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Loans and Allowance for Credit Losses

9 Months Ended

Sep. 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)	September 30, 2023			December 31, 2022

Commercial & industrial	$	120,325		$	128,393
Commercial real estate - owner occupied		124,182			110,929
Commercial real estate - nonowner occupied		297,554			301,880
Agricultural		60,928			64,505
Residential real estate		320,306			291,368
Home equity line of credit (HELOC)		47,695			45,056
Consumer		18,031			19,944
Total loans		989,021			962,075
Allowance for credit losses		(15,790	)		(13,818	)
Loans, net	$	973,231		$	948,257

The totals shown above are net of deferred loan fees and costs, which totaled $0.44 million and $0.31 million at September 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 underwritten 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 underwritten 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 tables summarize the activity related to the ACL for the three and nine months ended September 30, 2023 under the CECL methodology.

($ in thousands) For the three months ended September 30, 2023	Balance, beginning of period		Impact of Adopting ASC 326		Chargeoffs			Recoveries		Provision for Credit Losses			Balance, end of period

Commercial & industrial	$	1,957	$	-	$	-		$	-	$	(37	)	$	1,920
Commercial real estate - owner occupied		1,897		-		-			-		2			1,899
Commercial real estate - nonowner occupied		5,783		-		-			-		43			5,826
Agricultural		408		-		-			-		1			409
Residential real estate		4,985		-		-			1		2			4,988
HELOC		523		-		-			-		(8	)		515
Consumer		242		-		(12	)		6		(3	)		233
Total	$	15,795	$	-	$	(12	)	$	7	$	-		$	15,790

($ in thousands) For the nine months ended September 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		$	-		$	-	$	27		$	1,920
Commercial real estate - owner occupied		1,696		54			-			-		149			1,899
Commercial real estate - nonowner occupied		4,584		1,015			-			-		227			5,826
Agricultural		611		(194	)		-			-		(8	)		409
Residential real estate		4,438		360			(53	)		1		242			4,988
HELOC		547		(76	)		-			-		44			515
Consumer		279		(17	)		(60	)		24		7			233
Total	$	13,818	$	1,372		$	(113	)	$	25	$	688		$	15,790

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

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

Commercial & industrial	$	1,828	$	-		$	-	$	(32	)	$	1,796
Commercial real estate - owner occupied		2,564		-			-		-			2,564
Commercial real estate - nonowner occupied		4,107		-			-		(21	)		4,086
Agricultural		560		-			-		12			572
Residential real estate		3,751		-			-		175			3,926
HELOC		534		-			-		(26	)		508
Consumer		457		(9	)		32		(108	)		372
Total	$	13,801	$	(9	)	$	32	$	-		$	13,824

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

Commercial & industrial	$	1,890	$	-		$	-	$	(94	)	$	1,796
Commercial real estate - owner occupied		2,564		-			-		-			2,564
Commercial real estate - nonowner occupied		4,217		-			-		(131	)		4,086
Agricultural		599		-			-		(27	)		572
Residential real estate		3,515		-			-		411			3,926
HELOC		579		-			-		(71	)		508
Consumer		441		(27	)		46		(88	)		372
Total	$	13,805	$	(27	)	$	46	$	-		$	13,824

($ 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 September 30, 2023.

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

Commercial & industrial	$	810	$	-	$	810	$	97
Commercial real estate - owner occupied		1,865		-		1,865		-
Commercial real estate - nonowner occupied		1,187		-		1,187		41
Agricultural		-		-		-		-
Residential real estate		1,618		-		1,618		64
HELOC		-		-		-		-
Consumer		-		-		-		-
Total	$	5,480	$	-	$	5,480	$	202

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 tables disaggregate the allowance for loan losses and recorded investment in loans by impairment methodology under the incurred loss methodology as of December 31, 2022 and September 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

September 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	$	-	$	-	$	-	$	152	$	2	$	154
Collectively evaluated for impairment	$	1,796	$	6,650	$	572	$	3,774	$	878	$	13,670

Totals	$	1,796	$	6,650	$	572	$	3,926	$	880	$	13,824

Loans:
Individually evaluated for impairment	$	92	$	197	$	-	$	2,907	$	122	$	3,318
Collectively evaluated for impairment	$	128,171	$	404,318	$	60,409	$	264,383	$	64,200	$	921,481

Totals	$	128,263	$	404,515	$	60,409	$	267,290	$	64,322	$	924,799

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 September 30, 2023.

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

Commercial & industrial
Pass (1 - 4)	$	11,924	$	19,212	$	20,492	$	11,013	$	7,977	$	6,401	$	40,814	$	438	$	118,271
Special Mention (5)		-		750		-		85		29		169		-		30		1,063
Substandard (6)		196		41		226		-		-		119		251		51		884
Doubtful (7)		-		-		-		-		1		101		-		5		107
Loss (8)		-		-		-		-		-		-		-		-		-
Total	$	12,120	$	20,003	$	20,718	$	11,098	$	8,007	$	6,790	$	41,065	$	524	$	120,325

Commercial real estate - owner occupied
Pass (1 - 4)	$	21,954	$	23,742	$	27,571	$	13,570	$	13,310	$	20,959	$	111	$	178	$	121,395
Special Mention (5)		-		-		-		704		188		-		-		-		892
Substandard (6)		-		-		-		1,681		180		-		-		-		1,861
Doubtful (7)		-		-		33		-		1		-		-		-		34
Loss (8)		-		-		-		-		-		-		-		-		-
Total	$	21,954	$	23,742	$	27,604	$	15,955	$	13,679	$	20,959	$	111	$	178	$	124,182

Commercial real estate - nonowner occupied
Pass (1 - 4)	$	39,881	$	70,262	$	55,799	$	47,424	$	31,012	$	50,725	$	88	$	-	$	295,191
Special Mention (5)		-		-		-		-		-		999		-		-		999
Substandard (6)		-		-		-		-		851		324		39		-		1,214
Doubtful (7)		-		-		-		-		-		150		-		-		150
Loss (8)		-		-		-		-		-		-		-		-		-
Total	$	39,881	$	70,262	$	55,799	$	47,424	$	31,863	$	52,198	$	127	$	-	$	297,554

Agricultural
Pass (1 - 4)	$	7,673	$	16,596	$	13,157	$	3,204	$	1,897	$	10,359	$	8,042	$	-	$	60,928
Special Mention (5)		-		-		-		-		-		-		-		-		-
Substandard (6)		-		-		-		-		-		-		-		-		-
Doubtful (7)		-		-		-		-		-		-		-		-		-
Loss (8)		-		-		-		-		-		-		-		-		-
Total	$	7,673	$	16,596	$	13,157	$	3,204	$	1,897	$	10,359	$	8,042	$	-	$	60,928

Residential real estate
Pass (1 - 4)	$	48,577	$	111,229	$	85,744	$	32,249	$	11,613	$	24,027	$	2,928	$	1,600	$	317,967
Special Mention (5)		-		-		369		55		935		958		-		-		2,317
Substandard (6)		-		-		-		-		-		22		-		-		22
Doubtful (7)		-		-		-		-		-		-		-		-		-
Loss (8)		-		-		-		-		-		-		-		-		-
Total	$	48,577	$	111,229	$	86,113	$	32,304	$	12,548	$	25,007	$	2,928	$	1,600	$	320,306

Home equity line of credit (HELOC)
Pass (1 - 4)	$	-	$	-	$	191	$	18	$	86	$	132	$	40,023	$	7,075	$	47,525
Special Mention (5)		-		-		-		-		-		62		20		73		155
Substandard (6)		-		-		-		15		-		-		-		-		15
Doubtful (7)		-		-		-		-		-		-		-		-		-
Loss (8)		-		-		-		-		-		-		-		-		-
Total	$	-	$	-	$	191	$	33	$	86	$	194	$	40,043	$	7,148	$	47,695

Consumer
Pass (1 - 4)	$	5,477	$	5,755	$	1,605	$	929	$	291	$	163	$	3,797	$	-	$	18,017
Special Mention (5)		-		-		13		1		-		-		-		-		14
Substandard (6)		-		-		-		-		-		-		-		-		-
Doubtful (7)		-		-		-		-		-		-		-		-		-
Loss (8)		-		-		-		-		-		-		-		-		-
Total	$	5,477	$	5,755	$	1,618	$	930	$	291	$	163	$	3,797	$	-	$	18,031

Total Loans
Pass (1 - 4)	$	135,486	$	246,796	$	204,559	$	108,407	$	66,186	$	112,766	$	95,803	$	9,291	$	979,294
Special Mention (5)		-		750		382		845		1,152		2,188		20		103		5,440
Substandard (6)		196		41		226		1,696		1,031		465		290		51		3,996
Doubtful (7)		-		-		33		-		2		251		-		5		291
Loss (8)		-		-		-		-		-		-		-		-		-
Total Loans	$	135,682	$	247,587	$	205,200	$	110,948	$	68,371	$	115,670	$	96,113	$	9,450	$	989,021

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 September 30, 2023 and December 31, 2022.

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

Commercial & industrial	$	863	$	196	$	424	$	1,483	$	118,842	$	120,325
Commercial real estate - owner occupied		-		32		-		32		124,150		124,182
Commercial real estate - nonowner occupied		-		-		91		91		297,463		297,554
Agricultural		-		-		-		-		60,928		60,928
Residential real estate		5		245		1,047		1,297		319,009		320,306
HELOC		174		48		106		328		47,367		47,695
Consumer		35		12		15		62		17,969		18,031
Total Loans	$	1,077	$	533	$	1,683	$	3,293	$	985,728	$	989,021

	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 September 30, 2023 and December 31, 2022 are presented in the following table.

	September 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	$	224	$	492	$	716	$	114
Commercial real estate - owner occupied		33		-		33		-
Commercial real estate - nonowner occupied		189		-		189		210
Agricultural		-		-		-		-
Residential real estate		716		1,490		2,206		3,020
Home equity line of credit (HELOC)		170		-		170		310
Consumer		15		-		15		28

Total loans	$	1,347	$	1,982	$	3,329	$	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 for the three and nine months ended September 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				Nine Months Ended
September 30, 2022	Average Recorded		Interest Income		Average Recorded		Interest Income
($ in thousands)	Investment		Recognized		Investment		Recognized
With no related allowance recorded:
Commercial & industrial	$	191	$	1	$	191	$	2
Commercial real estate - owner occupied		-		-		-		-
Commercial real estate - nonowner occupied		342		5		348		16
Agricultural		-		-		-		-
Residential real estate		1,784		16		1,808		47
HELOC		82		1		90		3
Consumer		-		-		-		-
With a specific allowance recorded:
Commercial & industrial		-		-		-		-
Commercial real estate - owner occupied		-		-		-		-
Commercial real estate - nonowner occupied		-		-		-		-
Agricultural		-		-		-		-
Residential real estate		1,413		7		1,419		34
HELOC		49		1		54		2
Consumer		-		-		-		-
Totals:
Commercial & industrial	$	191	$	1	$	191	$	2
Commercial real estate - owner occupied	$	-	$	-	$	-	$	-
Commercial real estate - nonowner occupied	$	342	$	5	$	348	$	16
Agricultural	$	-	$	-	$	-	$	-
Residential real estate	$	3,197	$	23	$	3,227	$	81
HELOC	$	131	$	2	$	144	$	5
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 nine months ended September 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 had modified an existing loan as of September 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 its ability to generate positive cash flows during the loan term. For the nine-month period ended September 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 September 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 nine months ended September 30, 2023.

	Three Months Ended			Nine Months Ended
($ in thousands)	September 30, 2023			September 30, 2023
Balance, beginning of period	$	856		$	-
Adjustment for adoption of ASU 2016-13		-			1,149
Provision for unfunded commitments		(6	)		(299	)
Balance, end of period	$	850		$	850