Loans Receivable and the Allowance for Credit Losses

3 Months Ended

Mar. 31, 2021

Loans Receivable and the Allowance for Credit Losses

The composition of loans by class of receivable was as follows:


	As of
(in thousands)	March 31, 2021		December 31, 2020
Agricultural	$	117,099	$	116,392
Commercial and industrial	993,770		1,055,488
Commercial real estate:
Construction & development	164,927		181,291
Farmland	138,199		144,970
Multifamily	261,806		256,525
Commercial real estate-other	1,128,660		1,149,575
Total commercial real estate	1,693,592		1,732,361
Residential real estate:
One- to four- family first liens	337,408		355,684
One- to four- family junior liens	137,025		143,422
Total residential real estate	474,433		499,106
Consumer	79,267		78,876
Loans held for investment, net of unearned income	3,358,161		3,482,223
Allowance for credit losses	(50,650)		(55,500)
Total loans held for investment, net	$	3,307,511	$	3,426,723

Loans with unpaid principal in the amount of $835.8 million and $830.2 million at March 31, 2021 and December 31, 2020, respectively, were pledged to the FHLB as collateral for borrowings.

Non-accrual and Delinquent Status

Loans are placed on non-accrual when (1) payment in full of principal and interest is no longer expected or (2) principal or interest has been in default for 90 days or more unless the loan is both well secured with marketable collateral and in the process of collection. All loans rated doubtful or worse, and certain loans rated substandard, are placed on non-accrual.

A non-accrual loan may be restored to an accrual status when (1) all past due principal and interest has been paid (excluding renewals and modifications that involve the capitalizing of interest) or (2) the loan becomes well secured with marketable collateral and is in the process of collection. An established track record of performance is also considered when determining accrual status.

Loans are considered past due or delinquent when the contractual principal or interest due in accordance with the terms of the loan agreement or any portion thereof remains unpaid after the due date of the scheduled payment.

The following table presents the amortized cost basis of loans based on delinquency status:


			Age Analysis of Past-Due Financial Assets								90 Days or More Past Due And Accruing
(in thousands)	Current		30 - 59 Days Past Due		60 - 89 Days Past Due		90 Days or More Past Due		Total
March 31, 2021
Agricultural	$	115,252	$	513	$	106	$	1,228	$	117,099	$	—
Commercial and industrial	989,633		1,042		124		2,971		993,770		6
Commercial real estate:
Construction and development	163,630		693		—		604		164,927		—
Farmland	132,004		589		164		5,442		138,199		—
Multifamily	259,564		2,242		—		—		261,806		—
Commercial real estate-other	1,112,419		785		—		15,456		1,128,660		—
Total commercial real estate	1,667,617		4,309		164		21,502		1,693,592		—
Residential real estate:
One- to four- family first liens	334,061		2,337		141		869		337,408		468
One- to four- family junior liens	136,804		60		—		161		137,025		34
Total residential real estate	470,865		2,397		141		1,030		474,433		502
Consumer	79,134		94		6		33		79,267		—
Total	$	3,322,501	$	8,355	$	541	$	26,764	$	3,358,161	$	508

December 31, 2020
Agricultural	$	115,284	$	8	$	45	$	1,055	$	116,392	$	—
Commercial and industrial	1,051,727		477		333		2,951		1,055,488		106
Commercial real estate:
Construction and development	180,059		586		42		604		181,291		—
Farmland	138,798		226		324		5,622		144,970		—
Multifamily	256,525		—		—		—		256,525		—
Commercial real estate-other	1,132,015		11,514		318		5,728		1,149,575		—
Total commercial real estate	1,707,397		12,326		684		11,954		1,732,361		—
Residential real estate:
One- to four- family first liens	351,370		2,062		566		1,686		355,684		625
One- to four- family junior liens	142,663		377		234		148		143,422		—
Total residential real estate	494,033		2,439		800		1,834		499,106		625
Consumer	78,747		43		39		47		78,876		8
Total	$	3,447,188	$	15,293	$	1,901	$	17,841	$	3,482,223	$	739

The following table presents the amortized cost basis of loans on non-accrual status, and loans past due 90 days or more and still accruing by class of loan as of March 31, 2021 and December 31, 2020:


	Nonaccrual				Nonaccrual with no Allowance for Credit Losses				90 Days or More Past Due And Accruing
(in thousands)	March 31, 2021		December 31, 2020		March 31, 2021		December 31, 2020		March 31, 2021		December 31, 2020

Agricultural	$	2,824	$	2,584	$	2,220	$	1,599	$	—	$	—
Commercial and industrial	6,494		7,326		3,401		4,349		6		106
Commercial real estate:
Construction and development	619		1,145		596		900		—		—
Farmland	10,458		8,319		8,834		7,266		—		—
Multifamily	1,096		746		37		39		—		—
Commercial real estate-other	19,695		19,134		2,933		2,497		—		—
Total commercial real estate	31,868		29,344		12,400		10,702		—		—
Residential real estate:
One- to four- family first liens	1,863		1,895		353		75		468		625
One- to four- family junior liens	747		722		1		1		34		—
Total residential real estate	2,610		2,617		354		76		502		625
Consumer	78		79		13		13		—		8
Total	$	43,874	$	41,950	$	18,388	$	16,739	$	508	$	739

The interest income recognized on loans that were on nonaccrual for the three months ended March 31, 2021 and the three months ended March 31, 2020 is $236 thousand and $272 thousand, respectively.

Credit Quality Information

The Company aggregates 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, and other factors. The Company analyzes loans individually to classify the loans as to credit risk. This analysis includes non-homogenous loans, such as agricultural, commercial and industrial, and commercial real estate loans. Loans not meeting the criteria described below that are analyzed individually are considered to be pass-rated. The Company uses the following definitions for risk ratings:

Special Mention/Watch - A special mention/watch asset has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the Company’s credit position at some future date. Special mention/watch assets are not adversely classified and do not expose the Company to sufficient risk to warrant adverse classification.

Substandard - Substandard loans are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

Doubtful - Loans classified as doubtful have all the weaknesses inherent in those classified as substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions and values, highly questionable and improbable.

Loss - Loans classified as loss are considered uncollectible and of such little value that their continuance as bankable assets is not warranted. This classification does not mean that the loan has absolutely no recovery or salvage value but rather it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may be affected in the future.

Homogenous loans, including residential real estate and consumer loans, are not individually risk rated. Instead, these loans are categorized based on performance: performing and nonperforming. Nonperforming loans include those loans on nonaccrual and loans greater than 90 days past due and on accrual.

The following table sets forth the amortized cost basis of loans by class of receivable by credit quality indicator and vintage based on the most recent analysis performed, as of March 31, 2021. As of March 31, 2021, there were no 'loss' rated credits.


	Term Loans by Origination Year												Revolving Loans
March 31, 2021 (in thousands)	2021		2020		2019		2018		2017		Prior				Total
Agricultural
Pass	$	21,063	$	13,560	$	6,123	$	2,169	$	1,796	$	2,501	$	51,726		$	98,938
Special mention / watch	1,485		3,259		1,066		75		94		1,326		4,680			11,985
Substandard	1,824		1,800		511		239		170		327		1,303			6,174
Doubtful	—		1		—		—		—		1		—			2
Total	$	24,372	$	18,620	$	7,700	$	2,483	$	2,060	$	4,155	$	57,709		$	117,099
Commercial and industrial
Pass	$	137,814	$	393,679	$	91,939	$	47,502	$	59,720	$	127,324	$	108,875		$	966,853
Special mention / watch	2,029		2,821		501		412		2,233		259		4,865			13,120
Substandard	1,092		3,440		1,378		861		464		3,688		2,869			13,792
Doubtful	—		—		—		—		1		3		1			5
Total	$	140,935	$	399,940	$	93,818	$	48,775	$	62,418	$	131,274	$	116,610		$	993,770
CRE - Construction and development
Pass	$	13,493	$	84,966	$	23,974	$	10,652	$	1,994	$	1,344	$	25,120		$	161,543
Special mention / watch	—		835		294		537		—		8		—			1,674
Substandard	—		589		1,097		—		—		24		—			1,710
Doubtful	—		—		—		—		—		—		—			—
Total	$	13,493	$	86,390	$	25,365	$	11,189	$	1,994	$	1,376	$	25,120		$	164,927
CRE - Farmland
Pass	$	11,922	$	45,736	$	21,226	$	6,170	$	7,527	$	16,130	$	1,499		$	110,210
Special mention / watch	2,113		5,349		4,582		1,039		656		236		148			14,123
Substandard	92		3,510		2,451		3,695		1,727		2,364		27			13,866
Doubtful	—		—		—		—		—		—		—			—
Total	$	14,127	$	54,595	$	28,259	$	10,904	$	9,910	$	18,730	$	1,674		$	138,199
CRE - Multifamily
Pass	$	41,991	$	151,623	$	18,241	$	3,888	$	8,644	$	23,693	$	10,886		$	258,966
Special mention / watch	—		344		—		—		—		51		—			395
Substandard	—		1,096		—		—		—		1,349		—			2,445
Doubtful	—		—		—		—		—		—		—			—
Total	$	41,991	$	153,063	$	18,241	$	3,888	$	8,644	$	25,093	$	10,886		$	261,806
CRE - other
Pass	$	83,195	$	486,080	$	120,039	$	46,016	$	74,286	$	115,050	$	41,042		$	965,708
Special mention / watch	5,116		53,445		6,732		12,761		5,883		4,536		282			88,755
Substandard	2,173		44,265		12,752		6,231		1,214		7,453		109			74,197
Doubtful	—		—		—		—		—		—		—			—
Total	$	90,484	$	583,790	$	139,523	$	65,008	$	81,383	$	127,039	$	41,433		$	1,128,660
RRE - One- to four- family first liens
Performing	$	28,149	$	100,073	$	39,401	$	37,074	$	27,824	$	95,272	$	7,284		$	335,077
Nonperforming	499		218		1		337		226		1,050		—			2,331
Total	$	28,648	$	100,291	$	39,402	$	37,411	$	28,050	$	96,322	$	7,284		$	337,408
RRE - One- to four- family junior liens
Performing	$	11,828	$	17,822	$	6,613	$	10,069	$	5,641	$	7,683	$	76,588		$	136,244
Nonperforming	—		32		143		209		16		230		151			781
Total	$	11,828	$	17,854	$	6,756	$	10,278	$	5,657	$	7,913	$	76,739		$	137,025
Consumer
Performing	$	12,390	$	26,540	$	11,168	$	9,026	$	4,108	$	5,707	$	10,250		$	79,189
Nonperforming	—		6		19		11		8		34		—			78
Total	$	12,390	$	26,546	$	11,187	$	9,037	$	4,116	$	5,741	$	10,250		$	79,267


	Term Loans by Origination Year												Revolving Loans
	2021		2020		2019		2018		2017		Prior				Total
Total by Credit Quality Indicator Category
Pass	$	309,478	$	1,175,644	$	281,542	$	116,397	$	153,967	$	286,042	$	239,148		$	2,562,218
Special mention / watch	10,743		66,053		13,175		14,824		8,866		6,416		9,975			130,052
Substandard	5,181		54,700		18,189		11,026		3,575		15,205		4,308			112,184
Doubtful	—		1		—		—		1		4		1			7
Performing	52,367		144,435		57,182		56,169		37,573		108,662		94,122			550,510
Nonperforming	499		256		163		557		250		1,314		151			3,190
Total	$	378,268	$	1,441,089	$	370,251	$	198,973	$	204,232	$	417,643	$	347,705		$	3,358,161

The following table sets forth the amortized cost basis of loans by class of receivable by credit quality indicator and vintage based on the most recent analysis performed, as of December 31, 2020. As of December 31, 2020, there were no 'loss' rated credits.


	Term Loans by Origination Year												Revolving Loans
December 31, 2020 (in thousands)	2020		2019		2018		2017		2016		Prior				Total
Agricultural
Pass	$	17,836	$	6,959	$	2,764	$	2,145	$	1,386	$	1,833	$	60,802		$	93,725
Special mention / watch	4,892		1,083		117		108		553		1,103		7,210			15,066
Substandard	4,075		650		258		183		121		226		2,086			7,599
Doubtful	1		—		—		—		—		1		—			2
Total	$	26,804	$	8,692	$	3,139	$	2,436	$	2,060	$	3,163	$	70,098		$	116,392
Commercial and industrial
Pass	$	546,171	$	105,523	$	57,055	$	61,753	$	38,695	$	92,526	$	120,498		$	1,022,221
Special mention / watch	3,410		572		497		2,261		611		112		4,796			12,259
Substandard	5,014		1,539		928		656		461		3,261		9,144			21,003
Doubtful	—		—		—		1		—		3		1			5
Total	$	554,595	$	107,634	$	58,480	$	64,671	$	39,767	$	95,902	$	134,439		$	1,055,488
CRE - Construction and development
Pass	$	109,885	$	25,972	$	14,994	$	2,696	$	679	$	876	$	22,519		$	177,621
Special mention / watch	843		298		542		—		9		3		—			1,695
Substandard	597		1,132		220		—		—		26		—			1,975
Doubtful	—		—		—		—		—		—		—			—
Total	$	111,325	$	27,402	$	15,756	$	2,696	$	688	$	905	$	22,519		$	181,291
CRE - Farmland
Pass	$	48,378	$	25,022	$	9,577	$	10,490	$	8,378	$	13,003	$	1,263		$	116,111
Special mention / watch	8,088		4,583		935		660		361		237		—			14,864
Substandard	3,924		2,627		4,386		1,728		166		1,128		36			13,995
Doubtful	—		—		—		—		—		—		—			—
Total	$	60,390	$	32,232	$	14,898	$	12,878	$	8,905	$	14,368	$	1,299		$	144,970
CRE - Multifamily
Pass	$	164,817	$	18,992	$	17,805	$	10,706	$	10,201	$	19,581	$	11,558		$	253,660
Special mention / watch	345		—		—		—		59		—		—			404
Substandard	1,099		—		—		—		1,362		—		—			2,461
Doubtful	—		—		—		—		—		—		—			—
Total	$	166,261	$	18,992	$	17,805	$	10,706	$	11,622	$	19,581	$	11,558		$	256,525
CRE - other
Pass	$	487,771	$	129,388	$	60,957	$	83,393	$	66,369	$	91,698	$	45,129		$	964,705
Special mention / watch	71,141		14,870		12,415		5,953		3,756		4,335		455			112,925
Substandard	48,690		7,162		6,370		1,222		579		6,997		925			71,945
Doubtful	—		—		—		—		—		—		—			—
Total	$	607,602	$	151,420	$	79,742	$	90,568	$	70,704	$	103,030	$	46,509		$	1,149,575
RRE - One- to four- family first liens
Performing	$	117,923	$	46,581	$	42,875	$	30,628	$	37,407	$	68,501	$	9,249		$	353,164
Nonperforming	239		1		596		303		148		1,233		—			2,520
Total	$	118,162	$	46,582	$	43,471	$	30,931	$	37,555	$	69,734	$	9,249		$	355,684
RRE - One- to four- family junior liens
Performing	$	19,818	$	7,973	$	12,140	$	6,152	$	3,467	$	5,354	$	87,795		$	142,699
Nonperforming	7		—		223		17		116		190		170			723
Total	$	19,825	$	7,973	$	12,363	$	6,169	$	3,583	$	5,544	$	87,965		$	143,422
Consumer
Performing	$	30,755	$	13,662	$	10,341	$	4,960	$	2,656	$	6,306	$	10,118		$	78,798
Nonperforming	2		21		13		5		13		24		—			78
Total	$	30,757	$	13,683	$	10,354	$	4,965	$	2,669	$	6,330	$	10,118		$	78,876


	Term Loans by Origination Year												Revolving Loans
	2020		2019		2018		2017		2016		Prior				Total
Total by Credit Quality Indicator Category
Pass	$	1,374,858	$	311,856	$	163,152	$	171,183	$	125,708	$	219,517	$	261,769		$	2,628,043
Special mention / watch	88,719		21,406		14,506		8,982		5,349		5,790		12,461			157,213
Substandard	63,399		13,110		12,162		3,789		2,689		11,638		12,191			118,978
Doubtful	1		—		—		1		—		4		1			7
Performing	168,496		68,216		65,356		41,740		43,530		80,161		107,162			574,661
Nonperforming	248		22		832		325		277		1,447		170			3,321
Total	$	1,695,721	$	414,610	$	256,008	$	226,020	$	177,553	$	318,557	$	393,754		$	3,482,223

Allowance for Credit Losses

At March 31, 2021, the economic forecast used by the Company showed the following: (1) Midwest unemployment – slight increase in the next forecasted quarter followed by decreases in the following three forecasted quarters; (2) Year-to-year change in national retail sales - increases over the next four forecasted quarters; (3) Year-to-year change in CRE Index - decreases over the next four forecasted quarters; (4) Year-to-year change in U.S. GDP - increases over the next four forecasted quarters; (5) Year-to-year change in National Home Price Index – increases over the next four forecasted quarters; and (6) Rental Vacancy - an increase over the next two forecasted quarters, followed by a decline in the third and fourth forecasted quarters. Overall, economic forecast loss driver data improved when compared to the previously disclosed fourth quarter of 2020 results.

We have made a policy election to report interest receivable as a separate line on the balance sheet. Accrued interest receivable, which is recorded within 'Other Assets', totaled $11.7 million at March 31, 2021 and $14.2 million at December 31, 2020 and is excluded from the estimate of credit losses.

The changes in the allowance for credit losses by portfolio segment were as follows:



	For the Three Months Ended March 31, 2021 and 2020
(in thousands)	Agricultural		Commercial and Industrial		Commercial Real Estate		Residential Real Estate		Consumer		Total
For the Three Months Ended March 31, 2021
Beginning balance	$	1,346	$	15,689	$	32,640	$	4,882	$	943	$	55,500
Charge-offs	(41)		(666)		(66)		(35)		(195)		(1,003)
Recoveries	27		292		306		9		53		687
Credit loss (benefit) expense(1)	(222)		(1,671)		(2,455)		(201)		15		(4,534)
Ending balance	$	1,110	$	13,644	$	30,425	$	4,655	$	816	$	50,650

For the Three Months Ended March 31, 2020
Beginning balance	$	3,748	$	8,394	$	13,804	$	2,685	$	448	$	29,079
Day 1 transition adjustment from adoption of ASC 326	(2,557)		2,728		1,300		2,050		463		3,984
Charge-offs	(84)		(471)		(720)		—		(222)		(1,497)
Recoveries	25		213		8		7		46		299
Credit loss expense(1)	14		8,445		8,746		1,683		434		19,322
Ending balance	$	1,146	$	19,309	$	23,138	$	6,425	$	1,169	$	51,187

















(1) The difference in the credit loss expense reported herein as compared to the Consolidated Statements of Income is associated with the credit loss (benefit) expense of $(0.2) million and $2.4 million related to off-balance sheet credit exposures for the three months ended March 31, 2021 and March 31, 2020, respectively.

The composition of allowance for credit losses by portfolio segment based on evaluation method were as follows:


	As of March 31, 2021
(in thousands)	Agricultural		Commercial and Industrial		Commercial Real Estate		Residential Real Estate		Consumer		Total
Loans held for investment, net of unearned income
Individually evaluated for impairment	$	2,463	$	5,591	$	30,949	$	692	$	8	$	39,703
Collectively evaluated for impairment	114,636		988,179		1,662,643		473,741		79,259		3,318,458
Total	$	117,099	$	993,770	$	1,693,592	$	474,433	$	79,267	$	3,358,161
Allowance for credit losses:
Individually evaluated for impairment	$	39	$	773	$	2,486	$	170	$	—	$	3,468
Collectively evaluated for impairment	1,071		12,871		27,939		4,485		816		47,182
Total	$	1,110	$	13,644	$	30,425	$	4,655	$	816	$	50,650


	As of December 31, 2020
(in thousands)	Agricultural		Commercial and Industrial		Commercial Real Estate		Residential Real Estate		Consumer		Total
Loans held for investment, net of unearned income
Individually evaluated for impairment	$	2,088	$	6,582	$	28,235	$	427	$	8	$	37,340
Collectively evaluated for impairment	114,304		1,048,906		1,704,126		498,679		78,868		3,444,883

Total	$	116,392	$	1,055,488	$	1,732,361	$	499,106	$	78,876	$	3,482,223
Allowance for credit losses:
Individually evaluated for impairment	$	66	$	799	$	2,031	$	179	$	—	$	3,075
Collectively evaluated for impairment	1,280		14,890		30,609		4,703		943		52,425

Total	$	1,346	$	15,689	$	32,640	$	4,882	$	943	$	55,500

The following table presents the amortized cost basis of collateral dependent loans, by the primary collateral type, which are individually evaluated to determine expected credit losses, and the related ACL allocated to these loans:


	As of March 31, 2021
(in thousands)	Primary Type of Collateral
	Real Estate		Equipment		Other		Total		ACL Allocation
Agricultural	$	963	$	758	$	742	$	2,463	$	39
Commercial and industrial	629		2,366		2,596		5,591		773
Commercial real estate:
Construction and development	595		—		—		595		—
Farmland	10,132		—		—		10,132		123
Multifamily	1,096		—		—		1,096		452
Commercial real estate-other	19,126		—		—		19,126		1,911
Residential real estate:
One- to four- family first liens	483		—		—		483		132
One- to four- family junior liens	209		—		—		209		38
Consumer	—		8		—		8		—
Total	$	33,233	$	3,132	$	3,338	$	39,703	$	3,468


	As of December 31, 2020
(in thousands)	Primary Type of Collateral
	Real Estate		Equipment		Other		Total		ACL Allocation
Agricultural	$	516	$	824	$	748	$	2,088	$	66
Commercial and industrial	667		3,037		2,878		6,582		799
Commercial real estate:
Construction and development	899		—		—		899		—
Farmland	7,850		—		—		7,850		88
Multifamily	746		—		—		746		202
Commercial real estate-other	18,740		—		—		18,740		1,741
Residential real estate:
One- to four- family first liens	204		—		—		204		132
One- to four- family junior liens	223		—		—		223		47
Consumer	—		8		—		8		—
Total	$	29,845	$	3,869	$	3,626	$	37,340	$	3,075

Troubled Debt Restructurings

TDRs totaled $9.9 million and $11.0 million as of March 31, 2021 and December 31, 2020, respectively. As of March 31, 2021, the Company had $7 thousand of commitments to lend additional funds to borrowers with loans classified as TDR.

The following table sets forth information on the Company's TDRs by class of financing receivable occurring during the stated periods. TDRs include multiple concessions, and the disclosure classifications in the table are based on the primary concession provided to the borrower.


	Three Months Ended March 31,
	2021					2020
	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
(dollars in thousands)











CONCESSION - Extended maturity date

Commercial and industrial	—	$	—	$	—	1	$	242	$	242



Commercial real estate-other	—	—		—		2	485		485
One- to four- family first liens	1	93		93		—	—		—



CONCESSION - Other





Commercial real estate-other	1	44		44		—	—		—
One- to four- family first liens	1	150		150		—	—		—


Total	3	$	287	$	287	3	$	727	$	727

For the three months ended March 31, 2021 and March 31, 2020, the Company had zero TDRs that redefaulted within 12 months subsequent to restructure.

Modifications in response to COVID-19:

The Company began offering short-term loan modifications to assist borrowers during the COVID-19 pandemic. The CARES Act, as extended by the Consolidated Appropriation Acts, 2021, along with a joint interagency statement issued by the federal banking agencies provide that short-term modifications made in response to COVID-19 do not need to be accounted for as a TDR. Accordingly, the Company does not account for such loan modifications as TDRs. The Company's loan modifications allow for the initial deferral of three months of principal and/or interest. The deferred interest is due and payable at the end of the deferral period and the deferred principal is due and payable on the maturity date. At March 31, 2021, the outstanding balance of loans modified as a result of the COVID-19 pandemic totaled $16.7 million. The program is ongoing and additional loans continue to be granted deferrals.