Loans Receivable

At June 30, 2018 and December 31, 2017, loans receivable consisted of the following segments:



	June 30, 2018			December 31, 2017
Loans:
One-to-four family residential	$	53,094,260		$	56,091,358
Non-owner occupied one-to-four family residential	3,163,463			3,116,832
Commercial real estate	2,834,855			3,615,351
Consumer	6,503,164			6,145,488
Total loans receivable	65,595,742			68,969,029
Discounts on loans purchased	17,486			10,650
Deferred loan costs (fees)	(24,352		)	(29,964		)
Allowance for loan losses	(531,346		)	(538,319		)
	$	65,057,530		$	68,411,396

Accrued interest receivable on loans receivable was $205,362 and $218,967 at June 30, 2018 and December 31, 2017, respectively.

The loan portfolio included approximately $39.6 million of fixed rate loans as of June 30, 2018 and $40.6 million as of December 31, 2017. The loan portfolio also included approximately $26.0 million and $28.4 million of variable rate loans as of June 30, 2018 and December 31, 2017, respectively.

The Company originates residential, commercial real estate loans and other consumer loans, primarily in its Hamilton County, and Buchanan County, Iowa market areas and their adjacent counties. A substantial portion of its borrowers’ ability to repay their loans is dependent upon economic conditions in the Company’s market area.

Allowance for Loan Losses

The following tables present the balance in the allowance for loan losses and recorded investment in loans by portfolio segment and based on impairment method as of June 30, 2018 and December 31, 2017.



	June 30, 2018
	One-to-four family residential		Non-owner occupied on-to-four family residential		Commercial real estate		Consumer		Total
Allowance for loan losses:
Individually evaluated for impairment	$	—	$	—	$	—	$	—	$	—
Collectively evaluated for impairment	369,076		26,650		29,134		106,486		531,346
Total	$	369,076	$	26,650	$	29,134	$	106,486	$	531,346

Loans receivable:
Individually evaluated for impairment	$	—	$	—	$	275,515	$	—	$	275,515
Collectively evaluated for impairment	53,094,260		3,163,463		2,559,340		6,503,164		65,320,227
Total	$	53,094,260	$	3,163,463	$	2,834,855	$	6,503,164	$	65,595,742

	December 31, 2017
	One-to-four family residential		Non-owner occupied on-to-four family residential		Commercial real estate		Consumer		Total
Allowance for loan losses:
Individually evaluated for impairment	$	—	$	—	$	—	$	—	$	—
Collectively evaluated for impairment	393,341		25,893		33,204		85,881		538,319
Total	$	393,341	$	25,893	$	33,204	$	85,881	$	538,319

Loans receivable:
Individually evaluated for impairment	$	—	$	—	$	274,804	$	—	$	274,804
Collectively evaluated for impairment	56,091,358		3,116,832		3,340,547		6,145,488		68,694,225
Total	$	56,091,358	$	3,116,832	$	3,615,351	$	6,145,488	$	68,969,029

Activity in the allowance for loan losses by segment for the three and six months ended June 30, 2018 and 2017 is summarized in the following tables:



	Three months ended June 30, 2018
	Beginning Balance		Charge-offs		Recoveries		Provisions				Ending Balance
Loans:
One-to-four family residential	$	402,310	$	19,276	$	2,423	$	(16,381	)	*	$	369,076
Non-owner occupied one-to-four family residential	26,893		—		—		(243		)	*	26,650
Commercial real estate	32,255		—		—		(3,121		)	*	29,134
Consumer	95,569		28,328		—		39,245				106,486
Total	$	557,027	$	47,604	$	2,423	$	19,500			$	531,346

	Three months ended June 30, 2017
	Beginning Balance		Charge-offs		Recoveries		Provisions				Ending Balance
Loans:
One-to-four family residential	$	331,736	$	6,135	$	133	$	792			$	326,526
Non-owner occupied one-to-four family residential	28,696		—		—		1,654				30,350
Commercial real estate	40,799		—		—		(2,346		)	*	38,453
Consumer	99,144		13,923		—		17,900				103,121
Total	$	500,375	$	20,058	$	133	$	18,000			$	498,450

	Six Months Ended June 30, 2018
	Beginning Balance		Charge-offs		Recoveries		Provisions				Ending Balance
Loans:
One-to-four family residential	$	393,341	$	19,276	$	2,423	$	(7,412	)	*	$	369,076
Non-owner occupied one-to-four family residential	25,893		—		—		757				26,650
Commercial real estate	33,204		—		—		(4,070		)	*	29,134
Consumer	85,881		29,120		—		49,725				106,486
Total	$	538,319	$	48,396	$	2,423	$	39,000			$	531,346

	Six Months Ended June 30, 2017
	Beginning Balance		Charge-offs		Recoveries		Provisions				Ending Balance
Loans:
One-to-four family residential	$	319,849	$	10,945	$	133	$	17,489			$	326,526
Non-owner occupied one-to-four family residential	28,231		$	—	$	—	$	2,119			$	30,350
Commercial real estate	37,135		$	—	$	—	$	1,318			$	38,453
Consumer	101,899		$	13,923	$	71	$	15,074			$	103,121
Total	$	487,114	$	24,868	$	204	$	36,000			$	498,450



* The negative provisions for the various segments are either related to the decline in outstanding balances in each of those portfolio segments during the time periods disclosed and/or improvement in the credit quality factors related to those portfolio segments.


(a)	Loan Portfolio Segment Risk Characteristics

One-to-four family residential: The Company generally retains most residential mortgage loans that are originated for its own portfolio. The market value of real estate securing residential real estate loans can fluctuate as a result of market conditions in the geographic area in which the real estate is located. Adverse developments affecting real estate values in the Company’s market could increase credit risk associated with its loan portfolio. Additionally, real estate lending typically involves large loan principal amounts and the repayment of the loans generally is dependent, in large part, on the borrower’s continuing financial stability, and is therefore more likely to be affected by adverse personal circumstances.

Non-owner occupied one-to-four family residential: The Company originates fixed-rate and adjustable-rate loans secured by non-owner occupied one-to-four family properties. These loans may have a term of up to 30 years. Generally the Bank will lend up to 75% of the property’s appraised value. Appraised values are determined by an outside independent appraiser. In deciding to originate a loan secured by a non-owner occupied one-to-four family residential property, management reviews the creditworthiness of the borrower and the expected cash flows from the property securing the loan, the cash flow requirements of the borrower and the value of the property securing the loan. This segment is generally secured by one-to-four family properties.

Commercial real estate: On a very limited basis, the Company originates fixed-rate and adjustable-rate commercial real estate and land loans. These loans may have a term of up to 30 years. Generally the Bank will lend up to 75% of the property’s appraised value. Appraised values are determined by an outside independent appraiser. In recent years, the Company has significantly reduced the emphasis on these types of loans and does not intend to emphasize these types of loans in the future. This segment is generally secured by retail, industrial, service or other commercial properties and loans secured by raw land, including timber.

Consumer: Consumer loans typically have shorter terms, lower balances, higher yields, and higher rates of default. Consumer loan collections are dependent on the borrower’s continuing financial stability, and are therefore more likely to be affected by adverse personal circumstances. This segment consists mainly of loans collateralized by automobiles. The collateral securing these loans, may depreciate over time, may be difficult to recover and may fluctuate in value based on condition.


(b)	Charge‑off Policy

The Company requires a loan to be at least partially charged off as soon as it becomes apparent that some loss will be incurred, or when its collectability is sufficiently questionable that it no longer is considered a bankable asset. The primary considerations when determining if and how much of a loan should be charged off are as follows: (1) the potential for future cash flows; (2) the value of any collateral; and (3) the strength of any co-makers or guarantors.


(c)	Troubled Debt Restructurings (TDR)

All loans deemed troubled debt restructurings, or “TDR”, are considered impaired, and are evaluated for collateral sufficiency. A loan is considered a TDR when the Bank, for economic or legal reasons related to a borrower’s financial difficulties, grants a concession to the borrower that the Bank would not otherwise consider. There were no new troubled debt restructurings in the first six months of 2018.


(d)	Loans Measured Individually for Impairment

Loans that are deemed to be impaired are reserved for with the necessary allocation. All loans deemed troubled debt restructurings are considered impaired. Generally loans for 1-4 family residential and consumer are collectively evaluated for impairment.


(e)	Loans Measured Collectively for Impairment

All loans not evaluated individually for impairment are grouped together by type and further segmented by risk classification. The Company’s historical loss experiences for each portfolio segment are calculated using a 12 quarter rolling average loss rate for estimating losses adjusted for qualitative factors. The qualitative factors consider economic and business conditions, changes in nature and volume of the loan portfolio, concentrations, collateral values, level and trends in delinquencies, external factors, lending policies, experience of lending staff, and monitoring of credit quality.

The following tables set forth the composition of each class of the Company’s loans by internally assigned credit quality indicators.



	Pass		Special mention/watch		Substandard		Total
June 30, 2018:
Loans
One-to-four family residential	$	51,758,334	$	957,429	$	378,497	$	53,094,260
Non-owner occupied one-to-four family residential	2,849,866		137,785		175,812		3,163,463
Commercial real estate	2,559,340		—		275,515		2,834,855
Consumer	6,305,635		187,908		9,621		6,503,164
Total	$	63,473,175	$	1,283,122	$	839,445	$	65,595,742

	Pass		Special mention/watch		Substandard		Total
December 31, 2017:
Loans
One-to-four family residential	$	54,042,992	$	1,412,334	$	636,032	$	56,091,358
Non-owner occupied one-to-four family residential	2,782,817		17,861		316,154		3,116,832
Commercial real estate	3,304,369		36,178		274,804		3,615,351
Consumer	5,830,415		252,722		62,351		6,145,488
Total	$	65,960,593	$	1,719,095	$	1,289,341	$	68,969,029

Special Mention/Watch – Loans classified as special mention/watch are assets that do not warrant adverse classification but possess credit deficiencies or potential weakness deserving close attention.

Substandard – Substandard loans are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well‑defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

Doubtful – Loans classified doubtful have all the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions and values, highly questionable, and improbable.

The Company had no impaired loan as of June 30, 2018 and December 31, 2017. No interest income was recorded on impaired loans during 2018 or 2017.


(f)	Nonaccrual and Delinquent Loans

Loans are placed on nonaccrual status when (1) payment in full of principal and interest is no longer expected or (2) principal or interest has been in default for 90 or more (unless the loan is well secured with marketable collateral).

A nonaccrual asset may be restored to an accrual status when all past-due principal and interest has been paid and the borrower has demonstrated satisfactory payment performance (excluding renewals and modifications that involve the capitalizing of interest).

Delinquency status of a loan is determined by the number of days that have elapsed past the loan’s payment due date, using the following classification groupings: 30-59 days, 60-89 days, and 90 days or more. Loans shown in the 30‑59 day’s and 60‑89 day’s columns in the table below reflect contractual delinquency status only, and include loans considered nonperforming due to classification as a TDR or being placed on nonaccrual.

The following tables set forth the composition of the Company’s past-due loans at June 30, 2018 and December 31, 2017.



	30-59 days past due		60-89 days past due		90 days or more past due		Total past due		Current		Total loans receivable		Recorded investment > 90 days and accruing
June 30, 2018:
Loans
One-to-four family residential	$	342,544	$	249,985	$	329,062	$	921,591	$	52,172,669	$	53,094,260	$	—
Non-owner occupied one-to-four family residential	—		—		175,812		175,812		2,987,651		3,163,463		—
Commercial real estate	—		—		275,515		275,515		2,559,340		2,834,855		—
Consumer	67,185		92,483		59,055		218,723		6,284,441		6,503,164		—
Total	$	409,729	$	342,468	$	839,444	$	1,591,641	$	64,004,101	$	65,595,742	$	—

	30-59 days past due		60-89 days past due		90 days or more past due		Total past due		Current		Total loans receivable		Recorded investment > 90 days and accruing
December 31, 2017:
Loans
One-to-four family residential	$	566,234	$	542,356	$	491,792	$	1,600,382	$	54,490,976	$	56,091,358	$	341,167
Non-owner occupied one-to-four family residential	17,861		177,037		—		194,898		2,921,934		3,116,832		—
Commercial real estate	36,178		—		274,804		310,982		3,304,369		3,615,351		—
Consumer	171,789		76,558		54,568		302,915		5,842,573		6,145,488		57,267
Total	$	792,062	$	795,951	$	821,164	$	2,409,177	$	66,559,852	$	68,969,029	$	398,434

The following tables set forth the composition of the Company’s recorded investment in loans on nonaccrual status as of June 30, 2018 and December 31, 2017.



	June 30, 2018		December 31, 2017
Loans
One-to-four family residential	$	83,115	$	150,625
Commercial real estate	275,515		274,804
Total	$	358,630	$	425,429