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Loans and Allowance for Loan Losses
 6 Months Ended
Jun. 30, 2019
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 $165,854 at June 30, 2019 and $156,309 at December 31, 2018) are as follows:

 

    June 30,
2019 		     December 31,
2018		  
Commercial   $ 56,270,330      $ 54,829,078  
Commercial real estate:                
Construction     11,204,997        7,304,300  
Other     148,569,431        143,703,401  
Consumer:                
Real estate     62,167,172        63,787,411  
Other     5,635,700        5,040,077  
      283,847,630        274,664,267  
Allowance for loan losses     (4,130,548  )     (4,214,331 )
Loans, net   $ 279,717,082      $ 270,449,936  

 

We had $94.0 million and $101.9 million of loans pledged as collateral to secure funding with the Federal Reserve Bank (“FRB”) Discount Window at June 30, 2019 and at December 31, 2018, 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 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 June 30, 2019 and December 31, 2018. “Pass” includes loans internally graded as excellent, good and satisfactory.

 

    June 30, 2019
   Commercial  Commercial
Real Estate - Construction		  Commercial
Real Estate -
Other		  Consumer
Real Estate		  Consumer
Other		  Total
Pass  $51,732,759   $11,204,997   $141,999,065   $58,154,814   $5,147,378   $268,239,013 
Watch   2,533,865    —      4,557,264    2,615,352    394,714    10,101,195 
OAEM   322,858    —      660,784    517,254    77,780    1,578,676 
Sub-standard   1,680,848    —      1,352,318    879,752    15,828    3,928,746 
Doubtful   —      —      —      —      —      —   
Loss   —      —      —      —      —      —   
Total  $56,270,330   $11,204,997   $148,569,431   $62,167,172   $5,635,700   $283,847,630 

 

    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 

 

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

 

    June 30, 2019
   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  $49,948   $194,058   $—     $244,006   $56,026,324   $56,270,330   $—   
Commercial Real Estate - Construction   —      —      —      —      11,204,997    11,204,997    —   
Commercial Real Estate - Other   409,860    273,190    571,292    1,254,342    147,315,089    148,569,431    —   
Consumer Real Estate   271,691    —      —      271,691    61,895,481    62,167,172    —   
Consumer Other   25,603    —      678    26,281    5,609,419    5,635,700    —   
Total  $757,102   $467,248   $571,970   $1,796,320   $282,051,310   $283,847,630   $—   

 

    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     $ —  

 

There were no loans as of June 30, 2019 and December 31, 2018 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, 2019     December 31, 2018  
Commercial   $ 13,210      $ 251,219  
Commercial Real Estate - Construction     —        —  
Commercial Real Estate - Other     571,292        571,292  
Consumer Real Estate     —        —  
Consumer Other     678        1,023  
Total   $ 585,180      $ 823,534  

 

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 and six months ended June 30, 2019 and 2018. 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, 2019
   Commercial  Commercial Real Estate - Construction  Commercial Real Estate - Other  Consumer Real Estate  Consumer Other  Total
Allowance for Loan Losses:                  
Beginning Balance $1,528,577   $81,047   $1,318,918   $377,641   $683,239   $3,989,422 
Charge-offs   —      —      —      —      (2,009)   (2,009)
Recoveries   5,500    —      —      —      2,635    8,135 
Provisions   5,575    16,940    13,885    150,888    (52,288)   135,000 
Ending Balance  $ 1,539,652   $ 97,987   $ 1,332,803    $528,529   $ 631,577   $ 4,130,548 

 

    Six Months Ended June 30, 2019
   Commercial  Commercial Real Estate - Construction  Commercial Real Estate - Other  Consumer Real Estate  Consumer Other  Total
Allowance for Loan Losses:                  
Beginning Balance $1,665,413   $63,876   $1,292,346   $386,585   $806,111   $4,214,331 
Charge-offs   (229,395)   —      —      —      (8,342)   (237,737)
Recoveries   6,000    —      —      —      2,954    8,954 
Provisions   97,634    34,111    40,457    141,944    (169,146)   145,000 
Ending Balance  $1,539,652   $97,987   $1,332,803   $528,529   $631,577   $4,130,548 

 

    Three Months Ended June 30, 2018
   Commercial  Commercial 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  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   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 

 

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

 

   June 30, 2019
   Commercial  Commercial Real Estate - Construction  Commercial Real Estate - Other  Consumer Real Estate  Consumer Other  Total
Allowance for Loan Losses                  
Individually evaluated for impairment  $870,073   $—     $31,082   $—     $7,510   $908,665 
Collectively evaluated for impairment   669,579    97,987    1,301,721    528,529    624,067    3,221,883 
Total Allowance for Loan Losses  $1,539,652   $97,987   $1,332,803   $528,529   $631,577   $4,130,548 
Loans Receivable                              
Individually evaluated for impairment  $1,680,847   $—     $1,360,884   $879,753   $15,828   $3,937,312 
Collectively evaluated for impairment   54,589,483    11,204,997    147,208,547    61,287,419    5,619,872    279,910,318 
Total Loans Receivable  $56,270,330   $11,204,997   $148,569,431   $62,167,172   $5,635,700   $283,847,630 

 

     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  

  

As of June 30, 2019 and December 31, 2018, loans individually evaluated and considered impaired are presented in the following table.

 

  Impaired Loans As of  
    June  30, 2019     December 31, 2018  
    Unpaid Principal Balance     Recorded Investment     Related Allowance     Unpaid Principal Balance     Recorded Investment     Related Allowance  
With no related allowance recorded:                                                
Commercial   $ 111,591       $ 111,591      $ —        $ 115,983     $ 115,983     $ —  
Commercial Real Estate - Construction     —          —          —          —       —       —  
Commercial Real Estate - Other     860,975        860,975        —          974,249       974,249       —  
Consumer Real Estate     879,753        879,753        —          879,753       879,753       —  
Consumer Other     —          —          —          —       —       —  
Total     1,852,319        1,852,319        —          1,969,985       1,969,985       —  
                                                 
With an allowance recorded:                                                
Commercial     1,569,256        1,569,256        870,073        1,880,596       1,880,596       1,132,805  
Commercial Real Estate - Construction     —         —         —          —       —       —  
Commercial Real Estate - Other     499,909        400,108         31,082        406,442       306,641       37,416  
Consumer Real Estate     —          —          —          —       —       —  
Consumer Other     15,828        15,828        7,510        21,324       21,324       21,324  
Total     2,084,993        1,985,192        908,665        2,308,362       2,208,561       1,191,545  
                                                 
Commercial     1,680,847        1,680,847        870,073        1,996,579       1,996,579       1,132,805  
Commercial Real Estate - Construction     —          —          —          —       —       —  
Commercial Real Estate - Other     1,360,884        1,261,083        31,082        1,380,691       1,280,890       37,416  
Consumer Real Estate     879,753        879,753        —          879,753       879,753       —  
Consumer Other     15,828        15,828        7,510        21,324       21,324       21,324  
Total    $ 3,937,312      $ 3,837,511      $ 908,665      $ 4,278,347     $ 4,178,546     $ 1,191,545  

 

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,
   2019  2018
   Average Recorded Investment  Interest Income Recognized  Average Recorded Investment  Interest Income Recognized
With no related allowance recorded:            
Commercial  $117,741   $2,071   $137,684   $2,227 
Commercial Real Estate - Construction   —      —      —      —   
Commercial Real Estate - Other   863,351    10,354    916,094    10,518 
Consumer Real Estate   879,753    14,257    249,754    3,548 
Consumer Other   —      —      —      —   
    1,960,646    26,682    1,303,532    16,293 
                     
With an allowance recorded:                    
Commercial   1,582,324    25,869    1,563,849    19,438 
Commercial Real Estate - Construction   —      —      —      —   
Commercial Real Estate - Other   501,279    2,735    517,936    1,840 
Consumer Real Estate   —      —      —      —   
Consumer Other   17,108    224    39,396    483 
    2,100,711    28,828    2,121,181    21,761 
Total                    
Commercial   1,700,065    27,940    1,701,533    21,665 
Commercial Real Estate - Construction   —      —      —      —   
Commercial Real Estate - Other   1,364,630    13,089    1,434,030    12,358 
Consumer Real Estate   879,753    14,257    249,754    3,548 
Consumer Other   17,108    224    39,396    483 
   $4,061,357   $55,510   $3,424,713   $38,054 

 

   Six Months Ended June 30,
   2019  2018
   Average Recorded Investment  Interest Income Recognized  Average Recorded Investment  Interest Income Recognized
With no related allowance recorded:            
Commercial  $ 123,509   $ 4,334   $ 141,909   $ 4,430 
Commercial Real Estate - Construction   —      —      —      —   
Commercial Real Estate - Other   967,076    20,700    917,140    14,233 
Consumer Real Estate   879,753    28,357    249,754    7,007 
Consumer Other   —      —      —      —   
    1,970,338    53,391    1,308,803    25,670 
                     
With an allowance recorded:                    
Commercial   1,597,013    51,983    1,584,430    48,660 
Commercial Real Estate - Construction   —      —      —      —   
Commercial Real Estate - Other   403,001    5,498    523,141    5,507 
Consumer Real Estate   —      —      —      —   
Consumer Other   18,279    478    41,823    1,131 
    2,018,293    57,959    2,149,394    55,298 
Total                    
Commercial   1,720,522    56,317    1,726,339    53,090 
Commercial Real Estate - Construction   —      —      —      —   
Commercial Real Estate - Other   1,370,077    26,198    1,440,281    19,740 
Consumer Real Estate   879,753    28,357    249,754    7,007 
Consumer Other   18,279    478    41,823    1,131 
   $ 3,988,631    $111,350   $ 3,458,197   $ 80,968 

 

 In general, the modification or restructuring of a loan 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. There were no TDRs as of June 30, 2019 and December 31, 2018. As of March 31, 2019, there was one TDR with a balance of $2,185. During the quarter ended June 30, 2019, the loan in the amount of $2,008 was charged-off and the Bank received a recovery of $439. Not other TDRs defaulted during the six months ended June 30, 2019 and 2018, which were modified within the previous twelve months.