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LOANS AND THE ALLOWANCE FOR LOAN LOSSES

3 Months Ended

Mar. 31, 2021

LOANS AND THE ALLOWANCE FOR LOAN LOSSES

NOTE 3 – LOANS AND THE ALLOWANCE FOR LOAN LOSSES

Major categories of loans are summarized as follows:


	March 31,		December 31,
	2021		2020

	(dollars in thousands)
Commercial and industrial	$	412,812	$	393,312
Agricultural and farmland		228,032		222,723
Commercial real estate - owner occupied		224,599		222,360
Commercial real estate - non-owner occupied		516,963		520,395
Multi-family		236,381		236,391
Construction and land development		215,375		225,652
One-to-four family residential		300,768		306,775
Municipal, consumer, and other		135,775		119,398
Loans, before allowance for loan losses		2,270,705		2,247,006
Allowance for loan losses		(28,759)		(31,838)
Loans, net of allowance for loan losses	$	2,241,946	$	2,215,168

Paycheck Protection Program (PPP) loans (included above)
Commercial and industrial	$	175,389	$	153,860
Agricultural and farmland		8,921		3,049
Municipal, consumer, and other		6,249		6,587
Total PPP loans	$	190,559	$	163,496

The following tables detail activity in the allowance for loan losses for the three months ended March 31:


					Commercial		Commercial								Municipal,
	Commercial		Agricultural		Real Estate		Real Estate				Construction		One-to-four		Consumer,
	and		and		Owner		Non-owner				and Land		Family		and
Three Months Ended March 31, 2021	Industrial		Farmland		Occupied		Occupied		Multi-Family		Development		Residential		Other		Total

Allowance for loan losses:	(dollars in thousands)
Balance, December 31, 2020	$	3,929	$	793	$	3,141	$	11,251	$	1,957	$	4,232	$	1,801	$	4,734	$	31,838
Provision for loan losses		(1,802)		72		(426)		72		133		(316)		(198)		(940)		(3,405)
Charge-offs		—		—		—		—		—		—		(72)		(123)		(195)
Recoveries		293		—		—		7		—		90		42		89		521
Balance, March 31, 2021	$	2,420	$	865	$	2,715	$	11,330	$	2,090	$	4,006	$	1,573	$	3,760	$	28,759

					Commercial		Commercial								Municipal,
	Commercial		Agricultural		Real Estate		Real Estate								Consumer
	and		and		Owner		Non-owner				Construction		Residential		and
Three Months Ended March 31, 2020	Industrial		Farmland		Occupied		Occupied		Multi-Family		and Land		Real Estate		Other		Total

Allowance for loan losses:	(dollars in thousands)
Balance, December 31, 2019	$	4,441	$	2,766	$	1,779	$	3,663	$	1,024	$	2,977	$	2,540	$	3,109	$	22,299
Provision for loan losses		538		254		(97)		820		450		237		777		1,376		4,355
Charge-offs		(809)		(27)		—		(56)		—		(1)		(104)		(224)		(1,221)
Recoveries		54		—		440		5		—		10		71		74		654
Balance, March 31, 2020	$	4,224	$	2,993	$	2,122	$	4,432	$	1,474	$	3,223	$	3,284	$	4,335	$	26,087

The following tables present the recorded investments in loans and the allowance for loan losses by category:


					Commercial		Commercial								Municipal,
	Commercial		Agricultural		Real Estate		Real Estate				Construction		One-to-four		Consumer,
	and		and		Owner		Non-owner				and Land		Family		and
March 31, 2021	Industrial		Farmland		Occupied		Occupied		Multi-Family		Development		Residential		Other		Total

Loan balances:	(dollars in thousands)
Collectively evaluated for impairment	$	408,664	$	226,668	$	204,327	$	477,116	$	234,257	$	208,835	$	283,562	$	122,266	$	2,165,695
Individually evaluated for impairment		3,230		548		12,680		25,871		874		4,165		9,443		13,455		70,266
Acquired with deteriorated credit quality		918		816		7,592		13,976		1,250		2,375		7,763		54		34,744
Total	$	412,812	$	228,032	$	224,599	$	516,963	$	236,381	$	215,375	$	300,768	$	135,775	$	2,270,705

Allowance for loan losses:
Collectively evaluated for impairment	$	1,218	$	845	$	2,032	$	6,947	$	2,080	$	3,846	$	1,091	$	1,328	$	19,387
Individually evaluated for impairment		1,095		19		420		4,142		—		144		479		2,431		8,730
Acquired with deteriorated credit quality		107		1		263		241		10		16		3		1		642
Total	$	2,420	$	865	$	2,715	$	11,330	$	2,090	$	4,006	$	1,573	$	3,760	$	28,759

					Commercial		Commercial								Municipal,
	Commercial		Agricultural		Real Estate		Real Estate				Construction		One-to-four		Consumer,
	and		and		Owner		Non-owner				and Land		Family		and
December 31, 2020	Industrial		Farmland		Occupied		Occupied		Multi-Family		Development		Residential		Other		Total

Loan balances:	(dollars in thousands)
Collectively evaluated for impairment	$	387,072	$	217,077	$	201,417	$	480,165	$	234,252	$	219,822	$	287,845	$	105,796	$	2,133,446
Individually evaluated for impairment		5,312		4,793		13,132		25,993		876		3,809		10,343		13,546		77,804
Acquired with deteriorated credit quality		928		853		7,811		14,237		1,263		2,021		8,587		56		35,756
Total	$	393,312	$	222,723	$	222,360	$	520,395	$	236,391	$	225,652	$	306,775	$	119,398	$	2,247,006

Allowance for loan losses:
Collectively evaluated for impairment	$	2,736	$	771	$	2,306	$	6,736	$	1,950	$	3,984	$	1,237	$	1,432	$	21,152
Individually evaluated for impairment		1,193		22		429		4,255		—		222		560		3,301		9,982
Acquired with deteriorated credit quality		—		—		406		260		7		26		4		1		704
Total	$	3,929	$	793	$	3,141	$	11,251	$	1,957	$	4,232	$	1,801	$	4,734	$	31,838

The following tables present loans individually evaluated for impairment by category of loans:


	Unpaid
	Principal		Recorded		Related
March 31, 2021	Balance		Investment		Allowance

With an allowance recorded:	(dollars in thousands)
Commercial and industrial	$	2,252	$	2,240	$	1,095
Agricultural and farmland		166		165		19
Commercial real estate - owner occupied		3,156		3,121		420
Commercial real estate - non-owner occupied		20,605		20,256		4,142
Multi-family		—		—		—
Construction and land development		2,229		2,196		144
One-to-four family residential		2,835		2,587		479
Municipal, consumer, and other		8,770		8,744		2,431
Total	$	40,013	$	39,309	$	8,730

With no related allowance:
Commercial and industrial	$	1,738	$	990	$	—
Agricultural and farmland		383		383		—
Commercial real estate - owner occupied		9,635		9,559		—
Commercial real estate - non-owner occupied		5,747		5,615		—
Multi-family		874		874		—
Construction and land development		1,978		1,969		—
One-to-four family residential		8,556		6,856		—
Municipal, consumer, and other		4,774		4,711		—
Total	$	33,685	$	30,957	$	—

Total loans individually evaluated for impairment:
Commercial and industrial	$	3,990	$	3,230	$	1,095
Agricultural and farmland		549		548		19
Commercial real estate - owner occupied		12,791		12,680		420
Commercial real estate - non-owner occupied		26,352		25,871		4,142
Multi-family		874		874		—
Construction and land development		4,207		4,165		144
One-to-four family residential		11,391		9,443		479
Municipal, consumer, and other		13,544		13,455		2,431
Total	$	73,698	$	70,266	$	8,730


	Unpaid
	Principal		Recorded		Related
December 31, 2020	Balance		Investment		Allowance

With an allowance recorded:	(dollars in thousands)
Commercial and industrial	$	2,737	$	2,725	$	1,193
Agricultural and farmland		169		168		22
Commercial real estate - owner occupied		3,072		3,040		429
Commercial real estate - non-owner occupied		20,726		20,394		4,255
Multi-family		—		—		—
Construction and land development		2,081		2,055		222
One-to-four family residential		2,963		2,739		560
Municipal, consumer, and other		12,207		12,181		3,301
Total	$	43,955	$	43,302	$	9,982

With no related allowance:
Commercial and industrial	$	3,322	$	2,587	$	—
Agricultural and farmland		4,625		4,625		—
Commercial real estate - owner occupied		10,164		10,092		—
Commercial real estate - non-owner occupied		5,727		5,599		—
Multi-family		876		876		—
Construction and land development		1,762		1,754		—
One-to-four family residential		9,325		7,604		—
Municipal, consumer, and other		1,431		1,365		—
Total	$	37,232	$	34,502	$	—

Total loans individually evaluated for impairment:
Commercial and industrial	$	6,059	$	5,312	$	1,193
Agricultural and farmland		4,794		4,793		22
Commercial real estate - owner occupied		13,236		13,132		429
Commercial real estate - non-owner occupied		26,453		25,993		4,255
Multi-family		876		876		—
Construction and land development		3,843		3,809		222
One-to-four family residential		12,288		10,343		560
Municipal, consumer, and other		13,638		13,546		3,301
Total	$	81,187	$	77,804	$	9,982

The following table presents the average recorded investment and interest income recognized for loans individually evaluated for impairment by category of loans during the three months ended March 31:


	Three Months Ended March 31,
	2021				2020
	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized

With an allowance recorded:	(dollars in thousands)
Commercial and industrial	$	2,266	$	31	$	3,486	$	49
Agricultural and farmland		168		2		573		4
Commercial real estate - owner occupied		3,244		41		828		11
Commercial real estate - non-owner occupied		20,361		208		99		2
Multi-family		—		—		—		—
Construction and land development		2,248		27		3,064		41
One-to-four family residential		2,644		23		3,261		27
Municipal, consumer, and other		8,802		40		12,487		83
Total	$	39,733	$	372	$	23,798	$	217

With no related allowance:
Commercial and industrial	$	1,068	$	14	$	5,941	$	58
Agricultural and farmland		383		6		12,520		161
Commercial real estate - owner occupied		9,600		122		10,432		131
Commercial real estate - non-owner occupied		5,665		68		3,340		41
Multi-family		876		10		—		—
Construction and land development		1,764		26		324		4
One-to-four family residential		6,981		49		8,344		62
Municipal, consumer, and other		4,746		22		1,370		56
Total	$	31,083	$	317	$	42,271	$	513

Total loans individually evaluated for impairment:
Commercial and industrial	$	3,334	$	45	$	9,427	$	107
Agricultural and farmland		551		8		13,093		165
Commercial real estate - owner occupied		12,844		163		11,260		142
Commercial real estate - non-owner occupied		26,026		276		3,439		43
Multi-family		876		10		—		—
Construction and land development		4,012		53		3,388		45
One-to-four family residential		9,625		72		11,605		89
Municipal, consumer, and other		13,548		62		13,857		139
Total	$	70,816	$	689	$	66,069	$	730

The following tables present the recorded investment in loans by category based on current payment and accrual status:


	Accruing Interest
			30 - 89 Days		90+ Days				Total
March 31, 2021	Current		Past Due		Past Due		Nonaccrual		Loans

	(dollars in thousands)
Commercial and industrial	$	412,005	$	—	$	—	$	807	$	412,812
Agricultural and farmland		228,032		—		—		—		228,032
Commercial real estate - owner occupied		224,026		—		—		573		224,599
Commercial real estate - non-owner occupied		512,889		92		—		3,982		516,963
Multi-family		236,381		—		—		—		236,381
Construction and land development		215,221		15		—		139		215,375
One-to-four family residential		296,530		706		29		3,503		300,768
Municipal, consumer, and other		135,550		113		10		102		135,775
Total	$	2,260,634	$	926	$	39	$	9,106	$	2,270,705


	Accruing Interest
			30 - 89 Days		90+ Days				Total
December 31, 2020	Current		Past Due		Past Due		Nonaccrual		Loans

	(dollars in thousands)
Commercial and industrial	$	392,490	$	—	$	—	$	822	$	393,312
Agricultural and farmland		222,723		—		—		—		222,723
Commercial real estate - owner occupied		221,308		112		—		940		222,360
Commercial real estate - non-owner occupied		516,387		—		—		4,008		520,395
Multi-family		236,391		—		—		—		236,391
Construction and land development		225,508		—		—		144		225,652
One-to-four family residential		301,282		984		595		3,914		306,775
Municipal, consumer, and other		119,055		211		21		111		119,398
Total	$	2,235,144	$	1,307	$	616	$	9,939	$	2,247,006

The following tables present total loans by category based on their assigned risk ratings determined by management:


March 31, 2021	Pass		Pass-Watch		Substandard		Doubtful		Total

	(dollars in thousands)
Commercial and industrial	$	392,957	$	15,734	$	4,121	$	—	$	412,812
Agricultural and farmland		196,773		29,994		1,265		—		228,032
Commercial real estate - owner occupied		180,381		31,165		13,053		—		224,599
Commercial real estate - non-owner occupied		429,273		58,874		28,816		—		516,963
Multi-family		208,800		26,707		874		—		236,381
Construction and land development		182,730		28,480		4,165		—		215,375
One-to-four family residential		276,413		13,839		10,516		—		300,768
Municipal, consumer, and other		121,991		330		13,454		—		135,775
Total	$	1,989,318	$	205,123	$	76,264	$	—	$	2,270,705


December 31, 2020	Pass		Pass-Watch		Substandard		Doubtful		Total

	(dollars in thousands)
Commercial and industrial	$	368,843	$	18,258	$	6,211	$	—	$	393,312
Agricultural and farmland		191,662		25,540		5,521		—		222,723
Commercial real estate - owner occupied		176,823		31,990		13,547		—		222,360
Commercial real estate - non-owner occupied		432,752		58,699		28,944		—		520,395
Multi-family		204,449		31,066		876		—		236,391
Construction and land development		193,646		28,193		3,813		—		225,652
One-to-four family residential		280,198		14,526		12,051		—		306,775
Municipal, consumer, and other		105,539		312		13,547		—		119,398
Total	$	1,953,912	$	208,584	$	84,510	$	—	$	2,247,006

There were no troubled debt restructurings during the three months ended March 31, 2021 and 2020.

Of the troubled debt restructurings entered into during the last 12 months, there were none which had subsequent payment defaults during the three months ended March 31, 2021 and 2020. For purposes of this disclosure, the Company considers “default” to mean 90 days or more past due as to interest or principal or were on nonaccrual status subsequent to restructuring.

As of March 31, 2021 and December 31, 2020, the Company had $8,673,000 and $8,950,000 of troubled debt restructurings, respectively. Restructured loans are evaluated for impairment quarterly as part of the Company’s determination of the allowance for loan losses. There were no material commitments to lend additional funds to debtors owing receivables whose terms have been modified in troubled debt restructurings.

The Coronavirus Aid, Relief, and Economic Security Act (the CARES Act), along with a joint statement issued by banking regulatory agencies, provided that short-term loan payment modifications to borrowers experiencing financial hardship due to COVID-19 generally do not need to be accounted for as a troubled debt restructuring. As of March 31, 2021 and December 31, 2020, the Company had loans that were granted a payment modification due to a COVID-19 related financial hardship and have not returned to regular payments were $16,697,000 and $27,986,000, respectively. Substantially all modifications were in the form of a three-month interest-only period or a one-month payment deferral. Some borrowers have received more than one loan payment modification.

Changes in the accretable yield for loans acquired with deteriorated credit quality were as follows:


	Three Months Ended March 31,
	2021		2020

	(dollars in thousands)
Beginning balance	$	1,397	$	1,662
Reclassification from non-accretable difference		74		8
Accretion income		(133)		(160)
Ending balance	$	1,338	$	1,510