Loans and Allowance for Credit Losses | NOTE 3 – LOANS AND ALLOWANCE FOR CREDIT LOSSES Types of loans and normal collateral securing those loans are listed below. Commercial real estate : Commercial real estate loans include all loans secured by nonfarm, nonresidential properties and by multifamily residential properties, as well as 1-4 family investment-purpose real estate loans. Commercial and industrial : Commercial and industrial loans include loans used to purchase fixed assets, provide working capital or meet other financing needs of the business. Loans are normally secured by the assets being purchased or already owned by the borrower, inventory or accounts receivable. These may include SBA and other guaranteed or partially guaranteed types of loans. Residential real estate : Residential real estate loans include loans secured by primary or secondary personal residences. Agricultural real estate : Agricultural real estate loans are loans typically secured by farmland. Agricultural : Agricultural loans are primarily operating lines subject to annual farming revenues including productivity/yield of the agricultural commodities produced. These loans may be secured by growing crops, stored crops, livestock, equipment, and miscellaneous receivables. Consumer : Consumer loans may include installment loans, unsecured and secured personal lines of credit, overdraft protection and letters of credit. These loans are generally secured by consumer assets but may be unsecured. The following table lists categories of loans at March 31, 2022, and December 31, 2021. March 31, 2022 December 31, 2021 Commercial real estate $ 1,552,134 $ 1,486,148 Commercial and industrial 629,181 567,497 Residential real estate 613,928 638,087 Agricultural real estate 198,844 198,330 Agricultural 150,077 166,975 Consumer 98,413 98,590 Total loans 3,242,577 3,155,627 Allowance for credit losses (47,590 ) (48,365 ) Net loans $ 3,194,987 $ 3,107,262 Included in the commercial and industrial loan balances at March 31, 2022, and December 31, 2021, are $20,256 and $44,783 of loans that were originated under the SBA PPP program. At March 31, 2022, and December 31, 2021, unamortized loan fees on these loans were $498 thousand and $1.3 million. From time to time, the Company has purchased pools of residential real estate loans originated by other financial institutions to hold for investment with the intent to diversify the residential real estate portfolio. During the quarter ended March 31, 2022, the Company did not purchase any pools of residential mortgage loans. During the first three months of 2021, the Company purchased two pools of residential real estate loans totaling $89,450. As of March 31, 2022, and December 31, 2021, residential real estate loans include $359,376 and $372,069 of purchased residential real estate loans. The Company occasionally purchases the government guaranteed portion of loans originated by other financial institutions to hold for investment. During the quarter ended March 31, 2022, the Company purchased $ 2,293 in guaranteed loans from governmental agencies . No such purchases were made in the three months ended March 31, 2021. The unamortized discount of merger purchase accounting adjustments related to non-purchase credit deteriorated loans included in the loan totals above are $5,687 with related loans of $444,568 at March 31, 2022, and $6,649 with related loans of $527,422 at December 31, 2021. Overdraft deposit accounts are reclassified and included in consumer loans above. These accounts totaled $516 at March 31, 2022, and $886 at December 31, 2021. The following tables present the activity in the allowance for credit losses by class for the three-month periods ended March 31, 2022 and 2021. March 31, 2022 Commercial Real Estate Commercial and Industrial Residential Real Estate Agricultural Real Estate Agricultural Consumer Total Allowance for credit losses: Beginning balance $ 22,478 $ 12,248 $ 5,560 $ 2,235 $ 3,756 $ 2,088 $ 48,365 Provision for credit losses (492 ) 1,572 402 (700 ) (1,284 ) 90 (412 ) Loans charged-off (283 ) (44 ) (2 ) — — (205 ) (534 ) Recoveries 61 38 — 7 — 65 171 Total ending allowance balance $ 21,764 $ 13,814 $ 5,960 $ 1,542 $ 2,472 $ 2,038 $ 47,590 March 31, 2021 Commercial Real Estate Commercial and Industrial Residential Real Estate Agricultural Real Estate Agricultural Consumer Total Allowance for credit losses: Beginning balance, prior to adoption of ASC 326 $ 9,012 $ 12,456 $ 4,559 $ 904 $ 758 $ 6,020 $ 33,709 Cumulative effect adjustment of adopting ASC 326 5,612 4,167 8,870 167 (207 ) (2,877 ) 15,732 Impact of adopting ASC 326 - PCD loans 4,627 1,680 221 1,186 4,306 - 12,020 Provision for credit losses (4,207 ) 1,646 (2,131 ) (345 ) (511 ) (323 ) (5,871 ) Loans charged-off (53 ) (7 ) (9 ) (12 ) — (210 ) (291 ) Recoveries 127 23 1 — 3 72 226 Total ending allowance balance $ 15,118 $ 19,965 $ 11,511 $ 1,900 $ 4,349 $ 2,682 $ 55,525 The following tables present the recorded investment in loans and the balance in the allowance for credit losses by portfolio and class based on method to determine allowance for credit loss as of March 31, 2022, and December 31, 2021. March 31, 2022 Commercial Real Estate Commercial and Industrial Residential Real Estate Agricultural Real Estate Agricultural Consumer Total Allowance for credit losses: Individually evaluated for credit losses $ 1,078 $ 1,322 $ 852 $ 676 $ 2,178 $ 95 $ 6,201 Collectively evaluated for credit losses 20,686 12,492 5,108 866 294 1,943 41,389 Total $ 21,764 $ 13,814 $ 5,960 $ 1,542 $ 2,472 $ 2,038 $ 47,590 Loan Balance: Individually evaluated for credit losses $ 3,810 $ 8,263 $ 4,682 $ 5,274 $ 5,649 $ 368 $ 28,046 Collectively evaluated for credit losses 1,548,324 620,918 609,246 193,570 144,428 98,045 3,214,531 Total $ 1,552,134 $ 629,181 $ 613,928 $ 198,844 $ 150,077 $ 98,413 $ 3,242,577 December 31, 2021 Commercial Real Estate Commercial and Industrial Residential Real Estate Agricultural Real Estate Agricultural Consumer Total Allowance for credit losses: Individually evaluated for credit losses $ 4,381 $ 3,650 $ 892 $ 1,488 $ 3,546 $ 75 $ 14,032 Collectively evaluated for credit losses 18,097 8,598 4,668 747 210 2,013 34,333 Total $ 22,478 $ 12,248 $ 5,560 $ 2,235 $ 3,756 $ 2,088 $ 48,365 Loan Balance: Individually evaluated for credit losses $ 45,421 $ 13,786 $ 5,362 $ 14,959 $ 13,049 $ 357 $ 92,934 Collectively evaluated for credit losses 1,440,727 553,711 632,725 183,371 153,926 98,233 3,062,693 Total $ 1,486,148 $ 567,497 $ 638,087 $ 198,330 $ 166,975 $ 98,590 $ 3,155,627 The following table presents information related to nonaccrual loans and the level of collateral that supports the nonaccrual loans at March 31, 2022, and December 31, 2021. March 31, 2022 Unpaid Principal Balance Recorded Investment Allowance for Credit Losses Allocated Average Recorded Investment Interest Income Recognized With no related allowance recorded: Commercial real estate $ 1,010 818 $ — 409 $ — Commercial and industrial 1 — — 982 — Residential real estate 1,466 1,106 — 767 1 Agricultural real estate 1,795 1,660 — 1,660 — Agricultural — — — — — Consumer — — — 24 — Subtotal 4,272 3,584 — 3,842 1 With an allowance recorded: Commercial real estate 3,386 2,822 1,057 4,827 — Commercial and industrial 8,078 3,711 631 4,152 — Residential real estate 3,760 3,416 846 4,031 — Agricultural real estate 3,671 2,419 639 2,579 — Agricultural 6,666 4,386 1,832 5,281 — Consumer 430 358 94 316 — Subtotal 25,991 17,112 5,099 21,186 — Total $ 30,263 20,696 $ 5,099 25,028 $ 1 December 31, 2021 Unpaid Principal Balance Recorded Investment Allowance for Credit Losses Allocated Average Recorded Investment Interest Income Recognized With no related allowance recorded: Commercial real estate $ — $ — $ — $ 336 $ 3 Commercial and industrial 6,060 1,964 — 521 101 Residential real estate 609 429 — 126 4 Agricultural real estate 1,795 1,660 — 2,178 82 Agricultural — — — 1,725 — Consumer 49 49 — 10 2 Subtotal 8,513 4,102 — 4,896 192 With an allowance recorded: Commercial real estate 7,690 6,833 1,632 6,985 19 Commercial and industrial 4,976 4,593 1,800 25,881 119 Residential real estate 5,170 4,646 888 3,204 41 Agricultural real estate 3,726 2,738 637 3,224 56 Agricultural 8,836 6,175 2,307 6,028 113 Consumer 314 274 74 251 8 Subtotal 30,712 25,259 7,338 45,573 356 Total $ 39,225 $ 29,361 $ 7,338 $ 50,469 $ 548 The following tables present the aging of the recorded investment in past due loans as of March 31, 2022, and December 31, 2021, by portfolio and class of loans. March 31, 2022 30 - 59 Days Past Due 60 - 89 Days Past Due Greater Than 90 Days Past Due Still On Accrual Nonaccrual Loans Not Past Due Total Commercial real estate $ 1,305 $ 304 $ — $ 3,640 $ 1,546,885 $ 1,552,134 Commercial and industrial 1,207 8 — 3,711 624,255 629,181 Residential real estate 557 — — 4,522 608,849 613,928 Agricultural real estate 886 — — 4,079 193,879 198,844 Agricultural 1,571 — — 4,386 144,120 150,077 Consumer 160 40 — 358 97,855 98,413 Total $ 5,686 $ 352 $ — $ 20,696 $ 3,215,843 $ 3,242,577 December 31, 2021 30 - 59 Days Past Due 60 - 89 Days Past Due Greater Than 90 Days Past Due Still On Accrual Nonaccrual Loans Not Past Due Total Commercial real estate $ 4,633 $ 408 $ 256 $ 6,833 $ 1,474,018 $ 1,486,148 Commercial and industrial 424 88 — 6,557 560,428 567,497 Residential real estate 620 1,126 — 5,075 631,266 638,087 Agricultural real estate 28 57 — 4,398 193,847 198,330 Agricultural 5 — — 6,175 160,795 166,975 Consumer 316 61 — 323 97,890 98,590 Total $ 6,026 $ 1,740 $ 256 $ 29,361 $ 3,118,244 $ 3,155,627 Credit Quality Indicators The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt, such as current financial information, historical payment experience, credit documentation, public information and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. Consumer loans are considered pass credits unless downgraded due to payment status or reviewed as part of a larger credit relationship. Loans that participated in the short-term deferral program are not automatically considered classified solely due to a deferral, are subject to ongoing monitoring and will be downgraded or placed on nonaccrual if a noted weakness exists. The Company uses the following definitions for risk ratings. Pass: Special Mention Substandard Doubtful Based on the most recent analysis performed, the risk category of loans, by type and year of origination, at March 31, 2022, is as follows. March 31, 2022 2022 2021 2020 2019 2018 Prior Revolving Loans Amortized Cost Revolving Loans Converted to Term Total Commercial real estate Risk rating Pass $ 106,730 $ 288,567 $ 202,242 $ 150,844 $ 141,302 $ 215,915 $ 427,111 $ 1,374 $ 1,534,085 Special mention — 125 — — 13 8,648 — — 8,786 Substandard — 4,719 398 213 75 3,247 611 — 9,263 Doubtful — — — — — — — — — Total commercial real estate $ 106,730 $ 293,411 $ 202,640 $ 151,057 $ 141,390 $ 227,810 $ 427,722 $ 1,374 $ 1,552,134 Commercial and industrial Risk rating Pass $ 85,018 $ 146,488 $ 91,722 $ 54,953 $ 9,078 $ 18,481 $ 190,669 $ 2,094 $ 598,503 Special mention — — — — 1,306 4,533 — — 5,839 Substandard 21 4,214 2,920 10,178 1,544 928 5,034 — 24,839 Doubtful — — — — — — — — — Total commercial and industrial $ 85,039 $ 150,702 $ 94,642 $ 65,131 $ 11,928 $ 23,942 $ 195,703 $ 2,094 $ 629,181 Residential real estate Risk rating Pass $ 4,913 $ 324,960 $ 23,114 $ 18,512 $ 57,899 $ 127,000 $ 52,613 $ 191 $ 609,202 Special mention — — — — — 24 — — 24 Substandard — — 104 47 227 4,250 74 — 4,702 Doubtful — — — — — — — — — Total residential real estate $ 4,913 $ 324,960 $ 23,218 $ 18,559 $ 58,126 $ 131,274 $ 52,687 $ 191 $ 613,928 Agricultural real estate Risk rating Pass $ 5,912 $ 34,360 $ 32,119 $ 16,500 $ 10,971 $ 33,770 $ 52,300 $ 300 $ 186,232 Special mention 430 — — — — 486 32 — 948 Substandard 140 1,789 80 6,026 475 1,842 1,312 — 11,664 Doubtful — — — — — — — — — Total agricultural real estate $ 6,482 $ 36,149 $ 32,199 $ 22,526 $ 11,446 $ 36,098 $ 53,644 $ 300 $ 198,844 Agricultural Risk rating Pass $ 8,584 $ 16,415 $ 15,857 $ 5,234 $ 3,284 $ 4,059 $ 85,600 $ 75 $ 139,108 Special mention — — — 86 32 430 — — 548 Substandard — 3,598 2,219 2,108 1,106 307 1,083 — 10,421 Doubtful — — — — — — — — — Total agricultural $ 8,584 $ 20,013 $ 18,076 $ 7,428 $ 4,422 $ 4,796 $ 86,683 $ 75 $ 150,077 Consumer Risk rating Pass $ 29,616 $ 27,029 $ 12,902 $ 5,867 $ 2,871 $ 5,013 $ 14,755 $ 1 $ 98,054 Special mention — — — — — — — — — Substandard 22 30 136 112 19 40 — — 359 Doubtful — — — — — — — — — Total consumer $ 29,638 $ 27,059 $ 13,038 $ 5,979 $ 2,890 $ 5,053 $ 14,755 $ 1 $ 98,413 Total loans Risk rating Pass $ 240,773 $ 837,819 $ 377,956 $ 251,910 $ 225,405 $ 404,238 $ 823,048 $ 4,035 $ 3,165,184 Special mention 430 125 — 86 1,351 14,121 32 — 16,145 Substandard 183 14,350 5,857 18,684 3,446 10,614 8,114 — 61,248 Doubtful — — — — — — — — — Total loans $ 241,386 $ 852,294 $ 383,813 $ 270,680 $ 230,202 $ 428,973 $ 831,194 $ 4,035 $ 3,242,577 Based on the analysis performed at December 31, 2021, the risk category of loans, by type and year of origination is as follows. December 31, 2021 2021 2020 2019 2018 2017 Prior Revolving Loans Amortized Cost Revolving Loans Converted to Term Total Commercial real estate Risk rating Pass $ 301,947 $ 212,444 $ 159,374 $ 134,465 $ 72,249 $ 164,363 $ 409,109 $ 594 $ 1,454,545 Special mention 126 885 — 11,817 1,168 8,705 — — 22,701 Substandard 1,687 401 145 77 828 5,764 — — 8,902 Doubtful — — — — — — — — — Total commercial real estate $ 303,760 $ 213,730 $ 159,519 $ 146,359 $ 74,245 $ 178,832 $ 409,109 $ 594 $ 1,486,148 Commercial and industrial Risk rating Pass $ 170,263 $ 100,457 $ 57,955 $ 11,019 $ 17,327 $ 8,855 $ 155,181 $ 9,726 $ 530,783 Special mention 19 — 1,958 1,482 284 5,750 — — 9,493 Substandard 4,200 5,410 10,238 1,417 444 43 5,469 — 27,221 Doubtful — — — — — — — — — Total commercial and industrial $ 174,482 $ 105,867 $ 70,151 $ 13,918 $ 18,055 $ 14,648 $ 160,650 $ 9,726 $ 567,497 Residential real estate Risk rating Pass $ 336,775 $ 24,633 $ 22,520 $ 60,461 $ 34,453 $ 102,363 $ 51,584 $ 184 $ 632,973 Special mention — — — — — 25 — — 25 Substandard — 79 48 159 1,909 2,740 154 — 5,089 Doubtful — — — — — — — — — Total residential real estate $ 336,775 $ 24,712 $ 22,568 $ 60,620 $ 36,362 $ 105,128 $ 51,738 $ 184 $ 638,087 Agricultural real estate Risk rating Pass $ 38,412 $ 36,667 $ 18,442 $ 12,142 $ 14,432 $ 21,792 $ 42,541 $ — $ 184,428 Special mention 682 — — — 40 456 32 — 1,210 Substandard 1,705 206 6,020 592 2,530 554 1,085 — 12,692 Doubtful — — — — — — — — — Total agricultural real estate $ 40,799 $ 36,873 $ 24,462 $ 12,734 $ 17,002 $ 22,802 $ 43,658 $ — $ 198,330 Agricultural Risk rating Pass $ 27,637 $ 17,393 $ 6,391 $ 2,399 $ 2,930 $ 1,593 $ 93,982 $ 172 $ 152,497 Special mention — — 90 1,299 — 645 — — 2,034 Substandard 3,456 2,112 1,414 1,651 137 1,164 2,510 — 12,444 Doubtful — — — — — — — — — Total agricultural $ 31,093 $ 19,505 $ 7,895 $ 5,349 $ 3,067 $ 3,402 $ 96,492 $ 172 $ 166,975 Consumer Risk rating Pass $ 40,692 $ 15,171 $ 7,186 $ 3,640 $ 2,228 $ 3,551 $ 25,799 $ 1 $ 98,268 Special mention — — — — — — — — — Substandard 6 154 94 15 24 29 — — 322 Doubtful — — — — — — — — — Total consumer $ 40,698 $ 15,325 $ 7,280 $ 3,655 $ 2,252 $ 3,580 $ 25,799 $ 1 $ 98,590 Total loans Risk rating Pass $ 915,726 $ 406,765 $ 271,868 $ 224,126 $ 143,619 $ 302,517 $ 778,196 $ 10,677 $ 3,053,494 Special mention 827 885 2,048 14,598 1,492 15,581 32 — 35,463 Substandard 11,054 8,362 17,959 3,911 5,872 10,294 9,218 — 66,670 Doubtful — — — — — — — — — Total loans $ 927,607 $ 416,012 $ 291,875 $ 242,635 $ 150,983 $ 328,392 $ 787,446 $ 10,677 $ 3,155,627 Troubled Debt Restructurings (“TDR”) Consistent with accounting and regulatory guidance, the Company recognizes a TDR when the Company, for economic or legal reasons related to a borrower’s financial difficulties, grants a concession to the borrower that would not normally be considered. Regardless of the form of concession granted, the Company’s objective in offering a TDR is to increase the probability of repayment of the borrower’s loans. The following table summarizes the Company’s TDRs by accrual status at March 31, 2022, and December 31, 2021. The allowance for credit losses on nonaccrual loans represents specific loan reserves, while the allowance on accrual loans represents collectively evaluated estimated losses. March 31, 2022 Nonaccrual Related Allowance for Credit Losses Accrual Related Allowance for Credit Losses Total TDR Loan Balance Total Related Allowance for Credit Losses Commercial real estate $ 2,567 $ 810 $ 2,976 $ 104 $ 5,543 $ 914 Commercial and industrial 2,332 327 1,839 — 4,171 327 Residential real estate 1,529 106 — — 1,529 106 Agricultural real estate 1,842 471 — — 1,842 471 Agricultural 1,752 752 1,693 344 3,445 1,096 Total troubled debt restructurings $ 10,022 $ 2,466 $ 6,508 $ 448 $ 16,530 $ 2,914 December 31, 2021 Nonaccrual Related Allowance for Credit Losses Commercial real estate $ 5,784 $ 1,370 Commercial and industrial 54 27 Residential real estate 1,547 13 Agricultural real estate 2,122 488 Agricultural 1,292 480 Total troubled debt restructurings $ 10,799 $ 2,378 At March 31, 2022, and December 31, 2021, there were no commitments to lend additional amounts on these loans. During the three months ended March 31, 2022, there was a total of $6.3 million in loan modifications considered to be troubled debt restructurings. There were no loan modifications considered to be troubled debt restructurings that occurred during the three-month period ended March 31, 2021. There was no interest income recognized on loans modified as TDRs during the three months ended March 31, 2022. The Company had $752 thousand in agricultural loans that subsequently defaulted on their modified terms within the twelve months preceding March 31, 2022, as compared to no loans at March 31, 2021. Default is determined at 90 or more days past due, charge-off, or foreclosure. As of March 31, 2022, the Company had no loans deferred as compared to December 31, 2021, with 20 deferrals of either the full loan payment or the principal component of the loan payment on outstanding loan balances of $36.3 million in connection with the COVID-19 relief provided by the CARES Act. These deferrals were not considered troubled debt restructurings based on the CARES Act, Consolidated Appropriations Act (“CAA”), or regulatory guidance. The following table lists loans included in the payment deferral program under the CARES Act by deferment type and category at December 31, 2021. There were no CARES Act deferred loans at March 31, 2022. December 31, 2021 Commercial Real Estate Commercial and Industrial Total 3 months principal and interest, then 6 months principal only $ 31,884 $ 3,052 $ 34,936 6 months principal and interest, then 9 months principal only 971 398 1,369 Total loans $ 32,855 $ 3,450 $ 36,305 The classification status of loans participating in the payment deferral program at December 31, 2021, is listed below. There were no such deferrals at March 31, 2022. December 31, 2021 Unclassified Classified Total Commercial real estate $ 32,855 $ — $ 32,855 Commercial and industrial 3,450 — 3,450 Total loans $ 36,305 $ — $ 36,305 Allowance for Credit Losses on Off-Balance-Sheet Credit Exposures The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk from a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. The allowance for credit losses on off-balance-sheet credit exposures is adjusted as a provision for credit loss expense recognized within other non-interest expense on the consolidated statements of income and included in other liabilities on the consolidated balance sheets. The estimated credit loss includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life. The estimate of expected credit loss is based on the historical loss rate for the class of loan the commitments would be classified as if funded. The following table lists allowance for credit losses on off-balance-sheet credit exposures as of March 31, 2022, and December 31, 2021. Allowance for Credit Losses March 31, 2022 December 31, 2021 Commercial real estate $ 450 $ 484 Commercial and industrial 417 1,323 Residential real estate 15 16 Agricultural 4 3 Consumer 343 397 Total allowance for credit losses $ 1,229 $ 2,223 |