Loans Receivable, Net

Loans receivable, net, consisted of the following as of the dates shown:




	March 31, 2014		December 31, 2013
Residential Real Estate Loans	$	79,352,237	$	83,004,482
Consumer Loans	51,681,511		52,205,901
Commercial Business	8,982,884		7,775,098
Commercial Real Estate	223,946,101		228,399,555
Total Loans Held For Investment	363,962,733		371,385,036
Loans Held For Sale	2,909,734		1,234,158
Total Loans Receivable, Gross	366,872,467		372,619,194
Less:
Allowance For Loan Losses	9,845,755		10,241,970
Loans In Process	2,030,733		3,465,072
Deferred Loan Fees (Costs)	14,683		(4,513		)
	11,891,171		13,702,529
Total Loans Receivable, Net	$	354,981,296	$	358,916,665

Changes in the allowance for loan losses for the three months ended March 31, 2014 and 2013 are summarized as follows:



	Three Months Ended March 31,
	2014			2013
Balance At Beginning Of Period	$	10,241,970		$	11,318,371
Provision For Loan Losses	100,000			1,145,381
Charge Offs	(777,575		)	(1,385,460		)
Recoveries	281,360			26,934
Total Allowance For Loan Losses	$	9,845,755		$	11,105,226

The Company uses a risk based approach based on the following credit quality measures when analyzing the loan portfolio: pass, caution, special mention, and substandard. These indicators are used to rate the credit quality of loans for the purposes of determining the Company’s allowance for loan losses. Pass loans are loans that are performing and are deemed adequately protected by the net worth of the borrower or the underlying collateral value. These loans are considered the least risky in terms of determining the allowance for loan losses. Substandard loans are considered the most risky category. These loans typically have an identified weakness or weaknesses and are inadequately protected by the net worth of the borrower or collateral value. All loans 90 days or more past due are automatically classified in this category. The other two categories fall in between these two grades.

The following tables list the loan grades used by the Company as credit quality indicators and the balance in each category at the dates presented, excluding loans held for sale.

9. Loans Receivable, Net, Continued



	Credit Quality Measures
March 31, 2014	Pass		Caution		Special Mention		Substandard		Total Loans
Residential Real Estate	$	71,352,992	$	1,370,589	$	400,455	$	6,228,201	$	79,352,237
Consumer	49,889,585		1,083,313		141,451		567,162		51,681,511
Commercial Business	7,847,583		410,369		59,526		665,406		8,982,884
Commercial Real Estate	132,015,857		38,442,618		34,424,437		19,063,189		223,946,101
Total	$	261,106,017	$	41,306,889	$	35,025,869	$	26,523,958	$	363,962,733



	Credit Quality Measures
December 31, 2013	Pass		Caution		Special Mention		Substandard		Total Loans
Residential Real Estate	$	74,505,587	$	890,902	$	403,138	$	7,204,855	$	83,004,482
Consumer	50,370,640		843,799		143,649		847,813		52,205,901
Commercial Business	6,807,620		368,019		524,928		74,531		7,775,098
Commercial Real Estate	135,793,150		43,252,464		25,581,235		23,772,706		228,399,555
Total	$	267,476,997	$	45,355,184	$	26,652,950	$	31,899,905	$	371,385,036

The following table presents an age analysis of past due balances by category at March 31, 2014:



	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current		Total Loans Receivable
Residential Real Estate	$	1,417,622	$	148,800	$	4,505,186	$	6,071,608	$	73,280,629	$	79,352,237
Consumer	1,152,159		30,135		464,889		1,647,183		50,034,328		51,681,511
Commercial Business	362,929		16,235		758,886		1,138,050		7,844,834		8,982,884
Commercial Real Estate	7,322,047		1,939,721		5,085,637		14,347,405		209,598,696		223,946,101
Total	$	10,254,757	$	2,134,891	$	10,814,598	$	23,204,246	$	340,758,487	$	363,962,733

The following table presents an age analysis of past due balances by category at December 31, 2013:



	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current		Total Loans Receivable
Residential Real Estate	$	—	$	1,363,132	$	4,607,613	$	5,970,745	$	77,033,737	$	83,004,482
Consumer	1,494,429		234,878		399,062		2,128,369		50,077,532		52,205,901
Commercial Business	115,186		—		33,055		148,241		7,626,857		7,775,098
Commercial Real Estate	5,103,522		2,046,666		4,972,667		12,122,855		216,276,700		228,399,555
Total	$	6,713,137	$	3,644,676	$	10,012,397	$	20,370,210	$	351,014,826	$	371,385,036

9. Loans Receivable, Net, Continued

At March 31, 2014 and December 31, 2013, the Company did not have any loans that were 90 days or more past due and still accruing interest. Our strategy is to work with our borrowers to reach acceptable payment plans while protecting our interests in the existing collateral. In the event an acceptable arrangement cannot be reached, we may have to acquire these properties through foreclosure or other means and subsequently sell, develop, or liquidate them.

The following table shows non-accrual loans by category at March 31, 2014 compared to December 31, 2013:



	At March 31, 2014				At December 31, 2013				$			%
	Amount		Percent ⁽¹⁾		Amount		Percent ⁽¹⁾		Increase (Decrease)			Increase (Decrease)
Non-accrual Loans:
Residential Real Estate	$	4,505,186	1.24	%	$	4,607,613	1.25	%	$	(102,427	)	(2.2	)%
Commercial Business	758,886		0.21		33,055		0.01		725,831			2,195.8
Commercial Real Estate	5,085,637		1.41		4,972,667		1.35		112,970			2.3
Consumer	464,889		0.13		399,062		0.11		65,827			16.5
Total Non- accrual Loans	$	10,814,598	2.99	%	$	10,012,397	2.72	%	$	802,201		8.0	%

^{(1) PERCENT OF TOTAL LOANS HELD FOR INVESTMENT, NET OF DEFERRED FEES AND LOANS IN PROCESS.}

The following tables show the activity in the allowance for loan losses by category for the periods indicated:



	For the Three Months Ended March 31, 2014
	Residential Real Estate			Consumer			Commercial Business			Commercial Real Estate			Total
Beginning Balance	$	1,706,643		$	847,777		$	426,658		$	7,260,892		$	10,241,970
Provision	43,506			127,341			(74,961		)	4,114			100,000
Charge-Offs	(82,472		)	(194,449		)	—			(500,654		)	(777,575		)
Recoveries	479			23,199			17,684			239,998			281,360
Ending Balance	$	1,668,156		$	803,868		$	369,381		$	7,004,350		$	9,845,755



	For the Three Months Ended March 31, 2013
	Residential Real Estate			Consumer			Commercial Business			Commercial Real Estate			Total
Beginning Balance	$	1,521,559		$	1,001,271		$	618,919		$	8,176,622		$	11,318,371
Provision	99,571			(81,813		)	(77,066		)	1,204,689			1,145,381
Charge-Offs	(29,246		)	(19,576		)	(4,436		)	(1,332,202		)	(1,385,460		)
Recoveries	—			8,511			5,486			12,937			26,934
Ending Balance	$	1,591,884		$	908,393		$	542,903		$	8,062,046		$	11,105,226

9. Loans Receivable, Net, Continued

The following tables present information related to impaired loans evaluated individually for impairment and collectively evaluated for impairment in the allowance for loan losses:



	Allowance For Loan Losses
March 31, 2014	Individually Evaluated For Impairment		Collectively Evaluated For Impairment		Total
Residential Real Estate	$	156,067	$	1,512,089	$	1,668,156
Consumer	2,600		801,268		803,868
Commercial Business	17,900		351,481		369,381
Commercial Real Estate	711,700		6,292,650		7,004,350
Total	$	888,267	$	8,957,488	$	9,845,755



	Allowance For Loan Losses
December 31, 2013	Individually Evaluated For Impairment		Collectively Evaluated For Impairment		Total
Residential Real Estate	$	158,791	$	1,547,852	$	1,706,643
Consumer	103,109		744,668		847,777
Commercial Business	—		426,658		426,658
Commercial Real Estate	840,658		6,420,234		7,260,892
Total	$	1,102,558	$	9,139,412	$	10,241,970

The following tables present information related to impaired loans evaluated individually for impairment and collectively evaluated for impairment in loans receivable for the periods indicated:



	Loans Receivable
March 31, 2014	Individually Evaluated For Impairment		Collectively Evaluated For Impairment		Total
Residential Real Estate	$	5,422,317	$	73,929,920	$	79,352,237
Consumer	326,563		51,354,948		51,681,511
Commercial Business	498,039		8,484,845		8,982,884
Commercial Real Estate	23,581,275		200,364,826		223,946,101
Total	$	29,828,194	$	334,134,539	$	363,962,733



	Loans Receivable
December 31, 2013	Individually Evaluated For Impairment		Collectively Evaluated For Impairment		Total
Residential Real Estate	$	4,838,236	$	78,166,246	$	83,004,482
Consumer	275,491		51,930,410		52,205,901
Commercial Business	19,775		7,755,323		7,775,098
Commercial Real Estate	26,221,312		202,178,243		228,399,555
Total	$	31,354,814	$	340,030,222	$	371,385,036

9. Loans Receivable, Net, Continued

Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Once a loan is identified as individually impaired management measures impairment and records the loan at fair value. Fair value is estimated using one of the following methods: fair value of the collateral less estimated costs to sale, discounted cash flows, or market value of the loan based on similar debt. The fair value of the collateral less estimated costs to sell is the most frequently used method. Typically, the Company reviews the most recent appraisal and if it is over 24 months old will request a new third party appraisal. Depending on the particular circumstances surrounding the loan, including the location of the collateral, the date of the most recent appraisal and the value of the collateral relative to the recorded investment in the loan, management may order an independent appraisal immediately or, in some instances, may elect to perform an internal analysis. The average balance of impaired loans was $30.2 million for three months ended March 31, 2014 compared to $38.5 million for the three months ended March 31, 2013.

The following tables are a summary of information related to impaired loans as of March 31, 2014 and December 31, 2013 and for the three months ended March 31, 2014 and 2013.



			At				For The Three Months Ended March 31,
	March 31, 2014						2014				2013
Impaired Loans	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Invesment		Interest Income Recognized		Average Recorded Invesment		Interest Income Recognized
With No Related Allowance Recorded:
Residential Real Estate	$	4,438,004	$	5,220,333	$	—	$	4,494,249	$	12,942	$	4,289,656	$	10,686
Consumer Loans	258,423		258,423		—		259,796		88		318,396		1,445
Commercial Business	465,401		465,401		—		465,402		—		34,316		—
Commercial Real Estate	18,850,811		23,633,930		—		19,096,530		157,070		30,937,044		336,089
With An Allowance Recorded:
Residential Real Estate	984,313		984,313		156,067		989,513		—		—		—
Consumer Loans	68,140		68,140		2,600		68,474		1,247		—		—
Commercial Business	32,638		32,638		17,900		32,638		—		—		—
Commercial Real Estate	4,730,464		4,817,264		711,700		4,751,376		47,794		2,970,219		20,743
Total
Residential Real Estate	5,422,317		6,204,646		156,067		5,483,762		12,942		4,289,656		10,686
Consumer Loans	326,563		326,563		2,600		328,270		1,335		318,396		1,445
Commercial Business	498,039		498,039		17,900		498,040		—		34,316		—
Commercial Real Estate	23,581,275		28,451,194		711,700		23,847,906		204,864		33,907,263		356,832
Total	$	29,828,194	$	35,480,442	$	888,267	$	30,157,978	$	219,141	$	38,549,631	$	368,963

9. Loans Receivable, Net, Continued



	December 31, 2013
Impaired Loans	Recorded Investment		Unpaid Principal Balance		Related Allowance
With No Related Allowance Recorded:
Residential Real Estate	$	3,936,316	$	4,588,645	$	—
Consumer Loans	106,197		106,198		—
Commercial Business	19,775		19,775		—
Commercial Real Estate	21,810,347		26,775,853		—
With An Allowance Recorded:
Residential Real Estate	901,920		901,920		158,791
Consumer Loans	169,294		169,294		103,109
Commercial Business	—		—		—
Commercial Real Estate	4,410,965		4,954,058		840,658
Total
Residential Real Estate	4,838,236		5,490,565		158,791
Consumer Loans	275,491		275,492		103,109
Commercial Business	19,775		19,775		—
Commercial Real Estate	26,221,312		31,729,911		840,658
Total	$	31,354,814	$	37,515,743	$	1,102,558

In the course of resolving delinquent loans, the Bank may choose to restructure the contractual terms of certain loans. A troubled debt restructuring ("TDR") is a restructuring in which the Bank, for economic or legal reasons related to a borrower’s financial difficulties, grants a concession to a borrower that it would not otherwise consider (Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 310-40). The concessions granted on TDRs generally include terms to reduce the interest rate, extend the term of the debt obligation, or modify the payment structure on the debt obligation. The Bank grants such concessions to reassess the borrower’s financial status and develop a plan for repayment. TDRs included in impaired loans at March 31, 2014 and December 31, 2013 were $11.7 million and $12.4 million, respectively.

Loans on nonaccrual status at the date of modification are initially classified as nonaccrual TDRs. Loans on accruing status at the date of concession are initially classified as accruing TDRs if the note is reasonably assured of repayment and performance is expected in accordance with its modified terms. Such loans may be designated as nonaccrual loans subsequent to the concession date if reasonable doubt exists as to the collection of interest or principal under the restructuring agreement. Nonaccrual TDRs are returned to accruing status when there is economic substance to the restructuring, there is documented credit evaluation of the borrower's financial condition, the remaining balance is reasonably assured of repayment in accordance with its modified terms, and the borrower has demonstrated sustained repayment performance in accordance with the modified terms for a reasonable period of time (generally a minimum of six months).

9. Loans Receivable, Net, Continued

The following table is a summary of loans restructured as TDRs during the periods indicated:



	For the three months Ended March 31, 2014					For the three months Ended March 31, 2013
Troubled Debt Restructurings	Number of Contracts	Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment		Number of Contracts	Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment
Residential Real Estate	—	$	—	$	—	—	$	—	$	—
Consumer Loans	—	—		—		—	—		—
Commercial Business	—	—		—		—	—		—
Commercial Real Estate	—	—		—		3	1,321,024		1,321,024
Total	—	$	—	$	—	3	$	1,321,024	$	1,321,024

During the three months ended March 31, 2014, two loans totaling $293,000 that had been previously restructured within the last twelve months defaulted. The Bank considers any loan 30 days or more past due to be in default.

Our policy with respect to accrual of interest on loans restructured in a TDR follows relevant supervisory guidance. That is, if a borrower has demonstrated performance under the previous loan terms and shows capacity to perform under the restructured loan terms, continued accrual of interest at the restructured interest rate is likely. If a borrower was materially delinquent on payments prior to the restructuring but shows capacity to meet the restructured loan terms, the loan will likely continue as nonaccrual going forward. Lastly, if the borrower does not perform under the restructured terms, the loan is placed on nonaccrual status.

We will continue to closely monitor these loans and will cease accruing interest on them if management believes that the borrowers may not continue performing based on the restructured note terms. If, after previously being classified as a TDR, a loan is restructured a second time, then that loan is automatically placed on nonaccrual status. Our policy with respect to nonperforming loans requires the borrower to make a minimum of six consecutive payments in accordance with the loan terms before that loan can be placed back on accrual status. Further, the borrower must show capacity to continue performing into the future prior to restoration of accrual status.