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Note 7 - Loans Receivable and Credit Disclosures

3 Months Ended

Mar. 31, 2023

Notes to Financial Statements

Financing Receivables [Text Block]

7.	Loans Receivable and Credit Disclosures

The composition of loans receivable as of March 31, 2023 and December 31, 2022 is as follows (in thousands):

		2023				2022

Real estate - construction		$	59,756			$	51,253
Real estate - 1 to 4 family residential			286,418				285,107
Real estate - multi-family			193,566				185,784
Real estate - commercial			350,999				353,285
Real estate - agricultural			158,337				159,448
Commercial			82,345				77,265
Agricultural			92,402				113,355
Consumer and other			16,491				16,211
			1,240,314				1,241,708
Less allowance for credit losses			(16,269	)			(15,697	)
Loans receivable, net		$	1,224,045			$	1,226,011

On January 1, 2023, the Company adopted ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326)," and results for reporting periods beginning after January 1, 2023 are presented under ASC 326 while prior period amounts continue to be reported in accordance with previously applicable GAAP. Additionally, the Company reclassified its loan categories to breakout multi-family real estate from commercial real estate and all prior periods have been adjusted.

Activity in the allowance for credit losses, on a disaggregated basis, for the three months ended March 31, 2023 and 2022 is as follows (in thousands):

		Three Months Ended March 31, 2023
						1-4 Family
		Construction				Residential				Multi-family				Commercial				Agricultural												Consumer
		Real Estate				Real Estate				Real Estate				Real Estate				Real Estate				Commercial				Agricultural				and Other				Total
Balance, December 31, 2022		$	730			$	3,028			$	2,493			$	4,742			$	1,625			$	1,153			$	1,705			$	221			$	15,697
Impact of adopting ASC 326			(395	)			242				(24	)			513				(398	)			449				(61	)			192				518
Credit loss expense (benefit) ¹			56				17				99				(54	)			(9	)			183				(88	)			8				212
Recoveries of loans charged-off			-				1				-				5				-				3				-				1				10
Loans charged-off			-				-				-				-				-				(4	)			(164	)			-				(168	)
Balance, March 31, 2023		$	391			$	3,288			$	2,568			$	5,206			$	1,218			$	1,784			$	1,392			$	422			$	16,269

(1) The difference in the credit loss expense reported herein as compared to the Consolidated Statements of Income is associated with the credit loss expense of $63 thousand related to off-balance sheet credit exposures.

		Three Months Ended March 31, 2022
						1-4 Family
		Construction				Residential				Multi-family				Commercial				Agricultural												Consumer
		Real Estate				Real Estate				Real Estate				Real Estate				Real Estate				Commercial				Agricultural				and Other				Total
Balance, December 31, 2021		$	675			$	2,752			$	2,501			$	5,905			$	1,584			$	1,170			$	1,836			$	198			$	16,621
Credit loss expense (benefit)			(30	)			150				(68	)			(24	)			46				(19	)			(230	)			48				(127	)
Recoveries of loans charged-off			-				1				-				-				-				1				-				1				3
Loans charged-off			-				(4	)			-				-				-				-				-				(9	)			(13	)
Balance, March 31, 2022		$	645			$	2,899			$	2,433			$	5,881			$	1,630			$	1,152			$	1,606			$	238			$	16,484

The following table shows the balance in the allowance for credit losses at March 31, 2023, and December 31, 2022, disaggregated on the basis of measurement methodology (in thousands). As of March 31, 2023, loans individually assessed are collateral dependent and in the process of foreclosure or no longer share the same risk characteristics of the other loans in the pool. All other loans are collectively evaluated for losses. Loans individually evaluated were considered impaired at December 31, 2022.

2023						1-4 Family
		Construction				Residential				Multi-family				Commercial				Agricultural												Consumer
		Real Estate				Real Estate				Real Estate				Real Estate				Real Estate				Commercial				Agricultural				and Other				Total
Individually evaluated for credit losses		$	-			$	22			$	-			$	-			$	-			$	-			$	81			$	16			$	119
Collectively evaluated for credit losses			391				3,266				2,568				5,206				1,218				1,784				1,311				406				16,150
Balance March 31, 2023		$	391			$	3,288			$	2,568			$	5,206			$	1,218			$	1,784			$	1,392			$	422			$	16,269

2022						1-4 Family
		Construction				Residential				Multi-family				Commercial				Agricultural												Consumer
		Real Estate				Real Estate				Real Estate				Real Estate				Real Estate				Commercial				Agricultural				and Other				Total
Individually evaluated for credit losses		$	-			$	10			$	-			$	-			$	-			$	-			$	68			$	17			$	95
Collectively evaluated for credit losses			730				3,018				2,493				4,742				1,625				1,153				1,637				204				15,602
Balance December 31, 2022		$	730			$	3,028			$	2,493			$	4,742			$	1,625			$	1,153			$	1,705			$	221			$	15,697

The following table shows the loans receivable balance at March 31, 2023, and December 31, 2022, disaggregated on the basis of measurement methodology (in thousands). As of March 31, 2023, loans individually assessed are collateral dependent and in the process of foreclosure or no longer share the same risk characteristics of the other loans in the pool. All other loans are collectively evaluated for losses. Loans individually evaluated were considered impaired at December 31, 2022.

2023					1-4 Family
	Construction				Residential				Multi-family				Commercial				Agricultural												Consumer
	Real Estate				Real Estate				Real Estate				Real Estate				Real Estate				Commercial				Agricultural				and Other				Total
Individually evaluated for credit losses	$	-			$	817			$	-			$	9,176			$	494			$	188			$	752			$	16			$	11,443
Collectively evaluated for credit losses		59,756				285,601				193,566				341,823				157,843				82,157				91,650				16,475				1,228,871

Balance March 31, 2023	$	59,756			$	286,418			$	193,566			$	350,999			$	158,337			$	82,345			$	92,402			$	16,491			$	1,240,314

2022					1-4 Family
	Construction				Residential				Multi-family				Commercial				Agricultural												Consumer
	Real Estate				Real Estate				Real Estate				Real Estate				Real Estate				Commercial				Agricultural				and Other				Total
Individually evaluated for credit losses	$	-			$	805			$	-			$	12,853			$	165			$	200			$	342			$	21			$	14,386
Collectively evaluated for credit losses		51,253				284,302				185,784				340,432				159,283				77,065				113,013				16,190				1,227,322

Balance December 31, 2022	$	51,253			$	285,107			$	185,784			$	353,285			$	159,448			$	77,265			$	113,355			$	16,211			$	1,241,708

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 (in thousands):

		Primary Type of Collateral
March 31, 2023		Real Estate				Equipment				Other				Total				ACL Allocation

Real estate - construction		$	-			$	-			$	-			$	-			$	-
Real estate - 1 to 4 family residential			817				-				-				817				22
Real estate - multi-family			-				-				-				-				-
Real estate - commercial			9,176				-				-				9,176				-
Real estate - agricultural			494				-				-				494				-
Commercial			128				3				-				131				-
Agricultural			260				42				450				752				81
Consumer and other			-				-				-				-				-

		$	10,875			$	45			$	450			$	11,370			$	103

Pre-ASC 326 (CECL) adoption impaired loan information as of December 31, 2022 (in thousands):

		2022
						Unpaid
		Recorded				Principal				Related
		Investment				Balance				Allowance
With no specific reserve recorded:
Real estate - construction		$	-			$	-			$	-
Real estate - 1 to 4 family residential			687				721				-
Real estate - multi-family			-				-				-
Real estate - commercial			12,853				13,578				-
Real estate - agricultural			165				194				-
Commercial			200				249				-
Agricultural			78				88				-
Consumer and other			4				7				-
Total loans with no specific reserve:			13,987				14,837				-

With an allowance recorded:
Real estate - construction			-				-				-
Real estate - 1 to 4 family residential			118				123				10
Real estate - multi-family			-				-				-
Real estate - commercial			-				-				-
Real estate - agricultural			-				-				-
Commercial			-				-				-
Agricultural			264				294				68
Consumer and other			17				19				17
Total loans with specific reserve:			399				436				95

Total
Real estate - construction			-				-				-
Real estate - 1 to 4 family residential			805				844				10
Real estate - multi-family			-				-				-
Real estate - commercial			12,853				13,578				-
Real estate - agricultural			165				194				-
Commercial			200				249				-
Agricultural			342				382				68
Consumer and other			21				26				17

		$	14,386			$	15,273			$	95

Average recorded investment and interest income recognized on impaired loans for the three months ended March 31, 2022 (in thousands):

		Three Months Ended
		March 31, 2022
		Average				Interest
		Recorded				Income
		Investment				Recognized
With no specific reserve recorded:
Real estate - construction		$	-			$	-
Real estate - 1 to 4 family residential			664				3
Real estate - multi-family			-				-
Real estate - commercial			123				-
Real estate - agricultural			544				-
Commercial			227				4
Agricultural			289				-
Consumer and other			5				-
Total loans with no specific reserve:			1,852				7

With an allowance recorded:
Real estate - construction			-				-
Real estate - 1 to 4 family residential			314				-
Real estate - multi-family			-				-
Real estate - commercial			9,668				-
Real estate - agricultural			-				-
Commercial			70				-
Agricultural			312				-
Consumer and other			21				-
Total loans with specific reserve:			10,385				-

Total
Real estate - construction			-				-
Real estate - 1 to 4 family residential			978				3
Real estate - multi-family			-				-
Real estate - commercial			9,791				-
Real estate - agricultural			544				-
Commercial			297				4
Agricultural			601				-
Consumer and other			26				-

		$	12,237			$	7

The interest foregone on nonaccrual loans for the three months ended March 31, 2023 and 2022 was approximately $179 thousand and $143 thousand, respectively.

Nonaccrual loans at March 31, 2023 and December 31, 2022 were $11.4 million and $14.7 million, respectively.

The Company made three loan modifications to borrowers experiencing financial difficulty for the three months ended March 31, 2023.

The following table shows the amortized cost basis at the end of the reporting period of the loans modified to borrowers experiencing financial difficulty, disaggregated by class of financing receivable and type of concession granted (in thousands):

Loan Modifications Made to Borrowers Experiencing Financial Difficulty

		Term Extension
		Amortized Cost Basis at				% of Total Class of
		March 31, 2023				Financing Receivable
Loan Type
Agricultural		$	418				0.5	%

The following table describes the financial effect of the modifications made to borrowers experiencing financial difficulty:

Term Extension
Loan Type		Financial Effect

Agricultural			Added a weighted-average 7.7 years to the life of loans, which reduced monthly payment amounts for the borrowers

There were no loan modifications made to borrowers experiencing financial difficulty for which there was a payment default within twelve months following the modification during the three months ended March 31, 2023. A loan is considered to be in payment default once it is 60 days contractually past due under the modified terms.

The Company had loans meeting the definition of a troubled debt restructuring (TDR) of $10.7 million as of December 31, 2022, all of which were included in impaired and nonaccrual loans.

During the three months ended March 31, 2022, the Company did not grant any concessions to borrowers facing financial difficulties.

There were no TDR loans that had payment defaults during the twelve months ended March 31, 2023. The Company considers TDR loans to have payment default when it is past due 60 days or more.

There were no net charge-offs related to TDRs for the three months ended March 31, 2022. No additional specific reserve was provided for the three months ended March 31, 2022.

An aging analysis of the recorded investments in loans, on a disaggregated basis, as of March 31, 2023 and December 31, 2022, is as follows (in thousands):

2023						90 Days																90 Days
			30-89			or Greater				Total												or Greater
		Past Due				Past Due				Past Due				Current				Total				Accruing

Real estate - construction		$	66			$	305			$	371			$	59,385			$	59,756			$	305
Real estate - 1 to 4 family residential			420				-				420				285,998				286,418				-
Real estate - multi-family			1,290				-				1,290				192,276				193,566				-
Real estate - commercial			107				-				107				350,892				350,999				-
Real estate - agricultural			119				-				119				158,218				158,337				-
Commercial			337				-				337				82,008				82,345				-
Agricultural			205				-				205				92,197				92,402				-
Consumer and other			10				-				10				16,481				16,491				-

		$	2,554			$	305			$	2,859			$	1,237,455			$	1,240,314			$	305

2022						90 Days																90 Days
			30-89			or Greater				Total												or Greater
		Past Due				Past Due				Past Due				Current				Total				Accruing

Real estate - construction		$	66			$	-			$	66			$	51,187			$	51,253			$	-
Real estate - 1 to 4 family residential			944				11				955				284,152				285,107				-
Real estate - multi-family			-				-				-				185,784				185,784				-
Real estate - commercial			2,362				1,399				3,761				349,524				353,285				-
Real estate - agricultural			185				-				185				159,263				159,448				-
Commercial			592				7				599				76,666				77,265				-
Agricultural			218				30				248				113,107				113,355				-
Consumer and other			37				4				41				16,170				16,211				-

		$	4,404			$	1,451			$	5,855			$	1,235,853			$	1,241,708			$	-

Credit Quality Indicators. As part of the on-going monitoring of the credit quality of the Company’s loan portfolio, management tracks certain credit quality indicators including trends related to (i) the risk ratings of loans, (ii) the level of classified loans, (iii) net charge-offs, (iv) non-performing loans and (v) the general economic conditions in our market areas.

The Company utilizes a risk rating matrix to assign risk ratings to each of its loans. Loans are rated on a scale of 1 to 7. A description of the general characteristics of the risk ratings is as follows:

Ratings 1, 2 and 3 - These ratings include loans of average to excellent credit quality borrowers. These borrowers generally have significant capital strength, moderate leverage and stable earnings and growth commensurate to their relative risk rating. These ratings are reviewed at least annually. These ratings also include performing loans of less than $100,000.

Rating 4 - This rating includes loans on management’s “watch list” and is intended to be utilized for pass rated borrowers where credit quality has begun to show signs of financial weakness that now requires management’s heightened attention. This rating is reviewed at least quarterly.

Rating 5 - This rating is for “Special Mention” loans in accordance with regulatory guidelines. This rating is intended to be temporary and includes loans to borrowers whose credit quality has clearly deteriorated and are at risk of further decline unless active measures are taken to correct the situation. This rating is reviewed at least quarterly.

Rating 6 - This rating includes “Substandard” loans in accordance with regulatory guidelines, for which the accrual of interest has not been stopped. Under regulatory guideline definitions, a “Substandard” loan has defined weaknesses which make payment default or principal exposure likely, but not yet certain. Such loans are apt to be dependent upon collateral liquidation, a secondary source of repayment or an event outside of the normal course of business. This rating is reviewed at least quarterly.

Rating 7 - This rating includes “Substandard-Impaired” loans in accordance with regulatory guidelines, for which the accrual of interest has generally been stopped. This rating includes loans: (i) where interest is more than 90 days past due, (ii) not fully secured, (iii) where a specific valuation allowance may be necessary, or (iv) where the borrower is unable to make contractual principal and interest payments. This rating is reviewed at least quarterly.

The following tables show the risk category of loans by loan category and year of origination as of March 31, 2023 (in thousands):

March 31, 2023		Amortized Cost Basis of Term Loans by Year of Origination
		2023				2022				2021				2020				2019				Prior				Revolving				Total
Real estate - construction
Pass		$	5,719			$	45,660			$	1,605			$	823			$	-			$	373			$	5,273			$	59,453
Watch			-				-				-				222				-				81				-				303
Special Mention			-				-				-				-				-				-				-				-
Substandard			-				-				-				-				-				-				-				-
Substandard-Impaired			-				-				-				-				-				-				-				-
Total		$	5,719			$	45,660			$	1,605			$	1,045			$	-			$	454			$	5,273			$	59,756

Current-period gross writeoffs		$	-			$	-			$	-			$	-			$	-			$	-			$	-			$	-

Real estate - 1-4 family residential
Pass		$	10,438			$	88,375			$	66,711			$	55,200			$	9,996			$	21,924			$	17,476			$	270,120
Watch			94				746				11,044				1,593				-				620				72				14,169
Special Mention			-				-				-				-				-				-				-				-
Substandard			-				19				971				-				259				62				-				1,311
Substandard-Impaired			-				118				601				19				-				62				18				818
Total		$	10,532			$	89,258			$	79,327			$	56,812			$	10,255			$	22,668			$	17,566			$	286,418

Current-period gross writeoffs		$	-			$	-			$	-			$	-			$	-			$	-			$	-			$	-

Real estate - multi-family
Pass		$	13,969			$	49,639			$	49,826			$	44,291			$	14,330			$	734			$	1,564			$	174,353
Watch			4,038				1,447				8,375				-				-				-				-				13,860
Special Mention			-				-				-				-				-				-				-				-
Substandard			-				1,290				-				2,368				1,695				-				-				5,353
Substandard-Impaired			-				-				-				-				-				-				-				-
Total		$	18,007			$	52,376			$	58,201			$	46,659			$	16,025			$	734			$	1,564			$	193,566

Current-period gross writeoffs		$	-			$	-			$	-			$	-			$	-			$	-			$	-			$	-

Real estate - commercial
Pass		$	13,527			$	72,328			$	70,949			$	67,757			$	20,043			$	16,700			$	7,129			$	268,433
Watch			1,938				3,123				20,485				23,676				6,815				1,141				2,442				59,620
Special Mention			-				-				-				-				-				-				-				-
Substandard			-				10,557				-				2,459				376				396				-				13,788
Substandard-Impaired			9,133				-				25				-				-				-				-				9,158
Total		$	24,598			$	86,008			$	91,459			$	93,892			$	27,234			$	18,237			$	9,571			$	350,999

Current-period gross writeoffs		$	-			$	-			$	-			$	-			$	-			$	-			$	-			$	-

Real estate - agricultural
Pass		$	6,666			$	34,187			$	33,669			$	30,595			$	6,540			$	28,103			$	1,687			$	141,447
Watch			-				1,477				5,637				4,270				268				1,469				-				13,121
Special Mention			-				-				-				-				-				-				-				-
Substandard			-				1,413				363				1,829				-				-				-				3,605
Substandard-Impaired			-				-				164				-				-				-				-				164
Total		$	6,666			$	37,077			$	39,833			$	36,694			$	6,808			$	29,572			$	1,687			$	158,337

Current-period gross writeoffs		$	-			$	-			$	-			$	-			$	-			$	-			$	-			$	-

Commercial
Pass		$	14,768			$	15,628			$	13,152			$	3,775			$	3,557			$	1,881			$	22,255			$	75,016
Watch			23				552				1,149				570				121				178				2,707				5,300
Special Mention			-				-				-				111				-				-				-				111
Substandard			-				71				-				471				-				-				1,188				1,730
Substandard-Impaired			51				57				3				-				-				77				-				188
Total		$	14,842			$	16,308			$	14,304			$	4,927			$	3,678			$	2,136			$	26,150			$	82,345

Current-period gross writeoffs		$	-			$	-			$	-			$	-			$	-			$	4			$	-			$	4

Agricultural
Pass		$	8,790			$	12,970			$	6,844			$	3,750			$	597			$	1,028			$	52,403			$	86,382
Watch			1,881				580				16				30				82				16				2,640				5,245
Special Mention			-				-				-				-				-				-				-				-
Substandard			-				-				310				53				-				-				-				363
Substandard-Impaired			117				21				274				-				-				-				-				412
Total		$	10,788			$	13,571			$	7,444			$	3,833			$	679			$	1,044			$	55,043			$	92,402

Current-period gross writeoffs		$	-			$	74			$	90			$	-			$	-			$	-			$	-			$	164

Consumer and other
Pass		$	2,146			$	5,703			$	4,268			$	2,520			$	777			$	993			$	36			$	16,443
Watch			-				1				-				-				-				-				-				1
Special Mention			-				-				-				-				-				-				-				-
Substandard			31				-				-				-				-				-				-				31
Substandard-Impaired			-				-				-				16				-				-				-				16
Total		$	2,177			$	5,704			$	4,268			$	2,536			$	777			$	993			$	36			$	16,491

Current-period gross writeoffs		$	-			$	-			$	-			$	-			$	-			$	-			$	-			$	-

Total loans
Pass		$	76,023			$	324,490			$	247,024			$	208,711			$	55,840			$	71,736			$	107,823			$	1,091,647
Watch			7,974				7,926				46,706				30,361				7,286				3,505				7,861				111,619
Special Mention			-				-				-				111				-				-				-				111
Substandard			31				13,350				1,644				7,180				2,330				458				1,188				26,181
Substandard-Impaired			9,301				196				1,067				35				-				139				18				10,756
Total		$	93,329			$	345,962			$	296,441			$	246,398			$	65,456			$	75,838			$	116,890			$	1,240,314

Current-period gross writeoffs		$	-			$	74			$	90			$	-			$	-			$	4			$	-			$	168

The credit risk profile by internally assigned grade, on a disaggregated basis, as of December 31, 2022 is as follows (in thousands):

December 31, 2022		Construction				Multi-family				Commercial				Agricultural
		Real Estate				Real Estate				Real Estate				Real Estate				Commercial				Agricultural				Total

Pass		$	51,253			$	174,048			$	264,898			$	136,043			$	69,872			$	98,415			$	794,529
Watch			-				9,344				62,076				18,324				5,392				14,146				109,282
Special Mention			-				-				-				-				116				-				116
Substandard			-				2,392				13,458				4,916				1,685				452				22,903
Substandard-Impaired			-				-				12,853				165				200				342				13,560

		$	51,253			$	185,784			$	353,285			$	159,448			$	77,265			$	113,355			$	940,390

The credit risk profile based on payment activity, on a disaggregated basis, as of December 31, 2022 is as follows (in thousands):

December 31, 2022		1-4 Family
		Residential				Consumer
		Real Estate				and Other				Total

Performing		$	284,302			$	16,190			$	300,492
Non-performing			805				21				826

		$	285,107			$	16,211			$	301,318