| LOANS, ALLOWANCE FOR CREDIT LOSSES AND IMPAIRED LOANS | LOANS, ALLOWANCE FOR CREDIT LOSSES AND IMPAIRED LOANS Portfolio Segments: Commercial and agricultural real estate loans are underwritten after evaluating and understanding the borrower's ability to operate profitably and prudently expand its business. Management examines current and projected cash flows to determine the ability of the borrower to repay its obligations as agreed. These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Commercial real estate lending typically involves higher loan principal amounts and the repayment of these loans is generally largely dependent on the successful operation of the property or the business conducted on the property securing the loan. Commercial real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy. The level of owner-occupied property versus non-owner-occupied property are tracked and monitored on a regular basis. Agricultural real estate loans are primarily comprised of loans for the purchase of farmland. Loan-to-value ratios on loans secured by farmland generally do not exceed 75%. Commercial and industrial (“C&I”) loans are primarily underwritten based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. These cash flows, however, may not be as expected and the value of collateral securing the loans may fluctuate. Most commercial loans are secured by the assets being financed or other business assets such as accounts receivable or inventory and may incorporate a personal guarantee. Agricultural operating loans are generally comprised of term loans to fund the purchase of equipment, livestock and seasonal operating lines. Operating lines are typically written for one year and secured by the crop and other farm assets or other business assets, as considered necessary. Agricultural loans carry significant credit risks as they may involve larger balances concentrated with single borrowers or groups of related borrowers. In addition, repayment of such loans depends on the successful operation or management of the farm property securing the loan or for which an operating loan is utilized. Farming operations may be affected by adverse weather conditions such as drought, hail or floods that can severely limit crop yields. Residential mortgage loans are collateralized by primary and secondary positions on real estate and are underwritten primarily based on borrower’s documented income, credit scores, and collateral values. Under consumer home equity loan guidelines, the borrower will be approved for a loan based on a percentage of their home’s appraised value less the balance owed on the existing first mortgage. Credit risk is minimized within the residential mortgage portfolio due to relatively small loan account balances spread across many individual borrowers. Management evaluates trends in past due loans and current economic factors such as the housing price index on a regular basis. Consumer installment loans are comprised of originated indirect paper loans secured primarily by boats and recreational vehicles and other consumer loans secured primarily by automobiles and other personal assets. Consumer loan underwriting terms often depend on the collateral type, debt to income ratio and the borrower’s creditworthiness as evidenced by their credit score. In the event of a consumer installment loan default, collateral value alone may not provide an adequate source of repayment of the outstanding loan balance. This shortage is a result of the greater likelihood of damage, loss and depreciation for consumer based collateral. Loans are stated at the principal amount outstanding net of unearned net deferred fees and costs and loans in process, unearned discounts on acquired loans, and allowance for credit losses (“ACL”). Unearned net deferred fees and costs includes deferred loan origination fees reduced by loan origination costs and is amortized to interest income over the life of the related loan using methods that approximated the effective interest rate method. Interest on substantially all loans is credited to income based on the principal amount outstanding. A summary of loans at December 31, 2023 follows: December 31, 2023 Amortized Cost % of Total Commercial/Agricultural real estate: Commercial real estate $ 748,447 51.2 % Agricultural real estate 83,157 5.7 % Multi-family real estate 228,004 15.6 % Construction and land development 110,218 7.5 % C&I/Agricultural operating: Commercial and industrial 121,190 8.3 % Agricultural operating 25,695 1.8 % Residential mortgage: Residential mortgage 128,479 8.8 % Purchased HELOC loans 2,880 0.2 % Consumer installment: Originated indirect paper 6,535 0.4 % Other consumer 6,187 0.4 % Total loans receivable $ 1,460,792 100 % Less Allowance for credit losses (22,908) Net loans receivable $ 1,437,884 Loans are stated at the unpaid principal balance outstanding at December 31, 2022. December 31, 2022 Loan Principal Balance % of Total Commercial/Agricultural real estate: Commercial real estate $ 725,971 51.5 % Agricultural real estate 87,908 6.2 % Multi-family real estate 208,908 14.8 % Construction and land development 102,492 7.3 % C&I/Agricultural operating: Commercial and industrial 136,013 9.6 % Agricultural operating 28,806 2.0 % Residential mortgage: Residential mortgage 105,389 7.5 % Purchased HELOC loans 3,262 0.2 % Consumer installment: Originated indirect paper 10,236 0.7 % Other consumer 7,150 0.5 % Gross Loans $ 1,416,135 100.3 % Less: Unearned net deferred fees and costs and loans in process (2,585) (0.2) % Unamortized discount on acquired loans (1,766) (0.1) % Total loans receivable $ 1,411,784 100.0 % Less Allowance for loan losses (17,939) Net loans $ 1,393,845 Credit Quality/Risk Ratings: Management utilizes a numeric risk rating system to identify and quantify the Bank’s risk of loss within its loan portfolio. Ratings are initially assigned prior to funding the loan, and may be changed at any time as circumstances warrant. Ratings range from the highest to lowest quality based on factors that include measurements of ability to pay, collateral type and value, borrower stability and management experience. The Bank’s loan portfolio ratings are presented below in accordance with the risk rating framework that has been commonly adopted by the federal banking agencies. The definitions of the various risk rating categories are as follows: 1 through 4 - Pass. A “Pass” loan means that the condition of the borrower and the performance of the loan is satisfactory or better. 5 - Watch. A “Watch” loan has clearly identifiable developing weaknesses that deserve additional attention from management. Weaknesses that are not corrected or mitigated, may jeopardize the ability of the borrower to repay the loan in the future. 6 - Special Mention. A “Special Mention” loan has one or more potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or in the institution’s credit position in the future. 7 - Substandard. A “Substandard” loan is inadequately protected by the current net worth and paying capacity of the obligor or the collateral pledged, if any. Assets classified as substandard must have a well-defined weakness, or weaknesses, that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. 8 - Doubtful. A “Doubtful” loan has all the weaknesses inherent in a Substandard loan 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. 9 - Loss. Loans classified as “Loss” are considered uncollectible, and their continuance as bankable assets is not warranted. This classification does not mean that the loan has absolutely no recovery or salvage value, and a partial recovery may occur in the future. As of December 31, 2023 and December 31, 2022, there were no loans classified as doubtful with a risk rating of 8 and no loans classified as loss with a risk rating of 9. Below is a summary of the amortized cost of loans summarized by class, credit quality risk rating and year of origination as of December 31, 2023 and gross charge-offs for the twelve months ended December 31, 2023: Amortized Cost Basis by Origination Year 2023 2022 2021 2020 2019 Prior Revolving Revolving to Term Total Commercial/Agricultural real estate: Commercial real estate Risk rating 1 to 5 $ 73,564 $ 133,583 $ 236,774 $ 90,881 $ 71,104 $ 107,999 $ 10,204 $ — $ 724,109 Risk rating 6 309 — 9,510 — — — — — 9,819 Risk rating 7 25 696 3,213 4,548 183 5,854 — — 14,519 Total $ 73,898 $ 134,279 $ 249,497 $ 95,429 $ 71,287 $ 113,853 $ 10,204 $ — $ 748,447 Current period gross charge-offs $ — $ — $ 10 $ — $ — $ 4 $ — $ — $ 14 Agricultural real estate Risk rating 1 to 5 $ 16,335 $ 19,026 $ 11,582 $ 7,719 $ 5,463 $ 15,418 $ 1,009 $ — $ 76,552 Risk rating 6 — 171 5,409 — 152 482 — — 6,214 Risk rating 7 — 360 — — 31 — — — 391 Total $ 16,335 $ 19,557 $ 16,991 $ 7,719 $ 5,646 $ 15,900 $ 1,009 $ — $ 83,157 Current period gross charge-offs $ — $ — $ — $ 32 $ — $ — $ — $ — $ 32 Multi-family real estate Risk rating 1 to 5 $ 5,016 $ 50,617 $ 95,686 $ 45,685 $ 8,591 $ 22,364 $ 45 $ — $ 228,004 Risk rating 6 — — — — — — — — — Risk rating 7 — — — — — — — — — Total $ 5,016 $ 50,617 $ 95,686 $ 45,685 $ 8,591 $ 22,364 $ 45 $ — $ 228,004 Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Construction and land development Risk rating 1 to 5 $ 42,639 $ 37,783 $ 18,912 $ 8,014 $ 119 $ 1,124 $ 1,314 $ — $ 109,905 Risk rating 6 — — — — — 110 — — 110 Risk rating 7 — — — — — 54 149 — 203 Total $ 42,639 $ 37,783 $ 18,912 $ 8,014 $ 119 $ 1,288 $ 1,463 $ — $ 110,218 Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Commercial/Agricultural operating: Commercial and industrial Risk rating 1 to 5 $ 16,758 $ 31,915 $ 28,059 $ 11,406 $ 4,746 $ 2,023 $ 24,059 $ — $ 118,966 Risk rating 6 — — — — 5 — 2,200 — 2,205 Risk rating 7 — — — — — 2 — 17 19 Total $ 16,758 $ 31,915 $ 28,059 $ 11,406 $ 4,751 $ 2,025 $ 26,259 $ 17 $ 121,190 Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Agricultural operating Risk rating 1 to 5 $ 4,734 $ 3,908 $ 856 $ 746 $ 295 $ 2,144 $ 11,831 $ — $ 24,514 Risk rating 6 — — — — — — — — — Risk rating 7 — 476 704 — — 1 — — 1,181 Total $ 4,734 $ 4,384 $ 1,560 $ 746 $ 295 $ 2,145 $ 11,831 $ — $ 25,695 Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Continued Amortized Cost Basis by Origination Year 2023 2022 2021 2020 2019 Prior Revolving Revolving to Term Total Residential mortgage: Residential mortgage Risk rating 1 to 5 $ 28,808 $ 33,660 $ 8,743 $ 2,610 $ 2,292 $ 33,744 $ 15,544 $ — $ 125,401 Risk rating 6 — — — — — — — — — Risk rating 7 — 141 — — 14 2,875 — 48 3,078 Total $ 28,808 $ 33,801 $ 8,743 $ 2,610 $ 2,306 $ 36,619 $ 15,544 $ 48 $ 128,479 Current period gross charge-offs $ — $ — $ 10 $ — $ — $ 68 $ — $ — $ 78 Purchased HELOC loans Risk rating 1 to 5 $ — $ — $ — $ — $ — $ — $ 2,880 $ — $ 2,880 Risk rating 6 — — — — — — — — — Risk rating 7 — — — — — — — — — Total $ — $ — $ — $ — $ — $ — $ 2,880 $ — $ 2,880 Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Consumer installment: Originated indirect paper Risk rating 1 to 5 $ — $ — $ — $ — $ — $ 6,491 $ — $ — $ 6,491 Risk rating 6 — — — — — — — — — Risk rating 7 — — — — — 44 — — 44 Total $ — $ — $ — $ — $ — $ 6,535 $ — $ — $ 6,535 Current period gross charge-offs $ — $ — $ — $ — $ — $ 13 $ — $ — $ 13 Other consumer Risk rating 1 to 5 $ 2,104 $ 1,525 $ 763 $ 559 $ 402 $ 274 $ 530 $ 1 $ 6,158 Risk rating 6 — — — — — — — — — Risk rating 7 9 2 — — 16 1 1 — 29 Total $ 2,113 $ 1,527 $ 763 $ 559 $ 418 $ 275 $ 531 $ 1 $ 6,187 Current period gross charge-offs $ — $ 2 $ 1 $ 11 $ 3 $ 6 $ — $ — $ 23 Total loans receivable $ 190,301 $ 313,863 $ 420,211 $ 172,168 $ 93,413 $ 201,004 $ 69,766 $ 66 $ 1,460,792 Total current period gross charge-offs $ — $ 2 $ 21 $ 43 $ 3 $ 91 $ — $ — $ 160 Below is a summary of the unpaid principal balance of loans summarized by class and credit quality risk rating as of December 31, 2022: 1 to 5 6 7 TOTAL Commercial/Agricultural real estate: Commercial real estate $ 712,658 $ 5,771 $ 7,542 $ 725,971 Agricultural real estate 84,215 549 3,144 87,908 Multi-family real estate 208,908 — — 208,908 Construction and land development 102,385 — 107 102,492 C&I/Agricultural operating: Commercial and industrial 129,748 5,526 739 136,013 Agricultural operating 26,418 324 2,064 28,806 Residential mortgage: Residential mortgage 101,730 — 3,659 105,389 Purchased HELOC loans 3,262 — — 3,262 Consumer installment: Originated indirect paper 10,190 — 46 10,236 Other Consumer 7,132 — 18 7,150 Gross loans $ 1,386,646 $ 12,170 $ 17,319 $ 1,416,135 Less: Unearned net deferred fees and costs and loans in process (2,585) Unamortized discount on acquired loans (1,766) Allowance for loan losses (17,939) Loans receivable, net $ 1,393,845 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 twelve months ended December 31, 2023 and December 31, 2022. A summary of the changes in those loans is as follows: Twelve months ended Twelve months ended December 31, 2023 December 31, 2022 Balance—beginning of period $ 38,410 $ 32,423 New loan originations 624 7,994 Repayments (2,442) (2,007) Balance—end of period $ 36,592 $ 38,410 Available and unused lines of credit $ 603 $ — Allowance for Credit Losses - Loans- On January 1, 2023, the Company adopted Accounting Standards Update (“ASU”) 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial instruments and transitioned to the Current Expected Credit Loss (“CECL”) model to estimate losses based on the lifetime of the loan. Under the new methodology, the ACL is comprised of collectively evaluated and individually evaluated components. The allowance for credit losses (“ACL”) represents the Company’s best estimate of the reserve necessary to adequately account for probable losses expected over the remaining life of the assets. The provision for credit losses is the charge against current earnings that is determined by the Company as the amount needed to maintain an adequate allowance for credit losses. In determining the adequacy of the allowance for credit losses, and therefore the provision to be charged to current earnings, the Company relies predominantly on a disciplined credit review and approval process that extends to the full range of the Company’s credit exposure. The review process is directed by the overall lending policy and is intended to identify, at the earliest possible stage, the borrowers who might be facing financial difficulty. Factors considered by the Company in evaluating the overall adequacy of the allowance include historical net loan losses, the level and composition of nonaccrual, past due and modifications, trends in volumes and terms of loans, effects of changes in risk selection and underwriting standards or lending practices, lending staff changes, concentrations of credit, industry conditions and the current economic conditions in the region where the Company operates. The Company estimates the appropriate level of allowance for credit losses by evaluating loans collectively on a pooled basis when similar risk characteristics exist, and on an individual basis when management determines that a loan does not share similar risk characteristics with other loans. The following tables present the balance and activity in the allowance for credit losses (“ACL”) - loans by portfolio segment for the twelve months ended December 31, 2023: Commercial/Agricultural Real Estate C&I/Agricultural operating Residential Mortgage Consumer Installment Unallocated Total Twelve months ended December 31, 2023 Allowance for Credit Losses - Loans: ACL - Loans, at beginning of period $ 14,085 $ 2,318 $ 599 $ 129 $ 808 $ 17,939 Cumulative effect of ASU 2016-13 adoption 4,510 (331) 1,119 216 (808) 4,706 Charge-offs (46) — (78) (36) — (160) Recoveries 489 47 42 33 — 611 Additions/(reversals) to ACL - Loans via provision for credit losses charged to operations (254) (929) 1,062 (67) — (188) ACL - Loans, at end of period $ 18,784 $ 1,105 $ 2,744 $ 275 $ — $ 22,908 Allowance for Credit Losses - Unfunded Commitments - In addition to the ACL - Loans, the Company has established an ACL - Unfunded Commitments of $1,250 at December 31, 2023 and $0 at December 31, 2022, classified in other liabilities on the consolidated balance sheets. The following table presents the balance and activity in the ACL - Unfunded Commitments for the twelve months ended December 31, 2023 and December 31, 2022. December 31, 2023 and Twelve Months Ended December 31, 2022 and Twelve Months Ended ACL - Unfunded Commitments - beginning of period $ — $ — Cumulative effect of ASU 2016-13 adoption 1,537 — Reversals to ACL - Unfunded Commitments via provision for credit losses charged to operations (287) — ACL - Unfunded Commitments - End of period $ 1,250 $ — Provision for credit losses - The provision for credit losses is determined by the Company as the amount to be added to the ACL loss accounts for various types of financial instruments (including loans and off-balance sheet credit exposures) after net charge-offs have been deducted to bring the ACL to a level that, in managements judgement, is necessary to absorb expected credit losses over the lives of the respective financial instruments. The following table presents the components of the provision for credit losses. December 31, 2023 and Twelve Months Ended Provision for credit losses on: Loans $ (188) Unfunded Commitments (287) Total provision for credit losses $ (475) Allowance for Loan Losses - Prior to the adoption of ASU 2016-13, the Allowance for Loan Losses (“ALL”) represented management’s estimate of probable and inherent credit losses in the Bank’s loan portfolio. Estimating the amount of the ALL required the exercise of significant judgment and the use of estimates related to the amount and timing of expected future cash flows on impaired loans, estimated losses on pools of homogeneous loans based on historical loss experience, and consideration of other qualitative factors such as current economic trends and conditions, all of which may have been susceptible to significant change. There were many factors affecting the ALL; some were quantitative, while others required qualitative judgment. The process for determining the ALL (which management believed adequately considered potential factors which resulted in probable credit losses), included subjective elements and, therefore, may have been susceptible to significant change. To the extent actual outcomes differed from management estimates, additional provision for loan losses could have been required that could have adversely affected the Company’s earnings or financial position in future periods. Allocations of the ALL may have been made for specific loans but the entire ALL was available for any loan that, in management’s judgment, should have been charged-off or for which an actual loss was realized. As an integral part of their examination process, various regulatory agencies also reviewed the Bank’s ALL. Such agencies may have required that changes in the ALL be recognized when such regulators’ credit evaluations differed from those of our management based on information available to the regulators at the time of their examinations. Changes in the ALL by loan type for the periods presented below were as follows: Commercial/Agricultural Real Estate C&I/Agricultural operating Residential Mortgage Consumer Installment Unallocated Total Twelve months ended December 31, 2022: Allowance for Loan Losses: Beginning balance, January 1, 2022 $ 12,354 $ 1,959 $ 518 $ 225 $ 774 $ 15,830 Charge-offs (157) (310) (35) (45) — (547) Recoveries 74 35 2 50 — 161 Provision 1,280 571 89 (109) 34 1,865 Total Allowance on originated loans 13,551 2,255 574 121 808 17,309 Other acquired loans: Beginning balance, January 1, 2022 856 69 130 28 — 1,083 Charge-offs (48) (36) (33) (3) — (120) Recoveries 28 1 27 1 — 57 Provision (302) 29 (99) (18) — (390) Total allowance on other acquired loans 534 63 25 8 — 630 Total allowance on acquired loans 534 63 25 8 — 630 Ending Balance, December 31, 2023 $ 14,085 $ 2,318 $ 599 $ 129 $ 808 $ 17,939 Allowance for Loan Losses at December 31, 2022: Amount of allowance for loan losses arising from loans individually evaluated for impairment $ 519 $ 249 $ 48 $ 10 $ — $ 826 Amount of allowance for loan losses arising from loans collectively evaluated for impairment $ 13,566 $ 2,069 $ 551 $ 119 $ 808 $ 17,113 Loans Receivable as of December 31, 2022: Ending balance of originated loans $ 1,017,529 $ 150,239 $ 88,045 $ 17,130 $ — $ 1,272,943 Ending balance of purchased credit-impaired loans 5,748 362 890 — — 7,000 Ending balance of other acquired loans 102,002 14,218 19,716 256 — 136,192 Ending balance of loans $ 1,125,279 $ 164,819 $ 108,651 $ 17,386 $ — $ 1,416,135 Ending balance: individually evaluated for impairment $ 16,874 $ 3,292 $ 5,998 $ 755 $ — $ 26,919 Ending balance: collectively evaluated for impairment $ 1,108,405 $ 161,527 $ 102,653 $ 16,631 $ — $ 1,389,216 Loans receivable by loan type as of December 31, 2022, were as follows: Commercial/Agricultural Real Estate C&I/Agricultural operating Residential Mortgage Consumer Installment Total Performing loans Performing TDR loans $ 1,336 $ 960 $ 2,875 $ — $ 5,171 Performing loans other 1,115,465 162,417 104,287 17,345 1,399,514 Total performing loans 1,116,801 163,377 107,162 17,345 1,404,685 Nonperforming loans (1) — Nonperforming TDR loans 1,878 391 348 — 2,617 Nonperforming loans other 6,600 1,051 1,141 41 8,833 Total nonperforming loans 8,478 1,442 1,489 41 11,450 Total loans $ 1,125,279 $ 164,819 $ 108,651 $ 17,386 $ 1,416,135 (1) Nonperforming loans are either 90+ days past due or nonaccrual. An aging analysis of the Company’s commercial/agricultural real estate, C&I, agricultural operating, residential mortgage, consumer installment and purchased third party loans as of December 31, 2023 and December 31, 2022, respectively, was as follows: (Loan balances at amortized cost) 30-59 Days Past Due and Accruing 60-89 Days Past Due and Accruing Greater Than 89 Days Past Due and Accruing Total Nonaccrual Loans Total Past Due Accruing and Nonaccrual Loans Current Total December 31, 2023 Commercial/Agricultural real estate: Commercial real estate $ 50 $ 308 $ — $ 358 $ 10,359 $ 10,717 $ 737,730 $ 748,447 Agricultural real estate — — — — 391 391 82,766 83,157 Multi-family real estate — — — — — — 228,004 228,004 Construction and land development — — — — 54 54 110,164 110,218 C&I/Agricultural operating: Commercial and industrial 248 — — 248 — 248 120,942 121,190 Agricultural operating — — — — 1,180 1,180 24,515 25,695 Residential mortgage: Residential mortgage 826 350 387 1,563 1,167 2,730 125,749 128,479 Purchased HELOC loans 117 — — 117 — 117 2,763 2,880 Consumer installment: Originated indirect paper 66 — — 66 15 81 6,454 6,535 Other consumer 38 — 2 40 18 58 6,129 6,187 Total $ 1,345 $ 658 $ 389 $ 2,392 $ 13,184 $ 15,576 $ 1,445,216 $ 1,460,792 (Loan balances at unpaid principal balance) 30-59 Days Past Due and Accruing 60-89 Days Past Due and Accruing Greater Than 89 Days Past Due and Accruing Total Nonaccrual Loans Total Past Due Accruing and Nonaccrual Loans Current Total December 31, 2022 Commercial/Agricultural real estate: Commercial real estate $ 202 $ 88 $ — $ 290 $ 5,736 $ 6,026 $ 719,945 $ 725,971 Agricultural real estate 4,992 — — 4,992 2,742 7,734 80,174 87,908 Multi-family real estate — — — — — — 208,908 208,908 Construction and land development 3,975 — — 3,975 — 3,975 98,517 102,492 C&I/Agricultural operating: Commercial and industrial — 26 — 26 552 578 135,435 136,013 Agricultural operating 826 — — 826 890 1,716 27,090 28,806 Residential mortgage: Residential mortgage 767 479 236 1,482 1,253 2,735 102,654 105,389 Purchased HELOC loans — — — — — — 3,262 3,262 Consumer installment: Originated indirect paper 15 — — 15 27 42 10,194 10,236 Other consumer 39 2 10 51 4 55 7,095 7,150 Total $ 10,816 $ 595 $ 246 $ 11,657 $ 11,204 $ 22,861 $ 1,393,274 $ 1,416,135 Nonaccrual Loans - The following table presents the amortized cost basis of loans on nonaccrual status and of nonaccrual loans individually evaluated at December 31, 2023 with no allowance for credit losses and interest income that would have been recorded under the original terms of such nonaccrual loans: December 31, 2023 Total Nonaccrual Loans Nonaccrual with no Allowance for Credit Losses Interest Income Not Recorded for Nonaccrual loans Commercial/Agricultural real estate: Commercial real estate $ 10,359 $ 10,347 $ 497 Agricultural real estate 391 391 46 Multi-family real estate — — — Construction and land development 54 54 1 C&I/Agricultural operating: Commercial and industrial — — — Agricultural operating 1,180 1,180 120 Residential mortgage: Residential mortgage 1,167 934 68 Purchased HELOC loans — — — Consumer installment: Originated indirect paper 15 15 1 Other consumer 18 18 1 Total $ 13,184 $ 12,939 $ 734 The Company’s policy is to discontinue the accrual of interest income on all loans for which principal or interest is past due according to the following schedules: • Commercial/agricultural real estate loans, past due 90 days or more; • Commercial and industrial/agricultural operating loans past due 90 days or more; • Closed ended consumer installment loans past due 120 days or more; and • Residential mortgage and open ended consumer installment loans past due 180 days or more. The accrual of interest is discontinued earlier when, in the opinion of management, there is reasonable doubt as to the timely collection of interest or principal. Once interest accruals are discontinued, accrued but uncollected interest is charged against current year income. Subsequent receipts on non-accrual loans are recorded as a reduction of principal, and interest income is recorded only after principal recovery is reasonably assured. Interest on loans determined to be modified is recognized on an accrual basis in accordance with the restructured terms if the loan is in compliance with the modified terms. Nonaccrual loans are returned to accrual status when, in the opinion of management, the financial position of the borrower indicates there is no longer any reasonable doubt as to the timely collection of interest or principal. The Company requires a period of satisfactory performance of not less than six months before returning a nonaccrual loan to accrual status. The amount of interest income recognized by the Company for the twelve months ended December 31, 2023, due to nonaccrual loan payoffs was $505. Collateral Dependent Loans - A loan is considered to be collateral dependent when, based upon management’s assessment, the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. For collateral dependent loans, expected credit losses are based on the fair value of the collateral at the balance sheet date, with consideration for estimated selling costs if satisfaction of the loan depends on the sale of the collateral. The following table presents the amortized cost basis of collateral dependent loans by portfolio segment and collateral type that were individually evaluated to determine expected credit losses and the related allowance for credit losses as of December 31, 2023. Collateral Type December 31, 2023 Real Estate Other Assets Total Without an Allowance With an Allowance Allowance Allocation Commercial/Agricultural real estate: Commercial real estate $ 15,086 $ — $ 15,086 $ 11,350 $ 3,736 $ 703 Agricultural real estate 6,605 — 6,605 6,605 — — Multi-family real estate — — — — — — Construction and land development 313 — 313 313 — — C&I/Agricultural operating: Commercial and industrial — 2,219 2,219 2,219 — — Agricultural operating — 1,181 1,181 1,181 — — Residential mortgage: Residential mortgage 3,145 — 3,145 2,591 554 88 Purchased HELOC loans — — — — — — Consumer installment: Originated indirect paper — 44 44 44 — — Other consumer — 29 29 29 — — Total $ 25,149 $ 3,473 $ 28,622 $ 24,332 $ 4,290 $ 791 There were no outstanding commitments to borrowers experiencing financial difficulty as of December 31, 2023. There were unused lines of credit totaling $618 on loans with borrowers experiencing financial difficulties as of December 31, 2023. At December 31, 2022, the Company individually evaluated loans for impairment with a recorded investment of $26,823, consisting of (1) $7,000 PCI loans, with a carrying amount of $6,904; (2) $7,018 TDR loans, net of TDR PCI loans; and (3) $12,901 of substandard non-TDR, non-PCI loans. The $26,823 recorded investment of loans individually evaluated for impairment includes $5,171 of performing TDR loans. A loan is identified as impaired when, based on current information and events, it is probable that the Bank will be unable to collect all amounts due according to the contractual terms of the loan agreement. Performing TDRs consist of loans that have been modified and are performing in accordance with the modified terms for a sufficient length of time, generally six months, or loans that were modified on a proactive basis. A summary of the Company’s loans individually evaluated for impairment as of December 31, 2022 was as follows: Recorded Investment Unpaid Principal Balance Related Allowance Average Recorded Investment Interest Income Recognized December 31, 2022 With No Related Allowance Recorded: Commercial/Agricultural real estate $ 9,741 $ 9,766 $ — $ 13,657 $ 549 C&I/Agricultural operating 2,744 2,754 — 4,467 200 Residential mortgage 5,846 5,907 — 6,304 276 Consumer installment 745 745 — 307 5 Total $ 19,076 $ 19,172 $ — $ 24,735 $ 1,030 With An Allowance Recorded: Commercial/Agricultural real estate $ 7,108 $ 7,108 $ 519 $ 6,028 $ 273 C&I/Agricultural operating 538 538 249 273 48 Residential mortgage 91 91 48 298 65 Consumer installment 10 10 10 2 2 Total $ 7,747 $ 7,747 $ 826 $ 6,601 $ 388 December 31, 2022 Totals Commercial/Agricultural real estate $ 16,849 $ 16,874 $ 519 $ 19,685 $ 822 C&I/Agricultural operating 3,282 3,292 249 4,741 248 Residential mortgage 5,937 5,998 48 6,603 341 Consumer installment 755 755 10 310 7 Total $ 26,823 $ 26,919 $ 826 $ 31,336 $ 1,418 The tables below detail Loan Modifications Made to Borrowers Experiencing Financial Difficulty during the twelve months ended December 31, 2023: Term Extension Loan Class Amortized Cost Basis at % of Total Class of Financing Receivables Commercial real estate $ 4,694 0.63 % Commercial and industrial $ 2,200 1.82 % Residential mortgage $ 35 0.03 % Other consumer $ 1 0.02 % Other-Than-Insignificant Payment Delay Loan Class Amortized Cost Basis at % of Total Class of Financing Receivables Residential mortgage $ 69 0.05 % Other consumer $ 19 0.31 % The following tables describe the financial effect of the modifications made to borrowers experiencing financial difficulty during the twelve months ended December 31, 2023: Term Extension Loan Class Financial Effect Commercial real estate A weighted average of 20 months was added to the term of the loans Commercial and industrial A weighted average of 3 months was added to the term of the loans Residential mortgage A weighted average of 16 months was added to the term of the loans Other consumer A weighted average of 12 months was added to the term of the loans Other-Than-Insignificant Payment Delay Loan Class Financial Effect Residential mortgage Payments were deferred a weighted average of 6 months Other consumer Payments were deferred a weighted average of 3 months The Company closely monitors the performance of loans that have been modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. The following table shows the performance of such loans that have been modified during the twelve months ended December 31, 2023. Current 30-59 Days Past Due 60-89 Days Past Due Greater Than 89 Days Past Due Commercial real estate $ 4,694 $ — $ — $ — Commercial and industrial 2,200 — |
