Loans and Allowance for Loan Losses

6 Months Ended

Jun. 30, 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 $133,721 at June 30, 2016, and $118,188 at December 31, 2015) are as follows:

	June 30, 2016			December 31, 2015
Commercial Loans	$	53,236,380		$	50,938,265
Commercial real estate:
Commercial real estate construction		1,295,073			1,005,118
Commercial real estate other		129,103,382			115,736,034
Consumer
Consumer real estate		81,158,674			69,777,307
Consumer other		5,506,580			5,165,981
		270,300,089			242,622,705
Allowance for Loan losses		(3,512,446	)		(3,417,827	)
Loans, net	$	266,787,643		$	239,204,878

We had $109.1 million and $102.1 million of loans pledged as collateral to secure funding with the Federal Reserve Bank (“FRB”) Discount Window at June 30, 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 June 30, 2016 and December 31, 2015. “Pass” includes loans internally graded as excellent, good and satisfactory.

	June 30,2016
	Commercial		Commercial Real Estate Construction		Commercial Real Estate Other		Consumer Real Estate		Consumer Other		Total
Pass	$	49,359,963	$	871,056	$	123,622,814	$	78,033,500	$	5,253,174	$	257,140,507
Watch		1,168,350		424,017		917,792		1,158,622		127,090		3,795,871
OAEM		1,134,582		—		658,281		651,537		16,994		2,461,394
Substandard		1,573,485		—		3,904,495		1,315,015		109,322		6,902,317
Doubtful		—		—		—		—		—		—
Loss		—		—		—		—		—		—
Total	$	53,236,380	$	1,295,073	$	129,103,382	$	81,158,674	$	5,506,580	$	270,300,089

	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:

	June 30, 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	$	—	$	1,174,677	$	2,685	$	1,177,362	$	52,059,018	$	53,236,380	$	—
Commercial real estate:
Commercial real estate construction		—		—		—		—		1,295,073		1,295,073		—
Commercial real estate other		408,729		547,814		2,162,237		3,118,780		125,984,602		129,103,382		—
Consumer
Consumer real estate		43,173		249,754		—		292,927		80,865,747		81,158,674		—
Consumer other		4,523		4,208		—		8,731		5,497,849		5,506,580		—
Total	$	456,425	$	1,976,453	$	2,164,922	$	4,597,800	$	265,702,289	$	270,300,089	$	—

	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 June 30, 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
	June 30, 2016		December 31, 2015
Commercial Loans	$	2,685	$	4,317
Commercial real estate:
Commercial real estate construction		—		—
Commercial real estate other		2,451,620		1,970,306
Consumer
Consumer real estate		—		82,015
Consumer other		2,149		4,450
Total	$	2,456,454	$	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 and six months ended June 30, 2016 and June 30, 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.

	Three Months Ended June 30, 2016
	Commercial			Commercial Real Estate Construction		Commercial Real Estate Other		Consumer Real Estate			Consumer Other			Total
Beginning Balance	$	1,500,650		$	44,268	$	1,108,703	$	613,242		$	169,899		$	3,436,762
Charge-offs		—			—		—		(82,015	)		(541	)		(82,556	)
Recoveries		—			—		18,000		—			240			18,240
Provision		(10,323	)		13,106		59,821		98,546			(21,150	)		140,000
Ending Balance	$	1,490,327		$	57,374	$	1,186,524	$	629,773		$	148,448		$	3,512,446

	Six Months Ended June 30, 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	)		—			—			(82,015	)		(1,591	)		(116,651	)
Recoveries		1,284			—			24,000			—			986			26,270
Provision		625,234			(2,487	)		(182,570	)		(229,682	)		(25,495	)		185,000
Ending Balance	$	1,490,327		$	57,374		$	1,186,524		$	629,773		$	148,448		$	3,512,446

	Three Months Ended June 30, 2015
	Commercial			Commercial Real Estate Construction			Commercial Real Estate Other			Consumer Real Estate		Consumer Other			Total
Beginning Balance	$	1,100,802		$	44,696		$	1,191,722		$	851,258	$	145,610		$	3,334,088
Charge-offs		—			—			—			—		(20,734	)		(20,734	)
Recoveries		—			—			24,164			—		240			24,404
Provision		(56,473	)		(378	)		(29,843	)		61,871		94,823			70,000
Ending Balance	$	1,044,329		$	44,318		$	1,186,043		$	913,129	$	219,939		$	3,407,758

	Six Months Ended June 30, 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	)		—		(20,734	)		(41,734	)
Recoveries		—			—		39,164			—		480			39,644
Provision		(166,801	)		1,414		55,492			49,778		135,117			75,000
Ending Balance	$	1,044,329		$	44,318	$	1,186,043		$	913,129	$	219,939		$	3,407,758

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

	June 30, 2016
	Commercial		Commercial Real Estate Construction		Commercial Real Estate Other		Consumer Real Estate		Consumer Other		Total
Allowance for Loan Losses
Individually evaluated for impairment	$	1,087,995	$	—	$	303,466	$	72,008	$	97,279	$	1,560,748
Collectively evaluated for impairment		402,332		57,374		883,058		557,765		51,169		1,951,698
Total Allowance for Loan Losses	$	1,490,327	$	57,374	$	1,186,524	$	629,773	$	148,448	$	3,512,446
Loans Receivable
Individually evaluated for impairment	$	1,570,800	$	—	$	3,904,494	$	1,315,015	$	97,279	$	6,887,588
Collectively evaluated for impairment		51,665,580		1,295,073		125,198,888		79,843,659		5,409,301		263,412,501
Total Loans Receivable	$	53,236,380	$	1,295,073	$	129,103,382	$	81,158,674	$	5,506,580	$	270,300,089

	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 Loan 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

As of June 30, 2016 and December 31, 2015, loans individually evaluated and considered impaired are presented in the following table:

	Impaired and Restructured Loans As of
	June 30, 2016						December 31, 2015
	Unpaid Principal Balance		Recorded Investment		Related Allowance		Unpaid Principal Balance		Recorded Investment		Related Allowance
With no related allowance recorded:
Commercial	$	482,805		482,805	$	—	$	692,831	$	692,831	$	—
Commercial Real Estate Construction		—		—		—		—		—		—
Commercial Real Estate Other		2,873,160		2,873,160		—		2,476,018		2,476,018		—
Consumer Real Estate		1,243,008		1,243,008		—		450,402		450,402		—
Consumer Other		—		—		—		5,715		5,715		—
	$	4,598,973	$	4,598,973	$	—	$	3,624,966	$	3,624,966	$	—
With an allowance recorded:
Commercial	$	1,087,995		1,087,995	$	1,087,995	$	947,143	$	947,143	$	387,979
Commercial Real Estate Construction		—		—		—		—		—		—
Commercial Real Estate Other		1,031,334		1,031,334		303,466		1,075,477		1,075,477		253,105
Consumer Real Estate		72,008		72,008		72,008		795,017		795,017		342,320
Consumer Other		97,279		97,279		97,279		100,104		100,104		100,103
	$	2,288,616	$	2,288,616	$	1,560,748	$	2,917,741	$	2,917,741	$	1,083,507
Total
Commercial	$	1,570,800	$	1,570,800	$	1,087,995	$	1,639,974	$	1,639,974	$	387,979
Commercial Real Estate Construction		—		—		—		—		—		—
Commercial Real Estate Other		3,904,494		3,904,494		303,466		3,551,495		3,551,495		253,105
Consumer Real Estate		1,315,016		1,315,016		72,008		1,245,419		1,245,419		342,320
Consumer Other		97,279		97,279		97,279		105,819		105,819		100,103
	$	6,887,589	$	6,887,589	$	1,560,748	$	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
	June 30, 2016				June 30, 2015
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial	$	486,498	$	4,221	$	811,606	$	11,026
Commercial Real Estate Construction		—		—		—		—
Commercial Real Estate Other		2,883,625		20,215		3,303,936		42,405
Consumer Real Estate		1,242,703		14,334		522,399		5,133
Consumer Other		—		—		7,658		34
	$	4,612,826	$	38,770	$	4,645,599	$	58,598
With an allowance recorded:
Commercial	$	1,097,191	$	13,912	$	1,141,727	$	13,551
Commercial Real Estate Construction		—		—		—		—
Commercial Real Estate Other		1,065,261		10,949		1,013,311		12,885
Consumer Real Estate		72,034		387		1,200,173		7,862
Consumer Other		100,212		1,177		157,602		2,154
	$	2,334,698	$	26,425	$	3,512,813	$	36,452
Total
Commercial	$	1,583,689	$	18,133	$	1,953,333	$	24,577
Commercial Real Estate Construction		—		—		—		—
Commercial Real Estate Other		3,948,886		31,164		4,317,247		55,290
Consumer Real Estate		1,314,737		14,721		1,722,572		12,995
Consumer Other		100,212		1,177		165,260		2,188
	$	6,947,524	$	65,195	$	8,158,412	$	95,050

	Six Months Ended
	June 30, 2016				June 30, 2015
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial	$	494,572	$	10,718	$	822,849	$	25,578
Commercial Real Estate Construction		—		—		—		—
Commercial Real Estate Other		2,889,248		42,855		3,318,009		88,205
Consumer Real Estate		1,242,069		27,781		522,429		10,518
Consumer Other		—		—		7,574		84
	$	4,625,889	$	81,354	$	4,670,861	$	124,385
With an allowance recorded:
Commercial	$	1,101,252	$	30,364	$	1,146,928	$	26,392
Commercial Real Estate Construction		—		—		—		—
Commercial Real Estate Other		1,031,087		18,265		1,015,819		25,029
Consumer Real Estate		72,059		1,006		1,203,183		23,396
Consumer Other		102,264		3,510		159,093		4,858
	$	2,306,662	$	53,145	$	3,525,023	$	79,675
Total
Commercial	$	1,595,824	$	41,082	$	1,969,777	$	51,970
Commercial Real Estate Construction		—		—		—		—
Commercial Real Estate Other		3,920,335		61,120		4,333,828		113,234
Consumer Real Estate		1,314,128		28,787		1,725,612		33,914
Consumer Other		102,264		3,510		166,667		4,942
	$	6,932,552	$	134,499	$	8,195,884	$	204,060

Restructured loans were $442,442 (3 loans) and $458,268 (3 loans) at June 30, 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 June 30, 2016 and December 31, 2015, respectively. There were no additional loans identified as a troubled debt restructuring (“TDR”) during the three or six months ended June 30, 2016 or 2015. No TDRs defaulted during the three or six months ended June 30, 2016 and 2015, which were modified within the previous twelve months.