LOANS AND ALLOWANCE FOR LOAN LOSSES

12 Months Ended

Dec. 31, 2021

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 $488,481 at December 31, 2021, and $676,155 at December 31, 2020) are shown in the table below. 

	December 31, 2021			December 31, 2020
Commercial	$	45,804,434		$	51,041,397
Commercial real estate:
Construction		12,054,095			14,813,726
Other		165,719,078			146,187,886
Consumer:
Real estate		71,307,488			71,836,041
Other		3,768,531			4,480,491
Paycheck protection program		7,978,603			32,443,132
		306,632,229			320,802,673
Allowance for loan losses		(4,376,987	)		(4,185,694	)
Loans, net	$	302,255,242		$	316,616,979

We had $94.7 million and $76.0 million of loans pledged as collateral to secure funding with the Federal Reserve Bank (“FRB”) Discount Window at December 31, 2021 and 2020, respectively.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law, which established the Paycheck Protection Program (“PPP”) and allocated $349.0 billion of loans to be issued by financial institutions. Under the program, the Small Business Administration (“SBA”) will forgive loans, in whole or in part, made by approved lenders to eligible borrowers for payroll and other permitted purposes in accordance with the requirements of the program. These loans carry a fixed rate of 1.00% and a term of two years, if not forgiven, in whole or in part. The loans are 100% guaranteed by the SBA and as long as the borrower submits its loan forgiveness application within ten months of completion of the covered period, the borrower is not required to make any payments until the forgiveness amount is remitted to the lender by the SBA. The Bank received a processing fee ranging from 1% to 5% based on the size of the loan from the SBA. The fees are deferred and amortized over the life of the loans in accordance with ASC 310-20. The Bank received processing fees of $2.4 million and recognized $1.3 million and $0.6 million during the years ended December 31, 2021 and 2020, respectively. The Paycheck Protection Program and Health Care Enhancement Act (“PPP/ HCEA Act”) were signed into law on April 24, 2020. The PPP/HCEA Act authorized additional funding under the CARES Act of $310.0 billion for PPP loans to be issued by financial institutions through the SBA. The Bank provided $55.3 million in funding to 480 customers through the PPP as of December 31, 2021. Because these loans are 100% guaranteed by the SBA and did not undergo the Bank’s typical underwriting process, they are not graded and do not have an associated reserve. 

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, with the exception of the PPP loans.

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, 2021 and 2020. “Pass” includes loans internally graded as excellent, good and satisfactory.

December 31, 2021
	Commercial		Commerical Real Estate Construction		Commercial Real Estate Other		Consumer Real Estate		Consumer Other		Paycheck Protection Program		Total
Pass	$	43,853,889	$	11,616,118	$	159,825,281	$	69,920,347	$	3,565,716	$	7,978,603	$	296,759,954
Watch		450,319		437,977		3,082,408		862,938		133,418		—		4,967,060
OAEM		36,749		—		1,158,268		274,445		29,244		—		1,498,706
Substandard		1,463,477		—		1,653,121		249,758		40,153		—		3,406,509
Doubtful		—		—		—		—		—		—		—
Loss		—		—		—		—		—		—		—
Total	$	45,804,434	$	12,054,095	$	165,719,078	$	71,307,488	$	3,768,531	$	7,978,603	$	306,632,229

December 31, 2020
	Commercial		Commercial Real Estate Construction		Commercial Real Estate Other		Consumer Real Estate		Consumer Other		Paycheck Protection Program		Total
Pass	$	44,903,134	$	14,349,065	$	125,111,378	$	70,454,909	$	4,171,858	$	32,443,132	$	291,433,476
Watch		3,415,408		464,661		15,200,992		467,163		219,954		—		19,768,178
OAEM		1,039,647		—		1,784,296		623,226		46,783		—		3,493,952
Substandard		1,683,208		—		4,091,220		290,743		41,896		—		6,107,067
Doubtful		—		—		—		—		—		—		—
Loss		—		—		—		—		—		—		—
Total	$	51,041,397	$	14,813,726	$	146,187,886	$	71,836,041	$	4,480,491	$	32,443,132	$	320,802,673

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

	December 31, 2021
	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days Past Due		Total Past Due		Current		Total Loans Receivable		Recorded Investment ≥ 90 Days and Accruing
Commercial	$	88,659	$	—	$	—	$	88,659	$	45,715,775	$	45,804,434	$	—
Commercial Real Estate Construction		—		—		—		—		12,054,095		12,054,095		—
Commercial Real Estate Other		59,269		288,464		337,490		685,223		165,033,855		165,719,078		—
Consumer Real Estate		—		—		—		—		71,307,488		71,307,488		—
Consumer Other		23,971		—		—		23,971		3,744,560		3,768,531		—
Paycheck Protection Program		—		—		—		—		7,978,603		7,978,603
Total	$	171,899	$	288,464	$	337,490	$	797,853	$	305,834,376	$	306,632,229	$	—

	December 31, 2020
	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days Past Due		Total Past Due		Current		Total Loans Receivable		Recorded Investment ≥ 90 Days and Accruing
Commercial	$	144,999	$	27,855	$	—	$	172,854	$	50,868,543	$	51,041,397	$	—
Commercial Real Estate Construction		—		—		—		—		14,813,726		14,813,726		—
Commercial Real Estate Other		61,597		—		923,828		985,425		145,202,461		146,187,886		—
Consumer Real Estate		—		—		40,893		40,893		71,795,148		71,836,041		—
Consumer Other		—		—		—		—		4,480,491		4,480,491		—
Paycheck Protection Program		—		—		—		—		32,443,132		32,443,132
Total	$	206,596	$	27,855	$	964,721	$	1,199,172	$	319,603,501	$	320,802,673	$	—

There were no loans past due 90 days or more and still accruing interest at December 31, 2021 and 2020.

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

	Loans Receivable on Non-Accrual
	December 31, 2021		December 31, 2020
Commercial	$	178,975	$	178,975
Commercial Real Estate Construction		—		—
Commercial Real Estate Other		625,953		923,828
Consumer Real Estate		—		40,893
Consumer Other		9,686		12,234
Paycheck Protection Program		—		—
Total	$	814,614	$	1,155,930

The following tables set forth the changes in the allowance and an allocation of the allowance by class at December 31, 2021, 2020, and 2019. 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, 2021
	Commercial			Commercial Real Estate Construction			Commercial Real Estate Other		Consumer Real Estate			Consumer Other			Paycheck Protection Program			Total
Allowance for Loan Losses
Beginning Balance	$	1,029,310		$	199,266		$	1,909,121	$	925,077		$	122,920		$	—		$	4,185,694
Charge-offs		—			—			—		—			(11,440	)		(9,550	)		(20,990	)
Recoveries		21,329			—			—		47,711			22,367			876			92,283
Provisions		(254,950	)		(23,773	)		467,185		(48,004	)		(29,132	)		8,674			120,000
Ending Balance	$	795,689		$	175,493		$	2,376,306	$	924,784		$	104,715		$	—		$	4,376,987

	December 31, 2020
	Commercial			Commercial Real Estate Construction		Commercial Real Estate Other		Consumer Real Estate		Consumer Other			Paycheck Protection Program			Total
Allowance for Loan Losses
Beginning Balance	$	1,429,917		$	109,235	$	1,270,445	$	496,221	$	697,940		$	—		$	4,003,758
Charge-offs		(171,646	)		—		—		—		(116,001	)		(2,650	)		(290,297	)
Recoveries		88,811			—		99,801		—		43,599			22			232,233
Provisions		(317,772	)		90,031		538,875		428,856		(502,618	)		2,628			240,000
Ending Balance	$	1,029,310		$	199,266	$	1,909,121	$	925,077	$	122,920		$	—		$	4,185,694

	December 31, 2019
	Commercial			Commercial  Real Estate Construction		Commercial Real Estate Other			Consumer Real Estate		Consumer Other			Paycheck Protection Program		Total
Allowance for Loan Losses
Beginning Balance	$	1,665,413		$	63,876	$	1,292,346		$	386,585	$	806,111		$	—	$	4,214,331
Charge-offs		(398,685	)		—		—			—		(8,342	)		—		(407,027	)
Recoveries		12,200			—		—			—		4,254			—		16,454
Provisions		150,989			45,359		(21,901	)		109,636		(104,083	)		—		180,000
Ending Balance	$	1,429,917		$	109,235	$	1,270,445		$	496,221	$	697,940		$	—	$	4,003,758

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, 2021
	Commercial		Commercial Real Estate Construction		Commercial Real Estate Other		Consumer Real Estate		Consumer Other		Paycheck Protection Program		Total
Allowance for Loan Losses
Individually evaluated for impairment	$	179,988	$	—	$	—	$	—	$	40,153	$	—	$	220,141
Collectively evaluated for impairment		615,701		175,493		2,376,306		924,784		64,562		—		4,156,846
Total Allowance for Loan Losses		795,689		175,493		2,376,306		924,784		104,715		—		4,376,987
Loans Receivable
Individually evaluated for impairment		1,463,477		—		1,653,121		249,758		40,153		—		3,406,509
Collectively evaluated for impairment		44,340,957		12,054,095		164,065,957		71,057,730		3,728,378		7,978,603		303,225,720
Total Loans Receivable	$	45,804,434	$	12,054,095	$	165,719,078	$	71,307,488	$	3,768,531	$	7,978,603	$	306,632,229

	December 31, 2020
	Commercial		Commercial Real Estate Construction		Commercial Real Estate Other		Consumer Real Estate		Consumer Other		Paycheck Protection Program		Total
Allowance for Loan Losses
Individually evaluated for impairment	$	357,657	$	—	$	36,747	$	9,111	$	41,896	$	—	$	445,411
Collectively evaluated for impairment		671,653		199,266		1,872,374		915,966		81,024		—		3,740,283
Total Allowance for Loan Losses		1,029,310		199,266		1,909,121		925,077		122,920		—		4,185,694
Loans Receivable
Individually evaluated for impairment		2,298,120		—		5,174,841		290,743		41,896		—		7,805,600
Collectively evaluated for impairment		48,743,277		14,813,726		141,013,045		71,545,298		4,438,595		32,443,132		312,997,073
Total Loans Receivable	$	51,041,397	$	14,813,726	$	146,187,886	$	71,836,041	$	4,480,491	$	32,443,132	$	320,802,673

As of December 31, 2021 and 2020, loans individually evaluated for impairment and the corresponding allowance for loan losses are presented in the following table.

	Impaired and Restructured Loans As of
	December 31, 2021						December 31, 2020
	Unpaid Principal Balance		Recorded Investment		Related Allowance		Unpaid Principal Balance		Recorded Investment		Related Allowance
With no related allowance recorded:
Commercial	$	1,096,407	$	1,096,407	$	—	$	1,721,818	$	1,721,818	$	—
Commercial Real Estate Construction		—		—		—		—		—		—
Commercial Real Estate Other		1,653,121		1,653,121		—		4,831,757		4,831,757		—
Consumer Real Estate		249,758		249,758		—		249,850		249,850		—
Consumer Other		—		—		—		—		—		—
Paycheck Protection Program		—		—		—		—		—		—
Total		2,999,286		2,999,286		—		6,803,425		6,803,425		—
With an allowance recorded:
Commercial		367,070		367,070		179,988		576,302		576,302		357,657
Commercial Real Estate Construction		—		—		—		—		—		—
Commercial Real Estate Other		—		—		—		343,084		343,084		36,747
Consumer Real Estate		—		—		—		40,893		40,893		9,111
Consumer Other		40,153		40,153		40,153		41,896		41,896		41,896
Paycheck Protection Program		—		—		—		—		—		—
Total		407,223		407,223		220,141		1,002,175		1,002,175		445,411
Total
Commercial		1,463,477		1,463,477		179,988		2,298,120		2,298,120		357,657
Commercial Real Estate Construction		—		—		—		—		—		—
Commercial Real Estate Other		1,653,121		1,653,121		—		5,174,841		5,174,841		36,747
Consumer Real Estate		249,758		249,758		—		290,743		290,743		9,111
Consumer Other		40,153		40,153		40,153		41,896		41,896		41,896
Paycheck Protection Program		—		—		—		—		—		—
Total	$	3,406,509	$	3,406,509	$	220,141	$	7,805,600	$	7,805,600	$	445,411

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,
	2021				2020					2019
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized			Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial	$	1,142,667	$	68,602	$	1,866,590	$	102,636		$	1,483,982	$	94,779
Commercial Real Estate Construction		—		—		—		—			—		—
Commercial Real Estate Other		1,645,375		68,031		4,849,474		218,372			1,533,720		76,183
Consumer Real Estate		249,777		10,615		249,813		11,580			879,753		30,400
Consumer Other		—		—		—		—			—		—
Paycheck Protection Program		—		—		—		—			—		—
Total		3,037,819		147,248		6,965,877		332,588			3,897,455		201,362
With an allowance recorded:
Commercial		378,499		22,130		578,399		37,663			725,353		44,299
Commercial Real Estate Construction		—		—		—		—			—		—
Commercial Real Estate Other		—		—		337,304		—			246,884		—
Consumer Real Estate		—		—		36,483		(116	)		—		—
Consumer Other		41,133		2,674		42,089		2,743			59,240		3,487
Paycheck Protection Program		—		—		—		—			—		—
Total		419,632		24,804		994,275		40,290			1,031,477		47,786
Total
Commercial		1,521,166		90,732		2,444,989		140,299			2,209,335		139,078
Commercial Real Estate Construction		—		—		—		—			—		—
Commercial Real Estate Other		1,645,375		68,031		5,186,778		218,372			1,780,604		76,183
Consumer Real Estate		249,777		10,615		286,296		11,464			879,753		30,400
Consumer Other		41,133		2,674		42,089		2,743			59,240		3,487
Paycheck Protection Program		—		—		—		—			—		—
	$	3,457,451	$	172,052	$	7,960,152	$	372,878		$	4,928,932	$	249,148

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, 2021, there were 5 TDRs with a balance of $1.0 million. As of December 31, 2020, there were 14 TDRs with a balance of $5.8 million. These TDRs were granted extended payment terms with no principal reduction. The structure of two of the loans changed to interest only. All TDRs were performing as agreed as of December 31, 2021. During the year ended December 31, 2019, one TDR in the amount of $2,008 was charged off and the Company recovered $439. No other TDRs that were modified within the previous twelve months defaulted during the following year for the years ended December 31, 2021, 2020, and 2019.

Regulatory agencies, as set forth in the Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (initially issued on March 22, 2020 and revised on April 7, 2020), have encouraged financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations because of the effects of COVID-19. In this statement, the regulatory agencies expressed their view of loan modification programs as positive actions that may mitigate adverse effects on borrowers due to COVID-19 and that the agencies will not criticize institutions for working with borrowers in a safe and sound manner. Moreover, the revised statement provides that eligible loan modifications related to COVID-19 may be accounted for under section 4013 of the CARES Act or in accordance with ASC 310-40. Under Section 4013 of the CARES Act, banks may elect not to categorize loan modifications as TDRs if the modifications are related to COVID-19, executed on a loan that was not more than 30 days past due as of December 31, 2019, and executed between March 1, 2020 and the earlier of December 31, 2020 or 60 days after the date of termination of the National Emergency. All short-term loan modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief are not considered TDRs. Beginning in March 2020, the Bank provided payment accommodations to customers, consisting of 60-day principal deferral to borrowers negatively impacted by COVID-19. During 2020, the Bank processed approximately $0.7 million in principal deferments to 84 customers, with an aggregate loan balance of $25.9 million. The Bank did not process any principal deferments during the year ended December 31, 2021. The principal deferments represented 0.24% of our total loan portfolio as of December 31, 2020. The Bank has examined the payment accommodations granted to borrowers in response to COVID-19 and classified 9 loans, with an aggregate loan balance of $4.0 million, that were granted payment accommodations as TDRs given the continued financial difficulty of the customer, associated industry risk, and multiple deferral requests. All other borrowers were current prior to relief, were not experiencing financial difficulty prior to COVID-19, and the Bank determined they were not considered TDRs. As of December 31, 2021, 4 of the TDRs were removed from TDR status due to improvement in financial condition and sustained performance under the restructured terms, 2 TDRs were paid off through refinancing into new loans at market terms, and 1 TDR was paid off. Two loans with a balance of $0.5 million remain in TDR status as of December 31, 2021. Additionally, of the 75 customers that received payment accommodations that were not classified as TDRs, 41 customers, with an aggregate loan balance of $9.9 million, have paid their loan in full as of December 31, 2021. The remaining loans are paying as agreed as of December 31, 2021. There are no loans that received payment accommodation past due greater than 30 days. The Bank will continue to examine payment accommodations as requested by borrowers.