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Loans

9 Months Ended

Sep. 30, 2024

NOTE 4 LOANS

Loan balances as of September 30, 2024 and December 31, 2023 are summarized below:


	(In Thousands)
Loans:	September 30, 2024			December 31, 2023
Consumer Real Estate	$	524,055		$	521,895
Agricultural Real Estate		220,328			223,791
Agricultural		137,252			132,560
Commercial Real Estate		1,301,160			1,337,766
Commercial and Industrial		260,732			254,935
Consumer		67,394			79,591
Other		25,916			30,136
		2,536,837			2,580,674
Less: Net deferred loan fees and costs and other*		1,499			517
		2,538,336			2,581,191
Less: Allowance for credit losses		(25,484	)		(25,024	)
Loans - Net	$	2,512,852		$	2,556,167

*This chart contains fair value adjustments to the basis of derivatives in the amount of $3.0 million at September 30, 2024 and $2.7 million at December 31, 2023.

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, 2024 and December 31, 2023:


	(In Thousands)
	September 30, 2024				December 31, 2023
	Fixed		Variable		Fixed		Variable
Consumer Real Estate	$	311,679	$	212,376	$	329,142	$	192,753
Agricultural Real Estate		122,465		97,863		123,783		100,008
Agricultural		49,635		87,617		56,269		76,291
Commercial Real Estate		959,346		341,814		1,024,989		312,777
Commercial and Industrial		135,030		125,702		131,385		123,550
Consumer		67,363		31		79,526		65
Other		16,200		9,716		20,552		9,584

As of September 30, 2024 and December 31, 2023 one to four family residential mortgage loans amounting to $194.3 million and $210.9 million, respectively, and HELOC loans amounting to $11.4 million and $12.1 million, respectively, have been pledged as security for future loans and existing loans the Bank has received from the Federal Home Loan Bank. The Bank has also pledged eligible commercial real estate loans of $358.8 million and $158.9 million as of September 30, 2024 and December 31, 2023, respectively, to the FHLB. During the second quarter of 2024, the Bank began pledging eligible multi-family real estate loans to the FHLB which amounted to $46.2 million as of September 30, 2024.

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 past due loans by portfolio classification of loans as of September 30, 2024 and December 31, 2023, net of deferred loan fees and costs:


	(In Thousands)
September 30, 2024	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	$	2,854	$	128	$	1,091	$	4,073	$	520,197	$	524,270	$	-
Agricultural Real Estate		-		-		-		-		220,051		220,051		-
Agricultural		35		13		91		139		137,448		137,587		-
Commercial Real Estate		-		-		360		360		1,298,569		1,298,929		-
Commercial and Industrial		50		28		11		89		286,315		286,404		-
Consumer		207		17		-		224		67,826		68,050		-
Total	$	3,146	$	186	$	1,553	$	4,885	$	2,530,406	$	2,535,291	$	-


	(In Thousands)
December 31, 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	$	1,914	$	137	$	670	$	2,721	$	519,187	$	521,908	$	-
Agricultural Real Estate		-		3,429		55		3,484		219,995		223,479		-
Agricultural		-		1,132		2,977		4,109		128,654		132,763		-
Commercial Real Estate		380		-		255		635		1,334,440		1,335,075		-
Commercial and Industrial		145		-		199		344		284,550		284,894		-
Consumer		218		37		26		281		80,072		80,353		-
Total	$	2,657	$	4,735	$	4,182	$	11,574	$	2,566,898	$	2,578,472	$	-

The following tables present the amortized cost of nonaccrual loans by class of loans as of September 30, 2024 and as of December 31, 2023:


	(In Thousands)
	September 30, 2024
	Nonaccrual				Loans Past
	With No				Due Over
	Allowance				89 Days
	for Credit Loss		Nonaccrual		Still Accruing
Consumer Real Estate	$	1,687	$	2,197	$	-
Agricultural Real Estate		125		125		-
Agricultural		105		105		-
Commercial Real Estate		360		360		-
Commercial & Industrial		39		39		-
Consumer		72		72		-
Total	$	2,388	$	2,898	$	-


	(In Thousands)
	December 31, 2023
	Nonaccrual				Loans Past
	With No				Due Over
	Allowance				89 Days
	for Credit Loss		Nonaccrual		Still Accruing
Consumer Real Estate	$	1,006	$	1,190	$	-
Agricultural Real Estate		15,949		15,949		-
Agricultural		4,671		4,671		-
Commercial Real Estate		254		254		-
Commercial & Industrial		198		198		-
Consumer		91		91		-
Total	$	22,169	$	22,353	$	-

Two borrower relationships resulted in a decrease to nonaccrual totals of $15.9 million in the agricultural real estate portfolio and $4.4 million in the agricultural portfolio as compared to December 31, 2023. The Company recognized interest income of $28 thousand for the three months ended September 30, 2024 on nonaccrual loans and $69 thousand for the first nine months of 2024. The Company recognized interest income of $74 thousand and $210 thousand on nonaccrual loans for the three and nine months ending September 30, 2023 respectively.

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 other factors.

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 the future contracts. The risk related to weather is often mitigated by requiring 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, 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 other factors.

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 and year of origination, net of deferred fees and costs, based on the most recent analysis performed as of September 30, 2024 and December 31, 2023:


	(In Thousands)
	September 30, 2024
															Revolving		Revolving
															Loans		Loans
	Term Loans Amortized Cost Basis by Origination Year												Term		Amortized		Converted		Grand
	2024		2023		2022		2021		2020		Prior		Total		Cost Basis		to Term		Total
Consumer Real Estate
Risk Rating
Pass (1-4)	$	32,347	$	67,066	$	81,338	$	91,901	$	77,460	$	112,018	$	462,130	$	58,545	$	91	$	520,766
Special Mention (5)		-		-		38		416		-		122		576		19		-		595
Substandard (6)		-		-		611		790		229		1,126		2,756		153		-		2,909
Doubtful (7)		-		-		-		-		-		-		-		-		-		-
Total Consumer Real Estate	$	32,347	$	67,066	$	81,987	$	93,107	$	77,689	$	113,266	$	465,462	$	58,717	$	91	$	524,270
Gross charge-offs YTD	$	-	$	-	$	-	$	-	$	-	$	13	$	13	$	-	$	-	$	13

Agricultural Real Estate
Risk Rating
Pass (1-4)	$	20,875	$	28,716	$	35,451	$	23,600	$	24,451	$	80,510	$	213,603	$	92	$	-	$	213,695
Special Mention (5)		-		-		246		-		-		14		260		-		-		260
Substandard (6)		5,966		-		125		-		-		5		6,096		-		-		6,096
Doubtful (7)		-		-		-		-		-		-		-		-		-		-
Total Agricultural Real Estate	$	26,841	$	28,716	$	35,822	$	23,600	$	24,451	$	80,529	$	219,959	$	92	$	-	$	220,051
Gross charge-offs YTD	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-

Agricultural
Risk Rating
Pass (1-4)	$	7,996	$	11,712	$	15,845	$	6,593	$	3,569	$	4,172	$	49,887	$	84,934	$	11	$	134,832
Special Mention (5)		-		19		-		8		-		-		27		30		-		57
Substandard (6)		1,101		24		-		-		42		-		1,167		1,531		-		2,698
Doubtful (7)		-		-		-		-		-		-		-		-		-		-
Total Agricultural	$	9,097	$	11,755	$	15,845	$	6,601	$	3,611	$	4,172	$	51,081	$	86,495	$	11	$	137,587
Gross charge-offs YTD	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-


	(In Thousands)
	September 30, 2024
															Revolving		Revolving
															Loans		Loans
	Term Loans Amortized Cost Basis by Origination Year												Term		Amortized		Converted		Grand
	2024		2023		2022		2021		2020		Prior		Total		Cost Basis		to Term		Total
Commercial Real Estate
Risk Rating
Pass (1-4)	$	70,907	$	212,460	$	418,161	$	221,122	$	116,176	$	210,309	$	1,249,135	$	-	$	-	$	1,249,135
Special Mention (5)		-		33,610		12,716		-		1,366		-		47,692		-		-		47,692
Substandard (6)		-		905		-		-		-		1,197		2,102		-		-		2,102
Doubtful (7)		-		-		-		-		-		-		-		-		-		-
Total Commercial Real Estate	$	70,907	$	246,975	$	430,877	$	221,122	$	117,542	$	211,506	$	1,298,929	$	-	$	-	$	1,298,929
Gross charge-offs YTD	$	-	$	-	$	-	$	-	$	-	$	15	$	15	$	-	$	-	$	15

Commercial & Industrial
Risk Rating
Pass (1-4)	$	25,573	$	57,631	$	42,542	$	16,616	$	15,185	$	1,689	$	159,236	$	96,175	$	144	$	255,555
Special Mention (5)		-		72		-		194		-		337		603		2		-		605
Substandard (6)		41		446		11		-		-		132		630		3,698		-		4,328
Doubtful (7)		-		-		-		-		-		-		-		-		-		-
Total Commercial & Industrial	$	25,614	$	58,149	$	42,553	$	16,810	$	15,185	$	2,158	$	160,469	$	99,875	$	144	$	260,488
Gross charge-offs YTD	$	-	$	-	$	-	$	-	$	101	$	-	$	101	$	-	$	5	$	106

Other
Risk Rating
Pass (1-4)	$	-	$	-	$	-	$	16,439	$	5,299	$	4,178	$	25,916	$	-	$	-	$	25,916
Special Mention (5)		-		-		-		-		-		-		-		-		-		-
Substandard (6)		-		-		-		-		-		-		-		-		-		-
Doubtful (7)		-		-		-		-		-		-		-		-		-		-
Total Other	$	-	$	-	$	-	$	16,439	$	5,299	$	4,178	$	25,916	$	-	$	-	$	25,916
Gross charge-offs YTD	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-


	(In Thousands)
	December 31, 2023
															Revolving		Revolving
															Loans		Loans
	Term Loans Amortized Cost Basis by Origination Year												Term		Amortized		Converted		Grand
	2023		2022		2021		2020		2019		Prior		Total		Cost Basis		to Term		Total
Consumer Real Estate
Risk Rating
Pass (1-4)	$	77,298	$	88,695	$	90,139	$	82,680	$	32,302	$	94,294	$	465,408	$	52,904	$	-	$	518,312
Special Mention (5)		1,228		40		-		-		-		134		1,402		-		-		1,402
Substandard (6)		-		261		558		163		246		952		2,180		14		-		2,194
Doubtful (7)		-		-		-		-		-		-		-		-		-		-
Total Consumer Real Estate	$	78,526	$	88,996	$	90,697	$	82,843	$	32,548	$	95,380	$	468,990	$	52,918	$	-	$	521,908
Gross charge-offs YTD	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-

Agricultural Real Estate
Risk Rating
Pass (1-4)	$	30,504	$	37,199	$	25,168	$	25,874	$	18,456	$	68,651	$	205,852	$	97	$	-	$	205,949
Special Mention (5)		-		861		14		-		149		359		1,383		-		-		1,383
Substandard (6)		-		-		12,196		186		259		3,506		16,147		-		-		16,147
Doubtful (7)		-		-		-		-		-		-		-		-		-		-
Total Agricultural Real Estate	$	30,504	$	38,060	$	37,378	$	26,060	$	18,864	$	72,516	$	223,382	$	97	$	-	$	223,479
Gross charge-offs YTD	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-

Agricultural
Risk Rating
Pass (1-4)	$	17,787	$	20,330	$	8,356	$	4,476	$	3,856	$	1,880	$	56,685	$	69,824	$	-	$	126,509
Special Mention (5)		38		621		112		-		-		-		771		330		-		1,101
Substandard (6)		514		634		2,009		498		-		-		3,655		1,498		-		5,153
Doubtful (7)		-		-		-		-		-		-		-		-		-		-
Total Agricultural	$	18,339	$	21,585	$	10,477	$	4,974	$	3,856	$	1,880	$	61,111	$	71,652	$	-	$	132,763
Gross charge-offs YTD	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-


	(In Thousands)
	December 31, 2023
															Revolving		Revolving
															Loans		Loans
	Term Loans Amortized Cost Basis by Origination Year												Term		Amortized		Converted		Grand
	2023		2022		2021		2020		2019		Prior		Total		Cost Basis		to Term		Total
Commercial Real Estate
Risk Rating
Pass (1-4)	$	224,232	$	438,716	$	245,273	$	122,656	$	136,225	$	99,378	$	1,266,480	$	-	$	-	$	1,266,480
Special Mention (5)		34,864		9,100		-		10,793		626		12,342		67,725		-		-		67,725
Substandard (6)		-		-		-		-		-		795		795		-		-		795
Doubtful (7)		-		-		-		75		-		-		75		-		-		75
Total Commercial Real Estate	$	259,096	$	447,816	$	245,273	$	133,524	$	136,851	$	112,515	$	1,335,075	$	-	$	-	$	1,335,075
Gross charge-offs YTD	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-

Commercial & Industrial
Risk Rating
Pass (1-4)	$	56,224	$	51,663	$	24,876	$	20,071	$	2,142	$	932	$	155,908	$	90,018	$	-	$	245,926
Special Mention (5)		716		69		211		146		437		357		1,936		6,016		-		7,952
Substandard (6)		74		454		-		-		31		17		576		122		-		698
Doubtful (7)		-		-		-		182		-		-		182		-		-		182
Total Commercial & Industrial	$	57,014	$	52,186	$	25,087	$	20,399	$	2,610	$	1,306	$	158,602	$	96,156	$	-	$	254,758
Gross charge-offs YTD	$	-	$	-	$	-	$	565	$	-	$	-	$	565	$	-	$	-	$	565

Other
Risk Rating
Pass (1-4)	$	2,810	$	-	$	16,761	$	5,790	$	445	$	4,330	$	30,136	$	-	$	-	$	30,136
Special Mention (5)		-		-		-		-		-		-		-		-		-		-
Substandard (6)		-		-		-		-		-		-		-		-		-		-
Doubtful (7)		-		-		-		-		-		-		-		-		-		-
Total Other	$	2,810	$	-	$	16,761	$	5,790	$	445	$	4,330	$	30,136	$	-	$	-	$	30,136
Gross charge-offs YTD	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-

For consumer, 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, 2024 and December 31, 2023 by year of origination.


	(In Thousands)
	September 30, 2024
															Revolving
															Loans
	Term Loans Amortized Cost Basis by Origination Year												Term		Amortized		Grand
	2024		2023		2022		2021		2020		Prior		Total		Cost Basis		Total

Consumer
Payment Performance
Performing	$	10,805	$	15,819	$	30,544	$	6,859	$	2,879	$	868	$	67,774	$	203	$	67,977
Nonperforming		26		4		39		-		4		-		73		-		73
Total Consumer	$	10,831	$	15,823	$	30,583	$	6,859	$	2,883	$	868	$	67,847	$	203	$	68,050
Gross charge-offs YTD	$	161	$	45	$	50	$	10	$	-	$	-	$	266	$	-	$	266


	(In Thousands)
	December 31, 2023
															Revolving
															Loans
	Term Loans Amortized Cost Basis by Origination Year												Term		Amortized		Grand
	2023		2022		2021		2020		2019		Prior		Total		Cost Basis		Total

Consumer
Payment Performance
Performing	$	21,511	$	40,729	$	10,666	$	5,006	$	1,825	$	480	$	80,217	$	44	$	80,261
Nonperforming		26		58		-		6		-		2		92		-		92
Total Consumer	$	21,537	$	40,787	$	10,666	$	5,012	$	1,825	$	482	$	80,309	$	44	$	80,353
Gross charge-offs YTD	$	236	$	51	$	100	$	38	$	-	$	-	$	425	$	-	$	425

The following tables present collateral-dependent loans grouped by collateral as of September 30, 2024 and December 31, 2023:


	(In Thousands)
	September 30, 2024
	Collateral
	Dependent Loans
Consumer Real Estate	$	2,204
Agricultural Real Estate		125
Agricultural		50
Commercial Real Estate		359
Commercial & Industrial		28
Consumer		-
Total	$	2,766


	(In Thousands)
	December 31, 2023
	Collateral
	Dependent Loans
Consumer Real Estate	$	1,518
Agricultural Real Estate		15,888
Agricultural		4,998
Commercial Real Estate		255
Commercial & Industrial		17
Consumer		-
Total	$	22,676

Modification programs focus on payment pattern changes and/or modified maturity dates with most receiving a combination of the two concessions. The modifications normally do not result in the contractual forgiveness of principal. During the three and nine months ended September 30, 2024, there were no new loan modifications to borrowers experiencing financial difficulty. One modified loan previous to 2024 was partially charged off during the first quarter of 2024 while one modified loan previous to 2024 was paid off during the first quarter of 2024.

During the nine months ended September 30, 2023, one new loan was considered a modification to a borrower experiencing financial difficulty. 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 September 30, 2024 and 2023, there were no modifications to borrowers experiencing financial difficulty that subsequently defaulted after modification.

For the Bank’s collateral dependent loans, the Bank applied the fair value of collateral. To determine fair value of collateral, collateral asset values securing a collateral dependent 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 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.

As of September 30, 2024, the Company had no foreclosed residential real estate property obtained by physical possession and $755 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 $679 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, 2023. As of September 30, 2023, the Company had no foreclosed residential real estate property obtained by physical possession and $92 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 on loans and unfunded commitments 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 $2.4 million and $4.0 million as of September 30, 2024 and December 31, 2023, respectively, 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 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 nine months ended September 30, 2024 and September 30, 2023 in addition to the ending balances as of December 31, 2023:


	(In Thousands)
	Consumer Real Estate		Agricultural Real Estate		Agricultural			Commercial Real Estate			Commercial and Industrial			Consumer			Total
Three Months Ended September 30, 2024
ALLOWANCE FOR CREDIT LOSSES
Beginning balance	$	3,201	$	926	$	285		$	16,319		$	3,367		$	1,172		$	25,270
Provision for credit losses - loans		161		11		(24	)		148			(2	)		(12	)		282
Charge-offs		-		-		-			(15	)		(5	)		(103	)		(123	)
Recoveries		1		-		-			3			22			29			55
Ending Balance	$	3,363	$	937	$	261		$	16,455		$	3,382		$	1,086		$	25,484


	(In Thousands)
	Consumer Real Estate			Agricultural Real Estate		Agricultural			Commercial Real Estate			Commercial and Industrial			Consumer			Total
Nine Months Ended September 30, 2024
ALLOWANCE FOR CREDIT LOSSES
Beginning balance	$	3,581		$	312	$	336		$	17,400		$	2,093		$	1,302		$	25,024
Provision for credit losses-loans		(211	)		625		(75	)		(937	)		1,268			(72	)		598
Charge-offs		(13	)		-		-			(15	)		(106	)		(266	)		(400	)
Recoveries		6			-		-			7			127			122			262
Ending Balance	$	3,363		$	937	$	261		$	16,455		$	3,382		$	1,086		$	25,484


	(In Thousands)
	Consumer Real Estate			Agricultural Real Estate		Agricultural		Commercial Real Estate		Commercial and Industrial			Consumer			Total
Three Months Ended September 30, 2023
ALLOWANCE FOR CREDIT LOSSES
Beginning balance	$	3,998		$	237	$	107	$	16,681	$	2,767		$	1,120		$	24,910
Provision for credit losses - loans		(170	)		77		78		123		(65	)		417			460
Charge-offs		-			-		-		-		-			(148	)		(148	)
Recoveries		14			1		-		1		6			33			55
Ending Balance	$	3,842		$	315	$	185	$	16,805	$	2,708		$	1,422		$	25,277


	(In Thousands)
	Consumer Real Estate				Agricultural Real Estate			Agricultural			Commercial Real Estate		Commercial and Industrial			Consumer			Total
Nine Months Ended September 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		(57	)			27			84			1,374		(527	)		519			1,420
Charge-offs		-				-			-			-		-			(330	)		(330	)
Recoveries		27				105			-			6		18			154			310
Ending Balance	$	3,842			$	315		$	185		$	16,805	$	2,708		$	1,422		$	25,277


	(In Thousands)
	Consumer Real Estate			Agricultural Real Estate			Agricultural			Commercial Real Estate		Commercial and Industrial			Consumer			Total
Year Ended December 31, 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		(326	)		24			225			1,967		(643	)		451			1,698
Charge-offs		-			-			-			-		(565	)		(425	)		(990	)
Recoveries		35			105			10			8		84			197			439
Ending Balance	$	3,581		$	312		$	336		$	17,400	$	2,093		$	1,302		$	25,024

The following tables break down the activity in the AULC for the three and nine months ended September 30, 2024 and September 30, 2023 in addition to the ending balances as of December 31, 2023:


	(In Thousands)
	Unfunded Loan Commitment & Letters of Credit
Three Months Ended September 30, 2024
ALLOWANCE FOR UNFUNDED LOAN COMMITMENTS AND LETTERS OF CREDIT
Beginning balance	$	1,928
Provision for credit losses - off balance sheet credit exposures		(267	)
Charge-offs		-
Recoveries		-
Ending Balance	$	1,661


	(In Thousands)
	Unfunded Loan Commitment & Letters of Credit
Nine Months Ended September 30, 2024
ALLOWANCE FOR UNFUNDED LOAN COMMITMENTS AND LETTERS OF CREDIT
Beginning balance	$	2,212
Provision for credit losses-off balance sheet credit exposures		(551	)
Charge-offs		-
Recoveries		-
Ending Balance	$	1,661


	(In Thousands)
	Unfunded Loan Commitment & Letters of Credit
Three Months Ended September 30, 2023
ALLOWANCE FOR UNFUNDED LOAN COMMITMENTS AND LETTERS OF CREDIT
Beginning balance	$	2,099
Provision for credit losses - off balance sheet credit exposures		(76	)
Charge-offs		-
Recoveries		-
Ending Balance	$	2,023


	(In Thousands)
	Unfunded Loan Commitment & Letters of Credit
Nine Months Ended September 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		(143	)
Charge-offs		-
Recoveries		-
Ending Balance	$	2,023


	(In Thousands)
	Unfunded Loan Commitment & Letters of Credit
Year Ended December 31, 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		46
Charge-offs		-
Recoveries		-
Ending Balance	$	2,212