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LOANS AND ALLOWANCE FOR LOAN LOSSES
 12 Months Ended
Dec. 31, 2018
Receivables [Abstract]  
LOANS AND ALLOWANCE FOR LOAN LOSSES
4.LOANS AND ALLOWANCE FOR LOAN LOSSES

 

Major classifications of loans (net of deferred loan fees of $156,309 at December 31, 2018, and $152,047 at December 31, 2017) are shown in the table below. 

 

   December 31,
2018		   December 31,
2017		 
Commercial  $54,829,078   $51,723,237 
Commercial real estate:         
Construction   7,304,300    2,317,857 
Other   143,703,401    140,186,324 
Consumer:          
Real estate   63,787,411    70,797,973 
Other   5,040,077    5,155,249 
Total loans    274,664,267    270,180,640 
Allowance for loan losses   (4,214,331)   (3,875,398)
Total loans, net  $270,449,936   $266,305,242 

 

We had $101.9 million and $113.4 million of loans pledged as collateral to secure funding with the Federal Reserve Bank (“FRB”) Discount Window at December 31, 2018 and 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 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 risks by category and internally assigned grades at December 31, 2018 and December 31, 2017. “Pass” includes loans internally graded as excellent, good and satisfactory.

 

      December 31, 2018 
    Commercial   Commercial
Real Estate
Construction		   Commercial
Real Estate
Other		   Consumer
Real Estate		   Consumer
Other		   Total 
Pass   $50,663,356   $7,304,300   $136,804,420   $60,480,317   $4,726,494   $259,978,887 
Watch    1,973,675    —    4,938,711    2,077,341    226,117    9,215,844 
OAEM    157,300    —    590,294    350,000    —    1,097,594 
Sub-Standard    2,034,747    —    1,369,976    879,753    87,466    4,371,942 
Doubtful    —    —    —    —    —    — 
Loss    —    —    —    —    —    — 
Total   $54,829,078   $7,304,300   $143,703,401   $63,787,411   $5,040,077   $274,664,267 

 

 

      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.

 

   December 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  $266,567   $17,492   $229,395   $513,454   $54,315,624   $54,829,078   $— 
Commercial Real Estate Construction   —    —    —    —    7,304,300    7,304,300    — 
Commercial Real Estate Other   35,000    215,049    571,292    821,341    142,882,060    143,703,401    — 
Consumer Real Estate   —    —    —    —    63,787,411    63,787,411    — 
Consumer Other   24,621    —    —    24,621    5,015,456    5,040,077    — 
Total  $326,188   $232,541   $800,687   $1,359,416   $273,304,851   $274,664,267   $— 

  

 

   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 90 days or more past due and still accruing interest at December 31, 2018. There were two loans 90 days or more past due and still accruing interest at December 31, 2017.

 

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

 

   Loans Receivable on Non-Accrual  
   December 31, 2018   December 31, 2017 
Commercial  $251,219   $41,651 
Commercial Real Estate Construction   —    — 
Commercial Real Estate Other   571,292    790,208 
Consumer Real Estate   —    — 
Consumer Other   1,023    — 
Total  $823,534   $831,859 

 

The following tables set forth the changes in the allowance and an allocation of the allowance by class at December 31, 2018, 2017, and 2016. 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.

 

    December 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)   —    —    —    (84,637)   (115,887)
Recoveries   14,000    —    56,827    45,412    13,581    129,820 
Provisions   279,075    40,238    (314,236)   (455,745)   775,668    325,000 
Ending Balance  $1,665,413   $63,876   $1,292,346   $386,585   $806,111   $4,214,331 

 

 

    December 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     —       —       (180,587 )     —       (4,862 )     (185,449 )
Recoveries     6,000       —       87,030       60,000       1,200       154,230  
Provisions     (147,600 )     (27,831 )     268,606       10,527       (48,702 )     55,000  
Ending Balance   $ 1,403,588     $ 23,638     $ 1,549,755     $ 796,918     $ 101,499     $ 3,875,398  
                                                 

 

    December 31, 2016  
    Commercial     Commercial
Real Estate
Construction		     Commercial
Real Estate Other		     Consumer
Real Estate		     Consumer
Other		     Total  
Allowance for Loan Losses                                                
Beginning Balance   $ 896,854     $ 59,861     $ 1,345,094     $ 941,470     $ 174,548     $ 3,417,827  
Charge-offs     (33,046 )     —       (78,300 )     (82,015 )     (14,934 )     (208,295 )
Recoveries     —       —       65,000       —       7,085       72,085  
Provisions     681,380       (8,392 )     42,912       (133,064 )     (12,836 )     570,000  
Ending Balance   $ 1,545,188     $ 51,469     $ 1,374,706     $ 726,391     $ 153,863     $ 3,851,617  

 

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

 

   December 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  $1,132,805   $—   $37,416   $—   $21,324   $1,191,545 
Collectively evaluated for impairment   532,608    63,876    1,254,930    386,585    784,787    3,022,786 
Total Allowance for Loan Losses  $1,665,413   $63,876   $1,292,346   $386,585   $806,111   $4,214,331 
Loans Receivable                              
Individually evaluated for impairment  $1,996,579   $—   $1,280,890   $879,753   $21,324   $4,178,546 
Collectively evaluated for impairment   52,832,499    7,304,300    142,422,511    62,907,658    5,018,753    270,485,721 
Total Loans Receivable  $54,829,078   $7,304,300   $143,703,401   $63,787,411   $5,040,077   $274,664,267 

 

 

    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 December 31, 2018 and 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 the year ended December 31,  
    2018     2017  
    Unpaid
Principal
Balance		     Recorded
Investment		     Related
Allowance		     Unpaid
Principal
Balance		     Recorded
Investment		     Related
Allowance		  
With no related allowance recorded:                                                
Commercial   $ 115,983     $ 115,983     $ —     $ 152,490     $ 152,490     $ —  
Commercial Real Estate Construction     —       —       —       —       —       —  
Commercial Real Estate Other     974,249       974,249       —       1,058,601       1,058,601       —  
Consumer Real Estate     879,753       879,753       —       249,754       249,754       —  
Consumer Other     —       —       —       —       —       —  
Total   $ 1,969,985     $ 1,969,985     $ —     $ 1,460,845     $ 1,460,845     $ —  
                                                 
With an allowance recorded:                                                
Commercial   $ 1,880,596     $ 1,880,596     $ 1,132,805     $ 1,659,971     $ 1,659,971     $ 832,571  
Commercial Real Estate Construction     —       —       —       —       —       —  
Commercial Real Estate Other     406,442       306,641       37,416       626,021       526,220       99,523  
Consumer Real Estate     —       —       —       43,119       43,119       43,042  
Consumer Other     21,324       21,324       21,324       34,107       34,107       34,107  
Total   $ 2,308,362     $ 2,208,561     $ 1,191,545     $ 2,363,218     $ 2,263,417     $ 1,009,243  
                                                 
Total                                                
Commercial   $ 1,996,579     $ 1,996,579     $ 1,132,805     $ 1,812,461     $ 1,812,461     $ 832,571  
Commercial Real Estate Construction     —       —       —       —       —       —  
Commercial Real Estate Other     1,380,691       1,280,890       37,416       1,684,622       1,584,821       99,523  
Consumer Real Estate     879,753       879,753       —       292,873       292,873       43,042  
Consumer Other     21,324       21,324       21,324       34,107       34,107       34,107  
Total   $ 4,278,347     $ 4,178,546     $ 1,191,545     $ 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 year ended December 31, 
   2018   2017   2016 
   Average Recorded Investment   Interest Income Recognized   Average Recorded Investment   Interest Income Recognized   Average Recorded Investment   Interest Income Recognized 
With no related allowance recorded:                              
Commercial  $133,413   $8,637   $173,964   $7,416   $267,747   $12,282 
Commercial Real Estate Construction   —    —    —    —    —    — 
Commercial Real Estate Other   982,078    40,174    1,275,402    23,084    2,267,288    81,582 
Consumer Real Estate   879,753    51,520    451,025    16,938    1,242,515    22,111 
Consumer Other   —    —    —    —    —    — 
Total   $1,995,244   $100,331   $1,900,391   $47,438   $3,777,550   $115,975 
                               
With an allowance recorded:                              
Commercial  $1,915,139   $100,395   $1,711,259   $76,544   $1,087,559   $49,985 
Commercial Real Estate Construction   —    —    —    —    —    — 
Commercial Real Estate Other   416,569    10,999    930,420    5,367    1,047,685    16,138 
Consumer Real Estate   —    —    43,119    1,296    43,155    1,514 
Consumer Other   26,314    1,382    36,056    1,419    94,945    5,533 
Total   $2,358,022   $112,776   $2,720,854   $84,626   $2,273,344   $73,170 
                               
Total                              
Commercial  $2,048,552   $109,032   $1,885,223   $83,960   $1,355,306   $62,267 
Commercial Real Estate Construction   —    —    —    —    —    — 
Commercial Real Estate Other   1,398,647    51,173    2,205,822    28,451    3,314,973    97,720 
Consumer Real Estate   879,753    51,520    494,144    18,234    1,285,670    23,625 
Consumer Other   26,314    1,382    36,056    1,419    94,945    5,533 
Total   $4,353,266   $213,107   $4,621,245   $132,064   $6,050,894   $189,145 

 

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 December 31, 2018, there were no TDRs compared to one TDR with a balance of $33,300 as of December 31, 2017 and two TDRs with a total balance of $378,392 as of December 31, 2016. These TDRs were granted extended payment terms with no principal reduction. All TDRs were performing as agreed as of December 31, 2017. No TDRs that were modified within the previous twelve months defaulted during the following year for years ended December 31, 2018, 2017, and 2016.