Note 3 - Loans and Allowance for Loan Losses

12 Months Ended

Dec. 31, 2017

Notes to Financial Statements

Loans, Notes, Trade and Other Receivables Disclosure [Text Block]

NOTE

3:

     LOANS AND ALLOWANCE FOR LOAN LOSSES

Categories of loans at

December 31,

201

7

and

2016

include:

	December 31,
	2017			2016
Real estate - residential mortgage:
One to four family units	$	106,300,790		$	106,410,559
Multi-family		85,225,074			48,483,523
Real estate - construction		64,743,582			40,912,307
Real estate - commercial		261,866,285			249,580,873
Commercial loans		94,522,840			75,404,732
Consumer and other loans		24,716,447			23,606,306
Total loans		637,375,018			544,398,300
Less:
Allowance for loan losses		(7,107,418	)		(5,742,449	)
Deferred loan fees/costs, net		(662,591	)		(382,211	)
Net loans	$	629,605,009		$	538,273,640

Classes of loans by aging at

December 31,

201

7

and

2016

were as follows:

As of

December 31, 2017

	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total Loans Receivable		Total Loans > 90 Days and Accruing
	(In Thousands)
Real estate - residential mortgage:
One to four family units	$	510	$	731	$	2,495	$	3,736	$	102,565	$	106,301	$	-
Multi-family		775		-		-		775		84,450		85,225		-
Real estate - construction		-		-		-		-		64,744		64,744		-
Real estate - commercial		243		135		-		378		261,488		261,866		-
Commercial loans		276		-		588		864		93,659		94,523		-
Consumer and other loans		8		8		-		16		24,700		24,716		-
Total	$	1,812	$	874	$	3,083	$	5,769	$	631,606	$	637,375	$	-

As of

December 31, 2016

	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total Loans Receivable		Total Loans > 90 Days and Accruing
	(In Thousands)
Real estate - residential mortgage:
One to four family units	$	367	$	495	$	103	$	965	$	105,446	$	106,411	$	-
Multi-family		-		-		-		-		48,483		48,483		-
Real estate - construction		-		-		-		-		40,912		40,912		-
Real estate - commercial		-		-		-		-		249,581		249,581		-
Commercial loans		-		-		593		593		74,812		75,405		-
Consumer and other loans		-		-		38		38		23,568		23,606		-
Total	$	367	$	495	$	734	$	1,596	$	542,802	$	544,398	$	-

Nonaccruing loans are summarized as follows:

	December 31,
	2017		2016
Real estate - residential mortgage:
One to four family units	$	4,423,074	$	2,060,180
Multi-family		-		-
Real estate - construction		4,452,409		5,446,896
Real estate - commercial		161,491		161,491
Commercial loans		802,628		925,281
Consumer and other loans		121,915		37,791
Total	$	9,961,517	$	8,631,639

The following tables present the activity in the allowance for loan losses and the recorded investment in loans based on portfolio segment and impairment method as of and for the years ended

December 31,

201

7,

2016

and

2015:

As of December 31, 2017
	Construction		Commercial Real Estate			One to four family			Multi-family		Commercial			Consumer and Other			Unallocated		Total
	(In Thousands)
Allowance for loan losses:
Balance, beginning of year	$	1,377	$	1,687		$	856		$	206	$	1,168		$	337		$	111	$	5,742
Provision charged to expense		793		174			82			258		91			284			68	$	1,750
Losses charged off		-		(72	)		(11	)		-		(240	)		(213	)		-	$	(536	)
Recoveries		74		-			19			-		12			46			-	$	151
Balance, end of year	$	2,244	$	1,789		$	946		$	464	$	1,031		$	454		$	179	$	7,107
Ending balance: individually  evaluated for impairment	$	738	$	-		$	127		$	-	$	246		$	138		$	-	$	1,249
Ending balance: collectively  evaluated for impairment	$	1,506	$	1,789		$	819		$	464	$	785		$	316		$	179	$	5,858
Loans:
Ending balance: individually  evaluated for impairment	$	4,452	$	161		$	4,424		$	775	$	739		$	276		$	-	$	10,827
Ending balance: collectively  evaluated for impairment	$	60,292	$	261,705		$	101,877		$	84,450	$	93,784		$	24,440		$	-	$	626,548

As of December 31, 2016
	Construction			Commercial Real Estate			One to four family			Multi-family		Commercial			Consumer and Other			Unallocated			Total
	(In Thousands)
Allowance for loan losses:
Balance, beginning of year	$	1,246		$	1,526		$	821		$	177	$	1,382		$	223		$	437		$	5,812
Provision charged to expense		1,262			198			48			29		(51	)		215			(326	)	$	1,375
Losses charged off		(1,222	)		(69	)		(47	)		-		(171	)		(190	)		-		$	(1,699	)
Recoveries		91			32			34			-		8			89			-		$	254
Balance, end of year	$	1,377		$	1,687		$	856		$	206	$	1,168		$	337		$	111		$	5,742
Ending balance: individually  evaluated for impairment	$	302		$	-		$	14		$	-	$	241		$	45		$	-		$	602
Ending balance: collectively  evaluated for impairment	$	1,075		$	1,687		$	842		$	206	$	927		$	292		$	111		$	5,140
Loans:
Ending balance: individually  evaluated for impairment	$	5,447		$	161		$	2,060		$	-	$	925		$	106		$	-		$	8,699
Ending balance: collectively  evaluated for impairment	$	35,465		$	249,420		$	104,351		$	48,483	$	74,480		$	23,500		$	-		$	535,699

As of December 31, 2015
	Construction			Commercial Real Estate			One to four family			Multi-family		Commercial			Consumer and Other			Unallocated		Total
	(In Thousands)
Allowance for loan losses:
Balance, beginning of year	$	1,330		$	1,992		$	900		$	127	$	1,954		$	185		$	101	$	6,589
Provision charged to expense		1,139			(466	)		-			50		(576	)		117			336	$	600
Losses charged off		(1,233	)		-			(99	)		-		-			(119	)		-	$	(1,451	)
Recoveries		10			-			20			-		4			40			-	$	74
Balance, end of year	$	1,246		$	1,526		$	821		$	177	$	1,382		$	223		$	437	$	5,812
Ending balance: individually  evaluated for impairment	$	540		$	-		$	-		$	-	$	312		$	13		$	-	$	865
Ending balance: collectively  evaluated for impairment	$	706		$	1,526		$	821		$	177	$	1,070		$	210		$	437	$	4,947
Loans:
Ending balance: individually  evaluated for impairment	$	8,080		$	1,241		$	2,272		$	-	$	2,149		$	988		$	-	$	14,730
Ending balance: collectively  evaluated for impairment	$	37,383		$	207,583		$	95,985		$	41,604	$	78,858		$	21,004		$	-	$	482,417

A loan is considered impaired, in accordance with the impairment accounting guidance (ASC-

310

-

10

-

35

-

16

), when based on current information and events, it is probable the Bank will be unable to collect all amounts due from the borrower in accordance with the contractual terms of the loan. Impaired loans include nonperforming commercial loans but also include loans modified in troubled debt restructurings where concessions have been granted to borrowers experiencing financial difficulties. These concessions could include a reduction in the interest rate on the loan, payment extensions, forgiveness of principal, forbearance or other actions intended to maximize collection.

The following summarizes impaired loans as of and for the years ended

December 31,

201

7

and

2016:

As of December 31, 2017
	Recorded Balance		Unpaid Principal Balance		Specific Allowance		Average Investment in Impaired Loans		Interest Income Recognized
	(In Thousands)
Loans without a specific valuation allowance
Real estate - residential mortgage:
One to four family units	$	3,180	$	3,180	$	-	$	2,170	$	-
Multi-family		775		775		-		130		5
Real estate - construction		2,840		2,840		-		2,940		-
Real estate - commercial		161		161		-		311		-
Commercial loans		465		465		-		536		-
Consumer and other loans		3		3		-		7		1
Loans with a specific valuation allowance
Real estate - residential mortgage:
One to four family units	$	1,244	$	1,244	$	127	$	247	$	-
Multi-family		-		-		-		-		-
Real estate - construction		1,612		2,845		738		2,326		-
Real estate - commercial		-		-		-		-		-
Commercial loans		274		274		246		456		-
Consumer and other loans		273		273		138		208		-
Total
Real estate - residential mortgage:
One to four family units	$	4,424	$	4,424	$	127	$	2,417	$	-
Multi-family		775		775		-		130		5
Real estate - construction		4,452		5,685		738		5,266		-
Real estate - commercial		161		161		-		311		-
Commercial loans		739		739		246		992		-
Consumer and other loans		276		276		138		215		1
Total	$	10,827	$	12,060	$	1,249	$	9,331	$	6

As of December 31, 2016
	Recorded Balance		Unpaid Principal Balance		Specific Allowance		Average Investment in Impaired Loans		Interest Income Recognized
	(In Thousands)
Loans without a specific valuation allowance
Real estate - residential mortgage:
One to four family units	$	2,006	$	2,006	$	-	$	2,165	$	-
Multi-family		-		-		-		-		-
Real estate - construction		3,017		3,017		-		5,427		-
Real estate - commercial		161		161		-		540		-
Commercial loans		622		622		-		868		-
Consumer and other loans		3		3		-		90		2
Loans with a specific valuation allowance
Real estate - residential mortgage:
One to four family units	$	54	$	54	$	14	$	27	$	-
Multi-family		-		-		-		-		-
Real estate - construction		2,430		3,663		302		2,195		-
Real estate - commercial		-		-		-		139		-
Commercial loans		303		755		241		447		-
Consumer and other loans		103		103		45		112		-
Total
Real estate - residential mortgage:
One to four family units	$	2,060	$	2,060	$	14	$	2,192	$	-
Multi-family		-		-		-		-		-
Real estate - construction		5,447		6,680		302		7,622		-
Real estate - commercial		161		161		-		679		-
Commercial loans		925		1,377		241		1,315		-
Consumer and other loans		106		106		45		202		2
Total	$	8,699	$	10,384	$	602	$	12,010	$	2

Interest of

approximately

$4,000

was recognized on average impaired loans of

$8,110,000

for the year ended

December 31, 2015.

At

December 31,

201

7,

the Bank’s impaired loans shown in the table above included loans that were classified as troubled debt restructurings (TDR). The restructuring of a loan is considered a TDR if both (i) the borrower is experiencing financial difficulties and (ii) the creditor has granted a concession.

In assessing whether or

not

a borrower is experiencing financial difficulties, the Bank considers information currently available regarding the financial condition of the borrower. This information includes, but is

not

limited to, whether (i) the debtor is currently in payment default on any of its debt; (ii) a payment default is probable in the foreseeable future without the modification; (iii) the debtor has declared or is in the process of declaring bankruptcy and (iv) the debtor

’s projected cash flow is sufficient to satisfy the contractual payments due under the original terms of the loan without a modification.

The Bank considers all aspects of the modification to loan terms to determine whether or

not

a concession has been granted to the borrower. Key factors considered by the Bank include the debtor

’s ability to access funds at a market rate for debt with similar risk characteristics, the significance of the modification relative to unpaid principal balance or collateral value of the debt, and the significance of a delay in the timing of payments relative to the original contractual terms of the loan. The most common concessions granted by the Bank generally include

one

or more modifications to the terms of the debt, such as (i) a reduction in the interest rate for the remaining life of the debt, (ii) an extension of the maturity date at an interest rate lower than the current market rate for new debt with similar risk, (iii) a reduction of the face amount or maturity amount of the debt as stated in the original loan, (iv) a temporary period of interest-only payments, (v) a reduction in accrued interest, and (vi) an extension of amortization.

The following summarizes information regarding new troubled debt restructurings by class:

	2017
	Number of Loans		Pre-Modification Outstanding Recorded Balance		Post-Modification Outstanding Recorded Balance
Real estate - residential mortgage:
One to four family units		-	$	-	$	-
Multi-family		-		-		-
Real estate - construction		-		-		-
Real estate - commercial		-		-		-
Commercial loans		-		-		-
Consumer and other loans		1		119,459		119,459
Total		1	$	119,459	$	119,459

	2016
	Number of Loans		Pre-Modification Outstanding Recorded Balance		Post-Modification Outstanding Recorded Balance
Real estate - residential mortgage:
One to four family units		-	$	-	$	-
Multi-family		-		-		-
Real estate - construction		-		-		-
Real estate - commercial		1		5,575,358		5,575,358
Commercial loans		1		165,831		165,831
Consumer and other loans		-		-		-
Total		2	$	5,741,189	$	5,741,189

The troubled debt restructurings described above increased the allowance for loan losses

by

$118,482

and

$41,458

and resulted in charge offs of

$0

and

$0

during the years ended

December 31, 2017

and

2016,

respectively.

The following presents the troubled debt restructurings by type of modification:

	2017
	Interest Rate		Term		Combination		Total Modification
Real estate - residential mortgage:
One to four family units	$	-	$	-	$	-	$	-
Multi-family		-		-		-		-
Real estate - construction		-		-		-		-
Real estate - commercial		-		-		-		-
Commercial loans		-		-		-		-
Consumer and other loans		-		119,459		-		119,459
Total	$	-	$	119,459	$	-	$	119,459

	2016
	Interest Rate		Term		Combination		Total Modification
Real estate - residential mortgage:
One to four family units	$	-	$	-	$	-	$	-
Multi-family		-		-		-		-
Real estate - construction		-		-		-		-
Real estate - commercial		-		-		5,575,358		5,575,358
Commercial loans		-		165,831		-		165,831
Consumer and other loans		-		-		-		-
Total	$	-	$	165,831	$	5,575,358	$	5,741,189

As part of the on-going monitoring of the credit quality of the Bank

’s loan portfolio, management tracks loans by an internal rating system. All loans are assigned an internal credit quality rating based on an analysis of the borrower’s financial condition. The criteria used to assign quality ratings to extensions of credit that exhibit potential problems or well-defined weaknesses are primarily based upon the degree of risk and the likelihood of orderly repayment, and their effect on the Bank’s safety and soundness. The following are the internally assigned ratings:

Pass-This rating represents loans that have strong asset quality and liquidity along with a multi-year track record of profitability.

Special mention-This rating represents loans that are currently protected but are potentially weak. The credit risk

may

be relatively minor, yet constitute an increased risk in light of the circumstances surrounding a specific loan.

Substandard-This rating represents loans that show signs of continuing negative financial trends and unprofitability and therefore, is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any.

Doubtful-This rating represents loans that have all the weaknesses of substandard classified loans with the additional characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.

Risk characteristics applicable to each segment of the loan portfolio are described as follows.

Real estate-Residential

1

-

4

family: The residential

1

-

4

family real estate loans are generally secured by owner-occupied

1

-

4

family residences. Repayment of these loans is primarily dependent on the personal income and credit rating of the borrowers. Credit risk in these loans can be impacted by economic conditions within the Bank

’s market areas that might impact either property values or a borrower’s personal income.

Risk is mitigated by the fact that the loans are of smaller individual amounts and spread over a large number of borrowers.

Real estate-Construction: Construction and land development real estate loans are usually based upon estimates of costs and estimated value of the completed project and include independent appraisal reviews and a financial analysis of the developers and property owners. Sources of repayment of these loans

may

include permanent loans, sales of developed property or an interim loan commitment from the Bank until permanent financing is obtained. These loans are considered to be higher risk than other real estate loans due to their ultimate repayment being sensitive to interest rate changes, general economic conditions and the availability of long-term financing. Credit risk in these loans

may

be impacted by the creditworthiness of a borrower, property values and the local economies in the Bank

’s market areas.

Real estate-Commercial: Commercial real estate loans typically involve larger principal amounts, and repayment of these loans is generally dependent on the successful operations of the property securing the loan or the business conducted on the property securing the loan. These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Credit risk in these loans

may

be impacted by the creditworthiness of a borrower, property values and the local economies in the Bank

’s market areas.

Commercial: The commercial portfolio includes loans to commercial customers for use in financing working capital needs, equipment purchases and expansions. The loans in this category are repaid primarily from the cash flow of a borrower

’s principal business operation. Credit risk in these loans is driven by creditworthiness of a borrower and the economic conditions that impact the cash flow stability from business operations.

Consumer: The consumer loan portfolio consists of various term and line of credit loans such as automobile loans and loans for other personal purposes. Repayment for these types of loans will come from a borrower

’s income sources that are typically independent of the loan purpose. Credit risk is driven by consumer economic factors (such as unemployment and general economic conditions in the Bank’s market area) and the creditworthiness of a borrower.

The following table provides information about the credit quality of the loan portfolio using the Bank

’s internal rating system as of

December 31, 2017

and

2016:

As of December 31, 2017
	Construction		Commercial Real Estate		One to four family		Multi-family		Commercial		Consumer and Other		Total
	(In Thousands)
Rating:
Pass	$	60,291	$	254,658	$	96,723	$	84,450	$	93,102	$	24,440	$	613,664
Special Mention		-		5,578		3,799		-		200		-		9,577
Substandard		4,453		1,630		5,779		775		708		276		13,621
Doubtful		-		-		-		-		513		-		513
Total	$	64,744	$	261,866	$	106,301	$	85,225	$	94,523	$	24,716	$	637,375

As of December 31, 2016
	Construction		Commercial Real Estate		One to four family		Multi-family		Commercial		Consumer and Other		Total
	(In Thousands)
Rating:
Pass	$	35,465	$	242,200	$	100,367	$	48,483	$	69,093	$	23,380	$	518,988
Special Mention		-		5,922		2,591		-		4,503		-		13,016
Substandard		5,447		1,459		3,453		-		1,225		226		11,810
Doubtful		-		-		-		-		584		-		584
Total	$	40,912	$	249,581	$	106,411	$	48,483	$	75,405	$	23,606	$	544,398

The weighted average interest rate on loans as of

December 31,

201

7

and

2016

was

4.82%

and

4.81%,

respectively.

The Bank serviced mortgage loans for others amounting

to

$45,839

and

$54,722

as of

December 31, 2017

and

2016,

respectively. The Bank serviced commercial loans for others amounting to

$31,425,300

and

$5,978,363

as of

December 31, 2017

and

2016,

respectively.