Note 4 - Loans Held for Investment, Net

12 Months Ended

Dec. 31, 2018

Notes to Financial Statements

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

NOTE

4

– LOANS HELD FOR INVESTMENT, NET

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

	December 31, 2018						December 31, 2017
	Amount			Percent			Amount			Percent
Loans held for investment, net:
Commercial real estate	$	233,102,637			81.3	%	$	214,871,788			82.0	%
One- to four-family residential real estate		29,855,462			10.4			29,114,060			11.1
Commercial and industrial		17,508,258			6.1			12,296,308			4.7
Consumer and other		6,374,532			2.2			5,740,352			2.2
Total gross loans		286,840,889			100.0	%		262,022,508			100.0	%
Unamortized loan fees		(1,149,517	)					(1,009,722	)
Loans held for investment		285,691,372						261,012,786
Allowance for loan losses		(2,901,091	)					(3,117,190	)
Loans held for investment, net	$	282,790,281					$	257,895,596

At

December 31, 2018

and

2017

commercial real estate loans include construction loans of

$20.8

million and

$14.7

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

December 31, 2018

and

2017:

	As of December 31, 2018
	Commercial Real Estate		One- to Four-Family Residential Real Estate		Commercial and Industrial		Other		Total
Allowance for loan losses
Ending balance: individually evaluated for impairment	$	-	$	-	$	-	$	-	$	-
Ending balance: collectively evaluated for impairment		2,130,124		359,705		377,180		34,082		2,901,091
Total	$	2,130,124	$	359,705	$	377,180	$	34,082	$	2,901,091
Gross loans
Ending balance: individually evaluated for impairment	$	2,993,923	$	649,685	$	-	$	-	$	3,643,608
Ending balance: collectively evaluated for impairment		230,108,714		29,205,777		17,508,258		6,374,532		283,197,281
Total	$	233,102,637	$	29,855,462	$	17,508,258	$	6,374,532	$	286,840,889

	As of December 31, 2017
	Commercial Real Estate		One- to Four-Family Residential Real Estate		Commercial and Industrial		Other		Total
Allowance for loan losses
Ending balance: individually evaluated for impairment	$	-	$	-	$	-	$	-	$	-
Ending balance: collectively evaluated for impairment		2,055,911		567,290		462,406		31,583		3,117,190
Total	$	2,055,911	$	567,290	$	462,406	$	31,583	$	3,117,190
Gross loans
Ending balance: individually evaluated for impairment	$	3,483,078	$	679,184	$	1,274,710	$	-	$	5,436,972
Ending balance: collectively evaluated for impairment		211,388,710		28,434,876		11,021,598		5,740,352		256,585,536
Total	$	214,871,788	$	29,114,060	$	12,296,308	$	5,740,352	$	262,022,508

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

December 31, 2018

and

2017:

	Commercial Real Estate			One- to Four- Family Residential Real Estate			Commercial and Industrial			Consumer and Other			Total
Balance December 31, 2016	$	1,688,448		$	617,912		$	147,371		$	52,302		$	2,506,033
Provision for loan losses		366,263			(54,777	)		284,233			(20,719	)		575,000
Charge-offs		-			(20,845	)		-			-			(20,845	)
Recoveries		1,200			25,000			30,802			-			57,002
Net recoveries		1,200			4,155			30,802			-			36,157
Balance December 31, 2017	$	2,055,911		$	567,290		$	462,406		$	31,583		$	3,117,190
Provision for loan losses		624,213			(183,988	)		(124,724	)		2,499			318,000
Charge-offs		(550,000	)		(36,096	)		(10,322	)		-			(596,418	)
Recoveries		-			12,499			49,820			-			62,319
Net (charge-offs) recoveries		(550,000	)		(23,597	)		39,498			-			(534,099	)
Balance December 31, 2018	$	2,130,124		$	359,705		$	377,180		$	34,082		$	2,901,091

 

Nonperforming Assets –

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

December 31, 2018

and

2017.

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
December 31, 2018
Commercial real estate	$	-	$	2,744,405	$	-	$	2,744,405	$	230,358,232	$	233,102,637
One- to four-family residential real estate		782,835		234,524		393,068		1,410,427		28,445,035		29,855,462
Commercial and industrial		-		-		-		-		17,508,258		17,508,258
Consumer and other		-		-		-		-		6,374,532		6,374,532
Totals	$	782,835	$	2,978,929	$	393,068	$	4,154,832	$	282,686,057	$	286,840,889

	Past Due										Total
					90 Days						Financing
	30 - 59 Days		60 - 89 Days		or More		Total		Current		Receivables
December 31, 2017
Commercial real estate	$	246,154	$	-	$	550,000	$	796,154	$	214,075,634	$	214,871,788
One- to four-family residential real estate		235,561		116,977		525,532		878,070		28,235,990		29,114,060
Commercial and industrial		-		-		1,274,710		1,274,710		11,021,598		12,296,308
Consumer and other		-		-		-		-		5,740,352		5,740,352
Totals	$	481,715	$	116,977	$	2,350,242	$	2,948,934	$	259,073,574	$	262,022,508

The following table sets forth nonaccrual loans and other real estate at

December 31, 2018

and

2017:

	December 31,			December 31,
	2018			2017
Nonaccrual loans
Commercial real estate	$	2,993,923		$	3,483,078
One- to four-family residential real estate		649,685			679,184
Commercial and industrial		-			1,274,710
Consumer and other		-			-
Total nonaccrual loans		3,643,608			5,436,972
Other real estate (ORE)		-			-
Total nonperforming assets	$	3,643,608		$	5,436,972
Nonperforming assets to gross loans held for investment and ORE		1.27	%		2.08	%
Nonperforming assets to total assets		0.95	%		1.62	%

One large loan relationship secured by real estate comprises

$2.7

million, or

75.3%,

of the

$3.6

million in nonaccrual loans at

December 31, 2018,

and

$2.3

 million, or

63%,

of the total

December 31, 2018

nonaccrual loan balance, is guaranteed by the SBA.

Credit Quality Indicators –

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

December 31, 2018

and

2017.

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 December 31, 2018
	Commercial Real Estate		One- to Four- Family Residential Real Estate		Commercial and Industrial		Consumer and Other		Total
Grade
Pass	$	226,510,803	$	27,990,417	$	17,237,690	$	6,374,532	$	278,113,442
Special mention		1,981,667		268,892		-		-		2,250,559
Substandard		4,610,167		1,596,153		270,568		-		6,476,888
Doubtful		-		-		-		-		-
Loss		-		-		-		-		-
Totals	$	233,102,637	$	29,855,462	$	17,508,258	$	6,374,532	$	286,840,889

	As of December 31, 2017
	Commercial Real Estate		One- to Four- Family Residential Real Estate		Commercial and Industrial		Consumer and Other		Total
Grade
Pass	$	208,395,458	$	27,400,698	$	10,624,210	$	5,568,633	$	251,988,999
Special mention		911,571		43,382		-		-		954,953
Substandard		5,014,759		1,669,980		1,672,098		171,719		8,528,556
Doubtful		550,000		-		-		-		550,000
Loss		-		-		-		-		-
Totals	$	214,871,788	$	29,114,060	$	12,296,308	$	5,740,352	$	262,022,508

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 tables include 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 December 31, 2018
			Principal				Average
	Recorded		Net of		Related		Recorded
	Investment		Charge-offs		Allowance		Investment
With no related allowance recorded:
Commercial real estate	$	2,993,923	$	2,993,923	$	-	$	3,007,495
One- to four-family residential real estate		649,685		649,685		-		656,436
Commercial and industrial		-		-		-		-
Consumer and other		-		-		-		-
	$	3,643,608	$	3,643,608	$	-	$	3,663,931
With an allowance recorded:	$	-	$	-	$	-	$	-
Total:
Commercial real estate	$	2,993,923	$	2,993,923	$	-	$	3,007,495
One- to four-family residential real estate		649,685		649,685		-		656,436
Commercial and industrial		-		-		-		-
Consumer and other		-		-		-		-
	$	3,643,608	$	3,643,608	$	-	$	3,663,931

	As of December 31, 2017
			Principal				Average
	Recorded		Net of		Related		Recorded
	Investment		Charge-offs		Allowance		Investment
With no related allowance recorded:
Commercial real estate	$	3,483,078	$	3,483,078	$	-	$	3,521,421
One- to four-family residential real estate		679,184		679,184		-		684,632
Commercial and industrial		1,274,710		1,274,710		-		1,297,740
Consumer and other		-		-		-		-
	$	5,436,972	$	5,436,972	$	-	$	5,503,793
With an allowance recorded:	$	-	$	-	$	-	$	-
Total:
Commercial real estate	$	3,483,078	$	3,483,078	$	-	$	3,521,421
One- to four-family residential real estate		679,184		679,184		-		684,632
Commercial and industrial		1,274,710		1,274,710		-		1,297,740
Consumer and other		-		-		-		-
	$	5,436,972	$	5,436,972	$	-	$	5,503,793

During the years ended

December 31, 2018

and

2017,

no

interest income was recognized on these loans while in nonaccrual status as interest collected was credited to loan principal. We recognized

$4,000

of income in

2018

and

$8,000

in

2017

prior to the loans being placed on non-accrual.

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

December 31, 2018

and

2017.

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

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.

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.

There was

one

troubled debt restructuring with a principal balance of

$54,000

at

December 31, 2018

and

no

troubled debt restructurings at

December 31, 2017.