Loans

Loans at March 31, 2018 and December 31, 2017 are summarized as follows (in thousands):



	March 31, 2018			December 31, 2017
Real estate loans:
Construction and land development	$	33,941		$	35,927
Secured by 1-4 family residential	208,338			208,177
Other real estate loans	222,352			222,256
Commercial and industrial loans	39,253			38,763
Consumer and other loans	17,052			17,078
Total loans	$	520,936		$	522,201
Allowance for loan losses	(5,272		)	(5,326		)
Loans, net	$	515,664		$	516,875

Net deferred loan fees included in the above loan categories were $261 thousand and $301 thousand at March 31, 2018 and December 31, 2017, respectively. Consumer and other loans included $222 thousand and $232 thousand of demand deposit overdrafts at March 31, 2018 and December 31, 2017, respectively.

Risk characteristics of each loan portfolio class that are considered by the Company include:


•	1-4 family residential mortgage loans carry risks associated with the continued creditworthiness of the borrower and changes in the value of the collateral.

•

Real estate construction and land development loans carry risks that the project may not be finished according to schedule, the project may not be finished according to budget, and the value of the collateral may, at any point in time, be less than the principal amount of the loan. Construction loans also bear the risk that the general contractor, who may or may not be a loan customer, may be unable to finish the construction project as planned because of financial pressure or other factors unrelated to the project.


•	Other real estate loans carry risks associated with the successful operation of a business or a real estate project, in addition to other risks associated with the ownership of real estate, because repayment of these loans may be dependent upon the profitability and cash flows of the business or project.


•	Commercial and industrial loans carry risks associated with the successful operation of a business because repayment of these loans may be dependent upon the profitability and cash flows of the business. In addition, there is risk associated with the value of collateral other than real estate which may depreciate over time and cannot be appraised with as much reliability.

•

Consumer and other loans carry risk associated with the continued creditworthiness of the borrower and the value of the collateral, if any. These loans are typically either unsecured or secured by rapidly depreciating assets such as automobiles. They are also likely to be immediately and adversely affected by job loss, divorce, illness, personal bankruptcy, or other changes in circumstances. Consumer and other loans also include purchased consumer loans which could have been originated outside of the Company's market area.

The following tables provide a summary of loan classes and an aging of past due loans as of March 31, 2018 and December 31, 2017 (in thousands):



	March 31, 2018
	30-59 Days Past Due		60-89 Days Past Due		> 90 Days Past Due		Total Past Due		Current		Total Loans		Non-accrual Loans		90 Days or More Past Due and Accruing
Real estate loans:
Construction and land development	$	45	$	344	$	512	$	901	$	33,040	$	33,941	$	—	$	512
Secured by 1-4 family residential	873		397		302		1,572		206,766		208,338		300		99
Other real estate loans	268		384		162		814		221,538		222,352		382		162
Commercial and industrial	83		13		—		96		39,157		39,253		—		—
Consumer and other loans	144		51		—		195		16,857		17,052		—		—
Total	$	1,413	$	1,189	$	976	$	3,578	$	517,358	$	520,936	$	682	$	773



	December 31, 2017
	30-59 Days Past Due		60-89 Days Past Due		> 90 Days Past Due		Total Past Due		Current		Total Loans		Non-accrual Loans		90 Days or More Past Due and Accruing
Real estate loans:
Construction and land development	$	986	$	30	$	40	$	1,056	$	34,871	$	35,927	$	269	$	40
Secured by 1-4 family residential	606		203		148		957		207,220		208,177		267		106
Other real estate loans	2,042		170		10		2,222		220,034		222,256		401		10
Commercial and industrial	184		25		—		209		38,554		38,763		—		—
Consumer and other loans	51		49		27		127		16,951		17,078		—		27
Total	$	3,869	$	477	$	225	$	4,571	$	517,630	$	522,201	$	937	$	183

Credit Quality Indicators

As part of the ongoing monitoring of the credit quality of the Company’s loan portfolio, management tracks certain credit quality indicators including trends related to the risk grading of specified classes of loans. The Company utilizes a risk grading matrix to assign a rating to each of its loans. The loan ratings are summarized into the following categories: pass, special mention, substandard, doubtful and loss. Pass rated loans include all risk rated credits other than those included in special mention, substandard or doubtful. Loans classified as loss are charged-off. Loan officers assign risk grades to loans at origination and as renewals arise. The Bank’s Credit Administration department reviews risk grades for accuracy on a quarterly basis and as credit issues arise. In addition, a certain amount of loans are reviewed each year through the Company’s internal and external loan review process. A description of the general characteristics of the loan grading categories is as follows:

Pass – Loans classified as pass exhibit acceptable operating trends, balance sheet trends, and liquidity. Sufficient cash flow exists to service the loan. All obligations have been paid by the borrower as agreed.

Special Mention – Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or the Bank’s credit position at some future date.

Substandard – Loans classified as substandard are inadequately protected by the current net worth and payment capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

Doubtful – Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. The Company considers all doubtful loans to be impaired and places the loan on non-accrual status.

Loss – Loans classified as loss are considered uncollectable and of such little value that their continuance as bankable assets is not warranted.

The following tables provide an analysis of the credit risk profile of each loan class as of March 31, 2018 and December 31, 2017 (in thousands):



	March 31, 2018
	Pass		Special Mention		Substandard		Doubtful		Total
Real estate loans:
Construction and land development	$	29,743	$	2,448	$	1,750	$	—	$	33,941
Secured by 1-4 family residential	204,456		1,908		1,974		—		208,338
Other real estate loans	215,723		962		5,667		—		222,352
Commercial and industrial	38,912		47		294		—		39,253
Consumer and other loans	17,052		—		—		—		17,052
Total	$	505,886	$	5,365	$	9,685	$	—	$	520,936

	December 31, 2017
	Pass		Special Mention		Substandard		Doubtful		Total
Real estate loans:
Construction and land development	$	31,553	$	2,268	$	2,106	$	—	$	35,927
Secured by 1-4 family residential	204,166		1,933		2,078		—		208,177
Other real estate loans	215,773		971		5,512		—		222,256
Commercial and industrial	38,606		53		104		—		38,763
Consumer and other loans	17,078		—		—		—		17,078
Total	$	507,176	$	5,225	$	9,800	$	—	$	522,201