io Segmentation:

At December 31, 2016 and 2015, loans consisted of the following (in thousands):



	December 31, 2016								December 31, 2015
	PCI Loans		All Other Loans			Total			PCI Loans		All Other Loans			Total
Commercial real estate	$	14,943	$	400,265		$	415,208		$	20,050	$	349,727		$	369,777
Consumer real estate	9,004		178,798			187,802			12,764		148,930			161,694
Construction and land development	1,678		116,191			117,869			2,695		102,783			105,478
Commercial and industrial	1,568		83,454			85,022			2,768		82,183			84,951
Consumer and other	—		7,475			7,475			—		5,815			5,815
Total loans	27,193		786,183			813,376			38,277		689,438			727,715
Less: Allowance for loan losses	—		(5,105		)	(5,105		)	—		(4,354		)	(4,354		)

Loans, net	$	27,193	$	781,078		$	808,271		$	38,277	$	685,084		$	723,361

For purposes of the disclosures required pursuant to the adoption of ASC 310, the loan portfolio was disaggregated into segments. A portfolio segment is defined as the level at which an entity develops and documents a systematic method for determining its allowance for credit losses. There are five loan portfolio segments that include commercial real estate, consumer real estate, construction and land development, commercial and industrial, and consumer and other.

The following describe risk characteristics relevant to each of the portfolio segments:

Commercial Real Estate: Commercial real estate loans include owner-occupied commercial real estate loans and loans secured by income-producing properties. Owner-occupied commercial real estate loans to operating businesses are long-term financing of land and buildings. These loans are repaid by cash flow generated from the business operation. Real estate loans for income-producing properties such as apartment buildings, office and industrial buildings, and retail shopping centers are repaid from rent income derived from the properties. Loans within this portfolio segment are particularly sensitive to the valuation of real estate.

Consumer Real Estate: Consumer real estate loans include real estate loans secured by first liens, second liens, or open end real estate loans, such as home equity lines. These are repaid by various means such as a borrower's income, sale of the property, or rental income derived from the property. One to four family first mortgage loans are repaid by various means such as a borrower's income, sale of the property, or rental income derived from the property. Loans within this portfolio segment are particularly sensitive to the valuation of real estate.

Construction and Land Development: Loans for real estate construction and development are repaid through cash flow related to the operations, sale or refinance of the underlying property. This portfolio segment includes extensions of credit to real estate developers or investors where repayment is dependent on the sale of the real estate or income generated from the real estate collateral. Loans within this portfolio segment are particularly sensitive to the valuation of real estate.

Commercial and Industrial: The commercial and industrial loan portfolio segment includes commercial, financial, and agricultural loans. These loans include those loans to commercial customers for use in normal business operations to finance working capital needs, equipment purchases, or expansion projects. Loans are repaid by business cash flows. Collection risk in this portfolio is driven by the creditworthiness of the underlying borrower, particularly cash flows from the customers' business operations.

Consumer and Other: The consumer loan portfolio segment includes direct consumer installment loans, overdrafts and other revolving credit loans, and educational loans. Loans in this portfolio are sensitive to unemployment and other key consumer economic measures.

Credit Risk Management:

The Company employs a credit risk management process with defined policies, accountability and routine reporting to manage credit risk in the loan portfolio segments. Credit risk management is guided by credit policies that provide for a consistent and prudent approach to underwriting and approvals of credits. Within the Credit Policy, procedures exist that elevate the approval requirements as credits become larger and more complex. All loans are individually underwritten, risk-rated, approved, and monitored.

Responsibility and accountability for adherence to underwriting policies and accurate risk ratings lies in each portfolio segment. For the consumer real estate and consumer and other portfolio segments, the risk management process focuses on managing customers who become delinquent in their payments. For the other portfolio segments, the risk management process focuses on underwriting new business and, on an ongoing basis, monitoring the credit of the portfolios, including a third party review of the largest credits on an annual basis or more frequently as needed. To ensure problem credits are identified on a timely basis, several specific portfolio reviews occur periodically to assess the larger adversely rated credits for proper risk rating and accrual status.

Credit quality and trends in the loan portfolio segments are measured and monitored regularly. Detailed reports, by product, collateral, accrual status, etc., are reviewed by the Senior Credit Officer and the Directors Loan Committee.

The allowance for loan losses is a valuation reserve allowance established through provisions for loan losses charged against income. The allowance for loan losses, which is evaluated quarterly, is maintained at a level that management deems sufficient to absorb probable losses inherent in the loan portfolio. Loans deemed to be uncollectible are charged against the allowance for loan losses, while recoveries of previously charged-off amounts are credited to the allowance for loan losses. The allowance for loan losses is comprised of specific valuation allowances for loans evaluated individually for impairment and general allocations for pools of homogeneous loans with similar risk characteristics and trends.

The allowance for loan losses related to specific loans is based on management's estimate of potential losses on impaired loans as determined by (1) the present value of expected future cash flows; (2) the fair value of collateral if the loan is determined to be collateral dependent or (3) the loan's observable market price. The Company's homogeneous loan pools include commercial real estate loans, consumer real estate loans, construction and land development loans, commercial and industrial loans, and consumer and other loans. The general allocations to these loan pools are based on the historical loss rates for specific loan types and the internal risk grade, if applicable, adjusted for both internal and external qualitative risk factors.

The qualitative factors considered by management include, among other factors, (1) changes in local and national economic conditions; (2) changes in asset quality; (3) changes in loan portfolio volume; (4) the composition and concentrations of credit; (5) the impact of competition on loan structuring and pricing; (6) the impact of interest rate changes on portfolio risk and (7) effectiveness of the Company's loan policies, procedures and internal controls. The total allowance established for each homogeneous loan pool represents the product of the historical loss ratio adjusted for qualitative factors and the total dollar amount of the loans in the pool.

Credit Risk Management (continued):

The composition of loans by loan classification for impaired and performing loan status at December 31, 2016 and 2015, is summarized in the tables below (amounts in thousands):



	December 31, 2016
	Commercial Real Estate		Consumer Real Estate		Construction and Land Development		Commercial and Industrial		Consumer and Other		Total
Performing loans	$	400,146	$	177,977	$	115,326	$	83,244	$	7,475	$	784,168
Impaired loans	119		821		865		210		—		2,015
	400,265		178,798		116,191		83,454		7,475		786,183
PCI loans	14,943		9,004		1,678		1,568		—		27,193
Total	$	415,208	$	187,802	$	117,869	$	85,022	$	7,475	$	813,376



	December 31, 2015
	Commercial Real Estate		Consumer Real Estate		Construction and Land Development		Commercial and Industrial		Consumer and Other		Total
Performing loans	$	347,775	$	145,289	$	101,751	$	81,715	$	5,815	$	682,345
Impaired loans	1,952		3,641		1,032		468		—		7,093
	349,727		148,930		102,783		82,183		5,815		689,438
PCI loans	20,050		12,764		2,695		2,768		—		38,277
Total loans	$	369,777	$	161,694	$	105,478	$	84,951	$	5,815	$	727,715

The following tables show the allowance for loan losses allocation by loan classification for impaired and performing loans as of December 31, 2016 and 2015 (amounts in thousands):



December 31, 2016
					Construction		Commercial		Consumer
	Commercial		Consumer		and Land		and		and
	Real Estate		Real Estate		Development		Industrial		Other		Total
Performing loans	$	2,369	$	1,382	$	717	$	516	$	117	$	5,101
Impaired loans	—		—		—		4		—		4
Total	$	2,369	$	1,382	$	717	$	520	$	117	$	5,105

Credit Risk Management (continued):



December 31, 2015
					Construction		Commercial		Consumer
	Commercial		Consumer		and Land		and		and
	Real Estate		Real Estate		Development		Industrial		Other		Total
Performing loans	$	1,906	$	1,015	$	627	$	519	$	29	$	4,096
Impaired loans	—		—		—		258		—		258
Total	$	1,906	$	1,015	$	627	$	777	$	29	$	4,354

The following tables detail the changes in the allowance for loan losses for the year ending December 31, 2016 and December 31, 2015, by loan classification (amounts in thousands):



December 31, 2016
	Commercial Real Estate		Consumer Real Estate			Construction and Land Development			Commercial and Industrial			Consumer and Other			Total
Beginning balance	$	1,906	$	1,015		$	627		$	777		$	29		$	4,354
Loans charged off	—		(102		)	(14		)	(35		)	(155		)	(306		)
Recoveries of loans charged off	45		76			22			58			68			269
Provision (reallocation) charged to operating expense	418		393			82			(280		)	175			788
Ending balance	$	2,369	$	1,382		$	717		$	520		$	117		$	5,105



December 31, 2015
	Commercial Real Estate			Consumer Real Estate			Construction and Land Development			Commercial and Industrial		Consumer and Other			Total
Beginning balance	$	1,734		$	906		$	690		$	524	$	26		$	3,880
Loans charged off	(95		)	(247		)	(50		)	—		(114		)	(506		)
Recoveries of loans charged off	—			—			26			19		12			57
Provision (reallocation) charged to operating expense	267			356			(39		)	234		105			923
Ending balance	$	1,906		$	1,015		$	627		$	777	$	29		$	4,354

Credit Risk Management (continued):

A description of the general characteristics of the risk grades used by the Company is as follows:

Pass: Loans in this risk category involve borrowers of acceptable-to-strong credit quality and risk who have the apparent ability to satisfy their loan obligations. Loans in this risk grade would possess sufficient mitigating factors, such as adequate collateral or strong guarantors possessing the capacity to repay the debt if required, for any weakness that may exist.

Watch: Loans in this risk category involve borrowers that exhibit characteristics, or are operating under conditions that, if not successfully mitigated as planned, have a reasonable risk of resulting in a downgrade within the next six to twelve months. Loans may remain in this risk category for six months and then are either upgraded or downgraded upon subsequent evaluation.

Special Mention: Loans in this risk grade are the equivalent of the regulatory definition of "Other Assets Especially Mentioned" classification. Loans in this category possess some credit deficiency or potential weakness, which requires a high level of management attention. Potential weaknesses include declining trends in operating earnings and cash flows and /or reliance on the secondary source of repayment. If left uncorrected, these potential weaknesses may result in noticeable deterioration of the repayment prospects for the asset or in the Company's credit position.

Substandard: Loans in this risk grade are inadequately protected by the borrower's current financial condition and payment capability or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the orderly repayment of debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

Doubtful: Loans in this risk grade have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or orderly repayment in full, on the basis of current existing facts, conditions and values, highly questionable and improbable. Possibility of loss is extremely high, but because of certain important and reasonably specific factors that may work to the advantage and strengthening of the exposure, its classification as an estimated loss is deferred until its more exact status may be determined.

Uncollectible: Loans in this risk grade are considered to be non-collectible and of such little value that their continuance as bankable assets is not warranted. This does not mean the loan has absolutely no recovery value, but rather it is neither practical nor desirable to defer writing off the loan, even though partial recovery may be obtained in the future. Charge-offs against the allowance for loan losses are taken in the period in which the loan becomes uncollectible. Consequently, the Company typically does not maintain a recorded investment in loans within this category.

The following tables outline the amount of each loan classification and the amount categorized into each risk rating as of December 31, 2016 and 2015 (amounts in thousands):

Non PCI Loans



	December 31, 2016
	Commercial Real Estate		Consumer Real Estate		Construction and Land Development		Commercial and Industrial		Consumer and Other		Total
Pass	$	399,505	$	177,466	$	115,237	$	82,992	$	7,238	$	782,438
Watch	640		550		89		252		—		1,531
Special mention	—		104		—		—		237		341
Substandard	120		678		865		210		—		1,873
Doubtful	—		—		—		—		—		—
Total	$	400,265	$	178,798	$	116,191	$	83,454	$	7,475	$	786,183

Credit Risk Management (continued):

PCI Loans



	December 31, 2016
	Commercial Real Estate		Consumer Real Estate		Construction and Land Development		Commercial and Industrial		Consumer and Other		Total
Pass	$	11,836	$	6,811	$	1,019	$	1,507	$	—	$	21,173
Watch	1,045		1,577		645		22		—		3,289
Special mention	—		—		—		12		—		12
Substandard	2,062		616		14		—		—		2,692
Doubtful	—		—		—		27		—		27
Total	$	14,943	$	9,004	$	1,678	$	1,568	$	—	$	27,193
Total loans	$	415,208	$	187,802	$	117,869	$	85,022	$	7,475	$	813,376

Non PCI Loans



	December 31, 2015
	Commercial Real Estate		Consumer Real Estate		Construction and Land Development		Commercial and Industrial		Consumer and Other		Total
Pass	$	349,030	$	146,645	$	101,751	$	81,683	$	5,815	$	684,924
Watch	184		327		—		—		—		511
Special mention	387		—		—		32		—		419
Substandard	126		1,958		1,032		468		—		3,584
Doubtful	—		—		—		—		—		—
Total	$	349,727	$	148,930	$	102,783	$	82,183	$	5,815	$	689,438

PCI Loans



	December 31, 2015
	Commercial Real Estate		Consumer Real Estate		Construction and Land Development		Commercial and Industrial		Consumer and Other		Total
Pass	$	17,127	$	11,635	$	1,947	$	2,458	$	—	$	33,167
Watch	—		260		—		—		—		260
Special mention	1,975		—		526		221		—		2,722
Substandard	948		869		222		89		—		2,128
Doubtful	—		—		—		—		—		—
Total	$	20,050	$	12,764	$	2,695	$	2,768	$	—	$	38,277
Total loans	$	369,777	$	161,694	$	105,478	$	84,951	$	5,815	$	727,715

Past Due Loans:

A loan is considered past due if any required principal and interest payments have not been received as of the date such payments were required to be made under the terms of the loan agreement. Generally, management places a loan on nonaccrual when there is a clear indication that the borrower’s cash flow may not be sufficient to meet payments as they become due, which is generally when a loan is 90 days past due.

The following tables present the aging of the recorded investment in loans and leases as of December 31, 2016 and 2015 (amounts in thousands):



	December 31, 2016
	30-89 Days Past Due and Accruing		Past Due 90 Days or More and Accruing		Nonaccrual		Total Past Due		PCI Loans		Current Loans		Total Loans
Commercial real estate	$	395	$	—	$	—	$	395	$	14,943	$	399,870	$	415,208
Consumer real estate	695		699		386		1,780		9,004		177,018		187,802
Construction and land development	690		—		865		1,555		1,678		114,636		117,869
Commercial and industrial	257		—		164		421		1,568		83,033		85,022
Consumer and other	17		—		—		17		—		7,458		7,475
Total	$	2,054	$	699	$	1,415	$	4,168	$	27,193	$	782,015	$	813,376



	December 31, 2015
	30-89 Days Past Due and Accruing		Past Due 90 Days or More and Accruing		Nonaccrual		Total Past Due		PCI Loans		Current Loans		Total Loans
Commercial real estate	$	471	$	258	$	—	$	729	$	20,050	$	348,998	$	369,777
Consumer real estate	581		232		1,351		2,164		12,764		146,766		161,694
Construction and land development	137		—		483		620		2,695		102,163		105,478
Commercial and industrial	207		12		418		637		2,768		81,546		84,951
Consumer and other	12		—		—		12		—		5,803		5,815
Total	$	1,408	$	502	$	2,252	$	4,162	$	38,277	$	685,276	$	727,715

Impaired Loans:

A loan held for investment is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due (both principal and interest) according to the terms of the loan agreement.

The following is an analysis of the impaired loan portfolio detailing the related allowance recorded as of and for the years ended December 31, 2016 and 2015 (amounts in thousands):



							For the year ended
	At December 31, 2016						December 31, 2016
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
Impaired loans without a valuation allowance:
Non PCI Loans:
Commercial real estate	$	119	$	119	$	—	$	1,311	$	73
Consumer real estate	821		849		—		2,334		100
Construction and land development	865		865		—		967		3
Commercial and industrial	46		46		—		47		4
Consumer and other	—		—		—		—		—
	1,851		1,879		—		4,659		180

PCI loans: None in 2016

Impaired loans with a valuation allowance:
Non PCI Loans:
Commercial real estate	—		—		—		—		—
Consumer real estate	—		—		—		—		—
Construction and land development	—		—		—		—		—
Commercial and industrial	164		243		4		306		70
Consumer and other	—		—		—		—		—
	164		243		4		306		70
PCI loans: None in 2016
Total impaired loans	$	2,015	$	2,122	$	4	$	4,965	$	250

Impaired Loans (continued):



							For the year ended
	At December 31, 2015						December 31, 2015
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
Impaired loans without a valuation allowance:
Non PCI Loans:
Commercial real estate	$	1,952	$	1,952	$	—	$	1,898	$	73
Consumer real estate	3,641		4,341		—		4,003		81
Construction and land development	1,033		1,033		—		1,044		26
Commercial and industrial	49		49		—		54		3
Consumer and other	—		—		—		—		—
	6,675		7,375		—		6,999		183

PCI loans: None in 2015

Impaired loans with a valuation allowance:
Non PCI Loans:
Commercial real estate	—		—		—		—		—
Consumer real estate	—		—		—		—		—
Construction and land development	—		—		—		—		—
Commercial and industrial	418		418		258		448		—
Consumer and other	—		—		—		—		—
	418		418		258		448		—
PCI loans: None in 2015
Total impaired loans	$	7,093	$	7,793	$	258	$	7,447	$	183

Troubled Debt Restructurings:

At December 31, 2016 and 2015, impaired loans included loans that were classified as Troubled Debt Restructurings ("TDRs"). The restructuring of a loan is considered a TDR if both (i) the borrower is experiencing financial difficulties and (ii) the creditor has granted a concession.

In assessing whether or not a borrower is experiencing financial difficulties, the Company considers information currently available regarding the financial condition of the borrower. This information includes, but is not limited to, whether (i) the debtor is currently in payment default on any of its debt; (ii) a payment default is probable in the foreseeable future without the modification; (iii) the debtor has declared or is in the process of declaring bankruptcy; and (iv) the debtor's projected cash flow is sufficient to satisfy contractual payments due under the original terms of the loan without a modification.

The Company considers all aspects of the modification to loan terms to determine whether or not a concession has been granted to the borrower. Key factors considered by the Company include the debtor's ability to access funds at a market rate for debt with similar risk characteristics, the significance of the modification relative to unpaid principal balance or collateral value of the debt, and the significance of a delay in the timing of payments relative to the original contractual terms of the loan.

Troubled Debt Restructurings (continued):

The most common concessions granted by the Company generally include one or more modifications to the terms of the debt, such as (i) a reduction in the interest rate for the remaining life of the debt; (ii) an extension of the maturity date at an interest rate lower than the current market rate for new debt with similar risk; (iii) a temporary period of interest-only payments; and (iv) a reduction in the contractual payment amount for either a short period or remaining term of the loan. As of December 31, 2016 and 2015, management had approximately $608,000 and $4,990,000, respectively, in loans that met the criteria for restructured, which included approximately $442,000 and $1,297,000, respectively, of loans on nonaccrual. A loan is placed back on accrual status when both principal and interest are current and it is probable that management will be able to collect all amounts due (both principal and interest) according to the terms of the loan agreement.

The following table presents a summary of loans that were modified as troubled debt restructurings during the year ended December 31, 2016 (amounts in thousands):



December 31, 2016	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Construction and land development	1	$	278	$	278
Commercial and industrial	1	164		164

There were no loans modified as troubled debt restructurings during the year ended December 31, 2015.

There were no loans that were modified as troubled debt restructurings during the past twelve months and for which there was a subsequent payment default.

Purchased Credit Impaired Loans:

The Company has acquired loans which there was, at acquisition, evidence of deterioration of credit quality since origination and it was probable, at acquisition, that all contractually required payments would not be collected. The carrying amount of those loans at for the years ended December 31, 2016 and 2015 is as follows (in thousands):



	2016			2015
Commercial real estate	$	18,473		$	22,995
Consumer real estate	12,111			16,909
Construction and land development	2,553			3,553
Commercial and industrial	2,482			3,660
Consumer and other	—			—
Total loans	$	35,619		$	47,117
Less remaining purchase discount	(8,426		)	(8,840		)
Total, gross	27,193			38,277
Less: Allowance for loan losses	—			—
Carrying amount, net of allowance	$	27,193		$	38,277

The following is a summary of the accretable discount on acquired loans for the years ended December 31, 2016 and 2015 (in thousands):



	2016			2015
Accretable yield, beginning of period	$	10,217		$	7,983
Additions	—			4,282
Accretion income	(2,588		)	(1,805		)
Reclassification from nonaccretable	1,585			151
Other changes, net	(264		)	(394		)
Accretable yield, end of period	$	8,950		$	10,217

The Company did not increase the allowance for loan losses on purchase credit impaired loans during the years ended December 31, 2016 and 2015.

Related Party Loans:

In the ordinary course of business, the Company has granted loans to certain related parties, including directors, executive officers, and their affiliates. The interest rates on these loans were substantially the same as rates prevailing at the time of the transaction and repayment terms are customary for the type of loan. A summary of activity in loans to related parties is as follows (in thousands):



	2016			2015
Balance, beginning of year	$	10,851		$	14,813
Disbursements	855			548
Removal of credit lines	(1,153		)	—
Changes in ownership	4,830			—
Repayments	(2,384		)	(4,510		)
Balance, end of year	$	12,999		$	10,851

At December 31, 2016, the Company had pre-approved but unused lines of credit totaling approximately $2,247,000 to related parties.