UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TOSECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period endedMarch 31, 2017


o	~~For the quarterly period ended~~~~September 30, 2016~~

or

¨	TRANSITION REPORT PURSUANT TOSECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934

	~~For the transition period from~~to

For the transition period fromto

Commission File Number: 001-32590

COMMUNITY BANKERS TRUST CORPORATION

(Exact name of registrant as specified in its charter)

Virginia	20-2652949
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

9954 Mayland Drive, Suite 2100
Richmond, Virginia	23233
(Address of principal executive offices)	(Zip Code)

(804) 934-9999

~~(Registrant’s telephone number, including area code)~~

(Registrant’s telephone number, including area code)

n/a

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, ~~or a~~ smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer,” ~~“accelerated filer”~~“smaller reporting company,” and ~~“smaller reporting~~“emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer¨	o		Accelerated filerþ
		þ
Non-accelerated filer¨	~~(Do~~o	(Do not check if a smaller reporting company)	Smaller reporting company ¨	o
Emerging growth company	o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨o No þ

At ~~September 30, 2016,~~March 31, 2017, there were ~~21,947,466~~21,970,773 shares of the Company’s common stock outstanding.

COMMUNITY BANKERS TRUST CORPORATION

TABLE OF CONTENTS

FORM 10-Q

~~September 30, 2016~~March 31, 2017

PART I — FINANCIAL INFORMATION
Item 1. Financial Statements	3
Unaudited Consolidated Balance Sheets	3
Unaudited Consolidated Statements of Income ~~(Loss)~~	4
Unaudited Consolidated Statements of Comprehensive Income ~~(Loss)~~	5
Unaudited Consolidated Statements of Changes in Shareholders’ Equity	6
Unaudited Consolidated Statements of Cash Flows	7
Notes to Unaudited Consolidated Financial Statements	8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	3128
Item 3. Quantitative and Qualitative Disclosures About Market Risk	4540
Item 4. Controls and Procedures	4642
PART II — OTHER INFORMATION
Item 1. Legal Proceedings	4742
Item 1A. Risk Factors	4742
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	4742
Item 3. Defaults upon Senior Securities	4742
Item 4. Mine Safety Disclosures	4743
Item 5. Other Information	4743
Item 6. Exhibits	4743
SIGNATURES	4844

PART I — FINANCIAL INFORMATION

Item 1.Financial Statements

COMMUNITY BANKERS TRUST CORPORATION

UNAUDITED CONSOLIDATED BALANCE SHEETS

AS OF ~~SEPTEMBER 30, 2016~~MARCH 31, 2017 AND DECEMBER 31, ~~2015~~2016

(dollars in thousands)

	September 30, 2016			December 31, 2015			March 31, 2017			December 31, 2016
ASSETS
Cash and due from banks	$	11,667		$	7,393		$	11,720		$	13,828
Interest bearing bank deposits		10,201			9,576			12,002			7,244
Federal funds sold		99			—			132			—
Total cash and cash equivalents		21,967			16,969			23,854			21,072

Securities available for sale, at fair value		193,895			243,270			213,713			216,121
Securities held to maturity, at cost (fair value of $47,362 and $37,611, respectively)		45,616			36,478
Securities held to maturity, at cost (fair value of $46,881 and $46,858, respectively)								46,500			46,608
Equity securities, restricted, at cost		9,289			8,423			8,177			8,290
Total securities		248,800			288,171			268,390			271,019

Loans held for sale		—			2,101			—			—

Loans		811,798			748,724			852,226			836,299
Purchased credit impaired (PCI) loans		53,462			58,955			49,738			51,964
Total loans		865,260			807,679			901,964			888,263
Allowance for loan losses (loans of $9,480 and $9,559, respectively; PCI loans of $484 and $484, respectively)		(9,964	)		(10,043	)
Allowance for loan losses (loans of $9,513 and $9,493, respectively; PCI loans of $200 and $200, respectively)								(9,713	)		(9,693	)
Net loans		855,296			797,636			892,251			878,570

Bank premises and equipment, net		27,805			27,378			28,588			28,357
Bank premises and equipment held for sale		—			110
Other real estate owned		4,905			5,490			3,569			4,427
Bank owned life insurance		27,140			21,620			27,531			27,339
Core deposit intangibles, net		1,375			2,805			421			898
Other assets		16,943			18,277			18,117			18,134
Total assets	$	1,204,231		$	1,180,557		$	1,262,721		$	1,249,816

LIABILITIES
Deposits:
Noninterest bearing	$	129,329		$	96,216		$	129,042		$	128,887
Interest bearing		837,995			849,303			923,630			908,407
Total deposits		967,324			945,519			1,052,672			1,037,294

Federal funds purchased		—			18,921			—			4,714
Federal Home Loan Bank advances		109,082			95,656			81,692			81,887
Long-term debt		2,738			5,675			—			1,670
Trust preferred capital notes		4,124			4,124			4,124			4,124
Other liabilities		6,234			6,175			6,520			5,591
Total liabilities		1,089,502			1,076,070			1,145,008			1,135,280

SHAREHOLDERS’ EQUITY
Common stock (200,000,000 shares authorized, $0.01 par value; 21,947,466 and 21,866,944 shares issued and outstanding, respectively)		219			219
Common stock (200,000,000 shares authorized, $0.01 par value; 21,970,773 and 21,959,648 shares issued and outstanding, respectively)								220			220
Additional paid in capital		146,504			145,907			146,852			146,667
Retained deficit		(33,854	)		(41,050	)		(28,635	)		(31,128	)
Accumulated other comprehensive income (loss)		1,860			(589	)
Accumulated other comprehensive loss								(724	)		(1,223	)
Total shareholders’ equity		114,729			104,487			117,713			114,536
Total liabilities and shareholders’ equity	$	1,204,231		$	1,180,557		$	1,262,721		$	1,249,816

See accompanying notes to unaudited consolidated financial statements

COMMUNITY BANKERS TRUST CORPORATION

UNAUDITED CONSOLIDATED STATEMENTS OF INCOME ~~(LOSS)~~

FOR THE THREE ~~AND NINE~~ MONTHS ENDED ~~SEPTEMBER 30,~~MARCH 31, 2017 AND 2016 ~~AND 2015~~

(dollars and shares in thousands, except per share data)

	Three months ended					Nine months ended						Three months ended
	September 30, 2016		September 30, 2015			September 30, 2016			September 30, 2015			March 31, 2017		March 31, 2016
Interest and dividend income
Interest and fees on loans	$	9,156	$	7,986		$	26,582		$	23,750		$	9,597	$	8,553
Interest and fees on PCI loans		1,549		1,730			4,704			6,221			1,479		1,599
Interest on federal funds sold		—		—			—			2
Interest on deposits in other banks		22		12			66			46			26		21
Interest and dividends on securities
Taxable		1,133		1,396			3,528			4,119			1,249		1,271
Nontaxable		547		599			1,698			1,568			597		594
Total interest and dividend income		12,407		11,723			36,578			35,706			12,948		12,038
Interest expense
Interest on deposits		1,550		1,523			4,638			4,457			1,779		1,551
Interest on borrowed funds		354		355			1,091			1,156
Interest on other borrowed funds													302		374
Total interest expense		1,904		1,878			5,729			5,613			2,081		1,925
Net interest income		10,503		9,845			30,849			30,093			10,867		10,113
Provision for loan losses		250		—			450			—			—		—
Net interest income after provision for loan losses		10,253		9,845			30,399			30,093			10,867		10,113
Noninterest income
Service charges on deposit accounts		617		583			1,785			1,668			643		569
Gain on securities transactions, net		88		74			608			363			95		259
Gain on sale of other loans, net		—		—			—			69
Income on bank owned life insurance		238		188			630			562			234		188
Mortgage loan income		252		230			599			640			33		173
Other		150		178			439			554			148		132
Total noninterest income		1,345		1,253			4,061			3,856			1,153		1,321
Noninterest expense
Salaries and employee benefits		4,676		4,803			13,848			13,704			4,682		4,611
Occupancy expenses		756		669			2,043			1,976			732		641
Equipment expenses		242		282			729			782			284		239
FDIC assessment		253		187			756			644			201		251
Data processing fees		410		401			1,230			1,255			488		415
FDIC indemnification asset amortization		—		13,803			—			16,195
Amortization of intangibles		477		477			1,430			1,431			477		477
Other real estate expense (income), net		28		858			(89	)		1,080			27		(102	)
Other operating expenses		1,436		1,549			4,591			4,924			1,560		1,499
Total noninterest expense		8,278		23,029			24,538			41,991			8,451		8,031
Income (loss) before income taxes		3,320		(11,931	)		9,922			(8,042	)
Income tax expense (benefit)		862		(4,215	)		2,726			(3,331	)
Net income (loss)	$	2,458	$	(7,716	)	$	7,196		$	(4,711	)
Net income (loss) per share — basic	$	0.11	$	(0.35	)	$	0.33		$	(0.21	)
Net income (loss) per share — diluted	$	0.11	$	(0.35	)	$	0.33		$	(0.21	)
Income before income taxes													3,569		3,403
Income tax expense													1,076		983
Net income												$	2,493	$	2,420
Net income per share — basic												$	0.11	$	0.11
Net income per share — diluted												$	0.11	$	0.11
Weighted average number of shares outstanding
Basic		21,935		21,835			21,902			21,819			21,962		21,873
Diluted		22,127		21,835			22,105			21,819			22,433		22,065

See accompanying notes to unaudited consolidated financial statements

COMMUNITY BANKERS TRUST CORPORATION

UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME ~~(LOSS)~~

FOR THE THREE ~~AND NINE~~ MONTHS ENDED ~~SEPTEMBER 30,~~MARCH 31, 2017 AND 2016 ~~AND 2015~~

(dollars in thousands)

Three months ended Nine months ended
September 30, 2016 September 30, 2015 September 30, 2016 September 30, 2015
Net income (loss) $ 2,458 $ (7,716 ) $ 7,196 $ (4,711 )

Other comprehensive income (loss):
Unrealized gains on investment securities:
Change in unrealized (loss) gain in investment securities (488 ) 2,571 4,710 371
Tax related to unrealized loss (gain) in investment securities 166 (873 ) (1,601 ) (126 )
Reclassification adjustment for (gain) loss in securities sold (88 ) (74 ) (608 ) (363 )
Tax related to realized gain (loss) in securities sold 30 25 206 123
Cash flow hedge:
Change in unrealized gain (loss) in cash flow hedge 286 (470 ) (391 ) (634 )
Tax related to cash flow hedge (97 ) 158 133 215
Total other comprehensive (loss) income (191 ) 1,337 2,449 (414 )
Total comprehensive income (loss) $ 2,267 $ (6,379 ) $ 9,645 $ (5,125 )
Three months ended
March 31, 2017 March 31, 2016
Net income $ 2,493 $ 2,420

Other comprehensive income:
Unrealized gain on investment securities:
Change in unrealized gain in investment securities 770 3,553
Tax related to unrealized gain in investment securities (262 ) (1,208 )
Reclassification adjustment for gain in securities sold (95 ) (259 )
Tax related to realized gain in securities sold 32 88
Cash flow hedge:
Change in unrealized gain (loss) in cash flow hedge 82 (548 )
Tax related to cash flow hedge (28 ) 186
Total other comprehensive income 499 1,812
Total comprehensive income $ 2,992 $ 4,232

See accompanying notes to unaudited consolidated financial statements
5

COMMUNITY BANKERS TRUST CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE ~~NINE~~THREE MONTHS ENDED ~~SEPTEMBER 30,~~MARCH 31, 2017 AND 2016 ~~AND 2015~~
(dollars and shares in thousands)

Accumulated Accumulated
Additional Other Additional Other
Common Stock Paid in Retained Comprehensive Common Stock Paid in Retained Comprehensive
Shares Amount Capital Deficit Income Total Shares Amount Capital Deficit Income (Loss) Total

Balance January 1, 2015 21,792 $ 218 $ 145,321 $ (38,553 ) $ 664 $ 107,650
Issuance of common stock 56 — 197 — — 197
Exercise and issuance of employee stock options — — 233 — — 233
Net loss — — — (4,711 ) — (4,711 )
Other comprehensive loss — — — — (414 ) (414 )
Balance September 30, 2015 21,848 $ 218 $ 145,751 $ (43,264 ) $ 250 $ 102,955
Balance January 1, 2016 21,867 $ 219 $ 145,907 $ (41,050 ) $ (589 ) $ 104,487 21,867 $ 219 $ 145,907 $ (41,050 ) $ (589 ) $ 104,487
Issuance of common stock 80 — 122 — — 122 20 — 44 — — 44
Exercise and issuance of employee stock options — — 475 — — 475 — — 124 — — 124
Net income — — — 7,196 — 7,196 — — — 2,420 — 2,420
Other comprehensive income — — — — 2,449 2,449 — — — — 1,812 1,812
Balance September 30, 2016 21,947 $ 219 $ 146,504 $ (33,854 ) $ 1,860 $ 114,729
Balance March 31, 2016 21,887 $ 219 $ 146,075 $ (38,630 ) $ 1,223 $ 108,887
Balance January 1, 2017 21,960 $ 220 $ 146,667 $ (31,128 ) $ (1,223 ) $ 114,536
Issuance of common stock 11 — 39 — — 39
Exercise and issuance of employee stock options — — 146 — — 146
Net income — — — 2,493 — 2,493
Other comprehensive income — — — — 499 499
Balance March 31, 2017 21,971 $ 220 $ 146,852 $ (28,635 ) $ (724 ) $ 117,713

See accompanying notes to unaudited consolidated financial statements
6

COMMUNITY BANKERS TRUST CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE ~~NINE~~THREE MONTHS ENDED ~~SEPTEMBER 30,~~MARCH 31, 2017 AND 2016 ~~AND 2015~~
(dollars in thousands)

September 30, 2016 September 30, 2015 March 31, 2017 March 31, 2016
Operating activities:
Net income (loss) $ 7,196 $ (4,711 )
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Net income $ 2,493 $ 2,420
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and intangibles amortization 2,571 2,651 877 844
Stock-based compensation expense 426 350 185 143
Amortization of purchased loan premium 191 222 45 63
Provision for loan losses 450 —
Amortization of security premiums and accretion of discounts, net 1,307 1,942 359 409
Net gain on sale of securities (608 ) (363 ) (95 ) (259 )
Net (gain) loss on sale and valuation of other real estate owned (315 ) 1,010
Net gain on sale of loans — (69 )
Net gain on sale and valuation of OREO and bank premises (14 ) (154 )
Originations of mortgages held for sale (49,185 ) (44,876 ) — (10,618 )
Proceeds from sales of mortgages held for sale 51,286 44,403 — 11,681
Increase in bank owned life insurance investment (520 ) (462 ) (192 ) (153 )
Loss on termination of FDIC shared-loss agreement — 13,084
Changes in assets and liabilities:
Decrease (increase) in other assets 72 (1,408 )
(Decrease) increase in accrued expenses and other liabilities (277 ) 436
(Increase) decrease in other assets (226 ) 393
Increase (decrease) in other liabilities 1,000 (1,088 )
Net cash provided by operating activities 12,594 12,209 4,432 3,681

Investing activities:
Proceeds from available for sale securities 96,320 116,364 23,816 53,331
Proceeds from held to maturity securities 10,402 1,632 89 677
Redemption of equity securities 2,890 1,658
Proceeds from equity securities 813 935
Purchase of available for sale securities (43,494 ) (110,605 ) (20,981 ) (13,508 )
Purchase of held to maturity securities (19,589 ) (3,893 ) — (8,510 )
Purchase of equity securities (3,756 ) (1,452 ) (700 ) (909 )
Proceeds from sale of other real estate owned 1,851 2,572 872 543
Improvements of other real estate, net of insurance proceeds (34 ) (488 ) — (24 )
Net increase in loans (59,519 ) (31,659 ) (13,832 ) (14,703 )
Principal recoveries of loans previously charged off 272 1,494 105 173
Purchase of premises and equipment, net (1,573 ) (1,602 ) (631 ) (214 )
Proceeds from termination of FDIC shared-loss agreement — 3,100
Proceeds from sale of loans — 3,380
Purchase of bank owned life insurance investment (5,000 ) —
Proceeds from sale of premises and equipment 145 — — 145
Net cash used in investing activities (21,085 ) (19,499 )
Net cash (used in) provided by investing activities (10,449 ) 17,936

Financing activities:
Net increase in deposits 21,805 14,620
Net increase (decrease) in deposits 15,378 (11,467 )
Net decrease in federal funds purchased (18,921 ) (13,542 ) (4,714 ) (7,904 )
Net increase (decrease) in Federal Home Loan Bank borrowings 13,426 (557 )
Net decrease in Federal Home Loan Bank advances (195 ) (4,190 )
Proceeds from issuance of common stock 116 57 — 15
Payments on long-term debt (2,937 ) (3,204 ) (1,670 ) (801 )
Net cash provided by (used in) financing activities 13,489 (2,626 ) 8,799 (24,347 )

Net increase (decrease) in cash and cash equivalents 4,998 (9,916 ) 2,782 (2,730 )

Cash and cash equivalents:
Beginning of the period 16,969 22,353 21,072 16,969
End of the period $ 21,967 $ 12,437 $ 23,854 $ 14,239

Supplemental disclosures of cash flow information:
Interest paid $ 5,787 $ 5,639 $ 2,141 $ 1,901
Income taxes paid 3,444 1,920 — 2,400
Transfers of loans to other real estate owned property 947 791
Transfers of building premises and equipment to held for sale — 2,118

See accompanying notes to unaudited consolidated financial statements

7
7

COMMUNITY BANKERS TRUST CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Nature of Banking Activities and Significant Accounting Policies

Organization

Community Bankers Trust Corporation (the “Company”) is headquartered in Richmond, Virginia and is the holding company for Essex Bank (the “Bank”), a Virginia state bank with 23 full-service offices in Virginia and Maryland. The Bank also operates one loan production office in Virginia.

The Bank engages in a general commercial banking business and provides a wide range of financial services primarily to individuals and small businesses, including individual and commercial demand and time deposit accounts, commercial and industrial loans, consumer and small business loans, real estate and mortgage loans, investment services, on-line and mobile banking products, and safe deposit box facilities.

Financial Statements

The consolidated statements presented include accounts of the Company and the Bank, its wholly-owned subsidiary. All material intercompany balances and transactions have been eliminated. The statements should be read in conjunction with the Company’s consolidated financial statements and the accompanying notes to consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2015.~~2016. The accounting and reporting policies of the Company conform to U.S. generally accepted accounting principles (GAAP) and to the general practices within the banking industry. The interim financial statements have not been audited; however, in the opinion of management, all adjustments, consisting of normal accruals, were made that are necessary to present fairly the balance sheet of the Company as of ~~September 30, 2016,~~March 31, 2017, and the statements of income, ~~(loss) and~~ comprehensive income, ~~(loss) for the three and nine months ended September 30, 2016 and the statements of~~ changes in shareholders’ equity and cash flows for the ~~nine~~three months ended ~~September 30, 2016.~~March 31, 2017. Results for the ~~nine~~three month period ended ~~September 30, 2016~~March 31, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2016.~~2017.

The financial information contained within the statements is, to a significant extent, financial information that is based on measures of the financial effects of transactions and events that have already occurred. A variety of factors could affect the ultimate value that is obtained when either earning income, recognizing an expense, recovering an asset or relieving a liability. The Company uses historical loss factors as one factor in determining the inherent loss that may be present in its loan portfolio. Actual losses could differ significantly from the historical factors that the Company uses. In addition, GAAP itself may change from one previously acceptable method to another method. Although the economics of the Company’s transactions would be the same, the timing of events that would impact its transactions could change.

In preparing these financial statements, the Company has evaluated subsequent events and transactions for potential recognition or disclosure through the date the financial statements were issued.

Certain reclassifications have been made to prior period balances to conform to the current year presentations.

Recent Accounting Pronouncements

In March ~~2016,~~2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) ~~No. 2016-09,~~2017-08,~~Compensation - Stock Compensation (Topic 718): Improvements~~Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20), Premium Amortization on Purchased Callable Debt Securities. The ASU shortens the amortization period for certain callable debt securities held at a premium to ~~Employee Share-Based Payment Accounting.~~the earliest call date.
Under current GAAP, entities normally amortize the premium as an adjustment of yield over the contractual life of the instrument. Stakeholders have expressed concerns with the current approach on the basis that current GAAP excludes certain callable debt securities from consideration of early repayment of principal even if the holder is certain that the call will be exercised. As a result, upon the exercise of a call on a callable debt security held at a premium, the unamortized premium is recorded as a loss in earnings. Further, there is diversity in practice (1) in the amortization period for premiums of callable debt securities, and (2) in how the potential for exercise of a call is factored into current impairment assessments.

The ASU shortens the amortization period for certain callable debt securities held at a premium and requires the premium to be amortized to the earliest call date. However, the amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity.
The amendments are ~~intended to improve the accounting~~effective for employee share-based payments and affect all organizations that issue share-based payment awards to their employees. Several aspects of the accounting for share-based payment award transactions are simplified, including:~~(a)~~ ~~income tax consequences;~~~~(b)~~ ~~classification of awards as either equity or liabilities; and~~~~(c)~~ classification on the statement of cash flows. The only amendment to potentially impact earnings is the one relating to income tax consequences, which refers to a change in the recording of the related tax effects of share-based compensation awards. Currently, an entity must determine for each award whether the difference between the deduction for tax purposes and the compensation cost recognized for financial reporting purposes results in either an excess tax benefit or a tax deficiency. Excess tax benefits are recognized in additional paid-in capital while tax deficiencies are recognized as income tax expense. Under the amendment, all excess tax benefits and tax deficiencies should be recognized as income tax benefit or expense in the income statement.
8
~~For~~ public ~~companies, the amendments are effective~~business entities for annual periods beginning after December 15, ~~2016,~~2018, including interim periods within those annual periods. Early adoption is permitted. The Company is currently in compliance with this guidance; therefore, its adoption will have no impact on its financial statements.
Also in March 2017, the FASB issued ASU No. 2017-07,Compensation — Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.The amendments apply to all employers, including not-for-profit entities, that offer to their employees defined benefit pension plans, other postretirement benefit plans, or other types of benefits accounted for under Topic 715,Compensation — Retirement Benefits.
The amendments require that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component. The line item or items used in the income statement to present the other components of net benefit cost must be disclosed.
The amendments are effective for public business entities for annual periods beginning after December 15, 2017, including interim periods within those annual periods. Early adoption is permitted as of the beginning of an annual period for ~~any organization in any interim~~which financial statements (interim or ~~annual period.~~annual) have not been issued or made available for issuance. The Company does not expect the adoption of this guidance to have a material impact on its ~~consolidated~~ financial statements.
~~Also in March 2016, the FASB issued ASU No. 2016-07,~~~~Investments - Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting.~~ The amendments affect all entities that have an investment that becomes qualified for the equity method of accounting as a result of an increase in the level of ownership interest or degree of influence. The amendments eliminate the requirement that, when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations, and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods that the investment had been held. The amendments require that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. Therefore, upon qualifying for the equity method of accounting, no retroactive adjustment of the investment is required.
The amendments are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. The amendments should be applied prospectively upon their effective date to increases in the level of ownership interest or degree of influence that result in the adoption of the equity method. Earlier application is permitted. The Company does not ~~expect~~offer a post retirement benefit plan. As the ~~adoption of this guidance to have a material impact on its consolidated financial statements.~~
~~In June 2016, the FASB issued ASU No. 2016-13,~~~~Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.~~ ~~The ASU~~Company’s pension plan is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. The ASU requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information in developing their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. Organizations will continue to use judgment to determine which loss estimation method is appropriate for their circumstances. The ASU requires enhanced disclosures to help investors and other financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. These disclosures include qualitative and quantitative requirements that providefrozen, no additional information about the amounts recorded in the financial statements. In addition, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration.
For public companies, the ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019 (i.e., January 1, 2020, for calendar year entities). Early applicationservice cost will be ~~permitted~~incurred. The remaining components of net periodic benefit cost are not expected to be significant. See Note 10 for all organizations for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company is evaluating what impact adopting this guidance will have on its consolidated financial statements.further details.
9

Note 2. Securities

Amortized costs and fair values of securities available for sale and held to maturity at ~~September 30, 2016~~March 31, 2017 and December 31, ~~2015~~2016 were as follows(dollars in thousands):

September 30, 2016
Gross Unrealized
Amortized Cost Gains Losses Fair Value
Securities Available for Sale
U.S. Treasury issue and other U.S. Gov’t agencies $ 33,033 $ 39 $ (443 ) $ 32,629
State, county and municipal 118,620 5,875 (275 ) 124,220
Corporate and other bonds 15,784 45 (506 ) 15,323
Mortgage backed – U.S. Gov’t agencies 3,623 16 (21 ) 3,618
Mortgage backed – U.S. Gov’t sponsored agencies 18,062 127 (84 ) 18,105
Total Securities Available for Sale $ 189,122 $ 6,102 $ (1,329 ) $ 193,895

Securities Held to Maturity
U.S. Treasury issue and other U.S. Gov’t agencies $ 10,000 $ 1 $ — $ 10,001
State, county and municipal 34,770 1,734 (8 ) 36,496
Mortgage backed – U.S. Gov’t agencies 846 19 — 865
Total Securities Held to Maturity $ 45,616 $ 1,754 $ (8 ) $ 47,362
December 31, 2015 March 31, 2017
Gross Unrealized Gross Unrealized
Amortized Cost Gains Losses Fair Value Amortized Cost Gains Losses Fair Value
Securities Available for Sale
U.S. Treasury issue and other U.S. Gov’t agencies $ 50,590 $ 11 $ (660 ) $ 49,941 $ 49,637 $ 18 $ (701 ) $ 48,954
U.S. Gov’t sponsored agencies 756 — (14 ) 742 2,921 — (59 ) 2,862
State, county and municipal 138,965 3,400 (867 ) 141,498 125,731 2,398 (1,042 ) 127,087
Corporate and other bonds 14,997 10 (711 ) 14,296 16,246 54 (239 ) 16,061
Mortgage backed – U.S. Gov’t agencies 8,654 9 (167 ) 8,496 3,606 — (130 ) 3,476
Mortgage backed – U.S. Gov’t sponsored agencies 28,637 22 (362 ) 28,297 15,519 25 (271 ) 15,273
Total Securities Available for Sale $ 242,599 $ 3,452 $ (2,781 ) $ 243,270 $ 213,660 $ 2,495 $ (2,442 ) $ 213,713

Securities Held to Maturity
U.S. Treasury issue and other U.S. Gov’t agencies $ 10,000 $ — $ (124 ) $ 9,876
State, county and municipal $ 35,456 $ 1,136 $ (35 ) $ 36,557 35,831 668 (178 ) 36,321
Mortgage backed – U.S. Gov’t agencies 1,022 32 — 1,054 669 15 — 684
Total Securities Held to Maturity $ 36,478 $ 1,168 $ (35 ) $ 37,611 $ 46,500 $ 683 $ (302 ) $ 46,881

December 31, 2016
Gross Unrealized
Amortized Cost Gains Losses Fair Value
Securities Available for Sale
U.S. Treasury issue and other U.S. Gov’t agencies $ 58,724 $ 15 $ (763 ) $ 57,976
U.S. Gov’t  sponsored agencies 3,452 — (116 ) 3,336
State, county and municipal 121,686 2,247 (1,160 ) 122,773
Corporate and other bonds 15,936 — (433 ) 15,503
Mortgage backed – U.S. Gov’t agencies 3,614 — (119 ) 3,495
Mortgage backed – U.S. Gov’t sponsored agencies 13,330 21 (313 ) 13,038
Total Securities Available for Sale $ 216,742 $ 2,283 $ (2,904 ) $ 216,121

Securities Held to Maturity
U.S. Treasury issue and other U.S. Gov’t agencies $ 10,000 $ — $ (154 ) $ 9,846
State, county and municipal 35,847 568 (185 ) 36,230
Mortgage backed – U.S. Gov’t agencies 761 21 — 482
Total Securities Held to Maturity $ 46,608 $ 589 $ (339 ) $ 46,858

The amortized cost and fair value of securities at ~~September 30, 2016~~March 31, 2017 by final contractual maturity are shown below. Expected maturities may differ from final contractual maturities because issuers may have the right to call or prepay obligations without any penalties.

Held to Maturity Available for Sale
(dollars in thousands) Amortized Cost Fair Value Amortized Cost Fair Value
Due in one year or less $ 10,801 $ 10,812 $ 1,105 $ 1,108
Due after one year through five years 11,237 11,686 76,486 78,849
Due after five years through ten years 14,290 15,145 87,125 89,521
Due after ten years 9,288 9,719 24,406 24,417
Total securities $ 45,616 $ 47,362 $ 189,122 $ 193,895
10
Held to Maturity Available for Sale
(dollars in thousands) Amortized Cost Fair Value Amortized Cost Fair Value
Due in one year or less $ 13,104 $ 12,998 $ 1,837 $ 1,862
Due after one year through five years 11,481 11,641 91,477 92,637
Due after five years through ten years 13,667 13,907 100,870 100,024
Due after ten years 8,248 8,335 19,476 19,190
Total securities $ 46,500 $ 46,881 $ 213,660 $ 213,713

Proceeds from sales of securities available for sale were ~~$22.2~~$22.3 million and ~~$19.3~~$51.4 million during the three months ended ~~September 30,~~March 31, 2017 and 2016, ~~and 2015, respectively, and $93.7 million and $75.5 million during the nine months ended September 30, 2016 and 2015,~~ respectively. Gains and losses on the sale of securities are determined using the specific identification method. Gross realized gains and losses on sales of securities available for sale during the three ~~and nine~~ months ended ~~September 30,~~March 31, 2017 and 2016 ~~and 2015~~ were as follows (dollars in thousands):

Three Months Ended Nine Months Ended Three Months Ended
September 30, 2016 September 30, 2015 September 30, 2016 September 30, 2015 March 31, 2017 March 31, 2016
Gross realized gains $ 191 $ 95 $ 1,223 $ 670 $ 130 $ 754
Gross realized losses (103 ) (21 ) (615 ) (307 ) (35 ) (495 )
Net securities gains $ 88 $ 74 $ 608 $ 363 $ 95 $ 259

In estimating other than temporary impairment (OTTI) losses, management considers the length of time and the extent to which the fair value has been less than cost, the financial condition and short-term prospects for the issuer, and the intent and ability of management to hold its investment for a period of time to allow a recovery in fair value. There were no investments held that had OTTI losses for the three ~~and nine~~ months ended ~~September 30, 2016~~March 31, 2017 and ~~2015.~~2016.

The fair value and gross unrealized losses for securities, segregated by the length of time that individual securities have been in a continuous gross unrealized loss position, at ~~September 30, 2016~~March 31, 2017 and December 31, ~~2015~~2016 were as follows (dollars in thousands):

September 30, 2016
Less than 12 Months 12 Months or More Total
Fair Value Unrealized
Loss Fair Value Unrealized
Loss Fair Value Unrealized
Loss
Securities Available for Sale
U.S. Treasury issue and other U.S. Gov’t agencies $ 1,616 $ (6 ) $ 25,685 $ (437 ) $ 27,301 $ (443 )
State, county and municipal 4,731 (35 ) 3,959 (240 ) 8,690 (275 )
Corporate and other bonds 957 (5 ) 11,249 (501 ) 12,206 (506 )
Mortgage backed – U.S. Gov’t agencies - - 1,976 (21 ) 1,976 (21 )
Mortgage backed – U.S. Gov’t sponsored agencies 7,249 (82 ) 146 (2 ) 7,395 (84 )
Total $ 14,553 $ (128 ) $ 43,015 $ (1,201 ) $ 57,568 $ (1,329 )

Securities Held to Maturity
State, county and municipal $ 668 $ (8 ) $ - $ - $ 668 $ (8 )
March 31, 2017
Less than 12 Months 12 Months or More Total
Securities Available for Sale Fair Value Unrealized Loss Fair Value Unrealized Loss Fair Value Unrealized Loss
U.S. Treasury issue and other U.S. Gov’t agencies $ 17,873 $ (290 ) $ 25,400 $ (411 ) $ 43,273 $ (701 )
U.S. Gov’t sponsored agencies - - 2,362 (59 ) 2,362 (59 )
State, county and municipal 33,054 (729 ) 3,483 (313 ) 36,537 (1,042 )
Corporate and other bonds 2,995 (75 ) 7,363 (164 ) 10,358 (239 )
Mortgage backed – U.S. Gov’t agencies 1,586 (22 ) 1,890 (108 ) 3,476 (130 )
Mortgage backed – U.S. Gov’t sponsored agencies 10,157 (270 ) 132 (1 ) 10,289 (271 )
Total $ 65,665 $ (1,386 ) $ 40,630 $ (1,056 ) $ 106,295 $ (2,442 )

Securities Held to Maturity
U.S. Treasury issue and other U.S. Gov’t agencies $ 9,876 $ (124 ) $ - $ - $ 9,876 $ (124 )
State, county and municipal 7,494 (178 ) - - 7,494 (178 )
Total $ 17,370 $ (302 ) $ - $ - $ 17,370 $ (302 )
December 31, 2015
Less than 12 Months 12 Months or More Total December 31, 2016
Fair Value Unrealized
Loss Fair Value Unrealized
Loss Fair Value Unrealized
Loss Less than 12 Months 12 Months or More Total
Securities Available for Sale Fair Value Unrealized Loss Fair Value Unrealized Loss Fair Value Unrealized Loss
U.S. Treasury issue and other U.S. Gov’t agencies $ 20,408 $ (84 ) $ 28,063 $ (576 ) $ 48,471 $ (660 ) $ 29,756 $ (324 ) $ 25,155 $ (439 ) $ 54,911 $ (763 )
U.S. Gov’t sponsored agencies 742 (14 ) - - 742 (14 ) - - 2,523 (116 ) 2,523 (116 )
State, county and municipal 23,733 (252 ) 10,270 (615 ) 34,003 (867 ) 39,713 (848 ) 3,885 (312 ) 43,598 (1,160 )
Corporate and other bonds 8,996 (669 ) 3,290 (42 ) 12,286 (711 ) 6,864 (103 ) 8,639 (330 ) 15,503 (433 )
Mortgage backed – U.S. Gov’t agencies 6,386 (88 ) 1,919 (79 ) 8,305 (167 ) 1,598 (18 ) 1,897 (101 ) 3,495 (119 )
Mortgage backed – U.S. Gov’t sponsored agencies 24,129 (360 ) 175 (2 ) 24,304 (362 ) 9,247 (313 ) - - 9,247 (313 )
Total $ 84,394 $ (1,467 ) $ 43,717 $ (1,314 ) $ 128,111 $ (2,781 ) $ 87,178 $ (1,606 ) $ 42,099 $ (1,298 ) $ 129,277 $ (2,904 )

Securities Held to Maturity
U.S. Treasury issue and other U.S. Gov’t agencies $ 9,846 $ (154 ) $ - $ - $ 9,846 $ (154 )
State, county and municipal $ 3,889 $ (35 ) $ - $ - $ 3,889 $ (35 ) 8,052 (185 ) - - 8,052 (185 )
Total $ 17,898 $ (339 ) $ - $ - $ 17,898 $ (339 )

The unrealized losses (impairments) in the investment portfolio at ~~September 30, 2016~~March 31, 2017 and December 31, ~~2015~~2016 are generally a result of market fluctuations that occur daily. The unrealized losses are from 63147 securities at ~~September 30, 2016.~~March 31, 2017. Of those, 43131 are investment grade, have U.S. government agency guarantees, or are backed by the full faith and credit of local municipalities throughout the United States. ~~Twenty~~Sixteen investment grade corporate and other bond obligations comprise the remaining securities with unrealized losses at ~~September 30, 2016.~~March 31, 2017. The Company considers the reason for impairment, length of impairment, and ability and intent to hold until the full value is recovered in determining if the impairment is temporary in nature. Based on this analysis, the Company has determined these impairments to be temporary in nature. The Company does not intend to sell, and it is more likely than not that the Company will not be required to sell, these securities until they recover in value or reach maturity.

11
Market prices are affected by conditions beyond the control of the Company. Investment decisions are made by the management group of the Company and reflect the overall liquidity and strategic asset/liability objectives of the Company. Management analyzes the securities portfolio frequently and manages the portfolio to provide an overall positive impact to the Company’s income statement and balance sheet.

Securities with amortized costs of ~~$66.5~~$72.3 million and ~~$88.7~~$75.8 million at ~~September 30, 2016~~March 31, 2017 and December 31, ~~2015,~~2016, respectively, were pledged to secure public deposits as required or permitted by ~~law~~law. Securities with amortized costs of $4.2 million and ~~a line~~$4.4 million at March 31, 2017 and December 31, 2016, respectively, were pledged to secure lines of credit at the Federal Reserve discount window. At each of ~~September 30, 2016~~March 31, 2017 and December 31, ~~2015,~~2016, there were no securities purchased from a single issuer, other than U.S. Treasury issue and other U.S. Government agencies that comprised more than 10% of the consolidated shareholders’ equity.

Note 3. Loans and Related Allowance for Loan Losses

The Company’s loans, net of deferred fees and costs, at ~~September 30, 2016~~March 31, 2017 and December 31, ~~2015~~2016 were comprised of the following (dollars in thousands):

September 30, 2016 December 31, 2015 March 31, 2017 December 31, 2016
Amount % of Loans Amount % of Loans Amount % of Loans Amount % of Loans
Mortgage loans on real estate:
Residential 1-4 family $ 207,422 25.55 % $ 194,576 25.99 % $ 210,517 24.71 % $ 207,863 24.86 %
Commercial 331,120 40.79 317,955 42.47 343,604 40.32 339,804 40.63
Construction and land development 88,543 10.91 67,408 9.00 96,152 11.28 98,282 11.75
Second mortgages 8,378 1.03 8,378 1.12 7,724 0.91 7,911 0.95
Multifamily 43,137 5.31 45,389 6.06 49,469 5.80 39,084 4.67
Agriculture 7,910 0.98 6,238 0.83 7,449 0.87 7,185 0.86
Total real estate loans 686,510 84.57 639,944 85.47 714,915 83.89 700,129 83.72
Commercial loans 118,770 14.63 102,507 13.69 130,729 15.34 129,300 15.46
Consumer installment loans 5,226 0.64 4,928 0.66 5,321 0.62 5,627 0.67
All other loans 1,292 0.16 1,345 0.18 1,261 0.15 1,243 0.15
Total loans $ 811,798 100.00 % $ 748,724 100.00 % $ 852,226 100.00 % $ 836,299 100.00 %

The Company held ~~$14.9~~$15.7 million and ~~$13.4~~$15.8 million in balances of loans guaranteed by the United States Department of Agriculture (USDA), which are included in various categories in the table above, at ~~September 30, 2016~~March 31, 2017 and December 31, ~~2015,~~2016, respectively. As these loans are 100% guaranteed by the USDA, no loan loss ~~provision~~allowance is required. These loan balances included a purchase premium of ~~$681,000~~$718,000 and ~~$586,000~~$749,000 at ~~September 30, 2016~~March 31, 2017 and December 31, ~~2015,~~2016, respectively. The purchase premium is amortized as an adjustment of the related loan yield on a straight line basis, which is substantially equivalent to the results obtained using the effective interest method.

At ~~September 30, 2016~~March 31, 2017 and December 31, ~~2015,~~2016, the Company’s allowance for credit losses was comprised of the following: (i) a specific valuation component calculated in accordance with FASB ASC 310,Receivables,(ii) a general valuation component calculated in accordance with FASB Accounting Standards Codification (ASC) 450,Contingencies, based on historical loan loss experience, economic conditions and other qualitative risk factors, and (iii) an unallocated component to cover uncertainties that could affect management’s estimate of probable losses. Management identified loans subject to impairment in accordance with ASC 310.
12

The following table summarizes information related to impaired loans as of ~~September 30, 2016~~March 31, 2017 (dollars in thousands):

Three months ended Nine months ended
September 30, 2016 September 30, 2016 September 30, 2016 Three months ended
Recorded
Investment⁽¹⁾ Unpaid
Principal
Balance⁽²⁾ Related
Allowance Average
Investment Interest
Recognized Average
Investment Interest
Recognized March 31, 2017 March 31, 2017
With no related allowance recorded: Recorded
Investment⁽¹⁾ Unpaid
Principal
Balance⁽²⁾ Related
Allowance Average
Investment Interest
Recognized
Mortgage loans on real estate:
Residential 1-4 family $ 1,843 $ 2,056 $ — $ 2,410 $ 5 $ 2,433 $ 13 $ 2,189 $ 2,479 $ — $ 1,947 $ 7
Commercial 4,159 4,661 — 4,198 39 4,247 117 4,156 4,726 — 5,363 38
Construction and land development — — — — — — — — — — — —
Second mortgages 135 135 — 135 — 68 —
Total real estate loans 6,137 6,852 — 6,743 44 6,748 130 6,345 7,205 — 7,310 45
Commercial loans — — — — — — — — — — 600 —
Consumer installment loans — — — 122 — 123 — — — — — —
Subtotal impaired loans with no valuation allowance 6,137 6,852 — 6,865 44 6,871 130 6,345 7,205 — 7,910 45
With an allowance recorded:
Mortgage loans on real estate:
Residential 1-4 family 3,267 3,714 335 2,825 15 3,113 46 2,335 2,737 321 2,478 12
Commercial 456 814 54 475 2 478 6 396 786 50 506 2
Construction and land development 5,684 7,350 764 5,694 — 5,098 — 4,304 5,558 538 4,900 —
Second mortgages — — — — — 40 —
Total real estate loans 9,407 11,878 1,153 8,994 17 8,729 52 7,035 9,081 909 7,884 14
Commercial loans 53 53 7 54 — 40 — 284 284 36 168 1
Consumer installment loans 316 325 43 200 1 140 4 42 46 5 162 —
Subtotal impaired loans with a valuation allowance 9,776 12,256 1,203 9,248 18 8,909 56 7,361 9,411 950 8,214 15
Total:
Mortgage loans on real estate:
Residential 1-4 family 5,110 5,770 335 5,235 20 5,546 59 4,524 5,216 321 4,425 19
Commercial 4,615 5,475 54 4,673 41 4,725 123 4,552 5,512 50 5,869 40
Construction and land development 5,684 7,350 764 5,694 — 5,098 — 4,304 5,558 538 4,900 —
Second mortgages 135 135 — 135 — 108 —
Total real estate loans 15,544 18,730 1,153 15,737 61 15,477 182 13,380 16,286 909 15,194 59
Commercial loans 53 53 7 54 — 40 — 284 284 36 768 1
Consumer installment loans 316 325 43 322 1 263 4 42 46 5 162 —
Total impaired loans $ 15,913 $ 19,108 $ 1,203 $ 16,113 $ 62 $ 15,780 $ 186 $ 13,706 $ 16,616 $ 950 $ 16,124 $ 60

(1) The amount of the investment in a loan, which is not net of a valuation allowance, but which does reflect any direct write-down of the investment
(2) The contractual amount due, which reflects paydowns applied in accordance with loan documents, but which does not reflect any direct write-downs
13

The following table summarizes information related to impaired loans as of December 31, ~~2015~~2016 and the three months ended March 31, 2016 (dollars in thousands):

Three months ended Nine months ended
December 31, 2015 September 30, 2015 September 30, 2015 Three months ended
Recorded
Investment⁽¹⁾ Unpaid
Principal
Balance⁽²⁾ Related
Allowance Average
Investment Interest
Recognized Average
Investment Interest
Recognized December 31, 2016 March 31, 2016
With no related allowance recorded: Recorded
Investment⁽¹⁾ Unpaid
Principal
Balance⁽²⁾ Related
Allowance Average
Investment Interest
Recognized
Mortgage loans on real estate:
Residential 1-4 family $ 2,749 $ 3,274 $ — $ 1,768 $ 11 $ 1,892 $ 34 $ 1,704 $ 1,931 $ — $ 2,455 $ 11
Commercial 4,327 4,814 — 4,420 40 4,583 119 6,570 7,078 — 4,297 39
Construction and land development — — — 197 — 186 — — — — — —
Second mortgages — — — — — — — — — — — —
Total real estate loans 7,076 8,088 — 6,385 51 6,661 153 8,274 9,009 — 6,752 50
Commercial loans — — — — — — — 1,200 1,200 — — —
Consumer installment loans — — — — — 1 — — — — 124 1
Subtotal impaired loans with no valuation allowance 7,076 8,088 — 6,385 51 6,662 153 9,474 10,209 — 6,876 51
With an allowance recorded:
Mortgage loans on real estate:
Residential 1-4 family 3,215 3,619 490 3,895 7 3,314 21 2,621 3,062 283 3,400 7
Commercial 375 699 64 438 4 371 11 617 1,051 73 481 2
Construction and land development 4,508 6,179 574 4,435 — 4,587 — 5,495 6,746 730 4,502 —
Second mortgages 13 14 2 37 — 49 — — — — 80 —
Total real estate loans 8,111 10,511 1,130 8,805 11 8,321 32 8,733 10,859 1,086 8,463 9
Commercial loans — — — 2 — 3,734 — 53 53 7 27 —
Consumer installment loans 79 84 14 83 — 93 — 281 285 37 79 —
Subtotal impaired loans with a valuation allowance 8,190 10,595 1,144 8,890 11 12,148 32 9,067 11,197 1,130 8,569 9
Total:
Mortgage loans on real estate:
Residential 1-4 family 5,964 6,893 490 5,663 18 5,206 55 4,325 4,993 283 5,855 18
Commercial 4,702 5,513 64 4,858 44 4,954 130 7,187 8,129 73 4,778 41
Construction and land development 4,508 6,179 574 4,632 — 4,773 — 5,495 6,746 730 4,502 —
Second mortgages 13 14 2 37 — 49 — — — — 80 —
Total real estate loans 15,187 18,599 1,130 15,190 62 14,982 185 17,007 19,868 1,086 15,215 59
Commercial loans — — — 2 — 3734 — 1,253 1,253 7 27 —
Consumer installment loans 79 84 14 83 — 94 — 281 285 37 203 1
Total impaired loans $ 15,266 $ 18,683 $ 1,144 $ 15,275 $ 62 $ 18,810 $ 185 $ 18,541 $ 21,406 $ 1,130 $ 15,445 $ 60

(1) The amount of the investment in a loan, which is not net of a valuation allowance, but which does reflect any direct write-down of the investment
(2) The contractual amount due, which reflects paydowns applied in accordance with loan documents, but which does not reflect any direct write-downs

Troubled debt restructures and some substandard loans still accruing interest are loans that management expects to ultimately collect all principal and interest due, but not under the terms of the original contract. A reconciliation of impaired loans to nonaccrual loans at ~~September 30, 2016~~March 31, 2017 and December 31, ~~2015,~~2016, is set forth in the table below (dollars in thousands):

September 30, 2016 December 31, 2015
Nonaccruals $ 11,213 $ 10,670
Trouble debt restructures still accruing 4,700 4,596
Total impaired $ 15,913 $ 15,266
14
March 31, 2017 December 31, 2016
Nonaccruals $ 9,091 $ 10,243
Trouble debt restructure and still accruing 4,615 4,653
Substandard and still accruing — 3,645
Total impaired $ 13,706 $ 18,541

Interest income on nonaccrual loans, if recognized, is recorded using the cash basis method of accounting. There was an insignificant amount of cash basis income recognized during the three months ended ~~September 30, 2016~~March 31, 2017 and ~~2015, and the nine months ended September 30,~~ 2016. ~~Cash basis income of $487,000 was recognized during the nine months ended September 30, 2015.~~ For the three months ended ~~September 30,~~March 31, 2017 and 2016, ~~and 2015,~~ estimated interest income of ~~$198,000and $224,000,~~$163,000and $204,000, respectively, would have been recorded if all such loans had been accruing interest according to their original contractual terms. For the nine months ended September 30, 2016 and 2015, estimated interest income of $588,000and $548,000, respectively, would have been recorded if all such loans had been accruing interest according to their original contractual terms.

The following tables present an age analysis of past due status of loans by category as of ~~September 30, 2016~~March 31, 2017 and December 31, ~~2015~~2016 (dollars in thousands):

September 30, 2016
30-89 Days
Past Due Nonaccrual Total Past
Due Current Total Loans
Receivable
Mortgage loans on real estate:
Residential 1-4 family $ 761 $ 3,665 $ 4,426 $ 202,996 $ 207,422
Commercial 1,791 1,599 3,390 327,730 331,120
Construction and land development 26 5,684 5,710 82,833 88,543
Second mortgages 13 135 148 8,230 8,378
Multifamily 5,256 — 5,256 37,881 43,137
Agriculture — — — 7,910 7,910
Total real estate loans 7,847 11,083 18,930 667,580 686,510
Commercial loans — 53 53 118,717 118,770
Consumer installment loans 3 77 80 5,146 5,226
All other loans — — — 1,292 1,292
Total loans $ 7,850 $ 11,213 $ 19,063 $ 792,735 $ 811,798
December 31, 2015 March 31, 2017
30-89 Days
Past Due Nonaccrual Total Past
Due Current Total Loans
Receivable 30-89 Days
Past Due 90+ Days Past
Due and
Accruing Nonaccrual Total Past
Due Current Total Loans
Receivable
Mortgage loans on real estate:
Residential 1-4 family $ 811 $ 4,562 $ 5,373 $ 189,203 $ 194,576 $ 271 $ — $ 3,104 $ 3,375 $ 207,142 $ 210,517
Commercial 1,471 1,508 2,979 314,976 317,955 — — 1,588 1,588 342,016 343,604
Construction and land development 51 4,509 4,560 62,848 67,408 — — 4,304 4,304 91,848 96,152
Second mortgages 135 13 148 8,230 8,378 — — — — 7,724 7,724
Multifamily — — — 45,389 45,389 — — — — 49,469 49,469
Agriculture — — — 6,238 6,238 — 112 — 112 7,337 7,449
Total real estate loans 2,468 10,592 13,060 626,884 639,944 271 112 8,996 9,379 705,536 714,915
Commercial loans 16 — 16 102,491 102,507 334 — 53 387 130,342 130,729
Consumer installment loans 10 78 88 4,840 4,928 27 — 42 69 5,252 5,321
All other loans 33 — 33 1,312 1,345 — — — — 1,261 1,261
Total loans $ 2,527 $ 10,670 $ 13,197 $ 735,527 $ 748,724 $ 632 $ 112 $ 9,091 $ 9,835 $ 842,391 $ 852,226

December 31, 2016
30-89 Days
Past Due 90+ Days Past
Due and
Accruing Nonaccrual Total Past
Due Current Total Loans
Receivable
Mortgage loans on real estate:
Residential 1-4 family $ 296 $ — $ 2,893 $ 3,189 $ 204,674 $ 207,863
Commercial — — 1,758 1,758 338,046 339,804
Construction and land development 54 — 5,495 5,549 92,733 98,282
Second mortgages — — — — 7,911 7,911
Multifamily — — — — 39,084 39,084
Agriculture — — — — 7,185 7,185
Total real estate loans 350 — 10,146 10,496 689,633 700,129
Commercial loans — — 53 53 129,247 129,300
Consumer installment loans 3 — 44 47 5,580 5,627
All other loans — — — — 1,243 1,243
Total loans $ 353 $ — $ 10,243 $ 10,596 $ 825,703 $ 836,299

15

Activity in the allowance for loan losses, excluding PCI loans, on loans by segment for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2017 and 2016 ~~and 2015~~ is presented in the following tables (dollars in thousands):

Three months ended September 30, 2016
June 30, 2016 Provision
Allocation Charge-offs Recoveries September 30, 2016
Mortgage loans on real estate:
Residential 1-4 family $ 2,470 $ 949 $ (202 ) $ 13 $ 3,230
Commercial 3,611 (721 ) — 21 2,911
Construction and land development 1,587 (67 ) (15 ) 1 1,506
Second mortgages 47 (15 ) — 2 34
Multifamily 299 341 — — 640
Agriculture 26 5 — — 31
Total real estate loans 8,040 492 (217 ) 37 8,352
Commercial loans 1,280 (282 ) — — 998
Consumer installment loans 103 43 (31 ) 7 122
All other loans 11 (3 ) — — 8
Total loans $ 9,434 $ 250 $ (248 ) $ 44 $ 9,480
Three Months Ended September 30, 2015
June 30, 2015 Provision
Allocation Charge-offs Recoveries September 30, 2015
Mortgage loans on real estate:
Residential 1-4 family $ 3,612 $ 82 $ (25 ) $ 6 $ 3,675
Commercial 3,559 (432 ) — 9 3,136
Construction and land development 1,639 195 (138 ) 1 1,697
Second mortgages 56 21 — 3 80
Multifamily 251 (59 ) — — 192
Agriculture 77 (44 ) — — 33
Total real estate loans 9,194 (237 ) (163 ) 19 8,813
Commercial loans 561 200 (3 ) — 758
Consumer installment loans 78 54 (43 ) 27 116
All other loans 31 (17 ) — — 14
Total loans $ 9,864 $ — $ (209 ) $ 46 $ 9,701
Nine months ended September 30, 2016
December 31, 2015 Provision
Allocation Charge-offs Recoveries September 30, 2016
Mortgage loans on real estate:
Residential 1-4 family $ 3,041 $ 592 $ (527 ) $ 124 $ 3,230
Commercial 4,022 (1,049 ) (112 ) 50 2,911
Construction and land development 1,353 165 (15 ) 3 1,506
Second mortgages 103 (77 ) — 8 34
Multifamily 178 462 — — 640
Agriculture 27 4 — — 31
Total real estate loans 8,724 97 (654 ) 185 8,352
Commercial loans 727 260 — 11 998
Consumer installment loans 97 96 (147 ) 76 122
All other loans 11 (3 ) — — 8
Total loans $ 9,559 $ 450 $ (801 ) $ 272 $ 9,480
16
Nine Months Ended September 30, 2015
December 31, 2014 Provision
Allocation Charge-offs Recoveries September 30, 2015
Mortgage loans on real estate:
Residential 1-4 family $ 3,100 $ 837 $ (325 ) $ 63 $ 3,675
Commercial 2,618 494 — 24 3,136
Construction and land development 1,930 341 (593 ) 19 1,697
Second mortgages 63 (79 ) — 96 80
Multifamily 136 56 — — 192
Agriculture 66 (33 ) — — 33
Total real estate loans 7,913 1,616 (918 ) 202 8,813
Commercial loans 1,242 (1,689 ) (3 ) 1,208 758
Consumer installment loans 85 86 (139 ) 84 116
All other loans 27 (13 ) — — 14
Total loans $ 9,267 $ — $ (1,060 ) $ 1,494 $ 9,701
The Company recorded a provision for loan losses in the amounts of $250,000 and $450,000 for the three and nine months ended September 30, 2016, respectively, as additional general reserves to support current period loan growth.
December 31, 2016 Provision
Allocation Charge-offs Recoveries March 31, 2017
Mortgage loans on real estate:
Residential 1-4 family $ 2,769 $ 62 $ (26 ) $ 18 $ 2,823
Commercial 1,952 (183 ) — 7 1,776
Construction and land development 2,195 (635 ) (14 ) 1 1,547
Second mortgages 72 (69 ) — 47 50
Multifamily 260 (67 ) — — 193
Agriculture 15 17 — — 32
Total real estate loans 7,263 (875 ) (40 ) 73 6,421 ��
Commercial loans 602 712 — 2 1,316
Consumer installment loans 135 13 (45 ) 30 133
All other loans 7 8 — — 15
Unallocated 1,486 142 — — 1,628
Total loans $ 9,493 $ — $ (85 ) $ 105 $ 9,513

December 31, 2015 Provision
Allocation Charge-offs Recoveries March 31, 2016
Mortgage loans on real estate:
Residential 1-4 family $ 2,884 $ (508 ) $ (19 ) $ 98 $ 2,455
Commercial 3,769 (630 ) (37 ) 12 3,114
Construction and land development 1,298 290 — 1 1,589
Second mortgages 96 3 — 4 103
Multifamily 141 159 — — 300
Agriculture 24 (12 ) — — 12
Total real estate loans 8,212 (698 ) (56 ) 115 7,573
Commercial loans 631 317 — — 948
Consumer installment loans 93 17 (82 ) 58 86
All other loans 25 (19 ) — — 6
Unallocated 598 383 — — 981
Total loans $ 9,559 $ — $ (138 ) $ 173 $ 9,594

The following tables present information on the loans evaluated for impairment in the allowance for loan losses as of ~~September 30, 2016~~March 31, 2017 and December 31, ~~2015~~2016 (dollars in thousands):

September 30, 2016
Allowance for Loan Losses Recorded Investment in Loans
Individually
Evaluated for
Impairment Collectively
Evaluated for
Impairment Total Individually
Evaluated for
Impairment Collectively
Evaluated for
Impairment Total
Mortgage loans on real estate:
Residential 1-4 family $ 335 $ 2,895 $ 3,230 $ 5,110 $ 202,312 $ 207,422
Commercial 54 2,857 2,911 4,615 326,505 331,120
Construction and land development 764 742 1,506 5,684 82,859 88,543
Second mortgages — 34 34 135 8,243 8,378
Multifamily — 640 640 — 43,137 43,137
Agriculture — 31 31 — 7,910 7,910
Total real estate loans 1,153 7,199 8,352 15,544 670,966 686,510
Commercial loans 7 991 998 53 118,717 118,770
Consumer installment loans 43 79 122 316 4,910 5,226
All other loans — 8 8 — 1,292 1,292
Total loans $ 1,203 $ 8,277 $ 9,480 $ 15,913 $ 795,885 $ 811,798
March 31, 2017
Allowance for Loan Losses Recorded Investment in Loans
Individually
Evaluated for
Impairment Collectively
Evaluated for
Impairment Total Individually
Evaluated for
Impairment Collectively
Evaluated for
Impairment Total
Mortgage loans on real estate:
Residential 1-4 family $ 321 $ 2,502 $ 2,823 $ 4,524 $ 205,993 $ 210,517
Commercial 50 1,726 1,776 4,552 339,052 343,604
Construction and land development 538 1,009 1,547 4,304 91,848 96,152
Second mortgages — 50 50 — 7,724 7,724
Multifamily — 193 193 — 49,469 49,469
Agriculture — 32 32 — 7,449 7,449
Total real estate loans 909 5,512 6,421 13,380 701,535 714,915
Commercial loans 36 1,280 1,316 284 130,445 130,729
Consumer installment loans 5 128 133 42 5,279 5,321
All other loans — 15 15 — 1,261 1,261
Unallocated — 1,628 1,628 — — —
Total loans $ 950 $ 8,563 $ 9,513 $ 13,706 $ 838,520 $ 852,226
17

December 31, 2015 December 31, 2016
Allowance for Loan Losses Recorded Investment in Loans Allowance for Loan Losses Recorded Investment in Loans
Individually
Evaluated for
Impairment Collectively
Evaluated for
Impairment Total Individually
Evaluated for
Impairment Collectively
Evaluated for
Impairment Total Individually
Evaluated for
Impairment Collectively
Evaluated for
Impairment Total Individually
Evaluated for
Impairment Collectively
Evaluated for
Impairment Total
Mortgage loans on real estate:
Residential 1-4 family $ 490 $ 2,551 $ 3,041 $ 5,964 $ 188,612 $ 194,576 $ 283 $ 2,486 $ 2,769 $ 4,325 $ 203,538 $ 207,863
Commercial 64 3,958 4,022 4,702 313,253 317,955 73 1,879 1,952 7,187 332,617 339,804
Construction and land development 574 779 1,353 4,508 62,900 67,408 730 1,465 2,195 5,495 92,787 98,282
Second mortgages 2 101 103 13 8,365 8,378 — 72 72 — 7,911 7,911
Multifamily — 178 178 — 45,389 45,389 — 260 260 — 39,084 39,084
Agriculture — 27 27 — 6,238 6,238 — 15 15 — 7,185 7,185
Total real estate loans 1,130 7,594 8,724 15,187 624,757 639,944 1,086 6,177 7,263 17,007 683,122 700,129
Commercial loans — 727 727 — 102,507 102,507 7 595 602 1,253 128,047 129,300
Consumer installment loans 14 83 97 79 4,849 4,928 37 98 135 281 5,346 5,627
All other loans — 11 11 — 1,345 1,345 — 7 7 — 1,243 1,243
Unallocated — 1,486 1,486 — — —
Total loans $ 1,144 $ 8,415 $ 9,559 $ 15,266 $ 733,458 $ 748,724 $ 1,130 $ 8,363 $ 9,493 $ 18,541 $ 817,758 $ 836,299

Loans are monitored for credit quality on a recurring basis. These credit quality indicators are defined as follows:

Pass - A pass loan is not adversely classified, as it does not display any of the characteristics for adverse classification. This category includes purchased loans that are 100% guaranteed by U.S. Government agencies of ~~$14.9~~$15.7 million and ~~$13.4~~$15.8 million at ~~September 30, 2016~~March 31, 2017 and December 31, ~~2015,~~2016, respectively.

Special Mention - A special mention loan has potential weaknesses that deserve management’s close attention. If left uncorrected, such potential weaknesses may result in deterioration of the repayment prospects or collateral position at some future date. Special mention loans are not adversely classified and do not warrant adverse classification.

Substandard - A substandard loan is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified as substandard generally have a well defined weakness, or weaknesses, that jeopardize the liquidation of the debt. These loans are characterized by the distinct possibility of loss if the deficiencies are not corrected.

Doubtful - A doubtful loan has all the weaknesses inherent in a loan classified as substandard with the added characteristics that the weaknesses make collection or liquidation in full, highly questionable and improbable, on the basis of currently existing facts, conditions, and values. The possibility of loss is extremely high.
18

The following tables present the composition of loans by credit quality indicator at ~~September 30, 2016~~March 31, 2017 and December 31, ~~2015~~2016 (dollars in thousands):

September 30, 2016 March 31, 2017
Pass Special
Mention Substandard Doubtful Total Pass Special
Mention Substandard Doubtful Total
Mortgage loans on real estate:
Residential 1-4 family $ 197,736 $ 5,597 $ 4,089 $ — $ 207,422 $ 203,046 $ 4,171 $ 3,300 $ — $ 210,517
Commercial 322,525 3,382 5,213 — 331,120 334,557 3,330 5,717 — 343,604
Construction and land development 82,623 236 5,684 — 88,543 91,659 189 4,304 — 96,152
Second mortgages 7,775 468 135 — 8,378 7,245 479 — — 7,724
Multifamily 35,645 2,633 4,859 — 43,137 46,883 — 2,586 — 49,469
Agriculture 7,793 117 — — 7,910 7,224 113 112 — 7,449
Total real estate loans 654,097 12,433 19,980 — 686,510 690,614 8,282 16,019 — 714,915
Commercial loans 114,551 2,910 1,309 — 118,770 123,179 5,111 2,439 — 130,729
Consumer installment loans 5,130 19 77 — 5,226 5,256 23 42 — 5,321
All other loans 1,292 — — — 1,292 1,261 — — — 1,261
Total loans $ 775,070 $ 15,362 $ 21,366 $ — $ 811,798 $ 820,310 $ 13,416 $ 18,500 $ — $ 852,226

December 31, 2015 December 31, 2016
Pass Special
Mention Substandard Doubtful Total Pass Special
Mention Substandard Doubtful Total
Mortgage loans on real estate:
Residential 1-4 family $ 182,394 $ 6,612 $ 5,570 $ — $ 194,576 $ 199,973 $ 4,612 $ 3,278 $ — $ 207,863
Commercial 306,267 8,520 3,168 — 317,955 330,851 3,168 5,785 — 339,804
Construction and land development 62,391 434 4,583 — 67,408 92,556 234 5,492 — 98,282
Second mortgages 7,126 1,239 13 — 8,378 7,474 437 — — 7,911
Multifamily 45,389 — — — 45,389 36,474 — 2,610 — 39,084
Agriculture 6,113 125 — — 6,238 7,067 118 — — 7,185
Total real estate loans 609,680 16,930 13,334 — 639,944 674,395 8,569 17,165 — 700,129
Commercial loans 98,159 4,290 58 — 102,507 122,129 5,879 1,292 — 129,300
Consumer installment loans 4,593 256 79 — 4,928 5,563 20 44 — 5,627
All other loans 1,345 — — — 1,345 1,243 — — — 1,243
Total loans $ 713,777 $ 21,476 $ 13,471 $ — $ 748,724 $ 803,330 $ 14,468 $ 18,501 $ — $ 836,299

In accordance with FASB ASU 2011-02,Receivables (Topic 310): A Creditor's Determination of Whether a Restructuring is a Troubled Debt Restructuring,the Company assesses all loan modifications to determine whether they are considered troubled debt restructurings (TDRs) under the guidance. The Company had 17 ~~and 18~~ loans that met the definition of a TDR at ~~September 30,~~each of March 31, 2017 and 2016, ~~and 2015,~~ respectively.

The Company had no loan modifications considered to be TDRs during the three months ended ~~September 30, 2016.~~March 31, 2017. During the ~~nine~~three months ended ~~September 30,~~March 31, 2016, the Company modified one ~~residential 1-4 family loan and one~~ consumer installment loan that were considered to be TDRs. The Company extended the terms for the residential 1-4 family loan, which had a pre- and post-modification balance of $81,000 and $97,000, respectively. The Company extended the terms and lowered the interest rate for the consumer installment loan, which had a pre- and post-modification balance of $248,000.
The Company had no loan modifications considered to be TDRs during the three months ended September 30, 2015. During the nine months ended September 30, 2015, the Company modified one residential 1-4 family loan that was considered to be a TDR. The Company extended the terms and lowered the interest rate for this loan, which had a pre- and post-modification balance of ~~$68,000.~~$248,000.

A loan is considered to be in default if it is 90 days or more past due. There were no TDRs that had been restructured during the previous 12 months that resulted in default during either of the three ~~and nine~~ months ended ~~September 30, 2016~~March 31, 2017 and ~~2015.~~2016.
19

In the determination of the allowance for loan losses, management considers TDRs and subsequent defaults in these restructures by reviewing for impairment in accordance with FASB ASC 310-10-35,Receivables, Subsequent ~~Measurement.~~Measurement.

At ~~September 30, 2016,~~March 31, 2017, the Company had 1-4 family mortgages in the amount of ~~$151.1~~$149.4 million pledged ~~as collateral~~ to the Federal Home Loan Bank ~~for~~with a ~~total borrowing capacity~~lendable collateral value of ~~$137.3~~$135.0 million.

Note 4.  PCI Loans and Related Allowance for Loan Losses

On January 30, 2009, the Company entered into a Purchase and Assumption Agreement with the Federal Deposit Insurance Corporation (FDIC) to assume all of the deposits and certain other liabilities and acquire substantially all assets of Suburban Federal Savings Bank (SFSB). The Company is applying the provisions of FASB ASC 310-30,Loans and Debt Securities Acquired with Deteriorated Credit Quality, to all loans acquired in the SFSB transaction (the “PCI loans”). Of the total $198.3 million in loans acquired, $49.1 million met the criteria of FASB ASC 310-30. These loans, consisting mainly of construction loans, were deemed impaired at the acquisition date. The remaining $149.1 million of loans acquired, comprised mainly of residential 1-4 family, were analogized to meet the criteria of FASB ASC 310-30. Analysis of this portfolio revealed that SFSB utilized weak underwriting and documentation standards, which led the Company to believe that significant losses were probable given the economic environment at the time.

As of ~~September 30, 2016~~March 31, 2017 and December 31, ~~2015,~~2016, the outstanding contractual balance of the PCI loans was ~~$83.2~~$78.3 million and ~~$91.3~~$81.1 million, respectively. The carrying amount, by loan type, as of these dates is as follows (dollars in thousands):

September 30, 2016 December 31, 2015 March 31, 2017 December 31, 2016
Amount % of PCI
Loans Amount % of PCI
Loans Amount % of PCI
Loans Amount % of PCI
Loans
Mortgage loans on real estate:
Residential 1-4 family $ 48,048 89.87 % $ 52,696 89.38 % $ 44,465 89.40 % $ 46,623 89.72 %
Commercial 672 1.26 850 1.44 622 1.25 649 1.25
Construction and land development 1,990 3.72 2,310 3.92 1,935 3.89 1,969 3.79
Second mortgages 2,479 4.64 2,822 4.79 2,450 4.93 2,453 4.72
Multifamily 273 0.51 277 0.47 266 0.53 270 0.52
Total real estate loans 53,462 100.00 58,955 100.00 49,738 100.00 51,964 100.00
Total PCI loans $ 53,462 100.00 % $ 58,955 100.00 % $ 49,738 100.00 % $ 51,964 100.00 %

There was no activity in the allowance for loan losses on PCI loans for the three ~~and nine~~ months ended ~~September 30, 2016~~March 31, 2017 and ~~2015.~~2016.

The following table presents information on the PCI loans collectively evaluated for impairment in the allowance for loan losses at ~~September 30, 2016~~March 31, 2017 and December 31, ~~2015~~2016 (dollars in thousands):

September 30, 2016 December 31, 2015
Allowance for
loan losses Recorded
investment in
loans Allowance for
loan losses Recorded
investment in
loans
Mortgage loans on real estate:
Residential 1-4 family $ 484 $ 48,048 $ 484 $ 52,696
Commercial — 672 — 850
Construction and land development — 1,990 — 2,310
Second mortgages — 2,479 — 2,822
Multifamily — 273 — 277
Total real estate loans 484 53,462 484 58,955
Total PCI loans $ 484 $ 53,462 $ 484 $ 58,955
March 31, 2017 December 31, 2016
Allowance
for loan
losses Recorded
investment in
loans Allowance
for loan
losses Recorded
investment in
loans
Mortgage loans on real estate:
Residential 1-4 family $ 200 $ 44,465 $ 200 $ 46,623
Commercial — 622 — 649
Construction and land development — 1,935 — 1,969
Second mortgages — 2,450 — 2,453
Multifamily — 266 — 270
Total real estate loans 200 49,738 200 51,964
Total PCI loans $ 200 $ 49,738 $ 200 $ 51,964
20

The change in the accretable yield balance for the ~~nine~~three months ended ~~September 30, 2016~~March 31, 2017 and the year ended December 31, ~~2015,~~2016, is as follows (dollars in thousands):

Balance, January 1, 2015 $ 51,082
Balance, January 1, 2016 $ 49,128
Accretion (7,811 ) (6,206 )
Reclassification from nonaccretable yield 5,857 5,433
Balance, December 31, 2015 $ 49,128
Balance, December 31, 2016 $ 48,355
Accretion (4,681 ) (1,479 )
Reclassification from nonaccretable yield 4,545 45
Balance, September 30, 2016 $ 48,992
Balance, March 31, 2017 $ 46,921

The PCI loans were not classified as nonperforming assets as of ~~September 30, 2016,~~March 31, 2017, as the loans are accounted for on a pooled basis, and interest income, through accretion of the difference between the carrying amount of the loans and the expected cash flows, is being recognized on all PCI loans.

Note 5.  Other Real Estate Owned

The following table presents the balances of other real estate owned at ~~September 30, 2016~~March 31, 2017 and December 31, ~~2015~~2016 (dollars in thousands):

September 30, 2016 December 31, 2015 March 31, 2017 December 31, 2016

Residential 1-4 family $ 1,209 $ 1,407 $ 454 $ 1,276
Commercial 643 634 630 643
Construction and land development 3,053 3,449 2,485 2,508
Total other real estate owned $ 4,905 $ 5,490 $ 3,569 $ 4,427

At ~~September 30, 2016,~~March 31, 2017, the Company had ~~$2.5~~$1.7 million in residential 1-4 family loans and PCI loans that were in the process of foreclosure.

Note 6.  Deposits

The following table provides interest bearing deposit information, by type, as of ~~September 30, 2016~~March 31, 2017 and December 31, ~~2015~~2016 (dollars in thousands):

September 30, 2016 December 31, 2015

NOW $ 118,264 $ 128,761
MMDA 109,842 108,810
Savings 89,336 84,047
Time deposits less than or equal to $250,000 398,295 409,085
Time deposits over $250,000 122,258 118,600
Total interest bearing deposits $ 837,995 $ 849,303
March 31, 2017 December 31, 2016

NOW $ 130,971 $ 137,332
MMDA 103,042 111,346
Savings 92,683 90,340
Time deposits less than or equal to $250,000 452,075 440,699
Time deposits over $250,000 144,859 128,690
Total interest bearing deposits $ 923,630 $ 908,407
21

Note 7. Accumulated Other Comprehensive (Loss) Income ~~(Loss)~~

The following tables present activity net of tax in accumulated other comprehensive (loss) income ~~(loss)~~ (AOCI) for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2017 and 2016 ~~and 2015~~ (dollars in thousands):

Three months ended September 30, 2016
Unrealized
Gain (Loss)
on Securities Defined
Benefit
Pension Plan Gain (Loss) on
Cash Flow
Hedge Total Other
Comprehensive
Income (Loss)

Beginning balance $ 3,530 $ (901 ) $ (578 ) $ 2,051
Other comprehensive (loss) income before reclassifications (322 ) - 189 (133 )
Amounts reclassified from AOCI (58 ) - - (58 )
Net current period other comprehensive (loss) income (380 ) - 189 (191 )
Ending balance $ 3,150 $ (901 ) $ (389 ) $ 1,860
Three months ended September 30, 2015
Unrealized
Gain (Loss)
on Securities Defined
Benefit
Pension Plan Gain (Loss) on
Cash Flow
Hedge Total Other
Comprehensive
Income (Loss)

Beginning balance $ (192 ) $ (811 ) $ (84 ) $ (1,087 )
Other comprehensive income (loss) before reclassifications 1,698 - (312 ) 1,386
Amounts reclassified from AOCI (49 ) - - (49 )
Net current period other comprehensive income (loss) 1,649 - (312 ) 1,337
Ending balance $ 1,457 $ (811 ) $ (396 ) $ 250
Nine months ended September 30, 2016
Unrealized
Gain (Loss)
on Securities Defined
Benefit
Pension Plan Gain (Loss) on
Cash Flow
Hedge Total Other
Comprehensive
Income (Loss)

Beginning balance $ 443 $ (901 ) $ (131 ) $ (589 )
Other comprehensive income (loss) before reclassifications 3,109 - (258 ) 2,851
Amounts reclassified from AOCI (402 ) - - (402 )
Net current period other comprehensive income (loss) 2,707 - (258 ) 2,449
Ending balance $ 3,150 $ (901 ) $ (389 ) $ 1,860
Nine months ended September 30, 2015
Unrealized
Gain (Loss)
on Securities Defined
Benefit
Pension Plan Gain (Loss) on
Cash Flow
Hedge Total Other
Comprehensive
Income (Loss)

Beginning balance $ 1,452 $ (811 ) $ 23 $ 664
Other comprehensive income (loss) before reclassifications 245 - (419 ) (174 )
Amounts reclassified from AOCI (240 ) - - (240 )
Net current period other comprehensive income (loss) 5 - (419 ) (414 )
Ending balance $ 1,457 $ (811 ) $ (396 ) $ 250
22
Three months ended March 31, 2017
Unrealized
Gain (Loss)
on Securities Defined
Benefit
Pension Plan Gain (Loss) on
Cash Flow
Hedge Total Other
Comprehensive
(Loss) Income

Beginning balance $ (410 ) $ (767 ) $ (46 ) $ (1,223 )
Other comprehensive income (loss) before reclassifications 508 - 54 562
Amounts reclassified from AOCI (63 ) - - (63 )
Net current period other comprehensive income (loss) 445 - 54 499
Ending balance $ 35 $ (767 ) �� $ 8 $ (724 )

Three months ended March 31, 2016
Unrealized
Gain (Loss)
on Securities Defined
Benefit
Pension Plan Gain (Loss) on
Cash Flow
Hedge Total Other
Comprehensive
(Loss) Income

Beginning balance $ 443 $ (901 ) $ (131 ) $ (589 )
Other comprehensive income (loss) before reclassifications 2,345 - (362 ) 1,983
Amounts reclassified from AOCI (171 ) - - (171 )
Net current period other comprehensive income (loss) 2,174 - (362 ) 1,812
Ending balance $ 2,617 $ (901 ) $ (493 ) $ 1,223

The following ~~tables present~~table presents the effects of reclassifications out of AOCI on line items of consolidated income for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2017 and 2016 ~~and 2015~~ (dollars in thousands):

Details about AOCI Components Amount Reclassified from AOCI Affected Line Item in the Unaudited
Consolidated Statement of Income
Three months ended
September 30, 2016 September 30, 2015
Unrealized (gain) loss on securities available for sale $ (88 ) $ (74 ) Gain (loss) on securities transactions, net
30 25 Income tax expense
$ (58 ) $ (49 ) Net of tax
Details about AOCI Components Amount Reclassified from AOCI Affected Line Item in the Unaudited
Consolidated Statement of Income Amount Reclassified fromAOCI Affected Line Item in the
Unaudited Consolidated
Statement of Income (Loss)
Nine months ended Three months ended
September 30, 2016 September 30, 2015 March 31, 2017 March 31, 2016
Unrealized (gain) loss on securities available for sale $ (608 ) $ (363 ) Gain (loss) on securities transactions, net
Securities available for sale
Unrealized gains on securities available for sale $ (95 ) $ (259 )
Gain on securities transactions, net
Related tax expense 32 88 Income tax expense
206 123 Income tax expense $ (63 ) $ (171 ) Net of tax
$ (402 ) $ (240 ) Net of tax

Note 8. Fair Values of Assets and Liabilities

FASB ASC 820,Fair Value Measurements and Disclosures, defines fair value as the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. FASB ASC 820 requires that valuation techniques maximize the use of observable inputs and minimize the use of unobservable inputs and also establishes a fair value hierarchy that prioritizes the valuation inputs into three broad levels. The Company groups assets and liabilities at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. These levels are:

• Level 1—Valuation is based upon quoted prices for identical instruments traded in active markets.

• Level 2—Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

• Level 3—Valuation is determined using model-based techniques with significant assumptions not observable in the market. These unobservable assumptions reflect the Company’s own estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include the use of third party pricing services, option pricing models, discounted cash flow models and similar techniques.

FASB ASC 825,Financial Instruments, allows an entity the irrevocable option to elect fair value for the initial and subsequent measurement for certain financial assets and liabilities on a contract-by-contract basis. The Company has not made any material FASB ASC 825 elections as of ~~September 30, 2016.~~March 31, 2017.
23

Assets and Liabilities Recorded at Fair Value on a Recurring Basis

The Company utilizes fair value measurements to record adjustments to certain assets to determine fair value disclosures. Securities available for sale and loans held for sale are recorded at fair value on a recurring basis. The tables below present the recorded amount of assets and liabilities measured at fair value on a recurring basis (dollars in thousands):

September 30, 2016 March 31, 2017
Total Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3
Investment securities available for sale
U.S. Treasury issue and other U.S. Gov’t agencies $ 32,629 $ 29,093 $ 3,536 $ - $ 48,954 $ 1,790 $ 47,164 $ -
U.S. Gov’t sponsored agencies 2,862 - 2,862 -
State, county and municipal 127,087 3,328 123,759 -
Corporate and other bonds 16,061 - 16,061 -
Mortgage backed – U.S. Gov’t agencies 3,476 - 3,476 -
Mortgage backed – U.S. Gov’t sponsored agencies 15,273 1,066 14,207 -
Total investment securities available for sale 213,713 6,184 207,529 -
Cash flow hedge $ 12 $ - $ 12 $ -
Total assets at fair value $ 213,725 $ 6,184 $ 207,541 $ -
Total liabilities at fair value $ - $ - $ - $ -

December 31, 2016
Total Level 1 Level 2 Level 3
Investment securities available for sale
U.S. Treasury issue and other U.S. Gov’t agencies $ 57,976 $ 11,055 $ 46,921 $ -
U.S. Gov’t sponsored agencies 3,336 952 2,384 -
State, county and municipal 124,220 1,391 122,829 - 122,773 2,345 120,428 -
Corporate and other bonds 15,323 - 15,323 - 15,503 - 15,503 -
Mortgage backed – U.S. Gov’t agencies 3,618 - 3,618 - 3,495 - 3,495 -
Mortgage backed – U.S. Gov’t sponsored agencies 18,105 - 18,105 - 13,038 - 13,038 -
Total investment securities available for sale 193,895 30,484 163,411 - 216,121 14,352 201,769 -
Total assets at fair value $ 193,895 $ 30,484 $ 163,411 $ - $ 216,121 $ 14,352 $ 201,769 $ -
Cash flow hedge $ (590 ) $ - $ (590 ) $ - $ (70 ) $ - $ (70 ) $ -
Total liabilities at fair value $ (590 ) $ - $ (590 ) $ - $ (70 ) $ - $ (70 ) $ -
22

December 31, 2015
Total Level 1 Level 2 Level 3
Investment securities available for sale
U.S. Treasury issue and other U.S. Gov’t agencies $ 49,941 $ 39,748 $ 10,193 $ -
U.S. Gov’t sponsored agencies 742 - 742 -
State, county and municipal 141,498 687 140,811 -
Corporate and other bonds 14,296 - 14,296 -
Mortgage backed – U.S. Gov’t agencies 8,496 - 8,496 -
Mortgage backed – U.S. Gov’t sponsored agencies 28,297 - 28,297 -
Total investment securities available for sale 243,270 40,435 202,835 -
Total assets at fair value $ 243,270 $ 40,435 $ 202,835 $ -
Cash flow hedge $ (199 ) $ - $ (199 ) $ -
Total liabilities at fair value $ (199 ) $ - $ (199 ) $ -

Investment securities available for sale

Investment securities available for sale are recorded at fair value each reporting period. Fair value measurement is based upon quoted prices, if ~~available.~~available (Level 1). If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss ~~assumptions.~~assumptions (Level 2).

The Company utilizes a third party vendor to provide fair value data for purposes of determining the fair value of its available for sale securities portfolio. The third party vendor uses a reputable pricing company for security market data. The third party vendor has controls and edits in place for month-to-month market checks and zero pricing, and a Statement on Standards for Attestation Engagements No. 16 report is obtained from the third party vendor on an annual basis. The Company makes no adjustments to the pricing service data received for its securities available for sale.
Level 1 securities include those traded on an active exchange, such as the New York Stock Exchange, U.S. Treasury securities that are traded by dealers or brokers in active over-the-counter markets and money market funds. Level 2 securities include mortgage-backed securities issued by government sponsored entities, municipal bonds and corporate debt securities.
24

Cash flow hedge

The fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts). The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

The Company is also required to measure and recognize certain other financial assets at fair value on a nonrecurring basis on the consolidated balance sheet. The following tables present assets measured at fair value on a nonrecurring basis as of ~~September 30, 2016~~March 31, 2017 and December 31, ~~2015~~2016 (dollars in thousands):

September 30, 2016
Total Level 1 Level 2 Level 3
Impaired loans $ 10,188 $ — $ 2,711 $ 7,477
Other real estate owned 4,905 — 273 4,632
Total assets at fair value $ 15,093 $ — $ 2,984 $ 12,109
Total liabilities at fair value $ — $ — $ — $ —
December 31, 2015 March 31, 2017
Total Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3
Impaired loans $ 8,737 $ — $ 1,982 $ 6,755 $ 8,557 $ — $ 1,969 $ 6,588
Bank premises held for sale 110 — — 110
Other real estate owned 5,490 — 31 5,459 3,569 — 1,995 1,574
Total assets at fair value $ 14,337 $ — $ 2,013 $ 12,324 $ 12,126 $ — $ 3,964 $ 8,162
Total liabilities at fair value $ — $ — $ — $ — $ — $ — $ — $ —

December 31, 2016
Total Level 1 Level 2 Level 3
Impaired loans $ 9,536 $ — $ 2,168 $ 7,368
Other real estate owned 4,427 — 3,408 1,019
Total assets at fair value $ 13,963 $ — $ 5,576 $ 8,387
Total liabilities at fair value $ — $ — $ — $ —

Impaired loans

Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Once a loan is identified as individually impaired, management measures the impairment in accordance with FASB ASC 310,Receivables. The fair value of impaired loans is estimated using one of several methods, including collateral value and discounted cash flows. Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceeds the recorded investments in such loans. At ~~September 30, 2016~~March 31, 2017 and December 31, ~~2015,~~2016, a majority of total impaired loans were evaluated based on the fair value of the collateral. The Company frequently obtains appraisals prepared by external professional appraisers for classified loans greater than $250,000 when the most recent appraisal is greater than 18 months old and/or deemed to be invalid. The Company may also utilize internally prepared estimates that generally result from current market data and actual sales data related to the Company’s collateral. When the fair value of the collateral is based on an observable market price or a current appraised value, the Company records the impaired loan within Level 2.

The Company may also identify collateral deterioration based on current market sales data, including price and absorption, as well as input from real estate sales professionals and developers, county or city tax assessments, market data and on-site inspections by Company personnel. When management determines that the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company records the impaired loan as nonrecurring Level 3. In instances where an appraisal received subsequent to an internally prepared estimate reflects a higher collateral value, management does not revise the carrying amount. Impaired loans can also be evaluated for impairment using the present value of expected future cash flows discounted at the loan’s effective interest rate. The measurement of impaired loans using future cash flows discounted at the loan’s effective interest rate rather than the market rate of interest rate is not a fair value measurement and is therefore excluded from fair value disclosure requirements. Reviews of classified loans are performed by management on a quarterly basis.

25
Bank premises and equipment held for sale

The fair value of bank premises and equipment held for sale was determined using the adjusted appraisal methodology described in the other real estate owned (OREO) asset section below.

Other real estate owned

OREO assets are adjusted to fair value less estimated ~~selling~~disposal costs upon transfer of the related loans to OREO ~~property.~~property, establishing a new cost basis. Subsequent to the transfer, valuations are periodically performed by management and the assets are carried at the lower of carrying value or fair value less estimated ~~selling~~disposal costs. Fair value is based upon independent market prices, appraised values of the collateral or management’s estimation of the value of the collateral. When the fair value of the collateral is based on an observable market price or a current appraised value, the Company records the foreclosed asset within Level 2. When an appraised value is not available or management determines that the fair value of the collateral is further impaired below the appraised value due to such things as absorption rates and market conditions, the Company records the foreclosed asset within Level 3 of the fair value hierarchy.

Fair Value of Financial Instruments

FASB ASC 825,Financial Instruments, requires disclosure of the fair value of financial assets and financial liabilities, including those financial assets and financial liabilities that are not measured and reported at fair value on a recurring or nonrecurring basis. FASB ASC 825 excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company.

The following reflects the fair value of financial instruments, whether or not recognized on the consolidated balance sheet, at fair valuemeasures by level of valuation assumptions used for those assets. These tables exclude financial instruments for which the carrying value approximates fair value (dollars in thousands):

September 30, 2016
Carrying Value
Estimated Fair
Value
Level 1 Level 2 Level 3
Financial assets:
Securities held to maturity $ 45,616 $ 47,362 $ — $ 47,362 $ —
Loans, net of allowance 802,318 804,219 — 796,742 7,477
PCI loans, net of allowance 52,978 60,792 — — 60,792

Financial liabilities:
Interest bearing deposits 837,995 838,144 — 838,144 —
Long-term borrowings 115,944 116,060 — 116,060 —
December 31, 2015
Carrying Value
Estimated Fair
Value
Level 1 Level 2 Level 3
Financial assets:
Securities held to maturity $ 36,478 $ 37,611 $ — $ 37,611 $ —
Loans, net of allowance 739,165 739,367 — 733,026 6,341
PCI loans, net of allowance 58,471 62,902 — — 62,902

Financial liabilities:
Interest bearing deposits 849,303 850,770 — 850,770 —
Long-term borrowings 105,455 105,476 — 105,476 —
March 31, 2017
Carrying Value
Estimated Fair
Value
Level 1 Level 2 Level 3
Financial assets:
Securities held to maturity $ 46,500 $ 46,881 $ — $ 46,881 $ —
Loans, net of allowance 842,713 846,180 — 839,592 6,588
PCI loans, net of allowance 49,538 55,408 — — 55,408

Financial liabilities:
Interest bearing deposits 923,630 924,471 — 924,471 —
Long-term borrowings 85,816 85,711 — 85,711 —
26

December 31, 2016
Carrying Value
Estimated Fair
Value
Level 1 Level 2 Level 3
Financial assets:
Securities held to maturity $ 46,608 $ 46,858 $ 1,093 $ 45,765 $ —
Loans, net of allowance 826,806 829,349 — 821,981 7,368
PCI loans, net of allowance 51,764 57,100 — — 57,100

Financial liabilities:
Interest bearing deposits 908,407 909,627 — 909,627 —
Long-term borrowings 87,681 87,611 — 87,611 —

The following methods were used to estimate the fair value of all other financial instruments recognized in the accompanying balance sheets at amounts other than fair value as of ~~September 30, 2016.~~March 31, 2017. The Company applied the provisions of FASB ASC 820 to the fair value measurements of financial instruments not recognized on the consolidated balance sheet at fair value. The provisions requiring the Company to maximize the use of observable inputs and to measure fair value using a notion of exit price were factored into the Company’s selection of inputs into its established valuation techniques.

Financial Assets

Cash and cash equivalents

The carrying amounts of cash and due from banks, interest bearing bank deposits, and federal funds sold approximate fair value (Level 1).

Securities held ~~for investment~~to maturity

For securities held ~~for investment,~~to maturity, fair values are based on quoted market prices or dealer quotes (Level 1 and 2).

Restricted securities

The carrying value of restricted securities approximates their fair value based on the redemption provisions of the respective issuer ~~(Level 2).~~
~~Loans held for sale~~
~~The carrying amounts of loans held for sale approximate fair value~~ (Level 2).

Loans

The fair value of loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. The fair value of impaired loans is consistent with the methodology used for the FASB ASC 820 disclosure for assets recorded at fair value on a nonrecurring basis presented above.

PCI loans

Fair values for PCI loans are based on a discounted cash flow methodology that considers various factors including the type of loan and related collateral, classification status, term of loan and whether or not the loans are amortizing. Loans were pooled together according to similar characteristics and were treated in the aggregate when applying various valuation techniques. The discount rates used for loans are based on the rates used at acquisition (which were based on market rates for new originations of comparable loans) adjusted for any material changes in interest rates since acquisition. Increases in cash flow expectations since acquisition resulted in estimated fair value being higher than carrying value. The increase in cash flows is also reflected in a transfer from unaccretable yield to accretable yield as disclosed in Note 4.

Accrued interest receivable

The carrying amounts of accrued interest receivable approximate fair value (Level 2).

Financial Liabilities

Noninterest bearing deposits

The carrying amount of noninterest bearing deposits approximates fair value (Level 2).

27
Interest bearing deposits
The fair value of NOW accounts, savings accounts, and certain money market deposits is the amount payable on demand at the reporting date. The fair value of fixed-maturity certificates of deposit is estimated using the rates currently offered for deposits of similar remaining maturities.

Federal funds purchased

The carrying amount of federal funds purchased approximates fair value (Level 2).

Long-term borrowings
The fair values of the Company’s long-term borrowings, such as FHLB advances and long-term debt, are estimated using discounted cash flow analyses based on the Company’s current incremental borrowing rates for similar types of borrowing arrangements.

Accrued interest payable

The carrying amounts of accrued interest payable approximate fair value (Level 2).

Off-balance sheet financial instruments

The fair value of commitments to extend credit is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair value of stand-by letters of credit is based on fees currently charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligations with the counterparties at the reporting date. The Company’s off-balance sheet commitments are funded at current market rates at the date they are drawn upon. It is management’s opinion that the fair value of these commitments would approximate their carrying value, if drawn upon.

The fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts). The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves.
The Company assumes interest rate risk (the risk that general interest rate levels will change) as a result of its normal operations. As a result, the fair values of the Company’s financial instruments will change when interest rate levels change, and that change may be either favorable or unfavorable. Management attempts to match maturities of assets and liabilities to the extent believed necessary to minimize interest rate risk. However, borrowers with fixed rate obligations are less likely to prepay in a rising rate environment and more likely to prepay in a falling rate environment. Conversely, depositors who are receiving fixed rates are more likely to withdraw funds before maturity in a rising rate environment and less likely to do so in a falling rate environment. Management monitors rates and maturities of assets and liabilities and attempts to minimize interest rate risk by adjusting terms of new loans and deposits and by investing in securities with terms that mitigate the Company’s overall interest rate risk.

28
Note 9. Earnings ~~(Loss)~~ Per Common Share

Basic earnings ~~(loss)~~ per common share (EPS) is computed by dividing net income ~~(loss)~~ by the weighted average number of common shares outstanding during the period. Diluted EPS is computed using the weighted average number of common shares outstanding during the period, including the effect of all potentially dilutive common shares outstanding attributable to stock instruments. The following table presents basic and diluted EPS for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2017 and 2016 ~~and 2015~~ (dollars and shares in thousands, except per share data):
Net Income (Loss)
(Numerator) Weighted Average
Common Shares
(Denominator) Per Common
Share Amount Net Income
(Numerator) Weighted Average
Common Shares
(Denominator) Per Common
Share Amount
For the three months ended September 30, 2016
For the three months ended March 31, 2017
Basic EPS $ 2,458 21,935 $ 0.11 $ 2,493 21,962 $ 0.11
Effect of dilutive stock awards — 192 — — 471 —
Diluted EPS $ 2,458 22,127 $ 0.11 $ 2,493 22,433 $ 0.11

For the three months ended September 30, 2015
For the three months ended March 31, 2016
Basic EPS $ (7,716 ) 21,835 $ (0.35 ) $ 2,420 21,873 $ 0.11
Effect of dilutive stock awards — — — — 192 —
Diluted EPS $ (7,716 ) 21,835 $ (0.35 ) $ 2,420 22,065 $ 0.11

For the nine months ended September 30, 2016
Basic EPS $ 7,196 21,902 $ 0.33
Effect of dilutive stock awards — 203 —
Diluted EPS $ 7,196 22,105 $ 0.33

For the nine months ended September 30, 2015
Basic EPS $ (4,711 ) 21,819 $ (0.21 )
Effect of dilutive stock awards — — —
Diluted EPS $ (4,711 ) 21,819 $ (0.21 )

There were no antidilutive exclusions from the computation of diluted earnings per common share for the three ~~and nine~~ months ended ~~September 30, 2016.~~March 31, 2017. Antidilutive common shares issuable under awards or options of ~~1.0 million~~263,000 were excluded from the computation of diluted earnings per common share for the three ~~and nine~~ months ended ~~September 30, 2015.~~March 31, 2016.

Note 10. Employee Benefit Plan

The Company adopted the Bank of Essex noncontributory, defined benefit pension plan for all full-time pre-merger Bank of Essex employees over 21 years of age. Benefits are generally based upon years of service and the employees’ compensation. The Company funds pension costs in accordance with the funding provisions of the Employee Retirement Income Security Act.

The Company has frozen the plan benefits for all the defined benefit plan participants effective December 31, 2010.

29
The following table provides the components of net periodic benefit cost for the plan for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2017 and 2016 ~~and 2015~~ (dollars in thousands):

Three months ended September 30 Nine months ended September 30 Three months ended
2016 2015 2016 2015 March 31, 2017 March 31, 2016
Interest cost $ 47 $ 47 $ 142 $ 141 $ 39 $ 48
Expected return on plan assets (81 ) (88 ) (244 ) (264 ) (70 ) (82 )
Amortization of prior service cost 1 1 3 3 1 1
Recognized net loss due to settlement — 13
Recognized net actuarial loss 13 11 39 33 12 13
Recognized net loss due to settlement 91 — 163 —
Net periodic benefit cost $ 71 $ (29 ) $ 103 $ (87 ) $ (18 ) $ (7 )

In accordance with FASB ASC 715,Compensation-Retirement Benefits, settlement accounting is triggered when lump sum payments to plan participants exceed the sum of the plan’s service cost and interest cost for the year. The impact of settlement accounting is that a percentage of any outstanding losses that the plan is currently amortizing must be recognized immediately. This percentage is calculated as the ratio of lump sums paid to the total liability for the plan. This amount changes as plan participants retire during the year. ~~The net loss due to settlement to be amortized during 2016 was $52,000 at March 31, 2016, $234,000 at June 30, 2016, and $253,000 at September 30, 2016.~~

Note 11. Cash Flow Hedge

On November 7, 2014, the Company entered into an interest rate swap with a total notional amount of $30 million. The Company designated the swap as a cash flow hedge intended to protect against the variability in the expected future cash flows on the designated variable rate borrowings. The swap hedges the interest rate risk, wherein the Company will receive an interest rate based on the three month LIBOR from the counterparty and pays an interest rate of 1.69% to the same counterparty calculated on the notional amount for a term of five years. The Company intends to sequentially issue a series of three month fixed rate debt as part of a planned roll-over of short term debt for five years. The forecasted funding will be provided through one of the following wholesale funding sources: a new FHLB advance, a new repurchase agreement, or a pool of brokered CDs, based on whichever market offers the most advantageous pricing at the time that pricing is first initially determined for the effective date of the swap and each reset period thereafter. Each quarter when the Company rolls over the three month debt, it will decide at that time which funding source to use for that quarterly period.

The swap was entered into with a counterparty that met the Company’s credit standards, and the agreement contains collateral provisions protecting the at-risk party. The Company believes that the credit risk inherent in the contract is not significant. The Company had ~~$850,000 and $440,000~~$390,000 of cash pledged as collateral asfor each of ~~September 30, 2016~~the periods ended March 31, 2017 and December 31, ~~2015, respectively.~~2016.

Amounts receivable or payable are recognized as accrued under the terms of the agreements. In accordance with FASB ASC 815, Derivatives and Hedging, the Company has designated the swap as a cash flow hedge, with the effective portions of the derivatives’ unrealized gains or losses recorded as a component of other comprehensive income. The ineffective portions of the unrealized gains or losses, if any, would be recorded in other operating expense. The Company has assessed the effectiveness of each hedging relationship by comparing the changes in cash flows on the designated hedged item. The Company’s cash flow hedge was deemed to be effective for the three ~~and nine~~ months ended ~~September 30, 2016~~March 31, 2017 and ~~2015.~~2016. The fair value of the Company’s cash flow hedge was an unrealized gain of $12,000 and an unrealized loss of ~~$590,000 and $199,000~~$70,000 at ~~September 30, 2016~~March 31, 2017 and December 31, ~~2015,~~2016, respectively, and was recorded in other ~~liabilities.~~assets and other liabilities, respectively. The gain and loss ~~was~~were recorded as a component of other comprehensive income net of associated tax effects.

30
~~Note 12. Branch Sale~~
On March 18, 2016, the Company sold its branch office in Catonsville, Maryland to JP Properties for a purchase price of $160,000. The Company closed the office on March 4, 2016. Loans and deposits are being serviced by the Company’s Rosedale branch office.
The Catonsville branch office was classified as held for sale at December 31, 2015 at an estimated fair market value of $110,000. After closing costs of $14,000, the Company recognized a gain of $36,000.
Item 2.  Management’s Discussion and Analysis of Financial Condition andResults of Operations

The following discussion and analysis of the financial condition at ~~September 30, 2016~~March 31, 2017 and results of operations of Community Bankers Trust Corporation (the “Company”) for the three ~~and nine~~ months ended ~~September 30, 2016~~March 31, 2017 should be read in conjunction with the Company’s consolidated financial statements and the accompanying notes to consolidated financial statements included in this report and in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2015.~~2016.

OVERVIEW

Community Bankers Trust Corporation (the “Company”) is headquartered in Richmond, Virginia and is the holding company for Essex Bank (the “Bank”), a Virginia state bank with 23 full-service offices in Virginia and Maryland. The Bank also operates one loan production office in Virginia.

The Bank engages in a general commercial banking business and provides a wide range of financial services primarily to individuals and small businesses, including individual and commercial demand and time deposit accounts, commercial and industrial loans, consumer and small business loans, real estate and mortgage loans, investment services, on-line and mobile banking products, and safe deposit box facilities.

The Company generates a significant amount of its income from the net interest income earned by the Bank. Net interest income is the difference between interest income and interest expense. Interest income depends on the amount of interest earning assets outstanding during the period and the interest rates earned thereon. The Company’s cost of funds is a function of the average amount of interest bearing deposits and borrowed money outstanding during the period and the interest rates paid thereon. The quality of the assets further influences the amount of interest income lost on nonaccrual loans and the amount of additions to the allowance for loan losses. Additionally, the Bank earns noninterest income from service charges on deposit accounts and other fee or commission-based services and products. Other sources of noninterest income can include gains or losses on securities transactions, ~~gains from~~mortgage loan ~~sales, transactions involving bank-owned property,~~income and income from Bank Owned Life Insurance (BOLI) policies. The Company’s income is offset by noninterest expense, which consists of salaries and employee benefits, occupancy and equipment costs, professional fees, transactions involving bank-owned property, the amortization of intangible assets and other operational expenses. The provision for loan losses and income taxes may materially affect net income.

CAUTION ABOUT FORWARD-LOOKING STATEMENTS

The Company makes certain forward-looking statements in this report that are subject to risks and uncertainties. These forward-looking statements include statements regarding our profitability, liquidity, allowance for loan losses, interest rate sensitivity, market risk, future strategy, and financial and other goals. These forward-looking statements are generally identified by phrases such as “the Company expects,” “the Company believes” or words of similar import.

These forward-looking statements are subject to significant uncertainties because they are based upon or are affected by factors, including, without limitation, the effects of and changes in the following:

· the quality or composition of the Company’s loan or investment portfolios, including collateral values and the repayment abilities of borrowers and issuers;

· assumptions that underlie the Company’s allowance for loan losses;
31

· general economic and market conditions, either nationally or in the Company’s market areas;

· the interest rate environment;

· competitive pressures among banks and financial institutions or from companies outside the banking industry;

· real estate values;

· the demand for deposit, loan, and investment products and other financial services;

· the demand, development and acceptance of new products and services;

· the performance of vendors or other parties with which the Company does business;

· time and costs associated with de novo branching, acquisitions, dispositions and similar transactions;

· the realization of gains and expense savings from acquisitions, dispositions and similar transactions;

· assumptions and estimates that underlie the accounting for purchased credit impaired loans;

· consumer profiles and spending and savings habits;

· levels of fraud in the banking industry;

· the level of attempted cyber attacks in the banking industry;

· the securities and credit markets;

· costs associated with the integration of banking and other internal operations;

· the soundness of other financial institutions with which the Company does business;

· inflation;

· technology; and

· legislative and regulatory requirements.

These factors and additional risks and uncertainties are described in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2015~~2016 and other reports filed from time to time by the Company with the Securities and Exchange Commission.

Although the Company believes that its expectations with respect to the forward-looking statements are based upon reliable assumptions within the bounds of its knowledge of its business and operations, there can be no assurance that actual results, performance or achievements of the Company will not differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements.
CRITICAL ACCOUNTING POLICIES

The Company’s financial statements are prepared in accordance with accounting principles generally accepted in the United States (GAAP). The financial information contained within the statements is, to a significant extent, financial information that is based on measures of the financial effects of transactions and events that have already occurred. A variety of factors could affect the ultimate value that is obtained when either earning income, recognizing an expense, recovering an asset or relieving a liability. For example, the Company uses historical loss factors as one factor in determining the inherent loss that may be present in its loan portfolio. Actual losses could differ significantly from the historical factors that the Company uses. In addition, GAAP itself may change from one previously acceptable method to another method. Although the economics of the Company’s transactions would be the same, the timing of events that would impact its transactions could change.
32

The following is a summary of the Company’s critical accounting policies that are highly dependent on estimates, assumptions and judgments.

Allowance for Loan Losses on Loans

The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when management believes the uncollectability of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.

The allowance is an amount that management believes is appropriate to absorb estimated losses relating to specifically identified loans, as well as probable credit losses inherent in the balance of the loan portfolio, based on an evaluation of the collectability of existing loans and prior loss experience. This evaluation also takes into consideration such factors as changes in the nature and volume of the loan portfolio, overall portfolio quality, review of specific problem loans, and current economic conditions that may affect the borrower’s ability to pay. This evaluation does not include the effects of expected losses on specific loans or groups of loans that are related to future events or expected changes in economic conditions. The evaluation also considers the following risk characteristics of each loan portfolio:
· Residential 1-4 family mortgage loans include HELOCs and single family investment properties secured by first liens. The carry risks associated with owner-occupied and investment properties are the continued credit-worthiness of the borrower, changes in the value of the collateral, successful property maintenance and collection of rents due from tenants. The Company manages these risks by using specific underwriting policies and procedures and by avoiding concentrations in geographic regions.
· Commercial real estate loans, including owner occupied and non-owner occupied mortgages, carry risks associated with the successful operations of the principal business operated on the property securing the loan or the successful operation of the real estate project securing the loan. General market conditions and economic activity may impact the performance of these loans. In addition to using specific underwriting policies and procedures for these types of loans, the Company manages risk by avoiding concentrations to any one business or industry, and by diversifying the lending to various lines of businesses, such as retail, office, office warehouse, industrial and hotel.
· Construction and land development loans are generally made to commercial and residential builders/developers for specific construction projects, as well as to consumer borrowers. These carry more risk than real estate term loans due to the dynamics of construction projects, changes in interest rates, the long-term financing market and state and local government regulations. The Company manages risk by using specific underwriting policies and procedures for these types of loans and by avoiding concentrations to any one business or industry and by diversifying lending to various lines of businesses, in various geographic regions and in various sales or rental price points.

· Second mortgages on residential 1-4 family loans carry risk associated with the continued credit-worthiness of the borrower, changes in value of the collateral and a higher risk of loss in the event the collateral is liquidated due to the inferior lien position. The Company manages risk by using specific underwriting policies and procedures.
· Multifamily loans carry risks associated with the successful operation of the property, general real estate market conditions and economic activity. In addition to using specific underwriting policies and procedures, the Company manages risk by avoiding concentrations to geographic regions and by diversifying the lending to various unit mixes, tenant profiles and rental rates.
· Agriculture loans carry risks associated with the successful operation of the business, changes in value of non-real estate collateral that may depreciate over time and inventory that may be affected by weather, biological, price, labor, regulatory and economic factors. The Company manages risks by using specific underwriting policies and procedures, as well as avoiding concentrations to individual borrowers and by diversifying lending to various agricultural lines of business (i.e., crops, cattle, dairy, etc.).
· Commercial loans carry risks associated with the successful operation of the business, changes in value of non-real estate collateral that may depreciate over time, accounts receivable whose collectability may change and inventory values that may be subject to various risks including obsolescence. General market conditions and economic activity may also impact the performance of these loans. In addition to using specific underwriting policies and procedures for these types of loans, the Company manages risk by diversifying the lending to various industries and avoids geographic concentrations.
· Consumer installment loans carry risks associated with the continued credit-worthiness of the borrower and the value of rapidly depreciating assets or lack thereof. These types of loans are more likely than real estate loans to be quickly and adversely affected by job loss, divorce, illness or personal bankruptcy. The Company manages risk by using specific underwriting policies and procedures for these types of loans.
· All other loans generally support the obligations of state and political subdivisions in the U.S. and are not a material source of business for the Company. The loans carry risks associated with the continued credit-worthiness of the obligations and economic activity. The Company manages risk by using specific underwriting policies and procedures for these types of loans.
While management uses the best information available to make its evaluation, future adjustments to the allowance may be necessary if there are significant changes in economic conditions. In addition, regulatory agencies, as an integral part of their examination process, periodically review the ~~Bank’s~~Company’s allowance for loan losses, and may require the ~~Bank~~Company to make additions to the allowance based on their judgment about information available to them at the time of their examinations.

The allowance consists of specific, general and unallocated components. For loans that are also classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers non-classified loans and is based on historical loss experience adjusted for qualitative factors. The unallocated component ~~is maintained to cover~~covers uncertainties that could affect management’s estimate of probable losses. ~~The unallocated component reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.~~

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. 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. Impairment is measured 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.

Large groups of smaller balance homogeneous loans are collectively evaluated for impairment.

Accounting for Certain Loans ~~or Debt Securities~~ Acquired in a Transfer

FASB ASC 310,Receivables,requires acquired loans to be recorded at fair value and prohibits carrying over valuation allowances in the initial accounting for acquired impaired loans. Loans carried at fair value, mortgage loans held for sale, and loans to borrowers in good standing under revolving credit arrangements are excluded from the scope of FASB ASC 310, which limits the yield that may be accreted to the excess of the undiscounted expected cash flows over the investor’s initial investment in the loan. The excess of the contractual cash flows over expected cash flows may not be recognized as an adjustment of yield. Subsequent increases in cash flows to be collected are recognized prospectively through an adjustment of the loan’s yield over its remaining life. Decreases in expected cash flows are recognized as impairments through the allowance for loan losses.

33
The Company’s acquired loans from the Suburban Federal Savings Bank (SFSB) transaction (the “PCI loans”), subject to FASB ASC Topic 805,Business Combinations, ~~are~~were recorded at fair value and no separate valuation allowance was recorded at the date of acquisition. FASB ASC 310-30,Loans and Debt Securities Acquired with Deteriorated Credit Quality, applies to loans acquired in a transfer with evidence of deterioration of credit quality for which it is probable, at acquisition, that the investor will be unable to collect all contractually required payments receivable. The Company is applying the provisions of FASB ASC 310-30 to all loans acquired in the SFSB transaction. The Company has grouped loans together based on common risk characteristics including product type, delinquency status and loan documentation requirements among others.

The PCI loans are subject to the credit review standards described above for loans. If and when credit deterioration occurs subsequent to the date that the loans were acquired, a provision for ~~credit~~loan loss for PCI loans will be charged to earnings for the full amount.

The Company has made an estimate of the total cash flows it expects to collect from each pool of loans, which includes undiscounted expected principal and interest. The excess of that amount over the fair value of the pool is referred to as accretable yield. Accretable yield is recognized as interest income on a constant yield basis over the life of the pool. The Company also determines each pool’s contractual principal and contractual interest payments. The excess of that amount over the total cash flows that it expects to collect from the pool is referred to as nonaccretable difference, which is not accreted into income. Judgmental prepayment assumptions are applied to both contractually required payments and cash flows expected to be collected at acquisition. Over the life of the loan or pool, the Company continues to estimate cash flows expected to be collected. Subsequent decreases in cash flows expected to be collected over the life of the pool are recognized as an impairment in the current period through the allowance for loan losses. Subsequent increases in expected or actual cash flows are first used to reverse any existing valuation allowance for that loan or pool. Any remaining increase in cash flows expected to be collected is recognized as an adjustment to the accretable yield with the amount of periodic accretion adjusted over the remaining life of the pool.
Other Real Estate Owned
Real estate acquired through, or in lieu of, loan foreclosure is held for sale and is initially recorded at the fair value at the date of foreclosure net of estimated disposal costs, establishing a new cost basis. Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the lower of the carrying amount or the fair value less costs to sell. Revenues and expenses from operations and changes in the valuation allowance are included in other operating expenses. Costs to bring a property to salable condition are capitalized up to the fair value of the property while costs to maintain a property in salable condition are expensed as incurred.
Other Intangible Assets
The Company is accounting for other intangible assets in accordance with FASB ASC 350,Intangibles -Goodwill and Others. Under FASB ASC 350, acquired intangible assets (such as core deposit intangibles) are separately recognized if the benefit of the assets can be sold, transferred, licensed, rented, or exchanged, and amortized over their useful lives. The costs of purchased deposit relationships and other intangible assets, based on independent valuation by a qualified third party, are being amortized over their estimated lives. The core deposit intangible is evaluated for impairment in accordance with FASB ASC 350.
32
Income Taxes
Deferred income tax assets and liabilities are determined using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is determined based on the tax effects of the temporary differences between the book and tax bases of the various balance sheet assets and liabilities and gives current recognition to changes in tax rates and laws.

Positions taken in the Company’s tax returns may be subject to challenge by the taxing authorities upon examination. Uncertain tax positions are initially recognized in the consolidated financial statements when it is more likely than not that the position will be sustained upon examination by the tax authorities. Such tax positions are both initially and subsequently measured as the largest amount of tax benefit that is greater than 50 percent likely of being realized upon settlement with the tax authority, assuming full knowledge of the position and all relevant facts. The Company provides for interest and, in some cases, penalties on tax positions that may be challenged by the taxing authorities. Interest expense is recognized beginning in the first period that such interest would begin accruing. Penalties are recognized in the period that the Company claims the position in the tax return. Interest and penalties on income tax uncertainties are classified within income tax expense in the consolidated statement of income. The Company had no interest or penalties during the three ~~and nine~~ months ended ~~September 30, 2016~~March 31, 2017 and ~~2015.~~2016. Under FASB ASC 740,Income Taxes,a valuation allowance is provided when it is more likely than not that some portion of the deferred tax asset will not be realized. In management’s opinion, based on a three year taxable income projection, tax strategies that would result in potential securities gains and the effects of off-setting deferred tax liabilities, it is more likely than not that the deferred tax assets are realizable.

The Company and its subsidiaries are subject to U. S. federal income tax as well as Virginia and Maryland state income tax. All years from ~~2012~~2013 through ~~2015~~2016 are open to examination by the respective tax authorities.
34

~~Other Real Estate Owned~~
Real estate acquired through, or in lieu of, loan foreclosure is held for sale and is initially recorded at the fair value at the date of foreclosure net of estimated disposal costs, establishing a new cost basis. Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the lower of the carrying amount or the fair value less costs to sell. Revenues and expenses from operations and changes in the valuation allowance are included in other operating expenses. Costs to bring a property to salable condition are capitalized up to the fair value of the property while costs to maintain a property in salable condition are expensed as incurred.
RESULTS OF OPERATIONS

Overview

Net income was $2.5 million for the ~~third~~first quarter of ~~2016,~~2017, compared with ~~a loss of $7.7~~$2.4 million in the ~~third~~first quarter of ~~2015.~~2016. Earnings per common share, basic and fully diluted, were $0.11 per share ~~and ($0.35) per share~~ for each of the three months ended ~~September 30,~~March 31, 2017 and 2016, ~~and 2015,~~ respectively.
~~In the third quarter of 2015, the Bankterminated its FDIC shared-loss agreements~~ The increase in order to improve profitability beginning in the fourth quarter of 2015. As part of the termination of the shared-loss agreements, the FDIC paid $3.1 million in cash to the Bank, and the remaining $13.1 million of the FDIC indemnification asset related to the agreements was charged-off. This transaction eliminated future indemnification asset amortization expense, which totaled $5.2 million for the 12 month period from July 1, 2014 through June 30, 2015.
~~Excluding the one-time charge of $13.1 million related to the termination of the FDIC shared-loss agreements,~~ net income ~~for the third quarter~~ of 2015 would have been $853,000. In addition to the shared-loss termination charge, the Company had write-downs totaling $1.1 million with respect to two bank buildings held for sale and one parcel in other real estate owned in the third quarter of 2015.
Net income was $7.2 million for the nine months ended September 30, 2016 versus a net loss of $4.7 million for the same period in 2015. Excluding the aforementioned one-time FDIC-related charges, net income would have been $3.7 million$73,000, or 3.0%, for the first ~~nine months~~quarter of ~~2015.~~2017 compared with the first quarter of 2016 was due to a $910,000 increase in interest and dividend income. Offsetting this increase was an increase of $420,000 in noninterest expenses, a decrease of $168,000 in noninterest income, an increase of $156,000 in interest expense and an increase of $93,000 in income tax expense.

Net Interest Income

The Company’s operating results depend primarily on its net interest income, which is the difference between interest income on interest-earning assets, including securities and loans, and interest expense incurred on interest bearing liabilities, including deposits and other borrowed funds. Net interest income is affected by changes in the amount and mix of interest earning assets and interest bearing liabilities, referred to as a “volume change.” It is also affected by changes in yields earned on interest earning assets and rates paid on interest bearing deposits and other borrowed funds, referred to as a “rate change.”

Net interest income increased ~~$658,000,~~$754,000, or ~~6.7%~~7.5%, from the ~~third quarter of 2015 to the third~~first quarter of 2016 ~~and~~to the first quarter of 2017. Interest income increased $910,000, or 7.6%, over this time period. The increase in interest income was ~~$10.5 million.~~generated by a combination of an increase of 6.9%, or $74.9 million, in the level of earning assets, coupled with an increase of eight basis points in the tax-equivalent yield earned on those assets. The ~~tax equivalent~~ yield on earning assets ~~of 4.50%~~increased from 4.53% in the ~~third~~first quarter of 2016 ~~was an increase from 4.45% for~~to 4.61% in the ~~third~~first quarter of ~~2015. While the yield on loans decreased from 4.60% to 4.54%, the~~2017. The average balance of loans, excluding PCI loans, increased ~~by $112.8~~$85.5 million, or ~~16.4%.~~11.3%, from $753.6 million in the first quarter of 2016 to $839.2 million in the first quarter of 2017. Interest income on ~~loans~~securities was ~~$9.2~~$2.2 million ~~an increase~~on a tax-equivalent basis in each of ~~$1.2 million over third quarter 2015 interest income~~the first quarters of ~~$8.0 million.~~ 2016 and 2017.
Interest on PCI loans was $1.5 million in the ~~third~~first quarter of ~~2016, a decrease of $181,000 year over year. The yield on PCI loans increased over this time frame, from 10.97% to 11.32%. Income on securities of $2.0~~2017 compared with $1.6 million in the ~~third~~first quarter of ~~2015 represents a decline~~2016. The average balance of ~~$315,000 year over year primarily as a result of a reduction of $56.7~~the PCI portfolio declined $7.1 million induring the average balances of securities. The proceeds from liquidation of securities, through sales, calls and maturities, were used to fund loan growth since the third quarter of 2015. There was, however, an increase in the yield on securities from 2.97% to 3.09% year over year.year-over-year comparison period.
35

Interest expense increased ~~$26,000,~~$156,000, or ~~1.4%~~8.1%, when comparing the ~~third~~first quarter of 2016 and the ~~third~~first quarter of ~~2015.~~2017. Interest expense on deposits increased ~~$27,000,~~$228,000, or ~~1.8%~~14.7%, as the average balance of interest bearing deposits ~~decreased $7.2~~increased $64.9 million, or ~~0.9%~~7.7%. The increase in deposit cost was driven by higher cost time deposits to fund loan growth. Overall the Bank’s cost of interest bearing liabilities ~~of 0.79% remained the same as the third quarter of 2015. While average interest bearing deposit costs~~ increased only four basis points from ~~0.72%~~0.81% in the ~~third quarter of 2015 to 0.74% in the third~~first quarter of 2016 ~~there was a decline~~to 0.85% in the ~~cost~~first quarter of ~~FHLB and other borrowings from 1.19% to 1.05%, thus offsetting higher deposit costs.~~2017.

The ~~tax equivalent~~tax-equivalent net interest margin increased 7five basis points from ~~3.75%~~3.83% in the ~~third~~first quarter of ~~2015~~2016 to ~~3.82%~~3.88% in the ~~third~~first quarter of ~~2016.~~2017. Likewise, the net interest spread increased from ~~3.66%~~3.72% to ~~3.71%~~3.76% over the same time period. The increase in the margin was precipitated by anthe increase in ~~the level~~earning asset yields of the average balance of noninterest bearing deposits from $101.6 million, or 9.5% of earning assets in the third quarter of 2015, to $122.6 million, or 11.0% of earning assets in the third quarter of 2016.eight basis points.
For the first nine months of 2016, net interest income increased $756,000, or 2.51%, and was $30.8 million. The tax equivalent yield on earning assets was 4.52% for the first nine months of 2016 compared with 4.61% for the first nine months of 2015. Interest and fees on loans of $26.6 million in the first three quarters of 2016 was an increase of $2.8 million compared with $23.8 million for the same period in 2015. Interest and fees on PCI loans declined $1.5 million over this same time frame. Of that decline, $475,000 was related to cash payments on ADC loans, related to pools previously written down to a zero carrying value, received in the first three quarters of 2015 versus no such payments in the same period in 2016. Securities income declined $461,000 for the first nine months of 2016 compared with the same period in 2015 as securities balances have been liquidated to fund loan growth.
Interest expense of $5.7 million represented an increase of $116,000 in the first nine months of 2016 compared with the same period in 2015. Total average interest bearing liabilities increased only 1.2%, or $11.3 million, as loan growth has been fueled by an average balance increase of 20.7%, or $19.1 million, in noninterest bearing deposits and by a $33.7 million decline in securities.
The tax equivalent net interest margin was 3.82% for the first nine months of 2016 versus 3.90% for the first nine months of 2015. The net interest spread was 3.72% for the first nine months of 2016 versus 3.81% for the first nine months of 2015.
36

The following ~~tables set~~table sets forth, for each category of interest-earning assets and interest bearing liabilities, the average amounts outstanding, the interest earned or paid on such amounts, and the average rate earned or paid for the three ~~and nine~~ months ended ~~September 30, 2016~~March 31, 2017 and ~~2015.~~2016. The ~~tables~~table also ~~set~~sets forth the average rate paid on total interest bearing liabilities, and the net interest margin on average total interest earning assets for the same periods. Except as indicated in the footnotes, no tax equivalent adjustments were made and all average balances are daily average balances. Any nonaccruing loans have been included in the tables, as loans carrying a zero yield.

NET INTEREST MARGIN ANALYSIS
AVERAGE BALANCE SHEETS
(Dollars in thousands)

Three months ended September 30, 2016 Three months ended September 30, 2015 Three months ended March 31, 2017 Three months ended March 31, 2016
Average Average Average Average
Average Interest Rates Average Interest Rates Average Interest Rates Average Interest Rates
Balance Income/ Earned/ Balance Income/ Earned/ Balance Income/ Earned/ Balance Income/ Earned/
Sheet Expense Paid Sheet Expense Paid Sheet Expense Paid Sheet Expense Paid
ASSETS:
Loans $ 801,017 $ 9,156 4.54 % $ 688,200 $ 7,986 4.60 %
Purchased credit impaired (PCI) loans 54,301 1,549 11.32 62,584 1,730 10.97
Loans, including fees $ 839,167 $ 9,597 4.64 % $ 753,632 $ 8,553 4.55 %
PCI loans, including fees 50,777 1,479 11.65 57,861 1,599 11.08
Total loans 855,318 10,705 4.97 750,784 9,716 5.13 889,944 11,076 5.05 811,493 10,152 5.02
Interest bearing bank balances 9,876 22 0.88 12,724 12 0.36 9,134 26 1.13 9,993 21 0.85
Federal funds sold 14 - 0.50 - - - 49 - 0.88 - - -
Securities (taxable) 172,591 1,133 2.63 224,479 1,396 2.49 183,247 1,249 2.73 184,661 1,271 2.75
Securities (tax exempt)(1) 81,007 829 4.09 85,803 908 4.23 84,726 905 4.27 86,057 900 4.19
Total earning assets 1,118,806 12,689 4.50 1,073,790 12,032 4.45 1,167,100 13,256 4.61 1,092,204 12,344 4.53
Allowance for loan losses (9,861 ) (10,306 ) (9,722 ) (10,078 )
Non-earning assets 87,419 94,075 88,613 81,829
Total assets $ 1,196,364 $ 1,157,559 $ 1,245,991 $ 1,163,955

LIABILITIES AND SHAREHOLDERS' EQUITY

Demand - interest bearing $ 234,828 156 0.26 $ 232,357 189 0.32 $ 238,829 142 0.24 $ 230,660 173 0.30
Savings 86,327 58 0.27 86,431 69 0.31 91,936 61 0.27 83,129 63 0.30
Time deposits 514,312 1,336 1.03 523,868 1,265 0.96 574,344 1,576 1.11 526,468 1,315 1.00
Total deposits 835,467 1,550 0.74 842,656 1,523 0.72 905,109 1,779 0.80 840,257 1,551 0.74
Short-term borrowings 2,731 6 0.93 1,371 2 0.62 2,104 6 1.08 2,798 5 0.75
FHLB and other borrowings 111,757 295 1.05 91,913 276 1.19 89,975 296 1.33 104,016 307 1.18
Long-term debt 3,795 53 5.50 7,268 77 4.14 - - - 5,666 62 4.36
Total interest bearing liabilities 953,750 1,904 0.79 943,208 1,878 0.79 997,188 2,081 0.85 952,737 1,925 0.81
Noninterest bearing deposits 122,571 101,582 126,827 98,792
Other liabilities 5,753 4,252 5,414 5,053
Total liabilities 1,082,074 1,049,042 1,129,429 1,056,582
Shareholders' equity 114,290 108,517 116,562 107,373

Total liabilities and shareholders' equity $ 1,196,364 $ 1,157,559 $ 1,245,991 $ 1,163,955
Net interest earnings $ 10,785 $ 10,154 $ 11,175 $ 10,419
Interest spread 3.71 % 3.66 %
Net interest spread 3.76 % 3.72 %
Net interest margin 3.82 % 3.75 % 3.88 % 3.83 %

Tax equivalent adjustment:
Securities $ 308 $ 306

(1) Income and yields are reported on a tax equivalent basis assuming a federal tax rate of 34%.

37
34

~~NET INTEREST MARGIN ANALYSIS~~
~~AVERAGE BALANCE SHEETS~~
~~(Dollars in thousands)~~
Nine months ended September 30, 2016 Nine months ended September 30, 2015
Average Average
Average Interest Rates Average Interest Rates
Balance Income/ Earned/ Balance Income/ Earned/
Sheet Expense Paid Sheet Expense Paid
ASSETS:
Loans $ 776,491 $ 26,582 4.56 % $ 679,262 $ 23,750 4.67 %
Purchased credit impaired (PCI) loans 55,974 4,704 11.20 64,805 6,221 12.83
Total loans 832,465 31,286 5.01 744,067 29,971 5.39
Interest bearing bank balances 11,065 66 0.80 16,663 46 0.37
Federal funds sold 5 - 0.50 2,476 2 0.10
Securities (taxable) 178,700 3,528 2.63 221,052 4,119 2.48
Securities (tax exempt) 82,750 2,573 4.15 74,118 2,376 4.27
Total earning assets 1,104,985 37,453 4.52 1,058,376 36,514 4.61
Allowance for loan losses (9,985 ) (9,913 )
Non-earning assets 84,712 98,238
Total assets $ 1,179,712 $ 1,146,701

LIABILITIES AND SHAREHOLDERS' EQUITY

Demand - interest bearing $ 233,186 481 0.27 $ 226,497 512 0.30
Savings 84,661 176 0.28 83,570 194 0.31
Time deposits 520,306 3,981 1.02 525,309 3,751 0.95
Total deposits 838,153 4,638 0.74 835,376 4,457 0.71
Short-term borrowings 2,313 14 0.85 1,062 5 0.57
FHLB and other borrowings 106,571 903 1.13 95,921 898 1.25
Long-term debt 4,771 174 4.80 8,125 253 4.10
   Total interest bearing liabilities 951,808 5,729 0.80 940,484 5,613 0.80
Noninterest bearing deposits 111,751 92,619
Other liabilities 5,297 4,187
Total liabilities 1,068,856 1,037,290
Shareholders' equity 110,856 109,411

Total liabilities and shareholders' equity $ 1,179,712 $ 1,146,701
Net interest earnings $ 31,724 $ 30,901
Interest spread 3.72 % 3.81 %
Net interest margin 3.82 % 3.90 %
~~(1) Income and yields are reported on a tax equivalent basis assuming a federal tax rate of 34%.~~

Provision for Loan Losses

Management actively monitors the Company’s asset quality and provides specific loss provisions when necessary. Provisions for loan losses are charged to income to bring the total allowance for loan losses to a level deemed appropriate by management of the Company based on such factors as historical credit loss experience, industry diversification of the commercial loan portfolio, the amount of nonperforming loans and related collateral, the volume growth and composition of the loan portfolio, current economic conditions that may affect the borrower’s ability to pay and the value of collateral, the evaluation of the loan portfolio through the internal loan review function and other relevant factors. SeeAllowance for Loan Losses on Loans in the Critical Accounting Policies section above for further discussion.

Loans are charged-off against the allowance for loan losses when appropriate. Although management believes it uses the best information available to make determinations with respect to the provision for loan losses, future adjustments may be necessary if economic conditions differ from the assumptions used in making the initial determinations.

38
Management also actively monitors its PCI loan portfolio for impairment and necessary loan loss provisions. Provisions for these loans may be necessary due to a change in expected cash flows or an increase in expected losses within a pool of loans.

The Company ~~recorded~~did not record a provision for loan losses in ~~the amount~~either of ~~$250,000 and $450,000 for~~ the three ~~and nine~~ months ended ~~September 30,~~March 31, 2017 or 2016 ~~respectively. There was no provision for~~with respect to either its loan ~~losses for the three and nine months ended September 30, 2015. Likewise, there was no provision for loan losses on the~~portfolio or its PCI loan portfolio. With respect to the loan portfolio, during the three and nine months ended September 30, 2016 and 2015, respectively. The provision for loan losses booked for the three and nine months ended September 30, 2016, supported general reserves following loan growth of $63.1 million during the year. During the other periods, the absence of a provisionthis was the direct result of ~~minimal~~nominal charge-offs and the ongoing stabilization of asset quality. Additional discussion of loan quality is presented below.

There were net ~~charge-offs~~recoveries of ~~$204,000~~$20,000 in the ~~third~~first quarter of ~~2016,~~2017, compared with net ~~charge-offs~~recoveries of ~~$163,000~~$35,000 in the ~~third~~first quarter of ~~2015.~~2016. Total charge-offs for the ~~third~~first quarter of ~~2016~~2017 were ~~$248,000~~$85,000 compared with ~~$209,000~~$138,000 in the ~~third~~first quarter of ~~2015.~~2016. Recoveries of previously charged-off loans were ~~$44,000~~$105,000 for the ~~third~~first quarter of ~~2016~~2017 compared with ~~$46,000~~$173,000 in the ~~third~~first quarter of ~~2015.~~
There were net charge-offs of $529,000 for the nine months ended September 30, 2016, compared with net recoveries of $434,000 for the nine months ended September 30, 2015. Total charge-offs for the nine months ended September 30, 2016 were $801,000 compared with $1.1 million for the nine months ended September 30, 2015. Recoveries of previously charged-off loans were $272,000 for the nine months ended September 30, 2016 compared with $1.5 million for the nine months ended September 30, 2015. In the second quarter of 2015, there was a $1.2 million recovery related to a large commercial relationship.2016.

Noninterest Income

Noninterest income ~~increased $92,000,~~decreased $168,000, or ~~7.3%~~12.7%, from the ~~third~~first quarter of ~~2015~~2016 to the ~~third~~first quarter of 2016. Income on BOLI increased by $50,000 over the comparison period as a result of an investment of $5.0 million in BOLI in the second quarter of 2016. Service charges on deposit accounts increased by $34,000, or 5.8%, on a higher level of demand deposit accounts. Mortgage loan income increased $22,000.2017. Gains on securities transactions declined $164,000 over this time frame as securities were ~~$88,000~~liquidated in the first quarter of 2016 to fund loan growth. Mortgage loan income declined $140,000 year-over-year and was $33,000 in the first quarter of 2017 compared with $173,000 in the first quarter of 2016. The Company discontinued a wholesale mortgage operation at the end of the third quarter of 2016 ~~compared with $74,000 in the third quarter of 2015.~~and has shifted to a platform that is less expensive but has equivalent or better net revenue potential. Offsetting these ~~increases was a decline of $28,000 in other noninterest income.~~
~~Noninterest income was $4.1 million for the first nine months of 2016,~~decreases were an increase of ~~$205,000, or 5.3%, over $3.9 million for the first nine months of 2015. Securities gains of $608,000~~$74,000 in service charge income, which was $643,000 in the first ~~three quarters~~quarter of ~~2016 compared with $363,000 for the same period~~2017, and an increase of $46,000 in ~~2015. Likewise, service charges~~income on ~~deposit accounts increased by $117,000 and were $1.8 million for~~bank owned life insurance, which was $234,000 in the first ~~nine months~~quarter of ~~2016. Offsetting these increases for the first nine months of 2016 compared with the same period in 2015 were decreases of $115,000 in other~~2017. Other noninterest income ~~which was $439,000 in 2016, and $41,000 in mortgage loan income, which was $599,000 in 2016.~~
~~As of August 31, 2016, the Bank ceased operating its wholesale mortgage division. While mortgage loan income will decline starting~~increased from $132,000 in the ~~fourth~~first quarter of 2016 ~~there will be a corresponding decline~~to $148,000 in ~~salaries and employee benefits.~~the first quarter of 2017.

Noninterest Expense

Noninterest ~~expenses decreased $14.8 million,~~expense increased $420,000, or ~~64.1%~~5.2%, when comparing the ~~third~~first quarter of 2016 to the same period in 2015. FDIC indemnification asset amortization was $13.8 million in the third quarter of 2015 and $0 in the current quarter, and OREO expenses declined by $830,000 as a result of $1.1 million of write-downs related to two bank owned properties and one parcel in other real estate owned during the third quarter of 2015. Salaries and employee benefits declined $127,000, and other operating expenses decreased $113,000. Offsetting these improvements were increases year-over-year in occupancy expenses of $87,000 and FDIC assessment of $66,000.
Noninterest expenses were $24.5 million for the first nine months of 2016, as compared with $42.0 million for the same period in 2015. This is a decrease of $17.5 million, or 41.6%. FDIC indemnification asset amortization was $0 for the period and $16.2 million for the 2015 comparative period as a result of the termination of the shared-loss agreements and associated write-off. Other real estate (income) expenses, net improved $1.2 million from the first nine months of 20152017 to the same period in 2016. ~~The~~Other real estate (income) expense, ~~in this category in 2015 was primarily from~~up $129,000, exhibited the ~~write-down of $1.1 million noted in the previous paragraph. Other operating~~largest increase year-over-year followed by occupancy expenses, ~~declined $333,000 over the comparison period due to an overall decrease in credit reated expenses. Salaries~~up $91,000, data processing expense, up $73,000, salaries and employee benefits, ~~increased $144,000, or 1.1%,~~up $71,000, other operating expenses, up $61,000, and equipment expenses, up $45,000. The increase on other real estate (income) expense reflects a gain of $152,000 in bank owned property sales in the first ~~nine months~~quarter of ~~2016 compared with~~2016. These higher remaining expenses for the ~~same period in 2015.~~first quarter of 2017 were the result of staffing and equipping two new full service banking offices opened after the end of the first quarter of 2016. FDIC assessment ~~increased $112,000 and occupancy expenses increased $67,000 in~~declined $50,000 year-over-year, due to lower assessment rates by the ~~first three quarters of 2016 over the same period in 2015.~~FDIC.
39

Income Taxes

Income tax expense was ~~$862,000~~$1.1 million for the three months ended ~~September 30, 2016~~March 31, 2017, compared with an income tax benefit of $4.2 million for the third quarter of 2015. The benefit in the third quarter of 2015 was the result of the net loss for the quarter generated by the accounting from the termination of the shared-loss agreements. For the first three quarters of 2016, income tax expense of ~~$2.7 million represented an effective tax rate of 27.5% primarily as a result of bank qualified tax exempt municipal income. Income tax reflected a benefit of $3.3~~$1.0 million for the first ~~three quarters~~quarter of ~~2015, for an~~2016. The effective tax rate was 30.1% for the first quarter of ~~a 41.4% benefit.~~2017 versus 28.9% for the first quarter of 2016.
35

FINANCIAL CONDITION

General

Total assets increased ~~$23.7~~$12.9 million, or ~~2.0%~~1.0%, to ~~$1.204~~$1.263 billion at ~~September 30, 2016~~March 31, 2017 as compared ~~with $1.181 billion at~~to December 31, ~~2015.~~2016. Total loans, excluding PCI loans, were ~~$811.8~~$852.2 million at ~~September 30, 2016,~~March 31, 2017, increasing ~~$63.1~~$15.9 million, or ~~8.4%~~1.9%, from year end ~~2015.~~2016. Total PCI loans were ~~$53.5~~$49.7 million at ~~September 30, 2016~~March 31, 2017 versus ~~$59.0~~$52.0 million at ~~year end 2015.~~the prior quarter end.

During the first ~~nine months~~quarter of ~~2016, construction and land development~~2017, multifamily loans grew ~~by $21.1~~$10.4 million, or ~~31.4%~~26.6%, ~~commercial loans grew $16.3~~and were $49.5 million ~~or 15.9%, commercial~~at March 31, 2017. Commercial mortgage loans on real estate grew ~~$13.2~~by $3.8 million, or ~~4.1%~~1.1%, and ~~residential~~were $343.6 million at March 31, 2017. Residential 1-4 family loans grew ~~$12.8~~$2.7 million, or ~~6.6%.~~1.3%, during the first quarter of 2017 and were $210.5 million at March 31, 2017. Commercial loans grew $1.4 million, or 1.1%, and were $130.7 million at March 31, 2017.

The Company’s securities portfolio, excluding equity securities, declined ~~$40.2~~$2.5 million, or ~~14.4%~~1.0%, from ~~$279.7~~$262.7 million at December 31, ~~2015~~2016 to ~~$239.5~~$260.2 million at ~~September 30, 2016.~~March 31, 2017. Net ~~realized~~ gains of ~~$608,000~~$95,000 were recognized during the first ~~nine months~~quarter of ~~2016~~2017 through sales and call activity, as compared with ~~$363,000~~$259,000 recognized during the first ~~nine months~~quarter of ~~2015.~~2016. The ~~decline in~~Company actively manages the ~~volume of securities was a strategic decision by management~~portfolio to ~~fund strong loan growth with securities sales, normal securities amortization, call activity, sales~~improve its liquidity and ~~maturities.~~maximize the return within the desired risk profile.

The Company is required to account for the effect of market changes in the value of securities available-for-sale (AFS) under FASB ASC 320,Investments – Debt and Equity Securities. The market value of the AFS portfolio was ~~$193.9~~$213.7 million at ~~September 30, 2016~~March 31, 2017 and ~~$243.3~~$216.1 million at December 31, ~~2015.~~2016. At ~~September 30, 2016,~~March 31, 2017, the Company had a net unrealized gain on the AFS portfolio of ~~$4.8 million~~$53,000 compared with a net unrealized ~~gain~~loss of ~~$671,000~~$621,000 at December 31, ~~2015.~~2016. Municipal securities comprised ~~64.1%~~59.5% of the total AFS portfolio at ~~September 30, 2016.~~March 31, 2017. These securities exhibit more price volatility in a changing interest rate environment because of their longer weighted average life, as compared to other categories contained within the rest of the portfolio.

The Company had cash and cash equivalents of ~~$22.0~~$23.9 million and ~~$17.0~~$21.0 million at ~~September 30, 2016~~March 31, 2017 and December 31, ~~2015,~~2016, respectively. There were federal funds sold of ~~$99,000~~$132,000 at ~~September 30, 2016 and~~March 31, 2017 compared with federal funds purchased of ~~$18.9~~$4.7 million at December 31, ~~2015.~~2016.

Interest bearing deposits at ~~September 30, 2016~~March 31, 2017 were ~~$838.0~~$923.6 million, ~~a decline~~an increase of ~~$11.3~~$15.2 million ~~or 1.3%,~~ from ~~$849.3 million at~~ December 31, ~~2015. Time~~2016. As a result of a certificate of deposit (CD) campaign during the first quarter of 2017, time deposits $250,000 and over increased $16.2 million and time deposits less than or equal to $250,000 ~~decreased $10.8~~increased $11.4 million. This $27.6 million ~~and NOW account balances decreased $10.5 million. Offsetting these decreases were increases during 2016~~growth in CDs was partially offset by a decline of ~~$5.3~~$8.3 million in ~~savings accounts, $3.7~~MMDA balances and a decline of $6.4 million in ~~time deposits over $250,000 and $1.0 million in MMDAs.~~NOW accounts.

FHLB advances were ~~$109.1~~$81.7 million at ~~September 30, 2016,~~March 31, 2017, compared with ~~$95.7~~$81.9 million at December 31, ~~2015. The increase in FHLB advances was used to fund loan growth and was obtained at low cost and will be replaced, over time, by core deposits.~~2016. Long term debt was $0 at March 31, 2017 and totaled ~~$2.7~~$1.7 million at ~~September 30, 2016, declining by $2.9 million, or 51.8%, since~~ December 31, ~~2015.~~2016. This borrowing, now fully paid-off, was initially in the amount of $10.7 million and was obtained in April 2014 ~~and the proceeds were used~~ to redeem the Company’s remaining outstanding TARP preferred stock. ~~The Company has paid down this debt by $8.0 million, and the loan is scheduled to be fully paid on April 21, 2017.~~
40

Shareholders’ equity was ~~$114.7~~$117.7 million at ~~September 30, 2016~~March 31, 2017 and ~~$104.5~~$114.5 million at December 31, ~~2015. In September 2015, shareholders’~~2016. The ratio of shareholder’s equity to assets was reduced by the net loss generated in the quarter from the pre-tax write-off of $13.1 million from the termination of the FDIC shared-loss agreements. Shareholders’ equity increased $10.2 million, or 9.8%, from year end 2015 due to an increase of $2.7 million in other comprehensive income related to net unrealized gains in the investment portfolio and an increase of $7.2 million in net income in the first nine months of9.32% at March 31, 2017, compared with 9.16% at December 31, 2016.

Asset Quality – excluding PCI loans

The allowance for loan losses represents management’s estimate of the amount appropriate to provide for probable losses inherent in the loan portfolio.

Loan quality is continually monitored, and the Company’s management has established an allowance for loan losses that it believes is appropriate for the risks inherent in the loan portfolio. Among other factors, management considers the Company’s historical loss experience, the size and composition of the loan portfolio, the value and appropriateness of collateral and guarantors, nonperforming loans and current and anticipated economic conditions. There are additional risks of future loan losses, which cannot be precisely quantified nor attributed to particular loans or classes of loans. Because those risks include general economic trends, as well as conditions affecting individual borrowers, the allowance for loan losses is an estimate. The allowance is also subject to regulatory examinations and determination as to appropriateness, which may take into account such factors as the methodology used to calculate the allowance and size of the allowance in comparison to peer companies identified by regulatory agencies. SeeAllowance for Loan Losses on Loans in the Critical Accounting Policies section above for further discussion.

The Company maintains a list of loans that have potential weaknesses and thus may need special attention. This loan list is used to monitor such loans and is used in the determination of the appropriateness of the allowance for loan losses. Nonperforming assets totaled ~~$16.1~~$12.8 million at ~~September 30, 2016~~March 31, 2017 and net ~~charge-offs~~recoveries were ~~$529,000~~$20,000 for the ~~nine~~three months ended ~~September 30, 2016.~~March 31, 2017. This compares with nonperforming assets of ~~$16.2~~$14.7 million and net ~~recoveries~~charge-offs of ~~$292,000~~$516,000 at and for the year ended December 31, ~~2015.~~2016.

Nonperforming loans were ~~$11.2~~$9.2 million at ~~September 30, 2016,~~March 31, 2017, a ~~$543,000 increase~~$1.0 million decrease from ~~$10.7~~$10.2 million at December 31, ~~2015.~~2016. The ~~$543,000 increase~~$1.0 million decrease in nonperforming loans since December 31, ~~2015~~2016 was the net result of ~~$2.3 million~~$443,000 in additions to nonperforming loans and ~~$1.7~~$1.5 million in reductions. With respect to the reductions in nonperforming loans, ~~$469,000~~$87,000 were payments to existing credits, ~~$604,000~~$40,000 were charge-offs, ~~$381,000~~$145,000 were loans returned to accruing status, ~~$195,000 were transferred to OREO,~~ and ~~$83,000~~$1.2 million paid off.

The allowance for loan losses, excluding PCI, equaled ~~84.54%~~104.64% of nonaccrual loans at ~~September 30, 2016~~March 31, 2017 compared with ~~89.59%~~92.68% at December 31, ~~2015.~~2016. The ratio of the allowance for loan losses to total nonperforming assets was ~~61.82%~~76.05% at ~~September 30, 2016,~~March 31, 2017, compared with ~~62.15%~~66.07% at December 31, ~~2015.~~2016. The ratio of nonperforming assets to loans and OREO continued to decline. The ratio was ~~1.97%~~1.49% at ~~September 30, 2016~~March 31, 2017 versus ~~2.14%~~1.74% at December 31, ~~2015.~~2016.

In accordance with GAAP, an individual loan is impaired when, based on current information and events, it is probable that a creditor will be unable to collect all amounts due in accordance with contractual terms of the loan agreement. The Company considers all troubled debt restructures and nonaccrual loans to be impaired loans. In addition, the Company reviews all substandard and doubtful loans that are not on nonaccrual status, as well as loans with other risk characteristics, pursuant to and specifically for compliance with the accounting definition of impairment as described above. These impaired loans have been determined through analysis, appraisals, or other methods used by management.

See Note 3 to the Company’s financial statements for information related to the allowance for loan losses. At ~~September 30, 2016~~March 31, 2017 and December 31, ~~2015,~~2016, total impaired loans, excluding PCI loans, equaled ~~$15.9~~$13.7 million and ~~$15.3~~$18.5 million, respectively.
41

The following table sets forth selected asset quality data, excluding PCI loans, and ratios for the dates indicated (dollars in thousands):

September 30, 2016 December 31, 2015
Nonaccrual loans $ 11,213 $ 10,670
Loans past due 90 days and accruing interest — —
Total nonperforming loans 11,213 10,670
OREO 4,905 5,490
Total nonperforming assets $ 16,118 $ 16,160

Accruing troubled debt restructure loans $ 4,700 $ 4,596

Balances
Specific reserve on impaired loans 1,203 1,144
General reserve related to unimpaired loans 8,277 8,415
Total allowance for loan losses 9,480 9,559
Average loans during the year, net of unearned income 776,491 687,463

Impaired loans 15,913 15,266
Non-impaired loans 795,885 733,476
Total loans, net of unearned income 811,798 748,742

Ratios
Allowance for loan losses to loans, excluding PCI loans, to loans 1.17 % 1.28 %
Allowance for loan losses to nonperforming assets 61.82 62.15
Allowance for loan losses, excluding PCI loans, to nonaccrual loans 84.54 89.59
General reserve to non-impaired loans 1.04 1.15
Nonaccrual loans to loans 1.38 1.43
Nonperforming assets to loans and OREO 1.97 2.14
Net charge-offs (recoveries) to average loans 0.09 (0.04 )
March 31, 2017 December 31, 2016
Nonaccrual loans $ 9,091 $ 10,243
Loans past due 90 days and accruing interest 112 —
Total nonperforming loans 9,203 10,243
OREO 3,569 4,427
Total nonperforming assets $ 12,772 $ 14,670

Accruing troubled debt restructure loans $ 4,616 $ 4,653

Balances
Specific reserve on impaired loans 950 1,130
General reserve related to unimpaired loans 8,563 8,363
Total allowance for loan losses 9,513 9,493
Average loans during the year, net of unearned income 839,167 787,245

Impaired loans 13,706 18,541
Non-impaired loans 838,520 817,758
Total loans, net of unearned income 852,226 836,299
Ratios
Allowance for loan losses to loans, excluding PCI loans, to loans 1.12 % 1.14 %
Allowance for loan losses to nonperforming assets 76.05 66.07
Allowance for loan losses, excluding PCI loans, to nonaccrual loans 104.64 92.68
General reserve to non-impaired loans 1.02 1.02
Nonaccrual loans to loans 1.07 1.22
Nonperforming assets to loans and OREO 1.49 1.74
Net (recoveries) charge-offs to average loans (0.01 ) 0.07

The Company ~~performs~~grants troubled debt restructures (TDR) and other various loan workouts whereby an existing loan may be restructured into multiple new loans. At ~~September 30, 2016,~~March 31, 2017, the Company had 17 loans that met the definition of a TDR, which are loans that for reasons related to the debtor’s financial difficulties have been restructured on terms and conditions that would otherwise not be offered or granted. Five of these loans were restructured using multiple new loans. The aggregated outstanding principal of all TDR loans at ~~September 30, 2016~~March 31, 2017 was ~~$6.5~~$6.6 million, of which ~~$1.8~~$2.0 million were classified as nonaccrual.

The primary benefit of the restructured multiple loan workout strategy is to maximize the potential return by restructuring the loan into a “good loan” (the A loan) and a “bad loan” (the B loan). The impact on interest is positive because the Bank is collecting interest on the A loan rather than potentially not collecting interest on the entire original loan structure. The A loan is underwritten pursuant to the Bank’s standard requirements and graded accordingly. The B loan is classified as either “doubtful” or “loss”. An impairment analysis is performed on the B loan and, based on its results, all or a portion of the B ~~note~~loan is charged-off or a specific loan loss reserve is established.

The Company does not modify its nonaccrual policies in this arrangement, and the A loan and the B loan stand on their own terms. At inception, this structure meets the definition of a TDR. If the loan is on nonaccrual at the time of restructure, the A loan is held on nonaccrual until six consecutive payments have been received, at which time it may be put back on an accrual status. The B loan is placed on nonaccrual. Under the terms of each loan, the borrower’s payment is contractually due.

42
A further breakout of nonaccrual loans, excluding PCI loans, at ~~September 30, 2016~~March 31, 2017 and December 31, ~~2015~~2016 is below (dollars in thousands):

September 30, 2016 December 31, 2015 March 31, 2017 December 31, 2016
Mortgage loans on real estate:
Residential 1-4 family $ 3,665 $ 4,562 $ 3,104 $ 2,893
Commercial 1,599 1,508 1,588 1,758
Construction and land development 5,684 4,509 4,304 5,495
Second mortgages 135 13
Total real estate loans 11,083 10,592 8,996 10,146
Commercial loans 53 — 53 53
Consumer installment loans 77 78 42 44
Total loans $ 11,213 $ 10,670 $ 9,091 $ 10,243

At ~~September 30, 2016,~~March 31, 2017, the Company had ~~eight~~six construction and land development credit relationships in nonaccrual status. The borrowers for all of these relationships are residential land developers. All of the relationships are secured by the real estate to be developed and are in the Company’s central Virginia market. The total amount of the credit exposure outstanding at ~~September 30, 2016~~March 31, 2017 was ~~$5.7~~$4.3 million. These loans have either been charged-down or sufficiently reserved against to equal the current expected realizable value.

The total amount of the allowance for loan losses attributed to all ~~eight~~six relationships was ~~$764,000~~$538,000 at ~~September 30, 2016,~~March 31, 2017, or ~~13.4%~~12.5% of the total credit exposure outstanding. The Company establishes its reserves as described above inAllowance for Loan Losses on Loans in the Critical Accounting Policies section. In conjunction with the impairment analysis the Company performs as part of its allowance methodology, the Company ordered appraisals for all loans with balances in excess of $250,000 unless there existed an appraisal that was not older than 18 months and/or deemed to be invalid. The Company uses a ratio analysis for balances less than $250,000. The Company maintains detailed analysis and other information for its allowance methodology, both for internal purposes and for review by its regulators.

Asset Quality – PCI loans

Loans accounted for under FASB ASC 310-30 are generally considered accruing and performing loans as the loans accrete interest income over the estimated life of the loan. Accordingly, acquired impaired loans that are contractually past due are still considered to be accruing and performing loans.

The Company makes an estimate of the total cash flows that it expects to collect from a pool of PCI loans, which include undiscounted expected principal and interest. Over the life of the loan or pool, the Company continues to estimate cash flows expected to be collected. Subsequent decreases in cash flows expected to be collected over the life of the pool are recognized as impairment in the current period through the allowance for loan losses. Subsequent increases in expected cash flows are first used to reverse any existing valuation allowance for that loan or pool. Any remaining increase in cash flows expected to be collected is recognized as an adjustment to the yield over the remaining life of the pool.

Capital Requirements

The determination of capital adequacy depends upon a number of factors, such as asset quality, liquidity, earnings, growth trends and economic conditions. The Company seeks to maintain a strong capital base exceeding regulatory minimums for well capitalized institutions to support its growth and expansion plans, provide stability to current operations and promote public confidence in the Company.

Under the final rule on Enhanced Regulatory Capital Standards, commonly referred to as Basel III which became effective January 1, 2015, the federal banking regulators have defined four tests for assessing the capital strength and adequacy of banks, based on three definitions of capital. “Common equity tier 1 capital” is defined as common equity, retained earnings, and accumulated other comprehensive income (AOCI), less certain intangibles. “Tier 1 capital” is defined as common equity tier 1 capital plus qualifying perpetual preferred stock, tier 1 minority interests, and grandfathered trust preferred securities. “Tier 2 capital” is defined as specific subordinated debt, some hybrid capital instruments and other qualifying preferred stock, non-tier 1 minority interests and a limited amount of the loan loss allowance. “Total capital” is defined as tier 1 capital plus tier 2 capital. Four risk-based capital ratios are computed using the above capital definitions, total assets and risk-weighted assets, and the ratios are measured against regulatory minimums to ascertain adequacy. All assets and off-balance sheet risk items are grouped into categories according to degree of risk and assigned a risk-weighting and the resulting total is risk-weighted assets. “Common equity tier 1 capital ratio” is common equity tier 1 capital divided by risk-weighted assets. “Tier 1 risk-based capital ratio” is tier 1 capital divided by risk-weighted assets. “Total risk-based capital ratio” is total capital divided by risk-weighted assets. The leverage ratio is tier 1 capital divided by total average assets.

43
The Company’s ratio of total risk-based capital was ~~13.2%~~13.3% at ~~September 30, 2016~~March 31, 2017 compared with 13.2% at December 31, ~~2015.~~2016. The tier 1 risk-based capital ratio was ~~12.2%~~12.3% at ~~September 30, 2016~~March 31, 2017 and ~~12.1%~~12.2% at December 31, ~~2015.~~2016. The Company’s tier 1 leverage ratio was 9.8% at ~~September 30, 2016~~March 31, 2017 and ~~9.4%~~9.6% at December 31, ~~2015.~~2016.  All capital ratios exceed regulatory minimums to be considered well capitalized. BASEL III introduced the common equity tier 1 capital ratio, which was ~~11.8%~~11.9% at ~~September 30, 2016~~March 31, 2017 and ~~11.6%~~11.8% at December 31, ~~2015.~~2016.

Under Basel III, a capital conservation buffer of 2.5% above the minimum risk-based capital thresholds was established. Dividend and executive compensation restrictions begin if the Company does not maintain the full amount of the buffer. The capital conservation buffer will be phased in between January 1, 2016 and January 1, 2019. At ~~September 30, 2016,~~March 31, 2017, the Company had a capital conservation buffer of 5.2%, well above the ~~2016~~2017 required buffer of ~~0.625%~~1.25%.

Liquidity

Liquidity represents the Company’s ability to meet present and future financial obligations through either the sale or maturity of existing assets or the acquisition of additional funds through liability management. Liquid assets include cash, interest bearing deposits with banks, federal funds sold and certain investment securities. As a result of the Company’s management of liquid assets and the ability to generate liquidity through liability funding, management believes that the Company maintains overall liquidity sufficient to satisfy its depositors’ requirements and meet its customers’ credit needs.

The Company’s results of operations are significantly affected by its ability to manage effectively the interest rate sensitivity and maturity of its interest earning assets and interest bearing liabilities. A summary of the Company’s liquid assets at ~~September 30, 2016~~March 31, 2017 and December 31, ~~2015~~2016 was as follows (dollars in thousands):

September 30, 2016 December 31, 2015 March 31, 2017 December 31, 2016
Cash and due from banks $ 11,667 $ 7,393 $ 11,720 $ 13,828
Interest bearing bank deposits 10,201 9,576 12,002 7,244
Federal funds sold 99 — 132 —
Available for sale securities, at fair value, unpledged 160,596 189,692 171,976 170,898
Total liquid assets $ 182,563 $ 206,661 $ 195,830 $ 191,970

Deposits and other liabilities 1,089,502 1,076,070 $ 1,145,008 $ 1,135,280
Ratio of liquid assets to deposits and other liabilities 16.76 % 19.21 % 17.10 % 16.91 %
39

Off-Balance Sheet Arrangements and Contractual Obligations

A summary of the contract amount of the Company’s exposure to off-balance sheet and balance sheet risk as of ~~September 30, 2016~~March 31, 2017 and December 31, ~~2015,~~2016, is as follows (dollars in thousands):

September 30, 2016 December 31, 2015
Commitments with off-balance sheet risk:
Commitments to extend credit $ 131,937 $ 106,099
Standby letters of credit 6,977 7,146
Total commitments with off-balance sheet risks $ 138,914 $ 113,245
44
March 31, 2017 December 31, 2016
Commitments with off-balance sheet risk:
Commitments to extend credit $ 134,108 $ 134,517
Standby letters of credit 6,437 7,151
Total commitments with off-balance sheet risks $ 140,545 $ 141,668

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the counterparty. Collateral held varies but may include accounts receivable, inventory, property and equipment, and income-producing commercial properties.

Unfunded commitments under lines of credit are commitments for possible future extensions of credit to existing customers. Those lines of credit may be drawn upon only to the total extent to which the Company is committed.

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing, and similar transactions. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to clients. The Company holds certificates of deposit, deposit accounts, and real estate as collateral supporting those commitments for which collateral is deemed necessary.

On November 7, 2014, the Company entered into an interest rate swap with a total notional amount of $30 million. The Company designated the swap as a cash flow hedge intended to protect against the variability in the expected future cash flows on the designated variable rate borrowings. The swap hedges the interest rate risk, wherein the Company will receive an interest rate based on the three month LIBOR from the counterparty and pays an interest rate of 1.69% to the same counterparty calculated on the notional amount for a term of five years. The Company intends to sequentially issue a series of three month fixed rate debt as part of a planned roll-over of short term debt for five years. The forecasted funding will be provided through one of the following wholesale funding sources: a new FHLB advance, a new repurchase agreement, or a pool of brokered CDs, based on whichever market offers the most advantageous pricing at the time that pricing is first initially determined for the effective date of the swap and each reset period thereafter. ~~For the avoidance of doubt, each~~Each quarter when the Company rolls over the three month debt, it will decide at that time which funding source to use for that quarterly period.

The fair value of the Company’s cash flow hedge was an unrealized gain of $12,000 and an unrealized loss of ~~$589,000 and $199,000~~$70,000 at ~~September 30, 2016~~March 31, 2017 and December 31, ~~2015,~~2016, respectively, which was recorded in other ~~liabilities.~~assets and other liabilities, respectively. The Company’s cash flow hedge is deemed to be effective. Therefore, the gain and loss ~~was~~were recorded as a component of other comprehensive income recorded in the Company’s Consolidated Statements of Comprehensive Income.

Item 3.Quantitative and Qualitative Disclosures About Market Risk

Market risk is the risk of loss in a financial instrument arising from adverse changes in market rates or prices such as interest rates, foreign currency exchange rates, commodity prices and equity prices. The Company’s primary market risk exposure is interest rate risk. The ongoing monitoring and management of interest rate risk is an important component of the Company’s asset/liability management process, which is governed by policies established by its Board of Directors that are reviewed and approved annually. The Board of Directors delegates responsibility for carrying out asset/liability management policies to the Asset/Liability Committee (ALCO) of the Bank. In this capacity, ALCO develops guidelines and strategies that govern the Company’s asset/liability management related activities, based upon estimated market risk sensitivity, policy limits and overall market interest rate levels and trends.

Interest rate risk represents the sensitivity of earnings to changes in market interest rates. As interest rates change, the interest income and expense streams associated with the Company’s financial instruments also change, affecting net interest income, the primary component of the Company’s earnings. ALCO uses the results of a detailed and dynamic simulation model to quantify the estimated exposure of net interest income to sustained interest rate changes. While ALCO routinely monitors simulated net interest income sensitivity over various periods, it also employs additional tools to monitor potential longer-term interest rate risk.
45

The simulation model captures the impact of changing interest rates on the interest income received and interest expense paid on all assets and liabilities reflected on the Company’s balance sheet. The simulation model is prepared and results are analyzed at least quarterly. This sensitivity analysis is compared to ALCO policy limits, which specify a maximum tolerance level for net interest income exposure over a one-year horizon, assuming no balance sheet growth, given a 400 basis point upward shift and a 400 basis point downward shift in interest rates. The downward shift of 300 or 400 basis points is included in the analysis, although less meaningful in the current rate environment, because all results are monitored regardless of likelihood. A parallel shift in rates over a 12-month period is assumed.

The following table represents the change to net interest income given interest rate shocks up and down 100, 200, 300 and 400 basis points at ~~September 30, 2016~~March 31, 2017 (dollars in thousands):

September 30, 2016 March 31, 2017
% $ % $
Change in Yield curve
+400 bp 1.1 465 3.7 1,577
+300 bp 0.6 241 2.6 1,142
+200 bp 0.4 143 1.8 775
+100 bp — (6 ) 0.9 382
most likely — — — —
-100 bp 1.3 516 (1.0 ) (447 )
-200 bp 0.9 375 (3.0 ) (1,299 )
-300 bp 0.9 369 (3.2 ) (1,391 )
-400 bp 0.9 369 (3.2 ) (1,395 )

At ~~September 30, 2016,~~March 31, 2017, the Company’s interest rate risk model indicated that, in a rising rate environment of 400 basis points over a 12 month period, net interest income could increase by ~~1.1%~~3.7%. For the same time period, the interest rate risk model indicated that in a declining rate environment of 400 basis points, net interest income could ~~increase~~decrease by ~~0.9%~~3.2%. While these percentages are subjective based upon assumptions used within the model, management believes the balance sheet is appropriately balanced with acceptable risk to changes in interest rates.

The preceding sensitivity analysis does not represent a forecast and should not be relied upon as being indicative of expected operating results. These hypothetical estimates are based upon numerous assumptions, including the nature and timing of interest rate levels such as yield curve shape, prepayments on loans and securities, deposit decay rates, pricing decisions on loans and deposits, reinvestment or replacement of asset and liability cash flows. While assumptions are developed based upon current economic and local market conditions, the Company cannot make any assurances about the predictive nature of these assumptions, including how customer preferences or competitor influences might change.

Also, as market conditions vary from those assumed in the sensitivity analysis, actual results will also differ due to factors such as prepayment and refinancing levels likely deviating from those assumed, the varying impact of interest rate change, caps or floors on adjustable rate assets, the potential effect of changing debt service levels on customers with adjustable rate loans, depositor early withdrawals and product preference changes, and other internal and external variables. Furthermore, the sensitivity analysis does not reflect actions that ALCO might take in response to, or in anticipation of, changes in interest rates.

Item 4.Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this Form 10-Q, the Company’s management, with the participation of the Company’s chief executive officer and its chief financial officer (“the Certifying Officers”), conducted evaluations of the Company’s disclosure controls and procedures. As defined under Section 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the term “disclosure controls and procedures” means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including the Certifying Officers, to allow timely decisions regarding required disclosures.

46
Based on this evaluation, the Certifying Officers have concluded that the Company’s disclosure controls and procedures were effective to ensure that material information is recorded, processed, summarized and reported by management of the Company on a timely basis in order to comply with the Company’s disclosure obligations under the Exchange Act and the rules and regulations promulgated under it.

Internal Control over Financial Reporting

The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control over financial reporting is a process designed under the supervision of the Certifying Officers to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s financial statements for external purposes in accordance with U.S. generally accepted accounting principles. There were no changes in the Company’s internal control over financial reporting identified in connection with the evaluation of it that occurred during the Company’s last fiscal quarter that materially affected, or are reasonably likely to materially affect, internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1.  Legal Proceedings

There are no material pending legal proceedings, other than ordinary routine litigation incidental to the Company’s business, to which the Company, including its subsidiaries, is a party or of which the property of the Company is subject.

Item 1A.  Risk Factors

As of the date of this report, there were no material changes to the risk factors previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2015.~~2016.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3.  Defaults upon Senior Securities

None.

Item 4.  Mine Safety Disclosures

Not applicable

Item 5.  Other Information

None.

Item 6.  Exhibits

Exhibit No. Description
31.1 Rule 13a-14(a)/15d-14(a) Certification for Chief Executive Officer*
31.2 Rule 13a-14(a)/15d-14(a) Certification for Chief Financial Officer*
32.1 Section 1350 Certifications*
101 Interactive Data File with respect to the following materials from the Company’s Quarterly Report on Form 10-Q for the period ended ~~September 30, 2016~~March 31, 2017 formatted in Extensible Business Reporting Language (XBRL): (i) the Unaudited Consolidated Balance Sheets, (ii) the Unaudited Consolidated Statements of Income, ~~(Loss),~~ (iii) the Unaudited Consolidated Statements of Comprehensive Income, ~~(Loss),~~ (iv) the Unaudited Consolidated Statements of Changes in Shareholders’ Equity, (v) the Unaudited Consolidated Statements of Cash Flows, and (vi) Notes to Unaudited Consolidated Financial Statements*

* Filed herewith.

47
43

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

COMMUNITY BANKERS  TRUST CORPORATION
(Registrant)

/s/ Rex L. Smith, III
Rex L. Smith, III
President and Chief Executive Officer
(principal executive officer)

Date:  ~~November 8, 2016~~May 9, 2017

/s/ Bruce E. Thomas
Bruce E. Thomas
Executive Vice President and Chief Financial Officer
(principal financial officer)

Date:  ~~November 8, 2016~~May 9, 2017

48
44

										Accumulated															Accumulated
					Additional					Other										Additional					Other
	Common Stock				Paid in		Retained			Comprehensive						Common Stock				Paid in		Retained			Comprehensive
	Shares		Amount		Capital		Deficit			Income			Total			Shares		Amount		Capital		Deficit			Income (Loss)			Total

Balance January 1, 2015		21,792	$	218	$	145,321	$	(38,553	)	$	664		$	107,650
Issuance of common stock		56		—		197		—			—			197
Exercise and issuance of employee stock options		—		—		233		—			—			233
Net loss		—		—		—		(4,711	)		—			(4,711	)
Other comprehensive loss		—		—		—		—			(414	)		(414	)
Balance September 30, 2015		21,848	$	218	$	145,751	$	(43,264	)	$	250		$	102,955
Balance January 1, 2016		21,867	$	219	$	145,907	$	(41,050	)	$	(589	)	$	104,487			21,867	$	219	$	145,907	$	(41,050	)	$	(589	)	$	104,487
Issuance of common stock		80		—		122		—			—			122			20		—		44		—			—			44
Exercise and issuance of employee stock options		—		—		475		—			—			475			—		—		124		—			—			124
Net income		—		—		—		7,196			—			7,196			—		—		—		2,420			—			2,420
Other comprehensive income		—		—		—		—			2,449			2,449			—		—		—		—			1,812			1,812
Balance September 30, 2016		21,947	$	219	$	146,504	$	(33,854	)	$	1,860		$	114,729
Balance March 31, 2016																	21,887	$	219	$	146,075	$	(38,630	)	$	1,223		$	108,887
Balance January 1, 2017																	21,960	$	220	$	146,667	$	(31,128	)	$	(1,223	)	$	114,536
Issuance of common stock																	11		—		39		—			—			39
Exercise and issuance of employee stock options																	—		—		146		—			—			146
Net income																	—		—		—		2,493			—			2,493
Other comprehensive income																	—		—		—		—			499			499
Balance March 31, 2017																	21,971	$	220	$	146,852	$	(28,635	)	$	(724	)	$	117,713

	September 30, 2016
			Gross Unrealized
	Amortized Cost		Gains		Losses			Fair Value
Securities Available for Sale
U.S. Treasury issue and other U.S. Gov’t agencies	$	33,033	$	39	$	(443	)	$	32,629
State, county and municipal		118,620		5,875		(275	)		124,220
Corporate and other bonds		15,784		45		(506	)		15,323
Mortgage backed – U.S. Gov’t agencies		3,623		16		(21	)		3,618
Mortgage backed – U.S. Gov’t sponsored agencies		18,062		127		(84	)		18,105
Total Securities Available for Sale	$	189,122	$	6,102	$	(1,329	)	$	193,895

Securities Held to Maturity
U.S. Treasury issue and other U.S. Gov’t agencies	$	10,000	$	1	$	—		$	10,001
State, county and municipal		34,770		1,734		(8	)		36,496
Mortgage backed – U.S. Gov’t agencies		846		19		—			865
Total Securities Held to Maturity	$	45,616	$	1,754	$	(8	)	$	47,362

	Held to Maturity				Available for Sale
(dollars in thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	10,801	$	10,812	$	1,105	$	1,108
Due after one year through five years		11,237		11,686		76,486		78,849
Due after five years through ten years		14,290		15,145		87,125		89,521
Due after ten years		9,288		9,719		24,406		24,417
Total securities	$	45,616	$	47,362	$	189,122	$	193,895

	September 30, 2016
	Less than 12 Months					12 Months or More					Total
	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
Securities Available for Sale
U.S. Treasury issue and other U.S. Gov’t agencies	$	1,616	$	(6	)	$	25,685	$	(437	)	$	27,301	$	(443	)
State, county and municipal		4,731		(35	)		3,959		(240	)		8,690		(275	)
Corporate and other bonds		957		(5	)		11,249		(501	)		12,206		(506	)
Mortgage backed – U.S. Gov’t agencies		-		-			1,976		(21	)		1,976		(21	)
Mortgage backed – U.S. Gov’t sponsored agencies		7,249		(82	)		146		(2	)		7,395		(84	)
Total	$	14,553	$	(128	)	$	43,015	$	(1,201	)	$	57,568	$	(1,329	)

Securities Held to Maturity
State, county and municipal	$	668	$	(8	)	$	-	$	-		$	668	$	(8	)

	September 30, 2016		December 31, 2015
Nonaccruals	$	11,213	$	10,670
Trouble debt restructures still accruing		4,700		4,596
Total impaired	$	15,913	$	15,266

	September 30, 2016
	30-89 Days Past Due		Nonaccrual		Total Past Due		Current		Total Loans Receivable
Mortgage loans on real estate:
Residential 1-4 family	$	761	$	3,665	$	4,426	$	202,996	$	207,422
Commercial		1,791		1,599		3,390		327,730		331,120
Construction and land development		26		5,684		5,710		82,833		88,543
Second mortgages		13		135		148		8,230		8,378
Multifamily		5,256		—		5,256		37,881		43,137
Agriculture		—		—		—		7,910		7,910
Total real estate loans		7,847		11,083		18,930		667,580		686,510
Commercial loans		—		53		53		118,717		118,770
Consumer installment loans		3		77		80		5,146		5,226
All other loans		—		—		—		1,292		1,292
Total loans	$	7,850	$	11,213	$	19,063	$	792,735	$	811,798

	Three months ended September 30, 2016
	June 30, 2016		Provision Allocation			Charge-offs			Recoveries		September 30, 2016
Mortgage loans on real estate:
Residential 1-4 family	$	2,470	$	949		$	(202	)	$	13	$	3,230
Commercial		3,611		(721	)		—			21		2,911
Construction and land development		1,587		(67	)		(15	)		1		1,506
Second mortgages		47		(15	)		—			2		34
Multifamily		299		341			—			—		640
Agriculture		26		5			—			—		31
Total real estate loans		8,040		492			(217	)		37		8,352
Commercial loans		1,280		(282	)		—			—		998
Consumer installment loans		103		43			(31	)		7		122
All other loans		11		(3	)		—			—		8
Total loans	$	9,434	$	250		$	(248	)	$	44	$	9,480

	Three Months Ended September 30, 2015
	June 30, 2015		Provision Allocation			Charge-offs			Recoveries		September 30, 2015
Mortgage loans on real estate:
Residential 1-4 family	$	3,612	$	82		$	(25	)	$	6	$	3,675
Commercial		3,559		(432	)		—			9		3,136
Construction and land development		1,639		195			(138	)		1		1,697
Second mortgages		56		21			—			3		80
Multifamily		251		(59	)		—			—		192
Agriculture		77		(44	)		—			—		33
Total real estate loans		9,194		(237	)		(163	)		19		8,813
Commercial loans		561		200			(3	)		—		758
Consumer installment loans		78		54			(43	)		27		116
All other loans		31		(17	)		—			—		14
Total loans	$	9,864	$	—		$	(209	)	$	46	$	9,701

	Nine months ended September 30, 2016
	December 31, 2015		Provision Allocation			Charge-offs			Recoveries		September 30, 2016
Mortgage loans on real estate:
Residential 1-4 family	$	3,041	$	592		$	(527	)	$	124	$	3,230
Commercial		4,022		(1,049	)		(112	)		50		2,911
Construction and land development		1,353		165			(15	)		3		1,506
Second mortgages		103		(77	)		—			8		34
Multifamily		178		462			—			—		640
Agriculture		27		4			—			—		31
Total real estate loans		8,724		97			(654	)		185		8,352
Commercial loans		727		260			—			11		998
Consumer installment loans		97		96			(147	)		76		122
All other loans		11		(3	)		—			—		8
Total loans	$	9,559	$	450		$	(801	)	$	272	$	9,480

	Nine Months Ended September 30, 2015
	December 31, 2014		Provision Allocation			Charge-offs			Recoveries		September 30, 2015
Mortgage loans on real estate:
Residential 1-4 family	$	3,100	$	837		$	(325	)	$	63	$	3,675
Commercial		2,618		494			—			24		3,136
Construction and land development		1,930		341			(593	)		19		1,697
Second mortgages		63		(79	)		—			96		80
Multifamily		136		56			—			—		192
Agriculture		66		(33	)		—			—		33
Total real estate loans		7,913		1,616			(918	)		202		8,813
Commercial loans		1,242		(1,689	)		(3	)		1,208		758
Consumer installment loans		85		86			(139	)		84		116
All other loans		27		(13	)		—			—		14
Total loans	$	9,267	$	—		$	(1,060	)	$	1,494	$	9,701

	September 30, 2016
	Allowance for Loan Losses						Recorded Investment in Loans
	Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Total		Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Total
Mortgage loans on real estate:
Residential 1-4 family	$	335	$	2,895	$	3,230	$	5,110	$	202,312	$	207,422
Commercial		54		2,857		2,911		4,615		326,505		331,120
Construction and land development		764		742		1,506		5,684		82,859		88,543
Second mortgages		—		34		34		135		8,243		8,378
Multifamily		—		640		640		—		43,137		43,137
Agriculture		—		31		31		—		7,910		7,910
Total real estate loans		1,153		7,199		8,352		15,544		670,966		686,510
Commercial loans		7		991		998		53		118,717		118,770
Consumer installment loans		43		79		122		316		4,910		5,226
All other loans		—		8		8		—		1,292		1,292
Total loans	$	1,203	$	8,277	$	9,480	$	15,913	$	795,885	$	811,798

	September 30, 2016										March 31, 2017
	Pass		Special Mention		Substandard		Doubtful		Total		Pass		Special Mention		Substandard		Doubtful		Total
Mortgage loans on real estate:
Residential 1-4 family	$	197,736	$	5,597	$	4,089	$	—	$	207,422	$	203,046	$	4,171	$	3,300	$	—	$	210,517
Commercial		322,525		3,382		5,213		—		331,120		334,557		3,330		5,717		—		343,604
Construction and land development		82,623		236		5,684		—		88,543		91,659		189		4,304		—		96,152
Second mortgages		7,775		468		135		—		8,378		7,245		479		—		—		7,724
Multifamily		35,645		2,633		4,859		—		43,137		46,883		—		2,586		—		49,469
Agriculture		7,793		117		—		—		7,910		7,224		113		112		—		7,449
Total real estate loans		654,097		12,433		19,980		—		686,510		690,614		8,282		16,019		—		714,915
Commercial loans		114,551		2,910		1,309		—		118,770		123,179		5,111		2,439		—		130,729
Consumer installment loans		5,130		19		77		—		5,226		5,256		23		42		—		5,321
All other loans		1,292		—		—		—		1,292		1,261		—		—		—		1,261
Total loans	$	775,070	$	15,362	$	21,366	$	—	$	811,798	$	820,310	$	13,416	$	18,500	$	—	$	852,226

	September 30, 2016				December 31, 2015
	Allowance for loan losses		Recorded investment in loans		Allowance for loan losses		Recorded investment in loans
Mortgage loans on real estate:
Residential 1-4 family	$	484	$	48,048	$	484	$	52,696
Commercial		—		672		—		850
Construction and land development		—		1,990		—		2,310
Second mortgages		—		2,479		—		2,822
Multifamily		—		273		—		277
Total real estate loans		484		53,462		484		58,955
Total PCI loans	$	484	$	53,462	$	484	$	58,955

	March 31, 2017				December 31, 2016
	Allowance for loan losses		Recorded investment in loans		Allowance for loan losses		Recorded investment in loans
Mortgage loans on real estate:
Residential 1-4 family	$	200	$	44,465	$	200	$	46,623
Commercial		—		622		—		649
Construction and land development		—		1,935		—		1,969
Second mortgages		—		2,450		—		2,453
Multifamily		—		266		—		270
Total real estate loans		200		49,738		200		51,964
Total PCI loans	$	200	$	49,738	$	200	$	51,964

Balance, January 1, 2015	$	51,082
Balance, January 1, 2016				$	49,128
Accretion		(7,811	)		(6,206	)
Reclassification from nonaccretable yield		5,857			5,433
Balance, December 31, 2015	$	49,128
Balance, December 31, 2016				$	48,355
Accretion		(4,681	)		(1,479	)
Reclassification from nonaccretable yield		4,545			45
Balance, September 30, 2016	$	48,992
Balance, March 31, 2017				$	46,921

	September 30, 2016		December 31, 2015

NOW	$	118,264	$	128,761
MMDA		109,842		108,810
Savings		89,336		84,047
Time deposits less than or equal to $250,000		398,295		409,085
Time deposits over $250,000		122,258		118,600
Total interest bearing deposits	$	837,995	$	849,303

	March 31, 2017		December 31, 2016

NOW	$	130,971	$	137,332
MMDA		103,042		111,346
Savings		92,683		90,340
Time deposits less than or equal to $250,000		452,075		440,699
Time deposits over $250,000		144,859		128,690
Total interest bearing deposits	$	923,630	$	908,407

	Three months ended September 30, 2016
	Unrealized Gain (Loss) on Securities			Defined Benefit Pension Plan			Gain (Loss) on Cash Flow Hedge			Total Other Comprehensive Income (Loss)

Beginning balance	$	3,530		$	(901	)	$	(578	)	$	2,051
Other comprehensive (loss) income before reclassifications		(322	)		-			189			(133	)
Amounts reclassified from AOCI		(58	)		-			-			(58	)
Net current period other comprehensive (loss) income		(380	)		-			189			(191	)
Ending balance	$	3,150		$	(901	)	$	(389	)	$	1,860

	Three months ended March 31, 2017
	Unrealized Gain (Loss) on Securities			Defined Benefit Pension Plan				Gain (Loss) on Cash Flow Hedge			Total Other Comprehensive (Loss) Income

Beginning balance	$	(410	)	$	(767	)		$	(46	)	$	(1,223	)
Other comprehensive income (loss) before reclassifications		508			-				54			562
Amounts reclassified from AOCI		(63	)		-				-			(63	)
Net current period other comprehensive income (loss)		445			-				54			499
Ending balance	$	35		$	(767	)	��	$	8		$	(724	)

	Three months ended March 31, 2016
	Unrealized Gain (Loss) on Securities			Defined Benefit Pension Plan				Gain (Loss) on Cash Flow Hedge			Total Other Comprehensive (Loss) Income

Beginning balance	$	443		$	(901	)		$	(131	)	$	(589	)
Other comprehensive income (loss) before reclassifications		2,345			-				(362	)		1,983
Amounts reclassified from AOCI		(171	)		-				-			(171	)
Net current period other comprehensive income (loss)		2,174			-				(362	)		1,812
Ending balance	$	2,617		$	(901	)		$	(493	)	$	1,223

Details about AOCI Components	Amount Reclassified from AOCI						Affected Line Item in the Unaudited Consolidated Statement of Income
	Three months ended
	September 30, 2016			September 30, 2015
Unrealized (gain) loss on securities available for sale	$	(88	)	$	(74	)	Gain (loss) on securities transactions, net
		30			25		Income tax expense
	$	(58	)	$	(49	)	Net of tax

	December 31, 2015
	Total			Level 1		Level 2			Level 3
Investment securities available for sale
U.S. Treasury issue and other U.S. Gov’t agencies	$	49,941		$	39,748	$	10,193		$	-
U.S. Gov’t sponsored agencies		742			-		742			-
State, county and municipal		141,498			687		140,811			-
Corporate and other bonds		14,296			-		14,296			-
Mortgage backed – U.S. Gov’t agencies		8,496			-		8,496			-
Mortgage backed – U.S. Gov’t sponsored agencies		28,297			-		28,297			-
Total investment securities available for sale		243,270			40,435		202,835			-
Total assets at fair value	$	243,270		$	40,435	$	202,835		$	-
Cash flow hedge	$	(199	)	$	-	$	(199	)	$	-
Total liabilities at fair value	$	(199	)	$	-	$	(199	)	$	-

	September 30, 2016
	Carrying Value		Estimated Fair Value		Level 1		Level 2		Level 3
Financial assets:
Securities held to maturity	$	45,616	$	47,362	$	—	$	47,362	$	—
Loans, net of allowance		802,318		804,219		—		796,742		7,477
PCI loans, net of allowance		52,978		60,792		—		—		60,792

Financial liabilities:
Interest bearing deposits		837,995		838,144		—		838,144		—
Long-term borrowings		115,944		116,060		—		116,060		—

	Net Income (Loss) (Numerator)			Weighted Average Common Shares (Denominator)		Per Common Share Amount			Net Income (Numerator)		Weighted Average Common Shares (Denominator)		Per Common Share Amount
For the three months ended September 30, 2016
For the three months ended March 31, 2017
Basic EPS	$	2,458			21,935	$	0.11		$	2,493		21,962	$	0.11
Effect of dilutive stock awards		—			192		—			—		471		—
Diluted EPS	$	2,458			22,127	$	0.11		$	2,493		22,433	$	0.11

For the three months ended September 30, 2015
For the three months ended March 31, 2016
Basic EPS	$	(7,716	)		21,835	$	(0.35	)	$	2,420		21,873	$	0.11
Effect of dilutive stock awards		—			—		—			—		192		—
Diluted EPS	$	(7,716	)		21,835	$	(0.35	)	$	2,420		22,065	$	0.11

For the nine months ended September 30, 2016
Basic EPS	$	7,196			21,902	$	0.33
Effect of dilutive stock awards		—			203		—
Diluted EPS	$	7,196			22,105	$	0.33

For the nine months ended September 30, 2015
Basic EPS	$	(4,711	)		21,819	$	(0.21	)
Effect of dilutive stock awards		—			—		—
Diluted EPS	$	(4,711	)		21,819	$	(0.21	)

	Three months ended September 30						Nine months ended September 30						Three months ended
	2016			2015			2016			2015			March 31, 2017			March 31, 2016
Interest cost	$	47		$	47		$	142		$	141		$	39		$	48
Expected return on plan assets		(81	)		(88	)		(244	)		(264	)		(70	)		(82	)
Amortization of prior service cost		1			1			3			3			1			1
Recognized net loss due to settlement														—			13
Recognized net actuarial loss		13			11			39			33			12			13
Recognized net loss due to settlement		91			—			163			—
Net periodic benefit cost	$	71		$	(29	)	$	103		$	(87	)	$	(18	)	$	(7	)

	Nine months ended September 30, 2016								Nine months ended September 30, 2015
						Average								Average
	Average			Interest		Rates			Average			Interest		Rates
	Balance			Income/		Earned/			Balance			Income/		Earned/
	Sheet			Expense		Paid			Sheet			Expense		Paid
ASSETS:
Loans	$	776,491		$	26,582		4.56	%	$	679,262		$	23,750		4.67	%
Purchased credit impaired (PCI) loans		55,974			4,704		11.20			64,805			6,221		12.83
Total loans		832,465			31,286		5.01			744,067			29,971		5.39
Interest bearing bank balances		11,065			66		0.80			16,663			46		0.37
Federal funds sold		5			-		0.50			2,476			2		0.10
Securities (taxable)		178,700			3,528		2.63			221,052			4,119		2.48
Securities (tax exempt)		82,750			2,573		4.15			74,118			2,376		4.27
Total earning assets		1,104,985			37,453		4.52			1,058,376			36,514		4.61
Allowance for loan losses		(9,985	)							(9,913	)
Non-earning assets		84,712								98,238
Total assets	$	1,179,712							$	1,146,701

LIABILITIES AND SHAREHOLDERS' EQUITY

Demand - interest bearing	$	233,186			481		0.27		$	226,497			512		0.30
Savings		84,661			176		0.28			83,570			194		0.31
Time deposits		520,306			3,981		1.02			525,309			3,751		0.95
Total deposits		838,153			4,638		0.74			835,376			4,457		0.71
Short-term borrowings		2,313			14		0.85			1,062			5		0.57
FHLB and other borrowings		106,571			903		1.13			95,921			898		1.25
Long-term debt		4,771			174		4.80			8,125			253		4.10
Total interest bearing liabilities		951,808			5,729		0.80			940,484			5,613		0.80
Noninterest bearing deposits		111,751								92,619
Other liabilities		5,297								4,187
Total liabilities		1,068,856								1,037,290
Shareholders' equity		110,856								109,411

Total liabilities and shareholders' equity	$	1,179,712							$	1,146,701
Net interest earnings				$	31,724							$	30,901
Interest spread							3.72	%							3.81	%
Net interest margin							3.82	%							3.90	%

	September 30, 2016			December 31, 2015
Nonaccrual loans	$	11,213		$	10,670
Loans past due 90 days and accruing interest		—			—
Total nonperforming loans		11,213			10,670
OREO		4,905			5,490
Total nonperforming assets	$	16,118		$	16,160

Accruing troubled debt restructure loans	$	4,700		$	4,596

Balances
Specific reserve on impaired loans		1,203			1,144
General reserve related to unimpaired loans		8,277			8,415
Total allowance for loan losses		9,480			9,559
Average loans during the year, net of unearned income		776,491			687,463

Impaired loans		15,913			15,266
Non-impaired loans		795,885			733,476
Total loans, net of unearned income		811,798			748,742

Ratios
Allowance for loan losses to loans, excluding PCI loans, to loans		1.17	%		1.28	%
Allowance for loan losses to nonperforming assets		61.82			62.15
Allowance for loan losses, excluding PCI loans, to nonaccrual loans		84.54			89.59
General reserve to non-impaired loans		1.04			1.15
Nonaccrual loans to loans		1.38			1.43
Nonperforming assets to loans and OREO		1.97			2.14
Net charge-offs (recoveries) to average loans		0.09			(0.04	)

	September 30, 2016		December 31, 2015
Commitments with off-balance sheet risk:
Commitments to extend credit	$	131,937	$	106,099
Standby letters of credit		6,977		7,146
Total commitments with off-balance sheet risks	$	138,914	$	113,245

	September 30, 2016					March 31, 2017
	%		$			%			$
Change in Yield curve
+400 bp		1.1		465			3.7			1,577
+300 bp		0.6		241			2.6			1,142
+200 bp		0.4		143			1.8			775
+100 bp		—		(6	)		0.9			382
most likely		—		—			—			—
-100 bp		1.3		516			(1.0	)		(447	)
-200 bp		0.9		375			(3.0	)		(1,299	)
-300 bp		0.9		369			(3.2	)		(1,391	)
-400 bp		0.9		369			(3.2	)		(1,395	)

Exhibit No.		Description
31.1		Rule 13a-14(a)/15d-14(a) Certification for Chief Executive Officer*
31.2		Rule 13a-14(a)/15d-14(a) Certification for Chief Financial Officer*
32.1		Section 1350 Certifications*
101		Interactive Data File with respect to the following materials from the Company’s Quarterly Report on Form 10-Q for the period ended ~~September 30, 2016~~March 31, 2017 formatted in Extensible Business Reporting Language (XBRL): (i) the Unaudited Consolidated Balance Sheets, (ii) the Unaudited Consolidated Statements of Income, ~~(Loss),~~ (iii) the Unaudited Consolidated Statements of Comprehensive Income, ~~(Loss),~~ (iv) the Unaudited Consolidated Statements of Changes in Shareholders’ Equity, (v) the Unaudited Consolidated Statements of Cash Flows, and (vi) Notes to Unaudited Consolidated Financial Statements*

	COMMUNITY BANKERS TRUST CORPORATION
	(Registrant)

	/s/ Rex L. Smith, III
	Rex L. Smith, III
	President and Chief Executive Officer
	(principal executive officer)

Date: ~~November 8, 2016~~May 9, 2017

	/s/ Bruce E. Thomas
	Bruce E. Thomas
	Executive Vice President and Chief Financial Officer
	(principal financial officer)

Date: ~~November 8, 2016~~May 9, 2017