XML 22 R12.htm IDEA: XBRL DOCUMENT

Loans and Allowance for Credit Losses

6 Months Ended

Jun. 30, 2023

Loans and Allowance for Credit Losses [Abstract]

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)	June 30, 2023			December 31, 2022

Commercial & industrial	$	123,226		$	128,393
Commercial real estate - owner occupied		116,421			110,929
Commercial real estate - nonowner occupied		300,991			301,880
Agricultural		58,222			64,505
Residential real estate		321,365			291,368
Home equity line of credit (HELOC)		46,587			45,056
Consumer		18,012			19,944
Total loans		984,824			962,075
Allowance for credit losses		(15,795	)		(13,818	)
Loans, net	$	969,029		$	948,257

The totals shown above are net of deferred loan fees and costs, which totaled $0.41 million and $0.31 million at June 30, 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 (ACL)

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 ACL for the three and six months ended June 30, 2023 under the CECL methodology.

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 contain disclosures related to the allowance for loan losses in prior periods under this methodology.

($ in thousands) For the three months ended June 30, 2023	Balance, beginning of period		Impact of Adopting ASC 326		Chargeoffs			Recoveries		Provision for Credit Losses			Balance, end of period
Commercial & industrial	$	1,965	$	-	$	-		$	-	$	(8	)	$	1,957
Commercial real estate - owner occupied		1,795		-		-			-		102			1,897
Commercial real estate - nonowner occupied		5,841		-		-			-		(58	)		5,783
Agricultural		403		-		-			-		5			408
Residential real estate		4,692		-		(21	)		-		314			4,985
HELOC		495		-		-			-		28			523
Consumer		251		-		(11	)		10		(8	)		242
Total	$	15,442	$	-	$	(32	)	$	10	$	375		$	15,795

($ in thousands) For the six months ended June 30, 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		$	-		$	-	$	64		$	1,957
Commercial real estate - owner occupied		1,696		54			-			-		147			1,897
Commercial real estate - nonowner occupied		4,584		1,015			-			-		184			5,783
Agricultural		611		(194	)		-			-		(9	)		408
Residential real estate		4,438		360			(53	)		-		240			4,985
HELOC		547		(76	)		-			-		52			523
Consumer		279		(17	)		(48	)		18		10			242
Total	$	13,818	$	1,372		$	(101	)	$	18	$	688		$	15,795

($ in thousands) For the three months ended June 30, 2022	Balance, beginning of period		Chargeoffs			Recoveries		Provision for Credit Losses			Balance, end of period

Commercial & industrial	$	1,892	$	-		$	-	$	(64	)	$	1,828
Commercial real estate - owner occupied		2,564		-			-		-			2,564
Commercial real estate - nonowner occupied		4,319		-			-		(212	)		4,107
Agricultural		547		-			-		13			560
Residential real estate		3,502		-			-		249			3,751
HELOC		534		-			-		-			534
Consumer		446		(9	)		6		14			457
Total	$	13,804	$	(9	)	$	6	$	-		$	13,801

($ in thousands) For the six months ended June 30, 2022	Balance, beginning of period		Chargeoffs			Recoveries		Provision for Credit Losses			Balance, end of period

Commercial & industrial	$	1,890	$	-		$	-	$	(62	)	$	1,828
Commercial real estate - owner occupied		2,564		-			-		-			2,564
Commercial real estate - nonowner occupied		4,217		-			-		(110	)		4,107
Agricultural		599		-			-		(39	)		560
Residential real estate		3,515		-			-		236			3,751
HELOC		579		-			-		(45	)		534
Consumer		441		(18	)		14		20			457
Total	$	13,805	$	(18	)	$	14	$	-		$	13,801

($ 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

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 ACL.

The following table presents an analysis of collateral-dependent loans of the Company as of June 30, 2023.

($ in thousands)	Collateral Type						Allocated
June 30, 2023	Real Estate		Other		Total		Allowance

Commercial & industrial	$	335	$	-	$	335	$	37
Commercial real estate - owner occupied		1,912		-		1,912		-
Commercial real estate - nonowner occupied		1,372		-		1,372		-
Agricultural		-		-		-		-
Residential real estate		1,500		-		1,500		15
HELOC		164		-		164		4
Consumer		-		-		-		-
Total	$	5,283	$	-	$	5,283	$	56

Under CECL, for collateral dependent loans, the Company has adopted the practical expedient to measure the ACL based on the fair value of collateral. The ACL 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 June 30, 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

June 30, 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	$	-	$	-	$	-	$	167	$	4	$	171
Collectively evaluated for impairment	$	1,828	$	6,671	$	560	$	3,584	$	987	$	13,630

Totals	$	1,828	$	6,671	$	560	$	3,751	$	991	$	13,801

Loans:
Individually evaluated for impairment	$	117	$	295	$	-	$	2,997	$	131	$	3,540
Collectively evaluated for impairment	$	127,317	$	403,784	$	60,490	$	238,779	$	61,314	$	891,684

Totals	$	127,434	$	404,079	$	60,490	$	241,776	$	61,445	$	895,224

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 June 30, 2023.

($ in thousands)	Term Loans by Year of Origination												Revolving		Revolving Loans Converted
June 30, 2023	2023		2022		2021		2020		2019		Prior		Loans		to Term		Total

Commercial & industrial
Pass (1 - 4)	$	8,428	$	20,754	$	21,837	$	11,460	$	8,498	$	6,792	$	44,227	$	365	$	122,361
Special Mention (5)		-		-		-		105		-		177		25		31		338
Substandard (6)		-		42		-		-		-		124		252		-		418
Doubtful (7)		-		-		-		-		-		103		1		5		109
Loss (8)		-		-		-		-		-		-		-		-		-
Total	$	8,428	$	20,796	$	21,837	$	11,565	$	8,498	$	7,196	$	44,505	$	401	$	123,226

Commercial real estate - owner occupied
Pass (1 - 4)	$	10,436	$	21,118	$	28,317	$	13,897	$	13,501	$	26,236	$	41	$	63	$	113,609
Special Mention (5)		-		-		-		711		191		1		-		-		903
Substandard (6)		-		-		-		1,719		189		-		-		-		1,908
Doubtful (7)		-		-		-		-		1		-		-		-		1
Loss (8)		-		-		-		-		-		-		-		-		-
Total	$	10,436	$	21,118	$	28,317	$	16,327	$	13,882	$	26,237	$	41	$	63	$	116,421

Commercial real estate - nonowner occupied
Pass (1 - 4)	$	30,149	$	75,261	$	58,822	$	49,332	$	31,470	$	53,291	$	128	$	117	$	298,570
Special Mention (5)		-		-		-		-		-		1,024		-		-		1,024
Substandard (6)		-		-		-		-		864		341		-		-		1,205
Doubtful (7)		-		-		37		-		-		155		-		-		192
Loss (8)		-		-		-		-		-		-		-		-		-
Total	$	30,149	$	75,261	$	58,859	$	49,332	$	32,334	$	54,811	$	128	$	117	$	300,991

Agricultural
Pass (1 - 4)	$	4,986	$	16,821	$	13,333	$	3,640	$	1,961	$	11,075	$	6,406	$	-	$	58,222
Special Mention (5)		-		-		-		-		-		-		-		-		-
Substandard (6)		-		-		-		-		-		-		-		-		-
Doubtful (7)		-		-		-		-		-		-		-		-		-
Loss (8)		-		-		-		-		-		-		-		-		-
Total	$	4,986	$	16,821	$	13,333	$	3,640	$	1,961	$	11,075	$	6,406	$	-	$	58,222

Residential real estate
Pass (1 - 4)	$	39,018	$	114,076	$	87,573	$	35,175	$	11,673	$	26,251	$	3,214	$	1,900	$	318,880
Special Mention (5)		-		-		254		56		1,031		1,121		-		-		2,462
Substandard (6)		-		-		-		-		-		23		-		-		23
Doubtful (7)		-		-		-		-		-		-		-		-		-
Loss (8)		-		-		-		-		-		-		-		-		-
Total	$	39,018	$	114,076	$	87,827	$	35,231	$	12,704	$	27,395	$	3,214	$	1,900	$	321,365

Home equity line of credit (HELOC)
Pass (1 - 4)	$	-	$	-	$	26	$	18	$	88	$	306	$	38,892	$	7,005	$	46,335
Special Mention (5)		-		-		-		-		-		64		35		153		252
Substandard (6)		-		-		-		-		-		-		-		-		-
Doubtful (7)		-		-		-		-		-		-		-		-		-
Loss (8)		-		-		-		-		-		-		-		-		-
Total	$	-	$	-	$	26	$	18	$	88	$	370	$	38,927	$	7,158	$	46,587

Consumer
Pass (1 - 4)	$	1,510	$	6,244	$	1,814	$	1,124	$	362	$	212	$	6,717	$	-	$	17,983
Special Mention (5)		-		9		13		1		6		-		-		-		29
Substandard (6)		-		-		-		-		-		-		-		-		-
Doubtful (7)		-		-		-		-		-		-		-		-		-
Loss (8)		-		-		-		-		-		-		-		-		-
Total	$	1,510	$	6,253	$	1,827	$	1,125	$	368	$	212	$	6,717	$	-	$	18,012

Total Loans
Pass (1 - 4)	$	94,527	$	254,274	$	211,722	$	114,646	$	67,553	$	124,163	$	99,625	$	9,450	$	975,960
Special Mention (5)		-		9		267		873		1,228		2,387		60		184		5,008
Substandard (6)		-		42		-		1,719		1,053		488		252		-		3,554
Doubtful (7)		-		-		37		-		1		258		1		5		302
Loss (8)		-		-		-		-		-		-		-		-		-
Total Loans	$	94,527	$	254,325	$	212,026	$	117,238	$	69,835	$	127,296	$	99,938	$	9,639	$	984,824

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 June 30, 2023 and December 31, 2022.

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

Commercial & industrial	$	-	$	67	$	141	$	208	$	123,018	$	123,226
Commercial real estate - owner occupied		-		-		-		-		116,421		116,421
Commercial real estate - nonowner occupied		156		39		53		248		300,743		300,991
Agricultural		8		-		-		8		58,214		58,222
Residential real estate		161		355		1,041		1,557		319,808		321,365
HELOC		84		-		154		238		46,349		46,587
Consumer		20		54		24		98		17,914		18,012
Total Loans	$	429	$	515	$	1,413	$	2,357	$	982,467	$	984,824

	30-59 Days		60-89 Days		Greater Than		Total Past
December 31, 2022	Past Due		Past Due		90 Days 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 June 30, 2023 and December 31, 2022 are presented in the following table.

	June 30, 2023						December 31, 2022
($ in thousands)	Nonaccrual loans with no allowance		Nonaccrual loans with an allowance		Total nonaccrual loans		Total nonaccrual loans
Commercial & industrial	$	170	$	-	$	170	$	114
Commercial real estate - owner occupied		-		-		-		-
Commercial real estate - nonowner occupied		192		-		192		210
Agricultural		-		-		-		-
Residential real estate		766		1,500		2,266		3,020
Home equity line of credit (HELOC)		88		164		252		310
Consumer		30		-		30		28
Total loans	$	1,246	$	1,664	$	2,910	$	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 were 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 six months ended June 30, 2022 and for the twelve months ended December 31, 2022:

($ in thousands) Twelve Months Ended	Recorded		Unpaid Principal		Related		Average Recorded		Interest 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				Six Months Ended
June 30, 2022	Average Recorded		Interest Income		Average Recorded		Interest Income
($ in thousands)	Investment		Recognized		Investment		Recognized
With no related allowance recorded:
Commercial & industrial	$	216	$	1	$	216	$	1
Commercial real estate - owner occupied		88		-		88		-
Commercial real estate - nonowner occupied		348		6		350		11
Agricultural		-		-		-		-
Residential real estate		2,002		16		2,011		35
HELOC		21		-		23		1
Consumer		-		-		-		-
With a specific allowance recorded:
Commercial & industrial		-		-		-		-
Commercial real estate - owner occupied		-		-		-		-
Commercial real estate - nonowner occupied		-		-		-		-
Agricultural		-		-		-		-
Residential real estate		1,278		15		1,279		1
HELOC		123		1		125		1
Consumer		-		-		-		-
Totals:
Commercial & industrial	$	216	$	1	$	216	$	1
Commercial real estate - owner occupied	$	88	$	-	$	88	$	-
Commercial real estate - nonowner occupied	$	348	$	6	$	350	$	11
Agricultural	$	-	$	-	$	-	$	-
Residential real estate	$	3,280	$	31	$	3,290	$	36
HELOC	$	144	$	1	$	148	$	2
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 six months ended June 30, 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 June 30, 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 six-month period ended June 30, 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 ACL for loans. The allowance for credit losses for unfunded loan commitments of $0.9 million at June 30, 2023 is classified on the balance sheet within Other liabilities.

The following table presents the balance and activity in the ACL for unfunded loan commitments for the three and six months ended June 30, 2023.

	Three Months Ended			Six Months Ended
($ in thousands)	June 30, 2023			June 30, 2023
Balance, beginning of period	$	1,086		$	-
Adjustment for adoption of ASU 2016-13		-			1,149
Provision for unfunded commitments		(230	)		(293	)
Balance, end of period	$	856		$	856