Loans and Allowance for Loan Losses

6 Months Ended

Jun. 30, 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 $158,808 as of June 30, 2018 and $152,047 as of December 31, 2017) are as follows:

	June 30, 2018			December 31, 2017
Commercial loans	$	55,495,828		$	51,723,237
Commercial real estate:
Construction		4,340,323			2,317,857
Other		139,665,319			140,186,324
Consumer:
Real estate		73,570,322			70,797,973
Other		5,032,745			5,155,249
		278,104,537			270,180,640
Allowance for loan losses		(4,007,464	)		(3,875,398	)
Loans, net	$	274,097,073		$	266,305,242

We had $104.7 million and $113.4 million of loans pledged as collateral to secure funding with the Federal Reserve Bank (“FRB”) Discount Window as of June 30, 2018 and as of 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, and where applicable, 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, and 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, and bankruptcy is a possibility. 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 as of June 30, 2018 and December 31, 2017. “Pass” includes loans internally graded as excellent, good and satisfactory.

June 30, 2018
	Commercial		Commercial Real Estate - Construction		Commercial Real Estate - Other		Consumer Real Estate		Consumer Other		Total
Pass	$	52,482,953	$	4,340,323	$	134,593,256	$	71,539,014	$	4,734,323	$	267,689,869
Watch		1,279,459		—		3,144,222		1,781,555		213,412		6,418,648
OAEM		13,400		—		600,071		—		—		613,471
Sub-standard		1,720,016		—		1,327,770		249,753		85,010		3,382,549
Doubtful		—		—		—		—		—		—
Loss		—		—		—		—		—		—
Total	$	55,495,828	$	4,340,323	$	139,665,319	$	73,570,322	$	5,032,745	$	278,104,537

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:

	June 30, 2018
	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total		Recorded Investment > 90 Days and Accruing
Commercial	$	259,506	$	65,000	$	—	$	324,506	$	55,171,322	$	55,495,828	$	—
Commercial Real Estate - Construction		—		—		—		—		4,340,323		4,340,323		—
Commercial Real Estate - Other		73,115		158,228		571,292		802,635		138,862,684		139,665,319		—
Consumer Real Estate		64,424		—		—		64,424		73,505,898		73,570,322		—
Consumer Other		21,531		424		—		21,955		5,010,790		5,032,745		—
Total	$	418,576	$	223,652	$	571,292	$	1,213,520	$	276,891,017	$	278,104,537	$	—

	December 31, 2017
	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total		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 as of June 30, 2018 and two loans as of 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
	June 30, 2018		December 31, 2017
Commercial	$	30,892	$	41,651
Commercial Real Estate - Construction		—		—
Commercial Real Estate - Other		933,364		790,208
Consumer Real Estate		—		—
Consumer Other		4,914		—
Total	$	969,170	$	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 class for the three and six months ended June 30, 2018 and June 30, 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.

Three Months Ended June 30, 2018
	Commercial		Commerical Real Estate - Construction		Commercial Real Estate - Other			Consumer Real Estate			Consumer Other		Total
Allowance for Loan Losses:
Beginning Balance	$	1,326,246	$	11,136	$	1,041,088		$	567,075		$	884,975	$	3,830,520
Charge-offs		—		—		—			—			—		—
Recoveries		1,000		—		55,252			45,412			280		101,944
Provisions		16,514		17,955		(124,302	)		(23,436	)		188,269		75,000
Ending Balance	$	1,343,760	$	29,091	$	972,038		$	589,051		$	1,073,524	$	4,007,464

Six Months Ended June 30, 2018
	Commercial			Commerical 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		2,500			—		56,827			45,412			420			105,159
Provisions		(31,078	)		5,453		(634,544	)		(253,279	)		1,043,448			130,000
Ending Balance	$	1,343,760		$	29,091	$	972,038		$	589,051		$	1,073,524		$	4,007,464

Three Months Ended June 30, 2017
	Commercial		Commerical Real Estate - Construction			Commercial Real Estate - Other			Consumer Real Estate			Consumer Other			Total
Allowance for Loan Losses:
Beginning Balance	$	1,553,159	$	57,071		$	1,418,575		$	756,892		$	91,160		$	3,876,857
Charge-offs		—		—			—			—			(2,372	)		(2,372	)
Recoveries		—		—			—			21,000			2,030			23,030
Provisions		75,513		(4,308	)		(35,656	)		(6,039	)		490			30,000
Ending Balance	$	1,628,672	$	52,763		$	1,382,919		$	771,853		$	91,308		$	3,927,515

Six Months Ended June 30, 2017
	Commercial		Commerical 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		—		—		—		—		(2,372	)		(2,372	)
Recoveries		—		—		—		42,000		3,770			45,770
Provisions		83,484		1,294		8,213		3,462		(63,953	)		32,500
Ending Balance	$	1,628,672	$	52,763	$	1,382,919	$	771,853	$	91,308		$	3,927,515

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

June 30, 2018
	Commercial		Commercial Real Estate - Construction		Commercial Real Estate - Other		Consumer Real Estate		Consumer Other		Total
Allowance for Loan Losses
Individually evaluated for impairment	$	756,080	$	—	$	45,375	$	—	$	38,087	$	839,542
Collectively evaluated for impairment		587,680		29,091		926,663		589,051		1,035,437		3,167,922
Total Allowance for Losses	$	1,343,760	$	29,091	$	972,038	$	589,051	$	1,073,524	$	4,007,464
Loans Receivable
Individually evaluated for impairment	$	1,677,581	$	—	$	1,341,159	$	249,754	$	38,087	$	3,306,581
Collectively evaluated for impairment		53,818,247		4,340,323		138,324,160		73,320,568		4,994,658		274,797,956
Total Loans Receivable	$	55,495,828	$	4,340,323	$	139,665,319	$	73,570,322	$	5,032,745	$	278,104,537

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 June 30, 2018 and December 31, 2017, loans individually evaluated for impairment and the corresponding allowance for loan losses are presented in the following table:

	Impaired and Restructured Loans As of
	June 30, 2018						December 31, 2017
	Unpaid Principal Balance		Recorded Investment		Related Allowance		Unpaid Principal Balance		Recorded Investment		Related Allowance
With no related allowance recorded:
Commercial	$	134,155	$	134,155	$	—	$	152,490	$	152,490	$	—
Commercial Real Estate - Construction		—		—		—		—		—		—
Commercial Real Estate - Other		926,758		926,758		—		1,058,601		1,058,601		—
Consumer Real Estate		249,754		249,754		—		249,754		249,754		—
Consumer Other		—		—		—		—		—		—
Total		1,310,667		1,310,667		—		1,460,845		1,460,845		—
With an allowance recorded:
Commercial		1,543,426		1,543,426		756,080		1,659,971		1,659,971		832,571
Commercial Real Estate - Construction		—		—		—		—		—		—
Commercial Real Estate - Other		414,401		414,401		45,375		626,021		526,220		99,523
Consumer Real Estate		—		—		—		43,119		43,119		43,042
Consumer Other		38,087		38,087		38,087		34,107		34,107		34,107
Total		1,995,914		1,995,914		839,542		2,363,218		2,263,417		1,009,243
Commercial		1,677,581		1,677,581		756,080		1,812,461		1,812,461		832,571
Commercial Real Estate - Construction		—		—		—		—		—		—
Commercial Real Estate - Other		1,341,159		1,341,159		45,375		1,684,622		1,584,821		99,523
Consumer Real Estate		249,754		249,754		—		292,873		292,873		43,042
Consumer Other		38,087		38,087		38,087		34,107		34,107		34,107
Total	$	3,306,581	$	3,306,581	$	839,542	$	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, for the periods indicated:

	Three Months Ended June 30,
	2018				2017
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial	$	137,684	$	2,227	$	175,568	$	4,886
Commercial Real Estate - Construction		—		—		—		—
Commercial Real Estate - Other		916,094		10,518		1,383,621		21,894
Consumer Real Estate		249,754		3,548		451,035		5,630
Consumer Other		—		—		—		—
Total	$	1,303,532	$	16,293	$	2,010,224	$	32,410
With an allowance recorded:
Commercial	$	1,563,849	$	19,438	$	1,091,779	$	36,481
Commercial Real Estate - Construction		—		—		—		—
Commercial Real Estate - Other		517,936		1,840		1,020,012		5,331
Consumer Real Estate		—		—		43,119		431
Consumer Other		39,396		483		36,107		516
Total	$	2,121,181	$	21,761	$	2,191,017	$	42,759
Commercial	$	1,701,533	$	21,665	$	1,267,347	$	41,367
Commercial Real Estate - Construction		—		—		—		—
Commercial Real Estate - Other		1,434,030		12,358		2,403,633		27,225
Consumer Real Estate		249,754		3,548		494,154		6,061
Consumer Other		39,396		483		36,107		516
Total	$	3,424,713	$	38,054	$	4,201,241	$	75,169

	Six Months Ended June 30,
	2018				2017
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial	$	141,909	$	4,430	$	179,698	$	10,032
Commercial Real Estate - Construction		—		—		—		—
Commercial Real Estate - Other		917,140		14,233		1,324,984		43,806
Consumer Real Estate		249,754		7,007		450,860		11,025
Consumer Other		—		—		—		—
Total	$	1,308,803	$	25,670	$	1,955,542	$	64,863
With an allowance recorded:
Commercial	$	1,584,430	$	48,660	$	1,098,449	$	71,193
Commercial Real Estate - Construction		—		—		—		—
Commercial Real Estate - Other		523,141		5,507		1,020,012		7,941
Consumer Real Estate		—		—		43,119		838
Consumer Other		41,823		1,131		36,848		1,086
Total	$	2,149,394	$	55,298	$	2,198,428	$	81,058
Commercial	$	1,726,339	$	53,090	$	1,278,147	$	81,225
Commercial Real Estate - Construction		—		—		—		—
Commercial Real Estate - Other		1,440,281		19,740		2,344,996		51,747
Consumer Real Estate		249,754		7,007		493,979		11,863
Consumer Other		41,823		1,131		36,848		1,086
Total	$	3,458,197	$	80,968	$	4,153,970	$	145,921

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 June 30, 2018, there was one TDR with a balance of $25,717, 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 June 30, 2018 and December 31, 2017, respectively. No TDRs defaulted during the six months ended June 30, 2018 and 2017, which were modified within the previous twelve months.