Loans Receivable, Net

Loans receivable, net, consisted of the following at the dates shown below:



	March 31, 2016		December 31, 2015
Residential Real Estate Loans	$	76,642,289	$	76,373,071
Consumer Loans	50,524,091		50,380,289
Commercial Business Loans	12,764,075		12,514,133
Commercial Real Estate Loans	201,166,921		200,083,125
Total Loans Held For Investment	341,097,376		339,350,618
Loans Held For Sale	1,171,189		2,462,559
Total Loans Receivable, Gross	342,268,565		341,813,177
Less:
Allowance For Loan Losses	8,273,304		8,275,133
Loans In Process	2,015,710		2,902,849
Deferred Loan Fees	99,002		62,466
	10,388,016		11,240,448
Total Loans Receivable, Net	$	331,880,549	$	330,572,729

8. Loans Receivable, Net, Continued

Changes in the allowance for loan losses for the three months ended March 31, 2016 and 2015 are summarized as follows:



	Three Months Ended March 31,
	2016			2015
Balance at Beginning of Period	$	8,275,133		$	8,357,496
Provision for Loan Losses	—			100,000
Charge Offs	(165,629		)	(619,014		)
Recoveries	163,800			80,435
Total Allowance for Loan Losses	$	8,273,304		$	7,918,917

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.



	Credit Quality Measures
March 31, 2016	Pass		Caution		Special Mention		Substandard		Total Loans
Residential Real Estate	$	68,644,501	$	726,630	$	705,465	$	6,565,693	$	76,642,289
Consumer	46,694,470		2,340,199		80,733		1,408,689		50,524,091
Commercial Business	11,269,150		1,018,999		96,610		379,316		12,764,075
Commercial Real Estate	134,046,088		40,633,981		16,810,815		9,676,037		201,166,921
Total	$	260,654,209	$	44,719,809	$	17,693,623	$	18,029,735	$	341,097,376



	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

8. Loans Receivable, Net, Continued

The following table presents an age analysis of past due balances by loan category at March 31, 2016:



	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	$	421,074	$	—	$	3,074,983	$	3,496,057	$	73,146,232	$	76,642,289
Consumer	810,449		—		534,872		1,345,321		49,178,770		50,524,091
Commercial Business	401,173		—		153,401		554,574		12,209,501		12,764,075
Commercial Real Estate	3,819,182		666,448		3,921,155		8,406,785		192,760,136		201,166,921
Total	$	5,451,878	$	666,448	$	7,684,411	$	13,802,737	$	327,294,639	$	341,097,376

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

At March 31, 2016 and December 31, 2015, 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, 2016 compared to December 31, 2015:



	At March 31, 2016			At December 31, 2015			$			%
	Amount		Percent ⁽¹⁾	Amount		Percent ⁽¹⁾	Increase (Decrease)			Increase (Decrease)
Non-accrual Loans:
Residential Real Estate	$	3,074,983	0.91%	$	3,306,675	0.98%	$	(231,692	)	(7.0)%
Commercial Business	153,401		0.05	178,076		0.05	(24,675		)	(13.9)
Commercial Real Estate	3,921,155		1.16	2,973,135		0.88	948,020			31.9
Consumer	534,872		0.16	575,866		0.17	(40,994		)	(7.1)
Total Non-accrual Loans	$	7,684,411	2.28%	$	7,033,752	2.08%	$	650,659		9.3%

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

8. Loans Receivable, Net, Continued

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, 2016
	Residential Real Estate		Consumer			Commercial Business		Commercial Real Estate			Total
Beginning Balance	$	1,323,183	$	1,063,153		$	773,948	$	5,114,849		$	8,275,133
Provision	76,520		48,967			29,198		(154,685		)	—
Charge-Offs	—		(94,429		)	—		(71,200		)	(165,629		)
Recoveries	—		24,839			—		138,961			163,800
Ending Balance	$	1,399,703	$	1,042,530		$	803,146	$	5,027,925		$	8,273,304



	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

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, 2016	Individually Evaluated For Impairment		Collectively Evaluated For Impairment		Total
Residential Real Estate	$	—	$	1,399,703	$	1,399,703
Consumer	2,300		1,040,230		1,042,530
Commercial Business	—		803,146		803,146
Commercial Real Estate	154,300		4,873,625		5,027,925
Total	$	156,600	$	8,116,704	$	8,273,304



	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

8. Loans Receivable, Net, Continued

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, 2016	Individually Evaluated For Impairment		Collectively Evaluated For Impairment		Total
Residential Real Estate	$	2,690,748	$	73,951,541	$	76,642,289
Consumer	353,775		50,170,316		50,524,091
Commercial Business	153,401		12,610,674		12,764,075
Commercial Real Estate	7,232,851		193,934,070		201,166,921
Total	$	10,430,775	$	330,666,601	$	341,097,376



	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 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 the 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 $12.5 million for three months ended March 31, 2016 compared to $18.0 million for the three months ended March 31, 2015.

8. Loans Receivable, Net, Continued

The following tables are a summary of information related to impaired loans at March 31, 2016 and December 31, 2015 and for the three months ended March 31, 2016 and 2015.



	At March 31, 2016						At December 31, 2015
Impaired Loans	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
With No Related Allowance Recorded:
Residential Real Estate	$	2,690,748	$	2,787,248	$	—	$	2,922,105	$	3,033,735	$	—
Consumer	291,087		334,817		—		120,889		129,188		—
Commercial Business	153,401		353,401		—		162,201		362,201		—
Commercial Real Estate	6,460,078		8,515,619		—		8,620,301		10,969,642		—
With An Allowance Recorded:
Residential Real Estate	—		—		—		—		—		—
Consumer	62,689		62,689		2,300		251,493		256,923		32,300
Commercial Business	—		—		—		—		—		—
Commercial Real Estate	772,772		779,572		154,300		570,339		577,139		49,300
Total
Residential Real Estate	2,690,748		2,787,248		—		2,922,105		3,033,735		—
Consumer	353,776		397,506		2,300		372,382		386,111		32,300
Commercial Business	153,401		353,401		—		162,201		362,201		—
Commercial Real Estate	7,232,850		9,295,191		154,300		9,190,640		11,546,781		49,300
Total	$	10,430,775	$	12,833,346	$	156,600	$	12,647,328	$	15,328,828	$	81,600



	For the Three Months Ended March 31,
	2016				2015
Impaired Loans	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With No Related Allowance Recorded:
Residential Real Estate	$	2,813,696	$	447	$	2,924,360	$	828
Consumer	299,998		—		152,271		272
Commercial Business	158,601		—		235,173		—
Commercial Real Estate	8,432,619		91,860		13,217,496		75,944
With An Allowance Recorded:
Residential Real Estate	—		—		—		—
Consumer	63,061		1,555		312,418		1,200
Commercial Business	—		—		—		—
Commercial Real Estate	775,514		1,424		1,140,637		17,128
Total
Residential Real Estate	2,813,696		447		2,924,360		828
Consumer	363,059		1,555		464,689		1,472
Commercial Business	158,601		—		235,173		—
Commercial Real Estate	9,208,133		93,284		14,358,133		93,072
Total	$	12,543,489	$	95,286	$	17,982,355	$	95,372

8. 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 (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, 2016 and December 31, 2015 were $5.3 million and $6.7 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 loan 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 Three Months Ended March 31, 2016					For the Three Months Ended March 31, 2015
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, 2016, the Bank did not modify any loans that were considered to be TDRs. 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 allow 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.

At March 31, 2016, six previously restructured loans were in default, including two which had been restructured in the last 12 months. At March 31, 2015, there were no loans in default that had been restructured within the last 12 months. 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 probable. 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.