LOANS AND ALLOWANCE FOR LOAN LOSSES

The Company’s loan portfolio is grouped into classes to allow management to monitor the performance by the borrower and to monitor the yield on the portfolio. Consistent with ASU 2010-20, Disclosures about the Credit Quality of Financing Receivables and the Allowance for Loan Losses, the segments are further broken down into classes to allow for differing risk characteristics within a segment.

The risks associated with lending activities differ among the various loan classes and are subject to the impact of changes in interest rates, market conditions of collateral securing the loans, and general economic conditions. All of these factors may adversely impact both the borrower’s ability to repay its loans and associated collateral.

The Company has various types of commercial real estate loans which have differing levels of credit risk. Owner-occupied commercial real estate loans are generally dependent upon the successful operation of the borrower’s business, with the cash flows generated from the business being the primary source of repayment of the loan. If the business suffers a downturn in sales or profitability, the borrower’s ability to repay the loan could be in jeopardy.

Non-owner occupied and multi-family commercial real estate loans and non-owner occupied residential loans present a different credit risk to the Company than owner-occupied commercial real estate loans, as the repayment of the loan is dependent upon the borrower’s ability to generate a sufficient level of occupancy to produce rental income that exceeds debt service requirements and operating expenses. Lower occupancy or lease rates may result in a reduction in cash flows, which hinders the ability of the borrower to meet debt service requirements, and may result in lower collateral values. The Company generally recognizes that greater risk is inherent in these credit relationships as compared to owner-occupied loans mentioned above.

Acquisition and development loans consist of 1-4 family residential construction and commercial and land development loans. The risk of loss on these loans is largely dependent on the Company’s ability to assess the property’s value at the completion of the project, which should exceed the property’s construction costs. During the construction phase, a number of factors could potentially negatively impact the collateral value, including cost overruns, delays in completing the project, competition, and real estate market conditions which may change based on the supply of similar properties in the area. In the event the collateral value at the completion of the project is not sufficient to cover the outstanding loan balance, the Company must rely upon other repayment sources, including the guarantors of the project or other collateral securing the loan.

Commercial and industrial loans include advances to local and regional businesses for general commercial purposes and include permanent and short-term working capital, machinery and equipment financing, and may be either in the form of lines of credit or term loans. Although commercial and industrial loans may be unsecured to our highest rated borrowers, the majority of these loans are secured by the borrower’s accounts receivable, inventory and machinery and equipment. In a significant number of these loans, the collateral also includes the business real estate or the business owner’s personal real estate or assets. Commercial and industrial loans present credit exposure to the Company, as they are more susceptible to risk of loss during a downturn in the economy as borrowers may have greater difficulty in meeting their debt service requirements and the value of the collateral may decline. The Company attempts to mitigate this risk through its underwriting standards, including evaluating the creditworthiness of the borrower and, to the extent available, credit ratings on the business. Additionally, monitoring of the loans through annual renewals and meetings with the borrowers are typical. However, these procedures cannot eliminate the risk of loss associated with commercial and industrial lending.

Municipal loans consist of extensions of credit to municipalities and school districts within the Company’s market area. These loans generally present a lower risk than commercial and industrial loans, as they are generally secured by the municipality’s full taxing authority, by revenue obligations, or by its ability to raise assessments on its customers for a specific utility.

The Company originates loans to its retail customers, including fixed-rate and adjustable first lien mortgage loans with the underlying 1-4 family owner-occupied residential property securing the loan. The Company’s risk exposure is minimized in these types of loans through the evaluation of the creditworthiness of the borrower, including credit scores and debt-to-income ratios, and underwriting standards which limit the loan-to-value ratio to generally no more than 80% upon loan origination, unless the borrower obtains private mortgage insurance.

Home equity loans, including term loans and lines of credit, present a slightly higher risk to the Company than 1-4 family first liens, as these loans can be first or second liens on 1-4 family owner occupied residential property, but can have loan-to-value ratios of no greater than 90% of the value of the real estate taken as collateral. The creditworthiness of the borrower is considered including credit scores and debt-to-income ratios.

Installment and other loans’ credit risk are mitigated through prudent underwriting standards, including evaluation of the creditworthiness of the borrower through credit scores and debt-to-income ratios and, if secured, the collateral value of the assets. These loans can be unsecured or secured by assets the value of which may depreciate quickly or may fluctuate, and may present a greater risk to the Company than 1-4 family residential loans.

The following table presents the loan portfolio, excluding residential LHFS, broken out by classes at December 31, 2017 and December 31, 2016.



(Dollars in thousands)	2017		2016
Commercial real estate:
Owner-occupied	$	116,811	$	112,295
Non-owner occupied	244,491		206,358
Multi-family	53,634		47,681
Non-owner occupied residential	77,980		62,533
Acquisition and development:
1-4 family residential construction	11,730		4,663
Commercial and land development	19,251		26,085
Commercial and industrial	115,663		88,465
Municipal	42,065		53,741
Residential mortgage:
First lien	162,509		139,851
Home equity – term	11,784		14,248
Home equity – lines of credit	132,192		120,353
Installment and other loans	21,902		7,118
	$	1,010,012	$	883,391

In order to monitor ongoing risk associated with its loan portfolio and specific loans within the segments, management uses an internal grading system. The first several rating categories, representing the lowest risk to the Bank, are combined and given a “Pass” rating. Management generally follows regulatory definitions in assigning criticized ratings to loans, including "Special Mention," "Substandard," "Doubtful" or "Loss." The Special Mention category includes loans that have potential weaknesses that may, if not monitored or corrected, weaken the asset or inadequately protect the Bank's position at some future date. These assets pose elevated risk, but their weakness does not yet justify a more severe, or classified rating. Substandard loans are classified as they have a well-defined weakness, or weaknesses that jeopardize liquidation of the debt. These loans are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. Substandard loans include loans that management has determined not to be impaired, as well as loans considered to be impaired. A Doubtful loan has a high probability of total or substantial loss, but because of specific pending events that may strengthen the asset, its classification as Loss is deferred. Loss loans are considered uncollectible, as the borrowers are often in bankruptcy, have suspended debt repayments, or have ceased business operations. Once a loan is classified as Loss, there is little prospect of collecting the loan’s principal or interest and it is charged-off.

The Company has a loan review policy and program which is designed to identify and monitor risk in the lending function. The ERM Committee, comprised of executive officers and loan department personnel, is charged with the oversight of overall credit quality and risk exposure of the Company's loan portfolio. This includes the monitoring of the lending activities of all Company personnel with respect to underwriting and processing new loans and the timely follow-up and corrective action for loans showing signs of deterioration in quality. A loan review program provides the Company with an independent review of the loan portfolio on an ongoing basis. Generally, consumer and residential mortgage loans are included in the Pass categories unless a specific action, such as extended delinquencies, bankruptcy, repossession or death of the borrower occurs, which heightens awareness as to a possible credit event.

Internal loan reviews are completed annually on all commercial relationships with a committed loan balance in excess of $500,000, which includes confirmation of risk rating by an independent credit officer. In addition, all relationships greater than $250,000 rated Substandard, Doubtful or Loss are reviewed quarterly and corresponding risk ratings are reaffirmed by the Company's Problem Loan Committee, with subsequent reporting to the ERM Committee.

The following summarizes the Company’s loan portfolio ratings based on its internal risk rating system at December 31, 2017 and 2016:



(Dollars in thousands)	Pass		Special Mention		Non-Impaired Substandard		Impaired - Substandard		Doubtful		Total
December 31, 2017
Commercial real estate:
Owner-occupied	$	113,240	$	413	$	1,921	$	1,237	$	0	$	116,811
Non-owner occupied	235,919		0		4,507		4,065		0		244,491
Multi-family	48,603		4,113		753		165		0		53,634
Non-owner occupied residential	76,373		142		1,084		381		0		77,980
Acquisition and development:
1-4 family residential construction	11,238		0		0		492		0		11,730
Commercial and land development	18,635		5		611		0		0		19,251
Commercial and industrial	113,162		2,151		0		350		0		115,663
Municipal	42,065		0		0		0		0		42,065
Residential mortgage:
First lien	158,673		0		0		3,836		0		162,509
Home equity – term	11,762		0		0		22		0		11,784
Home equity – lines of credit	131,585		80		60		467		0		132,192
Installment and other loans	21,891		0		0		11		0		21,902
	$	983,146	$	6,904	$	8,936	$	11,026	$	0	$	1,010,012
December 31, 2016
Commercial real estate:
Owner-occupied	$	103,652	$	5,422	$	2,151	$	1,070	$	0	$	112,295
Non-owner occupied	190,726		4,791		10,105		736		0		206,358
Multi-family	42,473		4,222		787		199		0		47,681
Non-owner occupied residential	59,982		949		1,150		452		0		62,533
Acquisition and development:
1-4 family residential construction	4,560		103		0		0		0		4,663
Commercial and land development	25,435		10		639		1		0		26,085
Commercial and industrial	87,588		251		32		594		0		88,465
Municipal	53,741		0		0		0		0		53,741
Residential mortgage:
First lien	135,558		0		0		4,293		0		139,851
Home equity – term	14,155		0		0		93		0		14,248
Home equity – lines of credit	119,681		82		61		529		0		120,353
Installment and other loans	7,112		0		0		6		0		7,118
	$	844,663	$	15,830	$	14,925	$	7,973	$	0	$	883,391

For commercial real estate, acquisition and development and commercial and industrial loans, a loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Generally, loans that are more than 90 days past due are deemed impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed to determine if the loan should be placed on nonaccrual status. Nonaccrual loans in the commercial and commercial real estate portfolios and any TDRs are, by definition, deemed to be impaired. Impairment is measured on a loan-by-loan basis for commercial, construction and restructured loans by either the present value of the expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent. A loan is collateral dependent if the repayment of the loan is expected to be provided solely by the underlying collateral. For loans that are deemed to be impaired for extended periods of time, periodic updates on fair values are obtained, which may include updated appraisals. Updated fair values are incorporated into the impairment analysis in the next reporting period.

Loan charge-offs, which may include partial charge-offs, are taken on an impaired loan that is collateral dependent if the loan’s carrying balance exceeds its collateral’s appraised value; the loan has been identified as uncollectible; and it is deemed to be a confirmed loss. Typically, impaired loans with a charge-off or partial charge-off will continue to be considered impaired, unless the note is split into two, and management expects the performing note to continue to perform and is adequately secured. The second, or non-performing note, would be charged-off. Generally, an impaired loan with a partial charge-off may continue to have an impairment reserve on it after the partial charge-off, if factors warrant.

At December 31, 2017 and 2016, nearly all of the Company’s impaired loans’ extent of impairment were measured based on the estimated fair value of the collateral securing the loan, except for TDRs. By definition, TDRs are considered impaired. All restructured loans’ impairment were determined based on discounted cash flows for those loans classified as TDRs and still accruing interest. For real estate loans, collateral generally consists of commercial real estate, but in the case of commercial and industrial loans, it could also consist of accounts receivable, inventory, equipment or other business assets. Commercial and industrial loans may also have real estate collateral.

Updated appraisals are generally required every 18 months for classified commercial loans in excess of $250,000. The “as is" value provided in the appraisal is often used as the fair value of the collateral in determining impairment, unless circumstances, such as subsequent improvements, approvals, or other circumstances dictate that another value provided by the appraiser is more appropriate.

Generally, impaired commercial loans secured by real estate, other than performing TDRs, are measured at fair value using certified real estate appraisals that had been completed within the last 18 months. Appraised values are discounted for estimated costs to sell the property and other selling considerations to arrive at the property’s fair value. In those situations in which it is determined an updated appraisal is not required for loans individually evaluated for impairment, fair values are based on one or a combination of approaches. In those situations in which a combination of approaches is considered, the factor that carries the most consideration will be the one management believes is warranted. The approaches are:

•

Original appraisal – if the original appraisal provides a strong loan-to-value ratio (generally 70% or lower) and, after consideration of market conditions and knowledge of the property and area, it is determined by the Credit Administration staff that there has not been a significant deterioration in the collateral value, the original certified appraised value may be used. Discounts as deemed appropriate for selling costs are factored into the appraised value in arriving at fair value.


•	Discounted cash flows – in limited cases, discounted cash flows may be used on projects in which the collateral is liquidated to reduce the borrowings outstanding, and is used to validate collateral values derived from other approaches.

Collateral on certain impaired loans is not limited to real estate, and may consist of accounts receivable, inventory, equipment or other business assets. Estimated fair values are determined based on borrowers’ financial statements, inventory ledgers, accounts receivable agings or appraisals from individuals with knowledge in the business. Stated balances are generally discounted for the age of the financial information or the quality of the assets. In determining fair value, liquidation discounts are applied to this collateral based on existing loan evaluation policies.

The Company distinguishes Substandard loans on both an impaired and nonimpaired basis, as it places less emphasis on a loan’s classification, and increased reliance on whether the loan was performing in accordance with the contractual terms. A Substandard classification does not automatically meet the definition of impaired. Loss potential, while existing in the aggregate amount of Substandard loans, does not have to exist in individual extensions of credit classified Substandard. As a result, the Company’s methodology includes an evaluation of certain accruing commercial real estate, acquisition and development and commercial and industrial loans rated Substandard to be collectively, as opposed to individually, evaluated for impairment. Although the Company believes these loans meet the definition of Substandard, they are generally performing and management has concluded that it is likely we will be able to collect the scheduled payments of principal and interest when due according to the contractual terms of the loan agreement.

Larger groups of smaller balance homogeneous loans are collectively evaluated for impairment. Generally, the Company does not separately identify individual consumer and residential loans for impairment disclosures, unless such loans are the subject of a restructuring agreement due to financial difficulties of the borrower.

The following table summarizes impaired loans by class, segregated by those for which a specific allowance was required and those for which a specific allowance was not required at December 31, 2017 and 2016. The recorded investment in loans excludes accrued interest receivable due to insignificance. Related allowances established generally pertain to those loans in which loan forbearance agreements were in the process of being negotiated or updated appraisals were pending, and a partial charge-off will be recorded when final information is received.



	Impaired Loans with a Specific Allowance						Impaired Loans with No Specific Allowance
(Dollars in thousands)	Recorded Investment (Book Balance)		Unpaid Principal Balance (Legal Balance)		Related Allowance		Recorded Investment (Book Balance)		Unpaid Principal Balance (Legal Balance)
December 31, 2017
Commercial real estate:
Owner-occupied	$	0	$	0	$	0	$	1,237	$	2,479
Non-owner occupied	0		0		0		4,065		4,856
Multi-family	0		0		0		165		352
Non-owner occupied residential	0		0		0		381		669
Acquisition and development:
1-4 family residential construction	0		0		0		492		492
Commercial and industrial	0		0		0		350		495
Residential mortgage:
First lien	872		872		42		2,964		3,706
Home equity—term	0		0		0		22		27
Home equity—lines of credit	0		0		0		467		628
Installment and other loans	9		9		9		2		33
	$	881	$	881	$	51	$	10,145	$	13,737
December 31, 2016
Commercial real estate:
Owner-occupied	$	0	$	0	$	0	$	1,070	$	2,236
Non-owner occupied	0		0		0		736		1,323
Multi-family	0		0		0		199		368
Non-owner occupied residential	0		0		0		452		706
Acquisition and development:
Commercial and land development	0		0		0		1		16
Commercial and industrial	0		0		0		594		715
Residential mortgage:
First lien	643		643		43		3,650		4,399
Home equity—term	0		0		0		93		103
Home equity—lines of credit	0		0		0		529		659
Installment and other loans	0		0		0		6		34
	$	643	$	643	$	43	$	7,330	$	10,559

The following table summarizes the average recorded investment in impaired loans and related recognized interest income for the years ended December 31, 2017, 2016 and 2015:



	2017				2016				2015
(Dollars in thousands)	Average Impaired Balance		Interest Income Recognized		Average Impaired Balance		Interest Income Recognized		Average Impaired Balance		Interest Income Recognized
Commercial real estate:
Owner-occupied	$	1,000	$	6	$	1,758	$	0	$	2,613	$	0
Non-owner occupied	392		0		6,831		0		3,470		0
Multi-family	182		0		216		0		402		0
Non-owner occupied residential	418		0		645		0		1,020		0
Acquisition and development:
1-4 family residential construction	154		0		0		0		0		0
Commercial and land development	0		0		3		0		266		137
Commercial and industrial	413		0		575		0		1,208		0
Residential mortgage:
First lien	4,012		58		4,525		33		4,644		37
Home equity – term	61		0		98		0		130		0
Home equity – lines of credit	488		2		455		0		571		0
Installment and other loans	10		0		12		0		22		0
	$	7,130	$	66	$	15,118	$	33	$	14,346	$	174

The following table presents impaired loans that are TDRs, with the recorded investment at December 31, 2017 and December 31, 2016.



	2017			2016
(Dollars in thousands)	Number of Contracts	Recorded Investment		Number of Contracts	Recorded Investment
Accruing:
Commercial real estate:
Owner-occupied	1	$	52	0	$	0
Residential mortgage:
First lien	11	1,102		8	896
Home equity - lines of credit	1	29		1	34
	13	1,183		9	930
Nonaccruing:
Commercial real estate:
Owner-occupied	1	57		0	0
Residential mortgage:
First lien	8	715		12	1,035
Installment and other loans	1	3		1	6
	10	775		13	1,041
	23	$	1,958	22	$	1,971

There were no restructured loans for the years ended December 31, 2017, 2016, and 2015 that were modified as TDRs within the previous 12 months which were in payment default.

The following table presents the number of loans modified, and their pre-modification and post-modification investment balances for the years ended December 31, 2017, 2016, and 2015:



(Dollars in thousands)	Number of Contracts	Pre- Modification Investment Balance		Post- Modification Investment Balance
December 31, 2017
Commercial real estate:
Owner occupied	2	$	119	$	119

December 31, 2016
Commercial real estate:
Non-owner occupied	1	$	6,095	$	6,095
Residential mortgage:
First lien	2	265		265
Home equity - lines of credit	1	34		34
	4	$	6,394	$	6,394
December 31, 2015
Residential mortgage:
First lien	1	$	59	$	59

The loans presented in the table above were considered TDRs a result of the Company agreeing to below market interest rates given the risk of the transaction; allowing the loan to remain on interest only status; or a reduction in interest rates, in order to give the borrowers an opportunity to improve their cash flows. For TDRs in default of their modified terms, impairment is generally determined on a collateral dependent approach, except for accruing residential mortgage TDRs, which are generally on the discounted cash flow approach. Certain loans modified during a period may no longer be outstanding at the end of the period if the loan was paid off.

No additional commitments have been made to borrowers whose loans are considered TDRs.

Management further monitors the performance and credit quality of the loan portfolio by analyzing the length of time a portfolio is past due, by aggregating loans based on its delinquencies. The following table presents the classes of loan portfolio summarized by aging categories of performing loans and nonaccrual loans at December 31, 2017 and 2016:



			Days Past Due
	Current		30-59		60-89		90+ (still accruing)		Total Past Due		Non- Accrual		Total Loans
December 31, 2017
Commercial real estate:
Owner-occupied	$	115,605	$	4	$	17	$	0	$	21	$	1,185	$	116,811
Non-owner occupied	240,426		0		0		0		0		4,065		244,491
Multi-family	53,469		0		0		0		0		165		53,634
Non-owner occupied residential	77,454		145		0		0		145		381		77,980
Acquisition and development:
1-4 family residential construction	11,238		0		0		0		0		492		11,730
Commercial and land development	19,226		25		0		0		25		0		19,251
Commercial and industrial	115,312		1		0		0		1		350		115,663
Municipal	42,065		0		0		0		0		0		42,065
Residential mortgage:
First lien	155,387		3,333		1,055		0		4,388		2,734		162,509
Home equity – term	11,753		9		0		0		9		22		11,784
Home equity – lines of credit	131,208		474		72		0		546		438		132,192
Installment and other loans	21,749		141		1		0		142		11		21,902
	$	994,892	$	4,132	$	1,145	$	0	$	5,277	$	9,843	$	1,010,012
December 31, 2016
Commercial real estate:
Owner-occupied	$	111,225	$	0	$	0	$	0	$	0	$	1,070	$	112,295
Non-owner occupied	205,622		0		0		0		0		736		206,358
Multi-family	47,482		0		0		0		0		199		47,681
Non-owner occupied residential	62,081		0		0		0		0		452		62,533
Acquisition and development:
1-4 family residential construction	4,548		115		0		0		115		0		4,663
Commercial and land development	26,084		0		0		0		0		1		26,085
Commercial and industrial	87,871		0		0		0		0		594		88,465
Municipal	53,741		0		0		0		0		0		53,741
Residential mortgage:
First lien	135,499		628		328		0		956		3,396		139,851
Home equity – term	14,155		0		0		0		0		93		14,248
Home equity – lines of credit	119,733		125		0		0		125		495		120,353
Installment and other loans	7,090		20		2		0		22		6		7,118
	$	875,131	$	888	$	330	$	0	$	1,218	$	7,042	$	883,391

The Company maintains its ALL at a level management believes adequate for probable incurred credit losses. The ALL is established and maintained through a provision for loan losses charged to earnings. Quarterly, management assesses the adequacy of the ALL utilizing a defined methodology which considers specific credit evaluation of impaired loans as discussed above, past loan loss historical experience, and qualitative factors. Management believes its approach properly addresses relevant accounting guidance for loans individually identified as impaired and for loans collectively evaluated for impairment, and other bank regulatory guidance.

In connection with its quarterly evaluation of the adequacy of the ALL, management reviews its methodology to determine if it properly addresses the current risk in the loan portfolio. For each loan class, general allowances based on quantitative factors, principally historical loss trends, are provided for loans that are collectively evaluated for impairment. An adjustment to historical loss factors may be incorporated for delinquency and other potential risk not elsewhere defined within the ALL methodology.

In addition to this quantitative analysis, adjustments to the ALL requirements are allocated on loans collectively evaluated for impairment based on additional qualitative factors, including:

Nature and Volume of Loans – including loan growth in the current and subsequent quarters based on the Company’s targeted growth and strategic plan, coupled with the types of loans booked based on risk management and credit culture; the number of exceptions to loan policy; and supervisory loan to value exceptions.

Concentrations of Credit and Changes within Credit Concentrations – including the composition of the Company’s overall portfolio makeup and management's evaluation related to concentration risk management and the inherent risk associated with the concentrations identified.

Underwriting Standards and Recovery Practices – including changes to underwriting standards and perceived impact on anticipated losses; trends in the number of exceptions to loan policy; supervisory loan to value exceptions; and administration of loan recovery practices.

Delinquency Trends – including delinquency percentages noted in the portfolio relative to economic conditions; severity of the delinquencies; and whether the ratios are trending upwards or downwards.

Classified Loans Trends – including internal loan ratings of the portfolio; severity of the ratings; whether the loan segment’s ratings show a more favorable or less favorable trend; and underlying market conditions and impact on the collateral values securing the loans.

Experience, Ability and Depth of Management/Lending staff – including the years’ experience of senior and middle management and the lending staff; turnover of the staff; and instances of repeat criticisms of ratings.

Quality of Loan Review – including the years of experience of the loan review staff; in-house versus outsourced provider of review; turnover of staff and the perceived quality of their work in relation to other external information.

National and Local Economic Conditions – including trends in the consumer price index, unemployment rates, the housing price index, housing statistics compared to the prior year, bankruptcy rates, regulatory and legal environment risks and competition.

The following table presents activity in the ALL for the years ended December 31, 2017, 2016 and 2015.



	Commercial															Consumer
(Dollars in thousands)	Commercial Real Estate			Acquisition and Development			Commercial and Industrial			Municipal			Total			Residential Mortgage			Installment and Other			Total			Unallocated			Total
December 31, 2017
Balance, beginning of year	$	7,530		$	580		$	1,074		$	54		$	9,238		$	2,979		$	144		$	3,123		$	414		$	12,775
Provision for loan losses	38			(167		)	333			30			234			531			174			705			61			1,000
Charge-offs	(835		)	0			(85		)	0			(920		)	(180		)	(166		)	(346		)	0			(1,266		)
Recoveries	30			4			124			0			158			70			59			129			0			287
Balance, end of year	$	6,763		$	417		$	1,446		$	84		$	8,710		$	3,400		$	211		$	3,611		$	475		$	12,796
December 31, 2016
Balance, beginning of year	$	7,883		$	850		$	1,012		$	58		$	9,803		$	2,870		$	121		$	2,991		$	774		$	13,568
Provision for loan losses	107			(270		)	129			(4		)	(38		)	532			116			648			(360		)	250
Charge-offs	(872		)	0			(79		)	0			(951		)	(577		)	(194		)	(771		)	0			(1,722		)
Recoveries	412			0			12			0			424			154			101			255			0			679
Balance, end of year	$	7,530		$	580		$	1,074		$	54		$	9,238		$	2,979		$	144		$	3,123		$	414		$	12,775
December 31, 2015
Balance, beginning of year	$	9,462		$	697		$	806		$	183		$	11,148		$	2,262		$	119		$	2,381		$	1,218		$	14,747
Provision for loan losses	(1,020		)	(440		)	249			(125		)	(1,336		)	1,122			55			1,177			(444		)	(603		)
Charge-offs	(711		)	(22		)	(115		)	0			(848		)	(592		)	(62		)	(654		)	0			(1,502		)
Recoveries	152			615			72			0			839			78			9			87			0			926
Balance, end of year	$	7,883		$	850		$	1,012		$	58		$	9,803		$	2,870		$	121		$	2,991		$	774		$	13,568

The following table summarizes the ending loan balances individually evaluated for impairment based upon loan segment, as well as the related ALL loss allocation for each at December 31, 2017 and 2016:



	Commercial										Consumer
(Dollars in thousands)	Commercial Real Estate		Acquisition and Development		Commercial and Industrial		Municipal		Total		Residential Mortgage		Installment and Other		Total		Unallocated		Total
December 31, 2017
Loans allocated by:
Individually evaluated for impairment	$	5,848	$	492	$	350	$	0	$	6,690	$	4,325	$	11	$	4,336	$	0	$	11,026
Collectively evaluated for impairment	487,068		30,489		115,313		42,065		674,935		302,160		21,891		324,051		0		998,986
	$	492,916	$	30,981	$	115,663	$	42,065	$	681,625	$	306,485	$	21,902	$	328,387	$	0	$	1,010,012
Allowance for loan losses allocated by:
Individually evaluated for impairment	$	0	$	0	$	0	$	0	$	0	$	42	$	9	$	51	$	0	$	51
Collectively evaluated for impairment	6,763		417		1,446		84		8,710		3,358		202		3,560		475		12,745
	$	6,763	$	417	$	1,446	$	84	$	8,710	$	3,400	$	211	$	3,611	$	475	$	12,796
December 31, 2016
Loans allocated by:
Individually evaluated for impairment	$	2,457	$	1	$	594	$	0	$	3,052	$	4,915	$	6	$	4,921	$	0	$	7,973
Collectively evaluated for impairment	426,410		30,747		87,871		53,741		598,769		269,537		7,112		276,649		0		875,418
	$	428,867	$	30,748	$	88,465	$	53,741	$	601,821	$	274,452	$	7,118	$	281,570	$	0	$	883,391
Allowance for loan losses allocated by:
Individually evaluated for impairment	$	0	$	0	$	0	$	0	$	0	$	43	$	0	$	43	$	0	$	43
Collectively evaluated for impairment	7,530		580		1,074		54		9,238		2,936		144		3,080		414		12,732
	$	7,530	$	580	$	1,074	$	54	$	9,238	$	2,979	$	144	$	3,123	$	414	$	12,775

During the year ended December 31, 2016, the Company sold one note of classified loan relationships with an aggregate carrying balance of $5,946,000 to a third party. Cash proceeds totaled $5,100,000. The $846,000 difference between the carrying balances of the note sold and the cash received was recorded as a charge-off to the ALL.