Loans and Related Allowance for Loan Losses | Note 3. Loans and Related Allowance for Loan Losses The Company’s loans, net of deferred fees and costs, at March 3 1 , 201 7 and December 31, 201 6 were comprised of the following (dollars in thousands): March 31, 2017 December 31, 2016 Amount % of Loans Amount % of Loans Mortgage loans on real estate: Residential 1-4 family $ 210,517 24.71 % $ 207,863 24.86 % Commercial 343,604 40.32 339,804 40.63 Construction and land development 96,152 11.28 98,282 11.75 Second mortgages 7,724 0.91 7,911 0.95 Multifamily 49,469 5.80 39,084 4.67 Agriculture 7,449 0.87 7,185 0.86 Total real estate loans 714,915 83.89 700,129 83.72 Commercial loans 130,729 15.34 129,300 15.46 Consumer installment loans 5,321 0.62 5,627 0.67 All other loans 1,261 0.15 1,243 0.15 Total loans $ 852,226 100.00 % $ 836,299 100.00 % The Company held $15. 7 million and $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 March 3 1 , 201 7 and December 31, 201 6 , respectively. As these loans are 100% guaranteed by the USDA, no loan loss allowance is required. These loan balances included a purchase premium of $ 718,000 and $ 749,000 at March 3 1 , 201 7 and December 31, 201 6 , 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 March 3 1 , 201 7 and December 31, 201 6 , 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. The following table summarizes information related to impaired loans as of March 3 1 , 201 7 (dollars in thousands): Three months ended 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 $ 2,189 $ 2,479 $ — $ 1,947 $ 7 Commercial 4,156 4,726 — 5,363 38 Construction and land development — — — — — Total real estate loans 6,345 7,205 — 7,310 45 Commercial loans — — — 600 — Consumer installment loans — — — — — Subtotal impaired loans with no valuation allowance 6,345 7,205 — 7,910 45 With an allowance recorded: Mortgage loans on real estate: Residential 1-4 family 2,335 2,737 321 2,478 12 Commercial 396 786 50 506 2 Construction and land development 4,304 5,558 538 4,900 — Total real estate loans 7,035 9,081 909 7,884 14 Commercial loans 284 284 36 168 1 Consumer installment loans 42 46 5 162 — Subtotal impaired loans with a valuation allowance 7,361 9,411 950 8,214 15 Total: Mortgage loans on real estate: Residential 1-4 family 4,524 5,216 321 4,425 19 Commercial 4,552 5,512 50 5,869 40 Construction and land development 4,304 5,558 538 4,900 — Total real estate loans 13,380 16,286 909 15,194 59 Commercial loans 284 284 36 768 1 Consumer installment loans 42 46 5 162 — Total impaired loans $ 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 The following table summarizes information related to impaired loans as of December 31, 201 6 and the three months ended March 31, 2016 (dollars in thousands): Three months ended 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 $ 1,704 $ 1,931 $ — $ 2,455 $ 11 Commercial 6,570 7,078 — 4,297 39 Construction and land development — — — — — Second mortgages — — — — — Total real estate loans 8,274 9,009 — 6,752 50 Commercial loans 1,200 1,200 — — — Consumer installment loans — — — 124 1 Subtotal impaired loans with no valuation allowance 9,474 10,209 — 6,876 51 With an allowance recorded: Mortgage loans on real estate: Residential 1-4 family 2,621 3,062 283 3,400 7 Commercial 617 1,051 73 481 2 Construction and land development 5,495 6,746 730 4,502 — Second mortgages — — — 80 — Total real estate loans 8,733 10,859 1,086 8,463 9 Commercial loans 53 53 7 27 — Consumer installment loans 281 285 37 79 — Subtotal impaired loans with a valuation allowance 9,067 11,197 1,130 8,569 9 Total: Mortgage loans on real estate: Residential 1-4 family 4,325 4,993 283 5,855 18 Commercial 7,187 8,129 73 4,778 41 Construction and land development 5,495 6,746 730 4,502 — Second mortgages — — — 80 — Total real estate loans 17,007 19,868 1,086 15,215 59 Commercial loans 1,253 1,253 7 27 — Consumer installment loans 281 285 37 203 1 Total impaired loans $ 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 March 3 1 , 201 7 and December 31, 201 6 , is set forth in the table below (dollars in thousands): 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 March 31, 2017 and 2016 . For the three months ended March 3 1 , 201 7 and 201 6 , estimated interest income of $163,000 and $204,000 , 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 March 3 1 , 201 7 and December 31, 201 6 (dollars in thousands): March 31, 2017 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 $ 271 $ — $ 3,104 $ 3,375 $ 207,142 $ 210,517 Commercial — — 1,588 1,588 342,016 343,604 Construction and land development — — 4,304 4,304 91,848 96,152 Second mortgages — — — — 7,724 7,724 Multifamily — — — — 49,469 49,469 Agriculture — 112 — 112 7,337 7,449 Total real estate loans 271 112 8,996 9,379 705,536 714,915 Commercial loans 334 — 53 387 130,342 130,729 Consumer installment loans 27 — 42 69 5,252 5,321 All other loans — — — — 1,261 1,261 Total loans $ 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 Activity in the allowance for loan losses , excluding PCI loans, on loans by segment for the thre e months ended March 3 1 , 201 7 and 201 6 is presented in the following tables (dollars in thousands): 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 March 3 1 , 201 7 and December 31, 201 6 (dollars in thousands): 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 December 31, 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 $ 283 $ 2,486 $ 2,769 $ 4,325 $ 203,538 $ 207,863 Commercial 73 1,879 1,952 7,187 332,617 339,804 Construction and land development 730 1,465 2,195 5,495 92,787 98,282 Second mortgages — 72 72 — 7,911 7,911 Multifamily — 260 260 — 39,084 39,084 Agriculture — 15 15 — 7,185 7,185 Total real estate loans 1,086 6,177 7,263 17,007 683,122 700,129 Commercial loans 7 595 602 1,253 128,047 129,300 Consumer installment loans 37 98 135 281 5,346 5,627 All other loans — 7 7 — 1,243 1,243 Unallocated — 1,486 1,486 — — — Total loans $ 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 $15.7 million and $15.8 million at March 3 1 , 201 7 and December 31, 201 6 , 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. The following tables present the composition of loans by credit quality indicator at March 3 1 , 201 7 and December 31, 201 6 (dollars in thousands): March 31, 2017 Pass Special Mention Substandard Doubtful Total Mortgage loans on real estate: Residential 1-4 family $ 203,046 $ 4,171 $ 3,300 $ — $ 210,517 Commercial 334,557 3,330 5,717 — 343,604 Construction and land development 91,659 189 4,304 — 96,152 Second mortgages 7,245 479 — — 7,724 Multifamily 46,883 — 2,586 — 49,469 Agriculture 7,224 113 112 — 7,449 Total real estate loans 690,614 8,282 16,019 — 714,915 Commercial loans 123,179 5,111 2,439 — 130,729 Consumer installment loans 5,256 23 42 — 5,321 All other loans 1,261 — — — 1,261 Total loans $ 820,310 $ 13,416 $ 18,500 $ — $ 852,226 December 31, 2016 Pass Special Mention Substandard Doubtful Total Mortgage loans on real estate: Residential 1-4 family $ 199,973 $ 4,612 $ 3,278 $ — $ 207,863 Commercial 330,851 3,168 5,785 — 339,804 Construction and land development 92,556 234 5,492 — 98,282 Second mortgages 7,474 437 — — 7,911 Multifamily 36,474 — 2,610 — 39,084 Agriculture 7,067 118 — — 7,185 Total real estate loans 674,395 8,569 17,165 — 700,129 Commercial loans 122,129 5,879 1,292 — 129,300 Consumer installment loans 5,563 20 44 — 5,627 All other loans 1,243 — — — 1,243 Total loans $ 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 loans that met the definition of a TDR at each of March 3 1 , 201 7 and 201 6, respectively . The Company had no loan modifications considered to be TDRs during the three months ended March 31, 2017. During the three months ended March 31, 2016, the Company modified one consumer installment 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 $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 months ended March 3 1 , 201 7 and 201 6 . 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 . At March 3 1 , 201 7 , the Company had 1-4 family mortgages in the amount of $149.4 million pledged to the Federal Home Loan Bank with a lendable collateral value of $135.0 million. |