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LOANS AND THE ALLOWANCE FOR LOAN LOSSES

9 Months Ended

Sep. 30, 2021

LOANS AND THE ALLOWANCE FOR LOAN LOSSES

NOTE 4 – LOANS AND THE ALLOWANCE FOR LOAN LOSSES

Major categories of loans are summarized as follows:


	September 30,		December 31,
	2021		2020

	(dollars in thousands)
Commercial and industrial	$	261,763	$	393,312
Agricultural and farmland		229,718		222,723
Commercial real estate - owner occupied		203,096		222,360
Commercial real estate - non-owner occupied		579,860		520,395
Multi-family		215,245		236,391
Construction and land development		232,291		225,652
One-to-four family residential		294,612		306,775
Municipal, consumer, and other		131,227		119,398
Loans, before allowance for loan losses		2,147,812		2,247,006
Allowance for loan losses		(24,861)		(31,838)
Loans, net of allowance for loan losses	$	2,122,951	$	2,215,168

Paycheck Protection Program (PPP) loans (included above)
Commercial and industrial	$	55,374	$	153,860
Agricultural and farmland		3,462		3,049
Municipal, consumer, and other		985		6,587
Total PPP loans	$	59,821	$	163,496

The following tables detail activity in the allowance for loan losses for the three and nine months ended September 30:


					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 September 30, 2021	Industrial		Farmland		Occupied		Occupied		Multi-Family		Development		Residential		Other		Total

Allowance for loan losses:	(dollars in thousands)
Balance, June 30, 2021	$	2,717	$	781	$	1,946	$	9,825	$	2,009	$	3,924	$	1,520	$	3,785	$	26,507
Provision for loan losses		162		(26)		(395)		(710)		(228)		413		(499)		(384)		(1,667)
Charge-offs		(135)		—		—		—		—		—		(48)		(95)		(278)
Recoveries		114		—		—		6		—		1		135		43		299
Balance, September 30, 2021	$	2,858	$	755	$	1,551	$	9,121	$	1,781	$	4,338	$	1,108	$	3,349	$	24,861

					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 September 30, 2020	Industrial		Farmland		Occupied		Occupied		Multi-Family		Development		Residential		Other		Total

Allowance for loan losses:	(dollars in thousands)
Balance, June 30, 2020	$	4,356	$	2,890	$	3,257	$	6,767	$	1,581	$	3,366	$	3,010	$	4,496	$	29,723
Provision for loan losses		(98)		(585)		86		2,496		614		179		138		(656)		2,174
Charge-offs		(881)		—		(39)		—		—		(26)		(42)		(90)		(1,078)
Recoveries		517		—		—		5		—		198		46		69		835
Balance, September 30, 2020	$	3,894	$	2,305	$	3,304	$	9,268	$	2,195	$	3,717	$	3,152	$	3,819	$	31,654


					Commercial		Commercial								Municipal,
	Commercial		Agricultural		Real Estate		Real Estate				Construction		One-to-four		Consumer,
	and		and		Owner		Non-owner				and Land		Family		and
Nine Months Ended September 30, 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		(1,062)		(38)		(1,590)		(2,149)		(176)		(164)		(742)		(1,313)		(7,234)
Charge-offs		(430)		—		—		—		—		—		(161)		(284)		(875)
Recoveries		421		—		—		19		—		270		210		212		1,132
Balance, September 30, 2021	$	2,858	$	755	$	1,551	$	9,121	$	1,781	$	4,338	$	1,108	$	3,349	$	24,861

					Commercial		Commercial								Municipal,
	Commercial		Agricultural		Real Estate		Real Estate								Consumer
	and		and		Owner		Non-owner				Construction		Residential		and
Nine Months Ended September 30, 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		565		(434)		1,124		5,591		1,171		551		598		936		10,102
Charge-offs		(1,690)		(27)		(39)		(56)		—		(27)		(154)		(466)		(2,459)
Recoveries		578		—		440		70		—		216		168		240		1,712
Balance, September 30, 2020	$	3,894	$	2,305	$	3,304	$	9,268	$	2,195	$	3,717	$	3,152	$	3,819	$	31,654

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
September 30, 2021	Industrial		Farmland		Occupied		Occupied		Multi-Family		Development		Residential		Other		Total

Loan balances:	(dollars in thousands)
Collectively evaluated for impairment	$	252,260	$	228,550	$	187,842	$	536,795	$	214,021	$	227,766	$	280,221	$	118,003	$	2,045,458
Individually evaluated for impairment		9,050		389		9,584		29,774		—		2,414		7,394		13,186		71,791
Acquired with deteriorated credit quality		453		779		5,670		13,291		1,224		2,111		6,997		38		30,563
Total	$	261,763	$	229,718	$	203,096	$	579,860	$	215,245	$	232,291	$	294,612	$	131,227	$	2,147,812

Allowance for loan losses:
Collectively evaluated for impairment	$	2,195	$	755	$	1,149	$	5,864	$	1,773	$	4,324	$	814	$	1,296	$	18,170
Individually evaluated for impairment		663		—		361		3,171		—		—		289		2,052		6,536
Acquired with deteriorated credit quality		—		—		41		86		8		14		5		1		155
Total	$	2,858	$	755	$	1,551	$	9,121	$	1,781	$	4,338	$	1,108	$	3,349	$	24,861

					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
September 30, 2021	Balance		Investment		Allowance

With an allowance recorded:	(dollars in thousands)
Commercial and industrial	$	1,925	$	1,912	$	663
Agricultural and farmland		—		—		—
Commercial real estate - owner occupied		3,213		3,173		361
Commercial real estate - non-owner occupied		15,064		15,041		3,171
Multi-family		—		—		—
Construction and land development		—		—		—
One-to-four family residential		1,927		1,787		289
Municipal, consumer, and other		8,611		8,585		2,052
Total	$	30,740	$	30,498	$	6,536

With no related allowance:
Commercial and industrial	$	7,272	$	7,138	$	—
Agricultural and farmland		389		389		—
Commercial real estate - owner occupied		6,498		6,411		—
Commercial real estate - non-owner occupied		14,802		14,733		—
Multi-family		—		—		—
Construction and land development		2,470		2,414		—
One-to-four family residential		7,093		5,607		—
Municipal, consumer, and other		4,659		4,601		—
Total	$	43,183	$	41,293	$	—

Total loans individually evaluated for impairment:
Commercial and industrial	$	9,197	$	9,050	$	663
Agricultural and farmland		389		389		—
Commercial real estate - owner occupied		9,711		9,584		361
Commercial real estate - non-owner occupied		29,866		29,774		3,171
Multi-family		—		—		—
Construction and land development		2,470		2,414		—
One-to-four family residential		9,020		7,394		289
Municipal, consumer, and other		13,270		13,186		2,052
Total	$	73,923	$	71,791	$	6,536


	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 and nine months ended September 30:


	Three Months Ended September 30,
	2021				2020
	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized

With an allowance recorded:	(dollars in thousands)
Commercial and industrial	$	1,925	$	26	$	2,763	$	41
Agricultural and farmland		—		—		174		2
Commercial real estate - owner occupied		3,192		45		1,281		18
Commercial real estate - non-owner occupied		15,136		194		4,216		2
Multi-family		—		—		—		—
Construction and land development		—		—		2,080		25
One-to-four family residential		1,827		18		3,587		24
Municipal, consumer, and other		8,641		40		8,823		42
Total	$	30,721	$	323	$	22,924	$	154

With no related allowance:
Commercial and industrial	$	7,137	$	115	$	2,894	$	61
Agricultural and farmland		385		6		10,220		144
Commercial real estate - owner occupied		6,551		81		11,766		150
Commercial real estate - non-owner occupied		15,283		101		28,544		282
Multi-family		—		—		889		—
Construction and land development		2,439		1		1,476		1
One-to-four family residential		5,713		45		7,500		63
Municipal, consumer, and other		4,635		21		4,763		21
Total	$	42,143	$	370	$	68,052	$	722

Total loans individually evaluated for impairment:
Commercial and industrial	$	9,062	$	141	$	5,657	$	102
Agricultural and farmland		385		6		10,394		146
Commercial real estate - owner occupied		9,743		126		13,047		168
Commercial real estate - non-owner occupied		30,419		295		32,760		284
Multi-family		—		—		889		—
Construction and land development		2,439		1		3,556		26
One-to-four family residential		7,540		63		11,087		87
Municipal, consumer, and other		13,276		61		13,586		63
Total	$	72,864	$	693	$	90,976	$	876


	Nine Months Ended September 30,
	2021				2020
	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized

With an allowance recorded:	(dollars in thousands)
Commercial and industrial	$	2,025	$	84	$	3,124	$	129
Agricultural and farmland		110		4		307		6
Commercial real estate - owner occupied		3,060		132		1,141		56
Commercial real estate - non-owner occupied		17,001		599		1,504		7
Multi-family		—		—		—		—
Construction and land development		741		27		2,571		91
One-to-four family residential		2,209		64		3,240		84
Municipal, consumer, and other		8,722		119		10,069		230
Total	$	33,868	$	1,029	$	21,956	$	603

With no related allowance:
Commercial and industrial	$	5,222	$	205	$	4,637	$	213
Agricultural and farmland		384		17		13,187		500
Commercial real estate - owner occupied		7,216		273		11,367		401
Commercial real estate - non-owner occupied		8,880		239		17,358		388
Multi-family		580		10		299		—
Construction and land development		2,060		27		637		3
One-to-four family residential		6,427		142		8,167		266
Municipal, consumer, and other		4,695		65		3,660		78
Total	$	35,464	$	978	$	59,312	$	1,849

Total loans individually evaluated for impairment:
Commercial and industrial	$	7,247	$	289	$	7,761	$	342
Agricultural and farmland		494		21		13,494		506
Commercial real estate - owner occupied		10,276		405		12,508		457
Commercial real estate - non-owner occupied		25,881		838		18,862		395
Multi-family		580		10		299		—
Construction and land development		2,801		54		3,208		94
One-to-four family residential		8,636		206		11,407		350
Municipal, consumer, and other		13,417		184		13,729		308
Total	$	69,332	$	2,007	$	81,268	$	2,452

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
September 30, 2021	Current		Past Due		Past Due		Nonaccrual		Loans

	(dollars in thousands)
Commercial and industrial	$	261,034	$	279	$	—	$	450	$	261,763
Agricultural and farmland		229,718		—		—		—		229,718
Commercial real estate - owner occupied		202,626		178		—		292		203,096
Commercial real estate - non-owner occupied		579,675		—		—		185		579,860
Multi-family		215,245		—		—		—		215,245
Construction and land development		229,942		—		—		2,349		232,291
One-to-four family residential		291,948		496		56		2,112		294,612
Municipal, consumer, and other		131,001		115		10		101		131,227
Total	$	2,141,189	$	1,068	$	66	$	5,489	$	2,147,812


	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:


September 30, 2021	Pass		Pass-Watch		Substandard		Doubtful		Total

	(dollars in thousands)
Commercial and industrial	$	246,013	$	6,385	$	9,365	$	—	$	261,763
Agricultural and farmland		203,742		24,901		1,075		—		229,718
Commercial real estate - owner occupied		175,978		18,302		8,816		—		203,096
Commercial real estate - non-owner occupied		511,583		35,602		32,675		—		579,860
Multi-family		192,549		22,696		—		—		215,245
Construction and land development		201,097		28,780		2,414		—		232,291
One-to-four family residential		274,029		12,404		8,179		—		294,612
Municipal, consumer, and other		117,762		279		13,186		—		131,227
Total	$	1,922,753	$	149,349	$	75,710	$	—	$	2,147,812


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 and nine months ended September 30, 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 and nine months ended September 30, 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 September 30, 2021 and December 31, 2020, the Company had $3,670,000 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 loans 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 September 30, 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 $329,000 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 September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020

	(dollars in thousands)
Beginning balance	$	1,350	$	1,378	$	1,397	$	1,662
Reclassification from non-accretable difference		280		116		433		162
Accretion income		(86)		(111)		(286)		(441)
Ending balance	$	1,544	$	1,383	$	1,544	$	1,383