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Loans and Allowance for Loan Losses
 9 Months Ended
Sep. 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 $156,287 at September 30, 2019 and $156,309 at December 31, 2018) are as follows:

 

   September 30, 2019   December 31, 2018 
Commercial  $51,362,787   $54,829,078 
Commercial real estate:          
Construction   11,058,317    7,304,300 
Other   146,677,103    143,703,401 
Consumer:          
Real estate   61,031,686    63,787,411 
Other   5,397,391    5,040,077 
    275,527,284    274,664,267 
Allowance for loan losses   (4,141,415)   (4,214,331)
Loans, net  $271,385,869   $270,449,936 

 

We had $92.0 million and $101.9 million of loans pledged as collateral to secure funding with the Federal Reserve Bank (“FRB”) Discount Window at September 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 September 30, 2019 and December 31, 2018. “Pass” includes loans internally graded as excellent, good and satisfactory.

 

September 30, 2019 
   Commercial   Commercial
Real Estate
Construction		   Commercial
Real Estate -
Other		   Consumer
Real Estate		   Consumer
Other		   Total 
Pass  $47,353,253   $10,567,442   $140,204,499   $56,969,235   $4,988,881   $260,083,310 
Watch   1,992,952    490,875    4,338,999    2,665,466    348,693    9,836,985 
OAEM   467,044    —    655,956    517,232    4,645    1,644,877 
Sub-standard   1,549,538    —    1,477,649    879,753    55,172    3,962,112 
Doubtful   —    —    —    —    —    — 
Loss   —    —    —    —    —    — 
Total  $51,362,787   $11,058,317   $146,677,103   $61,031,686   $5,397,391   $275,527,284 

 

 

   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.

 

   September 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  $48,963   $501,278   $9,348   $559,589   $50,803,198   $51,362,787   $— 
Commercial Real Estate - Construction   —    —    —    —    11,058,317    11,058,317    — 
Commercial Real Estate - Other   273,190    349,842    582,419    1,205,451    145,471,652    146,677,103    — 
Consumer Real Estate   416,967    —    779,998    1,196,965    59,834,721    61,031,686    149,999 
Consumer Other   2,042    —    —    2,042    5,395,349    5,397,391    — 
Total  $741,162   $851,120   $1,371,765   $2,964,047   $272,563,237   $275,527,284   $149,999 

  

   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 was one loan over 90 days past due and still accruing as of September 30, 2019. The loan is in the process of being refinanced. There were no loans as of 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  
   September 30, 2019   December 31, 2018 
           
Commercial  $188,324   $251,219 
Commercial Real Estate - Construction   —    — 
Commercial Real Estate - Other   855,609    571,292 
Consumer Real Estate   629,999    — 
Consumer Other   —    1,023 
Total  $1,673,932   $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 nine months ended September 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 September 30, 2019
   Commercial   Commercial Real
Estate -
Construction		   Commercial Real
Estate - Other		   Consumer Real
Estate		   Consumer
Other		   Total 
Allowance for Loan Losses:                              
Beginning Balance  $1,539,652   $97,987   $1,332,803   $528,529   $631,577   $4,130,548 
Charge-offs   —    —    —    —    —    — 
Recoveries   —    —    —    —    867    867 
Provisions   (494,762)   (1,281)   (39,630)   (27,382)   573,055    10,000 
Ending Balance  $1,044,890   $96,706   $1,293,173   $501,147   $1,205,499   $4,141,415 

 

Nine Months Ended September 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    —    —    —    3,821    9,821 
Provisions   (397,128)   32,830    827    114,562    403,909    155,000 
Ending Balance  $1,044,890   $96,706   $1,293,173   $501,147   $1,205,499   $4,141,415 

 

   Three Months Ended September 30, 2018
   Commercial   Commercial Real
Estate - Construction		   Commercial Real
Estate -
Other		   Consumer
Real
Estate		   Consumer Other   Total 
Allowance for Loan Losses:                              
Beginning Balance  $1,343,760   $29,091   $972,038   $589,051   $1,073,524   $4,007,464 
Charge-offs   —    —    —    —    (12,794)   (12,794)
Recoveries   11,000    —    —    —    260    11,260 
Provisions   146,752    4,404    10,334    (84,365)   22,875    100,000 
Ending Balance  $1,501,512   $33,495   $982,372   $504,686   $1,083,865   $4,105,930 

 

   Nine Months Ended September 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)   —    —    —    (84,637)   (115,887)
Recoveries   13,500    —    56,827    45,412    680    116,419 
Provisions   115,674    9,857    (624,210)   (337,644)   1,066,323    230,000 
Ending Balance  $1,501,512   $33,495   $982,372   $504,686   $1,083,865   $4,105,930 

 

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.

 

   September 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  $178,975   $—   $1,782   $—   $135   $180,892 
Collectively evaluated for impairment   865,915    96,706    1,291,391    501,147    1,205,364    3,960,523 
Total Allowance for Loan Losses  $1,044,890   $96,706   $1,293,173   $501,147   $1,205,499   $4,141,415 
Loans Receivable                              
Individually evaluated for impairment  $1,638,910   $—   $1,385,118   $879,753   $55,172   $3,958,953 
Collectively evaluated for impairment   49,723,877    11,058,317    145,291,985    60,151,933    5,342,219    271,568,331 
Total Loans Receivable  $51,362,787   $11,058,317   $146,677,103   $61,031,686   $5,397,391   $275,527,284 

 

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

 

   Impaired Loans as of
   September 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  $1,459,935   $1,459,935   $—   $115,983   $115,983   $—
Commercial Real Estate - Construction   —    —    —    —    —    —
Commercial Real Estate - Other   1,138,234    1,138,234    —    974,249    974,249    —
Consumer Real Estate   879,753    879,753    —    879,753    879,753    —
Consumer Other   —    —    —    —    —    —
Total   3,477,922    3,477,922    —    1,969,985    1,969,985    —
                              
With an allowance recorded:                             
Commercial   178,975    178,975    178,975    1,880,596    1,880,596    1,132,805
Commercial Real Estate - Construction   —    —    —    —    —    —
Commercial Real Estate - Other   346,685    246,884    1,782    406,442    306,641    37,416
Consumer Real Estate   —    —    —    —    —    —
Consumer Other   55,172    55,172    135    21,324    21,324    21,324
Total   580,832    481,031    180,892    2,308,362    2,208,561    1,191,545
                              
Total                             
Commercial   1,638,910    1,638,910    178,975    1,996,579    1,996,579    1,132,805
Commercial Real Estate - Construction   —    —    —    —    —    —
Commercial Real Estate - Other   1,484,919    1,385,118    1,782    1,380,691    1,280,890    37,416
Consumer Real Estate   879,753    879,753    —    879,753    879,753    —
Consumer Other   55,172    55,172    135    21,324    21,324    21,324
Total  $4,058,754   $3,958,953   $180,892   $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 September 30,
   2019  2018
   Average Recorded Investment  Interest Income Recognized  Average Recorded Investment  Interest Income Recognized
With no related allowance recorded:                   
Commercial  $1,475,751   $23,707   $128,953   $2,178
Commercial Real Estate - Construction   —    —    —    —
Commercial Real Estate - Other   1,136,872    11,832    984,499    10,378
Consumer Real Estate   879,753    4,041    879,753    8,562
Consumer Other   —    —    —    —
    3,492,376    39,580    1,993,205    21,118
                    
With an allowance recorded:                   
Commercial   178,975    —    1,702,976    26,195
Commercial Real Estate - Construction   —    —    —    —
Commercial Real Estate - Other   346,685    —    411,107    2,739
Consumer Real Estate   —    —    —    —
Consumer Other   57,540    898    24,518    329
    583,200    898    2,138,601    29,263
Total                   
Commercial   1,654,726    23,707    1,831,929    28,373
Commercial Real Estate - Construction   —    —    —    —
Commercial Real Estate - Other   1,483,557    11,832    1,395,606    13,117
Consumer Real Estate   879,753    4,041    879,753    8,562
Consumer Other   57,540    898    24,518    329
   $4,075,576   $40,478   $4,131,806   $50,381

 

   Nine Months Ended September 30,
   2019  2018
   Average Recorded Investment  Interest Income Recognized  Average Recorded Investment  Interest Income Recognized
With no related allowance recorded:                   
Commercial  $1,519,222   $73,276   $137,445   $6,551
Commercial Real Estate - Construction   —    —    —    —
Commercial Real Estate - Other   1,239,519    40,709    983,516    29,724
Consumer Real Estate   879,753    26,676    879,753    37,847
Consumer Other   —    —    —    —
    3,638,494    140,661    2,000,714    74,122
                    
With an allowance recorded:                   
Commercial   178,976    5,779    1,742,743    81,553
Commercial Real Estate - Construction   —    —    —    —
Commercial Real Estate - Other   246,884    —    419,231    8,209
Consumer Real Estate   —    —    —    —
Consumer Other   61,089    2,644    27,469    1,084
    486,949    8,423    2,189,443    90,846
Total                   
Commercial   1,698,198    79,055    1,880,188    88,104
Commercial Real Estate - Construction   —    —    —    —
Commercial Real Estate - Other   1,486,403    40,709    1,402,747    37,933
Consumer Real Estate   879,753    26,676    879,753    37,847
Consumer Other   61,089    2,644    27,469    1,084
   $4,125,443   $149,084   $4,190,157   $164,968

 

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 was one TDR of $43,095 as of September 30, 2019 and none as of December 31, 2018. The monthly payments on this TDR were reduced. As of March 31, 2019, there was one TDR with a balance of $2,185. During the quarter ended June 30, 2019, a loan in the amount of $2,008 was charged-off and the Bank received a recovery of $439. No other TDRs defaulted during the nine months ended September 30, 2019 and 2018, which were modified within the previous twelve months.