(4)

Loans

The following table presents the composition of loans, segregated by class of loans, as of December 31:

	2014		2013

Commercial and Agricultural
Commercial	$	50,960,265	$	48,107,448
Agricultural		16,689,444		10,665,938

Real Estate
Commercial Construction		51,258,970		52,738,783
Residential Construction		11,220,683		6,549,260
Commercial		332,230,847		341,783,538
Residential		203,752,620		206,257,927
Farmland		49,950,984		47,034,426

Consumer and Other
Consumer		22,820,314		25,675,560
Other		7,209,682		12,405,582

Total Loans	$	746,093,809	$	751,218,462

Commercial and agricultural loans are extended to a diverse group of businesses within the Company’s market area. These loans are often underwritten based on the borrower’s ability to service the debt from income from the business. Real estate construction loans often require loan funds to be advanced prior to completion of the project. Due to uncertainties inherent in estimating construction costs, changes in interest rates and other economic conditions, these loans often pose a higher risk than other types of loans. Consumer loans are originated at the bank level. These loans are generally smaller loan amounts spread across many individual borrowers to help minimize risk.

Credit Quality Indicators. As part of the ongoing monitoring of the credit quality of the loan portfolio, management tracks certain credit quality indicators including trends related to (1) the risk grade assigned to commercial and consumer loans, (2) the level of classified commercial loans, (3) net charge-offs, (4) nonperforming loans, and (5) the general economic conditions in the Company’s geographic markets.

The Company uses a risk grading matrix to assign a risk grade to each of its loans. Loans are graded on a scale of 1 to 8. A description of the general characteristics of the grades is as follows:

Grades 1 and 2 - Borrowers with these assigned grades range in risk from virtual absence of risk to minimal risk. Such loans may be secured by Company-issued and controlled certificates of deposit or properly margined equity securities or bonds. Other loans comprising these grades are made to companies that have been in existence for a long period of time with many years of consecutive profits and strong equity, good liquidity, excellent debt service ability and unblemished past performance, or to exceptionally strong individuals with collateral of unquestioned value that fully secures the loans. Loans in this category fall into the “pass” classification.

Grades 3 and 4 - Loans assigned these “pass” risk grades are made to borrowers with acceptable credit quality and risk. The risk ranges from loans with no significant weaknesses in repayment capacity and collateral protection to acceptable loans with one or more risk factors considered to be more than average.

Grade 5 - This grade includes “special mention” loans on management’s watch list and is intended to be used on a temporary basis for pass grade loans where risk-modifying action is intended in the short-term.

Grade 6 - This grade includes “substandard” loans in accordance with regulatory guidelines. This category includes borrowers with well-defined weaknesses that jeopardize the payment of the debt in accordance with the agreed terms. Loans considered to be impaired are assigned this grade, and these loans often have assigned loss allocations as part of the allowance for loan and lease losses. Generally, loans on which interest accrual has been stopped would be included in this grade.

Grades 7 and 8 - These grades correspond to regulatory classification definitions of “doubtful” and “loss,” respectively. In practice, any loan with these grades would be for a very short period of time, and generally the Company has no loans with these assigned grades. Management manages the Company’s problem loans in such a way that uncollectible loans or uncollectible portions of loans are charged off immediately with any residual, collectible amounts assigned a risk grade of 6.

The following tables present the loan portfolio by credit quality indicator (risk grade) as of December 31. Those loans with a risk grade of 1, 2, 3 or 4 have been combined in the pass column for presentation purposes.

2014	Pass		Special Mention		Substandard		Total Loans

Commercial and Agricultural
Commercial	$	46,230,110	$	2,905,361	$	1,824,794	$	50,960,265
Agricultural		16,504,404		27,101		157,939		16,689,444

Real Estate
Commercial Construction		45,063,306		1,740,488		4,455,176		51,258,970
Residential Construction		11,220,683		-		-		11,220,683
Commercial		309,828,039		11,220,166		11,182,642		332,230,847
Residential		180,549,640		10,582,704		12,620,276		203,752,620
Farmland		47,548,106		414,521		1,988,357		49,950,984

Consumer and Other
Consumer		22,114,932		248,997		456,385		22,820,314
Other		7,012,405		-		197,277		7,209,682

Total Loans	$	686,071,625	$	27,139,338	$	32,882,846	$	746,093,809

2013

Commercial and Agricultural
Commercial	$	41,759,281	$	2,770,284	$	3,577,883	$	48,107,448
Agricultural		10,637,705		16,830		11,403		10,665,938

Real Estate
Commercial Construction		42,668,320		1,512,301		8,558,162		52,738,783
Residential Construction		6,341,530		207,730		-		6,549,260
Commercial		317,567,749		10,759,954		13,455,835		341,783,538
Residential		182,977,361		13,523,478		9,757,088		206,257,927
Farmland		44,776,355		507,122		1,750,949		47,034,426

Consumer and Other
Consumer		24,608,175		320,473		746,912		25,675,560
Other		12,356,116		711		48,755		12,405,582

Total Loans	$	683,692,592	$	29,618,883	$	37,906,987	$	751,218,462

A loan’s risk grade is assigned at the inception of the loan and is based on the financial strength of the borrower and the type of collateral. Loan risk grades are subject to reassessment at various times throughout the year as part of the Company’s ongoing loan review process. Loans with an assigned risk grade of 6 or below and an outstanding balance of $250,000 or more are reassessed on a quarterly basis. During this reassessment process individual reserves may be identified and placed against certain loans which are not considered impaired.

In assessing the overall economic condition of the markets in which it operates, the Company monitors the unemployment rates for its major service areas. The unemployment rates are reviewed on a quarterly basis as part of the allowance for loan loss determination.

Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. Generally, loans are placed on nonaccrual status if principal or interest payments become 90 days past due or when, in management’s opinion, the borrower may be unable to meet payment obligations as they become due, as well as when required by regulatory provision. Loans may be placed on nonaccrual status regardless of whether such loans are considered past due.

The following table represents an age analysis of past due loans and nonaccrual loans, segregated by class of loans, as of December 31:

	Accruing Loans
2014	30-89 Days Past Due		90 Days or More Past Due		Total Accruing Loans Past Due		Nonaccrual Loans		Current Loans		Total Loans

Commercial and Agricultural
Commercial	$	872,321	$	-	$	872,321	$	405,398	$	49,682,546	$	50,960,265
Agricultural		-		-		-		44,605		16,644,839	$	16,689,444

Real Estate
Commercial Construction		141,850		-		141,850		3,251,290		47,865,830	$	51,258,970
Residential Construction		-		-		-		-		11,220,683	$	11,220,683
Commercial		2,309,114		-		2,309,114		5,325,047		324,596,686	$	332,230,847
Residential		5,782,701		-		5,782,701		7,461,507		190,508,412	$	203,752,620
Farmland		281,967		-		281,967		1,449,226		48,219,791	$	49,950,984

Consumer and Other
Consumer		313,424		6,642		320,066		201,695		22,298,553	$	22,820,314
Other		-		-		-		195,497		7,014,185	$	7,209,682

Total Loans	$	9,701,377	$	6,642	$	9,708,019	$	18,334,265	$	718,051,525	$	746,093,809

2013

Commercial and Agricultural
Commercial	$	581,281	$	-	$	581,281	$	1,646,418	$	45,879,749	$	48,107,448
Agricultural		81,036		-		81,036		-		10,584,902		10,665,938

Real Estate
Commercial Construction		139,826		-		139,826		8,221,745		44,377,212		52,738,783
Residential Construction		-		-		-		-		6,549,260		6,549,260
Commercial		2,287,341		-		2,287,341		7,366,703		332,129,494		341,783,538
Residential		5,273,586		-		5,273,586		4,933,420		196,050,921		206,257,927
Farmland		350,718		-		350,718		1,629,611		45,054,097		47,034,426

Consumer and Other
Consumer		453,580		3,991		457,571		307,456		24,910,533		25,675,560
Other		198,451		-		198,451		9,146		12,197,985		12,405,582

Total Loans	$	9,365,819	$	3,991	$	9,369,810	$	24,114,499	$	717,734,153	$	751,218,462

During its review of impaired loans, the Company determined the majority of its exposures on these loans were known losses. As a result, the exposures were charged off, reducing the specific allowances on impaired loans. Had nonaccrual loans performed in accordance with their original contractual terms, the Company would have recognized additional interest income of approximately $591,900, $968,700 and $1,634,600 for the years ended December 31, 2014, 2013 and 2012, respectively.

The following table details impaired loan data as of December 31, 2014:

	Unpaid Contractual Principal Balance		Impaired Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized			Interest Income Collected

With No Related Allowance Recorded
Commercial	$	310,447	$	308,817	$	-	$	679,267	$	9,248		$	17,973
Agricultural		50,163		44,605		-		50,959		(6,029	)		3,000
Commercial Construction		9,573,141		3,463,502		-		3,376,033		13,111			12,833
Commercial Real Estate		17,129,876		16,227,379		-		18,350,015		462,355			474,936
Residential Real Estate		9,136,987		7,600,073		-		5,690,573		312,024			306,859
Farmland		1,450,759		1,449,226		-		949,003		(8,518	)		17,273
Consumer		201,695		201,695		-		211,775		14,455			15,495
Other		206,894		195,497		-		197,519		5,874			10,677

		38,059,962		29,490,794		-		29,505,144		802,520			859,046

With An Allowance Recorded
Commercial		96,580		96,580		96,580		419,464		(299	)		-
Agricultural		-		-		-		-		-			-
Commercial Construction		207,308		136,369		53,947		1,528,817		375			375
Commercial Real Estate		6,135,238		6,135,238		456,941		6,415,086		60,629			50,468
Residential Real Estate		2,072,919		2,065,158		414,684		1,829,102		84,177			86,472
Farmland		396,048		396,048		28,962		529,555		13,077			12,210
Consumer		-		-		-		-		-			-
Other		-		-		-		-		-			-

		8,908,093		8,829,393		1,051,114		10,722,024		157,959			149,525

Total
Commercial		407,027		405,397		96,580		1,098,731		8,949			17,973
Agricultural		50,163		44,605		-		50,959		(6,029	)		3,000
Commercial Construction		9,780,449		3,599,871		53,947		4,904,850		13,486			13,208
Commercial Real Estate		23,265,114		22,362,617		456,941		24,765,101		522,984			525,404
Residential Real Estate		11,209,906		9,665,231		414,684		7,519,675		396,201			393,331
Farmland		1,846,807		1,845,274		28,962		1,478,558		4,559			29,483
Consumer		201,695		201,695		-		211,775		14,455			15,495
Other		206,894		195,497		-		197,519		5,874			10,677

	$	46,968,055	$	38,320,187	$	1,051,114	$	40,227,168	$	960,479		$	1,008,571

The following table details impaired loan data as of December 31, 2013:

	Unpaid Contractual Principal Balance		Impaired Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized			Interest Income Collected

With No Related Allowance Recorded
Commercial	$	305,272	$	305,272	$	-	$	216,057	$	24,494		$	25,193
Agricultural		-		-		-		9,803		-			-
Commercial Construction		7,856,411		4,750,157		-		4,105,370		34,908			41,164
Commercial Real Estate		20,120,403		19,252,946		-		13,198,988		493,940			503,392
Residential Real Estate		7,836,718		6,361,592		-		4,564,666		224,439			209,330
Farmland		302,629		302,629		-		1,858,654		803			869
Consumer		313,194		307,456		-		252,944		18,469			21,109
Other		9,146		9,146		-		2,287		556			575

		36,743,773		31,289,198		-		24,208,769		797,609			801,632

With An Allowance Recorded
Commercial		1,452,798		1,452,798		433,714		1,689,125		14,845			20,748
Agricultural		-		-		-		-		-			-
Commercial Construction		5,922,674		3,471,587		830,546		5,025,176		(159	)		-
Commercial Real Estate		5,874,473		5,874,473		423,685		11,072,314		157,536			148,495
Residential Real Estate		1,949,301		1,849,301		526,005		3,661,706		25,739			24,414
Farmland		1,326,982		1,326,982		85,500		663,903		44,638			46,930
Consumer		-		-		-		-		-			-
Other		-		-		-		-		-			-

		16,526,228		13,975,141		2,299,450		22,112,224		242,599			240,587

Total
Commercial		1,758,070		1,758,070		433,714		1,905,182		39,339			45,941
Agricultural		-		-		-		9,803		-			-
Commercial Construction		13,779,085		8,221,744		830,546		9,130,546		34,749			41,164
Commercial Real Estate		25,994,876		25,127,419		423,685		24,271,302		651,476			651,887
Residential Real Estate		9,786,019		8,210,893		526,005		8,226,372		250,178			233,744
Farmland		1,629,611		1,629,611		85,500		2,522,557		45,441			47,799
Consumer		313,194		307,456		-		252,944		18,469			21,109
Other		9,146		9,146		-		2,287		556			575

	$	53,270,001	$	45,264,339	$	2,299,450	$	46,320,993	$	1,040,208		$	1,042,219

Troubled Debt Restructurings (TDRs) are troubled loans on which the original terms of the loan have been modified in favor of the borrower due to deterioration in the borrower’s financial condition. Each potential loan modification is reviewed individually and the terms of the loan are modified to meet the borrower’s specific circumstances at a point in time. Not all loan modifications are TDRs. Loan modifications are reviewed and approved by the Company’s senior lending staff, who then determine whether the loan meets the criteria for a TDR. Generally, the types of concessions granted to borrowers that are evaluated in determining whether a loan is classified as a TDR include:

Interest rate reductions - Occur when the stated interest rate is reduced to a nonmarket rate or a rate the borrower would not be able to obtain elsewhere under similar circumstances.

Amortization or maturity date changes - Result when the amortization period of the loan is extended beyond what is considered a normal amortization period for loans of similar type with similar collateral.

Principal reductions - These are often the result of commercial real estate loan workouts where two new notes are created. The primary note is underwritten based upon our normal underwriting standards and is structured so that the projected cash flows are sufficient to repay the contractual principal and interest of the newly restructured note. The terms of the secondary note vary by situation and often involve that note being charged off, or the principal and interest payments being deferred until after the primary note has been repaid. In situations where a portion of the note is charged off during modification, there is often no specific reserve allocated to those loans. This is due to the fact that the amount of the charge-off usually represents the excess of the original loan balance over the collateral value and the Company has determined there is no additional exposure on those loans.

As discussed in Note 1, Summary of Significant Accounting Policies, once a loan is identified as a TDR, it is accounted for as an impaired loan. The Company had no unfunded commitments to lend to a customer that has a troubled debt restructured loan as of December 31, 2014. The following tables present the number of loan contracts restructured during the 12 months ended December 31, 2014 and the pre- and post-modification recorded investment as well as the number of contracts and the recorded investment for those TDRs modified during the previous 12 months which subsequently defaulted during the period. Loans modified in a troubled debt restructuring are considered to be in default once the loan becomes 90 days past due.

Troubled Debt Restructurings

2014	# of Contracts		Pre-Modification		Post-Modification

Farmland		1	$	400,778	$	400,778
Commercial Construction		1		349,976		349,976
Commercial Real Estate		1		1,771,395		1,775,407
Residential Real Estate		1		49,194		49,194

Total Loans		4	$	2,571,343	$	2,575,355

2013

Commercial		1	$	83,748	$	81,277
Commercial Construction		2		228,633		225,959
Commercial Real Estate		1		225,852		225,852
Residential Real Estate		4		1,885,700		1,764,399

Total Loans		8	$	2,423,933	$	2,297,487

2012

Commercial		1	$	107,749	$	107,749
Commercial Real Estate		1		56,835		56,835
Residential Real Estate		5		1,082,585		1,079,614

Total Loans		7	$	1,247,169	$	1,244,198

Troubled debt restructurings that subsequently defaulted as of December 31 are as follows:

	2014				2013				2012
	# of Contracts		Recorded Investment		# of Contracts		Recorded Investment		# of Contracts		Recorded Investment

Commercial		-	$	-		1	$	81,277		-	$	-
Commercial Real Estate		-		-		-		-		1		203,291
Residential Real Estate		-		-		-		-		1		10,000

Total Loans		-	$	-		1	$	81,277		2	$	213,291

At December 31, 2014, all restructured loans were performing as agreed. During 2013 and 2012, restructured loans totaling $81,277 and $10,000 failed to continue to perform as agreed and were charged off in August 2013 and January 2012, respectively.