LOANS AND ALLOWANCE FOR LOAN LOSSES

The following table summarizes our loan portfolio by type of loan at December 31:



	2018			2017
Commercial and industrial	$	261,779		$	197,508
Real estate:
Construction and development	237,503			196,774
Commercial real estate	582,519			418,137
Farmland	67,845			59,023
1-4 family residential	393,067			374,371
Multi-family residential	38,386			36,574
Consumer	54,777			51,267
Agricultural	23,277			25,596
Overdrafts	382			294
Total loans	1,659,535			1,359,544
Net of:
Net deferred loan fees and costs	560			1,094
Allowance for loan losses	(14,651		)	(12,859		)
Total net loans	$	1,645,444		$	1,347,779

In 2018, the Company acquired overdrafts and recorded as loans with a fair value and gross contractual fair value of $2 as part of Westbound. All loans acquired in 2018 were classified as acquired performing loans on the acquisition date.

The Company has entered into transactions, at prevailing market rates and terms, with certain directors, executive officers, significant shareholders and their affiliates. Loans to such related parties at December 31, 2018 and 2017, totaled $56,199 and $44,506, respectively. Unfunded commitments to such related parties at December 31, 2018 totaled $16,383.

Loans to principal officers, directors, and their affiliates during the year ended December 31, 2018, was as follows:



	2018
Beginning balance	$	44,506
New loans	29,285
Repayments	(17,592		)
Ending balance	$	56,199

The following table presents the activity in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method for the years ended December 31, 2018, 2017 and 2016:



December 31, 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	426			196		1,472			120		(196		)	2		127			(12		)	115			2,250
Loans charged-off	(367		)	—		(33		)	—		(93		)	—		(254		)	(2		)	(169		)	(918		)
Recoveries	111			—		1			—		135			—		90			65			58			460
Ending balance	$	1,751		$	1,920	$	6,025		$	643	$	2,868		$	631	$	565		$	238		$	10		$	14,651
Allowance ending balance:
Individually evaluated for impairment	$	64		$	4	$	341		$	78	$	6		$	—	$	—		$	—		$	—		$	493
Collectively evaluated for impairment	1,687			1,916		5,684			565		2,862			631		565			238			10			14,158
Ending balance	$	1,751		$	1,920	$	6,025		$	643	$	2,868		$	631	$	565		$	238		$	10		$	14,651
Loans:
Individually evaluated for impairment	$	1,022		$	1,250	$	7,153		$	140	$	1,383		$	—	$	—		$	408		$	—		$	11,356
Collectively evaluated for impairment	260,757			236,253		575,366			67,705		391,684			38,386		54,777			22,869			382			1,648,179
Ending balance	$	261,779		$	237,503	$	582,519		$	67,845	$	393,067		$	38,386	$	54,777		$	23,277		$	382		$	1,659,535



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



December 31, 2016	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	$	1,878		$	1,004		$	2,106	$	400	$	2,839		$	325		$	562		$	138	$	11		$	9,263
Provision for loan losses	910			162			1,158		82		1,117			(44		)	171			15		69			3,640
Loans charged-off	(1,213		)	(9		)	—		—		(71		)	—			(269		)	—		(200		)	(1,762		)
Recoveries	17			4			—		—		75			—			121			—		126			343
Ending balance	$	1,592		$	1,161		$	3,264	$	482	$	3,960		$	281		$	585		$	153	$	6		$	11,484
Allowance ending balance:
Individually evaluated for impairment	$	64		$	—		$	—	$	47	$	108		$	—		$	34		$	—	$	—		$	253
Collectively evaluated for impairment	1,528			1,161			3,264		435		3,852			281			551			153		6			11,231
Ending balance	$	1,592		$	1,161		$	3,264	$	482	$	3,960		$	281		$	585		$	153	$	6		$	11,484
Loans:
Individually evaluated for impairment	$	231		$	1,825		$	1,196	$	258	$	2,588		$	5		$	200		$	15	$	—		$	6,318
Collectively evaluated for impairment	223,481			127,806			366,881		62,108		359,077			26,074			52,977			18,886		317			1,237,607
Ending balance	$	223,712		$	129,631		$	368,077	$	62,366	$	361,665		$	26,079		$	53,177		$	18,901	$	317		$	1,243,925

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:



December 31, 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	$	260,863	$	236,253	$	569,648	$	67,541	$	391,956	$	38,386	$	55,055	$	22,713	$	1,642,415
Special mention	224		—		5,691		49		514		—		48		115		6,641
Substandard	692		1,250		7,180		255		597		—		56		449		10,479
Doubtful	—		—		—		—		—		—		—		—		—
Total	$	261,779	$	237,503	$	582,519	$	67,845	$	393,067	$	38,386	$	55,159	$	23,277	$	1,659,535

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
Doubtful	—		—		—		—		—		—		—		—		—
Total	$	197,508	$	196,774	$	418,137	$	59,023	$	374,371	$	36,574	$	51,561	$	25,596	$	1,359,544

The following table summarizes 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:



December 31, 2018	30 – 59 Days Past Due		60 – 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	$	209	$	493	$	266	$	968	$	260,811	$	261,779	$	—
Real estate:
Construction and development	735		2,816		—		3,551		233,952		237,503		—
Commercial real estate	1,803		3		3,227		5,033		577,486		582,519		—
Farmland	485		—		—		485		67,360		67,845		—
1-4 family residential	2,849		666		596		4,111		388,956		393,067		—
Multi-family residential	—		—		—		—		38,386		38,386		—
Consumer	526		51		56		633		54,144		54,777		—
Agricultural	105		59		41		205		23,072		23,277		—
Overdrafts	—		—		—		—		382		382		—
Total	$	6,712	$	4,088	$	4,186	$	14,986	$	1,644,549	$	1,659,535	$	—



December 31, 2017	30 – 59 Days Past Due		60 – 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 the nonaccrual loans by category as of December 31:



	2018		2017
Commercial and industrial	$	366	$	77
Real estate:
Construction and development	—		—
Commercial real estate	3,700		1,422
Farmland	140		163
1-4 family residential	1,567		1,937
Multi-family residential	—		217
Consumer	66		138
Agricultural	52		50
Total	$	5,891	$	4,004

If interest on nonaccrual loans had been accrued, such income would have been approximately $333 and $173 for the years ended December 31, 2018 and 2017, respectively. There were no commitments to lend additional funds to borrowers whose loans were classified as impaired.

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 at December 31:



	2018		2017
Nonaccrual TDRs	$	335	$	—
Performing TDRs	861		657
Total	$	1,196	$	657
Specific reserves on TDRs	$	—	$	17

The following tables present loans by class modified as TDRs that occurred during the years ended:



December 31, 2018	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled Debt Restructurings:
1-4 family residential	3	$	504	$	504
Agricultural	1	78		78
Total	4	$	582	$	582

There was one TDR that subsequently defaulted in 2018, therefore remains on nonaccrual status. The TDRs described above did not increase the allowance for loan losses and resulted in no charge-offs during the year ended December 31, 2018.



December 31, 2017	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled Debt Restructurings:
Commercial and industrial	2	$	381	$	364
1-4 family residential	1	11		11
Total	3	$	392	$	375

There were no TDRs that subsequently defaulted in 2017. The TDRs described above did not increase the allowance for loan losses and resulted in no charge-offs during the year ended December 31, 2017.

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



December 31, 2018	Unpaid Principal Balance		Recorded Investment		Related Allowance		Average Recorded Investment
With no related allowance recorded:
Commercial and industrial	$	837	$	837	$	—	$	842
Real estate:
Construction and development	720		720		—		518
Commercial real estate	5,168		5,168		—		5,138
Farmland	—		—		—		62
1-4 family residential	1,223		1,223		—		1,132
Multi-family residential	—		—		—		54
Consumer	—		—		—		—
Agricultural	408		408		—		456
Subtotal	8,356		8,356		—		8,202
With allowance recorded:
Commercial and industrial	185		185		64		300
Real estate:
Construction and development	530		530		4		44
Commercial real estate	1,985		1,985		341		677
Farmland	140		140		78		147
1-4 family residential	160		160		6		128
Multi-family residential	—		—		—		—
Consumer	—		—		—		—
Agricultural	—		—		—		52
Subtotal	3,000		3,000		493		1,348
Total	$	11,356	$	11,356	$	493	$	9,550

The following table presents information about the Company’s impaired loans as of December 31, 2017:



December 31, 2017	Recorded Investment		Unpaid Principal Balance		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 years ended December 31, 2018, 2017 and 2016, total interest income and cash-based interest income recognized on impaired loans was minimal.