LOANS AND ALLOWANCE FOR LOAN LOSSES

12 Months Ended

Dec. 31, 2015

Receivables [Abstract]

LOANS AND ALLOWANCE FOR LOAN LOSSES

4. LOANS AND ALLOWANCE FOR LOAN LOSSES

Major classifications of loans (net of deferred loan fees of $118,188 at December 31, 2015, and $89,441 at December 31, 2014) are as follows:

	DECEMBER 31,
	2015			2014
Commercial loans	$	50,938,265		$	49,899,577
Commercial real estate:
Commercial real estate construction		1,005,118			1,511,702
Commercial real estate other		115,736,034			115,739,682
Consumer:
Consumer real estate		69,777,307			62,054,983
Consumer other		5,165,981			4,911,848
		242,622,705			234,117,792
Allowance for loan losses		(3,417,827	)		(3,334,848	)
Loans, net	$	239,204,878		$	230,782,944

We had $102.1 million and $95.8 million of loans pledged as collateral to secure funding with the Federal Reserve Bank (“FRB”) Discount Window at December 31, 2015 and 2014, respectively.

Our portfolio grading analysis estimates the capability of the borrower to repay the contractual obligations of the loan agreements as scheduled. Our internal credit risk grading system is based on experience with similarly graded loans, industry best practices, and regulatory guidance.

Our internally assigned grades pursuant to the Board-approved lending policy are as follows:

● Excellent (1) The borrowing entity has more than adequate cash flow, unquestionable strength, strong earnings and capital where applicable, and usually no overdrafts.

● Good (2) The Borrowing entity has dependable cash flow, better than average financial condition, good capital and no overdrafts.

● Satisfactory (3) The borrowing entity has adequate cash flow, satisfactory financial condition, explainable overdrafts (if any).

● Watch (4) The borrowing entity has generally adequate, yet inconsistent cash flow, cyclical earnings, soft capital, loan to/from stockholders, and infrequent overdrafts. The borrower has consistent yet sometimes unpredictable sales and growth.

● OAEM (5) The borrowing entity has marginal cash flow, occasional past dues, and frequent and unexpected working capital needs.

● Substandard (6) The borrowing entity has a cash flow barely sufficient to service debt, deteriorated financial condition, bankruptcy possible. The borrowing entity has declining sales, rising costs, and may need to look for secondary source of repayment.

● Doubtful (7) The borrowing entity has negative cash flow. Survival of the business is at risk, full repayment is unlikely, and there are frequent and unexplained overdrafts. The borrowing entity shows declining trends and no operating profits.

● Loss (8) The borrowing entity has negative cash flow with no alternatives. Survival of the business is unlikely.

The following table illustrates credit risks by category and internally assigned grades at December 31, 2015 and December 31, 2014. “Pass” includes loans internally graded as excellent, good and satisfactory.

	December 31, 2015
	Commercial		Commercial Real Estate Construction		Commercial Real Estate Other		Consumer – Real Estate		Consumer – Other		Total
Pass	$	46,865,088	$	572,101	$	110,040,948	$	65,941,806	$	4,857,576	$	228,277,519
Watch		1,096,200		433,017		940,073		2,490,339		175,489		5,135,118
OAEM		1,337,002		—		1,203,518		99,743		26,961		2,667,224
Sub-Standard		1,639,975		—		3,551,495		1,245,419		105,955		6,542,844
Doubtful		—		—		—		—		—		—
Loss		—		—		—		—		—		—
Total	$	50,938,265	$	1,005,118	$	115,736,034	$	69,777,307	$	5,165,981	$	242,622,705

	December 31, 2014
	Commercial		Commercial Real Estate Construction		Commercial Real Estate Other		Consumer – Real Estate		Consumer – Other		Total
Pass	$	45,154,058	$	1,062,185	$	108,568,274	$	58,744,677	$	4,512,912	$	218,042,106
Watch		2,401,715		—		1,697,883		1,818,923		276,557		6,195,078
OAEM		551,380		449,517		1,378,436		467,482		82,832		2,929,647
Sub-Standard		1,792,424		—		4,095,089		1,023,901		39,547		6,950,961
Doubtful		—		—		—		—		—		—
Loss		—		—		—		—		—		—
Total	$	49,899,577	$	1,511,702	$	115,739,682	$	62,054,983	$	4,911,848	$	234,117,792

The following tables include an aging analysis of the recorded investment of past-due financing receivable by class:

	December 31, 2015
	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total Loans Receivable		Recorded Investment> 90 Days and Accruing
Commercial	$	1,162,676	$	250,370	$	4,317	$	1,417,363	$	49,520,902	$	50,938,265	$	—
Commercial Real Estate:
Commercial Real Estate -Construction		—		—		—		—		1,005,118		1,005,118		—
Commercial Real Estate -Other		91,607		1,215,473		1,152,774		2,459,854		113,276,180		115,736,034		—
Consumer:
Consumer Real Estate		68,240		249,754		82,015		400,008		69,377,299		69,777,307		—
Consumer-Other		69,333		58,116		6,056		133,505		5,032,476		5,165,981		1,606
Total	$	1,391,856	$	1,773,713	$	1,245,163	$	4,410,731	$	238,211,974	$	242,622,705	$	1,606

	December 31, 2014
	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total Loans Receivable		Recorded Investment> 90 Days and Accruing
Commercial	$	557,608	$	2,474	$	—	$	560,082	$	49,339,495	$	49,899,577	$	—
Commercial Real Estate:
Commercial Real Estate -Construction		—		—		—		—		1,511,702		1,511,702		—
Commercial Real Estate -Other		229,607		589,705		1,665,673		2,484,985		113,254,697		115,739,682		1,274,119
Consumer:
Consumer Real Estate		—		—		—		—		62,054,983		62,054,983		—
Consumer - Other		17,468		—		—		17,468		4,894,380		4,911,848		—
Total	$	804,683	$	592,179	$	1,665,673	$	3,062,535	$	231,055,257	$	234,117,792	$	1,274,119

There was one loan over 90 days past due still accruing interest at December 31, 2015. There were three loans over 90 days past due and still accruing interest at December 31, 2014. The decision to continue accruing interest on the three loans at December 31, 2014 resulted from unusual circumstances with two customers that had a long-term relationship with the bank. These loans are now current. The following table summarizes the balances of non-accrual loans:

	Loans Receivable on Non-Accrual
	December 31, 2015		December 31, 2014
Commercial	$	4,317	$	—
Commercial Real Estate:
Commercial Real Estate - Construction		—		—
Commercial Real Estate - Other		1,970,306		882,413
Consumer:
Consumer - Real Estate		82,015		—
Consumer - Other		4,450		—
Total	$	2,061,088	$	882,413

The following tables set forth the changes in the allowance and an allocation of the allowance by loan category at December 31, 2015, December 31, 2014 and December 31, 2013. The allowance consists of specific and general components. The specific component relates to loans that are individually classified as impaired. The general component covers non-impaired loans and is based on historical loss experience adjusted for current economic factors.

	December 31, 2015
	Commercial			Commercial Real Estate-Construction		Commercial Real Estate-Other			Consumer   Real Estate			Consumer   Other			Total
Allowance for Loan Losses
Beginning Balance	$	1,211,130		$	42,904	$	1,112,387		$	863,351		$	105,076		$	3,334,848
Charge-offs		(99,737	)		—		(55,252	)		(6,075	)		(40,007	)		(201,071	)
Recoveries		9,164			—		53,753			6,075			22,558			91,550
Provisions		(223,703	)		16,957		234,206			78,119			86,921			192,500
Ending Balance	$	896,854		$	59,861	$	1,345,094		$	941,470		$	174,548		$	3,417,827

	December 31, 2014
	Commercial			Commercial Real Estate-Construction		Commercial   Real Estate-Other			Consumer Real Estate		Consumer   Other			Total
Allowance for Loan Losses
Beginning Balance	$	1,448,804		$	22,137	$	1,064,363		$	672,813	$	84,160		$	3,292,277
Charge-offs		(83,042	)		—		(15,834	)		—		(14,154	)		(113,030	)
Recoveries		—			—		46,000			—		27,101			73,101
Provisions		(154,632	)		20,767		17,858			190,538		7,969			82,500
Ending Balance	$	1,211,130		$	42,904	$	1,112,387		$	863,351	$	105,076		$	3,334,848

	December 31, 2013
	Commercial			Commercial Real Estate-Construction			Commercial   Real Estate-Other		Consumer Real Estate			Consumer   Other			Total
Allowance for Loan Losses
Beginning Balance	$	1,576,002		$	30,579		$	767,170	$	947,280		$	111,813		$	3,432,844
Charge-offs		(245,599	)		—			—		—			(145,802	)		(391,401	)
Recoveries		23,004						15,348		—			4,982			43,334
Provisions		95,397			(8,442	)		281,845		(274,467	)		113,167			207,500
Ending Balance	$	1,448,804		$	22,137		$	1,064,363	$	672,813		$	84,160		$	3,292,277

The following tables present, by portfolio segment and reserving methodology, the allocation of the allowance for loan losses and the gross investment in loans.

	December 31, 2015
	Commercial		Commercial Real Estate-Construction		Commercial   Real Estate-Other		Consumer Real Estate		Consumer   Other		Total
Allowance for Loan Losses
Individually evaluated for impairment	$	387,979	$	—	$	253,105	$	342,320	$	100,103	$	1,083,507
Collectively evaluated for impairment		508,875		59,861		1,091,989		599,150		74,445		2,334,320
Total Allowance for Losses	$	896,854	$	59,861	$	1,345,094	$	941,470	$	174,548	$	3,417,827
Loans Receivable
Individually evaluated for impairment	$	1,639,974	$	—	$	3,551,495	$	1,245,419	$	105,819	$	6,542,707
Collectively evaluated for impairment		49,298,291		1,005,118		112,184,539		68,531,888		5,060,162		236,079,998
Total Loans Receivable	$	50,938,265	$	1,005,118	$	115,736,034	$	69,777,307	$	5,165,981	$	242,622,705

	December 31, 2014
	Commercial		Commercial Real Estate-Construction			Commercial   Real Estate-Other		Consumer Real Estate		Consumer   Other		Total
Allowance for Loan Losses
Individually evaluated for impairment	$	784,561	$		—	$	209,189	$	250,590	$	39,547	$	1,283,887
Collectively evaluated for impairment		426,569		42,904			903,198		612,761		65,529		2,050,961
Total Allowance for Loan Losses	$	1,211,130	$	42,904		$	1,112,387	$	863,351	$	105,076	$	3,334,848
Loans Receivable
Individually evaluated for impairment	$	1,792,425	$	—		$	4,195,852	$	1,023,303	$	39,547	$	7,051,127
Collectively evaluated for impairment		48,107,152		1,511,702			111,543,830		61,031,680		4,872,301		227,066,665
	$	49,899,577	$	1,511,702		$	115,739,682	$	62,054,983	$	4,911,848	$	234,117,792

As of December 31, 2015 and 2014, loans individually evaluated and considered impaired are presented in the following table:

	Impaired and Restructured Loans As of The Year Ended December 31,
	2015						2014
With no related allowance recorded:	Unpaid Principal Balance		Recorded Investment		Related Allowance		Unpaid Principal Balance		Recorded Investment		Related Allowance
Commercial	$	692,831	$	692,831	$	—	$	634,865	$	634,865	$	—
Commercial Real Estate-Construction		—		—		—		—		—		—
Commercial Real Estate-Other		2,476,018		2,476,018		—		3,349,844		3,349,844		—
Consumer Real Estate		450,402		450,402		—		351,140		351,140		—
Consumer Other		5,715		5,715		—		—		—		—
	$	3,542,706	$	3,542,706	$	—	$	4,335,849	$	4,335,849	$	—
With an allowance recorded:
Commercial	$	947,143	$	947,143	$	387,979		1,157,560		1,157,560		784,561
Commercial Real Estate- Construction		—		—		—		—		—		—
Commercial Real Estate-Other		1,075,477		1,075,477		253,105		846,008		846,008		209,189
Consumer Real Estate		795,017		795,017		342,320		672,163		672,163		250,590
Consumer Other		100,104		100,104		100,103		39,547		39,547		39,547
	$	2,917,741	$	2,917,741	$	1,083,507	$	2,715,278	$	2,715,278	$	1,283,887
Total
Commercial	$	1,639,974	$	1,639,974	$	387,979	$	1,792,425	$	1,792,425	$	784,561
Commercial Real Estate-Construction		—		—		—						—
Commercial Real Estate-Other		3,551,495		3,551,495		253,105		4,195,852		4,195,852		209,189
Consumer Real Estate		1,245,419		1,245,419		342,320		1,023,303		1,023,303		250,590
Consumer Other		105,819		105,819		100,103		39,547		39,547		39,547
	$	6,542,707	$	6,542,707	$	1,083,507	$	7,051,127	$	7,051,127	$	1,283,887

The following table presents average impaired loans and interest income recognized on those impaired loans, by class segment, for the periods indicated.

	For the Year Ended December 31,
	2015				2014				2013
With no related allowance recorded:	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Commercial	$	750,350	$	43,853	$	647,135	$	18,129	$	424,733	$	36,465
Commercial Real Estate-Construction		—		—		—		—		—		—
Commercial Real Estate-Other		2,500,204		128,352		3,515,431		177,416		2,427,681		152,529
Consumer Real Estate		450,117		17,035		351,550		12,877		200,339		9,079
Consumer-Other		56,758		2,557		—		—		—		—
	$	3,757,429	$	191,797	$	4,514,116	$	208,422	$	3,052,753	$	198,073
With an allowance recorded:
Commercial	$	1,009,765	$	49,166	$	1,222,383	$	56,432	$	1,213,799	$	58,955
Commercial Real Estate-Construction		—		—		—		—		—		—
Commercial Real Estate-Other		1,066,896		48,945		790,998		29,218		2,083,729		78,453
Consumer Real Estate		811,014		32,362		688,922		34,154		866,800		32,633
Consumer Other		55,439		3,540		41,631		1,923		46,697		2,268
	$	2,943,114	$	134,013	$	2,743,934	$	121,727	$	4,211,025	$	172,309
Total
Commercial	$	1,760,115	$	93,019	$	1,869,518	$	74,561	$	1,638,532	$	95,420
Commercial Real Estate-Construction		—		—		—		—		—		—
Commercial Real Estate-Other		3,567,100		177,297		4,306,429		206,634		4,511,410		230,982
Consumer Real Estate		1,261,131		49,397		1,040,472		47,031		1,067,139		41,712
Consumer Other		112,197		6,097		41,631		1,923		46,697		2,268
	$	6,700,543	$	325,810	$	7,258,050	$	330,149	$	7,263,778	$	370,382

Restructured loans (loans, still accruing interest, which have been renegotiated at below-market interest rates or for which other concessions have been granted) were $458,268 (3 loans) and $466,541 (2 loans) at December 31, 2015 and December 31, 2014, respectively. Restructured loans were granted extended payment terms with no principal reduction. All restructured loans were performing as agreed as of December 31, 2015 and 2014, respectively.

No TDR’s defaulted during the years ended December 31, 2015 and 2014, which were modified within the previous twelve months.