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Note 4 - Loans
 3 Months Ended
Mar. 31, 2019
Notes to Financial Statements  
Loans, Notes, Trade and Other Receivables Disclosure [Text Block]
4.
Loans
 
Major categories of loans are as follows:
 
   
March 31,
    
December 31,
  
   
2019
    
2018
  
                 
Real estate:
                
Commercial
  
$
236,794,302
    $
238,834,149
  
Construction and land development
  
 
15,914,131
     
18,265,505
  
Residential
  
 
63,019,749
     
63,024,106
  
Commercial
  
 
22,095,306
     
23,323,073
  
Consumer
  
 
367,293
     
494,009
  
   
 
338,190,781
     
343,940,842
  
Less: Allowance for loan losses
  
 
2,529,209
     
2,509,334
  
Deferred origination fees net of costs
  
 
519,193
     
530,873
  
   
$
335,142,379
    $
340,900,635
  
 
Non-accrual loans, segregated by class of loans, were as follows:
 
   
March 31,
    
December 31,
  
   
2019
    
2018
  
                 
Commercial real estate
  
$
988,811
    $
988,811
  
 
At
March 31, 2019,
the Company had
two
nonaccrual commercial real estate loans to the same borrower totaling
$988,811
. The loans were secured by real estate and business assets and were personally guaranteed. Gross interest income of
$31,733
would have been recorded during the
three
months ended
March 31, 2019
if these nonaccrual loans had been current and performing in accordance with the original terms. The Company allocated
$0
of its allowance for loan losses to these nonaccrual loans. The balance of the nonaccrual loans was net of charge-offs of
$690,000
at
March 31, 2019.
 
At
December 31, 2018,
the Company had
two
nonaccrual commercial real estate loans to the same borrower totaling
$988,811.
The loans were secured by real estate and business assets and were personally guaranteed. Gross interest income of
$115,168
would have been recorded during the year ended
December 31, 2018
if these nonaccrual loans had been current and performing in accordance with the original terms. The Company allocated
$0
of its allowance for loan losses to these nonaccrual loans. The balance of the nonaccrual loans was net of charge-offs of
$690,000
at
December 31, 2018.
 
 
An age analysis of past due loans, segregated by type of loan, is as follows:
 
                   
90 Days
                            
Past Due 90
  
   
30 - 59 Days
    
60 - 89 Days
    
or More
    
Total
      
 
    
Total
    
Days or More
  
   
Past Due
    
Past Due
    
Past Due
    
Past Due
    
Current
    
Loans
    
and Accruing
  
March 31, 2019
                                                        
Real estate:
                                                        
Commercial
  
$
-
   
$
-
   
$
988,811
   
$
988,811
   
$
235,805,491
   
$
236,794,302
   
$
-
 
Construction and land development
  
 
-
   
 
-
   
 
-
   
 
-
   
 
15,914,131
   
 
15,914,131
   
 
-
 
Residential
  
 
274,110
   
 
-
   
 
-
   
 
274,110
   
 
62,745,639
   
 
63,019,749
   
 
-
 
Commercial
  
 
-
   
 
-
   
 
-
   
 
-
   
 
22,095,306
   
 
22,095,306
   
 
-
 
Consumer
  
 
-
   
 
-
   
 
-
   
 
-
   
 
367,293
   
 
367,293
   
 
-
 
Total
  
$
274,110
   
$
-
   
$
988,811
   
$
1,262,921
   
$
336,927,860
   
$
338,190,781
   
$
-
 
                                                         
December 31, 2018
                                                        
Real estate:
                                                        
Commercial
   $
-
     $
-
     $
988,811
     $
988,811
     $
237,845,338
     $
238,834,149
     $
-
  
Construction and land development
    
-
      
-
      
-
      
-
      
18,265,505
      
18,265,505
      
-
  
Residential
    
-
      
-
      
10,507
      
10,507
      
63,013,599
      
63,024,106
      
10,507
  
Commercial
    
-
      
25,000
      
-
      
25,000
      
23,298,073
      
23,323,073
      
-
  
Consumer
    
-
      
-
      
-
      
-
      
494,009
      
494,009
      
-
  
Total
   $
-
     $
25,000
     $
999,318
     $
1,024,318
     $
342,916,524
     $
343,940,842
     $
10,507
  
 
Impaired loans, segregated by class of loans with average recorded investment and interest recognized for the
three
months ended
March 31, 2019
and the year ended
December 31, 2018,
are set forth in the following table:
 
    Unpaid     Recorded     Recorded                              
   
Contractual
    
Investment
    
Investment
    
Total
            
Average
          
   
Principal
    
With No
    
With
    
Recorded
    
Related
    
Recorded
    
Interest
  
   
Balance
    
Allowance
    
Allowance
    
Investment
    
Allowance
    
Investment
    
Recognized
  
March 31, 2019
                                                        
Real estate:
                                                        
Commercial real estate
  
$
3,800,855
   
$
3,110,855
   
$
-
   
$
3,110,855
   
$
-
   
$
3,144,118
   
$
26,589
 
Residential real estate
  
 
52,938
   
 
52,938
   
 
-
   
 
52,938
   
 
-
   
 
26,469
   
 
724
 
   
$
3,853,793
   
$
3,163,793
   
$
-
   
$
3,163,793
   
$
-
   
$
3,170,587
   
$
27,313
 
                                                         
December 31, 2018
                                                        
Commercial real estate
   $
3,867,381
     $
3,177,381
     $
-
     $
3,177,381
     $
-
     $
4,180,282
     $
120,193
  
 
Impaired loans also include certain loans that have been modified in troubled debt restructurings (“TDRs”) where economic concessions have been granted to borrowers who have experienced or are expected to experience financial difficulties. These concessions typically result from the Company’s loss mitigation activities and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance, or other actions. Certain TDRs are classified as nonperforming at the time of restructure and
may
only be returned to performing status after considering the borrower’s sustained repayment performance for a reasonable period, generally
six
months.
 
At
March 31, 2019,
the Company had
one
commercial real estate loan totaling
$2,122,044
and
one
residential real estate loan totaling
$52,938
that were classified as TDRs. All are included in impaired loans above. Each loan is paying as agreed. There have been
no
charge-offs or allowances associated with these
two
loans.
 
At
December 31, 2018,
the Company had
one
commercial real estate loan totaling
$2,134,570
and
one
residential real estate loan totaling
$54,000
that were classified as TDRs. The
$54,000
loan was restructured as a TDR during
2018.
All are included in impaired loans above. Each loan is paying as agreed. There have been
no
charge-offs or allowances associated with these
two
loans.
 
As part of our portfolio risk management, the Company assigns a risk grade to each loan. The factors used to determine the grade are the payment history of the loan and the borrower, the value of the collateral and net worth of the guarantor, and cash flow projections of the borrower. Excellent, Above Average, Average and Acceptable grades are assigned to loans with limited or
no
delinquent payments and more than sufficient collateral and/or cash flow.
 
A description of the general characteristics of loans characterized as watch list or classified is as follows:
 
Pass/Watch
Loans graded as Pass/Watch are secured by generally acceptable assets which reflect above-average risk. The loans warrant closer scrutiny by management than is routine, due to circumstances affecting the borrower, the borrower’s industry, or the overall economic environment. Borrowers
may
reflect weaknesses such as inconsistent or weak earnings, break even or moderately deficit cash flow, thin liquidity, minimal capacity to increase leverage, or volatile market fundamentals or other industry risks. Such loans are typically secured by acceptable collateral, at or near appropriate margins, with realizable liquidation values.
 
Special Mention
A special mention loan has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses
may
result in deterioration of the repayment prospects for the asset or in the Company’s credit position at some future date. Special mention loans are
not
adversely classified and do
not
expose the Company to sufficient risk to warrant adverse classification.
 
Borrowers
may
exhibit poor liquidity and leverage positions resulting from generally negative cash flow or negative trends in earnings. Access to alternative financing
may
be limited to finance companies for business borrowers and
may
be unavailable for commercial real estate borrowers.
 
Substandard
A substandard loan is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Substandard loans 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.
 
Borrowers
may
exhibit recent or unexpected unprofitable operations, an inadequate debt service coverage ratio, or marginal liquidity and capitalization. These loans require more intense supervision by Company management.
 
Doubtful
A doubtful loan has all the weaknesses inherent as a substandard loan with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.
 
Loans by credit grade, segregated by loan type, are as follows:
 
           
Above
                    
Pass
    
Special
                          
March 31, 2019
  
Excellent
    
average
    
Average
    
Acceptable
    
watch
    
mention
    
Substandard
    
Doubtful
    
Total
  
                                                                         
Real estate:
                                                                        
Commercial
  
$
-
   
$
3,491,312
   
$
97,290,160
   
$
104,534,189
   
$
22,775,714
   
$
-
   
$
8,702,927
   
$
-
   
$
236,794,302
 
Construction and land development
  
 
-
   
 
-
   
 
5,865,774
   
 
7,733,236
   
 
2,315,121
   
 
-
   
 
-
   
 
-
   
 
15,914,131
 
Residential
  
 
20,490
   
 
1,416,824
   
 
24,815,266
   
 
28,517,090
   
 
5,653,182
   
 
-
   
 
2,596,897
   
 
-
   
 
63,019,749
 
Commercial
  
 
912,227
   
 
22,200
   
 
9,998,931
   
 
8,135,261
   
 
3,026,687
   
 
-
   
 
-
   
 
-
   
 
22,095,306
 
Consumer
  
 
12,944
   
 
108,534
   
 
159,671
   
 
60,543
   
 
-
   
 
-
   
 
5,188
   
 
20,413
   
 
367,293
 
   
$
945,661
   
$
5,038,870
   
$
138,129,802
   
$
148,980,319
   
$
33,770,704
   
$
-
   
$
11,305,012
   
$
20,413
   
$
338,190,781
 
 
           
Above
                    
Pass
    
Special
                          
December 31, 2018
  
Excellent
    
average
    
Average
    
Acceptable
    
watch
    
mention
    
Substandard
    
Doubtful
    
Total
  
                                                                         
Real estate:
                                                                        
Commercial
   $
-
     $
3,632,231
     $
101,633,803
     $
104,454,812
     $
20,356,642
     $
-
     $
8,756,661
     $
-
     $
238,834,149
  
Construction and land development
    
-
      
-
      
8,190,212
      
7,871,642
      
2,203,651
      
-
      
-
      
-
      
18,265,505
  
Residential
    
35,926
      
1,178,899
      
26,856,131
      
30,169,305
      
2,093,825
      
-
      
2,690,020
      
-
      
63,024,106
  
Commercial
    
977,054
      
24,180
      
12,373,503
      
7,130,122
      
2,818,214
      
-
      
-
      
-
      
23,323,073
  
Consumer
    
3,668
      
80,670
      
266,704
      
63,160
      
-
      
-
      
1,340
      
78,467
      
494,009
  
    $
1,016,648
     $
4,915,980
     $
149,320,353
     $
149,689,041
     $
27,472,332
     $
-
     $
11,448,021
     $
78,467
     $
343,940,842
  
 
The Company’s allowance for loan losses is based on management’s evaluation of the risks inherent in the Company’s loan portfolio and the general economy. The allowance for loan
losses is maintained at the amount management considers adequate to cover estimated losses in loans receivable that are deemed probable based on information currently known to management. The allowance is based upon a number of factors, including current economic conditions, actual loss experience by pools of similar loans, diversification and size of the portfolio, adequacy of the collateral, the amount of non-performing loans and industry trends. In addition, various regulatory agencies, as an integral part of their examination processes, periodically review the Company’s allowance for loan losses. Such agencies
may
require the Company to make additional provisions for estimated loan losses based upon judgments different from those of management.
 
The following table details activity in the allowance for loan losses by portfolio for the
three
months ended
March 31, 2019
and
2018,
and the year ended
December 31, 2018.
Allocation of a portion of the allowance to
one
category of loans does
not
preclude its availability to absorb losses in other categories.
 
                                           
Allowance for loan losses
    
Outstanding loan
  
     
 
    
Provision
      
 
      
 
      
 
    
ending balance evaluated
    
balances evaluated
  
   
Beginning
    
for loan
    
Charge
      
 
    
Ending
    
for impairment:
    
for impairment:
  
March 31, 2019
  
balance
    
losses
    
offs
    
Recoveries
    
balance
    
Individually
    
Collectively
    
Individually
    
Collectively
  
                                                                         
Real estate:
                                                                        
Commercial
  
$
1,754,372
   
$
3,524
   
$
-
   
$
1,000
   
$
1,758,896
   
$
-
   
$
1,758,896
   
$
3,163,793
   
$
233,630,509
 
Construction and land development
  
 
196,374
   
 
(29,317
)
  
 
-
   
 
3,375
   
 
170,432
   
 
-
   
 
170,432
   
 
-
   
 
15,914,131
 
Residential
  
 
401,626
   
 
32,059
   
 
-
   
 
-
   
 
433,685
   
 
-
   
 
433,685
   
 
-
   
 
63,019,749
 
Commercial
  
 
102,610
   
 
(3,482
)
  
 
-
   
 
2,500
   
 
101,628
   
 
-
   
 
101,628
   
 
-
   
 
22,095,306
 
Consumer
  
 
10,428
   
 
(5,569
)
  
 
-
   
 
-
   
 
4,859
   
 
-
   
 
4,859
   
 
-
   
 
367,293
 
Unallocated
  
 
43,924
   
 
15,785
   
 
-
   
 
-
   
 
59,709
   
 
-
   
 
59,709
   
 
-
   
 
-
 
   
$
2,509,334
   
$
13,000
   
$
-
   
$
6,875
   
$
2,529,209
   
$
-
   
$
2,529,209
   
$
3,163,793
   
$
335,026,988
 
 
                                           
Allowance for loan losses
    
Outstanding loan
  
     
 
    
Provision
      
 
      
 
      
 
    
ending balance evaluated
    
balances evaluated
  
   
Beginning
    
for loan
    
Charge
      
 
    
Ending
    
for impairment:
    
for impairment:
  
March 31, 2018
  
balance
    
losses
    
offs
    
Recoveries
    
balance
    
Individually
    
Collectively
    
Individually
    
Collectively
  
                                                                         
Real estate:
                                                                        
Commercial
   $
1,867,397
     $
62,323
     $
-
     $
2,000
     $
1,931,720
     $
28,577
     $
1,903,143
     $
4,396,741
     $
232,971,398
  
Construction and land development
    
223,274
      
16,225
      
(10,622
 )    
-
      
228,877
      
-
      
228,877
      
-
      
19,247,095
  
Residential
    
247,953
      
(722
 )    
-
      
-
      
247,231
      
-
      
247,231
      
-
      
59,083,653
  
Commercial
    
87,353
      
(2,648
 )    
-
      
1,666
      
86,371
      
-
      
86,371
      
-
      
23,996,157
  
Consumer
    
7,027
      
729
      
-
      
-
      
7,756
      
-
      
7,756
      
-
      
520,768
  
Unallocated
    
25,907
      
(25,907
 )    
-
      
-
      
-
      
-
      
-
      
-
      
-
  
    $
2,458,911
     $
50,000
     $
(10,622
 )   $
3,666
     $
2,501,955
     $
28,577
     $
2,473,378
     $
4,396,741
     $
335,819,071
  
 
                                           
Allowance for loan losses
    
Outstanding loan
  
     
 
    
Provision
      
 
      
 
      
 
    
ending balance evaluated
    
balances evaluated
  
   
Beginning
    
for loan
    
Charge
      
 
    
Ending
    
for impairment:
    
for impairment:
  
December 31, 2018
  
balance
    
losses
    
offs
    
Recoveries
    
balance
    
Individually
    
Collectively
    
Individually
    
Collectively
  
                                                                         
Real estate:
                                                                        
Commercial
   $
1,867,397
     $
372,315
     $
(690,000
 )   $
204,660
     $
1,754,372
     $
-
     $
1,754,372
     $
3,177,381
     $
235,656,768
  
Construction and land development
    
223,274
      
(78,496
 )    
(12,115
 )    
63,711
      
196,374
      
-
      
196,374
      
-
      
18,265,505
  
Residential
    
247,953
      
153,673
      
-
      
-
      
401,626
      
-
      
401,626
      
-
      
63,024,106
  
Commercial
    
87,353
      
6,090
      
-
      
9,167
      
102,610
      
-
      
102,610
      
-
      
23,323,073
  
Consumer
    
7,027
      
3,401
      
-
      
-
      
10,428
      
-
      
10,428
      
-
      
494,009
  
Unallocated
    
25,907
      
18,017
      
-
      
-
      
43,924
      
-
      
43,924
      
-
      
-
  
    $
2,458,911
     $
475,000
     $
(702,115
 )   $
277,538
     $
2,509,334
     $
-
     $
2,509,334
     $
3,177,381
     $
340,763,461