Loans

6 Months Ended

Jun. 30, 2023

NOTE 4 LOANS

Loan balances as of June 30, 2023 and December 31, 2022 are summarized below:


	(In Thousands)
Loans:	June 30, 2023			December 31, 2022
Consumer Real Estate	$	506,866		$	494,423
Agricultural Real Estate		230,837			220,819
Agricultural		128,344			128,733
Commercial Real Estate		1,280,902			1,152,603
Commercial and Industrial		253,444			242,360
Consumer		88,312			89,147
Other		28,996			29,818
		2,517,701			2,357,903
Less: Net deferred loan fees and costs		(1,908	)		(1,516	)
		2,515,793			2,356,387
Less: Allowance for credit losses		(24,910	)		(20,313	)
Loans - Net	$	2,490,883		$	2,336,074

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 June 30, 2023 and December 31, 2022:


	(In Thousands)
	June 30, 2023				December 31, 2022
	Fixed		Variable		Fixed		Variable
Consumer Real Estate	$	341,601	$	165,265	$	354,420	$	140,003
Agricultural Real Estate		142,029		88,808		144,702		76,117
Agricultural		58,445		69,899		52,867		75,866
Commercial Real Estate		993,941		286,961		941,927		210,676
Commercial and Industrial		148,425		105,019		130,513		111,847
Consumer		88,247		65		88,972		175
Other		19,300		9,696		20,029		9,789

As of June 30, 2023 and December 31, 2022 one to four family residential mortgage loans amounting to $213.7 million and $222.5 million, respectively, have been pledged as security for future loans and existing loans the Bank has received from the Federal Home Loan Bank. $11.0 million and $10.4 million of HELOCs were pledged as of June 30, 2023 and December 31, 2022 as well. During the second quarter of 2023 the Bank pledged eligible commercial real estate to the FHLB. At June 30, 2023 the amount pledged was $165.2 million.

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 June 30, 2023 and December 31, 2022, net of deferred loan fees and costs:


June 30, 2023	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	$	1,287	$	5	$	443	$	1,735	$	505,107	$	506,842	$	-
Agricultural Real Estate		5,047		1		-		5,048		225,483		230,531		-
Agricultural		750		462		-		1,212		127,381		128,593		-
Commercial Real Estate		434		-		255		689		1,277,756		1,278,445		-
Commercial and Industrial		26		-		855		881		281,363		282,244		-
Consumer		29		30		60		119		89,019		89,138		-
Total	$	7,573	$	498	$	1,613	$	9,684	$	2,506,109	$	2,515,793	$	-


December 31, 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	$	1,536	$	635	$	90	$	2,261	$	492,162	$	494,423	$	-
Agricultural Real Estate		118		2		1,550		1,670		218,844		220,514		-
Agricultural		433		-		152		585		128,341		128,926		-
Commercial Real Estate		74		-		180		254		1,150,257		1,150,511		-
Commercial and Industrial		953		-		182		1,135		270,984		272,119		-
Consumer		83		37		-		120		89,774		89,894		-
Total	$	3,197	$	674	$	2,154	$	6,025	$	2,350,362	$	2,356,387	$	-

The following tables present the amortized cost of nonaccrual loans by class of loans as of June 30, 2023 and the recorded investment of nonaccrual loans by class of loans as of December 31, 2022:


	(In Thousands)
	June 30, 2023
	Nonaccrual				Loans Past
	With No				Due Over
	Allowance				89 Days
	for Credit Loss		Nonaccrual		Still Accruing

Consumer Real Estate	$	808	$	1,025	$	-
Agricultural Real Estate		3,964		3,964		-
Agricultural		56		56		-
Commercial Real Estate		248		248		-
Commercial & Industrial		97		934		-
Consumer		68		68		-
Total	$	5,241	$	6,295	$	-


	(In Thousands)
	December 31, 2022

Consumer Real Estate	$	612
Agricultural Real Estate		1,921
Agricultural		152
Commercial Real Estate		903
Commercial & Industrial		1,096
Consumer		5
Total	$	4,689

The Company recognized $74 thousand and $127 thousand of interest income on nonaccrual loans for the three and six months ending June 30, 2023.

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.

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.

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 December 31, 2022:


	(In Thousands)
	Agricultural				Commercial		Commercial
	Real Estate		Agricultural		Real Estate		and Industrial		Other
December 31, 2022
1-2	$	9,912	$	5,857	$	8,718	$	780	$	-
3		47,405		33,671		370,035		67,506		10,921
4		146,143		88,992		737,745		167,291		18,897
5		10,389		228		9,751		3,592		-
6		6,665		178		24,262		3,132		-
7		-		-		-		-		-
8		-		-		-		-		-
Total	$	220,514	$	128,926	$	1,150,511	$	242,301	$	29,818

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 December 31, 2022.


	(In Thousands)
	Consumer
	Real Estate
	December 31, 2022
Grade
Pass (1-4)	$	492,575
Special Mention (5)		676
Substandard (6)		1,172
Doubtful (7)		-
Total	$	494,423


	(In Thousands)
	Consumer
	December 31, 2022
Performing	$	89,853
Nonperforming		41
Total	$	89,894

The following table reflects loan balances as of June 30, 2023 based on year of origination:


	(In Thousands)
	Term Loans Amortized Cost Basis by Origination Year
													Revolving
													Loans
											Term		Amortized		Grand
	2023		2022		2021		2020		Prior		Total		Cost Basis		Total

Consumer Real Estate
Risk Rating
Pass (1-4)	$	40,806	$	99,239	$	95,955	$	86,022	$	135,764	$	457,786	$	47,333	$	505,119
Special Mention (5)		-		-		-		-		543		543		-		543
Substandard (6)		-		-		405		-		757		1,162		18		1,180
Doubtful (7)		-		-		-		-		-		-		-		-
Total Consumer Real Estate	$	40,806	$	99,239	$	96,360	$	86,022	$	137,064	$	459,491	$	47,351	$	506,842
Gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-

Agricultural Real Estate
Risk Rating
Pass (1-4)	$	21,557	$	40,186	$	25,457	$	26,773	$	90,134	$	204,107	$	97	$	204,204
Special Mention (5)		-		171		13,135		-		5,776		19,082		-		19,082
Substandard (6)		-		249		-		188		6,808		7,245		-		7,245
Doubtful (7)		-		-		-		-		-		-		-		-
Total Agricultural Real Estate	$	21,557	$	40,606	$	38,592	$	26,961	$	102,718	$	230,434	$	97	$	230,531
Gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-

Agricultural
Risk Rating
Pass (1-4)	$	14,815	$	25,059	$	10,432	$	5,167	$	6,645	$	62,118	$	59,778	$	121,896
Special Mention (5)		517		1,035		1,793		1,026		-		4,371		2,248		6,619
Substandard (6)		-		-		-		78		-		78		-		78
Doubtful (7)		-		-		-		-		-		-		-		-
Total Agricultural	$	15,332	$	26,094	$	12,225	$	6,271	$	6,645	$	66,567	$	62,026	$	128,593
Gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-


	(In Thousands)
	Term Loans Amortized Cost Basis by Origination Year
													Revolving
													Loans
											Term		Amortized		Grand
	2023		2022		2021		2020		Prior		Total		Cost Basis		Total

Commercial Real Estate
Risk Rating
Pass (1-4)	$	166,430	$	440,265	$	256,817	$	130,716	$	259,203	$	1,253,431	$	-	$	1,253,431
Special Mention (5)		-		-		-		10,571		1,283		11,854		-		11,854
Substandard (6)		1,118		-		-		75		11,967		13,160		-		13,160
Doubtful (7)		-		-		-		-		-		-		-		-
Total Commercial Real Estate	$	167,548	$	440,265	$	256,817	$	141,362	$	272,453	$	1,278,445	$	-	$	1,278,445
Gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Commercial & Industrial
Risk Rating
Pass (1-4)	$	40,307	$	58,399	$	30,851	$	27,371	$	5,770	$	162,698	$	86,104	$	248,802
Special Mention (5)		197		4		221		155		464		1,041		202		1,243
Substandard (6)		-		476		-		925		331		1,732		1,465		3,197
Doubtful (7)		-		-		-		-		-		-				-
Total Commercial & Industrial	$	40,504	$	58,879	$	31,072	$	28,451	$	6,565	$	165,471	$	87,771	$	253,242
Gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-

Other
Risk Rating
Pass (1-4)	$	-	$	200	$	17,526	$	6,179	$	5,097	$	29,002	$	-	$	29,002
Special Mention (5)		-		-		-		-		-		-		-		-
Substandard (6)		-		-		-		-		-		-		-		-
Doubtful (7)		-		-		-		-		-		-		-		-
Total Other	$	-	$	200	$	17,526	$	6,179	$	5,097	$	29,002	$	-	$	29,002
Gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-

The following table presents payment performance as of June 30, 2023 by year of origination:


	(In Thousands)
	Term Loans Amortized Cost Basis by Origination Year
													Revolving
													Loans
											Term		Amortized		Grand
	2023		2022		2021		2020		Prior		Total		Cost Basis		Total

Consumer
Payment Performance
Performing	$	15,830	$	49,158	$	13,575	$	6,751	$	3,714	$	89,028	$	43	$	89,071
Nonperforming		-		7		60		-		-		67		-		67
Total Consumer	$	15,830	$	49,165	$	13,635	$	6,751	$	3,714	$	89,095	$	43	$	89,138
Gross charge-offs YTD	$	109	$	24	$	20	$	29	$	-	$	182	$	-	$	182

The following table presents collateral-dependent loans grouped by collateral as of June 30, 2023:


	(In Thousands)
	Real
	Estate
Consumer Real Estate	$	20
Agricultural Real Estate		-
Agricultural		-
Commercial Real Estate		25
Commercial & Industrial		-
Consumer		-
Total	$	45

Information about impaired loans as of December 31, 2022 and June 30, 2022 are presented for comparison purposes and are as follows:


	(In Thousands)
	December 31, 2022		June 30, 2022

Impaired loans without a valuation allowance	$	4,194	$	5,680
Impaired loans with a valuation allowance		4,663		4,989
Total impaired loans	$	8,857	$	10,669
Valuation allowance related to impaired loans	$	1,996	$	2,419
Total non-accrual loans	$	4,689	$	5,247
Total loans past-due ninety days or more and still accruing	$	-	$	-
Quarter ended average investment in impaired loans	$	9,660	$	9,748
Year to date average investment in impaired loans	$	10,710	$	11,258

The Bank had approximately $3.6 million of its impaired loans classified as troubled debt restructured (TDR) as of December 31, 2022 and $2.7 million as of June 30, 2022.

Under ASC 310-40, TDRs were eliminated from being classified as such for 2023 and will no longer be reported as such. 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 three months ended June 30, 2023 one new loan was considered a modification to a borrower experiencing financial difficulty. During the second quarter of 2022, there were no new loans considered TDR.

The modification during the second quarter of 2023 consisted of refinancing at a higher balance to a borrower experiencing financial difficulty that would not have otherwise been granted to a borrower. The amount of the new money increase to the loan balance was $411 thousand. No additional funds are being advanced.

For the three months ended June 30, 2023 and 2022, there were no modifications to borrowers experiencing financial difficulty that subsequently defaulted after modification.

For the majority of the Bank’s impaired loans, the Bank applied the fair value of collateral or used 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 were periodically evaluated. Maximum time of re-evaluation was every 12 months for chattels and titled vehicles and every two years for real estate. In this process, third party evaluations were obtained. Until such time that updated appraisals were received, the Bank may have discounted the collateral value used.

The Bank used 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 was realized when unsecured consumer loans, credit card credits and overdraft lines of credit reached 90 days delinquency. At 90 days delinquent, secured consumer loans were charged down to the value of the collateral, if repossession of the collateral was assured and/or in the process of repossession. Consumer mortgage loan deficiencies were charged down upon the sale of the collateral or sooner upon the recognition of collateral deficiency. A broker’s price opinion or appraisal was completed on all home loans in litigation and any deficiency was charged off before reaching 150 days delinquent. Commercial and agricultural credits were charged down/allocated at 120 days delinquency, unless an established and approved work-out plan was in place or litigation of the credit was likely to result in recovery of the loan balance. Upon notification of bankruptcy, unsecured debt was charged off. Additional charge-off was realized as further unsecured positions were recognized.

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


	(In Thousands)
											QTD
							QTD		QTD		Interest
Three Months Ended June 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	$	657	$	657	$	-	$	390	$	1	$	4
Agricultural Real Estate		2,414		2,518		-		2,247		6		3
Agricultural		1,296		1,296		-		445		-		1
Commercial Real Estate		1,148		1,148		-		1,323		7		14
Commercial and Industrial		145		145		-		207		-		10
Consumer		20		20		-		20		-		-
With a specific allowance recorded:
Consumer Real Estate		-		-		-		-		-		-
Agricultural Real Estate		-		-		-		-		-		-
Agricultural		-		-		-		-		-		-
Commercial Real Estate		2,985		2,985		573		3,105		38		-
Commercial and Industrial		2,004		2,004		1,846		2,011		52		-
Consumer		-		-		-		-		-		-
Totals:
Consumer Real Estate	$	657	$	657	$	-	$	390	$	1	$	4
Agricultural Real Estate	$	2,414	$	2,518	$	-	$	2,247	$	6	$	3
Agricultural	$	1,296	$	1,296	$	-	$	445	$	-	$	1
Commercial Real Estate	$	4,133	$	4,133	$	573	$	4,428	$	45	$	14
Commercial and Industrial	$	2,149	$	2,149	$	1,846	$	2,218	$	52	$	10
Consumer	$	20	$	20	$	-	$	20	$	-	$	-


	(In Thousands)
											YTD
							YTD		YTD		Interest
Six Months Ended June 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	$	657	$	657	$	-	$	381	$	2	$	6
Agricultural Real Estate		2,414		2,518		-		1,696		13		5
Agricultural		1,296		1,296		-		233		-		1
Commercial Real Estate		1,148		1,148		-		991		11		19
Commercial and Industrial		145		145		-		231		2		10
Consumer		20		20		-		19		1		-
With a specific allowance recorded:
Consumer Real Estate		-		-		-		-		-		-
Agricultural Real Estate		-		-		-		2,775		-		-
Agricultural		-		-		-		-		-		-
Commercial Real Estate		2,985		2,985		573		3,426		74		-
Commercial and Industrial		2,004		2,004		1,846		1,502		65		-
Consumer		-		-		-		4		-		-
Totals:
Consumer Real Estate	$	657	$	657	$	-	$	381	$	2	$	6
Agricultural Real Estate	$	2,414	$	2,518	$	-	$	4,471	$	13	$	5
Agricultural	$	1,296	$	1,296	$	-	$	233	$	-	$	1
Commercial Real Estate	$	4,133	$	4,133	$	573	$	4,417	$	85	$	19
Commercial and Industrial	$	2,149	$	2,149	$	1,846	$	1,733	$	67	$	10
Consumer	$	20	$	20	$	-	$	23	$	1	$	-


	(In Thousands)
											Interest
Year Ended December 31, 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	$	509	$	509	$	-	$	355	$	5	$	12
Agricultural Real Estate		2,280		2,385		-		2,048		25		6
Agricultural		152		152		-		588		-		2
Commercial Real Estate		1,234		1,272		-		1,252		29		43
Commercial and Industrial		17		417		-		135		2		10
Consumer		2		2		-		15		1		-
With a specific allowance recorded:
Consumer Real Estate		60		60		6		15		-		1
Agricultural Real Estate		-		-		-		1,388		-		-
Agricultural		-		-		-		-		-		-
Commercial Real Estate		2,874		2,874		438		3,176		150		-
Commercial and Industrial		1,564		1,564		1,551		1,736		149		23
Consumer		165		165		1		2		-		-
Totals:
Consumer Real Estate	$	569	$	569	$	6	$	370	$	5	$	13
Agricultural Real Estate	$	2,280	$	2,385	$	-	$	3,436	$	25	$	6
Agricultural	$	152	$	152	$	-	$	588	$	-	$	2
Commercial Real Estate	$	4,108	$	4,146	$	438	$	4,428	$	179	$	43
Commercial and Industrial	$	1,581	$	1,981	$	1,551	$	1,871	$	151	$	33
Consumer	$	167	$	167	$	1	$	17	$	1	$	-

As of June 30, 2023, the Company had no foreclosed residential real estate property obtained by physical possession and $95 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 no foreclosed residential real estate property obtained by physical possession and $170 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, 2022. As of June 30, 2022, the Company had no foreclosed residential real estate property obtained by physical possession and $72 thousand of consumer mortgage loans secured by residential real estate properties for which foreclosure proceedings were in process according to local jurisdictions.

On January 1, 2023, the Company adopted Accounting Standards Update ("ASU") No. 2016-13 - "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments" and implemented the current expected credit losses accounting standard. As a result, the Company recorded a one-time adjustment from equity into the allowance for credit losses for loan losses and unfunded commitment liability in the amount of $4.5 million, or $3.4 million, net of tax.

Allowance for Credit Losses (ACL) has a direct impact on the provision expense. An increase in the ACL is funded through recoveries and provision expense.

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

The allowance does not include an accretable yield of $5.8 and $6.3 million as of June 30, 2023 and December 31, 2022, respectively, nor a nonaccretable yield of $138 thousand as of December 31, 2022, related to the acquisitions of Bank of Geneva in 2019 and Ossian State Bank and Perpetual Federal Savings Bank in 2021 and Peoples Federal Savings and Loan Bank in 2022 as previously discussed in Note 2.

The AULC is reported within other liabilities while the ACL portion associated with loans is netted within the loans, net asset line on the Company’s Condensed Consolidated Balance Sheets.

The following tables break 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 for the three and six months ended June 30, 2023:


	(In Thousands)
	Consumer Real Estate		Agricultural Real Estate			Agricultural		Commercial Real Estate		Commercial and Industrial			Consumer			Total
Three Months Ended June 30, 2023
ALLOWANCE FOR CREDIT LOSSES
Beginning balance	$	3,623	$	209		$	66	$	16,088	$	3,414		$	1,234		$	24,634
Provision for credit losses - loans		369		(76	)		41		590		(653	)		(128	)		143
Charge-offs		-		-			-		-		-			(60	)		(60	)
Recoveries		6		104			-		3		6			74			193
Ending Balance	$	3,998	$	237		$	107	$	16,681	$	2,767		$	1,120		$	24,910


	(In Thousands)
	Consumer Real Estate			Agricultural Real Estate			Agricultural			Commercial Real Estate		Commercial and Industrial			Consumer			Total
Six Months Ended June 30, 2023
ALLOWANCE FOR CREDIT LOSSES
Beginning balance	$	998		$	349		$	751		$	11,924	$	5,382		$	909		$	20,313
Adoption of ASU 2016-13		2,874	-		(166	)		(650	)		3,501		(2,165	)		170			3,564
Provision for credit losses-loans		113			(50	)		6			1,251		(462	)		102			960
Charge-offs		-			-			-			-		-			(182	)		(182	)
Recoveries		13			104			-			5		12			121			255
Ending Balance	$	3,998		$	237		$	107		$	16,681	$	2,767		$	1,120		$	24,910

The following tables break down the activity in the AULC for the three and six months ended June 30, 2023:


	(In Thousands)
	Unfunded Loan Commitment & Letters of Credit
Three Months Ended June 30, 2023
ALLOWANCE FOR UNFUNDED LOAN COMMITMENTS AND LETTERS OF CREDIT
Beginning balance	$	2,228
Provision for credit losses - off balance sheet credit exposures		(129	)
Charge-offs		-
Recoveries		-
Ending Balance	$	2,099


	(In Thousands)
	Unfunded Loan Commitment & Letters of Credit
Six Months Ended June 30, 2023
ALLOWANCE FOR UNFUNDED LOAN COMMITMENTS AND LETTERS OF CREDIT
Beginning balance	$	1,262
Adoption of ASU 2016-13		904
Provision for credit losses-off balance sheet credit exposures		(67	)
Charge-offs		-
Recoveries		-
Ending Balance	$	2,099

Additional analysis, presented in thousands, related to the ALLL for the three and six months ended June 30, 2022 in addition to the ending balances as of December 31, 2022 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 June 30, 2022
ALLOWANCE FOR CREDIT LOSSES:
Beginning balance	$	892	$	606		$	844		$	9,573	$	4,066	$	623		$	1,076	$	167		$	17,847
Charge Offs		-		-			-			-		-		(117	)		-		-			(117	)
Recoveries		4		-			-			3		65		70			-		-			142
Provision (Credit)		43		(260	)		(90	)		851		1,234		(9	)		-		(141	)		1,628
Other Non-interest expense related to unfunded		-		-			-			-		-		-			91		-			91
Ending Balance	$	939	$	346		$	754		$	10,427	$	5,365	$	567		$	1,167	$	26		$	19,591
Ending balance: individually evaluated for impairment	$	-	$	-		$	-		$	-	$	2,419	$	-		$	-	$	-		$	2,419
Ending balance: collectively evaluated for impairment	$	939	$	346		$	754		$	10,427	$	2,946	$	567		$	1,167	$	26		$	17,172
Ending balance: loans acquired with deteriorated credit quality	$	-	$	-		$	-		$	-	$	-	$	-		$	-	$	-		$	-
FINANCING RECEIVABLES:
Ending balance	$	410,468	$	199,650		$	127,340		$	977,588	$	264,124	$	55,648		$	-	$	-		$	2,034,818
Ending balance: individually evaluated for impairment	$	657	$	2,414		$	1,296		$	4,133	$	2,149	$	20		$	-	$	-		$	10,669
Ending balance: collectively evaluated for impairment	$	409,318	$	197,039		$	126,044		$	973,258	$	261,854	$	55,628		$	-	$	-		$	2,023,141
Ending balance: loans acquired with deteriorated credit quality	$	493	$	197		$	-		$	197	$	121	$	-		$	-	$	-		$	1,008


	Consumer Real Estate		Agricultural Real Estate			Agricultural		Commercial Real Estate		Commercial and Industrial			Consumer			Unfunded Loan Commitment & Letters of Credit		Unallocated			Total
Six Months Ended June 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	)		(205	)		-		-			(211	)
Recoveries		9		-			-		5		74			97			-		-			185
Provision (Credit)		73		(694	)		45		1,292		1,450			50			-		(8	)		2,208
Other Non-interest expense related to unfunded		-		-			-		-		-			-			126		-			126
Ending Balance	$	939	$	346		$	754	$	10,427	$	5,365		$	567		$	1,167	$	26		$	19,591
Ending balance: individually evaluated for impairment	$	-	$	-		$	-	$	-	$	2,419		$	-		$	-	$	-		$	2,419
Ending balance: collectively evaluated for impairment	$	939	$	346		$	754	$	10,427	$	2,946		$	567		$	1,167	$	26		$	17,172
Ending balance: loans acquired with deteriorated credit quality	$	-	$	-		$	-	$	-	$	-		$	-		$	-	$	-		$	-
FINANCING RECEIVABLES:
Ending balance	$	410,468	$	199,650		$	127,340	$	977,588	$	264,124		$	55,648		$	-	$	-		$	2,034,818
Ending balance: individually evaluated for impairment	$	657	$	2,414		$	1,296	$	4,133	$	2,149		$	20		$	-	$	-		$	10,669
Ending balance: collectively evaluated for impairment	$	409,318	$	197,039		$	126,044	$	973,258	$	261,854		$	55,628		$	-	$	-		$	2,023,141
Ending balance: loans acquired with deteriorated credit quality	$	493	$	197		$	-	$	197	$	121		$	-		$	-	$	-		$	1,008


December 31, 2022	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:
Beginning balance	$	857	$	1,040		$	709	$	9,130	$	3,847		$	625		$	1,041	$	34		$	17,283
Charge Offs		-		-			-		-		(418	)		(409	)		-		-			(827	)
Recoveries		20		-			7		9		93			169			-		-			298
Provision (Credit)		121		(691	)		35		2,785		1,860			506			-		(16	)		4,600
Other Non-interest expense related to unfunded		-		-			-		-		-			-			221		-			221
Ending Balance	$	998	$	349		$	751	$	11,924	$	5,382		$	891		$	1,262	$	18		$	21,575
Ending balance: individually evaluated for impairment	$	6	$	-		$	-	$	438	$	1,551		$	1		$	-	$	-		$	1,996
Ending balance: collectively evaluated for impairment	$	992	$	349		$	751	$	11,486	$	3,831		$	890		$	1,262	$	18		$	19,579
Ending balance: loans acquired with deteriorated credit quality	$	-	$	-		$	-	$	-	$	-		$	-		$	-	$	-		$	-
FINANCING RECEIVABLES:
Ending balance	$	494,423	$	220,514		$	128,926	$	1,150,511	$	272,119		$	89,894		$	-	$	-		$	2,356,387
Ending balance: individually evaluated for impairment	$	569	$	2,280		$	152	$	4,108	$	1,581		$	167		$	-	$	-		$	8,857
Ending balance: collectively evaluated for impairment	$	493,449	$	218,039		$	128,774	$	1,146,389	$	270,493		$	89,727		$	-	$	-		$	2,346,871
Ending balance: loans acquired with deteriorated credit quality	$	405	$	195		$	-	$	14	$	45		$	-		$	-	$	-		$	659