LOANS HELD FOR INVESTMENT, NET

3 Months Ended

Mar. 31, 2016

Receivables [Abstract]

LOANS HELD FOR INVESTMENT, NET

NOTE 3 – LOANS HELD FOR INVESTMENT, NET

The components of loans held for investment, net in the consolidated balance sheets were as follows:

	March 31, 2016						December 31, 2015
	Amount			Percent			Amount			Percent
Loans held for investment, net:
Commercial real estate	$	149,189,698			75.5	%	$	146,643,998			75.3	%
One- to four-family residential real estate		29,930,302			15.1			31,412,437			16.1
Commercial and industrial		10,798,417			5.5			10,235,492			5.3
Consumer and other		7,703,009			3.9			6,428,765			3.3
Total gross loans		197,621,426			100.0	%		194,720,692			100.0	%
Unamortized loan fees		(664,737	)					(689,102	)
Loans held for investment		196,956,689						194,031,590
Allowance for loan losses		(2,052,365	)					(1,894,196	)
Loans held for investment, net	$	194,904,324					$	192,137,394

At March 31, 2016 and December 31, 2015 commercial real estate loans include construction loans of $7.7 million and $7.8 million, respectively.

Allowance for Loan Losses and Recorded Investment in Loans – The following is a summary of the allowance for loan losses and recorded investment in loans as of March 31, 2016 and December 31, 2015:

	As of March 31, 2016
	Commercial Real Estate		One- to Four- Family  Residential Real  Estate		Commercial and  Industrial		Consumer and  Other		Total
Allowance for loan losses
Ending balance:  individually evaluated for impairment	$	-	$	-	$	-	$	-	$	-
Ending balance:  collectively evaluated for impairment		1,241,068		567,465		197,713		46,119		2,052,365
Total		1,241,068		567,465		197,713		46,119		2,052,365
Gross loans
Ending balance:  individually evaluated for impairment	$	3,122,828	$	1,289,486	$	630,195	$	23,247	$	5,065,756
Ending balance:  collectively evaluated for impairment		146,066,870		28,640,816		10,168,222		7,679,762		192,555,670
Ending balance:  loans acquired with deteriorated credit quality		-		-		-		-		-
Total	$	149,189,698	$	29,930,302	$	10,798,417	$	7,703,009	$	197,621,426

	As of December 31, 2015
	Commercial Real Estate		One- to Four- Family Residential Real  Estate		Commercial and Industrial		Consumer and Other		Total
Allowance for loan losses
Ending balance:  individually evaluated for  impairment	$	-	$	-	$	-	$	-	$	-
Ending balance:  collectively evaluated for  impairment		1,136,458		656,089		63,527		38,122		1,894,196
Total	$	1,136,458	$	656,089	$	63,527	$	38,122	$	1,894,196
Gross loans
Ending balance:  individually evaluated for  impairment	$	2,221,619	$	1,830,826	$	354,208	$	-	$	4,406,653
Ending balance:  collectively evaluated for  impairment		144,422,379		29,581,611		9,881,284		6,428,765		190,314,039
Ending balance:  loans acquired with deteriorated  credit quality		-		-		-		-		-
Total	$	146,643,998	$	31,412,437	$	10,235,492	$	6,428,765	$	194,720,692

The following is a summary of activities for the allowance for loan losses for the three months ended March 31, 2016 and 2015:

	Three Months Ended March 31,
	2016			2015
Beginning balance	$	1,894,196		$	1,707,282
Provision for loan losses		52,000			100,000
Charge-offs:
Commercial real estate		-			-
One- to four-family residential real estate		(10,756	)		-
Commercial and industrial		-			-
Consumer and other		-			(160	)
Total charge-offs		(10,756	)		(160	)
Recoveries:
Commercial real estate		116,125			183,546
One- to four-family residential real estate		800			-
Commercial and industrial		-			-
Consumer and other		-			-
Total recoveries		116,925			183,546
Net recoveries		106,169			183,386
Ending balance	$	2,052,365		$	1,990,668

Nonperforming Assets – The following tables present an aging analysis of the recorded investment of past due loans as of March 31, 2016 and December 31, 2015. Payment activity is reviewed by management on a monthly basis to determine the performance of each loan. Per Company policy, loans past due 90 days or more no longer accrue interest.

	Past Due										Total
					90 Days						Financing
	30 - 59 Days		60 - 89 Days		or More		Total		Current		Receivables
March 31, 2016
Commercial real estate	$	-	$	-	$	-	$	-	$	149,189,698	$	149,189,698
One- to four-family residential real estate		434,237		-		634,087		1,068,324		28,861,978		29,930,302
Commercial and industrial		304,144		-		-		304,144		10,494,273		10,798,417
Consumer and other		-		-		-		-		7,703,009		7,703,009
Totals	$	738,381	$	-	$	634,087	$	1,372,468	$	196,248,958	$	197,621,426

	Past Due										Total
					90 Days						Financing
	30 - 59 Days		60 - 89 Days		or More		Total		Current		Receivables
December 31, 2015
Commercial real estate	$	-	$	-	$	-	$	-	$	146,643,998	$	146,643,998
One- to four-family residential real estate		314,541		173,467		788,159		1,276,167		30,136,270		31,412,437
Commercial and industrial		-		-		-		-		10,235,492		10,235,492
Consumer and other		-		-		-		-		6,428,765		6,428,765
Totals	$	314,541	$	173,467	$	788,159	$	1,276,167	$	193,444,525	$	194,720,692

The following table sets forth nonaccrual loans and other real estate at March 31, 2016 and December 31, 2015:

	March 31,			December 31,
	2016			2015
Nonaccrual loans
Commercial real estate	$	-		$	-
One- to four-family residential real estate		1,048,451			1,489,851
Commercial and industrial		304,144			354,208
Consumer and other		-			-
Total nonaccrual loans		1,352,595			1,844,059
Other real estate (ORE)		501,558			306,000
Total nonperforming assets	$	1,854,153		$	2,150,059
Nonperforming assets to gross loans held for investment and ORE		0.94	%		1.10	%
Nonperforming assets to total assets		0.67	%		0.79	%

Other real estate consisted of one commercial property and one 1-4 family residence at March 31, 2016 and one commercial property at December 31, 2015.

Credit Quality Indicators – The following table represents the credit exposure by internally assigned grades at March 31, 2016 and December 31, 2015. This grading analysis estimates the capability of the borrower to repay the contractual obligations of the loan agreements in accordance with the loan terms. The Bank’s internal credit risk grading system is based on management’s experiences with similarly graded loans. Credit risk grades are reassessed each quarter based on any recent developments potentially impacting the creditworthiness of the borrower, as well as other external statistics and factors, which may affect the risk characteristics of the respective loan.

	As of March 31, 2016
	Commercial Real Estate		One- to Four- Family Residential Real Estate		Commercial and Industrial		Consumer and Other		Total
Grade
Pass	$	144,577,449	$	28,427,054	$	10,078,247	$	7,679,762	$	190,762,512
Special mention		1,489,421		213,762		89,975		-		1,793,158
Substandard		3,122,828		1,289,486		326,051		23,247		4,761,612
Doubtful		-		-		304,144		-		304,144
Loss		-		-		-		-		-
Totals	$	149,189,698	$	29,930,302	$	10,798,417	$	7,703,009	$	197,621,426

	As of December 31, 2015
	Commercial Real Estate		One- to Four- Family Residential Real Estate		Commercial and Industrial		Consumer and Other		Total
Grade
Pass	$	142,560,320	$	29,434,236	$	9,785,619	$	6,428,765	$	188,208,940
Special mention		1,862,059		147,375		95,665		-		2,105,099
Substandard		2,221,619		1,830,826		-		-		4,052,445
Doubtful		-		-		354,208		-		354,208
Loss		-		-		-		-		-
Totals	$	146,643,998	$	31,412,437	$	10,235,492	$	6,428,765	$	194,720,692

The Bank’s internally assigned grades are as follows:

Pass – Strong credit with no existing or known potential weaknesses deserving of management’s close attention.

Special Mention – Potential weaknesses that deserve management’s close attention. Borrower and guarantor’s capacity to meet all financial obligations is marginally adequate or deteriorating.

Substandard – Inadequately protected by the paying capacity of the Borrower and/or collateral pledged. The borrower or guarantor is unwilling or unable to meet loan terms or loan covenants for the foreseeable future.

Doubtful – All the weakness inherent in one classified as substandard with the added characteristic that those weaknesses in place make the collection or liquidation in full, on the basis of current conditions, highly questionable and improbable.

Loss – Considered uncollectible or no longer a bankable asset. This classification does not mean that the asset has absolutely no recoverable value. In fact, a certain salvage value is inherent in these loans. Nevertheless, it is not practical or desirable to defer writing off a portion or whole of a perceived asset even though partial recovery may be collected in the future.

Impaired Loans – The following table includes the recorded investment and unpaid principal balances, net of charge-offs for impaired loans with the associated allowance amount, if applicable. Management determined the allocated allowance based on the present value of expected future cash flows, discounted at the loan’s effective interest rate, except when the remaining source of repayment for the loan is the operation or liquidation of the collateral. In those cases, the current fair value of the collateral, less selling costs was used to determine the allocated allowance recorded.

	As of March 31, 2016
			Principal				Average
	Recorded		Net of		Related		Recorded
	Investment		Charge-offs		Allowance		Investment
With no related allowance recorded:
Commercial real estate	$	-	$	-	$	-	$	-
One- to four-family residential real estate		1,048,451		1,048,451		-		1,395,991
Commercial and industrial		304,144		304,144		-		380,998
Consumer and other		-		-		-		-
With an allowance recorded:	$	-	$	-	$	-	$	-
Total:
Commercial real estate	$	-	$	-	$	-	$	-
One- to four-family residential real estate		1,048,451		1,048,451		-		1,395,991
Commercial and industrial		304,144		304,144		-		380,998
Consumer and other		-		-		-		-

	As of December 31, 2015
			Principal				Average
	Recorded		Net of		Related		Recorded
	Investment		Charge-offs		Allowance		Investment
With no related allowance recorded:
Commercial real estate	$	-	$	-	$	-	$	-
One- to four-family residential real estate		1,489,851		1,489,851		-		1,949,279
Commercial and industrial		354,208		354,208		-		733,940
Consumer and other		-		-		-		-
With an allowance recorded:	$	-	$	-	$	-	$	-
Total:
Commercial real estate	$	-	$	-	$	-	$	-
One- to four-family residential real estate		1,489,851		1,489,851		-		1,949,279
Commercial and industrial		354,208		354,208		-		733,940
Consumer and other		-		-		-		-

During the three months ended March 31, 2016 and 2015, no interest income was recognized on these loans as interest collected was credited to loan principal.

Certain loans within the Company’s loan and ORE portfolios are guaranteed by the Veterans Administration (VA). In the event of default by the borrower, the VA can elect to pay the guaranteed amount or take possession of the property. If the VA takes possession of the property, the Company is entitled to be reimbursed for the outstanding principal balance, accrued interest and certain other expenses. There were no commitments from the VA to take title to foreclosed VA properties at March 31, 2016 and December 31, 2015.

Troubled Debt Restructurings – Restructured loans are considered “troubled debt restructurings” if due to the borrower’s financial difficulties, the Bank has granted a concession that they would not otherwise consider. This may include a transfer of real estate or other assets from the borrower, a modification of loan terms, rates, or a combination of the two. All troubled debt restructurings placed on nonaccrual status must show no less than six consecutive months of repayment performance by the borrower in accordance with contractual terms to return to accrual status. Once a loan has been identified as a troubled debt restructuring, it will continue to be reported as such until the loan is paid in full.

There were no troubled debt restructurings as of March 31, 2016 or December 31, 2015.

In the normal course of business, the Company may modify a loan for a credit worthy borrower where the modified loan is not considered a troubled debt restructuring. In these cases, the modified terms are consistent with loan terms available to credit worthy borrowers and within normal loan pricing. The modifications to such loans are done according to existing underwriting standards which include review of historical financial statements, including current interim information if available, an analysis of the causes of the borrower’s decline in performance, and projections intended to assess repayment ability going forward.