Loans Receivable, Net

Loans receivable, net, consisted of the following as of the dates indicated below:



	June 30, 2016		December 31, 2015
Residential Real Estate Loans	$	77,229,040	$	76,373,071
Consumer Loans	50,076,365		50,380,289
Commercial Business Loans	14,233,684		12,514,133
Commercial Real Estate Loans	204,757,630		200,083,125
Total Loans Held For Investment	346,296,719		339,350,618
Loans Held For Sale	1,682,094		2,462,559
Total Loans Receivable, Gross	347,978,813		341,813,177
Less:
Allowance For Loan Losses	8,395,214		8,275,133
Loans In Process	4,438,089		2,902,849
Deferred Loan Fees	109,285		62,466
	12,942,588		11,240,448
Total Loans Receivable, Net	$	335,036,225	$	330,572,729

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
June 30, 2016	Pass		Caution		Special Mention		Substandard		Total Loans
Residential Real Estate	$	69,300,706	$	711,846	$	699,591	$	6,516,897	$	77,229,040
Consumer	46,068,672		2,552,834		88,022		1,366,837		50,076,365
Commercial Business	12,059,122		1,730,675		59,175		384,712		14,233,684
Commercial Real Estate	126,085,696		56,069,386		15,175,709		7,426,839		204,757,630
Total	$	253,514,196	$	61,064,741	$	16,022,497	$	15,695,285	$	346,296,719



	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 tables present an age analysis of past due balances by category at June 30, 2016 and December 31, 2015:



June 30, 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	$	—	$	491,302	$	3,057,525	$	3,548,827	$	73,680,213	$	77,229,040
Consumer	686,826		100,051		319,099		1,105,976		48,970,389		50,076,365
Commercial Business	511,435		—		147,002		658,437		13,575,247		14,233,684
Commercial Real Estate	3,175,585		562,456		2,764,842		6,502,883		198,254,747		204,757,630
Total	$	4,373,846	$	1,153,809	$	6,288,468	$	11,816,123	$	334,480,596	$	346,296,719



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 June 30, 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 category at June 30, 2016 compared to December 31, 2015:



	June 30, 2016				December 31, 2015				$			%
	Amount		Percent ⁽¹⁾		Amount		Percent ⁽¹⁾		Increase (Decrease)			Increase (Decrease)
Non-accrual Loans:
Residential Real Estate	$	3,057,525	0.90	%	$	3,306,675	0.98	%	$	(249,150	)	(7.5	)%
Consumer	319,099		0.09		575,866		0.17		(256,767		)	(44.6	)
Commercial Business	147,002		0.04		178,076		0.05		(31,074		)	(17.4	)
Commercial Real Estate	2,764,842		0.81		2,973,135		0.80		(208,293		)	(7.0	)
Total Non-accrual Loans	$	6,288,468	1.84	%	$	7,033,752	2.09	%	$	(745,284	)	(10.6	)%

^{(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 category for the three and six months ended June 30, 2016 and 2015:



	Three Months Ended June 30, 2016
	Residential Real Estate		Consumer			Commercial Business		Commercial Real Estate			Total
Beginning Balance	$	1,399,703	$	1,042,530		$	803,146	$	5,027,925		$	8,273,304
Provision for Loan Losses	52,888		104,830			62,721		(220,439		)	—
Charge-Offs	—		(59,452		)	—		(131,418		)	(190,870		)
Recoveries	10,045		28,068			—		274,667			312,780
Ending Balance	$	1,462,636	$	1,115,976		$	865,867	$	4,950,735		$	8,395,214



	Six Months Ended June 30, 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 for Loan Losses	129,408		153,797			91,919		(375,124		)	—
Charge-Offs	—		(153,881		)	—		(202,618		)	(356,499		)
Recoveries	10,045		52,907			—		413,628			476,580
Ending Balance	$	1,462,636	$	1,115,976		$	865,867	$	4,950,735		$	8,395,214



	Three Months Ended June 30, 2015
	Residential Real Estate			Consumer			Commercial Business		Commercial Real Estate			Total
Beginning Balance	$	1,354,435		$	1,141,797		$	496,803	$	4,925,882		$	7,918,917
Provision for Loan Losses	(44,208		)	125,774			246,264		(327,830		)	—
Charge-Offs	(916		)	(273,007		)	—		(4,023		)	(277,946		)
Recoveries	767			13,420			4,000		136,424			154,611
Ending Balance	$	1,310,078		$	1,007,984		$	747,067	$	4,730,453		$	7,795,582



	Six Months Ended June 30, 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 for Loan Losses	(36,838		)	456,705			591,341			(911,208		)	100,000
Charge-Offs	(45,916		)	(393,625		)	(10,947		)	(446,472		)	(896,960		)
Recoveries	767			58,188			7,320			168,771			235,046
Ending Balance	$	1,310,078		$	1,007,984		$	747,067		$	4,730,453		$	7,795,582

8. 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 at the dates indicated:



	Allowance For Loan Losses
June 30, 2016	Individually Evaluated For Impairment		Collectively Evaluated For Impairment		Total
Residential Real Estate	$	—	$	1,462,636	$	1,462,636
Consumer	4,900		1,111,076		1,115,976
Commercial Business	—		865,867		865,867
Commercial Real Estate	29,300		4,921,435		4,950,735
Total	$	34,200	$	8,361,014	$	8,395,214



	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

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



	Loans Receivable
June 30, 2016	Individually Evaluated For Impairment		Collectively Evaluated For Impairment		Total
Residential Real Estate	$	2,638,041	$	74,590,999	$	77,229,040
Consumer	191,568		49,884,797		50,076,365
Commercial Business	147,001		14,086,683		14,233,684
Commercial Real Estate	6,628,380		198,129,250		204,757,630
Total	$	9,604,990	$	336,691,729	$	346,296,719



	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

8. 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 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 $10.3 million for the three months ended June 30, 2016 compared to $15.2 million for the three months ended June 30, 2015.

The following tables present information related to impaired loans by loan category at June 30, 2016 and December 31, 2015 and for the three and six months ended June 30, 2016 and 2015.



	June 30, 2016						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	$	2,638,041	$	2,734,541	$	—	$	2,922,105	$	3,033,735	$	—
Consumer	129,612		137,911		—		120,889		129,188		—
Commercial Business	147,001		997,001		—		162,201		362,201		—
Commercial Real Estate	6,201,852		8,162,393		—		8,620,301		10,969,642		—
With An Allowance Recorded:
Residential Real Estate	—		—		—		—		—		—
Consumer	61,956		61,956		4,900		251,493		256,923		32,300
Commercial Business	—		—		—		—		—		—
Commercial Real Estate	426,528		439,542		29,300		570,339		577,139		49,300
Total
Residential Real Estate	2,638,041		2,734,541		—		2,922,105		3,033,735		—
Consumer	191,568		199,867		4,900		372,382		386,111		32,300
Commercial Business	147,001		997,001		—		162,201		362,201		—
Commercial Real Estate	6,628,380		8,601,935		29,300		9,190,640		11,546,781		49,300
Total	$	9,604,990	$	12,533,344	$	34,200	$	12,647,328	$	15,328,828	$	81,600

8. Loans Receivable, Net, Continued



	Three Months Ended June 30,
	2016				2015
Impaired Loans	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With No Related Allowance Recorded:
Residential Real Estate	$	2,662,040	$	—	$	2,694,645	$	486
Consumer	289,655		—		181,718		—
Commercial Business	149,801		—		192,401		—
Commercial Real Estate	6,675,462		31,353		10,485,665		76,051
With An Allowance Recorded:
Residential Real Estate	—		—		273,476		—
Consumer	62,323		1,144		68,192		1,344
Commercial Business	—		—		—		—
Commercial Real Estate	434,101		—		1,269,379		15,807
Total
Residential Real Estate	2,662,040		—		2,968,121		486
Consumer	351,978		1,144		249,910		1,344
Commercial Business	149,801		—		192,401		—
Commercial Real Estate	7,109,563		31,353		11,755,044		91,858
Total	$	10,273,382	$	32,497	$	15,165,476	$	93,688



	Six Months Ended June 30,
	2016				2015
Impaired Loans	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With No Related Allowance Recorded:
Residential Real Estate	$	2,790,857	$	447	$	2,717,895	$	4,397
Consumer	296,075		—		182,812		104
Commercial Business	154,316		—		211,100		—
Commercial Real Estate	8,632,348		93,284		10,926,601		153,665
With An Allowance Recorded:
Residential Real Estate	—		—		275,966		—
Consumer	62,693		1,555		69,076		2,712
Commercial Business	—		—		—		—
Commercial Real Estate	437,943		—		1,275,070		35,110
Total
Residential Real Estate	2,790,857		447		2,993,861		4,397
Consumer	358,768		1,555		251,888		2,816
Commercial Business	154,316		—		211,100		—
Commercial Real Estate	9,070,291		93,284		12,201,671		188,775
Total	$	12,374,232	$	95,286	$	15,658,520	$	195,988

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 June 30, 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:



	Six Months Ended June 30,
	2016					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
Commercial Real Estate	—	$	—	$	—	3	$	840,292	$	840,292
Total	—	$	—	$	—	3	$	840,292	$	840,292

The Bank did not modify any loans that were considered to be TDRs during the six months ended June 30, 2016.

During the six months ended June 30, 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 June 30, 2016, six loans totaling $770,000 that had previously been restructured as TDRs were in default, including two which had been restructured within the last 12 months. Three of the loans, with a balance of $641,000, defaulted during the six month period ended June 30, 2016. In comparison, at June 30, 2015, three loans totaling $468,000 that had previously been restructured as TDRs were in default, and one of the loans, with a balance of $62,000 defaulted during the six month 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 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 modified 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.