Loans Receivable and Allowance for Credit Losses

12 Months Ended

Dec. 31, 2023

Loans Receivable and Allowance for Credit Losses [Abstract]

Loans Receivable and Allowance for Credit Losses

NOTE 4 - LOANS RECEIVABLE AND ALLOWANCE FOR CREDIT LOSSES

Set forth below is selected data relating to the composition of the loan portfolio (in thousands):

	December 31, 2023				December 31, 2022
Real Estate:
Residential	$	316,546	19.7	%	$	298,813	20.3	%
Commercial		675,156	42.1			651,544	44.2
Agricultural		63,859	4.0			68,915	4.7
Construction		51,453	3.2			32,469	2.2
Commercial loans		200,576	12.5			187,257	12.7
Other agricultural loans		31,966	2.0			35,277	2.4
Consumer loans to individuals		264,321	16.5			200,149	13.5
Total loans		1,603,877	100.0	%		1,474,424	100.0	%
Deferred fees, net		(259)				(479)
Total loans receivable		1,603,618				1,473,945
Allowance for credit losses		(18,968)				(16,999)
Net loans receivable	$	1,584,650			$	1,456,946

As of December 31, 2023 and 2022, the Company considered its concentration of credit risk to be acceptable. As of December 31, 2023, the highest concentrations are in commercial rentals and the residential rentals category, with loans outstanding of $149.2 million, or 9.3% of loans outstanding, to commercial rentals, and $115.2 million, or 7.2% of loans outstanding, to residential rentals. For the year ended December 31, 2023, the Company recognized charge offs of $6,000 on commercial rentals and $44,000 on residential rentals. There were no charge-offs on loans within these concentrations in 2022.

During 2023, the Company sold residential mortgage loans totaling $4,973,000. During 2022, the Company sold residential mortgage loans totaling $845,000. Gross realized gains and gross realized losses on sales of residential mortgage loans were $63,000 and $0, respectively, in 2023 and $3,000 and $0, respectively, in 2022. The proceeds from the sales of residential mortgage loans totaled $5,036,000 and $848,000 for the years ended December 31, 2023 and 2022, respectively. As of December 31, 2023 and 2022, the outstanding value of loans serviced for others totaled $59.2 million and $60.0 million, respectively

Changes in the accretable yield for purchased credit-impaired loans were as follows for the twelve months ended December 31,2022:

(In thousands)

	2022
Balance at beginning of period	$	1,884
Additions		—
Accretion		(710)
Reclassification and other		653
Balance at end of period	$	1,827

The following table presents additional information regarding loans acquired and accounted for in accordance with ASC 310-30 as of December 31, 2022 (in thousands):

	December 31, 2022
Outstanding Balance
	$	8,368
Carrying Amount
	$	6,290

The Company maintains a loan review system, which allows for a periodic review of our loan portfolio and the early identification of potential non-performing loans. The system takes into consideration, among other things, delinquency status, size of loans, type and market value of collateral and financial condition of the borrowers. Specific credit loss allowances are established for identified losses based on a review of such information. All loans identified as individually analyzed are evaluated independently. The Company does not aggregate such loans for evaluation purposes. Allowance for credit losses are measured on a loan-by-loan basis for commercial and construction loans by the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral-dependent.

The following table shows the amount of loans in each category that were individually and collectively evaluated for credit loss under ASC 326:

	Real Estate Loans
									Commercial			Other	Consumer
	Residential		Commercial			Agricultural	Construction		Loans			Agricultural	Loans		Total
	(In thousands)
December 31, 2023
Individually evaluated	$	432	$	2,211	$	—	$	—	$	4,264	$	—	$	715	$	7,622
Collectively evaluated		316,114		672,945		63,859		51,453		196,312		31,966		263,606		1,596,255
Total Loans	$	316,546	$	675,156	$	63,859	$	51,453	$	200,576	$	31,966	$	264,321	$	1,603,877

The following table shows the amount of loans in each category that were individually and collectively evaluated for impairment under ASC 310:

	Real Estate Loans
									Commercial			Other	Consumer
	Residential		Commercial			Agricultural	Construction		Loans			Agricultural	Loans		Total
	(In thousands)
December 31, 2022
Individually evaluated for impairment	$	—	$	402	$	—	$	—	$	61	$	—	$	—	$	463
Loans acquired with deteriorated credit quality		567		2,049		2,034		—		1,640		—		—		6,290
Collectively evaluated for impairment		298,246		649,093		66,881		32,469		185,556		35,277		200,149		1,467,671
Total Loans	$	298,813	$	651,544	$	68,915	$	32,469	$	187,257	$	35,277	$	200,149	$	1,474,424

The following table includes the recorded investment and unpaid principal balances for impaired loans with the associated allowance amount, if applicable, under ASC 310.

			Unpaid
	Recorded		Principal		Associated
	Investment		Balance		Allowance
December 31, 2022	(In thousands)
With no related allowance recorded:
Real Estate Loans
Commercial	$	402	$	402	$	—
Commercial loans		11		11		—
Subtotal		413		413		—
With an allowance recorded:
Real Estate Loans
Commercial		50		50		50
Subtotal		50		50		50
Total:
Real Estate Loans
Residential						—
Commercial	$	402	$	402	$	—
Commercial loans		61		61		50
Total Impaired Loans	$	463	$	463	$	50

The following information for impaired loans is presented for the year ended 2022, under ASC 310:

	Average Recorded			Interest Income
	Investment			Recognized
			2022			2022
				(In thousands)
Total:
Real Estate Loans
Commercial		$	740		$	93
Commercial loans			24			—
Total Loans		$	764		$	93

Management uses an eight point internal risk rating system to monitor the credit quality of the overall loan portfolio. The first four categories are considered not criticized, and are aggregated as “Pass” rated. The criticized rating categories utilized by management generally follow bank regulatory definitions. The Special Mention category includes assets that are currently protected but are potentially weak, resulting in an undue and unwarranted credit risk, but not to the point of justifying a Substandard classification. Loans in the Substandard category have well-defined weaknesses that jeopardize the liquidation of the debt, and have a distinct possibility that some loss will be sustained if the weaknesses are not corrected. Loans greater than 90 days past due are considered Substandard unless full payment is expected. Any portion of a loan that has been charged off is placed in the Loss category.

To help ensure that risk ratings are accurate and reflect the present and future capacity of borrowers to repay a loan as agreed, the Company has a structured loan rating process with several layers of internal and external oversight. Generally, consumer and residential mortgage loans are included in the Pass categories unless a specific action, such as nonperformance, repossession, or death occurs to raise awareness of a possible credit event. The Company’s Loan Review Department is responsible for the timely and accurate risk rating of the loans on an ongoing basis. Every credit which must be approved by Loan Committee or the Board of Directors is assigned a risk rating at time of consideration. Loan Review also annually reviews relationships of $1,500,000 and over to assign or re-affirm risk ratings.

Based on the most recent analysis performed, the following table presents the recorded investment in non-homogenous pools by internal risk rating systems, under ASC 326 (in thousands):

														Revolving		Revolving
	Term Loans Amortized Costs Basis by Origination Year													Loans		Loans
														Amortized		Converted
December 31, 2023		2023		2022		2021		2020		2019		Prior		Cost Basis		to Term		Total
Commercial real estate
Risk Rating
Pass	$	78,496	$	131,948	$	112,102	$	65,949	$	72,480	$	186,116	$	13,332	$	-	$	660,423
Special Mention		1,300		411		243		1,331		-		6,157		1,579		-		11,021
Substandard		-		-		-		1,444		36		2,232		-		-		3,712
Doubtful		-		-		-		-		-		-		-		-		-
Total	$	79,796	$	132,359	$	112,345	$	68,724	$	72,516	$	194,505	$	14,911	$	-	$	675,156
Commercial real estate
Current period gross charge-offs	$	-	$	-	$	-	$	-	$	112	$	42	$	-	$	-	$	154
Real Estate - Agriculture
Risk Rating
Pass	$	2,635	$	12,509	$	5,433	$	7,606	$	7,746	$	24,654	$	522	$	-	$	61,105
Special Mention		-		-		-		-		399		490		150		-		1,039
Substandard		-		508		-		1,018		-		189		-		-		1,715
Doubtful		-		-		-		-		-		-		-		-		-
Total	$	2,635	$	13,017	$	5,433	$	8,624	$	8,145	$	25,333	$	672	$	-	$	63,859

Real Estate - Agriculture
Current period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Commercial loans
Risk Rating
Pass	$	48,571	$	41,863	$	24,443	$	13,752	$	9,914	$	15,384	$	38,644	$	-	$	192,571
Special Mention		553		1,412		257		134		20		188		768		-		3,332
Substandard		-		126		342		656		-		49		3,500		-		4,673
Doubtful		-		-		-		-		-		-		-		-		-
Total	$	49,124	$	43,401	$	25,042	$	14,542	$	9,934	$	15,621	$	42,912	$	-	$	200,576
Commercial loans
Current period gross charge-offs	$	-	$	32	$	24	$	4,856	$	-	$	41	$	-	$	-	$	4,953
Other agricultural loans
Risk Rating
Pass	$	2,670	$	5,286	$	3,251	$	2,912	$	2,373	$	3,836	$	11,091	$	-	$	31,419
Special Mention		-		-		2		185		86		-		155		-		428
Substandard		-		-		-		-		119		-		-		-		119
Doubtful		-		-		-		-		-		-		-		-		-
Total	$	2,670	$	5,286	$	3,253	$	3,097	$	2,578	$	3,836	$	11,246	$	-	$	31,966
Other agricultural loans
Current period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Total
Risk Rating
Pass	$	132,372	$	191,606	$	145,229	$	90,219	$	92,513	$	229,990	$	63,589	$	-	$	945,518
Special Mention		1,853		1,823		502		1,650		505		6,835		2,652		-		15,820
Substandard		-		634		342		3,118		155		2,470		3,500		-		10,219
Doubtful		-		-		-		-		-		-		-		-		-
Total	$	134,225	$	194,063	$	146,073	$	94,987	$	93,173	$	239,295	$	69,741	$	-	$	971,557

The following table presents the classes of the loan portfolio summarized by the aggregate Pass and the criticized categories of Special Mention, Substandard, Doubtful and Loss within the internal risk rating system as of December 31, 2022 (in thousands):

			Special
	Pass		Mention		Substandard		Doubtful		Loss		Total
December 31, 2022
Commercial real estate loans	$	646,775	$	1,079	$	3,690	$	—	$	—	$	651,544
Real estate - agricultural		66,444		368		2,103		—		—		68,915
Commercial loans		186,966		184		107		—		—		187,257
Other agricultural loans		34,071		556		650		—		—		35,277
Total	$	934,256	$	2,187	$	6,550	$	—	$	—	$	942,993

The Company monitors the credit risk profile by payment activity for residential and consumer loan classes. Loans past due over 90 days and loans on nonaccrual status are considered nonperforming. Nonperforming loans are reviewed monthly. The following table presents the carrying value of residential and consumer loans based on payment activity (in thousands):

														Revolving		Revolving
	Term Loans Amortized Costs Basis by Origination Year													Loans		Loans
														Amortized		Converted
December 31, 2023		2023		2022		2021		2020		2019		Prior		Cost Basis		to Term		Total
Residential real estate
Payment Performance
Performing	$	27,446	$	62,178	$	57,691	$	35,357	$	16,406	$	87,951	$	29,085	$	-	$	316,114
Nonperforming		-		-		-		-		58		324		50		-		432
Total	$	27,446	$	62,178	$	57,691	$	35,357	$	16,464	$	88,275	$	29,135	$	-	$	316,546
Residential real estate
Current period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	34	$	-	$	-	$	34
Construction
Payment Performance
Performing	$	23,500	$	14,906	$	6,791	$	1,599	$	1,829	$	624	$	2,204	$	-	$	51,453
Nonperforming		-		-		-		-		-		-		-		-		-
Total	$	23,500	$	14,906	$	6,791	$	1,599	$	1,829	$	624	$	2,204	$	-	$	51,453
Construction
Current period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Consumer loans to individuals
Payment Performance
Performing	$	127,243	$	76,339	$	24,584	$	14,343	$	10,217	$	9,942	$	938	$	-	$	263,606
Nonperforming		111		404		118		31		41		10		-		-		715
Total	$	127,354	$	76,743	$	24,702	$	14,374	$	10,258	$	9,952	$	938	$	-	$	264,321
Consumer loans to individuals
Current period gross charge-offs	$	45	$	710	$	200	$	35	$	45	$	28	$	4	$	-	$	1,067
Total
Payment Performance
Performing	$	178,189	$	153,423	$	89,066	$	51,299	$	28,452	$	98,517	$	32,227	$	-	$	631,173
Nonperforming		111		404		118		31		99		334		50		-		1,147
Total	$	178,300	$	153,827	$	89,184	$	51,330	$	28,551	$	98,851	$	32,277	$	-	$	632,320

For residential real estate loans, construction loans and consumer loans, the Company evaluates credit quality based on the performance of the individual credits. The following table presents the recorded investment in the loan classes based on payment activity as of December 31, 2022, under ASC 310 (in thousands):

	Performing		Nonperforming		Total
December 31, 2022
Residential real estate loans	$	298,327	$	486	$	298,813
Construction		32,469		—		32,469
Consumer loans to individuals		199,985		164		200,149
Total	$	530,781	$	650	$	531,431

Management further monitors the performance and credit quality of the loan portfolio by analyzing the age of the portfolio as determined by the length of time a recorded payment is past due. The following table presents the classes of the loan portfolio summarized by the aging categories of performing loans and nonaccrual loans as of December 31, 2023 and December 31, 2022 (in thousands):

	Current		31-60 Days Past Due		61-90 Days Past Due		Greater than 90 Days Past Due and still accruing		Non-Accrual		Total Past Due and Non-Accrual		Total Loans
December 31, 2023
Real Estate loans
Residential	$	315,224	$	877	$	13	$	—	$	432	$	1,322	$	316,546
Commercial		666,768		6,177		—		—		2,211		8,388		675,156
Agricultural		63,732		127		—		—		—		127		63,859
Construction		51,435		—		18		—		—		18		51,453
Commercial loans		192,988		3,170		154		—		4,264		7,588		200,576
Other agricultural loans		31,959		7		—		—		—		7		31,966
Consumer loans		262,578		865		163		—		715		1,743		264,321
Total	$	1,584,684	$	11,223	$	348	$	—	$	7,622	$	19,193	$	1,603,877

	Current		31-60 Days Past Due		61-90 Days Past Due		Greater than 90 Days Past Due and still accruing		Non-Accrual		Total Past Due and Non-Accrual		Purchased Credit Impaired Loans		Total Loans
December 31, 2022
Real Estate loans
Residential	$	297,350	$	187	$	223	$	—	$	486	$	896	$	567	$	298,813
Commercial		648,688		405		—		—		402		807		2,049		651,544
Agricultural		66,751		130		—		—		—		130		2,034		68,915
Construction		32,469		—		—		—		—		—		-		32,469
Commercial loans		185,485		71		—		—		61		132		1,640		187,257
Other agricultural loans		35,277		—		—		—		—		—		—		35,277
Consumer loans		198,893		853		239		—		164		1,256		-		200,149
Total	$	1,464,913	$	1,646	$	462	$	—	$	1,113	$	3,221	$	6,290	$	1,474,424

The following table presents the carrying value of loans on nonaccrual status and loans past due over 90 days still accruing interest (in thousands):

		Nonaccrual		Nonaccrual				Loans Past Due
		with no		with		Total		Over 90 Days		Total
	ACL		ACL		Nonaccrual		Still Accruing		Nonperforming
December 31, 2023
Real Estate loans
Residential	$	432	$	-	$	432	$	-	$	432
Commercial		2,211		-		2,211		-		2,211
Agricultural		-		-		-		-		-
Construction		-		-		-		-		-
Commercial loans		4,264		-		4,264		-		4,264
Other agricultural loans		-		-		-		-		-
Consumer loans		162		553		715		-		715
Total	$	7,069	$	553	$	7,622	$	-	$	7,622

The following table presents, by class of loans and leases, the amortized cost basis of collateral-dependent nonaccrual loans and leases and type of collateral as of December 31, 2023:

	Real Estate		Other		None		Total
December 31, 2023
Real Estate loans
Residential	$	432	$	-	$	-	$	432
Commercial		2,211		-		-		2,211
Agricultural		-		-		-		-
Construction		-		-		-		-
Commercial loans		49		4,215		-		4,264
Other agricultural loans		-		-		-		-
Consumer loans		-		715		-		715
Total	$	2,692	$	4,930	$	-	$	7,622

The following table presents the allowance for credit losses by the classes of the loan portfolio under ASC 326:

(In thousands)	Residential Real Estate		Commercial Real Estate		Agricultural		Construction		Commercial		Other Agricultural		Consumer		Total
Beginning balance, December 31, 2022	$	2,833	$	8,293	$	259	$	409	$	2,445	$	124	$	2,636	$	16,999
Impact of adopting ASC 326		(1,545)		5,527		(200)		388		(1,156)		3		(551)		2,466
Charge Offs		(34)		(154)		—		—		(4,953)		—		(1,067)		(6,208)
Recoveries		6		15		—		—		21		—		88		130
Provision for credit losses		91		(1,810)		(1)		136		4,850		(33)		2,348		5,581
Ending balance, December 31, 2023	$	1,351	$	11,871	$	58	$	933	$	1,207	$	94	$	3,454	$	18,968
Ending balance individually evaluated	$	—	$	—	$	—	$	—	$	—	$	—	$	135	$	135
Ending balance collectively evaluated	$	1,351	$	11,871	$	58	$	933	$	1,207	$	94	$	3,319	$	18,833

The following table presents the allowance for loan losses by the classes of the loan portfolio under ASC 310:

(In thousands)	Residential Real Estate		Commercial Real Estate		Agricultural		Construction		Commercial		Other Agricultural		Consumer		Total
Beginning balance, December 31, 2021	$	2,175	$	10,878	$	—	$	133	$	1,490	$	—	$	1,766	$	16,442
Charge Offs		(172)		(20)		—		—		(16)		—		(457)		(665)
Recoveries		130		82		—		—		46		—		64		322
Provision for loan losses		700		(2,647)		259		276		925		124		1,263		900
Ending balance, December 31, 2022	$	2,833	$	8,293	$	259	$	409	$	2,445	$	124	$	2,636	$	16,999
Ending balance individually evaluated for impairment	$	—	$	—	$	—	$	—	$	50	$	—	$	—	$	50
Ending balance collectively evaluated ‎for impairment	$	2,833	$	8,293	$	259	$	409	$	2,395	$	124	$	2,636	$	16,949

The cumulative loss rate used as the basis for the estimate of credit losses is comprised of the Company’s historical loss experience. The Company chose to apply qualitative factors based on “quantitative metrics” which link the quantifiable metrics to historical changes in the qualitative factor categories. The Company also chose to apply economic projections to the model. A select group of economic indicators was utilized which was then correlated to the historical loss experience of the Company and its peers. Based on the correlation results, the economic adjustments are then weighted for relevancy and applied to the individual loan pools.

During the period ended December 31, 2023, the allowance for credit losses increased from $16,999,000 to $18,968,000 This $1,969,000 increase in the required allowance was due primarily to charge-offs on one large commercial relationship.

During the period ended December 31, 2022, the allowance for loan losses increased from $16,442,000 to $16,999,000. This $557,000 increase in the required allowance was due primarily to a $2.4 million increase in the qualitative factor related to loan growth and a $445,000 increase in the qualitative factor related to large balance loans, which was partially offset by a $2.3 million decrease in the qualitative factor related to the Covid pandemic.

Interest income that would have been recorded on loans accounted for on a non-accrual basis under the original terms of the loans was $694,000 and $182,000 for 2023 and 2022, respectively.

Occasionally, the Bank modifies loans to borrowers in financial distress by providing principal forgiveness, term extension, an other-than-insignificant payment delay or interest rate reduction. When principal forgiveness is provided, the amount of forgiveness is charged-off against the allowance for credit losses.

In some cases, the Bank provides multiple types of concessions on one loan. Typically, one type of concession, such as a term extension, is granted initially. If the borrower continues to experience financial difficulty, another concession, such as principal forgiveness, may be granted. The following table presents modifications made to borrowers experiencing financial difficulty:

Loan Modifications Made to Borrowers Experiencing Financial Difficulty
Term Extension
	Amortized Cost Basis at December 31, 2023	% of Total Class of Financing Receivable	Financial Effect

Commercial real estate loans	$	4,321,547	0.64	%	Extended maturity date of loans by three to six months.
Total	$	4,321,547
Combination - Term Extension and Interest Rate Adjustment
		Amortized Cost Basis at December 31, 2023	% of Total Class of Financing Receivable		Financial Effect
Consumer loans to individuals	$	19,225	0.01	%	New loans were granted which extended terms for a weighted average of 34 months and rates were increased from a weighted average rate of 5.25% to a weighted average rate of 11.03%
Total	$	19,225

As of December 31, 2023, all loan modifications made to borrowers experiencing financial difficulty were current per the modified contractual terms.

During the year ended December 31, 2023, the Company adopted ASU 2022-02 on a modified retrospective basis. ASU 2022-02 eliminates the TDR accounting model, and requires that the Company evaluate, based on the accounting for loan modifications, whether the borrower is experiencing financial difficulty and the modification results in a more-than-insignificant direct change in the contractual cash flows and represents a new loan or a continuation of an existing loan. This change required all loan modifications to be accounted for under the general loan modification guidance in ASC 310-20, Receivables – Nonrefundable Fees and Other Costs, and subject entities to new disclosure requirements on loan modifications to borrowers experiencing financial difficulty. Upon adoption of CECL, the TDRs were evaluated and included in the CECL loan segment pools if the loans shared similar risk characteristics to other loans in the pool or remained with individually evaluated loans for which the ACL was measured using the collateral-dependent or discounted cash flow method.

As of December 31, 2022, there were no troubled debt restructured loans. During 2022, there were no new loans relationships identified as troubled debt restructurings. During 2022, there were no charge-offs on loans classified as troubled debt restructurings.