(

)

Loans

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

December 31:

	20 1 8		2017

Commercial and Agricultural
Commercial	$	57,410,473	$	48,122,263
Agricultural		16,798,743		16,442,581

Real Estate
Commercial Construction		47,848,754		45,213,960
Residential Construction		12,499,744		8,583,446
Commercial		373,533,562		351,171,668
Residential		187,714,372		194,048,945
Farmland		62,708,998		67,767,655

Consumer and Other
Consumer		18,485,199		18,956,028
Other		5,027,523		14,977,309

Total Loans	$	782,027,368	$	765,283,855

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

uality

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 (

) the risk grade assigned to commercial and consumer loans, (

) the level of classified commercial loans, (

) net charge-offs, (

) nonperforming loans, and (

) 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

A description of the general characteristics of the grades is as follows:

●

Grades

and

- 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

and

- Loans assigned these “pass” risk grades are made to borrowers with acceptable credit quality and risk. The risk ranges from loans with

significant weaknesses in repayment capacity and collateral protection to acceptable loans with

one

or more risk factors considered to be more than average.

●

Grade

- 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

- 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

and

- 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

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

The following tables present the loan portfolio by credit quality indicator (risk grade) as of

December 31.

Those loans with a risk grade of

have been combined in the pass column for presentation purposes.

201 8	Pass		Special Mention		Substandard		Total Loans

Commercial and Agricultural
Commercial	$	55,808,422	$	729,088	$	872,963	$	57,410,473
Agricultural		15,664,048		636,666		498,029		16,798,743

Real Estate
Commercial Construction		47,087,255		44,306		717,193		47,848,754
Residential Construction		12,499,744		-		-		12,499,744
Commercial		358,139,315		7,661,667		7,732,580		373,533,562
Residential		170,050,484		7,106,793		10,557,095		187,714,372
Farmland		58,712,452		1,912,338		2,084,208		62,708,998

Consumer and Other
Consumer		18,103,792		59,073		322,334		18,485,199
Other		5,018,095		5,475		3,953		5,027,523

Total Loans	$	741,083,607	$	18,155,406	$	22,788,355	$	782,027,368

2017

Commercial and Agricultural
Commercial	$	46,468,726	$	825,607	$	827,930	$	48,122,263
Agricultural		15,868,191		174,356		400,034		16,442,581

Real Estate
Commercial Construction		41,282,295		577,765		3,353,900		45,213,960
Residential Construction		8,583,446		-		-		8,583,446
Commercial		338,775,805		7,662,637		4,733,226		351,171,668
Residential		177,962,870		4,864,893		11,221,182		194,048,945
Farmland		66,334,906		444,095		988,654		67,767,655

Consumer and Other
Consumer		18,495,798		52,970		407,260		18,956,028
Other		14,968,677		8,632		-		14,977,309

Total Loans	$	728,740,714	$	14,610,955	$	21,932,186	$	765,283,855

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

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

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
201 8	30-89 Days Past Due		90 Days or More Past Due		Total Accruing Loans Past Due		Nonaccrual Loans		Current Loan s		Total Loans

Commercial and Agricultural
Commercial	$	282,116	$	-	$	282,116	$	637,085	$	56,491,272	$	57,410,473
Agricultural		117,087		-		117,087		413,254		16,268,402		16,798,743

Real Estate
Commercial Construction		88,371		-		88,371		462,841		47,297,542		47,848,754
Residential Construction		-		-		-		-		12,499,744		12,499,744
Commercial		679,387		-		679,387		2,965,546		369,888,629		373,533,562
Residential		6,881,632		-		6,881,632		2,734,179		178,098,561		187,714,372
Farmland		75,548		-		75,548		2,052,604		60,580,846		62,708,998

Consumer and Other
Consumer		110,340		-		110,340		212,524		18,162,335		18,485,199
Other		-		-		-		3,953		5,023,570		5,027,523

Total Loans	$	8,234,481	$	-	$	8,234,481	$	9,481,986	$	764,310,901	$	782,027,368

2017

Commercial and Agricultural
Commercial	$	328,483	$	-	$	328,483	$	598,305	$	47,195,475	$	48,122,263
Agricultural		110,482		-		110,482		398,509		15,933,590		16,442,581

Real Estate
Commercial Construction		27,062		-		27,062		477,043		44,709,855		45,213,960
Residential Construction		119,443		-		119,443		-		8,464,003		8,583,446
Commercial		918,997		-		918,997		2,172,229		348,080,442		351,171,668
Residential		2,482,276		-		2,482,276		2,829,966		188,736,703		194,048,945
Farmland		318,329		-		318,329		838,577		66,610,749		67,767,655

Consumer and Other
Consumer		246,175				246,175		188,073		18,521,780		18,956,028
Other		7,158		-		7,158		-		14,970,151		14,977,309

Total Loans	$	4,558,405	$	-	$	4,558,405	$	7,502,702	$	753,222,748	$	765,283,855

Had nonaccrual loans performed in accordance with their original contractual terms, the Company would have recognized additional interest income of approximately

$226,000,

$205,000

and

$387,000

for the years ended

December 31, 2018,

2017

and

2016,

respectively.

The following table details impaired loan data as of

December 31, 2018:

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

With No Related Allowance Recorded
Commercial	$	595,323	$	595,323	$	-	$	525,463	$	21,350	$	23,985
Agricultural		433,915		413,254		-		382,978		17,949		24,825
Commercial Construction		132,366		132,366		-		69,396		7,806		7,966
Residential Construction		-		-		-		-		-		-
Commercial Real Estate		12,163,915		12,163,915		-		11,039,755		581,836		582,893
Residential Real Estate		4,214,354		4,129,876		-		4,067,529		208,138		212,509
Farmland		2,054,137		2,052,604		-		1,361,278		52,974		81,962
Consumer		212,524		212,524		-		197,225		13,614		14,373
Other		3,953		3,953		-		791		204		233

	$	19,810,487	$	19,703,815	$	-	$	17,644,415	$	903,871	$	948,746

With An Allowance Recorded
Commercial	$	41,762	$	41,762	$	6,264	$	8,352	$	2,154	$	2,247
Agricultural		-		-		-		-		-		-
Commercial Construction		398,930		398,930		38,930		465,929		-		-
Residential Construction		-		-		-		-		-		-
Commercial Real Estate		3,691,010		3,691,010		1,275,837		5,120,933		135,042		141,978
Residential Real Estate		274,198		274,198		60,716		97,902		8,187		8,180
Farmland		363,566		363,566		35,984		367,425		24,075		24,415
Consumer		-		-		-		-		-		-
Other		-		-		-		-		-		-

	$	4,769,466	$	4,769,466	$	1,417,731	$	6,060,541	$	169,458	$	176,820

Total
Commercial	$	637,085	$	637,085	$	6,264	$	533,815	$	23,504	$	26,232
Agricultural		433,915		413,254		-		382,978		17,949		24,825
Commercial Construction		531,296		531,296		38,930		535,325		7,806		7,966
Residential Construction		-		-		-		-		-		-
Commercial Real Estate		15,854,925		15,854,925		1,275,837		16,160,688		716,878		724,871
Residential Real Estate		4,488,552		4,404,074		60,716		4,165,431		216,325		220,689
Farmland		2,417,703		2,416,170		35,984		1,728,703		77,049		106,377
Consumer		212,524		212,524		-		197,225		13,614		14,373
Other		3,953		3,953		-		791		204		233

	$	24,579,953	$	24,473,281	$	1,417,731	$	23,704,956	$	1,073,329	$	1,125,566

The following table details impaired loan data as of

December 31, 2017:

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

With No Related Allowance Recorded
Commercial	$	598,305	$	598,305	$	-	$	633,528	$	33,283	$	33,868
Agricultural		485,132		398,509		-		296,578		11,046		19,376
Commercial Construction		54,306		54,306		-		141,396		3,526		3,836
Residential Construction		-		-		-		79,295		-		-
Commercial Real Estate		12,637,057		12,637,057		-		12,808,414		559,601		549,825
Residential Real Estate		4,977,769		4,579,614		-		4,566,041		211,318		226,684
Farmland		840,110		838,577		-		790,967		54,367		58,085
Consumer		188,073		188,073		-		186,348		8,576		9,452

	$	19,780,752	$	19,294,441	$	-	$	19,502,567	$	881,717	$	901,126

With An Allowance Recorded
Commercial	$	-	$	-	$	-	$	-	$	-	$	-
Agricultural		-		-		-		-		-		-
Commercial Construction		493,067		493,067		65,635		241,063		22,626		32,922
Residential Construction		-		-		-		-		-		-
Commercial Real Estate		5,729,300		5,729,300		1,712,557		6,599,144		228,745		237,066
Residential Real Estate		108,859		108,859		27,123		482,228		4,261		7,446
Farmland		371,376		371,376		21,369		375,595		22,121		22,021
Consumer		-		-		-		-		-		-

	$	6,702,602	$	6,702,602	$	1,826,684	$	7,698,030	$	277,753	$	299,455

Total
Commercial	$	598,305	$	598,305	$	-	$	633,528	$	33,283	$	33,868
Agricultural		485,132		398,509		-		296,578		11,046		19,376
Commercial Construction		547,373		547,373		65,635		382,459		26,152		36,758
Residential Construction		-		-		-		79,295		-		-
Commercial Real Estate		18,366,357		18,366,357		1,712,557		19,407,558		788,346		786,891
Residential Real Estate		5,086,628		4,688,473		27,123		5,048,269		215,579		234,130
Farmland		1,211,486		1,209,953		21,369		1,166,562		76,488		80,106
Consumer		188,073		188,073		-		186,348		8,576		9,452

	$	26,483,354	$	25,997,043	$	1,826,684	$	27,200,597	$	1,159,470	$	1,200,581

The following table details impaired loan data as of

December 31, 2016:

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

With No Related Allowance Recorded
Commercial	$	634,955	$	634,955	$	-	$	539,099	$	24,563	$	27,142
Agricultural		229,182		208,522		-		210,372		8,794		12,412
Commercial Construction		190,494		190,494		-		697,893		6,630		7,127
Commercial Real Estate		14,357,601		14,276,688		-		14,274,719		567,349		560,354
Residential Real Estate		4,261,558		3,952,139		-		4,553,322		73,099		190,373
Farmland		920,666		799,556		-		1,016,395		21,526		26,012
Consumer		212,376		212,026		-		213,309		9,599		12,036

	$	20,806,832	$	20,274,380	$	-	$	21,505,109	$	711,560	$	835,456

With An Allowance Recorded
Commercial	$	-	$	-	$	-	$	30,270	$	-	$	-
Agricultural		-		-		-		-		-		-
Commercial Construction		72,296		72,296		21,135		74,098		1,532		1,416
Commercial Real Estate		8,557,582		8,467,135		3,021,943		8,339,666		238,684		235,749
Residential Real Estate		1,475,594		1,467,833		362,521		1,042,750		27,759		32,260
Farmland		379,851		379,851		29,173		384,056		21,098		21,310
Consumer		-		-		-		-		-		-

	$	10,485,323	$	10,387,115	$	3,434,772	$	9,870,840	$	289,073	$	290,735
Total
Commercial	$	634,955	$	634,955	$	-	$	569,369	$	24,563	$	27,142
Agricultural		229,182		208,522		-		210,372		8,794		12,412
Commercial Construction		262,790		262,790		21,135		771,991		8,162		8,543
Commercial Real Estate		22,915,183		22,743,823		3,021,943		22,614,385		806,033		796,103
Residential Real Estate		5,737,152		5,419,972		362,521		5,596,072		100,858		222,633
Farmland		1,300,517		1,179,407		29,173		1,400,451		42,624		47,322
Consumer		212,376		212,026		-		213,309		9,599		12,036
	$	31,292,155	$	30,661,495	$	3,434,772	$	31,375,949	$	1,000,633	$	1,126,191

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 the Company’s 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

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

additional exposure on those loans.

As discussed in Note

Summary of Significant Accounting Policies, once a loan is identified as a TDR, it is accounted for as an impaired loan. The Company had

unfunded commitments to lend to a customer that has a troubled debt restructured loan as of

December 31, 2018.

The following tables present the number of loan contracts restructured during the

12 months ended

December 31, 2018,

2017

and

2016.

It shows 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

months which subsequently defaulted during the period. Loans modified in a troubled debt restructuring are considered to be in default once the loan becomes

days past due. A TDR

may

cease being classified as impaired if the loan is subsequently modified at market terms, has performed according to the modified terms for at least

six

months, and has

not

had any prior principal forgiveness on a cumulative basis.

Troubled Debt Restructurings

201 8	# of Contracts		Pre-Modification		Post-Modification

Commercial Real Estate		1	$	402,430	$	402,430

2017

Commercial Real Estate		-	$	-	$	-
Residential Real Estate		-		-		-

Total Loans		-		-		-

2016

Commercial Real Estate		1	$	91,280	$	91,097
Residential Real Estate		1		354,784		354,784

Total Loans		2	$	446,064	$	445,881

Troubled debt restructurings that subsequently defaulted as of

December 31

are as follows:

	201 8				2017				2016
	# of Contracts		Recorded Investment		# of Contracts		Recorded Investment		# of Contracts		Recorded Investment

Residential Real Estate		1	$	131,067		-	$	-		1	$	89,297

Total Loans		1	$	131,067		-	$	-		1	$	89,297

During

2018,

a restructured loan totaling

$131,067

failed to continue to perform as agreed and was moved to non-accrual status. At

December 31, 2017,

all restructured loans were performing as agreed. During

December 2016,

a restructured loan totaling

$89,297

failed to continue to perform as agreed and was charged off in

June 2016.