Loans and Leases | Note 3— Loans and Leases Loans and leases as of the dates indicated consisted of the following: (Dollars in thousands) March 31, 2023 December 31, 2022 Loans and leases held-for-investment, net Real estate: Commercial $ 1,312,745 $ 1,328,691 Agricultural 707,412 726,938 Residential and home equity 387,370 387,753 Construction 153,394 166,538 Total real estate 2,560,921 2,609,920 Commercial & industrial 472,189 478,758 Agricultural 275,785 314,525 Commercial leases 123,314 112,629 Consumer and other 5,382 5,886 Total gross loans and leases 3,437,591 3,521,718 Unearned income (10,458 ) (9,357 ) Total net loans and leases 3,427,133 3,512,361 Allowance for credit losses (68,573 ) (66,885 ) Total loans and leases held-for-investment, net $ 3,358,560 $ 3,445,476 At March 31, 2023, the portion of loans that were approved for pledging as collateral on borrowing lines with the Federal Home Loan Bank (“FHLB”) and the Federal Reserve Bank (“FRB”) were $1.2 billion and $881.5 million, respectively. The borrowing capacity on these loans was $770.7 million from FHLB and $656.5 million from the FRB. The following tables show an aging analysi s of the loan and lease portfolio, including unearned income, by the time past due for the periods indicated: March 31, 2023 (Dollars in thousands) Current 30-89 Days Past Due 90+ Days Past Due Non-accrual Total Past Due Total Loans and leases held-for-investment, net Real estate: Commercial $ 1,304,052 $ - $ - $ 387 $ 387 $ 1,304,439 Agricultural 707,412 - - - - 707,412 Residential and home equity 387,370 - - - - 387,370 Construction 153,394 - - - - 153,394 Total real estate 2,552,228 - - 387 387 2,552,615 Commercial & industrial 472,189 - - - - 472,189 Agricultural 275,785 - - - - 275,785 Commercial leases 121,162 - - - - 121,162 Consumer and other 5,357 25 - - 25 5,382 Total loans and leases, net $ 3,426,721 $ 25 $ - $ 387 $ 412 $ 3,427,133 December 31, 2022 (Dollars in thousands) Current 30-89 Days Past Due 90+ Days Past Due Non-accrual Total Past Due Total Loans and leases held-for-investment, net Real estate: Commercial $ 1,319,911 $ - $ - $ 403 $ 403 $ 1,320,314 Agricultural 726,938 - - - - 726,938 Residential and home equity 387,753 - - - - 387,753 Construction 166,370 - - 168 168 166,538 Total real estate 2,600,972 - - 571 571 2,601,543 Commercial & industrial 478,758 - - - - 478,758 Agricultural 314,525 - - - - 314,525 Commercial leases 111,649 - - - - 111,649 Consumer and other 5,789 97 - - 97 5,886 Total loans and leases, net $ 3,511,693 $ 97 $ - $ 571 $ 668 $ 3,512,361 Non-accrual loans are summarized as follows: (Dollars in thousands) March 31, 2023 December 31, 2022 Non-accrual loans and leases: Non-accrual loans and leases Real estate: Commercial $ 387 $ 403 Agricultural - - Residential and home equity - - Construction - 168 Total real estate 387 571 Commercial & Industrial - - Agricultural - - Commercial leases - - Consumer and other - - Total non-accrual loans and leases $ 387 $ 571 The Company did not enter into any loan modifications with borrowers experiencing financial difficulty during the three months ended March 31, 2023. The following table presents the credit risk rating categories for loans and leases held-for-investment (accruing and non-accruing) net of deferred fees by loan portfolio segment and class as of the dates indicated. March 31, 2023 (Dollars in thousands) Pass Special Mention Sub- standard Doubtful Total Loans & Leases Total Allowance for Credit Losses Loans and leases held-for-investment, net Real estate: Commercial $ 1,301,094 $ 2,958 $ 387 $ - $ 1,304,439 $ 24,253 Agricultural 688,406 12,875 6,131 - 707,412 8,441 Residential and home equity 387,006 - 364 - 387,370 7,334 Construction 153,394 - - - 153,394 2,785 Total real estate 2,529,900 15,833 6,882 - 2,552,615 42,813 Commercial & industrial 471,348 594 247 - 472,189 11,346 Agricultural 271,307 4,467 11 - 275,785 12,542 Commercial leases 121,099 63 - - 121,162 1,720 Consumer and other 5,251 - 131 - 5,382 152 Total loans and leases, net $ 3,398,905 $ 20,957 $ 7,271 $ - $ 3,427,133 $ 68,573 December 31, (Dollars in thousands) Pass Special Mention Sub- standard Doubtful Total Loans & Leases Total Allowance for Credit Losses Loans and leases held-for-investment, net Real estate: Commercial $ 1,314,377 $ 5,535 $ 402 $ - $ 1,320,314 $ 18,055 Agricultural 709,927 10,891 6,120 - 726,938 14,496 Residential and home equity 387,371 - 382 - 387,753 7,508 Construction 166,370 - 168 - 166,538 3,026 Total real estate 2,578,045 16,426 7,072 - 2,601,543 43,085 Commercial & industrial 478,437 63 258 - 478,758 11,503 Agricultural 308,830 5,682 13 - 314,525 10,202 Commercial leases 111,568 81 - - 111,649 1,924 Consumer and other 5,650 - 236 - 5,886 171 Total loans and leases, net $ 3,482,530 $ 22,252 $ 7,579 $ - $ 3,512,361 $ 66,885 The following table presents outstanding loan and lease balances held-for-investment by segment and class, credit quality indicators, vintage year by class of financing receivable, and current period gross charge-offs by year of origination as of March 31, 2023: March 31, 2023 Term Loans Amortized Cost Basis by Origination Year (Dollars in thousands) 2023 2022 2021 2020 2019 Prior Revolving Loans Amortized Cost Total Net loans and leases held-for-investment Real estate: Commercial Pass $ 51,123 $ 176,639 $ 227,251 $ 149,007 $ 69,798 $ 301,459 $ 325,817 $ 1,301,094 Special mention - - - - - 2,358 600 2,958 Substandard - - - - - 387 - 387 Doubtful - - - - - - - - Total Commercial $ 51,123 $ 176,639 $ 227,251 $ 149,007 $ 69,798 $ 304,204 $ 326,417 $ 1,304,439 Commercial Current-period gross charge-offs $ - $ - $ - $ - $ - $ - $ - $ - Agricultural Pass $ 14,274 $ 75,313 $ 41,782 $ 53,027 $ 14,264 $ 176,639 $ 313,107 $ 688,406 Special mention - - - - - - 12,875 12,875 Substandard - - - - - 6,131 - 6,131 Doubtful - - - - - - - - Total Agricultural $ 14,274 $ 75,313 $ 41,782 $ 53,027 $ 14,264 $ 182,770 $ 325,982 $ 707,412 Agricultural Current-period gross charge-offs $ - $ - $ - $ - $ - $ - $ - $ - Residential and home equity Pass $ 7,062 $ 65,050 $ 94,458 $ 85,239 $ 14,222 $ 79,905 $ 41,070 $ 387,006 Special mention - - - - - - - - Substandard - - - - - 284 80 364 Doubtful - - - - - - - - Total Residential and home equity $ 7,062 $ 65,050 $ 94,458 $ 85,239 $ 14,222 $ 80,189 $ 41,150 $ 387,370 Residential and home equity Current-period gross charge-offs $ - $ - $ - $ - $ - $ 14 $ - $ 14 Construction Pass $ - $ 2,003 $ - $ - $ 1,575 $ - $ 149,816 $ 153,394 Special mention - - - - - - - - Substandard - - - - - - - - Doubtful - - - - - - - - Total construction $ - $ 2,003 $ - $ - $ 1,575 $ - $ 149,816 $ 153,394 Construction Current-period gross charge-offs $ - $ - $ - $ - $ - $ - $ - $ - Total Real estate $ 72,459 $ 319,005 $ 363,491 $ 287,273 $ 99,859 $ 567,163 $ 843,365 $ 2,552,615 Commercial & industrial Pass $ 11,960 $ 30,234 $ 35,318 $ 11,131 $ 7,195 $ 10,318 $ 365,192 $ 471,348 Special mention - - 55 - - 539 - 594 Substandard - - - - - 6 241 247 Doubtful - - - - - - - - Total Commercial & industrial $ 11,960 $ 30,234 $ 35,373 $ 11,131 $ 7,195 $ 10,863 $ 365,433 $ 472,189 Commercial & industrial Current-period gross charge-offs $ - $ - $ - $ - $ - $ - $ - $ - March 31, 2023 Term Loans Amortized Cost Basis by Origination Year (Dollars in thousands) 2023 2022 2021 2020 2019 Prior Revolving Loans Amortized Cost Total Agricultural Pass $ 170 $ 5,179 $ 2,755 $ 918 $ 1,135 $ 2,448 $ 258,702 $ 271,307 Special mention - - - - - - 4,467 4,467 Substandard - - - - 10 1 - 11 Doubtful - - - - - - - - Total Agricultural $ 170 $ 5,179 $ 2,755 $ 918 $ 1,145 $ 2,449 $ 263,169 $ 275,785 Agricultural Current-period gross charge-offs $ - $ - $ - $ - $ - $ - $ - $ - Commercial leases Pass $ 33,959 $ 15,132 $ 12,359 $ 5,537 $ 33,433 $ 20,679 $ - $ 121,099 Special mention - - - - 63 - - 63 Substandard - - - - - - - - Doubtful - - - - - - - - Total Commercial leases $ 33,959 $ 15,132 $ 12,359 $ 5,537 $ 33,496 $ 20,679 $ - $ 121,162 Commercial leases Current-period gross charge-offs $ - $ - $ - $ - $ - $ - $ - $ - Consumer and other Pass $ 318 $ 1,476 $ 575 $ 213 $ 121 $ 1,922 $ 626 $ 5,251 Special mention - - - - - - - - Substandard 131 - - - - - - 131 Doubtful - - - - - - - - Total Consumer and other $ 449 $ 1,476 $ 575 $ 213 $ 121 $ 1,922 $ 626 $ 5,382 Consumer and other Current-period gross charge-offs $ 8 $ 1 $ - $ - $ - $ 1 $ - $ 10 Total net loans and leases $ 118,997 $ 371,026 $ 414,553 $ 305,072 $ 141,816 $ 603,076 $ 1,472,593 $ 3,427,133 Certain directors and executive officers of the Company are defined as related parties. These related parties, including their immediate families and companies in which they are principal owners, were loan customers of the Bank during the three months ended March 31, 2023 and year ended December 31, 2022. Such loans were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable loans with borrowers not related to the Company. These loans did not involve more than the normal risk of collection or have other unfavorable features. A summary of the changes in those loans is as follows: March 31, December 31, (Dollars in thousands) 2023 2022 Balance at beginning of the period $ 17,521 $ 18,128 New loans or advances during year 130 523 Repayments (372 ) (1,130 ) Balance at end of period $ 17,279 $ 17,521 A loan or lease is considered collateral dependent when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. When management determines that foreclosure is probable, expected credit losses for collateral dependent loans or leases are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate. The collateral on the loans and leases is a significant portion of what secures the collateral dependent loans or leases and significant changes to the fair value of the collateral can impact the ACL. During the three months ended March 31, 2023, there were no significant changes to the collateral that secures the collateral dependent loans, whether due to general deterioration or with credit quality indicators like appraisal value. The following tables present the amortized cost basis for collateral dependent loans and leases by type as of March 31, 2023 and December 31, 2022, respectively: March 31, 2023 (Dollars in thousands) Real Estate Vehicles and Equipment Total Collateral dependent loans and leases Real estate: Commercial $ 1,492 $ - $ 1,492 Agricultural 10,751 - 10,751 Residential and home equity 1,658 - 1,658 Construction - - - Total real estate 13,901 - 13,901 Commercial & industrial - - - Agricultural - 11 11 Commercial leases - - - Consumer and other - 153 153 Total gross loans and leases $ 13,901 $ 164 $ 14,065 December 31, 2022 (Dollars in thousands) Real Estate Vehicles and Equipment Total Collateral dependent loans and leases Real estate: Commercial $ 1,114 $ - $ 1,114 Agricultural 11,035 - 11,035 Residential and home equity 2,153 - 2,153 Construction - - - Total real estate 14,302 - 14,302 Commercial & industrial - - - Agricultural - 13 13 Commercial leases - - - Consumer and other - 158 158 Total gross loans and leases $ 14,302 $ 171 $ 14,473 Changes in the allowance for credit losses are as follows: For the Three Months Ended March 31, 2023 (Dollars in thousands) Commercial & Agricultural Construction Residential & Home Equity Commercial & Agricultural Commercial Leases Consumer Total Allowance for credit losses: Balance at beginning of period $ 32,551 $ 3,026 $ 7,508 $ 21,705 $ 1,924 $ 171 $ 66,885 Provision / (recapture) for credit losses (27 ) (241 ) (170 ) 2,163 (204 ) (21 ) 1,500 Charge-offs - - (14 ) - - (10 ) (24 ) Recoveries 170 - 10 20 - 12 212 Net (charge-offs) / recoveries 170 - (4 ) 20 - 2 188 Balance at end of period $ 32,694 $ 2,785 $ 7,334 $ 23,888 $ 1,720 $ 152 $ 68,573 For the Three Months Ended March 31, 2022 (Dollars in thousands) Commercial & Agricultural Construction Residential & Home Equity Commercial & Agricultural Commercial Leases Consumer Total Allowance for credit losses: Balance at beginning of period, prior to adoption of ASC 326 $ 38,149 $ 1,456 $ 2,847 $ 16,954 $ 938 $ 663 $ 61,007 Impact of adopting ASC 326 (6,190 ) 1,855 3,032 826 629 (152 ) - Provision / (recapture) for credit losses 552 466 866 (1,700 ) (101 ) (83 ) - Charge-offs - - - - - (9 ) (9 ) Recoveries - - 14 18 - 2 34 Net (charge-offs) / recoveries - - 14 18 - (7 ) 25 Balance at end of period $ 32,511 $ 3,777 $ 6,759 $ 16,098 $ 1,466 $ 421 $ 61,032 |