(

) Allowance for Loan Losses

The following tables detail activity in the allowance for loan losses, segregated by class of loan, for the

six

month period ended

June 30, 2018

and

June 30, 2017.

Allocation of a portion of the allowance to

one

category of loans does

not

preclude its availability to absorb losses in other loan categories and periodically

may

result in reallocation within the provision categories.

June 30, 2018
	Beginning										Ending
	Balance		Charge-Offs			Recoveries		Provision			Balance

Commercial and Agricultural
Commercial	$	447	$	(116	)	$	85	$	28		$	444
Agricultural		186		(123	)		7		192			262

Real Estate
Commercial Construction		1,216		-			38		(1,172	)		82
Residential Construction		-		-			-		-			-
Commercial		3,874		(258	)		37		753			4,406
Residential		968		(89	)		75		112			1,066
Farmland		780		-			9		79			868

Consumer and Other
Consumer		34		(135	)		49		82			30
Other		3		-			2		(4	)		1

	$	7,508	$	(721	)	$	302	$	70		$	7,159

June 30, 2017
	Beginning										Ending
	Balance		Charge-Offs			Recoveries		Provision			Balance

Commercial and Agricultural
Commercial	$	456	$	(124	)	$	100	$	(7	)	$	425
Agricultural		168		(4	)		2		72			238

Real Estate
Commercial Construction		323		(49	)		162		334			770
Residential Construction		13		-			-		(2	)		11
Commercial		5,751		(966	)		302		(424	)		4,663
Residential		1,396		(605	)		33		148			972
Farmland		722		-			-		137			859

Consumer and Other
Consumer		80		(117	)		51		70			84
Other		14		-			-		7			21

	$	8,923	$	(1,865	)	$	650	$	335		$	8,043

Management continually evaluates the allowance for loan losses methodology seeking to refine and enhance this process as appropriate, and it is likely that the methodology will continue to evolve over time.

PART I (Continued)

Item

(Continued)

(

) Allowance for Loan Losses

(Continued)

The Company determines its individual reserves during its quarterly review of substandard loans. This process involves reviewing all loans with a risk grade of

or greater and an outstanding balance of

$250,000

or more, regardless of the loans impairment classification. At

June 30, 2018,

there were

125

impaired loans totaling

$3.1

million below the

$250,000

review threshold which were

not

individually reviewed for impairment. Those loans were subject to the bank’s general loan loss reserve methodology and are included in the “Collectively Evaluated for Impairment” column of the following tables. Likewise, at

June 30, 2017,

there were

153

impaired loans totaling

$4.3

million which were below the

$250,000

review threshold and were subject to the bank’s general loan loss reserve methodology and are included in the “Collectively Evaluated for Impairment” column of the following tables.

Since

not

all loans in the substandard category are considered impaired, this quarterly review process

may

result in the identification of specific reserves on unimpaired loans. Management considers those loans graded substandard, but

not

classified as impaired, to be higher risk loans and, therefore, makes specific allocations to the allowance for those loans if warranted. The total of such loans is

$9.55

million and

$13.04

million as of

June 30, 2018

and

2017,

respectively. Specific allowance allocations were made for these loans totaling

$1.30

million and

$1.19

million as of

June 30, 2018

and

2017,

respectively. Since these loans are

not

considered impaired, both the loan balance and related specific allocation are included in the “Collectively Evaluated for Impairment” column of the following tables.

PART I (Continued)

Item

(Continued)

(

)

Allowance for Loan Losses (Continued)

The following tables present breakdowns of the allowance for loan losses, segregated by impairment methodology for

June 30, 2018

and

2017:

June 30, 2018
	Ending Allowance Balance						Ending Loan Balance

	Individually		Collectively				Individually		Collectively
	Evaluated for		Evaluated for				Evaluated for		Evaluated for
	Impairment		Impairment		Total		Impairment		Impairment		Total
Commercial and Agricultural
Commercial	$	-	$	444	$	444	$	77	$	44,952	$	45,029
Agricultural		-		262		262		5		20,032		20,037

Real Estate
Commercial Construction		54		28		82		481		48,428		48,909
Residential Construction		-		-		-		-		11,541		11,541
Commercial		1,371		3,035		4,406		15,187		336,876		352,063
Residential		21		1,045		1,066		1,910		185,681		187,591
Farmland		28		840		868		1,032		66,835		67,867

Consumer and Other
Consumer		-		30		30		-		18,746		18,746
Other		-		1		1		-		15,013		15,013

Total End of Period Balance	$	1,474	$	5,685	$	7,159	$	18,692	$	748,104	$	766,796

June 30, 2017
	Ending Allowance Balance						Ending Loan Balance

	Individually		Collectively				Individually		Collectively
	Evaluated for		Evaluated for				Evaluated for		Evaluated for
	Impairment		Impairment		Total		Impairment		Impairment		Total
Commercial and Agricultural
Commercial	$	-	$	425	$	425	$	33	$	44,850	$	44,883
Agricultural		-		238		238		5		21,805		21,810

Real Estate
Commercial Construction		4		766		770		72		35,079		35,151
Residential Construction		-		11		11		-		9,230		9,230
Commercial		1,517		3,146		4,663		17,292		338,509		355,801
Residential		20		952		972		2,336		198,236		200,572
Farmland		26		833		859		1,040		69,154		70,194

Consumer and Other
Consumer		-		84		84		-		19,134		19,134
Other		-		21		21		-		18,791		18,791

Total End of Period Balance	$	1,567	$	6,476	$	8,043	$	20,778	$	754,788	$	775,566

PART I (Continued)

Item

(Continued)