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Loans and Allowance for Credit Losses

3 Months Ended

Mar. 31, 2023

NOTE 4 – LOANS AND ALLOWANCE FOR CREDIT LOSSES

Loans that management has the intent and ability to hold for the foreseeable future, or until maturity or payoffs, are reported at their outstanding principal balances adjusted for any charge-offs, the allowance for loan losses, any deferred fees or costs on originated loans and unamortized premiums or discounts on purchased loans. Interest income is reported on the interest method and includes amortization of net deferred loan fees and costs over the loan term. Generally, all loan classes are placed on nonaccrual status not later than 90 days past due, unless the loan is well-secured and in the process of collection. All interest accrued, but not collected, for loans that are placed on nonaccrual or charged-off is reversed against interest income. The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

The following table summarizes the composition of the loan portfolio:

	Total Loans
($ in thousands)	March 31, 2023			December 31, 2022

Commercial & industrial	$	126,066		$	128,393
Commercial real estate - owner occupied		114,641			110,929
Commercial real estate - nonowner occupied		304,383			301,880
Agricultural		57,761			64,505
Residential real estate		309,684			291,368
Home equity line of credit (HELOC)		44,712			45,056
Consumer		19,065			19,944

Total loans		976,312			962,075
Allowance for credit losses		(15,442	)		(13,818	)

Loans, net	$	960,870		$	948,257

The totals shown above are net of deferred loan fees and costs, which totaled $0.45 million and $0.31 million at March 31, 2023 and December 31, 2022, respectively.

The risk characteristics of each loan portfolio segment are as follows:

Commercial & Industrial and Agricultural

Commercial & industrial and agricultural loans are primarily based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of borrowers, however, may not be as expected and the collateral securing these loans may fluctuate in value. Most commercial loans are secured by the assets being financed or other business assets, such as accounts receivable or inventory, and may include a personal guarantee. Short-term loans may be made on an unsecured basis. In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers.

Commercial Real Estate (Owner and Nonowner Occupied)

Commercial real estate loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Commercial real estate lending typically involves higher loan principal amounts and the repayment of these loans is generally dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan. Commercial real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy. The characteristics of properties securing the Company’s commercial real estate portfolio are diverse, but with geographic location almost entirely in the Company’s market area. Management monitors and evaluates commercial real estate loans based on collateral, geography and risk grade criteria. In general, the Company avoids financing single purpose projects unless other underwriting factors are present to help mitigate risk. In addition, management tracks the level of owner-occupied versus non-owner-occupied commercial real estate loans.

Construction loans are underwritten utilizing feasibility studies, independent appraisal reviews and financial analysis of the developers and property owners. Construction loans are generally based on estimates of costs and value associated with the completed project. These estimates may be inaccurate. Construction loans often involve the disbursement of substantial funds with repayment substantially dependent on the success of the ultimate project. Sources of repayment for these types of loans may be pre-committed permanent loans from approved long-term lenders, sales of developed property or an interim loan commitment from the Company until permanent financing is obtained. These loans are closely monitored by on-site inspections and are considered to have higher risks than other real estate loans due to their ultimate repayment being sensitive to interest rate changes, governmental regulation of real property, general economic conditions and the availability of long-term financing.

Residential Real Estate, HELOC and Consumer

Residential and consumer loans consist of two segments – residential mortgage loans and personal loans. Residential mortgage loans are secured by 1-4 family residences and are generally owner-occupied, and the Company generally establishes a maximum loan-to-value ratio and requires private mortgage insurance if that ratio is exceeded. HELOCs are typically secured by a subordinate interest in 1-4 family residences, and consumer personal loans are secured by consumer personal assets, such as automobiles or recreational vehicles. Some consumer personal loans are unsecured, such as small installment loans and certain lines of credit. Repayment of these loans is primarily dependent on the personal income of the borrowers, which can be impacted by economic conditions in their market areas, such as unemployment levels. Repayment can also be impacted by changes in property values on residential properties. Risk is mitigated by the fact that these loans are of smaller individual amounts and spread over a large number of borrowers.

Allowance for Credit Losses

The ACL is an estimate of the expected credit losses on financial assets measured at amortized cost, which is measured using relevant information about past events, including historical credit loss experience on financial assets with similar risk characteristics, current conditions, and reasonable and supportable forecasts that affect the collectability of the remaining cash flows over the contractual term of the financial assets. A provision for credit losses is charged to operations based on management’s periodic evaluation of these and other pertinent factors.

As a result of the adoption of ASC 326, the Company recorded a $1.4 million increase to the ACL as a cumulative-effect adjustment on January 1, 2023. The following table summarizes the activity related to the allowance for credit losses for the three months ended March 31, 2023 under the CECL methodology.

($ in thousands) For the three months ended March 31, 2023	Balance, beginning of period		Impact of Adopting ASC 326			Chargeoffs			Recoveries		Provision for Credit Losses			Balance, end of period

Commercial & industrial	$	1,663	$	230		$	-		$	-	$	72		$	1,965
Commercial real estate - owner occupied		1,696		54			-			-		45			1,795
Commercial real estate - nonowner occupied		4,584		1,015			(32	)		-		242			5,809
Agricultural		611		(194	)		-			-		(14	)		403
Residential real estate		4,438		360			-			-		(74	)		4,724
HELOC		547		(76	)		-			-		24			495
Consumer		279		(17	)		(37	)		8		18			251
Total	$	13,818	$	1,372		$	(69	)	$	8	$	313		$	15,442

Prior to the adoption of ASC 326 on January 1, 2023, the Company calculated the allowance for loan losses under the incurred loss methodology. The following two tables are disclosures related to the allowance for loan losses in prior periods under this methodology.

($ in thousands) For the twelve months ended December 31, 2022	Balance at Beginning of Period		Chargeoffs			Recoveries		Provision for Credit Losses			Balance at End of Period

Commercial & industrial	$	1,890	$	-		$	-	$	(227	)	$	1,663
Commercial real estate - owner occupied		2,564		-			-		(868	)		1,696
Commercial real estate - nonowner occupied		4,217		-			-		367			4,584
Agricultural		599		-			-		12			611
Residential real estate		3,515		-			-		923			4,438
HELOC		579		(34	)		47		(45	)		547
Consumer		441		-			-		(162	)		279
Total	$	13,805	$	(34	)	$	47	$	-		$	13,818

($ in thousands) For the three months ended March 31, 2022	Balance, beginning of period		Chargeoffs			Recoveries		Provision for Credit Losses			Balance, end of period

Commercial & industrial	$	1,890	$	-		$	-	$	2		$	1,892
Commercial real estate - owner occupied		2,564		-			-		-			2,564
Commercial real estate - nonowner occupied		4,217		-			-		102			4,319
Agricultural		599		-			-		(52	)		547
Residential real estate		3,515		-			-		(13	)		3,502
HELOC		579		-			-		(45	)		534
Consumer		441		(9	)		8		6			446
Total	$	13,805	$	(9	)	$	8	$	-		$	13,804

Collateral dependent loans are loans for which the repayment is expected to be provided substantially through the operation or sale of the collateral and the borrower is experiencing financial difficulty. The Company reviews individually evaluated loans for designation as collateral dependent loans, as well as other loans that management of the Company designates as having higher risk. These loans do not share common risk characteristics and are not included within the collectively evaluated loans for determining the allowance for credit losses.

The following table presents an analysis of collateral-dependent loans of the Company as of March 31, 2023.

($ in thousands)	Collateral Type						Allocated
March 31, 2023	Real Estate		Other		Total		Allowance

Commercial & industrial	$	358	$	-	$	358	$	17
Commercial real estate - owner occupied		1,958		-		1,958		-
Commercial real estate - nonowner occupied		1,382		-		1,382		-
Agricultural		-		-		-		-
Residential real estate		1,674		-		1,674		66
HELOC		16		-		16		-
Consumer		-		-		-		-
Total	$	5,388	$	-	$	5,388	$	83

Under CECL, for collateral dependent loans, the Company has adopted the practical expedient to measure the allowance for credit losses based on the fair value of collateral. The allowance for credit losses is calculated on an individual loan basis based on the shortfall between the fair value of the loan’s collateral, which is adjusted for liquidation costs/discounts, and amortized cost. If the fair value of the collateral exceeds the amortized cost, no allowance is required.

The following table disaggregates the allowance for loan losses and recorded investment in loans by impairment methodology under the incurred loss methodology as of December 31, 2022 and March 31, 2022.

December 31, 2022		Commercial & industrial		Commercial real estate		Agricultural		Residential real estate		Consumer		Total
Allowance for credit losses:
Ending allowance attributable to loans:
Individually evaluated for impairment	$	-	$	-	$	-	$	138	$	2	$	140
Collectively evaluated for impairment	$	1,663	$	6,280	$	611	$	4,300	$	824	$	13,678

Totals	$	1,663	$	6,280	$	611	$	4,438	$	826	$	13,818

Loans:
Individually evaluated for impairment	$	204	$	347	$	-	$	2,863	$	114	$	3,528
Collectively evaluated for impairment	$	128,189	$	412,462	$	64,505	$	288,505	$	64,886	$	958,547

Totals	$	128,393	$	412,809	$	64,505	$	291,368	$	65,000	$	962,075

March 31, 2022 Commercial & industrial Commercial real estate Agricultural Residential real estate Consumer Total

Allowance for credit losses:

Ending allowance attributable to loans:

Individually evaluated for impairment $
-
$ 10 $
-
$ 172 $ 4 $ 186

Collectively evaluated for impairment $ 1,892 $ 6,873 $ 547 $ 3,330 $ 976 $ 13,618

Totals $ 1,892 $ 6,883 $ 547 $ 3,502 $ 980 $ 13,804

Loans:

Individually evaluated for impairment $ 118 $ 346 $
-
$ 2,974 $ 141 $ 3,579

Collectively evaluated for impairment $ 124,481 $ 399,601 $ 55,660 $ 211,209 $ 55,822 $ 846,773

Totals $ 124,599 $ 399,947 $ 55,660 $ 214,183 $ 55,963 $ 850,352

Credit Risk Profile

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 analyzes loans individually by classifying the loans as to credit risk. This analysis includes loans with an outstanding balance greater than $100,000 and non-homogeneous loans, such as commercial and commercial real estate loans. This analysis is performed on a quarterly basis. The Company uses the following definitions for risk ratings:

Pass (grades 1 – 4): Loans which management has determined to be performing as expected and in agreement with the terms established at the time of loan origination.

Special Mention (5): Assets have 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 assets are not adversely classified and do not expose the Company to sufficient risk to warrant adverse classification. Ordinarily, special mention credits have characteristics which corrective management action would remedy.

Substandard (6): Loans are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified must 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 (7): 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 current known facts, conditions and values, highly questionable and improbable.

Loss (8): Loans are considered uncollectable and of such little value that continuing to carry them as assets on the Company’s financial statement is not warranted. Loans will be classified as Loss when it is neither practical nor desirable to defer writing off or reserving all or a portion of a basically worthless asset, even though partial recovery may be possible at some time in the future.

The Company evaluates the loan risk grading system definitions and allowance for loan loss methodology on an ongoing basis. The following table presents loan balances by credit quality indicators by year of origination as of March 31, 2023.

($ in thousands)	Term Loans by Year of Origination												Revolving		Revolving Loans Converted
March 31, 2023	2023		2022		2021		2020		2019		Prior		Loans		to Term		Total

Commercial & industrial
Pass (1 - 4)	$	8,511	$	21,505	$	23,324	$	11,946	$	9,037	$	7,431	$	43,051	$	430	$	125,235
Special Mention (5)		-		-		-		153		-		159		25		-		337
Substandard (6)		-		44		-		-		-		133		202		-		379
Doubtful (7)		-		-		-		-		-		109		1		5		115
Loss (8)		-		-		-		-		-		-		-		-		-
Total	$	8,511	$	21,549	$	23,324	$	12,099	$	9,037	$	7,832	$	43,279	$	435	$	126,066

Commercial real estate - owner occupied

Pass (1 - 4) $ 5,441 $ 20,677 $ 28,676 $ 14,165 $ 13,845 $ 28,620 $ 280 $ 65 $ 111,769

Special Mention (5)
-

-

-
719 194 4
-

-
917

Substandard (6)
-

-

-
1,757 198
-

-

-
1,955

Doubtful (7)
-

-

-

-

-

-

-

-

-

Loss (8)
-

-

-

-

-

-

-

-

-

Total $ 5,441 $ 20,677 $ 28,676 $ 16,641 $ 14,237 $ 28,624 $ 280 $ 65 $ 114,641

Commercial real estate - nonowner occupied

Pass (1 - 4) $ 13,689 $ 84,172 $ 63,072 $ 50,413 $ 35,662 $ 54,652 $ 129 $ 119 $ 301,908

Special Mention (5)
-

-

-

-

-
1,042
-

-
1,042

Substandard (6)
-

-

-

-
877 357
-

-
1,234

Doubtful (7)
-

-
40
-

-
159
-

-
199

Loss (8)
-

-

-

-

-

-

-

-

-

Total $ 13,689 $ 84,172 $ 63,112 $ 50,413 $ 36,539 $ 56,210 $ 129 $ 119 $ 304,383

($ in thousands)	Term Loans by Year of Origination												Revolving		Revolving Loans Converted
March 31, 2023	2023		2022		2021		2020		2019		Prior		Loans		to Term		Total
Agricultural
Pass (1 - 4)	$	4,208	$	17,230	$	13,501	$	3,725	$	2,155	$	11,737	$	5,205	$	-	$	57,761
Special Mention (5)		-		-		-		-		-		-		-		-		-
Substandard (6)		-		-		-		-		-		-		-		-		-
Doubtful (7)		-		-		-		-		-		-		-		-		-
Loss (8)		-		-		-		-		-		-		-		-		-
Total	$	4,208	$	17,230	$	13,501	$	3,725	$	2,155	$	11,737	$	5,205	$	-	$	57,761

Residential real estate

Pass (1 - 4) $ 19,891 $ 117,919 $ 88,389 $ 34,780 $ 11,836 $ 26,990 $ 4,481 $ 2,444 $ 306,730

Special Mention (5)
-

-
264 196 1,047 1,424
-

-
2,931

Substandard (6)
-

-

-

-

-
23
-

-
23

Doubtful (7)
-

-

-

-

-

-

-

-

-

Loss (8)
-

-

-

-

-

-

-

-

-

Total $ 19,891 $ 117,919 $ 88,653 $ 34,976 $ 12,883 $ 28,437 $ 4,481 $ 2,444 $ 309,684

Home equity line of credit (HELOC)

Pass (1 - 4) $
-
$
-
$ 22 $ 9 $ 89 $ 254 $ 37,509 $ 6,579 $ 44,462

Special Mention (5)
-

-

-

-

-
66 66 118 250

Substandard (6)
-

-

-

-

-

-

-

-

-

Doubtful (7)
-

-

-

-

-

-

-

-

-

Loss (8)
-

-

-

-

-

-

-

-

-

Total $
-
$
-
$ 22 $ 9 $ 89 $ 320 $ 37,575 $ 6,697 $ 44,712

Consumer

Pass (1 - 4) $ 1,037 $ 6,835 $ 2,090 $ 1,614 $ 436 $ 343 $ 6,689 $
-
$ 19,044

Special Mention (5)
-
13 3 2 3
-

-

-
21

Substandard (6)
-

-

-

-

-

-

-

-

-

Doubtful (7)
-

-

-

-

-

-

-

-

-

Loss (8)
-

-

-

-

-

-

-

-

-

Total $ 1,037 $ 6,848 $ 2,093 $ 1,616 $ 439 $ 343 $ 6,689 $
-
$ 19,065

Total Loans

Pass (1 - 4) $ 52,777 $ 268,338 $ 219,074 $ 116,652 $ 73,060 $ 130,027 $ 97,344 $ 9,637 $ 966,909

Special Mention (5)
-
13 267 1,070 1,244 2,695 91 118 5,498

Substandard (6)
-
44
-
1,757 1,075 513 202
-
3,591

Doubtful (7)
-

-
40
-

-
268 1 5 314

Loss (8)
-

-

-

-

-

-

-

-

-

Total Loans $ 52,777 $ 268,395 $ 219,381 $ 119,479 $ 75,379 $ 133,503 $ 97,638 $ 9,760 $ 976,312

The following table presents loan balances by credit quality indicators and loan categories as of December 31, 2022.

($ in thousands) December 31, 2022		Commercial & industrial		Commercial real estate - owner occupied		Commercial real estate - nonowner occupied		Agricultural		Residential real estate		HELOC		Consumer		Total
Pass (1 - 4)	$	127,727	$	107,999	$	296,611	$	64,505	$	288,028	$	44,746	$	19,915	$	949,531
Special Mention (5)		394		2,930		4,899		-		-		-		-		8,223
Substandard (6)		158		-		160		-		3,316		310		29		3,973
Doubtful (7)		114		-		210		-		24		-		-		348
Loss (8)		-		-		-		-		-		-		-		-
Total Loans	$	128,393	$	110,929	$	301,880	$	64,505	$	291,368	$	45,056	$	19,944	$	962,075

The following tables present the Company’s loan portfolio aging analysis as of March 31, 2023 and December 31, 2022.

($ in thousands)	30-59 Days		60-89 Days		Greater Than 90 Days		Total Past
March 31, 2023	Past Due		Past Due		Past Due		Due		Current		Total Loans

Commercial & industrial	$	750	$	56	$	185	$	991	$	125,075	$	126,066
Commercial real estate - owner occupied		42		-		-		42		114,599		114,641
Commercial real estate - nonowner occupied		39		84		32		155		304,228		304,383
Agricultural		-		-		-		-		57,761		57,761
Residential real estate		627		-		1,449		2,076		307,608		309,684
HELOC		151		15		155		321		44,391		44,712
Consumer		24		24		16		64		19,001		19,065
Total Loans	$	1,633	$	179	$	1,837	$	3,649	$	972,663	$	976,312

	30-59 Days		60-89 Days		Greater Than 90 Days		Total Past
December 31, 2022	Past Due		Past Due		Past Due		Due		Current		Total Loans

Commercial & industrial	$	23	$	108	$	114	$	245	$	128,148	$	128,393
Commercial real estate - owner occupied		-		-		-		-		110,929		110,929
Commercial real estate - nonowner occupied		114		-		32		146		301,734		301,880
Agricultural		-		-		-		-		64,505		64,505
Residential real estate		98		411		1,287		1,796		289,572		291,368
HELOC		98		24		138		260		44,796		45,056
Consumer		61		26		22		109		19,835		19,944
Total Loans	$	394	$	569	$	1,593	$	2,556	$	959,519	$	962,075

All loans past due 90 days are systematically placed on nonaccrual status.

When a loan is moved to nonaccrual status, total unpaid interest accrued to date is reversed from income. Subsequent payments are applied to the outstanding principal balance with the interest portion of the payment recorded on the balance sheet as a contra-loan. Interest received on nonaccrual loans may be realized once all contractual principal amounts are received or when a borrower establishes a history of six consecutive timely principal and interest payments. It is at the discretion of management to determine when a loan is placed back on accrual status upon receipt of six consecutive timely payments. The categories of nonaccrual loans as of March 31, 2023 and December 31, 2022 are presented in the following table.

	March 31, 2023						December 31, 2022
($ in thousands)	Nonaccrual loans with no allowance		Nonaccrual loans with an allowance		Total nonaccrual loans		Total nonaccrual loans

Commercial & industrial	$	114	$	71	$	185	$	114
Commercial real estate - owner occupied		-		-		-		-
Commercial real estate - nonowner occupied		199		-		199		210
Agricultural		-		-		-		-
Residential real estate		1,696		1,046		2,742		3,020
Home equity line of credit (HELOC)		250		-		250		310
Consumer		20		-		20		28

Total loans	$	2,279	$	1,117	$	3,396	$	3,682

Impaired Loans (Prior to the Adoption of ASC 326)

Prior to the adoption of ASU 2016-13, a loan was considered impaired when, based on current information and events, it was probable that the Company would be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment included payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experienced insignificant payment delays and payment shortfalls generally were not classified as impaired. Management determined the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration each of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed. Impairment was measured on a loan-by-loan basis for commercial, agricultural, and construction loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price or the fair value of the collateral if the loan is collateral dependent.

Large groups of smaller balance homogenous loans were collectively evaluated for impairment. Accordingly, the Company did not separately identify individual consumer and residential loans for impairment measurements, unless such loans are the subject of a restructuring agreement due to financial difficulties of the borrower. Impaired loans less than $100,000 were included in groups of homogenous loans. These loans were evaluated based on delinquency status. Interest payments on impaired loans were typically applied to principal unless collectability of the principal amount was reasonably assured, in which case interest was recognized on a cash basis.

The following table presents loans individually evaluated for impairment as of and for the three and twelve months ended March 31, 2022 and December 31, 2022:

($ in thousands)			Unpaid				Average		Interest
Twelve Months Ended	Recorded		Principal		Related		Recorded		Income
December 31, 2022	Investment		Balance		Allowance		Investment		Recognized
With no related allowance recorded:
Commercial & industrial	$	204	$	627	$	-	$	650	$	34
Commercial real estate - owner occupied		-		-		-		-		-
Commercial real estate - nonowner occupied		347		825		-		1,350		94
Agricultural		-		-		-		-		-
Residential real estate		1,491		1,558		-		1,793		65
HELOC		68		68				85		4
Consumer		-		-		-		-		-
With a specific allowance recorded:
Commercial & industrial		-		-		-		-		-
Commercial real estate - owner occupied		-		-		-		-		-
Commercial real estate - nonowner occupied		-		-		-		-		-
Agricultural		-		-		-		-		-
Residential real estate		1,372		1,372		138		1,424		43
HELOC		46		46		2		51		2
Consumer		-		-		-		-		-
Totals:
Commercial & industrial	$	204	$	627	$	-	$	650	$	34
Commercial real estate - owner occupied	$	-	$	-	$	-	$	-	$	-
Commercial real estate - nonowner occupied	$	347	$	825	$	-	$	1,350	$	94
Agricultural	$	-	$	-	$	-	$	-	$	-
Residential real estate	$	2,863	$	2,930	$	138	$	3,217	$	108
HELOC	$	114	$	114	$	2	$	136	$	6
Consumer	$	-	$	-	$	-	$	-	$	-

	Three Months Ended
March 31, 2022	Average Recorded		Interest Income
($ in thousands)	Investment		Recognized
With no related allowance recorded:
Commercial & industrial	$	216	$	-
Commercial real estate - owner occupied		88		-
Commercial real estate - nonowner occupied		351		5
Agricultural		-		-
Residential real estate		1,935		18
HELOC		23		-
Consumer		-		-
With a specific allowance recorded:
Commercial & industrial		-		-
Commercial real estate - owner occupied		-		-
Commercial real estate - nonowner occupied		173		-
Agricultural		-		-
Residential real estate		1,280		1
HELOC		130		1
Consumer		-		-
Totals:
Commercial & industrial	$	216	$	-
Commercial real estate - owner occupied	$	88	$	-
Commercial real estate - nonowner occupied	$	524	$	5
Agricultural	$	-	$	-
Residential real estate	$	3,215	$	19
HELOC	$	153	$	1
Consumer	$	-	$	-

Modifications made to Borrowers Experiencing Financial Difficulty

In the normal course of business, the Company may execute loan modifications with borrowers. These modifications are analyzed to determine whether the modification is considered concessionary, long term and made to a borrower experiencing financial difficulty. The Company’s modifications generally include interest rate adjustments, principal reductions, and amortization and maturity date extensions. These modifications allow the borrower short-term cash relief to allow them to improve their financial condition. If a loan modification is determined to be made to a borrower experiencing financial difficulty, the loan is considered collateral dependent and evaluated as part of the ACL as described above in the Allowance for Credit Losses section of this note.

For the three months ended March 31, 2023, the Company did not modify any loans made to borrowers experiencing financial difficulty.

The Company had no commitments to lend to borrowers experiencing financial difficulty for which the Company has modified an existing loan as of March 31, 2023. The Company monitors loan payments on an on-going basis to determine if a loan is considered to have a payment default. Determination of payment default involves analyzing the economic conditions that exist for each customer and their ability to generate positive cash flows during the loan term. For the three-month period ended March 31, 2023, the Company had no loan modifications made to borrowers experiencing financial difficulty for which there was a payment default within the 12 months following the modification date.

Unfunded Loan Commitments

The Company maintains an allowance for off-balance sheet credit exposures such as unfunded balances for existing lines of credit, commitments to extend future credit, as well as both standby and commercial letters of credit when there is a contractual obligation to extend credit and when this extension of credit is not unconditionally cancellable (i.e. commitment cannot be canceled at any time). The allowance for off-balance sheet credit exposures is adjusted as a provision for credit loss expense. The estimate includes consideration of the likelihood that funding will occur, which is based on a historical funding study derived from internal information, and an estimate of expected credit losses on commitments expected to be funded over its estimated life, which are the same loss rates that are used in computing the allowance for credit losses on loans. The allowance for credit losses for unfunded loan commitments of $1.1 million at March 31, 2023 is classified on the balance sheet within Other liabilities.

The following table presents the balance and activity in the allowance for credit losses for unfunded loan commitments for the three months ended March 31, 2023.

($ in thousands)	Allowance for Credit Losses - Unfunded Commitments
Balance, beginning of period	$	-
Adjustment for adoption of ASU 2016-13		1,149
Provision for unfunded commitments		(63	)
Balance, end of period	$	1,086