Notes to Consolidated Financial Statements
(Unaudited)
1. Nature of Business and Significant Accounting Policies
Nature of Business
MidWestOne Financial Group, Inc. (the "Company"), an Iowa corporation formed in 1983, is a bank holding company under the BHCA and a financial holding company under the GLBA. Our principal executive offices are located at 102 South Clinton Street, Iowa City, Iowa 52240.
The Company owns all of the outstanding common stock of MidWestOne Bank, an Iowa state non-member bank chartered in 1934 with its main office in Iowa City, Iowa. We operate primarily through MidWestOne Bank, our bank subsidiary.
On June 9, 2022, the Company acquired Iowa First Bancshares Corp., a bank holding company whose wholly-owned banking subsidiaries were First National Bank of Muscatine and First National Bank in Fairfield, community banks located in Muscatine and Fairfield, Iowa, respectively. Immediately following the completion of the acquisition, First National Bank of Muscatine and First National Bank in Fairfield were merged with and into the Bank. As consideration for the merger, we paid cash in the amount of $46.7 million.
Basis of Presentation
The accompanying interim condensed consolidated financial statements are prepared in accordance with GAAP for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Article 10 of Regulation S-X of the Securities Exchange Act of 1934. Accordingly, certain disclosures accompanying annual consolidated financial statements are omitted. In the opinion of management, all significant intercompany accounts and transactions have been eliminated and adjustments, consisting solely of normal recurring accruals and considered necessary for the fair presentation of financial statements for the interim periods, have been included. The current period's results of operations are not necessarily indicative of the results that ultimately may be achieved for the year. The interim condensed consolidated financial statements and notes thereto should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Form 10-K for the year ended December 31, 2022, filed with the SEC on March 13, 2023.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect: (1) the reported amounts of assets and liabilities, (2) the disclosure of contingent assets and liabilities at the date of the financial statements, and (3) the reported amounts of revenues and expenses during the reporting period. These estimates are based on information available to management at the time the estimates are made. Actual results could differ from those estimates. The results for the three months ended March 31, 2023 may not be indicative of results for the year ending December 31, 2023, or for any other period.
All significant accounting policies followed in the preparation of the quarterly financial statements are disclosed in the Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 13, 2023.
Segment Reporting
The Company’s activities are considered to be one reportable segment for financial reporting purposes. The Company is engaged in the business of commercial and retail banking and trust and investment management services with operations throughout central and eastern Iowa, the Minneapolis/St. Paul metropolitan area of Minnesota, southwestern Wisconsin, Naples and Fort Myers, Florida, and Denver, Colorado. Substantially all income is derived from a diverse base of commercial, mortgage and retail lending activities, and investments.
Effect of New Financial Accounting Standards
Accounting Guidance Pending Adoption at March 31, 2023
On March 12, 2020, the FASB issued ASU 2020-04, Reference Rate Reform (ASC 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASC 848 contains optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform. Certain optional expedients and exceptions for contract modifications and hedging relationships were amended in ASU 2021-01, Reference Rate Reform (Topic 848): Scope Refinement, issued on January 7, 2021. In addition, ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset
Date of Topic 848, deferred the sunset date of Topic 848 from December 31, 2022 to December 31, 2024, after which time entities will no longer be permitted to apply the relief in Topic 848. The adoption of ASU 2020-04 is not expected to have a material impact on the Company’s consolidated financial statements.
Accounting Guidance Adopted at March 31, 2023
On March 31, 2022, the FASB issued ASU 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. For creditors that have adopted the CECL accounting guidance within ASU 2016-13, the amendments eliminate the accounting guidance for TDRs within ASC 310-40, while also enhancing the disclosure requirements for certain loan refinancings and restructurings when a borrower is experiencing financial difficulty. In addition, public business entities must also disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of ASC 326-20. The amendments are effective for fiscal years beginning after December 15, 2022 and should be applied prospectively, with an option to apply a modified retrospective transition approach for the recognition and measurement of TDRs. The adoption of ASU 2022-02 was applied prospectively and did not have a material impact on the Company's consolidated financial statements.
2. Business Combinations
On June 9, 2022, the Company acquired 100% of the equity of IOFB through a merger and acquired its wholly-owned subsidiaries FNBM and FNBF for cash consideration of $46.7 million. The primary reasons for the acquisition were to enter the Muscatine, Iowa market and increase our presence in Fairfield, Iowa. Immediately following the completion of the acquisition, FNBM and FNBF were merged with and into the Bank.
The assets acquired and liabilities assumed have been accounted for under the acquisition method of accounting. The assets and liabilities, both tangible and intangible, were recorded at their fair values as of the June 9, 2022 acquisition date net of any applicable tax effects using a methodology similar to the Company's legacy assets and liabilities (refer to Note 14. Fair Value of Financial Instruments and Fair Value Measurements for additional information regarding the fair value methodology). The bargain purchase gain, which is recorded in 'Other' noninterest income, was generated as a result of the estimated fair value of identifiable net assets acquired exceeding the merger consideration. Bargain purchase gains are recorded net of deferred taxes and are treated as permanent differences, resulting in lower effective tax rate in the period recorded. The table below summarizes the amounts recognized as of the acquisition date for each major class of assets acquired and liabilities assumed.
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(in thousands) | | | | | | June 9, 2022 |
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Merger consideration | | | | | | |
Cash consideration | | | | | | $ | 46,672 | |
Identifiable net assets acquired, at fair value | | | | | | |
Assets acquired | | | | | | |
Cash and due from banks | | | | | | $ | 10,192 | |
Interest earning deposits in banks | | | | | | 67,855 | |
Debt securities | | | | | | 119,820 | |
Loans held for investment | | | | | | 281,326 | |
Premises and equipment | | | | | | 7,363 | |
Core deposit intangible | | | | | | 16,500 | |
Other assets | | | | | | 14,140 | |
Total assets acquired | | | | | | 517,196 | |
Liabilities assumed | | | | | | |
Deposits | | | | | | $ | (463,638) | |
Other liabilities | | | | | | (3,117) | |
Total liabilities assumed | | | | | | (466,755) | |
Identifiable net assets acquired, at fair value | | | | | | 50,441 | |
Bargain Purchase Gain | | | | | | $ | 3,769 | |
Of the $281.3 million net loans acquired, $11.0 million exhibited credit deterioration on the date of purchase. The following table provides a summary of these PCD loans at acquisition:
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(in thousands) | | | | | | | | | | | | June 9, 2022 |
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Par value of PCD loans acquired | | | | | | | | | | | | $ | 15,396 | |
PCD ACL at acquisition | | | | | | | | | | | | (3,371) | |
Non-credit discount on PCD loans | | | | | | | | | | | | (1,005) | |
Purchase price of PCD loans | | | | | | | | | | | | $ | 11,020 | |
The following table summarizes the IOFB acquisition-related expenses, which are included in the respective income statement line items, for the periods indicated:
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| Three Months Ended | | |
| March 31, | | |
(in thousands) | 2023 | | 2022 | | | | |
Noninterest Expense | | | | | | | |
Compensation and employee benefits | $ | 70 | | | $ | — | | | | | |
| | | | | | | |
Equipment | — | | | 5 | | | | | |
Legal and professional | — | | | 63 | | | | | |
Data processing | 65 | | | 38 | | | | | |
Marketing | — | | | 7 | | | | | |
Communications | — | | | 1 | | | | | |
Other | 1 | | | 14 | | | | | |
Total acquisition-related expenses | $ | 136 | | | $ | 128 | | | | | |
3. Debt Securities
On January 1, 2022, the Company transferred, at fair value, $1.25 billion of mortgage-backed securities, collateralized mortgage obligations, and securities issued by state and political subdivisions from the available for sale classification to the held to maturity classification. The net unrealized after tax loss of $11.5 million associated with those re-classified securities remained in accumulated other comprehensive loss and will be amortized over the remaining life of the securities. At March 31, 2023, there was $8.2 million of net unrealized after tax loss remaining in accumulated other comprehensive loss. No gains or losses were recognized in earnings at the time of the transfer.
The following tables summarize the amortized cost, gross unrealized gains and losses and the resulting fair value of debt securities for the periods indicated. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of March 31, 2023 |
(in thousands) | Amortized Cost (1) | | Gross Unrealized Gains | | Gross Unrealized Losses | | Allowance for Credit Loss related to Debt Securities | | Fair Value |
Available for Sale | | | | | | | | | |
State and political subdivisions | $ | 196,497 | | | $ | 24 | | | $ | 11,940 | | | $ | — | | | $ | 184,581 | |
Mortgage-backed securities | 5,851 | | | 5 | | | 177 | | | — | | | 5,679 | |
Collateralized loan obligations | 54,224 | | | — | | | 150 | | | — | | | 54,074 | |
Collateralized mortgage obligations | 168,135 | | | — | | | 23,469 | | | — | | | 144,666 | |
Corporate debt securities | 624,673 | | | 22 | | | 59,621 | | | — | | | 565,074 | |
Total available for sale debt securities | $ | 1,049,380 | | | $ | 51 | | | $ | 95,357 | | | $ | — | | | $ | 954,074 | |
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Held to Maturity | | | | | | | | | |
State and political subdivisions | $ | 538,182 | | | $ | — | | | $ | 71,250 | | | $ | — | | | $ | 466,932 | |
Mortgage-backed securities | 79,597 | | | — | | | 11,772 | | | — | | | 67,825 | |
Collateralized mortgage obligations | 499,930 | | | — | | | 96,152 | | | — | | | 403,778 | |
Total held to maturity debt securities | $ | 1,117,709 | | | $ | — | | | $ | 179,174 | | | $ | — | | | $ | 938,535 | |
(1) Amortized cost for the held to maturity securities includes $0.2 million of unamortized gain in state and political subdivisions, $10 thousand of unamortized losses in mortgage-backed securities and $11.4 million of unamortized losses in collateralized mortgage obligations related to the re-classification of securities from available for sale to held to maturity on January 1, 2022. |
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| As of December 31, 2022 |
(in thousands) | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Allowance for Credit Loss related to Debt Securities | | Fair Value |
Available for Sale | | | | | | | | | |
U.S. Government agencies and corporations | $ | 7,598 | | | $ | — | | | $ | 253 | | | $ | — | | | $ | 7,345 | |
State and political subdivisions | 303,573 | | | 27 | | | 18,244 | | | — | | | 285,356 | |
Mortgage-backed securities | 6,165 | | | 11 | | | 232 | | | — | | | 5,944 | |
Collateralized mortgage obligations | 172,568 | | | — | | | 25,375 | | | — | | | 147,193 | |
Corporate debt securities | 771,836 | | | 125 | | | 64,252 | | | — | | | 707,709 | |
Total available for sale debt securities | $ | 1,261,740 | | | $ | 163 | | | $ | 108,356 | | | $ | — | | | $ | 1,153,547 | |
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Held to Maturity | | | | | | | | | |
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State and political subdivisions | $ | 538,746 | | | $ | — | | | $ | 88,349 | | | $ | — | | | $ | 450,397 | |
Mortgage-backed securities | 81,032 | | | — | | | 12,851 | | | — | | | 68,181 | |
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Collateralized mortgage obligations | 509,643 | | | — | | | 103,327 | | | — | | | 406,316 | |
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Total held to maturity debt securities | $ | 1,129,421 | | | $ | — | | | $ | 204,527 | | | $ | — | | | $ | 924,894 | |
Investment securities with a fair value of $1.19 billion and $690.2 million at March 31, 2023 and December 31, 2022, respectively, were pledged on public deposits, securities sold under agreements to repurchase and for other purposes, as required or permitted by law.
Accrued interest receivable on available for sale debt securities and held to maturity debt securities is recorded within 'Other Assets,' and is excluded from the estimate of credit losses. At March 31, 2023 the accrued interest receivable on available for sale debt securities and held to maturity debt securities totaled $6.8 million and $3.6 million, respectively. At December 31, 2022 the accrued interest receivable on available for sale debt securities totaled $7.6 million and $3.7 million.
The following table presents debt securities AFS in an unrealized loss position for which an allowance for credit losses has not been recorded at March 31, 2023, aggregated by investment category and length of time in a continuous loss position:
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| | | As of March 31, 2023 |
| Number of Securities | | Less than 12 Months | | 12 Months or More | | Total |
Available for Sale | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses |
(in thousands, except number of securities) | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
State and political subdivisions | 187 | | | $ | 58,853 | | | $ | 2,606 | | | $ | 111,956 | | | $ | 9,334 | | | $ | 170,809 | | | $ | 11,940 | |
Mortgage-backed securities | 25 | | | 969 | | | 26 | | | 4,269 | | | 151 | | | 5,238 | | | 177 | |
Collateralized loan obligations | 2 | | | 9,708 | | | 150 | | | — | | | — | | | 9,708 | | | 150 | |
Collateralized mortgage obligations | 20 | | | 37,129 | | | 2,313 | | | 107,537 | | | 21,156 | | | 144,666 | | | 23,469 | |
Corporate debt securities | 152 | | | 133,706 | | | 5,121 | | | 424,397 | | | 54,500 | | | 558,103 | | | 59,621 | |
Total | 386 | | | $ | 240,365 | | | $ | 10,216 | | | $ | 648,159 | | | $ | 85,141 | | | $ | 888,524 | | | $ | 95,357 | |
As of March 31, 2023, 187 state and political subdivisions securities with total unrealized losses of $11.9 million were held by the Company. Management evaluated these securities through a process that included consideration of credit agency ratings and payment history. In addition, management may evaluate securities by considering the yield spread to treasury securities and the most recent financial information available. Based on this evaluation, management concluded that the decline in fair value was not attributable to credit losses.
As of March 31, 2023, 25 mortgage-backed securities, and 20 collateralized mortgage obligations with unrealized losses totaling $23.6 million were held by the Company. Management evaluated the payment history of these securities. In addition, management considered the implied U.S. government guarantee of these agency securities and the level of credit enhancement for non-agency securities. Based on this evaluation, management concluded that the decline in fair value was not attributable to credit losses.
As of March 31, 2023, 2 collateralized loan obligations with unrealized losses of $0.2 million were held by the Company. Management evaluated these securities through a process that included consideration of credit agency ratings, priority of cash flows and the amount of over-collateralization. In addition, management may evaluate securities by considering the yield spread to treasury securities and the most recent financial information available. Based on this evaluation, management concluded that the decline in fair value was not attributable to credit losses.
As of March 31, 2023, 152 corporate debt securities with total unrealized losses of $59.6 million were held by the Company. Management evaluated these securities by considering credit agency ratings and payment history. In addition, management may
evaluate securities by considering the yield spread to treasury securities and the most recent financial information available. Based on this evaluation, management concluded that the decline in fair value was not attributable to credit losses.
The following table presents debt securities AFS in an unrealized loss position for which an allowance for credit losses has not been recorded at December 31, 2022, aggregated by investment category and length of time in a continuous loss position:
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| | | As of December 31, 2022 |
Available for Sale | Number of Securities | | Less than 12 Months | | 12 Months or More | | Total |
| Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses |
(in thousands, except number of securities) | | | | | | | | | | | | | |
U.S. Government agencies and corporations | 8 | | | $ | 7,345 | | | $ | 253 | | | $ | — | | | $ | — | | | $ | 7,345 | | | $ | 253 | |
State and political subdivisions | 380 | | | 248,339 | | | 14,553 | | | 20,631 | | | 3,691 | | | 268,970 | | | 18,244 | |
Mortgage-backed securities | 27 | | | 5,323 | | | 231 | | | 45 | | | 1 | | | 5,368 | | | 232 | |
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Collateralized mortgage obligations | 20 | | | 75,041 | | | 7,121 | | | 72,152 | | | 18,254 | | | 147,193 | | | 25,375 | |
Corporate debt securities | 159 | | | 369,441 | | | 21,679 | | | 288,329 | | | 42,573 | | | 657,770 | | | 64,252 | |
Total | 594 | | | $ | 705,489 | | | $ | 43,837 | | | $ | 381,157 | | | $ | 64,519 | | | $ | 1,086,646 | | | $ | 108,356 | |
The Company evaluates debt securities held to maturity for current expected credit losses. There were no debt securities held to maturity classified as nonaccrual or past due as of March 31, 2023. Held-to-maturity securities are evaluated on a quarterly basis using historical probability of default and loss given default information specific to the investment category. If this evaluation determines that credit losses exist, an allowance for credit loss is recorded and included in earnings as a component of credit loss expense. Based on this evaluation, management concluded that no allowance for credit loss for these securities was required.
Proceeds and gross realized gains and losses on debt securities available for sale for the three months ended March 31, 2023 and 2022, were as follows:
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| Three Months Ended | | |
(in thousands) | March 31, 2023 | | March 31, 2022 | | | | |
Proceeds from sales of debt securities available for sale | $ | 218,667 | | | $ | — | | | | | |
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Gross realized gains from sales of debt securities available for sale | — | | | — | | | | | |
Gross realized losses from sales of debt securities available for sale | (13,170) | | | — | | | | | |
Net realized gain from sales of debt securities available for sale(1) | $ | (13,170) | | | $ | — | | | | | |
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(1) The difference in investment security gains, net reported herein as compared to the Consolidated Statements of Income is associated with the net realized gain from the call or maturity of debt securities of $0 for the three months ended March 31, 2023 and $40 thousand for the three months ended March 31, 2022. |
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The contractual maturity distribution of investment debt securities at March 31, 2023, is shown below. Expected maturities of MBS, CLO and CMO may differ from contractual maturities because the mortgages underlying the securities may be called or prepaid without any penalties. Therefore, these securities are not included in the maturity categories in the following summary.
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| Available for Sale | | Held to Maturity |
(in thousands) | Amortized Cost | | Fair Value | | Amortized Cost | | Fair Value |
Due in one year or less | $ | 49,536 | | | $ | 49,128 | | | $ | 4,390 | | | $ | 4,375 | |
Due after one year through five years | 563,764 | | | 516,820 | | | 116,601 | | | 105,326 | |
Due after five years through ten years | 176,129 | | | 155,873 | | | 207,827 | | | 180,227 | |
Due after ten years | 31,741 | | | 27,834 | | | 209,364 | | | 177,004 | |
| $ | 821,170 | | | $ | 749,655 | | | $ | 538,182 | | | $ | 466,932 | |
Mortgage-backed securities | 5,851 | | | 5,679 | | | 79,597 | | | 67,825 | |
Collateralized loan obligations | 54,224 | | | 54,074 | | | — | | | — | |
Collateralized mortgage obligations | 168,135 | | | 144,666 | | | 499,930 | | | 403,778 | |
Total | $ | 1,049,380 | | | $ | 954,074 | | | $ | 1,117,709 | | | $ | 938,535 | |
4. Loans Receivable and the Allowance for Credit Losses
The composition of loans by class of receivable was as follows:
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| As of |
(in thousands) | March 31, 2023 | | December 31, 2022 |
Agricultural | $ | 106,641 | | | $ | 115,320 | |
Commercial and industrial | 1,080,514 | | | 1,055,162 |
Commercial real estate: | | | |
Construction & development | 320,924 | | | 270,991 |
Farmland | 182,528 | | | 183,913 |
Multifamily | 255,065 | | | 252,129 |
Commercial real estate-other | 1,290,454 | | | 1,272,985 |
Total commercial real estate | 2,048,971 | | | 1,980,018 |
Residential real estate: | | | |
One- to four- family first liens | 448,459 | | | 451,210 |
One- to four- family junior liens | 162,403 | | | 163,218 |
Total residential real estate | 610,862 | | | 614,428 |
Consumer | 72,377 | | | 75,596 |
Loans held for investment, net of unearned income | 3,919,365 | | | 3,840,524 |
Allowance for credit losses | (49,800) | | | (49,200) | |
Total loans held for investment, net | $ | 3,869,565 | | | $ | 3,791,324 | |
Loans with unpaid principal in the amount of $1.24 billion and $1.01 billion at March 31, 2023 and December 31, 2022, respectively, were pledged to the FHLB as collateral for borrowings.
Non-accrual and Delinquent Status
Loans are placed on non-accrual when (1) payment in full of principal and interest is no longer expected or (2) principal or interest has been in default for 90 days or more for all loan types, except owner occupied residential real estate, which are moved to non-accrual at 120 days or more past due, unless the loan is both well secured with marketable collateral and in the process of collection. All loans rated doubtful or worse, and certain loans rated substandard, are placed on non-accrual.
A non-accrual loan may be restored to an accrual status when (1) all past due principal and interest has been paid (excluding renewals and modifications that involve the capitalizing of interest) or (2) the loan becomes well secured with marketable collateral and is in the process of collection. An established track record of performance is also considered when determining accrual status.
Loans are considered past due or delinquent when the contractual principal or interest due in accordance with the terms of the loan agreement or any portion thereof remains unpaid after the due date of the scheduled payment.
The following table presents the amortized cost basis of loans based on delinquency status:
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| | | Age Analysis of Past-Due Financial Assets | | | | 90 Days or More Past Due And Accruing |
(in thousands) | Current | | 30 - 59 Days Past Due | | 60 - 89 Days Past Due | | 90 Days or More Past Due | | Total | |
March 31, 2023 | | | | | | | | | | | |
Agricultural | $ | 105,506 | | | $ | 851 | | | $ | — | | | $ | 284 | | | $ | 106,641 | | | $ | — | |
Commercial and industrial | 1,078,687 | | | 627 | | | 378 | | | 822 | | | 1,080,514 | | | — | |
Commercial real estate: | | | | | | | | | | | |
Construction and development | 320,924 | | | — | | | — | | | — | | | 320,924 | | | — | |
Farmland | 180,721 | | | 31 | | | — | | | 1,776 | | | 182,528 | | | — | |
Multifamily | 255,065 | | | — | | | — | | | — | | | 255,065 | | | — | |
Commercial real estate-other | 1,289,988 | | | — | | | 48 | | | 418 | | | 1,290,454 | | | — | |
Total commercial real estate | 2,046,698 | | | 31 | | | 48 | | | 2,194 | | | 2,048,971 | | | — | |
Residential real estate: | | | | | | | | | | | |
One- to four- family first liens | 444,724 | | | 3,124 | | | 156 | | | 455 | | | 448,459 | | | 2 | |
One- to four- family junior liens | 161,357 | | | 120 | | | 30 | | | 896 | | | 162,403 | | | — | |
Total residential real estate | 606,081 | | | 3,244 | | | 186 | | | 1,351 | | | 610,862 | | | 2 | |
Consumer | 72,235 | | | 125 | | | 10 | | | 7 | | | 72,377 | | | — | |
Total | $ | 3,909,207 | | | $ | 4,878 | | | $ | 622 | | | $ | 4,658 | | | $ | 3,919,365 | | | $ | 2 | |
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| | | Age Analysis of Past-Due Financial Assets | | | | 90 Days or More Past Due And Accruing |
(in thousands) | Current | | 30 - 59 Days Past Due | | 60 - 89 Days Past Due | | 90 Days or More Past Due | | Total | |
December 31, 2022 | | | | | | | | | | | |
Agricultural | $ | 114,922 | | | $ | 100 | | | $ | — | | | $ | 298 | | | $ | 115,320 | | | $ | — | |
Commercial and industrial | 1,052,406 | | | 922 | | | 111 | | | 1,723 | | | 1,055,162 | | | — | |
Commercial real estate: | | | | | | | | | | | |
Construction and development | 270,905 | | | 86 | | | — | | | — | | | 270,991 | | | — | |
Farmland | 182,115 | | | 729 | | | — | | | 1,069 | | | 183,913 | | | — | |
Multifamily | 252,129 | | | — | | | — | | | — | | | 252,129 | | | — | |
Commercial real estate-other | 1,266,874 | | | 5,574 | | | 45 | | | 492 | | | 1,272,985 | | | — | |
Total commercial real estate | 1,972,023 | | | 6,389 | | | 45 | | | 1,561 | | | 1,980,018 | | | — | |
Residential real estate: | | | | | | | | | | | |
One- to four- family first liens | 446,066 | | | 3,177 | | | 954 | | | 1,013 | | | 451,210 | | | 565 | |
One- to four- family junior liens | 161,989 | | | 301 | | | 78 | | | 850 | | | 163,218 | | | — | |
Total residential real estate | 608,055 | | | 3,478 | | | 1,032 | | | 1,863 | | | 614,428 | | | 565 | |
Consumer | 75,443 | | | 110 | | | 17 | | | 26 | | | 75,596 | | | — | |
Total | $ | 3,822,849 | | | $ | 10,999 | | | $ | 1,205 | | | $ | 5,471 | | | $ | 3,840,524 | | | $ | 565 | |
The following table presents the amortized cost basis of loans on non-accrual status, amortized cost basis of loans on non-accrual status with no allowance for credit losses recorded, and loans past due 90 days or more and still accruing by class of loan:
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| Nonaccrual | | Nonaccrual with no Allowance for Credit Losses | | 90 Days or More Past Due And Accruing | | | |
(in thousands) | March 31, 2023 | | December 31, 2022 | | March 31, 2023 | | December 31, 2022 | | March 31, 2023 | | December 31, 2022 | | | |
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Agricultural | $ | 307 | | | $ | 377 | | | $ | 224 | | | $ | 281 | | | $ | — | | | $ | — | | | | |
Commercial and industrial | 2,192 | | | 2,728 | | | 483 | | | 1,049 | | | — | | | — | | | | |
Commercial real estate: | | | | | | | | | | | | | | |
Construction and development | — | | | — | | | — | | | — | | | — | | | — | | | | |
Farmland | 1,931 | | | 2,278 | | | 1,776 | | | 1,997 | | | — | | | — | | | | |
Multifamily | — | | | — | | | — | | | — | | | — | | | — | | | | |
Commercial real estate-other | 6,191 | | | 6,397 | | | 4,121 | | | 5,647 | | | — | | | — | | | | |
Total commercial real estate | 8,122 | | | 8,675 | | | 5,897 | | | 7,644 | | | — | | | — | | | | |
Residential real estate: | | | | | | | | | | | | | | |
One- to four- family first liens | 2,536 | | | 2,275 | | | 910 | | | 928 | | | 2 | | | 565 | | | | |
One- to four- family junior liens | 1,258 | | | 1,165 | | | — | | | — | | | — | | | — | | | | |
Total residential real estate | 3,794 | | | 3,440 | | | 910 | | | 928 | | | 2 | | | 565 | | | | |
Consumer | 25 | | | 36 | | | — | | | — | | | — | | | — | | | | |
Total | $ | 14,440 | | | $ | 15,256 | | | $ | 7,514 | | | $ | 9,902 | | | $ | 2 | | | $ | 565 | | | | |
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The interest income recognized on loans that were on nonaccrual for the three months ended March 31, 2023 and March 31, 2022 was $56 thousand and $70 thousand, respectively.
Credit Quality Information
The Company aggregates 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, and other factors. The Company analyzes loans individually to classify the loans as to credit risk. This analysis includes non-homogenous loans, such as agricultural, commercial and industrial, commercial real estate and non-owner occupied residential real estate loans. Loans not meeting the criteria described below that are analyzed individually are considered to be pass-rated. The Company uses the following definitions for risk ratings:
Special Mention/Watch - A special mention/watch asset has 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/watch assets are not adversely classified and do not expose the Company to sufficient risk to warrant adverse classification.
Substandard - Substandard loans are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.
Doubtful - Loans classified as doubtful have all the weaknesses inherent in those classified as substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions and values, highly questionable and improbable.
Loss - Loans classified as loss are considered uncollectible and of such little value that their continuance as bankable assets is not warranted. This classification does not mean that the loan has absolutely no recovery or salvage value but rather it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may be affected in the future.
Homogenous loans, including owner occupied residential real estate and consumer loans, are not individually risk rated. Instead, these loans are categorized based on performance: performing and nonperforming. Nonperforming loans include those loans on nonaccrual and loans greater than 90 days past due and on accrual.
The following table sets forth the amortized cost basis of loans by class of receivable by credit quality indicator, and vintage, in addition to the current period gross write-offs by class of receivable and vintage, based on the most recent analysis performed, as of March 31, 2023. As of March 31, 2023, there were no 'loss' rated credits.
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| Term Loans by Origination Year | | Revolving Loans | | | | |
March 31, 2023 (in thousands) | 2023 | | 2022 | | 2021 | | 2020 | | 2019 | | Prior | | | | Total |
Agricultural | | | | | | | | | | | | | | | | | |
Pass | $ | 7,088 | | | $ | 15,551 | | | $ | 11,339 | | | $ | 4,533 | | | $ | 1,598 | | | $ | 1,417 | | | $ | 56,139 | | | | | $ | 97,665 | |
Special mention / watch | 6 | | | 224 | | | 859 | | | 208 | | | 8 | | | 534 | | | 3,412 | | | | | 5,251 | |
Substandard | 1,918 | | | 114 | | | 193 | | | 258 | | | 3 | | | 294 | | | 945 | | | | | 3,725 | |
Doubtful | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | | — | |
Total | $ | 9,012 | | | $ | 15,889 | | | $ | 12,391 | | | $ | 4,999 | | | $ | 1,609 | | | $ | 2,245 | | | $ | 60,496 | | | | | $ | 106,641 | |
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Commercial and industrial | | | | | | | | | | | | | | | | | |
Pass | $ | 37,423 | | | $ | 253,594 | | | $ | 224,460 | | | $ | 142,132 | | | $ | 44,485 | | | $ | 134,002 | | | $ | 184,382 | | | | | $ | 1,020,478 | |
Special mention / watch | 465 | | | 1,788 | | | 1,544 | | | 4,770 | | | 418 | | | 4,988 | | | 14,638 | | | | | 28,611 | |
Substandard | 621 | | | 2,966 | | | 2,617 | | | 1,474 | | | 768 | | | 18,058 | | | 4,921 | | | | | 31,425 | |
Doubtful | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | | — | |
Total | $ | 38,509 | | | $ | 258,348 | | | $ | 228,621 | | | $ | 148,376 | | | $ | 45,671 | | | $ | 157,048 | | | $ | 203,941 | | | | | $ | 1,080,514 | |
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CRE - Construction and development | | | | | | | | | | | | | | | | | |
Pass | $ | 22,423 | | | $ | 167,846 | | | $ | 80,378 | | | $ | 20,349 | | | $ | 968 | | | $ | 1,534 | | | $ | 26,621 | | | | | $ | 320,119 | |
Special mention / watch | — | | | 38 | | | 493 | | | — | | | — | | | — | | | — | | | | | 531 | |
Substandard | — | | | 270 | | | — | | | — | | | — | | | 4 | | | — | | | | | 274 | |
Doubtful | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | | — | |
Total | $ | 22,423 | | | $ | 168,154 | | | $ | 80,871 | | | $ | 20,349 | | | $ | 968 | | | $ | 1,538 | | | $ | 26,621 | | | | | $ | 320,924 | |
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CRE - Farmland | | | | | | | | | | | | | | | | | |
Pass | $ | 7,159 | | | $ | 53,083 | | | $ | 51,868 | | | $ | 26,650 | | | $ | 6,847 | | | $ | 19,184 | | | $ | 2,169 | | | | | $ | 166,960 | |
Special mention / watch | — | | | 2,807 | | | 2,295 | | | 1,453 | | | — | | | 1,782 | | | 401 | | | | | 8,738 | |
Substandard | — | | | 148 | | | 1,670 | | | 1,201 | | | 1,143 | | | 2,668 | | | — | | | | | 6,830 | |
Doubtful | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | | — | |
Total | $ | 7,159 | | | $ | 56,038 | | | $ | 55,833 | | | $ | 29,304 | | | $ | 7,990 | | | $ | 23,634 | | | $ | 2,570 | | | | | $ | 182,528 | |
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CRE - Multifamily | | | | | | | | | | | | | | | | | |
Pass | $ | 7,369 | | | $ | 31,621 | | | $ | 89,877 | | | $ | 84,000 | | | $ | 16,991 | | | $ | 7,644 | | | $ | 150 | | | | | $ | 237,652 | |
Special mention / watch | — | | | 794 | | | — | | | 1,552 | | | — | | | 7,048 | | | — | | | | | 9,394 | |
Substandard | — | | | — | | | 7,687 | | | 332 | | | — | | | — | | | — | | | | | 8,019 | |
Doubtful | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | | — | |
Total | $ | 7,369 | | | $ | 32,415 | | | $ | 97,564 | | | $ | 85,884 | | | $ | 16,991 | | | $ | 14,692 | | | $ | 150 | | | | | $ | 255,065 | |
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CRE - Other | | | | | | | | | | | | | | | | | |
Pass | $ | 62,285 | | | $ | 323,167 | | | $ | 304,661 | | | $ | 276,595 | | | $ | 82,956 | | | $ | 112,999 | | | $ | 51,359 | | | | | $ | 1,214,022 | |
Special mention / watch | 1,228 | | | 1,556 | | | 2,106 | | | 17,769 | | | 4,344 | | | 3,390 | | | 4,200 | | | | | 34,593 | |
Substandard | — | | | 631 | | | 1,342 | | | 15,342 | | | 13,106 | | | 11,418 | | | — | | | | | 41,839 | |
Doubtful | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | | — | |
Total | $ | 63,513 | | | $ | 325,354 | | | $ | 308,109 | | | $ | 309,706 | | | $ | 100,406 | | | $ | 127,807 | | | $ | 55,559 | | | | | $ | 1,290,454 | |
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RRE - One- to four- family first liens | | | | | | | | | | | | | | | | | |
Pass / Performing | $ | 14,958 | | | $ | 133,357 | | | $ | 101,064 | | | $ | 61,623 | | | $ | 22,345 | | | $ | 93,970 | | | $ | 10,811 | | | | | $ | 438,128 | |
Special mention / watch | — | | | 702 | | | 465 | | | 726 | | | 1,973 | | | 1,091 | | | — | | | | | 4,957 | |
Substandard / Nonperforming | — | | | 257 | | | 527 | | | 172 | | | 172 | | | 4,246 | | | — | | | | | 5,374 | |
Doubtful | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | | — | |
Total | $ | 14,958 | | | $ | 134,316 | | | $ | 102,056 | | | $ | 62,521 | | | $ | 24,490 | | | $ | 99,307 | | | $ | 10,811 | | | | | $ | 448,459 | |
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| Term Loans by Origination Year | | Revolving Loans | | | | |
March 31, 2023 (in thousands) | 2023 | | 2022 | | 2021 | | 2020 | | 2019 | | Prior | | | | Total |
RRE - One- to four- family junior liens | | | | | | | | | | | | | | | | | |
Performing | $ | 5,366 | | | $ | 35,258 | | | $ | 21,775 | | | $ | 8,553 | | | $ | 2,712 | | | $ | 9,338 | | | $ | 78,144 | | | | | $ | 161,146 | |
Nonperforming | — | | | 24 | | | 23 | | | 29 | | | 149 | | | 933 | | | 99 | | | | | 1,257 | |
Total | $ | 5,366 | | | $ | 35,282 | | | $ | 21,798 | | | $ | 8,582 | | | $ | 2,861 | | | $ | 10,271 | | | $ | 78,243 | | | | | $ | 162,403 | |
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Consumer | | | | | | | | | | | | | | | | | |
Performing | $ | 6,868 | | | $ | 27,975 | | | $ | 16,296 | | | $ | 6,940 | | | $ | 2,894 | | | $ | 7,226 | | | $ | 4,153 | | | | | $ | 72,352 | |
Nonperforming | — | | | — | | | 5 | | | 6 | | | 8 | | | 6 | | | — | | | | | 25 | |
Total | $ | 6,868 | | | $ | 27,975 | | | $ | 16,301 | | | $ | 6,946 | | | $ | 2,902 | | | $ | 7,232 | | | $ | 4,153 | | | | | $ | 72,377 | |
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Total by Credit Quality Indicator Category | | | | | | | | | | | | | | | | | |
Pass | $ | 158,705 | | | $ | 978,219 | | | $ | 863,647 | | | $ | 615,882 | | | $ | 176,190 | | | $ | 370,750 | | | $ | 331,631 | | | | | $ | 3,495,024 | |
Special mention / watch | 1,699 | | | 7,909 | | | 7,762 | | | 26,478 | | | 6,743 | | | 18,833 | | | 22,651 | | | | | 92,075 | |
Substandard | 2,539 | | | 4,386 | | | 14,036 | | | 18,779 | | | 15,192 | | | 36,688 | | | 5,866 | | | | | 97,486 | |
Doubtful | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | | — | |
Performing | 12,234 | | | 63,233 | | | 38,071 | | | 15,493 | | | 5,606 | | | 16,564 | | | 82,297 | | | | | 233,498 | |
Nonperforming | — | | | 24 | | | 28 | | | 35 | | | 157 | | | 939 | | | 99 | | | | | 1,282 | |
Total | $ | 175,177 | | | $ | 1,053,771 | | | $ | 923,544 | | | $ | 676,667 | | | $ | 203,888 | | | $ | 443,774 | | | $ | 442,544 | | | | | $ | 3,919,365 | |
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Current Period Gross Write-offs | | | | | | | | | | | | | | | | | |
Agricultural | $ | — | | | $ | — | | | $ | 1 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | | | $ | 1 | |
Commercial and industrial | — | | | — | | | — | | | 105 | | | 171 | | | 44 | | | — | | | | | 320 | |
CRE - Construction and development | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | | — | |
CRE - Farmland | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | | — | |
CRE - Multifamily | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | | — | |
CRE - Other | — | | | — | | | — | | | — | | | — | | | 18 | | | — | | | | | 18 | |
RRE - One-to-four-family first liens | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | | — | |
RRE - One-to-four-family junior liens | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | | — | |
Consumer | — | | | 142 | | | — | | | — | | | 4 | | | 2 | | | — | | | | | 148 | |
Total Current Period Gross Write-offs | $ | — | | | $ | 142 | | | $ | 1 | | | $ | 105 | | | $ | 175 | | | $ | 64 | | | $ | — | | | | | $ | 487 | |
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The following table sets forth the amortized cost basis of loans by class of receivable by credit quality indicator and vintage based on the most recent analysis performed, as of December 31, 2022. As of December 31, 2022, there were no 'loss' rated credits.
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| Term Loans by Origination Year | | Revolving Loans | | | | |
December 31, 2022 (in thousands) | 2022 | | 2021 | | 2020 | | 2019 | | 2018 | | Prior | | | | Total |
Agricultural | | | | | | | | | | | | | | | | | |
Pass | $ | 20,279 | | | $ | 12,511 | | | $ | 5,398 | | | $ | 2,883 | | | $ | 939 | | | $ | 1,063 | | | $ | 65,395 | | | | | $ | 108,468 | |
Special mention / watch | 143 | | | 1,012 | | | 115 | | | 36 | | | — | | | 604 | | | 1,655 | | | | | 3,565 | |
Substandard | 48 | | | 646 | | | 366 | | | 4 | | | 7 | | | 302 | | | 1,914 | | | | | 3,287 | |
Doubtful | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | | — | |
Total | $ | 20,470 | | | $ | 14,169 | | | $ | 5,879 | | | $ | 2,923 | | | $ | 946 | | | $ | 1,969 | | | $ | 68,964 | | | | | $ | 115,320 | |
Commercial and industrial | | | | | | | | | | | | | | | | | |
Pass | $ | 262,500 | | | $ | 232,263 | | | $ | 151,567 | | | $ | 48,199 | | | $ | 27,680 | | | $ | 115,877 | | | $ | 163,205 | | | | | $ | 1,001,291 | |
Special mention / watch | 3,975 | | | 3,574 | | | 5,465 | | | 592 | | | 3,299 | | | 1,864 | | | 12,299 | | | | | 31,068 | |
Substandard | 556 | | | 166 | | | 1,172 | | | 756 | | | 556 | | | 18,585 | | | 1,012 | | | | | 22,803 | |
Doubtful | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | | — | |
Total | $ | 267,031 | | | $ | 236,003 | | | $ | 158,204 | | | $ | 49,547 | | | $ | 31,535 | | | $ | 136,326 | | | $ | 176,516 | | | | | $ | 1,055,162 | |
CRE - Construction and development | | | | | | | | | | | | | | | | | |
Pass | $ | 144,597 | | | $ | 73,832 | | | $ | 19,324 | | | $ | 989 | | | $ | 1,058 | | | $ | 549 | | | $ | 28,069 | | | | | $ | 268,418 | |
Special mention / watch | 1,787 | | | 499 | | | — | | | — | | | — | | | — | | | — | | | | | 2,286 | |
Substandard | 281 | | | — | | | — | | | — | | | — | | | 6 | | | — | | | | | 287 | |
Doubtful | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | | — | |
Total | $ | 146,665 | | | $ | 74,331 | | | $ | 19,324 | | | $ | 989 | | | $ | 1,058 | | | $ | 555 | | | $ | 28,069 | | | | | $ | 270,991 | |
CRE - Farmland | | | | | | | | | | | | | | | | | |
Pass | $ | 55,251 | | | $ | 52,802 | | | $ | 28,744 | | | $ | 7,266 | | | $ | 8,406 | | | $ | 12,895 | | | $ | 1,946 | | | | | $ | 167,310 | |
Special mention / watch | 3,058 | | | 2,229 | | | 1,470 | | | — | | | 225 | | | 21 | | | 1,693 | | | | | 8,696 | |
Substandard | 148 | | | 1,974 | | | 1,192 | | | 1,136 | | | 1,459 | | | 1,998 | | | — | | | | | 7,907 | |
Doubtful | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | | — | |
Total | $ | 58,457 | | | $ | 57,005 | | | $ | 31,406 | | | $ | 8,402 | | | $ | 10,090 | | | $ | 14,914 | | | $ | 3,639 | | | | | $ | 183,913 | |
CRE - Multifamily | | | | | | | | | | | | | | | | | |
Pass | $ | 31,018 | | | $ | 93,907 | | | $ | 84,573 | | | $ | 17,137 | | | $ | 2,549 | | | $ | 5,161 | | | $ | 49 | | | | | $ | 234,394 | |
Special mention / watch | 1,000 | | | — | | | 1,567 | | | — | | | 5,931 | | | 1,178 | | | — | | | | | 9,676 | |
Substandard | — | | | 7,725 | | | 334 | | | — | | | — | | | — | | | — | | | | | 8,059 | |
Doubtful | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | | — | |
Total | $ | 32,018 | | | $ | 101,632 | | | $ | 86,474 | | | $ | 17,137 | | | $ | 8,480 | | | $ | 6,339 | | | $ | 49 | | | | | $ | 252,129 | |
CRE - Other | | | | | | | | | | | | | | | | | |
Pass | $ | 322,753 | | | $ | 314,376 | | | $ | 296,368 | | | $ | 79,408 | | | $ | 31,041 | | | $ | 81,708 | | | $ | 51,064 | | | | | $ | 1,176,718 | |
Special mention / watch | 8,858 | | | 3,399 | | | 13,245 | | | 10,365 | | | 1,137 | | | 8,122 | | | 2,518 | | | | | 47,644 | |
Substandard | 752 | | | 589 | | | 19,702 | | | 13,294 | | | 10,197 | | | 4,089 | | | — | | | | | 48,623 | |
Doubtful | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | | — | |
Total | $ | 332,363 | | | $ | 318,364 | | | $ | 329,315 | | | $ | 103,067 | | | $ | 42,375 | | | $ | 93,919 | | | $ | 53,582 | | | | | $ | 1,272,985 | |
RRE - One- to four- family first liens | | | | | | | | | | | | | | | | | |
Pass / Performing | $ | 139,289 | | | $ | 103,534 | | | $ | 63,627 | | | $ | 23,831 | | | $ | 21,868 | | | $ | 77,967 | | | $ | 11,438 | | | | | $ | 441,554 | |
Special mention / watch | 1,074 | | | 611 | | | 672 | | | 1,920 | | | 150 | | | 702 | | | — | | | | | 5,129 | |
Substandard / Nonperforming | 175 | | | 438 | | | 174 | | | 175 | | | 674 | | | 2,891 | | | — | | | | | 4,527 | |
Doubtful | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | | — | |
Total | $ | 140,538 | | | $ | 104,583 | | | $ | 64,473 | | | $ | 25,926 | | | $ | 22,692 | | | $ | 81,560 | | | $ | 11,438 | | | | | $ | 451,210 | |
RRE - One- to four- family junior liens | | | | | | | | | | | | | | | | | |
Performing | $ | 37,296 | | | $ | 22,908 | | | $ | 8,906 | | | $ | 3,058 | | | $ | 3,757 | | | $ | 6,330 | | | $ | 79,798 | | | | | $ | 162,053 | |
Nonperforming | — | | | 23 | | | 31 | | | 179 | | | 756 | | | 76 | | | 100 | | | | | 1,165 | |
Total | $ | 37,296 | | | $ | 22,931 | | | $ | 8,937 | | | $ | 3,237 | | | $ | 4,513 | | | $ | 6,406 | | | $ | 79,898 | | | | | $ | 163,218 | |
Consumer | | | | | | | | | | | | | | | | | |
Performing | $ | 32,584 | | | $ | 18,979 | | | $ | 7,966 | | | $ | 3,489 | | | $ | 1,646 | | | $ | 6,641 | | | $ | 4,255 | | | | | $ | 75,560 | |
Nonperforming | — | | | 2 | | | 16 | | | 9 | | | 4 | | | 5 | | | — | | | | | 36 | |
Total | $ | 32,584 | | | $ | 18,981 | | | $ | 7,982 | | | $ | 3,498 | | | $ | 1,650 | | | $ | 6,646 | | | $ | 4,255 | | | | | $ | 75,596 | |
| | | | | | | | | | | | | | | | | |
Total by Credit Quality Indicator Category | | | | | | | | | | | | | | | | | |
Pass | $ | 975,687 | | | $ | 883,225 | | | $ | 649,601 | | | $ | 179,713 | | | $ | 93,541 | | | $ | 295,220 | | | $ | 321,166 | | | | | $ | 3,398,153 | |
Special mention / watch | 19,895 | | | 11,324 | | | 22,534 | | | 12,913 | | | 10,742 | | | 12,491 | | | 18,165 | | | | | 108,064 | |
Substandard | 1,960 | | | 11,538 | | | 22,940 | | | 15,365 | | | 12,893 | | | 27,871 | | | 2,926 | | | | | 95,493 | |
Doubtful | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | | — | |
Performing | 69,880 | | | 41,887 | | | 16,872 | | | 6,547 | | | 5,403 | | | 12,971 | | | 84,053 | | | | | 237,613 | |
Nonperforming | — | | | 25 | | | 47 | | | 188 | | | 760 | | | 81 | | | 100 | | | | | 1,201 | |
Total | $ | 1,067,422 | | | $ | 947,999 | | | $ | 711,994 | | | $ | 214,726 | | | $ | 123,339 | | | $ | 348,634 | | | $ | 426,410 | | | | | $ | 3,840,524 | |
Allowance for Credit Losses
At March 31, 2023, the economic forecast used by the Company showed the following: (1) Midwest unemployment – increases over the next four forecasted quarters; (2) Year-to-year change in national retail sales - increases over the next four forecasted quarters; (3) Year-to-year change in CRE Index - increase in the first forecasted quarter and declines in the second through fourth forecasted quarters; (4) Year-to-year change in U.S. GDP - increases over the next four forecasted quarters; (5) Year-to-year change in National Home Price Index – declines over the next four forecasted quarters; and (6) Rental Vacancy - increases over the next four forecasted quarters. In addition, management utilized qualitative factors to adjust the calculated ACL as appropriate. Qualitative factors are based on management’s judgment of company, market, industry or business specific data, changes in underlying loan composition of specific portfolios, trends relating to credit quality, delinquency, non-performing and adversely rated loans, and reasonable and supportable forecasts of economic conditions.
The increase in the ACL between March 31, 2023 and December 31, 2022 is primarily driven by reserves taken to support loan growth. Net loan charge-offs were $0.3 million for the three-months ended March 31, 2023 as compared to net loan charge-offs of $2.2 million for the three-months ended March 31, 2022.
We have made a policy election to report interest receivable as a separate line on the balance sheet. Accrued interest receivable, which is recorded within 'Other Assets', totaled $16.0 million at March 31, 2023 and $15.3 million at December 31, 2022 and is excluded from the estimate of credit losses. The changes in the allowance for credit losses by portfolio segment were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| For the Three Months Ended March 31, 2023 and 2022 |
(in thousands) | Agricultural | | Commercial and Industrial | | Commercial Real Estate | | Residential Real Estate | | Consumer | | Total |
For the Three Months Ended March 31, 2023 | | | | | | | | | | | |
Beginning balance | $ | 923 | | | $ | 22,855 | | | $ | 20,123 | | | $ | 4,678 | | | $ | 621 | | | $ | 49,200 | |
| | | | | | | | | | | |
Charge-offs | (1) | | | (320) | | | (18) | | | — | | | (148) | | | (487) | |
Recoveries | 26 | | | 75 | | | 5 | | | 4 | | | 44 | | | 154 | |
Credit loss expense (benefit)(1) | (435) | | | (265) | | | 1,723 | | | (137) | | | 47 | | | 933 | |
Ending balance | $ | 513 | | | $ | 22,345 | | | $ | 21,833 | | | $ | 4,545 | | | $ | 564 | | | $ | 49,800 | |
| | | | | | | | | | | |
For the Three Months Ended March 31, 2022 | | | | | | | | | | | |
Beginning balance | $ | 667 | | | $ | 17,294 | | | $ | 26,120 | | | $ | 4,010 | | | $ | 609 | | | $ | 48,700 | |
| | | | | | | | | | | |
Charge-offs | — | | | (233) | | | (2,184) | | | (30) | | | (184) | | | (2,631) | |
Recoveries | 7 | | | 225 | | | 117 | | | 16 | | | 44 | | | 409 | |
Credit loss expense (benefit) (1) | (294) | | | (11) | | | 4 | | | (88) | | | 111 | | | (278) | |
Ending balance | $ | 380 | | | $ | 17,275 | | | $ | 24,057 | | | $ | 3,908 | | | $ | 580 | | | $ | 46,200 | |
(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 (benefit) of $0.0 million and $0.3 million related to off-balance sheet credit exposures for the three months ended March 31, 2023 and March 31, 2022, respectively. |
The composition of allowance for credit losses by portfolio segment based on evaluation method were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of March 31, 2023 |
(in thousands) | Agricultural | | Commercial and Industrial | | Commercial Real Estate | | Residential Real Estate | | Consumer | | Total |
Loans held for investment, net of unearned income | | | | | | | | | | | |
Individually evaluated for impairment | $ | 1,726 | | | $ | 1,443 | | | $ | 12,482 | | | $ | 1,632 | | | $ | — | | | $ | 17,283 | |
Collectively evaluated for impairment | 104,915 | | | 1,079,071 | | | 2,036,489 | | | 609,230 | | | 72,377 | | | 3,902,082 | |
Total | $ | 106,641 | | | $ | 1,080,514 | | | $ | 2,048,971 | | | $ | 610,862 | | | $ | 72,377 | | | $ | 3,919,365 | |
Allowance for credit losses: | | | | | | | | | | | |
Individually evaluated for impairment | $ | — | | | $ | 234 | | | $ | 1,664 | | | $ | 180 | | | $ | — | | | $ | 2,078 | |
Collectively evaluated for impairment | 513 | | | 22,111 | | | 20,169 | | | 4,365 | | | 564 | | | 47,722 | |
Total | $ | 513 | | | $ | 22,345 | | | $ | 21,833 | | | $ | 4,545 | | | $ | 564 | | | $ | 49,800 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of December 31, 2022 |
(in thousands) | Agricultural | | Commercial and Industrial | | Commercial Real Estate | | Residential Real Estate | | Consumer | | Total |
Loans held for investment, net of unearned income | | | | | | | | | | | |
Individually evaluated for impairment | $ | 2,531 | | | $ | 2,184 | | | $ | 15,768 | | | $ | 1,650 | | | $ | — | | | $ | 22,133 | |
Collectively evaluated for impairment | 112,789 | | | 1,052,978 | | | 1,964,250 | | | 612,778 | | | 75,596 | | | 3,818,391 | |
| | | | | | | | | | | |
Total | $ | 115,320 | | | $ | 1,055,162 | | | $ | 1,980,018 | | | $ | 614,428 | | | $ | 75,596 | | | $ | 3,840,524 | |
Allowance for credit losses: | | | | | | | | | | | |
Individually evaluated for impairment | $ | 500 | | | $ | 600 | | | $ | 705 | | | $ | 180 | | | $ | — | | | $ | 1,985 | |
Collectively evaluated for impairment | 423 | | | 22,255 | | | 19,418 | | | 4,498 | | | 621 | | | 47,215 | |
| | | | | | | | | | | |
Total | $ | 923 | | | $ | 22,855 | | | $ | 20,123 | | | $ | 4,678 | | | $ | 621 | | | $ | 49,200 | |
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:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of March 31, 2023 |
(in thousands) | | Primary Type of Collateral |
| | Real Estate | | | | Equipment | | Other | | Total | | ACL Allocation |
Agricultural | | $ | 1,513 | | | | | $ | 213 | | | $ | — | | | $ | 1,726 | | | $ | — | |
Commercial and industrial | | 716 | | | | | 198 | | | 529 | | | 1,443 | | | 234 | |
Commercial real estate: | | | | | | | | | | | | |
Construction and development | | — | | | | | — | | | — | | | — | | | — | |
Farmland | | 4,298 | | | | | — | | | — | | | 4,298 | | | — | |
Multifamily | | — | | | | | — | | | — | | | — | | | — | |
Commercial real estate-other | | 7,985 | | | | | — | | | 199 | | | 8,184 | | | 1,664 | |
Residential real estate: | | | | | | | | | | | | |
One- to four- family first liens | | 911 | | | | | — | | | — | | | 911 | | | — | |
One- to four- family junior liens | | — | | | | | — | | | 721 | | | 721 | | | 180 | |
Consumer | | — | | | | | — | | | — | | | — | | | — | |
Total | | $ | 15,423 | | | | | $ | 411 | | | $ | 1,449 | | | $ | 17,283 | | | $ | 2,078 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of December 31, 2022 |
(in thousands) | | Primary Type of Collateral |
| | Real Estate | | | | Equipment | | Other | | Total | | ACL Allocation |
Agricultural | | $ | 68 | | | | | $ | 2,463 | | | $ | — | | | $ | 2,531 | | | $ | 500 | |
Commercial and industrial | | 856 | | | | | 736 | | | 592 | | | 2,184 | | | 600 | |
Commercial real estate: | | | | | | | | | | | | |
Construction and development | | — | | | | | — | | | — | | | — | | | — | |
Farmland | | 4,515 | | | | | — | | | — | | | 4,515 | | | — | |
Multifamily | | — | | | | | — | | | — | | | — | | | — | |
Commercial real estate-other | | 11,006 | | | | | — | | | 247 | | | 11,253 | | | 705 | |
Residential real estate: | | | | | | | | | | | | |
One- to four- family first liens | | 929 | | | | | — | | | — | | | 929 | | | — | |
One- to four- family junior liens | | — | | | | | — | | | 721 | | | 721 | | | 180 | |
Consumer | | — | | | | | — | | | — | | | — | | | — | |
Total | | $ | 17,374 | | | | | $ | 3,199 | | | $ | 1,560 | | | $ | 22,133 | | | $ | 1,985 | |
Loan Modifications to Borrowers Experiencing Financial Difficulty
Occasionally, the Company may modify loans to borrowers who are experiencing financial difficulty. Loan modifications to borrowers experiencing financial difficulty may be in the form of principal forgiveness, term extension, an other-than-insignificant payment delay, interest rate reduction, or combination thereof.
The following table presents the amortized cost basis of loans as of March 31, 2023 that were modified during the three months ended March 31, 2023 and experiencing financial difficulty at the time of the modification by class and by type of modification.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of March 31, 2023 |
| | | | | | | | | | Combination: | | | | | | |
(dollars in thousands) | | Principal Forgiveness | | Payment Delay | | Term Extension | | Interest Rate Reduction | | Term Extension & Interest Rate Reduction | | Principal Forgiveness & Term Extension | | Principal Forgiveness, Term Extension, & Interest Rate Reduction | | | | | | Total Class of Financing Receivable |
Agricultural | | $ | — | | | $ | 16 | | | $ | 1,502 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | | | | | 1.42 | % |
Commercial and industrial | | — | | | — | | | 50 | | | — | | | 120 | | | 307 | | | — | | | | | | | 0.04 | % |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
CRE - Other | | — | | | — | | | — | | | — | | | — | | | — | | | 20 | | | | | | | — | % |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Total | | $ | — | | | $ | 16 | | | $ | 1,552 | | | $ | — | | | $ | 120 | | | $ | 307 | | | $ | 20 | | | | | | | |
The Company has no additional commitment to lend amounts to the borrowers included in the previous table as of March 31, 2023. For the three months ended March 31, 2023, the Company had no modified loans to borrowers experiencing financial difficulty that redefaulted within 12 months subsequent to the modification.
The following table presents the performance as of March 31, 2023 of loans that were modified while the borrower was experiencing financial difficulty at the time of modification in the last 12 months:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of March 31, 2023 | | | | |
(in thousands) | Current | | 30 - 59 Days Past Due | | 60 - 89 Days Past Due | | 90 Days or More Past Due | | Total | | | | |
Agricultural | $ | 1,518 | | | $ | — | | | $ | — | | | $ | — | | | $ | 1,518 | | | | | |
Commercial and industrial | 477 | | | — | | | — | | | — | | | 477 | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
CRE - Other | — | | | — | | | — | | | 20 | | | 20 | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Total | $ | 1,995 | | | $ | — | | | $ | — | | | $ | 20 | | | $ | 2,015 | | | | | |
The following table presents the financial effect of the loan modifications presented above to borrowers experiencing financial difficulty for the three months ended March 31, 2023:
| | | | | | | | | | | | | | | | | | | | | |
March 31, 2023 (dollars in thousands) | | | Principal Forgiveness | | Weighted Average Interest Rate Reduction | | Weighted Average Term Extension (Years) |
Agricultural | | | $ | — | | | — | % | | 2.37 |
Commercial and industrial | | | 63 | | | 1.25 | % | | 11.89 |
| | | | | | | |
| | | | | | | |
| | | | | | | |
CRE - Other | | | 18 | | | 7.00 | % | | 2.47 |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Total | | | $ | 81 | | | 2.07 | % | | 4.64 |
5. Derivatives, Hedging Activities and Balance Sheet Offsetting
The following table presents the total notional amounts and gross fair values of the Company’s derivatives as of the dates indicated. The derivative asset and liability balances are presented on a gross basis, prior to the application of master netting agreements, as included in other assets and other liabilities, respectively, on the consolidated balance sheets. The fair values of the Company's derivative instrument assets and liabilities are summarized as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of March 31, 2023 | | As of December 31, 2022 |
| | Notional Amount | | Fair Value | | Notional Amount | | Fair Value |
(in thousands) | | | Assets | | Liabilities | | | Assets | | Liabilities |
Designated as hedging instruments: | | | | | | | | | | | | |
Fair value hedges: | | | | | | | | | | | | |
Interest rate swaps | | $ | 23,819 | | | $ | 1,995 | | | $ | — | | | $ | 24,018 | | | $ | 2,556 | | | $ | — | |
Cash flow hedges | | | | | | | | | | | | |
Interest rate swaps | | 50,000 | | | 161 | | | 23 | | | — | | | — | | | — | |
Total | | $ | 73,819 | | | $ | 2,156 | | | $ | 23 | | | $ | 24,018 | | | $ | 2,556 | | | $ | — | |
| | | | | | | | | | | | |
Not designated as hedging instruments: | | | | | | | | | | | | |
Interest rate swaps | | $ | 307,450 | | | $ | 16,256 | | | $ | 16,257 | | | $ | 331,197 | | | $ | 21,084 | | | $ | 21,087 | |
| | | | | | | | | | | | |
RPAs - protection purchased | | 24,812 | | | — | | | — | | | 9,421 | | | — | | | — | |
Interest rate lock commitments | | 3,696 | | | 101 | | | — | | | 1,372 | | | 7 | | | — | |
Interest rate forward loan sales contracts | | 3,950 | | | — | | | 22 | | | 1,400 | | | 8 | | | — | |
Total | | $ | 339,908 | | | $ | 16,357 | | | $ | 16,279 | | | $ | 343,390 | | | $ | 21,099 | | | $ | 21,087 | |
Derivatives Designated as Hedging Instruments
The Company uses derivative instruments to hedge its exposure to economic risks, including interest rate, liquidity, and credit risk. Certain hedging relationships are formally designated and qualify for hedge accounting under GAAP as fair value or cash flow hedges.
Fair Value Hedges - Derivatives are designated as fair value hedges to limit the Company's exposure to changes in the fair value of assets or liabilities due to movements in interest rates. The Company entered into pay-fixed receive-floating interest rate swaps to manage its exposure to changes in fair value in certain fixed-rate assets. The gain or loss on the derivative as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in interest income.
Cash Flow Hedges - Derivatives are designated as cash flow hedges in order to minimize the variability in cash flows of earning assets or forecasted transactions caused by movement in interest rates. In March 2023, the Company entered into pay-fixed receive-variable interest rate swaps with a cumulative notional amount of $50.0 million to hedge against adverse fluctuations in interest rates by reducing exposure to variability in cash flows relating to interest payments on the Company's variable rate debt. The interest rate swaps were designated as a cash flow hedge. The gain or loss on the derivative was recorded in accumulated other comprehensive income and subsequently reclassified into interest expense, as applicable, in the same period(s) during which the hedged transaction affects earnings. During 2023, the Company estimates that an additional $561 thousand of income will be reclassified into interest expense.
The table below presents the effect of cash flow hedge accounting on AOCI for the three months ended March 31, 2023 and 2022
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Amount of Gain (Loss) Recognized in AOCI on Derivative | | Location of Gain (Loss) Reclassified from AOCI into Income | | Amount of Gain (Loss) Reclassified from AOCI into Income |
| | Three Months Ended March 31, | | | | Three Months Ended March 31, |
(in thousands) | | 2023 | | 2022 | | | | 2023 | | 2022 |
Interest rate swaps | | $ | 138 | | | $ | — | | | Interest Expense | | $ | — | | | $ | — | |
| | | | | | | | | | |
| | | | | | |
| | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
The table below presents the effect of the Company’s derivative financial instruments designated as hedging instruments on the consolidated statements of income for the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Location and Amount of Gain or Loss Recognized in Income on Hedging Relationships |
| For the Three Months Ended March 31, | | |
| 2023 | | 2022 | | | | |
(in thousands) | Interest Income | | Other Income | | Interest Income | | Other Income | | | | | | | | |
Total amounts of income and expense line items presented in the consolidated statements of income in which the effects of fair value or cash flow hedges are recorded | $ | 159 | | | $ | — | | | $ | (104) | | | $ | — | | | | | | | | | |
| | | | | | | | | | | | | | | |
The effects of fair value and cash flow hedging: | | | | | | | | | | | | | | | |
Gain (loss) on fair value hedging relationships in subtopic 815-20: | | | | | | | | | | | | | | | |
Interest contracts: | | | | | | | | | | | | | | | |
Hedged items | 562 | | | — | | | (1,553) | | | — | | | | | | | | | |
Derivative designated as hedging instruments | (402) | | | — | | | 942 | | | — | | | | | | | | | |
| | | | | | | | | | | | | | | |
Income statement effect of cash flow hedging relationships in subtopic 815-20: | | | | | | | | | | | | | | | |
Interest contracts: | | | | | | | | | | | | | | | |
Amount reclassified from AOCI into income | — | | | — | | | — | | | — | | | | | | | | | |
As of March 31, 2023, the following amounts were recorded on the balance sheet related to cumulative basis adjustment for fair value hedges:
| | | | | | | | | | | | | | |
Line Item in the Balance Sheet in Which the Hedged Item is Included | | Carrying Amount of the Hedged Assets | | Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Asset |
(in thousands) | | | | |
Loans | | $ | 21,854 | | | $ | (1,996) | |
Derivatives Not Designated as Hedging Instruments
Interest Rate Swaps - The Company periodically enters into commercial loan interest rate swap agreements in order to provide commercial loan customers with the ability to convert from variable to fixed interest rates. These derivative contracts relate to transactions in which the Company enters into an interest rate swap with a customer, while simultaneously entering into an offsetting interest rate swap with an institutional counterparty.
Credit Risk Participation Agreements -The Company enters into RPAs to manage the credit exposure on interest rate contracts associated with a syndicated loan. The Company may enter into protection purchased RPAs with institutional counterparties to decrease or increase its exposure to a borrower. Under the RPA, the Company will receive or make payment if a borrower defaults on the related interest rate contract. The notional amount of the RPAs reflects the Company’s pro-rata share of the derivative instrument.
Interest Rate Forward Loan Sales Contracts & Interest Rate Lock Commitments - The Company enters into forward delivery contracts to sell residential mortgage loans at specific prices and dates in order to hedge the interest rate risk in its portfolio of mortgage loans held for sale and its residential mortgage interest rate lock commitments.
The following table presents the net gains (losses) recognized on the consolidated statements of income related to the derivatives not designated as hedging instruments for the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Location in the Consolidated Statements of Income | | For the Three Months Ended March 31, | | |
(in thousands) | | | 2023 | | 2022 | | | | |
Interest rate swaps | | Other income | | $ | — | | | $ | (5) | | | | | |
RPAs | | Other income | | 69 | | | (1) | | | | | |
Interest rate lock commitments | | Loan revenue | | 94 | | | 381 | | | | | |
Interest rate forward loan sales contracts | | Loan revenue | | (30) | | | (311) | | | | | |
Total | | | | $ | 133 | | | $ | 64 | | | | | |
Offsetting of Derivatives
The Company has entered into agreements with certain counterparty financial institutions, which include master netting agreements. However, the Company has elected to account for all derivatives with counterparty institutions on a gross basis. The Company manages the risk of default by its borrower counterparties through its normal loan underwriting and credit monitoring policies and procedures.
The table below presents gross derivatives and the respective collateral received or pledged in the form of other financial instruments as of March 31, 2023 and December 31, 2022, which are generally marketable securities and/or cash. The collateral amounts in the table below are limited to the outstanding balances of the related asset or liability (after netting is applied); thus instances of over-collateralization are not shown. Further, the net amounts of derivative assets or liabilities can be reconciled to the tabular disclosure of fair value. The tabular disclosure of fair value provides the location that derivative assets and liabilities are presented on the consolidated balance sheets.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Gross Amounts Not Offset in the Balance Sheet | | |
(in thousands) | Gross Amounts Recognized | | Gross Amounts Offset in the Balance Sheet | | Net Amounts presented in the Balance Sheet | | Financial Instruments | | Cash Collateral Received / Paid | | Net Assets /Liabilities |
As of March 31, 2023 | | | | | | | | | | | |
Asset Derivatives | $ | 18,513 | | | $ | — | | | $ | 18,513 | | | $ | — | | | $ | 15,091 | | | $ | 3,422 | |
Liability Derivatives | 16,302 | | | — | | | 16,302 | | | — | | | 3,000 | | | 13,302 | |
| | | | | | | | | | | |
As of December 31, 2022 | | | | | | | | | | | |
Asset Derivatives | $ | 23,655 | | | $ | — | | | $ | 23,655 | | | $ | — | | | $ | 18,858 | | | $ | 4,797 | |
Liability Derivatives | 21,087 | | | — | | | 21,087 | | | — | | | 3,460 | | | 17,627 | |
Credit-risk-related Contingent Features
The Company has an unsecured federal funds line with its institutional derivative counterparty. The Company has an agreement with its institutional derivative counterparty that contains a provision under which if the Company defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then the Company could also be declared in default on its derivative obligations. The Company also has an agreement with its derivative counterparty that contains a provision under which the Company could be declared in default on its derivative obligations if repayment of the underlying indebtedness is accelerated by the lender due to the Company’s default on the indebtedness. As of March 31, 2023, fair value of derivatives in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements was $24 thousand.
6. Goodwill and Intangible Assets
The carrying amount of goodwill was $62.5 million at March 31, 2023 and December 31, 2022.
The following table presents the gross carrying amount, accumulated amortization, and net carrying amount of other intangible assets at the dates indicated: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of March 31, 2023 | | As of December 31, 2022 |
(in thousands) | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
Core deposit intangible | | $ | 58,245 | | | $ | (37,401) | | | $ | 20,844 | | | $ | 58,245 | | | $ | (35,822) | | | $ | 22,423 | |
Customer relationship intangible | | 5,265 | | | (4,648) | | | 617 | | | 5,265 | | | (4,490) | | | 775 | |
Other | | 2,700 | | | (2,638) | | | 62 | | | 2,700 | | | (2,623) | | | 77 | |
| | $ | 66,210 | | | $ | (44,687) | | | $ | 21,523 | | | $ | 66,210 | | | $ | (42,935) | | | $ | 23,275 | |
| | | | | | | | | | | | |
Indefinite-lived trade name intangible | | $ | 7,040 | | | | | | | $ | 7,040 | | | | | |
The following table provides the estimated future amortization expense for the remaining nine months ending December 31, 2023 and the succeeding annual periods:
| | | | | | | | | | | | | | | | | | | | | | | |
(in thousands) | Core Deposit Intangible | | Customer Relationship Intangible | | Other | | Total |
| | | | | | | |
2023 | $ | 4,098 | | | $ | 360 | | | $ | 36 | | | $ | 4,494 | |
2024 | 4,705 | | | 239 | | | 24 | | | 4,968 | |
2025 | 3,751 | | | 18 | | | 2 | | | 3,771 | |
2026 | 2,797 | | | — | | | — | | | 2,797 | |
2027 | 1,843 | | | — | | | — | | | 1,843 | |
Thereafter | 3,650 | | | — | | | — | | | 3,650 | |
Total | $ | 20,844 | | | $ | 617 | | | $ | 62 | | | $ | 21,523 | |
7. Other Assets
The components of the Company's other assets as of March 31, 2023 and December 31, 2022 were as follows:
| | | | | | | | | | | |
(in thousands) | March 31, 2023 | | December 31, 2022 |
Bank-owned life insurance | $ | 96,141 | | | $ | 95,539 | |
Interest receivable | 26,864 | | | 27,090 | |
FHLB stock | 10,086 | | | 19,248 | |
Mortgage servicing rights | 13,736 | | | 13,421 | |
Operating lease right-of-use assets, net | 2,536 | | | 2,492 | |
Federal and state income taxes, current | 1,630 | | | 2,366 | |
Federal and state income taxes, deferred | 36,039 | | | 39,071 | |
Derivative assets | 18,513 | | | 23,655 | |
Other receivables/assets | 14,040 | | | 13,635 | |
| $ | 219,585 | | | $ | 236,517 | |
8. Deposits
The following table presents the composition of our deposits as of the dates indicated:
| | | | | | | | | | | |
(in thousands) | March 31, 2023 | | December 31, 2022 |
Noninterest bearing deposits | $ | 989,469 | | | $ | 1,053,450 | |
Interest checking deposits | 1,476,948 | | | 1,624,278 | |
Money market deposits | 969,238 | | | 937,340 | |
Savings deposits | 631,811 | | | 664,169 | |
Time deposits under $250 | 965,841 | | | 559,466 | |
| | | |
| | | |
Time deposits of $250 or more | 521,846 | | | 630,239 | |
Total deposits | $ | 5,555,153 | | | $ | 5,468,942 | |
The Company had $6.0 million and $4.3 million in reciprocal time deposits as of March 31, 2023 and December 31, 2022, respectively. Included in money market deposits at March 31, 2023 and December 31, 2022 were $39.3 million and $40.0 million, respectively, of reciprocal deposits. These reciprocal deposits are part of the IntraFi Network Deposits program, which is used by financial institutions to spread deposits that exceed the FDIC insurance coverage limits out to numerous institutions
in order to provide insurance coverage for all participating deposits. In addition, the Company had $366.5 million as of March 31, 2023 and $126.8 million as of December 31, 2022 of brokered deposits.
As of March 31, 2023 and December 31, 2022, the Company had public entity deposits that were collateralized by investment securities of $327.5 million and $387.8 million, respectively.
9. Short-Term Borrowings
The following table summarizes our short-term borrowings as of the dates indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2023 | | December 31, 2022 |
(in thousands) | | Weighted Average Rate | | Balance | | Weighted Average Rate | | Balance |
Securities sold under agreements to repurchase | | 1.25 | % | | $ | 137,481 | | | 1.32 | % | | $ | 156,373 | |
Federal Home Loan Bank advances | | 5.05 | | | 6,500 | | | 4.48 | | | 235,500 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Total | | 1.42 | % | | $ | 143,981 | | | 3.22 | % | | $ | 391,873 | |
Securities Sold Under an Agreement to Repurchase - Securities sold under agreements to repurchase are agreements in which the Company acquires funds by selling assets to another party under a simultaneous agreement to repurchase the same assets at a specified price and date. The Company enters into repurchase agreements and also offers a demand deposit account product to customers that sweeps their balances in excess of an agreed upon target amount into overnight repurchase agreements. All securities sold under agreements to repurchase are recorded on the face of the balance sheet.
Federal Home Loan Bank Advances - The Bank has a secured line of credit with the FHLBDM. Advances from the FHLBDM are collateralized primarily by one- to four-family residential, commercial and agricultural real estate first mortgages equal to various percentages of the total outstanding notes. See Note 4. Loans Receivable and the Allowance for Credit Losses of the notes to the consolidated financial statements. Federal Funds Purchased - The Bank has unsecured federal funds lines totaling $155.0 million from multiple correspondent banking relationships. There were no borrowings from such lines at either March 31, 2023 or December 31, 2022.
Other - At March 31, 2023 and December 31, 2022, the Company had no Federal Reserve Discount Window borrowings, while the financing capacity was $419.4 million as of March 31, 2023 and $105.6 million as of December 31, 2022. At March 31, 2023, the Company had no Bank Term Funding Program borrowings, while the financing capacity was $90.2 million as of March 31, 2023. As of March 31, 2023 and December 31, 2022, the Bank had municipal securities with a market value of $494.1 million and $115.2 million, respectively, pledged to the Federal Reserve Bank of Chicago to secure potential borrowings.
The Company has a credit agreement with a correspondent bank with a revolving commitment of $25.0 million. The credit agreement was amended on September 30, 2022 such that the revolving commitment matures on September 30, 2023, with no updates made to the fee structure or the interest rates. Fees are paid on the average daily unused revolving commitment in the amount of 0.30% per annum. Interest is payable at a rate equal to the monthly reset term SOFR rate plus 1.55%. The Company had no balance outstanding under this revolving credit facility as of both March 31, 2023 and December 31, 2022.
10. Long-Term Debt
Junior Subordinated Notes Issued to Capital Trusts
The table below summarizes the terms of each issuance of junior subordinated notes outstanding as of the dates indicated: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in thousands) | | Face Value | | Book Value | | Interest Rate | | Rate | | Maturity Date | | Callable Date |
March 31, 2023 | | | | | | | | | | | | |
ATBancorp Statutory Trust I | | $ | 7,732 | | | $ | 6,938 | | | Three-month LIBOR + 1.68% | | 6.55 | % | | 06/15/2036 | | 06/15/2011 |
ATBancorp Statutory Trust II | | 12,372 | | | 10,985 | | | Three-month LIBOR + 1.65% | | 6.52 | % | | 09/15/2037 | | 06/15/2012 |
Barron Investment Capital Trust I | | 2,062 | | | 1,839 | | | Three-month LIBOR + 2.15% | | 7.17 | % | | 09/23/2036 | | 09/23/2011 |
Central Bancshares Capital Trust II | | 7,217 | | | 6,934 | | | Three-month LIBOR + 3.50% | | 8.37 | % | | 03/15/2038 | | 03/15/2013 |
MidWestOne Statutory Trust II | | 15,464 | | | 15,464 | | | Three-month LIBOR + 1.59% | | 6.46 | % | | 12/15/2037 | | 12/15/2012 |
Total | | $ | 44,847 | | | $ | 42,160 | | | | | | | | | |
| | | | | | | | | | | | |
December 31, 2022 | | | | | | | | | | | | |
ATBancorp Statutory Trust I | | $ | 7,732 | | | $ | 6,928 | | | Three-month LIBOR + 1.68% | | 6.45 | % | | 06/15/2036 | | 06/15/2011 |
ATBancorp Statutory Trust II | | 12,372 | | 10,969 | | Three-month LIBOR + 1.65% | | 6.42 | % | | 09/15/2037 | | 06/15/2012 |
Barron Investment Capital Trust I | | 2,062 | | | 1,832 | | | Three-month LIBOR + 2.15% | | 6.88 | % | | 09/23/2036 | | 09/23/2011 |
Central Bancshares Capital Trust II | | 7,217 | | | 6,923 | | | Three-month LIBOR + 3.50% | | 8.27 | % | | 03/15/2038 | | 03/15/2013 |
MidWestOne Statutory Trust II | | 15,464 | | | 15,464 | | | Three-month LIBOR + 1.59% | | 6.36 | % | | 12/15/2037 | | 12/15/2012 |
Total | | $ | 44,847 | | | $ | 42,116 | | | | | | | | | |
| | | | | | | | | | | | |
The trust preferred securities are subject to mandatory redemption, in whole or in part, upon repayment of the junior subordinated notes at the stated maturity date or upon redemption of the junior subordinated notes. Each trust’s ability to pay amounts due on the trust preferred securities is solely dependent upon the Company making payment on the related junior subordinated notes. The Company’s obligation under the junior subordinated notes and other relevant trust agreements, in aggregate, constitutes a full and unconditional guarantee by the Company of each trust’s obligations under the trust preferred securities issued by each trust. The Company has the right to defer payment of interest on the junior subordinated notes and, therefore, distributions on the trust preferred securities, for up to five years, but not beyond the stated maturity date in the table above. During any such deferral period the Company may not pay cash dividends on its stock and generally may not repurchase its stock.
Subordinated Debentures
On July 28, 2020, the Company completed the private placement offering of $65.0 million of its subordinated notes, of which $63.75 million have been exchanged for subordinated notes registered under the Securities Act of 1933. The 5.75% fixed-to-floating rate subordinated notes are due July 30, 2030. At March 31, 2023, 100% of the subordinated notes qualified as Tier 2 capital. Per applicable Federal Reserve rules and regulations, the amount of the subordinated notes qualifying as Tier 2 regulatory capital will be phased-out by 20% of the amount of the subordinated notes in each of the five years beginning on the fifth anniversary preceding the maturity date of the subordinated notes.
Other Long-Term Debt
Other long-term borrowings were as follows as of March 31, 2023 and December 31, 2022:
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
(in thousands) | Weighted Average Rate | | Balance | | Weighted Average Rate | | Balance |
Finance lease payable | 8.89 | % | | $ | 744 | | | 8.89 | % | | $ | 787 | |
FHLB borrowings | 2.91 | | | 17,288 | | | 2.91 | | | 17,301 | |
Note payable to unaffiliated bank | 6.22 | | | 13,750 | | | 5.67 | | | 15,000 | |
Total | 4.48 | % | | $ | 31,782 | | | 4.30 | % | | $ | 33,088 | |
On June 7, 2022, the Company entered into an unsecured note payable with a correspondent bank with a maturity date of June 30, 2027. Payments of principal and interest are payable quarterly, and began on September 30, 2022. Interest is payable at the monthly reset term SOFR plus 1.55%.
As a member of the FHLBDM, the Bank may borrow funds from the FHLB in amounts up to 45% of the Bank’s total assets, provided the Bank is able to pledge an adequate amount of qualified assets to secure the borrowings. Advances from the FHLB are collateralized primarily by one- to four-family residential, commercial and agricultural real estate first mortgages equal to various percentages of the total outstanding notes. See Note 4. Loans Receivable and the Allowance for Credit Losses of the notes to the unaudited consolidated financial statements. At March 31, 2023, FHLB long-term borrowings included advances
from the FHLBC, which were collateralized by investment securities. See Note 3. Debt Securities of the notes to the unaudited consolidated financial statements. As of March 31, 2023, FHLB borrowings were as follows:
| | | | | | | | | | | | | | |
(in thousands) | | Weighted Average Rate | | Amount |
Due in 2023 | | 2.79 | % | | $ | 11,000 | |
Due in 2024 | | 3.11 | % | | 6,250 | |
| | | | |
| | | | |
| | | | |
| | | | |
Total | | 2.91 | % | | 17,250 | |
Valuation adjustment from acquisition accounting | | | | 38 | |
Total | | | | $ | 17,288 | |
11. Earnings per Share
The following table presents the computation of basic and diluted earnings per common share for the periods indicated:
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
(dollars in thousands, except per share amounts) | 2023 | | 2022 | | | | |
Basic Earnings Per Share: | | | | | | | |
Net income | $ | 1,397 | | | $ | 13,895 | | | | | |
Weighted average shares outstanding | 15,649,651 | | | 15,683,136 | | | | | |
Basic earnings per common share | $ | 0.09 | | | $ | 0.89 | | | | | |
| | | | | | | |
Diluted Earnings Per Share: | | | | | | | |
Net income | $ | 1,397 | | | $ | 13,895 | | | | | |
Weighted average shares outstanding, including all dilutive potential shares | 15,691,168 | | | 15,717,960 | | | | | |
Diluted earnings per common share | $ | 0.09 | | | $ | 0.88 | | | | | |
12. Regulatory Capital Requirements and Restrictions on Subsidiary Cash
Regulatory Capital and Reserve Requirement - The Company (on a consolidated basis) and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company's consolidated financial statements. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.
As of March 31, 2023 and December 31, 2022, the Bank was not required to maintain reserve balances in cash on hand or on deposit with Federal Reserve Banks, and therefore the total amount held in reserve for each of these periods was zero dollars.
A comparison of the Company's and the Bank's capital with the corresponding minimum regulatory requirements in effect as of March 31, 2023 and December 31, 2022, is presented below:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Actual | | For Capital Adequacy Purposes With Capital Conservation Buffer(1) | | To Be Well Capitalized Under Prompt Corrective Action Provisions |
(dollars in thousands) | Amount | | Ratio | | Amount | | Ratio | | Amount | | Ratio |
At March 31, 2023 | | | | | | | | | | | |
Consolidated: | | | | | | | | | | | |
Total capital/risk weighted assets | $654,151 | | 12.31% | | $557,940 | | 10.50% | | N/A | | N/A |
Tier 1 capital/risk weighted assets | 540,980 | | 10.18 | | 451,666 | | 8.50 | | N/A | | N/A |
Common equity tier 1 capital/risk weighted assets | 498,820 | | 9.39 | | 371,960 | | 7.00 | | N/A | | N/A |
Tier 1 leverage capital/average assets | 540,980 | | 8.30 | | 260,813 | | 4.00 | | N/A | | N/A |
MidWestOne Bank: | | | | | | | | | | | |
Total capital/risk weighted assets | $653,184 | | 12.31% | | $557,101 | | 10.50% | | $530,573 | | 10.00% |
Tier 1 capital/risk weighted assets | 605,014 | | 11.40 | | 450,987 | | 8.50 | | 424,458 | | 8.00 |
Common equity tier 1 capital/risk weighted assets | 605,014 | | 11.40 | | 371,401 | | 7.00 | | 344,872 | | 6.50 |
Tier 1 leverage capital/average assets | 605,014 | | 9.28 | | 260,685 | | 4.00 | | 325,857 | | 5.00 |
| | | | | | | | | | | |
At December 31, 2022 | | | | | | | | | | | |
Consolidated: | | | | | | | | | | | |
Total capital/risk weighted assets | $653,380 | | 12.07% | | $568,452 | | 10.50% | | N/A | | N/A |
Tier 1 capital/risk weighted assets | 544,300 | | 10.05 | | 460,175 | | 8.50 | | N/A | | N/A |
Common equity tier 1 capital/risk weighted assets | 502,184 | | 9.28 | | 378,968 | | 7.00 | | N/A | | N/A |
Tier 1 leverage capital/average assets | 544,300 | | 8.35 | | 260,891 | | 4.00 | | N/A | | N/A |
MidWestOne Bank: | | | | | | | | | | | |
Total capital/risk weighted assets | $654,297 | | 12.10% | | $567,684 | | 10.50% | | $540,652 | | 10.00% |
Tier 1 capital/risk weighted assets | 610,217 | | 11.29 | | 459,554 | | 8.50 | | 432,522 | | 8.00 |
Common equity tier 1 capital/risk weighted assets | 610,217 | | 11.29 | | 378,456 | | 7.00 | | 351,424 | | 6.50 |
Tier 1 leverage capital/average assets | 610,217 | | 9.36 | | 260,776 | | 4.00 | | 325,970 | | 5.00 |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
(1) Includes a capital conservation buffer of 2.50%. Subordinated Notes - The Company completed a private placement of $65.0 million aggregate principal amount of 5.75% fixed-to-floating rate subordinated notes on July 28, 2020. The subordinated notes are intended to qualify as Tier 2 capital for regulatory purposes.
13. Commitments and Contingencies
Credit-related financial instruments - The Bank is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, commitments to sell loans, and standby letters of credit. These instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the balance sheets.
The Bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments. The following table summarizes the Bank’s commitments as of the dates indicated:
| | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
(in thousands) | | | |
Commitments to extend credit | $ | 1,205,902 | | | $ | 1,190,607 | |
Commitments to sell loans | 2,553 | | | 612 | |
Standby letters of credit | 17,374 | | | 18,398 | |
Total | $ | 1,225,829 | | | $ | 1,209,617 | |
The Bank’s exposure to credit loss in the event of nonperformance by the counterparty to the financial instrument for commitments to extend credit is represented by the contractual amount of those instruments. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management’s credit evaluation of the party. Collateral held varies, but may include accounts receivable, crops, livestock, inventory, property and equipment, residential real estate and income-producing commercial properties.
Commitments to sell loans are agreements to sell loans held for sale to third parties at an agreed upon price.
Standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements and, generally, have terms of one year or less. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Bank holds collateral, which may include accounts receivable, inventory, property, equipment and income-producing properties, that support those commitments, if deemed necessary. In the event the customer does not perform in accordance with the terms of the agreement with the third party, the Bank would be required to fund the commitment. The maximum potential amount of future payments the Bank could be required to make is represented by the contractual amount shown in the summary above. If the commitment is funded, the Bank would be entitled to seek recovery from the customer.
Liability for Off-Balance Sheet Credit Losses - The Company records a liability for off-balance sheet credit losses through a charge to credit loss expense (or a reversal of credit loss expense) on the Company's consolidated statements of income and other liabilities on the Company's consolidated balance sheets. At March 31, 2023 and December 31, 2022, the liability for off-balance-sheet credit losses totaled $4.8 million. For the three-months ended March 31, 2023, no credit loss expense was recorded, while a credit loss expense of $0.3 million was recorded for the three-months ended March 31, 2022.
Litigation - In the normal course of business, the Company and its subsidiaries have been named, from time to time, as defendants in various legal actions. Certain of the actual or threatened legal actions may include claims for substantial compensatory and/or punitive damages or claims for indeterminate amounts of damages. Management, after consulting with legal counsel, is of the opinion that the ultimate liability, if any, resulting from these pending or threatened actions and proceedings will not have a material effect on the financial statements of the Company.
Concentrations of credit risk - Substantially all of the Bank’s loans, commitments to extend credit and standby letters of credit have been granted to customers in the Bank’s market areas. Although the loan portfolio of the Bank is diversified, approximately 63% of the loans are real estate loans, excluding farmland, and approximately 7% are agriculturally related. The concentrations of credit by type of loan are set forth in Note 4. Loans Receivable and the Allowance for Credit Losses. Commitments to extend credit are primarily related to commercial loans and home equity loans. Standby letters of credit were granted primarily to commercial borrowers. Investments in securities issued by state and political subdivisions involve certain governmental entities within Iowa, California, and Minnesota. The carrying value of investment securities of Iowa, California and Minnesota political subdivisions totaled 14%, 12%, and 10%, respectively, as of March 31, 2023.
14. Fair Value of Financial Instruments and Fair Value Measurements
Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:
•Level 1 – Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.
•Level 2 – Significant other observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.
•Level 3 – Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.
For additional information regarding the valuation methodologies used to measure the Company's assets recorded at fair value, and for estimating fair value for financial instruments not recorded at fair value, see Note 1. Nature of Business and Significant Accounting Policies and Note 20. Estimated Fair Value of Financial Instruments and Fair Value Measurements to the consolidated financial statements in the Company's 2022 Annual Report on Form 10-K, filed with the SEC on March 13, 2023.
The Company uses fair value to measure certain assets and liabilities on a recurring basis, primarily available for sale debt securities, derivatives and mortgage servicing rights. For assets measured at the lower of cost or fair value, the fair value measurement criteria may or may not be met during a reporting period, and such measurements are therefore considered "nonrecurring" for purposes of disclosing the Company's fair value measurements. Fair value is used on a nonrecurring basis to adjust carrying values for collateral dependent individually analyzed loans and other real estate owned.
Recurring Basis
The following table summarizes assets and liabilities measured at fair value on a recurring basis as of the dates indicated, by level within the fair value hierarchy:
| | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value Measurement at March 31, 2023 Using |
(in thousands) | Total | | Level 1 | | Level 2 | | Level 3 |
Assets: | | | | | | | |
Available for sale debt securities: | | | | | | | |
State and political subdivisions | $ | 184,581 | | | $ | — | | | $ | 184,581 | | | $ | — | |
Mortgage-backed securities | 5,679 | | | — | | | 5,679 | | | — | |
Collateralized loan obligations | 54,074 | | | — | | | 54,074 | | | — | |
Collateralized mortgage obligations | 144,666 | | | — | | | 144,666 | | | — | |
Corporate debt securities | 565,074 | | | — | | | 565,074 | | | — | |
Derivative assets | 18,513 | | | — | | | 18,412 | | | 101 | |
Mortgage servicing rights | 13,736 | | | — | | | 13,736 | | | — | |
| | | | | | | |
Liabilities: | | | | | | | |
Derivative liabilities | $ | 16,302 | | | $ | — | | | $ | 16,302 | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value Measurement at December 31, 2022 Using |
(in thousands) | Total | | Level 1 | | Level 2 | | Level 3 |
Assets: | | | | | | | |
Debt securities available for sale: | | | | | | | |
U.S. Government agencies and corporations | $ | 7,345 | | | $ | — | | | $ | 7,345 | | | $ | — | |
State and political subdivisions | 285,356 | | | — | | | 285,356 | | | — | |
Mortgage-backed securities | 5,944 | | | — | | | 5,944 | | | — | |
| | | | | | | |
Collateralized mortgage obligations | 147,193 | | | — | | | 147,193 | | | — | |
Corporate debt securities | 707,709 | | | — | | | 707,709 | | | — | |
Derivative assets | 23,655 | | | — | | | 23,648 | | | 7 | |
Mortgage servicing rights | 13,421 | | | — | | | 13,421 | | | — | |
| | | | | | | |
Liabilities: | | | | | | | |
Derivative liabilities | $ | 21,087 | | | $ | — | | | $ | 21,087 | | | $ | — | |
There were no transfers of assets between Level 3 and other levels of the fair value hierarchy during the three months ended March 31, 2023 or the year ended December 31, 2022. Changes in the fair value of available for sale debt securities are included in other comprehensive income.
The following table presents the valuation technique, significant unobservable inputs, and quantitative information about the unobservable inputs used for fair value measurements of the financial instruments held by the Company and categorized within Level 3 of the fair value hierarchy as of the dates indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value at | | | | | | | | | | |
(dollars in thousands) | March 31, 2023 | | December 31, 2022 | | Valuation Techniques(s) | | Unobservable Input | | Range of Inputs | | Weighted Average |
Interest rate lock commitments | $ | 101 | | | $ | 7 | | | Quoted or published market prices of similar instruments, adjusted for factors such as pull-through rate assumptions | | Pull-through rate | | 71% | - | 100% | | 92% |
Nonrecurring Basis
The following table presents assets measured at fair value on a nonrecurring basis as of the dates indicated:
| | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value Measurement at March 31, 2023 Using |
(in thousands) | Total | | Level 1 | | Level 2 | | Level 3 |
Collateral dependent individually analyzed loans | $ | 3,666 | | | $ | — | | | $ | — | | | $ | 3,666 | |
| | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value Measurement at December 31, 2022 Using |
(in thousands) | Total | | Level 1 | | Level 2 | | Level 3 |
Collateral dependent individually analyzed loans | $ | 3,159 | | | $ | — | | | $ | — | | | $ | 3,159 | |
Foreclosed assets, net | 103 | | | — | | | — | | | 103 | |
The following table presents the valuation technique(s), unobservable inputs, and quantitative information about the unobservable inputs used for fair value measurements of the financial instruments held by the Company and categorized within Level 3 of the fair value hierarchy as of the dates indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value at | | | | | | | | | | |
(dollars in thousands) | March 31, 2023 | | December 31, 2022 | | Valuation Techniques(s) | | Unobservable Input | | Range of Inputs | | Weighted Average |
Collateral dependent individually analyzed loans | $ | 3,666 | | | $ | 3,159 | | | Fair value of collateral | | Valuation adjustments | | —% | - | 100% | | 13% |
Foreclosed assets, net | $ | — | | | $ | 103 | | | Fair value of collateral | | Valuation adjustments | | N/A(1) |
| | | | | | | | | | | | | |
(1) Quantitative disclosures are not provided for foreclosed assets, net because there were no adjustments made to the appraisal values or stated values during the period. |
Changes in assumptions or estimation methodologies may have a material effect on these estimated fair values.
Carrying Amount and Estimated Fair Value of Financial Instruments
The carrying amount and estimated fair value of financial instruments at March 31, 2023 and December 31, 2022 were as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2023 |
(in thousands) | Carrying Amount | | Estimated Fair Value | | Level 1 | | Level 2 | | Level 3 |
Financial assets: | | | | | | | | | |
Cash and cash equivalents | $ | 69,218 | | | $ | 69,218 | | | $ | 69,218 | | | $ | — | | | $ | — | |
Debt securities available for sale | 954,074 | | | 954,074 | | | — | | | 954,074 | | | — | |
Debt securities held to maturity | 1,117,709 | | | 938,535 | | | — | | | 938,535 | | | — | |
Loans held for sale | 2,553 | | | 2,594 | | | — | | | 2,594 | | | — | |
Loans held for investment, net | 3,869,565 | | | 3,767,718 | | | — | | | — | | | 3,767,718 | |
Interest receivable | 26,864 | | | 26,864 | | | — | | | 26,864 | | | — | |
FHLB stock | 10,086 | | | 10,086 | | | — | | | 10,086 | | | — | |
Derivative assets | 18,513 | | | 18,513 | | | — | | | 18,412 | | | 101 | |
Financial liabilities: | | | | | | | | | |
Noninterest bearing deposits | 989,469 | | | 989,469 | | | 989,469 | | | — | | | — | |
Interest bearing deposits | 4,565,684 | | | 4,548,622 | | | 3,077,997 | | | 1,470,625 | | | — | |
Short-term borrowings | 143,981 | | | 143,981 | | | 143,981 | | | — | | | — | |
Finance leases payable | 744 | | | 744 | | | — | | | 744 | | | — | |
FHLB borrowings | 17,288 | | | 17,111 | | | — | | | 17,111 | | | — | |
Junior subordinated notes issued to capital trusts | 42,160 | | | 36,067 | | | — | | | 36,067 | | | — | |
Subordinated debentures | 64,039 | | | 62,598 | | | — | | | 62,598 | | | — | |
Other long-term debt | 13,750 | | | 13,750 | | | — | | | 13,750 | | | — | |
Derivative liabilities | 16,302 | | | 16,302 | | | — | | | 16,302 | | | — | |
| | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 |
(in thousands) | Carrying Amount | | Estimated Fair Value | | Level 1 | | Level 2 | | Level 3 |
Financial assets: | | | | | | | | | |
Cash and cash equivalents | $ | 86,435 | | | $ | 86,435 | | | $ | 86,435 | | | $ | — | | | $ | — | |
Debt securities available for sale | 1,153,547 | | | 1,153,547 | | | — | | | 1,153,547 | | | — | |
Debt securities held to maturity | 1,129,421 | | | 924,894 | | | — | | | 924,894 | | | — | |
Loans held for sale | 612 | | | 622 | | | — | | | 622 | | | — | |
Loans held for investment, net | 3,791,324 | | | 3,702,527 | | | — | | | — | | | 3,702,527 | |
Interest receivable | 27,090 | | | 27,090 | | | — | | | 27,090 | | | — | |
FHLB stock | 19,248 | | | 19,248 | | | — | | | 19,248 | | | — | |
Derivative assets | 23,655 | | | 23,655 | | | — | | | 23,648 | | | 7 | |
Financial liabilities: | | | | | | | | | |
Noninterest bearing deposits | 1,053,450 | | | 1,053,450 | | | 1,053,450 | | | — | | | — | |
Interest bearing deposits | 4,415,492 | | | 4,393,315 | | | 3,225,787 | | | 1,167,528 | | | — | |
Short-term borrowings | 391,873 | | | 391,873 | | | 391,873 | | | — | | | — | |
Finance leases payable | 787 | | | 787 | | | — | | | 787 | | | — | |
FHLB borrowings | 17,301 | | | 17,032 | | | — | | | 17,032 | | | — | |
Junior subordinated notes issued to capital trusts | 42,116 | | | 39,023 | | | — | | | 39,023 | | | — | |
Subordinated debentures | 64,006 | | | 64,004 | | | — | | | 64,004 | | | — | |
Other long-term debt | 15,000 | | | 15,000 | | | — | | | 15,000 | | | — | |
Derivative liabilities | 21,087 | | | 21,087 | | | — | | | 21,087 | | | — | |
15. Leases
The Company's lease commitments consist primarily of real estate property for banking offices and office space with terms extending through 2030. Substantially all of our leases are classified as operating leases, with the Company only holding one existing finance lease for a banking office location with a lease term through 2025.
| | | | | | | | | | | | | | | | | | | | |
(in thousands) | | Classification | | March 31, 2023 | | December 31, 2022 |
Operating lease right-of-use assets | | Other assets | | $ | 2,536 | | | $ | 2,492 | |
Finance lease right-of-use asset | | Premises and equipment, net | | 326 | | | 350 | |
Total right-of-use assets | | | | $ | 2,862 | | | $ | 2,842 | |
| | | | | | |
Operating lease liability | | Other liabilities | | $ | 3,364 | | | $ | 3,359 | |
Finance lease liability | | Long-term debt | | 744 | | | 787 | |
Total lease liabilities | | | | $ | 4,108 | | | $ | 4,146 | |
| | | | | | |
| | | | | | |
Weighted-average remaining lease term: | | Operating leases | | 10.08 years | | 9.23 years |
| | Finance lease | | 3.42 years | | 3.67 years |
Weighted-average discount rate: | | Operating leases | | 4.33 | % | | 4.23 | % |
| | Finance lease | | 8.89 | % | | 8.89 | % |
The following table represents lease costs and other lease information. As the Company elected, for all classes of underlying assets, not to separate lease and non-lease components and instead to account for them as a single lease component, the variable lease cost primarily represents variable payments such as common area maintenance and utilities.
| | | | | | | | | | | | | | | |
| Three Months Ended | | |
| March 31, | | |
(in thousands) | 2023 | | 2022 | | | | |
Lease Costs | | | | | | | |
Operating lease cost | $ | 292 | | | $ | 296 | | | | | |
Variable lease cost | 7 | | | 21 | | | | | |
Interest on lease liabilities(1) | 17 | | | 20 | | | | | |
Amortization of right-of-use assets | 24 | | | 24 | | | | | |
Net lease cost | $ | 340 | | | $ | 361 | | | | | |
| | | | | | | |
Other Information | | | | | | | |
Cash paid for amounts included in the measurement of lease liabilities: | | | | | | | |
Operating cash flows from operating leases | $ | 605 | | | $ | 596 | | | | | |
Operating cash flows from finance lease | 17 | | | 20 | | | | | |
Finance cash flows from finance lease | 43 | | | 39 | | | | | |
| | | | | | | |
Supplemental non-cash information on lease liabilities: | | | | | | | |
Right-of-use assets obtained in exchange for new operating lease liabilities | 292 | | | — | | | | | |
(1)Included in long-term debt interest expense in the Company’s consolidated statements of income. All other lease costs in this table are included in occupancy expense of premises, net.
Future minimum payments for finance leases and operating leases with initial or remaining terms of one year or more for the remaining nine-months ending December 31, 2023 and the succeeding annual periods were as follows:
| | | | | | | | | | | |
(in thousands) | Finance Leases | | Operating Leases |
December 31, 2023 | $ | 184 | | | $ | 845 | |
December 31, 2024 | 250 | | | 892 | |
December 31, 2025 | 255 | | | 422 | |
December 31, 2026 | 172 | | | 328 | |
December 31, 2027 | — | | | 243 | |
Thereafter | — | | | 1,708 | |
Total undiscounted lease payment | $ | 861 | | | $ | 4,438 | |
Amounts representing interest | (117) | | | (1,074) | |
Lease liability | $ | 744 | | | $ | 3,364 | |
16. Subsequent Events
The Company has evaluated events that have occurred subsequent to March 31, 2023 and has concluded there are no other subsequent events that would require recognition in the accompanying consolidated financial statements.
On April 27, 2023, the board of directors of the Company declared a cash dividend of $0.2425 per share payable on June 15, 2023 to shareholders of record as of the close of business on June 1, 2023.
On April 27, 2023, the Board of Directors of the Company approved a new share repurchase program, allowing for the repurchase of up to $15.0 million of the Company's common stock through December 31, 2025. This new repurchase program replaced the Company’s prior repurchase program, which was due to expire on December 31, 2023. Since April 28, 2023 and through May 3, 2023, the Company repurchased no shares of common stock, leaving $15.0 million available to be repurchased.