Loans and Allowance for Loan Losses

3 Months Ended

Mar. 31, 2022

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 $342,835 and $488,481 at March 31,2022 and December 31, 2021, respectively) are shown in the table below.

	March 31, 2022			December 31, 2021
Commercial	$	47,360,745		$	45,804,434
Commercial Real Estate:
Construction		14,750,474			12,054,095
Other		167,967,452			165,719,078
Consumer:
Real estate		76,712,257			71,307,488
Other		3,677,522			3,768,531
Paycheck Protection Program		4,437,525			7,978,603
		314,905,975			306,632,229
Allowance for loan losses		(4,304,502	)		(4,376,987	)
Loans, net	$	310,601,473		$	302,255,242

We had $96.3 million and $94.7 million of loans pledged as collateral to secure funding with the Federal Reserve Bank (“FRB”) Discount Window at March 31, 2022 and at December 31, 2021, 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. The Paycheck Protection Program and Health Care Enhancement Act (“PPP/ HCEA Act”) was 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. In 2020 and 2021, the Bank provided $55.3 million in funding to 480 customers through the PPP and received a total of $2.4 million in processing fees. The processing fees were deferred and are being amortized over the life of the loans in accordance with ASC 310-20. During the three months ended March 31, 2022 and 2021, the Bank recognized $0.2 million and $0.6 million, respectively, in processing fees for the PPP program.

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. Because the PPP 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 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 March 31, 2022 and December 31, 2021. “Pass” includes loans internally graded as excellent, good and satisfactory.

March 31, 2022
	Commercial		Commercial Real Estate Construction		Commercial Real Estate Other		Consumer Real Estate		Consumer Other		Paycheck Protection Program		Total
Pass	$	45,293,533	$	13,775,793	$	163,137,366	$	72,531,141	$	3,426,221	$	4,437,525	$	302,601,579
Watch		686,987		974,681		2,768,774		3,656,913		191,740		—		8,279,095
OAEM		30,859		—		840,236		274,445		19,961		—		1,165,501
Substandard		1,349,366		—		1,221,076		249,758		39,600		—		2,859,800
Doubtful		—		—		—		—		—		—		—
Loss		—		—		—		—		—		—		—
Total	$	47,360,745	$	14,750,474	$	167,967,452	$	76,712,257	$	3,677,522	$	4,437,525	$	314,905,975

December 31, 2021
	Commercial		Commercial 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

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

March 31, 2022
	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	$	225,000	$	1,915	$	—	$	226,915	$	47,133,830	$	47,360,745	$	—
Commercial Real Estate Construction		—		—		—		—		14,750,474		14,750,474		—
Commercial Real Estate Other		677,131		750,000		621,358		2,048,489		165,918,963		167,967,452		—
Consumer Real Estate		203,042		—		—		203,042		76,509,215		76,712,257		—
Consumer Other		626		—		—		626		3,676,896		3,677,522		—
Paycheck Protection Program		—		—		—		—		4,437,525		4,437,525		—
Total	$	1,105,799	$	751,915	$	621,358	$	2,479,072	$	312,426,903	$	314,905,975	$	—

December 31, 2021
	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	$	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	$	—

There were no loans over 90 days past due and still accruing as of March 31, 2022 and December 31, 2021.

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

	March 31, 2022		December 31, 2021
Commercial	$	—	$	178,975
Commercial Real Estate Construction		—		—
Commercial Real Estate Other		621,358		625,953
Consumer Real Estate		—		—
Consumer Other		9,022		9,686
Paycheck Protection Program		—		—
Total	$	630,380	$	814,614

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 months ended March 31, 2022 and 2021. 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 March 31, 2022
	Commercial			Commercial Real Estate Construction		Commercial Real Estate Other			Consumer Real Estate			Consumer Other			Paycheck Protection Program			Total
Allowance for Loan Losses:
Beginning balance	$	795,689		$	175,493	$	2,376,306		$	924,784		$	104,715		$	—		$	4,376,987
Charge-offs		—			—		—			(2,035	)		—			(10	)		(2,045	)
Recoveries		—			—		—			—			4,200			360			4,560
Provisions		(7,596	)		28,075		(82,296	)		(2,777	)		(10,056	)		(350	)		(75,000	)
Ending balance	$	788,093		$	203,568	$	2,294,010		$	919,972		$	98,859		$	—		$	4,304,502

Three Months Ended March 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		—			—			—		—		(8,152	)		(6,479	)		(14,631	)
Recoveries		—			—			—		—		4,812			290			5,102
Provisions		(126,428	)		(54,721	)		168,648		127,083		(771	)		6,189			120,000
Ending balance	$	902,882		$	144,545		$	2,077,769	$	1,052,160	$	118,809		$	—		$	4,296,165

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.

	March 31, 2022
	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	$	183,418	$	—	$	—	$	—	$	39,600	$	—	$	223,018
Collectively evaluated for impairment		604,675		203,568		2,294,010		919,972		59,259		—		4,081,484
Total Allowance for Loan Losses	$	788,093	$	203,568	$	2,294,010	$	919,972	$	98,859	$	—	$	4,304,502
Loans Receivable
Individually evaluated for impairment	$	1,349,365	$	—	$	1,221,076	$	249,758	$	39,600	$	—	$	2,859,799
Collectively evaluated for impairment		46,011,380		14,750,474		166,746,376		76,462,499		3,637,922		4,437,525		312,046,176
Total Loans Receivable	$	47,360,745	$	14,750,474	$	167,967,452	$	76,712,257	$	3,677,522	$	4,437,525	$	314,905,975

	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

As of March 31, 2022 and December 31, 2021, loans individually evaluated and considered impaired are presented in the following table.

	Impaired Loans as of
	March 31, 2022						December 31, 2021
		Unpaid Principal Balance		Recorded Investment		Related Allowance		Unpaid Principal Balance		Recorded Investment		Related Allowance
With no related allowance recorded:
Commercial	$	175,805	$	175,805	$	—	$	1,096,407	$	1,096,407	$	—
Commercial Real Estate Construction		—		—		—		—		—		—
Commercial Real Estate Other		1,221,076		1,221,076		—		1,653,121		1,653,121		—
Consumer Real Estate		249,758		249,758		—		249,758		249,758		—
Consumer Other		—		—		—		—		—		—
Paycheck Protection Program		—		—		—		—		—		—
Total		1,646,639		1,646,639		—		2,999,286		2,999,286		—
With an allowance recorded:
Commercial		1,173,560		1,173,560		183,418		367,070		367,070		179,988
Commercial Real Estate Construction		—		—		—		—		—		—
Commercial Real Estate Other		—		—		—		—		—		—
Consumer Real Estate		—		—		—		—		—		—
Consumer Other		39,600		39,600		39,600		40,153		40,153		40,153
Paycheck Protection Program		—		—		—		—		—		—
Total		1,213,160		1,213,160		223,018		407,223		407,223		220,141
Commercial		1,349,365		1,349,365		183,418		1,463,477		1,463,477		179,988
Commercial Real Estate Construction		—		—		—		—		—		—
Commercial Real Estate Other		1,221,076		1,221,076		—		1,653,121		1,653,121		—
Consumer Real Estate		249,758		249,758		—		249,758		249,758		—
Consumer Other		39,600		39,600		39,600		40,153		40,153		40,153
Paycheck Protection Program		—		—		—		—		—		—
Total	$	2,859,799	$	2,859,799	$	223,018	$	3,406,509	$	3,406,509	$	220,141

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 March 31,
	2022				2021
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial	$	181,347	$	2,720	$	1,563,106	$	25,815
Commercial Real Estate Construction		—		—		—		—
Commercial Real Estate Other		1,226,665		7,706		5,482,702		49,760
Consumer Real Estate		249,758		2,617		249,833		3,491
Consumer Other		—		—		—		—
Paycheck Protection Program		—		—		—		—
		1,657,770		13,043		7,295,641		79,066
With an allowance recorded:
Commercial		1,186,718		19,382		472,422		7,519
Commercial Real Estate Construction		—		—		—		—
Commercial Real Estate Other		—		—		—		—
Consumer Real Estate		—		—		—		—
Consumer Other		39,822		638		41,848		672
Paycheck Protection Program		—		—		—		—
		1,226,540		20,020		514,270		8,191
Total
Commercial		1,368,065		22,102		2,035,528		33,334
Commercial Real Estate Construction		—		—		—		—
Commercial Real Estate Other		1,226,665		7,706		5,482,702		49,760
Consumer Real Estate		249,758		2,617		249,833		3,491
Consumer Other		39,822		638		41,848		672
Paycheck Protection Program		—		—		—		—
	$	2,884,310	$	33,063	$	7,809,911	$	87,257

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 both March 31, 2022 and December 31, 2021, there were 5 TDRs with a balance of $1.0 million. There were no TDRs added during the three months ended March 31, 2022 and 2021. 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 March 31, 2022. No TDRs defaulted during the three months ended March 31, 2022 and 2021, which were modified within the previous twelve months.

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 loans, with an aggregate loan balance of $25.9 million. The principal deferments represented 0.24% of our total loan portfolio as of December 31, 2020. The Bank did not process any principal deferments after December 31, 2020. As of March 31, 2022, there was one outstanding loan with a balance of $0.2 million in TDR status. There were two loans outstanding with a balance of $0.5 million in TDR status as of December 31, 2021. All other remaining outstanding loans were paying as agreed as of March 31, 2022 and December 31, 2021.