Loans

The major classifications of loans follow:



	Aggregate Principal Amount
	September 30, 2016			December 31, 2015
Commercial	$	68,046		67,360
Agricultural & AG RE	45,520			50,121
Construction, land & development	32,046			26,016
Commercial RE	427,761			391,918
1-4 family mortgages	90,260			95,227
Consumer	3,162			2,905
Total Loans	$	666,795		633,547
Allowance for loan losses	(9,021		)	(8,591	)
Loans, net	$	657,774		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:



September 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	$	23,659	$	42,225	$	45,188	$	31,905	$	192,864	$	224,941	$	560,782
Special Mention	712		740		—		—		1,931		7,342		10,725
Substandard	165		545		332		141		251		432		1,866
Doubtful	—		—		—		—		—		—		—
Total	$	24,536	$	43,510	$	45,520	$	32,046	$	195,046	$	232,715	$	573,373



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
September 30, 2016
Unrated	$	46,719	$	38,144	$	84,863
Special mention	3,208		93		3,301
Substandard	1,334		762		2,096
Doubtful	—		—		—
Total	$	51,261	$	38,999	$	90,260



	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 September 30, 2016 and 2015 follows:




	Commercial			Agriculture & AG RE		Construction, Land & Development		Commercial RE			1-4 Family Residential			Consumer			Total
September 30, 2016
Beginning Balance	$	1,185		$	103	$	452	$	5,243		$	1,933		$	9		$	8,925
Charge-offs	(20		)	—		—		—			(73		)	—			(93		)
Recoveries	91			—		4		24			69			1			189
Provision	12			5		152		(234		)	70			(5		)	—
Ending Balance	$	1,268		$	108	$	608	$	5,033		$	1,999		$	5		$	9,021




	Commercial			Agriculture & AG RE			Construction, Land & Development		Commercial RE			1-4 Family Residential			Consumer			Total
September 30, 2015
Beginning Balance	$	1,036		$	65		$	396	$	5,185		$	1,951		$	12		$	8,645
Charge-offs	—			—			—		(24		)	(325		)	(1		)	(350		)
Recoveries	54			2			16		9			24			3			108
Provision	(121		)	(1		)	66		35			25			(4		)	—
Ending Balance	$	969		$	66		$	478	$	5,205		$	1,675		$	10		$	8,403

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



	Commercial			Agriculture & AG RE			Construction, Land & Development		Commercial RE			1-4 Family Residential			Consumer			Total
September 30, 2016
Beginning Balance	$	648		$	97		$	523	$	5,681		$	1,628		$	14		$	8,591
Charge-offs	(38		)	—			—		(520		)	(170		)	(3		)	(731		)
Recoveries	160			55			28		495			120			3			861
Provision	498			(44		)	57		(623		)	421			(9		)	300
Ending Balance	$	1,268		$	108		$	608	$	5,033		$	1,999		$	5		$	9,021



	Commercial			Agriculture & AG RE			Construction, Land & Development			Commercial RE			1-4 Family Residential			Consumer			Total
September 30, 2015
Beginning Balance	$	1,117		$	69		$	711		$	3,999		$	2,075		$	10		$	7,981
Charge-offs	(357		)	—			(3		)	(639		)	(455		)	(4		)	(1,458		)
Recoveries	144			2			43			1,616			45			30			1,880
Provision	65			(5		)	(273		)	229			10			(26		)	—
Ending Balance	$	969		$	66		$	478		$	5,205		$	1,675		$	10		$	8,403

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 September 30, 2016 and December 31, 2015:



September 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	$	553	$	—	$	57	$	314	$	582	$	2	$	1,508
Loans collectively evaluated for impairment	715		108		551		4,719		1,417		3		7,513
Total allowance balance:	$	1,268	$	108	$	608	$	5,033	$	1,999	$	5	$	9,021

Loan balances:
Loans individually evaluated for impairment	$	711	$	341	$	141	$	686	$	2,097	$	2	$	3,978
Loans collectively evaluated for impairment	67,335		45,179		31,905		427,075		88,163		3,160		662,817
Total loans balance:	$	68,046	$	45,520	$	32,046	$	427,761	$	90,260	$	3,162	$	666,795



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 September 30, 2016 and December 31, 2015, respectively. Specific reserves were immaterial at September 30, 2016 and December 31, 2015. At September 30, 2016 nonaccrual TDR loans were $0.23 million and $0.24 million at December 31, 2015. There were no TDRs on accrual at September 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 September 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 September 30, 2016 and September 30, 2015, there were no loans modified as troubled debt restructurings. During the nine months ended September 30, 2016, there were no loans modified as troubled debt restructurings, compared to the same nine month period ended September 30, 2015 when there were two senior lien 1-4 family residential loan modified as troubled debt restructurings with a pre-modification and post-modification recorded investment of $0.1 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 nine months ended September 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 nine months ended September 30, 2016 and the nine months ended September 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:



September 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	$	—	$	—	$	—	$	—	$	—	$	—
Line of credit	—		—		—		—		—		—
Agricultural & AG RE	341		341		—		85		18		5
Construction, land & development	79		257		—		20		—		—
CRE - all other
Owner occupied	3		3		—		9		—		2
Non-owner occupied	—		—		—		—		—		—
1-4 family residential
Senior lien	252		252		—		218		—		—
Jr. lien & lines of credit	192		192		—		119		4		4
Consumer	—		—		—		—		—		—
Subtotal	867		1,045		—		451		22		11

Loans with an allowance recorded:
Commercial
Closed-end	$	164	$	164	$	102	$	165	$	2	$	2
Line of credit	547		547		451		286		20		19
Agricultural & AG RE	—		—		—		80		—		—
Construction, land & development	62		62		57		115		3		1
CRE - all other
Owner occupied	252		252		113		415		10		7
Non-owner occupied	431		431		201		2,129		—		—
1-4 family residential
Senior lien	1,082		1,100		284		1,079		15		14
Jr. lien & lines of credit	571		571		298		419		12		12
Consumer	2		2		2		2		—		—
Subtotal	3,111		3,129		1,508		4,690		62		55
Total	$	3,978	$	4,174	$	1,508	$	5,141	$	84	$	66



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 September 30, 2016 compared to $0.1 million at December 31, 2015.

The following table represents information related to loan portfolio aging:



September 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	$	—	$	—	$	108	$	108	$	24,428	$	24,536
Line of credit	—		—		—		—		43,510		43,510
Agricultural & AG RE	331		—		—		331		45,189		45,520
Construction, land & development	—		—		79		79		31,967		32,046
CRE - all other
Owner occupied	173		—		20		193		194,853		195,046
Non-owner occupied	—		—		432		432		232,283		232,715
1-4 family residential
Senior lien	—		296		965		1,261		50,000		51,261
Jr. lien & lines of credit	214		35		718		967		38,032		38,999
Consumer	—		—		—		—		3,162		3,162
Total	$	718	$	331	$	2,322	$	3,371	$	663,424	$	666,795



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 September 30, 2016 or at December 31, 2015.