3.LOANS

Loans at period-end are as follows:

(in thousands)


	9/30/2018		12/31/2017
Commercial	$	85,214	$	80,070
Real estate construction		26,259		20,816
Real estate mortgage:
1-4 family residential		249,130		238,121
Multi-family residential		46,740		39,926
Non-farm & non-residential		194,693		192,074
Agricultural		63,275		59,176
Consumer		20,304		18,182
Other		123		170
Total	$	685,738	$	648,535

Activity in the allowance for loan losses for the nine month and three month periods indicated was as follows:


	Nine Months Ended September 30, 2018
	(in thousands)
	Beginning								Ending
	Balance		Charge-offs		Recoveries		Provision		Balance

Commercial	$	975	$	—	$	6	$	163	$	1,144
Real estate Construction		462		—		—		(42)		420
Real estate mortgage:
1-4 family residential		2,316		(91)		266		125		2,616
Multi-family residential		640		—		9		90		739
Non-farm & non-residential		1,554		—		—		95		1,649
Agricultural		494		—		149		(186)		457
Consumer		582		(166)		37		(33)		420
Other		18		(613)		482		173		60
Unallocated		679		—		—		15		694
	$	7,720	$	(870)	$	949	$	400	$	8,199


	Three Months Ended September 30, 2018
	(in thousands)
	Beginning								Ending
	Balance		Charge-offs		Recoveries		Provision		Balance

Commercial	$	1,183	$	—	$	—	$	(39)	$	1,144
Real estate construction		398		—		—		22		420
Real estate mortgage:
1-4 family residential		2,453		(28)		4		187		2,616
Multi-family residential		737		—		3		(1)		739
Non-farm & non-residential		1,604		—		—		45		1,649
Agricultural		475		—		3		(21)		457
Consumer		582		(73)		15		(104)		420
Other		49		(200)		141		70		60
Unallocated		703		—		—		(9)		694
	$	8,184	$	(301)	$	166	$	150	$	8,199


	Nine Months Ended September 30, 2017
	(in thousands)
	Beginning								Ending
	Balance		Charge-offs		Recoveries		Provision		Balance

Commercial	$	789	$	(35)	$	17	$	161	$	932
Real estate Construction		564		—		1		120		685
Real estate mortgage:
1-4 family residential		2,301		(203)		8		248		2,354
Multi-family residential		581		—		10		39		630
Non-farm & non-residential		1,203		(78)		—		304		1,429
Agricultural		856		—		47		(420)		483
Consumer		547		(128)		34		80		533
Other		60		(682)		573		91		42
Unallocated		640		—		—		27		667
	$	7,541	$	(1,126)	$	690	$	650	$	7,755


	Three Months Ended September 30, 2017
	(in thousands)
	Beginning								Ending
	Balance		Charge-offs		Recoveries		Provision		Balance

Commercial	$	1,006	$	(20)	$	2	$	(56)	$	932
Real estate Construction		584		—		—		101		685
Real estate mortgage:
1-4 family residential		2,575		(170)		3		(54)		2,354
Multi-family residential		645		—		3		(18)		630
Non-farm & non-residential		1,322		(78)		—		185		1,429
Agricultural		504		—		19		(40)		483
Consumer		561		(26)		6		(8)		533
Other		76		(214)		172		8		42
Unallocated		685		—		—		(18)		667
	$	7,958	$	(508)	$	205	$	100	$	7,755

The following tables present the balance in the allowance for loan losses and the recorded investment (excluding accrued interest receivable amounting to $2.9 million as of September 30, 2018 and $2.6 million at December 31, 2017) in loans by portfolio segment and based on impairment method as of September 30, 2018 and December 31, 2017:


	Individually		Collectively
As of September 30, 2018	Evaluated for		Evaluated for
(in thousands)	Impairment		Impairment		Total
Allowance for Loan Losses:
Commercial	$	191	$	953	$	1,144
Real estate construction		—		420		420
Real estate mortgage:
1-4 family residential		10		2,606		2,616
Multi-family residential		—		739		739
Non-farm & non-residential		—		1,649		1,649
Agricultural		—		457		457
Consumer		—		420		420
Other		—		60		60
Unallocated		—		694		694
	$	201	$	7,998	$	8,199
Loans:
Commercial	$	191	$	85,023	$	85,214
Real estate construction		374		25,885		26,259
Real estate mortgage:
1-4 family residential		214		248,916		249,130
Multi-family residential		685		46,055		46,740
Non-farm & non-residential		230		194,463		194,693
Agricultural		276		62,999		63,275
Consumer		—		20,304		20,304
Other		—		123		123
	$	1,970	$	683,768	$	685,738


	Individually		Collectively
As of December 31, 2017	Evaluated for		Evaluated for
(in thousands)	Impairment		Impairment		Total
Allowance for Loan Losses:
Commercial	$	—	$	975	$	975
Real estate construction		—		462		462
Real estate mortgage:
1-4 family residential		23		2,293		2,316
Multi-family residential		—		640		640
Non-farm & non-residential		—		1,554		1,554
Agricultural		—		494		494
Consumer		—		582		582
Other		—		18		18
Unallocated		—		679		679
	$	23	$	7,697	$	7,720
Loans:
Commercial	$	—	$	80,070	$	80,070
Real estate construction		—		20,816		20,816
Real estate mortgage:
1-4 family residential		206		237,915		238,121
Multi-family residential		—		39,926		39,926
Non-farm & non-residential		1,130		190,944		192,074
Agricultural		284		58,892		59,176
Consumer		—		18,182		18,182
Other		—		170		170
Total	$	1,620	$	646,915	$	648,535

The following table presents loans individually evaluated for impairment by class of loans as of and for the nine months ended September 30, 2018 (in thousands):


	Unpaid				Allowance for		Average		Interest		Cash Basis
	Principal		Recorded		Loan Losses		Recorded		Income		Interest
	Balance		Investment		Allocated		Investment		Recognized		Recognized
With no related allowance recorded:
Real estate construction	$	374	$	374	$	─	$	94	$	3	$	3
Real estate mortgage:
1-4 family residential		77		77		─		62		4		4
Multi-family residential		684		684		─		523		37		37
Non-farm and non-residential		230		230		─		1,061		8		8
Agricultural		277		277		─		312		11		11

With an allowance recorded:
Commercial		191		191		191		128		18		18
Real estate mortgage:
1-4 family residential		137		137		10		543		5		5
Total	$	1,970	$	1,970	$	201	$	2,723	$	86	$	86

The recorded investment in loans excludes accrued interest receivable and loan origination fees, net due to immateriality.

The following table presents loans individually evaluated for impairment by class of loans for the nine months ended September 30, 2017:


			Year to Date		Year to Date
	Average		Interest		Cash Basis
	Recorded		Income		Interest
(in thousands):	Investment		Recognized		Recognized
With no related allowance recorded:
Real estate mortgage:
Non-farm and non-residential	$	1,243	$	42	$	42
Agricultural		410		9		9

With an allowance recorded:
Real estate mortgage:
1-4 family residential		1,045		8		8
Total	$	2,698	$	59	$	59

The recorded investment in loans excludes accrued interest receivable and loan origination fees, net due to immateriality.

The following table presents loans individually evaluated for impairment by class of loans as of and for the year ended December 31, 2017 (in thousands):


	Unpaid				Allowance for		Average		Interest		Cash Basis
	Principal		Recorded		Loan Losses		Recorded		Income		Interest
	Balance		Investment		Allocated		Investment		Recognized		Recognized
With no related allowance recorded:
Real-estate mortgage:
Non-farm & non-residential	$	1,130	$	1,130	$	—	$	1,140	$	68	$	68
Agricultural		284		284		—		289		11		11

With an allowance recorded:
Real estate mortgage
1-4 family residential		206		206		23		208		8		8
Total	$	1,620	$	1,620	$	23	$	1,637	$	87	$	87

The following tables present loans individually evaluated for impairment by class of loans for the three months ended September 30, 2018 and September 30, 2017:


	Three Months Ending September 30, 2018
	Average		Interest		Cash Basis
	Recorded		Income		Interest
(in thousands):	Investment		Recognized		Recognized
With no related allowance recorded:
Real estate construction	$	374	$	—	$	—
Real estate mortgage:
1-4 family residential		78		1		1
Multi-family residential		691		13		13
Non-farm and non-residential		231		2		2
Agricultural		278		3		3

With an allowance recorded:
Commercial		257		—		—
Real estate mortgage:
1-4 family residential		138		2		2
Total	$	2,047	$	21	$	21


	Three Months Ending September 30, 2017
	Average		Interest		Cash Basis
	Recorded		Income		Interest
	Investment		Recognized		Recognized
With no related allowance recorded:
Real estate mortgage:
Non-farm and non-residential	$	2,431	$	17	$	17
Agricultural		491		2		2
With an allowance recorded:
Real estate mortgage:
1-4 family residential		455		1		1
Total	$	3,377	$	20	$	20

The following tables present the recorded investment in nonaccrual, loans past due over 90 days still on accrual and accruing troubled debt restructurings by class of loans as of September 30, 2018 and December 31, 2017:


			Loans Past Due
			Over 90 Days
As of September 30, 2018			Still		Troubled Debt
(in thousands)	Nonaccrual		Accruing		Restructurings
Commercial	$	214	$	23	$	—
Real estate construction		—		374		—
Real estate mortgage:
1-4 family residential		508		129		—
Non-farm & non-residential		225		59		—
Agricultural		91		—		—
Consumer		30		23		—
Total	$	1,068	$	608	$	—


			Loans Past Due
			Over 90 Days
As of December 31, 2017			Still		Troubled Debt
(in thousands)	Nonaccrual		Accruing		Restructurings
Commercial	$	—	$	32	$	—
Real estate mortgage:
1-4 family residential		1,086		184		—
Agricultural		96		—		—
Consumer		11		15		—
Total	$	1,193	$	231	$	—

Nonaccrual loans secured by real estate make up 77.1% of the total nonaccrual loan balances at September 30, 2018.

Nonaccrual loans and loans past due 90 days still on accrual include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans.

A loan is considered impaired when, based on current information and events, it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. All amounts due according to the contractual terms means that both the contractual interest payments and the contractual principal payments of a loan will be collected as scheduled in the loan agreement.

Nonaccrual loans are loans for which payments in full of principal or interest is not expected or which principal or interest has been in default for a period of 90 days or more unless the asset is both well secured and in the process of collection. Other impaired loans may be loans showing signs of weakness or interruptions in cash flow, but ultimately are current or less than 90 days past due with respect to principal and interest and for which we anticipate full payment of principal and interest but not in accordance with contractual terms.

Additional factors considered by management in determining impairment and non-accrual status include payment status, collateral value, availability of current financial information, and the probability of collecting all contractual principal and interest payments.

The following tables present the aging of the recorded investment in past due and non-accrual loans as of September 30, 2018 and December 31, 2017 by class of loans:


	30–59		60–89		Greater than				Total
As of September 30, 2018	Days		Days		90 Days				Past Due &		Loans Not
(in thousands)	Past Due		Past Due		Past Due		Non-accrual		Non-accrual		Past Due

Commercial	$	31	$	74	$	23	$	214	$	342	$	84,872
Real estate construction		1,104		—		374		—		1,478		24,781
Real estate mortgage:
1-4 family residential		1,418		313		129		508		2,368		246,762
Multi-family residential		—		—		—		—		—		46,740
Non-farm & non-residential		430		—		59		225		714		193,979
Agricultural		377		200		—		91		668		62,607
Consumer		132		41		23		30		226		20,078
Other		—		—		—		—		—		123
Total	$	3,492	$	628	$	608	$	1,068	$	5,796	$	679,942


	30–59		60–89		Greater than				Total
As of December 31, 2017	Days		Days		90 Days				Past Due &		Loans Not
(in thousands)	Past Due		Past Due		Past Due		Non-accrual		Non-accrual		Past Due

Commercial	$	678	$	44	$	32	$	—	$	754	$	79,316
Real estate construction		—		—		—		—		—		20,816
Real estate mortgage:
1-4 family residential		2,222		321		184		1,086		3,813		234,308
Multi-family residential		—		—		—		—		—		39,926
Non-farm & non-residential		162		—		—		—		162		191,912
Agricultural		249		—		—		96		345		58,831
Consumer		132		14		15		11		172		18,010
Other		—		—		—		—		—		170
Total	$	3,443	$	379	$	231	$	1,193	$	5,246	$	643,289

Troubled Debt Restructurings:

Management periodically reviews renewals and modifications of previously identified troubled debt restructurings (TDR), for which there was no principal forgiveness, to consider if it is appropriate to remove the TDR classification. If the borrower is no longer experiencing financial difficulty and the renewal/modification did not contain a concessionary interest rate or other concessionary terms, management considers the potential removal of the TDR classification. If deemed appropriate based upon current underwriting, the TDR classification is removed as the borrower has complied with the terms of the loan at the date of renewal/modification and there was a reasonable expectation that the borrower will continue to comply with the terms of the loan after the date of the renewal/modification. Additionally, TDR classification can be removed in circumstances in which the Company performs a non-concessionary re-modification of the loan at terms considered to be at market for loans with comparable risk and management expects the borrower will continue to perform under the re-modified terms based on the borrower's past history of performance.

The Company had no loans classified as troubled debt restructurings as of September 30, 2018 or December 31, 2017.

Credit Quality Indicators:

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, 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 quarterly basis. The Company uses the following definitions for risk ratings:

Special Mention. Loans classified as special mention have one or more potential weaknesses that deserve 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 net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined and documented 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 facts, 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 to be pass rated loans.

As of September 30, 2018 and December 31, 2017, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:


As of September 30, 2018			Special
(in thousands)	Pass		Mention		Substandard		Doubtful

Commercial	$	83,873	$	867	$	283	$	191
Real estate construction		24,989		872		398		—
Real estate mortgage:
1-4 family residential		242,181		2,794		4,155		—
Multi-family residential		43,555		2,500		685		—
Non-farm & non-residential		185,713		8,308		654		18
Agricultural		58,756		3,826		693		—
Total	$	639,067	$	19,167	$	6,868	$	209


As of December 31, 2017			Special
(in thousands)	Pass		Mention		Substandard		Doubtful

Commercial	$	78,326	$	1,703	$	41	$	—
Real estate construction		20,816		—		—		—
Real estate mortgage:
1-4 family residential		230,103		3,522		4,496		—
Multi-family residential		36,654		2,551		721		—
Non-farm & non-residential		183,230		7,240		1,604		—
Agricultural		54,765		3,682		729		—
Total	$	603,894	$	18,698	$	7,591	$	—

For consumer loans, the Company evaluates the credit quality based on the aging of the recorded investment in loans, which was previously presented. Non-performing consumer loans are loans which are greater than 90 days past due or on non-accrual status, and total $53 thousand at September 30, 2018 and $26 thousand at December 31, 2017.

Non-consumer loans with an outstanding balance less than $200 thousand are evaluated similarly to consumer loans. Loan performance is evaluated based on delinquency status. Both are reviewed at least quarterly and credit quality grades are updated as needed