LOANS AND ALLOWANCE FOR LOAN LOSSES

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



	September 30, 2018			December 31, 2017
Commercial and industrial	$	248,758		$	197,508
Real estate:
Construction and development	229,307			196,774
Commercial real estate	599,153			418,137
Farmland	65,209			59,023
1-4 family residential	392,456			374,371
Multi-family residential	38,523			36,574
Consumer	53,947			51,267
Agricultural	24,184			25,596
Overdrafts	326			294
Total loans	1,651,863			1,359,544
Net of:
Deferred loan fees	727			1,094
Allowance for loan losses	(14,441		)	(12,859		)
Total net loans	$	1,638,149		$	1,347,779

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, 2018, for the year ended December 31, 2017 and for the nine months ended September 30, 2017:



For the Nine Months Ended September 30, 2018	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	$	1,581		$	1,724	$	4,585		$	523	$	3,022		$	629	$	602		$	187		$	6		$	12,859
Provision for loan losses	138			119		1,329			100		(161		)	41		101			(3		)	86			1,750
Loans charged-off	(66		)	—		(32		)	—		(19		)	—		(175		)	(2		)	(117		)	(411		)
Recoveries	54			—		—			—		49			—		41			65			34			243
Ending balance	$	1,707		$	1,843	$	5,882		$	623	$	2,891		$	670	$	569		$	247		$	9		$	14,441
Allowance ending balance:
Individually evaluated for impairment	$	315		$	—	$	61		$	74	$	4		$	—	$	—		$	—		$	—		$	454
Collectively evaluated for impairment	1,392			1,843		5,821			549		2,887			670		569			247			9			13,987
Ending balance	$	1,707		$	1,843	$	5,882		$	623	$	2,891		$	670	$	569		$	247		$	9		$	14,441
Loans:
Individually evaluated for impairment	$	1,584		$	1,684	$	6,360		$	218	$	1,571		$	—	$	—		$	409		$	—		$	11,826
Collectively evaluated for impairment	247,174			227,623		592,793			64,991		390,885			38,523		53,947			23,775			326			1,640,037
Ending balance	$	248,758		$	229,307	$	599,153		$	65,209	$	392,456		$	38,523	$	53,947		$	24,184		$	326		$	1,651,863



For the year ended December 31, 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	272			563		1,405			41		(418		)	348		253			276			110			2,850
Loans charged-off	(1,080		)	—		(84		)	—		(543		)	—		(344		)	(242		)	(165		)	(2,458		)
Recoveries	797			—		—			—		23			—		108			—			55			983
Ending balance	$	1,581		$	1,724	$	4,585		$	523	$	3,022		$	629	$	602		$	187		$	6		$	12,859
Allowance ending balance:
Individually evaluated for impairment	$	17		$	—	$	27		$	85	$	5		$	—	$	—		$	—		$	—		$	134
Collectively evaluated for impairment	1,564			1,724		4,558			438		3,017			629		602			187			6			12,725
Ending balance	$	1,581		$	1,724	$	4,585		$	523	$	3,022		$	629	$	602		$	187		$	6		$	12,859
Loans:
Individually evaluated for impairment	$	463		$	—	$	4,258		$	163	$	842		$	217	$	—		$	397		$	—		$	6,340
Collectively evaluated for impairment	197,045			196,774		413,879			58,860		373,529			36,357		51,267			25,199			294			1,353,204
Ending balance	$	197,508		$	196,774	$	418,137		$	59,023	$	374,371		$	36,574	$	51,267		$	25,596		$	294		$	1,359,544



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

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, 2018	Commercial and industrial		Construction and development		Commercial real estate		Farmland		1-4 family residential		Multi-family residential		Consumer and Overdrafts		Agricultural		Total
Grade:
Pass	$	246,621	$	227,862	$	587,603	$	64,797	$	391,556	$	37,284	$	54,183	$	23,605	$	1,633,511
Special mention	807		—		5,165		50		293		1,239		45		130		7,729
Substandard	1,330		1,445		6,385		362		607		—		45		449		10,623
Total	$	248,758	$	229,307	$	599,153	$	65,209	$	392,456	$	38,523	$	54,273	$	24,184	$	1,651,863



December 31, 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	$	196,890	$	196,515	$	412,488	$	58,623	$	373,154	$	16,073	$	51,409	$	24,650	$	1,329,802
Special mention	348		259		1,135		226		442		20,284		65		454		23,213
Substandard	270		—		4,514		174		775		217		87		492		6,529
Total	$	197,508	$	196,774	$	418,137	$	59,023	$	374,371	$	36,574	$	51,561	$	25,596	$	1,359,544

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, 2018	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	$	450	$	516	$	489	$	1,455	$	247,303	$	248,758	$	—
Real estate:
Construction and development	94		56		501		651		228,656		229,307		—
Commercial real estate	1,590		3,311		85		4,986		594,167		599,153		—
Farmland	348		78		45		471		64,738		65,209		—
1-4 family residential	3,640		324		606		4,570		387,886		392,456		—
Multi-family residential	—		—		—		—		38,523		38,523		—
Consumer	418		47		45		510		53,437		53,947		—
Agricultural	—		—		—		—		24,184		24,184		—
Overdrafts	—		—		—		—		326		326		—
Total	$	6,540	$	4,332	$	1,771	$	12,643	$	1,639,220	$	1,651,863	$	—



December 31, 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	$	1,273	$	93	$	17	$	1,383	$	196,125	$	197,508	$	—
Real estate:
Construction and development	117		—		—		117		196,657		196,774		—
Commercial real estate	192		265		1,067		1,524		416,613		418,137		—
Farmland	139		—		6		145		58,878		59,023		—
1-4 family residential	3,998		416		800		5,214		369,157		374,371		—
Multi-family residential	—		—		217		217		36,357		36,574		—
Consumer	381		69		87		537		50,730		51,267		—
Agricultural	204		2		—		206		25,390		25,596		—
Overdrafts	—		—		—		—		294		294		—
Total	$	6,304	$	845	$	2,194	$	9,343	$	1,350,201	$	1,359,544	$	—

The following table presents information regarding nonaccrual loans as of:



	September 30, 2018		December 31, 2017
Commercial and industrial	$	565	$	77
Real estate:
Commercial real estate	3,908		1,422
Farmland	190		163
1-4 family residential	2,867		1,937
Multi-family residential	—		217
Consumer	96		138
Agricultural	—		50
Total	$	8,657	$	4,004

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, 2018		December 31, 2017
Nonaccrual TDRs	$	—	$	—
Performing TDRs	727		657
Total	$	727	$	657
Specific reserves on TDRs	$	11	$	17

The following tables present loans by class modified as TDRs that occurred during the nine months ended September 30, 2018, the twelve months ended December 31, 2017 and the nine months ended September 30, 2017:



Nine Months Ended September 30, 2018	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled Debt Restructurings:
1-4 family residential	1	$	15	$	15
Farmland	1	78		78
Total	2	$	93	$	93

There were no TDRs that have subsequently defaulted through September 30, 2018. 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, 2018.



Year Ended December 31, 2017	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled Debt Restructurings:
Commercial and industrial	2	$	381	$	364
1-4 family residential	1	11		11
Total	3	$	392	$	375

There were no TDRs that have subsequently defaulted through December 31, 2017. The TDRs described above did not increase the allowance for loan losses and resulted in no charge-offs during the year ended December 31, 2017.



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

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

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



September 30, 2018	Unpaid Principal Balance		Recorded Investment		Related Allowance		Average Recorded Investment
With no related allowance recorded:
Commercial and industrial	$	786	$	786	$	—	$	889
Real estate:
Construction and development	1,684		1,684		—		334
Commercial real estate	5,399		5,399		—		4,863
Farmland	73		73		—		67
1-4 family residential	1,466		1,466		—		1,077
Multi-family residential	—		—		—		71
Agricultural	409		409		—		472
Subtotal	9,817		9,817		—		7,773
With allowance recorded:
Commercial and industrial	798		798		315		252
Real estate:
Commercial real estate	961		961		61		470
Farmland	145		145		74		149
1-4 family residential	105		105		4		129
Agricultural	—		—		—		70
Subtotal	2,009		2,009		454		1,070
Total	$	11,826	$	11,826	$	454	$	8,843

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



December 31, 2017	Unpaid Principal Balance		Recorded Investment		Related Allowance		Average Recorded Investment
With no related allowance recorded:
Commercial and industrial	$	437	$	437	$	—	$	434
Real estate:
Construction and development	—		—		—		311
Commercial real estate	3,979		3,979		—		4,230
Farmland	6		6		—		90
1-4 family residential	681		681		—		1,096
Multi-family residential	217		217		—		180
Consumer	—		—		—		61
Agricultural	397		397		—		384
Subtotal	5,717		5,717		—		6,786
With allowance recorded:
Commercial and industrial	26		26		17		315
Real estate:
Construction and development	—		—		—		7
Commercial real estate	279		279		27		505
Farmland	157		157		85		131
1-4 family residential	161		161		5		754
Multi-family residential	—		—		—		19
Consumer	—		—		—		42
Agricultural	—		—		—		180
Subtotal	623		623		134		1,953
Total	$	6,340	$	6,340	$	134	$	8,739

During the nine months ended September 30, 2018 and 2017, total interest income and cash-based interest income recognized on impaired loans was minimal.