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LOANS AND THE ALLOWANCE FOR LOAN LOSSES

3 Months Ended

Mar. 31, 2022

LOANS AND THE ALLOWANCE FOR LOAN LOSSES

NOTE 4 – LOANS AND THE ALLOWANCE FOR LOAN LOSSES

Major categories of loans are summarized as follows:


	March 31, 2022		December 31, 2021

	(dollars in thousands)
Commercial and industrial	$	291,909	$	286,946
Agricultural and farmland		232,528		247,796
Commercial real estate - owner occupied		237,000		234,544
Commercial real estate - non-owner occupied		687,617		684,023
Multi-family		243,447		263,911
Construction and land development		320,030		298,048
One-to-four family residential		327,791		327,837
Municipal, consumer, and other		147,463		156,584
Loans, before allowance for loan losses		2,487,785		2,499,689
Allowance for loan losses		(24,508)		(23,936)
Loans, net of allowance for loan losses	$	2,463,277	$	2,475,753

Paycheck Protection Program (PPP) loans (included above)
Commercial and industrial	$	16,184	$	28,404
Agricultural and farmland		392		913
Municipal, consumer, and other		—		171
Total PPP loans	$	16,576	$	29,488

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, 2022	Industrial		Farmland		Occupied		Occupied		Multi-Family		Development		Residential		Other		Total

Allowance for loan losses:	(dollars in thousands)
Balance, December 31, 2021	$	2,440	$	845	$	1,840	$	8,145	$	1,263	$	4,914	$	1,311	$	3,178	$	23,936
Provision for loan losses		(653)		(3)		(429)		(1,396)		91		(421)		120		2,107		(584)
Charge-offs		(5)		—		—		—		—		—		(2)		(127)		(134)
Recoveries		709		—		100		265		—		—		154		62		1,290
Balance, March 31, 2022	$	2,491	$	842	$	1,511	$	7,014	$	1,354	$	4,493	$	1,583	$	5,220	$	24,508

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

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, 2022	Industrial		Farmland		Occupied		Occupied		Multi-Family		Development		Residential		Other		Total

Loan balances:	(dollars in thousands)
Collectively evaluated for impairment	$	270,193	$	231,551	$	218,324	$	645,060	$	242,249	$	316,799	$	312,978	$	134,474	$	2,371,628
Individually evaluated for impairment		21,579		234		13,384		30,196		—		2,010		9,046		12,960		89,409
Acquired with deteriorated credit quality		137		743		5,292		12,361		1,198		1,221		5,767		29		26,748
Total	$	291,909	$	232,528	$	237,000	$	687,617	$	243,447	$	320,030	$	327,791	$	147,463	$	2,487,785

Allowance for loan losses:
Collectively evaluated for impairment	$	2,328	$	842	$	1,261	$	4,190	$	1,351	$	4,488	$	1,423	$	1,316	$	17,199
Individually evaluated for impairment		163		—		221		2,821		—		—		157		3,903		7,265
Acquired with deteriorated credit quality		—		—		29		3		3		5		3		1		44
Total	$	2,491	$	842	$	1,511	$	7,014	$	1,354	$	4,493	$	1,583	$	5,220	$	24,508

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

Loan balances:	(dollars in thousands)
Collectively evaluated for impairment	$	272,064	$	247,021	$	216,794	$	641,555	$	262,701	$	293,548	$	314,807	$	143,510	$	2,392,000
Individually evaluated for impairment		14,744		12		12,332		29,575		—		2,018		6,897		13,041		78,619
Acquired with deteriorated credit quality		138		763		5,418		12,893		1,210		2,482		6,133		33		29,070
Total	$	286,946	$	247,796	$	234,544	$	684,023	$	263,911	$	298,048	$	327,837	$	156,584	$	2,499,689

Allowance for loan losses:
Collectively evaluated for impairment	$	2,253	$	845	$	1,480	$	5,138	$	1,259	$	4,895	$	1,099	$	1,302	$	18,271
Individually evaluated for impairment		187		—		327		2,999		—		—		210		1,875		5,598
Acquired with deteriorated credit quality		—		—		33		8		4		19		2		1		67
Total	$	2,440	$	845	$	1,840	$	8,145	$	1,263	$	4,914	$	1,311	$	3,178	$	23,936

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


	Unpaid
	Principal		Recorded		Related
March 31, 2022	Balance		Investment		Allowance

With an allowance recorded:	(dollars in thousands)
Commercial and industrial	$	282	$	282	$	163
Agricultural and farmland		—		—		—
Commercial real estate - owner occupied		2,416		2,416		221
Commercial real estate - non-owner occupied		14,736		14,720		2,821
Multi-family		—		—		—
Construction and land development		—		—		—
One-to-four family residential		678		634		157
Municipal, consumer, and other		8,478		8,455		3,903
Total	$	26,590	$	26,507	$	7,265

With no related allowance:
Commercial and industrial	$	21,339	$	21,297	$	—
Agricultural and farmland		234		234		—
Commercial real estate - owner occupied		11,186		10,968		—
Commercial real estate - non-owner occupied		15,550		15,476		—
Multi-family		—		—		—
Construction and land development		2,110		2,010		—
One-to-four family residential		9,711		8,412		—
Municipal, consumer, and other		4,564		4,505		—
Total	$	64,694	$	62,902	$	—

Total loans individually evaluated for impairment:
Commercial and industrial	$	21,621	$	21,579	$	163
Agricultural and farmland		234		234		—
Commercial real estate - owner occupied		13,602		13,384		221
Commercial real estate - non-owner occupied		30,286		30,196		2,821
Multi-family		—		—		—
Construction and land development		2,110		2,010		—
One-to-four family residential		10,389		9,046		157
Municipal, consumer, and other		13,042		12,960		3,903
Total	$	91,284	$	89,409	$	7,265


	Unpaid
	Principal		Recorded		Related
December 31, 2021	Balance		Investment		Allowance

With an allowance recorded:	(dollars in thousands)
Commercial and industrial	$	303	$	303	$	187
Agricultural and farmland		—		—		—
Commercial real estate - owner occupied		3,013		3,013		327
Commercial real estate - non-owner occupied		14,912		14,893		2,999
Multi-family		—		—		—
Construction and land development		—		—		—
One-to-four family residential		1,421		1,314		210
Municipal, consumer, and other		8,523		8,498		1,875
Total	$	28,172	$	28,021	$	5,598

With no related allowance:
Commercial and industrial	$	14,452	$	14,441	$	—
Agricultural and farmland		12		12		—
Commercial real estate - owner occupied		9,534		9,319		—
Commercial real estate - non-owner occupied		14,755		14,682		—
Multi-family		—		—		—
Construction and land development		2,112		2,018		—
One-to-four family residential		7,129		5,583		—
Municipal, consumer, and other		4,603		4,543		—
Total	$	52,597	$	50,598	$	—

Total loans individually evaluated for impairment:
Commercial and industrial	$	14,755	$	14,744	$	187
Agricultural and farmland		12		12		—
Commercial real estate - owner occupied		12,547		12,332		327
Commercial real estate - non-owner occupied		29,667		29,575		2,999
Multi-family		—		—		—
Construction and land development		2,112		2,018		—
One-to-four family residential		8,550		6,897		210
Municipal, consumer, and other		13,126		13,041		1,875
Total	$	80,769	$	78,619	$	5,598

The following table presents the average recorded investment and interest income recognized for loans individually evaluated for impairment by category of loans:


	Three Months Ended March 31,
	2022				2021
	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized

With an allowance recorded:	(dollars in thousands)
Commercial and industrial	$	292	$	4	$	2,266	$	31
Agricultural and farmland		—		—		168		2
Commercial real estate - owner occupied		2,425		33		3,244		41
Commercial real estate - non-owner occupied		14,854		186		20,361		208
Multi-family		—		—		—		—
Construction and land development		—		—		2,248		27
One-to-four family residential		647		5		2,644		23
Municipal, consumer, and other		8,509		39		8,802		40
Total	$	26,727	$	267	$	39,733	$	372

With no related allowance:
Commercial and industrial	$	19,498	$	200	$	1,068	$	14
Agricultural and farmland		236		—		383		6
Commercial real estate - owner occupied		11,028		106		9,600		122
Commercial real estate - non-owner occupied		15,495		198		5,665		68
Multi-family		—		—		876		10
Construction and land development		2,016		22		1,764		26
One-to-four family residential		8,728		57		6,981		49
Municipal, consumer, and other		4,544		21		4,746		22
Total	$	61,545	$	604	$	31,083	$	317

Total loans individually evaluated for impairment:
Commercial and industrial	$	19,790	$	204	$	3,334	$	45
Agricultural and farmland		236		—		551		8
Commercial real estate - owner occupied		13,453		139		12,844		163
Commercial real estate - non-owner occupied		30,349		384		26,026		276
Multi-family		—		—		876		10
Construction and land development		2,016		22		4,012		53
One-to-four family residential		9,375		62		9,625		72
Municipal, consumer, and other		13,053		60		13,548		62
Total	$	88,272	$	871	$	70,816	$	689

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, 2022	Current		Past Due		Past Due		Nonaccrual		Loans

	(dollars in thousands)
Commercial and industrial	$	291,812	$	4	$	—	$	93	$	291,909
Agricultural and farmland		232,528		—		—		—		232,528
Commercial real estate - owner occupied		236,898		102		—		—		237,000
Commercial real estate - non-owner occupied		687,446		—		—		171		687,617
Multi-family		243,447		—		—		—		243,447
Construction and land development		319,432		80		—		518		320,030
One-to-four family residential		325,648		484		25		1,634		327,791
Municipal, consumer, and other		147,292		118		8		45		147,463
Total	$	2,484,503	$	788	$	33	$	2,461	$	2,487,785


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

	(dollars in thousands)
Commercial and industrial	$	286,563	$	9	$	—	$	374	$	286,946
Agricultural and farmland		247,772		24		—		—		247,796
Commercial real estate - owner occupied		234,441		103		—		—		234,544
Commercial real estate - non-owner occupied		683,029		823		—		171		684,023
Multi-family		263,911		—		—		—		263,911
Construction and land development		297,465		64		—		519		298,048
One-to-four family residential		325,780		383		32		1,642		327,837
Municipal, consumer, and other		156,297		214		16		57		156,584
Total	$	2,495,258	$	1,620	$	48	$	2,763	$	2,499,689

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


March 31, 2022	Pass		Pass-Watch		Substandard		Doubtful		Total

	(dollars in thousands)
Commercial and industrial	$	265,441	$	4,889	$	21,579	$	—	$	291,909
Agricultural and farmland		212,526		19,112		890		—		232,528
Commercial real estate - owner occupied		199,248		25,096		12,656		—		237,000
Commercial real estate - non-owner occupied		631,602		22,977		33,038		—		687,617
Multi-family		238,491		4,956		—		—		243,447
Construction and land development		293,294		24,726		2,010		—		320,030
One-to-four family residential		311,074		6,932		9,785		—		327,791
Municipal, consumer, and other		134,300		203		12,960		—		147,463
Total	$	2,285,976	$	108,891	$	92,918	$	—	$	2,487,785


December 31, 2021	Pass		Pass-Watch		Substandard		Doubtful		Total

	(dollars in thousands)
Commercial and industrial	$	267,088	$	5,114	$	14,744	$	—	$	286,946
Agricultural and farmland		221,898		25,213		685		—		247,796
Commercial real estate - owner occupied		198,862		24,098		11,584		—		234,544
Commercial real estate - non-owner occupied		619,212		32,372		32,439		—		684,023
Multi-family		241,362		22,549		—		—		263,911
Construction and land development		268,556		27,474		2,018		—		298,048
One-to-four family residential		308,951		11,221		7,665		—		327,837
Municipal, consumer, and other		143,299		244		13,041		—		156,584
Total	$	2,269,228	$	148,285	$	82,176	$	—	$	2,499,689

There were no troubled debt restructurings during the three months ended March 31, 2022 or 2021.

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, 2022 or 2021. 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, 2022 and December 31, 2021, the Company had $3.4 million and $3.5 million 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 made prior to December 31, 2021 to borrowers experiencing financial hardship due to the COVID-19 pandemic generally do not need to be accounted for as a troubled debt restructuring. As of March 31, 2022 and December 31, 2021, the Company had loans that were granted a payment modification due to a COVID-19 related financial hardship and had not returned to regular payments were $0.2 million and $0.2 million, 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.

As of March 31, 2022 and December 31, 2021, the Company pledged loans totaling $576.0 million and $567.0 million, respectively, to the Federal Home Loan Bank of Chicago (“FHLB”) to secure available FHLB advance borrowing capacity.

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


	Three Months Ended March 31,
	2022		2021

	(dollars in thousands)
Beginning balance	$	413	$	1,397
Reclassification from non-accretable difference		117		74
Accretion income		(46)		(133)
Ending balance	$	484	$	1,338