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Credit Quality Indicators | 9 Months Ended
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Sep. 30, 2021
Risks And Uncertainties [Abstract] |
Credit Quality Indicators | Credit Quality Indicators The Company categorizes 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, public information, and current economic trends, among other factors. The Company establishes a risk rating at origination for all commercial loan and commercial real estate relationships. For relationships over $1 million, management monitors the loans on an ongoing basis for any changes in the borrower’s ability to service their debt. Management also affirms the risk ratings for the loans in their respective portfolios on an annual basis. The Company uses the following definitions for risk ratings: Special Mention. Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date. Special mention assets are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification. Substandard. Loans classified as substandard 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. Substandard loans are characterized by the distinct possibility that the institution 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 existing facts, conditions, and values, highly questionable and improbable. Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans. As of September 30, 2021 and December 31, 2020, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:
(In Thousands of Dollars) |  | Pass |  |  | Special Mention |  |  | Sub standard |  |  | Total |
September 30, 2021 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial real estate |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Owner occupied |  | $ | 251,517 |  |  | $ | 6,470 |  |  | $ | 2,193 |  |  | $ | 260,180 |
Non-owner occupied |  |  | 326,515 |  |  |  | 14,500 |  |  |  | 9,879 |  |  |  | 350,894 |
Farmland |  |  | 172,370 |  |  |  | 2,174 |  |  |  | 1,386 |  |  |  | 175,930 |
Other |  |  | 77,304 |  |  |  | 773 |  |  |  | 140 |  |  |  | 78,217 |
Commercial |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial and industrial |  |  | 291,700 |  |  |  | 536 |  |  |  | 7,848 |  |  |  | 300,084 |
Agricultural |  |  | 50,268 |  |  |  | 521 |  |  |  | 97 |  |  |  | 50,886 |
Total loans |  | $ | 1,169,674 |  |  | $ | 24,974 |  |  | $ | 21,543 |  |  | $ | 1,216,191 |
(In Thousands of Dollars) |  | Pass |  |  | Special Mention |  |  | Sub standard |  |  | Total |
December 31, 2020 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Originated loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial real estate |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Owner occupied |  | $ | 208,289 |  |  | $ | 5,121 |  |  | $ | 1,385 |  |  | $ | 214,795 |
Non-owner occupied |  |  | 290,773 |  |  |  | 11,240 |  |  |  | 7,203 |  |  |  | 309,216 |
Farmland |  |  | 153,225 |  |  |  | 2,464 |  |  |  | 364 |  |  |  | 156,053 |
Other |  |  | 77,432 |  |  |  | 387 |  |  |  | 167 |  |  |  | 77,986 |
Commercial |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial and industrial |  |  | 372,083 |  |  |  | 1,522 |  |  |  | 8,740 |  |  |  | 382,345 |
Agricultural |  |  | 44,527 |  |  |  | 320 |  |  |  | 213 |  |  |  | 45,060 |
Total originated loans |  | $ | 1,146,329 |  |  | $ | 21,054 |  |  | $ | 18,072 |  |  | $ | 1,185,455 |
Acquired loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial real estate |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Owner occupied |  | $ | 44,031 |  |  | $ | 87 |  |  | $ | 981 |  |  | $ | 45,099 |
Non-owner occupied |  |  | 50,053 |  |  |  | 49 |  |  |  | 2,752 |  |  |  | 52,854 |
Farmland |  |  | 24,637 |  |  |  | 100 |  |  |  | 1,342 |  |  |  | 26,079 |
Other |  |  | 12,868 |  |  |  | 0 |  |  |  | 0 |  |  |  | 12,868 |
Commercial |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial and industrial |  |  | 16,246 |  |  |  | 0 |  |  |  | 2,412 |  |  |  | 18,658 |
Agricultural |  |  | 4,481 |  |  |  | 303 |  |  |  | 65 |  |  |  | 4,849 |
Total acquired loans |  | $ | 152,316 |  |  | $ | 539 |  |  | $ | 7,552 |  |  | $ | 160,407 |
Total loans |  | $ | 1,298,645 |  |  | $ | 21,593 |  |  | $ | 25,624 |  |  | $ | 1,345,862 |
The Company considers the performance of the loan portfolio and its impact on the allowance for credit losses. For residential, consumer indirect and direct loan classes, the Company evaluates credit quality based on the aging status of the loan, which was previously presented, and by payment activity. In the 1-4 family residential real estate portfolio at September 30, 2021, other real estate owned and foreclosure properties were $0 and $314 thousand, respectively. At December 31, 2020, other real estate owned and foreclosure properties were $0 and $699 thousand, respectively. The following tables present the recorded investment in residential, consumer indirect and direct auto loans based on payment activity as of September 30, 2021 and December 31, 2020. Nonperforming loans are loans past due 90 days or more and still accruing interest and nonaccrual loans.
|  | Residential Real Estate |  |  | Consumer |
(In Thousands of Dollars) |  | 1-4 Family Residential |  |  | Home Equity Lines of Credit |  |  | Indirect |  |  | Direct |  |  | Other |
September 30, 2021 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Performing |  | $ | 371,577 |  |  | $ | 105,903 |  |  | $ | 163,743 |  |  | $ | 21,269 |  |  | $ | 9,359 |
Nonperforming |  |  | 4,426 |  |  |  | 855 |  |  |  | 563 |  |  |  | 330 |  |  |  | 0 |
Total loans |  | $ | 376,003 |  |  | $ | 106,758 |  |  | $ | 164,306 |  |  | $ | 21,599 |  |  | $ | 9,359 |
|  | Residential Real Estate |  |  | Consumer |
(In Thousands of Dollars) |  | 1-4 Family Residential |  |  | Home Equity Lines of Credit |  |  | Indirect |  |  | Direct |  |  | Other |
December 31, 2020 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Originated loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Performing |  | $ | 322,771 |  |  | $ | 92,376 |  |  | $ | 169,576 |  |  | $ | 23,193 |  |  | $ | 9,862 |
Nonperforming |  |  | 1,089 |  |  |  | 603 |  |  |  | 712 |  |  |  | 268 |  |  |  | 6 |
Total originated loans |  | $ | 323,860 |  |  | $ | 92,979 |  |  | $ | 170,288 |  |  | $ | 23,461 |  |  | $ | 9,868 |
Acquired loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Performing |  | $ | 83,520 |  |  | $ | 17,198 |  |  | $ | 0 |  |  | $ | 5,064 |  |  | $ | 97 |
Nonperforming |  |  | 5,597 |  |  |  | 186 |  |  |  | 0 |  |  |  | 64 |  |  |  | 0 |
Total acquired loans |  |  | 89,117 |  |  |  | 17,384 |  |  |  | 0 |  |  |  | 5,128 |  |  |  | 97 |
Total loans |  | $ | 412,977 |  |  | $ | 110,363 |  |  | $ | 170,288 |  |  | $ | 28,589 |  |  | $ | 9,965 |
The following table presents total loans by risk categories and year of origination.
|  | Term Loans Amortized Cost Basis by Origination Year |
As of September 30, 2021 |  | 2021 |  |  | 2020 |  |  | 2019 |  |  | 2018 |  |  | 2017 |  |  | Prior |  |  | Revolving Loans |  |  | Total |
Commercial real estate |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk Rating |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass |  | $ | 79,167 |  |  | $ | 103,241 |  |  | $ | 128,436 |  |  | $ | 93,100 |  |  | $ | 65,831 |  |  | $ | 169,999 |  |  | $ | 15,562 |  |  | $ | 655,336 |
Special mention |  |  | 773 |  |  |  | 0 |  |  |  | 9,518 |  |  |  | 1,716 |  |  |  | 2,892 |  |  |  | 6,365 |  |  |  | 479 |  |  |  | 21,743 |
Substandard |  |  | 0 |  |  |  | 327 |  |  |  | 2,284 |  |  |  | 502 |  |  |  | 90 |  |  |  | 8,888 |  |  |  | 121 |  |  |  | 12,212 |
Total commercial real estate loans |  | $ | 79,940 |  |  | $ | 103,568 |  |  | $ | 140,238 |  |  | $ | 95,318 |  |  | $ | 68,813 |  |  | $ | 185,252 |  |  | $ | 16,162 |  |  | $ | 689,291 |
Commercial |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk Rating |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass |  | $ | 90,549 |  |  | $ | 59,498 |  |  | $ | 25,933 |  |  | $ | 29,075 |  |  | $ | 11,732 |  |  | $ | 18,807 |  |  | $ | 56,106 |  |  | $ | 291,700 |
Special mention |  |  | 220 |  |  |  | 106 |  |  |  | 87 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 123 |  |  |  | 536 |
Substandard |  |  | 3,119 |  |  |  | 1,881 |  |  |  | 334 |  |  |  | 265 |  |  |  | 814 |  |  |  | 84 |  |  |  | 1,351 |  |  |  | 7,848 |
Total commercial loans |  | $ | 93,888 |  |  | $ | 61,485 |  |  | $ | 26,354 |  |  | $ | 29,340 |  |  | $ | 12,546 |  |  | $ | 18,891 |  |  | $ | 57,580 |  |  | $ | 300,084 |
Agricultural |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk Rating |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass |  | $ | 30,585 |  |  | $ | 54,038 |  |  | $ | 30,248 |  |  | $ | 31,198 |  |  | $ | 20,075 |  |  | $ | 38,288 |  |  | $ | 18,206 |  |  | $ | 222,638 |
Special mention |  |  | 0 |  |  |  | 238 |  |  |  | 33 |  |  |  | 0 |  |  |  | 2,075 |  |  |  | 0 |  |  |  | 349 |  |  |  | 2,695 |
Substandard |  |  | 356 |  |  |  | 21 |  |  |  | 66 |  |  |  | 13 |  |  |  | 0 |  |  |  | 997 |  |  |  | 30 |  |  |  | 1,483 |
Total agricultural loans |  | $ | 30,941 |  |  | $ | 54,297 |  |  | $ | 30,347 |  |  | $ | 31,211 |  |  | $ | 22,150 |  |  | $ | 39,285 |  |  | $ | 18,585 |  |  | $ | 226,816 |
Residential real estate |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk Rating |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass |  | $ | 48,989 |  |  | $ | 78,879 |  |  | $ | 37,697 |  |  | $ | 29,361 |  |  | $ | 39,854 |  |  | $ | 129,640 |  |  | $ | 2,685 |  |  | $ | 367,105 |
Special mention |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |
Substandard |  |  | 50 |  |  |  | 0 |  |  |  | 23 |  |  |  | 54 |  |  |  | 588 |  |  |  | 8,183 |  |  |  | 0 |  |  |  | 8,898 |
Total residential real estate loans |  | $ | 49,039 |  |  | $ | 78,879 |  |  | $ | 37,720 |  |  | $ | 29,415 |  |  | $ | 40,442 |  |  | $ | 137,823 |  |  | $ | 2,685 |  |  | $ | 376,003 |
Home equity lines of credit |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk Rating |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass |  | $ | 146 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 99 |  |  | $ | 1,213 |  |  | $ | 103,502 |  |  | $ | 104,960 |
Special mention |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 48 |  |  |  | 48 |
Substandard |  |  | 0 |  |  |  | 0 |  |  |  | 20 |  |  |  | 74 |  |  |  | 77 |  |  |  | 1,357 |  |  |  | 222 |  |  |  | 1,750 |
Total home equity lines of credit |  | $ | 146 |  |  | $ | 0 |  |  | $ | 20 |  |  | $ | 74 |  |  | $ | 176 |  |  | $ | 2,570 |  |  | $ | 103,772 |  |  | $ | 106,758 |
Consumer |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk Rating |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass |  | $ | 46,676 |  |  | $ | 50,526 |  |  | $ | 39,119 |  |  | $ | 23,551 |  |  | $ | 11,356 |  |  | $ | 16,516 |  |  | $ | 6,194 |  |  | $ | 193,938 |
Special mention |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |
Substandard |  |  | 32 |  |  |  | 321 |  |  |  | 173 |  |  |  | 205 |  |  |  | 162 |  |  |  | 433 |  |  |  | 0 |  |  |  | 1,326 |
Total consumer loans |  | $ | 46,708 |  |  | $ | 50,847 |  |  | $ | 39,292 |  |  | $ | 23,756 |  |  | $ | 11,518 |  |  | $ | 16,949 |  |  | $ | 6,194 |  |  | $ | 195,264 |
Allowance for Credit Losses The Company adopted ASU 2016-13 to calculate the allowance for credit losses (“ACL”) which requires projecting credit losses over the lifetime of the credits. The ACL is adjusted through the provision for credit losses and reduced by net charge offs of loans. Although the Company has a diversified loan portfolio, the credit risk in the loan portfolio is largely influenced by general economic conditions and trends of the counties and markets in which the debtors operate, and the resulting impact on the operations of borrowers or on the value of any underlying collateral. The credit loss estimation process involves procedures that consider the unique characteristics of the Company’s loan portfolio segments. These segments are disaggregated into the loan pools for monitoring. A model of risk characteristics, such as loss history and delinquency experience, trends in past due and non-performing loans, as well as existing economic conditions and supportable forecasts used to determine credit loss assumptions. The Company uses two methodologies to analyze loan pools. The cohort method (“cohort”) and the probability of default/loss given default (“PD/LGD”). Cohort relies on the creation of cohorts to capture loans that qualify for a particular segment, as of a point in time. Those loans are then tracked over their remaining lives to determine their loss experience. The Company aggregates financial assets on the basis of similar risk characteristics when evaluating loans on a collective basis. Those characteristics include, but aren’t limited to, internal or external credit score, risk ratings, financial asset, loan type, collateral type, size, effective interest rate, term, or geographical location. The Company uses cohort primarily for consumer loan portfolios. The probability of default (“PD”) portion of PD/LGD is defined by the Company as 90 days past due, placed on non-accrual, becomes a troubled debt restructuring or is partially, or wholly, charged-off. Typically, a one-year time period is used to asses PD. PD can be measured and applied using various risk criteria. Risk rating is one common way to apply PDs. Loss given default (“LGD”) is to determine the percentage of loss by facility or collateral type. LGD estimates can sometimes be driven, or influenced, by product type, industry or geography. The Company uses PD/LGD primarily for commercial loan portfolios.

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