Loans

The major classifications of loans follow:



	Aggregate Principal Amount
	March 31, 2017			December 31, 2016
Commercial	$	92,004		80,287
Agricultural & AG RE	45,283			49,121
Construction, land & development	25,994			28,771
Commercial RE	438,933			439,326
1-4 family mortgages	82,809			85,152
Consumer	3,069			3,118
Total Loans	$	688,092		685,775
Allowance for loan losses	(8,944		)	(8,904	)
Loans, net	$	679,148		676,871

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:



March 31, 2017
	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	$	26,521	$	63,072	$	45,283	$	25,901	$	187,274	$	243,071	$	591,122
Special Mention	674		764		—		—		3,532		1,839		6,809
Substandard	160		813		—		93		149		3,068		4,283
Doubtful	—		—		—		—		—		—		—
Total	$	27,355	$	64,649	$	45,283	$	25,994	$	190,955	$	247,978	$	602,214



December 31, 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	$	24,984	$	53,256	$	49,121	$	28,652	$	194,458	$	236,423	$	586,894
Special Mention	687		764		—		—		1,390		3,824		6,665
Substandard	175		421		—		119		151		3,080		3,946
Doubtful	—		—		—		—		—		—		—
Total	$	25,846	$	54,441	$	49,121	$	28,771	$	195,999	$	243,327	$	597,505

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
March 31, 2017
Unrated	$	41,704	$	36,478	$	78,182
Special mention	78		85		163
Substandard	3,990		474		4,464
Doubtful	—		—		—
Total	$	45,772	$	37,037	$	82,809



	Residential -- 1-4 family
	Senior Lien		Jr. Lien & Lines of Credit		Total
December 31, 2016
Unrated	$	42,772	$	37,561	$	80,333
Special mention	89		13		102
Substandard	3,969		748		4,717
Doubtful	—		—		—
Total	$	46,830	$	38,322	$	85,152

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 March 31, 2017 and 2016 follows:



	Commercial		Agriculture & AG RE			Construction, Land & Development			Commercial RE			1-4 Family Residential			Consumer			Total
March 31, 2017
Beginning Balance	$	1,231	$	120		$	645		$	5,168		$	1,736		$	4		$	8,904
Charge-offs	—		—			—			—			(55		)	—			(55		)
Recoveries	32		—			4			54			5			—			95
Provision	233		(32		)	(77		)	(442		)	320			(2		)	—
Ending Balance	$	1,496	$	88		$	572		$	4,780		$	2,006		$	2		$	8,944



	Commercial		Agriculture & AG RE			Construction, Land & Development			Commercial RE			1-4 Family Residential			Consumer			Total
March 31, 2016
Beginning Balance	$	648	$	97		$	523		$	5,681		$	1,628		$	14		$	8,591
Charge-offs	—		—			—			(503		)	(9		)	(3		)	(515		)
Recoveries	44		54			19			445			36			—			598
Provision	60		(32		)	(26		)	(82		)	387			(7		)	300
Ending Balance	$	752	$	119		$	516		$	5,541		$	2,042		$	4		$	8,974

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 March 31, 2017 and December 31, 2016:



March 31, 2017	Commercial		Agriculture & AG RE		Construction, Land & Development		Commercial RE		1-4 Family Residential		Consumer		Total
Allowance for loan losses:
Loans individually evaluated for impairment	$	724	$	—	$	59	$	575	$	1,184	$	—	$	2,542
Loans collectively evaluated for impairment	772		88		513		4,205		822		2		6,402
Total allowance balance:	$	1,496	$	88	$	572	$	4,780	$	2,006	$	2	$	8,944

Loan balances:
Loans individually evaluated for impairment	$	975	$	—	$	103	$	3,230	$	4,550	$	—	$	8,858
Loans collectively evaluated for impairment	91,029		45,283		25,891		435,703		78,259		3,069		679,234
Total loans balance:	$	92,004	$	45,283	$	25,994	$	438,933	$	82,809	$	3,069	$	688,092



December 31, 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	$	493	$	—	$	60	$	92	$	488	$	—	$	1,133
Loans collectively evaluated for impairment	738		120		585		5,076		1,248		4		7,771
Total allowance balance:	$	1,231	$	120	$	645	$	5,168	$	1,736	$	4	$	8,904

Loan balances:
Loans individually evaluated for impairment	$	598	$	—	$	129	$	451	$	1,709	$	—	$	2,887
Loans collectively evaluated for impairment	79,689		49,121		28,642		438,875		83,443		3,118		682,888
Total loans balance:	$	80,287	$	49,121	$	28,771	$	439,326	$	85,152	$	3,118	$	685,775

Troubled Debt Restructurings:

The Company had troubled debt restructurings (“TDRs”) of $5.9 million and $0.2 million as of March 31, 2017 and December 31, 2016, respectively. Specific reserves were $1.3 million at March 31, 2017 and immaterial at December 31, 2016. At March 31, 2017 nonaccrual TDR loans were $5.9 million and $0.1 million at December 31, 2016. There were $0.02 million of TDRs on accrual at March 31, 2017 and December 31, 2016. The Company had no commitments to lend additional amounts to a customer with an outstanding loan that is classified as TDR as of March 31, 2017 and December 31, 2016.

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 March 31, 2017 there were $5.8 million loans modified as troubled debt restructurings. There were no loans modified as troubled debt restructurings during the three months ended March 31, 2016.

The following table presents the loans by class modified as troubled debt restructurings that occurred during the three months ended March 31, 2017:




	For the Three Months Ended March 31, 2017
	Number of Loans	Pre-Modification Recorded Investment		Post-Modification Recorded Investment
CRE - all other
Non-owner occupied	2	2,770		2,770
1-4 family residential
Senior lien	1	3,011		3,011
Total	3	$	5,781	$	5,781

A loan is considered to be in payment default once it is 90 days contractually past due under the modified terms. In the three months ended March 31, 2017 and the three months ended March 31, 2016 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 on the probability of default in the foreseeable future without the Company granting a 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:



March 31, 2017	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	$	10	$	10	$	—	$	3	$	—	$	—
Line of credit	—		—		—		—		—		—
Agricultural & AG RE	—		—		—		—		—		—
Construction, land & development	32		209		—		28		—		—
CRE - all other
Owner occupied	133		275		—		41		3		3
Non-owner occupied	—		—		—		—		—		—
1-4 family residential
Senior lien	363		381		—		218		—		—
Jr. lien & lines of credit	270		270		—		166		1		1
Consumer	—		—		—		—		—		—
Subtotal	808		1,145		—		456		4		4

Loans with an allowance recorded:
Commercial
Closed-end	$	150	$	150	$	104	$	123	$	—	$	—
Line of credit	814		814		620		484		4		3
Agricultural & AG RE	—		—		—		—		—		—
Construction, land & development	72		72		59		70		1		—
CRE - all other
Owner occupied	16		16		16		217		—		—
Non-owner occupied	3,081		3,080		559		989		36		22
1-4 family residential
Senior lien	3,640		3,640		1,005		1,463		32		20
Jr. lien & lines of credit	277		277		179		330		3		3
Consumer	—		—		—		—		—		—
Subtotal	8,050		8,049		2,542		3,676		76		48
Total	$	8,858	$	9,194	$	2,542	$	4,132	$	80	$	52



December 31, 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	—		—		—		85		—		—
Construction, land & development	57		235		—		19		—		—
CRE - all other
Owner occupied	134		134		—		9		7		9
Non-owner occupied	—		—		—		—		—		—
1-4 family residential
Senior lien	331		349		—		180		—		—
Jr. lien & lines of credit	433		433		—		116		7		7
Consumer	—		—		—		—		—		—
Subtotal	955		1,151		—		409		14		16

Loans with an allowance recorded:
Commercial
Closed-end	$	175	$	175	$	110	$	135	$	4	$	4
Line of credit	423		422		383		293		26		25
Agricultural & AG RE	—		—		—		80		—		—
Construction, land & development	72		72		60		84		4		1
CRE - all other
Owner occupied	17		17		17		313		—		—
Non-owner occupied	300		300		75		1,110		—		—
1-4 family residential
Senior lien	629		629		298		862		19		19
Jr. lien & lines of credit	316		316		190		349		14		14
Consumer	—		—		—		1		—		—
Subtotal	1,932		1,931		1,133		3,227		67		63
Total	$	2,887	$	3,082	$	1,133	$	3,636	$	81	$	79

The Company determined that there were $0.9 million of loans that were classified as impaired but were considered to be performing (i.e., loans which are accruing interest) loans at March 31, 2017 compared to $1.3 million at December 31, 2016.

The following table represents information related to loan portfolio aging:



March 31, 2017	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	$	—	$	664	$	150	$	814	$	26,541	$	27,355
Line of credit	—		298		348		646		64,003		64,649
Agricultural & AG RE	—		—		—		—		45,283		45,283
Construction, land & development	181		—		32		213		25,781		25,994
CRE - all other
Owner occupied	71		735		149		955		190,000		190,955
Non-owner occupied	645		—		2,770		3,415		244,563		247,978
1-4 family residential
Senior lien	1,162		195		3,969		5,326		40,446		45,772
Jr. lien & lines of credit	169		56		546		771		36,266		37,037
Consumer	1		—		—		1		3,068		3,069
Total	$	2,229	$	1,948	$	7,964	$	12,141	$	675,951	$	688,092



December 31, 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	$	20	$	—	$	122	$	142	$	25,704	$	25,846
Line of credit	—		—		—		—		54,441		54,441
Agricultural & AG RE	—		—		—		—		49,121		49,121
Construction, land & development	133		—		57		190		28,581		28,771
CRE - all other
Owner occupied	—		—		151		151		195,848		195,999
Non-owner occupied	588		—		—		588		242,739		243,327
1-4 family residential
Senior lien	664		152		577		1,393		45,437		46,830
Jr. lien & lines of credit	432		19		705		1,156		37,166		38,322
Consumer	—		—		—		—		3,118		3,118
Total	$	1,837	$	171	$	1,612	$	3,620	$	682,155	$	685,775

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 March 31, 2017 or at December 31, 2016.