LOANS AND ALLOWANCE FOR LOAN LOSSES

The following table summarizes the Company’s loan portfolio by type of loan as of:



	September 30, 2017		December 31, 2016
Commercial and industrial	$	192,663	$	223,997
Real estate:
Construction and development	201,067		129,366
Commercial real estate	393,314		367,656
Farmland	54,349		62,362
1-4 family residential	365,889		362,952
Multi-family residential	23,235		26,079
Consumer	51,711		53,505
Agricultural	24,449		18,901
Overdrafts	698		317
Total loans	1,307,375		1,245,135
Less:
Allowance for loan losses	12,528		11,484
Total net loans	$	1,294,847	$	1,233,651

As of September 30, 2017 and December 31, 2016, included in total loans above were $1,089 and $1,210 in unamortized loan costs, net of loan fees, respectively.

The following tables present the activity in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method for the nine months ended September 30, 2017, for the year ended December 31, 2016 and for the nine months ended September 30, 2016:



For the nine months ended September 30, 2017	Commercial and industrial			Construction and development		Commercial real estate			Farmland			1-4 family residential			Multi-family residential			Consumer			Agricultural			Overdrafts			Total
Allowance for loan losses:
Beginning balance	$	1,592		$	1,161	$	3,264		$	482		$	3,960		$	281		$	585		$	153		$	6		$	11,484
Provision for loan losses	602			762		1,019			(24		)	(585		)	(15		)	149			258			84			2,250
Loans charged-off	(737		)	—		(84		)	—			(307		)	—			(230		)	(4		)	(117		)	(1,479		)
Recoveries	116			—		—			—			21			—			95			—			41			273
Ending balance	$	1,573		$	1,923	$	4,199		$	458		$	3,089		$	266		$	599		$	407		$	14		$	12,528
Allowance ending balance:
Individually evaluated for impairment	$	19		$	—	$	31		$	85		$	145		$	—		$	—		$	240		$	—		$	520
Collectively evaluated for impairment	1,554			1,923		4,168			373			2,944			266			599			167			14			12,008
Ending balance	$	1,573		$	1,923	$	4,199		$	458		$	3,089		$	266		$	599		$	407		$	14		$	12,528
Loans:
Individually evaluated for impairment	$	354		$	—	$	4,029		$	276		$	1,097		$	228		$	—		$	696		$	—		$	6,680
Collectively evaluated for impairment	192,309			201,067		389,285			54,073			364,792			23,007			51,711			23,753			698			1,300,695
Ending balance	$	192,663		$	201,067	$	393,314		$	54,349		$	365,889		$	23,235		$	51,711		$	24,449		$	698		$	1,307,375



For the year ended December 31, 2016	Commercial and industrial			Construction and development			Commercial real estate		Farmland		1-4 family residential			Multi-family residential			Consumer			Agricultural		Overdrafts			Total
Allowance for loan losses:
Beginning balance	$	1,878		$	1,004		$	2,106	$	400	$	2,839		$	325		$	562		$	138	$	11		$	9,263
Provision for loan losses	910			162			1,158		82		1,117			(44		)	171			15		69			3,640
Loans charged-off	(1,213		)	(9		)	—		—		(71		)	—			(269		)	—		(200		)	(1,762		)
Recoveries	17			4			—		—		75			—			121			—		126			343
Ending balance	$	1,592		$	1,161		$	3,264	$	482	$	3,960		$	281		$	585		$	153	$	6		$	11,484
Allowance ending balance:
Individually evaluated for impairment	$	64		$	—		$	—	$	47	$	108		$	—		$	34		$	—	$	—		$	253
Collectively evaluated for impairment	1,528			1,161			3,264		435		3,852			281			551			153		6			11,231
Ending balance	$	1,592		$	1,161		$	3,264	$	482	$	3,960		$	281		$	585		$	153	$	6		$	11,484
Loans:
Individually evaluated for impairment	$	231		$	1,825		$	1,196	$	258	$	2,588		$	5		$	200		$	15	$	—		$	6,318
Collectively evaluated for impairment	223,766			127,541			366,460		62,104		360,364			26,074			53,305			18,886		317			1,238,817
Ending balance	$	223,997		$	129,366		$	367,656	$	62,362	$	362,952		$	26,079		$	53,505		$	18,901	$	317		$	1,245,135



For the nine months ended September 30, 2016	Commercial and industrial			Construction and development			Commercial real estate		Farmland		1-4 family residential			Multi-family residential		Consumer			Agricultural			Overdrafts			Total
Allowance for loan losses:
Beginning balance	$	1,878		$	1,004		$	2,106	$	400	$	2,839		$	325	$	562		$	138		$	11		$	9,263
Provision for loan losses	949			134			993		74		916			46		74			(10		)	64			3,240
Loans charged-off	(1,196		)	(9		)	—		—		(25		)	—		(170		)	—			(119		)	(1,519		)
Recoveries	14			4			—		—		—			—		103			—			61			182
Ending balance	$	1,645		$	1,133		$	3,099	$	474	$	3,730		$	371	$	569		$	128		$	17		$	11,166
Allowance ending balance:
Individually evaluated for impairment	$	139		$	—		$	—	$	47	$	82		$	—	$	29		$	1		$	—		$	298
Collectively evaluated for impairment	1,506			1,133			3,099		427		3,648			371		540			127			17			10,868
Ending balance	$	1,645		$	1,133		$	3,099	$	474	$	3,730		$	371	$	569		$	128		$	17		$	11,166
Loans:
Individually evaluated for impairment	$	236		$	—		$	1,464	$	259	$	2,177		$	—	$	208		$	319		$	—		$	4,663
Collectively evaluated for impairment	224,381			125,045			359,212		61,643		346,224			34,538		54,137			18,904			594			1,224,678
Ending balance	$	224,617		$	125,045		$	360,676	$	61,902	$	348,401		$	34,538	$	54,345		$	19,223		$	594		$	1,229,341

Credit Quality

The Company closely monitors economic conditions and loan performance trends to manage and evaluate the exposure to credit risk. Key factors tracked by the Company and utilized in evaluating the credit quality of the loan portfolio include trends in delinquency ratios, the level of nonperforming assets, borrower’s repayment capacity, and collateral coverage.

Assets are graded “pass” when the relationship exhibits acceptable credit risk and indicates repayment ability, tolerable collateral coverage and reasonable performance history. Lending relationships exhibiting potentially significant credit risk and marginal repayment ability and/or asset protection are graded “special mention.” Assets classified as “substandard” are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified must have a well-defined weakness that jeopardizes the liquidation of the debt. Substandard graded loans are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. Assets graded “doubtful” are substandard graded loans that have added characteristics that make collection or liquidation in full improbable. The Company typically measures impairment based on the present value of expected future cash flows, discounted at the loan's effective interest rate, or based on the loan's observable market price or the fair value of the collateral if the loan is collateral-dependent.

The following tables summarize the credit exposure in the Company’s consumer and commercial loan portfolios as of:



September 30, 2017	Commercial and industrial		Construction and development		Commercial real estate		Farmland		1-4 family residential		Multi-family residential		Consumer and Overdrafts		Agricultural		Total
Grade:
Pass	$	188,440	$	181,879	$	388,007	$	53,649	$	357,814	$	21,659	$	51,631	$	22,525	$	1,265,604
Special mention	3,705		19,188		1,030		413		3,059		1,348		362		1,147		30,252
Substandard	518		—		4,277		287		5,016		228		416		777		11,519
Total	$	192,663	$	201,067	$	393,314	$	54,349	$	365,889	$	23,235	$	52,409	$	24,449	$	1,307,375



December 31, 2016	Commercial and industrial		Construction and development		Commercial real estate		Farmland		1-4 family residential		Multi-family residential		Consumer and Overdrafts		Agricultural		Total
Grade:
Pass	$	218,975	$	127,537	$	360,264	$	61,713	$	353,483	$	25,871	$	52,648	$	17,965	$	1,218,456
Special mention	4,299		4		1,927		248		4,311		—		524		478		11,791
Substandard	706		1,825		5,465		401		5,121		208		568		458		14,752
Doubtful	17		—		—		—		37		—		82		—		136
Total	$	223,997	$	129,366	$	367,656	$	62,362	$	362,952	$	26,079	$	53,822	$	18,901	$	1,245,135

The following tables summarize the payment status of loans in the Company’s total loan portfolio, including an aging of delinquent loans, loans 90 days or more past due continuing to accrue interest and loans classified as nonperforming as of:



September 30, 2017	30 to 59 Days Past Due		60 to 89 Days Past Due		90 Days and Greater Past Due		Total Past Due		Current		Total Loans		Recorded Investment > 90 Days and Accruing
Commercial and industrial	$	246	$	60	$	30	$	336	$	192,327	$	192,663	$	—
Real estate:
Construction and development	77		—		—		77		200,990		201,067		—
Commercial real estate	—		38		1,521		1,559		391,755		393,314		—
Farmland	2		—		6		8		54,341		54,349		—
1-4 family residential	2,701		838		1,894		5,433		360,456		365,889		—
Multi-family residential	—		—		228		228		23,007		23,235		—
Consumer	617		201		94		912		50,799		51,711		—
Agricultural	66		—		4		70		24,379		24,449		—
Overdrafts	—		—		—		—		698		698		—
Total	$	3,709	$	1,137	$	3,777	$	8,623	$	1,298,752	$	1,307,375	$	—



December 31, 2016	30 to 59 Days Past Due		60 to 89 Days Past Due		90 Days and Greater Past Due		Total Past Due		Current		Total Loans		Recorded Investment > 90 Days and Accruing
Commercial and industrial	$	941	$	105	$	25	$	1,071	$	222,926	$	223,997	$	—
Real estate:
Construction and development	73		—		1,825		1,898		127,468		129,366		—
Commercial real estate	1,629		32		134		1,795		365,861		367,656		—
Farmland	100		26		7		133		62,229		62,362		—
1-4 family residential	3,724		803		1,041		5,568		357,384		362,952		—
Multi-family residential	207		49		—		256		25,823		26,079		—
Consumer	613		205		87		905		52,600		53,505		—
Agricultural	59		—		15		74		18,827		18,901		—
Overdrafts	—		—		—		—		317		317		—
Total	$	7,346	$	1,220	$	3,134	$	11,700	$	1,233,435	$	1,245,135	$	—

The following table presents information regarding nonaccrual loans as of:



	September 30, 2017		December 31, 2016
Commercial and industrial	$	57	$	82
Real estate:
Construction and development	—		1,825
Commercial real estate	2,113		415
Farmland	162		176
1-4 family residential	2,716		1,699
Multi-family residential	228		5
Consumer	164		192
Agricultural	315		15
Total	$	5,755	$	4,409

Impaired Loans and Troubled Debt Restructurings

A troubled debt restructuring (“TDR”) is a restructuring in which a bank, for economic or legal reasons related to a borrower's financial difficulties, grants a concession to the borrower that it would not otherwise consider. A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due from the borrower in accordance with original contractual terms of the loan. Loans with insignificant delays or insignificant short falls in the amount of payments expected to be collected are not considered to be impaired. Loans defined as individually impaired, based on applicable accounting guidance, include larger balance nonperforming loans and TDRs.

The outstanding balances of TDRs are shown below:



	September 30, 2017		December 31, 2016
Nonaccrual TDRs	$	—	$	43
Performing TDRs	316		462
Total	$	316	$	505
Specific reserves on TDRs	$	19	$	4

The following tables present loans by class modified as TDRs that occurred during the nine months ended September 30, 2017 and 2016:



Nine Months Ended September 30, 2017	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Commercial and industrial	1	$	34	$	15
1-4 family residential	1	11		11
Total	2	$	45	$	26

There were no TDRs that have subsequently defaulted through September 30, 2017. The TDRs described above increased the allowance for loan losses by $19 and resulted in no charge-offs during the nine months ended September 30, 2017.



Nine Months Ended September 30, 2016	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Commercial and industrial	1	$	90	$	90
Commercial real estate	1	796		796
1-4 family residential	2	189		189
Total	4	$	1,075	$	1,075

There were no TDRs that subsequently defaulted in 2016. The TDRs described above did not increase the allowance for loan losses and resulted in no charge-offs during the nine months ended September 30, 2016.

The following table presents information about the Company’s impaired loans as of:



September 30, 2017	Unpaid Principal Balance		Recorded Investment		Related Allowance		Average Recorded Investment
With no related allowance recorded:
Commercial and industrial	$	325	$	325	$	—	$	381
Real estate:
Construction and development	—		—		—		415
Commercial real estate	3,746		3,746		—		4,363
Farmland	120		120		—		106
1-4 family residential	231		231		—		1,288
Multi-family residential	228		228		—		166
Consumer	—		—		—		81
Agricultural	397		397		—		380
Subtotal	5,047		5,047		—		7,180
With allowance recorded:
Commercial and industrial	29		29		19		411
Real estate:
Construction and development	—		—		—		10
Commercial real estate	283		283		31		580
Farmland	156		156		85		122
1-4 family residential	866		866		145		867
Multi-family residential	—		—		—		26
Consumer	—		—		—		56
Agricultural	299		299		240		176
Subtotal	1,633		1,633		520		2,248
Total	$	6,680	$	6,680	$	520	$	9,428

The following table presents information about the Company’s impaired loans as of:



December 31, 2016	Unpaid Principal Balance		Recorded Investment		Related Allowance		Average Recorded Investment
With no related allowance recorded:
Commercial and industrial	$	28	$	28	$	—	$	809
Real estate:
Construction and development	1,825		1,825		—		172
Commercial real estate	1,196		1,196		—		871
Farmland	89		89		—		109
1-4 family residential	1,799		1,799		—		1,575
Multi-family residential	5		5		—		2
Consumer	105		105		—		89
Agricultural	15		15		—		68
Subtotal	5,062		5,062		—		3,695
With allowance recorded:
Commercial and industrial	203		203		64		3,153
Real estate:
Farmland	169		169		47		169
1-4 family residential	789		789		108		639
Consumer	95		95		34		155
Agricultural	—		—		—		2
Subtotal	1,256		1,256		253		4,118
Total	$	6,318	$	6,318	$	253	$	7,813

During the nine months ended September 30, 2017 and 2016, total interest income and cash-based interest income recognized on impaired loans was minimal.