loans - Net	$	2,122,626		$	1,841,177

Other loans primarily fund public improvements in the Bank’s service area.

The distribution of fixed rate loans and variable rate loans by major loan category is as follows as of September 30, 2022:


	(In Thousands)
	Fixed		Variable
Consumer Real Estate	$	293,912	$	122,089
Agricultural Real Estate		130,078		75,011
Agricultural		50,658		77,957
Commercial Real Estate		871,664		191,997
Commercial and Industrial		113,171		116,217
Consumer		67,154		3,448
Other		20,862		9,800

As of September 30, 2022 and December 31, 2021 one to four family residential mortgage loans amounting to $182.7 million and $193.2 million, respectively, have been pledged as security for future loans and existing loans the Bank has received from the Federal Home Loan Bank.

Unless listed separately, Other loans are included in the Commercial and Industrial category for the remainder of the tables in this Note 4.

The following table represents the contractual aging of the recorded investment (in thousands) in past due loans by portfolio classification of loans as of September 30, 2022 and December 31, 2021, net of deferred loan fees and costs:


September 30, 2022	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total Financing Receivables		Recorded Investment > 90 Days and Accruing

Consumer Real Estate	$	1,056	$	167	$	216	$	1,439	$	414,605	$	416,044	$	-
Agricultural Real Estate		189		216		1,550		1,955		202,832		204,787		-
Agricultural		435		88		831		1,354		127,464		128,818		-
Commercial Real Estate		1		-		180		181		1,061,723		1,061,904		-
Commercial and Industrial		203		52		23		278		259,722		260,000		-
Consumer		14		45		47		106		70,957		71,063		-
Total	$	1,898	$	568	$	2,847	$	5,313	$	2,137,303	$	2,142,616	$	-


December 31, 2021	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total Financing Receivables		Recorded Investment > 90 Days and Accruing

Consumer Real Estate	$	228	$	-	$	246	$	474	$	395,331	$	395,805	$	-
Agricultural Real Estate		436		-		-		436		197,597		198,033		-
Agricultural		-		-		-		-		118,504		118,504		-
Commercial Real Estate		-		-		180		180		846,930		847,110		-
Commercial and Industrial		21		131		149		301		239,837		240,138		-
Consumer		64		-		-		64		57,765		57,829		-
Total	$	749	$	131	$	575	$	1,455	$	1,855,964	$	1,857,419	$	-

The following table presents the recorded investment in nonaccrual loans by class of loans as of September 30, 2022 and December 31, 2021:


	(In Thousands)
	September 30, 2022		December 31, 2021

Consumer Real Estate	$	636	$	824
Agricultural Real Estate		2,214		6,477
Agricultural		1,334		20
Commercial Real Estate		1,178		600
Commercial & Industrial		57		149
Consumer		51		6
Total	$	5,470	$	8,076

Following are the characteristics and underwriting criteria for each major type of loan the Bank offers:

Consumer Real Estate: Purchase, refinance, or equity financing of one to four family owner occupied dwelling. Success in repayment is subject to borrower’s income, debt level, character in fulfilling payment obligations, employment, and others.

Agricultural Real Estate: Purchase of farm real estate or for permanent improvements to the farm real estate. Cash flow from the farm operation is the repayment source and is therefore subject to the financial success of the farm operation.

Agricultural: Loans for the production and housing of crops, fruits, vegetables, and livestock or to fund the purchase or re-finance of capital assets such as machinery and equipment and livestock. The production of crops and livestock is especially vulnerable to commodity prices and weather. The vulnerability to commodity prices is offset by the farmer’s ability to hedge their position by the use of various pricing mechanisms. The risk related to weather is often mitigated by crop insurance.

Commercial Real Estate: Construction, purchase, and refinance of business purpose real estate. Risks include potential construction delays and overruns, vacancies, collateral value subject to market value fluctuations, interest rate, market demands, borrower’s ability to repay in orderly fashion, and others. The Bank does employ stress testing on higher balance loans to mitigate risk by ensuring the customer’s ability to repay in a changing rate environment before granting loan approval.

Commercial and Industrial: Loans to proprietorships, partnerships, limited liability companies or corporations to provide temporary working capital and seasonal loans as well as long term loans for capital asset acquisition. Risks include adequacy of cash flow, reasonableness of projections, financial leverage, economic trends, management ability and estimated capital expenditures during the fiscal year. The Bank does employ stress testing on higher balance loans to mitigate risk by ensuring the customer's ability to repay in a changing rate environment before granting loan approval. Included in commercial loans for September 2022 and December 2021 were Paycheck Protection Program (PPP) loans, administered by the Small Business Administration (SBA), in the amounts of $7 thousand and $2.9 million, respectively. The PPP provided loans to eligible businesses through financial institutions like the Bank, with loans being eligible for forgiveness of some or all of the principal amount by the SBA if the borrower meets certain requirements. The SBA guarantees repayment of the loans to the Bank if the borrower’s loan is not forgiven and is then not repaid by the customer. Therefore, there is no allowance for loan losses related to these loans.

Consumer: Funding for individual and family purposes. Success in repayment is subject to borrower’s income, debt level, character in fulfilling payment obligations, employment, and others.

Other: Primarily funds public improvements in the Bank’s service area. Repayment ability is based on the continuance of the taxation revenue as the source of repayment.

The Bank uses a nine tier risk rating system to grade its loans. The grade of a loan may change during the life of the loan.

The risk ratings are described as follows.

Zero (0) Unclassified. Any loan which has not been assigned a classification.

One (1) Excellent. Credit to premier customers having the highest credit rating based on an extremely strong financial condition, which compares favorably with industry standards (upper quartile of RMA ratios). Financial statements indicate a sound earnings and financial ratio trend for several years with satisfactory profit margins and excellent liquidity exhibited. Prime credits may also be borrowers with loans fully secured by highly liquid collateral such as traded stocks, bonds, certificates of deposit, savings account, etc. No credit or collateral exceptions exist, and the loan adheres to The Bank's loan policy in every respect. Financing alternatives would be readily available and would qualify for unsecured credit. This rate is summarized by high liquidity, minimum risk, strong ratios, and low handling costs.

Two (2) Good. Desirable loans of somewhat less stature than rate 1, but with strong financial statements. Loan supported by financial statements containing strong balance sheets and a history of profitability. Probability of serious financial deterioration is unlikely. Possessing a sound repayment source (and a secondary source), which would allow repayment in a reasonable period of time. Individual loans backed by liquid personal assets, established history and unquestionable character.

Three (3) Satisfactory. Satisfactory loans of average or slightly above average risk – having some deficiency or vulnerability to changing economic conditions, but still fully collectible. Projects should normally demonstrate acceptable debt service coverage. There may be some weakness but with offsetting features of other support readily available. Loans that are meeting the terms of repayment.

Loans may be rated 3 when there is no recent information on which to base a current risk evaluation and the following conditions apply:

At inception, the loan was properly underwritten and did not possess an unwarranted level of credit risk;

At inception, the loan was secured with collateral possessing a loan-to-value adequate to protect The Bank from loss;

The loan exhibited two or more years of satisfactory repayment with a reasonable reduction of the principal balance;

During the period that the loan has been outstanding, there has been no evidence of any credit weakness. Some examples of weakness include slow payment, lack of cooperation by the borrower, breach of loan covenants, or the business is in an industry which is known to be experiencing problems. If any of these credit weaknesses is observed, a lower risk rating is warranted.

Four (4) Satisfactory / Monitored. A “4” (Satisfactory/Monitored) risk rating may be established for a loan considered satisfactory but which is of average credit risk due to financial weakness or uncertainty. The loans warrant a higher than average level of monitoring to ensure that weaknesses do not advance. The level of risk in Satisfactory/Monitored classification is considered acceptable and within normal underwriting guidelines, so long as the loan is given management supervision.

Five (5) Special Mention. Loans that possess some credit deficiency or potential weakness which deserve close attention, but which do not yet warrant substandard classification. Such loans pose unwarranted financial risk that, if not corrected, could weaken the loan and increase risk in the future. The key distinctions of a 5 (Special Mention) classification are that (1) it is indicative of an unwarranted level of risk, and (2) weaknesses are considered “potential” versus “defined” impairments to the primary source of loan repayment and collateral.

Six (6) Substandard. One or more of the following characteristics may be exhibited in loans classified substandard:

Loans which possess a defined credit weakness and the likelihood that a loan will be paid from the primary source are uncertain. Financial deterioration is underway and very close attention is warranted to ensure that the loan is collected without loss.

Loans are inadequately protected by the current net worth and paying capacity of the borrower.

The primary source of repayment is weakened, and The Bank is forced to rely on a secondary source of repayment such as collateral liquidation or guarantees.

Loans are characterized by the distinct possibility that The Bank will sustain some loss if deficiencies are not corrected.

Unusual courses of action are needed to maintain a high probability of repayment.

The borrower is not generating enough cash flow to repay loan principal; however, continues to make interest payments.

The lender is forced into a subordinate position or unsecured collateral position due to flaws in documentation.

Loans have been restructured so that payment schedules, terms and collateral represent concessions to the borrower when compared to the normal loan terms.

The lender is seriously contemplating foreclosure or legal action due to the apparent deterioration in the loan.

There is significant deterioration in the market conditions and the borrower is highly vulnerable to these conditions.

Seven (7) Doubtful. One or more of the following characteristics may be exhibited in loans classified Doubtful:

Loans have all of the weaknesses of those classified as Substandard. Additionally, however, these weaknesses make collection or liquidation in full based on existing conditions improbable.

The primary source of repayment is gone, and there is considerable doubt as to the quality of the secondary source of repayment.

The possibility of loss is high, but, because of certain important pending factors which may strengthen the loan, loss classification is deferred until its exact status is known. A Doubtful classification is established deferring the realization of the loss.

Eight (8) Loss. Loans are considered uncollectable and of such little value that continuing to carry them as assets on the institution’s financial statements is not feasible. Loans will be classified Loss when it is neither practical nor desirable to defer writing off or reserving all or a portion of a basically worthless asset, even though partial recovery may be possible at some time in the future.

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The following table represents the risk category of loans by portfolio class, net of deferred fees and costs, based on the most recent analysis performed as of September 30, 2022 and December 31, 2021:


	(In Thousands)
	Agricultural				Commercial		Commercial
	Real Estate		Agricultural		Real Estate		and Industrial		Other
September 30, 2022
1-2	$	9,608	$	5,358	$	14,227	$	1,195	$	-
3		50,781		33,381		303,291		66,129		11,110
4		127,806		88,476		705,358		155,223		19,552
5		5,024		240		15,322		3,214		-
6		11,568		1,363		23,706		3,577		-
7		-		-		-		-		-
8		-		-		-		-		-
Total	$	204,787	$	128,818	$	1,061,904	$	229,338	$	30,662


	Agricultural				Commercial		Commercial
	Real Estate		Agricultural		Real Estate		and Industrial		Other
December 31, 2021
1-2	$	8,720	$	4,178	$	10,894	$	4,604	$	-
3		42,180		38,623		238,132		46,547		11,408
4		129,301		75,164		568,038		152,736		20,681
5		4,599		227		14,509		986		-
6		13,233		312		15,537		3,176		-
7		-		-		-		-		-
8		-		-		-		-		-
Total	$	198,033	$	118,504	$	847,110	$	208,049	$	32,089

For consumer residential real estate, and other, the Company also evaluates credit quality based on the aging status of the loan, as was previously stated, and by payment activity. The following tables present the recorded investment in those classes based on payment activity and assigned risk grading as of September 30, 2022 and December 31, 2021.


	(In Thousands)
	Consumer		Consumer
	Real Estate		Real Estate
	September 30, 2022		December 31, 2021
Grade
Pass	$	414,490	$	392,940
Special Mention (5)		555		1,673
Substandard (6)		999		1,192
Doubtful (7)		-		-
Total	$	416,044	$	395,805


	(In Thousands)
	Consumer - Credit				Consumer - Other
	September 30, 2022		December 31, 2021		September 30, 2022		December 31, 2021
Performing	$	1	$	3,906	$	71,003	$	53,820
Nonperforming		-		13		59		90
Total	$	1	$	3,919	$	71,062	$	53,910

Information about impaired loans as of September 30, 2022, December 31, 2021 and September 30, 2021 are as follows:


			(In Thousands)
	September 30, 2022		December 31, 2021		September 30, 2021

Impaired loans without a valuation allowance	$	5,835	$	1,228	$	2,461
Impaired loans with a valuation allowance		4,918		10,711		9,388
Total impaired loans	$	10,753	$	11,939	$	11,849
Valuation allowance related to impaired loans	$	2,436	$	2,184	$	2,400
Total non-accrual loans	$	5,470	$	8,076	$	6,248
Total loans past-due ninety days or more and still accruing	$	-	$	-	$	-
Quarter ended average investment in impaired loans	$	10,662	$	11,676	$	11,639
Year to date average investment in impaired loans	$	11,059	$	12,247	$	12,360

There were no additional funds available to be advanced in connection with impaired loans as of September 30, 2022.

The Bank had approximately $4.0 million of its impaired loans classified as troubled debt restructured (TDR) as of September 30, 2022, $7.6 million as of December 31, 2021 and $6.0 million as of September 30, 2021.

Modification programs focus on payment pattern changes and/or modified maturity dates with most receiving a combination of the two concessions. The modifications did not result in the contractual forgiveness of principal. During the third quarter of 2022, three new loans were considered TDR as a result of the continuance of interest only payment modifications. These three loans stem from a single relationship with a borrower. This relationship has a Small Business Administration (SBA) guaranty and consequently the request for the continuance of the interest only period was also approved by the SBA as were previous requests. During the third quarter of 2021, one new loan was considered TDR as a result of being in a deficiency balance upon the sale of property. The loan is set for a 3 year term and 10 year amortization. The ALLL included $1.0 million for the specific allocation on the principal balance of this loan. Year to date 2021, there were two new loans considered TDR with two previously reported TDR loans paid off in June 2021.

Three Months

Pre-

Post-

Nine Months

Pre-

Post-

September 30, 2022

Number of

Modification

Modification

September 30, 2022

Number of

Modification

Modification

(in thousands)

Contracts

Outstanding

Outstanding

(in thousands)

Contracts

Outstanding

Outstanding

Troubled Debt

Modified in the

Recorded

Recorded

Troubled Debt

Modified in the

Recorded

Recorded

Restructurings

Last Three Months

Investment

Investment

Restructurings

Last Nine Months

Investment

Investment

Commercial Real Estate

1

74

74

Commercial Real Estate

1

74

74

Commercial and
     Industrial

2

1,232

1,232

Commercial and
     Industrial

2

1,232

1,232

Three Months

Pre-

Post-

Nine Months

Pre-

Post-

September 30, 2021

Number of

Modification

Modification

September 30, 2021

Number of

Modification

Modification

(in thousands)

Contracts

Outstanding

Outstanding

(in thousands)

Contracts

Outstanding

Outstanding

Troubled Debt

Modified in the

Recorded

Recorded

Troubled Debt

Modified in the

Recorded

Recorded

Restructurings

Last Three Months

Investment

Investment

Restructurings

Last Nine Months

Investment

Investment

Commercial Real Estate

-

-

-

Commercial Real Estate

1

382

382

Commercial and
     Industrial

1

1,000

1,000

Commercial and
     Industrial

1

1,000

1,000

For the three months ended September 30, 2022 and 2021, there were no TDRs that subsequently defaulted after modification.

For the nine month period ended September 30, 2022, there were two impaired agriculture real estate loans of $4.5 million that were classified as TDR and paid off. For the nine month period ended September 30, 2021, there was one impaired commercial real estate loan of $86 thousand and one impaired commercial loan of $480 thousand that were classified as TDR paid off as well as three impaired commercial loans of $809 thousand that were classified as TDR charged off.

For the majority of the Bank’s impaired loans, the Bank will apply the fair value of collateral or use a measurement incorporating the present value of expected future cash flows discounted at the loan’s effective rate of interest. To determine fair value of collateral, collateral asset values securing an impaired loan are periodically evaluated. Maximum time of re-evaluation is every 12 months for chattels and titled vehicles and every two years for real estate. In this process, third party evaluations are obtained. Until such time that updated appraisals are received, the Bank may discount the collateral value used.

The Bank uses the following guidelines as stated in policy to determine when to realize a charge-off, whether a partial or full loan balance. A charge-off in whole or in part is realized when unsecured consumer loans, credit card credits and overdraft lines of credit reach 90 days delinquency. At 90 days delinquent, secured consumer loans are charged down to the value of the collateral, if repossession of the collateral is assured and/or in the process of repossession. Consumer mortgage loan deficiencies are charged down upon the sale of the collateral or sooner upon the recognition of collateral deficiency. A broker’s price opinion or appraisal will be completed on all home loans in litigation and any deficiency will be charged off before reaching 150 days delinquent. Commercial and agricultural credits are charged down/allocated at 120 days delinquency, unless an established and approved work-out plan is in place or litigation of the credit will likely result in recovery of the loan balance. Upon notification of bankruptcy, unsecured debt is charged off. Additional charge-off may be realized as further unsecured positions are recognized.

The following tables present loans individually evaluated for impairment by class of loans for the three and nine months ended September 30, 2022 and September 30, 2021 and for the year ended December 31, 2021.


	(In Thousands)
											QTD
							QTD		QTD		Interest
Three Months Ended September 30, 2022			Unpaid				Average		Interest		Income
	Recorded		Principal		Related		Recorded		Income		Recognized
	Investment		Balance		Allowance		Investment		Recognized		Cash Basis
With no related allowance recorded:
Consumer Real Estate	$	624	$	624	$	-	$	352	$	1	$	5
Agricultural Real Estate		2,588		2,693		-		2,467		6		1
Agricultural		1,334		1,334		-		1,309		-		-
Commercial Real Estate		1,251		1,251		-		1,505		9		14
Commercial and Industrial		21		21		-		63		-		-
Consumer		17		17		-		17		-		-
With a specific allowance recorded:
Consumer Real Estate		-		-		-		-		-		-
Agricultural Real Estate		-		-		-		-		-		-
Agricultural		-		-		-		-		-		-
Commercial Real Estate		2,936		2,936		500		2,960		39		-
Commercial and Industrial		1,982		1,982		1,936		1,989		72		-
Consumer		-		-		-		-		-		-
Totals:
Consumer Real Estate	$	624	$	624	$	-	$	352	$	1	$	5
Agricultural Real Estate	$	2,588	$	2,693	$	-	$	2,467	$	6	$	1
Agricultural	$	1,334	$	1,334	$	-	$	1,309	$	-	$	-
Commercial Real Estate	$	4,187	$	4,187	$	500	$	4,465	$	48	$	14
Commercial and Industrial	$	2,003	$	2,003	$	1,936	$	2,052	$	72	$	-
Consumer	$	17	$	17	$	-	$	17	$	-	$	-


	(In Thousands)
											Interest
Year Ended December 31, 2021			Unpaid				Average		Interest		Income
	Recorded		Principal		Related		Recorded		Income		Recognized
	Investment		Balance		Allowance		Investment		Recognized		Cash Basis
With no related allowance recorded:
Consumer Real Estate	$	604	$	604	$	-	$	456	$	5	$	15
Agricultural Real Estate		423		423		-		1,000		33		-
Agricultural		-		-		-		143		18		3
Commercial Real Estate		180		180		-		1,445		70		9
Commercial and Industrial		21		21		-		920		24		158
Consumer		-		-		-		17		-		-
With a specific allowance recorded:
Consumer Real Estate		-		-		-		59		-		-
Agricultural Real Estate		6,302		6,406		691		5,414		54		-
Agricultural		20		20		1		94		-		-
Commercial Real Estate		3,381		3,381		664		2,199		70		3
Commercial and Industrial		982		982		825		498		17		-
Consumer		26		26		3		2		1		-
Totals:
Consumer Real Estate	$	604	$	604	$	-	$	515	$	5	$	15
Agricultural Real Estate	$	6,725	$	6,829	$	691	$	6,414	$	87	$	-
Agricultural	$	20	$	20	$	1	$	237	$	18	$	3
Commercial Real Estate	$	3,561	$	3,561	$	664	$	3,644	$	140	$	12
Commercial and Industrial	$	1,003	$	1,003	$	825	$	1,418	$	41	$	158
Consumer	$	26	$	26	$	3	$	19	$	1	$	-


	(In Thousands)
											QTD
							QTD		QTD		Interest
Three Months Ended September 30, 2021			Unpaid				Average		Interest		Income
	Recorded		Principal		Related		Recorded		Income		Recognized
	Investment		Balance		Allowance		Investment		Recognized		Cash Basis
With no related allowance recorded:
Consumer Real Estate	$	714	$	714	$	-	$	453	$	1	$	3
Agricultural Real Estate		1,207		1,207		-		1,047		19		-
Agricultural		130		130		-		130		4		-
Commercial Real Estate		180		180		-		2,519		4		1
Commercial and Industrial		215		215		-		525		-		1
Consumer		15		15		-		16		-		-
With a specific allowance recorded:
Consumer Real Estate		-		-		-		-		-		-
Agricultural Real Estate		4,844		4,844		636		5,104		4		-
Agricultural		117		117		54		117		-		-
Commercial Real Estate		3,427		3,427		710		1,395		31		-
Commercial and Industrial		1,000		1,000		1,000		333		2		-
Consumer		-		-		-		-		-		-
Totals:
Consumer Real Estate	$	714	$	714	$	-	$	453	$	1	$	3
Agricultural Real Estate	$	6,051	$	6,051	$	636	$	6,151	$	23	$	-
Agricultural	$	247	$	247	$	54	$	247	$	4	$	-
Commercial Real Estate	$	3,607	$	3,607	$	710	$	3,914	$	35	$	1
Commercial and Industrial	$	1,215	$	1,215	$	1,000	$	858	$	2	$	1
Consumer	$	15	$	15	$	-	$	16	$	-	$	-


	(In Thousands)
											YTD
							YTD		YTD		Interest
Nine Months Ended September 30, 2022			Unpaid				Average		Interest		Income
	Recorded		Principal		Related		Recorded		Income		Recognized
	Investment		Balance		Allowance		Investment		Recognized		Cash Basis
With no related allowance recorded:
Consumer Real Estate	$	624	$	624	$	-	$	372	$	3	$	10
Agricultural Real Estate		2,588		2,693		-		1,953		19		6
Agricultural		1,334		1,334		-		591		-		2
Commercial Real Estate		1,251		1,251		-		1,162		20		33
Commercial and Industrial		21		21		-		175		2		10
Consumer		17		17		-		18		1		-
With a specific allowance recorded:
Consumer Real Estate		-		-		-		-		-		-
Agricultural Real Estate		-		-		-		1,850		-		-
Agricultural		-		-		-		-		-		-
Commercial Real Estate		2,936		2,936		500		3,270		113		-
Commercial and Industrial		1,982		1,982		1,936		1,665		138		-
Consumer		-		-		-		3		-		-
Totals:
Consumer Real Estate	$	624	$	624	$	-	$	372	$	3	$	10
Agricultural Real Estate	$	2,588	$	2,693	$	-	$	3,803	$	19	$	6
Agricultural	$	1,334	$	1,334	$	-	$	591	$	-	$	2
Commercial Real Estate	$	4,187	$	4,187	$	500	$	4,432	$	133	$	33
Commercial and Industrial	$	2,003	$	2,003	$	1,936	$	1,840	$	140	$	10
Consumer	$	17	$	17	$	-	$	21	$	1	$	-


	(In Thousands)
											YTD
							YTD		YTD		Interest
Nine Months Ended September 30, 2021			Unpaid				Average		Interest		Income
	Recorded		Principal		Related		Recorded		Income		Recognized
	Investment		Balance		Allowance		Investment		Recognized		Cash Basis
With no related allowance recorded:
Consumer Real Estate	$	714	$	714	$	-	$	485	$	4	$	10
Agricultural Real Estate		1,207		1,207		-		1,191		53		-
Agricultural		130		130		-		161		8		-
Commercial Real Estate		180		180		-		1,768		38		7
Commercial and Industrial		215		215		-		1,206		24		4
Consumer		15		15		-		19		1		-
With a specific allowance recorded:
Consumer Real Estate		-		-		-		-		-		-
Agricultural Real Estate		4,844		4,844		636		5,273		15		-
Agricultural		117		117		54		123		4		-
Commercial Real Estate		3,427		3,427		710		1,800		58		3
Commercial and Industrial		1,000		1,000		1,000		334		2		-
Consumer		-		-		-		-		-		-
Totals:
Consumer Real Estate	$	714	$	714	$	-	$	485	$	4	$	10
Agricultural Real Estate	$	6,051	$	6,051	$	636	$	6,464	$	68	$	-
Agricultural	$	247	$	247	$	54	$	284	$	12	$	-
Commercial Real Estate	$	3,607	$	3,607	$	710	$	3,568	$	96	$	10
Commercial and Industrial	$	1,215	$	1,215	$	1,000	$	1,540	$	26	$	4
Consumer	$	15	$	15	$	-	$	19	$	1	$	-

As of September 30, 2022, the Company had no foreclosed residential real estate property obtained by physical possession and $211 thousand of consumer mortgage loans secured by residential real estate properties for which foreclosure proceedings are in process according to local jurisdictions. This compares to the Company having $159 thousand of foreclosed residential real estate property obtained by physical possession and $255 thousand of consumer mortgage loans secured by residential real estate properties for which foreclosure proceeding were in process according to local jurisdictions as of December 31, 2021. As of September 30, 2021, the Company had $167 thousand of foreclosed residential real estate property obtained by physical possession and $129 thousand of consumer mortgage loans secured by residential real estate properties for which foreclosure proceedings were in process according to local jurisdictions.

The Allowance for Loan and Lease Losses (ALLL) has a direct impact on the provision expense. An increase in the ALLL is funded through recoveries and provision expense. The following tables summarize the activities in the allowance for credit losses.


	(In Thousands)
	Nine Months Ended			Twelve Months Ended
	September 30, 2022			December 31, 2021
Allowance for Loan & Lease Losses
Balance at beginning of year	$	16,242		$	13,672
Provision for loan loss		3,845			3,444
Loans charged off		(334	)		(1,332	)
Recoveries		237			458
Allowance for Loan & Lease Losses	$	19,990		$	16,242
Allowance for Unfunded Loan Commitments & Letters of Credit	$	1,118		$	1,041
Total Allowance for Credit Losses	$	21,108		$	17,283

The Company segregates its ALLL into two reserves: The ALLL and the Allowance for Unfunded Loan Commitments and Letters of Credit (AULC). When combined, these reserves constitute the total Allowance for Credit Losses (ACL).

The ALLL does not include an accretable yield of $5.8 and $7.1 million as of September 30, 2022 and December 31, 2021, respectively, nor a nonaccretable yield of $151 and $510 thousand as of September 30, 2022 and December 31, 2021, respectively, related to the acquisitions of Bank of Geneva in 2019 and Ossian State Bank and Perpetual Federal Savings Bank in 2021 as previously discussed in Note 2.

The AULC is reported within other liabilities while the ALLL is netted within the loans, net asset line on the Company’s consolidated balance sheet. The ACL presented above represents the full amount of reserves available to absorb possible credit losses.

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The following table breaks down the activity within ACL for each loan portfolio classification and shows the contribution provided by both the recoveries and the provision along with the reduction of the allowance caused by charge-offs.

Additional analysis, presented in thousands, related to the allowance for credit losses for the three and nine months ended September 30, 2022 and September 30, 2021 in addition to the ending balances as of December 31, 2021 is as follows:


	Consumer Real Estate			Agricultural Real Estate		Agricultural		Commercial Real Estate		Commercial and Industrial		Consumer			Unfunded Loan Commitment & Letters of Credit			Unallocated			Total
Three Months Ended September 30, 2022
ALLOWANCE FOR CREDIT LOSSES:
Beginning balance	$	939		$	346	$	754	$	10,427	$	5,365	$	567		$	1,167		$	26		$	19,591
Charge Offs		-			-		-		-		-		(123	)		-			-			(123	)
Recoveries		6			-		1		2		8		35			-			-			52
Provision (Credit)		(19	)		10		1		1,122		297		246			-			(20	)		1,637
Other Non-interest expense related to unfunded		-			-		-		-		-		-			(49	)		-			(49	)
Ending Balance	$	926		$	356	$	756	$	11,551	$	5,670	$	725		$	1,118		$	6		$	21,108
Ending balance: individually evaluated for impairment	$	-		$	-	$	-	$	500	$	1,936	$	-		$	-		$	-		$	2,436
Ending balance: collectively evaluated for impairment	$	926		$	356	$	756	$	11,051	$	3,734	$	725		$	1,118		$	6		$	18,672
Ending balance: loans acquired with deteriorated credit quality	$	-		$	-	$	-	$	-	$	-	$	-		$	-		$	-		$	-
FINANCING RECEIVABLES:
Ending balance	$	416,044		$	204,787	$	128,818	$	1,061,904	$	260,000	$	71,063		$	-		$	-		$	2,142,616
Ending balance: individually evaluated for impairment	$	624		$	2,588	$	1,334	$	4,187	$	2,003	$	17		$	-		$	-		$	10,753
Ending balance: collectively evaluated for impairment	$	414,951		$	202,003	$	127,484	$	1,057,699	$	257,948	$	71,046		$	-		$	-		$	2,131,131
Ending balance: loans acquired with deteriorated credit quality	$	469		$	196	$	-	$	18	$	49	$	-		$	-		$	-		$	732


December 31, 2021	Consumer Real Estate		Agricultural Real Estate		Agricultural		Commercial Real Estate		Commercial and Industrial		Consumer		Unfunded Loan Commitment & Letters of Credit		Unallocated		Total
ALLOWANCE FOR CREDIT LOSSES:
Ending Balance	$	857	$	1,040	$	709	$	9,130	$	3,847	$	625	$	1,041	$	34	$	17,283
Ending balance: individually evaluated for impairment	$	-	$	691	$	1	$	664	$	825	$	3	$	-	$	-	$	2,184
Ending balance: collectively evaluated for impairment	$	857	$	349	$	708	$	8,466	$	3,022	$	622	$	1,041	$	34	$	15,099
Ending balance: loans acquired with deteriorated credit quality	$	37	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	37
FINANCING RECEIVABLES:
Ending balance	$	395,805	$	198,033	$	118,504	$	847,110	$	240,138	$	57,829	$	-	$	-	$	1,857,419
Ending balance: individually evaluated for impairment	$	604	$	6,725	$	20	$	3,561	$	1,003	$	26	$	-	$	-	$	11,939
Ending balance: collectively evaluated for impairment	$	394,489	$	191,107	$	118,484	$	843,299	$	238,849	$	57,803	$	-	$	-	$	1,844,031
Ending balance: loans acquired with deteriorated credit quality	$	712	$	201	$	-	$	250	$	286	$	-	$	-	$	-	$	1,449


	Consumer Real Estate			Agricultural Real Estate			Agricultural			Commercial Real Estate			Commercial and Industrial			Consumer			Unfunded Loan Commitment & Letters of Credit			Unallocated		Total
Three Months Ended September 30, 2021
ALLOWANCE FOR CREDIT LOSSES:
Beginning balance	$	649		$	1,217		$	720		$	8,831		$	2,837		$	613		$	1,145		$	220	$	16,232
Charge Offs		(2	)		-			(1	)		-			(5	)		(95	)		-			-		(103	)
Recoveries		3			-			1			3			9			39			-			-		55
Provision (Credit)		146			(291	)		(33	)		(469	)		973			49			-			284		659
Other Non-interest expense related to unfunded		-			-			-			-			-			-			(106	)		-		(106	)
Ending Balance	$	796		$	926		$	687		$	8,365		$	3,814		$	606		$	1,039		$	504	$	16,737
Ending balance: individually evaluated for impairment	$	-		$	636		$	54		$	710		$	1,000		$	-		$	-		$	-	$	2,400
Ending balance: collectively evaluated for impairment	$	796		$	290		$	633		$	7,655		$	2,814		$	606		$	1,039		$	504	$	14,337
Ending balance: loans acquired with deteriorated credit quality	$	-		$	-		$	-		$	-		$	-		$	-		$	-		$	-	$	-
FINANCING RECEIVABLES:
Ending balance	$	202,370		$	179,051		$	105,722		$	727,418		$	225,382		$	55,619		$	-		$	-	$	1,495,562
Ending balance: individually evaluated for impairment	$	714		$	6,051		$	247		$	3,607		$	1,215		$	15		$	-		$	-	$	11,849
Ending balance: collectively evaluated for impairment	$	201,595		$	173,000		$	105,475		$	723,577		$	223,803		$	55,604		$	-		$	-	$	1,483,054
Ending balance: loans acquired with deteriorated credit quality	$	61		$	-		$	-		$	234		$	364		$	-		$	-		$	-	$	659


	Consumer Real Estate		Agricultural Real Estate			Agricultural		Commercial Real Estate		Commercial and Industrial			Consumer			Unfunded Loan Commitment & Letters of Credit		Unallocated			Total
Nine Months Ended September 30, 2022
ALLOWANCE FOR CREDIT LOSSES:
Beginning balance	$	857	$	1,040		$	709	$	9,130	$	3,847		$	625		$	1,041	$	34		$	17,283
Charge Offs		-		-			-		-		(6	)		(328	)		-		-			(334	)
Recoveries		15		-			1		7		82			132			-		-			237
Provision (Credit)		54		(684	)		46		2,414		1,747			296			-		(28	)		3,845
Other Non-interest expense related to unfunded		-		-			-		-		-			-			77		-			77
Ending Balance	$	926	$	356		$	756	$	11,551	$	5,670		$	725		$	1,118	$	6		$	21,108
Ending balance: individually evaluated for impairment	$	-	$	-		$	-	$	500	$	1,936		$	-		$	-	$	-		$	2,436
Ending balance: collectively evaluated for impairment	$	926	$	356		$	756	$	11,051	$	3,734		$	725		$	1,118	$	6		$	18,672
Ending balance: loans acquired with deteriorated credit quality																					$	-
FINANCING RECEIVABLES:
Ending balance	$	416,044	$	204,787		$	128,818	$	1,061,904	$	260,000		$	71,063		$	-	$	-		$	2,142,616
Ending balance: individually evaluated for impairment	$	624	$	2,588		$	1,334	$	4,187	$	2,003		$	17		$	-	$	-		$	10,753
Ending balance: collectively evaluated for impairment	$	414,951	$	202,003		$	127,484	$	1,057,699	$	257,948		$	71,046		$	-	$	-		$	2,131,131
Ending balance: loans acquired with deteriorated credit quality	$	469	$	196		$	-	$	18	$	49		$	-		$	-	$	-		$	732


	Consumer Real Estate			Agricultural Real Estate			Agricultural			Commercial Real Estate		Commercial and Industrial			Consumer			Unfunded Loan Commitment & Letters of Credit		Unallocated		Total
Nine Months Ended September 30, 2021
ALLOWANCE FOR CREDIT LOSSES:
Beginning balance	$	633		$	958		$	701		$	7,415	$	3,346		$	606		$	641	$	13	$	14,313
Charge Offs		(2	)		-			(143	)		-		(814	)		(195	)		-		-		(1,154	)
Recoveries		9			-			7			8		19			137			-		-		180
Provision (Credit)		156			(32	)		122			942		1,263			58			-		491		3,000
Other Non-interest expense related to unfunded		-			-			-			-		-			-			398		-		398
Ending Balance	$	796		$	926		$	687		$	8,365	$	3,814		$	606		$	1,039	$	504	$	16,737
Ending balance: individually evaluated for impairment	$	-		$	636		$	54		$	710	$	1,000		$	-		$	-	$	-	$	2,400
Ending balance: collectively evaluated for impairment	$	796		$	290		$	633		$	7,655	$	2,814		$	606		$	1,039	$	504	$	14,337
Ending balance: loans acquired with deteriorated credit quality	$	-		$	-		$	-		$	-	$	-		$	-		$	-	$	-	$	-
FINANCING RECEIVABLES:
Ending balance	$	202,370		$	179,051		$	105,722		$	727,418	$	225,382		$	55,619		$	-	$	-	$	1,495,562
Ending balance: individually evaluated for impairment	$	714		$	6,051		$	247		$	3,607	$	1,215		$	15		$	-	$	-	$	11,849
Ending balance: collectively evaluated for impairment	$	201,595		$	173,000		$	105,475		$	723,577	$	223,803		$	55,604		$	-	$	-	$	1,483,054
Ending balance: loans acquired with deteriorated credit quality	$	61		$	-		$	-		$	234	$	364		$	-		$	-	$	-	$	659