LOANS AND ALLOWANCE FOR LOAN LOSSES

The following table summarizes the Company’s loan portfolio by type of loan as of:



	June 30, 2018			December 31, 2017
Commercial and industrial	$	234,396		$	197,508
Real estate:
Construction and development	211,745			196,774
Commercial real estate	570,448			418,137
Farmland	68,272			59,023
1-4 family residential	392,940			374,371
Multi-family residential	39,023			36,574
Consumer	52,949			51,267
Agricultural	23,362			25,596
Overdrafts	339			294
Total loans	1,593,474			1,359,544
Net of:
Deferred loan fees	857			1,094
Allowance for loan losses	(13,890		)	(12,859		)
Total net loans	$	1,580,441		$	1,347,779

The following tables present the activity in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method for the six months ended June 30, 2018, for the year ended December 31, 2017 and for the six months ended June 30, 2017:



For the Six Months Ended June 30, 2018	Commercial and industrial			Construction and development			Commercial real estate			Farmland		1-4 family residential			Multi-family residential		Consumer			Agricultural			Overdrafts			Total
Allowance for loan losses:
Beginning balance	$	1,581		$	1,724		$	4,585		$	523	$	3,022		$	629	$	602		$	187		$	6		$	12,859
Provision for loan losses	210			(82		)	1,004			125		(227		)	69		37			52			62			1,250
Loans charged-off	(51		)	—			(33		)	—		(13		)	—		(143		)	(1		)	(76		)	(317		)
Recoveries	2			—			—			—		50			—		26			—			20			98
Ending balance	$	1,742		$	1,642		$	5,556		$	648	$	2,832		$	698	$	522		$	238		$	12		$	13,890
Allowance ending balance:
Individually evaluated for impairment	$	209		$	—		$	49		$	78	$	9		$	—	$	—		$	—		$	—		$	345
Collectively evaluated for impairment	1,533			1,642			5,507			570		2,823			698		522			238			12			13,545
Ending balance	$	1,742		$	1,642		$	5,556		$	648	$	2,832		$	698	$	522		$	238		$	12		$	13,890
Loans:
Individually evaluated for impairment	$	1,076		$	—		$	6,530		$	222	$	1,438		$	—	$	—		$	493		$	—		$	9,759
Collectively evaluated for impairment	233,320			211,745			563,918			68,050		391,502			39,023		52,949			22,869			339			1,583,715
Ending balance	$	234,396		$	211,745		$	570,448		$	68,272	$	392,940		$	39,023	$	52,949		$	23,362		$	339		$	1,593,474



For the year ended December 31, 2017	Commercial and industrial			Construction and development		Commercial real estate			Farmland		1-4 family residential			Multi-family residential		Consumer			Agricultural			Overdrafts			Total
Allowance for loan losses:
Beginning balance	$	1,592		$	1,161	$	3,264		$	482	$	3,960		$	281	$	585		$	153		$	6		$	11,484
Provision for loan losses	272			563		1,405			41		(418		)	348		253			276			110			2,850
Loans charged-off	(1,080		)	—		(84		)	—		(543		)	—		(344		)	(242		)	(165		)	(2,458		)
Recoveries	797			—		—			—		23			—		108			—			55			983
Ending balance	$	1,581		$	1,724	$	4,585		$	523	$	3,022		$	629	$	602		$	187		$	6		$	12,859
Allowance ending balance:
Individually evaluated for impairment	$	17		$	—	$	27		$	85	$	5		$	—	$	—		$	—		$	—		$	134
Collectively evaluated for impairment	1,564			1,724		4,558			438		3,017			629		602			187			6			12,725
Ending balance	$	1,581		$	1,724	$	4,585		$	523	$	3,022		$	629	$	602		$	187		$	6		$	12,859
Loans:
Individually evaluated for impairment	$	463		$	—	$	4,258		$	163	$	842		$	217	$	—		$	397		$	—		$	6,340
Collectively evaluated for impairment	197,045			196,774		413,879			58,860		373,529			36,357		51,267			25,199			294			1,353,204
Ending balance	$	197,508		$	196,774	$	418,137		$	59,023	$	374,371		$	36,574	$	51,267		$	25,596		$	294		$	1,359,544



For the Six Months Ended June 30, 2017	Commercial and industrial			Construction and development		Commercial real estate			Farmland		1-4 family residential			Multi-family residential			Consumer			Agricultural			Overdrafts			Total
Allowance for loan losses:
Beginning balance	$	1,592		$	1,161	$	3,264		$	482	$	3,960		$	281		$	585		$	153		$	6		$	11,484
Provision for loan losses	464			393		284			59		(69		)	(12		)	66			222			43			1,450
Loans charged-off	(48		)	—		(84		)	—		(186		)	—			(158		)	(4		)	(70		)	(550		)
Recoveries	—			—		—			—		21			—			92			—			28			141
Ending balance	$	2,008		$	1,554	$	3,464		$	541	$	3,726		$	269		$	585		$	371		$	7		$	12,525
Allowance ending balance:
Individually evaluated for impairment	$	246		$	—	$	31		$	92	$	139		$	—		$	—		$	225		$	—		$	733
Collectively evaluated for impairment	1,762			1,554		3,433			449		3,587			269			585			146			7			11,792
Ending balance	$	2,008		$	1,554	$	3,464		$	541	$	3,726		$	269		$	585		$	371		$	7		$	12,525
Loans:
Individually evaluated for impairment	$	1,174		$	—	$	3,751		$	170	$	2,726		$	241		$	192		$	789		$	—		$	9,043
Collectively evaluated for impairment	216,323			177,600		374,971			63,669		353,731			28,592			51,485			21,065			364			1,287,800
Ending balance	$	217,497		$	177,600	$	378,722		$	63,839	$	356,457		$	28,833		$	51,677		$	21,854		$	364		$	1,296,843

Credit Quality

The Company closely monitors economic conditions and loan performance trends to manage and evaluate the exposure to credit risk. Key factors tracked by the Company and utilized in evaluating the credit quality of the loan portfolio include trends in delinquency ratios, the level of nonperforming assets, borrower’s repayment capacity, and collateral coverage.

Assets are graded “pass” when the relationship exhibits acceptable credit risk and indicates repayment ability, tolerable collateral coverage and reasonable performance history. Lending relationships exhibiting potentially significant credit risk and marginal repayment ability and/or asset protection are graded “special mention.” Assets 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 must have a well-defined weakness that jeopardizes the liquidation of the debt. Substandard graded loans are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. Assets graded “doubtful” are substandard graded loans that have added characteristics that make collection or liquidation in full improbable. The Company typically measures impairment based on the present value of expected future cash flows, discounted at the loan's effective interest rate, or based on the loan's observable market price or the fair value of the collateral if the loan is collateral-dependent.

The following tables summarize the credit exposure in the Company’s consumer and commercial loan portfolios as of:



June 30, 2018	Commercial and industrial		Construction and development		Commercial real estate		Farmland		1-4 family residential		Multi-family residential		Consumer and Overdrafts		Agricultural		Total
Grade:
Pass	$	231,884	$	210,839	$	557,319	$	67,901	$	391,447	$	37,768	$	53,219	$	22,661	$	1,573,038
Special mention	1,585		906		6,572		52		648		1,255		49		150		11,217
Substandard	927		—		6,557		319		845		—		20		551		9,219
Total	$	234,396	$	211,745	$	570,448	$	68,272	$	392,940	$	39,023	$	53,288	$	23,362	$	1,593,474



December 31, 2017	Commercial and industrial		Construction and development		Commercial real estate		Farmland		1-4 family residential		Multi-family residential		Consumer and Overdrafts		Agricultural		Total
Grade:
Pass	$	196,890	$	196,515	$	412,488	$	58,623	$	373,154	$	16,073	$	51,409	$	24,650	$	1,329,802
Special mention	348		259		1,135		226		442		20,284		65		454		23,213
Substandard	270		—		4,514		174		775		217		87		492		6,529
Total	$	197,508	$	196,774	$	418,137	$	59,023	$	374,371	$	36,574	$	51,561	$	25,596	$	1,359,544

The following tables summarize the payment status of loans in the Company’s total loan portfolio, including an aging of delinquent loans, loans 90 days or more past due continuing to accrue interest and loans classified as nonperforming as of:



June 30, 2018	30 to 59 Days Past Due		60 to 89 Days Past Due		90 Days and Greater Past Due		Total Past Due		Current		Total Loans		Recorded Investment > 90 Days and Accruing
Commercial and industrial	$	509	$	344	$	775	$	1,628	$	232,768	$	234,396	$	720
Real estate:
Construction and development	602		129		530		1,261		210,484		211,745		530
Commercial real estate	1,978		—		3,715		5,693		564,755		570,448		—
Farmland	84		—		—		84		68,188		68,272		—
1-4 family residential	2,026		748		845		3,619		389,321		392,940		—
Multi-family residential	—		—		—		—		39,023		39,023		—
Consumer	338		68		20		426		52,523		52,949		—
Agricultural	252		—		79		331		23,031		23,362		—
Overdrafts	—		—		—		—		339		339		—
Total	$	5,789	$	1,289	$	5,964	$	13,042	$	1,580,432	$	1,593,474	$	1,250



December 31, 2017	30 to 59 Days Past Due		60 to 89 Days Past Due		90 Days and Greater Past Due		Total Past Due		Current		Total Loans		Recorded Investment > 90 Days and Accruing
Commercial and industrial	$	1,273	$	93	$	17	$	1,383	$	196,125	$	197,508	$	—
Real estate:
Construction and development	117		—		—		117		196,657		196,774		—
Commercial real estate	192		265		1,067		1,524		416,613		418,137		—
Farmland	139		—		6		145		58,878		59,023		—
1-4 family residential	3,998		416		800		5,214		369,157		374,371		—
Multi-family residential	—		—		217		217		36,357		36,574		—
Consumer	381		69		87		537		50,730		51,267		—
Agricultural	204		2		—		206		25,390		25,596		—
Overdrafts	—		—		—		—		294		294		—
Total	$	6,304	$	845	$	2,194	$	9,343	$	1,350,201	$	1,359,544	$	—

The following table presents information regarding nonaccrual loans as of:



	June 30, 2018		December 31, 2017
Commercial and industrial	$	71	$	77
Real estate:
Commercial real estate	3,950		1,422
Farmland	246		163
1-4 family residential	2,650		1,937
Multi-family residential	—		217
Consumer	149		138
Agricultural	241		50
Total	$	7,307	$	4,004

Impaired Loans and Troubled Debt Restructurings

A troubled debt restructuring (“TDR”) is a restructuring in which a bank, for economic or legal reasons related to a borrower's financial difficulties, grants a concession to the borrower that it would not otherwise consider. A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due from the borrower in accordance with original contractual terms of the loan. Loans with insignificant delays or insignificant short falls in the amount of payments expected to be collected are not considered to be impaired. Loans defined as individually impaired, based on applicable accounting guidance, include larger balance nonperforming loans and TDRs.

The outstanding balances of TDRs are shown below:



	June 30, 2018		December 31, 2017
Nonaccrual TDRs	$	—	$	—
Performing TDRs	737		657
Total	$	737	$	657
Specific reserves on TDRs	$	14	$	17

The following tables present loans by class modified as TDRs that occurred during the six months ended June 30, 2018 and 2017:



Six Months Ended June 30, 2018	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled Debt Restructurings:
1-4 family residential	1	$	15	$	15
Farmland	1	78		78
Total	2	$	93	$	93

There were no TDRs that have subsequently defaulted through June 30, 2018. The TDRs described above did not increase the allowance for loan losses and resulted in no charge-offs during the six months ended June 30, 2018.



Six Months Ended June 30, 2017	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled Debt Restructurings:
Commercial and industrial	1	$	34	$	13
1-4 family residential	1	11		11
Total	2	$	45	$	24

There were no TDRs that subsequently defaulted in 2017. The TDRs described above increase the allowance for loan losses and resulted in no charge-offs during the six months ended June 30, 2017.

The following table presents information about the Company’s impaired loans as of:



June 30, 2018	Unpaid Principal Balance		Recorded Investment		Related Allowance		Average Recorded Investment
With no related allowance recorded:
Commercial and industrial	$	684	$	684	$	—	$	331
Real estate:
Commercial real estate	6,024		6,024		—		2,196
Farmland	73		73		—		32
1-4 family residential	1,194		1,194		—		470
Multi-family residential	—		—		—		53
Agricultural	493		493		—		237
Subtotal	8,468		8,468		—		3,319
With allowance recorded:
Commercial and industrial	392		392		209		58
Real estate:
Commercial real estate	506		506		49		188
Farmland	149		149		78		75
1-4 family residential	244		244		9		48
Agricultural	—		—		—		52
Subtotal	1,291		1,291		345		421
Total	$	9,759	$	9,759	$	345	$	3,740

The following table presents information about the Company’s impaired loans as of:



December 31, 2017	Unpaid Principal Balance		Recorded Investment		Related Allowance		Average Recorded Investment
With no related allowance recorded:
Commercial and industrial	$	437	$	437	$	—	$	434
Real estate:
Construction and development	—		—		—		311
Commercial real estate	3,979		3,979		—		4,230
Farmland	6		6		—		90
1-4 family residential	681		681		—		1,096
Multi-family residential	217		217		—		180
Consumer	—		—		—		61
Agricultural	397		397		—		384
Subtotal	5,717		5,717		—		6,786
With allowance recorded:
Commercial and industrial	26		26		17		315
Real estate:
Construction and development	—		—		—		7
Commercial real estate	279		279		27		505
Farmland	157		157		85		131
1-4 family residential	161		161		5		754
Multi-family residential	—		—		—		19
Consumer	—		—		—		42
Agricultural	—		—		—		180
Subtotal	623		623		134		1,953
Total	$	6,340	$	6,340	$	134	$	8,739

During the six months ended June 30, 2018 and 2017, total interest income and cash-based interest income recognized on impaired loans was minimal.