Loans | NOTE 3 - LOANS Loans outstanding by category at December 31, 2015 and 2014 were as follows: 2015 2014 Real estate construction: Residential construction $ 11,191 $ 9,382 Other construction 10,178 16,520 1-4 family residential: Revolving, open ended 15,278 17,147 First liens 83,441 83,618 Junior liens 1,781 1,926 Commercial real estate: Farmland 7,855 7,495 Owner occupied 50,334 42,383 Non-owner occupied 53,175 49,455 Other real estate secured loans 6,369 5,825 Commercial, financial and agricultural: Agricultural 1,053 855 Commercial and industrial 17,184 14,659 Consumer 6,476 5,641 Tax exempt 4 31 Other 150 1,499 $ 264,469 $ 256,436 Residential mortgage loans intended to be sold to secondary market investors that were not subsequently sold totaled $0 at December 31, 2015 and 2014. However, prior to 2014, the Bank did have some loans that met this criteria and are still retained in the Bank’s portfolio. These loans were transferred at fair value to the Bank’s held for investment loan portfolio. The principal balance and carrying value of the previously mentioned loans reclassified from held for sale to portfolio loans was $513 and $529 at December 31, 2015 and 2014, respectively. Changes in the allowance for loan losses were as follows: 2015 2014 2013 Balance at beginning of year $ 5,171 $ 8,039 $ 9,767 (Reversal of) provision for loan losses (2,257 ) (1,014 ) 45 Loans charged off (322 ) (2,061 ) (2,054 ) Recoveries 1,683 207 281 Balance at end of year $ 4,275 $ 5,171 $ 8,039 The following tables present activity in allowance for loan losses and the outstanding loan balance by portfolio segment and based on impairment method as of December 31, 2015. The balances for “recorded investment” in the following tables related to credit quality do not include approximately $792 and $744 in accrued interest receivable at December 31, 2015 and 2014, respectively. Accrued interest receivable is a component of the Company’s recorded investment in loans. Real Estate Construction 1-4 Family Residential Commercial Real Estate Other Real Estate Secured Loans Commercial, Financial and Agricultural Consumer Tax Exempt Other Loans Unallocated Total December 31, 2015 Allowance for loan losses: Beginning Balance $ 892 $ 2,332 $ 994 $ 22 $ 399 $ 22 $ — $ — $ 510 $ 5,171 Charge-offs — (246 ) — — (25 ) (6 ) — (45 ) — (322 ) Recoveries 128 161 620 — 259 5 — 510 — 1,683 (Reversal of) provision (147 ) (568 ) (894 ) (10 ) (45 ) (4 ) — (465 ) (124 ) (2,257 ) Total ending allowance balance $ 873 $ 1,679 $ 720 $ 12 $ 588 $ 17 $ — $ — $ 386 $ 4,275 December 31, 2014 Allowance for loan losses: Beginning Balance $ 1,249 $ 3,235 $ 1,273 $ 33 $ 704 $ 24 $ — $ 929 $ 592 $ 8,039 Charge-offs (103 ) (341 ) (25 ) — (489 ) (1 ) — (1,102 ) — (2,061 ) Recoveries 44 31 30 — 51 9 — 42 — 207 (Reversal of) provision (298 ) (593 ) (284 ) (11 ) 133 (10 ) — 131 (82 ) (1,014 ) Total ending allowance balance $ 892 $ 2,332 $ 994 $ 22 $ 399 $ 22 $ — $ — $ 510 $ 5,171 December 31, 2013 Allowance for loan losses: Beginning Balance $ 1,938 $ 4,133 $ 1,514 $ 226 $ 994 $ 14 $ — $ 368 $ 580 $ 9,767 Charge-offs — (759 ) (639 ) — (600 ) (5 ) — (51 ) — (2,054 ) Recoveries 21 73 38 — 111 8 — 30 — 281 (Reversal of) provision (710 ) (212 ) 360 (193 ) 199 7 — 582 12 45 Total ending allowance balance $ 1,249 $ 3,235 $ 1,273 $ 33 $ 704 $ 24 $ — $ 929 $ 592 $ 8,039 Ending allowance balance attributable to loans at December 31, 2015: Individually evaluated for impairment $ — $ 84 $ 134 $ — $ 121 $ 1 $ — $ — $ — $ 340 Collectively evaluated for Impairment 873 1,595 586 12 467 16 — — 386 3,935 Total ending allowance balance $ 873 $ 1,679 $ 720 $ 12 $ 588 $ 17 $ — $ — $ 386 $ 4,275 Ending allowance balance attributable to loans at December 31, 2014: Individually evaluated for impairment $ 66 $ 126 $ 55 $ — $ — $ — $ — $ — $ — $ 247 Collectively evaluated for Impairment 826 2,206 939 22 399 22 — — 510 4,924 Total ending allowance balance $ 892 $ 2,332 $ 994 $ 22 $ 399 $ 22 $ — $ — $ 510 $ 5,171 Loans at December 31, 2015: Individually evaluated for impairment $ 50 $ 2,179 $ 5,488 $ — $ 233 $ 14 $ — $ — $ 7,964 Collectively evaluated for impairment 21,319 98,321 105,876 6,369 18,004 6,462 4 150 256,505 Total loans balance $ 21,369 $ 100,500 $ 111,364 $ 6,369 $ 18,237 $ 6,476 $ 4 $ 150 $ 264,469 Loans at December 31, 2014: Individually evaluated for impairment $ 5,250 $ 1,499 $ 1,778 $ — $ — $ 7 $ — $ 1,351 $ 9,885 Collectively evaluated for impairment 20,652 101,192 97,555 5,825 15,514 5,634 31 148 246,551 Total loans balance $ 25,902 $ 102,691 $ 99,333 $ 5,825 $ 15,514 $ 5,641 $ 31 $ 1,499 $ 256,436 The following table presents loans individually evaluated for impairment by class of loans as of and for the year ended December 31, 2015: Unpaid Principal Balance Recorded Investment Allowance for Loan Losses Allocated Average Recorded Investment Income Recognized Cash Basis Income Recognized With no related allowance recorded: Real estate construction: Residential construction $ — $ — $ — $ — $ — $ — Other construction 45 45 — 1,476 4 4 1-4 family residential: Revolving, open ended 56 56 — 54 3 3 First liens 383 383 — 76 42 35 Junior liens — — — 32 4 5 Commercial real estate: Farmland 82 82 — 16 3 3 Owner occupied 1,185 1,185 — 237 55 56 Non-owner occupied 31 31 — 510 3 3 Other real estate loans — — — — — — Commercial, financial and agricultural: Commercial and industrial 13 9 — 2 — — Consumer 3 3 — 4 — — Other loans — — — 811 — — Total with no related allowance recorded 1,798 1,794 — 3,218 114 109 With an allowance recorded: Real estate construction: Residential construction — — — — — — Other construction 5 5 — 834 — — 1-4 family residential: Revolving, open ended 33 33 29 35 2 2 First liens 1,707 1,707 55 1,822 91 96 Junior liens — — — 35 — Commercial real estate: Farmland — — — — — — Owner occupied 3,093 3,093 108 1,050 168 152 Non-owner occupied 1,097 1,097 26 772 62 60 Other real estate loans — — — — — — Commercial, financial and agricultural: Commercial and industrial 224 224 121 90 17 13 Consumer 11 11 1 3 1 1 Other loans — — — — — — Total with an allocated allowance recorded 6,170 6,170 340 4,641 341 324 Total $ 7,968 $ 7,964 $ 340 $ 7,859 $ 455 $ 433 The following table presents loans individually evaluated for impairment by class of loans as of and for the year ended December 31, 2014: Unpaid Principal Balance Recorded Investment Allowance for Loan Losses Allocated Average Recorded Investment Income Recognized Cash Basis Income Recognized With no related allowance recorded: Real estate construction: Residential construction $ — $ — $ — $ 821 $ — $ — Other construction 3,952 3,849 — 5,102 — — 1-4 family residential: Revolving, open ended 54 54 — 42 3 3 First liens — — — 774 6 6 Junior liens 108 108 — 69 — (1 ) Commercial real estate: Owner occupied — — — 353 — — Non-owner occupied 3,188 1,233 — 1,518 3 3 Other real estate loans — — — 88 — — Commercial, financial and agricultural: Commercial and industrial — — — 28 — — Consumer 4 4 — 3 — — Other loans 6,652 1,351 — 676 — — Total with no related allowance recorded 13,958 6,599 — 9,474 12 11 With an allowance recorded: Real estate construction: Residential construction — — — 925 55 56 Other construction 1,402 1,402 66 2,842 1 1 1-4 family residential: Revolving, open ended 37 37 33 94 3 4 First liens 1,299 1,299 93 2,474 65 69 Commercial real estate: Owner occupied 545 545 55 734 64 66 Non-owner occupied — — — 604 — — Commercial, financial and agricultural: Commercial and industrial — — — 92 — — Consumer 3 3 — 9 — — Other loans — — — 926 — — Total with an allocated allowance recorded 3,286 3,286 247 8,700 188 196 Total $ 17,244 $ 9,885 $ 247 $ 18,174 $ 200 $ 207 The following table presents loans individually evaluated for impairment by class of loans as of and for the year ended December 31, 2013: Unpaid Principal Balance Recorded Investment Allowance for Loan Losses Allocated Average Recorded Investment Income Recognized Cash Basis Income Recognized With no related allowance recorded: Real estate construction: Residential construction $ — $ — $ — $ 633 $ — $ — Other construction 6,564 6,564 — 7,507 1 1 1-4 family residential: Revolving, open ended 110 110 — 184 4 5 First liens 1,163 1,163 — 1,751 29 33 Junior liens 83 83 — 70 4 3 Commercial real estate: Farmland — — — — — — Owner occupied 1,411 1,411 — 1,159 58 64 Non-owner occupied 3,582 1,627 — 1,354 — — Other real estate loans 119 119 — 123 — — Commercial, financial and agricultural: Agricultural 1 1 — 93 — — Commercial and industrial — — — 1 — — Consumer 1 1 — — — — Other loans — — — — — — Total with no related allowance recorded 13,034 11,079 — 12,875 96 106 With an allowance recorded: Real estate construction: Residential construction 2,515 2,515 62 2,868 — — Other construction 2,291 2,291 414 2,866 15 15 1-4 family residential: Revolving, open ended 179 179 132 377 3 5 First liens 6,122 6,122 460 5,167 272 255 Junior liens — — — 87 — — Commercial real estate: Owner occupied 1,845 1,845 276 1,862 129 126 Non-owner occupied — — — 1,224 — — Other real estate loans — — — 1,100 — — Commercial, financial and agricultural: Commercial and industrial 176 176 176 374 (35 ) — Consumer 11 11 — 7 1 1 Other loans 6,227 1,853 926 1,853 — — Total with an allocated allowance recorded 19,366 14,992 2,446 17,785 385 402 Total $ 32,400 $ 26,071 $ 2,446 $ 30,660 $ 481 $ 508 Troubled Debt Restructurings The Company has allocated $311 of specific reserves to customers whose loan terms have been modified in troubled debt restructurings as of December 31, 2015 compared to $214 at December 31, 2014. The Company lost $43 and $143 of interest income in 2015 and 2014, respectively, that would have been recorded in interest income if the specific loans had not been restructured. The Bank had no commitments to lend additional funds to loans classified as troubled debt restructurings at December 31, 2015 and December 31, 2014. During 2015, the terms of certain loans were modified as troubled debt restructurings. The modification of the terms of such loans included one or a combination of the following: a reduction of the stated interest rate of the loan; or an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk. Modifications involving a reduction of the stated interest rate and extension of the maturity date of the loan were for periods ranging from six months to two years. Changes in the Company’s restructured loans are set forth in the table below: Number of Loans Recorded Investment Totals at January 1, 2015 31 $ 16,071 Additional loans with concessions 10 3,312 Reductions due to: Reclassified as nonperforming — — Paid in full (11 ) (8,869 ) Charge-offs (1 ) (4 ) Transfer to other real estate owned (1 ) (7 ) Principal paydowns — (234 ) Lapse of concession period — — TDR reclassified as performing loan (1 ) (2,337 ) Totals at December 31, 2015 27 $ 7,932 The following table presents loans by class modified as troubled debt restructurings that occurred during 2015 and 2014: December 31, 2015 Number of Contracts Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment Real estate construction: Other construction 1 $ 52 $ 52 1-4 family residential: Revolving, open ended 1 4 4 First liens 2 1,677 1,677 Commercial real estate: Farmland 1 82 82 Owner occupied 1 136 136 Non-owner occupied 1 1,113 1,113 Commercial, financial, and agricultural Commercial and industrial 2 237 237 Consumer 1 11 11 Total 10 3,312 3,312 December 31, 2014 Number of Contracts Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment 1-4 family residential: Revolving, open ended 2 $ 55 $ 55 First liens 2 310 310 Commercial real estate: Owner occupied 2 545 545 Non-owner occupied 1 35 35 Commercial, financial, and agricultural Commercial and industrial 3 38 38 Consumer 1 425 425 Total 11 $ 1,408 $ 1,408 Total troubled debt restructurings had an outstanding balance of $7,932 and had $311 in specific allocations of the allowance for loan losses at December 31, 2015. Total troubled debt restructurings increased the allowance for loan losses by $0 in 2015 and 2014. Troubled debt restructurings still accruing interest totaled $6,729 and $2,140 at December 31, 2015 and 2014, respectively. The following table presents loans by class modified as troubled debt restructurings for which there was a payment default within twelve months following the modification during 2015 and 2014. December 31, 2015 Number of Contracts Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment Commercial, financial, and agricultural Commercial and industrial 1 $ 224 $ 224 Total 1 $ 224 $ 224 December 31, 2014 Number of Contracts Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment Real estate construction: Other construction 1 $ 263 $ 263 Commercial, financial, and agricultural Commercial and industrial 1 221 221 Total 2 $ 484 $ 484 A loan is considered to be in payment default once it is more than 90 days contractually past due under the modified terms. Troubled debt restructurings that subsequently defaulted as described above increased the allowance for loan losses by $0 and resulted in charge-offs of $0 during 2015 and 2014. In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without modification. This evaluation is performed in accordance with the Company’s internal loan policy. Nonperforming loans include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans. The following table presents the recorded investment in nonaccrual and loans past due over 90 days still on accrual by class of loans as of December 31, 2015 and 2014: December 31, 2015 December 31, 2014 Nonaccrual Loans past due over 90 days still accruing Nonaccrual Loans past due over 90 days still accruing Real estate construction: Residential construction $ — $ — $ — $ — Other construction 16 — 5,236 — 1-4 family residential: Revolving, open ended 82 — 78 — First liens 173 — 359 — Junior liens — — — — Commercial real estate: Farmland 82 — — — Owner occupied — — 324 — Non-owner occupied — — 1,199 — Other real estate loans — — 108 — Commercial, financial and agricultural: Agricultural — — — — Commercial and industrial 12 — — — Consumer — — — — Other loans 10 — 1,351 — Total $ 375 $ — $ 8,655 $ — The following table presents the aging of the recorded investment in past due loans, including nonaccrual loans as of December 31, 2015 and 2014 by class of loans: December 31, 2015 30 Days Past Due 60 - 89 Days Past Due Greater than 90 Days Past Due Total Past Due Loans Not Past Due Total Real estate construction: Residential construction $ — $ — $ — $ — $ 11,191 $ 11,191 Other construction 5 23 — 28 10,150 10,178 1-4 family residential: Revolving, open ended 117 75 23 215 15,063 15,278 First liens 712 — 122 834 82,607 83,441 Junior liens — — — — 1,781 1,781 Commercial real estate: Farmland — — — — 7,855 7,855 Owner occupied 221 — — 221 50,113 50,334 Non-owner occupied — 350 — 350 52,825 53,175 Other real estate secured loans — — — — 6,369 6,369 Commercial, financial and agricultural: Agricultural — — 10 10 1,043 1,053 Commercial and industrial — 400 — 400 16,784 17,184 Consumer 4 — — 4 6,472 6,476 Tax exempt — — — — 4 4 Other loans — — — — 150 150 Total $ 1,059 $ 848 $ 155 $ 2,062 $ 262,407 $ 264,469 December 31, 2014 30 - 59 Days Past Due 60 - 89 Days Past Due Greater than 90 Days Past Due Total Past Due Loans Not Past Due Total Real estate construction: Residential construction $ — $ — $ — $ — $ 9,382 $ 9,382 Other construction 66 8 — 74 16,446 16,520 1-4 family residential: Revolving, open ended 4 74 78 156 16,991 17,147 First liens 1,111 215 359 1,685 81,933 83,618 Junior liens — — — — 1,926 1,926 Commercial real estate: Farmland — — — — 7,495 7,495 Owner occupied — — — — 42,383 42,383 Non-owner occupied 72 — — 72 49,383 49,455 Other real estate secured loans 108 — — 108 5,717 5,825 Commercial, financial and agricultural: Agricultural — — — — 855 855 Commercial and industrial 31 — — 31 14,628 14,659 Consumer 35 — — 35 5,606 5,641 Tax exempt — — — — 31 31 Other loans — — 926 926 573 1,499 Total $ 1,427 $ 297 $ 1,363 $ 3,087 $ 253,349 $ 256,436 Credit Quality Indicators: The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. The Company assigns an initial credit risk rating on every loan. All loan relationships with aggregate debt greater than $250 are reviewed at least annually or more frequently if performance of the loan or other factors warrant review. Smaller balance loans are reviewed and evaluated based on changes in loan performance, such as becoming past due or upon notifying the Bank of a change in the borrower’s financial status. This analysis is performed on a monthly basis. The Company uses the following definitions for risk ratings: Pass. Loans in this category are to persons or entities with good balance sheets, acceptable liquidity, and acceptable or strong earnings. Guarantors have reasonable or strong net worth, liquidity and earnings. Collateral is acceptable or strong, and is at or below policy advance rates. These borrowers have acceptable quality management if they are entities and have handled previous obligations with the Bank substantially within agreed-upon terms. Cash flow is adequate to service long-term debt. These entities may be minimally profitable now, with projections indicating continued profitability into the foreseeable future. Overall, these loans are basically sound. Watch. Loans characterized by borrowers who have marginal cash flow, marginal profitability, or have experienced operating losses and declining financial condition. The borrower has satisfactorily handled debts with the Bank in the past, but in recent months has either been late, delinquent in making payments, or made sporadic payments. While the Bank continues to be adequately secured, the borrower’s margins have decreased or are decreasing, despite the borrower’s continued satisfactory condition. Other characteristics of borrowers in this class include inadequate credit information, weakness of financial statement and repayment capacity, but with collateral that appears to limit the Bank’s exposure. This classification includes loans to established borrowers that are reasonably margined by collateral, but where potential for improvement in financial capacity is limited. Special Mention. Loans with potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deteriorating prospects for the repayment source or in the Bank’s credit position in the future. Substandard. Loans inadequately protected by the payment capacity of the borrower or the pledged collateral. Doubtful. Loans with the same characteristics as substandard loans with the added characteristic that the weaknesses make collection or liquidation in full highly questionable and improbable on the basis of currently existing facts, conditions, and values. These are poor quality loans in which neither the collateral nor the financial condition of the borrower presently ensure collectability in full in a reasonable period of time or evidence of permanent impairment in the collateral securing the loan. Impaired loans are evaluated separately from other loans in the Bank’s portfolio. Credit quality information related to impaired loans was presented above and is excluded from the tables below. Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans. As of December 31, 2015 and 2014, and based on the most recent analysis performed, the risk categories of loans by class of loans are as follows: December 31, 2015 Pass Watch Special Mention Substandard Doubtful Real estate construction: Residential construction $ 11,147 $ 45 $ — $ — $ — Other construction 8,182 47 7 1,891 — 1-4 family residential: Revolving, open ended 14,816 77 — 295 — First liens 70,656 10,064 — 630 — Junior liens 1,783 — — — — Commercial real estate: Farmland 5,897 185 — 1,691 — Owner occupied 43,953 2,104 — — — Non-owner occupied 50,473 1,183 — 390 — Other real estate loans 6,369 — — — — Commercial, financial and agricultural: Agricultural 1,043 10 — — — Commercial and industrial 15,452 1,099 — 400 — Consumer 6,438 16 — 8 — Tax exempt 4 — — — — Other loans 150 — — — — Total $ 236,363 $ 14,830 $ 7 $ 5,305 $ — December 31, 2014 Pass Watch Special Mention Substandard Doubtful Real estate construction: Residential construction $ 6,250 $ 3,132 $ — $ — $ — Other construction 6,673 3,756 — 840 — 1-4 family residential: Revolving, open ended 16,664 32 — 359 — First liens 66,655 11,256 — 4,408 — Junior liens 1,819 — — — — Commercial real estate: Farmland 4,963 905 — 1,626 — Owner occupied 37,204 4,634 — — — Non-owner occupied 39,867 5,535 — 2,821 — Other real estate loans 5,825 — — — — Commercial, financial and agricultural: Agricultural 786 12 — 56 — Commercial and industrial 13,626 978 — 56 — Consumer 5,614 3 — 17 — Tax exempt 31 — — — — Other loans 148 — — — — Total $ 206,125 $ 30,243 $ — $ 10,183 $ — |