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LOANS AND RELATED ALLOWANCE FOR CREDIT LOSSES
3 Months Ended
Mar. 31, 2024
Loans and Leases Receivable Disclosure [Abstract]  
LOANS AND RELATED ALLOWANCE FOR CREDIT LOSSES LOANS AND RELATED ALLOWANCE FOR CREDIT LOSSES
Major categories of loans are summarized as follows:
(dollars in thousands)March 31, 2024December 31, 2023
Commercial and industrial$402,206 $427,800 
Commercial real estate - owner occupied294,967 295,842 
Commercial real estate - non-owner occupied890,251 880,681 
Construction and land development345,991 363,983 
Multi-family421,573 417,923 
One-to-four family residential485,948 491,508 
Agricultural and farmland287,205 287,294 
Municipal, consumer, and other217,821 239,386 
Loans, before allowance for credit losses3,345,962 3,404,417 
Allowance for credit losses(40,815)(40,048)
Loans, net of allowance for credit losses$3,305,147 $3,364,369 
Allowance for Credit Losses
Management estimates the allowance for credit losses using relevant available information from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. The discounted cash flow method is used to estimate expected credit losses for all loan categories, except for consumer loans where the weighted average remaining maturity method is utilized.
At March 31, 2024, the economic forecast used by management anticipates an economic slowdown, but not a recession, with the unemployment rate remaining stable and GDP growth slowing and then remaining stable over the next 4 quarters considered in the forecast period. After the forecast period, the Company reverts to long-term averages over a 4-quarter reversion period. Additionally, management has made qualitative adjustments to the loss estimates to reflect other factors that influence credit losses.
The following tables detail activity in the allowance for credit losses:
Three Months Ended March 31, 2024
(dollars in thousands)Commercial
and
Industrial
Commercial
Real Estate
Owner
Occupied
Commercial
Real Estate
Non-owner
Occupied
Construction
and Land
Development
Multi-FamilyOne-to-four
Family
Residential
Agricultural
and
Farmland
Municipal,
Consumer,
and
Other
Total
Beginning balance$4,980 $2,272 $7,714 $5,998 $3,837 $5,204 $975 $9,068 $40,048 
Provision for credit losses239 (117)2,102 (454)(421)32 (829)560 
Charge-offs(15)— — — — (21)— (191)(227)
Recoveries26 242 — 84 72 434 
Ending balance$5,230 $2,157 $10,058 $5,545 $3,845 $4,846 $1,014 $8,120 $40,815 
Three Months Ended March 31, 2023
(dollars in thousands)Commercial
and
Industrial
Commercial
Real Estate
Owner
Occupied
Commercial
Real Estate
Non-owner
Occupied
Construction
and Land
Development
Multi-FamilyOne-to-four
Family
Residential
Agricultural
and
Farmland
Municipal,
Consumer,
and
Other
Total
Beginning balance$3,279 $1,193 $6,721 $4,223 $1,472 $1,759 $796 $5,890 $25,333 
Adoption of ASC 326(822)587 501 1,969 85 797 1,567 2,299 6,983 
PCD allowance established in acquisition69 127 239 240 68 492 1,247 
Provision for loan losses387 619 305 1,139 526 1,081 305 739 5,101 
Charge-offs— (3)— — — (22)— (117)(142)
Recoveries19 12 74 — 58 87 254 
Ending balance$2,932 $2,535 $7,840 $7,574 $2,151 $4,165 $2,674 $8,905 $38,776 
Gross charge-offs, further sorted by origination year, were as follows during the three months ended March 31, 2024 and 2023.
Gross Charge-Offs for the Three Months Ended March 31, 2024
Term Loans by Origination YearRevolving
Loans
Revolving
Loans
Converted
to Term
Total
(dollars in thousands)20242023202220212020Prior
Commercial and industrial$— $$— $— $— $11 $$— $15 
Commercial real estate - owner occupied— — — — — — — — — 
Commercial real estate - non-owner occupied— — — — — — — — — 
Construction and land development— — — — — — — — — 
Multi-family— — — — — — — — — 
One-to-four family residential— — — — 12 — 21 
Agricultural and farmland— — — — — — — — — 
Municipal, consumer, and other44 56 — — — 85 — 191 
Total$44 $59 $$— $— $17 $98 $— $227 
Gross Charge-Offs for the Three Months Ended March 31, 2023
Term Loans by Origination YearRevolving
Loans
Revolving
Loans
Converted
to Term
Total
(dollars in thousands)20232022202120202019Prior
Commercial and industrial$— $— $— $— $— $— $— $— $— 
Commercial real estate - owner occupied— — — — — — — 
Commercial real estate - non-owner occupied— — — — — — — — — 
Construction and land development— — — — — — — — — 
Multi-family— — — — — — — — — 
One-to-four family residential— — — — 21 — — 22 
Agricultural and farmland— — — — — — — — — 
Municipal, consumer, and other35 53 — — — 20 — 117 
Total$35 $56 $— $$$21 $20 $— $142 
The following tables present loans and the related allowance for credit losses by category:
March 31, 2024
(dollars in thousands)Commercial
and
Industrial
Commercial
Real Estate
Owner
Occupied
Commercial
Real Estate
Non-owner
Occupied
Construction
and Land
Development
Multi-FamilyOne-to-four
Family
Residential
Agricultural
and
Farmland
Municipal,
Consumer,
and
Other
Total
Loan balances:
Collectively evaluated for impairment$401,036 $294,322 $875,344 $345,775 $421,257 $479,840 $287,061 $202,934 $3,307,569 
Individually evaluated for impairment1,170 645 14,907 216 316 6,108 144 14,887 38,393 
Total$402,206 $294,967 $890,251 $345,991 $421,573 $485,948 $287,205 $217,821 $3,345,962 
Allowance for credit losses:
Collectively evaluated for impairment$4,882 $2,157 $9,224 $5,545 $3,845 $4,603 $1,014 $5,414 $36,684 
Individually evaluated for impairment348 — 834 — — 243 — 2,706 4,131 
Total$5,230 $2,157 $10,058 $5,545 $3,845 $4,846 $1,014 $8,120 $40,815 
December 31, 2023
(dollars in thousands)Commercial
and
Industrial
Commercial
Real Estate
Owner
Occupied
Commercial
Real Estate
Non-owner
Occupied
Construction
and Land
Development
Multi-FamilyOne-to-four
Family
Residential
Agricultural
and
Farmland
Municipal,
Consumer,
and
Other
Total
Loan balances:
Collectively evaluated for impairment$427,528 $295,672 $865,394 $363,767 $417,608 $486,049 $287,150 $224,345 $3,367,513 
Individually evaluated for impairment272 170 15,287 216 315 5,459 144 15,041 36,904 
Total$427,800 $295,842 $880,681 $363,983 $417,923 $491,508 $287,294 $239,386 $3,404,417 
Allowance for loan losses:
Collectively evaluated for impairment$4,960 $2,272 $6,693 $5,998 $3,837 $4,957 $975 $6,137 $35,829 
Individually evaluated for impairment20 — 1,021 — — 247 — 2,931 4,219 
Total$4,980 $2,272 $7,714 $5,998 $3,837 $5,204 $975 $9,068 $40,048 
The following tables present collateral dependent loans, by the primary collateral type, which are individually evaluated to determine expected credit losses, and the related allowance for credit losses allocated to these loans:
March 31, 2024
Amortized CostAllowance
for Credit
Losses
Primary Collateral Type
(dollars in thousands)Real EstateVehiclesOtherTotal
Commercial and industrial$— $895 $275 $1,170 $348 
Commercial real estate - owner occupied645 — — 645 — 
Commercial real estate - non-owner occupied14,907 — — 14,907 834 
Construction and land development216 — — 216 — 
Multi-family316 — — 316 — 
One-to-four family residential6,108 — — 6,108 243 
Agricultural and farmland144 — — 144 — 
Municipal, consumer, and other14,817 48 22 14,887 2,706 
Total$37,153 $943 $297 $38,393 $4,131 
December 31, 2023
Amortized CostAllowance
for Credit
Losses
Primary Collateral Type
(dollars in thousands)Real EstateVehiclesOtherTotal
Commercial and industrial$— $37 $235 $272 $20 
Commercial real estate - owner occupied170 — — 170 — 
Commercial real estate - non-owner occupied15,287 — — 15,287 1,021 
Construction and land development216 — — 216 — 
Multi-family315 — — 315 — 
One-to-four family residential5,459 — — 5,459 247 
Agricultural and farmland144 — — 144 — 
Municipal, consumer, and other14,978 39 24 15,041 2,931 
Total$36,569 $76 $259 $36,904 $4,219 
Accrued interest on loans is excluded from the estimate of credit losses and totaled $17.3 million and $18.4 million as of March 31, 2024 and December 31, 2023, respectively.
Past Due and Nonaccrual Status
Past due status is based on the contractual terms of the loan. Typically, loans are placed on nonaccrual when they reach 90 days past due, or when, in management’s opinion, there is reasonable doubt regarding the collection of the amounts due through the normal means of the borrower. Interest accrued and unpaid at the time a loan is placed on nonaccrual status is reversed from interest income. Interest payments received on nonaccrual loans are recognized in accordance with our significant accounting policies. Once a loan is placed on nonaccrual status, the borrower must generally demonstrate at least six months of payment performance and we must believe that all remaining principal and interest is fully collectible, before the loan is eligible to return to accrual status.
The following tables present loans by category based on current payment and accrual status:
March 31, 2024
Accruing Interest
(dollars in thousands)Current30 - 89 Days
Past Due
90+ Days
Past Due
NonaccrualTotal
Loans
Commercial and industrial$400,152 $884 $— $1,170 $402,206 
Commercial real estate - owner occupied294,148 174 — 645 294,967 
Commercial real estate - non-owner occupied885,963 2,645 — 1,643 890,251 
Construction and land development345,775 — — 216 345,991 
Multi-family421,142 115 — 316 421,573 
One-to-four family residential478,351 2,143 — 5,454 485,948 
Agricultural and farmland286,977 84 — 144 287,205 
Municipal, consumer, and other217,629 123 — 69 217,821 
Total$3,330,137 $6,168 $— $9,657 $3,345,962 
December 31, 2023
Accruing Interest
(dollars in thousands)Current30 - 89 Days
Past Due
90+ Days
Past Due
NonaccrualTotal
Loans
Commercial and industrial$427,300 $228 $— $272 $427,800 
Commercial real estate - owner occupied295,672 — — 170 295,842 
Commercial real estate - non-owner occupied878,591 255 — 1,835 880,681 
Construction and land development363,735 32 — 216 363,983 
Multi-family417,597 11 — 315 417,923 
One-to-four family residential484,969 1,735 — 4,804 491,508 
Agricultural and farmland286,820 330 — 144 287,294 
Municipal, consumer, and other239,033 252 37 64 239,386 
Total$3,393,717 $2,843 $37 $7,820 $3,404,417 
The following tables present nonaccrual loans with and without a related allowance for credit losses:
March 31, 2024
(dollars in thousands)Nonaccrual
With
Allowance for
Credit Losses
Nonaccrual
With No
Allowance for
Credit Losses
Total
Nonaccrual
Commercial and industrial$1,057 $113 $1,170 
Commercial real estate - owner occupied— 645 645 
Commercial real estate - non-owner occupied— 1,643 1,643 
Construction and land development216 — 216 
Multi-family— 316 316 
One-to-four family residential145 5,309 5,454 
Agricultural and farmland— 144 144 
Municipal, consumer, and other— 69 69 
Total$1,418 $8,239 $9,657 
December 31, 2023
(dollars in thousands)Nonaccrual
With
Allowance for
Credit Losses
Nonaccrual
With No
Allowance for
Credit Losses
Total
Nonaccrual
Commercial and industrial$120 $152 $272 
Commercial real estate - owner occupied— 170 170 
Commercial real estate - non-owner occupied188 1,647 1,835 
Construction and land development216 — 216 
Multi-family— 315 315 
One-to-four family residential14 4,790 4,804 
Agricultural and farmland— 144 144 
Municipal, consumer, and other— 64 64 
Total$538 $7,282 $7,820 
Credit Quality Indicators
The Company assigns a risk rating to all loans and periodically performs detailed internal reviews of all such loans that are part of relationships with over $750,000 in total exposure to identify credit risks and to assess the overall collectability of the portfolio. These risk ratings are also subject to review by the Company’s regulators, external loan review, and internal loan review. During the internal reviews, management monitors and analyzes the financial condition of borrowers and guarantors, trends in the industries in which the borrowers operate and the fair values of collateral securing the loans. The risk rating is reviewed annually, at a minimum, and on an as needed basis depending on the specific circumstances of the loan. These credit quality indicators are used to assign a risk rating to each individual loan. Risk ratings are grouped into four major categories, defined as follows:
Pass – a pass loan is a credit with no existing or known potential weaknesses deserving of management’s close attention.
Pass-Watch – a pass-watch loan is still considered a "pass" credit and is not a classified or criticized asset, but is a reflection of a borrower who exhibits credit weaknesses or downward trends warranting close attention and increased monitoring. These potential weaknesses may result in deterioration of the repayment prospects for the loan. No loss of principal or interest is expected, and the borrower does not pose sufficient risk to warrant a Substandard or Doubtful classification.
Substandard – a substandard loan is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Assets so classified must have a well-defined weakness, or weaknesses, that jeopardize the liquidation of the debt. They are characterized as probable that the borrower will not pay principal and interest in accordance with the contractual terms.
Doubtful – a doubtful loan has all the weaknesses inherent in one classified as substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.
The following tables present loans by category based on their assigned risk ratings determined by management:
March 31, 2024
(dollars in thousands)PassPass-WatchSubstandardDoubtfulTotal
Commercial and industrial$388,483 $8,882 $4,841 $— $402,206 
Commercial real estate - owner occupied275,346 12,611 7,010 — 294,967 
Commercial real estate - non-owner occupied825,513 40,095 24,643 — 890,251 
Construction and land development333,565 12,154 272 — 345,991 
Multi-family401,541 19,716 316 — 421,573 
One-to-four family residential466,266 7,000 12,682 — 485,948 
Agricultural and farmland276,427 7,092 3,686 — 287,205 
Municipal, consumer, and other201,083 1,732 15,006 — 217,821 
Total$3,168,224 $109,282 $68,456 $— $3,345,962 
December 31, 2023
(dollars in thousands)PassPass-WatchSubstandardDoubtfulTotal
Commercial and industrial$419,494 $7,128 $1,178 $— $427,800 
Commercial real estate - owner occupied275,649 14,072 6,121 — 295,842 
Commercial real estate - non-owner occupied822,012 33,283 25,386 — 880,681 
Construction and land development351,087 12,604 292 — 363,983 
Multi-family397,951 19,656 316 — 417,923 
One-to-four family residential472,355 6,671 12,482 — 491,508 
Agricultural and farmland280,867 3,071 3,356 — 287,294 
Municipal, consumer, and other222,474 1,721 15,191 — 239,386 
Total$3,241,889 $98,206 $64,322 $— $3,404,417 
Risk ratings of loans, further sorted by origination year, are as follows as of March 31, 2024:
(dollars in thousands)Term Loans by Origination YearRevolving
Loans
Revolving
Loans
Converted
to Term
Total
20242023202220212020Prior
Commercial and industrial
Pass$17,320 $73,281 $55,707 $17,771 $24,591 $33,691 $162,876 $3,246 $388,483 
Pass-Watch— 3,490 1,374 955 124 1,161 766 1,012 8,882 
Substandard— 1,311 65 27 42 — 2,942 454 4,841 
Total$17,320 $78,082 $57,146 $18,753 $24,757 $34,852 $166,584 $4,712 $402,206 
Commercial real estate - owner occupied
Pass$7,568 $27,742 $63,093 $54,117 $52,110 $57,399 $13,250 $67 $275,346 
Pass-Watch352 3,199 919 5,070 1,414 1,657 — — 12,611 
Substandard— 3,141 84 1,180 61 1,061 1,483 — 7,010 
Total$7,920 $34,082 $64,096 $60,367 $53,585 $60,117 $14,733 $67 $294,967 
Commercial real estate - non-owner occupied
Pass$11,210 $124,093 $246,855 $234,215 $87,338 $110,263 $9,840 $1,699 $825,513 
Pass-Watch— 790 6,824 6,925 348 11,383 13,586 239 40,095 
Substandard— 13,274 124 — — 11,245 — — 24,643 
Total$11,210 $138,157 $253,803 $241,140 $87,686 $132,891 $23,426 $1,938 $890,251 
Construction and land development
Pass$25,805 $133,857 $107,186 $42,022 $9,070 $3,170 $12,194 $261 $333,565 
Pass-Watch152 1,919 8,423 — — 19 804 837 12,154 
Substandard— — 216 — — 56 — — 272 
Total$25,957 $135,776 $115,825 $42,022 $9,070 $3,245 $12,998 $1,098 $345,991 
Multi-family
Pass$5,042 $83,616 $81,575 $117,281 $52,554 $56,099 $4,893 $481 $401,541 
Pass-Watch400 2,703 7,161 — 8,816 629 — 19,716 
Substandard— — — 316 — — — — 316 
Total$5,442 $86,319 $88,736 $117,597 $61,370 $56,728 $4,893 $488 $421,573 
One-to-four family residential
Pass$14,674 $98,623 $90,394 $78,700 $62,792 $61,198 $53,859 $6,026 $466,266 
Pass-Watch365 2,039 283 931 605 2,296 202 279 7,000 
Substandard70 1,527 1,523 547 564 5,517 — 2,934 12,682 
Total$15,109 $102,189 $92,200 $80,178 $63,961 $69,011 $54,061 $9,239 $485,948 
Agricultural and farmland
Pass$17,509 $43,295 $35,500 $34,208 $31,935 $12,397 $100,006 $1,577 $276,427 
Pass-Watch137 2,878 794 94 27 761 2,355 46 7,092 
Substandard331 — — 12 3,199 144 — — 3,686 
Total$17,977 $46,173 $36,294 $34,314 $35,161 $13,302 $102,361 $1,623 $287,205 
Municipal, Consumer, and other
Pass$8,181 $38,222 $49,651 $27,623 $13,490 $42,611 $21,305 $— $201,083 
Pass-Watch— 10 31 11 — 1,676 — 1,732 
Substandard31 64 62 — — 14,825 24 — 15,006 
Total$8,212 $38,296 $49,744 $27,634 $13,490 $59,112 $21,333 $— $217,821 
Total by Risk Rating
Pass$107,309 $622,729 $729,961 $605,937 $333,880 $376,828 $378,223 $13,357 $3,168,224 
Pass-Watch1,406 17,028 25,809 13,986 11,334 19,582 17,717 2,420 109,282 
Substandard432 19,317 2,074 2,082 3,866 32,848 4,449 3,388 68,456 
Total$109,147 $659,074 $757,844 $622,005 $349,080 $429,258 $400,389 $19,165 $3,345,962 
Risk ratings of loans, further sorted by origination year, are as follows as of December 31, 2023:
(dollars in thousands)Term Loans by Origination YearRevolving
Loans
Revolving
Loans
Converted
to Term
Total
20232022202120202019Prior
Commercial and industrial
Pass$90,931 $58,364 $19,283 $26,816 $5,269 $29,550 $187,579 $1,702 $419,494 
Pass-Watch2,025 1,340 892 144 753 471 956 547 7,128 
Substandard111 73 327 60 — — 323 284 1,178 
Total$93,067 $59,777 $20,502 $27,020 $6,022 $30,021 $188,858 $2,533 $427,800 
Commercial real estate - owner occupied
Pass$27,516 $64,229 $55,376 $53,634 $32,469 $28,876 $13,549 $— $275,649 
Pass-Watch4,061 943 5,210 1,474 1,573 811 — — 14,072 
Substandard2,734 86 1,550 64 164 1,523 — — 6,121 
Total$34,311 $65,258 $62,136 $55,172 $34,206 $31,210 $13,549 $— $295,842 
Commercial real estate - non-owner occupied
Pass$121,536 $240,323 $237,953 $88,894 $82,094 $39,228 $10,274 $1,710 $822,012 
Pass-Watch810 6,893 7,013 353 4,230 154 13,585 245 33,283 
Substandard13,376 124 286 — 2,410 9,190 — — 25,386 
Total$135,722 $247,340 $245,252 $89,247 $88,734 $48,572 $23,859 $1,955 $880,681 
Construction and land development
Pass$153,499 $119,005 $56,954 $5,596 $2,662 $796 $12,050 $525 $351,087 
Pass-Watch153 10,750 — — — — 163 1,538 12,604 
Substandard— 216 — — — 76 — — 292 
Total$153,652 $129,971 $56,954 $5,596 $2,662 $872 $12,213 $2,063 $363,983 
Multi-family
Pass$83,898 $81,507 $115,402 $53,126 $34,053 $23,570 $5,904 $491 $397,951 
Pass-Watch3,111 7,197 — 8,821 51 468 — 19,656 
Substandard— — 316 — — — — — 316 
Total$87,009 $88,704 $115,718 $61,947 $34,104 $24,038 $5,904 $499 $417,923 
One-to-four family residential
Pass$105,337 $91,636 $82,289 $64,094 $21,986 $44,241 $57,248 $5,524 $472,355 
Pass-Watch2,382 286 940 486 212 1,804 203 358 6,671 
Substandard1,507 1,527 623 646 1,037 4,166 64 2,912 12,482 
Total$109,226 $93,449 $83,852 $65,226 $23,235 $50,211 $57,515 $8,794 $491,508 
Agricultural and farmland
Pass$52,766 $37,600 $36,604 $33,960 $8,910 $7,756 $100,486 $2,785 $280,867 
Pass-Watch953 361 425 30 71 719 172 340 3,071 
Substandard— — 13 3,199 — 144 — — 3,356 
Total$53,719 $37,961 $37,042 $37,189 $8,981 $8,619 $100,658 $3,125 $287,294 
Municipal, Consumer, and other
Pass$43,575 $57,404 $27,904 $14,342 $1,016 $42,499 $35,734 $— $222,474 
Pass-Watch13 — — 1,693 — — 1,721 
Substandard51 103 15,012 15,191 
Total$43,635 $57,513 $27,919 $14,348 $1,024 $59,204 $35,742 $$239,386 
Total by Risk Rating
Pass$679,058 $750,068 $631,765 $340,462 $188,459 $216,516 $422,824 $12,737 $3,241,889 
Pass-Watch$13,504 $27,776 $14,493 $11,308 $6,890 $6,120 $15,079 $3,036 98,206 
Substandard$17,779 $2,129 $3,117 $3,975 $3,619 $30,111 $395 $3,197 64,322 
Total$710,341 $779,973 $649,375 $355,745 $198,968 $252,747 $438,298 $18,970 $3,404,417 
Modifications
There were no loan modifications to borrowers in financial distress during the three months ended March 31, 2024 and 2023. There were no modified loans to borrowers in financial distress outstanding as of March 31, 2024 and December 31, 2023.
Pledged Loans
As of March 31, 2024 and December 31, 2023, the Company pledged loans totaling $1.85 billion and $1.20 billion, respectively, to the Federal Home Loan Bank of Chicago (“FHLB”) to secure available FHLB advance borrowing capacity.