Loans are stated at the principal amount outstanding net of unearned discounts, unearned income and allowance for loan losses. Unearned income includes deferred loan origination fees reduced by loan origination costs and is amortized to interest income over the life of the related loan using methods that approximated the effective interest rate method. Interest on substantially all loans is credited to income based on the principal amount outstanding. A summary of loans at December 31, 2017 and 2016 follows (in thousands):



	2017		2016
Construction and land development	$	107,721	$	49,366
Farm loans	127,232		126,216
1-4 Family residential properties	294,483		328,119
Multifamily residential properties	61,966		83,478
Commercial real estate	684,639		633,694
Loans secured by real estate	1,276,041		1,220,873
Agricultural loans	86,602		86,735
Commercial and industrial loans	445,378		412,637
Consumer loans	30,070		38,404
All other loans	108,023		77,602
Gross loans	1,946,114		1,836,251
Less: Loans held for sale	1,025		1,175
	1,945,089		1,835,076
Less:
Net deferred loan fees, premiums and discounts	6,613		10,259
Allowance for loan losses	19,977		16,753
Net loans	$	1,918,499	$	1,808,064

Net loans increased $110.4 million as of December 31, 2017 compared to December 31, 2016. The increase is primarily due to increases in construction and land development, commercial real estate, and commercial and industrial loans offset by decreases in 1-4 family and multifamily residential properties. Loans expected to be sold are classified as held for sale in the consolidated financial statements and are recorded at the lower of aggregate cost or market value, taking into consideration future commitments to sell the loans. These loans are primarily for 1-4 family residential properties. The balance of loans held for sale, excluded from the balances above, were $1,025,000 and $1,175,000 at December 31, 2017 and 2016, respectively.

Most of the Company’s business activities are with customers located within central Illinois. At December 31, 2017, the Company’s loan portfolio included $213.8 million of loans to borrowers whose businesses are directly related to agriculture. Of this amount, $170.8 million was concentrated in other grain farming. Total loans to borrowers whose businesses are directly related to agriculture increased $1.0 million from $212.8 million at December 31, 2016 while loans concentrated in other grain farming decreased $0.5 million from $171.3 million at December 31, 2016. While the Company adheres to sound underwriting practices, including collateralization of loans, any extended period of low commodity prices, drought conditions, significantly reduced yields on crops and/or reduced levels of government assistance to the agricultural industry could result in an increase in the level of problem agriculture loans and potentially result in loan losses within the agricultural portfolio.

In addition, the Company has $131.7 million of loans to motels and hotels. The performance of these loans is dependent on borrower specific issues as well as the general level of business and personal travel within the region. While the Company adheres to sound underwriting standards, a prolonged period of reduced business or personal travel could result in an increase in nonperforming loans to this business segment and potentially in loan losses. The Company also has $186.0 million of loans to lessors of non-residential buildings, $131.8 million of loans to lessors of residential buildings and dwellings, and $95.7 million of loans to other gambling industries.

The structure of the Company’s loan approval process is based on progressively larger lending authorities granted to individual loan officers, loan committees, and ultimately the board of directors. Outstanding balances to one borrower or affiliated borrowers are limited by federal regulation; however, limits well below the regulatory thresholds are generally observed. The vast majority of the Company’s loans are to businesses located in the geographic market areas served by the Company’s branch bank system. Additionally, a significant portion of the collateral securing the loans in the portfolio is located within the Company’s primary geographic footprint. In general, the Company adheres to loan underwriting standards consistent with industry guidelines for all loan segments. The Company’s lending can be summarized into the following primary areas:

Commercial Real Estate Loans. Commercial real estate loans are generally comprised of loans to small business entities to purchase or expand structures in which the business operations are housed, loans to owners of real estate who lease space to non-related commercial entities, loans for construction and land development, loans to hotel operators, and loans to owners of multi-family residential structures, such as apartment buildings. Commercial real estate loans are underwritten based on historical and projected cash flows of the borrower and secondarily on the underlying real estate pledged as collateral on the debt. For the various types of commercial real estate loans, minimum criteria have been established within the Company’s loan policy regarding debt service coverage while maximum limits on loan-to-value and amortization periods have been defined. Maximum loan-to-value ratios range from 65% to 80% depending upon the type of real estate collateral, while the desired minimum debt coverage ratio is 1.20x. Amortization periods for commercial real estate loans are generally limited to twenty years. The Company’s commercial real estate portfolio is well below the thresholds that would designate a concentration in commercial real estate lending, as established by the federal banking regulators.

Commercial and Industrial Loans. Commercial and industrial loans are primarily comprised of working capital loans used to purchase inventory and fund accounts receivable that are secured by business assets other than real estate. These loans are generally written for one year or less. Also, equipment financing is provided to businesses with these loans generally limited to 80% of the value of the collateral and amortization periods limited to seven years. Commercial loans are often accompanied by a personal guaranty of the principal owners of a business. Like commercial real estate loans, the underlying cash flow of the business is the primary consideration in the underwriting process. The financial condition of commercial borrowers is monitored at least annually with the type of financial information required determined by the size of the relationship. Measures employed by the Company for businesses with higher risk profiles include the use of government-assisted lending programs through the Small Business Administration and U.S. Department of Agriculture.

Agricultural and Agricultural Real Estate Loans. Agricultural loans are generally comprised of seasonal operating lines to cash grain farmers to plant and harvest corn and soybeans and term loans to fund the purchase of equipment. Agricultural real estate loans are primarily comprised of loans for the purchase of farmland. Specific underwriting standards have been established for agricultural-related loans including the establishment of projections for each operating year based on industry developed estimates of farm input costs and expected commodity yields and prices. Operating lines are typically written for one year and secured by the crop. Loan-to-value ratios on loans secured by farmland generally do not exceed 65% and have amortization periods limited to twenty five years. Federal government-assistance lending programs through the Farm Service Agency are used to mitigate the level of credit risk when deemed appropriate.

Residential Real Estate Loans. Residential real estate loans generally include loans for the purchase or refinance of residential real estate properties consisting of one-to-four units and home equity loans and lines of credit. The Company sells the vast majority of its long-term fixed rate residential real estate loans to secondary market investors. The Company also releases the servicing of these loans upon sale. The Company retains all residential real estate loans with balloon payment features. Balloon periods are limited to five years. Residential real estate loans are typically underwritten to conform to industry standards including criteria for maximum debt-to-income and loan-to-value ratios as well as minimum credit scores. Loans secured by first liens on residential real estate held in the portfolio typically do not exceed 80% of the value of the collateral and have amortization periods of twenty five years or less. The Company does not originate subprime mortgage loans.

Consumer Loans. Consumer loans are primarily comprised of loans to individuals for personal and household purposes such as the purchase of an automobile or other living expenses. Minimum underwriting criteria have been established that consider credit score, debt-to-income ratio, employment history, and collateral coverage. Typically, consumer loans are set up on monthly payments with amortization periods based on the type and age of the collateral.

Other Loans. Other loans consist primarily of loans to municipalities to support community projects such as infrastructure improvements or equipment purchases. Underwriting guidelines for these loans are consistent with those established for commercial loans with the additional repayment source of the taxing authority of the municipality.

Purchase Credit-Impaired Loans. Loans acquired with evidence of credit deterioration since origination and for which it is probable that all contractually required payments will not be collected are considered to be credit impaired. Evidence of credit quality deterioration as of the purchase date may include information such as past-due and nonaccrual status, borrower credit scores and recent loan to value percentages. Purchase credit-impaired ("PCI") loans are accounted for under ASC 310-30, Receivables--Loans and Debt Securities Acquired with Deteriorated Credit Quality ("ASC 310-30"), and are initially measured at fair value, which includes the estimated future credit losses expected to be incurred over the life of the loan. Accordingly, an allowance for credit losses related to these loans is not carried over and recorded at the acquisition date. The cash flows expected to be collected were estimated using current key assumptions, such as default rates, value of underlying collateral, severity and prepayment speeds.

Allowance for Loan Losses

The allowance for loan losses represents the Company’s best estimate of the reserve necessary to adequately account for probable losses existing in the current portfolio. The provision for loan losses is the charge against current earnings that is determined by the Company as the amount needed to maintain an adequate allowance for loan losses. In determining the adequacy of the allowance for loan losses, and therefore the provision to be charged to current earnings, the Company relies predominantly on a disciplined credit review and approval process that extends to the full range of the Company’s credit exposure. The review process is directed by the overall lending policy and is intended to identify, at the earliest possible stage, borrowers who might be facing financial difficulty. Factors considered by the Company in evaluating the overall adequacy of the allowance include historical net loan losses, the level and composition of nonaccrual, past due and troubled debt restructurings, trends in volumes and terms of loans, effects of changes in risk selection and underwriting standards or lending practices, lending staff changes, concentrations of credit, industry conditions and the current economic conditions in the region where the Company operates. The Company estimates the appropriate level of allowance for loan losses by separately evaluating large impaired loans and nonimpaired loans.

The Company has loans acquired from business combinations with uncollected principal balances. These loans are carried net of a fair value adjustment for credit risk and interest rates and are only included in the allowance calculation to the extent that the reserve requirement exceeds the fair value adjustment. However, as the acquired loans renew, it is necessary to establish an allowance which represents an amount that, in management’s opinion, will be adequate to absorb probable credit losses inherent in such loans.

Impaired loans. The Company individually evaluates certain loans for impairment. In general, these loans have been internally identified via the Company’s loan grading system as credits requiring management’s attention due to underlying problems in the borrower’s business or collateral concerns. This evaluation considers expected future cash flows, the value of collateral and also other factors that may impact the borrower’s ability to make payments when due. For loans greater than $250,000 impairment is individually measured each quarter using one of three alternatives: (1) the present value of expected future cash flows discounted at the loan’s effective interest rate; (2) the loan’s observable market price, if available; or (3) the fair value of the collateral less costs to sell for collateral dependent loans and loans for which foreclosure is deemed to be probable. A specific allowance is assigned when expected cash flows or collateral do not justify the carrying amount of the loan. The carrying value of the loan reflects reductions from prior charge-offs.

Non-Impaired loans. Non-impaired loans comprise the vast majority of the Company’s total loan portfolio and include loans in accrual status and those credits not identified as troubled debt restructurings. A small portion of these loans are considered “criticized” due to the risk rating assigned reflecting elevated credit risk due to characteristics, such as a strained cash flow position, associated with the individual borrowers. Criticized loans are those assigned risk ratings of Watch, Substandard, or Doubtful. Determining the appropriate level of the allowance for loan losses for all non-impaired loans is based on a migration analysis of net losses over a rolling twelve quarter period by loan segment. A weighted average of the net losses is determined by assigning more weight to the most recent quarters in order to recognize current risk factors influencing the various segments of the loan portfolio more prominently than past periods. Environmental factors including changes in economic conditions, changes in credit policies or underwriting standards, and changes in the level of credit risk associated with specific industries and markets are evaluated each quarter to determine if adjustments to the weighted average historical net losses is appropriate given these current influences on the risk profile of each loan segment. Because the economic and business climate in any given industry or market, and its impact on any given borrower, can change rapidly, the risk profile of the loan portfolio is periodically assessed and adjusted when appropriate. Consumer loans are evaluated for adverse classification based primarily on the Uniform Retail Credit Classification and Account Management Policy established by the federal banking regulators. Classification standards are generally based on delinquency status, collateral coverage, bankruptcy and the presence of fraud.

Due to weakened economic conditions during recent years, the Company established qualitative factor adjustments for each of the loan segments at levels above the historical net loss averages. Some of the economic factors included the potential for reduced cash flow for commercial operating loans from reduction in sales or increased operating costs, decreased occupancy rates for commercial buildings, reduced levels of home sales for commercial land developments, the uncertainty regarding grain prices and increased operating costs for farmers, and increased levels of unemployment and bankruptcy impacting consumer’s ability to pay. Each of these economic uncertainties was taken into consideration in developing the level of the allowance for loan losses.

The Company has not materially changed any aspect of its overall approach in the determination of the allowance for loan losses. However, on an on-going basis the Company continues to refine the methods used in determining management’s best estimate of the allowance for loan losses.

The following tables present the balance in the allowance for loan losses and the recorded investment in loans based on portfolio segment and impairment method as of December 31, 2017, 2016 and 2015 (in thousands):



	Commercial/ Commercial Real Estate			Agricultural/ Agricultural Real Estate			Residential Real Estate			Consumer			Unallocated			Total
December 31, 2017
Allowance for loan losses:
Balance, beginning of year	$	12,901		$	2,249		$	874		$	693		$	36		$	16,753
Provision charged to expense	6,884			153			100			361			(36		)	7,462
Losses charged off	(3,795		)	(662		)	(217		)	(521		)	—			(5,195		)
Recoveries	556			2			129			270			—			957
Balance, end of period	$	16,546		$	1,742		$	886		$	803		$	—		$	19,977
Ending balance:
Individually evaluated for impairment	$	586		$	2		$	25		$	1		$	—		$	614
Collectively evaluated for impairment	$	15,951		$	1,740		$	861		$	802		$	—		$	19,354
Loans acquired with deteriorated credit quality	$	9		$	—		$	—		$	—		$	—		$	9
Loans:
Ending balance	$	1,371,787		$	213,521		$	315,123		$	39,070		$	—		$	1,939,501
Ending Balance:
Individually evaluated for impairment	$	11,372		$	488		$	1,026		$	200		$	—		$	13,086
Collectively evaluated for impairment	$	1,360,156		$	213,033		$	314,097		$	38,870		$	—		$	1,926,156
Loans acquired with deteriorated credit quality	$	259		$	—		$	—		$	—		$	—		$	259



	Commercial/ Commercial Real Estate			Agricultural/ Agricultural Real Estate			Residential Real Estate			Consumer			Unallocated			Total
December 31, 2016
Allowance for loan losses:
Balance, beginning of year	$	11,379		$	1,337		$	994		$	642		$	224		$	14,576
Provision charged to expense	1,467			933			113			501			(188		)	2,826
Losses charged off	(747		)	(30		)	(234		)	(664		)	—			(1,675		)
Recoveries	802			9			1			214			—			1,026
Balance, end of period	$	12,901		$	2,249		$	874		$	693		$	36		$	16,753
Ending balance:
Individually evaluated for impairment	$	192		$	660		$	6		$	—		$	—		$	858
Collectively evaluated for impairment	$	12,695		$	1,589		$	868		$	693		$	36		$	15,881
Loans:
Ending balance	$	1,204,799		$	212,513		$	366,823		$	41,857		$	—		$	1,825,992
Ending balance:
Individually evaluated for impairment	$	1,956		$	1,345		$	1,752		$	213		$	—		$	5,266
Collectively evaluated for impairment	$	1,199,003		$	211,168		$	360,825		$	41,644		$	—		$	1,812,640
Loans acquired with deteriorated credit quality	$	3,840		$	—		$	4,246		$	—		$	—		$	8,086
December 31, 2015
Allowance for loan losses:
Balance, beginning of year	$	10,914		$	1,360		$	790		$	386		$	232		$	13,682
Provision charged to expense	451			(25		)	267			633			(8		)	1,318
Losses charged off	(289		)	—			(64		)	(553		)	—			(906		)
Recoveries	303			2			1			176			—			482
Balance, end of year	$	11,379		$	1,337		$	994		$	642		$	224		$	14,576
Ending balance:
Individually evaluated for impairment	$	134		$	—		$	—		$	—		$	—		$	134
Collectively evaluated for impairment	$	11,245		$	1,337		$	994		$	642		$	224		$	14,442
Loans:
Ending balance	$	807,736		$	198,066		$	232,348		$	43,739		$	—		$	1,281,889
Ending balance:
Individually evaluated for impairment	$	744		$	430		$	—		$	—		$	—		$	1,174
Collectively evaluated for impairment	$	806,992		$	197,636		$	232,348		$	43,739		$	—		$	1,280,715

Consistent with regulatory guidance, charge-offs on all loan segments are taken when specific loans, or portions thereof, are considered uncollectible. The Company’s policy is to promptly charge these loans off in the period the uncollectible loss is reasonably determined.

For all loan portfolio segments except 1-4 family residential properties and consumer, the Company promptly charges-off loans, or portions thereof, when available information confirms that specific loans are uncollectible based on information that includes, but is not limited to, (1) the deteriorating financial condition of the borrower, (2) declining collateral values, and/or (3) legal action, including bankruptcy, that impairs the borrower’s ability to adequately meet its obligations. For impaired loans that are considered to be solely collateral dependent, a partial charge-off is recorded when a loss has been confirmed by an updated appraisal or other appropriate valuation of the collateral.

The Company charges-off 1-4 family residential and consumer loans, or portions thereof, when the Company reasonably determines the amount of the loss. The Company adheres to timeframes established by applicable regulatory guidance which provides for the charge-down of 1-4 family first and junior lien mortgages to the net realizable value less costs to sell when the loan is 180 days past due, charge-off of unsecured open-end loans when the loan is 180 days past due, and charge down to the net realizable value when other secured loans are 120 days past due. Loans at these respective delinquency thresholds for which the Company can clearly document that the loan is both well-secured and in the process of collection, such that collection will occur regardless of delinquency status, need not be charged off.

Credit Quality

The Company 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, collateral support, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis is performed on a continuous basis. The Company uses the following definitions for risk ratings, which are commensurate with a loan considered "criticized":

Special Mention. Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.

Substandard. Loans classified as substandard are inadequately protected by the current sound-worthiness and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing factors, conditions and values, highly questionable and improbable.

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered pass rated loans. The following tables present the credit risk profile of the Company’s loan portfolio based on rating category and payment activity as of December 31, 2017 and 2016 (in thousands):



	Construction & Land Development				Farm Loans				1-4 Family Residential Properties				Multifamily Residential Properties
	2017		2016		2017		2016		2017		2016		2017		2016
Pass	$	107,140	$	48,877	$	120,767	$	118,934	$	282,441	$	318,921	$	60,954	$	81,018
Special Mention	454		—		4,829		5,190		2,654		918		476		1,651
Substandard	—		227		1,587		1,984		8,572		6,576		368		531
Doubtful	—		—		—		—		—		—		—		—
Total	$	107,594	$	49,104	$	127,183	$	126,108	$	293,667	$	326,415	$	61,798	$	83,200



	Commercial Real Estate (Nonfarm/Nonresidential)				Agricultural Loans				Commercial & Industrial Loans				Consumer Loans
	2017		2016		2017		2016		2017		2016		2017		2016
Pass	$	647,208	$	610,025	$	83,469	$	81,922	$	425,846	$	397,762	$	29,375	$	37,624
Special Mention	16,941		5,229		2,304		3,271		11,492		8,485		5		17
Substandard	17,608		14,881		858		1,492		6,925		2,786		369		387
Doubtful	—		—		—		—		—		—		—		—
Total	$	681,757	$	630,135	$	86,631	$	86,685	$	444,263	$	409,033	$	29,749	$	38,028



	All Other Loans				Total Loans
	2017		2016		2017		2016
Pass	$	103,339	$	74,377	$	1,860,539	$	1,769,460
Special Mention	3,520		2,892		42,675		27,653
Substandard	—		15		36,287		28,879
Doubtful	—		—		—		—
Total	$	106,859	$	77,284	$	1,939,501	$	1,825,992

The following table presents the Company’s loan portfolio aging analysis at December 31, 2017 and 2016 (in thousands):



	30-59 days Past Due		60-89 days Past Due		90 Days or More Past Due		Total Past Due		Current		Total Loans Receivable		Total Loans > 90 days & Accruing
December 31, 2017
Construction and land development	$	26	$	48	$	—	$	74	$	107,520	$	107,594	$	—
Farm loans	—		—		396		396		126,787		127,183		—
1-4 Family residential properties	3,023		538		1,767		5,328		288,339		293,667		—
Multifamily residential properties	—		—		—		—		61,798		61,798		—
Commercial real estate	90		38		3,566		3,694		678,063		681,757		—
Loans secured by real estate	3,139		624		5,729		9,492		1,262,507		1,271,999		—
Agricultural loans	—		32		158		190		86,441		86,631		—
Commercial and industrial loans	192		3		770		965		443,298		444,263		—
Consumer loans	178		67		27		272		29,477		29,749		—
All other loans	—		—		—		—		106,859		106,859		—
Total loans	$	3,509	$	726	$	6,684	$	10,919	$	1,928,582	$	1,939,501	$	—
December 31, 2016
Construction and land development	$	—	$	—	$	—	$	—	$	49,104	$	49,104	$	—
Farm loans	—		131		293		424		125,684		126,108		—
1-4 Family residential properties	1,854		713		1,008		3,575		322,840		326,415		105
Multifamily residential properties	—		—		240		240		82,960		83,200		—
Commercial real estate	1,662		716		43		2,421		627,714		630,135		—
Loans secured by real estate	3,516		1,560		1,584		6,660		1,208,302		1,214,962		105
Agricultural loans	365		84		37		486		86,199		86,685		—
Commercial and industrial loans	395		155		249		799		408,234		409,033		—
Consumer loans	192		37		11		240		37,788		38,028		—
All other loans	—		—		—		—		77,284		77,284		—
Total loans	$	4,468	$	1,836	$	1,881	$	8,185	$	1,817,807	$	1,825,992	$	105

Impaired Loans

Within all loan portfolio segments, loans are considered impaired when, based on current information and events, it is probable the Company will be unable to collect all amounts due from the borrower in accordance with the contractual terms of the loan. The entire balance of a loan is considered delinquent if the minimum payment contractually required to be made is not received by the specified due date. Impaired loans, excluding certain troubled debt restructured loans, are placed on nonaccrual status. Impaired loans include nonaccrual loans and loans modified in troubled debt restructurings where concessions have been granted to borrowers experiencing financial difficulties. These concessions could include a reduction in the interest rate on the loan, payment extensions, forgiveness of principal, forbearance or other actions intended to maximize collection. It is the Company’s policy to have any restructured loans which are on nonaccrual status prior to being modified remain on nonaccrual status until, in the opinion of management, the financial position of the borrower indicates there is no longer any reasonable doubt as to the timely collection of interest or principal. If the restructured loan is on accrual status prior to being modified, the loan is reviewed to determine if the modified loan should remain on accrual status.

The following tables present impaired loans as of December 31, 2017 and 2016 (in thousands):



	2017						2016
	Recorded Balance		Unpaid Principal Balance		Specific Allowance		Recorded Balance		Unpaid Principal Balance		Specific Allowance
Loans with a specific allowance:
Construction and land development	$	—	$	—	$	—	$	227	$	227	$	—
Farm loans	276		276		—		—		—		—
1-4 Family residential properties	1,026		1,347		25		997		997		6
Multifamily residential properties	313		313		—		528		528		—
Commercial real estate	5,544		5,565		531		863		884		—
Loans secured by real estate	7,159		7,501		556		2,615		2,636		6
Agricultural loans	212		1,009		2		1,345		1,345		660
Commercial and industrial loans	5,774		6,037		64		1,093		1,191		192
Consumer loans	200		200		1		213		213		—
All other loans	—		—		—		—		—		—
Total loans	$	13,345	$	14,747	$	623	$	5,266	$	5,385	$	858
Loans without a specific allowance:
Construction and land development	$	—	$	—	$	—	$	—	$	—	$	—
Farm loans	15		15		—		205		207		—
1-4 Family residential properties	2,239		2,664		—		2,497		3,207		—
Multifamily residential properties	55		55		—		3,419		3,547		—
Commercial real estate	303		368		—		6,224		6,802		—
Loans secured by real estate	2,612		3,102		—		12,345		13,763		—
Agricultural loans	545		—		—		43		66		—
Commercial and industrial loans	909		1,249		—		378		572		—
Consumer loans	102		119		—		206		211		—
All other loans	—		—		—		—		—		—
Total loans	$	4,168	$	4,470	$	—	$	12,972	$	14,612	$	—
Total loans:
Construction and land development	$	—	$	—	$	—	$	227	$	227	$	—
Farm loans	291		291		—		205		207		—
1-4 Family residential properties	3,265		4,011		25		3,494		4,204		6
Multifamily residential properties	368		368		—		3,947		4,075		—
Commercial real estate	5,847		5,933		531		7,087		7,686		—
Loans secured by real estate	9,771		10,603		556		14,960		16,399		6
Agricultural loans	757		1,009		2		1,388		1,411		660
Commercial and industrial loans	6,683		7,286		64		1,471		1,763		192
Consumer loans	302		319		1		419		424		—
All other loans	—		—		—		—		—		—
Total loans	$	17,513	$	19,217	$	623	$	18,238	$	19,997	$	858

The Company’s policy is to discontinue the accrual of interest income on all loans for which principal or interest is ninety days past due. The accrual of interest is discontinued earlier when, in the opinion of management, there is reasonable doubt as to the timely collection of interest or principal. Once interest accruals are discontinued, accrued but uncollected interest is charged against current year income. Subsequent receipts on non-accrual loans are recorded as a reduction of principal, and interest income is recorded only after principal recovery is reasonably assured. Interest on loans determined to be troubled debt restructurings is recognized on an accrual basis in accordance with the restructured terms if the loan is in compliance with the modified terms. Nonaccrual loans are returned to accrual status when, in the opinion of management, the financial position of the borrower indicates there is no longer any reasonable doubt as to the timely collection of interest or principal. The Company requires a period of satisfactory performance of not less than six months before returning a nonaccrual loan to accrual status.

The following tables present average recorded investment and interest income recognized on impaired loans for the years ended December 31, 2017, 2016 and 2015 (in thousands):



	2017				2016				2015
	Average Investment in Impaired Loans		Interest Income Recognized		Average Investment in Impaired Loans		Interest Income Recognized		Average Investment in Impaired Loans		Interest Income Recognized
Construction and land development	$	—	$	—	$	229	$	—	$	142	$	—
Farm loans	293		—		207		—		527		2
1-4 Family residential properties	3,267		29		2,988		22		1,440		14
Multifamily residential properties	377		1		3,824		55		323		—
Commercial real estate	5,457		13		6,675		36		310		2
Loans secured by real estate	9,394		43		13,923		113		2,742		18
Agricultural loans	878		—		1,394		—		82		—
Commercial and industrial loans	6,586		8		1,485		4		1,569		8
Consumer loans	325		—		557		2		319		2
All other loans	—		—		—		—		—		—
Total loans	$	17,183	$	51	$	17,359	$	119	$	4,712	$	28

The amount of interest income recognized by the Company within the periods stated above was due to loans modified in a troubled debt restructuring that remained on accrual status. The balance of loans modified in a troubled debt restructuring included in the impaired loans stated above that were still accruing was $578,000 of 1-4 Family residential properties, $251,000 of commercial real estate, and $25,000 of commercial and industrial loans at December 31, 2017 and $603,000 of 1-4 Family residential properties, $3,419,000 of multifamily residential properties, $2,116,000 of commercial real estate loans, $41,000 of commercial and industrial loans and $6,000 of consumer loans at December 31, 2016. For the years ended December 31, 2017, 2016 and 2015, the amount of interest income recognized using a cash-basis method of accounting during the period that the loans were impaired was not material.

Non Accrual Loans

The following table presents the Company’s recorded balance of nonaccrual loans at December 31, 2017 and December 31, 2016 (in thousands). This table excludes purchased credit-impaired loans and performing troubled debt restructurings.



	2017		2016
Construction and land development	$	—	$	227
Farm loans	291		205
1-4 Family residential properties	2,687		2,890
Multifamily residential properties	368		528
Commercial real estate	5,596		4,971
Loans secured by real estate	8,942		8,821
Agricultural loans	757		1,388
Commercial and industrial loans	6,658		1,430
Consumer loans	302		414
All other loans	—		—
Total loans	$	16,659	$	12,053

The aggregate principal balances of nonaccrual, past due ninety days or more loans were $16.7 million and $12.1 million at December 31, 2017 and 2016, respectively. Interest income that would have been recorded under the original terms of such nonaccrual loans totaled $471,000, $133,000 and $48,000 in 2017, 2016 and 2015, respectively.

Purchased Credit-Impaired Loans

The Company acquired certain loans considered to be credit-impaired in its business combination with First Clover Leaf during the third quarter of 2016. At acquisition, these loans evidenced deterioration of credit quality since origination and it was probable, at acquisition, that all contractually required payments would not be collected. The carrying amount of these loans is included in the consolidated balance sheet amounts for Loans. The Company had no PCI loans prior to the First Clover Leaf acquisition. The amount of these loans at December 31, 2017 are as follows (in thousands):



	December 31, 2017		December 31, 2016
1-4 Family residential properties	$	—	$	622
Multifamily residential properties	—		1,011
Commercial real estate	251		3,723
Loans secured by real estate	251		5,356
Commercial and industrial loans	8		2,730
Carrying amount	259		8,086
Allowance for loan losses	9		14
Carrying amount, net of allowance	$	250	$	8,072

As of September 8, 2016, the acquisition date, the principal outstanding of PCI loans totaled $10,650,000 and the fair value of PCI loans totaled $8,688,000. For PCI loans, the difference between contractually required payments at acquisition and the cash flow expected to collected is referred to as the non-accretable difference. Any excess of expected cash flows over the fair value is referred to as the accretable yield. As of December 31, 2017, there is no accretable yield on the PCI loans acquired. As of December 31, 2016 approximately $1.2 million was accreted on the PCI loans acquired due to sales and charge offs on these loans. Subsequent decreases to the expected cash flows will result in a provision for loan and lease losses. Subsequent increases in expected cash flows will result in a reversal of the provision for loan and lease losses to the extent of prior charges and then an adjustment to accretable yield, which would have a positive impact on interest income. As of December 31, 2017, there was one loan with a change in expected cash flows and as a result, approximately $9,000 of provision was recorded. As of December 31, 2016, there was one loan with a change in expected cash flows and as a result, approximately $14,000 of provision was recorded.

The PCI loans acquired during the twelve months ended December 31, 2016 for which it was probable that all contractually required payments would not be collected were as follows (in thousands):



	December 31, 2016
Contractually required payments	$	10,650
Non-accretable difference	(1,962		)
Cash flows expected to be collected at acquisition	8,688
Accretable yield	—
Fair value of acquired loans at acquisition	$	8,688

Income would not be recognized on certain PCI loans if cash flows could not be reasonably estimated. The Company had no purchased loans for which it could not reasonably estimate cash flows to be collected.

Troubled Debt Restructuring

The balance of troubled debt restructurings ("TDRs") at December 31, 2017 and 2016 was $8,898,000 and $10,889,000, respectively. Approximately $37,000 and $196,000 in specific reserves were established with respect to these loans as of December 31, 2017 and 2016, respectively. As troubled debt restructurings, these loans are included in nonperforming loans and are classified as impaired which requires that they be individually measured for impairment. The modification of the terms of these loans included one or a combination of the following: a reduction of stated interest rate of the loan; an extension of the maturity date and change in payment terms; or a permanent reduction of the recorded investment in the loan.

The following table presents the Company’s recorded balance of troubled debt restructurings at December 31, 2017 and 2016 (in thousands).



Troubled debt restructurings:	2017		2016
Construction and land development	$	—	$	227
Farm Loans	—		—
1-4 Family residential properties	874		1,753
Multifamily residential properties	—		3,419
Commercial real estate	1,376		4,125
Loans secured by real estate	2,250		9,524
Agricultural loans	757		—
Commercial and industrial loans	5,690		1,040
Consumer Loans	201		325
Total	$	8,898	$	10,889
Performing troubled debt restructurings:
1-4 Family residential properties	$	578	$	603
Multifamily residential properties	—		3,419
Commercial real estate	251		2,116
Loans secured by real estate	829		6,138
Commercial and industrial loans	25		41
Consumer Loans	—		6
Total	$	854	$	6,185

The following table presents loans modified as TDRs during the years ended December 31, 2017 and 2016 as a result of various modified loan factors (in thousands):



	December 31, 2017				December 31, 2016
	Number of Modifications	Recorded Investment		Type of Modifications	Number of Modifications	Recorded Investment		Type of Modifications
Construction and land development	—	$	—		1	$	227	(b)(c)
1-4 Family residential properties	3	196		(b)(c)	3	176		(c)
Commercial real estate	2	814		(b)(c)	1	42		(b)(c)
Loans secured by real estate	5	1,010			5	445
Agricultural Loans	4	757		(b)(c)(d)	—	—
Commercial and industrial loans	4	4,924		(b)(c)	7	916		(b)(c)
Consumer Loans	—	—			1	19		(c)
Total	13	$	6,691		13	$	1,380

Type of modifications:

(a) Reduction of stated interest rate of loan

(b) Change in payment terms

(d) Permanent reduction of the recorded investment

A loan is considered to be in payment default once it is ninety days past due under the modified terms. There was one loan modified as troubled debt restructurings during the prior twelve months that experienced a default during the year ended December 31, 2017 and one loan modified as troubled debt restructuring during the prior twelve months that experienced defaults as of December 31, 2016.

At December 31, 2017 and 2016, the balance of real estate owned includes $2,754,000 and $1,982,000, respectively of foreclosed real estate properties recorded as a result of obtaining physical possession of the property. At December 31, 2017 and 2016, the recorded investment of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceeds are in process was $404,000 and $661,000.