Loans and Allowance for Loan Losses

9 Months Ended

Sep. 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 $142,460 at September 30, 2016, and $118,188 at December 31, 2015) are as follows:

	September 30,			December 31,
	2016			2015
Commercial Loans	$	48,155,901		$	50,938,265
Commercial real estate:
Commercial real estate construction		1,189,986			1,005,118
Commercial real estate other		127,715,800			115,736,034
Consumer
Consumer real estate		83,531,237			69,777,307
Consumer other		5,790,732			5,165,981
		266,383,656			242,622,705
Allowance for Loan losses		(3,745,111	)		(3,417,827	)
Loans, net	$	262,638,545		$	239,204,878

We had $109.4 million and $102.1 million of loans pledged as collateral to secure funding with the Federal Reserve Bank (“FRB”) Discount Window at September 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 September 30, 2016 and December 31, 2015. “Pass” includes loans internally graded as excellent, good and satisfactory.

	September 30, 2016
		Commercial		Commercial Real Estate Construction		Commercial Real Estate Other		Consumer Real Estate		Consumer Other		Total
Pass	$	43,904,613	$	771,969	$	122,873,476	$	80,614,704	$	5,434,552	$	253,599,314
Watch		1,109,909		418,017		890,620		959,998		217,141		3,595,685
OAEM		1,678,655		—		652,460		641,604		34,724		3,007,443
Substandard		1,462,724		—		3,299,244		1,314,931		104,315		6,181,214
Doubtful		—		—		—		—		—		—
Loss		—		—		—		—		—		—
Total	$	48,155,901	$	1,189,986	$	127,715,800	$	83,531,237	$	5,790,732	$	266,383,656

	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:

	September 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	$	94,329	$	1,038,198	$	125,244	$	1,257,771	$	46,898,130	$	48,155,901	$	125,244
Commercial real estate:
Commercial real estate construction		—		—		—		—		1,189,986		1,189,986		—
Commercial real estate other		89,908		—		1,735,695		1,825,603		125,890,197		127,715,800		64,777
Consumer
Consumer real estate		200,649		—		—		200,649		83,330,588		83,531,237		—
Consumer other		22,380		—		—		22,380		5,768,352		5,790,732		—
Total	$	407,266	$	1,038,198	$	1,860,939	$	3,306,403	$	263,077,253	$	266,383,656	$	190,021

	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 three loans at September 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
	September 30, 2016		December 31, 2015
Commercial Loans	$	65,000	$	4,317
Commercial real estate:
Commercial real estate construction		—		—
Commercial real estate other		1,891,540		1,970,306
Consumer
Consumer real estate		—		82,015
Consumer other		2,939		4,450
Total	$	1,959,479	$	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 nine months ended September 30, 2016 and September 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
	September 30, 2016
		Commercial		Commercial Real Estate Construction		Commercial Real Estate Other		Consumer Real Estate		Consumer Other			Total
Beginning Balance	$	1,490,327	$	57,374	$	1,186,524	$	629,773	$	148,448		$	3,512,446
Charge-offs		—		—		—		—		—			—
Recoveries		1,500		—		20,000		—		1,165			22,665
Provision		4,512		524		98,398		119,044		(12,478	)		210,000
Ending Balance	$	1,496,339	$	57,898	$	1,304,922	$	748,817	$	137,135		$	3,745,111

	Nine Months Ended
	September 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		2,784			—			44,000			—			2,151			48,935
Provision		629,746			(1,963	)		(84,172	)		(110,638	)		(37,973	)		395,000

Ending Balance $ 1,496,339 $ 57,898 $ 1,304,922 $ 748,817 $ 137,135 $ 3,745,111

	Three Months Ended
	September 30, 2015
		Commercial			Commercial Real Estate Construction		Commercial Real Estate Other			Consumer Real Estate			Consumer Other			Total
Beginning Balance	$	1,044,329		$	44,318	$	1,186,043		$	913,129		$	219,939		$	3,407,758
Charge-offs		(99,737	)		—		(34,252	)		(6,075	)		(19,274	)		(159,338	)
Recoveries		—			—		17,000			6,075			10,276			33,351
Provision		3,450			5,442		51,175			(1,886	)		(50,681	)		7,500
Ending Balance	$	948,042		$	49,760	$	1,219,966		$	911,243		$	160,260		$	3,289,271

	Nine Months Ended
	September 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		(99,737	)		—		(55,252	)		(6,075	)		(40,007	)		(201,071	)
Recoveries		9,164			—		47,000			6,075			10,755			72,994
Provision		(172,515	)		6,856		115,831			47,892			84,436			82,500
Ending Balance	$	948,042		$	49,760	$	1,219,966		$	911,243		$	160,260		$	3,289,271

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

	September 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	$	1,076,158	$	—	$	307,975	$	71,923	$	92,929	$	1,548,985
Collectively evaluated for impairment		420,181		57,898		996,947		676,894		44,206		2,196,126
Total Allowance for Losses	$	1,496,339	$	57,898	$	1,304,922	$	748,817	$	137,135	$	3,745,111
Loan Receivable
Individually evaluated for impairment	$	1,452,006	$	—	$	3,323,576	$	1,314,931	$	92,929	$	6,183,441
Collectively evaluated for impairment		46,703,895		1,189,986		124,392,224		82,216,306		5,697,803		260,200,215
Total Loans Receivable	$	48,155,901	$	1,189,986	$	127,715,800	$	83,531,237	$	5,790,732	$	266,383,656

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

	Impaired and Restructured Loans
	As of
	September 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	$	375,847	$	375,847	$	—	$	692,831	$	692,831	$	—
Commercial Real Estate Construction		—		—		—		—		—		—
Commercial Real Estate Other		2,245,717		2,245,717		—		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		—
	$	3,864,572	$	3,864,572	$	—	$	3,624,966	$	3,624,966	$	—
With an allowance recorded:
Commercial	$	1,076,158	$	1,076,158	$	1,076,158	$	947,143	$	947,143	$	387,979
Commercial Real Estate Construction		—		—		—		—		—		—
Commercial Real Estate Other		1,077,858		1,077,858		307,975		1,075,477		1,075,477		253,105
Consumer Real Estate		71,923		71,923		71,923		795,017		795,017		342,320
Consumer Other		92,929		92,929		92,929		100,104		100,104		100,103
	$	2,318,868	$	2,318,868	$	1,548,985	$	2,917,741	$	2,917,741	$	1,083,507
Total
Commercial	$	1,452,006	$	1,452,006	$	1,076,158	$	1,639,974	$	1,639,974	$	387,979
Commercial Real Estate Construction		—		—		—		—		—		—
Commercial Real Estate Other		3,323,576		3,323,576		307,975		3,551,495		3,551,495		253,105
Consumer Real Estate		1,314,931		1,314,931		71,923		1,245,419		1,245,419		342,320
Consumer Other		92,929		92,929		92,929		105,819		105,819		100,103
	$	6,183,441	$	6,183,441	$	1,548,985	$	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
	September 30, 2016				September 30, 2015
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial	$	380,933	$	4,674	$	736,376	$	11,289
Commercial Real Estate Construction		—		—		—		—
Commercial Real Estate Other		2,253,994		19,738		2,689,602		37,625
Consumer Real Estate		1,243,008		16,205		450,053		4,559
Consumer Other		—		—		6,930		146
	$	3,877,935	$	40,617	$	3,882,961	$	53,619
With an allowance recorded:
Commercial	$	1,085,201	$	19,406	$	989,914	$	11,865
Commercial Real Estate Construction		—		—		—		—
Commercial Real Estate Other		1,068,622		5,330		1,253,113		14,333
Consumer Real Estate		71,963		770		914,480		10,495
Consumer Other		95,367		473		98,486		1,415
	$	2,321,153	$	25,979	$	3,255,993	$	38,108
Total
Commercial	$	1,466,134	$	24,080	$	1,726,290	$	23,154
Commercial Real Estate Construction		—		—		—		—
Commercial Real Estate Other		3,322,617		25,068		3,942,715		51,958
Consumer Real Estate		1,314,971		16,975		1,364,533		15,054
Consumer Other		95,367		473		105,416		1,561
	$	6,199,088	$	66,596	$	7,138,954	$	91,727

	Nine Months Ended
	September 30, 2016				September 30, 2015
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial	$	392,826	$	15,393	$	763,464	$	33,861
Commercial Real Estate Construction		—		—		—		—
Commercial Real Estate Other		2,263,927		69,962		2,646,960		111,164
Consumer Real Estate		1,242,373		43,220		450,053		14,009
Consumer Other		—		—		7,139		224
	$	3,899,126	$	128,575	$	3,867,616	$	159,258
With an allowance recorded:
Commercial	$	1,095,411	$	49,770	$	1,026,875	$	37,673
Commercial Real Estate Construction		—		—		—		—
Commercial Real Estate Other		1,070,048		12,008		1,254,696		43,702
Consumer Real Estate		72,025		1,776		920,347		29,772
Consumer Other		99,864		3,777		100,889		4,462
	$	2,337,348	$	67,331	$	3,302,807	$	115,609
Total
Commercial	$	1,488,237	$	65,163	$	1,790,339	$	71,534
Commercial Real Estate Construction		—		—		—		—
Commercial Real Estate Other		3,333,976		81,970		3,901,656		154,866
Consumer Real Estate		1,314,398		44,996		1,370,400		43,781
Consumer Other		99,864		3,777		108,028		4,686
	$	6,236,474	$	195,906	$	7,170,423	$	274,867

Restructured loans were $444,145 (3 loans) and $458,268 (3 loans) at September 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 September 30, 2016 and December 31, 2015, respectively. There were no additional loans identified as a troubled debt restructuring (“TDR”) during the three or nine months ended September 30, 2016 or 2015. No TDRs defaulted during the three or nine months ended September 30, 2016 and 2015, which were modified within the previous twelve months.