Loans

The major classifications of loans follow:



	Aggregate Principal Amount
	June 30, 2016			December 31, 2015
Commercial	$	71,699		67,360
Agricultural & AG RE	44,071			50,121
Construction, land & development	22,207			26,016
Commercial RE	424,928			391,918
1-4 family mortgages	91,629			95,227
Consumer	3,220			2,905
Total Loans	$	657,754		633,547
Allowance for loan losses	(8,925		)	(8,591	)
Loans, net	$	648,829		624,956

The credit quality indicator utilized by the Company to internally analyze the loan portfolio is the internal risk rating. Internal risk ratings of 0 to 5 are considered pass credits, a risk rating of a 6 is special mention, a risk rating of a 7 is substandard, and a risk rating of an 8 is doubtful. Loans classified as pass credits have no material weaknesses and are performing as agreed. Loans classified as special mention have a potential weakness that deserves 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. 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 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. 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.

The following table presents the commercial loan portfolio by internal risk rating:



June 30, 2016
	Commercial								Commercial Real Estate
Internal Risk Rating	Closed-end		Lines of Credit		Agriculture & AG RE		Construction, Land & Development		Owner- Occupied		Non-Owner Occupied		Total
Pass	$	24,930	$	45,509	$	43,752	$	22,065	$	196,035	$	219,473	$	551,764
Special Mention	287		250		—		—		837		7,520		8,894
Substandard	173		550		319		142		622		441		2,247
Doubtful	—		—		—		—		—		—		—
Total	$	25,390	$	46,309	$	44,071	$	22,207	$	197,494	$	227,434	$	562,905



December 31, 2015
	Commercial								Commercial Real Estate
Internal Risk Rating	Closed-end		Lines of Credit		Agriculture & AG RE		Construction, Land & Development		Owner- Occupied		Non-Owner Occupied		Total
Pass	$	24,303	$	42,374	$	50,121	$	25,825	$	164,538	$	203,679	$	510,840
Special Mention	304		250		—		64		7,701		11,512		19,831
Substandard	129		—		—		127		412		4,076		4,744
Doubtful	—		—		—		—		—		—		—
Total	$	24,736	$	42,624	$	50,121	$	26,016	$	172,651	$	219,267	$	535,415

The following table presents the Retail Residential Loan Portfolio by Internal Risk Rating:



	Residential -- 1-4 family
	Senior Lien		Jr. Lien & Lines of Credit		Total
June 30, 2016
Unrated	$	47,289	$	38,928	$	86,217
Special mention	3,291		94		3,385
Substandard	1,372		655		2,027
Doubtful	—		—		—
Total	$	51,952	$	39,677	$	91,629



	Residential -- 1-4 family
	Senior Lien		Jr. Lien & Lines of Credit		Total
December 31, 2015
Unrated	$	48,319	$	41,380	$	89,699
Special mention	4,011		168		4,179
Substandard	1,036		313		1,349
Doubtful	—		—		—
Total	$	53,366	$	41,861	$	95,227

The retail residential loan portfolio is generally unrated. Delinquency is a typical factor in adversely risk rating a credit to a special mention or substandard.

An analysis of activity in the allowance for loan losses for the three months ended June 30, 2016 and 2015 follows:




	Commercial			Agriculture & AG RE			Construction, Land & Development			Commercial RE			1-4 Family Residential			Consumer		Total
June 30, 2016
Beginning Balance	$	752		$	119		$	516		$	5,541		$	2,042		$	4	$	8,974
Charge-offs	(18		)	—			—			(17		)	(88		)	—		(123		)
Recoveries	25			1			5			26			15			2		74
Provision	426			(17		)	(69		)	(307		)	(36		)	3		—
Ending Balance	$	1,185		$	103		$	452		$	5,243		$	1,933		$	9	$	8,925




	Commercial			Agriculture & AG RE		Construction, Land & Development			Commercial RE			1-4 Family Residential			Consumer			Total
June 30, 2015
Beginning Balance	$	1,139		$	50	$	437		$	4,018		$	2,342		$	9		$	7,995
Charge-offs	(357		)	—		—			(614		)	(63		)	(2		)	(1,036		)
Recoveries	64			—		6			1,585			12			19			1,686
Provision	190			15		(47		)	196			(340		)	(14		)	—
Ending Balance	$	1,036		$	65	$	396		$	5,185		$	1,951		$	12		$	8,645

An analysis of activity in the allowance for loan losses for the six months ended June 30, 2016 and 2015 follows:



	Commercial			Agriculture & AG RE			Construction, Land & Development			Commercial RE			1-4 Family Residential			Consumer			Total
June 30, 2016
Beginning Balance	$	648		$	97		$	523		$	5,681		$	1,628		$	14		$	8,591
Charge-offs	(18		)	—			—			(520		)	(97		)	(3		)	(638		)
Recoveries	69			55			24			471			51			2			672
Provision	486			(49		)	(95		)	(389		)	351			(4		)	300
Ending Balance	$	1,185		$	103		$	452		$	5,243		$	1,933		$	9		$	8,925



	Commercial			Agriculture & AG RE			Construction, Land & Development			Commercial RE			1-4 Family Residential			Consumer			Total
June 30, 2015
Beginning Balance	$	1,117		$	69		$	711		$	3,999		$	2,075		$	10		$	7,981
Charge-offs	(357		)	—			(3		)	(615		)	(130		)	(3		)	(1,108		)
Recoveries	90			—			27			1,607			21			27			1,772
Provision	186			(4		)	(339		)	194			(15		)	(22		)	—
Ending Balance	$	1,036		$	65		$	396		$	5,185		$	1,951		$	12		$	8,645

The following is an analysis on the balance in the allowance for loan losses and the recorded investment in impaired loans by portfolio segment based on impairment method as of June 30, 2016 and December 31, 2015:



June 30, 2016	Commercial		Agriculture & AG RE		Construction, Land & Development		Commercial RE		1-4 Family Residential		Consumer		Total
Allowance for loan losses:
Loans individually evaluated for impairment	$	564	$	—	$	58	$	333	$	402	$	3	$	1,360
Loans collectively evaluated for impairment	621		103		394		4,910		1,531		6		7,565
Total allowance balance:	$	1,185	$	103	$	452	$	5,243	$	1,933	$	9	$	8,925

Loan balances:
Loans individually evaluated for impairment	$	723	$	319	$	142	$	1,063	$	2,027	$	3	$	4,277
Loans collectively evaluated for impairment	70,976		43,752		22,065		423,865		89,602		3,217		653,477
Total loans balance:	$	71,699	$	44,071	$	22,207	$	424,928	$	91,629	$	3,220	$	657,754



December 31, 2015	Commercial		Agriculture & AG RE		Construction, Land & Development		Commercial RE		1-4 Family Residential		Consumer		Total
Allowance for loan losses:
Loans individually evaluated for impairment	$	80	$	—	$	10	$	1,178	$	325	$	1	$	1,594
Loans collectively evaluated for impairment	568		97		513		4,503		1,303		13		6,997
Total allowance balance:	$	648	$	97	$	523	$	5,681	$	1,628	$	14	$	8,591

Loan balances:
Loans individually evaluated for impairment	$	129	$	—	$	127	$	4,488	$	1,348	$	1	$	6,093
Loans collectively evaluated for impairment	67,231		50,121		25,889		387,430		93,879		2,904		627,454
Total loans balance:	$	67,360	$	50,121	$	26,016	$	391,918	$	95,227	$	2,905	$	633,547

Troubled Debt Restructurings:

The Company had troubled debt restructurings (“TDRs”) of $0.23 million and $0.24 million as of June 30, 2016 and December 31, 2015, respectively. Specific reserves were immaterial at June 30, 2016 and December 31, 2015. At June 30, 2016 nonaccrual TDR loans were $0.23 million and $0.24 million at December 31, 2015. There were no TDRs on accrual at June 30, 2016 and December 31, 2015. The Company had no commitments to lend additional amounts to a customer with an outstanding loan that is classified as TDR as of June 30, 2016 and December 31, 2015.

Over the course of a period, the terms of certain loans may be modified as troubled debt restructurings. The modification of the terms of such loans may include one or a combination of the following: a reduction of the stated interest rate of the loan to a below market rate or the payment modification to interest only. A modification involving a reduction of the stated interest rate of the loan would be for periods ranging from 6 months to 16 months. During the three months ended June 30, 2016 and June 30, 2015, there were no loans modified as troubled debt restructurings. During the six months ended June 30, 2016, there were no loans modified as troubled debt restructurings, compared to the same six month period ended June 30, 2015 when there was one senior lien 1-4 family residential loan modified as troubled debt restructurings with a pre-modification and post-modification recorded investment of $0.03 million.

The troubled debt restructurings described above did not have a material impact to the allowance for loan losses and did not result in any additional charge-offs during the six months ended June 30, 2015.

A loan is considered to be in payment default once it is 90 days contractually past due under the modified terms. In the six months ended June 30, 2016 and the six months ended June 30, 2015 there were no loans modified as troubled debt restructurings for which there was a payment default within twelve months following the modification.

The Company evaluates loan modifications to determine if the modification constitutes a troubled debt restructure. A loan modification constitutes a troubled debt restructure if the borrower is experiencing financial difficulty and the Company grants a concession it would not otherwise consider. In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its loans with the Company’s debt in the foreseeable future without the modification. This evaluation is performed under the Company’s internal underwriting guidelines. TDRs are separately identified for impairment disclosures. If a loan is considered to be collateral dependent loan, the TDR is reported, net, at the fair value of the collateral.

The following tables present data on impaired loans:



June 30, 2016	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		Cash Basis Interest Recognized
Loans with no related allowance recorded:
Commercial
Closed-end	$	—	$	—	$	—	$	7	$	—	$	—
Line of credit	—		—		—		—		—		—
Agricultural & AG RE	—		—		—		—		—		—
Construction, land & development	—		—		—		—		—		—
CRE - all other
Owner occupied	22		22		—		10		2		3
Non-owner occupied	—		—		—		—		—		—
1-4 family residential
Senior lien	262		284		—		231		—		—
Jr. lien & lines of credit	196		196		—		99		2		2
Consumer	—		—		—		—		—		—
Subtotal	480		502		—		347		4		5

Loans with an allowance recorded:
Commercial
Closed-end	$	173	$	173	$	106	$	144	$	2	$	2
Line of credit	550		550		458		150		13		12
Agricultural & AG RE	319		319		—		80		17		7
Construction, land & development	142		433		58		153		2		—
CRE - all other
Owner occupied	600		600		124		469		7		8
Non-owner occupied	441		441		209		2,928		—		—
1-4 family residential
Senior lien	1,110		1,127		253		1,063		11		8
Jr. lien & lines of credit	459		459		149		323		4		4
Consumer	3		3		3		1		—		—
Subtotal	3,797		4,105		1,360		5,311		56		41
Total	$	4,277	$	4,607	$	1,360	$	5,658	$	60	$	46



December 31, 2015	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		Cash Basis Interest Recognized
Loans with no related allowance recorded:
Commercial
Closed-end	$	2	$	2	$	—	$	15	$	1	$	1
Line of credit	—		—		—		—		—		—
Agricultural & AG RE	—		—		—		—		—		—
Construction, land & development	—		—		—		299		—		—
CRE - all other
Owner occupied	6		6		—		78		—		—
Non-owner occupied	—		—		—		—		—		—
1-4 family residential
Senior lien	176		176		—		277		—		—
Jr. lien & lines of credit	71		71		—		88		3		3
Consumer	—		—		—		—		—		—
Subtotal	255		255		—		757		4		4

Loans with an allowance recorded:
Commercial
Closed-end	$	127	$	127	$	80	$	199	$	2	$	2
Line of credit	—		—		—		—		—		—
Agricultural & AG RE	—		—		—		—		—		—
Construction, land & development	127		419		10		120		—		—
CRE - all other
Owner occupied	406		541		100		586		11		9
Non-owner occupied	4,076		4,955		1,078		4,101		17		17
1-4 family residential
Senior lien	859		984		215		1,003		14		10
Jr. lien & lines of credit	242		242		110		230		5		5
Consumer	1		—		1		—		—		—
Subtotal	5,838		7,268		1,594		6,239		49		43
Total	$	6,093	$	7,523	$	1,594	$	6,996	$	53	$	47

The Company determined that there were $1.7 million of loans that were classified as impaired but were considered to be performing (i.e., loans which are accruing interest) loans at June 30, 2016 compared to $0.1 million at December 31, 2015.

The following table represents information related to loan portfolio aging:



June 30, 2016	30 - 59 Days Past Due		60 - 89 Days Past Due		90 Days Past Due or Nonaccrual		Total Past Due		Current		Total Loans
Commercial
Closed-end	$	—	$	—	$	114	$	114	$	25,276	$	25,390
Line of credit	30		100		—		130		46,179		46,309
Agricultural & AG RE	—		—		—		—		44,071		44,071
Construction, land & development	—		—		79		79		22,128		22,207
CRE - all other
Owner occupied	361		—		391		752		196,742		197,494
Non-owner occupied	—		—		441		441		226,993		227,434
1-4 family residential
Senior lien	21		166		891		1,078		50,874		51,952
Jr. lien & lines of credit	226		113		610		949		38,728		39,677
Consumer	—		—		—		—		3,220		3,220
Total	$	638	$	379	$	2,526	$	3,543	$	654,211	$	657,754



December 31, 2015	30 - 59 Days Past Due		60 - 89 Days Past Due		90 Days Past Due or Nonaccrual		Total Past Due		Current		Total Loans
Commercial
Closed-end	$	58	$	—	$	130	$	188	$	24,548	$	24,736
Line of credit	—		—		—		—		42,624		42,624
Agricultural & AG RE	—		—		—		—		50,121		50,121
Construction, land & development	—		—		127		127		25,889		26,016
CRE - all other
Owner occupied	985		—		412		1,397		171,254		172,651
Non-owner occupied	—		—		4,076		4,076		215,191		219,267
1-4 family residential
Senior lien	1,481		21		994		2,496		50,870		53,366
Jr. lien & lines of credit	230		258		268		756		41,105		41,861
Consumer	1		1		—		2		2,903		2,905
Total	$	2,755	$	280	$	6,007	$	9,042	$	624,505	$	633,547

Nonperforming loans include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans. There were no loans past due over 90 days and still accruing interest at June 30, 2016 or at December 31, 2015.