Loans and Allowance for Loan Losses

3 Months Ended

Mar. 31, 2016

Receivables [Abstract]

Loans and Allowance for Loan Losses

Note 3: Loans and Allowance for Loan Losses

Major classifications of loans (net of deferred loan fees of $123,970 at March 31, 2016, and $118,188 at December 31, 2015) are as follows:

	March 31, 2016			December 31, 2015
Commercial Loans	$	52,101,572		$	50,938,265
Commercial real estate:
Commercial real estate construction		1,160,893			1,005,118
Commercial real estate other		121,300,195			115,736,034
Consumer
Consumer real estate		73,239,469			69,777,307
Consumer other		5,523,504			5,165,981
		253,325,633			242,622,705
Allowance for Loan losses		(3,436,762	)		(3,417,827	)
Loans, net	$	249,888,871		$	239,204,878

We had $104.1 million and $102.1 million of loans pledged as collateral to secure funding with the Federal Reserve Bank (“FRB”) Discount Window at March 31, 2016 and at December 31, 2015, 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 no overdrafts.

● Good (2) The Borrowing entity has dependable cash flow, better than average financial condition, good capital and usually 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, weak 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 March 31, 2016 and December 31, 2015. “Pass” includes loans internally graded as excellent, good and satisfactory.

	March 31, 2016
	Commercial		Commercial Real Estate Construction		Commercial Real Estate Other		Consumer Real Estate		Consumer Other		Total
Pass	$	48,126,073	$	730,876	$	115,601,053	$	69,362,054	$	5,262,539	$	239,082,595
Watch		1,010,043		430,017		926,678		2,471,241		133,234		4,971,213
OAEM		1,191,770		—		1,154,784		733,461		24,574		3,104,589
Substandard		1,773,686		—		3,617,680		672,713		103,157		6,167,236
Doubtful		—		—		—		—		—		—
Loss		—		—		—		—		—		—
Total	$	52,101,572	$	1,160,893	$	121,300,195	$	73,239,469	$	5,523,504	$	253,325,633

	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
Substandard		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

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

	March 31, 2016
	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 Accuring Interest
Commercial Loans	$	39,664	$	1,054,310		—	$	1,093,974	$	51,007,598	$	52,101,572	$	—
Commercial real estate:
Commercial real estate construction		—		—		—		—		1,160,893		1,160,893		—
Commercial real estate other		—		986,887		1,817,056		2,803,943		118,496,252		121,300,195		—
Consumer
Consumer real estate		—		—		150,255		150,255		73,089,214		73,239,469		—
Consumer other		—		12,176		2,448		14,624		5,508,880		5,523,504		—
Total	$	39,664	$	2,053,373	$	1,969,759	$	4,062,796	$	249,262,837	$	253,325,633	$	—

	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 Accuring Interest
Commercial Loans	$	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		400,009		69,377,298		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	$	1,245,162	$	4,410,731	$	238,211,974	$	242,622,705	$	1,606

There were no loans at March 31, 2016 and one loan at December 31, 2015, over 90 days past due and still accruing interest. The following table summarizes the balances of non-accrual loans:

	Loans Receivable on Non-Accrual For the Period Ending
	March 31, 2016		December 31, 2015
Commercial Loans	$	3,862	$	4,317
Commercial real estate:
Commercial real estate construction		—		—
Commercial real estate other		2,453,166		1,970,306
Consumer
Consumer real estate		150,255		82,015
Consumer other		4,857		4,450
Total	$	2,612,140	$	2,061,088

The following tables set forth the changes in the allowance for loan losses and an allocation of the allowance by loan category for the three months ended March 31, 2016 and March 31, 2015. 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.

	March 31, 2016
	Commercial			Commercial Real Estate Construction			Commercial Real Estate Other			Consumer Real Estate			Consumer Other			Total
Beginning Balance	$	896,854		$	59,861		$	1,345,094		$	941,470		$	174,548		$	3,417,827
Charge-offs		(33,045	)		—			—			—			(1,050	)		(34,095	)
Recoveries		1,284			—			6,000			—			746			8,030
Provision		635,557			(15,593	)		(242,391	)		(328,228	)		(4,345	)		45,000
Ending Balance	$	1,500,650		$	44,268		$	1,108,703		$	613,242		$	169,899		$	3,436,762

	March 31, 2015
	Commercial			Commercial Real Estate Construction		Commercial Real Estate Other			Consumer Real Estate			Consumer Other		Total
Beginning Balance	$	1,211,130		$	42,904	$	1,112,387		$	863,351		$	105,076	$	3,334,848
Charge-offs		—			—		(21,000	)		—			—		(21,000	)
Recoveries		—			—		15,000			—			240		15,240
Provision		(110,328	)		1,792		85,335			(12,093	)		40,294		5,000
Ending Balance	$	1,100,802		$	44,696	$	1,191,722		$	851,258		$	145,610	$	3,334,088

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

	March 31, 2016
	Commercial		Commercial Real Estate Construction		Commercial Real Estate Other		Consumer Real Esate		Consumer Other		Total
Allowance for Loan Losses
Individually evaluated for impairment	$	1,103,564	$	—	$	338,142	$	150,545	$	103,157	$	1,695,408
Collectively evaluated for impairment		397,086		44,268		770,561		462,697		66,742		1,741,354
Total Allowance for Losses	$	1,500,650	$	44,268	$	1,108,703	$	613,242	$	169,899	$	3,436,762
Loan Receivable
Individually evaluated for impairment	$	1,773,687	$	—	$	4,020,095	$	604,472	$	171,397	$	6,569,651
Collectively evaluated for impairment		50,327,885		1,160,893		117,280,100		72,634,997		5,352,107		246,755,982
Total Loans Receivable	$	52,101,572	$	1,160,893	$	121,300,195	$	73,239,469	$	5,523,504	$	253,325,633

	December 31, 2015
	Commercial		Commercial Real Estate Construction		Commercial Real Estate Other		Consumer Real Esate		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
Loan 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

As of March 31, 2016 and December 31, 2015, loans individually evaluated and considered impaired are presented in the following table:

	Impaired and Restructured Loans As of
	March 31, 2016						December 31, 2015
	Unpaid Principal Balance		Recorded Investment		Related Allowance		Unpaid Principal Balance		Recorded Investment		Related Allowance
With no related allowance recorded:
Commercial	$	670,123	$	670,123	$	—	$	692,831	$	692,831	$	—
Commercial Real Estate Construction		—		—		—		—		—		—
Commercial Real Estate Other		2,686,274		2,686,274		—		2,476,018		2,476,018		—
Consumer Real Estate		450,402		450,402		—		450,402		450,402		—
Consumer Other		68,240		68,240		—		5,715		5,715		—
	$	3,875,039	$	3,875,039	$	—	$	3,624,966	$	3,624,966	$	—
With an allowance recorded:
Commercial	$	1,103,564	$	1,103,564	$	1,103,564	$	947,143	$	947,143	$	387,979
Commercial Real Estate Construction		—		—		—		—		—		—
Commercial Real Estate Other		1,333,821		1,333,821		338,142		1,075,477		1,075,477		253,105
Consumer Real Estate		154,070		154,070		150,545		795,017		795,017		342,320
Consumer Other		103,157		103,157		103,157		100,104		100,104		100,103
	$	2,694,612	$	2,694,612	$	1,695,408	$	2,917,741	$	2,917,741	$	1,083,507
Total
Commercial	$	1,773,687	$	1,773,687	$	1,103,564	$	1,639,974	$	1,639,974	$	387,979
Commercial Real Estate Construction		—		—		—		—		—		—
Commercial Real Estate Other		4,020,095		4,020,095		338,142		3,551,495		3,551,495		253,105
Consumer Real Estate		604,472		604,472		150,545		1,245,419		1,245,419		342,320
Consumer Other		171,397		171,397		103,157		105,819		105,819		100,103
	$	6,569,651	$	6,569,651	$	1,695,408	$	6,542,707	$	6,542,707	$	1,083,507

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

	Three Months Ended
	March 31, 2016				March 31, 2015
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial	$	1,106,771	$	16,647	$	784,435	$	11,992
Commercial Real Estate Construction		—		—		—		—
Commercial Real Estate Other		1,334,158		6,705		3,290,380		42,894
Consumer Real Estate		154,105		1,119		522,468		5,385
Consumer Other		106,011		2,374		—		—
	$	2,701,045	$	26,845	$	4,597,283	$	60,271
With an allowance recorded:
Commercial	$	682,992	$	11,033	$	1,176,492	$	13,207
Commercial Real Estate Construction		—		—		—		—
Commercial Real Estate Other		2,650,492		29,127		1,111,464		12,938
Consumer Real Estate		450,403		6,742		748,701		5,431
Consumer Other		68,240		—		88,346		1,400
	$	3,852,127	$	46,902	$	3,125,003	$	32,976
Total
Commercial	$	1,789,763	$	27,680	$	1,960,927	$	25,199
Commercial Real Estate Construction		—		—		—		—
Commercial Real Estate Other		3,984,650		35,832		4,401,844		55,832
Consumer Real Estate		604,508		7,861		1,271,169		10,816
Consumer Other		174,251		2,374		88,346		1,400
	$	6,553,172	$	73,747	$	7,722,286	$	93,247

Restructured loans (loans, still accruing interest, which have been renegotiated at below-market interest rates or for which other concessions have been granted) were $451,264 (3 loans) and $458,268 (3 loans) at March 31, 2016 and December 31, 2015, respectively. Restructured loans were granted extended payment terms with no principal reduction. All restructured loans were performing as agreed as of March 31, 2016 and December 31, 2015, respectively. There were no additional loans identified as a troubled debt restructuring (“TDR”) during the three months ended March 31, 2016 or 2015. No TDRs defaulted during the three months ended March 31, 2016 and 2015, which were modified within the previous twelve months.