Loans Receivable, Net

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




	March 31, 2015		December 31, 2014
Residential Real Estate Loans	$	76,077,084	$	77,282,817
Consumer Loans	50,385,443		50,391,224
Commercial Business	8,902,887		10,564,467
Commercial Real Estate	204,646,950		209,530,209
Total Loans Held For Investment	340,012,364		347,768,717
Loans Held For Sale	1,878,844		1,864,999
Total Loans Receivable, Gross	341,891,208		349,633,716
Less:
Allowance For Loan Losses	7,918,917		8,357,496
Loans In Process	1,879,523		1,379,114
Deferred Loan Fees (Costs)	34,341		22,611
	9,832,781		9,759,221
Total Loans Receivable, Net	$	332,058,427	$	339,874,495

Changes in the allowance for loan losses for the three months ended March 31, 2015 and 2014 are summarized as follows:



	Three Months Ended March 31,
	2015			2014
Balance At Beginning Of Period	$	8,357,496		$	10,241,970
Provision For Loan Losses	100,000			100,000
Charge Offs	(619,014		)	(777,575		)
Recoveries	80,435			281,360
Total Allowance For Loan Losses	$	7,918,917		$	9,845,755

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 to have the least amount of risk in terms of determining the allowance for loan losses. Loans that are graded as substandard are considered to have the most risk. 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 caution and special mention categories fall in between the pass and substandard grades and consist of loans that do not currently expose the Company to sufficient risk to warrant adverse classification but possess weaknesses.

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

7. Loans Receivable, Net, Continued



	Credit Quality Measures
March 31, 2015	Pass		Caution		Special Mention		Substandard		Total Loans
Residential Real Estate	$	67,580,371	$	914,752	$	1,422,850	$	6,159,111	$	76,077,084
Consumer	47,467,158		1,547,751		175,250		1,195,284		50,385,443
Commercial Business	7,809,979		346,482		303,389		443,037		8,902,887
Commercial Real Estate	123,958,229		31,959,619		36,466,884		12,262,218		204,646,950
Total	$	246,815,737	$	34,768,604	$	38,368,373	$	20,059,650	$	340,012,364



	Credit Quality Measures
December 31, 2014	Pass		Caution		Special Mention		Substandard		Total Loans
Residential Real Estate	$	69,163,911	$	956,976	$	639,638	$	6,522,292	$	77,282,817
Consumer	48,283,560		1,046,624		128,033		933,007		50,391,224
Commercial Business	9,691,685		340,706		202,895		329,181		10,564,467
Commercial Real Estate	125,339,273		32,549,335		35,169,358		16,472,243		209,530,209
Total	$	252,478,429	$	34,893,641	$	36,139,924	$	24,256,723	$	347,768,717

The following table presents an age analysis of past due balances by loan category at March 31, 2015:



	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	$	773,271	$	739,422	$	2,925,155	$	4,437,848	$	71,639,236	$	76,077,084
Consumer	1,090,070		214,442		632,978		1,937,490		48,447,953		50,385,443
Commercial Business	108,752		115,982		288,281		513,015		8,389,872		8,902,887
Commercial Real Estate	9,402,639		1,328,852		5,119,394		15,850,885		188,796,065		204,646,950
Total	$	11,374,732	$	2,398,698	$	8,965,808	$	22,739,238	$	317,273,126	$	340,012,364

The following table presents an age analysis of past due balances by loan category at December 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	$	—	$	1,087,299	$	3,061,339	$	4,148,638	$	73,134,179	$	77,282,817
Consumer	1,868,787		91,223		573,644		2,533,654		47,857,570		50,391,224
Commercial Business	162,481		99,784		246,977		509,242		10,055,225		10,564,467
Commercial Real Estate	4,544,813		1,094,701		9,859,689		15,499,203		194,031,006		209,530,209
Total	$	6,576,081	$	2,373,007	$	13,741,649	$	22,690,737	$	325,077,980	$	347,768,717

7. Loans Receivable, Net, Continued

At March 31, 2015 and December 31, 2014, 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 loan category at March 31, 2015 compared to December 31, 2014:



	At March 31, 2015				At December 31, 2014				$			%
	Amount		Percent ⁽¹⁾		Amount		Percent ⁽¹⁾		Increase (Decrease)			Increase (Decrease)
Non-accrual Loans:
Residential Real Estate	$	2,925,155	0.87	%	$	3,061,339	0.90	%	$	(136,184	)	(4.4	)%
Commercial Business	288,281		0.09		246,977		0.10		41,304			16.7
Commercial Real Estate	5,119,394		1.51		9,859,689		2.80		(4,740,295		)	(48.1	)
Consumer	632,978		0.19		573,644		0.20		59,334			10.3
Total Non-accrual Loans	$	8,965,808	2.66	%	$	13,741,649	4.00	%	$	(4,775,841	)	(34.8	)%

^{(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 loan category for the periods indicated:



	For the Three Months Ended March 31, 2015
	Residential Real Estate			Consumer			Commercial Business			Commercial Real Estate			Total
Beginning Balance	$	1,392,065		$	886,716		$	159,353		$	5,919,362		$	8,357,496
Provision	7,370			330,931			345,077			(583,378		)	100,000
Charge-Offs	(45,000		)	(120,618		)	(10,947		)	(442,449		)	(619,014		)
Recoveries	—			44,768			3,320			32,347			80,435
Ending Balance	$	1,354,435		$	1,141,797		$	496,803		$	4,925,882		$	7,918,917



	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

7. Loans Receivable, Net, Continued

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



	Allowance For Loan Losses
March 31, 2015	Individually Evaluated For Impairment		Collectively Evaluated For Impairment		Total
Residential Real Estate	$	—	$	1,354,435	$	1,354,435
Consumer	248,189		893,608		1,141,797
Commercial Business	—		496,803		496,803
Commercial Real Estate	125,300		4,800,582		4,925,882
Total	$	373,489	$	7,545,428	$	7,918,917



	Allowance For Loan Losses
December 31, 2014	Individually Evaluated For Impairment		Collectively Evaluated For Impairment		Total
Residential Real Estate	$	—	$	1,392,065	$	1,392,065
Consumer	2,600		884,116		886,716
Commercial Business	—		159,353		159,353
Commercial Real Estate	472,400		5,446,962		5,919,362
Total	$	475,000	$	7,882,496	$	8,357,496

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



	Loans Receivable
March 31, 2015	Individually Evaluated For Impairment		Collectively Evaluated For Impairment		Total
Residential Real Estate	$	2,687,102	$	73,389,982	$	76,077,084
Consumer	461,863		49,923,580		50,385,443
Commercial Business	232,601		8,670,286		8,902,887
Commercial Real Estate	12,316,635		192,330,315		204,646,950
Total	$	15,698,201	$	324,314,163	$	340,012,364



	Loans Receivable
December 31, 2014	Individually Evaluated For Impairment		Collectively Evaluated For Impairment		Total
Residential Real Estate	$	2,519,814	$	74,763,003	$	77,282,817
Consumer	218,232		50,172,992		50,391,224
Commercial Business	236,030		10,328,437		10,564,467
Commercial Real Estate	17,273,879		192,256,330		209,530,209
Total	$	20,247,955	$	327,520,762	$	347,768,717

7. 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 $18.0 million for three months ended March 31, 2015 compared to $30.2 million for the three months ended March 31, 2014.

The following tables are a summary of information related to impaired loans as of March 31, 2015 and December 31, 2014 and for the three months ended March 31, 2015 and 2014.



			At				For the Three Months Ended March 31,
	March 31, 2015						2015				2014
Impaired Loans	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With No Related Allowance Recorded:
Residential Real Estate	$	2,687,102	$	2,810,291	$	—	$	2,924,360	$	828	$	4,494,249	$	12,942
Consumer	150,869		158,369		—		152,271		272		259,796		88
Commercial Business	232,601		432,601		—		235,173		—		465,402		—
Commercial Real Estate	11,181,568		15,430,504		—		13,217,496		75,944		19,096,530		157,070
With An Allowance Recorded:
Residential Real Estate	—		—		—		—		—		989,513		—
Consumer	310,994		310,994		248,189		312,418		1,200		68,474		1,247
Commercial Business	—		—		—		—		—		32,638		—
Commercial Real Estate	1,135,067		1,141,867		125,300		1,140,637		17,128		4,751,376		47,794
Total
Residential Real Estate	2,687,102		2,810,291		—		2,924,360		828		5,483,762		12,942
Consumer	461,863		469,363		248,189		464,689		1,472		328,270		1,335
Commercial Business	232,601		432,601		—		235,173		—		498,040		—
Commercial Real Estate	12,316,635		16,572,371		125,300		14,358,133		93,072		23,847,906		204,864
Total	$	15,698,201	$	20,284,626	$	373,489	$	17,982,355	$	95,372	$	30,157,978	$	219,141

7. Loans Receivable, Net, Continued



	December 31, 2014
Impaired Loans	Recorded Investment		Unpaid Principal Balance		Related Allowance
With No Related Allowance Recorded:
Residential Real Estate	$	2,519,814	$	2,618,003	$	—
Consumer Loans	152,029		159,529		—
Commercial Business	236,030		436,030		—
Commercial Real Estate	13,721,964		18,088,149		—
With An Allowance Recorded:
Consumer Loans	66,203		66,203		2,600
Commercial Real Estate	3,551,915		3,582,465		472,400
Total
Residential Real Estate	2,519,814		2,618,003		—
Consumer Loans	218,232		225,732		2,600
Commercial Business	236,030		436,030		—
Commercial Real Estate	17,273,879		21,670,614		472,400
Total	$	20,247,955	$	24,950,379	$	475,000

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, 2015 and December 31, 2014 were $8.9 million and $9.6 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).

7. 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, 2015					For the three months Ended March 31, 2014
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	840,292		840,292		—	—		—
Total	3	$	840,292	$	840,292	—	$	—	$	—

During the three months ended March 31, 2015, the Bank modified three commercial real estate loans that were considered to be TDRs. The Bank lowered the interest rate on one loan to enable the customer to begin making monthly principal and interest payments and changed the monthly payment to interest only for an agreed upon period for the other two loans.

During the three months ended March 31, 2015, there were no loans in default that had been restructured within the last twelve months. 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 as 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 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. In addition to this payment history, the borrower must demonstrate an ability to continue making payments on the loan prior to restoration of accrual status.