Note 3 - Loans Held for Investment, Net

9 Months Ended

Sep. 30, 2017

Notes to Financial Statements

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

NOTE

3

– LOANS HELD FOR INVESTMENT, NET

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

	September 30, 2017						December 31, 2016
	Amount			Percent			Amount			Percent
Loans held for investment, net:
Commercial real estate	$	220,427,379			81.6	%	$	195,814,205			80.0	%
One- to four-family residential real estate		30,135,267			11.2	%		29,976,625			12.2	%
Commercial and industrial		14,593,471			5.4	%		9,876,020			4.0	%
Consumer and other		5,105,251			1.8	%		9,191,249			3.8	%
Total gross loans		270,261,368			100.0	%		244,858,099			100.0	%
Unamortized loan fees		(1,137,223	)					(952,717	)
Loans held for investment		269,124,145						243,905,382
Allowance for loan losses		(3,067,133	)					(2,506,033	)
Loans held for investment, net	$	266,057,012					$	241,399,349

At

September 30, 2017

and

December 31, 2016

commercial real estate loans include construction loans of

$14.0

million and

$7.9

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

September 30, 2017

and

December 31, 2016:

	As of September 30, 2017
	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		1,924,782		555,277		559,926		27,148		3,067,133
Total	$	1,924,782	$	555,277	$	559,926	$	27,148	$	3,06,7133
Gross loans
Ending balance: individually evaluated for impairment	$	6,648,908	$	1,658,571	$	2,047,212	$	177,458	$	10,532,149
Ending balance: collectively evaluated for impairment		213,778,471		28,476,696		12,546,259		4,927,793		259,729,219
Ending balance: loans acquired with deteriorated credit quality		-		-		-		-		-
Total	$	220,427,379	$	30,135,267	$	14,593,471	$	5,105,251	$	270,261,368

	As of December 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		1,688,448		617,912		147,371		52,302		2,506,033
Total	$	1,688,448	$	617,912	$	147,371	$	52,302	$	2,506,033
Gross loans
Ending balance: individually evaluated for impairment	$	3,441,874	$	1,744,062	$	801,078	$	194,068	$	6,181,082
Ending balance: collectively evaluated for impairment		192,372,331		28,232,563		9,074,942		8,997,181		238,677,017
Ending balance: loans acquired with deteriorated credit quality		-		-		-		-		-
Total	$	195,814,205	$	29,976,625	$	9,876,020	$	9,191,249	$	244,858,099

The following is a summary of activities for the allowance for loan losses for the

three

and

nine

months ended

September 30, 2017

and

2016:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Beginning balance	$	2,919,733		$	2,152,565		$	2,506,033		$	1,894,196
Provision for loan losses		150,000			155,000			550,000			306,000
Charge-offs:
Commercial real estate		-			-			-			-
One- to four-family residential real estate		(8,850	)		(107,385	)		(8,850	)		(118,141	)
Commercial and industrial		-			-			-			-
Consumer and other		-			-			-			-
Total charge-offs		(8,850	)		(107,385	)		(8,850	)		(118,141	)
Recoveries:
Commercial real estate		-			-			1,200			116,125
One- to four-family residential real estate		6,250			-			18,750			2,000
Commercial and industrial		-			-			-			-
Consumer and other		-			-			-			-
Total recoveries		6,250			-			19,950			118,125
Net (charge-offs) recoveries		(2,600	)		(107,385	)		11,100			(16	)
Ending balance	$	3,067,133		$	2,200,180		$	3,067,133		$	2,200,180

Nonperforming Assets

–

The following tables present an aging analysis of the recorded investment of past due loans as of

September 30, 2017

and

December 31, 2016.

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
September 30, 2017
Commercial real estate	$	-	$	3,026,297	$	550,000		$	3,576,297	$	216,851,082	$	220,427,379
One- to four-family residential real estate		-		236,374		405,916			642,290		29,492,977		30,135,267
Commercial and industrial		-		-		1,568,908			1,568,908		13,024,563		14,593,471
Consumer and other		-		-			-		-		5,105,251		5,105,251
Totals	$	-	$	3,262,671	$	2,524,824		$	5,787,495	$	264,473,873	$	270,261,368

	Past Due										Total
					90 Days						Financing
	30 - 59 Days		60 - 89 Days		or More		Total		Current		Receivables
December 31, 2016
Commercial real estate	$	550,000	$	-	$	-	$	550,000	$	195,264,205	$	195,814,205
One- to four-family residential real estate		108,080		501,316		68,906		678,302		29,298,323		29,976,625
Commercial and industrial		1,139,634		-		461,021		1,600,655		8,275,365		9,876,020
Consumer and other		-		-		-		-		9,191,249		9,191,249
Totals	$	1,797,714	$	501,316	$	529,927	$	2,828,957	$	242,029,142	$	244,858,099

At

December 31, 2016

there were

two

large commercial real estate loans in nonaccrual status due to deteriorating financial positions and cash flows that were

not

past due.  They became past due in

2017

and remain past due as of 

September 30, 2017.

The following table sets forth non

performing assets at

September 30, 2017

and

December 31, 2016:

	September 30,			December 31,
	2017			2016
Nonaccrual loans
Commercial real estate	$	3,576,297		$	3,718,686
One- to four-family residential real estate		657,421			648,880
Commercial and industrial		1,568,908			1,600,655
Consumer and other		-			-
Total nonaccrual loans		5,802,626			5,968,221
Other real estate (ORE)		-			-
Total nonperforming assets	$	5,802,626		$	5,968,221
Nonperforming assets to gross loans held for investment and ORE		2.15	%		2.44	%
Nonperforming assets to total assets		1.60	%		1.81	%

Credit Quality Indicators

–

The following table represents the credit exposure by internally assigned grades at

September 30, 2017

and

December 31, 2016.

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 September 30, 2017
	Commercial Real Estate		One- to Four- Family Residential Real Estate		Commercial and Industrial		Consumer and Other		Total
Grade
Pass	$	213,778,471	$	28,476,696	$	12,546,259	$	4,927,793	$	259,729,219
Special mention		914,163		-		-		-		914,163
Substandard		5,184,745		1,642,573		1,753,014		177,458		8,757,790
Doubtful		550,000		15,998		294,198		-		860,196
Loss		-		-		-		-		-
Totals	$	220,427,379	$	30,135,267	$	14,593,471	$	5,105,251	$	270,261,368

	As of December 31, 2016
	Commercial Real Estate		One- to Four- Family Residential Real Estate		Commercial and Industrial		Consumer and Other		Total
Grade
Pass	$	187,069,284	$	28,232,563	$	7,697,960	$	8,997,181	$	231,996,988
Special mention		523,207		65,457		267,327		-		855,991
Substandard		8,221,714		1,678,605		1,614,733		194,068		11,709,120
Doubtful		-		-		296,000		-		296,000
Loss		-		-		-		-		-
Totals	$	195,814,205	$	29,976,625	$	9,876,020	$	9,191,249	$	244,858,099

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 September 30, 2017
			Principal				Average
	Recorded		Net of		Related		Recorded
	Investment		Charge-offs		Allowance		Investment
With no related allowance recorded:
Commercial real estate	$	3,576,297	$	3,576,297	$	-	$	3,627,001
One- to four-family residential real estate		657,421		657,421		-		665,003
Commercial and industrial		1,568,908		1,568,908		-		1,591,938
Consumer and other		-		-		-		-
With an allowance recorded:	$	-	$	-	$	-	$	-
Total:
Commercial real estate	$	3,576,297	$	3,576,297	$	-	$	3,627,001
One- to four-family residential real estate		657,421		657,421		-		665,003
Commercial and industrial		1,568,908		1,568,908		-		1,591,938
Consumer and other		-		-		-		-

	As of December 31, 2016
			Principal				Average
	Recorded		Net of		Related		Recorded
	Investment		Charge-offs		Allowance		Investment
With no related allowance recorded:
Commercial real estate	$	3,718,686	$	3,718,686	$	-	$	1,385,277
One- to four-family residential real estate		648,880		648,880		-		656,495
Commercial and industrial		1,600,655		1,600,655		-		1,075,536
Consumer and other		-		-		-		-
With an allowance recorded:	$	-	$	-	$	-	$	-
Total:
Commercial real estate	$	3,718,686	$	3,718,686	$	-	$	1,385,277
One- to four-family residential real estate		648,880		648,880		-		656,495
Commercial and industrial		1,600,655		1,600,655		-		1,075,536
Consumer and other		-		-		-		-

During

the

nine

months ended

September 30, 2017

interest income in the amount of

$2,700

was recognized on nonaccrual loans, and during the

nine

months ended

September 30, 2016,

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

September 30, 2017

and

December 31, 2016.

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

September 30, 2017

or

December 31, 2016.

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.