Loans, Net

The Company segregates its loan portfolio into three primary loan segments: Real Estate Loans, Commercial Loans, and Consumer Loans. Real estate loans are further segregated into the following classes: construction loans, loans secured by farmland, loans secured by 1-4 family residential real estate, and other real estate loans. Other real estate loans include commercial real estate loans. The consolidated loan portfolio was composed of the following:



	2016				2015
(Dollars in thousands)	Outstanding Balance		Percent of Total Portfolio		Outstanding Balance		Percent of Total Portfolio
Real estate loans:
Construction	$	35,627	4.1	%	$	39,673	4.9	%
Secured by farmland	16,768		2.0		19,062		2.4
Secured by 1-4 family residential	314,045		36.5		280,096		34.8
Other real estate loans	283,613		33.0		258,035		32.0
Commercial loans	190,767		22.2		190,482		23.6
Consumer loans	19,277		2.2		18,333		2.3
Total Gross Loans ⁽¹⁾	860,097		100.0	%	805,681		100.0	%
Less allowance for loan losses	11,404				11,046
Net loans	$	848,693			$	794,635


⁽¹⁾	Includes net deferred loan costs and premiums of $3.3 million and $3.5 million, respectively.

The Company had no mortgages held for sale at December 31, 2016 and 2015.

During the year ended December 31, 2016, net proceeds received on the sale of $4.3 million in four problem loans totaled $4.4 million, resulting in a net recovery of $127,000 of amounts previously charged-off related to those loans. These loans were sold on a non-recourse basis. Of this amount, $1.2 million were on nonaccrual status, as well as 28 loans with no outstanding recorded investment as they had been fully charged-off in prior periods. There were $339,000 in specific reserves associated with these loans. During the year ended December 31, 2015, the Company received net proceeds of $1.1 million on the sale of $1.0 million in portfolio loans on a non-recourse basis, resulting in a net recovery of $100,000 of amounts previously charged-off related to those loans. Of this amount, $1.0 million were on nonaccrual status and were classified as TDRs. There were no specific reserves associated with these loans.

The following tables present a contractual aging of the recorded investment in past due loans by class of loans as of December 31, 2016 and December 31, 2015, respectively:



	December 31, 2016
(Dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		90 Days Or Greater		Total Past Due		Current		Total Loans
Real estate loans:
Construction	$	—	$	—	$	—	$	—	$	35,627	$	35,627
Secured by farmland	—		199		—		199		16,569		16,768
Secured by 1-4 family residential	—		—		514		514		313,531		314,045
Other real estate loans	312		—		2,104		2,416		281,197		283,613
Commercial loans	146		10		2,518		2,674		188,093		190,767
Consumer loans	88		4		1,871		1,963		17,314		19,277
Total	$	546	$	213	$	7,007	$	7,766	$	852,331	$	860,097



	December 31, 2015
(Dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		90 Days Or Greater		Total Past Due		Current		Total Loans
Real estate loans:
Construction	$	69	$	—	$	—	$	69	$	39,604	$	39,673
Secured by farmland	—		—		—		—		19,062		19,062
Secured by 1-4 family residential	259		—		1,117		1,376		278,720		280,096
Other real estate loans	325		—		248		573		257,462		258,035
Commercial loans	1,242		15		31		1,288		189,194		190,482
Consumer loans	4		17		—		21		18,312		18,333
Total	$	1,899	$	32	$	1,396	$	3,327	$	802,354	$	805,681

The following table presents the recorded investment in nonaccrual loans and loans past due ninety days or more and still accruing by class of loans as of December 31, 2016 and 2015, respectively:



	2016				2015
(Dollars in thousands)	Nonaccrual		Past due 90 days or more and still accruing		Nonaccrual		Past due 90 days or more and still accruing
Real estate loans:
Construction	$	29	$	—	$	204	$	—
Secured by 1-4 family residential	296		303		4,460		—
Other real estate loans	1,976		128		1,186		248
Commercial loans	4,187		350		1,036		30
Consumer loans	1,871		—		1,898		—
Total	$	8,359	$	781	$	8,784	$	278

If interest on nonaccrual loans had been accrued, such income would have approximated $362,000, $342,000, and $544,000 for the years ended December 31, 2016, 2015, and 2014, respectively. The Company sold $4.3 million and $1.0 million in loans during 2016 and 2015, respectively, of which, $1.2 million and $1.0 million were on nonaccrual status, respectively.

The Company utilizes an internal asset classification system as a means of measuring and monitoring credit risk in the loan portfolio. Under the Company’s classification system, problem and potential problem loans are classified as “Special Mention”, “Substandard”, and “Doubtful”.

Special Mention: Loans with potential weaknesses that deserve management’s close attention. If left uncorrected, the potential weaknesses may result in the deterioration of the repayment prospects for the credit.

Substandard: Loans with well-defined weaknesses that jeopardize the liquidation of the debt. Either the paying capacity of the borrower or the value of the collateral may be inadequate to protect the Company from potential losses.

Doubtful: Loans with a very high possibility of loss. However, because of important and reasonably specific pending factors, classification as a loss is deferred until a more exact status may be determined.

Loss: Loans are deemed uncollectible and are charged off immediately.

The following tables present the recorded investment in loans by class of loan that have been classified according to the internal classification system as of December 31, 2016 and 2015, respectively:



December 31, 2016
(Dollars in thousands)	Real Estate Construction		Real Estate Secured by Farmland		Real Estate Secured by 1-4 Family Residential		Other Real Estate Loans		Commercial		Consumer		Total
Pass	$	30,065	$	8,796	$	310,233	$	274,591	$	185,030	$	17,342	$	826,057
Special Mention	5,534		—		932		2,287		1,390		25		10,168
Substandard	28		7,972		2,584		4,759		2,179		1,909		19,431
Doubtful	—		—		125		1,976		2,168		—		4,269
Loss	—		—		171		—		—		1		172
Ending Balance	$	35,627	$	16,768	$	314,045	$	283,613	$	190,767	$	19,277	$	860,097



December 31, 2015
(Dollars in thousands)	Real Estate Construction		Real Estate Secured by Farmland		Real Estate Secured by 1-4 Family Residential		Other Real Estate Loans		Commercial		Consumer		Total
Pass	$	30,114	$	10,566	$	271,721	$	243,768	$	183,532	$	16,347	$	756,048
Special Mention	9,024		—		896		7,254		3,638		42		20,854
Substandard	535		8,496		6,818		5,827		2,301		1,943		25,920
Doubtful	—		—		661		1,186		1,011		—		2,858
Loss	—		—		—		—		—		1		1
Ending Balance	$	39,673	$	19,062	$	280,096	$	258,035	$	190,482	$	18,333	$	805,681

The following tables present loans individually evaluated for impairment by class of loan as of and for the year ended December 31, 2016 and 2015:



	December 31, 2016
(Dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Real estate loans:
Construction	$	28	$	28	$	—	$	28	$	—
Secured by farmland	7,972		7,972		—		7,951		239
Secured by 1-4 family residential	72		108		—		72		2
Other real estate loans	1,976		1,976		—		1,976		—
Commercial loans	585		3,585		—		706		16
Consumer loans	—		—		—		—		—
Total with no related allowance	$	10,633	$	13,669	$	—	$	10,733	$	257
With an allowance recorded:
Real estate loans:
Construction	$	—	$	—	$	—	$	—	$	—
Secured by farmland	—		—		—		—		—
Secured by 1-4 family residential	1,275		1,326		251		1,239		49
Other real estate loans	2,971		2,971		206		2,975		151
Commercial loans	4,019		4,019		2,539		5,088		—
Consumer loans	1,871		1,871		842		1,871		—
Total with a related allowance	$	10,136	$	10,187	$	3,838	$	11,173	$	200
Total	$	20,769	$	23,856	$	3,838	$	21,906	$	457



	December 31, 2015
(Dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Real estate loans:
Construction	$	100	$	100	$	—	$	106	$	—
Secured by farmland	7,903		7,903		—		7,903		237
Secured by 1-4 family residential	701		736		—		703		—
Other real estate loans	—		—		—		—		—
Commercial loans	458		493		—		490		17
Consumer loans	—		—		—		—		—
Total with no related allowance	$	9,162	$	9,232	$	—	$	9,202	$	254
With an allowance recorded:
Real estate loans:
Construction	$	103	$	103	$	53	$	109	$	—
Secured by farmland	—		—		—		—		—
Secured by 1-4 family residential	4,426		4,478		1,120		4,547		27
Other real estate loans	4,196		4,196		464		4,224		157
Commercial loans	1,059		4,059		27		2,315		100
Consumer loans	1,898		1,898		1,000		2,449		—
Total with a related allowance	$	11,682	$	14,734	$	2,664	$	13,644	$	284
Total	$	20,844	$	23,966	$	2,664	$	22,846	$	538

The “Recorded Investment” amounts in the table above represent the outstanding principal balance net of charge-offs and nonaccrual payments of interest applied to principal on each loan represented in the table. The “Unpaid Principal Balance” represents the outstanding principal balance on each loan represented in the table plus any amounts that have been charged-off on each loan and nonaccrual payments applied to principal.

Included in certain loan categories of impaired loans are troubled debt restructurings (“TDRs”). The total balance of TDRs at December 31, 2016 was $14.4 million of which $2.0 million were included in the Company’s nonaccrual loan totals at that date and $12.4 million represented loans performing as agreed according to the restructured terms. This compares with $15.5 million in total restructured loans at December 31, 2015. The amount of the valuation allowance related to TDRs was $1.1 million and $1.6 million as of December 31, 2016 and 2015 respectively.

Loan modifications that were classified as TDRs during the years ended December 31, 2016 and 2015 were as follows:



	Year Ended December 31,
(Dollars in thousands)	2016					2015
Class of Loan	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Real estate loans:
Construction	1	$	38	$	38	—	$	—	$	—
Secured by farmland	—	—		—		1	7,903		7,903
Secured by 1-4 family residential	2	809		806		—	—		—
Other real estate loans	2	1,240		1,240		4	4,283		3,872
Total real estate loans	5	2,087		2,084		5	12,186		11,775
Commercial loans	—	—		—		1	50		46
Consumer loans	—	—		—		1	3,000		3,000
Total	5	$	2,087	$	2,084	7	$	15,236	$	14,821

The interest only payment terms were extended for one of the contracts and the maturity dates were extended for four of the contracts classified as TDRs during 2016. There were no outstanding commitments to lend additional amounts to troubled debt restructured borrowers at December 31, 2016.

There were no TDR payment defaults as of December 31, 2016 and December 31, 2015. For purposes of this disclosure, a TDR payment default occurs when, within 12 months of the original TDR modification, either a full or partial charge-off occurs or a TDR becomes 90 days or more past due.