Loans and Allowance for Loan Losses

3 Months Ended

Mar. 31, 2018

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 $156,185 at March 31, 2018 and $152,047 at December 31, 2017) are as follows:

	March 31,  2018			December 31, 2017
Commercial loans	$	53,805,976		$	51,723,237
Commercial real estate:
Construction		1,660,573			2,317,857
Other		137,493,443			140,186,324
Consumer:
Real Estate		69,729,343			70,797,973
Other		5,309,101			5,155,249
		267,998,436			270,180,640
Allowance for loan losses		(3,830,520	)		(3,875,398	)
Loans, net	$	264,167,916		$	266,305,242

We had $107.7 million and $113.4 million of loans pledged as collateral to secure funding with the Federal Reserve Bank (“FRB”) Discount Window at March 31, 2018 and at December 31, 2017, 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 portfolio is graded in its entirety.

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 tables illustrate credit quality by class and internally assigned grades at March 31, 2018 and December 31, 2017. “Pass” includes loans internally graded as excellent, good and satisfactory.

March 31, 2018
	Commercial		Commercial  Real Estate  Construction		Commercial  Real Estate  Other		Consumer  Real Estate		Consumer Other		Total
Pass	$	50,674,476	$	1,660,573	$	132,409,734	$	67,700,455	$	5,013,141	$	257,458,379
Watch		1,363,848		—		3,021,215		1,779,134		220,139		6,384,336
OAEM		—		—		602,563		—		—		602,563
Sub- standard		1,767,652		—		1,459,931		249,754		75,821		3,553,158
Doubtful		—		—		—		—		—		—
Loss		—		—		—		—		—		—
Total	$	53,805,976	$	1,660,573	$	137,493,443	$	69,729,343	$	5,309,101	$	267,998,436

December 31, 2017
	Commercial		Commercial  Real Estate Construction		Commercial  Real Estate  Other		Consumer  Real Estate		Consumer Other		Total
Pass	$	47,456,205	$	1,936,335	$	134,401,977	$	68,570,298	$	4,933,696	$	257,298,511
Watch		2,403,978		381,522		3,605,621		1,934,802		185,746		8,511,669
OAEM		—		—		610,806		—		—		610,806
Sub-standard		1,863,054		—		1,567,920		292,873		35,807		3,759,654
Doubtful		—		—		—		—		—		—
Loss		—		—		—		—		—		—
Total	$	51,723,237	$	2,317,857	$	140,186,324	$	70,797,973	$	5,155,249	$	270,180,640

The following tables include an aging analysis of the recorded investment in loans segregated by class:

March 31, 2018
	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	$	85,774	$	80,000	$	—	$	165,774	$	53,640,202	$	53,805,976	$	—
Commercial Real Estate -Construction		—		—		—		—		1,660,573		1,660,573		—
Commercial Real Estate -Other		75,003		197,238		819,877		1,092,118		136,401,325		137,493,443		—
Consumer Real Estate		34,364		—		—		34,364		69,694,979		69,729,343		—
Consumer Other		21,720		17,500		—		39,220		5,269,881		5,309,101		—
Total	$	216,861	$	294,738	$	819,877	$	1,331,476	$	266,666,960	$	267,998,436	$	—

December 31, 2017
	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	$	3,531	$	192,846	$	—	$	196,377	$	51,526,860	$	51,723,237	$	—
Commercial Real Estate -Construction		—		—		—		—		2,317,857		2,317,857		—
Commercial Real Estate -Other		—		—		651,578		651,578		139,534,746		140,186,324		—
Consumer Real Estate		—		—		—		—		70,797,973		70,797,973		—
Consumer Other		10,302		—		34,107		44,409		5,110,840		5,155,249		34,107
Total	$	13,833	$	192,846	$	685,685	$	892,364	$	269,288,276	$	270,180,640	$	34,107

There were no loans at March 31, 2018 and two loans at December 31, 2017 over 90 days past due and still accruing.

The following table summarizes the balances of non-accrual loans:

	Loans Receivable on Non-Accrual
	March 31, 2018		December 31, 2017
Commercial	$	36,309	$	41,651
Commercial Real Estate - Construction		—		—
Commercial Real Estate - Other		858,705		790,208
Consumer Real Estate		—		—
Consumer Other		6,443		—
Total	$	901,457	$	831,859

The following tables set forth the changes in the allowance for loan losses and an allocation of the allowance for loan losses by loan category for the three months ended March 31, 2018 and March 31, 2017. The allowance for loan losses 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, 2018
	Commercial			Commercial Real Estate- Construction			Commercial  Real Estate-Other			Consumer  Real Estate			Consumer  Other			Total
Allowance for Loan Losses
Beginning Balance	$	1,403,588		$	23,638		$	1,549,755		$	796,918		$	101,499		$	3,875,398
Charge-offs		(31,250	)		—			—			—			(71,843	)		(103,093	)
Recoveries		1,500			—			1,575			—			140			3,215
Provisions		(47,592	)		(12,502	)		(510,242	)		(229,843	)		855,179			55,000
Ending Balance	$	1,326,246		$	11,136		$	1,041,088		$	567,075		$	884,975		$	3,830,520

March 31, 2017
	Commercial		Commercial Real Estate-  Construction		Commercial  Real Estate-Other		Consumer Real Estate		Consumer  Other			Total
Allowance for Loan Losses
Beginning Balance	$	1,545,188	$	51,469	$	1,374,706	$	726,391	$	153,863		$	3,851,617
Charge-offs		—		—		—		—		—			—
Recoveries		—		—		—		21,000		1,740			22,740
Provisions		7,971		5,602		43,869		9,501		(64,443	)		2,500
Ending Balance	$	1,553,159	$	57,071	$	1,418,575	$	756,892	$	91,160		$	3,876,857

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, 2018
	Commercial		Commercial Real Estate- Construction		Commercial Real Estate-Other		Consumer Real Estate		Consumer  Other		Total
Allowance for Loan Losses
Individually evaluated for impairment	$	771,153	$	—	$	53,535	$	—	$	28,300	$	852,988
Collectively evaluated for impairment		555,093		11,136		987,553		567,075		856,675		2,977,532
Total Allowance for Losses	$	1,326,246	$	11,136	$	1,041,088	$	567,075	$	884,975	$	3,830,520
Loans Receivable
Individually evaluated for impairment	$	1,723,756	$	—	$	1,475,124	$	249,754	$	28,300	$	3,476,934
Collectively evaluated for impairment		52,082,220		1,660,573		136,018,319		69,479,589		5,280,801		264,521,502
Total Loans Receivable	$	53,805,976	$	1,660,573	$	137,493,443	$	69,729,343	$	5,309,101	$	267,998,436

December 31, 2017
	Commercial		Commercial Real Estate- Construction		Commercial Real Estate- Other		Consumer Real Estate		Consumer  Other		Total
Allowance for Loan Losses
Individually evaluated for impairment	$	832,571	$	—	$	99,523	$	43,042	$	34,107	$	1,009,243
Collectively evaluated for impairment		571,017		23,638		1,450,232		753,876		67,392		2,866,155
Total Allowance for Losses	$	1,403,588	$	23,638	$	1,549,755	$	796,918	$	101,499	$	3,875,398
Loans Receivable
Individually evaluated for impairment	$	1,812,461	$	—	$	1,584,821	$	292,873	$	34,107	$	3,724,262
Collectively evaluated for impairment		49,910,776		2,317,857		138,601,503		70,505,100		5,121,142		266,456,378
Total Loans Receivable	$	51,723,237	$	2,317,857	$	140,186,324	$	70,797,973	$	5,155,249	$	270,180,640

As of March 31, 2018 and December 31, 2017, loans individually evaluated and considered impaired are presented in the following table:

Impaired and Restructured Loans As of
	March 31, 2018						December 31, 2017
	Unpaid Principal Balance		Recorded Investment		Related Allowance		Unpaid Principal Balance		Recorded Investment		Related Allowance
With no related allowance recorded:
Commercial	$	179,637	$	179,637	$	—	$	152,490	$	152,490	$	—
Commercial Real Estate-Construction		—		—		—		—		—		—
Commercial Real Estate-Other		1,052,562		1,052,562		—		1,058,601		1,058,601		—
Consumer Real Estate		249,754		249,754		—		249,754		249,754		—
Consumer Other		—		—		—		—		—		—
		1,481,953		1,481,953		—		1,460,845		1,460,845		—
With an allowance recorded:
Commercial		1,544,119		1,544,119		771,153		1,659,971		1,659,971		832,571
Commercial Real Estate- Construction		—		—		—		—		—		—
Commercial Real Estate-Other		522,363		422,562		53,535		626,021		526,220		99,523
Consumer Real Estate		—		—		—		43,119		43,119		43,042
Consumer Other		28,300		28,300		28,300		34,107		34,107		34,107
		2,094,782		1,994,981		852,988		2,363,218		2,263,417		1,009,243
Total
Commercial		1,723,756		1,723,756		771,153		1,812,461		1,812,461		832,571
Commercial Real Estate-Construction		—		—		—		—		—		—
Commercial Real Estate-Other		1,574,925		1,475,124		53,535		1,684,622		1,584,821		99,523
Consumer Real Estate		249,754		249,754		—		292,873		292,873		43,042
Consumer Other		28,300		28,300		28,300		34,107		34,107		34,107
	$	3,576,735	$	3,476,934	$	852,988	$	3,824,063	$	3,724,262	$	1,009,243

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

	For the Three Months Ended March 31,
	2018				2017
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial	$	186,580	$	2,411	$	183,126	$	5,146
Commercial Real Estate-Construction		—		—		—		—
Commercial Real Estate-Other		1,055,999		7,006		1,300,763		20,043
Consumer Real Estate		249,754		3,702		450,570		5,394
Consumer-Other		—		—		—		—
		1,492,333		13,119		1,934,459		30,583
With an allowance recorded:
Commercial		1,570,019		25,663		1,105,705		34,712
Commercial Real Estate-Construction		—		—		—		—
Commercial Real Estate-Other		529,297		2,995		1,050,581		4,479
Consumer Real Estate		—		—		43,119		408
Consumer Other		31,411		439		37,594		570
		2,130,727		29,097		2,236,999		40,169
Total
Commercial		1,756,599		28,074		1,288,831		39,858
Commercial Real Estate-Construction		—		—		—		—
Commercial Real Estate-Other		1,585,296		10,002		2,351,344		24,522
Consumer Real Estate		249,754		3,702		493,689		5,802
Consumer Other		31,411		437		37,594		570
	$	3,623,060	$	42,217	$	4,171,458	$	70,752

In general, the modification or restructuring of a debt is considered a troubled debt restructuring (“TDR”) if we, for economic or legal reasons related to a borrower’s financial difficulties, grant a concession to the borrower that we would not otherwise consider. As of March 31, 2018, there was one TDR with a balance of $28,300, compared to one TDR with a total balance of $33,300 as of December 31, 2017. These TDRs were granted extended payment terms with no principal reduction. All TDRs were performing as agreed as of March 31, 2018 and December 31, 2017, respectively. No TDRs defaulted during the three months ended March 31, 2018 and 2017, which were modified within the previous twelve months