Loans Receivable, Net

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



	December 31, 2015		December 31, 2014
Residential Real Estate Loans	$	76,373,071	$	77,282,817
Consumer Loans	50,380,289		50,391,224
Commercial Business	12,514,133		10,564,467
Commercial Real Estate	200,083,125		209,530,209
Total Loans Held For Investment	339,350,618		347,768,717
Loans Held For Sale	2,462,559		1,864,999
Total Loans Receivable, Gross	341,813,177		349,633,716
Less:
Allowance For Loan Losses	8,275,133		8,357,496
Loans In Process	2,902,849		1,379,114
Deferred Loan Fees	62,466		22,611
	11,240,448		9,759,221
Total Loans Receivable, Net	$	330,572,729	$	339,874,495

Changes in the allowance for loan losses for the years ended December 31, 2015, 2014 and 2013 are summarized as follows:



	2015			2014			2013
Balance At Beginning Of Period	$	8,357,496		$	10,241,970		$	11,318,371
Provision For Loan Losses	—			450,000			2,645,381
Charge Offs	(1,516,468		)	(3,114,833		)	(5,209,830		)
Recoveries	1,434,105			780,359			1,488,048
Total Allowance For Loan Losses	$	8,275,133		$	8,357,496		$	10,241,970

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 60 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 possess weaknesses that do not currently expose the Company to sufficient risk to warrant adverse classification.

(4) Loans Receivable, Net, Continued

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.



	Credit Quality Measures
December 31, 2015	Pass		Caution		Special Mention		Substandard		Total Loans
Residential Real Estate	$	67,605,311	$	1,264,415	$	607,336	$	6,896,009	$	76,373,071
Consumer	46,344,056		2,510,519		81,617		1,444,097		50,380,289
Commercial Business	10,519,123		1,465,136		102,046		427,828		12,514,133
Commercial Real Estate	129,242,390		43,863,659		17,304,431		9,672,645		200,083,125
Total	$	253,710,880	$	49,103,729	$	18,095,430	$	18,440,579	$	339,350,618



	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 category at December 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	$	—	$	1,144,381	$	3,306,675	$	4,451,056	$	71,922,015	$	76,373,071
Consumer	710,881		282,314		575,866		1,569,061		48,811,228		50,380,289
Commercial Business	101,201		—		178,076		279,277		12,234,856		12,514,133
Commercial Real Estate	3,309,287		929,819		2,973,135		7,212,241		192,870,884		200,083,125
Total	$	4,121,369	$	2,356,514	$	7,033,752	$	13,511,635	$	325,838,983	$	339,350,618

The following table presents an age analysis of past due balances by 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

(4) Loans Receivable, Net, Continued

At December 31, 2015 and 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 category at December 31, 2015 compared to 2014.



	At December 31, 2015				At December 31, 2014				$			%
	Amount		Percent ⁽¹⁾		Amount		Percent ⁽¹⁾		Increase (Decrease)			Increase (Decrease)
Non-accrual Loans:
Residential Real Estate	$	3,306,675	1.0	%	$	3,061,339	0.9	%	$	245,336		8.0	%
Commercial Business	178,076		0.1		246,977		0.1		(68,901		)	(27.9	)
Commercial Real Estate	2,973,135		0.8		9,859,689		2.8		(6,886,554		)	(69.8	)
Consumer	575,866		0.2		573,644		0.2		2,222			0.4
Total Non- accrual Loans	$	7,033,752	2.1	%	$	13,741,649	4.0	%	$	(6,707,897	)	(48.8	)%

^{(1) PERCENT OF GROSS LOANS RECEIVABLE 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 Year Ended December 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	53,694			549,462			617,658			(1,220,814		)	—
Charge-Offs	(216,525		)	(527,055		)	(10,947		)	(761,941		)	(1,516,468		)
Recoveries	93,949			154,030			7,884			1,178,242			1,434,105
Ending Balance	$	1,323,183		$	1,063,153		$	773,948		$	5,114,849		$	8,275,133



	For the Year Ended December 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	(91,991		)	352,305			(53,435		)	243,121			450,000
Charge-Offs	(359,021		)	(372,460		)	(328,094		)	(2,055,258		)	(3,114,833		)
Recoveries	136,434			59,094			114,224			470,607			780,359
Ending Balance	$	1,392,065		$	886,716		$	159,353		$	5,919,362		$	8,357,496



	For the Year Ended December 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	1,030,237			(5,306		)	(187,377		)	1,807,827			2,645,381
Charge-Offs	(1,118,168		)	(207,230		)	(31,831		)	(3,852,601		)	(5,209,830		)
Recoveries	273,015			59,042			26,947			1,129,044			1,488,048
Ending Balance	$	1,706,643		$	847,777		$	426,658		$	7,260,892		$	10,241,970

(4) 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 as of the dates indicated.



	Allowance For Loan Losses
December 31, 2015	Individually Evaluated For Impairment		Collectively Evaluated For Impairment		Total
Residential Real Estate	$	—	$	1,323,183	$	1,323,183
Consumer	32,300		1,030,853		1,063,153
Commercial Business	—		773,948		773,948
Commercial Real Estate	49,300		5,065,549		5,114,849
Total	$	81,600	$	8,193,533	$	8,275,133



	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 for impairment and collectively evaluated for impairment in loans receivable as of the dates indicated.



	Loans Receivable
December 31, 2015	Individually Evaluated For Impairment		Collectively Evaluated For Impairment		Total
Residential Real Estate	$	2,922,105	$	73,450,966	$	76,373,071
Consumer	372,382		50,007,907		50,380,289
Commercial Business	162,201		12,351,932		12,514,133
Commercial Real Estate	9,190,640		190,892,485		200,083,125
Total	$	12,647,328	$	326,703,290	$	339,350,618



	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

(4) 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 total impaired loans was $13.1 million for year ended December 31, 2015 compared to $22.2 million for the year ended December 31, 2014.

The following tables are a summary of information related to impaired loans as of and for the years ended December 31, 2015, 2014 and 2013.



	December 31, 2015
Impaired Loans	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With No Related Allowance Recorded:
Residential Real Estate	$	2,922,105	$	3,033,735	$	—	$	3,014,807	$	13,909
Consumer	120,889		129,188		—		130,202		—
Commercial Business	162,201		362,201		—		190,562		—
Commercial Real Estate	8,620,301		10,969,642		—		8,952,868		245,197
With An Allowance Recorded:
Residential Real Estate	—		—		—		—		—
Consumer	251,493		256,923		32,300		254,611		4,789
Commercial Business	—		—		—		—		—
Commercial Real Estate	570,339		577,139		49,300		579,418		31,684
Total
Residential Real Estate	2,922,105		3,033,735		—		3,014,807		13,909
Consumer	372,382		386,111		32,300		384,813		4,789
Commercial Business	162,201		362,201		—		190,562		—
Commercial Real Estate	9,190,640		11,546,781		49,300		9,532,286		276,881
Total	$	12,647,328	$	15,328,828	$	81,600	$	13,122,468	$	295,579

(4) Loans Receivable, Net, Continued



	December 31, 2014
Impaired Loans	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With No Related Allowance Recorded:
Residential Real Estate	$	2,519,814	$	2,618,003	$	—	$	2,642,156	$	—
Consumer	152,029		159,529		—		155,602		1,510
Commercial Business	236,030		436,030		—		413,653		—
Commercial Real Estate	13,721,964		18,088,149		—		14,980,690		297,839
With An Allowance Recorded:
Residential Real Estate	—		—		—		—		—
Consumer	66,203		66,203		2,600		67,522		4,867
Commercial Business	—		—		—		—		—
Commercial Real Estate	3,551,915		3,582,465		472,400		3,952,066		60,207
Total
Residential Real Estate	2,519,814		2,618,003		—		2,642,156		—
Consumer	218,232		225,732		2,600		223,124		6,377
Commercial Business	236,030		436,030		—		413,653		—
Commercial Real Estate	17,273,879		21,670,614		472,400		18,932,756		358,046
Total	$	20,247,955	$	24,950,379	$	475,000	$	22,211,689	$	364,423



	December 31, 2013
Impaired Loans	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With No Related Allowance Recorded:
Residential Real Estate	$	3,936,316	$	4,588,645	$	—	$	4,044,142	$	31,704
Consumer	106,197		106,198		—		104,539		953
Commercial Business	19,775		19,775		—		19,896		389
Commercial Real Estate	21,810,347		26,775,853		—		23,618,648		886,737
With An Allowance Recorded:
Residential Real Estate	901,920		901,920		158,791		909,473		—
Consumer	169,294		169,294		103,109		170,499		5,173
Commercial Business	—		—		—		—		—
Commercial Real Estate	4,410,965		4,954,058		840,658		4,707,658		251,505
Total
Residential Real Estate	4,838,236		5,490,565		158,791		4,953,615		31,704
Consumer	275,491		275,492		103,109		275,038		6,126
Commercial Business	19,775		19,775		—		19,896		389
Commercial Real Estate	26,221,312		31,729,911		840,658		28,326,306		1,138,242
Total	$	31,354,814	$	37,515,743	$	1,102,558	$	33,574,855	$	1,176,461

(4) Loans Receivable, Net, Continued

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 (FASB 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. All TDRs are included in impaired loans at December 31, 2015 and 2014 and amounted to $6.7 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).

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



	For the Year Ended December 31, 2015
Troubled Debt Restructurings	Number of Contracts	Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment
Residential Real Estate	—	$	—	$	—
Consumer Loans	1	36,460		36,460
Commercial Business	—	—		—
Commercial Real Estate	6	922,000		922,000
Total	7	958,460		958,460



	For the Year Ended December 31, 2014					For the Year Ended December 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	—	—		—		1	32,850		32,850
Commercial Real Estate	2	186,188		186,188		4	1,409,693		1,409,693
Total	2	186,188		186,188		5	1,442,543		1,442,543

(4) Loans Receivable, Net, Continued

During the year ended December 31, 2015, the Bank modified seven loans that were considered to be TDRs. The Bank lowered the interest rate on three of the loans to allow the borrowers to begin making monthly principal and interest payments on the loans and changed the monthly payment to an interest only payment for an agreed upon period for the other four loans. During the year ended December 31, 2014, the Bank modified two loans that were considered TDRs by lowering the interest rate on both loans. During the year ended December 31, 2013, the Bank modified five loans that were considered to be TDRs. The Bank lowered the interest rate on each of these loans and changed the payment to interest only on for an agreed upon period on three of these loans.

The following table is a summary of TDRs restructured during the periods indicated that subsequently defaulted during the same period:



	For the Year Ended December 31,
	2015			2014			2013
	Number of Contracts	Recorded Investment		Number of Contracts	Recorded Investment		Number of Contracts	Recorded Investment
Residential Real Estate	—	$	—	—	$	—	—	$	—
Consumer Loans	—	—		—	—		—	—
Commercial Business	—	—		—	—		—	—
Commercial Real Estate	2	30,713		1	66,138		1	146,267
Total	2	$	30,713	1	$	66,138	1	$	146,267

At December 31, 2015, six previously restructured loans were in default, including two which had been restructured in the last 12 months. At December 31, 2014, seven loans that had been previously restructured were in default, including one which had been restructured within the last 12 months. At December 31, 2013, five previously restructured loans were in default, including one which had been restructured during the same period. 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 become current and then 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.