	2018			2017
Real Estate:
Land Development and Construction	$	41,134		$	25,923
Farmland		14,498			16,905
1-4 Family Mortgages		88,747			95,925
Commercial Real Estate		203,595			191,736
Total Real Estate Loans		347,974			330,489
Business Loans:
Commercial and Industrial Loans		66,421			58,204
Farm Production and Other Farm Loans		907			922
Total Business Loans		67,328			59,126
Consumer Loans:
Credit Cards		1,648			1,310
Other Consumer Loans		12,372			14,680
Total Consumer Loans		14,020			15,990
Total Gross Loans		429,322			405,605
Unearned Income		(45	)		(195	)
Allowance for Loan Losses		(3,372	)		(3,019	)
Loans, net	$	425,905		$	402,391

The Company has certain lending policies and procedures in place that are designed to maximize loan income within an acceptable level of risk. Management reviews these policies and procedures and submits them to the Company’s Board of Directors for its approval when needed, but no less frequently than annually. A reporting system supplements the review process by providing management with frequent reports related to loan production, loan quality, concentrations of credit, loan delinquencies and non-performing and potential problem loans. Diversification in the loan portfolio is a means of managing risk associated with fluctuations in economic conditions.

The Company maintains an independent loan review department that reviews and validates the credit risk program on a periodic basis. Results of this review are presented to management with quarterly reports made to the board of directors. The loan review process complements and reinforces the risk identification and assessment decisions made by the lenders and credit personnel, as well as the Company’s policies and procedures.

Loans are made principally to customers in the Company’s market. The Company’s lending policy provides that loans collateralized by real estate are normally made with loan-to-value (“LTV”) ratios of 80 percent or less. Commercial loans are typically collateralized by property, equipment, inventories or receivables with LTV ratios from 50 percent to 80 percent. Real estate mortgage loans are collateralized by personal residences with LTV ratios of 80 percent or less. Consumer loans are typically collateralized by real estate, vehicles and other consumer durable goods. Approximately $67.5 million and $48.7 million of the loans outstanding at December 31, 2018 and December 31, 2017, respectively, were variable rate loans.

In the ordinary course of business, the Company has granted loans to certain directors and their affiliates (collectively referred to as “related parties”). These loans were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other unaffiliated persons and do not involve more than normal risk of collectability. Activity in related party loans during 2018 is presented in the following table.

Loans are considered to be past due if the required principal and interest payments have not been received as of the date such payments were due. Loans are placed on non-accrual status, when, in management’s opinion, the borrower may be unable to meet payment obligations as they become due, as well as when required by regulatory provisions. Loans may be placed on non-accrual status regardless of whether such loans are considered past due. When interest accruals are discontinued, all unpaid accrued interest is reversed. Interest income is subsequently recognized only to the extent cash payments are received in excess of principal due. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

	2018		2017
Real Estate:
Land Development and Construction	$	—	$	—
Farmland		200		366
1-4 Family Mortgages		1,831		2,131
Commercial Real Estate		7,612		4,891
Total Real Estate Loans		9,643		7,388
Business Loans:
Commercial and Industrial Loans		76		78
Farm Production and Other Farm Loans		31		32
Total Business Loans		107		110
Consumer Loans:
Other Consumer Loans		89		84
Total Consumer Loans		89		84
Total Nonaccrual Loans	$	9,839	$	7,582

In the event that non-accrual loans had performed in accordance with their original terms, the Company would have recognized additional interest income of approximately $428,644, $412,915 and $651,560 in 2018, 2017 and 2016, respectively.

											Accruing
			Loans								Loans
	Loans		90 or more								90 or more
	30-89 Days		Days Past		Total Past		Current		Total		Days
	Past Due		Due		Due Loans		Loans		Loans		Past Due
Real Estate:
Land Development and Construction	$	1,494	$	54	$	1,548	$	39,586	$	41,134	$	54
Farmland		779		29		808		13,690		14,498		—
1-4 Family Mortgages		3,456		330		3,786		84,961		88,747		—
Commercial Real Estate		1,059		2,981		4,040		199,555		203,595		—
Total Real Estate Loans		6,788		3,394		10,182		337,792		347,974		54
Business Loans:
Commercial and Industrial Loans		1,672		21		1,693		64,728		66,421		—
Farm Production and Other Farm Loans		9		—		9		898		907		—
Total Business Loans		1,681		21		1,702		65,626		67,328		—
Consumer Loans:
Credit Cards		16		4		20		1,628		1,648		4
Other Consumer Loans		212		33		245		12,127		12,372		15
Total Consumer Loans		228		37		265		13,755		14,020		19
Total Loans	$	8,697	$	3,452	$	12,149	$	417,173	$	429,322	$	73

											Accruing
			Loans								Loans
	Loans		90 or more								90 or more
	30-89 Days		Days Past		Total Past		Current		Total		Days Past
	Past Due		Due		Due Loans		Loans		Loans		Due
Real Estate:
Land Development and Construction	$	281	$	—	$	281	$	25,642	$	25,923	$	—
Farmland		93		—		93		16,812		16,905		—
1-4 Family Mortgages		2,657		—		2,657		93,268		95,925		—
Commercial Real Estate		2,585		862		3,447		188,289		191,736		807
Total Real Estate Loans		5,616		862		6,478		324,011		330,489		807
Business Loans:
Commercial and Industrial Loans		32		—		32		58,172		58,204		—
Farm Production and Other Farm Loans		19		—		19		903		922		—
Total Business Loans		51		—		51		59,075		59,126		—
Consumer Loans:
Credit Cards		25		6		31		1,279		1,310		6
Other Consumer Loans		422		—		422		14,258		14,680		—
Total Consumer Loans		447		6		453		15,537		15,990		6
Total Loans	$	6,114	$	868	$	6,982	$	398,623	$	405,605	$	813

Loans are considered impaired when, based on current information and events, it is probable the Company will be unable to collect all the amounts due in accordance with the original contractual terms of the loan agreement, including scheduled principal and interest payments. In determining which loans to evaluate for impairment, management looks at past due loans, bankruptcy filings and any situation that might lend itself to cause a borrower to be unable to repay the loan according to the original contract terms on those loans in excess of $100,000. If a loan is determined to be impaired and the collateral is deemed to be insufficient to fully repay the loan, a specific reserve will be established. Interest payments on impaired loans are typically applied to principal unless collectability of the principal amount is reasonably assured, in which case interest is recognized on a cash basis. Impaired loans or portions thereof, are charged-off when deemed uncollectible.

			Recorded		Recorded
	Unpaid		Investment		Investment		Total				Average
	Principal		With No		With		Recorded		Related		Recorded
2018	Balance		Allowance		Allowance		Investment		Allowance		Investment
Real Estate:
Land Development and Construction	$	—	$	—	$	—	$	—	$	—	$	—
Farmland		269		269		—		269		—		135
1-4 Family Mortgages		1,153		1,062		91		1,153		27		728
Commercial Real Estate		10,601		5,209		3,675		8,884		374		6,489
Total Real Estate Loans		12,023		6,540		3,766		10,306		401		7,352
Total Loans	$	12,023	$	6,540	$	3,766	$	10,306	$	401	$	7,352

			Recorded		Recorded
	Unpaid		Investment		Investment		Total				Average
	Principal		With No		With		Recorded		Related		Recorded
2017	Balance		Allowance		Allowance		Investment		Allowance		Investment
Real Estate:
Land Development and Construction	$	—	$	—	$	—	$	—	$	—	$	—
Farmland		—		—		—		—		—		62
1-4 Family Mortgages		303		—		303		303		46		875
Commercial Real Estate		5,616		—		4,093		4,093		397		4,710
Total Real Estate Loans		5,919		—		4,396		4,396		443		5,647
Total Loans	$	5,919	$	—	$	4,396	$	4,396	$	443	$	5,647

			Pre-Modification		Post-Modification
			Outstanding		Outstanding
	Number of		Recorded		Recorded
December 31, 2018	Loans		Investment		Investment
Commercial real estate		3	$	4,871	$	2,782
Total		3	$	4,871	$	2,782

			Pre-Modification		Post-Modification
			Outstanding		Outstanding
	Number of		Recorded		Recorded
December 31, 2017	Loans		Investment		Investment
Commercial real estate		3	$	4,871	$	3,047
Total		3	$	4,871	$	3,047

	Number of		Recorded
	Loans		Investment
Total at January 1, 2016		3	$	3,858
Reductions due to:
Principal paydowns				(570	)
Total at January 1, 2017		3		3,288
Reductions due to:
Principal paydowns				(241	)
Total at January 1, 2018		3		3,047
Reductions due to:
Principal paydowns				(265	)
Total at December 31, 2018		3	$	2,782

The Company utilizes a risk grading matrix to assign a risk grade to each of its loans when originated and is updated as factors related to the strength of the loan changes. Loans are graded on a scale of 1 to 9. A description of the general characteristics of the 9 risk grades is as follows.

Grade 1. MINIMAL RISK - These loans are without loss exposure to the Company. This classification is reserved for only the best, well secured loans to borrowers with significant capital strength, low leverage, stable earnings and growth and other readily available financing alternatives. This type of loan would also include loans secured by a program of the government.

Grade 2. MODEST RISK - These loans include borrowers with solid credit quality and moderate risk of loss. These loans may be fully secured by certificates of deposit with another reputable financial institution, or secured by readily marketable securities with acceptable margins.

Grade 3. AVERAGE RISK - This is the rating assigned to most of the loans held by the Company. This includes loans with average loss exposure and average overall quality. These loans should liquidate through possessing adequate collateral and adequate earnings of the borrower. In addition, these loans are properly documented and are in accordance with all aspects of the current loan policy.

Grade 4. ACCEPTABLE RISK - Borrower generates sufficient cash flow to fund debt service but most working asset and capital expansion needs are provided from external sources. Profitability and key balance sheet ratios are usually close to peers but one or more may be higher than peers.

Grade 5. MANAGEMENT ATTENTION - Borrower has significant weaknesses resulting from performance trends or management concerns. The financial condition of the borrower has taken a negative turn and may be temporarily strained. Cash flow is weak but cash reserves remain adequate to meet debt service. Management weakness is evident.

Grade 6. OTHER LOANS ESPECIALLY MENTIONED (“OLEM”) - Loans in this category are fundamentally sound but possess some weaknesses. OLEM loans have potential weaknesses, which may, if not checked or corrected, weaken the asset or inadequately protect the Bank’s credit position at some future date. These loans have an identifiable weakness in credit, collateral, or repayment ability but there is no expectation of loss.

Grade 7. SUBSTANDARD ASSETS - Assets classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Assets classified as substandard must have a well-defined weakness based upon objective evidence. Assets classified as substandard are characterized by the distinct possibility that the insured institution will sustain some loss if the deficiencies are not corrected. The possibility that liquidation would not be timely requires a substandard classification even if there is little likelihood of total loss.

Grade 8. DOUBTFUL - A loan classified as doubtful has all the weaknesses of a substandard classification and the added characteristic that the weakness makes collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable or improbable. The possibility of loss is extremely high, but because of certain important and reasonable specific pending factors that may work to the advantage and strengthening of the asset, its classification as an estimated loss is deferred until its more exact status may be determined. A doubtful classification could reflect the fact that the primary source of repayment is gone and serious doubt exists as to the quality of a secondary source of repayment.

Grade 9. LOSS - Loans classified loss are considered uncollectible and of such little value that their continuance as bankable assets is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may occur in the future. Also included in this classification is the defined loss portion of loans rated substandard assets and doubtful assets.

			Special
	Satisfactory		Mention		Substandard		Doubtful		Loss		Total
	1,2,3,4		5,6		7		8		9		Loans
Real Estate:
Land Development and Construction	$	39,726	$	840	$	568	$	—	$	—	$	41,134
Farmland		13,248		339		911		—		—		14,498
1-4 Family Mortgages		79,659		1,751		7,337		—		—		88,747
Commercial Real Estate		172,217		17,938		13,440		—		—		203,595
Total Real Estate Loans		304,850		20,868		22,256		—		—		347,974
Business Loans:
Commercial and Industrial Loans		63,994		81		2,346		—		—		66,421
Farm Production and Other Farm Loans		876		—		31		—		—		907
Total Business Loans		64,870		81		2,377		—		—		67,328
Consumer Loans:
Credit Cards		1,628		—		20		—		—		1,648
Other Consumer Loans		12,181		65		71		55		—		12,372
Total Consumer Loans		13,809		65		91		55		—		14,020

Total Loans	$	383,529	$	21,014	$	24,724	$	55	$	—	$	429,322

			Special
	Satisfactory		Mention		Substandard		Doubtful		Loss		Total
	1,2,3,4		5,6		7		8		9		Loans
Real Estate:
Land Development and Construction	$	23,720	$	2,116	$	87	$	—	$	—	$	25,923
Farmland		15,496		377		1,032		—		—		16,905
1-4 Family Mortgages		82,227		5,615		8,083		—		—		95,925
Commercial Real Estate		143,271		41,833		6,632		—		—		191,736
Total Real Estate Loans		264,714		49,941		15,834		—		—		330,489
Business Loans:
Commercial and Industrial Loans		55,081		2,990		133		—		—		58,204
Farm Production and Other Farm Loans		853		9		60		—		—		922
Total Business Loans		55,934		2,999		193		—		—		59,126
Consumer Loans:
Credit Cards		1,304		—		6		—		—		1,310
Other Consumer Loans		14,414		71		137		58		—		14,680
Total Consumer Loans		15,718		71		143		58		—		15,990

Total Loans	$	336,366	$	53,011	$	16,170	$	58	$	—	$	405,605

The allowance for loan losses is a reserve established through a provision for possible loan losses charged to expense, which represents management’s best estimate of probable losses that will occur within the existing portfolio of loans. The allowance, in the judgment of management, is necessary to reserve for estimated loan losses and risks inherent in the loan portfolio.

The allowance on the majority of the loan portfolio is calculated using a historical chargeoff percentage applied to the current loan balances by loan segment. This historical period is the average of the previous five years with the most current years weighted to show the effect of the most recent chargeoff activity. This percentage is also adjusted for economic factors such as unemployment and general business conditions, both local and nationwide.

The group of loans that are considered to be impaired are individually evaluated for possible loss and a specific reserve is established to cover any loss contingency. Loans that are determined to be a loss with no benefit of remaining in the portfolio are charged off to the allowance. These specific reserves are reviewed periodically for continued impairment and adequacy of the specific reserve and adjusted when necessary.

	2018			2017			2016
Real Estate:
Land Development and Construction	$	55,908		$	97,685		$	(17,677	)
Farmland		2,702			—			(934	)
1-4 Family Mortgages		51,303			40,682			154,387
Commercial Real Estate		(197,839	)		—			2,387,956
Total Real Estate Loans		(87,926	)		138,367			2,523,732

Business Loans:
Commercial and Industrial Loans		11,683			164,191			(8,230	)
Total Business Loans		11,683			164,191			(8,230	)
Consumer Loans:
Credit Cards		36,494			(6,654	)		9,285
Other Consumer Loans		21,272			44,526			(18,936	)
Total Consumer Loans		57,766			37,872			(9,651	)
Total Net Chargeoffs	$	(18,477	)	$	340,430		$	2,505,851


	Real			Business
2018	Estate			Loans			Consumer			Total

Beginning Balance	$	2,151,715		$	346,781		$	520,732		$	3,019,228
Provision for (reversal of) loan losses		605,040			(113,257	)		(157,793	)		333,990
Chargeoffs		223,403			18,963			145,943			388,309
Recoveries		311,329			7,280			88,177			406,786

Net chargeoffs		(87,926	)		11,683			57,766			(18,477	)
Ending Balance	$	2,844,681		$	221,841		$	305,173		$	3,371,695

Period end allowance allocated to:
Loans individually evaluated for impairment	$	401,347		$	—		$	—		$	401,347
Loans collectively evaluated for impairment		2,443,334			221,841			305,173			2,970,348
Ending Balance	$	2,844,681		$	221,841		$	305,173		$	3,371,695

	Real			Business
2017	Estate			Loans		Consumer		Total

Beginning Balance	$	3,117,134		$	257,554	$	528,108	$	3,902,796
(Reversal of) provision for loan losses		(827,052	)		253,418		30,496		(543,138	)
Chargeoffs		168,841			165,685		102,567		437,093
Recoveries		30,474			1,494		64,695		96,663

Net chargeoffs		138,367			164,191		37,872		340,430
Ending Balance	$	2,151,715		$	346,781	$	520,732	$	3,019,228

Period end allowance allocated to:
Loans individually evaluated for impairment	$	442,589		$	—	$	—	$	442,589
Loans collectively evaluated for impairment		1,709,126			346,781		520,732		2,576,639
Ending Balance	$	2,151,715		$	346,781	$	520,732	$	3,019,228

			Business
2016	Real Estate		Loans			Consumer			Total
Beginning Balance	$	5,238,895	$	643,248		$	591,560		$	6,473,703
Provision for (reversal of) loan losses		401,971		(393,924	)		(73,103	)		(65,056	)
Chargeoffs		2,567,499		8,035			65,311			2,640,845
Recoveries		43,767		16,265			74,962			134,994

Net chargeoffs		2,523,732		(8,230	)		(9,651	)		2,505,851
Ending Balance	$	3,117,134	$	257,554		$	528,108		$	3,902,796

Period end allowance allocated to:
Loans individually evaluated for impairment	$	749,090	$	37,803		$	—		$	786,893
Loans collectively evaluated for impairment		2,368,044		219,751			528,108			3,115,903
Ending Balance	$	3,117,134	$	257,554		$	528,108		$	3,902,796

The Company’s recorded investment in loans as of December 31, 2018 and 2017 related to each balance in the allowance for possible loan losses by portfolio segment and disaggregated on the basis of the Company’s impairment methodology was as follows (in thousands):

			Business
2018	Real Estate		Loans		Consumer		Total

Loans individually evaluated for impairment	$	10,306	$	—	$	—	$	10,306
Loans collectively evaluated for impairment		337,668		67,328		14,020		419,016

	$	347,974	$	67,328	$	14,020	$	429,322

	Real		Business
2017	Estate		Loans		Consumer		Total
Loans individually evaluated for impairment	$	4,396	$	—	$	—	$	4,396
Loans collectively evaluated for impairment		326,093		59,126		15,990		401,209
	$	330,489	$	59,126	$	15,990	$	405,605