Loans

Loans at March 31, 2019 and December 31, 2018 are summarized as follows (in thousands):



	March 31, 2019			December 31, 2018
Real estate loans:
Construction and land development	$	48,948		$	45,867
Secured by 1-4 family residential	217,527			215,945
Other real estate loans	221,396			219,553
Commercial and industrial loans	46,045			44,605
Consumer and other loans	16,559			16,886
Total loans	$	550,475		$	542,856
Allowance for loan losses	(4,946		)	(5,009		)
Loans, net	$	545,529		$	537,847

Net deferred loan fees included in the above loan categories were $287 thousand and $274 thousand at March 31, 2019 and December 31, 2018, respectively. Consumer and other loans included $204 thousand and $275 thousand of demand deposit overdrafts at March 31, 2019 and December 31, 2018, 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, 2019 and December 31, 2018 (in thousands):



	March 31, 2019
	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	$	—	$	—	$	80	$	80	$	48,868	$	48,948	$	398	$	—
Secured by 1-4 family residential	493		—		575		1,068		216,459		217,527		989		115
Other real estate loans	403		—		477		880		220,516		221,396		528		—
Commercial and industrial	54		2		2		58		45,987		46,045		—		2
Consumer and other loans	14		84		16		114		16,445		16,559		—		16
Total	$	964	$	86	$	1,150	$	2,200	$	548,275	$	550,475	$	1,915	$	133



	December 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	$	88	$	80	$	—	$	168	$	45,699	$	45,867	$	327	$	—
Secured by 1-4 family residential	747		393		423		1,563		214,382		215,945		663		—
Other real estate loans	145		36		2,207		2,388		217,165		219,553		1,985		222
Commercial and industrial	—		25		210		235		44,370		44,605		197		13
Consumer and other loans	90		—		—		90		16,796		16,886		—		—
Total	$	1,070	$	534	$	2,840	$	4,444	$	538,412	$	542,856	$	3,172	$	235

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, 2019 and December 31, 2018 (in thousands):



	March 31, 2019
	Pass		Special Mention		Substandard		Doubtful		Total
Real estate loans:
Construction and land development	$	48,151	$	231	$	566	$	—	$	48,948
Secured by 1-4 family residential	215,492		781		1,254		—		217,527
Other real estate loans	217,298		883		3,215		—		221,396
Commercial and industrial	46,018		15		12		—		46,045
Consumer and other loans	16,559		—		—		—		16,559
Total	$	543,518	$	1,910	$	5,047	$	—	$	550,475

	December 31, 2018
	Pass		Special Mention		Substandard		Doubtful		Total
Real estate loans:
Construction and land development	$	45,054	$	235	$	578	$	—	$	45,867
Secured by 1-4 family residential	214,089		924		932		—		215,945
Other real estate loans	213,681		900		4,972		—		219,553
Commercial and industrial	44,373		19		213		—		44,605
Consumer and other loans	16,886		—		—		—		16,886
Total	$	534,083	$	2,078	$	6,695	$	—	$	542,856