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 $3 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, 2024 and December 31, 2023, 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		Doubtful		Total
September 30, 2024
Commercial real estate
Owner occupied	$	385,103	$	4,908	$	6,729	$	0	$	396,740
Non-owner occupied		637,248		9,976		35,765		1,175		684,164
Farmland		200,902		0		2,289		0		203,191
Other		280,656		1,106		8,638		0		290,400
Commercial
Commercial and industrial		348,796		171		10,868		0		359,835
Agricultural		58,760		67		420		0		59,247
Total loans	$	1,911,465	$	16,228	$	64,709	$	1,175	$	1,993,577


(In Thousands of Dollars)	Pass		Special Mention		Sub standard		Total
December 31, 2023
Commercial real estate
Owner occupied	$	386,015	$	9,628	$	3,385	$	399,028
Non-owner occupied		648,063		27,938		35,794		711,795
Farmland		200,240		0		2,486		202,726
Other		215,459		0		8,318		223,777
Commercial
Commercial and industrial		334,764		646		12,409		347,819
Agricultural		58,506		17		552		59,075
Total loans	$	1,843,047	$	38,229	$	62,944	$	1,944,220

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. The above table for the period ending December 31, 2023 does not include a $1.63 million non-owner occupied commercial real estate loan that was held-for-sale and risk rated substandard. There were no special mention or substandard loans related to loans held-for-sale at September 30, 2024. In the 1-4 family residential real estate portfolio at September 30, 2024, other real estate owned and foreclosure properties were $0 and $361 thousand, respectively. At December 31, 2023, other real estate owned and foreclosure properties were $92 thousand and $207 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, 2024 and December 31, 2023. 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, 2024
Performing	$	848,676	$	155,830	$	247,302	$	20,301	$	9,749
Nonperforming		4,106		242		587		141		6
Total loans	$	852,782	$	156,072	$	247,889	$	20,442	$	9,755


	Residential Real Estate				Consumer
(In Thousands of Dollars)	1-4 Family Residential		Home Equity Lines of Credit		Indirect		Direct		Other
December 31, 2023
Performing	$	839,744	$	141,952	$	234,439	$	23,690	$	9,159
Nonperforming		3,817		519		447		135		5
Total loans	$	843,561	$	142,471	$	234,886	$	23,825	$	9,164

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, 2024	2024		2023		2022		2021		2020		Prior		Revolving Loans		Total
Commercial real estate - Owner occupied:
Risk Rating
Pass	$	34,754	$	55,619	$	49,745	$	61,781	$	47,164	$	133,476	$	2,564	$	385,103
Special mention		0		3,250		0		1,130		0		528		0		4,908
Substandard		0		0		2,313		0		628		3,600		188		6,729
Total commercial real estate - Owner occupied loans	$	34,754	$	58,869	$	52,058	$	62,911	$	47,792	$	137,604	$	2,752	$	396,740

Commercial real estate - Owner Occupied: Current period gross write-offs	$	0	$	0	$	0	$	0	$	21	$	0	$	0	$	21

Commercial real estate - Non-owner occupied:
Risk Rating
Pass	$	28,980	$	47,673	$	133,108	$	81,447	$	73,555	$	265,029	$	7,456	$	637,248
Special mention		0		0		536		314		0		9,126		0		9,976
Substandard		7,141		409		0		10,910		6,925		10,380		0		35,765
Doubtful		0		0		0		1,175		0		0		0		1,175
Total commercial real estate - Non-owner occupied loans	$	36,121	$	48,082	$	133,644	$	93,846	$	80,480	$	284,535	$	7,456	$	684,164

Commercial real estate - Non-owner occupied: Current period gross write-offs	$	0	$	0	$	0	$	4,380	$	146	$	0	$	0	$	4,526

Commercial real estate - Farmland:
Risk Rating
Pass	$	11,476	$	22,178	$	39,688	$	19,790	$	32,079	$	72,989	$	2,702	$	200,902
Substandard		0		0		0		319		0		1,970		0		2,289
Total commercial real estate - Farmland loans	$	11,476	$	22,178	$	39,688	$	20,109	$	32,079	$	74,959	$	2,702	$	203,191

Commercial real estate - Other:
Risk Rating
Pass	$	28,993	$	101,466	$	70,158	$	46,221	$	8,595	$	24,624	$	599	$	280,656
Special mention		0		993		0		113		0		0		0		1,106
Substandard		8,602		0		0		0		0		36		0		8,638
Total commercial real estate - Other loans	$	37,595	$	102,459	$	70,158	$	46,334	$	8,595	$	24,660	$	599	$	290,400


	Term Loans Amortized Cost Basis by Origination Year (Continued)
As of September 30, 2024	2024		2023		2022		2021		2020		Prior		Revolving Loans		Total
Commercial - Commercial and industrial:
Risk Rating
Pass	$	59,602	$	87,280	$	59,819	$	29,847	$	13,538	$	23,284	$	75,426	$	348,796
Special mention		0		0		0		171		0		0		0		171
Substandard		80		87		5,851		281		191		1,804		2,574		10,868
Total commercial - Commercial and industrial loans	$	59,682	$	87,367	$	65,670	$	30,299	$	13,729	$	25,088	$	78,000	$	359,835

Commercial - Commercial and industrial: Current period gross write-offs	$	0	$	231	$	284	$	104	$	220	$	164	$	313	$	1,316

Commercial - Agricultural:
Risk Rating
Pass	$	7,691	$	12,502	$	14,426	$	6,352	$	2,216	$	1,152	$	14,421	$	58,760
Special mention		0		0		0		0		0		0		67		67
Substandard		0		1		45		63		172		139		0		420
Total commercial - Agricultural loans	$	7,691	$	12,503	$	14,471	$	6,415	$	2,388	$	1,291	$	14,488	$	59,247

Commercial - Agricultural: Current period gross write-offs	$	0	$	0	$	36	$	13	$	29	$	17	$	0	$	95

Residential real estate - 1-4 family residential:
Payment Performance
Performing	$	62,632	$	71,869	$	161,600	$	157,665	$	123,755	$	267,898	$	3,257	$	848,676
Nonperforming		0		0		24		299		1,920		1,863		0		4,106
Total residential real estate - 1-4 family residential loans	$	62,632	$	71,869	$	161,624	$	157,964	$	125,675	$	269,761	$	3,257	$	852,782

Residential real estate - 1-4 family residential: Current period gross write-offs	$	0	$	0	$	0	$	17	$	0	$	64	$	0	$	81

Residential real estate - Home equity lines of credit:
Payment Performance
Performing	$	0	$	166	$	61	$	169	$	95	$	4,491	$	150,848	$	155,830
Nonperforming		0		0		29		0		0		161		52		242
Total residential real estate - Home equity lines of credit loans	$	0	$	166	$	90	$	169	$	95	$	4,652	$	150,900	$	156,072


	Term Loans Amortized Cost Basis by Origination Year (Continued)
As of September 30, 2024	2024		2023		2022		2021		2020		Prior		Revolving Loans		Total
Consumer - Indirect:
Payment Performance
Performing	$	68,575	$	60,128	$	54,533	$	25,248	$	15,820	$	22,998	$	0	$	247,302
Nonperforming		0		81		189		153		68		96		0		587
Total consumer - Indirect loans	$	68,575	$	60,209	$	54,722	$	25,401	$	15,888	$	23,094	$	0	$	247,889

Consumer - Indirect: Current period gross write-offs	$	10	$	65	$	89	$	150	$	93	$	336	$	0	$	743

Consumer - Direct:
Payment Performance
Performing	$	2,246	$	2,539	$	2,735	$	1,489	$	906	$	10,039	$	347	$	20,301
Nonperforming		0		9		6		35		66		25		0		141
Total consumer - Direct loans	$	2,246	$	2,548	$	2,741	$	1,524	$	972	$	10,064	$	347	$	20,442

Consumer - Direct: Current period gross write-offs	$	0	$	7	$	29	$	5	$	5	$	91	$	0	$	137

Consumer - Other:
Payment Performance
Performing	$	0	$	0	$	0	$	60	$	100	$	375	$	9,214	$	9,749
Nonperforming		0		0		0		0		0		1		5		6
Total consumer - Other loans	$	0	$	0	$	0	$	60	$	100	$	376	$	9,219	$	9,755

Consumer - Other: Current period gross write-offs	$	0	$	0	$	1	$	0	$	0	$	139	$	0	$	140


	Term Loans Amortized Cost Basis by Origination Year
As of December 31, 2023	2023		2022		2021		2020		2019		Prior		Revolving Loans		Total
Commercial real estate - Owner occupied:
Risk Rating
Pass	$	57,983	$	58,178	$	66,205	$	42,023	$	48,849	$	109,831	$	2,946	$	386,015
Special mention		0		293		0		8,779		0		556		0		9,628
Substandard		0		0		0		10		490		2,701		184		3,385
Total commercial real estate - Owner occupied loans	$	57,983	$	58,471	$	66,205	$	50,812	$	49,339	$	113,088	$	3,130	$	399,028

Commercial real estate - Owner Occupied: Current period gross write-offs	$	0	$	0	$	0	$	0	$	1	$	0	$	0	$	1

Commercial real estate - Non-owner occupied:
Risk Rating
Pass	$	49,177	$	135,433	$	88,188	$	77,713	$	81,079	$	205,729	$	10,744	$	648,063
Special mention		0		0		12,156		0		6,565		9,217		0		27,938
Substandard		0		0		3,972		10,037		3,492		17,794		499		35,794
Total commercial real estate - Non-owner occupied loans	$	49,177	$	135,433	$	104,316	$	87,750	$	91,136	$	232,740	$	11,243	$	711,795

Commercial real estate - Non-owner occupied: Current period gross write-offs	$	0	$	0	$	0	$	0	$	144	$	201	$	0	$	345

Commercial real estate - Farmland:
Risk Rating
Pass	$	22,576	$	40,101	$	20,890	$	34,036	$	18,634	$	59,900	$	4,103	$	200,240
Substandard		0		0		330		0		26		2,130		0		2,486
Total commercial real estate - Farmland loans	$	22,576	$	40,101	$	21,220	$	34,036	$	18,660	$	62,030	$	4,103	$	202,726

Commercial real estate - Farmland: Current period gross write-offs	$	0	$	0	$	0	$	0	$	0	$	3	$	0	$	3

Commercial real estate - Other:
Risk Rating
Pass	$	68,911	$	56,753	$	47,895	$	9,063	$	8,516	$	23,269	$	1,052	$	215,459
Substandard		0		0		0		8,186		0		132		0		8,318
Total commercial real estate - Other loans	$	68,911	$	56,753	$	47,895	$	17,249	$	8,516	$	23,401	$	1,052	$	223,777


	Term Loans Amortized Cost Basis by Origination Year (Continued)
As of December 31, 2023	2023		2022		2021		2020		2019		Prior		Revolving Loans		Total
Commercial - Commercial and industrial:
Risk Rating
Pass	$	90,807	$	85,255	$	40,444	$	21,794	$	9,736	$	23,030	$	63,698	$	334,764
Special mention		0		141		355		21		0		0		129		646
Substandard		195		3,551		980		404		1,077		699		5,503		12,409
Total commercial - Commercial and industrial loans	$	91,002	$	88,947	$	41,779	$	22,219	$	10,813	$	23,729	$	69,330	$	347,819

Commercial - Commercial and industrial: Current period gross write-offs	$	0	$	178	$	579	$	11	$	16	$	394	$	0	$	1,178

Commercial - Agricultural:
Risk Rating
Pass	$	13,738	$	17,368	$	8,917	$	3,584	$	1,386	$	1,133	$	12,380	$	58,506
Special mention		0		0		0		0		0		0		17		17
Substandard		0		33		118		225		24		152		0		552
Total commercial - Agricultural loans	$	13,738	$	17,401	$	9,035	$	3,809	$	1,410	$	1,285	$	12,397	$	59,075

Commercial - Agricultural: Current period gross write-offs	$	0	$	15	$	70	$	3	$	0	$	6	$	0	$	94

Residential real estate - 1-4 family residential:
Payment Performance
Performing	$	63,365	$	171,862	$	164,469	$	132,989	$	49,380	$	254,027	$	3,652	$	839,744
Nonperforming		37		58		312		1,645		115		1,650		0		3,817
Total residential real estate - 1-4 family residential loans	$	63,402	$	171,920	$	164,781	$	134,634	$	49,495	$	255,677	$	3,652	$	843,561

Residential real estate - 1-4 family residential: Current period gross write-offs	$	52	$	0	$	49	$	130	$	0	$	129	$	0	$	360

Residential real estate - Home equity lines of credit:
Payment Performance
Performing	$	0	$	19	$	14	$	111	$	51	$	3,302	$	138,455	$	141,952
Nonperforming		0		26		13		15		0		465		0		519
Total residential real estate - Home equity lines of credit loans	$	0	$	45	$	27	$	126	$	51	$	3,767	$	138,455	$	142,471

Residential real estate - Home equity lines of credit: Current period gross write-offs	$	0	$	0	$	0	$	8	$	0	$	16	$	0	$	24


	Term Loans Amortized Cost Basis by Origination Year (Continued)
As of December 31, 2023	2023		2022		2021		2020		2019		Prior		Revolving Loans		Total
Consumer - Indirect:
Payment Performance
Performing	$	74,425	$	71,705	$	32,528	$	21,163	$	11,395	$	23,223	$	0	$	234,439
Nonperforming		54		108		138		85		26		36		0		447
Total consumer - Indirect loans	$	74,479	$	71,813	$	32,666	$	21,248	$	11,421	$	23,259	$	0	$	234,886

Consumer - Indirect: Current period gross write-offs	$	33	$	138	$	71	$	35	$	23	$	232	$	0	$	532

Consumer - Direct:
Payment Performance
Performing	$	3,552	$	3,812	$	2,203	$	1,352	$	974	$	11,431	$	366	$	23,690
Nonperforming		0		17		0		65		0		53		0		135
Total consumer - Direct loans	$	3,552	$	3,829	$	2,203	$	1,417	$	974	$	11,484	$	366	$	23,825

Consumer - Direct: Current period gross write-offs	$	11	$	38	$	22	$	51	$	9	$	100	$	0	$	231

Consumer - Other:
Payment Performance
Performing	$	0	$	0	$	60	$	103	$	82	$	278	$	8,636	$	9,159
Nonperforming		0		0		0		0		0		5		0		5
Total consumer - Other loans	$	0	$	0	$	60	$	103	$	82	$	283	$	8,636	$	9,164

Consumer - Other: Current period gross write-offs	$	0	$	0	$	0	$	0	$	0	$	20	$	149	$	169

The Company follows ASU 2016-13 to calculate the allowance for credit losses 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 are used to determine credit loss assumptions.

The Company uses two methodologies to analyze loan pools. The cohort method 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 are not 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 portion of PD/LGD is defined by the Company as 90 days past due, placed on non-accrual, loan restructuring for borrowers experiencing financial difficulty or is partially, or wholly, charged-off. Typically, a one-year time period is used to assess probability of default (“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.

According to the accounting standard, an entity may make an accounting policy election not to measure an allowance for credit losses for accrued interest receivable if the entity writes off the applicable accrued interest receivable balance in a timely manner. The Company has made the accounting policy election not to measure an allowance for credit losses for accrued interest receivables for all loan segments. Current policy dictates that a loan will be placed on nonaccrual status, with the current accrued interest receivable balance being written off, upon the loan being 90 days delinquent or when the loan is deemed to be collateral dependent and the collateral analysis shows insufficient collateral coverage based on a current assessment of the value of the collateral.

In addition, ASC Topic 326 requires the Company to establish a liability for anticipated credit losses for unfunded commitments. To accomplish this, the Company must first establish a loss expectation for extended (funded) commitments. This loss expectation, expressed as a ratio to the amortized cost basis, is then applied to the portion of unfunded commitments not considered unilaterally cancelable, and considered by the company’s management as likely to fund over the life of the instrument. At September 30, 2024, the Company had $681 million in unfunded commitments and set aside $1.58 million in anticipated credit losses. At December 31, 2023, the Company had $753 million in unfunded commitments and set aside $1.84 million in anticipated credit losses. The $72 million decrease in unfunded commitments and $261 thousand decrease in the reserve for anticipated credit losses is due to existing construction loan projects that are moving forward and advances are being made to the loan. This reserve is recorded in other liabilities as opposed to the ACL.

The determination of the ACL is complex and the Company makes decisions on the effects of factors that are inherently uncertain. Evaluations of the loan portfolio and individual credits require certain estimates, assumptions and judgments as to the facts and circumstances related to particular situations or credits. The ACL was $36.2 million at September 30, 2024 and $34.4 million at December 31, 2023. The increase of $1.8 million was due to an increase to the specific reserve related to a non-owner occupied commercial real estate relationship, updates to the Company's delay periods that impacted the loss ratios of certain loan pools under the Cohort methodology, increased Portfolio Composition and growth qualitative factors due to increasing loan balances. These factors were partially offset by the reduction of the specific reserve related to a loan settlement, reduction of the specific reserve related to a payoff of another individually evaluated relationship, and improved loss rates for certain loan pools under the PD/LGD methodology.

Under ASU Topic 326, when loans are purchased with evidence of more than significant deterioration of credit, they are accounted for as purchase credit deteriorated (“PCD”). PCD loans acquired in a transaction are marked to fair value and a mark on yield is recorded. In addition, an adjustment is made to the ACL for the expected loss on the acquisition date. These loans are assessed on a regular basis and subsequent adjustments to the ACL are recorded on the income statement. During 2024, the Company has not acquired any additional PCD loans. The outstanding balance at September 30, 2024 and related allowance on PCD loans is as follows: