UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended ~~September 30, 2016~~March 31, 2017

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 001-33033

PORTER BANCORP, INC.

(Exact name of registrant as specified in its charter)


Kentucky		61-1142247
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

2500 Eastpoint Parkway, Louisville, Kentucky		40223
(Address of principal executive offices)		(Zip Code)

(502) 499-4800

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

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 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 ☒ 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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ~~Yes☒ No☐~~Yes ☒ 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~~"large accelerated filer,~~” “accelerated filer”~~" "accelerated filer," "smaller reporting company," and ~~“smaller reporting company”~~"emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☐ (Do not check if a smaller reporting company)
		Smaller reporting ~~company~~ company	☒
		Emerging growth company	☐

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 ☐ No ☒

Indicate the number of shares outstanding of each of the ~~issuer’s class~~issuer’s classes of common stock, as of the latest practicable date.

~~23,156,969 shares of~~4,655,920 Common ~~Stock~~Shares and ~~7,958,000 shares of~~1,591,600 Non-Voting Common ~~Stock,~~Shares, no par value, were outstanding at ~~October 31, 2016.~~April 30, 2017.

~~Table Of Contents~~

INDEX

		Page
PART I –	FINANCIAL INFORMATION
ITEM 1.	FINANCIAL STATEMENTS	3
ITEM 2.	MANAGEMENT~~MANAGEMENT’S~~’S DISCUSSION AND ANALYSIS OF FINANCIAL
	CONDITION AND RESULTS OF OPERATIONS	3635
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	5349
ITEM 4.	CONTROLS AND PROCEDURES	5349

PART II –	OTHER INFORMATION
ITEM 1.	LEGAL PROCEEDINGS	5450
ITEM 1A.	RISK FACTORS	5450
ITEM 2.	UNREGISTERED SALES ON EQUITY SECURITIES AND USE OF PROCEEDS	5450
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	5450
ITEM 4.	MINE SAFETY DISCLOSURES	5450
ITEM 5.	OTHER INFORMATION	5450
ITEM 6.	EXHIBITS	5450

~~Table Of Contents~~

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

The following consolidated financial statements of Porter Bancorp, Inc. and subsidiary, PBI Bank, Inc. are submitted:

Unaudited Consolidated Balance Sheets for ~~September 30, 2016~~March 31, 2017 and December 31, ~~2015~~2016

Unaudited Consolidated Statements of ~~Operations~~Income for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2017 and 2016 ~~and 2015~~

Unaudited Consolidated Statements of Comprehensive Income ~~(Loss)~~ for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2017 and 2016 ~~and 2015~~

Unaudited Consolidated Statement of Changes in ~~Stockholders’~~Stockholders’ Equity for the ~~nine~~three months ended ~~September 30, 2016~~March 31, 2017

Unaudited Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~September 30,~~March 31, 2017 and 2016 ~~and 2015~~

Notes to Unaudited Consolidated Financial Statements

~~Table Of Contents~~

PORTER BANCORP, INC.

Unaudited Consolidated Balance Sheets

(dollars in thousands except share data)

	March 31, 2017			December 31, 2016
Assets
Cash and due from banks	$	5,456		$	9,449
Interest bearing deposits in banks		32,329			56,867
Cash and cash equivalents		37,785			66,316
Securities available for sale		156,001			152,790
Securities held to maturity (fair value of $43,469 and $43,072, respectively)		41,752			41,818
Loans held for sale		—			—
Loans, net of allowance of $8,966 and $8,967, respectively		655,217			630,269
Premises and equipment		17,687			17,848
Other real estate owned		6,571			6,821
Federal Home Loan Bank stock		7,323			7,323
Bank owned life insurance		14,935			14,838
Accrued interest receivable and other assets		5,083			7,154
Total assets	$	942,354		$	945,177

Liabilities and Stockholders’ Equity
Deposits
Non-interest bearing	$	127,049		$	124,395
Interest bearing		733,654			725,530
Total deposits		860,703			849,925
Federal Home Loan Bank advances		17,313			22,458
Accrued interest payable and other liabilities		4,908			15,911
Subordinated capital note		2,925			3,150
Junior subordinated debentures		21,000			21,000
Total liabilities		906,849			912,444
Stockholders’ equity
Preferred stock, no par
Series E - 6,198 issued and outstanding; Liquidation preference of $6.2 million		1,644			1,644
Series F - 4,304 issued and outstanding; Liquidation preference of $4.3 million		1,127			1,127
Total preferred stockholders’ equity		2,771			2,771
Common stock, no par, 86,000,000 shares authorized, 4,655,920 and 4,632,933 voting, and 34,380,437 non-voting shares authorized, 1,591,600 and 1,591,600 non-voting issued and outstanding, respectively		125,729			125,729
Additional paid-in capital		24,151			24,097
Retained deficit		(111,881	)		(113,561	)
Accumulated other comprehensive loss		(5,265	)		(6,303	)
Total common stockholders’ equity		32,734			29,962
Total stockholders' equity		35,505			32,733
Total liabilities and stockholders’ equity	$	942,354		$	945,177

September 30,
2016

December
31, 2015

Assets

Cash and due from banks
$ 6,266 $ 8,006
Interest bearing deposits in banks
57,578 85,329
Cash and cash equivalents
63,844 93,335
Securities available for sale
142,433 144,978
Securities held to maturity (fair value of $44,815 and $44,253, respectively)
41,883 42,075
Loans held for sale
134 186
Loans, net of allowance of $9,489 and $12,041, respectively
612,208 606,625
Premises and equipment, net
18,481 18,812
Other real estate owned
7,098 19,214
Federal Home Loan Bank stock
7,323 7,323
Bank owned life insurance
14,741 9,441
Accrued interest receivable and other assets
7,135 6,733
Total assets
$ 915,280 $ 948,722

Liabilities and Stockholders’ Equity

Deposits

Non-interest bearing
$ 119,005 $ 120,043
Interest bearing
717,939 757,954
Total deposits
836,944 877,997
Federal Home Loan Bank advances
2,619 3,081
Accrued interest payable and other liabilities
7,721 10,577
Subordinated capital note
3,375 4,050
Junior subordinated debentures
21,000 21,000
Total liabilities
871,659 916,705
Stockholders’ equity

Preferred stock, no par

Series E - 6,198 issued and outstanding; Liquidation preference of$6.2 million
1,644 1,644
Series F - 4,304 issued and outstanding; Liquidation preference of$4.3 million
1,127 1,127
Total preferred stockholders’ equity
2,771 2,771
Common stock, no par, 86,000,000 shares authorized, 23,156,969 and20,089,533 voting, and 7,958,000 and 6,858,000 non-voting shares issued and outstanding, respectively
125,729 120,699
Additional paid-in capital
23,969 23,654
Retained deficit
(106,923
)
(110,808
)
Accumulated other comprehensive loss
(1,925
)
(4,299
)
Total common stockholders’ equity
40,850 �� 29,246
Total stockholders' equity
43,621 32,017
Total liabilities and stockholders’ equity
$ 915,280 $ 948,722

See accompanying notes to unaudited consolidated financial statements.

~~Table Of Contents~~

PORTER BANCORP, INC.

Unaudited Consolidated Statements of ~~Operations~~Income

(dollars in thousands, except per share data)

Three Months Ended
September 30,

Nine Months Ended
September 30,

2016

2015

2016

2015

Interest income
Loans, including fees
$ 7,699 $ 7,895 $ 23,036 $ 23,496
Taxable securities
956 986 2,895 3,122
Tax exempt securities
153 187 475 580
Fed funds sold and other
123 111 415 351
8,931 9,179 26,821 27,549
Interest expense

Deposits
1,262 1,476 3,850 4,775
Federal Home Loan Bank advances
17 23 54 74
Subordinated capital note
35 40 112 123
Junior subordinated debentures
159 158 500 465
Federal funds purchased and other
— — — 1
1,473 1,697 4,516 5,438
Net interest income
7,458 7,482 22,305 22,111
Provision (negative provision) for loan losses
(750
)
(2,200
)
(1,900
)
(2,200
)
Net interest income after provision (negative provision) for loan losses
8,208 9,682 24,205 24,311

Non-interest income

Service charges on deposit accounts
520 492 1,422 1,376
Bank card interchange fees
214 212 637 644
Other real estate owned rental income
46 380 451 1,109
Bank owned life insurance income
101 65 316 229
Net gain (loss) on sales of securities, net
(16
)
— 187 1,696
Gain on extinguishment of junior subordinated debt
— 883 — 883
Other
240 178 635 534
1,105 2,210 3,648 6,471
Non-interest expense

Salaries and employee benefits
3,945 3,920 11,624 11,795
Occupancy and equipment
842 �� 815 2,504 2,513
Professional fees
374 620 1,251 2,313
FDIC Insurance
442 539 1,458 1,673
Data processing expense
295 278 887 860
State franchise and deposit tax
255 285 765 855
Other real estate owned expense
322 5,131 1,284 8,796
Loan collection expense
222 321 575 895
Other
1,223 1,059 3,599 3,694
7,920 12,968 23,947 33,394
Income (loss) before income taxes
1,393 (1,076
)
3,906 (2,612
)
Income tax expense
— — 21 —
Net income (loss)
1,393 (1,076
)
3,885 (2,612
)
Less:

Earnings (loss) allocated to participating securities
46 (45
)
129 (338
)
Net income (loss) available to common shareholders
$ 1,347 $ (1,031
)
$ 3,756 $ (2,274
)
Basic and diluted income (loss) per common share
$ 0.04 $ (0.04
)
$ 0.13 $ (0.10
)

~~See accompanying notes to unaudited consolidated financial statements.~~

~~Table Of Contents~~

~~PORTER BANCORP, INC.~~

~~Unaudited Consolidated Statements of Comprehensive Income (Loss)~~

~~(in thousands)~~

Three Months Ended
September 30,

Nine Months Ended
September 30,

2016

2015

2016

2015

Net income (loss)
$ 1,393 $ (1,076
)
$ 3,885 $ (2,612
)
Other comprehensive income (loss):

Unrealized gain (loss) on securities:

Unrealized gain arising during the period
597 1,227 2,465 794
Amortization during the period of net unrealized losstransferred to held to maturity
32 33 96 97
Reclassification adjustment for losses (gains)included in net income
16 — (187
)
(1,696
)
Net unrealized gain (loss) recognized incomprehensive income
645 1,260 2,374 (805
)
Tax effect
— — — —
Other comprehensive income (loss)
645 1,260 2,374 (805
)

Comprehensive income (loss)
$ 2,038 $ 184 $ 6,259 $ (3,417
)

	Three Months Ended March 31,
	2017			2016
Interest income
Loans, including fees	$	7,829		$	7,882
Taxable securities		1,114			989
Tax exempt securities		145			164
Federal funds sold and other		137			150
		9,225			9,185
Interest expense
Deposits		1,244			1,308
Federal Home Loan Bank advances		31			19
Subordinated capital note		34			39
Junior subordinated debentures		175			168
		1,484			1,534
Net interest income		7,741			7,651
Negative provision for loan losses		—			(550	)
Net interest income after negative provision for loan losses		7,741			8,201

Non-interest income
Service charges on deposit accounts		501			429
Bank card interchange fees		213			202
Income from bank owned life insurance		102			96
Other real estate owned rental income		—			256
Net gain on sales and calls of investment securities		—			203
Other		252			205
		1,068			1,391
Non-interest expense
Salaries and employee benefits		3,947			3,822
Occupancy and equipment		821			854
Professional fees		303			385
FDIC insurance		342			523
Data processing expense		292			297
State franchise and deposit tax		225			255
Other real estate owned expense		(16	)		668
Litigation and loan collection expense		3			82
Other		1,212			1,205
		7,129			8,091
Income before income taxes		1,680			1,501
Income tax expense		—			21
Net income		1,680			1,480
Less:
Earnings allocated to participating securities		44			51
Net income available to common shareholders	$	1,636		$	1,429
Basic and diluted income per common share	$	0.27		$	0.27

See accompanying notes to unaudited consolidated financial statements.

~~Table Of Contents~~

PORTER BANCORP, INC.

Unaudited Consolidated Statements of Comprehensive Income

(in thousands)

	Three Months Ended March 31,
	2017		2016
Net income	$	1,680	$	1,480
Other comprehensive income (loss):
Unrealized gain (loss) on securities:
Unrealized gain arising during the period		1,005		1,209
Amortization during period of net unrealized loss transferred to held to maturity		33		32
Reclassification adjustment for gains included in net income		—		(203	)
Net unrealized gain recognized in comprehensive income		1,038		1,038
Tax effect		—		—
Other comprehensive income		1,038		1,038

Comprehensive income	$	2,718	$	2,518

See accompanying notes to unaudited consolidated financial statements.

PORTER BANCORP, INC.

UnauditedConsolidated Statementsof Changesin Stockholders’ Equity

For ~~Nine~~Three Months Ended~~September 30~~March, 31, ~~2016~~2017

(Dollar amounts in thousands except share and per share data)

Shares Amount
Common Preferred Preferred Common
Common
Non-Voting
Common

Total
Common
Series E Series F Common and Non-Voting Common Series E Series F
Additional
Paid-In
Capital

Retained
Deficit

Accumulated
Other
Compre-
hensive
Income
(Loss)
Total
Balances,January 1, 2016
20,089,533 6,858,000 26,947,533 6,198 4,304 $ 120,699 $ 1,644 $ 1,127 $ 23,654 $ (110,808
)
$ (4,299
)
$ 32,017
Issuance of unvested stock
177,290 — 177,290 — — — — — — — — —
Forfeited unvested stock
(9,854
)
— (9,854
)
— — — — — — — — —
Stock-based compensation expense
— — — — — — — — 315 — — 315
Net income
— — — — — — — — — 3,885 — 3,885
Net change in accumulated othercomprehensive income, net of taxes
— — — — — — — — — — 2,374 2,374
Issuance of stock
2,900,000 1,100,000 4,000,000 — — 5,030 — — — — — 5,030
Balances,September 30, 2016
23,156,969 7,958,000 31,114,969 6,198 4,304 $ 125,729 $ 1,644 $ 1,127 $ 23,969 $ (106,923
)
$ (1,925
)
$ 43,621

~~See accompanying notes to unaudited consolidated financial statements.~~

~~Table Of Contents~~

~~PORTER BANCORP, INC.~~

~~Unaudited Consolidated Statements of Cash Flows~~

~~For Nine Months Ended September 30, 2016 and 2015~~

~~(dollars in thousands)~~

2016

2015

Cash flows from operating activities

Net income (loss)
$ 3,885 $ (2,612
)
Adjustments to reconcile net income (loss) to net cash from operating activities

Depreciation and amortization
1,141 1,201
Provision (negative provision) for loan losses
(1,900
)
(2,200
)
Net amortization on securities
965 1,084
Stock-based compensation expense
315 313
Gain on extinguishment of junior subordinated debt
— (883
)
Net loss (gain) on sales of loans held for sale
(61
)
216
Loans originated for sale
(3,830
)
(5,290
)
Proceeds from sales of loans held for sale
3,943 5,289
Net gain on sales of other real estate owned
(221
)
(27
)
Write-down of other real estate owned
970 7,080
Net realized gain on sales of available for sale securities
(187
)
(1,696
)
Earnings on bank owned life insurance, net of premium expense
(300
)
(214
)
Net change in accrued interest receivable and other assets
(701
)
893
Net change in accrued interest payable and other liabilities
(57
)
939
Net cash from operating activities
3,962 4,093

Cash flows from investing activities

Purchases of available for sale securities
(18,868
)
(16,800
)
Sales and calls of available for sale securities
6,276 44,340
Maturities and prepayments of available for sale securities
16,925 16,408
Proceeds from sale of other real estate owned
12,340 14,417
Proceeds from sales of loans not originated for sale
— 8,640
Loan originations and payments, net
(4,781
)
(7,029
)
Purchases of premises and equipment, net
(386
)
(308
)
Purchase of bank owned life insurance
(5,000
)
—
Net cash from investing activities
6,506 59,668

Cash flows from financing activities

Net change in deposits
(41,053
)
(48,948
)
Net change in repurchase agreements
— (1,341
)
Repayment of Federal Home Loan Bank advances
(462
)
(17,497
)
Advances from Federal Home Loan Bank
— 5,000
Repayment of subordinated capital note
(675
)
(675
)
Issuance of common stock
2,231 —
Net cash from financing activities
(39,959
)
(63,461
)

Net change in cash and cash equivalents
(29,491
)
300
Beginning cash and cash equivalents
93,335 80,180
Ending cash and cash equivalents
$ 63,844 $ 80,480

Supplemental cash flow information:

Interest paid
$ 3,933 $ 5,523
Income taxes paid
21 —
Supplemental non-cash disclosure:

Proceeds from common stock issuance directed by investorsto pay junior subordinated debt interest
$ 2,799 $ —
Transfer from loans to other real estate
1,243 4,450
Financed sales of other real estate owned
270 —
Effect of junior subordinated debt to equity exchange
— 4,330

	Shares										Amount
	Common						Preferred						Preferred				Common
	Common		Non-Voting Common		Total Common		Series E		Series F		Common and Non-Voting Common		Series E		Series F		Additional Paid-In Capital		Retained Deficit			Accumulated Other Compre- hensive Income (Loss)			Total
Balances, January 1, 2017		4,632,933		1,591,600		6,224,533		6,198		4,304	$	125,729	$	1,644	$	1,127	$	24,097	$	(113,561	)	$	(6,303	)	$	32,733
Issuance of unvested stock		22,787		—		22,787		—		—		—		—		—		—		—			—			—
Forfeited unvested stock		—		—		—		—		—		—		—		—		—		—			—			—
Reverse stock split roundup shares		200		—		200		—		—		—		—		—		—		—			—			—
Stock-based compensation expense		—		—		—		—		—		—		—		—		54		—			—			54
Net income		—		—		—		—		—		—		—		—		—		1,680			—			1,680
Net change in accumulated other comprehensive income, net of taxes		—		—		—		—		—		—		—		—		—		—			1,038			1,038
Balances, March 31, 2017		4,655,920		1,591,600		6,247,520		6,198		4,304	$	125,729	$	1,644	$	1,127	$	24,151	$	(111,881	)	$	(5,265	)	$	35,505

See accompanying notes to unaudited consolidated financial statements.

~~Table Of Contents~~

PORTER BANCORP, INC.

Unaudited Consolidated Statements of Cash Flows

For Three Months Ended March 31, 2017 and 2016

(dollars in thousands)

	2017			2016
Cash flows from operating activities
Net income	$	1,680		$	1,480
Adjustments to reconcile net loss to net cash from operating activities
Depreciation and amortization		374			386
Negative provision for loan losses		—			(550	)
Net amortization on securities		312			309
Stock-based compensation expense		54			73
Net gain on sales of loans held for sale		—			(17	)
Loans originated for sale		—			(1,056	)
Proceeds from sales of loans held for sale		—			1,146
Net gain on sales of other real estate owned		(38	)		(55	)
Net write-down of other real estate owned		—			500
Net realized gain on sales and calls of investment securities		—			(203	)
Earnings on bank owned life insurance, net of premium expense		(97	)		(90	)
Net change in accrued interest receivable and other assets		1,973			(617	)
Net change in accrued interest payable and other liabilities		(11,003	)		(396	)
Net cash from operating activities		(6,745	)		910

Cash flows from investing activities
Purchases of available for sale securities		(7,670	)		(4,114	)
Sales and calls of available for sale securities		—			3,486
Maturities and prepayments of available for sale securities		5,251			5,077
Proceeds from sale of other real estate owned		388			1,349
Loan originations and payments, net		(25,096	)		(1,802	)
Purchases of premises and equipment, net		(67	)		(177	)
Purchase of bank owned life insurance		—			(5,000	)
Net cash from investing activities		(27,194	)		(1,181	)

Cash flows from financing activities
Net change in deposits		10,778			(12,384	)
Repayment of Federal Home Loan Bank advances		(15,145	)		(149	)
Advances from Federal Home Loan Bank		10,000			—
Repayment of subordinated capital note		(225	)		(225	)
Net cash from financing activities		5,408			(12,758	)
Net change in cash and cash equivalents		(28,531	)		(13,029	)
Beginning cash and cash equivalents		66,316			93,335
Ending cash and cash equivalents	$	37,785		$	80,306

Supplemental cash flow information:
Interest paid	$	1,316		$	4,205
Income taxes paid (refunded)		—			21
Supplemental non-cash disclosure:
Transfer from loans to other real estate	$	100		$	441

See accompanying notes to unaudited consolidated financial statements.

PORTER BANCORP, INC.

Notes to Unaudited Consolidated Financial Statements

Note 1 – Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation – The consolidated financial statements include Porter Bancorp, Inc. (Company) and its subsidiary, PBI Bank (Bank). The Company owns a 100% interest in the Bank. All significant inter-company transactions and accounts have been eliminated in consolidation.

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, the financial statements do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the ~~nine~~three months ended ~~September 30, 2016~~March 31, 2017 are not necessarily indicative of the results that may be expected for the entire year. A description of other significant accounting policies is presented in the notes to the Consolidated Financial Statements for the year ended December 31, ~~2015~~2016 included in the Company’s Annual Report on Form 10-K.

Use of Estimates –To prepare financial statements in conformity with U.S. generally accepted accounting principles, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and future results could differ.

Reclassifications – Some items in the prior year financial statements were reclassified to conform to the current presentation. The reclassifications did not impact net income or stockholders’ equity.

~~Adoption of~~ New Accounting Standards ~~Standards~~– In August 2015, FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606). This ASU is an update to ASU 2014-09, and delays the effective date of ASU 2014-09. The ASU provides guidance on revenue recognition for entities that enter into contracts with customers to transfer goods or services or enter into contracts for the transfer of nonfinancial assets. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Additional disclosures are required to provide quantitative and qualitative information regarding the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The new guidance is effective for annual reporting periods, and interim reporting periods within those annual periods, beginning after December 15, 2017. Early adoption is not permitted. ~~Management~~Based on types of products we offer, a significant portion of the Company's revenue is ~~currently evaluating~~scoped out of the ~~impact of the~~standard. Therefore, adoption of this new guidance will not have a material impact on the ~~Company’s~~consolidated financial statements.

In January 2016, the FASB issued an update ASU No. 2016-01, Financial Instruments –- Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The amendments in this update impact public business entities as follows: 1) Require equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. 2) Simplify the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment. When a qualitative assessment indicates that impairment exists, an entity is required to measure the investment at fair value. 3) Eliminate the requirement to disclose the methods and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet. 4) Require entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes. 5) Require an entity to present separately in other comprehensive income the portion of the total change in fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. 6) Require separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements. 7) Clarify that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the ~~entity’s~~entity's other deferred tax assets. The amendments in this update become effective for annual periods and interim periods within those annual periods beginning after December 15, 2017. ~~We are currently evaluating the~~The impact of adopting the new guidance on the consolidated financial statements ~~but it~~ is not expected to have a material impact.

In February 2016, the FASB issued an update ASU No. 2016-02, Leases (Topic 842)~~.Under~~. Under the new guidance, ~~lessees~~lessees will be required to recognize the following for all leases, with the exception of short-term leases, at the commencement date: a lease liability, which is a ~~lessee’s~~lessee's obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use asset, which is an asset that represents the ~~lessee’s~~lessee's right to use, or control the use of, a specified asset for the lease term. Under the new guidance, lessor accounting in largely unchanged. The amendments in this update become effective for annual periods and interim periods within those annual periods beginning after December 15, 2018. ~~We are currently evaluating the~~The impact of adopting the new guidance on the consolidated financial statements ~~but it is~~will not ~~expected to~~ have a material impact.

~~Table Of Contents~~

In March 2016, the FASB issued ASU No. 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The amendments are intended to improve the accounting for employee share-based payments and affects 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 the income tax consequences, the classification of awards as either equity or liabilities, and the classification on the statement of cash flows. The amendments in this update become effective for annual periods and interim periods within those annual periods beginning after December 15, 2016. We are currently evaluating the impact of adopting the new guidance on the consolidated financial statements, but it is not expected to have a material impact.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments –- Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The final standard will change estimates for credit losses related to financial assets measured at amortized cost such as loans, held-to-maturity debt securities, and certain other contracts. For estimating credit losses, the FASB is replacing the incurred loss model with an expected loss model, which is referred to as the current expected credit loss (CECL) model. The largest impact will be on the allowance for loan and lease ~~losses.~~losses and held-to-maturity securities. The standard is effective for public companies for fiscal years beginning after December 15, 2019. We are currently evaluating the impact of adopting the new guidance on the consolidated financial ~~statements.~~

~~Note 2 – Going Concern Considerations~~statements and ~~Future Plans~~assessing our data and systems needs.

~~Our~~In March 2017, the FASB issued ASU No. 2017-08, Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization of Purchased Callable Debt Securities. The final standard will shorten the amortization period for premiums on callable debt securities by requiring that premiums be amortized to the first (or earliest) call date instead of as an adjustment to the yield over the contractual life. The standard is effective for public companies for fiscal years beginning after December 15, 2018. We are currently evaluating the impact of adopting the new guidance on the consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business for the foreseeable future. However, the events and circumstances described in the Company’s annual report filed on Form 10K for the year ended December 31, 2015 created substantial doubt about the Company’s ability to continue as a going concern at December 31, 2015. Since December 31, 2015, the Company has made significant improvements in its operating results, improved its liquidity position through a capital raise, brought current interest payment obligations on its junior subordinated debt in 2016, reduced non-performing assets, and reduced contingent liability risk as discussed below.

For the nine months ended September 30, 2016, we reported net income of $3.9 million compared with net loss of $3.2 million and $11.2 million for the years ended December 31, 2015 and 2014, respectively. Our financial performance has been negatively impacted by the Bank’s elevated level of non-performing assets, although the impact continues to diminish as we have substantially reduced non-performing assets during recent periods. Non-performing loans were 1.62%, 2.28%, and 7.57% of total loans at September 30, 2016, December 31, 2015, and December 31, 2014, respectively. Non-performing assets were 1.88%, 3.51%, and 9.19% of total assets at September 30, 2016, December 31, 2015, and December 31, 2014, respectively. See “Analysis of Financial Condition,” below.

On April 15, 2016, we completed a private placement of 2.9 million common shares and 1.1 million non-voting common shares to accredited investors for a total purchase price of $5.0 million. The investors in the private placement directed a portion of the purchase price to pay all deferred interest payments on our trust preferred securities, bringing our interest payments current through the second quarter of 2016. We had deferred interest payable on the junior subordinated debentures held by our trust subsidiaries since the fourth quarter of 2011, requiring our trust subsidiaries to defer distributions on our trust preferred securities held by investors during that period. The remaining proceeds from the private placement totaled approximately $2.2 million and will be used for general corporate purposes and to support the Bank.

On June 29, 2016, we notified the trustees of our election to again defer our interest payments effective with the third quarter 2016 payment. We have the ability to defer distributions on our trust preferred securities for 20 consecutive quarters or through the second quarter of 2021. After 20 consecutive quarters, we must pay all deferred distributions or we will be in default.

We continue to be involved in various legal proceedings, which are more fully described in Note 13 – “Contingencies”. We are appealing a judgment against us that we believe, after conferring with our legal advisors, we have meritorious grounds on which to prevail. If we do not prevail, the ultimate outcome of this matter could have a material adverse effect on our financial condition, results of operations, or cash flows.

PBI Bank is in compliance with each element of its Consent Order with the Federal Depository Insurance Corporation (“FDIC”) and the Kentucky Department of Financial Institutions (“KDFI”) other than the requirement that the Bank maintain a minimum Tier 1 leverage ratio of 9% and a minimum total risk based capital ratio of 12%. As of September 30, 2016, the Bank’s Tier 1 leverage ratio and total risk based capital ratio had improved to 6.97% and 11.18%, respectively, both less than the minimum capital ratios required by the Consent Order, but otherwise compliant with Basel III capital requirements. The Consent Order provides that if the Bank should be unable to reach the required capital levels, and if directed in writing by the FDIC, the Bank would be required to develop, adopt and implement a written plan to sell or merge itself into another federally insured financial institution or otherwise obtain a capital investment sufficient to recapitalize the Bank. The Bank has not been directed by the FDIC to implement such a plan.statements.

~~Table Of Contents~~

In order to meet the 9.0% Tier 1 leverage ratio and 12.0% total risk based capital ratio requirements of the Consent Order, the Board of Directors and management are continuing to evaluate and implement strategies to achieve the following objectives:

●Note 2 – Securities

~~Increasing capital, including through the issuance of senior debt, subordinated debt, or equity securities.~~

●

~~Continuing to operate the Company and Bank in a safe and sound manner. We have reduced our lending concentrations and the size of our balance sheet while continuing to remediate non-performing loans.~~

●

~~Executing on the sale of other real estate owned (“OREO”) and reinvesting the sale proceeds in quality income producing assets.~~

●

Continuing to improve our internal processes and procedures, distribution of labor, and work-flow to ensure we have adequately and appropriately deployed resources in an efficient manner in the current environment.

Bank regulatory agencies can exercise discretion when an institution does not meet the terms of a consent order. Based on individual circumstances, the agencies may issue mandatory directives, impose monetary penalties, initiate changes in management, or take more serious adverse actions such as directing a bank to seek a buyer or taking a bank into receivership.

~~The Consent Order requires the Bank to obtain the written consent of both the FDIC~~Securities are classified into available-for-sale (AFS) and ~~the KDFI before declaring or paying any future dividends to the Company, which~~held-to-maturity (HTM) categories. AFS securities are its principal source of the Company’s revenue. Since the Bank is unlikely to be able to pay dividends to the Company until the Consent Order is satisfied, cash inflows for the Company are limited to the issuance of new debt or the issuance of capital securities. The Company’s liquid assets were $2.2 million as of September 30, 2016. Ongoing operating expenses of the Company are forecast at approximately $1.0 million for the next twelve months.

~~Our consolidated financial statements do not include any adjustments~~those that may ~~result were the Company to become unable to continue~~be sold if needed for liquidity, asset liability management, or other reasons. AFS securities are reported at fair value, with unrealized gains or losses included as a ~~going concern.~~

~~Table Of Contents~~

~~Note 3 – Securities~~separate component of equity, net of tax. HTM securities are those that we have the intent and ability to hold to maturity and are reported at amortized cost.

The amortized cost and fair value of ~~available for sale~~ securities and the related gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) were as follows:

	AmortizedCost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(in thousands)									(in thousands)
September 30, 2016
March 31, 2017
Available for sale
U.S. Government and federal agency	$	35,235	$	509	$	(6	)	$	35,738	$	33,434	$	94	$	(489	)	$	33,039
Agency mortgage-backed: residential		99,225		2,288		(52	)		101,461		99,251		701		(1,035	)		98,917
Collateralized loan obligations											18,868		13		—			18,881
State and municipal		2,153		45		—			2,198		2,028		19		(2	)		2,045
Corporate bonds		3,066		38		(68	)		3,036		3,072		47		—			3,119
Total available for sale	$	139,679	$	2,880	$	(126	)	$	142,433
Total available for sale										$	156,653	$	874	$	(1,526	)	$	156,001

	Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses		Fair Value		Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses			Fair Value
Held to maturity
State and municipal	$	41,883	$	2,932	$	—	$	44,815	$	41,752	$	1,719	$	(2	)	$	43,469
Total held to maturity	$	41,883	$	2,932	$	—	$	44,815	$	41,752	$	1,719	$	(2	)	$	43,469

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
December 31, 2015
December 31, 2016										Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available for sale
U.S. Government and federal agency	$	33,491	$	146	$	(375	)	$	33,262	$	34,757	$	50	$	(708	)	$	34,099
Agency mortgage-backed: residential		102,135		907		(380	)		102,662		103,390		455		(1,492	)		102,353
Collateralized loan obligations											11,203		—		—			11,203
State and municipal		6,555		306		—			6,861		2,028		25		(8	)		2,045
Corporate bonds		2,321		—		(128	)		2,193		3,069		24		(3	)		3,090
Total available for sale	$	144,502	$	1,359	$	(883	)	$	144,978	$	154,447	$	554	$	(2,211	)	$	152,790

	Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses		Fair Value		Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses			Fair Value
Held to maturity
State and municipal	$	42,075	$	2,178	$	—	$	44,253	$	41,818	$	1,272	$	(18	)	$	43,072
Total held to maturity	$	42,075	$	2,178	$	—	$	44,253	$	41,818	$	1,272	$	(18	)	$	43,072

Sales and calls of ~~available for sale~~ securities were as follows:

									Three Months Ended March 31,
	Three Months Ended September 30,				Nine Months Ended September 30,				2017		2016
	2016		2015		2016		2015		(in thousands)
	(in thousands)				(in thousands)
Proceeds	$	2,555	$	230	$	6,276	$	44,340	$	—	$	3,486
Gross gains		13		—		216		1,832		—		203
Gross losses		29		—		29		136		—		—

The amortized cost and fair value of the debt investment securities portfolio are shown by ~~contractual~~contractual maturity. Contractual maturities may differ from actual maturities if issuers have the right to call or prepay obligations with or without call or prepayment penalties. Mortgage-backed securities not due at a single maturity date are detailed separately.

~~Table Of Contents~~

	March 31, 2017
	Amortized Cost		Fair Value
	(in thousands)
Maturity
Available for sale
Within one year	$	4,899	$	4,926
One to five years		7,780		7,831
Five to ten years		30,943		30,540
Beyond ten years		13,780		13,787
Agency mortgage-backed: residential		99,251		98,917
Total	$	156,653	$	156,001

Held to maturity
Within one year		645		647
One to five years	$	24,177	$	25,034
Five to ten years		16,930		17,788
Total	$	41,752	$	43,469

September 30, 2016

Amortized
Cost

Fair
Value

(in thousands)

Maturity

Available for sale

Within one year
$ 6,628 $ 6,615
One to five years
7,120 7,266
Five to ten years
26,706 27,091
Agency mortgage-backed: residential
99,225 101,461
Total
$ 139,679 $ 142,433

Held to maturity

Within one year
$ 646 653
One to five years
21,365 $ 22,469
Five to ten years
18,825 20,506
Beyond ten years
1,047 1,187
Total
$ 41,883 $ 44,815

Securities pledged at ~~September 30, 2016~~March 31, 2017 and December 31, ~~2015~~2016 had carrying values of approximately ~~$52.5~~$60.6 million and ~~$68.0~~$61.2 million, respectively, and were pledged to secure public deposits.

At ~~September 30, 2016~~March 31, 2017 and December 31, ~~2015,~~2016, we held securities issued by the Commonwealth of Kentucky or Kentucky municipalities ~~in the Commonwealth of Kentucky~~ having a book value of ~~$16.5~~$16.4 million ~~and $17.7 million, respectively.~~at each period end. Additionally, at ~~September 30, 2016~~March 31, 2017 and December 31, ~~2015,~~2016, we held securities issued by the State of Texas or Texas municipalities ~~in the State of Texas~~ having a book value of $4.3 million at each period end. At ~~September 30, 2016~~March 31, 2017 and December 31, ~~2015,~~2016, there were no other holdings of securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of stockholders’ equity.

Securities with unrealized losses at September 30, 2016 and December 31, 2015, aggregated by investment category and length of time the individual securities have been in a continuous unrealized loss position, are as follows:

Less than 12 Months

12 Months or More

Total

Description of Securities

Fair
Value

Unrealized
Loss

Fair
Value

Unrealized
Loss

Fair
Value

Unrealized
Loss

(in thousands)

September 30, 2016

Available for sale

U.S. Government and federalAgency
$ 3,373 $ (6
)
$ — $ — $ 3,373 $ (6
)
Agency mortgage-backed:Residential
9,637 (52
)
— — 9,637 (52
)
Corporate bonds
— — 1,497 (68
)
1,497 (68
)
Total temporarily impaired
$ 13,010 $ (58
)
$ 1,497 $ (68
)
$ 14,507 $ (126
)

December 31, 2015

Available for sale

U.S. Government and federalagency
$ 7,058 $ (44
)
$ 14,527 $ (331
)
$ 21,585 $ (375
)
Agency mortgage-backed:residential
36,325 (271
)
3,856 (109
)
40,181 (380
)
Corporate bonds
747 (18
)
1,446 (110
)
2,193 (128
)
Total temporarily impaired
$ 44,130 $ (333
)
$ 19,829 $ (550
)
$ 63,959 $ (883
)

~~There were no held to maturity securities in an unrecognized loss position at September 30, 2016 or December 31, 2015.~~

The Company evaluates securities for other than temporary impairment (OTTI) on a quarterly ~~basis.~~ basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to the length of time and the extent to which the fair value has been less than cost, the financial condition, credit quality, and near-term prospects ~~of the issuer, underlying credit quality~~ of the issuer and the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. In analyzing an issuer’s financial condition, the Company may consider whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, the sector or industry trends and cycles affecting the issuer, and the results of reviews of the issuer’s financial condition. ~~Management currently intends to hold all securities with unrealized losses until recovery, which for fixed income securities may be at maturity.~~ As of ~~September 30, 2016,~~March 31, 2017, management does not believe securities within our portfolio with unrealized losses should be classified as other than temporarily impaired.

Securities with unrealized losses at March 31, 2017 and December 31, 2016, aggregated by investment category and length of time the individual securities have been in a continuous unrealized loss position, are as follows:

	Less than 12 Months					12 Months or More					Total
Description of Securities	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
	(in thousands)
March 31, 2017
Available for sale
U.S. Government and federal Agency	$	24,796	$	(489	)	$	—	$	—		$	24,796	$	(489	)
Agency mortgage-backed: residential		40,580		(975	)		3,908		(60	)		44,488		(1,035	)
State and municipal		470		(2	)		—		—			470		(2	)
Total temporarily impaired	$	65,846	$	(1,466	)	$	3,908	$	(60	)	$	69,754	$	(1,526	)

Held to maturity
State and municipal	$	558	$	(2	)	$	—	$	—		$	558	$	(2	)
Total	$	558	$	(2	)	$	—	$	—		$	558	$	(2	)


December 31, 2016
Available for sale
U.S. Government and federal agency	$	27,738	$	(708	)	$	—	$	—		$	27,738	$	(708	)
Agency mortgage-backed: residential		63,460		(1,449	)		2,745		(43	)		66,205		(1,492	)
State and municipal		465		(8	)		—		—			465		(8	)
Corporate bonds		—		—			1,566		(3	)		1,566		(3	)
Total temporarily impaired	$	91,663	$	(2,165	)	$	4,311	$	(46	)	$	95,974	$	(2,211	)

Held to maturity
State and municipal	$	1,540	$	(18	)	$	—	$	—		$	1,540	$	(18	)
Total	$	1,540	$	(18	)	$	—	$	—		$	1,540	$	(18	)

~~Table Of Contents~~

Note 43 – Loans

Loans were as follows:

September 30,

December 31,

2016

2015

(in thousands)

Commercial
$ 85,000 $ 86,176
Commercial Real Estate:

Construction
34,178 33,154
Farmland
83,320 76,412
Nonfarm nonresidential
138,351 140,570
Residential Real Estate:

Multi-family
36,558 44,131
1-4 Family
192,008 201,478
Consumer
9,752 10,010
Agriculture
41,764 26,316
Other
766 419
Subtotal
621,697 618,666
Less: Allowance for loan losses
(9,489
)
(12,041
)
Loans, net
$ 612,208 $ 606,625

Loans net of unearned income, deferred loan origination costs, and net premiums on acquired loans by class were as follows:

	March 31,			December 31,
	2017			2016
	(in thousands)
Commercial	$	104,850		$	97,761
Commercial Real Estate:
Construction		41,424			36,330
Farmland		83,252			71,507
Nonfarm nonresidential		151,921			149,546
Residential Real Estate:
Multi-family		49,350			48,197
1-4 Family		185,866			188,092
Consumer		9,542			9,818
Agriculture		37,515			37,508
Other		463			477
Subtotal		664,183			639,236
Less: Allowance for loan losses		(8,966	)		(8,967	)
Loans, net	$	655,217		$	630,269

The following table presents the activity in the allowance for loan losses by portfolio segment for the three months ended ~~September 30, 2016~~March 31, 2017 and ~~2015:~~2016:

Commercial
Commercial
Real Estate

Residential
Real Estate
Consumer Agriculture Other Total
(in thousands)
September 30, 2016:

Beginning balance
$ 730 $ 5,429 $ 3,778 $ 47 $ 119 $ 1 $ 10,104
Negative provision
(195
)
(436
)
(142
)
(26
)
79 (30
)
(750
)
Loans charged off
(15
)
(232
)
(131
)
(21
)
(5
)
(1
)
(405
)
Recoveries
102 354 27 23 1 33 540
Ending balance
$ 622 $ 5,115 $ 3,532 $ 23 $ 194 $ 3 $ 9,489

September 30, 2015:

Beginning balance
$ 1,946 $ 9,213 $ 5,060 $ 226 $ 359 $ 5 $ 16,809
Negative provision for loan losses
(180
)
(1,334
)
(489
)
(73
)
(120
)
(4
)
(2,200
)
Loans charged off
(201
)
(768
)
(486
)
(70
)
(41
)
(14
)
(1,580
)
Recoveries
5 905 144 98 2 15 1,169
Ending balance
$ 1,570 $ 8,016 $ 4,229 $ 181 $ 200 $ 2 $ 14,198

	Commercial			Commercial Real Estate			Residential Real Estate			Consumer			Agriculture			Other			Total
	(in thousands)
March 31, 2017:
Beginning balance	$	475		$	4,894		$	3,426		$	8		$	162		$	2		$	8,967
Provision (negative provision)		334			(866	)		394			4			138			(4	)		–
Loans charged off		–			(27	)		(294	)		(5	)		–			–			(326	)
Recoveries		5			241			43			25			7			4			325
Ending balance	$	814		$	4,242		$	3,569		$	32		$	307		$	2		$	8,966


March 31, 2016:
Beginning balance	$	818		$	6,993		$	3,984		$	122		$	122		$	2		$	12,041
Provision (negative provision)		(199	)		(375	)		129			(33	)		(65	)		(7	)		(550	)
Loans charged off		(12	)		(118	)		(595	)		(13	)		–			(11	)		(749	)
Recoveries		35			263			165			39			79			17			598
Ending balance	$	642		$	6,763		$	3,683		$	115		$	136		$	1		$	11,340

~~Table Of Contents~~

~~The following table presents the activity in the allowance for loan losses by portfolio segment for the nine months ended September 30, 2016 and 2015:~~

Commercial
Commercial
Real Estate

Residential
Real Estate
Consumer Agriculture Other Total
(in thousands)
September 30, 2016:

Beginning balance
$ 818 $ 6,993 $ 3,984 $ 122 $ 122 $ 2 $ 12,041
Negative provision
(89
)
(2,024
)
458 (259
)
(1
)
15 (1,900
)
Loans charged off
(276
)
(477
)
(1,181
)
(56
)
(13
)
(79
)
(2,082
)
Recoveries
169 623 271 216 86 65 1,430
Ending balance
$ 622 $ 5,115 $ 3,532 $ 23 $ 194 $ 3 $ 9,489

September 30, 2015:

Beginning balance
$ 2,046 $ 10,931 $ 5,787 $ 274 $ 319 $ 7 $ 19,364
Negative provision for loan losses
(207
)
(1,657
)
(269
)
(51
)
(13
)
(3
)
(2,200
)
Loans charged off
(675
)
(2,361
)
(1,777
)
(200
)
(111
)
(47
)
(5,171
)
Recoveries
406 1,103 488 158 5 45 2,205
Ending balance
$ 1,570 $ 8,016 $ 4,229 $ 181 $ 200 $ 2 $ 14,198

~~The~~The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on the impairment method as of ~~September 30, 2016:~~March 31, 2017:

Commercial
Commercial
Real Estate

Residential
Real Estate
Consumer Agriculture Other Total
(in thousands)
Allowance for loa n losses:

Ending allowance balanceattributable to loans:

Individually evaluated for impairment
$ – $ 41 $ 297 $ – $ 1 $ – $ 339
Collectively evaluated for impairment
622 5,074 3,235 23 193 3 9,150
Total ending allowance balance
$ 622 $ 5,115 $ 3,532 $ 23 $ 194 $ 3 $ 9,489

Loans:

Loans individually evaluated for impairment
$ 571 $ 6,568 $ 8,940 $ 1 $ 134 $ – $ 16,214
Loans collectively evaluated for impairment
84,429 249,281 219,626 9,751 41,630 766 605,483
Total ending loans balance
$ 85,000 $ 255,849 $ 228,566 $ 9,752 $ 41,764 $ 766 $ 621,697

~~Table Of Contents~~

	Commercial		Commercial Real Estate		Residential Real Estate		Consumer		Agriculture		Other		Total
	(in thousands)
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	13	$	33	$	285	$	–	$	1	$	–	$	332
Collectively evaluated for impairment		801		4,209		3,284		32		306		2		8,634
Total ending allowance balance	$	814	$	4,242	$	3,569	$	32	$	307	$	2	$	8,966

Loans:
Loans individually evaluated for impairment	$	593	$	4,837	$	4,394	$	7	$	60	$	–	$	9,891
Loans collectively evaluated for impairment		104,257		271,760		230,822		9,535		37,455		463		654,292
Total ending loans balance	$	104,850	$	276,597	$	235,216	$	9,542	$	37,515	$	463	$	664,183

The following table presents the balance in the allowance ~~for~~for loan losses and the recorded investment in loans by portfolio segment and based on the impairment method as of December 31, ~~2015:~~2016:

Commercial
Commercial
Real Estate

Residential
Real Estate
Consumer Agriculture Other Total
(in thousands)
Allowance for loan losses:

Ending allowance balance attributable to loans:

Individually evaluated for impairment
$ – $ 43 $ 385 $ – $ – $ – $ 428
Collectively evaluated for impairment
818 6,950 3,599 122 122 2 11,613
Total ending allowance balance
$ 818 $ 6,993 $ 3,984 $ 122 $ 122 $ 2 $ 12,041

Loans:

Loans individually evaluated for impairment
$ 1,112 $ 12,819 $ 17,673 $ 20 $ 152 $ – $ 31,776
Loans collectively evaluated for impairment
85,064 237,317 227,936 9,990 26,164 419 586,890
Total ending loans balance
$ 86,176 $ 250,136 $ 245,609 $ 10,010 $ 26,316 $ 419 $ 618,666

	Commercial		Commercial Real Estate		Residential Real Estate		Consumer		Agriculture		Other		Total
	(in thousands)
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	13	$	35	$	350	$	–	$	1	$	–	$	399
Collectively evaluated for impairment		462		4,859		3,076		8		161		2		8,568
Total ending allowance balance	$	475	$	4,894	$	3,426	$	8	$	162	$	2	$	8,967


Loans:
Loans individually evaluated for impairment	$	595	$	5,854	$	8,621	$	1	$	60	$	–	$	15,131
Loans collectively evaluated for impairment		97,166		251,529		227,668		9,817		37,448		477		624,105
Total ending loans balance	$	97,761	$	257,383	$	236,289	$	9,818	$	37,508	$	477	$	639,236

Impaired Loans

Impaired loans include restructured loans and loans on nonaccrual or classified as doubtful, whereby collection of the total amount is improbable, or loss, whereby all or a portion of the loan has been written off or a specific allowance for loss has been provided.

The following ~~tables~~tables present information related to loans individually evaluated for impairment by class of loans as of ~~September 30, 2016~~March 31, 2017 and December 31, ~~2015~~2016 and for the three ~~and nine~~ months ended ~~September 30, 2016~~March 31, 2017 and ~~2015:~~2016:

	As of September 30, 2016						Three Months Ended September 30, 2016				Nine Months Ended September 30, 2016				As of March 31, 2017						Three Months Ended March 31, 2017
	Unpaid Principal Balance		Recorded Investment		Allowance For Loan Losses Allocated		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Unpaid Principal Balance		Recorded Investment		Allowance For Loan Losses Allocated		Average Recorded Investment		Interest Income Recognized		Cash Basis Income Recognized
	(in thousands)														(in thousands)
With No RelatedAllowance Recorded:
Commercial	$	784	$	571	$	—	$	659	$	—	$	824	$	1	$	704	$	493	$	—	$	494	$	—	$	—
Commercial real estate:
Construction		—		—		—		129		3		195		9		—		—		—		—		—		—
Farmland		6,040		4,216		—		4,404		79		4,299		87		4,421		2,786		—		3,264		206		206
Nonfarm nonresidential		4,669		1,354		—		4,023		2		5,569		308		1,868		1,165		—		1,192		32		30
Residential real estate:
Multi-family		4,121		4,121		—		3,254		179		2,235		237		—		—		—		2,050		—		—
1-4 Family		4,185		3,086		—		3,523		14		6,159		85		4,664		2,968		—		2,938		8		8
Consumer		34		1		—		4		—		8		8		47		7		—		4		—		—
Agriculture		97		69		—		69		—		92		—		—		—		—		—		—		—
Other		—		—		—		—		—		—		—		—		—		—		—		—		—
Subtotal		19,930		13,418		—		16,065		277		19,381		735		11,704		7,419		—		9,942		246		244

With An Allowance Recorded:
Commercial		—		—		—		—		—		—		—		100		100		13		100		2		—
Commercial real estate:
Construction		—		—		—		—		—		—		—		—		—		—		—		—		—
Farmland		614		595		6		600		—		300		—		610		586		5		588		—		—
Nonfarm nonresidential		403		403		35		405		6		421		18		300		300		28		301		4		—
Residential real estate:
Multi-family		—		—		—		2,080		—		3,133		101		—		—		—		—		—		—
1-4 Family		2,179		1,733		297		1,656		20		1,671		74		1,426		1,426		285		1,519		17		—
Consumer		—		—		—		—		—		—		—		—		—		—		—		—		—
Agriculture		78		65		1		68		—		34		—		78		60		1		60		—		—
Other		—		—		—		—		—		—		—		—		—		—		—		—		—
Subtotal		3,274		2,796		339		4,809		26		5,559		193		2,514		2,472		332		2,568		23		—
Total	$	23,204	$	16,214	$	339	$	20,874	$	303	$	24,940	$	928	$	14,218	$	9,891	$	332	$	12,510	$	269	$	244

~~Table Of Contents~~

	As of December 31, 2015						Three Months Ended September 30, 2015				Nine Months Ended September 30, 2015				As of December 31, 2016						Three Months Ended March 31, 2016
	Unpaid Principal Balance		Recorded Investment		Allowance For Loan Losses Allocated		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Unpaid Principal Balance		Recorded Investment		Allowance For Loan Losses Allocated		Average Recorded Investment		Interest Income Recognized		Cash Basis Income Recognized
	(in thousands)														(in thousands)
With No RelatedAllowance Recorded:
Commercial	$	1,558	$	1,112	$	—	$	1,439	$	—	$	1,630	$	5	$	707	$	495	$	—	$	987	$	1	$	1
Commercial real estate:
Construction		278		262		—		833		3		2,426		11		—		—		—		261		3		—
Farmland		6,004		4,263		—		4,305		34		4,555		60		5,566		3,742		—		4,194		6		5
Nonfarm nonresidential		11,256		7,829		—		13,347		65		18,133		202		4,502		1,219		—		7,116		248		190
Residential real estate:
Multi-family		32		32		—		33		—		37		—		4,100		4,100		—		1,216		30		1
1-4 Family		14,066		11,756		—		13,163		96		14,040		340		4,663		2,910		—		8,795		58		6
Consumer		118		20		—		23		—		25		—		41		1		—		14		7		8
Agriculture		260		152		—		191		—		219		—		—		—		—		115		—		—
Other		—		—		—		—		1		61		5		—		—		—		—		—		—
Subtotal		33,572		25,426		—		33,334		199		41,126		623		19,579		12,467		—		22,698		353		211
With An Allowance Recorded: -*---------
With An Allowance Recorded:
Commercial		—		—		—		4		—		16		—		100		100		13		—		—		—
Commercial real estate:
Construction		—		—		—		—		—		—		—		—		—		—		—		—		—
Farmland		—		—		—		—		—		79		—		614		590		5		—		—		—
Nonfarm nonresidential		574		465		43		2,708		6		5,622		18		303		303		30		438		6		—
Residential real estate:
Multi-family		4,195		4,195		57		4,216		51		4,237		153		—		—		—		4,186		50		—
1-4 Family		1,690		1,690		328		1,691		29		1,709		68		1,676		1,611		350		1,684		20		—
Consumer		—		—		—		—		—		10		—		—		—		—		—		—		—
Agriculture		—		—		—		—		—		—		—		78		60		1		—		—		—
Other		—		—		—		—		—		—		—		—		—		—		—		—		—
Subtotal		6,459		6,350		428		8,619		86		11,673		239		2,771		2,664		399		6,308		76		—
Total	$	40,031	$	31,776	$	428	$	41,953	$	285	$	52,799	$	862	$	22,350	$	15,131	$	399	$	29,006	$	429	$	211

Cash basis income recognized for the three and nine months ended September 30, 2016 was $87,000 and $377,000, respectively, compared to $47,000 and $149,000 for the three and nine months ended September 30, 2015.

Troubled Debt Restructuring

A troubled debt restructuring (TDR) occurs when the ~~Company~~Bank has agreed to a loan modification in the form of a concession for a borrower who is experiencing financial difficulty. The majority of the Company’s TDRs involve a reduction in interest rate, a deferral of principal for a stated period of time, or an interest only period. All TDRs are considered impaired and the ~~Company~~Bank has allocated reserves for these loans to reflect the present value of the concessionary terms granted to the ~~borrower.~~customer.

~~Table Of Contents~~

The following table presents the types of TDR loan modifications by portfolio segment outstanding as of ~~September 30, 2016~~March 31, 2017 and December 31, ~~2015:~~ 2016:

	TDRs Performing to Modified Terms		TDRs Not Performing to Modified Terms		Total TDRs		TDRs Performing to Modified Terms		TDRs Not Performing to Modified Terms		Total TDRs
	(in thousands)						(in thousands)
September 30, 2016
March 31, 2017
Commercial
Rate reduction	$	—	$	33	$	33	$	—	$	33	$	33
Principal deferral		—		439		439		—		434		434
Commercial Real Estate:
Construction
Rate reduction		—		—		—
Farmland
Principal deferral		—		2,300		2,300		—		2,300		2,300
Nonfarm nonresidential
Rate reduction		610		—		610		501		—		501
Principal deferral		—		607		607		—		607		607
Residential Real Estate:
Multi-family
Rate reduction		4,121		—		4,121
1-4 Family
Rate reduction		1,383		—		1,383		743		—		743
Total TDRs	$	6,114	$	3,379	$	9,493	$	1,244	$	3,374	$	4,618

TDRs
Performing to
Modified Terms

TDRs Not
Performing to
Modified Terms

Total
TDRs

(in thousands)

December 31, 2015

Commercial

Rate reduction
$ — $ 68 $ 68
Principal deferral
— 439 439
Commercial Real Estate:

Construction

Rate reduction
262 — 262
Farmland

Principal deferral
— 2,365 2,365
Nonfarm nonresidential

Rate reduction
5,637 50 5,687
Principal deferral
— 622 622
Residential Real Estate:

Multi-family

Rate reduction
4,195 — 4,195
1-4 Family

Rate reduction
7,346 — 7,346
Total TDRs
$ 17,440 $ 3,544 $ 20,984

	TDRs Performing to Modified Terms		TDRs Not Performing to Modified Terms		Total TDRs
	(in thousands)
December 31, 2016
Commercial
Rate reduction	$	—	$	33	$	33
Principal deferral		—		434		434
Commercial Real Estate:
Farmland
Principal deferral		—		2,300		2,300
Nonfarm nonresidential
Rate reduction		507		—		507
Principal deferral		—		607		607
Residential Real Estate:
Multi-family
Rate reduction		4,100		—		4,100
1-4 Family
Rate reduction		743		—		743
Total TDRs	$	5,350	$	3,374	$	8,724

At ~~September 30, 2016~~March 31, 2017 and December 31, ~~2015, 64%~~2016, 27% and ~~83%~~61%, respectively, of the Company’s TDRs were performing according to their modified terms. The Company allocated ~~$238,000~~$196,000 and ~~$179,000~~$197,000 in reserves to borrowers whose loan terms have been modified in TDRs as of ~~September 30, 2016,~~March 31, 2017, and December 31, ~~2015,~~2016, respectively. The Company has committed to lend no additional amounts as of ~~September 30, 2016~~March 31, 2017 and December 31, ~~2015~~2016 to borrowers with outstanding loans classified as TDRs.

Management periodically reviews ~~renewals/~~renewals and modifications of previously identified TDRs, for which there was no principal forgiveness, to consider if it is appropriate to remove the TDR classification. If the borrower is no longer experiencing financial difficulty and the renewal/modification did not contain a concessionary interest rate or other concessionary terms, management considers the potential removal of the TDR classification. If deemed appropriate based upon current underwriting, the TDR classification is removed as the borrower has complied with the terms of the loan at the date of renewal/modification and there was a reasonable expectation that the borrower would continue to comply with the terms of the loan subsequent to the date of the renewal/modification. In this instance, the TDR was originally considered a restructuring in a prior year as a result of a modification with an interest rate that was not commensurate with the risk of the underlying loan. Additionally, TDR classification can be removed in circumstances in which the Company performs a non-concessionary re-modification of the loan at terms that were considered to be at market for loans with comparable risk. Management expects the borrower will continue to perform under the re-modified terms based on the borrower’s past history of performance.

~~Table Of Contents~~

As of ~~September 30, 2016,~~March 31, 2017, the TDR classification was removed from ~~one loan~~two loans that met the requirements as discussed above. ~~This loan~~These loans totaled ~~$5.0~~$4.1 million at December 31, ~~2015. This loan is~~2016. These loans are no longer evaluated individually for impairment.

No TDR loan ~~modifications~~modifications occurred during the three ~~or nine~~ months ended ~~September 30, 2016~~March 31, 2017 or ~~September 30, 2015.~~March 31, 2016. During the first ~~nine~~three months of ~~2016~~2017 and ~~2015,~~2016, no TDRs defaulted on their restructured loan within the 12 month period following the loan modification. A default is considered to have occurred once the TDR is past due 90 days or more or it has been placed on nonaccrual.

~~Nonperforming Loans~~

~~Nonperforming~~Non-performing Loans

Non-performing loans include impaired loans ~~not on accrual~~ and smaller balance homogeneous loans, such as residential mortgage and consumer loans, that are collectively evaluated for impairment.

The following table presents the recorded investment in nonaccrual and loans past due 90 days and still on accrual by class of loan as of ~~September 30, 2016,~~March 31, 2017, and December 31, ~~2015:~~ 2016:

Nonaccrual

Loans Past Due 90 Days
And Over Still Accruing

September 30,
2016

December 31,
2015

September 30,
2016

December 31,
2015

(in thousands)

Commercial
$ 571 $ 1,112 $ — $ —
Commercial Real Estate:

Construction
— — — —
Farmland
4,811 4,263 — —
Nonfarm nonresidential
1,147 2,657 — —
Residential Real Estate:

Multi-family
— 32 — —
1-4 Family
3,435 5,851 — —
Consumer
1 20 — —
Agriculture
134 152 — —
Other
— — — —
Total
$ 10,099 $ 14,087 $ — $ —

~~Table Of Contents~~

	Nonaccrual				Loans Past Due 90 Days And Over Still Accruing
	March 31, 2017		December 31, 2016		March 31, 2017		December 31, 2016
	(in thousands)

Commercial	$	493	$	495	$	—	$	—
Commercial Real Estate:
Construction		—		—		—		—
Farmland		3,372		4,332		—		—
Nonfarm nonresidential		964		1,016		—		—
Residential Real Estate:
Multi-family		—		—		—		—
1-4 Family		3,206		3,312		—		—
Consumer		7		1		—		—
Agriculture		60		60		—		—
Other		—		—		—		—
Total	$	8,102	$	9,216	$	—	$	—

~~The~~

The following table presents the aging of the recorded investment in past due loans as of ~~September 30, 2016~~March 31, 2017 and December 31, ~~2015:~~ 2016:

	30 – 59 Days Past Due		60 – 89 Days Past Due		90 Days And Over Past Due		Nonaccrual		Total Past Due And Nonaccrual		30 – 59 Days Past Due		60 – 89 Days Past Due		90 Days And Over Past Due		Nonaccrual		Total Past Due And Nonaccrual
	(in thousands)										(in thousands)
September 30, 2016
March 31, 2017
Commercial	$	—	$	—	$	—	$	571	$	571	$	—	$	—	$	—	$	493	$	493
Commercial Real Estate:
Construction		—		—		—		—		—		—		—		—		—		—
Farmland		156		—		—		4,811		4,967		262		4		—		3,372		3,638
Nonfarm nonresidential		—		—		—		1,147		1,147		—		—		—		964		964
Residential Real Estate:
Multi-family		—		—		—		—		—		��		—		—		—		—
1-4 Family		2,087		270		—		3,435		5,792		691		281		—		3,206		4,178
Consumer		65		3		—		1		69		6		4		—		7		17
Agriculture		27		—		—		134		161		13		—		—		60		73
Other		—		—		—		—		—		—		—		—		—		—
Total	$	2,335	$	273	$	—	$	10,099	$	12,707	$	972	$	289	$	—	$	8,102	$	9,363

30 – 59
Days
Past Due

60 – 89
Days
Past Due

90 Days
And Over
Past Due

Nonaccrual

Total
Past Due
And
Nonaccrual

(in thousands)

December 31, 2015

Commercial
$ 78 $ — $ — $ 1,112 $ 1,190
Commercial Real Estate:

Construction
— — — — —
Farmland
456 — — 4,263 4,719
Nonfarm nonresidential
326 — — 2,657 2,983
Residential Real Estate:

Multi-family
— — — 32 32
1-4 Family
2,225 241 — 5,851 8,317
Consumer
41 — — 20 61
Agriculture
7 — — 152 159
Other
— — — — —
Total
$ 3,133 $ 241 $ — $ 14,087 $ 17,461

	30 – 59 Days Past Due		60 – 89 Days Past Due		90 Days And Over Past Due		Nonaccrual		Total Past Due And Nonaccrual
	(in thousands)
December 31, 2016
Commercial	$	—	$	—	$	—	$	495	$	495
Commercial Real Estate:
Construction		—		—		—		—		—
Farmland		626		—		—		4,332		4,958
Nonfarm nonresidential		—		59		—		1,016		1,075
Residential Real Estate:
Multi-family		—		—		—		—		—
1-4 Family		1,454		256		—		3,312		5,022
Consumer		19		—		—		1		20
Agriculture		203		—		—		60		263
Other		—		—		—		—		—
Total	$	2,302	$	315	$	—	$	9,216	$	11,833

Credit Quality Indicators

We categorize all loans into risk categories at origination based upon original underwriting. Thereafter, we categorize 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. ~~Additionally, loans~~Loans are also analyzed ~~regularly~~ through our internal and external loan review processes. Borrower relationships in excess of $500,000 are routinely analyzed through our credit administration processes which classify the loans as to credit risk. The following definitions are used for risk ratings:

Watch –Loans classified as watch are those loans which have ~~experienced~~or may experience a potentially adverse development which necessitates increased monitoring.

Special Mention –Loans classified as special mention do not have all of the characteristics of substandard or doubtful loans. They have one or more deficiencies which warrant special attention and which corrective action, such as accelerated collection practices, may remedy.

Substandard –Loans classified as substandard are those loans with clear and defined weaknesses such as a highly leveraged position, unfavorable financial ratios, uncertain repayment sources or poor financial condition which may jeopardize the repayment of the debt as contractually agreed. They are characterized by the distinct possibility that we will sustain some losses if the deficiencies are not corrected.

Doubtful – Loans classified as doubtful are those loans which have characteristics similar to substandard loans but with an increased risk that collection or liquidation in full is highly questionable and improbable.

~~Table Of Contents~~

Loans not meeting the criteria above that are analyzed individually as part of the above described process are ~~considered~~considered to be “Pass” rated loans. As of ~~September 30, 2016,~~March 31, 2017, and December 31, ~~2015,~~2016, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

	Pass		Watch		Special Mention		Substandard		Doubtful		Total		Pass		Watch		Special Mention		Substandard		Doubtful		Total
	(in thousands)												(in thousands)
September 30, 2016
March 31, 2017
Commercial	$	83,466	$	525	$	—	$	1,009	$	—	$	85,000	$	103,597	$	293	$	—	$	960	$	—	$	104,850
Commercial Real Estate:
Construction		28,881		5,211		—		86		—		34,178		40,927		497		—		—		—		41,424
Farmland		73,324		2,717		—		7,279		—		83,320		76,161		1,335		—		5,756		—		83,252
Nonfarm nonresidential		124,094		11,707		533		2,017		—		138,351		146,628		3,221		441		1,631		—		151,921
Residential Real Estate:
Multi-family		28,218		4,485		—		3,855		—		36,558		39,536		5,991		—		3,823		—		49,350
1-4 Family		170,439		12,941		70		8,558		—		192,008		173,463		5,521		51		6,831		—		185,866
Consumer		9,274		399		—		79		—		9,752		9,130		314		—		98		—		9,542
Agriculture		32,613		8,064		—		1,087		—		41,764		27,456		9,270		—		789		—		37,515
Other		766		—		—		—		—		766		463		—		—		—		—		463
Total	$	551,075	$	46,049	$	603	$	23,970	$	—	$	621,697	$	617,361	$	26,442	$	492	$	19,888	$	—	$	664,183

	Pass		Watch		Special Mention		Substandard		Doubtful		Total		Pass		Watch		Special Mention		Substandard		Doubtful		Total
	(in thousands)												(in thousands)
December 31, 2015
December 31, 2016
Commercial	$	81,570	$	2,953	$	—	$	1,653	$	—	$	86,176	$	96,402	$	294	$	—	$	1,065	$	—	$	97,761
Commercial Real Estate:
Construction		27,603		5,289		—		262		—		33,154		35,823		507		—		—		—		36,330
Farmland		65,476		4,844		—		6,092		—		76,412		63,323		1,521		—		6,663		—		71,507
Nonfarm nonresidential		111,901		22,687		1,328		4,654		—		140,570		142,222		5,217		445		1,662		—		149,546
Residential Real Estate:
Multi-family		35,300		4,879		—		3,952		—		44,131		38,281		6,080		—		3,836		—		48,197
1-4 Family		164,490		17,636		67		19,285		—		201,478		173,565		6,909		52		7,566		—		188,092
Consumer		9,323		474		—		213		—		10,010		9,397		348		—		73		—		9,818
Agriculture		21,402		4,601		—		313		—		26,316		26,940		9,555		—		1,013		—		37,508
Other		419		—		—		—		—		419		477		—		—		—		—		477
Total	$	517,484	$	63,363	$	1,395	$	36,424	$	—	$	618,666	$	586,430	$	30,431	$	497	$	21,878	$	—	$	639,236

Note 54 – Other Real Estate Owned

Other real estate owned (OREO) is real estate acquired as a result of foreclosure or by deed in lieu of ~~foreclosure.~~foreclosure. It is classified as real estate owned until such time as it is sold. When property is acquired as a result of foreclosure or by deed in lieu of foreclosure, it is recorded at its fair market value less expected cost to sell. Any write-down of the property at the time of acquisition is charged to the allowance for loan losses. Costs incurred in order to perfect the lien prior to foreclosure may be capitalized if the fair value less the cost to sell exceeds the balance of the loan at the time of transfer to OREO. Examples of eligible costs to be capitalized are payments of delinquent property taxes to clear tax liens or payments to contractors and subcontractors to clear mechanics’ liens. Subsequent reductions in fair value are recorded as non-interest expense.

~~To determine the fair~~Fair value of OREO ~~for smaller dollar single family homes, we consult with internal real estate sales staff and external realtors, investors, and appraisers. If the internally evaluated market price~~ is ~~below our underlying investment in the~~determined on an individual property ~~appropriate write-downs~~basis. When foreclosed properties are ~~taken. For larger dollar residential and commercial real estate properties,~~acquired, we obtain a new appraisal of the subject property or have staff from our special assets group or in our centralized appraisal department evaluate the latest in-file appraisal in connection with the transfer to ~~other real estate owned.~~OREO. We typically obtain updated appraisals within five quarters of the anniversary date of ownership unless a sale is imminent. Subsequent reductions in fair value are recorded as non-interest expense when a new appraisal indicates a decline in value or in cases where a listing price is lowered below the appraised amount.

~~Table Of Contents~~

The following table presents the major categories of OREO at the period-ends indicated:

September 30,
2016

December 31,
2015

(in thousands)

Commercial Real Estate:

Construction, land development, and other land
$ 6,781 $ 12,749
Nonfarm nonresidential
18 6,967
Residential Real Estate:

1-4 Family
299 128
7,098 19,844
Valuation allowance
— (630
)
$ 7,098 $ 19,214

For the Three
Months Ended
September 30,

For the Nine
Months Ended
September 30,

2016

2015

2016

2015

(in thousands) (in thousands)
OREO Valuation Allowance Activity:

Beginning balance
$ 441 $ 307 $ 630 $ 1,066
Provision to allowance
320 4,450 970 7,080
Write-downs
(761
)
(4,457
)
(1,600
)
(7,846
)
Ending balance
$ — $ 300 $ — $ 300

	March 31, 2017		December 31, 2016
	(in thousands)
Commercial Real Estate:
Construction	$	6,571	$	6,571
Residential Real Estate:
1-4 Family		—		250
	$	6,571	$	6,821

~~Residential~~Residential loans secured by 1-4 family residential properties in the process of foreclosure totaled ~~$431,000~~$822,000 and ~~$934,000~~$932,000 at ~~September 30, 2016~~March 31, 2017 and December 31, ~~2015,~~2016, respectively.

Net activity relating to other real estate owned during the ~~nine~~three months ended ~~September 30,~~March 31, 2017 and 2016 ~~and 2015~~ is as follows:

	For the Nine Months Ended September 30,						For the Three Months Ended March 31,
	2016			2015			2017			2016
	(in thousands)						(in thousands)
OREO Activity
OREO as of January 1	$	19,214		$	46,197		$	6,821		$	19,214
Real estate acquired		1,243			4,450			100			441
Valuation adjustment write-downs		(970	)		(7,080	)		—			(500	)
Net gain on sales		221			27			38			55
Proceeds from sale of properties		(12,610	)		(14,417	)
OREO as of September 30	$	7,098		$	29,177
Proceeds from sales of properties								(388	)		(1,349	)
OREO as of March 31							$	6,571		$	17,861

We recognized no OREO rental income ~~totaled $46,000 and $451,000~~ for the three ~~and nine~~ months ended ~~September 30, 2016, respectively,~~March 31, 2017, and ~~$380,000 and $1.1 million~~$256,000 for the three ~~and nine~~ months ended ~~September 30, 2015, respectively.~~March 31, 2016.

Expenses related to other real estate owned include:

	Three Months Ended September 30,					Nine Months Ended September 30,						For the Three Months Ended March 31,
	2016			2015		2016			2015			2017			2016
	(in thousands)					(in thousands)						(in thousands)
Net (gain) loss on sales	$	(52	)	$	16	$	(221	)	$	(27	)
Provision to allowance		320			4,450		970			7,080
Net gain on sales												$	(38	)	$	(55	)
Valuation adjustment write-downs													—			500
Operating expense		54			665		535			1,743			22			223
Total	$	322		$	5,131	$	1,284		$	8,796		$	(16	)	$	668

~~Table Of Contents~~

Note 65 – Deposits

The following table shows ending deposit balances by category as of:

	September 30, 2016		December 31, 2015		March 31, 2017		December 31, 2016
	(in thousands)				(in thousands)
Non-interest bearing	$	119,005	$	120,043	$	127,049	$	124,395
Interest checking		88,386		97,515		104,811		103,876
Money market		140,995		125,935		122,434		142,497
Savings		33,816		34,677		36,380		34,518
Certificates of deposit		454,742		499,827		470,029		444,639
Total	$	836,944	$	877,997	$	860,703	$	849,925

Time deposits of ~~$250,000~~$250,000 or more were ~~$28.2~~$34.5 million and ~~$28.4~~$29.1 million at ~~September 30, 2016~~March 31, 2017 and December 31, ~~2015,~~2016, respectively.

Scheduled maturities of all time deposits at ~~September 30, 2016~~March 31, 2017 were as follows (in thousands):

Year 1	$	293,430	$	225,126
Year 2		89,256		155,900
Year 3		21,352		61,411
Year 4		41,930		21,374
Year 5		8,774		6,218
	$	454,742	$	470,029

Note 76 – ~~Advances~~Advances from the Federal Home Loan Bank

Advances from the Federal Home Loan Bank were as follows:

September30,

December 31,

2016

2015

(in thousands)

Monthly amortizing advances with fixed rates from 0.00% to 5.25% and maturities ranging from 2017 through 2033, averaging 2.42% at September 30,2016 and 2.65% at December 31, 2015
$ 2,619 $ 3,081

	March 31,		December 31,
	2017		2016
	(in thousands)
Advances with fixed rates from 0.00% to 5.25% and maturities ranging from 2017 through 2033, averaging 1.04% at March 31, 2017 and 0.85% at December 31, 2016	$	17,313	$	22,458

Scheduled principal payments on the above during the next five years and thereafter (in thousands):

	Advances
Year 1	$	15,528
Year 2		226
Year 3		508
Year 4		762
Year 5		109
Thereafter		180
	$	17,313

Each advance is payable based upon the terms of agreement, with a prepayment penalty. New advances are limited to a ~~one-year~~one year maturity or less. No prepayment penalties were incurred during ~~2016~~2017 or ~~2015.~~2016. The advances are collateralized by first ~~mortgage~~mortgage-residential loans. The borrowing capacity is based on the market value of the underlying pledged loans. At ~~September 30, 2016,~~March 31, 2017, our additional borrowing capacity with the FHLB was ~~$27.7~~$13.9 million. The availability of our borrowing capacity could be affected by our financial condition and the FHLB could require additional collateral or, among other things, exercise its right to deny a funding request, at its discretion.

~~Table Of Contents~~

Note 87 – Fair Values Measurement

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on ~~the~~the measurement date. We use various valuation techniques to determine fair value, including market, income and cost approaches. There are three levels of inputs that may be used to measure fair values:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that an entity has the ability to access as of the measurement date, or observable inputs.

Level 2: Significant other observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, and other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

In certain cases, the inputs used to measure fair value may fall into different ~~levels~~levels of the fair value hierarchy. When that occurs, we classify the fair value hierarchy on the lowest level of input that is significant to the fair value measurement. We used the following methods and significant assumptions to estimate fair value.

Securities: The fair values of securities available for sale are determined by obtaining quoted prices on nationally recognized securities exchanges, if available. This valuation method is classified as Level 1 in the fair value hierarchy. For securities where quoted prices are not available, fair values are calculated on market prices of similar securities, or matrix pricing, which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities. Matrix pricing relies on the securities’ relationship to similarly traded securities, benchmark curves, and the benchmarking of like securities. Matrix pricing utilizes observable market inputs such as benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, reference data, and industry and economic events. In instances where broker quotes are used, these quotes are obtained from market makers or broker-dealers recognized to be market participants. This valuation method is classified as Level 2 in the fair value hierarchy. For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators.This valuation method is classified as Level 3 in the fair value hierarchy. Discounted cash flows are calculated using spread to swap and LIBOR curves that are updated to incorporate loss severities, volatility, credit spread and optionality. During times when trading is more liquid, broker quotes are used (if available) to validate the ~~model.Rating~~model. Rating agency and industry research reports as well as defaults and deferrals on individual securities are reviewed and incorporated into the calculations.

Impaired Loans: An impaired loan is evaluated at the time the loan is identified as impaired and is recorded at fair value less costs to sell. Fair value is measured based on the value of the collateral securing the loan and is classified as Level 3 in the fair value hierarchy. Fair value is determined using several methods. Generally, the fair value of real estate is determined based on appraisals by qualified licensed appraisers. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach.

Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. These routine adjustments are made to adjust the value of a specific property relative to comparable properties for variations in qualities such as location, size, and income production capacity relative to the subject property of the appraisal. Such adjustments are typically significant and result in a Level 3 classification of the inputs for determining fair value.

We routinely apply an internal discount to the value of appraisals used in the fair value evaluation of our impaired loans. The deductions to the appraisal take into account changing business factors and market conditions, as well as potential value impairment in cases where our appraisal date predates a likely change in market conditions. These deductions range from 10% for routine real estate collateral to 25% for real estate that is determined (1) to have a thin trading market or (2) to be specialized collateral. This is in addition to estimated discounts for cost to sell of six to ten percent.

We also apply discounts to the expected fair ~~value~~value of collateral for impaired loans where the likely resolution involves litigation or foreclosure. Resolution of this nature generally results in receiving lower values for real estate collateral in a more aggressive sales environment. We have utilized discounts ranging from 10% to 33% in our impairment evaluations when applicable.

~~Table Of Contents~~

Impaired loans are evaluated quarterly for additional impairment. We obtain updated appraisals on properties securing our loans when circumstances are warranted such as at the ~~time~~time of renewal or when market conditions have significantly changed. This determination is made on a property-by-property basis in light of circumstances in the broader economic climate and our assessment of deterioration of real estate values in the market in which the property is located. The first stage of our assessment involves management’s inspection of the property in question. Management also engages in conversations with local real estate professionals ~~investors,~~ and market participants to determine the likely marketing time and value range for the property. The second stage involves an assessment of current trends in the regional market. After thorough consideration of these factors, management will either internally evaluate fair value or order a new appraisal.

Other Real Estate Owned (OREO): OREO is evaluated at the time of acquisition and recorded at fair value as determined by independent appraisal or internal evaluation less cost to sell. Our quarterly evaluations of OREO for impairment are driven by property type. For smaller dollar single family homes, we consult with internal real estate sales staff and external realtors, investors, and appraisers. Based on these consultations, we determine asking prices for OREO properties we are marketing for sale. If the internally evaluated fair value or asking price is below our recorded investment in the property, appropriate write-downs are taken.

For larger dollar commercial real estate properties, we obtain a new appraisal of the subject property or have staff in our special assets group or centralized appraisal department evaluate the latest in-file appraisal in connection with the transfer to other real estate owned. In some of these circumstances, an appraisal is in process at quarter end, and we must make our best estimate of the fair value of the underlying collateral based on our internal evaluation of the property, review of the most recent appraisal, and discussions with the currently engaged appraiser. We generally obtain updated appraisals within five quarters of the anniversary date of ownership unless a sale is imminent. When an asking price is lowered below the most recent appraised value, appropriate write-downs are taken.

We routinely apply an internal discount to the value of appraisals used in the fair value evaluation of our OREO. The ~~deductions~~deductions to the appraisal take into account changing business factors and market conditions, as well as potential value impairment in cases where our appraisal date predates a likely change in market conditions. These deductions range from 10% for routine real estate collateral to 25% for real estate that is determined (1) to have a thin trading market or (2) to be specialized collateral. This is in addition to estimated discounts for cost to sell of six to ten percent.

Financial assets measured at fair value on a recurring basis at ~~September 30, 2016~~March 31, 2017 and December 31, ~~2015~~2016 are summarized below:

											Fair Value Measurements at March 31, 2017 Using
			Fair Value Measurements at September 30, 2016 Using								(in thousands)
			(in thousands)						Carrying		Quoted Prices In Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
Description	Carrying Value		Quoted Prices InActive Markets for Identical Assets (Level 1)		Significant OtherObservable Inputs (Level 2)		SignificantUnobservable Inputs (Level 3)		Value		(Level 1)		(Level 2)		(Level 3)
Available for sale securities
U.S. Government and federal agency	$	35,738	$	—	$	35,738	$	—	$	33,039	$	—	$	33,039	$	—
Agency mortgage-backed: residential		101,461		—		101,461		—		98,917		—		98,917		—
Collateralized loan obligations										18,881		—		18,881		—
State and municipal		2,198		—		2,198		—		2,045		—		2,045		—
Corporate bonds		3,036		—		3,036		—		3,119		—		3,119		—
Total	$	142,433	$	—	$	142,433	$	—	$	156,001	$	—	$	156,001	$	—

Fair Value Measurements at December 31, 2015 Using

(in thousands)

Description

Carrying
Value

Quoted Prices InActive Markets forIdentical Assets
(Level 1)

Significant OtherObservable Inputs
(Level 2)

SignificantUnobservableInputs
(Level 3)

Available for sale securities

U.S. Government and

federal agency
$ 33,262 $ — $ 33,262 $ —
Agency mortgage-backed: residential
102,662 — 102,662 —
State and municipal
6,861 — 6,861 —
Corporate bonds
2,193 — 2,193 —
Total
$ 144,978 $ — $ 144,978 $ —

			Fair Value Measurements at December 31, 2016 Using
			(in thousands)
Description	Carrying Value		Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Available for sale securities
U.S. Government and federal agency	$	34,099	$	—	$	34,099	$	—
Agency mortgage-backed: residential		102,353		—		102,353		—
Collateralized loan obligations		11,203		—		11,203		—
State and municipal		2,045		—		2,045		—
Corporate bonds		3,090		—		3,090		—
Total	$	152,790	$	—	$	152,790	$	—

There were no transfers between Level 1 and Level 2 during ~~2016~~2017 or ~~2015.~~2016.

~~Table Of Contents~~

~~The table below presents a reconciliation of all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the periods ended September 30, 2016 and 2015:~~

Other Debt
Securities

2016

2015

(in thousands)

Balances of recurring Level 3 assets at January 1
$ — $ 658
Total gain (loss) for the period:

Included in other comprehensive income (loss)
— (7
)
Balance of recurring Level 3 assets at September 30
$ — $ 651

At September 30, 2015, our other debt security valuation was determined internally by calculating discounted cash flows using the security’s coupon rate of 6.5% and an estimated current market rate of 8.25% based upon the current yield curve plus spreads that adjust for volatility, credit risk, and optionality. We also considered the issuer’s publicly filed financial information as well as assumptions regarding the likelihood of deferrals and defaults. This security was sold in December 2015.

Financial assets measured at fair value on a non-recurring basis are summarized below:

			Fair Value Measurements at September 30, 2016 Using								Fair Value Measurements at March 31, 2017 Using
			(in thousands)								(in thousands)
Description	Carrying Value		Quoted Prices InActive Markets forIdentical Assets (Level 1)		Significant OtherObservable Inputs (Level 2)		SignificantUnobservableInputs (Level 3)		Carrying Value		Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Impaired loans:
Commercial	$	—	$	—	$	—	$	—	$	87	$	—	$	—	$	87
Commercial real estate:
Construction		—		—		—		—		—		—		—		—
Farmland		589		—		—		589		581		—		—		581
Nonfarm nonresidential		91		—		—		91		—		—		—		—
Residential real estate:
Multi-family		—		—		—		—		—		—		—		—
1-4 Family		1,436		—		—		1,436		1,141		—		—		1,141
Consumer		—		—		—		—		—		—		—		—
Agriculture		64		—		—		64		59		—		—		59
Other		—		—		—		—		—		—		—		—
Other real estate owned, net:
Commercial real estate:
Construction		6,781		—		—		6,781		6,571		—		—		6,571
Farmland		—		—		—		—		—		—		—		—
Nonfarm nonresidential		18		—		—		18		—		—		—		—
Residential real estate:
Multi-family		—		—		—		—		—		—		—		—
1-4 Family		299		—		—		299		—		—		—		—

~~Table Of Contents~~

			Fair Value Measurements at December 31, 2015 Using								Fair Value Measurements at December 31, 2016 Using
			(in thousands)								(in thousands)
Description	Carrying Value		Quoted Prices InActive Markets forIdentical Assets (Level 1)		Significant OtherObservable Inputs (Level 2)		SignificantUnobservableInputs (Level 3)		Carrying Value		Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Impaired loans:
Commercial	$	—	$	—	$	—	$	—	$	87	$	—	$	—	$	87
Commercial real estate:
Construction		—		—		—		—		—		—		—		—
Farmland		—		—		—		—		585		—		—		585
Nonfarm nonresidential		139		—		—		139		—		—		—		—
Residential real estate:
Multi-family		—		—		—		—		—		—		—		—
1-4 Family		1,362		—		—		1,362		1,261		—		—		1,261
Consumer		—		—		—		—		—		—		—		—
Agriculture										59		—		—		59
Other		—		—		—		—		—		—		—		—
Other real estate owned, net:
Commercial real estate:
Construction		12,344		—		—		12,344		6,571		—		—		6,571
Farmland		—		—		—		—		—		—		—		—
Nonfarm nonresidential		6,746		—		—		6,746		—		—		—		—
Residential real estate:
Multi-family		—		—		—		—		—		—		—		—
1-4 Family		124		—		—		124		250		—		—		250

Impaired loans, which are measured for impairment using the fair value of the collateral for collateral dependent loans, had a carrying amount of ~~$2.5~~$2.2 million at ~~September 30, 2016~~March 31, 2017 with a valuation allowance of ~~$309,000,~~$303,000, resulting in ~~$220,000 and~~ no additional provision for loan losses for the three ~~and nine~~ months ended ~~September 30, 2016, respectively.~~March 31, 2017. Impaired ~~loans had a carrying amount of $2.2 million with a valuation allowance of $369,000, and no additional provision for the three and nine months ended September 30, 2015. At December 31, 2015, impaired~~ loans had a carrying amount of $1.8 million with a valuation allowance of ~~$337,000.~~$383,000, resulting in an additional provision for loan losses of $46,000 for the three months ended March 31, 2016. At December 31, 2016, impaired loans had a carrying amount of $2.4 million, with a valuation allowance of $370,000.

OREO, which is measured at the lower of carrying or fair value less ~~estimated~~ costs to sell, had a net carrying amount of ~~$7.1~~$6.6 million as of ~~September 30, 2016,~~March 31, 2017, compared with ~~$29.2~~$17.9 million at ~~September 30, 2015~~March 31, 2016 and ~~$19.2~~$6.8 million at December 31, ~~2015. Fair value~~2016. No write-downs ~~of $761,000 and $1.6 million~~ were recorded on OREO for the three ~~and nine~~ months ended ~~September 30, 2016, respectively, and $4.5 million and $7.8 million~~March 31, 2017, compared to write-downs of $500,000 for the three ~~and nine~~ months ended ~~September 30, 2015, respectively.~~March 31, 2016.

The following table presents qualitative information about level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at ~~September 30, 2016:~~March 31, 2017:

Fair Value

ValuationTechnique(s)

Unobservable Input(s)
Range (WeightedAverage)


(in thousands)







Impaired loans – Residential real estate

$
1,436

Sales comparison approach

Adjustment for differences between the comparable sales

1%
- 22% (10%)

Other real estate owned – Commercial real estate

$
6,799

Sales comparison approach

Adjustment for differences between the comparable sales

0%
- 20% (9%)

Income approach Discount or capitalization rate 18% - 20% (19%)

~~Table Of Contents~~

	Fair Value		Valuation Technique(s)	Unobservable Input(s)	Range (Weighted Average)
	(in thousands)

Impaired loans – Residential real estate	$	1,141	Sales comparison approach	Adjustment for differences between the comparable sales		0%	-	22%	(9%)

Other real estate owned – Commercial real estate	$	6,571	Sales comparison approach	Adjustment for differences between the comparable sales		0%	-	20%	(9%)

			Income approach	Discount or capitalization rate		18%	-	20%	(19%)

The following table presents qualitative information about level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at December 31, ~~2015:~~2016:

									Fair Value		Valuation Technique(s)	Unobservable Input(s)	Range (Weighted Average)
	Fair Value		Valuation Technique(s)	Unobservable Input(s)	Range (WeightedAverage)				(in thousands)
	(in thousands)
Impaired loans – Residential real estate	$	1,362	Sales comparison approach	Adjustment for differences between the comparable sales	1%	-	16%	(7%)	$	1,261	Sales comparison approach	Adjustment for differences between the comparable sales		0%	-	22%	(9%)

Other real estate owned – Commercial real estate	$	19,090	Sales comparison approach	Adjustment for differences between the comparable sales	0%	-	30%	(12%)	$	6,571	Sales comparison approach	Adjustment for differences between the comparable sales		0%	-	20%	(9%)
			Income approach	Discount or capitalization rate	10%	-	20%	(17%)
											Income approach	Discount or capitalization rate		18%	-	20%	(19%)

Carrying amount and estimated fair values of financial instruments were as follows for the periods indicated:

Fair Value Measurements at September 30, 2016 Using

Carrying
Amount

Level 1

Level 2

Level 3

Total

(in thousands)

Financial assets

Cash and cash equivalents
$ 63,844 $ 51,594 $ 12,250 $ — $ 63,844
Securities available for sale
142,433 — 142,433 — 142,433
Securities held to maturity
41,883 — 44,815 — 44,815
Federal Home Loan Bank stock
7,323 N/A N/A N/A N/A
Loans held for sale
134 — 134 — 134
Loans, net
612,208 — — 618,572 618,572
Accrued interest receivable
3,067 — 1,033 2,034 3,067
Financial liabilities

Deposits
$ 836,944 $ 119,005 $ 707,176 $ — $ 826,181
Federal Home Loan Bank advances
2,619 — 2,692 — 2,692
Subordinated capital notes
3,375 — — 3,303 3,303
Junior subordinated debentures
21,000 — — 13,260 13,260
Accrued interest payable
590 — 396 194 590

			Fair Value Measurements at December 31, 2015 Using										Fair Value Measurements at March 31, 2017 Using
	Carrying Amount		Level 1		Level 2		Level 3		Total		Carrying Amount		Level 1		Level 2		Level 3		Total
	(in thousands)										(in thousands)
Financial assets
Cash and cash equivalents	$	93,335	$	79,498	$	13,837	$	—	$	93,335	$	37,785	$	36,094	$	1,691	$	—	$	37,785
Securities available for sale		144,978		—		144,978		—		144,978		156,001		—		156,001		—		156,001
Securities held to maturity		42,075		—		44,253		—		44,253		41,752		—		43,469		—		43,469
Federal Home Loan Bank stock		7,323		N/A		N/A		N/A		N/A		7,323		N/A		N/A		N/A		N/A
Loans held for sale		186		—		186		—		186
Loans held for sale												—		—		—		—		—
Loans, net		606,625		—		—		614,162		614,162		655,217		—		—		652,746		652,746
Accrued interest receivable		3,116		—		1,111		2,005		3,116		3,100		—		1,123		1,977		3,100
Financial liabilities
Deposits	$	877,997	$	120,043	$	739,152	$	—	$	859,195	$	860,703	$	127,049	$	720,593	$	—	$	847,642
Federal Home Loan Bank advances		3,081		—		3,076		—		3,076		17,313		—		17,338		—		17,338
Subordinated capital notes		4,050		—		—		3,933		3,933		2,925		—		—		2,846		2,846
Junior subordinated debentures		21,000		—		—		12,810		12,810		21,000		—		—		16,263		16,263
Accrued interest payable		2,805		—		422		2,383		2,805		902		—		362		540		902

~~Table Of Contents~~

			Fair Value Measurements at December 31, 2016 Using
	Carrying Amount		Level 1		Level 2		Level 3		Total
	(in thousands)
Financial assets
Cash and cash equivalents	$	66,316	$	31,091	$	35,225	$	—	$	66,316
Securities available for sale		152,790		—		152,790		—		152,790
Securities held to maturity		41,818		—		43,072		—		43,072
Federal Home Loan Bank stock		7,323		N/A		N/A		N/A		N/A
Loans held for sale		—		—		—		—		—
Loans, net		630,269		—		—		632,528		632,528
Accrued interest receivable		3,137		—		1,203		1,934		3,137
Financial liabilities
Deposits	$	849,925	$	124,395	$	712,458	$	—	$	836,853
Federal Home Loan Bank advances		22,458		—		22,475		—		22,475
Subordinated capital notes		3,150		—		—		3,091		3,091
Junior subordinated debentures		21,000		—		—		13,263		13,263
Accrued interest payable		734		—		369		365		734

The methods and assumptions, not previously presented, used to estimate fair values are described as follows:

(a) Cash and Cash Equivalents

The carrying amounts of cash and short-term instruments approximate fair values and are classified as either Level 1 or Level 2. Non-interest bearing deposits are Level 1 whereas interest bearing due from bank accounts and fed funds sold are Level 2.

(b) FHLB Stock

It is not practical to determine the fair value of FHLB stock due to restrictions placed on its transferability.

Fair values of loans, excluding loans held for sale, are estimated as follows: For variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values resulting in a Level 3 classification. Fair values for other loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality resulting in a Level 3 classification. Impaired loans are valued at the lower of cost or fair value as described previously. The methods utilized to estimate the fair value of loans do not necessarily represent an exit price.

(d) Loans Held for Sale

The fair value of loans held for sale is estimated based upon binding contracts and ~~and/or~~ quotes from third party investors resulting in a Level 2 classification.

(e) Deposits

The fair values disclosed for non-interest bearing deposits are, by definition, equal to the amount payable on demand at the reporting date resulting in a Level 1 classification. The carrying amounts of variable rate interest bearing deposits approximate their fair values at the reporting date resulting in a Level 2 classification. Fair values for fixed rate interest bearing deposits are estimated using a discounted cash flows calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits resulting in a Level 2 classification.

(f)f) Other Borrowings

The fair values of the ~~Company’s~~Company’s FHLB advances are estimated using discounted cash flow analyses based on the current borrowing rates resulting in a Level 2 classification.

The fair values of the ~~Company’s~~Company’s subordinated capital notes and junior subordinated debentures are estimated using discounted cash flow analyses based on the current borrowing rates for similar types of borrowing arrangements resulting in a Level 3 classification.

(g~~(g)~~) Accrued Interest Receivable/Payable

The carrying amounts of accrued interest approximate fair value resulting in a Level 2 or Level 3 classification based on the level of the asset or ~~liability~~liability with which the accrual is associated.

~~Table Of Contents~~

Note 98 – Income Taxes

Deferred tax assets and liabilities were due to the following as of:

	September30,			December31,			March 31,			December 31,
	2016			2015			2017			2016
	(in thousands)						(in thousands)
Deferred tax assets:
Net operating loss carry-forward	$	42,338		$	38,085		$	44,630		$	42,094
Allowance for loan losses		3,321			4,214			3,138			3,139
Other real estate owned write-down		3,293			7,619			3,366			3,366
Alternative minimum tax credit carry-forward		692			692			692			692
Net assets from acquisitions		673			671			655			674
Net unrealized loss on securities		—			166			504			867
New market tax credit carry-forward		208			208			208			208
Nonaccrual loan interest		550			549			487			481
Accrued expenses								241			3,860
Other		1,796			1,875			773			825
		52,871			54,079			54,694			56,206

Deferred tax liabilities:
FHLB stock dividends		928			928			928			928
Fixed assets		142			176			84			89
Net unrealized gain on securities		665			—
Other		1,055			865			416			1,140
		2,790			1,969			1,428			2,157
Net deferred tax assets before valuation allowance		50,081			52,110			53,266			54,049
Valuation allowance		(50,081	)		(52,110	)		(53,266	)		(54,049	)
Net deferred tax asset	$	—		$	—		$	—		$	—

Our estimate of our ability to realize the deferred tax asset depends on our estimate of projected future levels of taxable income. In analyzing future taxable income levels, we considered all evidence currently available, both positive and negative. Based on our analysis, we established a valuation allowance for all deferred tax assets as of December 31, 2011. The valuation allowance remains in effect as of ~~September 30, 2016.~~March 31, 2017.

The Company does not have any beginning and ending unrecognized tax benefits. The Company does not expect the total amount of unrecognized tax benefits to significantly increase or decrease in the next ~~twelve~~twelve months. There were no interest and penalties recorded in the income statement or accrued for the three ~~or nine~~ months ended ~~September 30,~~March 31, 2017 or March 31, 2016 ~~or September 30, 2015~~ related to unrecognized tax benefits.

Under Section 382 of the Internal Revenue Code, as amended (“Section 382”), the Company’s its net operating loss carryforwards (“NOLs”) and other deferred tax assets can generally be used to offset future taxable income and therefore reduce federal income tax obligations. However, the Company's ability to use its NOLs would be limited if there was an “ownership change” as defined by Section 382. This would occur if shareholders owning (or deemed to own under the tax rules) 5% or more of the Company's voting and non-voting common shares increase their aggregate ownership of the Company by more than 50 percentage points over a defined period of time.

In 2015, the Company took two measures to preserve the value of its NOLs. First, we adopted a tax benefits preservation plan designed to reduce the likelihood of an “ownership change” occurring as a result of purchases and sales of the Company's common shares. Upon adoption of ~~this~~ plan, the Company declared a dividend of one preferred stock purchase right for each common share outstanding as of the close of business on July 10, 2015. Any shareholder or group that acquires beneficial ownership of 5% or more of the Company (an “acquiring person”) could be subject to significant dilution in its holdings if the Company's Board of Directors does not approve such acquisition. Existing shareholders holding 5% or more of the Company will not be considered acquiring persons unless they acquire additional shares, subject to certain exceptions described in the plan. In addition, the Board of Directors has the discretion to exempt certain transactions and certain persons whose acquisition of securities is determined by the Board not to jeopardize the Company's deferred tax assets. The rights will expire upon the earlier of (i) June 29, 2018, (ii) the beginning of a taxable year with respect to which the Board of Directors determines that no tax benefits may be carried forward, (iii) the repeal or amendment of Section 382 or any successor statute, if the Board of Directors determines that the plan is no longer needed to preserve the tax benefits, and (iv) certain other events as described in the plan.

On September 23, 2015, our shareholders approved an amendment to the Company’s articles of incorporation to further help protect the long-term value of the Company’s NOLs. The amendment provides a means to block transfers of our common shares that could result in an ownership change under Section 382. The transfer restrictions will expire on the earlier of (i) September 23, 2018, (ii) the beginning of a taxable year with respect to which the Board of Directors determines that no tax benefit may be carried forward, (iii) the repeal of Section 382 or any successor statute if our Board determines that the transfer restrictions are no longer needed to preserve the tax benefits of our NOLs, or (iv) such date as the Board otherwise determines that the transfer restrictions are no longer necessary.

~~Table Of Contents~~

The Company and its subsidiaries are subject to U.S. federal income tax and ~~the~~the Company is subject to income tax in the Commonwealth of Kentucky. The Company is no longer subject to examination by taxing authorities for years before ~~2012.~~2013.

Note 109 – Stock Plans and Stock Based Compensation

AtShares available for issuance under the ~~annual meeting on May 25, 2016, shareholders approved the Porter Bancorp, Inc.~~ 2016 Omnibus Equity Compensation Plan (“2016 Plan”)~~, which replaces the Porter Bancorp, Inc. 2006 Stock Incentive Plan (“2006 Employee Plan”) that had expired earlier in 2016. The shares available for issuance under the 2016 Plan~~ total ~~232,512 shares which represents the number of shares that had previously been authorized by shareholders for issuance under the 2006 Employee Plan.~~23,684. Shares issued to employees under the plan vest annually on the anniversary date of the grant generally over three to ~~ten~~four years.

The Company also ~~maintains~~maintains the Porter Bancorp, Inc. 2006 Non-Employee Directors Stock Ownership Incentive Plan (“2006 Director Plan”) pursuant to which ~~89,622~~17,912 shares remain available for issuance as annual awards of restricted stock to the Company’s non-employee directors. Shares issued annually to non-employee directors have a fair market value of $25,000 and vest on December 31 in the year of grant.

On December 4, 2014, the U.S. Treasury sold our Series A preferred shares at a discount to face amount. As a result, restricted shares previously granted to senior executives became subject to permanent transfer restrictions. On March 25, 2015, the Compensation Committee modified the equity compensation arrangements with our four named executive officers to restore the incentive that was intended by including equity grants in their employment agreements. The Compensation Committee and our four named executive officers mutually agreed to terminate 538,479 restricted shares that were subject to permanent restrictions on transfer. We then awarded 800,000 new service-based restricted shares to those executive officers. The new awards are accounted for as a modification and vest over four years, with one-third of the shares vesting on each of the second, third and fourth anniversaries of the date of grant. The modification resulted in incremental compensation expense of approximately $233,000, which is being amortized in accordance with the vesting schedule.

The fair value of ~~the 2016~~the 2017 unvested shares issued was ~~$323,000,~~$215,000, or ~~$1.82~~$9.44 per weighted-average share. The Company recorded ~~$148,000~~$54,000 and ~~$315,000~~$73,000 of stock-based compensation during the first three months of 2017 and 2016, respectively, to salaries and employee ~~benefits for the three and nine months ended September 30, 2016, respectively, and $132,000 and $313,000 for the three and nine months ended September 30, 2015, respectively.~~benefits. We expect substantially all of the unvested shares outstanding at the end of the period ~~will~~to vest according to the vesting schedule. No deferred tax benefit was recognized related to this expense for either period.

The following table summarizes unvested share activity as of and for the periods indicated for the Stock Incentive Plan:

											Three Months Ended					Twelve Months Ended
											March 31, 2017					December 31, 2016
														Weighted					Weighted
														Average					Average
	Nine Months Ended September 30, 2016					Twelve Months Ended December 31, 2015								Grant					Grant
	Shares			Weighted Average Grant Price		Shares			Weighted Average Grant Price		Shares			Price		Shares			Price
Outstanding, beginning		922,419		$	0.96		775,492		$	1.33		179,513		$	4.89		184,482		$	4.81
Granted		177,290			1.82		915,740			0.91		22,787			9.44		35,465			9.10
Vested		(96,120	)		1.51		(285,977	)		1.33		(53,335	)		4.45		(38,462	)		8.32
Terminated		—			—		(450,994	)		1.25
Forfeited		(9,854	)		1.23		(31,842	)		1.13		—			—		(1,972	)		6.16
Outstanding, ending		993,735		$	1.06		922,419		$	0.96		148,965		$	5.74		179,513		$	4.89

Unrecognized stock based compensation expense related to unvested shares for the remainder of ~~2016~~2017 and beyond is estimated as follows (in thousands):

October 2016 – December 2016	$	127
2017		197
2018		190
2019		30
2020 & thereafter		9
April 2017 – December 2017			$	199
2018				262
2019				102
2020 & thereafter				25

~~Table Of Contents~~

Note 1110 – Earnings (Loss) per Share

The factors used in the basic and diluted ~~loss~~earnings per share computations follow:

Three Months Ended
September 30,

Nine Months Ended
September 30,

2016

2015

2016

2015

(in thousands, except share and per share data)

Net income (loss)
$ 1,393 $ (1,076
)
$ 3,885 $ (2,612
)
Less:

Earnings (losses) allocated to unvested shares
46 (45
)
129 (102
)
Earnings (losses) allocated to participating preferred shares
— — — (236
)
Net income (loss) attributable to common shareholders,basic and diluted
$ 1,347 $ (1,031
)
$ 3,756 $ (2,274
)

Basic

Weighted average common shares includingunvested common shares outstanding
31,115,223 25,768,887 29,488,087 25,626,610
Less:

Weighted average unvested common shares
1,034,143 1,087,340 977,062 1,002,867
Weighted average Series B preferred
— — — 890,901
Weighted average Series D preferred
— — — 1,419,341
Weighted average common shares outstanding
30,081,080 24,681,547 28,511,025 22,313,501
Basic income (loss) per common share
$ 0.04 $ (0.04
)
$ 0.13 $ (0.10
)

Diluted

Add: Dilutive effects of assumed exercises of commonstock warrants
— — — —
Weighted average common shares and potentialcommon shares
30,081,080 24,681,547 28,511,025 22,313,501
Diluted income (loss) per common share
$ 0.04 $ (0.04
)
$ 0.13 $ (0.10
)

	Three Months Ended
	March 31,
	2017		2016
	(in thousands, except share and per share data)

Net income	$	1,680	$	1,480
Less:
Earnings allocated to unvested shares		44		51
Net income available to common shareholders, basic and diluted	$	1,636	$	1,429

Basic
Weighted average common shares including unvested common shares outstanding		6,227,265		5,389,062
Less:
Weighted average unvested common shares		164,239		183,996
Weighted average common shares outstanding		6,063,026		5,205,066
Basic income per common share	$	0.27	$	0.27

Diluted
Add: Dilutive effects of assumed exercises of common stock warrants		—		—
Weighted average common shares and potential common shares		6,063,026		5,205,066
Diluted income per common share	$	0.27	$	0.27

The Company had no outstanding stock options at ~~September 30, 2016~~March 31, 2017 or ~~2015.~~2016. A warrant for the purchase of ~~330,561~~66,113 shares of the Company’s common stock at an exercise price of ~~$15.88~~$79.41 was outstanding at ~~September 30,~~March 31, 2017 and 2016, ~~and 2015~~ but was not included in the diluted EPS computation as inclusion would have been anti-dilutive.

Note 1211 – Capital Requirements and Restrictions on Retained Earnings

Banks and bank holding companies are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt ~~corrective~~corrective action regulations involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action.

The final rules implementing Basel Committee on Banking ~~Supervision’s~~Supervision’s capital guidelines for U.S. Banks (Basel III rules) became effective for the Company and Bank on January 1, 2015 with full compliance with all of the requirements being phased in over a multi-year schedule ~~and fully phased in by~~through January 1, 2019. The final rules allowed banks and their holding companies with less than $250 billion in assets a one-time opportunity to opt-out of a requirement to include unrealized gains and losses in accumulated other comprehensive income in their capital calculation. The Company and the Bank opted out of this requirement. The rules also establish a “capital conservation buffer” of 2.5%~~, to be phased in over three years,~~ above the regulatory minimum risk-based capital ratios. Once the capital conservation buffer is fully phased in, the minimum ratios are a common equity Tier 1 risk-based capital ratio of 7.0%, a Tier 1 risk-based capital ratio of 8.5%, and a total risk-based capital ratio of 10.5%. The phase-in of the capital conservation buffer requirement ~~begins~~began in January 2016 at 0.625% of risk-weighted assets and ~~will increase each year until fully implemented~~increases to 1.25% in ~~January~~2017, 1.875% in 2018, and 2.5% in 2019. An institution is subject to limitations on paying dividends, engaging in share repurchases and paying discretionary bonuses if capital levels fall below minimum levels plus the buffer amounts. These limitations establish a maximum percentage of eligible retained income that could be utilized for such actions.

In its Consent Order with the FDIC and the KDFI, the Bank has agreed to maintain a minimum Tier 1 leverage ratio of 9% and a minimum total risk based capital ratio of 12%. The Consent Order is described in greater detail in Note 2 – “Going Concern and Future Plans”. As of September 30, 2016, the Bank’s Tier 1 leverage ratio and total risk based capital ratio were both less than the minimum capital ratios required by the Consent Order, but otherwise compliant with Basel III capital requirements. The Bank cannot be considered well-capitalized while subject to the Consent Order. We are also restricted from accepting, renewing, or rolling-over brokered deposits without the prior receipt of a waiver on a case-by-case basis from our regulators.

~~Table Of Contents~~

On September 21, 2011, we entered into a Written Agreement with the Federal Reserve Bank of St. ~~Louis. In~~Louis. Pursuant to the Agreement, we made formal commitments to use our financial and management resources to serve as a source of strength for the Bank and to assist the Bank in addressing weaknesses identified by the FDIC and the KDFI, to pay no dividends without prior written approval, to pay no interest or principal on ~~subordinated debentures or~~ trust preferred securities without prior written approval, and to submit an acceptable plan to maintain sufficient capital.

The following ~~table shows~~tables show the ratios (excluding capital conservation buffer) and amounts of ~~Common Equity~~common equity Tier 1, Tier 1 capital, and total capital to risk-adjusted assets and the leverage ratios for Porter Bancorp, Inc. and the Bank at the dates indicated (dollars in thousands):

	Actual					Regulatory Minimums for Capital A dequacy Purposes					Actual					Regulatory Minimums for Capital Adequacy Purposes
	Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio
As of September 30, 2016:
Total risk-based capital (to risk-weighted assets)
As of March 31, 2017:
Total risk-based capital (to risk- weighted assets)
Consolidated	$	77,470		11.57	%	$	53,577		8.00	%	$	72,920		10.15	%	$	57,457		8.00	%
Bank		74,802		11.18			53,523		8.00			70,957		9.89			57,402		8.00
Total common equity Tier Irisk-based capital (to risk-weighted assets)
Total common equity Tier 1 risk- based capital (to risk weighted assets)
Consolidated		42,659		6.37			30,137		4.50			37,978		5.29			32,319		4.50
Bank		63,770		9.53			30,107		4.50			59,786		8.33			32,289		4.50
Tier I capital (to risk-weightedassets)
Tier I capital (to risk-weighted assets)
Consolidated		56,788		8.48			40,183		6.00			50,936		7.09			43,093		6.00
Bank		63,770		9.53			40,142		6.00			59,786		8.33			43,052		6.00
Tier I capital (to average assets)
Consolidated		56,788		6.21			36,601		4.00			50,936		5.43			37,553		4.00
Bank		63,770		6.97			36,572		4.00			59,786		6.37			37,525		4.00

Actual

Regulatory Minimums for Capital
Adequacy Purposes

Amount

Ratio

Amount

Ratio

As of December 31, 2015:

Total risk-based capital (to risk-weighted assets)

Consolidated
$ 68,530 10.46
%
$ 52,436 8.00
%
Bank
69,250 10.58 52,347 8.00
Total common equity Tier 1 risk-based capital (to risk weightedassets)

Consolidated
33,368 5.09
%
29,495 4.50
%
Bank
57,873 8.84 29,445 4.50
Tier I capital (to risk-weightedassets)

Consolidated
45,174 6.89 39,327 6.00
Bank
57,873 8.84 39,260 6.00
Tier I capital (to average assets)

Consolidated
45,174 4.74 38,131 4.00
Bank
57,873 6.08 38,085 4.00

~~Table Of Contents~~

	Actual					Regulatory Minimums for Capital Adequacy Purposes
	Amount		Ratio			Amount		Ratio
As of December 31, 2016:
Total risk-based capital (to risk- weighted assets)
Consolidated	$	71,109		10.21	%	$	55,714		8.00	%
Bank		68,773		9.88			55,663		8.00
Total common equity Tier 1risk- based capital (to risk weighted assets)
Consolidated		36,199		5.20			31,339		4.50	%
Bank		57,642		8.28			31,311		4.50
Tier I capital (to risk-weighted assets)
Consolidated		48,713		6.99			41,786		6.00
Bank		57,642		8.28			41,747		6.00
Tier I capital (to average assets)
Consolidated		48,713		5.27			36,975		4.00
Bank		57,642		6.24			36,949		4.00

The Consent Order requires the Bank to achieve the minimum capital ratios presented below:

	Actual as of September 30, 2016					Ratio Required by Consent Order					Actual as of March 31, 2017					Ratio Required by Consent Order
	Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio

Total capital to risk-weighted assets	$	74,802		11.18	%	$	80,284		12.00	%	$	70,957		9.89	%	$	86,103		12.00	%
Tier I capital to average assets		63,770		6.97			82,287		9.00			59,786		6.37			84,431		9.00

Bank regulatory agencies can exercise discretion when an institution does not meet the terms of a Consent Order. Based on individual circumstances, the agencies may issue mandatory directives, impose monetary penalties, initiate changes in management, or take more serious adverse actions.

Kentucky banking laws limit the amount of dividends that may be paid to a holding company by its subsidiary banks without prior approval. These laws limit the amount of dividends that may be paid in any calendar year ~~is the~~to current year’s net income, as defined in the laws, combined with the retained net income of the preceding two years, less any dividends declared during those periods. The Bank has agreed with its primary regulators to obtain their written consent prior to declaring or paying any future dividends. As a practical matter, the Bank cannot pay dividends to the Company ~~while subject to~~until the Consent ~~Order.~~

~~Note 13 – Contingencies~~Order is lifted or modified and the Bank returns to consistent profitability.

WeNote 12 – Off Balance Sheet Risks, Commitments, and Contingent Liabilities

The Company, in the normal course of business, is party to financial instruments with off balance sheet risk. The financial instruments include commitments to extend credit and standby letters of credit. The contract or notional amounts of these instruments reflect the potential future obligations of the Company pursuant to those financial instruments. Creditworthiness for all instruments is evaluated on a case-by-case basis in accordance with the Company’s credit policies. Collateral from the client may be required based on the Company’s credit evaluation of the client and may include business assets of commercial clients, as well as personal property and real estate of individual clients or guarantors.

An approved but unfunded loan commitment represents a potential credit risk and a liquidity risk, since the Company’s client(s) may demand immediate cash that would require funding. In addition, unfunded loan commitments represent interest rate risk as market interest rates may rise above the rate committed to the Company’s client. Since a portion of these loan commitments normally expire unused, the total amount of outstanding commitments at any point in time may not require future funding.

Standby letters of credit are ~~defendants~~conditional commitments issued by the Company to guarantee the performance of a client to a third party. The terms and risk of loss involved in ~~various legal proceedings.~~issuing standby letters of credit are similar to those involved in issuing loan commitments and extending credit. In addition to credit risk, the Company also has liquidity risk associated with standby letters of credit because funding for these obligations could be required immediately. The Company does not deem this risk to be material. No liability is currently established for standby letters of credit.

The following table presents the contractual amounts of financial instruments with off-balance sheet risk for each period ended:

	March 31, 2017				December 31, 2016
	Fixed Rate		Variable Rate		Fixed Rate		Variable Rate
	(in thousands)
Commitments to make loans	$	25,462	$	16,732	$	19,445	$	18,347
Unused lines of credit		10,356		46,662		7,935		51,407
Standby letters of credit		573		373		582		360

Commitments to make loans are generally made for periods of one year or less.

In connection with the purchase of two loan participations, the Bank entered into two risk participation agreements during the fourth quarter of 2016, which had notional amounts totaling $14.6 million at both March 31, 2017 and December 31, 2016.

The Company is subject to claims and lawsuits that arise primarily in the ordinary course of business. Litigation is subject to inherent uncertainties and unfavorable rulings could occur. ~~We record~~The Company records contingent liabilities resulting from claims against usit when a loss is assessed to be probable and the amount of the loss is reasonably estimable. Accruals are not made in cases where liability is not probable or the amount cannot be reasonably estimated. Assessing probability of loss and estimating probable losses requires analysis of multiple factors, including in some cases judgments about the potential actions of third party claimants and courts. Recorded contingent liabilities are based on the best information available and actual losses in any future period are inherently uncertain. ~~Currently, we~~Based upon current knowledge and after consultation with counsel, the Company believes the pending legal proceedings or claims should not have ~~accrued approximately $2.1 million related to ongoing litigation matters for which we believe liability is probable and reasonably estimable. Accruals are not made~~a material impact on its financial position or results of operations. However, in ~~cases where liability is not probable or~~light of the ~~amount cannot be reasonably estimated. We disclose legal matters when we believe liability is reasonably possible and~~uncertainties involved in such proceedings, the outcome of a particular matter may be material to ~~our consolidated~~the financial ~~statements.~~position or results of operations for a particular reporting period in the future.

~~Signature Point Litigation.~~

On June 18, 2010, three real estate development companies filed suit in Kentucky state court against ~~the~~PBI Bank and Managed Assets of ~~Kentucky (“MAKY”).~~ ~~Signature Point Condominiums LLC, et al. v. PBI Bank, et al~~~~., Jefferson Circuit Court, Case No 10-CI-04295.~~Kentucky. On July 16, 2013, a jury in Louisville, Kentucky returned a verdict against the Bank, awarding the plaintiffs compensatory damages of $1,515,000 and punitive damages of $5,500,000. The case arose from a settlement in which the Bank agreed to release the plaintiffs and guarantors from obligations of more than $26 million related to a real estate project in Louisville. The plaintiffs were granted a right of first refusal to repurchase a tract of land within the project. In exchange, the plaintiffs conveyed the real estate securing the loans to the Bank. After plaintiffs declined to exercise their right of first refusal, the Bank sold the tract to the third party. Plaintiffs alleged the Bank had knowledge of the third party offer before the conveyance of the land by the Plaintiffs to the Bank. Plaintiffs asserted claims of fraud, breach of fiduciary duty, breach of the duty of good faith and fair dealing, tortious interference with prospective business advantage and conspiracy to commit fraud, negligence, and conspiracy against the Bank.

~~After conferring~~The Bank filed an appeal with ~~its legal advisors,~~ the ~~Bank believes the findings and damages are excessive and contrary to law, and that it has meritorious grounds on which it has moved to appeal. The Bank’s Notice~~Kentucky Court of ~~Appeal was filed~~Appeals on October 25, 2013. ~~After a number~~On December 2, 2016, the Court of procedural issues were resolved, the Bank filed its appellate brief on September 30, 2014. Appellee’s brief was filed on December 1, 2014. The Appellate Court heard oral arguments on November 16, 2015. We await the Appellate Court’s ruling. We will continue to defend this matter vigorously.

In accordance with the guidance provided in ASC 450-20-25, and after consultation with its legal counsel engaged for the appeal of the verdict, the Company concluded that it was not probable the full amount of the compensatory damages awarded by the jury would be overturned. Therefore, a liability was accrued for the full $1.5 million of compensatory damages awarded, plus statutory interest. After conferring with its legal counsel for the appeal, the Company concluded that the jury verdict for punitive damages was contrary to law, unsupported, excessive, and otherwise inappropriate. Based on this advice, the Company concluded it was probable that the verdict amount for $5.5 million in punitive damages would be overturned by the appeals court, and therefore it was not probable that the $5.5 million in punitive damages would become an actual liability. The ultimate outcome of this self-insured matter could have a material adverse effect on our financial condition, results of operations or cash flows.

~~Table Of Contents~~

~~AIT Laboratories Employee Stock Ownership Plan.~~ ~~On August 29, 2014, the United States Department of Labor (“DOL”) filed a lawsuit~~Appeals ruled against the Bank and ~~Michael A. Evans~~upheld the previous award of $7.015 million in damages, with one dissenting opinion as to the ~~U.S. District Court for~~amount of punitive damages awarded.

The Bank previously accrued the ~~Southern District of Indiana.~~ ~~Thomas E. Perez, Secretary~~compensatory damages of the ~~United States Department of Labor v. PBI Bank, Inc. and Michael A. Evans~~ ~~(Case No. 1:14-CV-01429-SEB-MJD). The complaint alleged that in 2009,~~trial court verdict along with interest at the statutory rate. Following the appellate court ruling, the Bank inaccrued the ~~capacity of trustee~~punitive damages award and statutory interest that totaled approximately $8.0 million, which had a negative impact on earnings and capital for the AIT Laboratories Employee Stock Ownership Plan, authorized the alleged imprudent and disloyal purchase of the stock of AIT Holdings, Inc. in 2009 for $90 million, a price allegedly far in excess of the stock’s fair market value. On May 12, 2016,2016. In March 2017, the parties ~~agreed to settle the litigation and executed a written settlement agreement. The Bank agreed to~~entered into a settlement ~~payment, which, to~~agreement , the ~~extent not paid from insurance proceeds, had been previously reserved for. The~~ court entered an agreed order ending the litigation, payment was made, and the Bank withdrew its motion for discretionary review with the Kentucky Supreme Court. As the Company had previously established a reserve for this matter, the settlement did not have a material effect on ~~May 13, 2016.~~the Company’s results of operation for 2017.

~~United States Department of Justice Investigation.~~On October 17, 2014, the United States Department of Justice ~~(the “DOJ”~~(“DOJ”) notified the Bank that ~~the Bank~~it was the subject of an investigation into possible violations of federal laws, including, among other things, possible violations related to false bank entries, bank fraud and securities fraud. The investigation concerns allegations that Bank personnel engaged in practices intended to delay or avoid disclosure of the Bank’s asset quality at the time of and following the United States Treasury’s purchase of preferred shares from the Company in November 2008. The Bank ~~is responding to and cooperating~~has cooperated with ~~any~~all requests for information from the DOJ. AtAs of the date of this ~~time~~report, the ~~investigation is ongoing, and~~ DOJ has made no determination whether to pursue any action in the matter.

~~Table Of Contents~~

Item 2. ~~Management’s~~Management’s Discussion and Analysis of Financial Conditionand Results of Operations

This item analyzes our financial condition, change in financial condition and results of operations. It should be read in conjunction with the unaudited consolidated financial statements and accompanying notes presented in Part I, Item 1 of this report.

Cautionary Note Regarding Forward-Looking Statements

This report contains statements about ~~the~~ future expectations, ~~activities~~actions and events that constitute forward-looking statements. Forward-looking statements express our beliefs, assumptions and expectations ofabout our future financial and operating performance and growth plans, taking into account information currently available to us. These statements are not statements of historical fact. The words “believe,” “may,” “should,” “anticipate,” “estimate,” “expect,” “intend,” “objective,” “seek,” “plan,” “strive” or similar words, or the negatives of these words, identify forward-looking statements.

Forward-looking statements involve risks and uncertainties that may cause our actual results to differ materially from the expectations of future results we expressed or implied in any forward-looking statements. These risks and uncertainties can be difficult to predict and may be out of our control. Factors that could contribute to differences in our results include, but are not limited to the following:

●

Our ~~inability~~ability to increase our capital to the levels required by our agreements with bank regulators could have a material adverse effect on our business.

●

A significant percentage of our loan portfolio is comprised of non-owner occupied commercial real estate loans, real estate construction and development loans, and multi-family residential real estate loans, all of which carry a higher degree of risk.

●

We continue to hold ~~and acquire a significant amount of~~ other real estate owned (“OREO”) properties, which could increase operating expenses and result in future losses.

●

Our decisions regarding credit risk may not be accurate, and our allowance for loan losses may not be sufficient to cover actual losses.

●

Our ability to pay cash dividends on our common and preferred shares and pay interest on the junior subordinated debentures that relate to our trust preferred securities is currently restricted. Our inability to resume paying interest on our trust preferred securities could adversely affect our common and preferred shareholders.

●

While we believe our provision for legal contingencies is adequate, the outcome of legal proceedings is difficult to predict and we may settle legal claims or be subject to judgments for amounts that exceed our estimates.

We also refer you to Part II, Item 1A – Risk Factors in this report and to the risks identified and the cautionary statements discussed in greater detail in our December 31, ~~2015~~2016 Annual Report on Form 10-K.

Forward-looking statements are not guarantees of performance or results. A forward-looking statement may include a statement of the assumptions or bases underlying the forward-looking statement. The Company believes it has chosen these assumptions and bases in good faith and they are reasonable. We caution you however, forward looking statements relying upon such assumptions or bases almost always vary from actual results, and the differences between those statements and actual results can be material. The forward-looking statements included in this report speak only as of the date of the report. We have no duty, and do not intend to, update these statements unless applicable laws require us to do so.

Overview

Porter Bancorp, Inc. (the ~~“Company”~~“Company”) is a bank holding company headquartered in Louisville, Kentucky. ~~Our wholly owned subsidiary~~We operate PBI Bank (“the Bank”) is, our wholly owned subsidiary and the ~~eleventh~~fourteenth largest bank domiciled in the Commonwealth of Kentucky based on total assets. We operate banking offices in twelve counties in Kentucky. Our markets include metropolitan Louisville in Jefferson County and the surrounding counties of Henry and Bullitt. We serve south central Kentucky and southern Kentucky from banking offices in Butler, Green, Hart, Edmonson, Barren, Warren, Ohio, and Daviess Counties. We also have an office in Lexington, the second largest city in Kentucky. The Bank is a community bank with a wide range of commercial and personal banking products. As of ~~September 30, 2016,~~March 31, 2017, we had total assets of ~~$915.3~~$942.4 million, total loans of ~~$621.7~~$664.2 million, total deposits of ~~$836.9~~$860.7 million and stockholders’ equity of ~~$43.6~~$35.5 million.

~~Table Of Contents~~

The Company reported net income of ~~$1.4 million and $3.9~~$1.7 million for the three ~~and nine~~ months ended ~~September 30, 2016,~~March 31, 2017, compared with ~~net loss of $1.1 million and $2.6~~$1.5 million for the ~~same periods~~first quarter of ~~2015.~~2016. After deductions for earnings allocated to participating securities, net income available to common shareholders was ~~$1.3 million and $3.8~~$1.6 million for the three ~~and nine~~ months ended ~~September 30, 2016, respectively,~~March 31, 2017, compared with ~~net loss attributable to common shareholders of $1.0 million and $2.3~~$1.4 million for the three ~~and nine~~ months ended ~~September 30, 2015, respectively.~~March 31, 2016.

Basic and diluted net income per common share were ~~$0.04 and $0.13~~$0.27 for the three ~~and nine~~ months ended ~~September 30, 2016, respectively,~~March 31, 2017 compared with ~~basic and diluted net loss per common share of ($0.04) and ($0.10)~~$0.27 for the three ~~and nine~~ months ended ~~September 30, 2015, respectively.~~March 31, 2016.

We note the following significant items during the ~~nine~~three months ended ~~September 30, 2016:~~March 31, 2017:

●

Net interest margin ~~On April 15, 2016, we completed the private placement of 2.9 million common shares and 1.1 million non-voting common shares~~increased two basis points to ~~accredited investors resulting in total proceeds of $5.0 million. The investors~~3.55% in the ~~private placement directed a portion~~first three months of ~~purchase price to pay all deferred interest payments on junior subordinated debentures, bringing our interest payments current through~~2017 compared with 3.53% in the ~~second quarter~~first three months of 2016. The ~~remaining proceeds totaled approximately $2.2 million and will be used for general corporate purposes and~~cost of interest bearing liabilities decreased from 0.79% in the first quarter of 2016 to ~~support~~0.78% in the ~~Bank.~~first quarter of 2017.

●

Average loans receivable increased approximately $29.2 million or 4.7% to $649.3 million for the quarter ended March 31, 2017, compared with $620.1 million for the first quarter of 2016. This resulted in an increase in interest revenue volume of approximately $363,000 which was offset by decreases due to rate decreases of $416,000 for the quarter ended March 31, 2017, compared with the first quarter of 2016. The decrease in the cost of interest bearing liabilities was primarily driven by volume decline in certificates of deposit.

●

During the period, our improving trends in non-performing loans, past due loans, and loan risk categories continued. We recordedno provision for loan losses expense in the first quarter of 2017, compared to negative provision for loan losses expense of ~~$1.9 million for~~$550,000 in the ~~nine months ended September 30, 2016, compared~~first quarter of 2016. Both were attributable to ~~$2.2 million for the nine months ended September 30, 2015, because of~~ declining historical loss rates, improvements in ~~loan~~asset quality, and management’s assessment of risk in the loan portfolio. Net loan charge-offs were ~~$652,000~~$1,000 for the first ~~nine months~~quarter of ~~2016,~~2017, compared to ~~$3.0 million~~$151,000 for the first ~~nine months~~quarter of 2015. In the following paragraphs we discuss our improving trends in non-performing loans, past due loans, and loan risk categories during the period, the factors that led to the negative provision expense.2016.

●

Non-performing ~~loans~~loans decreased ~~$4.0~~$1.1 million to ~~$10.1~~$8.1 million at ~~September 30, 2016,~~March 31, 2017, compared with ~~$14.1~~$9.2 million at December 31, ~~2015.~~2016. The decrease in non-performing loans was primarily due to ~~$4.0~~$1.5 million in paydowns ~~$1.3 million~~and $229,000 in charge-offs ~~$751,000~~which were partially offset by $803,000 in loans ~~returned to accrual status, and $1.2 million in transfers to OREO, which were offset by $3.3 million in loans being~~ placed on ~~nonaccrual.~~nonaccrual during the quarter.

●

Loans past due 30-59 days decreased from ~~$3.1~~$2.3 million at December 31, ~~2015~~2016 to ~~$2.3 million~~$972,000 at ~~September 30, 2016,~~March 31, 2017, and loans past due 60-89 days ~~increased slightly~~decreased from ~~$241,000~~$315,000 at December 31, ~~2015~~2016 to ~~$273,000~~$289,000 at ~~September 30, 2016.~~March 31, 2017. Total loans past due and nonaccrual loans decreased to ~~$12.7~~$9.4 million at ~~September 30, 2016,~~March 31, 2017, from ~~$17.5~~$11.8 million at December 31, ~~2015.~~2016.

●

All loan risk categories (other than pass loans) have decreased since December 31, ~~2015.~~2016. Pass loans represent ~~88.6%~~93.0% of the portfolio at ~~September 30, 2016,~~March 31, 2017, compared to ~~83.6%~~91.7% at December 31, ~~2015.~~2016. During the ~~nine~~three months ended ~~September 30, 2016,~~March 31, 2017, the pass category increased approximately ~~$33.6~~$31.0 million, the watch category declined approximately ~~$17.3~~$4.0 million, the special mention category declined approximately ~~$792,000,~~$5,000, and the substandard category declined approximately ~~$12.5~~$2.0 million. The ~~$12.5~~$2.0 million decrease in loans classified as substandard was primarily driven by ~~$7.9~~$1.9 million in principal payments received ~~and $8.1 million in loans upgraded from substandard, offset by $6.7 million in loans downgraded to substandard~~ during the ~~nine~~three months ended ~~September 30,~~March 31, 2017.

●

Foreclosed properties were $6.6 million at March 31, 2017, compared with $6.8 million at December 31, 2016, and $17.9 million at March 31, 2016. During the first three months of 2017, the Company acquired $100,000 and sold $350,000 of OREO. Operating expenses, fair value write downs, and a net gain on sales totaled $668,000 in the first quarter of 2016 compared to a net gain on sales, net of expenses, of $16,000 in the first quarter of 2017

●

Our ratio of non-performing assets to total assets decreased to 1.56% at March 31, 2017, compared with 1.70% at December 31, 2016, and 3.09% at March 31, 2016.

●

Non-interest income ~~Foreclosed properties were $7.1~~decreased $323,000 to $1.1 million ~~at September 30, 2016,~~for the first quarter of 2017, compared with ~~$19.2~~$1.4 million ~~at December 31, 2015, and $29.2 million at September 30, 2015. During~~for the first ~~nine months~~quarter of ~~2016,~~2016. The decrease was driven primarily by reductions in OREO income of $256,000 and reductions in the ~~Company acquired $1.2 million~~gains on sales and ~~sold $12.6 million~~calls of ~~OREO. We incurred OREO losses totaling $749,000 during the first nine months~~securities of ~~2016 compared~~$203,000. Non-interest expense decreased $962,000 to $7.1 million ~~during~~for the first ~~nine months~~quarter of ~~2015, reflecting gains~~2017 compared with $8.1 million for the first quarter of 2016, primarily due to a reduction in OREO expenses of approximately $684,000, a reduction of FDIC insurance expense of $181,000, a reduction of professional fees of $82,000, and ~~losses on sales~~a reduction of litigation and ~~fair value write-downs for reductions in listing prices for certain properties and updated appraisals.~~loan collection expenses of $79,000.

●

Deposits ~~Our ratio of non-performing assets~~increased 1.3% to ~~total assets decreased to 1.88%~~$860.7 million at ~~September 30, 2016,~~March 31, 2017, compared with ~~3.51%~~$849.9 million at December 31, ~~2015, and 4.85% at September 30, 2015.~~

●

~~Net interest margin~~2016. Certificate of deposit balances increased ~~20 basis points to 3.45% for~~$25.4 million during the first ~~nine~~three months of ~~2016~~2017 to $470.0 million at March 31, 2017, from $444.6 million at December 31, 2016. Money market deposits decreased 14.1% at March 31, 2017 compared with 3.25% for the first nine months of 2015. The increase in margin between periods was due to an increase in the yield on earning assets from 4.03% for the first nine months of 2015 to 4.14% for the first nine months of 2016, coupled with a decrease in the cost of interest bearing liabilities from 0.87% for the first nine months of 2015 to 0.79% in the first nine months ofDecember 31, 2016.

~~Table Of Contents~~

●

Average loans receivable declined approximately $19.7 million or 3.1% to $621.8 million for the nine months ended September 30, 2016 compared with $641.5 million for the nine months ended September 30, 2015. This resulted in an interest revenue volume decline of approximately $726,000. The decrease in the cost of interest bearing liabilities was primarily driven by the continued repricing of certificates of deposit at lower rates and the declining volume of certificates of deposit.

●

Non-interest income decreased $2.9 million to $3.6 million for the first nine months of 2016, compared with $6.5 million for the first nine months of 2015. The decrease was driven primarily by gains on the sales of securities totaling $187,000 in the first nine months of 2016, compared to $1.7 million in the first nine months of 2015. Additionally, OREO income decreased $658,000 in 2016 as a result of income producing properties being sold. The third quarter of 2015 was also positively impacted by an $883,000 gain on extinguishment of junior subordinated debt. Non-interest expense decreased $9.4 million to $23.9 million for the first nine months of 2016 compared with $33.4 million for the first nine months of 2015, primarily due to OREO expense totaling $1.3 million in the first nine months of 2016, compared to $8.8 million in the first nine months of 2015, as well as professional fees totaling $1.3 million in the first nine months of 2016, compared to $2.3 million in the first nine months of 2015.

●

Deposits decreased 4.7% to $836.9 million at September 30, 2016, compared with $878.0 million at December 31, 2015. Certificate of deposit balances decreased $45.1 million during the first nine months of 2016 to $454.7 million at September 30, 2016, from $499.8 million at December 31, 2015. Money market deposits increased 12.0% at September 30, 2016 compared with December 31, 2015.

~~Going Concern Considerations and Future Plans~~

As described in Note 2 – “Going Concern Considerations and Future Plans,” our consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business for the foreseeable future. However, the events and circumstances described in the Company’s annual report filed on Form 10-K for the year ended December 31, 2015 created substantial doubt about the Company’s ability to continue as a going concern at December 31, 2015. Since December 31, 2015, we have made significant improvements in our operating results, improved our liquidity position through a capital raise, brought current interest payment obligations on our junior subordinated debt in 2016, reduced non-performing assets, and reduced contingent liability risk as described below.

PBI Bank is in compliance with each element of its Consent Order with the Federal Depository Insurance Corporation and the Kentucky Department of Financial Institutions other than the requirement that the Bank maintain a minimum Tier 1 leverage ratio of 9% and a minimum total risk based capital ratio of 12%. As of September 30, 2016, the Bank’s Tier 1 leverage ratio and total risk based capital ratio had improved 6.97% and 11.18%, respectively, both less than the minimum capital ratios required by the Consent Order, but otherwise compliant with Basel III capital requirements. The Consent Order provides that if the Bank should be unable to reach the required capital levels, and if directed in writing by the FDIC, the Bank would be required to develop, adopt and implement a written plan to sell or merge itself into another federally insured financial institution or otherwise obtain a capital investment sufficient to recapitalize the Bank. The Bank has not been directed by the FDIC to implement such a plan.

~~Table Of Contents~~

●

~~Increasing capital, including through the issuance of senior debt, subordinated debt, or equity securities.~~

●

Continuing to operate the Company and Bank in a safe and sound manner. We have reduced our lending concentrations and the size of our balance sheet while continuing to remediate non-performing loans.

●

~~Executing on the sale of OREO and reinvesting the sale proceeds in quality income producing assets.~~

●

The Consent Order requires the Bank to obtain the written consent of both the FDIC and the KDFI before declaring or paying any future dividends to the Company, which are its principal source of the Company’s revenue. Since the Bank is unlikely to be able to pay dividends to the Company until the Consent Order is satisfied, cash inflows for the Company are limited to the issuance of new debt or the issuance of capital securities. The Company’s liquid assets were $2.2 million at September 30, 2016. Ongoing operating expenses of the Company are forecast at approximately $1.0 million for the next twelve months.

~~Our consolidated financial statements do not include any adjustments that may result were the Company to become unable to continue as a going concern.~~

Application of Critical Accounting Policies

We continually review our accounting policies and financial information disclosures. Our more significant accounting policies that require the use of estimates and judgments in preparing the financial statements are summarized in “Application of Critical Accounting Policies” in Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operation of our Annual Report on Form 10-K for the calendar year ended December 31, ~~2015.Management~~2016. Management has discussed the development, selection, and application of our critical accounting policies with our Audit Committee. During the first ~~nine~~three months of ~~2016,~~2017, there were no material changes in the critical accounting policies and assumptions.

Results of Operations

The following table summarizes components of income and expense and the change in those components for the three months ended ~~September 30, 2016,~~March 31, 2017, compared with the same period of ~~2015:~~2016:

													For the Three Months					Change from
	For the Three Months Ended September 30,						Change from Prior Period						Ended March 31,					Prior Period
	2016			2015			Amount			Percent			2017		2016			Amount			Percent
	(dollars in thousands)												(dollars in thousands)

Gross interest income	$	8,931		$	9,179		$	(248	)		(2.7	)%	$	9,225	$	9,185		$	40			0.4	%
Gross interest expense		1,473			1,697			(224	)		(13.2	)		1,484		1,534			(50	)		(3.3	)
Net interest income		7,458			7,482			(24	)		(0.3	)		7,741		7,651			90			1.2
Provision (negative provision) for loan losses		(750	)		(2,200	)		(1,450	)		(65.9	)		—		(550	)		550			100.0
Non-interest income		1,105			2,210			(1,105	)		(50.0	)		1,068		1,391			(323	)		(23.2	)
Non-interest expense		7,920			12,968			(5,048	)		(38.9	)		7,129		8,091			(962	)		(11.9	)
Net income (loss)		1,393			(1,076	)		2,469			229.5
Net income before taxes														1,680		1,501			179			11.9
Income tax expense														—		21			(21	)		(100.0	)
Net income														1,680		1,480			200			13.5

Net income for the three months ended ~~September 30, 2016~~March 31, 2017 totaled ~~$1.4~~$1.7 million, compared with ~~net loss of $1.1~~$1.5 million for the comparable period of ~~2015.~~2016. Net interest income ~~decreased $24,000~~increased $90,000 from the ~~third~~2016 first quarter ~~of 2015~~ as a result of ~~a decrease~~an increase in earning assets ~~offset by an increase in~~and net interest margin. Net interest margin increased 14two basis points to ~~3.47%~~3.55% in the ~~third quarter~~first three months of ~~2016~~2017 compared with ~~3.33%~~3.53% in the ~~third quarter~~first three months of ~~2015.~~2016. The increase in margin between periods was due ~~to an increase~~ in ~~the yield on earning assets from 4.07% for the third quarter of 2015~~part to ~~4.15% for the third quarter of 2016, coupled with~~ a decrease in the cost of interest bearing liabilities from ~~0.83%~~0.79% in the ~~third~~first quarter of ~~2015~~2016 to 0.78% in the ~~third~~first quarter of ~~2016.~~2017. Average earning assets ~~decreased~~increased from ~~$903.9~~$881.6 million for the ~~third~~first quarter of ~~2015~~2016 to ~~$864.3~~$892.3 for the ~~third~~first quarter of ~~2016.~~2017. Non-interest income decreased by ~~$1.1 million~~$323,000 to $1.1 million from ~~$2.2~~$1.4 million in the third quarter of 2015. Non-interest income for the third quarter of 2015 was positively impacted by an $833,000 gain on extinguishment of junior subordinated debt. Non-interest expense decreased from $13.0 million in the third quarter of 2015 to $7.9 million in the thirdfirst quarter of 2016 primarily due to a decrease in ~~OREO~~other real estate owned income of $256,000. Non-interest expense decreased from $8.1 million in the first quarter of 2016 to $7.1 million in the first quarter of 2017 primarily due to decreased other real estate owned expense of ~~$4.8 million commensurate with the significant reduction~~$684,000, a $181,000 decline in ~~foreclosed properties,~~FDIC insurance, and a ~~$246,000~~$82,000 decline in professional fees.

~~Table Of Contents~~

~~The following table summarizes components of income and expense and the change in those components for the nine months ended September 30, 2016, compared with the same period of 2015:~~

For the Nine Months
Ended September 30,

Change from
Prior Period

2016

2015

Amount

Percent

(dollars in thousands)

Gross interest income
$ 26,821 $ 27,549 $ (728
)
(2.6
)%
Gross interest expense
4,516 5,438 (922
)
(17.0
)
Net interest income
22,305 22,111 194 0.9
Provision (negative provision) for loan losses
(1,900
)
(2,200
)
(300
)
(13.6
)
Non-interest income
3,648 6,471 (2,823
)
(43.6
)
Non-interest expense
23,947 33,394 (9,447
)
(28.3
)
Net income (loss) before taxes
3,906 (2,612
)
6,518 249.5
Income tax expense
21 — 21 100.0
Net income (loss)
3,885 (2,612
)
6,497 248.7

Net income for the nine months ended September 30, 2016 totaled $3.9 million, compared with net loss of $2.6 million for the comparable period of 2015. Net interest income increased $194,000 from the first nine months of 2015 as a result of the positive impact of the collection of previously charged-off accrued uncollected interest of approximately $377,000 during the first nine months 2016, offset by a decrease in earning assets for the first nine months of 2016. Net interest margin increased 20 basis points to 3.45% in the first nine months of 2016 compared with 3.25% in the first nine months of 2015. The increase in margin between periods was due to an increase in the yield on earning assets from 4.03% for the first nine months of 2015 to 4.14% for the first nine months of 2016, coupled with a decrease in the cost of interest bearing liabilities from 0.87% in the first nine months of 2015 to 0.79% in the first nine months of 2016. Average earning assets decreased from $923.3 million for the first nine months of 2015 to $874.2 million for the first nine months of 2016. Non-interest income decreased by $2.8 million to $3.6 million from $6.5 million in the first nine months of 2015 primarily due to a decrease in net gain on sales of securities of $1.5 million. Also, non-interest income for the first nine months of 2015 was positively impacted by an $883,000 gain on extinguishment of junior subordinated debt. Non-interest expense decreased from $33.4 million in the first nine months of 2015 to $23.9 million in the first nine months of 2016 primarily due to a decrease in OREO expense of $7.5 million commensurate with the significant reduction in foreclosed properties, a $1.1 million decline in professional fees, and a decline in loan collection expense of $320,000.

Net Interest InIncome~~come~~ – Our net interest income was ~~$7.5~~$7.7 million for the three months ended ~~September 30, 2016, a decrease~~March 31, 2017, an increase of ~~$24,000,~~$90,000, or ~~0.3%~~1.2%, compared with ~~$7.5~~$7.7 million for the same period in ~~2015.~~2016. Net interest spread and margin were ~~3.37%~~3.45% and ~~3.47%~~3.55%, respectively, for the ~~third~~first quarter of ~~2016,~~2017, compared with ~~3.24%~~3.44% and ~~3.33%~~3.53%, respectively, for the ~~third~~first quarter of ~~2015.~~2016. Net average non-accrual loans were ~~$11.0~~$8.7 million and ~~$26.0~~$13.1 million for the ~~third~~first quarters of ~~2016~~2017 and ~~2015,~~2016, respectively.

Average loans receivable ~~declined~~increased approximately ~~$13.9~~$29.2 million for the ~~third~~first quarter of ~~2016~~2017 compared with the ~~third~~first quarter of ~~2015.~~2016. This resulted in an increase in interest revenue volume ~~decline~~ of approximately ~~$170,000 as well as a decline in~~$363,000 which was offset by interest ~~recoveries and~~ rate ~~improvements~~decreases aggregating ~~$26,000~~$416,000 for the quarter ended ~~September 30, 2016~~March 31, 2017, compared with the ~~prior year period.~~first quarter of 2016. Interest foregone on non-accrual loans totaled ~~$180,000~~$139,000 in the ~~third~~first quarter of ~~2016,~~2017, compared with ~~$181,000~~$161,000 in the ~~second~~fourth quarter of 2016, and ~~$352,000~~$215,000 in the ~~third~~first quarter of ~~2015.~~2016.

Net interest margin ~~increased 14~~increased two basis points from our margin of ~~3.33%~~3.53% in the prior year ~~third~~first quarter to ~~3.47%~~3.55% for the ~~third~~first quarter of ~~2016.~~2017. The yield on earning assets ~~increased eight basis points~~remained consistent and rates paid on interest-bearing liabilities declined ~~five~~one basis ~~points~~point from the ~~third~~first quarter of ~~2015. The reduction in the cost of interest bearing liabilities was primarily driven by declines in the average rates paid on and volume declines in certificates of deposit between periods.~~2016.

Net interest income was $22.3 million for the nine months ended September 30, 2016, an increase of $194,000, or 0.1%, compared with $22.1 million for the same period in 2015. Net interest spread and margin were 3.35% and 3.45%, respectively, for the first nine months of 2016, compared with 3.16% and 3.25%, respectively, for the first nine months of 2015. Net average non-accrual loans were $12.0 million and $34.5 million for the first nine months of 2016 and 2015, respectively. Cost of funds decreased eight basis points from 0.87% for the first nine months of 2015 to 0.79% for the first nine months of 2016.

Average loans receivable declined approximately $19.7 million for the nine months ended September 30, 2016 compared with the first nine months of 2015. This resulted in a decline in interest revenue of approximately $726,000 for the nine months ended September 30, 2016 compared with the prior year period.

Net interest margin increased 20 basis points from our margin of 3.25% in the first nine months of 2015. The yield on earning assets increased 11 basis points from the first nine months of 2015, compared with a 8 basis point decline in rates paid on interest-bearing liabilities. The reduction in the cost of interest bearing liabilities was primarily driven by declines in the average rates paid on and volume declines in and certificates of deposit between periods.

~~Table Of Contents~~

~~Average~~ Balance Sheets

The following table presents the average balance sheets for the three month periods ended ~~September 30,~~March 31, 2017 and 2016, ~~and 2015,~~ along with the related calculations of tax-equivalent net interest income, net interest margin and net interest spread for the related periods.

	Three Months Ended September 30,																Three Months Ended March 31,
	2016								2015								2017								2016
	Average Balance			Interest Earned/Paid		Average Yield/Cost			Average Balance			Interest Earned/Paid		Average Yield/Cost			Average Balance			Interest Earned/Paid		Average Yield/Cost			Average Balance			Interest Earned/Paid		Average Yield/Cost
	(dollars in thousands)																(dollars in thousands)
ASSETS
Interest-earning assets:
Loan receivables (1)(2)	$	626,095		$	7,699		4.89	%	$	639,954		$	7,895		4.89	%	$	649,325		$	7,829		4.89	%	$	620,077		$	7,882		5.11	%
Securities
Taxable		160,130			956		2.38			165,692			986		2.36			176,113			1,114		2.57			161,459			989		2.46
Tax-exempt (3)		20,779			153		4.51			24,819			187		4.60			19,989			145		4.53			22,052			164		4.60
FHLB stock		7,323			72		3.91			7,323			73		3.95			7,323			83		4.60			7,323			74		4.06
Federal funds sold and other		49,980			51		0.41			66,069			38		0.23			39,542			54		0.55			70,724			76		0.43
Total interest-earning assets		864,307			8,931		4.15	%		903,857			9,179		4.07	%		892,292			9,225		4.23	%		881,635			9,185		4.23	%
Less: Allowance for loan losses		(10,135	)							(16,818	)							(8,942	)							(12,033	)
Non-interest earning assets		63,453								81,432								54,266								67,776
Total assets	$	917,625							$	968,471							$	937,616							$	937,378

LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest-bearing liabilities:
Certificates of deposit and other timedeposits	$	455,840		$	1,009		0.88	%	$	546,502		$	1,267		0.92	%
Certificates of deposit and other time deposits																	$	459,178		$	1,019		0.90	%	$	488,523		$	1,069		0.88	%
NOW and money market deposits		231,601			238		0.41			198,752			192		0.38			237,410			210		0.36			228,226			223		0.39
Savings accounts		33,874			15		0.18			35,348			17		0.19			34,917			15		0.17			34,656			16		0.19
Repurchase agreements		—			—		—			382			—		—
FHLB advances		2,672			17		2.53			3,315			23		2.75			11,808			31		1.06			2,985			19		2.56
Junior subordinated debentures		24,598			194		3.14			29,454			198		2.67			24,148			209		3.51			25,048			207		3.32
Total interest-bearing liabilities		748,585			1,473		0.78	%		813,753			1,697		0.83	%		767,461			1,484		0.78	%		779,438			1,534		0.79	%

Non-interest-bearing liabilities:
Non-interest-bearing deposits		118,611								112,660								122,051								113,720
Other liabilities		8,259								11,138								14,372								10,674
Total liabilities		875,455								937,551								903,884								903,832
Stockholders’ equity		42,170								30,920
Total liabilities and stockholders’ equity	$	917,625							$	968,471
Stockholders’ equity																		33,732								33,546
Total liabilities and stockholders’ equity																	$	937,616							$	937,378

Net interest income				$	7,458							$	7,482							$	7,741							$	7,651

Net interest spread							3.37	%							3.24	%							3.45	%							3.44	%

Net interest margin							3.47	%							3.33	%							3.55	%							3.53	%

(1)	Includes loan fees in both interest income and the calculation of yield on loans.

(2)	Calculations include non-accruing loans averaging ~~$11.0~~$8.7 million and ~~$26.0~~$13.1 million, respectively, in average loan amounts outstanding.

(3)	Taxable equivalent yields are calculated assuming a 35% federal income tax rate.

~~Table Of Contents~~

The following table presents the average balance sheets for the nine month periods ended September 30, 2016 and 2015, along with the related calculations of tax-equivalent net interest income, net interest margin and net interest spread for the related periods.

Nine Months Ended September 30,

2016

2015

Average
Balance

Interest
Earned/Paid

Average
Yield/Cost

Average
Balance

Interest
Earned/Paid

Average
Yield/Cost

(dollars in thousands)

ASSETS

Interest-earning assets:

Loan receivables (1)(2)
$ 621,824 $ 23,036 4.95
%
$ 641,489 $ 23,496 4.90
%
Securities

Taxable
161,232 2,895 2.40 171,960 3,122 2.43
Tax-exempt (3)
21,355 475 4.57 25,580 580 4.66
FHLB stock
7,323 219 3.99 7,323 219 4.00
Federal funds sold and other
62,451 196 0.42 76,966 132 0.23
Total interest-earning assets
874,185 26,821 4.14
%
923,318 27,549 4.03
%
Less: Allowance for loan losses
(11,138
)
(18,030
)

Non-interest earning assets
67,241 89,067
Total assets
$ 930,288 $ 994,355

LIABILITIES AND STOCKHOLDERS’ EQUITY

Interest-bearing liabilities:

Certificates of deposit and other timedeposits
$ 471,530 $ 3,108 0.88
%
$ 572,243 $ 4,173 0.97
%
NOW and money market deposits
231,213 696 0.40 195,887 544 0.37
Savings accounts
34,460 46 0.18 36,003 58 0.22
Repurchase agreements
— — — 785 1 0.17
FHLB advances
2,827 54 2.55 3,583 74 2.76
Junior subordinated debentures
24,822 612 3.29 29,706 588 2.65
Total interest-bearing liabilities
764,852 4,516 0.79
%
838,207 5,438 0.87
%

Non-interest-bearing liabilities:

Non-interest-bearing deposits
117,377 112,326
Other liabilities
9,735 10,946
Total liabilities
891,964 961,479
Stockholders’ equity
38,324 32,876
Total liabilities and stockholders’ equity
$ 930,288 $ 994,355

Net interest income
$ 22,305 $ 22,111

Net interest spread
3.35
%
3.16
%

Net interest margin
3.45
%
3.25
%

~~(1)~~

~~Includes loan fees in both interest income and the calculation of yield on loans.~~

~~(2)~~

~~Calculations include non-accruing loans averaging $12.0 million and $34.5 million, respectively, in average loan amounts outstanding.~~

~~(3)~~

~~Taxable equivalent yields are calculated assuming a 35% federal income tax rate.~~

~~Table Of Contents~~

Rate/Volume Analysis

The table below sets forth certain information regarding changes in interest income and interest expense for the periods indicated. For each category of ~~interest-earning~~interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (1) changes in rate (changes in rate multiplied by old volume); (2) changes in volume (changes in volume multiplied by old rate); and (3) changes in rate-volume (change in rate multiplied by change in volume). Changes in rate-volume are proportionately allocated between rate and volume variance.

	Three Months Ended September 30, 2016 vs. 2015									Nine Months Ended September 30 2016 vs. 2015									Three Months Ended March 31, 2017 vs. 2016
	Increase (decrease) due to change in									Increase (decrease) due to change in									Increase (decrease) due to change in						Net
	Rate			Volume			Net Change			Rate			Volume			Net Change			Rate			Volume				Change
	(in thousands)																		(in thousands)
Interest-earning assets:
Loan receivables	$	(26	)	$	(170	)	$	(196	)	$	266		$	(726	)	$	(460	)	$	(416	)	$	363		$	(53	)
Securities		(5	)		(59	)		(64	)		(55	)		(277	)		(332	)		25			81			106
FHLB stock		(1	)		—			(1	)		—			—			—			9			—			9
Federal funds sold and other		24			(11	)		13			93			(29	)		64			18			(40	)		(22	)
Total increase (decrease) in interest income		(8	)		(240	)		(248	)		304			(1,032	)		(728	)
Total increase (decrease) in interest income																				(364	)		404			40

Interest-bearing liabilities:
Certificates of deposit and other time deposits		(56	)		(202	)		(258	)		(377	)		(688	)		(1,065	)		15			(65	)		(50	)
NOW and money market accounts		13			33			46			49			103			152			(22	)		9			(13	)
Savings accounts		(1	)		(1	)		(2	)		(10	)		(2	)		(12	)		(1	)		—			(1	)
Federal funds purchased and repurchase agreements		—			—			—			—			(1	)		(1	)
FHLB advances		(2	)		(4	)		(6	)		(5	)		(15	)		(20	)		(16	)		28			12
Junior subordinated debentures		32			(36	)		(4	)		131			(107	)		24			9			(7	)		2
Total increase (decrease) in interest expense		(14	)		(210	)		(224	)		(212	)		(710	)		(922	)
Total decrease in interest expense																				(15	)		(35	)		(50	)
Increase (decrease) in net interest income	$	6		$	(30	)	$	(24	)	$	516		$	(322	)	$	194		$	(349	)	$	439		$	90

Non-Interest Income – The following table presents the major categories of non-interest income for the three ~~and nine~~ months ended ~~September 30, 2016~~March 31, 2017 and ~~2015:~~2016:

										For the Three Months
	For the Three Months Ended September 30,					For the Nine Months Ended September 30,				Ended March 31,
	2016			2015		2016		2015		2017		2016
	(in thousands)									(in thousands)

Service charges on deposit accounts	$	520		$	492	$	1,422	$	1,376	$	501	$	429
Bank card interchange fees		214			212		637		644		213		202
Other real estate owned rental income		46			380		451		1,109		—		256
Bank owned life insurance income		101			65		316		229		102		96
Net gain (loss) on sales of securities		(16	)		—		187		1,696
Gain on extinguishment of junior subordinated debt		—			883		—		883
Net gain on sales of securities											—		203
Other		240			178		635		534		252		205
Total non-interest income	$	1,105		$	2,210	$	3,648	$	6,471	$	1,068	$	1,391

Non-interest income for the ~~third~~first quarter of ~~2016~~2017 decreased by ~~$1.1 million,~~$323,000, or ~~50.0%~~23.2%, compared with the ~~third~~first quarter of ~~2015. For the nine months ended September 30, 2016, non-interest income decreased by $2.8 million, or 43.6% to $3.6 million compared with $6.5 million for the same period of 2015.~~2016. The decrease in non-interest income ~~between the three month comparative periods~~ was primarily ~~due to the $883,000 gain on extinguishment~~driven by an absence of ~~junior subordinated debt recognized~~OREO income in the ~~third~~first quarter of ~~2015,~~2017 as income producing foreclosed properties were sold in earlier periods, compared to $256,000 in the first quarter of 2016, as well as a decrease of $334,000 in OREO rental income as income producing properties have been sold. The decrease in non-interest income between the nine month comparative periods was primarily due to a $1.5 million decrease inno net gain on sales of ~~investment~~ securities ~~a decrease in OREO income, and the $883,000 gain on extinguishment of junior subordinated debt recognized~~ in the ~~third~~first quarter of ~~2015.~~2017 compared to $203,000 in the first quarter of 2016 as no securities were sold or called in the first quarter of 2017.

~~Table Of Contents~~

Non-interest Expense –The following table presents the major categories of non-interest expense for the three ~~and nine~~ months ended ~~September 30, 2016~~March 31, 2017 and ~~2015:~~2016:

									For the Three Months
	For the Three Months Ended September 30,				For the Nine Months Ended September 30,				Ended March 31,
	2016		2015		2016		2015		2017			2016
	(in thousands)								(in thousands)

Salary and employee benefits	$	3,945	$	3,920	$	11,624	$	11,795	$	3,947		$	3,822
Occupancy and equipment		842		815		2,504		2,513		821			854
Professional fees		374		620		1,251		2,313		303			385
FDIC insurance		442		539		1,458		1,673		342			523
Data processing expense		295		278		887		860		292			297
State franchise and deposit tax		255		285		765		855		225			255
Other real estate owned expense		322		5,131		1,284		8,796		(16	)		668
Loan collection expense		222		321		575		895
Litigation and loan collection expense										3			82
Other		1,223		1,059		3,599		3,694		1,212			1,205
Total non-interest expense	$	7,920	$	12,968	$	23,947	$	33,394	$	7,129		$	8,091

Non-interest expense for the ~~third~~first quarter ended ~~September 30, 2016~~March 31, 2017 decreased ~~$5.0 million,~~$962,000, or ~~38.9%~~11.9%, compared with the ~~third~~first quarter of ~~2015. For the nine months ended September 30, 2016, non-interest expense decreased $9.4 million, or 28.3% to $23.9 million compared with $33.4 million for~~2016. This decrease from the first ~~nine months~~quarter of ~~2015.~~2016 was primarily due to a decrease in OREO expense of $684,000 as the size of the OREO portfolio significantly declined. The ~~decreases in non-interest expense for the third quarter and nine months ended September 30, 2016 were primarily~~improvement was also attributable to ~~decreased OREO~~a decrease in FDIC insurance of $181,000, a reduction of professional fees of $82,000, and a reduction of litigation and loan collection expenses ~~commensurate with the significant reduction in foreclosed properties, as well as decreased professional fees.~~of $79,000.

Income Tax Expense ––Effective tax rates differ from the federal statutory rate of 35% applied to income before income taxes due to the following:

													For the Three Months
	For the Three Months Ended September 30,						For the Nine Months Ended September 30,						Ended March 31,
	2016			2015			2016			2015			2017			2016
	(in thousands)												(in thousands)

Federal statutory rate times financial statement income	$	487		$	(376	)	$	1,367		$	(914	)	$	588		$	525
Effect of:
Valuation allowance		(465	)		689			(1,197	)		1,228			(419	)		(450	)
Tax-exempt income		(52	)		(65	)		(161	)		(201	)		(49	)		(56	)
Non-taxable life insurance income		(35	)		(23	)		(110	)		(80	)		(36	)		(33	)
Restricted stock vesting														(92	)		—
Other, net		65			(225	)		122			(33	)		8			35
Total	$	—		$	—		$	21		$	—		$	—		$	21

Analysis of Financial Condition

Total assets decreased ~~$33.4~~$2.8 million, or ~~3.5%~~0.3%, to ~~$915.3~~$942.4 million at ~~September 30, 2016,~~March 31, 2017, from ~~$948.7~~$945.2 million at December 31, ~~2015.~~2016. This decrease was primarily attributable to a decrease in ~~cash and cash equivalents of $29.5 million which funded the redemption of~~ interest bearing deposits in banks of ~~$27.8 million. There was also~~$24.5 million and a decrease in ~~OREO~~cash and due from banks of ~~$12.1~~$4.0 million, offset by an increase in net loans of ~~$5.6~~$24.9 million and an increase in ~~bank owned life insurance~~available for sale securities of ~~$5.3~~$3.2 million.

Loans ~~Rec~~Receivable~~eivable~~ –Loans receivable increased ~~$3.0~~$24.9 million, or ~~0.5%~~3.90%, during the ~~nine~~three months ended ~~September 30, 2016~~March 31, 2017 to ~~$621.7~~$664.2 million as loan growth outpaced ~~payoffs.~~paydowns. Our commercial and commercial real estate portfolios increased by an aggregate of $26.3 million, or 7.4% during the first quarter of 2017 and comprised 57.4% of the loan portfolio at March 31, 2017.

~~Table Of Contents~~

Loan Portfolio Composition –The following table presents a summary of the loan portfolio at the dates indicated, net of deferred loan fees, by type. There are no foreign loans in our portfolio. Except for commercial real estate, ~~and~~ 1-4 family residential real estate, and loans for retail facilities (included in nonfarm nonresidential commercial real estate below), there is no concentration of loans in any industry exceeding 10% of total ~~loans,with the exception of loans~~loans. Loans for retail facilities ~~(included in nonfarm nonresidential commercial real estate below). Those loans~~ totaled ~~$64.4~~$63.0 million at ~~September 30, 2016~~March 31, 2017 and ~~$59.1~~$59.9 million at December 31, ~~2015.~~2016.

As of September 30,
2016

As of December 31,
2015

Amount

Percent

Amount

Percent

(dollars in thousands)

Commercial
$ 85,000 13.68
%
$ 86,176 13.93
%
Commercial Real Estate

Construction
34,178 5.50 33,154 5.36
Farmland
83,320 13.40 76,412 12.35
Nonfarm nonresidential
138,351 22.25 140,570 22.72
Residential Real Estate

Multi-family
36,558 5.88 44,131 7.13
1-4 Family
192,008 30.88 201,478 32.57
Consumer
9,752 1.57 10,010 1.62
Agriculture
41,764 6.72 26,316 4.25
Other
766 0.12 419 0.07
Total loans
$ 621,697 100.0
%
$ 618,666 100.0
%

	As of March 31,					As of December 31,
	2017					2016
	Amount		Percent			Amount		Percent
			(dollars in thousands)

Commercial	$	104,850		15.79	%	$	97,761		15.29	%
Commercial Real Estate
Construction		41,424		6.24			36,330		5.68
Farmland		83,252		12.53			71,507		11.19
Nonfarm nonresidential		151,921		22.87			149,546		23.39
Residential Real Estate
Multi-family		49,350		7.43			48,197		7.54
1-4 Family		185,866		27.98			188,092		29.42
Consumer		9,542		1.44			9,818		1.54
Agriculture		37,515		5.65			37,508		5.87
Other		463		0.07			477		0.08
Total loans	$	664,183		100.00	%	$	639,236		100.00	%

Loan Portfolio by Risk Category –The following table presents a summary of the loan portfolio at the dates indicated, by risk category.

																					March 31, 2017					December 31, 2016
	September 30, 2016					June 30, 2016					March 31, 2016					December 31, 2015					Loans		% to Total			Loans		% to Total
	Loans		% to Total			Loans		% to Total			Loans		% to Total			Loans		% to Total			(dollars in thousands)
	(dollars in thousands)
Pass	$	551,075		88.6	%	$	547,853		87.8	%	$	534,451		86.2	%	$	517,484		83.7	%	$	617,361		93.0	%	$	586,430		91.7	%
Watch		46,049		7.4			50,024		8.0			59,265		9.6			63,363		10.2			26,442		4.0			30,431		4.8
Special Mention		603		0.1			622		0.1			1,383		0.2			1,395		0.2			492		0.1			497		0.1
Substandard		23,970		3.9			25,637		4.1			24,728		4.0			36,424		5.9			19,888		2.9			21,878		3.4
Doubtful		—		—			—		—			—		—			—		—			—		—			—		—
Total	$	621,697		100.0	%	$	624,136		100.0	%	$	619,827		100.0	%	$	618,666		100.0	%	$	664,183		100.0	%	$	639,236		100.00	%

Our loans ~~receivable~~receivable have increased ~~$3.0~~$24.9 million, or ~~0.5%~~3.9%, during the ~~nine~~three months ended ~~September 30, 2016. Except for the pass loan category, all~~March 31, 2017. All loan risk categories other than pass loans have decreased since December 31, ~~2015.~~2016. The pass category increased approximately ~~$33.6~~$30.9 million, the watch category decreased approximately ~~$17.3~~$4.0 million, the special mention category declined approximately ~~$792,000,~~$5,000, and the substandard category declined approximately ~~$12.5~~$2.0 million. The ~~$12.5~~$2.0 million decrease in loans classified as substandard was primarily driven by ~~$8.1~~$1.9 million in principal payments received, $311,000 in loans upgraded from substandard, ~~$7.9 million~~$260,000 in ~~principal payments received, $1.2 million~~charge-offs, and $100,000 in ~~migration~~loans moved to OREO, ~~and $1.9 million in charge-offs,~~ offset by ~~$6.7 million~~$601,000 in loans moved to substandard during the ~~period.~~quarter.

Loan Delinquency –The following table presents a summary of loan delinquencies at the dates indicated.

September 30,
2016

June 30,
2016

March 31,
2016

December 31,
2015

(in thousands)

Past Due Loans:

30-59 Days
$ 2,335 $ 2,401 $ 1,829 $ 3,133
60-89 Days
273 336 62 241
90 Days and Over
— — — —
Total Loans Past Due 30-90+ Days
2,608 2,737 1,891 3,374

Nonaccrual Loans
10,099 11,599 11,119 14,087
Total Past Due and Nonaccrual Loans
$ 12,707 $ 14,336 $ 13,010 $ 17,461

~~Table Of Contents~~

	March 31, 2017		December 31, 2016
	(in thousands)
Past Due Loans:
30-59 Days	$	972	$	2,302
60-89 Days		289		315
90 Days and Over		—		—
Total Loans Past Due 30-90+ Days		1,261		2,617

Nonaccrual Loans		8,102		9,216
Total Past Due and Nonaccrual Loans	$	9,363	$	11,833

During the ~~nine~~three months ended ~~September 30, 2016,~~March 31, 2017, nonaccrual loans decreased by ~~$4.0~~$1.1 million to ~~$10.1~~$8.1 million. This decrease was due primarily to ~~$4.0~~$1.5 million in paydowns ~~$1.3 million~~and $229,000 in ~~charge offs, $751,000 in loans returned to accrual status and $1.2 million in loans migrating to OREO,~~charge-offs, offset by ~~$3.3 million~~$803,000 in loans ~~being~~ placed on nonaccrual ~~during the period.~~status. During the ~~nine~~three months ended ~~September 30, 2016,~~March 31, 2017, loans past due 30-59 days decreased from ~~$3.1~~$2.3 million at December 31, ~~2015~~2016 to ~~$2.3 million.~~$972,000 at March 31, 2017. Loans past due 60-89 days ~~increased~~decreased from ~~$241,000~~$315,000 at December 31, ~~2015~~2016 to ~~$273,000~~$289,000 at ~~September 30, 2016.~~March 31, 2017. This represents a ~~$766,000~~$1.4 million decrease from December 31, ~~2015~~2016 to ~~September 30, 2016,~~March 31, 2017, in loans past due 30-89 days. We considered this trend in delinquency levels during the evaluation of qualitative trends in the portfolio when establishing the general component of our allowance for loan losses.

N~~Non-Performing~~on-Performing Assets –Non-performing assets consist of loans past due 90 days or more still on accrual, loans on which interest is no longer accrued, real estate acquired through foreclosure, and repossessed assets. The following table sets forth information with respect to non-performing assets as of ~~September 30, 2016~~March 31, 2017 and December 31, ~~2015.~~2016.

							March 31, 2017			December 31, 2016
	September30, 2016			December31, 2015			(dollars in thousands)
	(dollars in thousands)
Loans past due 90 days or more still on accrual	$	—		$	—		$	—		$	—
Nonaccrual loans		10,099			14,087
Loans on nonaccrual status								8,102			9,216
Total non-performing loans		10,099			14,087			8,102			9,216
Real estate acquired through foreclosure		7,098			19,214			6,571			6,821
Other repossessed assets		—			—			—			—
Total non-performing assets	$	17,197		$	33,301		$	14,673		$	16,037

Non-performing loans to total loans		1.62	%		2.28	%		1.22	%		1.44	%
Non-performing assets to total assets		1.88	%		3.51	%		1.56	%		1.70	%
Allowance for non-performing loans	$	291		$	295		$	163		$	241
Allowance for non-performing loans to non-performing loans		2.88	%		2.09	%		2.01	%		2.62	%

Nonperforming loans at ~~September 30, 2016,~~March 31, 2017, were ~~$10.1~~$8.1 million, or ~~1.62%~~1.22% of total loans, compared with ~~$14.1~~$9.2 million, or ~~2.28%~~1.44% of total loans at December 31, ~~2015,~~2016, and ~~$17.0~~$11.1 million, or ~~2.72%~~1.79% of total loans at ~~September 30, 2015.~~March 31, 2016. Net loan charge-offs for the first three months of 2017 totaled $1,000 compared to $151,000 for the first three months of 2016.

Troubled Debt Restructuring -A troubled debt restructuring (TDR) occurs when the ~~Company~~Bank has agreed to a loan modification in the form of a concession ~~for~~to a borrower who is experiencing financial difficulty. The majority of the ~~Company’s~~Bank’s TDRs involve a reduction in interest rate, a deferral of principal for a stated period of time, or an interest only period. All TDRs are considered impaired, and the ~~Company~~Bank has allocated reserves for these loans to reflect the present value of the concessionary terms granted to the borrower. If the loan is considered collateral dependent, it is reported net of allocated reserves, at the fair value of the collateral less cost to sell.

We do not have a formal loan modification program. ~~Rather, we work with individual borrowers on a case-by-case basis to facilitate the orderly collection of our principal and interest before a loan becomes a non-performing loan.~~ If a borrower is unable to make contractual payments, we review the particular circumstances of ~~the borrower’s~~that borrower’s situation and determine whether or not to negotiate a revised payment stream. In other words, we identify performing borrowers experiencing financial difficulties, and through negotiations, we lower their interest rate, most typically on a short-term basis for three to six months. Our goal when restructuring a credit is to afford the borrower a reasonable period ~~of time~~ to remedy the issue causing cash flow constraints within their business so that they ~~can~~may return to performing status over time.

Our loan modifications have taken the form of a reduction in interest rate and/or curtailment of scheduled principal payments for a short-term period, usually three to six months, but in some cases until maturity of the loan. In some ~~circumstances~~circumstances we may restructure real estate secured loans in a bifurcated fashion whereby we have a fully amortizing “A” loan at a market interest rate and an interest-only “B” loan at a reduced interest rate. ~~Our~~The majority of our restructured loans are ~~all~~ collateral secured loans. If a borrower fails to perform under the modified terms, we place the loan(s) on nonaccrual status and ~~begin the process of working with the borrower to liquidate the underlying collateral to satisfy the debt.~~initiate collection actions.

We consider any loan that is restructured for a borrower experiencing financial difficulties due to a ~~borrower’s~~borrower’s potential inability to pay in accordance with contractual terms of the loan to be a troubled debt ~~restructure.~~restructuring. Specifically, we consider a concession involving a modification of the loan terms, such as (i) a reduction of the stated interest rate, (ii) a reduction or deferral of principal, or (iii) a reduction or deferral of accrued interest at a stated interest rate lower than the current market rate for new debt with similar risk all to be troubled debt restructurings. When a modification of terms is made for a competitive reason, we do not consider ~~that~~it to be a troubled debt restructuring. A primary example of a competitive modification would be an interest rate reduction for a performing ~~borrower’s~~customer’s loan to a market rate as the result of a market decline in rates.

~~Table Of Contents~~

Management periodically reviews ~~renewals/~~renewals and modifications of previously identified TDRs for which there was no principal forgiveness, to consider if it is appropriate to remove the TDR classification. If the borrower is no longer experiencing financial difficulty and the renewal/modification did not contain a concessionary interest rate or other concessionary terms, management considers the potential removal of the TDR classification. If deemed appropriate based upon current underwriting, the TDR classification is removed as the borrower has complied with the terms of the loan at the date of renewal/modification and there was a reasonable expectation that the borrower would continue to comply with the terms of the loan after the date of the renewal/modification. In this instance, the TDR was originally considered a restructuring in a prior year as a result of a modification with an interest rate that was not commensurate with the risk of the underlying loan. Additionally, TDR classification can be removed in circumstances in which the Company performs a non-concessionary re-modification of the loan at terms that were considered to be at market for loans with comparable risk. Management expects the borrower will continue to perform under the re-modified terms based on the borrower’s past history of performance.

If the borrower fails to perform, we place the loan on nonaccrual status and seek to liquidate the underlying ~~collateral for these loans.~~collateral. Our nonaccrual policy for restructured loans is identical to our nonaccrual policy for all loans. Our policy calls for a loan to be reported as nonaccrual if it is maintained on a cash basis because of deterioration in the financial condition of the borrower, payment in full of principal and interest is not expected, or principal or interest ~~has been in default for a period of~~is past due 90 days or more unless the assets are both well secured and in the process of collection. Changes in value for impairment, including the amount attributed to the passage of time, are recorded entirely within the provision for loan losses. Upon determination that a loan is collateral dependent, the loan is charged down to the fair value of collateral less estimated costs to sell.

At ~~September 30, 2016,~~March 31, 2017, we had 187 restructured loans totaling ~~$9.5~~$4.6 million with borrowers who experienced deterioration in financial condition compared with 309 loans totaling ~~$21.0~~$8.7 million at December 31, ~~2015.~~2016. In general, these loans were granted interest rate reductions to provide cash flow relief to borrowers experiencing cash flow difficulties. ~~Of these loans,~~At March 31, 2017, three loans totaling approximately $3.3 million ~~were also~~had been granted principal payment deferrals until maturity. There were no concessions made to forgive principal relative to these loans, although we have recorded partial charge-offs for certain restructured loans. In general, these loans are secured by first liens on 1-4 residential or commercial real estate properties, or farmland. Restructured loans also include ~~$472,000~~$467,000 of commercial loans. At ~~September 30, 2016, $6.1~~March 31, 2017, $1.2 million of our restructured loans were accruing and $3.4 million were on nonaccrual compared with ~~$17.4~~$5.4 million and ~~$3.5~~$3.3 million, respectively, at December 31, ~~2015.~~ 2016.

There were no new TDRs during the first ~~nine~~three months of ~~2016~~2017 or ~~2015.~~2016. During the ~~nine~~three months ended ~~September 30, 2016,~~March 31, 2017, TDRs were reduced as a result of ~~$6.5 million~~$6,000 in payments. In addition, the TDR classification was removed from ~~one loan~~two loans that met the requirements as discussed above. ~~This loan~~These loans totaled ~~$5.0~~$4.1 million at December 31, ~~2015. This loan is~~2016. These loans are no longer evaluated individually for impairment.See "Note 3 - Loans," of the notes to the financial statements for additional disclosure related to troubled debt restructuring.

The following table sets forth information with respect to TDRs, non-performing loans, real estate acquired through foreclosure, and other repossessed assets.

							March 31, 2017			December 31, 2016
	September30, 2016			December31, 2015			(dollars in thousands)
	(dollars in thousands)
Total non-performing loans	$	10,099		$	14,087		$	8,102		$	9,216
TDRs on accrual		6,114			17,440			1,244			5,350
Total non-performing loans and TDRs on accrual	$	16,213		$	31,527		$	9,346		$	14,566
Real estate acquired through foreclosure		7,098			19,214			6,571			6,821
Other repossessed assets		—			—			—			—
Total non-performing assets and TDRs on accrual	$	23,311		$	50,741		$	15,917		$	21,387

Total non-performing loans and TDRs on accrual to total loans		2.61	%		5.10	%		1.41	%		2.28	%
Total non-performing assets and TDRs on accrual to total assets		2.55	%		5.35	%		1.69	%		2.26	%

~~See “Note 4 - Loans,” of the notes to the financial statements for additional disclosure related to troubled debt restructuring.~~

Allowance for Loan Losses –The allowance for loan losses is based on management’s continuing review and evaluation of individual loans, loss experience, current economic conditions, risk characteristics of various categories of loans and such other factors that, in management’s judgment, require ~~consideration~~current recognition in estimating loan losses.

Management has established loan grading procedures that result in specific allowance allocations for any estimated inherent risk of loss. For loans not individually evaluated, a general allowance allocation is computed using factors developed over time based on actual loss experience. The specific and general allocations plus consideration of qualitative factors represent management’s ~~best~~ estimate of probable losses contained in the loan portfolio at the evaluation date. Although the allowance for loan losses is comprised of specific and general allocations, the entire allowance is available to absorb any credit losses.

~~Table Of Contents~~

An analysis of changes in the allowance for loan losses and selected ratios for the three ~~and nine~~ month periods ended ~~September 30,~~March 31, 2017 and 2016, ~~and 2015,~~ and for the year ended December 31, ~~2015~~2016 follows:

	Three Months Ended September 30,						Nine Months Ended September 30,						Year Ended December 31,			Three Months Ended March 31,						Year Ended December 31,
	2016			2015			2016			2015			2015			2017			2016			2016
	(dollars in thousands)															(dollars in thousands)
Balance at beginning of period	$	10,104		$	16,809		$	12,041		$	19,364		$	19,364
Balances at beginning of period																$	8,967		$	12,041		$	12,041

Loans charged-off:
Real estate		363			1,254			1,658			4,138			5,050			321			713			2,157
Commercial		15			201			276			675			696			—			12			276
Consumer		21			70			56			200			268			5			13			178
Agriculture		5			41			13			111			118			—			—			18
Other		1			14			79			47			—			—			11			—
Total charge-offs		405			1,580			2,082			5,171			6,132			326			749			2,629

Recoveries
Recoveries:
Real estate		381			1,049			894			1,591			2,338			284			428			1,189
Commercial		102			5			169			406			723			5			35			334
Consumer		23			98			216			158			240			25			39			368
Agriculture		1			2			86			5			8			7			79			114
Other		33			15			65			45			—			4			17			—
Total recoveries		540			1,169			1,430			2,205			3,309			325			598			2,005
Net charge-offs (recoveries)		(135	)		411			652			2,966			2,823
Net charge-offs																	1			151			624
Provision (negative provision) for loan losses		(750	)		(2,200	)		(1,900	)		(2,200	)		(4,500	)		—			(550	)		(2,450	)
Balance at end of period	$	9,489		$	14,198		$	9,489		$	14,198		$	12,041		$	8,966		$	11,340		$	8,967

Allowance for loan losses to period-end loans		1.53	%		2.27	%		1.53	%		2.27	%		1.95	%		1.35	%		1.83	%		1.40	%
Net charge-offs (recoveries) to average loans (annualized)		(0.09	)%		0.25	%		0.14	%		0.62	%		0.44	%
Net charge-offs to average loans																	0.00	%		0.10	%		0.10	%
Allowance for loan losses to non-performing loans		93.96	%		83.58	%		93.96	%		83.58	%		85.48	%		110.66	%		101.99	%		97.30	%

Allowance for loan losses for loans individuallyevaluated for impairment	$	339		$	469		$	339		$	469		$	428
Allowance for loan losses for loans individually evaluated for impairment																$	332		$	464		$	399
Loans individually evaluated for impairment		16,214			34,895			16,214			34,895			31,776			9,891			26,236			15,131
Allowance for loan losses to loans individuallyevaluated for impairment		2.09	%		1.34	%		2.09	%		1.34	%		1.35	%
Allowance for loan losses to loans individually evaluated for impairment																	3.36	%		1.77	%		2.64	%

Allowance for loan losses for loans collectivelyevaluated for impairment	$	9,150		$	13,729		$	9,150		$	13,729		$	11,613
Allowance for loan losses for loans collectively evaluated for impairment																$	8,634		$	10,876		$	8,568
Loans collectively evaluated for impairment		605,483			589,519			605,483			589,519			586,890			654,292			593,591			624,105
Allowance for loan losses to loans collectivelyevaluated for impairment		1.51	%		2.33	%		1.51	%		2.33	%		1.98	%
Allowance for loan losses to loans collectively evaluated for impairment																	1.32	%		1.83	%		1.37	%

Our loan loss reserve, as a percentage of total loans at ~~September 30, 2016,~~March 31, 2017, decreased to ~~1.53%~~1.35% from ~~1.95%~~1.40% at December 31, ~~2015~~2016 and from ~~2.27%~~1.83% at ~~September 30, 2015.~~March 31, 2016. The change in our loan loss reserve as a percentage of total loans between periods is attributable to growth in the ~~fluctuation in~~portfolio, historical loss experience, qualitative factors, fewer loans migrating downward in risk grade classifications and improved charge-off ~~levels, and negative provision expense.~~levels. Our allowance for loan losses to non-performing loans was ~~93.96%~~110.66% at ~~September 30, 2016,~~March 31, 2017, compared with ~~85.48%~~97.30% at December 31, ~~2015,~~2016, and ~~83.58%~~101.99% at ~~September 30, 2015.~~March 31, 2016. Net charge-offs in the first ~~nine~~three months of ~~2016~~2017 totaled ~~$652,000~~$1,000 compared to ~~$3.0 million~~$151,000 in the first ~~nine~~three months of ~~2015.~~ 2016.

~~Table Of Contents~~

The following table sets forth the net charge-offs (recoveries) for the periods indicated:

	Nine MonthsEnded September 30, 2016			Year Ended December 31, 2015			Year Ended December 31, 2014			Three Months Ended March 31, 2017			Year Ended December 31, 2016			Year Ended December 31, 2015
	(in thousands)									(in thousands)
Commercial	$	107		$	(27	)	$	485		$	(5	)	$	(58	)	$	(27	)
Commercial Real Estate		(146	)		1,225			11,878			(214	)		(339	)		1,225
Residential Real Estate		910			1,487			3,339			251			1,307			1,487
Consumer		(160	)		37			167			(20	)		(200	)		37
Agriculture		(73	)		110			17			(7	)		(96	)		110
Other		14			(9	)		(26	)		(4	)		10			(9	)
Total net charge-offs	$	652		$	2,823		$	15,860		$	1		$	624		$	2,823

The majority of our nonperforming loans are secured by real estate collateral, and the underlying collateral coverage for nonperforming loans supports the likelihood of collection of our principal. We have assessed these loans for collectability and considered, among other things, the borrower’s ability to repay, the value of the underlying collateral, and other market conditions to ensure the allowance for loan losses is adequate to absorb probable incurred losses. Our allowance for non-performing loans to non-performing loans was ~~2.88%~~2.01% at ~~September 30, 2016~~March 31, 2017 compared with ~~2.09%~~2.62% at December 31, ~~2015,~~2016, and ~~2.31%~~2.20% at ~~September 30, 2015.~~March 31, 2016. The decrease in this ratio from December 31, 2016 to March 31, 2017 was primarily attributable to the improving non-performing loan trends during the period.

The following table presents the unpaid principal balance, recorded investment and allocated allowance related to loans individually evaluated for impairment in the commercial real estate and residential real estate portfolios as of ~~September 30, 2016~~March 31, 2017 and December 31, ~~2015.~~2016.

	September 30, 2016						December 31, 2015						March 31, 2017						December 31, 2016
	Commercial Real Estate			Residential Real Estate			Commercial Real Estate			Residential Real Estate			Commercial Real Estate			Residential Real Estate			Commercial Real Estate			Residential Real Estate
	(in thousands)												(in thousands)
Unpaid principal balance	$	11,726		$	10,485		$	18,112		$	19,983		$	7,199		$	6,090		$	10,985		$	10,439
Prior charge-offs		(5,158	)		(1,545	)		(5,293	)		(2,310	)		(2,362	)		(1,696	)		(5,131	)		(1,818	)

Recorded investment		6,568			8,940			12,819			17,673			4,837			4,394			5,854			8,621
Allocated allowance		(41	)		(297	)		(43	)		(385	)		(33	)		(285	)		(35	)		(350	)

Recorded investment, less allocated allowance	$	6,527		$	8,643		$	12,776		$	17,288		$	4,804		$	4,109		$	5,819		$	8,271

Recorded investment, less allocated allowance/ Unpaid principal balance		55.66	%		82.43	%		70.54	%		86.51	%		66.73	%		67.47	%		52.97	%		79.23	%

Based on prior charge-offs, our current recorded investment in the commercial real estate and residential real estate segments is significantly below the unpaid principal balance for these loans. The recorded investment net of the allocated allowance was ~~55.66%~~66.73% and ~~82.43%~~67.47% of the unpaid principal balance in the commercial real estate and residential real estate segments of the portfolio, respectively, at ~~September 30, 2016.~~March 31, 2017.

The following table illustrates recent trends in loans collectively evaluated for impairment and the related allowance for loan losses by portfolio segment:

	September 30, 2016							June 30, 2016							March 31, 2016							December 31, 2015							March 31, 2017							December 31, 2016
	Loans		Allowance		% to Total			Loans		Allowance		% to Total			Loans		Allowance		% to Total			Loans		Allowance		% to Total			Loans		Allowance		% to Total			Loans		Allowance		% to Total

Commercial	$	84,429	$	622		0.74	%	$	74,474	$	730		0.98	%	$	82,879	$	642		0.77	%	$	85,064	$	818		0.96	%	$	104,257	$	801		0.77	%	$	97,166	$	462		0.48	%
Commercial real estate		249,281		5,074		2.04			246,341		5,384		2.19			240,319		6,724		2.80			237,317		6,950		2.93			271,760		4,209		1.55			251,529		4,859		1.93
Residential real estate		219,626		3,235		1.47			228,952		3,678		1.61			227,435		3,258		1.43			227,936		3,599		1.58
Residential real estate:																														230,822		3,284		1.42			227,668		3,076		1.35
Consumer		9,751		23		0.24			9,847		47		0.48			9,921		115		1.16			9,990		122		1.22			9,535		32		0.34			9,817		8		0.08
Agriculture		41,630		193		0.46			38,571		118		0.31			32,654		136		0.42			26,164		122		0.47			37,455		306		0.82			37,448		161		0.43
Other		766		3		0.39			416		1		0.24			383		1		0.26			419		2		0.48			463		2		0.43			477		2		0.42
Total	$	605,483	$	9,150		1.51	%	$	598,601	$	9,958		1.66	%	$	593,591	$	10,876		1.83	%	$	586,890	$	11,613		1.98	%	$	654,292	$	8,634		1.32	%	$	624,105	$	8,568		1.37	%

~~Table Of Contents~~

Our allowance for loan losses for loans collectively evaluated for impairment declined to ~~1.51%~~1.32% at ~~September 30,~~March 31, 2017 from 1.83% at March 31, 2016 ~~from 2.33% at September 30, 2015~~ and ~~1.98%~~1.37% at December 31, ~~2015.~~2016. This decline was driven primarily by declining historical loss trends and an improving loan risk category classification mix and volume which are key factors for estimating general reserves. Other factors include the consideration of growth, composition and diversification of our loan portfolio, current delinquency levels, the results of recent regulatory communications and general economic conditions.

Provision for Loan Losses –ANo provision for loan losses was recorded for the first quarter of 2017, compared to a negative provision for loan losses of ~~$1.9 million~~$550,000 for the first quarter of 2016. No provision expense was recorded for the ~~nine months ended September 30, 2016, compared to negative provision~~first quarter of ~~$2.2 million for the first nine months~~2017 as a result of ~~2015. The negative provision for 2016 was driven by~~ declining historical loss rates, improvements in asset quality, growth in the portfolio, and management’s assessment of risk within the portfolio. ~~Except for the pass category, all~~All loan risk categories other than pass loans have decreased since December 31, ~~2015.~~2016. The pass category increased approximately ~~$33.6~~$30.9 million, the watch category decreased approximately ~~$17.3~~$4.0 million, the special mention category declined approximately ~~$792,000,~~$5,000, and the substandard category declined approximately ~~$12.5~~$2.0 million. Net charge-offs were ~~$652,000~~$1,000 for the ~~nine~~three months ended ~~September 30, 2016,~~March 31, 2017, compared with ~~$3.0 million~~$151,000 for ~~September 30, 2015.~~the three months ended March 31, 2016. We consider the size and volume of our portfolio as well as the credit quality of our loan portfolio based upon risk category classification when determining the loan loss provision for each period and the allowance for loan losses at period end.

Foreclosed Properties – Foreclosed properties at ~~September 30, 2016~~March 31, 2017 were ~~$7.1~~$6.6 million compared with ~~$29.2~~$17.9 million at ~~September 30, 2015~~March 31, 2016 and ~~$19.2~~$6.8 million at December 31, ~~2015.~~2016. See “Note 54 - Other Real Estate Owned,” of the notes to the financial statements. During the first ~~nine~~three months of ~~2016,~~2017, we acquired ~~$1.2 million~~$100,000 of OREO properties, and sold properties totaling approximately ~~$12.6 million.~~$350,000. We value foreclosed properties at fair value less estimated costs to sell when acquired and expect to liquidate these properties to recover our investment in the due course of business.

OREO is recorded at fair market value less estimated cost to sell at time of acquisition. Any write-down of the property at the time of acquisition is charged to the allowance for loan losses. Subsequent reductions in fair value are recorded as ~~non-interest~~non-interest expense. ~~To determine the fair value of~~When OREO ~~for smaller dollar single family homes, we consult with internal real estate sales staff and external realtors, investors, and appraisers. If the internally evaluated market price~~ is ~~below our underlying investment in the property, appropriate write-downs are recorded.~~

~~For larger dollar commercial real estate properties,~~acquired, we obtain a new appraisal of the subject property or have staff in our special assets group or centralized appraisal department evaluate the latest in-file appraisal in connection with the transfer to OREO. In some of these circumstances, an appraisal is in process at quarter end and we must make our best estimate of the fair value of the underlying collateral based on our internal evaluation of the property, our review of the most recent appraisal, and discussions with the currently engaged appraiser.appraisal. We typically obtain updated appraisals onwithin five quarters of the anniversary date of ownership unless a sale is imminent.

~~Net gain (loss)~~As the size of the OREO portfolio declined significantly, operating expenses of $22,000 in the first quarter of 2017 were offset by $38,000 in net gains on sales ~~write-downs, and~~resulting in a net benefit of $16,000 compared to net expenses of $668,000 in the first quarter of 2016 which consisted of $55,000 in net gains on sales offset by $223,000 in operating expenses for OREO totaled $1.3 million for the nine months ended September 30, 2016, compared with $8.8 million for the same period of 2015. During the nine months ended September 30, 2016, fair value write-downs of $970,000 were recorded to reflect declinesand $500,000 in fair value ~~driven by reductions in listing prices and new appraisals compared with $7.1 million for the nine months ended September 30, 2015.~~write-downs.

Liabilities –Total liabilities at ~~September 30, 2016~~March 31, 2017 were ~~$871.7~~$906.8 million compared with ~~$916.7~~$912.4 million at December 31, ~~2015,~~2016, a decrease of ~~$45.0~~$5.6 million, or ~~4.9%~~0.6%. This decrease was primarily attributable to a decrease in accrued interest payable and other liabilities of $11.0 million due to the payment of a settlement agreement and a decrease in FHLB advances of $5.1 million, offset by an increase in total deposits of ~~$41.1 million from $878.0 million at December 31, 2015 to $836.9 million at September 30, 2016.~~$10.8 million.

Deposits are our primary source of funds. The following table sets forth the average daily balances and weighted average rates paid for our deposits for the periods indicated:

											For the Three Months					For the Year
											Ended March 31,					Ended December 31,
											2017					2016
	For the Nine Months Ended September 30, 2016					For the Year Ended December 31, 2015					Average		Average			Average		Average
	Average Balance		Average Rate			Average Balance		Average Rate			Balance		Rate			Balance		Rate
	(dollars in thousands)										(dollars in thousands)
Demand	$	117,377				$	113,576				$	122,051				$	119,736
Interest checking		96,406		0.13	%		88,814		0.13	%		105,986		0.13	%		96,294		0.13	%
Money market		134,807		0.60			112,350		0.57			131,424		0.54			136,423		0.58
Savings		34,460		0.18			35,604		0.21			34,917		0.17			34,257		0.18
Certificates of deposit		471,530		0.88			557,441		0.96			459,178		0.90			466,007		0.88
Total deposits	$	854,580		0.60	%	$	907,785		0.68	%	$	853,556		0.59	%	$	852,717		0.60	%

~~Table Of Contents~~

The following table sets forth the average daily balances and weighted average rates paid for our certificates of deposit for the periods indicated:

											For the Three Months					For the Year
											Ended March 31,					Ended December 31,
											2017					2016
	For the Nine Months Ended September 30, 2016					For the Year Ended December 31, 2015					Average		Average			Average		Average
	Average Balance		Average Rate			Average Balance		Average Rate			Balance		Rate			Balance		Rate
	(dollars in thousands)										(dollars in thousands)
Less than $100,000	$	265,883		0.86	%	$	306,941		0.93	%	$	250,311		0.88	%	$	261,615		0.86	%
$100,000 or more		205,647		0.91			250,500		0.99			208,867		0.93	%		204,392		0.91	%
Total	$	471,530		0.88	%	$	557,441		0.96	%	$	459,178		0.90	%	$	466,007		0.88	%

The following table shows at ~~September 30, 2016~~March 31, 2017 the amount of our time deposits of $100,000 or more by time remaining until maturity (in thousands):

Maturity Period	Maturity Period			Maturity Period

Three months or less		$	33,060		$	21,640
Three months through six months			65,439			18,892
Six months through twelve months			33,199			58,776
Over twelve months			71,265			118,303
Total		$	202,963		$	217,611

Liquidity

Liquidity risk arises from the possibility we may not be able to satisfy current or future financial commitments, or may become unduly reliant on alternative funding sources. The objective of liquidity risk management is to ensure that we meet the cash ~~flow~~flow requirements of depositors and borrowers, as well as our operating cash needs, taking into account all on- and off-balance sheet funding demands. Liquidity risk management also involves ensuring that we meet our cash flow needs at a reasonable cost. We maintain an investment and funds management policy, which identifies the primary sources of liquidity, establishes procedures for monitoring and measuring liquidity, and establishes minimum liquidity requirements in compliance with regulatory guidance. Our Asset Liability Committee regularly monitors and reviews our liquidity position.

Funds are available from a number of sources, including the sale of securities in the available for sale investment portfolio, principal pay-downs on loans and mortgage-backed securities, customer deposit inflows, and other wholesale funding. Historically, we also utilized brokered and wholesale deposits to supplement our funding strategy. We are currently restricted from accepting, renewing, or rolling-over brokered deposits without the prior receipt of a waiver on a case-by-case basis from our regulators. At ~~September 30, 2016,~~March 31, 2017, we had no brokered deposits.

~~Traditionally, we have borrowed~~We also borrow from the FHLB to supplement our funding requirements. At ~~September 30, 2016,~~March 31, 2017, we had an unused borrowing capacity with the FHLB of ~~$27.7~~$13.9 million. Our borrowing capacity is under a detailed loan listing requirement and is based on the market value of the underlying pledged loans. ~~Any new advances are limited to a one-year maturity or less.~~

We also have available on a secured basis federal funds borrowing lines from a correspondent bank totaling $5.0 million. Management believes our sources of liquidity are adequate to meet expected cash needs for the foreseeable future. However, the availability of these lines could be affected by our financial position. We are also subject to FDIC interest rate restrictions for deposits. As such, we are permitted to offer up to the “national rate” plus 75 basis points as published weekly by the FDIC.

~~Capital~~

~~Stockholders’~~Capital

Stockholders’ equity increased ~~$11.6~~$2.8 million to ~~$43.6~~$35.5 million at ~~September 30, 2016,~~March 31, 2017, compared with ~~$32.0~~$32.7 million at December 31, ~~2015~~2016 primarily due to ~~the issuance of $5.0 in common stock,~~ current year net income of ~~$3.9~~$1.7 million and an increase in the fair value of our available for sale securities portfolio of ~~$2.3~~$1.0 million.

~~Table Of Contents~~

The following table shows the ratios of Tier 1 capital, common equity Tier 1 capital, and total capital to risk-adjusted assets and the leverage ratios ~~for~~(excluding the ~~Company and~~capital conservation buffer) for the Bank at the dates indicated:

										September 30, 2016						December 31, 2015
	Regulatory Minimums			Well-Capitalized Minimums			Minimum Capital Ratios Under Consent Order			Porter Bancorp			PBI Bank			Porter Bancorp			PBI Bank			Regulatory Minimums			Well-Capitalized Minimums			Minimum Capital Ratios Under Consent Order			March 31, 2017			December 31, 2016

Tier 1 Capital		6.0	%		8.0	%		N/A			8.48	%		9.53	%		6.89	%		8.84	%		6.0	%		8.0	%		N/A			8.33	%		8.28	%
Common equity Tier I capital		4.5			6.5			N/A			6.37			9.53			5.09			8.84			4.5			6.5			N/A			8.33			8.28
Total risk-based capital		8.0			10.0			12.0	%		11.57			11.18			10.46			10.58			8.0			10.0			12.0	%		9.89			9.88
Tier 1 leverage ratio		4.0			5.0			9.0			6.21			6.97			4.74			6.08			4.0			5.0			9.0			6.37			6.24

Failure to meet minimum capital requirements could result in additional discretionary actions by regulators that, if ~~undertaken,~~taken, could have a materially adverse effect on our financial condition.

Each of the federal bank regulatory agencies has established risk-based capital requirements for banking organizations. The Basel III regulatory capital reforms became effective for the Company and Bank on January 1, 2015, and include new minimum risk-based capital and leverage ratios. These rules refine the definition of what constitutes “capital” for purposes of calculating those ratios, including the definitions of Tier 1 capital and Tier 2 capital. The final rules allow banks and their holding companies with less than $250 billion in assets a one-time opportunity to opt-out of a requirement to include unrealized gains and losses in accumulated other comprehensive income in their capital calculation. The Company and the Bank opted out of this requirement. The rules also establish a “capital conservation buffer” of 2.5%, to be phased in over three years, above the regulatory minimum risk-based capital ratios. Once the capital conservation buffer is fully phased in, the minimum ratios are a common equity Tier 1 risk-based capital ratio of 7.0%, a Tier 1 risk-based capital ratio of 8.5%, and a total capital to total risk-weighted assets ("total risk-based capital ~~ratio~~ratio") of 10.5%. The phase-in of the capital conservation buffer requirement ~~begins~~began in January 2016 at 0.625% of risk-weighted assets and ~~will increase each year until fully implemented~~increases to 1.25% in ~~January~~2017, 1.875% in 2018, and 2.5% in 2019. An institution is subject to limitations on paying dividends, engaging in share repurchases and paying discretionary bonuses if capital levels fall below minimum levels plus the buffer amounts. These limitations establish a maximum percentage of eligible retained income that could be utilized for such actions. In addition, our Consent Order calls for the Bank to maintain a ratio of total ~~capital to total risk-weighted assets (“total~~ risk-based capital ~~ratio”)~~ratio of at least 12.0%, and a ratio of Tier 1 capital to total assets (“leverage ratio”) of 9.0%. The Bank cannot be considered “well-capitalized” while subject to the consent order.

~~Table Of Contents~~

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Given an instantaneous 100 basis point increase in interest rates sustained for one year, our base net interest income would decrease by an estimated ~~0.7%~~1.2% at ~~September 30, 2016,~~March 31, 2017, compared with ~~an increase~~a decrease of ~~0.6%~~2.5% at December 31, ~~2015,~~2016, and is within the risk tolerance parameters of our risk management policy. Given a 200 basis point increase in interest rates sustained for one year, base net interest income would decrease by an estimated ~~1.6%~~2.7% at ~~September 30, 2016,~~March 31, 2017, compared with an increase of ~~1.6%~~5.1% at December 31, ~~2015,~~2016, and is within the risk tolerance parameters of our risk management policy.

The following table indicates the estimated impact on net interest income under various interest rate scenarios for the twelve months following ~~September 30, 2016,~~March 31, 2017, as calculated using the static shock model approach:

	Change in Future Net Interest Income						Change in Future Net Interest Income
	Dollar Change			Percentage Change			Dollar Change			Percentage Change
	(dollars in thousands)						(dollars in thousands)
+ 200 basis points	$	(448	)		(1.61	)%	$	(774	)		(2.68	)%
+ 100 basis points		(187	)		(0.67	)		(348	)		(1.21	)
- 100 basis points		(1,129	)		(4.05	)
- 200 basis points		(2,729	)		(9.79	)
- 100 basis points								(429	)		(1.49	)
- 200 basis points								(1,611	)		(5.59	)

Item 4. Controls and Procedures

As of the end of the quarterly period covered by this report, an evaluation was carried out under the supervision and with the participation of the ~~Company’s~~Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934 (“Exchange Act”)). Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were, to the best of their knowledge, effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms as of such date.

There was no change in the ~~Company’s~~Company’s internal control over financial reporting that occurred during the Company’s fiscal quarter covered by this report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

~~Table Of Contents~~

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

WeWe are defendants in various legal proceedings. Litigation is subject to inherent uncertainties and unfavorable outcomes could occur. See Footnote ~~13, “Contingencies”~~12, “Off Balance Sheet Risks, Commitments, and Contingent Liabilities” in the Notes to our consolidated financial statements for additional detail regarding ongoing legal proceedings.

Item 1A. Risk Factors

We refer you to the detailed cautionary statements and discussion of risks that affect our Company and its business in “Item 1A – Risk Factors” of our December 31, ~~2015~~2016 Annual Report on Form 10-K. There have been no material changes from the risk factors previously discussed in those reports.

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

Not applicable.

Item 3. Default Upon Senior Securities

Not applicable.

Item 4. Mine ~~Safety~~Safety Disclosures

Not applicable.

Item 5. Other Information

Not applicable

Item 6. Exhibits

(a) Exhibits

The following exhibits are filed or furnished as part of this report:

Exhibit Number	Description of Exhibit

10.1	Porter Bancorp, Inc. 2017 Incentive Compensation Bonus Plan.

31.1	Certification of Principal Executive Officer, pursuant to Rule 13a - 14(a).

31.2	Certification of Principal Financial Officer, pursuant to Rule 13a - 14(a).

32.1	Certification of Principal Executive Officer, pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2	Certification of Principal Financial Officer, pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101	The following financial statements from the ~~Company’s~~Company’s Quarterly Report on Form 10Q for the quarter ended ~~September 30, 2016,~~March 31, 2017, formatted in XBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income (Loss), (iv) Consolidated Statement of Changes in Stockholders’ Equity, (v) Consolidated Statements of Cash Flows, (vi) Notes to Consolidated Financial Statements.

~~Table Of Contents~~

SIGNATURES

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

	PORTER BANCORP, INC.
	(Registrant)

~~November 3, 2016~~May 4, 2017	By:	/s/ John T. Taylor
		John T. Taylor
		Chief Executive Officer

~~November 3, 2016~~May 4, 2017	By:	/s/ Phillip W. Barnhouse
		Phillip W. Barnhouse
		Chief Financial Officer

	September 30, 2016				December 31, 2015
Assets
Cash and due from banks	$	6,266			$	8,006
Interest bearing deposits in banks		57,578				85,329
Cash and cash equivalents		63,844				93,335
Securities available for sale		142,433				144,978
Securities held to maturity (fair value of $44,815 and $44,253, respectively)		41,883				42,075
Loans held for sale		134				186
Loans, net of allowance of $9,489 and $12,041, respectively		612,208				606,625
Premises and equipment, net		18,481				18,812
Other real estate owned		7,098				19,214
Federal Home Loan Bank stock		7,323				7,323
Bank owned life insurance		14,741				9,441
Accrued interest receivable and other assets		7,135				6,733
Total assets	$	915,280			$	948,722

Liabilities and Stockholders’ Equity
Deposits
Non-interest bearing	$	119,005			$	120,043
Interest bearing		717,939				757,954
Total deposits		836,944				877,997
Federal Home Loan Bank advances		2,619				3,081
Accrued interest payable and other liabilities		7,721				10,577
Subordinated capital note		3,375				4,050
Junior subordinated debentures		21,000				21,000
Total liabilities		871,659				916,705
Stockholders’ equity
Preferred stock, no par
Series E - 6,198 issued and outstanding; Liquidation preference of$6.2 million		1,644				1,644
Series F - 4,304 issued and outstanding; Liquidation preference of$4.3 million		1,127				1,127
Total preferred stockholders’ equity		2,771				2,771
Common stock, no par, 86,000,000 shares authorized, 23,156,969 and20,089,533 voting, and 7,958,000 and 6,858,000 non-voting shares issued and outstanding, respectively		125,729				120,699
Additional paid-in capital		23,969				23,654
Retained deficit		(106,923	)			(110,808	)
Accumulated other comprehensive loss		(1,925	)			(4,299	)
Total common stockholders’ equity		40,850		��		29,246
Total stockholders' equity		43,621				32,017
Total liabilities and stockholders’ equity	$	915,280			$	948,722

	Shares												Amount
	Common								Preferred						Preferred				Common
	Common			Non-Voting Common		Total Common			Series E		Series F		Common and Non-Voting Common		Series E		Series F		Additional Paid-In Capital		Retained Deficit			Accumulated Other Compre- hensive Income (Loss)			Total
Balances,January 1, 2016		20,089,533			6,858,000		26,947,533			6,198		4,304	$	120,699	$	1,644	$	1,127	$	23,654	$	(110,808	)	$	(4,299	)	$	32,017
Issuance of unvested stock		177,290			—		177,290			—		—		—		—		—		—		—			—			—
Forfeited unvested stock		(9,854	)		—		(9,854	)		—		—		—		—		—		—		—			—			—
Stock-based compensation expense		—			—		—			—		—		—		—		—		315		—			—			315
Net income		—			—		—			—		—		—		—		—		—		3,885			—			3,885
Net change in accumulated othercomprehensive income, net of taxes		—			—		—			—		—		—		—		—		—		—			2,374			2,374
Issuance of stock		2,900,000			1,100,000		4,000,000			—		—		5,030		—		—		—		—			—			5,030
Balances,September 30, 2016		23,156,969			7,958,000		31,114,969			6,198		4,304	$	125,729	$	1,644	$	1,127	$	23,969	$	(106,923	)	$	(1,925	)	$	43,621

	September 30, 2016
	Amortized Cost		Fair Value
	(in thousands)
Maturity
Available for sale
Within one year	$	6,628	$	6,615
One to five years		7,120		7,266
Five to ten years		26,706		27,091
Agency mortgage-backed: residential		99,225		101,461
Total	$	139,679	$	142,433

Held to maturity
Within one year	$	646		653
One to five years		21,365	$	22,469
Five to ten years		18,825		20,506
Beyond ten years		1,047		1,187
Total	$	41,883	$	44,815

	Less than 12 Months					12 Months or More					Total
Description of Securities	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
	(in thousands)
September 30, 2016
Available for sale
U.S. Government and federalAgency	$	3,373	$	(6	)	$	—	$	—		$	3,373	$	(6	)
Agency mortgage-backed:Residential		9,637		(52	)		—		—			9,637		(52	)
Corporate bonds		—		—			1,497		(68	)		1,497		(68	)
Total temporarily impaired	$	13,010	$	(58	)	$	1,497	$	(68	)	$	14,507	$	(126	)

December 31, 2015
Available for sale
U.S. Government and federalagency	$	7,058	$	(44	)	$	14,527	$	(331	)	$	21,585	$	(375	)
Agency mortgage-backed:residential		36,325		(271	)		3,856		(109	)		40,181		(380	)
Corporate bonds		747		(18	)		1,446		(110	)		2,193		(128	)
Total temporarily impaired	$	44,130	$	(333	)	$	19,829	$	(550	)	$	63,959	$	(883	)

Loans were as follows:	September 30,			December 31,
	2016			2015
	(in thousands)
Commercial	$	85,000		$	86,176
Commercial Real Estate:
Construction		34,178			33,154
Farmland		83,320			76,412
Nonfarm nonresidential		138,351			140,570
Residential Real Estate:
Multi-family		36,558			44,131
1-4 Family		192,008			201,478
Consumer		9,752			10,010
Agriculture		41,764			26,316
Other		766			419
Subtotal		621,697			618,666
Less: Allowance for loan losses		(9,489	)		(12,041	)
Loans, net	$	612,208		$	606,625

	TDRs Performing to Modified Terms		TDRs Not Performing to Modified Terms		Total TDRs
	(in thousands)
December 31, 2015
Commercial
Rate reduction	$	—	$	68	$	68
Principal deferral		—		439		439
Commercial Real Estate:
Construction
Rate reduction		262		—		262
Farmland
Principal deferral		—		2,365		2,365
Nonfarm nonresidential
Rate reduction		5,637		50		5,687
Principal deferral		—		622		622
Residential Real Estate:
Multi-family
Rate reduction		4,195		—		4,195
1-4 Family
Rate reduction		7,346		—		7,346
Total TDRs	$	17,440	$	3,544	$	20,984

	Nonaccrual				Loans Past Due 90 Days And Over Still Accruing
	September 30, 2016		December 31, 2015		September 30, 2016		December 31, 2015
	(in thousands)
Commercial	$	571	$	1,112	$	—	$	—
Commercial Real Estate:
Construction		—		—		—		—
Farmland		4,811		4,263		—		—
Nonfarm nonresidential		1,147		2,657		—		—
Residential Real Estate:
Multi-family		—		32		—		—
1-4 Family		3,435		5,851		—		—
Consumer		1		20		—		—
Agriculture		134		152		—		—
Other		—		—		—		—
Total	$	10,099	$	14,087	$	—	$	—

	30 – 59 Days Past Due		60 – 89 Days Past Due		90 Days And Over Past Due		Nonaccrual		Total Past Due And Nonaccrual

	(in thousands)
December 31, 2015
Commercial	$	78	$	—	$	—	$	1,112	$	1,190
Commercial Real Estate:
Construction		—		—		—		—		—
Farmland		456		—		—		4,263		4,719
Nonfarm nonresidential		326		—		—		2,657		2,983
Residential Real Estate:
Multi-family		—		—		—		32		32
1-4 Family		2,225		241		—		5,851		8,317
Consumer		41		—		—		20		61
Agriculture		7		—		—		152		159
Other		—		—		—		—		—
Total	$	3,133	$	241	$	—	$	14,087	$	17,461

	Other Debt Securities
	2016		2015
	(in thousands)
Balances of recurring Level 3 assets at January 1	$	—	$	658
Total gain (loss) for the period:
Included in other comprehensive income (loss)		—		(7	)
Balance of recurring Level 3 assets at September 30	$	—	$	651

		Fair Value	ValuationTechnique(s)	Unobservable Input(s)	Range (WeightedAverage)
		(in thousands)
Impaired loans – Residential real estate	$	1,436	Sales comparison approach	Adjustment for differences between the comparable sales		1%	-	22%	(10%)

Other real estate owned – Commercial real estate	$	6,799	Sales comparison approach	Adjustment for differences between the comparable sales		0%	-	20%	(9%)

			Income approach	Discount or capitalization rate		18%	-	20%	(19%)

	Three Months Ended September 30,					Nine Months Ended September 30,
	2016		2015			2016		2015
	(in thousands, except share and per share data)

Net income (loss)	$	1,393	$	(1,076	)	$	3,885	$	(2,612	)
Less:
Earnings (losses) allocated to unvested shares		46		(45	)		129		(102	)
Earnings (losses) allocated to participating preferred shares		—		—			—		(236	)
Net income (loss) attributable to common shareholders,basic and diluted	$	1,347	$	(1,031	)	$	3,756	$	(2,274	)

Basic
Weighted average common shares includingunvested common shares outstanding		31,115,223		25,768,887			29,488,087		25,626,610
Less:
Weighted average unvested common shares		1,034,143		1,087,340			977,062		1,002,867
Weighted average Series B preferred		—		—			—		890,901
Weighted average Series D preferred		—		—			—		1,419,341
Weighted average common shares outstanding		30,081,080		24,681,547			28,511,025		22,313,501
Basic income (loss) per common share	$	0.04	$	(0.04	)	$	0.13	$	(0.10	)

Diluted
Add: Dilutive effects of assumed exercises of commonstock warrants		—		—			—		—
Weighted average common shares and potentialcommon shares		30,081,080		24,681,547			28,511,025		22,313,501
Diluted income (loss) per common share	$	0.04	$	(0.04	)	$	0.13	$	(0.10	)

	Actual					Regulatory Minimums for Capital Adequacy Purposes
	Amount		Ratio			Amount		Ratio
As of December 31, 2015:
Total risk-based capital (to risk-weighted assets)
Consolidated	$	68,530		10.46	%	$	52,436		8.00	%
Bank		69,250		10.58			52,347		8.00
Total common equity Tier 1 risk-based capital (to risk weightedassets)
Consolidated		33,368		5.09	%		29,495		4.50	%
Bank		57,873		8.84			29,445		4.50
Tier I capital (to risk-weightedassets)
Consolidated		45,174		6.89			39,327		6.00
Bank		57,873		8.84			39,260		6.00
Tier I capital (to average assets)
Consolidated		45,174		4.74			38,131		4.00
Bank		57,873		6.08			38,085		4.00

	Nine Months Ended September 30,
	2016								2015
	Average Balance			Interest Earned/Paid		Average Yield/Cost			Average Balance			Interest Earned/Paid		Average Yield/Cost
	(dollars in thousands)
ASSETS
Interest-earning assets:
Loan receivables (1)(2)	$	621,824		$	23,036		4.95	%	$	641,489		$	23,496		4.90	%
Securities
Taxable		161,232			2,895		2.40			171,960			3,122		2.43
Tax-exempt (3)		21,355			475		4.57			25,580			580		4.66
FHLB stock		7,323			219		3.99			7,323			219		4.00
Federal funds sold and other		62,451			196		0.42			76,966			132		0.23
Total interest-earning assets		874,185			26,821		4.14	%		923,318			27,549		4.03	%
Less: Allowance for loan losses		(11,138	)							(18,030	)
Non-interest earning assets		67,241								89,067
Total assets	$	930,288							$	994,355

LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest-bearing liabilities:
Certificates of deposit and other timedeposits	$	471,530		$	3,108		0.88	%	$	572,243		$	4,173		0.97	%
NOW and money market deposits		231,213			696		0.40			195,887			544		0.37
Savings accounts		34,460			46		0.18			36,003			58		0.22
Repurchase agreements		—			—		—			785			1		0.17
FHLB advances		2,827			54		2.55			3,583			74		2.76
Junior subordinated debentures		24,822			612		3.29			29,706			588		2.65
Total interest-bearing liabilities		764,852			4,516		0.79	%		838,207			5,438		0.87	%

Non-interest-bearing liabilities:
Non-interest-bearing deposits		117,377								112,326
Other liabilities		9,735								10,946
Total liabilities		891,964								961,479
Stockholders’ equity		38,324								32,876
Total liabilities and stockholders’ equity	$	930,288							$	994,355

Net interest income				$	22,305							$	22,111

Net interest spread							3.35	%							3.16	%

Net interest margin							3.45	%							3.25	%

	As of September 30, 2016					As of December 31, 2015
	Amount		Percent			Amount		Percent
			(dollars in thousands)

Commercial	$	85,000		13.68	%	$	86,176		13.93	%
Commercial Real Estate
Construction		34,178		5.50			33,154		5.36
Farmland		83,320		13.40			76,412		12.35
Nonfarm nonresidential		138,351		22.25			140,570		22.72
Residential Real Estate
Multi-family		36,558		5.88			44,131		7.13
1-4 Family		192,008		30.88			201,478		32.57
Consumer		9,752		1.57			10,010		1.62
Agriculture		41,764		6.72			26,316		4.25
Other		766		0.12			419		0.07
Total loans	$	621,697		100.0	%	$	618,666		100.0	%

	September 30, 2016		June 30, 2016		March 31, 2016		December 31, 2015
	(in thousands)
Past Due Loans:
30-59 Days	$	2,335	$	2,401	$	1,829	$	3,133
60-89 Days		273		336		62		241
90 Days and Over		—		—		—		—
Total Loans Past Due 30-90+ Days		2,608		2,737		1,891		3,374

Nonaccrual Loans		10,099		11,599		11,119		14,087
Total Past Due and Nonaccrual Loans	$	12,707	$	14,336	$	13,010	$	17,461