10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31, 2017

OR

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from              to

Commission file number: 001-33033

PORTER BANCORP, INC.

(Exact name of registrant as specified in its charter)

Kentucky	61-1142247
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

2500 Eastpoint Parkway, Louisville, Kentucky	40223
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (502) 499-4800

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
Common Stock, no par value	Nasdaq Capital Market

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer (as defined in Rule 405 of the Securities Act).    Yes  ☐    No  ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ☐    No  ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  ☒    No  ☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definition of “accelerated filer,” “large accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

   Large accelerated filer  ☐    Accelerated filer  ☐    Non-accelerated filer  ☐    Smaller reporting company  ☒    Emerging growth company  ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards pursuant to Section 13(a) of the Exchange Act.    Yes  ☐    No  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

The aggregate market value of the voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold as of the close of business on June 30, 2017, was $22,183,313 based upon the last sales price reported for such date on the Nasdaq Capital Market.

6,039,864 Common Shares and 220,000 Non-Voting Common Shares were outstanding as of February 28, 2018.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s Proxy Statement for the Annual Meeting of Shareholders to be held May 23, 2018 are incorporated by reference into Part III of this Form 10-K.

TABLE OF CONTENTS

		Page No.
PART I		1
Item 1.	Business	1
Item 1A.	Risk Factors	9
Item 1B.	Unresolved Staff Comments	18
Item 2.	Properties	18
Item 3.	Legal Proceedings	18
Item 4.	Mine Safety Disclosures	18
PART II		19
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	19
Item 6.	Selected Financial Data	21
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operation	22
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	52
Item 8.	Financial Statements and Supplementary Data	54
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	97
Item 9A.	Controls and Procedures	97
Item 9B.	Other Information	97
PART III		98
Item 10.	Directors, Executive Officers and Corporate Governance	98
Item 11.	Executive Compensation	98
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	98
Item 13.	Certain Relationships and Related Transactions, and Director Independence	98
Item 14.	Principal Accounting Fees and Services	98
PART IV		99
Item 15.	Exhibits and Financial Statement Schedules	99
	Index to Exhibits	100
	Signatures	102

PART I

Preliminary Note Concerning Forward-Looking Statements

This report contains statements about the future expectations, activities and events that constitute forward-looking statements. Forward-looking statements express our beliefs, assumptions and expectations of our future financial and operating performance and growth plans, taking into account information currently available to us. These statements are not statements of historical fact. The words “believe,” “may,” “should,” “anticipate,” “estimate,” “expect,” “intend,” “objective,” “seek,” “plan,” “strive” or similar words, or the negatives of these words, identify forward-looking statements.

Forward-looking statements involve risks and uncertainties that may cause our actual results to differ materially from the expectations of future results we expressed or implied in any forward-looking statements. These risks and uncertainties can be difficult to predict and may be beyond our control. Factors that could contribute to differences in our results include, but are not limited to deterioration in the financial condition of borrowers resulting in significant increases in loan losses and provisions for those losses; changes in the interest rate environment, which may reduce our margins or impact the value of securities, loans, deposits and other financial instruments; changes in loan underwriting, credit review or loss reserve policies associated with economic conditions, examination conclusions, or regulatory developments; general economic or business conditions, either nationally, regionally or locally in the communities we serve, may be worse than expected, resulting in, among other things, a deterioration in credit quality or a reduced demand for credit; the results of regulatory examinations; any matter that would cause us to conclude that there was impairment of any asset, including intangible assets; the continued service of key management personnel; our ability to attract, motivate and retain qualified employees; factors that increase the competitive pressure among depository and other financial institutions, including product and pricing pressures; the ability of our competitors with greater financial resources to develop and introduce products and services that enable them to compete more successfully than us; inability to comply with regulatory capital requirements and to secure any required regulatory approvals for capital actions; legislative or regulatory developments, including changes in laws concerning taxes, banking, securities, insurance and other aspects of the financial services industry; and fiscal and governmental policies of the United States federal government.

Other risks are detailed in Item 1A. “Risk Factors” of this Form 10-K all of which are difficult to predict and many of which are beyond our control.

Forward-looking statements are not guarantees of performance or results. A forward-looking statement may include the assumptions or bases underlying the forward-looking statement. We have made our assumptions and bases in good faith and believe they are reasonable. We caution you however, that estimates based on such assumptions or bases frequently differ from actual results, and the differences can be material. The forward-looking statements included in this report speak only as of the date of the report. We do not intend to update these statements unless applicable laws require us to do so.

Item 1. Business Overview

As used in this report, references to “the Company,” “we,” “our,” “us,” and similar terms refer to the consolidated entity consisting of Porter Bancorp, Inc. and its wholly-owned subsidiary. The “Bank” refers to Porter Bancorp, Inc.’s bank subsidiary, Limestone Bank, Inc.

The Company is a bank holding company headquartered in Louisville, Kentucky. The Company’s common stock is traded on Nasdaq’s Capital Market under the symbol PBIB. We operate the Bank, our wholly owned subsidiary and the fifteenth largest bank domiciled in the Commonwealth of Kentucky based on total assets (formerly known as PBI Bank). We operate banking offices in twelve counties in Kentucky. Our markets include metropolitan Louisville in Jefferson County and the surrounding counties of Henry and Bullitt. We serve south central Kentucky and southern Kentucky from banking offices in Butler, Green, Hart, Edmonson, Barren, Warren, Ohio, and Daviess Counties. We also have an office in Lexington, the second largest city in Kentucky. The Bank is a community bank with a wide range of commercial and personal banking products. As of December 31, 2017, we had total assets of $970.8 million, total loans of $712.1 million, total deposits of $847.0 million and stockholders’ equity of $72.7 million.

1

Our Markets

We operate in markets that include the four largest cities in Kentucky – Louisville, Lexington, Bowling Green and Owensboro – and in other communities along the I-65, Western Kentucky Parkway, and Natcher Parkway corridors.

■ Louisville/Jefferson, Bullitt and Henry Counties: Our headquarters are in Louisville, the largest city in Kentucky. We also have banking offices in Bullitt County, south of Louisville, and Henry County, east of Louisville. Our banking offices in these counties also serve the contiguous counties of Spencer, Shelby and Oldham to the east and northeast of Louisville. The area’s major employers are diversified across many industries and include the air hub for United Parcel Service (“UPS”), two Ford assembly plants, GE Appliances and Lighting, Humana, Norton Healthcare, Brown-Forman, YUM! Brands, Papa John’s Pizza, and Texas Roadhouse.

■ Lexington/Fayette County: Lexington, located in Fayette County, is the second largest city in Kentucky. Lexington is the financial, educational, retail, healthcare and cultural hub for Central and Eastern Kentucky. It is known worldwide for its horse farms and Keeneland Race Track, and proudly boasts of itself as “The Horse Capital of the World”. It is also the home of the University of Kentucky and Transylvania University. The area’s major employers include Toyota, Lexmark, IBM Global Services and Valvoline.

■ Southern Kentucky: This market includes Bowling Green, the third largest city in Kentucky, located about 60 miles north of Nashville, Tennessee. Bowling Green, located in Warren County, is the home of Western Kentucky University and is the economic hub of the area. This market also includes communities in the contiguous Barren County, including the city of Glasgow. Major employers in Barren and Warren Counties include GM’s Corvette plant, automotive supply chain manufacturers, and R.R. Donnelley’s regional printing facility.

■ Owensboro/Daviess County: Owensboro, located on the banks of the Ohio River, is Kentucky’s fourth largest city. The city is called a festival city, with over 20 annual community celebrations that attract visitors from around the world, including its world famous Bar-B-Q Festival which attracts over 80,000 visitors. It is an industrial, medical, retail and cultural hub for Western Kentucky and the area employers include Owensboro Medical System, US Bank Home Mortgage, Titan Contracting and Specialty Food Group.

■ South Central Kentucky: South of the Louisville metropolitan area, we have banking offices in Butler, Edmonson, Green, Hart, and Ohio Counties. This region includes stable community markets comprised primarily of agricultural and service-based businesses. Each of our banking offices in these markets has a stable customer and core deposit base.

Our Products and Services

We meet our customers’ banking needs with a broad range of financial products and services. Our lending services include real estate, commercial, mortgage, agriculture, and consumer loans to those in our communities and to small to medium-sized businesses, the owners and employees of those businesses, as well as other executives and professionals. We complement our lending operations with an array of retail and commercial deposit products. In addition, we offer our customers drive-through banking facilities, automatic teller machines, night depository, personalized checks, credit cards, debit cards, internet banking, mobile banking, treasury management services, remote deposit services, electronic funds transfers through ACH services, domestic and foreign wire transfers, cash management, and vault services, along with loan and deposit sweep accounts.

Employees

At December 31, 2017, the Company had 217 full-time equivalent employees. Our employees are not subject to a collective bargaining agreement, and management considers the Company’s relationship with employees to be good.

Competition

The banking business is highly competitive, and we experience competition from many other financial institutions. Competition among financial institutions is based upon interest rates offered on deposit accounts, interest rates charged on loans, other credit and service charges relating to loans, the quality and scope of the services offered, the convenience of banking facilities and, in the case of loans to commercial borrowers, relative lending limits. We compete with commercial banks, credit unions, savings and loan associations, mortgage banking firms, consumer finance companies, securities brokerage firms, insurance companies, money market funds and other mutual funds, as well as super-regional, national and international financial institutions that operate offices within our market area and beyond.

2

Supervision and Regulation

Written Agreement. On September 21, 2011, we entered into a written agreement (“Written Agreement”) with the Federal Reserve Bank of St. Louis. The Company made formal commitments in the Written Agreement to use its financial and management resources to serve as a source of strength for the Bank and to assist the Bank in addressing weaknesses identified by the FDIC and the KDFI, to pay no dividends without prior written approval, to pay no interest or principal on subordinated debentures or trust preferred securities without written approval, and to submit an acceptable plan to maintain sufficient capital.

Bank and Holding Company Laws, Rules and Regulations. The following is a summary description of the relevant laws, rules and regulations governing banks and bank holding companies. The descriptions of, and references to, the statutes and regulations below are brief summaries and do not purport to be complete. The descriptions are qualified in their entirety by reference to the specific statutes and regulations discussed.

The Dodd-Frank Act. On July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank Act”) was signed into law. The Dodd-Frank Act imposed new restrictions and an expanded framework of regulatory oversight for financial institutions, including depository institutions.

The Dodd-Frank Act represents a comprehensive overhaul of the financial services industry within the United States. There are a number of reform provisions that significantly impact the ways in which banks and bank holding companies, including the Company and the Bank, do business. For example, regulations issued under the Dodd-Frank Act changed the assessment base for federal deposit insurance premiums by modifying the assessment base calculation to be based on a depository institution’s consolidated assets less tangible capital instead of deposits, and permanently increased the standard maximum amount of deposit insurance per customer to $250,000. The Dodd-Frank Act also imposed more stringent capital requirements on bank holding companies by, among other things, imposing leverage ratios on bank holding companies and prohibiting new trust preferred security issuances from counting as Tier I capital. The Dodd-Frank Act also repealed the federal prohibition on the payment of interest on demand deposits, thereby permitting depository institutions to pay interest on business transaction and other accounts. The Dodd-Frank Act codified and expanded the Federal Reserve’s source of strength doctrine, which requires that all bank holding companies serve as a source of financial strength for its subsidiary banks. Other provisions of the Dodd-Frank Act include, but are not limited to: (i) the creation of a financial consumer protection agency that is empowered to promulgate new consumer protection regulations and revise existing regulations in many areas of consumer protection; (ii) enhanced regulation of financial markets, including derivatives and securitization markets; (iii) reform related to the regulation of credit rating agencies; (iv) the elimination of certain trading activities by banks; and (v) new disclosure and other requirements relating to executive compensation and corporate governance.

Many provisions of the Dodd-Frank Act require interpretation and rule-making by federal agencies. The Company monitors all relevant sections of the Dodd-Frank Act to ensure continued compliance with laws and regulations, which results in greater compliance costs and higher fees paid to regulators. Future implementation of the Dodd-Frank Act may result in restrictions on the Company’s operations.

Porter Bancorp. The Company is registered as a bank holding company under the Bank Holding Company Act of 1956, as amended, and is subject to supervision and regulation by the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”). As such, we must file with the Federal Reserve Board annual and quarterly reports and other information regarding our business operations and the business operations of our subsidiaries. We are also subject to examination by the Federal Reserve Board and to operational guidelines established by the Federal Reserve Board. We are subject to the Bank Holding Company Act and other federal laws on the types of activities in which we may engage, and to other supervisory requirements, including regulatory enforcement actions for violations of laws and regulations.

Acquisitions. A bank holding company must obtain Federal Reserve Board approval before acquiring, directly or indirectly, ownership or control of more than 5% of the voting stock or all or substantially all of the assets of a bank, merging or consolidating with any other bank holding company and before engaging, or acquiring a company that is not a bank and is engaged in certain non-banking activities. Federal law also prohibits a person or group of persons from acquiring “control” of a bank holding company without notifying the Federal Reserve Board in advance, and then may only do so if the Federal Reserve Board does not object to the proposed transaction. The Federal Reserve Board has established a rebuttable presumptive standard that the acquisition of 10% or more of the voting stock of a bank holding company would constitute an acquisition of control of the bank holding company. In addition, approval of the Federal Reserve Board is required before acquiring 25% (5% in the case of an acquirer that is a bank holding company) or more of any class of a bank holding company’s voting securities, or otherwise obtaining control or a “controlling influence” over a bank holding company.

Permissible Activities. A bank holding company is generally permitted under the Bank Holding Company Act to engage in or acquire direct or indirect control of more than 5% of the voting shares of any bank, bank holding company or company engaged in any activity that the Federal Reserve Board determines to be so closely related to banking as to be a proper incident to the business of banking.

3

Under current federal law, a bank holding company may elect to become a financial holding company, which enables the holding company to conduct activities that are “financial in nature,” incidental to financial activity, or complementary to financial activity that do not pose a substantial risk to the safety and soundness of depository institutions or the financial system generally. Activities that are “financial in nature” include securities underwriting, dealing and market making in securities; sponsoring mutual funds and investment companies; insurance underwriting and agency; merchant banking activities; and activities that the Federal Reserve Board has determined to be closely related to banking. No regulatory approval is required for a financial holding company to acquire a company, other than a bank or savings association, engaged in activities that are financial in nature or incidental to activities that are financial in nature, as determined by the Federal Reserve Board. We have not filed an election to become a financial holding company.

Capital Adequacy Requirements. Both the Company and the Bank are required to comply with capital adequacy guidelines. Guidelines are established by the Federal Reserve Board for the Company and the FDIC for the Bank. Both the Federal Reserve Board and the FDIC have substantially similar risk based and leverage ratio guidelines for banking organizations, which are intended to ensure that banking organizations have adequate capital related to the risk levels of assets and off-balance sheet instruments. The capital adequacy guidelines are minimum supervisory ratios generally applicable to banking organizations that meet certain specified criteria, assuming they have the highest regulatory rating. Banking organizations not meeting these criteria are expected to operate with capital positions well above the minimum ratios. The federal bank regulatory agencies may set capital requirements for a particular banking organization that are higher than the minimum ratios when circumstances warrant. Federal Reserve Board guidelines also provide that banking organizations experiencing internal growth or making acquisitions will be expected to maintain strong capital positions substantially above the minimum supervisory levels, without significant reliance on intangible assets.

In July 2013, the Federal Reserve Board and the FDIC approved final rules that substantially amended the regulatory risk-based capital rules applicable to the Company and Bank. The final rules implement the regulatory capital reforms of the Basel Committee on Banking Supervision reflected in “Basel III: A Global Regulatory Framework for More Resilient Banks and Banking Systems” (“Basel III”) and changes required by the Dodd-Frank Act. The final rules implementing the Basel III regulatory capital reforms became effective for the Company and Bank on January 1, 2015, and include new minimum risk-based capital and leverage ratios. These rules refine the definition of what constitutes “capital” for purposes of calculating the capital ratios.

The Basel III minimum capital level requirements applicable to bank holding companies and banks subject to the rules are a common equity Tier 1 capital ratio of 4.5%, a Tier 1 risk-based capital ratio of 6%, a total risk-based capital ratio of 8%, and a Tier 1 leverage ratio of 4% for all institutions. The rules also establish a “capital conservation buffer” of 2.5%, to be phased in over three years, above the regulatory minimum risk-based capital ratios. Once the capital conservation buffer is fully phased in, the minimum ratios area common equity Tier 1 risk-based capital ratio of 7.0%, a Tier 1 risk-based capital ratio of 8.5%, and a total risk-based capital ratio of 10.5%.

The phase-in of the capital conservation buffer requirement began in January 2016 at 0.625% of risk-weighted assets and increases each year until fully implemented in January 2019. An institution is subject to limitations on paying dividends, engaging in share repurchases and paying discretionary bonuses if capital levels fall below minimum levels plus the buffer amounts. These limitations establish a maximum percentage of eligible retained income that could be utilized for such actions.

Under these new rules, Tier 1 capital generally consists of common stock (plus related surplus) and retained earnings, limited amounts of minority interest in the form of additional Tier 1 capital instruments, and non-cumulative preferred stock and related surplus, subject to certain eligibility standards, less goodwill and other specified intangible assets and other regulatory deductions. Tier 2 capital may consist of subordinated debt, certain hybrid capital instruments, qualifying preferred stock and a limited amount of the allowance for loan losses. Proceeds of trust preferred securities are excluded from Tier 1 capital unless issued before 2010 by an institution with less than $15 billion of assets. Total capital is the sum of Tier 1 and Tier 2 capital.

4

Prompt Corrective Action. Pursuant to the Federal Deposit Insurance Act (“FDIA”), the FDIC must take prompt corrective action to resolve the problems of undercapitalized institutions. FDIC regulations define the levels at which an insured institution would be considered “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized” and “critically undercapitalized”. A bank is “undercapitalized” if it fails to meet any one of the ratios required to be adequately capitalized. A depository institution may be deemed to be in a capitalization category that is lower than is indicated by its actual capital position if it receives an unsatisfactory examination rating. The degree of regulatory scrutiny increases and the permissible activities of a bank decrease, as the bank moves downward through the capital categories. Depending on a bank’s level of capital, the FDIC’s corrective powers include:

• requiring a capital restoration plan;

• placing limits on asset growth and restriction on activities;

• requiring the bank to issue additional voting or other capital stock or to be acquired;

• placing restrictions on transactions with affiliates;

• restricting the interest rate the bank may pay on deposits;

• ordering a new election of the bank’s board of directors;

• requiring that certain senior executive officers or directors be dismissed;

• prohibiting the bank from accepting deposits from correspondent banks;

• requiring the bank to divest certain subsidiaries;

• prohibiting the payment of principal or interest on subordinated debt; and

• ultimately, appointing a receiver for the bank.

If an institution is required to submit a capital restoration plan, the institution’s holding company must guarantee the subsidiary’s compliance with the capital restoration plan up to a certain specified amount. Any such guarantee from a depository institution’s holding company is entitled to a priority of payment in bankruptcy. The aggregate liability of the holding company of an undercapitalized bank is limited to the lesser of 5% of the institution’s assets at the time it became undercapitalized or the amount necessary to cause the institution to be “adequately capitalized.” The bank regulators have greater power in situations where an institution becomes “significantly” or “critically” undercapitalized or fails to submit a capital restoration plan. For example, a bank holding company controlling such an institution can be required to obtain prior Federal Reserve Board approval of proposed dividends, or might be required to consent to a consolidation or to divest the troubled institution or other affiliates.

Dividends. Under Federal Reserve Board policy, bank holding companies should pay cash dividends on common stock only out of income available over the past year and only if prospective earnings retention is consistent with the organization’s expected future needs and financial condition. The policy provides that bank holding companies should not declare a level of cash dividends that undermines the bank holding company’s ability to serve as a source of strength to its banking subsidiaries.

The Company is a legal entity separate and distinct from the Bank. Historically, the majority of the Company’s revenue has been from dividends paid to it by the Bank. The Bank is subject to laws and regulations that limit the amount of dividends it can pay. If, in the opinion of a federal regulatory agency, an institution under its jurisdiction is engaged in or is about to engage in an unsafe or unsound practice, the agency may require, after notice and hearing, that the institution cease such practice. The federal banking agencies have indicated that paying dividends that deplete an institution’s capital base to an inadequate level would be an unsafe and unsound banking practice. Under the Federal Deposit Insurance Corporation Improvement Act (“FDICIA”), an insured institution may not pay any dividend if payment would cause it to become undercapitalized or if it already is undercapitalized. Moreover, the Federal Reserve and the FDIC have issued policy statements providing that bank holding companies and banks should generally pay dividends only out of current operating earnings. A bank holding company may still declare and pay a dividend if it does not have current operating earnings if the bank holding company expects profits for the entire year and the bank holding company obtains the prior consent of the Federal Reserve.

Under Kentucky law, dividends by Kentucky banks may be paid only from current or retained net profits. The KDFI must approve the declaration of dividends if the total dividends to be declared by a bank for any calendar year would exceed the bank’s total net profits for such year combined with its retained net profits for the preceding two years, less any required transfers to surplus or a fund for the retirement of preferred stock or debt. Additionally, retained earnings must be positive. We are also subject to the Kentucky Business Corporation Act, which generally prohibits dividends to the extent they result in the insolvency of the corporation from a balance sheet perspective or in the corporation becoming unable to pay its debts as they come due. The Bank did not pay any dividends in 2017 or 2016 and cannot currently pay any dividends without prior regulatory approval.

With respect to the payment of dividends, Porter Bancorp’s issued and outstanding Series E and Series F Preferred Shares rank senior to its common shares and non-voting common shares.

5

Source of Financial Strength. Under Federal Reserve policy, a bank holding company is expected to act as a source of financial strength to, and to commit resources to support, its bank subsidiaries. This support may be required at times when, absent such a policy, the bank holding company may not be inclined to provide it. In addition, any capital loans by the bank holding company to its bank subsidiaries are subordinate in right of payment to deposits and to certain other indebtedness of the bank subsidiary. In the event of a bank holding company’s bankruptcy, any commitment by the bank holding company to a federal bank regulatory agency to maintain the capital of subsidiary banks will be assumed by the bankruptcy trustee and entitled to a priority of payment. The Federal Reserve’s “Source of Financial Strength” policy was codified in the Dodd-Frank Act.

Limestone Bank. The Bank, a Kentucky chartered commercial bank, is subject to regular bank examinations and other supervision and regulation by both the FDIC and the KDFI. Kentucky’s banking statutes contain a “super-parity” provision that permits a well-rated Kentucky banking corporation to engage in any banking activity which could be engaged in by a national bank operating in Kentucky; a state bank, a thrift or savings bank operating in any other state; or a federal chartered thrift or federal savings association meeting the qualified thrift lender test and operating in any state could engage, provided the Kentucky bank first obtains a legal opinion specifying the statutory or regulatory provisions that permit the activity.

Capital Requirements. Please see capital adequacy requirements discussion above.

Deposit Insurance Assessments. The deposits of the Bank are insured by the Deposit Insurance Fund (“DIF”) of the FDIC up to the limits set forth under applicable law and are subject to the deposit insurance premium assessments of the DIF. The FDIC imposes a risk-based deposit premium assessment system, which was amended pursuant to the Federal Deposit Insurance Reform Act of 2005 (the “Reform Act”). Under this system, as amended, the assessment rates for an insured depository institution vary according to the level of risk incurred in its activities. To arrive at an assessment rate for a banking institution, the FDIC places it in one of four risk categories determined by reference to its capital levels and supervisory ratings. The assessment rate schedule can change from time to time, at the discretion of the FDIC, subject to certain limits.

The Dodd-Frank Act imposed additional assessments and costs with respect to deposits. Under the Dodd-Frank Act, the FDIC imposes deposit insurance assessments based on total assets rather than total deposits. Pursuant to the Dodd-Frank Act, the FDIC revised the deposit insurance assessment system and implemented a revised assessment rate process with the goal of differentiating insured depository institutions who pose greater risk to the DIF.

Safety and Soundness Standards. The FDIA requires the federal bank regulatory agencies to prescribe standards, by regulations or guidelines, relating to internal controls, information systems and internal audit systems, loan documentation, credit underwriting, interest rate risk exposure, asset growth, asset quality, earnings, stock valuation and compensation, fees and benefits, and such other operational and managerial standards as the agencies deem appropriate. Guidelines adopted by the federal bank regulatory agencies establish general standards relating to these matters. In general, the guidelines require, among other things, appropriate systems and practices to identify and manage the risk and exposures specified in the guidelines. The guidelines prohibit excessive compensation as an unsafe and unsound practice and describe compensation as excessive when the amounts paid are unreasonable or disproportionate to the services performed by an executive officer, employee, director or principal shareholder. In addition, the agencies adopted regulations that authorize, but do not require, an agency to order an institution that has been given notice by an agency that it is not satisfying any of such safety and soundness standards to submit a compliance plan. If, after being so notified, an institution fails to submit an acceptable compliance plan or fails in any material respect to implement an acceptable compliance plan, the agency must issue an order directing action to correct the deficiency and may issue an order directing other actions of the types to which an undercapitalized institution is subject under the “prompt corrective action” provisions of FDIA. See “Prompt Corrective Actions” above. If an institution fails to comply with such an order, the agency may seek to enforce such order in judicial proceedings and to impose civil money penalties.

Branching. Kentucky law permits Kentucky chartered banks to establish a banking office in any county in Kentucky. A Kentucky bank may also establish a banking office outside of Kentucky. Well capitalized Kentucky banks that have been in operation at least three years and satisfy certain criteria relating to, among other things, their composite and management ratings, may establish a banking office in Kentucky without the approval of the KDFI upon notice to the KDFI and any other state bank with its main office located in the county where the new banking office will be located. Otherwise, branching requires the approval of the KDFI, which must ascertain and determine that the public convenience and advantage will be served and promoted and that there is reasonable probability of the successful operation of the banking office. The transaction must also be approved by the FDIC, which considers a number of factors, including financial history, capital adequacy, earnings prospects, character of management, needs of the community and consistency with corporate powers.

Section 613 of the Dodd-Frank Act effectively eliminated the interstate branching restrictions set forth in the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994. Banks located in any state may now de novo branch in any other state, including Kentucky. Such unlimited branching power may increase competition within the markets in which the Company and the Bank operate.

6

Insider Credit Transactions. The restrictions on loans to directors, executive officers, principal shareholders and their related interests (collectively referred to as “insiders”) contained in the Federal Reserve Act and Regulation O apply to all insured depository institutions and their subsidiaries. These restrictions include limits on loans to one borrower and conditions that must be met before such a loan can be made. There is also an aggregate limitation on all loans to insiders and their related interests, which may not exceed the institution’s total unimpaired capital and surplus.

Consumer Protection Laws. The Bank is subject to federal consumer protection statues and regulations promulgated under those laws, including, but not limited to, the:

● Truth-In-Lending Act and Regulation Z, governing disclosures of credit terms to consumer borrowers;

● Home Mortgage Disclosure Act and Regulation C, requiring financial institutions to provide certain information about home mortgage and refinanced loans;

● Real Estate Settlement Procedures Act (“RESPA”), requiring lenders to provide borrowers with disclosures regarding the nature and cost of real estate settlements and prohibiting certain abusive practices;

● Secure and Fair Enforcement for Mortgage Licensing Act (“S.A.F.E. Act”), requiring residential loan originators who are employees of financial institutions to meet registration requirements;

● Fair Credit Reporting Act and Regulation V, governing the provision of consumer information to credit reporting agencies and the use of consumer information;

● Equal Credit Opportunity Act and Regulation B, prohibiting discrimination on the basis of race, religion or other prohibited factors in the extension of credit;

● Fair Debt Collection Act, governing the manner in which consumer debts may be collected by collection agencies;

● Truth in Savings Act, which requires disclosure of deposit terms to consumers;

● Regulation CC, which relates to the availability of deposit funds to consumers;

● Right to Financial Privacy Act, which imposes a duty to maintain the confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records;

● Electronic Funds Transfer Act, governing automatic deposits to and withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of automated teller machines and other electronic banking services;

● Automated Overdraft Payment Regulations and Regulation E, requiring financial institutions to provide customer notices, monitor overdraft payment programs, and prohibiting financial institutions from charging consumer fees for paying overdrafts on automated teller machine and one time debit card transactions unless a consumer consents, or opts in to the service for those types of transactions.

The Dodd-Frank Act created the Consumer Financial Protection Bureau, which is granted broad rulemaking, supervisory and enforcement powers under various federal consumer financial protection laws. The CFPB has examination and primary enforcement authority with respect to depository institutions with $10 billion or more in assets. Smaller institutions are subject to rules promulgated by the CFPB, but continue to be examined and supervised by federal banking regulators for consumer compliance purposes. The CFPB has authority to prevent unfair, deceptive or abusive acts or practices in connection with the offering of consumer financial products. The Dodd-Frank Act authorizes the CFPB to establish certain minimum standards for the origination of residential mortgages including a determination of the borrower’s ability to repay. In addition, the Dodd-Frank Act allows borrowers to raise certain defenses to foreclosure if they receive any loan other than a “qualified mortgage” as defined by the CFPB.

The Dodd-Frank Act also permits states to adopt consumer protection laws and standards that are more stringent than those adopted at the federal level and, in certain circumstances, permits state attorneys general to enforce compliance with both the state and federal laws and regulations. Federal preemption of state consumer protection law requirements, traditionally an attribute of the federal savings association charter, has also been modified by the Dodd-Frank Act and now requires a case-by-case determination of preemption by the Office of the Comptroller of the Currency (“OCC”) and eliminates preemption for subsidiaries of a bank. Depending on the implementation of this revised federal preemption standard, the operations of the Bank could become subject to additional compliance burdens in the states in which it operates.

Loans to One Borrower.Under current limits, loans and extensions of credit outstanding at one time to a single borrower and not fully secured generally may not exceed 20% of an institution’s unimpaired capital and unimpaired surplus. Loans and extensions of credit fully secured by collateral may represent an additional 10% of unimpaired capital and unimpaired surplus.

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Volcker Rule. On December 10, 2013, the final Volcker Rule under the Dodd-Frank Act was approved and implemented by the Federal Reserve Board, the FDIC, the Securities and Exchange Commission (“SEC”), and the Commodity Futures Trading Commission. The Volcker Rule attempts to reduce risk and banking system instability by restricting U.S. banks from investing in or engaging in proprietary trading and speculation and imposing a strict framework to justify exemptions for underwriting, market-making and hedging activities. U.S. banks are restricted from investing in funds with collateral comprised of less than 100% loans that are not registered with the SEC and from engaging in hedging activities that do not hedge a specific identified risk. The Volcker Rule does not have a significant effect on the Bank’s operations.

Privacy. Federal law currently contains extensive customer privacy protection provisions. Under these provisions, a financial institution must provide to its customers, at the inception of the customer relationship and annually thereafter, the institution’s policies and procedures regarding the handling of customers’ nonpublic personal financial information. These provisions also provide that, except for certain limited exceptions, an institution may not provide such personal information to unaffiliated third parties unless the institution discloses to the customer that such information may be so provided and the customer is given the opportunity to opt out of such disclosure. Federal law makes it a criminal offense, except in limited circumstances, to obtain or attempt to obtain customer information of a financial nature by fraudulent or deceptive means.

Community Reinvestment Act. The Community Reinvestment Act (“CRA”) requires the FDIC to assess our record in meeting the credit needs of the communities we serve, including low- and moderate-income neighborhoods and persons. The FDIC’s assessment of our record is made available to the public. The assessment also is part of the Federal Reserve Board’s consideration of applications to acquire, merge or consolidate with another banking institution or its holding company, to establish a new banking office or to relocate an office.

Bank Secrecy Act. The Bank Secrecy Act of 1970 (“BSA”) was enacted to deter money laundering, establish regulatory reporting standards for currency transactions and improve detection and investigation of criminal, tax and other regulatory violations. BSA and subsequent laws and regulations require us to take steps to prevent the use of the Bank in the flow of illegal or illicit money, including, without limitation, ensuring effective management oversight, establishing sound policies and procedures, developing effective monitoring and reporting capabilities, ensuring adequate training and establishing a comprehensive internal audit of BSA compliance activities. In recent years, federal regulators have increased the attention paid to compliance with the provisions of BSA and related laws, with particular attention paid to “Know Your Customer” practices. Banks have been encouraged by regulators to enhance their identification procedures prior to accepting new customers in order to deter criminal elements from using the banking system to move and hide illegal and illicit activities.

USA Patriot Act. The USA Patriot Act of 2001 (the “Patriot Act”) contains anti-money laundering measures affecting insured depository institutions, broker-dealers and certain other financial institutions. The Patriot Act requires financial institutions to implement policies and procedures to combat money laundering and the financing of terrorism. This includes standards for verifying customer identification at account opening, as well as rules to promote cooperation among financial institutions, regulators and law enforcement entities in identifying parties that may be involved in terrorism or money laundering. It grants the Secretary of the Treasury broad authority to establish regulations and to impose requirements and restrictions on the operations of financial institutions. In addition, the Patriot Act requires the federal bank regulatory agencies to consider the effectiveness of a financial institution’s anti-money laundering activities when reviewing bank mergers and bank holding company acquisitions.

Effect on Economic Environment. The policies of regulatory authorities, including the monetary policy of the Federal Reserve Board, have a significant effect on the operating results of bank holding companies and bank subsidiaries. Among the means available to the Federal Reserve Board to affect the money supply are open market operations in U.S. government securities, changes in the discount rate on member bank borrowings and changes in reserve requirements against member bank deposits. These means are used in varying combinations to influence overall growth and distribution of bank loans, investments and deposits. Their use may affect interest rates charged on loans or paid for deposits.

Federal Reserve Board monetary policies have materially affected the operating results of commercial banks in the past and are expected to continue to do so in the future. The nature of future monetary policies and the effect of such policies on our business and earnings and those of our subsidiaries cannot be predicted.

Legislative and Regulatory Initiatives. From time to time various laws, regulations and governmental programs affecting financial institutions and the financial industry are introduced in Congress or otherwise promulgated by regulatory agencies. Such measures may change the environment in which the Company and its subsidiaries operate in substantial and unpredictable ways. The nature and extent of future legislative, regulatory or other changes affecting financial institutions are unpredictable at this time.Future legislation, policies and the effects thereof might have a significant influence on overall growth and distribution of loans, investments and deposits. They also may affect interest rates charged on loans or paid on time and savings deposits. New legislation and policies have had a significant effect on the operating results of commercial banks in the past and are expected to continue to do so in the future.

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Available Information

The Company files periodic reports with the SEC including its annual report on Form 10-K, quarterly reports on Form 10-Q, current event reports on Form 8-K and proxy statements. The public may read and copy any materials filed with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an internet site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC at http://www.sec.gov. Our SEC reports are accessible at no cost on our web site at http://www.limestonebank.com, under the Investors Relations section of the About Us tab, once they have been electronically filed with the SEC. A shareholder may also request a copy of our Annual Report on Form 10-K free of charge upon written request to: Chief Financial Officer, Porter Bancorp, Inc., 2500 Eastpoint Parkway, Louisville, Kentucky 40223.

Item 1A. Risk Factors

An investment in the Company’s common stock involves a number of risks. Realization of any of the risks described below could have a material adverse effect on the Company’s business, financial condition, results of operations, cash flow and/or future prospects.

The Company is subject to a Written Agreement with the Federal Reserve that restricts the conduct of the Company’s operations and may have a material adverse effect on its business.

In a Written Agreement with the Federal Reserve Bank of St. Louis, the Company made formal commitments in the agreement to use its financial and management resources to serve as a source of strength for the Bank and to assist the Bank in addressing weaknesses identified by the FDIC and the KDFI, to pay no dividends without prior written approval, to pay no interest or principal on subordinated debentures or trust preferred securities without written approval, and to submit an acceptable plan to maintain sufficient capital.

Bank regulatory agencies can exercise discretion when an institution does not meet minimum regulatory capital levels and the other terms of a consent order. The agencies may initiate changes in management, issue mandatory directives, impose monetary penalties or refrain from formal sanctions, depending on individual circumstances. Any action taken by regulatory agencies could damage our reputation and have a material adverse effect on the Company’s business.

As a bank holding company, we depend on dividends and distributions paid to us by our banking subsidiary.

The Company is a legal entity separate and distinct from the Bank and our other subsidiaries. Our principal source of cash flow, from which we would fund any dividends paid to our shareholders, has historically been dividends the Company receives from the Bank. Regulations of the FDIC and the KDFI govern the ability of the Bank to pay dividends and other distributions to the Company, and regulations of the Federal Reserve govern our ability to pay dividends or make other distributions to shareholders. Since the Bank is unlikely to be in a position to pay dividends to the Company without prior regulatory approval until retained earnings are positive, cash inflows for the Company are limited to common stock or debt issuances. See the “Item 1. Business” “Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities – Dividends.”

We are currently precluded from paying any dividends.

Our agreement with the holders of our trust preferred securities provides that we cannot pay dividends until we pay all deferred distributions in full and resume paying quarterly distributions. We have also agreed with the Federal Reserve to obtain its written consent prior to declaring or paying any future dividends. In addition, the dividend preferences of our Series E and Series F Preferred Shares entitle our preferred shareholders to receive an annual, noncumulative 2% dividend before we can pay a dividend on our non-voting common shares and voting common shares.

Interest on junior subordinated debt is in deferral.

At December 31, 2017, we had an aggregate obligation of $22.2 million relating to the principal and accrued unpaid interest on our four issues of junior subordinated debentures, which has resulted in a deferral of distributions on our trust preferred securities. Although we are permitted to defer payments on these securities for up to five years (and we commenced doing so in 2016), the deferred interest payments continue to accrue until paid in full. Our deferral period expires after the second quarter of 2021.

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The Company’s senior debt is secured by the Bank’s common stock and contains financial covenants that must be maintained to avoid default.

The Company’s senior secured loan agreement is with a commercial bank. The loan matures on June 30, 2022. Interest is payable quarterly at a rate of three-month LIBOR plus 250 basis points through June 30, 2020, at which time quarterly principal payments of $250,000 plus interest will commence. The loan is secured by a first priority pledge of 100% of the issued and outstanding stock of the Bank. The Company may prepay any amount due under the promissory note at any time without premium or penalty.

The loan agreement contains customary representations, warranties, covenants and events of default, including the following financial covenants: (i) the Company must maintain minimum cash on hand of not less than $750,000 through June 30, 2018, and not less than $2,500,000 thereafter, (ii) the Company must maintain a total risk based capital ratio at least equal to 9% of risk-weighted assets to June 30, 2018, and 10% thereafter, (iii) the Bank must maintain a total risk based capital ratio at least equal to 10% of risk-weighted assets to June 30, 2018, and 11% thereafter, and (iv) non-performing assets of the Bank may not exceed 2.5% of the Bank’s total assets. Both the Company and Bank were in compliance with the covenants as of December 31, 2017.

We are defendants in various legal proceedings.

The Company and the Bank are involved in judicial proceedings and regulatory investigations concerning matters arising from our business activities. Although we believe we have a meritorious defense in all significant litigation pending against us, we cannot predict the ultimate outcome. Litigation is subject to inherent uncertainties and unfavorable rulings could occur. We record contingent liabilities resulting from claims against us when a loss is assessed to be probable and the amount of the loss is reasonably estimable. Assessing probability of loss and estimating probable losses requires analysis of multiple factors, including in some cases judgments about the potential actions of third party claimants and courts. Recorded contingent liabilities are based on the best information available and actual losses in any future period are inherently uncertain. Accruals are not made in cases where liability is not probable or the amount cannot be reasonably estimated. We provide disclosure of matters where we believe liability is reasonably possible and which may be material to our consolidated financial statements. If we do not prevail, the ultimate outcome of litigation matters could have a material adverse effect on our financial condition, results of operations, or cash flows. For more information about ongoing legal proceedings, see the Notes to Consolidated Financial Statements.

In the past, the Bank served as trustee for employee stock ownership plans (“ESOPs”) which engaged in transactions that are under review by the U. S. Department of Labor (“DOL”), subjecting us to certain legal risks.

From 2007 until the first quarter of 2013, the Bank served as trustee for certain ESOPs that purchased the stock of companies from prior owners in purchase transactions. Stock purchase transactions by ESOPs are subject to regular and routine reviews by the DOL for compliance with ERISA. Failure to fulfill fiduciary duties under ERISA with respect to any such plan would subject the Bank to certain financial risks such as claims for damages as well as fines and penalties assessable under ERISA. The Bank was a defendant in legal proceedings initiated by the DOL with respect to two stock purchase transactions by ESOPs for which the Bank served as trustee. Both matters were settled. A ruling in any future litigation that the Bank failed to fulfill its fiduciary duties under ERISA with respect to an ESOP, including stock purchases by the ESOP, could subject the Bank to claims for damages as well as fines and penalties assessable under ERISA.

Investigations into and heightened scrutiny of our operations could result in additional costs and damage our reputation.

In October 2014, the Department of Justice (“DOJ”) initiated an investigation concerning possible violations of federal laws, including, among other things, possible violations related to false bank entries, bank fraud and securities fraud. The investigation concerns allegations that Bank personnel engaged in practices intended to delay or avoid disclosure of the Bank’s asset quality at the time of and following the United States Treasury’s purchase of preferred shares from the Company in November 2008. The Bank has cooperated with all requests for information from the DOJ. At this time, the DOJ has not indicated whether it intends to pursue any action in the matter. Heightened scrutiny of the operations of the Company and the Bank by federal officials may subject us to governmental or regulatory inquiries, investigations, actions, penalties and fines, which could adversely affect our reputation and result in costs to us in excess of current reserves and management’s estimate of the aggregate range of possible loss for such matters.

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Our business may be adversely affected by conditions in the financial markets and by economic conditions generally.

Weakness in business and economic conditions generally or specifically in our markets may have one or more of the following adverse effects on our business:

● A decrease in the demand for loans and other products and services we offer;

● A decrease in the value of collateral securing our loans; and

● An increase in the number of customers who become delinquent, file for protection under bankruptcy laws or default on their loans.

Adverse conditions in the general business environment have had an adverse effect on our business in the past. Although the general business environment has improved, we cannot predict how long such improvement can be sustained. In addition, the improvement of certain economic indicators, such as real estate asset values, rents, and unemployment, may vary between geographic markets and may continue to lag behind improvement in the overall economy. These economic indicators typically affect the real estate and financial services industries, in which we have a significant number of customers, more significantly than other economic sectors. Furthermore, we have a substantial lending business that depends upon the ability of borrowers to make debt service payments on loans. Should economic conditions worsen, our business, financial condition or results of operations could be adversely affected.

A large percentage of our loans are collateralized by real estate, and prolonged weakness in the real estate market may result in losses and adversely affect our profitability.

Approximately 73.7% of our loan portfolio as of December 31, 2017, was comprised of commercial and residential loans collateralized by real estate. Adverse economic conditions could decrease demand for real estate and depress real estate values in our markets. Persistent weakness in the real estate market could significantly impair the value of our collateral and our ability to sell the collateral upon foreclosure. The real estate collateral in each case provides an alternate source of repayment in the event of default by the borrower and may deteriorate in value during the time the credit is extended. If real estate values decline, it will become more likely that we would be required to increase our allowance for loan losses. If during a period of depressed real estate values, we were required to liquidate the collateral securing a loan to satisfy the debt or to increase our allowance for loan losses, it could materially reduce our profitability and adversely affect our financial condition.

We offer real estate construction and development loans, which carry a higher degree of risk than other real estate loans. Weakness in the residential construction and commercial development real estate markets has in the past increased the non-performing assets in our loan portfolio and our provision for loan loss expense. These impacts have had, and could have in the future, a material adverse effect on capital, financial condition and results of operations.

Approximately 8.1% of our loan portfolio as of December 31, 2017 consisted of real estate construction and development loans, up from 5.7% at December 31, 2016 and 5.4% at December 31, 2015. These loans generally carry a higher degree of risk than long-term financing of existing properties because repayment depends on the ultimate completion of the project and permanent financing or sale of the property. If the Bank is forced to foreclose on a project prior to its completion, it may not be able to recover the entire unpaid portion of the loan or it may be required to fund additional money to complete the project, or hold the property for an indeterminate period of time. Any of these outcomes may result in losses and adversely affect profitability and financial condition.

Residential construction and commercial development real estate activity in our markets were affected by the challenging economic conditions that followed the financial crisis of 2008. Weakness in these sectors could lead to valuation adjustments to the loan portfolios and real estate owned. A weak real estate market could reduce demand for residential housing, which, in turn, could adversely affect real estate development and construction activities. Consequently, the longer challenging economic conditions persist, the more likely they are to adversely affect the ability of residential real estate development borrowers to repay loans and the value of property used as collateral for such loans.

Our decisions regarding credit risk may not be accurate, and our allowance for loan losses may not be sufficient to cover actual losses, which could adversely affect our business, financial condition and results of operations.

The Bank maintains an allowance for loan losses at a level we believe is adequate to absorb probable incurred losses in the loan portfolio based on historical loan loss experience, economic and environmental factors, specific problem loans, value of underlying collateral and other relevant factors. If our assessment of these factors is ultimately inaccurate, the allowance may not be sufficient to cover actual future loan losses, which would adversely affect operating results. Management’s estimates are subjective, and their accuracy depends on the outcome of future events. Changes in economic, operating, and other conditions that are generally beyond our control could cause actual loan losses to increase significantly. In addition, bank regulatory agencies, as an integral part of their supervisory functions, periodically review the adequacy of our allowance for loan losses. Regulatory agencies may require an increase in provision for loan losses or to recognize additional loan charge-offs when their judgment differed from ours. Any of these events could have a material negative impact on our operating results.

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Our levels of classified loans and non-performing assets may increase in the foreseeable future if economic conditions cause borrowers to default. Further, the value of the collateral underlying a given loan, and the realizable value of such collateral in a foreclosure sale, may decline, making it less likely to realize a full recovery if a borrower defaults on a loan. Any additional increases in the level of our non-performing assets, loan charge-offs or provision for loan losses, or our inability to realize the estimated net value of underlying collateral in the event of a loan default, could negatively affect our business, financial condition, results of operations and the trading price of our securities.

If we experience greater credit losses than anticipated, our operating results would be adversely affected.

As a lender, the Bank is exposed to the risk that borrowers will be unable to repay their loans according to their terms and that any collateral securing the payment of their loans may not be sufficient to assure repayment. Credit losses are inherent in the business of making loans and could have a material adverse effect on our operating results. Our credit risk with respect to our real estate and construction loan portfolio will relate principally to the creditworthiness of borrowers and the value of the real estate serving as security for the repayment of loans. Our credit risk with respect to our commercial and consumer loan portfolio will relate principally to the general creditworthiness of businesses and individuals within our local markets.

We make various assumptions and judgments about the collectability of our loan portfolio and provide an allowance for estimated loss losses based on a number of factors. We believe that our allowance for loan losses is adequate. However, if our assumptions or judgments are wrong, our allowance for loan losses may not be sufficient to cover our actual loan losses. We may have to increase our allowance in the future at the request of one of our primary banking regulators, to adjust for changing conditions and assumptions, or as a result of any deterioration in the quality of our loan portfolio. The actual amount of future provisions for loan losses cannot be determined at this time and may vary from the amounts of past provisions.

We continue to hold and from time to time acquire OREO properties, which could increase operating expenses and result in future losses to the Company.

During recent years, the Bank has acquired and disposed of a significant amount of real estate as a result of foreclosure or by deed in lieu of foreclosure that is listed on our balance sheet as other real estate owned (“OREO”). An increase in our OREO portfolio increases the expenses incurred to manage and dispose of these properties, which sometimes includes funding construction required to facilitate sale.

Properties in our OREO portfolio are recorded at fair value, which represents the estimated sales price of the properties on the date acquired less estimated selling costs. Generally, in determining “fair value” an orderly disposition of the property is assumed, except where a different disposition strategy is expected. Significant judgment is required in estimating the fair value of OREO, and the period of time within which such estimates can be considered current may change during periods of market volatility. Any decreases in market prices of real estate in our market areas may lead to additional OREO write downs, with a corresponding expense in our statement of operations. We evaluate OREO property values periodically and write down the carrying value of the properties if and when the results of our analysis require it.

In response to market conditions and other economic factors, we may utilize alternative sale strategies other than orderly disposition as part of our OREO disposition strategy, such as auctions or bulk sales. In this event, as a result of the significant judgments required in estimating fair value and the variables involved in different methods of disposition, the net proceeds realized from such sales transactions could differ significantly from appraisals, comparable sales, and other estimates used to determine the fair value of our OREO properties. In addition, our disposition of OREO through alternative sales strategies could impact the fair value of comparable OREO properties remaining in our portfolio.

Our profitability depends significantly on local economic conditions.

Most of our business activities are conducted in central Kentucky and most of our credit exposure is in that region. We are at risk from adverse economic or business developments affecting this area, including declining regional and local business and employment activity, a downturn in real estate values and agricultural activities and natural disasters. To the extent the central Kentucky economy weakens, delinquency rates, foreclosures, bankruptcies and losses in our loan portfolio will likely increase. Moreover, the value of real estate or other collateral that secures our loans could be adversely affected by the economic downturn or a localized natural disaster. Events that adversely affect business activity and real estate values in central Kentucky have had and may continue to have a negative impact on our business, financial condition, results of operations and future prospects.

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Our small to medium-sized business portfolio may have fewer resources to weather a downturn in the economy.

Our portfolio includes loans to small and medium-sized businesses and other commercial enterprises. Small and medium-sized businesses frequently have smaller market shares than their competitors, may be more vulnerable to economic downturns, often need additional capital to expand or compete and may experience variations in operating results, any of which may impair a borrower’s ability to repay a loan. In addition, the success of a small or medium-sized business often depends on the management talents and efforts of one or two persons or a small group of persons. The death, disability or resignation of one or more of these persons could have a material adverse impact on the business and its ability to repay our loan. A continued economic downturn may have a more pronounced negative impact on our target market, causing us to incur substantial credit losses that could materially harm our operating results.

Our profitability is vulnerable to fluctuations in interest rates.

Changes in interest rates could harm our financial condition or results of operations. Our results of operations depend substantially on net interest income, the difference between interest earned on interest-earning assets (such as investments and loans) and interest paid on interest-bearing liabilities (such as deposits and borrowings). Interest rates are highly sensitive to many factors, including governmental monetary policies and domestic or international economic or political conditions. Factors beyond our control, such as inflation, recession, unemployment and money supply may also affect interest rates. If, as a result of decreasing interest rates, our interest-earning assets mature or reprice more quickly than our interest-bearing liabilities in a given period, our net interest income may decrease. Likewise, our net interest income may decrease if interest-bearing liabilities mature or reprice more quickly than interest-earning assets in a given period as a result of increasing interest rates.

Fixed-rate loans increase our exposure to interest rate risk in a rising rate environment because interest-bearing liabilities may be subject to repricing before assets become subject to repricing. Fixed rate investment securities are subject to fair value declines as interest rates rise. Adjustable-rate loans decrease the risk associated with changes in interest rates but involve other risks, such as the inability of borrowers to make higher payments in an increasing interest rate environment. At the same time, for secured loans, the marketability of the underlying collateral may be adversely affected by higher interest rates. In a declining interest rate environment, there may be an increase in prepayments on loans as the borrowers refinance their loans at lower interest rates, which could reduce net interest income and harm our results of operations.

If we cannot obtain adequate funding, we may not be able to meet the cash flow requirements of our depositors and borrowers, or meet the operating cash needs of the Company.

Our liquidity policies and limits are established by the Board of Directors of the Bank, with operating limits managed and monitored by the Asset Liability Committee (“ALCO”), based upon analyses of the ratio of loans to deposits and the percentage of assets funded with non-core or wholesale funding. The ALCO regularly monitors the overall liquidity position of the Bank and the Company to ensure that various alternative strategies exist to meet unanticipated events that could affect liquidity. Liquidity is the ability to meet cash flow needs on a timely basis at a reasonable cost. If our liquidity policies and strategies do not work as well as intended, we may be unable to make loans and repay deposit liabilities as they become due or are demanded by customers. The ALCO follows established board approved policies and monitors guidelines to diversify our wholesale funding sources to avoid concentrations in any one-market source. Wholesale funding sources include Federal funds purchased, securities sold under repurchase agreements, and Federal Home Loan Bank (“FHLB”) advances that are collateralized with mortgage-related assets.

We maintain a portfolio of securities that can be used as a secondary source of liquidity. There are other available sources of liquidity, including additional collateralized borrowings such as FHLB advances, the issuance of debt securities, and the issuance of preferred or common shares in public or private transactions. If we are unable to access any of these funding sources when needed, we might not be able to meet the needs of our customers, which could adversely impact our financial condition, our results of operations, cash flows, and our level of regulatory-qualifying capital.

We may not be able to realize the value of our tax losses and deductions.

Due to historic losses, we have a net operating loss carry-forward of $25.6 million, credit carry-forwards of $900,000, and other net deferred tax assets of $4.8 million. In order to realize the benefit of these tax losses, credits and deductions, we will need to generate substantial taxable income in future periods. Our deferred tax assets are calculated using a federal corporate tax rate of 21%. Changes in tax laws and rates may affect our deferred tax assets in the future. If lower federal corporate tax rates are enacted, our net deferred tax assets would be reduced commensurate with the rate reduction. Additionally, should the Company need to raise additional capital by issuing new common shares or securities convertible into common shares, then depending on the number of common share equivalents issued, it could trigger a “change in control,” as defined by Section 382 of the Internal Revenue Code. Such an event could negatively impact or limit the ability to utilize our net operating loss carry-forwards, credit loss carry-forwards, and other net deferred tax assets.

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We may sell capital stock in the future to raise additional capital or for additional liquidity at the holding company. Future sales or other dilution of our equity may adversely affect the market price of our common shares.

Our issuance of additional common shares or securities convertible into common shares would dilute the ownership interest of our existing common shareholders. The market price of our common shares could decline as a result of such an offering as well as other sales of a large block of shares of our common shares or similar securities in the market after such an offering, or the perception that such sales could occur. Our common shares have traded from time-to-time at a price below our book value per share. A sale of common shares at or below our book value would be dilutive to current shareholders. The sale of shares at a price below market value could negatively impact the market price of our common shares.

Higher FDIC deposit insurance premiums and assessments could significantly increase our non-interest expense.

Our deposits are insured by the FDIC up to legal limits and, accordingly, we are subject to FDIC deposit insurance premiums and assessments. FDIC assessments for deposit insurance are based on the average total consolidated assets of the insured institution during the assessment period, less the average tangible equity of the institution during the assessment period. Any increase in assessment rates may adversely affect our business, financial condition or results of operations.

We face strong competition from other financial institutions and financial service companies, which could adversely affect our results of operations and financial condition.

We compete with other financial institutions in attracting deposits and making loans. Our competition in attracting deposits comes principally from other commercial banks, credit unions, savings and loan associations, securities brokerage firms, insurance companies, money market funds, and other mutual funds. Our competition in making loans comes principally from other commercial banks, credit unions, savings and loan associations, mortgage banking firms, and consumer finance companies. In addition, competition for business in the Louisville and Lexington metropolitan areas has grown in recent years as changes in banking law have allowed banks to enter those markets by establishing new branches.

Competition in the banking industry may also limit our ability to attract and retain banking clients. We maintain smaller staffs of associates and have fewer financial and other resources than larger institutions with which we compete. Financial institutions that have far greater resources and greater efficiencies than we do may have several marketplace advantages resulting from their ability to:

● offer higher interest rates on deposits and lower interest rates on loans than we can;

● offer a broader range of services than we do;

● maintain more branch locations than we do; and

● mount extensive promotional and advertising campaigns.

In addition, banks and other financial institutions with larger capitalization and other financial intermediaries may not be subject to the same regulatory restrictions as we are and may have larger lending limits than we do. Some of our current commercial banking clients may seek alternative banking sources as they develop needs for credit facilities larger than we can accommodate. If we are unable to attract and retain customers, we may not be able to maintain growth and our results of operations and financial condition may otherwise be negatively impacted.

We depend on our senior management team, and the unexpected loss of one or more of our senior executives could impair our relationship with customers and adversely affect our business and financial results.

Our future success significantly depends on the continued services and performance of our key management personnel. Our future performance will depend on our ability to motivate and retain these and other key officers. The Dodd-Frank Act, and the policies of bank regulatory agencies have placed restrictions on executive compensation practices. Such restrictions and standards may further impact our ability to compete for talent with other businesses that are not subject to the same limitations as we are. The loss of the services of members of senior management or other key officers or our inability to attract additional qualified personnel as needed could materially harm our business.

Our reported financial results depend on management’s selection of accounting methods and certain assumptions and estimates.

Accounting policies and assumptions are fundamental to the reported financial condition and results of operations. Management must exercise judgment in selecting and applying many of these accounting policies and methods so they comply with generally accepted accounting principles and reflect management’s judgment of the most appropriate manner in which to report our financial condition and results. In some cases, management must select the accounting policy or method to apply from two or more alternatives, any of which may be reasonable under the circumstances, yet may result in reporting materially different results than would have been reported under a different alternative.

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Certain accounting policies are critical to presenting our reported financial condition and results. They require management to make difficult, subjective or complex judgments about matters that are uncertain. Materially different amounts could be reported under different conditions or using different assumptions or estimates. These critical accounting policies include the valuation of securities, allowance for loan losses, valuation of OREO, valuation of stock based compensation, valuation of net deferred income tax asset, assessing and estimating contingencies, and revenue recognition. Because of the uncertainty of estimates involved in these matters, we may be required, among other things, to significantly increase the allowance for credit losses, sustain credit losses that are significantly higher than the reserve provided, recognize significant impairment on OREO, or permanently impair deferred tax assets.

While management continually monitors and improves our system of internal controls, data processing systems, and corporate wide processes and procedures, we may suffer losses from operational risk in the future.

Management maintains internal operational controls, and we have invested in technology to help us process large volumes of transactions. However, we may not be able to continue processing at the same or higher levels of transactions. If our systems of internal controls should fail to work as expected, if our systems were to be used in an unauthorized manner, or if employees were to subvert the system of internal controls, significant losses could occur.

We process large volumes of transactions on a daily basis and are exposed to numerous types of operational risk, which could cause us to incur substantial losses. Operational risk resulting from inadequate or failed internal processes, people, and systems includes the risk of fraud by employees or persons outside of our company, the execution of unauthorized transactions by employees, errors relating to transaction processing and systems, and breaches of the internal control system and compliance requirements. This risk of loss also includes potential legal actions that could arise as a result of the operational deficiency or as a result of noncompliance with applicable regulatory standards.

We establish and maintain systems of internal operational controls that provide management with timely and accurate information about our level of operational risk. While not foolproof, these systems have been designed to manage operational risk at appropriate, cost effective levels. We have also established procedures that are designed to ensure that policies relating to conduct, ethics and business practices are followed. Nevertheless, we experience loss from operational risk from time to time, including the effects of operational errors, and these losses may be substantial.

Our information systems may experience an interruption or security breach.

Failure in or breach of our operational or security systems or infrastructure, or those of our third party vendors and other service providers, including as a result of cyber attacks, could disrupt our businesses, result in the disclosure or misuse of confidential or proprietary information, damage our reputation, increase our costs and cause losses. As a financial institution, we depend on our ability to process, record and monitor a large number of customer transactions on a continuous basis. As customer, public and regulatory expectations regarding operational and information security have increased, our operational systems and infrastructure must continue to be safeguarded and monitored for potential failures, disruptions, and breakdowns. Our business, financial, accounting, data processing systems or other operating systems and facilities may stop operating properly or become disabled or damaged as a result of a number of factors including events that are wholly or partially beyond our control. For example, there could be sudden increases in customer transaction volume, electrical or telecommunications outages, natural disasters such as earthquakes, tornadoes, and hurricanes; disease pandemics, events arising from local or larger scale political or social matters, including terrorist acts, and, as described below, cyber attacks. Although we have business continuity plans and other safeguards in place, our business operations may be adversely affected by significant and widespread disruption to our physical infrastructure or operating systems that support our businesses and customers.

Information security risks for financial institutions have generally increased in recent years in part because of the proliferation of new technologies, the use of the Internet and telecommunications technologies to conduct financial transactions, and the increased sophistication and activities of organized crime, hackers, terrorists, activists, and other external parties. As noted above, our operations rely on the secure processing, transmission and storage of confidential information in our computer systems and networks. In addition, to access our products and services, our customers may use personal smartphones, tablet PC’s, and other mobile devices that are beyond our control systems. Although we believe we have appropriate information security procedures and controls, our technologies, systems, networks, and our customers’ devices may become the target of cyber attacks or information security breaches. These events could result in the unauthorized release, gathering, monitoring, misuse, loss or destruction of our customers’ confidential, proprietary and other information or that of our customers, or otherwise disrupt the business operations of ourselves, our customers or other third parties.

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Third parties with which we do business or that facilitate our business activities, could also be sources of operational and information security risk to us, including from breakdowns or failures of their own systems or capacity constraints. Although to date we have not experienced any material losses relating to cyber attacks or other information security breaches, we can give no assurance that we will not suffer such losses in the future. Our risk and exposure to these matters remains heightened because of, among other things, the evolving nature of these threats and the prevalence of Internet and mobile banking. As cyber threats continue to evolve, we may be required to expend significant additional resources to continue to modify or enhance our protective measures or to investigate and remediate any information security vulnerabilities. Disruptions or failures in the physical infrastructure or operating systems that support our businesses and customers, or cyber attacks or security breaches of the networks, systems or devices that our customers use to access our products and services could result in customer attrition, regulatory fines, penalties or intervention, reputational damage, reimbursement or other compensation costs, and/or additional compliance costs, any of which could materially adversely affect our business, results of operations or financial condition.

We operate in a highly regulated environment and, as a result, are subject to extensive regulation and supervision that could adversely affect financial performance and ability to implement growth and operating strategies.

We are subject to examination, supervision and comprehensive regulation by federal and state regulatory agencies, as described under “Item 1 – Business-Supervision and Regulation.” Regulatory oversight of banks is primarily intended to protect depositors, the federal deposit insurance funds, and the banking system as a whole, and not our shareholders. Compliance with these regulations is costly and may make it more difficult to operate profitably.

Federal and state banking laws and regulations govern numerous matters including the payment of dividends, the acquisition of other banks, and the establishment of new banking offices. We must also meet specific regulatory capital requirements. Our failure to comply with these laws, regulations, and policies or to maintain required capital could affect our ability to pay dividends on common shares, our ability to grow through the development of new offices, make acquisitions, and remain independent. These limitations may prevent us from successfully implementing our growth and operating strategies.

In addition, the laws and regulations applicable to banks could change at any time, which could significantly impact our business and profitability. For example, new legislation or regulation could limit the manner in which we may conduct our business, including our ability to attract deposits and make loans. Events that may not have a direct impact on us, such as the bankruptcy or insolvency of a prominent U.S. corporation, can cause legislators and banking regulators and other agencies such as the Consumer Financial Protection Bureau, the SEC, the Public Company Accounting Oversight Board and various taxing authorities to respond by adopting and or proposing substantive revisions to laws, regulations, rules, standards, policies, and interpretations. The nature, extent, and timing of the adoption of significant new laws and regulations, or changes in or repeal of existing laws and regulations may have a material impact on our business and results of operations. Changes in regulation may cause us to devote substantial additional financial resources and management time to compliance, which may negatively affect our operating results.

Changes in banking laws could have a material adverse effect on us.

We are subject to changes in federal and state laws as well as changes in banking and credit regulations, and governmental economic and monetary policies. We cannot predict whether any of these changes could adversely and materially affect us. The current regulatory environment for financial institutions entails significant potential increases in compliance requirements and associated costs. Federal and state banking regulators also possess broad powers to take supervisory actions as they deem appropriate. These supervisory actions may result in higher capital requirements, higher insurance premiums and limitations on our activities that could have a material adverse effect on our business and profitability.

Recent legislation regarding the financial services industry may have a significant adverse effect on operations.

Enacted in July 2010, the Dodd-Frank Act has had a significant impact the U.S. financial system, including among other things:

● new requirements on banking, derivative and investment activities, including the repeal of the prohibition on the payment of interest on business demand accounts, and debit card interchange fee requirements;

● the creation of the Consumer Financial Protection Bureau with supervisory authority, including the power to conduct examinations and take enforcement actions with respect to financial institutions with assets of $10 billion or more and implement regulations that will affect all financial institutions;

● provisions affecting corporate governance and executive compensation of all companies subject to the reporting requirements of the Securities and Exchange Act of 1934, as amended; and

● a provision requiring bank regulators to set minimum capital levels for bank holding companies that are as strong as those required for their insured depository subsidiaries, subject to a grandfather clause for holding companies with less than $15 billion in assets as of December 31, 2009.

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Some provisions in the Dodd-Frank Act remain subject to regulatory rule-making, implementation, and interpretation, the effects of which are not yet known. As a result, it is difficult to gauge the ultimate impact of certain provisions of the Dodd-Frank Act because the implementation of many concepts is left to regulatory agencies. For example, the CFPB is given the power to adopt new regulations to protect consumers and is given control over existing consumer protection regulations adopted by federal banking regulators. The CFPB has already adopted a number of regulations but it is not known at this time when additional rules will be finalized and implemented.

The provisions of the Dodd-Frank Act and any rules adopted to implement those provisions, as well as any additional legislative or regulatory changes may impact the profitability of our business activities and costs of operations, require that we change certain of our business practices, materially affect our business model or affect retention of key personnel, require us to raise additional regulatory capital, including additional Tier 1 capital, and could expose us to additional costs (including increased compliance costs). These and other changes may also require us to invest significant management attention and resources to make any necessary changes and may adversely affect our ability to conduct our business as previously conducted or our results of operations or financial condition.

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Item 1B. Unresolved Staff Comments

Not applicable.

Item 2. Properties

The Bank operates 15 banking offices in Kentucky. The following table shows the location, square footage and ownership of each property. We believe that each of these locations is adequately insured. Support operations are located in our main office in Louisville and in Glasgow.

Markets	Square Footage	Owned/Leased
Louisville/Jefferson, Bullitt and Henry Counties
Main Office: 2500 Eastpoint Parkway, Louisville	30,000	Owned
Eminence Office: 646 Elm Street, Eminence	1,500	Owned
Hillview Office: 6890 North Preston Highway, Hillview	3,500	Owned
Pleasureville Office: 5440 Castle Highway, Pleasureville	10,000	Owned
Conestoga Office: 155 Conestoga Parkway, Shepherdsville	3,900	Owned
Lexington/Fayette County
Lexington Office: 2424 Harrodsburg Road, Suite 100, Lexington	8,500	Leased
South Central Kentucky
Brownsville Office: 113 East Main Cross Street, Brownsville	8,500	Owned
Greensburg Office: 202 North Main Street, Greensburg	11,000	Owned
Horse Cave Office: 201 East Main Street, Horse Cave	5,000	Owned
Morgantown Office: 112 West G.L. Smith Street, Morgantown	7,500	Owned
Munfordville Office: 949 South Dixie Highway, Munfordville	9,000	Owned
Beaver Dam Office: 1300 North Main Street, Beaver Dam	3,200	Owned
Owensboro/Daviess County
Owensboro Office: 1819 Frederica Street, Owensboro	3,000	Owned
Southern Kentucky
Campbell Lane Office: 751 Campbell Lane, Bowling Green	7,500	Owned
Glasgow Office: 1006 West Main Street, Glasgow	12,000	Owned
Other Properties
Office Building: 701 Columbia Avenue, Glasgow	19,000	Owned

Item 3. Legal Proceedings

We are defendants in various legal proceedings. Litigation is subject to inherent uncertainties and unfavorable outcomes could occur. See Note 16, “Off Balance Sheet Risks, Commitments, and Contingent Liabilities” in the Notes to our consolidated financial statements for detail regarding ongoing legal proceedings and other matters.

Item 4. Mine Safety Disclosure

Not applicable.

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PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information

Our common shares are traded on the Nasdaq Capital Market under the ticker symbol “PBIB”. The following table presents the high and low market closing prices per share for our common shares reported on the Nasdaq Capital Market for the periods indicated. The per share prices shown in the table have been adjusted for the 1-for-5 reverse stock split of our common shares that took effect on December 16, 2016.

	2017
	Market Value
Quarter Ended	High		Low		Dividend
Fourth Quarter	$	15.45	$	11.42	$	0.00
Third Quarter		11.81		9.98		0.00
Second Quarter		10.49		8.73		0.00
First Quarter		12.75		9.14		0.00

	2016
	Market Value
Quarter Ended	High		Low		Dividend
Fourth Quarter	$	12.90	$	8.05	$	0.00
Third Quarter		8.55		7.70		0.00
Second Quarter		11.25		5.95		0.00
First Quarter		7.10		5.45		0.00

As of January 31, 2018, we had approximately 1,664 shareholders, including 470 shareholders of record and approximately 1,194 beneficial owners whose shares are held in “street” name by securities broker-dealers or other nominees.

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Dividends

As a bank holding company, our ability to declare and pay dividends depends on various federal regulatory considerations, including the guidelines of the Federal Reserve regarding capital adequacy and dividends.

Our principal source of revenue with which to pay dividends on our common shares are dividends the Bank may declare and pay out of funds legally available for payment of dividends. Currently, the Bank must obtain the prior written consent of its primary regulators prior to declaring or paying any dividends until retained earnings are positive. A Kentucky chartered bank may declare a dividend of an amount of the bank’s net profits as the board deems appropriate. The approval of the KDFI is required if the total of all dividends declared by a bank in any calendar year exceeds the total of its net profits for that year combined with its retained net profits for the preceding two years, less any required transfers to surplus or a fund for the retirement of preferred stock or debt. Under our Written Agreement, the prior approval of the Federal Reserve Bank of St. Louis is also required for the payment of any Bank dividends.

Effective with the third quarter of 2016, the Company resumed deferring interest payments on the junior subordinated notes underlying our trust preferred securities. Deferring interest payments on the junior subordinated notes resulted in the deferral of distributions on our trust preferred securities. If we defer interest payments on our trust preferred securities for 20 consecutive quarters, we must pay all deferred interest or we will be in default. Our deferral period expires after the second quarter of 2021.

We will not be able to pay cash dividends on our common shares until we have paid all deferred distributions on our trust preferred securities. Deferred distributions on trust preferred securities are cumulative, and distributions accrue and compound on each subsequent payment date. If we become subject to any liquidation, dissolution or winding up of affairs, holders of the trust preferred securities and then holders of our preferred shares will be entitled to receive the liquidation amounts to which they are entitled including the amount of any accrued and unpaid distributions and dividends, before any distribution can be made to the holders of common shares or preferred shares. Series E and Series F Preferred Shares have priority over our common shares and non-voting common shares with respect to any payment of dividends.

Purchase of Equity Securities by Issuer

During the fourth quarter of 2017, the Company did not repurchase any of its common shares, which is its only registered class of equity securities.

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Item 6. Selected Financial Data

The following table summarizes our selected historical consolidated financial data from 2013 to 2017. You should read this information in conjunction with Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Item 8. “Financial Statements and Supplementary Data.”

Selected Consolidated Financial Data

	As of and for the Years Ended December 31,
(Dollars in thousands except per share data)	2017			2016			2015			2014			2013
Income Statement Data:
Interest income	$	37,522		$	35,602		$	36,574		$	39,513		$	43,228
Interest expense		6,405			5,981			7,023			9,795			11,143
Net interest income		31,117			29,621			29,551			29,718			32,085
Provision (negative provision) for loan losses		(800	)		(2,450	)		(4,500	)		7,100			700
Non-interest income		4,855			4,764			7,695			4,079			5,919
Non-interest expense		30,218			39,567			44,959			39,435			38,890
Income (loss) before income taxes		6,554			(2,732	)		(3,213	)		(12,738	)		(1,586	)
Income tax expense (benefit)		(31,899	)		21			—			(1,583	)		—
Net income (loss)		38,453			(2,753	)		(3,213	)		(11,155	)		(1,586	)
Less:
Dividends and accretion on preferred stock		—			—			—			2,362			2,079
Effect of exchange of preferred stock for common stock		—			—			—			(36,104	)		—
Earnings (loss) allocated to participating securities		967			(88	)		(336	)		3,159			(267	)
Net income (loss) attributable to common	$	37,486		$	(2,665	)	$	(2,877	)	$	19,428		$	(3,398	)
Common Share Data: (1)
Basic earnings (loss) per common share	$	6.15		$	(0.46	)	$	(0.62	)	$	7.94		$	(1.44	)
Diluted earnings (loss) per common share		6.15			(0.46	)		(0.62	)		7.94			(1.44	)
Cash dividends declared per common share		—			—			—			—			—
Book value per common share (2)		11.17			4.81			5.43			8.37			(0.92	)
Tangible book value per common share (2)		11.17			4.79			5.33			8.05			(1.46	)
Balance Sheet Data (at period end):
Total assets	$	970,801		$	945,177		$	948,722		$	1,017,989		$	1,076,121
Debt obligations:
FHLB advances		11,797			22,458			3,081			15,752			4,492
Junior subordinated debentures		21,000			21,000			21,000			25,000			25,000
Subordinated capital note		2,250			3,150			4,050			4,950			5,850
Senior debt		10,000			—			—			—			—
Average Balance Data:
Average assets	$	947,961		$	929,140		$	984,419		$	1,049,232		$	1,098,400
Average loans		667,474			621,275			635,948			662,442			788,176
Average deposits		864,278			852,717			907,785			961,671			1,004,052
Average FHLB advances		9,184			2,967			3,473			4,473			4,990
Average junior subordinated debentures		21,000			21,000			23,981			25,000			25,000
Average subordinated capital note		2,805			3,708			4,608			5,508			6,404
Average senior debt		5,068			—			—			—			—
Average stockholders’ equity		37,851			39,423			33,083			33,881			42,631

(1) On December 16, 2016, the Company completed a 1-for-5 reverse stock split of its issued and outstanding common and non-voting common shares. As a result of the reverse stock split, all share and per share data has been adjusted in the accompanying tables. Preferred shares were not impacted by the 1-for-5 reverse stock split.

(2) After shareholder approval on February 25, 2015, our two series of mandatorily convertible preferred shares converted into a total of 810,720 common shares and 1,291,600 non-voting common shares. 

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Item 7.     Management’s Discussion and Analysis of Financial Condition and Results of Operation

Management’s discussion and analysis of financial condition and results of operations analyzes the consolidated financial condition and results of operations of Porter Bancorp, Inc. (the “Company”) and its wholly owned subsidiary, Limestone Bank, Inc. (the “Bank”). The Bank completed a name change from PBI Bank to Limestone Bank on February 20, 2018. The Company is a Louisville, Kentucky-based bank holding company that operates banking offices of the Bank in twelve Kentucky counties. Our markets include metropolitan Louisville in Jefferson County and the surrounding counties of Henry and Bullitt. We serve south central Kentucky and southern Kentucky from banking offices in Butler, Green, Hart, Edmonson, Barren, Warren, Ohio, and Daviess Counties. We also have an office in Lexington, the second largest city in Kentucky. The Bank is a community bank with a wide range of commercial and personal banking products.

Historically, we have focused on commercial and commercial real estate lending, both in markets where we have banking offices and other growing markets in our region. Commercial, commercial real estate and real estate construction loans accounted for 58.4% of our total loan portfolio as of December 31, 2017, and 55.6% as of December 31, 2016. Commercial lending generally produces higher yields than residential lending, but involves greater risk and requires more rigorous underwriting standards and credit quality monitoring.

The following discussion should be read in conjunction with our consolidated financial statements and accompanying notes and other schedules presented elsewhere in the report.

Overview

For the year ended December 31, 2017, the Company reported net income of $38.5 million compared with net loss of $2.8 million for the year ended December 31, 2016 and a net loss of $3.2 million for the year ended December 31, 2015. After allocating earnings to participating securities, net income attributable to common shareholders was $37.5 million for the year ended December 31, 2017, compared with net loss attributable to common shareholders of $2.7 million for the year ended December 31, 2016, and a net loss attributable to common shareholders of $2.9 million for the year ended December 31, 2015. Basic and diluted income per common share were $6.15 for the year ended December 31, 2017, compared with net loss per common share of ($0.46) for 2016, and net loss per common share of ($0.62) for 2015.

The following significant items are of note for the year ended December 31, 2017:

● The Company has had a full valuation allowance against its net deferred tax asset since 2011. The ability to utilize the net deferred tax asset depends upon generating sufficient future levels of taxable income. The determination to restore a deferred tax asset and eliminate a valuation allowance depends upon the evaluation of both positive and negative evidence regarding the likelihood of achieving sufficient future taxable income levels. During the fourth quarter of 2017, management concluded it was more-likely-than-not the asset would be utilized to reduce future taxes payable related to the future taxable income of the Company, and as such, reversed the valuation allowance. As a result of the conclusion to reverse the valuation allowance, the Company recorded an income tax benefit of $54.0 million for the year ended December 31, 2017. On December 22, 2017, the Tax Cuts and Jobs Act of 2017 was signed into law. Among other significant changes to the tax code, the new law lowered the federal corporate tax rate from 35% to 21% beginning in 2018. As a result, the Company revalued its net deferred tax asset at the new 21% rate. Due to this revaluation, the Company recorded a $20.3 million charge to income tax expense for the year ended December 31, 2017. The combination of the reversal of the valuation allowance and the change in federal corporate tax rates, as well as income tax expense for the year, resulted in an income tax benefit of $31.9 million for the year ended December 31, 2017.

● The Bank is no longer subject to a consent order with the Federal Deposit Insurance Corporation and Kentucky Department of Financial Institutions. We were notified that the Bank’s prior consent order was terminated, effective October 31, 2017.

● Loan growth outpaced paydowns during the period. Average loans receivable increased approximately $46.2 million or 7.4% to $667.5 million for the year ended December 31, 2017, compared with $621.3 million for the year ended December 31, 2016. This resulted in an increase in interest revenue volume of approximately $2.2 million, which was offset by rate decreases of $895,000 for the year ended December 31, 2017, compared with the year ended December 31, 2016.

● Net interest margin increased six basis points to 3.48% for the year ended 2017 compared with 3.42% in the year ended December 31, 2016. The increase in margin between periods was primarily due to an increase in the rate of interest earned on interest earning assets from 4.11% in 2016 to 4.18% in 2017.  

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● Negative provision for loan losses expense was $800,000 in 2017, compared to a negative provision for loan losses expense of $2.5 million for 2016, because of declining historical loss rates, improvements in loan quality, and management’s assessment of risk in the loan portfolio. Net loan recoveries were $35,000 for 2017, compared to net loan charge-offs of $624,000 for 2016 and $2.8 million for 2015. In the following paragraphs, we discuss the improving trends in non-performing loans, past due loans, and loan risk categories during the period, factors that led to the negative provision expense.

● Non-performing loans decreased $3.8 million to $5.5 million at December 31, 2017, compared with $9.2 million at December 31, 2016. The decrease in non-performing loans was due to $5.0 million in paydowns, $665,000 in charge-offs, $199,000 in loans returned to accrual status, and $270,000 in transfers to OREO, offset by $2.3 million in loans placed on non-accrual.

● Loans past due 30-59 days decreased from $2.3 million at December 31, 2016 to $1.5 million at December 31, 2017, and loans past due 60-89 days decreased from $315,000 at December 31, 2016 to $171,000 at December 31, 2017. Loans past due 90 days or more totaled $1,000 at December 31, 2017, compared to no loans past due 90 days or more at December 31, 2016. Total loans past due and nonaccrual loans decreased to $7.1 million at December 31, 2017 from $11.8 million at December 31, 2016.

● All loan risk categories (other than pass loans) have decreased since December 31, 2016. Pass loans represent 94.5% of the portfolio at December 31, 2017, compared to 91.7% at December 31, 2016 and 83.6% at December 31, 2015. During 2017, the pass category increased approximately $86.6 million, the watch category declined approximately $4.7 million, the special mention category declined approximately $333,000, and the substandard category declined approximately $8.7 million. The $8.7 million decrease in loans classified as substandard was driven by $6.8 million in principal payments received, $270,000 in migration to OREO, $4.6 million in loans upgraded from substandard, and $790,000 in charge-offs, offset by $3.7 million in loans moved to substandard during 2017.

● Foreclosed properties were $4.4 million at December 31, 2017, compared with $6.8 million at December 31, 2016. During the year ended December 31, 2017, the Company acquired $270,000 and sold $793,000 of OREO. We incurred OREO losses totaling $2.0 million during the year ended December 31, 2017, reflecting fair value write-downs for updated appraisals, changes in marketing strategies, and reductions in listing prices for certain properties, offset by $74,000 in net gain on sales of OREO.

● Non-performing assets decreased to $9.9 million or 1.02% of total assets at December 31, 2017, compared with $16.0 million or 1.70% of total assets at December 31, 2016. In addition, accruing troubled debt restructurings declined to $1.2 million at December 31, 2017 from $5.4 million at December 31, 2016.

● Non-interest income increased by $91,000 in 2017 to $4.9 million compared with $4.8 million for the year ended December 31, 2016. This increase was primarily attributable to a $295,000 increase in service charges on deposit accounts, a $123,000 increase in bank card interchange fees, and a $72,000 increase in net gain on sale of securities partially offset by no OREO income during 2017, compared to $456,000 during 2016.

● Non-interest expense for the year ended December 31, 2017 of $30.2 million represented a 23.6% decrease from $39.6 million for 2016. The decrease in non-interest expense was attributable primarily to a decrease in litigation and loan collection expense, which decreased $8.6 million. Litigation expense was negatively impacted in 2016 by a ruling from the Kentucky Court of Appeals against the Bank that approximated $8.0 million. Non-interest expense also benefited from a $590,000 decrease in professional fees, a $418,000 decrease in salaries and employee benefits, and a $248,000 decrease in FDIC insurance.

● Deposits decreased $2.9 million or 0.3% to $847.0 million at December 31, 2017 compared with $849.9 million at December 31, 2016. Certificate of deposit balances decreased $20.4 million during 2017 to $424.2 million at December 31, 2017, from $444.6 million at December 31, 2016. Non-interest bearing demand deposits increased $13.0 million or 10.4% during 2017 to $137.4 million compared with $124.4 million at December 31, 2016. Money market accounts increased $8.9 million or 6.2% during 2017 to $151.4 million compared with $142.5 million at December 31, 2016.

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● On June 30, 2017, the Company entered into a $10.0 million senior secured loan agreement with a commercial bank. The loan matures on June 30, 2022. Interest is payable quarterly at a rate of three-month LIBOR plus 250 basis points through June 30, 2020, at which time quarterly principal payments of $250,000 plus interest will commence. The loan is secured by a first priority pledge of 100% of the issued and outstanding stock of the Bank. The Company may prepay any amount due under the promissory note at any time without premium or penalty. The Company contributed $9.0 million of the borrowing proceeds to the Bank as common equity Tier 1 capital. The remaining $1.0 million of the borrowing proceeds was retained by the lender in escrow to service quarterly interest payments. At December 31, 2017, the escrow account had a balance of $806,000.

These items are discussed in further detail throughout this Item 7.

Application of Critical Accounting Policies

The Company’s accounting and reporting policies comply with GAAP and conform to general practices within the banking industry. We believe that the following significant accounting policies may involve a higher degree of management assumptions and judgments that could result in materially different amounts to be reported if conditions or underlying circumstances were to change.

Allowance for Loan Losses – The Bank maintains an allowance for loan losses believed to be sufficient to absorb probable incurred credit losses existing in the loan portfolio. The Board of Directors evaluates the adequacy of the allowance for loan losses on a quarterly basis. We evaluate the adequacy of the allowance using, among other things, historical loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of the underlying collateral and current economic conditions and trends. The allowance may be allocated for specific loans or loan categories, but the entire allowance is available for any loan. The allowance consists of specific and general components. The specific component relates to loans that are individually evaluated and measured for impairment. The general component is based on historical loss experience adjusted for qualitative environmental factors. We develop allowance estimates based on actual loss experience adjusted for current economic conditions and trends. Allowance estimates are a prudent measurement of the risk in the loan portfolio applied to individual loans based on loan type. If the mix and amount of future charge-off percentages differ significantly from the assumptions used by management in making its determination, we may be required to materially increase our allowance for loan losses and provision for loan losses, which could adversely affect our results.

Other Real Estate Owned – OREO is real estate acquired as a result of foreclosure or by deed in lieu of foreclosure. It is classified as real estate owned until such time as it is sold. OREO is recorded at its fair market value less estimated cost to sell. Any write-down of the property at the time of acquisition is charged to the allowance for loan losses. Costs incurred in order to perfect the lien prior to foreclosure may be capitalized if the fair value less the cost to sell exceeds the balance of the loan at the time of transfer to OREO. Examples of eligible costs to be capitalized are payments of delinquent property taxes to clear tax liens or payments to contractors and subcontractors to clear mechanics’ liens. Fair value of OREO is determined on an individual property basis. To determine the fair value of OREO for smaller dollar single family homes, we consult with staff from the Bank’s special assets group as well as external realtors and appraisers. If the internally evaluated market price is below our underlying investment in the property, appropriate write-downs are taken. For larger dollar residential and commercial real estate properties, we obtain a new appraisal of the subject property or have staff from our special assets group evaluate the latest in-file appraisal in connection with the transfer to OREO. We typically obtain updated appraisals within five quarters of the anniversary date of ownership unless a sale is imminent. Subsequent reductions in fair value are recorded as non-interest expense when a new appraisal indicates a decline in value or in cases where a listing price is lowered below the appraised amount. 

Stock-based Compensation – Compensation cost is recognized for restricted stock awards issued to employees, based on the fair value of these awards at the date of grant. The market price of the Company’s common shares at the date of grant is used for restricted stock awards. Compensation cost is recognized over the required service period, generally defined as the vesting period. For awards with graded vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award.

Valuation of Deferred Tax Asset – We evaluate deferred tax assets for impairment on a quarterly basis. We established a 100% deferred tax valuation allowance in December 2011 based upon the analysis of our past performance and our expected future performance. The Company’s ability to utilize the net deferred tax asset depends upon generating suffient future levels of taxable income. The determination to restore a deferred tax asset and eliminate a valuation allowance depends upon the evaluation of both positive and negative evidence regarding the likelihood of achieving future taxable income levels. In 2017, management concluded it was more-likely-than-not the asset would be utilized to reduce future taxes payable related to the future taxable income of the Company, and as such, reversed the valuation allowance.

24

Contingencies – We are defendants in various legal proceedings. We record contingent liabilities resulting from claims against us when a loss is assessed to be probable and the amount of the loss is reasonably estimable. Assessing probability of loss and estimating probable losses requires analysis of multiple factors, including in some cases judgments about the potential actions of third party claimants and courts. Recorded contingent liabilities are based on the best information available and actual losses in any future period are inherently uncertain.

Results of Operations

The following table summarizes components of income and expense and the change in those components for 2017 compared with 2016:

	For the Years Ended December 31,						Change from Prior Period
	2017			2016			Amount			Percent
	(dollars in thousands)
Gross interest income	$	37,522		$	35,602		$	1,920			5.4	%
Gross interest expense		6,405			5,981			424			7.1
Net interest income		31,117			29,621			1,496			5.1
Provision (negative provision) for loan losses		(800	)		(2,450	)		1,650			67.3
Non-interest income		4,567			4,548			19			0.4
Gains on sale of securities, net		288			216			72			33.3
Non-interest expense		30,218			39,567			(9,349	)		(23.6	)
Net income (loss) before taxes		6,554			(2,732	)		9,286			339.9
Income tax expense (benefit)		(31,899	)		21			(31,920	)		NM
Net income (loss)		38,453			(2,753	)		41,206			NM
Earnings (losses) attributable to participating securities		967			(88	)		1,055			NM
Net income (loss) attributable to common shareholders		37,486			(2,665	)		40,151			NM

NM: Not Meaningful

Net income of $38.5 million for the year ended December 31, 2017 increased by $41.2 million from a net loss of $2.8 million for 2016. During the period, improving trends in non-performing loans, past due loans, and loan risk categories continued. In addition, net income for 2017 was impacted by the reversal of the Company’s deferred tax asset valuation allowance and the change in federal corporate tax rates in connection with the enactment of the Tax Cuts and Jobs Act of 2017. The net result of these two items, as well as income tax expense for the year, was an income tax benefit of $31.9 million for 2017. A negative provision for loan losses expense of $800,000 was recorded during 2017, compared to $2.5 million negative provision for loan losses expense for 2016. Non-interest income increased $19,000 during 2017. There was an increase of $295,000 in service charges on deposit accounts, $123,000 in bank card interchange fees, and $62,000 in other non-interest income which was offset by no OREO income during 2017, compared to $456,000 during 2016. Non-interest expense decreased $9.3 million during 2017 due primarily to a decrease in litigation and loan collection expense of $8.6 million as 2016 was negatively impacted by a ruling from the Kentucky Court of Appeals against the Bank that approximated $8.0 million. After consideration of earnings attributable to participating securities, net income attributable to common shareholders was $37.5 million for the year ended December 31, 2017, as compared to net loss attributable to common shareholders of $2.7 million for 2016.

25

The following table summarizes components of income and expense and the change in those components for 2016 compared with 2015:

	For the Years Ended December 31,						Change from Prior Period
	2016			2015			Amount			Percent
	(dollars in thousands)
Gross interest income	$	35,602		$	36,574		$	(972	)		(2.7	)%
Gross interest expense		5,981			7,023			(1,042	)		(14.8	)
Net interest income		29,621			29,551			70			0.2
Provision (negative provision) for loan losses		(2,450	)		(4,500	)		(2,050	)		(45.6	)
Non-interest income		4,548			5,929			(1,381	)		(23.3	)
Gains on sale of securities, net		216			1,766			(1,550	)		(87.8	)
Non-interest expense		39,567			44,959			(5,392	)		(12.0	)
Net loss before taxes		(2,732	)		(3,213	)		481			15.0
Income tax expense		21			—			21			100.0
Net loss		(2,753	)		(3,213	)		(460	)		(14.3	)
Earnings (losses) attributable to participating securities		(88	)		(336	)		248			(73.8	)
Net loss attributable to common shareholders		(2,665	)		(2,877	)		(212	)		(7.4	)

Net loss of $2.8 million for the year ended December 31, 2016 decreased by $460,000 from a net loss of $3.2 million for 2015. A negative provision for loan losses expense of $2.5 million was recorded for 2016 due to improvements in loan quality and management’s assessment of risk within the portfolio as compared to $4.5 million negative provision for loan losses expense for 2015. Non-interest income decreased $2.9 million during 2016 due primarily to a decrease in OREO rental income of $890,000 driven by the sale of income producing properties and a $1.6 million decrease in gains on the sale of securities compared to 2015. Non-interest expense decreased $5.4 million during 2016. OREO expense decreased by $10.8 million, but was offset by a $7.7 million increase in litigation and loan collection expense primarily resulting from the adverse Kentucky Court of Appeals ruling. After consideration of losses attributable to participating securities, net loss attributable to common shareholders was $2.7 million for the year ended December 31, 2016, as compared to net loss attributable to common shareholders of $2.9 million for 2015.

Net Interest Income – Net interest income was $31.1 million for the year ended December 31, 2017, an increase of $1.5 million, or 5.1%, compared with $29.6 million for the same period in 2016. Net interest spread and margin were 3.35% and 3.48%, respectively, for 2017, compared with 3.32% and 3.42%, respectively, for 2016. Average nonaccrual loans were $7.1 million and $11.4 million in 2017 and 2016, respectively.

Average interest-earning assets were $904.1 million for 2017, compared with $875.3 million for 2016, a 3.3% increase, primarily attributable to higher average loans and investment securities, partially offset by a decrease in interest bearing deposits with financial institutions. Average loans were $667.5 million for 2017, compared with $621.3 million for 2016, a 7.4% increase. Average investment securities were $193.1 million for 2017, compared with $183.7 million for 2016, a 5.1% increase. Average interest bearing deposits with financial institutions and fed funds sold were $36.2 million in 2017, compared with $62.9 million in 2016, a 42.4% decrease. Total interest income increased 5.4% to $37.5 million for 2017, compared with $35.6 million for 2016.

Average interest-bearing liabilities increased by 1.7% to $773.2 million for 2017, compared with $760.7 million for 2016. Our total interest expense increased by 7.1% to $6.4 million for 2017, compared with $6.0 million during 2016, due primarily to the completion of a $10.0 million senior debt transaction during 2017 as well as an increase in FHLB advances outstanding during 2017. Average volume of certificates of deposit decreased 2.9% to $452.4 million for 2017, compared with $466.0 million for 2016. The average interest rate paid on certificates of deposit increased to 0.93% for 2017, compared with 0.88% for 2016. Average volume of interest checking and money market deposit accounts increased 6.2% to $247.3 million for 2017, compared with $232.7 million for 2016. The average interest rate paid on interest checking and money market deposit accounts decreased to 0.38% for 2017, compared with 0.40% for 2016.

Net interest income was $29.6 million for the year ended December 31, 2016, an increase of $70,000, or 0.2%, compared with $29.6 million for the same period in 2015. Net interest spread and margin were 3.32% and 3.42%, respectively, for 2016, compared with 3.18% and 3.27%, respectively, for 2015. Average nonaccrual loans were $11.4 million and $29.0 million in 2016 and 2015, respectively.

Average interest-earning assets were $875.3 million for 2016, compared with $917.5 million for 2015, a 4.6% decrease, primarily attributable to lower average loans, investment securities and interest bearing deposits with financial institutions. Average loans were $621.3 million for 2016, compared with $635.9 million for 2015, a 2.3% decrease. Average investment securities were $183.7 million for 2016, compared with $194.1 million for 2015, a 5.3% decrease. Average interest bearing deposits with financial institutions were $62.3 million in 2016, compared with $78.9 million in 2015, a 21.0% decrease. Our total interest income decreased 2.7% to $35.6 million for 2016, compared with $36.6 million for 2015.

26

Average interest-bearing liabilities decreased by 8.0% to $760.7 million for 2016, compared with $826.9 million for 2015. Total interest expense decreased by 14.8% to $6.0 million for 2016, compared with $7.0 million during 2015, due primarily to lower interest rates paid on and lower volume of certificates of deposit. Average volume of certificates of deposit decreased 16.4% to $466.0 million for 2016, compared with $557.4 million for 2015. The average interest rate paid on certificates of deposit decreased to 0.88% for 2016, compared with 0.96% for 2015, as the result of continued re-pricing of certificates of deposit at maturity to lower interest rates. The average volume of interest checking and money market deposit accounts increased 15.7% to $232.7 million for 2016, compared with $201.2 million for 2015. The average interest rate paid on interest checking and money market deposit accounts increased to 0.40% for 2016, compared with 0.38% for 2015.

27

Average Balance Sheets

The following table sets forth the average daily balances, the interest earned or paid on such amounts, and the weighted average yield on interest-earning assets and weighted average cost of interest-bearing liabilities for the periods indicated. Dividing income or expense by the average daily balance of assets or liabilities, respectively, derives such yields and costs for the periods presented.

	For the Years Ended December 31,
	2017								2016
	Average Balance			Interest Earned/Paid		Average Yield/Cost			Average Balance			Interest Earned/Paid		Average Yield/Cost
	(dollars in thousands)
ASSETS
Interest-earning assets:
Loans receivables (1)(2)
Real estate	$	509,133		$	24,544		4.82	%	$	493,068		$	24,486		4.97	%
Commercial		107,188			4,403		4.11			81,110			3,471		4.28
Consumer		10,790			843		7.81			9,818			826		8.41
Agriculture		39,839			2,047		5.14			36,811			1,733		4.71
Other		524			29		5.53			468			21		4.49
U.S. Treasury and agencies		31,440			694		2.21			34,049			757		2.22
Mortgage-backed securities		94,451			2,240		2.37			101,249			2,240		2.21
Collateralized loan obligations		20,242			541		2.67			802			28		3.49
State and political subdivision securities (non-taxable) (3)		19,617			571		4.48			21,041			620		4.53
State and political subdivision securities (taxable)		23,689			757		3.20			23,921			768		3.21
Corporate bonds		3,651			167		4.57			2,656			93		3.50
FHLB stock		7,323			366		5.00			7,323			293		4.00
Federal funds sold		960			10		1.04			639			3		0.47
Interest-bearing deposits in other financial institutions		35,222			310		0.88			62,307			263		0.42
Total interest-earning assets		904,069			37,522		4.18	%		875,262			35,602		4.11	%
Less: Allowance for loan losses		(8,961	)							(10,719	)
Non-interest-earning assets		52,853								64,597
Total assets	$	947,961							$	929,140
LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest-bearing liabilities
Certificates of deposit and other time deposits	$	452,443		$	4,191		0.93	%	$	466,007		$	4,111		0.88	%
Interest checking and money market deposits		247,261			940		0.38			232,717			921		0.40
Savings accounts		35,486			59		0.17			34,257			61		0.18
FHLB advances		9,184			120		1.31			2,967			70		2.36
Junior subordinated debentures		23,805			901		3.78			24,708			818		3.31
Senior debt		5,068			194		3.83			—			—		—
Total interest-bearing liabilities		773,247			6,405		0.83	%		760,656			5,981		0.79	%
Non-interest-bearing liabilities
Non-interest-bearing deposits		129,088								119,736
Other liabilities		7,775								9,325
Total liabilities		910,110								889,717
Stockholders’ equity		37,851								39,423
Total liabilities and stockholders’ equity	$	947,961							$	929,140
Net interest income				$	31,117							$	29,621
Net interest spread							3.35	%							3.32	%
Net interest margin							3.48	%							3.42	%
Ratio of average interest-earning assets to average interest-bearing liabilities							116.92	%							115.07	%

(1) Includes loan fees in both interest income and the calculation of yield on loans.

(2) Calculations include non-accruing loans of $7.1 million and $11.4 million in average loan amounts outstanding.

(3) Taxable equivalent yields are calculated assuming a 35% federal income tax rate.

28

	For the Years Ended December 31,
	2016								2015
	Average Balance			Interest Earned/Paid		Average Yield/Cost			Average Balance			Interest Earned/Paid		Average Yield/Cost
	(dollars in thousands)
ASSETS
Interest-earning assets:
Loans receivables (1)(2)
Real estate	$	493,068		$	24,486		4.97	%	$	516,605		$	25,423		4.92	%
Commercial		81,110			3,471		4.28			78,993			3,475		4.40
Consumer		9,818			826		8.41			10,432			856		8.21
Agriculture		36,811			1,733		4.71			29,395			1,470		5.00
Other		468			21		4.49			523			27		5.16
U.S. Treasury and agencies		34,049			757		2.22			31,269			684		2.19
Mortgage-backed securities		101,249			2,240		2.21			107,277			2,420		2.26
Collateralized loan obligations		802			28		3.49			—			—		—
State and political subdivision securities (non-taxable) (3)		21,041			620		4.53			25,354			764		4.64
State and political subdivision securities (taxable)		23,921			768		3.21			24,059			774		3.22
Corporate bonds		2,656			93		3.50			6,116			155		2.53
FHLB stock		7,323			293		4.00			7,323			293		4.00
Other debt securities		—			—		—			544			43		7.90
Federal funds sold		639			3		0.47			752			1		0.13
Interest-bearing deposits in other financial institutions		62,307			263		0.42			78,904			189		0.24
Total interest-earning assets		875,262			35,602		4.11	%		917,546			36,574		4.03	%
Less: Allowance for loan losses		(10,719	)							(17,154	)
Non-interest-earning assets		64,597								84,027
Total assets	$	929,140							$	984,419
LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest-bearing liabilities
Certificates of deposit and other time deposits	$	466,007		$	4,111		0.88	%	$	557,441		$	5,329		0.96	%
Interest checking and money market deposits		232,717			921		0.40			201,164			756		0.38
Savings accounts		34,257			61		0.18			35,604			75		0.21
Federal funds purchased and repurchase agreements		—			—		—			587			1		0.17
FHLB advances		2,967			70		2.36			3,473			95		2.74
Junior subordinated debentures		24,708			818		3.31			28,589			767		2.68
Total interest-bearing liabilities		760,656			5,981		0.79	%		826,858			7,023		0.85	%
Non-interest-bearing liabilities
Non-interest-bearing deposits		119,736								113,576
Other liabilities		9,325								10,902
Total liabilities		889,717								951,336
Stockholders’ equity		39,423								33,083
Total liabilities and stockholders’ equity	$	929,140							$	984,419
Net interest income				$	29,621							$	29,551
Net interest spread							3.32	%							3.18	%
Net interest margin							3.42	%							3.27	%
Ratio of average interest-earning assets to average interest-bearing liabilities							115.07	%							110.97	%

(1) Includes loan fees in both interest income and the calculation of yield on loans.

(2) Calculations include non-accruing loans of $11.4 million and $29.0 million in average loan amounts outstanding.

(3) Taxable equivalent yields are calculated assuming a 35% federal income tax rate.

29

Rate/Volume Analysis

The table below sets forth information regarding changes in interest income and interest expense for the periods indicated. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (1) changes in rate (changes in rate multiplied by old volume); (2) changes in volume (changes in volume multiplied by old rate); and (3) changes in rate-volume (change in rate multiplied by change in volume). Changes in rate-volume are proportionately allocated between rate and volume variance.

	Year Ended December 31, 2017 vs. 2016									Year Ended December 31, 2016 vs. 2015
	Increase (decrease) due to change in									Increase (decrease) due to change in
	Rate			Volume			Net Change			Rate			Volume			Net Change
	(in thousands)
Interest-earning assets:
Loan receivables	$	(895	)	$	2,224		$	1,329		$	7		$	(721	)	$	(714	)
U.S. Treasury and agencies		(5	)		(58	)		(63	)		11			62			73
Mortgage-backed securities		155			(155	)		—			(46	)		(134	)		(180	)
Collateralized loan obligations		(9	)		522			513			—			28			28
State and political subdivision securities		(9	)		(51	)		(60	)		(13	)		(137	)		(150	)
Corporate bonds		33			41			74			126			(188	)		(62	)
FHLB stock		73			—			73			—			—			—
Other debt securities		—			—			—			—			(43	)		(43	)
Federal funds sold		4			3			7			2			—			2
Interest-bearing deposits in other financial institutions		196			(149	)		47			102			(28	)		74
Total increase (decrease) in interest income		(457	)		2,377			1,920			189			(1,161	)		(972	)
Interest-bearing liabilities:
Certificates of deposit and other time deposits		202			(122	)		80			(390	)		(828	)		(1,218	)
Interest checking and money market accounts		(37	)		56			19			42			123			165
Savings accounts		(4	)		2			(2	)		(11	)		(3	)		(14	)
Federal funds purchased and repurchase agreements		—			—			—			—			(1	)		(1	)
FHLB advances		(42	)		92			50			(12	)		(13	)		(25	)
Junior subordinated debentures		114			(31	)		83			164			(113	)		51
Senior debt		—			194			194			—			—			—
Total increase (decrease) in interest expense		233			191			424			(207	)		(835	)		(1,042	)
Increase (decrease) in net interest income	$	(690	)	$	2,186		$	1,496		$	396		$	(326	)	$	70

Non-interest Income – The following table presents for the periods indicated the major categories of non-interest income:

	For the Years Ended December 31,
	2017		2016		2015
	(in thousands)
Service charges on deposit accounts	$	2,253	$	1,958	$	1,851
Bank card interchange fees		972		849		839
Income from bank owned life insurance		412		417		295
Net gain on sales and calls of securities		288		216		1,766
Other real estate owned rental income		—		456		1,346
Gain on extinguishment of junior subordinated debt		—		—		883
Other		930		868		715
Total non-interest income	$	4,855	$	4,764	$	7,695

Non-interest income increased by $91,000 in 2017 to $4.9 million compared with $4.8 million for the year ended December 31, 2016. This increase was primarily attributable to a $295,000 increase in service charges on deposit accounts, a $123,000 increase in bank card interchange fees, and a $72,000 increase in net gain on sale of securities partially offset by no OREO income during 2017, compared to $456,000 during 2016.

30

Non-interest income decreased by $2.9 million in 2016 to $4.8 million compared with $7.7 million for the year ended December 31, 2015 driven primarily by a decline in gains on the sales of securities from $1.8 million in 2015 to $216,000 in 2016, as well as a decrease in OREO rental income of $890,000 between the two periods as a result of income producing properties being sold. Non-interest income for 2015 was also positively impacted by an $883,000 gain on extinguishment of junior subordinated debt.

Non-interest Expense – The following table presents the major categories of non-interest expense:

	For the Years Ended December 31,
	2017		2016		2015
	(in thousands)
Salary and employee benefits	$	15,090	$	15,508	$	15,857
Occupancy and equipment		3,420		3,517		3,449
FDIC insurance		1,412		1,660		2,212
Data processing expense		1,256		1,185		1,128
Marketing expense		1,098		973		560
State franchise and deposit tax		956		965		1,120
Professional fees		978		1,568		2,885
Communications		722		706		663
Insurance expense		540		565		589
Postage and delivery		395		359		400
Litigation and loan collection expense		179		8,805		1,141
Other real estate owned expense		1,973		1,541		12,302
Other		2,199		2,215		2,653
Total non-interest expense	$	30,218	$	39,567	$	44,959

Non-interest expense for the year ended December 31, 2017 of $30.2 million represented a 23.6% decrease from $39.6 million for 2016. The decrease in non-interest expense was attributable primarily to a decrease in litigation and loan collection expense, which decreased $8.6 million. Litigation expense was negatively impacted in 2016 by a ruling from the Kentucky Court of Appeals against the Bank that approximated $8.0 million. Non-interest expense also benefited from a $590,000 decrease in professional fees, a $418,000 decrease in salaries and employee benefits, and a $248,000 decrease in FDIC insurance. As shown below, expenses related to OREO trended higher due to higher valuation adjustment writedowns during 2017 compared to 2016.

	2017			2016
	(in thousands)
Net gain on sales	$	(74	)	$	(222	)
Provision to allowance for declining market values		1,963			1,180
Operating expense		84			583
Total	$	1,973		$	1,541

During the year ended December 31, 2017, fair value write-downs of $2.0 million were recorded compared with $1.2 million for the year ended December 31, 2016. The 2017 write-downs reflect declines in the fair value due to updated appraisals, changes in marketing strategies, and reductions in listing prices for certain properties. We were successful in selling OREO totaling $793,000 and $12.7 million during 2017 and 2016, respectively.

31

Non-interest Expense Comparison – 2016 to 2015

Non-interest expense for the year ended December 31, 2016 of $39.6 million represented a 12.0% decrease from $45.0 million for 2015. The decrease in non-interest expense was attributable primarily to decreases in OREO expenses and professional fees, offset by increases in litigation and loan collection expense as a result of the Kentucky Court of Appeals ruling against the Bank. As shown below, expenses related to OREO trended lower as the size of the portfolio significantly declined.

	2016			2015
	(in thousands)
Net (gain) loss on sales	$	(222	)	$	74
Provision to allowance for declining market values		1,180			9,855
Operating expense		583			2,373
Total	$	1,541		$	12,302

During the year ended December 31, 2016, fair value write-downs of $1.2 million were recorded compared with $9.9 million for the year ended December 31, 2015. The write-downs reflect declines in the fair value and include reductions in listing prices for certain properties, updated appraisals, and sales of certain properties through auctions. We were successful in selling OREO totaling $12.7 million and $22.6 million during 2016 and 2015, respectively.

Income Tax Expense and Benefit – Effective tax rates differ from the federal statutory rate of 35% applied to income (loss) before income taxes due to the following:

	2017			2016			2015
	(in thousands)
Federal statutory rate times financial statement income (loss)	$	2,294		$	(956	)	$	(1,125	)
Effect of:
Valuation allowance		(54,049	)		1,238			717
Tax-exempt income		(196	)		(211	)		(264	)
Non-taxable life insurance income		(144	)		(146	)		(103	)
Restricted stock vesting		(121	)		—			—
Change in federal statutory rate		20,274			—			—
Other, net		43			96			775
Total	$	(31,899	)	$	21		$	—

The Company has had a full valuation allowance against its net deferred tax asset since 2011. The Company’s ability to utilize the net deferred tax asset depends upon generating sufficient future levels of taxable income. The determination to restore a deferred tax asset and eliminate a valuation allowance depends upon the evaluation of both positive and negative evidence regarding the likelihood of achieving sufficient future taxable income levels. During the fourth quarter of 2017, management concluded it was more-likely-than-not the asset would be utilized to reduce future taxes payable related to the future taxable income of the Company, and as such, reversed the valuation allowance. As a result of the conclusion to reverse the valuation allowance, the Company recorded an income tax benefit of $54.0 million for the year ended December 31, 2017.

On December 22, 2017, the Tax Cuts and Jobs Act of 2017 was signed into law. Among other significant changes to the tax code, the new law lowered the federal corporate tax rate from 35% to 21% beginning in 2018. As a result, the Company revalued its net deferred tax asset at the new 21% rate. Due to this revaluation, the Company recorded a $20.3 million charge to income tax expense for the year ended December 31, 2017.

The combination of the reversal of the valuation allowance and the change in federal corporate tax rates, as well as income tax expense for the year, resulted in an income tax benefit of $31.9 million for the year ended December 31, 2017.

See Note 12, “Income Taxes”, for additional discussion of our income taxes.

Income tax expense of $21,000 was recorded for 2016, with no income tax expense or benefit recorded for 2015. Our deferred tax valuation allowance increased to $54.0 million at December 31, 2016. Our statutory federal tax rate was 35% in both 2016 and 2015. The effective tax rate for 2016 and 2015 is not meaningful due to the reduction of income tax benefit as the result of the deferred tax valuation allowance.

32

Analysis of Financial Condition

Total assets at December 31, 2017 were $970.8 million compared with $945.2 million at December 31, 2016, an increase of $25.6 million or 2.7%. This increase was primarily attributable to an increase in net loans of $73.6 million as well as the restoration of a net deferred tax asset of $31.3 million. These increases were partially offset by a decrease in investment securities of $41.9 million as well as a $30.9 million decrease in interest bearing deposits in banks.

Total assets at December 31, 2016 were $945.2 million compared with $948.7 million at December 31, 2015, a decrease of $3.5 million or 0.4%. This decrease was primarily attributable to a decrease in cash and cash equivalents of $27.0 million which funded the redemption of deposits of $28.1 million. There was also a decrease in OREO of $12.4 million offset by an increase in net loans of $23.6 million, an increase in available for sale securities of $7.8 million, and an increase in FHLB advances of $19.4 million.

Reversal of Deferred Tax Asset Valuation Allowance and Change in Federal Tax Rate – The Company had a full valuation allowance against its net deferred tax asset since 2011. The Company’s ability to utilize the net deferred tax asset depends upon generating sufficient future levels of taxable income. The determination to restore a deferred tax asset and eliminate a valuation allowance depends upon the evaluation of both positive and negative evidence regarding the likelihood of achieving sufficient future taxable income levels. During the fourth quarter of 2017, management concluded it was more-likely-than-not the asset would be utilized to reduce future taxes payable related to the future taxable income of the Company, and as such, reversed the valuation allowance.

As a result of the conclusion to reverse the valuation allowance and the reduction of the federal tax rate from 35% to 21%, the Company has a net deferred tax asset of $31.3 million at December 31, 2017.

Loans Receivable – Loans receivable increased $72.9 million, or 11.4%, during the year ended December 31, 2017, to $712.1 million. Our commercial, commercial real estate and real estate construction portfolios increased by an aggregate of $61.0 million, or 17.2%, during 2017 and comprised 58.4% of the total loan portfolio at December 31, 2017.

Loans receivable increased $20.6 million, or 3.3%, during the year ended December 31, 2016, to $639.2 million. Our commercial, commercial real estate and real estate construction portfolios increased by an aggregate of $18.8 million, or 5.6%, during 2016 and comprised 55.6% of the total loan portfolio at December 31, 2016.

Loan Portfolio Composition – The following table presents a summary of the loan portfolio at the dates indicated, net of deferred loan fees, by type. There are no foreign loans in our portfolio and other than the categories noted, there is no concentration of loans in any industry exceeding 10% of total loans.

	As of December 31,
	2017					2016
	Amount		Percent			Amount		Percent
	(dollars in thousands)
Commercial	$	113,771		15.98	%	$	97,761		15.29	%
Commercial Real Estate:
Construction		57,342		8.05			36,330		5.68
Farmland		88,320		12.40			71,507		11.19
Nonfarm nonresidential		156,724		22.01			149,546		23.39
Residential Real Estate:
Multi-family		56,588		7.94			48,197		7.54
1-4 Family		179,222		25.17			188,092		29.42
Consumer		18,439		2.59			9,818		1.54
Agriculture		41,154		5.78			37,508		5.87
Other		555		0.08			477		0.08
Total loans	$	712,115		100.00	%	$	639,236		100.00	%

33

	As of December 31,
	2015					2014					2013
	Amount		Percent			Amount		Percent			Amount		Percent
	(dollars in thousands)
Commercial	$	86,176		13.93	%	$	60,936		9.75	%	$	52,878		7.45	%
Commercial Real Estate:
Construction		33,154		5.36			33,173		5.31			43,326		6.11
Farmland		76,412		12.35			77,419		12.39			71,189		10.04
Nonfarm nonresidential		140,570		22.72			175,452		28.07			232,026		32.71
Residential Real Estate:
Multi-family		44,131		7.13			41,891		6.70			46,858		6.61
1-4 Family		201,478		32.57			197,278		31.56			228,505		32.21
Consumer		10,010		1.62			11,347		1.82			14,365		2.03
Agriculture		26,316		4.25			26,966		4.31			19,199		2.71
Other		419		0.07			537		0.09			980		0.13
Total loans	$	618,666		100.00	%	$	624,999		100.00	%	$	709,326		100.00	%

Lending activities are subject to a variety of lending limits imposed by state and federal law. The Bank’s secured legal lending limit to a single borrower or guarantor was approximately $31.4 million at December 31, 2017.

At December 31, 2017, we had 12 loan relationships each with aggregate extensions of credit in excess of $10.0 million, all of which were classified as pass by the Bank’s internal loan review process. In 2016, we had four loan relationships each with aggregate extensions of credit in excess of $10.0 million.

As of December 31, 2017, we had $46.2 million of loan participations purchased from, and $19.1 million of loan participations sold to, other banks. As of December 31, 2016, we had $33.4 million of loan participations purchased from, and $26.0 million of loan participations sold to, other banks.

34

Loan Maturity Schedule – The following table sets forth at December 31, 2017, the dollar amount of loans, net of deferred loan fees, maturing in the loan portfolio based on their contractual terms to maturity:

	As of December 31, 2017
	Maturing Within One Year		Maturing 1 through 5 Years		Maturing Over 5 Years		Total Loans
	(dollars in thousands)
Loans with fixed rates:
Commercial	$	4,509	$	25,481	$	4,707	$	34,697
Commercial Real Estate:
Construction		5,602		17,765		10,177		33,544
Farmland		5,273		16,985		21,075		43,333
Nonfarm nonresidential		14,801		77,138		22,287		114,226
Residential Real Estate:
Multi-family		5,038		28,337		15,449		48,824
1-4 Family		14,028		27,730		58,034		99,792
Consumer		1,172		5,951		1,275		8,398
Agriculture		3,143		5,582		779		9,504
Other		90		316		59		465
Total fixed rate loans	$	53,656	$	205,285	$	133,842	$	392,783
Loans with floating rates:
Commercial	$	10,169	$	45,673	$	23,232	$	79,074
Commercial Real Estate:
Construction		9,790		13,976		32		23,798
Farmland		1,127		5,665		38,195		44,987
Nonfarm nonresidential		1,598		7,170		33,730		42,498
Residential Real Estate:
Multi-family		208		4,956		2,600		7,764
1-4 Family		1,885		5,096		72,449		79,430
Consumer		10,013		—		28		10,041
Agriculture		22,087		9,349		214		31,650
Other		—		—		90		90
Total floating rate loans	$	56,877	$	91,885	$	170,570	$	319,332

Loan Portfolio by Risk Category – The following table presents a summary of the loan portfolio at the dates indicated, by risk category.

	As of December 31,
	2017		2016		2015		2014		2013
	(in thousands)
Pass	$	673,033	$	586,430	$	517,484	$	461,126	$	369,529
Watch		25,715		30,431		63,363		68,200		144,316
Special Mention		164		497		1,395		4,189		5,865
Substandard		13,203		21,878		36,424		91,484		189,616
Doubtful		—		—		—		—		—
Total	$	712,115	$	639,236	$	618,666	$	624,999	$	709,326

Loans receivable increased $72.9 million, or 11.4%, during the year ended December 31, 2017. All loan risk categories have decreased since December 31, 2016, with the exception of pass graded loans. The pass category increased approximately $86.6 million, the watch category declined approximately $4.7 million, the special mention category declined approximately $333,000, and the substandard category declined approximately $8.7 million.

35

Loan Delinquency – The following table presents a summary of loan delinquencies at the dates indicated.

	As of December 31,
	2017		2016		2015		2014		2013
	(in thousands)
Past Due Loans:
30-59 Days	$	1,478	$	2,302	$	3,133	$	3,960	$	10,696
60-89 Days		171		315		241		980		775
90 Days and Over		1		—		—		151		232
Total Loans Past Due 30-90+ Days		1,650		2,617		3,374		5,091		11,703
Nonaccrual Loans		5,457		9,216		14,087		47,175		101,767
Total Past Due and Nonaccrual Loans	$	7,107	$	11,833	$	17,461	$	52,266	$	113,470

Loans past due 30-59 days decreased from $2.3 million at December 31, 2016 to $1.5 million at December 31, 2017, and loans past due 60-89 days decreased from $315,000 at December 31, 2016 to $171,000 at December 31, 2017. This represents a $968,000 decrease in loans past due 30-89 days. We considered this trend in delinquency levels during the evaluation of qualitative trends in the portfolio when establishing the general component of the allowance for loan losses.

Nonaccrual loans decreased $3.8 million from December 31, 2016 to December 31, 2017. The $3.8 million decrease in nonaccrual loans was primarily driven by $5.0 million in paydowns, $665,000 in charge-offs, $270,000 in transfers to OREO, and $199,000 in loans returned to accrual status, offset by $2.3 million in loans placed on non-accrual. The $5.5 million in nonaccrual loans at December 31, 2017, and $9.2 million at December 31, 2016, were generally secured by farmland, other commercial real estate, and other residential real estate loans. Management believes it has established adequate loan loss reserves for these credits.

Non-Performing Assets – Non-performing assets consist of certain restructured loans for which interest rate or other terms have been renegotiated, loans past due 90 days or more still on accrual, loans on which interest is no longer accrued, real estate acquired through foreclosure and repossessed assets. Loans, including impaired loans, are placed on nonaccrual status when they become past due 90 days or more as to principal or interest, unless they are adequately secured and in the process of collection. Loans are considered impaired if full principal or interest payments are not anticipated in accordance with the contractual loan terms. Impaired loans are carried at the present value of expected future cash flows discounted at the loan’s effective interest rate or at the fair value of the collateral less cost to sell if the loan is collateral dependent. Loans are reviewed on a regular basis and normal collection procedures are implemented when a borrower fails to make a required payment on a loan. If the delinquency on a mortgage loan exceeds 120 days and is not cured through normal collection procedures or an acceptable arrangement is not agreed to with the borrower, we institute measures to remedy the default, including commencing a foreclosure action. Consumer loans generally are charged off when a loan is deemed uncollectible and often before any available collateral has been disposed. Commercial business and real estate loan delinquencies are handled on an individual basis with the advice of legal counsel.

Interest income on loans is recognized on the accrual basis except for those loans placed on nonaccrual status. The accrual of interest on impaired loans is discontinued when management believes, after consideration of economic and business conditions and collection efforts, that the borrowers’ financial condition is such that collection of interest is doubtful, which typically occurs after the loan becomes 90 days delinquent. When interest accrual is discontinued, existing accrued interest is reversed and interest income is subsequently recognized only to the extent cash payments are received on well-secured loans.

Real estate acquired as a result of foreclosure or by deed in lieu of foreclosure is classified as real estate owned until such time as it is sold. New and used automobiles and other motor vehicles acquired as a result of foreclosure are classified as repossessed assets until they are sold. When such property is acquired it is recorded at its fair market value less cost to sell. Any write-down of the property at the time of acquisition is charged to the allowance for loan losses. Subsequent gains and losses are included in non-interest expense.

36

The following table sets forth information with respect to non-performing assets as of the dates indicated:

	As of December 31,
	2017			2016			2015			2014			2013
	(dollars in thousands)
Past due 90 days or more still on accrual	$	1		$	—		$	—		$	151		$	232
Loans on nonaccrual status		5,457			9,216			14,087			47,175			101,767
Total non-performing loans		5,458			9,216			14,087			47,326			101,999
Real estate acquired through foreclosure		4,409			6,821			19,214			46,197			30,892
Other repossessed assets		—			—			—			—			—
Total non-performing assets	$	9,867		$	16,037		$	33,301		$	93,523		$	132,891
Non-performing loans to total loans		0.77	%		1.44	%		2.28	%		7.57	%		14.38	%
Non-performing assets to total assets		1.02	%		1.70	%		3.51	%		9.19	%		12.35	%
Allowance for non-performing loans	$	108		$	241		$	295		$	1,253		$	2,285
Allowance for non-performing loans to non-performing loans		1.98	%		2.62	%		2.09	%		2.65	%		2.24	%

Troubled Debt Restructuring – A troubled debt restructuring (TDR) occurs when the Bank has agreed to a loan modification in the form of a concession to a borrower who is experiencing financial difficulty. The Bank’s TDRs typically involve a reduction in interest rate, a deferral of principal for a stated period of time, or an interest only period. All TDRs are considered impaired, and the Bank has allocated reserves for these loans to reflect the present value of the concessionary terms granted to the borrower. If the loan is considered collateral dependent, it is reported net of allocated reserves, at the fair value of the collateral less cost to sell.

The Bank does not have a formal loan modification program. If a borrower is unable to make contractual payments, we review the particular circumstances of that borrower’s situation and determine whether or not to negotiate a revised payment stream. The goal when restructuring a credit is to afford the borrower a reasonable period of time to remedy the issue causing cash flow constraints so that they may return to performing status over time.

Loan modifications have taken the form of a reduction in interest rate and/or curtailment of scheduled principal payments for a short-term period, usually three to six months, but in some cases until maturity of the loan. In some circumstances we may restructure real estate secured loans in a bifurcated fashion whereby there is a fully amortizing “A” loan at a market interest rate and an interest-only “B” loan at a reduced interest rate. The majority of restructured loans are collateral secured loans. If a borrower fails to perform under the modified terms, the loan(s) are placed on nonaccrual status and collection actions are intiated.

We consider any loan that is restructured for a borrower experiencing financial difficulties due to a borrower’s potential inability to pay in accordance with contractual terms of the loan to be a troubled debt restructuring. Specifically, we consider a concession involving a modification of the loan terms, such as (i) a reduction of the stated interest rate, (ii) a reduction or deferral of principal, or (iii) a reduction or deferral of accrued interest at a stated interest rate lower than the current market rate for new debt with similar risk all to be troubled debt restructurings. When a modification of terms is made for a competitive reason, we do not consider it to be a troubled debt restructuring. A primary example of a competitive modification would be an interest rate reduction for a performing customer’s loan to a market rate as the result of a market decline in rates.

Management periodically reviews renewals and modifications of previously identified TDRs for which there was no principal forgiveness, to consider if it is appropriate to remove the TDR classification. If the borrower is no longer experiencing financial difficulty and the renewal/modification did not contain a concessionary interest rate or other concessionary terms, management considers the potential removal of the TDR classification. If deemed appropriate based upon current underwriting, the TDR classification is removed as the borrower has complied with the terms of the loan at the date of renewal/modification and there was a reasonable expectation that the borrower would continue to comply with the terms of the loan after the date of the renewal/modification. Additionally, the TDR classification may be removed in circumstances in which the Company performs a non-concessionary re-modification of the loan at terms that were considered to be at market for loans with comparable risk. Management expects the borrower will continue to perform under the re-modified terms based on the borrower’s past history of performance.

If the borrower fails to perform, we place the loan on nonaccrual status and seek to liquidate the underlying collateral. The nonaccrual policy for restructured loans is identical to the nonaccrual policy for all loans. The policy calls for a loan to be reported as nonaccrual if it is maintained on a cash basis because of deterioration in the financial condition of the borrower, payment in full of principal and interest is not expected, or principal or interest is past due 90 days or more unless the assets are both well secured and in the process of collection. Changes in value for impairment, including the amount attributed to the passage of time, are recorded entirely within the provision for loan losses. Upon determination that a loan is collateral dependent, the loan is charged down to the fair value of collateral less estimated costs to sell.

37

At December 31, 2017, we had six restructured loans totaling $3.0 million with borrowers who experienced deterioration in financial condition compared with nine restructured loans totaling $8.7 million at December 31, 2016. In general, these loans were granted interest rate reductions to provide cash flow relief to borrowers experiencing cash flow difficulties. At December 31, 2017, two loans totaling approximately $1.8 million had been granted principal payment deferrals until maturity. There were no concessions made to forgive principal relative to these loans, although we have recorded partial charge-offs for certain restructured loans. In general, these loans are secured by first liens on 1-4 residential or commercial real estate properties, or farmland. Restructured loans also included $467,000 of commercial loans at December 31, 2017. At December 31, 2017, $1.2 million of TDRs were performing according to their modified terms.

There were no modifications granted during 2017 or 2016 that resulted in loans being identified as TDRs. During the twelve months ended December 31, 2017, TDRs were reduced as a result of $1.6 million in payments. In addition, the TDR classification was removed from two loans that met the requirements discussed above in 2017. These loans totaled $4.1 million at December 31, 2016, and are no longer evaluated individually for impairment.

The following table sets forth information with respect to TDRs, non-performing loans, real estate acquired through foreclosure, and other repossessed assets.

	As of December 31,
	2017			2016			2015			2014			2013
	(dollars in thousands)
Total non-performing loans	$	5,458		$	9,216		$	14,087		$	47,326		$	101,999
TDRs on accrual		1,217			5,350			17,440			21,985			44,346
Total non-performing loans and TDRs on accrual	$	6,675		$	14,566		$	31,527		$	69,311		$	146,345
Real estate acquired through foreclosure		4,409			6,821			19,214			46,197			30,892
Other repossessed assets		—			—			—			—			—
Total non-performing assets and TDRs on accrual	$	11,084		$	21,387		$	50,741		$	115,508		$	177,237
Total non-performing loans and TDRs on accrual to total loans		0.94	%		2.28	%		5.10	%		11.09	%		20.63	%
Total non-performing assets and TDRs on accrual to total assets		1.14	%		2.26	%		5.35	%		11.35	%		16.47	%

See Footnote 3, “Loans”, to the financial statements for additional disclosure related to troubled debt restructuring.

Interest income that would have been earned on non-performing loans was $465,000, $738,000, and $1.7 million for the years ended December 31, 2017, 2016, and 2015, respectively. Interest income recognized on accruing non-performing loans was $135,000, $445,000, and $710,000 for the years ended December 31, 2017, 2016, and 2015, respectively.

Allowance for Loan Losses – The allowance for loan losses is based on management’s continuing review and evaluation of individual loans, loss experience, current economic conditions, risk characteristics of various categories of loans and such other factors that, in management’s judgment, require current recognition in estimating loan losses.

Management has established loan grading procedures that result in specific allowance allocations for any estimated inherent risk of loss. For loans not individually evaluated, a general allowance allocation is computed using factors developed over time based on actual loss experience. Prior to June 2017, the look-back period for historical losses was 12 quarters, weighted 40% for the most recent eight quarters and 20% for the previous four quarter period. Effective June 30, 2017, the Company extended the look-back period to 16 quarters on a prospective basis, weighted 40% for the most recent four quarters, then declining one tenth for each of the remaining annual periods. Management determined the four-year look-back period was appropriate as the four-year period more appropriately correlates to the period in which the current portfolio was underwritten and originated. The specific and general allocations plus consideration of qualitative factors represent management’s estimate of probable losses contained in the loan portfolio at the evaluation date. Although the allowance for loan losses is comprised of specific and general allocations, the entire allowance is available to absorb any credit losses.

38

The following table sets forth an analysis of loan loss experience as of and for the periods indicated:

	As of December 31,
	2017			2016			2015			2014			2013
	(dollars in thousands)
Balances at beginning of period	$	8,967		$	12,041		$	19,364		$	28,124		$	56,680
Loans charged-off:
Real estate		750			2,157			5,050			17,943			28,879
Commercial		5			276			696			1,099			2,828
Consumer		51			178			268			354			773
Agriculture		95			18			118			30			128
Total charge-offs		901			2,629			6,132			19,426			32,608
Recoveries:
Real estate		714			1,189			2,338			2,726			1,622
Commercial		59			334			723			614			1,212
Consumer		130			368			240			213			266
Agriculture		33			114			8			13			252
Total recoveries		936			2,005			3,309			3,566			3,352
Net charge-offs (recoveries)		(35	)		624			2,823			15,860			29,256
Provision (negative provision) for loan losses		(800	)		(2,450	)		(4,500	)		7,100			700
Balance at end of period	$	8,202		$	8,967		$	12,041		$	19,364		$	28,124
Allowance for loan losses to period-end loans		1.15	%		1.40	%		1.95	%		3.10	%		3.96	%
Net charge-offs (recoveries) to average loans		(0.01	%)		0.10	%		0.44	%		2.39	%		3.71	%
Allowance for loan losses to non-performing loans		150.27	%		97.30	%		85.48	%		40.92	%		27.57	%
Allowance for loan losses for loans individually evaluated for impairment	$	219		$	399		$	428		$	752		$	3,471
Loans individually evaluated for impairment		7,173			15,131			31,776			71,993			149,883
Allowance for loan losses to loans individually evaluated for impairment		3.05	%		2.64	%		1.35	%		1.04	%		2.32	%
Allowance for loan losses for loans collectively evaluated for impairment	$	7,983		$	8,568		$	11,613		$	18,612		$	24,653
Loans collectively evaluated for impairment		704,942			624,105			586,890			553,006			559,443
Allowance for loan losses to loans collectively evaluated for impairment		1.13	%		1.37	%		1.98	%		3.37	%		4.41	%

The allowance for loan losses is a reserve established through charges to earnings in the form of a provision for loan losses. The allowance for loan losses is comprised of general reserves and specific reserves. The loan loss reserve, as a percentage of total loans at December 31, 2017, decreased to 1.15% from 1.40% at December 31, 2016. The change in loan loss reserve as a percentage of total loans between periods is attributable to growth in the portfolio driven by new loans underwritten with lower loss expectations, improving historical loss experience, improvement in risk grade classification metrics, improved charge-off levels, and improved past due trends. The allowance for loan losses to non-performing loans was 150.27% at December 31, 2017, compared with 97.30% at December 31, 2016. Net recoveries in 2017 totaled $35,000.

39

The following table sets forth the net charge-offs (recoveries) for the periods indicated:

	Year Ended December 31, 2017			Year Ended December 31, 2016			Year Ended December 31, 2015
	(in thousands)
Commercial	$	(54	)	$	(58	)	$	(27	)
Commercial Real Estate		(361	)		(339	)		1,225
Residential Real Estate		397			1,307			1,487
Consumer		(64	)		(200	)		37
Agriculture		62			(96	)		110
Other		(15	)		10			(9	)
Total net charge-offs (recoveries)	$	(35	)	$	624		$	2,823

A general reserve is maintained for each loan type in the loan portfolio. In determining the amount of the general reserve portion of the allowance for loan losses, management considers factors such as our historical loan loss experience, the growth, composition and diversification of our loan portfolio, current delinquency levels, loan quality grades, the results of recent regulatory examinations and general economic conditions. Based on these factors, we apply estimated percentages to the various categories of loans, not including any loan that has a specific allowance allocated to it, based on our historical experience, portfolio trends and economic and industry trends. This information is used by management to set the general reserve portion of the allowance for loan losses at a level it deems prudent.

Generally, all loans identified as impaired are reviewed on a quarterly basis in order to determine whether a specific allowance is required. A loan is considered impaired when, based on current information, it is probable that we will not receive all amounts due in accordance with the contractual terms of the loan agreement. Once a loan has been identified as impaired, management measures impairment in accordance with ASC 310-10, “Impairment of a Loan.” When management’s measured value of the impaired loan is less than the recorded investment in the loan, the amount of the impairment is recorded as a specific reserve or charged-off if the loan is deemed collateral dependent. These specific reserves are determined on an individual loan basis based on management’s current evaluation of our loss exposure for each credit given the payment status, financial condition of the borrower and value of any underlying collateral. Loans for which specific reserves have been provided are excluded from the general reserve calculations described below. Changes in specific reserves from period to period are the result of changes in the circumstances of individual loans such as charge-offs, pay-offs, changes in collateral values or other factors.

The allowance for loan losses represents management’s estimate of the amount necessary to provide for probable losses in the loan portfolio in the normal course of business. Due to the uncertainty of risks in the loan portfolio, management’s judgment of the amount of the allowance necessary to absorb loan losses is approximate. The allowance for loan losses is also subject to regulatory examinations and may be adjusted in response to a determination by the regulatory agencies as to its adequacy in comparison with peer institutions.

We make specific allowances for each impaired loan based on its type and risk classification as discussed above. At year-end 2017, the allowance for loan losses to total non-performing loans increased to 150.27% from 97.30% at year-end 2016. It is important to look more closely at this ratio as a significant portion of impaired loans are collateral dependent and have been charged down to the estimated fair value of the underlying collateral less cost to sell. Please see the next table for comparison and disclosure of recorded investment less allocated allowance relative to the unpaid principal balance. Impaired loans have been assessed for collectability which considered, among other things, the borrower’s ability to repay, the value of the underlying collateral, and other market conditions to ensure that the allowance for loan losses is adequate to absorb probable incurred losses.

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The following table presents the unpaid principal balance, recorded investment and allocated allowance related to loans individually evaluated for impairment in the commercial real estate and residential real estate portfolios as of December 31, 2017 and 2016.

	December 31, 2017						December 31, 2016
	Commercial Real Estate			Residential Real Estate			Commercial Real Estate			Residential Real Estate
	(in thousands)
Unpaid principal balance	$	4,734		$	5,456		$	10,985		$	10,439
Prior charge-offs		(2,099	)		(1,506	)		(5,131	)		(1,818	)
Recorded investment		2,635			3,950			5,854			8,621
Allocated allowance		—			(206	)		(35	)		(350	)
Recorded investment, less allocated allowance	$	2,635		$	3,744		$	5,819		$	8,271
Recorded investment, less allocated allowance/ Unpaid principal balance		55.66	%		68.62	%		52.97	%		79.23	%

Based on prior charge-offs, the current recorded investments in loans individually evaluated for impairment in the commercial real estate and residential real estate segments of the portfolio are significantly below the unpaid principal balances of those loans. The recorded investment net of the allocated allowance was 55.66% and 68.62% of the unpaid principal balance in the commercial real estate and residential real estate segments, respectively, at December 31, 2017.

The following table illustrates recent trends in loans collectively evaluated for impairment and the related allowance for loan losses by portfolio segment:

	December 31, 2017							December 31, 2016
	Loans		Allowance		% to Total			Loans		Allowance		% to Total
	(dollars in thousands)
Commercial	$	113,184	$	879		0.78	%	$	97,166	$	462		0.48	%
Commercial real estate		299,751		4,032		1.35			251,529		4,859		1.93
Residential real estate		231,860		2,694		1.16			227,668		3,076		1.35
Consumer		18,438		64		0.35			9,817		8		0.08
Agriculture		41,154		313		0.76			37,448		161		0.43
Other		555		1		0.18			477		2		0.42
Total	$	704,942	$	7,983		1.13	%	$	624,105	$	8,568		1.37	%

The allowance for those loan losses related to loans collectively evaluated for impairment trended downward from 1.37% at December 31, 2016 to 1.13% at December 31, 2017 as a result of declining historical charge-off levels and improving trends in loan category risk ratings. The residential real estate segment constitutes approximately 32.9% of total loans collectively evaluated for impairment. The related allowance for the residential real estate segment trended downward from 1.35% at December 31, 2016 to 1.16% at December 31, 2017 as net charge-offs declined from approximately $1.3 million in 2016 to $397,000 in 2017. The commercial real estate segment constitutes approximately 42.5% of total loans collectively evaluated for impairment. The related allowance for the commercial real estate segment trended downward from 1.93% at December 31, 2016 to 1.35% at December 31, 2017. This is consistent with the decline in historical rates and improvement in loan quality within the commercial real estate segment. The overall decrease in the allowance also reflects improving historical loss experience, qualitative factors, improvement in risk grade classification metrics, improved charge-off levels, improved past due trends, and the negative provision.  

A significant portion of the portfolio is comprised of loans secured by real estate. A decline in the value of the real estate serving as collateral for loans may impact our ability to collect those loans. In general, we obtain updated appraisals on property securing our loans when circumstances are warranted such as at the time of renewal or when market conditions have significantly changed. We use qualified licensed appraisers approved by our Board of Directors. These appraisers possess prerequisite certifications and knowledge of the local and regional marketplace.

Based on its assessment of the loan portfolio, management presents a quarterly review of the allowance for loan losses to the Bank’s Board of Directors, indicating any change in the allowance for loan losses since the last review and any recommendations as to adjustments in the allowance for loan losses.

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This assessment is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available or as events change. The allowance for loan losses has decreased as a percentage of loans outstanding to 1.15% at December 31, 2017 from 1.40% at December 31, 2016. This decline is the result of growth in the portfolio driven by new loans underwritten with lower loss expectations, improving historical loss experience, improvement in risk grade classification metrics, improved charge-off levels, and improved past due trends. The level of the allowance is based on estimates, and losses may ultimately vary from these estimates.

The Bank follows a loan grading program designed to evaluate the credit risk in the loan portfolio. Through this loan grading process, an internally classified watch list is maintained which helps management assess the overall quality of the loan portfolio and the adequacy of the allowance for loan losses. Loans categorized as watch list loans show warning elements where the present status exhibits one or more deficiencies that require attention in the short-term or where pertinent ratios of the loan account have weakened to a point where more frequent monitoring is warranted. These loans do not have all of the characteristics of a classified loan (substandard or doubtful) but show weakened elements as compared with those of a satisfactory credit. These loans are reviewed to assist in assessing the adequacy of the allowance for loan losses.

In establishing the appropriate risk rating for specific assets, management considers, among other factors, the borrower’s ability to repay, the borrower’s repayment history, the current delinquency status, the estimated value of the underlying collateral, and the capacity and willingness of a guarantor to satisfy the obligation. As a result of this process, loans are categorized as special mention, substandard or doubtful.

Loans classified as “special mention” do not have all of the characteristics of substandard or doubtful loans. They have one or more deficiencies that warrant special attention and which corrective action, such as accelerated collection practices, may remedy.

Loans classified as “substandard” are those loans with clear and defined weaknesses such as a highly leveraged position, unfavorable financial ratios, uncertain repayment sources or poor financial condition that may jeopardize the repayment of the debt as contractually agreed. They are characterized by the distinct possibility that we will sustain some losses if the deficiencies are not corrected.

Loans classified as “doubtful” are those loans which have characteristics similar to substandard loans but with an increased risk that collection or liquidation in full is highly questionable and improbable.

Specific reserves may be carried for accruing TDRs in compliance with restructured terms. Once a loan is deemed impaired or uncollectible as contractually agreed (other than performing TDRs), the loan is charged-off either partially or in-full against the allowance for loan losses, based upon the expected future cash flows discounted at the loan’s effective interest rate, or the fair value of collateral less estimated cost to sell with respect to collateral-based loans if collateral dependent.

As of December 31, 2017, $13.2 million of loans were classified as substandard, $164,000 classified as special mention and no loans classified as doubtful or loss. This compares with $21.9 million of loans classified as substandard, $497,000 classified as special mention and no loans classified as doubtful or loss as of December 31, 2016. The $8.7 million decrease in loans classified as substandard was primarily driven by $6.8 million in principal payments received, $270,000 in migration to OREO, $4.6 million in loans upgraded from substandard, and $790,000 in charge-offs, offset by $3.7 million in loans moved to substandard during 2017. Substandard loans are primarily concentrated in the residential real estate portfolio. As of December 31, 2017, $418,000 of the allowance for loan losses was allocated to substandard loans. This compares to allocations of $600,000 in the allowance for loan losses related to substandard loans at December 31, 2016.

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The following table depicts management’s allocation of the allowance for loan losses by loan type. Allowance funding and allocation is based on management’s current evaluation of risk in each category, economic conditions, past loss experience, loan volume, past due history and other factors. Since these factors and management’s assumptions are subject to change, the allocation is not necessarily predictive of future portfolio performance. The allocation is made for analytical purposes and is not necessarily indicative of the categories in which future losses may occur. The total allowance is available to absorb losses from any segment of loans.

	As of December 31,
	2017					2016
	Amount of Allowance		Percent of Loans to Total Loans			Amount of Allowance		Percent of Loans to Total Loans
	(dollars in thousands)
Commercial	$	892		15.98	%	$	475		15.29	%
Commercial Real Estate:
Construction		301		8.05			470		5.68
Farmland		449		12.40			288		11.19
Nonfarm nonresidential		3,282		22.01			4,136		23.39
Residential Real Estate:
Multi-family		627		7.94			610		7.54
1-4 Family		2,273		25.17			2,816		29.42
Consumer		64		2.59			8		1.54
Agriculture		313		5.78			162		5.87
Other		1		0.08			2		0.08
Total	$	8,202		100.0	%	$	8,967		100.0	%

	As of December 31,
	2015					2014					2013
	Amount of Allowance		Percent of Loans to Total Loans			Amount of Allowance		Percent of Loans to Total Loans			Amount of Allowance		Percent of Loans to Total Loans
	(dollars in thousands)
Commercial	$	818		13.93	%	$	2,046		9.75	%	$	3,221		7.45	%
Commercial Real Estate:
Construction		424		5.36			739		5.31			2,149		6.11
Farmland		364		12.35			1,094		12.39			1,623		10.04
Nonfarm nonresidential		6,205		22.72			9,098		28.07			12,642		32.71
Residential Real Estate:
Multi-family		422		7.13			886		6.70			1,449		6.61
1-4 Family		3,562		32.57			4,901		31.56			6,313		32.21
Consumer		122		1.62			274		1.82			416		2.03
Agriculture		122		4.25			319		4.31			305		2.71
Other		2		0.07			7		0.09			6		0.13
Total	$	12,041		100.0	%	$	19,364		100.0	%	$	28,124		100.00	%

Provision for Loan Losses – A negative provision for loan losses of $800,000 was recorded for the year ended December 31, 2017, compared with a negative provision for loan losses of $2.5 million for 2016 and a negative provision for loan losses of $4.5 million for 2015. The negative provision in 2017 was driven by declining historical loss rates, improvements in loan quality, and management’s assessment of risk within the portfolio. The total allowance for loan losses was $8.2 million, or 1.15% of total loans, at December 31, 2017, compared with $9.0 million, or 1.40% of total loans, at December 31, 2016, and $12.0 million, or 1.95% of total loans, at December 31, 2015. The decreased allowance is consistent with the overall trends within the portfolio. Substandard loans decreased by $8.7 million or 39.7% during 2017, net recoveries were $35,000 for 2017 compared to net charge-offs of $624,000 in 2016 and $2.8 million in 2015, and nonaccrual loans decreased by $3.8 million or 40.8% during 2017. Charge-offs for 2017 were concentrated in the loans secured by the residential real estate category of the portfolio. These net charge-offs consisted of $397,000 of residential real estate loans. We consider the size and volume of our portfolio as well as the credit quality of our loan portfolio based upon risk category classification when determining the loan loss provision for each period and the allowance for loan losses at period end.

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Foreclosed Properties – Foreclosed properties at December 31, 2017 were $4.4 million compared with $6.8 million at December 31, 2016. See Note 5, “Other Real Estate Owned”, to the financial statements. During 2017, we acquired $270,000 of OREO properties and sold properties totaling approximately $793,000. We value foreclosed properties at fair value less estimated cost to sell when acquired and expect to liquidate these properties to recover our investment in the due course of business.

OREO is recorded at fair market value less estimated cost to sell at time of acquisition. Any write-down of the property at the time of acquisition is charged to the allowance for loan losses. When foreclosed properties are acquired, management obtains a new appraisal or has staff from the Bank’s special assets group evaluate the latest in-file appraisal in connection with the transfer to OREO. We typically obtain updated appraisals within five quarters of the anniversary date of ownership unless a sale is imminent. Subsequent reductions in fair value are recorded as non-interest expense when a new appraisal indicates a decline in value or in cases where a listing price is lowered below the appraisal amount.

The following table presents the major categories of OREO at the year-ends indicated:

	2017		2016		2015
	(in thousands)
Commercial Real Estate:
Construction, land development, and other land	$	4,335	$	6,571	$	12,344
Farmland		74		—		—
Nonfarm nonresidential		—		—		6,746
Residential Real Estate:
1-4 Family		—		250		124
	$	4,409	$	6,821	$	19,214

Net activity relating to other real estate owned during the years indicated is as follows:

	2017			2016			2015
	(in thousands)
OREO Activity
OREO as of January 1	$	6,821		$	19,214		$	46,197
Real estate acquired		270			1,273			5,513
Valuation adjustment write-downs		(1,963	)		(1,180	)		(9,855	)
Net gain (loss) on sale		74			222			(74	)
Proceeds from sale of properties		(793	)		(12,708	)		(22,567	)
OREO as of December 31	$	4,409		$	6,821		$	19,214

Net gain on sales, write-downs, and operating expenses for OREO totaled $2.0 million for the year ended December 31, 2017, compared with $1.5 million in 2016 and $12.3 million in 2015.

During the year ended December 31, 2017, fair value write-downs of $2.0 million were recorded compared with $1.2 million for 2016 and $9.9 million for 2015. The write-downs recorded in each year reflect fair value write-downs due to updated appraisals, changes in marketing strategies, and reductions in listing prices for certain properties. OREO sales totaled $793,000, $12.7 million, and $22.6 million during 2017, 2016, and 2015, respectively. We expect to resolve certain nonaccrual loans through the acquisition and sale of the underlying real estate collateral.

Investment Securities – The securities portfolio serves as a source of liquidity and earnings and contributes to the management of interest rate risk. Investments are made in various types of liquid assets, including short-term United States Treasury obligations and securities of various federal agencies, obligations of states and political subdivisions, corporate bonds, collateralized loan obligations, certificates of deposit at insured savings and loans and banks, bankers’ acceptances and federal funds. The investment policy also authorizes investment in mutual funds and stocks whose assets conform to the investments that we are authorized to make directly. The investment portfolio decreased by $41.9 million, or 21.5%, to $152.7 million at December 31, 2017, compared with $194.6 million at December 31, 2016 as the Bank sold selected securities to manage liquidity and interest rate risk.

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The following table sets forth the carrying value of our securities portfolio at the dates indicated.

	December 31, 2017									December 31, 2016
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(dollars in thousands)
Securities available for sale
U.S. Government and federal agencies	$	22,105	$	2	$	(483	)	$	21,624	$	34,757	$	50	$	(708	)	$	34,099
Agency mortgage-backed: residential		65,935		117		(1,087	)		64,965		103,390		455		(1,492	)		102,353
Collateralized loan obligations		25,343		182		(20	)		25,505		11,203		—		—			11,203
State and municipal		33,303		508		(101	)		33,710		2,028		25		(8	)		2,045
Corporate bonds		6,838		78		—			6,916		3,069		24		(3	)		3,090
Total available for sale	$	153,524	$	887	$	(1,691	)	$	152,720	$	154,447	$	554	$	(2,211	)	$	152,790

	Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses		Fair Value		Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses			Fair Value
Securities held to maturity
State and municipal	$	—	$	—	$	—	$	—	$	41,818	$	1,272	$	(18	)	$	43,072
Total held to maturity	$	—	$	—	$	—	$	—	$	41,818	$	1,272	$	(18	)	$	43,072

In 2013, the Bank transferred a portion of its tax-free municipal and taxable municipal bond portfolios from available for sale (AFS) to held to maturity (HTM). At that time, the transfer occurred at fair value with the unrealized loss of $1.3 million remaining in other comprehensive income. That unrealized loss has subsequently been amortized on the level yield method out of other comprehensive income with an offsetting entry reducing interest income as a yield adjustment through earnings. No gain or loss was recorded at the time of transfer in 2013. Given the Bank’s current balance sheet composition, interest rate risk profile, the current tax environment, and the Bank’s strategic plan, management reassessed the classification of the held to maturity securities and, effective December 1, 2017, transferred $41.4 million of tax-free municipals and taxable municipals from HTM to AFS. As a result, the $702,000 in remaining unamortized loss from the 2013 transfer was reclassified through a book value adjustment of these securities. At December 31, 2017, these securities were carried at fair value with unrealized holding gains and losses reported in other comprehensive income, net of tax, with the remaining securities classified as AFS.

The following table sets forth the contractual maturities, fair values and weighted-average yields for our available for sale securities held at December 31, 2017:

	Due Within One Year					After One Year But Within Five Years					After Five Years But Within Ten Years					After Ten Years					Total
	Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield
Available for sale
U.S. Government and federal agencies	$	—		—	%	$	—		—	%	$	5,788		2.19	%	$	15,836		2.18	%	$	21,624		2.18	%
Agency mortgage-backed: residential		—		—			2,956		2.64			9,415		2.31			52,594		2.46			64,965		2.45
Collateralized loan obligations		—		—			—		—			10,631		0.28			14,874		2.59			25,505		1.63
State and municipal		145		2.10			19,612		3.31			11,539		3.27			2,414		5.19			33,710		3.42
Corporate bonds		—		—			—		—			3,160		4.54			3,756		5.11			6,916		4.86
Total available for sale	$	145		2.10	%	$	22,568		3.22	%	$	40,533		2.20	%	$	89,474		2.61	%	$	152,720		2.59	%

Average yields in the table above were calculated on a tax equivalent basis using a federal income tax rate of 35%. Mortgage-backed securities are securities that have been developed by pooling a number of real estate mortgages. These securities are issued by federal agencies such as Ginnie Mae, Fannie Mae and Freddie Mac, as well as non-agency company issuers. These securities are deemed to have high credit ratings, and minimum regular monthly cash flows of principal and interest. Cash flows from agency backed mortgage-backed securities are guaranteed by the issuing agencies.

Unlike U.S. Treasury and U.S. government agency securities, which have a lump sum payment at maturity, mortgage-backed securities provide cash flows from regular principal and interest payments and principal prepayments throughout the lives of the securities. Mortgage-backed securities that are purchased at a premium will generally return decreasing net yields as interest rates drop because home owners tend to refinance their mortgages. Thus, the premium paid must be amortized over a shorter period. Therefore, those securities purchased at a discount will obtain higher net yields in a decreasing interest rate environment. As interest rates rise, the opposite will generally be true. During a period of increasing interest rates, fixed rate mortgage-backed securities do not tend to experience heavy prepayments of principal and consequently, average life will not be shortened. If interest rates begin to fall, prepayments will generally increase. Non-agency issuer mortgage-backed securities do not carry a government guarantee. We limit our purchases of these securities to bank qualified issues with high credit ratings. We regularly monitor the performance and credit ratings of these securities and evaluate these securities, as we do all of our securities, for other-than-temporary impairment on a quarterly basis. At December 31, 2017, 81.0% of the agency mortgage-backed securities we held had contractual final maturities of more than ten years with a weighted average life of 23.9 years.

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Deposits – We attract both short-term and long-term deposits from the general public by offering a wide range of deposit accounts and interest rates. In recent years, we have been required by market conditions to rely increasingly on short to mid-term certificate accounts and other deposit alternatives, which are more responsive to market interest rates.

We primarily rely on our banking office network to attract and retain deposits in our local markets and have in the past leveraged the online channel to attract out-of-market deposits. Market interest rates and rates on deposit products offered by competing financial institutions can significantly affect our ability to attract and retain deposits. During 2017, total deposits decreased $2.9 million compared with 2016. During 2016, total deposits decreased $28.1 million compared with 2015. The decrease in deposits for 2017 and 2016 was primarily in higher cost certificates of deposit balances.

To evaluate our funding needs in light of deposit trends resulting from continually changing conditions, we evaluate simulated performance reports that forecast changes in margins along with other pertinent economic data. We continue to offer attractively priced deposit products along our product line to allow us to retain deposit customers and reduce interest rate risk during various rising and falling interest rate cycles.

We offer savings accounts, interest checking accounts, money market accounts and fixed rate certificates with varying maturities. The flow of deposits is influenced significantly by general economic conditions, changes in interest rates and competition. Management adjusts interest rates, maturity terms, service fees and withdrawal penalties on the Bank’s deposit products periodically. The variety of deposit products allows the Bank to compete more effectively in obtaining funds and to respond with more flexibility to the flow of funds away from depository institutions into outside investment alternatives. However, the ability to attract and maintain deposits and the cost of these funds have been, and will continue to be, significantly affected by market conditions.

The following table sets forth the average daily balances and weighted average rates paid for our deposits for the periods indicated:

	For the Years Ended December 31,
	2017					2016					2015
	Average Balance		Average Rate			Average Balance		Average Rate			Average Balance		Average Rate
	(dollars in thousands)
Demand	$	129,088				$	119,736				$	113,576
Interest Checking		101,980		0.13	%		96,294		0.13	%		88,814		0.13	%
Money Market		145,281		0.55			136,423		0.58			112,350		0.57
Savings		35,486		0.17			34,257		0.18			35,604		0.21
Certificates of Deposit		452,443		0.93			466,007		0.88			557,441		0.96
Total Deposits	$	864,278				$	852,717				$	907,785
Weighted Average Rate				0.60	%				0.60	%				0.68	%

The following table sets forth the average daily balances and weighted average rates paid for our certificates of deposit for the periods indicated:

	For the Years Ended December 31,
	2017					2016					2015
	Average Balance		Average Rate			Average Balance		Average Rate			Average Balance		Average Rate
	(dollars in thousands)
Certificates of Deposit
Less than $250,000	$	419,816		1.01	%	$	437,955		0.88	%	$	524,279		0.95	%
$250,000 or more		32,627		0.92			28,052		0.97			33,162		1.12
Total	$	452,443		0.93	%	$	466,007		0.88	%	$	557,441		0.96	%

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The following table shows at December 31, 2017 the amount of our time deposits of $250,000 or more by time remaining until maturity:

Maturity Period
(in thousands)
Three months or less	$	5,276
Three months through six months		1,995
Six months through twelve months		3,497
Over twelve months		20,963
Total	$	31,731

The Bank maintains competitive pricing on its deposit products, which we believe allows it to retain a substantial percentage of our customers when their time deposits mature.

Borrowing – Deposits are the primary source of funds for lending and investment activities and for general business purposes. We can also use advances (borrowings) from the FHLB of Cincinnati to supplement the pool of lendable funds, meet deposit withdrawal requirements and manage the terms of liabilities. Advances from the FHLB are secured by the Bank’s stock in the FHLB, and substantially all of its first mortgage residential loans. At December 31, 2017, the Bank had $11.8 million in advances outstanding from the FHLB and the capacity to increase borrowings by an additional $79.0 million. The FHLB of Cincinnati functions as a central reserve bank providing credit for savings banks and other member financial institutions. As a member, the Bank is required to own capital stock in the FHLB and is authorized to apply for advances on the security of such stock and certain of our home mortgages and other assets (principally, securities that are obligations of, or guaranteed by, the United States) provided that it meets certain standards related to creditworthiness.

The following table sets forth information about our FHLB advances as of and for the periods indicated:

	December 31,
	2017			2016			2015
	(dollars in thousands)
Average balance outstanding	$	9,184		$	2,967		$	3,473
Maximum amount outstanding at any month-end during the period		26,830			22,458			8,705
End of period balance		11,797			22,458			3,081
Weighted average interest rate:
At end of period		1.48	%		0.85	%		2.65	%
During the period		1.31	%		2.34	%		2.73	%

Subordinated Capital Note – At December 31, 2017, the Bank had a subordinated capital note outstanding in the principal amount of $2.3 million. The note is unsecured, bears interest at three-month LIBOR plus 300 basis points adjusting quarterly, and qualifies as Tier 2 capital until five years before the note matures on July 1, 2020. Beginning on July 1, 2015, one-fifth of the principal amount of the subordinated note was excluded from Tier 2 capital each year until fully excluded during the year before maturity. At December 31, 2017, a total of $1.7 million of the outstanding balance was included in Tier 2 capital. The note requires quarterly principal payments of $225,000 plus interest. At December 31, 2017, the interest rate on this note was 4.34%.

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Junior Subordinated Debentures – At December 31, 2017, the Company had four issues of junior subordinated debentures outstanding totaling $21.0 million as shown in the table below.

Description	Liquidation Amount Trust Preferred Securities		Issuance Date	Interest Rate (1)	Junior Subordinated Debt and Investment in Trust		Maturity Date
(dollars in thousands)
Porter Statutory Trust II	$	5,000	2/13/2004	3-month LIBOR + 2.85%	$	5,155	2/13/2034
Porter Statutory Trust III		3,000	4/15/2004	3-month LIBOR + 2.79%		3,093	4/15/2034
Porter Statutory Trust IV		10,000	12/14/2006	3-month LIBOR + 1.67%		10,433	3/1/2037
Ascencia Statutory Trust I		3,000	2/13/2004	3-month LIBOR + 2.85%		3,093	2/13/2034
	$	21,000			$	21,774

(1) As of December 31, 2017, the 3-month LIBOR was 1.69%.

The trust preferred securities are subject to mandatory redemption, in whole or in part, upon repayment of the subordinated debentures at maturity or their earlier redemption at the liquidation preference. The subordinated debentures are redeemable before the maturity date at our option at their principal amount plus accrued interest.

On April 15, 2016, the Company completed the private placement of 580,000 common shares and 220,000 non-voting common shares to accredited investors resulting in total proceeds of $5.0 million. The investors in the private placement directed a portion of the purchase price to pay all deferred interest payments on junior subordinated debentures, bringing interest payments current through the second quarter of 2016.

The Company has the option to defer interest payments on the subordinated debentures from time to time for a period not to exceed 20 consecutive quarters. Since the third quarter of 2016, we have been deferring interest payments on the junior subordinated debentures held by our trust subsidiaries, requiring the trust subsidiaries to defer distributions on the trust preferred securities held by investors. Deferred distributions on the $21.0 million of trust preferred securities outstanding totaled $1.2 million as of December 31, 2017. The deferral period expires after the second quarter of 2021, at which time we will be required to pay all accrued interest or be in default. A deferral period may begin at the Company’s discression so long as interest payments are current. We are prohibited from paying cash dividends on our preferred and common shares until such time as we have paid all deferred distributions on our trust preferred securities. So long as the Written Agreement remains in effect, we will be required to obtain the approval of the Federal Reserve Bank of St. Louis before making any interest payments on the subordinated debentures.

The Federal Reserve Board rules allow trust preferred securities to be included in Tier 1 capital, subject to quantitative and qualitative limits. Currently, no more than 25% of our Tier 1 capital can consist of trust preferred securities and qualifying perpetual preferred stock. To the extent the amount of our trust preferred securities exceeds the 25% limit, the excess would be includable in Tier 2 capital. As of December 31, 2017, the Company’s trust preferred securities totaled 22% of its Tier 1 capital and 40% of its Tier 2 capital.

Each of the trusts issuing the trust preferred securities holds junior subordinated debentures issued with an original maturity of 30 years. In the last five years before the junior subordinated debentures mature, the associated trust preferred securities are excluded from Tier 1 capital and included in Tier 2 capital. In addition, the trust preferred securities during this five-year period are amortized out of Tier 2 capital by one-fifth each year and excluded from Tier 2 capital completely during the year before maturity.

Senior Debt – On June 30, 2017, the Company entered into a $10.0 million senior secured loan agreement with a commercial bank. The loan matures on June 30, 2022. Interest is payable quarterly at a rate of three-month LIBOR plus 250 basis points through June 30, 2020, at which time quarterly principal payments of $250,000 plus interest will commence. The loan is secured by a first priority pledge of 100% of the issued and outstanding stock of the Bank. The Company may prepay any amount due under the promissory note at any time without premium or penalty.

48

The Company contributed $9.0 million of the borrowing proceeds to the Bank as common equity Tier 1 capital. The remaining $1.0 million of the borrowing proceeds were retained by the lender in escrow to service quarterly interest payments. At December 31, 2017, the escrow account had a balance of $806,000.

The loan agreement contains customary representations, warranties, covenants and events of default, including the following financial covenants: (i) the Company must maintain minimum cash on hand of not less than $750,000 through June 30, 2018, and not less than $2,500,000 thereafter, (ii) the Company must maintain a total risk based capital ratio at least equal to 9% of risk-weighted assets to June 30, 2018, and 10% thereafter, (iii) the Bank must maintain a total risk based capital ratio at least equal to 10% of risk-weighted assets to June 30, 2018, and 11% thereafter, and (iv) non-performing assets of the Bank may not exceed 2.5% of the Bank’s total assets. Both the Company and Bank were in compliance with the covenants as of December 31, 2017.

Liquidity

Liquidity risk arises from the possibility the Company may not be able to satisfy current or future financial commitments, or may become unduly reliant on alternative funding sources. The objective of liquidity risk management is to ensure that we meet the cash flow requirements of depositors and borrowers, as well as operating cash needs, taking into account all on- and off-balance sheet funding demands. Liquidity risk management also involves ensuring that we meet our cash flow needs at a reasonable cost. We maintain an investment and funds management policy, which identifies the primary sources of liquidity, establishes procedures for monitoring and measuring liquidity, and establishes minimum liquidity requirements in compliance with regulatory guidance. The Asset Liability Committee regularly monitors and reviews our liquidity position.

Funds are available to the Bank from a number of sources, including the sale of securities in the available for sale investment portfolio, principal pay-downs on loans and mortgage-backed securities, customer deposit inflows, and other wholesale funding.

The Bank also borrows from the FHLB to supplement funding requirements. At December 31, 2017, the unused borrowing capacity with the FHLB was $79.0 million. Advances are collateralized by first mortgage residential loans and borrowing capacity is based on the underlying book value of eligible pledged loans.

The Bank also has available on an unsecured basis federal funds borrowing lines from a correspondent bank totaling $5.0 million. Management believes the sources of liquidity are adequate to meet expected cash needs for the foreseeable future. However, the availability of these lines could be affected by our financial position.

Historically, we have also utilized brokered and wholesale deposits to supplement our funding strategy. At December 31, 2017, we had no brokered deposits.

The Company uses cash on hand to service senior debt and to provide for operating cash flow needs. The Company also may issue common equity preferred equity, and debt to support cash flow needs and liquidity requirements. At December 31, 2017, cash on hand totaled $2.0 million, of which, $806,000 is held in escrow by the Company’s senior debt holder to service interest payments.

Capital

Stockholders’ equity increased $39.9 million to $72.7 million at December 31, 2017, compared with $32.7 million at December 31, 2016. The increase was due primarily to current year net income $38.5 million.

The Company had a full valuation allowance against its net deferred tax asset since 2011. During the fourth quarter of 2017, management concluded it was more-likely-than-not the asset would be utilized to reduce future taxes payable related to the future taxable income of the Company, and as such, reversed the valuation allowance. On December 22, 2017, the Tax Cuts and Jobs Act of 2017 was signed into law. Among other significant changes to the tax code, the new law lowered the federal corporate tax rate from 35% to 21% beginning in 2018. As a result, the Company revalued its net deferred tax asset at the new 21% rate. The combination of the reversal of the valuation allowance and the change in federal corporate tax rates, as well as income tax expense for the year, resulted in an income tax benefit of $31.9 million for the year ended December 31, 2017.

On June 30, 2017, the Company entered into a $10.0 million senior secured loan agreement with a commercial bank. The loan matures on June 30, 2022. Interest is payable quarterly at a rate of three-month LIBOR plus 250 basis points through June 30, 2020, at which time quarterly principal payments of $250,000 plus interest will commence. The loan is secured by a first priority pledge of 100% of the issued and outstanding stock of the Bank. The Company may prepay any amount due under the promissory note at any time without premium or penalty. A total of $9.0 million of loan proceeds was injected to the Bank as common equity Tier 1 capital.

On December 16, 2016, the Company completed a 1-for-5 reverse stock split of its issued and outstanding common and non-voting common shares. The reverse stock split was intended to increase the trading price per share of the common shares, with the objective to make the common shares a more attractive and cost effective investment and enhance liquidity for shareholders. All share and per share data in this annual report has been adjusted to reflect the reverse stock split. Preferred shares were not affected by the 1-for-5 reverse stock split.

49

On April 15, 2016, the Company completed the private placement of 580,000 common shares and 220,000 non-voting common shares to accredited investors, raising total proceeds of $5.0 million. The investors in the private placement directed a portion of purchase price to pay all deferred interest payments on our junior subordinated debentures, bringing interest payments current through the second quarter of 2016. The remaining proceeds were retained for general corporate purposes and to support the Bank.

Each of the federal bank regulatory agencies has established risk-based capital requirements for banking organizations. The Basel III regulatory capital reforms became effective for the Company and Bank on January 1, 2015, and include new minimum risk-based capital and leverage ratios. These rules refine the definition of what constitutes “capital” for purposes of calculating those ratios, including the definitions of Tier 1 capital and Tier 2 capital. The final rules allowed banks and their holding companies with less than $250 billion in assets a one-time opportunity to opt-out of a requirement to include unrealized gains and losses in accumulated other comprehensive income in their capital calculation. The Company and the Bank opted out of this requirement. The rules also establish a “capital conservation buffer” of 2.5% above the regulatory minimum risk-based capital ratios. Once the capital conservation buffer is fully phased in, the minimum ratios are a common equity Tier 1 risk-based capital ratio of 7.0%, a Tier 1 risk-based capital ratio of 8.5%, and a total risk-based capital ratio of 10.5%. The phase-in of the capital conservation buffer requirement began in January 2016 at 0.625% of risk-weighted assets and increases each year until fully implemented in January 2019. An institution is subject to limitations on paying dividends, engaging in share repurchases and paying discretionary bonuses if capital levels fall below minimum levels plus the buffer amounts. These limitations establish a maximum percentage of eligible retained income that could be utilized for such actions.

The following table shows the ratios of Tier 1 capital, common equity Tier 1, and total capital to risk-adjusted assets and the leverage ratios (excluding the capital conservation buffer) for the Bank at December 31, 2017:

	Regulatory Minimums			Well-Capitalized Minimums			Limestone Bank
Tier 1 capital		6.0	%		8.0	%		10.35	%
Common equity Tier 1 capital		4.5			6.5			10.35
Total risk-based capital		8.0			10.0			11.61
Tier 1 leverage ratio		4.0			5.0			8.70

Failure to meet minimum capital requirements could result in additional discretionary actions by regulators that, if taken, could have a materially adverse effect on our financial condition.

Off Balance Sheet Arrangements

In the normal course of business, we enter into various transactions, which, in accordance with GAAP, are not included in our consolidated balance sheets. We enter into these transactions to meet the financing needs of our customers. These transactions include commitments to extend credit and standby letters of credit, which involve, to varying degrees, elements of credit risk and interest rate risk in excess of the amounts recognized in the consolidated balance sheets.

The commitments associated with outstanding standby letters of credit and commitments to extend credit as of December 31, 2017 are summarized below. Since commitments associated with letters of credit and commitments to extend credit may expire unused, the amounts shown do not necessarily reflect our actual future cash funding requirements:

	One year or less		More than 1 year but less than 3 years		3 years or more but less than 5 years		5 years or more		Total
	(dollars in thousands)
Commitments to extend credit	$	37,862	$	36,699	$	19,542	$	33,419	$	127,522
Standby letters of credit		2,588		—		1		—		2,589
Total	$	40,450	$	36,699	$	19,543	$	33,419	$	130,111

Standby Letters of Credit – Standby letters of credit are written conditional commitments we issue to guarantee the performance of a borrower to a third party. If the borrower does not perform in accordance with the terms of the agreement with the third party, we may be required to fund the commitment. The maximum potential amount of future payments we could be required to make is represented by the contractual amount of the commitment. If the commitment is funded, we would be entitled to seek recovery from the borrower. Our policies generally require that standby letter of credit arrangements be underwritten in a manner consistent with a loan of similar characteristics.

50

Commitments to Extend Credit – We enter into contractual commitments to extend credit, normally with fixed expiration dates or termination clauses, at specified rates and for specific purposes. Substantially all of our commitments to extend credit are contingent upon borrowers maintaining specific credit standards at the time of loan funding. We minimize our exposure to loss under these commitments by subjecting them to credit approval and monitoring procedures.

Risk Participation Agreements – In connection with the purchase of loan participations, the Bank has entered into risk participation agreements, which had notional amounts totaling $19.8 million at December 31, 2017 and $14.6 million at December 31, 2016.

Contractual Obligations

The following table summarizes our contractual obligations and other commitments to make future payments as of December 31, 2017:

	One year or less		More than 1 year but less than 3 years		3 years or more but less than 5 years		5 years or more		Total
	(dollars in thousands)
Time deposits	$	204,018	$	205,986	$	14,231	$	—	$	424,235
FHLB borrowing (1)		10,200		665		836		96		11,797
Subordinated capital note		900		1,350		—		—		2,250
Junior subordinated debentures		—		—		—		21,000		21,000
Senior debt		—		500		2,000		7,500		10,000
Total	$	215,118	$	208,501	$	17,067	$	28,596	$	469,282

(1) Fixed rate borrowings with rates ranging from 0% to 5.24%, and maturities ranging from 2018 through 2033, averaging 1.48%.

Impact of Inflation and Changing Prices

The financial statements and related data presented herein have been prepared in accordance with U.S. generally accepted accounting principles, which require the measurement of financial position and operating results in historical dollars without considering changes in the relative purchasing power of money over time due to inflation.

We have an asset and liability structure that is essentially monetary in nature. As a result, interest rates have a more significant impact on performance than the effects of general levels of inflation. Periods of high inflation are often accompanied by relatively higher interest rates, and periods of low inflation are accompanied by relatively lower interest rates. As market interest rates rise or fall in relation to the rates earned on loans and investments, the value of these assets decreases or increases respectively.

51

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

To minimize the volatility of net interest income and exposure to economic loss that may result from fluctuating interest rates, we manage our exposure to adverse changes in interest rates through asset and liability management activities within guidelines established by our Asset Liability Committee (“ALCO”). The ALCO, which is comprised of senior officers, has the responsibility for approving and ensuring compliance with asset/liability management policies. Interest rate risk is the exposure to adverse changes in the net interest income as a result of market fluctuations in interest rates. The ALCO, on an ongoing basis, monitors interest rate and liquidity risk in order to implement appropriate funding and balance sheet strategies. Management considers interest rate risk to be our most significant market risk.

The Company utilizes an earnings simulation model to analyze net interest income sensitivity. It then evaluates potential changes in market interest rates and their subsequent effects on net interest income. The model projects the effect of instantaneous movements in interest rates of both 100 and 200 basis points that are sustained for one year. Assumptions based on the historical behavior of our deposit rates and balances in relation to changes in interest rates are also incorporated into the model. These assumptions are inherently uncertain and, as a result, the model cannot precisely measure future net interest income or precisely predict the impact of fluctuations in market interest rates on net interest income. Actual results may differ from the model’s simulated results due to timing, magnitude and frequency of interest rate changes as well as changes in market conditions and the application and timing of various management strategies.

Given an instantaneous 100 basis point increase in interest rates, the base net interest income would increase by an estimated 0.9% at December 31, 2017 compared with an decrease of 2.5% at December 31, 2016. The following table indicates the estimated impact on net interest income under various interest rate scenarios for the year ended December 31, 2017, as calculated using the static shock model approach:

	Change in Future Net Interest Income
	Dollar Change			Percentage Change
	(dollars in thousands)
+ 200 basis points	$	545			1.7	%
+ 100 basis points		271			0.9
-  100 basis points		(1,061	)		(3.3	)
-  200 basis points		(2,384	)		(7.5	)

Implementation of strategies to mitigate the risk of changing interest rates in the future, could lessen our forecasted “base case” net interest income in the event of no interest rate changes.Interest sensitivity at any point in time will be affected by a number of factors. These factors include the mix of interest sensitive assets and liabilities as well as their relative pricing schedules. It is also influenced by market interest rates, deposit growth, loan growth, deposit decay rates and asset prepayment speed assumptions.

The following table sets forth the amounts of our interest-earning assets and interest-bearing liabilities outstanding at December 31, 2017, which we anticipate, based upon certain assumptions, to reprice or mature in each of the future time periods shown. The projected repricing of assets and liabilities anticipates prepayments and scheduled rate adjustments, as well as contractual maturities under an interest rate unchanged scenario within the selected time intervals. While we believe such assumptions are reasonable, we cannot provide assurance that assumed repricing rates will approximate actual future activity.

52

	Volume Subject to Repricing Within
	0 – 90 Days			91 – 181 Days			182 – 365 Days			1 – 5 Years			Over 5 Years			Non- Interest Sensitive			Total
	(dollars in thousands)
Assets:
Federal funds sold and short-term investments	$	25,966		$	—		$	—		$	—		$	—		$	—		$	25,966
Investment securities		46,712			2,726			7,649			58,131			37,056			516			152,790
FHLB stock		7,323			—			—			—			—			—			7,323
Loans held for sale		70			—			—			—			—			—			70
Loans, net of allowance		272,599			48,677			84,009			260,961			45,869			(8,202	)		703,913
Fixed and other assets		—			—			—			—			—			80,739			80,739
Total assets	$	352,670		$	51,403		$	91,658		$	319,092		$	82,925		$	73,053		$	970,801
Liabilities and Stockholders’ Equity
Interest-bearing checking, savings, and money market accounts	$	285,403		$	—		$	—		$	—		$	—		$	—		$	285,403
Certificates of deposit		74,560			52,197			76,126			221,184			168			—			424,235
Borrowed funds		43,274			208			233			1,187			145			—			45,047
Other liabilities		—			—			—			—			—			143,443			143,443
Stockholders’ equity		—			—			—			—			—			72,673			72,673
Total liabilities and stockholders’ equity	$	403,237		$	52,405		$	76,359		$	222,371		$	313		$	216,116		$	970,801
Period gap	$	(50,567	)	$	(1,002	)	$	15,299		$	96,721		$	82,612
Cumulative gap	$	(50,567	)	$	(51,569	)	$	(36,270	)	$	60,451		$	143,063
Period gap to total assets		(5.21	)%		(0.10	)%		1.58	%		9.96	%		8.51	%
Cumulative gap to total assets		(5.21	)%		(5.31	)%		(3.74	)%		6.23	%		14.74	%
Cumulative interest-earning assets to cumulative interest-bearing liabilities		87.46	%		88.68	%		93.18	%		108.01	%		118.96	%

The one-year cumulative gap position as of December 31, 2017 was negative $36.3 million or 3.7% of total assets. This is a one-day position that is continually changing and is not necessarily indicative of the Company’s position at any other time. Any gap analysis has inherent shortcomings because certain assets and liabilities may not move proportionally as interest rates change.

53

Item 8. Financial Statements and Supplementary Data

The following consolidated financial statements and reports are included in this section:

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets as of December 31, 2017 and 2016

Consolidated Statements of Operations for the Years Ended December 31, 2017, 2016, and 2015 

Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2017, 2016, and 2015

Consolidated Statements of Change in Stockholders’ Equity for the Years Ended December 31, 2017, 2016, and 2015

Consolidated Statements of Cash Flows for the Years Ended December 31, 2017, 2016, and 2015

Notes to Consolidated Financial Statements

54

    Crowe Horwath LLP Independent Member Crowe Horwath International

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Shareholders and the Board of Directors of Porter Bancorp, Inc.

Louisville, Kentucky

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Porter Bancorp, Inc. (the "Company") as of December 31, 2017 and 2016, the related consolidated statements of operations, comprehensive income (loss), changes in stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2017, and the related notes (collectively referred to as the "financial statements").  In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting in accordance with the standards of the PCAOB. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion in accordance with the standards of the PCAOB.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Crowe Horwath, LLP

We have served as the Company's auditor since 1998.

Louisville, Kentucky

February 28, 2018

55

PORTER BANCORP, INC.

CONSOLIDATED BALANCE SHEETS

December 31,

(Dollar amounts in thousands except share data)

	2017			2016
Assets
Cash and due from banks	$	8,137		$	9,449
Interest bearing deposits in banks		25,966			56,867
Cash and cash equivalents		34,103			66,316
Securities available for sale		152,720			152,790
Securities held to maturity (fair value of $0 and $43,072, respectively)		—			41,818
Loans held for sale		70			—
Loans, net of allowance of $8,202 and $8,967, respectively		703,913			630,269
Premises and equipment, net		16,789			17,848
Other real estate owned		4,409			6,821
Federal Home Loan Bank stock		7,323			7,323
Bank owned life insurance		15,229			14,838
Deferred taxes, net		31,313			—
Accrued interest receivable and other assets		4,932			7,154
Total assets	$	970,801		$	945,177
Liabilities and Stockholders’ Equity
Deposits
Non-interest bearing	$	137,386		$	124,395
Interest bearing		709,638			725,530
Total deposits		847,024			849,925
Federal Home Loan Bank advances		11,797			22,458
Accrued interest payable and other liabilities		6,057			15,911
Subordinated capital note		2,250			3,150
Junior subordinated debentures		21,000			21,000
Senior debt		10,000			—
Total liabilities		898,128			912,444
Commitments and contingent liabilities (Note 16)		—			—
Stockholders’ equity
Preferred stock, no par
Series E - 6,198 issued and outstanding; Liquidation preference of $6.2 million		1,644			1,644
Series F - 4,304 issued and outstanding; Liquidation preference of $4.3 million		1,127			1,127
Total preferred stockholders’ equity		2,771			2,771
Common stock, no par, 39,000,000 shares authorized, 6,039,864 and 4,632,933 voting, and 220,000 and 1,591,600 non-voting shares issued and outstanding, respectively		125,729			125,729
Additional paid-in capital		24,497			24,097
Retained deficit		(75,108	)		(113,561	)
Accumulated other comprehensive loss		(5,216	)		(6,303	)
Total common stockholders’ equity		69,902			29,962
Total stockholders' equity		72,673			32,733
Total liabilities and stockholders’ equity	$	970,801		$	945,177

See accompanying notes.

56

PORTER BANCORP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

Years Ended December 31,

(Dollar amounts in thousands except per share data)

	2017			2016			2015
Interest income
Loans, including fees	$	31,866		$	30,537		$	31,251
Taxable securities		4,399			3,886			4,076
Tax exempt securities		571			620			764
Federal funds sold and other		686			559			483
		37,522			35,602			36,574
Interest expense
Deposits		5,190			5,093			6,160
Federal Home Loan Bank advances		120			70			95
Senior debt		194			—			—
Junior subordinated debentures		753			671			606
Subordinated capital note		148			147			161
Federal funds purchased and other		—			—			1
		6,405			5,981			7,023
Net interest income		31,117			29,621			29,551
Negative provision for loan losses		(800	)		(2,450	)		(4,500	)
Net interest income after negative provision for loan losses		31,917			32,071			34,051
Non-interest income
Service charges on deposit accounts		2,253			1,958			1,851
Bank card interchange fees		972			849			839
Income from bank owned life insurance		412			417			295
Other real estate owned rental income		—			456			1,346
Net gain on sales of securities		288			216			1,766
Gain on extinguishment of junior subordinated debt		—			—			883
Other		930			868			715
		4,855			4,764			7,695
Non-interest expense
Salaries and employee benefits		15,090			15,508			15,857
Occupancy and equipment		3,420			3,517			3,449
FDIC insurance		1,412			1,660			2,212
Data processing expense		1,256			1,185			1,128
Marketing expense		1,098			973			560
State franchise and deposit tax		956			965			1,120
Professional fees		978			1,568			2,885
Communications		722			706			663
Insurance expense		540			565			589
Postage and delivery		395			359			400
Litigation and loan collection expense		179			8,805			1,141
Other real estate owned expense		1,973			1,541			12,302
Other		2,199			2,215			2,653
		30,218			39,567			44,959
Income (loss) before income taxes		6,554			(2,732	)		(3,213	)
Income tax expense (benefit)		(31,899	)		21			—
Net income (loss)		38,453			(2,753	)		(3,213	)
Less:
Earnings (loss) allocated to participating securities		967			(88	)		(336	)
Net income (loss) attributable to common shareholders	$	37,486		$	(2,665	)	$	(2,877	)
Basic and diluted income (loss) per common share	$	6.15		$	(0.46	)	$	(0.62	)

See accompanying notes.

57

PORTER BANCORP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

Years Ended December 31,

(in thousands)

	2017			2016			2015
Net income (loss)	$	38,453		$	(2,753	)	$	(3,213	)
Other comprehensive income (loss):
Unrealized gain (loss) on securities:
Unrealized gain (loss) arising during the period		1,141			(1,917	)		(490	)
Transfer of investment securities from held to maturity to available for sale		702			—			—
Amortization during the period of net unrealized loss transferred to held to maturity		119			129			129
Reclassification of adjustment for gains included in net income		(288	)		(216	)		(1,766	)
Net unrealized gain/(loss) recognized in comprehensive income		1,674			(2,004	)		(2,127	)
Tax effect		(587	)		—			—
Other comprehensive income (loss)		1,087			(2,004	)		(2,127	)
Comprehensive income (loss)	$	39,540		$	(4,757	)	$	(5,340	)

See accompanying notes.

58

PORTER BANCORP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

Years Ended December 31,

(Dollar amounts in thousands except share and per share data)

	Shares													Amount
				Preferred												Preferred										Common
	Voting and Non-voting Common			Series B			Series D			Series E		Series F		Common		Series B			Series D			Series E		Series F		Additional Paid-In Capital		Retained Earnings (Deficit)			Accumulated Other Compre- hensive Income (Loss)			Total
Balances, December 31, 2014		2,978,103			40,536			64,580			6,198		4,304	$	113,238	$	2,229		$	3,552		$	1,644	$	1,127	$	21,442	$	(107,595	)	$	(2,172	)	$	33,465
Issuance of unvested stock		183,148			—			—			—		—		—		—			—			—		—		—		—			—			—
Terminated stock		(107,696	)		—			—			—		—		—		—			—			—		—		—		—			—			—
Forfeited unvested stock		(6,368	)		—			—			—		—		—		—			—			—		—		—		—			—			—
Stock-based compensation expense		—			—			—			—		—		—		—			—			—		—		445		—			—			445
Net loss		—			—			—			—		—		—		—			—			—		—		—		(3,213	)		—			(3,213	)
Net change in accumulated other comprehensive income, net of taxes		—			—			—			—		—		—		—			—			—		—		—		—			(2,127	)		(2,127	)
Debt to equity exchange		240,000			—			—			—		—		1,680		—			—			—		—		1,767		—			—			3,447
Conversion of preferred stock to common and non-voting common stock		2,102,320			(40,536	)		(64,580	)		—		—		5,781		(2,229	)		(3,552	)		—		—		—		—			—			—
Balances, December 31, 2015		5,389,507			—			—			6,198		4,304	$	120,699	$	—		$	—		$	1,644	$	1,127	$	23,654	$	(110,808	)	$	(4,299	)	$	32,017
Issuance of unvested stock		35,465			—			—			—		—		—		—			—			—		—		—		—			—			—
Forfeited unvested stock		(1,972	)		—			—			—		—		—		—			—			—		—		—		—			—			—
Reverse stock split rounding shares		1,533			—			—			—		—		—		—			—			—		—		—		—			—			—
Stock-based compensation expense		—			—			—			—		—		—		—			—			—		—		443		—			—			443
Net loss		—			—			—			—		—		—		—			—			—		—		—		(2,753	)		—			(2,753	)
Net change in accumulated other comprehensive income, net of taxes		—			—			—			—		—		—		—			—			—		—		—		—			(2,004	)		(2,004	)
Issuance of stock		800,000			—			—			—		—		5,030		—			—			—		—		—		—			—			5,030
Balances, December 31, 2016		6,224,533			—			—			6,198		4,304	$	125,729	$	—		$	—		$	1,644	$	1,127	$	24,097	$	(113,561	)	$	(6,303	)	$	32,733
Issuance of unvested stock		37,865			—			—			—		—		—		—			—			—		—		—		—			—			—
Forfeited unvested stock		(1,316	)		—			—			—		—		—		—			—			—		—		—		—			—			—
Reverse stock split rounding shares		(1,218	)		—			—			—		—		—		—			—			—		—		—		—			—			—
Stock-based compensation expense		—			—			—			—		—		—		—			—			—		—		400		—			—			400
Net income		—			—			—			—		—		—		—			—			—		—		—		38,453			—			38,453
Net change in accumulated other comprehensive income, net of taxes		—			—			—			—		—		—		—			—			—		—		—		—			1,087			1,087
Balances, December 31, 2017		6,259,864			—			—			6,198		4,304	$	125,729	$	—		$	—		$	1,644	$	1,127	$	24,497	$	(75,108	)	$	(5,216	)	$	72,673

See accompanying notes.

59

PORTER BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended December 31,

(in thousands)

	2017			2016			2015
Cash flows from operating activities
Net income (loss)	$	38,453		$	(2,753	)	$	(3,213	)
Adjustments to reconcile net income (loss) to net cash from operating activities
Depreciation and amortization		1,239			1,725			1,711
Negative provision for loan losses		(800	)		(2,450	)		(4,500	)
Net amortization on securities		1,246			1,297			1,434
Stock-based compensation expense		400			443			445
Deferred taxes, net		(31,899	)		—			—
Gain on extinguishment of junior subordinated debt		—			—			(883	)
Net (gain) loss on sales of loans held for sale		(46	)		(86	)		204
Loans originated for sale		(2,859	)		(5,145	)		(6,652	)
Proceeds from sales of loans held for sale		2,835			5,417			6,548
Net (gain) loss on sales of other real estate owned		(74	)		(222	)		74
Net write-down of other real estate owned		1,963			1,180			9,855
Net realized (gain) loss on sales and calls of investment securities		(288	)		(216	)		(1,766	)
Net (gain) loss on sale of premises and equipment		3			(1	)		—
Increase in cash surrender value of owned life insurance, net of premium expense		(391	)		(397	)		(274	)
Net change in accrued interest receivable and other assets		2,079			(814	)		810
Net change in accrued interest payable and other liabilities		(9,854	)		8,133			267
Net cash from operating activities		2,007			6,111			4,060
Cash flows from investing activities
Purchases of available for sale securities		(21,112	)		(41,827	)		(21,828	)
Sales and calls of available for sale securities		41,686			8,311			45,012
Maturities and prepayments of available for sale securities		21,838			22,876			21,084
Proceeds from calls of held to maturity securities		47			—			—
Proceeds from maturities of held to maturity securities		145
Proceeds from sales of loans not originated for sale		—			—			8,640
Proceeds from sale of other real estate owned		793			12,438			22,567
Loan originations and payments, net		(73,202	)		(22,368	)		(2,239	)
Proceeds from sale of premises and equipment		331			268			—
Purchases of premises and equipment		(284	)		(464	)		(385	)
Purchase of bank owned life insurance		—			(5,000	)		—
Net cash from investing activities		(29,758	)		(25,766	)		72,851
Cash flows from financing activities
Net change in deposits		(2,901	)		(28,072	)		(48,844	)
Net change in repurchase agreements		—			—			(1,341	)
Repayment of Federal Home Loan Bank advances		(55,661	)		(623	)		(17,671	)
Advances from Federal Home Loan Bank		45,000			20,000			5,000
Repayment of subordinated capital note		(900	)		(900	)		(900	)
Proceeds from senior debt		10,000			—			—
Issuance of common stock		—			2,231			—
Net cash from financing activities		(4,462	)		(7,364	)		(63,756	)
Net change in cash and cash equivalents		(32,213	)		(27,019	)		13,155
Beginning cash and cash equivalents		66,316			93,335			80,180
Ending cash and cash equivalents	$	34,103		$	66,316		$	93,335
Supplemental cash flow information:
Interest paid	$	5,665		$	5,253		$	7,076
Income taxes paid (refunded)		—			21			—
Supplemental non-cash disclosure:
Proceeds from common stock issuance directed by investors to pay junior subordinated debt interest	$	—			2,799			—
Transfer from loans to other real estate		270		$	1,273		$	5,513
Financed sales of other real estate owned		—			270			—
Effect of junior subordinated debt to equity exchange		—			—			4,330
Transfer from held to maturity to available for sale securities		41,380			—			—
AOCI component of transfer from held to maturity to available for sale, net of tax		456			—			—

See accompanying notes.

60

PORTER BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017, 2016 and 2015

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations and Principles of Consolidation – The consolidated financial statements include Porter Bancorp, Inc. (Company) and its subsidiary, PBI Bank (Bank). The Bank completed a name change to Limestone Bank on February 20, 2018. The Company owns a 100% interest in the Bank.

The Company provides financial services through its offices in Central and South Central Kentucky, Lexington and Louisville. Its primary deposit products are checking, savings, and term certificate accounts, and its primary lending products are residential mortgage, commercial, agricultural, and real estate loans. Substantially all loans are collateralized by specific items of collateral including business assets and real estate. Commercial loans are expected to be repaid from cash flow from operations of businesses. There are no significant concentrations of loans to any one industry or customer. However, borrowers’ ability to repay their loans is dependent on the real estate and general economic conditions in the area. Other financial instruments which potentially represent concentrations of credit risk include deposit accounts in other financial institutions, federal funds sold, municipal securities, collateralized loan obligations, corporate securities, and bank owned life insurance.

Use of Estimates – To prepare financial statements in conformity with U.S. generally accepted accounting principles, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and future results could differ.

Cash and Cash Equivalents – For the purpose of presentation in the statements of cash flows, the Company considers all cash and amounts due from depository institutions as well as interest bearing deposits in banks that mature within one year and are carried at cost to be cash equivalents. The Bank is required to maintain average reserve balances with the Federal Reserve Bank of St. Louis.

Securities – Debt securities are classified as held to maturity and carried at amortized cost when management has the intent and ability to hold them to maturity. Debt securities are classified as available for sale when they might be sold before maturity. Securities available for sale are carried at fair value, with unrealized holding gains and losses reported in other comprehensive income.

Interest income includes amortization of purchase premium or discount. Premiums and discounts on securities are amortized on the level-yield method anticipating prepayments on mortgage backed securities. Gains and losses on sales are recorded on the trade date and determined using the specific identification method.

Management evaluates securities for other-than-temporary impairment (“OTTI”) on at least a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. For securities in an unrealized loss position, management considers the extent and duration of the unrealized loss, and the financial condition and near-term prospects of the issuer. Management also assesses whether it intends to sell, or it is more likely than not that it will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as impairment through earnings. For debt securities that do not meet the aforementioned criteria, the amount of impairment is split into 1) OTTI related to credit loss, which is recognized in the income statement and 2) OTTI related to other factors, which is recognized in other comprehensive income. The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis.

Loans Held for Sale – Loans held for sale include residential mortgage loans originated for sale into the secondary market and are carried at the lower of aggregate cost or fair value, as determined by outstanding commitments from investors. Net unrealized losses, if any, are recorded as a valuation allowance and charged to earnings.

Mortgage loans held for sale are generally sold with servicing rights released. If sold with servicing retained, the carrying value of mortgage loans sold is reduced by the amount allocated to the servicing right. Gains and losses on sales of mortgage loans are based on the difference between the selling price and the carrying value of the related loan sold.

Mortgage banking derivatives used in the ordinary course of business consist of mandatory forward sales contracts and rate lock loan commitments. Forward contracts represent future commitments to deliver loans at a specified price and date and are used to manage interest rate risk on loan commitments and mortgage loans held for sale. Rate lock commitments represent commitments to fund loans at a specific rate. These derivatives involve underlying items, such as interest rates, and are designed to transfer risk. Substantially all of these instruments expire within 60 days from the date of issuance. Notional amounts are amounts on which calculations and payments are based, but which do not represent credit exposure, as credit exposure is limited to the amounts required to be received or paid. Commitments to deliver loans and rate lock loan commitments were insignificant at year end.

61

Loans – Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal balance outstanding, net of deferred loan fees and costs, and an allowance for loan losses. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income using the level-yield method without anticipating prepayments. The recorded investment in loans includes the outstanding principal balance and unamortized deferred origination costs and fees.

Interest income recognition on mortgage and commercial loans is discontinued at the time the loan is 90 days delinquent unless the loan is well collateralized and in process of collection. Consumer loans are typically charged off no later than 90 days past due. Past due status is based on the contractual terms of the loan. In all cases, loans are placed on nonaccrual or charged off at an earlier date if collection of principal or interest is not expected.

All interest accrued but not received for loans placed on nonaccrual is reversed against interest income. Interest received on such loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Allowance for Loan Losses – The allowance for loan losses is a valuation allowance for probable incurred credit losses. Loan losses are charged against the allowance when management believes the uncollectability of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. Management estimates the allowance balance required using past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in our judgment, should be charged off.

The allowance consists of specific and general components. The specific component relates to loans that are individually classified as impaired. A loan is deemed impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. Loans for which the terms have been modified resulting in a concession, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings and treated as impaired.

Factors considered in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. The significance of payment delays and payment shortfalls is determined on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.

If a loan is impaired, a portion of the allowance is allocated so that the loan is reported, net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral. Large groups of smaller balance homogeneous loans, such as consumer and residential real estate loans, are collectively evaluated for impairment and are not separately identified for impairment disclosures. Troubled debt restructurings are separately identified for impairment disclosures and are measured at the present value of estimated future cash flows using the loan’s effective rate at inception. If a troubled debt restructuring is considered to be a collateral dependent loan, the loan is reported at the fair value of the collateral. For troubled debt restructurings that subsequently default, the amount of reserve is determined in accordance with the accounting policy for the allowance for loan losses.

The general component covers non-impaired loans and is based on historical loss experience adjusted for current factors. The historical loss experience is determined by portfolio segment and is based on actual loss history experienced over the most recent four years with weighting towards the most recent periods. This actual loss experience is supplemented with other economic factors based on the risks present for each portfolio segment. These economic factors include consideration of the following: changes in lending policies, procedures, and practices; effects of any change in risk selection and underwriting standards; national and local economic trends and conditions; industry conditions; trends in volume and terms of loans; experience, ability and depth of lending management and other relevant staff; levels of and trends in delinquencies and impaired loans; levels of and trends in charge-offs and recoveries; and effects of changes in credit concentrations.

62

A portfolio segment is defined as the level at which an entity develops and documents a systematic methodology to determine its allowance for loan losses. Management identified the following portfolio segments: commercial, commercial real estate, residential real estate, consumer, agricultural, and other.

● Commercial loans are made to businesses and depend on the strength of the industries, related borrowers, and cash flow from the businesses. Commercial loans are advances for equipment purchases, or to provide working capital, or to meet other financing needs of business enterprises. These loans may be secured by accounts receivable, inventory, equipment or other business assets. Financial information is obtained from the borrowers to evaluate their ability to repay the loans.

● Commercial real estate loans are affected by the local commercial real estate market and the local economy. Commercial real estate loans include loans on commercial properties occupied by borrowers and/or tenants. Construction and development loans are a component of this segment. These loans are generally secured by land under development or homes and commercial buildings under construction. Appraisals are obtained to support the loan amount. Financial information is obtained from the borrowers and/or the individual project to evaluate cash flows sufficiency to service the debt.

● Residential real estate loans are affected by the local residential real estate market, local economy, and, for variable rate mortgages, movement in indices tied to these loans. For owner occupied residential loans, the borrowers’ repayment ability is evaluated through a review of credit scores and debt to income ratios. For non-owner occupied residential loans, such as rental real estate, financial information is obtained from the borrowers and/or the individual project to evaluate cash flows sufficiency to service the debt. Appraisals are obtained to support the loan amount.

● Consumer loans depend on local economies. Consumer loans are generally secured by consumer assets, but may be unsecured. Management evaluates the borrowers’ repayment ability through a review of credit scores and an evaluation of debt to income ratios.

● Agriculture loans depend on the industries tied to these loans and are generally secured by livestock, crops, and/or equipment, but may be unsecured. Management evaluates the borrowers’ repayment ability through financial and business performance review.

● Other loans include loans to municipalities, loans secured by stock, and overdrafts. For municipal loans, management evaluates the borrowers’ revenue streams as well as ability to repay form general funds. For loans secured by stock, management evaluates the market value of the stock securing the loan in relation to the loan amount. Overdrafts are funded based on pre-established criteria related to the deposit account relationship.

Management analyzes key relevant risk characteristics for each portfolio segment having determined that loans in each segment possess similar general risk characteristics that are analyzed in connection with loan underwriting processes and procedures. In determining the allocated allowance, the weighted average loss rates over the most recent four years are used with weighting towards the most recent periods. Commercial real estate qualitative adjustment considerations include trends in the markets for underlying collateral values, risks related to tenant rents, and economic factors such as decreased sales demand, elevated inventory levels, and declining collateral values. Residential real estate loan considerations include macro economic factors such as unemployment rates, trends in vacancy rates, and home value trends. The commercial and agricultural portfolio qualitative adjustments are related to economic and portfolio performance trends. The agricultural, consumer and other portfolios are less significant in terms of size and risk is assessed based on the smaller dollar size of these loans and the more geographical areas where the collateral is located.

Transfers of Financial Assets – Transfers of financial assets are accounted for as sales, when control over the assets has been relinquished. Control over transferred assets is deemed to be surrendered when the assets have been isolated from the Company, the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

Other Real Estate Owned (“OREO”) – Assets acquired through or instead of loan foreclosure are initially recorded at fair value less estimated costs to sell when acquired, establishing a new cost basis. These assets are subsequently accounted for at the lower of cost or fair value, less estimated costs to sell. If fair value declines subsequent to foreclosure, a write-down is recorded through expense. Costs after acquisition are expensed.

Premises and Equipment – Land is carried at cost. Premises and equipment are stated at cost less accumulated depreciation. Buildings and related components are depreciated using the straight-line method with useful lives generally ranging from 5 to 40 years. Furniture, fixtures and equipment are depreciated using the straight-line or accelerated method with useful lives generally ranging from 2 to 10 years.

63

Federal Home Loan Bank (FHLB) Stock – The Bank is a member of the FHLB system. Members are required to own a certain amount of stock based on the level of borrowings and other factors, and may invest in additional amounts. FHLB stock is carried at cost, classified as a restricted security, and periodically evaluated for impairment. Because this stock is viewed as long term investment, impairment is based on ultimate recovery of par value. Both cash and stock dividends are reported as income.

Intangible Assets – Intangible assets with definite useful lives are included with other assets and amortized over their estimated useful lives to their estimated residual values, if any. Other intangible assets consist of core deposit intangible assets arising from whole bank and branch acquisitions. They are initially measured at fair value and then are amortized on an accelerated or straight-line basis over their estimated useful lives, which range from 7 to 10 years.

Bank Owned Life Insurance – The Bank has purchased life insurance policies on certain key executives. Company owned life insurance is recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or other amounts due that are probable at settlement.

Long-Term Assets – Premises and equipment, other intangible assets, and other long-term assets are reviewed for impairment when events indicate their carrying amount may not be recoverable from future undiscounted cash flows. If impaired, the assets are recorded at fair value through a charge to earnings.

Benefit Plans – Employee 401(k) and profit sharing plan expense is the amount of matching contributions. Deferred compensation and supplemental retirement plan expense allocates the benefits over years of service.

Stock-Based Compensation – Compensation cost is recognized for unvested stock awards issued to employees, based on the fair value of these awards at the date of grant. The market price of the Corporation’s common stock at the date of grant is used for restricted stock awards. Compensation cost is recognized over the required service period, generally defined as the vesting period. For awards with graded vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award.

Income Taxes – Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between carrying amounts and tax bases of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized.

A tax position is recognized as a benefit only if it is "more likely than not" that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the "more likely than not" test, no tax benefit is recorded. The Company recognizes interest and/or penalties related to income tax matters in income tax expense.

Loan Commitments and Related Financial Instruments – Financial instruments include off-balance sheet credit instruments, such as commitments to make loans and commercial letters of credit, issued to meet customer-financing needs. The face amount for these items represents the exposure to loss, before considering customer collateral or ability to repay. Such financial instruments are recorded when they are funded.

Comprehensive Income (Loss) – Comprehensive loss consists of net income (loss) and other comprehensive income (loss). Other comprehensive income (loss) includes unrealized gains and losses on securities available for sale, which are also recognized as a separate component of equity.

Earnings (Loss) Per Common Share – Basic earnings (loss) per common share are net income (loss) attributable to common shareholders divided by the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per common share include the dilutive effect, if any, of additional potential common shares issuable under stock options and warrants. Earnings (loss) and dividends per share are restated for all stock splits and dividends through the date of issue of the financial statements.

Earnings (Loss) Allocated to Participating Securities – The Company has issued and outstanding unvested common shares to employees and directors through the stock incentive plan. Earnings (loss) are allocated to these participating securities based on their percentage of total issued and outstanding shares.

Loss Contingencies – Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated.

Dividend Restrictions – Banking regulations require maintaining certain capital levels and may limit the dividends paid by the Bank to the Company or by the Company to shareholders.

64

Fair Value of Financial Instruments – Fair values of financial instruments are estimated using relevant market information and other assumptions. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect the estimates.

Derivative Instruments – Derivative Instruments are carried at fair value and reflect the estimated amounts that would have been received to terminate these contracts at the reporting date based upon pricing or valuation models applied to current market information.

As part of the asset/liability management program, the Company utilizes, from time to time, risk participation agreements to reduce its sensitivity to changing interest rates. These are derivative instruments, which are recorded as assets or liabilities in the consolidated balance sheets at fair value. Changes in the fair values of derivatives are reported in the consolidated statements of operations or other comprehensive income (“OCI”) depending on the use of the derivative and whether the instrument qualifies for hedge accounting. The key criterion for the hedge accounting is that the hedged relationship must be highly effective in achieving offsetting changes in those cash flows that are attributable to the hedged risk, both at inception of the hedge and on an ongoing basis.

Derivatives that qualify for the hedge accounting treatment are designated as either: a hedge of the fair value of the recognized asset or liability or of an unrecognized commitment (a fair value hedge) or a hedge of a forecasted transaction or the variability of cash flows to be received or paid related to a recognized asset or liability (a cash flow hedge). To date, the Company has not entered into a cash flow hedge. For cash flow hedges, changes in the fair values of the derivative instruments are reported in OCI to the extent the hedge is effective. The gains and losses on derivative instruments that are reported in OCI are reflected in the consolidated statements of income in the periods in which the results of operations are impacted by the variability of the cash flows of the hedged item. Generally, net interest income is increased or decreased by amounts receivable or payable with respect to the derivatives, which qualify for hedge accounting. At inception of the hedge, a Company must establish the method it uses for assessing the effectiveness of the hedging derivative and the measurement approach for determining the ineffective aspect of the hedge. The ineffective portion of the hedge, if any, is recognized currently in the consolidated statements of operations and time value expiration of the hedge when measuring ineffectiveness is excluded.

The risk participation agreements are not designated against specific assets or liabilities under ASC 815, Derivatives and Hedging, and, therefore, do not qualify for hedge accounting. The derivatives are recorded on the balance sheet at fair value and changes in fair value of both the borrower and the offsetting swap agreements are recorded (and essentially offset) in non-interest income. The fair value of the derivative instruments incorporates a consideration of credit risk in accordance with ASC 820, resulting in some volatility in earnings each period.

Adoption of New Accounting Standards – In August 2015, FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606). This ASU is an update to ASU 2014-09, and delays the effective date of ASU 2014-09. The ASU provides guidance on revenue recognition for entities that enter into contracts with customers to transfer goods or services or enter into contracts for the transfer of nonfinancial assets. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Additional disclosures are required to provide quantitative and qualitative information regarding the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The new guidance is effective for annual reporting periods, and interim reporting periods within those annual periods, beginning after December 15, 2017. The Company’s revenue is comprised of net interest income on financial assets and liabilities, which is explicitly excluded from the scope of this guidance, and non-interest income. Based on the evaluation of the Company’s non-interest income revenue streams, adoption of this new guidance will not have a material impact on the consolidated financial statements. Changes to the related disclosures are still being finalized.

In January 2016, the FASB issued an update ASU No. 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The amendments in this update impact public business entities as follows: 1) Require equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. 2) Simplify the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment. When a qualitative assessment indicates that impairment exists, an entity is required to measure the investment at fair value. 3) Eliminate the requirement to disclose the methods and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet. 4) Require entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes. 5) Require an entity to present separately in other comprehensive income the portion of the total change in fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. 6) Require separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements. 7) Clarify that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. The amendments in this update become effective for annual periods and interim periods within those annual periods beginning after December 15, 2017. The impact of adopting the new guidance did not have a material impact on the consolidated financial statements, but will require additional disclosures. The Company currently does not have any equity investments.

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In February 2016, the FASB issued an update ASU No. 2016-02, Leases (Topic 842). Under the new guidance, lessees will be required to recognize the following for all leases, with the exception of short-term leases, at the commencement date: a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under the new guidance, lessor accounting in largely unchanged. The amendments in this update become effective for annual periods and interim periods within those annual periods beginning after December 15, 2018. The impact of adopting the new guidance on the consolidated financial statements will not have a material impact.

In June 2016, the FASB issued ASU No. 2016-13, –Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The final standard will change estimates for credit losses related to financial assets measured at amortized cost such as loans, held-to-maturity debt securities, and certain other contracts. For estimating credit losses, the FASB is replacing the incurred loss model with an expected loss model, which is referred to as the current expected credit loss (CECL) model. Under the CECL model, certain financial assets that are carried at amortized cost, such as loans held for investment and held-to-maturity debt securities, are required to be presented at the net amount expected to be collected. The measurement of expected credit losses is to be based on information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. This measurement will take place at the time the financial asset is first added to the balance sheet and periodically thereafter. This differs significantly from the “incurred loss” model required under current GAAP, which delays recognition until it is probable a loss has been incurred. The change could materially affect how the allowance for loan losses is determined. The standard is effective for public companies for fiscal years beginning after December 15, 2019. Management is currently gathering loan level data, and assessing our data and system needs. The impact of CECL model implementation is being evaluated, but it is expected that a one-time cumulative-effect adjustment to the allowance for loan losses will be recognized in retained earnings on the consolidated balance sheet as of the beginning of the first reporting period in which the new standard is effective, as is consistent with regulatory expectations set forth in interagency guidance. The magnitude of any adjustment or the overall impact of the new standard on financial condition or results of operation cannot yet be determined.

In March 2017, the FASB issued ASU No. 2017-08, –Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization of Purchased Callable Debt Securities. The final standard will shorten the amortization period for premiums on callable debt securities by requiring that premiums be amortized to the first (or earliest) call date instead of as an adjustment to the yield over the contractual life. The standard is effective for public companies for fiscal years beginning after December 15, 2018. The Company is currently evaluating the impact of adopting the new guidance on the consolidated financial statements.

In February 2018, the FASB issued ASU No. 2018-02, –Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects From Other Comprehensive Income. The final standard allows institutions to elect to reclassify the stranded tax effects from AOCI to retained earnings, limited to amounts in AOCI that are affected by the tax reform law.  This includes remeasuring deferred tax assets and liabilities related to items presented in AOCI at the newly enacted tax rate and on other income tax effects of items remaining in AOCI. The standard is effective for public companies for fiscal years beginning after December 15, 2018, and interim periods during 2018. Early adoption is permitted.  The Company will adopt the standard in the first quarter of 2018 and adoption will not have a material impact on the consolidated financial statements.

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NOTE 2 – SECURITIES

Securities are classified into available for sale (AFS) and held to maturity (HTM) categories. AFS securities are those that may be sold if needed for liquidity, asset liability management, or other reasons. AFS securities are reported at fair value, with unrealized gains or losses included as a separate component of equity, net of tax. HTM securities are those that the Bank has the intent and ability to hold to maturity and are reported at amortized cost.

The amortized cost and fair value of securities and the related gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) were as follows:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
December 31, 2017	(in thousands)
Available for sale
U.S. Government and federal agency	$	22,105	$	2	$	(483	)	$	21,624
Agency mortgage-backed: residential		65,935		117		(1,087	)		64,965
Collateralized loan obligations		25,343		182		(20	)		25,505
State and municipal		33,303		508		(101	)		33,710
Corporate bonds		6,838		78		—			6,916
Total available for sale	$	153,524	$	887	$	(1,691	)	$	152,720

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
December 31, 2016	(in thousands)
Available for sale
U.S. Government and federal agency	$	34,757	$	50	$	(708	)	$	34,099
Agency mortgage-backed: residential		103,390		455		(1,492	)		102,353
Collateralized loan obligations		11,203		—		—			11,203
State and municipal		2,028		25		(8	)		2,045
Corporate bonds		3,069		24		(3	)		3,090
Total available for sale	$	154,447	$	554	$	(2,211	)	$	152,790

	Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses			Fair Value
Held to maturity
State and municipal	$	41,818	$	1,272	$	(18	)	$	43,072
Total held to maturity	$	41,818	$	1,272	$	(18	)	$	43,072

In 2013, the Bank transferred a portion of its tax-free municipal and taxable municipal bond portfolios from AFS to HTM. At that time, the transfer occurred at fair value with the unrealized loss of $1.3 million remaining in other comprehensive income. That unrealized loss has subsequently been amortized on the level yield method out of other comprehensive income with an offsetting entry reducing interest income as a yield adjustment through earnings. No gain or loss was recorded at the time of transfer in 2013. Given the Bank’s current balance sheet composition, interest rate risk profile, the current tax environment, and the Bank’s strategic plan, management reassessed the classification of the held to maturity securities and, effective December 1, 2017, transferred $41.4 million of tax-free municipals and taxable municipals from HTM to AFS. As a result, the $702,000 in remaining unamortized loss from the 2013 transfer was reclassified through a book value adjustment of these securities. At December 31, 2017, these securities were carried at fair value with unrealized holding gains and losses reported in other comprehensive income, net of tax, with the remaining securities classified as AFS.

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Sales and calls of securities were as follows:

	2017		2016		2015
	(in thousands)
Proceeds	$	41,733	$	8,311	$	45,012
Gross gains		449		245		1,902
Gross losses		161		29		136

The tax provision related to net gains and losses realized on sales was $101,000, $76,000, and $618,000, respectively.

The amortized cost and fair value of our debt securities are shown by contractual maturity. Expected maturities may differ from actual maturities when borrowers have the right to call or prepay obligations with or without call or prepayment penalties. Mortgage-backed securities not due at a single maturity date are shown separately.

	December 31, 2017
	Amortized Cost		Fair Value
	(in thousands)
Maturity
Available for sale
Within one year	$	14,648	$	14,682
One to five years		40,197		40,675
Five to ten years		32,744		32,398
Agency mortgage-backed: residential		65,935		64,965
Total	$	153,524	$	152,720

Securities pledged at year-end 2017 and 2016 had carrying values of approximately $76.8 million and $61.2 million, respectively, and were pledged to secure public deposits.

At December 31, 2017 and 2016, the Bank held securities issued by the Commonwealth of Kentucky or Kentucky municipalities having a book value of $15.4 million and $16.4 million, respectively. At year-end 2017, there were no other holdings of securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of stockholders’ equity.

The Company evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to the length of time and the extent to which the fair value has been less than cost, the financial condition and near-term prospects of the issuer, underlying credit quality of the issuer, and the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. In analyzing an issuer’s financial condition, the Company may consider whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, the sector or industry trends and cycles affecting the issuer, and the results of reviews of the issuer’s financial condition. As of December 31, 2017, management does not believe any securities in the portfolio with unrealized losses should be classified as other than temporarily impaired.

Securities with unrealized losses at December 31, 2017 and December 31, 2016, aggregated by investment category and length of time the individual securities have been in a continuous unrealized loss position, are as follows:

	Less than 12 Months					12 Months or More					Total
Description of Securities	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
	(in thousands)
2017
Available for sale
U.S. Government and federal agency	$	5,788	$	(97	)	$	14,121	$	(386	)	$	19,909	$	(483	)
Agency mortgage-backed: residential		21,104		(172	)		27,158		(915	)		48,262		(1,087	)
State and municipal		7,492		(101	)		—		—			7,492		(101	)
Collateralized loan obligations		6,038		(20	)		—		—			6,038		(20	)
Total temporarily impaired	$	40,422	$	(390	)	$	41,279	$	(1,301	)	$	81,701	$	(1,691	)

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	Less than 12 Months					12 Months or More					Total
Description of Securities	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
	(in thousands)
2016
Available for sale
U.S. Government and federal agency	$	27,738	$	(708	)	$	—	$	—		$	27,738	$	(708	)
Agency mortgage-backed: residential		63,460		(1,449	)		2,745		(43	)		66,205		(1,492	)
State and municipal		465		(8	)		—		—			465		(8	)
Corporate bonds		—		—			1,566		(3	)		1,566		(3	)
Total temporarily impaired	$	91,663	$	(2,165	)	$	4,311	$	(46	)	$	95,974	$	(2,211	)
Held to maturity
State and municipal		1,540		(18	)		—		—			1,540		(18	)
Total	$	1,540	$	(18	)	$	—	$	—		$	1,540	$	(18	)

NOTE 3 – LOANS

Loans net of unearned income, deferred loan origination costs, and net premiums on acquired loans by class were as follows:

	2017			2016
	(in thousands)
Commercial	$	113,771		$	97,761
Commercial Real Estate:
Construction		57,342			36,330
Farmland		88,320			71,507
Nonfarm nonresidential		156,724			149,546
Residential Real Estate:
Multi-family		56,588			48,197
1-4 Family		179,222			188,092
Consumer		18,439			9,818
Agriculture		41,154			37,508
Other		555			477
Subtotal		712,115			639,236
Less: Allowance for loan losses		(8,202	)		(8,967	)
Loans, net	$	703,913		$	630,269

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The following table presents the activity in the allowance for loan losses by portfolio segment for the year ended December 31, 2017, 2016, and 2015:

	Commercial			Commercial Real Estate			Residential Real Estate			Consumer			Agriculture			Other			Total
December 31, 2017:	(in thousands)
Beginning balance	$	475		$	4,894		$	3,426		$	8		$	162		$	2		$	8,967
Provision (negative provision)		363			(1,223	)		(129	)		(8	)		213			(16	)		(800	)
Loans charged off		(5	)		(58	)		(692	)		(51	)		(95	)		–			(901	)
Recoveries		59			419			295			115			33			15			936
Ending balance	$	892		$	4,032		$	2,900		$	64		$	313		$	1		$	8,202

December 31, 2016:
Beginning balance	$	818		$	6,993		$	3,984		$	122		$	122		$	2		$	12,041
Provision (negative provision)		(401	)		(2,438	)		749			(314	)		(56	)		10			(2,450	)
Loans charged off		(276	)		(505	)		(1,652	)		(99	)		(18	)		(79	)		(2,629	)
Recoveries		334			844			345			299			114			69			2,005
Ending balance	$	475		$	4,894		$	3,426		$	8		$	162		$	2		$	8,967

December 31, 2015:
Beginning balance	$	2,046		$	10,931		$	5,787		$	274		$	319		$	7		$	19,364
Provision (negative provision)		(1,255	)		(2,713	)		(316	)		(115	)		(87	)		(14	)		(4,500	)
Loans charged off		(696	)		(2,879	)		(2,171	)		(221	)		(118	)		(47	)		(6,132	)
Recoveries		723			1,654			684			184			8			56			3,309
Ending balance	$	818		$	6,993		$	3,984		$	122		$	122		$	2		$	12,041

The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on the impairment method as of December 31, 2017:

	Commercial		Commercial Real Estate		Residential Real Estate		Consumer		Agriculture		Other		Total
	(in thousands)
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	13	$	–	$	206	$	–	$	–	$	–	$	219
Collectively evaluated for impairment		879		4,032		2,694		64		313		1		7,983
Total ending allowance balance	$	892	$	4,032	$	2,900	$	64	$	313	$	1	$	8,202
Loans:
Loans individually evaluated for impairment	$	587	$	2,635	$	3,950	$	1	$	–	$	–	$	7,173
Loans collectively evaluated for impairment		113,184		299,751		231,860		18,438		41,154		555		704,942
Total ending loans balance	$	113,771	$	302,386	$	235,810	$	18,439	$	41,154	$	555	$	712,115

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The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on the impairment method as of December 31, 2016:

	Commercial		Commercial Real Estate		Residential Real Estate		Consumer		Agriculture		Other		Total
	(in thousands)
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	13	$	35	$	350	$	–	$	1	$	–	$	399
Collectively evaluated for impairment		462		4,859		3,076		8		161		2		8,568
Total ending allowance balance	$	475	$	4,894	$	3,426	$	8	$	162	$	2	$	8,967
Loans:
Loans individually evaluated for impairment	$	595	$	5,854	$	8,621	$	1	$	60	$	–	$	15,131
Loans collectively evaluated for impairment		97,166		251,529		227,668		9,817		37,448		477		624,105
Total ending loans balance	$	97,761	$	257,383	$	236,289	$	9,818	$	37,508	$	477	$	639,236

Impaired Loans

Impaired loans include restructured loans and loans on nonaccrual or classified as doubtful, whereby collection of the total amount is improbable, or loss, whereby all or a portion of the loan has been written off or a specific allowance for loss had been provided.

The following table presents information related to loans individually evaluated for impairment by class of loan as of and for the year ended December 31, 2017:

	Unpaid Principal Balance		Recorded Investment		Allowance For Loan Losses Allocated		Average Recorded Investment		Interest Income Recognized		Cash Basis Income Recognized
	(in thousands)
With No Related Allowance Recorded:
Commercial	$	703	$	487	$	—	$	495	$	7	$	7
Commercial real estate:
Construction		—		—		—		—		—		—
Farmland		3,687		2,059		—		2,651		210		210
Nonfarm nonresidential		1,047		576		—		716		59		47
Residential real estate:
Multi-family		—		—		—		820		—		—
1-4 Family		4,293		2,787		—		2,884		143		143
Consumer		9		1		—		2		2		2
Agriculture		—		—		—		24		1		1
Other		—		—		—		—		—		—
Subtotal		9,739		5,910		—		7,592		422		410
With An Allowance Recorded:
Commercial		100		100		13		100		7		—
Commercial real estate:
Construction		—		—		—		—		—		—
Farmland		—		—		—		235		—		—
Nonfarm nonresidential		—		—		—		238		14		—
Residential real estate:
Multi-family		—		—		—		—		—		—
1-4 Family		1,163		1,163		206		1,404		68		—
Consumer		—		—		—		—		—		—
Agriculture		—		—		—		24		—		—
Other		—		—		—		—		—		—
Subtotal		1,263		1,263		219		2,001		89		—
Total	$	11,002	$	7,173	$	219	$	9,593	$	511	$	410

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The following table presents information related to loans individually evaluated for impairment by class of loan as of and for the year ended December 31, 2016:

	Unpaid Principal Balance		Recorded Investment		Allowance For Loan Losses Allocated		Average Recorded Investment		Interest Income Recognized		Cash Basis Income Recognized
	(in thousands)
With No Related Allowance Recorded:
Commercial	$	707	$	495	$	—	$	758	$	39	$	39
Commercial real estate:
Construction		—		—		—		156		9		—
Farmland		5,566		3,742		—		4,188		94		95
Nonfarm nonresidential		4,502		1,219		—		4,699		310		189
Residential real estate:
Multi-family		4,100		4,100		—		2,608		287		1
1-4 Family		4,663		2,910		—		5,509		162		94
Consumer		41		1		—		7		8		8
Agriculture		—		—		—		73		28		28
Other		—		—		—		—		—		—
Subtotal		19,579		12,467		—		17,998		937		454
With An Allowance Recorded:
Commercial		100		100		13		20		6		—
Commercial real estate:
Construction		—		—		—		—		—		—
Farmland		614		590		5		358		—		—
Nonfarm nonresidential		303		303		30		398		23		—
Residential real estate:
Multi-family		—		—		—		2,506		101		—
1-4 Family		1,676		1,611		350		1,659		111		—
Consumer		—		—		—		—		—		—
Agriculture		78		60		1		39		—		—
Other		—		—		—		—		—		—
Subtotal		2,771		2,664		399		4,980		241		—
Total	$	22,350	$	15,131	$	399	$	22,978	$	1,178	$	454

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The following table presents information related to loans individually evaluated for impairment by class of loan as of and for the year ended December 31, 2015:

	Unpaid Principal Balance		Recorded Investment		Allowance For Loan Losses Allocated		Average Recorded Investment		Interest Income Recognized		Cash Basis Income Recognized
	(in thousands)
With No Related Allowance Recorded:
Commercial	$	1,558	$	1,112	$	—	$	1,526	$	5	$	5
Commercial real estate:
Construction		278		262		—		1,993		14		1
Farmland		6,004		4,263		—		4,497		114		114
Nonfarm nonresidential		11,256		7,829		—		16,073		263		9
Residential real estate:
Multi-family		32		32		—		35		—		—
1-4 Family		14,066		11,756		—		13,584		456		99
Consumer		118		20		—		23		—		—
Agriculture		260		152		—		206		—		—
Other		—		—		—		49		5		5
Subtotal		33,572		25,426		—		37,986		857		233
With An Allowance Recorded:
Commercial		—		—		—		13		—		—
Commercial real estate:
Construction		—		—		—		—		—		—
Farmland		—		—		—		63		—		—
Nonfarm nonresidential		574		465		43		4,591		25		—
Residential real estate:
Multi-family		4,195		4,195		57		4,229		204		—
1-4 Family		1,690		1,690		328		1,705		89		—
Consumer		—		—		—		8		—		—
Agriculture		—		—		—		—		—		—
Other		—		—		—		—		—		—
Subtotal		6,459		6,350		428		10,609		318		—
Total	$	40,031	$	31,776	$	428	$	48,595	$	1,175	$	233

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Troubled Debt Restructuring

A troubled debt restructuring (TDR) occurs when the Bank has agreed to a loan modification in the form of a concession for a borrower who is experiencing financial difficulty. The Bank’s TDRs typically involve a reduction in interest rate, a deferral of principal for a stated period of time, or an interest only period. All TDRs are considered impaired and the Bank has allocated reserves for these loans to reflect the present value of the concessionary terms granted to the borrower.

The following table presents the types of TDR loan modifications by portfolio segment outstanding as of December 31, 2017 and 2016:

	TDRs Performing to Modified Terms		TDRs Not Performing to Modified Terms		Total TDRs
	(in thousands)
December 31, 2017
Commercial
Rate reduction	$	—	$	33	$	33
Principal deferral		—		434		434
Commercial Real Estate:
Farmland
Principal deferral		—		1,362		1,362
Nonfarm nonresidential
Rate reduction		483		—		483
Residential Real Estate:
1-4 Family
Rate reduction		734		—		734
Total TDRs	$	1,217	$	1,829	$	3,046
December 31, 2016
Commercial
Rate reduction	$	—	$	33	$	33
Principal deferral		—		434		434
Commercial Real Estate:
Farmland
Principal deferral		—		2,300		2,300
Nonfarm nonresidential
Rate reduction		507		—		507
Principal deferral		—		607		607
Residential Real Estate:
Multi-family
Rate reduction		4,100		—		4,100
1-4 Family
Rate reduction		743		—		743
Total TDRs	$	5,350	$	3,374	$	8,724

At December 31, 2017 and 2016, 40% and 61%, respectively, of the Company’s TDRs were performing according to their modified terms. The Company allocated $122,000 and $197,000 as of December 31, 2017 and 2016, respectively, in reserves to customers whose loan terms have been modified in TDRs. The Company has committed to lend no additional amounts to customers as of December 31, 2017 or 2016 with outstanding loans that are classified as TDRs.

Management periodically reviews renewals and modifications of previously identified TDRs, for which there was no principal forgiveness, to consider if it is appropriate to remove the TDR classification. If the borrower is no longer experiencing financial difficulty and the renewal/modification did not contain a concessionary interest rate or other concessionary terms, management considers the potential removal of the TDR classification. If deemed appropriate based upon current underwriting, the TDR classification is removed as the borrower has complied with the terms of the loan at the date of renewal/modification and there was a reasonable expectation that the borrower would continue to comply with the terms of the loan subsequent to the date of the renewal/modification. In this instance, the TDR was originally considered a restructuring in a prior year as a result of a modification with an interest rate that was not commensurate with the risk of the underlying loan. Additionally, TDR classification can be removed in circumstances in which the Company performs a non-concessionary re-modification of the loan at terms that were considered to be at market for loans with comparable risk. Management expects the borrower will continue to perform under the re-modified terms based on the borrower’s past history of performance. During 2017, the TDR classification was removed from two loans that met the requirements as discussed above. These loans totaled $4.1 million at December 31, 2016. These loans are no longer evaluated individually for impairment.

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No TDR loan modifications occurred during the twelve months ended December 31, 2017 or 2016. During the year ended December, 31 2017 and 2016, no TDRs defaulted on their restructured loan within the twelve-month period following the loan modification. A default is considered to have occurred once the TDR is past due 90 days or more or it has been placed on nonaccrual.

Non-performing Loans

Non-performing loans include impaired loans and smaller balance homogeneous loans, such as residential mortgage and consumer loans, that are collectively evaluated for impairment. The following table presents the recorded investment in nonaccrual and loans past due 90 days and still on accrual by class of loan as of December 31, 2017 and 2016:

	Nonaccrual				Loans Past Due 90 Days And Over Still Accruing
	2017		2016		2017		2016
	(in thousands)
Commercial	$	487	$	495	$	—	$	—
Commercial Real Estate:
Construction		—		—		—		—
Farmland		2,059		4,332		—		—
Nonfarm nonresidential		93		1,016		—		—
Residential Real Estate:
Multi-family		—		—		—		—
1-4 Family		2,817		3,312		—		—
Consumer		1		1		1		—
Agriculture		—		60		—		—
Other		—		—		—		—
Total	$	5,457	$	9,216	$	1	$	—

The following table presents the aging of the recorded investment in past due loans by class as of December 31, 2017 and 2016:

	30 – 59 Days Past Due		60 – 89 Days Past Due		90 Days And Over Past Due		Nonaccrual		Total Past Due And Nonaccrual
	(in thousands)
December 31, 2017
Commercial	$	—	$	—	$	—	$	487	$	487
Commercial Real Estate:
Construction		—		—		—		—		—
Farmland		593		—		—		2,059		2,652
Nonfarm nonresidential		—		—		—		93		93
Residential Real Estate:
Multi-family		—		—		—		—		—
1-4 Family		850		126		—		2,817		3,793
Consumer		30		45		—		1		76
Agriculture		5		—		1		—		6
Other		—		—		—		—		—
Total	$	1,478	$	171	$	1	$	5,457	$	7,107

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	30 – 59 Days Past Due		60 – 89 Days Past Due		90 Days And Over Past Due		Nonaccrual		Total Past Due And Nonaccrual
	(in thousands)
December 31, 2016
Commercial	$	—	$	—	$	—	$	495	$	495
Commercial Real Estate:
Construction		—		—		—		—		—
Farmland		626		—		—		4,332		4,958
Nonfarm nonresidential		—		59		—		1,016		1,075
Residential Real Estate:
Multi-family		—		—		—		—		—
1-4 Family		1,454		256		—		3,312		5,022
Consumer		19		—		—		1		20
Agriculture		203		—		—		60		263
Other		—		—		—		—		—
Total	$	2,302	$	315	$	—	$	9,216	$	11,833

Credit Quality Indicators

Management categorizes all loans into risk categories at origination based upon original underwriting. Thereafter, management categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as current financial information, historical payment experience, credit documentation, public information, and current economic trends. Additionally, loans are analyzed through internal and external loan review processes. Borrower relationships in excess of $500,000 are routinely analyzed through the credit administration processes which classify the loans as to credit risk. The following definitions are used for risk ratings:

Watch – Loans classified as watch are those loans which have or may experience a potentially adverse development which necessitates increased monitoring.

Special Mention – Loans classified as special mention do not have all of the characteristics of substandard or doubtful loans. They have one or more deficiencies which warrant special attention and which corrective action, such as accelerated collection practices, may remedy.

Substandard – Loans classified as substandard are those loans with clear and defined weaknesses such as a highly leveraged position, unfavorable financial ratios, uncertain repayment sources or poor financial condition which may jeopardize the repayment of the debt as contractually agreed. They are characterized by the possibility of some losses if the deficiencies are not corrected.

Doubtful – Loans classified as doubtful are those loans which have characteristics similar to substandard loans but with an increased risk that collection or liquidation in full is highly questionable and improbable.

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Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be “Pass” rated loans. As of December 31, 2017 and 2016, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

	Pass		Watch		Special Mention		Substandard		Doubtful		Total
	(in thousands)
December 31, 2017
Commercial	$	112,978	$	84	$	—	$	709	$	—	$	113,771
Commercial Real Estate:
Construction		57,342		—		—		—		—		57,342
Farmland		76,563		7,607		—		4,150		—		88,320
Nonfarm nonresidential		152,004		2,906		—		1,814		—		156,724
Residential Real Estate:
Multi-family		47,121		9,467		—		—		—		56,588
1-4 Family		169,774		3,535		164		5,749		—		179,222
Consumer		18,042		306		—		91		—		18,439
Agriculture		38,654		1,810		—		690		—		41,154
Other		555		—		—		—		—		555
Total	$	673,033	$	25,715	$	164	$	13,203	$	—	$	712,115

	Pass		Watch		Special Mention		Substandard		Doubtful		Total
	(in thousands)
December 31, 2016
Commercial	$	96,402	$	294	$	—	$	1,065	$	—	$	97,761
Commercial Real Estate:
Construction		35,823		507		—		—		—		36,330
Farmland		63,323		1,521		—		6,663		—		71,507
Nonfarm nonresidential		142,222		5,217		445		1,662		—		149,546
Residential Real Estate:
Multi-family		38,281		6,080		—		3,836		—		48,197
1-4 Family		173,565		6,909		52		7,566		—		188,092
Consumer		9,397		348		—		73		—		9,818
Agriculture		26,940		9,555		—		1,013		—		37,508
Other		477		—		—		—		—		477
Total	$	586,430	$	30,431	$	497	$	21,878	$	—	$	639,236

NOTE 4 – PREMISES AND EQUIPMENT

Year-end premises and equipment were as follows:

	2017			2016
	(in thousands)
Land and buildings	$	23,124		$	23,515
Furniture and equipment		10,151			10,050
		33,275			33,565
Accumulated depreciation		(16,486	)		(15,717	)
	$	16,789		$	17,848

Depreciation expense was $955,000, $1.1 million and $1.0 million for 2017, 2016 and 2015, respectively.

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NOTE 5 – OTHER REAL ESTATE OWNED

Other real estate owned (OREO) is real estate acquired as a result of foreclosure or by deed in lieu of foreclosure. It is classified as real estate owned until such time as it is sold. When property is acquired as a result of foreclosure or by deed in lieu of foreclosure, it is recorded at its fair market value less cost to sell. Any write-down of the property at the time of acquisition is charged to the allowance for loan losses.

Fair value of OREO is determined on an individual property basis. When foreclosed properties are acquired, management obtains a new appraisal of the subject property or has staff from the Bank’s special assets group evaluate the latest in-file appraisal in connection with the transfer to OREO. Updated appraisals are typically obtained within five quarters of the anniversary date of ownership unless a sale is imminent. Subsequent reductions in fair value are recorded as non-interest expense when a new appraisal indicates a decline in value or in cases where a listing price is lowered below the appraised amount. 

The following table presents the major categories of OREO at the period-ends indicated:

	2017		2016
	(in thousands)
Commercial Real Estate:
Construction, land development, and other land	$	4,335	$	6,571
Farmland		74		—
Residential Real Estate:
1-4 Family		—		250
	$	4,409	$	6,821

Residential loans secured by 1-4 family residential properties in the process of foreclosure totaled $616,000 and $932,000 at December 31, 2017 and December 31, 2016, respectively.

Activity relating to OREO owned during the years indicated is as follows:

	2017			2016			2015
	(in thousands)
OREO Activity
OREO as of January 1	$	6,821		$	19,214		$	46,197
Real estate acquired		270			1,273			5,513
Valuation adjustment write-downs		(1,963	)		(1,180	)		(9,855	)
Net gain (loss) on sale		74			222			(74	)
Proceeds from sale of properties		(793	)		(12,708	)		(22,567	)
OREO as of December 31	$	4,409		$	6,821		$	19,214

There was no OREO rental income for the year ended December 31, 2017, compared to $456,000, and $1.3 million for the years ended December 31, 2016, and 2015, respectively.

Expenses related to OREO owned include:

	2017			2016			2015
	(in thousands)
Net (gain) loss on sales	$	(74	)	$	(222	)	$	74
Valuation adjustment write-downs		1,963			1,180			9,855
Operating expense		84			583			2,373
Total	$	1,973		$	1,541		$	12,302

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NOTE 6 – DEPOSITS

The following table details deposits by category:

	December 31, 2017		December 31, 2016
	(in thousands)
Non-interest bearing	$	137,386	$	124,395
Interest checking		99,383		103,876
Money market		151,388		142,497
Savings		34,632		34,518
Certificates of deposit		424,235		444,639
Total	$	847,024	$	849,925

Time deposits of $250,000 or more were approximately $31.7 million and $29.1 million at year-end 2017 and 2016, respectively.

Scheduled maturities of total time deposits for each of the next five years are as follows (in thousands):

	Total
2018	$	204,018
2019		178,479
2020		27,507
2021		5,316
2022		8,915
	$	424,235

NOTE 7 – ADVANCES FROM FEDERAL HOME LOAN BANK

At year-end, advances from the Federal Home Loan Bank were as follows:

	2017		2016
	(in thousands)
Advances with fixed rates from 0.00% to 5.24% and maturities ranging from 2018 through 2033, averaging 1.48% for 2017 and 0.85% for 2016	$	11,797	$	22,458

Each advance is payable per terms on agreement, with a prepayment penalty. No prepayment penalties were incurred during 2017 or 2016. The advances were collateralized by approximately $130.9 million and $124.2 million of first mortgage loans, under a blanket lien arrangement at year-end 2017 and 2016, respectively. At December 31, 2017, our additional borrowing capacity with the FHLB was $79.0 million.

Scheduled principal payments during the next five years and thereafter (in thousands):

	Advances
2018	$	10,200
2019		180
2020		485
2021		728
2022		108
Thereafter		96
	$	11,797

At year-end 2017, the Company had a $5.0 million federal funds line of credit available on an unsecured basis from a correspondent institution.

NOTE 8 – SUBORDINATED CAPITAL NOTE

The outstanding principal amount of the Bank’s subordinated capital note totaled $2.3 million at December 31, 2017. The note is unsecured, bears interest at the BBA three-month LIBOR floating rate plus 300 basis points, and qualifies as Tier 2 capital until five years before maturity on July 1, 2020. During the final five-year period to maturity, one-fifth of principal amount of the subordinated note is excluded from Tier 2 capital each year and until fully excluded from Tier 2 capital during the year before maturity. Principal payments of $225,000 plus interest are due quarterly. Scheduled principal payments of $900,000 per year are due each of the next two years with $450,000 due thereafter. The interest rate was 4.34% and 3.85% at December 31, 2017 and 2016, respectively.

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NOTE 9 – JUNIOR SUBORDINATED DEBENTURES

The junior subordinated debentures are redeemable at par prior to maturity at the option of the Company as defined within the trust indenture. The Company has the option to defer interest payments on the junior subordinated debentures from time to time for a period not to exceed 20 consecutive quarters. A deferral period may begin at the Company’s discression so long as interest payments are current. The Company is prohibited from paying dividends on its preferred and common shares when interest payments are in deferral.

On April 15, 2016, the Company completed the private placement of 580,000 common shares and 220,000 non-voting common shares to accredited investors resulting in total proceeds of $5.0 million. The investors in the private placement directed a portion of purchase price to pay all deferred interest payments on junior subordinated debentures, bringing our interest payments current through the second quarter of 2016.

On June 29, 2016, the Company notified the trustees of its election to again defer interest payments effective with the third quarter 2016 payment. The deferral period ends after the second quarter of 2021. After 20 consecutive quarters, the Company must pay all deferred distributions to avoid default. Dividends accrued and unpaid on our junior subordinated debentures totaled $1.2 million at December 31, 2017.

A summary of the junior subordinated debentures is as follows:

Description	Issuance Date	Interest Rate (1)	Junior Subordinated Debt Owed To Trust		Maturity Date (2)
Porter Statutory Trust II	2/13/2004	3-month LIBOR + 2.85%	$	5,000,000	2/13/2034
Porter Statutory Trust III	4/15/2004	3-month LIBOR + 2.79%		3,000,000	4/15/2034
Porter Statutory Trust IV	12/14/2006	3-month LIBOR + 1.67%		10,000,000	3/01/2037
Ascencia Statutory Trust I	2/13/2004	3-month LIBOR + 2.85%		3,000,000	2/13/2034
			$	21,000,000

(1) As of December 31, 2017, the 3-month LIBOR was 1.69%.

(2) The debentures are callable at our option at their principal amount plus accrued interest.

On September 30, 2015, the Company completed a common equity for debt exchange with holders of $4.0 million of the capital securities (the “Trust Securities”) of Porter Statutory Trust IV, a trust subsidiary of the Company. Accrued and unpaid interest on the Trust Securities totaled of approximately $330,000. In exchange for the $4.3 million debt and interest liability, the Company issued 160,000 common shares and 80,000 non-voting common shares, for a total of 240,000 shares. In the transaction, a wholly owned subsidiary of the Company received a one-third portion of the Trust Securities directly from an unrelated third party in exchange for the issuance of 80,000 common shares resulting in an $883,000 gain on extinguishment of debt. The $883,000 gain was determined based upon the difference in the $560,000 fair value of the common shares issued and the $1.4 million book value of the debt securities and accrued interest thereon tendered to the Company by the unrelated third party on the date of closing. The fair value of the shares issued to the unrelated third party was computed by multiplying the 80,000 shares issued by $7.00 per share, which was the NASDAQ closing price of the Company’s common stock on September 30, 2015. The subsidiary also received two-thirds of the Trust Securities having a book value of $2.9 million from related parties in exchange for the issuance of 80,000 common shares and 80,000 non-voting common shares. In accordance with ASC 470-50-40-2 and SEC Guidance 405-20-40-1.J, the debt and interest liability exchanged with related parties was treated as a capital transaction.

NOTE 10 – SENIOR DEBT

On June 30, 2017, the Company entered into a $10.0 million senior secured loan agreement with a commercial bank. The loan matures on June 30, 2022. Interest is payable quarterly at a rate of three-month LIBOR plus 250 basis points through June 30, 2020, at which time quarterly principal payments of $250,000 plus interest will commence. The loan is secured by a first priority pledge of 100% of the issued and outstanding stock of the Bank. The Company may prepay any amount due under the promissory note at any time without premium or penalty.

The Company contributed $9.0 million of the borrowing proceeds to the Bank as common equity Tier 1 capital. The remaining $1.0 million of the borrowing proceeds were retained by the lender in escrow to service quarterly interest payments. At December 31, 2017, the escrow account had a balance of $806,000.

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The loan agreement contains customary representations, warranties, covenants and events of default, including the following financial covenants: (i) the Company must maintain minimum cash on hand of not less than $750,000 through June 30, 2018, and not less than $2,500,000 thereafter, (ii) the Company must maintain a total risk based capital ratio at least equal to 9% of risk-weighted assets to June 30, 2018, and 10% thereafter, (iii) the Bank must maintain a total risk based capital ratio at least equal to 10% of risk-weighted assets to June 30, 2018, and 11% thereafter, and (iv) non-performing assets of the Bank may not exceed 2.5% of the Bank’s total assets. Both the Company and Bank were in compliance with the covenants as of December 31, 2017.

NOTE 11 – OTHER BENEFIT PLANS

401(k) Plan – The Company 401(k) Savings Plan allows employees to contribute up to the annual limits as determined by the Internal Revenue Service, which is matched equal to 50% of the first 4% of compensation contributed. The Company, at its discretion, may make an additional contribution. Total contributions made by the Company to the plan totaled approximately $200,000, $189,000 and $160,000 in 2017, 2016 and 2015, respectively.

Supplemental Executive Retirement Plan – The Company has a supplemental executive retirement plan covering certain executive officers. Under the plan, the Company pays each participant, or their beneficiary, a specific defined benefit amount over 10 years, beginning with the individual’s retirement or early termination of service for reasons other than cause. A liability is accrued for the obligation under these plans. The expense incurred for the plan was $121,000, $121,000 and $121,000 for the years ended December 31, 2017, 2016 and 2015, respectively. The related liability was $1.3 million at December 31, 2017 and 2016 and is included in other liabilities on the balance sheets.

The Company purchased life insurance on the participants of the plan. The cash surrender value of all insurance policies was $15.2 million and $14.8 million at December 31, 2017 and 2016, respectively. Income earned from the cash surrender value of life insurance totaled $412,000, $417,000 and $295,000 for the years ended December 31, 2017, 2016, and 2015, respectively. The income is recorded as other non-interest income.

NOTE 12 – INCOME TAXES

The Company has had a full valuation allowance against its net deferred tax asset since 2011. The Company’s ability to utilize the net deferred tax asset depends upon generating sufficient future levels of taxable income. The determination to restore a deferred tax asset and eliminate a valuation allowance depends upon the evaluation of both positive and negative evidence regarding the likelihood of achieving sufficient future taxable income levels. During the fourth quarter of 2017, management concluded it was more-likely-than-not the asset would be utilized to reduce future taxes payable related to the future taxable income of the Company, and as such, reversed the valuation allowance. The positive evidence that outweighed the negative evidence evaluated by management in arriving at the conclusion to remove the valuation allowance included, but was not limited to, the following:

● positive cumulative pre-tax earnings over the prior three-year period ended December 31, 2017

● growth in net interest income, stable non-interest income trends, and lower non-interest expense trends

● improvement in asset quality which increases management’s ability to forecast future taxable income and achieve forecasted results

● the Company’s net operating loss (“NOLs”) carryforwards do not begin to expire until 2032, and

● the Bank’s Consent Order was terminated in the fourth quarter of 2017

As a result of the conclusion to reverse the valuation allowance, the Company recorded an income tax benefit of $54.0 million for the year ended December 31, 2017.

On December 22, 2017, the Tax Cuts and Jobs Act of 2017 was signed into law. Among other significant changes to the tax code, the new law lowered the federal corporate tax rate from 35% to 21% beginning in 2018. As a result, the Company revalued its net deferred tax asset at the new 21% rate. Due to this revaluation, the Company recorded a $20.3 million charge to income tax expense for the year ended December 31, 2017.

The combination of the reversal of the valuation allowance and the change in federal corporate tax rates, as well as income tax expense for the year, resulted in an income tax benefit of $31.9 million for the year ended December 31, 2017.

81

Income tax expense (benefit) was as follows:

	2017			2016			2015
	(in thousands)
Current	$	—		$	21		$	—
Deferred		2,523			2,771			5,258
Net operating loss		(647	)		(4,009	)		(5,975	)
Change in federal statutory rate		20,274			—			—
Change in valuation allowance		(54,049	)		1,238			717
	$	(31,899	)	$	21		$	—

Effective tax rates differ from federal statutory rate of 35% applied to income (loss) before income taxes due to the following:

	2017			2016			2015
	(in thousands)
Federal statutory rate times financial statement income (loss)	$	2,294		$	(956	)	$	(1,125	)
Effect of:
Valuation allowance		(54,049	)		1,238			717
Tax-exempt income		(196	)		(211	)		(264	)
Non-taxable life insurance income		(144	)		(146	)		(103	)
Restricted stock vesting		(121	)		—			—
Change in federal statutory rate		20,274			—			—
Other, net		43			96			775
Total	$	(31,899	)	$	21		$	—

Year-end deferred tax assets and liabilities were due to the following:

	2017		2016
	(in thousands)
Deferred tax assets:
Net operating loss carry-forward	$	25,645	$	42,094
Allowance for loan losses		1,723		3,139
OREO write-down		2,432		3,366
Alternative minimum tax credit carry-forward		692		692
Net assets from acquisitions		358		674
Net unrealized loss on securities		169		867
New market tax credit carry-forward		208		208
Nonaccrual loan interest		271		481
Accrued expenses		172		3,860
Deferred compensation		277		465
Other		241		360
		32,188		56,206
Deferred tax liabilities:
FHLB stock dividends		557		928
Fixed assets		68		89
Deferred loan costs		152		274
Other		98		866
		875		2,157
Net deferred tax assets before valuation allowance		31,313		54,049
Valuation allowance		—		(54,049	)
Net deferred tax asset	$	31,313	$	—

At December 31, 2017, the Company had net operating loss carryforwards ("NOLs") of $122.1 million, which will begin to expire in 2031.

The Company does not have any beginning and ending unrecognized tax benefits. The Company does not expect the total amount of unrecognized tax benefits to significantly increase or decrease in the next twelve months. There were no interest and penalties recorded in the income statement or accrued for 2017 or 2016 related to unrecognized tax benefits.

82

Under Section 382 of the Internal Revenue Code, as amended (“Section 382”), the Company’s net operating loss carryforwards and other deferred tax assets can generally be used to offset future taxable income and therefore reduce federal income tax obligations. However, the Company's ability to use its NOLs would be limited if there was an “ownership change” as defined by Section 382. This would occur if shareholders owning (or deemed to own under the tax rules) 5% or more of the Company's voting and non-voting common shares increase their aggregate ownership of the Company by more than 50 percentage points over a defined period of time.

In 2015, the Company took two measures to preserve the value of its NOLs. First, the Company adopted a tax benefits preservation plan designed to reduce the likelihood of an “ownership change” occurring as a result of purchases and sales of the Company's common shares. Upon adoption of this plan, the Company declared a dividend of one preferred stock purchase right for each common share outstanding as of the close of business on July 10, 2015. Any shareholder or group that acquires beneficial ownership of 5% or more of the Company (an “acquiring person”) could be subject to significant dilution in its holdings if the Company's Board of Directors does not approve such acquisition. Existing shareholders holding 5% or more of the Company will not be considered acquiring persons unless they acquire additional shares, subject to certain exceptions described in the plan. In addition, the Board of Directors has the discretion to exempt certain transactions and certain persons whose acquisition of securities is determined by the Board not to jeopardize the Company's deferred tax assets. The rights will expire upon the earlier of (i) June 29, 2018, (ii) the beginning of a taxable year with respect to which the Board of Directors determines that no tax benefits may be carried forward, (iii) the repeal or amendment of Section 382 or any successor statute, if the Board of Directors determines that the plan is no longer needed to preserve the tax benefits, and (iv) certain other events as described in the plan.

On September 23, 2015, the Company’s shareholders approved an amendment to its articles of incorporation to further help protect the long-term value of the Company’s NOLs. The amendment provides a means to block transfers of our common shares that could result in an ownership change under Section 382. The transfer restrictions will expire on the earlier of (i) September 23, 2018, (ii) the beginning of a taxable year with respect to which the Board of Directors determines that no tax benefit may be carried forward, (iii) the repeal of Section 382 or any successor statute if our Board determines that the transfer restrictions are no longer needed to preserve the tax benefits of our NOLs, or (iv) such date as the Board otherwise determines that the transfer restrictions are no longer necessary.

The Company and its subsidiaries are subject to U.S. federal income tax and the Company is subject to income tax in the Commonwealth of Kentucky. The Company is no longer subject to examination by taxing authorities for years before 2014.

NOTE 13 – RELATED PARTY TRANSACTIONS

Loans to principal officers, directors, significant shareholders, and their affiliates in 2017 were as follows (in thousands):

Beginning balance	$	—
New loans		9,400
Repayments		—
Ending balance	$	9,400

Deposits from principal officers, directors, significant shareholders, and their affiliates at year-end 2017 and 2016 were $401,000 and $321,000, respectively.

Hogan Development Company assists the Bank in onboarding, managing, and selling the Bank’s OREO. Hogan Development Company is owned by W. Glenn Hogan, a director. The agreement with Hogan Development Company is periodically reviewed and evaluated by the Audit Committee. The Bank paid real estate management fees of $20,000 and $56,000 and real estate sales and leasing commissions of $6,000 and $478,000 to Hogan Development Company in 2017 and 2016, respectively.

On April 15, 2016, the Company completed the private placement of 580,000 common shares and 220,000 non-voting common shares to accredited investors resulting in total proceeds of $5.0 million. The investors in the private placement directed a portion of purchase price to pay all deferred interest payments on junior subordinated debentures, bringing our interest payments current through the second quarter of 2016. The investors included three directors of the Company, including President and CEO John T. Taylor, who purchased common shares on the same terms and conditions as the other investors.

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NOTE 14 – PREFERRED STOCK

The Company has issued and outstanding 6,198 Series E preferred shares and 4,304 Series F preferred shares, both of which series are not convertible into common shares, have a liquidation preference of $1,000 per share, and are entitled to a 2% noncumulative annual dividend if and when declared. Series E and Series F preferred shares rank senior to, and have liquidation and dividend preferences over, the common shares and non-voting common shares.

NOTE 15 – CAPITAL REQUIREMENTS AND RESTRICTIONS ON RETAINED EARNINGS

Banks and bank holding companies are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can result in regulatory action.

The final rules implementing Basel Committee on Banking Supervision’s capital guidelines for U.S. Banks (Basel III rules) became effective for the Company and Bank on January 1, 2015 with full compliance with all of the requirements being phased in over a multi-year schedule through January 1, 2019. The final rules allowed banks and their holding companies with less than $250 billion in assets a one-time opportunity to opt-out of a requirement to include unrealized gains and losses in accumulated other comprehensive income in their capital calculation. The Company and the Bank opted out of this requirement. The rules also establish a “capital conservation buffer” of 2.5% above the regulatory minimum risk-based capital ratios. Once the capital conservation buffer is fully phased in, the minimum ratios are a common equity Tier 1 risk-based capital ratio of 7.0%, a Tier 1 risk-based capital ratio of 8.5%, and a total risk-based capital ratio of 10.5%. The capital conservation buffer for 2017 is 1.25% and 0.625% for 2016. An institution is subject to limitations on paying dividends, engaging in share repurchases and paying discretionary bonuses if capital levels fall below minimum levels plus the buffer amounts. These limitations establish a maximum percentage of eligible retained income that could be utilized for such actions.     

The Bank is no longer subject to a consent order with the Federal Deposit Insurance Corporation and Kentucky Department of Financial Institutions. The Bank’s prior consent order was terminated effective October 31, 2017.

On September 21, 2011, the Company entered into a Written Agreement with the Federal Reserve Bank of St. Louis. Pursuant to the Agreement, management made formal commitments to use the Company’s financial and management resources to serve as a source of strength for the Bank and to assist the Bank in addressing weaknesses identified by the FDIC and the KDFI (which has since been terminated), to pay no dividends without prior written approval, to pay no interest or principal on subordinated debentures or trust preferred securities without prior written approval, and to submit an acceptable plan to maintain sufficient capital.

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The following tables show the ratios (excluding capital conservation buffer) and amounts of common equity Tier 1, Tier 1 capital, and total capital to risk-adjusted assets and the leverage ratios for Porter Bancorp, Inc. and the Bank at the dates indicated (dollars in thousands):

	Actual					Minimum Requirement for Capital Adequacy Purposes					Minimum Requirement to be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of December 31, 2017:
Total risk-based capital (to risk-weighted assets)
Consolidated	$	83,072		10.55	%	$	63,014		8.00	%		N/A		N/A
Bank		91,305		11.61			62,938		8.00		$	78,672		10.00	%
Total common equity Tier 1 risk- based capital (to risk-weighted assets)
Consolidated		54,535		6.92			35,445		4.50			N/A		N/A
Bank		81,393		10.35			35,403		4.50			51,137		6.50
Tier 1 capital (to risk-weighted assets)
Consolidated		66,487		8.44			47,260		6.00			N/A		N/A
Bank		81,393		10.35			47,203		6.00			62,938		8.00
Tier 1 capital (to average assets)
Consolidated		66,487		7.11			37,392		4.00			N/A		N/A
Bank		81,393		8.70			37,421		4.00			46,777		5.00

	Actual					Minimum Requirement for Capital Adequacy Purposes					Minimum Requirement to be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of December 31, 2016:
Total risk-based capital (to risk-weighted assets)
Consolidated	$	71,109		10.21	%	$	55,714		8.00	%		N/A		N/A
Bank		68,773		9.88			55,663		8.00		$	69,579		10.00	%
Total common equity Tier 1 risk- based capital (to risk-weighted assets)
Consolidated		36,199		5.20			31,339		4.50			N/A		N/A
Bank		57,642		8.28			31,311		4.50			45,226		6.50
Tier 1 capital (to risk-weighted assets)
Consolidated		48,713		6.99			41,786		6.00			N/A		N/A
Bank		57,642		8.28			41,747		6.00			55,663		8.00
Tier 1 capital (to average assets)
Consolidated		48,713		5.27			36,975		4.00			N/A		N/A
Bank		57,642		6.24			36,949		4.00			46,186		5.00

N/A: Not applicable. Regulatory framework does not define well capitalized for holding companies.

Kentucky banking laws limit the amount of dividends that may be paid to a holding company by its subsidiary banks without prior approval. These laws limit the amount of dividends that may be paid in any calendar year to current year’s net income, as defined in the laws, combined with the retained net income of the preceding two years, less any dividends declared during those periods. In addition, a bank must have positive retained earnings.

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NOTE 16 – OFF BALANCE SHEET RISKS, COMMITMENTS, AND CONTINGENT LIABILITIES

The Company, in the normal course of business, is party to financial instruments with off balance sheet risk. The financial instruments include commitments to extend credit and standby letters of credit. The contract or notional amounts of these instruments reflect the potential future obligations of the Company pursuant to those financial instruments. Creditworthiness for all instruments is evaluated on a case-by-case basis in accordance with the Company’s credit policies. Collateral from the client may be required based on the Company’s credit evaluation of the client and may include business assets of commercial clients, as well as personal property and real estate of individual clients or guarantors.

An approved but unfunded loan commitment represents a potential credit risk and a liquidity risk, since the Company’s client(s) may demand immediate cash that would require funding. In addition, unfunded loan commitments represent interest rate risk as market interest rates may rise above the rate committed to the Company’s client. Since a portion of these loan commitments normally expire unused, the total amount of outstanding commitments at any point in time may not require future funding. Commitments to make loans are generally made for periods of one year or less.

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a client to a third party. The terms and risk of loss involved in issuing standby letters of credit are similar to those involved in issuing loan commitments and extending credit. In addition to credit risk, the Company also has liquidity risk associated with standby letters of credit because funding for these obligations could be required immediately. The Company does not deem this risk to be material. No liability is currently established for standby letters of credit.

The following table presents the contractual amounts of financial instruments with off-balance sheet risk for each year

ended:

	2017				2016
	Fixed Rate		Variable Rate		Fixed Rate		Variable Rate
	(in thousands)
Commitments to make loans	$	27,349	$	31,412	$	19,445	$	18,347
Unused lines of credit		11,034		57,727		7,935		51,407
Standby letters of credit		2,216		373		582		360

Commitments to make loans are generally made for periods of one year or less.

In connection with the purchase of loan participations, the Bank entered into risk participation agreements, which had notional amounts totaling $19.8 million at December 31, 2017 and $14.6 million at December 31, 2016.

The Company is subject to claims and lawsuits that arise primarily in the ordinary course of business. Litigation is subject to inherent uncertainties and unfavorable rulings could occur. The Company records contingent liabilities resulting from claims against it when a loss is assessed to be probable and the amount of the loss is reasonably estimable. Accruals are not made in cases where liability is not probable or the amount cannot be reasonably estimated. Assessing probability of loss and estimating probable losses requires analysis of multiple factors, including in some cases judgments about the potential actions of third party claimants and courts. Recorded contingent liabilities are based on the best information available and actual losses in any future period are inherently uncertain. Based upon current knowledge and after consultation with counsel, the Company believes pending legal proceedings or claims should not have a material impact on its financial position or results of operations. However, in light of the uncertainties involved in such proceedings, the outcome of a particular matter may be material to the financial position or results of operations for a particular reporting period in the future.

On October 17, 2014, the United States Department of Justice (the “DOJ”) notified the Bank that it was the subject of an investigation into possible violations of federal laws, including, among other things, possible violations related to false bank entries, bank fraud and securities fraud. The investigation concerns allegations that Bank personnel engaged in practices intended to delay or avoid disclosure of the Bank’s asset quality at the time of and following the United States Treasury’s purchase of preferred shares from the Company in November 2008. The Bank has cooperated with all requests for information from DOJ. At this time, the DOJ has not indicated whether it intends to pursue any action in this matter.

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NOTE 17 – FAIR VALUES

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. Various valuation techniques are used to determine fair value, including market, income and cost approaches. 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 an entity has the ability to access as of the measurement date, or observable inputs.

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, and other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. When that occurs, the fair value hierarchy is classified on the lowest level of input that is significant to the fair value measurement. The following methods and significant assumptions are used to estimate fair value.

Securities: The fair values of securities available for sale are determined by obtaining quoted prices on nationally recognized securities exchanges, if available. This valuation method is classified as Level 1 in the fair value hierarchy. For securities where quoted prices are not available, fair values are calculated on market prices of similar securities, or matrix pricing, which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities. Matrix pricing relies on the securities’ relationship to similarly traded securities, benchmark curves, and the benchmarking of like securities. Matrix pricing utilizes observable market inputs such as benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, reference data, and industry and economic events. In instances where broker quotes are used, these quotes are obtained from market makers or broker-dealers recognized to be market participants. This valuation method is classified as Level 2 in the fair value hierarchy. For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators. This valuation method is classified as Level 3 in the fair value hierarchy. Discounted cash flows are calculated using spread to swap and LIBOR curves that are updated to incorporate loss severities, volatility, credit spread and optionality. During times when trading is more liquid, broker quotes are used (if available) to validate the model. Rating agency and industry research reports as well as defaults and deferrals on individual securities are reviewed and incorporated into the calculations.

Impaired Loans: An impaired loan is evaluated at the time the loan is identified as impaired and is recorded at fair value less costs to sell. Fair value is measured based on the value of the collateral securing the loan and is classified as Level 3 in the fair value hierarchy. Fair value is determined using several methods. Generally, the fair value of real estate is determined based on appraisals by qualified licensed appraisers. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach.

Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. These routine adjustments are made to adjust the value of a specific property relative to comparable properties for variations in qualities such as location, size, and income production capacity relative to the subject property of the appraisal. Such adjustments are typically significant and result in a Level 3 classification of the inputs for determining fair value.

Management routinely apply an internal discount to the value of appraisals used in the fair value evaluation of our impaired loans. The deductions to the appraisal take into account changing business factors and market conditions, as well as potential value impairment in cases where our appraisal date predates a likely change in market conditions. These deductions range from 10% for routine real estate collateral to 25% for real estate that is determined (1) to have a thin trading market or (2) to be specialized collateral. This is in addition to estimated discounts for cost to sell of six to ten percent.

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Management also apply discounts to the expected fair value of collateral for impaired loans where the likely resolution involves litigation or foreclosure. Resolution of this nature generally results in receiving lower values for real estate collateral in a more aggressive sales environment. Discounts ranging from 10% to 33% have been utilized in our impairment evaluations when applicable.

Impaired loans are evaluated quarterly for additional impairment. Management obtains updated appraisals on properties securing our loans when circumstances are warranted such as at the time of renewal or when market conditions have significantly changed. This determination is made on a property-by-property basis in light of circumstances in the broader economic climate and the assessment of deterioration of real estate values in the market in which the property is located. The first stage of management’s assessment involves management’s inspection of the property in question. Management also engages in conversations with local real estate professionals, investors, and market participants to determine the likely marketing time and value range for the property. The second stage involves an assessment of current trends in the regional market. After thorough consideration of these factors, management will either internally evaluate fair value or order a new appraisal.

Other Real Estate Owned (OREO): OREO is evaluated at the time of acquisition and recorded at fair value as determined by independent appraisal or internal evaluation less cost to sell. Quarterly evaluations of OREO for impairment are driven by property type. For smaller dollar single family homes, management consults with staff from the Bank’s special assets group as well as external realtors and appraisers. Based on these consultations, management determines asking prices for OREO properties being marketed for sale. If the internally evaluated fair value or asking price is below the recorded investment in the property, appropriate write-downs are taken.

For larger dollar commercial real estate properties, management obtains a new appraisal of the subject property or has staff in the special assets group evaluate the latest in-file appraisal in connection with the transfer to OREO. Management generally obtains updated appraisals within five quarters of the anniversary date of ownership unless a sale is imminent. When an asking price is lowered below the most recent appraised value, appropriate write-downs are taken.

Management routinely applies an internal discount to the value of appraisals used in the fair value evaluation of OREO. The deductions to the appraisal take into account changing business factors and market conditions, as well as potential value impairment in cases where our appraisal date predates a likely change in market conditions. These deductions range from 10% for routine real estate collateral to 25% for real estate that is determined (1) to have a thin trading market or (2) to be specialized collateral. This is in addition to estimated discounts for cost to sell of six to ten percent.

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Financial assets measured at fair value on a recurring basis are summarized below:

			Fair Value Measurements at December 31, 2017 Using
			(in thousands)
Description	Carrying Value		Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Available for sale securities
U.S. Government and federal agency	$	21,624	$	—	$	21,624	$	—
Agency mortgage-backed: residential		64,965		—		64,965		—
Collateralized loan obligations		25,505		—		25,505		—
State and municipal		33,710		—		33,710		—
Corporate bonds		6,916		—		6,916		—
Total	$	152,720	$	—	$	152,720	$	—

			Fair Value Measurements at December 31, 2016 Using
			(in thousands)
Description	Carrying Value		Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Available for sale securities
U.S. Government and federal agency	$	34,099	$	—	$	34,099	$	—
Agency mortgage-backed: residential		102,353		—		102,353		—
Collateralized loan obligations		11,203		—		11,203		—
State and municipal		2,045		—		2,045		—
Corporate bonds		3,090		—		3,090		—
Total	$	152,790	$	—	$	152,790	$	—

There were no transfers between Level 1 and Level 2 during 2017 or 2016.

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Financial assets measured at fair value on a non-recurring basis are summarized below:

			Fair Value Measurements at December 31, 2017 Using
			(in thousands)
Description	Carrying Value		Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Impaired loans:
Commercial	$	87	$	—	$	—	$	87
Commercial real estate:
Construction		—		—		—		—
Farmland		—		—		—		—
Nonfarm nonresidential		—		—		—		—
Residential real estate:
Multi-family		—		—		—		—
1-4 Family		957		—		—		957
Consumer		—		—		—		—
Agriculture		—		—		—		—
Other		—		—		—		—
Other real estate owned, net:
Commercial real estate:
Construction		4,335		—		—		4,335
Farmland		74		—		—		74
Nonfarm nonresidential		—		—		—		—
Residential real estate:
Multi-family		—		—		—		—
1-4 Family		—		—		—		—

			Fair Value Measurements at December 31, 2016 Using
			(in thousands)
Description	Carrying Value		Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Impaired loans:
Commercial	$	87	$	—	$	—	$	87
Commercial real estate:
Construction		—		—		—		—
Farmland		585		—		—		585
Nonfarm nonresidential		—		—		—		—
Residential real estate:
Multi-family		—		—		—		—
1-4 Family		1,261		—		—		1,261
Consumer		—		—		—		—
Agriculture		59		—		—		59
Other		—		—		—		—
Other real estate owned, net:
Commercial real estate:
Construction		6,571		—		—		6,571
Farmland		—		—		—		—
Nonfarm nonresidential		—		—		—		—
Residential real estate:
Multi-family		—		—		—		—
1-4 Family		250		—		—		250

Impaired loans, which are measured for impairment using the fair value of the collateral for collateral dependent loans, had a carrying amount of $1.3 million, with a valuation allowance of $219,000, at December 31, 2017, resulting in no additional provision for loan losses for the year ended December 31, 2017. At December 31, 2016, impaired loans had a carrying amount of $2.4 million, with a valuation allowance of $370,000, at December 31, 2016, resulting in no additional provision for loan losses for the year ended December 31, 2016.

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OREO, which is measured at the lower of carrying or fair value less costs to sell, had a net carrying amount of $4.4 million as of December 31, 2017, compared with $6.8 million at December 31, 2016. Write-downs of $2.0 million and $1.2 million were recorded on OREO for the years ended December 31, 2017 and 2016, respectively.

The following table presents qualitative information about level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at December 31, 2017:

	Fair Value		Valuation Technique(s)	Unobservable Input(s)	Range (Weighted Average)
	(in thousands)
Impaired loans – Residential real estate	$	957	Sales comparison approach	Adjustment for differences between the comparable sales	0%	-	26%	(9%)
Other real estate owned – Commercial real estate	$	4,409	Sales comparison approach	Adjustment for differences between the comparable sales	0%	-	35%	(18%)
			Income approach	Discount or capitalization rate	25%			(25%)

The following table presents qualitative information about level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at December 31, 2016:

	Fair Value		Valuation Technique(s)	Unobservable Input(s)	Range (Weighted Average)
	(in thousands)
Impaired loans – Residential real estate	$	1,261	Sales comparison approach	Adjustment for differences between the comparable sales	0%	-	22%	(9%)
Other real estate owned – Commercial real estate	$	6,571	Sales comparison approach	Adjustment for differences between the comparable sales	0%	-	20%	(9%)
			Income approach	Discount or capitalization rate	18%	-	20%	(19%)

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Carrying amount and estimated fair values of financial instruments were as follows at year-end 2017:

			Fair Value Measurements at December 31, 2017 Using
	Carrying Amount		Level 1		Level 2		Level 3		Total
	(in thousands)
Financial assets
Cash and cash equivalents	$	34,103	$	29,898	$	4,205	$	—	$	34,103
Securities available for sale		152,720		—		152,720		—		152,720
Federal Home Loan Bank stock		7,323		N/A		N/A		N/A		N/A
Loans held for sale		70		—		70		—		70
Loans, net		703,913		—		—		703,263		703,263
Accrued interest receivable		3,136		—		925		2,211		3,136
Financial liabilities
Deposits	$	847,024	$	137,386	$	693,320	$	—	$	830,706
Federal Home Loan Bank advances		11,797		—		11,799		—		11,799
Subordinated capital notes		2,250		—		—		2,246		2,246
Junior subordinated debentures		21,000		—		—		19,090		19,090
Senior debt		10,000		—		—		10,000		10,000
Accrued interest payable		1,475		—		357		1,118		1,475

Carrying amount and estimated fair values of financial instruments were as follows at year-end 2016:

			Fair Value Measurements at December 31, 2016 Using
	Carrying Amount		Level 1		Level 2		Level 3		Total
	(in thousands)
Financial assets
Cash and cash equivalents	$	66,316	$	31,091	$	35,225	$	—	$	66,316
Securities available for sale		152,790		—		152,790		—		152,790
Securities held to maturity		41,818		—		43,072		—		43,072
Federal Home Loan Bank stock		7,323		N/A		N/A		N/A		N/A
Loans, net		630,269		—		—		632,528		632,528
Accrued interest receivable		3,137		—		1,203		1,934		3,137
Financial liabilities
Deposits	$	849,925	$	124,395	$	712,458	$	—	$	836,853
Federal Home Loan Bank advances		22,458		—		22,475		—		22,475
Subordinated capital notes		3,150		—		—		3,091		3,091
Junior subordinated debentures		21,000		—		—		13,263		13,263
Accrued interest payable		734		—		369		365		734

The methods and assumptions used to estimate fair value are described as follows:

(a) Cash and Cash Equivalents

The carrying amounts of cash and short-term instruments approximate fair values and are classified as either Level 1 or Level 2. Noninterest bearing deposits are Level 1 whereas interest bearing due from bank accounts and fed funds sold are Level 2.

(b) FHLB Stock

It is not practical to determine the fair value of FHLB stock due to restrictions placed on its transferability.

(c) Loans, Net

Fair values of loans, excluding loans held for sale, are estimated as follows: For variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values resulting in a Level 3 classification. Fair values for other loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality resulting in a Level 3 classification. Impaired loans are valued at the lower of cost or fair value as described previously. The methods utilized to estimate the fair value of loans do not necessarily represent an exit price.

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(d) Loans Held for Sale

The fair value of loans held for sale is estimated based upon binding contracts and quotes from third party investors resulting in a Level 2 classification.

(e) Deposits

The fair values disclosed for non-interest bearing deposits are, by definition, equal to the amount payable on demand at the reporting date resulting in a Level 1 classification. The carrying amounts of variable rate interest bearing deposits approximate their fair values at the reporting date resulting in a Level 2 classification. Fair values for fixed rate interest bearing deposits are estimated using a discounted cash flows calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits resulting in a Level 2 classification.

(f) Other Borrowings

The fair values of FHLB advances are estimated using discounted cash flow analyses based on the current borrowing rates resulting in a Level 2 classification.

The fair values of subordinated capital notes, junior subordinated debentures, and senior debt are estimated using discounted cash flow analyses based on the current borrowing rates for similar types of borrowing arrangements resulting in a Level 3 classification.

(g) Accrued Interest Receivable/Payable

The carrying amounts of accrued interest approximate fair value resulting in a Level 2 or Level 3 classification based on the level of the asset or liability with which the accrual is associated.

NOTE 18 – STOCK PLANS AND STOCK BASED COMPENSATION

Shares available for issuance under the 2016 Omnibus Equity Compensation Plan (“2016 Plan”) total 25,000. Shares issued to employees under the plan vest annually on the anniversary date of the grant generally over three to four years.

The Company also maintains the Porter Bancorp, Inc. 2006 Non-Employee Directors Stock Ownership Incentive Plan (“2006 Director Plan”) pursuant to which 2,834 shares remain available for issuance as annual awards of restricted stock to the Company’s non-employee directors. Shares issued annually to non-employee directors have a fair market value of $25,000 and vest on December 31 in the year of grant.

The fair value of the 2017 unvested shares issued was $365,000, or $9.64 per weighted-average share. The Company recorded $400,000 and $443,000 of stock-based compensation during 2017 and 2016, respectively, to salaries and employee benefits. Management expects substantially all of the unvested shares outstanding at the end of the period to vest according to the vesting schedule. A deferred tax benefit of $140,000 was recognized in 2017 related to this expense, whereas no deferred tax benefit was recognized in 2016.

The following table summarizes unvested share activity as of and for the periods indicated for the Stock Incentive Plan:

	Twelve Months Ended					Twelve Months Ended
	December 31, 2017					December 31, 2016
				Weighted					Weighted
				Average					Average
				Grant					Grant
	Shares			Price		Shares			Price
Outstanding, beginning		179,513		$	4.89		184,482		$	4.81
Granted		37,865			9.64		35,465			9.10
Vested		(73,728	)		5.75		(38,462	)		8.32
Forfeited		(1,316	)		9.35		(1,972	)		6.16
Outstanding, ending		142,334		$	5.67		179,513		$	4.89

Unrecognized stock based compensation expense related to unvested shares for 2018 and beyond is estimated as follows (in thousands):

2018	$	258
2019		99
2020		25
2021 & thereafter		—

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NOTE 19 – EARNINGS (LOSS) PER SHARE

The factors used in the basic and diluted earnings per share computation follow:

	2017		2016			2015
	(in thousands, except share and per share data)
Net income (loss)	$	38,453	$	(2,753	)	$	(3,213	)
Less:
Earnings (losses) allocated to unvested shares		967		(88	)		(122	)
Earnings (losses) allocated to participating preferred shares		—		—			(214	)
Net income (loss) attributable to common shareholders, basic and diluted	$	37,486	$	(2,665	)	$	(2,877	)
Basic
Weighted average common shares including unvested common shares and participating preferred shares outstanding		6,249,059		5,980,945			5,191,944
Less:
Weighted average unvested common shares		157,127		192,232			197,355
Weighted average Series B Preferred Shares		—		—			133,269
Weighted average Series D Preferred Shares		—		—			212,318
Weighted average common shares outstanding		6,091,932		5,788,713			4,649,002
Basic income (loss) per common share	$	6.15	$	(0.46	)	$	(0.62	)
Diluted
Add: Dilutive effects of assumed exercises of common stock warrants		—		—			—
Weighted average common shares and potential common shares		6,091,932		5,788,713			4,649,002
Diluted income (loss) per common share	$	6.15	$	(0.46	)	$	(0.62	)

The Company had no outstanding stock options at December 31, 2017, 2016 or 2015. A warrant for the purchase of 66,113 shares of the Company’s common stock at an exercise price of $79.41 was outstanding at December 31, 2017, 2016 and 2015, but was not included in the diluted EPS computation as inclusion would have been anti-dilutive. The warrant is exercisable at the holder’s option through November 21, 2018.

NOTE 20 – PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION

Condensed financial information of Porter Bancorp Inc. is presented as follows:

CONDENSED BALANCE SHEETS

December 31,

	2017		2016
	(in thousands)
ASSETS
Cash and cash equivalents (1)	$	2,045	$	2,048
Investment in banking subsidiary		99,651		51,528
Investment in and advances to other subsidiaries		776		776
Deferred taxes, net		2,497		—
Other assets		711		645
Total assets	$	105,680	$	54,997
LIABILITIES AND SHAREHOLDERS’ EQUITY
Debt	$	31,775	$	21,775
Accrued expenses and other liabilities		1,232		489
Shareholders’ equity		72,673		32,733
Total liabilities and shareholders’ equity	$	105,680	$	54,997

(1) $806,000 is held in escrow by the senior note lender to be used exclusively for interest payments on senior debt.

94

CONDENSED STATEMENTS OF OPERATIONS

Years ended December 31,

	2017			2016			2015
	(in thousands)
Interest income	$	4		$	5		$	46
Dividends from subsidiaries		26			23			20
Other income		—			17			102
Interest expense		(973	)		(694	)		(647	)
Other expense		(1,137	)		(1,240	)		(1,457	)
Income (loss) before income tax and undistributed subsidiary income		(2,080	)		(1,889	)		(1,936	)
Income tax expense (benefit)		(2,497	)		21			—
Equity in undistributed subsidiary income (loss)		38,036			(843	)		(1,277	)
Net income (loss)	$	38,453		$	(2,753	)	$	(3,213	)

CONDENSED STATEMENTS OF CASH FLOWS

Years ended December 31,

	2017			2016			2015
	(in thousands)
Cash flows from operating activities
Net income (loss)	$	38,453		$	(2,753	)	$	(3,213	)
Adjustments:
Equity in undistributed subsidiary (income) loss		(38,036	)		843			1,277
Deferred taxes, net		(2,497	)		—			—
Gain on sale of assets		—			—			(70	)
Change in other assets		743			(95	)		(40	)
Change in other liabilities		(128	)		358			634
Other		462			978			481
Net cash (used in) operating activities		(1,003	)		(669	)		(931	)
Cash flows from investing activities
Investments in subsidiaries		(9,000	)		(500	)		—
Sales of securities		—			—			642
Net cash (used in) from investing activities		(9,000	)		(500	)		642
Cash flows from financing activities
Proceeds from issuance of common stock		—			2,231			—
Proceeds from senior debt		10,000			—			—
Net cash (used in) financing activities		10,000			2,231			—
Net change in cash and cash equivalents		(3	)		1,062			(289	)
Beginning cash and cash equivalents		2,048			986			1,275
Ending cash and cash equivalents	$	2,045		$	2,048		$	986

95

NOTE 21 – QUARTERLY FINANCIAL DATA (UNAUDITED)

															Earnings (Loss) Per Common Share
	Interest Income		Net Interest Income		Provision For Loan Losses			OREO Expense			Net Income (Loss)				Basic(1)			Diluted(1)
	(in thousands, except per share data)
2017
First quarter	$	9,225	$	7,741	$	—		$	(16	)	$	1,680			$	0.27		$	0.27
Second quarter		9,134		7,588		—			(3	)		1,709				0.27			0.27
Third quarter		9,446		7,787		—			111			1,794				0.29			0.29
Fourth quarter		9,717		8,001		(800	)		1,881			33,270		(2)		5.31			5.31
2016
First quarter	$	9,185	$	7,651	$	(550	)	$	668		$	1,480			$	0.27		$	0.27
Second quarter		8,705		7,196		(600	)		294			1,012				0.17			0.17
Third quarter		8,931		7,458		(750	)		322			1,393				0.22			0.22
Fourth quarter		8,781		7,316		(550	)		257			(6,638	)	(3)		(1.07	)		(1.07	)

(1) The sum of the quarterly net income (loss) per share (basic and diluted) differs from the annual net income (loss) per share (basic and diluted) because of the differences in the weighted average number of common shares outstanding and the common shares used in the quarterly and annual computations as well as differences in rounding.

(2) Net income for the fourth quarter of 2017 was impacted by the reversal of the Company’s deferred tax asset valuation allowance and the change in federal corporate tax rates in connection with the enectment of the Tax Cuts and Jobs Act of 2017. The net result of these two items, as well as tax expense for the year, was an income tax benefit of $31.9 million.

(3) The $6.6 million loss for the fourth quarter of 2016 was due to the $8.0 million in litigation expenses accrued as a result of the Kentucky Court of Appeals ruling against the Bank.

96

Item 9.     Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

None

Item 9A. Controls and Procedures

Disclosure Controls and Procedures

Management is responsible for establishing and maintaining effective disclosure controls and procedures, as defined under Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934. Our management, under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2017. Based on that evaluation, management believes that our disclosure controls and procedures were effective to collect, process, and disclose the information required to be disclosed in the reports filed with the SEC within the required time periods as of the end of the period covered by this report.

There was no change in the internal control over financial reporting during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

Management’s Report on Internal Control Over Financial Reporting

The management of Porter Bancorp, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of; the principal executive and principal financial officers and effected by the board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles and includes those policies and procedures that:

Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;

Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and

Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2017. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") in the 2013 Internal Control-Integrated Framework. Based on that assessment, management believes that, as of December 31, 2017, our internal control over financial reporting is effective based on those criteria.

This annual report does not include an attestation report of our registered public accounting firm regarding internal controls over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit us to provide only management’s report in this annual report.

/s/ John T. Taylor

John T. Taylor

President and Chief Executive Officer

/s/ Phillip W. Barnhouse

Phillip W. Barnhouse

Chief Financial Officer

Item 9B.     Other Information

None

97

PART III

Item 10. Directors, Executive Officers and Corporate Governance.

The Company has adopted a code of ethics applicable to the Chief Executive Officer and the senior financial officers, which is posted on the Bank’s website at http://www.limestonebank.com under the Investors Relations section of the About Us tab. If we amend or waive any of the provisions of the Code of Ethics applicable to our Chief Executive Officer or senior financial officers, we intend to disclose the amendment or waiver on our website. We will provide to any person without charge, upon request, a copy of this Code of Ethics. You can request a copy by contacting Porter Bancorp, Inc., Chief Financial Officer, 2500 Eastpoint Parkway, Louisville, Kentucky, 40223, (telephone) 502-499-4800.

Additional information required by this Item 10 is omitted because we are filing a definitive proxy statement pursuant to Regulation 14A on or before April 30, 2018, which includes the required information. The required information contained in our proxy statement is incorporated herein by reference.

Item 11. Executive Compensation.

The information required by this Item 11 is omitted because we are filing a definitive proxy statement pursuant to Regulation 14A on or before April 30, 2018, which includes the required information. The required information contained in our proxy statement is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by this Item 12 is omitted because we are filing a definitive proxy statement pursuant to Regulation 14A on or before April 30, 2018, which includes the required information. The required information contained in our proxy statement is incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions, and Director Independence.

The information required by this Item 13 is omitted because we are filing a definitive proxy statement pursuant to Regulation 14A on or before April 30, 2018, which includes the required information. The required information contained in our proxy statement is incorporated herein by reference.

Item 14. Principal Accounting Fees and Services.

The information required by this Item 14 is omitted because we are filing a definitive proxy statement pursuant to Regulation 14A on or before April 30, 2018, which includes the required information. The required information contained in our proxy statement is incorporated herein by reference.

98

PART IV

Item 15.	Exhibits and Financial Statement Schedules
(a) 1.	The following financial statements are included in this Form 10-K:
	Consolidated Balance Sheets as of December 31, 2017 and 2016
	Consolidated Statements of Operations for the Years Ended December 31, 2017, 2016, and 2015
	Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2017, 2016, and 2015
	Consolidated Statements of Change in Stockholders’ Equity for the Years Ended December 31, 2017, 2016, and 2015
	Consolidated Statements of Cash Flows for the Years Ended December 31, 2017, 2016, and 2015
	Notes to Consolidated Financial Statements
	Report of Independent Registered Public Accounting Firm
(a) 2.	List of Financial Statement Schedules
	Financial statement schedules are omitted because the information is not applicable.
(a) 3.	List of Exhibits
	The Exhibit Index of this report is incorporated by reference. The compensatory plans or arrangement required to be filed as exhibits to this Form 10-K pursuant to Item 15(c) are noted with an asterisk in the Exhibit Index.

99

EXHIBIT INDEX

Exhibit No. (1)	Description
3.1	Amended and Restated Articles of Incorporation, dated March 25, 2016. Exhibit 3.1 to Form 8-K filed May 26, 2016 is incorporated by reference.
3.2	Amendment to Articles of Incorporation, dated December 6, 2016, effecting reverse stock split.  Exhibit 3.1 to Form 8-K filed December 21, 2016 is incorporated by reference.
3.3	Amended and Restated Bylaws of Porter Bancorp, Inc. Exhibit 3.1 to Form 8-K filed May 22, 2013 is hereby incorporated by reference.
4.1	Warrant to purchase up to 299,829 shares.  Exhibit 4.1 to Form 8-K filed November 24, 2008 is incorporated by reference.
10.1	Loan Agreement between Porter Bancorp, Inc. and First Merchants Bank dated June 30, 2017.  Exhibit 1.1 to Form 8-K filed July 5, 2017 is incorporated by reference.
10.2	Promissory Note between Porter Bancorp, Inc. and First Merchants Bank dated June 30, 2017.  Exhibit 1.2 to Form 8-K filed July 5, 2017 is incorporated by reference.
10.3	Pledge Agreement between Porter Bancorp, Inc. and First Merchants Bank dated June 30, 2017.  Exhibit 1.3 to Form 8-K filed July 5, 2017 is incorporated by reference.
10.4+	Porter Bancorp, Inc. 2016 Omnibus Equity Compensation Plan.  Appendix A to Schedule 14A proxy statement (DEF 14A) filed April 25, 2016 is incorporated by reference.
10.5+	Form of Porter Bancorp, Inc. Restricted Stock Award Agreement. Exhibit 10.3 to 8-K filed June 22, 2016 is incorporated by reference.
10.6+	Porter Bancorp, Inc. 2006 Non-Employee Directors Stock Ownership Incentive Plan, as amended and restated as of March 26, 2014. Exhibit 10.1 to Form S-8 Registration Statement (Reg. No. 333-202746) filed March 13, 2015 is incorporated by reference.
10.7+	Non-Employee Director Stock Incentive Program.  Exhibit 10.1 to Form 8-K filed June 22, 2016 is incorporated by reference.
10.8+	Porter Bancorp, Inc. 2017 Incentive Compensation Bonus Plan.  Exhibit 10.1 to Form 10-Q filed May 4, 2017 is incorporated by reference.
10.9+	Form of Ascencia Bank (now Limestone Bank) Supplemental Executive Retirement Plan. Exhibit 10.5 to Form S-1 Registration Statement (Reg. No. 333-133198) filed April 11, 2006 is incorporated by reference.
10.10+	Form of Amendment to Supplemental Executive Retirement Plan.  Exhibit 10.7 to Form 10-K filed March 26, 2009 is incorporated by reference.
10.11+	Employment Agreement with John T. Taylor. Exhibit 10.1 to Form 8-K filed September 27, 2016 is incorporated by reference.
10.12+	Employment Agreement with John R. Davis.  Exhibit 10.2 to Form 8-K filed September 27, 2016 is incorporated by reference.
10.13+	Employment Agreement with Joseph C. Seiler.  Exhibit 10.3 to Form 8-K filed September 27, 2016 is incorporated by reference.
10.14+	Employment Agreement with Phillip W. Barnhouse.  Exhibit 10.4 to Form 8-K filed September 27, 2016 is incorporated by reference.
21.1	List of Subsidiaries of Porter Bancorp, Inc.
23.1	Consent of Crowe Horwath LLP, Independent Registered Public Accounting Firm.
31.1	Certification of Chief Executive Officer pursuant to Exchange Act Rules 13a-14 or 15d-14.
31.2	Certification of Chief Financial Officer pursuant to Exchange Act Rules 13a-14 or 15d-14.
32.1	Certification of Chief Executive Officer pursuant to Exchange Act Rules 13a-14(b) or 15d-14(b) and 18 U.S.C. Section 1350.

100

Exhibit No. (1)	Description
32.2	Certification of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(b) or 15d-14(b) and U.S.C. Section 1350.
101	The following financial statements from the Company’s Annual Report on Form 10-K for the year ended December 31, 2017, formatted in XBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Changes in Stockholders’ Equity, (v) Consolidated Statements of Cash Flows, (vi) Notes to Consolidated Financial Statements.

+ Management contract or compensatory plan or arrangement.

(1) The Company has other long-term debt agreements that meet the exclusion set forth in Section 601(b)(4)(iii)(A) of Regulation S-K. The Company hereby agrees to furnish a copy of such agreements to the Securities and Exchange Commission upon request.

101

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	PORTER BANCORP, INC.
February 28, 2018	By:	/s/ John T. Taylor
		John T. Taylor
		Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated.

/s/ John T. Taylor	Chief Executive Officer	February 28, 2018
John T. Taylor
/s/ Phillip W. Barnhouse	Chief Financial Officer	February 28, 2018
Phillip W. Barnhouse
/s/ W. Glenn Hogan	Director	February 28, 2018
W. Glenn Hogan
/s/ Michael T. Levy	Director	February 28, 2018
Michael T. Levy
/s/ Bradford T. Ray	Director	February 28, 2018
Bradford T. Ray
/s/ W. Kirk Wycoff	Director	February 28, 2018
W. Kirk Wycoff
/s/ James M. Parsons	Director	February 28, 2018
James M. Parsons
/s/ Dr. Edmond J. Seifried	Director	February 28, 2018
Dr. Edmond J. Seifried

102

EX-21.1

Exhibit 21.1

SUBSIDIARIES OF PORTER BANCORP, INC.

Direct Subsidiary	Jurisdiction of Organization	Does Business As
Limestone Bank, Inc.	Kentucky	Limestone Bank, Inc.
Ascencia Statutory Trust I	Connecticut	Ascencia Statutory Trust I
Porter Statutory Trust II	Connecticut	Porter Statutory Trust II
Porter Statutory Trust III	Connecticut	Porter Statutory Trust III
Porter Statutory Trust IV	Connecticut	Porter Statutory Trust IV
PBIB Corporation, Inc.	Kentucky	PBIB Corporation, Inc.

Indirect Subsidiary	Jurisdiction of Organization	Does Business As	Parent Entity
PBI Title Services, LLC	Kentucky	PBI Title Services, LLC	Limestone Bank, Inc.

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statement Nos. 333-188988; 333-189005; 333-202746 and 333-202749 on Form S-8 of Porter Bancorp, Inc. of our report dated February 28, 2018 with respect to the consolidated financial statements of Porter Bancorp, Inc., which report appears in this Annual Report on Form 10-K of Porter Bancorp, Inc. for the year ended December 31, 2017.

/s/ Crowe Horwath LLP

Louisville, Kentucky

February 28, 2018

EX-31.1

Exhibit 31.1

PORTER BANCORP, INC.

RULE 13A-14(A) CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, John T. Taylor, Chief Executive Officer of Porter Bancorp, Inc. (the “Company”), certify that:

1. I have reviewed this Annual Report on Form 10-K of the Company;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Dated: February 28, 2018	/s/ John T. Taylor
	John T. Taylor
	Chief Executive Officer

EX-31.2

Exhibit 31.2

PORTER BANCORP, INC.

RULE 13A-14(A) CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, Phillip W. Barnhouse, Chief Financial Officer of Porter Bancorp, Inc. (the “Company”), certify that:

1. I have reviewed this Annual Report on Form 10-K of the Company;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Dated: February 28, 2018	/s/ Phillip W. Barnhouse
	Phillip W. Barnhouse
	Chief Financial Officer

EX-32.1

Exhibit 32.1

SECTION 906 CERTIFICATION

In connection with the Annual Report on Form 10-K of Porter Bancorp, Inc. (the “Company”) for the annual period ended December 31, 2017, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, John T. Taylor, Chief Executive Officer of the Company, do hereby certify, in accordance with 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

	PORTER BANCORP, INC.
Dated: February 28, 2018	By:	/s/ John T. Taylor
		John T. Taylor
		Chief Executive Officer

EX-32.2

Exhibit 32.2

SECTION 906 CERTIFICATION

In connection with the Annual Report on Form 10-K of Porter Bancorp, Inc. (the “Company”) for the annual period ended December 31, 2017, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Phillip W. Barnhouse, Chief Financial Officer of the Company, do hereby certify, in accordance with 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

	PORTER BANCORP, INC.
Dated: February 28, 2018	By:	/s/ Phillip W. Barnhouse
		Phillip W. Barnhouse
		Chief Financial Officer

XML

Document And Entity Information - USD ($)	12 Months Ended
	Dec. 31, 2017	Feb. 28, 2018	Jun. 30, 2017
Document Information [Line Items]
Entity Registrant Name	PORTER BANCORP, INC.
Entity Central Index Key	0001358356
Trading Symbol	pbib
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Well-known Seasoned Issuer	No
Entity Public Float			$ 22,183,313
Document Type	10-K
Document Period End Date	Dec. 31, 2017
Document Fiscal Year Focus	2017
Document Fiscal Period Focus	FY
Amendment Flag	false
Nonvoting Common Stock [Member]
Document Information [Line Items]
Entity Common Stock, Shares Outstanding (in shares)		220,000
Common Stock [Member]
Document Information [Line Items]
Entity Common Stock, Shares Outstanding (in shares)		6,039,864

XML

Consolidated Balance Sheets - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Assets
Cash and due from banks	$ 8,137	$ 9,449
Interest bearing deposits in banks	25,966	56,867
Cash and cash equivalents	34,103	66,316
Securities available for sale	152,720	152,790
Securities held to maturity (fair value of $0 and $43,072, respectively)		41,818
Loans held for sale	70
Loans, net of allowance of $8,202 and $8,967, respectively	703,913	630,269
Premises and equipment, net	16,789	17,848
Other real estate owned	4,409	6,821
Federal Home Loan Bank stock	7,323	7,323
Bank owned life insurance	15,229	14,838
Deferred taxes, net	31,313
Accrued interest receivable and other assets	4,932	7,154
Total assets	970,801	945,177
Deposits
Non-interest bearing	137,386	124,395
Interest bearing	709,638	725,530
Total deposits	847,024	849,925
Federal Home Loan Bank advances	11,797	22,458
Accrued interest payable and other liabilities	6,057	15,911
Subordinated capital note	2,250	3,150
Junior subordinated debentures	21,000	21,000
Senior debt	10,000
Total liabilities	898,128	912,444
Commitments and contingent liabilities (Note 16)
Stockholders’ equity
Preferred stock	2,771	2,771
Common stock, no par, 39,000,000 shares authorized, 6,039,864 and 4,632,933 voting, and 220,000 and 1,591,600 non-voting shares issued and outstanding, respectively	125,729	125,729
Additional paid-in capital	24,497	24,097
Retained deficit	(75,108)	(113,561)
Accumulated other comprehensive loss	(5,216)	(6,303)
Total common stockholders’ equity	69,902	29,962
Total stockholders' equity	72,673	32,733
Total liabilities and stockholders’ equity	970,801	945,177
Series E Preferred Stock [Member]
Stockholders’ equity
Preferred stock	1,644	1,644
Series F Preferred Stock [Member]
Stockholders’ equity
Preferred stock	$ 1,127	$ 1,127

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Consolidated Balance Sheets (Parentheticals) - USD ($) $ / shares in Thousands, $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Securities held to maturity, fair value	$ 0	$ 43,072
Loans, allowance	$ 8,202	$ 8,967
Common stock, par value (in dollars per share)	$ 0	$ 0
Common stock, shares authorized (in shares)	39,000,000	39,000,000
Series E Preferred Stock [Member]
Preferred stock, issued (in shares)	6,198	6,198
Preferred stock, outstanding (in shares)	6,198	6,198
Preferred stock, liquidation preference	$ 6,200	$ 6,200
Preferred stock, no par (in dollars per share)	$ 0	$ 0
Series F Preferred Stock [Member]
Preferred stock, issued (in shares)	4,304	4,304
Preferred stock, outstanding (in shares)	4,304	4,304
Preferred stock, liquidation preference	$ 4,300	$ 4,300
Preferred stock, no par (in dollars per share)	$ 0	$ 0
Voting Common Stock [Member]
Common stock, shares issued (in shares)	6,039,864	4,632,933
Common stock, shares outstanding (in shares)	6,039,864	4,632,933
Nonvoting Common Stock [Member]
Common stock, shares issued (in shares)	220,000	1,591,600
Common stock, shares outstanding (in shares)	220,000	1,591,600

XML

Consolidated Statements of Operations - USD ($)	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Interest income
Loans, including fees	$ 31,866,000	$ 30,537,000	$ 31,251,000
Taxable securities	4,399,000	3,886,000	4,076,000
Tax exempt securities	571,000	620,000	764,000
Federal funds sold and other	686,000	559,000	483,000
	37,522,000	35,602,000	36,574,000
Interest expense
Deposits	5,190,000	5,093,000	6,160,000
Federal Home Loan Bank advances	120,000	70,000	95,000
Senior debt	194,000
Junior subordinated debentures	753,000	671,000	606,000
Subordinated capital note	148,000	147,000	161,000
Federal funds purchased and other			1,000
	6,405,000	5,981,000	7,023,000
Net interest income	31,117,000	29,621,000	29,551,000
Negative provision for loan losses	(800,000)	(2,450,000)	(4,500,000)
Net interest income after negative provision for loan losses	31,917,000	32,071,000	34,051,000
Non-interest income
Service charges on deposit accounts	2,253,000	1,958,000	1,851,000
Bank card interchange fees	972,000	849,000	839,000
Income from bank owned life insurance	412,000	417,000	295,000
Other real estate owned rental income	0	456,000	1,346,000
Net gain on sales of securities	288,000	216,000	1,766,000
Gain on extinguishment of junior subordinated debt			883,000
Other	930,000	868,000	715,000
	4,855,000	4,764,000	7,695,000
Non-interest expense
Salaries and employee benefits	15,090,000	15,508,000	15,857,000
Occupancy and equipment	3,420,000	3,517,000	3,449,000
FDIC insurance	1,412,000	1,660,000	2,212,000
Data processing expense	1,256,000	1,185,000	1,128,000
Marketing expense	1,098,000	973,000	560,000
State franchise and deposit tax	956,000	965,000	1,120,000
Professional fees	978,000	1,568,000	2,885,000
Communications	722,000	706,000	663,000
Insurance expense	540,000	565,000	589,000
Postage and delivery	395,000	359,000	400,000
Litigation and loan collection expense	179,000	8,805,000	1,141,000
Other real estate owned expense	1,973,000	1,541,000	12,302,000
Other	2,199,000	2,215,000	2,653,000
	30,218,000	39,567,000	44,959,000
Income (loss) before income taxes	6,554,000	(2,732,000)	(3,213,000)
Income tax expense (benefit)	(31,899,000)	21,000
Net income (loss)	38,453,000	(2,753,000)	(3,213,000)
Earnings (loss) allocated to participating securities	967,000	(88,000)	(336,000)
Net income (loss) attributable to common shareholders	$ 37,486,000	$ (2,665,000)	$ (2,877,000)
Basic and diluted income (loss) per common share (in dollars per share)	$ 6.15	$ (0.46)	$ (0.62)

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Consolidated Statements of Comprehensive Income (Loss) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Net income (loss)	$ 38,453	$ (2,753)	$ (3,213)
Other comprehensive income (loss):
Unrealized gain (loss) arising during the period	1,141	(1,917)	(490)
Transfer of investment securities from held to maturity to available for sale	702
Amortization during the period of net unrealized loss transferred to held to maturity	119	129	129
Reclassification of adjustment for gains included in net income	(288)	(216)	(1,766)
Net unrealized gain/(loss) recognized in comprehensive income	1,674	(2,004)	(2,127)
Tax effect	(587)
Other comprehensive income (loss)	1,087	(2,004)	(2,127)
Comprehensive income (loss)	$ 39,540	$ (4,757)	$ (5,340)

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Consolidated Statements of Changes in Stockholders' Equity - USD ($) $ in Thousands	Common Stock [Member]	Preferred Stock [Member] Series B Preferred Stock [Member]	Preferred Stock [Member] Series D Preferred Stock [Member]	Preferred Stock [Member] Series E Preferred Stock [Member]	Preferred Stock [Member] Series F Preferred Stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings, Appropriated [Member]	AOCI Attributable to Parent [Member]	Total
Balances (in shares) at Dec. 31, 2014	2,978,103	40,536	64,580	6,198	4,304
Balances at Dec. 31, 2014	$ 113,238	$ 2,229	$ 3,552	$ 1,644	$ 1,127	$ 21,442	$ (107,595)	$ (2,172)	$ 33,465
Issuance of unvested stock (in shares)	183,148
Terminated stock (in shares)	(107,696)
Forfeited unvested stock (in shares)	(6,368)
Stock-based compensation expense						445			445
Net income (loss)							(3,213)		(3,213)
Net change in accumulated other comprehensive income, net of taxes								(2,127)	(2,127)
Debt to equity exchange (in shares)	240,000
Debt to equity exchange	$ 1,680					1,767			3,447
Conversion of preferred stock to common and non-voting common stock (in shares)	2,102,320	(40,536)	(64,580)
Conversion of preferred stock to common and non-voting common stock	$ 5,781	$ (2,229)	$ (3,552)
Balances (in shares) at Dec. 31, 2015	5,389,507			6,198	4,304
Balances at Dec. 31, 2015	$ 120,699			$ 1,644	$ 1,127	23,654	(110,808)	(4,299)	32,017
Issuance of unvested stock (in shares)	35,465
Forfeited unvested stock (in shares)	(1,972)
Stock-based compensation expense						443			443
Net income (loss)							(2,753)		(2,753)
Net change in accumulated other comprehensive income, net of taxes								(2,004)	(2,004)
Reverse stock split rounding shares (in shares)	1,533
Issuance of stock (in shares)	800,000
Issuance of stock	$ 5,030								5,030
Balances (in shares) at Dec. 31, 2016	6,224,533			6,198	4,304
Balances at Dec. 31, 2016	$ 125,729			$ 1,644	$ 1,127	24,097	(113,561)	(6,303)	32,733
Issuance of unvested stock (in shares)	37,865
Forfeited unvested stock (in shares)	(1,316)
Stock-based compensation expense						400			400
Net income (loss)							38,453		38,453
Net change in accumulated other comprehensive income, net of taxes								1,087	1,087
Reverse stock split rounding shares (in shares)	(1,218)
Balances (in shares) at Dec. 31, 2017	6,259,864			6,198	4,304
Balances at Dec. 31, 2017	$ 125,729			$ 1,644	$ 1,127	$ 24,497	$ (75,108)	$ (5,216)	$ 72,673

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Consolidated Statements of Cash Flows - USD ($)	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Cash flows from operating activities
Net income (loss)	$ 38,453,000	$ (2,753,000)	$ (3,213,000)
Adjustments to reconcile net income (loss) to net cash from operating activities
Depreciation and amortization	1,239,000	1,725,000	1,711,000
Negative provision for loan losses	(800,000)	(2,450,000)	(4,500,000)
Net amortization on securities	1,246,000	1,297,000	1,434,000
Stock-based compensation expense	400,000	443,000	445,000
Deferred taxes, net	(31,899,000)
Gain on extinguishment of junior subordinated debt			(883,000)
Net (gain) loss on sales of loans held for sale	(46,000)	(86,000)	204,000
Loans originated for sale	(2,859,000)	(5,145,000)	(6,652,000)
Proceeds from sales of loans held for sale	2,835,000	5,417,000	6,548,000
Net (gain) loss on sales of other real estate owned	(74,000)	(222,000)	74,000
Net write-down of other real estate owned	1,963,000	1,180,000	9,855,000
Net realized (gain) loss on sales and calls of investment securities	(288,000)	(216,000)	(1,766,000)
Net (gain) loss on sale of premises and equipment	3,000	(1,000)
Increase in cash surrender value of owned life insurance, net of premium expense	(391,000)	(397,000)	(274,000)
Net change in accrued interest receivable and other assets	2,079,000	(814,000)	810,000
Net change in accrued interest payable and other liabilities	(9,854,000)	8,133,000	267,000
Net cash from operating activities	2,007,000	6,111,000	4,060,000
Cash flows from investing activities
Purchases of available for sale securities	(21,112,000)	(41,827,000)	(21,828,000)
Sales and calls of available for sale securities	41,686,000	8,311,000	45,012,000
Maturities and prepayments of available for sale securities	21,838,000	22,876,000	21,084,000
Proceeds from calls of held to maturity securities	47,000
Proceeds from maturities of held to maturity securities	145,000
Proceeds from sales of loans not originated for sale			8,640,000
Proceeds from sale of other real estate owned	793,000	12,438,000	22,567,000
Loan originations and payments, net	(73,202,000)	(22,368,000)	(2,239,000)
Proceeds from sale of premises and equipment	331,000	268,000
Purchases of premises and equipment	(284,000)	(464,000)	(385,000)
Purchase of bank owned life insurance		(5,000,000)
Net cash from investing activities	(29,758,000)	(25,766,000)	72,851,000
Cash flows from financing activities
Net change in deposits	(2,901,000)	(28,072,000)	(48,844,000)
Net change in repurchase agreements			(1,341,000)
Repayment of Federal Home Loan Bank advances	(55,661,000)	(623,000)	(17,671,000)
Advances from Federal Home Loan Bank	45,000,000	20,000,000	5,000,000
Repayment of subordinated capital note	(900,000)	(900,000)	(900,000)
Proceeds from senior debt	10,000,000
Issuance of common stock		2,231,000
Net cash from financing activities	(4,462,000)	(7,364,000)	(63,756,000)
Net change in cash and cash equivalents	(32,213,000)	(27,019,000)	13,155,000
Beginning cash and cash equivalents	66,316,000	93,335,000	80,180,000
Ending cash and cash equivalents	34,103,000	66,316,000	93,335,000
Supplemental cash flow information:
Interest paid	5,665,000	5,253,000	7,076,000
Income taxes paid (refunded)		21,000
Supplemental non-cash disclosure:
Proceeds from common stock issuance directed by investors to pay junior subordinated debt interest		2,799,000
Transfer from loans to other real estate	270,000	1,273,000	5,513,000
Financed sales of other real estate owned		270,000
Effect of junior subordinated debt to equity exchange			4,330,000
Transfer from held to maturity to available for sale securities	41,380,000
AOCI component of transfer from held to maturity to available for sale, net of tax	$ 456,000

XML

Note 1 - Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2017

Notes to Financial Statements

Basis of Presentation and Significant Accounting Policies [Text Block]

NOTE

1

– SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations and Principles of Consolidation

– The consolidated financial statements include Porter Bancorp, Inc. (Company) and its subsidiary, PBI Bank (Bank). The Bank completed a name change to Limestone Bank on

February 20, 2018.

The Company owns a

100%

interest in the Bank.

The Company provides financial services through

its offices in Central and South Central Kentucky, Lexington and Louisville. Its primary deposit products are checking, savings, and term certificate accounts, and its primary lending products are residential mortgage, commercial, agricultural, and real estate loans. Substantially all loans are collateralized by specific items of collateral including business assets and real estate. Commercial loans are expected to be repaid from cash flow from operations of businesses. There are

no

significant concentrations of loans to any

one

industry or customer. However, borrowers’ ability to repay their loans is dependent on the real estate and general economic conditions in the area. Other financial instruments which potentially represent concentrations of credit risk include deposit accounts in other financial institutions, federal funds sold, municipal securities, collateralized loan obligations, corporate securities, and bank owned life insurance.

Use of Estimates

– To prepare financial statements in conformity with U.S. generally accepted accounting principles, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and future results could differ.

Cash

and Cash Equivalents

– For the purpose of presentation in the statements of cash flows, the Company considers all cash and amounts due from depository institutions as well as interest bearing deposits in banks that mature within

one

year and are carried at cost to be cash equivalents. The Bank is required to maintain average reserve balances with the Federal Reserve Bank of St. Louis.

Securities

– Debt securities are classified as held to maturity and carried at amortized cost when management has the intent and ability to hold them to maturity. Debt securities are classified as available for sale when they might be sold before maturity. Securities available for sale are carried at fair value, with unrealized holding gains and losses reported in other comprehensive income.

Interest income includes amortization of purchase premium or discount. Premiums and discounts on securities are amortized on the level-yield method anticipating prepayments on mortgage backed securities. Gains and losses on sales are recorded on the trade date and determined using the specific identification method.

Management evaluates securities for other-than-temporary impairment (“OTTI”) on at least a quarterly basis, and more frequently when economic or market conditi

ons warrant such an evaluation. For securities in an unrealized loss position, management considers the extent and duration of the unrealized loss, and the financial condition and near-term prospects of the issuer. Management also assesses whether it intends to sell, or it is more likely than

not

that it will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as impairment through earnings. For debt securities that do

not

meet the aforementioned criteria, the amount of impairment is split into

1

) OTTI related to credit loss, which is recognized in the income statement and

2

) OTTI related to other factors, which is recognized in other comprehensive income. The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis.

Loans Held for Sale

– Loans held for sale include residential mortgage loans originated for sale into the secondary market and are carried at the lower of aggregate cost or fair value, as determined by outstanding commitments from investors. Net unrealized losses, if any, are recorded as a valuation allowance and charged to earnings.

Mortgage loans held for sale are generally sold with servicing rights

released. If sold with servicing retained, the carrying value of mortgage loans sold is reduced by the amount allocated to the servicing right. Gains and losses on sales of mortgage loans are based on the difference between the selling price and the carrying value of the related loan sold.

Mortgage banking derivatives used in the ordinary course of business consist of mandatory forward sales contracts and rate lock loan commitments. Forward contracts represent future commitments to deliver loans at a specified price and date and are used to manage interest rate risk on loan commitments and mortgage loans held for sale. Rate lock commitments represent commitments to fund loans at a specific rate. These derivatives involve underlying items, such as interest rates, and are designed to transfer risk. Substantially all of these instruments expire within

60

days from the date of issuance. Notional amounts are amounts on which calculations and payments are based, but which do

not

represent credit exposure, as credit exposure is limited to the amounts required to be received or paid.

Commitments to deliver loans and rate lock loan commitments were insignificant at year end.

Loans

– Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal balance outstanding, net of deferred loan fees and costs, and an allowance for loan losses. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income using the level-yield method without anticipating prepayments. The recorded investment in loans includes the outstanding principal balance and unamortized deferred origination costs and fees.

Interest income

recognition on mortgage and commercial loans is discontinued at the time the loan is

90

days delinquent unless the loan is well collateralized and in process of collection. Consumer loans are typically charged off

no

later than

90

days past due. Past due status is based on the contractual terms of the loan. In all cases, loans are placed on nonaccrual or charged off at an earlier date if collection of principal or interest is

not

expected.

All interest accrued but

not

received for loans placed on nonaccrual

is reversed against interest income. Interest received on such loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Allowance for Loan Losses

– The allowance for loan losses is a valuation allowance for probable incurred credit losses. Loan losses are charged against the allowance when management believes the uncollectability of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. Management estimates the allowance balance required using past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors. Allocations of the allowance

may

be made for specific loans, but the entire allowance is available for any loan that, in our judgment, should be charged off.

The allowance consists of s

pecific and general components. The specific component relates to loans that are individually classified as impaired. A loan is deemed impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. Loans for which the terms have been modified resulting in a concession, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings and treated as impaired.

Factors considered in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally

are

not

classified as impaired. The significance of payment delays and payment shortfalls is determined on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.

If a loan is impaired, a portion of the allowance is allocated so that the loan is reported, net, at the present value of estimated future cash flows using the loan

’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral. Large groups of smaller balance homogeneous loans, such as consumer and residential real estate loans, are collectively evaluated for impairment and are

not

separately identified for impairment disclosures. Troubled debt restructurings are separately identified for impairment disclosures and are measured at the present value of estimated future cash flows using the loan’s effective rate at inception. If a troubled debt restructuring is considered to be a collateral dependent loan, the loan is reported at the fair value of the collateral. For troubled debt restructurings that subsequently default, the amount of reserve is determined in accordance with the accounting policy for the allowance for loan losses.

The general component covers non

-impaired loans and is based on historical loss experience adjusted for current factors. The historical loss experience is determined by portfolio segment and is based on actual loss history experienced over the most recent

four

years with weighting towards the most recent periods. This actual loss experience is supplemented with other economic factors based on the risks present for each portfolio segment. These economic factors include consideration of the following: changes in lending policies, procedures, and practices; effects of any change in risk selection and underwriting standards; national and local economic trends and conditions; industry conditions; trends in volume and terms of loans; experience, ability and depth of lending management and other relevant staff; levels of and trends in delinquencies and impaired loans; levels of and trends in charge-offs and recoveries; and effects of changes in credit concentrations.

A portfolio segment is defined as the level at which an entity develops and documents a systematic methodology to determine

its allowance for loan losses. Management identified the following portfolio segments: commercial, commercial real estate, residential real estate, consumer, agricultural, and other.

● Commercial loans are made to businesses and depend on the strength of the industries, related borrowers, and cash flow from the businesses. Commercial loans are advances for equipment purchases, or to provide working capital, or to meet other financing needs of business enterprises. These loans may be secured by accounts receivable, inventory, equipment or other business assets. Financial information is obtained from the borrowers to evaluate their ability to repay the loans.

● Commercial real estate loans are affected by the local commercial real estate market and the local economy. Commercial real estate loans include loans on commercial properties occupied by borrowers and/or tenants. Construction and development loans are a component of this segment. These loans are generally secured by land under development or homes and commercial buildings under construction. Appraisals are obtained to support the loan amount. Financial information is obtained from the borrowers and/or the individual project to evaluate cash flows sufficiency to service the debt.

● Residential real estate loans are affected by the local residential real estate market, local economy, and, for variable rate mortgages, movement in indices tied to these loans. For owner occupied residential loans , the borrowers’ repayment ability is evaluated through a review of credit scores and debt to income ratios. For non-owner occupied residential loans, such as rental real estate, financial information is obtained from the borrowers and/or the individual project to evaluate cash flows sufficiency to service the debt. Appraisals are obtained to support the loan amount.

● Consumer loans depend on local economies. Consumer loans are generally secured by consumer assets, but may be unsecured. Management evaluates the borrowers’ repayment ability through a review of credit scores and an evaluation of debt to income ratios.

● Agriculture loans depend on the industries tied to these loans and are generally secured by livestock, crops, and/or equipment, but may be unsecured. Management evaluates the borrowers’ repayment ability through financial and business performance review.

● Other loans include loans to municipalities, loans secured by stock, and overdrafts. For municipal loans , management evaluates the borrowers’ revenue streams as well as ability to repay form general funds. For loans secured by stock, management evaluates the market value of the stock securing the loan in relation to the loan amount. Overdrafts are funded based on pre-established criteria related to the deposit account relationship.

Management

analyzes key relevant risk characteristics for each portfolio segment having determined that loans in each segment possess similar general risk characteristics that are analyzed in connection with loan underwriting processes and procedures. In determining the allocated allowance, the weighted average loss rates over the most recent

four

years are used with weighting towards the most recent periods. Commercial real estate qualitative adjustment considerations include trends in the markets for underlying collateral values, risks related to tenant rents, and economic factors such as decreased sales demand, elevated inventory levels, and declining collateral values. Residential real estate loan considerations include macro economic factors such as unemployment rates, trends in vacancy rates, and home value trends. The commercial and agricultural portfolio qualitative adjustments are related to economic and portfolio performance trends. The agricultural, consumer and other portfolios are less significant in terms of size and risk is assessed based on the smaller dollar size of these loans and the more geographical areas where the collateral is located.

Transfers of Financial Assets

– Transfers of financial assets are accounted for as sales, when control over the assets has been relinquished. Control over transferred assets is deemed to be surrendered when the assets have been isolated from the Company, the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and the Company does

not

maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

Other Real Estate Owned

(“OREO”) – Assets acquired through or instead of loan foreclosure are initially recorded at fair value less estimated costs to sell when acquired, establishing a new cost basis. These assets are subsequently accounted for at the lower of cost or fair value, less estimated costs to sell. If fair value declines subsequent to foreclosure, a write-down is recorded through expense. Costs after acquisition are expensed.

Premises and Equipment

– Land is carried at cost. Premises and equipment are stated at cost less accumulated depreciation. Buildings and related components are depreciated using the straight-line method with useful lives generally ranging from

5

to

40

years. Furniture, fixtures and equipment are depreciated using the straight-line or accelerated method with useful lives generally ranging from

2

to

10

years.

Federal Home Loan Bank (FHLB) Stock

– The Bank is a member of the FHLB system. Members are required to own a certain amount of stock based on the level of borrowings and other factors, and

may

invest in additional amounts. FHLB stock is carried at cost, classified as a restricted security, and periodically evaluated for impairment. Because this stock is viewed as long term investment, impairment is based on ultimate recovery of par value. Both cash and stock dividends are reported as income.

Intangible Assets

– Intangible assets with definite useful lives are included with other assets and amortized over their estimated useful lives to their estimated residual values, if any. Other intangible assets consist of core deposit intangible assets arising from whole bank and branch acquisitions. They are initially measured at fair value and then are amortized on an accelerated or straight-line basis over their estimated useful lives, which range from

7

to

10

years.

Bank Owned Life Insurance

– The Bank has purchased life insurance policies on certain key executives. Company owned life insurance is recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or other amounts due that are probable at settlement.

Long-Term Assets

– Premises and equipment, other intangible assets, and other long-term assets are reviewed for impairment when events indicate their carrying amount

may

not

be recoverable from future undiscounted cash flows. If impaired, the assets are recorded at fair value through a charge to earnings.

Benefit Plans

– Employee

401

(k) and profit sharing plan expense is the amount of matching contributions. Deferred compensation and supplemental retirement plan expense allocates the benefits over years of service.

Stock-Based Compensation

– Compensation cost is recognized for unvested stock awards issued to employees, based on the fair value of these awards at the date of grant. The market price of the Corporation’s common stock at the date of grant is used for restricted stock awards. Compensation cost is recognized over the required service period, generally defined as the vesting period. For awards with graded vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award.

Income Taxes

– Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between carrying amounts and tax bases of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized.

A tax position is recognized as a benefit only if it is "more likely than

not"

that the tax position would be sustained in a tax examination, with a tax exami

nation being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than

50%

likely of being realized on examination. For tax positions

not

meeting the "more likely than

not"

test,

no

tax benefit is recorded. The Company recognizes interest and/or penalties related to income tax matters in income tax expense.

Loan Commitments and Related Financial Instruments

– Financial instruments include off-balance sheet credit instruments, such as commitments to make loans and commercial letters of credit, issued to meet customer-financing needs. The face amount for these items represents the exposure to loss, before considering customer collateral or ability to repay. Such financial instruments are recorded when they are funded.

Comprehensive

Income (

Loss

)

– Comprehensive loss consists of net income (loss) and other comprehensive income (loss). Other comprehensive income (loss) includes unrealized gains and losses on securities available for sale, which are also recognized as a separate component of equity.

Earnings

(Loss)

Per Common Share

– Basic earnings (loss) per common share are net income (loss) attributable to common shareholders divided by the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per common share include the dilutive effect, if any, of additional potential common shares issuable under stock options and warrants. Earnings (loss) and dividends per share are restated for all stock splits and dividends through the date of issue of the financial statements.

Earnings (Loss) Allocated to Participating Securities

–

The Company has issued and outstanding unvested common shares to employees and directors through the stock incentive plan. Earnings (loss) are allocated to these participating securities based on their percentage of total issued and outstanding shares.

Loss Contingencies

– Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated.

Dividend Restriction

s

– Banking regulations require maintaining certain capital levels and

may

limit the dividends paid by the Bank to the Company or by the Company to shareholders.

Fair Value of Financial Instruments

– Fair values of financial instruments are estimated using relevant market information and other assumptions. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect the estimates.

D

erivative

I

nstruments

–

Derivative Instruments are carried at fair value and reflect the estimated amounts that would have been received to terminate these contracts at the reporting date based upon pricing or valuation models applied to current market information.

As part of the asset/liability management program, the Company utilize

s, from time to time, risk participation agreements to reduce its sensitivity to changing interest rates. These are derivative instruments, which are recorded as assets or liabilities in the consolidated balance sheets at fair value. Changes in the fair values of derivatives are reported in the consolidated statements of operations or other comprehensive income (“OCI”) depending on the use of the derivative and whether the instrument qualifies for hedge accounting. The key criterion for the hedge accounting is that the hedged relationship must be highly effective in achieving offsetting changes in those cash flows that are attributable to the hedged risk, both at inception of the hedge and on an ongoing basis.

Derivatives that qualify for the hedge accounting treatment are designated as either: a hedge of the fair value of the recognized asset or liability or of an unrecognized commitment (a fair value hedge) or a hedge of a forecasted transaction or the variability of cash flows to be received or paid related to a recognized asset or liability (a cash flow hedge). To date, the Company has

not

entered into a cash flow hedge. For cash flow hedges, changes in the fair values of the derivative instruments are reported in OCI to the extent the hedge is effective. The gains and losses on derivative instruments that are reported in OCI are reflected in the consolidated statements of income in the periods in which the results of operations are impacted by the variability of the cash flows of the hedged item. Generally, net interest income is increased or decreased by amounts receivable or payable with respect to the derivatives, which qualify for hedge accounting. At inception of the hedge, a Company must establish the method it uses for assessing the effectiveness of the hedging derivative and the measurement approach for determining the ineffective aspect of the hedge. The ineffective portion of the hedge, if any, is recognized currently in the consolidated statements of operations and time value expiration of the hedge when measuring ineffectiveness is excluded.

The risk participation agreements

are

not

designated against specific assets or liabilities under ASC

815,

Derivatives and Hedging, and, therefore, do

not

qualify for hedge accounting. The derivatives are recorded on the balance sheet at fair value and changes in fair value of both the borrower and the offsetting swap agreements are recorded (and essentially offset) in non-interest income. The fair value of the derivative instruments incorporates a consideration of credit risk in accordance with ASC

820,

resulting in some volatility in earnings each period.

Adoption of New Accounting Standards

–

In

August 2015,

FASB issued ASU

2015

-

14,

Revenue from Contracts with Customers (Topic

606

). This ASU is an update to ASU

2014

-

09,

and delays the effective date of ASU

2014

-

09.

The ASU provides guidance on revenue recognition for entities that enter into contracts with customers to transfer goods or services or enter into contracts for the transfer of nonfinancial assets. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Additional disclosures are required to provide quantitative and qualitative information regarding the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The new guidance is effective for annual reporting periods, and interim reporting periods within those annual periods, beginning after

December 15, 2017.

The Company’s revenue is comprised of net interest income on financial assets and liabilities, which is explicitly excluded from the scope of this guidance, and non-interest income. Based on the evaluation of the Company’s non-interest income revenue streams, adoption of this new guidance will

not

have a material impact on the consolidated financial statements. Changes to the related disclosures are still being finalized.

In

January 2016,

the FASB issued an update ASU

No.

 

2016

-

01,

Financial Instruments – Overall (Subtopic

825

-

10

): Recognition and Measurement of Financial Assets and Financial Liabilities. The amendments in this update impact public business entities as follows:

1

) Require equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income.

2

) Simplify the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment. When a qualitative assessment indicates that impairment exists, an entity is required to measure the investment at fair value.

3

) Eliminate the requirement to disclose the methods and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet.

4

) Require entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes.

5

) Require an entity to present separately in other comprehensive income the portion of the total change in fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments.

6

) Require separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements.

7

) Clarify that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. The amendments in this update become effective for annual periods and interim periods within those annual periods beginning after

December 

15,

2017.

The impact of adopting the new guidance did 

not

have a material impact on the consolidated financial statements, but will require additional disclosures. The Company currently does

not

have any equity investments.

In

February 2016,

the FASB issued an update ASU

No.

2016

-

02,

Leases (Topic

842

). Under the new guidance, lessees will be required to recognize the following for all leases, with the exception of short-term leases, at the commencement date: a lease liability, which is a lessee

’s obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under the new guidance, lessor accounting in largely unchanged. The amendments in this update become effective for annual periods and interim periods within those annual periods beginning after

December 15, 2018.

The impact of adopting the new guidance on the consolidated financial statements will

not

have a material impact.

In

June 2016,

the FASB issued ASU

No.

2016

-

13,

–

Financial Instruments – Credit Losses (Topic

326

): Measurement of Credit Losses on Financial Instruments. The final standard will change estimates for credit losses related to financial assets measured at amortized cost such as loans, held-to-maturity debt securities, and certain other contracts. For estimating credit losses, the FASB is replacing the incurred loss model with an expected loss model, which is referred to as the current expected credit loss (CECL) model. Under the CECL model, certain financial assets that are carried at amortized cost, such as loans held for investment and held-to-maturity debt securities, are required to be presented at the net amount expected to be collected. The measurement of expected credit losses is to be based on information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. This measurement will take place at the time the financial asset is

first

added to the balance sheet and periodically thereafter. This differs significantly from the “incurred loss” model required under current GAAP, which delays recognition until it is probable a loss has been incurred. The change could materially affect how the allowance for loan losses is determined. The standard is effective for public companies for fiscal years beginning after

December 15, 2019.

Management is currently gathering loan level data, and assessing our data and system needs. The impact of CECL model implementation is being evaluated, but it is expected that a

one

-time cumulative-effect adjustment to the allowance for loan losses will be recognized in retained earnings on the consolidated balance sheet as of the beginning of the

first

reporting period in which the new standard is effective, as is consistent with regulatory expectations set forth in interagency guidance. The magnitude of any adjustment or the overall impact of the new standard on financial condition or results of operation cannot yet be determined.

In

March 2017,

the FASB issued ASU

No.

2017

-

08,

–

Receivables – Nonrefundable Fees and Other Costs (Subtopic

310

-

20

): Premium Amortization of Purchased Callable Debt Securities. The final standard will shorten the amortization period for premiums on callable debt securities by requiring that premiums be amortized to the

first

(or earliest) call date instead of as an adjustment to the yield over the contractual life. The standard is effective for public companies for fiscal years beginning after

December 15, 2018.

The Company is currently evaluating the impact of adopting the new guidance on the consolidated financial statements.

In

February 2018,

the FASB issued ASU

No.

2018

-

02,

–Income Statement – Reporting Comprehensive Income (Topic

220

): Reclassification of Certain Tax Effects From Other Comprehensive Income. The final standard allows institutions to elect to reclassify the stranded tax effects from AOCI to retained earnings, limited to amounts in AOCI that are affected by the tax reform law.  This includes remeasuring deferred tax assets and liabilities related to items presented in AOCI at the newly enacted tax rate and on other income tax effects of items remaining in AOCI. The standard is effective for public companies for fiscal years beginning after

December 15, 2018,

and interim periods during

2018.

Early adoption is permitted.  The Company will adopt the standard in the

first

quarter of

2018

and adoption will

not

have a material impact on the consolidated financial statements.

XML

Note 2 - Securities

12 Months Ended

Dec. 31, 2017

Notes to Financial Statements

Investments in Debt and Marketable Equity Securities (and Certain Trading Assets) Disclosure [Text Block]

N

OTE

2

– SECURITIES

Securities are classified into available for sale (AFS) and held to maturity (HTM) categories. AFS securities are those that

may

be sold if needed for liquidity, asset liability management, or other reasons. AFS securities are reported at fair value, with unrealized gains or losses included as a separate component of equity, net of tax. HTM securities are those that

the Bank has the intent and ability to hold to maturity and are reported at amortized cost.

The amortized cost and fair value of securities and the related gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) were as follows:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
December 31, 201 7	(in thousands)
Available for sale
U.S. Government and federal agency	$	22,105	$	2	$	(483	)	$	21,624
Agency mortgage-backed: residential		65,935		117		(1,087	)		64,965
Collateralized loan obligations		25,343		182		(20	)		25,505
State and municipal		33,303		508		(101	)		33,710
Corporate bonds		6,838		78		—			6,916
Total available for sale	$	153,524	$	887	$	(1,691	)	$	152,720

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
December 31, 201 6	(in thousands)
Available for sale
U.S. Government and federal agency	$	34,757	$	50	$	(708	)	$	34,099
Agency mortgage-backed: residential		103,390		455		(1,492	)		102,353
Collateralized loan obligations		11,203		—		—			11,203
State and municipal		2,028		25		(8	)		2,045
Corporate bonds		3,069		24		(3	)		3,090
Total available for sale	$	154,447	$	554	$	(2,211	)	$	152,790

	Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses			Fair Value
Held to maturity
State and municipal	$	41,818	$	1,272	$	(18	)	$	43,072
Total held to maturity	$	41,818	$	1,272	$	(18	)	$	43,072

In

2013,

the Bank transferred a portion of its tax-free municipal and taxable municipal bond portfolios from

AFS to HTM. At that time, the transfer occurred at fair value with the unrealized loss of

$1.3

million remaining in other comprehensive income. That unrealized loss has subsequently been amortized on the level yield method out of other comprehensive income with an offsetting entry reducing interest income as a yield adjustment through earnings.

No

gain or loss was recorded at the time of transfer in

2013.

Given the Bank’s current balance sheet composition, interest rate risk profile, the current tax environment, and the Bank’s strategic plan, management reassessed the classification of the held to maturity securities and, effective

December 1, 2017,

transferred

$41.4

million of tax-free municipals and taxable municipals from HTM to AFS. As a result, the

$702,000

in remaining unamortized loss from the

2013

transfer was reclassified through a book value adjustment of these securities. At

December 31, 2017,

these securities were carried at fair value with unrealized holding gains and losses reported in other comprehensive income, net of tax, with the remaining securities classified as AFS.

Sales and calls of securities were as

follows:

	201 7		201 6		201 5
	(in thousands)
Proceeds	$	41,733	$	8,311	$	45,012
Gross gains		449		245		1,902
Gross losses		161		29		136

T

he tax provision related to net gains and losses realized on sales was

$101,000,

$76,000,

and

$618,000,

respectively.

T

he amortized cost and fair value of our debt securities are shown by contractual maturity. Expected maturities

may

differ from actual maturities when borrowers have the right to call or prepay obligations with or without call or prepayment penalties. Mortgage-backed securities

not

due at a single maturity date are shown separately.

	December 31, 201 7
	Amortized Cost		Fair Value
	(in thousands)
Maturity
Available for sale
Within one year	$	14,648	$	14,682
One to five years		40,197		40,675
Five to ten years		32,744		32,398
Agency mortgage-backed: residential		65,935		64,965
Total	$	153,524	$	152,720

Securities pledged at year-end

2017

and

2016

had carrying values of approximately

$76.8

million and

$61.2

million, respectively, and were pledged to secure public deposits.

At

December 31, 2017

and

2016,

the Bank held securities issued by the Commonwealth of Kentucky or Kentucky municipalities having a book value of

$15.4

million and

$16.4

million, respectively. At year-end

2017,

there were

no

other holdings of securities of any

one

issuer, other than the U.S. Government and its agencies, in an amount greater than

10%

of stockholders’ equity.

The Company evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to the length of time and the extent to which the fair value has been less than cost, the financial condition and near-term prospects of the issuer, underlying credit quality of the issuer, and the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. In analyzing an issuer

’s financial condition, the Company

may

consider whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, the sector or industry trends and cycles affecting the issuer, and the results of reviews of the issuer’s financial condition. As of

December 

31,

2017,

management does

not

believe any securities in the portfolio with unrealized losses should be classified as other than temporarily impaired.

Securities with unrealized losses at

December 31, 2017

and

December 31, 2016,

aggregated by investment category and length of time the individual securities have been in a continuous unrealized loss position, are as follows:

	Less than 12 Months					12 Months or More					Total
Description of Securities	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
	(in thousands)
201 7
Available for sale
U.S. Government and federal agency	$	5,788	$	(97	)	$	14,121	$	(386	)	$	19,909	$	(483	)
Agency mortgage-backed: residential		21,104		(172	)		27,158		(915	)		48,262		(1,087	)
State and municipal		7,492		(101	)		—		—			7,492		(101	)
Collateralized loan obligations		6,038		(20	)		—		—			6,038		(20	)
Total temporarily impaired	$	40,422	$	(390	)	$	41,279	$	(1,301	)	$	81,701	$	(1,691	)

	Less than 12 Months					12 Months or More					Total
Description of Securities	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
	(in thousands)
201 6
Available for sale
U.S. Government and federal agency	$	27,738	$	(708	)	$	—	$	—		$	27,738	$	(708	)
Agency mortgage-backed: residential		63,460		(1,449	)		2,745		(43	)		66,205		(1,492	)
State and municipal		465		(8	)		—		—			465		(8	)
Corporate bonds		—		—			1,566		(3	)		1,566		(3	)
Total temporarily impaired	$	91,663	$	(2,165	)	$	4,311	$	(46	)	$	95,974	$	(2,211	)
Held to maturity
State and municipal		1,540		(18	)		—		—			1,540		(18	)
Total	$	1,540	$	(18	)	$	—	$	—		$	1,540	$	(18	)

XML

Note 3 - Loans

12 Months Ended

Dec. 31, 2017

Notes to Financial Statements

Loans, Notes, Trade and Other Receivables Disclosure [Text Block]

N

OTE

3

– LOANS

Loans net of unearned income, deferred loan origination costs, and net premiums on acquired loans by class were as follows:

	201 7			201 6
	(in thousands)
Commercial	$	113,771		$	97,761
Commercial Real Estate:
Construction		57,342			36,330
Farmland		88,320			71,507
Nonfarm nonresidential		156,724			149,546
Residential Real Estate:
Multi-family		56,588			48,197
1-4 Family		179,222			188,092
Consumer		18,439			9,818
Agriculture		41,154			37,508
Other		555			477
Subtotal		712,115			639,236
Less: Allowance for loan losses		(8,202	)		(8,967	)
Loans, net	$	703,913		$	630,269

The following table presents the activity in the allowance for loan losses by portfolio segment for the year ended

December 31,

2017,

2016,

and

2015:

	Commercial			Commercial Real Estate			Residential Real Estate			Consumer			Agriculture			Other			Total
Dec ember 3 1 , 201 7 :	(in thousands)
Beginning balance	$	475		$	4,894		$	3,426		$	8		$	162		$	2		$	8,967
Provision (n egative provision)		363			(1,223	)		(129	)		(8	)		213			(16	)		(800	)
Loans charged off		(5	)		(58	)		(692	)		(51	)		(95	)		–			(901	)
Recoveries		59			419			295			115			33			15			936
Ending balance	$	892		$	4,032		$	2,900		$	64		$	313		$	1		$	8,202

Dec ember 3 1 , 201 6 :
Beginning balance	$	818		$	6,993		$	3,984		$	122		$	122		$	2		$	12,041
Provision (negative p rovision)		(401	)		(2,438	)		749			(314	)		(56	)		10			(2,450	)
Loans charged off		(276	)		(505	)		(1,652	)		(99	)		(18	)		(79	)		(2,629	)
Recoveries		334			844			345			299			114			69			2,005
Ending balance	$	475		$	4,894		$	3,426		$	8		$	162		$	2		$	8,967

Dec ember 3 1 , 201 5 :
Beginning balance	$	2,046		$	10,931		$	5,787		$	274		$	319		$	7		$	19,364
Provision (negative provision)		(1,255	)		(2,713	)		(316	)		(115	)		(87	)		(14	)		(4,500	)
Loans charged off		(696	)		(2,879	)		(2,171	)		(221	)		(118	)		(47	)		(6,132	)
Recoveries		723			1,654			684			184			8			56			3,309
Ending balance	$	818		$	6,993		$	3,984		$	122		$	122		$	2		$	12,041

T

he following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on the impairment method as of

December 31, 2017:

	Commercial		Commercial Real Estate		Residential Real Estate		Consumer		Agriculture		Other		Total
	(in thousands)
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	13	$	–	$	206	$	–	$	–	$	–	$	219
Collectively evaluated for impairment		879		4,032		2,694		64		313		1		7,983
Total ending allowance balance	$	892	$	4,032	$	2,900	$	64	$	313	$	1	$	8,202
Loans:
Loans individually evaluated for impairment	$	587	$	2,635	$	3,950	$	1	$	–	$	–	$	7,173
Loans collectively evaluated for impairment		113,184		299,751		231,860		18,438		41,154		555		704,942
Total ending loans balance	$	113,771	$	302,386	$	235,810	$	18,439	$	41,154	$	555	$	712,115

T

he following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on the impairment method as of

December 31, 2016:

	Commercial		Commercial Real Estate		Residential Real Estate		Consumer		Agriculture		Other		Total
	(in thousands)
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	13	$	35	$	350	$	–	$	1	$	–	$	399
Collectively evaluated for impairment		462		4,859		3,076		8		161		2		8,568
Total ending allowance balance	$	475	$	4,894	$	3,426	$	8	$	162	$	2	$	8,967
Loans:
Loans individually evaluated for impairment	$	595	$	5,854	$	8,621	$	1	$	60	$	–	$	15,131
Loans collectively evaluated for impairment		97,166		251,529		227,668		9,817		37,448		477		624,105
Total ending loans balance	$	97,761	$	257,383	$	236,289	$	9,818	$	37,508	$	477	$	639,236

Im

paired Loans

I

mpaired loans include restructured loans and loans on nonaccrual or classified as doubtful, whereby collection of the total amount is improbable, or loss, whereby all or a portion of the loan has been written off or a specific allowance for loss had been provided.

The following table presents

information related to loans individually evaluated for impairment by class of loan as of and for the year ended

December 31, 2017:

	Unpaid Principal Balance		Recorded Investment		Allowance For Loan Losses Allocated		Average Recorded Investment		Interest Income Recognized		Cash Basis Income Recognized
	(in thousands)
With No Related Allowance Recorded:
Commercial	$	703	$	487	$	—	$	495	$	7	$	7
Commercial real estate:
Construction		—		—		—		—		—		—
Farmland		3,687		2,059		—		2,651		210		210
Nonfarm nonresidential		1,047		576		—		716		59		47
Residential real estate:
Multi-family		—		—		—		820		—		—
1-4 Family		4,293		2,787		—		2,884		143		143
Consumer		9		1		—		2		2		2
Agriculture		—		—		—		24		1		1
Other		—		—		—		—		—		—
Subtotal		9,739		5,910		—		7,592		422		410
With An Allowance Recorded:
Commercial		100		100		13		100		7		—
Commercial real estate:
Construction		—		—		—		—		—		—
Farmland		—		—		—		235		—		—
Nonfarm nonresidential		—		—		—		238		14		—
Residential real estate:
Multi-family		—		—		—		—		—		—
1-4 Family		1,163		1,163		206		1,404		68		—
Consumer		—		—		—		—		—		—
Agriculture		—		—		—		24		—		—
Other		—		—		—		—		—		—
Subtotal		1,263		1,263		219		2,001		89		—
Total	$	11,002	$	7,173	$	219	$	9,593	$	511	$	410

The following table presents information related to loans individually evaluated for impairment by class of loan as of and for the year ended

December 31,

201

6:

	Unpaid Principal Balance		Recorded Investment		Allowance For Loan Losses Allocated		Average Recorded Investment		Interest Income Recognized		Cash Basis Income Recognized
	(in thousands)
With No Related Allowance Recorded:
Commercial	$	707	$	495	$	—	$	758	$	39	$	39
Commercial real estate:
Construction		—		—		—		156		9		—
Farmland		5,566		3,742		—		4,188		94		95
Nonfarm nonresidential		4,502		1,219		—		4,699		310		189
Residential real estate:
Multi-family		4,100		4,100		—		2,608		287		1
1-4 Family		4,663		2,910		—		5,509		162		94
Consumer		41		1		—		7		8		8
Agriculture		—		—		—		73		28		28
Other		—		—		—		—		—		—
Subtotal		19,579		12,467		—		17,998		937		454
With An Allowance Recorded:
Commercial		100		100		13		20		6		—
Commercial real estate:
Construction		—		—		—		—		—		—
Farmland		614		590		5		358		—		—
Nonfarm nonresidential		303		303		30		398		23		—
Residential real estate:
Multi-family		—		—		—		2,506		101		—
1-4 Family		1,676		1,611		350		1,659		111		—
Consumer		—		—		—		—		—		—
Agriculture		78		60		1		39		—		—
Other		—		—		—		—		—		—
Subtotal		2,771		2,664		399		4,980		241		—
Total	$	22,350	$	15,131	$	399	$	22,978	$	1,178	$	454

The following table presents

information related to loans individually evaluated for impairment by class of loan as of and for the year ended

December 31, 2015:

	Unpaid Principal Balance		Recorded Investment		Allowance For Loan Losses Allocated		Average Recorded Investment		Interest Income Recognized		Cash Basis Income Recognized
	(in thousands)
With No Related Allowance Recorded:
Commercial	$	1,558	$	1,112	$	—	$	1,526	$	5	$	5
Commercial real estate:
Construction		278		262		—		1,993		14		1
Farmland		6,004		4,263		—		4,497		114		114
Nonfarm nonresidential		11,256		7,829		—		16,073		263		9
Residential real estate:
Multi-family		32		32		—		35		—		—
1-4 Family		14,066		11,756		—		13,584		456		99
Consumer		118		20		—		23		—		—
Agriculture		260		152		—		206		—		—
Other		—		—		—		49		5		5
Subtotal		33,572		25,426		—		37,986		857		233
With An Allowance Recorded:
Commercial		—		—		—		13		—		—
Commercial real estate:
Construction		—		—		—		—		—		—
Farmland		—		—		—		63		—		—
Nonfarm nonresidential		574		465		43		4,591		25		—
Residential real estate:
Multi-family		4,195		4,195		57		4,229		204		—
1-4 Family		1,690		1,690		328		1,705		89		—
Consumer		—		—		—		8		—		—
Agriculture		—		—		—		—		—		—
Other		—		—		—		—		—		—
Subtotal		6,459		6,350		428		10,609		318		—
Total	$	40,031	$	31,776	$	428	$	48,595	$	1,175	$	233

Troubled Debt Restructuring

A troubled debt restructuring (TDR)

occurs when the Bank has agreed to a loan modification in the form of a concession for a borrower who is experiencing financial difficulty. The Bank’s TDRs typically involve a reduction in interest rate, a deferral of principal for a stated period of time, or an interest only period. All TDRs are considered impaired and the Bank has allocated reserves for these loans to reflect the present value of the concessionary terms granted to the borrower.

The following table presents the types of TDR loan modifications by portfolio segment outstanding as of

December 31, 2017

and

2016:

	TDRs Performing to Modified Terms		TDRs Not Performing to Modified Terms		Total TDRs
	(in thousands)
December 31, 201 7
Commercial
Rate reduction	$	—	$	33	$	33
Principal deferral		—		434		434
Commercial Real Estate:
Farmland
Principal deferral		—		1,362		1,362
Nonfarm nonresidential
Rate reduction		483		—		483
Residential Real Estate:
1-4 Family
Rate reduction		734		—		734
Total TDRs	$	1,217	$	1,829	$	3,046
December 31, 201 6
Commercial
Rate reduction	$	—	$	33	$	33
Principal deferral		—		434		434
Commercial Real Estate:
Farmland
Principal deferral		—		2,300		2,300
Nonfarm nonresidential
Rate reduction		507		—		507
Principal deferral		—		607		607
Residential Real Estate:
Multi-family
Rate reduction		4,100		—		4,100
1-4 Family
Rate reduction		743		—		743
Total TDRs	$	5,350	$	3,374	$	8,724

At

December 31, 2017

and

2016,

40%

and

61%,

respectively, of the Company’s TDRs were performing according to their modified terms. The Company allocated

$122,000

and

$197,000

as of

December 31, 2017

and

2016,

respectively, in reserves to customers whose loan terms have been modified in TDRs. The Company has committed to lend

no

additional amounts to customers as of

December 31, 2017

or

2016

with outstanding loans that are classified as TDRs.

Managemen

t periodically reviews renewals and modifications of previously identified TDRs, for which there was

no

principal forgiveness, to consider if it is appropriate to remove the TDR classification. If the borrower is

no

longer experiencing financial difficulty and the renewal/modification did

not

contain a concessionary interest rate or other concessionary terms, management considers the potential removal of the TDR classification. If deemed appropriate based upon current underwriting, the TDR classification is removed as the borrower has complied with the terms of the loan at the date of renewal/modification and there was a reasonable expectation that the borrower would continue to comply with the terms of the loan subsequent to the date of the renewal/modification. In this instance, the TDR was originally considered a restructuring in a prior year as a result of a modification with an interest rate that was

not

commensurate with the risk of the underlying loan. Additionally, TDR classification can be removed in circumstances in which the Company performs a non-concessionary re-modification of the loan at terms that were considered to be at market for loans with comparable risk. Management expects the borrower will continue to perform under the re-modified terms based on the borrower’s past history of performance. During

2017,

the TDR classification was removed from

two

loans that met the requirements as discussed above. These loans totaled

$4.1

million at

December 31, 2016.

These loans are

no

longer evaluated individually for impairment.

No

TDR loan modifications occurred

during the

twelve

months ended

December 31, 2017

or

2016.

During the year ended

December, 31 2017

and

2016,

no

TDRs defaulted on their restructured loan within the

twelve

-month period following the loan modification. A default is considered to have occurred once the TDR is past due

90

days or more or it has been placed on nonaccrual.

Non

-

performing Loans

Non

-performing loans include impaired loans and smaller balance homogeneous loans, such as residential mortgage and consumer loans, that are collectively evaluated for impairment. The following table presents the recorded investment in nonaccrual and loans past due

90

days and still on accrual by class of loan as of

December 31, 2017

and

2016:

	Nonaccrual				Loans Past Due 90 Days And Over Still Accruing
	201 7		201 6		201 7		201 6
	(in thousands)
Commercial	$	487	$	495	$	—	$	—
Commercial Real Estate:
Construction		—		—		—		—
Farmland		2,059		4,332		—		—
Nonfarm nonresidential		93		1,016		—		—
Residential Real Estate:
Multi-family		—		—		—		—
1-4 Family		2,817		3,312		—		—
Consumer		1		1		1		—
Agriculture		—		60		—		—
Other		—		—		—		—
Total	$	5,457	$	9,216	$	1	$	—

T

he following table presents the aging of the recorded investment in past due loans by class as of

December 31, 2017

and

2016:

	30 – 59 Days Past Due		60 – 89 Days Past Due		90 Days And Over Past Due		Nonaccrual		Total Past Due And Nonaccrual
	(in thousands)
December 31 , 201 7
Commercial	$	—	$	—	$	—	$	487	$	487
Commercial Real Estate:
Construction		—		—		—		—		—
Farmland		593		—		—		2,059		2,652
Nonfarm nonresidential		—		—		—		93		93
Residential Real Estate:
Multi-family		—		—		—		—		—
1-4 Family		850		126		—		2,817		3,793
Consumer		30		45		—		1		76
Agriculture		5		—		1		—		6
Other		—		—		—		—		—
Total	$	1,478	$	171	$	1	$	5,457	$	7,107

	30 – 59 Days Past Due		60 – 89 Days Past Due		90 Days And Over Past Due		Nonaccrual		Total Past Due And Nonaccrual
	(in thousands)
December 31, 201 6
Commercial	$	—	$	—	$	—	$	495	$	495
Commercial Real Estate:
Construction		—		—		—		—		—
Farmland		626		—		—		4,332		4,958
Nonfarm nonresidential		—		59		—		1,016		1,075
Residential Real Estate:
Multi-family		—		—		—		—		—
1-4 Family		1,454		256		—		3,312		5,022
Consumer		19		—		—		1		20
Agriculture		203		—		—		60		263
Other		—		—		—		—		—
Total	$	2,302	$	315	$	—	$	9,216	$	11,833

Credit Quality Indicators

Management

categorizes all loans into risk categories at origination based upon original underwriting. Thereafter, management categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as current financial information, historical payment experience, credit documentation, public information, and current economic trends. Additionally, loans are analyzed through internal and external loan review processes. Borrower relationships in excess of

$500,000

are routinely analyzed through the credit administration processes which classify the loans as to credit risk. The following definitions are used for risk ratings

:

Watch

–

Loansclassified as watch are those loans which have or

may

experience a potentially adverse development which necessitates increased monitoring.

Special Mention

–

Loans classified as special mention do

not

have all of the characteristics of substandard or doubtful loans. They have

one

or more deficiencies which warrant special attention and which corrective action, such as accelerated collection practices,

may

remedy.

Substandard

–

Loans classified as substandard are those loans with clear and defined weaknesses such as a highly leveraged position, unfavorable financial ratios, uncertain repayment sources or poor financial condition which

may

jeopardize the repayment of the debt as contractually agreed. They are characterized by the possibility of some losses if the deficiencies are

not

corrected.

Doubtful

– Loans classified as doubtful are those loans which have characteristics similar to substandard loans but with an increased risk that collection or liquidation in full is highly questionable and improbable.

Loans

not

meeting the criteria above that are analyzed individually as part of the above described process are considered to be “Pass” rated l

oans. As of

December 31, 2017

and

2016,

and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

	Pass		Watch		Special Mention		Substandard		Doubtful		Total
	(in thousands)
December 31, 201 7
Commercial	$	112,978	$	84	$	—	$	709	$	—	$	113,771
Commercial Real Estate:
Construction		57,342		—		—		—		—		57,342
Farmland		76,563		7,607		—		4,150		—		88,320
Nonfarm nonresidential		152,004		2,906		—		1,814		—		156,724
Residential Real Estate:
Multi-family		47,121		9,467		—		—		—		56,588
1-4 Family		169,774		3,535		164		5,749		—		179,222
Consumer		18,042		306		—		91		—		18,439
Agriculture		38,654		1,810		—		690		—		41,154
Other		555		—		—		—		—		555
Total	$	673,033	$	25,715	$	164	$	13,203	$	—	$	712,115

	Pass		Watch		Special Mention		Substandard		Doubtful		Total
	(in thousands)
December 31, 201 6
Commercial	$	96,402	$	294	$	—	$	1,065	$	—	$	97,761
Commercial Real Estate:
Construction		35,823		507		—		—		—		36,330
Farmland		63,323		1,521		—		6,663		—		71,507
Nonfarm nonresidential		142,222		5,217		445		1,662		—		149,546
Residential Real Estate:
Multi-family		38,281		6,080		—		3,836		—		48,197
1-4 Family		173,565		6,909		52		7,566		—		188,092
Consumer		9,397		348		—		73		—		9,818
Agriculture		26,940		9,555		—		1,013		—		37,508
Other		477		—		—		—		—		477
Total	$	586,430	$	30,431	$	497	$	21,878	$	—	$	639,236

XML

Note 4 - Premises and Equipment

12 Months Ended

Dec. 31, 2017

Notes to Financial Statements

Property, Plant and Equipment Disclosure [Text Block]

N

OTE

4

– PREMISES AND EQUIPMENT

Year-end premises and equipment were as follows:

	201 7			201 6
	(in thousands)
Land and buildings	$	23,124		$	23,515
Furniture and equipment		10,151			10,050
		33,275			33,565
Accumulated depreciation		(16,486	)		(15,717	)
	$	16,789		$	17,848

Depreciation expense was

$955,000,

$1.1

million and

$1.0

million for

2017,

2016

and

2015,

respectively.

XML

Note 5 - Other Real Estate Owned

12 Months Ended

Dec. 31, 2017

Notes to Financial Statements

Real Estate Owned [Text Block]

N

OTE

5

– OTHER REAL ESTATE OWNED

Other real estate owned (OREO) is real estate acquired as a result of foreclosure or

by deed in lieu of foreclosure. It is classified as real estate owned until such time as it is sold. When property is acquired as a result of foreclosure or by deed in lieu of foreclosure, it is recorded at its fair market value less cost to sell. Any write-down of the property at the time of acquisition is charged to the allowance for loan losses.

Fair value of OREO is determined on an individual property basis. When foreclosed properties are acquired,

management obtains a new appraisal of the subject property or has staff from the Bank’s special assets group evaluate the latest in-file appraisal in connection with the transfer to OREO. Updated appraisals are typically obtained within

five

quarters of the anniversary date of ownership unless a sale is imminent. Subsequent reductions in fair value are recorded as non-interest expense when a new appraisal indicates a decline in value or in cases where a listing price is lowered below the appraised amount. 

The following table presents the major categories of OREO at the period-ends indicated:

	201 7		201 6
	(in thousands)
Commercial Real Estate:
Construction, land development, and other land	$	4,335	$	6,571
Farmland		74		—
Residential Real Estate:
1-4 Family		—		250
	$	4,409	$	6,821

Residential loans secured by

1

-

4

family residential properties in the process of foreclosure totale

d

$616,000

and

$932,000

at

December 31, 2017

and

December 31, 2016,

respectively.

A

ctivity relating to OREO owned during the years indicated is as follows:

	201 7			201 6			20 1 5
	(in thousands)
OREO Activity
OREO as of January 1	$	6,821		$	19,214		$	46,197
Real estate acquired		270			1,273			5,513
Valuation adjustment write-downs		(1,963	)		(1,180	)		(9,855	)
Net gain (loss) on sale		74			222			(74	)
Proceeds from sale of properties		(793	)		(12,708	)		(22,567	)
OREO as of December 31	$	4,409		$	6,821		$	19,214

There was

no

OREO rental income for the year ended

December 31, 2017,

compared to

$456,000,

and

$1.3

million for the years ended

December 31, 2016,

and

2015,

respectively.

Expenses related to

OREO owned include:

	201 7			201 6			20 1 5
	(in thousands)
Net (gain) loss on sales	$	(74	)	$	(222	)	$	74
Valuation adjustment write-downs		1,963			1,180			9,855
Operating expense		84			583			2,373
Total	$	1,973		$	1,541		$	12,302

XML

Note 6 - Deposits

12 Months Ended

Dec. 31, 2017

Notes to Financial Statements

Deposit Liabilities Disclosures [Text Block]

N

OTE

6

– DEPOSITS

The following table

details deposits by category:

	December 31, 201 7		December 31, 201 6
	(in thousands)
Non-interest bearing	$	137,386	$	124,395
Interest checking		99,383		103,876
Money market		151,388		142,497
Savings		34,632		34,518
Certificates of deposit		424,235		444,639
Total	$	847,024	$	849,925

Time deposits of $

250,000

or more were approximately

$31.7

million and

$29.1

million at year-end

2017

and

2016,

respectively.

Scheduled maturities of total time deposits for each of the next

five

years are as follows (in thousands):

	Total
201 8	$	204,018
201 9		178,479
20 20		27,507
202 1		5,316
20 22		8,915
	$	424,235

XML

Note 7 - Advances From Federal Home Loan Bank

12 Months Ended

Dec. 31, 2017

Notes to Financial Statements

Federal Home Loan Bank Advances, Disclosure [Text Block]

NOTE

7

–

ADVANCES FROM FEDERAL HOME LOAN BANK

At year-end, advances from the Federal Home Loan Bank were as follows:

	201 7		201 6
	(in thousands)
A dvances with fixed rates from 0.00% to 5.24% and maturities ranging from 2018 through 2033, averaging 1.48% for 2017 and 0.85% for 2016	$	11,797	$	22,458

Each advance is payable per terms on agreement, with a prepayment penalty.

No

prepayment penalties were incurred during

2017

or

2016.

The advances were collateralized by approximately

$130.9

million and

$124.2

million of

first

mortgage loans, under a blanket lien arrangement at year-end

2017

and

2016,

respectively. At

December 31, 2017,

our additional borrowing capacity with the FHLB was

$79.0

million.

Scheduled principal payments during the next

five

years

and thereafter (in thousands):

	Advances
2018	$	10,200
2019		180
2020		485
2021		728
202 2		108
Thereafter		96
	$	11,797

At year-end

2017,

the Company had a

$5.0

million federal funds line of credit available on an unsecured basis from a correspondent institution.

XML

Note 8 - Subordinated Capital Note

12 Months Ended

Dec. 31, 2017

Notes to Financial Statements

Subordinated Borrowings Disclosure [Text Block]

NOTE

8

– SUBORDINATED CAPITAL NOTE

T

he outstanding principal amount of the Bank’s subordinated capital note totaled

$2.3

million at

December 31, 2017.

The note is unsecured, bears interest at the BBA

three

-month LIBOR floating rate plus

300

basis points, and qualifies as Tier

2

capital until

five

years before maturity on

July 1, 2020.

During the final

five

-year period to maturity,

one

-

fifth

of principal amount of the subordinated note is excluded from Tier

2

capital each year and until fully excluded from Tier

2

capital during the year before maturity. Principal payments of

$225,000

plus interest are due quarterly. Scheduled principal payments of

$900,000

per year are due each of the next

two

years with

$450,000

due thereafter. The interest rate was

4.34%

and

3.85%

at

December 31, 2017

and

2016,

respectively.

XML

Note 9 - Junior Subordinated Debentures

12 Months Ended

Dec. 31, 2017

Notes to Financial Statements

Debt Disclosure [Text Block]

N

OTE

9

– JUNIOR SUBORDINATED DEBENTURES

The junior subordinated debentures are redeemable at par prior to maturity at the option of the Company as defined within the trust indenture. The Company has the option to defer interest payments on the junior subordinated debentures from time to time for a period

not

to exceed

20

 consecutive quarters. A deferral period

may

begin at the Company’s discression so long as interest payments are current. The Company is prohibited from paying dividends on its preferred and common shares when interest payments are in deferral.

On

April 15, 2016,

the Company completed the private placement of

580,000

common shares and

220,000

non-voting common shares to accredited investors resulting in total proceeds of

$5.0

million. The investors in the private placement directed a portion of purchase price to pay all deferred interest payments on junior subordinated debentures, bringing our interest payments current through the

second

quarter of

2016.

On

June 29, 2016,

the Company notified the trustees of its election to again defer interest payments effective with the

third

quarter

2016

payment. The deferral period ends after the

second

quarter of

2021.

After

20

consecutive quarters, the Company must pay all deferred distributions to avoid default.

Dividends accrued and unpaid on our junior subordinated debentures totaled

$1.2

million at

December 31, 2017.

A sum

mary of the junior subordinated debentures is as follows:

Description	Issuance Date	Interest Rate (1)	Junior Subordinated Debt Owed To Trust		Maturity Date (2)
Porter Statutory Trust II	2 /13/2004	3-month LIBOR + 2.85%	$	5,000,000	2 /13/2034
Porter Statutory Trust III	4 /15/2004	3-month LIBOR + 2.79%		3,000,000	4 /15/2034
Porter Statutory Trust IV	12 /14/2006	3-month LIBOR + 1.67%		10,000,000	3 /01/2037
As cencia Statutory Trust I	2 /13/2004	3-month LIBOR + 2.85%		3,000,000	2 /13/2034
			$	21,000,000

( 1 ) As of December  31, 2017, the 3 -month LIBOR was 1.69%.

( 2 ) The debentures are callable at our option at their principal amount plus accrued interest.

On

September 30, 2015,

the Company completed a common equity for debt exchange with holders of

$4.0

million of the capital securities (the “Trust Securities”) of Porter Statutory Trust IV, a trust subsidiary of the Company. Accrued and unpaid interest on the Trust Securities totaled of approximately

$330,000.

In exchange for the

$4.3

million debt and interest liability, the Company issued

160,000

common shares and

80,000

non-voting common shares, for a total of

240,000

shares. In the transaction, a wholly owned subsidiary of the Company received a

one

-

third

portion of the Trust Securities directly from an unrelated

third

party in exchange for the issuance of

80,000

common shares resulting in an

$883,000

gain on extinguishment of debt. The

$883,000

gain was determined based upon the difference in the

$560,000

fair value of the common shares issued and the

$1.4

million book value of the debt securities and accrued interest thereon tendered to the Company by the unrelated

third

party on the date of closing. The fair value of the shares issued to the unrelated

third

party was computed by multiplying the

80,000

shares issued by

$7.00

per share, which was the NASDAQ closing price of the Company’s common stock on

September 30, 2015.

The subsidiary also received

two

-thirds of the Trust Securities having a book value of

$2.9

million from related parties in exchange for the issuance of

80,000

common shares and

80,000

non-voting common shares. In accordance with ASC

470

-

50

-

40

-

2

and SEC Guidance

405

-

20

-

40

-

1.J,

the debt and interest liability exchanged with related parties was treated as a capital transaction.

XML

Note 10 - Senior Debt

12 Months Ended

Dec. 31, 2017

Notes to Financial Statements

Long-term Debt [Text Block]

N

OTE

1

0

– S

ENIOR

D

EBT

On

June 30, 2017,

the Company entered into a

$10.0

million senior secured loan agreement with a commercial bank. The loan matures on

June 30, 2022.

Interest is payable quarterly at a rate of

three

-month LIBOR plus

250

basis points through

June 30, 2020,

at which time quarterly principal payments of

$250,000

plus interest will commence. The loan is secured by a

first

priority pledge of

100%

of the issued and outstanding stock of the Bank. The Company

may

prepay any amount due under the promissory note at any time without premium or penalty.

The Company contributed

$9.0

million of the borrowing proceeds to the Bank as common equity Tier

1

capital. The remaining

$1.0

million of the borrowing proceeds were retained by the lender in escrow to service quarterly interest payments.

At

December 31, 2017,

the escrow account had a balance of

$806,000.

The loan agreement contains customary representations, warranties, covenants and events of default, including the following financial covenants: (i) the Company must maintain minimum cash on hand of

not

less than

$750,000

through

June 30, 2018,

and

not

less than

$2,500,000

thereafter, (ii)

the Company must maintain a total risk based capital ratio at least equal to

9%

of risk-weighted assets to

June 30, 2018,

and

10%

thereafter, (iii) the Bank must maintain a total risk based capital ratio at least equal to

10%

of risk-weighted assets to

June 30, 2018,

and

11%

thereafter, and (iv) non-performing assets of the Bank

may

not

exceed

2.5%

of the Bank’s total assets. Both the Company and Bank were in compliance with the covenants as of

December 31, 2017.

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Note 11 - Other Benefit Plans

12 Months Ended

Dec. 31, 2017

Notes to Financial Statements

Postemployment Benefits Disclosure [Text Block]

NOTE

1

1

– OTHER BENEFIT PLANS

401

(

k

) Plan

– The Company

401

(k) Savings Plan allows employees to contribute up to the annual limits as determined by the Internal Revenue Service, which is matched equal to

50%

of the

first

4%

of compensation contributed. The Company, at its discretion,

may

make an additional contribution. Total contributions made by the Company to the plan totaled approximately

$200,000,

$189,000

and

$160,000

in

2017,

2016

and

2015,

respectively.

Supplemental Executive Retirement Plan

– The Company has a supplemental executive retirement plan covering certain executive officers. Under the plan, the Company pays each participant, or their beneficiary, a specific defined benefit amount over

10

years, beginning with the individual’s retirement or early termination of service for reasons other than cause. A liability is accrued for the obligation under these plans. The expense incurred for the plan was

$121,000,

$121,000

and

$121,000

for the years ended

December 

31,

2017,

2016

and

2015,

respectively. The related liability was

$1.3

million at

December 

31,

2017

and

2016

and is included in other liabilities on the balance sheets.

The Company purchased life insurance on the participants

of the plan. The cash surrender value of all insurance policies was

$15.2

million and

$14.8

million at

December 

31,

2017

and

2016,

respectively. Income earned from the cash surrender value of life insurance totaled

$412,000,

$417,000

and

$295,000

for the years ended

December 

31,

2017,

2016,

and

2015,

respectively. The income is recorded as other non-interest income.

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Note 12 - Income Taxes

12 Months Ended

Dec. 31, 2017

Notes to Financial Statements

Income Tax Disclosure [Text Block]

NOTE

1

2

– INCOME TAXES

The Company has had a full valuation allowance against its net deferred tax asset since

2011.

The Company

’s ability to utilize the net deferred tax asset depends upon generating sufficient future levels of taxable income. The determination to restore a deferred tax asset and eliminate a valuation allowance depends upon the evaluation of both positive and negative evidence regarding the likelihood of achieving sufficient future taxable income levels. During the

fourth

quarter of

2017,

management concluded it was more-likely-than-

not

the asset would be utilized to reduce future taxes payable related to the future taxable income of the Company, and as such, reversed the valuation allowance. The positive evidence that outweighed the negative evidence evaluated by management in arriving at the conclusion to remove the valuation allowance included, but was

not

limited to, the following:

● positive cumulative pre-tax earnings over the prior three -year period ended December 31, 2017

● growth in net interest income, stable non-interest income trends, and lower non-interest expense trends

● improvement in asset quality which increases management ’s ability to forecast future taxable income and achieve forecasted results

● the Company ’s net operating loss (“NOLs”) carryforwards do not begin to expire until 2032, and

● the Bank ’s Consent Order was terminated in the fourth quarter of 2017

As a result of the conclusion to reverse the valuation allowance, the Company recorded an income tax benefit of

$54.0

million for the year ended

December 31, 2017.

On

December 22, 2017,

the Tax Cuts and Jobs Act of

2017

was signed into law. Among other significant changes to the tax code, the new law lowered the federal corporate tax rate from

35%

to

21%

beginning in

2018.

As a result, the Company revalued its net deferred tax asset at the new

21%

rate. Due to this revaluation, the Company recorded a

$20.3

million charge to income tax expense for the year ended

December 31, 2017.

The combination of the reversal of the valuation allowance and the change in federal corporate tax rates

, as well as income tax expense for the year, resulted in an income tax benefit of

$31.9

million for the year ended

December 31, 2017.

Income tax expense (benefit) was as follows:

	201 7			201 6			20 1 5
	(in thousands)
Current	$	—		$	21		$	—
Deferred		2,523			2,771			5,258
Net operating loss		(647	)		(4,009	)		(5,975	)
Change in federal statutory rate		20,274			—			—
Change in valuation allowance		(54,049	)		1,238			717
	$	(31,899	)	$	21		$	—

Effective tax rates differ from federal statutory rate of

35%

applied to income

(loss) before income taxes due to the following:

	201 7			201 6			20 1 5
	(in thousands)
Federal statutory rate times financial statement income (loss)	$	2,294		$	(956	)	$	(1,125	)
Effect of:
V aluation allowance		(54,049	)		1,238			717
Tax-exempt income		(196	)		(211	)		(264	)
Non -taxable life insurance income		(144	)		(146	)		(103	)
Restricted stock vesting		(121	)		—			—
Change in federal statutory rate		20,274			—			—
Other, net		43			96			775
Total	$	(31,899	)	$	21		$	—

Year-end deferred tax assets and liabil

ities were due to the following:

	201 7		201 6
	(in thousands)
Deferred tax assets:
Net operating loss carry-forward	$	25,645	$	42,094
Allowance for loan losses		1,723		3,139
O REO write-down		2,432		3,366
Alternative minimum tax credit carry-forward		692		692
Net assets from acquisitions		358		674
Net unrealized loss on securities		169		867
New market tax credit carry-forward		208		208
Nonaccrual loan interest		271		481
Accrued expenses		172		3,860
Deferred compensation		277		465
Other		241		360
		32,188		56,206
Deferred tax liabilities:
FHLB stock dividends		557		928
Fixed assets		68		89
Deferred loan costs		152		274
Other		98		866
		875		2,157
Net deferred tax assets before valuation allowance		31,313		54,049
Valuation allowance		—		(54,049	)
Net deferred tax asset	$	31,313	$	—

At

December 31, 2017,

the Company had net operating loss carryforwards ("NOLs") of

$122.1

million, which will begin to expire in

2031.

The Company does

not

have any beginning and ending unrecognized tax benefits

. The Company does

not

expect the total amount of unrecognized tax benefits to significantly increase or decrease in the next

twelve

months. There were

no

interest and penalties recorded in the income statement or accrued for

2017

or

2016

related to unrecognized tax benefits.

U

nder Section

382

of the Internal Revenue Code, as amended (“Section

382”

), the Company’s net operating loss carryforwards and other deferred tax assets can generally be used to offset future taxable income and therefore reduce federal income tax obligations. However, the Company's ability to use its NOLs would be limited if there was an “ownership change” as defined by Section

382.

This would occur if shareholders owning (or deemed to own under the tax rules)

5%

or more of the Company's voting and non-voting common shares increase their aggregate ownership of the Company by more than

50

percentage points over a defined period of time.

In

2015,

the Company took

two

measures to preserve the value of its NOLs. First, the Company adopted a tax benefits preservation plan designed to reduce the likelihood of an “ownership change” occurring as a result of purchases and sales of the Company's common shares. Upon adoption of this plan, the Company declared a dividend of

one

preferred stock purchase right for each common share outstanding as of the close of business on

July 10, 2015.

Any shareholder or group that acquires beneficial ownership of

5%

or more of the Company (an “acquiring person”) could be subject to significant dilution in its holdings if the Company's Board of Directors does

not

approve such acquisition. Existing shareholders holding

5%

or more of the Company will

not

be considered acquiring persons unless they acquire additional shares, subject to certain exceptions described in the plan. In addition, the Board of Directors has the discretion to exempt certain transactions and certain persons whose acquisition of securities is determined by the Board

not

to jeopardize the Company's deferred tax assets. The rights will expire upon the earlier of (i)

June 29, 2018, (

ii) the beginning of a taxable year with respect to which the Board of Directors determines that

no

tax benefits

may

be carried forward, (iii) the repeal or amendment of Section

382

or any successor statute, if the Board of Directors determines that the plan is

no

longer needed to preserve the tax benefits, and (iv) certain other events as described in the plan.

On

September 23, 2015,

the Company

’s shareholders approved an amendment to its articles of incorporation to further help protect the long-term value of the Company’s NOLs. The amendment provides a means to block transfers of our common shares that could result in an ownership change under Section

382.

The transfer restrictions will expire on the earlier of (i)

September 23, 2018, (

ii) the beginning of a taxable year with respect to which the Board of Directors determines that

no

tax benefit

may

be carried forward, (iii) the repeal of Section

382

or any successor statute if our Board determines that the transfer restrictions are

no

longer needed to preserve the tax benefits of our NOLs, or (iv) such date as the Board otherwise determines that the transfer restrictions are

no

longer necessary.

The Company and its subsidiaries are subject to U.S. federal income tax and the Company is subject to incom

e tax in the Commonwealth of Kentucky. The Company is

no

longer subject to examination by taxing authorities for years before

2014.

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Note 13 - Related Party Transactions

12 Months Ended

Dec. 31, 2017

Notes to Financial Statements

Related Party Transactions Disclosure [Text Block]

NOTE

1

3

– RELATED PARTY

TRANSACTIONS

Loans to principal officers, directors, significant shareholders, and their affiliates in

201

7

were as follows (in thousands):

Beginning balance	$	—
New loans		9,400
Repayments		—
Ending balance	$	9,400

Depo

sits from principal officers, directors, significant shareholders, and their affiliates at year-end

2017

and

2016

were

$401,000

and

$321,000,

respectively.

Hogan Development Company assists the Bank in onboarding, managin

g, and selling the Bank’s OREO. Hogan Development Company is owned by W. Glenn Hogan, a director. The agreement with Hogan Development Company is periodically reviewed and evaluated by the Audit Committee. The Bank paid real estate management fees of

$20,000

and

$56,000

and real estate sales and leasing commissions of

$6,000

and

$478,000

to Hogan Development Company in

2017

and

2016,

respectively.

On

April 15, 2016,

the Company completed the private placement of

580,000

common shares and

220,000

non-voting common shares to accredited investors resulting in total proceeds of

$5.0

million. The investors in the private placement directed a portion of purchase price to pay all deferred interest payments on junior subordinated debentures, bringing our interest payments current through the

second

quarter of

2016.

The investors included

three

directors of the Company, including President and CEO John T. Taylor, who purchased common shares on the same terms and conditions as the other investors.

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Note 14 - Preferred Stock

12 Months Ended

Dec. 31, 2017

Notes to Financial Statements

Stockholders' Equity Note Disclosure [Text Block]

NOTE

1

4

– PREFERRED STOCK

The Company

has issued and outstanding

6,198

Series E preferred shares and

4,304

Series F preferred shares, both of which series are

not

convertible into common shares, have a liquidation preference of

$1,000

per share, and are entitled to a

2%

noncumulative annual dividend if and when declared. Series E and Series F preferred shares rank senior to, and have liquidation and dividend preferences over, the common shares and non-voting common shares.

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Note 15 - Capital Requirements and Restrictions on Retained Earnings

12 Months Ended

Dec. 31, 2017

Notes to Financial Statements

Regulatory Capital Requirements under Banking Regulations [Text Block]

NOTE

1

5

– CAPITAL REQUIREMENTS AND RESTRICTIONS ON RETAINED EARNINGS

Banks and bank holding companies are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can

result in regulatory action.

The final rules implementing Basel Committee on Banking Supervision

’s capital guidelines for U.S. Banks (Basel III rules) became effective for the Company and Bank on

January 1, 2015

with full compliance with all of the requirements being phased in over a multi-year schedule through

January 1, 2019.

The final rules allowed banks and their holding companies with less than

$250

billion in assets a

one

-time opportunity to opt-out of a requirement to include unrealized gains and losses in accumulated other comprehensive income in their capital calculation. The Company and the Bank opted out of this requirement. The rules also establish a “capital conservation buffer” of

2.5%

above the regulatory minimum risk-based capital ratios. Once the capital conservation buffer is fully phased in, the minimum ratios are a common equity Tier

1

risk-based capital ratio of

7.0%,

a Tier

1

risk-based capital ratio of

8.5%,

and a total risk-based capital ratio of

10.5%.

 The capital conservation buffer for

2017

is

1.25%

and

0.625%

for

2016.

An institution is subject to limitations on paying dividends, engaging in share repurchases and paying discretionary bonuses if capital levels fall below minimum levels plus the buffer amounts. These limitations establish a maximum percentage of eligible retained income that could be utilized for such actions.     

The Bank is

no

longer subject to a consent order with the Federal Deposit Insurance Corporation and Kentucky Department of Financial Institutions. The Bank

’s prior consent order was terminated effective

October 31, 2017.

On

September 21, 2011,

the Company entered into a Written Agreement with the Federal Reserve Bank of St. Louis. Pursuant to the Agreement, management made formal commitments to use the Company’s financial and management resources to serve as a source of strength for the Bank and to assist the Bank in addressing weaknesses identified by the FDIC and the KDFI (which has since been terminated), to pay

no

dividends without prior written approval, to pay

no

interest or principal on subordinated debentures or trust preferred securities without prior written approval, and to submit an acceptable plan to maintain sufficient capital.

The following

tables show the ratios (excluding capital conservation buffer) and amounts of common equity Tier

1,

Tier

1

capital, and total capital to risk-adjusted assets and the leverage ratios for Porter Bancorp, Inc. and the Bank at the dates indicated (dollars in thousands):

	Actual					Minimum Requirement for Capital Adequacy Purposes					Minimum Requirement to be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of December 31, 2017:
Total risk-based capital (to risk-weighted assets)
Consolidated	$	83,072		10.55	%	$	63,014		8.00	%		N/A		N/A
Bank		91,305		11.61			62,938		8.00		$	78,672		10.00	%
Total common equity Tier 1 risk- based capital (to risk-weighted assets)
Consolidated		54,535		6.92			35,445		4.50			N/A		N/A
Bank		81,393		10.35			35,403		4.50			51,137		6.50
Tier 1 capital (to risk-weighted assets)
Consolidated		66,487		8.44			47,260		6.00			N/A		N/A
Bank		81,393		10.35			47,203		6.00			62,938		8.00
Tier 1 capital (to average assets)
Consolidated		66,487		7.11			37,392		4.00			N/A		N/A
Bank		81,393		8.70			37,421		4.00			46,777		5.00

	Actual					Minimum Requirement for Capital Adequacy Purposes					Minimum Requirement to be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of December 31, 2016:
Total risk-based capital (to risk-weighted assets)
Consolidated	$	71,109		10.21	%	$	55,714		8.00	%		N/A		N/A
Bank		68,773		9.88			55,663		8.00		$	69,579		10.00	%
Total common equity Tier 1 risk- based capital (to risk-weighted assets)
Consolidated		36,199		5.20			31,339		4.50			N/A		N/A
Bank		57,642		8.28			31,311		4.50			45,226		6.50
Tier 1 capital (to risk-weighted assets)
Consolidated		48,713		6.99			41,786		6.00			N/A		N/A
Bank		57,642		8.28			41,747		6.00			55,663		8.00
Tier 1 capital (to average assets)
Consolidated		48,713		5.27			36,975		4.00			N/A		N/A
Bank		57,642		6.24			36,949		4.00			46,186		5.00

N/A:

Not

applicable. Regulatory framework does

not

define well capitalized for holding companies.

Kentucky banking laws limit the amount of dividends that

may

be paid to a holding company by its subsidiary banks without prior approval. These laws limit the amount of dividends that

may

be paid in any calendar year to current year

’s net income, as defined in the laws, combined with the retained net income of the preceding

two

years, less any dividends declared during those periods. In addition, a bank must have positive retained earnings.

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Note 16 - Off Balance Sheet Risks, Commitments, and Contingent Liabilities

12 Months Ended

Dec. 31, 2017

Notes to Financial Statements

Commitments and Contingencies Disclosure [Text Block]

NOTE

1

6

–

OFF BALANCE SHEET RISKS, COMMITMENTS, AND CONTINGENT LIABILITIES

The Company, in the normal course of business, is party to financial instruments with off balance sheet risk. The financial instruments include commitments to extend credit and standby letters of credit. The contract or notional amounts of these instruments reflect the potential future obligations of the Company pursuant to those financial instruments. Creditworthiness for all instruments is evaluated on a case-by-case basis in accordance with the Company

’s credit policies. Collateral from the client

may

be required based on the Company’s credit evaluation of the client and

may

include business assets of commercial clients, as well as personal property and real estate of individual clients or guarantors.

An approved but unfunded loan commitment represents a potential credit risk and a liquidity risk, since the Company

’s client(s)

may

demand immediate cash that would require funding. In addition, unfunded loan commitments represent interest rate risk as market interest rates

may

rise above the rate committed to the Company’s client. Since a portion of these loan commitments normally expire unused, the total amount of outstanding commitments at any point in time

may

not

require future funding. Commitments to make loans are generally made for periods of

one

year or less.

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a client to a

third

party. The terms and risk of loss involved in issuing standby letters of credit are similar to those involved in issuing loan commitments and extending credit. In addition to credit risk, the Company also has liquidity risk associated with standby letters of credit because funding for these obligations could be required immediately. The Company does

not

deem this risk to be material.

No

liability is currently established for standby letters of credit.

The following table presents the contractual amounts of financial instruments with off-balance sheet risk for each year

ended:

	201 7				201 6
	Fixed Rate		Variable Rate		Fixed Rate		Variable Rate
	(in thousands)
Commitments to make loans	$	27,349	$	31,412	$	19,445	$	18,347
Unused lines of credit		11,034		57,727		7,935		51,407
Standby letters of credit		2,216		373		582		360

Commitments to make loans are generally made for periods of

one

year or less.

I

n connection with the purchase of loan participations, the Bank entered into risk participation agreements, which had notional amounts totaling

$19.8

million at

December 31, 2017

and

$14.6

million at

December 31, 2016.

The Company is subject to claims and lawsuits that arise primarily in the ordinary course of business. Litigation is subject to inherent uncertainties and unfavorable rulings could occur. The Company records contingent liabilities resulting from claims against it when a loss is assessed to be probable and the amount of the loss is reasonably estimable. Accruals are

not

made in cases where liability is

not

probable or the amount cannot be reasonably estimated. Assessing probability of loss and estimating probable losses requires analysis of multiple factors, including in some cases judgments about the potential actions of

third

party claimants and courts. Recorded contingent liabilities are based on the best information available and actual losses in any future period are inherently uncertain. Based upon current knowledge and after consultation with counsel, the Company believes pending legal proceedings or claims should

not

have a material impact on its financial position or results of operations. However, in light of the uncertainties involved in such proceedings, the outcome of a particular matter

may

be material to the financial position or results of operations for a particular reporting period in the future

.

On

October 17, 2014,

the United States Department of Justice (the “DOJ”) notified the Bank that it was the subject of an investigation into possible violations of federal laws, including, among other things, possible violations related to false bank entries, bank fraud and securities fraud. The investigation concerns allegations that Bank personnel engaged in practices intended to delay or avoid disclosure of the Bank

’s asset quality at the time of and following the United States Treasury’s purchase of preferred shares from the Company in

November 2008.

The Bank has cooperated with all requests for information from DOJ. At this time, the DOJ has

not

indicated whether it intends to pursue any action in this matter.

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Note 17 - Fair Values

12 Months Ended

Dec. 31, 2017

Notes to Financial Statements

Fair Value Disclosures [Text Block]

NOTE

1

7

– FAIR VALUES

F

air 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. Various valuation techniques are used to determine fair value, including market, income and cost approaches. 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 an entity has the ability to access as of the measurement date, or observable inputs.

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, and other inputs that are observable or can be corroborated by observable market data.

Level

3:

Significant unobservable inputs that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

In certain cases, the inputs used to measure fair value

may

fall into different levels of the fair value hierarchy. When that occurs, the fair value hierarchy

is classified on the lowest level of input that is significant to the fair value measurement. The following methods and significant assumptions are used to estimate fair value.

Securities:

The fair values of securities available for sale are determined by obtaining quoted prices on nationally recognized securities exchanges, if available. This valuation method is classified as Level

1

in the fair value hierarchy. For securities where quoted prices are

not

available, fair values are calculated on market prices of similar securities, or matrix pricing, which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities. Matrix pricing relies on the securities’ relationship to similarly traded securities, benchmark curves, and the benchmarking of like securities. Matrix pricing utilizes observable market inputs such as benchmark yields, reported trades, broker/dealer quotes, issuer spreads,

two

-sided markets, benchmark securities, bids, offers, reference data, and industry and economic events. In instances where broker quotes are used, these quotes are obtained from market makers or broker-dealers recognized to be market participants. This valuation method is classified as Level

2

in the fair value hierarchy. For securities where quoted prices or market prices of similar securities are

not

available, fair values are calculated using discounted cash flows or other market indicators.

This valuation method is classified as Level

3

in the fair value hierarchy. Discounted cash flows are calculated using spread to swap and LIBOR curves that are updated to incorporate loss severities, volatility, credit spread and optionality. During times when trading is more liquid, broker quotes are used (if available) to validate the model.

Rating agency and industry research reports as well as defaults and deferrals on individual securities are reviewed and incorporated into the calculations.

Impaired Loans:

An impaired loan is evaluated at the time the loan is identified as impaired and is recorded at fair value less costs to sell. Fair value is measured based on the value of the collateral securing the loan and is classified as Level

3

in the fair value hierarchy. Fair value is determined using several methods. Generally, the fair value of real estate is determined based on appraisals by qualified licensed appraisers. These appraisals

may

utilize a single valuation approach or a combination of approaches including comparable sales and the income approach.

Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. These routine adjustments are made to adjust the value of a specific property relative to comparable properties for variations in qualities such as location, size, and income production capacity relative to the subject property of the appraisal. Such adjustments are typically significant and result in a Level

3

classification of the inputs for determining fair value.

Management

routinely apply an internal discount to the value of appraisals used in the fair value evaluation of our impaired loans. The deductions to the appraisal take into account changing business factors and market conditions, as well as potential value impairment in cases where our appraisal date predates a likely change in market conditions. These deductions range from

10%

for routine real estate collateral to

25%

for real estate that is determined (

1

) to have a thin trading market or (

2

) to be specialized collateral. This is in addition to estimated discounts for cost to sell of

six

to

ten

percent.

Management

also apply discounts to the expected fair value of collateral for impaired loans where the likely resolution involves litigation or foreclosure. Resolution of this nature generally results in receiving lower values for real estate collateral in a more aggressive sales environment. Discounts ranging from

10%

to

33%

have been utilized in our impairment evaluations when applicable.

Impaired loans are evaluated quarter

ly for additional impairment. Management obtains updated appraisals on properties securing our loans when circumstances are warranted such as at the time of renewal or when market conditions have significantly changed. This determination is made on a property-by-property basis in light of circumstances in the broader economic climate and the assessment of deterioration of real estate values in the market in which the property is located. The

first

stage of management’s assessment involves management’s inspection of the property in question. Management also engages in conversations with local real estate professionals, investors, and market participants to determine the likely marketing time and value range for the property. The

second

stage involves an assessment of current trends in the regional market. After thorough consideration of these factors, management will either internally evaluate fair value or order a new appraisal.

Other Real Estate Owned (OREO)

: OREO is evaluated at the time of acquisition and recorded at fair value as determined by independent appraisal or internal evaluation less cost to sell. Quarterly evaluations of OREO for impairment are driven by property type. For smaller dollar single family homes, management consults with staff from the Bank’s special assets group as well as external realtors and appraisers. Based on these consultations, management determines asking prices for OREO properties being marketed for sale. If the internally evaluated fair value or asking price is below the recorded investment in the property, appropriate write-downs are taken.

For larger dollar commercial real estate properties,

management obtains a new appraisal of the subject property or has staff in the special assets group evaluate the latest in-file appraisal in connection with the transfer to OREO. Management generally obtains updated appraisals within

five

quarters of the anniversary date of ownership unless a sale is imminent. When an asking price is lowered below the most recent appraised value, appropriate write-downs are taken.

Management

routinely applies an internal discount to the value of appraisals used in the fair value evaluation of OREO. The deductions to the appraisal take into account changing business factors and market conditions, as well as potential value impairment in cases where our appraisal date predates a likely change in market conditions. These deductions range from

10%

for routine real estate collateral to

25%

for real estate that is determined (

1

) to have a thin trading market or (

2

) to be specialized collateral. This is in addition to estimated discounts for cost to sell of

six

to

ten

percent.

Financial assets measured at fair value on a recurring basis are summarized below:

			Fair Value Measurements at December 31, 201 7 Using
			(in thousands)
Description	Carrying Value		Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Available for sale securities
U.S. Government and federal agency	$	21,624	$	—	$	21,624	$	—
Agency mortgage-backed : residential		64,965		—		64,965		—
Collateralized loan obligations		25,505		—		25,505		—
State and municipal		33,710		—		33,710		—
Corporate bonds		6,916		—		6,916		—
Total	$	152,720	$	—	$	152,720	$	—

			Fair Value Measurements at December 31, 201 6 Using
			(in thousands)
Description	Carrying Value		Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Available for sale securities
U.S. Government and federal agency	$	34,099	$	—	$	34,099	$	—
Agency mortgage-backed : residential		102,353		—		102,353		—
Collateralized loan obligations		11,203		—		11,203		—
State and municipal		2,045		—		2,045		—
Corporate bonds		3,090		—		3,090		—
Total	$	152,790	$	—	$	152,790	$	—

There were

no

transfers between

Level

1

and Level

2

during

2017

or

2016.

Financial assets measured at fair value on a non-recurring basis are summarized below:

			Fair Value Measurements at December 31, 201 7 Using
			(in thousands)
Description	Carrying Value		Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Impaired lo ans :
Commercial	$	87	$	—	$	—	$	87
Commercial real estate:
Construction		—		—		—		—
Farmland		—		—		—		—
Nonfarm nonresidential		—		—		—		—
Residential real estate:
Multi-family		—		—		—		—
1-4 Family		957		—		—		957
Consumer		—		—		—		—
Agriculture		—		—		—		—
Other		—		—		—		—
Other real estate owned, net :
Commercial real estate:
Construction		4,335		—		—		4,335
Farmland		74		—		—		74
Nonfarm nonresidential		—		—		—		—
Residential real estate:
Multi-family		—		—		—		—
1-4 Family		—		—		—		—

			Fair Value Measurements at December 31, 201 6 Using
			(in thousands)
Description	Carrying Value		Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Impaired loans:
Commercial	$	87	$	—	$	—	$	87
Commercial real estate:
Construction		—		—		—		—
Farmland		585		—		—		585
Nonfarm nonresidential		—		—		—		—
Residential real estate:
Multi-family		—		—		—		—
1-4 Family		1,261		—		—		1,261
Consumer		—		—		—		—
Agriculture		59		—		—		59
Other		—		—		—		—
Other real estate owned, net :
Commercial real estate:
Construction		6,571		—		—		6,571
Farmland		—		—		—		—
Nonfarm nonresidential		—		—		—		—
Residential real estate:
Multi-family		—		—		—		—
1-4 Family		250		—		—		250

Impaired loans

, which are measured for impairment using the fair value of the collateral for collateral dependent loans, had a carrying amount of

$1.3

million, with a valuation allowance of

$219,000,

at

December 31, 2017,

resulting in

no

additional provision for loan losses for the year ended

December 31, 2017.

At

December 31, 2016,

impaired loans had a carrying amount of

$2.4

million, with a valuation allowance of

$370,000,

at

December 31, 2016,

resulting in

no

additional provision for loan losses for the year ended

December 31, 2016.

O

REO, which is measured at the lower of carrying or fair value less costs to sell, had a net carrying amount of

$4.4

million as of

December 31, 2017,

compared with

$6.8

million at

December 31, 2016.

Write-downs of

$2.0

million and

$1.2

million were recorded on OREO for the years ended

December 31, 2017

and

2016,

respectively.

The following table presents qualitative information about level

3

fair value measurements for financial instruments measured at fair value on a non-recurring basis at

December 31,

201

7:

	Fair Value		Valuation Technique(s)	Unobservable Input(s)	Range (Weighted Average)
	(in thousands)
Impaired loans – Residential real estate	$	957	Sales comparison approach	Adjustment for differences between the comparable sales	0%	-	26%	(9%)
Other real estate owned – Commercial real estate	$	4,409	Sales comparison approach	Adjustment for differences between the comparable sales	0%	-	35%	(18%)
			Income approach	Discount or capitalization rate	25%			(25%)

The following table presents qualitative information about level

3

fair value measurements for financial instruments measured at fair value on a non-recurring basis at

December 31,

201

6:

	Fair Value		Valuation Technique(s)	Unobservable Input(s)	Range (Weighted Average)
	(in thousands)
Impaired loans – Residential real estate	$	1,261	Sales comparison approach	Adjustment for differences between the comparable sales	0%	-	22%	(9%)
Other real estate owned – Commercial real estate	$	6,571	Sales comparison approach	Adjustment for differences between the comparable sales	0%	-	20%	(9%)
			Income approach	Discount or capitalization rate	18%	-	20%	(19%)

C

arrying amount and estimated fair values of financial instruments were as follows at year-end

2017:

			Fair Value Measurements at December 31, 201 7 Using
	Carrying Amount		Level 1		Level 2		Level 3		Total
	(in thousands)
Financial assets
Cash and cash equivalents	$	34,103	$	29,898	$	4,205	$	—	$	34,103
Securities available for sale		152,720		—		152,720		—		152,720
Federal Home Loan Bank stock		7,323		N/A		N/A		N/A		N/A
Loans held for sale		70		—		70		—		70
Loans, net		703,913		—		—		703,263		703,263
Accrued interest receivable		3,136		—		925		2,211		3,136
Financial liabilities
Deposits	$	847,024	$	137,386	$	693,320	$	—	$	830,706
Federal Home Loan Bank advances		11,797		—		11,799		—		11,799
Subordinated capital notes		2,250		—		—		2,246		2,246
Junior subordinated debentures		21,000		—		—		19,090		19,090
Senior debt		10,000		—		—		10,000		10,000
Accrued interest payable		1,475		—		357		1,118		1,475

C

arrying amount and estimated fair values of financial instruments were as follows at year-end

2016:

			Fair Value Measurements at December 31, 201 6 Using
	Carrying Amount		Level 1		Level 2		Level 3		Total
	(in thousands)
Financial assets
Cash and cash equivalents	$	66,316	$	31,091	$	35,225	$	—	$	66,316
Securities available for sale		152,790		—		152,790		—		152,790
Securities held to maturity		41,818		—		43,072		—		43,072
Federal Home Loan Bank stock		7,323		N/A		N/A		N/A		N/A
Loans, net		630,269		—		—		632,528		632,528
Accrued interest receivable		3,137		—		1,203		1,934		3,137
Financial liabilities
Deposits	$	849,925	$	124,395	$	712,458	$	—	$	836,853
Federal Home Loan Bank advances		22,458		—		22,475		—		22,475
Subordinated capital notes		3,150		—		—		3,091		3,091
Junior subordinated debentures		21,000		—		—		13,263		13,263
Accrued interest payable		734		—		369		365		734

The methods and assumptions used to estimate fair value are described as follows:

(a) Cash and Cash Equivalents

The carrying amounts of cash and short-term instruments approximate fair values and are classified as either Level

1

or Level

2.

Noninterest bearing deposits are Level

1

whereas interest bearing due from bank accounts and fed funds sold are Level

2.

(b) FHLB Stock

It is

not

practical to determine the fair value of FHLB stock due to restrictions placed on its transferability.

(c) Loans

, Net

Fair values of loans, excluding loans held for

sale, are estimated as follows: For variable rate loans that reprice frequently and with

no

significant change in credit risk, fair values are based on carrying values resulting in a Level

3

classification. Fair values for other loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality resulting in a Level

3

classification. Impaired loans are valued at the lower of cost or fair value as described previously. The methods utilized to estimate the fair value of loans do

not

necessarily represent an exit price.

(d) Loans Held for Sale

The fair value of loans held for sale is estimated based upon binding contracts and quotes from

third

party investors resulting in a Level

2

classification.

(e) Deposits

The fair values dis

closed for non-interest bearing deposits are, by definition, equal to the amount payable on demand at the reporting date resulting in a Level

1

classification. The carrying amounts of variable rate interest bearing deposits approximate their fair values at the reporting date resulting in a Level

2

classification. Fair values for fixed rate interest bearing deposits are estimated using a discounted cash flows calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits resulting in a Level

2

classification.

(

f

) Other Borrowings

The fair values of FHLB advances are estimated using discounted cash flow analyses based on the current borrowing rates resulting in a Lev

el

2

classification.

The fair values of subordinated capital notes

, junior subordinated debentures, and senior debt are estimated using discounted cash flow analyses based on the current borrowing rates for similar types of borrowing arrangements resulting in a Level

3

classification.

(g

) Accrued Interest Receivable/Payable

The carrying amounts of accrued interest approximate fair value resulting in a Level

2

or Level

3

classification based on the level of the asset or liability with which the accrual

is associated.

XML

Note 18 - Stock Plans and Stock Based Compensation

12 Months Ended

Dec. 31, 2017

Notes to Financial Statements

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

N

OTE

1

8

– STOCK PLANS AND STOCK BASED COMPENSATION

S

hares available for issuance under the

2016

Omnibus Equity Compensation Plan (

“2016

Plan”) total

25,000.

Shares issued to employees under the plan vest annually on the anniversary date of the grant generally over

three

to

four

years.

The Company also maintains the Porter Bancorp, Inc.

2006

Non-Employee Directors Stock Ownership Incentive Plan (

“2006

Director Plan”) pursua

nt to which

2,834

shares remain available for issuance as annual awards of restricted stock to the Company’s non-employee directors. Shares issued annually to non-employee directors have a fair market value of

$25,000

and vest on

December 31

in the year of grant.

The fair value of t

he

2017

unvested shares issued was

$365,000,

or

$9.64

per weighted-average share. The Company recorded

$400,000

and

$443,000

of stock-based compensation during

2017

and

2016,

respectively, to salaries and employee benefits. Management expects substantially all of the unvested shares outstanding at the end of the period to vest according to the vesting schedule. A deferred tax benefit of

$140,000

was recognized in

2017

related to this expense, whereas

no

deferred tax benefit was recognized in

2016.

The following table summarizes unvested share activity as of and for the periods indicated for the Stock Incentive Plan:

	Twelve Months Ended					Twelve Months Ended
	December 31 , 201 7					December 31, 201 6
				Weighted					Weighted
				Average					Average
				Grant					Grant
	Shares			Price		Shares			Price
Outstanding, beginning		179,513		$	4.89		184,482		$	4.81
Granted		37,865			9.64		35,465			9.10
Vested		(73,728	)		5.75		(38,462	)		8.32
Forfeited		(1,316	)		9.35		(1,972	)		6.16
Outstanding, ending		142,334		$	5.67		179,513		$	4.89

Unrecognized stock based compensation expense related to unvested shares for

2018

and beyond is estimated as follows (in thousands):

201 8	$	258
201 9		99
20 20		25
20 21 & thereafter		—

XML

Note 19 - Earnings (Loss) Per Share

12 Months Ended

Dec. 31, 2017

Notes to Financial Statements

Earnings Per Share [Text Block]

N

OTE

19

– EARNINGS

(LOSS)

PER SHARE

The factors used in the

basic and diluted earnings per share computation follow:

	201 7		201 6			201 5
	(in thousands, except share and per share data)
Net income (loss)	$	38,453	$	(2,753	)	$	(3,213	)
Less:
Earnings (l osses) allocated to unvested shares		967		(88	)		(122	)
Earnings (l osses) allocated to participating preferred shares		—		—			(214	)
Net income (loss) attributable to common shareholders, basic and diluted	$	37,486	$	(2,665	)	$	(2,877	)
Basic
Weighted average common shares including unvested common shares and participating preferred shares outstanding		6,249,059		5,980,945			5,191,944
Less:
Weighted average unvested common shares		157,127		192,232			197,355
Weighted average Series B Preferred Shares		—		—			133,269
Weighted average Series D Preferred Shares		—		—			212,318
Weighted average common shares outstanding		6,091,932		5,788,713			4,649,002
Basic income (loss) per common share	$	6.15	$	(0.46	)	$	(0.62	)
Diluted
Add: Dilutive effects of assumed exercises of common stock warrants		—		—			—
Weighted average common shares and potential common shares		6,091,932		5,788,713			4,649,002
Diluted income (loss) per common share	$	6.15	$	(0.46	)	$	(0.62	)

The Company

had

no

outstanding stock options at

December 31, 2017,

2016

or

2015.

 A warrant for the purchase of

66,113

shares of the Company’s common stock at an exercise price of

$79.41

was outstanding at

December 31, 2017,

2016

and

2015,

but was

not

included in the diluted EPS computation as inclusion would have been anti-dilutive. The warrant is exercisable at the holder’s option through

November 21, 2018.

XML

Note 20 - Parent Company Only Condensed Financial Information

12 Months Ended

Dec. 31, 2017

Notes to Financial Statements

Condensed Financial Information of Parent Company Only Disclosure [Text Block]

NOTE

2

0

– PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION

Condensed financial information of Porter Bancorp Inc. is presented as follows:

CONDENSED BALANCE SHEETS

December

 

31,

	201 7		201 6
	(in thousands)
ASSETS
Cash and cash equivalents (1)	$	2,045	$	2,048
Investment in banking subsidiary		99,651		51,528
Investment in and advances to other subsidiaries		776		776
Deferred taxes , net		2,497		—
Other assets		711		645
Total assets	$	105,680	$	54,997
LIABILITIES AND SHAREHOLDERS ’ EQUITY
Debt	$	31,775	$	21,775
Accrued expenses and other liabilities		1,232		489
Shareholders ’ equity		72,673		32,733
Total liabilities and shareholders ’ equity	$	105,680	$	54,997

( 1 ) $806,000 is held in escrow by the senior note lender to be used exclusively for interest payments on senior debt.

CONDENSED STATEMENTS OF

OPERATIONS

Years ended

December

 

31,

	201 7			201 6			201 5
	(in thousands)
Interest income	$	4		$	5		$	46
Dividends from subsidiaries		26			23			20
Other income		—			17			102
Interest expense		(973	)		(694	)		(647	)
Other expense		(1,137	)		(1,240	)		(1,457	)
Income (loss) before income tax and undistributed subsidiary income		(2,080	)		(1,889	)		(1,936	)
Income tax expense (benefit)		(2,497	)		21			—
Equity in undistributed subsidiary income (loss)		38,036			(843	)		(1,277	)
Net income ( loss )	$	38,453		$	(2,753	)	$	(3,213	)

CONDENSED STATEMENTS OF CASH FLOWS

Years ended

December

 

31,

	201 7			201 6			20 1 5
	(in thousands)
Cash flows from operating activities
Net income (loss)	$	38,453		$	(2,753	)	$	(3,213	)
Adjustments:
Equity in undistributed subsidiary (income) loss		(38,036	)		843			1,277
Deferred taxes , net		(2,497	)		—			—
Gain on sale of assets		—			—			(70	)
Change in other assets		743			(95	)		(40	)
Change in other liabilities		(128	)		358			634
Other		462			978			481
Net cash (used in) operating activities		(1,003	)		(669	)		(931	)
Cash flows from investing activities
Investments in subsidiaries		(9,000	)		(500	)		—
Sales of securities		—			—			642
Net cash (used in) from investing activities		(9,000	)		(500	)		642
Cash flows from financing activities
Proceeds from issuance of common stock		—			2,231			—
Proceeds from senior debt		10,000			—			—
Net cash (used in) financing activities		10,000			2,231			—
Net change in cash and cash equivalents		(3	)		1,062			(289	)
Beginning cash and cash equivalents		2,048			986			1,275
Ending cash and cash equivalents	$	2,045		$	2,048		$	986

XML

Note 21 - Quarterly Financial Data (Unaudited)

12 Months Ended

Dec. 31, 2017

Notes to Financial Statements

Quarterly Financial Information [Text Block]

NOTE

2

1

– QUARTERLY FINANCIAL DATA (UNAUDITED)

															Earnings (Loss) Per Common Share
	Interest Income		Net Interest Income		Provision For Loan Losses			OREO Expense			Net Income (Loss)				Basic (1)			Diluted (1)
	(in thousands, except per share data)
201 7
First quarter	$	9,225	$	7,741	$	—		$	(16	)	$	1,680			$	0.27		$	0.27
Second quarter		9,134		7,588		—			(3	)		1,709				0.27			0.27
Third quarter		9,446		7,787		—			111			1,794				0.29			0.29
Fourth quarter		9,717		8,001		(800	)		1,881			33,270		(2)		5.31			5.31
201 6
First quarter	$	9,185	$	7,651	$	(550	)	$	668		$	1,480			$	0.27		$	0.27
Second quarter		8,705		7,196		(600	)		294			1,012				0.17			0.17
Third quarter		8,931		7,458		(750	)		322			1,393				0.22			0.22
Fourth quarter		8,781		7,316		(550	)		257			(6,638	)	(3)		(1.07	)		(1.07	)

( 1 ) The sum of the quarterly net income (loss) per share (basic and diluted) differs from the annual net income (loss) per share (basic and diluted) because of the differences in the weighted average number of common shares outstanding and the common shares used in the quarterly and annual computations as well as differences in rounding.

( 2 ) Net income for the fourth quarter of 2017 was impacted by the reversal of the Company ’s deferred tax asset valuation allowance and the change in federal corporate tax rates in connection with the enectment of the Tax Cuts and Jobs Act of 2017. The net result of these two items, as well as tax expense for the year, was an income tax benefit of $31.9 million.

( 3 ) The $6.6 million loss for the fourth quarter of 2016 was due to the $8.0 million in litigation expenses accrued as a result of the Kentucky Court of Appeals ruling against the Bank.

XML

Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2017

Accounting Policies [Abstract]

Consolidation, Policy [Policy Text Block]

Nature of Operations and Principles of Consolidation

– The consolidated financial statements include Porter Bancorp, Inc. (Company) and its subsidiary, PBI Bank (Bank). The Bank completed a name change to Limestone Bank on

February 20, 2018.

The Company owns a

100%

interest in the Bank.

The Company provides financial services through

its offices in Central and South Central Kentucky, Lexington and Louisville. Its primary deposit products are checking, savings, and term certificate accounts, and its primary lending products are residential mortgage, commercial, agricultural, and real estate loans. Substantially all loans are collateralized by specific items of collateral including business assets and real estate. Commercial loans are expected to be repaid from cash flow from operations of businesses. There are

no

significant concentrations of loans to any

one

industry or customer. However, borrowers’ ability to repay their loans is dependent on the real estate and general economic conditions in the area. Other financial instruments which potentially represent concentrations of credit risk include deposit accounts in other financial institutions, federal funds sold, municipal securities, collateralized loan obligations, corporate securities, and bank owned life insurance.

Use of Estimates, Policy [Policy Text Block]

Use of Estimates

– To prepare financial statements in conformity with U.S. generally accepted accounting principles, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and future results could differ.

Cash and Cash Equivalents, Policy [Policy Text Block]

Cash

and Cash Equivalents

– For the purpose of presentation in the statements of cash flows, the Company considers all cash and amounts due from depository institutions as well as interest bearing deposits in banks that mature within

one

year and are carried at cost to be cash equivalents. The Bank is required to maintain average reserve balances with the Federal Reserve Bank of St. Louis.

Investment, Policy [Policy Text Block]

Securities

– Debt securities are classified as held to maturity and carried at amortized cost when management has the intent and ability to hold them to maturity. Debt securities are classified as available for sale when they might be sold before maturity. Securities available for sale are carried at fair value, with unrealized holding gains and losses reported in other comprehensive income.

Interest income includes amortization of purchase premium or discount. Premiums and discounts on securities are amortized on the level-yield method anticipating prepayments on mortgage backed securities. Gains and losses on sales are recorded on the trade date and determined using the specific identification method.

Management evaluates securities for other-than-temporary impairment (“OTTI”) on at least a quarterly basis, and more frequently when economic or market conditi

ons warrant such an evaluation. For securities in an unrealized loss position, management considers the extent and duration of the unrealized loss, and the financial condition and near-term prospects of the issuer. Management also assesses whether it intends to sell, or it is more likely than

not

that it will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as impairment through earnings. For debt securities that do

not

meet the aforementioned criteria, the amount of impairment is split into

1

) OTTI related to credit loss, which is recognized in the income statement and

2

) OTTI related to other factors, which is recognized in other comprehensive income. The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis.

Finance, Loan and Lease Receivables, Held-for-sale, Policy [Policy Text Block]

Loans Held for Sale

– Loans held for sale include residential mortgage loans originated for sale into the secondary market and are carried at the lower of aggregate cost or fair value, as determined by outstanding commitments from investors. Net unrealized losses, if any, are recorded as a valuation allowance and charged to earnings.

Mortgage loans held for sale are generally sold with servicing rights

released. If sold with servicing retained, the carrying value of mortgage loans sold is reduced by the amount allocated to the servicing right. Gains and losses on sales of mortgage loans are based on the difference between the selling price and the carrying value of the related loan sold.

Mortgage banking derivatives used in the ordinary course of business consist of mandatory forward sales contracts and rate lock loan commitments. Forward contracts represent future commitments to deliver loans at a specified price and date and are used to manage interest rate risk on loan commitments and mortgage loans held for sale. Rate lock commitments represent commitments to fund loans at a specific rate. These derivatives involve underlying items, such as interest rates, and are designed to transfer risk. Substantially all of these instruments expire within

60

days from the date of issuance. Notional amounts are amounts on which calculations and payments are based, but which do

not

represent credit exposure, as credit exposure is limited to the amounts required to be received or paid.

Commitments to deliver loans and rate lock loan commitments were insignificant at year end.

Finance, Loan and Lease Receivables, Held-for-investment, Policy [Policy Text Block]

Loans

– Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal balance outstanding, net of deferred loan fees and costs, and an allowance for loan losses. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income using the level-yield method without anticipating prepayments. The recorded investment in loans includes the outstanding principal balance and unamortized deferred origination costs and fees.

Interest income

recognition on mortgage and commercial loans is discontinued at the time the loan is

90

days delinquent unless the loan is well collateralized and in process of collection. Consumer loans are typically charged off

no

later than

90

days past due. Past due status is based on the contractual terms of the loan. In all cases, loans are placed on nonaccrual or charged off at an earlier date if collection of principal or interest is

not

expected.

All interest accrued but

not

received for loans placed on nonaccrual

is reversed against interest income. Interest received on such loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Loans and Leases Receivable, Allowance for Loan Losses Policy [Policy Text Block]

Allowance for Loan Losses

– The allowance for loan losses is a valuation allowance for probable incurred credit losses. Loan losses are charged against the allowance when management believes the uncollectability of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. Management estimates the allowance balance required using past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors. Allocations of the allowance

may

be made for specific loans, but the entire allowance is available for any loan that, in our judgment, should be charged off.

The allowance consists of s

pecific and general components. The specific component relates to loans that are individually classified as impaired. A loan is deemed impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. Loans for which the terms have been modified resulting in a concession, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings and treated as impaired.

Factors considered in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally

are

not

classified as impaired. The significance of payment delays and payment shortfalls is determined on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.

If a loan is impaired, a portion of the allowance is allocated so that the loan is reported, net, at the present value of estimated future cash flows using the loan

’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral. Large groups of smaller balance homogeneous loans, such as consumer and residential real estate loans, are collectively evaluated for impairment and are

not

separately identified for impairment disclosures. Troubled debt restructurings are separately identified for impairment disclosures and are measured at the present value of estimated future cash flows using the loan’s effective rate at inception. If a troubled debt restructuring is considered to be a collateral dependent loan, the loan is reported at the fair value of the collateral. For troubled debt restructurings that subsequently default, the amount of reserve is determined in accordance with the accounting policy for the allowance for loan losses.

The general component covers non

-impaired loans and is based on historical loss experience adjusted for current factors. The historical loss experience is determined by portfolio segment and is based on actual loss history experienced over the most recent

four

years with weighting towards the most recent periods. This actual loss experience is supplemented with other economic factors based on the risks present for each portfolio segment. These economic factors include consideration of the following: changes in lending policies, procedures, and practices; effects of any change in risk selection and underwriting standards; national and local economic trends and conditions; industry conditions; trends in volume and terms of loans; experience, ability and depth of lending management and other relevant staff; levels of and trends in delinquencies and impaired loans; levels of and trends in charge-offs and recoveries; and effects of changes in credit concentrations.

A portfolio segment is defined as the level at which an entity develops and documents a systematic methodology to determine

its allowance for loan losses. Management identified the following portfolio segments: commercial, commercial real estate, residential real estate, consumer, agricultural, and other.

● Commercial loans are made to businesses and depend on the strength of the industries, related borrowers, and cash flow from the businesses. Commercial loans are advances for equipment purchases, or to provide working capital, or to meet other financing needs of business enterprises. These loans may be secured by accounts receivable, inventory, equipment or other business assets. Financial information is obtained from the borrowers to evaluate their ability to repay the loans.

● Commercial real estate loans are affected by the local commercial real estate market and the local economy. Commercial real estate loans include loans on commercial properties occupied by borrowers and/or tenants. Construction and development loans are a component of this segment. These loans are generally secured by land under development or homes and commercial buildings under construction. Appraisals are obtained to support the loan amount. Financial information is obtained from the borrowers and/or the individual project to evaluate cash flows sufficiency to service the debt.

● Residential real estate loans are affected by the local residential real estate market, local economy, and, for variable rate mortgages, movement in indices tied to these loans. For owner occupied residential loans , the borrowers’ repayment ability is evaluated through a review of credit scores and debt to income ratios. For non-owner occupied residential loans, such as rental real estate, financial information is obtained from the borrowers and/or the individual project to evaluate cash flows sufficiency to service the debt. Appraisals are obtained to support the loan amount.

● Consumer loans depend on local economies. Consumer loans are generally secured by consumer assets, but may be unsecured. Management evaluates the borrowers’ repayment ability through a review of credit scores and an evaluation of debt to income ratios.

● Agriculture loans depend on the industries tied to these loans and are generally secured by livestock, crops, and/or equipment, but may be unsecured. Management evaluates the borrowers’ repayment ability through financial and business performance review.

● Other loans include loans to municipalities, loans secured by stock, and overdrafts. For municipal loans , management evaluates the borrowers’ revenue streams as well as ability to repay form general funds. For loans secured by stock, management evaluates the market value of the stock securing the loan in relation to the loan amount. Overdrafts are funded based on pre-established criteria related to the deposit account relationship.

Management

analyzes key relevant risk characteristics for each portfolio segment having determined that loans in each segment possess similar general risk characteristics that are analyzed in connection with loan underwriting processes and procedures. In determining the allocated allowance, the weighted average loss rates over the most recent

four

years are used with weighting towards the most recent periods. Commercial real estate qualitative adjustment considerations include trends in the markets for underlying collateral values, risks related to tenant rents, and economic factors such as decreased sales demand, elevated inventory levels, and declining collateral values. Residential real estate loan considerations include macro economic factors such as unemployment rates, trends in vacancy rates, and home value trends. The commercial and agricultural portfolio qualitative adjustments are related to economic and portfolio performance trends. The agricultural, consumer and other portfolios are less significant in terms of size and risk is assessed based on the smaller dollar size of these loans and the more geographical areas where the collateral is located.

Transfers and Servicing of Financial Assets, Policy [Policy Text Block]

Transfers of Financial Assets

– Transfers of financial assets are accounted for as sales, when control over the assets has been relinquished. Control over transferred assets is deemed to be surrendered when the assets have been isolated from the Company, the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and the Company does

not

maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

Real Estate Owned, Valuation Allowance, Policy [Policy Text Block]

Other Real Estate Owned

(“OREO”) – Assets acquired through or instead of loan foreclosure are initially recorded at fair value less estimated costs to sell when acquired, establishing a new cost basis. These assets are subsequently accounted for at the lower of cost or fair value, less estimated costs to sell. If fair value declines subsequent to foreclosure, a write-down is recorded through expense. Costs after acquisition are expensed.

Property, Plant and Equipment, Policy [Policy Text Block]

Premises and Equipment

– Land is carried at cost. Premises and equipment are stated at cost less accumulated depreciation. Buildings and related components are depreciated using the straight-line method with useful lives generally ranging from

5

to

40

years. Furniture, fixtures and equipment are depreciated using the straight-line or accelerated method with useful lives generally ranging from

2

to

10

years.

Federal Home Loan Bank Stock, Policy [Policy Text Block]

Federal Home Loan Bank (FHLB) Stock

– The Bank is a member of the FHLB system. Members are required to own a certain amount of stock based on the level of borrowings and other factors, and

may

invest in additional amounts. FHLB stock is carried at cost, classified as a restricted security, and periodically evaluated for impairment. Because this stock is viewed as long term investment, impairment is based on ultimate recovery of par value. Both cash and stock dividends are reported as income.

Intangible Assets, Finite-Lived, Policy [Policy Text Block]

Intangible Assets

– Intangible assets with definite useful lives are included with other assets and amortized over their estimated useful lives to their estimated residual values, if any. Other intangible assets consist of core deposit intangible assets arising from whole bank and branch acquisitions. They are initially measured at fair value and then are amortized on an accelerated or straight-line basis over their estimated useful lives, which range from

7

to

10

years.

Bank Owned Life Insurance, Policy [Policy Text Block]

Bank Owned Life Insurance

– The Bank has purchased life insurance policies on certain key executives. Company owned life insurance is recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or other amounts due that are probable at settlement.

Impairment or Disposal of Long-Lived Assets, Including Intangible Assets, Policy [Policy Text Block]

Long-Term Assets

– Premises and equipment, other intangible assets, and other long-term assets are reviewed for impairment when events indicate their carrying amount

may

not

be recoverable from future undiscounted cash flows. If impaired, the assets are recorded at fair value through a charge to earnings.

Pension and Other Postretirement Plans, Nonpension Benefits, Policy [Policy Text Block]

Benefit Plans

– Employee

401

(k) and profit sharing plan expense is the amount of matching contributions. Deferred compensation and supplemental retirement plan expense allocates the benefits over years of service.

Share-based Compensation, Option and Incentive Plans Policy [Policy Text Block]

Stock-Based Compensation

– Compensation cost is recognized for unvested stock awards issued to employees, based on the fair value of these awards at the date of grant. The market price of the Corporation’s common stock at the date of grant is used for restricted stock awards. Compensation cost is recognized over the required service period, generally defined as the vesting period. For awards with graded vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award.

Income Tax, Policy [Policy Text Block]

Income Taxes

– Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between carrying amounts and tax bases of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized.

A tax position is recognized as a benefit only if it is "more likely than

not"

that the tax position would be sustained in a tax examination, with a tax exami

nation being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than

50%

likely of being realized on examination. For tax positions

not

meeting the "more likely than

not"

test,

no

tax benefit is recorded. The Company recognizes interest and/or penalties related to income tax matters in income tax expense.

Loan Commitments, Policy [Policy Text Block]

Loan Commitments and Related Financial Instruments

– Financial instruments include off-balance sheet credit instruments, such as commitments to make loans and commercial letters of credit, issued to meet customer-financing needs. The face amount for these items represents the exposure to loss, before considering customer collateral or ability to repay. Such financial instruments are recorded when they are funded.

Comprehensive Income, Policy [Policy Text Block]

Comprehensive

Income (

Loss

)

– Comprehensive loss consists of net income (loss) and other comprehensive income (loss). Other comprehensive income (loss) includes unrealized gains and losses on securities available for sale, which are also recognized as a separate component of equity.

Earnings Per Share, Policy [Policy Text Block]

Earnings

(Loss)

Per Common Share

– Basic earnings (loss) per common share are net income (loss) attributable to common shareholders divided by the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per common share include the dilutive effect, if any, of additional potential common shares issuable under stock options and warrants. Earnings (loss) and dividends per share are restated for all stock splits and dividends through the date of issue of the financial statements.

Earnings (Loss) Allocated to Participating Securities

–

The Company has issued and outstanding unvested common shares to employees and directors through the stock incentive plan. Earnings (loss) are allocated to these participating securities based on their percentage of total issued and outstanding shares.

Commitments and Contingencies, Policy [Policy Text Block]

Loss Contingencies

– Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated.

Dividend Policy, [Policy Text Block]

Dividend Restriction

s

– Banking regulations require maintaining certain capital levels and

may

limit the dividends paid by the Bank to the Company or by the Company to shareholders.

Fair Value of Financial Instruments, Policy [Policy Text Block]

Fair Value of Financial Instruments

– Fair values of financial instruments are estimated using relevant market information and other assumptions. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect the estimates.

Derivatives, Policy [Policy Text Block]

D

erivative

I

nstruments

–

Derivative Instruments are carried at fair value and reflect the estimated amounts that would have been received to terminate these contracts at the reporting date based upon pricing or valuation models applied to current market information.

As part of the asset/liability management program, the Company utilize

s, from time to time, risk participation agreements to reduce its sensitivity to changing interest rates. These are derivative instruments, which are recorded as assets or liabilities in the consolidated balance sheets at fair value. Changes in the fair values of derivatives are reported in the consolidated statements of operations or other comprehensive income (“OCI”) depending on the use of the derivative and whether the instrument qualifies for hedge accounting. The key criterion for the hedge accounting is that the hedged relationship must be highly effective in achieving offsetting changes in those cash flows that are attributable to the hedged risk, both at inception of the hedge and on an ongoing basis.

Derivatives that qualify for the hedge accounting treatment are designated as either: a hedge of the fair value of the recognized asset or liability or of an unrecognized commitment (a fair value hedge) or a hedge of a forecasted transaction or the variability of cash flows to be received or paid related to a recognized asset or liability (a cash flow hedge). To date, the Company has

not

entered into a cash flow hedge. For cash flow hedges, changes in the fair values of the derivative instruments are reported in OCI to the extent the hedge is effective. The gains and losses on derivative instruments that are reported in OCI are reflected in the consolidated statements of income in the periods in which the results of operations are impacted by the variability of the cash flows of the hedged item. Generally, net interest income is increased or decreased by amounts receivable or payable with respect to the derivatives, which qualify for hedge accounting. At inception of the hedge, a Company must establish the method it uses for assessing the effectiveness of the hedging derivative and the measurement approach for determining the ineffective aspect of the hedge. The ineffective portion of the hedge, if any, is recognized currently in the consolidated statements of operations and time value expiration of the hedge when measuring ineffectiveness is excluded.

The risk participation agreements

are

not

designated against specific assets or liabilities under ASC

815,

Derivatives and Hedging, and, therefore, do

not

qualify for hedge accounting. The derivatives are recorded on the balance sheet at fair value and changes in fair value of both the borrower and the offsetting swap agreements are recorded (and essentially offset) in non-interest income. The fair value of the derivative instruments incorporates a consideration of credit risk in accordance with ASC

820,

resulting in some volatility in earnings each period.

New Accounting Pronouncements, Policy [Policy Text Block]

Adoption of New Accounting Standards

–

In

August 2015,

FASB issued ASU

2015

-

14,

Revenue from Contracts with Customers (Topic

606

). This ASU is an update to ASU

2014

-

09,

and delays the effective date of ASU

2014

-

09.

The ASU provides guidance on revenue recognition for entities that enter into contracts with customers to transfer goods or services or enter into contracts for the transfer of nonfinancial assets. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Additional disclosures are required to provide quantitative and qualitative information regarding the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The new guidance is effective for annual reporting periods, and interim reporting periods within those annual periods, beginning after

December 15, 2017.

The Company’s revenue is comprised of net interest income on financial assets and liabilities, which is explicitly excluded from the scope of this guidance, and non-interest income. Based on the evaluation of the Company’s non-interest income revenue streams, adoption of this new guidance will

not

have a material impact on the consolidated financial statements. Changes to the related disclosures are still being finalized.

In

January 2016,

the FASB issued an update ASU

No.

 

2016

-

01,

Financial Instruments – Overall (Subtopic

825

-

10

): Recognition and Measurement of Financial Assets and Financial Liabilities. The amendments in this update impact public business entities as follows:

1

) Require equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income.

2

) Simplify the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment. When a qualitative assessment indicates that impairment exists, an entity is required to measure the investment at fair value.

3

) Eliminate the requirement to disclose the methods and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet.

4

) Require entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes.

5

) Require an entity to present separately in other comprehensive income the portion of the total change in fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments.

6

) Require separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements.

7

) Clarify that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. The amendments in this update become effective for annual periods and interim periods within those annual periods beginning after

December 

15,

2017.

The impact of adopting the new guidance did 

not

have a material impact on the consolidated financial statements, but will require additional disclosures. The Company currently does

not

have any equity investments.

In

February 2016,

the FASB issued an update ASU

No.

2016

-

02,

Leases (Topic

842

). Under the new guidance, lessees will be required to recognize the following for all leases, with the exception of short-term leases, at the commencement date: a lease liability, which is a lessee

’s obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under the new guidance, lessor accounting in largely unchanged. The amendments in this update become effective for annual periods and interim periods within those annual periods beginning after

December 15, 2018.

The impact of adopting the new guidance on the consolidated financial statements will

not

have a material impact.

In

June 2016,

the FASB issued ASU

No.

2016

-

13,

–

Financial Instruments – Credit Losses (Topic

326

): Measurement of Credit Losses on Financial Instruments. The final standard will change estimates for credit losses related to financial assets measured at amortized cost such as loans, held-to-maturity debt securities, and certain other contracts. For estimating credit losses, the FASB is replacing the incurred loss model with an expected loss model, which is referred to as the current expected credit loss (CECL) model. Under the CECL model, certain financial assets that are carried at amortized cost, such as loans held for investment and held-to-maturity debt securities, are required to be presented at the net amount expected to be collected. The measurement of expected credit losses is to be based on information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. This measurement will take place at the time the financial asset is

first

added to the balance sheet and periodically thereafter. This differs significantly from the “incurred loss” model required under current GAAP, which delays recognition until it is probable a loss has been incurred. The change could materially affect how the allowance for loan losses is determined. The standard is effective for public companies for fiscal years beginning after

December 15, 2019.

Management is currently gathering loan level data, and assessing our data and system needs. The impact of CECL model implementation is being evaluated, but it is expected that a

one

-time cumulative-effect adjustment to the allowance for loan losses will be recognized in retained earnings on the consolidated balance sheet as of the beginning of the

first

reporting period in which the new standard is effective, as is consistent with regulatory expectations set forth in interagency guidance. The magnitude of any adjustment or the overall impact of the new standard on financial condition or results of operation cannot yet be determined.

In

March 2017,

the FASB issued ASU

No.

2017

-

08,

–

Receivables – Nonrefundable Fees and Other Costs (Subtopic

310

-

20

): Premium Amortization of Purchased Callable Debt Securities. The final standard will shorten the amortization period for premiums on callable debt securities by requiring that premiums be amortized to the

first

(or earliest) call date instead of as an adjustment to the yield over the contractual life. The standard is effective for public companies for fiscal years beginning after

December 15, 2018.

The Company is currently evaluating the impact of adopting the new guidance on the consolidated financial statements.

In

February 2018,

the FASB issued ASU

No.

2018

-

02,

–Income Statement – Reporting Comprehensive Income (Topic

220

): Reclassification of Certain Tax Effects From Other Comprehensive Income. The final standard allows institutions to elect to reclassify the stranded tax effects from AOCI to retained earnings, limited to amounts in AOCI that are affected by the tax reform law.  This includes remeasuring deferred tax assets and liabilities related to items presented in AOCI at the newly enacted tax rate and on other income tax effects of items remaining in AOCI. The standard is effective for public companies for fiscal years beginning after

December 15, 2018,

and interim periods during

2018.

Early adoption is permitted.  The Company will adopt the standard in the

first

quarter of

2018

and adoption will

not

have a material impact on the consolidated financial statements.

XML

Note 2 - Securities (Tables)

12 Months Ended

Dec. 31, 2017

Notes Tables

Marketable Securities [Table Text Block]

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
December 31, 201 7	(in thousands)
Available for sale
U.S. Government and federal agency	$	22,105	$	2	$	(483	)	$	21,624
Agency mortgage-backed: residential		65,935		117		(1,087	)		64,965
Collateralized loan obligations		25,343		182		(20	)		25,505
State and municipal		33,303		508		(101	)		33,710
Corporate bonds		6,838		78		—			6,916
Total available for sale	$	153,524	$	887	$	(1,691	)	$	152,720

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
December 31, 201 6	(in thousands)
Available for sale
U.S. Government and federal agency	$	34,757	$	50	$	(708	)	$	34,099
Agency mortgage-backed: residential		103,390		455		(1,492	)		102,353
Collateralized loan obligations		11,203		—		—			11,203
State and municipal		2,028		25		(8	)		2,045
Corporate bonds		3,069		24		(3	)		3,090
Total available for sale	$	154,447	$	554	$	(2,211	)	$	152,790

	Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses			Fair Value
Held to maturity
State and municipal	$	41,818	$	1,272	$	(18	)	$	43,072
Total held to maturity	$	41,818	$	1,272	$	(18	)	$	43,072

Schedule of Realized Gain (Loss) [Table Text Block]

	201 7		201 6		201 5
	(in thousands)
Proceeds	$	41,733	$	8,311	$	45,012
Gross gains		449		245		1,902
Gross losses		161		29		136

Investments Classified by Contractual Maturity Date [Table Text Block]

	December 31, 201 7
	Amortized Cost		Fair Value
	(in thousands)
Maturity
Available for sale
Within one year	$	14,648	$	14,682
One to five years		40,197		40,675
Five to ten years		32,744		32,398
Agency mortgage-backed: residential		65,935		64,965
Total	$	153,524	$	152,720

Schedule of Unrealized Loss on Investments [Table Text Block]

	Less than 12 Months					12 Months or More					Total
Description of Securities	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
	(in thousands)
201 7
Available for sale
U.S. Government and federal agency	$	5,788	$	(97	)	$	14,121	$	(386	)	$	19,909	$	(483	)
Agency mortgage-backed: residential		21,104		(172	)		27,158		(915	)		48,262		(1,087	)
State and municipal		7,492		(101	)		—		—			7,492		(101	)
Collateralized loan obligations		6,038		(20	)		—		—			6,038		(20	)
Total temporarily impaired	$	40,422	$	(390	)	$	41,279	$	(1,301	)	$	81,701	$	(1,691	)

	Less than 12 Months					12 Months or More					Total
Description of Securities	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
	(in thousands)
201 6
Available for sale
U.S. Government and federal agency	$	27,738	$	(708	)	$	—	$	—		$	27,738	$	(708	)
Agency mortgage-backed: residential		63,460		(1,449	)		2,745		(43	)		66,205		(1,492	)
State and municipal		465		(8	)		—		—			465		(8	)
Corporate bonds		—		—			1,566		(3	)		1,566		(3	)
Total temporarily impaired	$	91,663	$	(2,165	)	$	4,311	$	(46	)	$	95,974	$	(2,211	)
Held to maturity
State and municipal		1,540		(18	)		—		—			1,540		(18	)
Total	$	1,540	$	(18	)	$	—	$	—		$	1,540	$	(18	)

XML

Note 3 - Loans (Tables)

12 Months Ended

Dec. 31, 2017

Notes Tables

Schedule of Accounts, Notes, Loans and Financing Receivable [Table Text Block]

	201 7			201 6
	(in thousands)
Commercial	$	113,771		$	97,761
Commercial Real Estate:
Construction		57,342			36,330
Farmland		88,320			71,507
Nonfarm nonresidential		156,724			149,546
Residential Real Estate:
Multi-family		56,588			48,197
1-4 Family		179,222			188,092
Consumer		18,439			9,818
Agriculture		41,154			37,508
Other		555			477
Subtotal		712,115			639,236
Less: Allowance for loan losses		(8,202	)		(8,967	)
Loans, net	$	703,913		$	630,269

Allowance for Credit Losses on Financing Receivables [Table Text Block]

	Commercial			Commercial Real Estate			Residential Real Estate			Consumer			Agriculture			Other			Total
Dec ember 3 1 , 201 7 :	(in thousands)
Beginning balance	$	475		$	4,894		$	3,426		$	8		$	162		$	2		$	8,967
Provision (n egative provision)		363			(1,223	)		(129	)		(8	)		213			(16	)		(800	)
Loans charged off		(5	)		(58	)		(692	)		(51	)		(95	)		–			(901	)
Recoveries		59			419			295			115			33			15			936
Ending balance	$	892		$	4,032		$	2,900		$	64		$	313		$	1		$	8,202

Dec ember 3 1 , 201 6 :
Beginning balance	$	818		$	6,993		$	3,984		$	122		$	122		$	2		$	12,041
Provision (negative p rovision)		(401	)		(2,438	)		749			(314	)		(56	)		10			(2,450	)
Loans charged off		(276	)		(505	)		(1,652	)		(99	)		(18	)		(79	)		(2,629	)
Recoveries		334			844			345			299			114			69			2,005
Ending balance	$	475		$	4,894		$	3,426		$	8		$	162		$	2		$	8,967

Dec ember 3 1 , 201 5 :
Beginning balance	$	2,046		$	10,931		$	5,787		$	274		$	319		$	7		$	19,364
Provision (negative provision)		(1,255	)		(2,713	)		(316	)		(115	)		(87	)		(14	)		(4,500	)
Loans charged off		(696	)		(2,879	)		(2,171	)		(221	)		(118	)		(47	)		(6,132	)
Recoveries		723			1,654			684			184			8			56			3,309
Ending balance	$	818		$	6,993		$	3,984		$	122		$	122		$	2		$	12,041

Impairment Evaluation of Financing Receivables [Table Text Block]

	Commercial		Commercial Real Estate		Residential Real Estate		Consumer		Agriculture		Other		Total
	(in thousands)
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	13	$	–	$	206	$	–	$	–	$	–	$	219
Collectively evaluated for impairment		879		4,032		2,694		64		313		1		7,983
Total ending allowance balance	$	892	$	4,032	$	2,900	$	64	$	313	$	1	$	8,202
Loans:
Loans individually evaluated for impairment	$	587	$	2,635	$	3,950	$	1	$	–	$	–	$	7,173
Loans collectively evaluated for impairment		113,184		299,751		231,860		18,438		41,154		555		704,942
Total ending loans balance	$	113,771	$	302,386	$	235,810	$	18,439	$	41,154	$	555	$	712,115

	Commercial		Commercial Real Estate		Residential Real Estate		Consumer		Agriculture		Other		Total
	(in thousands)
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	13	$	35	$	350	$	–	$	1	$	–	$	399
Collectively evaluated for impairment		462		4,859		3,076		8		161		2		8,568
Total ending allowance balance	$	475	$	4,894	$	3,426	$	8	$	162	$	2	$	8,967
Loans:
Loans individually evaluated for impairment	$	595	$	5,854	$	8,621	$	1	$	60	$	–	$	15,131
Loans collectively evaluated for impairment		97,166		251,529		227,668		9,817		37,448		477		624,105
Total ending loans balance	$	97,761	$	257,383	$	236,289	$	9,818	$	37,508	$	477	$	639,236

Impaired Financing Receivables [Table Text Block]

	Unpaid Principal Balance		Recorded Investment		Allowance For Loan Losses Allocated		Average Recorded Investment		Interest Income Recognized		Cash Basis Income Recognized
	(in thousands)
With No Related Allowance Recorded:
Commercial	$	703	$	487	$	—	$	495	$	7	$	7
Commercial real estate:
Construction		—		—		—		—		—		—
Farmland		3,687		2,059		—		2,651		210		210
Nonfarm nonresidential		1,047		576		—		716		59		47
Residential real estate:
Multi-family		—		—		—		820		—		—
1-4 Family		4,293		2,787		—		2,884		143		143
Consumer		9		1		—		2		2		2
Agriculture		—		—		—		24		1		1
Other		—		—		—		—		—		—
Subtotal		9,739		5,910		—		7,592		422		410
With An Allowance Recorded:
Commercial		100		100		13		100		7		—
Commercial real estate:
Construction		—		—		—		—		—		—
Farmland		—		—		—		235		—		—
Nonfarm nonresidential		—		—		—		238		14		—
Residential real estate:
Multi-family		—		—		—		—		—		—
1-4 Family		1,163		1,163		206		1,404		68		—
Consumer		—		—		—		—		—		—
Agriculture		—		—		—		24		—		—
Other		—		—		—		—		—		—
Subtotal		1,263		1,263		219		2,001		89		—
Total	$	11,002	$	7,173	$	219	$	9,593	$	511	$	410

	Unpaid Principal Balance		Recorded Investment		Allowance For Loan Losses Allocated		Average Recorded Investment		Interest Income Recognized		Cash Basis Income Recognized
	(in thousands)
With No Related Allowance Recorded:
Commercial	$	707	$	495	$	—	$	758	$	39	$	39
Commercial real estate:
Construction		—		—		—		156		9		—
Farmland		5,566		3,742		—		4,188		94		95
Nonfarm nonresidential		4,502		1,219		—		4,699		310		189
Residential real estate:
Multi-family		4,100		4,100		—		2,608		287		1
1-4 Family		4,663		2,910		—		5,509		162		94
Consumer		41		1		—		7		8		8
Agriculture		—		—		—		73		28		28
Other		—		—		—		—		—		—
Subtotal		19,579		12,467		—		17,998		937		454
With An Allowance Recorded:
Commercial		100		100		13		20		6		—
Commercial real estate:
Construction		—		—		—		—		—		—
Farmland		614		590		5		358		—		—
Nonfarm nonresidential		303		303		30		398		23		—
Residential real estate:
Multi-family		—		—		—		2,506		101		—
1-4 Family		1,676		1,611		350		1,659		111		—
Consumer		—		—		—		—		—		—
Agriculture		78		60		1		39		—		—
Other		—		—		—		—		—		—
Subtotal		2,771		2,664		399		4,980		241		—
Total	$	22,350	$	15,131	$	399	$	22,978	$	1,178	$	454

	Unpaid Principal Balance		Recorded Investment		Allowance For Loan Losses Allocated		Average Recorded Investment		Interest Income Recognized		Cash Basis Income Recognized
	(in thousands)
With No Related Allowance Recorded:
Commercial	$	1,558	$	1,112	$	—	$	1,526	$	5	$	5
Commercial real estate:
Construction		278		262		—		1,993		14		1
Farmland		6,004		4,263		—		4,497		114		114
Nonfarm nonresidential		11,256		7,829		—		16,073		263		9
Residential real estate:
Multi-family		32		32		—		35		—		—
1-4 Family		14,066		11,756		—		13,584		456		99
Consumer		118		20		—		23		—		—
Agriculture		260		152		—		206		—		—
Other		—		—		—		49		5		5
Subtotal		33,572		25,426		—		37,986		857		233
With An Allowance Recorded:
Commercial		—		—		—		13		—		—
Commercial real estate:
Construction		—		—		—		—		—		—
Farmland		—		—		—		63		—		—
Nonfarm nonresidential		574		465		43		4,591		25		—
Residential real estate:
Multi-family		4,195		4,195		57		4,229		204		—
1-4 Family		1,690		1,690		328		1,705		89		—
Consumer		—		—		—		8		—		—
Agriculture		—		—		—		—		—		—
Other		—		—		—		—		—		—
Subtotal		6,459		6,350		428		10,609		318		—
Total	$	40,031	$	31,776	$	428	$	48,595	$	1,175	$	233

Troubled Debt Restructurings on Financing Receivables [Table Text Block]

	TDRs Performing to Modified Terms		TDRs Not Performing to Modified Terms		Total TDRs
	(in thousands)
December 31, 201 7
Commercial
Rate reduction	$	—	$	33	$	33
Principal deferral		—		434		434
Commercial Real Estate:
Farmland
Principal deferral		—		1,362		1,362
Nonfarm nonresidential
Rate reduction		483		—		483
Residential Real Estate:
1-4 Family
Rate reduction		734		—		734
Total TDRs	$	1,217	$	1,829	$	3,046
December 31, 201 6
Commercial
Rate reduction	$	—	$	33	$	33
Principal deferral		—		434		434
Commercial Real Estate:
Farmland
Principal deferral		—		2,300		2,300
Nonfarm nonresidential
Rate reduction		507		—		507
Principal deferral		—		607		607
Residential Real Estate:
Multi-family
Rate reduction		4,100		—		4,100
1-4 Family
Rate reduction		743		—		743
Total TDRs	$	5,350	$	3,374	$	8,724

Schedule of Financing Receivables, Non Accrual Status [Table Text Block]

	Nonaccrual				Loans Past Due 90 Days And Over Still Accruing
	201 7		201 6		201 7		201 6
	(in thousands)
Commercial	$	487	$	495	$	—	$	—
Commercial Real Estate:
Construction		—		—		—		—
Farmland		2,059		4,332		—		—
Nonfarm nonresidential		93		1,016		—		—
Residential Real Estate:
Multi-family		—		—		—		—
1-4 Family		2,817		3,312		—		—
Consumer		1		1		1		—
Agriculture		—		60		—		—
Other		—		—		—		—
Total	$	5,457	$	9,216	$	1	$	—

Past Due Financing Receivables [Table Text Block]

	30 – 59 Days Past Due		60 – 89 Days Past Due		90 Days And Over Past Due		Nonaccrual		Total Past Due And Nonaccrual
	(in thousands)
December 31 , 201 7
Commercial	$	—	$	—	$	—	$	487	$	487
Commercial Real Estate:
Construction		—		—		—		—		—
Farmland		593		—		—		2,059		2,652
Nonfarm nonresidential		—		—		—		93		93
Residential Real Estate:
Multi-family		—		—		—		—		—
1-4 Family		850		126		—		2,817		3,793
Consumer		30		45		—		1		76
Agriculture		5		—		1		—		6
Other		—		—		—		—		—
Total	$	1,478	$	171	$	1	$	5,457	$	7,107

	30 – 59 Days Past Due		60 – 89 Days Past Due		90 Days And Over Past Due		Nonaccrual		Total Past Due And Nonaccrual
	(in thousands)
December 31, 201 6
Commercial	$	—	$	—	$	—	$	495	$	495
Commercial Real Estate:
Construction		—		—		—		—		—
Farmland		626		—		—		4,332		4,958
Nonfarm nonresidential		—		59		—		1,016		1,075
Residential Real Estate:
Multi-family		—		—		—		—		—
1-4 Family		1,454		256		—		3,312		5,022
Consumer		19		—		—		1		20
Agriculture		203		—		—		60		263
Other		—		—		—		—		—
Total	$	2,302	$	315	$	—	$	9,216	$	11,833

Financing Receivable Credit Quality Indicators [Table Text Block]

	Pass		Watch		Special Mention		Substandard		Doubtful		Total
	(in thousands)
December 31, 201 7
Commercial	$	112,978	$	84	$	—	$	709	$	—	$	113,771
Commercial Real Estate:
Construction		57,342		—		—		—		—		57,342
Farmland		76,563		7,607		—		4,150		—		88,320
Nonfarm nonresidential		152,004		2,906		—		1,814		—		156,724
Residential Real Estate:
Multi-family		47,121		9,467		—		—		—		56,588
1-4 Family		169,774		3,535		164		5,749		—		179,222
Consumer		18,042		306		—		91		—		18,439
Agriculture		38,654		1,810		—		690		—		41,154
Other		555		—		—		—		—		555
Total	$	673,033	$	25,715	$	164	$	13,203	$	—	$	712,115

	Pass		Watch		Special Mention		Substandard		Doubtful		Total
	(in thousands)
December 31, 201 6
Commercial	$	96,402	$	294	$	—	$	1,065	$	—	$	97,761
Commercial Real Estate:
Construction		35,823		507		—		—		—		36,330
Farmland		63,323		1,521		—		6,663		—		71,507
Nonfarm nonresidential		142,222		5,217		445		1,662		—		149,546
Residential Real Estate:
Multi-family		38,281		6,080		—		3,836		—		48,197
1-4 Family		173,565		6,909		52		7,566		—		188,092
Consumer		9,397		348		—		73		—		9,818
Agriculture		26,940		9,555		—		1,013		—		37,508
Other		477		—		—		—		—		477
Total	$	586,430	$	30,431	$	497	$	21,878	$	—	$	639,236

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Note 4 - Premises and Equipment (Tables)

12 Months Ended

Dec. 31, 2017

Notes Tables

Property, Plant and Equipment [Table Text Block]

	201 7			201 6
	(in thousands)
Land and buildings	$	23,124		$	23,515
Furniture and equipment		10,151			10,050
		33,275			33,565
Accumulated depreciation		(16,486	)		(15,717	)
	$	16,789		$	17,848

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Note 5 - Other Real Estate Owned (Tables)

12 Months Ended

Dec. 31, 2017

Notes Tables

Schedule of Real Estate Properties [Table Text Block]

	201 7		201 6
	(in thousands)
Commercial Real Estate:
Construction, land development, and other land	$	4,335	$	6,571
Farmland		74		—
Residential Real Estate:
1-4 Family		—		250
	$	4,409	$	6,821

Schedule of Expenses Related to Foreclosed Real Estate [Table Text Block]

	201 7			201 6			20 1 5
	(in thousands)
OREO Activity
OREO as of January 1	$	6,821		$	19,214		$	46,197
Real estate acquired		270			1,273			5,513
Valuation adjustment write-downs		(1,963	)		(1,180	)		(9,855	)
Net gain (loss) on sale		74			222			(74	)
Proceeds from sale of properties		(793	)		(12,708	)		(22,567	)
OREO as of December 31	$	4,409		$	6,821		$	19,214

Reclassification out of Accumulated Other Comprehensive Income [Table Text Block]

	201 7			201 6			20 1 5
	(in thousands)
Net (gain) loss on sales	$	(74	)	$	(222	)	$	74
Valuation adjustment write-downs		1,963			1,180			9,855
Operating expense		84			583			2,373
Total	$	1,973		$	1,541		$	12,302

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Note 6 - Deposits (Tables)

12 Months Ended

Dec. 31, 2017

Notes Tables

Schedule of Deposits [Table Text Block]

	December 31, 201 7		December 31, 201 6
	(in thousands)
Non-interest bearing	$	137,386	$	124,395
Interest checking		99,383		103,876
Money market		151,388		142,497
Savings		34,632		34,518
Certificates of deposit		424,235		444,639
Total	$	847,024	$	849,925

Schedule of Maturities of Time Deposits [Table Text Block]

	Total
201 8	$	204,018
201 9		178,479
20 20		27,507
202 1		5,316
20 22		8,915
	$	424,235

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Note 7 - Advances From Federal Home Loan Bank (Tables)

12 Months Ended

Dec. 31, 2017

Notes Tables

Schedule of Federal Home Loan Bank, Advances, by Branch of FHLB Bank [Table Text Block]

	201 7		201 6
	(in thousands)
A dvances with fixed rates from 0.00% to 5.24% and maturities ranging from 2018 through 2033, averaging 1.48% for 2017 and 0.85% for 2016	$	11,797	$	22,458

Schedule of Maturities of Long-term Debt [Table Text Block]

	Advances
2018	$	10,200
2019		180
2020		485
2021		728
202 2		108
Thereafter		96
	$	11,797

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Note 9 - Junior Subordinated Debentures (Tables)

12 Months Ended

Dec. 31, 2017

Notes Tables

Schedule of Subordinated Borrowing [Table Text Block]

Description	Issuance Date	Interest Rate (1)	Junior Subordinated Debt Owed To Trust		Maturity Date (2)
Porter Statutory Trust II	2 /13/2004	3-month LIBOR + 2.85%	$	5,000,000	2 /13/2034
Porter Statutory Trust III	4 /15/2004	3-month LIBOR + 2.79%		3,000,000	4 /15/2034
Porter Statutory Trust IV	12 /14/2006	3-month LIBOR + 1.67%		10,000,000	3 /01/2037
As cencia Statutory Trust I	2 /13/2004	3-month LIBOR + 2.85%		3,000,000	2 /13/2034
			$	21,000,000

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Note 12 - Income Taxes (Tables)

12 Months Ended

Dec. 31, 2017

Notes Tables

Schedule of Components of Income Tax Expense (Benefit) [Table Text Block]

	201 7			201 6			20 1 5
	(in thousands)
Current	$	—		$	21		$	—
Deferred		2,523			2,771			5,258
Net operating loss		(647	)		(4,009	)		(5,975	)
Change in federal statutory rate		20,274			—			—
Change in valuation allowance		(54,049	)		1,238			717
	$	(31,899	)	$	21		$	—

Schedule of Effective Income Tax Rate Reconciliation [Table Text Block]

	201 7			201 6			20 1 5
	(in thousands)
Federal statutory rate times financial statement income (loss)	$	2,294		$	(956	)	$	(1,125	)
Effect of:
V aluation allowance		(54,049	)		1,238			717
Tax-exempt income		(196	)		(211	)		(264	)
Non -taxable life insurance income		(144	)		(146	)		(103	)
Restricted stock vesting		(121	)		—			—
Change in federal statutory rate		20,274			—			—
Other, net		43			96			775
Total	$	(31,899	)	$	21		$	—

Schedule of Deferred Tax Assets and Liabilities [Table Text Block]

	201 7		201 6
	(in thousands)
Deferred tax assets:
Net operating loss carry-forward	$	25,645	$	42,094
Allowance for loan losses		1,723		3,139
O REO write-down		2,432		3,366
Alternative minimum tax credit carry-forward		692		692
Net assets from acquisitions		358		674
Net unrealized loss on securities		169		867
New market tax credit carry-forward		208		208
Nonaccrual loan interest		271		481
Accrued expenses		172		3,860
Deferred compensation		277		465
Other		241		360
		32,188		56,206
Deferred tax liabilities:
FHLB stock dividends		557		928
Fixed assets		68		89
Deferred loan costs		152		274
Other		98		866
		875		2,157
Net deferred tax assets before valuation allowance		31,313		54,049
Valuation allowance		—		(54,049	)
Net deferred tax asset	$	31,313	$	—

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Note 13 - Related Party Transactions (Tables)

12 Months Ended

Dec. 31, 2017

Notes Tables

Schedule of Related Party Transactions [Table Text Block]

Beginning balance	$	—
New loans		9,400
Repayments		—
Ending balance	$	9,400

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Note 15 - Capital Requirements and Restrictions on Retained Earnings (Tables)

12 Months Ended

Dec. 31, 2017

Notes Tables

Schedule of Compliance with Regulatory Capital Requirements under Banking Regulations [Table Text Block]

	Actual					Minimum Requirement for Capital Adequacy Purposes					Minimum Requirement to be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of December 31, 2017:
Total risk-based capital (to risk-weighted assets)
Consolidated	$	83,072		10.55	%	$	63,014		8.00	%		N/A		N/A
Bank		91,305		11.61			62,938		8.00		$	78,672		10.00	%
Total common equity Tier 1 risk- based capital (to risk-weighted assets)
Consolidated		54,535		6.92			35,445		4.50			N/A		N/A
Bank		81,393		10.35			35,403		4.50			51,137		6.50
Tier 1 capital (to risk-weighted assets)
Consolidated		66,487		8.44			47,260		6.00			N/A		N/A
Bank		81,393		10.35			47,203		6.00			62,938		8.00
Tier 1 capital (to average assets)
Consolidated		66,487		7.11			37,392		4.00			N/A		N/A
Bank		81,393		8.70			37,421		4.00			46,777		5.00

	Actual					Minimum Requirement for Capital Adequacy Purposes					Minimum Requirement to be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of December 31, 2016:
Total risk-based capital (to risk-weighted assets)
Consolidated	$	71,109		10.21	%	$	55,714		8.00	%		N/A		N/A
Bank		68,773		9.88			55,663		8.00		$	69,579		10.00	%
Total common equity Tier 1 risk- based capital (to risk-weighted assets)
Consolidated		36,199		5.20			31,339		4.50			N/A		N/A
Bank		57,642		8.28			31,311		4.50			45,226		6.50
Tier 1 capital (to risk-weighted assets)
Consolidated		48,713		6.99			41,786		6.00			N/A		N/A
Bank		57,642		8.28			41,747		6.00			55,663		8.00
Tier 1 capital (to average assets)
Consolidated		48,713		5.27			36,975		4.00			N/A		N/A
Bank		57,642		6.24			36,949		4.00			46,186		5.00

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Note 16 - Off Balance Sheet Risks, Commitments, and Contingent Liabilities (Tables)

12 Months Ended

Dec. 31, 2017

Notes Tables

Schedule of Fair Value, Off-balance Sheet Risks [Table Text Block]

	201 7				201 6
	Fixed Rate		Variable Rate		Fixed Rate		Variable Rate
	(in thousands)
Commitments to make loans	$	27,349	$	31,412	$	19,445	$	18,347
Unused lines of credit		11,034		57,727		7,935		51,407
Standby letters of credit		2,216		373		582		360

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Note 17 - Fair Values (Tables)

12 Months Ended

Dec. 31, 2017

Notes Tables

Fair Value, Assets Measured on Recurring and Nonrecurring Basis [Table Text Block]

			Fair Value Measurements at December 31, 201 7 Using
			(in thousands)
Description	Carrying Value		Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Available for sale securities
U.S. Government and federal agency	$	21,624	$	—	$	21,624	$	—
Agency mortgage-backed : residential		64,965		—		64,965		—
Collateralized loan obligations		25,505		—		25,505		—
State and municipal		33,710		—		33,710		—
Corporate bonds		6,916		—		6,916		—
Total	$	152,720	$	—	$	152,720	$	—

			Fair Value Measurements at December 31, 201 6 Using
			(in thousands)
Description	Carrying Value		Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Available for sale securities
U.S. Government and federal agency	$	34,099	$	—	$	34,099	$	—
Agency mortgage-backed : residential		102,353		—		102,353		—
Collateralized loan obligations		11,203		—		11,203		—
State and municipal		2,045		—		2,045		—
Corporate bonds		3,090		—		3,090		—
Total	$	152,790	$	—	$	152,790	$	—

			Fair Value Measurements at December 31, 201 7 Using
			(in thousands)
Description	Carrying Value		Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Impaired lo ans :
Commercial	$	87	$	—	$	—	$	87
Commercial real estate:
Construction		—		—		—		—
Farmland		—		—		—		—
Nonfarm nonresidential		—		—		—		—
Residential real estate:
Multi-family		—		—		—		—
1-4 Family		957		—		—		957
Consumer		—		—		—		—
Agriculture		—		—		—		—
Other		—		—		—		—
Other real estate owned, net :
Commercial real estate:
Construction		4,335		—		—		4,335
Farmland		74		—		—		74
Nonfarm nonresidential		—		—		—		—
Residential real estate:
Multi-family		—		—		—		—
1-4 Family		—		—		—		—

			Fair Value Measurements at December 31, 201 6 Using
			(in thousands)
Description	Carrying Value		Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Impaired loans:
Commercial	$	87	$	—	$	—	$	87
Commercial real estate:
Construction		—		—		—		—
Farmland		585		—		—		585
Nonfarm nonresidential		—		—		—		—
Residential real estate:
Multi-family		—		—		—		—
1-4 Family		1,261		—		—		1,261
Consumer		—		—		—		—
Agriculture		59		—		—		59
Other		—		—		—		—
Other real estate owned, net :
Commercial real estate:
Construction		6,571		—		—		6,571
Farmland		—		—		—		—
Nonfarm nonresidential		—		—		—		—
Residential real estate:
Multi-family		—		—		—		—
1-4 Family		250		—		—		250

Fair Value Assets Measured on Nonrecurring Basis Unobservable Input Reconciliation [Table Text Block]

	Fair Value		Valuation Technique(s)	Unobservable Input(s)	Range (Weighted Average)
	(in thousands)
Impaired loans – Residential real estate	$	957	Sales comparison approach	Adjustment for differences between the comparable sales	0%	-	26%	(9%)
Other real estate owned – Commercial real estate	$	4,409	Sales comparison approach	Adjustment for differences between the comparable sales	0%	-	35%	(18%)
			Income approach	Discount or capitalization rate	25%			(25%)

	Fair Value		Valuation Technique(s)	Unobservable Input(s)	Range (Weighted Average)
	(in thousands)
Impaired loans – Residential real estate	$	1,261	Sales comparison approach	Adjustment for differences between the comparable sales	0%	-	22%	(9%)
Other real estate owned – Commercial real estate	$	6,571	Sales comparison approach	Adjustment for differences between the comparable sales	0%	-	20%	(9%)
			Income approach	Discount or capitalization rate	18%	-	20%	(19%)

Fair Value, by Balance Sheet Grouping [Table Text Block]

			Fair Value Measurements at December 31, 201 7 Using
	Carrying Amount		Level 1		Level 2		Level 3		Total
	(in thousands)
Financial assets
Cash and cash equivalents	$	34,103	$	29,898	$	4,205	$	—	$	34,103
Securities available for sale		152,720		—		152,720		—		152,720
Federal Home Loan Bank stock		7,323		N/A		N/A		N/A		N/A
Loans held for sale		70		—		70		—		70
Loans, net		703,913		—		—		703,263		703,263
Accrued interest receivable		3,136		—		925		2,211		3,136
Financial liabilities
Deposits	$	847,024	$	137,386	$	693,320	$	—	$	830,706
Federal Home Loan Bank advances		11,797		—		11,799		—		11,799
Subordinated capital notes		2,250		—		—		2,246		2,246
Junior subordinated debentures		21,000		—		—		19,090		19,090
Senior debt		10,000		—		—		10,000		10,000
Accrued interest payable		1,475		—		357		1,118		1,475

			Fair Value Measurements at December 31, 201 6 Using
	Carrying Amount		Level 1		Level 2		Level 3		Total
	(in thousands)
Financial assets
Cash and cash equivalents	$	66,316	$	31,091	$	35,225	$	—	$	66,316
Securities available for sale		152,790		—		152,790		—		152,790
Securities held to maturity		41,818		—		43,072		—		43,072
Federal Home Loan Bank stock		7,323		N/A		N/A		N/A		N/A
Loans, net		630,269		—		—		632,528		632,528
Accrued interest receivable		3,137		—		1,203		1,934		3,137
Financial liabilities
Deposits	$	849,925	$	124,395	$	712,458	$	—	$	836,853
Federal Home Loan Bank advances		22,458		—		22,475		—		22,475
Subordinated capital notes		3,150		—		—		3,091		3,091
Junior subordinated debentures		21,000		—		—		13,263		13,263
Accrued interest payable		734		—		369		365		734

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Note 18 - Stock Plans and Stock Based Compensation (Tables)

12 Months Ended

Dec. 31, 2017

Notes Tables

Schedule of Nonvested Share Activity [Table Text Block]

	Twelve Months Ended					Twelve Months Ended
	December 31 , 201 7					December 31, 201 6
				Weighted					Weighted
				Average					Average
				Grant					Grant
	Shares			Price		Shares			Price
Outstanding, beginning		179,513		$	4.89		184,482		$	4.81
Granted		37,865			9.64		35,465			9.10
Vested		(73,728	)		5.75		(38,462	)		8.32
Forfeited		(1,316	)		9.35		(1,972	)		6.16
Outstanding, ending		142,334		$	5.67		179,513		$	4.89

Schedule of Unrecognized Compensation Cost, Nonvested Awards [Table Text Block]

201 8	$	258
201 9		99
20 20		25
20 21 & thereafter		—

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Note 19 - Earnings (Loss) Per Share (Tables)

12 Months Ended

Dec. 31, 2017

Notes Tables

Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]

	201 7		201 6			201 5
	(in thousands, except share and per share data)
Net income (loss)	$	38,453	$	(2,753	)	$	(3,213	)
Less:
Earnings (l osses) allocated to unvested shares		967		(88	)		(122	)
Earnings (l osses) allocated to participating preferred shares		—		—			(214	)
Net income (loss) attributable to common shareholders, basic and diluted	$	37,486	$	(2,665	)	$	(2,877	)
Basic
Weighted average common shares including unvested common shares and participating preferred shares outstanding		6,249,059		5,980,945			5,191,944
Less:
Weighted average unvested common shares		157,127		192,232			197,355
Weighted average Series B Preferred Shares		—		—			133,269
Weighted average Series D Preferred Shares		—		—			212,318
Weighted average common shares outstanding		6,091,932		5,788,713			4,649,002
Basic income (loss) per common share	$	6.15	$	(0.46	)	$	(0.62	)
Diluted
Add: Dilutive effects of assumed exercises of common stock warrants		—		—			—
Weighted average common shares and potential common shares		6,091,932		5,788,713			4,649,002
Diluted income (loss) per common share	$	6.15	$	(0.46	)	$	(0.62	)

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Note 20 - Parent Company Only Condensed Financial Information (Tables)

12 Months Ended

Dec. 31, 2017

Notes Tables

Condensed Balance Sheet [Table Text Block]

	201 7		201 6
	(in thousands)
ASSETS
Cash and cash equivalents (1)	$	2,045	$	2,048
Investment in banking subsidiary		99,651		51,528
Investment in and advances to other subsidiaries		776		776
Deferred taxes , net		2,497		—
Other assets		711		645
Total assets	$	105,680	$	54,997
LIABILITIES AND SHAREHOLDERS ’ EQUITY
Debt	$	31,775	$	21,775
Accrued expenses and other liabilities		1,232		489
Shareholders ’ equity		72,673		32,733
Total liabilities and shareholders ’ equity	$	105,680	$	54,997

Condensed Income Statement [Table Text Block]

	201 7			201 6			201 5
	(in thousands)
Interest income	$	4		$	5		$	46
Dividends from subsidiaries		26			23			20
Other income		—			17			102
Interest expense		(973	)		(694	)		(647	)
Other expense		(1,137	)		(1,240	)		(1,457	)
Income (loss) before income tax and undistributed subsidiary income		(2,080	)		(1,889	)		(1,936	)
Income tax expense (benefit)		(2,497	)		21			—
Equity in undistributed subsidiary income (loss)		38,036			(843	)		(1,277	)
Net income ( loss )	$	38,453		$	(2,753	)	$	(3,213	)

Condensed Cash Flow Statement [Table Text Block]

	201 7			201 6			20 1 5
	(in thousands)
Cash flows from operating activities
Net income (loss)	$	38,453		$	(2,753	)	$	(3,213	)
Adjustments:
Equity in undistributed subsidiary (income) loss		(38,036	)		843			1,277
Deferred taxes , net		(2,497	)		—			—
Gain on sale of assets		—			—			(70	)
Change in other assets		743			(95	)		(40	)
Change in other liabilities		(128	)		358			634
Other		462			978			481
Net cash (used in) operating activities		(1,003	)		(669	)		(931	)
Cash flows from investing activities
Investments in subsidiaries		(9,000	)		(500	)		—
Sales of securities		—			—			642
Net cash (used in) from investing activities		(9,000	)		(500	)		642
Cash flows from financing activities
Proceeds from issuance of common stock		—			2,231			—
Proceeds from senior debt		10,000			—			—
Net cash (used in) financing activities		10,000			2,231			—
Net change in cash and cash equivalents		(3	)		1,062			(289	)
Beginning cash and cash equivalents		2,048			986			1,275
Ending cash and cash equivalents	$	2,045		$	2,048		$	986

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Note 21 - Quarterly Financial Data (Unaudited) (Tables)

12 Months Ended

Dec. 31, 2017

Notes Tables

Quarterly Financial Information [Table Text Block]

															Earnings (Loss) Per Common Share
	Interest Income		Net Interest Income		Provision For Loan Losses			OREO Expense			Net Income (Loss)				Basic (1)			Diluted (1)
	(in thousands, except per share data)
201 7
First quarter	$	9,225	$	7,741	$	—		$	(16	)	$	1,680			$	0.27		$	0.27
Second quarter		9,134		7,588		—			(3	)		1,709				0.27			0.27
Third quarter		9,446		7,787		—			111			1,794				0.29			0.29
Fourth quarter		9,717		8,001		(800	)		1,881			33,270		(2)		5.31			5.31
201 6
First quarter	$	9,185	$	7,651	$	(550	)	$	668		$	1,480			$	0.27		$	0.27
Second quarter		8,705		7,196		(600	)		294			1,012				0.17			0.17
Third quarter		8,931		7,458		(750	)		322			1,393				0.22			0.22
Fourth quarter		8,781		7,316		(550	)		257			(6,638	)	(3)		(1.07	)		(1.07	)

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Note 1 - Summary of Significant Accounting Policies (Details Textual)	12 Months Ended
	Dec. 31, 2017
Noncontrolling Interest, Ownership Percentage by Parent	100.00%
Minimum [Member]
Finite-Lived Intangible Asset, Useful Life	7 years
Minimum [Member] | Building [Member]
Property, Plant and Equipment, Useful Life	5 years
Minimum [Member] | Furniture and Fixtures [Member]
Property, Plant and Equipment, Useful Life	2 years
Maximum [Member]
Finite-Lived Intangible Asset, Useful Life	10 years
Maximum [Member] | Building [Member]
Property, Plant and Equipment, Useful Life	40 years
Maximum [Member] | Furniture and Fixtures [Member]
Property, Plant and Equipment, Useful Life	10 years

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Note 2 - Securities (Details Textual) xbrli-pure in Thousands		12 Months Ended
	Dec. 01, 2017 USD ($)	Dec. 31, 2017 USD ($)	Dec. 31, 2016 USD ($)	Dec. 31, 2015 USD ($)	Dec. 31, 2013 USD ($)
Other Comprehensive Income (Loss), Transfers from Held-to-maturity to Available-for-Sale Securities, before Tax		$ 702,000
Available for Sale Securities, Realized Gain (Loss), Income Tax Expense (Benefit)		101,000	76,000	$ 618,000
Available-for-sale Securities Pledged as Collateral		$ 76,800,000	61,200,000
Concentration Risk Number		0
Kentucky [Member]
Available-for-sale Securities Pledged as Collateral		$ 15,400,000	$ 16,400,000
Municipal Bonds [Member]
Other Comprehensive Income (Loss), Transfers from Available-for-Sale to Held-to-maturity Securities, Unrealized Gain (Loss), before Tax					$ (1,300,000)
Held-to-maturity Securities, Transferred Security, at Carrying Value	$ 41,400,000
Other Comprehensive Income (Loss), Transfers from Held-to-maturity to Available-for-Sale Securities, before Tax	$ 702,000

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Note 2 - Securities - Amortized Cost, Gross Unrealized Gains or Losses, and Fair Value of Investment Securities (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Available for sale securities, amortized cost	$ 153,524	$ 154,447
Available for sale securities, gross unrealized gains	887	554
Available for sale securities, gross unrealized losses	(1,691)	(2,211)
Securities available for sale	152,720	152,790
State and municipal		41,818
State and municipal		1,272
State and municipal		(18)
Securities held to maturity, fair value	0	43,072
US Treasury and Government [Member]
Available for sale securities, amortized cost	22,105	34,757
Available for sale securities, gross unrealized gains	2	50
Available for sale securities, gross unrealized losses	(483)	(708)
Securities available for sale	21,624	34,099
Residential Mortgage Backed Securities [Member]
Available for sale securities, amortized cost	65,935	103,390
Available for sale securities, gross unrealized gains	117	455
Available for sale securities, gross unrealized losses	(1,087)	(1,492)
Securities available for sale	64,965	102,353
Collateralized Debt Obligations [Member]
Available for sale securities, amortized cost	25,343	11,203
Available for sale securities, gross unrealized gains	182
Available for sale securities, gross unrealized losses	(20)
Securities available for sale	25,505	11,203
US States and Political Subdivisions Debt Securities [Member]
Available for sale securities, amortized cost	33,303	2,028
Available for sale securities, gross unrealized gains	508	25
Available for sale securities, gross unrealized losses	(101)	(8)
Securities available for sale	33,710	2,045
State and municipal		41,818
State and municipal		1,272
State and municipal		(18)
Securities held to maturity, fair value		43,072
Corporate Debt Securities [Member]
Available for sale securities, amortized cost	6,838	3,069
Available for sale securities, gross unrealized gains	78	24
Available for sale securities, gross unrealized losses		(3)
Securities available for sale	$ 6,916	$ 3,090

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Note 2 - Securities - Sales and Calls of Securities (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Proceeds	$ 41,733	$ 8,311	$ 45,012
Gross gains	449	245	1,902
Gross losses	$ 161	$ 29	$ 136

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Note 2 - Securities - Amortized Cost and Fair Value of Debt Investment Securities Portfolio by Contractual Maturity (Details) $ in Thousands	Dec. 31, 2017 USD ($)
Within one year, amortized cost	$ 14,648
Within one year, fair value	14,682
One to five years, amortized cost	40,197
One to five years, fair value	40,675
Five to ten years, amortized cost	32,744
Five to ten years, fair value	32,398
Agency mortgage-backed: residential, amortized cost	65,935
Agency mortgage-backed: residential, fair value	64,965
Total, amortized cost	153,524
Total, fair value	$ 152,720

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Note 2 - Securities - Securities With Unrealized Losses (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Available for sale, fair value, less than 12 months	$ 40,422	$ 91,663
Available for sale, unrealized loss, less than 12 months	(390)	(2,165)
Available for sale, fair value, 12 months or more	41,279	4,311
Available for sale, unrealized loss, 12 months or more	(1,301)	(46)
Available for sale, fair value	81,701	95,974
Available for sale, unrealized loss	(1,691)	(2,211)
Held to Maturity, fair value, less than 12 months		1,540
Held to Maturity, unrealized loss, less than 12 months		(18)
Held to Maturity, fair value, 12 months or more
Held to Maturity, unrealized loss, 12 months or more
Held to Maturity, fair value		1,540
Held to Maturity, unrealized loss		(18)
US Treasury and Government [Member]
Available for sale, fair value, less than 12 months	5,788	27,738
Available for sale, unrealized loss, less than 12 months	(97)	(708)
Available for sale, fair value, 12 months or more	14,121
Available for sale, unrealized loss, 12 months or more	(386)
Available for sale, fair value	19,909	27,738
Available for sale, unrealized loss	(483)	(708)
Residential Mortgage Backed Securities [Member]
Available for sale, fair value, less than 12 months	21,104	63,460
Available for sale, unrealized loss, less than 12 months	(172)	(1,449)
Available for sale, fair value, 12 months or more	27,158	2,745
Available for sale, unrealized loss, 12 months or more	(915)	(43)
Available for sale, fair value	48,262	66,205
Available for sale, unrealized loss	(1,087)	(1,492)
US States and Political Subdivisions Debt Securities [Member]
Available for sale, fair value, less than 12 months	7,492	465
Available for sale, unrealized loss, less than 12 months	(101)	(8)
Available for sale, fair value, 12 months or more
Available for sale, unrealized loss, 12 months or more
Available for sale, fair value	7,492	465
Available for sale, unrealized loss	(101)	(8)
Held to Maturity, fair value, less than 12 months		1,540
Held to Maturity, unrealized loss, less than 12 months		(18)
Held to Maturity, fair value, 12 months or more
Held to Maturity, unrealized loss, 12 months or more
Held to Maturity, fair value		1,540
Held to Maturity, unrealized loss		(18)
Collateralized Debt Obligations [Member]
Available for sale, fair value, less than 12 months	6,038
Available for sale, unrealized loss, less than 12 months	(20)
Available for sale, fair value, 12 months or more
Available for sale, unrealized loss, 12 months or more
Available for sale, fair value	6,038
Available for sale, unrealized loss	$ (20)
Corporate Debt Securities [Member]
Available for sale, fair value, less than 12 months
Available for sale, unrealized loss, less than 12 months
Available for sale, fair value, 12 months or more		1,566
Available for sale, unrealized loss, 12 months or more		(3)
Available for sale, fair value		1,566
Available for sale, unrealized loss		$ (3)

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Note 3 - Loans (Details Textual)	12 Months Ended
	Dec. 31, 2017 USD ($)	Dec. 31, 2016 USD ($)
Financing Receivable Modifications Percentage of Performing TDRs to Total TDRs	40.00%	61.00%
Troubled Debt Restructuring Reserve	$ 122,000	$ 197,000
Loans and Leases Receivable, Impaired, Commitment to Lend	$ 0	0
Financing Receivable, Transfer Out from TDR, Number of Contracts	2
Financing Receivable, Transfer Out from TDR, Recorded Investmentts		$ 4,100,000
Financing Receivable, Modifications, Number of Contracts	0	0
Financing Receivable, Modifications, Subsequent Default, Number of Contracts	0	0
Minimum Outstanding Balance for Loans to be Qualified for Credit Risk Analysis	$ 500,000

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Note 3 - Loans - Loans (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Gross loans	$ 712,115	$ 639,236
Less: Allowance for loan losses	(8,202)	(8,967)
Loans, net	703,913	630,269
Commercial Portfolio Segment [Member]
Gross loans	113,771	97,761
Less: Allowance for loan losses	(892)	(475)
Commercial Real Estate Portfolio Segment [Member]
Gross loans	302,386	257,383
Less: Allowance for loan losses	(4,032)	(4,894)
Commercial Real Estate Portfolio Segment [Member] | Construction Loans [Member]
Gross loans	57,342	36,330
Commercial Real Estate Portfolio Segment [Member] | Farmland Loans [Member]
Gross loans	88,320	71,507
Commercial Real Estate Portfolio Segment [Member] | Nonfarm Nonresidential [Member]
Gross loans	156,724	149,546
Residential Portfolio Segment [Member]
Gross loans	235,810	236,289
Less: Allowance for loan losses	(2,900)	(3,426)
Residential Portfolio Segment [Member] | Multifamily Loans [Member]
Gross loans	56,588	48,197
Residential Portfolio Segment [Member] | One- to Four-family Residential Properties [Member]
Gross loans	179,222	188,092
Consumer Portfolio Segment [Member]
Gross loans	18,439	9,818
Less: Allowance for loan losses	(64)	(8)
Agriculture Portfolio Segment [Member]
Gross loans	41,154	37,508
Less: Allowance for loan losses	(313)	(162)
Other Portfolio Segment [Member]
Gross loans	555	477
Less: Allowance for loan losses	$ (1)	$ (2)

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Note 3 - Loans - Activity in Allowance for Loan Losses by Portfolio Segment (Details) - USD ($) $ in Thousands	3 Months Ended								12 Months Ended
	Dec. 31, 2017	Sep. 30, 2017	Jun. 30, 2017	Mar. 31, 2017	Dec. 31, 2016	Sep. 30, 2016	Jun. 30, 2016	Mar. 31, 2016	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Balance				$ 8,967				$ 12,041	$ 8,967	$ 12,041	$ 19,364
Negative provision for loan losses	$ (800)				$ (550)	$ (750)	$ (600)	(550)	(800)	(2,450)	(4,500)
Loans charged off									(901)	(2,629)	(6,132)
Recoveries									936	2,005	3,309
Balance	8,202				8,967				8,202	8,967	12,041
Commercial Portfolio Segment [Member]
Balance				475				818	475	818	2,046
Negative provision for loan losses									363	(401)	(1,255)
Loans charged off									(5)	(276)	(696)
Recoveries									59	334	723
Balance	892				475				892	475	818
Commercial Real Estate Portfolio Segment [Member]
Balance				4,894				6,993	4,894	6,993	10,931
Negative provision for loan losses									(1,223)	(2,438)	(2,713)
Loans charged off									(58)	(505)	(2,879)
Recoveries									419	844	1,654
Balance	4,032				4,894				4,032	4,894	6,993
Residential Portfolio Segment [Member]
Balance				3,426				3,984	3,426	3,984	5,787
Negative provision for loan losses									(129)	749	(316)
Loans charged off									(692)	(1,652)	(2,171)
Recoveries									295	345	684
Balance	2,900				3,426				2,900	3,426	3,984
Consumer Portfolio Segment [Member]
Balance				8				122	8	122	274
Negative provision for loan losses									(8)	(314)	(115)
Loans charged off									(51)	(99)	(221)
Recoveries									115	299	184
Balance	64				8				64	8	122
Agriculture Portfolio Segment [Member]
Balance				162				122	162	122	319
Negative provision for loan losses									213	(56)	(87)
Loans charged off									(95)	(18)	(118)
Recoveries									33	114	8
Balance	313				162				313	162	122
Other Portfolio Segment [Member]
Balance				$ 2				$ 2	2	2	7
Negative provision for loan losses									(16)	10	(14)
Loans charged off										(79)	(47)
Recoveries									15	69	56
Balance	$ 1				$ 2				$ 1	$ 2	$ 2

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Note 3 - Loans - Balance in Allowance for Loan Losses and Recorded Investment in Loans by Portfolio Segment and Bases on Impairment Method (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Individually evaluated for impairment	$ 219	$ 399
Collectively evaluated for impairment	7,983	8,568
Total ending allowance balance	8,202	8,967
Loans individually evaluated for impairment	7,173	15,131
Loans collectively evaluated for impairment	704,942	624,105
Total ending loans balance	712,115	639,236
Commercial Portfolio Segment [Member]
Individually evaluated for impairment	13	13
Collectively evaluated for impairment	879	462
Total ending allowance balance	892	475
Loans individually evaluated for impairment	587	595
Loans collectively evaluated for impairment	113,184	97,166
Total ending loans balance	113,771	97,761
Commercial Real Estate Portfolio Segment [Member]
Individually evaluated for impairment		35
Collectively evaluated for impairment	4,032	4,859
Total ending allowance balance	4,032	4,894
Loans individually evaluated for impairment	2,635	5,854
Loans collectively evaluated for impairment	299,751	251,529
Total ending loans balance	302,386	257,383
Residential Portfolio Segment [Member]
Individually evaluated for impairment	206	350
Collectively evaluated for impairment	2,694	3,076
Total ending allowance balance	2,900	3,426
Loans individually evaluated for impairment	3,950	8,621
Loans collectively evaluated for impairment	231,860	227,668
Total ending loans balance	235,810	236,289
Consumer Portfolio Segment [Member]
Individually evaluated for impairment	0	0
Collectively evaluated for impairment	64	8
Total ending allowance balance	64	8
Loans individually evaluated for impairment	1	1
Loans collectively evaluated for impairment	18,438	9,817
Total ending loans balance	18,439	9,818
Agriculture Portfolio Segment [Member]
Individually evaluated for impairment		1
Collectively evaluated for impairment	313	161
Total ending allowance balance	313	162
Loans individually evaluated for impairment		60
Loans collectively evaluated for impairment	41,154	37,448
Total ending loans balance	41,154	37,508
Other Portfolio Segment [Member]
Individually evaluated for impairment	0	0
Collectively evaluated for impairment	1	2
Total ending allowance balance	1	2
Loans individually evaluated for impairment	0	0
Loans collectively evaluated for impairment	555	477
Total ending loans balance	$ 555	$ 477

XML

Note 3 - Loans - Loans Individually Evaluated for Impairment by Class of Loans (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Unpaid principal balance, with no related allowance recorded	$ 9,739	$ 19,579	$ 33,572
Recorded investment, with no related allowance recorded	5,910	12,467	25,426
Average recorded investment, with no related allowance recorded	7,592	17,998	37,986
Interest income recognized, with no related allowance recorded	422	937	857
Cash basis interest income recognized, with no related allowance recorded	410	454	233
Unpaid principal balance, with an allowance recorded	1,263	2,771	6,459
Recorded investment, with an allowance recorded	1,263	2,664	6,350
Related allowance	219	399	428
Average recorded investment, with an allowance recorded	2,001	4,980	10,609
Interest income recognized, with an allowance recorded	89	241	318
Cash basis interest income recognized, with an allowance recorded
Unpaid principal balance, total	11,002	22,350	40,031
Recorded investment, total	7,173	15,131	31,776
Average recorded investment, total	9,593	22,978	48,595
Interest income recognized, total	511	1,178	1,175
Cash basis interest income recognized	410	454	233
Commercial Portfolio Segment [Member]
Unpaid principal balance, with no related allowance recorded	703	707	1,558
Recorded investment, with no related allowance recorded	487	495	1,112
Average recorded investment, with no related allowance recorded	495	758	1,526
Interest income recognized, with no related allowance recorded	7	39	5
Cash basis interest income recognized, with no related allowance recorded	7	39	5
Unpaid principal balance, with an allowance recorded	100	100
Recorded investment, with an allowance recorded	100	100
Related allowance	13	13
Average recorded investment, with an allowance recorded	100	20	13
Interest income recognized, with an allowance recorded	7	6
Cash basis interest income recognized, with an allowance recorded	0	0	0
Commercial Real Estate Portfolio Segment [Member] | Construction Loans [Member]
Unpaid principal balance, with no related allowance recorded			278
Recorded investment, with no related allowance recorded			262
Average recorded investment, with no related allowance recorded		156	1,993
Interest income recognized, with no related allowance recorded		9	14
Cash basis interest income recognized, with no related allowance recorded			1
Unpaid principal balance, with an allowance recorded	0	0	0
Recorded investment, with an allowance recorded	0	0	0
Related allowance	0	0	0
Average recorded investment, with an allowance recorded	0	0
Interest income recognized, with an allowance recorded	0	0
Cash basis interest income recognized, with an allowance recorded	0	0	0
Commercial Real Estate Portfolio Segment [Member] | Farmland Loans [Member]
Unpaid principal balance, with no related allowance recorded	3,687	5,566	6,004
Recorded investment, with no related allowance recorded	2,059	3,742	4,263
Average recorded investment, with no related allowance recorded	2,651	4,188	4,497
Interest income recognized, with no related allowance recorded	210	94	114
Cash basis interest income recognized, with no related allowance recorded	210	95	114
Unpaid principal balance, with an allowance recorded		614
Recorded investment, with an allowance recorded		590
Related allowance		5
Average recorded investment, with an allowance recorded	235	358	63
Interest income recognized, with an allowance recorded	0	0	0
Cash basis interest income recognized, with an allowance recorded
Commercial Real Estate Portfolio Segment [Member] | Nonfarm Nonresidential [Member]
Unpaid principal balance, with no related allowance recorded	1,047	4,502	11,256
Recorded investment, with no related allowance recorded	576	1,219	7,829
Average recorded investment, with no related allowance recorded	716	4,699	16,073
Interest income recognized, with no related allowance recorded	59	310	263
Cash basis interest income recognized, with no related allowance recorded	47	189	9
Unpaid principal balance, with an allowance recorded		303	574
Recorded investment, with an allowance recorded		303	465
Related allowance		30	43
Average recorded investment, with an allowance recorded	238	398	4,591
Interest income recognized, with an allowance recorded	14	23	25
Cash basis interest income recognized, with an allowance recorded
Residential Portfolio Segment [Member] | Multifamily Loans [Member]
Unpaid principal balance, with no related allowance recorded		4,100	32
Recorded investment, with no related allowance recorded		4,100	32
Average recorded investment, with no related allowance recorded	820	2,608	35
Interest income recognized, with no related allowance recorded		287
Cash basis interest income recognized, with no related allowance recorded		1
Unpaid principal balance, with an allowance recorded			4,195
Recorded investment, with an allowance recorded			4,195
Related allowance			57
Average recorded investment, with an allowance recorded		2,506	4,229
Interest income recognized, with an allowance recorded		101	204
Cash basis interest income recognized, with an allowance recorded
Residential Portfolio Segment [Member] | One- to Four-family Residential Properties [Member]
Unpaid principal balance, with no related allowance recorded	4,293	4,663	14,066
Recorded investment, with no related allowance recorded	2,787	2,910	11,756
Average recorded investment, with no related allowance recorded	2,884	5,509	13,584
Interest income recognized, with no related allowance recorded	143	162	456
Cash basis interest income recognized, with no related allowance recorded	143	94	99
Unpaid principal balance, with an allowance recorded	1,163	1,676	1,690
Recorded investment, with an allowance recorded	1,163	1,611	1,690
Related allowance	206	350	328
Average recorded investment, with an allowance recorded	1,404	1,659	1,705
Interest income recognized, with an allowance recorded	68	111	89
Cash basis interest income recognized, with an allowance recorded
Consumer Portfolio Segment [Member]
Unpaid principal balance, with no related allowance recorded	9	41	118
Recorded investment, with no related allowance recorded	1	1	20
Average recorded investment, with no related allowance recorded	2	7	23
Interest income recognized, with no related allowance recorded	2	8
Cash basis interest income recognized, with no related allowance recorded	2	8
Unpaid principal balance, with an allowance recorded	0	0
Recorded investment, with an allowance recorded	0	0
Related allowance	0	0
Average recorded investment, with an allowance recorded			8
Interest income recognized, with an allowance recorded	0	0
Cash basis interest income recognized, with an allowance recorded	0	0	0
Agriculture Portfolio Segment [Member]
Unpaid principal balance, with no related allowance recorded			260
Recorded investment, with no related allowance recorded			152
Average recorded investment, with no related allowance recorded	24	73	206
Interest income recognized, with no related allowance recorded	1	28
Cash basis interest income recognized, with no related allowance recorded	1	28
Unpaid principal balance, with an allowance recorded		78
Recorded investment, with an allowance recorded		60
Related allowance		1
Average recorded investment, with an allowance recorded	24	39
Interest income recognized, with an allowance recorded	0	0	0
Cash basis interest income recognized, with an allowance recorded
Other Portfolio Segment [Member]
Unpaid principal balance, with no related allowance recorded	0	0
Recorded investment, with no related allowance recorded	0	0
Average recorded investment, with no related allowance recorded			49
Interest income recognized, with no related allowance recorded			5
Cash basis interest income recognized, with no related allowance recorded			5
Unpaid principal balance, with an allowance recorded	0	0	0
Recorded investment, with an allowance recorded	0	0	0
Related allowance	0	0	0
Average recorded investment, with an allowance recorded	0	0	0
Interest income recognized, with an allowance recorded	0	0	0
Cash basis interest income recognized, with an allowance recorded	$ 0	$ 0	$ 0

XML

Note 3 - Loans - Types of Troubled Debt Restructuring Loan Modification by Portfolio Segment (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Commercial Portfolio Segment [Member] | Contractual Interest Rate Reduction [Member]
Troubled debt restructuring	$ 33	$ 507
Commercial Portfolio Segment [Member] | Contractual Interest Rate Reduction [Member] | Performing Financial Instruments [Member]
Troubled debt restructuring		507
Commercial Portfolio Segment [Member] | Contractual Interest Rate Reduction [Member] | Nonperforming Financial Instruments [Member]
Troubled debt restructuring	33
Commercial Portfolio Segment [Member] | Payment Deferral [Member]
Troubled debt restructuring	434	2,300
Commercial Portfolio Segment [Member] | Payment Deferral [Member] | Performing Financial Instruments [Member]
Troubled debt restructuring
Commercial Portfolio Segment [Member] | Payment Deferral [Member] | Nonperforming Financial Instruments [Member]
Troubled debt restructuring	434	2,300
Commercial Real Estate Portfolio Segment [Member] | Contractual Interest Rate Reduction [Member] | Nonfarm Nonresidential [Member]
Troubled debt restructuring	483	743
Commercial Real Estate Portfolio Segment [Member] | Contractual Interest Rate Reduction [Member] | Construction Loans [Member]
Troubled debt restructuring		4,100
Commercial Real Estate Portfolio Segment [Member] | Contractual Interest Rate Reduction [Member] | Performing Financial Instruments [Member] | Nonfarm Nonresidential [Member]
Troubled debt restructuring	483	743
Commercial Real Estate Portfolio Segment [Member] | Contractual Interest Rate Reduction [Member] | Performing Financial Instruments [Member] | Construction Loans [Member]
Troubled debt restructuring		4,100
Commercial Real Estate Portfolio Segment [Member] | Contractual Interest Rate Reduction [Member] | Nonperforming Financial Instruments [Member] | Nonfarm Nonresidential [Member]
Troubled debt restructuring
Commercial Real Estate Portfolio Segment [Member] | Contractual Interest Rate Reduction [Member] | Nonperforming Financial Instruments [Member] | Construction Loans [Member]
Troubled debt restructuring
Commercial Real Estate Portfolio Segment [Member] | Payment Deferral [Member] | Farmland Loans [Member]
Troubled debt restructuring	1,362	607
Commercial Real Estate Portfolio Segment [Member] | Payment Deferral [Member] | Nonfarm Nonresidential [Member]
Troubled debt restructuring		434
Commercial Real Estate Portfolio Segment [Member] | Payment Deferral [Member] | Performing Financial Instruments [Member] | Farmland Loans [Member]
Troubled debt restructuring
Commercial Real Estate Portfolio Segment [Member] | Payment Deferral [Member] | Performing Financial Instruments [Member] | Nonfarm Nonresidential [Member]
Troubled debt restructuring
Commercial Real Estate Portfolio Segment [Member] | Payment Deferral [Member] | Nonperforming Financial Instruments [Member] | Farmland Loans [Member]
Troubled debt restructuring	1,362	607
Commercial Real Estate Portfolio Segment [Member] | Payment Deferral [Member] | Nonperforming Financial Instruments [Member] | Nonfarm Nonresidential [Member]
Troubled debt restructuring		434
Residential Portfolio Segment [Member] | One- to Four-family Residential Properties [Member]
Troubled debt restructuring	3,046	8,724
Residential Portfolio Segment [Member] | Performing Financial Instruments [Member] | One- to Four-family Residential Properties [Member]
Troubled debt restructuring	1,217	5,350
Residential Portfolio Segment [Member] | Nonperforming Financial Instruments [Member] | One- to Four-family Residential Properties [Member]
Troubled debt restructuring	1,829	3,374
Residential Portfolio Segment [Member] | Contractual Interest Rate Reduction [Member] | Multifamily Loans [Member]
Troubled debt restructuring	734
Residential Portfolio Segment [Member] | Contractual Interest Rate Reduction [Member] | One- to Four-family Residential Properties [Member]
Troubled debt restructuring		33
Residential Portfolio Segment [Member] | Contractual Interest Rate Reduction [Member] | Performing Financial Instruments [Member] | Multifamily Loans [Member]
Troubled debt restructuring	734
Residential Portfolio Segment [Member] | Contractual Interest Rate Reduction [Member] | Performing Financial Instruments [Member] | One- to Four-family Residential Properties [Member]
Troubled debt restructuring
Residential Portfolio Segment [Member] | Contractual Interest Rate Reduction [Member] | Nonperforming Financial Instruments [Member] | Multifamily Loans [Member]
Troubled debt restructuring
Residential Portfolio Segment [Member] | Contractual Interest Rate Reduction [Member] | Nonperforming Financial Instruments [Member] | One- to Four-family Residential Properties [Member]
Troubled debt restructuring		$ 33

XML

Note 3 - Loans - Recorded Investment in Nonaccrual and Loans Past Due 90 Days and Still on Accrual by Class of Loan (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Nonaccrual	$ 5,457	$ 9,216
Loans Past Due 90 Days and Over Still Accruing	1	0
Commercial Portfolio Segment [Member]
Nonaccrual	487	495
Loans Past Due 90 Days and Over Still Accruing	0	0
Commercial Real Estate Portfolio Segment [Member] | Construction Loans [Member]
Nonaccrual	0	0
Loans Past Due 90 Days and Over Still Accruing	0	0
Commercial Real Estate Portfolio Segment [Member] | Farmland Loans [Member]
Nonaccrual	2,059	4,332
Loans Past Due 90 Days and Over Still Accruing	0	0
Commercial Real Estate Portfolio Segment [Member] | Nonfarm Nonresidential [Member]
Nonaccrual	93	1,016
Loans Past Due 90 Days and Over Still Accruing	0	0
Residential Portfolio Segment [Member] | Multifamily Loans [Member]
Nonaccrual	0
Loans Past Due 90 Days and Over Still Accruing	0	0
Residential Portfolio Segment [Member] | One- to Four-family Residential Properties [Member]
Nonaccrual	2,817	3,312
Loans Past Due 90 Days and Over Still Accruing	0	0
Consumer Portfolio Segment [Member]
Nonaccrual	1	1
Loans Past Due 90 Days and Over Still Accruing	1	0
Agriculture Portfolio Segment [Member]
Nonaccrual		60
Loans Past Due 90 Days and Over Still Accruing	0	0
Other Portfolio Segment [Member]
Nonaccrual	0	0
Loans Past Due 90 Days and Over Still Accruing	$ 0	$ 0

XML

Note 3 - Loans - Aging of Recorded Investment in Past Due Loans (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Nonaccrual	$ 5,457	$ 9,216
Total past due and nonaccrual	7,107	11,833
Financing Receivables, 30 to 59 Days Past Due [Member]
Past due	1,478	2,302
Financing Receivables, 60 to 89 Days Past Due [Member]
Past due	171	315
Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Past due	1	0
Commercial Portfolio Segment [Member]
Nonaccrual	487	495
Total past due and nonaccrual	487	495
Commercial Portfolio Segment [Member] | Financing Receivables, 30 to 59 Days Past Due [Member]
Past due	0
Commercial Portfolio Segment [Member] | Financing Receivables, 60 to 89 Days Past Due [Member]
Past due	0	0
Commercial Portfolio Segment [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Past due	0	0
Commercial Real Estate Portfolio Segment [Member] | Construction Loans [Member]
Nonaccrual	0	0
Total past due and nonaccrual	0	0
Commercial Real Estate Portfolio Segment [Member] | Farmland Loans [Member]
Nonaccrual	2,059	4,332
Total past due and nonaccrual	2,652	4,958
Commercial Real Estate Portfolio Segment [Member] | Nonfarm Nonresidential [Member]
Nonaccrual	93	1,016
Total past due and nonaccrual	93	1,075
Commercial Real Estate Portfolio Segment [Member] | Financing Receivables, 30 to 59 Days Past Due [Member] | Construction Loans [Member]
Past due	0	0
Commercial Real Estate Portfolio Segment [Member] | Financing Receivables, 30 to 59 Days Past Due [Member] | Farmland Loans [Member]
Past due	593	626
Commercial Real Estate Portfolio Segment [Member] | Financing Receivables, 30 to 59 Days Past Due [Member] | Nonfarm Nonresidential [Member]
Past due	0
Commercial Real Estate Portfolio Segment [Member] | Financing Receivables, 60 to 89 Days Past Due [Member] | Construction Loans [Member]
Past due	0	0
Commercial Real Estate Portfolio Segment [Member] | Financing Receivables, 60 to 89 Days Past Due [Member] | Farmland Loans [Member]
Past due	0	0
Commercial Real Estate Portfolio Segment [Member] | Financing Receivables, 60 to 89 Days Past Due [Member] | Nonfarm Nonresidential [Member]
Past due		59
Commercial Real Estate Portfolio Segment [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Construction Loans [Member]
Past due	0	0
Commercial Real Estate Portfolio Segment [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Farmland Loans [Member]
Past due	0	0
Commercial Real Estate Portfolio Segment [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Nonfarm Nonresidential [Member]
Past due	0	0
Residential Portfolio Segment [Member] | Multifamily Loans [Member]
Nonaccrual	0
Total past due and nonaccrual	0
Residential Portfolio Segment [Member] | One- to Four-family Residential Properties [Member]
Nonaccrual	2,817	3,312
Total past due and nonaccrual	3,793	5,022
Residential Portfolio Segment [Member] | Financing Receivables, 30 to 59 Days Past Due [Member] | Multifamily Loans [Member]
Past due	0	0
Residential Portfolio Segment [Member] | Financing Receivables, 30 to 59 Days Past Due [Member] | One- to Four-family Residential Properties [Member]
Past due	850	1,454
Residential Portfolio Segment [Member] | Financing Receivables, 60 to 89 Days Past Due [Member] | Multifamily Loans [Member]
Past due	0	0
Residential Portfolio Segment [Member] | Financing Receivables, 60 to 89 Days Past Due [Member] | One- to Four-family Residential Properties [Member]
Past due	126	256
Residential Portfolio Segment [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Multifamily Loans [Member]
Past due	0	0
Residential Portfolio Segment [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | One- to Four-family Residential Properties [Member]
Past due	0	0
Consumer Portfolio Segment [Member]
Nonaccrual	1	1
Total past due and nonaccrual	76	20
Consumer Portfolio Segment [Member] | Financing Receivables, 30 to 59 Days Past Due [Member]
Past due	30	19
Consumer Portfolio Segment [Member] | Financing Receivables, 60 to 89 Days Past Due [Member]
Past due	45	0
Consumer Portfolio Segment [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Past due	0	0
Agriculture Portfolio Segment [Member]
Nonaccrual		60
Total past due and nonaccrual	6	263
Agriculture Portfolio Segment [Member] | Financing Receivables, 30 to 59 Days Past Due [Member]
Past due	5	203
Agriculture Portfolio Segment [Member] | Financing Receivables, 60 to 89 Days Past Due [Member]
Past due	0	0
Agriculture Portfolio Segment [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Past due	1	0
Other Portfolio Segment [Member]
Nonaccrual	0	0
Total past due and nonaccrual	0	0
Other Portfolio Segment [Member] | Financing Receivables, 30 to 59 Days Past Due [Member]
Past due	0	0
Other Portfolio Segment [Member] | Financing Receivables, 60 to 89 Days Past Due [Member]
Past due	0	0
Other Portfolio Segment [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Past due	$ 0	$ 0

XML

Note 3 - Loans - Risk Category of Loans by Class of Loans (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Gross loans	$ 712,115	$ 639,236
Pass [Member]
Gross loans	673,033	586,430
Watch [Member]
Gross loans	25,715	30,431
Special Mention [Member]
Gross loans	164	497
Substandard [Member]
Gross loans	13,203	21,878
Doubtful [Member]
Gross loans	0	0
Commercial Portfolio Segment [Member]
Gross loans	113,771	97,761
Commercial Portfolio Segment [Member] | Pass [Member]
Gross loans	112,978	96,402
Commercial Portfolio Segment [Member] | Watch [Member]
Gross loans	84	294
Commercial Portfolio Segment [Member] | Special Mention [Member]
Gross loans	0	0
Commercial Portfolio Segment [Member] | Substandard [Member]
Gross loans	709	1,065
Commercial Portfolio Segment [Member] | Doubtful [Member]
Gross loans	0	0
Commercial Real Estate Portfolio Segment [Member]
Gross loans	302,386	257,383
Commercial Real Estate Portfolio Segment [Member] | Construction Loans [Member]
Gross loans	57,342	36,330
Commercial Real Estate Portfolio Segment [Member] | Farmland Loans [Member]
Gross loans	88,320	71,507
Commercial Real Estate Portfolio Segment [Member] | Nonfarm Nonresidential [Member]
Gross loans	156,724	149,546
Commercial Real Estate Portfolio Segment [Member] | Pass [Member] | Construction Loans [Member]
Gross loans	57,342	35,823
Commercial Real Estate Portfolio Segment [Member] | Pass [Member] | Farmland Loans [Member]
Gross loans	76,563	63,323
Commercial Real Estate Portfolio Segment [Member] | Pass [Member] | Nonfarm Nonresidential [Member]
Gross loans	152,004	142,222
Commercial Real Estate Portfolio Segment [Member] | Watch [Member] | Construction Loans [Member]
Gross loans		507
Commercial Real Estate Portfolio Segment [Member] | Watch [Member] | Farmland Loans [Member]
Gross loans	7,607	1,521
Commercial Real Estate Portfolio Segment [Member] | Watch [Member] | Nonfarm Nonresidential [Member]
Gross loans	2,906	5,217
Commercial Real Estate Portfolio Segment [Member] | Special Mention [Member] | Construction Loans [Member]
Gross loans	0	0
Commercial Real Estate Portfolio Segment [Member] | Special Mention [Member] | Farmland Loans [Member]
Gross loans	0	0
Commercial Real Estate Portfolio Segment [Member] | Special Mention [Member] | Nonfarm Nonresidential [Member]
Gross loans		445
Commercial Real Estate Portfolio Segment [Member] | Substandard [Member] | Construction Loans [Member]
Gross loans
Commercial Real Estate Portfolio Segment [Member] | Substandard [Member] | Farmland Loans [Member]
Gross loans	4,150	6,663
Commercial Real Estate Portfolio Segment [Member] | Substandard [Member] | Nonfarm Nonresidential [Member]
Gross loans	1,814	1,662
Commercial Real Estate Portfolio Segment [Member] | Doubtful [Member] | Construction Loans [Member]
Gross loans	0	0
Commercial Real Estate Portfolio Segment [Member] | Doubtful [Member] | Farmland Loans [Member]
Gross loans	0	0
Commercial Real Estate Portfolio Segment [Member] | Doubtful [Member] | Nonfarm Nonresidential [Member]
Gross loans	0	0
Residential Portfolio Segment [Member]
Gross loans	235,810	236,289
Residential Portfolio Segment [Member] | Multifamily Loans [Member]
Gross loans	56,588	48,197
Residential Portfolio Segment [Member] | One- to Four-family Residential Properties [Member]
Gross loans	179,222	188,092
Residential Portfolio Segment [Member] | Pass [Member] | Multifamily Loans [Member]
Gross loans	47,121	38,281
Residential Portfolio Segment [Member] | Pass [Member] | One- to Four-family Residential Properties [Member]
Gross loans	169,774	173,565
Residential Portfolio Segment [Member] | Watch [Member] | Multifamily Loans [Member]
Gross loans	9,467	6,080
Residential Portfolio Segment [Member] | Watch [Member] | One- to Four-family Residential Properties [Member]
Gross loans	3,535	6,909
Residential Portfolio Segment [Member] | Special Mention [Member] | Multifamily Loans [Member]
Gross loans	0	0
Residential Portfolio Segment [Member] | Special Mention [Member] | One- to Four-family Residential Properties [Member]
Gross loans	164	52
Residential Portfolio Segment [Member] | Substandard [Member] | Multifamily Loans [Member]
Gross loans		3,836
Residential Portfolio Segment [Member] | Substandard [Member] | One- to Four-family Residential Properties [Member]
Gross loans	5,749	7,566
Residential Portfolio Segment [Member] | Doubtful [Member] | Multifamily Loans [Member]
Gross loans	0	0
Residential Portfolio Segment [Member] | Doubtful [Member] | One- to Four-family Residential Properties [Member]
Gross loans	0	0
Consumer Portfolio Segment [Member]
Gross loans	18,439	9,818
Consumer Portfolio Segment [Member] | Pass [Member]
Gross loans	18,042	9,397
Consumer Portfolio Segment [Member] | Watch [Member]
Gross loans	306	348
Consumer Portfolio Segment [Member] | Special Mention [Member]
Gross loans	0	0
Consumer Portfolio Segment [Member] | Substandard [Member]
Gross loans	91	73
Consumer Portfolio Segment [Member] | Doubtful [Member]
Gross loans	0	0
Agriculture Portfolio Segment [Member]
Gross loans	41,154	37,508
Agriculture Portfolio Segment [Member] | Pass [Member]
Gross loans	38,654	26,940
Agriculture Portfolio Segment [Member] | Watch [Member]
Gross loans	1,810	9,555
Agriculture Portfolio Segment [Member] | Special Mention [Member]
Gross loans	0	0
Agriculture Portfolio Segment [Member] | Substandard [Member]
Gross loans	690	1,013
Agriculture Portfolio Segment [Member] | Doubtful [Member]
Gross loans	0	0
Other Portfolio Segment [Member]
Gross loans	555	477
Other Portfolio Segment [Member] | Pass [Member]
Gross loans	555	477
Other Portfolio Segment [Member] | Watch [Member]
Gross loans	0	0
Other Portfolio Segment [Member] | Special Mention [Member]
Gross loans	0	0
Other Portfolio Segment [Member] | Substandard [Member]
Gross loans	0
Other Portfolio Segment [Member] | Doubtful [Member]
Gross loans	$ 0	$ 0

XML

Note 4 - Premises and Equipment (Details Textual) - USD ($)	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Depreciation	$ 955,000	$ 1,100,000	$ 1,000,000

XML

Note 4 - Premises and Equipment - Premises and Equipment (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Property, plant and equipment, gross	$ 33,275	$ 33,565
Accumulated depreciation	(16,486)	(15,717)
	16,789	17,848
Land and Building [Member]
Property, plant and equipment, gross	23,124	23,515
Furniture and Fixtures [Member]
Property, plant and equipment, gross	$ 10,151	$ 10,050

XML

Note 5 - Other Real Estate Owned (Details Textual) - USD ($)	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Profit (Loss) from Real Estate Operations	$ 0	$ 456,000	$ 1,346,000
One- to Four-family Residential Properties [Member]
Mortgage Loans in Process of Foreclosure, Amount	$ 616,000	$ 932,000

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Note 5 - Other Real Estate Owned - Major Categories of OREO (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Other real estate owned, gross	$ 4,409	$ 6,821
Commercial Real Estate Portfolio Segment [Member] | Construction, Land Development, and Other Land Loans [Member]
Other real estate owned, gross	4,335	6,571
Commercial Real Estate Portfolio Segment [Member] | Farmland Loans [Member]
Other real estate owned, gross	74
Residential Portfolio Segment [Member] | One- to Four-family Residential Properties [Member]
Other real estate owned, gross		$ 250

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Note 5 - Other Real Estate Owned - Activity Relating to Other Real Estate Owned (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
OREO Activity
OREO	$ 6,821	$ 19,214	$ 46,197
Real estate acquired	270	1,273	5,513
Valuation adjustment write-downs	(1,963)	(1,180)	(9,855)
Net gain (loss) on sale	74	222	(74)
Proceeds from sale of properties	(793)	(12,708)	(22,567)
OREO	$ 4,409	$ 6,821	$ 19,214

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Note 5 - Other Real Estate Owned - Expenses Related to Other Real Estate Owned (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Net (gain) loss on sales of other real estate owned	$ (74)	$ (222)	$ 74
Valuation adjustment write-downs	1,963	1,180	9,855
Operating expense	84	583	2,373
Total	$ 1,973	$ 1,541	$ 12,302

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Note 6 - Deposits (Details Textual) - USD ($) $ in Millions	Dec. 31, 2017	Dec. 31, 2016
Time Deposits, at or Above FDIC Insurance Limit	$ 31.7	$ 29.1

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Note 6 - Deposits - Deposit Balances by Category (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Non-interest bearing	$ 137,386	$ 124,395
Interest checking	99,383	103,876
Money market	151,388	142,497
Savings	34,632	34,518
Certificates of deposit	424,235	444,639
Total deposits	$ 847,024	$ 849,925

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Note 6 - Deposits - Maturities of Time Deposits (Details) $ in Thousands	Dec. 31, 2017 USD ($)
2018	$ 204,018
2019	178,479
2020	27,507
2021	5,316
2022	8,915
	$ 424,235

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Note 7 - Advances From Federal Home Loan Bank (Details Textual) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016
Federal Home Loan Bank, Advances, General Debt Obligations, Disclosures, Repayment and Penalties	$ 0	$ 0
Federal Home Loan Bank, Advances, General Debt Obligations, Disclosures, Collateral Pledged	130,900	$ 124,200
Federal Home Loan Bank, Advances, General Debt Obligations, Amount of Available, Unused Funds	79,000
Correspondent Financial Institutions Advances General Debt Obligations Disclosures Amount Of Available Unused Funds	$ 5,000

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Note 7 - Advances From Federal Home Loan Bank - Advances From the Federal Home Loan Bank (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Federal Home Loan Bank advances	$ 11,797	$ 22,458

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Note 7 - Advances From Federal Home Loan Bank - Advances From the Federal Home Loan Bank (Details) (Parentheticals)	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016
Advances from the FHLB, earliest maturity	2018	2018
Advances from the FHLB, latest maturity	2033	2033
Advances from the FHLB, average interest rate	1.48%	0.85%
Minimum [Member]
Advances from the FHLB, fixed rate	0.00%	0.00%
Maximum [Member]
Advances from the FHLB, fixed rate	5.24%	5.24%

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Note 7 - Advances From Federal Home Loan Bank - Principal Payments on Advances From Federal Home Loan Bank (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
2018	$ 10,200
2019	180
2020	485
2021	728
2022	108
Thereafter	96
	$ 11,797	$ 22,458

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Note 8 - Subordinated Capital Note (Details Textual) - USD ($)	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016
Subordinated Debt	$ 2,250,000	$ 3,150,000
Debt Instrument, Periodic Payment, Principal	225,000
Subordinated Capital Notes [Member]
Long-term Debt, Maturities, Repayments of Principal in Next Twelve Months	900,000
Long-term Debt, Maturities, Repayments of Principal in Year Two	900,000
Long-term Debt, Maturities, Repayments of Principal in Year Five	$ 450,000
Debt Instrument, Interest Rate, Effective Percentage	4.34%	3.85%
Subordinated Capital Notes [Member] | London Interbank Offered Rate (LIBOR) [Member]
Debt Instrument, Basis Spread on Variable Rate	3.00%

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Note 9 - Junior Subordinated Debentures (Details Textual) - USD ($)			12 Months Ended
	Apr. 15, 2016	Sep. 30, 2015	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Number of Consecutive Quarterly Periods to Defer Interest Payments Without Default or Penalty			20
Dividends Payable			$ 1,200,000
Debt Conversion Original Debt Principal Amount		$ 4,000,000
Debt Conversion Original Debt Interest Amount		330,000
Debt Conversion, Original Debt, Amount		$ 4,300,000			$ 4,330,000
Debt Conversion, Converted Instrument, Shares Issued		240,000
Gain (Loss) on Extinguishment of Debt					883,000
Debt Conversion, Converted Instrument, Amount					$ 3,447,000
Two Third Portion of Trust Securities [Member]
Debt Conversion, Original Debt, Amount		$ 2,900,000
Two Third Portion of Trust Securities [Member] | Voting Common Stock [Member]
Debt Conversion, Converted Instrument, Shares Issued		80,000
Unrelated Third Party [Member] | One Third Portion of Trust Securities [Member]
Debt Conversion, Original Debt, Amount		$ 1,400,000
London Interbank Offered Rate (LIBOR) [Member]
Effective Interest Rate of Index Subordinated Borrowing Is Tied To			1.69%
Voting Common Stock [Member]
Debt Conversion, Converted Instrument, Shares Issued		160,000
Voting Common Stock [Member] | Unrelated Third Party [Member]
Share Price		$ 7
Voting Common Stock [Member] | Unrelated Third Party [Member] | One Third Portion of Trust Securities [Member]
Debt Conversion, Converted Instrument, Shares Issued		80,000
Gain (Loss) on Extinguishment of Debt		$ 883,000
Debt Conversion, Converted Instrument, Amount		$ 560,000
Nonvoting Common Stock [Member]
Debt Conversion, Converted Instrument, Shares Issued		80,000
Nonvoting Common Stock [Member] | Two Third Portion of Trust Securities [Member]
Debt Conversion, Converted Instrument, Shares Issued		80,000
Private Placement [Member]
Sale of Stock, Consideration Received on Transaction	$ 5,000,000
Private Placement [Member] | Voting Common Stock [Member]
Stock Issued During Period, Shares, New Issues	580,000
Private Placement [Member] | Nonvoting Common Stock [Member]
Stock Issued During Period, Shares, New Issues	220,000

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Note 9 - Junior Subordinated Debentures - Junior Subordinated Debentures (Details) - USD ($)		12 Months Ended
		Dec. 31, 2017	Dec. 31, 2016
Junior subordinated debentures		$ 21,000,000	$ 21,000,000
Payable to Porter Statutory Trust II [Member]
Issuance Date		Feb. 13, 2004
Junior subordinated debentures		$ 5,000,000
Maturity Date	[1]	Feb. 13, 2034
Payable to Porter Statutory Trust II [Member] | London Interbank Offered Rate (LIBOR) [Member]
Interest Rate	[2]	2.85%
Payable to Porter Statutory Trust III [Member]
Issuance Date		Apr. 15, 2004
Junior subordinated debentures		$ 3,000,000
Maturity Date	[1]	Apr. 15, 2034
Payable to Porter Statutory Trust III [Member] | London Interbank Offered Rate (LIBOR) [Member]
Interest Rate	[2]	2.79%
Payable to Porter Statutory Trust IV [Member]
Issuance Date		Dec. 14, 2006
Junior subordinated debentures		$ 10,000,000
Maturity Date	[1]	Mar. 01, 2037
Payable to Porter Statutory Trust IV [Member] | London Interbank Offered Rate (LIBOR) [Member]
Interest Rate	[2]	1.67%
Payable to Ascencia Statutory Trust I [Member]
Issuance Date		Feb. 13, 2004
Junior subordinated debentures		$ 3,000,000
Maturity Date	[1]	Feb. 13, 2034
Payable to Ascencia Statutory Trust I [Member] | London Interbank Offered Rate (LIBOR) [Member]
Interest Rate	[2]	2.85%

[1] The debentures are callable at our option at their principal amount plus accrued interest.

[2] As of December 31, 2017, the 3-month LIBOR was 1.69%.

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Note 10 - Senior Debt (Details Textual) - USD ($)		12 Months Ended		48 Months Ended
	Jun. 30, 2017	Jun. 30, 2018	Dec. 31, 2017	Jun. 30, 2022	Jun. 22, 2022
Debt Instrument, Periodic Payment, Principal			$ 225,000
Escrow Deposit			806,000
Senior Notes [Member]
Debt Instrument, Face Amount	$ 10,000,000
Debt Instrument, Periodic Payment, Principal	$ 250,000
Borrowing Proceeds Contributed to Bank as Common Equity Tier 1 Capital			9,000,000
Borrowing Proceeds Retained by Lender in Escrow			$ 1,000,000
Senior Notes [Member] | Subsidiaries [Member]
Debt Instrument, Financial Covenants, Non-performing Assets to Total Assets, Percentage, Minimum			2.50%
Senior Notes [Member] | Scenario, Forecast [Member]
Debt Instrument, Financial Convenants, Minimum Cash on Hand		$ 750,000		$ 2,500,000
Debt Instrument, Financial Convenants, Minimum Risk Based Capital to Risk Weighted Assets		9.00%		10.00%
Senior Notes [Member] | Scenario, Forecast [Member] | Subsidiaries [Member]
Debt Instrument, Financial Convenants, Minimum Risk Based Capital to Risk Weighted Assets		10.00%			11.00%
Senior Notes [Member] | London Interbank Offered Rate (LIBOR) [Member]
Debt Instrument, Basis Spread on Variable Rate	2.50%

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Note 11 - Other Benefit Plans (Details Textual) - USD ($)	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Defined Contribution Plan, Maximum Annual Contributions Per Employee, Percent	50.00%
Defined Contribution Plan, Employer Matching Contribution, Percent of Employees' Gross Pay		4.00%
Defined Benefit Plan Vesting Period	10 years
Defined Benefit Plan, Net Periodic Benefit Cost (Credit)	$ 121,000	$ 121,000	$ 121,000
Liability, Other Postretirement Defined Benefit Plan	1,300,000	1,300,000
Bank Owned Life Insurance	15,229,000	14,838,000
Earning on Bank Owned Life Insurance	412,000	417,000	295,000
Matched Contribution Equal to 50% of First 4% [Member]
Defined Contribution Plan, Cost	$ 200,000	$ 189,000	$ 160,000

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Note 12 - Income Taxes (Details Textual) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015	Jun. 10, 2015
Effective Income Tax Rate Reconciliation, Change in Deferred Tax Assets Valuation Allowance, Amount	$ (54,049)	$ 1,238	$ 717
Income Tax Expense (Benefit), Continuing Operations, Adjustment of Deferred Tax (Asset) Liability	20,300
Income Tax Expense (Benefit)	$ (31,899)	21
Effective Income Tax Rate Reconciliation, at Federal Statutory Income Tax Rate, Percent	35.00%
Operating Loss Carryforwards	$ 122,100
Unrecognized Tax Benefits	0
Unrecognized Tax Benefits, Income Tax Penalties and Interest Expense	$ 0	$ 0
Common Stock Ownership Percentage by Individual	5.00%
Common Stock Ownership Percentage	50.00%
Dividend Declared Preferred Stock Purchase Right Per Each Share of Common Stock				1

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Note 12 - Income Taxes - Income Tax Expense Benefit (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Current		$ 21
Deferred	2,523	2,771	5,258
Net operating loss	(647)	(4,009)	(5,975)
Change in federal statutory rate	20,274
Change in valuation allowance	(54,049)	1,238	717
	$ (31,899)	$ 21

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Note 12 - Income Taxes - Schedule of Effective Income Tax Rate Reconciliation (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Federal statutory rate times financial statement income (loss)	$ 2,294	$ (956)	$ (1,125)
Change in valuation allowance	(54,049)	1,238	717
Tax-exempt income	(196)	(211)	(264)
Non-taxable life insurance income	(144)	(146)	(103)
Restricted stock vesting	(121)
Change in federal statutory rate	20,274
Other, net	43	96	775
	$ (31,899)	$ 21

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Note 12 - Income Taxes - Deferred Tax Assets and Liabilities (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Deferred tax assets:
Net operating loss carry-forward	$ 25,645	$ 42,094
Allowance for loan losses	1,723	3,139
OREO write-down	2,432	3,366
Alternative minimum tax credit carry-forward	692	692
Net assets from acquisitions	358	674
Net unrealized loss on securities	169	867
New market tax credit carry-forward	208	208
Nonaccrual loan interest	271	481
Accrued expenses	172	3,860
Deferred compensation	277	465
Other	241	360
	32,188	56,206
Deferred tax liabilities:
FHLB stock dividends	557	928
Fixed assets	68	89
Deferred loan costs	152	274
Other	98	866
	875	2,157
Net deferred tax assets before valuation allowance	31,313	54,049
Valuation allowance		(54,049)
Net deferred tax asset	$ 31,313	$ 0

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Note 13 - Related Party Transactions (Details Textual) - USD ($)		12 Months Ended
	Apr. 15, 2016	Dec. 31, 2017	Dec. 31, 2016
Related Party Deposit Liabilities		$ 401,000	$ 321,000
Private Placement [Member]
Sale of Stock, Consideration Received on Transaction	$ 5,000,000
Private Placement [Member] | Voting Common Stock [Member]
Stock Issued During Period, Shares, New Issues	580,000
Private Placement [Member] | Nonvoting Common Stock [Member]
Stock Issued During Period, Shares, New Issues	220,000
Real Estate Management Fees [Member] | Hogan Development [Member]
Related Party Transaction, Amounts of Transaction		20,000	56,000
Real Estate Sales Commissions [Member] | Hogan Development [Member]
Related Party Transaction, Amounts of Transaction		$ 6,000	$ 478,000

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Note 13 - Related Party Transactions - Loans to Related Parties (Details) $ in Thousands	12 Months Ended
	Dec. 31, 2017 USD ($)
Beginning balance	$ 0
New loans	9,400
Repayments
Ending balance	$ 9,400

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Note 14 - Preferred Stock (Details Textual) - $ / shares		11 Months Ended
	Dec. 31, 2014	Dec. 13, 2014
Non-voting Noncumulative Non-convertible Series E Perpetual Preferred stock [Member]
Stock Issued During Period, Shares, Conversion of Convertible Securities		6,198
Non-voting Noncumulative Non-convertible Series F Perpetual Preferred Stock [Member]
Stock Issued During Period, Shares, Conversion of Convertible Securities		4,304
Preferred Stock, Redemption Price Per Share	$ 1,000
Preferred Stock, Dividend Rate, Percentage	2.00%

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Note 15 - Capital Requirements and Restrictions on Retained Earnings (Details Textual) - USD ($) $ in Billions	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Jan. 01, 2019	Sep. 30, 2017
Maximum Asset for Opt Out Requirement in Capital Calculation	$ 250
Common Equity Tier One Risk Based Capital Required for Capital Adequacy to Risk Weighted Assets		4.50%		4.50%
Tier One Risk Based Capital Required for Capital Adequacy to Risk Weighted Assets		6.00%		6.00%
Capital Required for Capital Adequacy to Risk Weighted Assets		8.00%		8.00%
Capital Conservation Buffer, Annual Phase-In	1.25%	0.625%
Scenario, Forecast [Member]
Capital Conservation Buffer			2.50%
Common Equity Tier One Risk Based Capital Required for Capital Adequacy to Risk Weighted Assets			7.00%
Tier One Risk Based Capital Required for Capital Adequacy to Risk Weighted Assets			8.50%
Capital Required for Capital Adequacy to Risk Weighted Assets			10.50%

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Note 15 - Capital Requirements and Restrictions on Retained Earnings - Ratios and Amounts of Common Equity, Capital, and Total Capital to Risk-adjusted Assets (Details) - USD ($) $ in Thousands	Sep. 30, 2017	Dec. 31, 2016
Total risk-based capital to risk-weighted assets, actual amount	$ 83,072	$ 71,109
Total risk-based capital to risk-weighted assets, actual ratio	10.55%	10.21%
Total risk-based capital to risk-weighted assets, for capital adequacy purposes, amount	$ 63,014	$ 55,714
Total risk-based capital to risk-weighted assets, for capital adequacy purposes, ratio	8.00%	8.00%
Total common equity Tier I risk-based capital to risk-weighted assets, actual amount	$ 54,535	$ 36,199
Total common equity Tier I risk-based capital to risk-weighted assets, actual ratio	6.92%	5.20%
Total common equity Tier I risk-based capital to risk-weighted assets, for capital adequacy purposes, amount	$ 35,445	$ 31,339
Total common equity Tier I risk-based capital to risk-weighted assets, for capital adequacy purposes, ratio	4.50%	4.50%
Tier I capital to risk-weighted assets, actual amount	$ 66,487	$ 48,713
Tier I capital to risk-weighted assets, actual ratio	8.44%	6.99%
Tier I capital to risk-weighted assets, for capital adequacy purposes, amount	$ 47,260	$ 41,786
Tier I capital to risk-weighted assets, for capital adequacy purposes, ratio	6.00%	6.00%
Tier I capital to average assets, actual amount	$ 66,487	$ 48,713
Tier I capital to average assets, actual ratio	7.11%	5.27%
Tier I capital to average assets, for capital adequacy purposes, amount	$ 37,392	$ 36,975
Tier I capital to average assets, for capital adequacy purposes, ratio	4.00%	4.00%
PBI Bank [Member]
Total risk-based capital to risk-weighted assets, actual amount	$ 91,305	$ 68,773
Total risk-based capital to risk-weighted assets, actual ratio	11.61%	9.88%
Total risk-based capital to risk-weighted assets, for capital adequacy purposes, amount	$ 62,938	$ 55,663
Total risk-based capital to risk-weighted assets, for capital adequacy purposes, ratio	8.00%	8.00%
Total risk-based capital to risk-weighted assets, for minimum requirements to be well capitalized, amount	$ 78,672	$ 69,579
Total risk-based capital to risk-weighted assets, for minimum requirements to be well capitalized, ratio	10.00%	10.00%
Total common equity Tier I risk-based capital to risk-weighted assets, actual amount	$ 81,393	$ 57,642
Total common equity Tier I risk-based capital to risk-weighted assets, actual ratio	10.35%	8.28%
Total common equity Tier I risk-based capital to risk-weighted assets, for capital adequacy purposes, amount	$ 35,403	$ 31,311
Total common equity Tier I risk-based capital to risk-weighted assets, for capital adequacy purposes, ratio	4.50%	4.50%
Total common equity Tier I risk-based capital to risk-weighted assets, for minimum requirements to be well capitalized, amount	$ 51,137	$ 45,226
Total common equity Tier I risk-based capital to risk-weighted assets, for minimum requirements to be well capitalized, ratio	6.50%	6.50%
Tier I capital to risk-weighted assets, actual amount	$ 81,393	$ 57,642
Tier I capital to risk-weighted assets, actual ratio	10.35%	8.28%
Tier I capital to risk-weighted assets, for capital adequacy purposes, amount	$ 47,203	$ 41,747
Tier I capital to risk-weighted assets, for capital adequacy purposes, ratio	6.00%	6.00%
Tier I capital to risk-weighted assets, for minimum requirements to be well capitalized, amount	$ 62,938	$ 55,663
Tier I capital to risk-weighted assets, for minimum requirements to be well capitalized, ratio	8.00%	8.00%
Tier I capital to average assets, actual amount	$ 81,393	$ 57,642
Tier I capital to average assets, actual ratio	8.70%	6.24%
Tier I capital to average assets, for capital adequacy purposes, amount	$ 37,421	$ 36,949
Tier I capital to average assets, for capital adequacy purposes, ratio	4.00%	4.00%
Tier I capital to average assets, for minimum requirements to be well capitalized, amount	$ 46,777	$ 46,186
Tier I capital to average assets, for minimum requirements to be well capitalized, ratio	5.00%	5.00%

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Note 16 - Off Balance Sheet Risks, Commitments, and Contingent Liabilities (Details Textual) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016
Commitments Period	1 year
Interest Rate Swap [Member]
Long-term Line of Credit	$ 19,800
Derivative, Notional Amount		$ 14,600
Standby Letters of Credit [Member]
Long-term Line of Credit	$ 0

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Note 16 - Off Balance Sheet Risks, Commitments, and Contingencies Liabilities - Contractual Amounts of Financial Instruments With Off Balance Sheet Risk (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Fixed Rate [Member] | Commitments to Make Loans [Member]
Financial Instrument off Balance Sheet Risk, Amount	$ 27,349	$ 19,445
Fixed Rate [Member] | Unused lines of Credit [Member]
Financial Instrument off Balance Sheet Risk, Amount	11,034	7,935
Fixed Rate [Member] | Standby Letters of Credit [Member]
Financial Instrument off Balance Sheet Risk, Amount	2,216	582
Variable Rate [Member] | Commitments to Make Loans [Member]
Financial Instrument off Balance Sheet Risk, Amount	31,412	18,347
Variable Rate [Member] | Unused lines of Credit [Member]
Financial Instrument off Balance Sheet Risk, Amount	57,727	51,407
Variable Rate [Member] | Standby Letters of Credit [Member]
Financial Instrument off Balance Sheet Risk, Amount	$ 373	$ 360

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Note 17 - Fair Values (Details Textual) - USD ($)	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Impaired Financing Receivable, with Related Allowance, Recorded Investment	$ 1,263,000	$ 2,664,000	$ 6,350,000
Impaired Financing Receivable, Related Allowance	219,000	399,000	$ 428,000
Other Repossessed Assets	4,400,000	6,800,000
Real Estate Owned, Valuation Allowance, Amounts Applied	2,000,000	1,200,000
Measured for Impairment Using Fair Value of Collateral [Member]
Impaired Financing Receivable, with Related Allowance, Recorded Investment	$ 1,300,000	2,400,000
Minimum [Member] | Other Real Estate Owned [Member]
Fair Value Inputs Estimated Discount Rate for Cost to Sell	6.00%
Maximum [Member] | Other Real Estate Owned [Member]
Fair Value Inputs Estimated Discount Rate for Cost to Sell	10.00%
Impaired Loans [Member]
Impaired Financing Receivable, Related Allowance	$ 219,000	370,000
Impaired Financing Receivable Provision for Loan Losses	$ 0	$ 0
Impaired Loans [Member] | Minimum [Member]
Fair Value Inputs, Discount Rate	10.00%
Fair Value Inputs Estimated Discount Rate for Cost to Sell	6.00%
Impaired Loans [Member] | Maximum [Member]
Fair Value Inputs, Discount Rate	33.00%
Fair Value Inputs Estimated Discount Rate for Cost to Sell	10.00%
Routine Real Estate Collateral [Member] | Other Real Estate Owned [Member]
Fair Value Inputs, Discount Rate	10.00%
Routine Real Estate Collateral [Member] | Impaired Loans [Member]
Fair Value Inputs, Discount Rate	10.00%
Thin Trading Market or Specialized Collateral [Member] | Other Real Estate Owned [Member]
Fair Value Inputs, Discount Rate	25.00%
Thin Trading Market or Specialized Collateral [Member] | Impaired Loans [Member]
Fair Value Inputs, Discount Rate	25.00%

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Note 17 - Fair Values - Financial Assets Measured at the Fair Value on Recurring and Non-recurring Basis (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Securities available for sale	$ 152,720	$ 152,790
Recorded investment, total	7,173	15,131	$ 31,776
Fair Value, Measurements, Recurring [Member]
Securities available for sale	152,720	152,790
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 1 [Member]
Securities available for sale
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 2 [Member]
Securities available for sale	152,720	152,790
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 3 [Member]
Securities available for sale
Fair Value, Measurements, Nonrecurring [Member] | Commercial Portfolio Segment [Member] | Impaired Loans [Member]
Recorded investment, total	87	87
Fair Value, Measurements, Nonrecurring [Member] | Commercial Portfolio Segment [Member] | Impaired Loans [Member] | Fair Value, Inputs, Level 1 [Member]
Recorded investment, total
Fair Value, Measurements, Nonrecurring [Member] | Commercial Portfolio Segment [Member] | Impaired Loans [Member] | Fair Value, Inputs, Level 2 [Member]
Recorded investment, total
Fair Value, Measurements, Nonrecurring [Member] | Commercial Portfolio Segment [Member] | Impaired Loans [Member] | Fair Value, Inputs, Level 3 [Member]
Recorded investment, total	87	87
Fair Value, Measurements, Nonrecurring [Member] | Commercial Real Estate Portfolio Segment [Member] | Impaired Loans [Member] | Construction Loans [Member]
Recorded investment, total
Fair Value, Measurements, Nonrecurring [Member] | Commercial Real Estate Portfolio Segment [Member] | Impaired Loans [Member] | Farmland Loans [Member]
Recorded investment, total		585
Fair Value, Measurements, Nonrecurring [Member] | Commercial Real Estate Portfolio Segment [Member] | Impaired Loans [Member] | Nonfarm Nonresidential [Member]
Recorded investment, total
Fair Value, Measurements, Nonrecurring [Member] | Commercial Real Estate Portfolio Segment [Member] | Impaired Loans [Member] | Fair Value, Inputs, Level 1 [Member] | Construction Loans [Member]
Recorded investment, total
Fair Value, Measurements, Nonrecurring [Member] | Commercial Real Estate Portfolio Segment [Member] | Impaired Loans [Member] | Fair Value, Inputs, Level 1 [Member] | Farmland Loans [Member]
Recorded investment, total
Fair Value, Measurements, Nonrecurring [Member] | Commercial Real Estate Portfolio Segment [Member] | Impaired Loans [Member] | Fair Value, Inputs, Level 1 [Member] | Nonfarm Nonresidential [Member]
Recorded investment, total
Fair Value, Measurements, Nonrecurring [Member] | Commercial Real Estate Portfolio Segment [Member] | Impaired Loans [Member] | Fair Value, Inputs, Level 2 [Member] | Construction Loans [Member]
Recorded investment, total
Fair Value, Measurements, Nonrecurring [Member] | Commercial Real Estate Portfolio Segment [Member] | Impaired Loans [Member] | Fair Value, Inputs, Level 2 [Member] | Farmland Loans [Member]
Recorded investment, total
Fair Value, Measurements, Nonrecurring [Member] | Commercial Real Estate Portfolio Segment [Member] | Impaired Loans [Member] | Fair Value, Inputs, Level 2 [Member] | Nonfarm Nonresidential [Member]
Recorded investment, total
Fair Value, Measurements, Nonrecurring [Member] | Commercial Real Estate Portfolio Segment [Member] | Impaired Loans [Member] | Fair Value, Inputs, Level 3 [Member] | Construction Loans [Member]
Recorded investment, total
Fair Value, Measurements, Nonrecurring [Member] | Commercial Real Estate Portfolio Segment [Member] | Impaired Loans [Member] | Fair Value, Inputs, Level 3 [Member] | Farmland Loans [Member]
Recorded investment, total		585
Fair Value, Measurements, Nonrecurring [Member] | Commercial Real Estate Portfolio Segment [Member] | Impaired Loans [Member] | Fair Value, Inputs, Level 3 [Member] | Nonfarm Nonresidential [Member]
Recorded investment, total
Fair Value, Measurements, Nonrecurring [Member] | Commercial Real Estate Portfolio Segment [Member] | Other Real Estate Owned [Member] | Construction Loans [Member]
Other real-estate	4,335	6,571
Fair Value, Measurements, Nonrecurring [Member] | Commercial Real Estate Portfolio Segment [Member] | Other Real Estate Owned [Member] | Farmland Loans [Member]
Other real-estate	74
Fair Value, Measurements, Nonrecurring [Member] | Commercial Real Estate Portfolio Segment [Member] | Other Real Estate Owned [Member] | Nonfarm Nonresidential [Member]
Other real-estate
Fair Value, Measurements, Nonrecurring [Member] | Commercial Real Estate Portfolio Segment [Member] | Other Real Estate Owned [Member] | Fair Value, Inputs, Level 1 [Member] | Construction Loans [Member]
Other real-estate
Fair Value, Measurements, Nonrecurring [Member] | Commercial Real Estate Portfolio Segment [Member] | Other Real Estate Owned [Member] | Fair Value, Inputs, Level 1 [Member] | Farmland Loans [Member]
Other real-estate
Fair Value, Measurements, Nonrecurring [Member] | Commercial Real Estate Portfolio Segment [Member] | Other Real Estate Owned [Member] | Fair Value, Inputs, Level 1 [Member] | Nonfarm Nonresidential [Member]
Other real-estate
Fair Value, Measurements, Nonrecurring [Member] | Commercial Real Estate Portfolio Segment [Member] | Other Real Estate Owned [Member] | Fair Value, Inputs, Level 2 [Member] | Construction Loans [Member]
Other real-estate
Fair Value, Measurements, Nonrecurring [Member] | Commercial Real Estate Portfolio Segment [Member] | Other Real Estate Owned [Member] | Fair Value, Inputs, Level 2 [Member] | Farmland Loans [Member]
Other real-estate
Fair Value, Measurements, Nonrecurring [Member] | Commercial Real Estate Portfolio Segment [Member] | Other Real Estate Owned [Member] | Fair Value, Inputs, Level 2 [Member] | Nonfarm Nonresidential [Member]
Other real-estate
Fair Value, Measurements, Nonrecurring [Member] | Commercial Real Estate Portfolio Segment [Member] | Other Real Estate Owned [Member] | Fair Value, Inputs, Level 3 [Member] | Construction Loans [Member]
Other real-estate	4,335	6,571
Fair Value, Measurements, Nonrecurring [Member] | Commercial Real Estate Portfolio Segment [Member] | Other Real Estate Owned [Member] | Fair Value, Inputs, Level 3 [Member] | Farmland Loans [Member]
Other real-estate	74
Fair Value, Measurements, Nonrecurring [Member] | Commercial Real Estate Portfolio Segment [Member] | Other Real Estate Owned [Member] | Fair Value, Inputs, Level 3 [Member] | Nonfarm Nonresidential [Member]
Other real-estate
Fair Value, Measurements, Nonrecurring [Member] | Residential Portfolio Segment [Member] | Impaired Loans [Member] | Multifamily Loans [Member]
Recorded investment, total
Fair Value, Measurements, Nonrecurring [Member] | Residential Portfolio Segment [Member] | Impaired Loans [Member] | One- to Four-family Residential Properties [Member]
Recorded investment, total	957	1,261
Fair Value, Measurements, Nonrecurring [Member] | Residential Portfolio Segment [Member] | Impaired Loans [Member] | Fair Value, Inputs, Level 1 [Member] | Multifamily Loans [Member]
Recorded investment, total
Fair Value, Measurements, Nonrecurring [Member] | Residential Portfolio Segment [Member] | Impaired Loans [Member] | Fair Value, Inputs, Level 1 [Member] | One- to Four-family Residential Properties [Member]
Recorded investment, total
Fair Value, Measurements, Nonrecurring [Member] | Residential Portfolio Segment [Member] | Impaired Loans [Member] | Fair Value, Inputs, Level 2 [Member] | Multifamily Loans [Member]
Recorded investment, total
Fair Value, Measurements, Nonrecurring [Member] | Residential Portfolio Segment [Member] | Impaired Loans [Member] | Fair Value, Inputs, Level 2 [Member] | One- to Four-family Residential Properties [Member]
Recorded investment, total
Fair Value, Measurements, Nonrecurring [Member] | Residential Portfolio Segment [Member] | Impaired Loans [Member] | Fair Value, Inputs, Level 3 [Member] | Multifamily Loans [Member]
Recorded investment, total
Fair Value, Measurements, Nonrecurring [Member] | Residential Portfolio Segment [Member] | Impaired Loans [Member] | Fair Value, Inputs, Level 3 [Member] | One- to Four-family Residential Properties [Member]
Recorded investment, total	957	1,261
Fair Value, Measurements, Nonrecurring [Member] | Residential Portfolio Segment [Member] | Other Real Estate Owned [Member] | Multifamily Loans [Member]
Other real-estate
Fair Value, Measurements, Nonrecurring [Member] | Residential Portfolio Segment [Member] | Other Real Estate Owned [Member] | One- to Four-family Residential Properties [Member]
Other real-estate		250
Fair Value, Measurements, Nonrecurring [Member] | Residential Portfolio Segment [Member] | Other Real Estate Owned [Member] | Fair Value, Inputs, Level 1 [Member] | Multifamily Loans [Member]
Other real-estate
Fair Value, Measurements, Nonrecurring [Member] | Residential Portfolio Segment [Member] | Other Real Estate Owned [Member] | Fair Value, Inputs, Level 1 [Member] | One- to Four-family Residential Properties [Member]
Other real-estate
Fair Value, Measurements, Nonrecurring [Member] | Residential Portfolio Segment [Member] | Other Real Estate Owned [Member] | Fair Value, Inputs, Level 2 [Member] | Multifamily Loans [Member]
Other real-estate
Fair Value, Measurements, Nonrecurring [Member] | Residential Portfolio Segment [Member] | Other Real Estate Owned [Member] | Fair Value, Inputs, Level 2 [Member] | One- to Four-family Residential Properties [Member]
Other real-estate
Fair Value, Measurements, Nonrecurring [Member] | Residential Portfolio Segment [Member] | Other Real Estate Owned [Member] | Fair Value, Inputs, Level 3 [Member] | Multifamily Loans [Member]
Other real-estate
Fair Value, Measurements, Nonrecurring [Member] | Residential Portfolio Segment [Member] | Other Real Estate Owned [Member] | Fair Value, Inputs, Level 3 [Member] | One- to Four-family Residential Properties [Member]
Other real-estate		250
Fair Value, Measurements, Nonrecurring [Member] | Consumer Portfolio Segment [Member] | Impaired Loans [Member]
Recorded investment, total
Fair Value, Measurements, Nonrecurring [Member] | Consumer Portfolio Segment [Member] | Impaired Loans [Member] | Fair Value, Inputs, Level 1 [Member]
Recorded investment, total
Fair Value, Measurements, Nonrecurring [Member] | Consumer Portfolio Segment [Member] | Impaired Loans [Member] | Fair Value, Inputs, Level 2 [Member]
Recorded investment, total
Fair Value, Measurements, Nonrecurring [Member] | Consumer Portfolio Segment [Member] | Impaired Loans [Member] | Fair Value, Inputs, Level 3 [Member]
Recorded investment, total
Fair Value, Measurements, Nonrecurring [Member] | Agriculture Portfolio Segment [Member] | Impaired Loans [Member]
Recorded investment, total		59
Fair Value, Measurements, Nonrecurring [Member] | Agriculture Portfolio Segment [Member] | Impaired Loans [Member] | Fair Value, Inputs, Level 1 [Member]
Recorded investment, total
Fair Value, Measurements, Nonrecurring [Member] | Agriculture Portfolio Segment [Member] | Impaired Loans [Member] | Fair Value, Inputs, Level 2 [Member]
Recorded investment, total
Fair Value, Measurements, Nonrecurring [Member] | Agriculture Portfolio Segment [Member] | Impaired Loans [Member] | Fair Value, Inputs, Level 3 [Member]
Recorded investment, total		59
Fair Value, Measurements, Nonrecurring [Member] | Other Portfolio Segment [Member] | Impaired Loans [Member]
Recorded investment, total
Fair Value, Measurements, Nonrecurring [Member] | Other Portfolio Segment [Member] | Impaired Loans [Member] | Fair Value, Inputs, Level 1 [Member]
Recorded investment, total
Fair Value, Measurements, Nonrecurring [Member] | Other Portfolio Segment [Member] | Impaired Loans [Member] | Fair Value, Inputs, Level 2 [Member]
Recorded investment, total
Fair Value, Measurements, Nonrecurring [Member] | Other Portfolio Segment [Member] | Impaired Loans [Member] | Fair Value, Inputs, Level 3 [Member]
Recorded investment, total
US Treasury and Government [Member]
Securities available for sale	21,624	34,099
US Treasury and Government [Member] | Fair Value, Measurements, Recurring [Member]
Securities available for sale	21,624	34,099
US Treasury and Government [Member] | Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 1 [Member]
Securities available for sale
US Treasury and Government [Member] | Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 2 [Member]
Securities available for sale	21,624	34,099
US Treasury and Government [Member] | Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 3 [Member]
Securities available for sale
Residential Mortgage Backed Securities [Member]
Securities available for sale	64,965	102,353
Residential Mortgage Backed Securities [Member] | Fair Value, Measurements, Recurring [Member]
Securities available for sale	64,965	102,353
Residential Mortgage Backed Securities [Member] | Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 1 [Member]
Securities available for sale
Residential Mortgage Backed Securities [Member] | Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 2 [Member]
Securities available for sale	64,965	102,353
Residential Mortgage Backed Securities [Member] | Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 3 [Member]
Securities available for sale
Collateralized Debt Obligations [Member]
Securities available for sale	25,505	11,203
Collateralized Debt Obligations [Member] | Fair Value, Measurements, Recurring [Member]
Securities available for sale	25,505	11,203
Collateralized Debt Obligations [Member] | Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 1 [Member]
Securities available for sale
Collateralized Debt Obligations [Member] | Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 2 [Member]
Securities available for sale	25,505	11,203
Collateralized Debt Obligations [Member] | Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 3 [Member]
Securities available for sale
US States and Political Subdivisions Debt Securities [Member]
Securities available for sale	33,710	2,045
US States and Political Subdivisions Debt Securities [Member] | Fair Value, Measurements, Recurring [Member]
Securities available for sale	33,710	2,045
US States and Political Subdivisions Debt Securities [Member] | Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 1 [Member]
Securities available for sale
US States and Political Subdivisions Debt Securities [Member] | Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 2 [Member]
Securities available for sale	33,710	2,045
US States and Political Subdivisions Debt Securities [Member] | Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 3 [Member]
Securities available for sale
Corporate Debt Securities [Member]
Securities available for sale	6,916	3,090
Corporate Debt Securities [Member] | Fair Value, Measurements, Recurring [Member]
Securities available for sale	6,916	3,090
Corporate Debt Securities [Member] | Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 1 [Member]
Securities available for sale
Corporate Debt Securities [Member] | Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 2 [Member]
Securities available for sale	6,916	3,090
Corporate Debt Securities [Member] | Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 3 [Member]
Securities available for sale

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Note 17 - Fair Values - Qualitative Information About Level Three Fair Value Measurements for Financial Instruments Measured at Fair Value on Non-recurring Basis (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016
Residential Portfolio Segment [Member] | Cost Approach Valuation Technique [Member] | Impaired Loans [Member]
Fair value	$ 957	$ 1,261
Residential Portfolio Segment [Member] | Cost Approach Valuation Technique [Member] | Impaired Loans [Member] | Minimum [Member]
Fair value inputs, comparability adjustments	0.00%	0.00%
Residential Portfolio Segment [Member] | Cost Approach Valuation Technique [Member] | Impaired Loans [Member] | Maximum [Member]
Fair value inputs, comparability adjustments	26.00%	22.00%
Residential Portfolio Segment [Member] | Cost Approach Valuation Technique [Member] | Impaired Loans [Member] | Weighted Average [Member]
Fair value inputs, comparability adjustments	(9.00%)	9.00%
Commercial Real Estate Portfolio Segment [Member] | Cost Approach Valuation Technique [Member] | Other Real Estate Owned [Member]
Fair value	$ 4,409	$ 6,571
Commercial Real Estate Portfolio Segment [Member] | Cost Approach Valuation Technique [Member] | Other Real Estate Owned [Member] | Minimum [Member]
Fair value inputs, comparability adjustments	0.00%	0.00%
Commercial Real Estate Portfolio Segment [Member] | Cost Approach Valuation Technique [Member] | Other Real Estate Owned [Member] | Maximum [Member]
Fair value inputs, comparability adjustments	35.00%	20.00%
Commercial Real Estate Portfolio Segment [Member] | Cost Approach Valuation Technique [Member] | Other Real Estate Owned [Member] | Weighted Average [Member]
Fair value inputs, comparability adjustments	(18.00%)	9.00%
Commercial Real Estate Portfolio Segment [Member] | Income Approach Valuation Technique [Member] | Other Real Estate Owned [Member]
Fair value
Fair value inputs, comparability adjustments	25.00%
Commercial Real Estate Portfolio Segment [Member] | Income Approach Valuation Technique [Member] | Other Real Estate Owned [Member] | Minimum [Member]
Fair value inputs, comparability adjustments	25.00%	18.00%
Commercial Real Estate Portfolio Segment [Member] | Income Approach Valuation Technique [Member] | Other Real Estate Owned [Member] | Maximum [Member]
Fair value inputs, comparability adjustments	25.00%	20.00%
Commercial Real Estate Portfolio Segment [Member] | Income Approach Valuation Technique [Member] | Other Real Estate Owned [Member] | Weighted Average [Member]
Fair value inputs, comparability adjustments	(25.00%)	19.00%

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Note 17 - Fair Values - Carrying Amount and Estimated Fair Values of Financial Instruments (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Cash and cash equivalents	$ 34,103
Securities available for sale	152,720	$ 152,790
Federal Home Loan Bank stock
Loans held for sale	70
Loans, net	703,263
Accrued interest receivable	3,136
Deposits	830,706
Federal Home Loan Bank advances	11,799
Subordinated capital notes	2,246
Junior subordinated debentures	19,090
Senior debt	10,000
Accrued interest payable	1,475
Securities held to maturity	0	43,072
Reported Value Measurement [Member]
Cash and cash equivalents	34,103	66,316
Securities available for sale	152,720	152,790
Federal Home Loan Bank stock	7,323	7,323
Loans held for sale	70
Loans, net	703,913	630,269
Accrued interest receivable	3,136	3,137
Deposits	847,024	849,925
Federal Home Loan Bank advances	11,797	22,458
Subordinated capital notes	2,250	3,150
Junior subordinated debentures	21,000	21,000
Senior debt	10,000
Accrued interest payable	1,475	734
Securities held to maturity		41,818
Estimate of Fair Value Measurement [Member]
Cash and cash equivalents		66,316
Securities available for sale		152,790
Federal Home Loan Bank stock
Loans, net		632,528
Accrued interest receivable		3,137
Deposits		836,853
Federal Home Loan Bank advances		22,475
Subordinated capital notes		3,091
Junior subordinated debentures		13,263
Accrued interest payable		734
Securities held to maturity		43,072
Estimate of Fair Value Measurement [Member] | Fair Value, Inputs, Level 1 [Member]
Cash and cash equivalents	29,898	31,091
Securities available for sale
Federal Home Loan Bank stock
Loans held for sale
Loans, net
Accrued interest receivable
Deposits	137,386	124,395
Federal Home Loan Bank advances
Subordinated capital notes
Junior subordinated debentures
Senior debt
Accrued interest payable
Securities held to maturity
Estimate of Fair Value Measurement [Member] | Fair Value, Inputs, Level 2 [Member]
Cash and cash equivalents	4,205	35,225
Securities available for sale	152,720	152,790
Federal Home Loan Bank stock
Loans held for sale	70
Loans, net
Accrued interest receivable	925	1,203
Deposits	693,320	712,458
Federal Home Loan Bank advances	11,799	22,475
Subordinated capital notes
Junior subordinated debentures
Senior debt
Accrued interest payable	357	369
Securities held to maturity		43,072
Estimate of Fair Value Measurement [Member] | Fair Value, Inputs, Level 3 [Member]
Cash and cash equivalents
Securities available for sale
Federal Home Loan Bank stock
Loans held for sale
Loans, net	703,263	632,528
Accrued interest receivable	2,211	1,934
Deposits
Federal Home Loan Bank advances
Subordinated capital notes	2,246	3,091
Junior subordinated debentures	19,090	13,263
Senior debt	10,000
Accrued interest payable	$ 1,118	365
Securities held to maturity

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Note 18 - Stock Plans and Stock Based Compensation (Details Textual) - USD ($)	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant	25,000
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other Than Options, Nonvested Intrinsic Value1	$ 365,000
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period, Weighted Average Grant Date Fair Value	$ 9.64
Share-based Compensation	$ 400,000	$ 443,000	$ 445,000
Deferred Tax Assets, Tax Deferred Expense, Compensation and Benefits, Share-based Compensation Cost	$ 140,000	$ 0
Stock Incentive Plan 2016 [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period, Weighted Average Grant Date Fair Value	$ 9.64	$ 9.10
Stock Incentive Plan 2016 [Member] | Unvested Shares [Member] | Minimum [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period	3 years
Stock Incentive Plan 2016 [Member] | Unvested Shares [Member] | Maximum [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period	4 years
Non-Employee Directors Stock Incentive Plan 2006 [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant	2,834
Share Based Compensation Arrangement by Share Based Payment Award Annual Award to Non Employee Directors Value	$ 25,000

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Note 18 - Stock Plans and Stock Based Compensation - Unvested Share Activity (Details) - $ / shares	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016
Granted (in dollars per share)	$ 9.64
Stock Incentive Plan 2016 [Member]
Outstanding, beginning (in shares)	179,513	184,482
Outstanding, beginning (in dollars per share)	$ 4.89	$ 4.81
Granted (in shares)	37,865	35,465
Granted (in dollars per share)	$ 9.64	$ 9.10
Vested (in shares)	(73,728)	(38,462)
Vested (in dollars per share)	$ 5.75	$ 8.32
Forfeited (in shares)	(1,316)	(1,972)
Forfeited (in dollars per share)	$ 9.35	$ 6.16
Outstanding, ending (in shares)	142,334	179,513
Outstanding, ending (in dollars per share)	$ 5.67	$ 4.89

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Note 18 - Stock Plans and Stock Based Compensation - Unrecognized Stock Based Compensation Expense Related to Unvested Shares (Details) $ in Thousands	Dec. 31, 2017 USD ($)
2018	$ 258
2019	99
2020	25
2021 & thereafter

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Note 19 - Earnings (Loss) Per Share (Details Textual) - $ / shares	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number	0	0	0
Common Stock [Member]
Class of Warrant or Right, Exercise Price of Warrants or Rights	$ 79.41	$ 79.41	$ 79.41
Common Stock [Member] | Warrant [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	66,113	66,113	66,113

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Note 19 - Earnings (Loss) Per Share - Basic and Diluted Loss Per Share (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended																12 Months Ended
	Dec. 31, 2017		Sep. 30, 2017		Jun. 30, 2017		Mar. 31, 2017		Dec. 31, 2016		Sep. 30, 2016		Jun. 30, 2016		Mar. 31, 2016		Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Net income (loss)	$ 33,270	[1]	$ 1,794		$ 1,709		$ 1,680		$ (6,638)		$ 1,393		$ 1,012		$ 1,480		$ 38,453	$ (2,753)	$ (3,213)
Earnings (loss) allocated to participating securities																	967	(88)	(336)
Net income (loss) attributable to common shareholders																	$ 37,486	$ (2,665)	$ (2,877)
Basic
Weighted average common shares including unvested common shares and participating preferred shares outstanding (in shares)																	6,249,059	5,980,945	5,191,944
Weighted average shares outstanding (in shares)																	6,091,932	5,788,713	4,649,002
Basic income (loss) per common share (in dollars per share)	$ 5.31	[2]	$ 0.29	[2]	$ 0.27	[2]	$ 0.27	[2]	$ (1.07)	[2]	$ 0.22	[2]	$ 0.17	[2]	$ 0.27	[2]	$ 6.15	$ (0.46)	$ (0.62)
Diluted
Add: Dilutive effects of assumed exercises of common stock warrants (in shares)
Weighted average common shares and potential common shares (in shares)																	6,091,932	5,788,713	4,649,002
Diluted income (loss) per common share (in dollars per share)	$ 5.31	[2]	$ 0.29	[2]	$ 0.27	[2]	$ 0.27	[2]	$ (1.07)	[2]	$ 0.22	[2]	$ 0.17	[2]	$ 0.27	[2]	$ 6.15	$ (0.46)	$ (0.62)
Series C Preferred Stock [Member]
Earnings (loss) allocated to participating securities																			$ (214)
Series B Preferred Stock [Member]
Basic
Weighted average shares outstanding (in shares)																			133,269
Series D Preferred Stock [Member]
Basic
Weighted average shares outstanding (in shares)																			212,318
Unvested Shares [Member]
Earnings (loss) allocated to participating securities																	$ 967	$ (88)	$ (122)
Basic
Weighted average shares outstanding (in shares)																	157,127	192,232	197,355

[1] Net income for the fourth quarter of 2017 was impacted by the reversal of the Company's deferred tax asset valuation allowance and the change in federal corporate tax rates in connection with the enectment of the Tax Cuts and Jobs Act of 2017. The net result of these two items, as well as tax expense for the year, was an income tax benefit of $31.9 million.

[2] The sum of the quarterly net income (loss) per share (basic and diluted) differs from the annual net income (loss) per share (basic and diluted) because of the differences in the weighted average number of common shares outstanding and the common shares used in the quarterly and annual computations as well as differences in rounding.

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Note 20 - Parent Company Only Condensed Financial Information (Details Textual)	Dec. 31, 2017 USD ($)
Escrow Deposit	$ 806,000

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Note 20 - Parent Company Only Condensed Financial Information - Condensed Balance Sheet (Details) - USD ($) $ in Thousands	Dec. 31, 2017		Dec. 31, 2016		Dec. 31, 2015	Dec. 31, 2014
Cash and cash equivalents (1)	$ 34,103		$ 66,316		$ 93,335	$ 80,180
Deferred taxes, net	31,313
Total assets	970,801		945,177
Liabilities and Stockholders’ Equity
Accrued expenses and other liabilities	6,057		15,911
Shareholders’ equity	72,673		32,733		32,017	33,465
Total liabilities and shareholders’ equity	970,801		945,177
Parent Company [Member]
Cash and cash equivalents (1)	2,045	[1]	2,048	[1]	$ 986	$ 1,275
Investment in subsidiary	711		645
Deferred taxes, net	2,497
Total assets	105,680		54,997
Liabilities and Stockholders’ Equity
Debt	31,775		21,775
Accrued expenses and other liabilities	1,232		489
Shareholders’ equity	72,673		32,733
Total liabilities and shareholders’ equity	105,680		54,997
Parent Company [Member] | Banking Subsidiary [Member]
Investment in subsidiary	99,651		51,528
Parent Company [Member] | All Other Subsidiaries [Member]
Investment in subsidiary	$ 776		$ 776

[1] $826,000 is held in escrow by the senior note lender to be used exclusively for interest payments on senior debt.

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Note 20 - Parent Company Only Condensed Financial Information - Condensed Statements of Operations (Details) - USD ($) $ in Thousands	3 Months Ended									12 Months Ended
	Dec. 31, 2017		Sep. 30, 2017	Jun. 30, 2017	Mar. 31, 2017	Dec. 31, 2016	Sep. 30, 2016	Jun. 30, 2016	Mar. 31, 2016	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Interest income	$ 9,717		$ 9,446	$ 9,134	$ 9,225	$ 8,781	$ 8,931	$ 8,705	$ 9,185	$ 37,522	$ 35,602	$ 36,574
Other income										930	868	715
Interest expense										(6,405)	(5,981)	(7,023)
Other expense										(2,199)	(2,215)	(2,653)
Income (loss) before income tax and undistributed subsidiary income										6,554	(2,732)	(3,213)
Income Tax Expense (Benefit)										(31,899)	21
Net Income (Loss) Attributable to Parent	$ 33,270	[1]	$ 1,794	$ 1,709	$ 1,680	$ (6,638)	$ 1,393	$ 1,012	$ 1,480	38,453	(2,753)	(3,213)
Parent Company [Member]
Interest income										4	5	46
Dividends from subsidiaries										26	23	20
Other income											17	102
Interest expense										(973)	(694)	(647)
Other expense										(1,137)	(1,240)	(1,457)
Income (loss) before income tax and undistributed subsidiary income										(2,080)	(1,889)	(1,936)
Income Tax Expense (Benefit)										(2,497)	21
Equity in undistributed subsidiary income (loss)										38,036	(843)	(1,277)
Net Income (Loss) Attributable to Parent										$ 38,453	$ (2,753)	$ (3,213)

[1] Net income for the fourth quarter of 2017 was impacted by the reversal of the Company's deferred tax asset valuation allowance and the change in federal corporate tax rates in connection with the enectment of the Tax Cuts and Jobs Act of 2017. The net result of these two items, as well as tax expense for the year, was an income tax benefit of $31.9 million.

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Note 20 - Parent Company Only Condensed Financial Information - Condensed Statements of Cash Flows (Details) - USD ($) $ in Thousands	3 Months Ended											12 Months Ended
	Dec. 31, 2017		Sep. 30, 2017	Jun. 30, 2017	Mar. 31, 2017		Dec. 31, 2016		Sep. 30, 2016	Jun. 30, 2016	Mar. 31, 2016	Dec. 31, 2017		Dec. 31, 2016		Dec. 31, 2015
Net Income (Loss) Attributable to Parent	$ 33,270	[1]	$ 1,794	$ 1,709	$ 1,680		$ (6,638)		$ 1,393	$ 1,012	$ 1,480	$ 38,453		$ (2,753)		$ (3,213)
Deferred taxes, net												(31,899)
Investments in subsidiaries												(21,112)		(41,827)		(21,828)
Sales of securities												41,686		8,311		45,012
Proceeds from issuance of common stock														2,231
Proceeds from senior debt												10,000
Net change in cash and cash equivalents												(32,213)		(27,019)		13,155
Beginning cash and cash equivalents					66,316						93,335	66,316		93,335		80,180
Ending cash and cash equivalents	34,103						66,316					34,103		66,316		93,335
Parent Company [Member]
Net Income (Loss) Attributable to Parent												38,453		(2,753)		(3,213)
Equity in undistributed subsidiary (income) loss												(38,036)		843		1,277
Deferred taxes, net												(2,497)
Gain on sale of assets																(70)
Change in other assets												743		(95)		(40)
Change in other liabilities												(128)		358		634
Other												462		978		481
Net cash (used in) operating activities												(1,003)		(669)		(931)
Investments in subsidiaries												(9,000)		(500)
Sales of securities																642
Net cash (used in) from investing activities												(9,000)		(500)		642
Proceeds from issuance of common stock														2,231
Proceeds from senior debt												10,000
Net cash (used in) financing activities												10,000		2,231
Net change in cash and cash equivalents												(3)		1,062		(289)
Beginning cash and cash equivalents					$ 2,048	[2]					$ 986	2,048	[2]	986		1,275
Ending cash and cash equivalents	$ 2,045	[2]					$ 2,048	[2]				$ 2,045	[2]	$ 2,048	[2]	$ 986

[1] Net income for the fourth quarter of 2017 was impacted by the reversal of the Company's deferred tax asset valuation allowance and the change in federal corporate tax rates in connection with the enectment of the Tax Cuts and Jobs Act of 2017. The net result of these two items, as well as tax expense for the year, was an income tax benefit of $31.9 million.

[2] $826,000 is held in escrow by the senior note lender to be used exclusively for interest payments on senior debt.

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Note 21 - Quarterly Financial Data (Unaudited) (Details Textual) - USD ($) $ in Thousands	3 Months Ended									12 Months Ended
	Dec. 31, 2017	[1]	Sep. 30, 2017	Jun. 30, 2017	Mar. 31, 2017	Dec. 31, 2016	Sep. 30, 2016	Jun. 30, 2016	Mar. 31, 2016	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Income Tax Expense (Benefit)										$ (31,899)	$ 21
Net Income (Loss) Attributable to Parent	$ 33,270		$ 1,794	$ 1,709	$ 1,680	$ (6,638)	$ 1,393	$ 1,012	$ 1,480	$ 38,453	$ (2,753)	$ (3,213)
Litigation Settlement, Expense						$ 8,000

[1] Net income for the fourth quarter of 2017 was impacted by the reversal of the Company's deferred tax asset valuation allowance and the change in federal corporate tax rates in connection with the enectment of the Tax Cuts and Jobs Act of 2017. The net result of these two items, as well as tax expense for the year, was an income tax benefit of $31.9 million.

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Note 21 - Quarterly Financial Data (Unaudited) - Schedule of Quarterly Financial Information (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended																12 Months Ended
	Dec. 31, 2017		Sep. 30, 2017		Jun. 30, 2017		Mar. 31, 2017		Dec. 31, 2016		Sep. 30, 2016		Jun. 30, 2016		Mar. 31, 2016		Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Interest income	$ 9,717		$ 9,446		$ 9,134		$ 9,225		$ 8,781		$ 8,931		$ 8,705		$ 9,185		$ 37,522	$ 35,602	$ 36,574
Net Interest Income	8,001		7,787		7,588		7,741		7,316		7,458		7,196		7,651		31,117	29,621	29,551
Provision For Loan Losses	(800)								(550)		(750)		(600)		(550)		(800)	(2,450)	(4,500)
OREO Expense	(1,881)		(111)		(3)		(16)		(257)		(322)		(294)		(668)
Net Income (Loss) Attributable to Parent	$ 33,270	[1]	$ 1,794		$ 1,709		$ 1,680		$ (6,638)		$ 1,393		$ 1,012		$ 1,480		$ 38,453	$ (2,753)	$ (3,213)
Earnings Per Common Share Basic (in dollars per share)	$ 5.31	[2]	$ 0.29	[2]	$ 0.27	[2]	$ 0.27	[2]	$ (1.07)	[2]	$ 0.22	[2]	$ 0.17	[2]	$ 0.27	[2]	$ 6.15	$ (0.46)	$ (0.62)
Earnings Per Common Share Diluted (in dollars per share)	$ 5.31	[2]	$ 0.29	[2]	$ 0.27	[2]	$ 0.27	[2]	$ (1.07)	[2]	$ 0.22	[2]	$ 0.17	[2]	$ 0.27	[2]	$ 6.15	$ (0.46)	$ (0.62)
OREO Expense	$ 1,881		$ 111		$ 3		$ 16		$ 257		$ 322		$ 294		$ 668

[1] Net income for the fourth quarter of 2017 was impacted by the reversal of the Company's deferred tax asset valuation allowance and the change in federal corporate tax rates in connection with the enectment of the Tax Cuts and Jobs Act of 2017. The net result of these two items, as well as tax expense for the year, was an income tax benefit of $31.9 million.

[2] The sum of the quarterly net income (loss) per share (basic and diluted) differs from the annual net income (loss) per share (basic and diluted) because of the differences in the weighted average number of common shares outstanding and the common shares used in the quarterly and annual computations as well as differences in rounding.