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Loans and Allowance for Loan Losses
 12 Months Ended
Dec. 31, 2019
Receivables [Abstract]  
Loans and Allowance for Loan Losses

(5) Loans and Allowance for Loan Losses

 

Loans consisted of the following:

 

    As of December 31,  
(Dollars in thousands)   2019     2018  
             
One-to-four family residential real estate loans   $ 146,505     $ 136,895  
Construction and land loans     22,459       20,083  
Commercial real estate loans     133,501       138,967  
Commercial loans     109,612       74,289  
Agriculture loans     98,558       96,632  
Municipal loans     2,656       2,953  
Consumer loans     25,101       25,428  
Total gross loans     538,392       495,247  
Net deferred loan costs and loans in process     255       (109 )
Allowance for loan losses     (6,467 )     (5,765 )
Loans, net   $ 532,180     $ 489,373  

 

The following tables provide information on the Company’s allowance for loan losses by loan class and allowance methodology:

 

(Dollars in thousands)                                                
    Year ended December 31, 2019  
    One-to-four family residential real estate loans     Construction and land loans     Commercial real estate loans     Commercial loans     Agriculture loans     Municipal loans     Consumer loans     Total  
                                                 
Allowance for loan losses:                                                                
Balance at January 1, 2019   $ 449     $ 168     $ 1,686     $ 1,051     $ 2,238     $ 7     $ 166     $ 5,765  
Charge-offs     (56 )     (31 )     -       (453 )     -       -       (285 )     (825 )
Recoveries     1       -       -       53       -       6       67       127  
Provision for loan losses     107       134       (300 )     1,164       109       (6 )     192       1,400  
Balance at December 31, 2019   $ 501     $ 271     $ 1,386     $ 1,815     $ 2,347     $ 7     $ 140     $ 6,467  
                                                                 
Allowance for loan losses:                                                                
Individually evaluated for loss   $ 129     $ 191     $ 103     $ 204     $ 106     $ -     $ -     $ 733  
Collectively evaluated for loss     372       80       1,283       1,611       2,241       7       140       5,734  
Total   $ 501     $ 271     $ 1,386     $ 1,815     $ 2,347     $ 7     $ 140     $ 6,467  
                                                                 
Loan balances:                                                                
Individually evaluated for loss   $ 1,256     $ 1,479     $ 3,461     $ 1,298     $ 1,124     $ 58     $ 4     $ 8,680  
Collectively evaluated for loss     145,249       20,980       130,040       108,314       97,434       2,598       25,097       529,712  
Total   $ 146,505     $ 22,459     $ 133,501     $ 109,612     $ 98,558     $ 2,656     $ 25,101     $ 538,392  

 

(Dollars in thousands)                                                
    Year ended December 31, 2018  
    One-to-four family residential real estate     Construction and land     Commercial real estate     Commercial loans     Agriculture loans     Municipal loans     Consumer loans     Total  
                                                 
Allowance for loan losses:                                                                
Balance at January 1, 2018   $ 542     $ 181     $ 1,540     $ 1,226     $ 1,812     $ 8     $ 150     $ 5,459  
Charge-offs     (32 )     -       -       (950 )     -       -       (178 )     (1,160 )
Recoveries     4       -       1       22       1       2       36       66  
Provision for loan losses     (65 )     (13 )     145       753       425       (3 )     158       1,400  
Balance at December 31, 2018   $ 449     $ 168     $ 1,686     $ 1,051     $ 2,238     $ 7     $ 166     $ 5,765  
                                                                 
Allowance for loan losses:                                                                
Individually evaluated for loss   $ 100     $ 103     $ 67     $ 27     $ 13     $ -     $ -     $ 310  
Collectively evaluated for loss     349       65       1,619       1,024       2,225       7       166       5,455  
Total   $ 449     $ 168     $ 1,686     $ 1,051     $ 2,238     $ 7     $ 166       5,765  
                                                                 
Loan balances:                                                                
Individually evaluated for loss   $ 623     $ 1,808     $ 3,912     $ 1,528     $ 717     $ 58     $ 45     $ 8,691  
Collectively evaluated for loss     136,272       18,275       135,055       72,761       95,915       2,895       25,383       486,556  
Total   $ 136,895     $ 20,083     $ 138,967     $ 74,289     $ 96,632     $ 2,953     $ 25,428     $ 495,247  

 

    Year ended December 31, 2017  
    One-to-four family residential real estate loans     Construction and land loans     Commercial real estate loans     Commercial loans     Agriculture loans     Municipal loans     Consumer loans     Total  
                                                 
Allowance for loan losses:                                                                
Balance at January 1, 2017   $ 504     $ 53     $ 1,777     $ 1,119     $ 1,684     $ 12     $ 195     $ 5,344  
Charge-offs     (37 )     -       (71 )     -       (45 )     -       (335 )     (488 )
Recoveries     11       -       -       20       1       37       84       153  
Provision for loan losses     64       128       (166 )     87       172       (41 )     206       450  
Balance at December 31, 2017   $ 542     $ 181     $ 1,540     $ 1,226     $ 1,812     $ 8     $ 150     $ 5,459  
                                                                 
Allowance for loan losses:                                                                
Individually evaluated for loss   $ 73     $ 102     $ 52     $ 391     $ 24     $ -     $ -     $ 642  
Collectively evaluated for loss     469       79       1,488       835       1,788       8       150       4,817  
Total   $ 542     $ 181     $ 1,540     $ 1,226     $ 1,812     $ 8     $ 150     $ 5,459  
                                                                 
Loan balances:                                                                
Individually evaluated for loss   $ 747     $ 2,031     $ 3,973     $ 2,002     $ 833     $ 140     $ 34     $ 9,760  
Collectively evaluated for loss     135,468       17,325       116,651       52,589       82,175       3,256       22,012       429,476  
Total   $ 136,215     $ 19,356     $ 120,624     $ 54,591     $ 83,008     $ 3,396     $ 22,046     $ 439,236  

  

The Company’s impaired loans were $8.7 million at December 31, 2019 and December 31, 2018. The difference between the unpaid contractual principal and the impaired loan balance is a result of charge-offs recorded against impaired loans. The difference in the Company’s non-accrual loan balances and impaired loan balances at December 31, 2019 and December 31, 2018 was related to TDRs that are current and accruing interest, but still classified as impaired. Interest income recognized on a cash basis for impaired loans was immaterial during the years 2019, 2018 and 2017. The following tables present information on impaired loans:

 

(Dollars in thousands)                                          
    As of December 31, 2019  
    Unpaid contractual principal     Impaired loan balance     Impaired loans without an allowance     Impaired loans with an allowance     Related allowance recorded     Year-to-date average loan balance     Year-to-date interest income recognized  
                                           
One-to-four family residential real estate loans   $ 1,297     $ 1,256     $ 887     $ 369     $ 129     $ 1,291     $ 10  
Construction and land loans     3,214       1,479       1,288       191       191       1,631       36  
Commercial real estate loans     3,461       3,461       3,258       203       103       3,489       478  
Commercial loans     1,427       1,298       416       882       204       1,464       11  
Agriculture loans     1,339       1,124       613       511       106       1,166       48  
Municipal loans     58       58       58       -       -       58       1  
Consumer loans     4       4       4       -       -       5       -  
Total impaired loans   $ 10,800     $ 8,680     $ 6,524     $ 2,156     $ 733     $ 9,104     $ 584  

 

    As of December 31, 2018  
    Unpaid contractual principal     Impaired loan balance     Impaired loans without an allowance     Impaired loans with an allowance     Related allowance recorded     Year-to-date average loan balance     Year-to-date interest income recognized  
                                           
One-to-four family residential real estate loans   $ 623     $ 623     $ 413     $ 210     $ 100     $ 640     $ 10  
Construction and land loans     3,543       1,808       1,383       425       103       2,689       53  
Commercial real estate loans     3,912       3,912       2,120       1,792       67       3,928       487  
Commercial loans     1,528       1,528       1,446       82       27       1,537       -  
Agriculture loans     932       717       529       188       13       844       52  
Municipal loans     58       58       58       -       -       58       1  
Consumer loans     45       45       45       -       -       49       -  
Total impaired loans   $ 10,641     $ 8,691     $ 5,994     $ 2,697     $ 310     $ 9,745     $ 603  

 

    As of December 31, 2017  
    Unpaid contractual principal     Impaired loan balance     Impaired loans without an allowance     Impaired loans with an allowance     Related allowance recorded     Year-to-date average loan balance     Year-to-date interest income recognized  
                                           
One-to-four family residential real estate loans   $ 747     $ 747     $ 503     $ 244     $ 73     $ 774     $ 8  
Construction and land loans     3,766       2,031       430       1,601       102       2,033       65  
Commercial real estate loans     3,973       3,973       3,888       85       52       3,989       490  
Commercial loans     2,002       2,002       11       1,991       391       2,082       -  
Agriculture loans     1,048       833       545       288       24       912       1  
Municipal loans     140       140       140       -       -       192       5  
Consumer loans     34       34       34       -       -       35       -  
Total impaired loans   $ 11,710     $ 9,760     $ 5,551     $ 4,209     $ 642     $ 10,017     $ 569  

  

The Company’s key credit quality indicator is a loan’s performance status, defined as accruing or non-accruing. Performing loans are considered to have a lower risk of loss. Non-accrual loans are those which the Company believes have a higher risk of loss. The accrual of interest on non-performing loans is discontinued at the time the loan is ninety days delinquent, unless the credit is well secured and in process of collection. Loans are placed on non-accrual or are charged off at an earlier date if collection of principal or interest is considered doubtful. There were no loans ninety days delinquent and accruing interest at December 31, 2019 or December 31, 2018. The following tables present information on the Company’s past due and non-accrual loans by loan class:

 

(Dollars in thousands)                                          
    As of December 31, 2019  
    30-59 days delinquent and accruing     60-89 days delinquent and accruing     90 days or more delinquent and accruing     Total past due loans accruing     Non-accrual loans     Total past due and non-accrual loans     Total loans not past due  
                                           
One-to-four family residential real estate loans   $ 79     $ 593     $ -     $     672     $ 1,088     $ 1,760     $ 144,745  
Construction and land loans     -       -       -       -       898       898       21,561  
Commercial real estate loans     1,137       707       -       1,844       1,440       3,284       130,217  
Commercial loans     510       68       -       578       1,270       1,848       107,764  
Agriculture loans     316       -       -       316       846       1,162       97,396  
Municipal loans     -       -       -       -       -       -       2,656  
Consumer loans     27       -       -       27       4       31       25,070  
Total   $ 2,069     $ 1,368     $ -     $ 3,437     $ 5,546     $ 8,983     $ 529,409  
                                                         
Percent of gross loans     0.39 %     0.25 %     0.00 %     0.64 %     1.03 %     1.67 %     98.33 %

 

    As of December 31, 2018  
    30-59 days delinquent and accruing     60-89 days delinquent and accruing     90 days or more delinquent and accruing     Total past due loans accruing     Non-accrual loans     Total past due and non-accrual loans     Total loans not past due  
                                           
One-to-four family residential real estate loans   $ 131     $ 206     $ -     $ 337     $ 442     $ 779     $ 136,116  
Construction and land loans     -       134       -       134       948       1,082       19,001  
Commercial real estate loans     465       -       -       465       1,791       2,256       136,711  
Commercial loans     398       20       -       418       1,528       1,946       72,343  
Agriculture loans     100       88       -       188       482       670       95,962  
Municipal loans     -       -       -       -       -       -       2,953  
Consumer loans     106       23       -       129       45       174       25,254  
Total   $ 1,200     $ 471     $ -     $ 1,671     $ 5,236     $ 6,907     $ 488,340  
                                                         
Percent of gross loans     0.24 %     0.10 %     0.00 %     0.34 %     1.06 %     1.40 %     98.60 %

 

Under the original terms of the Company’s non-accrual loans, interest earned on such loans for the years 2019, 2018 and 2017, would have increased interest income by $230,000, $254,000 and $185,000, respectively. No interest income related to non-accrual loans was included in interest income for the years ended December 31, 2019, 2018 and 2017.

 

The Company also categorizes loans into risk categories based on relevant information about the ability of the borrowers to service their debt such as current financial information, historical payment experience, credit documentation, public information and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis is performed on a quarterly basis. Non-classified loans generally include those loans that are expected to be repaid in accordance with contractual loan terms. Classified loans are those that are assigned a special mention, substandard or doubtful risk rating using the following definitions:

 

Special Mention: Loans are currently protected by the current net worth and paying capacity of the obligor or of the collateral pledged but potentially weak. These loans constitute an undue and unwarranted credit risk, but not to the point of justifying a classification of substandard. The credit risk may be relatively minor, yet constitutes an unwarranted risk in light of the circumstances surrounding a specific asset.

 

Substandard: Loans are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged. Loans have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. Loans 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 as substandard, with the added characteristic that weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.

 

The following table provides information on the Company’s risk categories by loan class:

 

    As of December 31, 2019     As of December 31, 2018  
(Dollars in thousands)   Nonclassified     Classified     Nonclassified     Classified  
                         
One-to-four family residential real estate loans   $ 145,311     $ 1,194     $ 135,947     $ 948  
Construction and land loans     21,560       899       19,135       948  
Commercial real estate loans     130,714       2,787       126,619       12,348  
Commercial loans     101,678       7,934       66,490       7,799  
Agriculture loans     93,259       5,299       86,917       9,715  
Municipal loans     2,656       -       2,953       -  
Consumer loans     25,097       4       25,383       45  
Total   $ 520,275     $ 18,117     $ 463,444     $ 31,803  

 

At December 31, 2019, the Company had nine loan relationships consisting of thirteen outstanding loans totaling $3.6 million that were classified as TDRs compared to ten relationships consisting of fourteen outstanding loans totaling $4.0 million that were classified as TDRs at December 31, 2018.

 

The Company did not classify any loans as TDRs during 2019. A commercial real estate previously classified as a TDR in 2014 paid off during 2019.

 

During 2018, the Company classified an agriculture loan totaling $64,000 as a TDR after originating a loan to an existing loan relationship that was classified as a TDR in 2016. As part of the restructuring the borrower paid off three loans previously classified as TDRs. Since the agriculture loan relationship was adequately secured, no impairments were recorded against the principal as of December 31, 2019. The Company also classified a $36,000 commercial loan as a TDR after extending the maturity of the loan during 2018. The commercial loan had a $9,000 impairment recorded against the principal balance as of December 31, 2019. An agriculture loan relationship consisting of two loans that were originally classified as TDRs during 2015 and a municipal loan that was classified as a TDR in 2010 were both paid off in 2018.

 

During 2017, the Company classified four agriculture loans totaling $98,000 as TDRs after refinancing existing loans to two agriculture loan relationships that were classified as TDRs in 2016 and 2015. The Company also classified a $104,000 agriculture loan as a TDR in 2017 after extending the maturity of the loan. The Company also classified a one-to-four family residential real estate loan totaling $25,000 as a TDR during 2017 after modifying the terms per a bankruptcy judgment. Also during 2017, the Company classified an $11,000 commercial real estate loan as a TDR after extending the maturity of the loan. The $11,000 commercial real estate loan was charged-off during 2017 as a result of the borrower failing to comply with the terms of the restructuring.

  

The Company evaluates each TDR individually and returns the loan to accrual status when a payment history is established after the restructuring and future payments are reasonably assured. There was one commercial real estate loan totaling $11,000 that was classified as a TDR during 2017 which defaulted within 12 months of modification. The loan was charged-off during 2017. There were no loans modified as TDRs for which there was a payment default within 12 months of modification as of December 31, 2019 and 2018. At December 31, 2019, there was a commitment of $10,000 to lend additional funds on one construction and land loan classified as a TDR. The Company did not record any charge offs against loans classified as TDRs during 2019 and recorded a credit provision for loan loss of $1,000 against TDRs during 2019. The Company did not record any charge-offs against loans classified as TDRs during 2018 and recorded a credit provision for loan loss of $117,000 against TDRs during 2018. The Company recorded charge-offs of $11,000 and a provision for loan loss of $47,000 against TDRs during 2017. The Company allocated $9,000 and $10,000 of the allowance for loan losses recorded against loans classified as TDRs at December 31, 2019 and 2018, respectively.

 

The following table presents information on loans that were classified as TDRs:

 

(Dollars in thousands)                                    
    As of December 31, 2019     As of December 31, 2018  
    Number of loans     Non-accrual balance     Accruing balance     Number of loans     Non-accrual balance     Accruing balance  
                                     
One-to-four family residential real estate loans     2     $ -     $ 168       2     $ -     $ 181  
Construction and land loans     4       510       581       4       523       860  
Commercial real estate loans     1       -       2,021       2       -       2,121  
Commercial loans     1       -       28       1       36       -  
Agriculture     4       -       278       4       23       235  
Municipal loans     1       -       58       1       -       58  
Total troubled debt restructurings     13     $ 510     $ 3,134       14     $ 582     $ 3,455  

 

The Company had loans and unfunded commitments to directors and officers, and to affiliated parties, at December 31, 2019 and 2018. A summary of such loans is as follows:

 

(Dollars in thousands)      
       
Balance at December 31, 2018   $ 13,661  
New loans     10,091  
Repayments     (9,549 )
Balance at December 31, 2019   $ 14,203